Daily Digest

Daily Digest - August 11

Tuesday, August 11, 2009, 10:45 AM
  • America's NOD
  • Consumer, Celebrity Bankruptcies May Hit 1.4 Million
  • Deficit grew by $181 billion in July
  • Businesses shuttered for nonpayment of taxes
  • Monopoly Money
  • California Budget Miscalculation
  • Consumer Credit (Chart)
  • California and New York debt riskier than Russia and Turkey
  • Freddie Mac
  • Banks – Crack Dealers with Government Backing
  • Romer Video, Small Businesses and Health Care

Economy

America's NOD

Honey, we got a NOD in the mail today, so we're not going to pay - make sure you buy everything on our credit card, ok?"

That's America.

Spending through July of 2009 has increased by $530 billion, which is 21 percent over the same period in 2008. The bailout money for Freddie Mac and Fannie Mae accounted for almost half of the spending increase. Unemployment benefits have more than doubled, Medicaid spending has grown by a quarter and Medicare spending has increased by 11 percent.

Consumer, Celebrity Bankruptcies May Hit 1.4 Million

Aug. 10 (Bloomberg) -- Consumer bankruptcies show no sign of abating after rising more than a third this year and may hit 1.4 million by Dec. 31 as jobs are lost and loans are harder to get, according to the American Bankruptcy Institute.

More than 126,000 consumers filed for bankruptcy in the U.S. last month, 34 percent more than in July 2008, the ABI said in its latest report on Aug. 4. The increase came after a 36.5 percent rise in personal bankruptcies nationwide in the first six months, to 675,351, according to the ABI research group, which interprets data collected by the National Bankruptcy Research Center.

 Deficit grew by $181 billion in July

Bailouts for financial firms and billions in tax revenue lost because of the recession drove the deficit to a record $1.3 trillion in July, according to the independent Congressional Budget Office (CBO).

Tax receipts that have fallen due to the poor economy and increased spending to save car companies, banks and mortgage firms were major contributors to the federal deficit, according to CBO, which provides official budget numbers for Congress. The federal deficit grew by another $181 billion in July.

Businesses shuttered for nonpayment of taxes

Rhode Island: Up to 500 businesses effected.

Monopoly Money and Congressional Gulfstreams

-- that people get out of touch and they spend money like it's Monopoly money."

California Budget Miscalculation

The U.S. Treasury and Federal Reserve are missing one crucial point here. That point involves job creation. We keep hearing about this “jobless” recovery when 26,000,000 Americans are unemployed or underemployed. The age-old wisdom comes from the data that shows that most recoveries start in equities and finally, find their way to actual jobs or what most average Americans would call the real economy. This idea has been right in many of the last recessions but this is not your typical recession. There are a few different things in this recession. Many of the economic shocks occurred from non-job related areas. What this means is we have never seen a nationwide housing bubble implode annihilating $13.89 trillion in household wealth that then led to real job losses. In past recessions, even with growing job losses some weakness in the housing market occurred as people lost jobs. This time, the bursting bubble led to job losses related to housing. Given we will have no massive housing bubble again, what is going to make up for that gap?

Consumer Credit (Chart)

California and New York debt riskier than Russia and Turkey

The United States can still pretend it is a “AAA” credit-risk, and cling to that farcical label for a few more months. However, prices for credit default swaps (i.e. insurance against default on debt) show that California is considered a higher risk than Russia, and New York city is a worse risk than Turkey, according to data released by Bloomberg.

Freddie Mac

Freddie Mac actually reported that they earned money in its most recent quarter,to the tune of some $ 768 million. The stock had a huge gain of about 73 percent.

One analyst with whom I spoke questioned the euphoria which the report of net income sparked.

As a starter there cost of funding is a mirage. The Federal Reserve is buying hundreds of billions of dollars of the companies debt and that same debt has the “effective” guarantee of the taxpayers. Without the Federal Reserve purchases and the taxpayer backing the company would fold like a cheap suit.

Banks – Crack Dealers with Government Backing

$38 billion a year in overdraft fees?

Making payday loan sharks look like amateurs… Karl Denninger straight up explains how these fees are absolutely predatory in nature.

 Romer Video, Small Businesses and Health Care

30 Comments

FireJack's picture
FireJack
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Re: Daily Digest - August 11

Could the US government really stop another collapse this fall with their plan C (ie spend trillions more of taxpayer money)? Would there be any major consequences of this?

Davos's picture
Davos
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Re: Daily Digest - August 11

Hello FireJack:

I haven't seen Plan C yet. I myself wonder if they will be able to stop a collapse in two sectors of real estate simultaneously. 1.5t in residential and 3.5t in CRE. Last year's meltdown in residential was 1.5t.

If their plan involves tossing money at the banks again, or tossing it at anything again for that matter, I'm particularly concerned about what that will do to our dollar and our deficit.

My other concern is we seem to be stuck in the crisis mode. My hunch is they won't do anything until things freeze up again. I myself don't see that being favorable to the markets. Historically speaking, we saw that show in October.

Your question is certainly one I myself share and ask myself a lot. Take care.

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Re: Daily Digest - August 11

I had a hard time finding the article for America's NOD as it has moved to a later page of the website linked.  For the moment it is at

market-ticker.denninger.net/archives/P2.html

third headline down. 

mpelchat's picture
mpelchat
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Re: Daily Digest - August 11

National Health Care comments and questions:

 The only solid items I have noted out of the health care bill is that you will not have pre-existing conditions and that max out of pocket is $5,000/$10,000 per family ((which is much worse than I have now)).  Anything else, is To Be Determined by the Health Care Reform Committee by 10/1/2010.  Sounds like they want us to vote in an act that with little detail and to trust them to do the right thing. But the right thing for whom?

Has anybody seen a figure on how much this National Health Care plan will be for each person and or family? 

What about this distribution per pay, sounds like the more you make the better care you get, does anybody have any facts on that?

How does this act help small business?  The lady above in the video says they get a tax credit for having health care, but many small businesses are mom and pop places that have young people getting jobs for college or a second job for a family member.  My mother worked for a dry cleaners for 15 years and they never offered health care insurance.  I worked as a dishwasher to make money for college and they did not offer health care as well.  These places often do not offer health insurance now.  Even with a tax credit, it still will be an increase in cost to them.  Now they have to lay people off or go out of business. 

This all just does not make sense.

Davos's picture
Davos
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Re: Daily Digest - August 11

 Hello Mpelchat:

Sounds like they want us to vote in an act that with little detail and to trust them to do the right thing. But the right thing for whom?

I agree. I read this and am in utter disbelief and dismay.

I expect this to march through, despite of the public outrage, which I suspect is likely higher than the support.

This plan should have been well spelled out and well explained. It was anything but an abortion of a presentation. In fact, a plan of this magnitude should have had pilot testing.

I wonder if they can borrow against this like they borrowed against Social Security.

 

dps's picture
dps
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A small glimpse into the real state of the economy

The following is real data for Broomfield County, Colorado reported to me by

Executive Director Scientific & Cultural Facilities District

begin quote:

The June 2009 SCFD sales and use tax revenue was $3,087,524.12.

This compares to June 2008 tax revenue of $3,849,440.64. The variance is ($761,916.52), which is a 19.8% DECREASE over June 2008.

The 2009 year-to-date (YTD) total is $17,586,505.44 compared to YTD 2008 $20,833,974.78. The variance is ($3,247,469.34), which is a 15.6% DECREASE in YTD 2009 over YTD 2008.

end quote.

This means that the people of Broomfield, an relatively affluent suburb of Denver, have collectively decided to spend $4.00 in 2009 where they spent $5.00 in 2008.  This will be shock wave throughout the system.  It's similar to your boss telling you that your salary has just been cut by 20% ... imagine how that might affect your day-to-day life.

TtotheA's picture
TtotheA
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Re: Daily Digest - August 11

mpelchat,

A third "solid item" is the mandate. Everyone, by law, must have health insurance, or be labeled a lawbreaker. I take issue here, since the US Constitution neither states that we have a right to health care, nor does it give the Govt the power to force Americans to pay for health care.

Any plan that passes, especially now during a recession/depression, will lower our standard of living. Not raise it.

FireJack's picture
FireJack
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Re: Daily Digest - August 11

I wonder why you guys worry so much about this health care plan. Realistically its unaffordable, none of the stuff outlined in the plan is going to happen because the government is going to be bankrupt. I would just assume your going to lose all your health care and help will come from doctors taking under the table fees, or food or whatever. Even here in Canada I suspect we will be told daily of new cuts to the health care system.

Back to my original question lets say the US government gives the banks another 3 trillion or so. Could they? Even Denninger is going all doomer now calling for people to stock up on food and ammo.

market-ticker.org/archives/1319-Banking-and-Credit-It-Is-NOT-Over.html

English: Treasury has conspired with the banks to intentionally pump stock values which has led to them being able to sucker people into giving them more money for what will soon be proved to be worthless stock.  The bagholder is you.  No real progress can or will be made on "troubled assets" because doing so would force recognition of bankruptcy of these institutions; "waiting it out" depends on the fanciful belief that consumers will be able (and willing!) to borrow, but there is no more borrowing capacity in an amount sufficient to make this happen.

One-sentence reduction: We're screwed and a repeat of 2008, writ even larger, is now visible.  Be long guns, ammo, and food and short banks.

 

If they US government did or could not give money to the banks what would happen? A very long bank holiday? That would of course collapse a lot of businesses and most disturbingly oil production.

 

Davos's picture
Davos
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Re: Daily Digest - August 11

 

Even Denninger is going all doomer now calling for people to stock up on food and ammo.

If the banks stop working I would expect a LOT of interuptions in services. An economic Katrina across the nation. Is advocating a supply of food to weather a storm "going all doomer"? 

Dragline's picture
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Re: Daily Digest - August 11

 

Maybe the mainstream financial media is catching up on things.  Or maybe even a blind squirrel like this guy finds a nut every once in awhile.

http://www.marketwatch.com/story/the-next-meltdown-will-come-in-2012-2009-08-11

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FireJack Health Cuts

FireJack It is already happening here, I am in Vancouver (Maple Ridge) BC, Campbell (our Premier) has called for 6250 surgeries to be cut by March 2010, mostly "electives". Now if your government makes you pay for your health care and you are current on your payments, are they not required to provide you with timely service? I like our system here, I ahve 2 kids, 1 of which was premature and would have cost a fortune in the staes I am sure. But there is a problem when you can not get the services you have paid for.  This cut to surgery is in addition to the $160 million reduction in health care spending that was announced 2 months after he was elected. Its a good job we haven't taken any money from the Olympics though (Bread and Circuses Indeed).

 

Ivan

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Re: Daily Digest - August 11

Getting room for enough of it (food stocks etc) will probably be more of a problem, considering the damage the US government have done this wont be over in a month or two....

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Re: Daily Digest - August 11

Thought I would post a point of interest.  This week already, three separate different banks have sent in sales reps into my little 3000 square foot furniture store looking to have me open a business checking account with them. Finally got the last rep to partially admit that by law they are required to have so much in reserves in their bank in order to lend. They are looking for new sources of revenue.

Makes me wonder if the banks are truly falling short of reserves because of all the consumer defaults and commercial real estate loans going bad. I am in Phoenix, AZ. This boomtown has seen better times. Something is definitely out of the ordinary. I have been at this location since 1992 and never had so many bankers come out looking for new sources of cash. My gut tells me something is "rotten in Denmark" (as my grandfather used to say).

Tommy

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Ruhh
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interactive unemployment map

A friend sent this link to me and thought some of you here would find it interesting.

http://www.slate.com/id/2216238/

cheers
r.

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gyrogearloose
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Re: Daily Digest - August 11

Here’s a Great Idea. 

“Members of Congress should be compelled to wear uniforms just like NASCAR drivers, so we can identify their corporate sponsors.” Now that would be a change I could believe in.

http://www.caseyresearch.com/displayCdd.php?id=195

Brainless's picture
Brainless
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Re: Daily Digest - August 11

 

Now We Need You; Now We Don't

 

 

Headless's picture
Headless
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Re: The Wild West?

Hello Mr. President. Do you like my gun?

http://www.huffingtonpost.com/2009/08/11/protester-with-gun-found_n_256614.html

 

Edit: Chris Matthews interviews the gunslinger: http://www.huffingtonpost.com/2009/08/11/protester-with-gun-found_n_256614.html

Headless's picture
Headless
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Re: Big Pharma Buys Democracy and Stores It in Pill Bottle

Robert Reich on UHC:

"I want universal health insurance. And having had a front-row seat in 1994 when Big Pharma and the rest of the health-industry complex went to battle against it, I can tell you first hand how big and effective the onslaught can be. So I appreciate Big Pharma's support this time around, and I like it that the industry is doing the reverse of what it did last time, and airing ads to persuade the public of the rightness of the White House's effort.

But I also care about democracy, and the deal between Big Pharma and the White House frankly worries me. It's bad enough when industry lobbyists extract concessions from members of Congress, which happens all the time. But when an industry gets secret concessions out of the White House in return for a promise to lend the industry's support to a key piece of legislation, we're in big trouble. That's called extortion: An industry is using its capacity to threaten or prevent legislation as a means of altering that legislation for its own benefit. And it's doing so at the highest reaches of our government, in the office of the President."
 

http://robertreich.blogspot.com/2009/08/white-houses-deal-with-big-pharma.html

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capesurvivor
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Chris Mentioned in Doug Casey free email report

Same email report cited above by somone for Congress/Nascar, Doug Galland also mentioned Chris's analytic skills:

http://www.caseyresearch.com/displayCdd.php?id=195

They seem fussy about copyrights so you can check it out yourself.

 

SG

TechGuy's picture
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Re: Daily Digest - August 11

FireJack,

For what its worth, The gov't is very likely to go on bailing out until the bitter end. The ramifications are a devalued currency (already under way) and high inflation that leads into hyper-inflation, which ends with the break up of the United states: The Divided states of America. When the dollar becomes worthless the Federal gov't ceases to be relevant. Without the dollar to buy goods and services, the federal gov't is powerless.

Since the crisis began, the gov't has failed to take any measures that would avoid future big bailouts. For instance they should have started breaking up the "too big to fail" financials into smaller businesses. Instead the made the big even bigger with Bank of America taking over CountryWide and Merril Lynch, Wells Fargo taking over Wacovia, and JP Morgan Chase taking over Washington Mutual. Despite the huge losses at Freddie and Fanny Mac, the gov't continued to let them take on even more bad loans. Citibank still stands and is still run largely by the same team that made the bank insolvent.

Instead, they handed hundreds of Billions in bailouts to the same guys that created this mess, so that they can create an even bigger mess! Imagine if we changed our justice system to award theives, rapists and murderers with millions for committing crimes, and punish the law abiding citizens. The managers that caused the crisis clearly have violated many laws, avoided prosecution, and have been awarded with millions in bonuses, leaving the taxpayer to pay for the mess they've created.

The gov't is working its magic to keep the system quo, by still permtting no-money down mortgages, negative amerterzation mortgages, and other nonsense that created this crisis. They should have let the prudent financials businesses (ie those that didn't do NINJA loans, non-money down subprime loans, toxic assets, ARMs, and other crap) to take over those that failed to operate prudently. A real recovery can only happen under the leadership of  prudent managers.

The one clear concusion I have made, is that 99% of our federal gov't is certifiably insane and needs to be institutionalize to protect Americans from their lunacy. Unfortunately most American voters are too blind to see how insane Washington has become to get them out of office.

 

“A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury.” - Alexander Tytler

 

Davos's picture
Davos
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Re: Daily Digest - August 11

 TechGuy:

griffin's picture
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Re: Daily Digest - August 11

I have a thought regarding the whole socialized medicene/insurance for all scam.?!

What if the government wants to perpertrate this scam to be able to BAIL OUT the failing insurance companies.  Aren't the insurance companies invested in the dirivitives mess?  Maybe Mr. Obama is telling the truth, you will get to keep your own health plan. If the government can OWN the companies ie: GM, Chrysler, AIG Citibank BOA etc. then they can prop them up too.

Just a thought.

SingleSpeak's picture
SingleSpeak
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Re: Daily Digest - August 11

I second that.

Ignignokt's picture
Ignignokt
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Re: Daily Digest - August 11

I'm finally jumping into this, thank you ALL for your wonderful information, insight, logic, etc....  Been a reader for quite some time and I can't thank you all enough for providing us the knowledge that is so badly needed, beginning to think that Jon Stewart would be the Edward R. Murrow of our time.  

One thing I'd like to bring up, I'll catch up on my thoughts later....anyone see this little tidbit from a little bit ago

http://twincities.bizjournals.com/twincities/stories/2009/07/13/daily27....

Wells Fargo sold $600 million in mostly non-performing subprime loans to Irvine, Calif.-based Arch Bay Capital, National Mortgage News reported, citing sources familiar with the sale.

The industry publication said the loans sold for 35 cents on the dollar, about double what most hedge funds were offering.

Most of the subprime loans San Francisco-based Wells (NYSE: WFC) sold were originated by once-high flying Accredited Home Loans and NovaStar Financial.

No one involved in the recent sale is talking on the record, which may be a key reason lenders will look to private transactions to unload bad assets rather than turn to a government-sponsored program, National Mortgage News said.

fujisan's picture
fujisan
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Re: Daily Digest - August 11

THE PRAGMATIC CAPITALIST » Blog Archive » THE CONTINUING RISK OF TROUBLED ASSETS

The Congressional Oversight Panel is out with a very thorough report on the continuing risks of troubled assets. I’ve included the full report with some highlights below. In a nutshell, we’re a long way from being out of the woods with regards to toxic assets. This is a must read for anyone still trying to wrap their head around these issues:

If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value. Banks will incur further losses on their troubled assets. The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix.
...

Davos's picture
Davos
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Re: Daily Digest - August 11

 Hello Fujisan:

That was a good read. I get the feeling that when CRE goes that the small banks are in BIG trouble and when wave 2 of the residential goes the big banks will be in BIG trouble. That will be an interesting event.

Cloudfire's picture
Cloudfire
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Re: Daily Digest - August 11
Swami Tommy wrote:

Thought I would post a point of interest.  This week already, three separate different banks have sent in sales reps into my little 3000 square foot furniture store looking to have me open a business checking account with them. Finally got the last rep to partially admit that by law they are required to have so much in reserves in their bank in order to lend. They are looking for new sources of revenue.

Makes me wonder if the banks are truly falling short of reserves because of all the consumer defaults and commercial real estate loans going bad. I am in Phoenix, AZ. This boomtown has seen better times. Something is definitely out of the ordinary. I have been at this location since 1992 and never had so many bankers come out looking for new sources of cash. My gut tells me something is "rotten in Denmark" (as my grandfather used to say).

Tommy

Hi, Tommy;

I've had the same experience . . .I've recently been on the receiving end of fairly aggressive marketing by our local banks, seeking to secure the business accounts of both of our businesses . . . It struck me as odd, out-of-the-ordinary behavior, too.

-- C1oudfire

 

Cloudfire's picture
Cloudfire
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Re: Daily Digest - August 11

Double post . . . Even more annoying now that site speed is so slow . . .

Jeff Borsuk's picture
Jeff Borsuk
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Re: Daily Digest - August 11

they'll figure out a way...

Jeff

Jeff Borsuk's picture
Jeff Borsuk
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Re: Daily Digest - August 11

Wow! that Consumer Credit Chart is amazing! It looks like a sea change has occurred and it's not coming back.

 

Regarding Congress, Mark Twain said it best:

“Politicians are like diapers that should be changed often for the same reason “.

Jeff

 

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