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ccp
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« Reply #650 on: March 08, 2010, 11:11:30 AM »

I wonder to what extent this is true.   Certainly there are people who are on unemployment because it is easier and more convenient then other alternatives.  To deny human nature is a big lie.  I had at lease one patient tell me he had a job offer but it was far from home and therefore by the time he accounted for the extra cost of travel he may as well stay home and collect.

Of course. If I could make just as much sitting at home collecting a check as I could get *working*, which do you think I would choose to do?

Why is it we can't just state the obvious?

Doles are cancers that just keep spreading.

Of course the phoney outrage from the left including this Huffington post. 

****Tom Delay: People Are Unemployed Because They Want To Be
          Former House Majority Leader Tom Delay called Sen. Jim Bunning (R-Ky.) "brave" on Sunday for launching a one-man filibuster of unemployment benefits, arguing that they dissuaded people from going out and finding work.

Appearing on CNN's "State of the Union," the Texas Republican said that Bunning's fiscal responsibility was commendable, even if his shenanigans (refusing to allow unemployment benefits to be considered by unanimous consent) nearly brought the Senate to a halt.

"Nothing would have happened if the Democrats had just paid for [the benefits]," Delay said. "People would have gotten their unemployment compensation. I think Bunning was brave in standing up there and taking it on by himself."

Asked whether it was bad strategy to make a budget stand on a $10 billion extension of unemployment (as opposed to, say, the Bush's $720 billion prescription drug package), Delay insisted that if the PR had been done right, Bunning would have been applauded. Helping the unemployed with federal assistance, he said, was unsound policy.

"You know," Delay said, "there is an argument to be made that these extensions, the unemployment benefits keeps people from going and finding jobs. In fact there are some studies that have been done that show people stay on unemployment compensation and they don't look for a job until two or three weeks before they know the benefits are going to run out.

Host Candy Crowley: Congressman, that's a hard sell, isn't it?

Delay: it's the truth.

Crowley: People are unemployed because they want to be?

Delay: well, it is the truth. and people in the real world know it. And they have friends and they know it. Sure, we ought to be helping people that are unemployed find a job, but we also have budget considerations that are incredibly important, especially now that Obama is spending monies that we don't have.****
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Crafty_Dog
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« Reply #651 on: March 09, 2010, 09:51:53 AM »

Nicole Gelinas
Supply-Side Financial Reform
Congress should unleash free markets to help protect consumers.
8 March 2010
Senate Democrats have tried for weeks to get Republicans to support the showpiece of their financial-reform package, a consumer financial-protection agency that would shield regular Americans from predatory financiers. But even the nimblest public agency cannot protect consumers from the biggest threat to their financial health: owing too much money. That threat will exist as long as the financial industry faces no ultimate market penalty—the consistent threat of failure—for lending too much too freely.

The proposed agency has a worthy goal. As Connecticut Senator Chris Dodd, who is leading the legislative effort with the White House’s support, sees it, the protection bureau would govern consumer financial products. Proponents, including economist Paul Krugman, say that such an agency could have helped America avoid the current crisis by prohibiting the most toxic mortgages.

But focusing on exotic products and fees misses the real problem: unfathomable debt levels. In the past quarter-century, the amount that families owe has risen more than sevenfold, from less than $2 trillion in 1984 to nearly $14 trillion, according to the Federal Reserve. Debt outran the cost of goods and services by nearly fourfold.

Many Americans can’t afford their debt unless their lenders use complex finance to suspend all disbelief. Exotic mortgage structures, then, were a symptom of the disease, not the disease itself.

How did it come to this? The financial industry has encouraged Americans to borrow so much because Washington has allowed the financial industry itself to borrow so much without consistent market consequences.

Since 1984, when the Reagan administration bailed out lenders to the nation’s eighth-largest bank, Continental Illinois, investors have understood that if a big commercial bank or complex Wall Street firm runs into trouble, Washington will ensure that the bondholders and other creditors to that firm don’t take losses. By creating this expectation of bailouts, Washington has subsidized lending to the financial industry. When government subsidizes something, it gets more of it. Over a quarter of a century, the amount of money that the financial industry has borrowed multiplied by more than 15 times. It should be no shock that banks and other institutions turned around and lent much of that money right back to consumers.

A financial-protection bureau could write thousands of rules. But it will never be able to overcome the signal that Washington continues to send. The message: lenders to financial firms will never lose money if the financial firms to which they lend, in turn, lend those borrowed funds irresponsibly to consumers.

Yet President Obama has continued to shield financial companies and their bondholders from the consequences of their poor decisions. Through mortgage-modification programs, for example, the White House has temporarily cut monthly payments for some homeowners. In doing so, the White House has enabled financial institutions to avoid cutting what people owe in line with house prices. Debt reductions, though they would mean more financial-industry losses, would be better for borrowers.

Shielding financial firms from market penalties has been a bipartisan effort. Half a decade ago, President Bush signed into law a bankruptcy “reform” act that made it harder for all but the poorest borrowers to escape credit-card debt. Financial institutions could more easily ignore the fact that consumers were borrowing beyond their means to repay. But you can’t legislate solvency. Lenders must face the realistic risk that borrowers will default when debt becomes unbearable. Otherwise, they’ll lend too copiously.

Congress and the president can protect consumers from impossible debt burdens by ensuring that lenders to financial firms, too, face the threat of borrower default. Only market discipline of bad behavior will curb behavior at the source.

To make it clear to the marketplace that no financial firm is too big to fail, Washington must put rules in place that make the economy better able to withstand financial-industry miscalculations and failures—without bailouts.

Required cash cushions on stock purchases helped the government avoid financial-industry bailouts when the tech-stock bubble burst a decade ago. They would have the same effect in other asset markets. Washington should thus require home buyers and purchasers of other speculative assets to make consistent down payments of 10 or 20 percent. Under such rules, financial firms would have more cash on hand—capital—to withstand the bursting of a future bubble.

This policy would directly benefit consumers, too. Fewer home purchasers would have taken on mortgages that they couldn’t afford in the last bubble. Lenders and borrowers alike could not have gotten around a consistent down-payment rule. Exotic financing structures—the kinds that the new bureau is supposed to police—would have been irrelevant.

The same principle holds for high finance. If Washington had required insurer AIG to trade its own exotic financial instruments—credit-default swaps—on transparent exchanges and to put some consistent cash down at the outset to cover these bets, the cash cushion would have helped the economy to withstand AIG’s bankruptcy, averting a bailout and forcing AIG’s own creditors to take losses.

Just as important, such rules likely would have kept AIG from making such fanciful promises—in effect pledging to protect investors in tens of billions of dollars’ worth of mortgage-backed securities for a negligible cost—in the first place. If AIG hadn’t promised investors in mortgages—lenders—that they wouldn’t lose money, or had charged handsomely for the promise, investors would not have felt so free to lend to homebuyers.

Senate Democrats should understand that they can protect consumers from bad financial products only by making it clear to the financial industry and own lenders that there’s a consistent market penalty for bad lending.

If lawmakers absorb this lesson, they’ll achieve an immediate political benefit, too. Dodd’s proposal, which needs GOP votes in a closely divided chamber, faces uncertain prospects at best. Republicans are wary of giving the government more power to micromanage consumer finance. However, they surely couldn’t object to holding financial firms and their investors accountable in the marketplace for their ill-considered decisions.

Nicole Gelinas, author of After The Fall: Saving Capitalism From Wall Street—and Washington, is aCity Journal contributing editor and Manhattan Institute senior fellow.
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Crafty_Dog
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« Reply #652 on: March 17, 2010, 11:35:32 AM »



The always thoughtful and well-informed Scott Grannis:

http://scottgrannis.blogspot.com/2010_03_01_archive.html
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Rarick
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« Reply #653 on: March 18, 2010, 04:37:20 AM »

I have always been pretty amazed at how people consider economic growth much over 5% normal.  If you look at long term that is usually the average?  I wish I had references, but that is a number/conclusion I remember reaching from some research better than 10 years ago when I was looking at the .com bubble. 2-3% when we were looking at a crash is awesome as far as I am concerned.  Now I hope the banks get themselves paid off with those loans so they can get rid of the economic Obamanator.  He may have saved things in the short term by nationalizing some banks, but long term that is a very dangerous socialistic trend.  It will go a long way in Keeping the dollar an international standard too.
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Body-by-Guinness
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« Reply #654 on: March 30, 2010, 09:02:44 AM »

Entitlement Apocalypse
From the March 22, 2010, issue of NR.
 
Our long-term budget challenge can be summarized in one word: entitlements. Without Social Security, Medicare, and Medicaid, the budget would be roughly in balance over the coming decades. But with these programs, and without reform, a fiscal crisis is inevitable. To balance the budget over the next 25 years would require an immediate and permanent 30 percent increase in all federal taxes. That is the future we face, and it is a future of our own making.

Entitlements traditionally have paid generous benefits — financed by affordable taxes — to rich and poor alike, because the ratio of workers to beneficiaries has been high. Those days are gone and will not return. Maintaining entitlements in their current form will require either crippling taxes or crippling debt. Alternatively, we can rethink the entitlement philosophy, focusing resources where they’re needed most, empowering individuals to make choices and giving them incentives to reduce waste, and buttressing personal retirement savings.

We spend 9.7 percent of GDP on entitlements today, and by 2030 we will spend around 14.4 percent. Two forces bear primary responsibility for pushing entitlement spending upward: population aging and health-care-cost growth.

Population aging is easily understood: The Baby Boom generation is retiring, seniors are living longer, and families are having fewer children. The ratio of workers to beneficiaries, which is now over three to one, will fall to around two to one by 2030. Aging alone will ultimately raise entitlement costs by nearly 50 percent.

As for health-care costs, they are rising for three reasons. First, as incomes rise, the value of health increases relative to that of other goods. (As you make more money, the marginal value of new goods falls, and you would rather live longer with the stuff you have than buy more stuff and die sooner.) Second, technology generates treatments we gladly would have purchased in the past but couldn’t, because they didn’t exist. Today they do, and we buy them. Third, the falling share of health care that is paid out-of-pocket — 47 percent in 1960, 12 percent today — encourages patients to purchase even marginally useful treatments. MIT economist Amy Finkelstein concluded that this factor alone accounts for 40 percent or more of health-care-cost growth.

Income effects and new technologies would increase health-care costs even in a totally free market. But the falling out-of-pocket share, which encourages waste and cannot be shown to contribute much to patient health, is due to government policy.

The political economy of reform is complicated by the fact that the budget automatically allocates funds rather than requiring new congressional appropriations each year. As a result, outlays can grow well out of proportion to our willingness and capacity to fund them. Entitlements are on autopilot, and the autopilot is steering us into the ground.

While traditionally called the “third rail of politics,” Social Security — which provides payments to disabled workers, retirees, and retirees’ survivors at an annual cost of $700 billion, making it the biggest federal program — might also be known as “the fixable entitlement.” It is the program whose problems — and their potential solutions — are best understood.

Social Security’s costs are driven primarily by the effects of population aging on the program’s pay-as-you-go financing, which redistributes taxes from workers as benefits to retirees. But Social Security’s inability to save money is important as well: While the program has a $2.5 trillion trust fund, several econometric studies have shown that policymakers don’t actually save its surpluses, but rather spend them or use them to finance tax cuts. As a result, future taxpayers will be no better off than they would have been had the trust fund never existed.

In addition, Social Security paid extraordinarily high returns to early participants, a practice that prevented it from building savings that, had they actually been saved, would have helped it weather the looming demographic crisis. A typical individual retiring in 1965, for instance, received benefits amounting to eight times what he had paid in Social Security taxes. Earlier retirees did even better. Had these participants received only what they contributed, plus interest, the trust-fund balance would today be around $15 trillion higher.

Most Social Security–reform plans tweak tax and benefit formulas so that, over time, revenue aligns with costs. But it would be better to start reform efforts by asking, “What kind of retirement system will someone retiring 50 years from now need?” A Social Security program for the future must do three things: save more money, give people incentives to retire later in life, and target resources where they are needed most.

First, everyone who can save for retirement on his own should do so. President Obama and many Republicans support automatic enrollment in 401(k) and IRA pension plans. If all Americans saved just 10 percent of their wages, the need for Social Security payments would be greatly reduced. And, upon retirement, individuals should convert part of their savings to annuities; perhaps annuitized funds could be withdrawn tax-free while other withdrawals are taxed. For the typical person, these steps alone would accomplish most of what Social Security now achieves.

Second, able-bodied individuals should remain in the workforce longer. In the 1950s, the typical worker claimed Social Security around age 68. Today, despite a longer lifespan and work that is less physically demanding, the median American claims Social Security at age 62. It is an economic, budgetary, and moral mistake for Americans to spend one-third of their adult lives in retirement at the expense of those who work. The early and normal retirement ages for Social Security should be raised.

But we should use carrots as well as sticks. My research has shown that the typical worker nearing retirement age receives only around three cents in extra benefits for each additional dollar he pays into Social Security. To give this worker a good reason to keep working, the Social Security payroll tax should be reduced or eliminated for individuals older than 62.

Third, Social Security benefits for high earners should be reduced. While liberals object that “a program for the poor is a poor program” — a view based on the uncharitable assumption that if Americans know a program is redistributive, they won’t support it — the current system gives about $27,000 per year in benefits to every retiree who earned more than $100,000 per year when working. This is a luxury a program facing insolvency cannot afford.

Social Security’s benefit formula also needs repair. As my research has shown, most of the redistribution in Social Security is based on factors other than income. In fact, a worker’s earnings level is a poor predictor of how generously Social Security will treat him. Single-earner couples do better than dual-earner couples; short working careers produce higher benefits than do longer ones; divorced women whose marriages lasted ten years or longer do better than those who divorced earlier. This means that some low-earning households receive relatively low benefits, while some high-earning households receive relatively generous ones. A flatter, simpler benefit structure would make Social Security more understandable and would more effectively prevent poverty.

The experiences of other countries might teach us something. The United Kingdom is moving to increase its benefits, coupled with automatic enrollment in pension accounts. These accounts will invest an amount equal to 8 percent of workers’ earnings, with contributions split between workers, employers, and the government. Australia requires all workers to save 9 percent of their wages in individual accounts; for low earners, it provides a minimum benefit.

Meanwhile, New Zealand offers a flat universal benefit to all retirees, with voluntary “Kiwi Saver” retirement accounts providing additional income. Such a setup would be a significant change from our current system, but would allow us to give the household of every retired and disabled worker a poverty-level benefit with a payroll tax of under 6 percent. A reform that effectively eliminated poverty for retirees and generated income above the poverty level by means of individual savings would be good policy, and might even be good politics.

Reforming Social Security is important not only for its own sake, but to conserve resources for Medicare, where it will be harder to supplant dwindling government benefits with personal savings.

Medicare’s fiscal challenge is like Social Security’s on steroids. Medicare faces all of Social Security’s demographic challenges, and also bears the burden that health expenditures have long been growing faster than the economy.

Medicare costs around $450 billion per year. That’s a lot of money, but at least seniors are receiving better health care, right? Actually, it’s far from clear. MIT’s Finkelstein and Wellesley’s Robin McKnight found that Medicare raised seniors’ hospital spending by 37 percent in its first ten years (it was created in 1965) without lowering their death rates. It is true that seniors who might otherwise have no insurance now benefit from Medicare, but we could cover them for a fraction of the current cost. Seniors who can afford their own insurance pay less out of pocket with Medicare, but their health isn’t much better for it: When at age 65 they shift from private plans to Medicare, they experience no reduction in mortality.

In today’s dollars, Medicare will spend $775 billion by 2020 and $1.4 trillion by 2030, according to Congressional Budget Office projections. But Medicare’s problem isn’t just rising costs; it’s also that so much of what we spend is wasted. An entitlement program that refuses no qualified claim, pays on a fee-for-service basis, and charges low deductibles invites disregard for cost effectiveness.

To restrain the rise of costs, Medicare reimburses health-care providers at rates about 20 percent lower than those paid by private insurers. But to compensate, many providers simply conduct extra procedures, according to a recent Department of Health and Human Services study. Others refuse to take Medicare patients: In a 2008 survey, the Medicare Payment Advisory Commission found that 29 percent of seniors looking for new physicians had difficulty finding a doctor who accepted Medicare.

The Obama administration has proposed taking certain Medicare-policy decisions away from Congress, which is politically risk-averse and heavily lobbied by providers, and transferring them to an expert advisory commission. This is a good idea, but the Senate health legislation, which provides for such a commission, renders it ineffectual: It would not be allowed to alter doctor or hospital payments in its first four years, and even afterward could not restrict benefits, increase co-payments or deductibles, or modify eligibility requirements. Worse yet, the commission could make no proposals in years in which overall national health-care expenditures grew faster than Medicare outlays — which means most years.

And congressional Democrats accepted the idea of such a commission only in exchange for the rest of the health-care bill — that is, only to achieve the longtime liberal goal of increasing the federal government’s power over the private medical sector. Without this inducement, many Democrats would accept nothing at all.

The recent episode in which a government panel recommended that women not receive mammograms until their 50s shows the limits of the commission approach. The recommendation — exactly the type such panels would make in Obama-style reforms — was immediately attacked by lawmakers, who wrote their rejection of it into their health-care legislation.

If stripping Congress of its Medicare oversight isn’t possible or won’t work, a consumer-oriented approach might be a viable alternative. One such approach is “premium support”: Medicare would provide each beneficiary a fixed supplement, adjusted for age, income, and health status. The Federal Employees Health Benefits Plan operates on this basis, with a government contribution set at 72 percent of the average premium. Using these funds, plus their own money, participants choose from up to two dozen providers.

Since consumers pay any premiums above the government share, and are free to choose between competing plans, they have an incentive to spend efficiently, which in turn gives providers an incentive to provide quality care at an affordable cost. The point of such a policy isn’t to design and impose the best plan, but to create a market structure that will find the best plan by means of competition and innovation. And the best plan may not be the same for each person, which is another reason we should empower individuals to make their own health-care choices.

Premium support was politically unpopular when proposed on a bipartisan basis in the 1990s, and it is hard to imagine the Obama administration — which never uses a carrot when a stick is at hand — supporting consumer choice. Rep. Paul Ryan’s proposed “Roadmap” reform — which also addresses Social Security, taxes, and private health care — takes a similar approach, which is why he is already being accused of wanting to “privatize” Medicare. But increased Medicare efficiency would reduce the pain of the inevitable cuts in benefits. Medicare savings of even 10 percent would amount to $75 billion by 2020 and $135 billion by 2030. And other solutions are not presenting themselves.

That brings us to Medicaid, a means-tested state/federal program that provides health care to low-income and disabled individuals. Medicaid does not have a single structure; rather, each state runs its own program, consistent with certain federally imposed requirements, and decides how much to spend. About a third of Medicaid spending goes toward long-term care for the elderly. In 2010, Medicaid spending will likely top $500 billion — even more than Medicare outlays — with costs split roughly 60-40 between Washington and the states. Medicaid is responsible for around 15 percent of all U.S. health-care spending, and is the biggest line item in state budgets.

Medicaid spending has grown — and, in consequence, crowded out private insurance — in part because of population aging and rising health-care costs, but also because states have significantly expanded eligibility in recent years. And that is largely because such expansions bring more federal funds to their coffers.

The federal government covers 50 to 75 percent of Medicaid costs, depending on the state’s average income. This means that the states can provide $2 to $4 in total benefits for each $1 they spend. Under such terms, even an obviously wasteful benefit extension makes budgetary sense from the state’s perspective. And cuts work the same way: Paring Medicaid spending by $4 million would save Mississippi only $1 million, while New York must cut $2 million to save $1 million. The result is a ratchet effect whereby costs increase in good times and hold steady in bad times.

The matching formula also skews Medicaid resources from poor states to rich ones, since only the rich can afford to run large Medicaid programs. Among the largest net beneficiaries of Medicaid funding are New York and Maine, whose average incomes are hardly low by national standards.

As with Medicare, the key to reforming Medicaid is shifting incentives — this time, for state lawmakers. A modest but helpful change would be simply to reduce matching rates as Medicaid spending rises, so that if states choose to expand Medicaid into the middle class they must bear the cost themselves.

A farther-reaching reform would be to fund Medicaid through block grants to the states while expanding the states’ flexibility with regard to program design. (A similar approach was part of the 1996 welfare reform.) If a state wished to expand Medicaid beyond what the block grant paid for, it would have to do so with its own dollars.

All Americans should save for their own retirement and health-care needs. Only those whose savings are insufficient should receive supplements. Innovation, competition, and choice, which make American consumer markets the most vibrant in the world, should play a central role. Entitlement-reform policy isn’t much more complicated than that.

In entitlement politics, however, it is far easier to play defense than offense. In 2005, when asked when the Democratic party would present a plan to reform Social Security, Nancy Pelosi’s answer was: “Never. Is never good enough for you?” Likewise, in this year’s health-care debate, Republicans have prospered by opposing, not proposing.

But while voters do not always reward those who make difficult choices, entitlement reform should be seen as its own reward, for without it, America will soon be crushed by either taxes or debt. The true compensation is a prosperous future consistent with our principles.

— Andrew G. Biggs is a resident scholar at the American Enterprise Institute. Previously he was the principal deputy commissioner of the Social Security Administration and, in 2005, he worked at the White House National Economic Council on Social Security reform. This article first appeared in the April 5, 2010, issue of National Review.

http://article.nationalreview.com/429780/entitlement-apocalypse/andrew-g-biggs
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G M
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« Reply #655 on: April 01, 2010, 09:06:00 PM »

http://www.realclearmarkets.com/articles/2010/04/01/will_spending_under_obamacare_trigger_the_next_financial_crisis_98403.html

Thanks Obama!
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Crafty_Dog
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« Reply #656 on: April 02, 2010, 06:55:39 AM »

The following piece from POTH (so caveat lector) brings up the case of Lithuania, which apparently is following the radical idea of cutting spending.  As such Lithuania bears watching.

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VILNIUS, Lithuania — If leaders of the world’s many indebted countries want to see what austerity looks like, they might want to visit this Baltic nation of 3.3 million.

“You have to do the most difficult cuts as quickly as possible,” Prime Minister Andrius Kubilius said of the austerity plan.
Faced with rising deficits that threatened to bankrupt the country, Lithuania cut public spending by 30 percent — including slashing public sector wages 20 to 30 percent and reducing pensions by as much as 11 percent. Even the prime minister, Andrius Kubilius, took a pay cut of 45 percent. And the government didn’t stop there. It raised taxes on a wide variety of goods, like pharmaceutical products and alcohol. Corporate taxes rose to 20 percent, from 15 percent. The value-added tax rose to 21 percent, from 18 percent.

The net effect on this country’s finances was a savings equal to 9 percent of gross domestic product, the second-largest fiscal adjustment in a developed economy, after Latvia’s, since the credit crisis began.

But austerity has exacted its own price, in social and personal pain. Pensioners, their benefits cut, swamped soup kitchens. Unemployment jumped to a high of 14 percent, from single digits — and an already wobbly economy shrank 15 percent last year.

Remarkably, for the most part, the austerity was imposed with the grudging support of Lithuania’s trade unions and opposition parties, and has yet to elicit the kind of protest expressed by the regular, widespread street demonstrations and strikes seen in Greece, Spain and Britain. 

To be sure, Mr. Kubilius has many critics here and abroad. Government austerity in the midst of a recession runs counter to the Keynesian approach of increasing public expenditures to fight a downturn. That was the path most countries chose. But Mr. Kubilius and his team say that with a budget deficit of 9 percent of G.D.P., a currency fixed to the euro and international bond markets unwilling to lend to Lithuania, the government had no choice but to show the world it could impose its own internal devaluation by cutting public spending, restoring competitiveness and reclaiming the good will of the bond markets.

Another motivation was to conform to the rules of membership for the euro currency union, which Lithuania hopes to join by 2014.

Indeed, outside of Ireland, no country in Europe has come close to replicating Lithuania’s severe spending cuts without the aid of the International Monetary Fund. Ireland passed the most austere budget in the country’s history, and public sector pay cuts were a centerpiece of the government’s reform effort. The Finance Ministry has forecast growth of 1.5 percent this year, and this week Moody’s increased its outlook on the Lithuanian economy to stable, from negative.

“From a credit rating perspective, Lithuania has put itself on positive trajectory,” said Kenneth Orchard, a senior credit officer in Moody’s sovereign risk group.

As European nations consider what the social and political costs will be when they take steps to cut public sector spending, Lithuania offers a real-time case study of the societal trade-offs.  Speed and communication are the most crucial to success, Mr. Kubilius said in an interview in his office last week.

“You have to have a dialogue with your social partners, and you have to do the most difficult cuts as quickly as possible,” he said. “I told them this is history. You need to decide now how you want to be described in our history books.”

Like Latvia and Estonia, Lithuania rode a boom driven by banking and real estate earlier this decade. Construction came to dominate the economy, and low interest rates spurred a housing boom. Many Lithuanians took out low-interest-rate mortgages denominated in foreign currencies. With the onset of the crisis, house prices plunged, building ground to a halt and quite suddenly thousands lost their jobs and began to default on their debts.

While the quaint cobblestone streets of Vilnius may project an air of prosperity, one does not need to travel far to witness the pain many Lithuanians are feeling. Monika Midveryte, a university student, and her mother are now supporting the family after her father lost his construction job. Now, she said, he sits at home in front of the television drinking his troubles away. “He has no hope.”

The psychological toll has been immense. Suicides have increased in a country where the suicide rate of 35 per 100,000 is already one of the world’s highest, local experts say. According to figures collected by the Youth Psychological Aid Center, telephone calls to its hot line from people who said they were on the verge of committing suicide nearly doubled last year to 1,400, from 750.



============



(Page 2 of 2)



As the president of Solidarumas, one of Lithuania’s largest trade unions, Aldona Jasinskiene has an acute understanding of how bad things are — not just as the head of her union, but as a mother. For more than a year, her salary has paid the 2,300 litas, about $900, in monthly mortgage payments for her 40-year-old son, who lost his construction job. Ms. Jasinskiene says his mental health is suffering, he is fighting with his wife and his family of four dines on potatoes three times a day. Now, with her own pension having been slashed, she is left with just 300 litas a month to support herself and her 15-year-old granddaughter.

Ms. Jasinskiene said she signed the agreement with the government because unions, which are extremely weak in Lithuania, were not capable of calling the type of general strike well known in other parts of Europe, and because she wanted to do what she could to prevent even deeper cuts. While Mr. Kubilius points to positive signs like renewed growth, busy cafes in Vilnius and upgrades by the credit agencies, from her vantage point, Ms. Jasinskiene sees no upturn.

“He is telling you a fairy tale,” she said. “Unemployment is going up and up.”

Algirdas Malakauskis, a priest at St. Francis and St. Bernardine Friary, has also experienced the recession’s toll firsthand. He has had to preside over an increasing number of funerals for people who have taken their own lives. Parishioners now come to him seeking work, and his elderly parents, whose pensions have been cut, are angry.

Like a surprising number of people here, however, he has not turned on the government. “You can see they are doing everything that they can to keep the situation stable,” he said.

Still, the tough measures have drawn criticism outside Lithuania.

“The internal devaluation strategy may have succeeded in delivering short-term stabilization, but at what cost?” asked Charles Woolfson, a professor of labor studies at the University of Glasgow who has expertise in the Baltics. Professor Woolfson points out that deepening social alienation in Lithuania has resulted in the sharpest rise in emigration since the country joined the European Union in 2004.

“Then it was the migration of the hopeful,” he said. “Now it is the migration of the despairing.”

There is no greater totem to the excesses of the lending frenzy that gave Lithuania one of the highest growth rates in Europe in 2007 than the sparkling Swedbank office building. Completed just last year, it is 16 stories high and monopolizes the modest Vilnius skyline. Swedbank is the dominant bank in Lithuania, and its aggressive lending to first-time home buyers — including Ms. Jasinskiene’s son — continues to be a millstone for many here.

“People are angry,” said Odeta Bloziene, who runs a unit within the bank that gives advice to Lithuanians who are having trouble repaying their loans. “But we never run away from our customers.”

In the reception area of the bank’s headquarters, bankers laughed and drank beer from a well-stocked bar as rock music played in the background. It is a far remove from the soup kitchen at St. Peter and St. Paul’s Church in Vilnius, where 500 people a day line up for a free meal of soup and Lithuanian pancakes.

Mecislovas Zukauskas, 88, a retired electrician, has lived through the devastations of World War II, the Soviet occupation and, most recently, the death of his wife. He is taking his pension cut in stride.

“The government does what it wants to do,” he said. “We can do nothing.”
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G M
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« Reply #657 on: April 04, 2010, 06:13:25 PM »

http://www.nypost.com/f/print/news/business/small_biz_big_tax_Tm9zntbp2I339WyBwwOgzK

Jobbing small business

The 26 million small businesses in the US — like Eneslow Shoes, headed by CEO Robert Schwartz— are getting buried under an avalanche of new taxes, which include:

* An increase of 4.6% in federal taxes from 35% to 39.6% (expiration of Bush tax cuts)

* An increase in capital gains taxes from 15% to 20% (expiration of Bush tax cuts)

* A new tax of 3.85% on investment income, dividends, rents, royalties mandated in the new health care bill

* An increase in the Medicare payroll tax to 2.35% as mandated in the new health care bill

* In states like New Jersey and others, state and municipal taxes have been raised by the average of almost 2%
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Crafty_Dog
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« Reply #658 on: April 09, 2010, 08:16:11 AM »

http://online.wsj.com/article/SB10001424052702304830104575172280848939898.html?mod=WSJ_hpp_LEFTTopStories

A friend comments:

The Wall Street Journal reports major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks,  which includes Goldman Sachs (GS), Morgan Stanley (MS), J.P. Morgan Chase (JPM), Bank of America (BAC) and Citigroup (C), understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters. Though some banks privately confirm that they temporarily reduce their borrowings at quarter's end, representatives at Goldman, Morgan Stanley, J.P. Morgan and Citigroup declined to comment specifically on the New York Fed data. Some noted that their firm's financial filings include language saying borrowing levels can fluctuate during the quarter. According to the data, the banks' outstanding net repo borrowings at the end of each of the past five quarters were on average 42% below their peak in net borrowings in the same quarters. Though the repo market represents just a slice of banks' overall activities, it provides a window into the risks that financial institutions take to trade.

It does me; specifically, that Michael Lewis article (published in Vanity Fair). Remember how the brokerages would mark down the value of Burry's holdings at quarter's end to mask the mounting crisis in their own portfolios? Hey, if it worked then...
David
« Last Edit: April 09, 2010, 08:35:30 AM by Crafty_Dog » Logged
Rarick
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« Reply #659 on: April 09, 2010, 10:49:22 AM »

all the more reason to get your money to a local neighborhood bank.  I have a couple friends to point these shennanigans out to.
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ccp
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« Reply #660 on: April 09, 2010, 11:26:40 AM »

Well I guess that the "recovery" is based all on funny/monopoly money - that's why.
Why be glum about a 20 trillion debt???

***Why So Glum? Numbers Point to a Recovery
By FLOYD NORRIS
Published: April 8, 2010
 That is what usually happens after particularly sharp recessions, so it is surprising that many commentators, whether economists or politicians, seem to doubt that such a thing could possibly be happening.

Usually you can depend on the White House to view the economy with the most rose-tinted glasses available. But it was not until last week, after a strong employment report, that President Obama started to sound a little optimistic.

“The tough measures that we took — measures that were necessary even though sometimes they were unpopular — have broken this slide and are helping us to climb out of this recession,” he said in a speech at a factory making battery components in North Carolina.

Note, however, that he seemed to believe the country remained in recession. It is virtually certain that is not accurate, as least as will be determined by the arbiters of recession at the National Bureau of Economic Research. “The recession is over,” one of those arbiters, Jeffrey Frankel of Harvard, wrote this week.

But the White House is unwilling to make that claim.

Why is good news being received with such doubt? Why is “new normal” the currently popular economic phrase, signifying that growth will be subpar for an extended period, and that the old normal is no longer something to be expected?

It is possible, of course, that I am wrong and the prevalent pessimism is correct. Many economic indicators, including Thursday’s retail sales report, are looking up, but that does not prove the recovery will be self-sustaining. There are issues relating to over-indebted consumers and local governments. The housing collapse will have an impact for some time.

But there are, I think, a number of reasons for the glum outlook that are unrelated to the actual economic data.

First, the last two recoveries, after the downturns of 1990-91 and 2001, were in fact very slow to pick up any momentum. It is easy to forget that those recessions were also remarkably shallow. If you are under 45, you probably don’t have much recollection of the last strong recovery, after the recession that ended in late 1982.

Add to that the fact that the vast majority of the seers did not see this recession coming. Remember Ben Bernanke assuring us the subprime problem was “contained”? In mid-2008, after the recession had been under way for six months, the Fed thought there would be no recession, and the most pessimistic member of its Open Market Committee thought the unemployment rate could climb to 6.1 percent by late 2009. It actually went over 10 percent.

In January of this year — after the recession had probably been over for at least a few months — the most optimistic member of the committee expected the unemployment rate to fall to 8.6 percent by late this year. The consensus was for a rate no lower than 9.5 percent.

Having been embarrassed by missing impending disaster, there is an understandable hesitation to appear foolishly optimistic again.

But even without that factor, it is normal for recessions to make people pessimistic. “Go back and read what people were saying in 1982 or 1975,” said Robert Barbera, the chief economist of ITG. “Nobody was saying, ‘Deep recession, big recovery.’ It is quite normal to expect an abnormally weak recovery. It is also normal for that expectation to be wrong.”

But if that is normal, one factor that brings optimism to some forecasts is absent this time. Both Republicans and Democrats have good reasons to be negative. Republicans are loath to give President Obama credit for anything, and no doubt grate when he points to his administration’s stimulus program as a cause of the good economic news, as he did in North Carolina.

Democrats would love to give the president credit. But much of the Democratic Party wants another stimulus bill to be passed, notwithstanding worries about budget deficits. Chances for that are not enhanced by the perception the economy is getting better.

The employment report for March, released a week ago, was a milestone that has been little noted. The household survey, from which the unemployment rate is calculated, showed a gain during the first quarter of this year of 1.1 million jobs, the best performance since the spring of 2005.

True, the more widely reported numbers from the survey of employers are not as good. But those numbers are subject to heavy revision as better data becomes available. At the turning points for employment after the last two downturns, those numbers turned out to be far better than was reported at the time.

Employment is a lagging indicator. Employers can be slow to cut back when business turns down, and slow to rehire when it picks up. It stands to reason that when employers cut back sharply — as happened in this cycle — they will have to rehire faster than if they had been slow to fire, as was true in the two previous downturns.

I looked back at the recoveries after seven recessions from 1950 through 1982 and found that, on average, such a strong three-month performance of the household survey, defined as a gain of at least 0.8 percent in the total number of existing jobs, came seven months after the recession had ended, with a range of two to 13 months.

If the 2007-9 recession ended in August, as the index of coincident indicators would seem to indicate, the lag this time will have been seven months.

The lag was 28 months after the 1990-91 recession ended, and an amazing 42 months after the 2001 downturn concluded. Those really did deserve the title of “jobless recovery.” But they were very different from what appears to be unfolding now.

The stock market’s recent performance may be sending a similar message. Prices have been rising, but there is not much volume. Why? A lot of money managers are fully invested, but many investors remain fearful and are not putting cash into mutual funds. To judge from anecdotal evidence, some of the buying now is short-covering by hedge funds that expected the economy to be much weaker than it is, and thought corporate earnings reports would devastate investors. Instead, they are hearing from companies that business is stronger than expected.

Some Americans are in deep trouble, to be sure, and the days of paying for second homes by refinancing the mortgage on the first will not return soon. But many Americans — both individuals and businesses — who cut back sharply when fear was at a peak a year ago are now finding that they overreacted. The businesses need to hire to meet demand, some of it coming from individuals who are less fearful now of losing their own jobs.

In 1982, Democrats scoffed at a surging stock market and thought a severe recession would last for a very long time. They were confident that the economy would doom Ronald Reagan’s re-election campaign in 1984. All they had to do was make clear they offered a stark alternative to the failing policies of the incumbent.***

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Crafty_Dog
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« Reply #661 on: April 09, 2010, 08:49:40 PM »

Agreed, but the author raises a valid point.  It does look there is a psuedo recovery under way and this most certainly can help BO and the Demogogues in a big way come November-- "He/they saved us!" the sheeple will bleat.

Tis for sure that in great part the Patricians a.k.a. the Republicans have offered minimal coherent alternatives.
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DougMacG
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« Reply #662 on: April 11, 2010, 10:57:11 AM »

I noticed that Brian Wesbury predicts 4% GDP growth by year end.  The campaigns of both sides will have a variety of statstics to claim as their evidence of success and failure.  I would assume unemployment will stay high as long as investment taxes remain punitive.  Republicans will need to make the connection to working people that overtaxing employers does not bring in free money.
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G M
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« Reply #663 on: April 11, 2010, 11:13:16 AM »

http://www.ocregister.com/opinion/percent-243349-tax-government.html

Mark Steyn: Income tax payer an endangered species

We are nearing the climax of "tax season." That's the problem right there, by the way: Summer should have a season, and baseball should have a season, but not tax. Happily, like candy canes and Christmas tree lights on Dec. 26, the TurboTax boxes will soon be disappearing from the display racks until the nights start drawing in, and the leaves fall from the trees and tax season begins anew in seven or eight months' time.

And yet, for an increasing number of Americans, tax season is like baseball season: It's a spectator sport. According to the Tax Policy Center, for the year 2009 47 percent of U.S. households will pay no federal income tax. Obviously, many of them pay other kinds of taxes – state tax, property tax, cigarette tax. But at a time of massive increases in federal spending, half the country is effectively making no contribution to it, whether it's national defense or vital stimulus funding to pump monkeys in North Carolina full of cocaine (true, seriously, but don't ask me why). Half a decade back, it was just under 40 percent who paid no federal income tax; now it's just under 50 percent. By 2012, America could be holding the first federal election in which a majority of the population will be able to vote themselves more government lollipops paid for by the ever-shrinking minority of the population still dumb enough to be net contributors to the federal treasury. In less than a quarter-millennium, the American Revolution will have evolved from "No taxation without representation" to representation without taxation. We have bigger government, bigger bureaucracy, bigger spending, bigger deficits, bigger debt, and yet an ever smaller proportion of citizens paying for it.

**Read it all**
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DougMacG
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« Reply #664 on: April 13, 2010, 10:22:43 AM »

A couple of points and a piece continuing on the projection that the economy of this year's elections will have a mixture of statistics for both sides to point to as evidence of why they deserve your vote.  The Dems are better at finding and using obscure stats to make their point than the R's are at findinig and using obvious ones.

1. Remember 1992.  The smallest of slowdowns was spun as the biggest recession since the great depression and our unenthused Presdent, who was guilty only of signing on with a promise breaking Dem budget, took the entire hit even though the tax and spend bills all came out of a D-congress. 

2. Remember 2006. We were on a 50 consecutive months roll of job growth coming out of the crash of 2000 and the attacks and recession of 2001.  Dems found a twist or two in the statistics to make record, explosive growth look like a bad economy.

3. Dems took power Jan 2007, announced a full list of anti-growth agenda items and killed off all growth with the most inflated of all bubbles crashing first and hardest, but with unemployment from anti-growth policies becoming the lagging and enduring result.  Despite this sequence, most voters in 2008 blamed Bush and the Republican congress that has been gone since 2006 for the problems coming into the Obama Presidency and most may still blame them today.  Certainly every administration official is required to re-state that blame in almost every economic sentence.

4. There are and will be signs of growth in Nov 2010, if current projections are at all accurate.  We (if you are conservative leaning or Republican)have been losing the PR battle in all but the most obvious of situations.  So don't take this electoral shift opportunity for granted.

That said, here is a piece from the Atlantic warning Dems that recovery won't be strong enough or soon enough for them to count on:
-------------------------------------------------------------------------------
http://www.theatlantic.com/business/archive/2010/04/how-will-the-economy-affect-midterm-elections/38801/

How Will the Economy Affect Midterm Elections?

It is by now conventional wisdom that the economy is going to cost Democrats big in the midterm elections . . . so it's refreshing to see folks like James Surowiecki challenge that wisdom.  After all, the economy has started growing again, and, in what must be an astonishing coincidence, we're just about to get a big river of stimulus money sluicing through voter pockets.

Possibly.  But conventional wisdom has a lot going for it.  I agree with Surowiecki that what matters is not the headline numbers on the newspaper page, but peoples' actual felt experience with the economy, particularly real income growth.  That felt experience is maybe improving a tiny amount.  Consider the following, however:

    * At this point, there is not enough time for employment to recover significantly.  We lost a lot of jobs, and if analysts are right that this represents mostly structural change in the economy (rather than a temporary collapse in aggregate demand), employment will rebound only slowly.  It took years under the Bush administration to work off the relatively modest collapse around 9/11.
    * Most peoples' major asset will still be worth a whole lot less than it used to be.  And people who are pinched will not have the housing piggybank to cushion their anxiety.
    * Delinquencies are finally slacking of, but the backlog of foreclosures is eventually going to come on the market, further pushing down home values in many areas.
    * We can't really afford to expand the various forms of housing support much further . . . but if we stop them, housing markets will look even worse.
    * Low inflation means the cost of living doesn't go up . . . but people are now conditioned to expect nominal wage increases.  Money illusion is going to make people perceive the labor market, and income growth, as worse than they actually are.
    * Health care costs are going up due to selection effects in individual and small business markets--healthy people are cutting the expense when they lose their jobs, landing companies with a smaller, sicker pool.  That's going to further cut into any wage growth.
    * Budget deficits are almost certainly going to keep going up in the short term.  People get especially touchy about deficits when they are personally strapped.
    * Oil prices are still rising.

I'm not saying the Democrats can't pull it out.  Nothing is impossible, and they have GDP growth on their side.  On the other hand, they're facing some pretty strong headwinds--much stiffer than Bill Clinton faced when he lost the House to the Republicans in 1994.  And contra what I was assured by many Democrats, health care reform has not gotten more popular since it passed; arguably, it's gotten slightly less popular.

That base had better be very motivated.
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DougMacG
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« Reply #665 on: April 14, 2010, 10:40:20 AM »

 "The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a 'reservation wage'—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase [the] reservation wage, causing an unemployed person to remain unemployed longer."

 - Lawrence H. Summers, 1999, current Obama White House economic adviser
http://online.wsj.com/article/SB10001424052702303828304575180243952375172.html
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Body-by-Guinness
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« Reply #666 on: April 14, 2010, 10:49:43 AM »

Nice find, Doug. When I get panhandled I invite the panhandler to walk with me to the nearest restaurant to see if they are hiring dishwashers. Never been taken up on it, I suspect because panhandling while one the dole proves more lucrative.
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DougMacG
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« Reply #667 on: April 14, 2010, 11:31:40 AM »

Thanks BBG, these guys had to at least once study or write about incentives and disincentives even if they deny the effects of their policies today.  Regarding the panhandlers, when they wave the cup of coins past me I always say no thanks, I have plenty.  I am acutely aware that if I throw a buck in the jar I only reinforce their view of how to get money.

In line at a Target store the other day I stood behind 3 cute little girls begging their mom for candy during the wait for checkout.  The mom said 'no' almost a dozen times and I almost congratulated her, but kept my mouth shut.  At the end she said 'yes but just this once'.  Begging insistently led to candy and the lecture after the yes is not the lesson they take from it.  
« Last Edit: April 14, 2010, 11:34:27 AM by DougMacG » Logged
Crafty_Dog
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« Reply #668 on: April 14, 2010, 01:13:00 PM »

" Regarding the panhandlers, when they wave the cup of coins past me I always say no thanks, I have plenty."

 shocked shocked shocked cheesy

PS:  I wish to make clear that there are times I do give to a panhandler.  A few days ago there was an oldtimer who shyly and humbly approached me.  I read him as being someone who, like a goodly number of people these days, never expected to find himself having to beg and being too old to work.  I gave him $5.
« Last Edit: April 14, 2010, 01:15:17 PM by Crafty_Dog » Logged
Rarick
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« Reply #669 on: April 15, 2010, 05:22:28 AM »

I usually will share food if I have it, never money.  Giving a panhandler money is enabling him to continue feeding whatever monkey is riding him, I will not do that.  Food however is something everyone genuinely needs, by sharing it acknowledges a human connection.

I find that the large majority choose not to approach me again...........  Their choice.
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DougMacG
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« Reply #670 on: April 21, 2010, 10:02:44 AM »

A new report from Americans for Limited Government (ALG) clearly shows that the Democrats have destroyed our economy since they took control of our lives in January of 2007.

The most eye catching of ALG’s data items is the sad comparison of the rate of 4.6% unemployment at the start of 2007 and today’s alarming 9.7%. In real terms this means while there were about 7 million unemployed workers when the Democrats took over, today that number has more than doubled to 14.8 million out of work Americans.
http://www.getliberty.org/content.asp?pl=10&sl=5&contentid=422
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Rarick
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« Reply #671 on: April 22, 2010, 06:33:26 AM »

They were saying 4.6% was a crisis level, when it is really more of the churn you get with people changing jobs for all sorts of reasons..........  Doubleing the stat is definately something to worry about.  They are saying their programs will work, we are just waiting for the bottom............

That is the main thing that peeves me about the politicians of both sides, when the other side has an increasing number of what ever magnitude it is a MAJOR OMFG catastrophe, but when their side has numbers that are worse and trending even further it is "Momentum from last year when THEY were running things. Let's give it a minute to reverse"

One side does do this more than the other and sadly enough people fall for the trauma drama game rather than the reason game way easier.
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« Reply #672 on: April 22, 2010, 02:36:05 PM »

By GERALD P. O'DRISCOLL JR.

Free markets depend on truth telling. Prices must reflect the valuations of consumers; interest rates must be reliable guides to entrepreneurs allocating capital across time; and a firm's accounts must reflect the true value of the business. Rather than truth telling, we are becoming an economy of liars. The cause is straightforward: crony capitalism.

Thomas Carlyle, the 19th century Victorian essayist, unflatteringly described classical liberalism as "anarchy plus a constable." As a romanticist, Carlyle hated the system—but described it accurately.

Classical liberals, whose modern counterparts are libertarians and small-government conservatives, believed that the state's duties should be limited (1) to provide for the national defense; (2) to protect persons and property against force and fraud; and (3) to provide public goods that markets cannot. That conception of government and its duties was articulated by the Declaration of Independence and embodied in the U.S. Constitution.

View Full Image

Chad Crowe
Modern liberals have greatly expanded the list of government functions, but, aside from totalitarian regimes, I know of no modern political movement that has shortened it. While protecting citizens against force, both at home and abroad, is the government's most basic function, protecting them against fraud is closely allied. By the use of force, a thief takes by arms what is not rightfully his; he who commits fraud takes secretly what is not rightfully his. It is the difference between a robber stealing brazenly on the street and a burglar stealing by stealth at night. The result is the same: the loss of property by its owner and the disordering of civil society. And government has failed miserably to perform this basic function.

Why has this happened? Financial services regulators failed to enforce laws and regulations against fraud. Bernie Madoff is the paradigmatic case and the Securities and Exchange Commission the paradigmatic failed regulator. Fraud is famously difficult to uncover, but as we now know, not Madoff's. The SEC chose to ignore the evidence brought to its attention. Banking regulators allowed a kind of mortgage dubbed "liar loans" to flourish. And so on.

We have now learned of the creative way Lehman Brothers hid its leverage (how much money it was borrowing) by the use of a Repo 105. The Repo 105 meant Lehman temporarily swapped assets (such as bonds) for cash. A Repo, or repurchasing agreement, is a way to borrow money. But an accounting rule allowed Lehman to book the transaction as a sale and reduce its reported borrowings, according to a report by the court-appointed Lehman bankruptcy examiner, a former federal prosecutor, last month.

Are we to believe that regulators were unaware? Last week Goldman Sachs was accused in a civil fraud suit of deceiving many clients for the benefit of another, hedge-fund operator John Paulson.

The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately—not withstanding what any rule might otherwise allow. And financial institutions should have a duty of care to their customers. Lawyers tell me that would get us closer to the common law approach to fraud and bad dealing.

Public choice theory has identified the root causes of regulatory failure as the capture of regulators by the industry being regulated. Regulatory agencies begin to identify with the interests of the regulated rather than the public they are charged to protect. In a paper for the Federal Reserve's Jackson Hole Conference in 2008, economist Willem Buiter described "cognitive capture," by which regulators become incapable of thinking in terms other than that of the industry. On April 5 of this year, The Wall Street Journal chronicled the revolving door between industry and regulator in "Staffer One Day, Opponent the Next."

Congressional committees overseeing industries succumb to the allure of campaign contributions, the solicitations of industry lobbyists, and the siren song of experts whose livelihood is beholden to the industry. The interests of industry and government become intertwined and it is regulation that binds those interests together. Business succeeds by getting along with politicians and regulators. And vice-versa through the revolving door.

We call that system not the free-market, but crony capitalism. It owes more to Benito Mussolini than to Adam Smith.

Nobel laureate Friedrich Hayek described the price system as an information-transmission mechanism. The interplay of producers and consumers establishes prices that reflect relative valuations of goods and services. Subsidies distort prices and lead to misallocation of resources (judged by the preferences of consumers and the opportunity costs of producers). Prices no longer convey true values but distorted ones.

Hayek's mentor, Ludwig von Mises, predicted in the 1930s that communism would eventually fail because it did not rely on prices to allocate resources. He predicted that the wrong goods would be produced: too many of some, too few of others. He was proven correct.

In the U.S today, we are moving away from reliance on honest pricing. The federal government controls 90% of housing finance. Policies to encourage home ownership remain on the books, and more have been added. Fed policies of low interest rates result in capital being misallocated across time. Low interest rates particularly impact housing because a home is a pre-eminent long-lived asset whose value is enhanced by low interest rates.

Distorted prices and interest rates no longer serve as accurate indicators of the relative importance of goods. Crony capitalism ensures the special access of protected firms and industries to capital. Businesses that stumble in the process of doing what is politically favored are bailed out. That leads to moral hazard and more bailouts in the future. And those losing money may be enabled to hide it by accounting chicanery.

If we want to restore our economic freedom and recover the wonderfully productive free market, we must restore truth-telling on markets. That means the end to price-distorting subsidies, which include artificially low interest rates. No one admits to preferring crony capitalism, but an expansive regulatory state undergirds it in practice.

Piling on more rules and statutes will not produce something different than it has in the past. Reliance on affirmative principles of truth-telling in accounting statements and a duty of care would be preferable. Deregulation is not some kind of libertarian mantra but an absolute necessity if we are to exit crony capitalism.

Mr. O'Driscoll is a senior fellow at the Cato Institute. He has been a vice president at Citigroup and a vice president at the Federal Reserve Bank of Dallas.

http://online.wsj.com/article/SB10001424052748704508904575192430373566758.html?mod=WSJ_hp_mostpop_read
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« Reply #673 on: April 27, 2010, 11:19:36 AM »

Meet the Real Villain of the Financial Crisis

By BETHANY McLEAN
TODAY, we will have the pleasure of watching outraged members of the Senate Permanent Subcommittee on Investigations fire questions at a half-dozen executives from Goldman Sachs. The firm first attracted anger for its return to making billions, and paying its employees millions, right after the financial crisis. And since the Securities and Exchange Commission this month charged Goldman with fraud over an investment tied to subprime mortgages, politicians have turned the firm into the arch-villain of the economic collapse.

But the transaction at the heart of the S.E.C.’s complaint is a microcosm of the entire credit crisis. That is, there are no good guys here. It’s dishonest and ultimately dangerous to pretend that Goldman is the only bad actor. And the worst actor of all is the one leading the charge against Goldman: our government.

Each of the supposed victims here was, at best, a willing accomplice. Let’s start with those who bet that the investment in question, Abacus 2007-AC1, would be profitable for them: a bond insurer called ACA Capital Holdings and a German bank named IKB Deutsche Industriebank. These companies allegedly didn’t know that Goldman, in exchange for $15 million in fees, had allowed a client, the hedge fund manager John Paulson, to help design the investment in order to improve the odds that it would fail.

But there was nothing hindering ACA’s ability to see that mortgages sold to people who probably couldn’t pay weren’t great investments. Meanwhile, the company’s insurance arm was covering as many subprime mortgages as it could to increase its own short-term profits. In some ways, the ACA story is the A.I.G. story: The company thought it had found free money — and basically bankrupted itself.

Similarly, the German bank advertised itself as a sophisticated investor, but didn’t seem to have bothered to analyze the subprime-backed bonds it was buying. The bank just relied on the AAA rating and, not surprisingly, pretty much bankrupted itself, too.

Which brings us to the rating agencies that stamped over 75 percent of Goldman’s Abacus securities with that AAA rating, meaning the securities were supposed to be as safe as United States Treasury bonds. They did the same to billions of dollars worth of equally appalling securities backed by subprime mortgages at other firms. Without the cravenness of the rating agencies, there would have been no Abacus, and no subprime mortgage crisis.

None of this excuses Goldman. Whether the transaction was legal or not, there’s a difference between what’s legal and what’s right. Goldman, where I worked at a junior level from 1992 to 1995, has always held itself up as a firm that adheres to a higher standard. “Integrity and honesty are at the heart of our business” is one of Goldman’s 14 principles. There is no way to square this principle with the accusation that Goldman did not tell a customer who didn’t want to lose money — the very definition of a buyer of AAA-rated securities — that the investment it was selling had been rigged to amplify the chances that it would, yes, lose money.

Transactions like this one open up a window into modern finance, and the view is downright ugly. This deal didn’t build a house, finance a world-changing invention or create any jobs. It was just a zero-sum game that transferred wealth from what Wall Street calls “dumb money” (often those who manage the public’s funds) to a hedge fund. It certainly belies what Lloyd Blankfein, the firm’s chief executive, told me last fall: “What’s good for Goldman Sachs is good for America.” Could the scary truth be that, at best, the success of one has nothing to do with the success of the other?

Yet, in the end, it comes down to this: Goldman Sachs, ACA Capital, IKB Deutsche Industriebank and even the rating agencies never had any duty to protect us from their greed. There was one entity that did — our government.

But it was the purported regulators, including the Office of the Comptroller of the Currency and the Office of Thrift Supervision, that used their power not to protect, but rather to prevent predatory lending laws. The Federal Reserve, which could have cracked down on lending practices at any time, did next to nothing, thereby putting us at risk as both consumers and taxpayers. All of these regulators, along with the S.E.C., failed to look at the bad loans that were moving through the nation’s banking system, even though there were plentiful warnings about them.

More important, it was Congress that sat by idly as consumer advocates warned that people were getting loans they’d never be able to pay back. It was Congress that refused to regulate derivatives, despite ample evidence dating back to 1994 of the dangers they posed. It was Congress that repealed the Glass-Steagall Act, which separated investment and commercial banking, yet failed to update the fraying regulatory system.

It was Congress that spread the politically convenient gospel of home ownership, despite data and testimony showing that much of what was going on had little to do with putting people in homes. And it’s Congress that has been either unwilling or unable to put in place rules that have a shot at making things better. The financial crisis began almost three years ago and it’s still not clear if we’ll have meaningful new legislation. In fact, Senate Republicans on Monday voted to block floor debate on the latest attempt at a reform bill.

Come to think about it, shouldn’t Congress have its turn on the hot seat as well? Seeing Goldman executives get their comeuppance may make us all feel better in the short term. But today’s spectacle shouldn’t provide our government with a convenient way to deflect the blame it so richly deserves.

Bethany McLean, a contributing editor for Vanity Fair, is writing a book about the financial crisis with Joe Nocera of The Times.

http://www.nytimes.com/2010/04/27/opinion/27mclean.html?ref=opinion
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« Reply #674 on: April 29, 2010, 06:57:12 PM »

Obamacon Doves vs. Hard-Money Heartland Hawks
A battle royale is brewing at the Fed.
 
President Obama has appointed three new doves to the Federal Reserve Board, thereby taking command of the nation’s central bank. But there’s a split developing inside the Federal Reserve System: The Reserve Bank presidents, appointed by their own district boards of directors, are increasingly likely to wage a battle royale against the central-bank headquarters in Washington and its free-money, ultra-easy policies.

The new Obama appointees include Janet Yellen, president of the San Francisco Fed, Peter Diamond of MIT, and Sarah Bloom Raskin, the top Maryland state banking supervisor who blames Wall Street greed for much of the financial crisis.

Now, Ms. Yellen is a highly credentialed and respected former Clinton economist. But the new Fed vice chair is also a devotee of targeting the unemployment rate as a key monetary-policy gauge. The Keynesian idea here is that too many people working cause inflation. So with a 9.7 percent unemployment rate, she can be expected to back Fed head Ben Bernanke in his quest for continued free money, with the other new doves following suit.

Make no mistake about it. These appointees (along with Daniel Tarullo, an earlier Obama appointee and another dove) make for an easy-money, pro-regulation Fed. As for monetary soundness, price stability, and a reliable King Dollar, these highly credentialed academics won’t pilot us there.

California economist Scott Grannis recently blogged about “easy Fed, strong gold.” The yellow metal, which has proven to be the best indicator of currency confidence, continues its upward trend against the dollar, and for that matter against the euro and Japanese yen. Grannis also has been writing about the surge in commodity prices, which are marching onward and upward in a V-shaped recovery. Grannis, in other words, is tracking the appropriate indicators.

Many supply-siders, including myself, believe that commodity prices in the open market are the best measures of whether money is too tight or too loose. But no one on this new Obama monetary team will be paying much attention to gold and commodities. They believe in the so-called Phillips Curve tradeoff between inflation and unemployment, despite the breakdown of that model back in the 1970s, when both measures rose together, and for most of the 1980s and 1990s, when both measures fell together.

Indeed, more people working more productively will create more economic growth to absorb the money supply and maintain very low inflation. On the other hand, the $2 trillion Fed balance sheet — which embodies the creation of a massive new volume of the high-powered monetary base, to draw on Milton Friedman’s analysis — sets the stage for too much money chasing too few goods and a steady depreciation of the dollar.

In this scenario, enter one Thomas Hoenig, head of the Kansas City Fed.

Hoenig is a rising monetary superstar who has dissented at each of the last three Fed open-market meetings. He believes money is too loose, and says that if this continues, we risk a new financial bubble that ultimately will come to no good end. I believe Hoenig’s warnings are right on target.

At its meeting this week, the Fed chose to ignore clear signs of a stronger-than-expected V-shaped recovery, along with the bubbling-up of commodity prices and double-digit gains in the producer price index. This is a high-risk strategy. It points to no plan for exiting the zero-interest-rate policy that continues to govern long after the financial and economic emergency has passed.

My own view is that we need a dose of what I call cowboy monetarism. By that I mean the Fed should surprise Wall Street traders with unexpected policy restraint in order to keep them from taking excessive risks in their financial dealings. Like the cowboy’s of the Old West, who would act in their own defense at a moment’s notice, the Fed should not be afraid to pull the trigger on some small restraining moves now to prevent new financial bubbles and an outbreak of inflation down the road.

Wall Street economist Mike O’Rourke criticizes the Fed for cutting and pasting the same predictable phrases from the same predictable policy at each successive Fed meeting. The Fed basically did it again this week. And this is exactly the same mistake it made during the 2002-05 period when the last bubble was born.

Some small restraining signals now might save us a lot of aggravation later. But the Obama doves are going to resist this approach.

Not only will a stubborn adherence to failed monetary theory put these soft-money Obamacon doves at war with the hard-money Reserve Bank hawks, it could also do great damage to hopes for a recovery in American prosperity in the years ahead.

— Larry Kudlow, NRO’s Economics Editor, is host of CNBC’s The Kudlow Report and author of the daily web blog, Kudlow’s Money Politic$.

http://article.nationalreview.com/433076/obamacon-doves-vs-hard-money-heartland-hawks/larry-kudlow
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« Reply #675 on: May 04, 2010, 12:50:16 PM »

The Dollar's Inevitable Demise

By Vasko Kohlmayer
Consider these figures. The current size of the American economy is roughly $14 trillion. As of this writing, the federal government's total public debt stands at nearly $13 trillion.

In its first midsession review, the White House Office of Management and Budget estimated that at the end of 2010, the national debt will breach the $14-trillion mark. This means that America's sovereign debt will be soon equal to the annual output of our economy. In other words, our national debt will shortly reach 100 percent of GDP. History and experience show that most governments that assume such levels of debt are ultimately not able to contain them. In most cases, this kind of situation eventually leads to the disintegration of the country's monetary regime and the collapse of its currency.

This outcome is not inevitable, given that -- in theory, at least -- a debt of 100 percent of GDP is still manageable. But to bring things under control would require strict fiscal discipline. Unfortunately, there no indication that our federal government can muster any. Quite the contrary. Last year the federal budget deficit reached a record $1.4 trillion. At nearly 10 percent of GDP, this was the highest peacetime deficit in history. Despite the numerous assurances that the 2009 shortfall was a one-off event brought on by the financial crisis, this year's deficit will go even higher. According to the analysis submitted by the Congressional Budget Office last month, it will climb to $1.5 trillion. This will amount to 10.3 percent of GDP.

There is every reason to believe that the deficit will grow even faster in the years to come, as the federal government further increases its involvement in health care. The estimates by the Office of the Management and Budget which we quoted above do not factor in the costs associated with the recently passed health care reform. Even the more conservative estimates project that the legislation will cost well over one trillion during the program's first ten years. It is almost certain, however, that this figure is grossly understated, as government programs have a tendency to exceed their initial cost projections by grotesque multiples.

This, however, is not the worst of it, because the national debt represents only a relatively small portion of our government's total financial obligations. The far greater bulk is made up of long-term liabilities inherent in entitlement programs. According to the latest estimates by the Dallas Federal Reserve, the combined liabilities of Medicare, Social Security, and Medicaid amount to an astounding $104 trillion.

When we add the national debt and entitlements together, we get a figure of some $117 trillion. This figure represents the amount of money the federal government will have to come up with in the years ahead in order to discharge its obligations.

The sheer magnitude of this number makes it difficult to grasp. To give a sense of scale, it is about twice the current economic output of the whole world. It is also more than eight times the size of the American economy. With today's tax revenues it would take more than fifty-five years to pay for these obligations. This assumes there is no interest on the debt and that the federal government spends no money on anything else.

There is only one conclusion that reasonably can be  drawn on the basis of these figures: The American federal government is simply not in the position to make good on its obligations.

There is a growing recognition of this fact. When discussing America's national debt in his lecture at the Mises Institute, the noted financial analyst Peter Schiff said this:

We're not going to pay the Chinese back their money. It's impossible. We can't. We can't possibly.

Given the figures, Schiff only stated the obvious.

Sooner or later, our government's ability to finance deficit spending with low yield bonds will come to an end. Deprived of the source of cheap cash and pressed by the need to meet its vast array payments, the government will be left with two options: It will either have to default, or it can seek to meet the payment schedules by creating new money.

Given the dollar's status as the world's reserve currency, default would be a cataclysmic global event that would result in the disintegration of the world's financial system. Needless to say, this kind of calamity would bring about the dollar's sudden collapse with ruinous consequences for the American people.

The second option -- paying its outstanding bills with new money -- looks initially more attractive. On this scenario government would discharge its liabilities with freshly created dollars. This is actually the most likely course our government will take, since money creation is the route that over-leveraged governments usually take in an effort to service their excessive obligations.

At first sight this may seem like an easy way out, but it has bad consequences down the line. As the government pumps new dollars into the system, the value of the money stock is diluted and inflation occurs. In light of the enormous depth of our indebtedness, inflation will in the end eat away most of the dollar's value.

It should be noted that inflation is really only default in disguise. On the inflationary scenario, creditors will only get paid back a portion of their original investment while entitlement beneficiaries will only receive a portion of the value of their promised benefits.

Whichever of the two possible options our government chooses to pursue, the final result will be currency destruction. Outright default would result in the dollar's immediate collapse, while inflation would produce a more gradual decline, at least initially. Needless to say, given the immense weight of the government' financial burden, the inflationary route will ultimately wipe out most of the greenback's worth. Either way, we will end up with a greatly debased, if not completely worthless, currency and all the painful repercussions inherent in that downfall.

To put it bluntly, the dollar's days are numbered and its demise is inevitable. Anyone who still hopes there may be a way around it, must answer that ultimate money question: Where in the world is the American federal government going to get $117 trillion?

Any suggestions?

Page Printed from: http://www.americanthinker.com/2010/05/the_dollars_inevitable_demise_1.html at May 04, 2010 - 12:48:59 PM CDT
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Crafty_Dog
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« Reply #676 on: May 12, 2010, 02:50:42 PM »

Although I tend to be more apocalyptic, as always Scott Grannis is a beacon of quality economic analysis:

http://scottgrannis.blogspot.com/

This is quality stuff folks!
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G M
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« Reply #677 on: May 12, 2010, 08:40:15 PM »

May 12, 2010
http://www.realclearpolitics.com/articles/2010/05/12/depression_2010_105530.html

Depression 2010?
By Robert Samuelson

WASHINGTON -- It is now conventional wisdom that the world has avoided a second Great Depression. Governments and the economists who advise them learned the lessons of the 1930s. When the gravity of the financial crisis became apparent in late 2008, the response was swift and aggressive. Central banks like the Federal Reserve and the European Central Bank dropped interest rates and lent liberally to threatened financial institutions and rattled investors. The United States and many countries approved "stimulus" programs of tax cuts and additional spending. Panic was halted. A downward spiral of falling private spending and rising unemployment was reversed. The resulting economic slump was awful. But it was not another Great Depression. The worst has passed.

Or has it? Greece's plight challenges this optimistic interpretation. It implies that celebration is premature and that the economic crisis has moved into a new phase: one dominated by the huge debt burdens of governments in advanced societies. Comparisons with the Great Depression remain relevant -- and unsettling. Now, as then, we may be prisoners of deep and poorly understood changes to the world economic system.
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Crafty_Dog
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« Reply #678 on: May 13, 2010, 07:51:53 AM »

Although, as I just mentioned, I admire Scott's work greatly-- I do not share his optimistic conclusions, as tempered as they may be.  I think (fear?) that this time is different; that we have kept kicking the day of reckoning upstream until we have reached a point where the world as a whole is rather bankrupt and a world wide bubble is in the process of bursting.

Glenn Beck makes the interesting point that in the aftermath of WW2 that world-wide economic integration was seen as a good and necessary way to prevent another world-wide conflagration, but that now that we are all integrated into one world-wide economy, when the excrement hits the fan that everyone is going to get splattered.
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Body-by-Guinness
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« Reply #679 on: May 13, 2010, 10:26:22 AM »

When next you chat with Scott can you ask how he thinks this record debt with more in the healthcare pipe will resolve itself?
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« Reply #680 on: May 13, 2010, 06:49:33 PM »

These are two very bright, very insightful men and they have some genuine insights and what just happened and where it may be heading.  

Highly recommended.

PS:  I'm working on persuading Scott to join us as his busy schedule allows.
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prentice crawford
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« Reply #681 on: May 13, 2010, 08:56:13 PM »

Woof,
 What? With all the community organizing in Chicago and hard work in the state government that Obama did, and now this? How is this even possible?

 http://www.msnbc.msn.com/id/37136518/ns/us_news-life

                      P.C.
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DougMacG
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« Reply #682 on: May 14, 2010, 11:04:50 AM »

Prentice, Your illustration of Illinois going bankrupt is right on the money.  The "community organizing" was always in the direction of anti-capitalism.  Lobbying the government to take from those who earned it and give to those who didn't.  They fought the rights of property owners to evict, the rights of mortgage holders to foreclose and the right of lenders to discriminate based on creditworthyness. The assumption is that the rich are so rich, America is so rich that no effort at 'social justice', welfare 'rights', expansion of government, bloated public employees payrolls and pensions, increase of tax rates, destruction of incentives etc etc will have any negative affect on the economy or jobs whatsoever. 

They were wrong.

What they should have been doing is establishing free market zones starting with the legalization of lemonade stands in the worst neighborhoods of Chicago and show the youth early how to build earned wealth.
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DougMacG
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« Reply #683 on: May 14, 2010, 11:45:59 AM »

I agree with Crafty that Scott's site is a wonderful read for economic analysis.  He has very timely and telling charts analysis from a very wide range of great sources with his own excellent insights.   I also agree with Crafty that I am not as optimistic going forward as the some of the best supply side economists.

Asking economists to tell us the future is not fair.  I am perfectly happy to judge them by their ability to analyze what has already happened which is hard enough.  In economics, hindsight is NOT always 20/20.  I have found Scott to be among the very best in the profession, along with IMO Brian Wesbury, David Malpass and others.  I have benefited greatly from Scott's insights at Gilder and OP as well as currently at the Calafia Beach Pundit site.

What we have right now is an unknown impending storm of negative public policy forces attacking the most successful private market system in history.  It is impossible IMO to say right now who will win. 

Some form of socialized medicine already passed but no one knows the impact on the economy because of the delay to implement and the possible change of power in congress later this year.

We have cap and trade policies coming to destroy our industries or we don't. 

We have a massive tax hike on investors and employers ("ending the Bush tax cuts on the rich") at the end of this year or we don't. 

We have a domino effect coming from collapsing countries and states or it will be somewhat isolated and we mostly survive it. 

Our trillion and a half dollar annual deficit will either be financeable until we can get it under control or it won't.

And our currency... either we have already set ourselves on a course where we have borrowed, expanded and printed it to the point of it becoming worthless and meaningless or we haven't.  Depends on some other factors partly unknown.

The very best golf (or fight) analyst can tell you the all about the players in the game, past performance, swing dynamics, training techniques, equipment changes, confidence levels, etc. but none will tell you accurately what their scores of the Masters will be before the tournament.  That's why they play the game.
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G M
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« Reply #684 on: May 14, 2010, 10:25:58 PM »

Well said, Doug.
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Crafty_Dog
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« Reply #685 on: May 15, 2010, 12:39:40 AM »

Ditto.

Actually a big part of my disconnect here is precisely my supply side instincts; it is hard to see how big tax rate increases via taxes or inflation are not already baked into the pie-- and this is VERY bad.
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G M
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« Reply #686 on: May 22, 2010, 04:41:34 PM »

http://www2.macleans.ca/2010/05/20/not-just-their-big-fat-greek-funeral/

Own it, Obama voters.
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Crafty_Dog
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« Reply #687 on: May 22, 2010, 07:58:17 PM »

 shocked shocked shocked tongue

The gathering clusterfcuk , , ,
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Rarick
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« Reply #688 on: May 25, 2010, 07:12:04 AM »

Well they better hurry and get to it- the cluster method is about they only way they'll turn the population around grin

They just built that beautiful bridge too, as a way to help with the economy.  Too bad that "transworld highway" segment they are building thru the country may not get built now to use the bridge and get some of that investment returned?  Looking at those, I thought that they may actually turn things around, but I was unaware of the 14 month work year that the Greek gov sector was being paid for.  Just trimming that a few years back may have made most of the difference.  That would be a 20%, givr or take a bit, cut in payroll.  Payroll is always the biggest item, that would have allowed some room to work on cutting the materials/ tools factors.  (redtape and processes?)
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Body-by-Guinness
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« Reply #689 on: June 02, 2010, 10:40:30 PM »

http://reason.com/blog/2010/06/02/the-silver-lining-of-cash-for
Reason Magazine


The Silver Lining of Cash for Clunkers: Studies in Stupid Stimulus Spending

Katherine Mangu-Ward | June 2, 2010

There was never a lot to love about last summer's Cash for Clunkers program. We pointed out the ways it could be scammed, how it made used cars more expensive, destroyed useful goods, and even its backers admitted the claims about environmental benefits were most a bunch of hot air—and last we checked it was threatening to spawn lookalikes.

But finally, someone has found a silver lining. The excellent Coyote Blog sums it up:

I have found a reason to love the Cash for Clunkers program:  it is a fabulous demonstration project for just how utterly pointless government stimulus programs can be.  Stimulus programs tend to be hard to evaluate in our complex economy — sort of like trying to calculate the effect of a butterfly flapping its wings on world climate.  But since cash for clunkers only lasted a few weeks and hit only one industry, we can learn a lot about the effectiveness of government stimulus.

 

You'll notice that the dotted line—which simply averages the month o' clunkers and the month after—lands pretty much where the trend line would have been without that $3 billion in federal spending.

Via Reason contributor Will Wilkinson.
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DougMacG
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« Reply #690 on: June 22, 2010, 12:53:04 AM »

Paul Krugman and Robert Reich are two leftist opinion leaders who think the world works according to demand side (Keynesian) economics and that a trillion and a half deficit is too small of a stimulus for the problems we face.  If we had more diversity of thought on the board, these opinions would be posted and argued here regularly.  Filling that void, here is the latest from Robert Reich (below).  It takes me about 2 days of my life that I will never get back to answer all this drivel point by point.  I'm hoping someone else will do it.  smiley

http://www.huffingtonpost.com/robert-reich/my-father-and-alan-greens_b_618921.html
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ccp
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« Reply #691 on: June 22, 2010, 11:16:53 AM »

Doug,
I read the piece.
I am not an economist but even so nearly everything he says seems wrong headed and stubborn just to support his present day liberal desires.
He is totally nuts.
Or according to his logic we should be praying for a gigantic war with tax rates skyrocketing to the 90% range for the highest incomes.
The war must devastate our competitors, China, Europe, etc. so we emerge on top like 1945.
Like you I don't want to spend any more time on this nonsense.



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Body-by-Guinness
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« Reply #692 on: June 25, 2010, 11:09:56 AM »

The G-20 Fiscal Fight: A Pox on Both Their Houses

Posted by Daniel J. Mitchell

Barack Obama and Angela Merkel are the two main characters in what is being portrayed as a fight between American “stimulus” and European “austerity” at the G-20 summit meeting in Canada. My immediate instinct is to cheer for the Europeans. After all, “austerity” presumably means cutting back on wasteful government spending. Obama’s definition of “stimulus,” by contrast, is borrowing money from China and distributing it to various Democratic-leaning special-interest groups.
 
But appearances can be deceiving. Austerity, in the European context, means budget balance rather than spending reduction. As such, David Cameron’s proposal to boost the U.K.’s value-added tax from 17.5 percent to 20 percent is supposedly a sign of austerity even though his Chancellor of the Exchequer said a higher tax burden would generate “13 billion pounds we don’t have to find from extra spending cuts.”
 
Raising taxes to finance a bloated government, to be sure, is not the same as Obama’s strategy of borrowing money to finance a bloated government. But proponents of limited government and economic freedom understandably are underwhelmed by the choice of two big-government approaches.
 
What matters most, from a fiscal policy perspective, is shrinking the burden of government spending relative to economic output. Europe needs smaller government, not budget balance. According to OECD data, government spending in eurozone nations consumes nearly 51 percent of gross domestic product, almost 10 percentage points higher than the burden of government spending in the United States.
 
Unfortunately, I suspect that the “austerity” plans of Merkel, Cameron, Sarkozy, et al, will leave the overall burden of government relatively unchanged. That may be good news if the alternative is for government budgets to consume even-larger shares of economic output, but it is far from what is needed.
 
Unfortunately, the United States no longer offers a competing vision to the European welfare state. Under the big-government policies of Bush and Obama, the share of GDP consumed by government spending has jumped by nearly 8-percentage points in the past 10 years. And with Obama proposing and/or implementing higher income taxes, higher death taxes, higher capital gains taxes, higher payroll taxes, higher dividend taxes, and higher business taxes, it appears that American-style big-government “stimulus” will soon be matched by European-style big-government “austerity.”
 
Here’s a blurb from the Christian Science Monitor about the Potemkin Village fiscal fight in Canada:

This weekend’s G-20 summit is shaping up as an economic clash of civilizations – or at least a clash of EU and US economic views. EU officials led by German chancellor Angela Merkel are on a national “austerity” budget cutting offensive as the wisest policy for economic health, ahead of the Toronto summit of 20 large-economy nations. Ms. Merkel Thursday said Germany will continue with $100 billion in cuts that will join similar giant ax strokes in the UK, Italy, France, Spain, and Greece. EU officials say budget austerity promotes the stability and market confidence that are prerequisites for their role in overall recovery. Yet EU pro-austerity statements in the past 48 hours are also defensive – a reaction to public statements from US President Barack Obama and G-20 chairman Lee Myung-bak, South Korea’s president, that the overall effect of national austerity in the EU will harm recovery. They are joined by US Treasury Secretary Tim Geithner, investor George Soros, and Nobel laureate and columnist Paul Krugman, among others, arguing that austerity works against growth, and may lead to a recessionary spiral.

http://www.cato-at-liberty.org/2010/06/25/the-g-20-fiscal-fight-a-pox-on-both-their-houses/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Cato-at-liberty+%28Cato+at+Liberty%29&utm_content=Google+Reader
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G M
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« Reply #693 on: June 29, 2010, 11:03:41 AM »

http://hotair.com/archives/2010/06/29/consumer-confidence-plunges-in-june/

Consumer confidence plunges in JuneShare posted at 11:36 am on June 29, 2010 by Ed Morrissey

In yet another milepost for “Recovery Summer,” a new report on consumer confidence has the Dow down over 200 points this morning.  The Conference Board shows that consumers have pulled back much more significantly than analysts predicted, losing ten points in May:
Americans, worried about jobs and the sluggish economic recovery, are having a relapse in confidence, causing a widely watched index to tumble in June and raising concerns about consumer spending in the critical months ahead.
The Conference Board, a private research group based in New York, said Tuesday that its Consumer Confidence Index dropped almost 10 points to 52.9, down from the revised 62.7 in May. Economists surveyed by Thomson Reuters had been expecting the reading to dip slightly to 62.8.
June’s reading marked the biggest drop since February, when the index fell 10 points. The index had risen for three straight months since then.
Both components of the index — one that measures how consumers feel now about the economy, the other that assesses their outlook over the next six months — dropped. The Present Situation Index decreased to 25.5 in June from 29.8 in May. The Expectations Index declined to 71.2 from 84.6.
The AP avoids the use of its favorite adverb until farther in the piece, when it describes the collapse in new-home sales previously announced this month.  Investors haven’t been fooled, however, as they note that the Dow has fallen almost 10% over the last two months.  Those holding capital have begun sheltering themselves from the storm.
Anne D’Innocenzio gets it right when she notes that unemployment is the big problem — and that it’s about to get worse:
Economists already had believed confidence will remain weak for at least another year because of stubbornly high unemployment. … A key issue is jobs. The Labor Department is expected to report on Friday that employers eliminated 110,000 jobs in June, and the jobless rate is expected to tick up slightly to 9.8 percent, from 9.7 percent in May, according to economists surveyed by Thomson Reuters. That follows a bleak report in May, which showed employers added 431,000 jobs but the vast majority were temporary census positions.
Recovery Summer, or Recovery Bummer?  Economists are beginning to wonder whether we’re heading into a double-dip recession, or whether the first one ever really ended:
Monday’s weak consumer spending data is the latest in a string of reports that has many Americans worried about a “double-dip” recession.
Then again, considering the unemployment rate has remained elevated, many Americans would be forgiven for thinking the recession that began in December 2007 still hasn’t ended. Notably, that’s the view of the National Bureau of Economic Research (NBER), the nation’s official arbiter of economic expansion and contraction.
Among the signs suggesting the NBER is right to hold off in declaring the recession over:
Housing Rolling Over: Last week’s housing numbers were horrific, especially the steep drop in new home sales. Still, Coldwell Banker CEO Jim Gillespie tried to put some lipstick on the proverbial pig on Tech Ticker last week.
Jobs Still Hard to Come By: Despite signs of recent progress, “there’s no possibility to restore 8 million jobs lost in the Great Recession,” a notably candid Vice President Joe Biden said Monday. Friday’s jobs report is expected to show overall payrolls declined by 115,000 in June.
Instead of Recovery Summer, it looks more like Midterm Malaise.
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DougMacG
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« Reply #694 on: June 29, 2010, 08:19:05 PM »

A recession is not fully defined but generally looked at as a decline in GDP over a couple of quarters or more.  GDP is measured many ways but one is consumption+investment+government+net exports.

Recession or economic stagnation might also be looked at in terms of net job losses over a similar time frame while economic expansion is also noted with prolonged job growth statistics.

I would contend that only private sector 'production' or employment should count as economic growth, with government being just the parasite feeding off the host - economically. (If the gov't programs performed as promised they would be accompanied with private sector job growth.) If you include government job growth or accelerated government expenditures as economic growth it seems to me you are measuring something artificial and unsustainable without the corresponding private sector growth.  In particular you can't realistically count the $4 trillion in spending as increased economic 'results' if you only raise 2.5 trillion of it in funding, leaving the rest as accumulated debt that accumulates interest into eternity and brings down the value of the unit (dollars) that you were measuring in the first place.
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Rarick
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« Reply #695 on: June 30, 2010, 05:01:25 AM »

WSJ articles I keep reading give serious "circle the wagons" inspiration.  If money has to be spent- spend it on necessity, not on nice to have or risky items.  I think a lot of the business community has been forced into that by Obama Administration policies and attitude.  about 20% of the economy is now effectively nationalized, hardly a democratic, much less free concept.
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Crafty_Dog
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« Reply #696 on: June 30, 2010, 06:26:44 AM »

Note the Art Laffer piece I posted in the Tax thread recently.  IMHO Laffer is quite right.  The tax increases due to the expiration of the Bush rate cuts have caused many to accelerate activity and profit taking.  This bubble will burst too.
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G M
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« Reply #697 on: June 30, 2010, 08:32:41 AM »

As I've said before, invest in metals. Guns, ammo and canned food.
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G M
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« Reply #698 on: June 30, 2010, 09:04:46 AM »

http://www.cnbc.com/id/37973984

US State Budget Crises Threaten Social Fabric

Published: Monday, 28 Jun 2010 | 10:43 AM ET Text Size By: By Matthew Garrahan, Financial Times DiggBuzz FacebookTwitter More Share
The small southern California city of Maywood has hit on a unique solution to its budget crisis. Crushed by the recession and falling tax revenues, the city is disbanding its police force and firing all public sector employees.

Maywood has opted for an extreme solution, by contracting out all public services, including the most basic, to save cash. But it is not alone.


States around the US are cutting costs wherever possible as they prepare budgets for the fiscal year that starts this week for most of them. Their combined deficit is projected to reach $112 billion by June 2011.
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Rarick
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« Reply #699 on: July 01, 2010, 04:20:58 AM »

Hmmm, that is an experiment to watch?  Will the private security contractor fill the police gap?  I wonder what else Maywood has to deal with they are right in the middle of Metroville.  Sewage, water, streets are definately going to be an issue.  They aren't the areas where I grew up, where a house 5 minutes out of town usually had its own septic tank and well and a gravel driveway.  You have paved roads, storm drains, sewer, etc.    I wonder how a private company would find a business model that would work?
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