Monday, April 18, 2011

notes on the week ended april 16th

we now have a clearer picture of what is being eliminated from the budget for the remainder of this fiscal year, thanx to the house republicans publishing a complete list of what cuts they won; the nine completely itemized pages are here, but few low points include the $855 million cut of WIC (womens, infants & children; thats health care referrals, food and nutrition education for low-income pregnant women & children under 5 in poverty), the cut of the funds for the NOAA tsunami warning stations & climate service, which was to replace the national weather service, funding for replacement NOAA weather satellites, which the agency needs to maintain weather advisories & warnings; also cuts for job training, many dept of education programs, & funds for AIDS, hepatitis, STD & TB prevention...also cut are funds for environmental protection, conservation & wetlands; it also includes a rider to reinstate Bush’s wilderness drilling policy; also cut are all the funds for high speed rail, & many state & local programs, including redevelopment projects, low-income housing, public transportation and police, fire, and emergency medical response...there also was language to eliminate the obama administration positions identified by the title "Czar"...in addition, included in the $38 billion package were also items which were budgeted but would have never been spent anyway, such as unused funds for the census, and bookkeeping tricks, which amount to over $27B of the total agreement, so this whole hullabaloo amounted to barely $10 billion out of the $3.5 trillion budget, or about a third of a percent...

the next congressional inanity will involve a standoff over the debt ceiling, which has the potential to put the full faith & credit of the US at risk, & possibly blow up the Treasury bond market, sending interest rates across the economy skyrocketing...since there is no actual budget items being considered, the demands being made by the tea party members are all over the board; some want a balanced budget amendment passed before they'll vote for it, some are demanding a repeal of health care reform for their vote, some demand a "complete cultural change in washington" whatever that means...boehner, who's been around longer than most of the rest, was reported to have consulted with wall street execs to find out how far the standoff could be pushed without sending interests rates soaring and stock prices crashing, and they werent happy at the prospect of going down to the wire...

DESCRIPTIONsome in congress are still under the illusion that the federal budget is analogous to a family budget, and think we are "living beyond our means"...but the real problem is that we've allowed "our means" to have the kind of country we would like to live in slowly slip away...the deterioration really started with the reagan tax cuts, when the stealth plan was to stop taxing the rich and borrow from them instead, & pay them back with interest...but even after a dozen years of coddle the rich voodoo economics, job & income growth alone was sufficient to balance by the last years of the 90s...then early this decade came the bush tax cuts which gave more back to the rich, which thereby put the US further into debt to them...rather than living beyond our means, a more appropriate analogy for what our national family has done over the past ten years has been to forego the pay raises we've had coming to us, but continued to spend as before, going into debt, & then we started working only part time...with not even 46% of americans now employed, a big part of the budget problem could be solved by creating jobs so people are contributing to the economy and paying taxes rather than collecting unemployment...

Rise in Debt Could be Halted by Letting Bush Tax Cuts Expire

and even from here, we can get out of the hole without pain: annie lowrey of slate presented a "do nothing budget plan" which made the rounds this week; holding to the CBO baseline, it turns out if we let all the laws currently in effect expire as scheduled, starting with the bush-obama tax cuts for the wealthy; also expiring would be the alternative minimum tax patch and the "doc fix", which allows medicare doctors annual raises every year...combine those with the saving under the affordable care act, and the federal budget comes into balance by the end of the decade...

after being challenged by pundits who praised the ryan plan to gut medicaid & put medicare on life support, obama rose to the occasion and made his first campaign/budget speech of the 2012 campaign...wanting to show he was just as serious about the budget as paul ryan, he canned the budget he proposed in february & he modeled his new proposals around the earlier template of the bowles-simpson catfood commission's recommendations, adding letting the bush tax cuts expire to that, as if he couldnt have done that last december...there was some smoke & mirrors in his speech, too, the $400 billion over 10 years he promised to cut from the defense budget is achieved simply by holding their planned increases to the growth of inflation over those years...he did point out what i've reiterated above; that we were well on track to becoming debt free before the bush tax cuts were initiated and medicare part D was enacted without appropriating funds for it, but the rest of the speech betrayed that he'd either bought into the "living beyond our means" delusion of the current debate, or was out to position himself as an acceptable tea party candidate for 2012...

an interesting sidenote to that debate; last week there was a puff profile piece on paul ryan on NPR's "all things considered"...it turned out that mr ryan, who wants to cut government benefits for everyone else, actually paid for his own education with money saved from the social security benefits he received after his father died young of a heart attack...

since this is already crowded with graphs, i want to make sure you note the Case Shiller 100 year chart at the big picture; it's clear we have another leg down in housing prices before we reach the historical mean...

the Fed seems to have actually moved against the rampant mortgage servicer abuse we've been observing these recent months, levying fines against 10 big banks that amount to a wrist slap, and instructing those banks to "initiate steps to establish mortgage loan servicing and foreclosure processes that treat customers fairly, are fully compliant with all applicable law, and are safe and sound"...a similar strongly worded consent decree was issued by the office of comptroller of the currency, so we now can rest assured the banks have got their just desserts...in investigating the banks, senator carl levin called goldman sacks on the carpet for their criminal activity leading up to the financial crisis, and subsequently matt taibbi & eliot spitzer appeared on anderson cooper to discuss why no one is going to jail...i posted that video on MW666 as why aint the perps in jail? which is worth watching just for taibbi’s analogy what goldman did as a car dealer selling cars with defective breaks and then buying life insurance on the drivers; its as close to the truth of what actually happened as ive heard yet...

if you havent heard already, earlier this week the fukushima nuclear crisis was raised to a "level 7 emergency"; a level only matched by chernobyl (3 mile island was a level 5)...plans continue to eventually entomb the entire site in concrete, as was done with chernobyl, but as fukushima has 6 damaged reactors, that project will will be considerably more complex than the temporary sealing of chernobyl, which took 11 specially constructed giant cement trucks several months to complete...the spent fuel pond at reactor 4, which had never been mentioned previously, has also now started to overheat...it's now clear that factories and homes within at least a 18 mile radius will have to be abandoned, and TEPCO has started the process of compensating the homeowners for their losses...in europe, a french agency has issued an alert on iodine 131 levels in rainwater and milk, and advised that pregnant or breastfeeding women should avoid consuming vegetables with large leaves, fresh milk or creamy cheese...in the US, levels of I-131 in milk found in arkansas and tap water in philadelphia are still considered below the danger level by our EPA...

in it's beige book, the Fed made note of the economic impacts of the japanese triple disaster that are already being felt in this country...all 12 Fed districts reported some disruptions, most notably in the minneapolis district, where 41% of the factories reported that they had been impacted unfavorably...the boston district reported shortages of electronic components, and atlanta noted interruptions in the auto and IT sectors...

the IEA released its oil supply numbers for march, and they were down .7 million brls/day, as instead of making up the lost libyan productions as they had promised, saudi production was actually down...the IMF rolled out it's world economic outlook this week which included a chapter on energy; the summary is worth quoting: "global oil markets have entered a period of increased scarcity. Given the expected rapid growth in oil demand in emerging market economies and a downshift in the trend growth of oil supply, a return to abundance is unlikely in the near term..."

with german officials openly talking about a greek restructuring wherein bond holders would get a haircut, it was no surprise to see greek 10 year borrowing costs skyrocket over 13% to at least 13.8%, and over 18% for 2 year notes, and with portugal's situation politically tenuous, their costs hit a record 9%...after an irish downgrade, their 10 year bonds were priced to yield 9.7%...as usual, several dozen links to european crisis news & new british banking regulations can be found at the end of this week's blog post...

the above is my weekly commentary 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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