Daily Digest

Daily Digest - February 15

Monday, February 15, 2010, 11:04 AM
  • The Impossible Math of Debt-Backed Money
  • Central Falls To Fire Every High School Teacher
  • Reorganization of Kansas City School District would involve closing half of buildings
  • Missing state payments leave schools districts scrambling
  • Benefit Tax Hike Sudden, Startling
  • Harrisburg excludes debt payments from 2010 budget
  • Wall Street Helped to Mask Debt Fueling Europe’s Crisis
  • Can Anyone Fix The Euro Puzzle?
  • Goldman Goes Rogue – Special European Audit to Follow
  • Exposing The Story Behind Goldman's Record Profits - Part 2: The Role Of The Taxpayer
  • Obama's loan guarantee for nuclear plants signals shift in energy strategy
  • President Obama to step up support for US nuclear industry

Economy

The Impossible Math of Debt-Backed Money (Don B.)

The Problem: All money in the United States, except coins, is created as someone’s debt. When our nation spends more than it takes in, a deficit is created and our government “borrows” the money mainly from commercial banks. As the debt builds, so does the interest. As the interest takes up a larger percentage of the budget, real programs get squeezed.

Central Falls to fire every high school teacher (M. and C.H.)

Under threat of losing their jobs if they didn’t go along with extra work for not a lot of extra pay, the Central Falls Teachers’ Union refused Friday morning to accept a reform plan for one of the worst-performing high schools in the state.

After learning of the union’s position, School Supt. Frances Gallo notified the state that she was switching to an alternative she was hoping to avoid: firing the entire staff at Central Falls High School. In total, about 100 teachers, administrators and assistants will lose their jobs.

Reorganization of Kansas City School District would involve closing half of buildings (Devin D.)

Kansas City Superintendent John Covington on Saturday unveiled a sweeping plan to close half the district’s schools, redistribute grade levels and sell the downtown central office.

Covington presented his proposal to the school board in advance of a series of public forums this week on what would be the largest swath of closures in district history — as well as a major reorganization.

Missing state payments leave schools districts scrambling (Devin D.)

Seven months into their fiscal year, Rock Island County school districts are owed $4.49 million by the state of Illinois, dollars that pay for a range of programs, including those the districts are required by law to provide.

Benefit Tax Hike Sudden, Startling (Devin D.)

The state's climbing unemployment rate has had a sudden and unexpected impact on Kansas businesses - even those that haven't had layoffs - by dramatically hiking unemployment insurance rates.

Some businesses claim their rates have gone up so much - more than 500 percent - that they're actually facing potential layoffs to deal with the unforeseen costs.

Harrisburg excludes debt payments from 2010 budget (joemanc)

Harrisburg, Pennsylvania, moved a step closer to defaulting on a bond payment when its city council passed a 2010 budget that does not include $68 million in debt repayments on an incinerator. Without the debt provision in the $65 million budget, the state capital may miss a March 1 payment of $2.072 million, a rarity for a municipal bond issuer.

Wall St. Helped to Mask Debt Fueling Europe’s Crisis (Ben Johnson)

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

Can Anyone Fix The Euro Puzzle? (pinecarr)

A crisis-strewn week has left the single currency on the edge of a precipice, write Edmund Conway and Bruno Waterfield.

Goldman Goes Rogue – Special European Audit to Follow (pinecarr)

We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November.

Exposing The Story Behind Goldman's Record Profits - Part 2: The Role Of The Taxpayer (pinecarr)

Do Goldman employees deserve any compensation, much less the $16 billion paid out in salaries and bonuses in 2009 when one considers that the firm would not only have no money to pay, but would be defunct had the US taxpayer not stepped in and bailed them out?

Is Goldman hypocritical in claiming it did not need a bailout after it rushed to become a bank holding company? All these questions and more seek answers in the just released Part Two of the PBS series "Is taxpayer money behind profits at Goldman Sachs."

Energy

Obama's Loan Guarantee For Nuclear Plants Signals Shift In Energy Strategy (pinecarr)

The Obama administration’s planned loan guarantee to build the first nuclear power plant in the U.S in almost three decades is part of a broad shift in energy strategy to lessen dependence on foreign oil and reduce the use of other fossil fuels blamed for global warming.

President Obama To Step Up Support For US Nuclear Industry (pinecarr)

President Barack Obama is to signal a major step-change in the global nuclear industry this week when he announces loan guarantees for two nuclear reactors to be built in the US.

Please send article submissions to: [email protected]

24 Comments

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Re: Daily Digest - February 15

"WASHINGTON (AP) -- It's bad enough that Greece's debt problems have rattled global financial markets. In the world's largest economic and military power, there's a far more serious debt dilemma.

For the U.S., the crushing weight of its debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario -- a full recovery and a return to prerecession employment levels."

"LONDON—The cost of insuring Dubai's sovereign debt against default rose to its highest level since March on Monday as concerns over Dubai World's debt restructuring resurfaced.

Dubai's five-year credit-default-swap spread—a key measure of credit risk—widened around 0.23 percentage point to 6.50 percentage points in early trading Monday, according to CMA DataVision. "

(Headline was changed, so here's the Google link to the original headline)

"The government is expected to fund less than half of its budget for the fiscal year starting in April with tax revenue, which is set to fall behind new debt borrowing for the first time since World War Two."

"The Federal Reserve is poised to turn off a major money spigot that has helped sustain the ailing real estate sector, as an extraordinary program under which the Fed has pumped $1.25 trillion into the mortgage market is slated to end March 31."

"SAN FRANCISCO — The nation's public schools are falling under severe financial stress as states slash education spending and drain federal stimulus money that staved off deep classroom cuts and widespread job losses.

School districts have already suffered big budget cuts since the recession began two years ago, but experts say the cash crunch will get a lot worse as states run out of stimulus dollars."

"Feb. 15 (Bloomberg) -- European leveraged buyouts face a wave of defaults by 2013 when the bulk of the debt used to finance the takeovers comes due, Fitch Ratings said."

"Pension reform is a highly controversial issue. The Budget Ministry estimates that the pension system will have a 10.7 billion euro ($15.13 billion) deficit this year out of a total public deficit of 25 billion. The labor minister, Xavier Darcos, told Reuters news agency that the growing proportion of elderly people in French society would mean that the cost of the pension system would drive the annual public deficit up to 100 billion euros by 2050. "

"BERLIN (Reuters) - A majority of Germans want debt-ridden Greece to be thrown out of the euro zone if necessary and more than two-thirds oppose handing Athens billions of euros in credit, a poll published on Sunday showed."

"Investors are selling out of “junk” bonds at the fastest since September 2005, in the latest indication that concerns over sovereign debt are spreading to other credit markets."

“Though corporate fundamentals are quickly improving, credit is not immune from sovereign risks,” noted analysts at Morgan Stanley.

“If the result of sovereign problems is fiscal tightening and higher rates, a double-dip recession becomes an increasing possibility. This outcome would dent, if not fully derail, the positive trend in corporate ­fundamentals.”

"The city's three pension plans were funded between 55.9 percent and 66 percent, the AJC reported in September in its Atlanta Project series. Most financial experts say a pension plan should be at least 80 percent funded.

Many cities and counties are struggling with their pensions. In 2008, Philadelphia's pension plan was 52 percent funded, according to a study by the Pew Charitable Trusts. In Miami, city officials had to dip into their emergency fund last year to cover a $60 million budget gap, which they largely blamed on ballooning pension costs. "

"In early January, while everyone was busy watching the nasty campaign commercials, the State of Illinois pulled an end-run on the budget process. On Jan. 7 the state sold $3.5 billion of "pension obligation notes." In simple English, the state borrowed money to finance the state's contribution to its five retirement systems.

These five-year debt securities carry an interest rate of 3.84 percent, tax free to bondholders. It's a much higher yield than you could get in the bank because of the risk involved. Moody's and Standard and Poors rated them at least 6 notches below the top AAA rating. In fact, all the rating agencies characterized the outlook for Illinois finances as "negative."

The money raised will go to shore up the Teachers Retirement System, which is scheduled to receive $2.08 billion of the proceeds, and the Illinois State Universities Retirement System, which will get $702.5 million from the bond offering. The Illinois State Board of Investment gets nearly $813 million for funds, including the Illinois State Employees' Retirement System, and the Judges Retirement System, and -- big surprise -- the Illinois General Assembly Retirement System.

But what happens in five years when those bonds must be repaid? "

"Feb. 15 (Bloomberg) -- British banks will struggle to refinance 319 billion pounds ($500 billion) of bonds backed by home loans as the government prepares to withdraw two aid programs, Moody’s Investors Service said.

“It is highly uncertain that the mortgage-backed securities market will have the capacity to absorb the level of refinancing needed in the required timeframe,” according to the report.

The government programs allow banks to take mortgage-backed securities off their balance sheets by swapping the debt for Treasury notes from the government. "

"BRUSSELS (Reuters) - The European Union has asked Greece to explain reports that it engaged in derivatives trades with U.S. investment banks that may have allowed it to mask the size of its debt and deficit from EU authorities."

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Re: Daily Digest - February 15

Gawd not one positive thing here to read LOL. Maybe a better name for this page would be The Daily Downergest LOL. Jest kidding I know it is what it is.....maybe some nice soft up beat music when this page opens would help?

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Re: Daily Digest - February 15

When I read about the Germany handing Greece "billions of euros in credit", I can't help but think "Don't they have too much debt?  How does giving them more 'credit' (debt) going to make it better?" 

If a person is in so much debt that they might not be able to pay it back, you don't give them a bigger mortgage and several credit cards.  You send them to bankrupcy court.  You take what hard assets they have and sell them to get back as much as you can from the debt and write off the rest of the loss. 

 

Are there any large scale non-debt based money systems in use?  This insanity will have to end somewhere, and I'd like to get off now...

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Re: Daily Digest - February 15
idoctor wrote:

Gawd not one positive thing here to read LOL. Maybe a better name for this page would be The Daily Downergest LOL. Jest kidding I know it is what it is.....maybe some nice soft up beat music when this page opens would help?

lol...I know! Let's all make an effort to find some positive articles. Maybe, if we suggest a "negative" article for the Daily Digest, we should also suggest something that is positive. I think I'll try that!

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Re: Daily Digest - February 15
affert wrote:

When I read about the Germany handing Greece "billions of euros in credit", I can't help but think "Don't they have too much debt?  How does giving them more 'credit' (debt) going to make it better?" 

If a person is in so much debt that they might not be able to pay it back, you don't give them a bigger mortgage and several credit cards.  You send them to bankrupcy court.  You take what hard assets they have and sell them to get back as much as you can from the debt and write off the rest of the loss. 

That's exactly what caused WWII in Europe.... the allies bankrupted Germany after WWI, Germany went to the dogs, which caused the people to elect nationalistic Hitler, and the rest is history...

There is only one solution out of this gargantuan mess..... CANCEL ALL THE DEBTS!
Mike

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Re: Daily Digest - February 15

Absolutely,  a debt amnesty.  Someone push the reset button!!!

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Re: Daily Digest - February 15

Some great info on this site    http://appgopo.org.uk//index.php

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Re: Daily Digest - February 15

Ok  I am still looking for some postive news...LOL... but I ran across this. http://www.bloomberg.com/apps/news?pid=20601087&sid=aiDaima69t.c&pos=8

Bayh, 54, a former Indiana governor in his second six-year term as a senator, said at a press conference in Indianapolis today that his decision was motivated by disillusionment over partisanship in Congress.

“Congress is not operating as it should,” Bayh said. “There is much too much partisanship and not enough progress; too much narrow ideology and not enough practical problem- solving.” Bayh cited lawmakers’ failure to create a bipartisan commission to address the national deficit and legislation to create jobs that “fell apart” last week.

Bayh will be the third unappointed Democratic senator to announce plans not to seek re-election this year, in addition to Connecticut’s Christopher Dodd and Byron Dorgan of North Dakota.

“This is an absolute stunner,” Howey said in an interview.

Maybe I am just paranoid but when you start seeing stuff like this makes me wonder if something BIG is coming down & they don't want to be around?

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Re: Daily Digest - February 15

Brisbane, coast homes among world's most unaffordable
CHRISTINE KELLETT
January 27, 2010

Comments 18
Ads by Google
Investment Properties

Specialising in new propertyBrisbane Sydney Melbourne Perth

www.propertyinvestorplanning.com.au

South-East Queensland has ranked among the least affordable places to live in the world, ahead of New York, London and even the Californian celebrity enclave of Santa Barbara.

The sixth annual Demographia International Housing Affordability Survey examined 272 markets in six countries, including Australia, the US, UK, Canada, Ireland and New Zealand.

Of 62 markets identified as unaffordable, 22 are in Australia.

Cities and towns were given scores between three (affordable) and 5.1 (severely unaffordable) based on median house prices and gross annual median household incomes.

The Sunshine Coast [that's where I live! DTM] scored 9 - the third most unafforable place on the international table - closely followed by the Gold Coast at number four, with a score of 8.6. Brisbane fared better in 22nd place, but was still considered severely unaffordable with a score of 6.7.

Sydney was the least affordable location in Australia, with a score of 9.1, behind only Vancouver on the international table.

Melbourne ranked eighth.

Authors Wendell Cox and Hugh Pavletich, who compiled the report for the Frontier Centre for Public Policy in Canada, said Australia had registered "the worst housing affordability in the history of the survey" with the average household forced to pay more than half of its income to service a mortgage on a median-priced house in Sydney or Melbourne.

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Re: Daily Digest - February 15

Oil groups mount legal challenge to Schwarzenegger's tar sands ban

• Californian legislation branded 'unconstitutional'
• Lobby group includes UK energy companies

* Terry Macalister
* guardian.co.uk , Sunday 14 February
2010 18.58 GMT

A lobby group that includes BP and Shell in its membership has launched
a legal challenge against low-carbon legislation in California
that in effect rules out
the use of oil from Canadian
tar sands
s>.
The action by the National Petrochemical & Refiners Association (NPRA)
comes amid growing political, investor and consumer pressure on US oil
companies not to participate in the carbon-intensive tar sands of Alberta.

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Re: Daily Digest - February 15
idoctor wrote:

Ok  I am still looking for some postive news...LOL... but I ran across this. http://www.bloomberg.com/apps/news?pid=20601087&sid=aiDaima69t.c&pos=8

Bayh, 54, a former Indiana governor in his second six-year term as a senator, said at a press conference in Indianapolis today that his decision was motivated by disillusionment over partisanship in Congress.

Maybe I am just paranoid but when you start seeing stuff like this makes me wonder if something BIG is coming down & they don't want to be around?

Lordy, I was *just* coming over here to post a similar sentiment.  Three D senators retiring, and if I'm not completely mistaken there's at least one R senator who's not coming back (by choice)...  It does make one wonder...

 

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Re: Daily Digest - February 15
idoctor wrote:

...when you start seeing stuff like this makes me wonder if something BIG is coming down & they don't want to be around?

+1 !!!!!!

Like predicting gravity.

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Re: Daily Digest - February 15
Davos wrote:
idoctor wrote:

...when you start seeing stuff like this makes me wonder if something BIG is coming down & they don't want to be around?

+1 !!!!!!

Like predicting gravity.

Like [somethings] fleeing a sinking [something].

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Re: Daily Digest - February 15

Relating to the above posts........3 down & how many more to go LOL????

Alex Jones is not my favorite interviewer. Personally I like how professional Erik King conducts himself with The King World news. Alex just rants too much & seems extreme to me but he has good points.

 

 

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John Mauldin: is recession over?

We all know the answer to that one, methinks, but this blog entry has some telling graphs:

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/arch...

Industrial production & sales:  up a bit lately.

Personal income/company payrolls:  down or moving sideways.  

Again, not a surprise but data is always useful.

Viva -- Sager

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Re: Daily Digest - February 15

What are you guys talking about? These are all positive articles for change....and hope....and our children's futures. The sooner we get this over with the better, right?

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Re: Daily Digest - February 15

Watching live CNBC now on the next global crises......enough to gag-a-maggot.

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Re: Daily Digest - February 15

Re: Goldman helped European Government (or s?) to conceal Debt.

Senior Goldman advisor (former European Central Bank Official) criticizes Greece, recommends 'No Rescue'  - Fails to disclose Goldman affiliation.

Does Greek expulsion benefit Goldman?!  

http://baselinescenario.com/2010/02/15/senior-goldman-adviser-criticizes...

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Re: Daily Digest - February 15

I hope so, ljhaines.   I do think getting to a culture and lifestyle that are grounded on more humane values, and incorporating more respect for nature and the realities we have to deal with, would be a good thing.  It's the transition from here to there, and now to then that concerns me...good luck to us all!

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Yuan revaluation?

Here's a very thought-provoking piece from them fine folks over at ZH, about the potential impact of China letting the Yuan appreciate in value vs. the US$.

http://www.zerohedge.com/article/goldman-yuan-what-do-they-know

There's a lot of IF-AND-BUT to the story but all the possibilities point to a bumpier ride...

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Re: Daily Digest - February 15
Damnthematrix wrote:

That's exactly what caused WWII in Europe.... the allies bankrupted Germany after WWI, Germany went to the dogs, which caused the people to elect nationalistic Hitler, and the rest is history... There is only one solution out of this gargantuan mess..... CANCEL ALL THE DEBTS! Mike

But this would destroy the currencies in the very short term... They will eventually, but I don't see the governments going the "quick and painless" way.

Samuel

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Re: Daily Digest - February 15

http://www.informationclearinghouse.info/article24688.htm
Latvia's Road to Serfdom

By MICHAEL HUDSON and JEFF SOMMERS

February 15, 2010 "Counterpunch" -- While most of the world’s press focuses on Greece (and also Spain, Ireland and Portugal) as the most troubled euro-areas, the much more severe, more devastating and downright deadly crisis in the post-Soviet economies scheduled to join the Eurozone somehow has escaped widespread notice.
No doubt that is because their experience is an indictment of the destructive horror of neoliberalism – and of Europe’s policy of treating these countries not as promised, not as helping them develop along Western European lines, but as areas to be colonized as export markets and bank markets, stripped of their economic surpluses, their skilled labor and indeed, working-age labor generally, their real estate and buildings, and whatever was inherited from the Soviet era.

Latvia has experienced one of the world’s worst economic crises. It is not only economic, but demographic. Its 25.5 per cent plunge in GDP over just the past two years (almost 20 per cent in this past year alone) is already the worst two-year drop on record. The IMF’s own rosy forecasts anticipate a further drop of 4 per cent, which would place the Latvian economic collapse ahead of the United States’ Great Depression The bad news does not end there, however. The IMF projects that 2009 will see a total capital and financial account deficit of 4.2 billion euros, with an additional 1.5 billion euros, or 9 per cent of GDP, leaving the country in 2010.

Moreover, the Latvian government is rapidly accumulating debt. From just 7.9 per cent of GDP in 2007, Latvia’s debt is projected to be 74 per cent of GDP for this year, supposedly stabilizing at 89 per cent in 2014 in the best-case IMF scenario. This would place it far outside the debt Maastricht debt limits for adopting the euro. Yet achieving entry into the eurozone has been the chief pretext of the Latvia’s Central Bank for the painful austerity measures necessary to keep its currency peg. Maintaining that peg has burned through mountains of currency reserves that otherwise could have been invested in its domestic economy.

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Re: Daily Digest - February 15
guardia wrote:
Damnthematrix wrote:

That's exactly what caused WWII in Europe.... the allies bankrupted Germany after WWI, Germany went to the dogs, which caused the people to elect nationalistic Hitler, and the rest is history... There is only one solution out of this gargantuan mess..... CANCEL ALL THE DEBTS! Mike

But this would destroy the currencies in the very short term... They will eventually, but I don't see the governments going the "quick and painless" way.

Samuel

I never said they would.......  that will require a revolution of sorts.

Mike

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Re: Daily Digest - February 15
SagerXX wrote:
Davos wrote:
idoctor wrote:

...when you start seeing stuff like this makes me wonder if something BIG is coming down & they don't want to be around?

+1 !!!!!!

Like predicting gravity.

Like [somethings] fleeing a sinking [something].

I did some looking around and of the 34 Senate seats up this Fall, 11 of those incumbents are not going to run (5 dems and 6 repubs).  But that's basically 1/3 of the eligible members of the US Senate all figuring time is better spent with the grandkidscoughcough....  

I couldn't find info on how many Congresspeeps are choosing not to run for reelection.

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