Sunday, February 20, 2011

notes on the week ended Feb 19th

some of you were on the receiving end of an email from me this week of a mock letter ostensibly from the administration to america's poor, saying the aid for winter heat was being cut off so we could fund less than another week of war...the irony notwithstanding, clearly there is something really wrong here; sure, that letter illustrates spending priorities that we already knew about, but can someone please tell me how the administration could arrive at that decision?  what is the thinking behind that? surely they know the arithmetic, what a pittance that heat aid program is, the cost of a couple stealth bombers...i was around when that HEAP program was started, after several people were found frozen to death after the severe winters of 77-78...i still recall the words of the East Ohio Gas spokesman talking about an old guy who's gas had been turned off for non-payment "if you dont pay your bills, you get terminated" ...to give you some perspective, my cost for the past 5 weeks of heat oil was $640 (184.5 gallons @ 3.246 + tax); i can squeak by, but if these cuts go through you can bet we'll see some people living in their own homes freeze again...

the other thing that disturbed me this week was the reaction by the econo-blogosphere to a SF Fed paper that the "natural rate" of unemployment was now 6.7%; what bothered me was that everyone took that Fed economic letter as gospel... all the lackey economists fell right right into line, as if that paper gave them freedom to let another 1.7% of the unemployed fall thru the cracks without a pang of conscience...if the Fed had published a paper "proving" that all the old, infirm, & unemployed should be rendered into livestock feed so the well off could have more pork chops, half of our "liberal economists" would probably line up at the buffet...

i normally dont watch retail sales closely, which for january were up a meager .3%, but i think it worth mentioning that the entire rise was driven by sales at gas stations & grocers; all other categories were flat or down...and you may have also heard that they're at a new high, surpassing the pre-recession 2007 high...however, if you adjust for population growth and inflation, which dshort has done, we find we're only back to the per capita spending level of the summer of 1999...there was also a government inflation report for january out this week; & the “all urban” CPI was up .4%, and the PPI of finished goods was up .8%…however, since the official inflation stats are used by govt agencies to determine cost of living increases for employees & retirees, they are predictably understated, so i prefer to use the very reliable Billion Prices Project at MIT, which collects pricing data every day from online retailers and scans the underlying codes from public webpages and stores the relevant price information in its database; according to this index, the cost of everything is up 2% over six weeks...

the above chart was constructed from the Bureau of Labor and Statistics 2009 Consumer Expenditure Survey, and shows how various income groups in the US get squeezed when the price of food & gas is rising as it is now - notice it doesnt even include the cost to heat, which varies regionally & by fuel used...you should be able to click to enlarge it & see that the lowest income groups in this country are no better off than egyptians & others engaged in food riots in north africa & the middle east...almost a third of US households spend 20% of their annual income on food, so you're talking about quite a significant number who'll get squeezed quickly as prices of commodities get passed thru (& btw, not just grains, oil & sugar; a once in a century freeze in northern mexico is causing produce prices to triple)

you may have read that consumer confidence has been rising; part of the reason for that is that the conference board, which regularly publishes results of the consumer confidence survey, has changed the methodology and its polling company used to collect information for that survey...its now using neilson to get better results...the old numbers were 53.3 for Dec, and 60.6 for January; the confidence readings are now 63.4 & 65.5...

im sure insiders were aware of the reasons for the spread between West Texas Intermediate & brent crude oil, which is now nearing $20, but i think i've now finally got it; the price of WTI on Nymex is influenced by large stocks of oil stuck at the Cushing OK, facilty, the terminus for much of the north american oil from the tar sands & bakken shale, as well as some gulf oil; however, much of the infrastructure to transport that oil to refineries is still two years from completion...so most of the oil being refined in the US is at the Brent price; hence the high costs of gasoline & diesel fuel...it would be feasible to reverse the flow on the gulf lines to deliver cushing oil to gulf coast refineries, but since refining margins are already wide, there is no incentive to do so; so the price of WTI is depressed because it’s landlocked & not going anywhere; hence the oil price you see quoted daily on the financial news is relatively meaningless, because that's not the oil being used to make your gas & heat oil...

the big news of the week was the release of the Obama budget; and i'm not going to pretend to explain what's all in it & how it's changed from last year; a few sites carried pictures of a copy or a stack of them, and my guess would be it's a good 15 pound tome...a good place to start might be the NYTimes interactive: Obama’s 2012 Budget Proposal and i've also included maybe 6 or 7 dozen links on this week's GGO blogpost

Ss784[Source: CBO]

this budget will be debated for weeks going forward, so just a few initial notes; the administration is touting cuts to defense, but that's off the already planned increase in defense spending; adjusted for inflation, obama's budget will spend more on defense than george bush ever did... and there is no mention of how to deal with the rising health care costs shown in the adjacent projection from the CBO...

apologies for the poor chart, but its the only one i could put my finger on quickly for a quick & dirty explanation of the budget dilemma we're looking at...if you squint, you can see that revenues were trending above spending before the bush tax cuts were enacted, and were again trending upward before the recession started; you can see that those two factors alone account for the entire hole we're in...so extending the bush tax cuts just extended the duration of the period that we'll be running large deficits...and it's also clear that the other part of the revenue problem would be solved if we just put people back to work...instead of collecting unemployment benefits, as taxpayers they would be helping to close the deficit...but in defiance of this simple logic, there are further cutbacks in federal staffing to add to the tens of thousand who'll be laid off at the state level as federal aid to the states expire, and no job-creating programs...it as almost as if the efforts of the administration were determined to dig a deeper hole..

complicating current matters even more, the house republicans also passed their own HR1 early saturday, which is a continuing resolution to fund the govt until september with $60 billion in cuts to programs they dont like, such as NPR & the weather bureau, which obama would likely veto anyhow...so we are now approaching the Mar 4th deadline to fund the government with no resolution in sight...congress is off next week & the senate won't be back until the week of the 28th & as of right now, & funding the govt is not even the first item on their agenda for the 28th...so our partisan dysfunctional govt is getting precariously close to shutting itself down...

we got a clue this week where the administration's plan to reform Fannie & Freddie is heading, as a consortium of small local banks protested that the plan will squeeze them out of the residential real estate market...also, a NY judge ruled that the electronic mortgage registry that holds half of US mortgages, MERSCORP, had no right to transfer mortgages, since law does not permit a "common agent" for unknown principals; as a result of this ruling, MERS notified member banks to stop foreclosing in its name...in a related matter, the comptroller of the currency completed its treasury ordered investigation of the banks involved in foreclosure abuses & slapped their hands gently with a small fine...CoreLogic, an often quoted analytical real estate firm, came out with a report that the National Assoc of Realtors overstated 2010 existing home sales by 15% to 20%...and Moodys reported that CMBS delinquencies topped 9% for the first time ever...

i imagine you've heard about the egyptian style occupation of the wisconsin state capitol by public workers, aka the hemlock revolution; what's going on there is that the new republican governor wants to renig on union contracts, cut pay, health care & pension benefits, and strip the union of the right to collectively bargain, using state budget troubles as an excuse...ive followed state budgets for over a year; wisconsin is not new jersey...the state is not encumbered by decades of fiscal shenanigans & kicking the can down the road the way new jersey is...this guy Walker just saw all the publicity that Chris Christie got in new jersey & he's trying to pull the same tricks (maybe he's got national aspirations); but if he hadnt enacted $140 million in new spending for his special-interest groups in January, wisconsin would be in the black...i've included a couple dozen links to the story in this week's blog, or if you've got interest in this get back to me & i'll email even more...and dont take this lightly; if wisconsin loses it's the beginning of the end for workers rights everywhere in this country, union or not...we are all wisconsin workers now...

in europe, costs to insure debt are rising again, as it appears that irish bondholders will get a haircut, even as its government collapses; portugal's 10 year debt has been at a record near 7.5% and they'll probably need a bailout too; for an as yet unexplained reason, overnight emergency lending at the ECB spiked to 15billion euros, about 15 times normal, & the Bank of England warned that brits will see the most severe plunge in their standard of living since the 20s after the spending cuts imposed by the conservative govt there has pushed the country back into recession...

the above are my weekly comments that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me...

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