The Welfare State..We Have Reached The Limits

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But that looks more like bravado than real self-confidence. So it looks like we’ll see how durable the common currency project is. And in the meantime, that ought to mean more U.S. dollar and gold strength. In fact, with so many governments in so many places printing so much money, it shouldn’t surprise you to see a whole basket of commodities benefit...for now.

However this just pushes out into time and amplifies in size the next phase of the crisis. It’s all, at heart, a debt crisis. And before it’s over we reckon there will be both collapsing asset values AND hyperinflation.

And here’s a bonus thought for the day: what if the inevitable collapse of the social welfare state funding model leads people to change their primary loyalty from the State to something more local? For starters, it would mean, we reckon, that the centralising principle of the last 200 years of Western history (in commerce, politics, and living arrangements) may have reached its natural limits.

The centralising principle would reach those limits for various reasons. One is the inherent fragility of complex systems and their increasing vulnerability to systemic collapse. Globalisation and the division of labour on a global level creates tremendous complexity AND vulnerability.

Politically, the centralising principle, as emotionally successful as it has been in winning market share/votes (let us live at one another’s expense) is being exposed as economically fraudulent (as well as morally wrong to coerce other people to your way of thinking through taxation). It’s a nice idea, but it may be unaffordable without literally mortgaging the future or destroying our standard of living in the pursuit of a social welfare utopia.

Robb defines a primary loyalty as “a connection to a non-state group that is greater than loyalty to a state. These loyalties include those to clan, religion, tribe, neighbourhood gang, etc. These loyalties are reciprocated through the delivery of political goods (by the group that the state cannot or will not deliver).”

In a prosperous liberal democratic state where people see justice as fair and view the burden of civilisation (taxes) as equitably shared, where corruption is not rife and opportunities exist for social and economic mobility, having your primary loyalty to an abstraction (the rule of law or the State) is no problem. It is the norm.

But when the State expands the promises it makes and then fails to deliver on more basic ones, people begin to question their primary loyalty. This doesn’t mean they revolt. No one really wants to do that. You only do that when you have no recourse economically and no better prospects.

We reckon a retreat to a more local way of life is in the works. The rising cost of energy and capital will be one factor. And frankly, to use a Marxist term, people might feel less alienated from their labour and life if they felt more connected to their neighbours and their work. And that’s more possible in a small, more sustainable resilient community than it is in an artificial mega-city of millions. But now we’re just prattling on!


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Goldman Sachs Reveals it Shorted Gulf of Mexico (Satire)

NEW YORK (The Borowitz Report) - In what is looming as another public relations predicament for Goldman Sachs, the banking giant admitted today that it made "a substantial financial bet against the Gulf of Mexico" one day before the sinking of an oil rig in that body of water.

The new revelations came to light after government investigators turned up new emails from Goldman employee Fabrice "Fabulous Fab" Tourre in which he bragged to a girlfriend that the firm was taking a "big short" position on the Gulf.

"One oil rig goes down and we're going to be rolling in dough," Mr. Tourre wrote in one email. "Suck it, fishies and birdies!"

The news about Goldman's bet against the Gulf comes on the heels of embarrassing revelations that the firm had taken a short position on Lindsay Lohan's acting career. 

More here. 

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Any "Growth" In the Economy Is Unsustainable

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1. Public pressure to withdraw monetary and fiscal stimulus will work and stimulus will be reduced quicker than many anticipate – beginning sometime in early 2010. The Fed has already said it will stop buying mortgages in March and the Obama Administration is now focused on deficit reduction as evidenced by the paltry jobs bill just passed.
2. The fiscally weak state and local governments will therefore receive little aid from the federal government. This will result in budget cuts, tax increases, and layoffs by the end of Q2 2010.
3. At the same time, the inventory cycle’s impact on GDP growth will attenuate. By the second half of 2010, inventories will not add considerably to GDP.
4. Meanwhile, the reduction of Fed support for the mortgage market will reveal weaknesses there. Mortgage rates may increase, decreasing housing demand.
5. Employment will be weak in this environment, leading to another spate of defaults and foreclosures.
6. The foreclosures and weak housing demand will pressure house prices and weaken lender balance sheets, especially because of second-lien exposure. This will in turn reduce credit growth.

Isn’t this exactly what is happening?

1. Monetary and fiscal stimulus is being withdrawn. Do you notice the end of ZIRP? – FT Alphaville
2. The state and local governments are already detracting from GDP growth as of the Q1 figures just reported.
3. The inventory cycle did add to GDP growth in Q1 but was a major factor in the deceleration in GDP growth.
4. The Fed has indeed withdrawn support from the mortgage market. Mortgage rates have been rising, and are near 8-month highs. They fell last week for the first time in five.
5. We know that state and local governments are laying off workers in droves. And Jan Hatzius at Goldman is expecting a fairly weak 175,000 increase in non-farm payrolls when the April Data is released.  That is not going to get it done. Meanwhile, the only thing keeping foreclosure activity from renewed record highs is government intervention.
6. House prices are not rising in the least.  The latest Case-Shiller data showed another decline in house prices. That’s five consecutive months of house price declines.

So, the only thing standing between the US and renewed recession is the over-indebted American consumer. And consumer income is not increasing very much. Consumption is increasing much more.

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11 Trillion Lost In Household Wealth So Far

“We’ve lost almost $11 trillion of household wealth in the last 17 or 18 months,” lamented Senator Christopher J. Dodd, the Connecticut Democrat, on last Sunday’s “Meet the Press,” urging Congress to proceed with speedy deliberations on a finance reform bill.

Eleven trillion dollars! That’s over three-quarters of our current gross domestic product.

Where did all this wealth go? Did other folks get it? Or did it just go up in smoke?

For that matter, what precisely is “wealth”? Is it something tangible we can see, or is it something intangible – something merely imagined?

In an illuminating paper on asset values and wealth, the economist Michael Reiter defined wealth in a way that makes sense to economists:

“Wealth” is the present value of the expected stream of future utility [human happiness] that an “infinitely lived individual or a dynasty” [or a nation] could hope to extract from the real resources available now and in the indefinite future, assuming these real resources are allocated and managed now, and over time, so as to maximize that present value of future utils (at the “proper” discount rate).

Two practical points can be extracted from this abstract definition.

First, economists think of wealth not just in monetary terms — as cash, stocks, bonds and real estate — but in terms of human well-being.

Second, and most importantly, the wealth a nation believes itself to possess is based strictly on the citizenry’s expectations about the future. It is in good part a figment of the citizens’ imagination.

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Desperate And Unemployed: Thousands Beg For Unemployment Extensions

Karl Schafer says he has tried for hundreds of jobs since he was laid off from a truck factory more than two years ago. Still waiting to get hired, the 52-year-old Ohio man has suffered the indignity of applying for food stamps and asking his elderly mother for help.

Weary of her own job search, former customer service representative Wagma Omar, 40, of Mission Viejo is thinking about applying for a dangerous civilian job in Afghanistan.

And in California's wine country, Kay Stephens, 56, is frantically looking to cut her living expenses so her unemployment doesn't become a burden to her 30-year-old daughter.

Schafer, Omar and Stephens are among the increasing number of unemployed Americans whose burdens just got heavier: They've exhausted their 99 weeks of jobless benefits and must now figure out how to get by on ever more meager resources.

In California, state officials estimate there are nearly 100,000 people who are still looking for work but can no longer draw an unemployment check. Federal labor officials could not provide a number nationally, but private-sector experts say it could easily top 1 million.

What is certain is that, as the jobless rate remains stubbornly high, more Americans will have to face the challenge of making ends meet without a monthly check.
"People are going off a cliff and we're not really doing anything about it," said Andrew Stettner, deputy director of the National Employment Law Project. "That's not great public policy."

Once unemployment benefits run out, people are eligible for general relief — but that pays a maximum of $221 a month in Los Angeles County, compared with as much as nearly $2,000 a month for unemployment. Only workers with dependent children are eligible for welfare.

Worried that they could lose their homes and get put out on the street, thousands of "99ers," as they call themselves, are banding together to agitate for another extension. On Friday they're kicking off a "Mayday SOS" campaign, faxing and e-mailing Congress their resumes, along with pleas for more benefits.

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Family Denied Medical Treatment Because of State's Debt

WILLIAMSON-- A Carterville mom says she was denied medical care for her children because the state isn't paying its bills.

As the Illinois budget crisis drags on, it's impacting more and more people.

Now, some doctors in southern Illinois are limiting services for patients employed by the state or is asking those patients to pay up front.

It is a vicious cycle. The state isn't paying the insurance companies, so insurance companies aren't paying doctors, and the doctors are forced to make changes some families don't like.

Ashley Wright of Carterville says one of the main reasons she and her husband decided to work for SIU was for the benefits.

Now it seems the most important perk - health insurance - is being compromised. 

"On one point, I want to be mad at the doctors because I feel like they have a moral obligation to hang in there and not bail on us when times get rough," says Ashley.

During a recent check-up, Ashley's four month old son Noah was denied immunizations by his pediatrician.

The doctor said Ashley's insurance provider wasn't paying its bills. Ashley doesn't know how to fight back.

"We can't go after the doctors, they're not being paid. We can't go after the insurance company, they're not being paid. But how do we fight the state?" she asks. 
At one nearby doctor's office, they're now requesting state employees pay out of pocket to later be reimbursed.
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America's Second Great Depression

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Make no mistake, we are seeing the early stages of what will written in history books as America’s Second Great Depression, just as I predicted in America’s Financial Apocalypse (2006).  

Who are you going to trust? The media and their government hacks who have been wrong over and over, or someone who has been right about virtually everything over the past five years?

Who are you going to trust, people with clear political and financial agendas, or someone with neither?

Ever since the implosion of the largest real estate and credit bubble in history, I have published numerous unfortunate realities. See (1) and (2)  

Since then, I have not altered these views.  See (3) (4) and (5) 

  

With the national debt approaching $13 trillion, no real improvements to the worst and longest recession since the Great Depression, blue chips slashing dividends for the first time in history (eg. DOW), century-old financial institutions now in bankruptcy (Lehman Brothers, Bear Stearns, Washington Mutual), trillions of dollars in bailouts, the largest year-over-year decline in GDP, state tax revenues and housing starts since the Great Depression, over 7 million foreclosures, an additional 7 million more foreclosures over the next 2 to 4 years, more than 8 million lost jobs with about 32 million Americans out of work, more than 40 million Americans on food stamps, a healthcare crisis that has not been addressed, a continuing trend of excessive inflation for food, energy and healthcare, and consumer spending coming to a halt…you can be assured of many things over the next several years:

• Several more stimulus packages (which won’t offer any permanent assistance)
• Soaring consumer loan defaults
• Soaring commercial real estate defaults
• Several million additional foreclosures
• Rapidly rising and high interest rates
• Muted real wage growth
• Declining job quality
• Lingering high unemployment for several years
• Significant downside in the U.S. stock market
• Continuation of employee benefit cuts
• Continuation of healthcare inflation with millions more medical bankruptcies
• A deepening of the entitlement crisis
• Excessive inflation over an extended period OR massive inflation that will be countered by double-digit interest rates
• A long period of muted consumer spending
• Much higher taxes (not just income, but all taxes)
• A worsening of America’s Second Great Depression, with up to two lost decades.
• World War III

At best, the U.S. will continue to experience economic malaise for well over a decade. As the nation progresses through this treacherous period, any of the small improvements will be offset by longer-term issues that are virtually impossible to overcome.

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Police And Prosecutors Offices Stealing Assets Across America To Pay State Debt

Arlington, Va.—It’s called policing for profit and it’s happening all across America.

	Download Policing for Profit: The Abuse of Civil Asset Forfeiture

Police and prosecutors’ offices seize private property—often without ever charging the owners with a crime, much less convicting them of one—then keep or sell what they’ve taken and use the profits to fund their budgets.  And considering law enforcement officials in most states don’t report the value of what they collect or how that bounty is spent, the issue raises serious questions about both government transparency and accountability.

Under state and federal civil asset forfeiture laws, law enforcement agencies can seize and keep property suspected of involvement in criminal activity.  Unlike criminalasset forfeiture, however, with civilforfeiture, a property owner need not be found guilty of a crime—or even charged—to permanently lose her cash, car, home or other property.

According to the Institute for Justice—whose fight against eminent domain abuse raised that issue to national prominence—civil asset forfeiture is one of the worst abuses of property rights in our nation today.  The Institute for Justice today released a first-of-its-kind national study on civil forfeiture abuse.  The report—Policing for Profit: The Abuse of Civil Asset Forfeiture(http://www.ij.org/PolicingForProfit)—is the most comprehensive national study to examine the use and abuse of civil asset forfeiture and the first study to grade the civil forfeiture laws of all 50 states and the federal government.  The report finds, not surprisingly, that by giving law enforcement a direct financial incentive in pursuing forfeitures and stacking the legal deck against property owners, most state and federal laws encourage policing for profit rather than seeking the neutral administration of justice.  (For additional resources on this report, visit:  http://www.ij.org/PolicingForProfit.  For a brief video on this topic, visit:  www.ij.org/Forfeiture.)

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49 Of 50 States Worse Economic Growth Ever

49 out of 50 U.S. states are still showing less economic activity than a year ago, based on February 2010 coincident economic indicators from the Federal Reserve of Philadelphia. The chart below is organized from top to bottom, from the most growth in economic activity to the largest declines in economic activity.

States like West Virginia (WV), Maryland (MD), Idaho (ID), and Wyoming (WY) are the worst off year over year. Their February 2010 economic activity remained 13.5%, 6.3%, 6.3%, and 6.2% lower year over year. Thus their economies, along with those of another 45 states, all the red ones, are all underwater on an annual basis.

North Dakota (ND) is the only state to currently have a higher level of economic activity year over year. Its February 2010 economic activity was 1.1% higher than February 2009, as shown by the green dot in the chart below.

Moreover, 28 out of 50 states even exhibited less economic activity in February 2010 than just three months earlier (not directly shown below). This means they have been deteriorating most recently as well.

In fact, the chart below is organized from left to right by the change in economic activity in the last three months (February 2010 vs. November 2009).

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Banks Bet Against U.S. Cities, States

Note: Currently  9 States facing bankruptcy are: California, Florida, Wisconsin, Oregon, Rhode Island, Arizona, Nevada, New Jersey and Michigan.



Amidst growing pessimism about the financial condition of U.S. cities and states, investors are increasingly buying financial instruments that essentially allow them to short sell - or bet against - cities and states, says a Wall Street Journal report.

Offered by banks like JP Morgan, Bank of America, and Citigroup, the so-called municipal credit default swaps can be used by investors to bet that insurance contracts protecting holders of municipal bonds will default.

Some states say the derivatives not only scare away potential buyers of municipal bonds by creating a perception of risk, but ultimately drive up states' borrowing costs. Others contend that the instruments are traded too thinly to affect municipal bond markets or a state's credit rating.

The California treasurer is just one of a number of state treasurers that have launched a probe into the sale of these derivatives and the sale of municipal bonds by big Wall Street firms that might reveal "speculative abuse of CDS in the muni market," says one regulator.

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The Greek Crisis Will Cost Europe More Than Expected
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Clinton's Niece Living on Food Stamps
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Renouncing American Citizenship

Let's be clear about something. A person who decides to give up his US citizenship is not guilty of disloyalty to America; quite the opposite. He could very well be more loyal to American principles than the regime is willing to tolerate.
It also does not mean that he is giving up hope for liberty; he may have great hope for liberty, in a different way and in a different place.
In any case, the rise of emigration, expatriation, and citizenship renunciation is a trend that is not going away. It is rising and will get more significant. In some ways, it is completely expected. When regimes over-control, over-tax, over-regulate, they gnaw at the innate sense of the right to be free. When this gets worse and worse, people tend to look around for better environments.
We've all known people who talk about it openly. It is becoming cocktail conversation, the once-unthinkable now standard fare. It's not just an impression. State Department records show that 502 people gave up citizenship in just the last quarter of 2009. That is more than twice the total for 2008. That might not seem like a lot but what stands out here is the trend line, which is soaring. I also hear reports of year-long bureaucratic delays in approval, and, of course, plenty of people leave without permission.
The driving factors here are not cultural or social; they are economic. The US government is making it ever more difficult for Americans living abroad, taxing them wherever the bureaucrats can find them. The government makes it very difficult even to hold a bank account in the US unless the account holder can point to a US residency (thanks to the Patriot Act). And when the government finds a reporting error on income earned overseas, it can charge a 50% penalty.
Even when a person gives up US citizenship, and establishes citizenship with a freer country, the US government can still haunt him with continuing tax obligations and demands for military service. There is, at the least, a vast exit penalty. Any regime that would do things like this inspires people to want to stay at arm's length.
Far more frightening is the sense that financial calamity is around the corner. A look at the data seems to suggest that. Vast reserves are sitting in the banking system, waiting to be unleashed to create what could be total destruction of the dollar. The deficit is rising so fast that it is hard to chart.
The jobs situation is terrible, especially for young people (and adults often make decisions based on what is best for their kids' future). Personal income is falling and falling. Investment is not recovering after its cliff dive in 2009. The social welfare state is broke. Private debt is rising even though lending has not restarted.
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1200 More Jobs.. Gone

WAVERLY, Ohio — More than 1,200 jobs were being eliminated on Tuesday, after the Masco Cabinet Group announced it was closing its Hopewell Road facility.

The plant is the largest single employer in Pike County, 10TV News reported.

The company, based in Ann Arbor, Mich., said that it is phasing out the manufacture of its ready-to-assemble products.

The company manufactures KraftMaid, Merillat, and QualityCabinets brands and DeNova brand countertops.

The Waverly plant opened in 1987 and was purchased by Masco in 1999.

Masco has not identified a closing date but expects the facility to close in early 2011, according to a company news release.

Pike County has the sixth highest unemployment rate in the state, 10TV News reported.

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Could Jim Sinclair Be Correct About Gold?

Jim Sinclair: Start Of Gold To The Stratosphere

Gold has been rallying for awhile -- nearing all time highs in the dollar, even while breaking all-time highs in the euro -- but the metal's action hasn't been all that noteworthy.
That changed today for, as David Goldman at Asia Times notes, it stopped trying like a regular commodity and actually bucked them.

One session doesn’t make a trend, to be sure, but if the central banks are flooding the world with currency to support a massive bubble in government debt, the possibility of a portfolio shift out of currencies into gold has to be considered. And if this happens, gold (as I’ve said any number of times) has no natural ceiling. What will China do? The Chinese got burned on subprime and again on PIIGS debt. They stopped accumulating US Treasuries months ago, and have no reason to buy Bunds given the misery of the prospects for the Euro.

As you can see in this chart, via Kitco, the metal basically rocketed out of the gate, making a big power-move all day.

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An Illegal Bank is the Second-Largest Holder of U.S. Treasury Securities
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Pennsylvania Capital Told to Consider Bankruptcy Protection

Harrisburg, Pennsylvania, which has missed $6 million in debt payments since Jan. 1, should consider Chapter 9 bankruptcy protection, City Controller Dan Miller told a three-hour special committee hearing today.

Miller, the first of four people to testify in an "informational session" on insolvency convened by Gloria Martin-Roberts, council president, said bankruptcy would offer Harrisburg relief from $68 million in debt-service payments the city faces this year in connection with a waste-to-energy incinerator project. Martin-Roberts opposes bankruptcy.

Harrisburg, the capital of Pennsylvania, the sixth-most populous U.S. state, has guaranteed payments on $282 million in bonds on the incinerator operated by the Harrisburg Authority. The payments due on the bonds and a working capital loan this year are four times the amount the city collects in property taxes each year, according to the city budget.
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