Saturday, January 31, 2009
H/T: Truth Teller.
TBT shorts Treasury bonds. The harder it is for the government to sell its debt, the more TBT goes up. CAT, or Catepillar, builds heavy equipment just right for roads and bridges. The porkapalooza doesn't build roads and bridges, it just pays off the Democrats' special interest groups. You can see what's going on as this chart continues to diverge. TBT up, CAT down.
Change you can believe in?
Prices of Treasury coupon securities plummeted today as overwhelming supply overwhelmed the markets ...All of this is happening before Obama, Pelosi and Reid try to borrow another $2T.
The House passed its version of a fiscal stimulus package yesterday and the reality is that when the Senate pases its version it will compel the need for even more money.
Likewise, the “bad bank” solution to the financial crisis as the Treasury will need massive amounts of money to finance those purchases ...
The salient point is that supply has overwhelmed the buyers and it will probably require higher yields to ultimately clear the market.
At the behest of the most protectionist Congress in memory, Mr Obama may be about to repeat, at the dawn of his presidency, the same historic error that the much derided Herbert Hoover made just before quitting the White House in 1933. In the depths of the Great Depression, he signed into law the innocent-sounding Buy America Act. It required the US Government to use American suppliers in all public contracts. Less notorious than the Smoot-Hawley Tariff Act, “Buy America” did huge damage. It proved a disaster for US manufacturing exports and the global economy. Other governments followed suit, and it took decades to begin to reverse the closure of markets.From the comments on that article comes a particularly prescient bit by dhome in Sydney, Australia.
Now, prodded by America's mighty steel lobby, a key congressional committee has voted, 55-0, to attach a still more rigorous “Buy America” clause to President Obama's stimulus package. It bars federal funding of any public projects “unless all of the iron and steel used is produced in the United States”. The clause could be extended to asphalt, cement, heavy machinery, you name it. US dollars, the committee intones, must be used to create “American jobs in America, not Chinese jobs in China”.
The amusing thing about this is; that in order to fund its “trillion dollar deficits for the foreseeable future.”(Obama) ; the US needs to a) grow it exports to and b) get Treasury bonds bought by the very countries that it is intending to launch a trade war against.Bingo, dhome.
Friday, January 30, 2009
What will happen when foreign newspapers start reporting that their governments are invested in American Treasuries that are helping to feed protectionist spending sprees? If you were, say, Japanese, wouldn't you be unhappy with this? Wouldn't you want your government to stop the outflow of yen into the US? Why support a country that is preventing you from doing business with them?
I would think that foreign governments might quickly consider some moratorium on the purchase of American Treasuries to quell their voters' unhappiness with US protectionism. Imagine trying to finance trillions of dollars of stimulus under those conditions.
A week and a half in power and the Obama administration has managed to alienate a goodly portion of our trading partners. When the Telegraph headline reads “U.S.-EU Trade War Looms…”, you know that you have seriously stepped on some toes.The stimulus bill will cause the US to strip the rest of the world of investment money to pay for our spending spree that will buy only American goods. That's not going to go over very well. Here's some more anger directed at Obama from the Aussies.
The genesis of all of this is the “buy American” provision in the fiscal stimulus bill. Nobody seemed to pick up on this provision as the bill sailed through the House, but it certainly didn’t fly under the radar for long. The Europeans have noticed and they are hopping mad.
Fears that the world downturn will spark a trade war have been stoked by the inclusion of measures to protect the US steel industry in Barack Obama's $US819 billion ($1.25trillion) package to stimulate the US economy.You have to give Obama credit. He is managing to unite the world.
The package, which Mr Obama hopes will jump-start the recession-hit US economy, contains about $US90 billion worth of infrastructure projects, with about $US64 billion subject to mandatory US steel requirements.
First, the regulator would assess each bank’s systemic risk. The higher it is, the more capital the bank should hold. This would seek to ensure that the banking system as a whole had sufficient capital relative to the system-wide risk. This is just like the headquarters of a bank charging each trading desk or division for use of economic capital measured by its contribution to overall firm risk.I'm not sure I see how this would have worked in this crisis. First off, the risk ratings agencies like Moody's performed horribly. Remember, many of those real estate-backed bonds that went belly up were rated AAA. Second, much of this crisis was precipitated by government entities encouraging risks as Fannie Mae and Freddie Mac bought up risky mortgages in the hopes of encouraging more home ownership. When attempts were made to regulate them, essentially the systemic regulation Roubini talks about, they were protected by their allies in Congress like Barney Frank.
Second, each institution would be required to buy insurance against its systemic risk – that is, against its own losses in a scenario in which the whole financial sector is doing poorly. In the event of a pay-off on the insurance, the payment should not go to the company, but to the regulator in charge of stabilising the financial sector. This would provide incentives for a bank to limit systemic risk (to lower its insurance premium), provide a market-based estimate of the risk (the cost of insurance), and reduce the fiscal costs and the moral hazard of government bail-outs (because the company does not get the insurance pay-off).
The idea has theoretical merit, but I can't see how it would work since it doesn't address the root cause of the problem, a culture that refuses to earn what it wants to receive.
If you think there isn't a lot of money out there to borrow right now, just wait until Mr. Hope and Change and his Congress get started. They're going to gorge themselves on money desperately needed by countries like Spain.It's starting.
DAVOS, Switzerland — Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all ...Hey, Zedillo, just chill. The One has all the answers. Or something like that.
(T)he long-term fallout from increased borrowing by the United Stated government, and its potential to drive up inflation and interest rates around the world, seems to getting more attention here than in Washington.
“The U.S. needs to show some proof they have a plan to get out of the fiscal problem,” said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis in 1994. “We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”
(E)ven supporters of the plan like Mr. Zedillo and Stephen Roach of Morgan Stanley have called on the White House to quickly address how it will pay for the spending in the long-term.There is no answer but massive pain later on. We are refusing to pursue austerity and thrift right now so the bill we pay later will be colossal.
“It’s huge,” Mr. Roach, the chairman of Morgan Stanley Asia, said. “President Obama has now laid out a scenario of multiyear, trillion-dollar deficits.”
The stimulus is widely expected to pass, but once it does, Mr. Roach said the focus would shift to “who foots the bill and what is the exit strategy. We don’t have the answer to either question.”
Thursday, January 29, 2009
The International Monetary Fund is finalizing a $100 billion loan from Japan and is considering issuing bonds for the first time in its history, as part of an effort to double the financial resources it has to fight the deepening global recession.An ethereal organization with no national backing at all is going to issue bonds in the teeth of the most ferocious financial suction ever? Hilaaaaaarious! By the time The One and his minions get finished, there won't be couch seat change left over for the IMF.
Here's the question. Now that an independent film maker has shown that one can successfully transition from YouTube to a network, won't lots of others start to do the same thing? After all, YouTube is a fantastic way to showcase your talent and gives audience feedback in the form of comments and hit counts. It's better than a focus group for figuring out which shows will be hits and which ones won't. It's free and the focus group is thousands of times larger than anything a network can assemble.
And therein lies the seeds of the networks' downfall.
God, Inc. is funny, intelligent and captivating. Many of the imitators it inspire will be as well. Some of them will be picked up by the networks and some won't. The number that won't be picked up will be, shall we say, ten times as many as the ones that move to the networks.
Why watch the SciFi channel? The ones that don't get picked up may be as compelling to you as God, Inc. was to them. All of the sudden, there are lots and lots of series available for free on YouTube and only one on the SciFi channel. With their audience diluted as people choose to watch shows on YouTube, the SciFi channel will see their audience share and therefore advertising revenue fall.
By rewarding the makers of God, Inc., the SciFi channel has guaranteed the existance of many competing shows for free on YouTube.
LOUISVILLE, Ky. – More than a million homes and businesses left in the cold without power Thursday in the wake of an icy winter storm could face a lengthy wait for electricity to come back, even as federal help was promised to two states hit hardest by the blast.Here's video evidence of the Inconvenient Truth hitting home.
...Utility officials estimated more than 1.3 million homes and businesses across a wide swath of states were powerless early Thursday, and warned it could be mid-February before some customers had power.
I'm stocking up on sunscreen and beach towels so I can spend my last few days in peace at the beach before I shrivel up like a raisin in this heat.
We're all doomed. Our only hope is that Barack Obama can raise his mighty hand and drive away the evil sun.
Wednesday, January 28, 2009
WASHINGTON -- The U.S. economic stimulus package neared $900 billion in the Senate, as President Barack Obama wooed Republicans ahead of an expected House vote Wednesday.Just like the boy genius, Paul Krugman, I was worried we weren't going to borrow and spend enough! Luckily, our
The magnitude of the spending bill, and its urgency, drew a swarm of lobbyists seeking money and tax breaks. The concrete and asphalt industries battled over how the government should spend billions proposed for road and bridge repairs, while dairy and beef cattle producers butted heads over talk that the government might buy up dairy cattle for slaughter to drive up depressed milk prices. Unions backed infrastructure spending. States sought budget bailouts.Dig this awesome interactive graphic showing where the
Tuesday, January 27, 2009
Do not read this blog while allowing your children to play with loaded firearms. The loud bangs will distract you from the full enjoyment of this blog.
Might this be a function of the Internet? People are able to exchange information much more rapidly than before. This leads to faster decisions and shorter reaction times to external events. It would also seem to indicate that the turnaround might be faster as well.
The Chinese economy appears to be "imploding". Electric power output, which normally moves up and down with GDP growth, has been declining for the past three months, while the Chinese OECD leading indicator, which GDP growth has followed closely over the past decade, has plummeted, suggesting growth is set to collapse.Korea
Korean GDP – which is reported on a seasonally adjusted quarter-on-quarter, but not annualised – contracted by 5.6%, the biggest drop since the Asian crisis in 1997-1998. In addition to plunging exports, the domestic economy is very weak, with private consumption falling 4.8%.Japan is in a similar situation. Over at Brad Setser's Follow the Money blog, there's this bit of strange news.
But a second factor is now also at play. Central bank demand for long-term bonds is falling. Right now that is largely because central banks are shifting (rather dramatically) into short-term bills.That means we're financing the debt with short-term Treasuries. We may be paying low interest rates, but we're not locking them in for a long term. Not only that, we're revving up to borrow from people who don't have much money to invest. As our supply of debt goes up and their demand goes down, we'll have to continually raise interest rates to attract their money.
No one has a plan to pay back any part of this debt.
Essentially, the United States is taking out the largest interest-only ARM in the history of the planet. How do you suppose that's going to work out? When we have to refinance all that short term debt as interest rates go higher, we are going to get killed.
Monday, January 26, 2009
I love it.
The 1212's voice is a pleasant female one, so we named her Gina Patrina. Along with our last name, that makes her initials GPS.
Gina Patrina is easy to use and quickly finds routes and recalculates them when you make a mistake. I haven't yet figured out how to save addresses into memory, but I'm sure we'll find that in time. The best part about Gina Patrina is that she knows where things are. We needed to find an Outback Steakhouse. All we had to do was go to Points of Interest on the menu and type in "Outback." She then gave us a list of Outbacks closest to our present location. Tapping on the first one gave us the course to get there. We used that feature several times to great effect.
Gina Patrina found her satellites quickly. At the hotel, we parked in a covered spot, but as soon as we drove out into the open, she figured out where she was. Her transition from San Diego to Las Vegas was pretty quick, too.
I'd recommend the Magellan Roadmate 1212.
Saturday, January 24, 2009
Totally off topic: For those of you bugged by people who end sentences with prepositions, here's Grammar Girl weighing in on the subject.
Friday, January 23, 2009
I hate Vegas.
I'll be bringing my camera and schleptop so I can blog from there. In the meantime, here's a video highlight reel of my daughter playing absolute shut down defense. Or maybe it's someone a lot like her playing a different sport. I get them confused.
Thursday, January 22, 2009
Back in the 1980s, many commentators ridiculed as voodoo economics the extreme supply-side view that across-the-board cuts in income-tax rates might raise overall tax revenues. Now we have the extreme demand-side view that the so-called "multiplier" effect of government spending on economic output is greater than one -- Team Obama is reportedly using a number around 1.5.For Obama and the Keynesian Democrats, all of this stimulus money is free. That's not quite true when you look out into the future, though.
To think about what this means, first assume that the multiplier was 1.0. In this case, an increase by one unit in government purchases and, thereby, in the aggregate demand for goods would lead to an increase by one unit in real gross domestic product (GDP). Thus, the added public goods are essentially free to society. If the government buys another airplane or bridge, the economy's total output expands by enough to create the airplane or bridge without requiring a cut in anyone's consumption or investment.
If I take out a loan for $100,000 with a 30-year payoff and a fixed rate of 5%, I will get $100,000 on day one and will have to pay $6,441.84 in payments the first year. In the first year, I will see an increase in income of $93,558.16. Yay! I will have stimulated myself! Hurrah!
In year two, I will have $0 extra income and will have to pay $6,441.84 in payments. Owie! Dittos for years 3-30. That's what the stimulus is all about. A big jazz right now and bills on off into the future for as far as the eye can see. After all, we don't ever pay down the principal. Since we Boomers are starting to retire and won't be paying much in taxes, who will make those payments?
Wednesday, January 21, 2009
Sober people are now contemplating whether a euro area member such as Greece might default on its debt. In addition to directly damaging bank balance sheets, this would destroy confidence in its banking and financial system ... To start with, that Greece will be allowed to default is questionable. There is an alternative, namely fiscal retrenchment, wage reductions, and assistance from the EU and the IMF for the cash-strapped government ... But, ultimately, everyone will swallow hard and proceed, much as the US Congress, having played rejectionist once, swallowed hard and passed the $700 billion bank bailout bill when disaster loomed.And who will be the bill-payer? Well, there's only one candidate in the EU who can do it. The thrifty Germans.
Now that recession and deflation loom across the euro area, this is a response on which all members should be able to agree. It can be complemented by fiscal stimulus. If countries in a relatively strong budgetary position, like Germany, are in the best position to apply it, all the better; the result will be help from outside for their more heavily indebted, cash-strapped neighbours who need it most.From each according to their ability, to each according to their needs. Or something like that.
First off, Illustrator. I'm more of an engineer than an artist. I think in terms of flow charts and diagrams. I have yet to find a single Adobe product that can produce a flow chart. With PowerPoint, I can draw boxes, fill them with text and then connect them with arrows or lines. If I move the boxes, the connectors move with them. Illustrator has connectors, but once they have connected the boxes, you can't move the boxes unless you want to leave the connectors behind. That's not a real connector, is it? Argh.
Illustrator is designed much more for the artist than the engineer. Simple flow charts are going to be a pain. It looks like I will have to create the diagrams in PowerPoint and then import them into Illustrator. Ouch.
As I continue to learn Illustrator, I might post some of my results.
Tuesday, January 20, 2009
The Government's bail-out of the banks in October with £37 billion of taxpayers' money was supposed to have "saved the world", according to the PM, but now it is clear that it has not even saved the banks. Our money kept the show on the road for only three months.Borrow, spend, borrow, spend, lather, rinse, repeat.
As the Liberal Democrats' Treasury spokesman Vince Cable asks: where has the £37 billion gone? The answer, as Cable knows, is that it has disappeared down the plug hole.
It is finally dawning on the Government that the liabilities of the British banks grew to be so vast in the boom years that they now eclipse the entire economy. Unfortunately, the Treasury is pledged to honour those liabilities because it has guaranteed not to let a British bank go down. RBS has liabilities of £1.8 trillion, three times annual UK government spending, against assets of £1.9 trillion. But after the events of the past year, I wager most taxpayers will believe the true picture is worse.
The best time to get control of your debts is this instant. Instead, we're about to follow in Britain's wake.
We watched a pair of humpback whales play on the surface for quite a while. Sometimes they poked their noises out of the water to check things out, sometimes they rolled around and waved their fins in the air and whenever they dived, you got a great view of their massive tails.
* - If you are throwing a party, always invite the humpback whales if you get a chance. They will mingle well with the other guests. Gray whales will just sit in a corner, nursing drinks and looking painfully awkward.
Monday, January 19, 2009
Riverside also has almost $1 billion worth of public-works projects underway or planned, from widening roads to building a new jail. The county illustrates both the promise and the limitations of the spending President-elect Barack Obama proposes to pull the U.S. economy out of a recession that may become the longest since the Great Depression.One trillion dollars is about to be blown into confetti in exchange for ... nothing.
“What infrastructure spending can do is bolster employment in a group of industries, like construction, with workers who are ready to go,” said Brad Kemp, director of regional research at Beacon Economics in Los Angeles. “What it can’t do is stop the unemployment rate from rising currently because there are a lot of forces coming at consumers, who are holding back on spending.”
Jan. 19 (Bloomberg) -- Spain had its AAA sovereign credit rating removed by Standard & Poor’s in the second downgrade of a euro-region government in five days, as the country’s first recession in 15 years swelled the budget deficit.Why is the budget deficit rising? There's a mandatory portion as they try to stabilize their banks and there's an elective portion as they enact their own pointless stimulus packages.
The cost of economic stimulus packages and bank bailouts is boosting budget deficits around the euro-region, fueling concern governments will have difficulty paying their debt. S&P cut Greece’s rating one step to A- on Jan. 14. A day earlier, it threatened to downgrade Portugal’s debt. S&P also reduced the outlook on Ireland’s rating to negative from stable.I wonder who will be the first to wake up to the idiocy of borrow and spend.
Sunday, January 18, 2009
Payroll for California’s roughly 230,000 civil servants tallies a mere $18 billion — not including legislative aides or people who work for the state’s courts or university systems. (Those 149,000 additional folks aren’t under the governor’s control, but even if Schwarzenegger could fire them, their salaries wouldn’t be enough to patch the $40 billion deficit.)Unreal. It looks like the handouts will have to stop.
Saturday, January 17, 2009
Standard & Poor's has threatened to strip Spain of its coveted AAA rating as country's budget deficit explodes, offering the clearest warning to date that even wealthy states are running out of room to borrow.If you think there isn't a lot of money out there to borrow right now, just wait until Mr. Hope and Change and his Congress get started. They're going to gorge themselves on money desperately needed by countries like Spain. Here's some more.
Michael Klawitter, from Dresdner Kleinwort, said Spain was now crumbling on every front. "Tax revenue is collapsing. There is a banking crisis and a massive deterioration linked to housing. It is arguable that Spain has already let matters go past the point of no return," he said.The Spaniards haven't been particularly profligate. Their public debt is less than ours.
Europe's bond supply will reach €765bn this year, up 15pc from 2008. It is far from clear whether the markets can absorb so much debt. Although Spain's public debt is modest at under 40pc of GDP, this may not prevent a downgrade.Why is Spain in crisis? Because money is rushing to find safety in US debt and Pelosi, Reid and Obama are flooding the world with that debt. Anyone who thinks that Barack Obama will be good for the US image across the world is fooling themselves. It won't be long before the European MSM picks up on this story and starts running front page tales of America starving them of funds.
While I agree with his opposition to spending sprees, I don't see how this is going to lead to a run on the dollar. Where are investors going to go? Certainly not the Euro as Greece, Italy, Spain and Ireland are all likely to default in the near future. Here's a little about the problems Greece faces.
"Eventually, the interest payments on debts will be higher than was thought, and you need to recoup those interest rate payments by higher taxes in the future," said Cailloux.Peter Schiff says that "America is going to lose its dominant position in the world." In order for us to lose that, it's got to go somewhere else. Where? Europe? Not likely with the Eurosocialists decades ahead of us on implementing stupid fiscal policies. Japan? Probably not. The Japanese "Lost Decade" left them with a debt load about three times the size of ours as they tried all of the things the Democrats and Obama are planning to try now.
"There's not much we can do," said Papanicolaou when asked about his reaction to widening debt spreads, which are essentially a result of the bond market's perceived risk of Greece's ability to pay back its debt ...
Chris Pryce, Western Europe director at Fitch Ratings, says the current yield differential between Greek and German bonds reflect a better assessment of the risk. "Previously euro zone investors did not property distinguish the risks in the euro zone. Greek government accounts are pretty appalling. They have the highest debt after Italy." Greece's debt-to-GDP ratio is forecast by Fitch to have hit 92.0% in 2008; Italy's hovers around 100.0%.
South America has Brazil as a candidate, but they're hardly an industrial powerhouse. Argentina can't seem to stop nationalizing their assets to hand out goodies. Australia would be a possible candidate to replace us if it wasn't so tiny. The leader of the world can't be that small.
That leaves us with India and China as the ones to replace us. While I think that's possible in the future, right now they are both still very poor countries. I can't see the world turning to China or India yet. In ten years, maybe. But for now, the US is still the place to put your money in times of crisis. That fact is going to provide the illusion that Obama's policies of borrow and spend are working.
In the meantime, Greece, Italy, Spain and Ireland are in big, big trouble. If you want to see where profligacy and debt lead when you aren't the world's safe haven, watch what happens there.
President-elect Barack Obama will convene a "fiscal responsibility summit" in February designed to bring together a variety of voices on solving the long term problems with the economy and with a special focus on entitlements, he said during an interview with Washington Post reporters and editors this afternoon.Of course, the fastest way to fiscal responsibility is to borrow and spend another trillion dollars.
"We need to send a signal that we are serious," said Obama of the summit.
Friday, January 16, 2009
Modernize Roads, Bridges, Transit and Waterways: To build a 21st century economy, we must engage contractors across the nation to create jobs rebuilding our crumbling roads, and bridges, modernize public buildings, and put people to work cleaning our air, water and land.Meanwhile, the bloated and failed education industry gets far, far more.
•$30 billion for highway construction;
•$31 billion to modernize federal and other public infrastructure with investments that lead to long term energy cost savings;
•$19 billion for clean water, flood control, and environmental restoration investments;
•$10 billion for transit and rail to reduce traffic congestion and gas consumption.
Education for the 21st Century: To enable more children to learn in 21st century classrooms, labs, and libraries to help our kids compete with any worker in the world, this package provides:Stimulus package? I don't think so. This is just the biggest pork pile in the history of the country. It also takes $79B, more than twice what they will spend on roads and bridges, and hands it to the California Teachers Association and other such education industry political goon squads across the country.
•$41 billion to local school districts through Title I ($13 billion), IDEA ($13 billion), a new School Modernization and Repair Program ($14 billion), and the Education Technology program ($1 billion).
•$79 billion in state fiscal relief to prevent cutbacks to key services, including $39 billion to local school districts and public colleges and universities distributed through existing state and federal formulas, $15 billion to states as bonus grants as a reward for meeting key performance measures, and $25 billion to states for other high priority needs such as public safety and other critical services, which may include education.
•$15.6 billion to increase the Pell grant by $500.
•$6 billion for higher education modernization.
Thursday, January 15, 2009
This is a serious post and I'd be interested in hearing your answer to a question I ask at the end.
My son is a Junior in high school. He'll be taking the SATs this year. Over at the College Board website, where you sign up for the test, they make you go through a whole series of questions about who you are, what you're interested in studying and so forth. The site forces you to make decisions about your career at age 16. They do this so they can market their test results to various schools who will then court the student based on their scores.
Meanwhile, the student and their parents are forced into having decision discussions about careers long before they're necessary. I took a chemistry class in high school, either as a Junior or a Senior, and that sparked my interest in chemistry which led to chemical engineering which led to math as my eventual bachelor's degree. I didn't settle on a major until I was a Junior in college! Meanwhile, as a part of a marketing effort for the College Board, my son has to go through all this angst four years earlier when he isn't even remotely ready.
When I was a Junior in high school, my interests were tropical fish and Dungeons and Dragons. My career goal was to own a pet store where I bred my own tropical fish in the back. For a while, I even bred and sold my own fish to local stores. I made single-digit dollars for my efforts. At 16, I wasn't able to do the financial analysis to determine that this was not going to work out. Had someone forced me to make a career decision right then and there, my father would have had to beat me over the head with reality instead of allowing me to grasp this in my own, natural time.
I finally discovered that you can go through the SAT registration process by clicking on "Uncertain" for every answer and so I did. The last thing we need right now is some corporation jamming premature decisions down our throat so they can sell their products to the education industry.
Question: In high school, I wanted to raise tropical fish for the rest of my life. What did you want to do?
Image used without permission from Rachel.
Wednesday, January 14, 2009
Isn't it amazing how assymetrical this war is? Hamas rocket attacks never make the front pages, but Israeli airstrikes always do. Israeli peace overtures to Hamas never get attention, but Hamas calls for peace do.
Jan. 15 (Bloomberg) -- Hamas would accept an immediate weeklong cease-fire if it is accompanied by an Israeli withdrawal from the Gaza Strip, said Hamas official Mussa Abu Marzuk.Isn't that kind of them to offer peace talks like that? I wonder if things like this had anything to do with it.
The group is also demanding that border crossings are opened and is willing to accept European or Turkish monitors at those sites, Abu Marzuk, deputy to the Islamic group’s political leader, Khalid Mashaal, said in an interview yesterday in Damascus.
“We want an immediate cease-fire and the withdrawal of Israeli troops that entered Gaza,” Abu Marzuk said in the most detailed comments on the talks by a senior Hamas official. He said the group would be willing to negotiate a yearlong cease- fire during the cessation.
If so, wouldn't it then make sense for Israel to just go over and whack them continually whether they were firing rockets or not? Every time the Israelis want to have a conversation with Hamas, their opening move should be to blow up huge chunks of Gaza. It's clear that such behavior gets Hamas to the bargaining table. it's equally clear that not blowing things up does not.
WASHINGTON -- State and local governments would benefit from more than $160 billion in federal aid under a plan pushed by House Democratic leaders in negotiations over the economic-recovery package taking shape on Capitol Hill.This is wonderful news. Now we can get back to spending wildly.
Hooray for Barack Obama! Hooray for Nancy Pelosi! California is saved!
Dig this post where Mish goes through a bunch of stories about state and local pension funds that are imploding. Here's a sample.
The Fort Worth Employees’ Retirement Fund — the pension fund for city employees — has taken an enormous hit from the stock-market collapse.There's a great site, PensionWatch, devoted to tracking the implosion of these funds.
As of Nov. 30, the fund had fallen to approximately $1.29 billion, a drop of nearly 35 percent from its peak of nearly $1.99 billion in October 2007.
City taxpayers should be concerned about potential long-term implications. The pension fund has already required a sizable increase in support from taxpayers to shore it up. The more dollars that are pumped into it, the greater are the chances that the City Council will have to compensate by raising the property tax rate or reduce services.
This crisis is huge and will cause many states, counties and cities to declare bankruptcy. It is not subject to solution through a stimulus package. It cannot be stopped short of printing money like the Weimar Republic. It cuts across party lines.
We were not willing to earn what we received. Electing Obama or John McCain wasn't going to change that.
In the end, this behavior is self-correcting. We'll figure this out that hard way, whether we end up in some socialist train wreck a few years from now as the State tries to cover all the bills or if we embark on an austerity program starting today at 1PM.
You have to pay your bills. You cannot escape it. You have to pay your bills.
Tuesday, January 13, 2009
Jan. 13 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke warned that a fiscal stimulus won’t be enough to spur an economic recovery and that the government may need to buy or guarantee banks’ tainted assets to revive growth.We're all investment bankers now. After all, we're buying their businesses from them. Personally, I'm heading down to Nordstroms to get fitted for my pinstripe suit.
If you really want to stick it to The Man, click on the image.
When President George W. Bush was first elected, total federal government spending was about $1.7 trillion. In other words, the difference between federal outlays and federal revenue this year will be bigger than the entire government was as recently as 2000.Our 2009 deficit will be larger than the entire federal government budget was in 2000. Think about that for a minute before you go and read the whole thing.
Monday, January 12, 2009
That was a mistake as any NFL cornerback could tell you. Once a corner gets beat by a faster wide receiver who is going deep, they are in real trouble.
The concepts are very similar. You're trying to intercept passes or tackle your opponent. Once I made this connection, the game looked much more familiar. I've never played soccer outside of some PE classes decades ago and although I've coached it, my knowledge was less than some of the girls on my teams. This analogy made the game more enjoyable.
Despite repeatedly beating her, my daughter's forward never scored. On some breakaways, she was able to catch up as the girl slowed to dribble the ball and on others our goalie made the save. My conclusion was that, just like an NFL cornerback, when playing against a faster forward, you need to give them a substantial cushion. This makes even more sense in soccer than football as a soccer forward can't do anything meaningful with the ball until they can shoot on goal. So long as you're between them and the goal, you're in good shape.
Do not read this blog while standing on the top rung of an extension ladder. Sudden amazement at the wisdom contained therein may cause you to lose your balance and fall to the ground.
Sunday, January 11, 2009
Even if you agree with his assumptions, and they seem preposterously naive to me, we will get a 1% drop in unemployment for 2 years. In exchange for that, we will saddle future generations with another trillion dollars of debt.
Good luck collecting on that debt from the Boomers. They're already heading out the door with sacks filled with stolen money, money stolen from Gen-X and Gen-Y.
This thing doesn't even look good on the advertising brochure. It's the ultimate gesture of our time - borrowing a mountain of cash and forcing our children to pay for a short-term benefit for us. Lucky for us, we've wrecked the public education system so Gen-Y is probably too ignorant to understand this well enough to get mad.
Have fun, kids!
What about Treasury supply you ask? Won't the massive debt load eventually push rates much higher? While acknowledging that supply is an obvious negative for prices always and everywhere, as it is, Treasury supply is clearly not overwhelming demand. The 3-year and 10-year auctions from last week went quite well.While it seems contrary to my normal debt-hating rants, I would agree with this. In the short run, over a year or so, there will be very few businesses expanding, requiring large loans to finance their growth. Unfortunately, debt, like diamonds, is forever. Or practically forever since we never seem to plan to pay any of it off. While borrowing money right now won't crowd out the private sector because the private sector has no hunger for money, except those that need it to sustain operations like the plumbing contractor example in my previous post, if you look beyond 2009, it will starve the rest of us for cash.
Besides the theory that government debt crowds out private investment doesn't hold water right now. Private lending ain't happening in areas where the government isn't subsidizing. In essence, the Treasury is leveraging because the private sector can't.
Eventually, the Fed's programs will result in much higher inflation, and thus Treasury rates will rise substantially. But I think this is a year or more away, too far away to recommend a short.
Not looking beyond the short-term is exactly what got us here. Not good.
Missing from this analysis is what all of this borrowing will do to the rest of the world as they try to borrow like mad, too.
Frequent and valued commenter Dean posed this conundrum in a recent comment.
KT, what I have found fascinating about all this is, despite all the analysis that's been done on the financial crisis including yours, which has been excellent by the way, the "solution(s)" are derived straight out of "things we learned in kindergarten".He's absolutely right. Finances aren't that complicated. Work hard, acquire valuable skills, save money. At a national level, you need to encourage these things. It seems simple, but we're dealing with fallible human beings who have personal goals not always in concert with national goals.
As you pointed out, there are consequences that apply across the board with respect to economic behavior whether you are 14 yrs. old or 40 and whether you are the head of a household of one or the CEO of a Wall St. firm.
Politicians want votes. They work very hard learning to how to win votes. They may or may not know how to do anything else. Take the case of Robert Rubin. The conventional wisdom right now is that George Bush was a horrible president and Bill Clinton was a good one. Just one look at their respective economic records will convince you of that, right?
However, Clinton's Treasury Secretary, Robert Rubin, the supposed architect of all that Clintonian prosperity, has helped wreck Citigroup. Rubin advised them to get into the subprime market and they blew $20B. Rubin didn't fall and bump his head on his way from the Treasury to Citigroup. He's been the same Robert Rubin all along.
The truth of the matter is that Robert Rubin doesn't know what he's doing. He didn't know when he worked for Bill Clinton and he didn't know when he was with Citigroup. He didn't need to know what he was doing because his job never asked that of him.
Robert Rubin never had economic prosperity or long-term economic stability as his primary goals. Not as Treasury Secretary and not as Citigroup advisor.
At the Treasury, Rubin's goal was to help Bill Clinton and the Democrats win votes. Short-term prosperity was guaranteed to accomplish this. Long-term prosperity might or might not do it. Over at Citigroup, Rubin's goal was to earn big bonuses for himself and his fellow executives. That Citigroup is now collapsing doesn't diminish his accomplishments there - after all, he walked out with over $150,000,000. Citigroup is now just so much smoking wreckage, but Robert Rubin is a success.
Going back to the central theme of this blog, prudiciousness, I would argue that our culture is what really gets us in the end. People like Robert Rubin have always been around. Politicians have always striven for votes. What's different now is the underlying set of values in our nation. We have decoupled earning from having in our values. That's what is leading us to these phenomenal levels of debt and what led us to elect a man who epitomizes this shift in our values, Barack Obama.
Saturday, January 10, 2009
Jan. 10 (Bloomberg) -- Robert Rubin, the former Treasury secretary who advised Citigroup Inc. as it lost $20 billion in the subprime mortgage crisis, resigned his position as senior counselor and won’t stand for re-election to the board.Emphasis mine.
Rubin’s departure comes as Citigroup and Morgan Stanley are in talks to merge their brokerage units, said a person familiar with the matter. Rubin, 70, intends to “deepen his involvement in outside activities and organizations to which he has been strongly committed,” the New York-based bank said in a statement on Jan. 9.
Rubin, who served at the Treasury’s helm from 1995 to 1999 under President Bill Clinton, was criticized by investors for collecting more than $150 million in pay in a decade while failing to steer Citigroup away from subprime securities. The investments led to four straight quarterly losses and prompted the bank to turn to the government for a rescue package.
Rubin's on the loose. Be afraid. Be very afraid.
Our Official Artist has the latest news from Apple. Or maybe not.
Our Grand Inquisitor has a post that is revealing in two ways.
Our Friar of Fatherhood has a great video on ... ice fishing!
The Liberator Today (not yet inducted into the Theocracy) delves into the Somali pirates.
Our Monks of Miscellaneous Musings post about California's effort to save money by giving kids more free time. No, really!
Yesterday, I posted a link to a chart of TBT. TBT is a fund that moves inversely with Treasuries. When Treasury auctions start becoming sticky because Obama will be flooding the world with US debt, TBT will go up.
Unless it doesn't.
I don't like TBT. I don't like gold, either. I don't like anything governments can manipulate with ease. Governments in extremis will reach out and grab anything they can to keep them afloat. Russia has sold some of its gold reserves in the past. Other countries have printed money to buy their own bonds. Both of these investments are subject to governmental manipulation to a high degree. Other investments, such as oil, are too vast and used too quickly to be easily manipulated.
Of course, the government has attacked oil companies in a variety of ways with windfall profits taxes and putting certain areas off limits to exploration and development, but these are much less direct than what they can do with Treasuries and gold.
I also didn't agree with the Money Week article suggesting it was time to sell Treasuries. "Sell them and go into what?" is what I wondered as I read it. Personally, I don't own them, but I don't run a big fund, either. If I did, I'm not sure I'd be able to find a good alternative. If I had a billion dollars to invest for a pack of finicky and demanding clients, Treasuries might look awful good given the performance of other investments.
These are just my thoughts right now. After reading and learning more, I might change my mind.
* - If you want to hear from someone who knows what he's doing, read Jim Jubak.
Friday, January 09, 2009
American bonds "have garbage fundamentals", says Dyson, "the US Treasury's about to flood the market with supply. As well as increasing the size of its bond auctions, it has also upped the frequency from eight times a year to 12".Ouch.
We're talking vast numbers here, as not just the Americans need to raise loads of cash. The US alone is expected to issue $2trn (£1.3trn) of debt this year, says the Telegraph's Ambrose Evans-Pritchard, and the Europeans aren't far behind. "Italy alone must tap the markets for €200bn as it rolls over its huge stock of public debt". Further, ratings agency Fitch has said that Ireland, Greece, Holland and France all face big auction programmes.
And as for gilts, don't ask. Fitch says Britain has a "terrible underlying fiscal picture, by far the worst" of the mainstream countries. That adds up to £145bn of debt – 10% of GDP – just in 2009 ...
This week, even Germany only managed to sell just two-thirds of a €6bn sale of ten-year Bunds, whose yield has plunged to long-term lows of some 3%. "It's very poor", says Monument Securities' Marc Ostwald, "I can't remember the Bundesbank ever being left with a third of the bonds". Nor is confidence likely to be much improved by yesterday's news that the German government is being forced to shell out another €10bn on a second Commerzbank bailout in less than three months.
This is related to something that's been bugging me ever since I saw that "Quantitiative Easing" video you posted a while back. It basically said that the banks were afraid to lend money normally, so instead they were buying Treasury bonds - loaning their money to the government instead of to people and businesses who could actually use it.
This made me think, "Doesn't this mean that the problem isn't that other investments are too risky, but that the government has made Treasuries too attractive?" The obvious solution isn't to pump in more money, but to make Treasuries a less attractive invesment.
I kind of suspect that a significant part of our troubles right now, is that the government has been borrowing too much all along, and have already sucked up all the funds available for loaning. They have been trying to use this money for "stimulus", but Treasuries are *still* too attractive, and the banks just use the stimulus money to buy *more* Treasuries. Now that all the air has been sucked out of the business loans, goverments are going to be competing to steal loan money from *each other*.
I totally agree with Tim. I thought I'd reply to it in a blog post since it goes into something I've wanted to explore anyway.
The problem is not just the rate of return on Treasuries. It's also the fact that there are so much of them to buy. In an environment where business investments all look like losers, anything that will keep the banks' money safe will be seen as a good investment, even if it returns nothing. The government has been trying to lower the returns on Treasuries in the hopes of forcing banks to lend, but until Treasuries leap off the computer screen and start beating you with a stick, they'll be more attractive than, say, loaning money to ALCOA.
The mammoth stimulus package that Obama is considering is going to make matters much, much worse. All of that money has to be borrowed. It's borrowed by auctioning off government debt. As we've seen, government debt at any price is better than any commercial investment right now. In an attempt to revive the economy, Obama is going to starve it of funds. Remember, all jobs come from profits. It can't possibly work.
It gets worse.
Everyone around the world, with the exceptions of Germany and Australia, are doing the same thing. The Germans, in a fit of Prussian stubbornness and the Aussies in typical Aussie self-reliance, are pushing very modest stimulus packages. Everyone else is going bananas with their checkbooks. From what I've read, government borrowing across the globe will triple this year. There will be no lack of government securities to compete with commercial firms who live on borrowed money.
Example: a plumbing subcontractor waits to get paid by the general contractor who waits to get paid by you who waits to pay until the remodel is finished. Between now and when your new kitchen remodel is done, the plumber lives off of borrowed money. It's not a violation of Dave Ramsey's principles, it's the way the business works.
Back to the world. Greece is a financial basket case. They need to borrow money to keep afloat. What will it take to get you to buy Greek bonds when German bonds are available? The Germans just had a failed auction and might now have to raise their interest rates in order to attract money because money is rushing into US bonds. Once the US goes on its mad spending spree, lots and lots and lots of money will rush into US bonds and the rest of the world will either have to keep raising rates or simply default on its payments. What does this mean for Greece?
Greece has to outbid Germany who has to outbid the US. The US (for now) can just sit there and issue debt and watch it get snarfed up because we're the ultimate safe haven.
Commercial firms will have to outbid the US, too. Good luck with that.
The solution: Suck it up. Stop borrowing and spending. Accept mammoth unemployment and bread lines. You aren't going to escape it no matter what you do. You can only postpone it. Postponing it will make it worse when it finally happens.
About three years ago, right about the time I started this blog, I went through some very tough times. I had to save money for 6 weeks in order to be able to afford to take a load of rubbish to the dump. That cost $15. I shopped at thrift stores and estate sales. I paid down my debts and now I can afford a Nikon D60 and a Sony AVCHD Handycam. Had I continued to borrow and spend, I'd be in far worse shape now.
There is no discontinuity as a function of size. That is, what works at the micro layer works at the macro layer as well. At no point does the world turn upside down and entities smaller than some size must pay off their debts, but entities larger than some size can borrow to infinity.
Things to watch: Eventually, the world's appetite for Treasuries will wane. Our big investors, China and Japan, are contracting, too. Even if they wanted to spend all their money buying Treasuries, they're going to have less money to do it. If you want to track the decline of Treasuries, watch TBT. TBT shorts Treasuries. That is, if the US debt auctions go well, TBT goes down. If the world slows down it's purchase of Treasuries, TBT goes up.
Thursday, January 08, 2009
If putting people to work is the goal, we could get rid of all the heavy earth-moving equipment and go back to digging ditches with shovels.H/T: Mish.
Why stop there? If it takes one man two days to dig a trench three feet deep and 30 feet long with a shovel, how long would it take 100 men using spoons?
Wednesday, January 07, 2009
German bond auctions failed recently because no one wanted to buy their debt. German debt auctions failed. Imagine what Greece and Italy and Spain will find when they go to auction off theirs.
Thanks to Obama, the US's image in the world will improve dramatically. That is, until we start gorging ourselves on investment money taken out of their countries. Then, we won't be liked so much any more.
Reason 1: Geopolitics and oil aside, rescuing a nation from a murderous, tyrannical madman is a good thing. So is converting a sponsor of terrorism with massive oil reserves into a democracy. So is surrounding Iran with our allies. All three of them together is the trifecta.
Reason 2: Despite the Republicans' horrific mismanagement of the Federal budget and regulation of the banking system, the Democrats would have been worse.
WASHINGTON (AP) -- President-elect Barack Obama says the nation probably faces huge deficits for years to come, but heavy spending is needed now to spur the economy.The Democrats have lost all connection with private enterprise and the free market. Obama and Pelosi and Reid are going to decouple spending from income entirely. This is insane on any level. This is what the Democrats have been preaching all along.
Obama said Tuesday the deficit appears on track to hit $1 trillion soon. Speaking to reporters after meeting with top economic aides, Obama said: "Potentially we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on."
All of the criticism of President Bush poses a false choice: President Bush vs. a competent and wise leader. That was not the choice we faced in either election. In both cases, it was President Bush vs. a naive, incompetent, statist boob. With President Bush we got bravery, determination and marginal competence.
Even in hindsight, I would confidently make the same choice again.
Tuesday, January 06, 2009
This one is worth clicking on to get the full view. It was much better about 5 minutes before I took this picture, but all I could do was watch it decay while I drove.
Times like this are pretty rare in San Diego. We either get an overcast horizon or a perfectly clear sky. Good sunsets need a clear horizon and some clouds overhead.
Monday, January 05, 2009
Executive Order 12721 EligibleIn spite of mountains of rules and regulations like this, we still get people like Blago trying to sell Obama's Senate seat and Bill Richardson slithering out of DC leaving a trail of slime behind him.
You are eligible for this hiring category if you meet the definition below:
Applicants who worked overseas as an appropriated fund Federal Employee, while a family member of a civilian, non-appropriated fund or uniformed service member serving overseas, for an accumulated total of 52 weeks and who received a fully successful (pass) or better performance appraisal. This appointment eligibility is effective for a period of three years following the date of return from overseas to the United States to reassume residence.
Inefficiency and corruption! It's the Daily Double!
Sunday, January 04, 2009
They're cutting their spending. Georgia may end up $3B in the red.
How serious are Georgia lawmakers taking the situation?In Utah, the budget may be $1B in the red.
House Speaker Glenn Richardson (R-Hiram) and Lt. Gov. Casey Cagle, the Senate’s president, said Wednesday that both chambers are putting a hold on politically popular special project grants to communities and organizations, which are commonly called “pork” at the Capitol.
“As we face a significant budget shortfall in our state, the Senate is working to identify essential government spending, prioritize that spending and find further efficiencies,” Cagle said. “Local assistance grants should not be exempt from consideration.”
When it comes to Utah, the report concluded, "Considering the circumstances, the state is doing relatively well. Officials still have options, such as the rainy day fund ($414 million) or bonding to get through the shortfall."Over at Scipio's blog, I cautioned against red state gloating. Having read a little more about what the various states are doing, I'd suggest that Georgia and Utah are rolling up their sleeves and dealing with the problem like adults. I'm not so sure about the others.
But the analysts at the organization, based in Washington, D.C., also sounded a note of caution about Utah's fiscal future: "Nevertheless, officials face some difficult choices in the 2009 general session."
Gov. Jon Huntsman Jr. has rolled out his plan for dealing with those choices, a $10.6 billion budget that includes across-the- board cuts of as much as 7 percent that likely mean employee layoffs, as well as a $50 million increase in motor-vehicle registration fees.