"N.R. Wood of Smithsonian Institution, mounting birds." The Lammergeier, or bearded vulture, is the species of bird that allegedly killed the Greek playwright Aeschylus by dropping a tortoise on his bald head, having mistaken it for a rock. They employ aerial bombing to break open bones, tortoises, etc.
Ilargi: The following essay comes from long-term The Automatic Earth friend El Gallinazo, most recently seen cruising for spare carrion in a secret mission on the slopes of the SIerra Madre. We share a lot of his views, though not all. And then again, what fun would that be?
The term "cookie inflation" is one I coined in order to show that it makes no sense to use such terms as food inflation, because you can then keep on subdividing the word inflation until you're left with things that represent no meaning. If your town's favorite cookie baker goes on holidays, the price for his cookies may go up, but that is not inflation. It’s scarcity. There's no such thing as cookie inflation, and we all know it. But all that we will get back to once again later. First, here’s the birdman:
There was an interesting article at Zero Hedge this week, QE 2 Fails - Sell US Equities - Await The Fed's Plan C On The Sidelines, which was a confirmation of The Automatic Earth's leaders' prediction that we are in a deflation as rigorously defined by them in monetary terms. The article also indicates that QE II (why do I always image the Chaircreature at the helm of a huge, Titanic-like vessel when I type that?) has failed to reflate the economy. So why is "price inflation," particularly relating to cookies and other foodstuffs, rearing its ugly head and precipitating food riots around the world?
One of the few areas were I disagree with Stoneleigh is that I believe she underestimates the power of the central banks, particularly the Fed, to manipulate markets and monetary outcomes. I believe that there is not a historical precedent for this because the advent of supercomputers has augmented their power to do so well above previous eras. Even though I do not accept Meyer Rothschild's famous saying absolutely, which, as I am too lazy to look it up, I will paraphrase as, "Give us the power to create the money, and we have everyone by the gonads, even the ones with the guns and testosterone". Something Napoleon learned when he broke with Rothschild financing. He certainly had a lot of guns - don't know about his testosterone level.
Stoneleigh predicted the suckers' rally almost to the day prior to the 666 bottom, but she figured it for about half a year. We just reached two years and counting. I maintain the rather obvious position that the fundamental reason for this elongated market levitation is the Fed, ECB, Bank of China, and Bank of Japan throwing free, newly counterfeited money at the PD's (primary dealers), i.e. the TBTF banksters. This includes buying worthless "assets" for 100 cents on the dollar at taxpayer expense. Most of this money has not gone into Main Street, but rather has been used for Wall Street and City of London continued speculation, including CDS's, equities, equity index futures, and commodity futures.
Zero Hedge keeps track of corporate officers buying and selling the stock of companies with which they are employed, actions which they must publicly report, and has found over the past year that they are unloading their stock by ratios often exceeding 100 to 1 over purchases. So obviously corporate insiders are foreseeing an equities crash, at least for their particular companies, and by extrapolation, this seems to be fairly universal.
This brings up a lot of questions concerning the strategies and immediate motivations of the powers that be. The Chairsatan made a slip of the tongue before Congress recently when he admitted that he considered it an implicit mandate of the Fed to prop up the equities markets. But since corporate officers are dumping their stock, they either think he will fail or consider this action to be temporary. Stock transactions are zero sum, so for every insider dump, one has a purchase. And who is purchasing the stock? We can to some extent eliminate the HFT's since they are in and out faster than a gnat's fart.
I figure the buyers are mainly the pension funds, the BTFD (buy the f**king dip) traders, and many somewhat brain dead upper middle class professionals and trustafarians chasing the apparent momentum.. The pension funds are up the creek, as there is no way that they can maintain their funds with the interest being paid on investment grade fixed income. So the Fed is playing Temple Grandin, developing a pleasant enough chute for the pension funds to trot to their slaughter, assuming that the plug will be pulled eventually.
One must ask what is the Fed's end game. The Fed is quite literally the subject and puppet of the international banking cartel. We know the cartel's motivation - unlimited greed and the power to control other human beings (often referred to as pure evil), and we know that they are completely sociopathic and ruthless. They are also clever as they have unlimited funds to hire the cleverest sociopathic minions. Nevertheless, like a chess master, they have many strategies available to them.
They are well aware of peak oil and peak resources, which means, barring a technological energy breakthrough such as viable fusion (cold or hot), or zero point energy, real growth is at an end and reversing. If they cannot grab most of the augmentation of an expanding pie, then their prime directives, greed and power, dictate that they transfer any wealth held by the bottom 99.9 percent of the global population, to their accounts (If this percentage seems extreme, the UN published some time ago an analysis that the 1000 richest families in the world hold over half the wealth. Yeah, that's 1000 families versus 7 billion people).
And this is exactly what we see happening since the start of the so-called economic crisis. But how do they plan to achieve their end game? Deflation and buy up everything for pennies on the dollar? Hyper-inflation? Hard inflation but short of hyper? I really don't have the answer to this, but the answer is quite important to anyone with savings trying to protect their value from the banksters. Unfortunately, this is a small minority of the global population and even a minority of the USA population. So maybe all the bright commenting souls on The Automatic Earth may want to weigh in with their ideas.
We are coming to a crisis decision in the next two months. The US federal deficit this coming year is estimated to be $1.7 trillion, and federal revenues are, unbelievably, in the ball park of one-half of expected expenses. So far the federal budget has been propped up by the Federal Reserve, in essence, counterfeiting electronic money and buying the excess bonds that no other entities can or want to buy at the artificially depressed yields. Since the banksters own the government, this amounts to what Mad Max Keiser refers to in his elegant way as "a dog eating its own vomit." This has added to the total money and credit supply, the debt then being dumped on the pissant tax serfs of Usakistan, partly as an attempt to re-inflate the economy. It appears that the total M&C supply is still shrinking, but it has definitely slowed down the contraction mightily though not reversed it.
But obviously we are into cookie inflation, no? Well - yes. The price of cookies is definitely going up, as is, unfortunately, rice as well as frankencorn, frankensoy, and wheat. This is caused by the PD's speculating and rigging the commodities market with their freshly printed and free of charge electronic money. But the cookie inflation is more than offset by the deflation and contraction of other assets, particularly the collapsing of the shadow banking system and all forms of real estate. Of course Joe and Jane Bagadonuts are more concerned about paying an extra 50 cents for a loaf of bread than the fact that their retirement nest egg, specifically their McMansion, has fallen 30% in value with no end in sight, a typical virtual wealth hit of $100-200,000 and counting. To the people with marginal income, where food is a really major part of their net income, the cookie inflation is a tragic hardship.
Getting back to the upcoming crisis decision, QE II is scheduled to end in a couple of months. So who is going to absorb the huge federal deficit when this happens?
- The Fed already holds more T debt than China.
- The Chinese? Well, the Chinese have to buy this stuff to balance out the dollars they get from selling us all those cute pink pandas. But the ultra-rich tend not to shop a Walmart, and so the Chinese market in the USA is shrinking as the Walmart shoppers fall off the 99er cliff.
- The Japanese are going to have to sell their T's into the marketplace to raise yen to reconstruct and pay radiation medical and disability.
- The oil and agricultural exporters will have extra dollars to buy them while the spec bubble lasts, but even the crude oil exporters are handing some of their extra loot to their domestic pissants to prevent food riots.
- And Europe has its own, similar problems.
The basic answer is that there isn't enough money lying around to cover the federal deficits. Of course we will be seeing massive tax increases in the future on the non-criminal classes as well as expropriations of retirement, 401-k, and IRA funds (a practice perfected by Argentine governments), but that takes time and it still won't be enough.
PIMCO, which (or perhaps I should write who, as corporations are now official people - far more real than we meat puppets) manages well over a trillion dollars, has their top boys, Gross and El-Erian (no relation) saying that QE III is not going to happen. They claim to have unloaded all their treasuries, as, if QE III doesn't happen, then the great projected bond dislocation is at hand, meaning that the yield on the bonds will shoot up astronomically.
At this point a short digression, so Stoneleigh and Ilargi don't get a lot of nasty complaints. There is a big difference between short term T bills and longer term T notes and bonds. T bills are just a way of parking your spare change outside of the banks. One does not sell a 90 day T bill into the secondary market unless confronted with a huge, unexpected emergency. But the long stuff is commonly not held by the original buyer until maturity, when hopefully it is returned a 100 cents on the dollar, but rather sold into the secondary market at some point. The price that one gets at that point depends on what the yield on your bond is compared to the last Treasury auction. If you hold a 4% bond, and the last auction was at 10%, you are going to get maybe 70-80 cents on the dollar if the bond is young in terms of maturity.
Gross and El-Erian argue against QE III because they claim that the "collateral damage" is too high, meaning that the cookie inflation is destabilizing the global economy and leading to food revolutions. They are very, very bright guys and undoubtedly have many Fed inside puppets on their virtual payroll, but they may be just talking their book and spreading sucker disinformation. Still, if QE III doesn't happen, then how does the federal government cut its outflow in half? Obviously, since they are starting a new resource war every month, the Department of Defense is not under the ax. If they discontinued Medicare, Medicaid, and Social Security, and raised taxes, it could be done. Shit, this would eliminate a lot of useless eaters, mainly non-essential geezers and geezerettes including yours truly, Señor Buzzard.
And the SSA is no longer running a profit to be shoveled into arms purchases (non-prosthetic). It became a drag even before Obama reduced the payroll tax. However, they still can't do this in two months. Like a lobster in a pot of cold water over a flame, it has to be done somewhat gradually. So I figure it this way. They are not going to institute QE III right away. Of course the asset market will start to collapse even before QE II finishes up. After a few weeks or months of this everyone starts running around screaming "Please, exalted bald and bearded Chairsatan, do something," and then QE III will be announced. Of course the PD's will know all this in advance, will naked short equities (they are legally allowed to do this, amazingly) and put highly leveraged shorts on commodities, but a few days before the QE III becomes common knowledge, they will cash out their shorts and go long. Another huge wealth transfer upwards.
All this still asks the question, what will stop QE? Stoneleigh says it is the bond vigilantes refusing to buy USA debt. But if the Fed "buys" most of the debt, then maybe our vigilantes become irrelevant. Maybe the oil exporters refusing dollars? The US government could just literally hold a gun to their heads and say, "Make my day!" That is why it is important that Gaddafi is eliminated - as an object lesson. Continued QE will just lead to erosion of the purchasing power of the USA dollar through inflation assuming that it is greater than the contraction of the over all money and credit supply. Even if it is not, we could still get a lot of cookie inflation. It could even flip into hyperinflation if at some point the herd just feels that the greenback is useless.
I don't have the answers. I am just asking a lot of questions.
U.S. New Home Sales Fall 16,9% to Lowest on Record, Existing Home Sales Drop 9.6%, Median Price Down 8.9%
by Alex Kowalski - Bloomberg
Purchases of new U.S. homes unexpectedly declined in February to the slowest pace on record and prices dropped to the lowest level since December 2003, adding to evidence the industry is floundering.
Sales decreased 16.9 percent to a 250,000 annual pace, figures from the Commerce Department showed today in Washington. Economists surveyed by Bloomberg News projected a gain to a 290,000 rate, according to the median estimate. The median price fell 8.9 percent from the same month in 2010. Builders are struggling to compete with existing homes as foreclosures add to the overhang of unsold properties and drive down values. The figures underscore the Federal Reserve’s view that the housing market "continues to be depressed" even as the rest of the economy improves.
"We’ve got this tug of war going on where we’ve got this very weak housing sector and a manufacturing sector that’s doing fine," said Brian Jones, an economist at Societe Generale in New York, whose 240,000 forecast was the lowest in the Bloomberg survey. "The new and existing home sales numbers were abysmal. You could say that part of it was attributable to unusually harsh weather."
Previously owned home purchases dropped 9.6 percent in February, figures from the National Association of Realtors showed two days ago. The median home price fell to a 9-year-low, while the supply of unsold properties rose. Home sales estimates of 77 economists surveyed by Bloomberg News ranged from 240,000 to 325,000.
The Commerce Department revised January purchases up to 301,000 from a previously reported 284,000 rate. Purchases in February declined to record lows in three of the four U.S. regions. Sales slumped 57 percent in the Northeast, 28 percent in the Midwest and 15 percent in the West. The South showed a 6.3 percent decrease.
The median sales price dropped to $202,100 in February from $221,900 a year earlier, today’s report showed. Last month’s median price was the lowest since $196,000 in December 2003. The share of homes sold for $500,000 or more fell in February, matching January 2009 as the lowest on record. The supply of homes at the current sales rate rose to 8.9 month’s worth from 7.4 months in January. There were 186,000 new houses on the market at the end of February, the same as a month earlier.
New-home sales are considered a more timely barometer than purchases of previously owned homes, which account for about 90 percent of the housing market. Existing-home purchases are calculated when a contract closes. Builders are putting off new construction as housing inventory builds. Housing starts fell in February to a 479,000 annual rate, the lowest level since April 2009, and construction permits slumped to a record low, Commerce Department figures showed last week.
The number of homes in foreclosure rose to a record 2.2 million in January, according to Lender Processing Services Inc. in Jacksonville, Florida. About 23 percent of homeowners with mortgages had negative equity in the fourth quarter, eaning their home-loan balances were higher than the value of their properties, CoreLogic Inc., a research company in Santa Ana, California, said in a March 8 report.
Hovnanian Enterprises Inc., the largest homebuilder in New Jersey, reported on March 1 a first-quarter loss after a drop in sales and the absence of a tax benefit that boosted results a year earlier. The loss was $64.1 million, or 82 cents a share, for the quarter ended Jan. 31, the Red Bank-based company said in a statement. "We need confidence to go up," Chief Executive Officer Ara Hovnanian said March 2 during a call with analysts. "We need employment numbers to get better, and I think that’ll attract traffic as well as customers."
While signs such as stronger manufacturing and exports indicate the world’s largest economy is gaining momentum, Fed Chairman Ben S. Bernanke and his fellow policy makers reaffirmed plans to buy $600 billion of Treasuries through June to "promote a stronger recovery" after their second meeting of the year on March 15. Bernanke told Congress during a March 2 testimony that until more people want homes, "there’s no demand for construction to build houses and so the construction industry is quite reduced."
U.S. home prices reach 9-year low
by Derek Kravitz - Associated Pres
Fewer Americans bought previously owned homes in February, and those who did bought them at steep discounts. The weak sales and rise in foreclosures pushed down prices to their lowest level in nearly 9 years. The National Association of Realtors said Monday that sales of previously occupied homes fell to a seasonally adjusted annual rate of 4.88 million, down 9.6 percent from 5.4 million in January. The pace is far below the 6 million a year economists say is a healthy market.
Nearly 40 percent of the sales were foreclosures or short sales, when the seller accepts less than he or she owes on the mortgage. One-third of sales were all cash, twice the rate from a year ago. In troubled housing markets such as Las Vegas and Miami, cash deals represented about half of sales. Sales fell in all four regions of the country, by 12.2 percent in the Midwest, 10.2 percent in the South, 8 percent in the West and 7.2 percent in the Northeast. The median sales price fell 5.2 percent to $156,100, the lowest since April 2002.
"This information suggests that value investors are entering the market, possibly a sign that home sales and construction are nearing a bottom," said Joseph A. LaVorgna, chief U.S. economist for Deutsche Bank Securities. "Lower prices are certainly a factor behind the opportunistic buying." Winter storms hampered sales in much of the U.S. Still, housing has been weak for some time. Millions of foreclosures have forced down home prices and more are expected.
New Civil War erupts, led by super rich, GOP
by Paul B. Farrell - MarketWatch
Yes, "there’s class warfare, all right," warns Warren Buffett. "But it’s my class, the rich class, that’s making war, and we’re winning." Yes, the rich are making war against us. And yes, they are winning. Why? Because so many are fighting this new American Civil War between the rich and the rest.
Not just the 16 new GOP governors in Wisconsin, Michigan, Ohio, Florida, and across America fighting for new powers. Others include: Chamber of Commerce billionaires, Koch brothers, Forbes 400, Karl Rove’s American Crossroads, Grover Norquist’s Americans for Tax Reform — which now has 97% of House Republicans and 85% of the GOP Senators signed on his "no new taxes" pledge — the Tea Party and Reaganomics ideologues.
Wake up America. You are under attack. Stop kidding yourself. We are at war. In fact, we have been fighting this Civil War for a generation, since Ronald Reagan was elected in 1981. Recently Buffett renewed the battle cry: The "rich class" is winning this war. Except most Americans still don’t realize they’re losing, don’t see the prize at stake.
All this was predicted back in September 2008 by Naomi Klein, author of "Shock Doctrine: The Rise of Disaster Capitalism." Yes, we were warned that the GOP’s Reaganomics ideology would stage a rapid comeback … warned before the market collapsed … before Wall Street was virtually bankrupt. … before Treasury Secretary Henry Paulson conned Congress into $787 billion in bailouts … warned before Obama’s 2008 election
Free-market Reaganomics roaring back, more powerful than before
Yes, back in the heat of battle, in September 2008, Klein warned America: "Whatever the events of this week mean, nobody should believe the overblown claims that the market crisis signals the death of ‘free market’ ideology." Then the meltdown went nuclear. Klein warned: "Free market ideology has always been a servant to the interests of capital, and its presence ebbs and flows depending on its usefulness to those interests. During boom times, it’s profitable to preach laissez faire, because an absentee government allows speculative bubbles to inflate."
But "when those bubbles burst, the ideology becomes a hindrance, and it goes dormant while big government rides to the rescue." Remember: A week later Paulson was on his knee, begging House Speaker Nancy Pelosi for that $787 billion bailout, to save our incompetent Wall Street banks that caused the meltdown from certain bankruptcy.
"But rest assured," continued Klein in September 2008, Reaganomics "ideology will come roaring back when the bailouts are done. The massive debts the public is accumulating to bail out the speculators will then become part of a global budget crisis that will be the rationalization for deep cuts to social programs, and for a renewed push to privatize." And yes, America, this war strategy is happening thanks to General Buffett, the new GOP Congress and 16 aggressive anti-democracy GOP governors.
Escalation of new Civil War: GOP dictators killing democracy
After the 2010 election of these new GOP governors, the new Civil War escalated with a new phase of self-destructive "disaster capitalism," thanks to the Supreme Court’s Citizen’s United decision. Their strategy was first revealed in the Wisconsin dictator Scott Walker’s war against the unions. Then last week the GOP assault went nuclear.
Michigan’s GOP Gov. Rick Snyder signed the "much despised emergency financial manager legislation into law," said local ABC news, labeling the law "draconic" for giving the governor new dictatorial powers to appoint "emergency financial managers … to run struggling cities and schools, including the ability to terminate union contracts."
We learned of Snyder’s democracy-killing coup a week earlier when MSNBC’s Rachel Maddow interviewed Naomi Klein. Maddow also exposed another particularly harsh tactic: Snyder’s $1.7 billion tax hikes against seniors and the poor. He was "not using it to close the budget gap. He is giving it away in the form of $1.8 billion in corporate tax cuts." Get it, folks? In the GOP governors new strategy escalating this Civil War, the GOP is robbing the poor to give to the rich.
Maddow exposed the truth behind the GOP’s economic strategy: "It’s not about the budget in Michigan … not about the budget in Wisconsin … not about the budget in Florida … not about the budget in Ohio … what Michiganders have been trying to get the rest of the country to pay attention to is that what these Republicans are doing in the states is not just not about the budget. It’s about something far worse." Wake up America.
GOP using ‘shock doctrine’ to gain new anti-democracy powers
The GOP is anti-democracy: With the GOP, "this whole democracy thing" is "very inefficient," warned Klein. Republican governors are using "a fiscal crisis as a pretext to do stuff they otherwise want to do … Republicans in Michigan want to be able to unilaterally abolish your town. And how do you know when you’re in a financial emergency? Because the governor tells you … or a company he hires." Yes the GOP, the party of big business and billionaires, secretly hates democracy, it’s too inefficient for the rich class.
In the interview, Klein reiterated: The GOP governors’ strategy is a clear example of "disaster capitalism," the Reaganomics war strategy that has dominated, obsessed and driven the GOP for a generation. Klein warns, "these guys have been at this for 30 years," it is "an ideological movement … they believe in a whole bunch of stuff that’s not very popular," like "privatizing the local water system, busting unions, privatizing entire towns. If they said all this in an election they’d lose."
And that’s why crises are so crucial to the GOP war strategies to take over America: Crises "are very, very handy, because you can say we have no choice. … the sky is falling in." Then the GOP governors "can consolidate power. We remember this from the Bush administration. They did this at the federal level. After 9/11, they said, we have a crisis, and we have to essentially rule by fiat."
But the truth, warns Klein, is that the GOP "really doesn’t believe in the governments that they are running … this is a really old story." The greed of their billionaire backers is insatiable. They do not like democracy. And the actions of the new GOP governors is proof that what they really want are dictatorial powers to privatize government and get personally richer.
GOP megalomania: Create crises, change the course of history
Money, power, greed: That’s why the GOP is "so desperate to tie the hands of unions. Why 16 states are facing similar battles" says Klein, because "unions are the final line of defense against privatization of the public sector. Unions are the ones who fight privatization of the school system, of the water system, of the power system."
And that’s why, in this new American Civil War the GOP keeps its "eye on the prize, because there’s a lot of money to be made in the kinds of crony deals that could be rammed through when you have all of that power consolidated in the governor’s office." Get it?
Remember when Wisconsin dictator Scott Walker thought he was talking to billionaire GOP backer David Koch: The vision of the GOP became very clear. Walker said: "This is our moment to change the course of history." This same egomaniacal mind-set has obsessed the GOP since Reaganomics emerged a generation ago. Crises are opportunities for the GOP, whether real or fake (as we saw in Wisconsin and Iraq), every crisis is an excuse for the GOP’s dictators to activate every possible weapon in their "disaster capitalism" arsenal.
Yes, each crisis triggers a grandiose button in the GOP psyche, an obsession to "change the course of history," to act like Ronald Reagan in the "moment that ended communism," as Walker said. That’s also why GOP governors like Walker are comparing the unions to communism, drawing clear battle lines in this new American "Civil War."
‘Disaster capitalism’ is the GOP strategy in this new Civil War
In my review of "The Shock Doctrine: The Rise of Disaster Capitalism" a few years ago I called it "the most important book on economics in the 21st century." That’s truer today. Events the past four years make this a must-read for anyone interested in understanding the Second American Civil War being fought by Buffett’s rich class, Wall Street CEOs and the GOP dictators batting to dominate America.
Reaganomics, "Shock Doctrine" and disaster capitalism all define the same ideology that’s been driving the GOP for over a generation, an ideology gaining even more power now as they accelerate their battle plans, increasing efforts to gain total power over our government, economy and culture, a strategy that will ultimately destroy everything.
Klein’s recent interview with Maddow exposed the GOP’s charade: Now we know with certainty that the budget crises in the 50 states were "created on Wall Street then moved to Main Street, deepened by the policy decisions to bail out banks instead of bailing out homeowners, instead of bailing out workers. And that means your tax base collapses."
We know Wall Street greed was the fuel igniting America’s current economic problems. And now, unfortunately, average Americans have "to pay for the crisis again. First, with a bailout. And now, people are paying with it again, with budget cuts." And underneath all is the GOP’s free-market Reaganomics ideology. Wake up America, you’re losing the new Civil War to a rich class that’s lost its moral compass.
Bottom line, Klein warns: "What this fight is really about is not unions versus taxpayers … It’s a fight about who’s going to pay for the crisis that was created by the wealthiest elite in this country." Actually, it’s even worse. Because while we averted total collapse, it was only delayed, destined to return soon and finally overwhelm America. Remember Uncle Warren’s battle cry: "The rich class is winning."
Robert Prechter: These 6 Trends Are About To Reverse
by Gregory White - Business Insider
The U.S. market has reached consensus on six key issues and that means the trend may be about to reverse, according to The Elliott Wave Theorist Robert Prechter. Prechter explains this trend reversal through events in the 1980's. Here, investors and economists believed there was no way interest rates would go down, with the Wall Street Journal writing it would take a "miracle" for a decline in 1984. And yet, it happened.
From Prechter:Any individual can be wrong about markets. In the past when I have been wrong I realized in retrospect that either I was a member of a herd or I bet too early against one. But the fact remains that when representatives across an entire profession of exogenous-cause thinkers agree on the future trend of a market, it’s a signal.
The lessons are: (1) Any passionate consensus among economists is a terrific market timing signal, because it means that there is no one left to convince and therefore the market in question should have extreme difficulty continuing in the predicted direction; and (2) an alert analyst can learn to recognize these times and use them to advantage.
Prechter argues there are several themes out there right now that investors, economists, and markets all believe to be true just like they did with interest rates in the 1980s.
- The dollar - everyone is bearish.
- Interest rates - everyone thinks they're going to rise.
- The stock market - everyone is bullish but corporate insiders.
- Inflation expectations - everyone thinks it is going to go higher.
- Economy - everyone is confident in 2011.
- Oil - everyone thinks it is heading higher.
It may be time for investors to turn on these trends, and bet the opposite way, according to Prechter.
Tokyo tap water too radioactive for infants
by Winifred Bird - Christian Science Monitor
Officials warned today that infants should not drink Tokyo tap water because radioactive iodine exceeded legal limits at one purification facility.
Tokyo officials warned today that infants should not drink city tap water because radioactive iodine exceeded legal limits at one purification facility, even as hopes rose that the source of that contamination – the damaged Fukushima Daiichi nuclear plant – may soon be under control.
Infants are much more vulnerable than adults to iodine-131, which officials have measured at 210 becquerels per liter. The limit for infants is 100 becquerels per liter, while for adults the limit is 300 becquerels. "Even if you drink this water for one year, it will not affect people’s health," Chief Cabinet Secretary Yukio Edano said.
At Fukushima, external power lines have now reached all six reactor buildings and lights went on in one central control room at the plant late Tuesday night. Tests monitoring equipment in buildings No. 1, 3, and 4 have also been completed and cooling pools in buildings No. 5 and 6 are reported to be stable. But late Wednesday afternoon workers were once again evacuated as dark smoke rose from building No. 3. The normal cooling systems in buildings No. 1 through 4 have not yet started up because plant operator TEPCO is still inspecting and repairing machinery there.
In the meantime firemen, plant employees, and Japan's self-defense force members pumped and sprayed huge amounts of water into the volatile spent fuel pool in building No. 4 and also into the No. 1 reactor, which rose 150 degrees above its normal temperature early this morning. Normal pumps in building No. 3 – the first to regain power in its control room – could start up as early as tonight or tomorrow, a company representative says.
But even if cooling is restored and the plant stops emitting contaminated steam, low levels of radioactive substances will keep raining down on farms, cities, and oceans for years, says Ikue Kanno, who designs radiation detectors at Kyoto University "Radioactive materials stick to dust floating in the atmosphere. When it rains, we see a rise in cesium-137 levels resulting from atomic weapons tests done by the Soviet Union and United States decades ago, although not at dangerous levels," he says.
Emissions of cesium-137 and iodine-131 from Fukushima may be "approaching emissions of these isotopes from the Chernobyl accident in 1986, according to estimates from Austria’s Central Institute for Meteorology and Geodynamics reported in a blog at Nature.com Tuesday. "Fukushima is no Chernobyl, however," the report said, adding that wind has blown much of the cesium over the ocean, rather than toward cities.
Radioactive contamination is a growing public safety concern and an economic problem for Japan. In addition to the Tokyo tap water warning, Prime Minister Naoto Kan took yesterday’s existing domestic ban on shipping vegetables from contaminated areas a step further, warning the public not to eat leafy vegetables from Fukushima Prefecture, even those already on store shelves.
On one type of leafy green collected Monday, radioactive cesium exceeded the legal limit by 164 times. Cesium-137 has a half-life of 30 years and cesium-134 of 2.1 years. The government insisted its measures are extremely precautionary. "Consuming these products in the short term won’t cause health problems, but since this situation is unfortunately predicted to continue for a long time, we feel it’s best to act at an early stage," said Mr. Edano.
According to the US Environmental Protection Agency website, "There is no firm basis for setting a "safe" level of [radiation] exposure above background" below which the risk of developing cancer definitely does not increase. The United States Food and Drug Administration, meanwhile, has banned imports of all dairy products and fresh produce from four prefectures near the plant: Fukushima, Ibaraki, Tochigi, and Gunma. Hong Kong also banned food and milk imports from five prefectures in Japan.
Extremely high radiation found in soil 40 km from Fukushima
Japanese authorities have detected a concentration of a radioactive substance 1,600 times higher than normal in soil at a village, 40 kilometers away from the troubled nuclear power plant in Fukushima Prefecture. The disaster task force in Fukushima composed of the central and local governments surveyed radioactive substances in soil about 5 centimeters below the surface at 6 locations around the plant from last Friday through Tuesday.
The results announced on Wednesday show that 163,000 becquerels of radioactive cesium-137 per kilogram of soil has been detected in Iitate Village, about 40 kilometers northwest of the plant. Gakushuin University Professor Yasuyuki Muramatsu, an expert on radiation in the environment, says that normal levels of radioactive cesium-137 in soil are around 100 becquerels at most. The professor says he was surprised at the extremely high reading, which is 1,630 times higher than normal levels.
He warns that since radioactive cesium remains in the environment for about 30 years it could affect agricultural products for a long time. He is calling on the government to collect detailed data and come up with ways to deal with the situation.
Japan evacuates nuclear plant
by Jonathan Soble - Financial Times
Repair work at Japan’s stricken Fukushima nuclear power station was halted on Wednesday after smoke was seen pouring from one of the plant’s reactors, forcing emergency workers and technicians to evacuate. It was the second time in three days that grey smoke from the plant’s No 3 reactor has brought emergency work to a stop. Tokyo Electric Power, the station’s operator, has been unable to identify its source, but it said radiation readings at the plant have not risen noticeably.
Before the evacuation, which was ordered at around 4:30pm local time, technicians had been moving closer to restoring power to the crippled station, though cooling systems that will be key to stabilising its four most damaged reactors were still off line. Emergency efforts had continued earlier even as two large aftershocks – of magnitude 6.0 and 5.8 – shook the Fukushima area on Wednesday morning.
Nuclear safety authorities said the quakes, which rattled buildings in Tokyo 240km to the south, did not stop repair work at the plant. Japan’s huge magnitude-9 earthquake and tsunami knocked out backup electricity to the plant’s cooling systems on March 11. When they stopped working, uranium in the reactors and nearby storage tanks overheated, causing explosions and fires and releasing radiation.
Events at the plant have fuelled a food contamination scare with some vegetables and milk produced in the surrounding areas showing elevated levels of radiation. On Wednesday the US became the first country to block imports of milk, fresh fruit and vegetables from the four areas worst affected – Fukushima, Ibaraki, Tochigi and Gunma.
Separately the Tokyo government on Wednesday warned residents not to give tap water to infants after water in a purification plant was found to contain elevated levels of Iodine 131, a radioactive element. The metropolitan government said water samples from a purification facility in eastern Tokyo contained twice the level of Iodine 131 permitted for infants aged one year and younger. The Japanese Ministry of Health, Labour and Welfare said the move was precautionary, and that there was no immediate danger to infants.
Tokyo Electric Power, operator of the Fukushima plant, said on Wednesday it had restored power as far as the control rooms of reactors Nos 1-4 and was testing instruments inside before trying to turn on other systems. Some lights in the control room of unit No 3, the most badly damaged of the group, were working, Tepco said. Restoring the plant’s internal cooling systems remains the best hope for stabilising the plant and moving beyond the ad hoc emergency measures – from helicopter water drops to spraying with riot-police water cannons – that have been tried so far. Reactors 5 and 6, which sustained less damage in the quake and tsunami, have been cooled to safe levels after a second of their shared diesel generators was repaired.
More contamination from the plant was detected in farm products in the area. Health authorities warned people not to eat broccoli, cauliflower and other vegetables from Fukushima, adding to an earlier ban on spinach and milk. The government also added raw milk and parsley to a ban on shipments of spinach and kakina, a related Japanese leaf vegetable, from neighbouring Ibaraki prefecture. Shipments of spinach and kakina have also been banned from Tochigi and Gunma prefectures.
The Fukushima Daiichi Reactors In Detail
- Number one
A hydrogen explosion destroyed the top of the reactor building on March 12. The spent fuel pool is seen as relatively safe because it contains less uranium than those at the plant’s other reactors. The temperature at the reactor’s core rose to around 400 degrees centigrade on Wednesday, 100 degrees higher than normal, but nuclear safety authorities said this did not pose an immediate threat. Electricity has been partially restored to the control room, though it will take time before internal cooling systems can be revived. Kyodo News reported that two workers were injured at the unit on Wednesday.
- Number two
A water tank under the containment vessel was damaged by an explosion on March 14, and the vessel itself may be damaged. Work to restore electrical systems has been slowed by "poor conditions" inside the plant, an official said on Wednesday. It has sustained water damage from firefighting and cooling efforts as well as the water-tank explosion.
- Number three
A hydrogen explosion destroyed the top of the reactor building on March 12. Uranium in a spent fuel pool adjacent to the reactor has overheated, releasing radiation. Firefighters are spraying the pool from outside. Electricity has been partially restored to the control room, though it will take time before engineers can try to revive its internal cooling systems. On Wednesday, workers were trying to fix a pump to the spent fuel pool.
- Number four
A fire, possibly caused by a hydrogen explosion, has damaged the reactor building’s upper half, and uranium in the spent fuel pool has overheated, releasing radiation. The reactor itself was off line when the earthquake hit, but the spent fuel pool is especially dangerous because it was storing more uranium than any of the other units’ pools. Electricity has been partially restored to the control room but internal cooling systems remain off line. An extra-long-armed spraying machine, normally used to spray concrete at construction sites, was deployed on Wednesday to pump water into the spent fuel pool.
Nuclear Power Runs Amok
by Laurence Kotlikoff and Eugene Stanley - Bloomberg
The worst case. These three words have been at the back of everyone’s mind ever since the Fukushima reactors began malfunctioning after being swamped by a tsunami. Remarkably, these reactors have been at the front of few experts’ mouths.
Many experts have shied away from describing worst-case outcomes, which are terrifying to contemplate and risky to mention. The risk isn’t just panicking the public. Crying wolf can threaten one’s expert status. The bias toward calm, cool expression has been on full display in this crisis.
The Japanese are particularly good at the stiff upper lip. The authorities have serially indicated that exploding reactor housing is not a big problem, that released radioactive steam is not a big problem, that the significant cracks in containment vessels are not a big problem, that burning spent fuel ponds are not a big problem, and that the contamination of food and water is not a big problem. To top off all this, Tokyo Electric Power Co.’s president, Masataka Shimizu, made a formal apology "for causing such a great concern and nuisance."
Earth to Shimizu: This isn’t just a nuisance. What’s already occurred is horrible enough, what with death and severe injury to plant workers and the contamination of local milk, spinach, beans, and, presumably, fish. But the worst-case scenario at Fukushima is far beyond this. It entails six reactors melting down and all 4,277 tons of spent fuel stored at the plant burning out of control. And this at a site just 150 miles from Tokyo’s 14 million inhabitants, whose water is already showing traces of radiation.
Yes, Japan can hope for a strong wind blowing out to sea. But let’s just imagine how we might move from the current situation to this worst case? Another earthquake followed by another tsunami could certainly get us there. Sound crazy? Maybe not. Maybe last week’s earthquake was a foreshock for an even larger one that’s coming.
If this thought makes you queasy, you are feeling the bias we humans have against considering terrible tail events, or outcomes that are at the far end of the probability distribution. If we haven’t seen it, and it hurts to think about it, we ignore it. But equating what has happened with what will happen is folly. When it comes to earthquakes, what we’ve recorded to date is a minute span of geological history.
Nor can we count on future geological processes following past patterns. Four of the nine largest quakes to strike our planet since 1900 have occurred in the last seven years. This list doesn’t include Japan’s 1995 Kobe earthquake, which was, until now, the costliest on record. The U.S. Geological Survey website states emphatically that no one can predict earthquakes. What it doesn’t say is that neither the Survey nor anyone else knows the statistical distribution governing earthquakes of different magnitudes.
Hence, the probability of extremely powerful earthquakes and their attendant tsunamis may be much higher than we think. Case in point -- the 9.0 magnitude earthquake off the northeast coast of Japan was 10 times bigger than the maximum quake the builders of the Fukushima plant considered possible. Japan has 55 nuclear reactors. It’s in the process of developing another 11. That’s 66 "nuisances" waiting to happen, if not by earthquake and tsunami, then by terrorist, or by human error -- the cause of the Chernobyl meltdown.
Thanks to Chernobyl, an area the size of Switzerland, or 16,000 square miles (41,000 square kilometers), is uninhabitable for the next 300 years. Japan is about nine times bigger than Switzerland. If Japan has nine Chernobyls, it’s game over.
Is this unthinkable? It depends on your time frame. A lot can happen in 700 million years, which is the half-life of uranium-235, or 24,000 years, which is the half-life of plutonium-239, or even 30 years, which is the half-life of cesium-137. Japan’s thousands of tons of spent fuel are chock full of these ingredients. Yes, new technologies are reprocessing spent fuel, but they carry their own risks, including the production of weapon-grade plutonium.
Since we care about our kids, who will care about their kids, who will care about their kids, we effectively care about all our future descendents. And since our kids, grandkids, great-grandkids will inter-marry, we personally need to worry about all future humanity. Our "carespan" far exceeds our lifespan and forces us to worry not just about the likely effects of nuclear energy, but the tail events. Since the tail events are potentially so catastrophic to our progeny, economics tells us to place all the weight in our planning on the worst-case scenario.
Were Nobel physicist Enrico Fermi alive, he would be appalled by the nuclear tail risk we are manufacturing for ourselves and bequeathing to our loved ones. Fermi, who played a major role in the Manhattan Project, would have no hesitation in telling the world to shut its reactors.
Fermi developed the first nuclear reactor and had grave doubts about their net benefit, wondering when mankind will "grow sufficiently adult to make good use of the powers that he acquires over nature." Fermi wrote these words two years before he died at age 53 of stomach cancer caused by radiation exposure to his reactor.
Fukushima Engineer Says He Covered Up Flaw at Shut Reactor
by Jason Clenfield - Bloomberg
One of the reactors in the crippled Fukushima nuclear plant may have been relying on flawed steel to hold the radiation in its core, according to an engineer who helped build its containment vessel four decades ago.
Mitsuhiko Tanaka says he helped conceal a manufacturing defect in the $250 million steel vessel installed at the Fukushima Dai-Ichi No. 4 reactor while working for a unit of Hitachi Ltd. (6501) in 1974. The reactor, which Tanaka has called a "time bomb," was shut for maintenance when the March 11 earthquake triggered a 7-meter (23-foot) tsunami that disabled cooling systems at the plant, leading to explosions and radiation leaks.
"Who knows what would have happened if that reactor had been running?" Tanaka, who turned his back on the nuclear industry after the Chernobyl disaster, said in an interview last week. "I have no idea if it could withstand an earthquake like this. It’s got a faulty reactor inside."
Tanaka’s allegations, which he says he brought to the attention of Japan’s Trade Ministry in 1988 and chronicled in a book two years later called "Why Nuclear Power is Dangerous," have resurfaced after Japan’s worst nuclear accident on record. The No. 4 reactor was hit by explosions and a fire that spread from adjacent units as the crisis deepened.
No Safety Problem
Hitachi spokesman Yuichi Izumisawa said the company met with Tanaka in 1988 to discuss the work he did to fix a dent in the vessel and concluded there was no safety problem. "We have not revised our view since then," Izumisawa said.
Kenta Takahashi, an official at the Trade Ministry’s Nuclear and Industrial Safety Agency, said he couldn’t confirm whether the agency’s predecessor, the Agency for Natural Resources and Energy, had conducted an investigation into Tanaka’s claims. Naoki Tsunoda, a spokesman at Tokyo Electric Power Co., which owns the plant, said he couldn’t immediately comment.
Tanaka, who said he led the team that built the steel vessel, was at his apartment on Tokyo’s outskirts when Japan’s biggest earthquake on record struck off the coast on March 11, shaking buildings in the nation’s capital. "I grabbed my wife and we just hugged," he said. "I thought this is it: we’re dead." For Tanaka, the nightmare intensified the next day when a series of explosions were triggered next to the reactor that he helped build. Since then, the risks of radioactive leaks increased as workers have struggled to bring the plant under control.
Fukushima No. 4
Tanaka says the reactor pressure vessel inside Fukushima’s unit No. 4 was damaged at a Babcock-Hitachi foundry in Kure City, in Hiroshima prefecture, during the last step of a manufacturing process that took 2 1/2 years and cost tens of millions of dollars. If the mistake had been discovered, the company might have been bankrupted, he said.
Inside a blast furnace the size of a small airplane hanger the reactor pressure vessel was being treated one last time to remove welding stress. The cylinder, 20 meters tall and 6 meters in diameter, was heated to more than 600 degrees Celsius (1,112 degrees Fahrenheit), a temperature that softens metal. Braces that were supposed to have been placed inside during the blasting were either forgotten or fell over when the cylinder was wheeled into the furnace. After the vessel cooled, workers found that its walls had warped, Tanaka said.
The vessel had sagged so that its height and width differed by more than 34 millimeters, meaning it should have been scrapped, according to nuclear regulations. Rather than sacrifice years of work and risk the company’s survival, Tanaka’s boss asked him to reshape the vessel so that no-one would know it had ever been damaged. Tanaka had been working as an engineer for the company’s nuclear reactor division and was known for his programming skills.
"I saved the company billions of yen," said Tanaka, who says he was paid a 3 million yen bonus and presented with a certificate acknowledging his "extraordinary" effort. "At the time, I felt like a hero," he said.
Over the course of a month, Tanaka said he made a dozen nighttime trips to an International Business Machines Corp. office 20 kilometers away in Hiroshima where he used a super- computer to devise a repair. Meanwhile, workers covered the damaged vessel with a sheet, Tanaka said. When Tokyo Electric sent a representative to check on their progress, Hitachi distracted him by wining and dining him, according to Tanaka. Rather than inspecting the part, they spent the day playing golf and soaking in a hot spring, he said.
Wining and Dining
"The guy wouldn’t have known what he was looking at anyway," Tanaka said. "The people at the utility have no idea how the parts are made." After a month of computer modeling, Tanaka came up with a way to use pumpjacks to pop out the sunken wall. While it would look like nothing had ever happened, no-one knew what the effect of the repair would have on the integrity of the vessel. Thirty- six years later, that reactor pressure vessel is the key defense protecting the core of Fukushima’s No. 4 reactor.
"These procedures, as they’re described, are far from ideal, especially for a component as critical as this," Robert Ritchie, Professor of Materials Science & Engineering at the University of California of Berkeley, said in a phone interview. "Depending on the extent of vessel’s deformation, it could possibly lead to local cracking in some its welds."
Tanaka quit Babcock-Hitachi in 1977, when he was 34 years old and became a writer. A graduate of Tokyo Institute of Technology, his Japanese-language books include "Options in Complex Systems: Natural Science and Economics on the Edge of Chaos," and a book for young adults called, "How do we Know the Earth is Moving?"
After the meltdown at Chernobyl in 1986, Tanaka was asked to narrate a Russian movie documenting the disaster. A team of Soviet filmmakers had taken 30 hours of footage inside the plant, getting very close to the ruptured core. The movie’s director died of radiation poisoning about a year after the filming. While watching the footage, Tanaka had a breakdown.
"All of a sudden I was sobbing and I started to think about what I’d done," Tanaka said. "I was thinking, ‘I could be the father of a Japanese Chernobyl.’" Two years later Tanaka says he went to the Trade Ministry to report the cover-up he’d been involved in more than a decade earlier. The government refused to investigate and Hitachi denied his accusations, he said. "They said, if Hitachi says they didn’t do it, then there’s no problem," Tanaka said. "Companies don’t always tell the truth."
Austrian authorities release detailed data on Japan radiation: 'Likely in the same order of magnitude' as Chernobyl
by Cyrus Farivar - Deutsche Welle
An Austrian institute has released the first specific radiation measurements from the Fukushima leak. One scientist says that radioactive cesium and iodine will likely be similar to that of the Chernobyl accident.
Austrian scientists have released what appears to be the first clear, independent data concerning radiation levels in the immediate aftermath of the Fukushima radiation leak. By releasing data from two monitoring stations of the Comprehensive Test Ban Treaty Organization (CTBTO) from Japan and California, researchers from the Central Institute for Meteorology and Geodynamics in Vienna have calculated backwards to estimate the true levels of radiation from Fukushima.
"The estimated source terms for iodine-131 are very constant, namely 1.3 x 10^17 becquerels per day for the first two days (US station) and 1.2 x 10^17 becquerels per day for the third day (Japan)," the institute said in a German-language statement posted on Wednesday on its website.
"For cesium-137 measurements, (the US station) measured 5 x 10^15 becquerels, close, while Japan had much more cesium in its air. On this day, we estimate a source term of about 4 x 10^16."
A "becquerel" is the unit that measures how many radioactive nuclei decay per second, and the "source term" refers to the quantity and type of radioactive material released into an environment.
"The nuclear catastrophe at Chernobyl had a source term of iodine-131 at 1.76 x 10^18 becquerels of cesium-137 at 8.5 x 10^16 bequerels," the statement added. "The estimated for Fukushima source terms are thus at 20 percent of Chernobyl for iodine, and 20-60 percent of Chernobyl for cesium." In the same statement, the Austrian institute also noted that a CTBTO station in Iceland had detected very small amounts of iodine-131 as of March 20, which does pose a health risk.
'Likely in the same order of magnitude' as Chernobyl
Iodine-131 is of particular concern to people living in the vicinity of the Fukushima reactor, as it can cause thyroid cancer, and cesium-137, with its long half-life of 30 years, can stay in soil and agricultural products for an extended period of time. However, Gerhard Wotawa, the lead Austrian researcher, noted that because of the high volume of particles released only during the first four days of the leak, he speculated that further data would reveal an even higher total amount.
"The releases of the volatile radionucleotides, like iodine and cesium, are very likely in the same order of magnitude as happened during the Chernobyl accident," he told Deutsche Welle, adding that CTBTO member states, like Austria, only received data 72 hours after it was gathered via e-mail and private websites.
The organization, which was established in the aftermath of the signing of the Test Ban Treaty in 1996, has 60 radionuclide particulate monitoring stations currently in operation, one-third of which are along the Pacific Rim. The stations are constantly monitoring the air for radioactive particles, and that data is then transmitted back to member states on a regular basis. The CTBTO, however, does not have a mandate to release radionuclide data it has collected after nuclear accidents, such as is the case in Fukushima. That said, member states could release some, or all of the data, as the Austrian representatives have done.
Little data available
The International Atomic Energy Agency (IAEA) has released some general information about the radioactive plume on its website, but hasn't said anything publicly about specific measurements.
"Japanese authorities have reported that the Tokyo Electric Power Company has detected radioactive materials in seawater at one location near the Southern discharge canal at the Fukushima Daiichi nuclear power plant," the agency said on its website. "Samples taken included levels of iodine-131, cesium-134, and cesium-137."
The IAEA also said on its website that the Japan Agency for Marine-Earth Science and Technology would be measuring radioactivity in seawater and air from Tuesday and Wednesday and releasing that data on Thursday.
On Tuesday, Japanese authorities said that radiation levels had exceeded national regulations in various agricultural products, including broccoli, spinach, and cauliflower. Wotawa added that it appeared that the CTBTO data was consistent with the recent reports of food contamination. "I think there is a quite good connection between this release term and the effects on the agricultural products that have been observed," he said.
However, other scientists are not ready to put the Fukushima fallout into Chernobyl territory just yet. "My speculation is that it's going to be significantly less than Chernobyl fallout, but we're not going to know that until we get more data," said Jim Smith, an environmental physicist at the University of Portsmouth in the United Kingdom, in an interview with Deutsche Welle. "We're not seeing data from the immediate 20 kilometer radius of the plant."
Although the Fukushima accident is a disaster, it could have been worse. Wotawa said it was fortunate that during the first two days of the accident, when radiation was leaking at a greater rate, there were constant winds out to the Pacific. If the winds had been blowing towards Japan, it would have been much worse, he said.
Japan Parts Paralysis Spreads as Firms Cut Output
Sony cut output at five more plants and Toyota Motor delayed restarting assembly lines, as the global supply of parts and products began to feel the full impact of Japan's catastrophic earthquake. Global electronics and autos seem to have been most affected by the turmoil, but in an illustration of how the ripples are spreading, global miner Rio Tinto warned the disruptions posed a threat to its expansion plans.
Miners are already facing longer waits for key equipment as companies ramp up exploration, making shutdowns at plants manufacturing heavy earth-moving equipment and electronics more likely to create additional pressures. "I expect the Japanese situation to impact deliveries of Japanese-sourced equipment ... but so far we are OK," Mark Cutifani, chief executive of AngloGold Ashanti, told the Reuters Global Mining and Steel Summit on Tuesday.
More than 10 days after a 9.0 magnitude earthquake and 10-meter tsunami struck the northeast of Japan, manufacturers are struggling to get back up to speed as factories grapple with a lack of components, power cuts and damage to infrastructure. Such is Japan's position in the global supply chain, that companies from Apple to General Motors and Nokia are feeling the impact.
Electronics giant Sony said it was considering temporarily moving some production overseas after five more plants, mostly in central and southern Japan, were affected by parts shortages stemming from the disaster. "If the shortage of parts and materials supplied to these plants continues, we will consider necessary measures, including a temporary shift of production overseas," the company that makes the Playstation games console said in a statement on Tuesday.
The plants make such products as digital and video cameras, televisions and microphones, the company said in a statement. The disaster now affects 14 of Sony plants in Japan. A sixth plant north of Tokyo, was set to resume production on Tuesday, but it could be interrupted by rolling blackouts affecting some areas supplied by Tokyo Electric Power , which operates the stricken Fukushima nuclear plant. Including two factories only partially restarted last week, 15 of Sony's 25 Japanese plants are currently affected. It has a total of 54 plants worldwide.
Tech Chain Vulnerable
Japan's grip on the global electronics supply chain is causing particular concern. The country produces around a fifth of the world's computer chips. It exported 7.2 trillion yen ($91.3 billion) worth of electronic parts last year, research from Mirae Asset Securities shows. "There are a huge number of little bits of the high-tech food chain which are done nowhere but in Japan," said Sam Perry, senior investment manager of Pictet Japanese Equity Selection Fund.
"Nobody else has the quality or the consistency, and in some cases the technology to do it." Japan dominates with the supply of LCD film and sealants for semiconductors, among other areas, Perry said.
"You simply can't do high-tech without Japan."
This is now being felt at Hewlett-Packard , which is still assessing the impact on its business. "Vendors face uncertainty at the minute. The crisis in Japan is already impacting component prices and the importance of the Japan for the memory market will be a worry," Tim Coulling, PC analyst at Canalys, said. "Though production has increasingly been outsourced to China, South Korea and other lower-cost markets, there are over 40 factories in Japan producing a significant proportion of the world's PC and smart phone components," Coulling added.
Rio Tinto, the world's second-biggest iron ore minder behind Brazil's Vale , is worried the disaster will disrupt supplies of mining equipment, tires and components, which could set back some of its expansion plans. "The impact of the Japanese earthquake and tsunami have been many and diverse and they affect us," Rio's head of iron ore Sam Walsh told an industry conference in Perth.
"Some steel mills have suspended operations and suppliers of heavy equipment, such as Hitachi, have been impacted," he said.
Konica Minolta , the second-largest maker of the LCD film, said its three factories in the Tokyo region had been affected by the rolling power cuts. Company officials declined to specify what these factories produce. Camera and copier maker Canon , which has suspended all its domestic camera production until at least Thursday, said a lack of gasoline was affecting distribution and stopping staff getting to work in areas such as the island of Kyushu, where train services are minimal.
Nikon , which makes cameras and precision equipment, said it expected to resume production at all its north Japan plants by the end of March, but warned power cuts and shortages of parts could make a return to full production difficult. Renesas Electronics , the world's No.5 chipmaker, restarted operations on Saturday at a semiconductor plant in Yamagata prefecture, in northwest Japan, a company spokeswoman said on Tuesday—leaving output suspended at six of the firm's 22 factories in Japan.
Hitachi Construction said five plants in Ibaraki Prefecture, north of Tokyo, were closed after the quake. One re-opened on March 17, another two partially re-started on March 21 and March 22. There is no timetable as yet for re-opening the other two. Tsunami damage to the nearest port means Hitachi is shipping some products from Yokohama, near Tokyo.
Honda Suppliers Need a Week
Automaker Honda Motor said a fifth of its top Japan-based suppliers affected by the earthquake have said it will take "more than a week" to recover. Renesas Electronics, the world's No.5 chipmaker, restarted operations on March 19 at a semiconductor plant in Yamagata prefecture, in northwest Japan, a company spokeswoman said on Tuesday. After the restart, production at six of the firm's 22 factories in Japan remains suspended, Renesas said. Sony said production at the five plants will be reduced or temporarily suspended between March 22 and March 31.
Hitachi Construction , Japan's No.2 maker of earthmoving equipment, said five plants in Ibaraki prefecture, north of Tokyo, closed after the quake. Three have partially reopened, but there is no timetable for re-opening the others. Tsunami damage to the nearest port means Hitachi is shipping some products from Yokohama, near Tokyo.
Carmakers are also struggling to get production lines restarted with Honda Motor extending its production suspension until Sunday from Thursday. A fifth of the company's leading Japan-based suppliers affected by the earthquake have said it will take "more than a week" to recover, Honda said late on Monday. In a sign of some return to normality, Japan's top three steelmakers saw some progress in restoring production.
Nippon Steel said output at the three blast furnaces at its mainstay plant in eastern Japan had recovered to pre-quake levels, while JFE Steel said two blast furnaces at its 10 million tons-a-year plant near Tokyo were now operating normally.
Rising Oil Prices 'Primary Threat' To U.S. Economy As Libyan Violence Mounts
by William Alden - Huffington Post
As international military forces strike Libya, oil prices are again rising, reviving concerns that expensive energy could impede economic recovery in the United States. U.S. consumers and businesses got a brief reprieve this month as oil prices eased off two-and-a-half-year highs. But escalating violence in Libya and rising tensions among the Middle East's oil-producing powers have raised fresh fears of a supply disruption. With investors nervous, benchmark crude prices are again rising, threatening a broader recovery that had barely begun to gather momentum.
"A spike in energy prices to $125 or $150 a barrel is the primary threat to the recovery at this point, now that it appears the situation in Japan has settled down somewhat," said Gus Faucher, director of macroeconomics at Moody's Analytics. "This could play out over a period of weeks and months." Those prices continue to roil in the wake of Mideast unrest, including the Western intervention in Libya that began this weekend on behalf of rebels opposing longtime head of state Muammar Gaddafi. In Yemen, meanwhile, scores of demonstrators were killed on Friday, prompting the country's U.N. ambassador to resign. And tension between two of the region's major powers, Iran and Saudi Arabia, appears to be mounting in Bahrain.
Already, Libya's crude oil output has fallen to a quarter of its pre-crisis level, as multinational oil producers have been taking workers out of the country. That output, which makes up 2 percent of the world's oil, could fall to zero, said Shokri Ghanem, chairman of Libya's National Oil Corporation, during a televised media conference last week. These are among the key developments that have sent oil skyward. Since last Tuesday, when prices hit their recent bottom, the price of Brent crude, an industry benchmark, has climbed nearly 7 percent. Since the beginning of this year, Brent has climbed more than 20 percent. The price fell after an earthquake struck Japan's northeast coast earlier this month, but it has since rebounded, clearing $116 a barrel on Friday.
Oil has hit a level not seen since 2008, when high energy prices helped drag the U.S. economy deeper into recession. And now the price is again on the rise. "If prices come back down after a short while, the impact on the U.S. economy is relatively limited," said Gregory Daco, a senior economist in the U.S. macroeconomics group at IHS Global Insight, an economic and financial analysis firm. "However, if prices do stay at a higher level for six months to a year, the impact on growth can be relatively important."
High energy prices have forced businesses to delay hiring plans and to consider passing fees onto customers. Rising prices at the pump have sapped spending power from consumers, crippling a major source of U.S. economic growth. Expensive oil even threatens the housing market's recovery, as the prospect of a costly commute makes moving to the suburbs less attractive. Each $10 rise in the price of a barrel of oil translates into a 25-cent increase in gas prices, which tears more than $25 billion from the U.S. economy yearly, economists say.
The economic risk posed to the United States by rising oil prices eclipses the effects of the disaster in Japan, experts say. The 9.0-magnitude earthquake that stuck Japan this month, which could plunge that country into recession, won't pose a major risk to the U.S. economy, economists say, as companies will find ways to work around supply disruptions. But high energy prices drain resources from consumers and businesses, crippling the nation's economic foundations.
"Oil prices are even more of a concern to the U.S. outlook than what's going on in Japan right now," said Scott Anderson, a senior economist at Wells Fargo. "The consumer is still working to recover form the excesses of the financial crisis." The oil supply disruption that's already occurred is relatively minor, and the Organization of Petroleum Exporting Countries has pledged to correct any shortage with its oil reserves. But the price of a barrel of oil reflects the perception of a mounting crisis. Even without a significant shortage, that perception is helping to cause real economic damage.
As fighting continues in the Middle East, investors fear the damage to the global oil trade could worsen. Experts are keeping a close eye on Saudi Arabia, which has sent to troops to Bahrain to help quell anti-government actions. Tensions between Saudi Arabia and Iran, which each support rival groups in Bahrain, could turn into outright conflict, experts fear. Combined, Saudi Arabia and Iran produce more than 17 percent of the world's oil. An oil supply disruption in Saudi Arabia could inflict widespread economic strain.
"Whats starting to bubble up to the surface here is this major clash between Saudi Arabia and Iran," said Bernard Baumohl, the chief global economist at the Economic Outlook Group. "That can have much more dire consequences for the global economy."
Portugal government nears collapse amid debt crisis
by Barry Hatton - AP
Just as Portugal appeared to have dodged a bailout like those taken by Greece and Ireland, a domestic political spat was set Monday to worsen its financial troubles and possibly spoil Europe's efforts to put the sovereign debt crisis behind it. Portugal's main opposition parties told the beleaguered minority government they won't budge from their refusal to endorse a new set of austerity measures designed to ease a huge debt burden that is crippling the economy.
The new steps are likely to be rejected in a parliamentary vote expected Wednesday and the timing could not be worse. A defeat in the vote, Prime Minister Jose Socrates warned, would trigger his government's resignation, consigning Portugal to at least two months of political limbo just as officials were hoping to boost investor confidence in the country's future. "At this point, a political crisis is a big push towards the country resorting to outside help," Finance Minister Fernando Teixeira dos Santos said.
The national political crisis also threatens to set back Europe's broader plan to stamp out the debt market jitters -- leaders at a two-day summit starting Thursday will seek to ratify key changes to the bloc's rescue fund and spare Portugal the need to surrender policy decisions to outside authorities through a bailout. The new European policy would allow the fund to purchase government debt, easing market pressure which has driven the borrowing costs of weak countries to unsustainable levels. European leaders hope the response will herald the end of the debt crisis that has dragged on for more than a year.
That deal, however, was contingent on Portugal implementing the austerity measures that are unlikely to survive the country's political standoff. Portugal's center-left Socialist government, which has insisted it doesn't want or need a bailout, won the backing of the European Central Bank and the European Commission for that new austerity plan. The ECB has already been helping Portugal by buying its government debt and providing funds to its banks.
With the austerity plan at risk, Portugal's political woes are likely to sow fresh uncertainty among investors who are nervous about the 17-nation eurozone's fiscal soundness and prospects for economic recovery. The big worry is that the high borrowing costs will continue to erode confidence and economic growth and eventually threaten the stability of much larger debt-heavy nations such as Spain, Belgium and Italy. "We think Portugal will eventually need to request a bailout," said Emilie Gay, analyst at Capital Economics. The Portuguese government's insistence that it can find its own path out of its difficulties "are not very credible any more," she said.
Portugal has to find cash to meet bond repayments amounting to almost euro9.5 billion ($13.48 billion) falling due in April and June. It has had no trouble raising money on markets so far, but it needs to lower steep borrowing costs that are pushing it into a downward spiral. The yield on its 10-year bond, for example, was at 7.4 percent on Monday -- not far from euro-era records. The debt market jitters are more than concerns for investors or governments -- they have a real economic impact on a country and its people because they imply savage austerity measures. As in Greece and Ireland, standards of living plummet as the economy readjusts to lower wages and prices to become more competitive.
Portugal is following a similar path. Its scrawny economy has posted average annual growth of less than 1 percent over the past 10 years. During that time, it amassed massive foreign debt to finance its western European lifestyle. The main opposition party, the center-right Social Democrats, agrees the country must reduce its debt load and has consented to previous austerity measures including tax hikes and pay cuts. But it said the government's latest austerity plan -- the fourth set of measures in 11 months -- goes too far because it hurts the weaker sections of society.
Among the measures is a freeze on old-age pensions which Social Democrat leader Pedro Passos Coelho described Monday as "deeply unfair." The government has offered to negotiate changes to the package, but the opposition parties say they no longer trust the government because it didn't consult them before presenting the measures to European authorities earlier this month. Minister for Parliamentary Affairs Jorge Lacao said the deadlock would have "very grave consequences" for Portugal. The austerity measures have prompted a wave of strikes and street demonstrations. Workers with the national rail company and the Lisbon subway are due to walk off the job later this week.
Ireland: Default or not to default? Now that's a no-brainer
by Daniel McConnell - Independent.ie
In less than two weeks' time, the results of the stress testing of the Irish banks will be published. The new Finance Minister Michael Noonan has publically admitted that the planned €10bn capitalisation will not be enough to cover the ever increasing losses in our banks.
Some, even at the head of that new Government, fear the amount needed could be substantially more than that. Last Sunday, in a front-page story, I put that figure at €25bn. This is on top of the €46bn already committed in bailout funds from the taxpayer and €30bn in Nama bonds and a further €70bn or so from the Central Bank in emergency funding.
Once again the Irish taxpayer is being called on to bail out those banks which through their own hubris and insanity during the past decade have brought this country to its knees.
Let us never forget that the actions of 100 people or so at the top of Irish banks have brought this country to the point of financial ruin. Now, in isolation, the country's fiscal deficit (forecasted to be €12bn this year) is problematic but manageable, but when added to the colossal burden of the banking losses, Ireland can no longer keep its head above water.
Leading Trinity College economist Philip Lane said it was now questionable whether we could sustain this debt mountain. "Is the size of the bank debt big enough so that the sovereign debt becomes unsustainable?" Lane said. "I think everyone would agree, it's a very close call at this stage."
Others have gone further. Richard Portes of the London Business School said: "Based on current government policies, I find it very difficult to see how Ireland can meet the sovereign obligations it has incurred in the medium-to- long term. The simple dynamics of debt require there needs to be growth if a country is to break out of this debt trap. And that is not going to happen if Ireland is to continue on this path of fiscal austerity. If you continue on this path it will ultimately lead to a sovereign default."
To my mind, the question is no longer whether Ireland should default but a question of when. We won't have a choice. Former NTMA boss, Dr Michael Somers, said Ireland was now caught in a classic debt spiral. "There is no way we will ever pay this stuff back, it will just be refinanced. The awful thing is that I know there are figures going around showing virtually no growth for the next three years and you ask yourself what comes after that, further tax hikes and you ask yourself how are we ever going to get out of this. We are in a downward spiral," he said.
With the voices of political extremism howling at the door in the new Dail, the centrist parties are fighting to take ownership of the issue of default. Fine Gael TD Paschal Donohoe, who is admirably numerate for an Irish politician, has just published a hard-hitting pamphlet, "Why the 31st Dail should not be the default Dail".
Donohoe's document sets out the stark consequences of a unilateral default for Ireland. He warns that Ireland would lose all ability to borrow, thus forcing a 12 per cent cut in government spending overnight. He said Ireland could expect to be out of the markets for five years if we do default, and said once we do return we would be facing higher interest payments.
"However, there are a number of reasons why an Irish default would be unprecedented and unique. First, Ireland is a member of a single currency zone. An immediate step taken by all modern defaulting economies has been to devalue their currency. This is to provide a quick 'stimulus' of export competitiveness. As Ireland does not have a national currency this option is not open to an Irish government.
"Second, Ireland is a developed country. The collateral impact of a developed economy default will be larger due to greater integration with the European economy.
"Third, the lender of last resort is already present in the Irish State. Defaulting economies have recourse to the IMF. Ireland has already done so with our participation in the IMF/EU support programme. A default involving non-payment to our lenders of last resort would be unprecedented."
Donohoe's concerns are shared by the likes of Somers, Peter Sutherland and Patrick Honohan, who argue Ireland cannot countenance default. Others like David McWilliams, Constanin Guerdiev and former Chilean finance minister Andres Velasco argue defaulting on our bank debt is now Ireland's only viable option. Velasco said: "If you look back in history, many, many countries have defaulted including some in Europe. It is not the end of the world and can be beneficial."
The next step after the stress tests results are known is that Ireland needs to conduct a debt audit, and separate its banking debt from its sovereign debt and start reducing the burden. Let me be clear. Any debt owed by the State for the keeping of the lights on, keeping doctors and nurses working in our hospitals and teachers in our schools must be met and honoured in full.
But, Ireland must now tell those who gambled on our banks that they must take a hit. On that portion of the debt, €22bn in unguaranteed stuff and a further €60bn-plus of other bank-related stuff, Ireland must inflict losses on the investors who took a punt and failed. It's like the old saying, if you owe the banks €40,000 they have you by the balls, if you owe them €40m, you have them by the balls. This is how Ireland needs to start dealing with the ECB.
Ireland, given how much we owe, has Europe and the ECB by the balls. It's time Finance Minister Michael Noonan started squeezing, and squeezing hard to ensure taxpayers are not left to pay for the crimes of our bankers. UCD academic Daniel Thomas in a measured piece last week said that France and Germany, with their insistence that Ireland must offer up a "gesture", risk turning a pro-European country into a deeply Eurosceptic nation.
"If France, Germany and the European Commission maintain their hardline positions, they may well convert Ireland from a euro-friendly to a deeply eurosceptic country. If this happens, it is likely that any future EU treaty reform would be rejected by Irish voters, regardless of the new treaty's merits and regardless of how many referenda are held. Given the myriad challenges facing the EU, and the evident shortcomings of its current treaties, this would indeed be a bad outcome for all concerned."
Noonan has a tough road ahead to navigate. But, the bottom line is that Ireland has to default, and should do it quickly; otherwise we, as a country, will no longer be viable. Get squeezing, Michael.
A Looming Disaster: Europe
by Robert J. Samuelson - Newsweek
While the world has been transfixed with Japan, Europe has been struggling to avoid another financial crisis. On any Richter scale of economic threats, this may ultimately count more than Japan’s grim tragedy. One reason is size. Europe represents about 20 percent of the world economy; Japan’s share is about 6 percent. Another is that Japan may recover faster than is now imagined; that happened after the 1995 Kobe earthquake. But it’s hard to discuss the "world economic crisis" in the past tense as long as Europe’s debt problem festers—and it does.
Just last week, European leaders were putting the finishing touches on a plan to enlarge a bailout fund from an effective size of roughly €250 billion (about $350 billion) to €440 billion ($615 billion) and eventually to €500 billion ($700 billion). By lending to stricken debtor nations, the fund would aim to prevent them from defaulting on their government bonds, which could have ruinous repercussions. Banks could suffer huge losses on their bond portfolios; investors could panic and dump all European bonds; Europe and the world could relapse into recession. Unfortunately, the odds of success are no better than 50–50.
Europe must do something. Greece and Ireland are already in receivership. There are worries about Portugal and Spain; Moody’s recently downgraded both, though Spain’s rating is still high. The trouble is that the sponsors of the bailout fund are themselves big debtors. In 2010, Italy’s debt burden (the ratio of its government debt to its economy, or gross domestic product) was 131 percent; that exceeded Spain’s debt ratio of 72 percent. Debt ratios were high even for France (92 percent) and Germany (80 percent).
As these numbers suggest, there’s no automatic threshold beyond which private investors refuse to buy a country’s debt. Germany and France are considered sound investments, deserving low interest rates, because their economies are judged to be strong. But investor perceptions and confidence can dissolve in a flash. If private markets lost faith in, say, Italy or Belgium, even the enlarged bailout fund probably wouldn’t be big enough to rescue them. The whole scheme is about debtors lending to debtors. It could collapse if investors conclude it’s unworkable, dump bonds, and demand higher interest rates.
What would happen then is anyone’s guess. Defaults? A banking crisis? Some countries abandon the euro? (This sounds simple; in practice, it would be immensely complex.) The European Central Bank—the continent’s Federal Reserve—buys vast amounts of government bonds? The International Monetary Fund organizes a bailout, financed heavily by China, to rescue Europe?
Europe has arrived at this dismal juncture driven by three forces: (a) large welfare states that were too often financed with debt; (b) the financial crisis that led to recession and has pushed some countries (Ireland, Spain) to aid their banks; and (c) the perverse side effects of the single currency, the euro.
The euro’s role is especially ironic. Adopted in 1999—and now used by 17 nations—the euro was intended to promote prosperity and political unity. Countries could enjoy similarly low interest rates and the convenience of common money. It seemed to work for awhile. But low interest rates in countries like Greece, Spain, and Ireland encouraged unsustainable booms or housing bubbles that, when burst, aggravated recession and budget deficits. Now unity has turned to discord. Countries that back the debt bailout—particularly Germany—resent the possible costs; countries being bailed out resent the harsh austerity that’s imposed as a condition of aid.
There is a fragile debtor-creditor consensus that could crumble, posing yet another danger to economic recovery. It’s understandable that the scale of human suffering, physical destruction, and nuclear hazards in Japan compel our attention. But we ought to remember that the greater menace to global stability and prosperity lies halfway around the world.
Detroit's Population Drops To Lowest Level In 100 Years
by Ben Klayman - Reuters
Detroit's population dropped 25 percent over the last decade to its lowest level in a century, according to U.S. Census figures released on Tuesday. The city's population fell to 713,777 last year from 951,270 in 2000 when the last census was taken as the region suffered from a struggling automotive industry, plant closures and job losses. In the same period, the state of Michigan's population dropped 0.6 percent to 9.88 million.
Detroit's 2010 population compares to 1.85 million people living in the "Motor City" in 1950 and was the lowest total since the 1910 Census showed a population of 285,704.
"The census figures clearly show how crucial it is to reinvent Michigan," Michigan Gov. Rick Snyder said in a statement. "It is time for all of us to realign our expectations so that they reflect today's realities. We cannot cling to the old ways of doing business. "We cannot successfully transition to the 'New Michigan' if young, talented workers leave our state," he added. "By the same token, Michigan will not succeed if Detroit and other major cities don't succeed."
Robert Bobb Struggles To Erase Detroit Schools' $327 Million Budget Deficit
by Corey Williams - Huffington Post
Robert Bobb has spent the past two years closing dozens of schools and firing principals in an effort to fix the failing Detroit Public Schools. Yet, he still hasn't solved the problem for which he was hired – erasing a legacy budget deficit that now stands at $327 million. Now, in his final months as the state-appointed emergency financial manager, Bobb is proposing several headline-grabbing ideas – including a radical plan to shut down so many buildings that some high schools could see more than 60 students per class – in an attempt to wipe out the red ink.
The state Board of Education wants the budget gap closed sooner than later. Despite reworking vendor contracts to save money, shutting down old, high-maintenance buildings, weeding out numerous cases of fraud and theft, and keeping dozens of teaching and other district jobs unfilled, the deficit hasn't gone away. With Bobb's contract ending in June, he's floating extreme measures to get the job done. "There are so many competing interests within the Detroit Public Schools, you kind of have to throw a lot of different stuff against the wall to see what sticks," says Michael Van Beek, director of education policy at the Mackinac Center for Public Policy, a free-market think tank in Midland, Mich.
Bobb's latest proposal, announced about a week ago, calls for placing 41 academically poor schools and the 16,000 students attending them in the hands of charter operators. "Rather than simply closing schools, this plan seeks to transform DPS into one of the nation's premier urban school districts by recruiting some of the best, proven school operators to serve Detroit's children and remake schools that have been failing them for years," Bobb has said of the charter proposal.
Another model seeks to take revenue and pay off the district's outstanding debt while doing away with the existing school system. A new district with new contracts and staffing levels would be built from the ground up. Existing schools would be moved into the new system. Bobb also has proposed asking the state to continue current funding levels, despite a drop in enrollment, while it chips away at the accumulated deficit over time. But this seems unlikely as Republican Gov. Rick Snyder already is planning cuts to per-pupil funding in his proposed state budget.
None are guaranteed to work and most would draw opposition from the teachers' union and parents who don't want to see schools closed and teacher contracts thrown out in favor of charter school operators hiring non-union educators to work in their buildings.
But all are preferred to Bobb's initial deficit elimination plan that called for closing 70 of Detroit's 172 schools and increasing the maximum high school class size to 62. Though that plan was approved in February by state education officials who wanted to see a proposal that would eliminate the deficit quickly, even Bobb says it goes too far. "He had no choice but to get us down to zero by the 2014 fiscal year," said district spokesman Steve Wasko. It "is not the plan we want, nor is it good for DPS or its students."
Bobb was appointed by then-Gov. Jennifer Granholm in March 2009 to turnaround the cash-strapped district. He hired an inspector general to look into complaints of financial wrongdoing and within two months was investigating about 50 cases of theft and fraud. Audits of school records revealed some administrators made or received inappropriate personal loans. Along with the school closings, contracts of more than 30 principals were not renewed. Less money also is flowing out of the district as Bobb cut millions of dollars in spending from the budget.
But as enrollment drops, less money to pay the bills is coming in. And while seeking answers to the district's financial turmoil, Bobb also is fighting other battles. "He has a school board that has taken him to court – and won; a recalcitrant teachers union that promises to file grievances. Then he has people within Detroit neighborhoods who don't want to see schools shuttered," Van Beek said.
Bobb was given more ammunition when Snyder recently signed a bill that gives broad new powers and tools to financial managers to restructure school districts and communities headed toward insolvency. Under the law, financial managers will be able to toss union contracts to help balance the books, strip power from local elected officials or – in extreme cases – dissolve a town or school district.
It's unclear how Bobb will use that going forward. For now, he continues to push the charter school plan which is the one receiving the most support in the city at the moment – even from the school board. Under Bobb's proposal, Detroit Schools would sponsor the charters and seek out groups to operate them. The district would lease the buildings for an estimated $21 million and receive 3 percent of whatever funding each charter gets from the state.
Operating costs are expected to drop by up to $99 million. The district would save about $22 million by not having to secure the closed buildings. But the teacher's union has been fighting Bobb's efforts to close schools over the past two years and is "adamantly opposed" to adding more charters in Detroit while losing district-run buildings, Detroit Federation of Teachers president Keith Johnson says.
Charter schools, even those authorized by the district, are not required to hire displaced Detroit Public Schools teachers or hire teachers under the union contract. The district's track record with charter schools has not been smooth. It has closed two since it began authorizing academies in 1998, according to Wasko.
The Michigan Institute for Construction Trades and Technology was closed in 2002 for among other things failing to abide by and meet its educational goals and meeting generally accepted public sector accounting principles. The New Horizon Academy was also shut down in 2000 for the same reasons. Bertha Marsh, who has five grandchildren in Detroit schools, says while most people don't want change, the problems with the schools leave them no choice.
"The district knows it has to do something. Mr. Bobb has seen how the finances are doing, and he sees it's impossible to make it financially stable unless they do something drastic. It can't be the same old same old," she said.
Maria Bartiromo interviews Meredith Whitney
by Maria Bartiromo - USA TODAY
Meredith Whitney seems to be softening her concerns about a looming muni meltdown as politicians across the country address fiscal challenges more aggressively. Whitney, who now heads her own investment advisory firm, earned a following throughout Wall Street and the world during the financial crisis with her early and accurate calls about the shaky state of the banking industry.
It’s no surprise, then, that her later predictions of defaults for states and municipalities fanned widespread concern about the health of the market for debt that governments use to fund their needs. Today she says defaults from local municipalities are still likely and home prices are poised to drop another 10%. But she says a new area of strength is emerging in one part of the country where debt was not an issue: the agricultural belt. Below is my interview with her, edited for clarity and length.
Q: You have been the voice of concern regarding the finances of the states and municipalities. How do things stand today?
A: Every day things get better because politicians are addressing the fiscal challenges more aggressively. Since November you’ve had more governors take strong austerity measures. The reality is that states have simply been spending far more than they’ve been taking in. In many cases, states have spent over two times the tax revenue they’re taking in. Of course, that’s not sustainable because they run down their rainy day funds, which they had previously used to balance misbudgets on a year-to-year basis. They don't have any wiggle room today. But every day the situation gets more focused, and that means it’s closer to finding a fix.
Q: You have said that there could be 50 to 100 sizable defaults that could amount to hundreds of billions of dollars. Could we still see defaults?
A: Yes. This will be an extended multiyear issue. You will see defaults. You have debt that’s just not backed by ample cash flows, ample revenue. You’ve got too many drains and demands on state revenue. I’ve never said that a state would default, but I think the local municipal bonds are at a significant risk of default. Ultimately, a legislator is going to have to decide between the bondholder and their constituents, i.e., paying the police force or paying the bondholder.
The local governments have decided they’re going to pay their police force, their firemen, their trash collectors. Some of the project finance bonds that have gone to back entities should never have been backed by tax-exempt municipal bond paper. Hotels, sports arenas, etc., project development bonds, don't have the revenue to back up the projects.
Q: Are higher tax receipts helping?
A: State and local taxes have picked up from the bottom, but they're not back to 2007-2008 levels. And you’ve got built-in expense escalators in many cases, cost-of-living adjustments baked into expense hikes, when revenue may not go up in lockstep. Revenues have gone up because over 30 states have raised taxes and so many municipalities have raised property taxes. So you would expect because of that hike in taxes, surely revenue receipts would go up. At a certain point, you can’t tax people beyond a certain level.
Q: Your call on the states and municipalities created much emotion and in some cases upset. The critics say it’s not as dire as you say and that if you look at history, we haven’t seen a default in the last 30 years and very few even during the Depression.
A: The obvious response is, time will tell. We have not put on this level of debt in a long time. Municipal debt outstanding doubled in the past 10 years. And in the past 30 years, the U.S. has been in real economic nirvana. You had states that are the biggest issuers of municipal bonds lead economic growth in this country. California I would single out as the largest issuer of municipal debt by a mile. So this is a very different economic time.
We’ve gone through one of the deepest recessions in our history, and states that have led economic growth now lag. Those are the states that have the biggest fiscal budget gaps, and those are the states that are going to have to reckon with, "Who is my ultimate constituent? Is it my taxpayer, bondholder or my state and local government public servant?" We’ve never been in a situation like this before. And because 49 states have to balance their budgets , there’s a sense of urgency to this matter.
Q: What about the broader economy? The housing market has not participated in the economic recovery. Why?
A: Because over a quarter of homes still have negative equity. There is no national housing policy. And the can has really been kicked down the road. So you have a greater amount of housing inventory that has yet to be sold into the market -- this supply overhang (comes at a time of ) diminished demand, because there’s a lot less credit available. The requirements for a down payment and the lending guidelines are much tighter today than they were four years ago.
House price declines appear to have decelerated, but that will prove to be a head fake because you have the foreclosure moratorium that hit in November and December, and that will show up in the next few months. Banks are resuming their foreclosure process, so you’ll see more property come on the market that will have a significant pressure on home prices. Home prices will be down another 8%, 10% in the next 12 months. That’s going to be a real drag on the economy. But there are parts of the economy that are doing very well. As a food producer, the economy in the middle part of the country’s doing well.
Q: Those are the agriculture-rich states?
A: The ag-rich states are going to be Kansas, Missouri, Iowa, Texas to a certain extent because it is a massive beneficiary of the price of oil. It’s the central part of the U.S., you can almost draw a triangle around it, what I call the emerging markets of the U.S. It speaks to how dynamic and strong the U.S. economy really is. It’s just shifting. The U.S. is a composite of many different economies.
Q: So for states that are in bad shape, you think we will see continued services cut and possible defaults, whereas the other states, what you call the emerging markets, we’re going to see a different situation?
A: That's exactly what I see. Michigan for example is talking about collapsing school districts, collapsing municipalities, sharing services. You see Illinois raised taxes dramatically, and has to cut programs. California is cutting over $12 billion in programs. The budgets are coming out steadily, and across the board governors are cutting spending. States aren’t immune from deleveraging. And how they’re going to delever is going to (affect) municipal debt and municipal programs.
Q: What are you telling your clients about investing in light of all of this?
A: You don’t have a lot of bad news through May and June. And then you have some real challenges coming after June as housing starts to decelerate again as foreclosures resume and inventory really comes on the market. Investors who are looking for a strong second half may be disappointed. You may see a repeat of what happened last year. And inflation is a real issue. But for the next couple of months the markets should continue to do well. The more we can do to address fiscal austerity, the better our markets will do, and there is a real political shift to doing that.
Former SEIU Official Reveals Secret Plan To Destroy JP Morgan, Crash The Stock Market, And Redistribute Wealth In America
SPEAKER: Steven Lerner. Speaker at the Left Forum 2011 "Towards a Politics of Solidarity" Pace University March 19, 2011
Speaker Bio: Stephen Lerner is the architect of the SEIU's groundbreaking Justice for Janitors campaign. He led the union's banking and finance campaign and has partnered with unions and groups in Europe, South American and elsewhere in campaigns to hold financial institutions accountable. As director of the union's private equity project, he launched a long campaign to expose the over-leveraged feeding frenzy of private equity firms during the boom years that led to the ensuing economic disaster.
It feels to me after a long time of being on defense that something is starting to turn in the world and we just have to decide if we are on defense or offense. Maybe there is a different way to look at some of theses questions it’s hard for me to think about any part of organizing without thinking what just happened with this economic crisis and what it means.
I don't know how to have a discussion about labor and community if we don't first say what do we need to do at this time in history what is the strategy that gives us some chance of winning because I spent my life time as a union organizer justice for janitors a lot of things It seems we are at a moment where the world is going to get much much worse or much much better
Unions are almost dead we cannot survive doing what we do but the simple fact of the matter is community organizations are almost dead also and if you think about what we need to do it may give us some direction which is essentially what the folks that are in charge - the big banks and everything - what they want is stability
Every time there is a crisis in the world they say, well, the markets are stable. What's changed in America is the economy doing well has nothing to do with the rest of us. They figured out that they don't need us to be rich they can do very well in a global market without us so what does this have to do with community and labor organizing more. We need to figure out in a much more through direct action more concrete way how we are really trying to disrupt and create uncertainty for capital for how corporations operate.
The thing about a boom and bust economy is it is actually incredibly fragile. There are actually extraordinary things we could do right now to start to destabilize the folks that are in power and start to rebuild a movement.
For example, 10% of homeowners are underwater right their home they are paying more for it then its worth 10% of those people are in strategic default, meaning they are refusing to pay but they are staying in their home that's totally spontaneous they figured out it takes a year to kick me out of my home because foreclosure is backed up. If you could double that number you would you could put banks at the edge of insolvency again.
Students have a trillion dollar debt. We have an entire economy that is built on debt and banks so the question would be what would happen if we organized homeowners in mass to do a mortgage strike if we get half a million people to agree it would literally cause a new finical crisis for the banks not for us we would be doing quite well we wouldn't be paying anything.
Government is being strangled by debt. The four things we could do that could really upset Wall Street. One is if city and state and other government entities demanded to renegotiate their debt and you might say why would the banks ever do it - because city and counties could say we won’t do business with you in the future if you won’t renegotiate the debt now.
So we could leverage the power we have of government and say two things we won’t do business with you JP Morgan Chase anymore unless you do two things: you reduce the price of our interest and second you rewrite the mortgages for everybody in the communities. We could make them do that.
The second thing is there is a whole question in Europe about students’ rates in debt structure. What would happen if students said we are not going to pay. It’s a trillion dollars. Think about Republicans screaming about debt a trillion dollars in student debt.
There is a third thing we can think about what if public employee unions instead of just being on the defensive put on the collective bargaining table when they negotiate they say we demand as a condition of negotiation that the government renegotiate - it’s crazy that you’re paying too much interest to your buddies the bankers it’s a strike issue - we will strike unless you force the banks to renegotiate/
Then if you add on top of that if we really thought about moving the kind of disruption in Madison but moving that to Wall Street and moving that to other cities around the country. We basically said you stole seventeen trillion dollars - you've improvised us and we are going to make it impossible for you to operate. Labor can’t lead this right now so if labor can’t lead but we are a critical part of it we do have money we have millions of members who are furious
But I don't think this kind of movement can happen unless community groups and other activists take the lead. If we really believe that we are in a transformative stage of what's happening in capitalism, then we need to confront this in a serious way and develop really ability to put a boot in the wheel then we have to think not about labor and community alliances we have to think about how together we are building something that really has the capacity to disrupt how the system operates
We need to think about a whole new way of thinking about this not as a partnership but building something new. We have to think much more creatively. The key thing... What does the other side fear the most - they fear disruption. They fear uncertainty. Every article about Europe says they rioted in Greece [and] the markets went down. The folks that control this country care about one thing: how the stock market goes, what the bond market does, how the bonuses goes. We have a very simple strategy:
- How do we bring down the stock market
- How do we bring down their bonuses
- How do we interfere with their ability to be rich
And that means we have to politically isolate them, economically isolate them and disrupt them
It’s not all theory, I’ll do a pitch. So a bunch of us around the country think who would be a really good company to hate we decided that would be JP Morgan Chase and so we are going to roll out over the next couple of months what would hopefully be an exciting campaign about JP Morgan Chase that is really about challenge the power of Wall Street.
And so what we are looking at is the first week in May can we get enough people together starting now to really have an week of action in New York I don't want to give any details because I don't know if there are any police agents in the room.
The goal would be that we will roll out of New York the first week of May. We will connect three ideas
- That we are not broke there is plenty of money
- They have the money - we need to get it back
- And that they are using Bloomberg and other people in government as the vehicle to try and destroy us
And so we need to take on those folks at the same time and that we will start here we are going to look at a week of civil disobedience - direct action all over the city nthen roll into the JP Morgan shareholder meeting which they moved out of New York because I guess they were afraid because of Columbus. There is going to be a ten state mobilization it try and shut down that meeting and then looking at bank shareholder meetings around the country and try and create some moments like Madison except where we are on offense instead of defense
Where we have brave and heroic battles challenging the power of the giant corporations. We hope to inspire a much bigger movement about redistributing wealth and power in the country and that labor can’t do itself that community groups can’t do themselves but maybe we can work something new and different that can be brave enough and daring and nimble enough to do that kind of thing.