Daily Digest

Daily Digest - April 9

Friday, April 9, 2010, 11:11 AM
  • The Greatest Shell Game Ever Continues As The Whole World Is Now Insolvent; Updated Thoughts From Chris Martenson On The Upcoming U.S. Funding Crisis
  • Daily Comment – 9th April 2010: A Word for Chris Martenson: The Funding Hole – Who’s Buying Treasuries?
  • 10 Big Commercial Real Estate Busts
  • China Is Reportedly Set to Revise Currency Policy
  • Ending "Too Big To Fail" 
  • Bundesbank Attacks Greek Rescue As A Threat To Stability
  • General Election 2010: Gordon Brown Pledges Crackdown On City Bonuses 
  • Why So Glum? Numbers Point to a Recovery
  • Wisconsin Farmers Struggling For Needed Loans
  • Consumer Spending Has Held Up Because People Aren't Paying Their Mortgages
  • Gray Swan? Chinese Bill Auctions Fail
  • "Wall Street" Sequel Is An Omen Of U.S. Collapse
  • U.S. And Australian Funds Join BP Rebellion On Oil Sands
  • Easter Island: A Case Study In The Response To Resource Depletion

Economy

The Greatest Shell Game Ever Continues As The Whole World Is Now Insolvent; Updated Thoughts From Chris Martenson On The Upcoming US Funding Crisis (cmartenson)

Chris' latest blog post on ZeroHedge.

Daily Comment – 9th April 2010: A Word for Chris Martenson: The Funding Hole – Who’s Buying Treasuries? (pinecarr)

Chris Martenson has produced many interesting articles and media presentations so it’s about time I put in a good word for him. His latest comment, The Shell Game Continues, is particularly disturbing. Chris is great at simplifying what could be regarded as confusing arguments for most of us. I truly recommend you take time to read this article but if you want a gross simplification on this, effectively what he says is that there is a gap somewhere in the funding of Federal Debt.

10 Big Commercial Real Estate Busts (E.S.)

As acute as the pain has been in the U.S. housing market, commercial real estate has been no stranger to trouble. Here is a glimpse of some high-profile victims that have been claimed so far.

China Is Reportedly Set to Revise Currency Policy (Ben Johnson)

The Chinese government is set to announce a revision of its currency policy in the coming days that will allow greater variation in the value of its currency, combined with a small but immediate jump in its value against the dollar, people with knowledge of the consensus emerging in Beijing said Thursday."

Ending "Too Big To Fail" (jdargis)

Peter Wallison and David Skeel, for example, argue strongly that the F.D.I.C. has no competence in winding down large, complex financial institutions — and they are certainly correct that this task would be quite different from closing small or medium-sized banks while protecting depositors. But their counterproposal, which seems to also have the support of Senator Richard Shelby (ranking Republican on the Senate Finance Committee), is that we should just allow big financial firms to fail outright, i.e., to run through the usual bankruptcy procedures.

Bundesbank Attacks Greek Rescue As A Threat To Stability (SolidSwede)

The Bundesbank document offers a withering critique of the deal agreed by EU leaders two weeks ago, saying the plan had been cobbled together without consulting central banks and will lead to monetisation of debt. "It brings problems in respect to stability policy that should not be underestimated."

General Election 2010: Gordon Brown Pledges Crackdown On City Bonuses (SolidSwede)

Mr Brown told the invited audience of economists, business leaders and young people: "This year we have seen a welcome reduction in the proportion of revenues global investment banks have paid out in bonuses. But we need to ensure that this is a structural change, not a one-off response to public pressure.

Why So Glum? Numbers Point to a Recovery (SolidSwede, remaining glum)

Note, however, that he seemed to believe the country remained in recession. It is virtually certain that is not accurate, as least as will be determined by the arbiters of recession at the National Bureau of Economic Research. “The recession is over,” one of those arbiters, Jeffrey Frankel of Harvard, wrote this week.

But the White House is unwilling to make that claim.

Wisconsin Farmers Struggling For Needed Loans (Christian W.)

With spring planting only weeks away, Wisconsin farmers are having a tough time getting loans that are as essential to their livelihood as crops, livestock and plain hard labor. That's partly because more than 8% of agricultural loans in the state were classified as having "major or severe" repayment problems, according to a survey of banks by the Federal Reserve Bank of Chicago.

Consumer Spending Has Held Up Because People Aren't Paying Their Mortgages (Christian W.)

Paul Jackson at HousingWire reckons that what we're seeing is the twisted result of Obama's mortgage schemes. Basically, scads of troubled Americans are living in their homes, waiting for some type of modification, not paying their mortgages, and thus freeing up an unusual amount to spend on stuff.

Gray Swan? Chinese Bill Auctions Fail (Christian W.)

Although being unable to fill a 3 Month order book is stunning - Chinese bond vigilantes are now officially on the prowl, and their (in)action guarantees either a hike, or much more serious liquidity withdrawal over the next 91 days, which would spell doom for stocks which trade now only on the combined efforts of the PBoC and the Fed to drown the world in colored pieces of paper.

"Wall Street" Sequel Is An Omen Of U.S. Collapse (Christian W.)

Stone's answer is in "Greed Never Left," Lewis' Vanity Fair review of Stone's new movie, "Wall Street: Money Never Sleeps." Stone had to think about it: "Why did I go back?" Why? "Because it's important. It's the collapse of capitalism and the collapse of our society. It is. Our way of life is going to change."

Energy

U.S. And Australian Funds Join BP Rebellion On Oil Sands (SolidSwede)

Pension funds from the US and Australia say they will back a resolution at BP's annual general meeting next week that calls for the oil group to publish a report on the financial and environmental risks involved in developing oil sands.

Environment

Easter Island: A Case Study In The Response To Resource Depletion (Christian W.)

Some time before the last tree was cut down- perhaps this was done in a moment of spite, desperation, anger or vengeance - the society collapsed into mass starvation, war and cannibalism.

Please send article submissions to: [email protected]

11 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - April 9

"CHICAGO (MarketWatch) -- The number of American households dropped by an estimated 1.2 million between 2005 and 2008, even though the population increased by 3.4 million in 80 of the largest metropolitan areas during that time, according to a new study by a professor at the University of Southern California.

More young people are living with their parents instead of moving out, postponing the creation of their own households. Meanwhile, more families are combining households for economic reasons, including the loss of a home due to foreclosure, according to Gary Painter, associate professor in the School of Policy, Planning and Development at USC. "

"April 9 (Bloomberg) -- Look to municipal bonds for the next big disaster.

That’s the advice of Richard Bookstaber, a senior policy adviser at the Securities and Exchange Commission."

"The muni market is leveraged and opaque, in terms of pension obligations. It is a big market, and problems can “go systemic,” he writes. Much of the tax-base, things like toll revenue, is already mortgaged. Once a few municipalities default on their debt, “there is a risk of a widespread cascade because the opprobrium will be lessened.”

Finally, those investors who seek salvation in geographic diversification may be disappointed, just as those in the housing market were. That’s “because similar methods of leveraging were being employed throughout the country.”"

"State governments from New Jersey to California that are struggling to close budget deficits are skipping or deferring payments to already underfunded public-employee pension plans. The moves could help ease today's budget pressures, but will make tomorrow's worse.

New Jersey's governor, a fiscal conservative, has proposed not making the state's entire $3 billion contribution to its pension funds because of the state's $11 billion budget deficit. Virginia has proposed paying only $1.5 billion of the $2.2 billion required pension contribution. Connecticut Republican Gov. M. Jodi Rell is deferring $100 million in payments this year to the pension fund for state employees to help close a $518 million budget gap

"Yes it's wrong," said New Jersey Republican State Sen. Robert Singer. "But the governor "has no other choice."

The deferrals come as pension experts say the funds need the money more than ever, after losses during the financial crisis. Before the 2008 market collapse, 54% of public pensions for states and local governments had assets totaling at least 80% of their liabilities. Last year, only 33% of plans met that criterion, according to a study released Thursday by the Center for State and Local Government Excellence and the Center for Retirement Research, both nonpartisan groups."

"LOS ANGELES—A bitter political dispute between this city's elected leaders and its powerful municipal utility threatens to push the city into insolvency as early as next month.

Los Angeles City Controller Wendy Greuel warned this week that the city's general fund could run out of money and fall $10 million into the red by May 5 unless the Los Angeles Department of Water & Power transfers a planned $73.5 million payment it has so far said it would withhold. Without the payment, the city would need to dip into its reserve fund, leaving that contingency dangerously low in the event of other emergencies.

The Los Angeles utility, the nation's largest municipal utility, said it wasn't making the payment because the city council earlier this month failed to approve substantial increases in electricity rates."

"It’s embarrassing and damaging to Flint’s reputation — and local leaders say they want to avoid it at all costs.

But as the city of Flint is caught in the throes of economic recession, the memory of 2002’s state takeover is still fresh in city officials’ minds. And the possibility of a repeat is leading them to consider borrowing more than $13 million or more to help dig the city out of debt.

Flint is facing a projected $8 million deficit this year even as it struggles to make payments on a previous $10.1 million deficit.

Without borrowing money, the city likely will face a couple of undesirable options. One is a partial shutdown of services to be able to make the payment.

The other is missing the payment, which could spark a financial review that eventually could lead to a state takeover and the appointment of an emergency financial manager."

"Annapolis Mayor Joshua J. Cohen said Thursday the city plans to pursue a $10 million line of credit to meet payroll and other expenses for the next few months as it struggles with a significant drop in revenues and a record budget deficit."

"The city's on-hand cash flow could run negative as early as next month as revenues continue to come in short of estimates, including several thousand-dollar decreases in building permit funds and hotel tax revenues and the loss of $1.8 million in state aid, said Tim Elliott, the city's finance director. "

"April 8 (Bloomberg) -- The council of Seine-Saint-Denis on the northern outskirts of Paris voted for a budget with a deficit of 75 million euros ($100 million) to protest the central government’s failure to refund welfare expenses.

Other departments, or counties, said they would stage similar protests.

Seine-Saint-Denis includes Paris’s Charles de Gaulle airport and the basilica housing the tombs of France’s kings. Its budget is illegal as local governments are banned from planning a deficit. The council chairman, Socialist Party lawmaker Claude Bartolone, said the state owed at least 75 million euros for 2010. He said he was ready to face the legal consequences for his “budget of revolt.”

A rising number of local governments, including some led by the majority Union for a Popular Movement party, say the state has burdened them with extra spending, while cutting their tax revenue. France’s central government faces a budget deficit of 8 percent and a national debt forecast to jump to 83.2 percent of economic output this year, about 20 percentage points higher than in 2007."

"Daniel Mudd, former chief executive of Fannie Mae, said on Friday that the mortgage finance company was faced with an impossible situation when the housing market collapsed and denied that it was seeking profits ahead of its mission to promote home ownership.

“I wish that I could have maintained the delicate balance of the roles assigned to Fannie Mae and I am sorry that I could not,” Mr Mudd said in prepared testimony to the Financial Crisis Inquiry Commission.

Mr Mudd said that when home prices plunged nationally by 30 per cent, the government-backed entity (GSE) was faced with a “Pit and the Pendulum” scenario of horrible alternatives. He pointed to aggressive home ownership goals pushed by the US government that encouraged lending to more lower income borrowers and explained that Fannie had to move toward more complex financial products to keep up with trends in the market."

"The City and County of San Francisco is swimming in a sea of red ink. An official budget report issued last week projects San Francisco’s municipal government will face three years of severe and escalating deficits beginning with $483 million this coming fiscal year, followed by a staggering $712 million in 2011 and $787 million in 2012.

While most of us have learned to live within our means, San Francisco is still paying for a government infrastructure it can no longer afford to maintain. Local public employee salaries and health benefits make up much of these costs, but an even larger cost-driver is The City’s growing public employee pension obligations.

In 2014, San Francisco taxpayers will need to contribute $692 million towards city employee pensions. That amounts to roughly half of The City’s entire discretionary general fund, siphoning away money that would otherwise go towards providing services like public safety, street repair, parks and schools. Residents already face continual fee increases and service reductions as The City struggles to pay its pension obligations — but if left unchecked, the escalating costs will soon leave The City unable to provide even the most basic services.

The pension system’s most recent actuarial report estimates San Francisco taxpayers will be liable for $12 billion to $14 billion over the next 20 years in order to cover our public employee pension obligations — and that assumes the system will consistently earn nearly 8 percent in investment returns. Even more worrisome is that the money does not include the approximately $4 billion needed to pay the lifetime health care benefits afforded to city retirees."

"April 9 (Bloomberg) -- The U.S. jobless rate may rise above 10 percent at the end of the year and the contraction in consumer credit will persist, said David Rosenberg, chief economist of Gluskin Sheff & Associates Inc. in Toronto.

“I think we’ll finish the year above 10 percent,” Rosenberg said in an interview with Tom Keene on Bloomberg Radio. “The credit contraction continues unabated in the household sector.”

Economic growth is being fueled by the government’s $787 billion stimulus program, which has been offsetting slumping demand, Rosenberg said. “Final sales lag far behind,” he said. “There’s been no income growth in the personal sense in the past year.” "

"For many U.S. markets, the return to peak home prices will be a long, slow road, according to Fiserv, Inc. The Wisconsin-based financial services technology company says markets that experienced the biggest price bubbles, including certain metro areas in California, Florida, Arizona, and Nevada, won’t see home prices return to pre-crisis levels until 2025 or later."

"Distressed properties, including short sales and REOs, accounted for 29 percent of all home sales in the United States in January, according to new data released Thursday by First American CoreLogic.

The company says it’s the highest level of distressed transactions since April 2009, and not too far off from the peak in January 2009 when distressed sales accounted for 32 percent of all sales transactions.

After declining through most of 2009, the rebound in distressed sales occurred due to increases in both the REO and short sales shares. "

"(Reuters) - Major U.S. banks temporarily lowered their debt levels just before reporting in the past five quarters, making it appear their balance sheets were less risky, the Wall Street Journal said, citing data from the Federal Reserve Bank of New York.

The paper said on Friday 18 banks, including Goldman Sachs Group (GS.N), Morgan Stanley (MS.N), J.P. Morgan Chase (JPM.N) Bank of America (BAC.N) and Citigroup (C.N), understated the debt levels used to fund securities trades by lowering them an average of 42 percent at the end of each period.

The banks had increased their debt in the middle of successive quarters, it said.

Citi, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley were not immediately available for comment when contacted by Reuters outside regular U.S. business hours.

Excessive leverage by the banks was one of the causes that led to the global financial crisis in 2008."

  • Other headlines and news stories (Make sure to check out the 1st one):

Man grew drugs because of 'impending world chaos'

Gold hits record high for British investors

Canada's national debt an alarming state of affairs

China's car sales rocket almost two-thirds

Housing Bailout Nears $2 Trillion And Still Growing

Nevada spends $2.86 billion on jobless claims

Hurricane Could Bankrupt Florida, Report Warns

Foreclosures Hit Rich and Famous

State sell-off critics fired by governor (California...refers to selling government buildings)

Thai Credit Fundamentals 'Darkening,' Moody's Says

Another CA School District Set to Eliminate School Libraries

Another day another strike in the UK (pensions)

Gold May Increase on Greek Debt Default Concern, Survey Shows

MISERY FOR MOTORISTS AS PETROL HITS £6 A GALLON (UK)

Thai protesters seize key satellite station

crazyhorse's picture
crazyhorse
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Re: Daily Digest - April 9

I like the article "Man grew drugs because of impending world chaos"...

The paper mentions Gerald Celente (Celenze?) as a political agitator!

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Re: Daily Digest - April 9

Wisconsin Farmers Struggling For Needed Loans (Christian W.)

"With spring planting only weeks away, Wisconsin farmers are having a tough time getting loans that are as essential to their livelihood as crops, livestock and plain hard labor. That's partly because more than 8% of agricultural loans in the state were classified as having "major or severe" repayment problems, according to a survey of banks by the Federal Reserve Bank of Chicago."

The above numbers are close to hearing/reading from contacts here in Iowa...we appear to be doing a few percent better...still a significant challenge tho for many farmers.   Analysis from available data and local contacts have suggests this could reduce acreage and/or crops yields by easily a few percent this year from normal.   Have broached this issue before on previous posts.

Add latest research project (working with on with partners) suggests in Midwest this could be a DRIER and WARMER than normal this Spring and Summer...which could impact crop yields.    This is due to confluence of Sea Surface Temperatures Anomolies in Atlantic and Pacific coupled with declining El Nino (ONI 3.4) is down to +.7 this week.  Progged to fall below zero by late Summer which latest data that I track also supports.       Briefed this week this could be one of the most challenging growing seasons in Midwest the past decade.   Will probably use as an input into choosing the strains of corn and soybeans we plant (more tolerant with this environment).

In a previous post mentioned would here about this loan issue in April and May which above article confirms. Appears the magnitude of this loan availability issue will be clarified in the next 15 to 30 days.  If we don't hear more on this...than impacts to crop production should be modest...but still could limit planting acreage by ~2-4 percent.

Good news is...we will begin planting next weekend with favorable conditions.  Plan is my in-laws will be planting the same acreage as year before (about 2800 acres) with ~66% corn and 34 percent soybeans.

Anyway FWIW.   Add these tidbits to the issue of decreasing world food inventories.  Previous projection have made over past 12+ months remain on track...expect to see some scattered shortages by this fall/winter seem not only possible...but seem probable.

How would this impact existing financial pressures?

Remain perplexed why no one seems interested in food supply concerns and what is happening on the farms.

Oh well.

Nichoman

rhare's picture
rhare
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Re: Daily Digest - April 9
Story in SaxPlayer00o1 digest wrote:

But as the city of Flint is caught in the throes of economic recession, the memory of 2002’s state takeover is still fresh in city officials’ minds. And the possibility of a repeat is leading them to consider borrowing more than $13 million or more to help dig the city out of debt.

It amazes me how clueless some reporters are.  Let's see borrowing more money helps the city get out of debt! WTF?

joemanc's picture
joemanc
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Re: Daily Digest - April 9
Nichoman wrote:

Anyway FWIW.   Add these tidbits to the issue of decreasing world food inventories.  Previous projection have made over past 12+ months remain on track...expect to see some scattered shortages by this fall/winter seem not only possible...but seem probable.

How would this impact existing financial pressures?

Remain perplexed why no one seems interested in food supply concerns and what is happening on the farms.

From what I've read, people tend to grow more of their own food during recessions. I've seen a few stories posted on the Digest recently about an increase in purchases of gardening materials and seeds.  So we may not have to worry about possible food shortage for a little while longer, but it's definitely something to keep an eye on.

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pinecarr
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Re: Daily Digest - April 9

Saxplayer, I'm constantly amazed at your ability to find so many stories that paint the more accurate picture of what's going on these days. -As you said  the other day, making me laugh, all the "green shoots".  I really feel that reading your headlines helps us put our fingers on the pulse of the current situation.

I have to tell you, though, that you outdid yourself with the story Man grew drugs because of 'impending world chaos'!  You must have cracked up when you found that!  Per the man in the article:

""When the economy breaks down and oil shoots through the roof there's going to be no transport to take food anywhere."

He said he had grown cannabis in a large quantity because he feared resulting power cuts would make it difficult in the future. The house was also equipped with a generator and water filter system to help his family survive the impending economic catastrophe."

Then there's this:

"He told the court that he had become a firm believer in a theory advocated by a political agitator named Gerald Celenze, who has a number of followers on the internet."  [bold mine]

When I saw Gerald Celente labeled like that, I just laughed.  I guess everything really is relative to one's perspective!  To me, Gerald Celente is "an admirably perceptive individual".  To the person who wrote the article, he's a "political agitator"!

Nichoman wrote:

 Anyway FWIW.   Add these tidbits to the issue of decreasing world food inventories.  Previous projection have made over past 12+ months remain on track...expect to see some scattered shortages by this fall/winter seem not only possible...but seem probable.

How would this impact existing financial pressures?

Remain perplexed why no one seems interested in food supply concerns and what is happening on the farms.

 Hey Nichoman-

   Eric deCarbonnel, over at marketskeptics.com, frequently has articles and commentary about what he believes will be upcoming food shortages, in case you're interested in checking them out.  Here's one: http://www.marketskeptics.com/2010/03/2010-food-crisis-taking-shape.html .  He lists other recent articles down the right hand side of his web page.

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mooselick7
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Re: Daily Digest - April 9

I loved saxplayer's post about "Man grew drugs because of 'impending world chaos" too. 

I had to go check out vaporizors (http://www.vaporizerguy.com/)  Then was reminded of a great movie "Super High Me".  (http://www.superhighmemovie.com/)  I have not laughed like that in years. 

I have been clean and tested for 25+ years.  Before that, I smoked but I didnt exhale.  May have to renew that hobby when TSHTF...

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Re: Daily Digest - April 9

ditchner's picture
ditchner
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Re: Daily Digest - April 9

I also liked "Mrs McCarthy asked: "Apart from smoking cannabis what else do you do of an evening?""

pinecarr's picture
pinecarr
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Re: Daily Digest - April 9
ditchner wrote:

 I also liked "Mrs McCarthy asked: "Apart from smoking cannabis what else do you do of an evening?""

Yeah, gotta love that too!:)

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