Saturday, February 6, 2010

February 6 2010: There but for the grace of God

Harris & Ewing 92 years later 1918
Washington, D.C., Pennsylvania Avenue

Ilargi: Technically, it can be possible to have both the number of employed and and the number of unemployed go up at the same moment. All you need for that is a larger number of -potential- workers. I get this. But what is not possible is to have the number of employed and the unemployment rate go up. Still, that is what we see in the US numbers provided by the BLS. It would probably be best to just stop talking about, but that would feel weird since everyone else does discuss it. But that doesn't make the principal notion any less absurd.

It feels a bit like the real world remains stuck in Newtonian physics, while unemployment data have moved on into quantum mechanics. Where a particle can at least seem to go up and down simultaneously. For something as seriously damaging to ordinary people's lives as losing their jobs, and who knows what else as a consequence, it's very simply a huge disgrace that the US government presents numbers they way it does. And I don't care about explanations about two different surveys. The BLS, and the Labor Department as a whole, have plenty personnel to get things right. Moreover, they’ve had a sea of time to do so as well.

Instead, it's now become a national writer's sport to read the monthly Labor Statistics report and pick out the absurdities and differences. In 2010, any survey based to such a degree on estimates as the Establishment Survey is, needs to be abandoned. And it’s not just that estimates make up a large part of it, the Bureau extrapolates its findings after having read half of all data, maybe, only to revise them a number of times afterward, when everyone's focused on newer data. At times, you get to think most of their active time is spent on tweaking the birth/death model, and even more on finding the right wording for the press releases.

But really, US government, losing your job, with no jobs on the horizon, is not a joke. Nor is losing your home because of it. Playing games with the statistics these unfortunate people far too easily become mere numbers in to begin with, is like flipping them, their families and their friends, as well as the entire nation, the proverbial giant bird. If that's all the respect for your own people you can muster, perhaps it's time to start practising looking over your shoulders.

On another hand (pick one you like), I need to get up at an ungodly hour tomorrow (yes, those exist on Sundays), and travel all day from the northern part of Holland to the southern part of France by train. So I thought I’d leave you with two less "normal" bits, that leave me some time to pack.

First off, I've been having an email discussion of sorts with some people on the topic of who's worse off, Europe or North America. Always interesting of course when done with a bag of smart cookies, and especially when you have some in Europe and others on the other side of the ocean. And we even add Africa. I had already let my thoughts wonder on the topic for the past week or so, so I come somewhat prepared, and am not surprised that more people start wondering about this. It's like when you get a new car and all of a sudden see that particular model everywhere you go.

My take starts off something like this: What I see reported on the problems in Europe, lately especially Greece and to a lesser degree Portugal, comes to a large extent from American and British media. And it's been clear for a while now that the English will go out of their way to make anything related to the Euro look bad and ridiculous. Their writings are certainly entertaining, but they have such a degree of -increasing- bias that you can't realistically file them under news. The Telegraph's Ambrose Evans-Pritchard is but the leader of the pack in what might best be called continent bashing. Once the right wing takes over in Britain and the real state of the economy shines through, their tunes will change, but for now they're selling papers and TV shows making "the other" look bad and thereby focusing attention away from their own quagmires.

To a lesser extent, the same happens in America. And that's where it gets peculiar, in my view. See, the US and the EU are both unions. Different organizational forms, different number of member states, sure, but one thing is the same: members that share a common currency.

So how do you judge the severity of the economic mayhem? Let’s try this idea: I would say the economic problems in Greece are for Europe what similar issues in, say, Kentucky, would be for the US. Which means: no fun, big drag, lots of talking, but in the end manageable and certainly nothing that would ever threaten the union. Yes, it may get worse if all PIIGS countries fall in a row, and fast, but so far, that’s a hypothesis. Moreover, the US, too, has many Kentuckies to offer.

On a side note, one thing the PIIGS have in common is that until recently, just a few decades ago, the majority among their populations was dirt poor. They don’t have to fall all that far to get back to what they know. Something that undoubtedly is true for Kentucky as well, by the way. On another note: as you may know, I've said for a while now that the Greece issue would be used by Berlin and Brussels to bring down the Euro, in order to make European products more affordable globally. The US dollar has simply dived too deep. For all I know, Merkel, Sarkozy and Trichet may be actively feeding international media horror stories about Greece and Portugal. But that doesn't mean they'll let them fall.

Now, if you look at the US, you see that the 4 biggest states, California, Texas, New York and Florida, may well have the biggest problems too. Admittedly, Texas is an odd one out, but it did have to borrow over a cool billion dollars just to pay its unemployment benefits last year. The other three are basket cases which you would have read much more about if they were in Europe and you would read the British press. So, the picture then is that in Europe, the worst problems remain in the periphery for now, whereas in the US, they're in the center (in a manner of speaking). It's as if Europe had its worst troubles in Germany, France and Italy.

And now I'm going to halt, in order to give you the chance to comment on this. I hope and expect to see very different ideas emerge form both sides of the Atlantic, and I'm always highly interested in hearing people talk about their specific locations. The question I pose is simple and concise: What do YOU think? Is Europe worse off than America? Now, in a year, in 5 years? Please oblige, I'm having a nice, challenging difference of opinion on this with Stoneleigh, something that's exceedingly rare; for some reason, we agree on about everything when it comes to economics, even though we come from totally different views. Maybe that's because we're right so much of the time? Fun aside, we may want to ponder how much our views our warped by the media we read, and where they're lovated.

Then I have a third bit as well. This is a comment sent as a private email by a highly appreciated frequent commenter at The Automatic Earth, a Mr. L. Gallinazo. I thought it'd be worth sharing, and so did he. Just something for you to chew on.

The last thing that a loan shark wants is that you pay off your loan. You just have to be able and willing to keep paying the interest on the loan. Baseball bats are often used as incentives. The sovereign debt crises are caused by the population at large expecting to get services for their taxes and the elites and their politicians expecting to be able to steal most of those taxes. Of course the elites are already stealing huge amounts in the "private sector", but as the Duchess of Windsor once said, "One can never be too rich or too thin." So they reach a compromise which is to go deeper into debt. The elites get to steal and the citizens get some services.

But now the debts, even at historically low rates of interest, are becoming unpayable because they have become too large and because tax receipts are crumbling as the economies crumble. Well, the elites have a solution - they call it austerity, meaning the populace gets nothing for their taxes and the elites get it all. Of course Usacos and Canadians are too dumbed down to understand this, but Europeans, with the probable exception of the UK, are more sophisticated and have not let the elites totally take over all mass modes of influence. So we are heading to a Mexican stand-off. (Which, for you Europeans and Africans, is when two gamblers are holding their revolvers, hammers cocked and finger on the trigger, into each others bellies under the card table.)

Of course there will be a bail out, the only question is whether it will be by the EU itself or the IMF. Anything to kick the can down the road for another couple of months. As Ilargi surmised some time ago, the only reason that this has not been announced is that the EU is using the tempest to lower the forex rate against the dollar and yen. And the yuan also as it is pegged to the dollar once again. If a country as significant as Greece (our cradle of western civilization) is allowed to default on its debt, it marks the end game of the international banking system. As a recent column by Mish (whose policies toward labor I despise) pointed out, when the 14 year olds of the world start asking their countries, "Why should I pay off your friggin' credit card," it's the end of the line. So the banksters' private debt has been transferred to sovereign, and unless Jesus returns, there is no one left to hand it off to.

My big fat Greek conspiracy theory
by Charles Wyplosz

The Greek debt crisis prompts an interesting question: why Greece, and why now? True, successive Greek governments have studiously ignored the principle of fiscal discipline, and even doctored data to conceal their mischief. Suspicion, therefore, is fully warranted, but Greek fiscal laxity is not new. Furthermore, even accounting for accounting slippages, the Greek budget deficit for 2009-2010 is likely to be lower, possibly much lower, than those in the UK and US, according to Organisation for Economic Co-operation and Development projections. Nor is Greek public debt unusual, by current standards. It is about half that of Japan and lower than Italy’s. So why Greece and why now? Here is my conspiracy theory.

Greek debt offers a nice return, exceeding by some 3 percentage points the yield offered by German debt. This difference is aptly called a risk premium, reflecting the market’s assessment of the probability that the Greek authorities will default and of the size of the default. The Greek government has no intention whatsoever of defaulting and no reason to do so, since its situation is no worse than in many other countries. Yet it may be forced to do so if markets refuse to provide the financing. The first step in my theory is the non-controversial conclusion that the only reason why the Greek government might default is market pressure.

What is troubling is the insistence among market participants that eurozone governments will rescue their Greek confrère. It echoes what bankers said after the interbank market seized up in August 2007: the crisis will only end when banks are bailed out. They were right, no matter how immoral the outcome eventually was. We now hear bond markets saying they enjoy cashing in the risk premium but that governments should make sure that the risk never occurs. Taxpayers, once again, are invited to transform a highly lucrative risky business into a safe one.

Why should governments fall into that trap? One popular story is that, while Greece is relatively small – so a default there would not create much of a problem – the real risk is contagion. Markets never miss a chance to warn that Greece would only be the first shoe to drop; Portugal, Spain and Italy would soon follow. This is why, understandably, these governments are ready to bail out Greece. But why should Germany and France join in? Here comes the second step of my conspiracy theory. Rumour has it that some large German and French banks have a significant exposure to Greek debt. Rumour also has it that the same banks have yet to recognise much of their losses on US subprime mortgages. Now things start hanging together. France and Germany can allow Greece to default, but not some big, systemically important European banks.

However, the moral hazard of bailing out Greece is no smaller than that of bailing out Goldman Sachs, not only because it makes a mockery of fiscal responsibility, but because it amounts to bailing out big European banks that have benefited for far too long from government forbearance. The stakes, again, are huge. The US Congress recently grilled former Treasury Secretary Henry Paulson and his successor Tim Geithner, as it tries to determine whether they were too generous to banks with taxpayers’ money when AIG collapsed. Their defence is that they had precious little time to think things through as they faced the abyss. Fair enough. Their European counterparts have had plenty of time to ponder the very same issue. If they bail Greece out, one day they will have to be grilled too, and they will have no good answer.

The writer is professor of economics at the Graduate Institute, Geneva

Portugal debt vote likely to rattle markets
Fears of another crisis spiral for the world economy deepened Friday after the Portuguese parliament defeated a government austerity plan, triggering renewed concern that the financial crisis in that country and in Greece could spread through the euro zone and spill across its borders. Spooked investors worldwide were fleeing risky assets like stocks. And from Shanghai to Sao Paulo, people were awakening to the reality that what is happening in these European minnow states has vast implications for the fate of the fragile global economic recovery. Stocks fell in Asia and Europe as governments in Portugal and Greece pushed against fierce political resistance at home to cutbacks aimed at getting their deficits under control.

Markets fear Greece may default or require a costly bailout from already strapped European governments, and those concerns are spreading to other financially troubled governments such as Portugal and Spain.
Portugal's position looked even weaker Friday after opposition parties defeated a government plan for austerity measures that the country needed to pass to soothe markets and reduce the soaring cost of insuring its debt, a measure of investor fear. “Portugal is next in line with ... what is now a very timid attempt” to bring its deficit down, said Marco Annunziata, chief economist at UniCredit.

Top EU officials, the economy commissioner Joaqin Almunia and European Central Bank head Jean-Claude Trichet, tried Wednesday and Thursday to reassure markets of the strength of the euro zone and Greece's determination to bring down spending. But markets haven't listened. The reason is a growing reassessment of government finances worldwide, and knowledge that a Greek default would tear new holes in banks' already battered finances if they hold Greek bonds, most of which were sold to west European investors outside Greece. The Athens government has outstanding securities of €290-billion ($394.5-billion U.S.), more than twice those of the U.S. investment bank Lehman Brothers, whose bankruptcy brought the world financial system to its knees.

Those fears have pounded stock markets in recent days, with German, French and British stocks closing down 1.8, 3.4, and 1.5 per cent down Friday. What would have been a bounce on Wall Street from positive jobs figures remained flat. On Friday, the Portuguese opposition passed its own bill, which the government says will punch a €400-million hole in its budget over the next four years. The government says it is “irresponsible” and that it will try to annul it, risking new political friction. “The risk of contagion now is very, very serious. By the end of next week, if things haven't calmed down or if they have actually intensified further, then it will be a matter of a short while before some steps are being taken,” Simon Tilford, chief economist at the Centre for European Reform, said.

European officials have said there is no need for a bailout for Greece and that it will be able to borrow the €54-billion it needs to plug its budget gap this year. They say Greece must climb out of the crisis by itself, warning against a financial rescue that would reward Athens' decades-old failure to make its sluggish economy more competitive. But Mr. Tilford said those worries are now swamped by worries of contagion within the euro zone. “We could get into the position where we have a serious crisis in Spain which might not be containable because Spain's a bigger economy,” he said. “It's possible for the euro zone to cope with a bailout in Portugal or Greece but Spain would present a problem of a whole different order.”

Governments around the world are going to issue huge amounts of debt this year, making it hard even for countries with good prospects to attract investors who can pick and choose bonds to buy. That environment will also hike the cost of borrowing for other debt-laden EU members that don't use the euro – such as Britain and Hungary, and making their debt troubles harder to climb out of. However, Greece and Portugal “are right at the bottom of the developed country pile,” says Mr. Tilford. Together, Greece and Portugal make up less than 5 per cent of economic output in the 16-nation euro zone and would be far less expensive to bail out than Spain, where the economy is a much larger 11.7 per cent of euro zone GDP.

Spain has tried to shrug off a comparison with Greece and Portugal – but markets were dubious following comments by Mr. Almunia who said Wednesday that high wages and low productivity in all three make them less competitive against other European nations. Changing that would mean wide economic reforms – such as making labour conditions more flexible and opening up markets for goods and services. Greece is promising to do this but markets doubt that it can in time to generate growth. In the meantime, hefty public spending cuts could wreck any chance of economic recovery. “The reason why investors are so scared is that they find it difficult to see how these economies are going to return to reasonably robust growth or any growth,” said Mr. Tilford, adding that a devaluation usually accompanies such cuts.

Euro countries no longer have their own currency to devalue, which boosts exports and makes them more attractive manufacturing destinations. So instead they have to force wages down by other means, in part by cutting them for public sector workers. They also have to work toward getting back below the strict EU limits on debt and deficits that the financial crisis has forced them to break, as they spent billions to rescue banks and boost economic growth with extra spending and welfare payments.

Seven States of Energy Debt
by Gregor

Out here on Cottage Grove it matters. The galloping
Wind balks at its shadow. The carriages
Are drawn forward under a sky of fumed oak.
This is America calling:
The mirroring of state to state,
Of voice to voice on the wires,
The force of colloquial greetings like golden
Pollen sinking on the afternoon breeze.
In service stairs the sweet corruption thrives;
The page of dusk turns like a creaking revolving stage in Warren, Ohio.
–from Pyrography, by John Ashbery 1987

The inevitable coming of the sovereign debt panic finally engulfed Europe this week as the derisively (or perhaps affectionately) named PIGS spilled their slop on the continent. But Portugal, Ireland, Greece, and Spain are hardly worthy of so much attention. In truth, they are little more than the currently favored proxies among the leveraged speculator community (cough) for the larger problem of all sovereign debt. Indeed, the credit default swaps on these smaller European satellite states were not alone this week in making large moves higher. UK sovereign risk rose strongly, and so did US sovereign risk. With a downgrade warning from Moody’s to boot.

Notable among three of the PIGS are their relatively small populations, and small contributions to either world or European GDP. While Spain has a population over 45 million, Portugal and Greece have populations roughly equal to a US state, such as Ohio–at around 10 million. And Ireland? The Emerald Isle has a population similar to Kentucky, at around 4 million. While the PIGS are without question a problem for Europe, whatever problems they present for Brussels are easily matched by the looming headache for Washington that’s coming from large, US states such as California, Florida,  Illinois, Ohio, and Michigan.

I’ve identified seven large US states by four criteria that are sure to cause trouble for Washington’s political class at least for the next 3 years, through the 2012 elections. These are states with big populations, very high rates of unemployment, and which have already had to borrow big to pay unemployment claims. In addition, as a kind of kicker, I’ve thrown in a fourth criteria to identify those states that are large net importers of energy. Because the step change to higher energy prices played, and continues to play, such a large role in the developed world’s financial crisis it’s instructive to identify those US states that will struggle for years against the rising tide of higher energy costs.

First, let’s consider a large state that didn’t make my list. Texas didn’t make the list because its unemployment rate has not risen high enough to reach my cutoff: a state must register broad, U-6 underemployment above 15%, and currently Texas has only reached 13.7% on that measure. Also, Texas’s total energy production nearly perfectly matches its total energy consumption. Of course, Texas has indeed had to borrow more than billion dollars so far to pay unemployment claims, thus technically bankrupting its unemployment trust fund. That meets my criteria. But, it’s instructive to note Texas’ energy production capacity in this regard, as that produces dollars. And one of the big reasons US states are under so much pressure, like their European counterparts, is that they cannot print currency. Being able to produce oil and gas is the next best thing to printing currency. So, Texas doesn’t make my list.

The seven states to make my list are California, Florida, Illinois, Ohio, Michigan, North Carolina, and New Jersey. Each has a population above 8 million people. Each has had to borrow more than a billion dollars, so far, to pay claims out of their now bankrupt unemployment insurance fund. Also, each state currently registers broad, underemployment above 15% as indicated by the U-6 measure for the States. And finally, each state is a large net importer of either oil, natural gas, electricity, or all three of these energy sources.

Let’s consider the overall predicament for residents of states like California, with its epic housing bust, Ohio and Michigan at the end of the automobile era, or North Carolina and New Jersey in light of the financial sector’s demise. Not only have states such as these permanently lost key sectors that once drove their economies, but, residents in these states are over-exposed to structurally higher energy costs. The prospect for wage growth in the United States is now dim. We are already recording year over year wage decreases in real terms. The culprit? Energy and food costs. My seven states are squeezed hard at both ends: no wage growth at the top, and no relief through cheaper energy costs at the bottom.

US wage growth in real terms has been stagnant for years. And the most recent decade of higher oil prices has been particularly punishing to states over-leveraged to the automobile like California, Florida, and North Carolina where highway and road systems dwarf public transport. While it’s true that states like Ohio and California produce some oil and gas, the size of their populations overwhelm any production with outsized demand for electricity and gasoline. In contrast, and as I mentioned, it will be revealing to see how this depression ultimately plays out in such states as Colorado, New Mexico, Wyoming, Oklahoma, North Dakota, and Louisiana which are all net exporters of energy.

Were it not for peak oil, gasoline prices would have fallen to a dollar during this depression as oil returned to the lows of the late 1990’s–if not even lower. Petrol at 90 cents a gallon would begin to chip away at the  painfully decreasing spread between punk wages and energy input costs, currently endured by underemployed Americans. Natural gas and coal prices are also much higher than they were at the lows of the 1990’s. And I need not remind: while energy prices are very 2010, the American workforce has lost so many jobs that our labor force has indeed returned the 1990’s.

21st century energy prices overlaid on a 20th century economy? That’s no fun at all. The mainstream economics profession, perhaps unsurprisingly, still does not pay enough attention to the interweaving of long-term stagnant wage growth, higher energy inputs, and the resulting credit creation that OECD countries took as the solution to resolve that squeeze. Given that one of out of eight Americans takes food stamps, a visit to states like Illinois, Florida, Ohio, and North Carolina would reveal that the difference between 15 dollar oil and 75  dollar oil, and 2 dollar natural gas and 5 dollar natural gas is large.

My seven states of energy debt represent a full 35% of the total US population. As with other US states, they face looming policy clashes between protected state and city workers on one hand, and the growing ranks of the private economy’s underemployed on the other. The recent circus at the LA City Council meeting was a nice foreshadowing that the days of unlimited borrowing by governments–against future growth based on cheap energy–is coming to an end. Washington can print up dollars and fund these states for years, if it so chooses. But just as with the 70 million people in Portugal, Italy, Greece and Spain, the 108 million people in these seven large states are probably facing even higher levels of unemployment as austerity measures finally slam into their cashless coffers, and reduce their ability to borrow.

Niall Ferguson: The Next Greece is The US
Niall Ferguson predicts a French-German bailout of Greece and financial collapse for other European countries. U.S. might seem like a safe haven now, but with rising nominal yields at a time of low inflation and having a very large debt, there is more trouble coming our way.

Greece ‘Dress Rehearsal’ for U.S., Deutsche Bank Says
The cost of insuring against U.S. and U.K. debt defaults may rise in the same way as it has for so- called European peripheral nations including Greece and Portugal, Deutsche Bank AG said. “The problems currently faced by peripheral Europe could be a dress rehearsal for what the U.S. and U.K. may face further down the road,” Jim Reid, a strategist at Deutsche Bank in London, wrote in a research note today.

Credit-default swaps on the debt of Greece, Spain and Portugal rose to record highs today amid concern that European governments will struggle to fund their deficits. Contracts on Greece climbed 19.5 basis points to 446.5 before dropping to 422.5, CMA DataVision prices show. Spain’s increased 13 basis points to 183 before falling to 168, and Portugal’s rose 9.5 basis points to 239 before slipping to 223.5. The U.S. and U.K. “have similar issues to those facing peripheral Europe but have the luxury of a flexible currency up their sleeves as a first defense if the market wants to attack them,” Reid said. “Such a defense means that the market, for now, thinks there are easier targets.”

President Barack Obama has increased U.S. marketable debt to a record $7.27 trillion, borrowing money to fund stimulus measures and bail out banks. Obama said last week he’s planning a three-year freeze on many domestic programs to save about $250 billion over 10 years as he seeks to rein in the budget deficit. The U.K.’s budget deficit hit 15.7 billion pounds ($25.3 billion) two months ago, the most for any December since records began, the Office for National Statistics said Jan. 21.

Moody’s Investors Service said in December its top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries.” Yields on benchmark Treasury 10-year notes have fallen to 3.60 percent from 3.83 at the end of last year amid increased demand for the safest assets. The yield on 10-year U.K. gilt is at 3.88 percent, from 4.01 percent at the start of the year. Greece’s 10-year government bonds yield 6.65 percent, from 5.77 percent at the start of 2010. “It seems that the market wants to accelerate an issue that the authorities were hoping that time would heal,” Reid wrote.

There but for the grace of God goes Britain
It was one of those moments that can only happen in a place like Davos. There I was last week, having a coffee and minding my own business, when from a nearby table I heard a desperate voice. I assumed it belonged to a beleaguered bank executive, or a stricken hedge fund manager. “We are doing everything we can,” he said, “but the markets don’t care.” I looked up and realised the voice belonged to the Greek prime minister. His arms crossed defensively, George Papandreou was now listening as one of the world’s top economists told him he thought his best bet was to seek an emergency bail-out from the International Monetary Fund.
Greece is indeed buried deep in the financial mire. At first gradually, and then with alarming speed, the country has lost credibility with investors to such a degree that it is now having to offer an interest rate of 7 per cent to persuade them to buy its debt, compared with 4.5 per cent a few months ago. Some, including Papandreou, characterise this as a speculative move aimed at splitting up the euro; others see it as a statement of economic disgust at a country whose public finances, always bad, have now dipped into no-hope territory.

There is some truth to both theories, but, more important, at least for both Gordon Brown and David Cameron, there is a broader lesson: the only thing that matters more than knowing what to do about the deficit is persuading the markets that you know what you’re doing about the deficit. Because there but for the grace of God goes Britain. There is no knowing how and when investors will lose their faith in a government, but when it’s gone, there isn’t much you can do to get it back.

Greece, in other words, is the fiscal Petri dish that reveals in gory detail what could happen in the UK if this Government – or the next – fails to maintain the confidence of investors. It is not merely that those interest rates are already inflicting an awful toll on borrowers in Athens and beyond. It is that they are sending the national government towards a full-blown debt spiral, in which the cost of its annual interest bill becomes so unmanageable that it can hardly afford to supply its citizens with basic services.

I have pointed out before that countries, like individuals, occasionally reach the point where they have borrowed so much that their debt simply becomes impossible to whittle away. Greece, the markets seem to think, has now passed that point. And an IMF bail-out would only layer new debt on top of the old. In the end, the only solution is to find some way to slash spending and raise taxes without a) sparking riots or revolution and b) critically damaging the economy.

Should markets pass the same verdict on Britain as on Greece, the results would be almost identical. In its Green Budget yesterday, the Institute for Fiscal Studies, with the help of Barclays Bank, attempted to map out what would happen if the Government failed to achieve the necessary cuts in its budget in the coming years. The verdict: a “very large, and fast-acting” impact on interest rates, pushing them even higher than Greek rates today. Still, we are not there yet. And there are four reasons to be cautiously optimistic about Britain’s chances.
  • The first is that much of the population is already reconciled to some form of austerity. Both main parties want to cut the deficit sharply, and although the Tories talk a little tougher, in economic terms there is actually not that much clear water between their proposals and those already laid out by the Treasury.
  • Second, the UK started the crisis with national debt below 40 per cent of gross domestic product, compared with Greece, whose national debt was already close to the 100 per cent of GDP – near the tipping point for a debt spiral.
  • Third, it is a little-appreciated quirk of the British market that, rather like a homeowner on a long fixed-rate mortgage, the Government has to roll over its debt far less regularly than other countries, so is significantly insulated from a Greek-style crisis.
  • And fourth, unlike Greece, Britain has its own currency, which affords it more leeway to adjust.

But as Greece has shown, a credibility collapse can take place even when you least expect it. Despite George Osborne’s pledge earlier this week to safeguard Britain’s credit rating, some still reckon there is an 80 per cent chance of the UK losing its coveted triple-A status – something that could trigger an investor panic. So both main political parties should, as a matter of course, prepare detailed emergency plans saying what overnight cuts they would impose in the event of a similar crisis.

However, avoiding such a credibility collapse will not spare Britain from having to drag itself through an economic transformation with the same end: to reduce debt and to live within its means. For some countries, the financial crisis was painful because people suddenly started spending less. For Britain, it uncovered the fact that the nation had duped itself into believing it was more prosperous than it really was. We mistook a debt bubble and the proceeds of financial engineering for sustained and lasting growth. Time to get real.

UK Chancellor Darling Welcomes Bank of England Move on QE
Chancellor Alistair Darling welcomed the Bank of England's decision this week to halt its 200 billion pound quantitative easing (QE) programme. "As far as the BoE's decision today (Thursday), what it voted to do was to pause in relation to QE and but it will keep the situation under review. I think that's very sensible," Darling said in an interview with a group of correspondents from G7 countries.

"That's a decision for the MPC (Monetary Policy Committee) which is rightly independent of government, but I think their decision was right," he added in a transcript of part of the interview released by the Treasury. When asked about U.S. bond fund Pimco saying high government debt meant gilts were "resting on a bed of nitroglycerine," Darling said: "In the markets people say things for different reasons, if you look at the commentators as a whole they rather take a more sensible view." Darling also said he saw no prospect of Britain, which has a record budget deficit, facing similar troubles to Greece. "Our economy is much, much bigger, look at what informed opinion says about our economy."

"It's a large economy, it's got a lot of capacity in it. We have a very clear plan to halve our deficit over a four-year period." "I've said that if growth turns out to be more robust than I'm forecasting then maybe we can do more, our structural deficit comes down by two-thirds during that period. "So we are taking action. I've made it very clear that to do so prematurely risks derailing the recovery, once the recovery is established we will take the necessary action."

Finance ministers of the Group of Seven leading industrialised nations are meeting in Canada on February 5-6. Italian newspaper Il Sole 24 Ore, one of the newspapers which interviewed Darling, quoted him as saying that breaking up banks and going it alone was not the way to fight the crisis, preferring global coordination. U.S. President Barack Obama sent shockwaves through markets with proposals to force commercial banks to cut ties with hedge funds and private equity funds and stop proprietary trading.

When asked about the so-called "Volcker rule" to limit risky trading, Darling said: "There has been a lot of talk about the division of banking activities and I confirm that I do not think this is the right way," according to Il Sole. "The U.S. banking reality is very different to the European or British one ... The biggest risk last year was the system, or the contagious effect between institutions. The danger is not the size of institutions but the inter-connection."

Darling said propriety trading should not be impeded but "it should be sustained by adequate capital." He said no one could yet say that the global crisis was over. "There is no need to be tempted to give national responses to a global crisis ... I really would not want for the European and U.S. ways on banking rules to begin to diverge," he said.

Fears of 'Lehman-style' tsunami as crisis hits Spain and Portugal
by Ambrose Evans-Pritchard

The Greek debt crisis has spread to Spain and Portugal in a dangerous escalation as global markets test whether Europe is willing to shore up monetary union with muscle rather than mere words. Julian Callow from Barclays Capital said the EU may to need to invoke emergency treaty powers under Article 122 to halt the contagion, issuing an EU guarantee for Greek debt. “If not contained, this could result in a `Lehman-style’ tsunami spreading across much of the EU.” Credit default swaps (CDS) measuring bankruptcy risk on Portuguese debt surged 28 basis points on Thursday to a record 222 on reports that Jose Socrates was about to resign as prime minister after failing to secure enough votes in parliament to carry out austerity measures.
Parliament minister Jorge Lacao said the political dispute has raised fears that the country is no longer governable. “What is at stake is the credibility of the Portuguese state,” he said. Portugal has been in political crisis since the Maoist-Trotskyist Bloco won 10pc of the vote last year. This is rapidly turning into a market crisis as well as investors digest a revised budget deficit of 9.3pc of GDP for 2009, much higher than thought. A €500m debt auction failed on Wednesday. The yield spread on 10-year Portuguese bonds has risen to 155 basis points over German bunds. Daniel Gross from the Centre for European Policy Studies said Portgual and Greece need to cut consumption by 10pc to clean house, but such draconian measures risk street protests. “This is what is making the markets so nervous,” he said.

In Spain, default insurance surged 16 basis points after Nobel economist Paul Krugman said that “the biggest trouble spot isn’t Greece, it’s Spain”. He blamed EMU’s one-size-fits-all monetary system, which has left the country with no defence against an adverse shock. The Madrid’s IBEX index fell 6pc. Finance minister Elena Salgado said Professor Krugman did not “understand” the eurozone, but reserved her full wrath for the EU economics commissioner, Joaquin Almunia, who helped trigger the panic flight from Iberian debt by blurting out that Spain and Portugal were in much the same mess as Greece.

Mrs Salgado called the comparison simplistic and imprudent. “In Spain we have time for measures to overcome the crisis,” she said. It is precisely this assumption that is now in doubt. The budget deficit exploded to 11.4pc last year, yet the economy is still contracting. Jacques Cailloux, Europe economist at RBS, said markets want the EU to spell out exactly how it is going to shore up Club Med states. “They are working on a different time-horizon from the EU. They don’t think words are enough: they want action now. They are basically testing the solidarity of monetary union. That is why contagion risk is growing,” he said. “In my view they underestimate the political cohesion of the EMU Project. What the Commission did this week in calling for surveillance of Greece has never been done before,” he said.

Mr Callow of Barclays said EU leaders will come to the rescue in the end, but Germany has yet to blink in this game of “brinkmanship”. The core issue is that EMU’s credit bubble has left southern Europe with huge foreign liabilities: Spain at 91pc of GDP (€950bn); Portugal 108pc (€177bn). This compares with 87pc for Greece (€208bn). By this gauge, Iberian imbalances are worse than those of Greece, and the sums are far greater. The danger is that foreign creditors will cut off funding, setting off an internal EMU version of the Asian financial crisis in 1998.

Jean-Claude Trichet, head of the European Central Bank, gave no hint yesterday that Frankfurt will bend to help these countries, either through loans or a more subtle form of bail-out through looser monetary policy or lax rules on collateral. The ultra-hawkish ECB has instead let the M3 money supply contract over recent months. Mr Trichet said euro members drew down their benefits in advance -- "ex ante" -- when they joined EMU and enjoyed "very easy financing" for their current account deficits. They cannot expect "ex post" help if they get into trouble later. These are the rules of the club.

The Margin-Call Market Rout
Unwinding of carry trades drags down all risk assets, even gold.

The dog that didn't bark gave the clearest explanation of what drove down risk assets across the globe Thursday. Of course, the crisis of European sovereign borrowers escalated, sending the cost of insuring the debt of the governments and banks in Greece, Spain and Portugal soaring. And news that in the U.S. new claims for unemployment insurance jumped unexpectedly in the latest week served to put markets further on edge ahead of the anxiously awaited employment report for January due out Friday.

So, the Dow Jones Industrial Average managed to hold the 10,000 mark by the skin of its teeth as it lost 268 points, while the broad, large-cap market measured by the Standard & Poor's 500 plunged over 3%, a loss nearly equaled by the Nasdaq Composite. And the U.S. stock-market's capitalization was about $400 billion lighter by the end of the day, as measured by the Wilshire 5000. Credit markets also were slammed as the cost to insure investment-grade corporate bonds saw their biggest increase in more than two years. Commodity markets were pummeled along with most currencies relative to the resurgent U.S. dollar and, tellingly, the Japanese yen.

Yet, most significant was the one asset that didn't respond as expected. It is historically the ultimate insurance policy against the collapse of financial assets and political upheavals, a store of wealth since ancient times. That is, of course, gold. Not only did it fail to maintain its value during the market maelstrom Thursday, gold's price plunged nearly $50 an ounce, or almost 5%. That dumping of the precious metal -- whose only true function is as adornment and as a store of value -- indicates a scramble for liquidity. By all indications, that rush was to unwind so-called carry trades, which consist of borrowing dollars to fund purchases of other, presumably higher-returning assets. And with U.S. interest rates near zero, the allure of the carry trade is well nigh irresistible.

That means carry traders effectively are short the dollars they borrowed to buy commodities, emerging-market stocks, junk bonds, which beckoned with higher-potential returns. When those positions start to go against the carry traders, the leverage turns painful. As they scramble to unwind the positions, they not only dump those risk assets, they also have to cover what is effectively a short-dollar sale to pay off that liability. With so many carry traders all making for the exit, there's a squeeze, sending the dollar still higher and exacerbating the pain.

Even as the U.S. Dollar Index (DXY) -- a measure of the greenback against a basket of six currencies -- extended its rally by gaining 0.76% (to just short of 80, a key technical level), the Japanese yen rose even more strongly. That's important because the yen has been the other main funding currency in carry trades, so its rise also suggests a similar short-covering. The exchange-traded fund that tracks the currency, the CurrencyShares Japanese Yen Trust (FXY), surged 2.35% on nearly triple the average volume. By contrast, the CurrencyShares Euro Trust (FXE), the ETF that tracks the common currency, plunged 1.1%, on similarly heavy turnover as investors fled.

To be sure, some of the buying of yen and dollars did represent some flight to safe harbors, most particularly U.S. Treasuries, where yields tumbled from eight basis points for the two-year note, to 0.80%, to 11 basis points for the rest of the coupon curve. The 10-year note yield ended at 3.59% while the 30-year long bond closed to 4.53%. TheiShares Barclays 20+ Year Treasury Bond ETF soared 1.6% on nearly twice the average volume. But, as noted, gold was throttled along with other risk assets, such as commodities, instead of serving its traditional role of insuring wealth against the vicissitudes of markets and politics.

The popular SPDR Gold Shares ETF plunged 4% on nearly double the usual volume. Gold stocks fell even harder, with the Market Vectors Gold Miners ETF losing 5.5% on heavy volume. Silver, meanwhile, got slammed even harder than the yellow metal, with the iShares Silver Trust losing 6.4%. Again, if Thursday's rout had been a mere flight to quality, precious metals would have been up, not down sharply. This pattern suggests a reprise of the near-meltdown of late 2008 and early 2009, which also saw the yen and dollar soar in the scramble to repay borrowings in those currencies, which was paid for by the dumping of risk assets, including the traditional store of value, gold.

As with subprime mortgages, the crisis in sovereign bonds in the periphery of euroland had been pooh-poohed as having limited relevance to the larger financial world. But Tim Backshall of Credit Derivatives Research pointed out in a research note Thursday that the sharp rise in the cost of insuring sovereign debt drove up credit costs for "everyone," notably U.S. corporates. At the same time, the rise in private-sector borrowing costs and risks has meant a scaling back of actual and expected central-bank tightenings. Thursday, the Reserve Bank of Australia, which was the first central bank to begin raising rates in this cycle, surprised the markets by opting not to snug further. That reflects the restraint on the export-dependent economy by the sharp rise in the Aussie dollar and the tightening of credit in China, the nation's biggest export customer.

And in the U.S., probabilities of a Federal Reserve rate hike were pared further Thursday. The federal-funds futures market priced in just a 25% probability of a hike to 0.5% from the current 0%-0.25% target rate by the Aug. 10 meeting of the Federal Open Market Committee, according to Dow Jones Newswires. At the turn of the year, fed-funds futures put a 78% probability to such a move by the June 22-23 FOMC meeting. In the past month, concerns about sovereign debt have continued to mount while the heady optimism about the U.S. economy's supposed recovery has been tempered by a rebound in jobless claims and the reality check from the Massachusetts Senatorial special election. As a result, the carry traders are getting carried out, yet again.

NFP -20,000, Consensus +15,000, Non-Seasonally Adjusted Unemployment Rate (U3 And U6) Surges To Record 10.6% And 18%
The January NFP number came in at -20,000, a mere 5k away from Goldman's -25,000 estimate. Consensus was for +15,000. December, as all prior months, saw an expected major downward revision to -150,000 from -85,000. The January Birth/Death adjustment was for -427K from +25K in December. Despite a deterioration in every metric, the unemployment rate dropped from 10.% to 9.7%, even with a consensus at 10.0%. A glitch in the excel model is further corroborated when one considers that the civilian labor force participation rate actually rose in January from 64.6 to 64.7.

Yet a number that avoids some of the constant fudging by the BLS, the Non-Seasonally Adjusted number, hit a new recent record: instead of 9.7%, this number was 10.6%, a 0.9% increase from December!

The same can be seen in the U-6 data. NSA U-6 is now at a record 18%, even as the seasonally adjusted number declined to 16.5%.

Seasonally Adjusted U-6:

And here is the Non Seasonally Adjusted U-6:

TrimTabs: Here's Why The Real Jobs Loss Number Was 5x Worse Than What The BLS Reported
They always say this, and they're kind of a broken record, but if you're interested, here's why TrimTabs thinks the jobs data was MUCH worse than what the numbers suggested this morning


TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 104,000 jobs in January.  Meanwhile, the Bureau of Labor Statistics (BLS) reported the U.S. economy lost 20,000 jobs.  We believe the BLS has underestimated January’s results due to problems inherent in their survey techniques.

In addition to their regular report, the BLS published benchmark revisions to their employment estimates derived from an actual payroll count for March 2009.  As a result, job losses from April 2008 through March 2009 were revised up a whopping 930,000, or 23% from their earlier revisions.  In addition, the BLS revised their job loss estimates for 2009 up 617,000, or 14.8%.

While the BLS originally reported job losses of 4.2 million in 2009, TrimTabs reported 5.3 million, a difference of more than a million lost jobs.  We consistently reported that based on real-time tax data, job losses were much higher than the BLS was reporting.  This past January, the BLS revised their job loss estimate to 4.8 million, an increase of almost 600,000 lost jobs.  The new total brought the BLS’ revised estimates much closer to TrimTabs’ original estimate based on real-time tax data. 

Since July 2009, TrimTabs estimates and the BLS estimates have diverged again.  While the tax data points to a weak job market, the BLS estimates point to a steadily improving job market.  We believe the job market is much worse than the BLS is reporting and that in January 2011, when the BLS revises their estimates for 2010, their April 2009 through December 2009 results will move much closer to TrimTabs’ results.

The BLS has seriously underreported job losses for the past two years due to their flawed methodology.  TrimTabs has identified the following four problems:

1.      The BLS employment estimate is based on a survey, and not on an actual count of employees.  While the BLS survey is large and supposedly designed to capture the complex nature of the employment market, it is still a survey and therefore subject to error.  TrimTabs believes that rapid changes in an employment cycle cannot be captured by surveys.

2.      Several times a year, the BLS applies enormous seasonal adjustments to their survey results to account for seasonal fluctuations in the job market.  For example, this January, the BLS added 1.92 million jobs to their survey results to report a job loss of 20,000 to account for the layoff of retail holiday workers.  In our opinion, the sheer magnitude of the seasonal adjustment which dwarfs the monthly result renders this month’s job loss estimate meaningless.

3.      At the time of the first release, only 40% to 60% of the BLS survey is complete and is subject to large revisions over the next two months.

4.      The BLS applies a mysterious “birth/death” adjustment to their survey results to account for business openings and closings.  While the payroll data was adjusted substantially, the “birth/death” adjustments were left unchanged.  In 2008 and 2009, the BLS’ “birth/death” adjustment added 904,000 and 882,000 jobs, respectively, for a total of 1.79 million.  By way of comparison, in 2006 and 2007, the BLS’ “birth/death” adjustment added 964,000 and 1.13 million jobs, respectively.   We find it highly unlikely that in 2008 and 2009, during the worst recession since the 1930’s, more businesses opened than closed netting 1.79 million jobs.


In our opinion, flawed BLS survey results, month-after-month, do the public a huge disservice.  While its results point to a slowly recovering economy, TrimTabs’ results point to a dangerously weak economy.

A comparison of TrimTabs’ employment results versus the BLS’ results from January 2008 through January 2010 is summarized below.


Source: TrimTabs Investment Research – and Bureau of Labor Statistics –

 Several other employment related statistics support Trimtabs’ conclusion that the labor market is weaker than what the BLS is reporting:

·        Real-Time tax withholding data shows that wages and salaries declined an adjusted 1.0% y-o-y.  In January 2009, wages and salaries declined 5.0%.  If the labor market were improving, we would expect a positive year-over-year growth rate. The fact that tax withholding data is still declining year-over-year suggests that the labor market is still contracting.     

·        The Monster Employment Index declined further in January, falling 0.9%.

·        The TrimTabs Online Jobs Index reported slightly higher job availability in January but remains at a low level.

·        Advanced Data Processing reported a job loss of 22,000.

·        Weekly unemployment claims edged up in the past month, rising 10.2% since the beginning of January. 

·        In January, a whopping 11.5 million people were collecting some form of unemployment insurance, up 27.8%, from 9.0 million in November.


For a complete analysis of the current employment situation and economic conditions, refer to TrimTabs Weekly Macro Analysis published this coming Tuesday, February 9, 2010.

Congress Needs To Extend Unemployment Benefits -- Again
Just like it did in December, Congress must once again scramble to prevent hundreds of thousands of people from exhausting their unemployment benefits in the next month. The National Employment Law Project is sounding the alarm: Unless the Congress extends provisions of the stimulus bill by the end of February, 1.2 million laid off workers will become ineligible for extended benefits in March. "Congress must swiftly act to maintain the lifeline for millions of jobless Americans caught in the undertow of record long-term unemployment in this ongoing downturn," said NELP director Christine Owens in a statement.

The stimulus bill added up to 53 weeks of federally-funded unemployment benefits to the 26 weeks provided by states -- and then up to an additional 20 weeks of extended benefits. Without another extension, a person receiving unemployment benefits will not be able to advance to the next tier of federal benefits after February (nobody would lose benefits mid-tier). The stimulus bill also provided a $25 weekly boost to benefit checks and a 65 percent subsidy of COBRA health insurance.

The provisions would have expired at the end of December, but Congress kicked the problem down the road for another few months with a stopgap extension. Now, the Senate will probably include another stopgap extension in a jobs bill that could see a preliminary vote on Monday and pass by the end of the week. But with the Democrats' new 59-41 majority, a delay is possible. And the House may take issue with the Senate's jobs bill. "Given the uncertainty, I don't think its far-fetched to envision this issue gets down to the last week of the month before it's completely resolved," said a House Democratic staffer. "It's obviously a big problem coming our way if we don't get this done."

The timing is important because while the provisions for extended benefits expire at the end of the month, state labor commissioners can't wait until the last second to notify check recipients that they may not be eligible for their next tier of benefits. Depending on the timing, some labor commissioners may have to disrupt their processes, and some people could miss a week or two of benefits. NELP wants Congress to extend benefits before the end of next week to prevent that from happening.

NELP has been lobbying the Hill frantically and is frustrated that Congress is continuing with its piecemeal approach to extending benefits for a few months instead of simply reauthorizing another full year. NELP deputy director Andrew Stettner told HuffPost he sees this coming down to the wire again in June and then again October. "It's disappointing that they didn't do a full-year extension," he said. "They're going to keep setting this up for more debate, and then it's going to be near an election, and people are going to grandstand about the deficit."

Obama’s $6.3 Trillion Scam Is America’s Shame
Look through President Barack Obama’s proposed 2011 budget, and you’ll see a line calling for a $235 million increase in the Justice Department’s funding to fight financial fraud. Lucky for them, the people who wrote the budget can’t be prosecuted for cooking the government’s books. Whether on Wall Street or in Washington, the biggest frauds often are the perfectly legal ones hidden in broad daylight. And in terms of dollars, it would be hard to top the accounting scam that Obama’s budget wonks are trying to pull off now.

The ploy here is simple. They are keeping Fannie Mae and Freddie Mac off the government’s balance sheet and out of the federal budget, along with their $1.6 trillion of corporate debt and $4.7 trillion of mortgage obligations. Never mind that the White House budget director, Peter Orszag, in September 2008 said Fannie and Freddie should be included. That was when he was director of the Congressional Budget Office and the two government-backed mortgage financiers had just been seized by the Treasury Department. The White House is already forecasting a $1.3 trillion budget deficit for 2011, which is about $3 of spending for every $2 of government receipts.

By all outward appearances, it seems Obama and his budget wizards decided that including the liabilities at Fannie and Freddie would be too much reality for the world to handle. So they left the companies out, in a trick worthy of Enron’s playbook, except not quite so hidden. While the president had nothing to do with the mortgage zombies’ collapse, this was supposed to be the administration that, in his words, would put an end to “the era of irresponsibility in Washington.” Instead, he has provided us a new beginning. Fannie and Freddie aren’t merely wards of the state. Practically speaking, they are the entire U.S. housing market. Their liabilities are the government’s liabilities.

As Orszag said at a Sept. 9, 2008, news conference, two days after Fannie and Freddie were seized: “The degree of control exercised by the federal government over these entities is so strong that the best treatment is to incorporate them into the federal budget.” That control is stronger today. Congress and the Treasury have given the companies a blank check to blow through whatever taxpayer money is necessary to keep the U.S. housing market afloat. Anyone buying large quantities of U.S. government bonds knows these liabilities exist. So why pretend they don’t?

Obama’s White House didn’t invent this kind of fudging. President George W. Bush, for example, kept most war costs out of the budget. Obama’s proposal shows about $289 billion of war costs for 2010 and 2011, plus a $50 billion placeholder estimate for each year after that. Those dollars are small compared with the numbers at Fannie and Freddie, though. Without federal backing, the mortgage guarantees issued by Fannie and Freddie might not be worth much. In that case, the $973 billion of mortgage-backed securities held by the Federal Reserve would be worth substantially less, rendering its $52 billion capital cushion illusory. Of course, it’s ridiculous to think the government would let this happen.

Excluding Fannie and Freddie, the national debt held by the public is about $7.9 trillion. With them, it exceeds last year’s $13.2 trillion gross domestic product. Even the geniuses at Moody’s Investors Service are warning that the country’s AAA rating might not last. No country can owe more than its yearly productive output for long without giving up its accustomed lifestyle and influence. The nation’s debt has become so immense that it’s corroding the government’s fundamental relationship with its own people. Put yourself in the shoes of a young couple thinking of buying their first home. The government needs folks like them to buy into the market to keep demand for houses up.

Yet without all the trillions of dollars of subsidies the government has pumped into housing, home prices would get creamed even worse than they already have, spurring greater loan defaults and saddling the Treasury with ever-higher costs from the guarantees Fannie and Freddie sold. What’s sickening is that the government can’t afford the subsidies. Suddenly, that $8,000 tax credit for first-time homebuyers looks like a nasty teaser aimed at sucking America’s newlyweds into a giant Ponzi scheme. Worst of all is the example the government is setting for its citizenry. There still have been no indictments of senior executives at any of the big financial institutions that cratered in 2008 while sporting pristine balance sheets. No wonder. The government lacks moral standing to prosecute crimes such as accounting fraud when its own books lack integrity.

And how does Orszag explain his about-face on including the government-sponsored enterprises in the federal budget? Here’s the response I got in an e-mail from Kenneth Baer, a spokesman for the White House Office of Management and Budget: “The relationship between the GSEs and the federal government is in flux. Until it is settled, it would be too disruptive to change how they are accounted for in the budget.” That didn’t answer my question. (Are we supposed to believe the relationship wasn’t “in flux” in September 2008 after Fannie and Freddie got seized?) So I asked again. Baer replied: “Our statement is our statement.” It speaks volumes, too, confirming what we otherwise could only surmise: They don’t have a good explanation.

New York Fed President says Fed might buy more mortgage-backed securities
The Federal Reserve would consider reopening its program to support the mortgage market if interest rates spiked or the economy showed new weakness, Federal Reserve Bank of New York President William C. Dudley said in two new interviews. The Fed is buying $1.25 trillion in mortgage-backed securities in its effort to prop up the economy but has said it will end those purchases March 31.

In interviews with the Nightly Business Report and the Associated Press, Dudley said the time is right to end the program because the economy is growing and because expanding the purchases would make it harder for the Fed to unwind its support down the road. But he said the Fed might reconsider if rates rose sharply. "Obviously, if mortgage rates were to back up a lot and if that had a big consequence for the economy, then we very well could rethink the issue about whether we wanted to buy more mortgages," Dudley told the Nightly Business Report. He made a similar comment in the AP interview. The Fed said after its policymaking meeting last week that it "will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets."

Next in line for a bailout: Social Security
Don't look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system. A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits. Instead of helping to finance the rest of the government, as it has done for decades, our nation's biggest social program needs help from the Treasury to keep benefit checks from bouncing -- in other words, a taxpayer bailout.

No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week. The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116). This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30.

Why disregard the interest? Because as people like me have said repeatedly over the years, the interest, which consists of Treasury IOUs that the Social Security trust fund gets on its holdings of government securities, doesn't provide Social Security with any cash that it can use to pay its bills. The interest is merely an accounting entry with no economic significance. Social Security hasn't been cash-negative since the early 1980s, when it came so close to running out of money that it was making plans to stop sending out benefit checks. That led to the famous Greenspan Commission report, which recommended trimming benefits and raising taxes, which Congress did. Those actions produced hefty cash surpluses, which until this year have helped finance the rest of the government.

But even then, it was clear the surpluses would be temporary. Now, years earlier than projected, Social Security is adding to the government's borrowing needs, even though the program still shows a surplus on paper. If you go to the aforementioned pages in the CBO update and consult the tables on them, you see that the budget office projects smaller cash deficits (about $19 billion annually) for fiscal 2011 and 2012. Then the program approaches break-even for a while before the deficits resume.

Social Security currently provides more than half the income for a majority of retirees. Given the declines in stock prices and home values that have whacked millions of people, the program seems likely to become more important in the future as a source of retirement income, rather than less important. It would have been a lot simpler to fix the system years ago, when we could have used Social Security's cash surpluses to buy non-Treasury securities, such as government-backed mortgage bonds or high-grade corporates that would have helped cover future cash shortfalls. Now it's too late.

Even though an economic recovery might produce some small, fleeting cash surpluses, Social Security's days of being flush are over. To be sure -- three of the most dangerous words in journalism -- the current Social Security cash deficits aren't all that big, given that Social Security is a $700 billion program this year, and that the government expects to borrow about $1.5 trillion in fiscal 2010 to cover its other obligations, about the same as it borrowed in fiscal 2009. But this year's Social Security cash shortfall is a watershed event. Until this year, Social Security was a problem for the future. Now it's a problem for the present. 

China Defaulting Loans Soar, Insolvency Lawyer Says
Non-performing loans in China have risen into the “trillions of renminbi” because of poor lending practices, an insolvency lawyer said. “We work really closely with SASAC, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of, frankly, defaulting loans already in China that no one is doing anything about,” Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference yesterday. “At some point there’s going to be a reckoning for that.”

China’s government is tightening controls, including banks’ reserve ratios, to prevent record lending from fueling inflation. The Shanghai office of the China Banking Regulatory Commission warned yesterday that a 10 percent fall in property values would treble the number of delinquent loans in the city. Liu Mingkang, chairman of the CBRC, said Jan. 4 that loans were channeled into stock and property speculation last year, which China has been taking measures to stop. CBRC’s press officer is not immediately available for comment today.

Chinese banks issued a record 9.6 trillion yuan ($1.4 trillion) of new loans last year as part of a 4 trillion yuan stimulus package aimed at bolstering growth through the global financial crisis. “At some point in China, maybe it will be two, three or five years, but at some point there will be in the property markets and in the markets generally, there will be rationalization of very poor lending practices,” McDonald said during the panel discussion on restructuring and refinancing at the Global Loan Market Summit in Hong Kong.

Over the past decade China’s government has spent more than $650 billion bailing out state banks after years of government- directed lending caused bad loans to balloon. The average non- performing loan ratio at Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd. dropped to about 1.6 percent as of Sept. 30 from more than 20 percent before each bank was bailed out, according to earnings reports. New loans last year helped ignite a Chinese real-estate boom, with prices in 70 cities rising at the fastest pace in 18 months in December.

Should property prices fall 10 percent in Shanghai, China’s second-most-expensive property market, the ratio of delinquent mortgages would almost triple for the city’s banks to 1.18 percent, according to the Shanghai branch of the CBRC yesterday, citing a stress test based on Sept. 30 figures. A 30 percent decline would cause the ratio to jump almost fivefold, the agency said. Fitch Ratings said Dec. 17 that Chinese banks’ capital strength is probably more “strained” than it appears as lenders use more off-balance sheet transactions to make room for loans.

It was the first time the CBRC announced estimates for how much a property-market slump in Shanghai would hurt banks, underscoring the government’s concern that real-estate speculation may spur bad debts. The regulator reiterated that banks should monitor property loans more closely and curb lending to developers with weak capital. The State-Owned Assets Supervision and Administration Commission supervises and manages state-owned assets.

Derivatives Scam Slides Into The Sunshine
by Roger Wiegand

In this report, we list a summary of events creating and causing our global economic problems in chronological order covering the last ten years. It is helpful to understand where we’ve been and where we are going for personal security and potential gains in trading and investing. Our Northern Advisor is one our most brilliant sources of information. He has provided things for me that in my view are priceless and without parallel. I have known him to be extraordinarily far-sighted and extremely accurate on his forecasts. His perspective is one that is truly unique.

“What is different about using AIG as the cover to move dirty funds is that  they were the conduit for stolen money going directly to Goldman Sachs (and indirectly to the other Boyz). Since AIG isn't an 'official' government agency, it would be hard to claim 'national security' to sidetrack an investigation. This money shuffle through AIG is the one weak link that might open a legal window into the greatest theft of all time.” - Northern Advisor

It appears the entire derivatives story once regarded as a conspiracy fairy tale is now on the table and it is very ugly. Here are the key points following the scam from beginning to end:

  1. We had a 70 year K-wave top in 2000 (1929-1999) with a crashing Nasdaq after a go-go tech rally followed by subsequent market failures.

  2. Greenspan would not endure a recession and responded by dropping interest rates to pathetic lows; for years.

  3. Congressional housing proponents, vote-grubbing boyz, wanted a chicken in every pot and a house for everyone, irregardless of their ability to make payments, real estate taxes, repairs, and take general good care of a home. Those giveaway loans were blatantly outrageous and reckless.

  4. Mortgage underwriting rules were thrown to the wind. Anyone with a job and a pulse could buy a house. Some without jobs were approved on no-doc loans. Some with names from graveyards (no pulse) were granted loan approvals given to application scammers and thieves.

  5. Global bankers were enabled to use relaxed Enron-like trading rules to write derivatives of all kinds. Rules were nearly meaningless as borrowers and lenders alike went nuts tossing billions.

  6. Housing boomed and derivatives of several kinds were sold with reckless abandon. Bankers made enormous fees. Risk was not considered whatsoever. Their motto was “Let ‘er’ rip.”

  7. Housing and other derivatives bubbles came to a stratospheric peak in 2005-2006 and blew-up. We did forecast the housing debacle when June, 2005 lumber futures went into the tank followed by crashing derivatives.

  8. Housing and derivative paper sank to very low values, or zero as lenders and borrowers imploded. The housing failure fallout could continue in most US regions for the next three to five years.

  9. Damages were so severe that if left to their own devices, many of the global banks would have failed taking the entire economic system into the dark ages of finance. Bear Stearns, Lehman, and Bank of America were selected as sacrificial lambs, as certain other banks seized the moment to defile and dispose of their competition. “Never let a good crisis go to waste.”

  10. USA and other nations’ central bankers pumped currencies and bonds to the moon. They were printed and originated with wild abandon to cover-up the mess and contain the damage. It continues today. Japan or China or both could crash first. Five Euroland nations are on the edge of collapse. The U.K. is basket case and more than one country in South America is caving into big trouble.

  11. In the USA, TARP money was stolen from taxpayers and funneled through conduit AIG to crooked, failed bankers to reliquify their balance sheets with free money. They are supposed to lend some out for growth but are holding it tight earning free interest from the government; taking no risks.

  12. In the next criminal act, Fannie and Freddie have been given a wide-open checkbook for the next three years. All the USA bad real estate paper will be funneled into these bankrupt entities and then they will be flushed and disbanded. These loans were not paid or legally bankrupted-discharged, but summarily, surruptitiously, hidden and dumped.

  13. Crooked bankers discovered they are “Too Big To Fail” and are doing it all over again with a tacit “no penalty” understanding. Estimated derivative balances today are $204 Trillion Dollars. No one will stop them until everything collapses in one final crashing swoon.

  14. The order of collapse could be moving from current deflation to inflation, hyperinflation, back to deflation and lastly, world war to escape the final disaster. War is always the final solution to divert the attention of Sheeple from their pathetic broken economic existence.

  15. Civil disorder appears this summer in several countries instigated by hungry, jobless people from all working classes. So far its been contained to car fires, vandalizism, protest marches and small riots. The deeper we go into Greater Depression II, the worse it gets expanding into stronger and more wide-spread violence.

  16. The larger questions become: What happens on the other side after the war? Who will lead the world? Will the US Dollar continue to be the world’s reserve currency? Will we attempt to return to the gold standard? Will those who were responsible for these disasters pay the price? If so how? Will they go to jail? Will they escape the wrath of the Sheeple? What will the economic world look like after the monster obligatory war? Who will control global energy? 

  17. The controller of global energy resources, we think could be either Russia or the USA-the ultimate winner. We would prefer to believe America will win and survive but we cannot know for sure. Congress and the current administration (along with some members of prior administrations) are all equally at fault. The Sheeple, The Herd, The Middle Class, and The Bubbas are gearing-up for a massive revolt. Who pays the price? Who escapes? How bad will it get? No one can say for sure but we live in interesting times in a world being changed for good.

On February 1, 2010, President Obama presented his fiscal year 2011 national budget. Since all the bad housing paper is being off-loaded into Fannie and Freddie, they were excluded from this new budget. Further, those two money-debt monsters have an open checkbook for the next three years to keep buying bad mortgages. The new budget is $3.8 Trillion US dollars and demands $1.9 Trillion in brand new taxes on the rich and on wealthy businesses.

We do not expect this budget to be approved as presented but there is no question taxes will rise for all Americans and all American businesses. This will further destroy any hopes of recovery. Larger corporations are moving overseas and will do so with an increased frenzy. Many of them have most of their assets out of the US already. It will be very easy to relocate the rest, fire American employees and move on to greener international pastures.

Individual wealthy Americans will do the same. Many of them have sold out and gone to foreign lands as they saw the hand writing on the wall. This atmosphere will inhibit formation of new businesses as the prospective owners when seeing these unrealistic obligations will elect to (1) Not open any new business. (2) Go into business overseas. (3) Reduce current profitable American businesses and lay-off employees. (4) Shut down their US businesses, take the cash from a potential sale and retire or move away.

When big manufacturing moved overseas, it gutted the Midwestern United States. This rustbelt region formerly composed of 85 million Americans is dying a slow death. Those that can are leaving for good. The City of Detroit once held nearly 2 million people. Today it is less than 900,000 and has 50% unemployment. Yet the Michigan governor thrashes around trying to encourage new companies to locate there. People are not so stupid as to go along. They are voting with there feet. I know; I was one of them. Michigan unemployment is officially in the teens. Reality says 25% of Michigan is out of work and its getting worse faster than ever. California, Nevada, Arizona, Florida, New York, New Jersey and Illinois are all in the soup.

Many still believe Asia is the future. We think it was for a few years but China, in our opinion, is on the verge of a fiscal meltdown. We are not alone in our thinking. Many top analysts see things they way we do. All economies when engaged in extremes eventually return to the norm. China is no different.

In our view, Canada has been the best choice of any western nation; even better than Germany, which has proven to be an economic powerhouse. Germans are stuck in the middle of a sinking ship called Euroland. On the other hand, Canada is rich is natural resources, and their bankers wisely stayed out of derivatives and related messes. With the exception of some problems in manufacturing, Canada is the future.

Our next window for buying precious metals shares could open this week as gold has begun a new rally along with several other commodities. We are watching to ensure this new rally is for real but have already been invested in gold, silver, and grain with futures spread positions for 2010.

Additionally, we buy and recommend the purchase of gold and silver coins for personal and retirement portfolios. Our standard recommendation is for an individual to use 10% of their investment cash for precious metals and not sell them whatsoever. This applies to the first $100,000 of any single account with further adjustments on a sliding scale for larger accounts.

Our current cycle for commodities and commodity related currencies has begun. While we hear objections to technical patterns for these current markets we would argue that now is the time to get busy and buy. Our record while not perfect has been quite correct on trend and that is the objective.

In the spring of 2009 we did forecast the gold price at $1250-1260 for the December, 2009 futures. We touched $1226. The interim move was substantial and profitable for those with positions including our own.


Be very careful as we move forward in time. Trading is going faster and more volatile with wider trading ranges in precious metals and other markets. Try to be in position ahead of time rather than locking yourself into trades at the very last minute. Futures traders should always use stops and shares traders as well. Personally, I can see unbelievable opportunities to trade that we would never see again for many years. Turn these problems into opportunities. Those on the right side of the trade might get rich. Those on the other side are just victims. Stay Alert.


Alex_tring said...

I think that the UK is in the worst shape and has furthest to fall. Larger housing bubble than the US (still not burst). Massive debt, over-crowded and over reliant on a FIRE economy and fastest depleting oil and gas fields.

jal said...

“... who's worse off, Europe or North America.”
However, ... from
Derivatives Scam Slides Into The Sunshine
by Roger Wiegand

“China, in our opinion, is on the verge of a fiscal meltdown. We are not alone in our thinking. Many top analysts see things they way we do. All economies when engaged in extremes eventually return to the norm.”
Their meltdown will not give them more pain than what they have traditionally been enduring.
They won’t be around to rescued anybody else. Export and import will see a strong reset.
“In our view, Canada has been the best choice of any western nation; even better than Germany, which has proven to be an economic powerhouse.
With the exception of some problems in manufacturing, Canada is the future.”
There will be a reset in Canada.
Let’s not kid ourselves ... the reset will not mean “back to the good old days”.

$$$Dollar$$$ said...

Sort by external debt and you get your answer. Namely that both "sets" are beyond the point where it matters who is "worse" off. It won't make a difference since they both have debts they cannot pay back, having large property bubbles, and financial sectors that are highly leveraged (EU > US). So to me, the question is null and void, since the answer is both are beyond the point of no return. The next leg of a deflationary spiral will wipe them both out IMO.

$$$Dollar$$$ said...

Oh and the least screwed will be among those that are near the bottom of that debt listing. Countries like, I dunno, China with (5% of GDP owed externally and 15% of GDP for public debt) make out "better" IMO. Yes, yes command economy and excess production. But..........some productive capacity nonetheless (even if much/most goes), cash reserves and low debt. No matter what that is always better than---------service jobs, debt and a reduced productive capacity. However, China is going to have some serious problems with their over-capacity, and financial sector loans but they are much better positioned (also due to their strategic decision making) to come out on top, relatively speaking. I agree with Stoneleigh on her view on China and disagree with Ilargi. Then again, not at Ilargi mind you, I find most people in the West (esp. in America) are deathly afraid of China.

Ilargi said...


That's a far too easy way out. Don't let's change the question. Its not a choice between who'll come out in heavenly shine and who'll be eating dirt sometime far down the line. It's about right now, otherwise the question has no point.

What we see happening at the end of this all is a whole different matter altogether. Not: where will either party be in 2020 or 2050, but where are they now.

Don't try to outsmart the DA, just answer the question.


Ilargi said...

I agree with Stoneleigh on her view on China and disagree with Ilargi.

And what would these respective views be, in your eyes? I have absolutely no idea what you think I think about China, let alone how it would differ from Stoneleigh's.

$$$Dollar$$$ said...

I tried to as best as I can. I don't think either the EU or the US are better off. I think that once you get to the point where your debt are a small fraction of your income you are f*c*ed. I agree with Stoneleigh that we will likely see a splintering of the EU, however unlike Stoneleigh I see the entire structure coming down. The ball I have my eye on is debt Ilargi, that and debt. lol. By that metric the EU and the US are just plain toast. Who is a light shade of black seems irrelevant no?

$$$Dollar$$$ said...

Ilargi - That China will likely experience a lengthy very painful setback on the road to a "Chinese Century". I dunno, you seem to speak as though China is going to hell in a handbasket. If I am wrong in this, then so be it.

postpone.judgement said...

In the last months I have been in Lexington,MA, Frankfurt Germany and Zug, Switzerland. Ranked 3rd, 2nd and 1st. In the big game US and EU go down together as they are so interconnected. The Fed had to throw a lifeline to Europe in 2008 or they would gone down themselves. On a personal perspective, my American friends are underwater on their mortgages, the European ones not (except for those in Spain and the UK :-o). Europe has a memory of crisis and destruction - it is more resilient, societies more equal and diverse, eg capable of pursuing different solutions.

$$$Dollar$$$ said...

postpone.judgement - they also owe a ton of debt (multiples of their income/production) to foreigners (as was a major problem for Weimar Germany) so I am not sure their "memory" or crisis is THAT sharp.

Ilargi said...


Ilargi - That China will likely experience a lengthy very painful setback on the road to a "Chinese Century". I dunno, you seem to speak as though China is going to hell in a handbasket.

Right, got you.

Nah, that "century" idea belongs to a different world, one of hope and travel and exploration. If we fall further down than 1600 Europe, what does it mean? Myopia at best.

Then again, if we should distinguish things like the Ethiopian century or Mayan century, I might be on board. Then again, who would have predicted those?

I'd put my money (make that faith) in those gatherings that need the least to survive and still know best how to do it. But that will be about small pockets, not a billion plus population.

I think I'll aim for the century of the Basques. They survived it all so far.


susan said...

its gotta be that the US is in worse shape than Europe.

Just looks at the crumbling infrastructure and lack of social services. The huge military and costs of empire. Also for reactionary-only for mass movements of any sort (Tea Party, anyone?).

US spends 6% of GDP on the Pentagon, plus another 4-5% on other aspects of the national security state. Add in legacy costs, too.

Greece has that problem, too (but not the other PIIGS).

Cut DoD (or whatever local flavor of "D" you have) to 1% of GDP and many of the current problems disappear (i.e., deficits down to 3-5% of GDP, which are much more manageable than 10-12%).

But we are like Rome and will not abandon empire without self destruction.

Persephone said...

My opinion is that N. American Usacos are worse off than Europe.
The collective psyche in the U.S. is more of a wild west mentality - each taking care of their own and to hell with anyone else.
Europeans, IMHO, seem much more aware of what's best for the society over what's best for the individual.

Interesting Article on the ricochet of a Greece default on the U.S. economy from Baseline Scenario - the comments on the article are great, too
Is Tim Geithner Paying Attention To the Global Economy?

Bukko_in_Australia said...

First off, I'm glad you're traveling, because that will mean you'll leave today's post at the top for a while. A lot to read and ruminate about there.

But since you say And now I'm going to halt, in order to give you the chance to comment on this. I hope and expect to see very different ideas emerge form both sides of the Atlantic, and I'm always highly interested in hearing people talk about their specific locations. The question I pose is simple and concise: What do YOU think?" I'll give my take. Not on the U.S. -- plenty of people here to do that -- and not on Canada. Plenty of people know it way better than me.

But let me say a few words about Australia. I've seen a few Aussie commenters, but not many, so I want to chime in first. I'll try to keep it to a few words, because I have life to live tonight.

Steve Keen sums up the Australian debt/bubble situation well. There have been articles reprinted here on the Oz enviro situation -- definitely not good. But I haven't seen much about social resiliency Down Under. Admittedly I'm an Aussiephile, but I think social factors are what will get "the Lucky Country" through whatever weather the changing world throws at us.

Oz has a social support system on par with Europe -- adequate hospitals, transport, welfare benefits. The legs will be kicked out from under a lot of it if/when economic affairs play out.

But I reckon a semblance will survive, because Australians WANT it to do so. They would be willing to get by with less money/working hours/overall benefits without getting dangerously narky. Whingeing, yes; rioting no.

That's because when you live in Australia, you're constantly reminded that you're on the edge. "Drought, drought, drought! SAVE WATER!" News about bushfires, cyclones, fluctuations in the value of the Aussie dollar... When you always know that disaster is near, you react better when you slip into it.

Plus there's the immigrant factor. IIRC, about 20% of Australia's population wasn't born in the country. or had parents who weren't. They remember what it was like in Lebanon, Vietnam, whatever chavved-out city they fled in the UK... So they will put up with less and be flexible enough to adapt to changing circumstances. Except maybe the Poms.

Aussie society is less complex than many others. And there are fewer divisons within the country. Aside from ritual slagging of "banana benders," "sand gropers" and "crow eaters," I don't see the splits you have in the U.S., Europe or even individual countries such as France or Germany.

So while the financials and the environmentals are important, so are the socials. That's why I have faith Oz will come good. Of course, I gotta say that to keep MY hope alive, since I have unlimited ins-and-outs privileges there until 2014. Always good to have faith that my fallback bolthole will be worth fleeing to...

Unai said...

I am with Ilargi.
The European Union is in a better situation in my opinion. Here it is some data to back it up:

USA spends more than 15% of GDP
Eurozone less than 10% of GDP


USA spends more 7.5% of GDP
Eurozone less than 6% of GDP


USA spends 4% of GDP
Eurozone 1.7% of GDP


Trade Deficit
USA October 2008 trade deficit $57.5 billion
Eurozone October 2008 trade surplus 0.9 billion euro


Household saving rate
Eurozone 14.4% of GDP first quarter of 2007
USA 0.6% of GDP during 2007


Energy consumption per capita
Germany 6kW per person
USA 11.4kW per person


Household Debt
Eurozone 59% of GDP
USA over 90% of GDP


Public Debt
European Union 58.7% of GDP (2007)
USA 65.5% percent (2007)

Source: Wikipedia

Ahimsa said...

I think Europe will fare better than the USA in the evolving multi-faceted collapse scenario. The European governments have a social service system in place with the cooperation and support of its people who realize the importance of community, and the ethics of caring for the weak and needy in society. In the USA most people function like atoms (as exemplified by suburbia and the ubiquitous automobile), with no deep understanding of community or the ethics of altruism, egalitarianism and empathy.

I have to agree with Susan that the US "will not abandon empire without self-destruction." Indeed, the US Empire would rather nuke the world than allow the usurping of its global hegemony.

ronald said...

... who's worse off, Europe or North America.”

Americans by a wide margin, the why is that our social order is based around shopping rather then on productive day to day work. The general population has been feed extra large doses of credit creation over an extended period of time which has warped its sense of economic reality. America is a dangerous unstable social order that may quickly unwind in any significant economic downturn.

Stoneleigh said...

The debt levels are such that both the US and Europe are poised for financial catastrophe. Each has advantages and disadvantages, but financially Europe is likely to fare worse.

European housing bubbles are often much worse than in the US, although it varies. Germany didn't have a housing bubble, so it's relative power in Europe should increase despite the collapse of its export economy. The UK, Ireland, Spain the Netherlands and much of Eastern Europe are poised for enormous falls.

European banks are more over-leveraged and are also very exposed to Eastern Europe. Russian mafia-style capitalism has been undermining legitimate business there and the risks are huge.

Politically, Europe is nowhere near as cohesive as the US, despite the red/blue divide. In the US people are American before their state affiliation, while in Europe the national affiliation comes before the international. As unpopular as it is to point it out, Europe has a long history of suspicions and old hatreds. These have retreated into the background thanks to a long expansion, which delivered enough to go around. It is when there is no longer enough that I worry about Europe.

We are rapidly moving towards circumstances that will divide many entities that are currently politically unified. Not only do I think Europe will cease to be a unified entity, but many a number of its constituent countries may prove fissile as well. I'm not at all sure the UK will remain a single entity for instance, and independence movements in other countries will get a new lease of life as well.

Europe is likely to have difficulties with minorities it has failed to integrate, especially in places where countries have stuffed them into ghettos where they have little hope of employment and must remain second class citizens as they cannot vote. A number of European countries are already targeting religious symbols in divisive ways. The 'us versus them' dynamic is already developing, and it is ugly.

Europe has a lower energy footprint, but it also has few remaining reserves, and those are rapidly depleting. Europe will be dependent on Russia and Russia will enjoy yanking Europe's chain.

In the US I think people will be less psychologically prepared, but may be more cohesive under pressure. Religious fundamentalism of the punitive kind is my biggest concern, along with fascism.

el gallinazo said...

William Sloan's Fortune article on Social Security shows where the mentality of the predator class is heading.

"It would have been a lot simpler to fix the system years ago, when we could have used Social Security's cash surpluses to buy non-Treasury securities, such as government-backed mortgage bonds or high-grade corporates that would have helped cover future cash shortfalls. Now it's too late."

Here is a financial commentator-genius truly lost in lalaland. Yeah, it's to late to put that money into Fanny and Freddy. Instead it's invested in long term treasuries - obviously much riskier. And these people get paid in the six figures for this. If only we had advanced to building interstellar ships, so we could have shipped this dude off with the telephone sanitizers to another star system as the late and lamented Douglas Adams conjectured.

The predator class is now lamenting that these Social Security payments are putting a strain on the federal budget, but what they are not mentioning, is that the Social Security trust fund has trillions in bonds that need liquidation to pay the aging and unwashed of our nation. This was the plan all along, but this is quickly forgotten now that the 1980's Greenspan scam to get the working class to pay a regressive tax is no longer filling the coffers and being used to buy Hummers and senate fact finding junkets to Tahiti. The corporate fascist mentality is, 'What have you done for me lately." I predicted years ago that once the squid could no longer make a profit on this regressive tax, there would be talk of reneging on liquidating the bonds. The SSTF wasn't supposed to start eating its imaginary capital until 2020, but here we are. Geezers had better start sharpening their pitchforks and prepping their torches. Also, they might see if they prefer Alpo regular or extra crunchy kibble.

$$$Dollar$$$ said...

Stoneleigh - I pointed out a few of these, and I agree with your primary assertion that both face financial catastrophe. Who is "better off" is really a moot point. That said, your point about the lack of cohesion is a crucial point that just may lead me to believe the US is better off. As a minor point, each country in Europe issues their own passports, these countries have a history (recentish) of warfare, and do indeed retain their national identity over a "European" identity. I find your belief that the UK may split to be an intriguing call. What leads you to believe this is the case? And on what timeframe?

I am going to have disagree re: minorities, because America does have a problem with minorities and integration as well. In fact, as far as cohesion goes, the lack of a true cultural identity (apart from simply being American) should create problems IMO.

Hard to say. Maybe a negligible, and ultimately, irrelevant edge to the US in terms of who is "better off", though it certainly won't be perceptible to the average Euro or Yank. Certainly they won't care when both are unemployed and struggling to eek out a survival.

el gallinazo said...

A heads up for the visually challenged. Michael Hudson has an interview on this week's Guns&Butter titled, Obama's Republican Class War Presidency.

And their web master didn't screw this one up and you can actually download the mp3 for later listening. I haven't listened to it yet, but I like Hudson and Bonnie Faulkner may well be the best economic interviewer going.

Nelson said...

Kudos to Ahimsa for the use of "mutlifaceted" in her description of the upcoming crises. The way I read even Stoneleigh's musings, it's as if the financial aspects of energy, food, and population pressure are all that matter.

In the near term that may be true enough, and maybe that's all this EU/US contrast is supposed to highlight: Who gets hurt worse in the next leg down?

Me, I'd rather cast this decline as a series of whoop-dee-doos, much like the rollercoaster response of the equity markets. Those who fare worst first might be better poised for the next black swan arriving from some orthogonal direction. Ilargi mentioned Iceland in this context IIRC, sort of a "Wouldn't it be a hoot if they turned out the luckiest by defaulting while there were still bailout options on the table?"

So here you go, my temporally tuned take on the tempest:

On paper, the US is in much worse shape right now than the EU, but who the heck is going to run to the Euro instead of the USD in the next panic? And there will most surely be another panic, sooner or later.

After the Debt Detonation (and a la Stoneleigh), it seems pretty clear that the death of the USD will follow, not by ice but by fire, in a final hyperinflationary holocaust that will bring down every fiat currency.

Longer term, the US has the food, water, geographic isolation, and massive weapons stockpiles to weather the larger, blacker swans, with climate chaos and ug99 topping today's list of my candidates. I actually think that the me-first mentality in the US might be advantageous compared to a socialist mindset that keeps dragging people into the lifeboats until everybody founders and sinks.

Nobody literally thinks they can go it alone - no one I know, anyway. In crisis, we in the US are more likely to participate in a fluid, ad hoc cooperative anarchy, not turning our backs on our neighbors, but not rushing off to rescue 'Nawlens' or Port-au-Prince, either.

We will defend our borders here, make no mistake, and we have the means to do so for the long haul, on national, regional, and local levels. This time around, it won't be like the Depression-era billboards telling the Okies to "keep on moving.' So we'll shed the weak and vulnerable in our great American tradition, and maybe hang on a little longer because of it.

But in the end? No chance. No way. Those in power are absolutely determined to defend what last scraps of privilege and power they can cling to, just like the last of the Greenland Norse desperately trying to raise cattle in spite of all the signs pointing to their folly. So our fate as a civilization will be sealed, no matter how long homo persists as a species.

Tero said...
This comment has been removed by the author.
btraven said...

I wonder if it comes down to this: Europe is more congested, thus subject to tougher times under duress. The US is definitely less "mature," and lacks adequate safety nets, but there is more space. Will the stresses will be less infectious?

Greyzone said...

While Europe as a whole appears better off than the US, Europe is not a single nation, the Eurozone notwithstanding.

It is this that many people discount. I've recently read a statement where someone said Europe can never again have a destructive war because purely of the European Union. Oh really? Even the US had a civil war. And the EU is completely capable of falling apart on its own.

Thus I think it is a very bad analysis to equate Europe with the US. The PIIGS may collapse far worse than the US. Eastern Europe could become quite a mess. The UK is not in such hot shape either. But France and Germany might do better than the US, that is, if the external pressures around them don't destroy them too. Germany doesn't exist in a vacuum.

Any simple Europe vs US comparison is flawed from the start. Europe is a far more complex case than the US. The US is going down, plain and simple. But Europe is going to have pockets ranging from far less collapse to far more collapse than the US.

Furthermore, there are a number of ecological factors working against Europe compared to the US. Population density, volume of wildlife and wild areas, wide variations from nation to nation in pollution controls, wide variations in arable land condition, plus numerous other issues all contribute the making the European situation very, very different from the North American situation.

Europe has 700+ million persons in approximately 3.8 million square miles. North America has just over 500 million in 9.3 million square miles.

If you try to think of BAU and simply analyze Europe and North America that way alone, you will come to highly erroneous conclusions about what the future looks like. Europe has serious issues facing it, from lack of native fossil fuels, to much higher population density than North America, to being adjacent to another continent with even worse population density than itself.

Don't overlook the ecological impact of the ongoing crisis. Europe cannot continue with 700 million people as infrastructure begins to go. And it will go, people. The next 60 years will see the end of industrial civilization and many of you are going to see some part of that first hand.

P.S. Europe had previously reached a steady state for centuries in feudal conditions with about 200 million people, less than one third of current population. Now you do the math and tell me where we go from here.

VK said...

So far,

Europe - 12 (Adding my vote)
USA - 1 (Stoneleigh)
Draw - 1 ($$$)

And I reckon privately, a lot of people are thinking Europe is better. I personally would like to add my vote to Europe as I just see their system as being better post collapse. Lets see, lots more room for debate here and changing opinion.

Tero said...
This comment has been removed by the author.
Ben said...

i haven't been to san francisco in about three years, but how could it possibly be so dangerous as to have its suitableness as meet-up location questioned? detroit and new orleans don't even belong in that category, nor has east palo alto ever belonged.

debating the time frames for such fears after the double-dip is another matter.

Ilargi said...

So far,

Europe - 12 (Adding my vote)
USA - 1 (Stoneleigh)
Draw - 1 ($$$)


I don't like being in the majority. Too crowded.

Ilargi said...

Palin to Tea Party: America ready for another revolution

Former Alaska Gov. Sarah Palin drew many standing ovations from a friendly crowd Saturday night as she blasted Washington Democrats and the Obama administration in a keynote speech for what was billed as the first national Tea Party Convention. "It's so inspiring to see real people, not politicos, inside-the-beltway professionals, come out, stand up and speak out for common-sense conservative principles," Palin said.

Palin sought to hold Washington accountable as she took on a number of issues, including national security, the economy, and the recent election of Republican Scott Brown to the Massachusetts Senate seat left vacant by the late Ted Kennedy. "America is ready for another revolution and you are a part of this," Palin said. She called the Tea Party movement a "ground-up call to action that is forcing both parties to change the way they're doing business."

Palin gave particular attention to Brown's election, calling him a representative "of this beautiful movement." "If there's hope in Massachusetts, there's hope everywhere," she said. "His victory is a sign of more good things to come." She called on the administration to take note of the election results, saying "you better stop lecturing and start listening."

"The Obama-Pelosi-Reid agenda will leave us less secure, more in debt and under the thumb of big government," she added, saying voters all over the country are sending a message that they want change in Washington. She harkened Obama's famous campaign slogan, asking, "How's that hope-y, change-y stuff working out for you?"


el gallinazo said...

I posted last night about a new one hour Michael Hudson interview on Guns and Butter. Since that posting, I had a chance to listen it, and I think it's his best interview yet, probably because Bonnie Faulkner is such an accomplished interviewer.

Anyway, toward the end of the interview, Hudson gets into debt slavery in Europe, particularly the post Soviet block, much of which is in the EU if not the EMU. In this respect, Hudson is most familiar with the troubles of Latvia (he consults their) which have only been superseded by the troubles of Job (the bible guy, not the Apple guy who also has his health issues). Hudson points out that since the Rubenistas invaded Latvia after Soviet independence in 1994, the average life expectancy has dropped from 60 to 50 years. The country has about 20% of the hospitals that it had when the Russians army finally goose stepped eastward, and the IMF insists that the national government close half of the remaining ones. I believe that the IMF wants the country to have only three remaining hospitals.

But the main event, as it were, that Hudson is pointing to is that there was a huge housing bubble which has since imploded, financed by Swedish banks in USD. The mortgages in Latvia are recursive, unlike most of the mortgages in the USA. When the home dwellers (using the term home owners would be an obscenity) can no longer pay, the banks are repoing the houses, reselling them, and then they aggressively garnish the wages of the previous occupants, who can no longer afford any of the necessities of life, including the rent of an apartment.

So Hudson is claiming that things will get much worse for the average European than the average American because of the recursive nature of residential debt in Europe will drive people into debt peonage faster than the USA.

So, I will place my vote on the situation becoming worse in Europe, particularly if one votes about all of Europe and not just Rumsfeld's Old Europe. But I think that you will see violent rebellion of the working classes with repudiation of all debt there much sooner as well. said...

"Don't try to outsmart the DA, just answer the question."

Heh. I like that.

The US has a more efficient political-institutional mechanism for printing money, than does the EU. The political sight-lines therefore run differently in the US, than in the EU, to Washington's functional bailouts so far to the states (StimPaks, Transport, Edu spending, etc).

Europe is worse off, therefore, because until it jumps the money printing shark as we've done here, then all bailouts in the EU are ad-hoc and give time to the leveraged speculator community to fire their bullets in the debt markets. And it doesn't help that you can trade Greek CDS and Spain CDS.

The US is worse off structurally and internally, but I have to answer the DA who wants an answer now: the EU.


Stoneleigh said...

I agree with GreyZone that Europe is a far more complex situation where one would expect far more local variation (eg no housing bubble in Germany). Population density is a huge issue, as is soil fertility on a continent that has been developed for so long, and where the Common Agricultural Policy encouraged massive over-production.

An aging population surrounded by far more over-populated areas teeming with unemployable young people is very vulnerable. Half the population of Saudi Arabia is under 15, for instance, and they live in a desert, where they won't stay when things get difficult. People will migrate from all the areas around Europe.

The energy to run high intensity agriculture and any kind of industry must come from Russia, but as Eastern Europe already knows, Russian energy dependency comes not just with strings attached, but steel cables. European energy sources are either rapidly depleting or already heavily depleted. How much oil comes out of Romania now, or coal from the Ruhr valley or the Donetsk, or oil/gas from the North Sea? (There's still Estonian oil shale, but western Europe wouldn't like the environmental problems that come from burning ground up rocks.)

Financially, the recourse debt that El G mentioned (is an important factor (Canada is like that too by the way). Debt slavery beckons so many Europeans. Unfortunately, so does fascism, although not so much of the religious kind like I would expect in the US (the prospect of which frightens the life out of me quite frankly). The UK could easily end up like something out of 'V for Vendetta', and in far less time than people might imagine.

I love Europe and was always very happy there, surrounded by music and culture and history, but tragically I think it is headed for balkanization. Sarajevo seemed like such a cosmopolitan city when it hosted the Winter Olympics in 1984, but within less than a decade, 'ethnic cleansing' was all the rage and neighbours were shooting each other's children.

The veneer of civilization can be painfully thin, and old animosities are harder to bury than one might imagine. After all, the Battle of Kosovo Polye is still a defining part of Serbian identity, still a very strong emotional anchor, and still grounds for claiming the territory of Kosovo, even though it happened some 600 years ago and Kosovo is now populated by Albanians.

Unfortunately all civilizations tend to define their own natural boundaries at their former maximum extent, which means an enormous amount of overlap on a continent that has seen the rise and fall of so many ethnicities. When there is not enough to go around, these factors will be remembered, and the blame game will begin.

Of course the US also has marginalized minorities, social tensions, spoiled or depleted aquifers, high structural energy dependence, an atomized population, a huge debt burden etc etc. It (and Canada) will suffer horribly. However, the debt burden is lower than in Europe, banks are less leveraged, mortgages are largely non-recourse (unless the rules are changed, which they may well be), the population density is lower, there are more resources (including domestic energy production, depleting though it is) and there is less established cultural 'structure' likely to inflame passions from the distant past.

On the other hand fire-and-brimstone fundamentalism is rife in parts of the US, and weaponry is everywhere. IMO there will be anarchic regions and heavily controlled/repressive ones, neither of which are likely to be pleasant. Fascist theocracy could make the US look like the Spain of the Inquisition ear at some point down the line.

There's nowhere that will be unscathed by a global upheaval on this scale, even though some places will fare better than others, probably on a very local basis.

bluebird said...

Ilargi asks "Is Europe worse off than America? Now, in a year, in 5 years?"

Of course America is better off now, I live here. We have the best people, the best military, the best food, the best of everything. Short term, yes America will come together as a nation, like we did after the attack on the Trade Centers 9/11/01.

But when the global Ponzi implodes, it will affect all countries. In 5 years, those places/people within a country with the most to lose will be worse off, and the places/people with the least to lose will fare better.

Mellowg said...

Well, the best place to survive will probably be Nicaragua.

Right now it is cruising along with some 60% unemployment, the other 40% surviving on subsistance farming while feeding the unemployed.

There are no social services to talk of, no social netting, but family is primordial. The one that works feed all the others.

Would i want to live there today... no thanks... would i want to live there tomorrow, that i might want to think about.


Greenpa said...

from the Polka Dot Gallows-

In the face of a vast global warming-typical monster snow storm, the Washington Post has these headlines...
Crashes and chaos

POST NOW: Storm's aftermath takes hold, creating havoc on roads and causing roofs to collapse.
Washington Post Staff | 9:59 a.m. ET

What about area's celebrities?

Full coverage: 'Snowmageddon'

yes, by golly, what ABOUT our celebrities??? I've been worried sick!

jal said...

Its all about time line and the end of income/credit.

As long as there are federal revenues going to those who have no revenues the system can continue.

Here is an example. The northern communities, (Arctic),
are overpopulated and have a depleted resource/land carrying capacity.

Without the funds for health, (clinics), teachers, (schools), social services, (welfare, unemployment, pensions), government infrastructures, (wages), ...
There is no tax base left to operate a gov. or wages/revenues to operate a business.

Mass starvation or mass migration will be the result.

Former Alaska Gov. Sarah Palin has already seen the writing in the snowbank. A dog team will not be able to drag her back to the Arctic. The warmth of the white house is beckoning even in this freaking weather that is blowing all the municipal/state budgets into the red sea.

Reword praphrasing ... federal revenues going to those who have no revenues the system can continue.

... STOP spending the federal revenues to those who have no revenues and the system will continue.

"WE WIN THEY LOSE" will be the new rallying cry of the rich and newveau rich. (Keep the military strong in case you need them)

From the pot to the fire.

The rich will survive long after we are gone.

VK said...

See this is why we need polls! With buttons, where I can clickety click.

Europe - 14
US - 4
Draw - 3 (or was it 2?)

bluebird said...

Simon Johnson says

"Remember that none of the opaqueness of the credit default swap market has been addressed since the crisis of September 2008. And generalized counter-party risk – the fear that your insurer will fail and this will bring down all connected banks – raises its ugly head again.

In such a situation, investors scramble for the safest assets available – “cash”, which actually (and ironically, given our budget woes) means short-term US government securities. It’s not that the US is in good shape or even has anything approaching a credible medium-term fiscal framework, it’s just that everyone else is in much worse shape."

el gallinazo said...

Just a warning:

The conversion of recourse to non-recourse mortgages in the USA was a reform instigated by the GD v.1.0. However, the details lie in state law. Fortunately the squid were slow to rewrite state law in this respect as they were baffled by their own bullshit, and also believed that real estate prices could only go up. However, not all mortgages are non-recourse and many refinanced loans and home equity loans are recourse loans. Additionally, the squid who have you under recourse will, of course, heap huge amount of expenses onto their recourse including $500/hr legal fees. The only way to know exactly where one stands is to consult a specialist lawyer in your own state. Happy jingling!

el gallinazo said...

bluebird said...
Ilargi asks "Is Europe worse off than America? Now, in a year, in 5 years?"

"Of course America is better off now, I live here. We have the best people, the best military, the best food, the best of everything. Short term, yes America will come together as a nation, like we did after the attack on the Trade Centers 9/11/01."

Are you being sardonic, or is this for real?

bluebird said...

El gallinzao - Of course I was being sardonic :)

But the majority of citizens truly believe that propaganda.

Greenpa said...

Greyzone: " Europe cannot continue with 700 million people as infrastructure begins to go. And it will go, people. The next 60 years will see the end of industrial civilization and many of you are going to see some part of that first hand."

I contend, in all seriousness, that all of us are seeing it now, today, and mostly refusing to recognize it.

The inability of Toyota to make, integrate, and oversee the function of - a brake pedal?? It was their ability to manage minutiae that made them; and this is actually far from a minute problem.

Keep in mind- Rome fell about 1-300 years before the Romans realized it.

And climate change- the East coast snowstorm is exactly what to expect; but I haven't heard that mentioned yet in the MSM- the Knights Of Big Modeling are tired, is why. You can only be laughed at for saying "yes, snowstorms are caused by warming" so many times, before you sicken.

MNlawyer said...

Non-technically speaking, the USA is much worse off and will require many more months if not years to recover. Why? A majority of Americans believe capitalism can do little if any wrong, and see "socialism" as the devil incarnate. America's failure to see and/or acknowledge that "unbridled capitalism" is largely responsible for the current state of affairs will preclude America from understanding America's current economic ills, to say nothing of creating and implementing solutions to the problems that confront us. The "tea party" movement is both good news and absolutely devastating at the same time. Good news from the standpoint it confirms many people feel and know something is amiss in America, but devastating from the standpoint that many have no idea other than a mindless mantra or chant of how America can and should address the problems that confront us. In summary, until America identifies what and how we got to where we presently find ourselves, we will never begin the journey back to any status of normalcy as we previously knew. I am not a European scholar, but in my heart feel Europeans are much better equipped to begin the journey back than America.

VK said...

@ Greenpa

You don't need 3.2 Million jobs to be created to show an 80,000 decline, only 900,000 jobs or so!

The formula is,

Joblosses = Jobs Lost - Jobs Gained and those who've dropped out of the labour force are not counted since they no longer consume food, water or energy!

Also, the US labor market is back to where it was in 1999 with 129.5 Mn jobs and a popn increase of 29Mn people. In the decade, GDP grew a fantastic amount but stocks went nowhere and employment and wages went nowhere and the only thing that went up was healthcare, college and energy costs.

postpone.judgement said...

Interesting discussion – feels like at work with Americans and Europeans almost understanding one-another.

European banks are not more leveraged than US banks, this is an artifact of different accounting rules. Moot point, as both are bust and on mutual life-support. I expect this to go down together, with a decent default and then move on to deal with the real issues.

Grayzone makes very good points about Europe, and its diversity. I differ about the assessment of the ecological situation, though. Europe is the continent with the by far slowest population growth over the past 250 years. And the core transportation infrastructure network was set-up long before the engine got invented. Going down to one third of the population is harsh, but how many farms will the US have without cheap petrol and aquifers? I'm pretty convinced Europe can lower its energy consumption with far less disruption than the US. Try walking to the next Mall. Or to the next train station.

What is often overlooked is the impact WWII had on Western European politics. There is a common tradition now, of course the periphery can go down like in the Balkans or in Latvia, but that does not have real implications for the core. Income and wealth in Western Europe has been higher since the Roman times; societies are different. I'm not surprised that you get thrown to the dogs in Latvia after a recourse loan gone bad, in Germany you end up in the social network, getting a paid for apartment etc. Russia is financed by Germany and France since the 70ies. Judging from the socialist experience, they'll starve their people off to keep the exports going. The oligarchs don't want to drive Ladas.

Families living in East Germany had their wealth completely wiped out three times during the last century. Did this lead to internal violence or civil war at any one of those instances?

Bluebird, are you serious? The best military utterly incapable of pacifying failed third world countries? And where exactly are those WMD identified by world-class intelligence? Homeland security to me the most dangerous development in the US, it is about laying the foundations for some kind of –ism as Stoneleigh points out. Europe has become far more compensating in response to its experiences in the last century, the US still believes in its exceptionalism. It will fall harder – and the populace is better armed.

Tero said...
This comment has been removed by the author.
MJ said...

I'm going to say the US is a better place to be based on the whole population congestion bit. For months I have listened to you all claim that the only way to survive the bottleneck is to have a parcel of land, preferably with a stream, in order to grow some major portion of your own food. Presumably, you would give this same advice to Brits, Europeans and other members of the human race. It's not doable for the entire population to have their own doomsteads anywhere on the planet, but at least there's more chance to do so in Usanistan (and I'm assuming in Canuckistan as well) for those so inclined. So USA is better based on doomstead feasibility.

Lukáš said...

Stoneleigh, you mentioned the fact that most of the Eastern Europe is set to fall hard. I live in the Czech Republic and I am wondering what you think: we are being told by the mainstream media that the CZ and Poland will get through the crises relatively smoothly, but I doubt it. We have indeed the style of "Russian capitalism" you were talking about. In the first phase of decline GDP of the CZ fell by 4 - 5 percent and Czech local currency fell considerably. On the other hand there was no banking crises here yet.

Thank you for your time.

Gary said...

US or EU do better? US (though that may not be much comfort to US citizens).
When civilization falters (or collapses) the survivors are those that take responsibility for own survival and are willing to fight for their identity group.
The US has stronger identity groups:
--families (not as much as past, still strong in Red states)
--religion (especially in Red states)
--nation/state or region (especially in Red states)
The US is also (as has been noted)more remote from hordes of barbarians (sorry, not PC).
Civilized cultures are helpless once the complex structures supporting everyday life break down.
EU may go back 500 years in standard of living, US back 100 years (unless nuclear war breaks out, then all bets off).
Old and weak (my group) won't survive anywhere but we can help mitigate collapse if we are willing to fight (and die) to protect liberty. Civilization will be missed (nature is red in tooth and claw) but brings with itself the seeds of its own destruction.

I. M. Nobody said...

The trouble with trees is that once there are enough of them around you, you can no longer tell whether or not you are in a forest.

As my handsome and extremely bright Grandson can tell you, when presented with really hard and complicated questions, I duck, weave and resort to nonsense. With that preamble out of the way, here's the way I chew on it.

As I wrote just a few days ago, European States are and have been for some time fully sovereign. They didn't just pop fully developed onto the world scene overnight. The Usan States are far from sovereign and IMHO have essentially zero chance of getting that right if they try it.

There almost certainly will be warring in Europe, but they've survived that more than once. Usanistan's one experiment in interstate warfare was horribly ugly and the dust from it hadn't completely settled 100 years later. The period when we enjoyed our greatest actual widely shared growth. Disintegration here could easily get too ugly, for this mind at least, to even contemplate.

Greyzone divides the land area by the census and decides North America wins. There is a certain amount of that Mississippi-level thinking, as Tero dubbed it, in that calculation. The larger part of North America is practically uninhabitable without serious amounts of industrial and technological support. Not to mention lots of credit availability.

That brings me back to the question of forest or just trees. Some of the most debt enslaved people on this planet are farmers. No Operating Loan, no farming. A sudden cut-off of diesel fuel, no farming. Things that can and will curtail harvest totals. Lack of fertilizer, energy shortages, disruption of seed supply, destructive or disruptive weather events, weeds, bugs, wildlife and run amok humans. I'm sure I haven't covered it all.

I don't know which side of the pond goes down first or even which one goes down hardest. Sadly, I do know that it's good to be old.

sevenleagueboots said...

We haven't scratched the surface of the shit storm about to unfold globally. The scurrying departures mentioned by Roger Wiegand "Larger corporations are moving overseas and will do so with an increased frenzy" and "Individual wealthy Americans will do the same" conjures up Jim Rogers, who's all in in China and slings mud from across the pond.

Joe Bagenet a few years ago dumped US for Belize, only to come crawling back armed with a new book of insights - and apparently fed up with conch chowder and island bread. I like Joe, and in all truth his best work came upon his return 'home'.

Rogers will land on his feet too, and all will be forgiven. These folks are expats. Like prodigal sons we accept 'em back, although some of the luster is gone. Other varmints without naming names, will all go unpunished. Banksters, ponzi schemers, the whole political parasite army of
enablers, including regulators with blood on their hands.........the list is endless of perps, all caught up in the mad frenzy of blind greed: they all will go scot free. And afterwards, no American will utter in jest "Just give me my piece of the pie."

If half of the country subsists on social security and
one or another form of dole, when those and other entitlements dry up, commerce enters creeper gear, and 401's are locked up by Treasury. Is that when Johnny comes marching home?

Wiegand is talking his book. Like everyone in the advice racket, its 'come to daddy'. Yes, Virginia, its a scary world out there - however, we'll be glad to point your wealth into areas where it will be safe
and secure - trust us.

His #'s 10-17 reads like a list of criminology 501
all without sign of punishment; the last three points allude to war and massive revolt. Just what Grandma and Aunt Sadie need to digest before tucking the kids into bed. Sweet dreams.

John Hemingway said...

I agree with everything you said re: the ongoing decline of industrial civilization and global warming. 80 to 90 cm is a lot in one dumping, not unheard of here in Quebec, but down there in D.C. an exceptional event, and, of course, just the sort of erratic weather you would expect with 'il riscaldamento globale'.
Saw a great film last night on TV, Children of Men. It came out in 2006, but it was the first time that I'd seen it and I think that it might not be such a bad portrayal of what societal collapse has in store for us.

jal said...

Former Alaska Gov. Sarah Palin said, "I WIN THEY LOSE".

This show ignorance to the extreme.

Without the federal money, (ie. pushing for smaller gov.) the small businesses, (middle class), will not have any income from elders, S.S., food stamps, health care workers, teachers, gov. employees, on and on.

Removing the gov. spending from the economy will cause an immediate RESET that will drive the middle class into the ranks of the homeless.

Let's watch how Greece, (E.U.), keeps giving what it doesn't have. Then we will see if the US finds a way of doing the same thing.

I. M. Nobody said...

@John Hemingway

What makes it a lot worse for DC is that the DC area thinks of itself as Southern. Therefore, no need to make any serious investment in snow removal equipment.

I guess it was in the 70's, I visited my brother when he was living in the Virginia county just south of DC. A fairly heavy snow had just fallen and while we were driving around seeing the sites, he entertained us with tails of how badly even a light snow always snarled traffic, frequently causing people to abandon their cars on the Beltway. I said something about snow plows and he replied, we don't have any of those. Our county snow removal operation consists of two old Negroes with scoop shovels and a dump truck. A few minutes later, we passed them on an on-ramp.

el gallinazo said...

sevenleagueboots said...

"Joe Bagenet a few years ago dumped US for Belize, only to come crawling back armed with a new book of insights - and apparently fed up with conch chowder and island bread. I like Joe, and in all truth his best work came upon his return 'home'."

I assume the spelling of Joe's last name is supposed to be some form of witticism. But to clear up a few factual errors. Joe never intended to spend more than 6 months a year in Belize, and never intended to settle there full time. He was involved in a few projects there hoping to make certain areas of the life style of the village he was involved with better. He continued this work in Belize after his book became popular. His main domicile currently is not the USA but in the Lake Chapala region of Mexico. He has two connections that currently bring him back to the USA. One is his wife who has been loath to give up her job. I am not sure what the status of that situation is now, other than that he is happy with his marriage. The second is his business as a popular writer in the English language.

As to accepting ex-pat's back with grace, that's awfully white of you.

barnaby33 said...

A lot of interesting comments. I suppose the question requires boiling some extremely complex topics down to sound bite sized pieces and so I shall.

In the short term, the US is fucked, everyone else is fucked worse. I say this for a variety of reasons. First its our currency, but everyone else's problem. Why anyone thinks that the banks in Europe are any less insolvent than those in America is beyond me. Most of the real abuses in Europe's banking system have so far been swept under multiple rugs. You can default on debt pretty easily. When the time comes we will and that will cause the US to be poorer, but how will our partners escape the other side of that unscathed. Which leads me to my second supposition. The US is the customer of last resort. Where exactly will these European economies sell their goods? If you've spent the better part of a century building an export dependent economy, you can't switch quickly to internal demand.

Medium term the EU is older and has far richer entitlement and benefits schemes. Americas social security and medicare schemes will and are becoming insolvent much faster. That is actually a good thing. Neither the US nor industrialized Europe has a hope of meeting the expectations of boomer retirements, better to reset those expectations sooner and as someone posted above, shed some of the weak earlier.

Long term however I think America has several things that stand it in better stead the Europe. It has more natural resources, less people, less history of bloodshed and the American century was based on oil. Until that seriously runs out, any discussion about the death of America is entirely premature. We have the guns and the ability to ensure we get the oil and if push comes to shove (as it probably will) we'll just tell everyone else to pound sand.

Sunshine said...


Although there is not much clarity (truth from the ‘officials’) on the real condition of the US economy, there is however some level of transparency from a vast array of ‘non-official’ sources.

Europe on the other hand is TOAST.

Everything, everything, everything that comes out of Europe if fake.
At a cultural level Europeans almost naturally always ‘market’ themselves even when having casual conversation.

Listen to your very own words “For all I know, Merkel, Sarkozy and Trichet may be actively feeding international media horror stories about Greece and Portugal.”

Because human economies are a derivative of people
It is impossible that the core countries of the EU Germany and France are doing any better then say California.
Mostly because in ‘real’ reality the Germans and the French have access to pretty much the same financial knowledge as do Californians with a far lesser hunger and drive.

Because of the constant posturing and acting of the European information outlets it’s very hard to distinguish what is genuine
I think that I may have recently developed an automatic filter that a soon as I detect a person with a European dialect I know for sure the person is lying about something.

To sum it all up; the same European type nationalism that has blinded them all thru out its history is the key driving force for both making them appear in decent shape today and will soon expose the rot underneath.

zander said...

Call me old mister fencesitter but isnt it possible that both sides will fall equally hard and with equal catastrophy? it may simply be that the grass is greener on neither side.
For me however ,if pushed, and not knowing jack about regional tensions stateside, I would have to say europe must be in bigger danger of a confict driven harder fall, as someone mentioned earlier there are a lot of unresolved disputes which were merely put on the backburner during the boom times and may yet come back into play as times toughen E.G. Basque separatists-Spain, IRA-Ireland, Malta/Cyprus territorial disputes, eastern european ethinicity divide issues, and, elephant in the room Turkey and it's large Muslim population who don't in their hearts embrace europe at all, I could go on and on with this one.
so euro v usa...
Economically - both toast
civil breakdown - Europe, and lets not forget Russia is net gas/energy supplier in chief here, I'll bet Russia have been itching to pay Europe back for ages after treating them with hostilty for so long and being, in general, more USA friendly.
However.... and to diverge slightly, I think the UK as a seperate entity ( never ever been truly integrated with Europe) from this debate (europe v usa) will without doubt fall further and harder than almost anywhere on earth, at least in the short to medium term, not least because TPTB have gone to an almost ludicrous degree to keep things in bisiness as usual mode, mindsets here have changed little, with house prices relatively untouched, and unemployment, although bad, nowhere near as bad as it might be,(and is going to get) we have, realistically, nothing of substance left save the so called centre of finance in London and we all know where thats headed.
You just get the feeling that the pressure on the dam wall is so pent up that when it ruptures it will drown or sweep away everything in its path.
Watch this space.

PS UK will break up eventually or sooner.


memphis said...

Treasury secretary says US credit rating remains safe despite deficits, growing national debt

WASHINGTON - Treasury Secretary Timothy Geithner says the U.S. government "will never" lose its sterling credit rating despite big budget deficits and a newly increased debt limit that now tops US$14 trillion.

Headliner blurbs like this ususally mean the jig's up.

Bigelow said...

“Richard Heinberg has done something that sorely needed doing: he has performed a Collapse Gap analysis for USA and China. In a lengthy and detailed article he argues that, just as the USA is less prepared for collapse than the USSR was, the USA is less prepared for collapse than China. This is perhaps unsurprising (few countries are less prepared than the USA). Collapse-preparedness affects how many people will be able to survive the collapse, and how bad a time they are likely to have in doing so.”
Collapse Gap Revisited

el gallinazo said...

Wow. Great idea. Like having a commentariat wide Rorschach test. Illargi, you should have run an ink blot instead of a photo.

Bigelow said...

“Terrorists who want to overthrow the United States government must now register with South Carolina’s Secretary of State and declare their intentions — or face a $25,000 fine and up to 10 years in prison

The state’s “Subversive Activities Registration Act,” passed last year and now officially on the books, states that “every member of a subversive organization, or an organization subject to foreign control, every foreign agent and every person who advocates, teaches, advises or practices the duty, necessity or propriety of controlling, conducting, seizing or overthrowing the government of the United States … shall register with the Secretary of State.””
South Carolina Now Requires ‘Subversives’ to Register, Pay Fee

thethirdcoast said...

Regarding Palin, McCain has created a monster, but I have this sneaking suspicion that a lot of her male support will drift away as her curb appeal declines with age.

@ bluebird:

"But the majority of citizens truly believe that propaganda."

As someone who is awake to the reality of the world situation, do you ever find yourself frightened at how deeply most individuals and institutions are enmeshed in the dominant cultural matrix? I know I do.

@ Ilargi:

"Don't try to outsmart the DA, just answer the question."

Good line, but as someone who has had the misfortune of seeing a few of the Usaco "just us" system's DAs in action I can assure you they are far below your level.

Don't even get me started about being trapped into illegal searches of my property by so-called "peace officers".

carpe diem said...


Thanks for clarifying. I was about to start kicking and screaming!


ex VRWC said...

I will take a crack at this.

In order to determine who is worse right now (Europe or US), I think the key point is to look at their ability to change course. FOr instance, who is farther along the 'entrenchment scale', my measure of how entrenched the class is who benefits from the labors of others or the guarantees that the system has put in place. So we are measuring, for instance, pension liabilities and how hard the entrenched class will fight to keep them. Or socialized services and their cost and the pain to remove them and the expectation of the populace to receive them.

The reason the entrenchment scale is so important is that the entrenched class fights to keep the change from happening that needs to happen, preferring the status quo.

I think clearly the entrenched class in Europe is much older and more entrenched that its US counterpart. And Europe cannot have a large political change across the whole continent the way the US can.

Therefore, Europe is worse off, because, right now, it has the least ability to change course.

Gravity said...

Mexico's rapidly declining oil production should quickly become an additional destabilising factor for the US as other avenues of oil import are progressively cut off, even with greatly reduced demand, shrinking revenue streams might result in governmental power vacua being more swiftly occupied by domestic syndicates than US troops.

The complete destruction of tourism as a global industry should greatly destabilise all of the mediterranean, possibly turkey, egypt, likely intensifying refugee streams from northern africa into europe, multiplying related societal stressors.

you have offended my honor, sir.
I demand satisfaction (gives glove slap across face). I challenge you to a duel.
I contend that the interlinked stages of political, social and cultural collapse are in some ways further progressed in the US than europe, and unless the euro dissolves, or unless it doesn't when convenient, commercial collapse should proceed slower in europe because of logistical structure, when disregarding russia's energy leverage. Extensive financial collapse has occured in both entities and should undergo massive acceleration if china malfunctions in any way.

I. M. Nobody said...

@el gallinazo

It may every bit as good as a Rorschach. A whole lotta people seeing what they want to see. Tell me old bird, are you as glad to be old as I am?

NZSanctuary said...

Second the recommendation of the Michael Hudson interview El G mentioned:

$$$Dollar$$$ said...

ex VRWC - I agree with you. To add, it will be the country that can best adapt and change to new realities. I think that will be the USA. Europe with their unions ---> inflexible labor markets, and larger (yes larger) entitlements (mentality), I think Europe may, just may, have more of a problem.

Gravity said...

If the north american union were to be successfully implemented by means of finalising a new monetary union, still vaguely on schedule for 2010-2020 officially, such an entity would concievably be vastly superior in geo-strategic and commercial position compared to both the US and europe. The existing constitutions would have to be nullified first somehow, which could never have been achieved by consent of the US citizenry under normal circumstances.
Besides the obvious conspirations, it would seem like a valid decollapsing strategy to pursue for the north american continent,
if sovereignty were not an issue
and intergovernmental decomplexification would provide sufficient marginal gains.

Gravity said...

Austerity today, victory tomorrow!

Wyote said...

At the upcoming dislocation, I see the banks as the last remaining globalized entities. It will be here that the real end-games are played out. So look to the financial class and watch the jujitsu. It won’t take long for wars to follow. Europe? USA? China? Russia, Brazil even the Swiss. Maybe especially the Swiss. The collapse will be written and initiated by their players in what will be one colossally brutal game. Who will stay with the current reserve currency and who will call bluff? I don’t think the big players will collapse until they are tipped in the grand game of Mexican Standoff ( H/T to El G.) But when one goes, all bets are off and the resource wars will begin in earnest.

My take on Super Bowl Sunday

All The Best, Wyote

Frank said...

Ok Ilargi,

First, there is not one Europe. France and Germany and the Nordics less Iceland are in the least bad shape, even after the garbage paper their banks (worse than the Americans by all (not just Anglo-Saxon) non Franco-German reports.) That's pretty forever.

PIGS and UK. I'd say about even with the US in the 1-5 year scale. Better social network, but worse housing bubble, same bank issues as France and Germany and big unemployment even compared to the US. In the 10 year time frame, I see Ireland and UK catching up with core Europe, while the Mediterranean countries develop bad desertification issues from global warming.

Former Warsaw Pact. Scrod 1 year, scrod 5 year, maybe starting to pull it together at 10 years. BTW, I don't buy blaming capitalism for not seamlessly maintaining life expectancy. The economy collapsed. No jobs, no money. Maybe Social Democrats could have done in five years what capitalists did in 10, but asking for no decrease in life expectancy requires magic wands.

I'm with Stoneleigh on the breakup thing. I don't see the EU being worth it to either Eastern Europe or Ireland/UK. Also, for every boner the UK has pulled, France has done something to make sure that the UK has 'Italy' status in the EU rather than being a first class member like France and Germany. Why does the UK want to play a rigged game?

By 2020 I see resource an climate dominating rather than current finances. Southwestern US, bad shape. Europe, getting jerked around by Russia. I've already mentioned the Mediterranean countries.

el gallinazo said...

I. M. Nobody said...
@el gallinazo

"It may every bit as good as a Rorschach. A whole lotta people seeing what they want to see. Tell me old bird, are you as glad to be old as I am?"

Well, sort of. But then again, I am firmly entrenched in what I consider to be the reality of reincarnation. Reminds me of my first year at boy scout camp when I saw a couple of sadistic 12 year olds trying to force a terrified 10 year old through the hole in the shitter. Fortunately, his shoulders wouldn't go. I should be so lucky on my next go around :-)

Andrew said...

quoting Greyzone's comment:
"Europe is a far more complex case than the US."

While there is a "nation" issue in Europe, there is also a "state" issue in the USA.

Some states will survive a lot better than other states in the USA just as some nations will survive better than other nations in Europe.

before coming here, i thought USA will be worse.
after coming here, i thought USA will be better.
some comment here have somehow changed my view.

Greenpa said...

Maybe the Philippines are living in the same place both US and EU may be in 20 years?

scandia said...

Geithner says the US will NEVER lose its triple A rating so I guess the US will not default before any other nation. Sure is confident. Wonder why?
Maybe its because the US owns the rating agencies or the IMF will never let the US go down.
His opinion is contrary to mine.
When I watched the market charts on Friday I had a body experience of falling in a death spiral...suddenly my fall was arrested by a safety net I didn't know was there and whoosh...up and up I went. I really felt that the abyss was averted yet again.
Another factor affecting default is gold. I don't think the UK or the US have large gold reserves?

@Gravity, not encourage a North American union. I want less integration with the US not more! This proposed union is a backroom agenda. Homeland Security and Blackwater putting the squeeze on Canada? No way! That is one's worse nightmare. If America wants to hunker down in terror behind a perimeter so be it. Just leave neighbours to the north and south out of that concentration camp concept. Many Cdns would overcome their gentle ways to resist such a future. And like any occupied country the resistance would never end. The only interest the US has in Canada is to control our oil, minerals and WATER. And sadly there are Cdn boyz eagar to sell out the nation for profit.

John said...

US or Europe worse off?
Good question, but what context does one assume?
The US seems to be putting all future assets into massive militarism.
Military dominance of the world, with blackmail and resource theft seem to be the strategy.
Such a strategy is destructive and unstable. The bully must become a target. So far the bully has been picking on countries that are locked out of the bullies' neighborhood.
Having bicycled and backpacked through parts of Europe Asia and Oceana, I've observed a lot of different levels of local cooperation, order and sufficiency.
I have to think, that if the plan to militarily dominate the world is carried out in more and more desperate times, there will be a breakdown in transport of food and goods, as well as unreliable electrical, gas and water service.
The question of "US or Europe" will be too big. Smaller survival units will be more relevant.
Urban areas are tremendously dependent on fuel and water for everything. I couldn't bet on Phoenix Arizona in that scenario.
I fear that war will be the decisive factor in who does relatively better and worse. Initially, America may do well with war, but later the aggressor must pay the price.
Even so, not all areas are ever hit equally in any war.
Places where people have all the necessities,like fertile land, good weather, adequate rainfall, low population density and low levels of specialization, should fare better, when there is a collapse of complex structure.
All that being said, one very complex country,India, might fare surprisingly well, because it contains within it, all the levels of social and technological organization for the past 5000 years. India can collapse from level to level, without having hollowed out everything between the space age and the stone age.
My final answer is that The US should do better, but it won't do better if it cannot back down from the military dominance model.

DIYer said...

Oh when the Saints,
Go marching in...

and intergovernmental decomplexification would provide sufficient marginal gains.
Somehow I believe we've hit peak decomplexification and the marginal gains will be insignificant. However, it will take a long time to embrace localization.

I don't really know much about Europe, all second hand knowldge. But my feeling is that Stoneleigh's analysis of USAnistan is spot-on. It'll become isolated, theocratic, and dystopian, but stay together more or less. In the long (>5yr) run, Europe has been built around a low-energy economy, and will probably be better off.

Greyzone said...


Population growth no longer matters. We're near the top of the curve and it's going to head downward in the not-too-distant future. But population density is going to kill 500 million or more Europeans. Because 200 million is the best case for the number that can live in a subsistence system on the European continent, and that assumes arable land as good as 500 years ago, which is simply not true.

My personal guess is that 650 million Europeans are going to vanish and the population will stabilize down around 30-50 million.

Of course, the big wreck is Asia. There I am not sure that there will be more than 20 million left alive in 100 years out of 3.8 billion current population. Asia is a totally trashed ecologically dead continent, a zombie continent, and population density will destroy human life there en masse when the technological systems necessary to support such density begin to fail.

In North America I expect population to fall down to between 50-70 million in a century. I expect 10-20 million in the southern part of the continent (Mexico and parts of Latin America), 20-40 million in the US, and 5-10 million in Canada.

All of the above population guesses presume no major climate shifts in the next 100 years. If the climate shifts rapidly, either into an exceptionally warmer climate or into an ice age, population in North America and Europe will be lucky to exceed 10 million total.

The financial crash, coupled with the onset of resource scarcity in multiple key areas (like peak oil) will place a hard upper limit on what any recovery can actually do. Thus I expect the entire world to begin bouncing down the stairsteps of catabolic collapse, but at any stair along the way, human actions could cause a worse collapse in shorter time. And you can just about count on someone, somewhere, in a leadership position doing something really stupid to make matters worse. Like, oh, maybe selling $6.4 billion of arms to Taiwan igniting a possible cold war with China, who has publicly said they are angry and now plan to sell arms to North Korea, Iran, Venezuela, and other enemies of the United States.

Yes, the possibility of nuclear exchange lurks out there, as predicted by people like Jay Hanson for over a decade. And that would be the ultimate very large step down the complexity ladder to a much lower level of living for whomever was left.

zander said...


"We're near the top of the curve and it's going to head downward in the not-too-distant future".

Without being too specific what timescale are we looking at IYO.

Scotland only has a population of 5m (out of UK pop. 60m) and falling.
we have abundant fresh water supplies and plenty fertile soil, I feel scotland could be in the best of positions to decomplexify if only we could seperate from London.

thanks in advance


VK said...

@ Greyzone

Any thoughts on population decline scenarios in Africa?

@ Zander

The Scots, Welsh and Irish have been trying to get away from the English for a 1000 years or more to no avail. So good luck with that!

@ Board

Loving the debate so far! Lots of interesting thoughts and ideas. I reckon we should have more questions like these.

Tero said...
This comment has been removed by the author.
Paleocon said...

What an interesting range of opinions and comments.

My 2c worth:

In the 1-3 year range the EU will do better. After 10 years the much better resource base of the US will win out. Britain will fare worse all the way through -- fast early economic crash, energy woes, factional violence. Mexico will struggle as well.

The wild card is disease -- somewhere as money and food are increasingly scarce a true pandemic will arise, and the 9B population peak will never be reached.

el gallinazo said...

Amazingly eloquent video from a returning war veteran.

el gallinazo said...

For any ostriches who think that posting anonymously here will protect them from TPTB, please note that Google has signed a deal with the NSA to sort out the "Chinese problem." But not to worry. The NSA would never consider taking adantage of total access to Google software.

scandia said...

@ bigelow, Just read the Heinberg article which nails exactly my frustration. That is that there doesn't appear to be any preparation for collapse.My recent history of campaigning for the Greens verifies that view. Discussion/policy for preparation doesn't win elections.Can't even have the discussion with Greens who label such talk as negative, defeatist thinking.

@ Ilargi and Stoneleigh...I had an ah ha moment last night in reflecting on Ilargi's question as to who will collapse first. ( I, by the way, see default and collapse as similar but not identical dynamics)
Anyway back to last night, while thinking that nothing has changed I made a connection between the crisis of 2008 and Lehman with Ilargi's question. It is as if wondering which country will fail first is similar to the question of which bank will fail first. The ah ha was " THIS IS ABOUT SCALE ".
I've read that Merrill was the intended victim or feast for the titans, not Lehman. This is a cautionary bit of information that applies to Ilargi's question. Who is the target country? That target may get missed and another take the blow as so much now masking the view, inhibiting a clear shot so to speak.
Gravity's mention of a North American union also fed into my scale thinking. It is as if the pie is getting smaller therefore a decision has to be made. Reduced portions or reduced shareholders of the pie. If the slices are to remain profitable then somebody has to leave the dessert table.
My scale model leads to a threatening outcome. It goes as follows:
zones/continents such as EU or NAU
The question then becomes which big chunk on the scale will survive? Stoneleigh has said that behaviours are different at different levels of scale, that important data is available at some point on the scale but not all.Kind of explains why one often mutters, " Gee, why didn't I see that before!"
My question is am I on the right track that the events unfolding are a progression on the scale.A predictable progression? Can this progression even be arrested once it has begun?

bluebird said...

@Greyzone - Those are some sobering thoughts. It's something I deep-down know is coming, but seeing the numbers is quite revealing. Kinda like the media talking about the economy. Talk is just talk, until the numbers are shown in graphs. Then you believe. Yet most people won't look at the graphs that show their Ponzi world is collapsing preferring to hear the spinmeisters that we're 'recovering'.

scandia said...

Further to my question about scale I am wondering about how momentum fits in? Once a tipping point momentum is reached is it inevitable that the " dis -ease jump the rails of scale so to speak? It follows that the opposite direction to a smaller scale is possible.
Is the current momentum such that,
with awareness/transparency and will, we could yet prevent a scale that consumes whole seas and continents?

Ahimsa said...

A must-read on the US Empire's determination to maintain its global hegemony.

"The Sword and the Shield: Surround Russia and China with Mobile, 'Missile Defense' Systems" by Bruce Gagnon


A delightful 8 min. video of Albert Bates teaching permaculture in Belize. :)

Greenpa said...

paleocon- "The wild card is disease"

My own contention is that there are really far too many wildcards for the discussion to be very valuable.

Earthquake in LA? Yellowstone super volcano? More tsunamis? Big storms- ie Katrina, Snomageddon?

Count it. It's not, really not, "if" - but when.

TechGuy said...

"I would say the economic problems in Greece are for Europe what similar issues in, say, Kentucky, would be for the US. Which means: no fun, big drag, lots of talking, but in the end manageable and certainly nothing that would ever threaten the union."

How about a state swap. The US will give the EU California, Florida and Illinois in exchange for Germany and Sweden and Norway. We'll even kick in Rhode Island for free!

Brunswickian said...

Towards a Russia -China -Iran Military Alliance?
Will Iran become a full member of the Shanghai Cooperation Organization?

by Flynt Leverett and Hillary Mann Leverett

If this goes ahead and the attack on Iran transpires, we have WWIII.

Israel and Syria appear to be squaring off at the moment.

rumor said...

Sigh. Two steps backwards... still waiting for that one step forward, somewhere.

"The newest Canada-U.S. trade deal announced Friday would remove the unrestricted right of Canadian provinces and municipalities to favour domestic firms employing Canadian workers when they are handing out contracts.

In return, Canadian exporters are being given partial access to Washington's Buy American program, which, unless it is extended, will end on Feb. 17. And if, as expected, the U.S. Congress passes another so-called stimulus package with Buy American provisions later this year, Washington has agreed only to talk again.

To put it another way, we've promised to open our so-called sub-national government procurement markets permanently in exchange for partial access to a U.S. program that is due to expire in 11 days.

...Theoretically, Canada's provinces could demand similar exemptions. Ontario, for instance, is expected to insist that it be allowed to discriminate in favour of provincially-based firms that manufacture windmills. But the real inequality lies in fiscal capacity. Most U.S. state governments are broke. California can barely afford to pay its teachers. Once federal stimulus money has been exhausted, most state governments won't have the cash to let contracts to anyone, Canadian or otherwise.

That's why, as U.S. Trade Representative Ron Kirk said Friday, Washington has been trying for years to get Canadian provinces to open up their contracting. "The value of new job-creating contracts open to U.S. firms will be tens of billions of dollars," he said in a written statement.

None of this is new. Canada invariably comes off badly in free trade talks with its bigger, southern neighbour. The original 1989 Canada-U.S. Free Trade Agreement was designed in large part to ensure that Canadian softwood lumber manufacturers had guaranteed access to U.S. markets.

They never got that access. Seventeen years later, Ottawa finally admitted that they never would."

1. Well, if it were ever more clear that the Harper gov't doesn't have Canada's interests at heart...

2. Why doesn't a critical mass of people in Canada or anywhere outside the US yet understand that "free trade" has always been a fob to get large US companies with oligarchic practices into other countries? (Lord knows Canada has profited on the back of "free trade" as well with respect to many resource-laden third world countries, so we get what we deserve.)

3. The desperate expansion efforts of a crumbling imperial centre are really quite naked now for everyone with open eyes to see. Which leads us back to point number 1...

Ilargi said...

New post up:

Corruption, Culpability and Short-Termism


ccpo said...

"The energy to run high intensity agriculture and any kind of industry must come from Russia"

Only if they are stupid enough not to convert to natural, sustainable agricultural models.

Permaculture, et al.