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Daily Digest - Jan 22

Wednesday, January 21, 2009, 6:26 PM
  • NAHB Housing Market Index (Chart)
  • NAHB Builder Confidence Hits New Record Low in January
  • Preview: Housing Starts & Permits to Fall Beyond Record Low 
  • Richard Parsons, The Biggest Loser, Takes Over Citigroup (C) Chairman's Job
  • O.C. furniture mall loses $63 million in value
  • Circuit City collapse could hit real estate investors
  • Chinese "Official" Urban Unemployment (Chart)
  • Rising Tide of Joblessness (Chart)
  • A County in China Sees Its Fortunes in Tea Leaves Until a Bubble Bursts 
  • GM official says cash could run out by March 31
  • Clive Thompson on How More Info Leads to Less Knowledge
  • New President Looks in Vain for Head of Treasury
  • Max Keiser and Stacy Herbert and Guests, (Video)
  • Humor, Hat Tip JoeManC (Do a search for illegal activities, kickbacks and stolen property)
  • U.S. Dollar: The Curious Case of a Strengthening Currency (Hat Tip Greg R.) 

Economy 

NAHB Housing Market Index (Chart)

NAHB Builder Confidence Hits New Record Low in January 

Confidence amongst homebuilders fell to a new all-time low in January, according to a report issued by Wells Fargo and the National Association of Home Builders (NAHB) on Wednesday. 

The housing market index dropped to a reading of 8 in January, following the previous record low reading of 9 in December and November.

The index, which has a 22-year history, consists of three components.

The sales expectations component increased one point to 17 in January, while the present housing component for single-family homes fell two points to 6. The component looking at traffic of prospective buyers grew one point to eight.

Over the past three years, the index has fallen from 61 to a reading of 8. A rating above 50 indicates optimism from homebuilders; below 50 indicates pessimism. The all-time low prior to the current credit crunch was 19.

Preview: Housing Starts & Permits to Fall Beyond Record Low  

The only major economic data to be released for the United States this week is the housing starts and permits report from the Commerce Department. Unfortunately, the news is likely to be grim, suggesting that problems in the housing sector continue to drag down the economy. 

With both components already at record lows in November, it would be difficult for the December data to shock the markets with further deterioration. It may be possible, however, for positive data to be interpreted as evidence that the housing market is bottoming out.

Housing starts, which refer to the pace of new homes being built, are expected to drop more than 2% in the final month of 2008, following a huge 19% decline in November, which pushed the annual decline down to 47% - the worst annual decline in the housing market in 18 years.

The annualized pace of housing starts is currently at its lowest level in half a century at 625k, and when the December numbers roll in that figure is expected to fall to 605k.

The large overhang of houses on the market, plus poor home sales amid tight credit conditions and a collapsing job market, are all joining together to keep home builders in a deep hole, said Sal Guatieri, senior economist at BMO Capital Markets. 

Richard Parsons, The Biggest Loser, Takes Over Citigroup (C) Chairman's Job 

Why belabor the point? Richard Parsons, who did an awful job as Chairman and CEO of Time Warner (TWX), a position from which he mercifully retired , has been named Chairman of "death watch" candidate Citigroup (C). 

Poor Sir Win Bischoff, who never meant anyone harm, stepped down as Chairman and will not be re-elected to the board.

It is worth pointing out, no matter how many times it needs repeating, that Parsons was on the Citi board during the period when many of the decisions which undermined the bank's balance sheet were made. He also left Time Warner worse off than it was when he took over.

At least Sir Win will not have to be around when Citi is finally driven into the ground. 

O.C. furniture mall loses $63 million in value 

Recent court filings demonstrate how the recession and the economic meltdown have impacted one Orange County shopping center. 

The South Coast Home Furnishings Centre in Costa Mesa - conceived as a one-stop outlet for home remodelers - has lost customers, tenants and finally ended up in receivership after rents failed to cover loan payments and operating expenses. The 20-acre property off the I-405, which sold for $98 million in the summer of 2007, went up for sale for $65 million in September, just as the economy began to implode.

By December, the receiver and the lender concurred that a $35 million offer was the best they could get for the 300,000-square-foot center.

That's a 64% drop in value in a 1.5-year period. If the sale falls through, values could fall further, the receiver argued in court papers.

The Home Furnishings Centre had 32 tenants, filling almost all of the available space, when it sold to Dale A. Williams and South Coast Home Furnishing LLC in August 2007. Williams put $18 million down and borrowed $84 million to cover the balance of the purchase price.
As of December this year, tenants had fled, including the anchor: bankrupt Wickes Furniture. According to court records, just 18 tenants remained and 34% of the space was vacant. An appraisal concluded last summer:

"Over the last year, with the downturn in the housing market and economic problems from the subprime markets, the (center) has been greatly affected. ... Without a proper anchor tenant and the cutback of consumer spending on furniture goods, traffic to the center has declined. The property managers indicated that they are closely working with the existing tenants to keep them at the center by allowing significant rent relief. The manager indicated that providing rent relief is critical in keeping the center alive, as the move-out of further tenants would likely snowball into further loss of occupancy." 

Circuit City collapse could hit real estate investors 

NEW YORK (Reuters) - The collapse of electronics retailer Circuit City (CCTYQ.PK) could drive down shopping and strip mall rents, and deal another blow to commercial mortgage-backed securities' (CMBS) investors who have already seen their bond prices slide. 

After a dismal holiday shopping season and several failed attempts to sell itself, Circuit City -- having filed for Chapter 11 bankruptcy protection in November -- last week said it would close all its 567 U.S. stores and liquidate its assets.

The move left 30,000 employees of the Woodland Hills, California-based company without work, and creditors -- including landlords -- lining up to get whatever they can after the company sells its inventory.

"Now those landlords are in line like the rest of their creditors -- and probably in the back of the line to get paid," said Suzanne Mulvee, Property & Portfolio Research real estate strategist.

The loss of the large tenant, whose stores typically run from 35,000 to 40,000 square feet, is likely to be felt by some publicly traded shopping center owners, such as Developers Diversified Realty Corp DDR.N, where Circuit City accounted for 1.7 percent of its annual base rent revenue, and Kimco Realty Corp KIM.N, where the chain accounted for 1.5 percent of its annual base revenue, according to Green Street Advisors analyst Nick Vetter.

Other landlords include Inland Western Real Estate Retail Trust, Simon Property Group Inc SPG.N, Vornado Realty Trust VNO.N, Weingarten Realty Investors WRI.N, First Capital Realty Inc (FCR.TO), Kite Realty Group Trust KRG.N and Arcadia Resources Inc (KAD.A), according to financial data firm SNL Financial.

Yet the pain will be felt throughout the retail real estate market, several real estate experts said.

"A company like Circuit City is the poster child for what's going on," Mulvee said. "There's a bigger disease at work here." 

Chinese "Official" Urban Unemployment (Chart)

Rising Tide of Joblessness (Chart)

A County in China Sees Its Fortunes in Tea Leaves Until a Bubble Bursts 

MENGHAI, China - Saudi Arabia has its oil. South Africa has its diamonds. And here in China's temperate southwest, prosperity has come from the scrubby green tea trees that blanket the mountains of fabled Menghai County.

Shiho Fukada for The New York Times
Workers at a tea factory in Menghai County in Yunnan Province.
Over the past decade, as the nation went wild for the region's brand of tea, known as Pu'er, farmers bought minivans, manufacturers became millionaires and Chinese citizens plowed their savings into black bricks of compacted Pu'er. 

But that was before the collapse of the tea market turned thousands of farmers and dealers into paupers and provided the nation with a very pungent lesson about gullibility, greed and the perils of the speculative bubble. "Most of us are ruined," said Fu Wei, 43, one of the few tea traders to survive the implosion of the Pu'er market. "A lot of people behaved like idiots."

A pleasantly aromatic beverage that promoters claim reduces cholesterol and cures hangovers, Pu'er became the darling of the sipping classes in recent years as this nation's nouveaux riches embraced a distinctly Chinese way to display their wealth, and invest their savings. From 1999 to 2007, the price of Pu'er, a fermented brew invented by Tang Dynasty traders, increased tenfold, to a high of $150 a pound for the finest aged Pu'er, before tumbling far below its preboom levels. 

GM official says cash could run out by March 31 

DETROIT (AP) - The target date for General Motors Corp. (GM) (GM) to get its second installment of government loans passed last week, but a top company executive says he expects the money to arrive in the next several days. 

Fritz Henderson, GM's president and chief operating officer, said without the second installment of $5.4 billion, the company would run out of cash long before March 31.

In December, the Treasury Department authorized $13.4 billion in loans for GM and another $4 billion for Chrysler LLC to keep both automakers out of bankruptcy.

GM received $4 billion late last year and was to get $5.4 billion Jan. 16 and another $4 billion on Feb. 17, the day it is to submit its plan to show the government how it will become viable.

Henderson told the Automotive News World Congress in Detroit that the money is critically needed to pay its bills. He attributed the delay in receiving the second installment to the Treasury Department's workload and the change in administrations.

"If we don't get our second installment of the funding we'll run out of cash, it's that's simple," he said. "We've been finalizing what we need to do. We anticipate receiving it. But it's critical that we receive it." 

Clive Thompson on How More Info Leads to Less Knowledge 

Is global warming caused by humans? Is Barack Obama a Christian? Is evolution a well-supported theory? 

You might think these questions have been incontrovertibly answered in the affirmative, proven by settled facts. But for a lot of Americans, they haven't. Among Republicans, belief in anthropogenic global warming declined from 52 percent to 42 percent between 2003 and 2008. Just days before the election, nearly a quarter of respondents in one Texas poll were convinced that Obama is a Muslim. And the proportion of Americans who believe God did not guide evolution? It's 14 percent today, a two-point decline since the '90s, according to Gallup.

What's going on? Normally, we expect society to progress, amassing deeper scientific understanding and basic facts every year. Knowledge only increases, right?

Robert Proctor doesn't think so. A historian of science at Stanford, Proctor points out that when it comes to many contentious subjects, our usual relationship to information is reversed: Ignorance increases.

New President Looks in Vain for Head of Treasury 

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.

Max Keiser and Stacy Herbert and Guests, (Video)

Humor, Hat Tip JoeManC (Do a search for illegal activities, kickbacks and stolen property)

IRS_form_illegal_activities.jpg

U.S. Dollar: The Curious Case of a Strengthening Currency (Hat Tip Greg R.)

The financial market is a mysterious beast. Like something out of Greek mythology, the market is half-man, half-giant-walking-stick-made-of-charts. And although armies of well-educated economists seem to be able to tame it, their theories come up short again and again.

Take the U.S. dollar, for example. How many times in the past year have you heard opinions that, given the severe problems of the U.S. economy, the dollar should collapse? More than once, I bet. But have you looked at a USD chart lately?

Here's a chart that subscribers saw in the January 16 issue of EWI's Mon-Wed-Fri Short Term Update - with some supporting commentary:

 

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21 Comments

Davos's picture
Davos
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Re: Daily Digest - Jan 22

bigo.jpg

Damnthematrix's picture
Damnthematrix
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What will they do WTSHTF...?

Economic collapse fuels bitter protests in Iceland
January 23, 2009

http://www.smh.com.au/articles/2009/01/22/1232471496246.html

ICELAND: Riot police rescued the Prime Minister, Geir Haarde, from his
official limousine after it was surrounded by protesters.

Demonstrators, enraged by the Government's handling of the financial
crisis, banged on the car with drink cans and pelted it with eggs.
Bodyguards tried to keep them away before riot police arrived to clear a
path.

Protests have become a regular feature of life in the capital,
Reykjavik, since Parliament reopened after the Christmas break.

<MORE> 

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Damnthematrix
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Re: Daily Digest - Jan 22

Repossessions show Britain's deepening financial crisis

By Europe correspondent Emma Alberici

Posted 36 minutes ago

There is further evidence of the depth of Britain's economic troubles.

Home repossessions in the UK almost doubled in the three months to September.

Figures released by the Financial Services Authority (FSA) show that
13,000 homes were repossessed by mortgage lenders in the third quarter
of last year representing a 92 per cent jump on the same period in 2007.

There was also a sharp rise in the number of people in arrears on their mortgages.

The FSA, Britain's top financial regulator, says there will need to
be profound changes in the world's banking system to avoid a repeat of
the current crisis.

FSA head Lord Turner said parts of the regulatory system were "seriously deficient."

He has recommended that banks be forced to build up capital during good times, so they can more easily weather the bad.

In the future he said, the FSA would regulate liquidity as well as capital adequacy.

In line with capital requirements, banks would have to have a certain level of liquid assets.

Lord Turner said the FSA had made mistakes in monitoring the banks
but he said bankers, regulators, central banks, finance ministers and
academics across the world shared the blame for failing to identify the
risks which had been building in the financial system for a number of
years.

Meanwhile, pressure is also mounting on the British Government to
provide aid for the local automotive industry after it emerged that car
production close to halved in one month, falling by 47.5 per cent in
December.

Damnthematrix's picture
Damnthematrix
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Re: Daily Digest - Jan 22

Sony expects $4.5b operating loss

Japanese electronics company Sony says it has been badly hit by the world economic slump and expects to slip into the red.

It expects to make an annual operating loss of $4.5 billion, its first deficit for 14 years.

The statement follows last month's announcement of 16,000 job cuts worldwide and the closure of up to six factories.

Sony's chief executive, Howard Stringer, says the company has to act quickly.

"I believe that it is my responsibility to change Sony and restore
it to its former profitability and I have to do that in a hurry," he
said.

RussB's picture
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Re: Daily Digest - Jan 22

Regarding the item about how you're supposed to report criminal income on your return:

I think that was part of the same comment I read here yesterday which said you're supposed to do the same for barter.

I only skimmed over that at the time, but I thought about it later and found it disturbing. So if you grow a garden, and your neighbor keeps chickens and cows and other animals, and you trade him some of your produce for some of his eggs, milk, and meat, and you don't both report it, you're both tax evaders, if I understood that correctly.

Now, that sort of barter arrangement is precisely what so many of us advocate, and which many people already practice and talk about online. So if the government ever does get around to persecuting those who are trying to prepare for the post-descent world, it seems like this would be an available avenue.

It's another thing to think about. 

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Mike Pilat
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Re: Daily Digest - Jan 22

RussB: You're right, it is very disturbing to see the way the laws are written.

But it is delusional on the part of the government to think that they have the capability of enforcing laws like this on a wide scale. The government would like to think it is all powerful, but at some point, it will have to acknowledge that micromanagement just does not work.

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Re: Daily Digest - Jan 22

Mike Pilat:

I don't think the law is intended to be enforced on a wide scale.  I beleive laws such as this are there to be used as one more instrument against a person who happens to get caught doing something else.  The big bad gangster Al Capone was ultimately convicted of tax evasion.  Don't mess with the IRS.

 

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Damnthematrix
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Pound collapsing against US Dollar
     
This is a bit of a surprise -
it is most unusual to see such a clear trend.
The rot started when the oil price started collapsing,
along with Fanny and Freddy and AIG,
not the bankruptcy of Lehman,
nor the government bank guarantees debacle.
And this with US interest rates at zero !
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Posts: 25
Re: Daily Digest - Jan 22

Ya'll can take this for what it's worth. I "Five Fingered" it from another forum, but it could be credible info.

I'm listening to Rick Wiles and he said a source he cannot reveal, whom he knows personally, a businessman who deals with millions of dollars, said word on the street is that Merrill Lynch, BofA, and Citi will not be able to make payroll this Friday. BHO will have to nationalize the banks and close down the stock market...take it for what it's worth, could very possibly just be a rumor.

But RW pointed out a prince of Saudi Arabia (?) is having money problems, somehow this is tied in to the above. I'm not smart enough to connect all the dots, but thought someone might want a heads up on this one. If it's true, all I can say is "wow".

Set's picture
Set
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Re: Daily Digest - Jan 22
TrAd wrote:

Ya'll can take this for what it's worth. I "Five Fingered" it from another forum, but it could be credible info.

I'm listening to Rick Wiles and he said a source he cannot reveal, whom he knows personally, a businessman who deals with millions of dollars, said word on the street is that Merrill Lynch, BofA, and Citi will not be able to make payroll this Friday. BHO will have to nationalize the banks and close down the stock market...take it for what it's worth, could very possibly just be a rumor.

But RW pointed out a prince of Saudi Arabia (?) is having money problems, somehow this is tied in to the above. I'm not smart enough to connect all the dots, but thought someone might want a heads up on this one. If it's true, all I can say is "wow".

Perhaps that is what General Colin Powell was refering to during his interview with "Meet the Press."

At least we don't have to wait very long to see if this rumer is true.

Mike Pilat's picture
Mike Pilat
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Re: Daily Digest - Jan 22

Worker Bee: That's a very good point.

So the broader purpose of tax laws is to practically ensure that every citizen is in violation of some law, somewhere, sometime? So if they ever get called up on other charges, there is always a backup plan that the government has to attack.

It scares me to see what an IRS bust looks like and to see videos of IRS agents in full armor training as if for war. It's nuts. 

One day, perhaps far off but probably not, I have full confidence that the status quo will miserably fail. If everyone who has ever had a tax problem were incarcerated, just imagine how much that would shrink tax revenue when they're in jail! Imagine the number of elected officials that would be jailed if indeed every last person that violated a tax law were fairly prosecuted.

Mike

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Damnthematrix
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Broken China

Commentary

7:20 AM, 23 Jan 2009

Alan
Kohler http://www.businessspectator.com.au/bs.nsf/Article/Broken-China-$pd20090123-NJRJA?OpenDocument&src=ei

Broken
China

If
you believe that the Chinese economy grew at the rate of 6.8 per cent in the December
quarter, you'll believe anything.

It might have,
but the idea that the Chinese statistical bureau can accurately measure the
size of the national output in three weeks is laughable. The figure of 6.8 per
cent probably has more to do with the fact that it exactly matches the median
estimate of 12 economists surveyed by Bloomberg.

That said,
China’s economy is clearly slowing rapidly. On some measures it is going
backwards – for example, electricity production is falling; so is steel
production and motor vehicle production.

Citigroup’s
Shanghai-based economist, Ken Peng, estimates that
after seasonal adjustment, China’s real GDP growth in the December
quarter was -0.3 per cent annualised – the first contraction in at least
16 years.

Moreover
China’s 2007 problem with inflation has very quickly turned into a
problem with deflation: the December quarter was the third consecutive quarter
of a falling CPI. Although food prices went up, the declines in other prices
accelerated. Ken Peng expects 0.5 per cent deflation
for the year.

In general,
China is no longer anyone’s saviour – not Australia’s and not
the rest of Asia.

With the
benefit of hindsight, China’s decision in early 2007 to slow its
overheating economy through interest rate hikes and credit restrictions on the
banks was poorly timed. Even as they did it the global financial tsunami was
rumbling across the Pacific.

The result is
that China is facing two recessions: domestic consumption and investment, and
exports. It is a story being repeated across Asia.

The collapse in
Asian exports at the end of last year, especially in Taiwan, Korea and
Singapore, was astonishing – falls of up to 40 per cent year-on-year.

And although
China’s exports are now also falling, its contraction appears to be mostly
focused on a reversal of the private investment boom and a cutback in
inventories, and the cause of the decline dates back to its own attempts to
control inflation with monetary policy in 2007 and early 2008.

The good news
is firstly that the banks are already nationalised and secondly the government
still dominates the economy (even though it owns a bit less of it than under
Mao) and is rich.

In fact,
throughout Asia the banks have so far been doing pretty well. ANZ’s chief
Asian economist, Peter Guenwald, reports that
Asia’s share of the total global bank write-downs of $US1 trillion
announced so far is around 3 per cent, and has been stable at that percentage
from the start of the crisis. And most of those write-downs are in Japan.

So at least
Asia does not have a banking crisis to add to the decline in exports and
investment.

Indeed, Gruenwald says new loans by the state-owned Chinese banks
increased 62 per cent in December after the government dropped lending quotas
as part of its economic stimulus package.

But although
there is much else the government can do to stimulate the economy on top of the
massive package announced last year, the big danger is that it will also turn
to the exchange rate and depreciate the yuan to boost
exports.

President Barack Obama’s nominee for Treasury Secretary, Tim Geithner, has already said that the new administration
believes China is “manipulating” its currency (he means it’s
a devaluer).

There is
growing speculation that China is moving towards another devaluation to help
exports.

And America has
a new President who seems to be positioning himself to
confront
China

over its exchange rate policy.

This adds a new
and very dangerous element to the financial crisis.

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Re: Daily Digest - Jan 22

RussB and Mike,

Have you considered laws as contingencies, kind of like having an revenue insurance policy. Take, for example, that ridiculous speed limit you gripe about, or the stop light on the two-lane road without an intersection (you can probably relate to the ridiculous speed limit, and I may be exaggerating on the two-lane road...).

There seem to be laws that allow either "revenue generation" at will (since it is almost impossible to abide by the law) or that serve some other purpose (shot-over-the-bow, making-an-example, social-control mechanisms, being my favorite "other"); and if not one of those, then the legislative equivalent of "the bridge to nowhere"; if idle hands are the devil's work, then we don't even want to consider the idle hands of lawyers--give 'em a bridge to build or birds to pluck feathers from--anything! 

Perhaps these so called "tax codes" that cover income derived from illlegal activities are an example of laws that fall into one of the categories I mention above. I't's hard to imagine them being written with any expectation of abidance...

Edit: Mike, I see while I was downstairs tossing the "absurd tax code" concept around with my roommate (lawyer) you posted the very thing he suggested...

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Re: Daily Digest - Jan 22

OK - I know I'm not the sharpest pencil in the box. I've read and re-read this excerpt a number of times and I still don't get it. Would some kindly soul out there take pity on a senior citizen and explain the second and third paragraphs in a way that I can understand?

http://www.wired.com/techbiz/people/magazine/17-02/st_thompson

One of the strongest held beliefs at present is that the U.S. dollar is on the verge of an imminent collapse… because of the very reason you see on this chart – the Fed’s irresponsible expansion. Yet as our chart shows, the opposite is occurring, just as Conquer the Crash* predicted.

Why? As we’ve long argued, the systemic build-up of total market credit is so large, currently about $52 trillion, that its implosion will swamp the Fed’s attempts to inflate. …[C]reating just over $2 trillion in the face of a contracting pool of $52 trillion in total credit market debt is just not going to get the job done…

And as Conquer the Crash discusses, the remaining dollars…will increase in value. The thirst for cash will be insatiable relative to all other assets.

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Brink of Disaster

Latest from Mike Shedlocks excellent site and some very telling graphs.

Full story here

http://globaleconomicanalysis.blogspot.com/2009/01/brink-of-debt-disaster.html

Cheers,

David.

 

 

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Re: Daily Digest - Jan 22

I would like to back up Damnthematrix in his support of Charles Hugh Smith's site.

Hugh Smith is an awesome writer who gets the current situation with the environment and the economy and its relationship to a money and and economy that simply doesnt do what we expect it to do.

Whilst i love his writing, i find his site hard as hell to navegate.  here is what i do.

Put in the link below and then change the month and year to get a list of all his articles for that month.  I do that each and every month....

http://www.oftwominds.com/blogjan09

ie put in www.oftwomind.com/blogdec90 or aug08 or feb07

you will find many hours of great reading...

i like the series on what the economy might look like once the bubble in commercial rents bursts... people setting up informal 'bring your own chair cinema', small business taking to the street. it all makes sence and it all may well come to pass...  http://www.oftwominds.com/blogdec08/rise-of-informal12-08.html

and this one on bonds http://www.oftwominds.com/blogdec08/USbonds12-08.html

and this one on the end of work, the end of afluence. http://www.oftwominds.com/blogdec08/affluence12-08.html

keep up the awesome work mr. hugh smith! 

Stewart, Brisbane.

 

 

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Re: Daily Digest - Jan 22

Mike, Workerbee, Nonzero -

Yes, I agree with you guys. I see this as part of broader trends in the law, both to criminalize living in general, so that everyone is in theory guilty of something, and in particular to criminalize alternative lifestyles, or at least put up all sorts of obstacles to them. As an example, since we were talking about the tax code, just look at how it penalizes self-employment (as does the health care system). Part of the goal is clearly to discourage self-employment.

The same is true of privileging home ownership (we're seeing lately how well that's working out) and penalizing renters.

With regard to barter, I wanted to draw special attention to the fact that, if that's the way the code works, then people should be aware of the potential for incriminating themselves online. I don't know if the government really monitors sites like this the way some people think, but it's at least a possibility.

Mike, I hope you're right about broad attempts at repression becoming untenable during energy descent. I tend to suspect that myself. Historically, governments which are themselves falling apart can't maintain cadre discipline for very long, and even right now I imagine budgets are being cut to the bone in most places.

I read that during Katrina, and historically during similar circumstances, police and such tend to stay at their posts for up to around five days before they decamp to look after their own families. 

Still, "not very long" is a relative term... 

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Mike Pilat
Status: Platinum Member (Offline)
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Posts: 929
Re: Daily Digest - Jan 22

All I'm pointing out is that micromanagement eventually fails when the resources required to manage exceed the system's ability to support the management. So it is the same with out government. In the long run, exponential expansion of government cannot work. Perhaps (I hope) we're reaching Peak Government pretty soon.

I am mildly encouraged by Obama's apparent pragmatism, but I do remain skeptical when he attempts to change the paradigm from big/small government to government that works. This sounds very good in theory and I hope can follow through like this. But yes, it is certainly possible for government to become too big. Since government doesn't produce anything, it is a load on the real economy. Perhaps it's just politics, but Obama is not speaking about downsizing the government. Again, though, it is at least nice to hear things like salary freezes and budget cutbacks in Washington. Time will tell.

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Sense Seeker
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Posts: 3
Re: Daily Digest - Jan 22

Extremely interesting stuff. Especially the curious strengthening of the US$ and 'Mike Shedlocks' site'. I have been puzzled about the strong dollar for some time. If I understand the first site correctly, this is caused by the massive destruction of debt that is taking place. As the Crash Course reminded me, debt = money, so billions or trillions of dollars are destroyed because lending has dramatically dropped and people and companies default on their debts. So while the Fed expands its balance sheet and thus creates dollars, bank credit reduction is removing even more dollars. Hence dollars are scarcer than they were and their value has increased. And on top of that, the dollars that remain circulate at a lower pace, so they count for less and the perceived scarcity is even worse.

This gives the counterintuitive situation that a massive destruction of wealth is going on in the US (though I guess one can argue if that wealth was really there in the first place) while the US currency is going from strength to strength. Not great for the country because its external debt is deflated upwards (rather than inflated to oblivion) and at the same time it blocks any attempt to reduce that debt by exporting products.

I was actually expecting the US$ to collapse in the near future, succombing under the weight of  the massive debt, the unwillingness of the rest of the world to lend the US any more, the money press as the only politically feasible way forward, and a sudden loss of confidence in the value of the currency.

However, the notion that trillions of (privately held) dollars are being wiped out, dwarfing the billions of the stimulus packages and the enormous expansion of the Fed's balance, opens up new avenues for thought. I am not sure where they lead, though.

Will the strenght of the dollar last? The above scenario does not provide reason to think it will collapse. When enough debt (money) has been destroyed, a new balance might ensue. And possibly the Fed can then take back the access money and destroy it? That would leave the USD intact, and the US itself as well. But worth less and, given the stimulus packages, with a massive public debt. Which in the longer run might still lead to higher taxes and lower growth or the money press and inflation. But no imminent disaster, currencywise. Unless for some reason the credit crunch suddenly stops and all frozen dollar become liquid again? Any ideas?

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Headless
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Posts: 363
Re: Daily Digest - Jan 22

RussB,

Love your expression: "criminalize living in general"

 

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