On August 6th after S&P downgraded the U.S. debt rating from AAA to AA+ with a negative outlook, NIA prayed that Americans would not make the mistake of buying U.S. Treasuries as a safe haven. We normally don't pray about economic matters, but only God can save the U.S. economy today as well as investors who have been brainwashed into believing U.S. government dollar-denominated bonds are a safe place to store wealth. Unfortunately, only when hyperinflation arrives will the majority of American citizens realize that fiat U.S. dollars should be used as a medium of exchange only and not a place to store wealth.
Since NIA was launched two and a half years ago, the overwhelming majority of our economic predictions have come true, with many of our accurate predictions being unique only to us. Sometimes we are a bit early with our predictions, but they almost always eventually come true. One of our predictions that we have been wrong about in the short-term, but will be proven right about later this decade, is the collapse of the U.S. Treasury market.
We thought there was a chance that many Americans would once again make the mistake of buying U.S. Treasuries during the recent sell-off of global financial markets, but we were shocked to see the yields of some U.S. Treasuries such as the 10-year bond, decline to new record lows. The yields of many government bonds have fallen through their lows of late-2008, but unlike the liquidity crisis of late-2008 when gold prices declined to a low of $720 per ounce, gold futures on August 22nd reached a new all time nominal high of $1,899.40 per ounce.
NIA likes gold as a bet against the U.S. Treasury market, which we believe is the largest bubble in world history. Any investor buying 10-year Treasuries with a yield of only 2.20% needs to have their head examined. Based on official Bureau of Labor Statistics (BLS) data, year-over-year price inflation in the U.S. is already 3.63%. NIA estimates the real rate of price inflation to currently be approximately 8% and we project real price inflation to reach double-digits next year. NIA finds it very unlikely that the U.S. will be able to survive the next ten years without hyperinflation.
Take a look at the long-term chart of 10-year yields below. After the inflationary crisis of the 1970s, 10-year yields surged to a high in the early-1980s of 14.5%. After inflation began to decline in the mid-1980s, the 10-year yield bottomed at 7% before rising again to 9%. In the 1990s, the 10-year yield averaged around 6.5%.
With the help of NIA's critically acclaimed economic documentaries including 'Meltup', 'The Dollar Bubble', and 'Hyperinflation Nation' that have been seen by millions of people, a larger percentage of the investment community is educated than ever before about the currency crisis that is ahead. We estimate that about 1/10 of our country now finally understands that as long as we are running massive budget deficits with our government making no real attempt to cut spending in a meaningful way, gold will keep increasing in nominal value and the U.S. dollar will continue losing its purchasing power. However, 9/10 of our nation still doesn't understand why they should own gold and would chase after $1,000 in cash being blown by the wind before picking up a 1 oz gold coin lying below them on the ground.
Investors today are buying and selling assets based on what they perceive to be risk assets and safe haven assets. Market volatility is now at a level last seen in March of 2009 towards the end of the last financial crisis. On days with either positive economic news or rumors that Bernanke is getting ready to unleash QE3, stock prices rise while the prices of both gold and U.S. Treasuries fall. On days with either negative economic news or rumors that Bernanke is unlikely to unleash QE3, stock prices fall while both gold and U.S. Treasury prices rise. Investors are buying both gold and U.S. Treasuries as a safe haven. Those buying U.S. Treasuries as a safe haven are doing so based on the market's actions in late-2008 when Treasuries rallied with the stock market collapsing. They fail to realize that every financial crisis is different and the next crisis will be nothing like 2008.
In 2008, we had a crisis due to a lack of liquidity. Today, the world is flooded with liquidity, but most people don't realize it yet because trillions of dollars are being hoarded on the sidelines and not chasing goods and services. Nobody knew for sure in 2008 how the Federal Reserve would react to the liquidity crisis. If the Federal Reserve did the right thing and allowed banks to fail we would have experienced many years of deflation. The Federal Reserve has made it clear that they will print enough money to bailout all major banks or other companies deemed "too big to fail". We are in a situation where the worse the economy gets, the more money the Fed will print and the higher prices of all assets will rise.
NIA predicts right now that over the next 16 months between now and the end of calendar year 2012, we will see the largest short-term increase in 10-year bond yields on a percentage basis in history. With CPI growth increasing for eight straight months and even the Fed's misleading core-CPI growth up 290% since October on a year-over-year basis, investors will soon realize that it is far too risky to own bonds that are paying such low yields.
President Obama yesterday nominated Alan Kreuger to lead his Council of Economic Advisers. We laughed when he heard Obama tell Kreuger that it will be tough for him to fill the shoes of Austan Goolsbee, who recently left his post to resume teaching at the University of Chicago. Whether it be Kreuger, Goolsbee, or Christina Romer (who preceded Goolsbee), they are all Keynesians who believe that more government spending and intervention is the key to bringing down unemployment and having a healthy economy.
Krueger worked in the White House during the first two years of the Obama administration as assistant Treasury secretary for economic policy. Krueger received his Ph.D. in economics from Harvard University and has worked at Princeton University since 1987, where his mail frequently gets mixed up with fellow Keynesian and New York Times op-ed columnist Paul Krugman. Krueger is the author of a book that was written solely to convince readers that having a high minimum wage doesn't cause unemployment. It should be common sense to all NIA members that if the government raised the minimum wage to $50 per hour, unemployment would rise dramatically as most jobs paying wages below $50 per hour would be destroyed. The truth is, eliminating the U.S. minimum wage would create thousands of new entry-level jobs in America and help lower the unemployment rate. Krueger was also instrumental in developing the "cash-for-clunkers" program, which NIA has written about on many occasions as being a monumental disaster for the U.S. economy.
It is absurd how the mainstream media calls Ron Paul an extremist for wanting to eliminate government intervention in our financial markets, reduce government spending, balance the budget, stop the Fed from printing money, and return to sound money. In NIA's opinion, Krueger is the real extremist. If there was no minimum wage and there never was "cash-for-clunkers", many unemployed 17 year old kids who are home on Facebook, could instead be out earning enough money to buy their own used car. The youth unemployment rate is currently double the overall unemployment rate and used car prices are up 20% during the past year, because of the policies supported by Krueger.
The U.S. government used "cash-for-clunkers" to buy phony GDP growth in 2009, stealing from future automobile sales. After the "cash-for-clunkers" program ended, General Motors reported that their sales in August of 2010 declined 25% from sales in August of 2009. NIA predicted on September 1, 2010, that this would lead to a sharp contraction in GDP growth and cause the Fed to unleash the mother of all quantitative easing. Two months later on November 3, 2010, the Fed announced $600 billion in additional quantitative easing.
GDP growth in the 4Q of 2010 declined to 3.14% on a year-over-year basis, down from 3.51% in the 3Q of 2010. GDP growth has continued to decline lower this year to 2.24% in the first quarter and 1.55% in the second quarter (which was just revised downward from an initial estimate of 1.62%). The BLS used a price deflator of only 2.5% in the 2Q. In our opinion, real GDP in the U.S. today is already in negative territory. With it becoming increasingly likely that official year-over-year GDP changes will become negative by the end of calendar year 2011, it is only a matter of time before the Federal Reserve unleashes QE3 in disguise under a new name.
With the Federal Reserve no longer reporting the M3 money supply, the broadest measure of money supply currently reported by the Fed is M2. During the past few weeks, the U.S. has been seeing a very alarming rise in M2. The M2 money supply has risen $228.5 billion over the past four weeks to $9.5218 trillion. On an annualized basis, this equals a 32% increase in M2. Much of this gain can be attributed to people moving funds from institutional money funds and large time deposits into checking and savings accounts. Investors are nervous about the state of our economy and as soon as the investment community begins to realize that the next economic crisis will be a currency crisis, not a liquidity crisis, we will see the world lose confidence in the U.S. dollar and rush out of U.S. Treasuries and into gold, silver, and other real assets.
It is important to spread the word about NIA to as many people as possible, as quickly as possible, if you want America to survive hyperinflation. Please tell everybody you know to become members of NIA for free immediately at: http://inflation.us
Wednesday, August 31, 2011
Monday, August 29, 2011
Why Amazon Can't Make A Kindle In the USA
An economist is someone who knows the price of everything and the value of nothing.
Old joke based on Oscar Wilde’s quip about a cynic.
I recently noted how conventional cost accounting inexorably focuses executives’ attention on increasing short-term profits by cutting costs.
The same thing happens in economics. Take a recent study that set out to shed light on the role of Chinese businesses vis-à-vis American consumers. Galina Hale and Bart Hobijn, two economists from the Federal Reserve Bank of San Francisco, did a study showing that only 2.7% of U.S. consumer purchases have the “Made in China” label. Moreover, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. So the study trumpets the finding that China has only a tiny sliver of the U.S. economy.
Well, not exactly. The tiny sliver happens to be the sliver that matters. What economists miss is what is happening behind the numbers of dollars in the real economy of people.
How whole industries disappear
Take the story of Dell Computer [DELL] and its Taiwanese electronics manufacturer. The story is told in the brilliant book by Clayton Christensen, Jerome Grossman and Jason Hwang, The Innovator’s Prescription :
ASUSTeK started out making the simple circuit boards within a Dell computer. Then ASUSTeK came to Dell with an interesting value proposition: “We’ve been doing a good job making these little boards. Why don’t you let us make the motherboard for you? Circuit manufacturing isn’t your core competence anyway and we could do it for 20% less.”
Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. On successive occasions, ASUSTeK came back and took over the motherboard, the assembly of the computer, the management of the supply chain and the design of the computer. In each case Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. However, the next time ASUSTeK came back, it wasn’t to talk to Dell. It was to talk to Best Buy and other retailers to tell them that they could offer them their own brand or any brand PC for 20% lower cost. As The Innovator’s Prescription concludes:
Bingo. One company gone, another has taken its place. There’s no stupidity in the story. The managers in both companies did exactly what business school professors and the best management consultants would tell them to do—improve profitability by focus on on those activities that are profitable and by getting out of activities that are less profitable.
Amazon couldn’t make a Kindle here if it wanted to
Decades of outsourcing manufacturing have left U.S. industry without the means to invent the next generation of high-tech products that are key to rebuilding its economy, as noted by Gary Pisano and Willy Shih in a classic article, “Restoring American Competitiveness” (Harvard Business Review, July-August 2009)
The U.S. has lost or is on the verge of losing its ability to develop and manufacture a slew of high-tech products. Amazon’s Kindle 2 couldn’t be made in the U.S., even if Amazon wanted to:
The flex circuit connectors are made in China because the US supplier base migrated to Asia.
The electrophoretic display is made in Taiwan because the expertise developed from producting flat-panel LCDs migrated to Asia with semiconductor manufacturing.
The highly polished injection-molded case is made in China because the U.S. supplier base eroded as the manufacture of toys, consumer electronics and computers migrated to China.
The wireless card is made in South Korea because that country became a center for making mobile phone components and handsets.
The controller board is made in China because U.S. companies long ago transferred manufacture of printed circuit boards to Asia.
The Lithium polymer battery is made in China because battery development and manufacturing migrated to China along with the development and manufacture of consumer electronics and notebook computers.
An exception is Apple [AAPL], which “has been able to preserve a first-rate design capability in the States so far by remaining deeply involved in the selection of components, in industrial design, in software development, and in the articulation of the concept of its products and how they address users’ needs.”
A chain reaction of decline
Pisano and Shih continue:
“So the decline of manufacturing in a region sets off a chain reaction. Once manufacturing is outsourced, process-engineering expertise can’t be maintained, since it depends on daily interactions with manufacturing. Without process-engineering capabilities, companies find it increasingly difficult to conduct advanced research on next-generation process technologies. Without the ability to develop such new processes, they find they can no longer develop new products. In the long term, then, an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate.”
The lithium battery for GM’s [GM] Chevy Volt is being manufactured in South Korea. Making it in the U.S. wasn’t feasible: rechargeable battery manufacturing left the US long ago.
Some efforts are being made to resurrect rechargeable battery manufacture in the U.S., such as the GE-backed [GE] A123Systems, but it’s difficult to go it alone when much of the expertise is now in Asia.
In the same way that cost accounting and short-term corporate profits don’t reflect the true health of corporations, the economists’ reckoning of the impact of outsourcing production overseas misses the point. Americans are left with shipping the goods, selling the goods, marketing the goods. But the country is no longer to compete in the key task of actually making the goods.
Pisano and Shih have a frighteningly long list of industries of industries that are “already lost” to the USA:
“Fabless chips”; compact fluorescent lighting; LCDs for monitors, TVs and handheld devices like mobile phones; electrophoretic displays; lithium ion, lithium polymer and NiMH batteries; advanced rechargeable batteries for hybrid vehicles; crystalline and polycrystalline silicon solar cells, inverters and power semiconductors for solar panels; desktop, notebook and netbook PCs; low-end servers; hard-disk drives; consumer networking gear such as routers, access points, and home set-top boxes; advanced composite used in sporting goods and other consumer gear; advanced ceramics and integrated circuit packaging.
Their list of industries “at risk” is even longer and more worrisome.
What’s to be done?
With such a complex societal problem, it’s hard not to start from Albert Einstein’s insight: “The significant problems that we have cannot be solved at the same level of thinking with which we created them.” Many actors will have to play a role.
Company leaders: Business leaders need to recommit themselves to continuous innovation and the values and practices that are necessary to accomplish that. i.e radical management. As Pisano and Shih write: “Whether you’re the US firm IBM [IBM] with a major research laboratory in Switzerland or the Swiss company Novartis [NYSE:NVS] operating in the biotech commons in the Boston area, sacrificing such a commons for short-term cost benefits is a risky proposition.”
Accountants: Accountants need to get beyond the mental prison of cost accounting and embrace the thinking in throughput accounting that puts the emphasis on how companies can add new value, rather than just cutting costs.
Management theorists and consultants: stop rearranging deck chairs on the Titanic of traditional management (e.g. by finding new and ingenious ways to cut costs) and start understanding and disseminating management theory that is fit for the 21st Century.
Investors: Investors need to realize that the companies of the future are those that practice continuous innovation as Apple [AAPL], Amazon [AMZN] and Salesforce [CRM], as compared to companies practicing traditional management, such Wal-Mart [WMT], Cisco [CSCO] OR GE [GE]. Investors need to realize that short-term financial gains are ephemeral: the companies that will generate real value are those that do what is necessary to continuously innovate.
Government: Government has a role to play in protecting and promoting fields of expertise or what Pisano and Shih call “the industrial commons”. Thus: “Government-sponsored endeavors that have made a huge difference in the past three decades include DARPA’s VLSI chip development program and Strategic Computing Initiative; the DOD’s and NASA’s support of supercomputers and of NSFNET (an important contributor to the Internet); and the DOD’s support of the Global Positioning System, to mention a handful.”
Politicians: At a time of poisonously divisive political debate, in which candidates recite anti-government mantras and call for “getting government out of the way of the private sector”, it is time for serious politicians to step up and examine which parts of the private sector are fostering, and which parts are destroying, the economy of the country. They must stop embodying e.e. cummings definition of a politician as “an ass upon which everyone has sat except a man.”
Economists: Economists need to realize that merely adding up the numbers is not enough. They have to look at the meaning behind the numbers. When they trumpet their finding that “Chinese goods are only 1% of the U.S. economy”, it’s akin to saying “we kept the house but gave away the keys.”
http://www.forbes.com/sites/stevedenning/2011/08/17/why-amazon-cant-make-a-kindle-in-the-usa/
Old joke based on Oscar Wilde’s quip about a cynic.
I recently noted how conventional cost accounting inexorably focuses executives’ attention on increasing short-term profits by cutting costs.
The same thing happens in economics. Take a recent study that set out to shed light on the role of Chinese businesses vis-à-vis American consumers. Galina Hale and Bart Hobijn, two economists from the Federal Reserve Bank of San Francisco, did a study showing that only 2.7% of U.S. consumer purchases have the “Made in China” label. Moreover, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. So the study trumpets the finding that China has only a tiny sliver of the U.S. economy.
Well, not exactly. The tiny sliver happens to be the sliver that matters. What economists miss is what is happening behind the numbers of dollars in the real economy of people.
How whole industries disappear
Take the story of Dell Computer [DELL] and its Taiwanese electronics manufacturer. The story is told in the brilliant book by Clayton Christensen, Jerome Grossman and Jason Hwang, The Innovator’s Prescription :
ASUSTeK started out making the simple circuit boards within a Dell computer. Then ASUSTeK came to Dell with an interesting value proposition: “We’ve been doing a good job making these little boards. Why don’t you let us make the motherboard for you? Circuit manufacturing isn’t your core competence anyway and we could do it for 20% less.”
Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. On successive occasions, ASUSTeK came back and took over the motherboard, the assembly of the computer, the management of the supply chain and the design of the computer. In each case Dell accepted the proposal because from a perspective of making money, it made sense: Dell’s revenues were unaffected and its profits improved significantly. However, the next time ASUSTeK came back, it wasn’t to talk to Dell. It was to talk to Best Buy and other retailers to tell them that they could offer them their own brand or any brand PC for 20% lower cost. As The Innovator’s Prescription concludes:
Bingo. One company gone, another has taken its place. There’s no stupidity in the story. The managers in both companies did exactly what business school professors and the best management consultants would tell them to do—improve profitability by focus on on those activities that are profitable and by getting out of activities that are less profitable.
Amazon couldn’t make a Kindle here if it wanted to
Decades of outsourcing manufacturing have left U.S. industry without the means to invent the next generation of high-tech products that are key to rebuilding its economy, as noted by Gary Pisano and Willy Shih in a classic article, “Restoring American Competitiveness” (Harvard Business Review, July-August 2009)
The U.S. has lost or is on the verge of losing its ability to develop and manufacture a slew of high-tech products. Amazon’s Kindle 2 couldn’t be made in the U.S., even if Amazon wanted to:
The flex circuit connectors are made in China because the US supplier base migrated to Asia.
The electrophoretic display is made in Taiwan because the expertise developed from producting flat-panel LCDs migrated to Asia with semiconductor manufacturing.
The highly polished injection-molded case is made in China because the U.S. supplier base eroded as the manufacture of toys, consumer electronics and computers migrated to China.
The wireless card is made in South Korea because that country became a center for making mobile phone components and handsets.
The controller board is made in China because U.S. companies long ago transferred manufacture of printed circuit boards to Asia.
The Lithium polymer battery is made in China because battery development and manufacturing migrated to China along with the development and manufacture of consumer electronics and notebook computers.
An exception is Apple [AAPL], which “has been able to preserve a first-rate design capability in the States so far by remaining deeply involved in the selection of components, in industrial design, in software development, and in the articulation of the concept of its products and how they address users’ needs.”
A chain reaction of decline
Pisano and Shih continue:
“So the decline of manufacturing in a region sets off a chain reaction. Once manufacturing is outsourced, process-engineering expertise can’t be maintained, since it depends on daily interactions with manufacturing. Without process-engineering capabilities, companies find it increasingly difficult to conduct advanced research on next-generation process technologies. Without the ability to develop such new processes, they find they can no longer develop new products. In the long term, then, an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate.”
The lithium battery for GM’s [GM] Chevy Volt is being manufactured in South Korea. Making it in the U.S. wasn’t feasible: rechargeable battery manufacturing left the US long ago.
Some efforts are being made to resurrect rechargeable battery manufacture in the U.S., such as the GE-backed [GE] A123Systems, but it’s difficult to go it alone when much of the expertise is now in Asia.
In the same way that cost accounting and short-term corporate profits don’t reflect the true health of corporations, the economists’ reckoning of the impact of outsourcing production overseas misses the point. Americans are left with shipping the goods, selling the goods, marketing the goods. But the country is no longer to compete in the key task of actually making the goods.
Pisano and Shih have a frighteningly long list of industries of industries that are “already lost” to the USA:
“Fabless chips”; compact fluorescent lighting; LCDs for monitors, TVs and handheld devices like mobile phones; electrophoretic displays; lithium ion, lithium polymer and NiMH batteries; advanced rechargeable batteries for hybrid vehicles; crystalline and polycrystalline silicon solar cells, inverters and power semiconductors for solar panels; desktop, notebook and netbook PCs; low-end servers; hard-disk drives; consumer networking gear such as routers, access points, and home set-top boxes; advanced composite used in sporting goods and other consumer gear; advanced ceramics and integrated circuit packaging.
Their list of industries “at risk” is even longer and more worrisome.
What’s to be done?
With such a complex societal problem, it’s hard not to start from Albert Einstein’s insight: “The significant problems that we have cannot be solved at the same level of thinking with which we created them.” Many actors will have to play a role.
Company leaders: Business leaders need to recommit themselves to continuous innovation and the values and practices that are necessary to accomplish that. i.e radical management. As Pisano and Shih write: “Whether you’re the US firm IBM [IBM] with a major research laboratory in Switzerland or the Swiss company Novartis [NYSE:NVS] operating in the biotech commons in the Boston area, sacrificing such a commons for short-term cost benefits is a risky proposition.”
Accountants: Accountants need to get beyond the mental prison of cost accounting and embrace the thinking in throughput accounting that puts the emphasis on how companies can add new value, rather than just cutting costs.
Management theorists and consultants: stop rearranging deck chairs on the Titanic of traditional management (e.g. by finding new and ingenious ways to cut costs) and start understanding and disseminating management theory that is fit for the 21st Century.
Investors: Investors need to realize that the companies of the future are those that practice continuous innovation as Apple [AAPL], Amazon [AMZN] and Salesforce [CRM], as compared to companies practicing traditional management, such Wal-Mart [WMT], Cisco [CSCO] OR GE [GE]. Investors need to realize that short-term financial gains are ephemeral: the companies that will generate real value are those that do what is necessary to continuously innovate.
Government: Government has a role to play in protecting and promoting fields of expertise or what Pisano and Shih call “the industrial commons”. Thus: “Government-sponsored endeavors that have made a huge difference in the past three decades include DARPA’s VLSI chip development program and Strategic Computing Initiative; the DOD’s and NASA’s support of supercomputers and of NSFNET (an important contributor to the Internet); and the DOD’s support of the Global Positioning System, to mention a handful.”
Politicians: At a time of poisonously divisive political debate, in which candidates recite anti-government mantras and call for “getting government out of the way of the private sector”, it is time for serious politicians to step up and examine which parts of the private sector are fostering, and which parts are destroying, the economy of the country. They must stop embodying e.e. cummings definition of a politician as “an ass upon which everyone has sat except a man.”
Economists: Economists need to realize that merely adding up the numbers is not enough. They have to look at the meaning behind the numbers. When they trumpet their finding that “Chinese goods are only 1% of the U.S. economy”, it’s akin to saying “we kept the house but gave away the keys.”
http://www.forbes.com/sites/stevedenning/2011/08/17/why-amazon-cant-make-a-kindle-in-the-usa/
The Inexplicable War on Lemonade Stands
I’m beginning to think that there’s a nation-wide government conspiracy against either lemonade or children, because these lemonade stand shutdowns seem to be getting more and more common. If you set up a stand for your kids, just be prepared for a visit from the cops.
In Coralville, Iowa police shut down 4-year-old Abigail Krstinger’s lemonade stand after it had been up for half an hour. Dustin Krustinger told reporters that his daughter was selling lemonade at 25 cents a cup during the Register’s Annual Great Bicycle Race Across Iowa (or RAGBRAI), and couldn’t have made more than five dollars, adding “If the line is drawn to the point where a four-year-old eight blocks away can’t sell a couple glasses of lemonade for 25 cents, than I think the line has been drawn at the wrong spot.”
Nearby, mother Bobbie Nelson had her kids’ lemonade stand shutdown as well. Police informed her that a permit would cost $400.
Meanwhile, in Georgia, police shutdown a lemonade stand run by three girls who were saving money to go to a water park. Police said the girls needed a business license, a peddler’s permit, and a food permit to operate the stand, which cost $50 per day or $180 per year each, sums that would quickly cut into any possible profit-margin.
In Appleton, Wisconsin the city council recently passed an ordinance preventing vendors from selling products within two blocks of local events – including kids who want to sell lemonade or cookies.
These are hardly isolated incidents. From slapping parents with $500 fines for letting their kids run unlicensed lemonade stands (though this was later waived after public outcry), to government officials calling the cops on kids selling cupcakes, the list goes on and on and on.
Nor does it stop with kids. Food Trucks are also under the gun of regulators and city governments across the country. This isn’t to say that food trucks don’t need any regulations at all, but many of the regulations that come down the pipeline are pushed by brick-and-mortar competitors who want to keep competition at a minimum.
But it’s the shutdown of lemonade stands that I find so inexplicable. Who stands to lose from a couple of six-year-olds selling lemonade? Who stands to gain from shutting them down? Do local governments really think parents are going to pay for $400 vendor permits, or that kids can scrape together the money for food permits? Are there any actual safety risks? Kids have been selling lemonade for decades without permits of any sort. They often set the stands up just for fun, but many lemonade stands (or bake sales) are used to raise money for schools, cancer, or sick pets. Lemonade stands represent the most innocent, optimistic side of capitalism out there.
Fortunately, August 20th is now unofficially National Lemonade Freedom Day, because when life gives you overbearing government regulations…make lemonade, or something.
Hat tip to Radley Balko and the Reason team for many of these stories, so many of which sound like they’ve been pulled straight from The Onion.
http://www.forbes.com/sites/erikkain/2011/08/03/the-inexplicable-war-on-lemonade-stands/
In Coralville, Iowa police shut down 4-year-old Abigail Krstinger’s lemonade stand after it had been up for half an hour. Dustin Krustinger told reporters that his daughter was selling lemonade at 25 cents a cup during the Register’s Annual Great Bicycle Race Across Iowa (or RAGBRAI), and couldn’t have made more than five dollars, adding “If the line is drawn to the point where a four-year-old eight blocks away can’t sell a couple glasses of lemonade for 25 cents, than I think the line has been drawn at the wrong spot.”
Nearby, mother Bobbie Nelson had her kids’ lemonade stand shutdown as well. Police informed her that a permit would cost $400.
Meanwhile, in Georgia, police shutdown a lemonade stand run by three girls who were saving money to go to a water park. Police said the girls needed a business license, a peddler’s permit, and a food permit to operate the stand, which cost $50 per day or $180 per year each, sums that would quickly cut into any possible profit-margin.
In Appleton, Wisconsin the city council recently passed an ordinance preventing vendors from selling products within two blocks of local events – including kids who want to sell lemonade or cookies.
These are hardly isolated incidents. From slapping parents with $500 fines for letting their kids run unlicensed lemonade stands (though this was later waived after public outcry), to government officials calling the cops on kids selling cupcakes, the list goes on and on and on.
Nor does it stop with kids. Food Trucks are also under the gun of regulators and city governments across the country. This isn’t to say that food trucks don’t need any regulations at all, but many of the regulations that come down the pipeline are pushed by brick-and-mortar competitors who want to keep competition at a minimum.
But it’s the shutdown of lemonade stands that I find so inexplicable. Who stands to lose from a couple of six-year-olds selling lemonade? Who stands to gain from shutting them down? Do local governments really think parents are going to pay for $400 vendor permits, or that kids can scrape together the money for food permits? Are there any actual safety risks? Kids have been selling lemonade for decades without permits of any sort. They often set the stands up just for fun, but many lemonade stands (or bake sales) are used to raise money for schools, cancer, or sick pets. Lemonade stands represent the most innocent, optimistic side of capitalism out there.
Fortunately, August 20th is now unofficially National Lemonade Freedom Day, because when life gives you overbearing government regulations…make lemonade, or something.
Hat tip to Radley Balko and the Reason team for many of these stories, so many of which sound like they’ve been pulled straight from The Onion.
http://www.forbes.com/sites/erikkain/2011/08/03/the-inexplicable-war-on-lemonade-stands/
Is George Soros Shutting Down Because Of Dodd-Frank, Onerous Obama?
Find out why Warren Buffet is not being totally honest when he advocates higher taxes.
George Soros, the billionaire hedge fund manager, benefactor of the Democratic Party and sponsor of MoveOn.com, responded to President Obama’s monetary initiatives by closing his business and most likely laying off some employees. Is Soros closing up shop a nasty microcosm of our economy slowing down and approaching recession?
Tax-hikes and regulation-hikes scared Soros off and he changed course big-time. So much for economists who argue that tax and regulatory policy changes do not affect business and investment behavior. They do.
President Obama has been attacking hedge fund manager tax breaks, carried-interest lower tax rates, which would raise Soros’ tax rate from the 15% long-term capital gains tax rate to the 35% maximum ordinary tax rate. Plus, Soros’ carried-interest compensation would also become subject to self-employment taxes. Meaningfully, the unlimited Medicare tax of 2.9%, scheduled to rise to 3.95% under ObamaCare in 2013.
Many people always say ‘billionaires can afford higher taxes and why should they care?’ Wrong, most are billionaires because they watch every penny more carefully then you and me. Look closer and watch them avoid tax hikes.
What affected Soros more is probably the hikes in regulations applying to the investment management industry. The Dodd-Frank financial regulation law of July 2010 forces all large hedge fund managers to register with the U.S. Securities and Exchange Commission by early next year after a recent extension from the SEC. To date, Soros and his hedge fund businesses have cleverly managed to avoid SEC-registration.
Soros may be ‘too big to fail’ – and he was big enough to shake down the Bank of England in 1992 when he made a cool billion on shorting the pound sterling – but he claims he is not worthy of regulatory oversight now.
How does Soros avoid registration? Using the private adviser exemption and other flimsy loopholes like extended lock up rules. These exemptions and loopholes are ended in Dodd-Frank, so Soros must now register with the SEC, with one remaining exception – closing his business and he chose to do just that.
Why does George Soros, a prolific author - and I like his books – and man of intense scrutiny and media spotlight want to avoid SEC-registration and regulation? I suspect it’s because he doesn’t want to show his portfolio and trades to regulators and the public, which is an element of SEC-registration and oversight.
Soros knows he will suffer a thousand copycat trades and related cuts to his profits. Yes, many managers and billionaires ‘talk their book’, but Soros probably doesn’t want to open his books. Who knows what else lurks behind closed doors?
Soros is resorting to trading his own money, which includes his “family office” money – and that term is being hotly debated as a potential remaining loophole under Dodd-Frank. By returning all client money, Soros can keep his portfolio private as well as continuing to benefit from lower long-term capital gains rate taxes on all of his trading gains. Note, potential repeal of carried-interest tax breaks only applies to client money, not your own money in a fund.
This begs the question. Was the Dodd-Frank law thought out well-enough before passage? Or, like Obamacare and so many other recent bills out of this dysfunctional Congress and administration, was Dodd-Frank more a reflection of populist anger, emotion and politics against Wall Street?
Republicans, the financial services industry and their lobbyists are trying to water down Dodd-Frank before regulators promulgate all the new rules. Many Republicans promise reversal of Dodd-Frank lock, stock and barrel if elected in 2012.
Another important element of Dodd-Frank is forcing privately-traded derivatives to be cleared on exchanges. Dodd-Frank seeks greater transparency, posting of collateral, and a reduction of counter-party risk and systemic risk. I like those goals, but I am not sure of the means.
Billionaire-poster boy Warren Buffett – adviser and friend of President Obama – famously-called derivatives ‘weapons of mass destruction.’ Yet, Mr. Buffett balked at Dodd-Frank’s new requirement to post collateral for derivative trades with exchanges. It turns out that Buffett and his companies are one of the biggest users of derivatives and he doesn’t want to post collateral. Buffett may be right, how can global companies afford collateral on all their hedging transactions? Should they hedge less?
Buffett suggests raising long-term capital gains tax rates from 15% to 20% and perhaps even to a modified (hopefully reduced) ordinary tax rate. But, Buffett rarely sells his stock so he doesn’t pay capital gains taxes anyway. My problem with Mr. Buffett is he does not suggest closing his own-cherished charity tax loophole, where he saves around 13 billion in taxes. The charity deduction scheme involves donating appreciated company stock to your own – or buddy Bill Gates – private charitable foundation. Buffett should donate to charity after-tax, not before-tax.
President Obama loves lining up his billionaire poster-boys in support of his tax-hike and regulatory-hike proposals. The president can then say even millionaires and billionaires agree with him, and some are even on Wall Street too. I respectfully disagree with President Obama, because Soros is closing his business over the president’s own initiatives, and Buffett is raising taxes on other peoples’ money and not his own.
http://www.forbes.com/sites/greatspeculations/2011/08/25/is-george-soros-shutting-down-because-of-dodd-frank-onerous-obama/3/
George Soros, the billionaire hedge fund manager, benefactor of the Democratic Party and sponsor of MoveOn.com, responded to President Obama’s monetary initiatives by closing his business and most likely laying off some employees. Is Soros closing up shop a nasty microcosm of our economy slowing down and approaching recession?
Tax-hikes and regulation-hikes scared Soros off and he changed course big-time. So much for economists who argue that tax and regulatory policy changes do not affect business and investment behavior. They do.
President Obama has been attacking hedge fund manager tax breaks, carried-interest lower tax rates, which would raise Soros’ tax rate from the 15% long-term capital gains tax rate to the 35% maximum ordinary tax rate. Plus, Soros’ carried-interest compensation would also become subject to self-employment taxes. Meaningfully, the unlimited Medicare tax of 2.9%, scheduled to rise to 3.95% under ObamaCare in 2013.
Many people always say ‘billionaires can afford higher taxes and why should they care?’ Wrong, most are billionaires because they watch every penny more carefully then you and me. Look closer and watch them avoid tax hikes.
What affected Soros more is probably the hikes in regulations applying to the investment management industry. The Dodd-Frank financial regulation law of July 2010 forces all large hedge fund managers to register with the U.S. Securities and Exchange Commission by early next year after a recent extension from the SEC. To date, Soros and his hedge fund businesses have cleverly managed to avoid SEC-registration.
Soros may be ‘too big to fail’ – and he was big enough to shake down the Bank of England in 1992 when he made a cool billion on shorting the pound sterling – but he claims he is not worthy of regulatory oversight now.
How does Soros avoid registration? Using the private adviser exemption and other flimsy loopholes like extended lock up rules. These exemptions and loopholes are ended in Dodd-Frank, so Soros must now register with the SEC, with one remaining exception – closing his business and he chose to do just that.
Why does George Soros, a prolific author - and I like his books – and man of intense scrutiny and media spotlight want to avoid SEC-registration and regulation? I suspect it’s because he doesn’t want to show his portfolio and trades to regulators and the public, which is an element of SEC-registration and oversight.
Soros knows he will suffer a thousand copycat trades and related cuts to his profits. Yes, many managers and billionaires ‘talk their book’, but Soros probably doesn’t want to open his books. Who knows what else lurks behind closed doors?
Soros is resorting to trading his own money, which includes his “family office” money – and that term is being hotly debated as a potential remaining loophole under Dodd-Frank. By returning all client money, Soros can keep his portfolio private as well as continuing to benefit from lower long-term capital gains rate taxes on all of his trading gains. Note, potential repeal of carried-interest tax breaks only applies to client money, not your own money in a fund.
This begs the question. Was the Dodd-Frank law thought out well-enough before passage? Or, like Obamacare and so many other recent bills out of this dysfunctional Congress and administration, was Dodd-Frank more a reflection of populist anger, emotion and politics against Wall Street?
Republicans, the financial services industry and their lobbyists are trying to water down Dodd-Frank before regulators promulgate all the new rules. Many Republicans promise reversal of Dodd-Frank lock, stock and barrel if elected in 2012.
Another important element of Dodd-Frank is forcing privately-traded derivatives to be cleared on exchanges. Dodd-Frank seeks greater transparency, posting of collateral, and a reduction of counter-party risk and systemic risk. I like those goals, but I am not sure of the means.
Billionaire-poster boy Warren Buffett – adviser and friend of President Obama – famously-called derivatives ‘weapons of mass destruction.’ Yet, Mr. Buffett balked at Dodd-Frank’s new requirement to post collateral for derivative trades with exchanges. It turns out that Buffett and his companies are one of the biggest users of derivatives and he doesn’t want to post collateral. Buffett may be right, how can global companies afford collateral on all their hedging transactions? Should they hedge less?
Buffett suggests raising long-term capital gains tax rates from 15% to 20% and perhaps even to a modified (hopefully reduced) ordinary tax rate. But, Buffett rarely sells his stock so he doesn’t pay capital gains taxes anyway. My problem with Mr. Buffett is he does not suggest closing his own-cherished charity tax loophole, where he saves around 13 billion in taxes. The charity deduction scheme involves donating appreciated company stock to your own – or buddy Bill Gates – private charitable foundation. Buffett should donate to charity after-tax, not before-tax.
President Obama loves lining up his billionaire poster-boys in support of his tax-hike and regulatory-hike proposals. The president can then say even millionaires and billionaires agree with him, and some are even on Wall Street too. I respectfully disagree with President Obama, because Soros is closing his business over the president’s own initiatives, and Buffett is raising taxes on other peoples’ money and not his own.
http://www.forbes.com/sites/greatspeculations/2011/08/25/is-george-soros-shutting-down-because-of-dodd-frank-onerous-obama/3/
Thursday, August 25, 2011
http://campaign2012.washingtonexaminer.com/article/york-spending-not-entitlements-created-deficits
It's conventional wisdom in Washington to blame the federal government's dire financial outlook on runaway entitlement spending. Unless we rein in Social Security, Medicare and Medicaid, the conventional wisdom goes, the federal government is headed for disaster.
That's true in the long run. But what is causing massive deficits now? Is it the same entitlements that threaten the future?
Yes, say some conservatives who favor making entitlement reform a key issue in the 2012 campaign. "We're $1.5 trillion in debt," Weekly Standard Editor Bill Kristol said Sunday, referring to this year's projected deficit. "Where's the debt coming from? It's coming from entitlements."
There's no doubt federal spending has exploded in recent years. In fiscal 2007, the last year before things went haywire, the government took in $2.568 trillion in revenues and spent $2.728 trillion, for a deficit of $160 billion. In 2011, according to Congressional Budget Office estimates, the government will take in $2.230 trillion and spend $3.629 trillion, for a deficit of $1.399 trillion.
That's an increase of $901 billion in spending and a decrease of $338 billion in revenue in a very short time. Put them together, and that's how you go from a $160 billion deficit to a $1.399 trillion deficit.
But how, precisely, did that happen? Was there a steep rise in entitlement spending? Did everyone suddenly turn 65 and begin collecting Social Security and using Medicare? No: The deficits are largely the result not of entitlements but of an explosion in spending related to the economic downturn and the rise of Democrats to power in Washington. While entitlements must be controlled in the long run, Washington's current spending problem lies elsewhere.
A lot of the higher spending has stemmed directly from the downturn. There is, for example, spending on what is called "income security" -- that is, for unemployment compensation, food stamps and related programs. In 2007, the government spent $365 billion on income security. In 2011, it's estimated to spend $622 billion. That's an increase of $257 billion.
Then there is Medicaid, the health care program for lower-income Americans. A lot of people had lower incomes due to the economic downturn, and federal expenditures on Medicaid -- its costs are shared with the states -- went from $190 billion in 2007 to an estimated $276 billion in 2011, an increase of $86 billion. Put that together with the $257 billion increase in income security spending, and you have $343 billion.
Add to that the $338 billion in decreased revenues, and you get $681 billion -- which means nearly half of the current deficit can be clearly attributed to the downturn.
That's a deficit increase that would have happened in an economic crisis whether Republicans or Democrats controlled Washington. But it was the specific spending excesses of President Obama and the Democrats that shot the deficit into the stratosphere.
There is no line in the federal budget that says "stimulus," but Obama's massive $814 billion stimulus increased spending in virtually every part of the federal government. "It's spread all through the budget," says former Congressional Budget Office chief Douglas Holtz-Eakin. "It was essentially a down payment on the Obama domestic agenda." Green jobs, infrastructure, health information technology, aid to states -- it's all in there, billions in increased spending.
As for the Troubled Assets Relief Program, or TARP -- it has no specific line in the budget, either, but that is because it was anticipated to pay nearly all of its own cost, which it has.
Spending for Social Security and Medicare did go up in this period -- $162 billion and $119 billion, respectively -- but by incremental and predictable amounts that weren't big problems in previous years. "We're getting older one year at a time, and health care costs grow at 7 or 8 percent a year," says Holtz-Eakin. If Social Security and Medicare were the sole source of the current deficit, it would be a lot smaller than it is.
The bottom line is that with baby boomers aging, entitlements will one day be a major budget problem. But today's deficit crisis is not one of entitlements. It was created by out-of-control spending on everything other than entitlements. The recent debt-ceiling agreement is supposed to put the brakes on that kind of spending, but leaders have so far been maddeningly vague on how they'll do it.
This issue could be an important one in the coming presidential race. Should Republicans base their platform on entitlement reform, or should they focus on the here and now -- specifically, on undoing the damage done by Obama and his Democratic allies? In coming months, the answer will likely become clear: entitlements someday, but first things first.
http://campaign2012.washingtonexaminer.com/article/york-spending-not-entitlements-created-deficits
That's true in the long run. But what is causing massive deficits now? Is it the same entitlements that threaten the future?
Yes, say some conservatives who favor making entitlement reform a key issue in the 2012 campaign. "We're $1.5 trillion in debt," Weekly Standard Editor Bill Kristol said Sunday, referring to this year's projected deficit. "Where's the debt coming from? It's coming from entitlements."
There's no doubt federal spending has exploded in recent years. In fiscal 2007, the last year before things went haywire, the government took in $2.568 trillion in revenues and spent $2.728 trillion, for a deficit of $160 billion. In 2011, according to Congressional Budget Office estimates, the government will take in $2.230 trillion and spend $3.629 trillion, for a deficit of $1.399 trillion.
That's an increase of $901 billion in spending and a decrease of $338 billion in revenue in a very short time. Put them together, and that's how you go from a $160 billion deficit to a $1.399 trillion deficit.
But how, precisely, did that happen? Was there a steep rise in entitlement spending? Did everyone suddenly turn 65 and begin collecting Social Security and using Medicare? No: The deficits are largely the result not of entitlements but of an explosion in spending related to the economic downturn and the rise of Democrats to power in Washington. While entitlements must be controlled in the long run, Washington's current spending problem lies elsewhere.
A lot of the higher spending has stemmed directly from the downturn. There is, for example, spending on what is called "income security" -- that is, for unemployment compensation, food stamps and related programs. In 2007, the government spent $365 billion on income security. In 2011, it's estimated to spend $622 billion. That's an increase of $257 billion.
Then there is Medicaid, the health care program for lower-income Americans. A lot of people had lower incomes due to the economic downturn, and federal expenditures on Medicaid -- its costs are shared with the states -- went from $190 billion in 2007 to an estimated $276 billion in 2011, an increase of $86 billion. Put that together with the $257 billion increase in income security spending, and you have $343 billion.
Add to that the $338 billion in decreased revenues, and you get $681 billion -- which means nearly half of the current deficit can be clearly attributed to the downturn.
That's a deficit increase that would have happened in an economic crisis whether Republicans or Democrats controlled Washington. But it was the specific spending excesses of President Obama and the Democrats that shot the deficit into the stratosphere.
There is no line in the federal budget that says "stimulus," but Obama's massive $814 billion stimulus increased spending in virtually every part of the federal government. "It's spread all through the budget," says former Congressional Budget Office chief Douglas Holtz-Eakin. "It was essentially a down payment on the Obama domestic agenda." Green jobs, infrastructure, health information technology, aid to states -- it's all in there, billions in increased spending.
As for the Troubled Assets Relief Program, or TARP -- it has no specific line in the budget, either, but that is because it was anticipated to pay nearly all of its own cost, which it has.
Spending for Social Security and Medicare did go up in this period -- $162 billion and $119 billion, respectively -- but by incremental and predictable amounts that weren't big problems in previous years. "We're getting older one year at a time, and health care costs grow at 7 or 8 percent a year," says Holtz-Eakin. If Social Security and Medicare were the sole source of the current deficit, it would be a lot smaller than it is.
The bottom line is that with baby boomers aging, entitlements will one day be a major budget problem. But today's deficit crisis is not one of entitlements. It was created by out-of-control spending on everything other than entitlements. The recent debt-ceiling agreement is supposed to put the brakes on that kind of spending, but leaders have so far been maddeningly vague on how they'll do it.
This issue could be an important one in the coming presidential race. Should Republicans base their platform on entitlement reform, or should they focus on the here and now -- specifically, on undoing the damage done by Obama and his Democratic allies? In coming months, the answer will likely become clear: entitlements someday, but first things first.
http://campaign2012.washingtonexaminer.com/article/york-spending-not-entitlements-created-deficits
Treasury Yields to Plunge Before Hyperinflation Kicks In: SocGen
We urge all to read this article carefully. It is time to prepare for the future, at least mentally.
Three months ago, with the U.S. Federal Reserve nearing the end of its second major stimulus program and inflation pressures on the rise, Albert Edwards' bond market view stood out from the crowd.
Societe Generale's famously bearish analyst, in contrast to most, did not see 10-year Treasury yields [ TYCV1 129.9219 -0.0625 (-0.05%) ] rising above 3 percent just because the Fed was going to stop buying bonds. Instead, he predicted they would fall below 2 percent.
So far, Edwards — who predicted the Asian financial crisis of 1997-98, the U.S. housing implosion and who sees China's economy suffering a hard landing — has been closer than most on his debt call. Last week, yields tested their record low of 2.04 percent.
Investors, however, should hope he's not as accurate on his next call: Edwards sees Treasury yields falling further because, he says, the economy will weaken. He is targeting benchmark rates at around 1.50 percent in the next six months.
Be sure to lock in a low-rate mortgage while you can, though. After that, says Edwards, a period of hyper inflation will push bond yields into double digits and send the S&P 500 stock index tumbling to 400, only a third of its current value.
"On a 10-year view I think government bonds are a horrible investment," Edwards told Reuters in an interview. "My view is that the end game for all this is monetization and trade war and very rapid inflation." Ice Age
London-based Edwards admits his views are outside the mainstream.
"Many think I am mad," he wrote in a recent report.
Still, Treasury yields have fallen from 6.5 percent in 1996 when Edwards went overweight the debt.
And, with nerves shattered by wild price swings and portfolios that still show losses from the 2008 financial crisis, more people may be receptive to markedly bearish views.
Edwards says the economy is in an Ice Age — his term for a period of low inflation and near deflation and in which the economy has seen a broad deleveraging from the stock boom of the 1990s.
"That was the great moderation — the great moderation was a lie and a Ponzi scheme built on these massive debt mountains. And now those are finished you go back to normal, or worse than normal because you're so vulnerable," he said.
Deleveraging leaves the economy more vulnerable to tightening, more volatile and shortens the gap between recessions, he said.
In this way Edwards sees the U.S. economy playing out similarly to Japan's, which has experienced two "lost decades" marked by stagnant growth and low interest rates.
"I think the U.S. is very much following the template of Japan," he said.
"There are key differences but there are massive, massive similarities." Edwards' Ice Age is marked by a period when bond yields gradually decline as equity yields, as measured by averaging earnings and dividends, cheapen from the lows offered during the stock boom.
The next phase, however, will be rapid inflation that hurts bond and equity positions alike. Bond Yields to Soar, Equities to Plunge
What will end the bond rally is hard to pinpoint. Most likely, he said, it will start in Japan.
"I think Japan will be the first to crack, really crack," he said. "Its demographics mean that big pension funds can no longer fund its huge deficit out of internal savings."
Even with extremely low interest rates Japan's 10-year notes yield little over 1 percent — the cost of servicing the country's debt will suck up over 20 percent of its 2011 budget, according to Japan's Ministry of Finance.
Any upward pressure on yields has the potential to cause large and broad damage that would be felt internationally.
"The markets can be quite forgiving for quite a while, but basically a country is deemed insolvent when the market for whatever reason decides it is," said Edwards.
"You will get repeated rounds of money printing to try and stop it, but ultimately gravity has a habit of pulling markets down to where they should be.
You can delay it, you can play around, but ultimately the pigeons come home to roost."
http://m.cnbc.com/us_news/44184535
Three months ago, with the U.S. Federal Reserve nearing the end of its second major stimulus program and inflation pressures on the rise, Albert Edwards' bond market view stood out from the crowd.
Societe Generale's famously bearish analyst, in contrast to most, did not see 10-year Treasury yields [ TYCV1 129.9219 -0.0625 (-0.05%) ] rising above 3 percent just because the Fed was going to stop buying bonds. Instead, he predicted they would fall below 2 percent.
So far, Edwards — who predicted the Asian financial crisis of 1997-98, the U.S. housing implosion and who sees China's economy suffering a hard landing — has been closer than most on his debt call. Last week, yields tested their record low of 2.04 percent.
Investors, however, should hope he's not as accurate on his next call: Edwards sees Treasury yields falling further because, he says, the economy will weaken. He is targeting benchmark rates at around 1.50 percent in the next six months.
Be sure to lock in a low-rate mortgage while you can, though. After that, says Edwards, a period of hyper inflation will push bond yields into double digits and send the S&P 500 stock index tumbling to 400, only a third of its current value.
"On a 10-year view I think government bonds are a horrible investment," Edwards told Reuters in an interview. "My view is that the end game for all this is monetization and trade war and very rapid inflation." Ice Age
London-based Edwards admits his views are outside the mainstream.
"Many think I am mad," he wrote in a recent report.
Still, Treasury yields have fallen from 6.5 percent in 1996 when Edwards went overweight the debt.
And, with nerves shattered by wild price swings and portfolios that still show losses from the 2008 financial crisis, more people may be receptive to markedly bearish views.
Edwards says the economy is in an Ice Age — his term for a period of low inflation and near deflation and in which the economy has seen a broad deleveraging from the stock boom of the 1990s.
"That was the great moderation — the great moderation was a lie and a Ponzi scheme built on these massive debt mountains. And now those are finished you go back to normal, or worse than normal because you're so vulnerable," he said.
Deleveraging leaves the economy more vulnerable to tightening, more volatile and shortens the gap between recessions, he said.
In this way Edwards sees the U.S. economy playing out similarly to Japan's, which has experienced two "lost decades" marked by stagnant growth and low interest rates.
"I think the U.S. is very much following the template of Japan," he said.
"There are key differences but there are massive, massive similarities." Edwards' Ice Age is marked by a period when bond yields gradually decline as equity yields, as measured by averaging earnings and dividends, cheapen from the lows offered during the stock boom.
The next phase, however, will be rapid inflation that hurts bond and equity positions alike. Bond Yields to Soar, Equities to Plunge
What will end the bond rally is hard to pinpoint. Most likely, he said, it will start in Japan.
"I think Japan will be the first to crack, really crack," he said. "Its demographics mean that big pension funds can no longer fund its huge deficit out of internal savings."
Even with extremely low interest rates Japan's 10-year notes yield little over 1 percent — the cost of servicing the country's debt will suck up over 20 percent of its 2011 budget, according to Japan's Ministry of Finance.
Any upward pressure on yields has the potential to cause large and broad damage that would be felt internationally.
"The markets can be quite forgiving for quite a while, but basically a country is deemed insolvent when the market for whatever reason decides it is," said Edwards.
"You will get repeated rounds of money printing to try and stop it, but ultimately gravity has a habit of pulling markets down to where they should be.
You can delay it, you can play around, but ultimately the pigeons come home to roost."
http://m.cnbc.com/us_news/44184535
Tuesday, August 23, 2011
Wall Street Aristocracy Got $1.2 Trillion in Fed’s Secret Loans
Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”
Foreign Borrowers
It wasn’t just American finance. Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
The largest borrowers also included Dexia SA (DEXB), Belgium’s biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.
The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
Peak Balance
The balance was more than 25 times the Fed’s pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon. Denominated in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools.
The Fed has said it had “no credit losses” on any of the emergency programs, and a report by Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.
“We designed our broad-based emergency programs to both effectively stem the crisis and minimize the financial risks to the U.S. taxpayer,” said James Clouse, deputy director of the Fed’s division of monetary affairs in Washington. “Nearly all of our emergency-lending programs have been closed. We have incurred no losses and expect no losses.”
While the 18-month U.S. recession that ended in June 2009 after a 5.1 percent contraction in gross domestic product was nowhere near the four-year, 27 percent decline between August 1929 and March 1933, banks and the economy remain stressed.
Odds of Recession
The odds of another recession have climbed during the past six months, according to five of nine economists on the Business Cycle Dating Committee of the National Bureau of Economic Research, an academic panel that dates recessions.
Bank of America’s bond-insurance prices last week surged to a rate of $342,040 a year for coverage on $10 million of debt, above where Lehman Brothers Holdings Inc. (LEHMQ)’s bond insurance was priced at the start of the week before the firm collapsed. Citigroup’s shares are trading below the split-adjusted price of $28 that they hit on the day the bank’s Fed loans peaked in January 2009. The U.S. unemployment rate was at 9.1 percent in July, compared with 4.7 percent in November 2007, before the recession began.
Homeowners are more than 30 days past due on their mortgage payments on 4.38 million properties in the U.S., and 2.16 million more properties are in foreclosure, representing a combined $1.27 trillion of unpaid principal, estimates Jacksonville, Florida-based Lender Processing Services Inc.
Liquidity Requirements
“Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?” U.S. Representative Walter B. Jones, a Republican from North Carolina, said at a June 1 congressional hearing in Washington on Fed lending disclosure. “They get help when the average businessperson down in eastern North Carolina, and probably across America, they can’t even go to a bank they’ve been banking with for 15 or 20 years and get a loan.”
The sheer size of the Fed loans bolsters the case for minimum liquidity requirements that global regulators last year agreed to impose on banks for the first time, said Litan, now a vice president at the Kansas City, Missouri-based Kauffman Foundation, which supports entrepreneurship research. Liquidity refers to the daily funds a bank needs to operate, including cash to cover depositor withdrawals.
The rules, which mandate that banks keep enough cash and easily liquidated assets on hand to survive a 30-day crisis, don’t take effect until 2015. Another proposed requirement for lenders to keep “stable funding” for a one-year horizon was postponed until at least 2018 after banks showed they’d have to raise as much as $6 trillion in new long-term debt to comply.
‘Stark Illustration’
Regulators are “not going to go far enough to prevent this from happening again,” said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard University.
Reforms undertaken since the crisis might not insulate U.S. markets and financial institutions from the sovereign budget and debt crises facing Greece, Ireland and Portugal, according to the U.S. Financial Stability Oversight Council, a 10-member body created by the Dodd-Frank Act and led by Treasury Secretary Timothy Geithner.
“The recent financial crisis provides a stark illustration of how quickly confidence can erode and financial contagion can spread,” the council said in its July 26 report.
21,000 Transactions
Any new rescues by the U.S. central bank would be governed by transparency laws adopted in 2010 that require the Fed to disclose borrowers after two years.
Fed officials argued for more than two years that releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs. A group of the biggest commercial banks last year asked the U.S. Supreme Court to keep at least some Fed borrowings secret. In March, the high court declined to hear that appeal, and the central bank made an unprecedented release of records.
Data gleaned from 29,346 pages of documents obtained under the Freedom of Information Act and from other Fed databases of more than 21,000 transactions make clear for the first time how deeply the world’s largest banks depended on the U.S. central bank to stave off cash shortfalls. Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.
Morgan Stanley Borrowing
Two weeks after Lehman’s bankruptcy in September 2008, Morgan Stanley countered concerns that it might be next to go by announcing it had “strong capital and liquidity positions.” The statement, in a Sept. 29, 2008, press release about a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group Inc., said nothing about Morgan Stanley’s Fed loans.
That was the same day as the firm’s $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley’s available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company’s total profits over the past decade, data compiled by Bloomberg show.
Mark Lake, a spokesman for New York-based Morgan Stanley, said the crisis caused the industry to “fundamentally re- evaluate” the way it manages its cash.
“We have taken the lessons we learned from that period and applied them to our liquidity-management program to protect both our franchise and our clients going forward,” Lake said. He declined to say what changes the bank had made.
Acceptable Collateral
In most cases, the Fed demanded collateral for its loans -- Treasuries or corporate bonds and mortgage bonds that could be seized and sold if the money wasn’t repaid. That meant the central bank’s main risk was that collateral pledged by banks that collapsed would be worth less than the amount borrowed.
As the crisis deepened, the Fed relaxed its standards for acceptable collateral. Typically, the central bank accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting “junk” bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation.
Morgan Stanley borrowed $61.3 billion from one Fed program in September 2008, pledging a total of $66.5 billion of collateral, according to Fed documents. Securities pledged included $21.5 billion of stocks, $6.68 billion of bonds with a junk credit rating and $19.5 billion of assets with an “unknown rating,” according to the documents. About 25 percent of the collateral was foreign-denominated.
‘Willingness to Lend’
“What you’re looking at is a willingness to lend against just about anything,” said Robert Eisenbeis, a former research director at the Federal Reserve Bank of Atlanta and now chief monetary economist in Atlanta for Sarasota, Florida-based Cumberland Advisors Inc.
The lack of private-market alternatives for lending shows how skeptical trading partners and depositors were about the value of the banks’ capital and collateral, Eisenbeis said.
“The markets were just plain shut,” said Tanya Azarchs, former head of bank research at Standard & Poor’s and now an independent consultant in Briarcliff Manor, New York. “If you needed liquidity, there was only one place to go.”
Even banks that survived the crisis without government capital injections tapped the Fed through programs that promised confidentiality. London-based Barclays Plc (BARC) borrowed $64.9 billion and Frankfurt-based Deutsche Bank AG (DBK) got $66 billion. Sarah MacDonald, a spokeswoman for Barclays, and John Gallagher, a spokesman for Deutsche Bank, declined to comment.
Below-Market Rates
While the Fed’s last-resort lending programs generally charge above-market interest rates to deter routine borrowing, that practice sometimes flipped during the crisis. On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time.
The rate was less than a third of the 3.8 percent that banks were charging each other to make one-month loans on that day. Bank of America and Wachovia Corp. each got $15 billion of the 1.1 percent TAF loans, followed by Royal Bank of Scotland’s RBS Citizens NA unit with $10 billion, Fed data show.
JPMorgan Chase & Co. (JPM), the New York-based lender that touted its “fortress balance sheet” at least 16 times in press releases and conference calls from October 2007 through February 2010, took as much as $48 billion in February 2009 from TAF. The facility, set up in December 2007, was a temporary alternative to the discount window, the central bank’s 97-year-old primary lending program to help banks in a cash squeeze.
‘Larger Than TARP’
Goldman Sachs Group Inc. (GS), which in 2007 was the most profitable securities firm in Wall Street history, borrowed $69 billion from the Fed on Dec. 31, 2008. Among the programs New York-based Goldman Sachs tapped after the Lehman bankruptcy was the Primary Dealer Credit Facility, or PDCF, designed to lend money to brokerage firms ineligible for the Fed’s bank-lending programs.
Michael Duvally, a spokesman for Goldman Sachs, declined to comment.
The Fed’s liquidity lifelines may increase the chances that banks engage in excessive risk-taking with borrowed money, Rogoff said. Such a phenomenon, known as moral hazard, occurs if banks assume the Fed will be there when they need it, he said. The size of bank borrowings “certainly shows the Fed bailout was in many ways much larger than TARP,” Rogoff said.
TARP is the Treasury Department’s Troubled Asset Relief Program, a $700 billion bank-bailout fund that provided capital injections of $45 billion each to Citigroup and Bank of America, and $10 billion to Morgan Stanley. Because most of the Treasury’s investments were made in the form of preferred stock, they were considered riskier than the Fed’s loans, a type of senior debt.
Dodd-Frank Requirement
In December, in response to the Dodd-Frank Act, the Fed released 18 databases detailing its temporary emergency-lending programs.
Congress required the disclosure after the Fed rejected requests in 2008 from the late Bloomberg News reporter Mark Pittman and other media companies that sought details of its loans under the Freedom of Information Act. After fighting to keep the data secret, the central bank released unprecedented information about its discount window and other programs under court order in March 2011.
Bloomberg News combined Fed databases made available in December and July with the discount-window records released in March to produce daily totals for banks across all the programs, including the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Commercial Paper Funding Facility, discount window, PDCF, TAF, Term Securities Lending Facility and single-tranche open market operations. The programs supplied loans from August 2007 through April 2010.
Rolling Crisis
The result is a timeline illustrating how the credit crisis rolled from one bank to another as financial contagion spread.
Fed borrowings by Societe Generale (GLE), France’s second-biggest bank, peaked at $17.4 billion in May 2008, four months after the Paris-based lender announced a record 4.9 billion-euro ($7.2 billion) loss on unauthorized stock-index futures bets by former trader Jerome Kerviel.
Morgan Stanley’s top borrowing came four months later, after Lehman’s bankruptcy. Citigroup crested in January 2009, as did 43 other banks, the largest number of peak borrowings for any month during the crisis. Bank of America’s heaviest borrowings came two months after that.
Sixteen banks, including Plano, Texas-based Beal Financial Corp. and Jacksonville, Florida-based EverBank Financial Corp., didn’t hit their peaks until February or March 2010.
Using Subsidiaries
“At no point was there a material risk to the Fed or the taxpayer, as the loan required collateralization,” said Reshma Fernandes, a spokeswoman for EverBank, which borrowed as much as $250 million.
Banks maximized their borrowings by using subsidiaries to tap Fed programs at the same time. In March 2009, Charlotte, North Carolina-based Bank of America drew $78 billion from one facility through two banking units and $11.8 billion more from two other programs through its broker-dealer, Bank of America Securities LLC.
Banks also shifted balances among Fed programs. Many preferred the TAF because it carried less of the stigma associated with the discount window, often seen as the last resort for lenders in distress, according to a January 2011 paper by researchers at the New York Fed.
After the Lehman bankruptcy, hedge funds began pulling their cash out of Morgan Stanley, fearing it might be the next to collapse, the Financial Crisis Inquiry Commission said in a January report, citing interviews with former Chief Executive Officer John Mack and then-Treasurer David Wong.
Borrowings Surge
Morgan Stanley’s borrowings from the PDCF surged to $61.3 billion on Sept. 29 from zero on Sept. 14. At the same time, its loans from the Term Securities Lending Facility, or TSLF, rose to $36 billion from $3.5 billion. Morgan Stanley treasury reports released by the FCIC show the firm had $99.8 billion of liquidity on Sept. 29, a figure that included Fed borrowings.
“The cash flow was all drying up,” said Roger Lister, a former Fed economist who’s now head of financial-institutions coverage at credit-rating firm DBRS Inc. in New York. “Did they have enough resources to cope with it? The answer would be yes, but they needed the Fed.”
While Morgan Stanley’s Fed demands were the most acute, Citigroup was the most chronic borrower among the largest U.S. banks. The New York-based company borrowed $10 million from the TAF on the program’s first day in December 2007 and had more than $25 billion outstanding under all programs by May 2008, according to Bloomberg data.
Tapping Six Programs
By Nov. 21, when Citigroup began talks with the government to get a $20 billion capital injection on top of the $25 billion received a month earlier, its Fed borrowings had doubled to about $50 billion.
Over the next two months the amount almost doubled again. On Jan. 20, as the stock sank below $3 for the first time in 16 years amid investor concerns that the lender’s capital cushion might be inadequate, Citigroup was tapping six Fed programs at once. Its total borrowings amounted to more than twice the federal Department of Education’s 2011 budget.
Citigroup was in debt to the Fed on seven out of every 10 days from August 2007 through April 2010, the most frequent U.S. borrower among the 100 biggest publicly traded firms by pre- crisis market valuation. On average, the bank had a daily balance at the Fed of almost $20 billion.
‘Help Motivate Others’
“Citibank basically was sustained by the Fed for a very long time,” said Richard Herring, a finance professor at the University of Pennsylvania in Philadelphia who has studied financial crises.
Jon Diat, a Citigroup spokesman, said the bank made use of programs that “achieved the goal of instilling confidence in the markets.”
JPMorgan CEO Jamie Dimon said in a letter to shareholders last year that his bank avoided many government programs. It did use TAF, Dimon said in the letter, “but this was done at the request of the Federal Reserve to help motivate others to use the system.”
The bank, the second-largest in the U.S. by assets, first tapped the TAF in May 2008, six months after the program debuted, and then zeroed out its borrowings in September 2008. The next month, it started using TAF again.
On Feb. 26, 2009, more than a year after TAF’s creation, JPMorgan’s borrowings under the program climbed to $48 billion. On that day, the overall TAF balance for all banks hit its peak, $493.2 billion. Two weeks later, the figure began declining.
“Our prior comment is accurate,” said Howard Opinsky, a spokesman for JPMorgan
‘The Cheapest Source’
Herring, the University of Pennsylvania professor, said some banks may have used the program to maximize profits by borrowing “from the cheapest source, because this was supposed to be secret and never revealed.”
Whether banks needed the Fed’s money for survival or used it because it offered advantageous rates, the central bank’s lender-of-last-resort role amounts to a free insurance policy for banks guaranteeing the arrival of funds in a disaster, Herring said.
An IMF report last October said regulators should consider charging banks for the right to access central bank funds.
“The extent of official intervention is clear evidence that systemic liquidity risks were under-recognized and mispriced by both the private and public sectors,” the IMF said in a separate report in April.
Access to Fed backup support “leads you to subject yourself to greater risks,” Herring said. “If it’s not there, you’re not going to take the risks that would put you in trouble and require you to have access to that kind of funding.”
http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html
By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”
Foreign Borrowers
It wasn’t just American finance. Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
The largest borrowers also included Dexia SA (DEXB), Belgium’s biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.
The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
Peak Balance
The balance was more than 25 times the Fed’s pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon. Denominated in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools.
The Fed has said it had “no credit losses” on any of the emergency programs, and a report by Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.
“We designed our broad-based emergency programs to both effectively stem the crisis and minimize the financial risks to the U.S. taxpayer,” said James Clouse, deputy director of the Fed’s division of monetary affairs in Washington. “Nearly all of our emergency-lending programs have been closed. We have incurred no losses and expect no losses.”
While the 18-month U.S. recession that ended in June 2009 after a 5.1 percent contraction in gross domestic product was nowhere near the four-year, 27 percent decline between August 1929 and March 1933, banks and the economy remain stressed.
Odds of Recession
The odds of another recession have climbed during the past six months, according to five of nine economists on the Business Cycle Dating Committee of the National Bureau of Economic Research, an academic panel that dates recessions.
Bank of America’s bond-insurance prices last week surged to a rate of $342,040 a year for coverage on $10 million of debt, above where Lehman Brothers Holdings Inc. (LEHMQ)’s bond insurance was priced at the start of the week before the firm collapsed. Citigroup’s shares are trading below the split-adjusted price of $28 that they hit on the day the bank’s Fed loans peaked in January 2009. The U.S. unemployment rate was at 9.1 percent in July, compared with 4.7 percent in November 2007, before the recession began.
Homeowners are more than 30 days past due on their mortgage payments on 4.38 million properties in the U.S., and 2.16 million more properties are in foreclosure, representing a combined $1.27 trillion of unpaid principal, estimates Jacksonville, Florida-based Lender Processing Services Inc.
Liquidity Requirements
“Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?” U.S. Representative Walter B. Jones, a Republican from North Carolina, said at a June 1 congressional hearing in Washington on Fed lending disclosure. “They get help when the average businessperson down in eastern North Carolina, and probably across America, they can’t even go to a bank they’ve been banking with for 15 or 20 years and get a loan.”
The sheer size of the Fed loans bolsters the case for minimum liquidity requirements that global regulators last year agreed to impose on banks for the first time, said Litan, now a vice president at the Kansas City, Missouri-based Kauffman Foundation, which supports entrepreneurship research. Liquidity refers to the daily funds a bank needs to operate, including cash to cover depositor withdrawals.
The rules, which mandate that banks keep enough cash and easily liquidated assets on hand to survive a 30-day crisis, don’t take effect until 2015. Another proposed requirement for lenders to keep “stable funding” for a one-year horizon was postponed until at least 2018 after banks showed they’d have to raise as much as $6 trillion in new long-term debt to comply.
‘Stark Illustration’
Regulators are “not going to go far enough to prevent this from happening again,” said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard University.
Reforms undertaken since the crisis might not insulate U.S. markets and financial institutions from the sovereign budget and debt crises facing Greece, Ireland and Portugal, according to the U.S. Financial Stability Oversight Council, a 10-member body created by the Dodd-Frank Act and led by Treasury Secretary Timothy Geithner.
“The recent financial crisis provides a stark illustration of how quickly confidence can erode and financial contagion can spread,” the council said in its July 26 report.
21,000 Transactions
Any new rescues by the U.S. central bank would be governed by transparency laws adopted in 2010 that require the Fed to disclose borrowers after two years.
Fed officials argued for more than two years that releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs. A group of the biggest commercial banks last year asked the U.S. Supreme Court to keep at least some Fed borrowings secret. In March, the high court declined to hear that appeal, and the central bank made an unprecedented release of records.
Data gleaned from 29,346 pages of documents obtained under the Freedom of Information Act and from other Fed databases of more than 21,000 transactions make clear for the first time how deeply the world’s largest banks depended on the U.S. central bank to stave off cash shortfalls. Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.
Morgan Stanley Borrowing
Two weeks after Lehman’s bankruptcy in September 2008, Morgan Stanley countered concerns that it might be next to go by announcing it had “strong capital and liquidity positions.” The statement, in a Sept. 29, 2008, press release about a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group Inc., said nothing about Morgan Stanley’s Fed loans.
That was the same day as the firm’s $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley’s available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company’s total profits over the past decade, data compiled by Bloomberg show.
Mark Lake, a spokesman for New York-based Morgan Stanley, said the crisis caused the industry to “fundamentally re- evaluate” the way it manages its cash.
“We have taken the lessons we learned from that period and applied them to our liquidity-management program to protect both our franchise and our clients going forward,” Lake said. He declined to say what changes the bank had made.
Acceptable Collateral
In most cases, the Fed demanded collateral for its loans -- Treasuries or corporate bonds and mortgage bonds that could be seized and sold if the money wasn’t repaid. That meant the central bank’s main risk was that collateral pledged by banks that collapsed would be worth less than the amount borrowed.
As the crisis deepened, the Fed relaxed its standards for acceptable collateral. Typically, the central bank accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting “junk” bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation.
Morgan Stanley borrowed $61.3 billion from one Fed program in September 2008, pledging a total of $66.5 billion of collateral, according to Fed documents. Securities pledged included $21.5 billion of stocks, $6.68 billion of bonds with a junk credit rating and $19.5 billion of assets with an “unknown rating,” according to the documents. About 25 percent of the collateral was foreign-denominated.
‘Willingness to Lend’
“What you’re looking at is a willingness to lend against just about anything,” said Robert Eisenbeis, a former research director at the Federal Reserve Bank of Atlanta and now chief monetary economist in Atlanta for Sarasota, Florida-based Cumberland Advisors Inc.
The lack of private-market alternatives for lending shows how skeptical trading partners and depositors were about the value of the banks’ capital and collateral, Eisenbeis said.
“The markets were just plain shut,” said Tanya Azarchs, former head of bank research at Standard & Poor’s and now an independent consultant in Briarcliff Manor, New York. “If you needed liquidity, there was only one place to go.”
Even banks that survived the crisis without government capital injections tapped the Fed through programs that promised confidentiality. London-based Barclays Plc (BARC) borrowed $64.9 billion and Frankfurt-based Deutsche Bank AG (DBK) got $66 billion. Sarah MacDonald, a spokeswoman for Barclays, and John Gallagher, a spokesman for Deutsche Bank, declined to comment.
Below-Market Rates
While the Fed’s last-resort lending programs generally charge above-market interest rates to deter routine borrowing, that practice sometimes flipped during the crisis. On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time.
The rate was less than a third of the 3.8 percent that banks were charging each other to make one-month loans on that day. Bank of America and Wachovia Corp. each got $15 billion of the 1.1 percent TAF loans, followed by Royal Bank of Scotland’s RBS Citizens NA unit with $10 billion, Fed data show.
JPMorgan Chase & Co. (JPM), the New York-based lender that touted its “fortress balance sheet” at least 16 times in press releases and conference calls from October 2007 through February 2010, took as much as $48 billion in February 2009 from TAF. The facility, set up in December 2007, was a temporary alternative to the discount window, the central bank’s 97-year-old primary lending program to help banks in a cash squeeze.
‘Larger Than TARP’
Goldman Sachs Group Inc. (GS), which in 2007 was the most profitable securities firm in Wall Street history, borrowed $69 billion from the Fed on Dec. 31, 2008. Among the programs New York-based Goldman Sachs tapped after the Lehman bankruptcy was the Primary Dealer Credit Facility, or PDCF, designed to lend money to brokerage firms ineligible for the Fed’s bank-lending programs.
Michael Duvally, a spokesman for Goldman Sachs, declined to comment.
The Fed’s liquidity lifelines may increase the chances that banks engage in excessive risk-taking with borrowed money, Rogoff said. Such a phenomenon, known as moral hazard, occurs if banks assume the Fed will be there when they need it, he said. The size of bank borrowings “certainly shows the Fed bailout was in many ways much larger than TARP,” Rogoff said.
TARP is the Treasury Department’s Troubled Asset Relief Program, a $700 billion bank-bailout fund that provided capital injections of $45 billion each to Citigroup and Bank of America, and $10 billion to Morgan Stanley. Because most of the Treasury’s investments were made in the form of preferred stock, they were considered riskier than the Fed’s loans, a type of senior debt.
Dodd-Frank Requirement
In December, in response to the Dodd-Frank Act, the Fed released 18 databases detailing its temporary emergency-lending programs.
Congress required the disclosure after the Fed rejected requests in 2008 from the late Bloomberg News reporter Mark Pittman and other media companies that sought details of its loans under the Freedom of Information Act. After fighting to keep the data secret, the central bank released unprecedented information about its discount window and other programs under court order in March 2011.
Bloomberg News combined Fed databases made available in December and July with the discount-window records released in March to produce daily totals for banks across all the programs, including the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Commercial Paper Funding Facility, discount window, PDCF, TAF, Term Securities Lending Facility and single-tranche open market operations. The programs supplied loans from August 2007 through April 2010.
Rolling Crisis
The result is a timeline illustrating how the credit crisis rolled from one bank to another as financial contagion spread.
Fed borrowings by Societe Generale (GLE), France’s second-biggest bank, peaked at $17.4 billion in May 2008, four months after the Paris-based lender announced a record 4.9 billion-euro ($7.2 billion) loss on unauthorized stock-index futures bets by former trader Jerome Kerviel.
Morgan Stanley’s top borrowing came four months later, after Lehman’s bankruptcy. Citigroup crested in January 2009, as did 43 other banks, the largest number of peak borrowings for any month during the crisis. Bank of America’s heaviest borrowings came two months after that.
Sixteen banks, including Plano, Texas-based Beal Financial Corp. and Jacksonville, Florida-based EverBank Financial Corp., didn’t hit their peaks until February or March 2010.
Using Subsidiaries
“At no point was there a material risk to the Fed or the taxpayer, as the loan required collateralization,” said Reshma Fernandes, a spokeswoman for EverBank, which borrowed as much as $250 million.
Banks maximized their borrowings by using subsidiaries to tap Fed programs at the same time. In March 2009, Charlotte, North Carolina-based Bank of America drew $78 billion from one facility through two banking units and $11.8 billion more from two other programs through its broker-dealer, Bank of America Securities LLC.
Banks also shifted balances among Fed programs. Many preferred the TAF because it carried less of the stigma associated with the discount window, often seen as the last resort for lenders in distress, according to a January 2011 paper by researchers at the New York Fed.
After the Lehman bankruptcy, hedge funds began pulling their cash out of Morgan Stanley, fearing it might be the next to collapse, the Financial Crisis Inquiry Commission said in a January report, citing interviews with former Chief Executive Officer John Mack and then-Treasurer David Wong.
Borrowings Surge
Morgan Stanley’s borrowings from the PDCF surged to $61.3 billion on Sept. 29 from zero on Sept. 14. At the same time, its loans from the Term Securities Lending Facility, or TSLF, rose to $36 billion from $3.5 billion. Morgan Stanley treasury reports released by the FCIC show the firm had $99.8 billion of liquidity on Sept. 29, a figure that included Fed borrowings.
“The cash flow was all drying up,” said Roger Lister, a former Fed economist who’s now head of financial-institutions coverage at credit-rating firm DBRS Inc. in New York. “Did they have enough resources to cope with it? The answer would be yes, but they needed the Fed.”
While Morgan Stanley’s Fed demands were the most acute, Citigroup was the most chronic borrower among the largest U.S. banks. The New York-based company borrowed $10 million from the TAF on the program’s first day in December 2007 and had more than $25 billion outstanding under all programs by May 2008, according to Bloomberg data.
Tapping Six Programs
By Nov. 21, when Citigroup began talks with the government to get a $20 billion capital injection on top of the $25 billion received a month earlier, its Fed borrowings had doubled to about $50 billion.
Over the next two months the amount almost doubled again. On Jan. 20, as the stock sank below $3 for the first time in 16 years amid investor concerns that the lender’s capital cushion might be inadequate, Citigroup was tapping six Fed programs at once. Its total borrowings amounted to more than twice the federal Department of Education’s 2011 budget.
Citigroup was in debt to the Fed on seven out of every 10 days from August 2007 through April 2010, the most frequent U.S. borrower among the 100 biggest publicly traded firms by pre- crisis market valuation. On average, the bank had a daily balance at the Fed of almost $20 billion.
‘Help Motivate Others’
“Citibank basically was sustained by the Fed for a very long time,” said Richard Herring, a finance professor at the University of Pennsylvania in Philadelphia who has studied financial crises.
Jon Diat, a Citigroup spokesman, said the bank made use of programs that “achieved the goal of instilling confidence in the markets.”
JPMorgan CEO Jamie Dimon said in a letter to shareholders last year that his bank avoided many government programs. It did use TAF, Dimon said in the letter, “but this was done at the request of the Federal Reserve to help motivate others to use the system.”
The bank, the second-largest in the U.S. by assets, first tapped the TAF in May 2008, six months after the program debuted, and then zeroed out its borrowings in September 2008. The next month, it started using TAF again.
On Feb. 26, 2009, more than a year after TAF’s creation, JPMorgan’s borrowings under the program climbed to $48 billion. On that day, the overall TAF balance for all banks hit its peak, $493.2 billion. Two weeks later, the figure began declining.
“Our prior comment is accurate,” said Howard Opinsky, a spokesman for JPMorgan
‘The Cheapest Source’
Herring, the University of Pennsylvania professor, said some banks may have used the program to maximize profits by borrowing “from the cheapest source, because this was supposed to be secret and never revealed.”
Whether banks needed the Fed’s money for survival or used it because it offered advantageous rates, the central bank’s lender-of-last-resort role amounts to a free insurance policy for banks guaranteeing the arrival of funds in a disaster, Herring said.
An IMF report last October said regulators should consider charging banks for the right to access central bank funds.
“The extent of official intervention is clear evidence that systemic liquidity risks were under-recognized and mispriced by both the private and public sectors,” the IMF said in a separate report in April.
Access to Fed backup support “leads you to subject yourself to greater risks,” Herring said. “If it’s not there, you’re not going to take the risks that would put you in trouble and require you to have access to that kind of funding.”
http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html
Presidential election parallels: 1932 and 2012
Is it true that those who don't know history are doomed to repeat it?
Thanks to the increasingly evident failure of President Obama's economic policies, Republicans have the opportunity to regain the White House in 2012. Defeating the Democrats is the first step, but will the GOP be able to govern consistently with its campaign pledges? A brief look at 1932 provides a sober warning.
The stock-market crash of 1929 and the resulting recession presented the Democratic Party with a golden electoral opportunity. President Hoover, a progressive Theodore Roosevelt Republican, had responded to the financial crisis by raising government spending, introducing myriad initiatives designed to stimulate the economy and sanctioning a sizable … federal deficit. By 1932, the result was higher unemployment and a stagnant economy.
Sensing a monumental electoral opportunity, the Democrats approached the 1932 election with confidence and focus. The party turned to its 1924 nominee, conservative John W. Davis, a leading Wall Street lawyer, to write a platform that would provide the philosophical underpinning for a return to power. It is instructive to read from the platform on which the Democrats went to the people in 1932:
"We advocate an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not lessthan25% in the cost of the Federal Government. And we call upon the Democratic Party in the states to make a zealous effort to achieve a proportionate result." If that were not sufficient, they thundered for "the removal of government from all fields of private enterprise, except where necessary to develop public works and natural resources in the common interest."
With his platform in hand -- a platform on which any 21st-century Tea Party candidate could easily run - the Democrats raucously nominated the genial governor of New York, Franklin D. Roosevelt. In his acceptance speech to the convention, FDR gave hearty support to the principles of that platform:
"I know something of taxes. For three long years I have been going up and down this country preaching that government costs too much. I shall not stop preaching that. As an immediate program of action we must abolish useless offices. We must eliminate unnecessary functions of government that are not definitely essential to the continuance of government."
On the campaign trail that fall in Pittsburgh, Roosevelt attacked Hoover for the "50 percent increase in spending since 1927 - the most reckless and extravagant past that I have been able to discover in the statistical record of any peacetime government, anywhere, anytime." He blasted Hoover for trying "to centralize control of everything in Washington" and then called specifically for a 25 percent reduction in government spending.
On Oct. 30, just days before the election, the New York Times prominently ran an op-ed column by Davis titled, "Why I am a Democrat." Davis made the case for Roosevelt by harkening back to the party's Jeffersonian principles: "Any nation that continues to spend more than it receives is headed for inevitable disaster; neither a nation nor a man can find solvency by borrowing; neither he nor it can spend its way into prosperity nor beg itself into comfort. ... If the Democratic Party is successful, it will balance the budget. Instead of striving to give every man a share of governmental help, borrowing from impoverished Peter to pay poverty-stricken Paul, it will aim to make it possible for every man to help himself."
The election returned a Democratic victory of staggering proportions. The Democrats swept 57 percent of the popular vote and carried the Electoral College by 313 to 59 votes. In the House, the GOP lost more than 100 seats, while the Democrats held a massive 313-to-117 majority. Similarly, the Democrats picked up 12 Senate seats.
During the post-election lame-duck period, a cagey FDR laid very low as "the Hoover recession" deepened. He refused to disclose his plans, and conservative Democrats began to worry that the president-elect might not hew to his campaign rhetoric.
Just for good measure, Davis wrote a lengthy front-page op-ed column for the New York Times on the Sunday before FDR's inauguration in which he outlined in considerable detail the traditional Jeffersonian philosophy of the Democratic Party:
"The chief aim of all government is to preserve the freedom of the citizen. His control over his person, his property, his movements, his business, his desires should be restrained only so far as the public welfare imperatively demands. The world is in more danger of being governed too much than too little. It is the teaching of all history that liberty can only be preserved in small areas. Local self-government is, therefore, indispensable to liberty. A centralized and distant bureaucracy is the worst of all tyranny.
"Taxation can justly be levied for no purpose other than to provide revenue for the support of the government. To tax one person, class or section to provide revenue for the benefit of another is nonetheless robbery, because done under the form of law and called taxation."
Davis' eloquent words fell on deaf ears. As FDR and his advisers began to construct their policies, Davis' worst fears were soon realized. The conservative rhetoric of the 1932 Democratic platform and the campaign speeches was soon forgotten, as the new president and his party increased government intrusion into the private economy, expanded government spending, sanctioned increased deficits and raised taxes to confiscatory levels.
The Republicans stand now where the Democrats stood in 1932. The country appears poised to embrace traditional, conservative, free-market policies, but will the GOP have the discipline and focus to govern consistently with its campaign rhetoric? Correcting the economic course of the country will not be easy or quick. It will take a nominee who will not just campaign - but will lead and govern - from the strength of his convictions.
http://www.washingtontimes.com/news/2011/aug/17/presidential-election-parallels-1932-and-2012/
Thanks to the increasingly evident failure of President Obama's economic policies, Republicans have the opportunity to regain the White House in 2012. Defeating the Democrats is the first step, but will the GOP be able to govern consistently with its campaign pledges? A brief look at 1932 provides a sober warning.
The stock-market crash of 1929 and the resulting recession presented the Democratic Party with a golden electoral opportunity. President Hoover, a progressive Theodore Roosevelt Republican, had responded to the financial crisis by raising government spending, introducing myriad initiatives designed to stimulate the economy and sanctioning a sizable … federal deficit. By 1932, the result was higher unemployment and a stagnant economy.
Sensing a monumental electoral opportunity, the Democrats approached the 1932 election with confidence and focus. The party turned to its 1924 nominee, conservative John W. Davis, a leading Wall Street lawyer, to write a platform that would provide the philosophical underpinning for a return to power. It is instructive to read from the platform on which the Democrats went to the people in 1932:
"We advocate an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not lessthan25% in the cost of the Federal Government. And we call upon the Democratic Party in the states to make a zealous effort to achieve a proportionate result." If that were not sufficient, they thundered for "the removal of government from all fields of private enterprise, except where necessary to develop public works and natural resources in the common interest."
With his platform in hand -- a platform on which any 21st-century Tea Party candidate could easily run - the Democrats raucously nominated the genial governor of New York, Franklin D. Roosevelt. In his acceptance speech to the convention, FDR gave hearty support to the principles of that platform:
"I know something of taxes. For three long years I have been going up and down this country preaching that government costs too much. I shall not stop preaching that. As an immediate program of action we must abolish useless offices. We must eliminate unnecessary functions of government that are not definitely essential to the continuance of government."
On the campaign trail that fall in Pittsburgh, Roosevelt attacked Hoover for the "50 percent increase in spending since 1927 - the most reckless and extravagant past that I have been able to discover in the statistical record of any peacetime government, anywhere, anytime." He blasted Hoover for trying "to centralize control of everything in Washington" and then called specifically for a 25 percent reduction in government spending.
On Oct. 30, just days before the election, the New York Times prominently ran an op-ed column by Davis titled, "Why I am a Democrat." Davis made the case for Roosevelt by harkening back to the party's Jeffersonian principles: "Any nation that continues to spend more than it receives is headed for inevitable disaster; neither a nation nor a man can find solvency by borrowing; neither he nor it can spend its way into prosperity nor beg itself into comfort. ... If the Democratic Party is successful, it will balance the budget. Instead of striving to give every man a share of governmental help, borrowing from impoverished Peter to pay poverty-stricken Paul, it will aim to make it possible for every man to help himself."
The election returned a Democratic victory of staggering proportions. The Democrats swept 57 percent of the popular vote and carried the Electoral College by 313 to 59 votes. In the House, the GOP lost more than 100 seats, while the Democrats held a massive 313-to-117 majority. Similarly, the Democrats picked up 12 Senate seats.
During the post-election lame-duck period, a cagey FDR laid very low as "the Hoover recession" deepened. He refused to disclose his plans, and conservative Democrats began to worry that the president-elect might not hew to his campaign rhetoric.
Just for good measure, Davis wrote a lengthy front-page op-ed column for the New York Times on the Sunday before FDR's inauguration in which he outlined in considerable detail the traditional Jeffersonian philosophy of the Democratic Party:
"The chief aim of all government is to preserve the freedom of the citizen. His control over his person, his property, his movements, his business, his desires should be restrained only so far as the public welfare imperatively demands. The world is in more danger of being governed too much than too little. It is the teaching of all history that liberty can only be preserved in small areas. Local self-government is, therefore, indispensable to liberty. A centralized and distant bureaucracy is the worst of all tyranny.
"Taxation can justly be levied for no purpose other than to provide revenue for the support of the government. To tax one person, class or section to provide revenue for the benefit of another is nonetheless robbery, because done under the form of law and called taxation."
Davis' eloquent words fell on deaf ears. As FDR and his advisers began to construct their policies, Davis' worst fears were soon realized. The conservative rhetoric of the 1932 Democratic platform and the campaign speeches was soon forgotten, as the new president and his party increased government intrusion into the private economy, expanded government spending, sanctioned increased deficits and raised taxes to confiscatory levels.
The Republicans stand now where the Democrats stood in 1932. The country appears poised to embrace traditional, conservative, free-market policies, but will the GOP have the discipline and focus to govern consistently with its campaign rhetoric? Correcting the economic course of the country will not be easy or quick. It will take a nominee who will not just campaign - but will lead and govern - from the strength of his convictions.
http://www.washingtontimes.com/news/2011/aug/17/presidential-election-parallels-1932-and-2012/
S&P: the emperor has no clothes!
Friday August 5, 2011 will likely be remembered as "the NEW Black Friday" or "THE" Black Friday. On that day, after markets closed, Standard and Poor's (S&P) fulfilled its previous warning and downgraded the sovereign credit rating of the USA to AA+ from the fifty-years-old AAA.
On Monday the 8th, the stock market took a tremendous dive in excess of 6% and all the pundits and talking heads blamed it on S&P's downgrade. Clearly, the downgrade came in handy to justify the selloff of Monday, but doesn't explain the drop in stock market indexes since late July.
An important point to keep in mind is that what is in doubt by S&P is the capacity of the U.S. to face its debt obligations given the high probabilities of increases in the stock of debt (the only way to fund the fiscal deficit, implemented so far.) That is what the sovereign credit rating means: evaluation of the government (sovereign authority) to pay interest and amortization of the bonds...
Read the complete article HERE
On Monday the 8th, the stock market took a tremendous dive in excess of 6% and all the pundits and talking heads blamed it on S&P's downgrade. Clearly, the downgrade came in handy to justify the selloff of Monday, but doesn't explain the drop in stock market indexes since late July.
An important point to keep in mind is that what is in doubt by S&P is the capacity of the U.S. to face its debt obligations given the high probabilities of increases in the stock of debt (the only way to fund the fiscal deficit, implemented so far.) That is what the sovereign credit rating means: evaluation of the government (sovereign authority) to pay interest and amortization of the bonds...
Read the complete article HERE
Thursday, August 18, 2011
Walmart warns on US weakness
Walmart, the biggest US retailer by revenues, warned on Tuesday that persistent weakness in the US economy was putting pressure on its low income consumers who are increasingly worried about unemployment and becoming more reliant on government assistance.
The struggling US economy is continuing to take its toll on Walmart’s domestic sales as it reported its ninth consecutive quarter of falling sales at US stores open at least a year. Comparable store sales at Walmart in the US, excluding fuel sales and purchases at Sam’s Club stores, were down by 0.9 per cent from a year ago.
“We remain concerned about the economic pressure on our customers and the uncertain impact it can have on their shopping behaviour,” Bill Simon, chief executive of Walmart’s US business, said. “With this volatility, it is as important as ever to deliver on Walmart’s one-stop shopping promise for broad assortment and every day low prices.”
Walmart, regarded as a bellwether for the US economy, has been trying to improve its domestic performance after more than two years of stagnant same-store sales. Once revered for its “everyday low prices”, dollar stores and Amazon.com have been eating into Walmart’s market share and convincing consumers that they offer better bargains.
In spite of that disappointing stretch, analysts were heartened by signs that sales could soon turn around, as Walmart looks to reassert itself as the retailer with the lowest prices. Shares of Walmart rose 3.64 per cent to $51.80 in mid-morning trading, as its results exceeded analysts’ expectations.
“Theoretically this is a period when Walmart should be thriving,” said Brian Sozzi, retail analyst at Wall Street Strategies. “They have signalled that in the back half of the year they are poised to do well again.”
The company has been working to correct changes it made to its stores and inventory that proved to be unpopular and to branch out with smaller “express” stores that fit better in urban areas. Charles Holley, chief financial officer, said that comparable store sales have been improving in each of the past three months and said they would rise by the end of the year.
However, Mr Holley said that joblessness has surpassed high petrol prices as the top concern of its shoppers and that more of its customers are spending with food stamps and unemployment insurance money. Walmart has been offering products in smaller packages to accommodate shoppers requiring lower prices.
“They are living paycheck to paycheck,” Mr Holley said. “How long can the nation go forward with such a high unemployment rate?”
While such questions persist, Walmart has been retooling its international and online businesses. Last week it said two of its top e-commerce executives would leave the company and that its online leaders in Japan, Canada and the UK would report to executives responsible for those countries, rather than a central online leader.
Walmart has also considered making a bid for Carrefour’s Brazilian business, according to people familiar with the matter, in an effort to prop up its performance there.
International revenues outpaced growth in the US, rising by 16.2 per cent to $30bn in the second quarter. Total revenues were up 5.4 per cent to $109.3bn
Walmart’s net income rose 5.7 per cent year-on-year in the second quarter to $3.8bn, or $1.09 a share. The company narrowed and raised its 2012 guidance to a range between $4.41 and $4.51 a share.
http://www.ft.com/intl/cms/s/0/9c57d3e6-c7fc-11e0-9501-00144feabdc0.html#axzz1VNxZDpJy
The struggling US economy is continuing to take its toll on Walmart’s domestic sales as it reported its ninth consecutive quarter of falling sales at US stores open at least a year. Comparable store sales at Walmart in the US, excluding fuel sales and purchases at Sam’s Club stores, were down by 0.9 per cent from a year ago.
“We remain concerned about the economic pressure on our customers and the uncertain impact it can have on their shopping behaviour,” Bill Simon, chief executive of Walmart’s US business, said. “With this volatility, it is as important as ever to deliver on Walmart’s one-stop shopping promise for broad assortment and every day low prices.”
Walmart, regarded as a bellwether for the US economy, has been trying to improve its domestic performance after more than two years of stagnant same-store sales. Once revered for its “everyday low prices”, dollar stores and Amazon.com have been eating into Walmart’s market share and convincing consumers that they offer better bargains.
In spite of that disappointing stretch, analysts were heartened by signs that sales could soon turn around, as Walmart looks to reassert itself as the retailer with the lowest prices. Shares of Walmart rose 3.64 per cent to $51.80 in mid-morning trading, as its results exceeded analysts’ expectations.
“Theoretically this is a period when Walmart should be thriving,” said Brian Sozzi, retail analyst at Wall Street Strategies. “They have signalled that in the back half of the year they are poised to do well again.”
The company has been working to correct changes it made to its stores and inventory that proved to be unpopular and to branch out with smaller “express” stores that fit better in urban areas. Charles Holley, chief financial officer, said that comparable store sales have been improving in each of the past three months and said they would rise by the end of the year.
However, Mr Holley said that joblessness has surpassed high petrol prices as the top concern of its shoppers and that more of its customers are spending with food stamps and unemployment insurance money. Walmart has been offering products in smaller packages to accommodate shoppers requiring lower prices.
“They are living paycheck to paycheck,” Mr Holley said. “How long can the nation go forward with such a high unemployment rate?”
While such questions persist, Walmart has been retooling its international and online businesses. Last week it said two of its top e-commerce executives would leave the company and that its online leaders in Japan, Canada and the UK would report to executives responsible for those countries, rather than a central online leader.
Walmart has also considered making a bid for Carrefour’s Brazilian business, according to people familiar with the matter, in an effort to prop up its performance there.
International revenues outpaced growth in the US, rising by 16.2 per cent to $30bn in the second quarter. Total revenues were up 5.4 per cent to $109.3bn
Walmart’s net income rose 5.7 per cent year-on-year in the second quarter to $3.8bn, or $1.09 a share. The company narrowed and raised its 2012 guidance to a range between $4.41 and $4.51 a share.
http://www.ft.com/intl/cms/s/0/9c57d3e6-c7fc-11e0-9501-00144feabdc0.html#axzz1VNxZDpJy
Our debt is unsustainable
We are on the wrong course. Our debt is unsustainable, and both parties are at fault.
“If the US Congress stopped all spending today… and if they made payments of $100,000,000.00 per day, it would take us… 389 years just to pay off our current national debt.”
Get involved. Your children’s, and your grandchildren’s future is not a spectator sport.
Watch video here
“If the US Congress stopped all spending today… and if they made payments of $100,000,000.00 per day, it would take us… 389 years just to pay off our current national debt.”
Get involved. Your children’s, and your grandchildren’s future is not a spectator sport.
Watch video here
Monday, August 15, 2011
Markets heading to new danger zone: Zoellick
SYDNEY (Reuters) - The loss of market confidence in economic leadership in key countries like the United States and Europe coupled with a fragile economic recovery have pushed markets into a new danger zone, something that policymakers have to take seriously, the head of the World Bank said on Sunday.
Speaking at the Asia Society dinner in Sydney, Robert Zoellick also said the global economy was going through a multi-speed recovery, with developing countries now the source of growth and opportunity.
"What's happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries," he said.
"I think those events combined with some of the other fragilities in the nature of recovery have pushed us into a new danger zone. I don't say those words lightly ... so that policymakers recognize and take it seriously for what it is."
Zoellick said the process of dealing with the sovereign debt problem and some of the competitive issues in the euro zone have tended to be done "a day late," leaving markets worried that authorities may not be ahead of the problem or moving in the right direction.
"That (worry) has accumulated and so we're moving from drama to trauma for a lot of the euro zone countries," he said.
On the United States, Zoellick said it wasn't fears the world's biggest economy faced an imminent problem, but "frankly that markets are used to the United States playing a key role in the economic system and leadership."
He said efforts to cut U.S. government spending have so far been focused on discretionary spending as opposed to the entitlement program such as social security. "Until they make an effort on those programs, there is going to be continued skepticism about dealing with long-term spending."
Zoellick said while market confidence has been hit, the real issue was whether this will spread to business and consumer confidence, something that was still unclear.
"What is different from the world of the past is now emerging markets are sources of growth and opportunity. About half of global growth is represented by the developing world ... so this is a very rapid change in a relatively short span of time in historical terms," he added.
On China, Zoellick said the appreciation of the yuan would be constructive, especially in helping tackle the country's inflationary pressure.
On Australia, he said the country was in a much better position than other developed countries because it undertook structural reforms. On the fiscal side, he noted Australia's debt was only 7 percent of gross domestic product and taking advantage of its position in the Asia Pacific..
http://mobile.reuters.com/article/idUSTRE77D0V620110814?irpc=932
Speaking at the Asia Society dinner in Sydney, Robert Zoellick also said the global economy was going through a multi-speed recovery, with developing countries now the source of growth and opportunity.
"What's happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries," he said.
"I think those events combined with some of the other fragilities in the nature of recovery have pushed us into a new danger zone. I don't say those words lightly ... so that policymakers recognize and take it seriously for what it is."
Zoellick said the process of dealing with the sovereign debt problem and some of the competitive issues in the euro zone have tended to be done "a day late," leaving markets worried that authorities may not be ahead of the problem or moving in the right direction.
"That (worry) has accumulated and so we're moving from drama to trauma for a lot of the euro zone countries," he said.
On the United States, Zoellick said it wasn't fears the world's biggest economy faced an imminent problem, but "frankly that markets are used to the United States playing a key role in the economic system and leadership."
He said efforts to cut U.S. government spending have so far been focused on discretionary spending as opposed to the entitlement program such as social security. "Until they make an effort on those programs, there is going to be continued skepticism about dealing with long-term spending."
Zoellick said while market confidence has been hit, the real issue was whether this will spread to business and consumer confidence, something that was still unclear.
"What is different from the world of the past is now emerging markets are sources of growth and opportunity. About half of global growth is represented by the developing world ... so this is a very rapid change in a relatively short span of time in historical terms," he added.
On China, Zoellick said the appreciation of the yuan would be constructive, especially in helping tackle the country's inflationary pressure.
On Australia, he said the country was in a much better position than other developed countries because it undertook structural reforms. On the fiscal side, he noted Australia's debt was only 7 percent of gross domestic product and taking advantage of its position in the Asia Pacific..
http://mobile.reuters.com/article/idUSTRE77D0V620110814?irpc=932
Thursday, August 11, 2011
The air is out of the Delaware Economy
After two decades of stellar performance, Delaware's economy moved in reverse during the most recent decade, and the near term outlook is subpar.
To continue reading this article by the Caesar Rodney Institute, click HERE
To continue reading this article by the Caesar Rodney Institute, click HERE
The world runs out of options
The Great Reprieve is exhausted. The world has used up the three years' grace gained by extreme stimulus after the debt bubble burst in 2008.
This time we face the risk of double-dip recession without shock absorbers. Interest rates are already at or near zero in much of the OECD club. Fiscal deficits are stretched to the limits of safety.
Far from loosening, the US is on track to tighten by 2pc of GDP next year, and Europe by 1pc to 2pc, into the slowdown.
China has already pushed credit to 200pc of GDP. It cannot repeat the trick.
The Anglo-Saxons can print more money, but the gains in asset prices for the rich are offset by losses from fuel and food inflation for the poor. This is a destructive trade-off.
The decision to throw everything we had at the crisis after Lehman-AIG was a legitimate gamble at the time, given the near certainty of depression if shock therapy had been tried – as in 1931.
It is too early to say the policy has failed, and failure is a false term when leaders confront cruel choices. Yet last week's drama has brought home the truth that suffocating debt has not gone away; it has merely hopped on to the shoulders of sovereign states, threatening just as much damage.
Standard & Poor's downgrade of the United States to AA+ is a detail in this greater drama, albeit of poignant symbolism.
S&P should have acted six years ago when the rot was setting in. To do so now is fatuous.
The US Treasury is right to disregard the verdict and keep risk weightings unchanged to avoid a cascade of forced debt sales. Note how quickly Japan, Korea, France, and even Russia, have closed ranks behind Washington.
As for China's bluster, it is chutzpah and self-delusion. We all agree that the US needs to "cure its addiction to debts", but so will China soon.
China buys US debt in order to recycle $200bn a quarter in foreign reserves, hold down the yuan, and continue its mercantilist export strategy. If China had not distorted world trade in this fashion, the US would not be in such a mess.
Unlike America, Europe still has stimulus cards it could play. Yet EMU politics prevents the use of these cards. Germany still fails to understand the logic of monetary union: that (Teutonic) surplus states have a duty to boost demand in order to offset austerity in (Latin) deficit states until equilibrium is restored. Instead, Berlin is imposing a 1930s Gold Standard formula of deflation decrees through the EU machinery, with the burden of adjustment falling on debtor states.
We may learn over coming days whether the European Central Bank is at least willing to stop the bond crisis in Italy and Spain from spiralling out of control.
"The ECB should stop hiding behind its monetary orthodoxy and remember that if there is no more Union, there will no longer be an ECB either," said ING's Peter Vanden Houte.
Umberto Bossi, the leader of Italy's Northern League, claims that a grand bargain has been agreed. The ECB will buy bonds in exchange for Italy's pledge to pull forward austerity cuts. He added that it had been a "historic mistake" to join the euro.
Investors know that the ECB did not succeed in stemming the crises in Greece, Ireland, and Portugal, despite buying almost a fifth of their debt. So any intervention would have to be massive to convince the markets, pushing the bank ever further beyond its legal mandate and treaty authority.
Yet we know that the ECB's two German members and the Dutch governor have refused to endorse such a quantum leap. It would be impossible to "sterilise" large bond purchases. The action would amount to Fed-style QE, anathema to Berlin.
Can the ECB ram through such a high-stakes policy in defiance of Europe's chief power, in breach of Maastricht's sacred contract, and still hope to preserve German acquiescence in EMU?
Berlin is losing patience. Der Spiegel cites unnamed officials warning that Italy is too big to save, and that escalating demands may "overwhelm" Germany itself.
The search for a scapegoat has begun. German MEPs and officials have begun to blame Brussels for triggering this crisis, though all it did was admit that the €440bn bail-out fund is too small to restore confidence, and that EMU is in systemic danger as contagion spreads to the core.
Even Germany's most ardent pro-Europeans seem to have given up trying to find a solution. They are building an alibi for EMU break-up instead.
This is a dangerous moment for the world. It is still possible that the growth scare of recent months will prove a false alarm.
Yet the Bank for International Settlements is surely right that we are pushing ever closer to the limits of a model that relies on artificial stimulus to keep stealing extra prosperity from the future. There is ever less to steal.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8687496/The-world-runs-out-of-options.html
This time we face the risk of double-dip recession without shock absorbers. Interest rates are already at or near zero in much of the OECD club. Fiscal deficits are stretched to the limits of safety.
Far from loosening, the US is on track to tighten by 2pc of GDP next year, and Europe by 1pc to 2pc, into the slowdown.
China has already pushed credit to 200pc of GDP. It cannot repeat the trick.
The Anglo-Saxons can print more money, but the gains in asset prices for the rich are offset by losses from fuel and food inflation for the poor. This is a destructive trade-off.
The decision to throw everything we had at the crisis after Lehman-AIG was a legitimate gamble at the time, given the near certainty of depression if shock therapy had been tried – as in 1931.
It is too early to say the policy has failed, and failure is a false term when leaders confront cruel choices. Yet last week's drama has brought home the truth that suffocating debt has not gone away; it has merely hopped on to the shoulders of sovereign states, threatening just as much damage.
Standard & Poor's downgrade of the United States to AA+ is a detail in this greater drama, albeit of poignant symbolism.
S&P should have acted six years ago when the rot was setting in. To do so now is fatuous.
The US Treasury is right to disregard the verdict and keep risk weightings unchanged to avoid a cascade of forced debt sales. Note how quickly Japan, Korea, France, and even Russia, have closed ranks behind Washington.
As for China's bluster, it is chutzpah and self-delusion. We all agree that the US needs to "cure its addiction to debts", but so will China soon.
China buys US debt in order to recycle $200bn a quarter in foreign reserves, hold down the yuan, and continue its mercantilist export strategy. If China had not distorted world trade in this fashion, the US would not be in such a mess.
Unlike America, Europe still has stimulus cards it could play. Yet EMU politics prevents the use of these cards. Germany still fails to understand the logic of monetary union: that (Teutonic) surplus states have a duty to boost demand in order to offset austerity in (Latin) deficit states until equilibrium is restored. Instead, Berlin is imposing a 1930s Gold Standard formula of deflation decrees through the EU machinery, with the burden of adjustment falling on debtor states.
We may learn over coming days whether the European Central Bank is at least willing to stop the bond crisis in Italy and Spain from spiralling out of control.
"The ECB should stop hiding behind its monetary orthodoxy and remember that if there is no more Union, there will no longer be an ECB either," said ING's Peter Vanden Houte.
Umberto Bossi, the leader of Italy's Northern League, claims that a grand bargain has been agreed. The ECB will buy bonds in exchange for Italy's pledge to pull forward austerity cuts. He added that it had been a "historic mistake" to join the euro.
Investors know that the ECB did not succeed in stemming the crises in Greece, Ireland, and Portugal, despite buying almost a fifth of their debt. So any intervention would have to be massive to convince the markets, pushing the bank ever further beyond its legal mandate and treaty authority.
Yet we know that the ECB's two German members and the Dutch governor have refused to endorse such a quantum leap. It would be impossible to "sterilise" large bond purchases. The action would amount to Fed-style QE, anathema to Berlin.
Can the ECB ram through such a high-stakes policy in defiance of Europe's chief power, in breach of Maastricht's sacred contract, and still hope to preserve German acquiescence in EMU?
Berlin is losing patience. Der Spiegel cites unnamed officials warning that Italy is too big to save, and that escalating demands may "overwhelm" Germany itself.
The search for a scapegoat has begun. German MEPs and officials have begun to blame Brussels for triggering this crisis, though all it did was admit that the €440bn bail-out fund is too small to restore confidence, and that EMU is in systemic danger as contagion spreads to the core.
Even Germany's most ardent pro-Europeans seem to have given up trying to find a solution. They are building an alibi for EMU break-up instead.
This is a dangerous moment for the world. It is still possible that the growth scare of recent months will prove a false alarm.
Yet the Bank for International Settlements is surely right that we are pushing ever closer to the limits of a model that relies on artificial stimulus to keep stealing extra prosperity from the future. There is ever less to steal.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8687496/The-world-runs-out-of-options.html
Obama v.s. the 1980s
The economic crisis that began in 2008 has thrown up several questions. How can we live with banks that are too big to fail? How can we support financial institutions during a liquidity panic without creating incentives that make liquidity panics inevitable?
To these must be added another question: After a financial crisis, how do we short circuit the political imperative to introduce polices that inhibit recovery by hitting business over the head?
FDR's depredations somehow never became much of a focus of the copious literature of the Great Depression. The historiography of the Obama Depression will not be so forgiving. American business is luckier today, in a sense: Its success is more rooted in a global economy. U.S. companies are profitable even as the domestic economy lags.
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Getty Images
Thus people like Steve Wynn, whose sharp critique of Obama policy on an earnings call turned heads last month, do not fear to speak up. Las Vegas may be in the dumps, but Mr. Wynn boasts that Wynn Resorts today is "a Chinese company in many respects and [in terms of] revenues and the rest of our financial posture" thanks to its bet on booming Macau.
A great whoosh of buy-in has greeted the idea that post-debt crisis recoveries must always be slow. But unless a lot of CEOs are lying, a policy onslaught designed to fulfill the pent-up wishes of various Democratic constituencies has been the key anti-elixir of growth.
Instead of a "stimulus" to create jobs by financing useful investments that would have paid a growth dividend in the future, we got a debt-fueled permanent expansion of entitlements and the size of government.
In health care, instead of reforms to encourage competent consumers not to treat health care as a free lunch, we got a doubling down on health-care free lunchism.
In banking, instead of new incentives to cause creditors to pull in the reins on risk-taking banks, we got a formalization of too big to fail.
All economic crises begin differently—this one began in housing—but eventually they morph into the same old crisis of forgetting what works. Think about the last big crisis of faith in American capitalism in the early 1980s. The panic was eventually crystallized in dueling Harvard Business Review articles by George Gilder and Charles Ferguson. Mr. Ferguson, an MIT-based consultant, argued the U.S was dooming itself to vassalage unless Washington brushed aside small, poorly-funded entrepreneurs and concentrated regulatory favors and subsidies on giant firms like IBM, AT&T, Digital Equipment and Kodak.
Mr. Gilder championed the then-emerging Silicon Valley paradigm. He quoted technologist Carver Mead: "We depend on the innovations of the citizens of a free economy to keep ahead of the bureaucrats and the people who make a living on control and planning. In the long term, it's the element of surprise that gives us the edge over more controlled economies."
Who won hardly needs to be belabored except that it apparently does need to be belabored. Almost everything Mr. Obama understands as pro-growth consists of bets on "bureaucrats and the people who make a living on control and planning."
Disregarded, meanwhile, is the 1980s' real lesson, embodied in a prescient little book edited by the late Joseph Pechman, dean of tax scholars at the Brookings Institution. Entitled "World Tax Reform: A Progress Report," his 1988 volume showed how country after country was following the U.S. in adopting Reagan-style rate-flattening and tax simplification.
We had plenty of unwise polices in the mix too. Yet, over the next 20 years, policies that allowed private investment and innovation to reap their natural reward paid off. Globalization may be a megatrend, but the United States is still a big economy, and who doubts that if the U.S. were following a sounder course at home that it would matter less what China is doing with its currency or how the Europeans are handling their debt mess?
Mr. Ferguson has since refashioned himself as a maker of leftwing films about the Iraq war and financial meltdown, but his spirit lives on. Mr. Obama now craves a federal infrastructure bank, apparently still unable to see how growth might emerge except by bureaucrats bossing around tax dollars.
And yet the lord smiles on the U.S. Mr. Obama's own fiscal commission—his shamefully ignored Simpson-Bowles Commission—proposed a Reagan-style tax reform. Tax reform is the political fulcrum for addressing the growth shortage, the fiscal crisis and our runaway health-care prices problem. It's the one idea that reaches across the partisan divide. It might be the only thing that could save the Obama presidency.
http://online.wsj.com/article/SB10001424053111903454504576490083559745242.html?fb_ref=wsj_share_FB&fb_source=profile_oneline
To these must be added another question: After a financial crisis, how do we short circuit the political imperative to introduce polices that inhibit recovery by hitting business over the head?
FDR's depredations somehow never became much of a focus of the copious literature of the Great Depression. The historiography of the Obama Depression will not be so forgiving. American business is luckier today, in a sense: Its success is more rooted in a global economy. U.S. companies are profitable even as the domestic economy lags.
View Full Image
Getty Images
Thus people like Steve Wynn, whose sharp critique of Obama policy on an earnings call turned heads last month, do not fear to speak up. Las Vegas may be in the dumps, but Mr. Wynn boasts that Wynn Resorts today is "a Chinese company in many respects and [in terms of] revenues and the rest of our financial posture" thanks to its bet on booming Macau.
A great whoosh of buy-in has greeted the idea that post-debt crisis recoveries must always be slow. But unless a lot of CEOs are lying, a policy onslaught designed to fulfill the pent-up wishes of various Democratic constituencies has been the key anti-elixir of growth.
Instead of a "stimulus" to create jobs by financing useful investments that would have paid a growth dividend in the future, we got a debt-fueled permanent expansion of entitlements and the size of government.
In health care, instead of reforms to encourage competent consumers not to treat health care as a free lunch, we got a doubling down on health-care free lunchism.
In banking, instead of new incentives to cause creditors to pull in the reins on risk-taking banks, we got a formalization of too big to fail.
All economic crises begin differently—this one began in housing—but eventually they morph into the same old crisis of forgetting what works. Think about the last big crisis of faith in American capitalism in the early 1980s. The panic was eventually crystallized in dueling Harvard Business Review articles by George Gilder and Charles Ferguson. Mr. Ferguson, an MIT-based consultant, argued the U.S was dooming itself to vassalage unless Washington brushed aside small, poorly-funded entrepreneurs and concentrated regulatory favors and subsidies on giant firms like IBM, AT&T, Digital Equipment and Kodak.
Mr. Gilder championed the then-emerging Silicon Valley paradigm. He quoted technologist Carver Mead: "We depend on the innovations of the citizens of a free economy to keep ahead of the bureaucrats and the people who make a living on control and planning. In the long term, it's the element of surprise that gives us the edge over more controlled economies."
Who won hardly needs to be belabored except that it apparently does need to be belabored. Almost everything Mr. Obama understands as pro-growth consists of bets on "bureaucrats and the people who make a living on control and planning."
Disregarded, meanwhile, is the 1980s' real lesson, embodied in a prescient little book edited by the late Joseph Pechman, dean of tax scholars at the Brookings Institution. Entitled "World Tax Reform: A Progress Report," his 1988 volume showed how country after country was following the U.S. in adopting Reagan-style rate-flattening and tax simplification.
We had plenty of unwise polices in the mix too. Yet, over the next 20 years, policies that allowed private investment and innovation to reap their natural reward paid off. Globalization may be a megatrend, but the United States is still a big economy, and who doubts that if the U.S. were following a sounder course at home that it would matter less what China is doing with its currency or how the Europeans are handling their debt mess?
Mr. Ferguson has since refashioned himself as a maker of leftwing films about the Iraq war and financial meltdown, but his spirit lives on. Mr. Obama now craves a federal infrastructure bank, apparently still unable to see how growth might emerge except by bureaucrats bossing around tax dollars.
And yet the lord smiles on the U.S. Mr. Obama's own fiscal commission—his shamefully ignored Simpson-Bowles Commission—proposed a Reagan-style tax reform. Tax reform is the political fulcrum for addressing the growth shortage, the fiscal crisis and our runaway health-care prices problem. It's the one idea that reaches across the partisan divide. It might be the only thing that could save the Obama presidency.
http://online.wsj.com/article/SB10001424053111903454504576490083559745242.html?fb_ref=wsj_share_FB&fb_source=profile_oneline
Tuesday, August 9, 2011
These short Youtube clips are a just a little bit dated, but they make a fantastic explanation on both the scope of our budget problems and also unemployment during this recession. They are well worth your time.
Budget Demonstration
http://www.youtube.com/watch?v=cWt8hTayupE&feature=youtube_gdata_player
Jobs Generated By Stimulus Plan
http://www.youtube.com/watch?v=CJu0DgpiK8c&feature=youtube_gdata_player
Budget Demonstration
http://www.youtube.com/watch?v=cWt8hTayupE&feature=youtube_gdata_player
Jobs Generated By Stimulus Plan
http://www.youtube.com/watch?v=CJu0DgpiK8c&feature=youtube_gdata_player
Misleading Words: Part II
There are profound insights near the end of this column. In particular, see how Dr. Sowell uses the phrase "human shields" to demonstrate exactly what so many so-called "poverty" programs are really about.
By Thomas Sowell
If there were a contest for the most misleading words used in politics, "poverty" should be one of the leading contenders for that title.
Each of us may have his own idea of what poverty means — especially those of us who grew up in poverty. But what poverty means politically and in the media is whatever the people who collect statistics choose to define as poverty.
This is not just a question of semantics. The whole future of the welfare state depends on how poverty is defined. "The poor" are the human shields behind whom advocates of ever bigger spending for ever bigger government advance toward their goal.
If poverty meant what most people think of as poverty — people "ill-clad, ill-housed, and ill-nourished," in Franklin D. Roosevelt's phrase — there would not be nearly enough people in poverty today to justify the vastly expanded powers and runaway spending of the federal government.
Robert Rector of the Heritage Foundation has for years examined what "the poor" of today actually have — and the economic facts completely undermine the political rhetoric.
Official data cited by Rector show that 80 percent of "poor" households have air-conditioning today, which less than half the population of America had in 1970. Nearly three-quarters of households in poverty own a motor vehicle, and nearly one-third own more than one motor vehicle.
Virtually everyone living in "poverty," as defined by the government, has color television, and most have cable TV or satellite TV. More than three-quarters have either a VCR or a DVD player, and nearly nine-tenths have a microwave oven.
RECEIVE LIBERTY LOVING COLUMNISTS IN YOUR INBOX … FOR FREE!
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As for being "ill-housed," the average poor American has more living space than the general population — not just the poor population — of London, Paris and other cities in Europe.
Various attempts have been made over the years to depict Americans in poverty as "ill-fed" but the "hunger in America" campaigns that have enjoyed such political and media popularity have usually used some pretty creative methods and definitions.
Actual studies of "the poor" have found their intake of the necessary nutrients to be no less than that of others. In fact, obesity is slightly more prevalent among low-income people.
The real triumph of words over reality, however, is in expensive government programs for "the elderly," including Medicare. The image often invoked is the person who is both ill and elderly, and who has to choose between food and medications.
It is great political theater. But, the most fundamental reality is that the average wealth of the elderly is some multiple of the average wealth owned by people in the other age brackets.
Why should the average taxpayer be subsidizing people who have much more wealth than they do?
If we are concerned about those particular elderly people who are in fact poor — as we are about other people who are genuinely poor, whatever their age might be — then we can simply confine our help to those who are poor by some reasonable means test. It would cost a fraction of what it costs to subsidize everybody who reaches a certain age.
But the political left hates means tests. If government programs were confined to people who were genuinely poor in some meaningful sense, that would shrink the welfare state to a fraction of its current size. The left would lose their human shields.
It is certainly true that the elderly are more likely to have more medical problems and larger medical expenses. But old age is not some unforeseeable misfortune. It is not only foreseeable but inevitable for those who do not die young.
It is one thing to keep people from suffering from unforeseeable things beyond their control. But it is something else to simply subsidize their necessities so that they can spend their money on other things and leave a larger estate to be passed on to their heirs.
People who say they want a government program because "I don't want to be a burden to my children" apparently think it is all right to be a burden to other people's children.
Among the runaway spending behind our current national debt problems is the extravagant luxury of buying political rhetoric.
http://jewishworldreview.com/cols/sowell080311.php3
By Thomas Sowell
If there were a contest for the most misleading words used in politics, "poverty" should be one of the leading contenders for that title.
Each of us may have his own idea of what poverty means — especially those of us who grew up in poverty. But what poverty means politically and in the media is whatever the people who collect statistics choose to define as poverty.
This is not just a question of semantics. The whole future of the welfare state depends on how poverty is defined. "The poor" are the human shields behind whom advocates of ever bigger spending for ever bigger government advance toward their goal.
If poverty meant what most people think of as poverty — people "ill-clad, ill-housed, and ill-nourished," in Franklin D. Roosevelt's phrase — there would not be nearly enough people in poverty today to justify the vastly expanded powers and runaway spending of the federal government.
Robert Rector of the Heritage Foundation has for years examined what "the poor" of today actually have — and the economic facts completely undermine the political rhetoric.
Official data cited by Rector show that 80 percent of "poor" households have air-conditioning today, which less than half the population of America had in 1970. Nearly three-quarters of households in poverty own a motor vehicle, and nearly one-third own more than one motor vehicle.
Virtually everyone living in "poverty," as defined by the government, has color television, and most have cable TV or satellite TV. More than three-quarters have either a VCR or a DVD player, and nearly nine-tenths have a microwave oven.
RECEIVE LIBERTY LOVING COLUMNISTS IN YOUR INBOX … FOR FREE!
Every weekday NewsAndOpinion.com publishes what many in the media and Washington consider "must-reading". HUNDREDS of columnists and cartoonists regularly appear. Sign up for the daily update. It's free. Just click here.
As for being "ill-housed," the average poor American has more living space than the general population — not just the poor population — of London, Paris and other cities in Europe.
Various attempts have been made over the years to depict Americans in poverty as "ill-fed" but the "hunger in America" campaigns that have enjoyed such political and media popularity have usually used some pretty creative methods and definitions.
Actual studies of "the poor" have found their intake of the necessary nutrients to be no less than that of others. In fact, obesity is slightly more prevalent among low-income people.
The real triumph of words over reality, however, is in expensive government programs for "the elderly," including Medicare. The image often invoked is the person who is both ill and elderly, and who has to choose between food and medications.
It is great political theater. But, the most fundamental reality is that the average wealth of the elderly is some multiple of the average wealth owned by people in the other age brackets.
Why should the average taxpayer be subsidizing people who have much more wealth than they do?
If we are concerned about those particular elderly people who are in fact poor — as we are about other people who are genuinely poor, whatever their age might be — then we can simply confine our help to those who are poor by some reasonable means test. It would cost a fraction of what it costs to subsidize everybody who reaches a certain age.
But the political left hates means tests. If government programs were confined to people who were genuinely poor in some meaningful sense, that would shrink the welfare state to a fraction of its current size. The left would lose their human shields.
It is certainly true that the elderly are more likely to have more medical problems and larger medical expenses. But old age is not some unforeseeable misfortune. It is not only foreseeable but inevitable for those who do not die young.
It is one thing to keep people from suffering from unforeseeable things beyond their control. But it is something else to simply subsidize their necessities so that they can spend their money on other things and leave a larger estate to be passed on to their heirs.
People who say they want a government program because "I don't want to be a burden to my children" apparently think it is all right to be a burden to other people's children.
Among the runaway spending behind our current national debt problems is the extravagant luxury of buying political rhetoric.
http://jewishworldreview.com/cols/sowell080311.php3
Friday, August 5, 2011
Food stamp use rises to record 45.8 million
NEW YORK (CNNMoney) -- Nearly 15% of the U.S. population relied on food stamps in May, according to the United States Department of Agriculture.
The number of Americans using the government's Supplemental Nutrition Assistance Program (SNAP) -- more commonly referred to as food stamps -- shot to an all-time high of 45.8 million in May, the USDA reported. That's up 12% from a year ago, and 34% higher than two years ago.
The program provides monthly benefits to low-income individuals and families, which they can use at stores that accept SNAP benefits.
To qualify for food stamps, an individual's income can't exceed $1,174 a month or $14,088 a year -- an amount that is 130% of the national poverty level.
The average food stamp benefit was $133.80 per person and $283.65 per household in May.
The highest concentration of food stamp users were in California, Florida, New York and Texas -- where more than 3 million residents in each state received food stamps in May.
The rise in food stamp use comes as the U.S. job market continues to sputter, and food prices across the country climb.
Unemployment benefits at risk
But a spike in food stamp users in Alabama may have been responsible for pushing total usage unusually higher in May. Following a series of devastating storms, many residents received disaster assistance under the Disaster Supplemental Nutrition Assistance Program, the USDA said. Food stamp use in the state surged from 868,813 in April to 1,762,481 in May.
"USDA does not anticipate that trend of increase to continue, given that it appears to represent a response to a single disaster," the USDA said.
http://money.cnn.com/2011/08/04/pf/food_stamps_record_high/index.htm?iid=HP_River
The number of Americans using the government's Supplemental Nutrition Assistance Program (SNAP) -- more commonly referred to as food stamps -- shot to an all-time high of 45.8 million in May, the USDA reported. That's up 12% from a year ago, and 34% higher than two years ago.
The program provides monthly benefits to low-income individuals and families, which they can use at stores that accept SNAP benefits.
To qualify for food stamps, an individual's income can't exceed $1,174 a month or $14,088 a year -- an amount that is 130% of the national poverty level.
The average food stamp benefit was $133.80 per person and $283.65 per household in May.
The highest concentration of food stamp users were in California, Florida, New York and Texas -- where more than 3 million residents in each state received food stamps in May.
The rise in food stamp use comes as the U.S. job market continues to sputter, and food prices across the country climb.
Unemployment benefits at risk
But a spike in food stamp users in Alabama may have been responsible for pushing total usage unusually higher in May. Following a series of devastating storms, many residents received disaster assistance under the Disaster Supplemental Nutrition Assistance Program, the USDA said. Food stamp use in the state surged from 868,813 in April to 1,762,481 in May.
"USDA does not anticipate that trend of increase to continue, given that it appears to represent a response to a single disaster," the USDA said.
http://money.cnn.com/2011/08/04/pf/food_stamps_record_high/index.htm?iid=HP_River
New Yorkers Fleeing State
Taxed-out New Yorkers are voting with their feet, with a staggering 1.6 million residents fleeing the state over the last decade.
For the second consecutive decade, New York led the nation in the percentage of residents leaving for other states, according to the report by the Empire Center for State Policy.
The population loss is "the ultimate barometer of New York's attractiveness as a place to work, live and do business," the report's co-author, E.J. McMahon, said. "It's the ultimate indication that we've been doing things wrong."
Most analysts blamed New York's high taxes and skyrocketing cost of living for the mass exodus.
The Tax Foundation ranked New York highest in the nation in the combined state and local tax burden in 2008. And as small-business lobbyist Mike Durant noted, New York has also "consistently ranked worst or in the top three worst in business climate. You can't suck every penny out of people and expect them to remain in New York."
Since 1960, New York has lost 7.3 million residents to other states -- a net loss of 2.5 million people after adding in an influx of 4.8 million new immigrants, the study found.
Overall, the state's population grew by 2 percent between 2000 and 2010, but that rate that fell far behind states with lower taxes, growing economies and warmer climates like Nevada, Florida and Arizona, the three fastest-growing states, according to The New York Post.
http://www.myfoxny.com/dpp/news/new-yorkers-fleeing-state-ncx-20110803
For the second consecutive decade, New York led the nation in the percentage of residents leaving for other states, according to the report by the Empire Center for State Policy.
The population loss is "the ultimate barometer of New York's attractiveness as a place to work, live and do business," the report's co-author, E.J. McMahon, said. "It's the ultimate indication that we've been doing things wrong."
Most analysts blamed New York's high taxes and skyrocketing cost of living for the mass exodus.
The Tax Foundation ranked New York highest in the nation in the combined state and local tax burden in 2008. And as small-business lobbyist Mike Durant noted, New York has also "consistently ranked worst or in the top three worst in business climate. You can't suck every penny out of people and expect them to remain in New York."
Since 1960, New York has lost 7.3 million residents to other states -- a net loss of 2.5 million people after adding in an influx of 4.8 million new immigrants, the study found.
Overall, the state's population grew by 2 percent between 2000 and 2010, but that rate that fell far behind states with lower taxes, growing economies and warmer climates like Nevada, Florida and Arizona, the three fastest-growing states, according to The New York Post.
http://www.myfoxny.com/dpp/news/new-yorkers-fleeing-state-ncx-20110803
Free cell phones are now a civil right
Pennsylvanians on public assistance now have a new 'civil right' -- free cell phones. Meanwhile, the rest of us get to pay higher cell bills as a result.
Recently, a federal government program called the Universal Service Fund came to the Keystone State and some residents are thrilled because it means they can enjoy 250 minutes a month and a handset for free, just because they don't have the money to pay for it. Through Assurance Wireless and SafeLink from Tracfone Wireless these folks get to reach out and touch someone while the cost of their service is paid for by everyone else. You see, the telecommunications companies are funding the Universal Service Fund to the tune of $4 billion a year because the feds said they have to and in order to recoup their money, the companies turn around and hike their fees to paying customers. But those of use paying for the free service for the poor, should be happy about this infuriating situation, says Gary Carter, manager of national partnerships for Assurance, because "the program is about peace of mind." Free cell service means "one less bill that someone has to pay, so they can pay their rent or for day care...it is a right to have peace of mind," Cater explained.
Well, the telecommunications companies don't seem to love providing this 'right' to poor folks because they are trying to renegotiate the deal with the FCC. The telecommunications companies like Verizon and AT&T want more paying customers, but their desire to reform their deal with the feds dovetails nicely with the political ideology of the current FCC chairman Julian Genachowski, who like all Obama administration flunkies sees 'rights' where others see 'priviledges'. Just listen to how the agency put the question of providing broadband and cell service to those in rural and poor communities. "The goal of reform is to provide everyone with affordable voice and broadband," the agency said.
Between 14 million and 24 million Americans lack access to broadband, "and immediate prospects for deployment to them are bleak," the FCC said in a report last year. "Many of these Americans are poor or live in rural areas that will remain unserved without reform of the universal service program and other changes," the report said.
But who says that cheap or free broadband is anything more than a luxury?
Well, another Obama flunkie, Rahm Emanuel, that's who. As we reported in June , the new mayor of Chicago was all excited to proclaim the wonderful news of free internet service to poor kids in Chicago's worst neighborhoods. And how could Mayor Emanuel pay for this new 'civil right'? Well, because the federal government extorted the money from Comcast when it wanted to buy NBC-Universal. Once again FCC chairman Genachowski was all about "helping the kids" by forcing the internet provider to give poor kids free netbooks, laptops, and internet service, indefinitely. And who is going to pay for this gift? Well, of course the rest of us poor saps who actually pay our bills.
http://m.nypost.com/p/blogs/capitol/free_cell_phones_are_civil_right_htTMcKQFrjdvyl9A6NHPdP
Recently, a federal government program called the Universal Service Fund came to the Keystone State and some residents are thrilled because it means they can enjoy 250 minutes a month and a handset for free, just because they don't have the money to pay for it. Through Assurance Wireless and SafeLink from Tracfone Wireless these folks get to reach out and touch someone while the cost of their service is paid for by everyone else. You see, the telecommunications companies are funding the Universal Service Fund to the tune of $4 billion a year because the feds said they have to and in order to recoup their money, the companies turn around and hike their fees to paying customers. But those of use paying for the free service for the poor, should be happy about this infuriating situation, says Gary Carter, manager of national partnerships for Assurance, because "the program is about peace of mind." Free cell service means "one less bill that someone has to pay, so they can pay their rent or for day care...it is a right to have peace of mind," Cater explained.
Well, the telecommunications companies don't seem to love providing this 'right' to poor folks because they are trying to renegotiate the deal with the FCC. The telecommunications companies like Verizon and AT&T want more paying customers, but their desire to reform their deal with the feds dovetails nicely with the political ideology of the current FCC chairman Julian Genachowski, who like all Obama administration flunkies sees 'rights' where others see 'priviledges'. Just listen to how the agency put the question of providing broadband and cell service to those in rural and poor communities. "The goal of reform is to provide everyone with affordable voice and broadband," the agency said.
Between 14 million and 24 million Americans lack access to broadband, "and immediate prospects for deployment to them are bleak," the FCC said in a report last year. "Many of these Americans are poor or live in rural areas that will remain unserved without reform of the universal service program and other changes," the report said.
But who says that cheap or free broadband is anything more than a luxury?
Well, another Obama flunkie, Rahm Emanuel, that's who. As we reported in June , the new mayor of Chicago was all excited to proclaim the wonderful news of free internet service to poor kids in Chicago's worst neighborhoods. And how could Mayor Emanuel pay for this new 'civil right'? Well, because the federal government extorted the money from Comcast when it wanted to buy NBC-Universal. Once again FCC chairman Genachowski was all about "helping the kids" by forcing the internet provider to give poor kids free netbooks, laptops, and internet service, indefinitely. And who is going to pay for this gift? Well, of course the rest of us poor saps who actually pay our bills.
http://m.nypost.com/p/blogs/capitol/free_cell_phones_are_civil_right_htTMcKQFrjdvyl9A6NHPdP
Monday, August 1, 2011
NIA Exposes Debt Ceiling Truth
NIA hasn't written about the whole debt ceiling issue over the past few weeks because in our minds it is completely irrelevant. Our elected representatives in Washington along with the mainstream media have been wasting thousands of hours of time and hundreds of millions of dollars debating a topic that has no meaning at all. The President, Senate, and House of Representatives are putting on a show to make it look like they care about cutting spending and balancing the budget. Except for a select few elected representatives like Ron Paul who care about protecting the U.S. Constitution and preserving what little purchasing power the U.S. dollar still has left, every other politician in Washington is putting on a complete charade in order to trick their constituents into believing there is a difference between the proposals from the Republicans and Democrats.
While our incompetent and corrupt mainstream media has been proclaiming there are major differences between the two bills proposed by House Speaker John Boehner and Senate Majority Leader Harry Reid, NIA believes John Boehner might as well be a Democrat and Harry Reid could easily pass himself off as a Republican. There are absolutely no meaningful fundamental differences between Boehner's plan that was approved by the House of Representatives yesterday evening, before being killed by the Senate two short hours later, and Reid's bill, which was just rejected by the House today in a pre-emptive vote before the Senate even had a chance to vote on it.
Both bills are estimated to reduce the U.S. budget deficit by approximately $900 billion over the next 10 years. Of the $900 billion only about $750 billion are actual discretionary spending cuts with the rest being an expected reduction in interest payments on the national debt as a result of either bill passing. When you have an unstable fiat currency that is rapidly losing its purchasing power and could collapse at any time, it is impossible to accurately project what our budget deficits will be 5 or 6 years from now, let alone 9 or 10 years from today. As far as the next two fiscal years are concerned, both proposed bills from Boehner and Reid are estimated to only cut spending by a total of about $70 billion in fiscal years 2012 and 2013 combined.
The budget that former President Bush submitted to Congress in early-2007, projected the deficit to decline in each of the following four fiscal years. Not only did the deficit not decline the next four years in a row, but it nearly tripled in 2008 and from there more than tripled in 2009. Shockingly, Bush's budget actually projected a $61 billion surplus in fiscal year 2012, but instead we will have a budget deficit of $1.1 trillion based on President Obama's latest budget, which takes into account unrealistic GDP growth next year of 4.86%.
U.S. GDP growth for the first quarter of 2011 was just revised down yesterday by 81% from 1.91% to 0.36%. The advance estimate of second quarter GDP growth came in at 1.28%, well below the consensus estimate of 1.8%. NIA is going to really go out on a limb and predict that second quarter GDP growth will soon be revised downward as well. If this is the highest GDP growth the U.S. could muster after the Federal Reserve's $600 billion in QE2 money printing, this should prove once and for all that monetary inflation does not create real economic growth and employment.
The U.S. Treasury as of Thursday night had $51.6 billion in cash, with its cash position declining by $15.2 billion during the previous 24 hours. It expects to bring in $172.4 billion from August 3rd through August 31st in tax receipts, but is scheduled to pay out $306.7 billion during this time period for an estimated deficit of $134.3 billion. The U.S. is scheduled to make its next interest payment on the national debt on August 15th and it will equal approximately $30 billion. Over the last 9 months the U.S. has spent a total of $385.9 billion on interest payments on the national debt, which means it is on track to spend a record $514.5 billion this year on interest payments alone. Just a tiny 30 basis point increase in the interest rate on the national debt would totally wipe out the deficit reductions proposed by both Boehner and Reid.
The U.S. Treasury has been able to pay its bills in recent weeks by using many different accounting gimmicks. However, come Tuesday, there will be no more accounting tricks left to play and the U.S. won't be able to meet all of its obligations. Without a raise in the debt ceiling, the U.S. government will have to prioritize who it pays using the tax receipts coming in, which will probably include the $30 billion interest payment on the national debt (to avoid a default), $49.2 billion in Social Security payments, $50 billion in Medicare/Medicaid payments, $31.7 billion in defense payments, and $12.8 billion in unemployment benefits. With $23 billion of the $49.2 billion in Social Security payments due to be paid on August 3rd and $59 billion in t-bills due on August 4th, the U.S. Treasury's remaining cash balance could dissipate very quickly.
The 10-year bond yield reached a new 2011 low yesterday of 2.785%, its lowest level since November 30th of last year. It is approaching its record low of 2.08% from December of 2008 during the middle of the financial crisis. With threats of a U.S. debt default making headlines across the world, investors are once again rushing into U.S. bonds as a safe haven. It is almost as if the whole world has gone insane. The world is fearful of the U.S. government defaulting on its debt and not being able to pay off maturing bonds, so as a safe haven let's just all rush into the very asset that will soon be worthless due to either an honest default or default by inflation. The U.S. dollar bubble is the largest and longest running bubble in world history and U.S. bonds are currently mispriced big time.
U.S. dollar-denominated bonds should be the last asset in the world to benefit from fears of a U.S. debt default. One positive sign that NIA members are having success at spreading our message to the world is that gold reached a new all time high yesterday, rising $15 to $1,631 per ounce, with silver rising $0.31 to $40.10 per ounce. Thanks to the efforts of NIA members who worked tirelessly to spread the word about NIA's economic documentaries including 'Meltup', 'The Dollar Bubble', and 'Hyperinflation Nation', a larger percentage of the global population than ever before is educated about the global currency crisis that is ahead.
During the financial crisis of late-2008/early-2009, gold and silver prices declined along with all other assets. Today, NIA estimates that half of the world's investors seeking a safe haven are buying dollar-denominated assets like U.S. Treasuries and the other half are seeking safety in precious metals. By mid-2012, investors will most likely no longer look at U.S. bonds and other dollar-denominated assets as a safe haven. During future times of uncertainty, NIA believes that precious metals will receive nearly 100% of safe haven buying, just like the U.S. dollar received 100% of safe haven buying in late-2008/early-2009.
Once the debt ceiling is inevitably raised, the U.S. Treasury will have a lot of catching up to do in order to get its house in order, and we will likely see the largest amount of debt ever sold by the U.S. government in a single month. With QE2 having finished at the end of June, the U.S. will be relying on foreigners in these upcoming record Treasury auctions. In our opinion, we are likely going to see interest rates rise at an unprecedented rate that will shock the world.
Don't believe the mainstream media's laughable claim that there is a shortage of U.S. Treasuries. It was just reported yesterday that Cambodia, one of the most rapidly growing emerging market economies with GDP growth this year of 6.5%, is moving away from the U.S. dollar, which currently accounts for 90% of their currency in circulation, in favor of its own currency the riel. NIA believes it is only a matter of time until China ends its currency peg with the U.S. dollar. The world is flooded with trillions of dollars in U.S. Treasuries that will soon have no buyers except the Federal Reserve. There is no chance of yields falling below record lows from December of 2008.
The mainstream media has been reporting all week that if the U.S. defaults on its debt as a result of a failure to raise the debt ceiling, it will be the first time that our nation has defaulted on its debt obligations. Most NIA members know that the real U.S. debt default already occurred in 1971 when President Nixon closed the gold window and stopped allowing foreign governments to convert their U.S. dollar holdings into gold. Since then, the U.S. currency system has been completely fiat and the national debt has increased by 3,400%.
For the past 40 years, the U.S. government has been running on fumes left over from when countries were able to convert their paper U.S. dollars into gold. The price of gold has increased by 3,900% during this time period, meaning the U.S. dollar has lost 97.5% of its purchasing power. Meanwhile, the median household income has only increased by 384%. In terms of gold, the median U.S. household is earning 87.9% less income today than they did in 1971. The U.S. debt default of 1971 was many times more significant than the pending debt default, because back then our foreign creditors expected to receive real money and not a piece of paper with no real value that we print. The average American family has experienced a dramatic decline in its standard of living since 1971. The U.S. dollar and its reserve currency status is currently serving as the last thread that is keeping our "house of cards" economy propped up.
The U.S. debt ceiling is very similar to a publicly traded company's authorized shares. When a public company consistently loses money like the U.S. government does, they print new shares just like the Federal Reserve prints dollars and when its total outstanding shares reach the shares authorized, the company's Board of Directors simply raises the shares authorized, which allows it to continue issuing shares and diluting shareholders. Since 1962, the U.S. has raised its debt ceiling 74 times. Any public company that needed to raise its authorized shares 74 times would likely have seen its stock price decline by 99.99% from above $10 to below 1 penny.
NIA is strongly against an increase in the debt ceiling because there are ways for our country to stay afloat and continue operating without getting deeper into debt. The U.S. is currently supposed to have 8,133.5 tonnes of gold reserves at Fort Knox. We don't know for sure if these gold reserves still exist because the last audit of our gold reserves took place in 1954 and we had the little minor issue of our real debt default in 1971. Assuming that all of our gold is still there, this gold is worth $426.5 billion at the present time, enough to cover our U.S. government's deficit spending for almost four whole months. The U.S. government also owns valuable land, buildings, monuments, and other types of Real Estate, that could also be worth hundreds of billions of dollars. Although we don't support selling all of our gold and Real Estate, if the U.S. government isn't going to implement real spending cuts that will lead to a balanced budget, we rather sell our assets than see the dollar-denominated savings and incomes of all Americans lose its purchasing power.
If we continue raising the debt ceiling and getting deeper into debt in order to pay back the debts we already have, we are defaulting on our debts through inflation. With gold at a record high of $1,631 per ounce, the market is clearly telling us that a default through inflation is coming. As the Chinese, Japanese, and our other creditors are paid back in U.S. dollars that are rapidly losing their purchasing power, they will be reluctant to increase their purchases of U.S. Treasuries in the future, which we desperately need them to do in order to fund our spending increases. With the Federal Reserve likely to become the Treasury buyer of last resort, the world will lose their confidence in the U.S. dollar and hyperinflation could potentially break out as soon as 2013.
NIA believes it is very likely that U.S. GDP will begin declining again in late-2011, which will officially put the U.S. in double-dip recession territory. In our opinion, the U.S. is still in the early stages of a hyperinflationary depression and the so-called economic recovery reported by the government and mainstream media has been completely phony and only due to misleading and manipulated economic statistics that don't factor in the real rate of U.S. price inflation. We expect Federal Reserve Chairman Ben Bernanke to do everything in his power to avoid a double-dip recession at all costs.
By the end of 2011, we are confident that not only will we see QE3 under a new name, but the Fed will act to force banks to lend their $1.6 trillion in excess reserves. It is a joke that we are debating spending cuts of $70 billion over the next two years, when only very dramatic across the board spending cuts of 50% or more of the total budget will give the U.S. any hope of balancing the budget and avoiding hyperinflation. Best case scenario, if the U.S. government cuts spending by 50% or more in all areas of the budget including entitlement programs and is able to prevent hyperinflation, NIA still believes we will see the U.S. dollar lose 90% of its purchasing power this decade with the price of gold rising to above $16,000 per ounce.
It is important to spread the word about NIA to as many people as possible, as quickly as possible, if you want America to survive hyperinflation. Please tell everybody you know to become members of NIA for free immediately at: http://inflation.us
While our incompetent and corrupt mainstream media has been proclaiming there are major differences between the two bills proposed by House Speaker John Boehner and Senate Majority Leader Harry Reid, NIA believes John Boehner might as well be a Democrat and Harry Reid could easily pass himself off as a Republican. There are absolutely no meaningful fundamental differences between Boehner's plan that was approved by the House of Representatives yesterday evening, before being killed by the Senate two short hours later, and Reid's bill, which was just rejected by the House today in a pre-emptive vote before the Senate even had a chance to vote on it.
Both bills are estimated to reduce the U.S. budget deficit by approximately $900 billion over the next 10 years. Of the $900 billion only about $750 billion are actual discretionary spending cuts with the rest being an expected reduction in interest payments on the national debt as a result of either bill passing. When you have an unstable fiat currency that is rapidly losing its purchasing power and could collapse at any time, it is impossible to accurately project what our budget deficits will be 5 or 6 years from now, let alone 9 or 10 years from today. As far as the next two fiscal years are concerned, both proposed bills from Boehner and Reid are estimated to only cut spending by a total of about $70 billion in fiscal years 2012 and 2013 combined.
The budget that former President Bush submitted to Congress in early-2007, projected the deficit to decline in each of the following four fiscal years. Not only did the deficit not decline the next four years in a row, but it nearly tripled in 2008 and from there more than tripled in 2009. Shockingly, Bush's budget actually projected a $61 billion surplus in fiscal year 2012, but instead we will have a budget deficit of $1.1 trillion based on President Obama's latest budget, which takes into account unrealistic GDP growth next year of 4.86%.
U.S. GDP growth for the first quarter of 2011 was just revised down yesterday by 81% from 1.91% to 0.36%. The advance estimate of second quarter GDP growth came in at 1.28%, well below the consensus estimate of 1.8%. NIA is going to really go out on a limb and predict that second quarter GDP growth will soon be revised downward as well. If this is the highest GDP growth the U.S. could muster after the Federal Reserve's $600 billion in QE2 money printing, this should prove once and for all that monetary inflation does not create real economic growth and employment.
The U.S. Treasury as of Thursday night had $51.6 billion in cash, with its cash position declining by $15.2 billion during the previous 24 hours. It expects to bring in $172.4 billion from August 3rd through August 31st in tax receipts, but is scheduled to pay out $306.7 billion during this time period for an estimated deficit of $134.3 billion. The U.S. is scheduled to make its next interest payment on the national debt on August 15th and it will equal approximately $30 billion. Over the last 9 months the U.S. has spent a total of $385.9 billion on interest payments on the national debt, which means it is on track to spend a record $514.5 billion this year on interest payments alone. Just a tiny 30 basis point increase in the interest rate on the national debt would totally wipe out the deficit reductions proposed by both Boehner and Reid.
The U.S. Treasury has been able to pay its bills in recent weeks by using many different accounting gimmicks. However, come Tuesday, there will be no more accounting tricks left to play and the U.S. won't be able to meet all of its obligations. Without a raise in the debt ceiling, the U.S. government will have to prioritize who it pays using the tax receipts coming in, which will probably include the $30 billion interest payment on the national debt (to avoid a default), $49.2 billion in Social Security payments, $50 billion in Medicare/Medicaid payments, $31.7 billion in defense payments, and $12.8 billion in unemployment benefits. With $23 billion of the $49.2 billion in Social Security payments due to be paid on August 3rd and $59 billion in t-bills due on August 4th, the U.S. Treasury's remaining cash balance could dissipate very quickly.
The 10-year bond yield reached a new 2011 low yesterday of 2.785%, its lowest level since November 30th of last year. It is approaching its record low of 2.08% from December of 2008 during the middle of the financial crisis. With threats of a U.S. debt default making headlines across the world, investors are once again rushing into U.S. bonds as a safe haven. It is almost as if the whole world has gone insane. The world is fearful of the U.S. government defaulting on its debt and not being able to pay off maturing bonds, so as a safe haven let's just all rush into the very asset that will soon be worthless due to either an honest default or default by inflation. The U.S. dollar bubble is the largest and longest running bubble in world history and U.S. bonds are currently mispriced big time.
U.S. dollar-denominated bonds should be the last asset in the world to benefit from fears of a U.S. debt default. One positive sign that NIA members are having success at spreading our message to the world is that gold reached a new all time high yesterday, rising $15 to $1,631 per ounce, with silver rising $0.31 to $40.10 per ounce. Thanks to the efforts of NIA members who worked tirelessly to spread the word about NIA's economic documentaries including 'Meltup', 'The Dollar Bubble', and 'Hyperinflation Nation', a larger percentage of the global population than ever before is educated about the global currency crisis that is ahead.
During the financial crisis of late-2008/early-2009, gold and silver prices declined along with all other assets. Today, NIA estimates that half of the world's investors seeking a safe haven are buying dollar-denominated assets like U.S. Treasuries and the other half are seeking safety in precious metals. By mid-2012, investors will most likely no longer look at U.S. bonds and other dollar-denominated assets as a safe haven. During future times of uncertainty, NIA believes that precious metals will receive nearly 100% of safe haven buying, just like the U.S. dollar received 100% of safe haven buying in late-2008/early-2009.
Once the debt ceiling is inevitably raised, the U.S. Treasury will have a lot of catching up to do in order to get its house in order, and we will likely see the largest amount of debt ever sold by the U.S. government in a single month. With QE2 having finished at the end of June, the U.S. will be relying on foreigners in these upcoming record Treasury auctions. In our opinion, we are likely going to see interest rates rise at an unprecedented rate that will shock the world.
Don't believe the mainstream media's laughable claim that there is a shortage of U.S. Treasuries. It was just reported yesterday that Cambodia, one of the most rapidly growing emerging market economies with GDP growth this year of 6.5%, is moving away from the U.S. dollar, which currently accounts for 90% of their currency in circulation, in favor of its own currency the riel. NIA believes it is only a matter of time until China ends its currency peg with the U.S. dollar. The world is flooded with trillions of dollars in U.S. Treasuries that will soon have no buyers except the Federal Reserve. There is no chance of yields falling below record lows from December of 2008.
The mainstream media has been reporting all week that if the U.S. defaults on its debt as a result of a failure to raise the debt ceiling, it will be the first time that our nation has defaulted on its debt obligations. Most NIA members know that the real U.S. debt default already occurred in 1971 when President Nixon closed the gold window and stopped allowing foreign governments to convert their U.S. dollar holdings into gold. Since then, the U.S. currency system has been completely fiat and the national debt has increased by 3,400%.
For the past 40 years, the U.S. government has been running on fumes left over from when countries were able to convert their paper U.S. dollars into gold. The price of gold has increased by 3,900% during this time period, meaning the U.S. dollar has lost 97.5% of its purchasing power. Meanwhile, the median household income has only increased by 384%. In terms of gold, the median U.S. household is earning 87.9% less income today than they did in 1971. The U.S. debt default of 1971 was many times more significant than the pending debt default, because back then our foreign creditors expected to receive real money and not a piece of paper with no real value that we print. The average American family has experienced a dramatic decline in its standard of living since 1971. The U.S. dollar and its reserve currency status is currently serving as the last thread that is keeping our "house of cards" economy propped up.
The U.S. debt ceiling is very similar to a publicly traded company's authorized shares. When a public company consistently loses money like the U.S. government does, they print new shares just like the Federal Reserve prints dollars and when its total outstanding shares reach the shares authorized, the company's Board of Directors simply raises the shares authorized, which allows it to continue issuing shares and diluting shareholders. Since 1962, the U.S. has raised its debt ceiling 74 times. Any public company that needed to raise its authorized shares 74 times would likely have seen its stock price decline by 99.99% from above $10 to below 1 penny.
NIA is strongly against an increase in the debt ceiling because there are ways for our country to stay afloat and continue operating without getting deeper into debt. The U.S. is currently supposed to have 8,133.5 tonnes of gold reserves at Fort Knox. We don't know for sure if these gold reserves still exist because the last audit of our gold reserves took place in 1954 and we had the little minor issue of our real debt default in 1971. Assuming that all of our gold is still there, this gold is worth $426.5 billion at the present time, enough to cover our U.S. government's deficit spending for almost four whole months. The U.S. government also owns valuable land, buildings, monuments, and other types of Real Estate, that could also be worth hundreds of billions of dollars. Although we don't support selling all of our gold and Real Estate, if the U.S. government isn't going to implement real spending cuts that will lead to a balanced budget, we rather sell our assets than see the dollar-denominated savings and incomes of all Americans lose its purchasing power.
If we continue raising the debt ceiling and getting deeper into debt in order to pay back the debts we already have, we are defaulting on our debts through inflation. With gold at a record high of $1,631 per ounce, the market is clearly telling us that a default through inflation is coming. As the Chinese, Japanese, and our other creditors are paid back in U.S. dollars that are rapidly losing their purchasing power, they will be reluctant to increase their purchases of U.S. Treasuries in the future, which we desperately need them to do in order to fund our spending increases. With the Federal Reserve likely to become the Treasury buyer of last resort, the world will lose their confidence in the U.S. dollar and hyperinflation could potentially break out as soon as 2013.
NIA believes it is very likely that U.S. GDP will begin declining again in late-2011, which will officially put the U.S. in double-dip recession territory. In our opinion, the U.S. is still in the early stages of a hyperinflationary depression and the so-called economic recovery reported by the government and mainstream media has been completely phony and only due to misleading and manipulated economic statistics that don't factor in the real rate of U.S. price inflation. We expect Federal Reserve Chairman Ben Bernanke to do everything in his power to avoid a double-dip recession at all costs.
By the end of 2011, we are confident that not only will we see QE3 under a new name, but the Fed will act to force banks to lend their $1.6 trillion in excess reserves. It is a joke that we are debating spending cuts of $70 billion over the next two years, when only very dramatic across the board spending cuts of 50% or more of the total budget will give the U.S. any hope of balancing the budget and avoiding hyperinflation. Best case scenario, if the U.S. government cuts spending by 50% or more in all areas of the budget including entitlement programs and is able to prevent hyperinflation, NIA still believes we will see the U.S. dollar lose 90% of its purchasing power this decade with the price of gold rising to above $16,000 per ounce.
It is important to spread the word about NIA to as many people as possible, as quickly as possible, if you want America to survive hyperinflation. Please tell everybody you know to become members of NIA for free immediately at: http://inflation.us
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