What happened to all of the doom and gloom economic threads?

[Frisco_Slug_Esq]

It's as if a state of war didn't exist...it never has in the Democrat mind.

Well, this is the deadline year for closing Iraq...

That will be a bloodbath.

Of course we missed the deadline on Gitmo and keep moving the deadline for Afghanistan...

No wonder North Korea and Iran keep waiting us out.

 

[unregistered]

 

[Frisco_Slug_Esq]

Liar's Lyre...

 

[koalabear]

Industrial heartland showing signs of life

"A big reason why Elkhart looks good now is they were hit so hard," he said. "There has been shrinkage in the labor force — people have either dropped out or moved away — and once you get to a low base (of employment) it doesn’t take a lot of improvement to look good."

http://www.msnbc.msn.com/id/41197260/ns/business-eye_on_the_economy

 

[trysail]

I didn't write it but it's something I've been saying for— oh...— about fifteen years now.


( by the way, I know the person who DID write it and I know that person would not want to be credited here )

...The root cause of our employment problem isn’t simply the recession. It is the decades-long trend that has moved American jobs offshore. For decades, we have compensated by adding service jobs, lots of bankers, lawyers, analysts, support staff and sales people. But if you don’t make stuff, you can’t employ stuff makers. Eventually, you can’t add enough staff positions to keep everyone employed. The simple fact is that America is no longer a cost-competitive place to make anything. When you combine that with the fact that we aren’t building houses here any longer and that the growth in auto sales isn’t happening here, but in Asia, the picture is bleak. The problem isn’t just about wage rates. In fact, wage rates are actually only a small piece of the problem. Our taxes are higher, we require employers to pay retirement and health care benefits (state-paid almost everywhere else) and our regulatory burden is onerous. If the U.S. wants to put all those unemployed back to work, it must attract companies around the world to make stuff here...


3. The tendency after a crisis is to write new regulations to prevent the same causes from reoccurring. But simply adding layers of regulation also increases costs and decreases efficiency. Many older regs on the books are outmoded, out of date, and probably useless. They should be removed.

In summary, I want to hear tomorrow evening concrete steps that are going to make the U.S. a better place to do business. That isn’t a right-wing sort of statement. Making the U.S. more competitive is going to solve the goals of building a more vibrant middle class. It is a bit ironic that there are burgeoning middle classes in places like China and Brazil, while ours is collapsing. Those nations are cash flow rich while we wallow in debt...

 

[trysail]

For many decades, voters have repeatedly told their elected representatives to discourage manufacturing, distribute money that isn't theirs, increase regulation and export jobs. The representatives have complied with the voter's wishes.

 

[richard_daily]

I didn't write it but it's something I've been saying for— oh...— about fifteen years now.


( by the way, I know the person who DID write it and I know that person would not want to be credited here )

You're way off on this.

The thing that made this country great, is the fact that people could work and have a healthy and honest retirement, without having to worry about being broke and in debt.

That's no longer the case, thanks to the unamerican corporations and politicians that moved all the jobs off-shore.

 

[richard_daily]

For many decades, voters have repeatedly told their elected representatives to discourage manufacturing, distribute money that isn't theirs, increase regulation and export jobs. The representatives have complied with the voter's wishes.

What voters have done those things? Perhaps I could see people not wanting industrial next to their 500k townhome, but other than that, I think you've got a very skewed view of the american people.

 

[trysail]

You're way off on this.

The thing that made this country great, is the fact that people could work and have a healthy and honest retirement, without having to worry about being broke and in debt.

That's no longer the case, thanks to the unamerican corporations and politicians that moved all the jobs off-shore.

In the end, economics will ( eventually ) trump politics.

Q: How many legs does a dog have if you call its tail a leg?
A: Four. Calling a tail a leg doesn't make it so.

 

[rosco rathbone]

In the end, economics will ( eventually ) trump politics.

That's why it's all about making people understand that doing the right thing is often good economics.

 

[trysail]

Drill, baby, drill !

Look what happens:

Producers Boost Bets Against Gas Most Since 2008
By Asjylyn Loder

Jan. 24 (Bloomberg) -- Natural gas producers increased bearish bets to the highest in almost three years, joining hedge funds amid forecasts that near-record output will swell a fuel surplus.

Producers and merchants increased net-short positions, or wagers on falling prices, on natural gas futures and options by 9.6 percent to 36,245 in the seven days ended Jan. 18, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest net-short position since March 2008 and the fourth straight week that they raised bets on declining prices.

The five-week rally that drove gas to the highest level since August encouraged producers to sell before the so-called shoulder season, when rising temperatures sap demand for heating fuel. Inventories may reach a seasonal peak at the end of March as production heads toward a record high, according to the Energy Department.

“Prices are going to go lower from here,” said Jason Schenker, president of Prestige Economics, an energy advisory firm in Austin, Texas. “Given the fact that we have so much supply in inventories, we have a series of bearish factors set to drag prices lower.”

Net-short positions held by managed money, a category that includes hedge funds, commodity pools and commodity-trading advisers, rose 39 percent to 85,584, the CFTC data showed...

...Inventories may reach 1.774 trillion cubic feet at the end of the winter heating season on March 31, up from 1.662 trillion in 2010 and a record for the time of year, the department said in its Short-Term Energy Outlook on Jan. 11

U.S. inventories for the week ended Jan. 14 totaled 2.716 trillion cubic feet, 2.8 percent above year-earlier levels, the department said in a weekly report Jan. 20. Supplies were 1.9 percent above the five-year average. March typically marks the end of withdrawals from storage.

“Producers are more fearful of prices going below $4,” said Phil Flynn, vice president of research at PFGBest in Chicago. “They could get up above $5, but it’s mostly weather related and if the weather doesn’t live up to these cold forecasts, then producers are back where they were in December, when prices were sharply lower.”

...About 52 percent of U.S. households use natural gas for heating, according to the Energy Department.

“Although the next couple of weeks could result in inventory draws, we are still looking at high inventories going into a year where significant production is expected,” Schenker said.

Output this year will average 61.38 billion cubic feet a day, and reach a record of 62.73 billion in 2012, the Energy Department said in its outlook. Production was 61.59 billion last year, the department estimated.

Net-long bets in four natural-gas contracts fell by 13 percent, or 16,469 futures equivalents, to 111,487 in the week ended Jan. 18. The measure of net longs includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate Swaps and ICE Henry Hub Swaps. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel. Producers and merchants cut their net-long position in the four-contract index by 742 contracts to 885,101...


http://noir.bloomberg.com/apps/news?pid=20601207&sid=asvTevKLDUX0

 

[mercury14]

The Dow is edging up to 12,000. Oh where will the carnage stop??


And GM came within 30k of outselling #1 Toyota last year and is the clear leader in market share in China. The stupid GM bailout will never amount to anything though.

 

[richard_daily]

That's why it's all about making people understand that doing the right thing is often good economics.

It's just about always good economics... The unsustainable "growth" of the mega corps is terrible for this country.

 

[koalabear]

The Dow is edging up to 12,000. Oh where will the carnage stop??


And GM came within 30k of outselling #1 Toyota last year and is the clear leader in market share in China. The stupid GM bailout will never amount to anything though.

GM makes it cars for the Chinese market in CHINA. I'm sure the Chinese appreciate the jobs and the bailout.

 

[unregistered]

 

[mercury14]

GM makes it cars for the Chinese market in CHINA. I'm sure the Chinese appreciate the jobs and the bailout.

You should be happy that GM is a global powerhouse. Our companies need to be strong internationally. But since you're an idiot who thinks good news is bad news whenever Dems are in power, here you are saying moronic things with Vette.

 

[trysail]

Do you really believe this sort of stuff doesn't have consequences?

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=line&graph_id=31469&category_id=0&recession_bars=On&width=800&height=480&bgcolor=%23B3CDE7&graph_bgcolor=%23FFFFFF&txtcolor=%23000000&ts=8&preserve_ratio=false&fo=ve&id=AMBSL&transformation=lin&scale=Left&range=Max&cosd=1918-01-01&coed=2010-12-01&line_color=%23336600&link_values=&mark_type=NONE&mw=4&line_style=Solid&lw=3&vintage_date=2011-01-26&revision_date=2011-01-26&mma=0&nd=&ost=&oet=&fml=a&fq=Monthly&fam=avg&fgst=lin​

 

[trysail]

"A bureaucrat has no upside."

Is this what the Administration means by reducing regulatory obstructions and making the U.S. more competitive?

__________________


http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aEmrvpcH0mvM


Deep-Water Stalemate Pits Explorers Against Regulators
By Joe Carroll and David Wethe

Jan. 26 (Bloomberg) -- Eight months after BP Plc tried using a device the size of a motor home to snuff out the biggest offshore oil spill in U.S. history, top oil companies haven’t convinced regulators they can prevent another disaster.

The U.S. Interior Department is refusing to issue deep- water exploration permits because energy companies haven’t shown they have “access to and can deploy containment resources” to deal with out-of-control wells on the sea floor, Melissa Schwartz, an agency spokeswoman, said yesterday.

No exploration well has been drilled in U.S. waters deeper than 500 feet (152 meters) since BP’s Macondo well erupted in April, killing 11 rig workers and fouling the Gulf of Mexico with crude for 87 days. Regulators don’t want a repeat of the BP experience, when several failed attempts to plug the leak and contain the oil prolonged the disaster until the company managed to shut off the flow with a 40-foot stack of valves.

The Gulf of Mexico produces more crude than the U.K. or Indonesia and generates $2 billion in quarterly revenue for oilfield-services companies. The industry still isn’t sure what kind of equipment or resources the government is demanding, said Brian Uhlmer, an analyst at Global Hunter Securities in Houston.

“What types of agreements have to be in place and how do we prove how quickly they can be ready?” Uhlmer said.

In October, Interior Secretary Kenneth Salazar lifted a drilling moratorium imposed after the BP disaster on the condition explorers comply with stricter safety and environmental-protection regulations. The new criteria for obtaining a deep-water drilling permit include demonstrating the ability to control and contain oil gushing from a blown-out undersea well.

Exxon and Helix
A blowout-response system overseen by Helix Energy Solutions Group Inc. that includes ships, pipes and pressure- control devices is fully operational and available for duty, said Cameron Wallace, a spokesman for the Houston-based company. A separate fleet operated by an Exxon Mobil Corp.-led group of companies won’t be ready for weeks or months, Exxon said.

Regulators at the Interior Department’s Bureau of Ocean Energy Management, Regulation and Enforcement say neither system has been mentioned in any deep-water permit applications, according to an e-mailed statement from Schwartz yesterday.

Future Impacts
A one-year delay in new permits could reduce Gulf oil and natural-gas production by the equivalent of 680,000 barrels a day by the end of the decade, Wood Mackenzie Ltd., a London- based energy research firm, said yesterday in a report commissioned by the American Petroleum Institute.

As many as 3.1 billion barrels of reserves are at risk because prolonged delays make some fields unprofitable to tap, Wood Mackenzie said.

“We would just like to see the delays end and the permits approved,” Kyle Isakower, vice president of policy analysis at the Institute, said yesterday during a conference call with reporters. The Washington-based trade group represents more than 450 oil and natural-gas companies.

BP’s efforts to plug Macondo, a 50-million barrel oil field 40 miles (62 kilometers) off the Louisiana coast, were plagued by malfunctions, missteps and tense exchanges with Energy Department officials, according to a report released Jan. 11 by President Barack Obama’s National Commission on the BP Deepwater Horizon Oil Spill. When BP was unable to stop the leak, rival oil companies were asked to lend their expertise to control the well.

Robots, Golf Balls
In the weeks following the April 20 explosion and fire that sank Transocean Ltd.’s Deepwater Horizon rig, unsuccessful efforts to stop the leak included remotely controlled underwater robots and so-called “junk shots” of scrap rubber and golf balls used to try to choke the well shut.

A 40-foot box lowered over the top of the well to contain the flow of crude was abandoned when icy, methane-laced slush clogged the device. Finally, the London-based energy producer cut away a damaged piece of pipe at the sea floor to make way for a new stack of valves that sealed the leak on July 15.

Helix, which provided some of the vessels BP used to shut Macondo, said last week that it signed agreements with an oil- industry group known as Clean Gulf Associates and 19 exploration companies to use two Helix ships for blowout response in the Gulf. Terms were not disclosed.

“The vessels and components are ready to go,” Wallace said yesterday in a telephone interview.

Marathon Oil Corp., which was forced to stop drilling its Innsbruck well when the moratorium was imposed, is among the companies that have signed up with Helix, said John Porretto, a Marathon spokesman. The Houston-based company has permit applications pending for Innsbruck and a separate project known as Ozona, Porretto said yesterday in an e-mail.

Supermajor Group
The Exxon Mobil-led Marine Well Containment Corp. has invested $1 billion in a network of vessels, pipes and subsea gear that would cap a leaking well and funnel crude to ships that would store or haul it away, according to a presentation on the Irving, Texas-based company’s website.

A temporary network of tankers, pipes and pressure-control devices needed to combat blowouts will be ready sometime “early” this year, Rachael Moore, an Exxon spokeswoman assigned to the Marine Well group, said yesterday. A fleet built from scratch will take until early 2012, she said.

Exxon’s partners include Royal Dutch Shell Plc, Chevron Corp. and ConocoPhillips. BP also has announced plans to participate.

 

[trysail]

http://www.investors.com/NewsAndAna...cas-Next-Financial-Crisis-Is-Already-Here.htm



America's Next Financial Crisis Is Already Here
By SCOTT S. POWELL

In spite of talking about freezing government spending, President Obama reminded everyone during the State of the Union just how out of touch he is about the defining issue of our time — the fiscal dysfunction that threatens to rob future generations of today's living standards and jeopardizes the global financial system.

National debt has grown by $3 trillion since Obama took office, the most rapid growth under any president since FDR's wartime defense buildup. Federal government spending — now at 25% of GDP — is crowding out private investment.

Worse, liabilities of Social Security and Medicare are cash-flow negative, threatening to add hundreds of billions to the debt each year. The Cato Institute estimates that unfunded Social Security and Medicare liabilities exceed $115 trillion.

The American people are looking for leadership. Most don't buy into Washington's illusion that the nation can spend its way to prosperity, and they are ready to tighten their belts. People sense that deficit spending and printing money, which may help them feel better in the short run, is like a narcotic.

In the long run, it becomes addictive — requiring larger doses for the same effect — and leads to denial and disaster.

Only four or five years ago, trillion-dollar budget deficits were unthinkable.

It borders on denial when today the U.S. is supposedly in economic recovery, yet the Congressional Budget Office projects a record high deficit of $1.48 trillion for 2011 — with more near-trillion-dollar annual deficits ahead.

Sustainable growth cannot be based on continuing a course of excessive deficit spending, maintaining abnormally low interest rates and flooding the world with cheap dollars — a path that adds to an already perilous financial condition.

Official government statistics that portray consumer inflation at bay also foster denial. Reality of rising food and energy prices are all around, and servicing the federal debt becomes costlier when interest rates rise in response to that inflation.

Last year saw the doozy of all denials when the Democrat-controlled Congress refused to consider simple fixes to reduce Medicare costs, but instead forced on the nation yet another health care entitlement program.

No one knows just how costly this will be. But at 17% of the economy, the U.S. health care sector is massive, and this new entitlement that empowers a dizzying number of new bureaucrats is bound to blow out the deficit.

Obama said that "the new rules of the Wall Street Reform and Consumer Protection Act would prevent another financial crisis."

Denial again.

The new law does little to end bailouts. Worse, it provides a false sense of security by deflecting attention from fiscal and monetary policies that are paving the way for the next financial crisis.

Excessive debt and easy money facilitated the financial crises of the past 12 years.

In 1998 it was Long-term Capital Management that melted down.

In 2000-02 the dot-com bubble burst.

And starting in 2007 the housing and mortgage market collapsed — leading to the current predicament.

The debt dynamics that underlay these crises are alive and well, only larger and more fundamentally systemic. Risk has shifted from the private to the public sector, with the U.S. government debt market being the new bubble.

Even after wake-up calls emanating from last year's riots and near collapse in Greece and the November 2010 U.S. election results, Obama and much of Washington and the media elite remain in denial about the urgency of entitlement reform and the need for radical reduction in government spending.

The sovereign debt problems that surfaced last year in Portugal, Ireland, Italy, Greece and Spain (collectively nicknamed the PIIGS) could be the beginning of a greater crisis — the sovereign debt crisis of the world's reserve currency. A collapse in the dollar and the global U.S. Treasury debt market is a very real risk, requiring proactive leadership.

Sadly, the State of the Union speech signaled confusion and weakness. It is the private sector, not government, that invests. Leadership in cutting government spending, deficits and debt must come from the House and its new Budget Committee chairman, Paul Ryan.

Between Congressman Ryan's road map and the recommendations of the bipartisan Bowles-Simpson deficit commission, there are plenty of sound ideas for deep cuts that can be put before the American people.

Leadership requires getting out of denial, getting ahead of the curve and making tough decisions.

The risk factors that could trigger a crisis of confidence in the dollar and U.S. Treasury debt are many. It's no time for delay and half-measures.

 

[trysail]

http://www.pimco.com/Pages/Devils-Bargain.aspx

"The Devil's Bargain"
by William H. Gross

http://www.pimco.com/PublishingImages/IO%20Devil’s%20Bargain%20February%202011.GIF​

...There are lots of ways to describe money: moolah, lean green, dinero … I memorized one definition of “money” from an economic textbook way back in 1966: “A medium of exchange and a store of value,” it said. Well, yes, I suppose, although it failed miserably in the latter capacity in subsequent years. My primer also neglected to mention the increasingly dominant function that money was to assume in a finance-oriented, capitalistic system: Money can be used to make money. Not that interest rates and biblical usury aren’t millenniums old. I remember a story from Sidney Homer’s history of finance that described how a BC-era borrower would be forced to turn over his wife as collateral upon default – wondering at the time whether that might be an incentive for a future Mesopotamian debt bubble! Still, my textbook was nowhere near contemplating the half century of financial “innovation” that was ahead and how money and its levering was to be the foundation for much of America’s prosperity.

Money would also become the economic and political wedge for profound changes in American society. Fifty years ago, the highest paid and most prestigious professions were that of a doctor or a 707 airline pilot who flew the “golden” route from Los Angeles to Honolulu. Today the yellow brick road begins on Wall Street or the City. Aside from supernova innovators such as Steve Jobs or Mark Zuckerberg, the money is made from securitizing things instead of booting and rebuilding America. The tallest buildings in almost every major city are banks, with tens of thousands of people shuffling and trading paper for a living. One of this country’s premier investment banks paid each of its 26,000 employees an average of $370,000 in 2010, nearly ten times the take-home pay of other American workers. Almost a quarter of the 400 wealthiest people on Forbes annual richest list make their money from money, whereas only 8% could make that claim in its first issue in 1982, and probably close to 0% when I first read my economic primer in 1966.

Having been part of this process and even a member of the rogue’s gallery itself, I know one thing for sure: This is not God’s work – it has the unmistakable odor of Mammon. PIMCO, while Mammonesque, is a company to be proud of. I can say with confidence that there are very few clients who have not benefited from our investment management over the years. Some of the rest of this industry, however, I’m not so sure of: rating agencies that perpetually fail at commonsensical quality judgments, bankers that make loans to subterranean credits and then extend the beggar’s bowl for themselves, and 80% of active money managers that underperform the market. As a profession we have failed miserably at our primary function – the efficient and productive allocation of capital: The S&L debacle of the early 1980s, the Asian crisis, LTCM, dotcoms, subprimes, Lehman and the resurrection, instead of the reformation, of Wall Street, are major sins of the modern era of money. Hang your heads, moneychangers. And no, it is not yet time to move on, as many banking CEOs suggest. How can bond traders make ten, one hundred, one thousand times more money than an engineer or social worker given their dismal historical performance? Why is it that some of today’s doctors are using food stamps while investment banking executives complain about millions of dollars in compensation that might be deferred in case of a future bailout?

Financiers have lost their high ground and, if truth be told, we began to lose it a long time ago when we figured out that money was more than a medium of exchange or a poor substitute for a store of value. We figured out a turbocharged way to make money with money and proclaimed ourselves geniuses in the process. Well, we’re not. We may be categorized as “opportunists,” to be generous, but society’s “paragons” and a legitimate destination for a significant percentage of college graduates? Hardly. To paraphrase Paul Volcker, the only productive invention to come out of the banking industry over the past generation was the ATM.

This country desperately requires a rebalancing of priorities. After readjusting the compensation scales via regulation and/or free market common sense, America needs to anoint a new set of Mensans who can create something more than a cash machine and make this country competitive again in the global marketplace. We need to find a new economic Keynes or at least elect a chastened Congress that can take our structurally unemployed and give them a chance to be productive workers again. We must have a President whose idea of “centrist” policy is not to hand out presents to the right and the left and then altruistically proclaim the benefits of bipartisanship. We need a President who does more than propose “Win The Future” at annual State of the Union addresses without policy follow-up. America requires more than a makeover or a facelift. It needs a heart transplant absent the contagious antibodies of money and finance filtering through the system. It needs a Congress that cannot be bought and sold by lobbyists on K Street, whose pockets in turn are stuffed with corporate and special interest group payola. Are record corporate profits a fair price for America’s soul? A devil’s bargain more than likely...

...Ultimately, however, the devil gets his due or at least the central bankers run out of mathematical room to lower real yields below commonsensical floors. Today’s negative real yield on a 5-year TIPS (Treasury Inflation Protected Securities) is perhaps reflective of a market that has lost its fundamental value anchor. A century-long history of average 5-year real yields would point out that bond investors in Aaa 5-year sovereign space have demanded and received a real interest rate return of 1.5% instead of today’s -0.1%. We are being shortchanged, in other words, by 160 basis points from the get-go, a “haircut” that is but one of four ways that governments attempt to escape from an over-levered national balance sheet.

As I pointed out in a recent Barron’s Roundtable in early January, a “haircut” is a euphemism for government default. A bondholder can receive a “buzz” the old-fashioned way by principal default, but that rather visible and embarrassing option is usually reserved for countries like Greece, which cannot devalue its currency. The second and more surreptitious policy maneuver of currency devaluation raises import prices and lowers a country’s standard of living while allowing politicians to hold up their heads higher than countries that simply say – “Hell no, we won’t pay.” Third on the policymakers’ list of barber-shopping techniques is to assure bondholders and citizens that inflation, and importantly inflationary expectations, should be extremely low in future years. “Forget about those $1.5 trillion annual deficits! With wages and the ‘core’ CPI firmly in check at 1% or lower, there is no need to worry about the inflationary erosion of money as a ‘store of value,’” they would emphasize. “Good as gold – those dollar-based bonds – and they yield 2–3% to boot! Try to match that, oh barbarous relic.” Well, yes, but somehow, as is increasingly obvious in the U.K., the headline CPI seems to outdistance the core by several hundred basis points over a 5-year moving average and the barbarous relic morphs from the yellow metal to a long-term gilt that goes down in price and “haircuts” its owner by several points a year. U.S. Treasuries are not in the same egregious company as gilts, but they’re hanging out in the “wrong neighborhood,” as my parents used to say. Or maybe, to stick to the coiffure analogy, they’re sporting a ducktail and a beehive instead of a conservative crew cut and a ponytail. Whatever the haircut, the bondholder is missing some lean green or moolah at the end of the calendar year.

Fourth, and perhaps most deceptive in the barbershop quartet of policy tools that lessen debt loads, is the aforementioned “negative” or exceedingly low real interest rate that central banks impose on savers and debt holders. I’ve alluded to those missing 160 basis points in prior paragraphs and even some Investment Outlooks where I’ve tortuously detailed my shock at the 0.01% return on my money market account. Even if, dear reader, your broker is offering you 0.25% (and good for you for finding an honest firm that doesn’t clip all of it to justify its “expenses”) you and your money are being “haircutted” by inflation at a much higher rate – core or no core.

To rebalance debt loads and re-equitize financial institutions that should have known better, central banks and policymakers are taking money from one class of asset holders and giving it to another. A low or negative real interest rate for an “extended period of time” is the most devilish of all policy tools. And the asset class holder that it affects, or better yet, “infects,” is the small saver and institutions such as insurance companies and pension funds that hold long-term fixed income assets. It is anyone who holds bonds with coupons that cannot keep up with inflation or the depositor in a local bank who cumulatively holds trillions of dollars in time deposits that don’t earn a real rate of interest. This is the framework that has been created by modern-day policymakers who have innovated far beyond their biblical counterparts. To put it bluntly, they are robbing savers and taking money surreptitiously from longer-term asset holders who are incorrectly measuring future inflation...


more...
http://www.pimco.com/Pages/Devils-Bargain.aspx

 

[Frisco_Slug_Esq]

Bubble bubble, toil and trouble...

The 2008 financial crash originated with a housing bubble. Not long ago, the cheap-money policies of the Federal Reserve, the infusion of trillions of dollars in new foreign investment, and the misguided policies of Freddie Mac and Fannie Mae all conspired to extend to millions of Americans lots of easy credit for houses whose inflated prices they could hardly afford. Owning a house was seen as a “right” rather than the just rewards of household sacrifice, delayed gratification, and budgetary discipline.

Builders, lenders, realtors, and bureaucrats all got in on the easy-money Ponzi scheme — until a few noticed that the emperor had no clothes and that rather pedestrian homes were hardly worth what unqualified purchasers had paid for them. Financial hysteria followed when shaky borrowers began to miss exorbitant mortgage payments and walk away, and lenders panicked. The subsequent meltdown is history.

A similar situation — more a vacuum than a bubble — is unfolding with pensions. There is perhaps as much as $6 trillion owed in retirement pledges to Americans, $500 billion in California alone. That tab under present conditions simply cannot be met. For the last 30 years, politicians outbid each other to offer more lavish retirement packages to union members and public employees — more eager for their votes than for ensuring the payment of what they had promised. Receiving a generous retirement package was considered a right rather than an investment predicated on past savings coupled with modest interest and dividends.

There may already be a $1 trillion shortfall in meeting what is owed current retirees. Pensioners on the receiving end are becoming more numerous, older, and more affluent, while the younger workers on the paying end are becoming less numerous and poorer. At some point, a city, a state, or perhaps the Social Security system itself is going to announce there is no more money. Then, if there is not another financial crisis and Wall Street meltdown, the fantasy will end with workers paying higher contributions, retiring later, and receiving less.

Then there is the higher-education bubble, as collective student debt nears $1 trillion with no guarantee that it will be paid back. Lots of poor college students and their strapped parents are floating huge government-subsidized student loans to pay for ever-more-costly bachelor’s degrees that no longer ensure that the recipients are well educated, will find a job upon graduation, or, if they do become employed, will be better paid than the vocationally trained. Going to college has somehow become seen as a national right rather than a privilege predicated on superior academic achievement, financial sacrifice, and continued academic discipline.

There are disturbing commonalities between these situations — and others like the recently enacted health-care entitlement on the way. The rich and connected seem exempt from the impending reckoning, and the poor assume government will offer them debt relief. Those in between are on their own and will have to pay more for receiving less.

America is not creating enough wealth to justify the notion that everyone should go to college, get a higher-paying job than their parents, buy a nice, affordable house, and retire earlier and with more money than did prior generations.

We have forgotten what wealth is — and how tenuous our grip on the good life is. Riches are created by educated and skilled workers who directly translate natural resources into commodities that make life easier. The nonproductive sectors of government, law, and banking must facilitate that process with efficient and transparent financial and political systems.

Instead, we are failing to provide our college graduates with unique skills that make them rare assets in the global competitive arena. Meanwhile, our more talented and better-trained workers are suing, subsidizing, and regulating more than ever — instead of searching for more oil and gas, supplying more water to productive farmland, fast-tracking nuclear power plants, manufacturing machines and consumer goods, or devising new and more efficient ways to help others to produce such food, fuel, and products. In other words, we are living the good life in the abstract that we have not quite earned in the concrete.

America is a naturally rich country. Unlike Russia, China, Egypt, or Greece, it is stable, transparent, tolerant, and free of civil strife. The result is that we are not doomed to see these bubbles expand and burst with the attendant social unrest. We need only return to our old American creed that wealth is created only with hard work and delayed gratification. In other words, America must get back to producing real, rather than imaginary, riches and ignore pleasing rhetoric that masks unpleasant reality — the faster the better.

Victor Davis Hanson
NRO

 

[Frisco_Slug_Esq]

The Dow is edging up to 12,000. Oh where will the carnage stop??


And GM came within 30k of outselling #1 Toyota last year and is the clear leader in market share in China. The stupid GM bailout will never amount to anything though.

What happens when the Fed takes money out of bonds and puts it into stocks?

Inflation.

Duh...

 

[RightField]

Cool. Thanks for finding that one. On that note, I think I'll go to work.

 

[Frisco_Slug_Esq]

Cool. Thanks for finding that one. On that note, I think I'll go to work.

Di nada amigo...

 

[tactful]

Gloom, is looking at the economy and just talking about it.
Doom, is not doing anything about it.
Can Bloom, be around the corner, if it is it'll be the little guy.