Daily Digest

Daily Digest - May 12

Tuesday, May 12, 2009, 9:46 AM
  • Government Borrowing .46 cents for every Dollar it Spends!
  • Sunday Funnies (Commics, commedy and video)
  • SNL: Geithner Cold Open
  • Interesting Amendment on the Federal Reserve Audits (Many Links On Page, Please Click)
  • Foreclosure Auction Video
  • Hotel industry getting crushed along with CRE
  • Black: Stress tests and the Big Lie (Video on page)
  • The Risks of Denying Reality
  • "Enjoy the rally while it lasts - but expect to take a sucker punch"
  • Government Payroll Warping Overall Data? (Chart on page)
  • Unemployment Rate vs. Broader Total Unemployed (Chart)
  • Non-Farm Payroll vs. Birth/Death YoY Change (Chart)
  • FSN May 9th (Audio, not yet reviewed)
  • Bernanke speaking on Jekyll Island, ironic?
  •  A few A(H1N1) Links Dr. Henry Niman's Map 3,349 U.S. Cases as of this wrtitng, A(H1N1) Current Timeline, CDC Cases


Government Borrowing .46 cents for every Dollar it Spends!

For the current fiscal year that ends on Sept. 30, the government would borrow 46 cents for every dollar it takes to run the government under the administration's plan. In one of the few positive signs, the actual 2009 deficit is likely to be $250 billion less than predicted because Congress is unlikely to provide another $250 billion in financial bailout money.

The developments come as the White House completes the official release of its $3.6 trillion budget for 2010, adding detail to some of its tax proposals and ideas for producing health care savings. The White House budget is a recommendation to Congress that represents Obama's fiscal and policy vision for the next decade.

Annual deficits would never dip below $500 billion and would total $7.1 trillion over 2010-2019. Even those dismal figures rely on economic projections that are significantly more optimistic -- just a 1.2 percent decline in gross domestic product this year and a 3.2 percent growth rate for 2010 -- than those forecast by private sector economists and the Congressional Budget Office.

For the most part, Obama's updated budget tracks the 134-page outline he submitted to lawmakers in February. His budget remains a bold but contentious document that proposes higher taxes for the wealthy, a hotly contested effort to combat global warming and the first steps toward guaranteed health care for all.

Obama's Democratic allies controlling Congress have already made it clear that they will reject key elements of his plan. Already apparently dead is a plan to raise $267 billion over the next decade to pay for his health care initiative by curbing the ability of wealthier people to reduce their tax bills through deductions for mortgage interest, charitable contributions and state and local taxes.

And the congressional budget plan approved last month would not extend Obama's signature $400 tax credit for most workers -- $800 for couples -- after it expires at the end of next year.

Obama's remarkably controversial "cap-and-trade" proposal to curb heat-trapping greenhouse gas emissions is also reeling from opposition from Capitol Hill Democrats from coal-producing regions and states with concentrations of heavy industry. Under cap-and-trade, the government would auction permits to emit heat-trapping gases, with the costs being passed on to consumers via higher gasoline and electric bills.

Among the new proposals is a plan -- already on its way through Congress -- that would increase the Federal Deposit Insurance Corporation's borrowing authority from $30 billion to $100 billion in order to grant a two-year reprieve from higher deposit insurance premiums while the industry is struggling.

Also new are several tax "loophole" closures and increased IRS tax compliance efforts to raise $58 billion over the next decade to help finance Obama's health care measure. The money makes up for revenue losses stemming from lower-than-hoped estimates of his proposal to limit wealthier people's ability to maximize their itemized deductions.

The updated budget also would repeal an unintended tax windfall taken by paper companies that use a byproduct in the paper-making process as fuel to power their mills. The tax credits were never intended for paper companies, but now they could be worth more than $3 billion a year, according to a congressional estimate.

The budget would make permanent the expanded $2,500 tax credit for college expenses that was provided for two years in the just-passed economic stimulus bill. It also would renew most of the Bush tax cuts enacted in 2001 and 2003, and would permanently update the alternative minimum tax so that it would hit fewer middle- to upper-income taxpayers.

Sunday Funnies (Commics, commedy and video)

SNL: Geithner Cold Open

Interesting Amendment on the Federal Reserve Audits (Many Links On Page, Please Click)

This is really interesting. A few days ago, Senator Chuck Grassley got an amendment passed by the Senate that lets the GAO audit the Fed’s lending to individual companies (such as Citigroup and Bank of America) and the Maiden Lane entities. The actual amendment in PDF form has a bunch of handwriting on it, because Grassley was clearly negotiating with fellow Senators (he says Shelby) about how far into the Fed the public would be allowed to peak. If you have a few minutes, I would read

Foreclosure Auction Video

Hotel industry getting crushed along with CRE

When you think about property, you should really be looking at its worth as the present value of future cash flow streams. This is true for residential, commercial, rental or travel property. One reason is that property is fungible, meaning what is a owner-occupied primary residence ca just as easily be a rental accommodation. It might even be a Bed & Breakfast. What is a hotel today can always become a condo, like New York City’s Plaza Hotel. An apartment building can become a condo conversion as well. It is this fungibility that creates an arbitrage opportunity when one property market gets out of whack with the others as the residential property market did.

Now that residential property is coming back to earth, it is increasingly apparent that other markets like commercial real estate (CRE) were also bid up to unsustainable levels. Hotels are another area of excess where there is going to be a lot of pain. Witness this recent post from Calculated Risk:

"OK, so now it’s official. The first quarter of 2009 experienced the worst year-over-year revenue per available room drop in the U.S. lodging industry’s organized history."
Jeff Higley: Catching up on hotel topics

Note: RevPAR is Revenue per available room - a key measure in the hotel industry.

From HotelNewsNow.com: STR reports U.S. data for week ending 2 May

In year-over-year measurements, the industry’s occupancy fell 11.6 percent to end the week at 55.7 percent. Average daily rate dropped 8.6 percent to finish the week at US$99.42. Revenue per available room for the week decreased 19.1 percent to finish at US$55.33.

Along those lines, I caught a story in today’s New York Times which suggests hotel owners are cutting back on renovations in order to meet their cash flow needs. The Times article has this to say:

A $6 million renovation of the hotel was supposed to be completed earlier this year. But Personality Hotels, which owns the Vertigo, formerly known as the York, and six other hotels in San Francisco, decided to save money by leaving part of the building untouched.

Yvonne Lembi-Detert, the president of Personality Hotels, said that she had already bought everything needed, from tiles to TVs, to complete the transformation of the hotel’s 97 rooms. But the one thing she doesn’t have right now is enough money.

All over the country, hotels are halting or postponing renovations in numbers not seen since 2001, when the terrorist attacks led to a retrenchment in the travel industry, according to Chad Crandell, the president of Capital Hotel Management. This time, the cause is a decline in revenue — both occupancy and room rates are down in most cities — coupled with the difficulty of obtaining credit.


Black: Stress tests and the Big Lie (Video on page, AIG Part Interesting)

The Risks of Denying Reality

"Why the Government's Attempt to Instill False Confidence Will Backfire," George Washington's Blog further elaborates on the risks of denying reality and failing to apply the only real cure for what ails us.

The government is doing its best to try to "restore confidence" in the economy. Indeed, Obama's top economics advisors believe they can fool people into believing that everything is fine, and then the economy will recover.

And for that reason, defenders of the status quo think that it is important for everyone to keep quiet about how severe the crisis really is.

Are they right?


As economist Irving Fisher pointed out (as recounted by economist Steve Keen):

Hobbled by this naive belief in equilibrium, the economics profession was as unprepared for today’s crisis as it had been for the Great Depression. Now that the crisis is well and truly with us, all conventional “neoclassical” economists can offer is the hope that the crisis can be overcome by a good, strong dose of confidence.

From [Irving] Fisher’s point of view, such a belief is futile. In an economy with an excessive level of debt and low inflation, he argued that confidence was irrelevant–and in fact dangerously misleading, as he knew from painful personal experience.

In short, happy talk and fake confidence-building exercises don't work.

Indeed, trying to instill false confidence will actually backfire on Geithner, Summers and the boys and make the crisis worse.



"Enjoy the rally while it lasts - but expect to take a sucker punch"

The echoes of 1931 are ominous. That year began with green shoots, until Austria's Credit-Anstalt buckled in the summer and took Central Europe with it. Continentals who still thought it was an American crisis learned otherwise. Plus ça change.

Government Payroll Warping Overall Data? (Chart on page)

Last unemployment post of the day. Across the Curve with the details:

This report does not look real swell to me. The net revisions subtract 66K and the one area of strength was government workers where my friends at UBS had a nice call on the census worker hiring (66K also). Back out the 132K and you get -671.

FSN May 9th (Audio, not yet reviewed) 

Bernanke speaking on Jekyll Island, ironic?

The FOMC’s policy response, led by Bernanke who was a key player in the Greenspan 1% fed funds policy, to deal with the aftermath is to revert to another period of easy money. Ben and Greenspan were the mad scientists whose experiment went wrong after the recession in ‘01-’02
and the world looks to a ‘new’ Bernanke now as Chairman, to clean it up with another grand experiment. While the story of Jekyll and Hyde refers to the personality conflict of good and evil, it could also be in reference to changes in personality to different situations. I discuss all this for the sole reason that Ben is giving a speech tonight at Jekyll Island.

A few A(H1N1) Links Dr. Henry Niman's Map 3,349 U.S. Cases as of this wrtitng, A(H1N1) Current TimelineCDC Cases


Davos's picture
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Re: Daily Digest - May 12

 .46 cent borrowed for every dollar spent by the government?

Ugh, for what?

cannotaffordit's picture
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More government lie-stistics

 I found this quote from Chuck Butler, President of Everbank World Markets, interesting today:

"The OMB reported yesterday that they were revising the Budget Deficit for this fiscal year, which ends Sept. 30th. Get this folks... The OMB says that this year's deficit will be 12.9% of GDP, and next year's deficit will be 8.5% of GDP... OUCH! Now... Let me put these figures into some framework... First of all, back in 1985, finance ministers of the world met at the Plaza Hotel in New York, and were scared to death that the U.S. deficit was out of control... At that time it was 2.5% of GDP! The Plaza Accord called for a weaker dollar to deal with this, what was called out of control, deficit. 

In 2001, the U.S. Deficit reached 4.5% of GDP, which historically meant that a country experiencing debt levels at 4.5% of GDP would experience a currency crisis, or at the very least a major debasing of the currency....

Now skip forward to today... 8.5% of GDP? Where the heck are the finance ministers of the world now, and why are they scared to death regarding this out of control deficit? The only country crying wolf at these figures is China! Oh... And one more thing about the 8.5% of GDP... This is the highest level our debt has been in 60 years, since the end of World War II... 

I shake my head in disgust... What has become of our republic... Oh... And to add injury to insult... This morning, the Trade Deficit, which had fallen recently due to the recession, actually gapped up 5.5% in March... That makes sense to me, actually... You see, the dollar was still "stronger" in the first part of the year, thus eliminating the ability for exports to make a dent in this Deficit... The sharp narrowing of this deficit looks to be leveling off, and once again, that does not bode well for the dollar... The return of the Twin Deficits could be in cards once again, and that could be devastating once again for the dollar.

Oh.... And one more thing on the Jobs Jamboree from Friday, that I completely forgot to talk about yesterday... The jobs created were "ghost jobs"! The totally insane Bureau of Labor Statistics (BLS) added... 226,000 jobs from what they believe was "business creation"... WHAT? Are you kidding me? What a bunch of dolts! Business creation during a recession like this, that would add 226,000 jobs! I'll tell you what happened here... The Gov't needed this report to show some sunshine... And voila! The BLS came through! But here's the rub... It will lead people back into the markets artificially... If losses come, then the BLS should be held responsible for this artificial attempt to make us feel good! OH... And don't forget, in a future month, the BLS will have to take these out because they won't materialize... And when they do... That month's jobs data will suffer... But hey! I can hear the dolts over at the BLS now... Just push it down the road for somebody else to deal with...."




LogansRun's picture
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Re: Daily Digest - May 12

And Ben just think, that debt to GDP is probably as bogus as every other # the gov't throws out at the public.  I'd bet it's more in line of 20% already and growing.  Plus, his thoughts of next year only being 8.5%?  Where does he get THAT # from?  With the moneys being thrown around and the interest that's going to have to be paid on the ACTUAL deficit AND the mess getting worse not better I'd say his # is half of what it will actually come to be...in gov't official #'s.  Real #'s again, will be much higher.  This country hasn't been a republic in a VERY long time....it's not even a democracy any longer (since 1913).  Just my opinions of course.

that1guy's picture
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Re: Daily Digest - May 12

check this out.......


'Trustees of the programs said Tuesday that Social Security will start paying out more in benefits than it collects in taxes in 2016, one year sooner than projected last year, and the giant trust fund will be depleted by 2037, four years sooner.'

Then two paragraphs later.....

'The trust funds — which exist in paper form in a filing cabinet in Parkersburg, W.Va. — are bonds that are backed by the government's "full faith and credit" but not by any actual assets. That money has been spent over the years to fund other parts of government. To redeem the trust fund bonds, the government would have to borrow in public debt markets or raise taxes.'

At least MSM put it in there, but talk about contradiction in a report....


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Re: Daily Digest - May 12

another interesting read, i didn't see it passing here:

It's official: The government in Beijing has announced that the Yuan can now be used in international trade. Their mouthpiece for this occasion was the Industrial and Commercial Bank of China, a private entity, which made the announcement on their behalf. By the end of this year, it is expected that fully 50% of all transactions with Hong Kong will be denominated in the Yuan. In turn, Hong Kong re-exports 90% of its Chinese imports. Importer #1 is the European Union; importer #2 is the United States. Some of these countries may soon find themselves hard-pressed to earn enough Yuan to continue importing Chinese-made products....

read more:



Secretlee's picture
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Re: Daily Digest - May 12

Maybe its just me but each time I see BLS my mind seems to miss the L.

pir8don's picture
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Re: Orlov yet again

Dimtry has another post on the new new money




Too big to fail = too big to fix

VeganDB12's picture
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Re: Daily Digest - May 12

China wants to give up their dependence on the dollar, now it looks like they are going from threats to actionby trading in Yuan instead od dollars. This can't be good for US.

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Mike Pilat
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Re: Daily Digest - May 12

Don't know if anyone's heard of this site: http://www.inflation.us/

It claims to be dedicated to "preparing Americans for hyperinflation." Geez, that's blunt.

In particular, see this page on the site: http://www.inflation.us/charts.html

It shows many charts, including the DOW corrected for government twisted CPI and then corrected for shadowstats inflation. This is an often forgotten residual effect of our bubble economy. Whether the markets are up, down, or sideways, they're always losing purchasing power to inflation.

SteveR's picture
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National Inflation Association

I've been following http://www.inflation.us closely and have found it to align very closely with the philosophies of my economic heroes, such as Dr. Martenson, Peter Schiff, Marc Faber, Jim Rogers, Howard Ruff, etc.  The articles are nice because they are short and geared toward the average person.

gregoro's picture
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Re: Daily Digest - May 12

Shunning US debt...its not just for China anymmore.

Japan's opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.

From the BBC:


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