Daily Digest

Daily Digest - Apr 18

Saturday, April 18, 2009, 11:55 AM
  • Schakowsky: Tea parties 'despicable'
  • Just how inane Schakowsky's comment is
  • Markets Rise After Tax Day Tea Parties
  • State Tax Collections Decline.... Sales Taxes with a Record Drop (Chart)
  • Green Shoots Are For Suckers
  • Report: One-Third of REOs Seriously Damaged
  • Fed's Yellen: A Minsky Meltdown: Lessons for Central Bankers
  • Summer 2009: The international monetary system's breakdown is underway (H/T HukleJohn)
  • Hey, Economics Geniuses! What Happened? (H/T James)
  • IMF warns over parallels to Great Depression (Video)
  • Eurozone Industrial Production Collapse (Chart)
  • A 'Copper Standard' for the world's currency system? (H/T Cat233)
  • State Unemployment Spike (Chart)

Economy

Schakowsky: Tea parties 'despicable'

Rep. Jan Schakowsky (D-Ill.) blasted "tea party" protests yesterday, labeling the activities "despicable" and shameful."

"The tea parties being held today by groups of right-wing activists, and fueled by FOX News Channel, are an effort to mislead the public about the Obama economic plan that cuts taxes for 95 percent of Americans and creates 3.5 million jobs," Schakowsky said in a statement.

"Its despicable that right-wing Republicans would attempt to cheapen a significant, honorable moment of American history with a shameful political stunt," she added. "Not a single American household or business will be taxed at a higher rate this year. Made to look like a grassroots uprising, this is an Obama bashing party promoted by corporate interests, as well as Republican lobbyists and politicians.

Just how inane Schakowsky's comment is

To help put things in perspective, the Peterson Foundation calculated the federal government accumulated $56.4 trillion in total liabilities and unfunded promises for Medicare and Social Security as of September 30, 2008. The numbers used to calculate this figure come directly from the audited financial statements of the U.S. government.

If $56.4 trillion in financial commitments is too big a number to digest, think of it as $483,000 per American household, or $184,000 for every man, woman and child in the country.

Even broken down, the numbers can be tough to swallow. Yes, you've paid your taxes, but you still bear a significant share of the government's own financial burden.

Markets Rise After Tax Day Tea Parties

Signs seen at the Chicago "Tax Day Tea Party":
"I've listed the federal government as a dependent on my tax return"
"If Our Treasury Secretary Doesn't Have to Pay His Taxes, Then Why Do I Have to?"
"You can't borrow your way out of debt" [emphasis mine]
"Jesus Saves - Obama Spends"
"Read My Lips - No New Bailouts!"
"Free Markets, Not Freeloaders"

Green Shoots Are For Suckers

"Don't count your recoveries before they're hatched."

So says Paul Krugman, who agrees with our assessment of the economy. As we noted a few weeks ago, its not getting better, its only getting worse more slowly.

And the same damn fools who missed the oncoming freight train in the first place are now busy declaring its all clear. They were wrong before and they are wrong now.

Krugman:

Even when it's over, it won't be over. The 2001 recession officially lasted only eight months, ending in November of that year. But unemployment kept rising for another year and a half. The same thing happened after the 1990-91 recession. And there's every reason to believe that it will happen this time too. Don't be surprised if unemployment keeps rising right through 2010.

Why? "V-shaped" recoveries, in which employment comes roaring back, take place only when there's a lot of pent-up demand. In 1982, for example, housing was crushed by high interest rates, so when the Fed eased up, home sales surged. That's not what's going on this time: today, the economy is depressed, loosely speaking, because we ran up too much debt and built too many shopping malls, and nobody is in the mood for a new burst of spending.

Employment will eventually recover - it always does. But it probably won't happen fast.

Ever notice how poorly Human Beings conceptualize time? The idea that events occur slowly, take patience, prudence, and above all the slow elapsing of the calendar seems to be beyond many people's ability to comprehend. It makes me understand why some folks want to believe *all of this* is only 5,000 years old - they can wrap their heads around that number.

V-shaped recovery? Ha! Long lived the "L" . . . .

Report: One-Third of REOs Seriously Damaged

From CNN: Experts: Some foreclosed homes too damaged to sell

"About a third of all of the foreclosed properties nationwide have been so damaged, either by the previous owners or by criminal gangs coming in after the foreclosure, that they no longer qualify for standard mortgage financing," [researcher] Thomas Popik told CNN. "So there is going to be all kinds of government programs to help, but if they don't qualify for standard mortgage financing, there's no one to buy these properties."

Popik says responses from thousands of real estate agents nationwide to the questionnaires he sends out quarterly indicate that badly damaged foreclosed homes ... are a much bigger element of the national housing picture than officials in Washington have acknowledged.

"In many cases, it costs so much to rehabilitate these houses, it's just not cost-effective," he told CNN. "And the properties are eventually going to be bulldozed."
This probably explains some of the "shadow" inventory.

Fed's Yellen: A Minsky Meltdown: Lessons for Central Bankers

From San Francisco Fed President Janet Yellen: A Minsky Meltdown: Lessons for Central Bankers

... with the financial world in turmoil, Minsky's work has become required reading. It is getting the recognition it richly deserves. The dramatic events of the past year and a half are a classic case of the kind of systemic breakdown that he-and relatively few others-envisioned.

Central to Minsky's view of how financial meltdowns occur, of course, are "asset price bubbles." This evening I will revisit the ongoing debate over whether central banks should act to counter such bubbles and discuss "lessons learned." This issue seems especially compelling now that it's evident that episodes of exuberance, like the ones that led to our bond and house price bubbles, can be time bombs that cause catastrophic damage to the economy when they explode.

Summer 2009: The international monetary system's breakdown is underway (H/T HukleJohn)

In this issue of the GEAB, our researchers anticipate the different forms a US default will take at the end of summer 2009, a US default which can no longer be concealed concealable from this April (most taxes are collected in April in the US) onward (10). The perspective of a US default this summer is becoming clearer as public debt is now completely out of control with skyrocketing expenses (+41%) and collapsing tax revenues (-28%), as LEAP/E2020 anticipated more than a year ago. In March 2009 alone, the federal deficit has nearly reached USD 200-billion (way above the most pessimistic forecasts), i.e. a little less than half of the deficit recorded for the entire year 2008 (a record high year) (11). The same trend can be observed at every level of the country's public organisation: federal state, federated states (12), counties, towns (13), everywhere tax revenues are vanishing, suffocating the whole country with spiraling debts that no one can control anymore (not even Washington).

Hey, Economics Geniuses! What Happened? (H/T James)

"If you are an economist and did not see this coming, you should seriously reconsider the value of your education and maybe do something with a tangible value to society, like picking vegetables," he wrote on patrick.net.

IMF warns over parallels to Great Depression (Video)

Eurozone Industrial Production Collapse (Chart)

A 'Copper Standard' for the world's currency system? (H/T Cat233)

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.

John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep."

Zhou Xiaochuan, the central bank governor, piqued the interest of metal buffs last month by calling for a world currency modelled on the "Bancor", floated by John Maynard Keynes at Bretton Woods in 1944.

The Bancor was to be anchored on 30 commodities - a broader base than the Gold Standard, which had caused so much grief in the 1930s. Mr Zhou said such a currency would prevent the sort of "credit-based" excess that has brought the global finance to its knees.

If his thoughts reflect Communist Party thinking, it would explain the bizarre moves in commodity markets over recent weeks. Copper prices have surged 49pc this year to $4,925 a tonne despite estimates by the CRU copper group that world demand will fall 15pc to 20pc this year as construction wilts.

Analysts say "short covering" by funds betting on price falls has played a role. But the jump is largely due to Chinese imports, which reached a record 329,000 tonnes in February, and a further 375,000 tonnes in March. Chinese industrial demand cannot explain this. China has been badly hit by global recession. Its exports - almost half GDP - fell 17pc in March.

While Beijing's fiscal stimulus package and credit expansion has helped lift demand, China faces a property downturn of its own. One government adviser warned this week that house prices could fall 50pc.

One thing is clear: Beijing suspects that the US Federal Reserve is engineering a covert default on America's debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. "We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets," he said.

This is slightly disingenuous. China has the world's largest reserves - $1.95 trillion, mostly in dollars - because it has been holding down the yuan to boost exports. This mercantilist strategy has reached its limits.

The beauty of recycling China's surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth's crust is gradually depleting its accessible ores. Above all, such a policy safeguards China's industrial revolution, while the West may one day face a supply crisis.

Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1pc, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a "Copper Standard" as a "Gold Standard".

State Unemployment Spike (Chart)

12 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Apr 18

Of all the reading I did today, this snippet said it all, it was what was on a sign at a Tea Party, I believe if I recall correctly in Chicago Ill.

"You can't borrow your way out of debt" [emphasis mine]

While the first article I read today was Congresswoman Jan Schakowsky's bashing of the tea party's calling them shameful.

Funny how the news always follows some sort of a trend. In my mind, today it is reality verses perception. Kind of like how I ask my teenager if she is done cleaning her room. "Yah Dad." Of course, her perception of a clean room is different then my reality when I go to micro manage her quote unquote work.

I've never met Jan, I've never seen a picture of her, but I know damn well what her room looks like.

She claims that not a single American household or business will be taxed at a higher rate this year. That is utter BS. States and cities across the country are fighting for survival as employment, sales and real estate taxes fall precipitously and expenditures like unemployment rocket out of control.

Some states are taxing vehicle drivers by the mile, NYC has become creative in raising taxes and has found ways to tax all sorts of things from cell phones to bubble gum and cigarettes. During Great Depression I the tax rate was 85%, I'd be shocked if we don't see that rate again during Great Depression II.

What is truly reprehensible and what is truly shameful is the way she and her constituents have appropriated our money, our children's money and our grand children's money. Blank checks to insolvent banks is their fix. The checks are backed by our hard work and tax dollars. It is a "fix" that is only exacerbating the problem. Too much debt is the problem. No consumer = no economy. They can give all the money in the world to the banks but that doesn't mean they will make NINJA loans and be able to re-inflate this housing market and "fix" the economy. She, Ben, Timmy and Larry will wake up to this one day. Well, maybe not Larry, he is a moron.

That is my rant for the day.

Oh, and if it looks like I have been relying heavily on the blogs lately it is so. The reason: Take the CR blog that titled its REO article "Report: One-Third of REOs Seriously Damaged" If you click on that link you will see CNN's article headlined "Experts: SOME foreclosed homes too damaged to sell." In my never so humble opinion - mainstream media might want to work on headlining.

Take care

Ken C's picture
Ken C
Status: Platinum Member (Offline)
Joined: Feb 13 2009
Posts: 753
Re: Daily Digest - Apr 18
Davos wrote:

Some states are taxing vehicle drivers by the mile, NYC has become creative in raising taxes and has found ways to tax all sorts of things from cell phones to bubble gum and cigarettes. During Great Depression I the tax rate was 85%, I'd be shocked if we don't see that rate again during Great Depression II.

 

Davos,

 

An example of this taxation is the California vehicle license fee (tax). Last year I paid $384 fee for my 2005 vehicle which is exhorbitant. Well this year it is a year older so I expected the cost to go down -WRONG. The state needs  more money so the fee on my new bill for 2009 is $493. Over $100 higher for a vehicle that is a year older.

They also just raised the state sales tax so now between the state and city I pay over 10% - WE aint seen nuthin yet.

If it moves tax it - if it doesn't move tax it anyway.

 

Ken

 

green_achers's picture
green_achers
Status: Silver Member (Offline)
Joined: Jan 3 2009
Posts: 205
Re: Daily Digest - Apr 18

Unfortunately, if the "tea party" protesters had some good points to make about borrowing and debt, it was drowned out by the simple-minded message about taxes.  The reason that is unfortunate is that the current dissatisfaction with the bailouts and stimulus packages could be a great teaching moment to get people and decision-makers into some much needed action over so many of the wrong-headed things that have been done to the economy over the years.  Taxes per se is not the problem, and I certainly don't think there's anything in the Crash Course that would lead to such a one-dimensional conclusion.  Focusing on taxes just distracts from the real problems, which have been so well presented here, i.e., the "3 E's".  But that's all that comes across on any of the media.  That's not an accident, but a calculated effort to hijack legitimate public anger to promote a tried-and-failed right-wing agenda. So I would have to say that the Congresswoman is at least partly right.

Actions like the tea parties just tend to drive wedges between people who ought to be working together.  Getting one influential person to view the Crash Course is worth ten thousand "tea parties" IMNSHO.

horstfam's picture
horstfam
Status: Bronze Member (Offline)
Joined: Sep 6 2008
Posts: 71
Re: Daily Digest - Apr 18

Yes, more taxes for sure. One city here in our county has created a list of 13 new taxes. They are trying to "fill the gap" created by collapsing property values (rather than cut back, like you and I have to). They are even considering creating "street light districts" and taxing homeowners separately for those! They are in the process of raising water bills 92%. In a couple of years, they will work water bills up to $129 monthly.

Perhaps we should consider changing the name of the country: "United States of KY Jelly". Kind of has a nice jingle to it, no? 

green_achers's picture
green_achers
Status: Silver Member (Offline)
Joined: Jan 3 2009
Posts: 205
Re: Daily Digest - Apr 18
horstfam wrote:

Yes, more taxes for sure. One city here in our county has created a list of 13 new taxes. They are trying to "fill the gap" created by collapsing property values (rather than cut back, like you and I have to). They are even considering creating "street light districts" and taxing homeowners separately for those! They are in the process of raising water bills 92%. In a couple of years, they will work water bills up to $129 monthly.

Well, let's think about those things for a minute.  Do people want street lights?  Do they want water?  I hope we realize that we are entering an era in which those things might not be cheap because 1) it takes energy to give them to us and energy is no longer going to be cheap; and 2) the costs of a lot of services will no longer be masked by the effects of economic growth. What are street lights, clean water, police services, public sanitation, etc., worth on a scale that isn't distorted by the bubble economies we are accustomed to?  Try doing without them for a while if you want to find out.  Katrina is still a fresh memory for me.

One of the messages I get out of the Crash Course is that we are going to have to start experiencing the real costs of many of the things we take for granted.  That's true about commercial things like food, and I think people around here have a pretty good grasp of that fact. But it's also true that if we want government to keep providing any of those things we're used to getting from it, on whatever level, we're in for some changes.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Apr 18

Today while I watched the most pathetic auto-body estimating "software" "program" reload on 5 boxes I listened to Part 3 of the FSN news hours. Both parts a and b of that had some very informative information on taxes. Here is what I took from it:

 

  •  We have a current 2 trillion dollar deficit 
  • To cover that they will tax the living you know what out of us - and still not come close to covering the deficit
  • The top 10% of us pay 70% of the taxes, up from 60%, likely to go north from here
  • Some interesting and funny letters to officials were read on the program about taxes
  • They bought up a great point about California, auto sales are in the toilet and they raised the taxes on car sales - bright move
  • When they broke down the amount of money going into the economy vs. what they are printing it was sickening
  • All this crud is on our tab, we don't produce enough to pay for it or to carry this much debt
  • The politicians are playing down the tea parties, in reality the protesters, at least many of them are upset about the massive debt and passing it on to our children
  • There were a lot of clips plaid of other small bus. people who don't like the direction the officials are taking, they know it won't work they are opposed to debt and even more taxes
  • There was a lot that came out again about many officials and their taxes
  • Taxes aside, Puplava didn't call Summers a moron like I do, but he was described as a failure that failed his way to the top
IMHO the quicker they inflate out of this the better. There was a lot of talk on this being their only option right now, we are 84 trillion in the hole, it is inflate away the debt and destroy the dollar or bust. That said I hope after they get that over with that we cut government to essential services only.

 

Steve in Ohio's picture
Steve in Ohio
Status: Member (Offline)
Joined: Jan 13 2009
Posts: 13
Re: Daily Digest - Apr 18
green_achers wrote:

Unfortunately, if the "tea party" protesters had some good points to make about borrowing and debt, it was drowned out by the simple-minded message about taxes. 

 

GA... you need to turn off the TV and ignore the rest of the drive-by media. Your being duped by their narrative... that the tea party protestors are only concerned about taxes. Listen to what the protestors are saying... read their signs. It's the debt. 

Listen to the Financial Sense News Hour from this weekend... Jim and John have sound clips and do a greatjob of explaining what the protests are about.

amberly222's picture
amberly222
Status: Member (Offline)
Joined: Feb 27 2009
Posts: 3
Re: Daily Digest - Apr 18

As a tea party attendee and a first time poster here, I can assure you that the reason that I attended my local tea party had a lot to to with the massive and escalating debt that both parties seem to be tripping over themselves to increase on a daily basis.  I have a son who will turn to me one day and say "Mom, why didn't you do something?" and I have to look at him and honestly be able to say that I tried. It may not mean much in the end, but I tried.  

I can say that this was a HUGE concern for every other person that spoke at the party, too. Our children, our grandchildren, who will pay for all of this?  Yet most people seem to believe that the government creates goodies for everybody with unlimited resources it can just pull from thin air.  That is the state of economic education in the U.S.  With a mentality like this, why wouldn't you expect that the government can provide you with everything that you ever dreamed of, and that the only reason that they don't is because of some crazy nut jobs that far-away states elected to Congress. 

The media has definitely done everything possible to mis-inform about the tea parties.  And I give you that some nut jobs surely attended some parties, with signs to match.

But all I saw were deeply concerned citizens.

fujisan's picture
fujisan
Status: Gold Member (Offline)
Joined: Nov 5 2008
Posts: 296
Re: Daily Digest - Apr 18

The Financial War Against Iceland, Being Defeated by Debt is as Deadly as Outright Military Warfare :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

Prof Michael Hudson writes: Iceland is under attack – not militarily  but financially. It owes more than it can pay. This threatens debtors with forfeiture of what remains of their homes and other assets. The government is being told to sell off the nation’s public domain, its natural resources and public enterprises to pay the financial gambling debts run up irresponsibly by a new banking class. This class is seeking to increase its wealth and power despite the fact that its debt-leveraging strategy already has plunged the economy into bankruptcy. On top of this, creditors are seeking to enact permanent taxes and sell off public assets to pay for bailouts to themselves.

Being defeated by debt is as deadly as outright military warfare. Faced with loss of their property and means of self-support, many citizens will get sick, lead lives of increasing desperation and die early if they do not repudiate most of the fraudulently offered loans of the past five years. And defending its civil society will not be as easy as it is in a war where the citizenry stands together in coping with a visible aggressor. Iceland is confronted by more powerful nations, headed by the United States and Britain. They are unleashing their propagandists and mobilizing the IMF and World Bank to demand that Iceland not defend itself by wiping out its bad debts. Yet these creditor nations so far have taken no responsibility for the current credit mess. And indeed, the United States and Britain are net debtors on balance. But when it comes to their stance vis-à-vis Iceland, they are demanding that it impoverish its citizens by paying debts in ways that these nations themselves would never follow. They know that it lacks the money to pay, but they are quite willing to take payment in the form of foreclosure on the nation's natural resources, land and housing, and a mortgage on the next few centuries of its future.

If this sounds like the spoils of war, it is - and always has been. Debt bondage is the name of this game. And the major weapon in this conflict of interest is how people perceive it. Debtors must be convinced to pay voluntarily, to put creditor interests above of the economy's prosperity as a whole, and even to put foreign demands above their own national interest. This is not a policy that my country, the United States, follows. But popular discussion in Iceland to date has been one-sided in defense of creditor interests, not that of its own domestic debtors.

...

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
Re: Daily Digest - Apr 18

We pay over $600/yr for a 20 yr old 4 cyl car here....  so don't complain to me!

Mike 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Apr 18

Amberly222 wrote:

As a tea party attendee and a first time poster here, I can assure you that the reason that I attended my local tea party had a lot to to with the massive and escalating debt that both parties seem to be tripping over themselves to increase on a daily basis. I have a son who will turn to me one day and say "Mom, why didn't you do something?" and I have to look at him and honestly be able to say that I tried. It may not mean much in the end, but I tried.

 

I can say that this was a HUGE concern for every other person that spoke at the party, too. Our children, our grandchildren, who will pay for all of this? Yet most people seem to believe that the government creates goodies for everybody with unlimited resources it can just pull from thin air. That is the state of economic education in the U.S. With a mentality like this, why wouldn't you expect that the government can provide you with everything that you ever dreamed of, and that the only reason that they don't is because of some crazy nut jobs that far-away states elected to Congress.

The media has definitely done everything possible to mis-inform about the tea parties. And I give you that some nut jobs surely attended some parties, with signs to match.

But all I saw were deeply concerned citizens.

 

Really well put. I think more people would stand up if they weren't so CNBC/Cramer clueless. I think the entire cable/tv news 'legacy media' has created a bunch of financial boobtube boobalings. I'm thankful for the Internet and all the super financial blogs I traipse through each day - especially Chris's.

Amberly222 I could really relate to what you wrote. This past winter I saw 2 weather cancellations that didn't take place for our higher elevation children, when I bought it to the attention of the local school-board I was told they have sound weather cancellation policies. I told them they were delusional, the next day they stepped on it again and ran the buses on a day there were 30 accidents and the state police closed the interstate for ice. My kid gave me the 'why do you have to make such a big stink dad.' My answer was your answer - so when your friends die in a bus crash I can say I at least tried. 

I've never taken a sociology class, in fact I didn't know what one was until my kid took it. I will say this, in however many years I think sociology teachers will be teaching about the generation who lied to themselves. I think they will question how society as a whole wound so far removed from reality and lived a life of perception. Perception that was far removed from reality at that. (Calling debt 11 trillion when it is really 84 trillion. Calling GDP 40% more than it is. Calling a 3 ring notebook a trust fund, and so on...)

Thanks for protesting. I was, and shouldn't have been a slacker! 

 

foote2777's picture
foote2777
Status: Bronze Member (Offline)
Joined: Sep 30 2008
Posts: 65
Re: Daily Digest - Apr 18

green_achers

I understand the concept of user pays, and that when eveything is controlled by our "Governments" then they can control the costs by creating the percieved growth in expense of delivering these services.

The biggest myth is that we need the government to provide us. The world is actully quite different. The normal person actually provides the government the power to control our lives.

Water comes in the form of rain that we can harness, we do not need money nor government for that. We can use seeds to grow crops, we do not need money nor goverment for that.

saying "if we want government to keep providing any of those things" is completely giving up any and all responsibilty you have in making your own choices in how you live and stay alive.

Please look more deeply into the consequences of relinquising all responsibility to your "Government" before you give up on your ability to survive without them.

there is many sources out there to find the information needed to understand.

you can start by looking for "The Obama Deception" and in regards to the goverment providing food supplies, look for "Codex Alimentarius Commission" and look into the farmers of America being sued by corporates.

You have more ability to influence what is around than you give yourself and us credit for.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments