Say Anything Blog

From FT

Standard and Poor’s decision to downgrade its outlook for British sovereign debt from “stable” to “negative” should be a wake-up call for the US Congress and administration. Let us hope they wake up.

Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.

“A government debt burden of that [100 per cent] level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating,” as the risk rating agency stated last week.

I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?

Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.

The fact that the Federal Reserve is now buying longer-term Treasuries in an effort to keep Treasury yields low adds credibility to this scary story, because it suggests that the debt will be monetised. That the Fed may have a difficult task reducing its own ballooning balance sheet to prevent inflation increases the risks considerably. And 100 per cent inflation would, of course, mean a 100 per cent depreciation of the dollar. Americans would have to pay $2.80 for a euro; the Japanese could buy a dollar for Y50; and gold would be $2,000 per ounce. This is not a forecast, because policy can change; rather it is an indication of how much systemic risk the government is now creating

Why might Washington sleep through this wake-up call? You can already hear the excuses.

“We have an unprecedented financial crisis and we must run unprecedented deficits.” While there is debate about whether a large deficit today provides economic stimulus, there is no economic theory or evidence that shows that deficits in five or 10 years will help to get us out of this recession. Such thinking is irresponsible. If you believe deficits are good in bad times, then the responsible policy is to try to balance the budget in good times. The CBO projects that the economy will be back to delivering on its potential growth by 2014. A responsible budget would lay out proposals for balancing the budget by then rather than aim for trillion-dollar deficits.

“But we will cut the deficit in half.” CBO analysts project that the deficit will be the same in 2019 as the administration estimates for 2010, a zero per cent cut.

“We inherited this mess.” The debt was 41 per cent of GDP at the end of 1988, President Ronald Reagan’s last year in office, the same as at the end of 2008, President George W. Bush’s last year in office. If one thinks policies from Reagan to Bush were mistakes does it make any sense to double down on those mistakes, as with the 80 per cent debt-to-GDP level projected when Mr Obama leaves office?

The time for such excuses is over. They paint a picture of a government that is not working, one that creates risks rather than reduces them. Good government should be a nonpartisan issue. I have written that government actions and interventions in the past several years caused, prolonged and worsened the financial crisis. The problem is that policy is getting worse not better. Top government officials, including the heads of the US Treasury, the Fed, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission are calling for the creation of a powerful systemic risk regulator to reign in systemic risk in the private sector. But their government is now the most serious source of systemic risk.

read the rest here

Charts by Grandfather Economic Report

From Reuters
emphasis - mine

As President Obama considers whether to fulfill his campaign promise to raise the minimum wage from $7.25 to $9.50 per hour by 2011, there’s no better illustration of the consequences of well-intentioned policy-making than recent events in American Samoa, a United States territory in the South Pacific that falls within the purview of Congress.
Chicken of the Sea, the tuna company, announced this month that it will close its canning plant in American Samoa in September. The culprit is 2007 legislation in Washington that gradually increased the islands’ minimum wage until it reaches $7.25 an hour in July 2009, almost double the 2007 levels.

In 2007, the hourly minimum wage in American Samoa for fish canning and processing was $3.76 and the minimum wage for government employees was $3.41. Shipping had the highest minimum wage, at $4.59. Garment manufacturers got the lowest, at $3.18 an hour. A $7.25 wage is a substantial increase for most residents.

Chicken of the Sea will lay off 2,041 employees—12 percent of total employment, almost half of all cannery workers. And the 2,700 workers at StarKist, the other American Samoa tuna canning company and Chicken of the Sea’s rival, are probably concerned that their jobs are the next to go.

American Samoa’s loss is Georgia’s gain. Chicken of the Sea will move to Lyons, Georgia, (2007 population 4,480) employing 200 people in a new $20 million plant on a more capital-intensive production line.

In January 2007 the legislation originally did not include American Samoa, perhaps because Del Monte, at the time the parent company of StarKist, was headquartered in Speaker Nancy Pelosi’s district.

Until then, the Labor Department had set wage rates in American Samoa every two years, following an extensive study on economic conditions on the island. But before final passage, Congress included American Samoa.

Back in 2007 American Samoa Governor Togiola Tulafono worried that increasing the minimum wage “would kill the economy” and Congressional Samoan Delegate Eni F.H. Faleomavaega forecast that it would devastate the local tuna industry.

They knew that industries would go elsewhere if they have to pay $7.25 an hour

They were right. American Samoa will lose not only the 2,041 jobs at the Chicken of the Sea canning plant, but also secondary jobs from the ripple effect of loss of income—stores and eateries that cater to cannery workers, shops that mend fishing nets, shipyards, and buses that transport workers.

In a telephone conversation this week, Representative Vaito’a Hans A. Langkilde of the Ma’oputasi District #10, representing the villages of Leloaloa, Satala and Atu’u, described the prospective devastation of the community. His district is home to both StarKist and Chicken of the Sea.

Mr. Lankilde told me, “Over the past 50 years the industry provided massive job opportunities for unskilled labor. The 2007 law that increased the minimum wage was the beginning of the end for the tuna industry and the cause of massive job losses for our already fragile economy. The only way to resolve the trend towards total economic disaster is for Congress at its soonest opportunity to reverse its position.”

With the recent laying of fiber-optic cable linking American Samoa to the United States, Samoans could get jobs in call centers. Yet the higher minimum wage could discourage firms.

Raising the minimum wage to $9.50 an hour would drive even more jobs away from American Samoa. In the United States it would have the effect of shifting jobs from low-skill to high-skill workers, raising unemployment among those who are least equipped to handle it.

Rather than having to accept direction from a government thousands of miles away where they have no voting representation, residents of American Samoa should be given the power to decide on their own minimum wage. Congress should leave further minimum wage increases to individual states to choose as they see fit, because wage levels and the cost of living vary substantially between states such as Mississippi and New York.

The closure of the Chicken of the Sea cannery in American Samoa shows us that higher minimum wages cause low-skill workers to lose jobs. What’s true for American Samoa holds equally true for the United States.

http://TheCynicalEconomist.com

The Other Video is here: “The Worst Is Yet to Come”: If You’re Not Petrified, You’re Not Paying Attention 1

- Endless War spending could subsidize every household in America with $1000 per year
- Income is trending down in the United States, England, and Japan
- US banks loan loss reserves are at a 20-year low while profound losses continue
- Of the nearly 9000 US banks, 1575 of them posted a Q1 loss
- Bernanke claims $2 trillion is needed by the big US banks, but they pass the Stress Test
- Municipal bonds and state finances are disasters, as they each appeal for USGovt aid
- A shocking 20% of US homeowners have loan balances greater than their home values
- Half of modified loans result in foreclosure within several months
- Jobs report for April revealed jobless level at 8.9% (massaged) and 15.8% (actual)
- Jobs Report for April included 66k worse revised job losses for March and February
- Continuing jobless claims at 6.56 million, grew 220k just last week
- CALPERS pension fund is insolvent, USGovt pension PBGC guarantee fund in deep deficit
- FDIC requested $500 billion in additional funds to cover bank failures (giant failure coming)
- Car sales still down 40% annually, with steep Japanese car sales declines also
- Detroit car makers are closing down plants, with huge ripples through entire supply chain
- GM & Chrysler restructures are extremely likely to result in Chapter 7 liquidation in time
- GM burned $1.3B in Q1, burns $113 million per day, unable to transition to green cars
- Business investment down 38% in Q1, a RELIABLE LEADING INDICATOR
- Durable goods up 9% in Q1, but only after Q4 was pushed down from bank shock
- Inventory reduction not key, but rather inventory/sales ratio, since sales way down
- Economic contraction despite lower energy costs from crude oil, natural gas, gasoline
- Housing was false foundation since 2002, now in stubborn decline, the Giant Albatross
- Distress sales make up 40% of all housing sales, led by underwater sales and foreclosures
- Cramdown Law rejection means open season on foreclosures, more huge bank losses
- Banks admit that home loan are not modified after all, a revolving door to foreclosure
- Option ARMs, Jumbos, and Commercial mortgage defaults are ramping up fast
- Commercial mortgage bonds have $70-100 billion that cannot be refinanced, sure to default
- Staggering decline in consumer credit, -80% in Q3, minus $31.7B in Q4/Q1

For more http://TheCynicalEconomist.com

Editorial Page Senior Economics Writer Stephen Moore describes a scary future for taxpayers.

Abandoned city skyscrapers…Very sad

The unions fought so hard and so well for the workers, that in the end companies couldn’t aford them anymore and decided, that the fight is not worth it.

They outsourced the jobs to the new slave country - China

Now people with diplomas like lawyers and doctors cannot find work in Detroit

Everyone is leaving. Detroit is becomming ghost town

OK, here it is - a gallery of pictures shot in 2009, showing people with their most valuable possessions.These are Russian folks and pictures are from this site Kuntska Kamera. If you notice the pictures are posted feb 17, 2009 or 20 years after the fall of the Communism.

The Russian people had lived through 72 years of communism (calculated - 1917 Great Russian Revolution, that leads to the creation of USSR to the 1989 collapse of USSR) and they are still very, very, very poor compared to our American standards (notice they have been equally poor generation,  after generation, after generation).

The poor in America probably have cellphones for free, a car, TV, refrigerator, probably most recently bought a house, and they own many things, that we have for granted, things, that even a middle class people in Russia are struggling to have in their lifetimes.

I am really convinced, that the majority of the American people DO NOT understand the danger of what Obama agenda is pushing…

“spreading wealth around”(transferring wealth from achievers to the dead beats),

economy with no boom and bust”(planed economy),

controlling wages (the minimum pay),

controlling executives pays (the maximum pay),

expanding government in every aspect of our lives,

He and his "democrat" buddies are trying to transform today's America into the communist utopia that once USSR was. But see the result of communist ideology controlled economy below, it is tragedy for the society as a whole...

Pictures say more than words….

Photo Essay begins:

Photos of people with their most valuable posesions in their homes. I havent ask if it is true they are the most expensive things they own, I just shoot what they said they thinkit is their most valuable thing.

But I don’t think they were hiding anything that they though is special.

This photoshoot was never published anyware…

Together with a group of sociologists I went through several russian cities and settlements trying to understand what kind of “poverty traps” exist in Russia. The sociologists were focusing on the mechanism of “social exlusion” that can bring a family outside the economy and social security. Sometimes poverty was a direct result of downfall of the soviet economical system. For example, workmen’s settlements which had been built around big enterprises became depressive places after the production stopped. People can not leave a depressive settlement because it’s the only place where they own a house. The price of this house or appartment is very low, so it becomes a trap for the owner.  During this investigation I photographed people with the most expensive things in their houses.

Click picture for full size image



Svyatoslav Petrov, 65 years old, Upravlenchesky Settlement, Samara region. Aquarium, $230.



Nikandrova Galina, 37 years od, Nikandrov Gennady, 41 year old, Zolotovo, Pskov region. A bicycle, $95.



Vdovin Arsen, 10 years old, Zolotovo, Pskov region. Cellphone, $200.



Treit Olga, 56 years old, Upravlenchesky settlement, Samara region. Computer, $1000



Uteulina Kumysaj, 32 years old, Uteulina Alina, Samara region. 8 years old. Refrigerator, $560 (without bank interest rate)



Stepanova Natalia, with her son, Pskovsk region. Electric chainsaw $100

Evgeny Seryakov, 77 years old. Upravlenchesky settlement, Samara region. TV set, $150



Tagiev Nikolaj, 14 years od, Tagieva Farida, 16 years old, siblings, Saratov. Wall papers, $400.



Yarygina Tatiana, 55 years old, Yarygin Mikhail, 59 years old, Vilovatoe, Samara region. The dawry for the daughters - two refigirators and two washing machines. $1630

And you are complaining and bitching about capitalism…..... Wait and see how bad the Obama socialism will be…..........

TheCynicalEconomist.com

Rico-chavez
Uploaded by noticias24 - News videos hot off the press.

In this video clip which is making the viral rounds in the Spanish-speaking online world, Venezuelan president Hugo Chávez says “The rich are not human, they are animals in human form.” A Boing Boing reader who lives in Venezuela says,

I decided to leave Venezuela soon, if I can, when I saw this. Dehumanizing a group of people is certainly in the manual to start genocide and living in a country where officially a portion of the population are not human by decree is against my ideals. I can live with crime, bad public health and even scarcity, but to live with this crap is not acceptable, even with all the basic needs covered. Yes, I might be too sensitive, but I cannot forget all those other times and places where dehumanizing has brought woes.

As The Cynical Economist warned you before - that is what waits America. Demonizing the talented and those who want to succeed. It has started already. Remember the “evil” GM bond holders that were threaten by the White House last week?
I do not know Spanish language(only few words), so please anyone with good Spanish, would you translate for us the whole Chavez rant and post it in the comments

This video is a must watch for anyone who wants to understand just how “effective” the Fed is at safeguarding taxpayer money. Apparently nobody at the Federal Reserve has any clue where the trillions of dollars that have come from the Fed’s expanded balance sheet have gone. Additionally, nobody there seems to have any idea what the losses on the Fed’s $2 trillion portfolio really are.

As for the pittance of $9 trillion in Fed off-balance sheet transactions over the past 8 months, well, yeah, that’s also somewhere out there… Just don’t ask the Federal Reserve where.

Rep. Alan Grayson summarizes it best “I am shocked to find out that nobody at the Federal Reserve is keeping track of anything.”

See the red bars in the above chart - private business investments?

The first quarter contribution of -8.83 percentage points, a figure that necessitated a huge increase in scale to the charts above and below, was the worst reading since -9.05 in the first quarter of 1951, which was only slightly “less bad” than exactly two years before at -10.72.



If you strip out the inventory component (the violet bar), the -6.04 percentage point contribution was still the second worst quarter for business investment since World War II, trailing only the early 1980 period at -6.34.

According to the news today, the government’s action are “turning the housing sector around at long last!”

LOL, okay, if they say so. This nonsense happened last spring and it happens every spring. No kidding, pending sales picked up at the beginning of spring? That’s a surprise, who would have guessed?

Now, how about those year-over-year comparisons? No? Sorry, no pickup there, only historic plunges.

“Glimmers of hope?” More “greenshoots?”

Mass psychosis, sorry.

Here are the opinions of two fund managers. One of them saying, that the stock market rally is for real and the market is going up again. Listen carefully how the other analyst talks about A GOVERNMENT FINANCED BUBBLE, that is BIGGER THAN THE MORTGAGE BUBBLE.



People like the bull in that video keep talking about the “solid fundamentals,” but they are simply selling you their product. There is only one fundamental that you need concern yourself with that underlies our economy and that is DEBT. It is growing exponentially and that is not sustainable – period. Incomes already cannot service existing debt levels, much less service more and more and more. It’s over, sorry.



This is the only chart that you really need to know in concerns to the fundamental underpinnings of this country

-The Cynical Economist Rant:
Stock market surges…So what? Many other indicators are pointing that we are in a deeper hole now!
Todays stock market is run by the speculators! Not by the investors trying to get better return on their money. The function of the stock exchange many years ago was to find financing for the companies who were trying to rise capital for their business and create products or services in which they believed in, products and services, that would add value to the society and make a return for the investors. The Exchange was a place, where demand and supply were dictated by the free market, place for exchanging value adding transactions.

Nowadays it seems, the government is financing and controlling demand and supply, so the stock exchange is only a speculators lounge, where billions are flipped, later to be donated to the politicians, who are bending over for the lobbyists ...

The Stock market is irrelevant as a recovery indicator

Data, Charts, Text from here and here and also here

From Listverse
10. Al Gore
Hypocrisy: Carbon Footprint the Size of…Some Really Big Thing

At his suburban Nashville home, Ex-Vice President Al Gore enjoyed the Oscar awarded to “An Inconvenient Truth,” the documentary on global warming in which he starred. But the Tennessee Center for Policy Research gained access to Gore’s utility bills for two years and published the gas and electric bills for his 20-room home and pool house. It turned out the home devoured nearly 221,000 kilowatt-hours in 2006, more than 20 times the national average of 10,656 kilowatt-hours. The Center’s president, Drew Johnson said, “If this were any other person with $30,000-a-year in utility bills, I wouldn’t care. But he tells other people how to live and he’s not following his own rules.”

9.Rosie O’Donnell
Hypocrisy:No Guns For You, But My Guy Packs Heat

On her television show, April 19, 1999, O’Donnell had this to say about gun owners: “I don’t care if you want to hunt. I don’t care if you think it’s your right. I say, ‘Sorry.’ It is 1999. We have had enough as a nation. You are not allowed to own a gun, and if you do own a gun I think you should go to prison.” Several months later, a bodyguard in her employ applied for a concealed gun permit from the Greenwich (Connecticut) Police Department. When queried about whether her bodyguard should carry a gun on May 24, 2000, she said, “I don’t personally own a gun, but if you are qualified, licensed and registered, I have no problem.”

The list is too long so click on the link to read the rest 10 Cases of Liberal Hypocrisy