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Daily Digest - Jan 21

Tuesday, January 20, 2009, 8:47 PM
  • Gordon Brown brings Britain to the edge of bankruptcy
  • British Pound: 1991-Present
  • 'We can't pay you yet,' California to tell creditors
  • Roubini Predicts U.S. Losses May Reach $3.6 Trillion (Update1)
  • China Faces Worst Unemployment in Decades as Slowdown Deepens
  • Stock prices dwindling away, BAC under $6 and GE under $14
  • GM Using Bail Out Money to Invest in Brazil? (Hat Tip Kcim67)
  • Banks Foreclose on Builders With Perfect Records
  • CBO TARP Report
  • GAO Nations Long-Term Fiscal Outlook (Hat Tip KemoSavvy)
  • Ghost Malls: Coming to Your Town 
  • Regression to Trend: Update
  • Out With the Outgoing Overly Optimistic View on the Economy
  • Deflation to inflation 

Economy

Gordon Brown brings Britain to the edge of bankruptcy 

They don't know what they're doing, do they? With every step taken by the Government as it tries frantically to prop up the British banking system, this central truth becomes ever more obvious.

Yesterday marked a new low for all involved, even by the standards of this crisis. Britons woke to news of the enormity of the fresh horrors in store. Despite all the sophistry and outdated boom-era terminology from experts, I think a far greater number of people than is imagined grasp at root what is happening here.

The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.

The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely. 

This catastrophe happened on his watch, no matter how much he now opportunistically beats up on bankers. He turned on the fountain of cheap money and encouraged the country to swim in it. House prices rose, debt went through the roof and the illusion won elections. Throughout, Brown boasted of the beauty of his regulatory structure, when those in charge of it were failing to ask the most basic questions of financial institutions. The same bankers Brown now claims to be angry with, he once wooed, travelling to the City to give speeches praising their "financial innovation".

Does the Prime Minister realise the likely implications when the country joins the dots? He has never been wild on shouldering blame, so I doubt it. But Brown is a historian. He should know that when a nation has put all its chips on red and the ball lands on black, the person who made the call is responsible. Neville Chamberlain discovered this in May 1940 with the German invasion of France.

British Pound: 1991-Present (Chart)

We can't pay you yet,' California to tell creditors 

The check isn't in the mail, and it's not going to be for at least 30 days, California will start telling some of its creditors in February.   The state, facing a $42 billion deficit, will delay some crucial payments to stay liquid, state Controller John Chiang announced Friday.

Among those who will be left waiting for checks are thousands of businesses that provide services and products to the state; more than 1 million aged and disabled Californians who need to pay for rent, utilities or food; and individuals and businesses awaiting tax refunds to the tune of $1.91 billion.  

Suspending such payments is meant to preserve cash for education, debt service and other payments that are deemed by the state Constitution, federal law or court rulings as having first claim. But those in education are feeling plenty of pain as well.

"For months, I have warned state leaders that our cash flow will be in serious danger this spring," Chiang said. "Without corrective action from the governor and legislature, there is no way to make it through February unscathed."

The state has blown through its cash reserves as it has spent more than it has taken in. There's been no money in the state's general fund for the past 17 months, so California has been borrowing internally from special funds and from Wall Street. The controller estimates that money will soon be exhausted and that the state will be at least $346 million short in February.

Roubini Predicts U.S. Losses May Reach $3.6 Trillion (Update1)  

Jan. 20 (Bloomberg) -- U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is "effectively insolvent," said New York University Professor Nouriel Roubini, who predicted last year's economic crisis.

"I've found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers," Roubini said at a conference in Dubai today. "If that's true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis."

Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.

President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection by the Bush administration, Roubini told Bloomberg News. Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed.

‘Bankrupt' System

"The problems of Citi, Bank of America and others suggest the system is bankrupt," Roubini said. "In Europe, it's the same thing."

Stocks in Europe, Canada and Brazil dropped yesterday on speculation government efforts to shore up the financial industry will fail to stem the deepening global recession. The U.K.'s Royal Bank of Scotland Group Plc said it expects to post a loss of as much as 28 billion pounds ($41 billion) for 2008 and the government got ready to raise its stake in the lender.  

China Faces Worst Unemployment in Decades as Slowdown Deepens 

Jan. 20 (Bloomberg) -- China's official urban unemployment rate jumped for the first time since 2003 and may climb to an almost 30-year high as exports slump and a slowdown deepens in the world's third-biggest economy.

Registered unemployment rose to 4.2 percent as of Dec. 31, Yin Chengji, spokesman for the Ministry of Human Resources and Social Security, said in a transcript of a press briefing in Beijing today. It was 4 percent three months earlier.

A rate as high as the government's 4.6 percent target for this year, which was announced by Yin today, would be the worst since 1980, official data show. Premier Wen Jiabao said yesterday that the government must do more to preserve social stability in the face of a "very grim" job outlook.

"Growth has fallen off a cliff in China in recent months," said Paul Cavey, chief China economist at Macquarie Securities Ltd. in Hong Kong. "It does already feel like a recession for a lot of people."

Stock prices dwindling away; BAC under $6, GE under $14 

After the poor start to the year, the curent prices of many of the Dow stocks are just astounding. Along with Citigroup trading at $3.03 and GM trading at $3.61, Bank of America is now trading at $5.96, and General Electric is all the way down to $13.35! Both Citigroup and B of A are down more than 50% year to date already, while GE is down 17.7%. General Electric as a teenager is crazy enough, but a move below $10 would just be unbelievable. (SEE TABLE)

GM Using Bail Out Money to Invest in Brazil? (Hat Tip Kcim67)

Banks Foreclose on Builders With Perfect Records 

More than 15 percent of loans for single-family home construction were in some form of default by September 2008, up from 10 percent in January of that year, according to figures from Foresight Analytics, a housing analysis firm. Still, until recently, banks had largely chosen to keep past-due borrowers afloat, in the hope that a housing recovery might pave the way for them to repay their debts in full. 

Only now, with the economic outlook darkening, are lenders stepping up foreclosures of troubled loans. Zelman & Associates, a housing analysis firm, estimates that losses on land and construction loans could eventually reach $165 billion, one reason federal regulators are pushing banks to come to grips with the problem.

"When we talk to regulators now, they say they've lost patience," said Ms. Zelman, who is chief executive of Zelman & Associates.

In this climate, keeping loan payments up to date - something many builders are struggling mightily to do - is not necessarily any protection.

Many loans in the building industry are of short duration, coming up for renewal at least once a year. This allows banks to take a fresh look at the financial health of a borrower, as well as the assets securing their debt. A steep fall in cash flow or a decline in the value of the collateral - usually building lots or half-built houses - can mean an automatic default, whether a borrower has missed payments or not.

It was a combination of these factors that put an end to Mr. Brown's home-building company, Brown Family Communities.

In 2005 and 2006, with loans from JPMorgan Chase and the big finance company GMAC, Brown Family Communities bought hundreds of acres of land on the far outskirts of Phoenix, in towns like Goodyear and Buckeye, where development was rapidly transforming cotton and alfalfa fields into malls and upscale subdivisions.

The company was emerging from a record year in 2005, selling an average of 85 homes a month and booking revenues of $352 million


CBO TARP Report

GAO Nations Long-Term Fiscal Outlook (Hat Tip KemoSavvy)

Ghost Malls: Coming to Your Town  

The illustration of Old West ghost towns is something that every American can relate to. During the great gold rush of the mid 1800's in California, Nevada, and Wyoming towns sprung up out of nowhere to support the gold mining efforts of those looking to strike it rich. General stores, bars, hotels, brothels, and jails appeared out of nowhere based on demand from delusional prospectors hoping to hit the jackpot. Thousands of malls emerged throughout suburban America in the last twenty years as delusional shoppers thought they could spend their way to prosperity and achievement. Both delusions will end in the same manner. 

When the gold rush ended as quickly as it started, the artificial demand collapsed and the towns were abandoned. These ghost towns sat vacant for decades, slowly decaying and rotting away. As you drive around today, you notice more and more For Lease signs on vacant retail buildings. Strip malls, inhabited by mom and pop stores, karate studios, pizza joints, and video stores have felt the initial onslaught of consumer deleveraging. As the pace of retailer collapse accelerates in 2009, larger malls will begin to go dark. Once bustling centers of conspicuous consumption and material decadence, built upon a foundation of consumer debt, will become ghost malls. Decaying, rotting malls inhabited by rats, wild dogs, and homeless former retail employees, will be a blight on the suburban landscape for decades.

For the last twenty years, the American consumers have carried the burden of the world on their broad shoulders. This has been a heavy yoke, but when you take steroids it doesn't seem so heavy. The steroid of choice for American consumers was debt. They have utilized home equity loans, cash out refinancing, credit card debt, and auto loans to live far above their means. It has been a wild ride, but the journey is over. They can't score steroids from their dealers (banks) anymore. The pseudo-wealth created in the last twenty years has begun to unwind, and will increase in speed in 2009.

Average Americans, who saw their faux paper wealth growing rapidly as their home values increased, took advantage of this by refinancing their mortgages and extracting the equity from their homes and spending it. They mined $3 trillion of equity out of their houses. This spending of seed corn led to the vast majority of GDP growth between 2000 and 2007. 

Regression to Trend: Update 

Now, let's take another look at the S&P Composite, this time adjusted for inflation since 1982 using Williams' Shadow Government Statistics. The change is astonishing. The adjustments to post-1982 data alter the slope of the regression that impacts the variance from the trend across the entire time frame, dramatically so in the last two decades. With this adjustment, the S&P 500 has been below trend since 2002. The current bear market has dropped the monthly average index price 50% below the trend, which puts us in the territory of those secular market troughs. In fact, this regression analysis, the closing low on November 20th came within 2% of the monthly average trough following the Crash of 1929. 

Chart S&P: Regression to Trend

Out With the Outgoing Overly Optimistic View on the Economy  

EconomPic Data reader Alan directed me to the NY Times 'Economix' post which details the recently released Economic Report of the President. This report is the outgoing administration's view / forecast for the economy. As the NY Times reports, the forecast is that things won't be pretty: 

Net job losses in 2009 will be more than twice those in 2008. (Also note that these numbers are based on data collected as of Nov. 10, and do not reflect reports that have come out since then.)

While Alan "gasped" at the bottom chart detailing consumption vs. wealth, I am more taken aback by what I feel is an overly optimistic forecast within the Council of Economic Advisers report. Although some may give the outgoing administration the benefit of the doubt as a lot has happened since November 10th (the date in which the data for the report was finalized), these figures, while ugly, were extremely optimistic even at that date.

As can be seen below, projections are not only for a significantly improved economy by 2010, but an economy growing above levels we have seen over the ten years leading up to this crisis (i.e. when the term "Goldilocks" was running amok). This seems extremely hopeful given recent economic news releases and the uncertainty easily witnessed in the global economy. 


Deflation to inflation
 

Even most of the thoughtful 'deflationistas' are aware that this will eventually resolve with some kind of inflation problem. Steve Hochberg from EWI talked of a post-deflationary hyperinflation on Jim Puplava's radio show last weekend. I believe Mike Shedlock is constructive on gold and gold miners. Just last week I had an email exchange with Michael Panzner (his publisher is sending me his new book, When Giants Fall for review). 

Mr. Panzner among other things had this to say: "I hear what you are saying, though I think we are eventually headed to zero on the dollar (and hyperinflation), too."

At issue is how and when do we get where we are going (the next outwardly visible inflation problem) and how severe will it be? The coming months will be the best time in modern market history to be a contrarian and the absolute worst time to be a sheep. Mark my words. Lots of twists and turns ahead and all the while, the major media will be drumming a loud beat as most march in the wrong direction. On that you can bet.

 

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52 Comments

Davos's picture
Davos
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Re: Daily Digest - Jan 21

I wanted to point out an observation I made on today's Digest: I am seeing an insolvency realization, Gordon Brown brings Britain to the edge of bankrupt, British Pound: 1991-Present, "The problems of Citi, Bank of America and others suggest the system is bankrupt," Roubini said. "In Europe, it's the same thing."

I can't help but wonder where the money will flow when it leaves the Pound. Gold or the Dollar?

I'm wondering how long it will take before they realize that --- "We can't pay you yet,' California to tell creditors" --- really means that the World's eight largest economy is BK, or that the USA is insolvent.

I admire our new President, (I voted and not for him or McCain), but I don't see how he is going to fix a problem when it can't even be properly identified: "That we are in the midst of crisis is now well understood. ...Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet."

Unless he is referring to how we racked up some 70 trillion in debt -- and I doubt anyone who realized they are BK would try anything short of restructuring, not spending your way out. I'd say it is just a matter of time before we wake up like Gordon Brown and see headlines like US on the edge of being bankrupt...

My --- overly optimistic ---- 2 cents :) take care

 

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Davos
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Re: Daily Digest - Jan 21

forgot one, I'll post it on the 22nd

http://www.mortgagenewsdaily.com/01202009_treasury_secretary.asp

Don't know why they aren't looking for a new res. pres. unfit, you'd suspect is unfit or maybe he fits in just fine.

 


New President Looks in Vain for Head of Treasury

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President Barack Obama is inheriting the worst recession in decades and it's possible that in his first few days -- and potentially weeks -- he won't have a Treasury Secretary to guide fiscal policy.

Obama's Treasury Secretary-designate Timothy Geithner, who is still officially the chairman of the New York Federal Reserve, last week admitted that he didn't pay Social Security and Medicare taxes from 2001 to 2005 when he worked for the International Monetary Fund. In addition, he employed an immigrant housekeeper who, though she was legally in the U.S., continued to work for Geithner during a three-month period when her papers were expired.

The N.Y. Fed President discussed the tax and immigration issues at a closed-door meeting with the Senate finance panel last Tuesday, which has delayed his confirmation hearing, now scheduled for Wednesday morning at 10 a.m. EST.

"It was a big mistake, it was an embarrassment, but he is the right guy for this job, which is why he has bipartisan support," said Rahm Emanuel, Obama's chief of staff, on NBC's Meet the Press on Sunday.

Avery Shenfeld, senior economist at CIBC World Markets, said Geithner is likely to be approved on Wednesday, but even if there is a delay there shouldn't be any material block to how the TARP funds are injected into the economy.

"There is an acting Secretary who will be the face of the Department for the days it takes to either confirm Geithner or come up with an alternative, and in any event, the wheels are already in motion on the details of the second TARP allocation as well as the fiscal stimulus bill," he said.

Markets were uninspired by the inaugural address from the 44th president on Tuesday. The S&P, Dow, and Nasdaq each saw their worst one-day drop since Dec. 1.

"Both Obama's team, and Congress, are in the mood to get things done, given that the crisis mood on both Wall Street and Main Street is only deepening," Shenfeld added.

Following the meeting last Tuesday, Senate Finance Committee Chairman Max Baucus (D-Mont.) said the issue shouldn't be disqualifying, and Senator Orrin Hatch (R-Utah) said Geithner was "competent" and that he would support his nomination.

Others, however, were less gracious. "It's serious, and whether or not it's disqualifying is to be determined," said Senator Charles Grassley (R-Iowa).

According to reports of the closed meeting, Geithner admitted the mistake but said it was not intentional.

Geithner was considered "self-employed" when he worked with the International Monetary Fund between 2001 and 2004, the Wall Street Journal reported. "The IMF and World Bank reimburse employees, including U.S. citizens, for their U.S. income taxes. They don't, however, make contributions toward Social Security and Medicare taxes, which individuals are expected to pay on their own."

When Geithner discovered his mistake in 2006, he paid the taxes owed for 2003-04, but he failed to pay $25,970 owed for omitted taxes from 2001-02, which he was not legally required to pay due to the IRS's statute of limitations.

Once he was approached by the Obama administration, Geithner paid the taxes, plus interest.

By Patrick McGee, [email protected], edited by Sarah Sussman

©CEP News Ltd. 2009 

TRK29's picture
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Re: Daily Digest - Jan 21

I thought you might like to read a comment I made on a UK blog of one of our prominent economic journalists. This is where I was first made aware of the Crash Course about a month ago.I was responding to the latest announcements made by Gordon Brown and his Chancellor of the Exchequer, Alistair Darling, both of whom are Scottish, like myself, which gives me no pleasure to admit.

I sincerely hope that the penny will drop sooner rather than later, that they are on the wrong track.

Analysis of Latest Brown Darling Initiative 19-01-09

I have just sat listening to the PM and Chancellor defending their latest attempt to save the nation’s future. In a nutshell, they have a single objective to provide a dramatic increase in lending to businesses, which will allow them to continue to be able to invest to support future expansion, and to allow the “hard working British public” to take out mortgages for house purchase to alleviate the pressure for new house building.

This is being described as a “temporary measure”, but when asked how long they expected temporary to last, the answer was “as long as it takes”. I seriously wonder what planet they are living on if they cannot at least see that the implications of their actions will be felt for decades.

I can understand their perceived need to be seen to be doing something to help in the short term, but I am appalled by the fact that they either have no understanding of the simple mathematics of continued year-on-year growth, or that they cannot bear to face up to the dire consequences which will inevitably follow from the economic model we, and the rest of the developed world, seem to want to pursue. Put very simply, any system which allows year on year growth in a finite world will eventually become too big for its boots and either run out of steam, or end in disaster. For example even if the population of the world is allowed to grow at relatively modest annual rates, there will come a time when the human race will no longer be able to feed itself and we would have a global Lemmings problem, which ends in a huge reduction of population. It is no good saying that this situation is so far away in the future that we don’t need to think about it just yet. It might be closer than you think! Surely, if we know about the inevitability, we would be better off planning to prevent it arising, in this case by trying to reach a steady state with zero net growth.

The world population example is only one of many and the most immediate one we are faced with is the economic model, which uses growth in GDP as a yardstick of success. If GDP is negative for more than two successive quarters we are in recession. If GDP remains positive year on year we consider that this is a desirable state to be in, and pat ourselves on the back, and give ourselves generous bonuses. The truth is that the growth we have been used to in recent times has been fuelled by borrowing to expand businesses, each of which is driven by the need for increased turnover. A good example of where this has lead is the car industry, which has produced more and more, better, more long lasting products, to the point where there is obviously an excess supply, relative to the demand.

The saviour of the car industry, short of half of them going out of business, would be a large increase in the car buying population of the world, which is undesirable for many reasons. The alternative approach will be to trim production to match demand, even if it means a drop in the size of the business sector as a whole. This would of course involve job losses in the short term, but would provide skilled labour to support new initiatives, if only someone could think of them.

Gordon Brown used an example of how things have changed in the last two years, when he stated that the consideration for financing a producer of luxury yachts must be quite different now, although he did not make his views clear as to whether he wanted to try to maintain the level of lending to such a company, or to advise them to reduce their ambitions for expansion.

My conclusion about how to deal with the future is that we should recognise that sustained growth across the world is a nonsensical ambition and we should plan for a serious change in the way we live, with an ultimate ambition to achieve steady state conditions with respect to population, energy use, food production etc. This does not mean that everything has to stagnate, which GB would probably conclude from the suggestion. What would be required is a global epidemic of applied common sense, which could pose a problem for Gordon Brown.” Sensible planned contraction” in specific areas is a phrase which he would find impossible to utter. He would be much more interested in the idea of new green businesses which should be encouraged to grow from modest beginnings. What we must avoid in the future is going back to a repeat of the worst excesses of consumerism, where everybody is encouraged to have at least one of every new thing that comes on the market, whether they need it or not, and fashion dictates that anything older than a year needs to be replaced.

I have no complaint with the desire of the PM to try to help, and that he is sincere in this, and that the other political parties are equally concerned. My big problem is that none of them seem to be interested in looking beyond the steering wheel and simply want to get wherever they think they are going as fast as possible, without upsetting the electorate. The sad thing is that, if and when they get there, they will realise they have been on the wrong road!

 

 

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Re: Daily Digest - Jan 21

Hi Davos,

Your daily blog is a 'Must' read every day and, let me first thank you for your time and efforts at this critical time. My equal fears have caused me to create a post on the British/American crisis unfolding with a link to a site I've been following for some time now. I believe his opinions are a must read and, very hard to ignore.

Kind Regards,

Paul

http://www.peakprosperity.com/forum/climax-fall-now-view/11976

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Re: Daily Digest - Jan 21

Davos,

  Part of what I do in my spare is day trade currencies. If you are wondering where all those pounds are going, it could very well be into Euro's at the prsent moment. The Eur/Gbp has increased all the way to .9300 and had a high of .9800 just a couple of months ago and could very well easily go to parity, 1:1. 

 Why? I have no idea, but thats what the charts are doing. 

 

-Douglas

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Re: Daily Digest - Jan 21

From the "are you kidding me?" department, IRS form 525...our taxdollars at "work"

http://www.irs.gov/pub/irs-pdf/p525.pdf

 

Page 33, 3rd column, bottom right - illegal activities

 

Page 34, 1st column - Kickbacks - Wonder if Rod Blagojevich fills this in?

 

Page 35, 3rd column - Stolen Property

 

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Re: Daily Digest - Jan 21
joemanc wrote:

From the "are you kidding me?" department, IRS form 525...our taxdollars at "work"

http://www.irs.gov/pub/irs-pdf/p525.pdf 

My personal favorite from page 19...
Bartering
"Bartering is an exchange of property or services.  You must include in
your income, at the time received, the fair market value of property or services
you receive in bartering.  If you exchange services with another person and you
both have agreed ahead of time as to the value of the services, that value will
be accepted as fair market value unless the value can be shown otherwise."

 

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Currency Question

Davos asks:

"I can't help but wonder where the money will flow when it leaves the Pound. Gold or the Dollar?"

I tried to initiate a similar discussion in this thread

http://www.peakprosperity.com/forum/currency-question/11745

Maybe we can revitalize the discussion?

- LYS

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Re: Daily Digest - Jan 21

"Surely, if we know about the inevitability, we would be better
off planning to prevent it arising, in this case by trying to reach a
steady state with zero net growth."

This is only possible by canceling the debts....  If you have zero growth (which I support, don't get me wrong) then the money to pay the interest on existing loans, which doesn't yet exist, and can only be printed by causing hyperinflation, will not be available to pay the loans.  The loans in fact can NEVER be repaid.

You better believe it was one hell of an epiphany when I realised this after doing the CC....

There's one other thing.  We need to somehow invest a lot of effort (normally, fossil energy and MONEY!) into setting up the required renewable energy system if we wish to fulfil any notions of a future sustainable society.  So, I ask you, where's the money going to come from, and at what cost?

If we're to have zero growth, it means we'll also have zero growth in fossil energy generation.  That means all the energy required to build the renewables will have to come out of the current energy budget, further meaning that we will have less whilst it's happening...   Interesting times hey...!

Mike 

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Re: Daily Digest - Jan 21
Davos wrote:

I admire our new President, (I voted and not for him or McCain), but I don't see how he is going to fix a problem when it can't even be properly identified: "That we are in the midst of crisis is now well understood. ...Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet."

It's unforunate that you are stuck in the matrix of I must vote for A or B. We have 300 million Americans and we are forced to choose between two people who don't have our interests at heart.

Obama is NWO just like the rest of them. His wife is in the CFR.

http://www.jonesreport.com/articles/290807_obama_cfr.html

The whole world is a stage. Nothing happens without the shadow government/NWO/global elite knowing about it or activing being involved in it.

If you had said that you wrote in Ron Paul or Dennis Kucinich...

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Re: Daily Digest - Jan 21

Geez Doug, after reading this don't you think you should be gardening in your spare time instead of currency trading...?

Mike 

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Re: Daily Digest - Jan 21

Re

#9

Mike,

I'm confused about not being able to pay off debts with interest. If an individual can do it, even if he has to live on beans for years, why can't a nation do it. Are you suggesting that a positive national balance of payments can never occur again, because debt is the only source of money?

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Headless
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Re: Daily Digest - Jan 21

Davos,

Don't know if this made it into one of your superb daily collections, but it surely has a place if it didn't:

http://www.parade.com/export/sites/default/news/2009/01/barack-obama-letter-to-my-daughters.html

Thanks for all the work you do to get the rest of us started each day.

Sincerely,

Lee

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Damnthematrix
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Re: Daily Digest - Jan 21

well it's unfortunate you didn't read Davos' post properly, because he said he voted for NEITHR: "(I voted and not for him or McCain)"

Mike 

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Re: Daily Digest - Jan 21

TRK, it doesn't matter whether an individual lives on beans or not, if s(he) has NO MONEY, how is s(he) going to pay the debt?  Haven't you done the CC?

It works like this.....  money is created when loans are created.  The money to pay off the interest on those loans DOES NOT EXIST.  So it has to be created, in the form of MORE DEBT.  Trouble is, now nobody wants to lend, and create new debts.  So there's no more money to pay interest on debts.  Just WHAT do you think is happening right now?  Do you think they're crashing the economy for fun?

The problem is that all this crapola is growing exponentially.  As debt is created, even BIGGER loans must be created to create the money out of thin air.....  but THOSE loans need ever greater debt to create ever more money, and........

This is like a dog chasing its tail.  Sure, the dog's growing, but the tail's growing faster (exponentially faster) and the dog chokes...

Get it?

Mike 

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Re: Daily Digest - Jan 21

Would that 'unable to pay the debt' not be the trigger for (hyper)inflation. I can imagine someone has to raise their prices to be able to pay for that debt, the other choice being going out of business. That would be valid for all but the very big ones because they are able to get a bailout because they are to big to save, eh i mean fail.

If the above is true then creating more money would not be the trigger for inflation but the inability to pay back debt.

Did i understand that right?

 

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Re: Daily Digest - Jan 21

Germany, Britain feel sting of recession

By Europe correspondent Emma Alberici

Posted 58 minutes ago

The German economy is set for its worst performance in
post World War II history, while the UK economy is tipped to be the
worst performer in Europe this year.

Just three months after saying the economy would grow by 0.2 of a
per cent the German Government now says it will shrink by 2.25 per cent.

Economy minister Michael Glos said the biggest economy in Europe would experience the worst conditions in post war history.

He also said that the unemployment rate would climb to an average of 8.4 per cent in 2009, from 7.8 per cent in 2008.

Meanwhile, unemployment in Britain has risen to its highest level in
10 years in further evidence of how hard the recession is biting.

The British economy lost close to 2 million jobs in the year to November, the highest number of unemployed since 1997.

But that does not count the thousands of jobs lost since Christmas
and the 5,000 more that went overnight when phone maker Ericsson cut
down its operations in the UK.

Fearing the downturn would be even worse than predicted, traders pushed pound Sterling to its lowest level since 1985.

The European Union has predicted that Britain will be the worst performer this year among Europe's biggest economies.

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Re: Daily Digest - Jan 21

Re 16

Mike,

Maybe I made a rash assumption that he(she) has a job and pays off his(her) debt from his(her) earnings.

If there was no income there should have been no loan in the first place.

Yes, I have read the CC and understand that the fractional reserve banking system depends on increased lending year on year to apparently keep itself afloat. It is therefore unsustainable and will always end in tears. That's why we need to wind it down, and look for another way of living..

 

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Re: Daily Digest - Jan 21
Brainless wrote:

Would that 'unable to pay the debt' not be the trigger for (hyper)inflation. I can imagine someone has to raise their prices to be able to pay for that debt, the other choice being going out of business. That would be valid for all but the very big ones because they are able to get a bailout because they are to big to save, eh i mean fail.

If the above is true then creating more money would not be the trigger for inflation but the inability to pay back debt.

Did i understand that right?

Hyperinflation would be triggered by printing bucketloads of paper money.  But that is no solution to the current problem, damned if you and damned if you don't.....

BTW, in inflationary times, prices don't 'go up', the value of the money goes down.

Bailouts are merely temporary remedies....  they are doomed to fail.

Creating more money NOT representing a new asset (a loan) is ALWAYS inflationary.  In hyper inflationary times, debts become meaningless...  If you owe $50,000 to somebody, it might be what a loaf of bread eventually costs too.  So your debt is worth one loaf of bread.  This is why TPTB are petrified of inflation getting out of hand.

What you also need to understand is that what is happening today is simply EXTRAORDINARY in the simplest meaning of the word - it has never happened before.

Growth died last year because the price of oil made the cost of growth too expensive.  You cannot look at all this and leave Peak Oil out of the equation.  EVERYTHING is interconnected, inter-dependent.

Mike 

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Re: Daily Digest - Jan 21

Davos: This has been a superb Daily Digest!

The GAO report was particularly chilling. Hopefully our government understands how to read graphs. 

Did anyone see Obama on tv at the swearing in of the Cabinet? He specifically discussed "transparency and accountability" and he spoke to the necessity of the Freedom of Information Act. I'm wondering now what his thoughts are on the FOIA when Bloomberg and Fox News have sued the Federal Reserve repeatedly for refusing to comply with the FOIA and disclose where it loaned Trillions of dollars. If you have not yet seen the Donald Kohn hearing with Alan Grayson and Ron Paul, I highly recommend it. He makes it very clear that the Fed fears disclosure of this information.

TRK29 and DTM: you've had a good discussion, but I would point out that TPTB don't really need to fear inflation as long as they have the power of the printing press and the currency is still accepted. I don't know too much about Zimbabwe in depth, but I wonder if inflation really got out of control, would Americans quickly learn from Zimbabwe and others and reject the dollar quickly? Does our reserve currency status tend to limit the degree and length of hyperinflation?

DTM is absolutely right as he points to peak oil. Dollars are neither real capital nor real wealth. Oil is an excellent source of real wealth and we're having shortages, even as population soars. Doubleplusungood.

 

Mike 

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Re: Daily Digest - Jan 21

U.S. Dollar: The Curious Case of a Strengthening Currency
1/20/2009 4:45:00 PM

http://www.elliottwave.com/features/default.aspx?cat=fex

Greg

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Re: Daily Digest - Jan 21

BTW, see this regarding Mexican oil production: http://hosted.ap.org/dynamic/stories/L/LT_MEXICO_OIL?SITE=AP&SECTION=HOM...

It is down 9.2% in 2008, exports down over 16% in 2008. Anyone that thinks last summer's oil prices were pure speculation is nuts. The drop in price we are experiencing now is in no small part due to the great decrease in demand and consumption.

As soon as we try to recover, we are going to hit an oil supply ceiling that won't be very flexible or responsive to price increases. Remember Indiana Jones and the Temple of Doom when Indy and Short Round get trapped in the room where the ceiling slowly lowers itself down on them? Our economy better start looking for the door now, because the oil supply ceiling is surely not increasing.

Mike

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Re: Daily Digest - Jan 21

Now the only question that I have is," did Geither pay off the IRS with his own cash or did the tax payers bail him out also?"

 

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Peak Demand..?

By Alex Lawler and Peg Mackey

LONDON, Jan 20 (Reuters) - Oil demand may never return to growth in the United
States, Europe and parts of Asia, easing the strain on long-term supplies and
prices as emerging countries burn ever more fuel.

The surge in oil to a record near $150 a barrel last year heightened concern the
world will run out of crude and supply will start to dwindle -- a theory known
as "peak oil".

Now a deepening recession and oil price collapse have raised the issue of
whether demand, not supply, is nearing its peak.

Oil use in the industrialised countries that are members of the Organisation for
Economic Co-operation and Development (OECD), such as the United States, Japan
and western Europe may have peaked already, according to some analysts.

"There is a reasonable likelihood that OECD oil demand has peaked," said Peter
Davies, former chief economist at BP Plc who was in charge of preparing BP's
annual Statistical Review of World Energy, a standard reference work.

http://www.guardian.co.uk/business/feedarticle/8290979

 

Everything's better with CoolWhip (Tm) on it.

This reminds me of other optimistic articles I've read about how
population growth is expected to go negative, so we don't have to
worry about it. All is roses. Then you read page two, where they
explain that malnutrition and epidemics are expected to be the cause
of the downturn. At that point you realize the roses are for funerals.

If we are at Peak Demand..., then this is Peak Civilization.

What an exciting time to be alive!

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Re: Daily Digest - Jan 21

Peak demand?  Where do these people come from?  That is delusional.

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Re: Daily Digest - Jan 21

Just let us remember, it is energy and resource availability that makes any civilization "prosperous." Forget about the price of oil. The mere fact that we are consuming less and the fact that we long ago peaked in per capita consumption are powerful enough statements in and of themselves.

Everyone likes to follow the financial markets very closely. But on a longer time scale and on a fundamental level, it is resource abundance that matters more. Perhaps it would be more interesting to temporarily ignore the price of oil, acknowledging that people will tend to consume as much as they can afford, and only focus on consumption trends. When energy consumption takes a dip, so does prosperity, no ifs, ands, or buts. 

It's hard to have hope when every single politician and financial "leader" continues to speak of neverending growth. They are mistaking the ailment for the remedy.

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Re: Daily Digest - Jan 21

Damnthematrix said:

"If we are at Peak Demand..., then this is Peak Civilization."

Buy ammo...

Re: Peaks in this, that, and anything you can think of:

Every (consumption, production, depletion, etc.)  graph I've ever seen attempts to represent that period of time after the peak with a continuous line (downward sloping).

I don't think things are going to turn out anything like that; I think there are going to be radical discontinuities, hellish drops; it's going to be like hitting stall speed in a jet (some things only function at certain minimum rates); civilization and natural resource extraction--in the context of a planet with 7 billion people--are probably two of them...

Listen! What you are hearing now may be the stalling of the motor of civilization...

 Correction: A sudden discontinuity in a depletion graph--in the  context of a planet with 7 billion people--will be an innocuous looking flat line...

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Re: Daily Digest - Jan 21
BushMaster wrote:

Now the only question that I have is," did Geither pay off the IRS with his own cash or did the tax payers bail him out also?"

No, Geitner paid his backtaxes by printing it out of thin air.

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Re: Daily Digest - Jan 21

joemanc said:

"No, Geitner paid his backtaxes by printing it out of thin air."

Given that there is a fair probability that some investment of his benefited (stock or bond price) from the TARP, you're probably, in effect, right.

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Re: Daily Digest - Jan 21

Thank you for the Hat Tips!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

And it is a pleasure to contribute to this community, as always I learn more from the comments then I do from reading the articles! Take care 

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Re: Daily Digest - Jan 21

Sorry this is a little off topic for this particular page, but very much on topic with the Martenson site.

Please see this video:

I would normally not post it because I think many here are already familiar with Ron Paul and don't need continuous reminders.

But in this one, Glenn Beck openly starts speaking about hyperinflation, Weimar, etc. with Ron Paul. In some ways, I wonder if the mere acknowledgement of that crisis is a bit of an antidote for it playing out that badly.

Most importantly, Glenn Beck discusses rumors of an "international gold standard." Regardless of whether or not these rumors will play out, I think the mere fact that the mainstream media is discussing this is fairly significant and I would think that a few more of these sort of mentions and we could be seeing $1,000 / ounce pretty soon. I encourage all to check it out.

Thanks,

Mike 

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Re: Daily Digest - Jan 21

Mike Pilat,

 I saw the Obama speech this afternoon as well and I was floored. i think this will be 'one' for the history books. i'm of no political party but if obama follows through on his manifesto today i would have nothing but admiration for this man, it simply was the best bitch-slap to washington i've ever witnessed. everyone must watch it!

with that said i think he will soon be overwhelmed by the political machine but at least he has this rare opportunity where he can overcome the machine and arise as the leader in washington and make things happen. don't think for a minute that i'm totally in the bag for this guy because bush had the same sort of opportunity after 9/11... and no need to expound any further on that.

as far as the freedom of information act, i immediately thought of the same thing, does that go for the super secret federal reserve? i thought he hinted at this in his inaugural speech, 'all business in the light of day'.

steve

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Re: Daily Digest - Jan 21

hey davos,

has there ever been any thought consideration to a skype forum for members of this site? i know that i've already worn out everybody around me on the condition of the economy so i don't even broach the subject anymore. i for one like to have that point-counterpoint conversation to sharpen my opinions,... or have them changed. a small roundtable every once in a while would be nice with fellow members and we could jack-jaw a series of questions. totally amateur hour stuff, as i do something completely opposite for a career.

any thoughts?

steve

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Re: Daily Digest - Jan 21

Steve,

You are certainly right. A lot of what Obama says would be very encouraging, save for the power of the system to corrupt and overwhelm. I certainly hope that he is able to follow through on some of these loftier aims. Realistically, I remain a bit skeptical that things are going to work out the way he lays them out.

As for the Fed, of course not. The Federal Reserve is "independent," remember? That means politically and legally, apparently.

Facilitiating Skype is an excellent idea. Perhaps we could have open discussions that people could jump in and out of so that a text based blog becomes somewhat speech based. Not sure how well this would play out, but I would certainly give it a try. It's worth exploring. 

Mike

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Re: Daily Digest - Jan 21

kemosavvy and Mike like Skype!

That's a brave idea. I'm in...

P.S. We might want to consider it like a book club as a place to start; that is to say, we agree to read a, b, and c before the actual conversation...

Of course, a,b, and c could be Davos' daily list...or? and/or? etc...

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Re: Daily Digest - Jan 21

Mike Pilat,

I saw that you were mentioning Mexico's oil production. Here's a forum I posted a few weeks back on that very subject. Without mincing words, it's a dire situation.

Given the further instability decreased oil revenues will cause for the Mexican government, within the next five years Mexico could very easily eclipse Iraq, Pak, Afghanistan, North Korea, etc, as foreign policy issue numero uno. Oh, did I mention that they're a continental neighbor with a vast and porous border populated by federal agents, drug traffickers, and various citizen's groups (many of which are deeply racist) all armed to the teeth.

Once again, it's a dire situation.

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Re: Daily Digest - Jan 21

"Peak Demand" was mentioned a few times.

I don't think such a reality truly exists. As long as things can be bigger, better, and more powerful, people will demand them. The real question is how will the demand for oil compare to the demand for other things, such as water, food, housing, and fiat cash. I think it's obvious that right now, oil demand has been lowered a few places on the list, but I believe this is a transient phase. And seriously, let's be honest with ourselves: How many things are people truly demanding more than oil these days? Not much, just the bare necessities of life for the most part.

I've now heard Matt Simmons and Kenneth Deffeyes refer to queueing theory as it relates to peak oil. The basic point, as I understand it, is that as the demand for something approaches the limits of supply, surplus supply and therefore price can go through rapid up and down swings, becoming far less predictable over short time intervals. If the demand remains high, the price follows a volatile upward trend. Has anyone else heard of this theory? It seems plausible to me.

Thanks,

Mike

 

 

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Re: Daily Digest - Jan 21

Hi Mike,

I have heard about the queueing theory. I think Simmons talked about it with Jim Puplava on the Financial Sense Newshour.

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Re: Daily Digest - Jan 21

Hello Steve:

I don't know if Chris has kicked that around or not. My role at CM is really limited, I just pour through the news and paste it here Laughing, Skype sounds neat, hope all is well, take care 

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Re: Daily Digest - Jan 21

 No doubt Obama will make changes. But it's also more of the same. He mentions growth a couple of times. This implies that he doesn't understand the overall picture after all :(

 As long as everyone is so hooked on growth we're out of luck in the long term. It's not a question of if it will happe,but when. The more the governments all over the world push for growth the faster the disaster will hit us.

 Growth in a finite invironment is doomed to fail.

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Re: Daily Digest - Jan 21

The quintessential event is a
high probable 20% to 30% overnight USDollar devaluation, enough to cause
massive financial shockwaves, like broken financial firms, bankrupted banks,
badly disrupted commodity exchanges, badly disrupted stock exchanges, and
much more.

http://www.24hgold.com/english/news-gold-silver-lightning-earthquakes--h...

Greg

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Re: Daily Digest - Jan 21

Ahh, more light reading, Mr. Roberts, thank you!

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Re: Daily Digest - Jan 21

This has been an incredible thread this am......I only have one question,Time Table????????  nk:)

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Re: Daily Digest - Jan 21

More cheerful articles,

http://www.dailyreckoning.com/

Greg

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Re: Daily Digest - Jan 21

Re 33,34,35,39

Sounds good to me. I don't know what the limit is for Skype conference calls, but it could become unmanageable if too many people wanted to speak at the same time.

However, if you need a UK volunteer to give it a try, I'm available.

All the best,

Tom

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Re: Daily Digest - Jan 21

Tom, Mike, Steve, et al?

Googled me this about Skype: http://moultriecreek.us/family/?p=1370

Lee

P.S. At the end of the article are these comments by readers:

A small correction. The number of participants allowed goes up from 10 to 25 if the host has a dual core CPU.

Another great post. I just want to add that if the conference call moderator (who initiates) the call has the subscriber version of Skype, the limit is 25 callers - the moderator and 24 others.

Actually, the maximum number of participants in a Skype conference call is now up to 25, regardless of processor type.

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Re: Daily Digest - Jan 21

I love it, Greg. I was going to post the same exact thing earlier and never got to it.

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Re: Daily Digest - Jan 21

brilliant video!

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Re: Daily Digest - Jan 21
Mike Pilat wrote:

...as the demand for something approaches the limits of supply, surplus supply and therefore price can go through rapid up and down swings, becoming far less predictable over short time intervals. If the demand remains high, the price follows a volatile upward trend.

 I feel that this theory can apply to just about anything but to use the most common example, I do not believe that the oil supply will slowly decrease, rather it will just dry up. Oil significantly decreases in quality based on the type of oil (I believe Chris mentions this briefly in the Crash Course), and different types of oil cannot be used for all applications.  This taken into consideration along with how many products we all know are petroleum based in one way or another--even if part of the process to manufacture a product or provide a service involves the consumption of oil.

 Just imagine that a glass of water represents the entire oil supply and you are the demand.  Now close your eyes and using a straw, drink the water.  Do you know that it's 'almost gone' or is it just there one minute and gone the next?  

That's just my take on it--

-Joe

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