Daily Digest

Daily Digest - June 12

Saturday, June 12, 2010, 9:58 AM
  • Soros Says ‘We Have Just Entered Act II’ of Crisis
  • Time to Plan for a Post-Keynesian Era
  • New York Plan Makes Fund Both Borrower and Lender
  • Builders Rush to Complete Houses by U.S. Tax Credit Deadline
  • Gulf Oil Spill ‘Could Go Years’ If Not Dealt With
  • Punishing BP Is Harder Than Boycotting Stations
  • A Tourist Mecca Fears a Long-Term Oil Smear

Economy

Soros Says ‘We Have Just Entered Act II’ of Crisis (jdargis)

Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.

Concern that Europe’s sovereign-debt crisis may spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $4 trillion from global stock markets this year. Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance, according to Bank of America Corp.

Time to Plan for a Post-Keynesian Era (jdargis)

Certain counter-cyclical spending is vital on social grounds. But stimulus measures such as temporary tax cuts for households or car scrappage schemes were dispiriting wastes of scarce time and money. They reflected a hope that a temporary fiscal bridge would carry us back to consumption and housing-led growth -- a dubious proposition since the old "normal" had been financially unsustainable.

New York Plan Makes Fund Both Borrower and Lender (jdargis)

Under the plan, the state and municipalities would borrow the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013.

Builders Rush to Complete Houses by U.S. Tax Credit Deadline (jdargis)

Senate Majority Leader Harry Reid proposed a three-month deadline extension yesterday amid concern that a rush of buyers created too big of a backlog. New-home contracts rose 30 percent in March and 15 percent in April, the biggest two-month gain in records dating to 1963, according to the Commerce Department. About a third of the April signings were for homes under construction, and a quarter were for those that weren’t started.

Environment

Gulf Oil Spill ‘Could Go Years’ If Not Dealt With (hucklejohn)

What the enormity of the oil spill does is to also further discredit clearly the oil companies’ myth of “peak oil” which claims that the world is at or near the “peak” of economical oil extraction. That myth, which has been propagated in recent years by circles close to former oilman and Bush Vice President, Dick Cheney, has been effectively used by the giant oil majors to justify far higher oil prices than would be politically possible otherwise, by claiming a non-existent petroleum scarcity crisis.

Punishing BP Is Harder Than Boycotting Stations (joemanc)

With each day that oil fouls the Gulf of Mexico, more drivers are weighing a choice at intersections across the United States: if BP is on the left and some other station is on the right, is filling up at BP an endorsement of the company’s conduct?

This doesn’t send a particularly powerful message to BP, though. After all, the company owns only a handful of the 11,000 stations that bear its brand and is trying to sell the few still on its books. So those who wish to inflict the maximum amount of pain on the company are instead putting much of the hurt on the family businesses who actually own the stations.

A Tourist Mecca Fears a Long-Term Oil Smear (jdargis)

Grand Isle, a normally picturesque seven-mile stretch of barrier beach off the Louisiana coast, is slowly waking up to a grim reality: the impact of the April 20 spill will not be measured in months, even if BP manages by fall to plug the well that is gushing oil 50 miles off the coast.

Please send article submissions to: [email protected]

20 Comments

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Re: Daily Digest - June 12

"June 12 (Bloomberg) -- New York state may close a budget deficit with sales of bonds for the second time in seven years. The bonds may be backed by tobacco-settlement payments or income taxes, as lawmakers seek to avoid spending cuts."

"Illinois’ unwillingness to tackle its budget woes prompted Fitch on Friday to become the second agency in a week to downgrade the cash-strapped state, which is likely to push up the state’s borrowing costs as it prepares to issue new debt.

Fitch lowered the rating on Illinois’ general obligation bonds from “A+” to “A” and assigned them a negative outlook, signalling it could downgrade the state further. The move came a week after Moody’s moved the state’s general obligation rating to A1 from Aa3. Standard & Poor’s rates Illinois “A+”."

"Illinois’ budget situation is among the worst in the US. The state faces a $13bn budget deficit for the financial year that begins on July 1. More than $6bn of that is unpaid bills from the current year, which have prompted state prisons to let out inmates early, and the state to cut 20,000 teachers and staff.

Illinois’s legislature last month passed a budget bill, but the proposal is billions of dollars short and calls for outstanding payments to be delayed further.

The legislature has now gone into recess, leaving Pat Quinn, the state governor, to balance the budget.

Mr Quinn has proposed borrowing the $4bn needed to cover the pension contributions in order to avoid severe cuts, a plan that has passed the Illinois House but has stalled in the ­Senate, with Republicans refusing to approve it."

...................2A) Illinois Debt Cost Rises as Fitch Cuts Credit Rating

"Regional variations in the shadow inventories of distressed U.S. mortgages could be an indicator of the direction home prices will take, according to a new report published by Standard & Poor’s Ratings Services.

The company’s analysts say differences in the backlog of distressed properties point to which markets will see home prices stabilize or even increase, and where additional declines may still be in store.

The volume of troubled residential properties has been growing in nearly every U.S. state since 2005, S&P said, and borrowers nationwide are now defaulting on their mortgages faster than existing defaults are being resolved through liquidation. These trends have given rise to a large “shadow inventory” of distressed properties.

S&P estimates that the shadow inventory backing just private-label residential mortgage-backed securities (RMBS) will take nearly three years to clear at the current resolution rate."

"US – The credit ratings agency Fitch has warned that the potential for steep pension funding increases over the next two to three years could be crippling for US sponsors with underfunded plans.

Despite a market rebound during 2009, pension plan funding levels of the 220 non-financial corporate issuers surveyed only improved modestly to 75% at the end of last year from 71% in 2008, the report showed.

Funding improvements were held back by declines in the discount rate, as the median discount rate dropped to 5.90% from 6.30%, while current major equity market indices remain well below average levels prior to 2008.

Yet Congress has not passed additional funding relief that many participants took advantage of during the recession, meaning sponsors will have to meet a 100% funding target by 2011."

"June 12 (Bloomberg) -- President Barack Obama today called on the Senate to act to keep Medicare payments to doctors from being cut 21 percent at the end of this month.

In his weekly address on the radio and Internet, Obama said that Republicans shouldn’t block action in the Senate to delay the long-scheduled reductions.

“After years of voting to defer these cuts, the other party is now willing to walk away from the needs of our doctors and our seniors,” Obama said.

Each year since 2003, Congress has acted to hold off scheduled reductions to doctors’ Medicare payments under a formula that was designed to curb the growth of Medicare costs yet over time has proved to cut more deeply than anticipated. Obama said that Republicans this year may prevent the Senate from acting on the issue.

Obama warned that failure to act could lead doctors to refuse patients covered by Medicare, the government health- insurance program for the elderly.

“We cannot allow this to happen,” he said. “We have to fix this problem so that our doctors can get paid for the life- saving services they provide and keep their doors open.”"

"June 12 (Bloomberg) -- North Korea warned of an “all-out military strike” to destroy South Korean loudspeakers and other propaganda tools along their fortified border, according to the North’s state-run Korean Central News Agency.

South Korea’s preparation for psychological warfare, is a “direct declaration of a war” against the North, the general staff of the communist state’s military said today in a statement on KCNA. The North’s military retaliation may turn Seoul into “a sea of flame,” the statement said. "

  •  Other news and headlines:

 

Texas two-year deficit may hit $18 billion: Moody's

China exports set to drop as Europe losses mount

China's pvt sector provides 90 pct of jobs

Seven State Pension Plans Out of Money by 2020 (Mish)

INTERVIEW-Fitch sees German municipal debt growing in 2010

Seniors Are the Fastest Growing Population of Consumers Declaring Bankruptcy

Demand for bullion puts strain on vaults

Hospitals' Woes Grow

Detroit Budget Cuts May Be Even Deeper

Schools may suffer from oil spill

Dissolving Brockport village makes sense

$100M Budget Hole Could Lead To Layoffs In Miami (Read about their pensions)

 

..................Enjoy the weekend. Time to get away from the computer until Monday. I've been looking at this thing so long that my eyes are starting to look like one of those disco balls.

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Re: Daily Digest - June 12

Isreali jets cleared to pass through Saudi Arabia in the event of a strike on Iran

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Re: Daily Digest - June 12
britinbe wrote:

Isreali jets cleared to pass through Saudi Arabia in the event of a strike on Iran

 

 WOW, that is huge. I am amazed the Saudi's would go along with that. I guess they are getting worried about Iran as well. It seems the cat is out of the bag so to speak ot am I making too much of this? If Israel did bomb Iran I think we could see a $50.00 jump in oil for starters. What do you all think?

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Re: Daily Digest - June 12

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Re: Daily Digest - June 12

 

 

Saudis air corridor is open, US, Israel self-immobilized on Iran
DEBKAfile Exclusive Analysis June 12, 2010, 1:26 PM (GMT+02:00)

Tags:  Israel   Saudi air corridor   US-Iran 

Saudi air corridor to Iran is unused. Israeli bombers are grounded

The Saudi air corridor offered Israel for an attack on Iran reported in the London Times of Saturday, June 12, was an old story rehashed by Riyadh in the hope of egging the US and Israel on to break free of their self-imposed restraints and halt Iran's drive for a nuclear bomb before it is too late.
debkafile's Middle East sources report the explosive developments of the last two weeks, primarily the meteoric rise of a thrusting partnership between the two non-Arab powers, Turkey and Iran, have badly rattled Arab capitals, especially when they see the Obama administration and Netanyahu government immersed in tying themselves and each other in knots over the format of an inquiry into Turkish flotilla incident.

The London Times reported that Saudi Arabia had conducted tests to stand down its air defenses to enable Israeli jets to make a bombing raid on Iran’s nuclear facilities.  Riyadh was said to have agreed to allow Israel to use a narrow corridor of its airspace in the north of the country to shorten the distance for a bombing run on Iran. To ensure the Israeli bombers pass unmolested, Riyadh has carried out tests to make certain its own jets are not scrambled and missile defense systems not activated.

“The Saudis have given their permission for the Israelis to pass over and they will look the other way,” said a US defense source in the area. Sources in Saudi Arabia say, "It is common knowledge within defense circles in the kingdom that an arrangement is in place if Israel decides to launch the raid. Despite the tension between the two governments, they share a mutual loathing of the regime in Tehran and a common fear of Iran’s nuclear ambitions."

debkafile adds: Appearing in the week UN sanctions were approved against Iran, this report amounted to a Saudi no-confidence vote in its value.
Low expectations of the sanctions are no secret in Washington either. According to the New York Times, the Obama administration has prepared Plans A, B, C. and D, if sanctions fail to stop Iran's push for a nuke. No details were published, but the NYT quoted Barak Obama as noting in April: "…once Iran passes a certain point, it may be impossible to know when it has taken the last steps to manufacture a (nuclear) weapon."
This did not stop defense secretary Robert Gates speaking after a NATO meeting in Brussels on June 11, from whipping out the rusty device beloved of the Bush administration: "I think everyone agrees we have some more time, including the Israelis. …I would say the intelligence estimates range from one to three years."

In the Middle East meanwhile, events are rushing forward with explosive haste, impelled in the last ten days by the Turkish-led flotilla for breaking the Gaza blockade and the Israeli commando raid to intercept it.
The rise of the Turkish-Iranian alliance has not only thrust America and Israel to the wings the Middle East stage, but is deeply alarming Cairo, Riyadh, the Gulf emirate and even Syria. They suddenly see Prime minister Recep Erdogan and President Mahmoud Ahmadinejad dictating the region's agenda with no one there to stop them.
Within days, the balance of power in the region has been reshuffled to extend way beyond Tehran's hand on Hizballah's levers in Beirut and the Palestinian Hamas in Gaza. Iran has acquired an important member of NATO as a proactive ally.
Gates' only comment on this development was: "I was disappointed by the Turkey vote on the Iranian sanctions. That said, Turkey is a decades-long ally of the US and a member of NATO. Turkey continues to play a critical part in the alliance."
Israel's Prime Minister Binyamin Netanyahu and defense minster Ehud Barak are just as laggard in addressing the formidable new axis looming over the region and the Jewish state, in particular. They are too busy quibbling with Washington over the shape of the impartial commission the UN has demanded for probing Israel's actions against the Turkish-led flotilla of May 31 - though certainly not, perish the thought, Turkey's role or the Erdogan government's close ties with the IHH terrorists aboard the Turkish ship.
What Netanyahu and Barak have not told the public is that the dickering with the Obama administration has dragged out for five days because the US wants the impartial commission empowered to question the Israeli officers and soldiers who raided the Mavi Marmara in a clash which left 9 Turks dead, and several wounded including six Israel commandos.
If Obama has his way, Israeli soldiers will for the first time face questioning by American and European investigators. Israeli leaders understand that compliance would add fuel to the international campaign for de-legitimizing the Jewish state as a sovereign state and respectable member of the world community of nations. The Israelli Defense Forces would be further immobilized under a sustained international campaign to discredit them on the lines of the Goldstone report on the Gaza war - only this time Washington is taking the lead in the de-legitimacy campaign.
With no one apparently available for keeping Iran out of the nuclear club, Riyadh did what it could. Using the London Times platform, Saudi Arabia's princely rulers opened the door to positive action in order to lift morale in the oil kingdom and its army and remind Washington, Jerusalem and the other Middle East players that soft sanctions need not be the last word; they are offering Israeli bombers a corridor for striking Iran's nuclear facilities and chance to reshape the region's declining reality.

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Re: Daily Digest - June 12

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Re: Daily Digest - June 12

I couldn't make it thru the Laffer thing.  We'll see next year if the tax hikes help us or hinder us.  My guess is help.

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Re: Daily Digest - June 12

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Re: Daily Digest - June 12

That's a laugher

This is from an advisor to Reagan? I think that is when the destruction of the middle class and Neo Liberalism hit high gear. Does he know about Peak Oil? How about the other E? You know the one in the Gulf.

The wealth in this world will continue to flow uphill in spite of the fact of the manure flowing down and payday having been on Friday.

V

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Re: Daily Digest - June 12

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Re: Daily Digest - June 12

Does anyone else grasp how Engdahl says that this leak somehow negates peak oil theory? If we assume abiotic oil is readily disproven?

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Re: Daily Digest - June 12

Please explain how you think taking money from the public, which are not spending now and are stretched to pay for basics, is going to help the economy?  They will only spend more and we will be left with more deficits, rising taxes across the board and less money to pay bills.  umm.. guess I miss how it will help.  

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Re: Daily Digest - June 12
UncleRocco wrote:

Does anyone else grasp how Engdahl says that this leak somehow negates peak oil theory? If we assume abiotic oil is readily disproven?

Good question. I certainly don't. Jim Puplava of the FSN Newshour recently said, after being asked about the abiotic oil theory, that he's never read anything remotely convincing on the topic and that he won't even have anyone on the show until some new and compelling body of information arises that would make him reconsider the theory.

What I don't understand is the apparently inherent coupling a lot of people see between abiotic oil and peak oil being a myth. Just because it's made through some other process than ancient animal composting doesn't mean the supply of it is infinite or that the same extraction rate problems wouldn't still be present. People like Engdahl, when it comes to this specific topic, are on very shaky ground both scientifically and logically.

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Re: Daily Digest - June 12
wags999 wrote:

Please explain how you think taking money from the public, which are not spending now and are stretched to pay for basics, is going to help the economy?  They will only spend more and we will be left with more deficits, rising taxes across the board and less money to pay bills.  umm.. guess I miss how it will help.  

Thanks for asking that question for me, Wags.

Not to mention the fact that the government then takes that money and uses it to bailout Wall St. and wage endless war.

As Marc Faber brilliantly and sarcastically asks, if deficits don't matter then why are Americans paying taxes? I guess what the deficits-don't-matter folks are really saying is that deficits don't matter if you're not the ones paying them .

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Re: Daily Digest - June 12

I give Art Laffer zero credibility, particularly after the whole Peter Schiff debate in 2006.  He's now just mirroring what Schiff has to say.  I think Schiff is pretty accurate on the Economic side if we didn't have the Peak Oil issue.  It will be interesting to see how his theories play out in the face of Peak Oil. In the short run I think he will be right.

The rest of the people on the "Schiff was right video" made such fools of themselves I really have to go with the people who's predictions seem to be based in reality and who have a proven track record.

Loved the BP Coffee Spill video....Tongue out

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Re: Daily Digest - June 12

The more you explain it, the more I don't understand it.~ Mark Twain

Read all of Peter's books... Invested in a diversified portfolio, and watched as the international market reacted in lockstep with the Dow Jones over a period of six months... Pulled everything out shortly after the flash-crash, and almost broke even, losing all of a 25% paper gain in about two weeks... Left our IRA's in; now down about 25%...

Should have learned my lesson in the eighties... If you can't play with the big dawgs, stay under the porch...

PM's have been much better...

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Re: The Post-Keynesian Era

"Certain counter-cyclical spending is vital on social grounds. But stimulus measures such as temporary tax cuts for households or car scrappage schemes were dispiriting wastes of scarce time and money. They reflected a hope that a temporary fiscal bridge would carry us back to consumption and housing-led growth -- a dubious proposition since the old "normal" had been financially unsustainable."

It is indeed dispiriting that the real results of Keynesian populism are seen as an unfortunate but unavoidable mistake...

"Third, governments must of course also ensure social safety nets: income support for the poor, universal access to basic health care and education, a scaling up of job training programs and promotion of higher education.

Fourth, governments should steer their economies towards needed long-term structural transformation. External-deficit countries such as the US and UK will need to promote exports over the next few years, while all countries must promote clean energy and new transport infrastructure. "

...and that the way out should be more control and governmental intervention. I am a firm believer that Keynes is a major enabler of populist policies, as 'government steering' can be used as a tool to offset any required adjustment. While a counter-cyclical policy perhaps could work, no politician will ever be willing to effectively cut spending during an up-turn, thus  the only tool left is expansion during downturns, or perceived downturns. And this is what has led us to today, in almost every western country.

The Post-Keynesian Era will not be heralded by yet another minor revision to the blessings of the prophet, but rather the shattering of his tablets. And a call for 'certain counter-cyclical spending' is not the way to enter it.

-S

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Re: Daily Digest - June 12
rhare wrote:

  Loved the BP Coffee Spill video....Tongue out

+1!  Too funny idoctor; my first gut-laugh of the day!  -Probably because we suspect it is so close to the sad truth of how things actually transpired!

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Re: Daily Digest - June 12
Golden Age wrote:

 

 

 WOW, that is huge. I am amazed the Saudi's would go along with that. I guess they are getting worried about Iran as well. It seems the cat is out of the bag so to speak ot am I making too much of this? If Israel did bomb Iran I think we could see a $50.00 jump in oil for starters. What do you all think?

Thanks for the context, it makes it all the more interesting. 

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Re: Daily Digest - June 12
dakinetileguy wrote:

Read all of Peter's books... Invested in a diversified portfolio, and watched as the international market reacted in lockstep with the Dow Jones over a period of six months... Pulled everything out shortly after the flash-crash, and almost broke even, losing all of a 25% paper gain in about two weeks... Left our IRA's in; now down about 25%...

Did you invest through Europacific or just on your own?  He has done quite well for me, but I also got in at just the right point (ie. lucky) but one of his big messages in both Crash Proof and Little Book ... was advice to be in PM.   Right now things are a bit nerve racking, will we see if China takes off as it breaks away from the Western world (ie. decoupling)?  It sure looks like that is occuring in a lot of ways, who knows.... I see your pain, but I also can't give zero chance that PM's won't become just lumps of shinny metal - worthless.  So I have taken the approach: Solar, Food, Tools, PM, and Schiff oriented investment....   Notice the only thing I left out is big US stock investments  which I'm pretty sure are toast! Scary times...

I also came to the Crash Course via Peter Schiff -> Ron Paul -> Chris Martenson.  I wonder how many others do as well just by starting to try and figure out the most obvious problem right now - the Economy.

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