Sunday, February 27, 2011

notes on the week ended Feb 26th

as some of you already know, i had a major power interruption this week, as an ice storm sunday took down powerlines and trees over much of northeast ohio, including a 75 foot maple in front of my house that split the powerline across the street in 3 places, and i was without power all monday...as the globalglassonion blog alone normally takes me about 60 hours a week to do right, there were hardly enough hours left during the rest of the week to catch up...so although it seems i did, what i have left today aint much, so what follows may come up a little short of the usual...

i did find a IMF table on how "advanced counties" compared in 9 different categories which might be said to be a measure of their level of civilization; the US actually ranked "worst of the worst" in four of the categories, and last overall; it's really a sobering comparison, and i posted it on here as shame on US!

the GDP for the 4th quarter was revised from 3.2% down to 2.8%, largely because state & local governments cut their spending by 2.4%…this highlights something that ive been trying to get at…with all the arguments about the mounting deficits, everyone seems to deal with it as a problem of how much spending you cut or how much you raise taxes...even the interactive budget balancing tools handle the problem in this manner…but it’s not that simple; the fiscal balance sheet is dynamic, and if government cutbacks push the country back into a recession, government revenues will fall, and the deficit may well increase… let me repeat that: cutting spending does not reduce deficits if the impact of the cuts is to push the country deeper into recession, because during a contraction, revenues from all sources shrinks...cutting government spending may increase the deficit…and indeed, analysis by goldman sachs economists of the proposed $60 billion in cuts in the GOP house continuing resolution showed it would cost jobs and slow the economy by 2% over the next 2 fiscal quarters… 

Case-Shiller Price Declinesthis week marked the release of the popular case-shiller index of home prices for december, and for the 20 cities in the index they were down for the 6th month in a row, .4% from the previous month, 2.4% YoY, with 11 of the cities hitting new recession lows...with my usual caveat that these are lagging prices, covering the months of Oct-Dec, and that it only covers the 20 cities in the index, home prices are now down 31.2% from the peak...and according to the usually conservative robert shiller, co-creator of the index, house prices may fall as much as another 25% as government support is withdrawn from the market...before housing prices stabilize, we must first unwind the past quarter century of "mania" based on homes as "investments"...as i was known to rant a few years back, the only reason houses seemed to increase in value was because of the bubble and because the dollars they were "valued" in became worth less at a faster rate than the houses did, & because low interest rates kept payments monthly payments relatively low, encouraging more low down-payment buyers...absent dollar inflation, houses are a depreciating asset, albeit with a longer time span, just like cars are...and im speaking as someone who has watched his own home deteriorate in "real" value over almost 40 years...

(the above graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices; the one below is a record of new home sales - click on either)

New Home Sales and Recessions

 

in other housing related news, existing home sales increased 2,7% YoY, and new home sales for january were the lowest since '67, at a seasonally adjusted 284K...also, essex county, MA, has sued the electronic mortgage consortium MERS for $22 million for county deed recording fees it evaded, this many just be the first one of many counties nationwide who try to collect the fees banks have scammed them out of...and the republican legislature in arizona passed by an overwhelming vote a law to require a full chain of title before banks could foreclose...if what ive read about the number of times some deeds have been transferred & the poor record keeping by the banks is even half true, it would seem this law may just about void every foreclosure in that state....

 

the big news this week has to be what's been happening in no. africa & the middle east, and its attendant influence on the price of oil, as WTI spiked about $9 this week, settling near $98 brl after briefly touching $100...the brent crude price, which is for all practical purposes the price we're paying, got to within pennies of $120 before falling back to $115 after the saudis said they would pump more (whether thats possible is questionable; they couldnt increase output during the oil price spike in 2008)...there should be no doubt that no monetary or fiscal policy, or any political gamesmanship, can have more of an impact on the economic well being & standard of living in this country than the price of oil; whether this will turn out to be a major black swan still remains to be seen, but it's certainly at least another black egret, following on the heels of the weather related food supply disruptions earlier this year...compared to other major oil shocks, the move in oil so far this year is just a wiggle, but even so gasoline alone is already commanding more than 10 cents out of every dollar spent at retail, and that doesnt even count other oil influenced costs, such as heatoil, tires, plastics, and asphalt...and the rising cost of diesel fuel means everything you buy will cost more to transport, especially bulky items like food...

you cant hardly miss the news on libya, as gadhafi's ranting makes for some interesting sound bites, and it wouldnt surprise me if many of you have followed that closer than i have (for a play-by-play on that, check the daily link collection at End of Empire News); libyan oil is pretty much shut in now, but libya only produces 2% of the worlds oil annually, so even if that turns into a long simmering crisis, making up the shortfall shouldnt cause a catastrophe...of greater concern is probably is the situation in Bahrain, where a majority shia underclass is in open revolt against the sunni monarchy...if this should spill out into the rest of the gulf, it could involve shiite iran and the sunni saudis, which also has a large shia underclass...with predictions of $220 oil already being predicted by Nomura on the back of a libyan/algerian shutdown, it's hard to imagine how our oil based civilization could continue should a real war break out in the gulf and those major supplies be cut off or damaged for an extended period...

there was quite a bit of debate, some of it quite partisan, regarding the attempt by several republican governors to rewrite union contracts, forcing employees to pay for their own health care & pensions, and eliminate collective bargaining, especially in wisconsin, where it's become quite complicated: there are also provisions in the wisconsin budget to privatize "any state−owned heating, cooling, and power plant or may contract with a private entity for the operation of any such plant, with or without solicitation of bids, for any amount that the department determines to be in the best interest of the state' as well as provisions to cut 70,000 off the rolls of BadgerCare, Family Care, SeniorCare and other health plans..to hear the right wing media talk about problem, its all about greedy schoolteachers, who are being portrayed in the same light as "welfare queens" were in the 80s; if unions are the problem, why are heavily unionized countries like germany & the nordic countries so successful & civilized? (see the chart again)...not a week goes by where i dont have a handful of links about a number of schoolteachers being cut in one district or another...im starting to think that the plutocracy understands all too well the implications of the depletion of our energy & other resources, and their thinking is that the rest of us are consuming too much, so they'd like to drive us all to a level where we will only be useful insofar as they need a population of illiterate gophers to support them & their offspring in the style to which they have become accustomed...it may be helpful to recall what life was like before labor unions and big government ....& like sheep, we're on our way back there...

the reason for the tenfold increase in ECB emergency lending i mentioned last week was revealed to be by irish banks, & there was an article by martin wolf in the FT that ireland would need more help with its debt than it's received so far; both irish and portuguese debt remained at crisis levels, as portugal is facing a major rollover, at which time it's likely they will become the third european country to need a bailout, although that need may fall on deaf ears after merkel's party was crushed in a german regional election; italy also became a target this week, with bond yields blowing out, because of their exposure to tunisia & libya, supporting gahdafi until the last minute as their largest bank, unicredit, is 7.5% owned by libyan investors; also, egypt asked for britain's help in getting debt relief from the EU and a 24hr nationwide strike shut down greece again...

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...

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...

Monday, February 14, 2011

notes on the week ended Feb 12th

last week i mentioned the census figures on the number of vacant homes (18.4 million) and this week we got some numbers on those that are occupied but otherwise having mortgage trouble; there are currently 6.9 million homes owned & occupied where the owner has not been paying on the mortgage; 2.2 million of those are in the process of being foreclosed on; moreover, of those in foreclosure, they've been in that process without paying for an average of 507 days...considering that to be an average, it seems almost certain that some homes have even been in limbo since the crisis hit in 2008...what could be going on?  it cant just be the recent robo-signing related moratoriums... it must be that with so many vacant properties already on the market, the banks just dont want to own any more houses; they'd rather have someone living in the house even if they;re not making mortgage payments rather than have it vacant and have it vandalized or have all the copper fixtures and appliances tore out & sold for scrap, which is what's happening in many hard hit locales with rising metal prices...mortgage rates are now at a 10 month high, and marginal home buyers arent shopping anymore...

the other major housing related news was an administration proposal on how to reduce the government's role in Fannie & Freddie, the two government sponsored corporations that are now backing 92% of new mortgages, and have cost us (the taxpayers) over $150 billion so far, with a potential liability to us far greater as more mortgages go sour...the treasury floated a package with three options, and both zandi at moodys and brookings floated ideas of their own which also seem to be given serious consideration...i havent really had a chance to get into the detail, but as the administration plan will be enacted over 7 years i saw to reason to cram on the details, but gauging by market reaction (big rally in bank stock & mortgage insurers), it sounds like it's another sop to the banksters that run the government...

there was a mention in one plan that could put an end to 30 year mortgages, which might be a silver lining...long term debt, be it mortgage or student loans, is just a stealth way to put people into indentured servitude, not much different than the company stores that the appalachian miners ended up owing their souls to...other countries dont have 30 year mortgages; why should people have to go into debt to the banksters for 30 years & be forced to work off the debt?  in what we can now clearly see coming, the people's wages are driven down to below the level needed to service the debt, and the plutocracy succeeds in reducing the people into virtual slaves, which they look to do whenever the prevailing politics change to support such a system of mass debt bondage...the egyptians may be free, but not many americans are...

i imagine a few of you read about or watched the bernanke testimony before the house this week, or you may have otherwise heard that when challenged on inflation by the congresscritters, he testified that the Fed believes inflation is too low; the same story was reiterated by other Fed presidents in speeches later in the week; if you're confused by that & think inflation is already getting out of hand, its because you're spending too much of your income on eating, gasoline and heating...to avoid inflation, you should be spending much more on furniture, appliances, entertainment, electronics and new cars, and borrowing more to do it...

with the temporary resolution of the crisis in egypt, the price of oil in the US backed off its high, but not until after the spread between the price of WTI in the US and Brent in europe hit a record $16...the given reason that oil is so much lower here is excess supplies at the main pipeline terminal in Cushing OK, but ive got a feeling there's something more afoot here...recall, a couple years back the Saudi's stopped pricing oil in WTI and went to brent as a benchmark, saying the the US markets were being manipulated...but ill keep my suspicions about the present situation under my tinfoil hat until i see some evidence to support them...the other "oil" news you may have heard was of the release of wiki-cables alleging that the saudis have been inflating their reported reserves by 40%, that their production might peak in 2012, and they're in no position to pump more oil to hold the price at these levels...it may have been news to MSM, but many oil analysts had already reported on that suspicion years ago, and given that OPEC members have an incentive to over-report reserves to allow them a larger sales quota any such official numbers should be considered suspect...

in other commodities, corn, cotton and some grades of coffee all hit new highs this week, and wheat prices stayed near the same elevated level as the UN food agency warned that severe drought conditions continued in 42% of the wheat growing regions in China, the world's top wheat producer...as china is typically self sufficient in wheat, any shortfall there that brings them into the international markets could spell trouble for countries without their buying power...& even in iraq, which can buy, supply & distribution problems there has caused their flour price to triple...there are still some blaming the commodity price spikes on speculation driven by US monetary policy, but if you recall when i first wrote about QE2, this round of QE is only 1/3 the size of the first round, at which time prices were falling...and at this point, QE2 is just over half done, with only about $320billion of treasuries purchased so far...on the other hand, 4 of the top five producers of export wheat, russia, canada, australia, and the ukraine, have all experienced weather related crop shortfalls...the demand isnt driven by speculators, but by end consumers, as in seeing what has happened in egypt & the other arab countries has led governments across the globe to buy and stockpile more grain than they normally would...even mexico, where the average family spends 22% of their income on food, & corn and wheat are a large part of their diet, is at risk as their oil revenue declines in the face of depleted oilfields...

australia continues to look like hell on earth, as even with the southeast & northeast quadrant still flooded, NewSouthWales, the east central area, is experiencing a record heat wave, and the abnormal humidity has given rise to a plague of super-locusts devouring everything in their path...and it isnt just australia's crops hit by flooding; the UN food agency says parts of Botswana, Lesotho, Mozambique, Namibia, Zambia, Zimbabwe, South Africa and Madagascar are now underwater, right in the middle of the growing season, with the normal rainy season only half over...but in another part of the southern hemispere, the second amazon "drought of the century" has left so much vegetation dead that instead of being a carbon sink, decaying plant matter will likely result in more CO2 being released there than the US emits in a year of fossil fuel burning...

and just when we thought we could ignore europe for a while, the crisis there is back again, as portugal's borrowing costs rose to a record 7.64% for the ten year, and the ECB was forced to step in & buy their debt for the first time in over 2 weeks in an attempt to stabilize the markets, which havent been helped by bundesbank president Axel Weber's sudden withdrawal from apparent succession to head the ECB, leaving the future central banks leadership in limbo...meanwhile, the chairman of anglo irish said the Irish banks are gonna need another $68 billion bailout to clean up their balance sheets; it seems like the banks there have been engaged in the same kind of "mark to fantasy" accounting for their toxic assets, which means that just like in the US, non-performing loans & bundled securities are still being valued as if they property backing them had not declined in value...so far, since their crisis started, irish citizens have moved €110bn of their funds out of the country, an amount equal to 60pc of gross national product...spain seems to be getting the message, ordering their "cajas" to raise teir 1 capital to 10% before the nationalization planned for later this year...and under the eurozone imposed austerity, greek unemployment rose to a record 13.9%...

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...

Friday, February 11, 2011

the richest people on earth

Mali: a gift economy

Mali, Africa is one of the poorest nations on earth, in materialistic terms….but their cultural belief is that by giving, you will also be given to and be taken care of…so hoarding of possessions is frowned upon, & people only keep what they need…they believe in constantly giving to their neighbors, with no immediate expectation of return….

Tuesday, February 8, 2011

notes on the week ended Feb 5th

oh boy. we had an unemployment report out this week, and the divergence between the employer survey & the household survey was so great i even hate to quote the senseless numbers, but ill try; total payroll jobs added were only 36,000, not nearly the 125K or so needed to keep up with new entries to the workforce...yet the unemployment rate, taken off the household survey, dropped from 9.4% to 9%, due to a 504,000 reduction in those who count...this was the second month in a row its diverged like that, so it cant even be written off to correcting statistical noise...it has taken me a while, but im now fully convinced that the government percentages of unemployed that i have been dutifully reporting and deconstructing are totally meaningless...they can get any percentage unemployment they want if they shrink the denominator enough…i'll just give you a bunch of links to various takes on the report, and not comment on it further...i do, however, want to call your attention to something that's almost been totally glossed over in the reports...Percent Job Losses
 During Recessions

before the report came out, there were a few mentions that there would be an annual benchmark revision to the establishment survey to correct for errors that accumulated in the monthly reports over a years time...this correction relates to the "birth-death" model they uses in that survey, where the BLS estimates job creation or destruction based on the filings of new incorporations...companies which are too new or too small don't get counted in the monthly surveys, so they correct once a year to cover for the accumulated errors in their reports from the previous march to march period...so the total employment reported for last march was revised downward by 378,000, and the year end number down by 452,000...bill mcbride at calculated risk had produced the adjacent chart showing an estimate in a discussion of this a week before the report here: BLS Employment Revisions on Feb 4th, but if you click on that chart for an enlargement now you'll see the benchmark revision has been totally whitewashed out, not just on his chart but virtually by everyone else who's discussing longer term changes... everyone else is quoting friday's report as if the revision never occurred... when this revision was announced last year, it was big news; even bloomberg produced interactive charts to show how many jobs disappeared in the revision here: Birth Death Model Insights...but this year you do a google news search on it and all you get are articles such as birth & death certificates in india... the bottom line is that we've actually had less employed than we thought we had, that we have not even been adding enough jobs month to month to keep up with the increased number of young people entering the work force, and as a result the % of americans of working age who are working continues to shrink, & the hole is getting deeper...

the census bureau reported the 4th qtr home ownership rate this week, and after a 2nd record year for for foreclosures, it should be no surprise that home ownership is at a 12 year low....of course, since we had a massive home construction boom going before the crisis, that rate means 18.4 million homes are sitting empty, or about one in every nine homes in the US...ever wonder what's wrong with a country where there are multiple families crowded into a house together or homeless are living in tents near a row of vacant houses, or why so many people are still jobless while the infrastructure continues to crumble?

i found & saved the adjacent chart a week ago, & i dont even recall where i got it; but it’s relevant to a situation i’ve been covering for over a year & mentioning more recently as the federal stimulus to the states has run out…almost every state is facing some kind of budget hole, as are most of your cities and counties...how these will be addressed in each case is different, & there have been links to various national & local articles ongoing in these packages almost every week; the cuts to police & fire, state medicaid, education, etc. all fall under this...this coming year states & municipalities will now have to cover for the expiring stimulus amounts: state fiscal relief $79 billion; school district aid $41 billion; state and local law enforcement $4 billion; & infrastructure $31 billion...to put those amounts in perspective, pay on wall street was announced this week, and it broke a record last year, hitting $135 billion...

accompanying the talk of layoffs is a continued talk of how to allow the states to go into bankruptcy and still bailout the banks & other investors in municipal debt...what they want to achieve is a way to break the pension contracts with teachers, police, fire, garbage collectors, snowplow drivers & what have you without the investors taking a hit...the reason the pension plans are in trouble is because the financial planners have been overly optimistic about returns; the median expected investment return for the top 100 U.S. public pension plans remains 8%, and noone wants to bite the bullet... so you're going to hear a lot of politicians threatening tax increases & bashing public employee unions and siting extreme examples of administrators retiring on 6 figure incomes in order to sway public opinion to allow for the workers to be cut off...dont be fooled; this is all part of the larger plan to pit the little people against each other so the banks & wealthy investors can keep getting a increasingly bigger piece of the remaining pie...

in a related manner, muni-bond prices continued to plummet for the 7th week running, & someone in congress is blaming this on Meredith Whitney, who went on 60 minutes in mid december & predicted municipal bankruptcies, so she's being called before a house committee to testify as to how she arrived at her call...its more political bullshit; mark zandi, chief economist of Moodys, was warning of the same over a year ago...

new high prices in commodities were back in the news this week, largely on the back of the unrest in africa & the middle east; corn & soybeans hit 30 month highs, rice buying as a replacement for low wheat stocks drove its price to a 27 month high, sugar hit a 30 year high as another storm of the century demolished the aussie cane crop, cotton had another run of new highs, copper hit $10,000 a ton for the first time ever, up 60% since june, and oil hit new cycle highs in new york & london...

of course, the revolution in egypt and other arab countries has been in the news all week; i dont cover the play by play, the politics, or the geopolitical consequences for my blog, & im sure even live news sites such as the al Jazeera English site are inadequate in a fast moving situation...those involved in a revolution do not have time to take notes or document what they're up to, it all moves too fast...the food-shortage articles  related to this situation are included on GGO as part of regular commodity & environmental coverage...

everyone wants to believe this is some affirmation of democracy and/or self rule by the arab underclass, some kind of reaching by the masses for a better life...but if it were only about trying to throw off the yoke of the aristocracy, it would be more likely to happen here, because Inequality in the US is worse than that in Egypt, Tunisia Or Yemen ...i think it much more basic than that...upheavals in both tunisia and eqypt started with individual self-immolations in protest of high food prices; food is half a household budget in those countries...the price of wheat is up over 80% since the summer, and egypt is the world's top importer of wheat...bread coupon distribution broke down in egypt before the demonstrations started...i've seen maybe 10 articles over the past couple weeks where a country name & food protests or food riots are mentioned together in the headline...kuwaiti authorities saw the threat and with their wealth, announced they would distribute free food for 14 months, and dole out $3572 to every citizen; the qatari citizens now want the same...there have been riots in algeria with chanting "give us sugar"...prices of onions in india have tripled recently, & the cabinet met in an emergency session...chili peppers had a 5 fold increase in indonesia, chilis being the staple there, & its price rise is being blamed on bernanke...bernanke had a rare press conference this week and was asked about that; he said it wasnt his fault & for once i agree with him...in my mind, i can see that this began with the fires & drought in russia this summer, that destroyed 1/3 of their wheat crop, followed by weather related damage to wheat in pakistan, canada & most recently australia...(there was a charge that european speculators squeezed russia into breaking contracts with egypt, but the crop shortfall remains nonetheless)...sure, mubarek is a thug, but mubarek could have been mother theresa and the the people would have still been in the street if they couldnt afford the basic foodstuffs... if the US holds any culpability, its because 170 million tons of our corn is being diverted to ethanol, which enough to feed 330 million people at what the UN considers a sustainable level...blame the congressmen who are collecting the big contributions from agribusiness to keep that uneconomical policy in place...

there was an unusual exchange between several of the top economists on kitchen improvements since the fifties this week, when Paul Krugman and Tyler Cowen started the debate with a couple of posts discussing the issue of technological progress; i didnt catch them all but here's a few more: The Kitchen Table & The Economics of Kitchens - this brought to mind some advertisements i saw when i was a kid, so i did a search and came up with a video from the fifties, wherein the kitchen of the future would run itself with no hands... 

Average (Mean) Duration of Unemployment (UEMPMEAN)

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...

Monday, February 7, 2011

running on fumes…

(first in a series from the nation)

from: Peak Oil And A Changing Climate - The scientific community has long agreed that our dependence on fossil fuels inflicts massive damage on the environment and our health, while warming the globe in the process. But beyond the damage these fuels cause to us now, what will happen when the world's supply of oil runs out? Peak Oil is the point at which petroleum production reaches its greatest rate just before going into perpetual decline. In “Peak Oil and a Changing Climate,” a new video series from The Nation and On The Earth productions, radio host Thom Hartmann explains that the world will reach peak oil within the next year if it hasn’t already. As a nation, the United States reached peak oil in 1974, after which it became a net oil importer. Bill McKibben, Noam Chomsky, Nicole Foss, Richard Heinberg and the other scientists, researchers and writers interviewed throughout “Peak Oil and a Changing Climate” describe the diminishing returns our world can expect as it deals with the consequences of peak oil even as it continues to pretend it doesn’t exist.

go here to watch the other videos in the series…

Thursday, February 3, 2011

notes on the week ended Jan 29th

just some brief notes, cause i was a wreck most of last week, and im still just going thru the motions...on tuesday the 25th i was informed that my close friend & co-conspirator, Dr. Alison Snow Jones, who blogged as Maxine Udall (girl economist), had died suddenly the week before...some of you know of her, but for those of you who dont, here's her blog: Maxine Udall (girl economist) - the top post is the blog death notice; the remaining posts are hers; there's also a memorial page at Drexel University, where she taught...steve randy waldman put together a nice selection of excerpts from her writing here: Alison Snow Jones...she had also recently started a blog for her other writing, Maxine's Creative Writing, but only had 4 posts up at the time of her death...

you may have heard the 4th quarter GDP came in at a respectable 3.2% annualized growth rate, the best growth since the recession started...but as usual, there is a caveat in that number; economists surveyed by bloomberg had expected a 1.6% deflator to be applied to it to adjust for inflation, but the number reported by the bureau of econ analysis only had a .3% deflator applied to it, so if the bloomberg survey deflator had been applied, the reported GDP would have been nearly cut in half...

in preparation for the political hot potato of the debt ceiling artifact approaching in march, the treasury is suspending its Supplementary Financing Program (SFP), by which it provides liquidity for Fed balance sheet operations; that amounts to $200 billion of short term notes that wont be rolled over, and as the Fed has other vehicles to provide itself liquidity for operations...there is a real disconnect as this ceiling approaches; on one hand, the GOP-obama tax cuts will cause the the deficit this year to balloon to $1.5 trillion, yet on the other hand, conservative senators are introducing a balanced budget amendment to coincide with the debt ceiling fight in the house...THE US HAS NO FISCAL POLICY, much less a sane one; its all disgusting mindless political posturing with no insight or foresight...

the report of the FCIC (financial crisis inquiry comm.) was released this week and in general didnt tell us anything we didnt know already, although with 1200 some documents and 2 dissenting views by members who couldnt agree as to the cause (remember when the republican members walked out after their attempt to ban the phrases “Wall Street” and “shadow banking” and the words “interconnection” and “deregulation” from the panel’s final report?) im sure there are a lot of minutia no one knew before...i am including a link to Lambert Strether's version, because the report as released is not searchable, and he pulled it apart into 1147 separate named & useful links...there were also a couple dozen different takes on it in the media you can find links for filed with "banks & banksters" on this weeks blog post...

the case shiller housing price index was out this week, and as i explained last time, it lags quite a bit; this time the data from the 3 months ended november showed a one month decline of .5% and a YoY price decline of 1.6%; so home prices are now 31% off the peak and the price declines seem to be accelerating again, and spreading to cities previously less affected...

you may have noticed over the past few weeks that i was quoting contracts on different varieties of crude at what seemed to be wide difference in price; i didnt know or understand it at the time, but in fact some of those spreads have recently hit records, and one of the reasons was revealed this past week; a unit of Hess petroleum had taken the first 8 north sea cargoes, and the first 2 brent for delivery in february...thats out of a typical 25 forties cargoes per month, so there was something of a squeeze in brent, while west texas intermediate (WTI) inventories were building in OK & TX over the past two weeks...of course, what is now happening in egypt, and its possible impact on suez shipping, now far outweighs any other market constraints or considerations...a lot of the world has been blaming the arrogant US monetary policy for the food inflation that first started these north african riots several weeks ago, but as ive pointed out, much of the wheat crop loss is weather related, and using 40% of our corn crop to produce economically irrational ethanol hasnt helped either...there are a considerable set of links in this weeks GGO to food related stories, including russian price controls, and governments from india to indonesia entering the market to buy stockpiles of rice and wheat...

there wasnt significant crisis news out of europe this week, but negotiations over increasing the size bailout package and hand ringing over 2% inflation continued & bloggers continued to write about it, so i've got a couple dozen articles linked at the end of this weeks post, if you're interested…and if you have interest in the meetings going on between the high-rollers at Davos, they are being lived blogged on this site World Economic Forum; for the most part, i didnt link to any of the articles from there either...

last week i mentioned that hudson bay in canada was still mostly ice free, and that greenland's melt season had continued 50 days longer than normal, and i want to follow up with some additional thoughts on that situation here; the best way to understand what has happened this winter is to think about what happens when you open your refrigerator; the cold air spills out on the floor, and warm air enters the top; that is analagous to what has happened over north america this winter, and, exacerbated by the el nino, last winter as well...the adjacent map is that of the temperature anomalies for north america covering the period from mid december to mid january; you can note from that that large parts of baffin island, between greenland and canada proper, had a temperature exceeding 21C, or about 38F above normal, averaged over the entire month, an amazing amount to be sustained over an entire month…additional large parts of the canadian tundra were well over 10C above normal...there's two problems i see here that this condition will exacerbate; first, we know that large amounts of frozen methane, a potent greenhouse gas, is frozen in the permafrost and is released when the permafrost thaws; by not freezing deeper this winter, it sets us up for a summer when this methane feedback accelerates...similarly, the east siberian ice shelf, which i posted about last spring, has methane-hydrates frozen at high pressures on the seabed floor, and as the water warms, it thaws & methane bubbles into the atmosphere, and east siberia has also been moderately warmer this winter...although overall not as important a greenhouse gas as CO2 because it's quantities are a magnitude less, it's increased presence in the atmosphere is accelerating more rapidly than CO2 is: pre-industrial CH4 was about .7 ppb and its now at 1.8 ppb...the other problem relates to the ice loss from greenland; the melt has been accelerating exponentially and is now twice what it was a recently as 2002; if one could take all the ice that had melted off greenland this past year and put it on top of new jersey, it would cover new jersey with 257 feet of snow...

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...