Daily Digest

Daily Digest - January 7

Thursday, January 7, 2010, 11:00 AM
  • Pending Home Sales index Plunges 16%
  • Iceland's president blocks £2.3bn Icesave deal to compensate the UK
  • Global Bear Rally Will Deflate as Japan Leads World in Sovereign Bond Crisis
  • "HAFA" - Foreclosure Warning Dead Ahead! 
  • How Russia Is About to Dramatically Change the World
  • Senator Dodd Will Not Seek Re-election, Democrats Say
  • Bank Execs Strike Upbeat Tone Despite CRE Mess 
  • The Biggest Financial Deception Of The Decade
  • Willem Buiter Warns Of Massive Dollar Collapse 
  • How Deflation Is Inflation


Pending Home Sales index Plunges 16% (Ben Johnson)

"Pending home sales plunged a seasonally adjusted 16% in November as a highly popular tax credit for first-time buyers was set to expire on Nov. 30, the National Association of Realtors reported Tuesday.

Iceland's president blocks £2.3bn Icesave deal to compensate the UK (nncita)

Iceland's president has said he will block a £2.3bn deal to compensate the UK for coming to the aid of 300,000 customers of Icesave, the failed internet bank.

Global Bear Rally Will Deflate as Japan Leads World in Sovereign Bond Crisis (nncita)

Milton Keynes will be vindicated. Lord Keynes will lose some of his new-found gloss. The Krugman doctrine that we should all spend our way back to health by pushing deficits to the brink of a debt spiral – or beyond the brink – will be seen as dangerous.

"HAFA" - Foreclosure Warning Dead Ahead! (Ben Johnson)

Under the Radar - a bit - came this ditty at the end of November. Coupled with the "unlimited" Fannie and Freddie "credit line", this may presage a veritable collapse in house prices this coming spring and summer - along with a massive "dump" of inventory.

Senator Dodd Will Not Seek Re-election, Democrats Say (Robert H.)

Senator Christopher J. Dodd, the embattled Connecticut Democrat who was facing an increasingly tough bid for a sixth term in the Senate, has decided to step aside and not seek re-election, Democrats familiar with his plans said Wednesday.

Bank Execs Strike Upbeat Tone Despite CRE Mess (Robert H.)

Executives with regional lenders like Umpqua Holdings Corp., KeyCorp and Fifth Third Bancorp have said in recent weeks that their exposure to the troubled lending segment is manageable, even as industry watchers and investors fret that a drawn-out economic recovery will make it harder for businesses to service and retire their commercial mortgages.

The Biggest Financial Deception Of The Decade (Davos)

First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in U.S. history at that time. Chairman Kenneth Lay said that Enron's decision to file bankruptcy would “stabilize the company,” but over the next five years the company was completely liquidated. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later.

Willem Buiter Warns Of Massive Dollar Collapse (Davos)

The long-held assumption that US assets - particularly government bonds - are a safe haven will soon be overturned as investors lose their patience with the world's biggest economy, according to Willem Buiter.

Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.

How Deflation Is Inflation (nncita)

Let's squash the debate between deflationalists and hyper-inflationalists. Here follows the math that shows how we get the equivalent effect of price inflation (and skyrocketing gold price) when there is deflation on a debt money standard.



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Re: Daily Digest - January 7

"Disorder among world currencies has become unacceptable and France intends to make it a major subject of its presidency of the G8 and G20 in 2011, President Nicolas Sarkozy said on Thursday."

"European companies will not gain competitiveness when the dollar is losing 50 percent of its value," Sarkozy said.

"Sarkozy repeated his call for a monetary system that relied less on the dollar."

"If you take personal, corporate, and government savings and combine them into one chart, you wind up with the lowest overall savings rate since the Great Depression, and once the 4th quarter is tallied, 2009 will likely wind up being the worst year ever:"

"TOKYO, Jan 7 - Japan's new finance minister called for a weaker yen on Thursday and said he would work with the Bank of Japan to achieve an appropriate level, prompting a sharp slide in the currency against the dollar."

"Keep in mind that the California government, which is about 1/8th the size of the federal government was paralyzed for two months just trying to close a $20 billion budget-gap. This would equate to the federal government trying to reduce spending by a mere $160 billion. Instead, the federal government is faced with trying to close a gap twenty times that size, every year – for the next thirty years.

It is an utterly impossible task. The U.S. government has already become totally dependent on printing money to avoid defaulting on its current debts. This money-printing must either increase (leading to hyperinflation), or else the federal government would default on its debts (likely in less than two years) should it try to reduce its existing level of money-printing.

These are all dynamics which were totally absent went the U.S. suffered through its first Great Depression. It is the solvency crisis being experienced by the U.S., and to a lesser extent, the U.K., Japan, Iceland, Greece, and a few other European nations which is causing a global Renaissance for investing in precious metals."

  • 5) National debt hits $12.3 trillion?

National debt clock has it over $12.3 trillion and shows the debt per citizen has passed $40,000.

Treasury Direct also shows the national debt at over $12.3 trillion, while the real time national debt clock shows it at $12.28 trillion. 

"CHICAGO - Illinois Comptroller Dan Hynes says the state has $5.1 billion in unpaid bills and that number is growing.

Hynes issued a quarterly report Wednesday saying the state is facing "the most dangerous fiscal conditions in modern history." The deficit is expected to top $11 billion this year.

Hynes says the backlog of bills is even higher if short-term loans that need to be repaid soon are included along with health care bills not yet sent to his office."

"The state faces its worst financial crisis in seven decades, and much of the 60-day session will be spent searching for ways to cut that will hurt Virginians the least."

"SACRAMENTO, Calif. -- California Gov. Arnold Schwarzenegger on Wednesday asked Washington for funds to help close his state's massive budget shortfall -- a move some other states are likely to follow in coming months as they deal with their own fiscal woes.

"The federal government is part of our budget problem," the Republican governor said in his annual State of the State address, reiterating a longstanding complaint that California sends far more money to Washington than it receives in return. Mr. Schwarzenegger also said federally mandated spending of state money has further strained California's coffers.

"We no longer can ignore what is owed to us," he said, adding that Washington owes the state billions of dollars for various programs. He criticized elements of congressional proposals to overhaul the health-care system, saying California could be saddled with billions of dollars of additional annual spending.

Other cash-strapped states may follow Mr. Schwarzenegger in turning to Washington for more help, some budget experts said. "

"U.S. state tax collections fell the most in 46 years in the first three quarters of 2009 as the recession shrank revenue from sources including personal income, the Nelson A. Rockefeller Institute of Government said.

Revenue dropped 13.3 percent, or $80 billion, compared with the same nine months of 2008, to $523 billion, the institute said. Collections in the third quarter alone sank 10.9 percent to about $162 billion, according to the report released today by the Albany-based body. It was the fourth straight quarterly decline. The institute is the public policy research arm of the State University of New York."

"The Senate plans to take a crack at a $154 billion jobs creation package that eked out of the House in December by a vote of 217-212.

Entitled "Jobs for Main Street," the bill aims to spur new construction jobs by spending $27.5 billion on highway projects and $8.4 billion on public transit. Another big piece would be $23 billion for education to prevent teacher layoffs as states continue to struggle.

The legislation would also allow the U.S. Small Business Administration to continue backing loans to small businesses."

"PHOENIX -- Saying the cost of illegal immigration has left Arizona broke, state Treasurer Dean Martin has shipped a $1 billion bill to the federal government. "

"Martin added, "The state's broke. We need cash. This $1 billion would completely replenish the state's operating fund."

Martin said he thinks there's a 10-to-1 shot that the federal government will pay the bill. He said he will take legal action in an effort to get the money. "

"The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms."

"During the past year, the state of Ohio has borrowed $1.7 billion from the federal government to keep its unemployment compensation program afloat. By the end of next year, just 12 months from now, the debt is expected to reach $3 billion. Not only are many Buckeye State men and women unable to pay their bills because they lack jobs, but their state can't pay the bills to provide them with assistance.

Ohio simply cannot continue to pile up debt without making some provision to pay it off. Yet Gov. Ted Strickland and leaders in the General Assembly have not been promoting a plan to do that.

At some point, even the federal government demands payment for loans. Ask anyone who owes Uncle Sam money for a student loan. But state leaders seem to believe they can continue putting the unemployment compensation shortfall on Washington's tab."

"Maryland Governor O'Malley has to submit the state's annual budget later this month and finds himself in a similar predicament this year as was the case last year----when Gov. O'Malley told the Maryland Association of Counties annual winter conference that there would be "lots of cuts all around" to address a $1.9 billion budget deficit. This year the state faces a deficit of about $2 billion."

"Carlson said a bigger concern is that a series of suits that succeeded in nullifying Pawlenty's budget cuts could become merely symbolic victories. Because restoring Pawlenty's cuts, known as unallotments, might swell the projected budget deficit from $1.2 billion to $3.9 billion, creating pressure for even more cuts in the near future.

"And we're right back where we were and we've spent hundreds of thousands of dollars in litigation," Carlson said."

"BARCLAYS Capital sees a renaissance of local corporate debt issuance this year, and an ever-bigger debt binge to follow, as a developing supply and demand imbalance created by government guarantees lights a fire under debt markets.

The British bank's local unit expects about $100 billion to $120bn of guaranteed debt will need to be rolled over around the globe each month from January 2012.

"There's a tremendous amount of redemptions coming through the system in 2012 of this government-guaranteed debt, which will have to be refinanced in a traditional senior unsecured type manner," said Barclays head of debt capital markets for Australia, Tim Lindley."

"We are some time away from presenting a restructuring plan," a spokesman said, adding that the next step in the discussions between the debt-laden company and its creditors would be to agree to a standstill."

"Michigan generates most of its transportation funding through fuel taxes and vehicle registration. The high fuel prices of past years, an increase in fuel-efficient vehicles and other factors have reduced Michigan’s revenue from fuel taxes greatly.

Because of that decrease, Michigan likely will not be able to provide the matching funds necessary to receive federal road funding for the 2011 fiscal year. State road funding to local governments will be cut, as well.

“From Oct. 1, 2010, through Sept. 30, 2011, we are looking at being $84 million short in state revenue, and that will cost us $475 million in federal funding,” said Nick Schirripa, communications representative for the MDOT Southwest region. “So we’re looking at roughly $550 million short for the 2011 year. That number only increases over the next three years.”"

"The number of workers still collecting benefits after an initial week of aid fell 179,000 to 4.80 million in the week ended December 26. This was below market expectations for 4.98 million. So-called continuing claims are below their peak of 6.9 million in June and have declined for three straight weeks.

The drop in so-called continued claims is most likely the result of people exhausting their benefits after the regular 26 weeks provided by states. The number of people on emergency unemployment compensation rose to 5.1 million from 4.91 million."

"MANHATTAN (CN) - Goldman Sachs is using taxpayer money and wasting corporate assets to pay billions more dollars in pay and bonuses than it does to shareholders, according to a derivative complaint in New York County Court."

"The vacancy rate ended the year at 8%, the highest level since Reis Inc., a New York research firm that tracks vacancies and rents in the top 79 U.S. markets, began its tally in 1980.

Rents fell 3% last year, according to Reis, led by declines in San Jose, Calif., Seattle, San Francisco and other cities that had brisk growth until the recession."

"Struggling with state budget cuts, nearly half of East Bay school districts and educational agencies report that they may not be able to pay their bills in the next three years.

Sixteen of 38 districts in Alameda and Contra Costa counties are projecting deficits by 2012 that they will be unable to cover without slashing their budgets. Federal stimulus money lessened the effect of last year's deep state cuts. However, as those one-time funding boosts run out, school leaders are considering more drastic measures to balance the books, such as closing schools, laying off teachers and librarians and increasing class sizes. "

The city's three pension funds — one for civilian workers, a second for police and firefighters, and a third for employees of the Department of Water and Power — have been reeling from investment losses because of the economic recession.

Under the City Charter, when pension funds cannot meet payments to retirees, taxpayers must compensate for the shortfall.

Santana, the city's top budget analyst, projected taxpayers will spend $300 million on pensions this fiscal year and about $550 million in 2013-14.

But Maynard said the proposals would deal a devastating blow to retirees.

"US –California governor Arnold Schwarzenegger equated the state’s rising pension costs to a “locomotive” and pledged to make pension reform a priority in 2010 in his annual State of the State address yesterday.

Addressing the California legislature, he said: "We are about to get run over by a locomotive and we can see the lights coming at us. We can see the lights coming. I ask the legislature to join me in finding the equivalent of a water deal on pensions, so that we can meet current promises and yet reduce the burden going forward."

The state currently spends US$3bn per year funding pension deficits and that amount is expected to increase to $10bn, he said. The current cost of the state employee system has jumped by 2000% over the past decade, Schwarzenegger continued, while revenues are only up 24%."

"Without modifications, the actuarially required state contribution to the plans will increase from $73.5 million this year to $105 million next year and continue on that path. It's time to reform an outdated system, said Spaulding, a member of the commission created by the Legislature."

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Re: Daily Digest - January 7

I was about to comment on the "How Russia Is About to Dramatically Change the World" article but I noticed the previous comment regarding it along with the link have been removed.

I liked some of the analasys in the article up until he breaks out the bible quotes. Seriously? Quoting the bible in journalism?

Has anyone come across any other good articles on this where the author doesn't completely dilute all of his credibility?

Here is something from the Moscow Times

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Re: Daily Digest - January 7

Chinese resources chief eyes Antarctica minerals
January 7, 2010


A DELEGATION of Chinese dignitaries, including a senior resources minister, flew into Casey Station in Antarctica yesterday to meet Australian officials.

The Chinese contingent lunched with visiting Australian Antarctic and diplomatic officials before being taken by helicopter to their research icebreaker Xue Long, the Snow Dragon, moored in the nearby bay.

The presence of the Chinese Minister for Land and Resources, Xu Shaoshi, underlines China's increasing interest in the vast natural resources of Antarctica.

Mr Xu declined to be interviewed. One of his party said the visit was to familiarise officials with China's expanding Antarctic operations, which include investigating the potential of untapped minerals and resources.

Asked about China's science and research priorities in its expanding Antarctic program, Qu Tanzhou, director of the Chinese Arctic and Antarctic Administration, said: ''At this stage, we are paying attention to climate and environmental change ... [looking at] oceanography, geography, [evidence of] meteorites.

''Also we are here about the potential of the resources and how to use these resources.''

Asked if China had plans to mine in Antarctica, he said ''at this stage we just focus on the potential of the natural resources''.

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Re: Daily Digest - January 7

"People die everyday to protect oil wells and real estate and we call them heroes and pin medals on them. I think protecting the diversity of oceans... is a far more noble cause."

Ady Gil sinks after whaling skirmish


The Sea Shepherd speedboat Ady Gil has sunk after it was sliced in two by a Japanese whaling vessel during a clash in the Southern Ocean on Wednesday.

Sea Shepherd founder Paul Watson told ABC News Breakfast the Ady Gil went down shortly before 8:30am AEDT today while it was being towed to an island.

"I think they were towing for about six or seven hours," he said.

"Even the act of towing was taking more water on. The Japanese vessel had cut the vessel completely in half and made it unseaworthy."

Six Sea Shepherd crew members were almost thrown overboard and one crew member suffered broken ribs when the Japanese whaling security ship, the Shonan Maru 2, ploughed through the bow of the Ady Gil on Wednesday.

Both the Japanese whalers and the Sea Shepherd crew blame each other for the incident, which happened in Antarctic waters. The waters lie within Australia's search and rescue territory but outside its economic zone.

But Mr Watson has defended his crew and says the risk of dying on the high seas is worth it if it allows the group to save whales.

"My crew are well aware of the risks that we have to take to protect whales down here. I think those risks are worth taking," he said.

"I can tell you now that if the oceans die, civilisations collapse and we all die.

"People die everyday to protect oil wells and real estate and we call them heroes and pin medals on them. I think protecting the diversity of oceans... is a far more noble cause."

Yesterday Acting Prime Minister Julia Gillard asked the Australian Maritime Safety Authority (AMSA) to investigate the incident and said the findings would be made public.

She says the Government reserves the right to take international legal action if diplomacy with Japanese officials fails, and has warned that evidence has already been collected to launch such action.

New Zealand is also investigating the incident because the Ady Gil was registered there.

'An act of war'

Mr Watson says an insurance payout on the Ady Gil is unlikely because the incident was a deliberate act.

"It's a $1.5 million loss for our organisation," he said.

"I think the Japanese deliberately took that vessel out; they saw it as a threat and they were under orders to take it out.

"It would be an act of war so there wouldn't be any insurance on it."

Mr Watson is urging the Federal Government to take a tougher action against Japanese whalers.

"In the six years that we've been doing this, we've never caused an injury to anyone, we've never broken a law... and now they have sunk one of our vessels," he said.

"[Federal Environment Minister] Peter Garrett has become the master of restraint. He made a campaign promise to end whaling; now let's see him [do something]."

Mr Watson says the Government should send a boat to Antarctic waters, where the Sea Shepherd's other boats - the Steve Irwin and Bob Barker - are continuing to pursue Japanese whalers.

Mr Watson says the boats are chasing the Japanese fleet and the whalers have not killed a whale in two days.

Diplomatic approach

Meanwhile, New Zealand officials have met with representatives from the Japanese embassy in Wellington to discuss the situation.

The ABC understands that at the Wellington meeting, Japan said it regarded the incident as "regrettable" but a "low-key event".

This morning a spokesman for the New Zealand Foreign Minister, Murray McCully, said contrary to media reports, Japan had not lodged a stern complaint with the New Zealand Government.

He said Japanese officials agreed with New Zealand that their citizens needed to have better regard for people on the high seas.

The spokesman said legal action over the collision had not been discussed, because it still had not been established who was at fault.

Maritime New Zealand has launched an investigation.

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Re: Daily Digest - January 7

WTO chief says world recovery not guaranteed in 2010


The WTO director general says a flood of public money has created global bubbles 'which have to be absorbed'. (Reuters)

The world economy may not emerge out of crisis in 2010 due to "bubbles" created by the huge injections of money used to keep the financial system operating, World Trade Organisation (WTO) chief Pascal Lamy said Friday.

"You have to be realistic, it is not guaranteed," the WTO director general said on French radio when asked whether the world economy would recover in 2010.

"There is no doubt we have reached the bottom of the pool, but the speed at which we are coming up again is not clear.

"In flooding the economic and financial system with public money we have also created bubbles which will have to be absorbed."

Governments around the world have spent trillions of dollars over the past 18 months avoiding the collapse of the financial system and then trying to claw away from recession.

The WTO chief highlighted the dynamism of the emerging economic powers - China, Brazil, India and South Africa - in avoiding the worst of the crisis.

"These are the more dynamic, better run, less indebted countries," Mr Lamy said.

"These are the countries which are from a certain point of view better run than the western economies."

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