Posted By thestatedtruth.com on November 23, 2010

The Chinese haves vs. the have-nots and the Chinese rich vs. the poor ….will be at the forefront of China’s immediate problems.  This is how revolutions start. Don’t think for a second that the Chinese leadership doesn’t know or worry about this fact!

This from Art Cashin On the floor of The New York Stock Exchange…….

Remember Wen – Chinese Premier Wen Jiabao, along with the rest of China’s leadership are in a scramble to put a lid on burgeoning food inflation.

When October inflation figures came in at a stunning 4.4%, Wen went on TV from a local supermarket.  He promised subsidies to the poor and threatened to crack down on speculators and any manipulation.

The reason he went right to the supermarket is that the price of a basket of 18 frequently used vegetables is up over 60% on the year.  That cannot be popular with the populace.

Wen and the others may recall the Tiananmen Square riots in June of 1989.  While that protest ultimately homed in on political reform, many feel its antecedents were the many smaller protests over food costs that sprang up in the months before.

Wen is so concerned that he said if prices continue to rise, he might be forced to institute price controls in food and vegetables.

Not everyone is convinced that Wen and his team can get the genii back in the bottle.  Here’s a bit from a Bloomberg piece:

Premier Wen Jiabao’s cabinet last week announced it will sell grain, cooking-oil and sugar reserves, ordered an end to tolls on trucks carrying produce and threatened price controls to rein in a 10 percent inflation rate for food. Because the measures would do nothing to counter the 54 percent surge in money supply over the past two years, the risk is they will prove insufficient to cope with the challenge.

“They are just not addressing the fundamental problem at all,” said Patrick Chovanec, an associate professor at Beijing’s Tsinghua University. With the expansion of credit and cash in the economy stemming from China’s response to the global crisis, “you’re sitting on a volcano,” said Chovanec.

We’ll keep a close eye on that volcano.

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Tags: China's Inflation

Posted By thestatedtruth.com on November 23, 2010

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Tags: Afghan impostor

Posted By thestatedtruth.com on November 22, 2010

The Problem:  Out of 113 million households, 1/100 of 1% rake in $10 million or more annually. As consumers, the top 5% carry the same weight as the bottom 80%. The top 10% take in 50% of the income. (The sources are listed in Two Americas: The Gap Between the Top 5% and the Bottom 95% Widens August 18, 2010.)

Only the top quintile (top 20%) are really doing well in terms of income, and only the top 5% are prospering in terms of assets and unearned income (non-wage income).

 

This goes a long way to explaining how “consumer spending” can be “recovering” even as the incomes of the bottom 80% stagnate or fall. The top 5% of Americans by income are responsible for 37% of all consumer spending– about the same as the entire bottom 80% by income (39.5%).

David Stockman, director of the Office of Management and Budget under President Reagan, recently noted in an editorial that the top 1% of Americans received two-thirds of the gain in national income from 2002 to 2006.

Over the past 25 years since 1985, the top 1 percent’s share of national income has doubled; in 2007, it netted 23 percent of the nation’s total income. The income of the wealthiest Americans–the top 0.1 percent—has tripled in that 25 year period. This wafer-thin slice of Americans now earn as much as the bottom 120 million people.

Out of 113 million households, 1/100 of 1% rake in $10 million or more annually. As consumers, the top 5% carry the same weight as the bottom 80%. The top 10% take in 50% of the income. (The sources are listed in Two Americas: The Gap Between the Top 5% and the Bottom 95% Widens August 18, 2010.)

www.zerohedge.com

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Tags: wealth pyramid

Posted By thestatedtruth.com on November 22, 2010

It doesn’t take a rocket scientist to see that new layoffs of state and federal workers are near at hand in this debt/economic cycle.  What will be the reaction to this new found forced austerity?  That’s the million dollar question!

www.jsmineset.com

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Tags: Money Carpet baggers

Posted By thestatedtruth.com on November 22, 2010

“All the perplexities, confusion and distresses in America arise not from defects in the constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation”.
          –John Adams   (October 30, 1735 – July 4, 1826)

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Tags: Quot Of The Day

Posted By thestatedtruth.com on November 21, 2010

So,  there will probably be a new vote in congress for unemployment benefits before year end, seeking a simple majority to pass, unlike the recent legislative tactic brought by the Democrats requiring a super majority (2/3’s) vote…..which failed!  As for the tax issue vote, it’s anyones guess.

The Administration has said it wants all tax increases to be pushed into the future for at least two years.  There is now some doubt as to what they are collectively thinking.

The Congressional Budget Office looks at the impact of any legislation. Doug Elmendorf, the boss at the “non-partisan” CBO gave a speech on Friday on the topic of what to do with taxes. It’s not a pretty picture. Consider this slide that attempts to define the consequences on employment of a variety of actions the government could take.

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Tags: new taxes, taxes vote

Posted By thestatedtruth.com on November 21, 2010

Reckless and Irresponsible are the only (2) words for this…..

Iowa Gov. Chet Culver’s administration agreed Friday to offer pay increases for state employees that will cost taxpayers more than $200 million, despite Republican requests that the decisions be delayed until Terry Branstad becomes governor in January.A Branstad spokesman called the deal “reckless,” and House Republican Leader Kraig Paulsen said it would likely lead to layoffs.  “Taxpayers are the losers in this backroom deal,” said Jeff Boeyink, Branstad’s chief of staff. “Governor Culver’s decision to rush through a collective bargaining deal with state employee unions before he leaves office is reckless and irresponsible. This will cost Iowa taxpayers $103.5 million the first year alone, and hundreds of millions in subsequent fiscal years.”

Paulsen, the House Republican leader, said that in some cases, some state employees would receive a roughly 15 percent salary increase over the next two years, largely because of step increases. He said the extra costs will likely cause lawmakers to have to trim the budget even further when the legislative session begins in January. Layoffs are possible, he said.

A review last year by The Des Moines Register showed that Iowa is one of only six states to offer free health insurance to state government employees and their families.

Iowa’s state employees also pay substantially lower out-of-pocket health costs, such as deductibles and office co-payments, than private-sector workers, according to an independent study of nearly 900 businesses and government employers conducted this year by David P. Lind & Associates of Clive.

More :http://www.desmoinesregister.com/article/20101120/NEWS/11200326/-1/SITE_MAP/Culver-OKs-state-pay-raises

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Tags: Iowa government pay raises

Posted By thestatedtruth.com on November 21, 2010

Ireland has an unprecedented budget deficit — equaling one-third of its economic output this year!  This bailout is a no-brainer, but up until now Ireland has said they didn’t need any help…..Geez! 

Finance Minister Brian Lenihan said Ireland will apply for a bailout as it sets itself up to be the second euro member to seek a rescue from the European Union and the International Monetary Fund.

“I will be proposing to my colleagues that they should formally apply for a program,” Lenihan said in an interview with state broadcaster RTE in Dublin. “The banks were too big a problem for the country. The key issue all the time for the government is to ensure that we do not have a collapse of the banking sector.”

An accord “should help reduce tension,” said Julian Callow,  London-based chief European economist at Barclays Capital, who estimates a package of about 85 billion euros. “There had been growing concerns about systemic risks from the Irish financial sector and that was linked with the contagion fears that have been welling up.”

The cost of saving Ireland’s banks threatens a rerun of the Greek debt crisis that destabilized the euro region earlier this year. Lenders are reeling from the collapse of the property market in 2008, which resulted in the biggest contraction of any EU nation. An unprecedented budget deficit — equaling one-third of economic output this year — sent bond yields to all-time highs.

More at: www.bloomberg.com

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Tags: eu helps ireland, ireland bailout

Posted By thestatedtruth.com on November 18, 2010

Home-mortgage rates surged to their highest level in three months, showing implications of the recent spike in Treasury yields and causing another headache for the Fed.

The rate for a 30-year, fixed-rate mortgage averaged 4.39% last week, according to Freddie Mac, up from a record-low 4.17% the week before. Rates on 15-year fixed-rate mortgages were 3.76%, up from 3.57%. 

This week’s average is the highest level since the week of Aug. 19 and marks the biggest one-week increase since June 2009.

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Tags: mortgage rates rise

Posted By thestatedtruth.com on November 18, 2010

Let’s look behind the scenes here.   This vote required a supermajority in the House of Representatives because of a legislative tactic purposely used by the Democrats. So…It required approval from two-thirds of the House for passage and was (solely) used to portray Republicans as unsympathetic. 

Current benefits are now set to expire on Nov. 30 for an estimated 4 million Americans.

Legislation that would have extended unemployment benefits for an additional three months failed to earn the required supermajority in the House of Representatives on Thursday.  The final vote was 258-154, ordinarily sufficient to pass legislation. But Democrats brought the measure to the floor using a legislative tactic that required approval from two-thirds of the House.  This was an effort to portray Republicans as unsympathetic to the plight of Americans still struggling to seek employment.

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Tags: unemployment benefits vot

Posted By thestatedtruth.com on November 18, 2010

If this happens, there will be no winners.  Interest rates would rise rapidly, real estate would see a new leg down (bigger then anyone thought possible) and stock and commodity markets across the globe would implode! 

 

Robert Rubin: “U.S. In Terribly Dangerous Territory,” Bond Market May Be Headed For “Implosion”
 

Aaron Task 

Warning of the risk of an “implosion” in the bond market, former Treasury Secretary Robert Rubin says the soaring federal budget deficit and the Fed’s quantitative easing are putting the U.S. in “terribly dangerous territory.”

Speaking at an event at The Pierre Hotel in New York City honoring Sen. Kent Conrad (D-N.D.), Rubin joined the growing number of current and former officials (foreign and domestic) to criticize QE2. The Fed’s plan to buy $600 billion of Treasuries “has a lot of risk,” he said, calling the international reaction “horrendous.”

Rubin, who issued a similar warning about the bond market at The FT’s “Future of Finance” conference in October, said Congress’ vote on raising the deficit ceiling next spring could be the “trigger” for a rout in the Treasury market. Several Republican and Tea Party candidates vowed to not increase the government’s debt ceiling unless Democrats agree to sharp cuts in spending that may not be politically tenable.

A Congressional standoff on the debt ceiling could spook international investors, Rubin said, alluding to a market event similar to the Dow’s 778-point plunge on Sept. 29, 2008, when the House initially voted no on TARP.

While most pundits worry about the potential for China to dump its Treasury holdings, the former non-executive chairman of Citigroup said a financial version of the Cold War concept of Mutual Assured Destruction will likely prevent them from doing so. But he is worried about selling by the government’s of Singapore, Hong Kong and Malaysia. “They could say ‘the Chinese are stuck but we’re not,’” Rubin predicts

www.jsmineset.com

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Tags: Robert Rubin's Bold Warning

Posted By thestatedtruth.com on November 18, 2010

Prime means the top qualified and most credit worthy people, the highest rated and least likely to default.

Foreclosures on prime fixed-rate mortgages in the U.S. jumped to a record in the third quarter as unemployment strained household budgets of the most credit worthy borrowers.

Homeowners are falling behind on their mortgage payments as job cuts make it difficult for them to cover their bills, said Michael Fratantoni, the Mortgage Bankers Association’s vice president of research and economics.  

“The increase in these plain-vanilla type of loans to the highest numbers ever show us it really is being driven by the economic environment,” Fratantoni said in a telephone interview. “It’s not going to turn around until we get more significant job growth.”“The modification programs have helped a number of borrowers, but at the same time we do see redefault rates of around 50 percent at 12 months,” Fratantoni said.

Servicers modified 108,946 mortgages in the second quarter using the Obama administration’s primary anti-foreclosure plan, the Home Affordable Modification Program, or HAMP.  Almost half of the mortgages modified in 2009’s first quarter, before HAMP began in March of that year, were overdue by 90 days or more in this year’s second quarter, according to Treasury Department data. Mortgages overdue by more than three months typically are considered in default, while home loans overdue by fewer days are called delinquent.

More at: http://www.bloomberg.com/news/2010-11-18/prime-u-s-mortgage-foreclosures-rise-to-record-on-unemployment-pressure.html

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Posted By thestatedtruth.com on November 17, 2010

ICI Data shows the 28’th consecutive week of domestic equity fund outflows and $86 billion in outflows for the year! 

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Tags: equity fund flow data, mutual fund outflows

Posted By thestatedtruth.com on November 17, 2010

It all sounds good but not so fast……GM’s owners, including the U.S. Treasury, sold at least $15.8 billion of common shares at $33 each, making it the second-largest U.S. Initial Public Offering (IPO) on record according to data compiled by Bloomberg.  GM  received $49.5 billion in a taxpayer bailout just last year. The Treasury, which is taking a loss on its portion of the sale, will break even only if the shares climb more than 60 percent, Bloomberg data shows.

“GM in the past wasn’t well positioned in the auto industry, but costs are now down and their products are being well-received.”  But let’s look at one other important fact.  Much of the GM bond debt became equity because of the bankruptcy.  Therefore the amount of interest expense is dynamicly smaller and this huge interest savings now trickles to the bottom line.

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Tags: Gm IPO, the new General Motors

Posted By thestatedtruth.com on November 17, 2010

Looks like the VAT (Value Added Tax) or what is also known as the Consumption Tax is picking up steam.  We suggest that time and understanding be entered into any equation of change.  Let’s try to simplify the tax system going forward, not complicate things further.

All of this spending got us nowhere.  The nation cannot grow its way out of the deficits according to the Bipartisan Policy Center in Washington.  Just to stabilize the debt at 60 percent of gross domestic product, the economy would have to grow at a sustained rate of more than 6 percent a year for at least the next 10 years, it says. The economy hasn’t grown by more than 4.4 percent in any decade since World War II.

Reviewed Below From The Wall Street Journal

Chart above from the WSJ

A panel of Democrats, Republicans, economists and other experts is set to say Wednesday that a complete overhaul of the U.S. tax code is the best way to address the nation’s fiscal problems—a new and likely controversial idea aimed at tackling the growing deficit.

The most recent report, put together by a group called the Bipartisan Policy Center, will call for a one-year payroll-tax holiday in 2011 that it says will create between 2.5 million and 7 million jobs.    Never going to happen.

The plan would lower income and corporate tax rates and offset them with a 6.5% national sales or “consumption” tax as well as an excise tax on sugar drinks like soda.  More likely.

Last week’s proposal, from Democrat Erskine Bowles and Republican former Sen. Alan Simpson, also called for an overhaul of tax and spending programs. Other similarities include:

• Changing the formula for social-security taxes so that they are levied against 90% of all wages, compared with the current system, which caps the tax at a certain income level.

• Major cuts in discretionary spending. Both singled out a government policy that allows military retirees to collect full benefits after 20 years.

• Cuts to farm subsidies and either eliminating or limiting certain politically popular tax breaks, such as the mortgage-interest tax deduction.  This would likely make the housing situation a decade long disaster…….come to think about it, we may already be there!

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Tags: congress ideas, deficit reduction, new taxes, u.s. debt

Posted By thestatedtruth.com on November 16, 2010

John Mauldin Reviews Gary Shilling’s Brand New Book,   The Age of Deleveraging: Investment Strategies For A Decade Of Slow Growth And Deflation.  Some of his opinions are covered below.

Roadblocks on the deleveraging highway may include a crisis in U.S. commercial real estate (Chart 5) that could exceed the earlier one in housing. Then there’s a possible hard landing in China that exceeds the 2008 weakness (Chart 6) as the government’s measures to cool the red hot property market and economy in general take hold. A slow-motion train wreck in Japan will probably occur sooner or later as her all-important exports fall along with weakening U.S. consumer willingness to buy them, and as her already subdued domestic sector suffers from her rapidly aging population.

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Tags: china economy growth, commercial real estate

Posted By thestatedtruth.com on November 16, 2010

CNBC’s Diana Olick reports that the investigation into the biggest financial fraud in recent history is about to be closed.  State AGs are nearing a settlement with banks, which will slap a few wrists, see banks put some money in a settlement fund, and will result in some principal reductions.  Then everything will be well again.  Oh, and banker bonuses are set to  surpass 2009 levels!

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Posted By thestatedtruth.com on November 16, 2010

It looks like the day of reckoning is close at hand for state governments. Illinois faces a deficit for the fiscal year beginning July 1, 2011, that could reach $15 billion—more than half the state’s general-fund budget.  California faces a deficit next year of $25.4 billion, twice the size of previous forecasts and California Gov. Arnold Schwarzenegger last week called for legislators to meet Dec. 6 in a special session to make midyear budget cuts.

This From The Wall Street Journal:

From Sacramento to Austin to Albany, the day of fiscal reckoning is here. At one point this spring, financial markets were demanding more to insure investors against defaults by Illinois, New Jersey, New York and Michigan than to insure the debt of Ireland and Portugal, the flailing economies of Europe.

Federal aid cushioned states from some of the drop in revenues during the recession, but that’s running out. With all statehouses unable to borrow as readily as Washington and nearly all constitutionally required to balance their budgets, they can’t ignore gaps between revenue and spending.

On Monday, Pennsylvania’s house of representatives passed a bill, already approved by the state senate, that raises the retirement age for new state workers and gives workers a choice between lower pension benefits and higher contributions.

After learning that California faces a deficit next year of $25.4 billion, twice the size of previous forecasts, California Gov. Arnold Schwarzenegger last week called for legislators to meet Dec. 6 in a special session to make midyear budget cuts.

State governments—battered by the downturn and generous pension promises to their employees—have cut spending and raised taxes, while Washington has been spending more to prop up the sagging economy and cutting taxes.

In other states, notably Illinois and California, the political system has done little more than lurch to the end of the fiscal year. California voters took a step toward alleviating gridlock, approving a referendum that reduces the legislative votes needed to approve a budget to a simple majority, from the current two-thirds. It will still take two-thirds to raise taxes or fees, however.

Illinois is a case study in the cost of delay. With revenue falling and payments due to state-employee pension funds, Illinois faces a deficit for the fiscal year beginning July 1, 2011, that could reach $15 billion—more than half the state’s general-fund budget. Because the state hasn’t made any pension payments for four months, the pension funds have been selling assets.

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Tags: state governments;state budget deficits

Posted By thestatedtruth.com on November 15, 2010

Write your congressman about this!  On second thought maybe not, they’re in on this whole ruse.  Yes, it is a ruse!

Since 2000, federal pay and benefits have increased 3% annually above inflation compared with 0.8% for private workers, according to the Bureau of Economic Analysis. Members of Congress earn $174,000, up from $141,300 in 2000.

And what about our countries older folks on Social Security, well they get no increases in anything for 2011, not a penny, zippo…… just a poke in the eye!

A study by USA Today, using U.S. Office of Personnel Management data confirms that the biggest beneficiaries of government largesse over the past 5 years as a worker cohort, are none other than Federal workers themselves. The numbers are stunning: those earning over $150,000 in the past five years have grown from 7,420 to 82,034, a 1,006% increase. More shockingly, those earning over $180,000 has surged from just 805 in 2005, to 16,912 in 2010: a 2,001% increase. And it is on the background of this that Congress is planning on giving 2.1 million federal workers another 1.4% across the board pay raise! Additionally, it appears that the bulk of the gains have taken place since Obama took office.

The stunning comparison of what Federal workers were making in 2005 and 2010, spread by income bucket:

More from USA Today:

Federal salaries have grown robustly in recent years, according to a USA TODAY analysis of Office of Personnel Management data. Key findings:

• Government-wide raises. Top-paid staff have increased in every department and agency. The Defense Department had nine civilians earning $170,000 or more in 2005, 214 when Obama took office and 994 in June.
• Long-time workers thrive. The biggest pay hikes have gone to employees who have been with the government for 15 to 24 years. Since 2005, average salaries for this group climbed 25% compared with a 9% inflation rate.
• Physicians rewarded. Medical doctors at veterans hospitals, prisons and elsewhere earn an average of $179,500, up from $111,000 in 2005.

Federal workers earning $150,000 or more make up 3.9% of the workforce, up from 0.4% in 2005.

Since 2000, federal pay and benefits have increased 3% annually above inflation compared with 0.8% for private workers, according to the Bureau of Economic Analysis. Members of Congress earn $174,000, up from $141,300 in 2000.

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Posted By thestatedtruth.com on November 15, 2010

The rate will tell the story. If the rate is reasonable then it is illogical. If it is illogical then QE  (Quantitative Easing) has started to bail out states.  

          Jim Sinclair

This two-part sale of so-called revenue anticipation notes (Rans) allows California to bridge the gap to its tax season in the spring…… Hopefully!   Notice that we didn’t call it California’s tax collection season for good reason! The collections have been the hard part!

 

Troubled California Begins $14bn Bond Sale
         By Nicole Bullock in New York

California on Monday kicks off about $14bn of debt sales, hoping that investor desire for yield will outweigh concerns over the U.S. state’s fiscal trouble in a weak market for local government debt.

The Golden State is the starkest example of the financial difficulty facing U.S. local governments. Worries are mounting of a possible rise in defaults or a reassessment of risk in the $2,800bn municipal bond market, hitherto perceived as a safe place to invest.

California’s plans to sell its debt come just days after Arnold Schwarzenegger, the state governor whose term ends in January, called a special session of the legislature to address a state deficit projected to be more than $25bn over the next 18 months.

Orders begin on Monday for a $10bn, two-part sale of so-called revenue anticipation notes (Rans), an annual event that allows California to bridge the gap to its tax season in the spring. The notes, due in May and June, are targeted mostly at individual investors who benefit from tax breaks on so-called “munis.”

Muni bonds generally last week sold off on concerns about shaky finances and the looming end of federal subsidies for the Build America bonds (Babs) programme, which has boosted the market since the credit crunch.

More at: http://www.ft.com/cms/s/0/77bd1576-f022-11df-88db-00144feab49a.html#axzz15OwZbjSk

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Posted By thestatedtruth.com on November 15, 2010

Europe Stumbles Blindly Towards Its 1931 Moment

By Ambrose Evans-Pritchard 

Nov 15, 2010

Unless the ECB takes fast and dramatic action, it risks destroying the currency it is paid to manage, and allowing a political catastrophe to unfold in Europe.

If mishandled, Ireland could all too easily become a sovereign version of Credit Anstalt – the Austrian bank that brought down the central European financial system in 1931, sent tremors through London and New York, and set off the second deeper phase of the Great Depression, the phase when politics turned ugly.

“Does the ECB understand the concept of contagion?” asked Jacques Cailloux, chief Europe economist at RBS. Three EMU countries have already been shut out of the capital markets, and footloose foreign creditors hold €2 trillion of debt securities issued by Spain, Portugal, Ireland and Greece.

“If that is not enough to worry about financial contagion, what is? The ECB’s lack of action begs the question as to whether it is fulfilling its financial stability mandate,” he said. That is a polite way of putting it.

More at:  http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8132689/Europe-stumbles-blindly-towards-its-1931-moment.html

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Tags: 1931 moment, ECB, euro

Posted By thestatedtruth.com on November 14, 2010

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Tags: The Resilient Household

Posted By thestatedtruth.com on November 14, 2010

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Tags: worlds cleanest nations

Posted By thestatedtruth.com on November 13, 2010

John Mauldin says…….”If the Bush tax cuts are not extended, in my opinion it is almost a lock that we go into recession next year, unemployment goes to 12%, and underemployment gets even worse”. The only real way to pay for all these benefits will ultimately be a value-added tax, or VAT.     A VAT looks to be in our future and is a tax on everything you buy, like a state sales tax is, but it is a federal consumption tax that is added at each stage of manufacture or distribution. 

November 12, 2010

By John Mauldin

And then what? Right now Republicans are running on promises that they will not cut Medicare and Social Security, but are going to reduce spending and get us closer to a balanced budget. But everyone knows that the only way to get the budget into some reasonable semblance of balance will be to either cut Medicare benefits or increase taxes.”

There are only the two options. Yes, you can reform medical care, and I think much of Obamacare should certainly be repealed, but that does not get us anywhere close to dealing with the real issue, and that’s a fact. There are tens of trillions in unfunded liabilities in our future, which must be dealt with.

Let me be very clear on this. I am not really worried about the supposed $75 trillion in unfunded Medicare liabilities in our future. That is an impossible number. If something can’t happen it won’t happen. Long before we get to that apocalypse, we find a bond market that simply refuses to fund US debt at anywhere near an affordable cost. Crisis and chaos will ensue.

People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them.

– Jean Monnet

The simple reality is that if We the People of the US want Medicare, in even a reformed and more efficient manner, we must find a way to pay for it. It will not be cheap. Raising income taxes on the “rich” is not enough. You have to go back and raise income taxes on the middle class, too. Oh, wait, that will be a drag on the economy and consumer spending. And in any event it will not be enough.

The only real way to pay for those benefits will be a value-added tax, or VAT. And while it could be introduced gradually, let there be no mistake that it will be a drag on economic growth. Government spending does not have a multiplier effect on the economy. It is at best neutral. What creates growth is private investment, increases in productivity, and increases in population. That’s it. Tax increases have a negative multiplier.

A significant VAT along with our current income taxes will give us an economy that looks more like the slow-growth, high-unemployment world of Europe. Can we figure out how to deal with that? Sure. But it is not growth-neutral.

Republicans in 2013 will be like the dog that caught the car. What do you do with it? The last time they (embarrassingly, we) really screwed it up. The defining political question of this decade will not be Iraq or Afghanistan, or the environment or any of a host of other problems. The single most important question will be what do you do with Medicare? Cut it or fund it? Reform it for sure, but reform is not enough to pay for the cost increases that will come from an increasingly aging Boomer generation.

There is no free lunch. At some point, Republicans cannot run on “no cuts in Medicare” and “no new taxes” and be honest. At least not this decade. Maybe when we have cured cancer and Alzheimer’s and heart disease and the common cold at some future point, medical costs will go down, but in the meantime we have to deal with reality.

You may be able to fool the voters, but you will not be able to fool the bond market. Not dealing with reality will create a very vicious response. Ask Greece.

And that is the national conversation we must have with ourselves. There is a cost to government. There is a cost to extended Medicare benefits. (I am blithely assuming we deal with all the “easy” stuff like Social Security, and make real cuts in other areas.)

For More :  www.frontlinethoughts.com or www.JohnMauldin.com 

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Tags: Comments from John Mauldin

Posted By thestatedtruth.com on November 13, 2010

This is peanuts compared to what the OTC derivative credit default swaps are going to cost. According to the National Conference of State Legislatures, U.S. cities saw their general fund revenue fall the most since at least 1986 in the budget year that ended June 30, according to the National League of Cities.   States now face budget gaps of $72 billion or more in next fiscal year. 

First let’s review the definition of a Credit Default Swap, then the article below will make more sense.  Please scrowl down.

If the reference bond performs without default, the protection buyer pays quarterly payments to the seller until maturity

If the reference bond defaults, the protection seller pays par value of the bond to the buyer, and the buyer physically delivers the bond to the seller

A credit default swap (CDS) is a swap contract and agreement in which the protection buyer of the CDS makes a series of payments (often referred to as the CDS “fee” or “spread”) to the protection seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) experiences a credit event. It is a form of reverse trading.

In its simplest form, a credit default swap is a bilateral contract between the buyer and seller of protection. The CDS will refer to a “reference entity” or “reference obligor”, usually a corporation or government. The reference entity is not a party to the contract. The protection buyer makes quarterly premium payments—the “spread”—to the protection seller. If the reference entity defaults, the protection seller pays the buyer the par value of the bond in exchange for physical delivery of the bond, although settlement may also be by cash or auction.

 

Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire

By Michael McDonald

The subprime mortgage crisis isn’t the only calamity Wall Street created that’s upending the finances of U.S. states and cities.

For more than a decade, banks and insurance companies convinced governments and nonprofits that financial engineering would lower interest rates on bonds sold for public projects such as roads, bridges and schools. That failed promise has cost more than $4 billion, according to data compiled by Bloomberg, as hundreds of borrowers from the Bay Area Toll Authority in Oakland, California, to Cornell University in Ithaca, New York, quietly paid Wall Street to end agreements since 2008.

California’s water resources department this year spent $305 million unwinding interest-rate bets that backfired, handing over the money to banks led by New York-based Morgan Stanley. North Carolina paid $59.8 million in August, enough to cover the annual salaries of about 1,400 full-time state employees. Reading, Pennsylvania, which sought protection in the state’s fiscally distressed communities program, got caught on the wrong end of the deals, costing it $21 million, equal to more than a year’s worth of real-estate taxes.

“It was brilliant, and it all blew up on me,” said Brian Mayhew, chief financial officer of the Bay Area Toll Authority, the state agency that gave Ambac Financial Group Inc., the New York-based bond insurer that filed for bankruptcy this week, $105 million to end $1.1 billion of interest-rate agreements. The payments equal more than two months of revenue on seven bridges the authority oversees around San Francisco.

The termination payments to Wall Street firms come at the worst possible time. The longest recession since the Great Depression left states facing budget gaps of $72 billion next fiscal year, according to the National Conference of State Legislatures. U.S. cities saw their general fund revenue fall the most since at least 1986 in the budget year that ended June 30, according to the National League of Cities.

www.jsmineset.com

Category: Commentary, Economy, Finance, Interest Rates, Bonds, National News, Real Estate, Wall Street | No Comments »
Tags: Credit Swap Definition, derivatives, otc swaps

Posted By thestatedtruth.com on November 13, 2010

It’s the rainy season in California…..Schwarzenegger Declares Emergency, Calls Special Budget Session

November 12, 2010

By Michael B. Marois

Nov. 12 (Bloomberg) — California Governor Arnold Schwarzenegger, citing a $25.4 billion budget gap over the next 19 months, declared a fiscal emergency and called lawmakers to a special session next month to begin dealing with the problem.

Schwarzenegger, a Republican whose term ends in January, late yesterday ordered the session to start Dec. 6, the day newly elected legislators are sworn in. He wants to take steps to erase an officially estimated $6.1 billion gap that has already emerged in the budget enacted last month.

In addition to the gap forecast for the fiscal year through June, the nonpartisan Legislative Analyst’s Office yesterday projected a $19 billion gap in the following 12 months. By Jan. 10, Governor-elect Jerry Brown, a Democrat who will be sworn in Jan. 3, must propose a plan to erase the next year’s deficit.

“The LAO’s estimate is a sobering reminder that California’s economy is still struggling,” Schwarzenegger, 63, said in a statement. “I have spoken to all four legislative leaders and they know what we are up against. They know it won’t be easy, but they also know they cannot wait to take action.”

The authority to declare a fiscal emergency comes from ballot measures Schwarzenegger championed in 2004, when he won approval to borrow $15 billion to fill that year’s budget gap.

Category: Commentary, Economy, Finance, Interest Rates, Bonds, National News, Wall Street, World News | No Comments »
Tags: california budget busted, California fiscal emergency

Posted By thestatedtruth.com on November 12, 2010

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Tags: Bank lobbying, Group of 20

Posted By thestatedtruth.com on November 12, 2010

Three federally funded unemployment programs are set to end soon!

The programs are the additional compensation pay program, the emergency pay program, and the extended benefits program.

Unless lawmakers intervene with another emergency package, the federal benefits will begin to expire starting Nov. 30 through Dec. 11.

Category: Commentary, Economy, National News | No Comments »
Tags: federal benefits programs, losing benefits

Posted By thestatedtruth.com on November 12, 2010

The trouble continues at the U.S. Postal Service.  It lost a record $8.5 billion, and said almost two thirds of the deficit, or $5.5 billion, covered health-benefit costs for future retirees.  Hey, here’s a novel idea (not)…. let’s raise the cost of postage stamps every year, that way the postal workers can keep their retirement benefits. 

The U.S. Postal Service said its loss widened to a record $8.5 billion in the year ended Sept. 30.  This exceeded its forecast while the volume of mail declined.

Revenue fell 1.5 percent to $67.1 billion for the year and mail volume dropped 3.5 percent, according to a presentation to the service’s board today at a meeting in Washington. The loss in the previous fiscal year was $3.8 billion, the service said.

The Postal Service, which forecast a $7 billion loss, said almost two thirds of the deficit, or $5.5 billion, covered health-benefit costs for future retirees. An additional $2.5 billion covered adjustments to workers’ compensation liabilities for interest rate changes. The loss for 2011 will be $6.4 billion, Chief Financial Officer Joseph Corbett said today.

“We expect to go through the year with sufficient cash to continue operations,” Corbett said. “However at the end of the year, we don’t expect to have sufficient cash to pay all of our obligations, primarily the $5.5 billion retiree health payment due at the end of the year.”

More at: http://www.bloomberg.com/news/2010-11-12/u-s-postal-service-loss-more-than-doubles-to-8-5-billion-as-volume-drops.html

Category: Economy, National News, Pensions and Retirement, Wall Street | No Comments »
Tags: postal service, U.S. postal service

Posted By thestatedtruth.com on November 10, 2010

ICI Data shows the 27th consecutive week  of domestic fund outflows, commencing with the May flash crash, and resulting in $85 billion in retail outflow YTD.

www.zerohedge.com

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Tags:

Posted By thestatedtruth.com on November 10, 2010

This is unbelievable….beyond belief……..California’s deficit over the next year and half has gone vertical soaring to $25.4 billion.

Category: Commentary, Economy, Finance, National News, Wall Street | No Comments »
Tags: California, California budget shortfall

Posted By thestatedtruth.com on November 10, 2010

A presidential commission’s leaders proposed a $3.8 trillion deficit-cutting plan that would trim Social Security and Medicare, reduce income-tax rates and eliminate tax breaks including the mortgage-interest deduction.

November 10, 2010

Bloomberg

Wiping out all tax breaks, including the home mortgage deduction, while lowering tax rates would save $100 billion a year according to Erskine Bowles, co-chairman of a panel created by President Barack Obama.

The plan would overhaul the federal budget by throwing out hundreds of tax breaks for items such as capital gains and child care. It would raise the gas tax, slash defense spending and bring down health-care costs by clamping down on medical malpractice suits. The Social Security retirement age would be raised to 68 in about 2050 and 69 in about 2075.

“This country’s out of money and we better start thinking,” said Erskine Bowles, co-chairman of the panel created by President Barack Obama. Without “tough choices,” Bowles said, “we’re on the most predictable path toward an economic crisis that I can imagine.”

Bowles, former President Bill Clinton’s chief of staff, and Republican former Senator Alan Simpson of Wyoming announced the proposal in Washington today, stressing that it was intended as a starting point for discussion.

More at: http://www.bloomberg.com/news/2010-11-10/deficit-reduction-panel-s-plan-would-seek-to-cut-social-security-medicare.html

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Tags: mortgage tax deduction, tax breaks

Posted By thestatedtruth.com on November 10, 2010

A major point in the long weather cycle occurs in 2011…….Demand is soaring and crop yields are shrinking. This alone will send agricultural prices higher.  Now add aggressive currency devaluation into the mix and we can better understand the direction of capital flows.  The phrase budget pain will soon redefine the grocery checkout experience.

From the FT: 

(FT) — The spectre of inflation loomed over agricultural markets after the U.S. slashed key crop forecasts and warned of shortfalls in grains.

The agriculture department on Tuesday cut estimates of U.S. corn yields for a third successive month, forecast record soyabean exports to China and warned of the slimmest cotton stocks since 1925.

“The combined production shortfalls and dramatic potential stock drawdowns mean a much tighter supply picture than just a few months ago,” the agency said in a separate grains report.

Source: edition.cnn.com

Category: Commentary, Commodities, Economy, National News, Wall Street, Weather, World News | No Comments »
Tags: crop shortages, weather, weather cycle

Posted By thestatedtruth.com on November 9, 2010

What is Quantitative easing….and what is Monetization of debt?

Quantitative easing is the monetization of debt. It can take many forms from guaranteeing other obligations to outright purchase of Treasury instruments.

The one trillion dollar Euro Rescue Program is without any doubt as big a QE program as the U.S. Ben Bernanke plan.

The following is a definition  from Wikipedia.

Monetizing debt

In many countries the government has assigned exclusive power to issue or print its national currency to independently operated central banks. For example, in the USA the independently owned and operated Federal Reserve banks do this.[1]  Such governments thereby disavow the overly convenient ’slippery slope’ option of paying their bills by printing new currency. They must instead pay with currency already in circulation, or elsefinance deficits by issuing new bonds, and selling them to the public or to their central bank so as to acquire the necessary money. For the bonds to end up in the central bank it must conduct an open market purchase.   This action increases the monetary base through the money creation process. This process of financing government spending is called monetizing the debt.[2]  Monetizing debt is thus a two step process where the government issues debt to finance it.s spending and the central bank purchases the debt from the public. The public is left with an increased supply of base money.

www.jsmineset.com

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Tags: monetizing debt, quantitative easing

Posted By thestatedtruth.com on November 9, 2010

These endless wars will bankrupt America eventully!

Tuesday, November 09, 2010
By Edwin Mora

(CNSNews.com) – U.S. Lt. Gen. William Caldwell, the commander of the NATO training mission in Afghanistan, indicated today that U.S. forces will still be fighting in Afghanistan in 2014, with current plans aiming to have “Afghan security forces in the lead” and U.S. forces in supporting roles by Dec. 31, 2014–more than four years from now.

President Obama has said that U.S. forces will begin withdrawing from Afghanistan in July 2011. Given Lt. Gen. Caldwell’s statement today, that drawdown will still be in progress three-and-a-half years after it

www.cnsnews.com

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Tags: Afganistan

Posted By thestatedtruth.com on November 9, 2010

Deficits such as these are not limited to California. Illinois, Wisconsin, Texas, New York, New Jersey, and/or nearly ever State in the Union have drained their unemployment insurance funds and must start paying the federal government interest on the borrowed money in 2011. The markets already know that there’s no way the States will  have the funds to service and repay the debt without massive cutbacks.

The States have a SERIOUS cash flow problem that will inevitably only be “solved” by the printing press of the federal government.

Headline: California’s unemployment fund has $10.3 billion deficit

California businesses already pay some of the highest unemployment taxes in the country – and the tab is likely to increase.

The recession and the Legislature’s decision years ago to raise benefits have drained the state unemployment insurance fund, which now has a estimated $10.3 billion deficit.

Headline: Illinois to start paying interest on jobless benefits

The $2.2 billion Illinois has borrowed from the federal government to pay for unemployment benefits is about to get hit with a hefty fee.

As of Jan. 1, the federal government will start charging interest to the 32 states or territories that have borrowed money to bolster their unemployment insurance funds and still owe on their debt. Collectively, nearly $41 billion is owed, according to Department of Labor data.

Headline: Texas may sell $2 bln of debt for unemployment fund

Texas might refill its unemployment trust fund by selling $2 billion of debt later this year, a strategy that cut its borrowing costs in the last downturn, according to a state official.

Texas, like many states around the nation, has seen the recession drain its unemployment insurance fund, which pays benefits to jobless workers

Source: sacbee.com
Source: rrstar.com
Source: reuters.com

Category: Commentary, Economy, Finance, National News | 599 Comments »
Tags: state unemployment, State Unemployment Funds

Posted By thestatedtruth.com on November 9, 2010

FOR IMMEDIATE RELEASE 
November 9, 2010

The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today approved a final rule to implement section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Section 343 provides temporary unlimited coverage for noninterest-bearing transaction accounts. This separate coverage will become effective on December 31, 2010, and will end on December 31, 2012.

The final rule revises the FDIC’s deposit insurance regulations to include noninterest-bearing transaction accounts as a new temporary deposit insurance account category. All funds held in such accounts are fully insured, without limit, and this coverage is separate from, and in addition to, the coverage provided to depositors for other accounts at an insured depository institution.

Noninterest-bearing accounts, as defined in the Dodd-Frank Act, include only traditional, noninterest-bearing demand deposit (or checking) accounts that allow for an unlimited number of transfers and withdrawals at any time, whether held by a business, individual or other type of depositor.

The new temporary provision for unlimited coverage of deposit insurance for noninterest-bearing transaction accounts is similar to the FDIC’s Transaction Account Guarantee Program (TAGP) but differs significantly in the definition of “noninterest-bearing transaction account.” The TAGP, which expires December 31, 2010, includes low-interest NOW (negotiable order of withdrawal) accounts and Interest on Lawyer Trust Accounts (IOLTAs). The final rule expressly states that NOW and IOLTA accounts are not covered under the Dodd-Frank Act definition of noninterest-bearing transaction accounts and do not qualify for temporary unlimited coverage.

More…

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Tags: FDIC, TUDI Temorary Unlimited Deposit Insurance

Posted By thestatedtruth.com on November 9, 2010

There is a school of thought that says many markets are rigged….gasp.  When we see results such as these for the big Banks and Wall Street firms, it only serves to fan those fires, and in the process create more doubt about the fairness in the “new normal” markets!

Bank of America Corp. and J.P. Morgan Chase & Co.  the two biggest U.S. banks by assets, racked up perfect trading records for the second time this year, making money every day last quarter after accomplishing the same feat in the first three months of 2010.  Goldman Sachs Group Inc., which makes the most revenue on Wall Street trading stocks and bonds, had losses on two days in the third quarter while Morgan Stanley reported 10 losing days. Goldman Sachs and Citigroup Inc.  both showed perfect trading results during the first quarter.

More at: http://www.bloomberg.com/news/2010-11-09/jpmorgan-reprises-perfect-trading-record-as-goldman-posts-two-losing-days.html

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Tags: perfect trading records

Posted By thestatedtruth.com on November 8, 2010

Huh?   Where has this guy been for the past two years?  

According to The Wall Street Journal: ‘President Barack Obama warned in an interview on CBS’s 60 Minutes about the danger of a “new normal” taking hold of the economy – an environment in which businesses become accustomed to fewer employees and the U.S. job market never regains its footing.’

The president seems to be a bit behind the times, especially since the “new normal” has been part of the national discourse, at least in financial and business circles for a long time. Pimco’s Muhammad El-Baradei coined the phrase at least two years ago when the subprime mortgage crisis imploded. That the president offered no real solutions to the “new normal” despite having contributed to it as much or more as his predecessors doesn’t really excuse the sad state of affairs when the president is about two years behind the rest of the world in figuring key dynamics in the economy.

 Dr. Duarte    www.joe-duarte.com

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Tags: behind the curve, president Obama

Posted By thestatedtruth.com on November 8, 2010

Germany:   U.S. debt and interest policy generally “doesn’t add up” and the U.S. model is in “deep crisis”.  .  Hmm, so what happens if this U.S. policy fails…….inquiring minds want to know?      

German Finance Minister, Wolfgang Schuble, offered some withering criticism of the Fed’s move and U.S. economics.  Here’s a bit from the WSJ.com:

The Fed’s decisions are “undermining the credibility of U.S. financial policy,” Mr. Schuble said in an interview with Der Spiegel magazine published over the weekend, referring to the Fed’s move, known as “quantitative easing” and designed to spur demand and keep interest rates low. “It doesn’t add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank’s printing presses, artificially lower the value of the dollar.

He also said that U.S. policy generally “doesn’t add up” and that the U.S. model is in “deep crisis”.  G20 could get interesting.

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Tags: Germany voices opinion, U.S. economic policy