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"November blew away even the most pessimistic estimates"

Wednesday, December 10, 2008, 5:36 PM

Amidst all of the Fuzzy Numbers offered up, there are two that I trust implicitly because they cannot be gamed, massaged, seasonally adjusted, imputed, or hedonically inflated.

They are taxes and gaming revenues.

Today there were a couple of mind-blowing numbers. Think about these next two articles as if you were a government budget official trying to make plans or a social scientist attempting to assess the current social mood.

California November revenue $1.3 billion below estimate
SAN FRANCISCO (Reuters) - California's general fund revenues in November were $1.3 billion, or 18.5 percent, below expectations, suggesting the government of the most populous U.S. state could run out of money as early as February, State Controller John Chiang said on Tuesday.

The government of California, the world's eighth-largest economy, must contend with a $28 billion combined shortfall for the remainder of its current fiscal year and its next fiscal year, which runs from July.

 

Nevada casino win down 22.3 percent in October
CARSON CITY, Nev. (AP) -- Nevada casinos had a record slump of 22.3 percent in winnings during October as gamblers worried about a worsening economy backed off from betting, the state Gaming Control Board reported Wednesday.

The resorts won $905 million in October, resulting in the largest percentage decline since the board began producing monthly reports in the early 1980s. It was the 10th straight month of slumps compared with the same period a year earlier, the Control Board said.

In CA, the quote of the day was from State Controller John Chiang, who said, "November blew away even the most pessimistic estimates."

While I think it's helpful to use these record breaking slumps to frame the current problem, it's also important to keep in mind that they are being compared to a dizzying height that was also record breaking.

The harder they come, the harder they fall.

Nonetheless, these are the unfudged numbers and they come from (1) the largest and most prosperous state in the union (which would be the world's eighth largest economy if it were sovereign) and (2) an industry that has proven bullet-proof in every prior recession on the books.  

Together they indicate that yr/yr our larger economy is down somewhere in the vicinity of 20% in activity.  This matches my back-of-the-envelope calculations based on automobile and housing sales.  

I raise this because the gap between our official GDP, which is hedonically adjusted and imputed to the tune of approximately 35% over actual cash activity, and the real economy, is large and growing larger.  This gap will magnify the impact of servicing both past and new debt.

In essence, the difference between a 20% real world fall off in activity and a still-official "1%-2% GDP decline" represents a gap between reality and our official statistics. Let's call it the illusion gap. 

My wish for the state budget officials of CA, and every other state, is for them to understand that relying on the official GDP numbers is a dangerous (foolish?) proposition.  I am sincerely sorry for the troubles and the pain they are now about to experience as they attempt to balance the books.  I hope that they learn from this and find ways to apply more independent thought and common sense to their future projections. 

In the meantime, my personal belief is that more benefit lies in what can be divined from the tax revenue and gambling data than in anything that comes from the Federal data sets. 

But, of course, at the bottom of it all, there is no combination of new growth, new borrowing, and cheap money that can possibly fix the mess we're in.  That would require understanding that our money system is both internally and externally flawed.

That is, our money system has a math problem related to its dependence on exponential debt-creation  and a real-world problem due to the fact that it is based on infinite growth.

And that's the largest illusion gap of them all.

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19 Comments

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: "November blew away even the most pessimistic estimates"

I believe we've also got some bigger problems as states like California are looking like new candidates for a bailout. It's a sad state of affairs when the world's eight largest economy "needs" to be bailed out. And it's sad to see the state officials continue to rely on a central government that is only increasing its own power through the abuse of an unfair and unsustainable monetary system. My hope is that the individual states will seek greater independence instead of continuing their respective addictions to debt.

 

Heck, as the world's eight largest economy, there's no reason California couldn't start its own monetary system...except the laws that are in the way. Maybe it's time the states took a stand.

 Mike

Ray Hewitt's picture
Ray Hewitt
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Re: "November blew away even the most pessimistic estimates"

The market is doing what libertarians couldn't do - downsize government. This is the one part of the Depression I see as a positive.

joemanc's picture
joemanc
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Re: "November blew away even the most pessimistic estimates"
StudentOfJefferson wrote:

Heck, as the world's eight largest economy, there's no reason California couldn't start its own monetary system...except the laws that are in the way. Maybe it's time the states took a stand.

Speaking of taking a stand, check out Ohio calling for a Consitutional Convention...

http://www.legislature.state.oh.us/res.cfm?ID=127_HJR_8

 

 

Goal Digger's picture
Goal Digger
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Re: "November blew away even the most pessimistic estimates"
joemanc wrote:
StudentOfJefferson wrote:

Heck, as the world's eight largest economy, there's no reason California couldn't start its own monetary system...except the laws that are in the way. Maybe it's time the states took a stand.

Speaking of taking a stand, check out Ohio calling for a Consitutional Convention...

http://www.legislature.state.oh.us/res.cfm?ID=127_HJR_8

 

 

Way to go OHIO!  I'll be passing this on to my Congressional representative and senators here in Ohio.  Thanks for sharing the link.

cwixom's picture
cwixom
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Re: "November blew away even the most pessimistic estimates"

From the article:

"Gov. Arnold Schwarzenegger has urged lawmakers to balance the state's
books with deep spending cuts and new revenues, including cash from
raising the state's sales tax."

Yeah, Arnie, raise the sales tax and throw another bag of cement to the drowning person.  Same result, a quicker death.  

wdstk46's picture
wdstk46
Status: Bronze Member (Offline)
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Posts: 59
Re: "November blew away even the most pessimistic estimates"

The Ohio resolution, if it passes, is a good first step.  It does nothing, however, to fix the root of the economic problems which are government control of interest rates and the ability to print money as needed.  We must reign in the Fed and Treasury if we want to make any lasting difference.

Erik T.'s picture
Erik T.
Status: Diamond Member (Offline)
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Posts: 1234
Re: "November blew away even the most pessimistic estimates"
StudentOfJefferson wrote:

Heck, as the world's eight largest economy, there's no reason
California couldn't start its own monetary system...except the laws
that are in the way. Maybe it's time the states took a stand.

Forgive me for playing armchair lawyer... I can't help it! :-)

I am not convinced that California is prohibited by law from ditching the U.S. dollar and adopting a different gold- or silver-based monetary system.

The Framers of the United States Constitution wrote:

Article I, Section 10: No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and
silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex
post facto
Law, or Law impairing the Obligation of Contracts, or grant any
Title of Nobility.

So clearly, California cannot coin its own currency. That much I concede.

But to my reading, California has the unquestionable right to designate gold and silver coin as legal tender in payment of debts, provided that some other government issued said gold and silver coin. The constitutional prerogative of the Federal government to designate something other than gold and silver coin as legal tender is much more dubious, but depends upon one's interpretation of both Section10 and the corresponding sections of the articles of confederation.

So what if California designated the South African Krugerand as its lawful currency? What law is being violated?

Erik

 

lfriedland's picture
lfriedland
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Posts: 3
Re: "November blew away even the most pessimistic estimates"

I'm a proud Californian. For the last 25 years I've maintained that California would be much better off seceding from the union.  Who needs the rest of the United States dragging us down?  Heck if weren't for the tax revenues of CA and NY, the Federal Gov. wouldn't have much of an income stream to speak of.   

With secession, we could then pull out the stops on environmental engineering and innovation, legalizing marijuana to generate additional revenue streams, and perhaps most importantly not electing Repubs/Dems to run our new country into the ground. A controlled stream of immigrating, low-cost labor from the South, and highly educated folks from Asia will help to keep us extremely competitive on the world economy.Our state university system is already world-class, and with a little infusion of cash from our previously US-Federally-destined tax dollars it could become the envy of the rest of the world. The rest of you can watch our movies and buy our games, software, fruits & vegetables, and electric cars. 

Oh, and as a country, we could adopt whatever monetary system we desired.  But you'd have to pay us in silver and gold for all of the above. Wink

mred's picture
mred
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Posts: 96
Re: "November blew away even the most pessimistic estimates"

California may or may not violate any law by coining "constitutional money". However, the problem is that for such money to work, the legal tender laws must first be repealed. What lends value to the fiat currency is the threat entailed in its "legal tender" status. Legal tender means that as long as this currency is offered as payment, a court of law will consider the corresponding financial obligation as paid. As long as this coercion exists, Gresham's law (bad money drives out the good) will not allow the good currency to circulate. The notion of "legal tender" has no role in a system where people are free to use what they want as a medium of exchange. People need to take responsibility and not expect that the State will determine everything for them, especially how they are going to get robbed by the State.

If the legal tender laws are repealed, then what would be in play would be the inverse of Gresham's law. Because without the element of coercion, people would demand payment in trustworthy money.  Put the fiat currency to compete with constitutional money, and people will catch on quickly as to what they want to accept as payment for goods and services. In this case, the good money would drive out the bad.

If we ever get so lucky as to have constitutional money once again, people should be watchful as to not put any name on the unit of account (like Dollar), but instead use a unit of weight of gold or silver (what the Dollar used to represent originally). The name of a currency can be adulterated: debase it and it still  has the same name, so people don't catch on; we would be back at the beginning of the shenanigans. But an ounce is an ounce. And while we are at it: never allow the ratio of the value of gold to silver be fixed by law. That should be determined by the people in their daily use of their money.

caroline_culbert's picture
caroline_culbert
Status: Platinum Member (Offline)
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Posts: 624
Re: "November blew away even the most pessimistic estimates"

Does anyone have any numbers regarding the monetary equivalence of each "bubble", that is, (imaginary) dollars lost?

As each bubble bursts.  Maybe it's a good thing.  Maybe the bubbles get rid of the imaginary money that wasn't there in the first place.  But it doesn't help when we start pumping $$ into the economy that will devalue the current currency which in turn might create more bubbles to pop rather than deflate relatively slowly as they would in a free market economy.

mred's picture
mred
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Re: "November blew away even the most pessimistic estimates"

The solution to our woes indeed!

Recession-Plagued Nation Demands New Bubble To Invest In

http://www.theonion.com/content/news/recession_plagued_nation_demands

krogoth's picture
krogoth
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Re: "November blew away even the most pessimistic estimates"

Whatever bubble comes, be it from innovation (technical) stupidity (real-estate) autos (lets get real) or war (a more than realistic possibility) terrorism (oh please, more scare tactics) or some new biological outbreak of disease (it's coming for sure) the government, CEO elite or uber rich will find a way to capitalize on it and make sure people suffer. That's the way it is, and that's the way it will stay.

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
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Posts: 929
Re: "November blew away even the most pessimistic estimates"

Thanks for the comments.

I agree that California would largely be better of if it seceeded, and frankly, I don't understand the concept of Civil War to prevent secession. The real threat of a state seceeding should be threat enough for our central government to reform itself.

Also, I am well aware of the Constitution says in terms of money! I sincerely wish that we followed it and did drive the paper right out. Perhaps I'm mistaken in terms of laws, but I've heard repeatedly that at least under the common law of today, FRNs are the only legal tender. Of course this is completely Unconstitutional, and for good reason, but that won't stop the Feds from arresting you all the same. 

There is an American Open Currency Standard website now that attempts to advertise multiple silver-backed currencies. It looks like something of a scam, but nonetheless, the concept that it puts forth is very attractive to me. I certainly hope that we can all legally and Constitutionally resist any potential threats to shut it down if indeed it is real. I would hope most people in this country have the good sense to prefer silver to paper.

Mike

ckessel's picture
ckessel
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Re: "November blew away even the most pessimistic estimates"
hewittr wrote:

The market is doing what libertarians couldn't do - downsize government. This is the one part of the Depression I see as a positive.

Hewittr,

I agree with you. 

I am going to contact my city and county officials and present them with the crash course by distributing the DVD. There are a total of ten elected officials. How many will embrace the concepts?

ckessel's picture
ckessel
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Re: "November blew away even the most pessimistic estimates"
lfriedland wrote:

I'm a proud Californian. For the last 25 years I've maintained that California would be much better off seceding from the union.  Who needs the rest of the United States dragging us down?  Heck if weren't for the tax revenues of CA and NY, the Federal Gov. wouldn't have much of an income stream to speak of.   

lfriedland,

And we have one of the most over regulated and bloated governments on the planet having fed on the surplusses generated from agriculture and Silicon Valley computer industry innovation.  That needs major work. We would simply relpace Washington with Sacramento ...... NO CHANGE.

We also need huge amounts of Colorado river water to provide our own food as well as to generate exports.  See post on Forum Topic under CC #18. This will be a contentious point if we are seceding from the union.

I like the concept of establishing our own currency base as Erik mentioned. You don't need to secede if you control your money base.

 

 

Susan's picture
Susan
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Re: "November blew away even the most pessimistic estimates"

"In essence, the difference between a 20% real world fall off in activity and a still-official "1%-2% GDP decline" represents a gap between reality and our official statistics. Let's call it the illusion gap. "

Great Post-I suspect this is also the reason the gentleman from Moody's expressed concern that the 3 automakers; who presented 'worst case', 'medium case' and 'best case' scenarios for sales volumes going forward based on GDP estimates obtained from the Federal Reserve, had not been conservative enough in their calculations.

ladamski99's picture
ladamski99
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Re: "November blew away even the most pessimistic estimates"

Thanks. I really needed a laugh and that was a good one.

Lets at least start a futures trade for which politician will be arrested next (I'm from Illinois, so that's all I'm hearing about these days. [Not really sure why everyone is so shocked. We may not have invented political corruption, but we're damn good at it])

 I've got 1 troy oz of gold on Dick Durbin.

Doug's picture
Doug
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Posts: 3125
Re: "November blew away even the most pessimistic estimates"
Quote:

Lets at least start a futures trade for which politician will be arrested next (I'm from Illinois, so that's all I'm hearing about these days.

Given your home state, your bet is akin to insider trading.

bpath's picture
bpath
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Re: "November blew away even the most pessimistic estimates"
hewittr wrote:

The market is doing what libertarians couldn't do - downsize government. This is the one part of the Depression I see as a positive.

 How is printing $8 Trillion in obligations (1/2 of the entire economy) downsizing?  When the best way to "Start" this economic engine is to start a massive public works program without an equal emphasis on reducing military spending, then I would suggest that government is working at becoming even bigger.

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