Daily Digest

Daily Digest 6/20 - Companies Push For Tax Breaks, Struggling To Stoke Greece Growth, Japan Posts 2nd Biggest Trade Deficit

Monday, June 20, 2011, 9:49 AM
  • Companies Push for Tax Break on Foreign Cash
  • Deal on Lifeline for Greece Is Delayed Until July
  • European Stocks Drop as EU Governments Fail to Agree on Greece; BHP Falls
  • Struggling to Stoke Economic Growth in Greece
  • Assad Acknowledges Threats Posed by Syrian Unrest
  • U.S. Orders News Blackout Over Crippled Nebraska Nuclear Plant: Report
  • Overnight SHIBOR* Goes Whoosh (*Shanghai Interbank Offered Rate)
  • Japan Posts Second Biggest Trade Deficit In History
  • F.D.A. Confronts Challenge of Monitoring Imports

Crash Course DVDTake home the Crash Course DVD for an insightful look at the next twenty years  (NTSC or PAL)

Economy

Companies Push for Tax Break on Foreign Cash (jdargis)

Under the proposal, known as a repatriation holiday, the federal income tax owed on such profits returned to the United States would fall to 5.25 percent for one year, from 35 percent. In the short term, the measure could generate tens of billions in tax revenues as companies transfer money that would otherwise remain abroad, and it could help ease the huge budget deficit.

Deal on Lifeline for Greece Is Delayed Until July (jdargis)

After nearly seven hours of talks in Luxembourg, ministers issued a statement that reflected the continuing divisions over how to avert the prospect of a potentially disastrous default in Greece, which needs the next installment from its existing 110 billion euro bailout package to remain solvent.

European Stocks Drop as EU Governments Fail to Agree on Greece; BHP Falls (pinecarr)

European stocks fell, with the Stoxx Europe 600 Index extending losses into an eighth week, as governments failed to agree on a payment to spare Greece from default. Asian stocks and U.S. futures dropped.

Struggling to Stoke Economic Growth in Greece (jdargis)

“Private investors with money in hand were shut out,” Mr. Peristeris said. “At first I thought it was a joke. But now we’ve lost an entire year that would have been crucial for the economy.”

Assad Acknowledges Threats Posed by Syrian Unrest (jdargis)

For days, the speech had been anticipated as a crucial look into the leadership’s willingness to reform in the face of a three-month uprising and mounting pressure from Turkey, the United States and the European Union. In rhetoric at least, Mr. Assad offered a path for change, even if the speech lacked specifics and delivered somewhat vague deadlines.

    Crash Course DVDTake home the Crash Course DVD for an insightful look at the next twenty years  (NTSC or PAL)

U.S. Orders News Blackout Over Crippled Nebraska Nuclear Plant: Report (guardia)

A shocking report prepared by Russia’s Federal Atomic Energy Agency (FAAE) on information provided to them by the International Atomic Energy Agency (IAEA) states that the Obama regime has ordered a “total and complete” news blackout relating to any information regarding the near catastrophic meltdown of the Fort Calhoun Nuclear Power Plant located in Nebraska.

Overnight SHIBOR* Goes Whoosh (*Shanghai Interbank Offered Rate) (pinecarr)

Just four words for global liquidity watchers: Overnight and 1-Week SHIBOR.

Overnight... yes, this is a 3% (absolute) increase in Overnight interbank lending rates in one day (or for the purists a doubling in the rate from Friday).

Japan Posts Second Biggest Trade Deficit In History (pinecarr)

For those who may not have noticed it, the headline says "deficit" and pertains to Japan: once upon a time a booming export economy. The reason: the ongoing collapse in export trade, after May exports dropped by 10.3% from a year ago, and just better than April severe economic contraction of 12.4%. Consensus was for an 8.4% decline. The net result was a monthly deficit of 853.7 billion yen, or $10.7 billion, the second biggest inverse surplus ever.

F.D.A. Confronts Challenge of Monitoring Imports (jdargis)

“This report in large part is meant to frame the issue so that all of our colleagues inside the F.D.A. and external to the F.D.A. really understand how much the world has changed and the necessity of how much we do business in the F.D.A. has to be dramatically transformed,” Dr. Hamburg said in an interview. “This is something that I’ve been stressing as a priority from day one.”

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

20 Comments

saxplayer00o1's picture
saxplayer00o1
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freeeeeman's picture
freeeeeman
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greek default = euro failure?

i must be missing something b/c would a greek default on the debt merely mean that people who own greek bonds/debt would be screwed and not the currency itself? if i default on my mortgage, that doesn't mean dollar gets screwed, no? what am i missing?

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WSJ: Key Seniors Association [AARP] Pivots on Benefit Cut

Money Talks http://www.time.com/time/magazine/article/0,9171,2076725,00.html

6/16/11
WSJ: Key Seniors Association Pivots on Benefit Cut http://www.google.com/news/search?q=Key+Seniors+Association+Pivots+on+Be...
AARP, the powerful lobbying group for older Americans, is dropping its longstanding opposition to cutting Social Security benefits, a move that could rock Washington's debate over how to revamp the nation's entitlement programs.

WSJ: Wall Street Gets Eyed in Metal Squeeze http://www.google.com/news/search?q=Wall+Street+Eyed+In+Metal+Squeeze
Goldman Sachs Group Inc. and other owners of large metals warehouses are being scrutinized by the London Metal Exchange after being accused by users like Coca-Cola Co. of restricting the amount of metal they release to customers, inflating prices.

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brjohnson789
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re: greek default = euro failure?

Hi Mr. freeeeeman, I'll give one example in a lame attempt to answer your question.  If Greece defaults on its debt, many banks that hold Greece debt would be in a very difficult position.  Banks are usually very leveraged, for example if they have net assets of $100 mil, they might have $1 billion in assets, and $900 mil in liabilities.  If this example bank has $50 mil in Greek debt, and all of a sudden that debt has no market value, their net assets are cut in half.  There are typically laws etc that dictate exactly how much leverage a bank can have; in our example lets say its 10%.  So, while the Greek debt had value, the bank was just barely meeting the requirements.  After the default, they need to find a way to reduce their holdings so that they still hit their 10% mark.  That would mean the example bank would have to find a way to reduce their liabilities significantly, and they probably would only be able to do that by selling a lot (around half) of their assets.  If this happens to numerous banks at once (and the laws are not changed) all of a sudden you have a whole lot of assets being sold in an attempt to meet the 10% requirement, and as we know from basic economics, if there is an over supply of goods that will drive down the price. 

Another possible reason why a Greek default would mean bad news for the Euro is it would be a general 'sign' that things are not going well at in Euro land.  If you personally default your house mortgage, no big deal.  If everyone in your neighborhood defaults, banks/financial institutions are going to look at your neighborhood much differently in the future when deciding whether or not to give you another mortgage.

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iceland vs the PIGS

i dont know if anyone noticed that iceland, which by public referendum had last year told the british & dutch banks to stuff it & refused to bail out their banks, floated a five year bond last thursday at 3%...i had thought iceland was supposed to be a pariah, but now they are already borrowing at rates comparable to the core of europe...so i ran a quick & dirty google comparison between iceland, which defaulted, and the PIGS, which imposed austerity on thier people at the behest of the IMF & the ECB; iceland's unemployment is 7.1%; for greece, it's 15.9%, for ireland, it's 14.8%. for spain, it's 21%, & for portugal, its 12.6%...icelands GDP is expected to grow at 2.3%, while ireland's is only .6%, spain's is .7%. greece is negative 3%, and portugal's GDP is expected to fall 1.3%; as ive noted, iceland can borrow at 3%; borrowing costs for greece remain above 28%, for ireland, over 12%, for portugal, 13%, and spain, 5.6%...

shows you what austerity will do for a country...

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The Billion Prices Project @ MIT - US Index Updated

US Index Updated http://bpp.mit.edu/us-index-updated/

We had been anticipating a slowdown in the all-items CPI, which was reflected in the BLS announcement a few days ago. The annual inflation rate appears to be stabilizing around 3.5%.
http://bpp.mit.edu/usa/

Travlin's picture
Travlin
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Here's another look
brjohnson789 wrote:

Hi Mr. freeeeeman, I'll give one example in a lame attempt to answer your question.

Brjohnson

Your comprehension and illustration are actually quite good.  I’ll offer another illustration that may be helpful.  The fundamentals of fractional reserve banking are pretty simple once you get past the mystery.

Let’s say a new bank sells stock worth $10 million dollars.  That is the bank’s money, its capital.  Over time it takes in $100 million in deposits.  This is a liability for the bank as it owes this money to the depositors any time they want it.  The bank uses those deposits to make $100 million in loans.  These loans are assets of the bank.  The $100 million the bank owes for deposits is balanced by the $100 million of loans it owns, plus the $10 million of capital the bank must use to replace loans that go bad.  They have a capital ratio of 10% and the bank regulators are happy.

Let’s say just $10 million of the bank’s loans are to Greece, and they go into default and become worthless.  The bank must offset this loss with its $10 million of capital.  Now the bank has no capital to offset any further loan losses, and there will always be losses.  There is no reserve to be sure the depositors can be paid.  The bank is insolvent and the regulators shut it down.

But wait, it gets worse.  Regulators require that a bank maintains a minimum capital ratio that in practice is closer to 7%.  So in the example above if only $4 million of loans go bad, their capital will fall from $10 million to $6 million, so their capital ratio falls to only 6%.  They will be insolvent and in danger of being shut down.

Here is where it gets ugly.  The financial industry is based on confidence.  If Greece defaults, then other PIIGS nations will likely follow.  The major German and French banks that hold vast amounts of those loans will be insolvent, and all the players know this.  So the money of everyone who does business with those banks in any currency will be at risk.  In addition, no one will know how wide and how far down the food chain the rot extends, so banks simply stop moving money to other banks and the whole global financial system begins freezing up.  That is what started to happen in September 08 and March 09.  Since banks operate the payments system that all economic activity is based on, the whole world economy can be thrown into chaos.  The Euro would be a prime casualty.

Greece is just the most visible threat to a global financial system that is vastly overextended.  It used to work well enough when most banks were sound and the losers failed.  When any bank gets “to big to fail” the discipline and integrity of the whole system breaks down.

I’m no expert on banking but this should be a pretty sound  explanation.  Corrections are welcome.

Travlin

 

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banking explanation

Travlin,

 Thanks for the simple but clear explanation of the banking process. I never knew that a bank lists their outstanding loans as "assets". I always figured an asset was cash in the hand. But I see it clearly now.

Given the reality of fractional reserve banking....many bank assets must be worthless or in jeopardy.

Thanks for the insight.

Tom

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freeeeeman
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thanks all!!!! 

thanks all!!!! 

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SailAway
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Banking and Money class on Khan Academy

 

For those interrested to learn more about Banking and Money, the Khan accademy series is really good:

http://www.khanacademy.org/video/banking-1?playlist=Banking%20and%20Money

 

Travlin's picture
Travlin
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You are correct
Tommygun wrote:

Given the reality of fractional reserve banking....many bank assets must be worthless or in jeopardy.

Tommygun

You are correct about this.  In the fall of 08 the investment banks of Wall Street blew up because of the bad risks they had taken, along with many of the largest commercial banks.  Under TARP the banks were given lots of cash directly from the US Treasury.  When that wasn’t enough Congress forced a change in accounting standards allowing the banks to price the bad loans on their books at full value, so they could pretend they were not insolvent.  Then the Federal Reserve Bank created money our of thin air, as they are legally allowed to do, and bought the bad loans at full value from the banks.  The banks in turn left that money on deposit with the Federal Reserve Bank, and the rules were changed so the Fed actually paid them interest on it!  They also loaned them money at 0.25% interest so they could buy risk free US Treasury bonds paying up to 4%.

This scheme continues to this day to give the broken banks time to make up their losses  Heads they win, tails we lose.  This is what it means to be “too big to fail” and it stinks to high heaven.  This is the greatest swindle in history and most people don’t understand what happened.  We are told it was necessary to “save the system” and our well being was at stake.  In a sense it was, but long term we are just rewarding pirates and making the situation worse.  The financial reform act Congress passed last year was a farce.

Again, I may not have the details straight, but the gist of this is correct.

Travlin 

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Damnthematrix
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Tommygun
Tommygun wrote:

Travlin,

 Thanks for the simple but clear explanation of the banking process. I never knew that a bank lists their outstanding loans as "assets". I always figured an asset was cash in the hand. But I see it clearly now.

Ever applied for a loan?  They ask you for a list of assets, and they include cars which have to be the biggest liabilities in any household!

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Travlin
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Good link SailAway
SailAway wrote:

For those interrested to learn more about Banking and Money, the Khan accademy series is really good:

http://www.khanacademy.org/video/banking-1?playlist=Banking%20and%20Money

SailAway

Thanks for the link.  I watched the first video and the information is good.  I’ll stop there though, because if he was more focused he could have said the same thing with 1/3 the words.  For people with more patience this looks like a good tutorial.

Travlin

Damnthematrix's picture
Damnthematrix
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Farmers worried about ethanol subsidy cuts

Cynthia Bowers

June 19, 2011

The overwhelming U.S. senate vote last week to end massive annual subsidies to the ethanol industry wasn't the final word on the issue, but it did show the program is in peril. The prospect is not going over well in the heartland of America, either.

CBS News correspondent Cynthia Bowers reports that farmers like Illinois corn farmer Paul Taylor says he was caught off guard by the Senate vote to cut $6 billion in ethanol subsidies.

"I think it's a blow to American corn farmers," Taylor says.

The 45-cent per gallon tax break goes to ethanol refiners, but farmers benefit because the increased demand for corn boosts prices.

"The impact it could have on our bottom line is anything we do to reduce demand ultimately reduces our price," Taylor says.

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Nate
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Damnthematrix wrote: "I
Damnthematrix wrote:
"I think it's a blow to American corn farmers," Taylor says.

The 45-cent per gallon tax break goes to ethanol refiners, but farmers benefit because the increased demand for corn boosts prices.

"The impact it could have on our bottom line is anything we do to reduce demand ultimately reduces our price," Taylor says.

The key phrase here is "I think it's a blow to American corn farmers".   Midwest farms grow up to 5 "crops":  corn, beans, alfalfa, pork, and beef.  When corn took off, the beef / pork side of the business was hurt.   The farm I am familiar with did great on the corn side of the business in 2010, and did slightly better than break even with their beef.  With corn (or ethanol) subsidies shrinking and corn prices declining, the beef side of the business will provide a much higher level of income than the corn.  We diversify our portfolio's.  So do sucessful farmers.

Nate

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U.S. orders news blackout

Continuing from yesterday's comments, I humbly submit the following on  subject of the Missouri River floods. The nuke plant issue along these rivers is just beginning.....MSM would like us to think they are well prepared.  I'm very skeptical, especially where sandbags are being used instead of "sea walls".  Sound familiar??    keep watch on this news folks...river flooding isn't unusual, but the unusual snowpack upstream is already bringing huge problems to the middle states.  I'm thinking food supply, rising prices, and economic pain to all these farmers, communities and states affected.  And very little national media coverage.  

http://www.hpc.ncep.noaa.gov/nationalfloodoutlook/

This  NWS report is for June 20th-25.

 

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SailAway
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Travlin wrote: SailAway
Travlin wrote:
SailAway wrote:

For those interrested to learn more about Banking and Money, the Khan accademy series is really good:

http://www.khanacademy.org/video/banking-1?playlist=Banking%20and%20Money

SailAway

Thanks for the link.  I watched the first video and the information is good.  I’ll stop there though, because if he was more focused he could have said the same thing with 1/3 the words.  For people with more patience this looks like a good tutorial.

Travlin

Yes I agree Tavlin, it's very "academic" and he repeats (and reminds) many times the same concepts, very much like you would do in a classroom.  It's actually seems to be a great place for students who need help in maths, physics, economics ...

 

 

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Zerohedge

Do I have a virus or is www.zerohedge.com down?

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