Tuesday, July 26, 2011

July 26 2011: Austerity is coming to the U.S.A.

Russell Lee Texaco October 1937
"Abandoned garage on Highway No. 2, Western North Dakota"

It's coming from the sorrow in the street,
the holy places where the races meet;
from the homicidal bitchin' that goes down in every kitchen
to determine who will serve and who will eat.
From the wells of disappointment where the women kneel to pray
for the grace of God in the desert here and the desert far away
Democracy is coming to the U.S.A.
- Leonard Cohen: Democracy

Ilargi: I've left the American debt ceiling debate be for the most part so far because I’m not that interested in people jockeying for election time positions while engaging in kindergarten level "fights". Now that the August 2 deadline is just one week away, we’ll look at the specifics a bit more over the course of the coming days. But not with a focus on what the Washington elite is actually saying; that stuff just bores me.

Instead, I want to shift towards what the inevitable last-minute agreement will mean for the people on the ground. And that will not be pretty. It will be harsh austerity, even if US politicians -and likely media too- will shy away from using the term. Let them. Let them reserve it for what happens in Greece and Ireland if that makes them feel better. A rose by whatever name and all that. Just don't let that fool you.

Today it's the US Postal Service closing down 3700 additional offices. Tomorrow it will be Social Security, Medicare and so on and so forth. Last week we saw that the Federal Reserve has spent $16 trillion on bailouts thus far this crisis. The debt ceiling debate is being used as we speak as the first tool to make ordinary Americans pay for this. It's no different from what's going on in Athens and Dublin, and soon Lisbon, Madrid and Rome. The MO of the political/financial system that holds all the levers in our societies is based on a wealth transfer going one way, and a debt transfer going the other.

This is the essence of the Greek rescue operation set in motion last week in Europe, and it's the essence of the debt ceiling debate. A lot of preliminary talk about the terrible outcome if things are not done the proper way, followed by agreements that make the financial markets happy, however shortlived, and put populations into ever deeper misery. The trick is that this misery is always transferred to the future, so while the documents are signed, nobody notices right away.

But then that future arrives, and sooner than anticipated by most; the insatiable markets will from now on go after anyone who shows a weakness. And demand more money. This is how entire societies are being gutted.

Here's Ashvin with a picture of austerity in Europe. This is what's coming to America, and much more too.

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Ashvin Pandurangi:

Bailouts, Austerity and Rage: Calm Like A Bomb

Part I - The Greek & The Irish

"Stroll through the shanties, and the cities remain.
Same bodies buried hungry, but with different last names.
These vultures rob everything, leave nothing but chains.
Pick a point on the globe; yes the picture's the same.
There's a bank, a church, a myth and a hearse;
a mall and a loan, a child dead at birth.
There's a widow pig parrot, a rebel to tame,
a whitehooded judge and a syringe and a vein.
And the riot be the rhyme of the unheard
Rage Against the Machine: Calm Like a Bomb

Rage is deeply-rooted fear and frustration metastasized in the body of a global and institutionalized society; the natural result of economic disenfranchisement. It is one thing to advocate in the name of rage, another to predict that episodes of collective rage will occur and yet another to note that they are already occurring and accept them as a fundamental aspect of our lives. The former should be avoided as much as possible, while the latter two are required of the responsible analyst, in my humble opinion. "RATM" may not be a shining beacon of objective analysis in our world, but, at the same time, they are right.

People across the world are once again recording their "rhymes" as history unfolds. The debt-drugs were injected for years on end, so now the only question is how far down the revolutionary river our rage-filled, junkie mentality will carry us? Southern Europe (and Ireland), of course, are back in the cross-hairs right now, to the extent that poorer parts of the world ever escape them. Revolutions were all but manufactured by Western colonial/imperial powers in Latin America, Asia, Africa and the Middle East throughout the 20th century (see The Shock Doctrine and Confessions of an Economic Hitman), but now the chickens are coming home to roost.

The last time Greece had a true "revolution" (let's call it "a widespread uprising of the people which displaces or severely threatens the existing political order") was in the 1820s, Spain was in the 1860s, Italy in 1848, Ireland in 1916 and Portugal the most recent in 1974 (no shots were fired in this military coup). [1], [2]. In the case of France, Germany and the UK, the populations have generally suffered their own governments for much longer stretches with fewer internal uprisings. Now, in the span of just over a year, we have witnessed mass protests and/or riots in all of these countries, on multiple different occasions.

The trigger for this rage has largely been either the establishment and/or proposal of "austerity measures", as both conditions of EU "bailouts" or independent fiscal policy, or the subsidization of debtor nations by those belonging to Europe's "core". This situation in the EMU has created an extremely tense dynamic both within and between the respective populations of member states. So if we want to know the future of social unrest in Europe, perhaps we should look to the future of bailouts and austerity. To date, the two countries in the developed world that are facing the most severe austerity measures are, without a doubt, Greece and Ireland.


After the first round of Greek bailouts last year, its public bond yields were back to all-time highs as its economy had contracted from conditioned austerity and its finances remained dismal. The new plan concocted last week in the European "Leaders' Summit" has allowed Greece's 2-year bond yield to retrace about 1300 basis points (from above 40% to just over 27%), as it calls for further subsidization of Greek debt and "voluntary" bond swaps by private investors in Greek bonds. The latter, of course, will not be termed an act of "default" by any of the relevant institutions, except maybe the rating agencies (who would be surprised if they caved?), despite that being exactly what it is.

It is estimated that bondholders who participate in this swap program into longer-term bonds will take losses of up to 21% on the net present value of their current instruments. [3]. These alleged "haircuts" are not only a gigantic under-appreciation of Greek's insolvency, but will most likely still be subsidized by European workers and taxpayers, as investors put those "government guaranteed" bonds to the ECB as collateral. John Maudlin describes this dynamic in his latest E-Letter, Kicking the Can Down the Road One More Time:

"Here is what it [the latest EMU plan] really says: We are going to keep throwing good money after bad and work as hard as we can to transfer the debt that is on the banks to the ECB and European taxpayers as long as the voters will let us. This first tranche will be another €109 billion. That will last a few years, and Greece will only have to pay about 3.5% on that debt and the rollover debt, and people who expected to be repaid in that period will see payment extended to either 15 or 30 years.

You can call this what you like, and they call it "selective default,” but it is a default. There will be government guarantees on the debt, so the ECB can take it from the banks. Let’s see what the "voluntary” debt rollovers will look like and what the likely debt destruction will be. This is from Global Macro Monitor.

First, notice that the plan claims haircuts will only be 21%. But that assumes you can sell the new bonds at a 9% interest rate. If the interests rate demanded by the market are 15%, which is closer to reality, the haircuts are closer to 67%, after what appears to be an initial 20% cut. Will any institution not immediately try and get those bonds into the hands of the ECB? This is just ugly."

Ashvin Pandurangi: So how much will major bondholders really have to share in the losses on risky debt-instruments that they generated in the past, and how much of those losses will be immediately pawned off to the ECB under the new plan? Many of the details of this new "fiscal consolidation" of the EMU have yet to be ironed out, and it is still not clear whether it will be accepted as drafted by the relevant Parliaments. Ambrose Evans-Pritchard writes on this issue in The Telegraph:

"The terms overstep a resolution passed by the Bundestag limiting how far she [Merkel] could go in committing Germany to any form of transfer union or pooling of debts. The use of the EFSF as a fiscal fund without treaty authority further complicates a ruling by the German constitutional court on the legality of the bail-outs expected in September. Such changes to the EFSF will require ratification by each of the national parliaments. It may require an amendment to the Treaties, greatly raising the bar in Germany.

EU officials hope that a debt rollover plan for Greece can be limited to a short technical default. The ECB has backed down on its threat to reject Greek bonds as collateral. The formula will not be extended to Portugal and Ireland. It is understood that rating agencies will hold fire for the sake of global stability. However, there is no disguising that a major taboo has been broken, even if French leader Nicolas Sarkozy continued to insist that Greece would pay "all its debts"."

Ashvin Pandurangi: So, it is still unclear to what extent the new "stability" mechanisms will be implemented across the EMU, but Evans-Pritchard is right to say that a major line has been crossed, regardless of the final details. There is no doubt that the Emergent Union, through its latest plan, has now decided to stick together until the bitter end, when death finally does them apart. We are talking about the unilateral decisions of political and financial officials, though, which are not even close to being reflective of what their populations want. Nowhere is that fact more true right now than in Greece.

At least 95% of the Greek people are suffering immensely to remain in a Union that fails to benefit anyone outside of the top 5%. The authorized plans for austerity and privatization of the citizens' assets continues unabated, and more ominous than ever. Any backstops of Greek debt in the future will still be accompanied by austerity measures approved by the Greek government earlier this month. Meanwhile, the government is still in the process of finding new "advisers" (investment banks) to pay hefty fees in return for advice on how to reduce their deficit via asset sales. [4]. Jeremy Warner from The Telegraph reports:

"Agreement on the package is one thing, deliverability is quite another. Once Germans realise that what is being proposed is a transfer union by stealth, you have to wonder what political future there is for the leaders who agreed it. Angela Merkel is staring election defeat in the face, rather in the way that agreeing to German participation in the euro was arguably what did for Chancellor Helmut Kohl back in the late 1990s.

The same might be said of the recipient nations. What future for political and social stability among the newly enslaved once it is realised the price that has to be paid is loss of fiscal sovereignty together with years of externally imposed austerity;

The agreement refers to a "European Marshall Plan” to restore competitiveness to Greece. This doesn’t appear to mean money. Instead it seems to refer to the provision of "exceptional technical assistance to help Greece implement its reforms”. In other words, someone else will be running Greece’s affairs."

Ashvin Pandurangi: How will this hypocritically harsh plan of austerity and privatization sit with the people of Greece? The proposed austerity measures adopted by the Greek government foresee tax increases of about $9B over the next four years, with almost $8B (~90%) front-loaded in the next two. This includes a measure to reduce the income tax threshold 30% (from 12,000 euros to 8,000) and place a "solidarity levy" on households for 1-5% of income this year. What that really means is the average Greek worker will be paying substantially more taxes, while the wealthiest brackets continue to evade them with relative ease.

Der Spiegel:

"Two-thirds of Greeks regularly pay their taxes as well. Indeed, "contrary  to widespread views," as the Friedrich Ebert Stiftung study put it,  these taxes are automatically deducted along with social contributions  from the paychecks of Greeks employed in both the private and public  sectors. It is mainly the small wealthy class that manages to cheat the  authorities out of €40 billion in tax each year. That is the OECD's  estimated volume of annual tax evasion. The Greek central bank puts the  losses at somewhere between €15 billion and €20 billion.

These tax cheats have little to fear. As Panos Kazakos, an  Athens-based professor of politics, puts it: "I have never seen a single  person put in jail for tax evasion." Robolis adds that the government,  which supposedly has no money available for social services, just  published a list of companies that owe the state a total of €9 billion  in social contributions -- but it does nothing to get that money.

This injustice is what is making people in Greece so angry..."

Ashvin Pandurangi: The plan also calls for about a $31B reduction in spending over the same four-year time frame, with a majority coming from a reduction in public salaries, social programs and health care spending. Taken together, these measures amount to more than 10% of Greece's GDP. Such cuts represent a systematic gutting of safety nets that the average Greek has become reliant on for any chance of solvency, and, even survival in some cases. Finally, the proposed plan aims to generate about $70B+ from sales of public assets, including the citizens' stake in sea ports, airports, highways, mining operations and various other property (such as land on the island of Mykonos [6]) until 2015. [7].

UN News Centre:

"The implementation of the second package of austerity measures and structural reforms, which includes a wholesale privatization of state-owned enterprises and assets, is likely to have a serious impact on basic social services and therefore the enjoyment of human rights by the Greek people, particularly the most vulnerable sectors of the population such as the poor, elderly, unemployed and persons with disabilities,” said Cephas Lumina, who reports to the UN Human Rights Council in Geneva.

Ashvin Pandurangi: The UN is generally known for having a lot of opinions on "human rights" issues without ever really backing them up with concrete action, but the statement above still touches on a very important dynamic for the Greek people. More and more of them are entering the "most vulnerable" classification of neo-feudal society, as they are forced to join the ranks of the impoverished and/or the unemployed.

Der Spiegel:

"This time, the fight for survival last exactly 29 minutes. At precisely 3  p.m., Father Andreas, a 37-year-old Greek Orthodox priest, opens the  doors of the food bank in downtown Athens. At this hour, the line of  hungry people stretches all the way across the large square outside and  into the street. Needy people of all ages are waiting patiently --  pensioners, unemployed people, mothers with children, immigrants, asylum  seekers. "We can't let these people starve," the priest says. "They are  already suffering so much. They should at least not go without food. [..]

In recent weeks, the needs of such people have been keeping Father  Andreas and his colleagues very busy. Almost all of the 400 parishes in  the Archdiocese of Athens have opened food banks like the one he runs.  City officials have opened some as well.

His food bank distributes meals three times at day. Up to 2,000 come  at noon, another 1,200 in the afternoon, and about another 1,000 in the  evening. The workers try to make sure that they don't always supply the  same people. Such vigilance is necessary because "the number of needy is  skyrocketing," says one volunteer who estimates that the figure has  increased by 30 percent in recent months. "But we can't be sure it will  stay there," she says."

Ashvin Pandurangi: It now becomes clear that one cannot and should not under-estimate the revolutionary spirit of an extremely vulnerable population; one which has increasingly less to lose with every iteration of bailouts, austerity and privatization, as was clearly demonstrated by the Greek people at the end of June.

Der Spiegel:

"On Wednesday [June 29] afternoon, tear-gas fumes drifted through the city center. More than 200 demonstrators were reported to have been injured, most of them with eye and respiratory problems. The police union said at least 40 policemen had been injured, one of them seriously. A total of 30 people were arrested. [..]

On Wednesday, one protester, his face covered up, warned that the conflict would continue. "This is just the beginning," he said."

Ashvin Pandurangi: The anonymous protester was absolutely right - those events were only just the beginning of a fundamental and deepening trend for the people of Greece under their new regime of oppressive austerity.

Der Spiegel:

"For weeks, thousands of enraged Greeks have been holding anti-government demonstrations outside Greece's parliament building. They come with bullhorns and banners, and a couple hundred also bring stones and Molotov cocktails.  Camera crews from around the world are always there to film them, but they never turn their lenses toward those in the dark back alleys of central Athens."

Ashvin Pandurangi: It is very difficult to look at the proposed austerity measures, in the context of the above developments, and conclude that the rage and riots in Greece will not get much worse. Last year saw its fair share of violence in Athens, and June 29, 2011 did as well, but there is also every reason to think Greece's economic/financial situation will continue to deteriorate as renewed austerity and privatization plans takes their toll. As reported above, that toll is especially pronounced in the "back alleys" of Athens where no one is looking. Instead, they choose to focus on sound bites from international institutions and national politicians who claim to be "saving" the country.

Der Spiegel again:

"Last week, Prime Minister Georgios Papandreou once again succeeded in getting a majority of Greek lawmakers to push through an austerity and privatization package worth €78 billion ($111 billion). In doing so, he was responding to pressure from the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission. Indeed, many economic experts see the package's measures as the only way to fend off an imminent national bankruptcy at the last minute -- and the only way to save the euro from an even worse fate.

But is Papandreou saving his country to death? Savas Robolis thinks he is. "People are afraid," the 65-year-old says -- they're afraid of an uncertain future."

Ashvin Pandurangi: This fear of the future will continue to strengthen the sociopolitical backlash against a political and banking system that has unequivocally expressed its disdain for the people of Greece. An increasing number of Greek people are protesting for their right to eat a decent meal every day, but the plans for severe spending cuts, tax increases and public asset sales continue on as if those protesters didn't even exist. In the meantime, European leaders meet with each other and figure out "clever" ways of tying themselves into a tight, inseparable knot of fiscal abandon. And for those two reasons alone, the modern world has yet to see the largest uprising that the Greek populace can produce.


Like Greece, Ireland was also given a conditional bailout last year that has proven to be devastating for domestic economic growth. The new plan presented by EMU honchos says that Ireland will be able to borrow from the ECB at 3.5%, well below market rates (~5.8%), but it is not allowed to "selectively default" just yet. As a part of the conditions to reduce its budget deficit last year, Ireland had developed a budget for 2011 that was the most severe in its national history. Unlike the Greeks, however, the Irish people have so far kept relatively quiet in response to the ever-darkening clouds on their horizon. The Irish novelist Ed O'Loughlin has a theory for why that has been the case, as The Guardian reports:

"Dublin-based novelist Ed O'Loughlin says that perhaps one reason why the Irish are proving so docile is that for the first time in centuries the British can by no stretch of the imagination be blamed for their problems.

The author of the political satire Toploader adds: "The lack of clearly stratified classes – as they have in England – breeds insecurity, a fear of losing caste, of being pushed outward. To protest at the rules of this game would be an admission that you no longer have a hand to play in it; that you are a loser and a sucker."

At times of mass emigration, just staying in the country was felt to be a victory in itself, although often a pretty hollow one. "The  fact that everyone's class system is centred exactly on themselves tends to make people, naturally, very self-centred. The Irish term for this is 'mé féin-ism', or 'myself-ism', a play on Sinn Féin, or 'we ourselves'. Mé féiners do not stand together for the common good. They are not good citizens."

Ashvin Pandurangi: It's an interesting theory that may demonstrate the power of a nation's political and cultural history to restrain the socioeconomic frustration of its people, but how long will this dynamic last for the Irish? Before getting to that question, let's first summarize what the people of Ireland are facing in the way of austerity measures. The current budget for Ireland includes spending cuts and tax increases, valued at about $8B, over the next year alone, or 4% of GDP. Most of the reduction in spending will come from cuts to welfare programs and public sector salaries/benefits.

The budget will reduce 4% of public pension expenditures by  cutting benefits to retirees who are already being paid out. The tax increases will mostly come from income and value-added tax reform (lowering the income tax threshold and increasing VAT to 23% from 21%), although the top marginal income tax rate will be kept at 52%. The Irish government may also sell "non-strategic" public assets valued  up to $3B over time, on recommendations of the "McCarthy Group". [8].

Meanwhile, the corporate tax rate will continue to be held at 12.5% (the lowest rate in OECD countries), which effectively serves to deflect the austerity burden from corporations generating massive profits within the country. [9], [10].

These large corporations paying a meager rate of 12.5% include the same financial institutions that were initially  responsible for putting Ireland in a fiscal straight-jacket. It would be foolish to think that this tragic irony is being lost on the Irish people, who may soon be forced to further subsidize their financial industry through the Bank of Ireland, which is the only non-state controlled institution left (the state holds less than 50% of its shares). [11]. Right now, though, it actually appears that the British taxpayers, through the Royal Bank of Scotland, have taken on a part of that role:

The Irish Independent:

"In a statement, the bank [BoI] said it had raised the funds through two "bilateral secured term funding" trades; one yesterday and one at the end of June. The latest trade is believed to have been done with RBS -- itself nationalised by the British government in 2009. The funding, which is not covered by the banking guarantee, has an average duration of some 2.2 years.Although the lender would not comment on all the specifics of the fundraising, they did reveal that under the funding agreement's terms, they will pay  2.65pc above the three-month Euribor rate. [..]

BoI is facing a race against time to avoid joining the rest of the Irish banking sector under state ownership. After the results of the stress tests in April, it was told it had until the end of June to raise €5.2bn if it wanted to remain under private  ownership. That deadline was pushed back to the end of this month with the firm trying desperately to raise the required funds."

Ashvin Pandurangi: If and when the BoI loses its race to stay private, it's the Irish taxpayers who will pick up the tab for an extra 2.65% interest on loans from RBS, along with any other obligations passed on by the private banking sector. Considering these developments and the ongoing effects of current austerity measures, it is difficult to see the Irish people remaining "docile" for much longer. There is only a certain amount of restraint that can be imposed by cultural perceptions before the reality of economic desperation sets in. They are now merely remaining "calm like a bomb", and the fuse on that device has been lit.

The Guardian article referenced earlier also includes the following assessment by John Kearns of the Irish Writers Centre:

"John Kearns, who went abroad in previous recessions and now works in Dublin's Irish Writers Centre, says it is too early to rule out social unrest. 'It's quite possible there will be Greek-style riots. The cuts are affecting people now. People are having their utilities cut off. I know of families, a mother of two, who had their electricity cut off. People can't take that lying down.

And there is still a mortgage crisis coming down the track with increasing interest rates that are coming later this year. I can certainly see social unrest ahead, although I don't see what can be  achieved by it. It's strange that the main demonstrators so far have been pensioners and students rather than industrial workers. The workers so far have been far quieter,' Kearns said."

Ashvin Pandurangi: Indeed, there are strict limits to the amount of economic hardship a population can take before its "restraint" comes to be perceived by it as an exercise in futile despair. It appears that there is now very little standing in the way of fear and rage taking over the reigns of the Irish sociopolitical system. A recent survey found that the Irish people are beginning to agree with Kearns in massive numbers, whether they are truly aware of it yet or not.

Irish Examiner:

"In the last survey, 36%, or 428,000 people, did not see a future for themselves or their family in this country. However, this has now risen  to 45% or 585,000. The iReach survey for the Irish League of Credit Unions (ILCU) found that 82%, or one million adults, fear about coping if further changes to income tax or welfare are introduced.

The survey found that 806,000 people feel they are living to work as opposed to working to live. However, the latest results have not factored in the July interest rate hike and in March one-in-five people said that a hike would have a serious effect on their ability to pay bills."

Ashvin Pandurangi: Well over half a million Irish people and families see "no future" living in their own country, and a solid million adults fear for their ability to make ends meet in the current climate of unaffordable private debt and public bailouts conditioned with severe austerity. That is quite simply a recipe for wide-scale protests, riots and uprisings in the near future. It is fundamentally impossible to predict exactly when such fervor will materialize, or what intervening factors will delay its development, such as Irish politics and culture, political/legal maneuvers by EU governments, financial maneuvers by the IMF/ECB, etc.

However, at the end of the day, these factors are only strengthening the population's future resolve. They are merely extending Ireland's exposure to the bailout structure of the EMU, and the numerous conditions that naturally accompany those bailouts. The fact that EU leaders are now planning to consolidate that structure under the modified ESFS, abandoning the haphazard process they had earlier, changes nothing for the Irish people. Eventually, they will need to write off a portion of the bad debts taken on by their government, just like the Greeks, and they will be forced to pay the price through further austerity and privatization.

I have noted before, in The Short Story of How We Lose, that the pain of losing is disproportionately more severe than the pleasure of winning. Similarly, the relatively abstract prospect of losing in the future is not nearly as painful as the act of losing itself. As the proposed austerity measures targeting the Greek and the Irish transform into implemented measures and real losses for their pocketbooks, we can expect the fear and rage to follow closely behind. Many of the remaining chords tying the people to their political structures will be severed. And, lest anyone tell you different, collective rage is largely a function of deeper socioeconomic trends; ones that are now common to the entirety of Europe and the developed world.

US lawmakers head for showdown in debt crisis
by Andy Sullivan and Matt Spetalnick - Reuters

President Barack Obama's Democrats and their Republican rivals on Tuesday headed for a showdown over competing debt plans one week before a deadline for averting a potentially disastrous U.S. default.

With the two sides further apart than ever and the threat of a far-reaching U.S. credit downgrade looming, IMF chief Christine Lagarde urged swift resolution of the impasse, warning that failure to reach an agreement would have serious consequences for the world economy. "The clock is ticking and clearly the issue needs to be resolved immediately," Lagarde told the Council on Foreign Relations think tank.

But there was no compromise in sight after Obama and Republican House of Representatives Speaker John Boehner delivered dueling televised addresses late on Monday and gave no ground in the bitter debate over how to raise the nation's $13.4 trillion debt ceiling by August 2 to prevent an unprecedented default.

The continuing gridlock -- and signs that neither of the competing plans is likely to win bipartisan support -- alarmed investors worldwide. U.S. stocks and the dollar fell while gold hovered near record highs. But there was no hint of panic as the financial markets held out hope that the stalemate could still be broken.

Boehner on Tuesday kept up efforts to rally support for his plan, which could come up for a vote in the House as early as Wednesday but is in doubt because of resistance from some conservatives in the Republican camp aligned with the Tea Party movement. "It's reasonable, it's responsible. It can pass the House and it can pass the Senate," Boehner told reporters.

Boehner is pushing a two-stage deficit reduction plan that would start with an initial $1.2 trillion in savings over 10 years. Obama opposes it because it would raise the debt limit for only a few months, something he has said he will not agree to. The chief Democratic vote counter in the House, Representative Steny Hoyer, said "maybe a few" Democrats would back Boehner's plan. That would boost the bill's chances in what is expected to be a close vote on Wednesday.

Obama's Democrats have presented their one-step plan for $2.7 trillion in deficit reduction over the next decade but with a debt limit hike that would carry through the November 2012 elections, when he is seeking a second term. Senate Majority Leader Harry Reid, a Democrat, is expected to hold off on any vote on the plan until the House takes up Boehner's proposal.

Far Apart
Republican and Democratic lawmakers, despite weeks of intense talks, are far apart on a deal to reduce the budget deficit, which would clear the way for Congress to lift the debt ceiling by next week, when the country runs out of cash to pay all of its of its bills. Democrats control the Senate. Republicans control the House of Representatives.

Credit rating agencies have threatened to downgrade America's top-notch Treasury bonds if a rise in the debt limit is not accompanied by plan for controlling long-term deficits. A default and downgrade could push the United States back into recession and create global financial chaos. A key element of the standoff has been congressional Republicans refusing to allow any tax increase in deficit reduction packages.

Obama said in his Monday address a default would inflict the equivalent of a tax hike on all Americans by pushing up borrowing costs on things like credit card loans and mortgages, but he sought to assure markets a deal could be reached. "I have told leaders of both parties that they must come up with a fair compromise in the next few days that can pass both houses of Congress -- a compromise I can sign. And I am confident we can reach this compromise," he said in his speech.

Markets responded warily to Obama's remarks. Major U.S. stock exchanges were down less than half a percent in early trading. The dollar fell across the board, hitting a record low against the safe-haven Swiss franc. Gold, seen as another safe haven from the American and European debt woes, rose to a record high on Monday and hovered near that level on Tuesday. However, financial markets are not showing any sign of panic.

Obama to Banks: We're Not Defaulting
by Charlie Gasparino - FOXBusiness

While officials from the Obama Administration raised their rhetoric over the weekend about the possibility of a debt default if the debt ceiling isn't raised, they privately have been telling top executives at major U.S. banks that such an event won’t happen, FOX Business has learned.

In a series of phone calls, administration officials have told bankers that the administration will not allow a default to happen even if the debt cap isn't raised by the August 2 date Treasury Secretary Tim Geithner says the government will run out of money to pay all its bills, including obligations to bond holders. Geithner made the rounds on the Sunday talk shows saying a default is imminent if the debt ceiling isn't raised, and President Obama issued a similar warning during a Friday press conference after budget negotiations with House Republicans broke down.

While the negotiations to craft a budget remain at an impasse, Republicans and Democrats on Monday began crafting their own plans to cut spending that could lead to an agreement to raise the debt ceiling. It's unclear if a broad agreement can be reached any time soon, but even if a deal is struck, a complicating issue for lawmakers and the administration is the possibility of a downgrade to the US debt rating, which would cut the triple-A rating on the nation's debt to a lower level.

Major ratings firms -- namely Standard & Poor's and Moody's -- have said even if the country raises the debt ceiling and doesn't default, there's a strong likelihood that the triple-A bond rating will be cut to double-A unless a budget can be crafted that results in $4 trillion in savings, the result of the massive debt load the country has accumulated in recent years. The nation's outstanding debt is more than $14 trillion.

A senior banking official told FOX Business that administration officials have provided guidance to them that even though a default is off the table, a downgrade "is a real possibility for no other reason than S&P and Moody's have to cover (themselves) since they've been speaking out on the debt cap so much." 

This guidance is a big reason why Wall Street has largely dismissed the possibility of default, and though the markets have been jittery amid the talk of default, they haven't imploded as would be the case, many economists fear, if the nation missed a payment on its debt. The banking official said the administration understands that if there were to be a default, it would likely spark another financial crisis.

"They also know they can pay the debt with cash on hand," this official told FOX Business. The Treasury collects around $2 trillion in tax revenues, and is scheduled to pay out $200 billion in interest to bond holders. In order to meet its obligations to contractors, social security recipients and others, the administration would have to raise another $1 trillion either through cuts, higher tax revenues, the issuance of debt or a combination of all three.

Congressional Republicans believe that the Administration is raising the possibility of a default as a way to ramp up pressure on Republicans to agree to a budget deal that includes tax increases, which they oppose. A Treasury spokesman said that "when we exhaust our borrowing authority, as we will on August 2nd, there is no way to guarantee that we will be able to pay all of our bills. Any suggestion to the contrary is simply false."

Even without a default, banks expect some market turbulence if the triple-A sovereign-debt rating is cut, sources tell FOX Business. While bank officials do not believe there will be a “catastrophic” effect to a downgrade, that’s not to say there won’t be negative ripple effects, notably to bond deals and derivatives priced off triple-A-rated Treasurys.:

Home Prices in 20 U.S. Cities Fell 4.5% in Year Ended May
by Bloomberg

Home prices in 20 U.S. cities dropped in the year ended May by the most in 18 months, adding to evidence the housing market is struggling. The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent from May 2010, the group said today in New York. The decline matched the median forecast of 32 economists surveyed by Bloomberg News.

A pipeline of foreclosures and uneven demand will keep prices from rising this year, discouraging new-home construction and delaying a rebound in housing. Shrinking home equity and an unemployment rate at 9.2 percent are weighing on consumer spending, which accounts for about 70 percent of the economy. "Home prices have yet to find a bottom," said John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston. "Buyers are incredibly cautious. They are concerned about the unemployment rate. There is uncertainty about the economic outlook."

Stock-index futures erased earlier gains after the report. The contract on the Standard & Poor's 500 Index maturing in September was down less than 0.1 percent at 1,333.3 at 9:19 a.m. in New York. Treasury securities were little changed. Estimates ranged from declines of 5.2 percent to 3.5 percent. Year-over-year records began in 2001.

April Revision
The home-price index was revised to show a 4.2 percent drop in the year ended in April from the previously reported 4 percent decrease, according to today's report.
Prices were little changed in May from the prior month after adjusting for seasonal variations, following an April increase of 0.4 percent. Unadjusted prices climbed 1 percent from the prior month, a second consecutive increase.

"The concern is that much of the monthly gains are only seasonal," David Blitzer, chairman of the index committee at S&P, said in a statement. "Sustained increases in home prices over several months and better annual results need to be seen before we can confirm real estate market recovery." The year-over-year gauge provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

The Case-Shiller gauge is based on a three-month average, which means the May data was influenced by transactions in April and March. Nineteen of the 20 cities in the index showed a year-over- year decline, led by a 12 percent plunge in Minneapolis. Washington showed the only increase, up 1.3 percent from May 2010. Eleven cities saw a worsening in their year-over-year price changes.

Housing Headwinds
Other reports signal the housing market is held back by rising unemployment and foreclosures. Sales of previously owned homes declined in June to a seven-month low, according to data from the National Association of Realtors. Inventories rose, more contracts were canceled and 30 percent of transactions last month were of distressed dwellings, the group said.

The Commerce Department may report today that sales of new homes ran at a 320,000 annual pace in June, little changed from 319,000 in May, according to the median forecast of economists surveyed by Bloomberg.

Corroborating Evidence
The Federal Housing Finance Agency reported last week that home prices fell 6.3 percent in May from a year earlier. The FHFA report is based on repeat-sales data that compares prices of the same properties over time. The regulatory agency measures sales of homes with mortgages backed by Fannie Mae and Freddie Mac. As house values decline, owners feel less wealthy and the home equity they can borrow against shrinks.

The lack of a housing rebound is hurting companies that sell related products. Sherwin-Williams Co., the largest U.S. paint retailer, last week reported an unexpected drop in second- quarter profit. The Cleveland-based company cut its full-year profit forecast because of rising raw material costs, and said uncertainty in housing is affecting demand for repainting.

"We're still in a market that is clearly bouncing along the bottom on housing and new construction," Chief Executive Officer Christopher Connor said during a conference call with analysts on July 21. "There is still quite a bit of uncertainty in this market.":

Weak growth may force UK Chancellor into further austerity
by Jeremy Warner - Telegraph

Well there’s a thing. Among the list of excuses for another poor set of GDP growth figures are, bizarrely, Olympic ticket sales. May’s ticket sales, which at around £300m are equivalent to 0.1pc of GDP, apparently don’t count as spending until the event actually takes place in the third quarter of next year. But they would have taken money out of people’s pockets which might otherwise have been spent on other things, so there’s a double negative.

In all, the Office for National Statistics estimates that special factors – which it lists as the additional bank holiday for the royal wedding, the royal wedding itself, the after effects of the Great East Japan earthquake, the first phase of Olympic ticket sales, and record warm weather in April – cost approximately 0.5pc points of growth. If this is added back, then the 0.2pc growth announced on Tuesday for the second quarter doesn’t look so bad.

All the same, it’s quite bad enough, and the truth of the matter is that there are always once off special factors battering the economic statistics. They were not obviously more intense in the last quarter than any other. Why not just put the whole economic crisis down to special factors and be done with it?

The bottom line is that you would expect to see some recovery momentum building by this stage of the cycle, and we are not getting it. Indeed, if anything the outlook is worsening, both domestically and internationally. What can the Chancellor do about it? As I wrote in my column for Tuesday’s print edition of the Daily Telegraph, his options are regrettably limited.

There’s little if any scope for significant tax cuts to support the consumer part of the economy, though as I’ve written before, the Chancellor could reasonably indulge in a number of revenue neutral measures that would boost investment such as reversing the higher 50pc tax band and reintroducing taper relief on capital gains.

But big measures, such as a reversal of the VAT increase, would only knock deficit reduction off course, which in today’s febrile financial conditions would be extraordinarily dangerous.
If there is one thing the Government must do, it is maintain its commitment to fiscal austerity. If the deficit isn’t tackled, interest rates will rise, market confidence would be undermined, and future growth would be severely damaged. Britain and many other advanced economies have no option but wear the hair shirt for a prolonged period of time. Any attempt to wriggle out of this corrective adjustment to the excesses of the boom is the path to ruin.

The one positive in all this is that despite the increasingly weak outlook for growth there’s still every chance of the Government meeting its target of eliminating the structural deficit by the end of the parliament. Perhaps surprisingly, this target is quite insensitive to changes in the growth outlook. Even at rates of growth quite a bit lower than the Office for Budget Responsability has been predicting the target ought to be met.

How to explain this apparent paradox? The Government’s fiscal mandate requires “cyclically adjusted current balance by the end of the rolling five year period” (2015-16), in other words, total public sector receipts need to exceed total public sector spending (minus spending on net investment) after adjusting for the temporary effect of any spare capacity in the economy. The Government has supplemented this mandate with a target for public sector net debt as a percentage of GDP to be falling at a fixed date of 2015/16.

It follows that judgements around how much spare capacity there is in the economy – the output gap – will have a big effect on the cyclically adjusted current budget balance by the end of the parliament. The smaller the output gap, the larger the amount of the deficit that is structural and the less margin the Government has against its fiscal mandate. Conversely, if the output gap is wider, less of the deficit is strucutral and the Government has more margin against its mandate.

Well, the OBR has tested its finding that the government stands a high chance of meeting its fiscal mandate against a persistently weak demand scenario, and finds that lo and behold, the Government would still meet the mandate in such circumstances. It is not entirely clear why this is the case, as logically you would expect weaker growth than expected to act as a significant drag on public finance recovery. The best explanation is probably that unemployment has not risen as much as you might expect for such a deep recession, and that the effect on tax receipts and welfare spending of slow growth will therefore not be as damaging as we’ve seen in the past.

In any case, the OBR reckons that the output gap would have to be 1.5pc of GDP lower than assumed for there to be a significant risk to the fiscal mandate and the plan to eradicate the structural deficit. But what if it is lower, as some economists believe? The longer weak growth persists, the more likely it is that there really isn’t much spare capacity in the economy.
Indeed, the idea that capacity may have been permanently destroyed by the recession may itself be false; it may never have been there in the first place.

If it turns out that virtually all the above trend growth of the boom was the result of credit and leverage, as seems ever more probable, then the output gap is going to be much lower than officially assumed and possibly even non existent.

In those circumstances, the UK economy really is in trouble. If the structural deficit is much larger than the Chancellor currently assumes, he would be forced into additional austerity measures to close it. If he doesn’t take them, the country’s triple A credit rating would be in jeopardy, as its debt dynamics would look correspondingly worse. More troubling still, he’d have to take such action without being able to rely on compensating monetary action from the Bank of England.

To the contrary, the Bank would quite rapidly have to normalise interest rates, whose present highly accommodative disposition is based on the idea that there’s oodles of spare capacity slopping around the economy to soak up any inflationary pressures. Not pretty.

Spanish, Italian Borrowing Costs Soar
by Emese Bartha - Wall Street Journal

Spain and Italy once again paid sharply higher yields than a month ago to sell short-term debt Tuesday, indicating that euro-zone bond markets remain fragile despite last week's agreement on a second bailout for Greece. Treasury-bill auctions in both countries were closely watched for indications of investor demand ahead of bond auctions by Italy on Thursday and Spain next week.

Bonds from both countries came under heavy pressure prior to last week's Greek deal, with yields hitting successive euro-era highs, fueling fears that the countries' funding costs would rise to unsustainable levels. "It's not positive that they had to pay higher yields for the T-bills than previously but even after the Greek deal, the market wasn't very confident," said Alessandro Giansanti, senior rates strategist at ING. "These results indicate that both countries will have to pay jumping yields at their next bond sales."

Spain sold €2.885 billion in three- and six-month T-bills, near the €3 billion maximum targeted. Bids of €9.305 billion imply a healthy bid-to-cover ratio of 3.23 for the amount sold. The three-month average yield rose to 1.899% from 1.568% at the previous auction on June 21, while the six-month average yield increased to 2.519% from 1.776%. Italy sold the targeted €7.5 billion in six-month T-bills and €1.5 billion in zero coupon notes maturing April 2013. The average yield on the T-bills rose to 2.269% from 1.988% June 27. The yield on the zero coupon notes rose to 4.038% from 3.219%.

Italy will auction up to €8.5 billion in two nominal and two floating-rate bonds Thursday. Spain has penciled in the sale of a three-year bond Aug. 4, and may decide to add a second bond. Barclays Capital analysts said these bond sales "are likely to be well supported by redeeming bonds and coupon payments." Given that domestic investors, who have a "very high" propensity to roll over their debt, hold about 50% of the bonds in each country, "there is likely to be a natural demand for the auctions," they said.

Italy's decision to cancel a mid-August bond auction, citing "large cash availability and the limited borrowing requirement" may ease pressure on Italian yields next month. Spanish and Italian bonds fell Tuesday, with Spanish 10-year yields rising above 6%. A trader said the weakness was partly a reaction to the high yields paid at the T-bill auctions, but also reflected worries about how long it would take the euro-zone bailout fund, the European Financial Stability Facility, to be able to intervene in the secondary bond market.

Spain, Italy debt sales show euro zone relief fading
by Paul Day and Valentina Za - Reuters

Spain and Italy paid a high price to sell short-term debt on Tuesday, compounding investors' concern that last week's bailout package for Greece left the euro zone's debt crisis unresolved.

Spain's short-term cost of borrowing hit three-year highs and demand fell at its Treasury bills auction while yields at a sale of six-month Italian paper hit their highest since November 2008.
"The most important point again is the fact that relative to the last auction yields are much, much higher," said Marc Ostwald, a strategist at Monument Securities in London. "It shows we may have had some relief last week, but that relief has proven to be rather short-lived."

Spanish and Italian benchmark bond yields rose after the auctions and the premium demanded to hold Spanish debt rather than lower-risk German bonds widened, reflecting investors' doubts that European policymakers have resolved a crisis that has forced Greece, Ireland, and Portugal to seek international aid.

In another worrying sign, Deutsche Bank's second-quarter results on Tuesday showed that the German flagship lender has been slashing its exposure to peripheral euro zone countries including Spain and Italy. Five days after a euro zone summit agreed a second Greek rescue, Spanish and Italian bond yields are back to the levels seen in the days before the deal was struck. German Bund futures prices, the benchmark of the euro zone debt market, are also back up at pre-summit levels.

Bleaker Reassessment
Last Thursday's agreement aimed to prevent a disorderly default by the debt-laden country and widened the scope of what their rescue fund can do to stop the crisis spreading.
Initial market enthusiasm for the deal saw the euro, peripheral euro zone bond prices, and shares rise.

But the relief rapidly faded as the focus turned to the difficulties in implementing aspects of the package and the fundamental problems of debt sustainability that have yet to be addressed. "The package was viewed quite positively ... Beyond that, it has run into problems over how to implement it. That has been a struggle," Commerzbank rate strategist David Schnautz said.

Top of analysts' concerns is that the euro zone's rescue fund, the European Financial Stability Facility, has not been given extra funds to draw upon despite being handed a much wider remit. "People are concerned that the overall size of the EFSF still hasn't been increased," said Eric Wand, interest rate strategist at Lloyds. "I'd like to think the recent extremes would cap near-term movements but the situation is still very fragile."

There are also question marks about how many banks will sign up to the bond exchanges or buybacks agreed to ease Greece's debt burden. Investment bank JPMorgan said some investors were unlikely to take up the offer to voluntarily swap Greek bonds that were maturing for longer-term paper and would instead sell whatever they had left on their books each time prices rebounded. "We believe that it will be difficult to achieve the required 90 percent participation rate since financial institutions will be tempted to sell Greek bond holdings into recent strength," JPMorgan said.

Procedures for a voluntary swap of privately held Greek government bonds for longer maturity paper will start in August, Greece's deputy finance minister said on Tuesday. Most fundamentally, Greece faces a still mountainous debt to tackle while deep in recession, leading most economist to predict a more fundamental restructuring in future, with all the contagion risks that that prospect entails.

Spain and Italy have been under intense market scrutiny and fears that the crisis could spread to engulf these bigger and systemically more important euro zone states has seen their borrowing costs soar. If either required bailing out the euro zone's resources would be stretched to breaking point.

A week ago, impatience over policymakers' handling of the crisis had driven 18-month Spanish yields to their highest in nearly a decade and the longer-term cost of borrowing was at its highest since the launch of the euro in 1999. Italy's blue chip FTSE MIB has fallen 5.8 percent so far this month, the worst performer among peripheral and major European equity indexes. Spain's IBEX 35 is down 5.3 percent. Italian bonds could come under further pressure as investors make room for sales of up to 10 billion euros worth of longer-term debt on Wednesday and Thursday.

Moody's Cuts Greek Debt Rating Further
by Natasha Brereton-Fukui and Marcus Walker - Wall Street Journal

European bond markets fell on Monday after Moody's Investors Service cut Greece's credit rating three notches deeper into junk territory, warning that the country's latest bailout deal implies a default. Moody's said last Thursday's €109 billion ($156.5 billion) bailout package for Greece will almost certainly inflict "substantial" losses on Greek bondholders, putting the Athens government in at least temporary default.

That assessment echoed the view of Fitch Ratings on Friday, and is expected to be followed by the third major rating agency, Standard & Poor's. The rating agencies are expected to state that Greece is in default on its debt obligations when it begins to exchange its current bonds in coming months for new, long-term debt at a loss to investors. The exchanges are a condition of Greece getting continued rescue loans from the rest of the euro zone, which the country needs to avoid total financial meltdown.

Moody's cut Greece's bond ratings to Ca, its second-lowest rung, from Caa1. A Greek default would be the first by the government of an advanced Western economy in decades. Euro-zone authorities say they hope the default will be orderly and temporary. However, Moody's warned it sets a bad precedent for other cash-strapped euro-zone countries, echoing a widespread perception in financial markets that Ireland and Portugal might also seek sacrifices from their bondholders if they need additional rescue loans from Europe.

Investors have viewed with skepticism euro-zone leaders' insistence last week that Greece is a special case, because Germany, the euro zone's strongest economy and de facto paymaster, has made clear in recent months that it isn't prepared to support further bailouts that are funded only by taxpayers while letting banks off the hook. The precedent set by the planned Greek debt restructuring will weigh on the credit ratings of other euro-zone governments with fiscal problems, Moody's said on Monday. The Greek bond-exchange program is part of an understanding reached among euro-zone authorities and leading European banks and financial institutions last week.

Moody's said it would reassess Greece's financial outlook after the bond exchanges, to judge whether the country is likely to recover or default again. "It's our experience, if you look back at history, that sovereigns that default will often default again," said Sarah Carlson, a senior analyst at Moody's.

However, Moody's said Greece has a chance of repairing its finances after the expected default. "Looking further ahead, the EU program and proposed debt exchanges will increase the likelihood that Greece will be able to stabilize and eventually reduce its overall debt burden," the rating agency said. But Moody's said Greece "will still face medium-term solvency challenges" because of its high debt level, and "will still face very significant implementation risks to fiscal and economic reform."

Greek Prime Minister George Papandreou has expressed a similar view in recent days, saying the European bailout deal leaves the ball in Greece's court, and urging Greek ministers and lawmakers to step up their efforts to overhaul the struggling country's state and economy. On Monday, Greek Finance Minister Evangelos Venizelos was scheduled to meet in Washington with U.S. Treasury Secretary Timothy Geithner, International Monetary Fund chief Christine Lagarde and a raft of fund executive board members to discuss the European financing package, hoping to assure them that his country can carry out the economic programs necessary for an expanded bailout.

Debt-plan concerns hurt Greece’s credit rating
by David Jolly - New York Times

Moody’s Investors Service cut Greece’s credit rating yesterday after concluding the eurozone bailout plan announced last week will require private-sector holders of Greek debt to take credit losses.

The agency said it downgraded Greece’s debt ratings from CAA1, already deep in junk-bond territory, to CA - one step above default - "to reflect the expected loss implied by the proposed debt exchanges." It said it would reassess that rating once the deal has been completed.

Moody’s offered a generally positive assessment of the plan agreed to by European leaders Thursday, saying it "benefits all euro area sovereigns by containing the contagion risk that would likely have followed a disorderly payment default on existing Greek debt."\ But the ratings agency expressed concern about "the negative precedent set by the endorsement of distressed exchanges" between Greece and its creditors, a reference to the bond swaps that private investors will undertake.

Those holding Greek debt are "virtually certain" to suffer losses, Moody’s said. Germany and several other countries had insisted that no new rescue for Greece was possible without banks bearing part of the pain. Fitch Ratings said Friday that doing so would constitute a restricted default.

"While the rating agency believes that the overall package carries a number of benefits for Greece - a slightly reduced debt trajectory, lower debt-servicing costs, as well as reduced reliance on financial markets for years to come - the impact on Greece’s debt burden is limited," Moody’s added.

Standard & Poor’s and Fitch have also rated Greece as junk, or noninvestment grade. The Greek government responded with disdain to the downgrade. "All governments pay a subscription to these agencies," Reuters cited Elias Mosialos, a government spokesman, as telling Radio 9. "We, I think, do not need the reviews anymore. They have no practical value. Perhaps the finance ministry should end its subscription."

Even if the rescue plan manages to hold speculators at bay, Greece remains heavily indebted relative to the size of its economy and needs to expand its gross domestic product.

Greece hopes for quick debt swap in August
by George Georgiopoulos - Reuters

Greece wants a voluntary swap of government bonds for longer maturity paper to start in August and be completed fast to emerge rapidly from an expected default rating, its deputy finance minister said on Tuesday.

Greece's private sector creditors will take a 21 percent loss on their bond holdings as part of a 37 billion euro ($53 billion) contribution to the country's latest bailout plan, agreed at a euro zone summit last week. "In the coming days, in collaboration with (bank lobby) IIF, talks outlining the exact procedure that will be followed so that holders of Greek government bonds choose one of four options and proceed to a debt swap will be completed," Deputy Finance Minister Filippos Sachinidis told Mega TV. "Yes, this procedure will start in August," he said.

The International Institute of Finance (IIF) has estimated a take-up rate of about 90 percent for the voluntary program, which gives banks the option to swap Greek debt with new bonds with maturities of up to 30 years. "If the IIF will be the format that will be finally used, the 90 percent (assumed) participation rate does look optimistic," said Justin Knight, head of European rates strategy at UBS.

Investment bank JPMorgan also questioned whether enough investors would take up the swap offer, and challenged the estimate that investors would take a 21 percent "haircut" under the scheme. It said the loss of capital investment would be more like 34 percent.

Greece's creditors in banking, insurance and fund management are looking for more clarity on the options to swap debt for 15-year or 30-year bonds, paying interest Greece can more easily afford. "It's a complex matter and should be done sooner rather than later. The government is in talks to hire a team of banking and legal advisers," a senior Greek banker who declined to be named told Reuters.

Brief Stay In "SD?"
Credit rating agencies have said they will view the planned bond exchange as a partial default but have left the door open for the overborrowed country to emerge from the rating once the transaction is completed. Fitch has said it will place Greece in "restricted default" during the swap.

On Monday, Moody's warned it will almost certainly slap a default tag on Greece, after downgrading it by three notches to Ca, just one notch above default, to reflect the expected loss implied by the proposed bond swap. The agency plans to review the rating after the swap is done, but unlike Fitch which has pledged to quickly raise Greece to a "low speculative grade," Moody's did not say when the rating would change or how.

With a first working meeting on implementing the plan set to take place in Athens on Thursday, Greek officials hope the bond exchange can be done fast. "The goal is for this (bond swap) to last as briefly as possible," Sachinidis said. "It appears that we will manage to secure a satisfactory participation to proceed with the exchange."

Europe's "Marshall Plan" for Greece may disappoint
by Greg Roumeliotis - Reuters

Europe is promising to help kick-start economic growth in Greece as a way of dragging the country out of its debt crisis, but the scheme looks likely to move too slowly to have much impact in the next couple of years.

At last week's summit announcing a second international bailout of Greece, leaders of the 17-nation euro zone pledged "a comprehensive strategy for growth and investment in Greece" that would "relaunch the Greek economy." The emphasis on growth is an important shift in Europe's approach to the crisis; the first bailout of Athens, launched in May last year, focused instead on slashing the Greek budget deficit, and the reduction in spending hit the economy hard.

Greece's recession was a key reason that it missed targets for cutting its debt under the first bailout. So ending its economic slump quickly would increase its chances of bringing its debt down to manageable levels over the next several years. Details of Europe's plan so far, however, suggest it will be a limited scheme that concentrates on channeling funds for infrastructure development to Greece and has little impact over the next two years, which will be a key period in determining whether Athens forces more losses on private creditors.

"Greece will get the money, but most will reach the economy in 2014 and 2015. Too many projects have yet to be set in motion," said Nikos Diakoulakis, a former Greek development ministry official who advises the government on European Union funds.

Limit Expectations
Greece's economy shrank 4.5 percent last year, worse than the 4.0 percent contraction assumed in the first bailout plan, and the International Monetary Fund now expects it to shrink 3.9 percent this year. The IMF predicts meager growth of 0.6 percent next year but this may be too optimistic; a Reuters poll of private analysts conducted in June forecast expansion of just 0.1 percent in 2012 and 0.7 percent in 2013.

Greece has been trying to boost growth by streamlining regulation, cutting bureaucracy and reforming its labor market, but it may take years before such steps have much impact on the creation of jobs and businesses. So the EU's new growth initiative may be Greece's best hope in the short term.

Last week's summit statement was significant partly for what it omitted, however. The initial draft of the statement spoke of a "Marshall Plan" for Greece, a reference to the big U.S.-backed aid program that helped Western Europe recover after World War Two, but that phrase was left out of the final version, perhaps in order to limit expectations. The new economic plan for Greece focuses on the EU's National Strategic Reference Framework Scheme, which channels grants of money to member countries that need help with economic and social development projects.

Greece has 20.2 billion euros of such funds available to it between 2007 and 2013, and so far has tapped only a little over 5 billion euros. In theory, the remaining funds could add some 2.5 percentage points to annual gross domestic product growth over four years, assuming 3.5 billion euros is disbursed each year and there is then a "multiplier effect" as the money stimulates other economic activity, some analysts estimate.

One obstacle to Greece using the money is a requirement for it to match each disbursement of EU funds with some of its own money. Under a deal announced before the summit, the EU will raise its share of funding for Greek projects from an average 73 percent to 85 percent, and Athens is urging the European Commission to increase that further to 95 percent. But Greece has already lost valuable time in creating a pipeline of projects ready to attract EU investment, and even if the government can prevent corruption from siphoning off some money, bureaucratic obstacles will not disappear overnight.

"Greece has the most bureaucratic system in Europe for absorbing EU funds," said Georgia Zempiliadou, a Greek development ministry official overseeing implementation of projects with EU financing. "There are still delays in granting contracts for public works, there are issues with expropriations, licenses, institutions. We will get the money but it will take time to put the processes in place."

Underlining the problems which aid programs in Greece can face, Norway announced in May that it had suspended payment of a $42 million grant to Greece because Athens had not fulfilled commitments and may have broken rules related to the aid.

Dead Projects
The Greek government says 4,762 development projects, with a total value of 5.5 billion euros, are stuck in the country's bureaucratic machine and has vowed to reappraise them so they can either move forward with EU investment or be ditched.

Most of the funds are assigned to major infrastructure projects worth 11 billion euros in total. These include five road concessions where construction has stopped, because banks have frozen funding in response to delays in areas such as securing land. "It is a difficult situation; many of the small projects have stopped. As for the big road projects, they will not start straight away -- there have to be renegotiations so the banks are secured," said George Peristeris, chief executive of GEK Terna, one of Greece's top construction firms.

The government justifies channeling most EU funds to infrastructure by arguing that 40 percent of the recession is due to a collapse of the construction sector, which lost a fifth of its jobs year-on-year in the first quarter of 2011. Greek construction activity, measured by the number of new building permits, plunged 43.9 percent year-on-year in March, according to the latest official figures. The share of public works in overall construction activity was just 4.3 percent.

Some economists believe, however, that Greece could get more bang for its buck by investing in other sectors with quicker returns. "We buy cement and bricks and build highways on which nobody will drive. Ports and airports are nice but we need tradable goods -- we have left only 3 billion euros to invest in things such as manufacturing and tourism," said Dimitris Mardas, an associate professor of economics at Aristotle University.

The summit statement hinted that the focus of EU spending in Greece might change to some extent, saying the funds would be aimed at "competitiveness and growth, job creation and training."

Last week the European Commission unveiled a task force that will offer technical assistance to Greece in absorbing EU funds, appointing European Bank for Reconstruction and Development Vice President Horst Reichenbach as its head. The summit statement also pledged to "mobilize" institutions such as the European Investment Bank, a multilateral lending institution, to help Greece's economy, but it did not elaborate. The EIB's loans in Greece totaled 3.1 billion euros in 2010, up from 1.6 billion euros the year before.

by DemocracyNow

AMY GOODMAN: Welcome back to Democracy Now!, Professor Hudson. What about these latest revelations?

MICHAEL HUDSON: If you’re talking about the revelations of the Senator, these are the second big story to come out in the last two weeks. The first story, really, was two weeks ago when Sheila Bair finished her five-year term at the Federal Deposit Insurance Corporation. And now that she left, she was able to talk about the arguments that were going on while all of this money was being given away. She opposed it. She said none of this money, not a penny, had to be given away at all. She said the job of the FDIC was to do what it did with Washington Mutual and IndyMac. They could have closed down Citibank, they could have closed down AIG and the others. Depositors insured by the FDIC wouldn’t have lost a penny. She said, “That’s what the FDIC does.”

She was overruled by Geithner and by the Treasury Department, and especially by Bernanke, who essentially said, “We have to save the rich first. We have to save the gamblers.” There was plenty of money in all of the banks to cover all of the retail vanilla deposits for businesses and families. What there was not money for was for all the cross-gambles that they had made on derivatives—that is, which way interest rates would go, which way currencies would go. And so, this was really a casino. These were bets. And people like the AIG couldn’t pay. And the question is, how are you going to get the winners in this casino to get money from the losers, who are broke? So these $16 trillion worth of loans were all for junk securities. They weren’t for the solid securities that did back out the deposits. These were all for junk gambles, having nothing to do with the real economy at all.

And the result was that while many of the $16 trillion have been repaid, there has been a residue of $13 trillion added to the government debt since September 2008, when all of this began. All this was created simply on a computer keyboard at the Treasury. So the question is, if they can create a $13 trillion on a computer keyboard, taking over Fannie Mae and Freddie Mac, and the Federal Reserve can simply give this money, why can’t they, over 50 years, pay the trillion dollars for the Medicare and the Social Security? It’s—obviously, it’s a charade.

JUAN GONZALEZ: Well, that was precisely my question. Where did this $13 trillion come from? So this was basically all paper, paper loans.

MICHAEL HUDSON: Well, not even paper. It’s electronic. We’ve sublimated the whole thing. The Federal Reserve can create a deposit, just like a bank does. If you go into a bank, you sign an IOU, and the bank adds money to your account. It’s done on a computer keyboard. That’s what money—how it’s created these days. And the government can do exactly what the bank can do. They can create the money on their own computer keyboards. And that’s—usually, they do that by running a budget deficit. That’s why the economy needs a budget deficit to grow. When the government runs a budget deficit, that puts money into the economy and helps us recover from the recession. That’s pretty obvious.

Under Clinton, we had a budget surplus. And what that meant was, normally, that would have pushed the economy down, but the gap was all provided by banks, commercial banks, on their computer keyboards, at interest. They cleaned up. And that’s a situation that President Obama is trying to restore today. Instead of the government creating free money on its keyboard with a deficit, all of the increase in money used by the American economy will be created by Wall Street at interest. It’s completely unnecessary.

JUAN GONZALEZ: Now, let me ask you about the $3 trillion deal that no one yet knows the specifics of, but we’re already getting the outlines of it leaked little by little. This whole issue of eliminating the tax deduction that millions of Americans use for home mortgage interest, this was supposedly what helped so many people be able to buy homes. With the entire housing industry of the United States in crisis, why would they eliminate mortgage interest deduction, which it seems to me would make—mean fewer houses are bought and sold in the United States?

MICHAEL HUDSON: The banks normally wouldn’t back anything that was going to lead to more foreclosures. But in this case the government has told the banks: “Yes, there are going to be a lot more foreclosures, but we’re going to bail you out, because we’ve insured the mortgages.” Eighty percent of the mortgages in America are now insured by the government, so the banks won’t lose the money. By cutting the deduction, this is going to lead to a huge—a higher bailout by the government to Wall Street on the guarantees that Fannie Mae and the Federal Housing Authority have done.

Now, you said one thing, that making mortgage interest deductible makes homes more affordable. It really doesn’t. What happens is, it enables the banks to make a larger loan against the value of the home, and the buyer now has to pay more interest and take on a larger debt, because they have more free money to pay. Whatever the tax collector relinquishes is available to be paid to the banks as interest. So all this tax deductibility in the first place was an attempt to un-tax real estate, so that home buyers could take out larger mortgages. And 80 percent of banks’ business is making mortgage loans.

AMY GOODMAN: Michael Hudson, let me ask you about the Republican proposal dubbed “cut, cap and balance.” It passed the House earlier this week, and the Senate will vote on the measure today. This is House Speaker John Boehner.

SPEAKER JOHN BOEHNER: Also this week, the House passed our “cut, cap and balance” legislation that represents exactly the kind of “balanced legislation” the President has talked about. It provides him with the debt limit increase that he’s requested. But it gives families and small businesses the real spending cuts and reforms that they’re demanding without any job-crushing tax hikes. What this legislation also shows, that it’s not only important to avoid default, it’s also important that we take a meaningful step toward real deficit reduction. This means, in addition to cutting and capping spending now, there should be real structural reforms to our entitlement programs. And there will be no tax increases.

AMY GOODMAN: Senate Majority Leader Harry Reid described the “cut, cap, balance” bill as one of the worst bills in the history of the country.

SEN. HARRY REID: I think this piece of legislation is about as weak and senseless as anything that has ever come on this Senate floor. And I am not going to waste the Senate’s time, day after day, on this piece of legislation, which I think is an anathema to what our country is all about. So everyone understand, we’re going to have a vote tomorrow. I’m not going to wait ‘til Saturday. We’re going to have a vote tomorrow, and I feel confident that this legislation will be disposed of, one way or the other. The American people should understand that this is a bad piece of legislation, perhaps some of the worst legislation in the history of this country.

AMY GOODMAN: Michael Hudson, your response?

MICHAEL HUDSON: He’s quite right. This is an awful piece of legislation, and it’s too bad that Mr. Obama supports it. But you could see it all coming even before Mr. Obama took office, when he appointed the Deficit Reduction Commission. He appointed opponents of Social Security to the commission: Republican Senator Simpson and Erskine Bowles, who was Clinton’s chief of staff. Obama really believes in trickle-down economics. He believes that Wall Street are job creators, not downsizers and outsourcers and foreclosures. That’s the tragedy of all this.

Now, how—the question is, how can a Democratic president put forth a Republican program? There has to be a crisis. Now in reality there is no crisis at all. In reality, raising the debt ceiling has been done for a hundred years automatically. There is no connection between raising the debt ceiling and arguing over tax policy. Tax policy takes many years to work out. All of a sudden, Mr. Obama is going along with the charade of saying, “Wait a minute, let’s create a crisis.” As his former manager Rahm Emanuel said, a crisis is too important an opportunity to waste. But Wall Street doesn’t like real crises, so there’s an artificial non-crisis that Obama is treating as a crisis so that he can put forth the recommendations of the Deficit Reduction Commission to get rid of Social Security that he has supported all along. That’s the problem. He believes it.

JUAN GONZALEZ: You know, I wanted to ask you specifically about that, because every time you turn on the TV now or you read a mainstream newspaper, there are all these quotations from Moody’s and this rating agency and this expert that August 2nd will be a financial Armageddon for the country. And I’m saying to myself, we’ve already been through a financial Armageddon for the last couple of years, and now they’re suddenly saying that, on this date, if this stuff is not passed, if a deal is not reached, suddenly the entire world financial system will be under severe strain.

MICHAEL HUDSON: Well, you had this kind of debt ceiling come up, I think, maybe 20 times under Bush’s administration. It’s a non-threatening thing. It’s something automatic. It’s technical. It’s sort of like going to the corner and having a notary public certify what you’ve done. It’s a technical thing that has nothing to do with real economy or policy at all. They’re pretending it’s a crisis because they have a plan. And the plan is what Mr. Boehner has put forth. Just like after 9/11, the Pentagon pulled out a plan for Iraq’s oil fields, Wall Street has a plan to really clean up now, to really put the class war back in business and get rid of Medicare, get rid of the programs for the poor, and say, “There’s no money for you. We’ve given it all away in the bailouts.”

AMY GOODMAN: So, Michael Hudson, what could President Obama do?

MICHAEL HUDSON: He could say, “This debt ceiling has nothing to do with policy. You want to argue about the tax policy? Fine, let the Democrats and Republicans do it under non-crisis conditions. But this has nothing to do at all with the debt ceiling. If you want to refuse to increase the debt and plunge the economy into disaster, maybe you’d better talk to your campaign contributors and see what they want. Because I know what they say. Your campaign contributors in the Republican camp are my own campaign contributors: Wall Street. And they don’t like crises.” If he said this, you would find that the charade would pop, just like pricking a balloon.

AMY GOODMAN: Well, what about that? I mean, the very people that are supporting the Tea Party, you know, congressmen activists, are these very same financial institutions that, of course, are demanding a lifting of the debt ceiling.

MICHAEL HUDSON: What they’re pushing for really isn’t a default on the debt. They’re pushing for a crisis to let Mr. Obama rush through the Republican plan. In order for him to do it, the Republicans have to play good cop, bad cop. They have to have the Tea Party move so far to the right, take a so crazy a position, that Mr. Obama seems reasonable by comparison. And of course he is not reasonable. He’s a Wall Street Democrat, which we used to call Republicans.

JUAN GONZALEZ: And in terms of the danger to Social Security and Medicare, how do you see the direction that they are hoping to go into, in terms of the reductions on this deal?

MICHAEL HUDSON: As Mr. Obama’s Deficit Reduction Commission said, we have to get rid of Medicare, we have to get rid of Social Security, put the Social Security funds into the stock market, create a stock market boom, create new business for his—for Wall Street. He believes in trickle-down economics.

JUAN GONZALEZ: And the retirement accounts.

MICHAEL HUDSON: Yes. That’s what he believes in. And this would be a disaster, as people have already seen the last time the market crashed.

AMY GOODMAN: What about unemployment? How does it fit into this picture? We say 9.2, but in fact it is so much higher in so many communities. We’re talking 30 and 50 percent.

MICHAEL HUDSON: That’s right. And it’s getting worse. The interesting thing is when you look at the press reports, the adjective you always see is “unexpected” or “surprising.” What that means is plausible deniability, as if nobody could have foreseen it, while every economist I know says, “Look, we’re in the middle of debt deflation.”

In fact, before he took office, Mr. Obama said he was going to fight to make sure that mortgages—relief was given to mortgage debtors, because if there were foreclosures, there was going to be unemployment. He then did absolutely nothing. He broke his promise. And everything that he warned about has taken place. So it really should not be surprising.

JUAN GONZALEZ: I also wanted to ask you about the connection to—from what’s going on here to what’s going on in Europe, and especially in Greece, the situation there. On Thursday, European leaders agreed to a new $155 billion bailout for Greece. Manuel Barroso, who is the European Commission president, said this:

JOSÉ MANUEL BARROSO: We needed a credible package. We have a credible package. It deals with both the concerns of the markets and of citizens. It responds also to the concerns of all member states of the euro area. It is a package that every government has signed up to. For the first time, the crisis, politics and markets are coming together. Now I expect every one of them to go out and defend and implement, with determination, this package.

JUAN GONZALEZ: The connections, if any, between what’s going on in Greece and Europe and the battle we’re having here?

MICHAEL HUDSON: Well, Greece’s should be viewed as a dress rehearsal for the United States. It’s exactly the same thing. Greece didn’t really get any bailout funds at all. All of the bailout funds were given by European creditor governments to the banks that held the Greek bonds. And Greece was told, “Well, there’s a 50 billion euro loss on your bonds that have gone down. You have to sell off and privatize €50 billion of your land and property in the public domain.” So for every euro that the bankers lose, Greece has to sell off an equivalent amount. The idea is to carve up the government and privatize it, just like Illinois and Chicago and Wisconsin and California are doing. So it’s a dress rehearsal for what’s happening here.

AMY GOODMAN: If you talk about dress rehearsal, there are massive protests—there have been—in the streets of Greece, in Spain, when we were just in Britain, in London. What about here?

MICHAEL HUDSON: You’ve seen the protests in Madison, Wisconsin. And in the Greek Parliament Square, in front of the parliament building, there were signs up to say, “We are Wisconsin.” There was a very clear connection they were making that this is a worldwide struggle. What’s happening across the world is an attempt by the financial sector to really make its move and say this is their opportunity for a power grab. And they’re creating this artificial crisis as an opportunity to carve up the public domain and to give themselves enough money. They’re taking the money and running, because they know that unemployment is going up. The game is over. They know that. And the only question is, how much can they take, how fast?


I. M. Nobody said...

Brought forward from previous topic. Ahimsa posted a link to Michael Hudson's post on Counterpunch.


Yes, that is a good one. I was going to link it myself. There are some other good Counterpunches today that help explain where we are why.

We're Here Because We're Here Because We're Here ...

Worse Than Herbert Hoover

The Drive to Cut Social Security Benefits

I think Chuck Spinney's essay is particularly important. It exposes the cultural dynamic that binds the "warriors" to the financial class. That is their opportunity to move up in the world via the revolving door. My humble prognostication is that due to unstoppable financial collapse, the door will seize up one day. Very likely the next day, if not before, the Potomac will be crossed and one of their number will be crowned Kaiser.

The banksters are licensed to sign all manner of stupid contracts. The Kaiser's minions are licensed to kill and to steal whatever they want. Oh happy day.

SecularAnimist said...

There be no shelter here
Tha frontline is everywhere

Greenpa said...

Meanwhile, in Japan:


Shocking. They are calmly raising taxes, to cover extraordinary costs of disaster reconstruction.

How UnAmerican.

SunsetSu said...

@ Ilargi
You have been giving us the play-by-play report on every detail of the situation in Greece, but you say you are BORED by the US debt ceiling debate?

I haven't worked for a paycheck in nearly three years and was hoping to collect Social Security in 18 months. I can't afford to be bored by what Congress & Obama will decide in the next week. Neither can my aged parents who rely on Social Security to survive.

You must have a big plastic shield to protect you when the US shit hits the fan. I don't.

Sunset Su

Ilargi said...


It's the predictability and the absurdly childish level on which these talks take place that bore me, not the fact that whoever gets bragging rights, and it makes absolutely no difference who does, will try and take your money away. And succeed. It's not Rep vs Dem, it's them vs you. So it's the wrong conversation to be paying attention to.


Nassim said...

The notion that the Labour party youth movement is mainly made up of immigrants is complete rubbish.


And when did I say that?

I am simply pointing out that the feedback mechanism called democracy is not working properly in Norway - just like in lots of other places. I happen to have watched at least 3 indian-looking individuals who spoke impeccable English give their first-hand views of the massacre. Perhaps the native-Norwegians' English was not good enough for the BBC and so on.

The fact that Norway never had people from Africa and Asia in any numbers until the oil boom allowed them to have a very generous welfare system is beyond dispute. Furthermore, if you were to meet the oil-workers (which I have) you will find that there are many white British/American people and so on but no dark skins. In fact, very few Indians/Pakistanis and so on are to be found in places like Stavanger.

When I lived in Oslo in the 1990's, I don't recall having seen a single Indian restaurant. Even Central Paris only had two Indian restaurants in the 1980's (I knew socially the owner of the one near the Opera and the lady who ran the second one in the Marais was co-habiting with a French guy with a huge moustache who I drank with).

I congratulate you on playing the PC card with all the expertise that Brundtland used to bring to it.

el gallinazo said...

Excellent article Ash.

I think that particularly in the case of Ireland though, you could have emphasized more strongly that the Irish government had neither a legal nor a moral imperative to take on the garbage debts of its fraudulent private banks. When the collapse began the sovereign debt to GDP of Ireland was fairly reasonable by modern standards. The government could have never taken on this debt and liquidated the banks in an orderly fashion including the claims of the senior bond holders, as textbook capitalism is suppose to function. But these senior bond holders were largely the EMU TBTF banks who despite their irresponsible lending practices, were not about to take the haircut down to the larynx that they deserved.

So here you have two small islands. One, Iceland, through a stroke of good luck and personal fortitude on the part of a titular president, allowed its citizen to conduct a fair and honest election as to whether they would take on the burdens of an incredibly criminal private banking system, and the other, Ireland, where the people were not given a clear choice. They had their elections and threw out the old garbage only to be replaced with the new garbage.

My acquaintances often ask me in relation to the beginnings of the official War on Terror, why do you spend so much time recapitulating how this came to be? Focus on what is now. But one must focus on the origins to see the present clearly. Otherwise it doesn't make any sense.

My other thought is with the excellent Der Spiegel piece which Ilargi included last week. Der Spiegel is a weekly news magazine, similar in construct to Time, though of higher cognitive value owing to the undeniable fact that the German public is less dumbed down presently than the American. But whenever I see a major MSM news source publish an article of this sort, even if it is honest, accurate, and well constructed and researched, I always ask why. Why did the editors and publisher moneymen choose to go with it. Well, it demolishes the myth of the vast majority of the Greek public being welfare bums and unworthy of assistance of help from a kind hearted German public. What it does not do, is state in no uncertain terms that the Greek people will not see a Euro of the bailout money and it will all go to the senior bond holders of the private EMU banks that lent irresponsibly to a known, corrupt and criminal government. Thus the main gist of the article is to build support for Merkel's position under the guise of humanitarian aid. Similar to carpet bombing Tripoli to avert civilian casualties (though I will give Merkel credit for sitting out this crime against humanity. As with hyperinflation, there is a certain German national memory.)

Finally, I have to agree with Ilargi as to being bored with the bullshit coming out of Washington. Everything has already been decided by the Owners. This is just a poorly choreographed drama to distract the debt slaves. And this is not meant to minimize the potential hardships that people such as SunsetSu and her parents are facing. But the first thing to understanding American politics is that the Democrats and the Republicans are the functional and moral equivalents of the Gambino and Gotti crime families. And they all feed at the same trough. The Owners give them their marching orders. One may chose not to follow the play-by-play as one may chose not to watch American "professional" wrestling.

SecularAnimist said...

""The fact that Norway never had people from Africa and Asia in any numbers until the oil boom allowed them to have a very generous welfare system is beyond dispute""

According to wikipedia Norway has over 550,000 immigrants. If you backed them out, they would be at a 1970 population level.

There is no doubt in the case of Norway, which has like a 3% unemployment rate now, that they had a labor shortage, especially once the oil boom started - and the "growth" addiction so prevalent in economics was a driving factor.

They did not let them is to be nice, though some people celebrate it, they let them in for labor and to support economic growth.

So, you might also say that the economic boom created by the oil boom - coupled with decreasing fertility rate in Norway necessitated immigration to solve the labor shortage problem.

Greenpa said...

El Gallilly-"Everything has already been decided by the Owners"

eeeh. I think they think so, yes. But- I have some doubts about their actually being as much in charge as they think. Shit happens, dude. The Great Amoeba Of Man may be beyond any real steering by delusional bits of RNA.


el gallinazo said...


I was referring the the legislative outcome to the current Washington slapstick, not how it will play out over the long run.

For those impatient to cut to the chase, one may view the final congressional Act here:


I. M. Nobody said...

I think Greenpa is on somewhere near the same track that I am riding. Once you've seen Hubbert's logistical curve, you begin to see peaks everywhere.

The banksters and other Mammonite creeps rose steadily in power until they gained dominance over society. Nothing goes up forever and their power has peaked. Now they break every rule in the books to fend off the inevitable decline in their power. The more they break'em the faster they slide.

Those who will usurp their power will need scapegoats. The riffraff must be mollified somehow. Guess who gets to be the goats?

Jack said...

when is this deflation going to happen or is it happening.Home prices are falling but everything else seems to be still high.precious metals are sky roketing and they say it will go to 1900 an once,wages are probably falling.You try to talk to people around you and nobody believes that there will be a depression.I mean we are really confused.our businesses are down in the pits.

Greenpa said...

El Gal. ah. :-)

my comment, and the moment, brought this to mind: in past years a T shirt appeared, with "shit happens" attributed to Taoism; and with a list of other religions' versions of that pithy observation.

I felt the shirt left out some important religions, and so added my own. Interesting what my first forgotten religion was, no? I think I put this up here long ago; but somehow, the time seems ripe once more.

Mammonism I want a lot more shit
Druidism Naturally shit happens
Wicca I can make shit happen to you whenever I want
Shinto My shit is older than your shit
Animism Shit happens to rocks, too
Pantheism There’s shit all over the place
Technologism I can fix any shit you got
Science Shit makes sense
Scientology No it doesn’t
Christian Science Shit goes away if you close your eyes
Mormonism New and Improved shit continues to happen
Lutheranism Shit is for cleaning up
Calvinism Shit happens no matter what
B’hai Shit is good for us all
Unitarianism All God’s chillun got shit.
Confucianism Real gentlemen don’t shit
Zoroastrianism Hot shit
Hedonism Shit is fun!

It strikes me at this point that we have additional religions now operating, Repugnicanism, Dimocratism, Lush Rimjobism, and PeeTartyism among them...

Surely, there are versions to suit...

Ash said...

El G.

"I think that particularly in the case of Ireland though, you could have emphasized more strongly that the Irish government had neither a legal nor a moral imperative to take on the garbage debts of its fraudulent private banks."

True, they didn't, but I feel like that goes without saying at this point. No country had a legal or moral imperative to bail out the TBTF banks. In fact, it is arguable that they had a legal imperative to let them fail, and even more so an ethical one. There was a famous case during WWII (I forget the name) where the SC held that the President could not unilaterally take over a steel manufacturer just because there was a shortage of production needed for the war effort. Of course, that was different because Congress didn't authorize the takeover with legislation, but, as we all know, most of the money is unilaterally funneled to the banks by the Fed anyway, and the FRA itself is probably unconstitutional too! Technically, the banks haven't been "socialized" as many people claim, because they still get all the profits from their shady operations, but they also wouldn't exist without massive government intervention.

No offense to Ireland, but it isn't in the EU and it doesn't even make the top 100 in terms of GDP. That's a good thing for it and its people, but it also explains why its government had the luxury of functioning as a democracy and letting the people decide about the bailouts. I think that also fits in to what Ilargi and you were saying about the boring predictability of this so-called "debt ceiling crisis". Democracat, Republic, Obama, Pelosi, Boehner, it doesn't matter... They are all political stooges working in THE central hub of economic/financial activity. The TBTF institutions haven't paid their own way for decades now, and no politician or official is going to start making them now.

Ash said...

Sorry, "Ireland" should be "Iceland" above. Also, with regards to the Der Spiegel piece, I think you are right that there is probably a political motive behind it to some degree. At the very least, I'm sure Merkel and her crew don't mind pieces like that floating around. On the other hand, I think they have generally made it clear that the harsh austerity measures were conditions of the Greek bailouts, and those measures have negatively impacted the people in many ways. Either way, it is accurate with regards to the state of the Greek economy and population, and I'll take an honest analysis over the BS propagated in American publications any day.

el gallinazo said...


Since the Owners are constantly propagandizing about "bailing out the people of this or that country," one cannot expose the lie often enough. Always remember Göbels' first law:

" If you repeat a lie often enough, people will believe it. // If you repeat a lie long enough, it becomes truth. // If you repeat a lie many times, people are bound to start believing it."

The Der Spiegel piece was a good piece and far better than any crap that you would find in the USA MSM. However, to paraphrase Lily Tomlin, no matter how cynical you get, you can't keep up. Merkel will have quite a battle getting this new Fed like monster through the Bundestag, and she needs all the help that she can get. If Germany had a traditional parliament with a vote of no confidence triggering new elections, she would be dead meat on the hoof.

Ash said...

Greenpa, that's hilarious. I'd like to add some more...

Capitalism - Shit only stinks when it's out of equilibrium.

Marxism - Shit wrapped up in money is still shit.

Neo-Keynesianism - Shit, we're running out of money!

"Liberal Progressivism" - Shit we can believe in!

D. Benton Smith said...

Just ingested as much of the Obama/Boehner puppet show as my gastro-intestinal tract could tolerate without erupting from one end or the other and started to wonder there for awhile if I was the only one on the planet to see this faked-up debt ceiling “crisis” for the low grade theater that it was.

Such an outrageously obvious ploy... but no one was calling them on it! The silence out there in the pundit zone is like the auditory nerves to the brain have been cut.

Obama and Boehner are just playing to the Rubes, man! Carnival Hucksters! And DAMN, are they working the crowd hard!

In Carny lingo what they've been up to for the last few weeks is called the Bally (short for Ballyhoo... a bastardization of an Arabic complaint meaning “Oh for god's sake!” )

The Bally is done in stages. Stage 1 requires a crowd of suckers (called the “tip”) so first you have to “make an opening” by presenting something attention grabbing to start drawing people in... like having a few hundred media shills use the term Debt Ceiling in every other sound byte for a month.

Once the sheep are gathered an “outside talker” ( the rube herding specialist) can give 'em the full “pitch” which culminates in something so startling that the poor saps are virtually immobilized in morbid fascination.

That induced fixation is called “Freezing The Tip”. For example: play-acting phony hard-ball conflict between political factions that might result ( horror of horrors!) in the United States defaulting on its sovereign debts.

At that precise moment, when the hayseeds are so totally transfixed that if you called them chickens they would cluck, the talker “Turns the Tip” by hustling them urgently into doing the desired action before it's to late!!!

That stampede is called the “jam”, and it's where fleecing the sheep really begins in earnest... for instance: getting middle and working class America to not just accept, but to voluntarily INSIST that Congress and the President give the Plutocrats everything they ever wanted in their wettest dreams ( trillions in corporate welfare, pay cuts for workers, Social Security gutted & Medicare benefits slashed while medical profits continue to soar and tax breaks for billionaires are bestowed like garlands of honor. The whole damned wish-list! ) … and then calling the whole demented paroxysm of self mutilation a victory for the underdog !!!!

Oh for god's sake.

It makes me want to scream profanities, but I better not. Might wake someone up, and they say that waking a sleepwalker can kill them. ( On the other hand, what happens when you wake up a zombie? )

progressivepopulist said...

Well done Ash.

It seems that Austerity here in the US will play out in a fashion similar to the Health Care Reform debacle (and every other major legislative skirmish): the two parties will bicker and fight like a pair of three year-olds for an interminable amount of time, all the while engaging in forms of debate that mangle the meaning of words, endlessly obfuscating their true aims. The news media will dutifully narrate the nonsensical partisan wrangling, talking heads will parse meanings and evaluate strategy and advantage for what will be a suitably mind-numbing period of time. Eventually most Americans will lose interest, the partisan activists on both sides will be deeply disappointed and in a closed door meeting the details of Austerity will be hashed out and "compromised" on and released with great fanfare. It will be given some kind of name like "Patriotic, America-Loving, Budget Health Restoring Act"

Andy said...

I used to live quite near to where that gas station was. It was actually called the Last Chance Texaco and the location has been pinned down by this guy:

Submitted by Meterman70 on Sun, 10/17/2010 - 2:57pm.
The alignment of US 2 from Minot to US 85 has been straightened out considerably. Given the comment regarding the sequencing of the pictures, and using a 1933 ND / SD map, and a 1946 map I have showing the electric system as it was in ND then, I offer the northeast corner of 119th Ave NW / 60th St. NW (about 3/4 mile south of Wheelock) as the location of the gas station.

at http://www.shorpy.com/node/7809

soundOfSilence said...

Well it's definite. You have to have a job to get a job.

The Help-Wanted Sign Comes With a Frustrating Asterisk.

The unemployed need not apply.

That is the message being broadcast by many of the nation’s employers, making it even more difficult for 14 million jobless Americans to get back to work.

A recent review of job vacancy postings on popular sites like Monster.com, CareerBuilder and Craigslist revealed hundreds that said employers would consider (or at least “strongly prefer”) only people currently employed or just recently laid off.

So it all comes down to what the definition of "recently" happens to be today...

ogardener said...

Blogger D. Benton Smith said...

"It makes me want to scream profanities, but I better not. Might wake someone up, and they say that waking a sleepwalker can kill them. ( On the other hand, what happens when you wake up a zombie? )"

Only a head shot will kill them :-)

Great post DBS.

I. M. Nobody said...

@ sOS

There is nothing new about that policy, except for the part about actually stating it. Bidnessmen always want to steal each other's valued employees. Rarely do they show any interest in their castoffs. Unless bidness gets to booming then they'll take almost anybody.

In the spiral down, the ever increasing population of zombies will power the spiral ever lower.


WOW, that was a wonderful piece on the Carny method. You failed to mention that it works because they always move on to another town before the price of their knavery gets too high for the tip. I fear it will not work for long at a national level.

As a sidebar on Greenpa's Pee Tarty, I foresee it being most noteworthy for being a self-exterminating political movement. They seem bound and determined to kill their own base, which would be a form of justice I suppose.

scandia said...

@D.Benton Smith...your description of " the bally " is much better than " kabuki theatre ". Captures the intent of the con.
So that's what they teach at Harvard:)

I. M. Nobody said...

This evening I discovered what I think is a fairly well reasoned paper by Cullen Roche of Pragmatic Capitalist that describes what he thinks are the necessary preconditions for HI. Worth a read.

Click on the "One-Click Download" link to get the PDF.
Hyperinflation - It's More than Just a Monetary Phenomenon

Nassim said...

Alexander AC's link
Israel Erupts in Protest, Tens of Thousands Chant "Revolution" seems to confirm what I have been getting at regarding democracy.

The Israeli electoral system has a way of producing a huge number of political parties which need to negotiate with one another to make a cabinet and to select a prime minister. The smaller parties in the governing coalition have a disproportionate influence. In fact, it is quite easy to bribe a few individuals (a lot of that goes on) and change the country's policies in one area or another. If you don't believe me, just do a search for "Netanyahu bribery". Take your pick regarding the name - almost any politician's name will do as well as Netanyahu's.

TechGuy said...

"Tomorrow it will be Social Security, Medicare and so on and so forth."

Very unlikely. Its far more probable that the gov't will print money to continue those programs. The biggest voting block of voters are boomers and existing retires. They will simply vote out anyone that tries to kill or reduce entitlements. Any occurance with austerity will be brief. O'Bama recognizes the importance of entitlement to security his parties control\influence. No one from the Democratic party will turn on entitlements.

For the most part, European nations are in a different boat because unlike the US federal gov't, they can't print money. If they did have that ability, they would certainly have done so. Riots are occuring nearly daily in Greece, and there are frequent protests or riots in the other PIIGS. Today, even Israel joined the club with its own riot of 30K in Tel Avive. Eventually the EU will break up as no body, including the Germans and French are happy about they way events have unfolded.

I suspect the end result of the debt ceiling stalemate is a cave in by the GOP, Either before or after the deadline. O'Bama has drawn a line in the sand with a $2.4 Trillion Debt ceiling hike (enough to carry the debt ceiling past Nov 2012). If negotiations fail by Aug, O'Bama is going to use the 14 amendment to bypass the stalemate, to insure no cuts are implemented.

FWIW: Neigher Party (DEM, or GOP) has any significant cuts worth anything. Its all just smoke and mirrors, in a bad attempt to avoid a credit downgrade. According to one inside rumor passed on to me, a Credit downgrade with one of the agencies is coming no matter what happens. All that will change is how its phrased.

thethirdcoast said...

@ soundofSilence:

I find the comments on the NYT article you linked interesting.

The comments with the most recommendations represent a cross section of opinions and anecdotes that seem to reflect the awful experience of the average American looking for a job.

The comments "highlighted" by the NYT staff are illuminating in that they typically have 1/10th to 1/20th the number of recommendations of the top comments. The viewpoint expressed in those comments is heavily slanted towards the idea that the unemployed are "defective" or that "they deserved it."

I believe the bias in the highlighted comments is a pretty telling sign that the editorial staff of the NYT is all about strapping on their kneepads and relaxing their lower jaw prior to kneeling before their masters on Wall St.

TechGuy said...

P.S. Any real measurable austerity would end in default, as Tax revenues would fall off the cliff. Consider if the public was told that entitlements would be cut. People would cut back further on spending to save more money for retirement and job uncertainty. Those working in gov't or selling services or equipment to the gov't would see reduced revenue and cut spending. It would result in a death sprial sending unemployment way up. Asterity would collapse America probably in a mere two years if enacted. On the flip side, printing might permit the gov't to hang on for much longer, as the dollar slowly losses value until states are forced to print their own currencies.

Consider that England is close to giving up on Austerity because tax revenues are falling causing gov't debt to rise again, despite all the cost cutting measures.

I serious doubt the US gov't would be able to pay off its ~ $15 Trillion in debt, as much as Greece, Ireland, Italy, etc will be able to pay off their debts. In virtually all cases once gov't debt exceeds 100% of GDP, its a one way trip to default or hyper-inflation. I doubt the real US GDP is anywhere near 14 Trillion, as I firmly believe the figures have been manipulated to inflate it for political and finance means.

FWIW: The solution to the problem is to make sure it never happens in the first place!

skilo said...


I queried everyone before, but nobody answered.

I hold the general view of the board - that a deflationary depression is what we need to worry about before a hyperinflationary collapse.

However, we could be wrong since it is a policy decision and we aren't insiders aware of every detail and the insider thought process.

So, what would have to occur in order for you to conclude that TAE is wrong and that they really will destroy the dollar and hyperinflate?

We should always test our theories to make sure we don't get caught by paradigm paralysis.


John Day said...

Lets consider default. Roosevelt defaulted when the times demanded it. So did Nixon.
The times demand it again, not so much the US, which could go longer before defaulting, but Europe already got QE-2 mainlined to it's big banks (the ones that are primary dealers for treasuries), and that is clearly not enough.
If those of us who graze here, and at Zero Hedge and Naked Cpitalism, etc already know that the world is in irreversible debt default, then so do the big boys. They knew it first. Cheney said "deficits don't matter". Cheney knew about peak oil, knew about the forecasts of economic collapse. Cheney knew that the name of the game was manipulating resources today, and grabbing the production sites.
So in economics, where the majority is always wrong, everybdy believes that Puch and Judy will just screw the working folk and then extend the debt ceiling again.
I am not sure about that at all.
This could be the opportunity to restructure the global financial system to one that bankers can really profit from in an extended debt deflation.
The long depression of the late 1800s is instructive. Remember the "Cross of Gold" speech by William Jennings Bryan? The bankers ruled with gold in a debt deflation.
I must very seriously wonder if it isn't time to return to a gold standard in the world, which will seem like Ron Paul won, to a lot of people, but it will usher in an era as cruel and cold and callous as the 1880s.
(Or I could be wrong for a little longer, but not for a really lot longer.)

D. Benton Smith said...

Regarding the sudden Israel Protests development.

How is it even possible that the media can print mountains of words on any issue and so dependably miss the main point every single time ? It can't be accident, and I doubt that it's outright conspiracy. I think the answer is simpler. I think they're stupid.

Take the housing costs protests in Israel.

The story isn't that people can't afford places to live. The story isn't that Netanyahu is a total yahoo and in seriously deep political doodoo. The story isn't even that Israel's youth are taking up the revolutionary mantle of their Muslim contemporaries elsewhere in the region.

THE STORY IS THAT THE REAL ESTATE BUBBLE IN ISRAEL IS ABOUT TO GET POPPED, the financial equivalent of a nuke down their smokestack.

That's what I'm saying alright. The same existentially vital Bubble that worked so well for so long in the USA is in beeeg trouble, man.

Those protests are a sharp projectile headed straight for it, and when THAT bubble bursts it may just be bye-bye Israel, because a few paltry billion in US military aid... just a drop in the bucket in the first place, really... isn't even a droplet when the bucket's bottom is nothing but a gaping hole.

Netanyahu promises huge reforms, but I would sooner bet on him running to the sun to fetch back a glass of ice water.

There is, as we all should know by now, NO WAY to implement meaningful reforms in housing costs without decimating the interlocked Ponzi schemes that constitute a FIRE economy such as theirs (and for which real estate is the most fundamental plank.)

Israelis are smarter than us ( in the most literal sense. IQ and academic achievement run high in that tribe ) so I don't think the locals there are quite so gullible as the yokels have proven to be here in the USA.

Look to see really serious stuff really soon, regardless of delaying tactics from the Likud crowd ( Likud = rich, old, and ruthless, but especially OLD and growing older and thus FEWER by the day . )

What's coming is going to make the Intifada look like a child's tantrum, and Netanyahu damned well knows it. Trouble for him is that his promise of huge reform is absolutely impossible, even on the short term. No outrageously rising housing costs = no bubble; and no bubble = no Netanyahu (or Israeli economy for that matter.)

When its over maybe he can share a beach house with Mubarek.

Ruben said...


For my own sake, I would appreciate if you would ask the carnies to come up with another name for hayseed suckers.

snuffy said...

Greenpa,El G,

Hudsons evaluation is the most depressive[true] reading I have seen of the current Kabuki theater in the cesspool of the Potomac.Watching the guts ripped out of the country I love,watching the financial class make their move to total control of whats left of the resources in the world,has left me emotionally stunned and drained.I see the reality of each of the players,what they really are,and look away in distaste/disgust.It is true we are ruled by educated,well-spoken,soulless,heartless sociopaths.The scope of the thievery taking place is breathtaking.Whole resource bases,whole country infrastructures,paid for by the blood and taxes and very lives of its citizens are being "legally"stolen....with the government it self presiding.

I honestly don,t know where this will end.Or know what sort of psycho-social-manipulations will be used to sell whatever "programs"our own crop of "Owners"has in store.At 55 I am old enough to know,one way or another I am going to get royally screwed..

Greenpa,I pray you are right,and the "Delusional bits of RNA"get a class-wide comeuppance.[nice wording there Greenpa].[You have pretty good shit...]

IM Nobody,My worry is "The Mammonites,The Hucksters,and The Weathy Beyond Words" have learned the lesson... the safe way is to use their media experts to throw enough distractions in the air to hide their true actions,and thus escape the consequence of imposing their political/ideological values on the rest of us....

I cannot get cynical enough as hard as I try...

Does no good to sicken myself with rage at what is..I can only fight "the system"...with my attitude..which is to prepare myself as well as I can,to be the rock mine can hold on to in the coming storm.

Tech Guy,I really really hope you are right.But as I am pretty sure o-mans job assignment from the owners was to start the process of unraveling the safety net that has kept a large percentile of this country's elderly living in some sort of dignity and free of starvation...which,by the way ,was the fate of most w/o family in the past....starvation and a cold miserable death..

D Benton Smith,
Ya know,this could be a complete "Out of the Wild Blue" Swan of the Blackest sort..something unseen by all that triggers all sorts of interesting things....Hmmm.

Around here things have slowed a bit...just the usual chaos and weirdness now.Last week with the HDQ queens [HDQ=High dollar queens] my life was a upside-down.Really.
I was only able to get help from a guy who has done a lot of mason work that week and this.[I should explain I am trying to put a 6" thick rock exterior on my house]...and that was the week all my bee-keeping hopes and dreams were showing up with 18 artificially-inseminated VHS queens from one of the most reputable labs I could find.20 hr days for a week, doing things that HAD to be done.Now its waiting for 2 weeks before I peek into the hives I have placed the HDQ into.If things go right,I will be able to breed queens that will require no medication,will be Varroa-destructor mite proof..and fulfill a small dream of mine to raise bees w/no meds,and honey of the first water...
I have really developed a liking for my wife's choice in doggies.This English Mastiff mix is a homesteaders dream dog. Sleeps all day..except when he sees strangers.Wary. Acts like a[135lb] puppy with the grandkids.
Laid-back.Mellow.Has a mouth the size of a old fashioned bear trap.

And spends all night making sure every strange sound or smell is investigated..I sleep better now.I have been told I can find what the mix he is by genetics ...and want to..hell,I want to breed them.This pooch is what I wanted for nightwatchman for a long time.Mrs snuffy agrees.{she loves him like a child}

its way late and I have so bloody much to do ...

Bee good,or
Bee careful


p01 said...

So, what would have to occur in order for you to conclude that TAE is wrong and that they really will destroy the dollar and hyperinflate?
Catastrophic deflation. Credit evaporation. But that means TAE is right.
Maybe if they just printed money and left it at every street corner? Literally.

p01 said...

Americans begin to panic as default looms larger
The title is misleading, there's no panic (yet), but the video is a good summary of what's going on and were the cuts should be and they're not.

The three ring circus continues.

p01 said...

There was a time that the pieces fit but I watched them fall away
Mildewed and smoldering, strangled by our coveting
I've done the math enough to know the dangers of a second guessing
Doomed to crumble unless we grow and strengthen our communication

--Tool (Schism)

Jack said...

Hi Ian
Thanks for your help.
I did notice that the sentences and the words used here are kind of fancy.
But I think there is a lot of good ideas and I will visit those places you mentioned.
Take care

Jack said...

If you look at max kaiser he is always saying buy gold and I told you to buy and look at it now and on and on ,
but the thing I noticed is that he might be in the business of selling gold or something like that.

Jack said...


from the way it looks this thing is just going to keep on going higher and I dont know if it will ever fall.
Also when there is a bull market everyone says it will go higher

p01 said...


So much drama, and you still have not answered Jack's question.
When. Is. It. Going. To. Happen.
Huh? When?

scandia said...

@ Ian, What content manifests relevance for you?
Would big picture analysis be exempt?

Frank said...

I have to go with Sunset Su here. I'm pretty sure that to someone who is neither in the States or the Eurozone, Greece and the US are equally boring.

If you do live in either of those places, even though the basic deal is all scripted out, it still looks to me that the details that are still in play can affect the average citizen by up to 100 currency units/month. That's a sum that most of us find worth paying attention to.

In terms of anything that will matter in 50 years, then I think Greece is even less interesting than the States.

In Europe, it's Germany that the PTB need to keep an eye on. Here in the States, well, yep, it's the States.

Yes in both places, the fix is (supposedly) in. In the medium term, I don't think it's a lock either place. But that is a much slower motion process than either the Greek bailout or the US debt ceiling.

D. Benton Smith said...


You wrote: "Jack, don't expect an answer here. These people are playing (for the most part) intellectual, ego-based word games. They ignore down-to-earth questions like yours."

Well, I sure am one of those guilty of playing intellectual word games, probably the most guilty on this whole site, but the only role egoism plays in my cute little essays is that I take pride in presenting complex issues in entertainingly snappy easy to thumbnail packets.

What are you trying to say to Jack anyway, Ian ? Are you saying that clever language automatically invalidates content ? Ben Franklin, Abe Lincoln and Mark Twain might beg to differ.

Or are you sying that Jack should not read what TAE commentators have to offer ?

If you don't like my STYLE, then fine. Don't read my comments. But if you propose that they are not carefully considered, the truth as I see it, and relevant to real issues then you've got your head up your ass and shouldn't be giving advice to anyone.

Your suggestion that issues should be dumbed down and written with a blunt crayon to make them palatable to “people” says more about YOU than it says about people.

It reveals that your REAL opinion about what you see as “the common folk” is maybe not too nice. It makes it look like your real opinion is that you secretly consider yourself to be their intellectual superior, which makes you condescending, patronizing and arrogant (not to mention just plain WRONG. )

My friends in the real world run the complete range from a bar-fighting semi-reformed felonious red-neck to an equally not-entirely-reformed snarky intellectual recovering asshole in the $25 million a year half-a-billion net worth range. I also know a bunch of nice boring people, who I also respect.

They ALL think I'm an oddball ( mea culpa again, dammit ) but none of them resent my fancy language. They're willing to let me have my fun because I am their friend AND their go-to guy when they suspect they're getting scammed and can't quite get a solid handle on how it works. They know I'm not selling an agenda, or my self... just straight help, period.

If TAE is, as you say, increasingly irrelevant then what are you even doing here? Selling something, maybe, or just trashing the shop? In any case you sure are selling a lot of advice that nobody asked for, and even your half hearted compliment to Stoneleigh had a nasty little knife twist at the end of it.

You wouldn't happen to be a Troll, would you?

Look, Ian, if you need company that bad why don't you just go have a tea party or something?

A moderator said...


You are not wanted here. Please follow your own advice and go elsewhere.

Greenpa said...

Snuffy- your mastiff mix sounds great. My opinion on dogs for security though is; you need 3, as a minimum.

Doomer literature contains a fair number of anecdotes about wonderful dogs that- got shot, when they were needed.

It's frightfully easy to do; and a big dog is a bigger target.

But there are very few anecdotes about multiple dogs being taken out. My guess is, 2 dogs are equal to 4 single-dog-security-values. 3 dogs= 6 SDSV.

4=6 SDSV too, or thereabouts; there are diminishing increases.

And there is attrition. I started out to have 4, a year ago; and am down to 2; one vanished unaccountably, one was irretrievably stupid and got backed over by Spice. Taoism.

In your case, the mastiff mix is probably eating enough chow to make you boggle at the idea of more. But; your #2 and up dogs definitely don't need to be the same size. Their noses, ears, legs and voice are the big deal.


(for the acronym impaired (AI), that's in my disgustingly arrogant opinion, and yes I just made that up. :-)

el gallinazo said...

I have heard that attack geese are quite useful. Easier to feed and even more effective than the fearful Monty Python attack rabbit. Almost got some in Argentina, but then I was told that they eat everything in sight including your valuable shrubs. Dogs potentially serve two functions. One is to warn with their superior ears and noses. The other is to protect. I don't think they are very effective in the protection department against trained thugs. And they should be sent to law school before being allowed to attack on their own discretion.

Ash said...


"My advice: 1. prepare for bank closures & all that follows on from that event. 2. preserve your wealth in PM's 3.sell your business unless it's useful & can survive 1."

What in the hell is this? Seriously, how can you write the word "advice" followed by a bunch of general nonsense like the statements above, and then call other people's writing "irrelevant" or not "down to Earth"?


Don't listen to Ian. It's fine to for someone to have a different perspective and support his/her argument with facts and analysis, but you will soon find that Ian never does that. He will pop in for a minute to bash TAE, throw out ridiculously general advice and then disappear until the next time he feels like being a nuisance. Will he ever tell you what "follows on" from "bank closures", or what % of your wealth should be "preserved" in PMs or what businesses are "useful" and can "survive", or otherwise should be sold? Nope, he won't.

Now, on to your question. You were right when you said that deflation is already happening, clear as day. Most asset markets including stocks, RE and many bonds are coming under a lot of pressure recently, and housing data has weakened considerably since last year. Even the manipulated unemployment statistics provided by the USG have weakened this year, and the picture is much worse when you shed all of the erroneous assumptions they use. I would also highly recommend Zero Hedge as a site to go to for detailed financial analysis of various economic data, trends, news, etc. It usually takes some time, though, to figure out exactly what they're saying if you are not already familiar with basic financial lingo. I still have to read some of ZH's paragraphs multiple times before I can figure out what they're talking about and how the data supports TD's assertions.

You also make a good point about Keiser and silver/gold. It's not he is intentionally misrepresenting his opinions so that people will buy PMs, but it is hard to be completely objective when you stand to profit so much from PMs increasing in value. That is one thing that many people in the HI crowd have in common - a monetary bias towards PMs. This includes people like Eric Sprott, Jim Rickards, Jim Sinclair, Keiser, Chris Martenson, FOFOA, Tyler Durden and many others. The TAE community, on the other hand, generally does not stand to gain any direct benefits from a prolonged deflationary episode. Take that for what it's worth.

el gallinazo said...


Glad to see you are commenting at length again here. Always a pleasure to read what is on your mind. Same for ole Snuffy. Hmm --55. Just a young un :-) I was just thinking that becoming so involved with insect behavior must be quite mind altering in fascinating ways. We parted company from them so long ago. But we parted company with our dogs and cats 50 odd million years ago, and I am always amazed how much we have in common psychologically. My dog had a loud encounter with a large, non-venomous snake last week, a coachwhip. Got me to wondering what was on their minds as well.

el gallinazo said...

WilliamBanzai7 conducts a scientific experiment on the the national credit card limit resolution.


el gallinazo said...

SHTF department?


**MEDIA ALERT** Military Training Exercises to Take Place In and Around Boston
| | More
For Immediate Release
July 25, 2011
Released By:
Mayor’s Office For More Information Contact:
Mayor’s Press Office

Joint federal military training exercises will take place within and around the Boston area between July 26th and August 5th. Military personnel will conduct training exercises to ensure the military’s ability to operate in urban environments, prepare forces for upcoming overseas deployments, and meet mandatory training certification requirements. Helicopters will be used in some exercises.

The Boston Police Department is working with military personnel to coordinate training sites that will minimize negative impacts on our Boston citizens and their daily routines. Safety precautions have been taken to prevent risk to the general public and the military personnel involved. With that, training site locations are not open to the public and will be guarded by uniformed personnel to provide additional safety.

seychelles said...

Jack said

"...but the thing I noticed is that he might be in the business of selling gold.."

Good thing to notice. One time I blogged on that site that they should reveal any conflicts of interest and was deleted.

Wyote said...

Today's Andy Borowitz:

WASHINGTON (The Borowitz Report) – "With less than one week until the President and Congress run out of time to make a deal, most experts agree that the debt ceiling crisis is like Y2K all over again, only with assholes instead of computers.

This grim assessment comes on the heels of a new poll showing that a majority of congressmen can no longer remember which debt deal they like.

As the August 2 deadline approaches, several nightmare scenarios loom, including one in which the United States would officially become a province of China and would be renamed Panda Gardens 2.

The Chinese government proposed that name to avoid confusion with Panda Gardens, a popular Shanghai noodle shop.

In another possibility being openly discussed, the United States would cease to exist as an actual country but would continue in an online-only version.

In this scenario, Rep. John Boehner (R-OH) would no longer be Speaker of the House but would instead be become an angry little orange avatar.

As for President Obama, he would step down and be replaced by Roger Goodell, commissioner of the National Football League."

More truth than fiction here. He-he. - Wyote

6999media said...

Flyer Printing

Well written article. Sure your website is worthy for a bookmark, thank you.

walker said...

Hello Ash, you said "This includes people like Eric Sprott, Jim Rickards, Jim Sinclair, Keiser, Chris Martenson, FOFOA, Tyler Durden and many others. The TAE community, on the other hand, generally does not stand to gain any direct benefits from a prolonged deflationary episode. Take that for what it's worth."

The deflation and inflation both camps has their support which it really confuses me. If I read Stoneleigh's writings, I am a deflationist. If I read others today, I am in the inflation camp. I had asked Dr. Martenson once, he was not sure yet considering gov.'s manipulation of the market. At the end, there will be hyperinflation and collapse of the fiat currency. As Ian said" sell your business....", but can't sell since everyone is selling.(business has been very slow). My whole saler show his list,there are about one hundred same type businesses for sale within two counties. It is worse than I thought.

Will you please teach us a little what is wrong with inflationist? What makes you think "deflation" will be the future outcome? Thanks.

el gallinazo said...


At the right column of the TAE you can find the "primers," which reduce the need to reinvent the wheel here for newcomers. The question of inflation, hyperinflation (a very different animal), and deflation are all analyzed there, and Stoneleigh has some excellent analytical articles. They were even kind enough to include one of mine in the primers that deals with this topic. For a starter, I would recommend Stoneleigh's:


but she has several other excellent articles. You also might look at her "lifeboat" primer.

Ash said...


The inflation/deflation debate is an ongoing and complex one which really comes down to a matter of timing. It is more accurately a distinction between hyperinflation (a systemic loss of confidence in the currency which can occur at the drop of a dime, unlike gradual inflation from increases in the money supply) and deflation. TAE and a few others advocate that there is a very high probability of prolonged dollar-denominated deflation, in which the dollar's purchasing power increases significantly, followed by a rapid reversal into HI. Personally, I have guesstimated the time frames as being about 10-15 years of deflation, followed by HI. If you have more specific questions, perhaps I or others can give you answers and/or direct you to specific articles on the topic.

I would also note that the fact that people are selling businesses or filing for bankruptcy and laying off workers is extremely deflationary. It is arguable that you would NOT want to sell an otherwise productive and well-managed business if you foresee HI in the near future. Equity in an ongoing productive enterprise (i.e. not reliant on issuing credit) is something that could do quite well during HI, or at least survive it and come out healthy on the other side. This may be true during deflation too, but much fewer businesses will survive and it is much less likely for even the most productive businesses. Therefore, it may be advisable to sell now and get the cash, but obviously it depends heavily on your personal circumstances.

seychelles said...

Wyote said

the United States would officially become a province of China and would be renamed Panda Gardens 2

Actual rename will be Greenchit Gardens and provincial overlord will be Liu Dung.

Lynford1933 said...

The debt ceiling will implode on August Second. Who said that? Timmy said that. Do you believe Timmy?

Weaseldog said...

TechGuy said... "Tomorrow it will be Social Security, Medicare and so on and so forth."

Very unlikely. Its far more probable that the gov't will print money to continue those programs. The biggest voting block of voters are boomers and existing retires. They will simply vote out anyone that tries to kill or reduce entitlements.

Ok, so you have an incumbent who's policy is to put the screws to the seniors.

An election comes up. Two candidates who've been vetted because they want to screw the seniors run against the incumbent.

The seniors vote out the incumbent and replace him with his clone.

All better now. They taught him!

walker said...

Thank you Ash and El both for help.
I am in the restaurant business.We have not raise price for years in our menu. Nowadays more and more people asked "did price gone up?".
This mean people are out of money and watch their money very carefully.
I have instructed my manager to say "it does not make much money" during the begining of a job interview in order to shake out applicants. (I have found adults are willing to take kids' works to do door knob menu hanging!)

Things are very bad in the streets.

We have been a gold bug for 6 years and now pull our 401k into bank's CD's as emergency cash flow, and prepare for the worst.

From Dr. Martenson's point of view, we should buy more gold which he gave many reasons.
But I can't found his thinking against Stoneleigh's deflation argaument.
As Ash said" it is timing." If 5 to 10 year deflation period,it will bankrupt almost every one for sure.

From deflation point of view, as a gold bug, am I in a very dangerous position now?
So should I sell now? or at least sell some?

Ash said...


"I have to go with Sunset Su here. I'm pretty sure that to someone who is neither in the States or the Eurozone, Greece and the US are equally boring."

I think we may be getting a bit mixed up about what is claimed to be "boring" here. The political magic show in the US and Europe is boring, because we all generally know how the illusion is performed, even if some of the finer details escape us at this moment. However, the underlying economic, financial and social developments in these regions are not boring, regardless of where you happen to live. What's happening in the Eurozone is also what has happened in the developing world for decades in the past, and what will continue to happen in the rest of the developed world in the future, including the US.

For me, watching daily developments in the US "debt ceiling crisis" is like watching the daily movements of the stock market and CNBC's minute-to-minute analysis of those movements. It's painfully boring propaganda, and I suspect more and more people are starting to feel that way, which also means it's becoming less effective. Perhaps that's why they are drawing out this particular charade so long. Regardless, my general feeling is, why glue your eyes to the tape when you can focus your efforts on understanding the nature of the market itself?

Ahimsa said...

@ Board

Can one really prepare for this? Your thoughts are appreciated!


bluebird said...

Ahimsa - fake cops not only in Florida, but also in Baltimore Maryland. Scary times ahead :(

6/27/11 Fake cops burst into home, shoot victim (1st home invasion)

7/1/11 2nd home invasion by police impersonators reported

Ash said...


That is pretty scary, but it sounds like those guys did a sloppy job of disguising, with the "police" jackets and rifles. What's more concerning to me is real cops, either on or off duty, active or retired (laid off), using their authority and/or equipment to steal from others, and not just criminals.

Frank said...

@Ash I guess I'm more bored with the Eurozone fiasco. To me it all looks nice ans scripted. As you say, old stuff, including transferring the risk from the banks first to the local taxpayers, then on to the core taxpayers.

The only bit of interest seems to be the chance that Angela Merkel will be unemployed before they can finish the job.

Same thing over here. The interest is what will the teaparty crazies do, both directly, and by causing what's left of the left to dig in its heels.

Ash said...


Generally, if we assume dollar-denominated debt will deflate for at least 5-10 years, leveraged assets will be decimated. Physical gold in your possession is not leveraged, so it will most likely perform relatively better than stocks, bonds, etc. The exception, of course, is the US dollar itself due to its global liquidity in commercial transactions and its function as a means of settling debts. So in terms of dollar purchasing power, even physical gold will decrease in value over this time and will buy you less than it does right now. I can't tell you whether you should sell right now, because that depends on numerous factors specific to you, but I can say that you shouldn't just accept the arguments of some who claim it will steadily rise in dollar purchasing power into the indefinite future.

el gallinazo said...

CHS essay debunking the axiomatic concept of Greed Is Always Good gets a cool reception from ZH Ayn Randers.


Jack said...

Hi Folks
Thanks for you help with my question.
I was on youtube and I found this
who America owes:
commercial banks: $301.8 billion(2.1 percent)
oil exporters: $229.8 billion(1.6 percent)
brazil: $211.4 billion(1.5 percent)
china: $1.16 trillion(8 percent)
domestic debts: $9.8 trillion(68 percent)

I am not sure if these figures are accurate or not but if it was than can the US GOV just play around with these people and manage to survive for quite a while

seychelles said...

Cullen Roche We are not lacking confidence in the sovereign nation. If there is one thing that
Americans are known for it is their resilience and borderline arrogance with
regards to the strength of their country.

CHS The great cold lie at the heart of present-day America is that the nation will magically benefit if we each single-mindedly pursue our self-interest to the exclusion of all else.

Perceptual divergence here??

p01 said...

Other than living truly modest, I have no idea at all how one can avoid becoming a target in the future. In Eastern Europe there's fake police on the roads (Bulgaria mainly). And I wouldn't bet that it's always fake or that the "real" police is not involved.

SecularAnimist said...

America is that the nation will magically benefit if we each single-mindedly pursue our self-interest to the exclusion of all else.

Indeed, the fact that most people are told their 'self-interest' makes it even more of a joke. A nation of heavily armed petulant 2 year olds about to be told they can't have any candy.

"The dark ages still reign over all humanity, and the depth and persistence of this domination are only now becoming clear.
This Dark Ages prison has no steel bars, chains, or locks. Instead, it is locked by misorientation and built of misinformation. Caught up in a plethora of conditioned reflexes and driven by the human ego, both warden and prisoner attempt meagerly to compete with God. All are intractably skeptical of what they do not understand.
We are powerfully imprisoned in these Dark Ages simply by the terms in which we have been conditioned to think."

-B Fuller

seychelles said...

Ash said
Personally, I have guesstimated the time frames as being about 10-15 years of deflation, followed by HI.

Starting when? 2000?

seychelles said...

We are powerfully imprisoned in these Dark Ages simply by the terms in which we have been conditioned to think.

Only walking the walk of fairness, decency and honesty will break the chains.
Somehow that must/will become the new paradigm. Just as you cannot overcome insurmountable debt by assuming more debt,
you cannot defeat TPTB by trying to beat them at their own game.

Jack said...

Hi seychelles
I am new to this scene but is it possible that the US GOV still has another 10 years to play around with people.

who America owes:
commercial banks: $301.8 billion(2.1 percent)
oil exporters: $229.8 billion(1.6 percent)
brazil: $211.4 billion(1.5 percent)
china: $1.16 trillion(8 percent)
domestic debts: $9.8 trillion(68 percent)

They can always make some kind of a story for not paying.
But I do not know much about economics so this is just an idea.

I. M. Nobody said...

snuffy said...
IM Nobody,My worry is "The Mammonites,The Hucksters,and The Weathy Beyond Words" have learned the lesson... the safe way is to use their media experts to throw enough distractions in the air to hide their true actions,and thus escape the consequence of imposing their political/ideological values on the rest of us....

The one lesson they did not learn, the one they never learn, was to control their greed. It isn't called a deadly sin for nothing. In their blind arrogance and carelessness they have fed the geese that lay the golden eggs poisoned feed. Which is just my homely way of saying that when they have finished killing the system that supported their lofty position, they go down with it.

That may be a little hard to buy, but history is clear. Being on top is a temporary thing. They've had their run. Like they have always done before, they have overdone it.

The news about fake police home invasions and urban military maneuvers is of some importance. Martial Law seems an increasingly likely outcome at least in Usanistan.

Wyote said...


Adviso: Get thee to Vermont! Do you need more reasons?


SecularAnimist said...

"you cannot defeat TPTB by trying to beat them at their own game.""

ha, you go that right! The game needs to change. TPTB are very much like wild animals. You can not show fear or aggression, you must remain calm and only approach them from the front.

wisdom from an old revolutionary

el gallinazo said...


I think the point you were making with your brief last comment was that real wealth was contracting in the USA since 2000, and this real wealth contraction was masked by inflation of the money supply. And COL increases which would normally follow inflation were masked by wage arbitrage from Mexico, China, and SE Asia via WalMart until recently. But the definition on this blog of deflation is a contraction of the money and credit supply. I don't believe that this began in earnest until 2007. Timing is always difficult but I don't think we are going to get out of 2011 without the second leg down of the "financial crisis" comparable to the collapse of Lehman in the fall of 2008 but much greater. In any event, no way by the end of 2012. Bank of America is playing rope-a-dope without Ali's stamina and will shortly be eaten, probably by the Morgue.

Also re Cullen Roche and HI

I think the substance of his paper is informative and viable. I also think that he is suffering from the emperor's clothes disfunction in the degree that he underestimates how far the USA has gone down that road.

A "new" important economic voice coming out of BA, Argentina, Adrian Salbuchi is interviewed by Mad Max. I really like this guy and his ideas. Spent much of his childhood in NYC and speaks fluent English. A pleasant change from the other southern conehead, Lyra


James Corbett offers better interviews with him at:




Archie said...

Stirling Newberry has his own blog now. Really, really sharp guy if you are unfamiliar with his writings.

Anyway, he has a new essay today that takes us down memory lane, and then some, with respect to American politics. And, just for shit and giggles, he asks the question:

Is Obama The.Worst.President.Ever?

It contains lots of good conversation starters for the weekend BBQs and wine tasting parties. The only thing missing is a polling option to answer the big question.

el gallinazo said...


I sympathize with your plight with your restaurant business and found your experiences illuminating. Thanks for the input. I think one may look to the experiences of the common people in surviving the depression of the 1930's as a useful guide to what we might expect in spades and how to survive it. Of course there are also major differences.

Some of which are:

We were on the gold standard

We had a lot more natural resources and a lower population

A president was elected who was not completely under the thumb of the bankstas. Though I am suspicious of FDR, the Wall Street Conspiracy which was halted by General Smedley Butler going public indicates that they did not consider him to be an Obama type puppet. The purpose of the coup was to depose FDR and initiate an overtly fascist government modeled on Hitler and el Duce. Of course Grandpa Bush, Adolf's Yankee buddy, was involved.

Funny thing, I had two years of American history in high school, got straight A's, and got a 765 on the American History SAT, and I never heard of the great General Butler. Must have been a curriculum oversight. :-)

seychelles said...

Thanks for the youtube link.
What an inspiring old mensch! I think I'll buy his memoirs, available on Amazon for $10.

el gallinazo said...


The big question is ***worst for whom?*** I think he is doing a very good job for the financial elites and the NWO. Same for Eric Placeholder. The ZH guys are always calling Bernanke an idiot. He is nothing of the sort. He simply has a different agenda than the other 99% of the Usakistani consumerate (citizen is so passe) and political realities force him to lie about it.

RanDomino said...

"The last time Greece had a true "revolution" (let's call it "a widespread uprising of the people which displaces or severely threatens the existing political order") was in the 1820s, Spain was in the 1860s,"

What? Spain had an extremely important revolution in 1936, a functional and powerful Anarchist-Syndicalist revolution in response to the Fascist coup d'etat. It was defeated through a combination of German and Italian support for the Fascists, "neutrality" by the Democracies, and a great betrayal by Stalinist Communists. George Orwell fought in the Spanish Civil War, was shot through the neck and nearly killed, and wrote "Homage to Catalonia" about it; "1984" was inspired by the Stalinist Communists. The Spanish Revolution wasn't successful but it is an incredibly important and inspiring example of what is possible.

I. M. Nobody said...

When I posted the link to Cullen Roche's HI paper, I intentionally did not share my opinion. As the name of his blog makes perfectly clear, he is an avowed capitalist. His blog is overtly dedicated to keeping the system functioning.

I think geezer gallinazo has it about right regarding Cullen's estimation of where we are on the scales with regard to the conditions Cullen has identified as pretty much necessary for HI. As listed here.

What is consistent almost all cases of hyperinflation is a number of rare exogenous
• A ceding of monetary sovereignty (usually in the form of foreign denominated
debt, a currency peg, etc).
• Extraordinarily unusual social circumstances (war, regime change, etc.).
• Very low levels of faith in government during regime change (high public
• Ineffective government response or rampant corruption.
• Combustible political environment.
• A collapse in the domestic economy.
• A breakdown in the tax system.
The most notable environments involving hyperinflations are war, regime change,
government corruption and a ceding of monetary sovereignty.
Wars are particularly disruptive for a society for obvious reasons. Being

It is true, at least as seen from up in the skyboxes, that none of these things are happening. And yet, in a weird way they are happening. We are not being threatened with occupation by a foreign army, but endless war has its own social consequences. The government is most certainly corrupt and seems to be pretending not to understand monetary sovereignty. Regime change has been effected at least to the extent that legality is totally optional. I think a more significant regime change is very likely.

I think Mr. Roche could benefit from spending more time on the streets and in the bars. But I suspect he has identified an important truth about HI and how it starts.

So, if you want HI, it may be quite easy. Just convince enough people that their dollars are soon going to be worthless. Given that I read that sort of "pitch" practically every day, it seems safe to say that "bally" is well underway. So go for it gold bugs. After the "jam" it would be well to stay very alert. A large bundle of Trillion dollar bills falling from a helicopter could hurt.

sumacarol said...

From the "happiness file":
Several of us in the Ottawa area who have seen Stoneleigh's presentation have started getting together and sharing our various resilience "projects", renewable energy systems, gardens, bee keeping, herbalism. What has been really wonderful, at a psychological level, is being in the company of others who are able to think "off the grid" and discussing our various projects, getting some reinforcement and encouragement and sharing of ideas instead of the usual blank looks or dead silence. The "group" is not all in one neighbourhood (in fact the distances are fairly large between our various "doomsteads"). We are all taking different paths in this trip, focusing on different things depending on our circumstances, but it is "good clean fun" and I hope we continue.

scandia said...

" Feds silence scientist over salmon study"

If anyone finds out what the Cdn Harper gov't doesn't want us to know please share.

scandia said...

@SA. I couldn't access the video of the " old revolutionary". Who are you refering to?

Ash said...


Like El G said, I would say the debt deflation (peak credit) began in 2007 and really picked up in 2008. So 10-15 years from then.


"What? Spain had an extremely important revolution in 1936, a functional and powerful Anarchist-Syndicalist revolution in response to the Fascist coup d'etat. It was defeated through a combination of German and Italian support for the Fascists, "neutrality" by the Democracies, and a great betrayal by Stalinist Communists."

I made it a point to not include any of the European uprisings during WWII. First, because they were heavily influenced by the unilateral and external decisions of Fascist governments in Germany and Italy, and second, because none of them were successful. Now, if the German people had launched a significant uprising against their own government during that time, it would have been worth noting as a "revolution".

I. M. Nobody said...

I very much liked the latest Economic Undertow by Steve From Virginia.

SecularAnimist said...


Here is a different link.


SecularAnimist said...

Scientists at Rensselaer Polytechnic Institute have found that when just 10 percent of the population holds an unshakable belief, their belief will always be adopted by the majority of the society. The scientists, who are members of the Social Cognitive Networks Academic Research Center (SCNARC) at Rensselaer, used computational and analytical methods to discover the tipping point where a minority belief becomes the majority opinion. The finding has implications for the study and influence of societal interactions ranging from the spread of innovations to the movement of political ideals.

“When the number of committed opinion holders is below 10 percent, there is no visible progress in the spread of ideas. It would literally take the amount of time comparable to the age of the universe for this size group to reach the majority,” said SCNARC Director Boleslaw Szymanski, the Claire and Roland Schmitt Distinguished Professor at Rensselaer. “Once that number grows above 10 percent, the idea spreads like flame.”

Carol said...

Real Estate isn't necessarily a bad bet.

I'm $300000 under water, and I'm not worried.

Tempe, Arizona. Adobe-style; 4 Bedroom; 3.5 baths; pool; 2 car garage; Granite countertops; Custom surround sound--home theater/entertainment room

Near Sun Devil Stadium and ASU.

I'm not about to eat a $300000 loss and declare bankruptcy.

The White House is drawing up plans to write-down my mortgage principal. The real estate bust was a something everybody participated in and now everybody can help dig us out.

By spreading the pain, We'll bounce back faster.

Stoneleigh said...


The White House is drawing up plans to write-down my mortgage principal. The real estate bust was a something everybody participated in and now everybody can help dig us out.

The problem is that housing still has so far to fall. Nothing the government does will fill the hole and get the market going again. As the gap between loan and value grows, job security will be disappearing, and benefits with it. Interest rates will be rising, as lenders demand higher risk compensation. In short, your ability to service the debt will take a major hit, and options will civilized bankruptcy will probably cease to be available. People with unpayable debts will be caught between a rock and a hard place. Lenders may well call their loans as the value of the collateral falls. It's going to be a very hard time for so many people.

Skip Breakfast said...


No we did not all participate in this. I did not participate in your overly large, ridiculously over-leveraged, gratuituous, out-of-touch 4 bedroom house with a pool. Do you think you're the Queen. I don't live that way. And people who have done what you've done have simply been foolish. Take your lumps.

Carol said...

@ Skip Breakfast and Stoneleigh,

If you don't help me pay my mortgage then I'll default and drag my neighbors home down in value.

That doesn't help anybody.

I'm working. I've got income and I can pay it off--eventually--with a little help from my neighbors, who'll thank me for preventing their own real estate from falling

@ Skip Breakfast: It's shortsighted to pretend you didn't benefit directly or indirectly from the housing boom. Housing is a large fraction of our national economy. Real estate employes lots of people.

Houses need appliances and furniture. Somebody makes that stuff. Perhaps the factory is in your town. Maybe your husband works in one of those factories.

In any case, your pension fund is probably holding my mortgage, or at least a piece of it, so you might as well help me help myself.

It'll cost you more if I default than it will to help me.

Carol said...

@ Stoneleigh

she said:
"The problem is that housing still has so far to fall. Nothing the government does will fill the hole and get the market going again."
My reply:
That's why the government needs to step in to help heel the market. That's the proper goal of government when the market isn't functioning properly. The real estate market is going to have a heart attack unless the government steps in to roto-rooter the clogged arteries.

Writing down mortgage principal and spreading the pain won't save all homeowners. Some people are withou question beyond the point of no return. But spreading the pain by chipping off a big chunk of mortgage principal will help those of us who are still paying each month.

Carol said...


Spreading the pain and paying down my mortgage principal will help municipalities. It's cheaper to prevent to cut down my mortgage principal than a direct municipal market bailout. By helping to keep me in my house and paying my real estate taxes, you avoid a local government bailout. You also avoid the pension fund bailout due to reasons already discussed. It's all a question of the cheapest way to fill this pot hole in the road forward.

snuffy said...


I agree with your "3 dog night"watch...and yes,the dogchow bill is...special.We have two,and will get another regardless of the cost in chow,as I like the peace of mind at night .I also have another layer of "critter alarm system".Geese.They go off if there is any kind of oddity ongoing.I thought about raising rabbits for extra meat...this gives another reason...[I am planting comfrey Like mad everywhere that I can for feed..the rabbits and geese love it.]

I see that "Ian",who irritated most all,disappeared back into the void.I would have liked to take a whack but did not even see the dreck he posted...[I see the trash collection folks are busy now.Much Thanks!I read most all postings here and I dislike wasting time with.......fools.]

...Home invasion...
I am thinking that the police will hammer anyone they catch doing this HARD,as it tends to make homeowners more likely to shoot first and question later.I have had enough experience with lawmen,as well as having a brother as a cop for 25 years,to spot ringers I think.There is a certain arrogant,"'Tude" that makes it easy to spot real lawmen,as well as "voice of command ",as well as "presences"that is taught to all to take control of any situation they are in.Even off duty,it shows.


You may be right,but some of the snakes in high places have shown a startling ability to use what advances have been made since the time of Goebbels in selling "The big lie".They have a lot of very bright people with very scary "Ideas" on how to manipulate Joe and Mama sixpack,to do as THEY wish.Of course all of the power structure folks have their pr dept...witness how fast the pros took over the disaster that happened to arguably one of the most powerful men on the planet,Murdoch...and how you hear not one word now.... silence..

El G..I don"t know about any "mind altering"effects with these insects.I have enough bee poison,[a histamine],to supposedly clear up the arthritis that is appearing in my hands...Hands still hurt though...One thing has changed.My nerves.Every bee-keeper has to get over the fear of stings,as well as the "flight" symptom one gets when you hear 50,000 very pissed off bees,and you are in the middle of the cloud.A lot of terror has to be swallowed the first year or two....they have a certain tone,in their buzzing, that says "We don't like you one bit, and we are going to start commiting suicide to let you know how much we dislike you...and see if we can drag you down to a smoky hell with us!". Listening to the sound of a hive is very important skill,as well as knowing how temperature sensitive,how 5-8 degrees WILL change how the bees react to opening up their home.Boy,oh boy will it.I have seen colonies that are gentle,and will totally ignore you,go to being a nasty,mean as hell,with a 8 degree change in temperature on a summer day...
Bees are,just,interesting to me.Much more than most people I meet,and bee-keeping can give one a independent income,and the type of lifestyle that I want...

Its real late and I promise mama I would not stay up too late...

Bee good,or
Bee careful,


Carol said...
This comment has been removed by the author.
Carol said...
This comment has been removed by the author.
Carol said...

I'm in real estate.

I can tell you why you can expect the government to write down you mortgage principal. Why would you eat a $300000 loss when the government is going to take at least 50% of that burden off your shoulders. Wait. Then consider your options.

I'll let you guys in on how this is going to shake down in the industry.

Houses are piling up on banks books. How come they don't sell? Because everybody in the business KNOWS the government is preparing to write down mortgage principal.

As we speak, I'm lining up deals between a regional investor consortium and several local banks. As soon as the Gov. whacks off a chunk of the principal with a check to the local banks, the banks will unload these premium properties to the consortium. That's what kick starts a feeding frenzy in the local market. That's how you get momentum behind prices again.

As soon as the mortgage write down, this market is going to get red and frothy as the sharks come to feed. To survive you've got to swim with the sharks. Don't look weak, and don't start to bleed or they'll eat you alive. That's why you, as an individual homeowner, should wait. Don't be a sucker -- a bucket of reeking shark chum --by caving early.

p01 said...

@Carol (Cheryl, Bob)
You aren't paying attention around you. Again.

Skip Breakfast said...

I feel I should soften my statement to a certain extent. Because I do think homeowners have been victimized by a very greedy and powerful system. And to the extent that we did not see the writing on the wall sooner, and did not rise up to prevent it sooner, well, in that respect, yes, Carol is right--we are all part of this problem.

However, I feel that part of the solution is not to perpetuate this evil (and it is evil) ethos of living beyond our means on credit. It is destructive to the lives of folks around the world, and I'm talking about a lot of folks without swimming pools. And so we now have to take responsibility.

We could perpetuate the madness by papering over our sins. Or we could recognize we've gone astray and begin the real work of making things fair, right, balanced and healthy again.

I opt for the latter. And that means I will not support a movement to bail out over-extended banks and homeowners. To insist we have to continue this crime so that we keep our jobs is like the mafia holding a gun to my head. Extortion doesn't sit well with me. After all, I don't have a swimming pool.

Skip Breakfast said...

May I only add that Stoneleigh has not passed any value judgment in her comments here (unlike myself, who was bneing quite tough on Carol's point of view).

Rather, Stoneleigh is simply saying what WILL happen, not whether it's right or wrong, or whether Carol is right or wrong. Stoneleigh is emphasizing that, righly or wrongly, the current macroeconomic conditions are such taht real estate will collapse (along with other things), and no government intervention can possibly absorb the sheer scale of the problem.

I on the other hand was making a rather harsh judgment. But I feel it's valid, all the same.

p01 said...

You have got to be kidding me:
US debt: White House 'Rickrolls' Twitter.
What's next? Goatse?! Oh, wait, that would be a realistic portrait.

scandia said...

@SA, Thanks, got that link. Timely message in the sense that I am discouraged these days in my efforts toward social justice.
For example just read this morning that the message maven for the Harper Tories is taking his dark arts to the tar sands to " burnish " the image of dirty oil. Sigh...

D. Benton Smith said...

Attaboy, Ian! Declare victory and retreat. Don't let the door smack you in the ass, but before you go I just want to say, "Y'all come back now, hear? Sitting ducks make great target practice."

He will come back, too, because THERE, my fellow philosophers, is an ego undaunted by fact and unflinching in the face of certain annihilation... probably because he wouldn't notice either one if it slapped him upside the head.

D. Benton Smith said...

Side note:

You'll notice that the first paragraph of my parting swipe at Ian consisted entirely of coloquialisms. Not a word of plain English in it.

Coloqialism is a language within a language, with each idomatic phrase serving the purpose of expressing a single concept just like a word does .... only it tends to handle bigger and trickier concepts than most single words do.

What makes it work is that the folksy phrase is so familiar. We know, from long use, EXACTLY what it means... without dragging out a dictionary of high falutin' $2 words and getting majorly distracted from the main thought in the effort to master a new term.

If works even better if you can give the idomatic phrase an UNfamiliar (but tiny) little twist. That little twist makes it STICK, and can even tie in a new subject, but without being so new that you get bogged down in trying to figure it all out.

Hey, Ian. My apologies for using you as a dart board ( not that you didn't have it coming. )

Do come back, but lay off the insults and pontificating. If you have something to say on THIS site you better be ready to back it up with some hard facts and explicitly expressed reasoning.

I, for one, wouldn't DREAM of "burning your book." It's too damned funny.

SecularAnimist said...

""Timely message in the sense that I am discouraged these days in my efforts toward social justice.""

Yeah, much of today's emergent counter-cultures have spun the 60s idealism on it's head and turned it into fatalism. Not that their is not a lot of data to be very pessimistic about. But, screw it, fatalism today is an easy way out. Though, I do see it as a natural reaction to all the culturally fostered faux-optimism.

Sure, the systemic pendulum is swinging far from social justice, it's just the natural gravitation of it. But, it will swing back with a vengeance - or at least I will give it my best effort for it to do so. We all should - I don't see any other way for the future coming to view.

Quite clearly, our task is predominantly metaphysical, for it is how to get all of humanity to educate itself swiftly enough to generate spontaneous social behaviors that will avoid extinction


Greenpa said...

My favorite Slapstick Stooge Kabuki of the day - so far-

"NEW YORK (CNNMoney) -- Finally, some better news about the job market: the number of first-time filers for unemployment benefits fell below 400,000 for the first time since early April.

"There were 398,000 initial unemployment claims filed in the week ended July 23, the Labor Department said Thursday."

LOL!!! Never mind that the statistic is probably "plus or minus" 5k. The teaser headline for that one was "Good News For Jobs"

el gallinazo said...

Oh, somewhere in this favored land the sun is shining bright,
The band is playing somewhere, and somewhere hearts are light,
And somewhere men are laughing, and little children shout;
But there is no joy in Mudville — mighty Casey has struck out.

In possibly the most important underreported news of the day, Goldman and Citi were forced to scrap a $1.5 billion CMBS deal after S&P shocking refused to rate the notes............ "The deal won’t close today as planned because S&P is reviewing its criteria for commercial mortgage-backed securities and can’t provide a rating, the banks said in a joint statement through Business Wire.


PS: My favorite ZH comment under this:

"LOL...this is on par with a john's favorite hooker saying she has a headache tonight and doesn't need the money."

el gallinazo said...


You mention having to declare bankruptcy if you default. But Arizona is a non-recourse state. Did you sign away your non-recourse, jingle mail rights?

p01 said...

@El gallinazo
C'mon, you're not going to fall for Carol's antics.

Hamster Breeding and Megadeath. Good one, Bob!

The Anonymous said...

"skilo said...

I queried everyone before, but nobody answered.

I hold the general view of the board - that a deflationary depression is what we need to worry about before a hyperinflationary collapse.

However, we could be wrong since it is a policy decision and we aren't insiders aware of every detail and the insider thought process.

So, what would have to occur in order for you to conclude that TAE is wrong and that they really will destroy the dollar and hyperinflate?"

My guess is you are not going to get much in the way of a substantive answer.

Given the lack of importance put on timing, the preferred method of dealing with this issue seems to be not to critically re-test the theory, but simply continuously push forward the time horizon in which the deflationary event "will" occur...possibly forever.

This is not just here at TAE mind you. Robert Prechter has pushed forward his time horizon of "imminent deflation" for 20+ years now. Richard Russell has been doing the same for close to 35 years. Yet both still seem to attract a decent following of people perfectly content to continue to wait patiently for the imminent deflation before they ever consider questioning the message.

TAE doesnt have that long term track record, but it does thus far appear to be on the same "push the timeline" road as those deflationary predictions that came before them. I suspect too people will give TAE a more substantial grace period since (unlike Prechter and Russell) there is little or no profit motive here.

Note, I could be wrong about this. Two years ago, had you asked your same question here, you would be assailed by a number of apologists attacking your character or your motive for posting. The fact that you can now ask this question (twice) and be met largely with silence could be a sign of progress in and of itself.

el gallinazo said...


Well, her position is so flakey that I thought there was an outside chance that she might be for real. Never underestimate the potential for cognitive dissonance of an American. Her blogger handle has been around for almost two years, though it could be a "utility" profile as everything but the name itself can be edited (TTBOMK). I found more than I needed to know about hamster sperm (those little buggers), and strangely little about her real estate business. When my kids were little we got them a Habitrail with a couple of hamsters, and were soon inundated with hamsters. The local pet stores didn't want them for free. Maybe she should switch to guinea pigs (called cuy in Peru). It has been a major source of animal protein there since Inca times. They are boned and have the taste and consistency of a tire inner tube and prepared in specialty restaurants called cuyerias.. But I was curious how she would respond to my question. Hmmm. A $300,000 HELOC. Jeez, forget TAE fund drive and get those checks rolling to Carol :-)

scandia said...

@ The Anonymous..ahem, you haven't answered skilo's question either.

Ash said...

The Anonymous

"My guess is you are not going to get much in the way of a substantive answer.

Given the lack of importance put on timing, the preferred method of dealing with this issue seems to be not to critically re-test the theory, but simply continuously push forward the time horizon in which the deflationary event "will" occur...possibly forever."

Your statement really couldn't be farther from the truth, given the extent to which the deflation v. HI debate has been discussed here on TAE, and given the fact that timing is the critical factor that we emphasize while many HI advocates tend to ignore it. Every year that the US doesn't have a bond market collapse and/or lapse into HI, they say we were lucky and the "tipping point" is just around the corner, so keep hoarding PMs.

In stark contrast, the realities of deflation have been consistently manifesting themselves since 2007, with perhaps the exception of the value of USD on exchanges. In that regard, we have been in a limbo period, as TPTB do everything they can to "extend and pretend", sucking as many people as possible into the ponzi system before it fully gives way. It's true that equity markets haven't breached their lows from 2008, but the question is whether the objective evidence points towards DOW sub-6000 before DOW 30,000+.


"However, we could be wrong since it is a policy decision and we aren't insiders aware of every detail and the insider thought process.

So, what would have to occur in order for you to conclude that TAE is wrong and that they really will destroy the dollar and hyperinflate?"

There are many considerations here. One being that it isn't entirely a policy decision by any means. Fiscal and monetary policy certainly have an influence, but they are also constrained by the system in which they operate, which means the Owners can't simply create whatever outcome they desire. Secondly, the objective evidence does not weigh in favor of the Owners intentionally destroying the debt-dollar system and the value of all debt-assets and derivatives that they hold. What would it take to convince me that this is not the case? Well, it's hard to say for sure, but at the very least there would be no talks of any significant austerity measures and there would be a systematic effort to bail out a majority of underwater homeowners, such as the one our friend Carol here claims to be banking on. I would also have to see a lot of major institutions consistently dumping their holdings of treasuries and dollars for gold, and despite the insistence of certain people in the HI crows, I don't see this happening at all.

Wyote said...

From the "sometimes the universe does make sense department" (and Daily KOS):

The winner of the 2011 Bulwer-Lytton Prize for deliberately awful writing:

"Cheryl’s mind turned like the vanes of a wind-powered turbine, chopping her sparrow-like thoughts into bloody pieces that fell onto a growing pile of forgotten memories."

Sue Fondrie
Oshkosh, WI

One speck of insane laughter emanated from an otherwise ruthless universe.....Wyote

Ash said...

"My guess is you are not going to get much in the way of a substantive answer.

Given the lack of importance put on timing, the preferred method of dealing with this issue seems to be not to critically re-test the theory, but simply continuously push forward the time horizon in which the deflationary event "will" occur...possibly forever."

This statement couldn't be farther from the truth, given the extent to which the deflation v. HI debate has been discussed on TAE and the emphasis we place on the critical aspect of timing, which is usually under-emphasized by those advocating HI. Every year that there isn't a US bond market collapse and a lapse into HI, they say we were just lucky this time and the HI "tipping point" is just around the corner, so don't stop loading up on PMs.

In stark contrast, the realities of deflation of have been consistently manifesting themselves since 2007, with perhaps only the exception of the value of USD on exchanges. We have been in a period of limbo in that regard, where the Owners do everything they can to extend & pretend, sucking as many people and as much capital as possible into the ponzi before it finally gives way. It's true that equity markets haven't breached their lows from 2008, but the question is whether the objective evidence points towards DOW sub-6000 before DOW 30,000+.


In response to your question...

There are many considerations involved here. One being the fact that, while fiscal and monetary policy decisions certainly have a large influence, they are still constrained by the system in which they operate, which means that the Owners cannot simply create whatever outcome they desire. Secondly, the objective evidence I have seen so far does not point towards the Owners wanting to destroy the value of their dollar-denominated debt-assets and derivatives, along with the entire debt-dollar reserve system itself (assuming they are a relatively homogeneous group with regards to that issue, which may become less true over time). What would it take to convince me that this is not the case? It's hard to say for sure, but at the very least there would be no talks of significant austerity measures in the US and there would be a systematic effort to bailout a majority of underwater homeowners (not banks), such as the one that our friend Carol here claims to be banking on. Major financial institutions around the would also have to be consistently dumping treasuries and dollars for gold and other currencies, and despite the insistence by those in the HI crowd, I don't see this happening right now at all.

The Anonymous said...

"scandia said...
@ The Anonymous..ahem, you haven't answered skilo's question either."

Nor can I in that I simply do not believe that deflation is imminent. I thought there was a much better chance of this in 2007 early 2008 when many of the signs I follow were flashing ultra bright red. However, as many of those same are now flashing a muted yellow, I currently see "muddle through" as the more likely outcome.

The Anonymous said...

El G. You asked me a question a moment ago that seems to have disappeared into the either.

As such, I dont have the phrasing exact, but I think your request was (in sum) to provide proof that Prechter has been saying "it just hasnt happened yet" for 20+ years.

In that regard, here is an interview with Prechter, circa 1989 wherein he was calling for imminent deflation and a great depression II


He made similar calls (deflationary depression, DJIA to 400, etc) in 1993, 1996, 2000, 2004 & present. To be fair, he has called for "brief rallies" here and there over the years. Nevertheless, he has been in all cash (or equivalents) since 1989 at least.

el gallinazo said...

The Anonymous said...

Robert Prechter has pushed forward his time horizon of "imminent deflation" for 20+ years now.


First, I am not an apologist for Prechter though I take his ideas seriously. I regard technical analysis in this age of a NWO on steroids as suspect. That said, Prechter is always saying that gold is real money, and he likes to point out that if you plot the S&P on gold instead of nominal dollars, it has gone down a lot since the 2000 crash, even when it peaked in the fall of 2007. Real wealth production peaked in 2000 at the latest and probably earlier. This was covered over by wage arbitrage from Latin America and Asia and a huge increase in credit.

But deflation is caused by a contraction of the money and credit supply interacting with the velocity of money, and it should be treated in nominal terms. So as Ash and I kicked around earlier, we haven't seen peak credit and subsequent deflation until 2007, though we see peak real wealth creation much earlier.

As to Prechter's prediction of a DOW 1000 in 3 or 4 years, I personally think it is likely. The Owners have totally distorted the markets. Everything goes up and down on the central bank controlled liquidity. Commodities and stocks used to be inverse and now they rise and fall together.

Bernie Sanders' Fed audit indicates that they pumped at least $7.5T in Benny Bux to levitate the global stock market. It is probably a lot more. If they stop the credit creation it would sink like a stone. Furthermore, there is ample evidence that the credit creation is becoming increasingly inefficient in the levitation process. Can it go on forever and its rate expand exponentially forever? If not, a DOW 1000 is likely.

Greenpa said...

OMG!! ROTFLAMAO!!! we get to add to the theater;

we now have Slapstick Stooge Kabuki - Puppets!

"Dow Edges Up After Positive Sign on Jobs
Published: July 28, 2011

"A strong report on jobs sent Wall Street slightly higher on Thursday even as the stalemate continued in Washington over the debt ceiling."

What should totally be freezing any remaining cockles of your hearts is that there are pretty certainly stock managers/traders/analysts who READ this utterly transparent utter nonsense- and then nod their heads sagely, muttering, "so true, yes..."

Greenpa said...

oh, yeah, that was in the NYT Business section -

cripes, I need to find some more boggles somewhere, my supply is just exhausted...

el gallinazo said...

The Anonymous

I altered my original response because I misunderstand what you meant about Prechter originally. I thought you had implied that he recently came out pushing a deflation prediction 20 years into the future. On a second reading of your comment, I realized that I had misinterpreted your meaning and edited my response accordingly.

The Anonymous said...

"Ash said...

This statement couldn't be farther from the truth, given the extent to which the deflation v. HI
debate has been discussed on TAE and the emphasis we place on the critical aspect of timing, which is usually under-emphasized by those advocating HI. Every year that there isn't a US bond market collapse and a lapse into HI, they say we were just lucky this time and the HI "tipping point" is just around the corner, so don't stop loading up on PMs."

Thats true as to the 100% opposite conclusion of HI, but not as to the conclusion of "muddling through, continuiously kicking the can, far longer than anyone here can imagine"

I agree with you that the HI crowd is just as guilty with the "you were just lucky" or the "tipping point is just around the corner" as anyone. Still, you absolutely cannot deny that the same thing has happened here (calls such as "DJIA @ 1000 by 2010", or "you will be lucky to recognize your hometown by christmas 2009" come to mind).

seychelles said...

Who exactly are the dreaded "Owners?"

My guess is that they are principal
shareholders of banks, corporations and communications media with global tentacles. Do they actively conspire against us, such as with daily encrypted conference calls? Is there an admission checklist to enter the hallowed halls? Do they hire economic professionals for advice? With any luck, maybe they have signed on Myron Scholes and other Nobel laureates. How do they payoff their political sock-puppets? Ego-stroking, money into anonymous accounts in banks they control or more sinisterly by the occasional offing of whistle-blowers who die by natural causes or first approximation offings of loved ones? Surely other bloggers have thought about
this. It is hard to defend against invisible enemies.

SecularAnimist said...
This comment has been removed by the author.
SecularAnimist said...

"Thats true as to the 100% opposite conclusion of HI, but not as to the conclusion of "muddling through, continuiously kicking the can, far longer than anyone here can imagine""

Collapse watchers always see things way in advance. It's part of the DNA. Interestingly, if most people had their view of things and practiced appropriate 'economic' behavior - the lack of confidence would manifest in a collapse. We seem to have reached a point where collectively lying to ourselves about future economic prospects is beneficial to social functionality. Not a healthy position to be in.

Collective delusion keeps us "muddling through" more than anything else. This will erode overtime, along with the structural problems. Hopefully sooner rather than later.

I will say this, the HI "gold always goes up" crowd are more idealogues and gold salesman than analysts. Though, underestimating crowd delusion seems to be constant with all collapse watchers.

Ilargi said...

New post up.

Real Black. Real Swan.


el gallinazo said...

The Anonymous

As I mentioned here many times before, I didn't take the Fed and the USG seriously enough when they said that they would do "whatever it takes." I must admit that this was a measure of stupidity on my part as everyone here knows my opinion of their criminal ruthlessness in matters beyond the purely financial. I agree with Stoneleigh, that the natural duration of the dead cat bounce from mid-March 2009 should have been about half a year. It is well over two years now. This has cost the US taxpayer at least 10T Benny Bux that they are on the hook for (and as the headlines scream at us, counting). I have publicly disagreed with Stoneleigh that I feel that she underestimated the effectiveness of the Fed's criminal activity to kick the can down the road. That said, I think we are reaching the end of the line. To paraphrase the soliloquy of the replicant leader (Rutger Hauer) in Bladerunner, "Time [for me] to die." It is now time for "austerity." This indicates to me that they are going to start pulling back on exponential increases in "liquidity." If that is correct, TSHTF in the stock market soon and we go into blatant deflation.

The hyperinflationistas don't think that the Owners and their puppet politicians can take the heat of the consumerate. With the exception of FOFOA, this is their entire basis for converting a hugely deflationary event into a hyperinflationary event. I disagree. I think they will. That is why God made tear gas and M-16's. That is why we have been conditioned like boiled frogs to accept a police state.

As to not recognizing my hometown by Christmas 2009. I have not been to the USA for a couple years barring a few hours in Miami, nor my home town (NJ) for decades. But, I am getting feedback from friends that the impact on residential areas for the poor to middle/middle class has been severe to devastating. Of course Tiffany, Gucci and the gated communities are still doing well. Manuel - not so much.