Daily Digest

Daily Digest - August 1

Sunday, August 1, 2010, 9:44 AM
  • Paperwork Nightmare: A Struggle To Fix New Law
  • Mauldin: Are We There Yet?
  • Greece: Society Begins to Crack Under Harsh Measures
  • Economy in U.S. Will Probably Keep Cooling as Lack of Jobs Limits Spending
  • Marc Faber Questions if Dow Could Hit 1,000
  • Unemployment Rate in U.S. Probably Rose, Raising Risk of Slower Spending
  • Fossil Fuel Subsidies Dwarf Support for Renewables
  • Papantonio: Taxpayers On the Hook for BP Cleanup Cost?
  • Are Our Oceans Dying?

Economy

Paperwork Nightmare: A Struggle To Fix New Law (jrf29)

Tucked into the new health care law is a requirement that could become a paperwork nightmare for nearly 40 million businesses. They must file tax forms for every vendor that sells them more than $600 in goods....Business groups say it will swamp their members in paperwork, and Congress is listening. Democrats and Republicans want to repeal it, but getting them to work together on the issue is proving difficult in an election year.

Mauldin: Are We There Yet? (JRB)

The economy of the US grew at a weaker than expected 2.4% in the second quarter, but the first quarter was revised back up to 3.7% on the strength of stronger-than-projected inventory rebuilding. But the recession years were revised downward rather significantly for this late in the cycle. We find now that the recession was worse than we thought, taking the economy down a total of 4.1% during the recession. As of today, we are not quite back to where we started, still down 1%. That means it is quite possible that we could finish the year and still not be "there yet."

Greece: Society Begins to Crack Under Harsh Measures (bandv)

“This is not the worst of days,” Kistikidis says. “Very often, there are no jobs at all. Many of these people haven’t had more than five or six days of work since the beginning of this year, and no more than 100 working days since 2008.”

Economy in U.S. Will Probably Keep Cooling as Lack of Jobs Limits Spending (bandv)

The economy in the U.S. grew at a slower-than-forecast 2.4 percent annual rate from April through June after expanding at a 3.7 percent pace in the previous three months, Commerce Department figures showed yesterday. Household purchases climbed at a 1.6 percent rate following a 1.9 percent first-quarter gain that was smaller than previously estimated.

Marc Faber Questions if Dow Could Hit 1,000 (TomAdkins)

Prechter, who has written 13 books on finance, believes that the stock market is historically overvalued in terms of dividends and earnings, because of a "great rise in positive social mood."

Unemployment Rate in U.S. Probably Rose, Raising Risk of Slower Spending (TR)

The jobless rate rose to 9.6 percent last month from 9.5 percent in June, according to the median estimate of 57 economists surveyed by Bloomberg News ahead of a Labor Department report Aug. 6. A drop in federal census workers as the population count wound down depressed payrolls by 60,000, the data may also show.

Energy

Fossil Fuel Subsidies Dwarf Support for Renewables (guardia)

Fossil fuels are the backbone of economies worldwide, so governments spend a lot to support them. A new report from Bloomberg New Energy Finance says altogether governments spent between $43 and $46 billion on renewable energy and biofuels last year, not including indirect support, such as subsidies to corn farmers that help ethanol production. Direct subsidies of fossil fuels came to $557 billion, the report says.

Environment

Papantonio: Taxpayers On the Hook for BP Cleanup Cost? (video, bandv)

Are taxpayers going to be footing the bill to clean up BP’s mess in the Gulf of Mexico? It’s certainly a possibility, and as Mike Papantonio explains on The Ed Schultz Show, BP is considering asking the government for a tax break to cover the cleanup costs.

Are Our Oceans Dying? (bandv)

Microscopic marine algae which form the basis of the ocean food chain are dying at a terrifying rate, scientists said today. Phytoplankton, described as the ‘fuel’ on which marine ecosystems run, are experiencing declines of about 1 per cent of the average total a year. According to the researchers from Dalhousie University in Canada the annual falls translate to a 40 per cent drop in phytoplankton since 1950. The research into phytoplankton comes as a separate report today offered evidence that the world has been warming for the past 30 years.

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."

9 Comments

r's picture
r
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Re: Daily Digest - August 1

Four Deformations of the Apocolypse, NY Times Op-ed contribution by David Stockman

Some excerpts:

David Stockman wrote:

The nation’s public debt — if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 — will soon reach $18 trillion. That’s a Greece-scale 120 percent of gross domestic product, and fairly screams out for austerity and sacrifice.

...

But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance — vulgar Keynesianism robed in the ideological vestments of the prosperous classes.

This approach has not simply made a mockery of traditional party ideals. It has also led to the serial financial bubbles and Wall Street depredations that have crippled our economy. More specifically, the new policy doctrines have caused four great deformations of the national economy, and modern Republicans have turned a blind eye to each one.

The first of these started when the Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement to balance our accounts with the world. Now, since we have lived beyond our means as a nation for nearly 40 years, our cumulative current-account deficit — the combined shortfall on our trade in goods, services and income — has reached nearly $8 trillion. That’s borrowed prosperity on an epic scale.

It is also an outcome that Milton Friedman said could never happen when, in 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold or other fixed monetary reserves. Just let the free market set currency exchange rates, he said, and trade deficits will self-correct.

It may be true that governments, because they intervene in foreign exchange markets, have never completely allowed their currencies to float freely. But that does not absolve Friedman’s $8 trillion error. Once relieved of the discipline of defending a fixed value for their currencies, politicians the world over were free to cheapen their money and disregard their neighbors.

In fact, since chronic current-account deficits result from a nation spending more than it earns, stringent domestic belt-tightening is the only cure. When the dollar was tied to fixed exchange rates, politicians were willing to administer the needed castor oil, because the alternative was to make up for the trade shortfall by paying out reserves, and this would cause immediate economic pain — from high interest rates, for example. But now there is no discipline, only global monetary chaos as foreign central banks run their own printing presses at ever faster speeds to sop up the tidal wave of dollars coming from the Federal Reserve.

The second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40 percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970. This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.

David Stockman was a director of the Office of Management and Budget under President Ronald Reagan

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Damnthematrix
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New Australian home sales continue slide

New home sales continue slide

By online business reporter Michael Janda

http://www.abc.net.au/news/stories/2010/08/02/2970838.htm?section=justin

Housing industry figures show new home sales slipped another 5.1 per cent in June, following a decline in May.

The Housing Industry Association's survey of major residential builders shows a 6.6 per cent slump in the sale of newly built homes, partially offset by a 10.3 per cent rise in the smaller and more volatile multi-unit sector.

The HIA's chief economist Harley Dale says the fall adds further weight to the case for official interest rates to remain on hold at 4.5 per cent.

He also says Governments need to do more to free up land for development, and fast track approval processes.

"Lack of readily available land and hefty infrastructure charges have combined with a chronic lack of development finance to put the brakes on sales and development activity," said Dr Dale.

"Concerted action is required to reduce the impact of regulation, development charging, and excessive taxation on the cost of new housing supply. Inaction means that Australia's dwelling shortage will continue to increase, pushing up existing house prices and disadvantaging households seeking to purchase or rent a dwelling."

New home sales fell the most in Victoria (10 per cent), Western Australia (5.2 per cent) and Queensland (5.1 per cent).

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rhare
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Re: Daily Digest - August 1
Excerpt from r wrote:

This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.

"r", your selection from this article clearly has a bias pointing the finger at Republicans.  At least that's how I read the excerpt.  However, when I went at read the rest of the article, it took on a whole different flavor.  He is clearly blasting the Republicans for abandoning their conservative spending platform and joining the Democrats in spending orgies:

From Article wrote:

In 1981, traditional Republicans supported tax cuts, matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher brackets and to spur investment. The Reagan administration’s hastily prepared fiscal blueprint, however, was no match for the primordial forces — the welfare state and the warfare state — that drive the federal spending machine.

Then a little later on:

Article wrote:

Republicans thus joined the Democrats in a shameless embrace of a free-lunch fiscal policy.

From Wikipedia on David Stockman, author of the article:

Wikipedia wrote:

Having left government, Stockman joined the Wall St. investment bank Salomon Brothers and later became a founding partner at the now highly successful New York-based private equity firm, the Blackstone Group. He left Blackstone in 1999 to start his own private equity fund, Heartland Industrial Partners, L.P., based in Greenwich, Connecticut.[2].

On the strength of his investment track record at Blackstone, Stockman and his partners raised $1.3 billion of equity from institutional and other investors. Under Stockman's guidance, Heartland pursued a contrarian investment strategy, buying controlling interests in companies operating in sectors of the U.S. economy that were attracting the least amount of new equity: auto parts and textiles. With the help of about $9 billion in Wall Street debt financing, Heartland completed more than 20 transactions in less than 2 years to create four portfolio companies: Springs Industries, Metaldyne, Collins & Aikman, and TriMas.

For someone so concerned about debt, it's surprising to see that he ran leveraged buyouts of companies  (do as I say not as I do?).  He was also CEO when the last company he was involved with went bankrupt.  Not exactly inspiring as somone who should be lecturing on poor spending habits. Surprised

Article wrote:

It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income

The Wikipedia article talks about how he lost $13M when the last company failed.  Clearly he was in the top 1 percent who was getting paid by the Wall Street casino.  I mean how many people do you know had $13M to even loose?

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rhare
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Re: New Australian home sales continue slide
Damnthematrix wrote:

Housing industry figures show new home sales slipped another 5.1 per cent in June, following a decline in May.

The Housing Industry Association's survey of major residential builders shows a 6.6 per cent slump in the sale of newly built homes, partially offset by a 10.3 per cent rise in the smaller and more volatile multi-unit sector.

----

"Lack of readily available land and hefty infrastructure charges have combined with a chronic lack of development finance to put the brakes on sales and development activity," said Dr Dale.

"Concerted action is required to reduce the impact of regulation, development charging, and excessive taxation on the cost of new housing supply. Inaction means that Australia's dwelling shortage will continue to increase, pushing up existing house prices and disadvantaging households seeking to purchase or rent a dwelling."

Mike, is this article a bit schizo?  It seems to be saying housing sales are falling, but quick we need more land to build more? Very odd.... Perhaps I'm missing something....

r's picture
r
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Posts: 262
Re: Daily Digest - August 1

rhare,

Shooting the messenger doesn't invalidate the message.  I would turn it around and say the author's own failed background is why the article may be correct.  The article doesn't absolve the Democrats, but do you think the Republicans should be absolved?  Should the tax cuts be extended, in your view?

I thought this site was all about how we have to re-think growth.  If we have to re-think growth, what is the point of the tax cuts, especially when, as the article points out, we and the government are drowning in debt?

rhare's picture
rhare
Status: Diamond Member (Offline)
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Posts: 1323
Re: Daily Digest - August 1
r wrote:

Shooting the messenger doesn't invalidate the message.  I would turn it around and say the author's own failed background is why the article may be correct.

True - it doesn't invalidate the message, but it does mean that the message may be tainted.

r wrote:

The article doesn't absolve the Democrats, but do you think the Republicans should be absolved?

No, I think it took a concerted effort to spend us into bankruptcy. I think all parties involved are to blame.

Should the tax cuts be extended, in your view?

At this point, I don't think we can actually recover.  I think we passed the point of no return and at this point we will have to default (either with actual default or inflation).  But yes.  I think tax cuts should be extended.  I think we need to massively shrink government and get decision making and money back to the people and local communities so they can prepare for the many issues we face.  A large bureaucracy wastes resources and doesn't allow each community to best direct those resources.

r wrote:

I thought this site was all about how we have to re-think growth.  If we have to re-think growth, what is the point of the tax cuts, especially when, as the article points out, we and the government are drowning in debt?

Yes, we have to rethink growth, and a good place to start is the growth in government.  In particular the article pointed out that the massive growth in welfare and warfare out of the Federal goverment was a major cause of the debt problem.  So how does having more government (and here) help? 

Besides, if we gave up the tax cuts, do you think that money would be used to pay off the spending, or do you think congress and our president would simply spend it all on new projects and treat it like a windfall? Based on history, I think we know the most likely answer....

 

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Don Levit
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Re: Daily Digest - August 1

According to the CBO's report "The Long-Term Budget Outlook," released in June "spending on the major mandatory health care programs and Social Security will grow from 10% of GDP today to 16% of GDP 25 years from now if current laws are not changed."

Tax revenues have averaged 18% of GDP for the past 65 years.  In effect, Social Security and health care will use virtually our entire budget within 25 years.

Don Levit

 

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TechGuy
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Re: Daily Digest - August 1

Tax revenues have averaged 18% of GDP for the past 65 years.  In effect, Social Security and health care will use virtually our entire budget within 25 years.

 

More importantly, how much longer before it consumes all of the tax revenue?

 Federal deficit spending a about 1/3 1/2 of the federal budget.  The budget could double, and the yearly budget deficit can double or triple. What is important is when the entitlement outlays cost more than the gov't collects in tax revenue. The day of reckoning is probably less than 7 years if you include interest on debt payments and when obamacare kicks in.

 

 

 

 

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TechGuy
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Re: Daily Digest - August 1

Correction! We'll be over the limit by the end of the year

The 2010 federal Budget is 3.55 Trillion. The estimated Budget deficit will be about 1.58 Trillion, which would mean the gov't should collect about 1.97 Trillion in taxes and other revenue. If we examine the FY 2010 Federal Budget pie chart (http://upload.wikimedia.org/wikipedia/en/d/d4/Fy2009spendingbycategory2.png),  55.98% of the budget is to pay for entitlements (SS + Medicare + Medicaid + Unemployment\Wealthfare) and interest payments. 55.98% of 3.55 Trillion is 1.99 Trillion. So by the end of the Fiscal Year (Sept 30, 2010)  the gov't will spend more on entitlements and interest than it collects in revenue. The only thing keeping the gov't operating is deficit spending.

 

 

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