True GDP – Q4 2008

January 31, 2009 · Posted in General Economics · Comment

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The True GDP has fallen to 15.38 billion gold ounces in Q4 of 2008. This is a decline of 12% from 1 year prior. Considering how dire the situation is it is not unrealistic to assume that it will go as low as it did in 1980.

The most noteworthy items in the new GDP number are personal consumption expenditures which have begun to fall from the previous quarter’s level for the first time since 1958 (!) . This marks an epic shift in American consumer behavior and is consistent with the consumer credit contraction that has already begun and will continue throughout the next years.

Tags: q4 2008, true gross domestic product

McCaskill blasts Wall St.

January 31, 2009 · Posted in General Economics · Comment

Great rant…

Contact her, tell her that she did a great job. If you’re from Missouri, tell her you will support her in the next elections if she keeps up the good work: http://mccaskill.senate.gov/contact/

Tags: mccaskill

Obama’s Fiscal Promises

January 29, 2009 · Posted in General Economics · Comment

President Obama’s campaign promises include, among others, the following:

Reinstate PAYGO Rules: Obama and Biden believe that a critical step in restoring fiscal discipline is enforcing pay-as-you-go (PAYGO) budgeting rules which require new spending commitments or tax changes to be paid for by cuts to other programs or new revenue.

We haven’t heard much of this in regards to the $819 Billion bill that was passed today. Mr. Obama needs to clarify how he will adhere to this campaign promise. People should ask these questions and encourage the administration to be open about it.

End Wasteful Government Spending: Obama and Biden will stop funding wasteful, obsolete federal government programs that make no financial sense. Obama and Biden have called for an end to subsidies for oil and gas companies that are enjoying record profits, as well as the elimination of subsidies to the private student loan industry which has repeatedly used unethical business practices. Obama and Biden will also tackle wasteful spending in the Medicare program.

Inquiring minds might want to read the “American Recovery and Reinvestment Act of 2009” and decide for themselves to what extent Obama and Biden are stopping wasteful, obsolete government programs that make no financial sense. One provision in the bill is a requirement to establish the website recovery.gov which promises transparency and accountability for projects. I will examine in detail what this site will tell us and where the money is going once this spending bill, just like the previous ones, is successfully shoved down the throats of the American taxpayers.

Tags: fiscal responsibility, fiscal stimulus, president obama

Fix It!

January 28, 2009 · Posted in Business · Comment

High-Flying Citigroup Grounds Plans for $50M Jet:

The high-flying execs at Citigroup caved under pressure from President Obama and decided today to abandon plans for a luxurious new $50 million corporate jet from France.

The decision came 24 hours after the banking giant, which was rescued by a $45 billion taxpayer lifeline, defended buying the state-of-the-art Dassault Falcon 7X — one of nine to be flying in U.S. skies — as a smart business deal.

The jet, the epitome of corporate prestige and privilege, can carry 12 passengers in elegant comfort.

ABC News has learned that on Monday officials of the Obama administration called Citigroup about the company’s new $50 million corporate jet and told execs to “fix it.”

As disturbing as it is that Citigroup had planned on purchasing this jet up to this day, it is encouraging to see that this administration is keeping close tabs on what seems to be happening with taxpayer money. Citigroup is bankrupt. They ought to sell off what is left, not keep buying more.

What is unfortunately unspoken of are the countless deals that we don’t hear about and will never hear about.

Tags: Citigroup, jet

Home Prices – November 2008

January 28, 2009 · Posted in General Economics · Comment

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The composite index for home prices fell by 18% from November 07 through November 08.

Largest annual declines:

1. Phoenix: 33%
2. Las Vegas: 32%
3. San Francisco: 31%

Largest monthly drops:

1. Phoenix: 3.43%
2. Las Vegas: 3.18%
3. Detroit: 3.11%

Home prices are now approximately at February 2004 levels. The way toward 1999 levels is wide open and prices are in free fall with absolutely no end in sight in the near future.

Tags: case shiller, home prices, november 2008

The Coming US Tax Receipt Shortfall

January 25, 2009 · Posted in Government · Comment

The United States federal and state governments will be facing an unprecedented tax shortfall in the years to come. Declining corporate profits, asset values, and skyrocketing unemployment will cause the tax base to fall flat. It will most likely become evident in April of this year and get progressively worse in the years to come.

The common sense solution would be for the federal and state governments to once and for all abandon wasteful programs and departments and dramatically cut down on government expenses. Unfortunately this will not in any way be the consensus among Congress and the Executive Branch. They will see no other way out than to drastically raise taxes as a matter of “urgency” and “in the nations interest”. This bureaucratic intervention will of course do nothing but stifle growth and progress and thus have an additional adverse effect on tax receipts that will leave government bureaucrats puzzled.

Since it appears as though currently tax hikes are not feasible, the government will keep trying to finance the shortfall with a progressively increasing budget deficit.

Past recessions and depressions can give us an idea as to what the expected tax receipts over the next years might be.

From 1921 through 1923 federal tax receipts dropped from $6.6 billion to $3.9 billion, a drop of about 20% per year.
From 1930 through 1933 federal tax receipts dropped from $4 billion to $2 billion, a drop of about 17 % per year
From 2000 to 2003 federal tax receipts dropped from $2 trillion to $1.8 trillion, a drop of about 3.3% per year

The estimated receipts for 2008 are $2.5 trillion. It is save to assume that the upcoming tax shortfall will dwarf all precedents. But to make the outlook as optimistic as possible we shall assume a drop of just 10% per year:

Federal tax receipts will fall to $2.25 trillion in 2009, to $2 trillion in 2010, to $1.75 trillion in 2011, and to $1.5 trillion in 2012.

Meanwhile there is no indication that government expenses will fall. Even with the current, now completely obsolete, budget estimates for government expenses, the Federal deficit would develop as follows:

$850 billion for 2009
$1 trillion for 2010
$1.3 trillion for 2011
$1.7 trillion for 2012

These are very optimistic figures. It wouldn’t be surprising if actual figures turned out to be around double or triple those numbers, unless a true change in policy were to occur.

A true change would of course necessitate a complete, yet structured and well planned, abandonment of whole departments and government programs, including but not limited to Homeland Security, Education, Social Security, and Health and Human Services, along with a significant reduction of defense and military spending to sustainable levels around $100 billion per year.

This necessity has not reached the public in the slightest. Whoever utters it will be scorned as a neoliberal, callous, selfish miser who has nothing but his own interest in mind. It will take a complete collapse of this system in order for people to wake up to reality and listen.

Tags: us budget, us tax shortfall

More Money Needed for Banks

January 25, 2009 · Posted in Interventionism · Comment

Clueless House Speaker Nancy Pelosi says more money may be needed for banks:

Speaking on ABC’s “This Week,” Pelosi resisted the notion that the government would nationalize some banks, but when asked whether more funds would be needed above those already approved for the TARP, she said that “some increased investment” in return for equity might be necessary.
“Change has to happen in terms of what is done, what the transparency of it is, what the accountability of it is,” Pelosi said. “Only then would we be able to pass any additional funding.”
With banks reporting ever-increasing losses, Wall Street has been hoping for new plans to tackle the financial crisis from the newly arrived administration of President Barack Obama.
But some segments of the public, especially those who own financial stocks, fear that the government might seize ailing banks, getting rid of their bad assets and making a profit where possible but also wiping out their shareholders.

Whoever still owns bank shares has to be out of his mind. Dump that crap. The government will dilute your holdings and destroy your wealth. House Speaker Nancy Pelosi is the epitome of bureaucratic arrogance. She has absolutely no idea what she is talking about. Her unquestioning bailout policy will be instrumental to the destruction of the US economy.

TARP I hasn’t worked. And before even embarking upon TARP II, which will also not work of course, we are being prepped for yet more bank bailout money. I hope people will hold Pelosi and other enablers accountable once we see the inevitable consequences. Not a single thing she suggests will in the slightest fix our problems. It will perpetuate and aggravate them. My only wish is that people don’t pretend to be surprised once the painful collapse occurs.

Vice-President Joseph Biden said Sunday on CBS’s “Face the Nation” that Timothy Geihtner, who is expected to be confirmed Monday as Treasury Secretary, will first try to get more funding for TARP to help the banks.

Of course he will. It’s probably futile to point out that Geithner was making statements to the contrary just a few days ago:

Geithner also said Treasury had no current plans to request additional bailout money beyond the existing $700 billion already authorized, but said the situation was “dynamic” and required careful monitoring.

I have low expectations and hence do not expect anything else than more lies and deceit. Of course all these measures were and are bound to fail as already pointed time and again.

Unfortunately we have a fascinating propensity to keep listening to those people who have been, without a single exception, wrong on what they have been saying, again and again.

Everyone should pull out their money from US assets and put them into gold or silver. I still believe Silver has Bottomed out and reversed its trend. An interesting trend has emerged last week: The Dollar rose against the Euro and the Pound but at the same time gold and silver still went up in Dollar terms. This is a very strong sign of global delevaraging coupled with save haven investments. Since governments abroad are not acting any better, the current Dollar strength will likely continue for a little while. However, regardless of that, in absolute terms holding US Dollars in cash is a much bigger gamble than holding hard assets.

Tags: bailouts, nancy pelosi, tarp

JFK, MLK, and Ron Paul

January 24, 2009 · Posted in Politics · Comment

Tags: john f. kennedy, martin luther king, ron paul, war

Thain’s Spending Spree

January 22, 2009 · Posted in Business · 2 Comments

In case anyone wants to get an idea as to where all their TARP money is going:

According to documents reviewed by The Daily Beast, Thain spent $1.22 million of company money to refurbish his office at Merrill Lynch headquarters in lower Manhattan. The biggest piece of the spending spree: $800,000 to hire famed celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.

The other big ticket items Thain purchased include: $87,000 for an area rug in Thain’s conference room and another area rug for $44,000; a “mahogany pedestal table” for $25,000; a “19th Century Credenza” in Thain’s office for $68,000; a sofa for $15,000; four pairs curtains for $28,000; a pair of guest chairs for $87,000; a “George IV Desk” for $18,000; 6 wall sconces for $2,700; six chairs in his private dining room for $37,000; a mirror in his private dining room for $5,000; a chandelier in the private dining room for $13,000; fabric for a “Roman Shade” for $11,000; a “custom coffee table” for $16,000; something called a “commode on legs” for $35,000; a “Regency Chairs” for $24,000; “40 yards of farbric for wall panels,” for $5,000 and a “parchment waste can” for $1,400.

Hopefully people won’t act surprised about this inevitable outgrowth of bureaucratic interventionism. When you subsidize mismanagement and corruption, you’ll get more of it. So long as we keep throwing good money after bad, we will hear of more stories like this. Had the Enron debacle happened during this time, Kenneth Ley and his cronies would have been bailed out along with the rest of the pack and their failure, too, would have been imputed upon the mystical financial crisis.

Tags: merrill lynch, tarp, thain

Geithner Committed to a Strong Dollar

January 22, 2009 · Posted in Monetary Economics · Comments Off

Aspiring Secretary Treasury Timothy Geithner says he is in favor of a strong Dollar:

WASHINGTON (Reuters) – Treasury Secretary-designate Timothy Geithner on Thursday said a strong dollar is in the United States’ interest and that President Barack Obama believes China is manipulating its currency.

“A strong dollar is in America’s national interest,” Geithner said, reiterating the long-standing U.S. currency policy mantra in answer to written questions from members of the Senate Finance Committee.

“Maintaining confidence in the long-term strength of the United States economy and the stability of the U.S. financial system is good for America as well as our trading and investing partners,” Geithner said.

In the financial markets, the dollar trimmed losses versus the yen and U.S. Treasury bonds fell in price after the comment criticizing foreign exchange policies in China, who is the biggest holder of U.S. Treasury debt.

The Senate committee, which is scheduled to consider Geithner’s nomination starting at 10 a.m. after holding a hearing with him on the issue on Wednesday, released 102 pages of written questions to the nominee and his answers.

“President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency,” Geithner said in his written response. “President Obama has pledged as president to use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices.”

While China’s currency would be an important topic in U.S. discussions with China, “given the crisis the immediate focus needs to be on the broader issue of stabilizing domestic demand in China and the U.S,” the Treasury nominee said.

He noted that while in the Senate Obama co-sponsored “tough legislation to overhaul the U.S. process for determining currency manipulation and authorizing new enforcement measures so countries like China cannot continue to get a free pass for undermining fair trade principles.”

“The question is how and when to broach the subject in order to do more good than harm. The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment,” he said.

“More generally, the best approach to ensure that countries do not engage in manipulating their currencies is to demonstrate the disadvantages of doing so outweigh the benefits,” he said.

Geithner also said Treasury had no current plans to request additional bailout money beyond the existing $700 billion already authorized, but said the situation was “dynamic” and required careful monitoring.

“We have to be prepared to act flexibly and with speed if conditions worsen appreciably, to devote more resources if that is necessary to secure our objectives, and we have to make it clear that we will continue to act until we have restored the strength and vitality of the U.S. financial system,” he said.

We shall see if Geithner’s commitment to a strong Dollar is just idle talk or serious conviction. He needs to realize that in the long run he has to look to Ben Bernanke’s Federal Reserve Board of Governors to stop the rampant increase of the money supply. He needs to make sure the banks mark their assets to market value. More debt consolidation across the board without government interference will strengthen the Dollar significantly. Either way, this commitment, along with the steps Obama has taken to boost confidence in government, plus the ongoing deleveraging and scandals in Emerging markets, is likely to continue giving the dollar a short to mid-term boost.

If this administration seriously wants to keep throwing money at failed banks, then the remaining $350 billion TARP money will not suffice by any means. So there are two options: The administration pledges an unconditioal abandonment of the disastrous bank interventionism performed by the previous administration (in which case Geithner won’t need any more money), or they continue down the failed Bush/Paulson/Bernanke plan (in which case there is no end in sight for additional billion Dollar bailout bills in Congress).

It is refreshing that our President actually considers global economic forces and talks about what is going on with China and the currency market. For more accurate information on that read The U.S. Current Account Deficit.

Tags: dollar, geithner