Daily Digest

Daily Digest - July 10

Saturday, July 10, 2010, 9:48 AM
  • The Top 1% Stick It To The Banks
  • Presenting The Wall Of Worry: The 50 Ugliest Facts About The US eCONomy
  • Why Does the Economic News Seem To Be So Different From Your Reality?
  • Sovereign Debt Defaults Per Year
  • BP to Remove Well Cap to Install System That May Capture All Leaking Oil
  • Toxicologists: Corexit “Ruptures RBCs, Causes Internal Bleeding”, “Allows Crude Oil To Penetrate “Into The Cells” and “Every Organ System”
  • Solar-Powered Plane Flies for 26 Hours
  • 195 Californias or 74 Texases to Replace Offshore Oil

Economy

The Top 1% Stick It To The Banks (Ilene)

One in seven homeowners with loan over $1M are in default. That compares to 1 in 12 loans below the $1M mark. This is putting a huge amount of stress on the financial system as 23% of all luxury homes bought as investments are now 90 days or more overdue compared to just 9% of the smaller homes. Don’t think of this as a 1:1 relationship either as the cut-off of $1M means that a single $10M unpaid mortgage above the line is worth 100 $100,000 loans (the national average) that are unpaid below the line so the distortion from a cash basis is close to a level of 100:1, which just so happens to be the difference in the income level between the top 1% and the bottom 99% as well!

Presenting The Wall Of Worry: The 50 Ugliest Facts About The US eCONomy (Davos)

#50) In 2010 the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined.

#49) It is being projected that the U.S. government will have a budget deficit of approximately 1.6 trillion dollars in 2010.

#48) If you went out and spent one dollar every single second, it would take you more than 31,000 years to spend a trillion dollars.

#47) In fact, if you spent one million dollars every single day since the birth of Christ, you still would not have spent one trillion dollars by now.

Why Does the Economic News Seem To Be So Different From Your Reality? (Davos)

We got on the air, I gave my recession pitch, and he proclaimed a booming economy for the year ahead. He was a good economist and knew what was happening, but he had to put out the story mandated by his employer, or he would not have had a job.

More recently, following an interview on a major cable news network (not CNBC), I was advised off-air by the producer that they were operating under a corporate mandate to give the economic news a positive spin, irrespective of how bad it was."

Sovereign Debt Defaults Per Year (Davos)

The underlying causes of default (such as rises in interest rates, wars, commodity price collapses, and simply borrowing too much money) have been diagnosed for many episodes. Proximate to the default, any of the following six financial changes might occur:



1. Government revenues fall far below history or forecast;

2. Expenses aside from debt service rise far above history or forecast;

3. Interest rates rise substantially; due to inflation, credit spreads, illiquidity, or other causes

4. Demand for bonds suddenly drops or disappears (a sudden stop);

5. Exchange rates move, making payments on foreign denominated bonds much more expensive (currency risk), and,

6. A government simply decides not to pay, even though it has the capacity to pay (repudiation).

Energy

Solar-Powered Plane Flies for 26 Hours (jdargis)

The organizers said the flight was the longest and highest by a piloted solar-powered craft, reaching an altitude of just over 28,000 feet above sea level at an average speed of 23 knots, or about 26 miles per hour.

195 Californias or 74 Texases to Replace Offshore Oil (SteveS)

As the Deepwater Horizon rig disaster continues to unfold, the peak oil community has a “teachable moment” in which it can illuminate the reality of our energy plight. The public has had a crash course in the challenges of offshore oil, and learned a whole new vocabulary. They are more aware than ever that the days of cheap and easy oil are gone. What they do not yet grasp are the challenges in transitioning from fossil fuels to renewables.

Environment

BP to Remove Well Cap to Install System That May Capture All Leaking Oil (jdargis)

London-based BP expects to collect all the oil spewing from the gusher four to seven days from today, after underwater robots install the new, purpose-built sealed cap, spokesman Mark Proegler said by phone today. In the meantime, the company will try to capture the unrestricted oil flow with surface vessels.

“We’re getting ready for it when the oil rate increases,” Proegler said. “We have 22 large skimmers up there.”

Toxicologists: Corexit “Ruptures RBCs, Causes Internal Bleeding”, “Allows Crude Oil To Penetrate “Into The Cells” and “Every Organ System” (jdargis)

As I have previously noted, Corexit is toxic, is less effective than other dispersants, and is actually the damage caused by the oil spill. Now, two toxicologists are saying that Corexit is much more harmful to human health and marine life than we’ve been told.

Specifically Gulf toxicologist Dr. Susan Shaw – Founder and Director of the Marine Environmental Research Institute – dove into the oil spill to examine the chemicals present.

Please send article submissions to: [email protected]

17 Comments

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Re: Daily Digest - July 10

 

"JIM LEHRER: The nation's governors are gathering in Boston today for their annual conference. And their major agenda item is the bleak budget forecasts they face.

Margaret Warner has our story.

MARGARET WARNER: Nearly every state in the union began a new fiscal year this month, and the picture isn't pretty.

With unemployment still hovering just below 10 percent, most states are being hit with a higher demand for services and lower-than-expected tax revenues. That's led to predictions of a combined states' budget shortfall of as much as $140 billion this fiscal year, and state spending cuts that could cost up to 900,000 public and private sector jobs.

To make matters worse, Congress has stalled action on bills worth about $40 billion to help states pay for Medicaid programs and to retain teachers. And the state aid from last year's $787 billion stimulus package is due to run out at the end of this fiscal year.

All that adds up to a very busy agenda at the National Governors meeting this weekend."

"CARSON CITY -- Nevada employers could be hit with automatic increases next year in the taxes they pay to provide unemployment benefits for their laid-off workers.

Cindy Jones, administrator of the Employment Security Division, said the state now owes more than $450 million to the U.S. Department of Labor and employers could be required by a federal law to pay additional taxes to start paying off the loan.

"If a state has loans outstanding for two consecutive years, federal unemployment taxes are increased to employers toward paying back the loans," Jones said Thursday. "It is very likely that Nevada employers will experience an increase in federal unemployment taxes as it appears to be highly unlikely that the loans will be paid back in time to avoid this tax increase."

Michigan is the only state so far to be hit by the additional taxes. The Department of Labor ordered employers there starting last Jan. 1 to pay an additional 0.3 percent tax on their payrolls to begin paying off that state's loan. Michigan's tax rate will be doubled in January 2011 if the loan is not paid off."

"Enter June, and the state Department of Revenue reporting Friday that net tax receipts came in 10 percent below projections, bringing them to $76 million -- or 2.3 percent -- down for the 2009-10 fiscal year.

Heineman said he's concerned about general fund receipts heading into the second year of the two-year, $7 billion budget.

"I am currently evaluating options to continue slowing spending in this fiscal year," he said.

One member of the Legislature's Appropriations Committee, that decides state spending, says the governor should look at calling a special session."

"California’s cash balance is “stable today, but could be short-lived,” after dipping $54.6 million — or 0.5 percent — in June, compared to the governor’s May revision.

Larger-than-anticipated declines in corporate taxes and sales-tax revenue offset the $333 million, or 6.1 percent, increase in person income tax revenue, State Controller John Chiang said in a news release Friday. Corporate taxes declined $156 million, while sales-tax revenue fell $153 million, or down 7.5 percent and 5.7 percent, respectively.

“The governor and Legislature’s lack of urgency in adopting an honest budget could pave the way to a completely avoidable cash crisis later this year,” Chiang said."

"Minnesota's overall tax collections were below projections in the just-completed fiscal year. But state officials say there's no reason to worry -- yet.

Minnesota Management and Budget said Friday preliminary numbers show the state took in more than $14.1 billion in the fiscal year that ended June 30. That's $99 million, or 0.7 percent, less than forecast in February.

The biggest reason for the shortfall was individual income taxes, which were $188 million, or 2.8 percent, below projections. That's mainly because of final settlements of tax year 2009 liabilities."

"FRANKFORT, Ky. -- In a move to help balance the budget, roughly 36,000 state employees will be furloughed for six days this fiscal year, saving taxpayers $24 million, the governor's office announced Friday.

It marks the first time in modern Kentucky history that a statewide furlough plan has been required."

"NEW YORK (Dow Jones)--Illinois is expected to sell $900 million in Build America Bonds next week, not long after its comptroller said the state finished its fiscal year in the worst cash position in its nearly 200-year history.

The state is scheduled to sell the debt on July 14, having moved the date back a few weeks to let potential investors absorb the state's approved general-fund budget for fiscal 2011. Build America Bonds pay more than traditional municipal bonds, but unlike munis the returns on BABs are taxable.

The $24.9 billion state budget, which Gov. Pat Quinn signed on July 1, includes about $1.4 billion in cuts. It relies in part on borrowing to help cover what Comptroller Daniel Hynes estimates to be as much as $6 billion in unpaid bills from the just-finished fiscal year. Illinois will also shuffle funds among departments to whittle down outstanding bills.

"We're going to have to put a tremendous focus on paying last year's obligations over the next six months with some exceptions," Hynes said in an interview. One exception is debt service, which are 2011 obligations and "our top (spending) priority," he said.

Hynes said Illinois's new budget doesn't solve the state's financial problems. "It really just defers the problems and tries to allow the state to survive," he said. "

"NEW ORLEANS (AP) - The exasperation with BP felt by residents of the Gulf states is spreading to shareholders - and some are taking the oil giant to court.

Since the Deepwater Horizon drilling rig disaster on April 20, BP shares have lost about $85 billion in value. The toll for institutional investors who hold 79 percent of the company - including public and private pension plans - is around $67 billion. BP's suspension of its quarterly dividend has only exacerbated the damage.

At least five individual investor suits have been filed, BP employees are suing over the slide in value of company stock in their 401(k) plans and the New York state comptroller intends to sue over losses to his state's public employee pension fund."

"Calpers, with $205 billion in assets, said it hasn't altered its basic five-year "buy-and-hold" strategy - although the value of its BP holdings fell from about $585.7 million on April 20 to $289.2 million on June 30. It's still just a paper loss - and Calpers retains its shareholder voting power."

...........................8A) CalPERS loses big on BP stock

"CalSTRS' investment committee on Friday approved a 10-year investment plan with a goal of returning 60 basis points each year above the system's custom benchmark.

Investment committee members questioned whether the goal was realistic given the turbulent economic climate. Christopher Ailman, chief investment officer of the $132.1 billion California State Teachers' Retirement System, West Sacramento, called on consultant Allan Emkin to explain to the board the rationale for the 60 basis points.

“It's an aspiration, not an expectation,” Mr. Emkin, managing director of Pension Consulting Alliance, told the board.

The investment plan calls for CalSTRS to initiate a number of new approaches to increase investment returns. For example, in global equities, staff will evaluate a variety of structured products such as asset trusts, structured notes, warrants, portable alpha and swaps that generate an index return plus a guaranteed amount of alpha above the custom benchmark."

"Mr. Ailman said the system's unfunded liability would be increasing to $44 billion by July 2011, from $22 billion now. He told the committee that while preliminary estimates show that CalSTRS earned 12% in the fiscal year ended June 30, the system's three-year rolling average will still be in the negative.

The three-year rolling average for the year ended June 30, will show a -5% return, compared with a -4% return for the year ended June 30, 2009. Mr. Ailman said the rolling average is still being affected severely by CalSTRS' 25% loss in the year ended June 30, 2009."

"WASHINGTON (Reuters) - Most U.S. counties are having to cut back on spending on safety and infrastructure in the face of monstrous revenue shortfalls, the National Association of Counties said on Friday.

Counties are freezing pay, delaying infrastructure repairs and resorting to layoffs and furloughs due to the cash crunch, the association found in a survey of 800 counties.

"Counties large and small are experiencing their worst budget and revenue crisis since the early 1990s," said National Association of Counties Executive Director Larry Naake in a statement.

An economic recession that began in 2007 continues to whittle away at county revenues, with more than half of those surveyed saying a drop in sales tax receipts contributed to their current budget shortfalls.

Analysts, economists and politicians are keeping an eye on the financial conditions of state and local governments for fear their budget crises could swell unemployment and help push the U.S. economy into a "double dip" recession."

"Madison — The state's yawning budget hole has swelled to $2.5 billion, underscoring the massive challenge that awaits the next governor and Legislature, a new report shows.

The projections by the Legislature's non-partisan budget office show the expected shortfall for the 2011-2013 budget has grown by $462 million from the just over $2 billion that was expected a year ago.

It is one of the biggest expected shortfalls over the past decade, nearly as large as the $2.9 billion shortfall that Gov. Jim Doyle faced in his first budget in 2003.

The Legislative Fiscal Bureau said the potential deficit increased because taxes and fees now aren't expected to grow as quickly and because lawmakers approved some additional spending at the end of the legislative session in the spring."

"The city of St. Louis still is struggling to close a $46 million budget gap. Pension costs have risen sharply to offset pension fund shortfalls caused by stock market declines. Sales and earnings tax revenues, the bread-and-butter of the city income, have declined as the national and local economies remain sluggish.

Taxpayers and city officials can’t control police and firefighter pension costs directly. Both retirement systems are creatures of state law. But pension costs have risen more than 40 percent in recent years.

So city budget officials are trying to balance the steep increases indirectly through a fair and sensible form of “zero-balance” budgeting."

  • Other news and headlines:

Debt-ridden Greece gets tough on its tax dodgers

Maryland, New York, Oklahoma Banks Shuttered as Failures Hit 90 (closures cost the FDIC deposit-insurance fund $159.9 million)

State Budget Overdue By 100 Days; Paterson Attends Governors' Conference (NY $9.2 billion deficit...news video)

Good-bye, PT Cruiser

Oakland, cops seem irreconcilable; layoffs loom

Shifts at state hospitals to cut 500-plus jobs (Indiana)

Tuition hike is 'sign of times' (Pennsylvania....5.9%)

Gregoire Says Washingtonians `More Open' to Income Tax: Video (Up to 6,400 layoffs?)

Moody's drops Burlington's credit rating

A bleak view of Albany County's finances

President Barack Obama Travels to Las Vegas to Push Success of His Stimulus Bill

Mayor says New Orleans' future 'in peril' 

Pennsylvania pension bill's aid slight next year

States, local governments press to extend BABs

Pennsylvania's Allentown spurns state rescue program

BP Dumping Oil Waste in Mississippi Landfill Despite Objections of County Leaders (Video)

Hawaii Employees Retirement System $6.2 Billion in the Hole – Will Taxpayers Have to Make Up the Difference?

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Re: Daily Digest - July 10

What will be straw which breaks the camel's back?

1. Collapse of the EU?

2. Demise of BP?

3 Chinese economy going off the boil?

I don't see anything in the US which will cause another wave down. The FED will keep printing money which will see the US avoid a collapse but they will continue along the slow path down to economic failure.

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Re: Daily Digest - July 10

A very good interview withe Bill Fleckenstein....

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/8_Bill_Fleckenstein.html

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Re: Daily Digest - July 10
idoctor wrote:

A very good interview withe Bill Fleckenstein....

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/8_Bill_Fleckenstein.html

Listening to it and Santilli's and a few others and FSN as I paint some sashes I forgot about.

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Re: Daily Digest - July 10

Davos don't miss these....lots of GOLD talk here.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/10_Ben_Davies.html

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/10_James_Turk.html

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/9_Jeffrey_Saut.html

I hope Gold keeps moving down in the short term so I can add some....no doubt IMHO where it will be in a few years or even much sooner. At this moment the Casino AKA Market has been working better than Gold but that money will be headed into real assets soon enough. Timing is EVERYTHING!

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Re: Daily Digest - July 10
idoctor wrote:

Davos don't miss these....lots of GOLD talk here.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/10_Ben_Davies.html

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/10_James_Turk.html

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/9_Jeffrey_Saut.html

I hope Gold keeps moving down in the short term so I can add some....no doubt IMHO where it will be in a few years or even much sooner. At this moment the Casino AKA Market has been working better than Gold but that money will be headed into real assets soon enough. Timing is EVERYTHING!

Got'em on the iPod now, thanks!

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Re: Daily Digest - July 10

This week's Don Coxe Conference Call is absolutely extraordinary in that, Coxe, a finance industry figure par excellence states quite bluntly that regarding OECD countries: 1) debts can't be honoured in full; b) pension obligations can't be honoured in full; and 3) exaggerating slightly for effect, capitalism as we have known is pretty much over.

http://www.bellwebcasting.ca/audience/lobby/index.asp?eventid=70081727&l...

Do please have a listen.  Having followed his analysis for a few years, I think Coxe is wrong on some issues (eg. climate change) and right about others (eg. commodities) so I hardly accept his views uncritically but I was stunned by what he had to say in this particular conference call.  His conclusions were not at all a million miles away from CM's. And coming from a very different perspective that is very interesting. There will be implications if finance types are beginning to twig to our predicaments.

Would be curious to know others' impressions.

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Two Vanguard Videos: Outsourcing Unemployment and Maxed Out

Here's another of those interesting Vanguard videos on Hulu:

This one is called Outsourcing Unemployment. It's a short documentary on how many factories in China are closed, and 20+ million Chinese migrants have returned to their rural homes due to unemployment.

http://www.hulu.com/watch/91553/vanguard-outsourcing-unemployment

Some still think China is the exception to the global economic downturn.

---------------------------------

And this one is called Maxed Out, about a few college students and those just out of college struggling with money and crushing debt. I think this one is really worth watching. I think a few of the kids are slow-motion train wrecks.

http://www.hulu.com/watch/91553/vanguard-outsourcing-unemployment

Poet

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Re: Daily Digest - July 10

THE PERFECT CON

Posted on 8th July 2010 by JimQ in Economy

Charles Hugh Smith

 

Charles Hugh Smith has a knack for cutting through all the crap directly to the truth. Bottom line – we are being raped by Wall Street. They have Washington politicians in their back pockets. They dictate what Bernanke does. It will take an armed revolution to destroy these criminals.


The Con of the Decade Part I

The con of the decade (Part I) involves the transfer of private debt to the public (the marks), who then pays interest forever to the con artists. I’ve laid out the Con of the Decade (Part I) in outline form:

1. Enable trillions of dollars in mortgages guaranteed to default by packaging unlimited quantities of them into mortgage-backed securities (MBS), creating umlimited demand for fraudulently originated loans.

2. Sell these MBS as “safe” to credulous investors, institutions, town councils in Norway, etc., i.e. “the bezzle” on a global scale.

3. Make huge “side bets” against these doomed mortgages so when they default then the short-side bets generate billions in profits.

4. Leverage each $1 of actual capital into $100 of high-risk bets.

5. Hide the utterly fraudulent bets offshore and/or off-balance sheet (not that the regulators you had muzzled would have noticed anyway).

6. When the longside bets go bad, transfer hundreds of billions of dollars in Federal guarantees, bailouts and backstops into the private hands which made the risky bets, either via direct payments or via proxies like AIG. Enable these private Power Elites to borrow hundreds of billions more from the Treasury/Fed at zero interest.

7. Deposit these funds at the Federal Reserve, where they earn 3-4%. Reap billions in guaranteed income by borrowing Federal money for free and getting paid interest by the Fed.

8. As profits pile up, start buying boatloads of short-term U.S. Treasuries. Now the taxpayers who absorbed the trillions in private losses and who transferred trillions in subsidies, backstops, guarantees, bailouts and loans to private banks and corporations, are now paying interest on the Treasuries their own money purchased for the banks/corporations.

9. Slowly acquire trillions of dollars in Treasuries–not difficult to do as the Federal government is borrowing $1.5 trillion a year.

10. Stop buying Treasuries and dump a boatload onto the market, forcing interest rates to rise as supply of new T-Bills exceeds demand (at least temporarily). Repeat as necessary to double and then triple interest rates paid on Treasuries.

11. Buy hundreds of billions in long-term Treasuries at high rates of interest. As interest rates rise, interest payments dwarf all other Federal spending, forcing extreme cuts in all other government spending.

12. Enjoy the hundreds of billions of dollars in interest payments being paid by taxpayers on Treasuries that were purchased with their money but which are safely in private hands.

Since the Federal government could potentially inflate away these trillions in Treasuries, buy enough elected officials to force austerity so inflation remains tame. In essence, these private banks and corporations now own the revenue stream of the Federal government and its taxpayers. Neat con, and the marks will never understand how “saving our financial system” led to their servitude to the very interests they bailed out.

The circle is now complete: in “saving our financial system,” the public borrowed trillions and transferred the money to private Power Elites, who then buy the public debt with the money swindled out of the taxpayer. Then the taxpayers transfer more wealth every year to the Power Elites/Plutocracy in the form of interest on the Treasury debt. The Power Elites will own the debt that was taken on to bail them out of bad private bets: this is the culmination of privatized gains, socialized risk.

In effect, it’s a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

 

July 8, 2010

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Re: Daily Digest - July 10

Poet & debu thanks for the great links. The Hulu one on China is shocking IMHO. Man has once again leaped before he looked.

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Re: Daily Digest - July 10

Are those Hulu videos old?? I can't access Hulu from here and had to find them on YouTube instead and they seem to have been posted up a while ago - especially the Maxed out one - it was dated two years ago.

Can anyone confirm these dates?

Thanks.

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Re: Daily Digest - July 10

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Re: Daily Digest - July 10

I have been having trouble understanding all the mess with BP.....after this video it all makes perfect sense now LOL.

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Re: Daily Digest - July 10
idoctor wrote:

I have been having trouble understanding all the mess with BP.....after this video it all makes perfect sense now LOL.

Funny and pathetically spot on.

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Re: Daily Digest - July 10

The Hiloti virus may be lurking on this thread or one of the links.

 

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Re: Daily Digest - July 10
lightningben wrote:

Are those Hulu videos old?? I can't access Hulu from here and had to find them on YouTube instead and they seem to have been posted up a while ago - especially the Maxed out one - it was dated two years ago.

Can anyone confirm these dates?

Thanks.

Yes, they're made a year or two ago. But still very relevant and I thought it'd be good to see some smartly produced short (30 min) documentaries on issues that certainly haven't gone away.

Poet

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Re: Daily Digest - July 10
idoctor wrote:

Poet & debu thanks for the great links. The Hulu one on China is shocking IMHO. Man has once again leaped before he looked.

Thanks. Just thought it would be of interest! The one on China definitely makes me wonder more about what will happen to China. Their hundreds of millions of migrant laborers in this economic downturn, their aging population, their youth exposed to a taste of freedom and consumerism under the thumb of a draconian government, their millions of unemployed or barely surviving college graduates, the urban real estate bubbles, the debts that municipal governments are under, etc...

That and the fact that now global businesses are thinking of moving on to Vietnam, Cambodia, etc. for even cheaper wages while some American companies have brought production back to the U.S. (or at least to Mexico).

Poet

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