Daily Digest

Daily Digest - May 13

Wednesday, May 13, 2009, 10:06 AM
  • America about to go broke?
  • Trustees' Report (PDF Reference for above article)
  • The new new money (H/T Psycho)
  • Transition Towns (Video)
  • David Tice - More Truth Telling...(Video)
  • Freight Graveyards: Shipping Collapses, Scrap Yards Booming
  • Oil, Now up 70% Since February
  • Not So Different
  • My $4,500 Lemon: Taking the Feds Up on Cash For Clunkers
  • STIMULUS WATCH: Early road aid leaves out neediest
  • Imminent Global Stock Market Crash to Support U.S. Dollar
  • Four Bad Bear Markets (Chart)
  • We're All Euro Now: Government Spending at 45% of GDP (Chart on page)
  • Meredith Whitney on banks and stress tests (Video)
  • Why tribes, not money or factories, will change the world: Seth Godin on TED.com (Video)
  • The US is about to go BROKE-Inflation is going to be rampant
  • Roubini Economy and banks (Video)
  • Stock markets: reversal time? (Chart)
  • The other deficit, (Chart)
  • A few A(H1N1) Links Dr. Henry Niman's Map 3,573 U.S. Cases as of this wrtitng, A(H1N1) Current Timeline, CDC Cases

Economy

America about to go broke?

Ironically, payroll tax payments are still large enough that the Social Security and Medicare programs don't need every dime. The extra money goes into the program trust funds as Treasury debt. The actual cash is spent elsewhere. Basically, the employment tax has been subsidizing other federal spending. This has been going on since the 1983 "reform" of Social Security, a disaster chaired by Alan Greenspan, later the Federal Reserve chairman.

Today's deficits? That's nothing

Last year's Social Security trustee report estimates that OASDI (Social Security retirement and disability) and HI (hospital insurance), excluding book entry interest for the trust funds, will have more revenue than expenses until 2015. If higher cost assumptions prevail, however, the last year of positive flow will be 2010.

That's next year.

I am not making this up. It is public record. You can see for yourself by examining table VI.F9 on page 191 of the 2008 trustees' report.

When Social Security and Medicare costs exceed their revenues, the Treasury will have to borrow money to cover the shortfalls. When that happens, today's stunning deficits will look small.

That's why our future contains inflation, not deflation.

Trustees' Report (PDF Reference for above article)

The new new money (H/T Psycho) 

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.

Transition Towns (Video)

David Tice - More Truth Telling...(Video)

Freight Graveyards: Shipping Collapses, Scrap Yards Booming 

When times were good, shipping companies ordered huge numbers of new steel behemoths to ply the oceans. Now though, many of those same container lines are eager to get rid of their ships. The scrapping business in South Asia is booming.

The sandy beaches north of Chittagong in Bangladesh look like giant steel graveyards. Ships line the banks ready for dismantling. Others are so far disassembled that their hulls are all that is left protuding morosely from the water, according to shipping industry journal Lloyd's List. All kinds of vessels get broken down here: bulk carriers, container ships, vehicle transporters and oil tankers.

The wrecks are remnants of a disappearing world. Once they sailed the oceans as flagships of globalization. Now they're symbols of an order that threatens to sink with them.

The global economic and trade crisis is so severe that a growing number of ships, some larger than the Titanic, are being pulled from their routes and sent to scrap yards to be sold for parts. Freight and charter rates have fallen and regularly scheduled passenger lines are being cancelled. Those container ships that are still sailing can barely cover their costs. Over-capacity created in recent boom times has accelerated the trend toward scrapping ships.

Yet one boom replaces another. With shipping down, shipbreaking is the business of the hour. The shift began late last year and initially targeted ships with a combined load-carrying capacity of 10 million tons. Now the heavy rigs are being lined up too as they sit idly anchored in harbors around the world. Much of the scrapping happens in South Asia and with little regulation in place.

Running Ashore

As the economy worsens the shipbreaking business improves. The best place to beach large ships is near Alang, in the southern part of the Indian state of Gujarat. Tides are high here, allowing the ships to run ashore under their own power. Once the tide is low and the hulls are out of the water, work begins of gutting and cutting up the ships.

It's a "non-stop boom," the Hindustan Times writes. Blowtorches hiss, steel windlasses screech, and sledgehammers pound along the 11 kilometer beach. Cranes remove the superstructures from the deck. A bulk freighter that until recently might have carried bauxite or grain disappears within 40 days.

A few years ago, when globalization was in full swing, few ships came near Alang. Many of the slots -- as the dismantling sites are now known -- were closed due to a lack of demand. Now millions of dollars are being earned from the scrap metal.

Nobody knows this better than Indian-born Anil Sharma, a cash-buyer who promotes the bizarre boom all the way from Maryland in the US. In the jargon of the industry, a cash-buyer acquires ships from the shipping companies who want to get rid of their burdensome vessels. He then sells them to the scrappers. The scrap metal lands in small mills in places such as Chittagong or Karatchi to be turned into steel for the construction industry. Some parts may reemerge as hinges for shipping containers whose own demand is falling in the global downturn.

Oil, Now up 70% Since February

Don't look now, but oil has been moving sharply higher over the last couple of weeks, and it is now up 71.15% over the last 3 months. A move of this magnitude in any other market would normally be getting front-page headlines, sparking fears that energy prices would "break the back of the consumer." But since the consumer's back is already supposedly broken, nobody seems to care -- yet.

But rest assured that a continued increase in prices at the pump will start to be felt at some point, causing another area of concern for both the people that consume it and the people in Washington hoping to decrease our use of it. If oil prices are going higher on their own during such a tough economic time and Washington pols try to make them go up even more with cap and trade, taxes, etc., it's not going to make their constituents too happy. At least we know that Russia, Venezuela, the Middle East, and OPEC are starting to breathe a sigh of relief. Things weren't looking too good for them when oil was in the $30s.

Not So Different

Let me tell you about the very rich. They are different from you and me.
-- F. Scott Fitzgerald

My $4,500 Lemon: Taking the Feds Up on Cash For Clunkers

It's official: our minivan is a toxic asset.

The "toxic" part I knew already. Between the catastrophic diaper failure while touring Amish country circa 2004, and the projectile vomiting episode on the way to the beach in '01, my family van has been a rolling Superfund site for years. (See the 50 worst cars of all time.)

The news flash is "asset." Thanks to the cash-for-clunkers program cooked up in Congress, our 2001 Honda Odyssey may actually be worth something - up to $4,500 if we trade it in on a new, more efficient vehicle. That works out to nearly a dollar per dent, scratch, stain and tear.

Being too rich for foreclosure, but too poor for derivatives, I had begun to think the government would never craft a bailout for me. However, prodded by crafty old John Dingell of Michigan, dean of the House of Representatives, Uncle Sam has selected me to stimulate the economy by buying a new car. This program will pay me to do it.

My first reaction to this news was shock. Sometime after I backed into a stump, but definitely before I clipped the neighbor's garage - actually it was around the time the babysitter somehow creased a perfect inch-deep furrow along the entire passenger side, headlight to brake light - I stopped thinking of the van as having any monetary value whatsoever. I resolved to drive it for at least 10 years, or until I developed a capacity for shame, whichever came first. At which point I would pay someone to take it off my hands.

Now I see the van with fresh eyes. It's no longer just a sun-bleached hulk with the rear wiper snapped off. It's a wiperless hulk worth thousands. If this is socialism, call me comrade!
The idea, I realize, is to lure the Von Drehle clan out of our gas hog and into a phone booth-sized vehicle powered by switchgrass and meditation. Unfortunately, with four kids, all in grade school, we need a minivan. So is this program for us? To find out, I took a ride on the information superhighway to www.fueleconomy.gov, which is an easy way to compare the efficiency of just about every car imaginable.

Within a few clicks, I determined that our current van averages 16 miles per gallon in the city and 23 mpg highway, which somehow averages out, according to the government, to 18 mpg. That's right on the cut-off for the program, but let's say they vote me in. Given our relatively light usage - around 8,000 miles per year - this translates to about 5.4 tons of CO2 emissions and 10.1 barrels of oil consumed each year. Could be worse, though in the category called "air pollution" the old van rates a pitiful 1 on a scale of 10 (and that's not counting the stench of fossilized chicken nuggets).

STIMULUS WATCH: Early road aid leaves out neediest 

Although the intent of the money is to put people back to work, AP's review of more than 5,500 planned transportation projects nationwide reveals that states are planning to spend the stimulus in communities where jobless rates are already lower.

Imminent Global Stock Market Crash to Support U.S. Dollar

Bob Chapman writes: On Friday the dollar completely broke down, with the USDX collapsing to about 82.5, as monetizations by the Fed became a stark reality. A world stock market collapse could be imminent as a source of dollar support. We wonder how low they will let the dollar go before they collapse the stock markets to chase people back into US treasuries, which have also broken down, with treasury interest rates on the rise despite various Fed purchases of treasuries in the hundreds of billions. So much for the bogus stress tests as things turn much uglier than anticipated by the boneheads in Goldman Sachs South who are attempting to resurrect the Goldilocks Matrix.

The suckers rally is simply the loading and winding of a catapult meant to throw the dollar upward as the stock market spring unwinds at the moment chosen by the PPT, which moment has already been telegraphed to Illuminist insiders for their continued looting of the sheople and for the filthy aggrandizement of their growing mountain of ill-gotten gains. The stock market shorts are being set up in the dark pools of liquidity beyond the purview of regulators as this article is being written, so if you plug yourself back into the pod electrodes of the Goldilocks Matrix again, you are in for a major shock.

Stock market rallies aimed at sucking in sheople-dupes based on bogus hedonic financial statistics, fairytale financial statements, fascistic injections of monopoly money into the economy and false Goldilocks news spin will continue on as a source of insider trading profits and as a ready source of capital to boost the dying dollar. As the world's stock markets collapse in sympathy with the US stock markets as the PPT withdraws its support globally, stocks around the world will be sold off, and the proceeds will be channeled into the perceived safe-haven of US treasuries. This boosts the dollar because sales proceeds from the liquidation of foreign stocks that are denominated in foreign currencies are exchanged for dollars in order to purchase US treasuries, thereby creating a dramatic demand for dollars. Sell into this current stock market strength and get out of the stock markets, or prepare to get vaporized by an Illuminist laser beam that is being focused on the sheople for a nice roasting so the elitists can enjoy some more mutton chops while they watch the dollar anti-gravity machine perform its magic for their entertainment and profit. Also, a dollar boost provides some assistance for carrying out JOB ONE at the Fed, which is gold suppression, so you can take a stock decline to the bank based on that principle alone.

Four Bad Bear Markets (Chart)

We're All Euro Now: Government Spending at 45% of GDP (Chart on page)

Chuck Dietrick with the details:

One of the more disconcerting statistics is government spending as a percentage of GDP. In 1903, the figure was 6.8% for the U.S. In 2009, it's projected to be 44.72%—a greater than 8% increase over the average of the previous 5 years—not particularly encouraging. Less encouraging are the comparisons with major Western European countries. In 2007, France was at 61.1%, Sweden and Denmark 58.1%, Italy 55.3%, the UK 50%, and Germany 48.8%. Yep, we're on the march to be the equal of those paragons of economic stagnation.
The below chart details this run up since the early 1900's (Federal, State, and Local as a percent of GDP); government spending is now projected to be at the highest level as compared to GDP since WWII.

Meredith Whitney on banks and stress tests (Video)

"I couldn't believe how poorly the impressions leaked, how effectively people say it was leaked, if it was any other company leaking that information there would be SEC investigations all over the place."

Why tribes, not money or factories, will change the world: Seth Godin on TED.com (Video)

The US is about to go BROKE-Inflation is going to be rampant

Prices dropped last year. But we still need to invest to protect ourselves from inflation. That's why our retirement-plan investing needs an inflation "tilt." You'll understand why in a few paragraphs.

How bad will future inflation be? I don't know. Neither does anyone else. It could be a normal inflation of 3% to 4% a year. It could also be a banana-republic 10% a month. What we know is that all governments make promises they can't fulfill. Our government certainly has. Under both political parties, it has taken promise making to a high art. This is not hyperbole. The figures can be found in regularly published government reports.

Much worse than you probably think

The figures exist, but they are ignored. News reports regularly inform us of the growing federal deficit, projected at a stunning $1.75 trillion for fiscal 2009 and $1.17 trillion for 2010. But regularly reported, less visible government obligations have been growing much faster.
In the nearly five years from January 2003 to December 2007, the Medicare trustees reported that the unfunded liabilities of Social Security and Medicare grew by a stunning $10.4 trillion. The average annual growth topped $2 trillion.

That exceeds the expected formal deficit of $1.75 trillion this year.

In the 2008 trustees' report Here (.pdf file), the unfunded liabilities of Social Security and Medicare -- promises of future retirement and health care benefits -- total $42.9 trillion. In a few days, we should be able to read the 2009 report. It's a good bet that the unfunded liabilities will show an increase in the new report.

Ironically, payroll tax payments are still large enough that the Social Security and Medicare programs don't need every dime. The extra money goes into the program trust funds as Treasury debt. The actual cash is spent elsewhere. Basically, the employment tax has been subsidizing other federal spending. This has been going on since the 1983 "reform" of Social Security, a disaster chaired by Alan Greenspan, later the Federal Reserve chairman.
Today's deficits? That's nothing

Last year's Social Security trustee report estimates that OASDI (Social Security retirement and disability) and HI (hospital insurance), excluding book entry interest for the trust funds, will have more revenue than expenses until 2015. If higher cost assumptions prevail, however, the last year of positive flow will be 2010.

That's next year.

Roubini Economy and banks (Video)

Stock markets: reversal time? (Chart)

The other deficit, (Chart)

A few A(H1N1) Links Dr. Henry Niman's Map 3,573 U.S. Cases as of this wrtitng, A(H1N1) Current TimelineCDC Cases 

12 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - May 13

 free

The Social Security article was a super read, as were the ones Chris did. What surprised me was the source, while I found it on Financial Armageddon's website the article resides on MSN Money?!?!?!

I can only wonder what will happen when more stuff like this makes it mainstream - Will there be a rush to the door?

Last night I stopped to get gas on the way home from soccer, the guy ahead of me was sarcastically saying how gas went up 32 cents a gallon once the economy "got better". I said, I wonder if it is the economy "recovering" or just all the money they are printing making our dollar worth less?

This is a line at a convenience store in a blue collar tough neighborhood. Right next to a closed down factory and a large trailer park. I was amazed at the comments I heard from everyone in line and the owner of the store. If Bernanke, Obama, Paulson, Bush or Geithner were present they would have gotten an ear full.

The store owners blood pressure had to have been dangerously high, his face was red and he was relating someone going broke and borrowing money from friends and family to the US borrowing money from China.

I was really amazed, I guess I need to get out more.

Take care

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Daily Digest - May 13

Davos: In my short experience, I've found that rural, blue collar types understand the basic problems with our nation's direction far better than those that are in the cities working in the "service" sector. Many people in rural America have been experiencing pain for quite sometime because they have not benefitted from all the inflationary spending like the cities have. I think that trend is just starting to reverse. In my life, I've seen that the big cities tend (it's not a rule) to have a sort of corrupting influence on the people. Perhaps it's because the initial benefits of inflation tend to be most prevalent in cities, perhaps it's because the service sector is most concentrated in cities, and perhaps it's because workers in the cities tend to be less independent and self sufficient; instead of helping themselves and working directly with their neighbors, they are working for the dollar. I've certainly gotten this sense where I live.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - May 13

 Hello Mike: Really super merits! Take care

ccpetersmd's picture
ccpetersmd
Status: Martenson Brigade Member (Offline)
Joined: Oct 12 2008
Posts: 799
Re: Daily Digest - May 13

Mike, an anecdotal experience corroborating some of your statements regarding rural America:

I gave a Crash Course DVD to my parents-in-law, who live in rural northern Iowa. My father-in-law, a retired farmer, watched the entire Crash Course in a single day, and very much appreciated the information contained within. But, he feels he and his wife, a retired nurse, need not do a much further to prepare, even if all hell were to break loose. And, you know, they're probably right! They live well within their means, have no outstanding debts, grow a fair amount of their own food, etc.

On the other hand, their supposedly intelligent son-in-law was all about the best and brightest new gadget, and had not an inkling that his expensive lifestyle was fundamentally unsustainable. Now, there's almost nothing I like better than spending a long weekend at the farm doing practically nothing...

FireJack's picture
FireJack
Status: Silver Member (Offline)
Joined: Feb 8 2009
Posts: 156
Re: Daily Digest - May 13

I get nervous reading the news lately (or the blogs I should say). It looks like things are going to get bad, I mean really really bad. What's worse is that as oil production collapses it going to go from really really bad to worse.

The markets are dropping again, is this the next major drop? Will this trigger a meltdown or will some random lie come along and they'll suddenly jack up again? The commercial real estate, the alt-a option arm mortgages, credit cards, derivatives, not to mention all those lies they were telling to keep the ecomomy going just a bit longer. Seeing all that red in the markets is making me think time is up but mebey we'll make another swing at it.

LifeisGood's picture
LifeisGood
Status: Bronze Member (Offline)
Joined: Aug 16 2008
Posts: 27
Re: Daily Digest - May 13

Play it by ear, no one can predict 100% when it will happen but everyone knows it will (collapse)

 

 

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
Lookit who's made Fellow of the Post Carbon Institute...!
1. New Fellows
maveri's picture
maveri
Status: Silver Member (Offline)
Joined: Nov 20 2008
Posts: 159
Re: Daily Digest - May 13

I really really enjoyed the 'tribes' video - excellent

Thanks once again :-)

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
Re: Daily Digest - May 13

Market plunges amid global recovery uncertainty

By News Online business reporter Michael Janda

Posted 4 hours 48 minutes ago


Traders reversed recent positive sentiment, with global markets plunging overnight and Australia following (file photo). (AFP: Scott Olson/Getty Images, file photo)

The Australian market followed, and surpassed, the losses on Wall Street overnight as markets had second thoughts about the global economy's 'green shoots of recovery'.

Official data showing a 0.4 per cent decline in US retail sales during April surprised and spooked investors who had thought that the world's largest economy may have reached a bottom.

This led to a 2.2 per cent drop in the Dow Jones Industrial Average, and similar falls on markets across the world.

However, the Australian market topped losses on Wall Street, with the All Ordinaries index plunging 3.4 per cent, or 132 points, to 3,711.

The ASX 200 recorded a similar fall of 133 points to finish at 3,723.

MY COMMENT:

"Official data showing a 0.4 per cent decline in US retail sales during April surprised and spooked investors who had thought that the world's largest economy may have reached a bottom."  SURPRISED?  REALLY?

Sigh.....

Mike

suesullivan's picture
suesullivan
Status: Gold Member (Offline)
Joined: Oct 6 2008
Posts: 305
re: Chris a Post Carbon Institute fellow

It's funny how invested I get in people I've never met -- I got a little thrill of excitement and vicarious accomplishment when I read this!  (It reminds me of a T-shirt I saw recently that said something like, "my geographically based sports team is better than your geographically based sports team!")

Go Chris! Or in the words of my computer-gaming kids, "Chris, ftw!"

fujisan's picture
fujisan
Status: Gold Member (Offline)
Joined: Nov 5 2008
Posts: 296
Re: Daily Digest - May 13

 Op-Ed Contributor - The Almighty Renminbi? - NYTimes.com

Quote:

The Almighty Renminbi?
By NOURIEL ROUBINI
Published: May 13, 2009

THE 19th century was dominated by the British Empire, the 20th century by the United States. We may now be entering the Asian century, dominated by a rising China and its currency. While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted. Sooner than we think, the dollar may be challenged by other currencies, most likely the Chinese renminbi. This would have serious costs for America, as our ability to finance our budget and trade deficits cheaply would disappear.

Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined — and the pound lost its status as the main global reserve currency — when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets. The resulting downfall of the dollar may be only a matter of time.

But what could replace it? The British pound, the Japanese yen and the Swiss franc remain minor reserve currencies, as those countries are not major powers. Gold is still a barbaric relic whose value rises only when inflation is high. The euro is hobbled by concerns about the long-term viability of the European Monetary Union. That leaves the renminbi.

...

fujisan's picture
fujisan
Status: Gold Member (Offline)
Joined: Nov 5 2008
Posts: 296
Re: Daily Digest - May 13

KBC Gets More Aid From Belgian Government - NYTimes.com

Quote:

PARIS — Just weeks after mopping up one financial disaster, the Belgian government found itself in the thick of it again Thursday, saying it would prop up KBC Group with a massive loan guarantee.

KBC, which is battling to overcome a legacy of bad derivatives investments and souring loans to Eastern and Central Europe, will receive an initial guarantee of €22.5 billion, or $30.6 billion, the government said. KBC also reported a net loss of €3.6 billion for the first quarter, after it booked investment losses of €4.1 billion.

...

Too Big To Save for my poor little country.

 

Banks sue MBIA over $5 billion restructuring | U.S. | Reuters

Quote:

NEW YORK (Reuters) - A group of major banks including Citigroup Inc, JPMorgan Chase & Co and Barclays Plc has sued MBIA Inc, charging that the bond insurer illegally restructured its operations by moving $5 billion of assets and leaving a key unit effectively insolvent.

The group of around 20 financial institutions and affiliates are seeking to ensure that MBIA pays valid claims on insurance it issued on defaulting bonds, but did not put a value on such claims.

MBIA, along with rival bond insurer Ambac Financial Group Inc, suffered huge losses in the recent financial turmoil as they were hit by claims on insurance policies they issued on repackaged debt, which turned out to be more risky than they assumed.

A spokesman for MBIA, which reported a profit of $697 million last quarter, declined comment on the lawsuit, which was filed on Wednesday in New York State Supreme Court.

...

Other major banks party to the suit include units of: ABN Amro, BNP Paribas; HSBC, Bank of America Corp, Morgan Stanley, Royal Bank of Canada, Societe Generale, UBS AG and Wachovia Bank.

BMIA just smells organised fraudulent bankruptcy in preparation...

Note: KBC also sued MBIA.

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