Daily Digest

Daily Digest - July 29

Thursday, July 29, 2010, 10:53 AM
  • U.S. Debt Not Sustainable
  • Now Let Us Stress-Test The Central Banks
  • Daily Growth Index Surpasses 3% Contraction Rate
  • Jim Rickards Compares The Collapse Of The Roman Empire To The US, Concludes That We Are Far Worse Off
  • Job Subsidies Also Provide Help to Private Sector
  • Gold Weekly
  • California's Building Bust Choking Off Jobs
  • Europe's €30 Trillion Headache
  • Lloyd's 360° Risk Insight Sustainable Energy Security Newsletter
  • Unable To Store, FCI Wants Food Grain Exported

Economy

U.S. Debt Not Sustainable (woodman)

Niall Ferguson: There is a fundamental imbalance between what we expect the federal government to spend on Medicare and Social Security and national security and what we're prepared to pay in taxation. And that is really the core of the issue. The Greeks found that out this year. My fear is that Americans may find this out next year or the year after.

Now Let Us Stress-Test The Central Banks (SolidSwede)

The European Central Bank, Federal Reserve and Bank of England have the advantage of denominating the bulk of their assets and liabilities in the same currencies. With combined balance sheets of 20 per cent of their collective GDP, however, their credit and interest rate exposures are no less worrisome than the foreign currency translation risks faced by their Swiss and Asian counterparts.

Daily Growth Index Surpasses 3% Contraction Rate (cmartenson)

"Bringing the measurements of critical economic activities into the twenty-first century by mining tracking data for an understanding of what American consumers were doing yesterday."

Jim Rickards Compares The Collapse Of The Roman Empire To The US, Concludes That We Are Far Worse Off (Davos, pinecarr)

In the latest two-part interview with Jim Rickards by Eric King, the former LTCM General Counsel goes on a lengthy compare and contrast between the Roman Empire (and especially the critical part where it collapses) and the U.S. in it current form.



And while we say contrast, there are few actual contrasts to observe: alas, the similarities are just far too many, starting with the debasement of the currencies, whereby Rome's silver dinarius started out pure and eventually barely had a 5% content, and the ever increasing taxation of the population, and especially the most productive segment - the farmers, by the emperors, to the point where the downfall of empire was actually greeted by the bulk of the people as the barbarians were welcomed at the gate with open arms.

Job Subsidies Also Provide Help to Private Sector (jdargis)

The opportunity to simultaneously benefit struggling workers and small businesses has helped these job subsidies gain support from liberals and conservatives. Congress is now considering whether to extend the subsidy, which would expire in September, for an additional year. A House vote is expected on Thursday or Friday.

Gold Weekly (Davos)

Chart on page.

California's Building Bust Choking Off Jobs (TR, WSJ subscription required)

Amid the tepid economic recovery, California's construction industry continues to hemorrhage jobs, helping to explain why unemployment across the state remains so much worse than elsewhere in the country.

Of the nation's 12 metropolitan areas with jobless rates of 15% or higher in June, 10 were in California, the Labor Department reported Wednesday.

Europe's €30 Trillion Headache

European banks have amassed €30 trillion in liabilities and face a serious funding threat over the next two years as authorities withdraw emergency support, according to a new report by Standard & Poor's.

Energy

Lloyd's 360° Risk Insight Sustainable Energy Security Newsletter (Doug A.)

"Peak Oil presents the world with a risk management problem of tremendous complexity."

Environment

Unable To Store, FCI Wants Food Grain Exported (Deepak)

According to an FCI note accessed by CNN-IBN, it suggests the government to export wheat to Bangladesh and Nepal at cheaper prices. It also wants more wheat and rice to be distributed through Public Distribution System in the country's 150 poorest districts.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

11 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - July 29

"July 28 (Bloomberg) -- Illinois, which is in its worst financial position ever, will raise the income-tax rate in January to address its deficit, Governor Pat Quinn’s budget director said.

Lawmakers probably will increase the individual and corporate income-tax rates by 2 percentage points, generating $6 billion of new revenue, the budget director, David Vaught, said in an interview. The Legislature failed to address the deficit this year because of the November election, he said.

“We’re going to pass a tax increase in January,” Vaught said. “We expect it is going to be substantial.”"

"The state ended fiscal 2010 on June 30 “in the worst fiscal position in its history,” Comptroller Daniel Hynes said in a report. The state’s backlog of unpaid bills rose to $4.7 billion from $2.8 billion a year earlier, Hynes said. The state’s general fund balance fell to negative $4.7 billion, the lowest level in the state’s history. "

......................1A) Illinois's Political Inaction Boosts Borrowing Costs, Budget Director Says

"In his annual review of the city budget, DiNapoli said today shortfalls may be as large as $5.1 billion next year, rising to $6.8 billion in 2014. The $63.8 billion budget Mayor Michael Bloomberg and the City Council approved for fiscal 2011, which began July 1, forecast potential gaps of $3.3 billion in 2012 and $4.8 billion in 2014.

While revenue will probably increase by $250 million, New York’s spending plan may have a $726 million deficit this year because of the unexpected $626 million cost of a new teachers’ contract and the loss of $279 million in Medicaid subsidies the U.S. Congress may not approve, DiNapoli said. "

"The cash cushion is somewhat scary for a city with an annual budget of $6.1 billion. It’s tantamount to the average homeowner letting his or her checking account dwindle down to pennies.

Ten years ago, the city had an $80.6 million cash cushion. Experts recommend at least $200 million in reserve for a budget the size of Chicago’s, according to Civic Federation President Laurence Msall.

“The city is in a very precarious financial position. … It’s going to call for a major restructuring of city services. Everything will have to be on the table,” Msall said.

Daley agreed when asked Wednesday about the preliminary budget he will release on Friday.

“It’s a very, very difficult economy. Walk down anybody’s block and talk to people. Yesterday, four people came up to me and said, ‘Mayor, where am I gonna get a job?’… People can only survive so long. They’re out of work, or they’re getting cut back,” the mayor said.

The new borrowing brings Chicago’s total long-term debt to $16.9 billion. That’s $5,864 for every one of the city’s 2.9 million residents."

"July 28 (Reuters) - California Governor Arnold Schwarzenegger declared a state of emergency over the state's finances on Wednesday, raising pressure on lawmakers to negotiate a state budget that is more than a month overdue and will need to close a $19 billion shortfall.

The deficit is 22 percent of the $85 billion general fund budget the governor signed last July for the fiscal year that ended in June, highlighting how the steep drop in California's revenue due to recession, the housing slump, financial market turmoil and high unemployment have slashed its all-important personal income tax collection.

In the declaration, Schwarzenegger ordered three days off without pay per month beginning in August for tens of thousands of state employees to preserve the state's cash to pay its debt, and for essential services.

California's budget is five weeks overdue, joining New York among big states with spending plans yet to be approved, and Schwarzenegger and top lawmakers are at an impasse over how to balance the state's books."

"ATHENS (MNI) - In a very rare move, the Greek government Wednesday invoked a national emergency provision to force striking fuel-tanker drivers go back to work.

The government announced it would issue the civil mobilization order, normally used in times of war or national disaster, and send letters to each of the truck drivers ordering them to report to duty. If they fail to comply, they could face criminal charges and up to five years of jail time."

"California, which has the third highest unemployment rate in the country, paid out a record $12.3 billion in jobless benefits in the first six months of this year, reports the state Employment Development Department.

That compares to $8.9 billion in the first half of last year during the heart of the recession. At this pace, the state's payments this year will outpace the $20.2 billion in payouts for all of 2009. The previous record for one year was $8.1 billion in 2008, says EDD spokeswoman Loree Levy.

The biggest reason for the 38% jump in payments this year is the federal government's approval of extended unemployment benefits. In February of 2009, Congress approved four tiers of extended benefits plus so-called Fed-Ed aid for high unemployment states giving California's unemployed up to 99 weeks of payments. Laid-off workers normally are only eligible for 26 weeks of state benefits."

"SYDNEY (Dow Jones)--The U.S. government needs to articulate clearly a credible plan to tackle its bulging debt profile in order to keep its triple-A credit rating, Moody's Investors Service's lead sovereign analyst for the country said Thursday.

In contrast to the U.S., the credit health of Asian countries remains broadly positive and their resilience has been highlighted by Europe's debt crisis, which looks to have peaked, Steve Hess, senior credit officer in the sovereign risk group at Moody's told Dow Jones Newswires in an interview.

Hess is the rating's agency's top sovereign analyst for the U.S., East Asia and Australasia.

The comments indicate Moody's views on the U.S. have changed little since the ratings agency warned in March on the need for action, and hints a sense of urgency is required from the U.S. government to deal with its rising borrowing needs and interest costs.

Hess said if U.S. government budget projections for debt as a percentage of national output and interest payments as a percentage of revenue are realized in coming years, the Aaa rating of the world's largest economy will come under scrutiny.

"If the projections materialize, then at some point we would have to at least think about whether this is Aaa," Hess said, adding such a move would not necessarily lead to an automatic downgrade--and ultimately Moody's expects the U.S. to take the required steps. The U.S rating remains on a stable outlook.

He said the U.S. appears to have "no plan" to deal with its fiscal situation and much will depend on the domestic political reaction to recommendations due by December from President Barack Obama's commission on fiscal responsibility.

Measures which could be proposed include cuts to social security and medicare and the possible introduction of new taxes, Hess said. "

.........................7A) Moody's says U.S. needs to articulate debt plan

"State budget deficits will rise to a record $140 billion in fiscal 2011, which for most states began July 1, according to a June report from the Center on Budget and Policy Priorities, a Washington-based research group."

"The number of people continuing to claim unemployment benefits rose by 81,000 to 4.57 million. That doesn't include an additional 3.67 million of the unemployed that are receiving extended benefits paid for by the federal government."

"North Carolina will face one of the largest state deficits in the country next year, according to a new report.

The National Conference of State Legislatures surveyed 35 states to get a picture of their fiscal health heading into the 2011-12 budget year. Thirty of the states are projecting deficits that total $72 billion.

North Carolina's deficit is already expected to be $3.2 billion next year, or more than 16 percent of its $19 billion operating budget. Lawmakers struggled to cut about $1.3 billion from the budget they passed last month."

"The pension is underfunded and could eventually become insolvent unless it trims benefits, gets more money or both. Pension costs, which are guaranteed by the city, are a big part of Fort Worth's $73 million budget shortfall.

"We know at some point in time there's going to be a train wreck," Mayor Mike Moncrief said during Wednesday's joint meeting.

But the idea of changing the system didn't sit well with the employees who serve on the pension board and with about 100 others who attended the meeting.

"These are people's lives," said Scott Hanlan, an assistant director in the code enforcement department who serves on the pension board."

"Collins and Rettenmaier analyzed 153 state and local pension plans, representing more than 85 percent of liabilities for state and local pensions and other benefits, and recalculated their liabilities using a lower discount rate. Their calculations show:

Unfunded pension liabilities are approximately $2.5 trillion, compared to the reported amount of $493 billion.

Unfunded liabilities for health and other benefits are $558 billion, compared to the reported $537 billion.

Thus, total unfunded liabilities for all benefit plans are an estimated $3.1 trillion -- nearly three times higher than the plans report.

Source: Courtney Collins and Andrew J. Rettenmaier, "Unfunded Liabilities of State and Local Government Employee Retirement Benefit Plans," National Center for Policy Analysis, Study No. 329, July 29, 2010."

  • Other news and headlines:
 
r's picture
r
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Re: Daily Digest - July 29

Fed Member's Deflation Warning Hints at Policy Shift

http://www.nytimes.com/2010/07/30/business/economy/30fed.html?hp

Quote:

That view is not universally held, however.

Anyone care to make sense out of this?  Thanks.

rjs's picture
rjs
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Re: Daily Digest - July 29

does anyone have an idea on how to control/adjust that llyod's energy pdf? print is too small and it didnt load in typical format with buttons on the top...every attempt i made at right clicking just advanced it a page...

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Re: Daily Digest - July 29

World War III - Coming to a Planet Near You

Tensions continue to rise in the Middle East, driven by Iranian intentions to continue its uranium enrichment program despite new sanctions from Canada, the European Union, and the U.S.  An escalation of tensions to military conflict could easily result in a spike in oil prices, a third U.S. foreign war, and possibly "the nuclear option."

To that end, the U.S. moved a number of war ships, including the aircraft carrier the USS Harry Truman, through the Suez Canal about a month ago.  Not only was this the largest military flotilla ever to move through the canal (Egypt actually closed it temporarily to fishing and commercial shipping), but it is rumored to have included 1 to 3 nuclear Israeli submarines.  These subs have no defensive value, only first strike nuclear capabilities. 

http://tycoonreport.tycoonresearch.com/articles/337541310/world-war-iii-coming-to-a-planet-near-you

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DRS78750
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Re: Daily Digest - July 29
rjs wrote:

does anyone have an idea on how to control/adjust that llyod's energy pdf? print is too small and it didnt load in typical format with buttons on the top...every attempt i made at right clicking just advanced it a page...

Download it to your disk(right click on the link and select "save link to disk"), bring the saved file up in Adobe Reader. It will go to full screen mode. Hit the escape key and the format will be what you are used to.

rjs's picture
rjs
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Re: Daily Digest - July 29

DRS78750, thanks, it worked & i learned something new...always worthwhile...

V's picture
V
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Experts warn Obama panel: Fiscal crisis is getting 'closer'

Just what are those bozos in the picture laughing at?

V's picture
V
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Re: Daily Digest - July 29
jhart5 wrote:

World War III - Coming to a Planet Near You

Tensions continue to rise in the Middle East, driven by Iranian intentions to continue its uranium enrichment program despite new sanctions from Canada, the European Union, and the U.S.  An escalation of tensions to military conflict could easily result in a spike in oil prices, a third U.S. foreign war, and possibly "the nuclear option."

To that end, the U.S. moved a number of war ships, including the aircraft carrier the USS Harry Truman, through the Suez Canal about a month ago.  Not only was this the largest military flotilla ever to move through the canal (Egypt actually closed it temporarily to fishing and commercial shipping), but it is rumored to have included 1 to 3 nuclear Israeli submarines.  These subs have no defensive value, only first strike nuclear capabilities. 

http://tycoonreport.tycoonresearch.com/articles/337541310/world-war-iii-coming-to-a-planet-near-you

Driven by Iran? Oh puleeeeze. Tensions are rising because israel wants to be the only kid in the block with nukes and the US wants Iranian oil.

This has absolutely nothing to do with uranium.

V

PS And the NYMEX and ICE boys don't want the competition of the Irani oil bourse

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Re: Daily Digest - July 29

Marc Faber Questions if Dow Could Hit 1,000

In the August edition of the ‘The Gloom, Boom & Doom Report’ Marc Faber questions whether the Dow could hit 1,000 as predicted by Robert Prechter, based on his interpretation of Elliot Waves, Fibonacci numbers and socioeconomic trends.

Prechter, who has written 13 books on finance (external link), believes that the stock market is historically overvalued in terms of dividends and earnings, because of a "great rise in positive social mood."

But the mood changed in 2000 and the "trend toward negative social mood will lead to an economic contraction," according to Prechter.

"Small bear markets lead to recessions, big bear markets lead to depressions. The current bear market will be the biggest in nearly 300 years, so the depression will be correspondingly deep," Prechter said.

Prechter goes onto to suggest the bear market is of super-cycle degree, the biggest since 1720-1784 and will therefore see a decline for equities deeper than the decline during the great depression, which saw the Dow fall 89 percent.

"The trend toward negative social mood that has been in progress since 2000 and which is about to accelerate will continue to curtail lending and lead to a tidal wave of defaults and a terrific deflation," he said.

"The amount of outstanding credit today is so large that system-wide defaults could lead to as much as an 80 percent –90 percent decline in the volume of dollar-denominated credits worldwide," according to Precther.

"In such an environment, surviving dollars and dollar credits, representing the denominator of the DJIA, will rise in value, and the Dow —along with everything else not used as money — will fall in dollar price," he added.

Faber's Response

Marc Faber says before dismissing Prechter as a lunatic you should look at his record. In 1978 when he predicted the Dow would reach 2,300 in his book Elliot Wave Principle no one believed it possible.

"Prechter is right when says that when manias come to an end, prices tend to retreat to where the mania started. So from this point of view, a Dow Jones at 1,000 should not be excluded," Faber said.

Faber also sympathizes with Prechter's view that there will one day be a complete credit collapse. Where he differs from Prechter is on that crucial factor, timing.

"It is likely that if the Dow where to fall by more than 20 percent from the present level there would be further massive fiscal and monetary stimulus packages – not just in the US but worldwide," Faber said.

"These economic policy measures would likely fail to boost economic activity in the US but could support asset markets," he added. 

Faber's biggest problem with Prechter's theory is his view that surviving "dollars and dollar credits, representing the denominator of the DJIA, will rise in value, and the Dow – along with everything else used as money – will fall in dollar price."

"The question here is really, with the Dow below 1,000, what kind of dollars – and especially what kind of dollar credits – will survive," Faber said. "It is safe to assume that almost all banks in the world, and almost all governments, will be bust." 

"I want my readers to think very carefully about the implications of a Dow below 1,000 (or even just below 5,000). Does anyone really think that the money printing presses won't run 24 hours a day? For sure I don't," he wrote in his August report. 

And how do you trade the Dow at 1,000?

One suggestion from Faber is buying a self-sustainable farm in the middle of nowhere surrounded by high voltage fences and barbed wire and equipped with booby traps and an arsenal of machine guns, hand grenades and armed vehicles guarded by vicious Dobermans.

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Re: Daily Digest - July 29

 The Federal Reserve should have a plan for significant quantitative easing if deflationary expectations in the US continue, James Bullard, president of the Federal Reserve Bank of St. Louis, told CNBC Friday.

James Bullard
St. Louis Fed President James Bullard revived investor worries of U.S. deflation risk.

On Thursday, Bullard released a paper warning that the weak US economy risks tipping the country into a Japan-like deflation period.

"I call for a plan to have significant easing if the situation arises," Bullard said in an interview.

"I'm still an inflation hawk but … we're in a low side right now," he said, explaining that the consumer price index, excluding food and energy, has been coming down.

If the economy continues to recover in the second half, "this will all go away," but meanwhile there must be a plan B to deal with deflationary expectations, Bullard said.

"The academic literature says that when you get below a certain inflation rate you have to get off interest-rate targeting," he said, adding that the Fed's policy should turn more towards quantitative easing — a policy where central banks increase the money supply through other means than interest rates, such as buying government debt.

The Bank of England's Monetary Policy Committee (MPC) has switched its asset-buying program on and off, depending on economic circumstances, which is a better policy than the US one, Bullard noted.

"We just did a lot and then we just kind of stopped," he said. "If you look at the MPC in the UK, it's much more about adjusting when problems come in."

Interest-rate targeting will just reinforce expectations that prices will fall, Bullard said.

"If we promise to stay at zero (rate) for 10 years, it's going to be Japan," he said.

European officials have dealt well with the debt crisis but now it remains to be seen if austerity programs will work, Bullard added.

"I do think the Europeans have done a reasonable job in trying to contain the crisis," he said. "I think we're at the end of the beginning on sovereign debt crisis in Europe … now we have to see if countries will follow through (with reforms)."

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Re: Daily Digest - July 29
idoctor wrote:

One suggestion from Faber is buying a self-sustainable farm in the middle of nowhere surrounded by high voltage fences and barbed wire and equipped with booby traps and an arsenal of machine guns, hand grenades and armed vehicles guarded by vicious Dobermans.

Community building.

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