Daily Digest

Daily Digest - May 23

Saturday, May 23, 2009, 10:58 AM
  • Bernanke: "What have I done?"
  • The mother of all debt clocks (Seen on The Big Picture)
  • Seen on The Big Picture Blog: Hans Rosling (Video, China)
  • Bailtout Nation Released
  • Pension Benefit Guaranty Corporation Deficit Increases
  • FOMC Minutes for April
  • Ron Paul - "Prepare for Revolutionary Changes..." (Video, Repost in case you missed it)
  • D.O.T.: U.S. Vehicle Miles off 1.2% YoY in March (Chart)
  • Will the Recession Mean More Traffic Tickets?
  • Fighting Derivatives Regulation
  • Jobless Claims
  • U.S. unemployment likely to peak above 10 percent: CBO
  • Michigan unemployment reaches 12.9 percent in April
  • Day of reckoning looms for the U.S. dollar

 

Economy

Bernanke: "What have I done?"

 

The post title needs context ...

We all have moments we will never forget. One of mine occurred when I entered Harvard Yard for the first time, a 17-year-old freshman. It was late on Saturday night, I had had a grueling trip, and as I entered the Yard, I put down my two suitcases with a thump. I looked around at the historic old brick buildings, covered with ivy. Parties were going on, students were calling to each other across the Yard, stereos were blasting out of dorm windows. I took in the scene, so foreign to my experience, and I said to myself, "What have I done?"
Ben Bernanke, May 22, 2009
Excerpts from Fed Chaiman Bernanke's commencement address at Boston College School of Law, Newton, Massachusetts on dealing with the reality of unpredictability:
I'd like to offer a few thoughts today about the inherent unpredictability of our individual lives and how one might go about dealing with that reality. As an economist and policymaker, I have plenty of experience in trying to foretell the future, because policy decisions inevitably involve projections of how alternative policy choices will influence the future course of the economy. The Federal Reserve, therefore, devotes substantial resources to economic forecasting. Likewise, individual investors and businesses have strong financial incentives to try to anticipate how the economy will evolve. With so much at stake, you will not be surprised to know that, over the years, many very smart people have applied the most sophisticated statistical and modeling tools available to try to better divine the economic future. But the results, unfortunately, have more often than not been underwhelming. Like weather forecasters, economic forecasters must deal with a system that is extraordinarily complex, that is subject to random shocks, and about which our data and understanding will always be imperfect. In some ways, predicting the economy is even more difficult than forecasting the weather, because an economy is not made up of molecules whose behavior is subject to the laws of physics, but rather of human beings who are themselves thinking about the future and whose behavior may be influenced by the forecasts that they or others make. To be sure, historical relationships and regularities can help economists, as well as weather forecasters, gain some insight into the future, but these must be used with considerable caution and healthy skepticism.
And on how he ended up becoming an economist:
After I arrived at college, unpredictable factors continued to shape my future. In college I chose to major in economics as a compromise between math and English, and because a senior economics professor liked a paper I wrote and offered me a summer job. In graduate school at MIT, I became interested in monetary and financial history when a professor gave me several books to read on the subject. I found historical accounts of financial crises particularly fascinating. I determined that I would learn more about the causes of financial crises, their effects on economic performance, and methods of addressing them. Little did I realize then how relevant that subject would become one day. Later I met my wife Anna, to whom I have been married now for 31 years, on a blind date.
I'm sure someone has a good blind date joke that would fit here.

The mother of all debt clocks (Seen on The Big Picture)

Hans Rosling (Video, China)

Bailtout Nation Released

 

At long last, BAILOUT NATION is now available !

The book was a long time in the making, required two publishers (cause the first one chickened out)
It is full of insights that you won't find anywhere else.

I name names -- call out the bad players for their actions, and show you just how much the CEOs were paid for destroying their firms (about $1.5 billion to the top 20 firms!)

If you have been watching the Bailouts with an increasing sense of frustration, and want to know 1) How this happened; 2) who is to blame and 3) what we can do about it, this is the book for you!

Thank you -- and enjoy the book!

-Barry Ritholt

Pension Benefit Guaranty Corporation Deficit Increases

 

From Eric Lipton at the NY Times: Bankruptcies Swell Deficit at Pension Agency to $33.5 Billion

The deficit at the federal agency that guarantees pensions for 44 million Americans more than doubled in the last six months to a record high, reaching $33.5 billion ...

The Pension Benefit Guaranty Corporation, as of October, had faced a shortfall of $11 billion. But the combined effect of lower interest rates, losses on its investment portfolio and the increase in the number of companies filing for bankruptcy protection resulted in a deepening of its estimated deficit, officials said Wednesday.
...
With the bankruptcy of Chrysler and a possible similar move by General Motors, the agency is facing a record surge in demand. The new deficit estimate takes into account both pensions it has taken over in the last six months, and others it believes it will have to assume control of soon.
Here is the PBGC statement: PBGC Deficit Climbs to $33.5 Billion at Mid-Year, Snowbarger to Tell Senate Panel
The $22.5 billion deficit increase was due primarily to about $11 billion in completed and probable pension plan terminations; about $7 billion resulting from a decrease in the interest factor used to value liabilities; about $3 billion in investment losses; and about $2 billion in actuarial charges.

Snowbarger notes that as of April 30, the PBGC’s investment portfolio consisted of 30 percent equities, 68 percent bonds, and less than 2 percent alternatives, such as private equity and real estate. All the agency’s alternative investments have been inherited from failed pension plans.
Last year the PBGC voted to allow equity investments, but luckily the entire portfolio wasn't moved into equities - and they only lost $3 billion on their $56 billion asset portfolio.

Unfortunately there is much more to come:
The PBGC is closely monitoring companies in the auto manufacturing and auto supply industries. According to PBGC estimates, auto sector pensions are underfunded by about $77 billion, of which $42 billion would be guaranteed in the event of plan termination. The pension insurer also faces increased exposure from weak companies across all sectors of the economy, including retail, financial services and health care.
With companies moving away from defined benefit plans, there will be fewer companies paying for insurance in the future - so the PBGC will probably have to be bailed out.

FOMC Minutes for April

 

From the Fed: Minutes of the Federal Open Market Committee April 28-29, 2009

Some FOMC members suggested buying more Treasury securities:

Members also agreed that it would be appropriate to continue making purchases in accordance with the amounts that had previously been announced—that is, up to $1.25 trillion of agency MBS and up to $200 billion of agency debt by the end of this year, and up to $300 billion of Treasury securities by autumn. Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery; all members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train before deciding whether to adjust the size or timing of asset purchases. The Committee reaffirmed the need to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of economic and financial developments.
emphasis added
The economic projections are near the end. Although the Fed lowered their economic outlook (compared to January), they are still fairly optimistic. As an example, the central tendency for GDP growth in 2010 is 2% to 3%, not far below trend growth, and above trend growth in 2011 (3.5% to 4.8% central tendency of projections). The Fed is also optimistic about the unemployment rate peaking below 10% later this year or in early 2010. In January, the members saw unemployment peaking in 2009, and the central tendency for unemployment was 8.5% to 8.8% in 2009 - we are already at 8.9% in April!

Ron Paul - "Prepare for Revolutionary Changes..." (Video, Repost in case you missed it)

 

Ron Paul reading what appears to be clips from mail he has received. More and more people are catching on...

Ron Paul "Prepare For Revolutionary Changes" (05/19):

D.O.T.: U.S. Vehicle Miles off 1.2% YoY in March (Chart on page)

 

The Dept of Transportation reports on U.S. Traffic Volume Trends:

Travel on all roads and streets changed by -1.2% (-3.1 billion vehicle miles) for March 2009 as compared with March 2008. Travel for the month is estimated to be 245.1 billion vehicle miles.
Click on graph for larger image in new window.

The first graph shows the annual change in the rolling 12 month average of U.S. vehicles miles driven. Note: the rolling 12 month average is used to remove noise and seasonality.

By this measure, vehicle miles driven are off 3.3% Year-over-year (YoY); the decline in miles driven was worse than during the early '70s and 1979-1980 oil crisis. However miles driven - compared to the same month of 2008 - has only been off about 1% for the last couple months.

The second graph shows the comparison of month to the same month in the previous year as reported by the DOT.

As the DOT noted, miles driven in March 2009 were 1.2% less than in March 2008.

Year-over-year miles driven started to decline in December 2007, and really fell off a cliff in March 2008. Although this data isn't seasonally adjusted, it appears that miles driven has stabilized.

Will the Recession Mean More Traffic Tickets?

 

Local governments generally deny that they use traffic tickets to raise revenue, but two economists who reviewed tickets issued in North Carolina drew conclusions that tend to confirm a common suspicion: traffic tickets are more about generating dollars than public safety.

Traffic tickets go up significantly when local government revenue falls, they found. Their study showed for the first time evidence of how "local governments behave, in part, as though traffic tickets are a revenue tool to help offset periods of fiscal distress." ...
Controlling for other factors, a 1 percentage point drop in local government revenue leads to a roughly .32 percentage point increase in the number of traffic tickets in the following year, a statistically significant connection.

Rising unemployment rates also correlate with increased ticketing. As the recession pinches local budgets, expect more traffic citations to be issued. The lesson: drive carefully, don't roll through stop signs, and invest in a good radar detector.

Fighting Derivatives Regulation

 

Astonishing:

“Brooksley Born, the former U.S. commodities regulator who lost the fight to police over-the- counter derivatives a decade ago, said the banks that caused the financial crisis are trying to stop the overhaul of the market.

“Special interests in the financial-services industry are beginning to advocate a return to business as usual and to argue against any need for serious reform,” Born said today as she accepted a Profile in Courage award from the John F. Kennedy Library. If changes aren’t made “we will be haunted by our failure for years to come,” she said.

As the chairwoman of the Commodity Futures Trading Commission in 1998, Born warned that the unregulated contracts posed a serious danger to the global financial system and moved to address changes in how swaps based on interest rates, commodities or currencies were traded. She was stopped by Alan Greenspan, Arthur Levitt and Robert Rubin, who all argued the market could regulate itself.

Lax oversight contributed to the failures last year of Lehman Brothers Holdings Inc. and American International Group Inc., leading to the seizure of credit markets and causing more than $1.4 trillion in writedowns amid the worst financial crisis since the Great Depression. Treasury Secretary Timothy Geithner has promised that the U.S. will for the first time regulate over-the-counter derivatives, which are a major source of bank profits.”

And the nation of sheeple, briefly disturbed from their somnolence, returned to watching American Idol . . .

Jobless Claims

 

May 21 (Bloomberg) -- More Americans than forecast filed claims for unemployment insurance last week, and the total number of workers receiving benefits rose to a record, signs the job market continues to weaken even as the economic slump eases

U.S. unemployment likely to peak above 10 percent: CBO

 

x... ... ...unemployment will likely keep rising through 2010 to peak over 10 percent, the Congressional Budget Office said on Thursdayv

Michigan unemployment reaches 12.9 percent in April

 

Economists from the Michigan Treasury Department and the House and Senate Fiscal agencies last week reached a consensus that state unemployment could average as much as 14 percent this year and 15.3 percent in 2010

Day of reckoning looms for the U.S. dollar

 

The U.S. dollar's day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks - debt and inflation - are brought under a harsher spotlight.

Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a "serious case of dollar damage" was underway.

"We long warned about the day of reckoning for the dollar emerging at the next economic recovery," Mr. Laidi said in a note.

Mr. Laidi said economic recovery would weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies. This would draw investment away from the U.S. dollar, which was dragged down by growing debt and the risk quantitative easing would eventually spark a surge in inflation.

The U.S. dollar slid against most major currencies Wednesday, hitting a five-month low of US$1.3775 against the euro and pushing the Canadian dollar up US1.21¢ to a seven-month high of US87.69¢.

John Curran, the senior corporate dealer at Canadian Forex, said the U.S. dollar would likely fall further in the next week, with the Canadian dollar likely reaching about US88.35¢, at which point it could break higher to test the US92.35¢ level.

"The U.S. dollar is continuing to slide as investor appetite is gaining momentum," Mr. Curran said. "People are getting comfortable about taking on a little more risk."

The rise in the Canadian dollar has moved in lock-step with the improvement in equity markets since March 9. Over this time, the S&P 500 has risen by 34%, the S&P/TSX composite index has gained 35% and the Canadian dollar has increased by 14%, equal to almost US11¢. Since Feb. 18, light-crude oil has risen by 46% to US$62.12.

But as risk appetite and equities improve, Mr. Curran said it was unlikely the U.S. dollar would embark on a long-term decline.

"While things are beginning to thaw, it doesn't mean it's full-on summertime just yet," he said. "A lot of people are looking for the Canadian dollar to strengthen dramatically again towards par. I'm not sure about that just yet."

Nevertheless, concern has been mounting that the increasing U.S. debt load, as well as a potential inflation time bomb in the form of the quantitative easing, could drag down the greenback. Garnering attention is the risk the United States could lose its triple-A sovereign credit rating, which reflects the chance of the borrower defaulting on its debt.

"By many measures, the U.S. appears just a few short steps away from losing its coveted triple-A status, unless the recovery turns out to be considerably stronger than expected and the fiscal repair is faster than commonly expected," said Douglas Porter, deputy chief economist at BMO Capital Markets. "A downgrade could boost the cost of funding U.S. debt at the margin, but underlying inflation and fiscal fundamentals will ultimately be the primary driver."

Despite the risk, Paul Ashworth, chief economist at Capital Economics, said the United States was unlikely to lose its rating. But, in the event of a downgrade, he said it would probably not have a lasting impact on the U.S. dollar.

However, he said a big threat lurked in the country's expanded monetary base, which now stands at about US$1.8-trillion. While the expanded monetary base was needed to feed economic growth and ward off deflation under the Fed's quantitative easing plan, Mr. Ashworth said such high levels could fuel rampant inflation once broader monetary conditions improved.

He said it remained to be seen how much success the Fed will have when it decides to end its quantitative-easing plan and shrink the monetary base.

 

9 Comments

dickey45's picture
dickey45
Status: Bronze Member (Offline)
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Posts: 77
Re: Daily Digest - May 23

eeks - where is everyone? Rosling - China has about 1.8 trillion in reserves - about 4 Iraq wars in one year.

idoctor's picture
idoctor
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Posts: 1731
Re: Daily Digest - May 23

Peter Schiff the extremist?

CB's picture
CB
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Posts: 365
Re: Daily Digest - May 23 (termite truck)

This "termite truck" story was circulating on the wires today:

Quote:

U.S

Maine-bound truck burns wood chips

May 23rd, 2009 | LEWISTON, Maine -- A pickup truck that was modified in Alabama to burn wood chips for fuel was headed to Maine with its new owners behind the wheel of the bright green vehicle they call "Termite."

Auburn, Maine, businessman Ford Reiche and his son George left Birmingham, Ala., last Tuesday in the 1991 Dodge Dakota pickup. A device in the bed of the truck roasts the chips to form a wood gas, which is cooled, filtered and fed into the engine. The truck has a gasoline-powered backup system, according to Reiche's blog, http://blog.safehandling.com.

It was modified to be green-powered by farmer-inventor Wayne Keith, who has driven 15,000 miles in the vehicle, including a trip from Alabama to California and back last year. He's now working on a new prototype.

When burning chips, the truck burns one pound of wood for each mile driven, or about 5,000 miles per cord.

................

The wire article is short on details, but the truck uses a reactor mounted in the bed that produces "syngas" in an oxygen-starved reaction using scrap wood as a fuel. The syngas is then fed to the truck's engine as fuel. Seems a little cumbersome, but it is clearly effective enough in powering the vehicle.

Additional info here:

http://energyfarms.wordpress.com/2009/04/20/biomass-instead-of-gas/

Quote:

Let’s say that we want to run a vehicle on wood. There are at least three ways to do it:

  1. Use an on-board gasifier to make syngas for an internal combustion engine.
  2. Generate electricity for electric engines in a wood-fired power plant.
  3. Convert the wood to ethanol to burn in an internal combustion engine.

Which is the most efficient?

I’ll trust that Mr. Keith’s ‘mile-per-pound’ estimate is accurate for the first option. As a rule-of-thumb, wood-fired power plants consume 1.5 tons of wood per megawatt-hour (wet weight) and electric vehicles get about 3 miles per kilowatt-hour. That works out to exactly a mile per pound, wet weight (do the math), making Mr. Kieth’s pickup truck roughly as efficient as an electric vehicle. The pickup truck requires no batteries, and uses its original internal combustion engine. The biggest disadvantage of the gasifier is its bulk.

Theoretically, an ethanol plant can make about 50 gallons of ethanol per ton of wood (wet weight). A pickup truck that gets 20 miles per gallon of ethanol would get about 0.5 miles per pound of wood (do the math) — half the efficiency of the other options. The efficiency of wood ethanol is further compromised by the fact the processing demands acids or expensive enzymes to hydrolyze cellulose into sugar, and considerable energy for fermentation and distillation of sugars into ethanol. People did it during World War II, and they’ll probably try it again, thanks to US ethanol mandates, but I don’t think it makes much sense.

Hmmm… Electric tractors might be a neat idea, but maybe we should be trying to run more farm machinery on syngas.

and some practical "how-to" and "where to find" here:

http://www.gekgasifier.com/?gclid=COL1lqHn05oCFShRagodlA3D2w

Quote:

The Gasifier Experimenters Kit (GEK) offers beginners through experts an easy way build and customize a wide variety of gasifier reactor types and run configurations.  Whether you’re a DIY enthusiast, university researcher, or industrial engineer, the GEK will get you over the starting hurdles of gasification and on to the more rewarding work of testing fuels, making power and optimizing performance.

The GEK is designed in a modular fashion for easy switch out between common reactor types and operating regimes.  You can use the GEK system to run an expertly configured downdraft gasifier for clean gas making and power generation.  Or you can use the same base to create a pyrolysis unit for Biochar making and soil amendment.  Each “reactor type” is a separate assembly that bolts into a common “gas cowling and ash handling” base.  Within each reactor type, relevant variables are easily adjusted and sub-assemblies are simply replaced via standardized “bolt to” flanges.  See here for the list of current and planned GEK reactors.

The modular design also allows users to selectively add performance parts and process elaborations as their needs require. Gasifiers are seldom “one design fits all”. Thus the GEK is designed for easy integration of add-ons such as: auger fuel feed, in-situ fuel drying, electronic instrumentation and control, active tar rcycling systems, automated ash removal, and mechanical fuel stirring.

The result is a “Lego system” of gasification and pyrolysis– a powerful development platform to get you quickly into the state of the art of biomass thermal conversion, and soon thereafter beyond its current limitations.

and pictures of a modified Honda Accord here:

http://www.gekgasifier.com/gallery/v20-honda/

Seems an interesting technology, especially for folks ready with access to a fuel source.

 

kemosavvy's picture
kemosavvy
Status: Martenson Brigade Member (Offline)
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Posts: 254
Re: Daily Digest - May 23

good post CB,

I actually have been researching this idea of pyrolysis and syngas recently, If you ahven't heard I host a podcast that I circulate around this site nad we recently had a guest who is the executive director of the Int'l Biochar Initiative and he spoke on the topic of Biochar. I would recommend you check it out. Here is the link

http://twobeerswithsteve.libsyn.com/

The Biochar episode is episode 5

I contacted the guys with the GEK and hopefully they will come and talk with us because they seem to have it figured out for the common man. They are creating methane through pyrolysis in the trunk of the Honda and as a byproduct they're also capturing the carbon in th form of biochar, which they can feed to their garden. interesting, i have to talk to them to see how it all works.

fujisan's picture
fujisan
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Re: Daily Digest - May 23

fujisan's picture
fujisan
Status: Gold Member (Offline)
Joined: Nov 5 2008
Posts: 296
Re: Daily Digest - May 23

Lost Vegas: Vanguard


What really shocked me is the renters been kicked out without even a prior notice at 6:00 having 20 min to get out. And they just feel it's normal ! In most of Europe it would be illegal.

FYI In Belgium, changing ownership does not nullify renting contract but transfer them. The new owner cannot even increase the renting cost nor cancel the contract unless he is going to occupy the house himself in which case he must give prior notice.

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Re: Daily Digest - May 23

And how long would you expect the world's forests to last if we started trucking stuff everywhere with gasifiers...?  This is a serious question BTW......

Mike

CB's picture
CB
Status: Gold Member (Offline)
Joined: Mar 18 2008
Posts: 365
Re: Daily Digest - May 23

It does seem interesting KS - I was not familiar with it. I am not sure how practical it would be for vehicles, but for fixed power generation of electricity it might be quite effective as an emergency or supplemental source. Thanks for the link to the podcast.

Mike, I agree its not a panacea - though it seems a promising way to supplement existing technologies that can use waste and small diameter wood that is abundant in some areas

 

 

 

kemosavvy's picture
kemosavvy
Status: Martenson Brigade Member (Offline)
Joined: Oct 13 2008
Posts: 254
Re: Daily Digest - May 23

obviously mike i wouldn't (or most everyone for that matter) condone someone slashing down forests to burn for energy. That is the proverbial biting your nose off depsite your face. But you are correct, the entire population cannot switch to gasifiers but those in heavily wooded areas can use wood chips in their gasifiers. The ideal solution is a mixture of energy sources depending on your location in this world; large landowners of unfarmable land can take advantage of jatropha for biodiesel, desert regions can use solar, windy mountaintops can harness wind power.

Going forward (maybe 5-10 years) your source of energy will be a conscious decision, not like the past 80 years where energy has been as easy as flipping a switch switch. In this 5-10 year transition period I am going to make every effort to educate myself because I want to be ahead of the curve.

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