The Housing Bubble

The corporate MSM is lying that the US is not in a stagflationary depression. The NBER are liars. And oh yeah, Realtors are liars too…

Question: Should it be prices that determine whether the economic environment is inflationary or deflationary or should it be money flow?

I think it should be money flow. Prices can be listed where ever the seller wants to list them but if the money does not flow then a transaction will not occur. If not enough transactions occur - if not enough money flows - then a merchant will go out of business.

General Mills raised its prices because it anticipates a volume decline of the products it sells. (IMO this is an excellent way to go out of business.) In the meantime its stats of price increases adds to stats of other price increases and gives the illusion that the economy is inflating. But remember, the sales volume is down, so the flow of cash is down, which means that the the forces of deflation are at hand, not the forces of inflation - that’s if one wants to use as a gauge money flow rather than prices.

And isn’t this what we are seeing in RE in a lot of places. Don’t we see high prices but no sales volume, meaning no cash flow? If we were to use prices as a guage then we would see a stable RE market. But if we were to use cash flow as a guage then we would be seeing something different.

Mortgage fraud task force charges 27 South Florida residents in fraudulent loan scams

By Kimberly Miller Palm Beach Post Staff Writer
Posted: 4:35 p.m. Tuesday, Aug. 2, 2011

Six people, including one Palm Beach County resident, have been indicted on charges relating to $9.2 million in fraudulent loans received for homes in suburban Lake Worth’s Country Cove Estates.

The indictments were announced today in conjunction with charges levied against a total of 27 South Florida residents in alleged schemes that resulted in more than $30 million in fraudulent loans being awarded during real estate’s boom years.

Those charged include title agents, mortgage brokers, attorneys and Realtors. Investigators from the Federal-State Mortgage Fraud Task Force, which is led by the U.S. Attorney’s Office, are credited with gathering the information that led to the indictments.

“As these cases illustrate, mortgage fraud has permeated every level of the industry, from straw buyers, to loan processors, to title agents and even attorneys,” said U.S. Attorney Wifredo A. Ferrer.

http://www.palmbeachpost.com/money/real-estate/mortgage-fraud-task-force-charges-27-south-florida-1685411.html - -

Realtors Are Liars®

Today’s home:

http://www.zillow.com/homedetails/23928-Janbeall-Ct-Clarksburg-MD-20871/37081315_zpid/#{scid=hdp-site-map-list-address}

Fairly nice 1777 3/3 on a half acre. A long but doable commute, yard needs work, VERY nice deck, looks like a Home Depot special kitchen. NO HOA.

Days on Zillow: 171. But look at this price history! Looks like they are hanging on with their fingernails, hoping to recoup the cost of the Home Depot Special kitchen.

07/02/2011 Pending sale $289,900
05/29/2011 Listed for sale $289,900
05/20/2011 Listing removed $319,900
04/29/2011 Price change $319,900
04/19/2011 Listed for sale $329,900
04/13/2011 Listing removed $329,900
04/05/2011 Price change $329,900
03/20/2011 Listed for sale $329,899
03/17/2011 Listing removed $329,900
03/01/2011 Price change $329,900
02/13/2011 Listed for sale $349,900
05/26/2010 Sold $280,000 -30.0% $174
11/04/2008 Listing removed $340,000
07/29/2008 Listed for sale $340,000
07/29/2008 Listing removed $340,000
07/03/2008 Listed for sale $340,000
10/07/2004 Sold $359,950
02/07/2002 Sold $170,000

Also, the price jump from 2002-2004 is astounding, but most of the DC-area houses online have this same pattern:
2002-2004 big jump
2004-2006 increase to a peak in 2006
2006-2008 decrease to 2004 prices
2008-2011 level off at 2004 prices.
Any house that have dropped below 2004 prices looked trashed inside and out.

Pricing looks exactly like the Charles Hugh Smith graph, where 2004 prices are “this must be the bottom.” So HBBers, do you think these houses are ever going to drop back to 2002 levels, or are they stuck at 2004 levels? Can the stability of DC outlast the housing bust. Should I pay high rent and wait for MERS to implode?

What was the point of Dodd-Frank?

Consumer protection.
Banking system solvancy.
Holding bankers accountable.
Sound accounting of profits at banks.

Oh, unless we repeal Dodd-Frank, we have no hope of significant economic recovery.

True. Unless we let banks rip people off, lie, cheat, steal and take insane risks which are sure to go bad, we’re hosed.

In short, we’re hosed.

Prices should be used to measure inflation, and money flow should be used to measure the level of economic activity. So nominal prices can go up buy few people buy anything: otherwise known as stagflation.

A free-market fix to the nation’s housing hangover

By Nicole Gelinas
July 31, 2011

Washington has attempted to intervene since the start of the crisis, but the interventions have only prolonged the pain. And elected officials have been reluctant to do the one thing that would make a difference: forcing lenders to accept responsibility for their bad lending practices.

Take the 2009 home buyer tax credit, which dangled an $8,000 credit to first-time home buyers. The bust had just exposed the consequences of reckless borrowing, so what did Washington do? It encouraged more people to take on debt to buy homes that were still overvalued, and encouraged the banks to fund that indebtedness.

Another Washington program, the Home Affordable Modification Program, was supposed to encourage banks to modify loans for underwater homeowners. But the modifications that lenders offered seldom addressed the problem. Many offers involved extending teaser interest rates, or tacking on defaulted amounts to the end of a mortgage’s life. Washington has not used its leverage to push lenders to write down the amount owed. Instead, the biggest beneficiaries of Washington’s modification program have been mortgage “servicers,” the folks who handle paperwork for lenders to modify loans.

To see how bizarre the government’s strategy is, consider this: Recently, federal regulators exacted a $108-million settlement from Countrywide, once the nation’s largest mortgage lender. The money is because Countrywide, now owned by Bank of America, has behaved incompetently, at best, in servicing defaulted mortgages.

Yet over the last year, through the Home Affordable Modification Program, federal taxpayers have spent nearly $132 million in “incentive payments” to Countrywide and its investors and borrowers to reward the company for its superficial mortgage adjustments.

The Federal Housing Administration too has done its part to keep the bubble inflated, nearly doubling the size of mortgages eligible for a government-insured lending program, to $729,750, up from $417,000, starting in the fall of 2008. People can put as little as 3.5% down for such loans, meaning that a slim decrease in house prices traps them underwater too.

It’s time to end these market-distorting charades. If President Obama won’t say so, one of his White House rivals should seize the moment.

House prices need to find their lows. That would give buyers confidence to jump back in at prices they could afford without sacrificing their futures to debt. To help prices find their new normal, banks need to modify loans by reducing the amount owed. When that doesn’t make sense, banks should foreclose on delinquent owners promptly and legally. The current high number of bad loans in limbo guarantees economic chaos.

http://www.latimes.com/news/opinion/commentary/la-oe-gelinas-foreclosure-california-20110731,0,5937152.story - 212k -

California Hotel Foreclosures Jump 91% as Lenders Seek to Sell Properties
(Bloomberg)

Hotel foreclosures in California jumped 91 percent in the second quarter as lenders repossessed properties to sell them amid a recovery in property prices, Atlas Hospitality Group said today.

The number of foreclosed hotels climbed to 191 in the three months ended June 30 from 100 a year earlier, according to the Irvine, California-based brokerage. Seizures also rose from the first quarter, when lenders took over 148 California hotels. The state’s biggest hotel foreclosure in the second quarter was the 331-room Hilton Sacramento Arden West, Atlas said.

The average U.S. hotel purchase price climbed to $192,479 a room in the second quarter, up more than 25 percent from 2006, during the property boom, according to Real Capital Analytics Inc. Values are being driven up this year by a surge in luxury- hotel transactions, the New York-based research company said.

“The rise in foreclosures can be largely attributed to lenders now having the financial reserves to be able to foreclose and sell the properties at today’s market values,” Atlas President Alan Reay said in a statement. The hotels being repossessed have been “in trouble for a long time and lenders were delaying taking any action,” he said in an interview.

Loss of home equity downsizes retirement for many
By Sandra Block, USA TODAY

Paul Trigili, an information technology professional in Las Vegas, is 65, has back problems and would like to retire at the end of the year. There’s just one thing standing in his way: his house.

Paul Trigili, 65, and his wife Terri, 60, are postponing retirement partly because of the steep drop in the value of their home in North Las
Trigili bought his home three years ago for $350,000. At the time, he thought it was a good deal, because the home originally was priced at $450,000. Today, it’s valued at $184,000.

Trigili made a large down payment when he bought the home, so he doesn’t owe more on his mortgage than the home is worth. But his plans to sell his home and use the proceeds for retirement income have been placed on indefinite hold.

“We’re pretty much stuck here,” Trigili says. “Now, I don’t look at retirement at all. I’d like to work as long as I can.”

Nearly 32% of adults over age 50 say their home has declined substantially in value over the past three years, according to a survey by AARP. Many won’t recover those losses by the time they reach retirement age, says Jay Butler, associate professor of real estate at the W.P. Carey School of Business at Arizona State University.

“Nobody sees rapid appreciation in home values over the next 10 years,” he says. As a result, he adds, “A lot of folks will postpone retirement.”

Declining home equity is a problem that not only can force would-be retirees to keep working, it can complicate their eventual retirement in a range of ways. Many retirees, for example, have long counted on the proceeds from the sale of their homes to help fund health-care costs and long-term care expenses that they’ll inevitably face.

Such concerns have led Gary Pagliaro, 58, of Stratford, Conn., to think he might have to work longer than expected.

Pagliaro had planned to retire at 62, sell his home and buy another in the Southwest, where the cost of living is lower than in the Northeast. When he made those plans, his home was valued at $325,000 to $350,000. Now, he thinks he’d be lucky to sell it for $225,000.

Pagliaro, an accountant, says he and his wife, Elizabeth, had hoped to buy a single-family home in Arizona or Nevada, but now they’re considering buying a condo instead. And unless their home’s value rebounds, he may work longer before relocating to the Southwest.

“Depending on what happens over the next four years, I might have to rethink the 62 retirement age,” he says.

J.C. Penney Laying Off 442 Workers at Manchester Distribution Center
Notice To State Says Company Closing Facility’s Dot-Com Unit
~courant.com

JCPenney will layoff 442 workers at its Manchester distribution center, according to a notice filed Tuesday with the Connecticut Department of Labor.

The notice says the retailer is only closing the facility’s dot-com unit; workers’ last day will be Sept 30.

Along with other functions, the approximately 2-million-square-foot Tolland Turnpike facility is one of four warehouses in the country that distributes items ordered from jcpenney.com.

In April, the retailer said that part of the operation will be eliminated this fall. At that time, a company spokesman estimated that 150 workers of the facility’s 900 workers would lose their jobs, but cautioned that the exact figure wouldn’t be known until the retailer reconfigured the facility.
[Sample Our Free Connecticut Business Midday Newsletter]

The company said this spring that workers facing layoffs could apply for other jobs, but it wasn’t clear whether the offer stands.

J.C. Penney could not be reached for comment Tuesday.

Local layoffs total 800-plus, state report says. - Chicago Business

(Crain’s) — Six Cook County companies have notified the state that they plan a total of more than 800 job cuts by September.

Sun-Times Media Holdings LLC, publisher of the Chicago Sun-Times and other newspapers, will eliminate 456 jobs at its Chicago printing plant, according to a monthly Worker Adjustment and Retraining Notification Act report released by the Illinois Department of Employment Security.

The Worker Adjustment and Retraining Notification Act — known as Warn — requires firms with at least 75 employees to give the state 60 days’ notice of closings or a certain number of layoffs

Sun-Times Media’s layoffs are the result of its decision last month to stop printing its own issues. Outsourcing printing responsibilities to rival Tribune Co. will save the struggling media company about $10 million annually.

Most of the workers losing their jobs are unionized pressroom personnel, paper handlers, electricians, machinists, drivers and operating engineers. Layoffs will begin on Sept. 30 and conclude by Dec. 30, according to the state report.

Also in Chicago, Schofield Media Group LLC, which publishes Construction Today, Manufacturing Today and other business-to-business magazines, will close after unexpectedly losing its bank funding, according to President and Chief Operating Officer Brian Reshefsky. The number of jobs affected totals 107.

Private Sector Added 114,000 Jobs in July: ADP- Reuters

Private employers added 114,000 jobs in July, topping economists’ expectations, a report by a payrolls processor showed on Wednesday.

Gold bugs beware, my mom is talking about getting the precious.

CHINA NEWS
AUGUST 3, 2011, 8:27 A.M. ET

China Central Bank Chief Warns on U.S. Debt
By JASON DEAN And AARON BACK

BEIJING—In his first public comments on Washington’s debt deal, China’s central bank chief welcomed the passage of the bill that avoided a U.S. default but called on the U.S. to adopt “responsible measures” to manage its debt issues and pledged to continue diversifying China’s dollar-dominated currency reserves.

The comments Wednesday by People’s Bank of China Gov. Zhou Xiaochuan came as the country’s state media continued to condemn Washington over its debt problems, and as one of China’s smaller credit ratings companies downgraded its sovereign rating for the U.S.

Mr. Zhou, in a statement on the central bank’s website, warned that U.S. bond-market volatility could affect the stability of the entire international monetary system and “encumber the global economic recovery.” He called on U.S. policy makers to “act in the interests of themselves and the whole world” in further addressing debt issues. He said China will watch developments while continuing to diversify and strengthen risk management of its foreign exchange reserves.

The chaotic U.S. debt talks in recent weeks have aggravated longstanding concerns in China—the U.S.’s biggest foreign creditor and owner of the world’s largest currency reserves, at more than $3.2 trillion—about its overreliance on the dollar. But the events have also underscored the paucity of serious alternatives China has to investing in Treasurys and other dollar assets.

The state-run Xinhua news agency published a biting commentary on Wednesday saying the higher debt ceiling “failed to defuse Washington’s debt bomb for good, only delaying an immediate detonation by making the fuse an inch longer.” Xinhua urged the U.S. to roll out measures to balance the federal budget, warning that failure to do so would damage U.S. credibility.
…

Agreement Reached on Overhaul of U.S. Financial System

By STEPHEN LABATON
October 23, 1999

ASHINGTON — The Clinton Administration and top Republican lawmakers reached an agreement early Friday to overhaul the financial system, repealing Depression-era laws that have restricted the banking, securities and insurance industries from expanding into one another’s businesses.

Dodd, whose state is home to the nation’s largest insurance companies, and Schumer, with strong ties to Wall Street, have long sought legislation to repeal the Glass-Steagall Act. Both men said in interviews Friday that they moved to strike a compromise after it became apparent that the legislation might be killed, as it was last year by Gramm, over the debate about the Community Reinvestment Act.

Gramm had maintained that he did not want anything in the bill that would expand the application of the Community Reinvestment Act because it was, he said, unnecessarily burdensome to banks. He had sought a provision that would exempt thousands of smaller banks from the law. He also wanted a provision that would expose what he has described as the “extortion” committed by community groups against banks by requiring the groups to disclose any special financial deals the groups extract from the banks.

But the White House found that provision unacceptable and had its own ideas about community lending. It wanted the legislation to prevent any bank with an unsatisfactory record of making loans to the disadvantaged from expanding into new areas, like insurance or securities.

The White House had insisted that the President would veto any legislation that would scale back minority-lending requirements. Four days of intense negotiations between Summers, Gene Sperling, the President’s top economic policy adviser, and Gramm, while moving the two sides closer, failed to resolve the differences.

But Administration officials had spent all day making sure that the Democrats remained solidly against the measure until their concerns about the Community Reinvestment Act could be worked out.

After receiving calls from executives of some of the nation’s leading financial companies, Dodd and Schumer began trying to work out a compromise. An agreement was quickly reached on the issue of banks and expanded powers — no institution would be allowed to move into any new lines of business without a satisfactory lending record

http://partners.nytimes.com/library/financial/102399banks-congress.html - 18k - Cached -

Greece in panic as it faces change of Homeric proportions
Fear is driving a silent bank run in Greece – but some see the government’s austerity plans as a chance to transform

Aditya Chakrabortty
guardian.co.uk, Monday 1 August 2011 20.11 BST

Market Pulse Archives

Aug. 3, 2011, 10:05 a.m. EDT
July ISM services index drops to 52.7% from 53.3%
By Jeffry Bartash

WASHINGTON (MarketWatch) - The Institute for Supply Management on Wednesday said its service-sector index fell to 52.7% in July from 53.3% in June. Economists surveyed by MarketWatch expected the services index to rise to 53.5%. While readings over 50% indicate more firms are expanding than contracting, the index is sharply lower compared to a recent peak of 59.7% in February. The new orders index dropped 1.9 percentage points to 51.7% and the backlog of orders index declined 4.5 percentage points to 44.0%. Thirteen of the 18 service sectors tracked by ISM reported growth. The U.S. service sector - fields such as health, finance and entertainment - accounts for three-fourths of all economic activity. It also employs about four of every five U.S. workers.

- 10-yr T-bond at 2.60% yield and falling.

- Trying to invert?

- Still a long way down from here to March 2009 lows…

How about a little Springsteen for the markets today.

you get your kicks from just a-drivin’ me

Down, down, down, down. - I’m go-in’

Down, down, down, down. - I’m go-in’

Down, down, down, down. - I’m go-in’

Down, down, down, down.

Service firms expand at slowest pace in 17 months; growth in new orders, employment weakens

WASHINGTON (AP) — Restaurants, hotels, retailers and financial companies saw more business in July, but the broader U.S. service industry experienced its weakest growth in 17 months.

The report Wednesday from the Institute for Supply Management confirms other data that show the economy is struggling two years after the recession ended.

The trade group of purchasing executives said its index for services companies fell to 52.7, from 53.3 in June. Any reading above 50 indicates expansion.

Separately, the Commerce Department said businesses cut orders for airplanes, autos and heavy machinery in June. Factory orders dropped 0.8 percent, the second drop in three months

Chevy Volt: Still Not Selling
• The Weekly Standard - Aug 3, 2011

The July sales numbers are out and the Chevy Volt continues to electrify (get it?) the country. GM sold … 125 Volts last month!
Obama Volt

Way back in March I made fun of the Volt for selling 281 units in February. Turns out, February was a good month. But wait, there’s more! GM says they’re going to increase production to 5,000 Volts per month in order to keep up with demand. You see, they claim that the reason the Volt isn’t selling is that they can’t keep enough cars on the lot. A GM spokeswoman recently claimed that they are “virtually sold out.” Which is virtually true. Mark Modica called around his local Chevy dealers and found plenty of Volts waiting for an environmentally conscious driver to bring them home.

Hand em` out at the border with food stamps and make the Mexican drug cartel pay for it in return for all the free assault weapons they got.

Free cell phones are now a civil right

8:30 AM, August 1, 2011 ι Abby W. Schachter

Pennsylvanians on public assistance now have a new ‘civil right’ — free cell phones. Meanwhile, the rest of us get to pay higher cell bills as a result.

Recently, a federal government program called the Universal Service Fund came to the Keystone State and some residents are thrilled because it means they can enjoy 250 minutes a month and a handset for free, just because they don’t have the money to pay for it. Through Assurance Wireless and SafeLink from Tracfone Wireless these folks get to reach out and touch someone while the cost of their service is paid for by everyone else. You see, the telecommunications companies are funding the Universal Service Fund to the tune of $4 billion a year because the feds said they have to and in order to recoup their money, the companies turn around and hike their fees to paying customers. But those of use paying for the free service for the poor, should be happy about this infuriating situation, says Gary Carter, manager of national partnerships for Assurance, because “the program is about peace of mind.” Free cell service means “one less bill that someone has to pay, so they can pay their rent or for day care…it is a right to have peace of mind,” Cater explained.

http://www.nypost.com/p/blogs/capitol/free_cell_phones_are_civil_right_htTMcKQFrjdvyl9A6NHPdP - 53k -

I spent two hours with a mortgage broker trying to get inside info on what is happening. First, he told me not to buy as he expects another 20% drop in housing next year. Second, he told me that the banks are playing a new game here in CA. They are lowering principle on many house mortgages within a months time (toxic mortgages) and converting them to fixed rate 40-50 year mortgages at rates between 1-3%. The purpose is to not let houses go into foreclosure and reset neighborhood pricing for fear that others will do strategic defaults, get some income on the books, clear toxic loans so that they can be moved, all in hopes that the high priced RE market will return down the road.
It reminds me of Macy’s department store; keep the pricing high but always put it on sale to move it with the idea that later on you can return to your high baseline pricing. Same for the auto industry and sticker pricing that no one pays.

Yesterday I took my old dryer to the shop that repairs and sells refurbished appliances. The manager there told me that the newer units are only designed to last 5-10 years versus the older ones that lasted 20+ years. I bought it there used in August 2009 for $175, and yesterday for forty bucks had a new thermostat and fuse put in it while I waited. It was quite tempting to bite the bullet and go to Lowes and plop down $500+ for a new one. (I am glad too that my frugal ways from an economically challenging 2010 are still with me.)

The point being, across the board we see a reduction in quality of products with only marginal increases of price. So the perception is that we have only slight inflation although they are substituting cheaper ingredients/components in production of goods – a term I heard used was “value deflation.” Dryers, Twinkies, khakis, tools – everything sees a degradation in quality or size of portions. If you do want to buy something of comparable quality, the cost is exorbitant, and possibly a truer reflection of inflation.

MasterCard posts 33 percent profit increase

By EILEEN AJ CONNELLY The Associated Press
Posted: 8:41 a.m. Wednesday, Aug. 3, 2011

NEW YORK — U.S. shoppers kept on using their MasterCards in July even as uncertainty about the economy increased.

Spending with credit and debit cards bearing the company’s logo rose about 12 percent in the U.S. compared with July 2010, Chief Financial Officer Martina Hund-Mejean of Mastercard Inc. said Wednesday.

About 2 points of that increase came from gas prices, which averaged about $1 per gallon higher than a year ago. Inflation also played a part in higher clothing and food costs, and more expensive luxury items due to record prices for gold and silver, she said.

Other increases came from expanding fees and surcharges that airlines charge, and increased spending in restaurants and hotels, the CFO said during an interview.

Spending was slowing down at this time a year ago.

Still, there is an apparent split in the consumer base.

“We have two types of consumers in the United States,” Hund-Mejean said during a conference call to discuss the company’s second-quarter results. Those people who have a job and expect to keep it “feel that they can go out and do the spending that they need to do,” she said. “Then, on the other hand, you have the consumer who is not quite as well off, who is not able to do it like that.”

The end of cheap goods.

http://www.economist.com/node/18805862

“IT IS the end of cheap goods,” says Bruce Rockowitz. He is the chief executive of Li & Fung, a company that sources more clothes and common household products from Asia than perhaps any other. In the low-tech areas in which Li & Fung specialises, the firm handles an estimated 4% of China’s exports to America and a sizeable chunk of its exports to Europe, too. It has operations in several East Asian countries, where it diligently searches for cheap, reliable suppliers of everything from handbags to bar stools. So when Mr Rockowitz says the era of low-cost Asian production is drawing to a close, people listen.

Nothing can replace the Chinese miracle. “There is no next,” says Mr Rockowitz. Prices will now start to rise by 5% or more each year, with no end in sight. And that may be optimistic. So far this year, Mr Rockowitz says, Li & Fung’s sourcing operation has seen price increases of 15% on average. Other sourcers of Asian toys, clothes and basic household products tell similarly ominous tales.

Too bad the draconian cuts in federal spending negotiated by the Tea Party are likely to result in SLOWER GROWTH / BIGGER DEFICITS.

But it’s all OK, as I’m sure the Republicans will easily convince the American voter that next year’s worsening economic slump is Obama’s fault.

Slower Growth Means Bigger Deficits
Categories: Government, Debt
10:32 am
August 3, 2011
by Jacob Goldstein

Of all the ways to bring down government deficits and make the national debt more manageable, economic growth is by far the most pleasant.

When GDP grows, companies and individuals make more money and pay more taxes. So more economic growth means lower deficits. Economic growth also means the existing national debt gets smaller relative to the overall economy.

But there’s a flip side to this: Slow economic growth — or, in very bad times, an economy that’s actually shrinking — makes deficits bigger and debt more difficult to deal with.

So the recent report that the U.S. economy is growing much more slowly than expected is bad news for the country’s long-term debt outlook.

The CBO — the non-partisan scorekeeper that Washington looks to for deficit projections — estimated that the U.S. economy will grow at a rate of 3.1 percent this year.

But the economy actually grew at an annual rate of less than 1 percent in the first half of this year, according to the GDP numbers released just a few days ago. Even if growth picks up in the second half, it’s very likely that economic growth for the full year will be significantly lower than CBO projected.
…

I can’t wait to hear the Tea Party people try to blame a worsening economic downturn on Democrats, instead of taking personal responsibility for the economic impact of draconian federal spending cuts on which they insisted.

House GOP Freshmen Talk Loudly, Carry Big Sticks
by Scott Neuman

Rep. Trey Gowdy (C), R-SC, speaks as he and a group of freshmen Republican congressmen hold a news conference on the debt ceiling July 19 in front of the White House.

August 3, 2011

There’s one thing that freshman Republicans and the old-guard GOP leadership can agree on — the Class of 2010 fundamentally changed the focus of the debate over taxes and spending.

In a key test of their clout, the group of congressional newcomers largely stuck to their guns through tense negotiations, forcing a first-ever cap on discretionary spending and staving off tax increases.

“I cannot recall in my own experience or in my studies this ever happening before,” said Allan Lichtman, a history professor at American University in Washington. “Such a group of backbenchers changing the debate in such a short amount of time is really incredible.”
…

Drunken Ben Bernanke Tells Everyone At Neighborhood Bar How Screwed U.S. Economy Really Is

http://www.theonion.com/articles/drunken-ben-bernanke-tells-everyone-at-neighborhoo,21059/

As many are often prone to point out, Americans got exactly the policy makers their votes put into office.

Debt-Ceiling Deal Does Little For Global Economic Ills
by Tom Gjelten
August 3, 2011

With the fight over the U.S. debt ceiling finally over, investors are free again to focus on all the economic challenges that lie ahead, but they are finding little reason to celebrate. Stock markets around the world fell sharply on Tuesday, skipping the “relief rally” that customarily follows the resolution of a crisis.

In the United States, signs of a serious economic slowdown had been building up, though with attention focused on the debt-ceiling debate, the news had apparently not yet sunk in.

The U.S. economy, as measured by gross domestic product, barely grew in the first two quarters, manufacturing slumped and consumer spending fell in June for the first time in nearly two years. The stalemate over the debt ceiling only aggravated what was already a bad situation.

“Our economy didn’t need Washington to come along with a manufactured crisis to make things worse,” said President Obama, commenting on the approval of a new debt ceiling. He offered little hope for a quick recovery.
…

Let me see if I understand.

As we offshored our industrial base, we became more and more dependant on debt. We buy from China, they loan us the money back to maintain the peg between the Yuan and dollar, and so we can buy more of thier stuff. Then we buy more of their stuff with the money they loaned us, which they loan back to us again so we can again buy more of thier stuff…

Household: $1394.4B
Business: $1479.7B
Total HH+Bis: $2874.1B

CPI change 2.47x
Population change = 1.2

So. 2874.1 * 2.4 * 1.2 = $8277.4B IF debt had only increased at the sustainable level as determined by inflation and population growth.

Actual debt:
Household: 13386.2
Business: 10876.1
Total HH+Bis: 24262.3

So, if debt had only increased at the sustainable rate, we would have $8.3T of household and business debt, but we actually have $24.3T in business and household debt.

This does not even include government debt.

We are told by Republicans that if we raise taxes, or put controls in place to stop the wreckless growth of private sector debt, it will be a jobs killer. We are told by the Democrats that if cut spending, it will be a jobs killer. One thing all can agree on is that we can not keep running government deficits of our current size for long without either default and depression, or having the Fed try to print our way out causing terrible stagflation.

There are many arguments as to which is the best of the two bad solutions to our economic situation. Cut spending and just let the poor and middle classes plunge into depression while keeping the top 10% of the economy humming along a little longer, until the next collapse when the government won’t be able to do a TARP because there will be no one to pay for it. Or, perhaps we could crush the financial sector, the only sector of our econmy not in depression, to provide services for the poor and middle-classes, just a little longer.

Perhaps it is time to approach this from a different point of view. We are in a trade war with China, India and much of the world. China pegs its currency to ours, preventing currency exchange rates from adusting as needed to sloew the flow of improts from there into the US. They refuse to enforce international copyright laws. They are demanding software companies hire programmers and other tech workers in China, or they will not buy their software. My current company hires 2 people in China every time an American leaves the company, to help penetrate the Chinese market.

Perhaps it is time to launch our own trade war, and no, not as we have done so far, by just printing dollars out of thin air, to devalue them as we have done so far. Factory workers in China make $3 an hour and in the USA $15. Can we really afford $20 a gallon gas to finally break China’s will to maintain the peg, and adjust thier wages to be competative with ours? Really?

I think that we can not cut our way out, we can’t spend our way out, we can’t tax our way out, we can’t print our way out. We need another option that doesn’t involve either Fiscal or Monitary policies as those are both just using more debt. You can not fix a debt problem with more debt.

So, are we doomed? Are our best days behind us? Are we doomed to go the way of the Roman Empire or the European PIIGS? Spending did not help them, and now austarity is not helping them.

Perhaps, and I know this is going to sound like something out of the stone age, perhaps it is time to institute tarrifs based upon the average wage in foreign countries in relation to our own. So, with China’s $3 an hour compared to our $15, there would need to be a 500% tarrif on the price of the item.

Yes, this will cause the price of imports from China to skyrocket. However, it would also plug the trade deficit, bring industrial jobs back to the United States. Food and Energy prices would not have to inflate 500% as well, since we import less of that than consumer goods. Our standard of living would suffer, but that is inevitable. Tariffs would return us to a 1940-1960s style manufacturing economy where we have a hope of maintaining full employment without bubbles like junk bonds, DotCom and real estate. It would allow a long-term sustainable economy, not based on ever increasing debt.

Looking on the bright side, the debt ceiling deal has opened up a great opportunity for dips to buy.

Raising the Debt Ceiling
President Obama signed the debt deal — but that can’t fix the economy
Marketplace Morning Report, Wednesday, August 3, 2011

Deep spending cuts could hamper economic growth, and some analysts say the debt deal may actually spook investors, rather than reassure them

An exit sign for economic recovery

Bob Moon: So, the debt ceiling deal was signed by the president last night, averting a risk of self-imposed crisis. But may be like one of those heap umbrellas in a building storm. For one thing global markets are down across the board this morning, following a sharp drop in U.S. markets yesterday.
…

Gov’t will borrow $72B in debt auctions next week

WASHINGTON (AP) — The government will borrow $72 billion in debt auctions next week now that Congress has raised the nation’s borrowing limit.

The Treasury Department says it will sell 3-year notes, 10-year notes and 30-year bonds to raise the money. About one-third will go to repay debts that are due on Aug. 15.

President Barack Obama cleared the way for the auction on Tuesday when he signed into a law a bill that raises the debt ceiling and promises more than $2 trillion in cuts to government spending over the next decade.

The U.S. government currently borrows 40 cents of every dollar that it spends.

What the heck happened to all the “job creation” promised by the hope&change administration?

ITEM: Unemployment rose in nearly all US cities
August 03, 2011

WASHINGTON (AP) – Unemployment rose in more than 90 percent of U.S. cities in June, mirroring a national slowdown in hiring.

The Labor Department says the unemployment rate rose in 345 large metro areas. It dropped in 20 cities and was unchanged in seven. That’s worse than May, when the rate rose in only 210 cities and a sharp reversal from April, when unemployment actually fell in nearly all metro areas.

The biggest increase was in Joplin, Mo, which was hit by a major tornado on May 22. The city lost 9,400 jobs in June and the unemployment rate jumped nearly 2 percentage points, to 9.6 percent.

Airlines May See $1.3B ‘Windfall’ in FAA Shutdown (Bloomberg)

Lost FAA taxes would amount to about $1.3 billion through Sept. 7, when Congress resumes legislative business, said Laura Brown, an agency spokeswoman.

U.S. airlines led by United Continental Holdings Inc. (UAL) may pocket $1.3 billion in higher fares tied to the Federal Aviation Administration’s partial shutdown as Congress deadlocks on the agency’s funding.

The FAA already has been unable to collect $28.6 million a day in aviation taxes since midnight on July 22. Missed receipts may climb by $1 billion more until lawmakers reconvene in September, FAA Administrator Randy Babbitt said yesterday.

The largest U.S. carriers, including United, Delta Air Lines Inc. (DAL) and Southwest Airlines Co. (LUV), stand to reap that much new revenue after raising fares to mirror the suspended taxes and keeping the difference, said Rick Seaney, chief executive officer of Dallas-based ticket researcher FareCompare.com.

“This is manna from heaven, and a real windfall for the airlines,” Seaney said in an interview. “I don’t expect them to drop the fare increases. Why would they? Total ticket prices are the same and it doesn’t seem to be hurting bookings.”

Congress was set to begin its August recess today without a new FAA funding bill. The expiration of tax-collecting authority last month halted a 7.5 percent sales tax on domestic tickets and a $3.70 fee for each flight segment. Similar, higher fees on international tickets also were suspended, and airlines started saving about 15 cents a gallon on jet fuel.

“We don’t know how long it’s going to last, and we can’t sit here with 100 percent conviction that the government won’t make the airlines repay this somehow,” said Hunter Keay, an analyst at Wolfe Trahan & Co. in New York. “All it takes is some law to be passed, an FAA recollection-type bill.”

carney says no double dip…so it’s all good!

Neb. mine find to challenge China’s dominance of vital rare minerals
Elements coveted for high-tech uses. ~ Washington Times

Elk Creek, Neb. (population 112), may not be so tiny much longer. Reports suggest that the southeastern Nebraska hamlet may be sitting on the world’s largest untapped deposit of “rare earth” minerals, which have proved to be indispensable to a slew of high-tech and military applications such as laser pointers, stadium lighting, electric car batteries and sophisticated missile-guidance systems.

Canada-based Quantum Rare Earths Developments Corp. last week received preliminary results from test drilling in the area, showing “significant” proportions of “rare earth” minerals and niobium.

The only people more excited than Quantum? The residents of Elk Creek, where nearly one in seven people live under the poverty line, but whose economy has been booming ever since the company showed up late last year to start laying the groundwork for a possible mining bonanza.

“It’s been a very, very positive experience for our community,” said state Sen. Lavon Heidemann, an Elk Creek farmer. “When Quantum came in here, they put money in the local community. And any time you have money flowing in a small town, that’s a positive.”

Beaulieu will eliminate 125 jobs at Eufaula, Alabama plant.
~ The Eufaula Tribune.

Barbour County’s frail economy will soon take another jolt.

Beaulieu of America officials announced this week that the carpet manufacturer would eliminate 125 jobs in the Eufaula spun yarn facility by early October. Beaulieu currently employs 312 individuals at the Eufaula plant, which is located in the Eufaula Industrial Park. Most of those workers are from Barbour and Quitman counties.

“The carpet industry has been hit very hard in this recession and the industry demand for spun yarn has declined dramatically over the past few years,” Patricia Flavin, the senior vice president for marketing at Beaulieu, stated in an email to The Eufaula Tribune.

http://www.mediaroots.org/who-rules-america-breaking-down-the-top-1.php

great article.

The Grand Budget Compromise Cuts A Measly $21B From Next Year’s Budget Of $3.7 TRILLION - Congress Creates A Rube Goldberg Doomsday Machine

By Randy Wray, Professor of Economics at the University of Missouri-Kansas City and Senior Scholar at the Levy Economics Institute of Bard College.

Source - EconoMonitor

Don’t you feel relieved? After weeks of threats, hostage-taking, and other forms of deficit terrorism, our two political parties have finally “compromised” on what was always a foregone conclusion.

Washington got what it wanted—a down payment on destruction of the last remnants of progressive policy. Soon, it will be 1929 all over again. We can make believe that the New Deal and Great Society programs never existed, and go back to the good old days when it was every “man” for himself.

Superficially, the spending cuts don’t look like much. The grand compromise cuts $21 billion next year from a budget of $3.7 trillion—sort of like foregoing one Big Mac from your annual food budget. In spite of all the talk about needing to take the medicine now, rather than kicking the “deficit crisis” down the road, Congress adopted a plan to kick that can right down the interstate.

It might make you wonder what the fuss was about.

All sides expressed their displeasure, as they held their noses and voted for the putrid heap of a plan. That is pure political theater, of course. Republicans fear a backlash from the fringe right that wanted immediate elimination of all social spending. Democrats fear a backlash from working Americans—the 70% or so who vehemently oppose any cuts to Social Security, Medicare, and Medicaid. And so both sides say they hate the plan, but under the circumstances it was the best that could be secured.

And both sides agree that the looming fiscal crisis still looms. So they have created a Rube Goldberg machine to do what they know they cannot: the bill contains automatic triggers and across the board cuts that take effect if Congress cannot ram through cuts to so-called entitlements.

I do not want to go deeply into the details, but here is a quick summary. The bill contains $1 trillion in cuts, spread over coming years. It creates a bipartisan committee that is supposed to find another $1.5 trillion to cut by Thanksgiving; Congress must vote on the recommendations by Christmas. If all that fails, $1 trillion across the board cuts will take effect. In return the debt limit is raised by $400 billion now, and another $500 billion later. Congress can vote to stop the debt limit hikes, but the President can and will veto such a vote—letting Congressional weenies save face.

Finally, by New Year’s day Congress must vote to send a balanced budget amendment to the states; if they vote to do so, Obama can ask for a $1.5 trillion increase to the debt limit; otherwise he can ask for only $1.2 trillion. Congress gets to vote on that increase, too, but Obama gets to override that, too! (Don’t you love the way each milestone coincides with a national holiday?)

Are you still following? All of this is designed to allow Congress to shirk its job, of course—to build a Rube Goldberg machine to accomplish what our elected wieners (sorry, Anthony, you saw it coming) know would hurt them in the next election.

Here is the Beltway’s fantasy. The US government is running out of money. The main cause is the “entitlements”—all those deadbeats expecting hand-outs from Washington. Alan Simpson, co-chairman of the President’s previous deficit commission, put it this way: “We’ve reached a point now where it’s like a milk cow with 310 million tits! Call when you get honest work!”

I want to be clear. This is not a partisan position. Everyone in Washington accepts it—from the progressive think tanks to the nuttiest free marketeers; from the politicians to NPR’s reporters; from Pete Peterson’s hedge fund cronies to organized labor. All present a unified front against budget deficits—particularly those due to “infinite horizon” deficits that result from “entitlements”.

If we project Social Security benefit payments and payroll taxes through infinity, and subtract revenues from spending, we get a big deficit number. If we then project Medicare spending and tax revenues through infinity we get an even bigger number. Tens of Trillions of dollars.

And so we need that Rube Goldberg doomsday machine that cannot be stopped by human hand. It all kicks in automatically to slash entitlements because we know that neither voters nor their representatives will act to avert fiscal catastrophe that will sooner rather than later bankrupt the US government.

New Yorkers Fleeing State
BY NEWSCORE

ALBANY, N.Y. - Taxed-out New Yorkers are voting with their feet, with a staggering 1.6 million residents fleeing the state over the last decade.

For the second consecutive decade, New York led the nation in the percentage of residents leaving for other states, according to the report by the Empire Center for State Policy.

The population loss is “the ultimate barometer of New York’s attractiveness as a place to work, live and do business,” the report’s co-author, E.J. McMahon, said. “It’s the ultimate indication that we’ve been doing things wrong.”

Most analysts blamed New York’s high taxes and skyrocketing cost of living for the mass exodus.

The Tax Foundation ranked New York highest in the nation in the combined state and local tax burden in 2008. And as small-business lobbyist Mike Durant noted, New York has also “consistently ranked worst or in the top three worst in business climate. You can’t suck every penny out of people and expect them to remain in New York.”

View: Postal Service Needs Fewer Workers to Deliver
~ Bloomberg

Here are three remarkable facts about the United States Postal Service: Its union workers have no- layoff contracts; no post office branches can be closed solely because they lose money; and, as revealed in an investigation by Bloomberg Businessweek, the service is so dependent on low- profit junk mail for revenue that it has a marketing officer tasked with lobbying banks not to switch to electronic statements.

All of which leads to an unsurprising reality: The USPS lost $8 billion last year, and has been kept on life support with $15 billion from the Treasury. Postmaster General Patrick Donahoe warns that it could default on those loans in October.

The USPS, which is supposed to be self-financing, faces a dismal future. Total mail volume fell by 20 percent between 2006 and 2010, with the biggest drop-off in first-class mail, the most profitable type.

Donahoe has proposed shuttering 3,700 of the nearly 32,000 post offices across the U.S. and having mom-and-pop stores, pharmacies and possibly large retailers take over local postal services. This is a sensible plan — European agencies have done the same with great success — but it would save only about $200 million, a drop in the bucket. And even this timid step has lawmakers waxing nostalgic over the mail: Senator Susan Collins of Maine insists that closing branches “simply is not an option in many rural and remote areas.”

In the long run, closing branches doesn’t get to the root of the fiscal problem: Eighty percent of the USPS budget goes to salaries and benefits. By contrast, United Parcel Service Inc. (UPS) spends 61 percent on those costs, and FedEx only 43 percent. Postal employees pay a smaller share of their salary for health care than most other federal workers, and, as reported by the Washington Post, more than 850 senior managers get their health care absolutely free.

Yet the USPS continues to plant the seeds of its own destruction. This year it reached a new contract with the union representing its mail clerks, drivers, mechanics and custodians that included a continuation of the no-layoffs clause for current workers, a 3.5 percent raise over 4 1/2 years, and regular cost of living increases. (The postal service claims that it was trying to avoid arbitration that might have resulted in an even more costly package, and it may have a point.)

The service’s management and unions are living in denial — both want the service to be freed from having to finance its health-care plan for retirees in advance to the tune of $5.5 billion a year. They also push a sketchy claim that the USPS has overpaid the Civil Service Retirement System by as much as $75 billion since the 1970s and deserves the money back from Congress.

15 homeless shelters at risk of closing
By VANESSA HO, SEATTLEPI.COM STAFF

A cut in federal funding to local social services has prompted one provider to say it will close all 15 of its indoor homeless shelters by next week if no other funds emerge. The closures would affect roughly 400 people.

The announcement came after King County was axed from a longtime source of federal funding for emergency shelter and feeding programs. Last year, the county received $1.2 million from the funds, which went to the YWCA, the Salvation Army, small food banks and other programs.

About $44,000 went to SHARE, the Seattle-based group that runs the 15 shelters. SHARE said the loss of funding meant it had run out of money for bus vouchers to ferry people to and from shelters.

Without the vouchers, the shelters – scattered throughout the county and housed mostly in churches – were useless, the group said.

“We don’t have any money. We have a week’s worth of bus tickets in hand. It’s a disaster for our organization and homeless people,” said Jarvis Capucion, a member of SHARE and its sister organization, WHEEL.

Capucion said the group was already struggling with a budget gap, and that the vouchers, the group’s biggest expense, are about $12,000 to $13,000 a month. He said the organization had been waiting months for the funding and didn’t learn until this week that it had dried up.

Z Foods plant in Madera going out of business
Process starts with the layoffs of 200.
By Tim Sheehan / The Fresno Bee

Z Foods, a dried-fruit processor in Madera, is laying off about 200 of its seasonal workers this week as the company starts going out of business.

The layoffs and plant closure come after the company failed to find a buyer to take over the business, county employment officials said Monday.

In June, company officials said they were in talks with several potential buyers and had filed a layoff notice with the state Employment Development Department just as a precaution in case a sale did not go through. “If we don’t have a buyer, one option is to liquidate the company,” David Aquino, human resources manager for Z Foods, said at that time.

Aquino could not be reached Monday. In June, he told The Bee that the company employs about 100 people year-round, with the seasonal work force peaking at 400.

County officials said the Z Foods closure will immediately affect about 200 employees. “They are beginning the layoffs with sorters who are working at the plant now,” said Elaine Craig, executive director of the Madera County Workforce Assistance Center.

Craig said Workforce Assistance officials will visit the plant today and Thursday. They will explain to workers how to file unemployment claims and apply for other aid and services available to them, including help with job placement and referrals or worker retraining programs.

The company’s layoff notice to the state indicates 350 of the plant’s employees are general laborers. The rest are forklift drivers, supervisors, sales and support staff, maintenance workers and others, including managers.

Madera County is asking the state for more Dislocated Worker Fund money to help the surge of employees affected by the layoff. Because of budget cuts, Craig said, “we don’t have the money to deal with 400 more layoffs.”

The plant occupies about 30 acres on Road 291/2 southeast of Madera. It dries and processes cherries, apricots, peaches, plums, nectarines and others, primarily as ingredients for the baking and food-service industries.

A couple of real estate tidbits from Tucson:

Owner, charged with arson, selling Lost Barrio buildings - Story says, “In a text message to the Star on Tuesday, Gibson said he’s got his buildings up for sale because he has “a note” coming due on them next year. In interviews, however, one of Gibson’s current tenants and another Lost Barrio business owner said he probably needs money to pay his legal expenses in the pending arson case.” Methinks that he was deeply underwater on the property. In his mind, torching it was the way out from under the debt burden. And then he got caught.

Pima County foreclosure numbers drop again - But local rate of loan defaults remains high in national rankings - One story comment notes heavy buying by investors. But I think that a lot of those investors will fail to realize the appreciation that they’re hoping for. (There’s a lot of “You’d better buy before prices go up again!” rhetoric around here. And when you ask the rhetoricians what they think will drive any sort of house price increase, they’re at a loss for words. Because job growth and incomes sure aren’t going up in Tucson.)

I also predict that our latest crop of investors will find out that SFR landlording isn’t as much fun as they thought it would be.

http://market-ticker.org/akcs-www?post=191279

Limbaugh finally gets it (starting to move past “Democrats Bad, Republicans Good” and realize they BOTH got us into this mess).

One bit of good news is - Congress has gone home.

The bad news is Congressfolk have put us deeper in debt than ever.

Part 2 of Great Recession about to appear at a theater near you. There’s a double feature with David Lereah pulled out of mothballs to do peculiar stunts with Joshua Trees.

Did someone create a company for the sole purpose of giving to a political action committee trying to boost Mitt Romney’s 2012 presidential campaign?

That’s what it looks like. As The Ticket reported earlier this week, three firms gave $1 million apiece to Restore Our Future, a conservative “super PAC” planning to spend millions to help Romney’s White House bid.

One of those companies was W. Spann LLC, a mysterious New York-based company that apparently closed up shop last month shortly after its contribution to the pro-Romney PAC. As NBC News’s Michael Isikoff reports, the company was formed in March by Boston estate tax lawyer Cameron Casey and listed a midtown Manhattan address where the landlord says there’s no record of the firm being a tenant.

The company gave $1 million to Restore Our Future on April 28, and according to records obtained by Isikoff, dissolved on July 12th, just two weeks before the pro-Romney PAC disclosed its donors to the Federal Election Commission. There’s no indication in the records of what the company did or who its owners or principals were.

How dare this author question the free speech of money.