John Ross has an article at Key Trends in Globalisation explaining how the United States “is currently producing no capital at all – currently US capital consumption exceeds capital creation”.
This graph below represents what has happened:
Ross adds:
While there is no precedent in the last 150 years for the US falling behind another country for gross creation of capital, as has now occurred with China, there is actually one for the US consuming more capital than it creates. But this comparison illustrates strikingly the significance of the present situation of the US economy. The previous period when the US was literally creating no capital in net terms was in the depth of the Great Depression in 1931-34.
The gravity of the current financial depression as demonstrated above reveals the deliberate obfuscation by sections of the media that seek to portray that the depression is not very serious, or that it has already come to an end. The truth is that investment levels – capable of generating economic growth – have now collapsed to the point that enough wealth cannot be created just to stay still – in other words, consumption is now higher in the US than capital creation. The fact of this matter does not necessarily exacerbate the US’ economic situation of it’s own – but it does indicate quite how profound the slump is and how difficult – if even feasible – it will be for the US to recover its previous position.
Hence Ross comments:
it is hard for the US to overcome the present situation. Due to financial factors, and the increasing speed of technological progress, consumption of fixed capital, that is its obsolescence and wearing out, tends to increase slowly with time – it has risen from 10.2% of US GDP in 1950 to 12.9% of US GDP currently. It is almost impossible to lower the rate of capital consumption – which means that the US has to save 12.9% of GDP simply to maintain existing capital stock at a constant level.
It seems clear that the net effect of the 2008 financial crisis is already the structural weakening of the US’ economic and political position in the world and the consolidation of China as the new world superpower. This will form the backdrop for world developments for decades to come.
These are exciting times! The opportunity for a peaceful (although not painless) revolution is upon us. The masses are slowly coming to the realization that central planning does not work. Witness the failure of existing foreign policy, financial mismanagement, and currency debasement.
In Dr. Gary North’s recent article Digits and Revolution he shows that the revolution is already happening. To help it along, the recipe is to create Free Market alternatives that put the governmental (central planning) systems out of business.
Many folks are already achieving more personal freedom by actively engaging in counter-economics like the Agorists.
Here are a few excerpts from Dr. North’s article:
Years ago, my friend Robert Thoburn, the entrepreneur who developed Fairfax Christian School, was standing in line at the Post Office at Christmas time. The line was very long. He turned somebody next to him and said it would sure be better if the system were run by the government. He got an incredulous look; then that person smiled. Thirty years ago, that seemed like a fruitless observation. Yet, as it has turned out, we could lose the Post Office tomorrow and barely feel it. We don’t use first-class mail to communicate any longer. We use the Internet. We use Federal Express and UPS and other delivery systems to deliver anything really important that we have to send. The Post Office in effect has gone senile.
We don’t sense that it’s gone. Yet the reality is this: we have replaced something with things that are better. Therefore, at some point, we will see the Post Office either go out of business or become simply a forgotten memory. Yet the Post Office is part of the Constitutional system. The Post Office has always been a way for the government to control the flow of information. As Robert Nisbet said in an autobiographical essay, in the year he was born, 1913, the only contact that the average American had with the Federal government was the Post Office. How much contact do you have with the Postal Service today? It delivers mostly junk mail to you. We ought to think of the U.S. Postal Service not as snail mail but as junk mail. It is the junk mail service for the junk mail industry. Even this is subsidized. It gets cheaper rates.
We have seen the demise of the Post Office operationally over the last ten years, yet we have paid almost no attention to this. There has not been a revolution in our thinking about the Post Office. There has simply been a kind of forgetfulness. We haven’t paid much attention to the fact that we don’t need it anymore. This has not taken any kind of an organized political movement.
Dr. North goes on to say:
The Post Office is sacrosanct. It is untouchable. But now it is simply ignored. This is the best way to have a revolution. Create a free-market alternative to a particular government institution, and then refuse to use the boondoggle anymore. At some point, we can simply vote to de-fund it. We can privatize it. Nobody will care, because hardly anybody is using the system any longer.
Here is my slogan for political reform: Replacement, not capture; then de-funding.
Let us take this slogan and begin to apply it to all the government institutions that we deal with on a regular basis. Apply it especially to the Federal government.
We are seeing the creation of a new economy in which we really do not need the Federal government, except for welfare services for the aged. It is going to go bust because of these welfare services. So, the primary objective that we ought to have is to create alternatives to the welfare system. We don’t need to call for the shutting down of a particular government agency tomorrow, although in principle that would be the best way. But that would be an overnight political revolution, and I really don’t believe in overnight political revolutions.
Overnight political revolutions always centralize power. That is what Frederick Engels taught, and that is what I believe. What I believe is best for the country is a quiet social revolution, which is marked by a shift of reliance away from all government money toward free-market and charitable funding. We will simply walk away from the system. When enough people walk away from the system, and the rest of them lose their shirts when the system goes belly-up, we will be in a position to have a real revolution, one in favor of freedom.
This revolution will be one of decentralization and some form of operational secession. I don’t think states are actually going to break away from the union. I believe that the governors and mayors are not going to bother to get Federal grants, because the money is either not available or won’t buy anything. When we get to that stage, we will be prepared for a new period of liberty. That day is coming. The government has shot his wad, and the Federal Reserve, in shooting whatever wad it has left, is going to debase the currency.
The transformation is taking place right under our noses. As George Orwell said, it is a constant struggle to see what is happening under our noses.
How can you participate? If you vote, stop. Recognize the immorality of voting as so eloquently explained by Lysander Spooner in his essay No Treason VI: The Constitution of No Authority and in Ken Schoolland’s Philosophy of Liberty. Realize that voting is what happens when two wolves and a sheep decide on what to have for dinner. Simply start using Free Market alternatives to central planner programs. Vote with your dollars. Withdraw your support of central planners like the Voluntaryists. If you are an entrepreneur you have the opportunity to profit by creating and offering alternative services at a lower cost. If you work for a government agency start making plans to move into the private sector where you will be better recognized for your talents.
Will the central planners give in easily? No, they will do whatever they can to maintain power. They will continue to woo voters with the promises of sharing in the stolen property they take by taxation and majority vote. If man is to achieve freedom he must stop living off of the backs of others. Education is the key to freedom. The internet is helping to make this happen.
Man does not instinctively wish to be the slave of another. It is against human nature. Only in his ignorance does he continue to make choices that enslave him. The innate desire to live is that same desire for liberty. Without liberty you do not have a life that you can call your own.
Parasites cannot live without hosts. We can starve the hosts and educate our fellow man by sharing articles like this one.
I have been delivering pizza for around 16 years now, and have worked for all of the major companies in that time. I have done it for full time work and now just do it part time to make ends meet. My mission with this blog is to bring attention to our efforts as delivery drivers and the risks we are taking everyday to perform the job in hopes to help create some public awareness. First of all we are using our own vehicle. That includes purchasing our own gas, buying parts to maintain our vehicles safely and carrying auto insurance. We are also risking our life by running around with cash and usually a big lit up sign that acts as nothing more than a big target. Yet the average tip is only roughly $2.00 per stop if you even get tipped at all. We also get a per delivery fee, but the company usually gets about half of that too. For example where I am working now we charge $1.90 for a delivery fee, but the company only gives us $1.05 of that. We are not even getting minimum wage anymore either. Since it went up a while back. They seem to be trying to make our pay more like waiter pay, but I can assure you we do not get tipped like waiters. Now that dosent sound right to me. Something needs to change. If they dont want to pay much they need to supply their own vehicles if you ask me. What is your opinion? Stay tuned for more rants about the life of a pizza man soon!!
Not only was I able to reduce my FPL bill every month through the Summer….but
I hit the lowest record this month by having a bill of ONLY $57!!!!
It took ALOT of sacrafice by keeping the AC off, (haven’t used it in 3 weeks), using ceiling and a floor fan to stay cool, drying laundry and such by
hanging them over kitchen chairs, limiting my hotwater use and not using the oven………….I also turned down the water heater, limited the lights I used and kept unplugged all non-essential items………
[Editors' Note: The second to last paragraph of the following Michelle Malkin column contains language that some readers may find offensive.]
As we gather round the Thanksgiving table, bow our heads in prayer and feast on the holiday bird, it is only fitting to take a moment to fete the unforgettable turkeys of 2009.
1. The stimulus. Back in February, I wrote that if the trillion-dollar stimulus plan were a Thanksgiving dinner entree, it would be a Turbaconducken — the heart attack-inducing dish of roasted chicken stuffed inside a duck stuffed inside a turkey, all wrapped in endless slabs of bacon. And so it has come to pass. After the Democratic majority larded up the massive spending package with earmarks and bribes, President Obama declared it pork-free and has stubbornly touted its job creation benefits for out-of-work Americans.
Reality check? The Washington Examiner reports that more than 10 percent of the jobs the Obama administration claimed were “created or saved” by the stimulus are doubtful or imaginary. ABC News uncovered countless examples of bogus congressional districts listed as stimulus beneficiaries by the Obama stimulus tracking website, Recovery.gov. The money has been lavished on shady beauty schools in New Hampshire, prison inmates in Texas and wind companies in Spain and China. Just this week, a California audit found that the Department of Corrections and Rehabilitation overstated the number of jobs saved by federal stimulus dollars by upward of 13,000.
While this Generational Theft Act continues to soak up our tax dollars and add to our children’s and grandchildren’s debt, the Democratic majority is in the government kitchen cooking up a second stimulus turkey to provide federal infrastructure money to public-sector unions. Gobble, gobble.
2. President O-bow-ma. The candidate who pledged to restore America’s standing in the world couldn’t figure out how to stay standing in front of world leaders. In April, he crouched before Saudi King Abdullah. This month, he provoked global derision when he broke protocol and performed a spineless blunder in front of the Japanese emperor.
The kowtower-in-chief’s body language reflected the administration’s broader foreign policy prostrations — including scrapping missile defense in the Czech Republic and Poland, canceling a meeting with the Dalai Lama to appease China, sitting on its hands this summer during the Iranian election protests and unveiling the 9/11 show trials in New York City that will provide a circus platform for jihadis and international Bush-haters.
The left complained that George W. Bush was too much of a cowboy on the global stage. It’s better than having a waterboy.
3. Green jobs czar Van Jones. This deep-fried turkey was recruited by Team Obama’s Chicago consigliere Valerie Jarrett, who boasted about recruiting the Marxist rabble-rouser from Oakland. He openly crusaded to free Philadelphia death row cop-killer Mumia Abu-Jamal, bashed capitalism with radical revolutionary rhetoric and signed a 9/11 conspiracy petition that he meekly disavowed in a botched attempt to save his job. Jones is now at the Center for American Progress, run by Obama transition official and Democratic operative John Podesta.
The other turkey in the story, Val Jarrett, escaped unscathed and went on to push the Obamas into their failed crony campaign for the 2016 Olympics bid in Copenhagen — a taxpayer-funded, hubris-infused debacle that ties with Van Jones for third biggest turkey of the year. Rio got the Games. America got a closer look at the pay-for-play patrons, power brokers and developers in the Windy City who have put an indelible Chicago stamp on the Potomac.
4. The New York Times. Scooped by Fox News, conservative blogs and talk radio on the exploding ACORN scandal, the paper whitewashed its own role in covering up the community organizing racket’s financial shenanigans last fall when it cut off a reporter’s investigation a few weeks before Election Day. Jill Abramson, the Times’ managing editor for news, acknowledged that her staff was “slow off the mark” and blamed “insufficient tuned-in-ness to the issues that are dominating Fox News and talk radio.” They assigned a new “opinion media monitor” to track the competition, but refused to identify the watchdog for fear that he/she would get too many mean, intrusive e-mails and phone calls.
More recently, the paper’s website demonstrated that its real motto is “All the inconvenient news that’s fit to suppress.” The Times’ lead environmental blogger, Andrew Revkin, haughtily refused to reprint damning e-mails leaked by a hacker in the burgeoning “ClimateGate” scandal. The documents reveal a long trail of manipulated data, but Revkin balked at the ill-gotten trove. The blabbermouths at the Times had no problem exposing national security secrets to undermine Bush. But shed light on scientific hoaxes that undermine Al Gore? Unethical!
5. Tea Party-bashers. Millions of ordinary, peaceful Americans joined the Tea Party movement to revolt against big government, backroom deals and the Beltway culture of corruption. For their exercise of free speech and free assembly, they were smeared nationwide. Hollywood has-been Janeane Garofalo called them “racist, backward motherf**kers.” SEIU labor thug Dennis Rivera accused them of “terrorist tactics.” CNN anchor Anderson Cooper used a vulgar sexual epithet to describe them. Team Obama’s astroturfers declared all-out war on them.
For refusing to sit down and shut up in the face of such unhinged bigotry, and for exposing the foulness of the political fowl, I have two words for them: Thank you.
FamilySecurityMatters.org Contributing Editor Michelle Malkin is the author of Culture of Corruption: Obama and his Team of Tax Cheats, Crooks & Cronies (Regnery 2009).
Read more excellent articles from Family Security Matters
Imagine if aliens from a galaxy light-years from Earth, decide to seek out a New World. Imagine they discover Earth, it’s the New World, they assume. And they pursue a relentless campaign of occupation, colonizing the planet. One by one, these aliens systematically remove, with much violent force, the people of the planet, starting with the First World dominant culture, because, of course, they’ll want what that culture has: access to the land and resources which that culture controls. Imagine these aliens succeed with such a crusade, centuries later marking the genocide with an annual feast celebrating a deluded history that claims they were embraced with much alacrity and congeniality, that, while they were killing off human beings to clear the way for their own culture, human beings weren’t fighting back but teaching them how to make mashed potatoes and gravy and pies and roast turkey and things. “C’mon, Frank…” you’re probably saying, “this is a bit too much, don’t you think?”
I know, I know, so this scenario is a bit kooky. Such a concept is a little too bonkers for the sociological imagination. Okay. Fine. Let’s try it another way.
Imagine if white settlers from a continent 3,325 miles from the eastern shorelines of an already inhabited continent, decided to seek out a New World putatively, circa 1620 AD. Imagine they discover “America,” it’s the New World, they assume. And they pursue a relentless campaign of occupation, colonizing the continent. One by one, these settlers systematically remove, with much violent force, the people of the North American continent, starting with the indigenous nations of the east, because, of course, they’ll want what those cultures have: access to the land and “resources” which those cultures inhabit and employ sustainably. Imagine these settlers succeeded with such a crusade, centuries later marking the genocide with an annual feast celebrating a deluded history that claims they were embraced with much alacrity and congeniality, that, while they were killing off the native indigenous to clear the way for their own culture, natives weren’t fighting back but teaching them how to make mashed potatoes and gravy and pies and roast turkey and things.
There. Not so crazy now, is it?
“About three-quarters of all adult Indians suffer alcoholism and/or other forms of substance abuse. This is not a ‘genetic condition.’ It is a desperate, collective attempt to escape our horrible reality since ‘America’s Triumph.’ It’s no mystery why Indians don’t observe Thanksgiving. The real question is why do you feast rather than fast on what should be a national day of mourning and atonement. Before digging into your turkey and dressing on Nov. 23, you might wish to glance in a mirror and see if you can come up with an answer.” — Ward Churchill
“One indication of moral progress in the United States would be the replacement of Thanksgiving Day and its self-indulgent family feasting with a National Day of Atonement accompanied by a self-reflective collective fasting.” — Robert Jensen
“We suffer from a poverty level of 69 percent, which must be unimaginable to many people in this country, who would equate a situation such as this to one found only in Third World countries.” — Tribal Chairwoman Kathleen W. Kitcheya speaking about the San Carlos Apache Reservation.
“Those that escaped the fire were slain with the sword, some hewed to pieces, others run through with their rapiers, so as they were quickly dispatched and very few escaped. It was conceived that they thus destroyed about 400 at this time. It was a fearful sight to see them thus frying in the fire and the streams of blood quenching the same, and horrible was the stink and scent thereof; but the victory seemed a sweet sacrifice, and they gave the praise thereof to God, who had wrought so wonderfully for them, thus to enclose their enemies in their hands and give them so speedy a victory over so proud and insulting an enemy.” — William Bradford, a settler, describing Captain John Mason’s attack on a Pequot village.
This Thanksgiving, rather than thoughtlessly stuffing yourself with food and then sauntering over to the couch for some postprandial football, think about how you can play your part in stopping the dominant culture from removing more indigenous cultures from their landbases to extract raw materials for industry that is destroying the planet’s ecological and climatic infrastructure.
Frank Smecker is a student, social-worker, and writer from Richmond, VT. He can be reached at: frank.smecker@gmail.com. Read other articles by Frank, or visit Frank’s website.
This morning we just received the first revision to third quarter Gross Domestic Product. The original unrevised figure was reported +3.5% for Q3, and the revision came in at +2.8%. Bloomberg had a consensus estimate of 2.8% for today’s revised data, while Dow Jones was at 2.7%.
The price index for personal consumption was +2.7% versus a +2.8% preliminary figure. Core PCE, excluding food and energy, was +1.3% versus the preliminary +1.4% data.
This might not be quite as solid as the initial report, but at least it isn’t in the red. After that, there is not so much to dwell on in today’s data on a week where trading and market participation lightens significantly.
Coming from the NY Times, this actually surprises me. This is a bit off the reservation for them. I understand that the White House was none too pleased about it either. Seems that the truth can be a bit embarrassing sometimes.
As bad as this article may sound, it still sugar coats the truth. We are in a financial dungeon, and right now China holds the keys to our cell. If that rotting carcass of a health care bill passes, or some form of the cap-and-tax or other climate change bill passes, then China will throw away the key. Our debt and currency will be worthless and unmarketable.
Yet the socialist/communist democrats just want to continue spending as if money grows on trees. Money may be made from trees, but the value behind it is much more difficult to come by. The democrats are doing a smashing job (pun intended) of destroying that as well.
http://www.nytimes.com/2009/11/23/business/23rates.html?_r=1&pagewanted=print
November 23, 2009
Payback Time
Wave of Debt Payments Facing U.S. Government
By EDMUND L. ANDREWS
WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages. (This is why you don’t let liberals be in charge of anything. They think that the reason they failed is because we just didn’t let them implement enough of their liberal madness.)
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.
The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone. (Wrong. It wasn’t necessary. If I have 3 maxed out credit cards and can’t pay the bills, I don’t go get another credit card to make those payments. That is exactly what our government is doing. Overlooking the fact that the democrats BEFORE George Bush set the stage for the housing crash back during the Clinton administration, had we let the bad institutions (and auto companies) fail, there would have been an immediate recession. However, now that we have dug our financial hole deeper than our ladder is high and are continuing to dig, we are headed for a depression that will make the 1930’s look like a party. There is no such thing as a pain-free life. The more you run from the consequences of your actions, the larger those consequences become.)
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.
The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.” (That’s what the democrats are banking on. They hope they will be long gone by the time the pain hits.)
So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.
The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent. (Returns that low are why they can’t sell the long term bonds. If you buy them and rates go up, you lose.)
“All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”
The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government. (The liberals robbed the so-called Social Security “lock box” a long time ago. The program began with more than 60 people paying taxes for each SS recipient. Now that is down to about 4-to-1. Pretty soon, taxpayers will just have to let a SS recipient just move in with them. It’s past time for SS to go away.)
“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”
The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.
On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages. (The government buying its own debt. Remember that credit card shell game I spoke of earlier?)
Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China.
The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.
Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels.
The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.
Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.
But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead. (What happens if China decides not to buy? Economic collapse.)
To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.
Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service.
This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead.
“Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4.
“Clever debt management strategy,” the group said, “can’t completely substitute for prudent fiscal policy.” (No kidding. It’s called “don’t spend more than you have. The turds floating in the punch bowl of Washington, D.C. have forgotten that it’s not Monopoly money they’re spending, it’s OUR money. But most of them never had to earn an honest day’s wage in their lives, so how should we expect them to understand?)
SAN FRANCISCO (MarketWatch) — The past month has been the busiest for initial public stock offerings in almost two years. Five deals came out this week alone, on the heels of two well-received debuts the week before, in what may be a hopeful sign for the stock market overall.
Yet retail investors shouldn’t expect to find access to the notoriously exclusive IPO market any more public. “IPO” might as well stand for “individuals passed over,” though a few back doors are open for those who know where to look.
Healthier IPO market Is back
The number of initial public offerings is picking up, but retail investors shouldn’t expect to find exclusive deals waiting for them — unless they know where to look, according to Bill Buhr, IPO strategist at investment researcher Morningstar. Jonathan Burton reports.
That is, if it’s even worth looking. Many who remember the go-go late 1990s stock market still perceive IPOs as golden tickets for the well-connected and well-heeled. Back then, companies with no earnings or even the most basic fundamental underpinnings had buyers lined up in hopes of doubling or even tripling their money in a matter of hours.
“Ten years ago you could have brought a desk and a chair public,” said Scott Sweet, senior managing partner at IPO Boutique, an investor advisory service.
Selective buyers
Not any more. Many of this year’s deals have been for high-quality businesses with actual earnings, brought to market by top-drawer underwriting firms.
“They’re not only more solid, they generally have good backing,” Sweet said about the recent crop of IPOs.
Investors are warming to these deals, but they’re being choosy. “Those that languish in the pipeline generally do not meet the criteria that investors and institutions are looking for,” Sweet said.
Potential buyers, he noted, want to see improving year-over-year revenues, increasing profits or decreasing losses, a strong business foothold and little debt.
“It’s not like every deal is working,” added Sal Morreale, institutional sales manager at brokerage Cantor Fitzgerald and an IPO specialist. “The Street is being extremely selective in what it likes.” For example, one of this week’s hopefuls, medical-record manager HealthPort Inc., had to postpone its offering.
‘We’re in a discerning IPO market, which is probably one of the best IPO markets you can be in.’
– Kathleen Smith, Renaissance Capital
Even when deals get done, investors aren’t going overboard. Consider what happened on Friday when four companies went public, capping the second-busiest week of the year.
Two issues — Cloud Peak Energy Inc. , a carve-out of mining giant Rio Tinto PLC , and Global Defense Technology & Systems Inc. — priced below expectations and finished their first trading day near where they opened.
The other two — Chinese hotel chain 7 Days Group Holdings Ltd. and online educator Archipelago Learning Inc. — fared relatively better, but even then their first-day gains were just over 13%.
The week’s big winner was network security expert Fortinet Inc. , which enjoyed a first-day surge of 33% on Wednesday. Other notable IPOs this month: clothing retailer Rue21 Inc. , up 25% out of the gate, and solar-industry player STR Holdings Inc. , jumping 31% after its unveiling.
“We’re in a discerning IPO market, which is probably one of the best IPO markets you can be in,” said Kathleen Smith, a principal at Renaissance Capital, which specializes in IPO research and runs the IPO Plus Mutual Fund .
“You see these types of markets after big corrections,” she said. “Investors are price sensitive, so deals are unable to be priced at big premiums. Companies should be nervous if they have an overpriced IPO; it may not be successful.”
Initial offering questions
Companies can come public too soon, and often do, said IPO Boutique’s Sweet, who also trades IPOs for his own account.
He and other IPO experts advise would-be buyers to ask straightforward questions, just as they would for any investment. That’s true even if the intent is to flip the IPO shares on day one.
First, determine how much of the company is being offered, Sweet said. Typically a company gives up about one-third of its shares outstanding.
“How much are insiders retaining?” Sweet said. “If insiders are selling and the company is getting nothing, that’s a red flag.” And be careful, he added, if a speculative company, such as a biotech firm, appears desperate for cash to fund an early-stage product payday loans with no fax.
Next, find out why the company is going public. “What are the dynamics of the deal?” said Bill Buhr, IPO strategist at investment researcher Morningstar Inc. “Will they keep the proceeds to grow the business?”
If the IPO seems like it’s mainly giving top executives a chance to make money, he said, “that’s not necessarily a deal I want to get involved in.”
Then, Buhr said, dig into the firm’s books. Is it profitable? Does it generate cash? Does the business have a competitive advantage over rivals? “You want to see where the [company's] story is heading,” he said.
Finally, watch where the deal prices versus expectations. “If it’s priced above the filing ranges, you can expect some aftermarket performance,” said John Fitzgibbon, Jr., founder of advisory service IPO Scoop. “It means it was oversubscribed and there is ongoing interest in the deal; not every institution got their full allocation.”
Getting a share
How can you get a piece of the IPO pie? It’s always helped to be a heavy hitter, an active trader, and an all-around good customer to your broker.
“It’s just like the big tipper at a hot restaurant,” Fitzgibbon said. “You walk to the front of the line, people bow and scrape and show you in.”
Still, if you do wrangle shares it probably won’t be as much as you want. Selling 100 shares of a $10 stock that moves 20% on the open isn’t going to make you rich. But it might make you feel like a player.
For retail investors who want in on IPOs but don’t have the ability or the money to keep trading accounts with several brokerages, Fidelity Investments has a new proposition.
The mutual-fund giant is making IPOs and other stock offerings available to some of its brokerage clients through separate arrangements with private-equity firm Kohlberg Kravis Roberts & Co. and with German investment bankers Deutsche Bank .
To participate in KKR backed deals — such as the recent IPO of discount retailer Dollar General Corp. — Fidelity brokerage customers need at least $100,000 in assets at Fidelity and to make 36 or more trades in a 12-month period. Access to IPOs led by Deutsche Bank requires a client to have at least $500,000 at Fidelity and to make the same number of trades over a year.
Said Mark Haggerty, president of Fidelity Capital Markets: “It doesn’t mean we can get it for every customer, or even in the allotment they want, but to a great extent it’s got us access to a product that in the past a lot of retail investors wouldn’t have.”
After the shouting
If like most people you don’t win the IPO lottery, there are still some options to consider.
The $11 million IPO Plus Aftermarket Fund, one of the only diversified portfolios available to retail investors, is up about 12% for the year so far. The fund owns more than two dozen positions in companies that have gone public over the past couple of years. Its biggest stakes include index provider MSCI Inc. , risk-management software producer Verisk Analytics , STR Holdings, and retailer Vitamin Shoppe Inc. , which went public in October.
Renaissance is developing an exchange-traded fund that would track the FTSE Renaissance IPO Index, a collection of 103 companies which have gone public in the last two years, Smith said.
The benchmark is up 45% so far this year with contributions from top components Visa Inc. , MSCI, American Water Works Co. Inc. , Chimera Investment Corp. , Mead Johnson Nutrition Co. and Intrepid Potash Inc.
There’s no timeline for Renaissance Capital’s ETF, Smith said. That leaves First Trust US IPO Index , which tracks the IPOX-100 U.S. Index, as the lone ETF for IPO investors. The ETF includes the top 100 IPOs by market value from the past four years. About 35% of the fund is concentrated in holdings Visa, Philip Morris International Inc. MasterCard Inc. Covidien Plc. and Viacom Inc. (Class B)
And you just might find a company that other investors have overlooked precisely because it’s newly traded, and which could see its market value grow over time.
“The real way to play the IPO space, because a lot of times you can’t get in early, is to do your own research,” said Morningstar’s Buhr. “If company A is worth more than the stated range and it doesn’t move a lot [on the IPO], that’s a situation where you can get into an undervalued asset.”
Weekend Investor: What investors need to know as IPO market reheats
It’s simply not true that America is ambivalent about everything when it comes to the Obama health plan.
The day after the Congressional Budget Office (CBO) gave its qualified blessing to the version of health reform produced by Senate Majority Leader Harry Reid, a Quinnipiac University poll of a national cross section of voters reported its latest results.
This poll may not be as famous as some others, but I know the care and professionalism of the people who run it, and one question was particularly interesting to me.
It read: “President Obama has pledged that health insurance reform will not add to our federal budget deficit over the next decade. Do you think that President Obama will be able to keep his promise or do you think that any health care plan that Congress passes and President Obama signs will add to the federal budget deficit?”
The answer: Less than one-fifth of the voters — 19 percent of the sample — think he will keep his word. Nine of 10 Republicans and eight of 10 independents said that whatever passes will add to the torrent of red ink. By a margin of four to three, even Democrats agreed this is likely.
That fear contributed directly to the fact that, by a 16-point margin, the majority in this poll said they oppose the legislation moving through Congress.
I have been writing for months that the acid test for this effort lies less in the publicized fight over the public option or the issue of abortion coverage than in the plausibility of its claim to be fiscally responsible.
This is obviously turning out to be the case. While the CBO said that both the House-passed bill and the one Reid has drafted meet Obama’s test by being budget-neutral, every expert I have talked to says that the public has it right. These bills, as they stand, are budget-busters.
Here, for example, is what Robert Bixby, the executive director of the Concord Coalition, a bipartisan group of budget watchdogs, told me: “The Senate bill is better than the House version, but there’s not much reform in this bill. As of now, it’s basically a big entitlement expansion, plus tax increases.”
Here’s another expert, Maya MacGuineas, the president of the bipartisan Committee for a Responsible Federal Budget: “While this bill does a better job than the House version at reducing the deficit and controlling costs, it still doesn’t do enough. Given the political system’s aversion to tax increases and spending cuts, I worry about what the final bill will look like.”
These are nonpartisan sources, but Republican budget experts such as former CBO director Douglas Holtz-Eakin amplify the point with specific examples and biting language. Holtz-Eakin cites a long list of Democratic-sponsored “budget gimmicks” that made it possible for the CBO to estimate that Reid’s bill would reduce federal deficits by $130 billion by 2019.
Perhaps the biggest of those maneuvers was Reid’s decision to postpone the start of subsidies to help the uninsured buy policies from mid-2013 to January 2014 — long after taxes and fees levied by the bill would have begun.
Even with that change, there is plenty in the CBO report to suggest that the promised budget savings may not materialize. If you read deep enough, you will find that under the Senate bill, “federal outlays for health care would increase during the 2010-2019 period” — not decline. The gross increase would be almost $1 trillion — $848 billion, to be exact, mainly to subsidize the uninsured. The net increase would be $160 billion.
But this depends on two big gambles. Will future Congresses actually impose the assumed $420 billion in cuts to Medicare, Medicaid and other federal health programs? They never have.
And will this Congress enact the excise tax on high-premium insurance policies (the so-called Cadillac plans) in Reid’s bill? Obama has never endorsed them, and House Democrats — reacting to union pressure — turned them down in favor of a surtax on millionaires’ income.
The challenge to Congress — and to Obama — remains the same: Make the promised savings real, and don’t pass along unfunded programs to our children and grandchildren.
Barack Obama said that his recent trip to Asia was a boost to the US economy.
What exactly did Obama do?
“‘I spoke with leaders in every nation I visited about what we can do to sustain this economic recovery and bring back jobs and prosperity for our people — a task I will continue to focus on relentlessly in the weeks and months ahead,’”
So what was the real result of Obama’s trip
He talked.
What did not result from Obama’s trip
New job creation
Reduction in US trade deficit
Reduction of debt held by foreign nations
There was no real, measurable progress made in any area of any significance with any relevance to the US economy or individual Americans.
Obama is blowing more smoke regarding the real outcomes of his actions than any private American business or citizen he and Al Gore want to crush under their “cap and tax”.
James Delingpole / The Telegraph – November 20, 2009
If you own any shares in alternative energy companies I should start dumping them NOW. The conspiracy behind the Anthropogenic Global Warming myth (aka AGW; aka ManBearPig) has been suddenly, brutally and quite deliciously exposed after a hacker broke into the computers at the University of East Anglia’s Climate Research Unit (aka Hadley CRU) and released 61 megabites of confidential files onto the internet. (Hat tip: Watts Up With That)
When you read some of those files – including 1079 emails and 72 documents – you realise just why the boffins at Hadley CRU might have preferred to keep them confidential. As Andrew Bolt puts it, this scandal could well be “the greatest in modern science”. These alleged emails – supposedly exchanged by some of the most prominent scientists pushing AGW theory – suggest:
Conspiracy, collusion in exaggerating warming data, possibly illegal destruction of embarrassing information, organised resistance to disclosure, manipulation of data, private admissions of flaws in their public claims and much more.
One of the alleged emails has a gentle gloat over the death in 2004 of John L Daly (one of the first climate change sceptics, founder of the Still Waiting For Greenhouse site), commenting:
“In an odd way this is cheering news.”
But perhaps the most damaging revelations – the scientific equivalent of the Telegraph’s MPs’ expenses scandal – are those concerning the way Warmist scientists may variously have manipulated or suppressed evidence in order to support their cause.
Here are a few tasters. (So far, we can only refer to them as alleged emails because – though Hadley CRU’s director Phil Jones has confirmed the break-in to Ian Wishart at the Briefing Room – he has yet to fess up to any specific contents.) But if genuine, they suggest dubious practices such as:
“Ms. Bats, I can hear you are frustrated so let me offer you this…I will cut your payment plan down to $100 a month, it’s the same payment plan we offer those on social security.” Okay apparently that was suppose to be a good deal and after telling Ms. Cleveland that I only have $133 to my name and have not gone grocery shopping yet, she decided to add, “I need to you to pay six months at a time…” I didn’t even let her finish, “I’m sorry Ms. Cleveland did you just ask me to give you $600? I have told you numerous times now about how much money I have…” At this point I have been on the phone with her for at least 45 minutes and I am frustrated, I feel like she’s talking me in circles and I am sick of repeating myself so my voice is raising along with my blood pressure and I’m about to lose it. “Yes, it’s our company policy and VW wants to make sure they are going to be paid, we call it a good faith payment.” I know what a good faith payment is and I have never been asked to pay one for such a high amount, so I do what any broke SAHM would do when they feel like they aren’t being heard and are sick of repeating themselves…I lose it and I lose it in a big way! “Look, I AM GOING TO TELL YOU ONE LAST TIME…I DO NOT HAVE ANY MONEY! I HAVE $133, HAVEN’T GROCERY SHOPPED YET NOR PAID MY MORTGAGE…I HAVE A LEAKING WATER PIPE OUT FRONT THAT IS GOING TO COST AT LEAST $1000 TO FIX, I OWE THE STATE BACK TAXES NOR HAVE I PAID MY TAXES FOR THIS YEAR, I NEED TO PAY THE WATER BILL, ELECTRIC, AND PHONE BILLS BEFORE THEY GET SHUT OFF. I DO NOT HAVE ANY MONEY FOR YOU AT THIS TIME.” I’m screaming, crying and just plain pissed off this lady thinks that she’s going to take my last bit of money for me, I mean shit it’s the end of the year, I have two kids that still believe in the magic of Santa Claus, I’m about to lose my house and she wants me to give her $600 towards a car that we don’t even have nor own any longer. I’m pissed and my claws have come out. “Mam, you need to calm down, I understand…” She obviously doesn’t which makes me lose my mind even more so I start cussing at her too! :/ “You obviously do not understand that I have no fucking money! because you keep telling me that I need to pay you some huge amount that I keep telling you I do not fucking have.” At this point I think I am flustering her with the F word so she tries a different approach. “Ms. Bats how about you try and calm yourself and tell me what you are comfortable with paying today.” I sigh and tell her that I can pay her $10 today, that is all the money that I am going to take out of my funds, with 2 kids I spend about $120 a week in groceries, my husband spends that same amount in gas every week so we are screwed anyway. It turns out that $10 isn’t good enough and she starts hammering me for more money. At this point I am crying, sobbing, and can not believe I am still on the phone with this woman…now I hear her telling me that I can not avoid this debt, I have to pay this debt whether it be voluntarily or not, I am going to need to come up with the money and it’s going to be now…”Let me get my manager.” I hate those words because it means I am going to have to go through that whole conversation again, just with another person. This time a man gets on the phone, he has a deep intoxicating voice and I hear him say, “Ms. Bats, my name is Mr. Cole and by the end of our conversation you’ll be calmer and we will have this whole thing figured out. Okay?” Oh shit he’s going to hammer me in a smooth style. Which he did but I ended up making only a $10 payment, $15 because of the processing fee. BUT after that he says he NEEDS another phone number, a second number it can be a friend or relative, a neighbor or an employers number. UNFUCKINGBELIEVABLE! I end up giving them my husbands office number but they will never get him there nor will they ever speak with me there.
I am exhausted just from thinking about all of this again. My mortgage company doesn’t even hammer me this hard. Yesterday my phone started ringing at 8am and rang every 20 minutes until 9pm…Guess who it was?
It’s another record-high for the U.S. National Debt which has topped the $12-trillion mark. Divided evenly among the U.S. population, it amounts to $38,974.34 for every man, woman and child.
This latest milestone in the ever-rising journey of the National Debt comes less than eight months after it hit $11 trillion.
The National Debt has increased about $1.6 trillion on Mr. Obama’s watch, though less than $4.9 trillion run up during the presidency of George W. Bush.
It gets worse. The same document projects that by the end of the decade, the National Debt will hit $24.5 trillion — exceeding the Gross Domestic Product projected for 2019.
Usually, I don’t act disrespectful (unless your name starts with K and ends with rugman) against people who clearly have much more education in economics than I do. Well, maybe I do, but usually I add a disclaimer that my conclusions aren’t based on an official economic education, rather something I usually refer to as “logic”, which is in effect in what people generally call “reality”. With that being said, I have to jump on this article. It is clearly written by someone who wishes to make a point, and tailors his argument to fit that point (and to make things worse – tries to make Ludvig von Mises complicit in this fraud) :
“President Obama’s arrival in China has predictably generated all manner of commentary about the economic relationship between it and the United States. Not surprisingly, the majority of the commentary has been economically untrue, misguided, or both. First up is the notion that China artificially keeps the value of the yuan lower than it would naturally be. What this commentary misses is that currencies aren’t commodities, rather they are concepts. Nothing else.”
The nonsense begins. If the central bank of china didn’t stock-pile dollars, what would it be worth? If this doesn’t affect the value of the US dollar, why don’t we do an experiment and dump $2 trillion on the forex markets. According to the author of this article, it wouldn’t change the value of the US dollar? The reason that the actions of the chinese central bank matters is that :
1 ) China’s exporters accept payment in dollars, not in yuan, thus the central bank of china affect the value of the yuan towards the USD when it trades in these dollars for yuan.
2 ) The result is pretty obvious – an enormous trade deficits. If the central bank of china didn’t accept an infinite amount of dollars from chinese exporters, these would end up on the forex market. This would mean an amount equal to the US-China trade deficit per month. Try dumping that amount on the forex market EACH MONTH and see if you find any buyers under a fixed-rate-exchange policy. There would be a desperate shortage of yuan, and an overflow of dollars.
“In that sense, China is one of many countries that pegs its currency to the dollar in order achieve for it a measure of credibility due to the dollar being the world’s currency. Much as trade among the fifty states in the U.S. is made more frequent thanks to there being a common currency, the yuan’s stable relationship with the dollar is what has fostered a great deal of trade between individuals in the U.S. and China. Trade is the reason we produce, and currency stability facilitates trade.”
A rather erronous comparison, because China does not use dollars as their own currency. Nor is the US dollar exchangable for any real asset (gold, for instance) that can be used to gauge what the yuan should really be worth. Currency stability is a good thing, but printing immense amounts of paper currency and relying on a foreign central bank to sop it up to create “currency stability” is not the way to go. The reason that the US dollar is falling against ALL CURRENCIES EXCEPT THE YUAN is that other central banks do not wish to become paper dollar storage facilities. People who receive dollars in trade want their own currencies back, so they trade dollars for domestic currency. Regardless of if this goes through a central bank or other clearing institute, unless the dollars are stockpiled they end up on the forex market.
Many commentators seek an absence of policy whereby the yuan and dollar would float against each other as “fundamentals” warrent, but as Von Mises so clearly saw, floating currencies “complicate the technique of exchange” given the basic truth that uncertain currency values make it more difficult for producers to confidently use money in order to transact. Money is merely a medium of exchange, and the less uncertainty we have, the better off all parties to trade are.
Mises was correct – it is preferable if currencies keep their value. But if the yuan was truly fixed to the dollar, without any stockpiling by the Chinese central bank, then there would be a shortage of yuan and a surplus of dollars. Chinese exporters would not be able to exchange their dollars for yuan – and would thus stop accepting dollars, and demand payment in yuan. US importers would not be able to retrieve any yuan for the same reason. During a fixed-exchange-rate regime, two outcomes are possible :
If currencies are pegged to gold, there is an outflow of gold from the country with the trade deficit to the country with the trade surplus if the central bank accomodates this.
If currencies are not pegged to gold, or the central bank of the trade surplus nation refuses to accomodate the trade surplus by printing paper currency and stockpiling the trading partners currency (like China is currently doing) there will be a shortage of the currency of the trade surplus nation, and a surplus of the currency of the trade deficit country. This can only be resolved by revaluating the currencies against eachother, thus it becomes a floating-exchange-rate regime
Looking at the yuan, it’s “settled logic” among the commentariat that currencies must reflect an economy’s fundamentals, but not only is this untrue, it perverts the reason for currencies altogether. Indeed, when individuals trade, they’re not trading money, instead they’re using money in order to measure the value of goods so that goods can be exchanged. That is why currencies are meant to be stable value concepts, rather than floating paper values lacking any definition.
More nonsense. In a fixed-rat-currencty environment, there would not be enough US goods for the Chinese to purchase, as compared to the Chinese goods for the US to purchase. This would lead to the Chinese not wanting dollars. For currencies to be stable-value concepts, there has to be equal production of goods and services in both nations, as well as equal amounts of currency printing.
As to the absurd suggestion that currencies are supposed to reflect economic fundamentals, this might surprise those who watched Japan’s yen triple in value versus gold during its near two decade recession. This might also surprise Americans who witnessed a much more vibrant U.S. economy vis-à-vis England’s in the aftermath of World War II; all this occurring despite the pound being stronger than the dollar. It would be more realistic to say that excessive currency strength or weakness is an economic retardant, as opposed to the result of economic strength or weakness.
The yuan tripling in value against gold is not hard to explain. Japan is a massive trade surplus country, so it is natural that their currency appreciate against other currencies. The gold price was sinking due to either lack of demand or manipulation until 2001, which further pushes the yen/gold ratio down. The reason that the US was better off after WWII than the UK has little to do with the relative value of the currencies – it has to do with a better business climate. Artificial currency rates are an economic retardant. Why is it that the US has a crippled manufacturing sector and no reserves, while China has an enormous manufacturing sector and enormous (worthless) dollar reserves? Why is it that americans consume vastly more in relation to their production than Chinese do? Artificial currency rates, as maintained by the Chinese central bank.
“Currencies once again aren’t supposed to move in value, because when they do the changes in value distort the money prices of all investments and transactions. The whole point of the Bretton Woods gold standard wasn’t for currencies to float, but for them to be tied to the dollar so that peaceful trade could reliably occur among individuals around the world. Stable currencies not only enhance wealth-enhancing trade, but they free up those engaged in mere economic facilitation (think currency traders, hedge funds) to actually produce economic goods thanks to floating money values no longer being an economic variable.”
As preferable as it would be to have currencies maintain their relative value, this requires either a gold standard, or strict, co-ordinated, disciplined central banks all over the world. Needless to say, no central bank has ever been able to withstand the pressure to print for the sake of the short-term gain. In addition to this, it would necessitate equally valued production by all nations, which is a laughable idea in the world of today. But it is indeed correct that the resources used in economic facilitation could be vastly cut down if central banks tied down the value of their currencies. It cannot, however, be done in the way China does it, something the US will soon experience.
“Lastly, implicit in the jawboning of China for its yuan policy is the assumption that somehow its citizens don’t suffer from the same currency weakness that now weighs down the U.S. economy. More realistically, inflation is death by a thousand cuts anywhere it exists, which means the unseen is how much China’s economy would be growing if U.S. monetary policy weren’t transferring an to inflation it. China is not aided by our inflationary policies as evidenced by its need to import all sorts of goods to create finished products, so it’s naïve for anyone to assume that China is enjoying the decline of its currency thanks to our irresponsible Treasury.”
The only correct point in the entire article. China is NOT enjoying their currency falling together with the US dollar. They are being empoverished by it. The reason they put themselves through this is the governments wish for political stability, which is hard to maintain during large economic shifts. Changing from an export economy to a stable economy that consumes equal to its production is such a change, because millions of exporters need to go out of business and become producers for the domestic market. This is undesirable from a Chinese government point of view, so instead they stockpile worthless dollars and eat american inflation.
Next up is the myth offered up by the Daily Telegraph’s Ambrose Evans-Pritchard (among others) which suggests that with its artificially cheap currency, China is exporting deflation. Comments like this merely prove that many who write on economics don’t have a clue what deflation is.
This is wrong beyond the line of ridiculous. If one country actively stockpiles another country’s currency, then this reduces the supply of this currency. Deflation is a reduction in the money supply of a currency. Even in the case where China uses the dollars to purchase US government bonds, this still causes an excess demand for US dollars, and removes a certain amount of dollars from circulation because there are always a number of dollars in the process of being cleared by the Chinese central bank and being exchanged for US Treasuries. It isn’t Chinese exporters that accept US Treasuries in payment, it is the Chinese central banks that buys treasuries after its exchanged USD for yuan. Thus, there is always a certain amount of USD existing somewhere between when the chinese exporter receives payment and the chinese central bank transferring these dollars to someone else in exchange for Treasuries.
It’s worth noting, however, that while stockpiling US dollars is deflationary for all other holders of USD, Treasuries actually counteract this effect somewhat by enabling the US government to spend more money – and we all know that excess government spending is highly inflationary.
“Secondly, the import of cheap Chinese goods is in no way deflationary. That is so because if cheap Chinese shoes allow individuals to spend $50 on loafers when they used to spend $100, that merely gives them $50 of new demand for a wider range of goods, thus driving up the costs of other goods previously demanded less. The broad price level by definition cannot be changed by imports; instead it can only move up or down based on changes in the value of money. In that case, all signs point to inflation worldwide, the U.S. Treasury the main miscreant in this regard.”
This is so utterly moronic that it makes you want to cry. If something is cheaper, it doesn’t drive down the general price of goods, because the money saved from purchasing a cheap good (over an expensive good) will be used purchasing something else, thus driving the price of that good up. Yes, but not by an equal offsetting amount. Unless you didn’t think of it, you now get two goods at the price of one. This is only possible if the price of these two goods taken together falls. And when Friedman said that “inflation/deflation is always and everywhere a monetary phenomenon”, he didn’t mean that a collapse in production cannot cause higher prices. And there will be inflation worldwide, until foreign central banks stop printing to accomodate their own short-term economic goals. The US will have even worse inflation, because the US government will crowd out the US consumer.
“The third impoverishing myth possessing many adherents is the one that says China is pursuing an “export strategy.” If we ignore the certain truth that countries don’t trade, to suggest a country is pursuing an export strategy is as idiotic as the suggestion that a country could pursue an “import strategy.” Good luck importing unless you’re exporting. “
Re-read what I wrote about stockpiling dollars to maintain an oversized export sector. If you are willing to eat someone elses price inflation then you can export more than you import. If someone else is willing to eat yours, you can print enough money to import more than you export. Like the US is doing.
“What’s forgotten is that exports and imports are but two sides of the same coin, and unless the supposed “experts” in our midst believe that Chinese producers are exporting in order to remain impoverished, there’s no such thing as an export strategy. In truth, the dollars taken in by Chinese producers are either used to buy U.S. products, equities, land and debt, or they’re traded to others with designs on what we have in the United States. Individuals export so that they can import, which means that to the extent U.S. citizens are complimented by a great deal of imports, that means they’re also exporting something of value in order to have the means to buy imports.
Von Mises once observed that “Economic history is the story of the gradual extension of the economic community beyond its original limits of the single household to embrace the nation and then the world.” That’s exactly what’s happening right now, and stable currency relationships are bringing the producers of the world closer and closer on a daily basis.
So rather than nonsensical commentary that perverts the purpose of currencies, we should embrace any measures taken that enable more, not less in the way of cross-border trade. In that sense, we should hope that more countries follow China’s responsible lead in pegging the yuan to the dollar, all the while hoping that monetary authorities in the U.S. wake up to the economy retarding inflation they’re foisting on the world, which threatens the wonderful process whereby individuals the world over are becoming more, rather than less economically interconnected.”
The US citizen is unfortunately under-exporting : Has the author never heard the term trade deficit. What is being exported is paper dollars and US debt, which are used for stockpiling. As long as this is OK with everyone involved, then there isn’t a problem. Unfortunately, it has lead to an economic imbalance that isn’t sustainable, because debt has to be serviced, and once again the US dollar will collapse if these exported and subsequently stockpiled dollars are put to use.
Please, dear economic commentators, do not write things that can be debunked by an amateurish blogger like me. It really is frustrating to have to tell professional economists and writers that they are utterly wrong all the time…..
The Times reports on a recently released audit which concludes, beyond the shadow of a doubt, that Timothy Geithner (now Treasury Secretary, then President of the New York Fed) voluntarily gave up vast negotiating powers when choosing to shower AIG with billions upon billions of dollars.
The article is written in standard Times-ese, which is to say that it seeks to relate truly scandalous information in such a way as to cause as little uproar as possible, but although it must be translated into standard English, some truly damning testimony emerges:
Just two days before the New York Fed paid A.I.G.’s partners 100 cents on the dollar to tear up their contracts with the insurance giant, one bank volunteered to take a modest haircut — but it never got the chance.
UBS, of Switzerland, alone offered to give a break to the New York Fed in the negotiations last November over how to keep A.I.G. from toppling and taking other banks down with it. It would have accepted 98 cents on the dollar.
The Fed “refused to use its considerable leverage,” Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, wrote in a report to be officially released on Tuesday, examining the much-criticized decision to make A.I.G.’s trading partners whole when people and businesses were taking painful losses in the financial markets.
So this means: The New York Fed decided to print 100% of the value of AIG’s investors’ bad loans in order to get them to divest from AIG, and (hopefully) save the money-laundering giant. Realize, now, that the Fed was under no obligation whatsoever to guarantee these loans with taxpayer dollars, and certainly not guarantee them at full value. Given that these CDS loans were later revealed to be totally fraudulent, this decision makes even less sense.
If I convinced you to give me real dollars for Monopoly Money, and then you complained to the government that the Monopoly Money you received was actually worthless, would you expect them to just print 100% of the value and give it to you, no questions asked? Or would you expect them to give you nothing and tell you, in effect, to be smarter next time?
What’s truly astounding about this episode is that some of the banks offered to take less than 100% of the value of their worthless investments, but Geithner refused! He said to them, essentially, that “oh well, it doesn’t matter – it’s taxpayer dollars anyway! Go ahead, take the full value!”
This is the man who is now our Treasury Secretary.
Greetings from Tempe, AZ! I’m here settling the third week of a four week engagement of the National Tour of PHANTOM OF THE OPERA at The Gammage Auditorium. I was fortunate to get in to see the performance last night. The run has been going well, and last night appeared to be sold out, or nearly so. This reminded me of how much The Road contributes to local economies. The Gammage has nearly 3,000 seats, and when shows come through town, especially popular shows like “Phantom,” the economy here benefits — the restaurants, the parking lots, the local merchants, the hotels, etc. Jobs are also created. This, of course, isn’t news, but I think sometimes we forget that the arts are also very much a viable business, contributing more than just to the local culture. This may not be so noticeable in boom times, but it is especially clear now as businesses around the country continue to struggle.
In fact, here’s a recent article on just this very topic.
Warren Buffet, who called derivatives the “‘financial weapons of mass destruction’” and turned around and made money on these weapons, turned around again and bet the pot on a railroad, a corporation that owns assets and real estate, settling in for the long haul.
Maybe the Oracle is a little leery of the worthless paper floating around Wall Street these days?
Is it just me, or is the pontification of Western leaders about corruption in Afghanistan growing rather tiresome?
There is something very Captain Renault about it. We’re shocked, shocked that the Afghans have sullied our morally immaculate occupation of their country with their dirty corruption. How ungrateful can they be?
But perhaps we should consider the possibility that our occupation of the country is not so morally immaculate — indeed, that the most corrupt racket going in Afghanistan today is the American occupation.
US military officials in Kabul estimate that a minimum of 10 percent of the Pentagon’s logistics contracts in Afghanistan consists of protection payments to insurgents, Aram Roston reports in The Nation. In southern Afghanistan — where General McChrystal wants to send more troops — security firms can’t physically protect convoys of American military supplies. There’s no practical way to move the supplies without paying the Taliban. So, like Milo Minderbinder in Catch-22, we’re supplying both sides of the war.
Meanwhile, two-thirds of the nearly $30 billion in international aid to Afghanistan has been routed through foreign consultants, companies, and organizations hired by the US government and its allies, Farah Stockman reports in the Boston Globe. Afghan officials complain that American civilian advisers are often overpaid, underqualified, and unfamiliar with the culture of the country. A typical US adviser earns about $500 per day — several times what the average Afghan earns in a month, Stockman notes. That’s about $125,000 a year — not a bad chunk of change, even by U.S. standards. It’s more than the household income of about 85% of American families. The total cost of such an adviser, including security and accommodations (note that most people — in Afghanistan, like the U.S. — have to pay for their own accommodations out of their salaries or wages), is about $500,000 a year.
The Afghan government now has a program to hire its own advisers from friendly Muslim countries like Turkey and the UAE. The US supports this program with a $30 million dollar contribution. But that contribution represents 1.1% of the $2.7 billion that the US plans to spend on economic assistance to Afghanistan next year, the vast majority of which will be used to hire US contractors. So for every dollar we spend on paying American contractors, we spend a penny on a much cheaper program that allows Afghanistan to hire people who know the culture, speak the language, have more expertise, and can move around Afghanistan with less security because they aren’t Americans.
What do you call that? Afghans call it corruption. As Diogenes might say, the big thieves are giving lectures to the little thieves.
Now consider an Afghan policeman making $120 a month — half the cost of supporting a family, Western officials concede — who sees all this going on. Do you think that guy might take a bribe? Bertolt Brecht wrote, in Marc Blitzstein’s translation: “First feed the face, and then tell right from wrong: for even saintly folk may act like sinners, unless they’ve had their customary dinners.” But in practice, our aid bureaucracy in Afghanistan has not yet won this most trivial insight.
But the biggest corruption of all is the occupation itself, because it is all based on a big lie: the claim that our continued occupation of Afghanistan is justified by the threat of an Al Qaeda “haven” in Afghanistan. This is a lie because: 1) as former counter-terrorism official Paul Pillar has pointed out, “the case has not been made” that “such a haven would significantly increase the terrorist danger to the United States” and 2) Mullah Mohammed Omar’s “Quetta Shura” Taliban have been signalling for months that they are done with Al Qaeda and there has been no U.S. response. McChrystal wants reinforcements to go to Kandahar. That’s Mullah Omar’s home turf. If McChrystal is given troops to go to Kandahar, then it’s not about Al Qaeda.
editors note: How could they know what the average American needs when they have no idea what poverty is? Report: 237 Members Of Congress Are Millionaires
Politico
November 6, 2009
John Kerry (CFR), worth about $208.8 million
As Washington reels from the news of 10.2 percent unemployment, the Center for Responsive Politics is out with a new report describing the wealth of members of Congress.
Among the highlights: Two-hundred-and-thirty-seven members of Congress are millionaires. That’s 44 percent of the body – compared to about 1 percent of Americans overall.
CRP says California Republican Rep. Darrell Issa is the richest lawmaker on Capitol Hill, with a net worth estimated at about $251 million. Next in line: Rep. Jane Harman (D-Calif.), worth about $244.7 million; Sen. Herb Kohl (D-Wis.), worth about $214.5 million; Sen. Mark Warner (D-Va.), worth about $209.7 million; and Sen. John Kerry (D-Mass.), worth about $208.8 million.
All told, at least seven lawmakers have net worths greater than $100 million, according to the Center’s 2008 figures.
“Many Americans probably have a sense that members of Congress aren’t hurting, even if their government salary alone is in the six figures, much more than most Americans make,” said CRP spokesman Dave Levinthal. “What we see through these figures is that many of them have riches well beyond that salary, supplemented with securities, stock holdings, property and other investments.”
A recent VECCI snapshot shows that violence is an issue for business. After compiling our data, we’ve found some interesting statistics on how businesses have been impacted.
Forty-two per cent of respondents in a VECCI snapshot survey have revealed that they have experienced loss of trade due to street violence in Melbourne.
And this loss of trade is being compounded by businesses having to fork out additional costs to repair their buildings and assets as a result of violence, as 54 per cent of respondents indicated.
Other respondents also indicated that some have had to pay for additional costs including lighting, security guards and cameras in order to better protect their properties.
It was not surprising that every respondent said that they believed that the State Government can do more to prevent street violence.
Measures that could be undertaken by the State Government range from law and order-based, including tougher sentences for offenders to the practical, which include better street lighting, marshalled taxi ranks and additional public transport to get revellers home quickly and safely.
There also has to be a balance between regulatory measures that will actually improve the current situation and those that will just hinder the ability of business to operate in Melbourne.
Melbourne has a fantastic reputation amongst tourists as a vibrant and exciting city, who are attracted by a world-class food and wine culture, rather than a whack on the head.
Many respected critics have long speculated that official projections from the International Energy Agency, major world governments and the oil industry of how long oil production can be sustained for are exaggerated. Today this was substantiated:
Key oil figures were distorted by US pressure, says whistleblower
Most people haven’t even gotten their heads around the fact that oil will run out. It will certainly run out, very few people are denying that any longer and they are rapidly losing any credibility. We’re now at the stage of bickering about how many decades of increased oil production we have left. As it turns out, we may have less than one.
Just to recap, our economic system relies on infinite growth in order to be able to sustain itself. When we are reasonably certain that the economy is going to grow it means we can borrow against future income – we can be reasonably certain that there will be increased income in the future. Our entire financial system is based on the ability to borrow against future earnings.
Infinite growth is made possible by fossil fuels, chiefly oil – the energy source behind the vast majority of worldwide manufacturing and transportation of all products – including food. As long as we can keep increasing oil production at fairly predictable rates, we can have infinite growth – we know that our consumer distribution networks will function etc. Once oil production begins to decline the economy will begin to shrink. Banks will stop lending. In case you haven’t noticed, we are already in a deep recession. The recent financial meltdown is not unrelated to peak oil. I believe that the key figures at the helm of the financial system are privvy to the actual projections of oil production. They too have been wilfully negligent.
If we do not deal with our dependency on fossil fuels before oil production begins to decline, we will no longer be able to afford to do so. Replacing the fossil fuel infrastructure will be unimaginably costly, but the cost must be measured in terms of energy. We may not have enough energy to meet that cost. For example, 12-15% of the gasoline a car uses in its lifetime goes into its own manufacturing. How much would it cost to replace the majority of the 750 million+ cars in the world in terms of energy? That is just one example.
Of far greater importance than cars, roughly 10 calories of hydrocarbon energy are used to make 1 calorie of food across the globe. In industrial agriculture oil powered machines are used to till the land, plant the seeds, harvest the crops, transport the raw produce, transport the final products and in all likelihood to transport the consumer to to the supermarket to buy the product. Natural gas, coal or oil are used to make the electricity that powers the irrigation systems, food processing plants and microwaves. Commercial fertilizers largely rely on natural gas to produce a synthetic nitrogen component. Commercial pesticides are also made from oil. Any plastic involved in the process is of course also made from oil.
Feeding a growing world population is therefore also directly dependent on a steady increase in oil production. We are already failing to do that adequately. The result of being caught unprepared for a decrease in oil production would be catastrophic. Many hundreds of millions of people would starve to death.
It turns out that the US is at least partially responsible for these exaggerated figures by putting pressure on the IEA to distort figures. Somewhat ironically, the stated reasons for doing so are to avoid a situation of panic buying of oil and to avoid general panic on the stock market. There will certainly be panic when the public realizes that the negligence of the powers that be will imminently result in the total collapse of the civilized world.
You can bet that a small amount of priveledged and wealthy individuals have been exploiting this situation for some time. Of course these private interests don’t want to cuase panic on the stock market – they are raking in a fortune every second that this system is maintained. Today these interests – consisting at least to some extent of figures within the US government – have been publicly caught out displaying a distinct absence of intent to remedy this situation for the greater good. This is irresponsible on an unprecedented scale.
We need to wake up and demand immediate transparency and accountability from our representatives. Any further waffling about reducing fossil fuel dependency must cease. We need swift, decisive and comprehensive action.
We all need to demand this from our governments immediately.
For those in the UK, I refer you again to the incredibly convenient Write to Them website.
For those in the US you will have to make do with the Contact Elected Officials page on usa.gov.
Jobless rate lags behind recovery. America’s unemployment rate reached 10.2% in October, higher than the 9.9% analysts at Briefing.com had forecast. One silver lining to the highest jobless rate in 26 years: net October layoffs were at 190,000 compared to 219,000 in September.1
More help for jobless + homebuyers. President Obama signed H.R. 3548 into law Friday, extending unemployment benefits an extra 14-20 weeks for roughly 2 million Americans. Additionally, the first-time homebuyer credit of up to $8,000 will be available through next June as long as a buyer signs a binding contract by the end of April. Move-up buyers may be eligible for a $6,500 variation of this credit.2
Could a wave of hiring start soon? Maybe. New Labor Department figures show that employee productivity increased by a whopping 9.5% in 3Q 2009. Also, labor costs fell by 5.2% in 3Q 2009, resulting in the largest four-quarter drop since 1948.3
Service sector growth continues. The Institute for Supply Management’s September service sector index topped 50 again – 50.6, a bit down from 50.9 in August but still showing expansion. The real attention-getter: a 1.4% jump north in new orders and a 2.0% increase in the backlog of new orders.4
Gold tops $1,100. Gold futures did that twice last week, finally settling at $1,095.70 on the NYMEX Friday; prices rose 5% last week. Oil prices gained $0.43 last week to close at $77.43 a barrel Friday.5,6
Stocks make big gains. The Federal Reserve left interest rates alone, and the good news from the ISM, the Labor Department and various earnings reports outweighed the jobless data. The Dow and S&P 500 both rose 3.20% last week; the Dow closed Friday at 10,023.42. The NASDAQ climbed 3.29% last week.7
% Change
Y-T-D
1-Yr Chg
5-Yr Avg
10-Yr Avg
DJIA
+14.21
+15.28
-0.70
-0.64
NASDAQ
+33.95
+31.31
+0.72
-3.19
S&P 500
+18.38
+18.17
-1.66
-2.20
Real Yield
11/6
1 Yr Ago
5 Yrs Ago
10 Yrs Ago
10YrTIPS
1.37%
2.81%
1.71%
4.14%
These views are those of Peter Montoya Inc., and not Statler Financial, and should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.
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Brazil will publish on Monday a preliminary list of U.S. goods it intends to hit with trade sanctions in retaliation for Washington’s cotton subsidies, a senior government official told Reuters.
Emboldened by emergency measures that helped pull Brazil out of a brief recession, President Luiz Inacio Lula da Silva is intervening more aggressively in the economy and betting on big government (Reuters).
Brazilian congressional committees passed two of four bills designed to overhaul the country’s oil legislation and give the government greater control over vast new offshore reserves (Reuters).
BUSINESS
Mexico’s state oil company Pemex said it signed a letter of intent with a consortium led by Brazil’s Braskem SA to supply raw materials for a proposed petrochemicals plant the consortium may build in Mexico (Reuters).
Brazilian aircraft maker Embraer will produce its 120-seat E-190 jet in China to respond faster when the country’s aviation market recovers, O Estado de S. Paulo said (Reuters).
Brazilian iron ore mining company Vale signed an agreement worth 900 million reais ($520 million) over three years granting access to its railway and port operations to local steel maker Usiminas (Reuters).
ArcelorMittal, the world’s largest steelmaker, will partner with mining giant Vale to build a steel mill in southeastern Brazil as part of a plan to spend $5 billion in the South American country, Chief Executive Officer Lakshmi Mittal told daily Valor Economico (Reuters).
OIL & GAS
Brazil’s state-run oil company Petrobras said it signed an agreement to buy Chevron Chile, a producer and seller of industrial lubricants under the brand name Texaco in Chile, for around $12 million (Reuters).
Brazil’s Petrobras has found natural gas in Peru’s Amazon jungle and the discovery of about 1 trillion cubic feet could turn out to be much larger, Peruvian President Alan Garcia said (Reuters).
INVESTMENT
Gerdau, Brazil’s largest steelmaker, plans capital expenditures of 9.5 billion reais ($5.5 billion) for the 2010-2014 period, with around 80 percent of the investments within Brazil, Chief Executive Andre Gerdau Johannpeter said (Reuters).
REAL ESTATE
Brazil, a future host of the World Cup and the Olympics, is drawing global investor interest to its real estate sector. As investors and analysts predict a wave of investment in Brazil in coming months, read a sampling of recent deals at Reuters.
TELECOM
America Movil Chief Financial Officer Varlos Garcia Moreno said Brazil’s economic resilience will help its wireless industry outpace other Latin American countries through 2010 (Bloomberg).
BANKING
Sao Paulo, Brazil’s largest city, will become a major financial center, “just like the City of London, Frankfurt and New York,” said Emilio Botin, chairman of Banco Santander SA (Bloomberg).
By Michelle Malkin
Via: Dissident Voice.
This morning we just received the first revision to third quarter Gross Domestic Product. The original unrevised figure was reported +3.5% for Q3, and the revision came in at +2.8%. Bloomberg had a consensus estimate of 2.8% for today’s revised data, while Dow Jones was at 2.7%.