Slums Into Malls

Surprise! China won't take over the world.


I first visited Kolkata, better known as Calcutta, in 1982 as a backpacking law student. I stayed at a hostel in the Howrah slums and regretted that my camera could record only images, not the equally memorable stench.

In my visits over the next 25 years, Kolkata — and much of India — seemed little changed. China, where the national bird was jokingly said to be the crane, would be transformed every year or two, while Kolkata was always the same: a decrepit city where barefoot men pulled rickshaws beside fetid canals.

That’s why India has been a bit of an embarrassment for those of us who believe in democracy, especially when compared with China. The Communist Party in China did a much better job fighting poverty than democratically elected Indian governments. India tolerated dissent, but it also tolerated inefficiency, disease and illiteracy.

But after my trips to India and China this year, I think all that may be changing. Despite the global economic slowdown, India’s economy is now hurtling along at more than 8 percent per year. Yep, India is now a “tiger economy.”

The technology zones around Bangalore in southern India have been booming for years, but what is changing is that the rise is gaining traction across the country — even here in Kolkata. It’s stunning to see the new high-rise towers in Kolkata, new air-conditioned shopping malls, new infrastructure projects, new businesses.

In elections this month, the longtime Communist Party government here in the state of West Bengal was ousted, and the new chief minister is a woman and a dynamo, Mamata Banerjee. After the latest elections, she’s part of a broader trend of charismatic female politicians: one-third of India’s people are now ruled by chief ministers who are women.

The northern state of Bihar used to be even more of an embarrassment. For many years, gangsters played a major role in government there, and nothing worked. I once visited a health clinic in Bihar where employees dumped medicines in a pit in the ground, so they wouldn’t have to dispense them. I visited a school in Bihar where teachers never bothered to show up. I visited villages where gangsters raped, robbed and ruled at their pleasure. Businesses fled, kidnapping became rampant, and Bihar seemed hopeless.

Yet Bihar has, wondrously, turned around since 2005, when a reformer named Nitish Kumar took over as chief minister. There are still enormous inefficiencies, but crime has been suppressed, corruption has diminished, and the local economy is booming at double-digit rates. And if Bihar can turn around, any Indian region can.

Look, India still lags far behind China, it faces risks of Pakistani extremism, it needs further economic reforms, and it too readily accepts inefficiency as the natural order of the universe. India’s education and health system is a disgrace, especially in rural areas; Bangladesh does a much better job, despite being poorer. But change is in the air in India. Infant mortality is dropping, voters are pushing for better governance, and I think India has three advantages over China in their economic rivalry in the coming decades.

First, India’s independent news media and grass-roots civic organizations — sectors that barely exist in China — are becoming watchdogs against corruption and inefficiency. My hunch is that kleptocracy reached its apogee and is now waning in India, while in China it continues to get worse. I’ve written scathingly about India’s human trafficking and oppression of women, but it’s also true that civil society is addressing these issues.

Second, China’s economy may be slowed by the aging of its population, while India’s younger population will lead to a “demographic dividend” in coming decades. (Indian overpopulation is still a problem, but the average woman now has 2.6 children, and the figure is dropping.) Likewise, China already reaped the economic advantages of empowering its women, while India is just beginning to usher the female half of its population into the formal labor force.

Third, India has managed religious and ethnic tensions pretty well, aside from the disgraceful anti-Muslim pogroms in Gujarat in 2002. The Sikh challenge in the Punjab has dissipated. Muslims have been president of India three times, and are prominent in business and the movie industry; perhaps as a result, India has the world’s third-largest Muslim population (after Indonesia and Pakistan) but few jihadis. And while India has sometimes behaved brutally in Kashmir, civil society watchdogs are pressing for better behavior there. In China, by contrast, tensions with ethnic Tibetans and Uighurs are worsening.

China’s autocrats are extraordinarily competent, in a way that India’s democrats are not. But traveling in India these days is a heartening experience: my hunch is that the world’s largest democracy increasingly will be a source not of embarrassment but of pride.


http://www.nytimes.com/2011/05/29/opinion/29kristof.html?_r=1&ref=opinion

Greeks vent anger at entire political class

How long will it be before people start protesting corruption in the U.S.?

ATHENS (Reuters) - Tens of thousands of Greeks vented their anger at the nation's political classes in Athens on Sunday, staging the biggest in a week of protests as the government seeks backing for yet more austerity.

The huge crowd packed Syntagma Square in front of the Greek parliament, booing, whistling and chanting "Thieves! Thieves" as they pointed at the assembly building.

"We've had enough. Politicians are making fools of us. If things stay as they are, our future will be very bleak," said a 22-year-old student who gave his name as Nikos.

Unlike the violent protests last year when radicals clashed with police, the peaceful crowds on Sunday were made up of ordinary Greeks, some of whom brought along their children.

Greeks are angry no politicians have been punished for the corruption they blame for the crisis, as well as the dire state of the economy and waves of austerity demanded under the terms of a 110 billion euro ($157.5 billion) bailout from the European Union and IMF last year.

Greeks have been protesting on Syntagma Square for five days, fired up by similar demonstrations across Spain. They were joined on Sunday night by a small group of Spaniards who had come to show their solidarity, raising banners in Spanish.

Spain has not had to seek an international bailout, unlike Greece, Ireland and Portugal, but it also faces major budget problems, lack of confidence in its debt, and demand for reform.

Police put Sunday's crowd at 30,000 although the protesters, who have few formal leaders and are prompted by Facebook, say official figures usually underestimate the size of demonstrations by a wide margin.

Before the Syntagma Square rallies began, some Spanish protesters had accused Greeks of being too passive.

But on Sunday Ifigenia Argyrou, a 57-year-old insurance consultant, said all that had changed.

"People were indignant but they needed a motivation to express that. The Spanish people gave us that motivation," she told Reuters. "We are not sleeping, we are awake. The IMF should get out. There are other solutions without them."

Officials from the International Monetary Fund, EU and European Central Bank are in Athens checking Greece's fiscal progress to approve a 12 billion euro aid tranche -- the fifth under the current bailout -- and possibly new funding the country needs to avoid debt default.

In return, the EU wants Athens to impose yet more austerity and reform, including privatisations.

Prime Minister George Papandreou's PASOK has a comfortable majority in parliament but one weekend opinion poll showed it had lost its lead for the first time since it won elections in 2009.

http://m.yahoo.com/w/news_america/greeks-vent-anger-entire-political-class-211328854.html?orig_host_hdr=ca.news.yahoo.com&.intl=ca&.lang=en-ca

A 62% Top Tax Rate?

Here's a major reason our country is in decline.

Media reports in recent weeks say that Senate Democrats are considering a 3% surtax on income over $1 million to raise federal revenues. This would come on top of the higher income tax rates that President Obama has already proposed through the cancellation of the Bush era tax-rate reductions.

If the Democrats' millionaire surtax were to happen—and were added to other tax increases already enacted last year and other leading tax hike ideas on the table this year—this could leave the U.S. with a combined federal and state top tax rate on earnings of 62%. That's more than double the highest federal marginal rate of 28% when President Reagan left office in 1989. Welcome back to the 1970s.

Here's the math behind that depressing calculation. Today's top federal income tax rate is 35%. Almost all Democrats in Washington want to repeal the Bush tax cuts on those who make more than $250,000 and phase out certain deductions, so the effective income tax rate would rise to about 41.5%. The 3% millionaire surtax raises that rate to 44.5%.

But payroll taxes, which are income taxes on wages and salaries, must also be included in the equation. So we have to add about 2.5 percentage points for the payroll tax for Medicare (employee and employer share after business deductions), which was applied to all income without a ceiling in 1993 as part of the Clinton tax hike. I am including in this analysis the employer share of all payroll taxes because it is a direct tax on a worker's salary and most economists agree that though employers are responsible for collecting this tax, it is ultimately borne by the employee. That brings the tax rate to 47%.

Then last year, as part of the down payment for ObamaCare, Congress snuck in an extra 0.9% Medicare surtax on "high-income earners," meaning any individual earning more than $200,000 or couples earning more than $250,000. This brings the total tax rate to 47.9%.

But that's not all. Several weeks ago, Mr. Obama raised the possibility of eliminating the income ceiling on the Social Security tax, now capped at $106,800 of earnings a year. (Never mind that the program was designed to operate as an insurance system, with each individual's payment tied to the benefits paid out at retirement.) Subjecting all wage and salary income to Social Security taxes would add roughly 10.1 percentage points to the top tax rate. This takes the grand total tax rate on each additional dollar earned in America to about 58%.

Then we have to factor in state income taxes, which on average add after the deductions from the federal income tax roughly another four percentage points to the tax burden. So now on average we are at a tax rate of close to 62%.

Democrats have repeatedly stated they only intend to restore the tax rates that existed during the Clinton years. But after all these taxes on the "rich," we're headed back to the taxes that prevailed under Jimmy Carter, when the highest tax rate was 70%.


Steve Moore of the editorial board on the prospects for tax reform in Washington.

Taxes on investment income are also headed way up. Suspending the Bush tax cuts, which is favored by nearly every congressional Democrat, plus a 3.8% investment tax in the ObamaCare bill (which starts in 2014) brings the capital gains tax rate to 23.8% from 15%. The dividend tax would potentially climb to 45% from the current rate of 15%.

Now let's consider how our tax system today compares with the system that was in place in the late 1980s—when the deficit was only about one-quarter as large as a share of GDP as it is now. After the landmark Tax Reform Act of 1986, which closed special-interest loopholes in exchange for top marginal rates of 28%, the highest combined federal-state marginal tax rate was about 33%. Now we may be headed to 62%. You don't have to be Jack Kemp or Arthur Laffer to understand that a 29 percentage point rise in top marginal rates would make America a highly uncompetitive place.

What is particularly worrisome about this trend is the deterioration of the U.S. tax position relative to the rest of our economic rivals. In 1990, the highest individual income tax rate of our major economic trading partners was 51%, while the U.S. was much lower at 33%. It's no wonder that during the 1980s and '90s the U.S. created more than twice as many new jobs as Japan and Western Europe combined.

It's true that the economy was able to absorb the Bush 41 and Clinton tax hikes and still grow at a very rapid pace. But what the soak-the-rich lobby ignores is how different the world is today versus the early 1990s. According to the Organization for Economic Cooperation and Development, over the past two decades the average highest tax rate among the 20 major industrial nations has fallen to about 45%. Yet the highest U.S. tax rate would rise to more than 48% under the Obama/Democratic tax hikes. To make matters worse, if we include the average personal income tax rates of developing countries like India and China, the average tax rate around the world is closer to 30%, according to a new study by KPMG.

What all this means is that in the late 1980s, the U.S. was nearly the lowest taxed nation in the world, and a quarter century later we're nearly the highest.

Despite all of this, the refrain from Treasury Secretary Tim Geithner and most of the Democrats in Congress is our fiscal mess is a result of "tax cuts for the rich." When? Where? Who? The Tax Foundation recently noted that in 2009 the U.S. collected a higher share of income and payroll taxes (45%) from the richest 10% of tax filers than any other nation, including such socialist welfare states as Sweden (27%), France (28%) and Germany (31%). And this was before the rate hikes that Democrats are now endorsing.

Perhaps there can still be a happy ending to this sad tale of U.S. decline. If there were ever a right time to trade in the junk heap of our federal tax code for a pro-growth Steve Forbes-style flat tax, now's the time.

Mr. Moore is a member of the The Journal's editorial board.

EPA's green tyranny stifles America

Say goodbye to good jobs.

When carbon cap-and-trade legislation officially died in Congress last year, many environmentalists lamented defeat while coal and oil proponents celebrated victory. As a scientist who has been working in the environmental industry for decades, I found both reactions misguided. Subsequent events have -- I am sorry to say -- proven me right. Thanks to the most aggressive and radicalized Environmental Protection Agency in history, the Obama administration is strangling America's energy sector in the name of greenhouse gas reduction.
But then cap and trade was never really about reducing greenhouse gas emissions. It was about raising revenue. The United States has long had multiple emission reduction programs in place, and these will continue to grow. Thirty-three states have Renewable Portfolio Standards programs, which force gradual declines in fossil fuel power generation. Some portions of the country have (or will have) regional trading programs in place. Energy conservation mandates abound.

All of these efforts, and many others, have been spectacularly successful. Recently released EPA data shows that America is back down to mid-1990s levels of emissions. On a per capita basis, greenhouse gas emissions in the United States declined by 16 percent over the last decade. That reduction is almost 50 percent better than what the 15 richest nations in Europe (the EU-15) achieved in the same time frame, even though Europe has had a cap-and-trade program in place.

So has the Obama administration or EPA Administrator Lisa Jackson seen fit to celebrate this remarkable achievement? Of course not. Obama and his EPA despise hydrocarbons in any form, be it oil, coal or natural gas. Under Jackson, the EPA has issued a plethora of new rules designed to ensure that: a) no new coal-fired power plants of any substantial size can ever be built again in the United States, and b) existing coal-fired plants will slowly be crushed under the weight of multiple, ludicrously stringent new regulations.

It's happening under Congress' nose, simply because the Clean Air Act mechanisms that the EPA is using to achieve these ends are too complex for most everyone on the Hill to understand. What do new clean air standards for nitrogen oxides and sulfur dioxide have to do with burning coal and greenhouse gas emissions, for example? Well, if you set those standards low enough, there is no way that a big, new coal-fired power plant can meet them, no matter how advanced the technology employed. Similarly, if the EPA develops complex and overly stringent new emissions standards of so-called "air toxics" from coal-fired power plants, new plants become untenable. All of this has happened and continues to happen.

These regulations come on top of EPA efforts to directly regulate emissions of greenhouse gas through the Clean Air Act and its permit processes. Beginning July 1, every new facility over a certain size will have to prove that it is "state of the art" when it comes to reducing emissions. Coal- and oil-fired plants need not apply, although some natural-gas-fired projects might sneak through.

In other words the EPA has effectively banned any substantial further use of the most abundant, cheap energy source available. No, it's not cap and trade, but the net effect on the nation's energy sector and energy prices is everything that most ardent cap and trade fan could have ever wished for.

Rich Trzupek is a chemist and principal consultant at Mostardi Platt Environmental. This piece was adapted from his Encounter Broadside "How the EPA's Green Tyranny is Stifling America." He wrote the forthcoming book "Regulators Gone Wild: How the EPA is Ruining American Industry" (Encounter Books).

Fed report shows Delaware trailing its neighbors

The economy's getting better in Delaware, but still can't seem to gain as much momentum as its neighbors, according to a new report by the Federal Reserve Bank of Philadelphia.

The state's "coincident index," a measure of current conditions, rose 0.4 percent in April, and now stands at 140.1, well below indexes elsewhere in the region. "Payroll employment increased, while the unemployment rate decreased" in Delaware, the report said. "Average hours worked in manufacturing were relatively flat. Overall, Delaware's economic activity as measured by the coincident index has risen 2.1 percent over the past 12 months."

Nearby Pennsylvania's index rose 0.6 percent to 144, and has jumped 5 percent in the past year. New Jersey was up 0.2 percent to 148.3, rising 1.4 percent in a year.

Nationwide, the index stands at 153.5. The index measures nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index.

http://www.delawareonline.com/apps/pbcs.dll/article?AID=/201105260345/BUSINESS/105260323

Job creation limps along after recession

Nearly two years after the economic recovery officially began, job creation continues to stagger at the slowest post-recession rate since the Great Depression.

The nation has 5% fewer jobs today — a loss of 7 million — than it did when the recession began in December 2007. That is by far the worst performance of job generation following any of the dozen recessions since the 1930s.

In the past, the economy recovered lost jobs 13 months on average after a recession. If this were a typical recovery, nearly 10 million more people would be working today than when the recession officially ended in June 2009.

"There's still a lot of uncertainty about the economic recovery, and many companies that would like to hire are reluctant to do so because they're not confident sales will pick up and remain strong," says Jerry Conover, director of the Indiana Business Research Center.
This unique recession has been particularly unfriendly to job-seekers, experts say. "There was too much employment in housing, and that isn't coming back — and frankly shouldn't come back," says Amar Bhide, a Tufts University professor.
The housing collapse and productivity gains on the factory floor have made it hard for the economy to absorb workers without a college degree and young people generally, says Carl Camden, president of Kelly Services, a global staffing firm. Manufacturers are producing more value than ever in the USA with a fraction of the workers needed before, he says.

How the recovery is reshaping employment:

•Winners. Health care added 449,000 jobs during the 18-month downturn and 483,000 jobs in the 22 months since.

•Losers. Construction lost 2 million jobs — 1.6 million during the recession and 400,000 during the recovery.

•Biggest swing. Auto manufacturing, saved by a government bailout, had the biggest turnaround, from a 35% job loss in the recession to a 6% gain after it ended. That means 332,000 jobs lost, followed by 42,000 recovered.

Read original article here

US Worse Off Financially Than Euro Nations: Walker

The U.S. is facing a serious debt and over-spending problem. Short of drastic measures we can't really imagine at the moment, the U.S. and world are facing incredible financial challenges that will affect all of us.


The US is spending $4 billion a day more than it is taking in, putting the country on an unsustainable fiscal path perpetuated by both Democrats and Republicans, according to David Walker, head of the Comeback America Initiative.

Solving America's problems will require a combination weighted toward spending reductions but one that also will require spreading the taxation burden around more evenly, said Walker, the former US comptroller general.

"We're not growing enough and we're not going to grow our way out of this problem," he said in a CNBC interview. "We would have to have double-digit real GDP growth for decades to grow our way out of this hole."

Walker's organization promotes fiscal stability and is warning that the US is trailing many other developed nations in terms of getting its fiscal policies in order. Comeback America is a conservative think tank funded mostly through a grant from the Peter G. Peterson Foundation, named for the founder the Blackstone Group private equity firm.

In fact, according to an index that Comeback America developed, the US is in worse shape from a fiscal standpoint than debt-plagued nations such as Italy or Spain, he said.

With the nation hitting its $14.294 trillion debt ceiling and in need of an extension, Congress is debating the proper mix of tax increases and spending cuts so that the US does not end up like weaker euro zone nations such as Greece, Spain and Portugal that are in danger of debt defaults.

Walker leans more towards the spending-cut side, but also sees inequities in the tax structure that must be corrected to help generate revenue.

"We have to broaden the base—51 percent of Americans don't have any income taxes," he said. "That's not acceptable in a democracy."

The richest Americans are paying just 18 percent income tax rates even while the top marginal rate is supposed to be 35 percent, he said.

Straightening out the imbalances will be a tough choice for politicians and, Walker said, will be an integral part of next year's presidential campaign.

"The 2012 election is going to have to be about what's the proper role for government," he said. "How are we going to solve our financial problems?"

Read original article here

As Currency Rally Ends, a Search for Least Ugly

The best-performing currencies of 2011 are falling out of favor as the Federal Reserve plans its exit from record monetary stimulus just as the global economy shows signs of slowing, buffeting commodities and stocks.

A basket of nine currencies including Australia’s dollar and the Norwegian krone has dropped 4.2 percent in May against the U.S. dollar, after rising 7.3 percent in the first four months of 2011, according to data compiled by Bloomberg. Demand for contracts insuring against a drop in the euro versus the greenback are trading at about the highest levels of 2011.

The depreciation shows investors are downgrading their estimates of global economic growth. The Fed is scheduled to stop purchasing Treasuries in June, reducing its injections of money into the U.S. financial system. Japan entered a recession in the first quarter and Europe’s debt crisis is deepening. A drop this month wiped out all the gains since mid-March in the Standard & Poor’s GSCI Index of 24 commodities and sent the MSCI World Index of stocks down 4.3 percent after dividends.

“The market is just getting cognizant of this concern that a lot of the pricing on equities, commodities and currencies is dependent on growth being as robust as has been expected,” said Steven Englander, the head of Group of 10 foreign-exchange strategy at Citigroup Inc. in New York. “There is more of a question mark surrounding that now than there was last month.”

Lowering Estimates

Barclays Plc, the U.K.’s third-largest bank, forecasts the global economy will expand 4.1 percent this year, down from 4.9 percent in 2010, the London-based firm said in a report last week. Morgan Stanley, one of 20 primary dealers of U.S. government securities that trade with the Fed, said in a May 18 report growth will slow to 4.2 percent.

One of the biggest beneficiaries of the flight to safety has been the dollar, which has risen against all 16 of its most- traded counterparts in May after falling against each one except the yen in the first four months of the year.

“The chance of a further bounce in the dollar is quite strong,” said Ken Dickson, investment director of currencies in Edinburgh at Standard Life Investments, which oversees $250 billion. “The currencies that appear to be unloved by the market are also undervalued.”

Relative Value

Currencies of commodity-exporting countries dominate the list of the most expensive against the dollar, according to the Organization for Economic Cooperation and Development’s purchasing power gauge. Norway’s krone is 39 percent overvalued against the dollar, the most after Switzerland’s franc. Australia’s dollar is third at 38 percent and the euro is 12 percent above fair value.

IntercontinentalExchange Inc.’s U.S. Dollar Index, which measures the greenback against six trading partners, slipped 0.43 percent last week to 75.435, and was at 76.306 as of 11 a.m. in London. The dollar fell 0.3 percent against the euro to $1.4161 and rose 1.11 percent against the yen to 81.70 in the five-day period, spurred by news that the Japanese economy slipped into its third recession in a decade. The U.S. currency strengthened 1.2 percent to $1.3996 per euro today, and fetched 81.69 yen.

The rebound in the dollar may prove short-lived as the Fed maintains its benchmark interest rate at a record low of zero to 0.25 percent, diminishing the allure of U.S. financial assets.

Treasuries due in one to three years yield 1.02 percentage points less on average than government debt with similar maturities in the rest of the world, Bank of America Merrill Lynch indexes show. In March of 2010, Treasuries yielded 0.03 percent more than debt in the rest of the world.

‘Awash in Money’

Investors outside the U.S. bought a net $26.8 billion of U.S. government debt in March, the least since October, the Treasury Department said May 16.

The central bank will continue to invest the proceeds of maturing securities back into the bond market, meaning “the economy and the banking system in particular will remain awash in money,” said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments LLC, which manages $700 million in mutual funds that specialize in currencies.

“There’s a lot of potential stimulus available and that’s not going to change,” said Merk. The Merk Hard Currency Fund (MERKX) has returned 4.15 percent this year, beating 91 percent of its peers, Bloomberg data show.

Minutes from the Fed’s April 27 meeting, released last week, showed a majority of policy makers preferred to reverse record stimulus by ending reinvestment of asset proceeds before raising rates. Talks over the exit strategy don’t mean tightening “would necessarily begin soon,” the minutes said.

‘Ducks in Order’

“The minutes showed that while there are no imminent tightening plans in terms of timing, the officials were obviously talking about exit strategies,” Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “They’re starting to get their ducks in order. We are looking for a bit of a bounce in the dollar.”

Commodity, stock and bond markets are all flagging increased concern that the global economy will weaken.

The Standard & Poor’s GSCI Index of 24 raw materials has fallen 11 percent this month, after surging 20 percent in the first four months of 2011. The MSCI World (MXWO) Index of stocks gained 9.43 percent from the end of December through April.

Government debt yields have fallen to 2.27 percent on average from this year’s high of 2.51 percent on April 8, Bank of America Merrill Lynch’s Global Sovereign Broad Market Plus Index shows.

Japan Recession

In addition to the end of the Fed’s bond purchases, Japan said last week that its gross domestic product contracted an annualized 3.7 percent in the first quarter as the March 11 earthquake and tsunami disrupted production and prompted consumers to cut back spending.

In Europe, austerity measures enacted by debt-laden nations from Greece to Portugal mean the euro-region’s economy will expand less than 2 percent this year and 1.6 percent in 2012, according to the median estimate of at least 29 analysts surveyed by Bloomberg News.

S&P reduced its outlook on Italy’s A+ sovereign debt rating on May 20 to “negative” from “stable,” saying “potential political gridlock” means the prospects for reducing the government debt have diminished.

Demand for contracts insuring against depreciation in the euro have risen as measured by the so-called risk reversal rate for one-month options on the euro versus the dollar.

Biggest Loser

The rate rose to a 1.78 percentage-point premium in favor of puts granting the right to sell the euro over calls giving the right to buy, the highest level since December. The comparable dollar-krone rate reached 1.95 last week, a level not seen since July.

The biggest loser in the foreign-exchange market this month among the 16 most-traded currency pairs has been the Norwegian krone, which has depreciated 6.5 percent. The drop follows a 10.9 percent gain in the first four months.

South Africa’s rand has lost 6.2 percent, following a gain of 0.92 percent. The euro is down 5.4 percent, after rallying 10.6 percent. Sweden’s krona is 5.1 percent weaker, compared with an 11.1 percent gain in the January through April period.

The exit from higher-risk assets may best be seen in the so-called carry trade, where traders borrow in currencies of nations with low interest rates and use the money to buy currencies of economies with higher yields, such as Australia.

The strategy has lost 2.1 percent in May, after gaining in the three prior months, as investors reversed bets on signs the economy is slowing amid the slump in commodity and stock prices, according to an index compiled by UBS. Australia’s dollar has weakened 4.1 percent, after appreciating 7.21 percent in the first four months.

“We are at the end of the road for risk,” John Taylor, chairman of New York-based FX Concepts LLC, which runs the world’s largest currency-hedge fund, said in a May 12 telephone interview. “This is the end of the nice slow moving risk rally that has lulled us pleasantly to sleep since the first half of 2009.”

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The South Rises Again?

The latest data from the U.S. Bureau of Economic Analysis shows that the south is rising again in Delaware. Due to more restrictive land use regulations in New Castle County (NCC) and the migration of retirees into Sussex County, the past 20 years has seen NCC's share of the state's population fall from 67% to 60% as Sussex's share rose from 17% to 22%. These population changes have shifted the locus of economic action in the state...

Click here to read the entire article

Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis
Caesar Rodney Institute

Is the Strategic Fund Strategic?

Over the past 10 fiscal years the Delaware Economic Development Office's Delaware Strategic Fund has awarded over $201 million to firms and organizations in Delaware. Over $126 million of the awards have been outright grants, while $38 million has been in the form of loans, almost $34 million in convertible loans, and the remainder in preventure and equity funding. Has there been a logic to this largess?

The answer is mixed...

...Recent data shows that last year across the U.S. state and local governments gave $70 billion to private firms and organizations in the form of grants, loans, and subsidies. While there are anecdotes about successful state coups landing large firms, there is no professional research literature evidence that these give always benefit state and local economies over time.

At the very least, there should be a coherent logic behind Delaware's Strategic Fund largess and there should be due diligence regarding subsequent compliance.

See link below to read complete article:

Complete Article


Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis
Caesar Rodney Institute

Delaware Unemployment Rate

http://www.google.com/publicdata?ds=usunemployment&met=unemployment_rate&idim=state:ST100000&dl=en&hl=en&q=delaware+unemployment

NASA-Funded Group Doctors Sea Level Data

Catastrophic sea level rise is one of the most valued hole cards played by alarmists in the global warming debate. In An Inconvenient Truth, Al Gore showed computer generated images of what Manhattan would look like if sea level rose 20 feet. Building on this theme, elevation charts of coastal cities have become a staple in global warming presentations by Al Gore wannabes. But what happens when sea level in the real world does not rise nearly as much as alarmists predict? If you are a NASA-funded gatekeeper of sea level data, you merely doctor the data.

Faced with the embarrassing fact that sea level is not rising nearly as much as has been predicted, the University of Colorado’s NASA-funded Sea Level Research Group has announced it will begin adding a nonexistent 0.3 millimeters per year to its Global Mean Sea Level Time Series. As a result, alarmists will be able to present sea level charts asserting an accelerating rise in sea level that is not occurring in the real world.

Human civilization readily adapted to the seven inches of sea level rise that occurred during the twentieth century. Alarmists, however, claim global warming will cause sea level to rise much more rapidly during the present century. United Nations Intergovernmental Panel on Climate Change (IPCC) computer models project approximately 15 inches of sea level rise during the 21st century. That’s more than double the sea level rise that occurred during the twentieth century. A more “mainstream” prediction among alarmists is 3 feet of sea level rise this century. Some alarmists have even projected 20 feet of global sea level rise this century.

Satellite measurements, however, show global sea level rose merely 0.83 inches during the first decade of the 21st century (a pace of just 8 inches for the entire century), and has barely risen at all since 2006. This puts alarmists in the embarrassing position of defending predictions that are not coming true in the real world.

The University of Colorado Sea Level Research Group is coming to their rescue. The NASA-funded group claims glacial melt is removing weight that had been pressing down on land masses, which in turn is causing land mass to rise. This welcome news mitigates sea-level rise from melting glacial ice, meaning sea level will rise less than previously thought. However, it is very inconvenient for alarmist sea level predictions. Therefore, instead of reporting the amount by which sea level is rising in the real world, the Sea Level Research Group has begun adding 0.3 millimeters per year of fictitious sea level rise to “compensate” for rising land mass.

The extra 0.3 millimeters of fictitious sea level rise will add up to 1.2 inches over the course of the 21^st century. While this is not monumental in and of itself, it will allow alarmists to paint a dramatically different picture of sea level rise than is occurring in the real world. For example, the current pace of 8 inches of sea level rise for the present century is essentially no different than the 7 inches of sea level rise that occurred last century. However, with an artificially enhanced 9.2 inches of sea level rise, alarmists can claim sea level is rising 31 percent faster than it did last century.

Even under this scenario, sea level is not rising nearly as fast as IPCC and other alarmists have predicted. Nevertheless, a quick Google search of “sea level” and “global warming” shows an overwhelming number of items claiming dramatic and accelerating sea level rise, with very few items reporting that alarmist predictions and computer models are being contradicted by real-world data. The newly adjusted NASA-funded sea level data will merely add fuel to the errant fire.

http://blogs.forbes.com/jamestaylor/2011/05/11/nasa-funded-group-doctors-sea-level-data/

Social Security deficits now ‘permanent’

Social Security will run a permanent yearly deficit when looking at the program’s tax revenues compared to what it must pay out in benefits, the program’s trustees said Friday in a report that found both the outlook for Social Security and Medicare, the two major federal social safety-net programs, have worsened over the last year.

Medicare’s hospital insurance trust fund is now slated to run out of money in 2024, or five years earlier than last year’s projection, while Social Security’s trust fund will be exhausted by 2036, a year earlier than the prior projection.

The trustees stressed that exhaustion of the trust funds doesn’t mean the programs will stop paying all benefits. Social Security could fund about three-fourths of benefits past 2036, and Medicare could pay 90 percent of benefits past 2024 under current trends.

The figures come as Congress and President Obama are wrestling over whether to make major changes to the entitlement spending, and Republicans said the new projections should force the debate to turn in their direction.

“Today’s report makes it clearer than ever that doing nothing is not an option. The failure to act means current as well as future beneficiaries, will face significant cuts even sooner than previously estimated,” said three top House Republicans on the Ways and Means Committee, which oversees both programs.

Treasury Secretary Timothy Geithner, the managing trustee of the boards of trustees for the two programs, said the report shows the need to act “sooner rather than later,” but said Mr. Obama has actually put forward an outline calling for changes to stabilize the finances for the major entitlements programs.

And Health and Human Services Secretary Kathleen Sebelius argued that Medicare would have been in worse shape without the new health care law Democrats passed last year, which reduced billions of dollars of Medicare payments.

Social Security began running an annual deficit in 2010 when looking at tax income and benefit payments. The gap right now is made up by payments from the trust fund, which in theory has built up over the years when the program ran an annual surplus.

Charles Blahous, one of the trustees, said the gap between tax revenues and benefit payments is now “a permanent feature of the program’s finances going forward.”

Still, Michael Astrue, the Social Security Administration’s commissioner, said the gap was not a major issue compared with the broad size and scope of Social Security.

“It is a rounding error in terms of its significance, in my opinion,” he said.

http://www.washingtontimes.com/news/2011/may/13/social-security-deficits-now-permanent-feature/?sms_ss=email&at_xt=4dcdfc876992c968%2C0

Medicare, Social Security Funds Expiring Sooner, U.S. Says

May 13 (Bloomberg) -- Medicare, the U.S. health insurance program for the elderly and disabled, and the Social Security trust for the disabled and retirees are running out of money sooner than the government had projected.

While Medicare won’t have sufficient funds to pay full benefits starting in 2024, five years earlier than last year’s estimate, Social Security’s cash to pay full benefits runs short in 2036, a year sooner than the 2010 projection, the U.S. government said today in an annual report.

Both forecasts were affected by a slower-than-anticipated economic recovery, the government said. The estimates for funding add urgency to talks between Democrats and Republicans on ways to cut spending to reduce the U.S. budget deficit.

“Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative corrections if disruptive consequences for beneficiaries and taxpayers are to be avoided,” according to the report summary.

The 2010 health-care overhaul backed by Democrats extended the life of Medicare, though a greater effort is needed to shore up the program’s long-term funding, Treasury Secretary Timothy Geithner said in a statement distributed with the report.

“If we do not do more to contain health-care costs, our commitments will become unsustainable,” said Geithner, managing trustee of Medicare and Social Security, in the statement.

Debt-Limit Deal

When Medicare and Social Security funds run short, they will pay less in benefits rather than stop paying entirely. Social Security would have to cut payments by 23 percent, while Medicare would reduce by 10 percent what it pays hospitals and other inpatient care providers.

Congress is debating potentially sweeping changes in the federal budget as part of a deal to raise the government’s $14.3 trillion debt limit, which the Treasury Department said will be needed by Aug. 2.

Two groups of lawmakers have held private meetings to negotiate a deficit-reduction plan while President Barack Obama met yesterday with Senate Republicans, a day after meeting with their Democratic counterparts.

Republicans demanding that the U.S. cut its budget deficit have proposed privatizing Medicare by giving individuals a subsidy to buy coverage from private insurers. Lawmakers such as House Budget Committee Chairman Paul Ryan, Republican of Wisconsin, said today’s forecasts were justification for action.

“Leadership is required from both sides to ensure that Medicare and Social Security are saved for current seniors and strengthened to meet the need of future generations,” he said.

Time To Respond

Democrats, who have resisted changes to Social Security, said the trustees’ analysis shows there’s time to respond.

“The current situation does not necessitate rushed or severe action,” said Senate Finance Committee Chairman Max Baucus, Democrat of Montana. “We must continue to protect the Social Security benefits our seniors count on.”

The Social Security trust fund that finances aid to about 10 million disabled Americans and their dependents will be the first to dry up, with funding scheduled to run out in 2018, according to the trustees.

The fund, when combined with a separate and much larger trust fund paying benefits to seniors, has enough money to stay solvent until 2036.

The new projections partly roll back last year’s trustees analysis, which credited the 2010 health care overhaul with expanding the life of the Medicare trust fund by 12 years.

Spending Law

Social Security law requires program spending to match revenue, so a lack of action by lawmakers by that time will mean benefits will have to be cut 23 percent -- or the Social Security payroll tax increased to 16 percent, or a combination, the report said. Congress has never allowed the program’s two trust funds to be depleted.

Medicare, to stay solvent for the next 75 years, would have to immediately raise payroll taxes by 24 percent, or cut current benefit payments by 17 percent, Cori Uccello, a senior health fellow with the American Academy of Actuaries in Washington, said in a phone interview.

The longer the U.S. waits to address the coming shortages in Medicare and Social Security, the more painful it may be, said Uccello. A U.S. delay in extending Medicare’s fiscal life may force cuts for current beneficiaries rather than diminishing them for people who enter the program several years from now.

http://www.businessweek.com/news/2011-05-13/medicare-social-security-funds-expiring-sooner-u-s-says.html

Housing crash is getting worse

If you thought the housing crisis was bad, think again.

It’s worse.

New data just out from Zillow, the real-estate information company, show house prices are falling at their fastest rate since the Lehman collapse.

Average home prices are down 8% from a year ago, 3% over the quarter, and are falling at about 1% every month, according to Zillow.

And the percentage of homeowners in negative-equity positions — with a home worth less than its mortgage — has rocketed to 28%, a new crisis high.

Zillow now predicts prices will fall about 8% this year and says it no longer expects the market to bottom before 2012.

“There’s no way we can get to flat, from these depreciation levels, in the last nine months of the year,” says Zillow economist Stan Humphries. “Demand is a lot more anemic than we had previously thought.”

When in 2012 does Zillow see the market bottoming out? Humphries won’t say.

What a foolish boondoggle those tax breaks for home buyers have turned out to be. The government spent an estimated $22 billion between 2008 and 2010 on tax breaks to prop up the housing market. All it achieved was a brief suckers’ rally that ended last summer.

“As we said at the time, it was a giant waste of money,” says Mark Calabria, economist at the conservative Cato Institute. “None of these things really turned the housing market around. They just put off the adjustment for awhile.”

It’s hard to overestimate the scale of the carnage in the housing market. Zillow found prices fell in all but four U.S. metro areas.

Falling real-estate prices mean spiraling hidden losses throughout the economy, from banks to homeowners.

Remember Japan’s “zombie banks”? These were the financial institutions that haunted that country’s economic recovery after the 1990 crash. They staggered on with huge losses they could never repay — the walking dead.

Here in America we have “zombie homeowners.” Millions of them. According to Zillow, a record 16.3 million families are upside-down on their home loans. Sixteen million! And many are a long way upside-down. Their homes may never be worth as much as their mortgage. But they are hemorrhaging cash to pay the nut every month.

Recovery? What recovery? This looks a bit like a depression to me.

What does this mean?

All the misery makes me think of a great French general, Ferdinand Foch. He’s the one who defended Paris at the Battle of the Marne in World War I. During the darkest hour of the fighting, he is supposed to have looked around him and said:

“Hard pressed on my right. My center is yielding. Impossible to maneuver. Situation excellent — I attack!”

In other words, when it comes to distressed housing, I’m finding it hard not to be a contrarian bull.

Why? Am I crazy?

Well, maybe. But I’m a medium-bull for all the reasons everyone else is gloomy.

First, prices in many areas are now cheap. They have corrected a long way since the bubble began to burst five years ago. Of course, it depends on where you are. I’m still skeptical of the real-estate markets that have held up best — prime stuff like Manhattan, San Francisco or Beverly Hills. It’s hard to get a deal there.

But in the places that have fallen the furthest, there are deals aplenty. Zillow found only four metro areas in America that have leveled out, or risen, lately. Notably, two of those are in stricken Florida — Fort Myers and Sarasota. Have they fallen so far they’ve hit bottom? Maybe.

Look at this chart. It shows Miami real-estate prices, adjusted for inflation, over the past quarter-century, using Case-Shiller data. The picture is pretty remarkable. The gigantic bubble has been completely wiped out. We’re back to prices seen in the 1980s — when “Miami Vice” was on the air.

The second reason: There are tons of foreclosures and short sales on the market. And there are plenty more sitting in the wings. Banks are holding back big shadow inventories of homes. And that means you can get a great deal. They have to sell. You don’t have to buy. You hold all the cards. Remember, the name of the game isn’t “let’s make a deal.” It’s “take it or leave it.”

Third, in many places rental yields are terrific. It’s cheaper to own than to rent. There have been some forced sales in my building in Miami. Based on my math, the latest buyers have bought condominium units for six times gross annual rents, and maybe 12 times net rents. We’re talking net yields of 7% or more. And rents are rising, because so many former owners are now renters.

The fourth reason I’m bullish is that you can get a very cheap mortgage. Thirty-year conforming loans are going as low as 4.3%. Throw in the tax break on the interest, and you are talking cheap finance. See latest weekly mortgage-rate update.

The fifth reason is that, as painful as this collapse has been, real estate has historically proven to offer very good long-term protection against inflation. Returns have typically averaged about 1% or 2% above inflation. At a time when everyone has been piling into gold, commodities and TIPS bonds to protect themselves against the possibility of inflation, it seems odd that the most popular and successful hedge, namely real estate, goes a-begging.

Thirty-year TIPS bonds are yielding just 1.6% over inflation, and shorter-term bonds offer even lower returns. Short-term TIPS are actually offering negative real yields. How holding TIPS may actually make you poorer.

The sixth reason I’m bullish is perverse, but I’m sticking by it. Everyone else is bearish. You cannot find a real-estate bull anywhere. No one wants to own this asset. No one wants to talk about it. No one wants to hear about it. Everyone seems to agree it’s just going down, down, down — forever.

They said much the same about stocks in 1987, 2002 and 2009; Treasury bonds in 1982; and gold in 2000. I cannot prove this is capitulation, but it sure smells something like it.

As ever, if you aren’t disciplined and patient, this probably isn’t for you.

I have absolutely no idea when real estate is going to hit rock bottom. It may take several years. I suspect it will do so in different markets at different times. But there are good homes out there going really cheap. If you hunt down the bargains, you’re disciplined about price, you get the right financing, and you hold on for five years or more, you’ll probably do pretty well from here.

http://www.marketwatch.com/story/housing-crash-is-getting-worse-2011-05-09?pagenumber=2

Irish Bombshell: Government Raids PRIVATE Pensions To Pay For Spending

The Irish government plans to institute a tax on private pensions to drive jobs growth, according to its jobs program strategy, delivered today.

Without the ability sell debt due to soaring interest rates, and with severe spending rules in place due to its EU-IMF bailout, Ireland has few ways of spending to stimulate the economy. Today's jobs program includes specific tax increases, including the tax on pensions, aimed at keeping government jobs spending from adding to the national debt.

The tax on private pensions will be 0.6%, and last for four years, according to the report.

From the jobs initiative release:

The various tax reduction and additional expenditure measures which I am announcing today will be funded by way of a temporary levy on funded pension schemes and personal pension plans. I propose that the levy will apply at a rate of 0.6% to the capital value of assets under management in pension funds established in the State.

It will apply for a period of 4 years commencing this year and is intended to raise about €470 million in each of those years. The levy will not apply to pension funds established here and providing services and benefits solely to non-resident employers and members. Further details regarding the proposed application of the levy are set out in the Summary of Initiative Measures.

Ireland's ability to levy further taxes on other parts of the economy is restricted because its economic growth has been inhibited in the wake of a financial crisis that crippled its banking sector and decimated its public finances.

Unwilling to budge on the country's low corporate tax rate, Enda Kenny's Irish government has chosen to target pensioners for funds to grow the economy. Whether it turns out to be an example to other countries seeking alternative ways to raise revenues with aging populations is yet unknown.

Read more: http://www.businessinsider.com/irish-bombshell-government-raids-private-pensions-to-pay-for-jobs-program-2011-5#ixzz1MWQeTh8I

New Yorkers under 30 plan to flee city, says new poll; cite high taxes, few jobs as reasons

ALBANY - Escape from New York is not just a movie - it's also a state of mind.

A new Marist College poll shows that 36% of New Yorkers under the age of 30 are planning to leave New York within the next five years - and more than a quarter of all adults are planning to bolt the Empire State.

The New York City suburbs, with their high property values and taxes, are leading the exodus, the poll found.

Of those preparing to leave, 62% cite economic reasons like cost of living, taxes - and a lack of jobs.

"A lot of people are questioning the affordability of the state," said Lee Miringoff, director of the Marist College Institute for Public Opinion.

An additional 38% cite climate, quality of life, overcrowding, a desire to be closer to family, retirement or schools.

The latest census showed New York's overall population actually increased, though parts of upstate shed population and jobs.

A full 53% think the worst is yet to come for the state's economy, while 44% say things should start improving.

"As the state of the economy fails to recover, New Yorkers see this not as a sluggish rebound, but as a sluggish economy," Miringoff said.

During a visit to Buffalo yesterday, Gov. Cuomo yesterday said attracting and retaining jobs is a priority for his administration.

"We have to keep jobs here and we have to develop new jobs," he said. "And we want to start bringing back jobs from other parts of the country."

Read more: http://www.nydailynews.com/ny_local/2011/05/13/2011-05-13_new_yorkers_under_30_plan_to_flee_city_says_new_poll_cite_high_taxes_few_jobs_as.html#ixzz1MWNlUW50

QE2 and the Fate of the U.S. Economy

Read it and weep...

By David Galland

In the last few weeks, I've become particularly attentive to the intentions of Fed policy makers following the scheduled June end date for QE2.

This is no small matter; an actual shift in Fed policy as opposed to the smoke and mirrors sort could temporarily play havoc on equities and commodities markets alike. How could it be otherwise, when under QE2 the Fed has been writing checks to the Treasury in amounts of upwards of $100 billion a month since last November?

As a point of reference, at the end of April 2007, the monetary base of the U.S. was $822 billion. At the end of April 2011, it will be $2.5 trillion, a three-fold increase. Call it what you want, quantitative easing, stimulus, political payola, madness, but monetary inflation is the correct term. And monetary inflation on this scale invariably leads to price inflation on a similar scale.

It is this money, steadily ginned out of thin air, that provides the fuel to keep the spendthrifts in Washington spending and props up the wounded economy.

It is also this money that sends equities and commodities soaring as investors look for higher returns and things more tangible to hold ahead of the rising inflation.

Removing the stimulus, therefore, will almost certainly have consequences.

Yet, because the politicos and their pets at the Fed have taken things so far beyond the pale at this point, so would a decision to keep the monetary pedal to the metal past June. As you can see in the chart below, technically speaking, the dollar is breaking down.

This steep downward slope of the dollar's trend line over the last year begs for the Fed to attempt something to slow the dollar's descent. Were they to signal a continuation of the same level of monetization now underway, past June, can anyone doubt that the dollar's steep fall would only worsen, risking even collapse?

To my way of thinking, therefore, the logical starting point is for them to let QE2 expire in June, as planned, in order to show the world some monetary spine.

That is not to say that the Fed will leave its seat empty at Treasury auctions post-June various members of the inscrutable institution have already made clear the intent to continue reinvesting the proceeds of maturing securities in the Fed's portfolio back into Treasuries. Yet, even with that ongoing action resulting in Treasury purchases to the tune of $17 billion a month the net result will still be a monthly gap on the order of $80 billion.

All Eyes on Interest Rates

The dialing back of the Fed's monetary machinations increases the possibility that interest rates will need to rise in order to attract buyers in sufficient quantities to fill the gap. And if there's one thing we know, it is that rising interest rates would be devastating to an empire of debt such as the United States circa here and now.

One typically doesn't like to see the empire in which one lives crumble into lesser states, as that is usually accompanied by a flagging quality of life and social unrest. Though there is bupkis that I, or any of us, can actually do at this point to rearrange things on the larger stage it does behoove us to look after ourselves. Which, in the current case, requires a quick detour on the nature of interest rates.

We humans don't really like change. And so we tend to embrace scenarios involving only gradual change the soft sort that are easily coped with, with small and measured adjustments to the riggings.

The risk in such a passive perspective can be seen in the chart here showing the benchmark 10-Year U.S. Treasury rates from 1945 to 2010. While it is worth noting that over that entire 65-year period rates have never been lower than they are just now, a clear sign that today's low, low rates are anomalous and doubly so given the amount of outstanding debt my primary purpose for presenting this chart is to narrow your focus to the period between 1975 and 1977.

As you can see, in 1975 a period associated with a temporary calm before heading into a final inflationary blow-off interest rates were actually on the decline and had fallen below the levels of 1970. Then, in the blink of the proverbial eye, 10-year rates started accelerating upwards, moving from just over 6% to over 15%, driven by the raging inflation and, in time, a Fed policy shift designed to crush that inflation. While rates subsequently peaked and began to ease, in fits and starts, it took a full decade before they returned to the 1975 level.

Unfortunately, the situation today is worse, which is saying something. As you can see from the next chart here, in 1977, U.S. federal debt was a third of where it is today as percentage of GDP, and this doesn't reflect the coming ramp-up of trillions of dollars in additional debt that is now baked into the federal government's spending plans.

Should we see a similar spike in interest rates to, say, 15%, it would create a black hole that wouldn't just suck in all the government's revenues, but pretty much the entire economy. This is a very real risk.

But back to the Fed and the crossroads it is soon arriving at. In the absence of any substantial reduction in government spending a reduction on a scale that isn't even being whispered about in the halls of power the Fed is damned if it dials back its monetization (jacking up the potential for rising interest rates), or if it doesn't (dooming the dollar and in time triggering higher interest rates as well).

The politicians and their friends down at the Fed can pretend, as they do, that the overhang on the economy of some $14 trillion in debt, and another $50 trillion or so in longer-term entitlements, is much ado about nothing. This view of theirs is confirmed by the current budget discussions that talk of slashing $4 trillion out of federal spending over the next 12 years but ignore that this slashing still anticipates annual deficits on the order of $1 trillion. There are facts and fictions in this universe of ours, and it's a fact that the notion of spending our way to better days is a fiction.

And so, in my mind, there is no question that the Fed will ultimately be forced to unleash QE3, and that will be followed by QE4, QE5 and so on through QE15 or whatever number is in force at the time of the dollar's collapse.

In the meantime, though, given the current ill health of the dollar, I remain convinced that the Fed will pause in its blunt-force monetization, come June. And that is likely to provide a shot in the arm for the dollar versus the equivalent of a shot in the head to the dollar, should they reverse themselves and attempt to continue monetizing at the same elevated levels, past June. Among other consequences, a rising dollar could spell trouble for overheated commodities, at least over the short term.

The big unknown, of course, is what will happen to U.S. Treasury rates. And for reasons discussed a moment ago, this is a really important unknown. We shouldn't have to wait overly long for some answers. But while we wait, a few scenarios to ponder:

• Best Case: For a time, post-June the Fed becomes a relatively less important player at the Treasury auctions, buying about $17 billion in Treasuries, vs. the $100 billion or so they are buying now, and the market responds favorably to the policy shift. The gap left by the Fed is filled in by institutions, and by friendly governments, looking to roll back their diversification into the euro and the yen given the poor outlook for both. For a while Treasury rates remain relatively stable. And that encourages the U.S. government to continue spending willy-nilly and keeps the party for equities continuing for awhile longer, albeit with the participants on edge and watching the exits for any movement.
  
  A rebound in the dollar, one result of an inflow of renewed foreign buying, would hit the commodities, causing them to underperform until it becomes obvious to all down the road that the Fed will have to once again begin monetizing.
  
• Medium Case: Post-June, participation at the Treasury auctions weakens, but not disastrously. Rates rise, but also not disastrously. The economy teeters on the edge, but doesn't fall. Neither does the dollar rise overly much, and something akin to a twitchy status quo continues as people wait for the other shoe to drop, as it inevitably must given that the overarching problem of sovereign and household debt has not been resolved. Volatility in equities and commodities increases, but there is no sustained move one way or the other. Yet.
  
• Worst Case: Post-June, auction participation falls significantly, and interest rates begin to accelerate to the upside, sending equities markets into a tailspin, dragging commodities down with them. The Fed quickly reverses course and begins writing the big checks to the Treasury, stabilizing interest rates but sending shock waves through FX markets as the dollar hits the floor and discovers the floor is made of glass.
  
  The precious metals and other commodities soar. With nowhere else to run, investors begin bargain shopping for fallen equities which are linked to tangible businesses, after all and they bounce relatively quickly as well. Meanwhile, as the dollar collapses, the cost of everything begins to soar, crushing the unprepared and triggering real hardship. Unable to push interest rates higher to head off the price inflation, the Fed heads retreat to a hidden bunker and begin looking for friendly countries willing to give them sanctuary.

Of course, no one can see the future but I think all three of those scenarios are likely to materialize in the relatively near future, one after the other from Best to Worst.

If I am right, then the way to play it is to expect a near-term rally in the dollar. While the U.S. dollar is toilet paper, it is of a better quality than the euro or the yen. Which is not to say that it doesn't deserve its ultimate fate the fate of all fiat currencies but rather that, as long as the Fed shows some restraint here, it may be able to stave off that fate a bit longer.

And that could put some serious pressure on commodity-related investments, especially the more thinly traded junior exploration stocks. The chart here shows the relative performance of the Toronto Stock Exchange Venture Index the index offering the best proxy for micro-cap resource stocks against the price of gold.

As you can see, there can be quite a divergence in the performance of these small stocks over the price of bullion. While gold's rise has been remarkably orderly, the rise in the stocks has occurred in fits and starts, with some breathtaking setbacks along the way. Of late, the stocks have had a substantial run-up, which again gives me pause. I think it is a fairly safe bet, therefore, that if gold were to correct 15% or so, the juniors would again go on sale.

In time, however, because interest rates are so low and the sovereign debt problems so acute, the worst-case scenario of rates spiking followed by the Fed quickly reversing course, is a certainty.

Which is to say that, in the now foreseeable future, all things tangible will do the equivalent of a moon shot.

Again, you have to make your own decision as to which scenario we are most likely to see. In my view, from a risk/reward perspective, as long as you have a core portfolio in precious metals and other tangibles (including energy), then selling some of your more speculative positions (you know the ones) to raise cash can make a lot of sense. That way you'd have the ready funds available to snap up the bargains that will be created during the Fed's brief attempt at slowing the dollar's current fall.

The way I figure it, at this point you can find all manner of analysis that will tell you it's all blue sky from here for the commodities. Thus, a cautionary note seems justified.

Be careful, at least for the next couple of months. If I'm right, then there is a helluva buying opportunity right around the corner.

[If David's right about what's coming next, then cashed-up investors will be positioned to capture some truly exceptional profit opportunities, maybe as soon as within the next month. Which makes this the perfect time to take advantage of the 3-month, 100% money-back-guaranteed, no-risk trial to the Casey International Speculator dedicated to well-managed junior gold and silver companies with triple-digit upside potential. More here.]

About 1 in 7 in U.S. Receive Food Stamps

Growth in the food stamp program appeared to reach a plateau in February — with 14.3% of the population relying on the safety net program.

The number of food stamp recipients was essentially flat in February, the most recent month available, with 44.2 million

Americans receiving benefits, according a new report from the U.S. Department of Agriculture. (See a sortable breakdown of the data here.)

The food stamp program ballooned during the recession as workers lost their jobs or saw their hours and income reduced. The rise in recipients has begun to flatten in recent months, which may mean that as the economy is improving fewer Americans are seeking to join the program. Enrollment in the program is still high though, with 11.6% more people tapping benefits in February than the same month a year earlier.

Food stamp numbers aren’t seasonally adjusted though, meaning a variety of factors could influence the monthly tallies and the program could grow again in coming months.

Mississippi and Oregon were among the states with the largest share of the population utilizing food stamps in February: At least one in five residents in each state were receiving benefits.

Wyoming had the lowest rate of recipients with just 6.6% of the state’s residents using food stamps.

http://blogs.wsj.com/economics/2011/05/03/about-1-in-7-americans-receive-food-stamps/?blog_id=8&post_id=13849

Doc holiday Behind the coming physician shortage

The doctor is not in.

The United States already faces a growing physician shortage. As our population ages, we require more and more intensive health care. At the same time, enrollment in medical schools has been essentially flat, meaning we are not producing new physicians at anywhere near the rate we need to. In fact, according to the American Association of Medical Colleges, we face a shortfall of more than 150,000 doctors over the next 15 years.

And it could get a whole lot worse.

The health reform bill signed into law last year is expected to significantly increase the number of Americans with health insurance or participating in the Medicaid program. Meanwhile, an aging population will increase participation in Medicare. This means a greater demand for physician services.

But at the same, the bill may drive physicians out of practice.

Existing government programs already reimburse physicians at rates that are often less than the actual cost of treating a patient. Estimates suggest that on average physicians are reimbursed at roughly 78% of costs under Medicare, and just 70% of costs under Medicaid. Physicians must either make up for this shortfall by shifting costs to those patients with insurance — meaning those of us with insurance pay more — or treat patients at a loss.

As a result, more and more physicians are choosing to opt-out of the system altogether. Roughly 13% of physicians will not accept Medicare patients today. Another 17% limit the number of Medicare patients they will see, a figure that rises to 31% among primary care physicians. The story is even worse in Medicaid, where as many as a third of doctors will not participate in the program.

Traditionally, most doctors have been willing to take some Medicare patients either out of altruism or as a “loss leader,” to reach other family members outside the Medicare program. Others try to get around Medicare’s low reimbursement rates by unbundling services or providing care not covered through the program. (Nearly 85% of seniors carry supplemental policies to cover these additional services). With many office and equipment costs fixed, even a low reimbursement patient may be better than no patient at all for some doctors. This is even more true for hospitals where Medicare patients may account for the majority of people they serve. And doctors can take some comfort in the fact that Medicare is pretty much guaranteed to pay and pay promptly. The same is not always true of private insurance.

But if reimbursements fall much more, the balance could be tipped.

The government’s own chief actuary says that reimbursement cuts could mean “reductions in access to care and/or the quality of care.” Once the cuts hit hospitals, they too will be in trouble. Medicare’s actuaries estimate that 15% of hospitals could close. Inner-city and rural hospitals would be hardest hit.

Nor is the pressure on reimbursement rates likely to be felt solely in government programs. The health care law contains a number of new regulations that are already driving up insurance premiums. The government is responding by cajoling and threatening insurers. If insurers find their ability to pass on cost increases limited, they too may begin to cut costs by cutting reimbursements.

For a lot of older physicians, retirement in Florida may begin to look like a very good option. Roughly 40% of doctors are age 55 or over. Are they really going to want to stick it out for a few more years if all they have to look forward to is more red tape (both government and insurance company) for less money? Those that remain are increasingly likely to join “concierge practices,” limiting the number of patients they see and refusing both government and private insurance.

And, at the same time, fewer young people are likely to decide that medicine is a good career. Remember, the average medical school graduate begins their career with more than $295,000 in debt.

A 2010 IBD/TPP Poll found that 45% of doctors would at least consider leaving their practices or taking early retirement as a result of the new health care law. And, an online survey by Sermo.com, a sort of Facebook for physicians, found that 26% of physicians in solo practices were considering closing. Of course, not every doctor who told these polls that he or she would consider leaving the field will actually do so. But if even a small portion depart, our access to medical care will suffer.

In fact, we have already seen the start of this process in Massachusetts, where Mitt Romney’s health care reforms were nearly identical to President Obama’s. Romney’s reforms increased the demand for health care but did nothing to expand the supply of physicians. In fact, by cracking down on insurance premiums, Massachusetts pushed insurers to reduce their payments to providers, making it less worthwhile for doctors to expand their practices. As a result, the average wait to get an appointment with a doctor grew from 33 days to over 55 days.

Promising universal health coverage is easy. But what does universal coverage mean if you can’t actually see a doctor?

http://www.nypost.com/p/news/opinion/opedcolumnists/doc_holiday_Nyb5JCHkWyejLq7dTjTs2J/0

The real story on gas prices

Two items leap out from this story. First, Exxon only makes 2 cents per gallon profit. Second, they're losing a lot of money in their U.S. operations. Could this be the hidden truth about many of our economic problems?

Here’s a simple fact of economics that’s getting everyone in Washington pretty excited this week: When prices increase for a commodity like oil, companies that produce and sell that commodity earn more money.

So, as we get ready to release our quarterly earnings on Thursday, here are a few things to consider when you see the inevitable headlines and sound bites about high gasoline prices and what to do about them. These facts probably won’t make anyone feel better about paying more for gasoline – and of course price increases can have a very real impact on family budgets – but I do think it’s important that we at least have an honest discussion about what’s behind recent energy price increases.

Less than 3 percent of ExxonMobil’s earnings are from U.S. gasoline sales

ExxonMobil’s earnings are from operations in more than 100 countries around the world. The part of the business that refines and sells gasoline and diesel in the United States represents less than 3 percent – or 3 cents on the dollar – of our total earnings. For every gallon of gasoline, diesel or finished products we manufactured and sold in the United States in the last three months of 2010, we earned a little more than 2 cents per gallon. That’s not a typo. Two cents.

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Wal-Mart: Our shoppers are 'running out of money'

NEW YORK (CNNMoney) -- Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday.

"We're seeing core consumers under a lot of pressure," Duke said at an event in New York. "There's no doubt that rising fuel prices are having an impact."

Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in.

Lately, they're "running out of money" at a faster clip, he said.

"Purchases are really dropping off by the end of the month even more than last year," Duke said. "This end-of-month [purchases] cycle is growing to be a concern.

Wal-Mart brings guns back

Wal-Mart (WMT, Fortune 500), which averages 140 million shoppers weekly to its stores in the United States, is considered a barometer of the health of the consumer and the economy.

To that end, Duke said he's not seeing signs of a recovery yet.

With food prices rising, Duke said Wal-Mart is charging customers more for some fresh groceries while reducing prices on other merchandise such as electronics.

Wal-Mart has struggled with seven straight quarters of sales declines in its stores.

Addressing that challenge, Duke said the company made mistakes by shrinking product variety and not being more aggressive on prices compared to its competitors.

Wal-Mart's ready to do battle on prices

"What's made Wal-Mart great over the decades is 'every day low prices' and our [product] assortment," he said. "We got away from it."

Now, with its strategy of low prices all the time back in place, Duke said making Wal-Mart a "one-stop shopping stop" is a critical response to dealing with the rising price of fuel.

Americans don't have the luxury of driving all over town to do their shopping.

0:00 /3:39Wal-Mart: green good for business

Other than competing on prices and products, Duke said Wal-Mart is focused on leveraging technology -- especially social networking -- more aggressively to drive sales.

"Social networking is much more a part of the purchasing decision," he said. "Consumers are communicating with each other on Facebook about how they spend their money and what they're buying."

Elsewhere, Duke said Wal-Mart is exploring a number of e-commerce initiatives to grow the business such as testing an online groceries delivery business in San Jose.

http://money.cnn.com/2011/04/27/news/companies/walmart_ceo_consumers_under_pressure/index.htm

Economic growth slows as inflation surges

WASHINGTON (Reuters) – Economic growth braked sharply in the first quarter as higher food and gasoline prices dampened consumer spending and sent inflation rising at its fastest pace in 2-1/2 years.

Another report on Thursday showed a surprise jump in the number of Americans claiming unemployment benefits last week, which could cast a shadow on expectations for a significant pick-up in output in the second quarter.

Growth in gross domestic product slowed to a 1.8 percent annual rate after a 3.1 percent fourth-quarter pace, the Commerce Department said. Economists had expected a 2 percent pace.

With much of the pull back traced back to sharp cuts in defense spending and harsh winter weather, analysts were hopeful the economy would regain speed in the second quarter. The drop in defense spending was seen as temporary.

"Growth was disappointing given the momentum of the economy heading into the year. We are still of the belief that the economy will improve out of the soft patch through this quarter into the second half of the year," said Brian Levitt, an economist at OppenheimerFunds in New York.

Economists were encouraged that details of the report, in particular consumer spending and business outlays on software and equipment, were not as weak as they had feared and said this suggested a foundation for stronger growth was in place.

Consumer spending accounts for about 70 percent of U.S. economic activity.

LABOR MARKET WEAKNESS?

While a 25,000 rise in claims for state jobless benefits to 429,000 last week hinted at some weakening in the labor market, analysts cautioned against reading too much into the gain. They said severe weather in some parts of the country and the Easter holiday could have distorted the figure.

Still, the data suggested improvements in the labor market were still only coming grudgingly.

"The underlying downtrend in initial claims that had been in place since late last year has flattened out," said Omair Sharif, an economist at RBS in Stamford, Connecticut. But he added: "It seems a little too early to suggest that the underlying pace of layoffs has picked up."

Hiring accelerated in March and a report next week is expected to show job creation remained relatively robust in April.

MODERATE PACE

The weak GDP report and the Federal Reserve's stated commitment to a loose monetary policy stance after a two-day meeting on Wednesday drove the dollar to a three-year low against a basket of currencies.

But investors on Wall Street largely brushed it aside and pushed stocks higher. Prices for U.S. government debt rose.

The Fed on Wednesday trimmed its growth estimate for 2011 to between 3.1 and 3.3 percent from a 3.4 to 3.9 percent January projection.

Some economists felt the U.S. central bank's estimates might be a little optimistic, given the poor start to the year even though most agreed growth would soon strengthen.

Optimism the economy would find a firmer footing in the second quarter was bolstered by a report showing pending sales of previously owned homes rose 5.1 percent in March. Housing is struggling to recover and is one of the headwinds facing the economy.

Growth in the first quarter was curtailed by a sharp pull back in consumer spending, which expanded at a rate of 2.7 percent after a strong 4 percent rise in the fourth quarter.

Rising commodity prices meant consumers had less money to spend on other items. Gasoline prices remain a concern, even though they are expected to stabilize somewhat.

INFLATION RISING

The GDP report underscored the pain that strong food and gasoline prices are inflicting on households.

A inflation gauge contained in the report rose at a 3.8 percent rate -- the fastest pace since the third quarter of 2008 -- after increasing 1.7 percent in the fourth quarter.

A core price gauge, which excludes food and energy costs, accelerated to a 1.5 percent rate -- the fastest since the fourth quarter of 2009 -- from 0.4 percent in the fourth quarter. The core gauge is closely watched by Fed officials, who would like to see it closer to 2 percent.

In the first quarter, restocking by businesses picked up, with inventories increasing $43.8 billion after a $16.2 billion rise in the fourth quarter. However, the buildup was less than economists had expected and some said they looked for further inventory building to bolster growth in the second quarter.

Inventories added 0.93 percentage point to first-quarter GDP growth. Excluding inventories, the economy grew at a pedestrian 0.8 percent pace after a brisk 6.7 percent rate in the fourth quarter.

Business spending on equipment and software gained pace, but government spending suffered its deepest contraction since the fourth quarter of 1983.

Home building made no contribution, while investment in nonresidential structures dropped at its quickest pace since the fourth quarter of 2009, likely the result of bad weather.

http://news.yahoo.com/s/nm/20110428/ts_nm/us_usa_economy