Daily Digest

Daily Digest - November 30

Monday, November 30, 2009, 12:00 PM
  • At Odds over Land, Money and Gas
  • Professor advises underwater homeowners to walk away from mortgages
  • Joshua Kosman, Predicting The Next Credit Crisis
  • The Fed doesn't want banks to increase lending
  • Is America's addiction to debt like its Civil War era addiction to slavery?
  • Theory that Civilization is a Heat Engine 
  • Mauldin: Why I Am An Optimist 
  • Operation To Rescue Dubai Begins
  • Dubai Has Always Been Bankrupt
  • Dubai's Complex Relationship With Abu Dhabi
  • US Stocks May Face More Pain Monday
  • A Crisis Of Unprecedented Proportions Is Approaching
  • United Nations Says US Is Neglecting Deepening Homeless Crisis
  • 30 Global Financial Firms Listed As Systemic Risk Institutions
  • More Shoppers Spent Less Over Black Friday Weekend
  • Why Big Shopping Bargains Are Bad News For America 
  • Half A Recovery
  • New Law Would Give Foreclosure Protection To All In NY
  • Professor Advises Underwater Homeowners: Walk Away From Mortgages
  • US Workers Seeking Day-Labor Jobs
  • Banks Bracing For Record Defaults In January
  • Erik Sprott: Don't Bank on the Banks
  • More People Driving Without Car Insurance
  • Find Bargains On Uncle Sam's Ebay 
  • The Real Conspiracy Was Launched By The Fossil Fuel Industry

Economy

At Odds over Land, Money and Gas (joemanc)

Like many landowners in Broome County, which includes the town of Chenango, the Laceys could potentially earn millions of dollars from the natural gas under their feet. They live above the Marcellus Shale, a subterranean layer of rock stretching from New York to Tennessee that is believed to be one of the biggest natural gas fields in the world.

Professor advises underwater homeowners to walk away from mortgages (joemanc)

Reporting from Washington - Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it. Don't think you're doing something morally wrong.



That's the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."

Joshua Kosman, Predicting The Next Credit Crisis (Benjamin J.)

Now burdened with debt, many of those companies owned by private equity firms are in danger of defaulting. In a new book, Kosman writes that it's likely half of the 3,188 American companies bought by private equity firms between 2000 and 2008 could collapse.

The Fed doesn't want banks to increase lending (Benjamin J.)

Tim Duy - Director of Undergraduate Studies of the Department of Economics at the University of Oregon and the Director of the Oregon Economic Forum - noticed an amazing sentence in the minutes of the most recent meeting of the Fed Open Market Committee: '... participants noted that banks might seek to reduce appreciably their excess reserves as the economy improves by purchasing securities or by easing credit standards and expanding their lending substantially.

Is America's addiction to debt like its Civil War era addiction to slavery? (Doug S.)

Amazingly, our country is making 21st century mistakes as serious as ones leading up to our Civil War. Where are the large cuts to the federal deficit that Obama promised six months ago? The $500 billion structural deficit of a few years ago is now a trillion dollar structural deficit. We are as addicted to debt now as this nation was trapped by slavery back then. In both cases the subsidy of injustice is unsustainable. In both cases the redemption payment will be profound. In both cases President Lincoln's words in his second Inaugural Address will ring true: "Woe unto the world because of offenses."

Theory that Civilization is a Heat Engine (byrnegreen)

A University of Utah scientist (Tim Garrett, an associate professor of atmospheric sciences) argues that rising carbon dioxide emissions - the major cause of global warming - cannot be stabilized unless the world's economy collapses or society builds the equivalent of one new nuclear power plant each day.

Mauldin: Why I Am An Optimist (JRB)

I admit that of late my writings have had a rather dark tone. There are certainly a number of severe long-term problems that we must deal with, and they're going to serve up a lot of economic pain. But the Thanksgiving weekend with the kids has me in a reflective mood, and one that has only served to underscore my long-term optimism.

Operation To Rescue Dubai Begins (M.W.)

The liquidity measures confirmed by the United Arab Emirates' central bank on Sunday night are just the start of a slew of announcements that will attempt to rebuild international confidence in Dubai.

Dubai Has Always Been Bankrupt (M.W.)

The Emiratis will tell you Dubai was built by the Sheikh. It is untrue. The people who built the city can be seen in chain-gangs by the side of the road. In their home countries, these workers are told they can earn a fortune in Dubai. When they arrive, their passports are taken from them, and their wages are a tenth of what they were promised. They have no way to go home, and if they try, they are beaten by police.

Dubai's Complex Relationship With Abu Dhabi (M.W.)

Abu Dhabi, which has more oil than Dubai and no cash problems, could wipe out Dubai World’s $59 billion in debt easily. But that seems unlikely. Despite the announcement by the emirates’ central bank on Sunday that it would make more money available to Dubai, such imprecise promises may not be enough to placate investors.

US Stocks May Face More Pain Monday (M.W.)

With the competitiveness and interconnectedness of the global financial markets, we could still see some major tremors in the markets. Shares could be in for more pain Monday as investors sift for details about which banks have lent Dubai World money. Dubai's debt extension is considered a default by some bond investors.

A Crisis Of Unprecedented Proportions Is Approaching (M.W.)

Banks are projected to lose $430 billion on commercial real estate loans in the next two to three years said Stan Mullin, an associate with California Real Estate Receiverships. Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in 4 years, and another $500 billion to $750 billion of unscheduled maturities (i.e., defaults)

United Nations Says US Is Neglecting Deepening Homeless Crisis (M.W.)

From New York to Los Angeles, UN human rights expert tours US hearing from subprime crisis victims.

30 Global Financial Firms Listed As Systemic Risk Institutions (M.W.)

Thirty global financial institutions have been selected for cross-border supervision exercises by regulators. Compiled under the guidance of the FSB, the list is part of an effort to pre-empt the spread of systemic risks in the event of a future financial crisis. Those featuring in the list will also be asked to write so-called "living wills" that outline plans to wind up banks in the aftermath of a crisis. Here is the list, in full.

More Shoppers Spent Less Over Black Friday Weekend (M.W.)

Consumers spent significantly less per person at the start of the holiday season this weekend, dimming hopes for a retail comeback that would help propel the economy early in 2010.

Why Big Shopping Bargains Are Bad News For America (M.W.)

Part of what got us here was overspending, fostered by a shopping culture that uses cheap goods to hook people on feeling like they're winning at something. As a country, we held nearly $1 trillion in credit-card debt this time last year—about the same as the value of all the goods and services produced in South Korea annually.

Half A Recovery (M.W.)

Until the debt clouds disappear in the economy, small business can’t lead a rebound. What we all are enduring — and what small businesses, workers and consumers continue to be pummeled by, even as Wall Street wizards jump back into the bonus pool — is the dismantling of the great credit boom of the early 2000s.

New Law Would Give Foreclosure Protection To All In NY (M.W.)

Last year, a new law was put into place in NY to help protect subprime mortgage borrowers from foreclosure. Now the state is on the verge of extending similar protections to prime borrowers, too.

Professor Advises Underwater Homeowners: Walk Away From Mortgages (M.W.)

Stop paying your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it. Don't think you're doing something morally wrong. That's the incendiary core message of a new academic paper by a Univ of Arizona law professor, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."

US Workers Seeking Day-Labor Jobs (M.W.)

Growing ranks of U.S. citizens are heading to street corners and home improvement store parking lots to find day-labor work usually done by illegal immigrants.

Banks Bracing For Record Defaults In January (M.W.)

Banks have been urged to prepare their debt collection departments for the busiest New Year on record in anticipation of a spike in problem loans after Christmas.

Erik Sprott: Don't Bank on the Banks (nncita)

Without tempting fate, it is probably safe to assume that the world’s financial system will survive 2009. Governments across the world have done an excellent job convincing their constituents that the banking system had to be saved at almost any cost. Now that the banks are back from the brink, however, those governments are looking for some much-needed reparation. Bankers are being continually reminded of the sacrifices made and vast sums spent to save their jobs last year.

More People Driving Without Car Insurance (M.W.)

As if the lousy economy hasn't done enough damage, here's another thing to worry about: more people driving without automobile insurance. What happens if you get hit by an uninsured driver? Worse, what if that driver flees the scene rather than face the music for lacking coverage?

Find Bargains On Uncle Sam's Ebay (M.W.)

Uncle Sam has a deal for you! From swords to socks, horses to helicopters, you can find an amazing array of stuff through online government auctions.

Energy

The Real Conspiracy Was Launched By The Fossil Fuel Industry (M.W.)

There is, in fact, a climate conspiracy. It just happens to be one launched by the fossil fuel industry to obscure the truth about climate change and delay any action. And this release of emails right before the Copenhagen conference is just another salvo—and a highly effective one—in that public relations battle, redolent with the scent of the same flaks and hacks who brought you "smoking isn't dangerous.

5 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - November 30

"BEIJING (Reuters) - Dubai's debt crisis could be China's opportunity to snap up gold and oil assets, a senior Chinese official said in remarks published on Monday."

"While the impact of the Dubai crisis on the global economy and on China was not known yet, it would last a while at the very least, Ji Xiaonan, who chairs the supervisory board for big state-owned companies under the State Council's state assets commission, told the Economic Information Daily.

"That could give China a buying opportunity to put some forex reserves into gold or oil reserves," Ji was quoted as saying by the paper, which is widely read by Chinese officials."

""We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him as saying.

That is in line with many officials' view that China should decrease the proportion of its $2 trillion foreign exchange reserves held in dollar-linked investments and raise its gold holdings to diversify its portfolio."

...........1A) China Should Boost Gold Reserve Holdings, Youth Daily Reports (Bloomberg)

"Nov. 30 (Bloomberg) -- China should increase the amount of gold it holds in reserves to reduce potential losses from a depreciating dollar, the China Youth Daily said today, citing Ji Xiaonan, head of the supervisory committee at the state-owned Assets Supervision and Administration Commission.

“We recommend China increase its gold reserves to 6,000 metric tons within three-to-five years and possibly to 10,000 tons in eight to 10 years,” the paper quoted Ji as saying. China increased its gold reserves by 76 percent to 1,054 tons since 2003, the official Xinhua News Agency reported in April."

"'Over-allocated'

Offering credit to companies outside China is also a way for the nation to invest its $2.27 trillion of reserves without buying treasuries.

China's holdings of US government debt swelled to $798.9 billion in September, up from less than $100 billion in 2002, according to the US Treasury Department.

China, the biggest lender to the United States, is "shouldering its responsibilities" to restore stable global growth, Premier Wen Jiabao said on Nov 12.

"Chinese banks have an incentive to lend offshore," said Viktor Hjort, a Hong Kong-based credit strategist for Morgan Stanley, an adviser on global takeovers. "China is sitting on large dollar reserves over-allocated to US Treasuries that it wants to reduce.""

"Advisers told Summers, others not to put so much cash in market; losses hit $1.8b"

"It's one of those numbers that's so unbelievable you have to actually think about it for a while.

Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion.

Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?"

"The need for pension reform has become apparent as CalPERS, the state's pension trust fund that is used by many local governments, lost about $58 billion in the fiscal year that ended June 30.

That cost, the so-called pension "spike," is expected to hit government budgets in 2012 and causing Long Beach's budget deficit to reach $21.7 million that year.

Long Beach's general fund pension cost has increased from $5.8million in 2003 to $48million this year. Citywide, including departments such as Harbor, pensions cost Long Beach $80 million."

"As part of the federal stimulus package, Congress authorized $25 billion to provide subsidies for about 7 million laid-off workers so they can remain on health plans provided by their employers under the Consolidated Omnibus Budget Reconciliation Act, better known as COBRA.

Under the program, laid-off workers pay 35 percent of premiums and the government reimburses employers for the remaining 65 percent.

When workers leave their jobs, they typically shoulder the entire cost of premiums themselves, an often expensive proposition for folks trying to subsist on unemployment checks.

On average, the typical family pays $1,069 a month to continue employer-sponsored health coverage, according to Families USA, a health advocacy group based in Washington, D.C.

COBRA subsidies last nine months, and that time runs out at the end of the month – Monday – for the program's first enrollees, if congressional action is not taken."

"Paterson has warned that New York is going broke, struggling under a projected $3.2 billion deficit. The state has now resorted to "juggling" its bills, Paterson said, and is moving money around to cover costs in the absence of a deal with the Legislature.

"We are out of time," Paterson said yesterday. "This is a fiscal emergency." "

"For small retailers, the financial pressure from weak sales and higher unemployment taxes could be intense, Miller said. "You've got to have someone in the store, and if you're down to one person in the store, you can't cut any more."

In addition to boosting unemployment taxes on employers, Virginia will have to borrow more than $1.26 billion from the federal government in coming years to continue paying jobless benefits, the VEC said in its forecast.

That's because the deficit in its unemployment-benefits fund will hit $194 million by the end of this year and balloon to $561 million by the end of 2010, the VEC said."

Mark Zandi, chief economist of Moody's Economy.com, estimates that state and local governments are likely to face a combined shortfall of $150 billion in fiscal year 2011, which begins next summer.

"The hole is turning out to be larger than we thought and deeper," Zandi said at a conference held by the liberal Economic Policy Institute last week.

And it could cause the loss of up to 900,000 jobs in 2010 alone, according to another liberal think tank, the Center on Budget and Policy Priorities.

"Washington -- The government's pension insurer said Monday it will assume responsibility for the underfunded pension plan of a bankrupt Northville auto supplier -- at least the fifth supplier to abandon its pension obligations this year.

The Pension Benefit Guaranty Corporation said it will seize the pension plans covering 4,780 workers and retirees of Hayes Lemmerz International Inc., the Michigan-based wheel manufacturer -- a move that will add nearly $100 million to the PBGC's growing deficit."

"Initial notices of default on condo mortgages are up more than threefold over the last four years -- a trend that foreshadows more pressure on local housing prices.

The fresh wave of local price declines is likely to be steep and long lasting, a range of experts told The Post. PropertyShark CEO Bill Staniford forecasts housing prices will plummet another 10 percent-to-15 percent in the next six months -- deepening the already steep 25 percent slump from the top of the market.

"It seemed as though the market was starting to come back, but . . . it certainly looks in New York City like another wave of distress is coming," said Staniford, adding, "This wave is worse than the first, which happened over a year ago.""

  • ...........

Unreleased video of Ben Bernanke after viewing the Bernie Sanders interview

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Re: Daily Digest - November 30

Damnthematrix's picture
Damnthematrix
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The bankruptcy of the United States is now certain

http://www.thedailycrux.com/content/3455/Porter_Stansberry

says that US needs to refinance US$2T in short-term debt during 2010 and finance a separate US$1.5T budget deficit

US foreign currency holdings estimated total around US$500B (US$300B Gold, US$58B oil in SPR, US$136B other foreign currencies)

US domestic savings estimated at  US$600B per annum. US$2T already has been "monetized"

Begs the questions:

  1. How much US treasury debt was refinanced this year?
  2. What was the budget deficit for 2009?
  3. Did monetization make up the difference between the debt that was purchased by foreigners and total debt that was issued and refinanced in 2009?

 

The bankruptcy of the United States is now certain

 Tuesday, November 24, 2009

From Porter Stansberry in the S&A Digest:

It's one of those numbers that's so unbelievable you have to actually think about it for a while... Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?

How did we end up with so much short-term debt? Like most entities that have far too much debt - whether subprime borrowers, GM, Fannie, or GE - the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then "rolling over" the loans when they come due. As they say on Wall Street, "a rolling debt collects no moss." What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt… at ever shorter durations… at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that's when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.

When governments go bankrupt it's called "a default." Currency speculators figured out how to accurately predict when a country would default. Two well-known economists - Alan Greenspan and Pablo Guidotti - published the secret formula in a 1999 academic paper. That's why the formula is called the Greenspan-Guidotti rule. The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world's largest money management firm, PIMCO, explains the rule this way: "The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support."

The principle behind the rule is simple. If you can't pay off all of your foreign debts in the next 12 months, you're a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.

So how does America rank on the Greenspan-Guidotti scale? It's a guaranteed default. The U.S. holds gold, oil, and foreign currency in reserve. The U.S. has 8,133.5 metric tonnes of gold (it is the world's largest holder). That's 16,267,000 pounds. At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether... that's around $500 billion of reserves. Our short-term foreign debts are far bigger.

According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we've been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months - an amount far larger than our reserves.

Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.

So… where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we're still going to come up nearly $3 trillion short. That's an annual funding requirement equal to roughly 40% of GDP. Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or the Russian central bank, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.

So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.

One thing they're not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None own even 1% of their total reserves in gold.

I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry's Investment Advisory, which we published last Friday. Coincidentally, the New York Times repeated our warnings - nearly word for word - in its paper today. (They didn't mention Greenspan-Guidotti, however... It's a real secret of international speculators.)

Crux Note: The S&A Digest comes free with a subscription to Porter Stansberry's Investment Advisory. Porter says his latest issue is the most important he's ever written. If you don't act right now to protect yourself from the dollar, he thinks the odds are very high you'll be wiped out over the next 12 months. To learn more, click here.

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Davos
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Re: The bankruptcy of the United States is now certain

Mike, that was a great read, I saw a link to it this morning on Nate's site and had a chance to read it this evening after finishing Blue Gold: Water Wars with my little guy this evening.

2 nuggets of 24k!

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Re: Daily Digest - November 30

All, some good news today via Nate's site about Martin Armstrong.

http://economicedge.blogspot.com/2009/11/martin-armstrong-we-won.html

I guess, in a sense, the war's not over but this particular battle has been won.

DavidC

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