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It is a peculiar irony. A year ago, the the UK’s Inland Revenue began a crackdown on offshore savings. Banks operating out of the Channel Islands and the Isle of Man had to hand over details of British customers, and depositors who confessed were rewarded with an amnesty. Thousands did and many must have given up on offshore savings. Inadvertently, the taxman’s crackdown must have saved some depositors from the collapse of the offshore subsidaries of Icelandic banks.
Thousands were not so lucky and could now lose most of their savings …
Consider if you will be a sole proprietorship, partnership or corporation.
‘You’re so lucky, being able to work abroad.’ I’ve forgotten how many times I’ve heard that statement.
If you have assets, you are most likely a target. When your assets are visible, you are the bullseye.
Do you need a job? Just got a question? Pop it in here and you’ll get an answer from our Inn Team.
Tip the scales in your favour, protect your home and family with asset protection programmes for partnerships, corporations and individuals.
Inquiring minds are interested in velocity and money. John Mauldin discusses both in The Implications of Velocity. Unfortunately, Mauldin perpetuates three widely believed myths in his article.
Misconception #1: Money Supply Needs To Grow
“Now, there is no exact way to determine the right size of the money supply. It definitely needs to grow each year by at least the growth in the size of the economy, the population, and productivity, or deflation will appear. But if money supply grows too much then you have inflation.”
Reality #1:
Money supply most assuredly does not need to grow each year by the size of the economy, by increases in population, or anything else as is widely believed.
An increase in money supply confers no overall economic benefit whatsoever. Over time, money simply buys less and less.
Please consider a few re-ordered sentences of Rothbard’s classic text: What Has Government Done to Our Money?
Money is a commodity used as a medium of exchange.Like all commodities, it has an existing stock, it faces demands by people to buy and hold it. Like all commodities, its “price” in terms of other goods is determined by the interaction of its total supply, or stock, and the total demand by people to buy and hold it. People “buy” money by selling their goods and services for it, just as they “sell” money when they buy goods and services.
Money is not an abstract unit of account. It is not a useless token only good for exchanging. It is not a “claim on society”. It is not a guarantee of a fixed price level. It is simply a commodity.
What Is The Proper Supply Of Money?
Continuing from the book …
Now we may ask: what is the supply of money in society and how is that supply used? In particular, we may raise the perennial question, how much money “do we need”?Must the money supply be regulated by some sort of “criterion,” or can it be left alone to the free market?
All sorts of criteria have been put forward: that money should move in accordance with population, with the “volume of trade,” with the “amounts of goods produced,” so as to keep the “price level” constant, etc.
But money differs from other commodities in one essential fact. And grasping this difference furnishes a key to understanding monetary matters.
When the supply of any other good increases, this increase confers a social benefit; it is a matter for general rejoicing. More consumer goods mean a higher standard of living for the public; more capital goods mean sustained and increased living standards in the future.
[Yet] an increase in money supply, unlike other goods, [does not] confer a social benefit. The public at large is not made richer. Whereas new consumer or capital goods add to standards of living, new money only raises prices—i.e., dilutes its own purchasing power. The reason for this puzzle is that money is only useful for its exchange value.
[Thus] we come to the startling truth that it doesn’t matter what the supply of money is. Any supply will do as well as any other supply. The free market will simply adjust by changing the purchasing power, or effectiveness of the [monetary-unit] gold-unit .
The online book is a great read and I highly recommend reading it in entirety.
Misconception #2: Falling Velocity Causes Economic Activity to Decrease, Requiring an Increase in Money Supply to Maintain the Status Quo
“If velocity does slow by another 10%, then money supply (M) would have to rise by 10% just to maintain a static economy.”
Reality #2:
Falling velocity is a result of an increased demand to hold money as opposed to a desire to expand productive capacity or borrow to make purchases. In other words, banks do not want to lend and consumers and businesses do not want to borrow. The Fed can print, but it cannot determine where the money goes, or indeed if it goes anywhere at all.
If the Fed increased money supply by 10%, the most likely consequence would be for money to sit or perhaps make its way into non-GDP producing financial speculation. Thus, GDP would not rise by 10%, instead velocity would plunge.
Congress can get into the act by giving away money, as it does with various stimulus plans but that has encouraged little lasting economic activity. Unemployment checks maintain spending on food and essentials but those are low-velocity activities. And as boomers head into retirement, peak spending behind them, velocity is highly likely to continue its downward slide.
By the way, when figuring velocity is it correct to use M1, M2, MZM, Base Money Supply, Austrian Money Supply, or True Money Supply? Obviously the measure of velocity differs widely depending on what definition of money one uses. In general, the broader the measure of money, the lower the resultant velocity.
Misconception #3: In a normal scenario, banks take money and lend it out 9-10 times over.
“And now we come to the policy conundrum for the Fed. They have pumped a great deal of money (liquidity) into the economy. Normally, banks would take that money and multiply it by lending it out (through fractional reserve banking at a potential 9-times factor), increasing velocity and the overall money supply.”
Reality #3: Lending Comes First, Reserves Come Second
Australian economist Steve Keen and I have emphasized reality number 3 on numerous occasions. Please consider Fictional Reserve Lending And The Myth Of Excess Reserves for a lengthy rebuttal to the idea that the Fed expands money supply then banks lend it 10 times over.
Those are three widely believed misconceptions. Unfortunately they continually make the rounds. By the way, John Mauldin is a friend of mine and his columns are usually worth a look.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Disgusted minds are reading a Sacramento Bee article New speaker grants Assembly pay hikes.
New Assembly Speaker John A. Perez gave his top aide an annual pay increase of nearly $65,000 - about $5,400 per month - upon becoming leader of the lower house, records show.Ramirez’s annual salary is now $190,008 — $80,424 higher than that of Perez or Senate President Pro Tem Darrell Steinberg, D-Sacramento, whose pay was dropped from $133,639 to $109,584 last year by the state’s independent salary-setting commission. Legislators not in leadership positions are paid $95,291 a year.
There are more examples in the article.
Perez Swearing In Speech
Please consider Speaker John A. Pérez: California Must Unite Around Solutions
March 1, 2010
At his swearing-in as California’s 68th Assembly Speaker at the State Capitol today, Speaker John A. Pérez (D-Los Angeles) said his top priority is to get Californians back to work. In his speech, which was delivered before several hundred community and business leaders, working men and women and elected officials, Pérez said he would work to implement innovative ideas around job creation and government reform and he also pledged to work across both sides of the aisle to deliver results for Californians.
Top Priority Is Spending Money
It took a mere two weeks for California Democratic Speaker John A. Perez to prove his top priority is not jobs, but rather spending money and padding the pockets of his friends and associates.
California voters, I have a simple question: Why do you put up with the likes of John A. Perez and his ilk?
Seriously how can you vote for this fiscal lunatic?
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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In what amounts to a dog and pony show without dogs and without ponies, Dodd Bill Empowers Regulators to Limit Size of Financial Firms.
U.S. Senator Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, speaks about overhauling U.S. financial regulation. Dodd, speaking at a news conference in Washington, unveiled a plan to overhaul financial rules and empower the Federal Reserve to break up large firms that pose a “grave threat” to U.S. economic stability.
Seriously, does anyone think Bernanke would act on this? Hell, Bernanke did not see a housing crisis or a recession. Bernanke thought he could put a floor on interest rates at 2% by paying interest on reserve. No one was more useless than Bernanke.
Take a look at Goldman Sachs. It is preposterous that a hedge fund, (and that is all Goldman Sachs is), can borrow money from the Fed at absurdly low rates and speculate in whatever the hell it wants.
Is this a systemic risk? Of course it is.
Does Bernanke or the Fed want to do anything about it? Of course not.
Beyond absurdities in lending arrangements, Goldman Sachs routinely trades against advice it give its clients. Where is the separation of duties? I think giving advice to clients and trading against it is fraudulent, at the very least it is unethical.
Does the Fed want to do anything about that? Of Course not.
What about off balance sheet assets at Citigroup and JPMorgan?
Does the Fed want to do anything about that? Of Course not.
What about the Pay Option ARMs mess at Wells Fargo?
Does the Fed want to do anything about that? Of Course not.
Dodd’s bill, assuming it gets passed, is much ado about nothing.
If Congress really wanted to do something it would require physical (not logical, within one company) separation of duties, it would prohibit trading against clients, and it would prevent off balance sheet accounting. Instead, Dodd’s bill “empowers” the Fed to do nothing. And “nothing” is exactly what the Fed will do.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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The following video should be required viewing for every member in Congress, every teacher in the United States, and every parent with children in public education.
The video is 40 minutes long but I assure you that watching it will be time well spent. The video compares the U.S. public education system with that in Europe, and with magnet and charter schools vs. districts where there is no competition. The results are shocking. Please watch ….
Stupid In America
Here are a couple of select quotes:
Parental Participation Is The Key
Here is an email from “Concerned Parent” about the U.S education system.
Concerned Parent Writes …
Hey, Mish. Love your blog. Apologize in advance for the length.I have two children, 7 & 10 in Clear Creek ISD public schools in League City, TX (near Houston). I have coworkers that live in Friendswood, Texas, which has a higher income (according to demographics). Many of my coworkers’ children are already in high school or college from many of the surrounding areas. As it stands today, my kids go to school with about 25% of the students at or near poverty.
As a parent with a vested interest in my children’s education, I’ve asked and read a lot about what it takes to get a great education. What I see and hear that make a difference hinges on one thing: parental participation. With it, the children succeed above average and in the range of their individual potential. Without it, they struggle or fail.
At my kids’ school, they have “gifted and talented” classes. Only six students from five grades made the cut. Both of my kids did. Yes, they’re smart, but they apply themselves, learn at home, explore ideas with us, etc. In short, my wife and I are committed to learning and teaching by example. We participate in the PTA. We attend the literacy and math nights with our kids. We talk regularly with the teachers to find areas to emphasize where the kids are struggling. We are active and engaged. And so are the kids.
I am convinced parental participation is the key. Every kid with a parent that shows up at the school activities with their kid has a kid performing at par or better. Kids do not have the discipline to force themselves to do what’s good for them in the long run. In fact, their brains are not fully developed in the frontal lobes until their twenties, which is the area that comprehends and acts with adult reasoning.
If the parent is not participating, the kids stand little chance. Even 10:1 student to teacher ratios, kids will fail without parental concern.
Thus, when you see a kid that escapes dire childhood circumstances, it’s usually the result of an influential adult that cared far beyond what’s typical for that dismal environment.
I think Bill Cosby got it right a few years ago. If the parents create a bad environment, set bad examples, and cannot succeed themselves, the vast majority of kids will follow a similar path with similar results.
Concerned Parent
League City, Texas
What’s Wrong With Public Education?
The video addressed each of those issues in detail.
Bush attempted to address the problem by throwing money at it with a catchy sounding program “No Child Left Behind“. The result was another 8 years of failing to address the real issues.
Now President Obama wants to parlay Bush’s mistakes by throwing still more money at the problem. Worse yet, Obama wants to waste money at every level. Please see For Profit Schools Turn Students Into Debt Zombies; It’s Time To Kill The Entire Pell Grant Program for details.
However, lack of money is not the problem, so additional funding cannot possibly be the solution. In the meantime, public school children in districts with no choices continue to fall behind the rest of the world, President Obama and most of Congress are clueless, and the teachers’ unions for the most part just don’t give a damn.
If you are a parent with children in public schools, or even if you don’t and you simply want to help, please email this post on to anyone who will watch it, and have them do the same. Also please email this post to your congressional representative. Hopefully it will sink in.
Addendum:
The Email above from “Concerned Parent” was written by James Magnant. I do not use real names unless I ask. I asked yesterday, but just now got a reply. Thanks James …
“Jonathan ” Writes
The world’s average school year is 200 days per year. In the United States it is 180 days; in Sweden it is 170 days; in Japan it is 243 days.Anyone who proposes to raise academic standards in this country who does not admit the absolute necessity of American kids attending school at least as much as kids from elsewhere is either a fool or a liar.
Very truly yours,
Jonathan
Add that to the list of problems, but it was mentioned in the video. Of course the unions in the U.S. would want to be paid for every additional second given to the kids.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Inquiring minds are watching a pair of interviews with Max Keiser and Birgitta Jonsdottir, a member of the Icelandic Parliament.
Part One
Part Two
In Iceland Rejects IceSave; Does No Mean No? I said …
Notice how Prime Minister Johanna Sigurdardottir calls the will of 93% of Icelandic citizens “obsolete”. The reality is she will soon be obsolete and voted out of office. Such arrogance is not tolerated anywhere.I would suggest that overriding the will of 93% of the population is under-interpreting the message. But hey, to politicians everywhere, no does not mean no, it means whatever the politician wants it to mean.
What’s highly dangerous is the attitude that the wishes of 93% of the people is irrelevant.
Icelandic citizens have overwhelmingly spoken. They do not care for the bailouts. They also rightfully believe the Icesave proposal was blackmail, as without it inclusion in the EU would be delayed.
Thus, it’s good to see some hardball from someone in the Icelandic parliament. Hopefully Prime Minister Johanna Sigurdardottir will be rewarded for her arrogance and removed in the next election.
The citizens of Iceland think “no means no”, so does Birgitta Jonsdottir, and so do I. Best wishes to Iceland.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
The cover story of Barron’s is on public pensions, an issue I have been railing about for years, and heatedly so for several months. Please consider The $2 Trillion Hole.
LIKE A CALIFORNIA WILDFIRE, populist rage burns over bloated executive compensation and unrepentant avarice on Wall Street.
Deserving as these targets may or may not be, most Americans have ignored at their own peril a far bigger pocket of privilege — the lush pensions that the 23 million active and retired state and local public employees, from cops and garbage collectors to city managers and teachers, have wangled from taxpayers.
Some 80% of these public employees are beneficiaries of defined-benefit plans under which monthly pension payments are guaranteed, no matter how stocks and other volatile assets backing the retirement plans perform. In contrast, most of the taxpayers footing the bill for these public-employee benefits (participants’ contributions to these plans are typically modest) have been pushed by their employers into far less munificent defined-contribution plans and suffered the additional indignity of seeing their 401(k) accounts shrivel in the recent bear market in stocks.
Most public employees, if they hang around to retirement, can count on pensions equal to 75% to 90% of their pay in their highest-earning years. And many public employees earn even more in retirement than their best year’s base compensation as a result of “spiking” their last year’s income by working ferocious amounts of overtime and rolling in years of unused sick and vacation days into their final-year pay computation.
THE PROSPECTS ARE BLEAK for many state and local governments as a result of all this. According to a survey last month by the Pew Center on the States, a nonpartisan research group, eight states — Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island and West Virginia — lack funding for more than a third of their pension liabilities. Thirteen others are less than 80% funded.
The more likely outcome is dramatic cuts in essential services, such as police and fire protection, health spending, education and infrastructure improvements, in order to cover ballooning pension payments. State and municipalities, after all, must do something: Most have a legal obligation to pay out earned pension benefits. And some don’t even have the courage to switch new teachers, bureaucrats and police to a defined-contribution system, to prevent the funding problem from worsening as time rolls on.
THUS, MORE DEBT DEFAULTS and bankruptcy filings probably lie ahead, unsettling the $2.7 trillion municipal-bond market. The possibility of taxpayer revolts and likely insolvencies has shaken some investors’ confidence in general-obligation bonds — those backed by the “full faith and credit” of the states or localities. Once the gold standard for munis, GOs are under a cloud in financially troubled areas.
The size of the legacy-pension hole is a matter of debate. The Pew report puts it at $452 billion. But the survey captured only about 85% of the universe and relied mostly on midyear 2008 numbers, missing much of the impact of the vicious bear market of 2008 and early 2009. That lopped about $1 trillion from public pension-fund asset values, driving down their total holdings to around $2.7 trillion.
Other observers think the eventual bill due on state pension funds will be multiples of the Pew number. Hedge-fund manager Orin Kramer, who is also chairman of the badly underfunded New Jersey retirement system, insists the gap is at least $2 trillion, if assets were recorded at market value and other pension-accounting practices common in Corporate America were adopted.
Finance professors Robert Novy-Marx at the University of Chicago and Joshua Rauh of Northwestern University asserted in a recent paper that the funding gap for state pension plans alone might exceed $3 trillion, in part because state funds are using an unrealistic long-term annual investment return of 8% to compute the present value of future payments to retirees, as is permitted in government standards for pension-fund accounting.
MAKING THE STATE AND local pension problem all the more trying is that government entities can do little to wriggle out of their exposure, even if spending on essential services is threatened. The constitutions of nine states, including beleaguered California and Illinois, guarantee public-pension payments. And most other states have strong statutory or case-law protections for these obligations. “One shouldn’t be surprised by this, since state legislators, state and local judges and the state attorneys general are beneficiaries of the self-same public pension funds that they’ve done so much to promote and protect,” Orin Kramer notes wryly.
True, a dozen or so states, including New York, Nevada, Nebraska, Rhode Island and New Jersey, are attempting reforms such as raising retirement ages, cutting pension-benefit formulas, boosting employee contributions, curbing income “spiking” and partially switching employees to less costly defined-contribution plans. But these changes affect almost exclusively new employees and do little to solve the existing funding gap.
Populist Rage
That was page one of a three page article. I encourage everyone to read it all.
I am very grateful to Barron’s for the opening sentence “LIKE A CALIFORNIA WILDFIRE, populist rage burns over bloated executive compensation and unrepentant avarice on Wall Street.“
I get a lot mail suggesting I have been giving too much attention to unions and pensions. In reality, I have not been giving enough attention to the issue, or at least bloggers in general haven’t.
There are a dozen blogs covering every aspect of the housing bubble, bailouts, and wall street salaries. Yet I am aware of no other major blogs covering the enormous pension problem in depth. Moreover, I have hardly shied away from bailout fraud, calling for the indictment of Geithner, Lewis, Bernanke and others on numerous occasions. Here is a list.
March 2, 2010: Geithner’s Illegal Money-Laundering Scheme Exposed; Harry Markopolos Says “Don’t Trust Your Government”
January 31, 2010: 77 Fraud, Money Laundering, Insider Trading, and Tax Evasion Investigations Underway Regarding TARP
January 28, 2010: Secret Deals Involving No One; AIG Coverup Conspiracy Unravels
January 26, 2010: Questions Geithner Cannot Escape
January 07, 2010: Time To Indict Geithner For Securities Fraud
October 20, 2009: Bernanke Guilty of Coercion and Market Manipulation
July 17, 2009: Paulson Admits Coercion; Where are the Indictments?
June 26, 2009: Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America “Turd in the Punchbowl”
April 24, 2009: Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis
Who Is Covering The Pension Issue?
I recently spoke with Barry Ritholtz at the Big Picture blog about unions and his reply was something to the effect of … don’t you realize how much unions have shrunk over the years?
I explained about public pensions and their problems and received a comment “Mish, it’s just not my issue.”
Indeed none of the other top blogs give this critical issue even a smattering of a glance.
The Pension Tsunami
Those who want to follow the pension crisis daily need to subscribe to Jack Dean’s Pension Tsunami feed (click on sign up in the upper right). Jack Dean does not write a blog, rather he posts links to every article that comes his way on the subject.
Jack told me a couple years ago, he would only see a few stories a week. Now there are a dozen stories a day, typically in local newspapers. However, there is seldom a major story in a national publication like what just appeared in Barron’s.
Steven Greenhut’s Plunder!
I encourage you to read Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation by Steven Greenhut.
Plunder! is a fantastic book. I finished it weeks ago, but have not had time yet to do a review. I will. In the meantime I assure you it is well worth a read. It will open your eyes as to what is happening and why in regard to public unions.
Plunder! is now on my recommended reading list on the left.
Public Unions and Pensions are the #1 Issue Affecting States
Public union salaries and pension promises are the number one budget issue affecting cities and states. $2-3 trillion is a lot of money, and that is how deep in the hole public pensions are.
Cities at least have the option of declaring bankruptcy, states don’t. However states can default, and unless something is done soon, some state like Illinois or California is going to decide that is the proper thing to do.
And even if states don’t default, many cities and counties will. It’s just a matter of time, and probably sooner rather than later. Yet all the focus by hyperinflationists is on a US default which may never happen.
Forget about hyperinflation because jobs are not coming back, and cities and counties will be defaulting on debt. Defaults, by definition are anything but inflationary.
Speak Out, If You Don’t, Who Will?
To see what others are doing please read …
Another action you can take is to vote against any candidate from any party, backed by public unions.
One thing is certain: The longer we put off addressing public union salaries and public union benefits, the worse off we will be. If you don’t speak up, and take action who will?
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
If president Obama gets his way, still more money, up to $50 billion, will be thrown at the failed Pell Grant system. Pell Grants are based on a means test and the funding comes with no strings attached. The money does not have to be repaid. That alone should tell you the program is rife with fraud. And it is.
Regardless of grades, ability, or likelihood to graduate, students can apply for the money, take it and run, without ever attending one day of class. Many do.
Those who do use the money for education, as apposed to partying and drugs, frequently waste it on useless degrees that leave students deep in debt after graduation, assuming of course the students even graduate.
Obama Wants To Throw More Money Down This Obvious Sinkhole
Let’s start off with a review of the most recent proposal as described by the Washington Post in New funding projection could squeeze Obama’s education agenda.
Sen. Tom Harkin (D-Iowa), chairman of the Health, Education, Labor and Pensions Committee, said told reporters Thursday that the measure he seeks to enact would channel more than $50 billion into Pell grants. That’s up from the House-passed bill’s total of $40 billion. In addition, Harkin indicated that the increase in the maximum Pell grant award would be less than the House envisioned. Instead of rising from the current $5,550 to $6,900 over the next decade — as the House bill projects — Harkin said the maximum annual award would rise to between $6,300 and $6,500.Harkin said annual Pell award increases would be tied to inflation, but he omitted mention of a provision in the House bill that would tie the increase to inflation plus one percentage point. Lobbyists say they believe the additional percentage point will be dropped in final negotiations.
Student Debt Zombies
Inquiring minds are reading the New York Times article In Hard Times, Lured Into Trade School and Debt.
One fast-growing American industry has become a conspicuous beneficiary of the recession: for-profit colleges and trade schools.At institutions that train students for careers in areas like health care, computers and food service, enrollments are soaring as people anxious about weak job prospects borrow aggressively to pay tuition that can exceed $30,000 a year.
“If these programs keep growing, you’re going to wind up with more and more students who are graduating and can’t find meaningful employment,” said Rafael I. Pardo, a professor at Seattle University School of Law and an expert on educational finance. “They can’t generate income needed to pay back their loans, and they’re going to end up in financial distress.”
For-profit trade schools tell people “If you don’t have a college degree, you won’t be able to get a job,” said Amanda Wallace, who worked in the financial aid and admissions offices at the Knoxville, Tenn., branch of ITT Technical Institute, a chain of schools that charge roughly $40,000 for two-year associate degrees in computers and electronics. “They tell them, ‘You’ll be making beaucoup dollars afterward, and you’ll get all your financial aid covered.’”
Ms. Wallace left her job at ITT in 2008 after five years because she was uncomfortable with what she considered deceptive recruiting, which she said masked the likelihood that graduates would earn too little to repay their loans.
As a financial aid officer, Ms. Wallace was supposed to counsel students. But candid talk about job prospects and debt obligations risked the wrath of management, she said.
“If you said anything that went against what the recruiter said, they would threaten to fire you,” Ms. Wallace said. “The representatives would have already conned them into doing it, and you had to just keep your mouth shut.”
The Career Education Corporation, a publicly traded global giant, last year reported revenue of $1.84 billion. Roughly 80 percent came from federal loans and grants, according to BMO Capital Markets, a research and trading firm. That was up from 63 percent in 2007.
The Apollo Group — which owns the for-profit University of Phoenix — derived 86 percent of its revenue from federal student aid last fiscal year, according to BMO. Two years earlier, it was 69 percent.
For-profit schools have proved adept at capturing Pell grants, which are a centerpiece of the Obama administration’s efforts to make higher education more affordable. The administration increased financing for Pell grants by $17 billion for 2009 and 2010 as part of its $787 billion stimulus package.
When Andrew Newburg called the Le Cordon Bleu College of Culinary Arts in Portland, Ore., to seek information, he was feeling pressure to start a new career. It was 2008, and his Florida mortgage business was a casualty of the housing bust. An associate degree in culinary arts from a school in the food-obsessed Pacific Northwest seemed like a portal to a new career.
The tuition was daunting — $41,000 for a 15-month or 21-month program — but he said the admissions recruiter portrayed it as the entrance price to a stable life.
“The recruiter said, ‘The way the economy is, with the recession, you need to have a safe way to be sure you will always have income,’ ” Mr. Newburg said. “ ‘In today’s market, chefs will always have a job, because people will always have to eat.’ ”
According to Mr. Newburg, the recruiter promised the school would help him find a good job, most likely as a line cook, paying as much as $38,000 a year.
Last summer, halfway through his program and already carrying debts of about $10,000, Mr. Newburg was alarmed to see many graduates taking jobs paying as little as $8 an hour washing dishes and busing tables, he said. He dropped out to avoid more debt.
There is much more in the 3 page article worth reading. Give it a look. Also consider this image from the article.
Leah Nash for The New York Times
Susana Holloway of Le Cordon Bleu’s culinary school in Portland, Ore., where a 15- or 21-month program costs $41,000.
Pray tell what are the odds a fancy restaurant hires someone out of one of these programs? 2%? 1%? .25%?
Many students graduating such programs will get a job washing dishes or flipping burgers. No doubt the culinary schools will call that a successful placement.
Pell Grant Controversy
Wikipedia has this to say about the Pell Grant Controversy.
The primary controversy is that a small set of educational institutions comprising 6% of all college students receives roughly 20% of all Federal Pell grant money. University of Phoenix tops this list with Pell Grant revenue of $656.9 million with second and third place held by Everest Colleges at $256.6 million and Kaplan College at $202.1 million for the 2008-2009 educational year[5].This is combined with accusations of predatory loan practices on students by the highest Pell Grant recipient, University of Phoenix [6]. Additionally, some of the universities that are top recipients of Pell Grants have low completion rates, so students leave with no degree and large indebtedness leading some former students to accuse recruiters of being “duplicitous” [7].
Top recipient University of Phoenix received $3.2 billion in federal moneys of all kinds in 2008, and these federal dollars provided 86% of its revenue (thus, roughly 20% of its revenue came from Pell Grants)[8]. University of Phoenix has, among similar online universities, the lowest graduation rate tabulated by OEDB at 4% compared to the median of 37% and a high of 84% for Champlain College
Time To Kill Pell Grant Program
Rather than throwing hard earned taxpayer dollars at programs that invite fraud and make debt zombies out of students, it’s time to kill the program entirely. Instead, Obama wants to expand the fraud, even indexing the fraud to inflation.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Foreign investors who want to get their hands on a property in a sun-drenched tropical paradise may want to consider looking at the coast of Panama.
The province of Boca del Toro is located on the western coast of the Central American country and has the fasted growing economy per consumer in the region.
According to a report by International Living, the economic crisis has meant that real estate prices in the country have begun to fall, making the dream of owning property more of a reality.
The article draws attention to the forthcoming Panama Canal expansion project, stating that it is expected to help bolster the country’s growing economy.
And one reason that it was recently named as the "growth champion" in the region by Latin Business Chronicle in its five-year growth forecast.
Individuals looking to invest in the country may be interested to note that the Panamanian government offers potential tourists a host of tax and price discounts to encourage them to visit the country.
Property prices in England and Wales have shot up by 5.2 per cent in the space of a year, according to new Land Registry figures.
In news that points towards the continued resurgence of the housing market in the country, the cost of property in January this year posted gains in comparison to 2009.
It represents one of the largest monthly increases that the registry has reported since growth began again midway through last year and is the second consecutive month that the figure has been positive.
Some of the biggest rises were seen in the south-west region of the country.
A spokesperson for the Land Registry told Reuters: "While not all regions are recovering at the same rate, it is clear that overall prices are increasing."
According to a recent report conducted by property developer Knight Frank, sales of newly-completed projects in London rose by a staggering 214 per cent during the final quarter of 2009, compared with the previous year.
Individuals looking to invest in a stable property market should head to the Italian coast to enjoy rural living, it has been claimed.
According to a report by Country Life, two areas that have remained resilient during the global economic crisis are the region of Tuscany and the Alpine Lakes.
Jelena Cvjetkovic of Savills confirmed to the publication that the cost of property in the country had held firm in comparison to its European neighbours, which have faced severe financial difficulties.
She continued: "In the main coastal and mountain areas, the drop in transactions was moderate and prices fell by only five to ten per cent on average compared to 2008, confirming the passion for holidays in Italy and quality of lifestyle."
The report highlights that the Tuscan countryside offers a particularly attractive option for individuals looking to buy property, combining cultural and historical appeal with reasonable prices.
Investors in the region will be bolstered by news that Italy is the fourth most lucrative country in the world for tourism.
Please consider 4 visualizations of Obama’s Budget Cuts.
$17 Billion Cuts In Context
Obama Budget Cuts Visualization
Obama’s “Unsustainable Course” (And what he’s NOT doing something about)
Note: There is no audio in the middle portion of this video.
What Does The Federal Budget Freeze Look Like?
For more on budgetary math behind the freeze please see What Does the Federal Budget Freeze Look Like?
The amount saved from this freeze has been consistently reported as $15 billion in the first year and $250 billion over 10 years. I hate the “we’re saving $250 billion over 10 years” line. It is a piece of crass political rhetoric and I’m disappointed that the administration would use it. If they actually implement a three year freeze on the portion of the budget they’re talking about (which is a big if, but let’s assume the best), why measure the effects in the space of 10 years?The answer is “To make the freeze look bigger”.
They might as well say that they’re saving a trillion dollars over the next 25 years or a hundred trillion over the next 300 years. It is a data statement designed to trick people.
Second, I hate the “We’re saving all this money by not spending it” line because it is similarly political. If a future politician wants to play this stupid numbers game, all they have to do is “project” that they will spend like a crazy person next year and when the next year comes, they decided to spend like a half crazy person. Then they can claim that they have “saved” all this money because they “reduced” their projected spending.
Keep in mind the hypocrisy on both sides of the aisle. Overall, it looks like both sides are more interested in political gain than in having a frank discussion about the numbers and what they mean. This should surprise no one, but I confess to finding myself somewhat dismayed that the Obama administration, for all their hype about being pro-science and pro-data, has no problem spinning the numbers in a way that decreases clear comprehension in order to increase message potency.
Where Are The Fiscal Conservatives?
When will conservatives in Congress be willing to do something other than play politics? That’s what I want to know. There was every opportunity under Bush to do something. Nothing happened.
Entitlements must be reined in, but so must military spending. The US cannot afford to keep troops in 140 nations. We cannot afford to keep fighting wars that do not need to be fought. It’s time to declare the war in Iraq won (and leave). It’s time to declare the war in Afghanistan won (and leave). The latter war is no more winnable than Vietnam.
We need fiscal conservatism across the board. If Congress is unwilling to raise taxes to pay for a program then the program should be scrapped. We can start by scrapping HUD, and the Department of Education. Then we can scrap the Department of Energy. We can also get rid of all crop subsidies and allow imports of drugs from Canada.
The amazing thing is that Obama says he does not want deficits, Republicans say they do not want deficits, and Democrats say they do not want deficits. So why do we have deficits?
Other than Ron Paul, how many true fiscal conservatives are there? I think it is safe to say we found one in Governor Chris Christie, but where are they in the US Senate? Where are they in the US house? Even the supposedly fiscal conservative Blue Dog Democrats are acting like Obama’s lap dog.
We need fiscal conservatives with a backbone of steel, not fiscal conservatives with bones like canned salmon. Worse yet, Obama and his lapdogs have the backbone of over-cooked spaghetti, and even among most of the so-called fiscal conservatives, canned salmon bones are the best we can typically find.
The only solution is a balanced budget amendment because as it sits, neither party is willing to hold the line on spending.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Today, in lieu of a cartoon today, let’s take a look at an article that belongs in The Onion, or the back page of the Sunday Funnies.
The only problem is the author is dead serious. Please consider In Defense of Deficits
There are two ways to get the increase in total spending that we call “economic growth.” One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that’s basically all there is.Governments and banks are the two entities with the power to create something from nothing. If total spending power is to grow, one or the other of these two great financial motors–public deficits or private loans–has to be in action.
When Obama says, even offhand, that the United States is “out of money,” he’s talking nonsense–dangerous nonsense. One wonders if he believes it.
Nor is public debt a burden on future generations. It does not have to be repaid, and in practice it will never be repaid. Personal debts are generally settled during the lifetime of the debtor or at death, because one person cannot easily encumber another. But public debt does not ever have to be repaid. Governments do not die–except in war or revolution, and when that happens, their debts are generally moot anyway.
So the public debt simply increases from one year to the next. In the entire history of the United States it has done so, with budget deficits and increased public debt on all but about six very short occasions–with each surplus followed by a recession. Far from being a burden, these debts are the foundation of economic growth. Bonds owed by the government yield net income to the private sector, unlike all purely private debts, which merely transfer income from one part of the private sector to another.
Those statements are by James K. Galbraith, a senior scholar at the Levy Economics Institute.
My short response is that governments cannot create wealth they can only steal it. Banks and the Fed cannot create wealth because money is not wealth, real production is. Printing of money is theft, not creation of something of something from nothing. Inflation redistributes profits from the poor and middle class to those with first access to money, the already wealthy. Inflation hollows out cities and creates slums like Detroit. Carried to extreme, the result is Zimbabwe.
Like perpetual motion proposals, James K. Galbraith’s article does not really deserve a response, only laughter and ridicule. His article would be hilarious if it was written as a spoof in the onion.
Unfortunately, Galbraith is serious. Even sadder, belief in something for nothing is commonplace.
Indeed, the housing bubble, the credit bubble, and this crisis in general were all caused because banks, the government, and the Fed believe in something for nothing.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Here are a few stories this past week that caught my eye that I have yet to mention.
$3 Trillion Tax Increase
Obama’s $3,000,000,000,000 Tax Hike
From the Heritage FoundationWhen he released his new budget proposal on February 1, President Barack Obama asserted that the government “simply cannot continue to spend as if deficits don’t have consequences; as if waste doesn’t matter; as if the hard-earned tax dollars of the American people can be treated like Monopoly money; as if we can ignore this challenge for another generation.”[1]
Yet the President’s new budget does exactly that– raising taxes by $3 trillion and federal spending by $1.6 trillion over the next ten years. If enacted, this budget would increase the 2010 deficit to more than $1.5 trillion, and leave a deficit of more than $1 trillion even after an assumed return to peace and prosperity. Overall, the President’s budget would double the national debt over the next decade.[2]
President Obama’s Budget
•Would permanently expand the federal government by 3 percent of gross domestic product (GDP) over 2007 pre-recession levels;
•Would raise taxes on all Americans by nearly $3 trillion over the next decade;
•Would raise taxes for 3.2 million small businesses and upper-income taxpayers by an average of $300,000 over the next decade;
•Would borrow 42 cents for each dollar spent in 2010;
•Would run a $1.6 trillion deficit in 2010–$143 billion higher than the recession-driven 2009 deficit;
•Would leave permanent deficits that top $1 trillion as late as 2020;
•Would dump an additional $74,000 per household of debt into the laps of our children and grandchildren; and
•Would double the publicly held national debt to over $18 trillion.
There’s lots more in the article if you can stomach reading it.
IRS Will Track Online Sellers’ Transactions Including PayPal
IRS to Track Online Sellers’ Payment Transactions Beginning Next Year
Starting next year, any bank or other payment settlement company that processes credit cards, debit cards, and electronic payments such as PayPal will have to issue information returns telling the IRS what merchants receive. The new returns are Form 1099-K, Merchant Card and Third-Party Payments.Purpose of Reporting
The IRS believes that many online sellers fail to report their transactions. Some don’t report because they mistakenly believe that Internet sales are invisible. Others do so because they are trying to evade taxes.Who’s Subject to Reporting
All merchants who accept payments through credit cards, debit cards, gift cards and PayPal will receive information returns telling them - and the IRS - the gross amount of the merchant card transactions. This will be broken down month by month. While the form uses the word “card,” the IRS has made it clear that this is interpreted broadly to include third-party network transactions (i.e., PayPal).
15,000 San Francisco Layoff Notices
15,000 San Francisco City Workers to Receive Lay Off Notices
Fifteen thousand San Francisco city workers began receiving lay off notices this weekend. Mayor Gavin Newsom said that many of those workers would be able to reapply for their jobs and get rehired, but at a 37.5 hour work week instead of 40 hours per week. That would amount to a 6.25 percent cut in pay for the employees that are rehired. The Mayor’s plan is projected to save the city $50 million as it faces a $522 million budget gap. In addition to the loss of pay the reduced hours will impact the amount of money going into worker pension funds. The city’s unions have come together to draft up a compromise and they have expressed they will file a lawsuit if the city can’t agree to it. One suggestion is reducing the amount of outsourcing. Newsom has also asked department heads to accept a pay cut of 10 percent.
Toledo Ohio Fiscal Emergency
Top Bell aide says Toledo likely to face ‘fiscal emergency’
March 07, 2010Unless there is a fundamental change in the way Toledo’s government operates, the city will likely be unable to pay its employees before the year is through, a top official in the Bell administration warned.
That looming financial disaster leads people such as Mayor Mike Bell and Councilman D. Michael Collins to throw out words like “bankruptcy” or “receivership,” two feared terms but ones that are not likely to become reality.
The truth is that receivership or bankruptcy is probably not an option for the city anytime soon. But being slapped by the state as a “fiscal emergency” municipality is a real threat - a label some dislike but others advise Toledo to embrace given its $48 million deficit.
Mr. Bell has proposed a number of options - including the controversial legal maneuver to claim what lawyers call “exigent circumstances” to get concessions from city unions that they have so far been unwilling to even entertain.
Wilma Brown, the most senior member of City Council and its president, mistakenly said the city would “go into receivership” if the budget is not balanced by March 31 and the union contracts would be “null and void.”
That could happen under bankruptcy, but Toledo could not file for that federal protection without the state’s permission and then would still have to ask a federal bankruptcy judge.
Mr. Herwat said he had not directed City Law Director Adam Loukx to prepare for the long process of a municipal bankruptcy.
Bankruptcy is the sensible action yet it appears to be the one action not under serious consideration, yet anyway. Hopefully stubborn unions make it the only choice.
300 Toledo Layoffs
Furlough of 300 city of Toledo workers threatened
The Bell administration plans to begin sending up to 300 layoff notices to city employees next week in case it cannot balance a $48 million deficit through union concessions and other measures, a top city official said yesterday.Last week, Mr. Bell said he was willing to lay off police officers and firefighters but that funding for Toledo’s parks, pools, and recreation programs would be the first things slashed under his contingency plan to balance the city budget.
Mr. Bell is also asking council to force concessions from city unions without them agreeing to renegotiate terms of their contracts by approving a controversial measure called “exigent circumstances.”
Unions representing police, fire, and other city employees have refused to open their contracts as requested by Mr. Bell, who has asked them to consider paying the employee share of their state pensions and a greater share of health insurance costs.
The only thing unions will react to is complete extermination. Give it to them. The correct solution is to declare bankruptcy and seek to void all union contracts.
Iowa Association of School Boards Director Gives Herself a $157,000 Raise
Director On Leave After Audit Shows $157,000 Raise
New allegations have emerged that the executive director of the Iowa Association of School Boards gave herself a $157,000 raise. Maxine Kilcrease was suspended from the private, nonprofit group, which is funded with taxpayer money. Recent reports said the group was running low on funds.[An] audit uncovered details that said Kilcrease, who was hired last summer, raised her salary from $210,000 to $367,000 in September without the board’s knowledge or consent.
This is an open and shut case. Kilcrease is headed for prison in my opinion.
Obama’s Utopian Education Goals
Obama Calls for Sweeping Overhaul in Education Law
The Obama administration on Saturday called for a broad overhaul of President George W. Bush’s No Child Left Behind law, proposing to reshape divisive provisions that encouraged instructors to teach to tests, narrowed the curriculum, and labeled one in three American schools as failing.The administration would replace the law’s pass-fail school grading system with one that would measure individual students’ academic growth and judge schools based not on test scores alone but also on indicators like pupil attendance, graduation rates and learning climate.
In addition, President Obama would replace the law’s requirement that every American child reach proficiency in reading and math, which administration officials have called utopian, with a new national target that could prove equally elusive: that all students should graduate from high school prepared for college and a career.
Let me get this straight. Requiring proficiency in reading and math is “utopian”, but a much tougher standard requiring “students to be prepared for college and a career” is not.
Did drug laws get repealed last week or is Obama illegally smoking something?
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Here are a pair of articles about the recovery in Texas that simply did not happen. Please consider New data, new story on jobs.
For much of 2009, Central Texas business leaders hung their hats on reports that showed, even in a recession, Austin was still adding jobs.Turns out there was a problem with those positive reports: They were wrong.
Revised figures show Austin lost more in ‘09, and numbers began to decline earlier than thought.
The revised data also show that Texas as a whole had a tougher job market last year than thought. The state lost 354,000 jobs in 2009, which is 78,000 more than the 276,000 previously estimated, according to the updated data.
The commission and its counterparts around the country revise their job data each year based on newly available information from employers’ tax records that show how many people were on payrolls. The monthly numbers are estimates, based on surveys from employers.
The California Employment Development Department on March 1 reported the state had lost 292,000 more jobs in 2009 than officials had thought; the new estimate is 871,000 jobs cut, compared with the earlier estimate of 579,000. Oregon reported losing 28,000 more jobs in 2009 than previously estimated.
Texas cannot escape budget shortfall
It goes to figure when unemployment is soaring, tax revenues will drop off. And so they did. Please consider Officials: State cannot escape budget shortfall.
The Texas economy seems to have turned a corner, but the improvement will not be enough for the state to avoid a significant shortfall in the next budget, state officials said Monday.Sales tax collections are slowly picking up as more jobs are added in Texas, said John Heleman , the Texas comptroller’s chief revenue estimator.
In February, the state’s sales tax collections were down 8.8 percent compared with the same month a year earlier. Though still in the red, the February figure looked better than the previous months’ double-digit decreases that have put the state 13 percent behind last year’s collections six months into the budget year.
“One month certainly doesn’t make a trend, but it is encouraging to see that we are beginning to move in the right direction,” said Heleman, who added that he expects to see sales tax growth starting this summer.
The state’s sales tax revenue collection is a key indicator of Texas’ fiscal health because that money fills more than half of the state’s general revenue fund, which pays for expenses such as education, health care and prisons.
Even so, the state’s budget shortfall is expected to be about $11 billion at a minimum and could reach as high as $15 billion, John O’Brien, the executive director of the Legislative Budget Board, told the House Appropriations Committee.
Heads In The Sand
It is pretty amazing when you can put a positive spin on horrendous data like this:
“In February, the state’s sales tax collections were down 8.8 percent compared with the same month a year earlier. Though still in the red, the February figure looked better than the previous months’ double-digit decreases that have put the state 13 percent behind last year’s collections six months into the budget year.“
Good Grief.
Nationally, retail sales for February 2009 were completely shell-shocking horrendous, and December 2009, and January 2010 figures were revised lower. Please see Please consider Stimulus About To Wither On Vine; A look At February Retail Sales for details.
Texas could not even beat remarkably easy year over year comparisons, at least judging from national sales numbers. Regardless, there should be no conceivable way to spin that data positive, yet John Heleman, the Texas comptroller’s chief revenue estimator, managed to do just that.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
As noted on numerous occasions, public union greed and arrogance has no bounds.
Worse yet, today we have yet another major example that shows many elected politicians still have zero political willpower to do anything serious about it. In Montgomery, Maryland, the politicians are even willing to cook the books for the benefit of unions.
Please consider Montgomery, Md., pension deal eases sacrifice for unions.
The politics of shrinking government spending can lead to tortured math and bureaucratic back flips. In one of the Washington area’s wealthiest counties, recession has prompted a bout of creative bookkeeping and something called the “Phantom COLA.”As state and local officials from California to Miami have sought to cut payroll costs, officials in Montgomery County last year pressed government employees to forgo part of their negotiated pay raises. They did. But some of the county’s powerful public employee unions also benefited from an unusual deal.
Employee pensions — already a major cost — will be calculated as if employees had received their full raises.
To manage that financial sleight of hand, county computer programmers must essentially set up two sets of books, one with employees’ real salaries and another that includes what government documents refer to as the “phantom” cost-of-living adjustments.
“It makes no sense to base a pension on a salary that wasn’t paid,” said Montgomery County Council member Phil Andrews (D-Gaithersburg-Rockville), who cast the sole vote against the arrangement. “It’s indefensible policy . . . and we can’t afford it.”
But the politics are not that simple in Montgomery, or elsewhere, as recession-squeezed budgets are forcing uncomfortable interactions between some Democrats and the party’s allies in the labor movement, a significant electoral force. Rory Reid, son of Senate Majority Leader Harry M. Reid (D-Nevada) and a candidate for governor in Nevada, has questioned the sustainability of public-employee pay.
In a recent newspaper column, Willie Brown, the former speaker of the California State Assembly and former San Francisco mayor, took on the state’s “out of control civil service.” “We politicians, pushed by our friends in labor, gradually expanded pay and benefits” and layered on “incredibly generous retirement packages,” he wrote. “At some point, someone is going to have to get honest.”
Time To Get Honest Is Always
The time to get honest is always. The time to show leadership and face reality is now. A few politicians are facing reality.
Facing Reality
Facing reality at long last and taking a leadership role are two different things.
The one person clearly taking an actual leadership role is New Jersey Governor Chris Christie. The governor continues to impress.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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On March 12 the Guardian reported Greece debt: EU agrees bailout deal
Exclusive: Germany plays pivotal role in potential eurozone rescue package for Greek debtsThe eurozone has agreed a multibillion-euro bailout for Greece as part of a package to shore up the single currency after weeks of crisis, the Guardian has learnt.
Senior sources in Brussels said that Berlin had bowed to the bailout agreement despite huge resistance in Germany and that the finance ministers of the “eurozone” – the 16 member states including Greece who use the euro – are to finalise the rescue package on Monday. The single currency’s rulebook will also be rewritten to enforce greater fiscal discipline among members.
The member states have agreed on “co-ordinated bilateral contributions” in the form of loans or loan guarantees to Greece if Athens finds itself unable to refinance its soaring debt and requests help from the EU, a senior European commission official said.
Other sources said the aid could rise to €25bn (£22.6bn), although it is estimated in European capitals that Greece could need up to €55bn by the end of the year.
EU Bonds For Greece Rescue
Also on March 12 Bloomberg reported EU Said to Discuss EU Bonds to Fund Any Greek Rescue.
European Union finance ministers will discuss next week whether any Greek bailout should be funded by EU bonds guaranteed by euro region governments, said three people briefed on preparations for March 15-16 meetings.Another option would be for governments in the 16-nation euro region to give Greece loans to help the country finance its budget deficit, said the people, who spoke on condition of anonymity because the talks are private. Any EU bond sale would have to be agreed upon by all 27 EU nations, they said. Ministers from countries using the euro meet in Brussels on March 15 and will be joined by the rest of the EU the next day.
EU leaders have signaled they may offer Greece financial assistance if necessary, though German Chancellor Angela Merkel has so far refused to publicly give the green light for any such aid.
The German government has dropped its opposition to a bailout, paving the way for the EU to approve the plan to aid Greece at the Brussels meeting on March 15, the Guardian newspaper in London reported. Aid to Greece through the loans could reach 25 billion euros ($35 billion), the newspaper said.
Elmar Brok, a member of Merkel’s Christian Democrats in the European Parliament, said there is “unity in the euro group on finalizing a package that can be used to help Greece.”
German Finance Ministry Unaware of Greek Bailout Deal
The Guardian may have an exclusive story, but is it correct? On March 13 ABC News is reporting German Finance Ministry Unaware of Greek Bailout Deal.
The German Finance Ministry said on Saturday it was not aware of any agreement by euro zone members to provide a multi-billion euro bailout package for heavily indebted Greece.“We are not aware that this is being planned,” a ministry spokesman said, adding that Greece had not requested any aid.
“Greece is implementing its (savings) program and we expect that it will manage it alone,” he said.
Bailout No Longer Needed?
The Wall Street Journal is reporting No Need for Greek Bailout Now, France’s Lagarde Says
Credible efforts by Greece’s government to clean up its finances have so far negated the need for any bailout from the European Union, French Finance Minister Christine Lagarde said Friday.In offering a strong vote of confidence in the new Greek government, Ms. Lagarde said in a Wall Street Journal interview that Greece had “for once, over-delivered from what was expected” in terms of legislation intended to cut spending.
Whereas she had expected cuts worth 1.5% of gross domestic product, the government had come up with 2%, she said.
Nonetheless, Ms. Lagarde said that “technical experts” at the EU have been working on a contingency plan, so that if the need arose, “all we would have to do is press the button.”
Ms. Lagarde gave only guarded support for the creation of a European Monetary Fund, a new project currently under debate within the European Commission. “The European Monetary Fund is one of many options that we should explore [and] examine to see whether there is virtue and value in having it,” she said. “I am not sure it is the ultimate answer to the issues we are dealing with at the moment.”
Asked why the E.U. is so opposed to having the IMF simply fill such a role now and come to the aid of one of the euro zone’s members, Ms. Lagarde said it is complicated by the presence of a monetary union. Whereas the E.U. worked with the IMF to provide support to Hungary and Latvia, both members of the broader European Union but not part of the euro zone, having the IMF involved in the euro zone “is a bit different.”
“It is as if California were in terrible shape and you were to call the IMF to rescue California. That’s a bit odd within the same monetary zone,” she said.
In reference to the euro’s slide against the dollar since the Greek crisis erupted, Ms. Lagarde said she was “kind of pleased that it has come down a bit” because it means that French exporters are “not knocking on my door” and pressuring her to do something about the high exchange rate.
Patchwork Pension Plan Adds to Greek Debt Woes
While pondering the Greek bailout ping-pong match now currently set to no after being set to yes just a day earlier, please consider Patchwork Pension Plan Adds to Greek Debt Woes
Vasia Veremi may be only 28, but as a hairdresser in Athens, she is keenly aware that, under a current law that treats her job as hazardous to her health, she has the right to retire with a full pension at age 50.“I use a hundred different chemicals every day — dyes, ammonia, you name it,” she said. “You think there’s no risk in that?”
“People should be able to retire at a decent age,” Ms. Veremi added. “We are not made to live 150 years.”
Perhaps not, but it is still difficult to explain to outsiders why the Greek government has identified at least 580 job categories deemed to be hazardous enough to merit retiring early — at age 50 for women and 55 for men.
As a consequence of decades of bargains struck between strong unions and weak governments, Greece has promised early retirement to about 700,000 employees, or 14 percent of its work force, giving it an average retirement age of 61, one of the lowest in Europe.
The law includes dangerous jobs like coal mining and bomb disposal. But it also covers radio and television presenters, who are thought to be at risk from the bacteria on their microphones, and musicians playing wind instruments, who must contend with gastric reflux as they puff and blow.
The situation in the United States is different but also painful. The government will face its own fiscal reckoning, analysts say, as 78 million baby boomers begin drawing on Social Security and Medicare programs to support them in retirement. Without some combination of higher taxes, benefit reductions or an increase in the retirement age, both programs will run short of money to make their promised payments within the next few decades. And many American states are woefully behind on funding their pension obligations for public employees.
In Europe, the conflict has already erupted on the streets, with workers demanding that generous retirement policies be kept while governments press to pare pensions and raise retirement ages because taxpayers cannot bear any additional weight and creditors will no longer finance excessive borrowing.
According to research by Jagadeesh Gokhale, an economist at the Cato Institute in Washington, bringing Greece’s pension obligations onto its balance sheet would show that the government’s debt is in reality equal to 875 percent of its gross domestic product, which is the broadest measure of a nation’s economic output. That would be the highest debt level among the 16 nations that use the euro, and far above Greece’s official debt level of 113 percent.
Other countries have obscured their total obligations as well. In France, where the official debt level is 76 percent of economic output, total debt rises to 549 percent once all of its current pension promises are taken into account. And in Germany, the current debt level of 69 percent would soar to 418 percent.
There is much more in the article including a nice country by country table of current debt obligations and unfunded liabilities. Here is a partial list.
Greece…… 116% 875%
France…… 76% 549%
Germany… 72% 418%
UK………… 63% 442%
Poland…… 50% 1550%
US…………. 84% 500%
For all the talk about how the US will implode because of Social Security and Medicare, it appears much of the Western world is in the same boat. This is certainly not a pretty picture.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
I had the great pleasure of meeting Marc Faber in person over the past couple of days after having exchanged emails with him about various things for the past several years. Marc is not only extremely knowledgeable about investments and strategies, he is also a lot of fun to be with personally.
Marc was in Madison Wisconsin for a speech in front of an investment group, CFA Madison. We arranged a couple of Market Tickers with Aaron Task and Henry Blodget at a local ABC affiliate station while in Madison.
Marc took the inflation side of the debate and I the Deflation side. Here are links to the Tech Tickers as well as the videos.
Marc Faber: Don’t Expect Another Crash … Bernanke Won’t Allow it
“I would rather be lightening up on positions in the next couple of weeks than heavily buying in here,” says Marc Faber, editor of the Gloom, Boom and Doom Report.
Accompanied by Michael “Mish” Shedlock, the man behind the economics blog, MISH’S Global Economic Trend Analysis, Faber tells Tech Ticker there’s very few opportunities to make money in the market right now.
“Mish” who also thinks it’s time to take profits, goes even further, predicting a “50-50 chance the bottom is not in yet.”
Faber, however, is confident we won’t “see 666 on the S&P 500 ever again.” He says “if we go down by 10-20% on the S&P 500, our money printer Ben Bernanke will flood the market, weakening the dollar,” and thereby driving up stock prices.
If you are going to put money to work in stocks both market watchers think Japan is the place to be. After a 20 year bear market and despite high-debt-to-GDP levels, the pair think the market has become too cheap to ignore. Always a contrarian, Faber believes the lack of interest in Japanese stocks makes it one of the most compelling buys in the world.
– Stay tuned for more from Faber and Mish: In forthcoming clips the two debate the fate of the U.S. and if inflation or deflation will cause the our downfall.
The Great “Inflation or Deflation?” Debate: Mish vs. Dr. Doom
Here is part two of three: The Great “Inflation or Deflation?” Debate: Mish vs. Dr. Doom
Which is the greater threat, inflation or deflation?In Marc Faber and Michael “Mish” Shedlock, we found two market watchers ready (and able) to champion both sides of this great debate.
Shedlock, an investment advisor with SitkaPacific Capital and author of the economics blog, MISH’S Global Economic Trend Analysis, made the case for deflation: Credit is contracting, despite Ben Bernanke’s best efforts to flood the financial system with liquidity.
“The money supply is just sitting there as excess reserves on bank balance sheets,” Mish says. “Bernanke can print this money but unless it makes its way into the real economy we’re not going to see inflation.”
In addition, he predicts “another leg down” in housing and commercial real estate, more consumer loan defaults, and notes state and local governments are (finally) cutting back on spending in the face of falling tax receipts and budget deficits. All these trends will contribute to the deflationary force of credit contraction, Mish declares.
But Shedlock is missing one critical factor says Faber, publisher of the Gloom, Boom and Doom Report: “When the economy’s bad, governments pile up these fiscal deficits and they print money” to offset the deleveraging of the private sector, he says. “They’re going to print and print and print.”
If the economy sours again and especially if deflationary forces take hold, we’ll have “even more stimulus packages and even more printing,” Faber says. “That will bankrupt western governments - not just in the U.S. but everywhere. ”
Faber and Mish: We’re Doomed and Washington Can’t Do Anything About It
Part 3: Faber and Mish: We’re Doomed and Washington Can’t Do Anything About It
Washington is patting itself on the back for having orchestrated an amazing economic recovery. But Washington lawmakers are a delusional bunch of boneheads, say Marc Faber and Mike “Mish” Shedlock, editor of the Gloom, Boom, and Doom Report and investment advisor at SitkaPacific Capital Management, respectively.The economy is NOT recovering, they say, and the U.S. faces a depressing “eventuality” of either crushing deflation (Shedlock) or runaway inflation (Faber). The timing and type of this eventuality is uncertain, say the gurus, but they are certain it’s too late for America to change course.
“It’s beyond repair — it’s too late,” to avert fiscal disaster, Faber declares.
Mish agrees: “The day of reckoning has arrived. The question is how long it takes to play out.”
This grim outlook doesn’t mean you’re helpless. Faber recommends individuals prepare for doomsday by buying gold, owning assets abroad and buying property outside of major cities.
Thanks Marc, That was a blast!
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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The idea of nuclear disarmament is gaining traction internationally, but countries supporting it must counter the nuclear proliferation risk created by Iran and North Korea, and make sure disarmament treaties include strong verification mechanisms, says former Secretary of State George P. Shultz.
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