The Housing Bubble

A whole lot of people and ‘experts’ are hanging their hopes on 2010. I believe they are in for a bitter disappointment.

Problem mortgages hit new high at 14 percent
Data mean foreclosures may not peak until next year.
Washington Post ~ November 20, 2009

More than 14 percent of borrowers were in trouble on their mortgage during the third quarter, a new record, according to an industry survey released Thursday, which also suggests that the foreclosure rate is likely not to peak until next year as unemployment rates continue to rise.

Unemployment remains a big driver of the problem, according to the Mortgage Bankers Association, which conducts the survey. Those with delinquent loans now include a growing portion of people traditionally considered creditworthy and people whose mortgages are insured by the Federal Housing Administration.

“The outlook is that delinquency rates and foreclosure rates will continue to worsen before they improve,” said Jay Brinkmann, the group’s chief economist.

About 9.6 percent of borrowers were delinquent on their mortgage during the third quarter, according to the survey, and another 4.5 percent more were somewhere in the foreclosure process. Overall, about 14 percent of mortgage loans or 7.4 million households were delinquent or in the foreclosure process during the quarter, according to the group.

That is the highest level recorded by the survey, which has been conducted since 1972, and is up from about 10 percent of borrowers who were in trouble during the same period last year.

“Data mean foreclosures may not peak until next year.”

Next year, eh. How about the year 2011; that’s when the mortgage reset chart peaks out.

Google-up “mortgage reset chart” and see for yourself. Therin lies a picture that’s worth a thousand words.

Senate blocks Udall-backed credit card rate freeze.
Denver Business Journal

Legislation supported by U.S. Sen. Mark Udall and others to freeze interest rates on credit cards until new regulations take effect in three months has effectively died in the U.S. Senate.

Udall, D-Colo., was a key sponsor of the measure, aimed at preventing credit card interest-rate and fee increases until an already-passed set of credit card rules that Udall also backed takes effect in February.

But Senate Republicans Wednesday placed a hold on the freeze measure, effectively killing it. Lawmakers also are faced with a looming debate over health-care reform that may push most other matters aside for now.

Udall said the new measure was needed to prevent credit-card issuers from “gaming the system at the expense of American consumers” by racing to boost fees in advance of the new regulations.

“The last thing American families need is higher interest rates and extra fees, especially consumers who are already playing by the rules,” Udall said in a statement. “I have a petition on my website telling credit card companies to stop these unfair practices, and over 18,000 Coloradans have signed it. Clearly, they’ve had enough. I’ve had enough, too.

ABC News’ Jonathan Karl reports:

What does it take to get a wavering senator to vote for health care reform?

Here’s a case study.

On page 432 of the Reid bill, there is a section increasing federal Medicaid subsidies for “certain states recovering from a major disaster.”

The section spends two pages defining which “states” would qualify, saying, among other things, that it would be states that “during the preceding 7 fiscal years” have been declared a “major disaster area.”

I am told the section applies to exactly one state: Louisiana, the home of moderate Democrat Mary Landrieu, who has been playing hard to get on the health care bill.

In other words, the bill spends two pages describing would could be written with a single world: Louisiana. (This may also help explain why the bill is long.)

Senator Harry Reid, who drafted the bill, cannot pass it without the support of Louisiana’s Mary Landrieu.

How much does her vote cost? According to the Congressional Budget Office: $100 million.

NJ Resorts casino gets OK to give keys to lenders.
NJ’s Resorts Atlantic City, 1st US casino outside Nevada, to surrender keys to its lenders.

ATLANTIC CITY, N.J. (AP) — America’s first casino to open outside Nevada got permission Thursday to hand itself over to its lenders because it can’t pay the mortgage.

Resorts Atlantic City hammered out a deal with its lenders to let them own the casino in return for canceling nearly $381 million in debt. The lenders, including Wells Fargo, have formed a new corporation called RAC Atlantic City Holdings LLC, which was approved by the state Casino Control Commission as the casino’s new owner with a one-year license.

The deal, the first of its kind in Atlantic City’s 31-year history of casino gambling, would close in 10 days.

On Wednesday, Resorts, whose gross operating profit fell nearly 80 percent in the third quarter of this year, revealed it owes nearly $337 million more than it has.

Meredith Whitney Says Bank Stocks Are ‘Grossly’ Overvalued.

(Bloomberg) — Meredith Whitney, the analyst who has no “buy” recommendations on U.S. banks, said valuations on lender stocks are too high and what “scares” her most is the government stepping away from buying mortgage-backed securities.

“The banks are still grossly overvalued,” Whitney said today in an interview on Bloomberg Radio. “People are expecting something great to happen in 2010 and I think they are going to be severely disappointed.”

The Federal Reserve has begun slowing purchases in the $5 trillion market for so-called agency mortgage-backed securities after announcing in September that it would extend the timeline for its $1.25 trillion program to March 31 from year-end. Whitney said that banks are only originating home loans that they can sell to Fannie Mae and Freddie Mac.

“If Fannie and Freddie can’t sell to an end buyer, i.e. the U.S. government steps back, the mortgage market at minimum contracts, rates go higher, and banks are poised with more writedowns,” said Whitney, founder of Meredith Whitney Advisory Group. “This is probably the issue that scares me most across the board.”

Hawaii Sees 2009’s Biggest Layoffs Thursday.

HONOLULU — More people in Hawaii lost their jobs on Thursday in one day than any other day this year as part of the state’s layoffs.

It was the largest mass layoff of the year in the public or private sector.

There were 452 government employees laid off to help close the state budget deficit.

Brent Anbe is one of the 452.

“I am really sad because I have been here for over five years and I truly love my job here,” Anbe said.

Anbe is with the State Film Office. His business cards were upside down, a sign he said of his distress.

Only two of the original eight film office employees remain. The office’s functions have been taken over by the Creative Industries Division.

Anbe got permits for most TV and film productions in Hawaii.

“It will be a huge learning curve I think for the new people who have to step in to learn our job. They have no experience,” Anbe said.

Anbe said he will now concentrate on getting “Ajumma,” the award winning film he wrote and directed, into film festivals.

His fellow worker Kevin Inouye was also laid off.

In spite of all this, employees in the film office are still hoping their jobs could be revived by a legislative appropriation next year.

Jeremy Low of the state’s Language Access Office is no longer employed.

Three other employees are also gone. Now, only one worker is left to do the job of five originally in the office.

Latest “Disastrous” Housing Data Shows Homebuilders are Hopeless.
By Rocky Vega

11/19/09 Stockholm, Sweden – October housing starts fell almost 11 percent. Mortgage applications have collapsed to a record 12-year low. Foreclosures are increasing the stock of homes to be sold at a pace of 300,000 per month. Unemployment at 10.2 percent is not supporting home purchases, especially when rents are also decreasing. What’s left?

Well, the government is trying to help… which is usually a bad sign. The Federal Housing Administration right now has an insurance reserve ratio of just 0.53 percent. Robert Toll of home builder Toll Brothers recently referred to the FHA as a “definite train wreck.”

The government is also supporting the housing market with the $8,000 first-time homebuyer tax credit. It’s been expanded to include previous homeowners and extended until March. Unfortunately, it’s an even bigger fiasco than Cash for Clunkers. Most homebuyers using the credit would have needed to purchase a home anyway, so each additional house sold through the program may just be costing the government about $43,000.

There are very few bright spots in housing, which Barron’s describes as getting a “disastrous batch of data”. The article also goes on to say…

“Even with housing affordability the highest in years from low mortgage rates and reduced home prices, there’s little reason to expect a revival in homebuilding as long as the inventory of unsold houses and foreclosures remain high, credit is tight and unemployment is in double digits.

No Dope: Ft. Lauderdale Man to Smoke 115,000th Joint
Who says Irv Rosenfeld can’t get stoned? Constantly.

When you think of the world’s most prolific pot smokers, certain names come to mind: Snoop, Cheech and Chong, Willie Nelson.

How about Irvin Rosenfeld?

The 56-year-old Fort Lauderdale stockbroker will put his name among the greats when he sets a world record tomorrow for weed consumption while lighting up his 115,000th joint.

The best part is that it’s all legal.

“Yep, provided by Uncle Sam,” Rosenfeld told NBCMiami.com. “They grow it for me, I find that quite ironic.”

Rosenfeld’s pot has been provided by the government since 1982, when he became a patient in the Federal Drug Administration’s Investigational New Drug Program. Grown on a farm on the campus of the University of Mississippi, the weed is delivered to a local pharmacy where Rosenfeld gets it by the bushel.

Rosenfeld suffers from a rare bone disorder called multiple congenital cartilaginous exostoses, which causes severe pain, alleviated by a healthy dose of ganja.

He’s been getting 300 joints every 25 days for the past 27 years, and said he smokes between 10 and 12 per day.

“The first thing I do every morning is smoke two joints as I watch my business shows,” Rosenfeld said. “Then another on my drive to work.”

Private mortgage insurers are killing a lot of short sales by asking the sellers to sign unsecured notes. If you’re going after a short sale, make sure the seller doesn’t have PMI or is willing to sign the note. Otherwise, it’s a waste of time.

“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”

Yes - we still have insanity. A broke dude from Boston buys a million dollar house in SF with no money down thanks to “Hope and Change.”

www dot nytimes dot com/2009/11/20/business/20limits.html?pagewanted=1&_r=1&ref=business

Tracking Your Taxes: Americans Spend Millions for Environmental Groups to Sue the Government.
~ FOXNews.com

American taxpayers are being forced to fund thousands of lawsuits filed against the federal government by environmental organizations — with their lawyers clocking thousands of hours and charging fees of up to $650 an hour.

The U.S. government hands out millions of dollars each year to various environmental organizations to help protect fish, wildlife and other aspects of the environment. And every year, those same groups spend millions suing the government over everything from forest policy and carbon emissions to water quality and wolf habitats.

When the CIA failed to replace 30 percent of its fleet with hybrid cars, the Arizona-based Center for Biological Diversity sued because “its members and staff are impacted by the health effects of oil production,” according to the filing. And when the U.S. Fish and Wildlife Service failed to review the status of slick-stop pepper grass, the group ran up $200,000 in legal bills.

Who paid the attorneys fees? The American taxpayers did.

In the lucrative world of environmental law, the biggest defendant is the federal government, and taxpayers foot the bill. The nation’s ten largest environmental groups have sued the government more than 3,000 times in a nine-year period, according to legal fund the Western Legacy Alliance, an Idaho-based legal fund that defends ranchers and farmers.

“The federal government is paying environmental groups to sue the federal government,” Karen Budd-Falen, a former government official and an attorney in Cheyenne, Wyo., affiliated with the Western Legacy Alliance. “Taxpayers are paying for litigation, but not over substantive but procedural issues.”

Procedural issues pertain simply to instances in which the federal government missed a deadline or lost the suit on a technicality, as opposed to substantive issues that are argued before a judge and require a ruling on a dispute or question.

In most legal cases, each side pays their own legal bills. That is not the case, however, when nonprofit, public interest groups sue the federal government.

U.K. Housing Market May Not Recover Peak Until 2014.

Nov. 20 (Bloomberg) — U.K. house prices will probably fall next year, and it may take until 2014 to return to the levels at the 2007 peak of the country’s biggest housing boom, according to a Bloomberg survey.

Nine of 14 economists and real estate brokers surveyed said they foresee a decline in 2010 after a surprise rebound this year. They predict an average drop of about 1.6 percent, with estimates ranging from a loss of 10 percent to a rise of the same magnitude.

“The market is still overvalued, whichever measure you use,” said Seema Shah, a housing economist at Capital Economics Ltd., a research group in London, who was the most bearish in the survey. “Prices need to fall a further 20 percent to 25 percent to get back their long-term trend.”

A 7 percent gain in average prices since April was driven by a shortage of properties for sale and won’t be sustained, according to Shah. Most survey respondents said they don’t think the rally can last while Britain’s longest recession on record fuels unemployment and makes banks reluctant to lend.

“What is needed is a full audit of the Fed, something that has never happened. We need to know who the Fed is giving money to, what types of securities are being purchased and what backs those securities, how much money is being paid for those securities, etc.” ~Rep. Ron Paul

~ Rep. Paul has been pushing for this since 1980. The proposal is finally getting some traction. Tell your representatives in Washington to support it.

A lot of people are bad-mouthing the United States these days, including a substantial number of Americans. But what should be done to get the Ship of State under way once more? ~ Victor Davis Hanson offers this:

“The United States needs to re-establish itself as financially credible and responsible so that when we lecture ‘about everything from global warming to Iranian nukes’ we do so from a position of strength. That means we need to stop borrowing other nations’ money.

“America also can’t afford to keep importing high-priced oil that we won’t produce at home. And we should stop promising ever-more government entitlements to ever-more voters that we can’t even begin to pay for.

“For as we continue in our self-indulgence, a more defiant world seems to be saying that the old rules of the game have changed. In response, America should keep quieter abroad and try finding a bigger stick.”

Japan’s Latest Economic Ailment: Deflation
By Coco Masters Friday, Nov. 20, 2009

Pedestrians are reflected in a window in front of an electric quotation board displaying the Nikkei key index of the Tokyo Stock Exchange in Tokyo.

During his Nov. 13 visit to Tokyo, U.S. President Barack Obama emphasized that Japan, as the world’s second-largest economy, has a special role in the global marketplace. One week later, it’s becoming clear the country may be special for another reason. While much of the rest of the planet frets about a coming rise in inflation — a consequence of economic recovery, massive stimulus spending and a weakening dollar — Japan faces the opposite problem: a potentially devastating bout of deflation.
…

More members of middle class file for bankruptcy. ~USA Today.

Staci Schubert’s career has taken her from New York to California, from graphic designer to website designer to sales executive. Most recently, she launched a business as a designer of handbags and accessories.

At 40 and with such accomplishments, Schubert is Middle Class America. She and her counterparts have long been the nation’s backbone, because their steady jobs and purchasing power have helped drive our economy.

But Middle Class America has two faces, a new study shows. Schubert is that other Middle Class America, too.

After earning $275,000 annually, Schubert used most of her savings to start her business in 2003. The earliest days of the recession in 2007 slowed sales, and she fell behind on business and personal bills. Credit card debt reached $65,000.

She tried to find a full-time job without much luck, because the job market was saturated. Temporary freelance design work couldn’t cover her bills.

So in January 2008, she filed for Chapter 7 bankruptcy, becoming one of nearly 1.1 million consumer filers that year.

Zandi is predicting another 10 percent drop in home prices for next year. I thought Dough-4-Dumps was supposed to make sure real estate starts going up again?

Foreclosures to persist in 2010
More people with good credit get hit

THE ASSOCIATED PRESS • November 19, 2009

WASHINGTON — The foreclosure crisis likely will persist well into next year as high unemployment pushes more people out of homes, pulls down housing prices and raises concerns about the broader economic recovery.

The latest evidence was a report Thursday that a rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure. That’s a shift from last year, when riskier subprime loans drove the housing crisis.

The report from the Mortgage Bankers Association also found that 14 percent of homeowners with a mortgage were either behind on payments or in foreclosure at the end of September. It was a record-high figure for the ninth straight quarter.

The data suggest the housing market and the broader recovery will remain under pressure from the surge in home-loan defaults, especially as unemployment keeps rising. Lost jobs are the main reason homeowners are falling behind on their mortgages.

After three years of plunging prices, the housing market started to rebound this summer. That lifted hopes for the overall economy. But analysts say there are too many foreclosed homes that have yet to be dumped on the market and expect further price declines.

Among states, the worst damage is still concentrated in the states hardest hit from the start: Florida, Nevada, California and Arizona. Together, they accounted for 43 percent of new foreclosures.

One in four mortgages in Florida were either past due or in foreclosure, the most in the U.S. Nevada was close behind at 23 percent.

“There’s no indication in this data that foreclosures are going to abate anytime soon,” said Mark Zandi, chief economist at Moody’s Economy.com, who projects that nationwide home prices will fall up to 10 percent before bottoming next fall.
…

CityCenter could make — or break — Las Vegas
Largest privately-funded construction project in U.S. history nears opening.
LAS VEGAS (MarketWatch) — Well, they built it.

CityCenter — also known as, “The Thing That (Almost) Ate MGM Mirage” — is getting ready to open its first phase in just a few weeks. A big concern is whether it will mark another successful expansion of the Las Vegas Strip or merely dump lots of new capacity onto a city where hotels have been begging for guests in the economic downturn.

Jim Murren, the chief executive of MGM Mirage and the driving force behind the massive $8 billion-plus mixed-use project, is calmly confident that not only will CityCenter boost his company’s vacillating fortunes but it will also give the whole area a lift.

“Wall Street is talking about cannibalization [but] we will know soon enough whether we’re correct in our premise that City Center is the most unprecedented marketing tool that a gaming company has ever had to increase business activity at resorts we already own,” he said in an interview an employee cafeteria deep within the gleaming towers of glass.

“This is the counterpoint to the concern that CityCenter may grow the market but at the expense of properties which are already here,” he said.

He projects that CityCenter alone could increase visitation to Las Vegas by 5% to 10% next year, all without taking away from the company’s other properties. Business for the convention center is brisk, Murren said, adding that “we have booked every single of one” of the dozens of meeting planners who have come to see the facility.

CityCenter is a joint venture between MGM Mirage and Dubai World.

From across the Atlantic comes news that France’s Société Générale has advised clients to be ready for a possible “global economic collapse” over the next two years. The bank is mapping a strategy of defensive investments to avoid wealth destruction.

This dispatch come from Britain’s popular gloomster Ambrose Evans-Pritchard says that under the French bank’s “Bear Case” scenario, the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.

~Surely Washington’s monetary brain trust would not allow anything like this to happen. On the other hand, they’ve done a bad job of staving off the present crisis and seem to have lost their way.

More jobs heading to Asia…

LM Glasfibre to cut 900 jobs at European factories.

LM Glasfiber, the Danish maker of rotor blades for wind turbines, announced it will slash as many as 900 jobs at its manufacturing facilities in Denmark and Spain.

The company explains that it can no longer remain competitive without shifting the bulk of its production to Asia.

Some 700 of the job losses are set to come at two facilities in Denmark. Chief operating officer Iain Gow says the job cuts are motivated by increased competition across the wind industry and a steady shift in demand for turbines to markets outside Europe.

“We need to increase capacity where there is a high demand and high potential, and scale down where demand has dropped due to the global crisis – which is, sadly, the case in Europe,” Gow says.

“Unfortunately, this means announcing plans to phase out large scale manufacturing at two factories in Denmark and one in Spain,” he says. “However, it is a necessary step to allow us to remain the preferred partner for wind turbine manufacturers in the global marketplace.”

U.S. Housing Recovery Delayed to 2010 as Market Wanes (Update1)

Nov. 20 (Bloomberg) — A recovery in U.S. housing will have to wait at least until next year.

The outlook for the home market dimmed this week as residential construction and mortgage applications fell and loan delinquencies reached a record.

“I don’t think the housing crisis is over,” Mark Zandi, chief economist with Moody’s Economy.com, said in a telephone interview. “I think we’re going to see another leg down.”

New home sales may begin to pick up by the start of the so-called spring selling season, said Toll Brothers Inc., the largest U.S. luxury homebuilder. Existing house sales may take longer. Residential construction and property sales led the way out of the previous seven recessions going back to 1960, said David Berson, chief economist of PMI Group, the mortgage insurer in Walnut Creek, California.

Mortgage applications for home purchases fell to a 12-year low last week and foreclosures rose to record highs in the third quarter, according to reports from the Mortgage Bankers Association.

An index measuring November homebuilder confidence came in lower than the median forecast of 45 economists this week. The Commerce Department on Nov. 18 said residential building dropped 11 percent in October to the lowest level since April’s all-time bottom.

‘Challenging’ Conditions

“Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of available homes, increasing unemployment, tight credit for homebuyers and weak consumer confidence,” said Donald R. Horton, chairman of D.R. Horton Inc., the nation’s second-largest homebuilder. The company today reported a fourth-quarter loss of $231.9 million on $1 billion in sales, missing analysts’ estimates.

The $8,000 federal tax credit for first-time buyers, extended by President Barack Obama on Nov. 6, drove existing home sales to a two-year high in September. At the same time, a 26-year high in unemployment is keeping many buyers out of the market and pushing existing owners into foreclosure.

While some businesses here in Salinas are going out of business (Hollywood video) others are booming (Starbucks, Olive Garden and in Monterey, Whole Foods). Went to Whole Foods yesterday (3pm) and the place was packed, price seemed to be no object. Olive Garden on Thursday night was besieged with families of 3-5 kids (Hispanic) and again price did not seem to be a factor. The radio station broadcasting from a local Starbucks said that they usually serve 1500 customers in the morning crowd; pricing is not an obstacle.

Sorry, way OT… But I do love laughing at these global warming kooks!
Now this phantom is forcing women to hook.

‘Climate change pushes poor women to prostitution, dangerous work’
GMANews

The effects of climate change have driven women in communities in coastal areas in poor countries like the Philippines into dangerous work, and sometimes even the flesh trade, a United Nations official said.

Suneeta Mukherjee, country representative of the United Nations Food Population Fund (UNFPA), said women in the Philippines are the most vulnerable to the effects of climate change in the country.

“Climate change could reduce income from farming and fishing, possibly driving some women into sex work and thereby increase HIV infection,” Mukherjee said during the Wednesday launch of the UNFPA annual State of World Population Report in Pasay City.

In the Philippines, small brothels usually pop up near the coastal areas where many women perform sexual services for transient seafarers. Often, these prostitutes are ferried to bigger ships by their pimps.

Based on the UNFPA report, there are 92 million Filipinos in the country as of 2009 and that number is expected to balloon to more than 146 million in the next 40 years.

Of the 92 million Filipinos, about 60 percent are living in coastal areas and depend on the seas for livelihood, said former Environment secretary Dr. Angel Alcala.

Alcala said that “we have already exceeded the carrying capacity of our marine environment.”

LA HBBers and other HBBers in the area:

Don’t forget Saturday November 21 8:30 a.m. we’ll meet for coffee at Starbucks in Torrance at Torrance Blvd and Hawthorne Blvd (across the street from Little Company of Mary Hospital)

21209 Hawthorne Blvd # A
Torrance, CA 90503-5501

Umm…My tax witholding has gone way up (with this week’s paycheck) as I anticipated for several weeks, so I have been buying generic brand coffee beans at Albertson’s & brewing my own. So this will be a rare outing for me!

Another neighbor is leaving the apartment building. Bought a house. Figures might as well take advantage of the $8K. Said he thinks the economy will be in the dumper for a while so he’s going to hunker down.

Our area (Norfolk/Virginia Beach) is still very expensive considering the job opportunities. Anything good paying is likely to be gov’t contract.

I know a lot of people who are buying due to the $8K.

State’s elected officials’ pay to be cut. ~ Sacramento

Legislators and other elected officials in the capital will see their salaries slashed by 18 percent next month under an opinion issued Thursday by state Attorney General Jerry Brown, who decided that officials’ pay can be cut in the middle of their elected terms.

The decision means the state will cut the pay of all 120 lawmakers and nine constitutional officers a year earlier than expected, saving the state $2.8 million next year.

A spokesman for state Controller John Chiang said he will cut the salaries Dec. 7, the start of a new legislative session. Brown is among the officials whose annual salary will be cut, from $184,301 to $151,127.

The pay cuts were approved in May by the California Citizens Compensation Commission, which sets the salaries for elected officials in the state. At that time, the commission was advised by state lawyers that the cuts could not take effect until December 2010 - at the start of a new term.

Chuck Murray, chairman of the commission, said he was pleasantly surprised by Brown’s decision because there had been no discussion of implementing the pay cuts midterm.

“With a $21 billion deficit coming up in January, maybe it’s not enough,” Murray said of the 18 percent pay cut.

LexisNexis closes O.C. office.
November 20th, 2009

LexisNexis Risk Solutions, the online information services provider, will close its Brea office and lay off 70 workers by mid-December, the company confirmed today.

lexisnexisThe company said the closure was part of its efforts to streamline business due to the economic climate. The affected employees received 60-days’ layoff notice and severance.

LexisNexis said the Brea office is one of several across the U.S. that does employment verification and customer service for the company’s background screening services business. The majority of the positions will be transitioned to other employment service center, the company said.

The LexisNexis announcement brings major layoffs in Orange County this year to 13,236.

Valero Energy cutting 550 jobs in refinery closure.

NEW YORK (MarketWatch) — Valero Energy on Friday said it’s shutting down its refinery in Delaware City, Del. in a move that will eliminate 550 jobs. “The decision to permanently close the Delaware City refinery was a very difficult one,” said Valero Chairman and CEO Bill Klesse. “We have sought a buyer for the refinery, but feasible opportunities have not materialized. At this point, we have exhausted all viable options.” In the fourth quarter, Valero expects to report a pre-tax charge of approximately $1.7 billion to $1.8 billion, or $2.00 to $2.15 a share after taxes, related primarily to asset impairment, employee severance and other shutdown costs.

California Was Among States With Record Unemployment (Update1)

Nov. 20 (Bloomberg) — Unemployment rose in 29 U.S. states in October, climbing to record levels in California, Delaware, South Carolina and Florida, government figures released today showed.

Michigan had the highest jobless rate at 15.1 percent, followed by Nevada at 13 percent and Rhode Island at 12.9 percent, the Labor Department said in Washington. The 29 states reporting an increase in unemployment compares with 22 in September.

The national rate last month reached a 26-year high of 10.2 percent, limiting consumer spending and the breadth of the economic recovery. Federal Reserve Chairman Ben S. Bernanke said Nov. 17 that joblessness “likely will decline only slowly.”

“We’re still going to see the unemployment rate in many metro areas and many states rise for quite some time, going into next year,” Marisa Di Natale, a director at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Employers won’t start hiring again until they’re confident the economy has really started to turn around and they’re convinced there’s work for them to do.”

The number of states with at least 10 percent unemployment held at 14 last month. The states reporting a record jobless rate were California at 12.5 percent, South Carolina at 12.1 percent, Florida at 11.2 percent and Delaware at 8.7 percent. The District of Columbia also set a record with an 11.9 percent rate.

Payroll Declines

Payrolls declined last month in 21 states, today’s report showed. New York showed the biggest drop, with a loss of 15,300. Florida had 8,500 job losses, followed by Georgia with 7,500 and Virginia with 7,100.

Why Does Obama Fail to Imagine the Worst Case Scenario?
FOXNews.com

The Obama administration doesn’t sufficiently think through what possibly could go wrong over a range of issues.

A liberal lawyer I know sent me the following e-mail commentary, kidding me that “it must have been written by you!” The e-mail says:

“Let me get this straight. We’re going to pass a health care plan written by a committee whose head says he doesn’t understand it, passed by a Congress that hasn’t read it but exempts themselves from it, signed by a president that also hasn’t read it, and who smokes, with funding administered by a treasury chief who didn’t pay his taxes, overseen by a surgeon general who is obese, and financed by a country that’s nearly broke. What possibly could go wrong?”

I didn’t write that. However, as Fox News contributor (and former psychiatrist) Charles Krauthammer points out, here’s what possibly could go wrong: “There is so much pain in here: increase in taxes, increase in premiums, extra bureaucracy, interference in the medical treatment of patients, which people will be able to feel and see within months and surely within years. This will be a millstone around Democrats for years, if it passes.”

CREATING JOBS COSTS HOW MUCH?
Neal Boortz
November 20, 2009

With all of the controversy over jobs created/saved, we thought we would bring you some highlights of the top 10 biggest stimulus projects .. and all of the wonderful jobs they created.

1. Savannah River Nuclear Solutions, LLC (SC) - $1,407,839,884 awarded - $225,872,246 invoiced/received - 800 jobs created - $282,340 per job
2. CH2M Hill Plateau Remediation Company (WA) - $1,359,715,229 - $142,167,945 invoiced - 621 jobs - $228,934 per job
3. CH2M WG Idaho LLC (ID) - $437,675,000 - $66,401,236 invoiced - 496 jobs - $133,873 per job
4. UT-Battelle, LLC (TN) - $338,697,231 - $12,909,144 invoiced - 41 jobs - $314,857 per job
5. SAIC-Frederick, Inc. (MD) - $302,521,207 - project not commenced
6. Washington River Protection Solutions LLC (WA) - $299,728,838 - 200 jobs - $28,092,695 invoiced - $140,463 per job
7. Babcock & Wilcox Technical Services Y-12, LLC (TN) - $270,299,243 - 129 jobs - $18,107,076 invoiced - $140,364 per job
8. Brookhaven Science Associates, LLC (NY) - $257,613,800 - 25 jobs - $29,528,879 invoiced - $1,181,155 per job
9. Washington Closure Hanford, LLC (WA) - $253,614,000 - 36 jobs - $16,474,802 invoiced - $457,633 per job
10. Los Alamos National Security, LLC (NM) - $230,835,000 - 66 jobs - $7,646,242 invoiced - $115,852 per job

GA construction jobs decline 18 percent.
Atlanta Business Chronicle

Georgia continued to shed construction jobs in October, according new analysis by the Associated General Contractors of America of government employment figures.

The Peach State had 161,800 construction jobs in October, compared with $197,300 in October 2008 and 161,400 in September 2009. Georgia ranked 43rd among the states for the 18 percent year-over-year loss.

Every state but one, North Dakota, lost construction jobs in October.

“A shockingly large portion of the construction industry’s workforce has simply evaporated,” said Ken Simonson, chief economist for the association.

He added that the national construction unemployment rate of 18.7 percent was the highest of any sector in October and the industry accounted for one-fifth of all job losses in the past year, even though construction only employs one out of 20 workers.

The five biggest percentage losses in construction employment over the year occurred in Nevada (26.9 percent, or 30,200 jobs), Arizona (24.2 percent, or 42,600 jobs), Tennessee (22.3 percent, or 29,300 jobs), Kentucky (20.8 percent, or 17,600 jobs) and Connecticut (19.3 percent or 12,500 jobs).

The largest monthly gains were a 4.6 percent rise in Michigan (5,400 jobs); 3.4 percent in Wisconsin (3,500 jobs), 3.3 percent in Indiana (4,000 jobs), 2.6 percent in West Virginia (900 jobs) and 2.3 percent in Rhode Island (400 jobs). The largest percentage losses for the month were a 3.7 percent decline in Mississippi (2,000 jobs), a 3.4 percent decline in North Carolina (6,600 jobs), a 2.9 percent decline in Idaho (1,100 jobs), a 2.8 percent decline in Colorado (3,700 jobs), and a 2.4 percent decline in Oregon (1,900 jobs).

“Because construction workers have carried the burden of the downturn’s job losses, the easiest way to cut unemployment and boost the economy is to get America building again,” said Stephen E. Sandherr, the association’s CEO, in a statement. “Increasing investments in highway, transit and infrastructure construction must be the core component to the ‘jobs’ bill that Washington officials are committing to pass soon.”

Obama hails phony stimulus jobs. ~ Scott Ott
Examiner Columnist
November 20, 2009 ~News fairly unbalanced. We report. You decipher.

President Obama on Friday hailed the “amazing growth” in phony stimulus jobs, especially from nonexistent congressional districts, as a “sure sign that we’re seeing a make-believe recovery and an encouraging spurt in faux GDP.”

Faux gross domestic product usually trails other false economic indicators, the president said, but with projected unemployment plummeting, the federal government’s top alleged experts predict ill-founded consumer confidence will bounce back “before the end of the year at the latest, and quite possibly before supper time tonight.”

While Republicans and other skeptics have slammed the Obama administration’s use of erroneous data to buttress its claims of an economic turnaround, the president said, “It’s exactly this kind of data that the American people need to lift their spirits and to divert their attention from the looming collapse of our capitalist system … which is, of course, not going to happen, as our latest reports demonstrate beyond a shadow of a doubt.”

The president criticized his predecessor, George W. Bush, for “offering false hope without the fictitious numbers to back it up.”

“My administration provides genuine false hope,” Obama said, “and we’ve offered dubious supporting statistics, giving it a patina of credibility that has an intoxicating effect on those with a cursory knowledge of economics.”

Meanwhile, Democrats in Congress have reacted to the revelation that millions in stimulus cash reportedly generated thousands of jobs in congressional districts that don’t exist, by noting that “those congressional districts don’t exist … yet,” in the words of Sen. Harry Reid, D-Nev. “That doesn’t mean they’ll never exist. We Democrats see the glass as half full.”

Mayors Sound Alarm Over Drop in City Revenues.

WASHINGTON — Mayors from four U.S. cities said they are facing a once-in-a-generation fiscal crisis and that federal stimulus funds have, so far, been largely unhelpful in helping them balance budgets hit by steep drops in nearly every source of municipal revenue.

The comments, from mayors of Philadelphia, San Jose, Calif; Mesa, Ariz., and Bowling Green, Ky., at a panel discussion sponsored by the Brookings Institution and the National League of Cities, underscore how the recession for local government is far from over.

Mesa’s mayor, Scott Smith, said the steep drops in sales-tax revenue, the city’s primary source of money, are “changing our reality.”

“We treat this financial crisis as something we’re not going to get out of,” said Mr. Smith, whose city has about 500,000 citizens and is in the Phoenix metropolitan area.

Even as economists declare the recession over, local revenues continue to fall. That’s because the lion’s share of their receipts — sales, income and property taxes — are connected to the job market and real-estate prices. Jobs and real-estate prices are expected to lag the broader economic recovery, reducing city revenues for months or years after the technical end of the recession.

“This is unknown for our generation,” said Chris Hoene, director of the center for research and innovation at the National League of Cities. Mr. Hoene said it was likely to be 18 to 24 months before local government revenues resume growing.

The mayors said deep budget gaps have forced them to make cuts to basic services including police and fire protection, that the financial crisis has turned cities and states against each other and that fiscal strains emphasize the need for money-saving changes to pension and health benefits in the heavily unionized public sector. “Change has to come and this moment of crisis is going to force it,” said Michael Nutter, mayor of Philadelphia.

Want lower credit card interest? Keep spending, Citi says.

NEW YORK — For Citibank credit card holders, there is one way to escape the bank’s rate hikes currently underway: Meet a monthly spending requirement.

Those who meet the spending minimum — in some cases $750 a month — will be able to get a rebate on their total interest charges for that month. The rebate could cover some or all of the interest rate hike. Customers also need to make payments on time to qualify for the rebate.

Without giving specifics, Citi said the monthly spending requirements and interest rate hikes will vary depending on the cardholder’s credit history.

About half of its customers will be able to erase 50% to 100% of their rate increases through the rebates. Citi said its rebates will be based on interest charges for an entire balance, not just monthly charges.

With 92 million credit cards in circulation last year, Citi was the second largest card issuer in the country, according to CreditCards.com. Chase was the largest with 119 million cards, and Bank of America was third with 80 million cards.

Ohio AG sues Moody’s, Fitch, and S&P ratings agencies over losses to state’s pension funds.

A convenient and effective way to discredit someone if you are not sufficiently intelligent to refute their cogent argument is to suggest they are a kook. Just ask EddieTard

The Federal Reserve Vs. Ron Paul

Posted: November 20, 2009 at 4:35 am
24/7 Wall St Real Time 500
…
The Fed’s argument against Paul’s proposal is simple and defensible. The agency keeps important secrets including which large banks need substantial amounts of money during hard times. The public cannot know these details because it would cause a national panic. What if it was common knowledge that Citigroup (NYSE:C) had borrowed $100 billion in emergency funds from the agency? Citi’s stock could lose 90% of its value in a day. The Fed wants to keep secrets to prevent runs on major banks. The Fed, its defenders would argue, is the home to impartial financial minds that have the best interests of the nation’s credit system at heart. The average person would not be able to stand the strain of watching the agency’s daily high wire act up close, certainly not during a crisis.
…
How about if the Congress gets this party started by asking the Fed to submit a list of topics which are off limits, due to the risk of compromising the Fed’s sacrosanct monetary policy independence. Once this list of “off limits” topics is agreed upon, I am sure bright minds can still come up with an interesting enough list of remaining questions regarding the Fed’s recent conduct to keep GAO auditors busy for a year or so.

For instance, does the law give the Fed the legal authority to pick winners and losers during a financial crisis? Did the Fed’s actions in the Fall of 2008 have anything to do with the massive bonuses Goldman Sachs employees are currently enjoying while most of the US enjoys record unemployment rates? Inquiring minds want to know.

Natural gas plunges 12 percent this month.
Good news for home heating: With the most natural gas in storage, prices plunge by 12 percent. ~ November 20, 2009

NEW YORK (AP) — Natural gas prices have dropped by more than 12 percent in the past month as the country continues to sip at its energy reserves and a balmy November allowed homeowners to leave the heat off.

Retail prices for natural gas, or what many consumers will pay to heat their homes, are expected to be substantially lower this year.

Spot prices for natural gas have dropped to almost half of what they were last year, though they’ve increased slightly this month, according to the Energy Information Administration.

The recession has kept natural gas demand low most of the year. With manufacturers shuttering factories and closing offices, the country is using less electricity and power plants are burning less natural gas.

Analyst Stephen Schork noted that with industrial production still weak, home heating would be the primary source of natural gas demand for the rest of the year.

“What does that say about the current recovery, or lack thereof?” Schork said in a research note.

The U.S. has added more natural gas into storage every week since March 27, and there is now more natural gas tucked away in the U.S. than at any point in history. Storage houses are crammed beyond their listed capacity in the West on the Gulf of Mexico, and they’re nearing capacity elsewhere, according to data from the Department of Energy.

Have any of you noticed an increase in crime in your neighborhoods? Ours has had a huge increase. We live in a great neighborhood just north of the Baltimore city line (in the county) and out of nowhere we are getting hit with breakins and attacks. Unheard of in this neighborhood before … this is a place where people know each other and kids walk 2 blocks to the elementary and middle school …

We are unfortunately close to some more run-down, dangerous neighborhoods and it seems that the economic problems are causing the criminals to move further in their pursuit of things to steal. It’s really sad.

It’s all over. You can come out and buy a house, now.

REAL ESTATE: Las Vegas home prices stabilize as threat of foreclosure flood wanes

Bill Bonner, speaking his mind from London, England… (excerpt)

Okay! We’ll say what we’ve been thinking…

..that our children are going to spit on our graves!

First, Americans made a colossal mistake in the ’90s and the ’00s. They partied…they spent…they borrowed…running up huge debts in the private sector. Most kids could forget about inheriting anything from their parents; the geezers spent it years ago.

The boomer generation also made a mess of the biggest success story in world history - the United States of America. In the ’60s and ’70s - when boomers matured and began to take over - the US was still on top of the world. It had a positive trade balance…huge savings…massive investments abroad…and the strongest companies in the world.

They ruined it. The financial industry took over…replacing manufacturing. Instead of making things we could sell at a profit, Wall Street sold debt - mostly to us! In government, imperial ambitions pushed aside the restraints and good sense of the old republic. Overseas, military bases were set up in 120 countries. We now have unwinnable, trillion-dollar wars that could go on forever. At home, the sheep look to the government to solve every problem. Thirty-five million Americans - almost as many as the entire population of Spain - depend on the feds’ food stamp program for their daily bread.

At least, most Americans are making amends in their private lives. The old days, when the US was “the world’s mouth,” are over. We can no longer be counted on to buy up every gadget and gizmo produced in the world. We’re rediscovering the old virtues of thrift and savings. Frugality is back in style. If this continues, the Baby Boom generation may not leave the next generation with much net wealth, but at least it will not leave behind huge net debts.

But over in the public sector, the debt toll mounts up. The boomers want the government - which means, the next generation - to pay for their health care…their unemployment insurance…their bailouts and their handouts. The deficit for this year is expected to be about $1.5 trillion. Next year, it will be about the same. The feds say it is too early to pull back on their stimulus efforts. Housing credits and unemployment benefits have just been extended. A trillion-dollar overhaul of the healthcare system is in the works. Even assuming a real recovery - don’t hold your breath - the deficits are supposed to run $1 trillion per year for the next 10 years. More likely, as we reported in this space a few weeks ago, the deficits will be $2 trillion per year. By the time today’s 30-year-old gets a family…a house…and a mortgage, he will also have his share of a $20 trillion dollar deficit - not to mention the “off budget” obligations of the US government, a total of more than $100 trillion!

What to do, what to do? Perhaps they could raise taxes.

State’s tax take down by $99M in October; Investment returns off by 65% ~ Triangle Business Journal

The state’s revenue picture continued to darken in October as the word “recovery” remained an unfulfilled promise.

Net tax revenues dropped by $99 million, or 6.2 percent, during the month, as compared to 2008, the North Carolina Controller’s office reported.

The figure represents the state’s take on a number of taxes, including sales taxes, corporate income, payroll withholding taxes and others.

With less cash on hand to invest short term, investment returns also were hit, declining by $10.5 million, or 65 percent, during the same period.

Since the beginning of the 2010 fiscal year on July 1, the state has posted an overall revenue drop of nearly $255 million, or 4.4 percent, the controller’s office says.

October dataquick numbers are out for socal.

http://dqnews.com/Charts/Monthly-Charts/LA-Times-Charts/ZIPLAT.aspx

The Financial Times
Germany warns US on market bubbles
By Ralph Atkins in Frankfurt

Published: November 20 2009 19:48 | Last updated: November 20 2009 19:48

Germany’s new finance minister has echoed Chinese warnings about the growing threat of fresh global asset price bubbles, fuelled by low US interest rates and a weak dollar.

Wolfgang Schäuble’s comments highlight official concern in Europe that the risk of further financial market turbulence has been exacerbated by the exceptional steps taken by central banks and governments to combat the crisis.

Last weekend, Liu Mingkang, China’s banking regulator, criticised the US Federal Reserve for fuelling the “dollar carry-trade”, in which investors borrow dollars at ultra-low interest rates and invest in higher-yielding assets abroad.

Speaking at a banking conference in Frankfurt on Friday, Mr Schäuble said it would be “naive” to assume the next asset price bubble would take the same guise as the last.

He said: “More likely today is a scenario in which excess liquidity globally creates a new [sort of] asset market bubble.”

He added: “That low interest rate currencies such as the US dollar are increasingly being used as a basis for currency carry trades should give pause for thought. If there was a sudden reversal in this business, markets would be threatened with enormous turbulence, including in foreign exchange markets.”

Mr Schäuble, a political veteran, took over the German finance ministry after Angela Merkel began her second term as chancellor last month.

His comments reflect the concern of European policymakers that the continent will bear the brunt of a global adjustment process through a stronger euro.
…

The Financial Times
Bernanke blowing bubbles
Published: November 17 2009 15:13 | Last updated: November 17 2009 22:37

Finally a central banker has admitted he is as clueless as everyone else. “It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value,” said the Federal Reserve chairman in a speech on Monday. Ben Bernanke then contradicted himself, however, by adding: “It’s not obvious to me in any case that there’s any large misalignments currently in the US financial system.” Given the first statement, how can he know?

If Mr Bernanke has no idea what a bubble looks like, China reckons it does, suggesting this week that US policy is causing a speculative rise in asset prices. In truth, it is hard to say what is driving the surge in equities, credit and commodities. So-called risk trades are seemingly revelling in near-zero US interest rates. But many global fundamentals are improving too. Nor are there signs of increased financial leverage or higher volumes traditionally associated with froth.

But arguing over the rally since March is short-sighted. More important are the gigantic bubbles, decades in the making, which led to this downturn. Those will only deflate over time. At 18 per cent, for example, US financial sector output as a percentage of total corporate output is still at a record high. Total gross household debt relative to disposable incomes remains 30-odd percentage points above even the inflated average of 90 per cent seen in the 1990s. Western consumers will slowly save more and spend less.

Sure, many assets look overvalued. Using long-run, cyclically adjusted earnings, US stocks are about 40 per cent too high, according to Smithers & Co. But as Tuesday’s tepid industrial production and inflation numbers show, these bubbles should not distract from more powerful shifts occurring right beneath investors’ feet.
…

FINANCIAL CRISIS
Foreclosures will keep rising through 2010, report says

Mortgage Bankers Assn. says delinquencies and home repossessions have hit a new high. Blaming job losses for most of the pain, it sees a continued surge in foreclosures through all of next year.

* Related
* Number of people seeking mortgages to buy homes drops again
* 30-year fixed-rate mortgages dip below 5% again

By E. Scott Reckard

November 20, 2009

Home foreclosures are likely to keep climbing through all of next year despite stabilizing housing prices in some areas, a major lender group said Thursday as it reported that the level of delinquencies and repossessed homes had jumped to a record.

One in seven U.S. home loans was past due or in foreclosure as of Sept. 30, putting that quarterly delinquency measure at its highest level since 1972, when the Mortgage Bankers Assn. began reporting it. At the beginning of this year, 1 in 10 loans was past due or in foreclosure.

The continued surge in delinquencies suggests that a recovery in the housing market could be stalled by the worsening job picture as well as by further fallout from the easy-money lending that prevailed during the boom years.

Signals about housing have been decidedly mixed. On the bright side, median home prices appear to have stabilized — for the time being, anyway — in hard-hit areas of California such as the Inland Empire, and have begun to inch up again in San Diego and Orange counties and in San Francisco.

But recent negative indicators, in addition to rising foreclosures, include the home lender group’s report Wednesday that applications for mortgages to buy homes have declined for six straight weeks despite interest rates below 5% on 30-year fixed-rate loans. Also Wednesday, the Commerce Department said the seasonally adjusted rate of housing starts fell more than 10% in October from the previous month.

Overall, 14.41% of all U.S. home loans were in foreclosure or at least 30 days past due at the end of the third quarter — 1 in 7 — and up from 13.16% in the second quarter.

As it has for some time, the group’s report on delinquencies blamed job losses, not tricky adjustable-rate loans, for causing most of the recent pain.

The mortgage group’s chief economist, Jay Brinkmann, said he expected the delinquencies to keep rising until the unemployment rate tops out in the first or second quarter of next year.

Normally, foreclosures would continue rising for two quarters past the peak in delinquencies, he said. However, given the extreme decline in home prices, Brinkmann predicted the foreclosure rate would continue to rise longer than usual past the peak in delinquencies.

Four Sun Belt states where the housing bubble inflated the most and exotic lending was most prevalent — California, Florida, Nevada and Arizona — accounted for 43% of the foreclosures started in the third quarter.

Prime loans — those made to the borrowers with the best credit — continued to make up a growing percentage of troubled mortgages. Such loans accounted for nearly 33% of new foreclosures last quarter, compared with 21% a year earlier, when high-risk subprime loans made during the housing boom were the main reason for default.

In California, 4.62% of fixed-rate prime mortgages, considered the safest home loans of all, were in foreclosure or 90 days delinquent.
…

This sounds like a Keynesian debt disaster in the making.

Meanwhile, Happy Thanksgiving to all — eat, drink, and be merry

* The Wall Street Journal
* OPINION
* NOVEMBER 20, 2009, 6:47 P.M. ET

The Coming Deficit Disaster

The president says he understands the urgency of our fiscal crisis, but his policies are the equivalent of steering the economy toward an iceberg.

By DOUGLAS HOLTZ-EAKIN

President Barack Obama took office promising to lead from the center and solve big problems. He has exerted enormous political energy attempting to reform the nation’s health-care system. But the biggest economic problem facing the nation is not health care. It’s the deficit. Recently, the White House signaled that it will get serious about reducing the deficit next year—after it locks into place massive new health-care entitlements. This is a recipe for disaster, as it will create a new appetite for increased spending and yet another powerful interest group to oppose deficit-reduction measures.

Our fiscal situation has deteriorated rapidly in just the past few years. The federal government ran a 2009 deficit of $1.4 trillion—the highest since World War II—as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years.

Going forward, there is no relief in sight, as spending far outpaces revenues and the federal budget is projected to be in enormous deficit every year. Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 per American. By 2019, according to the Congressional Budget Office’s (CBO) analysis of the president’s budget, the budget deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.

The planned deficits will have destructive consequences for both fairness and economic growth. They will force upon our children and grandchildren the bill for our overconsumption. Federal deficits will crowd out domestic investment in physical capital, human capital, and technologies that increase potential GDP and the standard of living. Financing deficits could crowd out exports and harm our international competitiveness, as we can already see happening with the large borrowing we are doing from competitors like China.

At what point, some financial analysts ask, do rating agencies downgrade the United States? When do lenders price additional risk to federal borrowing, leading to a damaging spike in interest rates? How quickly will international investors flee the dollar for a new reserve currency? And how will the resulting higher interest rates, diminished dollar, higher inflation, and economic distress manifest itself? Given the president’s recent reception in China—friendly but fruitless—these answers may come sooner than any of us would like.

Mr. Obama and his advisers say they understand these concerns, but the administration’s policy choices are the equivalent of steering the economy toward an iceberg. Perhaps the most vivid example of sending the wrong message to international capital markets are the health-care reform bills—one that passed the House earlier this month and another under consideration in the Senate. Whatever their good intentions, they have too many flaws to be defensible.

First and foremost, neither bends the health-cost curve downward. The CBO found that the House bill fails to reduce the pace of health-care spending growth. An audit of the bill by Richard Foster, chief actuary for the Centers for Medicare and Medicaid Services, found that the pace of national health-care spending will increase by 2.1% over 10 years, or by about $750 billion. Senate Majority Leader Harry Reid’s bill grows just as fast as the House version. In this way, the bills betray the basic promise of health-care reform: providing quality care at lower cost.

Second, each bill sets up a new entitlement program that grows at 8% annually as far as the eye can see—faster than the economy will grow, faster than tax revenues will grow, and just as fast as the already-broken Medicare and Medicaid programs. They also create a second new entitlement program, a federally run, long-term-care insurance plan.

Finally, the bills are fiscally dishonest, using every budget gimmick and trick in the book: Leave out inconvenient spending, back-load spending to disguise the true scale, front-load tax revenues, let inflation push up tax revenues, promise spending cuts to doctors and hospitals that have no record of materializing, and so on.

If there really are savings to be found in Medicare, those savings should be directed toward deficit reduction and preserving Medicare, not to financing huge new entitlement programs. Getting long-term budgets under control is hard enough today. The job will be nearly impossible with a slew of new entitlements in place.

In short, any combination of what is moving through Congress is economically dangerous and invites the rapid acceleration of a debt crisis. It is a dramatic statement to financial markets that the federal government does not understand that it must get its fiscal house in order.
…

Nobody is currently behaving as though they expect the Fed to follow through on its announced tightening plans before inflation happens.

Leaders

The deficit problem
Dealing with America’s fiscal hole

Nov 19th 2009
From The Economist print edition
Don’t cut the deficit now—but explain how, eventually, you will

Jon Berkeley

FOR years America’s fiscal problems had a surreal quality. No one disputed that an ageing population and health-care inflation could bust the budget, but that prospect was decades away and procrastination seemed painless. No longer. A giant hole has opened in the budget because of stimulus, bail-outs and a recession that has savaged economic growth and tax revenue. On current policies the publicly held federal debt, 41% of GDP last year, will double in the next decade (see article). Total government debt will move well above the G20 average. In a few years the AAA rating of Treasury bonds, the world’s most important security, could be in jeopardy.

A sudden crisis is unlikely. Other rich countries with far bigger debts relative to the size of their economies, from Italy to Japan, have soldiered on without hitting a wall. Stable politics, transparent laws and economic dominance give America unequalled credibility with lenders. For all the anxiety the declining dollar drew from China this week (see article), it has no serious rival as the world’s reserve currency. America has sensibly used this fiscal freedom to enact an aggressive stimulus programme. This should be maintained for as long as it is needed.

Yet ignoring the future is also costly. The problem is not the deficits in the next couple of years, but in the years that follow. Uncertainty over how taxes may be raised to shrink deficits may already be weighing on business confidence. Worries about inflation or default could start to push up interest rates. Eventually, private investment will be crowded out.

Barack Obama and Congress can pre-empt such corrosive uncertainty with a plan to reduce the deficit now. Far from requiring immediate spending cuts or tax increases, a credible plan would reassure markets and allow an orderly exit from fiscal stimulus. The Federal Reserve provides a model: it does not plan to tighten monetary policy in the near future, but has signalled its willingness to do so when inflation threatens.
…

All news is good for stocks. The stock market always goes up…

Finance and Economics

Buttonwood
Something’s gotta give

Nov 19th 2009
From The Economist print edition
Either central banks are wrong to keep rates low, or markets are wrong to expect recovery

Illustration by S. Kambayashi

LIKE a truck rolling downhill, the rally in risky assets is proving hard to stop. Good economic news causes share prices to rise because it indicates the recovery is robust; bad economic news also causes prices to rise because it signals that central banks will keep interest rates near zero.

Those low interest rates have probably been the main driver of the rally, encouraging investors to put their cash to work in search of higher returns. But other factors have been at play. Forecasts for corporate profits have been revised steadily upwards as analysts anticipate the benefits of economic recovery.
…
At some point, the central dilemma at the heart of this rally will have to be resolved. Low interest rates seem like good news for investors. But why are central banks holding rates so low? Either they are correct in assessing that the economy is still fragile, in which case corporate profits will ultimately disappoint. Or they are underestimating the strength of the recovery, in which case inflationary pressures will start to emerge (and bond yields will rise sharply). Markets will have a tricky time navigating between this Scylla and Charybdis in 2010.