So, while the banking system is groaning under the weight of a collapsing housing market and economy, our federal government is going to add more weight to their backs to support the FDIC system. This is exactly like taxing the people more in order to stimulate the economy: totally ass-backwards.
So what happens later this year when the FDIC goes broke? If you are not preparing for that eventuality, you should be. You think 2009 is looking bad. In 2010, you will look back to now as the good times. Prepare yourself now by getting involved in a local currency, and encouraging your state to set up its own public bank. IF we can get the alternative infrastructure in place before the collapse, collateral damage can be limited. Otherwise, if the collapse happens with no contingency plans in place, the forecast is dark, very dark.
http://news.yahoo.com/s/afp/20090305/bs_afp/financeeconomyusbankinggovernment
The US government is warning banks that its deposit insurance fund could go broke this year as bank failures mount.
The head of the Federal Deposit Insurance Corporation, Sheila Bair, in a letter to bank chief executives dated March 2, defended the FDIC's plan to raise fees on banks and assess an emergency fee to shore up the fund and maintain investor confidence.
Bair acknowledged the new fees, announced Friday, would put additional pressure on banks at time of financial crisis and a deepening recession, but insisted they were critical to keep the insurance fund solvent and protect.
"Without these assessments, the deposit insurance fund could become insolvent this year," Bair wrote.
The FDIC chief said in the letter that the rapidly deteriorating economic conditions raised the prospects of "a large number" of bank failures through 2010.
"Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative," she wrote.
The FDIC last Friday announced it would impose a temporary emergency fee on lenders and raise its regular assessments to shore up the rapidly depleting deposit insurance fund that insures individual customer deposits up to 250,000 dollars.
A week ago the FDIC reported a sharp depletion of the deposit insurance fund in the fourth quarter due to actual and anticipated bank failures, to 19 billion dollars from 34.6 billion in the third quarter.
The FDIC said it had set aside an additional 22 billion dollars for estimated losses on failures anticipated in 2009.
Thursday, March 5, 2009
Mortgage Meltdown - 1 in 8 Now Behind
The home value crisis is spreading nationwide, no longer contained to the big four bubble states (CA, AZ, NV, FL). Nor is it contained to sub-prime. The mortgage crisis is spreading throughout the nation, and to prime borrowers.
This is yet another sign of the deflationary death spiral our economy has entered. On debt jubilee can end the destructive spiral. When will our leaders begin to discuss it? Not until we force them to.
http://news.yahoo.com/s/ap/20090305/ap_on_bi_ge/states_foreclosures
A record 5.4 million American homeowners with a mortgage of any kind, or nearly 12 percent, were at least one month late or in foreclosure at the end of last year, the Mortgage Bankers Association reported. That's up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.
48% percent of the nation's homeowners who have a subprime, adjustable-rate mortgage are behind on their payments or in foreclosure,
The rate for homeowners with all mortgage types hit a new record.
The foreclosure crisis now is being fueled by a spike in defaults in states like Louisiana, New York, Georgia and Texas, where the economies are rapidly deteriorating and thousands are losing their jobs. Prime and subprime fixed-rate loans saw sharp increases in the fourth quarter, a sign that the problem is now the economy. "We're seeing increases in fixed-rate categories and that's where the problems are coming from," said Jay Brinkmann, the group's chief economist. "The foreclosure picture is more clearly driven by the jobs market."
That trend highlights one of the biggest challenges confronting the Obama administration's mortgage relief plan launched this week. While the $75 billion plan could help change the loan terms or refinance up to 9 million homeowners, unemployed borrowers will have a hard time qualifying. On Thursday, the Labor Department said new unemployment claims last week totaled 639,000, lower than expected, but still at elevated levels. Factory orders also slipped for the sixth month in a row in January, the Commerce Department reported. "There can be no doubt that employers continue to shed labor at a frightening pace, with no end in sight," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a client note Wednesday. The key is what kind of workers are losing their jobs, Brinkmann said. Unemployment for people with college degrees, some college education or technical training — those most likely to own homes and have prime fixed-rate loans — has nearly doubled over the past six months. In New York, for example, where the financial industry is handing out pink slips like ticker tape, homeowners who once had good credit are defaulting at an increasing clip.
The only bright spot in the report is the devastation wrought by subprime ARMs appears to be waning. Their 30-day delinquency rate continues to fall and is at the lowest point since the first quarter of 2007. That offers little reassurance to Florida, where 60 percent of homeowners who have a subprime ARM are at least one payment behind and one in five of all mortgage holders aren't current.
This is yet another sign of the deflationary death spiral our economy has entered. On debt jubilee can end the destructive spiral. When will our leaders begin to discuss it? Not until we force them to.
http://news.yahoo.com/s/ap/20090305/ap_on_bi_ge/states_foreclosures
A record 5.4 million American homeowners with a mortgage of any kind, or nearly 12 percent, were at least one month late or in foreclosure at the end of last year, the Mortgage Bankers Association reported. That's up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.
48% percent of the nation's homeowners who have a subprime, adjustable-rate mortgage are behind on their payments or in foreclosure,
The rate for homeowners with all mortgage types hit a new record.
The foreclosure crisis now is being fueled by a spike in defaults in states like Louisiana, New York, Georgia and Texas, where the economies are rapidly deteriorating and thousands are losing their jobs. Prime and subprime fixed-rate loans saw sharp increases in the fourth quarter, a sign that the problem is now the economy. "We're seeing increases in fixed-rate categories and that's where the problems are coming from," said Jay Brinkmann, the group's chief economist. "The foreclosure picture is more clearly driven by the jobs market."
That trend highlights one of the biggest challenges confronting the Obama administration's mortgage relief plan launched this week. While the $75 billion plan could help change the loan terms or refinance up to 9 million homeowners, unemployed borrowers will have a hard time qualifying. On Thursday, the Labor Department said new unemployment claims last week totaled 639,000, lower than expected, but still at elevated levels. Factory orders also slipped for the sixth month in a row in January, the Commerce Department reported. "There can be no doubt that employers continue to shed labor at a frightening pace, with no end in sight," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a client note Wednesday. The key is what kind of workers are losing their jobs, Brinkmann said. Unemployment for people with college degrees, some college education or technical training — those most likely to own homes and have prime fixed-rate loans — has nearly doubled over the past six months. In New York, for example, where the financial industry is handing out pink slips like ticker tape, homeowners who once had good credit are defaulting at an increasing clip.
The only bright spot in the report is the devastation wrought by subprime ARMs appears to be waning. Their 30-day delinquency rate continues to fall and is at the lowest point since the first quarter of 2007. That offers little reassurance to Florida, where 60 percent of homeowners who have a subprime ARM are at least one payment behind and one in five of all mortgage holders aren't current.
Wednesday, March 4, 2009
Urban Sharecropping
Many people now foresee the need to acquire personal food security, but do not have an adequate space to garden. Other people are interested in the economic advantages of being a food producer in the upcoming times of food shortages, but again, are stuck in the city with no real land to begin growing on.
Sharecropping is a potential solution to the problem of lack of personal wealth, capital, or land. In short, you don't have to own your own farm, or even your own equipment, to become a farmer. Sharecropping means that you rent someone else's land to produce the food on. The rent can be a cash payment, or, more traditionally, cutting the land owner in on a share of the profit when the harvest is sold. Or you can simply offer them a certain amount of the food harvested.
Usually, the percent you pay to the landowner depends of how much you bring to the table versus how much they are supplying, in terms of equipment and supplies. Sharecropping as a widespread economic feature of American pretty much died off in the first half of the 20th century, so there is no comparative market today. In short, you will just have to negotiate with whoever you can, and come to any agreement that seems reasonable.
For example, in the ritzy part of your town, there are well-off people living on large plots of land, who are growing nothing but grass. You could approach them and ask if you could grow food on their property. They might be willing to do so, merely for the promise of the fresh organic vegetables you will grow. If they are enthusiastic about it, they might even cover the cost of a tiller, or let you use their tools, or cover the cost of your seeds or fertilizer, or whatever. You can easily imagine how this would work, and the possible benefits for all parties. Good luck, and let me know what systems you work out.
In short, just because you are young and poor does not mean you cannot join in the urban food revolution. Becoming a sharecropper could also be a wise choice if your are otherwise unemployed. Instead of sitting around all day doing nothing, get out and get some economically productive work done. It will also get you out in the community, meeting people, and establishing networks of support, which might prove vital in tough times, or an emergency.
Sharecropping is a potential solution to the problem of lack of personal wealth, capital, or land. In short, you don't have to own your own farm, or even your own equipment, to become a farmer. Sharecropping means that you rent someone else's land to produce the food on. The rent can be a cash payment, or, more traditionally, cutting the land owner in on a share of the profit when the harvest is sold. Or you can simply offer them a certain amount of the food harvested.
Usually, the percent you pay to the landowner depends of how much you bring to the table versus how much they are supplying, in terms of equipment and supplies. Sharecropping as a widespread economic feature of American pretty much died off in the first half of the 20th century, so there is no comparative market today. In short, you will just have to negotiate with whoever you can, and come to any agreement that seems reasonable.
For example, in the ritzy part of your town, there are well-off people living on large plots of land, who are growing nothing but grass. You could approach them and ask if you could grow food on their property. They might be willing to do so, merely for the promise of the fresh organic vegetables you will grow. If they are enthusiastic about it, they might even cover the cost of a tiller, or let you use their tools, or cover the cost of your seeds or fertilizer, or whatever. You can easily imagine how this would work, and the possible benefits for all parties. Good luck, and let me know what systems you work out.
In short, just because you are young and poor does not mean you cannot join in the urban food revolution. Becoming a sharecropper could also be a wise choice if your are otherwise unemployed. Instead of sitting around all day doing nothing, get out and get some economically productive work done. It will also get you out in the community, meeting people, and establishing networks of support, which might prove vital in tough times, or an emergency.
A Rise in Bartering
An upswing in the practice of borrowing has already been noticed. Craigslist was specifically mentioned as the enabler for this new cashless economy. As our monetary troubles kick into high gear, the efficiency of the bartering economy will need to improve to take up the slack.
http://www.baltimoresun.com/business/bal-bartering0302,0,2106316.story
http://www.baltimoresun.com/business/bal-bartering0302,0,2106316.story
Tuesday, March 3, 2009
How Debt Destroys Commerce: case study San Diego
Classic real life example of how a high-debt deflation wipes out the economy. Unfortunately, the reporter in the newspaper article does not grasp the root cause. Like everyone else, it is just assumed to be a force of nature, unstoppable.
In fact, if there was less debt at the root level, rents could be reduced, allowing these businesses to stay open. Instead, retailers are forced out of business by the land owners, who are struggling to maintain payments on their notes. It is entirely predictable, and easily solved: lower the debt on the underlying asset.
A mortgage Jubilee would allow marginal businesses to stay afloat instead of liquidating, which puts further pressure on the remaining retailers and real-estate owners, not to mention undermining the health of the overall economy.
It's the perplexing problem afflicting many shopping malls, strip malls and retail complexes across the United States: Owners of commercial properties are trying to preserve cash flow to maintain their mortgage obligations and make a profit. Retail tenants, hard-hit by the recession, are asking for rent reductions and in some cases are shuttering their businesses and leaving empty storefronts.
Merchants at the eclectic Seaport Village shopping complex are seeing something they've rarely seen amid the T-shirt shops and jewelry stores: empty storefronts and liquidation signs. There's the shop near the waterfront that once housed The Cabbage Tree. Its owners recently took the “midnight run” – emptying the gift store in the wee hours and disappearing, leaving landlord Terramar Retail Centers to try to collect on the lease obligation. Across the sidewalk, there's the “Closed for Inventory” sign hanging in the window of Whitt/Krauss Objects of Fine Art. The art gallery filed for Chapter 7 bankruptcy in January, owing creditors for everything from a $5,640 catering bill to about $250,000 in projected 2009 rent and maintenance fees. And a few steps away, the Big Dogs sportswear shop is holding a liquidation sale as the Santa Barbara chain prepares to close all of its 71 stores.
“In almost 25 years in business, I've not seen it this bad,” said Vince Brown, 71, owner of the Crystal Palace, a high-end gift shop at Seaport Village that has been in business since 1985. “Sales are so bad that I have to cover the rent out of my own pocket, but I don't have those kind of resources.” Like many retail tenants, Brown gave a personal guarantee on his lease and therefore is on the hook to pay the rent whether his shop remains in business or not. The only way to get out of the lease obligation, other than a settlement with the landlord, is to file for personal bankruptcy. Brown, who signed a five-year renewal on his lease in 2005 – at the height of the real estate boom, when landlords could command a premium – said he recently asked Terramar to reduce the $6,835 rent on his 980-square-foot shop. In addition to the rent, Brown also pays $2,900 in monthly fees to Terramar, which include so-called common area maintenance fees, money into the marketing pool and real estate taxes.
“They said, 'We don't do reductions; if we give you a rent reduction, it reduces our income,'” Brown said. “I said I understand – but how many empty stores do you want?”
Many analysts predict that retail bankruptcies and shopping center vacancies will accelerate sharply this year if the economy continues to deteriorate and consumers remain on the spending sideline. And as stores close, landlords will have trouble repaying loans. While no one knows the ultimate price tag, as much as $1 trillion worth of U.S. commercial property could undergo foreclosure if the economy and the credit markets don't improve, according to Stanley Tate, president of Miami-based Tate Enterprises and an adviser to the Federal Reserve.
The real estate developer said landlords and tenants need to be negotiating now to work out new lease terms or other financial breaks that will allow stores to survive, and allow landlords to maintain some cash flow on properties that might otherwise be vacant. “It's going to get worse, not better, for at least another year, and the smart landlord will do their best to work with tenants to see what they can do to keep them in business,” said Tate, who a few months ago gave all his tenants in several commercial properties a 15 percent decrease in rent.
In some cases, tenants who had weak businesses to begin with or have products particularly hard-hit by the recession can't be salvaged, Tate said. And some landlords, particularly those who bought or developed properties in the boom years, have little wiggle room to renegotiate lease terms because of their own debt, he said.
Whether some way to provide rent or other financial relief is devised, it will come too late for art gallery owner Jack Krauss. Krauss said he approached Terramar in November about reducing his rent and fees to $15,000, with an upside for the landlord if sales improved. Krauss said he was told the company would take it under consideration, but he never got a formal response. “A rent reduction would have made a big difference; it would have given us a fighting chance,” said Krauss, 72, whose business filed for Chapter 7 bankruptcy. “I was fighting to the end, and they (Terramar) were aware of it.” “This took all my reserves, my savings and the money I'd put away for retirement, and I'll probably have to sell my home,” Krauss said. “I'll have to find a good doorway to live in.”
http://www3.signonsandiego.com/stories/2009/mar/01/lz1b1seaport22537-sink-or-swim/?zIndex=59932
In fact, if there was less debt at the root level, rents could be reduced, allowing these businesses to stay open. Instead, retailers are forced out of business by the land owners, who are struggling to maintain payments on their notes. It is entirely predictable, and easily solved: lower the debt on the underlying asset.
A mortgage Jubilee would allow marginal businesses to stay afloat instead of liquidating, which puts further pressure on the remaining retailers and real-estate owners, not to mention undermining the health of the overall economy.
It's the perplexing problem afflicting many shopping malls, strip malls and retail complexes across the United States: Owners of commercial properties are trying to preserve cash flow to maintain their mortgage obligations and make a profit. Retail tenants, hard-hit by the recession, are asking for rent reductions and in some cases are shuttering their businesses and leaving empty storefronts.
Merchants at the eclectic Seaport Village shopping complex are seeing something they've rarely seen amid the T-shirt shops and jewelry stores: empty storefronts and liquidation signs. There's the shop near the waterfront that once housed The Cabbage Tree. Its owners recently took the “midnight run” – emptying the gift store in the wee hours and disappearing, leaving landlord Terramar Retail Centers to try to collect on the lease obligation. Across the sidewalk, there's the “Closed for Inventory” sign hanging in the window of Whitt/Krauss Objects of Fine Art. The art gallery filed for Chapter 7 bankruptcy in January, owing creditors for everything from a $5,640 catering bill to about $250,000 in projected 2009 rent and maintenance fees. And a few steps away, the Big Dogs sportswear shop is holding a liquidation sale as the Santa Barbara chain prepares to close all of its 71 stores.
“In almost 25 years in business, I've not seen it this bad,” said Vince Brown, 71, owner of the Crystal Palace, a high-end gift shop at Seaport Village that has been in business since 1985. “Sales are so bad that I have to cover the rent out of my own pocket, but I don't have those kind of resources.” Like many retail tenants, Brown gave a personal guarantee on his lease and therefore is on the hook to pay the rent whether his shop remains in business or not. The only way to get out of the lease obligation, other than a settlement with the landlord, is to file for personal bankruptcy. Brown, who signed a five-year renewal on his lease in 2005 – at the height of the real estate boom, when landlords could command a premium – said he recently asked Terramar to reduce the $6,835 rent on his 980-square-foot shop. In addition to the rent, Brown also pays $2,900 in monthly fees to Terramar, which include so-called common area maintenance fees, money into the marketing pool and real estate taxes.
“They said, 'We don't do reductions; if we give you a rent reduction, it reduces our income,'” Brown said. “I said I understand – but how many empty stores do you want?”
Many analysts predict that retail bankruptcies and shopping center vacancies will accelerate sharply this year if the economy continues to deteriorate and consumers remain on the spending sideline. And as stores close, landlords will have trouble repaying loans. While no one knows the ultimate price tag, as much as $1 trillion worth of U.S. commercial property could undergo foreclosure if the economy and the credit markets don't improve, according to Stanley Tate, president of Miami-based Tate Enterprises and an adviser to the Federal Reserve.
The real estate developer said landlords and tenants need to be negotiating now to work out new lease terms or other financial breaks that will allow stores to survive, and allow landlords to maintain some cash flow on properties that might otherwise be vacant. “It's going to get worse, not better, for at least another year, and the smart landlord will do their best to work with tenants to see what they can do to keep them in business,” said Tate, who a few months ago gave all his tenants in several commercial properties a 15 percent decrease in rent.
In some cases, tenants who had weak businesses to begin with or have products particularly hard-hit by the recession can't be salvaged, Tate said. And some landlords, particularly those who bought or developed properties in the boom years, have little wiggle room to renegotiate lease terms because of their own debt, he said.
Whether some way to provide rent or other financial relief is devised, it will come too late for art gallery owner Jack Krauss. Krauss said he approached Terramar in November about reducing his rent and fees to $15,000, with an upside for the landlord if sales improved. Krauss said he was told the company would take it under consideration, but he never got a formal response. “A rent reduction would have made a big difference; it would have given us a fighting chance,” said Krauss, 72, whose business filed for Chapter 7 bankruptcy. “I was fighting to the end, and they (Terramar) were aware of it.” “This took all my reserves, my savings and the money I'd put away for retirement, and I'll probably have to sell my home,” Krauss said. “I'll have to find a good doorway to live in.”
http://www3.signonsandiego.com/stories/2009/mar/01/lz1b1seaport22537-sink-or-swim/?zIndex=59932
Debt Deflation Ravages Europe
It is happening just as industrial output collapses in the eurozone's core states. Germany's economy contracted at 8.4pc annualised in the fourth quarter. ECB president Jean-Claude Trichet said on Monday that "a process of negative feedback" has set in where the banks and the real economy are pulling each other down in a self-reinforcing spiral. Eurozone credit is contracting. Banks are rationing credit as deleveraging gathers pace.
Rob Carnell, global strategist at ING, said the ECB has been painfully slow to acknowledge the global deflation tsunami sweeping across Europe.
"It seems divorced from reality. It is clearly nonsense to talk about inflation now: it has been negative on average for six months. The eurozone purchasing managers' index has fallen twice as fast as in the US, so the ECB should be acting even faster than the Fed," he said.
Mr Trichet said the ECB has increased its balance sheet by €600bn (£525bn) since the Lehman collapse in September. The bank is providing "unlimited liquidity" in exchange for a wide range of collateral, including mortgage bonds issued for the sole purpose of extracting ECB funds.
But the ECB's leading voices have adamantly refused to contemplate going to the next stage: buying bonds and other assets with "printed money". They see that as the Primrose path to hell. This week the tone has abruptly changed, suggesting that a majority of the 16 national bank governors on the ECB council are having second thoughts.
The apparent ring-leader is Cypriot member Anastasios Orphanides, a former Fed official and a world authority on deflation traps. He said on Monday that the ECB may have to go beyond "zero-bound" rates and revealed that an "internal discussion" was under way.
Italy's Mario Draghi is in the "activist-easing" camp. "The experience in the US in the 1930s and Japan in the 1990s suggests that it is necessary to fight, in the early phases of the crisis, the tendency for real interest rates to rise," he said.
Finland's Erkki Liikanen is of the same opinion. "We are facing the worst financial crisis in our time. It is important not to exclude, ex ante, any measures." [Does that include the option of Jubilee???]
http://www.telegraph.co.uk/finance/economics/4788962/ECB-faces-mutiny-from-national-bank-governors-as-recession-deepens.html
Rob Carnell, global strategist at ING, said the ECB has been painfully slow to acknowledge the global deflation tsunami sweeping across Europe.
"It seems divorced from reality. It is clearly nonsense to talk about inflation now: it has been negative on average for six months. The eurozone purchasing managers' index has fallen twice as fast as in the US, so the ECB should be acting even faster than the Fed," he said.
Mr Trichet said the ECB has increased its balance sheet by €600bn (£525bn) since the Lehman collapse in September. The bank is providing "unlimited liquidity" in exchange for a wide range of collateral, including mortgage bonds issued for the sole purpose of extracting ECB funds.
But the ECB's leading voices have adamantly refused to contemplate going to the next stage: buying bonds and other assets with "printed money". They see that as the Primrose path to hell. This week the tone has abruptly changed, suggesting that a majority of the 16 national bank governors on the ECB council are having second thoughts.
The apparent ring-leader is Cypriot member Anastasios Orphanides, a former Fed official and a world authority on deflation traps. He said on Monday that the ECB may have to go beyond "zero-bound" rates and revealed that an "internal discussion" was under way.
Italy's Mario Draghi is in the "activist-easing" camp. "The experience in the US in the 1930s and Japan in the 1990s suggests that it is necessary to fight, in the early phases of the crisis, the tendency for real interest rates to rise," he said.
Finland's Erkki Liikanen is of the same opinion. "We are facing the worst financial crisis in our time. It is important not to exclude, ex ante, any measures." [Does that include the option of Jubilee???]
http://www.telegraph.co.uk/finance/economics/4788962/ECB-faces-mutiny-from-national-bank-governors-as-recession-deepens.html
Sunday, March 1, 2009
A Third of Baby Boomers Underwater on Mortgages
Aside from all the specific meta-economic problems that are at the root of our current Depression, there is a profound philosophical one: shift responsibility. Specifically, the idea that you can shift responsibility onto future generations.
Savings, for retirement living and health care, are a basic necessity of life, yet our government has promised that it will take care of it. The bigger government has gotten, the more confident people feel in the promises of government, and the less likely, and less able, they became to save on their own.
But what does it mean to rely on government for retirement and health care, especially when financed by debt? What that really means is that they will impose it on the people to come, the future tax-paying citizens.
But what if the future people don't want to pay it?
It is morally wrong to sell your children into slavery. Yet by building up all this debt, and all these unfunded mandates (like social security) that is exactly what they have done. They have promised the wealth and labor of future generations for their own benefits today. It is outrageous, when you realize what they are really doing.
I got news for ya. The future generation is here, now, and we aren't going to settle for it.
The baby boom generation, which had so much to do with the expansion of the liberal socialist state, is now seeing their lifetime accumulated capital disappear, like a puff of smoke. Their investments disintegrating, now, even their home values negative. And their main response is to take out more debt, i.e., pile it up higher on the back of their own offspring.
With almost a third of them now underwater on their mortgages, maybe they will be more open to thinking about some economics truths, which their socialist politics have been in denial of for so long. Let's not forget, these numbers are going to get a lot worse in the coming year.
The unthinkable of yesteryear is the inevitable of today. More and more shall welcome the good news of Jubilee. Just like in religion, only those who hit rock bottom, who have been fully convicted of their sins, are open to the best of all good news. And the first step towards recovery is always the same: take personal responsibility.
http://money.cnn.com/2009/02/25/real_estate/boomer_wealth_evaporating/index.htm
Savings, for retirement living and health care, are a basic necessity of life, yet our government has promised that it will take care of it. The bigger government has gotten, the more confident people feel in the promises of government, and the less likely, and less able, they became to save on their own.
But what does it mean to rely on government for retirement and health care, especially when financed by debt? What that really means is that they will impose it on the people to come, the future tax-paying citizens.
But what if the future people don't want to pay it?
It is morally wrong to sell your children into slavery. Yet by building up all this debt, and all these unfunded mandates (like social security) that is exactly what they have done. They have promised the wealth and labor of future generations for their own benefits today. It is outrageous, when you realize what they are really doing.
I got news for ya. The future generation is here, now, and we aren't going to settle for it.
The baby boom generation, which had so much to do with the expansion of the liberal socialist state, is now seeing their lifetime accumulated capital disappear, like a puff of smoke. Their investments disintegrating, now, even their home values negative. And their main response is to take out more debt, i.e., pile it up higher on the back of their own offspring.
With almost a third of them now underwater on their mortgages, maybe they will be more open to thinking about some economics truths, which their socialist politics have been in denial of for so long. Let's not forget, these numbers are going to get a lot worse in the coming year.
The unthinkable of yesteryear is the inevitable of today. More and more shall welcome the good news of Jubilee. Just like in religion, only those who hit rock bottom, who have been fully convicted of their sins, are open to the best of all good news. And the first step towards recovery is always the same: take personal responsibility.
http://money.cnn.com/2009/02/25/real_estate/boomer_wealth_evaporating/index.htm
Saturday, February 28, 2009
Niall Ferguson calls for Debt Restructuring
The harsh reality that is being repressed is this: the Western world is suffering a crisis of excessive indebtedness. Many governments are too highly leveraged, as are many corporations. More important, households are groaning under unprecedented debt burdens.
Average household sector debt has reached 141per cent of disposable income in the US, 156per cent in Australia and 177 per cent in Britain. Worst of all are the banks in the US and Europe. Some of the best-known names in American and European finance have balance sheets 40, 60 or even 100 times the size of their capital. Average US investment bank leverage was above 25 to 1 at the end of 2008. Eurozone bank leverage was more than 30 to 1. British bank balance sheets are equal to a staggering 440 per cent of gross domestic product.
http://www.theaustralian.news.com.au/business/story/0,28124,25115869-643,00.html
Average household sector debt has reached 141per cent of disposable income in the US, 156per cent in Australia and 177 per cent in Britain. Worst of all are the banks in the US and Europe. Some of the best-known names in American and European finance have balance sheets 40, 60 or even 100 times the size of their capital. Average US investment bank leverage was above 25 to 1 at the end of 2008. Eurozone bank leverage was more than 30 to 1. British bank balance sheets are equal to a staggering 440 per cent of gross domestic product.
The delusion that a crisis of excess debt can be solved by creating more debt is at the heart of the Great Repression. Yet that is precisely what most governments propose to do.
With the economy contracting at a rate (excluding inventory accumulation) of minus 5 per cent, we are on the eve of a public debt explosion that the CBO's forecast - $US4 trillion over the next 10 years, but peaking at 54 per cent of GDP - surely understates. The fact that so many other countries are adopting comparable measures means a flood of new issuance is about to hit national and international bond markets.
There is a better way to go, but it is in the opposite direction. The aim must be not to increase debt but to reduce it. In past debt crises - which usually affected emerging market sovereign debt - this tended to happen in one of two ways. If, say, Argentina had an excessively large domestic debt, denominated in Argentine currency, it could be inflated away. If it was an external debt, then the government simply defaulted on payments and forced the creditors to accept a rescheduling of debt and principal payments.
Today, Argentina is us. Former investment banks and German universal banks are Argentina. American households are Argentina. But it will not be so easy for us to inflate away our debts. The deflationary pressures unleashed by the financial crisis are too strong (consumer prices in the US have been falling for three consecutive months; the annualised rate of decline for the last quarter of 2008 was minus 12.7 per cent.)
The solution to the debt crisis is not more debt but less debt. Two things must happen. First, banks that are de facto insolvent need to be restructured, a word that is preferable to the old-fashioned nationalisation. Existing shareholders will have to face that they have lost their money. Too bad; they should have kept a more vigilant eye on the people running their banks. Government will take control in return for a substantial recapitalisation after losses have meaningfully been written down. Bondholders may have to accept either a debt-for-equity swap or a 20 per cent "haircut" - a disappointment, no doubt, but nothing compared with the losses suffered when Lehman Brothers went under.
Glasgow-born Ferguson is Laurence A. Tisch professor of history at Harvard University and William Ziegler professor of business administration at Harvard Business School. He is also a senior research fellow at Jesus College, Oxford University, and a senior fellow at the Hoover Institution, Stanford University. His books include The Ascent of Money: A Financial History of the World.
http://www.theaustralian.news.com.au/business/story/0,28124,25115869-643,00.html
Wednesday, February 25, 2009
Popular Support for Mortgage Jubilee
A suspension of foreclosures is the leading edge of Jubilee, since it is an affirmation of the idea that people should be allowed to stay in their homes, even if they can't pay. As you can see from the survey results, it is very popular.
Fifty-six percent (56%) of Americans favor a plan forcing banks to stop all mortgage foreclosures for the next six months, according to a new Rasmussen Reports national telephone survey.
Thirty percent (30%) oppose such a plan, while 13% are not sure if it's a good idea or not.
Among homeowners, 54% favor a six-month moratorium on all mortgage foreclosures, while 34% oppose the idea.
According to a Fox News report, 52 million Americans have home mortgages, and more than 2.3 million homeowners faced foreclosure in 2008, last year, up 81% from the year before.
Seventy-one percent (71%) of Democrats support a plan forcing banks to stop foreclosures for six months, and a majority of unaffiliated adults (51%) agree. Forty-two percent (42%) of Republicans support a moratorium on foreclosures, but 46% are opposed.
Forty-nine percent (49%) of investors like the idea, along with 65% of non-investors.
(Want a free daily e-mail update? Sign up now. If it's in the news, it's in our polls.) Rasmussen Reports updates also available on Twitter.
California has initiated a 90-day moratorium on foreclosures, and Ohio is considering a temporary halt to foreclosures for up to six months. Several banks, among them Bank of America, Citigroup and Wells Fargo, have taken similar steps. Also, a number of law enforcement officials around the country have temporarily stopped enforcing foreclosures.
Rep. Barney Frank, the chairman of the House Financial Services Committee, has said he supports legislation for a government-imposed moratorium on some foreclosures.
Seventy-five percent (75%) of African-Americans favor a six-month moratorium on foreclosures, as do 51% of whites. Fifty-two percent (52%) of married Americans support a temporary halt on foreclosures, compared to 63% who are not married.
The findings follow President Obama's announcement last week of a $275-billion federal government program to help up to nine million homeowners who are most at risk of being foreclosed on. The plan includes subsidizing their mortgage payments, an idea which most Americans think helps people who bought more house than they could afford and thus rewards bad behavior.
Forty-five percent (45%) oppose the federal government subsidizing mortgage payments for financially troubled homeowners.
Please sign up for the Rasmussen Reports daily e-mail update (it's free)… let us keep you up to date with the latest public opinion news.
This telephone survey of 1,000 Adults was conducted by Rasmussen Reports February 21-22, 2009. The margin of sampling error for the survey is +/-3 percentage points with a 95% level of confidence (see methodology).
Rasmussen Reports is an electronic publishing firm specializing in the collection, publication, and distribution of public opinion polling information.
Fifty-six percent (56%) of Americans favor a plan forcing banks to stop all mortgage foreclosures for the next six months, according to a new Rasmussen Reports national telephone survey.
Thirty percent (30%) oppose such a plan, while 13% are not sure if it's a good idea or not.
Among homeowners, 54% favor a six-month moratorium on all mortgage foreclosures, while 34% oppose the idea.
According to a Fox News report, 52 million Americans have home mortgages, and more than 2.3 million homeowners faced foreclosure in 2008, last year, up 81% from the year before.
Seventy-one percent (71%) of Democrats support a plan forcing banks to stop foreclosures for six months, and a majority of unaffiliated adults (51%) agree. Forty-two percent (42%) of Republicans support a moratorium on foreclosures, but 46% are opposed.
Forty-nine percent (49%) of investors like the idea, along with 65% of non-investors.
(Want a free daily e-mail update? Sign up now. If it's in the news, it's in our polls.) Rasmussen Reports updates also available on Twitter.
California has initiated a 90-day moratorium on foreclosures, and Ohio is considering a temporary halt to foreclosures for up to six months. Several banks, among them Bank of America, Citigroup and Wells Fargo, have taken similar steps. Also, a number of law enforcement officials around the country have temporarily stopped enforcing foreclosures.
Rep. Barney Frank, the chairman of the House Financial Services Committee, has said he supports legislation for a government-imposed moratorium on some foreclosures.
Seventy-five percent (75%) of African-Americans favor a six-month moratorium on foreclosures, as do 51% of whites. Fifty-two percent (52%) of married Americans support a temporary halt on foreclosures, compared to 63% who are not married.
The findings follow President Obama's announcement last week of a $275-billion federal government program to help up to nine million homeowners who are most at risk of being foreclosed on. The plan includes subsidizing their mortgage payments, an idea which most Americans think helps people who bought more house than they could afford and thus rewards bad behavior.
Forty-five percent (45%) oppose the federal government subsidizing mortgage payments for financially troubled homeowners.
Please sign up for the Rasmussen Reports daily e-mail update (it's free)… let us keep you up to date with the latest public opinion news.
This telephone survey of 1,000 Adults was conducted by Rasmussen Reports February 21-22, 2009. The margin of sampling error for the survey is +/-3 percentage points with a 95% level of confidence (see methodology).
Rasmussen Reports is an electronic publishing firm specializing in the collection, publication, and distribution of public opinion polling information.
Doug Casey calls for National Default
The unfunded Medicare liabilities are not going to be funded. They’re going to be defaulted on and, actually, that’s the best thing that could happen. That’s one of the things that should be done now; the U.S. government should default on its debt. This is shocking for people to hear, but it wouldn’t be the first time the U.S. government has done that. It did that almost at its founding in continental days.
This debt represents a tax liability that’s being foisted off on the next generations who have no moral obligation to pay and should not pay. I think as an ethical point, the U.S. should default on this debt. It’s impossible to pay it back, and it won’t be paid back. It’s more honest to acknowledge that bankruptcy now as opposed to pretend it’s going to be paid back. Defaulting even might forestall runaway inflation in the dollar, which would be a catastrophe of the first order. So it’s the smart and moral thing to do, and it’s going to happen eventually anyway. All the real wealth will still be here; a lot of it will just change ownership. The big losers will be those who lent to the State, thereby enabling its depredations, and they deserve to be punished.
http://seekingalpha.com/article/122573-doug-casey-what-to-do-in-the-greater-depression
Dealing with Hyper-Inflation: Local Currencies
As good as a real bill system could work in facilitating a barter economy, it could not substitute fully for a money economy. In the end, a currency should be available, but in conditions of hyperinflation, what does that mean?
The answer is local, or private, currency. There is a long history of local currencies being issued and used, and one just made the news in England. In times of hyperinflation, such a local currency could provide a measure of protection from the economic storm.
A local currency is simply a way to guarantee spending in a limited economy, namely, within the group of people who agree to use it. Thus, when a local grocer receives the local money, he can't spend it at Walmart or in some far away city, he's got to spend it at some local store.
For the people who adopt it, it represents a commitment to limit their spending ability, based on their mutual commitment to uplift each other.
One of the main problems of a local currency would be how to value it. Simply pegging it at a one-to-one relationship with the national currency would make for a nice symbolic gesture, but would not protect you against hyper-inflation. In order for it to have a meaningful role overcoming a collapse of the national currency, it would have to take on independent valuation.
In order to take on its own real value, the currency would have to be backed by something, in the way the dollar used to be backed by gold. Obviously, local currencies today can't be backed by gold.
Better is something that is an integral part of the local economy. That way, if someone tried to make a run on the currency, they would be forced to strengthen the local economy. The local economy would strengthen the local currency, and the local currency would help strengthen the local economy.
from http://www.guardian.co.uk/business/2008/aug/17/currencies.britishidentity
The value of sterling may be plummeting as fears grow over the depth of a possible recession. But in the scenic East Sussex town of Lewes - famous for its bonfire night parties and bewildering number of pubs - a handy alternative is about to become available. Next month, in the latest sign that localism is a coming force in British everyday life, Lewes will launch its own currency. In doing so, it joins a growing list of communities around the world attempting to protect regional economies and preserve the distinctive 'feel' of towns and villages.
The Lewes pound will initially be accepted in around 30 locally owned shops and a first run of 10,000-plus notes is expected. It is the largest-scale launch of a local currency in the UK since Lewes had its own pound in the 19th century and, in a coup for the organisers, the town's branch of Barclays bank has agreed to accept it.
Those pushing the Lewes pound, which by law cannot display the Queen's head but is legal tender, stress their humble ambitions for the new currency. 'There will always be a need for a national currency, but it's a question of trying to go back to what can be done locally,' said Oliver Dudok van Heel, one of the scheme's architects. 'This is not us versus the rest of the world,' added Beth Ambrose, a sustainability expert, who denied that the Lewes pound was a declaration of independence. 'All we want to do is strengthen what's good in our community.'
According to one analysis, 80 per cent of the money that goes into a supermarket till leaves the local economy immediately. By backing local stores such trends can be reversed, say the scheme's supporters. 'We had a beautiful, independent toy shop here once,' van Heel said. 'It's now an estate agent.'
Lewes is not alone in its aspirations. In Totnes, Devon, a complementary currency has been running for more than a year. Similar schemes have been launched abroad and it is estimated there are about 9,000 around the world. Across the Atlantic in Berkshire, Massachusetts, some $800,000 worth of local 'Berkshares' are boosting a thriving alternative economy. Switzerland has introduced a localised credit card scheme, while Holland and Germany have had a surge of interest in complementary currencies.
Those backing the new schemes say they are 'big tent' projects which try to involve the whole community. Experts agree that they thrive in places where people have become disillusioned with central government, suggesting they reflect more than merely economic concerns.
'This is political, but with a small p,' said Patrick Cockburn, a Lewes resident who is backing the new currency. 'It seems a Tory sort of idea - empowering individualism - but it's really about boosting the local community.'
In Argentina, demand for local currencies took off after the economy collapsed in the late Nineties. 'These types of currency go right back,' said David Boyle, a fellow at the New Economics Foundation in London. 'There was a flurry of complementary currencies in the Great Depression. But President Roosevelt outlawed them because he was afraid they might undermine the banks.'
For this reason, proponents of the Lewes pound believe now is the right time for its launch. 'With the current credit crunch, there is some disquiet about the global economic system,' van Heel acknowledged. 'Who knows how important this could be? Studies show if there is more than 12 per cent unemployment in a community these systems become very popular.'
If anywhere can make a new currency work, the locals of Lewes claim it is their town, which prides itself on its independent spirit and the absence of the likes of Starbucks. It already has form when it comes to minor uprisings. After Greene King, the brewing and pub chain, stopped selling the locally brewed Harveys beer and ale at the Lewes Arms there was a mass boycott and the drinks were back within months.
Perhaps, then, it is no coincidence that the town's most famous resident is the radical political pamphleteer Thomas Paine, credited with sowing the intellectual seeds of American independence. Etched under a painting of Paine on a wall of one of Lewes's churches is one of his most famous aphorisms: 'We have the power to build the world anew.'
Two centuries on, the inhabitants of Lewes have the chance to show in their own small way that they still agree.
The answer is local, or private, currency. There is a long history of local currencies being issued and used, and one just made the news in England. In times of hyperinflation, such a local currency could provide a measure of protection from the economic storm.
A local currency is simply a way to guarantee spending in a limited economy, namely, within the group of people who agree to use it. Thus, when a local grocer receives the local money, he can't spend it at Walmart or in some far away city, he's got to spend it at some local store.
For the people who adopt it, it represents a commitment to limit their spending ability, based on their mutual commitment to uplift each other.
One of the main problems of a local currency would be how to value it. Simply pegging it at a one-to-one relationship with the national currency would make for a nice symbolic gesture, but would not protect you against hyper-inflation. In order for it to have a meaningful role overcoming a collapse of the national currency, it would have to take on independent valuation.
In order to take on its own real value, the currency would have to be backed by something, in the way the dollar used to be backed by gold. Obviously, local currencies today can't be backed by gold.
Better is something that is an integral part of the local economy. That way, if someone tried to make a run on the currency, they would be forced to strengthen the local economy. The local economy would strengthen the local currency, and the local currency would help strengthen the local economy.
from http://www.guardian.co.uk/business/2008/aug/17/currencies.britishidentity
The value of sterling may be plummeting as fears grow over the depth of a possible recession. But in the scenic East Sussex town of Lewes - famous for its bonfire night parties and bewildering number of pubs - a handy alternative is about to become available. Next month, in the latest sign that localism is a coming force in British everyday life, Lewes will launch its own currency. In doing so, it joins a growing list of communities around the world attempting to protect regional economies and preserve the distinctive 'feel' of towns and villages.
The Lewes pound will initially be accepted in around 30 locally owned shops and a first run of 10,000-plus notes is expected. It is the largest-scale launch of a local currency in the UK since Lewes had its own pound in the 19th century and, in a coup for the organisers, the town's branch of Barclays bank has agreed to accept it.
Those pushing the Lewes pound, which by law cannot display the Queen's head but is legal tender, stress their humble ambitions for the new currency. 'There will always be a need for a national currency, but it's a question of trying to go back to what can be done locally,' said Oliver Dudok van Heel, one of the scheme's architects. 'This is not us versus the rest of the world,' added Beth Ambrose, a sustainability expert, who denied that the Lewes pound was a declaration of independence. 'All we want to do is strengthen what's good in our community.'
According to one analysis, 80 per cent of the money that goes into a supermarket till leaves the local economy immediately. By backing local stores such trends can be reversed, say the scheme's supporters. 'We had a beautiful, independent toy shop here once,' van Heel said. 'It's now an estate agent.'
Lewes is not alone in its aspirations. In Totnes, Devon, a complementary currency has been running for more than a year. Similar schemes have been launched abroad and it is estimated there are about 9,000 around the world. Across the Atlantic in Berkshire, Massachusetts, some $800,000 worth of local 'Berkshares' are boosting a thriving alternative economy. Switzerland has introduced a localised credit card scheme, while Holland and Germany have had a surge of interest in complementary currencies.
Those backing the new schemes say they are 'big tent' projects which try to involve the whole community. Experts agree that they thrive in places where people have become disillusioned with central government, suggesting they reflect more than merely economic concerns.
'This is political, but with a small p,' said Patrick Cockburn, a Lewes resident who is backing the new currency. 'It seems a Tory sort of idea - empowering individualism - but it's really about boosting the local community.'
In Argentina, demand for local currencies took off after the economy collapsed in the late Nineties. 'These types of currency go right back,' said David Boyle, a fellow at the New Economics Foundation in London. 'There was a flurry of complementary currencies in the Great Depression. But President Roosevelt outlawed them because he was afraid they might undermine the banks.'
For this reason, proponents of the Lewes pound believe now is the right time for its launch. 'With the current credit crunch, there is some disquiet about the global economic system,' van Heel acknowledged. 'Who knows how important this could be? Studies show if there is more than 12 per cent unemployment in a community these systems become very popular.'
If anywhere can make a new currency work, the locals of Lewes claim it is their town, which prides itself on its independent spirit and the absence of the likes of Starbucks. It already has form when it comes to minor uprisings. After Greene King, the brewing and pub chain, stopped selling the locally brewed Harveys beer and ale at the Lewes Arms there was a mass boycott and the drinks were back within months.
Perhaps, then, it is no coincidence that the town's most famous resident is the radical political pamphleteer Thomas Paine, credited with sowing the intellectual seeds of American independence. Etched under a painting of Paine on a wall of one of Lewes's churches is one of his most famous aphorisms: 'We have the power to build the world anew.'
Two centuries on, the inhabitants of Lewes have the chance to show in their own small way that they still agree.
Happy-face Headlines vs Bleak Reality
Weird headlines this morning, demonstrating happy-face thought control attempts. Headline, posted at 7am: "New report may show home sales on the rise". Uh, yeah right. That is how desperate they are getting, making front page news out of forecasts for possible upturns. From the happy-face article, "A trade group report today on sales of existing homes is expected to show selling increased slightly in January. The increase would mark the second straight month of improvement from November's record low. Sales are expected to rise to a seasonally adjusted annual rate of 4.79 million units, from 4.74 million a month earlier." http://news.yahoo.com/s/ap/20090225/ap_on_bi_ge/home_sales
The actual report was then released a couple hours later. Woops, can you believe it, the experts are wrong again??? The headline: "January existing home sales fall by 5.3 percent"
The article then reveals a record-high collapse in sale volume and prices. And guess what? Government intervention is responsible for screwing up the market, as people delay action in the face of changing government policy and incentives.
"A real estate group says sales of existing homes took an unexpected plunge from December to January, falling to the lowest level in nearly 12 years as buyers waited for the government to boost the U.S housing market. The National Association of Realtors said Wednesday that sales of existing homes fell 5.3 percent to an annual rate of 4.49 million last month, from 4.74 million units in December. It was the weakest showing since July 1997. Sales had been expected to rise to an annual pace of 4.79 million units, according to Thomson Reuters. The median sales price plunged to $170,300, down 14.8 percent from $199,800 a year earlier. That was the lowest price since March 2003 and the second-largest drop on record. " http://news.yahoo.com/s/ap/20090225/ap_on_bi_ge/existing_home_sales
Confused half-measures by the government only create confusion and chaos. Only a mortgage Jubilee will give the market a solid landing, without undo social disruption, and allow the market to function again.
The actual report was then released a couple hours later. Woops, can you believe it, the experts are wrong again??? The headline: "January existing home sales fall by 5.3 percent"
The article then reveals a record-high collapse in sale volume and prices. And guess what? Government intervention is responsible for screwing up the market, as people delay action in the face of changing government policy and incentives.
"A real estate group says sales of existing homes took an unexpected plunge from December to January, falling to the lowest level in nearly 12 years as buyers waited for the government to boost the U.S housing market. The National Association of Realtors said Wednesday that sales of existing homes fell 5.3 percent to an annual rate of 4.49 million last month, from 4.74 million units in December. It was the weakest showing since July 1997. Sales had been expected to rise to an annual pace of 4.79 million units, according to Thomson Reuters. The median sales price plunged to $170,300, down 14.8 percent from $199,800 a year earlier. That was the lowest price since March 2003 and the second-largest drop on record. " http://news.yahoo.com/s/ap/20090225/ap_on_bi_ge/existing_home_sales
Confused half-measures by the government only create confusion and chaos. Only a mortgage Jubilee will give the market a solid landing, without undo social disruption, and allow the market to function again.
Tuesday, February 24, 2009
The Real Bill Economy, part 1
The history of real bills offers a potential solution to the difficulties of non-dollar commerce. A real bill is essentially a direct IOU, guaranteed by your own ability to produce. It is essentially a store of value for whatever you offer. The advantage is that it can be transferred to multiple owners. Thus, in effect, your IOU, representing your service, becomes part of a market, and you would not control who cashed it in.
Here is a practical example. Say you are a laborer, and you want to buy some food. In a pure barter economy, you could offer to work for the farmer in exchange for food. But what if the farmer had no need of your labor? Instead of refusing the sale, the farmer could accept from you a real bill for 8 hours of your labor. He wouldn't even have to use redeem the bill himself. Say the farmer needed to visit the doctor. He could pay with your real bill, signing it over to the doctor, who would then own your 8 hours of labor.
The ownership trail of real signatures would be the main safeguard against counterfeiting of real bills. You would never redeem a real bill that you yourself had not written, and a valid ownership chain would be easy to verify, in a case of multiple real bills being fabricated. As you can see, theft of real bills would be senseless, since, unlike fiat money, they had to be redeemed by their legitimate owner. A stolen or lost real bill would be worthless, unless returned to its owner.
A real bill is also given an expiration date, which guarantees both its worth and its marketability. The market would determine the validity of various expiration dates, primarily based on risk assessment. For example, a physical labor bill might have a weekly or monthly expiration date, whereas a doctor's or teacher's service bill might have a year-long or even multi-year expiration date, since such a professional is much less likely to "go out of business".
Specific expiration dates and real bill values would also depend upon your own personal skill, ability, and work ethic. If someone knows you are a lazy laborer, they are not likely to give you much in return for your 8-hour labor bill. Someone who is a known hard worker will command much more for their labor bill.
Character assessment would also play a role in real bill value. Such as, most obviously, your consistency in redeeming your outstanding bills faithfully. Defaulting on your real bills would quickly mean no one would accept them, thus taking you out of the real bill economy.
Since stolen real bills are worthless, defaulting on your own real bills would have serious consequences. Essentially, everyone would have to work faithfully, or face starvation.
But how would you know if some random person's real bill was worth anything or not? This is the role of the real bill clearing house. The clearing house would provide the verification and market service for real bills. Verification means the clearing house would track the performance of your real bills and make that performance available to the public, acting as a rating agency. Anyone desiring to do business with you could simply check your real bill rating. If your real bills have a certified 100% performance, they would be rock solid in trade or transaction, and your services would be in high demand. If you were lazy or unfaithful in writing or redeeming your real bills, no one would accept your bills and no one would want your services. Violating the terms of your own real bills could also be against the law, resulting in criminal penalties.
The clearing house would also provide a market for real bills, greatly facilitating general commerce. Upon receipt of a real bill, you wouldn't personally have to use that service or personally find a matching buyer. Rather, you would only have to give it to the clearing house. The clearing house would then match people who have the need for that real bill. With today's economy, it could all be done electronically.
Here is a practical example. Say you are a laborer, and you want to buy some food. In a pure barter economy, you could offer to work for the farmer in exchange for food. But what if the farmer had no need of your labor? Instead of refusing the sale, the farmer could accept from you a real bill for 8 hours of your labor. He wouldn't even have to use redeem the bill himself. Say the farmer needed to visit the doctor. He could pay with your real bill, signing it over to the doctor, who would then own your 8 hours of labor.
The ownership trail of real signatures would be the main safeguard against counterfeiting of real bills. You would never redeem a real bill that you yourself had not written, and a valid ownership chain would be easy to verify, in a case of multiple real bills being fabricated. As you can see, theft of real bills would be senseless, since, unlike fiat money, they had to be redeemed by their legitimate owner. A stolen or lost real bill would be worthless, unless returned to its owner.
A real bill is also given an expiration date, which guarantees both its worth and its marketability. The market would determine the validity of various expiration dates, primarily based on risk assessment. For example, a physical labor bill might have a weekly or monthly expiration date, whereas a doctor's or teacher's service bill might have a year-long or even multi-year expiration date, since such a professional is much less likely to "go out of business".
Specific expiration dates and real bill values would also depend upon your own personal skill, ability, and work ethic. If someone knows you are a lazy laborer, they are not likely to give you much in return for your 8-hour labor bill. Someone who is a known hard worker will command much more for their labor bill.
Character assessment would also play a role in real bill value. Such as, most obviously, your consistency in redeeming your outstanding bills faithfully. Defaulting on your real bills would quickly mean no one would accept them, thus taking you out of the real bill economy.
Since stolen real bills are worthless, defaulting on your own real bills would have serious consequences. Essentially, everyone would have to work faithfully, or face starvation.
But how would you know if some random person's real bill was worth anything or not? This is the role of the real bill clearing house. The clearing house would provide the verification and market service for real bills. Verification means the clearing house would track the performance of your real bills and make that performance available to the public, acting as a rating agency. Anyone desiring to do business with you could simply check your real bill rating. If your real bills have a certified 100% performance, they would be rock solid in trade or transaction, and your services would be in high demand. If you were lazy or unfaithful in writing or redeeming your real bills, no one would accept your bills and no one would want your services. Violating the terms of your own real bills could also be against the law, resulting in criminal penalties.
The clearing house would also provide a market for real bills, greatly facilitating general commerce. Upon receipt of a real bill, you wouldn't personally have to use that service or personally find a matching buyer. Rather, you would only have to give it to the clearing house. The clearing house would then match people who have the need for that real bill. With today's economy, it could all be done electronically.
Monday, February 23, 2009
Dealing with Hyper-Inflation
The main problem in a hyperinflation is dealing with the collapse of the value of money, one of the main functions of money.
A short sentence on monetary theory that you must understand to proceed: Money has two jobs: 1) to facilitate commerce and 2) to store wealth. In the classic gold standard economy, gold held value, while real bills facilitated commerce. In the modern period, with fiat money divorced from the gold standard, American economic policy has been to uphold the value of the dollar as much as possible, while also printing enough money to provide the basis for international commerce. Our dollar, backed by the power of the American economy, substituted for the liquidity of the traditional real bill system, while the rock solid value of the dollar substituted for the stability of gold as a store of value.
However, that game is now over. Our government, under the goal of facilitating commerce (i.e. "stimulating the economy") has embarked upon a path of money-creation, through bailouts to banks and quantitative easing, which all boils down to one thing: money creation. Not only is the rest of the world along for the ride because the role of the dollar as the international monetary reserve, but all other central banks are doing the exact same thing at the exact same time. Simultaneous with a global economic contraction, the world is being flooded with money. The end result is easy to forecast: wild inflation and financial bubbles resulting from over-speculation and malinvestment. The cost of things will skyrocket as the value of money falls, i.e., everything will cost a lot more. We will all continue to get poorer with more and more unemployed as the business climate deteriorates in the atmosphere of unpredictability that is created by inflation, bubbles, and malinvestment.
The person solution to the problem of a collapsing dollar is to quarantine its effects. In short, to remove yourself from the dollar as a store of value or medium of commerce. On the one hand, that means moving your wealth out of dollars and into real objects that hold their value or even appreciate in value, like gold, cigarettes, ammunition, or whatever. You can also become part of an economy not based on the dollar. You may have heard commentators talking about a return to bartering, that is what I am talking about. Commerce without dollars is possible, but only if it is orderly and organized. The real danger in dollar collapse is the chaos and inactivity that comes from people not knowing what the hell is going on or what to do about it. Becoming part of a bartering community before the dollar collapse will help shield you from the pernicious economic effects that will come.
The use of real bills offers a solution to the non-dollar economy, which I will explain more in the next post.
A short sentence on monetary theory that you must understand to proceed: Money has two jobs: 1) to facilitate commerce and 2) to store wealth. In the classic gold standard economy, gold held value, while real bills facilitated commerce. In the modern period, with fiat money divorced from the gold standard, American economic policy has been to uphold the value of the dollar as much as possible, while also printing enough money to provide the basis for international commerce. Our dollar, backed by the power of the American economy, substituted for the liquidity of the traditional real bill system, while the rock solid value of the dollar substituted for the stability of gold as a store of value.
However, that game is now over. Our government, under the goal of facilitating commerce (i.e. "stimulating the economy") has embarked upon a path of money-creation, through bailouts to banks and quantitative easing, which all boils down to one thing: money creation. Not only is the rest of the world along for the ride because the role of the dollar as the international monetary reserve, but all other central banks are doing the exact same thing at the exact same time. Simultaneous with a global economic contraction, the world is being flooded with money. The end result is easy to forecast: wild inflation and financial bubbles resulting from over-speculation and malinvestment. The cost of things will skyrocket as the value of money falls, i.e., everything will cost a lot more. We will all continue to get poorer with more and more unemployed as the business climate deteriorates in the atmosphere of unpredictability that is created by inflation, bubbles, and malinvestment.
The person solution to the problem of a collapsing dollar is to quarantine its effects. In short, to remove yourself from the dollar as a store of value or medium of commerce. On the one hand, that means moving your wealth out of dollars and into real objects that hold their value or even appreciate in value, like gold, cigarettes, ammunition, or whatever. You can also become part of an economy not based on the dollar. You may have heard commentators talking about a return to bartering, that is what I am talking about. Commerce without dollars is possible, but only if it is orderly and organized. The real danger in dollar collapse is the chaos and inactivity that comes from people not knowing what the hell is going on or what to do about it. Becoming part of a bartering community before the dollar collapse will help shield you from the pernicious economic effects that will come.
The use of real bills offers a solution to the non-dollar economy, which I will explain more in the next post.
Our Parallel is 1873, not 1929
Comparisons to the Great Depression have become widespread. What is lost on most is that our best parallel is actually the worldwide panic of 1873. Nobody knows much about that, so here is a great intro article.
The Real Great Depression - the depression of 1929 is the wrong model for the current economic crisis
By SCOTT REYNOLDS NELSON, October 17, 2008
As a historian who works on the 19th century, I have been reading my newspaper with a considerable sense of dread. While many commentators on the recent mortgage and banking crisis have drawn parallels to the Great Depression of 1929, that comparison is not particularly apt. Two years ago, I began research on the Panic of 1873, an event of some interest to my colleagues in American business and labor history but probably unknown to everyone else. But as I turn the crank on the microfilm reader, I have been hearing weird echoes of recent events.
When commentators invoke 1929, I am dubious. According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany's inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now. Contemporary industries have very sensitive controls for trimming production as consumption declines; our current stock-market dip followed bank problems that emerged more than a year ago; and there are no serious international problems with gold reserves, simply because banks no longer peg their lending to them.
In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls "the real Great Depression." She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.
The problems had emerged around 1870, starting in Europe....
cont. http://chronicle.com/temp/reprint.php?id=477k3d8mh2wmtpc4b6h07p4hy9z83x18
The Real Great Depression - the depression of 1929 is the wrong model for the current economic crisis
By SCOTT REYNOLDS NELSON, October 17, 2008
As a historian who works on the 19th century, I have been reading my newspaper with a considerable sense of dread. While many commentators on the recent mortgage and banking crisis have drawn parallels to the Great Depression of 1929, that comparison is not particularly apt. Two years ago, I began research on the Panic of 1873, an event of some interest to my colleagues in American business and labor history but probably unknown to everyone else. But as I turn the crank on the microfilm reader, I have been hearing weird echoes of recent events.
When commentators invoke 1929, I am dubious. According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany's inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now. Contemporary industries have very sensitive controls for trimming production as consumption declines; our current stock-market dip followed bank problems that emerged more than a year ago; and there are no serious international problems with gold reserves, simply because banks no longer peg their lending to them.
In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls "the real Great Depression." She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.
The problems had emerged around 1870, starting in Europe....
cont. http://chronicle.com/temp/reprint.php?id=477k3d8mh2wmtpc4b6h07p4hy9z83x18
Friday, February 20, 2009
Unbalanced International Trade Caused Economic Collapse
The current financial and economic collapse we are experiencing are the direct result of a decade of international trade folly. Most educated people are still repeating the free trade slogans of yesteryear, and have not adjusted their ideological outlook to the contemporary situation. We need to correct this deficiency in knowledge in order to prepare for long term sustainable solutions.
Why did we have a financial bubble? In short, because of unbalanced international trade. Our finance and banking industry has grown out of control relative to its historical share of the economy because of the pattern of international trade. Here is how it went down:
China's Communist political agenda was to modernize their nation through manufacturing protectionism and currency controls. In the classic theory of international trade, foreign trade advances both economies. In short, an import is not bad for the American economy, because it saves the American consumer money, and the money has to eventually return to the American economy in the form of Chinese spending, a win-win situation.
However, Chinese governmental policy subverted this natural balance of trade. Rather than purchasing goods or services (the basis of the real economy) from America, the Chinese hoarded their dollars, investing them in U.S. debt. Thus, the manufacturing industry in America shrunk, while the financial industry expanded, leading to the inevitable bubbles as an excess of money chased a smaller pool of investments.
Obviously, it does not take an economic genius to realize that an economy cannot be based on financial services. In fact, financial services are essentially parasitic (much like government), providing a necessary service by transferring wealth, but not creating any. Banking, like government, may be necessary up to a certain level, but when it grows too large, it destroys the real economy.
Following their protectionist policies, the Chinese built their manufacturing industry, and America built its financial and governmental industries, using the oversupply of cheap money and debt financing.
It is obvious that neither trend is sustainable. The Chinese are now being forced to scale back their export efforts, and build up a sustainable economy based on internal demand. America, likewise, is being forced to scale back financial and governmental efforts, and build up a sustainable economy based on internal supply.
The only long term sustainable economic policy for any nation is through a balance of trade. Free trade only makes sense if it is fair trade. American economic power and stability cannot be separated from the productive capacity of the American people, and it should be American governmental policy to build that productive capacity, not allow it to be undermined.
Back in Henry Ford's day, the interests of American capitalist and worker were aligned, since the workers had to have the income to purchase the capitalist's products. In our era of government-enabled false globalism, when the capitalist can freely outsource labor to cheaper countries, what happens to the American worker? As we can see, falling real income levels have been the real result, which is a sign of disaster for the American economy and way of life. Government policy should sustain and protect the American worker (who is also the American consumer!!!) by re-aligning the interests of American capital and labor. Fair and balanced trade, in real goods and services, must be the end result of any country that seeks to trade with our nation. This is not destructive protectionism, this is common sense.
Reflexive protectionism in time of economic depression is not the cause of the depression, it is a healthy and natural reaction to the global imbalances that led to the depression. Today's free-trader ideologues are like the doctors of old who would apply leeches to their sick patients. At the very door of death, the wise patient rips the leeches off, rather than following the destructive advice of a quack expert who is in fact making the problem worse.
Why did we have a financial bubble? In short, because of unbalanced international trade. Our finance and banking industry has grown out of control relative to its historical share of the economy because of the pattern of international trade. Here is how it went down:
China's Communist political agenda was to modernize their nation through manufacturing protectionism and currency controls. In the classic theory of international trade, foreign trade advances both economies. In short, an import is not bad for the American economy, because it saves the American consumer money, and the money has to eventually return to the American economy in the form of Chinese spending, a win-win situation.
However, Chinese governmental policy subverted this natural balance of trade. Rather than purchasing goods or services (the basis of the real economy) from America, the Chinese hoarded their dollars, investing them in U.S. debt. Thus, the manufacturing industry in America shrunk, while the financial industry expanded, leading to the inevitable bubbles as an excess of money chased a smaller pool of investments.
Obviously, it does not take an economic genius to realize that an economy cannot be based on financial services. In fact, financial services are essentially parasitic (much like government), providing a necessary service by transferring wealth, but not creating any. Banking, like government, may be necessary up to a certain level, but when it grows too large, it destroys the real economy.
Following their protectionist policies, the Chinese built their manufacturing industry, and America built its financial and governmental industries, using the oversupply of cheap money and debt financing.
It is obvious that neither trend is sustainable. The Chinese are now being forced to scale back their export efforts, and build up a sustainable economy based on internal demand. America, likewise, is being forced to scale back financial and governmental efforts, and build up a sustainable economy based on internal supply.
The only long term sustainable economic policy for any nation is through a balance of trade. Free trade only makes sense if it is fair trade. American economic power and stability cannot be separated from the productive capacity of the American people, and it should be American governmental policy to build that productive capacity, not allow it to be undermined.
Back in Henry Ford's day, the interests of American capitalist and worker were aligned, since the workers had to have the income to purchase the capitalist's products. In our era of government-enabled false globalism, when the capitalist can freely outsource labor to cheaper countries, what happens to the American worker? As we can see, falling real income levels have been the real result, which is a sign of disaster for the American economy and way of life. Government policy should sustain and protect the American worker (who is also the American consumer!!!) by re-aligning the interests of American capital and labor. Fair and balanced trade, in real goods and services, must be the end result of any country that seeks to trade with our nation. This is not destructive protectionism, this is common sense.
Reflexive protectionism in time of economic depression is not the cause of the depression, it is a healthy and natural reaction to the global imbalances that led to the depression. Today's free-trader ideologues are like the doctors of old who would apply leeches to their sick patients. At the very door of death, the wise patient rips the leeches off, rather than following the destructive advice of a quack expert who is in fact making the problem worse.
Thursday, February 19, 2009
Legal Aspects of Jubilee
Clearly, debt write-off is the only economic solution to debt deflation, but some question under what legal authority it would be done. Basically, it is as simple as nationalization of banks. Once banks are controlled by the government, Jubilee can occur by simple decree.
Or, instead of Jubilee of debt cancellation through nationalization of banks, we could alternatively have a Jubilee of full-payment. In short, our government could simply write checks to help everyone pay their debt off. Consider it a form of mass bailout, rather than mass default. The federal government already has the ability to print and give away money, so there we go. The US federal government can simply write a check to each individual citizen in America for the amount of their debt.
It is the exact same concept as canceling the debt, except it would involve inflation rather than deflation. Everyone seems to be much more comfortable with the idea of inflation and more money, than with the idea of deflation and less money. Well, whatever. Jubilee, all debts shall be forgiven! Who can complain, since everyone would get their money?
Or, instead of Jubilee of debt cancellation through nationalization of banks, we could alternatively have a Jubilee of full-payment. In short, our government could simply write checks to help everyone pay their debt off. Consider it a form of mass bailout, rather than mass default. The federal government already has the ability to print and give away money, so there we go. The US federal government can simply write a check to each individual citizen in America for the amount of their debt.
It is the exact same concept as canceling the debt, except it would involve inflation rather than deflation. Everyone seems to be much more comfortable with the idea of inflation and more money, than with the idea of deflation and less money. Well, whatever. Jubilee, all debts shall be forgiven! Who can complain, since everyone would get their money?
Wednesday, February 18, 2009
Michael Hudson calls for Debt Write Offs to End Debt Deflation
One would think that politicians would be willing to do the math and realize that debts that can’t be paid, won’t be. But the debts are being kept on the books, continuing to extract interest to pay the creditors that have made the bad loans. The resulting debt deflation threatens to keep the economy in depression until a radical shift in policy occurs – a shift to save the “real” economy, not just the financial sector and the wealthiest 10 per cent of American families.
There is no sign that Mr. Obama’s economic advisors, Treasury officials and heads of the relevant Congressional committees recognize the need for a write-down. After all, they have been placed in their positions precisely because they do not understand that debt leveraging is a form of economic overhead, not real “wealth creation.” But their tunnel vision is what makes them “reliable” to Wall Street, which doesn’t like surprises. And the entire character of today’s financial crisis continues to be labeled “surprising” and “unexpected” by the press as each new surprisingly pessimistic statistic hits the news. It’s safe to be surprised; suspicious to have expected bad news and being a “premature doomsayer.” One must have faith in the system above all. And the system was the Greenspan Bubble.
The Obama-Geithner plan to restart the Bubble Economy’s debt growth so as to inflate asset prices by enough to pay off the debt overhang out of new “capital gains” cannot possibly work. But that is the only trick these ponies know. We have entered an era of asset-price deflation, not inflation. Economic data charts throughout the world have hit a wall and every trend has been plunging vertically downward since last autumn. U.S. consumer prices experienced their fastest plunge since the Great Depression of the 1930s, along with consumer “confidence,” international shipping, real estate and stock market prices, oil and the exchange rate for British sterling. The global economy is falling into depression, and cannot recover until debts are written down.
Instead of doing this, the government is doing just the opposite. It is proposing to take bad debts onto the public-sector balance sheet, printing new Treasury bonds give the banks – bonds whose interest charges will have to be paid by taxing labor and industry.
As in Third World austerity programs, the effect of keeping the debts in place at the “real” economy’s expense will be to shrink the domestic U.S. market – while providing opportunities for hedge funds to pick up depreciated assets cheaply as the federal government, states and cities sell them off. This is called letting the banks “earn their way out of debt.” It’s strangling the “real” economy, because not a dollar of the government’s response has been devoted to reducing the overall debt volume.
Take the much-vaunted $50 billion program designed to renegotiate mortgages downward for “troubled homeowners.” Upon closer examination it turns out that the real beneficiaries are the giant leading banks such as Citibank and Bank of America that have made the bad loans. The Treasury will take on the bad debt that banks are stuck with, and will permit mortgagees to renegotiate their monthly payment down to 38 per cent of their income. But rather than the banks taking the loss as they should do for over-lending, the Treasury itself will make up the difference – and pay it to the banks so that they will be able to get what they hoped to get. The hapless mortgage-burdened family stuck in their negative-equity home turns out to be merely a passive vehicle for the Treasury to pass debt relief on to the commercial banks.
Few news stories have made this clear, but the Financial Times spelled the details buried in small print. It added that the Treasury has not yet decided whether to write down the debt principal for the estimated 15 million families with negative equity (and perhaps 30 million by this time next year as property prices continue to plunge). No doubt a similar deal will be made: For every $100,000 of write-down in debt owed by over-mortgaged homeowners, the bank will receive $100,000 from the Treasury. Government debt will rise by $100,000, and the process will continue until the Treasury has transferred $50,000,000 to the banks that made the reckless loans.
There is enough for just 500,000 of these renegotiations of $100,000 each. It may seem like a big amount, but it’s only about 1/30th of the properties underwater. Hardly enough to make much of a dent, but the principle has been put in place for many further bailouts. It will take almost an infinity of them, as long as the Treasury tries to support the fiction that “the miracle of compound interest” can be sustained for long. The economy may be dead by the time saner economic understanding penetrates the public consciousness.
In the mean time, bad private-sector debt will be shifted onto the government’s balance sheet. Interest and amortization currently owed to the banks will be replaced by obligations to the U.S. Treasury. Taxes will be levied to make up the bad debts with which the government is stuck. The “real” economy will pay Wall Street – and will be paying for decades!
Calling the $12 trillion giveaway to bankers a “subprime crisis” makes it appear that bleeding-heart liberals got Fannie Mae and Freddie Mac into trouble by insisting that these public-private institutions make irresponsible loans to the poor. The party line is, “Blame the victim.” But we know this is false. The bulk of bad loans are concentrated in the largest banks. It was Countrywide and other banksters that led the irresponsible lending and brought heavy-handed pressure on Fannie Mae. Most of the nation’s smaller, local banks didn’t make such reckless loans. The big mortgage shops didn’t care about loan quality, because they were run by salesmen. The Treasury is paying off the gamblers and billionaires by supporting the value of bank loans, investments and derivative gambles, leaving the Treasury in debt.
Let’s first dispose of the “foundation myth” of the idea still guiding the United States and Europe. Free-market economists pretend that prices can be brought into line most efficiently with technologically necessary costs of production under capitalism, and indeed, under finance capitalism. The banks and stock market are supposed to allocate resources most efficiency. That at least is the dream of self-regulating markets. But today it looks like only a myth, public relations patter talk to get a generation of increasingly indebted voters not to act in their own self-interest.
Industrial capitalism always has been a hybrid, a symbiosis with its feudal legacy of absentee property ownership, oligarchic finance and public debts rather than the government acting as net creditor. The essence of feudalism was extractive, not productive.
Today it is easier to see that the Western economies cannot go on the way they have been. They have reached the point where the debts exceed the ability to pay. Instead of recognizing this fact and scaling debts back into line with the ability to pay, the Obama-Geithner plan is to bail out the big banks and hedge funds, keeping the volume of debt in place and indeed, growing once again through the “magic of compound interest.” The result can only be an increasingly extractive economy, until households, real estate and industrial companies, states and cities, and the national government itself is driven into debt peonage.
The alternative is a century and a half old, and emerged out of the ideals of the classical economic doctrines of Adam Smith, David Ricardo, John Stuart Mill, and the last great classical economist, Marx. Their common denominator was to view rent and interest are extractive, not productive. Classical political economy and its successor Progressive Era socialism sought to nationalize the land (or at least to fully tax its rent as the fiscal base). Governments were to create their own credit, not leave this function to wealthy elites via a bank monopoly on credit creation. So today’s neoliberalism paints a false picture of what the classical economists envisioned as free markets. They were markets free of economic rent and interest (and taxes to support an aristocracy or oligarchy). Socialism was to free economies from these overhead charges. Today’s Obama-Geithner rescue plan is just the reverse.
http://counterpunch.org/hudson02172009.html
There is no sign that Mr. Obama’s economic advisors, Treasury officials and heads of the relevant Congressional committees recognize the need for a write-down. After all, they have been placed in their positions precisely because they do not understand that debt leveraging is a form of economic overhead, not real “wealth creation.” But their tunnel vision is what makes them “reliable” to Wall Street, which doesn’t like surprises. And the entire character of today’s financial crisis continues to be labeled “surprising” and “unexpected” by the press as each new surprisingly pessimistic statistic hits the news. It’s safe to be surprised; suspicious to have expected bad news and being a “premature doomsayer.” One must have faith in the system above all. And the system was the Greenspan Bubble.
The Obama-Geithner plan to restart the Bubble Economy’s debt growth so as to inflate asset prices by enough to pay off the debt overhang out of new “capital gains” cannot possibly work. But that is the only trick these ponies know. We have entered an era of asset-price deflation, not inflation. Economic data charts throughout the world have hit a wall and every trend has been plunging vertically downward since last autumn. U.S. consumer prices experienced their fastest plunge since the Great Depression of the 1930s, along with consumer “confidence,” international shipping, real estate and stock market prices, oil and the exchange rate for British sterling. The global economy is falling into depression, and cannot recover until debts are written down.
Instead of doing this, the government is doing just the opposite. It is proposing to take bad debts onto the public-sector balance sheet, printing new Treasury bonds give the banks – bonds whose interest charges will have to be paid by taxing labor and industry.
As in Third World austerity programs, the effect of keeping the debts in place at the “real” economy’s expense will be to shrink the domestic U.S. market – while providing opportunities for hedge funds to pick up depreciated assets cheaply as the federal government, states and cities sell them off. This is called letting the banks “earn their way out of debt.” It’s strangling the “real” economy, because not a dollar of the government’s response has been devoted to reducing the overall debt volume.
Take the much-vaunted $50 billion program designed to renegotiate mortgages downward for “troubled homeowners.” Upon closer examination it turns out that the real beneficiaries are the giant leading banks such as Citibank and Bank of America that have made the bad loans. The Treasury will take on the bad debt that banks are stuck with, and will permit mortgagees to renegotiate their monthly payment down to 38 per cent of their income. But rather than the banks taking the loss as they should do for over-lending, the Treasury itself will make up the difference – and pay it to the banks so that they will be able to get what they hoped to get. The hapless mortgage-burdened family stuck in their negative-equity home turns out to be merely a passive vehicle for the Treasury to pass debt relief on to the commercial banks.
Few news stories have made this clear, but the Financial Times spelled the details buried in small print. It added that the Treasury has not yet decided whether to write down the debt principal for the estimated 15 million families with negative equity (and perhaps 30 million by this time next year as property prices continue to plunge). No doubt a similar deal will be made: For every $100,000 of write-down in debt owed by over-mortgaged homeowners, the bank will receive $100,000 from the Treasury. Government debt will rise by $100,000, and the process will continue until the Treasury has transferred $50,000,000 to the banks that made the reckless loans.
There is enough for just 500,000 of these renegotiations of $100,000 each. It may seem like a big amount, but it’s only about 1/30th of the properties underwater. Hardly enough to make much of a dent, but the principle has been put in place for many further bailouts. It will take almost an infinity of them, as long as the Treasury tries to support the fiction that “the miracle of compound interest” can be sustained for long. The economy may be dead by the time saner economic understanding penetrates the public consciousness.
In the mean time, bad private-sector debt will be shifted onto the government’s balance sheet. Interest and amortization currently owed to the banks will be replaced by obligations to the U.S. Treasury. Taxes will be levied to make up the bad debts with which the government is stuck. The “real” economy will pay Wall Street – and will be paying for decades!
Calling the $12 trillion giveaway to bankers a “subprime crisis” makes it appear that bleeding-heart liberals got Fannie Mae and Freddie Mac into trouble by insisting that these public-private institutions make irresponsible loans to the poor. The party line is, “Blame the victim.” But we know this is false. The bulk of bad loans are concentrated in the largest banks. It was Countrywide and other banksters that led the irresponsible lending and brought heavy-handed pressure on Fannie Mae. Most of the nation’s smaller, local banks didn’t make such reckless loans. The big mortgage shops didn’t care about loan quality, because they were run by salesmen. The Treasury is paying off the gamblers and billionaires by supporting the value of bank loans, investments and derivative gambles, leaving the Treasury in debt.
Let’s first dispose of the “foundation myth” of the idea still guiding the United States and Europe. Free-market economists pretend that prices can be brought into line most efficiently with technologically necessary costs of production under capitalism, and indeed, under finance capitalism. The banks and stock market are supposed to allocate resources most efficiency. That at least is the dream of self-regulating markets. But today it looks like only a myth, public relations patter talk to get a generation of increasingly indebted voters not to act in their own self-interest.
Industrial capitalism always has been a hybrid, a symbiosis with its feudal legacy of absentee property ownership, oligarchic finance and public debts rather than the government acting as net creditor. The essence of feudalism was extractive, not productive.
Today it is easier to see that the Western economies cannot go on the way they have been. They have reached the point where the debts exceed the ability to pay. Instead of recognizing this fact and scaling debts back into line with the ability to pay, the Obama-Geithner plan is to bail out the big banks and hedge funds, keeping the volume of debt in place and indeed, growing once again through the “magic of compound interest.” The result can only be an increasingly extractive economy, until households, real estate and industrial companies, states and cities, and the national government itself is driven into debt peonage.
The alternative is a century and a half old, and emerged out of the ideals of the classical economic doctrines of Adam Smith, David Ricardo, John Stuart Mill, and the last great classical economist, Marx. Their common denominator was to view rent and interest are extractive, not productive. Classical political economy and its successor Progressive Era socialism sought to nationalize the land (or at least to fully tax its rent as the fiscal base). Governments were to create their own credit, not leave this function to wealthy elites via a bank monopoly on credit creation. So today’s neoliberalism paints a false picture of what the classical economists envisioned as free markets. They were markets free of economic rent and interest (and taxes to support an aristocracy or oligarchy). Socialism was to free economies from these overhead charges. Today’s Obama-Geithner rescue plan is just the reverse.
http://counterpunch.org/hudson02172009.html
Nadeem Walayat calls for reset of the banking system
The banks are bankrupt ! The only things keeping them alive is tax payer moneys in the form of capital injections and loans that are now nudging above £1 trillion. The only real solution as I highlighted last November ( Bankrupt Britain Trending Towards Hyper-Inflation?) is for the systematic nationalisation of all of the retail banks, where each bank is MADE INSOLVENT, then the profitable assets nationalised and quickly restructured with new competent management and re-privatised with clear limits on its business plan so as to avoid trading in any Securitized debt and a ban on any money market borrowings which are the prime reason the banks are now exposed to bankruptcy. Other controls should be placed on pay limits across the group so as to prevent the culture of bonuses that has destroyed the banks. Also retail banks should always be limited to operating within the means of their depositor base, which is how 99.9% of the public assumed was the way they operated.
http://www.marketoracle.co.uk/Article8926.html
http://www.marketoracle.co.uk/Article8926.html
Monday, February 16, 2009
Preparing for Hyperinflation
Reading the economic commentary, it is clear that the idea of a debt deflation is now reaching general consciousness. But few people have begun thinking about the next phase of the game: bad inflation. So, in my usually position ahead of the curve, I shall begin examining this phenomenon, what it is, why it is, its larger effects, and how to prepare for it.
One of the best things to do in the face of a looming inflation is to get leveraged to the hilt. Take on as much debt as possible. The inflation will make it easier to pay off in the future, but you can use the cash to position yourself now.
If you have the money, becoming a producer/manufacturer would be a good move. As the price of everything, especially everything imported, skyrockets in the inflation, producers/manufacturers will be able to benefit, or at least keep up with, the inflation. In today's asset-deflation, there are many bargains available when looking to purchase plant and capital for a production business.
Hyperinflationary Great Depression
In the United States, the printing presses have not been revved up heavily, yet, but the commitments are in place, as seen in the annual GAAP-based deficit running on average more $4.0 trillion per year. That amount is far beyond the ability of the government to tax or the political willingness of the government to cut entitlement spending. While the inevitable inflationary collapse, based solely on these funding needs, could be pushed well into the next decade, actions already taken likely have set the stage for a much earlier crisis.
The current systemic bailout being worked at all costs by the Federal Reserve and the U.S. government, as well as earlier efforts by the Fed to buy time, have made the circumstance worse. Pushing recent Treasury funding needs on foreign investors — stuck with excess dollars from the ever-expanding U.S. trade deficit — has created a huge dollar overhang in the markets that already has started to crumble. The more the crisis has been pushed into the future, the greater the potential for pending calamity has become.
Milton Friedman and Anna Jacobson Schwartz noted in their classic A Monetary History of the United States that the early stages of the Weimar Republic hyperinflation were accompanied by a huge influx of foreign capital, much as had happened during the U.S. Civil War. The speculative influx of capital into the U.S. at the time of the Civil War inflation helped to stabilize the system, as the recent foreign capital influx to the United States has helped stabilize the equity and credit markets of recent years. Following the Civil War, however, the underlying economy had significant untapped potential and was able to generate strong, real economic activity that covered the spending excesses of the war.
Post-World War I Germany was a different matter, where the country was financially and economically depleted as a penalty for losing the war. Here, after initial benefit, the influx of foreign capital helped to destabilize the system. "As the mark depreciated, foreigners at first were persuaded that it would subsequently appreciate and so bought a large volume of mark assets …" Such boosted the foreign exchange value of the German mark and the value of German assets. "As the German inflation went on, expectations were reversed, the inflow of capital was replaced by an outflow, and the mark depreciated more rapidly … (Friedman p. 76)."
The Weimar circumstance is closer to the current U.S. circumstance, although, in certain aspects, the current situation is worse. Unlike the untapped economic potential of the United States 140 years ago, today’s U.S. economy is languishing in the structural problems of the loss of its manufacturing base and a shift of domestic wealth offshore.
In the early 1920s, foreign investors were not propping up the world’s reserve currency in an effort to prevent a global financial collapse, knowing in advance that they were doomed to take a large hit on their investments in Germany. In today’s environment, both central bank and major private investors know that the dollar is going to be a losing proposition. They either expect and/or hope that they can get out of the dollar in time to lock in their profits, or, primarily in the case of the central banks, that they can forestall the ultimate global economic crisis.
It is this environment that leaves the U.S. dollar open to potentially such a rapid and massive decline, and dumping of U.S. Treasuries, that the Federal Reserve would be forced to monetize significant sums of Treasury debt, triggering the early phases of a monetary inflation. In this environment annual multi-trillion dollar deficits rapidly would feed into a vicious, self-feeding cycle of currency debasement and hyperinflation.
Lack of Physical Cash. The United States in a hyperinflation would experience the quick disappearance of cash as we know it. Shy of the rapid introduction of a new currency and/or the highly problematic adaptation of the current electronic commerce system to new pricing realities, a barter system is the most likely circumstance to evolve for regular commerce. Such would make much of the current electronic commerce system useless and add to what would become an ongoing economic implosion.
Therein lies an early problem for a system headed into hyperinflation: adequate currency. Where the Fed may hold roughly $210 billion in currency (sharply increased in the last year) outside of $50 billion in commercial bank vault cash, the bulk of roughly $780 billion in currency outside the banks is not in the United States. Back in 2000, the Fed estimated that 50% to 70% of U.S. dollar cash was outside the system. That number probably is higher today, with perhaps as little as $200 billion in physical cash in circulation in the United States, or roughly 1.5% of M3.
The rest of the dollars are used elsewhere in the world as a store of wealth, or as an alternate currency free of the woes of unstable domestic financial conditions. In Zimbabwe, for example, where something akin to hyperinflation is underway, U.S. dollars are used to maintain some semblance of economic activity, where wages and salaries seriously lag inflation, and goods often are available only on the black market.
Given the extremely rapid debasement of the larger denomination notes, with limited physical cash in the system, existing currency would disappear quickly as a hyperinflation broke.
For the system to continuing functioning in anything close to a normal manner, the government would have to produce rapidly an extraordinary amount of new cash, and electronic commerce would have to be able to adjust to rapidly changing prices.
In terms of cash, new bills of much higher denominations would be needed, but production lead time is a problem. Conspiracy theories of recent years have suggested the U.S. Government already has printed a new currency of red-colored bills, intended for some dual internal and external U.S. dollar system. If such indeed were the case, then there might be a store of "new dollars" that could be released at a 1-to-1,000,000 ratio, or whatever ratio was needed to make the new currency meaningful, but such would not resolve any long-term problems, unless it were part of an overall restructuring of the domestic and global financial and currency systems.
From a practical standpoint, however, currency would disappear, at least for a period of time in the early period of a hyperinflation.
While I have been advised that a number of businesses have accounting software that can handle any number of digits, I also noted on a recent cross-country trip that a large number of gas stations have older pumps that cannot register more than two digits’ worth of dollars in their totals or more than $9.99 per gallon of gas.
From a practical standpoint, the electronic quasi-cashless society of today also would shut down early in a hyperinflation. Unfortunately, this circumstance rapidly would exacerbate an ongoing economic collapse.
While I have been advised that a number of businesses have accounting software that can handle any number of digits, I also noted on a recent cross-country trip that a large number of gas stations have older pumps that cannot register more than two digits’ worth of dollars in their totals or more than $9.99 per gallon of gas.
From a practical standpoint, the electronic quasi-cashless society of today also would shut down early in a hyperinflation. Unfortunately, this circumstance rapidly would exacerbate an ongoing economic collapse.
Barter System. With standard currency and electronic payment systems non-functional, commerce quickly would devolve into black markets for goods and services and a barter system.
Unlike Zimbabwe, the United States does not have widely available, for circulation, a back-up reserve currency for use in place of a highly-inflated domestic currency. The alternative here is in the traditional monetary precious metals. Gold and silver both are likely to retain real value and would be exchangeable for goods and services. Silver would help provide smaller change for less costly transactions.
Other items that would be highly barterable would include bottles of a good scotch or wine, or canned goods, for example. Similar items that have a long shelf life can be stocked in advance of the problem, and otherwise would be consumable if the terrible inflation never came. Separately, individuals, such as doctors and carpenters, who provide broadly useable services, would have a service to barter.
A note of caution was raised once by one of my old economics professors, who had spent part of his childhood living in a barter economy. He told a story of how his father had traded a shirt for a can of sardines. The father decided to open the can and eat the sardines, but he found the sardines had gone bad. Nonetheless, the canned sardines had taken on a monetary value.
Other Issues. A hyperinflationary depression would be extremely disruptive to the lives, businesses and economic welfare of most individuals. Such severe economic pain could lead to extreme political change and/or civil unrest. What has been discussed here still has not been a comprehensive overview of all possible issues, but rather at least has raised some questions and touched upon some likely consequences. No one can figure out better than you the peculiarities of this circumstance and how you and/or your business might be affected. Using common sense is about the best advice I can give.
http://www.shadowstats.com/article/292
One of the best things to do in the face of a looming inflation is to get leveraged to the hilt. Take on as much debt as possible. The inflation will make it easier to pay off in the future, but you can use the cash to position yourself now.
If you have the money, becoming a producer/manufacturer would be a good move. As the price of everything, especially everything imported, skyrockets in the inflation, producers/manufacturers will be able to benefit, or at least keep up with, the inflation. In today's asset-deflation, there are many bargains available when looking to purchase plant and capital for a production business.
The worst place to be in an inflation is in a fixed-income position, such as your average white-collar salaried worker. As prices rapidly rise, if your salary is fixed, you are screwed. Your only option if you stay in white collar work will be to continually job-hop, trying to ride the wave of expanding salaries.
Better if you can switch to an independent service business, where you can pass on rising costs to your customers. If you have an independent service, you can also join a barter club, which can maintain services even in cash-uncertain times.
One coping mechanism for the common person is to pick up a trade, especially a repair trade. For one, a skilled trade can be used as a service in a barter economy. For two, skilled repair trades will be more common in the future as the price of goods rises. Cheap foreign goods have wiped out the repair industry in the last 10 years, but when the price of goods rises again, people will once again find it economically useful to repair their old items rather than purchase new ones.
Obviously, get your money out of dollars. It is great time, in our asset deflation, to pick up cheap assets. Timing is difficult here because we have not hit the bottom, and as long as asset prices are still falling, cash is king. I personally think we are much closer to the bottom than to the top, and inflation can already be seen, so buy now.
Any hard asset with consistent long-term value will do the trick. Many recommend gold, and it is hard to argue with the principle, but becoming a trader in actual gold has lots of costs and the market is out of reach for most people. For the common person, you can easily get involved in hoarding more easily/cheaply marketable assets, like guns, ammo, tools, equipment, etc.
As a consumer, you can shield yourself from some of the effects of inflation by joining a barter network or local alternative currency group. These are evolving concerns at this point, so you'll have to do your research.
Some have recommended getting into food production. Prices there are falling, but it stands to reason they will eventually rise in an inflation. Farming, like all capital heavy industries, probably sees some good bargains right now. For the common person, start your own garden to insulate yourself from food shocks. Buying solar panels might be a good idea now too, picking them up on the cheap in the face of rising energy costs.
Next follows a description of a hyperinflation. Enjoy! One of the most surprising/counter-intuitive things I gather from the article is the need to be in cash, early in the hyperinflation, because of the shortage of physical dollars. Very interesting. This certainly jibes with some recent observations about getting deposits out of the banks, because of the rising probability of bank closures.
Hyperinflationary Great Depression
In the United States, the printing presses have not been revved up heavily, yet, but the commitments are in place, as seen in the annual GAAP-based deficit running on average more $4.0 trillion per year. That amount is far beyond the ability of the government to tax or the political willingness of the government to cut entitlement spending. While the inevitable inflationary collapse, based solely on these funding needs, could be pushed well into the next decade, actions already taken likely have set the stage for a much earlier crisis.
The current systemic bailout being worked at all costs by the Federal Reserve and the U.S. government, as well as earlier efforts by the Fed to buy time, have made the circumstance worse. Pushing recent Treasury funding needs on foreign investors — stuck with excess dollars from the ever-expanding U.S. trade deficit — has created a huge dollar overhang in the markets that already has started to crumble. The more the crisis has been pushed into the future, the greater the potential for pending calamity has become.
Milton Friedman and Anna Jacobson Schwartz noted in their classic A Monetary History of the United States that the early stages of the Weimar Republic hyperinflation were accompanied by a huge influx of foreign capital, much as had happened during the U.S. Civil War. The speculative influx of capital into the U.S. at the time of the Civil War inflation helped to stabilize the system, as the recent foreign capital influx to the United States has helped stabilize the equity and credit markets of recent years. Following the Civil War, however, the underlying economy had significant untapped potential and was able to generate strong, real economic activity that covered the spending excesses of the war.
Post-World War I Germany was a different matter, where the country was financially and economically depleted as a penalty for losing the war. Here, after initial benefit, the influx of foreign capital helped to destabilize the system. "As the mark depreciated, foreigners at first were persuaded that it would subsequently appreciate and so bought a large volume of mark assets …" Such boosted the foreign exchange value of the German mark and the value of German assets. "As the German inflation went on, expectations were reversed, the inflow of capital was replaced by an outflow, and the mark depreciated more rapidly … (Friedman p. 76)."
The Weimar circumstance is closer to the current U.S. circumstance, although, in certain aspects, the current situation is worse. Unlike the untapped economic potential of the United States 140 years ago, today’s U.S. economy is languishing in the structural problems of the loss of its manufacturing base and a shift of domestic wealth offshore.
In the early 1920s, foreign investors were not propping up the world’s reserve currency in an effort to prevent a global financial collapse, knowing in advance that they were doomed to take a large hit on their investments in Germany. In today’s environment, both central bank and major private investors know that the dollar is going to be a losing proposition. They either expect and/or hope that they can get out of the dollar in time to lock in their profits, or, primarily in the case of the central banks, that they can forestall the ultimate global economic crisis.
It is this environment that leaves the U.S. dollar open to potentially such a rapid and massive decline, and dumping of U.S. Treasuries, that the Federal Reserve would be forced to monetize significant sums of Treasury debt, triggering the early phases of a monetary inflation. In this environment annual multi-trillion dollar deficits rapidly would feed into a vicious, self-feeding cycle of currency debasement and hyperinflation.
Lack of Physical Cash. The United States in a hyperinflation would experience the quick disappearance of cash as we know it. Shy of the rapid introduction of a new currency and/or the highly problematic adaptation of the current electronic commerce system to new pricing realities, a barter system is the most likely circumstance to evolve for regular commerce. Such would make much of the current electronic commerce system useless and add to what would become an ongoing economic implosion.
Therein lies an early problem for a system headed into hyperinflation: adequate currency. Where the Fed may hold roughly $210 billion in currency (sharply increased in the last year) outside of $50 billion in commercial bank vault cash, the bulk of roughly $780 billion in currency outside the banks is not in the United States. Back in 2000, the Fed estimated that 50% to 70% of U.S. dollar cash was outside the system. That number probably is higher today, with perhaps as little as $200 billion in physical cash in circulation in the United States, or roughly 1.5% of M3.
The rest of the dollars are used elsewhere in the world as a store of wealth, or as an alternate currency free of the woes of unstable domestic financial conditions. In Zimbabwe, for example, where something akin to hyperinflation is underway, U.S. dollars are used to maintain some semblance of economic activity, where wages and salaries seriously lag inflation, and goods often are available only on the black market.
Given the extremely rapid debasement of the larger denomination notes, with limited physical cash in the system, existing currency would disappear quickly as a hyperinflation broke.
For the system to continuing functioning in anything close to a normal manner, the government would have to produce rapidly an extraordinary amount of new cash, and electronic commerce would have to be able to adjust to rapidly changing prices.
In terms of cash, new bills of much higher denominations would be needed, but production lead time is a problem. Conspiracy theories of recent years have suggested the U.S. Government already has printed a new currency of red-colored bills, intended for some dual internal and external U.S. dollar system. If such indeed were the case, then there might be a store of "new dollars" that could be released at a 1-to-1,000,000 ratio, or whatever ratio was needed to make the new currency meaningful, but such would not resolve any long-term problems, unless it were part of an overall restructuring of the domestic and global financial and currency systems.
From a practical standpoint, however, currency would disappear, at least for a period of time in the early period of a hyperinflation.
While I have been advised that a number of businesses have accounting software that can handle any number of digits, I also noted on a recent cross-country trip that a large number of gas stations have older pumps that cannot register more than two digits’ worth of dollars in their totals or more than $9.99 per gallon of gas.
From a practical standpoint, the electronic quasi-cashless society of today also would shut down early in a hyperinflation. Unfortunately, this circumstance rapidly would exacerbate an ongoing economic collapse.
While I have been advised that a number of businesses have accounting software that can handle any number of digits, I also noted on a recent cross-country trip that a large number of gas stations have older pumps that cannot register more than two digits’ worth of dollars in their totals or more than $9.99 per gallon of gas.
From a practical standpoint, the electronic quasi-cashless society of today also would shut down early in a hyperinflation. Unfortunately, this circumstance rapidly would exacerbate an ongoing economic collapse.
Barter System. With standard currency and electronic payment systems non-functional, commerce quickly would devolve into black markets for goods and services and a barter system.
Unlike Zimbabwe, the United States does not have widely available, for circulation, a back-up reserve currency for use in place of a highly-inflated domestic currency. The alternative here is in the traditional monetary precious metals. Gold and silver both are likely to retain real value and would be exchangeable for goods and services. Silver would help provide smaller change for less costly transactions.
Other items that would be highly barterable would include bottles of a good scotch or wine, or canned goods, for example. Similar items that have a long shelf life can be stocked in advance of the problem, and otherwise would be consumable if the terrible inflation never came. Separately, individuals, such as doctors and carpenters, who provide broadly useable services, would have a service to barter.
A note of caution was raised once by one of my old economics professors, who had spent part of his childhood living in a barter economy. He told a story of how his father had traded a shirt for a can of sardines. The father decided to open the can and eat the sardines, but he found the sardines had gone bad. Nonetheless, the canned sardines had taken on a monetary value.
Other Issues. A hyperinflationary depression would be extremely disruptive to the lives, businesses and economic welfare of most individuals. Such severe economic pain could lead to extreme political change and/or civil unrest. What has been discussed here still has not been a comprehensive overview of all possible issues, but rather at least has raised some questions and touched upon some likely consequences. No one can figure out better than you the peculiarities of this circumstance and how you and/or your business might be affected. Using common sense is about the best advice I can give.
http://www.shadowstats.com/article/292
Out of Control, Prepare for the Worst
An increasing number of forward thinkers have projected our current trends to their obvious conclusions, and come to some very sobering conclusions:
http://jsmineset.com/index.php/2009/02/15/officially-out-of-control/
This communication is to inform you as of 2/13/09, "It is totally out of control." There is no longer any means of reversal of the beginning of the final phase of the downward spiral now solidly set in motion.
For your sake, protect yourselves immediately.
Be prepared for disruptions in distribution common to hyperinflation.
1. You should have already distanced yourself from your financial agents. If you haven’t you are headed for significant displeasure and strain.
2. Make sure you stay three months ahead on necessary items that could experience distribution delays such as prescribed medicine and preferred foods.
3. Even though real estate is far from a buy, if you can afford a second home outside of major cities it would serve a good purpose.
4. Own gold.
5. Consider that good gold shares of non-US companies incorporated in a non-US country operating in third country, traded on multiple exchanges are a means of money expatriation legally and in broad daylight if required.
6. For currencies, all you can do is own a spread held by a true custodial ship wherever that might be.
Simply said, as of Friday February 13th, 2009 the situation is in confirmed "Out of Control" mode as this well engineered downward spiral enters into a terminal phase.
The motive was profit and degree of the disintegration caused in the pursuit of this goal was not anticipated.
The key event was when Lehman was flushed - all hell broke loose. The hell cannot be contained in any practical manner.
I seek nothing of you, but the protection of yourselves.
Respectfully yours,
Jim
http://jsmineset.com/index.php/2009/02/15/officially-out-of-control/
This communication is to inform you as of 2/13/09, "It is totally out of control." There is no longer any means of reversal of the beginning of the final phase of the downward spiral now solidly set in motion.
For your sake, protect yourselves immediately.
Be prepared for disruptions in distribution common to hyperinflation.
1. You should have already distanced yourself from your financial agents. If you haven’t you are headed for significant displeasure and strain.
2. Make sure you stay three months ahead on necessary items that could experience distribution delays such as prescribed medicine and preferred foods.
3. Even though real estate is far from a buy, if you can afford a second home outside of major cities it would serve a good purpose.
4. Own gold.
5. Consider that good gold shares of non-US companies incorporated in a non-US country operating in third country, traded on multiple exchanges are a means of money expatriation legally and in broad daylight if required.
6. For currencies, all you can do is own a spread held by a true custodial ship wherever that might be.
Simply said, as of Friday February 13th, 2009 the situation is in confirmed "Out of Control" mode as this well engineered downward spiral enters into a terminal phase.
The motive was profit and degree of the disintegration caused in the pursuit of this goal was not anticipated.
The key event was when Lehman was flushed - all hell broke loose. The hell cannot be contained in any practical manner.
I seek nothing of you, but the protection of yourselves.
Respectfully yours,
Jim
Boris Sobolev recommends Mortgage debt forgiveness
Another financial analysis pointing out the obvious necessity of debt write-downs:
http://seekingalpha.com/article/120770-gold-now-demonstrating-trust-in-obama
One of the main problems with this crisis is that the majority of the debt bubble is related to residential real estate, which does not produce cash flow, but only seems to eat it up. As home prices decline and unemployment rises, debt serviceability is worsening dramatically.
In order to avoid social unrest and to maintain popularity, the Democratic majority will face two realistic options which could begin to address the economic disaster:
Forgive portions of mortgage debt which cannot be serviced. But who will pay for the losses – clearly not the weak banks. Uncle Sam would pick up the tab by printing more currency.
Print new dollars to increase the nominal income of the indebted population through tax cuts, job creation, jobless benefits and various social spending.
There is no other politically possible way out of this mess other than to run the printing press. The way of the free market via bankruptcies is not popular so there is no sense to even discuss it.
http://seekingalpha.com/article/120770-gold-now-demonstrating-trust-in-obama
One of the main problems with this crisis is that the majority of the debt bubble is related to residential real estate, which does not produce cash flow, but only seems to eat it up. As home prices decline and unemployment rises, debt serviceability is worsening dramatically.
In order to avoid social unrest and to maintain popularity, the Democratic majority will face two realistic options which could begin to address the economic disaster:
Forgive portions of mortgage debt which cannot be serviced. But who will pay for the losses – clearly not the weak banks. Uncle Sam would pick up the tab by printing more currency.
Print new dollars to increase the nominal income of the indebted population through tax cuts, job creation, jobless benefits and various social spending.
There is no other politically possible way out of this mess other than to run the printing press. The way of the free market via bankruptcies is not popular so there is no sense to even discuss it.
Thursday, February 12, 2009
American Media Mind Control
Classic mind control in today's headlines:
"New jobless claims drop slightly"
What a joke. They are even higher than initially reported last week. Last week's were revised UPWARD from where they were originally reported, and both weeks are WAY above anywhere we have been before. Why not some real reporting, like "Record jobless claims continue" or something like that.
From the same article: "The latest tally still was above analysts' expectations of 610,000 claims..."
Yup, it is still getting worse, faster than the experts expected.
"New jobless claims drop slightly"
What a joke. They are even higher than initially reported last week. Last week's were revised UPWARD from where they were originally reported, and both weeks are WAY above anywhere we have been before. Why not some real reporting, like "Record jobless claims continue" or something like that.
From the same article: "The latest tally still was above analysts' expectations of 610,000 claims..."
Yup, it is still getting worse, faster than the experts expected.
Wednesday, February 11, 2009
This is Deflation
Well, Helicopter Ben? What are you going to do now?
WASHINGTON (Reuters) – The U.S. trade deficit shrank 4 percent in December, as the global financial crisis cut U.S. imports and exports for the fifth straight month, while U.S. demand for mortgages tumbled nearly 25 percent last week as potential buyers held out for better terms.
The $39.9 billion trade gap was the smallest since February 2003, the U.S. Commerce Department said in its monthly report. The December shortfall followed a much bigger contraction in the November trade gap.
"There is a lot of credit crunch impact on global trade. Obviously, this is bad news for the economy," said Pierre Ellis, senior global economist with Decision Economics in New York. "The export weakness is intensifying."
CHINA'S FALLING IMPORTS, EXPORTS
Chinese trade figures for January, also released on Wednesday, showed China's exports fell 17.5 percent from a year earlier, after a 2.8 percent decline in December.
China's imports plunged 43.1 percent, twice as much as December's 21.3 percent year-on-year drop, the General Administration of Customs said on Wednesday.
Both falls were the steepest since economists' records began in 1993. Imports and exports have now fallen for three months in a row from their year-earlier levels.
U.S. imports of goods and services fell 5.5 percent in December, following an 11.9 percent drop in November, as businesses and consumers cut spending in the face of mounting economic woes.
Imports of autos and auto parts were the lowest since May 1999. Another big drop in the average price of imported oil to $49.93 per barrel, the lowest since December 2005, helped push the overall import tally lower.
U.S. exports of goods and services fell nearly 6 percent for a second month in a row, as the financial crisis took a bite out of foreign demand. Overall U.S. goods exports were the lowest since October 2006, and auto and auto parts exports were the lowest since November 2004.
However, both U.S. exports and imports set a record for all of 2008 and the overall trade gap declined for the second year in a row to $677.1 billion.
The bilateral U.S. trade deficit with China in 2008 hit a record $266.3 billion as imports from that country rose to a record $337.8 billion. At the same time, U.S. exports to China last year were a record $71.5 billion.
The average price for imported oil in 2008 was a record $95.23 per barrel, pushing imports from Saudi Arabia and other members of the Organization of Petroleum Exporting Countries to a record $242.6 billion.
MORTGAGE DEMAND DROP
Requests for loans to buy homes sank last week to an eight-year low, the Mortgage Bankers Association said.
Expectations that government steps could yank 30-year home loan rates near 4 percent, a proposed $15,000 home-buying tax credit and the outlook for still lower house prices has raised the incentive to wait.
http://news.yahoo.com/s/nm/20090211/bs_nm/us_usa_economy_1
WASHINGTON (Reuters) – The U.S. trade deficit shrank 4 percent in December, as the global financial crisis cut U.S. imports and exports for the fifth straight month, while U.S. demand for mortgages tumbled nearly 25 percent last week as potential buyers held out for better terms.
The $39.9 billion trade gap was the smallest since February 2003, the U.S. Commerce Department said in its monthly report. The December shortfall followed a much bigger contraction in the November trade gap.
"There is a lot of credit crunch impact on global trade. Obviously, this is bad news for the economy," said Pierre Ellis, senior global economist with Decision Economics in New York. "The export weakness is intensifying."
CHINA'S FALLING IMPORTS, EXPORTS
Chinese trade figures for January, also released on Wednesday, showed China's exports fell 17.5 percent from a year earlier, after a 2.8 percent decline in December.
China's imports plunged 43.1 percent, twice as much as December's 21.3 percent year-on-year drop, the General Administration of Customs said on Wednesday.
Both falls were the steepest since economists' records began in 1993. Imports and exports have now fallen for three months in a row from their year-earlier levels.
U.S. imports of goods and services fell 5.5 percent in December, following an 11.9 percent drop in November, as businesses and consumers cut spending in the face of mounting economic woes.
Imports of autos and auto parts were the lowest since May 1999. Another big drop in the average price of imported oil to $49.93 per barrel, the lowest since December 2005, helped push the overall import tally lower.
U.S. exports of goods and services fell nearly 6 percent for a second month in a row, as the financial crisis took a bite out of foreign demand. Overall U.S. goods exports were the lowest since October 2006, and auto and auto parts exports were the lowest since November 2004.
However, both U.S. exports and imports set a record for all of 2008 and the overall trade gap declined for the second year in a row to $677.1 billion.
The bilateral U.S. trade deficit with China in 2008 hit a record $266.3 billion as imports from that country rose to a record $337.8 billion. At the same time, U.S. exports to China last year were a record $71.5 billion.
The average price for imported oil in 2008 was a record $95.23 per barrel, pushing imports from Saudi Arabia and other members of the Organization of Petroleum Exporting Countries to a record $242.6 billion.
MORTGAGE DEMAND DROP
Requests for loans to buy homes sank last week to an eight-year low, the Mortgage Bankers Association said.
Expectations that government steps could yank 30-year home loan rates near 4 percent, a proposed $15,000 home-buying tax credit and the outlook for still lower house prices has raised the incentive to wait.
http://news.yahoo.com/s/nm/20090211/bs_nm/us_usa_economy_1
Tuesday, February 10, 2009
Snap Shot of World Economy Going Over a Cliff
Why is the foreign media so much more open about squarely confronting the severity of our problem? Another insightful article by Evans-Pritchard detailing exactly how bad it has become. Who can deny this is a Depression?
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4560901/Bond-market-calls-Feds-bluff-as-world-falls-apart.html
The yield on 10-year US Treasury bonds – the world's benchmark cost of capital – has jumped from 2pc to 3pc since Christmas despite efforts to talk the rate down. This level will asphyxiate the US economy if allowed to persist, as Fed chair Ben Bernanke must know. The US is already in deflation. Core prices – stripping out energy – fell at an annual rate of 2pc in the fourth quarter. Wages are following. IBM, Chrysler, General Motors, and YRC, have all begun to cut pay.
The "real" cost of capital is rising as the slump deepens. This is textbook debt deflation. It was not supposed to happen. The Bernanke doctrine assumes that the Fed can bring down the whole structure of interest costs, first by slashing the Fed Funds rate to zero, and then by making a "credible threat" to buy Treasuries outright with printed money. Mr Bernanke has been repeating this threat since early December. But talk is cheap. As the Fed hesitates, real yields climb ever higher. Plainly, the markets do not regard Fed rhetoric as "credible" at all.
Who can blame bond vigilantes for going on strike? Nobody wants to be left holding the bag if and when the global monetary blitz succeeds in stoking inflation. Governments are borrowing frantically to fund their bail-outs and cover a collapse in tax revenue. The US Treasury alone needs to raise $2 trillion in 2009.
Where is the money to come from? China, the Pacific tigers and the commodity powers are no longer amassing foreign reserves ($7.6 trillion). Their exports have collapsed. Instead of buying a trillion dollars of extra bonds each year, they have become net sellers. In aggregate, they dumped $190bn over the last fifteen weeks.
The Fed has stepped into the breach, up to a point. It has bought $350bn of commercial paper, and begun to buy $600bn of mortgage bonds. That helps. But still it recoils from buying Treasuries, perhaps fearing that any move to "monetise" Washington's deficit starts a slippery slope towards an Argentine fate. Or perhaps Bernanke doesn't believe his own assurances that the Fed can extract itself easily from emergency policies when the cycle turns.
As they dither, the world is falling apart. Events in Japan have turned deeply alarming. Exports fell 35pc in December. Industrial output fell 9.6pc. The economy is contracting at an annual rate of 12pc. "Falling exports are triggering a downward spiral of production, incomes and spending. It is important to prepare for swift policy steps, including those usually regarded as unusual," said the Bank of Japan's Atsushi Mizuno. The bank is already targeting equities on the Tokyo bourse. That is not enough for restive politicians. One bloc led by Senator Koutaro Tamura wants to create $330bn in scrip currency for an industrial blitz. "We are facing hyper-deflation, so we need a policy to create hyper-inflation," he said.
This has echoes of 1932, when the US Congress took charge of monetary policy. We are moving to a stage of this crisis where democracies start to speak – especially in Europe.
The European Central Bank's refusal to follow the lead of the US, Japan, Britain, Canada, Switzerland and Sweden in slashing rates shows how destructive Europe's monetary union has become. German orders fells 25pc year-on-year in December. French house prices collapsed 9.9pc in the fourth quarter, the steepest since data began in 1936. "We're dealing with truly appalling data, the likes of which have never been seen before in post-War Europe," said Julian Callow, Europe economist at Barclays Capital.
Spain's unemployment has jumped to 3.3m – or 14.4pc – and will hit 19pc next year, on Brussels data. The labour minister said yesterday that Spain's economy could not "tolerate" immigrants any longer after suffering "hurricane devastation". You can see where this is going.
Ireland lost 36,500 jobs in January – equal to a monthly loss of 2.3m in the US. As the budget deficit surges to 12pc of GDP, Dublin is cutting wages, disguised as a pension levy. It has announced "Rooseveltian measures" to rescue the foundering companies.
The ECB's obduracy has nothing to do with economics. It fears zero rates as a vampire fears daylight, because that brings the purchase of eurozone bonds ever closer into play. Any such action would usher in an EMU "debt union" by the back door, leaving Germany's taxpayers on the hook for Club Med liabilties. This is Europe's taboo.
Meanwhile, Eastern Europe is imploding. Industrial output fell 27pc in Ukraine and 10pc in Russia in December. Latvia's GDP contracted at a 29pc annual rate in the fourth quarter. Polish homeowners have had the shock from Hell. Some 60pc of mortgages are in Swiss francs. The zloty has halved against the franc since July.
Readers have berated me for a piece last week – "Glimmers of Hope" – that hinted at recovery. Let me stress, I was wearing my reporter's hat, not expressing an opinion. My own view, sadly, is that there is no hope at all of stabilizing the world economy on current policies.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4560901/Bond-market-calls-Feds-bluff-as-world-falls-apart.html
The yield on 10-year US Treasury bonds – the world's benchmark cost of capital – has jumped from 2pc to 3pc since Christmas despite efforts to talk the rate down. This level will asphyxiate the US economy if allowed to persist, as Fed chair Ben Bernanke must know. The US is already in deflation. Core prices – stripping out energy – fell at an annual rate of 2pc in the fourth quarter. Wages are following. IBM, Chrysler, General Motors, and YRC, have all begun to cut pay.
The "real" cost of capital is rising as the slump deepens. This is textbook debt deflation. It was not supposed to happen. The Bernanke doctrine assumes that the Fed can bring down the whole structure of interest costs, first by slashing the Fed Funds rate to zero, and then by making a "credible threat" to buy Treasuries outright with printed money. Mr Bernanke has been repeating this threat since early December. But talk is cheap. As the Fed hesitates, real yields climb ever higher. Plainly, the markets do not regard Fed rhetoric as "credible" at all.
Who can blame bond vigilantes for going on strike? Nobody wants to be left holding the bag if and when the global monetary blitz succeeds in stoking inflation. Governments are borrowing frantically to fund their bail-outs and cover a collapse in tax revenue. The US Treasury alone needs to raise $2 trillion in 2009.
Where is the money to come from? China, the Pacific tigers and the commodity powers are no longer amassing foreign reserves ($7.6 trillion). Their exports have collapsed. Instead of buying a trillion dollars of extra bonds each year, they have become net sellers. In aggregate, they dumped $190bn over the last fifteen weeks.
The Fed has stepped into the breach, up to a point. It has bought $350bn of commercial paper, and begun to buy $600bn of mortgage bonds. That helps. But still it recoils from buying Treasuries, perhaps fearing that any move to "monetise" Washington's deficit starts a slippery slope towards an Argentine fate. Or perhaps Bernanke doesn't believe his own assurances that the Fed can extract itself easily from emergency policies when the cycle turns.
As they dither, the world is falling apart. Events in Japan have turned deeply alarming. Exports fell 35pc in December. Industrial output fell 9.6pc. The economy is contracting at an annual rate of 12pc. "Falling exports are triggering a downward spiral of production, incomes and spending. It is important to prepare for swift policy steps, including those usually regarded as unusual," said the Bank of Japan's Atsushi Mizuno. The bank is already targeting equities on the Tokyo bourse. That is not enough for restive politicians. One bloc led by Senator Koutaro Tamura wants to create $330bn in scrip currency for an industrial blitz. "We are facing hyper-deflation, so we need a policy to create hyper-inflation," he said.
This has echoes of 1932, when the US Congress took charge of monetary policy. We are moving to a stage of this crisis where democracies start to speak – especially in Europe.
The European Central Bank's refusal to follow the lead of the US, Japan, Britain, Canada, Switzerland and Sweden in slashing rates shows how destructive Europe's monetary union has become. German orders fells 25pc year-on-year in December. French house prices collapsed 9.9pc in the fourth quarter, the steepest since data began in 1936. "We're dealing with truly appalling data, the likes of which have never been seen before in post-War Europe," said Julian Callow, Europe economist at Barclays Capital.
Spain's unemployment has jumped to 3.3m – or 14.4pc – and will hit 19pc next year, on Brussels data. The labour minister said yesterday that Spain's economy could not "tolerate" immigrants any longer after suffering "hurricane devastation". You can see where this is going.
Ireland lost 36,500 jobs in January – equal to a monthly loss of 2.3m in the US. As the budget deficit surges to 12pc of GDP, Dublin is cutting wages, disguised as a pension levy. It has announced "Rooseveltian measures" to rescue the foundering companies.
The ECB's obduracy has nothing to do with economics. It fears zero rates as a vampire fears daylight, because that brings the purchase of eurozone bonds ever closer into play. Any such action would usher in an EMU "debt union" by the back door, leaving Germany's taxpayers on the hook for Club Med liabilties. This is Europe's taboo.
Meanwhile, Eastern Europe is imploding. Industrial output fell 27pc in Ukraine and 10pc in Russia in December. Latvia's GDP contracted at a 29pc annual rate in the fourth quarter. Polish homeowners have had the shock from Hell. Some 60pc of mortgages are in Swiss francs. The zloty has halved against the franc since July.
Readers have berated me for a piece last week – "Glimmers of Hope" – that hinted at recovery. Let me stress, I was wearing my reporter's hat, not expressing an opinion. My own view, sadly, is that there is no hope at all of stabilizing the world economy on current policies.
Sunday, February 8, 2009
Richard Cook calls for Write-Off of all Debt
His analysis of the abuse of the banking power, and his proposal for legal and monetary reform to prevent such abuse, is spot on.
marketoracle.co.uk/Article8673.html
Bailout for the People
The amount of debt the economy is carrying is staggering. If we count individual, household, business, and government debt, that figure now exceeds $40 trillion, including the recent bailouts. What the General Accounting Office calls “unfunded liabilities” of the federal government, due to future costs of entitlement programs like Social Security and Medicare, adds another $60 trillion. These estimates don't include outstanding debt for derivatives, most of it bank-leveraged, which, according to the Bank for International Settlements, may amount to $1.28 quadrillion worldwide.
Growth in debt through 2006—understated, compared to figures derived by independent analysts—is shown by the following chart based on Federal Reserve figures. Note that virtually all of the debt has been incurred since removal of the gold peg and that its growth is exponential.
The commentators who write for newspapers like the Washington Post or give advice to the Federal Reserve have come up with solutions like slashing Social Security and Medicare benefits, a prescription President Obama will likely follow, or selling more U.S. assets to creditor nations like China. But they are proposing solutions in the interest of the financiers, not the nation.
They refuse to propose the obvious, which is that the debt must be written off as soon as possible and the monetary system changed to prevent further debt from being accumulated. Nationalization of the banks is not the answer; it still would be a debt-based system where the banks would rule from within the government rather than outside.
Bailouts financed by the government must be repaid with interest by the taxpayers. But the taxpayers are already overburdened by debt. Because the bankers are so untrustworthy and motivated by self-interest, they must be removed from power. This requires a political revolution that may already have begun.
In the late 1960s, an aberrant socio-economic phase emerged: the usurious state, in which the control over money, rather than the ownership of machinery, is the most important lever of economic and social power. Investment in debt, and the speculative buying and selling of paper assets, are the most significant means of accumulating personal wealth.
Hunter provides the following list of characteristics of usurious systems, features that are agonizingly familiar:
- “Crushing debt;
- “A widening gap between rich and poor;
- “Share markets subject to collapse;
- “Currency meltdowns;
- “Mounting social distress;
- “A pervading belief that the free market should be allowed free reign;
- “Banks driven by profit but holding tremendous power through their ability to create and extinguish the national currency, that is, money.”
This system is not free enterprise, and it is not capitalism. It is the cancer that is destroying the world.
The American Monetary Act became part of Kucinich's platform during his 2008 congressional campaign after he had dropped out of the run for the presidency.
This plan would eliminate public debt for federal government expenditures by returning to a Greenback-type system of direct government purchasing like we had during and after the Civil War. Public expenditures would focus on the creation of infrastructure assets as the basis for the monetary system. The Act would eliminate fractional reserve banking by requiring the banks to borrow money they lent from the government.
These measures would address the errors made by all Western governments by which, according to Canadian professor of economics John H. Hotson, they have violated “four common sense rules regarding their fiscal and monetary policies.” Hotson was professor emeritus of economics at the University of Waterloo and executive director of the Committee on Monetary and Economic Reform (COMER), when he identified these rules in 1996 as:
“1. No sovereign government should ever, under any circumstances, give over democratic control of its money supply to bankers.
“2. No sovereign government should ever, under any circumstances, borrow any money from any private bank.
“3. No national, provincial, or local government should borrow foreign money to increase purchases abroad when there is excessive domestic unemployment.
“4. Governments, like businesses, should distinguish between ‘capital' and ‘current' expenditures, and when it is prudent to do so, finance capital improvements with money the government has created for itself.”
The Insane Effect of Debt on State Government
This is truly insane. In CA, available tax income is going towards education and debt payments, while other services are shut down. That is completely irrational, but that is the type if irrationally destructive behavior that debt leads you to. These broke state governments can't stop paying debt, because then they could no longer borrow. A never ending mind-fuck of debt insanity. In a time of mass unemployment, rending the very fabric of healthy and peaceful society, literally threatening the existence of the political unit called the state of California, they are cutting essential services of everything except debt payment.
This is the easy-button solution: cancel the debt, balance the budget, no need to borrow. WTF??? Are our financial experts and leaders really this stupid??? WAKE UP, AMERICA!!!! Time for Jubilee!
from : www.dailyherald.com/story/?id=269994&src=109
Facing an ever-growing pile of bills, crushing debt and less tax money flowing into the state treasury, Illinois is broke. But could the state climb out of its nearly $9 billion budget hole by declaring bankruptcy? No, say tax and budget experts. Federal law permits individuals, businesses and local governments to file for bankruptcy reorganization and sometimes debt forgiveness. States are not covered by the law. No U.S. state has ever declared bankruptcy. "A state is not going to just shut down," said Elizabeth McNichol, a state budget specialist at the Center on Budget and Policy Priorities, a nonpartisan Washington, D.C., think tank. "As bad as things are, no state is going to have zero revenue coming in," McNichol said. "It's really just a matter of choices." So, rather than having a court restructure its finances as in a bankruptcy filing, a state would have to reorganize its spending and debt on its own.
This is the easy-button solution: cancel the debt, balance the budget, no need to borrow. WTF??? Are our financial experts and leaders really this stupid??? WAKE UP, AMERICA!!!! Time for Jubilee!
from : www.dailyherald.com/story/?id=269994&src=109
Facing an ever-growing pile of bills, crushing debt and less tax money flowing into the state treasury, Illinois is broke. But could the state climb out of its nearly $9 billion budget hole by declaring bankruptcy? No, say tax and budget experts. Federal law permits individuals, businesses and local governments to file for bankruptcy reorganization and sometimes debt forgiveness. States are not covered by the law. No U.S. state has ever declared bankruptcy. "A state is not going to just shut down," said Elizabeth McNichol, a state budget specialist at the Center on Budget and Policy Priorities, a nonpartisan Washington, D.C., think tank. "As bad as things are, no state is going to have zero revenue coming in," McNichol said. "It's really just a matter of choices." So, rather than having a court restructure its finances as in a bankruptcy filing, a state would have to reorganize its spending and debt on its own.
But should state finances became especially dire, Illinois could keep going by not paying back money it has borrowed. Such a move is unlikely and the consequences of default would make the state's financial situation worse. That's because it would greatly hinder the state's ability to borrow in the future. Plus, the people Illinois owes money to could go to court to force the state to pay. "It's not something you want to do because when you want to borrow in the future you'll have to pay a lot more interest because you're a higher risk," explained Beverly Bunch, an associate professor of public administration at the University of Illinois at Springfield. But if the state manages to muddle through, the future could get pretty bleak. California's current $41 billion budget crisis is a preview of what Illinois might have to do to stay solvent.
California has been borrowing to pay its everyday bills. But facing a $346 million shortfall just for February, California Controller John Chaing this week stopped writing checks for nearly everything other than education and debt payments. That means spending on state agencies, including public safety, payments for state purchases and tax refunds will be delayed until at least March.
The Illinois Constitution says state pensions cannot be "diminished or impaired." But money for schools, public safety, and payments to cities and counties are offered no such protection and could all be delayed. The trickle-down effect of stopped payments in the Golden State is busting the budgets of cities and counties across California. Riverside County, located between Los Angeles and San Diego, is going to court for permission to stop providing state mandated services if the county does not receive state funding.
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