Daily Digest

Daily Digest - June 30

Tuesday, June 30, 2009, 10:46 AM
  • Keeps Getting Better All the Time (Video)
  • Deficit forces California to issue IOUs
  • China's banks are an accident waiting to happen to every one of us (H/T Fujisan)
  • U.S. Home Prices Drop 6.8 Percent in April as Foreclosures Rise
  • The Net Hubbert Curve: What Does It Mean? (H/T Suzie G)
  • Alan Grayson Letter To Neil Barofsky Requesting Audit of Citi
  • Queasing
  • CRE and Residential RE Prices (Chart on page)
  • US credit card chargeoffs break new record - Moody's
  • Tales from Bailout Nation (Video)
  • Will banks exiting TARP take back their toxic waste now?
  • Large-scale lay-offs in the U.S. (lay-offs of 50 or greater at 1 time) hit highest level
  • Peter Schiff, Your Record of Inacurate [CNBC] Predictions is Right (Video, H/T iDoctor)

Economy

Keeps Getting Better All the Time (Video)

Deficit forces California to issue IOUs

California is preparing to issue IOUs to its creditors this week as it grapples with an unprecedented cash crunch and prepares to begin its new fiscal year deep in the red.

Once the US’s richest state, California now has the dubious distinction of having the worst credit rating in the country.

California’s fiscal year ends on Wednesday but as the state’s cash reserves are empty, IOUs will be issued to a range of creditors, including contractors, such as information technology companies and the food service groups that cater for prisons.

“On Wednesday we start a fiscal year with a ­massively unbalanced spending plan and a cash shortfall not seen since the Great Depression,” said John Chiang, the state controller. “Unfortunately, the state’s inability to balance its chequebook will now mean short-changing taxpayers, local governments and small businesses.”

The state is also likely to issue IOUs to the US government. California currently contributes funding for government-run programmes for elderly and developmentally disabled people but is considering issuing IOUs to cover its contributions because of the lack of cash.

Education funding is protected under the state’s constitution while payments on the state’s bond debt are also guaranteed under state law.

Democrats and Republicans in the state government last week struck an agreement on a range of money-saving measures. However, Mr Schwarzenegger has threatened to veto the plan on the grounds that it was a piecemeal solution to California’s budgetary woes.

Mr Schwarzenegger said he would veto any bills that raised taxes without reforming the state’s government. “I will veto any majority vote tax increase bill that punishes taxpayers for Sacramento’s failure to live within its means,” he said. ”The legislature will have a difficult time explaining to Californians why they are running floor drills the day before our budget deadline.

It is facing a budget deficit of $24bn (€17bn, £14.5bn) yet Arnold Schwarzenegger, its governor, and the state assembly cannot agree on a budget that would address the shortfall.

China's banks are an accident waiting to happen to every one of us (H/T Fujisan)

So the regime is resorting to hazardous methods to keep excess factories humming: issuing a "Buy China" decree: using a plethora of export subsidies; holding down the price of coke, bauxite, zinc and other resources to lower production costs (prompting a complaint from America and Europe); and suppressing the yuan, again.

Protectionism is a risky game for a country that lives off global trade and runs a surplus near 10pc of GDP

U.S. Home Prices Drop 6.8 Percent in April as Foreclosures Rise

Those efforts may not be able to keep up with the rising number of Americans falling behind on their mortgages. U.S. foreclosure filings are forecast to hit a record 1.8 million in the first half of this year, according to RealtyTrac Inc., the Irvine, California-based seller of default data. Filings surpassed 300,000 for the third straight month in May, RealtyTrac said on June 11.

The Net Hubbert Curve: What Does It Mean? (H/T Suzie G)

Well, first, it means that, if the trend of declining EROI continues, society will be spending an increasingly larger chunk of their remaining energy to get more energy. This cycle is positively reinforcing:

Declining EROI means that the net energy contained in each unit of energy delivered to society is decreasing over time, requiring the extraction of increasingly greater quantities just to meet societal demand → decreases the quantity of energy remaining in the ground for future society → makes it more difficult to find and develop the remaining bit of energy.

With every barrel we pull out of the ground we propel ourselves further down this path, creating a more difficult situation for future generations. (note: I assume that the “Best First Principle” applies to this scenario, i.e. society is using the best resources (i.e. oil fields) first, then the second best, etc…)

Alan Grayson Letter To Neil Barofsky Requesting Audit of Citi

Queasing

Slang for “quantitative easing”

CRE and Residential RE Prices (Chart on page)

The Moody’s/REAL National All Property Type Aggregate Index for April measures 135.31, a decrease of 8.6% from the previous month. The index now stands 25.3% below the level seen a year ago and 29.5% below the peak measured in October 2007. The index is 27.4% lower than it was two years ago. This report is based on data through the end of April.

US credit card chargeoffs break new record - Moody's

Chargeoff rate rises over 10 percent for the first time

Tales from Bailout Nation (Video)

Will banks exiting TARP take back their toxic waste now?

But, I am sure you know this is not going to happen. This has not been a liquidity crisis. It is a solvency crisis. [emphasis mine] The banks are not well-capitalized because the stress tests were just a big charade and an effort to buy these firms time. Moreover, it is painfully obvious that the banks are very much dependent on the government still – or they would be getting their dodgy assets back.

Large-scale lay-offs in the U.S. (lay-offs of 50 or greater at 1 time) hit highest level

Even if this rate of decline is now linear (i.e. falling at the same rate each month), this does not imply “stability”. Jobs are being lost in the U.S. at least as fast as during the Great Depression – if not faster. To suggest that this implies “moderation” is simply stupidity, from people who have absolutely no understanding of basic arithmetic.

Peter Schiff, Your Record of Inacruate [CNBC] Predictions is Right (Video, H/T iDoctor)

12 Comments

CB's picture
CB
Status: Gold Member (Offline)
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Posts: 365
Re: Daily Digest - June 30

Interesting article in the Asia Times today, an excerpt below:

http://www.atimes.com/atimes/Global_Economy/KG01Dj01.html

Quote:

n England, the Black Death produced the first increase in workforce living standards above subsistence levels; in today's world, we cannot rely on disease to help but must pursue policies of population restraint, particularly in countries such as Kenya, where population growth above 2% annually renders economic improvement impossible.

Another lesson from the Industrial Revolution is that it is important to be the very best or the very cheapest. Mediocrity and average performance win no prizes in economic development because they do not provide that margin of cost advantage without which the first faltering steps in a new technology cannot be profitable.

Revolutionary new technologies will eventually produce products desirable for everybody, and/or costs far below the previous alternative. However, in the initial phases of a new technology, the cost advantage or performance benefit of a new technique or product is slender. Hence that new product will only be profitable for the producers with the very best capability in an area, or the very lowest factor costs (which will not generally include low-cost labor because Malthusian survival puts an effective floor on that cost, making labor-cost advantages impossible to sustain.)

There is a reason why innovation tends to happen in rich countries, in spite of poorer countries' lower labor costs and in many areas similar skill levels. High labor costs force innovation, and by increasing the return to acquiring superior skills raise the quality of the labor force itself.

The German approach to economic growth, in which expensive labor is balanced by its superb quality, is entirely economically viable and produces rapid innovation. Similarly, US innovation tends to be concentrated in high-cost areas such as Silicon Valley, Boston or New York, even though in many cases, large numbers of skilled graduates are available from top universities elsewhere. In a high labor-cost environment, the pressure to excel, for both companies and the workforce, is inexorable and highly productive.

It thus follows that H1B visa programs as operated in the US, which allow employers to temporarily employ foreign workers in specialty occupations, and in which labor costs in high-skill areas are forced down by introducing numerous apparently qualified recruits from overseas, may well be counterproductive. By turning the workforce from an expensive critical resource into an undifferentiated cost-controlled mass, innovation is stifled. In an environment in which the wages of engineers and computer scientists are suppressed by mass immigration, the best graduates will go to law school, heading for an activity where competition from immigrant labor is less.

A further lesson from the Industrial Revolution, in particular from the centrality of coal availability, is that intelligent resource development is extremely important. Many countries had large coal deposits in 1700, but only in England did the development of coal fires for London housing increase the size of the coal mining industry to a level at which energy costs in areas close to the mines were a 10th or less of those for competitors not so located.
Today, Brazil seems to have learned the importance of this best. Its ethanol program to substitute for gasoline was begun 30 years ago, before others, and relied on the optimum ethanol source, sugar cane, which produces ethanol about eight times as efficiently as the main US source, corn. Consequently, Brazil is today the global leader in ethanol technology, an advantage which it can use to develop its capability in other areas.

Similarly, Brazil's exploitation of the Carajas iron-ore deposits has allowed Vale to become the world's leading iron-ore exporter, an immense economic and geopolitical advantage for the country. Petrobras' offshore petroleum operations in the Tupi basin are likewise notable for the intelligence with which they have been developed and will make Brazil a major player in the global oil industry, particularly as its domestic needs are suppressed by the successful ethanol program. Using resources to bully neighbors, as in Russia, or frittering away resource advantages through environmentalist obstacles, as in the US, produces a major competitive disadvantage that blights innovation as well as hampering the economy generally.

cwixom's picture
cwixom
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Re: Daily Digest - June 30

I have wrtten to my representatives to the point that the letters are fading on my keyboard with no noticable effect.  I haven't been able to figure out how to get them to listen but Karl Denninger has put forth a way that just might get their attention.  A consumption strike.  You can read about it here http://market-ticker.org/ under "Starve the Beast". 

I'm going to write my reps once more and tell them exactly what I'm doing and when I will stop.  I'm going to write my friends and invite them to join me in this effort.  This is your invitation.  Let's show Washington who the real boss is by invoking "The People's Withholding Tax"

idoctor's picture
idoctor
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Re: Daily Digest - June 30

Another BIG nail in our economic coffin. What great management we have in this country LOL!

http://seekingalpha.com/article/146014-carbon-credits-an-economic-scam?source=email

Davos on your link (Keeps Getting Better All the Time (Video) I couldn't agree more with this guys comment!

 

 

 
It is well known that Steve LIESman is a government plant. When he opens his mouth it's pretty clear who he works for.  Funny that when Geithner went to China, he accompanied him on the trip and was the only media person who was granted a one on one interview.
rickets's picture
rickets
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Re: Daily Digest - June 30

 

 

I think it would serve us well to share links and information regarding technological breakthroughs that are constantly occuring.  While I am in agreement that currencies are likely to fail, that peak oil will cause dramatic change, that there will be food and supply disruption...etc.....I am quite surprised this community doenst spend more time investigating what technological breakthroughs are upon us.  Its easy to chart population change and peak oil, but its quite difficult to predict what technology will be the next revolution.  What is certain, however, is that technology breakthroughs are happening along an exponential curve too. 

I think we need to be careful not to dismiss alternative energies because they would take too long to get on line.  Never underestimate the speed of distrubution of truely revolutionary technologies.  These too happen in an exponential fashion.

In short, we need to factor in the exponential nature of innovation/technological breakthroughs.  My point is that while dramatic change is extremely likely, and short term is likely quite painful, its likely that over a 10+ year time horizon that innovation will prevent the mad max scenario so many in this community are predicting. 

idoctor's picture
idoctor
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Re: Daily Digest - June 30

Rickets great idea. The mother of all invention is necessity & from the looks of the next 20 years we will have plenty of necessity!! The complete "game Changer" for the USA would be a breakthrough in cheap energy but we are not heading that way IMHO as we put Carbon taxes on which will drive more business out of the USA. So the net of this would be even more job loses plus even more pollution from less strict regulations from the other countries. Business are trying hard to save themselves let alone the planet which that much is still questionable?

From what I have studied a near breakthrough is still a dream to far (hope I am wrong). I think Boone Pickens ideas are much better trying to build a bridge there than a sudden knee jerk tax in a very dicey economy.

 

Peter Schiff on penalties if you leave the USA.

 

cwixom's picture
cwixom
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Re: Daily Digest - June 30

New technologies get implemented into society as soon as they provide an advantage over the old technology.  They didn't change from stone axes to metal axes because of a lack of rocks.  New energy technologies will come on line as soon as they present an advantage over current sources.  Advantage is expressed by peoples (or in other words, the markets) preception of one thing being a superior value to another.  Value is not just expressed in dollars but is a collection of many things and is different for every participant in the market. 

Some promising technologies will always be promising (or at least for our life times).  Fussion reactors are great and have always been 20 years in the future for the past 50 years. 

What I would like to see is more information on things I can actually do right now at a reasonable cost to reduce my dependance on the grid the gas, and the government.  Like, does anyone have a solar hot water system design that I can construct and install for $500 that will actually function and last for more than 10 years?  (Oh, and my wife says it can't make the house ugly.) 

Here is one for all of you who are interested in cutting your home energy usage.  Install a radiant barrier in your home.  I've been adding one in my attic and have noticed a significant change in the warmth of my rooms where it is installed in the winter.  It is not expensive, about 15 cents a square foot, and can be installed by anyone who is able to work in an attic without falling through the ceiling.  Nice thing is that it cuts your heating bill in the winter and your cooling bill in the summer.  Here is a link to one supplier http://www.radiantguard.com/radiant-barrier-reflective-insulation.aspx

Who's got the next good idea to share?

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Farmer Brown
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Calculated Risk June Economic Summary in Graphs

Don't know if this was already posted  (I'm still catching up on a lot of stuff) but this summary in graphs from Calculated Risk is awesome!

http://www.calculatedriskblog.com/2009/06/june-economic-summary-in-graph...

idoctor's picture
idoctor
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Re: Daily Digest - June 30

Glenn Beck "no way out"

Check out the audio at this link (Dylan Radigan)

http://dailybail.com/home/why-dylan-ratigan-left-cnbc-the-audio-leakage.html

http://dailybail.com/home/dylan-ratigan-goes-from-fast-money-to-morning-meeting-but-th.html 

The National Debt Road Trip

Damnthematrix's picture
Damnthematrix
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Re: Daily Digest - June 30

You guys are making the usual mistake of confusing energy technologies with energy sources.....

An energy source, usually fossil based, releases way more energy when used than it takes to exploit the source.  There are no PV mines, or hydrogen wells.  ALL energy technologies have to be created using fossil energy AND non-renewable resources.  A lot of energy has to be invested up front before any energy profit can be achieved.  I have calculated that in my neck of the woods in Australia, we would have to build SIX coal fired power stations just to manufacture enough solar power stuff to meet the target of 20% renewables by 2020 our government has set.  The only other choice, of course, is we tighten our belts and use a lot less right now, thus liberating enough energy (6 power stations' worth) to do the job.  Plus, we have to this as less money is available to do it with......

Technology, as a rule, USES energy rather than make some...

Mike

ernie's picture
ernie
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Re: Daily Digest - June 30
Damnthematrix wrote:

You guys are making the usual mistake of confusing energy technologies with energy sources.....

An energy source, usually fossil based, releases way more energy when used than it takes to exploit the source.  There are no PV mines, or hydrogen wells.  ALL energy technologies have to be created using fossil energy AND non-renewable resources.  A lot of energy has to be invested up front before any energy profit can be achieved.  I have calculated that in my neck of the woods in Australia, we would have to build SIX coal fired power stations just to manufacture enough solar power stuff to meet the target of 20% renewables by 2020 our government has set.  The only other choice, of course, is we tighten our belts and use a lot less right now, thus liberating enough energy (6 power stations' worth) to do the job.  Plus, we have to this as less money is available to do it with......

Technology, as a rule, USES energy rather than make some...

Mike

 

No quite that bad, Australia already has rougly 5% renewables when you factor in the hydro. And there are some great projects underway like:

http://www.csiro.au/science/Organic-photovoltaics.html

 

gregroberts's picture
gregroberts
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Re: Daily Digest - June 30

Some of you might find this interesting

idoctor's picture
idoctor
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Posts: 1731
Re: Daily Digest - June 30

A Bank Run Teaches the 'Plain People' About the Risks of Modernity

http://online.wsj.com/article/SB124640811360577075.html

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