Cartoon: Treasury

Doug Casey on the Economy

Cartoon: Entrepreneurs

BP Gulf Oil Spill

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1st Quarter 2010 GDP revised down to 3.0%

There are really two measures of GDP: 1) real GDP, and 2) real Gross Domestic Income (GDI). The BEA also released GDI today. Recent research suggests that GDI is often more accurate than GDP...

The following graph is constructed as a percent of the previous peak in both GDP and GDI. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%. The recent recession is marked as ending in Q3 2009 - this is preliminary and NOT an NBER determination...

It appears that GDP bottomed in Q2 2009 and GDI in Q3 2009. Real GDP is only 1.2% below the pre-recession peak - but real GDI is still 2.3% below the previous peak.

GDI suggests the recovery has been more sluggish than the headline GDP report and better explains the weakness in the labor market.

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Personal Consumption Expenditures: April 2010

The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

Spending only increased slightly in April compared to March.

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Clash of the Economists - What's Next For Our Economy?

Gerald Celente, Director of the Trends Research Institute, sees a very bleak future for the United States, and a major collapse coming soon for the entire nation, maybe the entire world.

URI Economics Professor Leonard Lardaro admits some serious problems in today's economy, and that of the future, but thinks Celente's 'doomsday' scenarios are too dire, and a little much.

watch the video interviews

National Debt

Taxes and the Deficit

National Debt

BP Disaster

National Debt

Wall Street Crash, Again?

A bigger meltdown than the credit crisis? Yes, Bush's team drove America into a ditch. But now Obama and his money men, Summers, Geithner, Bernanke, are digging the hole deeper. Soros says we have not learned "the lessons that markets are inherently unstable." As a result, "the success in bailing out the system on the previous occasion led to a super-bubble." Now "we are facing a yet larger bubble." Worse than 2008?

Yes, the game may be "in the refrigerator," the lights will go out, but as Soros hints, the electricity may get turned off too. Get it? This may not be a correction. Not even a bear. What's coming could be worse than the 2000 dot-com crash and the 2008 meltdown combined, a "Super-Bubble" says Soros. And the biggest reason, Nouriel Roubini and Stephen Mihm tell Newsweek, is that "the president's half-measures won't fix our failed financial system" because he refuses to "bust up the too-big-to-fail banks."...

Sound familiar? Yes indeed, in "This Time Is Different: Eight Centuries of Financial Folly," economists Carmen Reinhart and Kenneth Rogoff pinpoint the key signal that will blow the whistle and call the game: The "90% ratio of government debt to GDP is a tipping point in economic growth." For 800 years "you increase it over and beyond a high threshold, and boom!"

Warning, fans, the numbers on the game-clock are flashing wildly. America's ratio is now 92%, thanks to Obama's $1.7 trillion budget, future deficits, exploding debt. Soon, Ka-Booom! Another great nation bites the dust. Depression follows. Goodbye retirement...

"The lesson of history, then, is that even as institutions and policy makers improve there will always be a temptation to stretch the limits. ... If there is one common theme to the vast range of crises ... it is that excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. ... Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang -- confidence collapses, lenders disappear and a crisis hits. ... Highly leveraged economies ... seldom survive forever ... history does point to warnings signs that policy makers can look to access risk -- if only they do not become too drunk with their credit bubble-fueled success and say, as their predecessors have for centuries, 'This time is different'."

No, "this time" it's never different. Get it? In the end, it doesn't matter what happens to the Dodd-Obama financial reforms. The endgame's never a Black Swan, it's a very White Swan well known to historians -- guaranteed, inevitable and inescapable. This time is never different.

read the article

Central Banking is Still Bad

A good start to understanding the real nature of central banking is the libertarian bumper sticker saying “Don’t steal! The government hates competition.” The whole purpose of the bureaucratic machine called central bank is indeed to steal from us.

How does it do this? By constantly printing money (or, nowadays, creating it out of electronic bits on computers) and increasing the money supply, thereby creating inflation.

When you get to the Bank of Canada’s Web site, it says “We are Canada’s central bank. We work to preserve the value of money by keeping inflation low and stable.” Do a little search on the same Web site, however, and you discover that since the Bank started its operations in 1935, the dollar has lost about 94% of its value. A basket of goods and services that cost $100 in 1935 would cost $1600 today. That’s some preservation!...

There are big stakes involved. Inflation is a way for governments to spend more without having to directly impose taxes. A central bank is an essential part of big government.

Central banking operations also serve as a permanent bailout for debtors. Interest rates are usually kept lower than they would be in a free financial market. And by reducing the value of the money being owed, they make life easier for debtors. So the modern era of central banking is one where debt, public and private, inexorably grows, to the point where the whole monetary edifice now threatens to collapse.

Finally, central banks protect the reckless practices of financial institutions, who lend money that they don’t have under the fraudulent fractional reserve system. With government acting as a lender of last resort, financial institutions are prone to taking greater and greater risks. As we’ve seen recently, wads of cheap cash are always at their disposal to keep them solvent and profitable.

Previous eras understood this much better than today, as the heated debates surrounding the creation and abolition of the two first banks of the United States attest. In a sane world, central banking would today be considered an act of expropriation and would be abolished.

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Cartoon: Investment Bankers

Microsoft v. Apple

Microsoft's dominance as the tech industry's most valuable player has ended.

In Tuesday trading, Apple's market capitalization edged past its longtime rival's as investors made official what consumers have long suggested: Microsoft isn't the industry's alpha dog any longer.

While just last month, Microsoft's market cap exceeded that of Apple by about $25 billion, the companies are now neck and neck, with Apple in the lead by a mere $2.9 billion...

"Wall Street believes in Apple because Apple continues to put out new products that capture the imaginations of the press and tech pundits," said Rosoff. "Microsoft just hasn't been able to come up with a new multi billion dollar business like Apple."

read the CNN article

BP Oil Diaster and Louisiana Seafood

When New Orleans, Louisiana, chef John Besh recently urged people to choose U.S. shrimp over imports during an interview about the state of seafood in the wake of the Gulf of Mexico spill, commenters responded negatively, writing, "What's a little tar or mercury in your system anyways?!" and "I hope you enjoy the petrol in your fish."

Another commented, "You eat the fish from down there, don't complain to anyone when you get cancer in 10-15 years. I can't even believe a responsible human being would advocate for eating seafood slathered in oil first."...

ABC reports that in light of the reduced amount of seafood on the market, "Fish that normally sold for $2.50 a pound were going for $3.25."

On Tuesday, Louisiana Gov. Bobby Jindal declared a commercial fisheries failure to trigger aid for commercial fishermen from the Economic Development Administration.

In a letter to Secretary of Commerce Gary Locke, the governor wrote, "The waters offshore Louisiana's coast supply nearly one-third of all commercial seafood harvested in the lower 48 states, with values in excess of $2.85 billion annually. As the largest provider of domestic seafood in the continental United States, protection of Louisiana's fisheries, habitats and catch are critical to our nation's economy and food supply.

read the CNN article

iPod Revolution

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Liberty v. Security

National Debt to GDP Ratio

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Dollars Per Euro

The Euro has only been around since Jan 1999. The graph shows the number of dollars per euro since Jan 1, 1999.The dashed line is the current exchange rate.

This is the lowest level for the euro against the dollar since April 2006.

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Cartoon: The Spending Problem

Consumer Spending Doesn’t Drive the Economy

“Consumer spending makes up more than 70 percent of the economy, and it usually drives growth during economic recoveries.”–“Consumers Give Boost to Economy,” New York Times, May 1

The truth is that consumer spending does not account for 70 percent of economic activity and is not the mainstay of the U. S. economy. Investment is! Business spending on capital goods, new technology, entrepreneurship, and productivity are more significant than consumer spending in sustaining the economy and a higher standard of living. In the business cycle, production and investment lead the economy into and out a recession; retail demand is the most stable component of economic activity...

Thus the truth is just the opposite: Consumer spending is the effect, not the cause, of a productive healthy economy...

This truth prevails in the marketplace: It’s supply — not demand — that drives the economy. Savings, productivity, and technological advances are the keys to economic growth. This principle was discovered and developed by the brilliant French economist Jean-Baptiste Say in the early nineteenth century and is known as Say’s law. In fact, he invented the word “entrepreneur” to describe the primary catalyst of economic performance...

In reality, increased savings can actually stimulate the economy, even if consumer spending is anemic. A recent study by the St. Louis Fed concluded that in the short run, “a higher saving rate in the current quarter is associated with faster (not slower) economic growth in the current and next few quarters” (Daniel L. Thornton, “Personal Saving and Economic Growth,” Economic Synopses, St. Louis Fed, December 17, 2009).
read the entire essay

The Federal Reserve

critique here

Cartoon: Cheeseburger

Four Large Bear Markets

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A Typical Recovery?

I keep hearing from people that this is not the typical economic recovery. But I don’t see that at all — at least in terms of Consumer behavior.

We had 25 months of economic contraction with horrific headlines the whole time. Spending decreased, savings increased, unemployment spiked. This led the government and central bankers to throw lots of money at the problem — not so much fixing it, as papering it over.

Certainly, the cause of the recession was not the usual run of the mill factors. Nor was depth or duration. However, it appears — at least according to the charts I see — that this recovery is following a fairly normal script.

Then, a recovery began.
Many people doubted it, recent painful memories being so fresh.

But have a look a the charts below — when I look at year over year changes in areas such as spending, income, jobs — this looks like a typical recovery in hiring, etc.

Isn’t that is typical recession/recovery behavior?

-People hunkered down, and slowed spending.
-Market discounted the recession partially.
-Unemployment increases.
-Consumers get nervous, spend less, save more during the contraction.
-Economy bottoms
-Markets discounted the recovery.
-Employment picks up
-As signs of improvement become visible, consumers started spending again.

The consumer response to economic stress was — pardon the word — typical. 1973, 1982, and 1991 saw similar hunkering down, then a return towards normalcy.

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My thoughts: Until the double dip...

State Budget Problems

Think states have made deep spending cuts? You ain't seen nothing yet.

States have been struggling with huge budget gaps since 2008, but this year could be worse as federal stimulus funds wind down.

Until now, stimulus money spared governors and state lawmakers from making some of the most brutal budget cuts. But with this lifeline running out, officials are looking at making significant cutbacks to public services, particularly schools and health programs.

"The stimulus funds have staved off what could have been even deeper cuts," said Todd Haggerty, policy associate at the National Conference of State Legislatures. "You're seeing states now are coming to that point where they will have to make additional cuts or find new sources of revenue for fiscal 2011 and that will continue in fiscal 2012."

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Cartoon: Counterfeiting

The Bailout Era

The Renaissance. The Age of Enlightenment. The Industrial Revolution. The Gilded Age. The Cold War. The Information Age.

The Bailout Age?

The printing press already has its own prominent place in history, so we’re not sure what else to call the first couple decades of the new millennium. But after this morning’s news, there’s little debate: time to fire it up!

The European Union (EU) and International Monetary Fund (IMF) announced a plan that comes straight out of the United States’ playbook: smother debt flare-ups with truckloads of “free money” while the central bank manipulates rates.

European leaders unveiled a $957 billion plan to save themselves and their currency. Here’s the quick and dirty:

The EU will pony up $560 billion in new loans and $76 billion in existing deals for the GIIPS nations (as we’ve taken to calling them…no reason to give pigs such a bad rap)

The IMF says its ready with $321 billion

The European Central Bank (ECB) has abandoned its old stance (and credibility) by launching a program to purchase government and corporate debt.

“This is like pouring Chanel No. 5 on a French ‘lady of the evening,’” Rob Parenteau wrote us early this morning, “after a night of wanton debauchery.”

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Cartoon: Unemployment

April Unemployment 9.9%

The jobless rate rose as more unemployed workers began looking for work and were again counted as “unemployed” rather than either “discouraged” or completely out of the labor force. The household survey showed that, while employment rose by 550,000, this gain was outpaced by an increase of 805,000 in the labor force.

Interestingly, the broader U6 measure of underemployment (officially unemployed plus “discouraged” workers and those settling for part-time work instead of full-time work) rose from 16.9 percent to 17.1 percent, the highest level since last December.

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Federal Budget 2020

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Cartoon: Fiscal?

Cartoon: Easy Credit

Three Classes of American Business

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Price Gouging Form

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Fearing increases in the prices of WATER (name of item in short supply) as a result of a MASSIVE PIPE BREAK (type or name of disaster), officials in MASSACHUSETTS (affected state or municipality) have declared a state of emergency whereby restrictions on "price gouging" are now in effect. According to ATTORNEY GENERAL MARTHA COAKLEY and GOVERNOR DEVAL PATRICK (politicians or law enforcement officials), the law is designed to protect innocent consumers from "unconscionable" increases in the prices of WATER (or food, gasoline, ice, electric generators, and home-repair services). The unintended, unseen consequences, however, are predictable, unfortunate, and avoidable.

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Boston's Water Shortage

THERE WASN’T much Martha Coakley could do about the massive pipe break that left dozens of Greater Boston towns without clean drinking water over the weekend. So she kept herself busy instead lecturing vendors not to increase the price of the bottled water that tens of thousands of consumers were suddenly in a frenzy to buy...

It never fails. No sooner does some calamity trigger an urgent need for basic resources than self-righteous voices are raised to denounce the amazingly efficient system that stimulates suppliers to speed those resources to the people who need them. That system is the free market’s price mechanism — the fluctuation of prices because of changes in supply and demand...

Letting prices rise freely isn’t the only possible response to a sudden shortage. Government rationing is an option, and so are price controls — assuming you don’t object to the inevitable corruption, long lines, and black market. Better by far to let prices rise and fall freely. That isn’t “gouging,’’ but plain good sense — and the best method yet devised for allocating goods and services among free men and women.

read the essay

Understanding the Credit Crisis

1. Ultra low interest rates led to a scramble for yield by fund managers;

2. Not coincidentally, there was a massive push into subprime lending by unregulated NONBANKS who existed solely to sell these mortgages to securitizers;

3. Since they were writing mortgages for resale (and held them only briefly) these non-bank lenders collapsed their lending standards; this allowed them to write many more mortgages;

4. These poorly underwritten loans — essentially junk paper — was sold to Wall Street for securitization in huge numbers.

5. Massive ratings fraud of these securities by Fitch, Moody’s and S&P led to a rating of this junk as TripleAAA.

6. That investment grade rating of junk paper allowed those scrambling bond managers (see #1) to purchase higher yield paper that they would not otherwise have been able to.

7. Increased leverage of investment houses allowed a huge securitization manufacturing process; Some iBanks also purchased this paper in enormous numbers;

8. More leverage took place in the shadow derivatives market. That allowed firms like AIG to write $3 trillion in derivative exposure, much of it in mortgage and credit related areas.

9. Compensation packages in the financial sector were asymmetrical, where employees had huge upside but shareholders (and eventually taxpayers) had huge downside. This (logically) led to increasingly aggressive and risky activity.

10. Once home prices began to fall, all of the above fell apart.

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New Sniper Record: 1.54 Miles

A British soldier dubbed the Silent Assassin has broken a distance record after taking down two targets from a mile and a half away.

Corporal of Horse Craig Harrison, a British Army sniper, killed two Taliban machine gunners in Afghanistan from a distance of 8,120 feet, Sky News reported.

"The first round hit a machine gunner in the stomach and killed him outright. He went straight down and didn't move," the 35-year-old said of the incident, which took place in November 2009.

"The second insurgent grabbed the weapon and turned as my second shot hit him in the side. He went down, too. They were both dead."

Harrison was nearly 3,000 feet beyond the effective range of his British-built L115A3 Long Range Rifle.

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Cartoon: Personal Finance

Mortgage Market Share

With the vast majority of current mortgage lending now intermediated in some form by the GSEs, it will be difficult for the housing market to return to normal.

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"You Want the Truth?"

“You want the truth? You can’t handle the truth. Son, we live in a country with an investment gap. And that gap needs to be filled by men with money. Who’s gonna do it? You? You, Middle Class Consumer? Goldman Sachs has a greater responsibility than you can possibly fathom. You weep for Lehman and you curse derivatives. You have that luxury. You have the luxury of not knowing what we know: that Lehman’s death, while tragic, probably saved the financial system. And that Goldman’s existence, while grotesque and incomprehensible to you, saves pension funds. You don’t want the truth. Because deep down, in places you don’t talk about at parties, you want us to fill that investment gap. You need us to fill that gap.

“We use words like credit default swaps, collateralized debt obligation, and securitization… We use these words as the backbone of a life spent investing in something. You use ‘em as a punchline. We have neither the time nor the inclination to explain ourselves to a commoner who rises and sleeps under the blanket of the very credit we provide, and then questions the manner in which we provide it! We’d rather you just said thank you and paid your taxes on time. Otherwise, we suggest you get an account and start trading. Either way, we don’t give a $#@& what you think you’re entitled to!”

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