US Economy

[Xiang]

Interestingly enough, China, India, Russia and Brazil are meeting to form an economic alliance to counter the failing US dollar, and move away from trading commodities in that currency.

The group has coined the nickname BRIC.  If/when it is finally set into motion, it could spell the end of the US Dollar as we know it.

 

[Edward Campbell]

Interestingly enough, China, India, Russia and Brazil are meeting to form an economic alliance to counter the failing US dollar, and move away from trading commodities in that currency.

The group has coined the nickname BRIC.  If/when it is finally set into motion, it could spell the end of the US Dollar as we know it.

BRIC is a term coined, in 2003, by Goldman Sachs in a report that speculated that, by 2050, Brazil, Russia, India and China would be wealthier that today’s economic superpowers.

Certainly China and India can be economic superpowers, in their own right, before 2050 – if they can manage their internal affairs well enough for the next generation.

Brazil is a big, rich country with a very, very spotty record of accomplishment. There are some long standing, structural socio-economic and cultural (there’s that word again!) problems which have, in the past, crippled Brazil. Brazil has a larger population (190+ Million) than Japan (125+ Million); the question is: can all those people be sufficiently productive to “grow” their economy from $1.5 Trillion (about the same as Canada’s) to $5+ Trillion (where Japan’s will be, easily) by 2015 and then to $10 Trillion, which is where Japan’s will be by 2030, and so on to $25 Trillion by 2050?

Russia has long standing and structural problems like Brazil’s and it is also sitting on a demographic time bomb.

The principle cultural problems facing Brazil and Russia is that they are deeply illiberal societies and those sorts of societies have, pretty consistently, failed while liberal and conservative societies have prospered.

By the way, how “good” is Goldman Sachs? How much faith should we put in the BRIC?

China is proposing that Special Drawing Rights (SDRs) - an IMF generated reserve asset - should be used as an alternate reserve currency. Possibly not a bad idea, given that President Obama plans to debase the US currency so that others will pay for his recovery schemes.

 

[a_majoor]

VDH on the real program:

http://pajamasmedia.com/victordavishanson/the-war-against-the-producers/

The War Against the Producers
Posted By Victor Davis Hanson On July 11, 2009 @ 10:27 am In Uncategorized | 133 Comments

Stimulus, stimulus and not a drop…

A “stimulus” of nearly a trillion dollars was proposed, without which we were told, unemployment would skyrocket and credit would tighten further. Six months later — unemployment having risen even higher than the administration’s forecast of what would have been the case had their stimulus package not been implemented — now the same proponents of massive borrowing demand a second stimulus to accomplish what the first ’successful’ borrowing apparently did not. If you fail, then try the same thing to fail even bigger the second time — while calling for more success to follow the earlier success?

The Larger Agenda

Note here I mean something quite different from the accustomed notion of “accomplish.” You see, I think the point was never much to build more bike paths on borrowed money or just bail out GM, but rather more to reengineer the tax code, as part of a grander vision of creating a new equality of result in America.

Soon we will all end up after each April 15 about making the same, driving the same sort of cars and using the same sort of mass transit, living in about the same sorts of houses, and having about the same sorts of “‘they’ will take care of it for me” philosophies — all overseen by brilliant, but highly ranked and exempt Platonic Guardians who suffer on our behalf as they jet and limo at breakneck speed ensuring our welfare.

Gorging “the Beast”

We are beginning to sense the debate is not about “stimulus” (politicians did not even read the various bills that they rammed through and care little about the fiscal impact from them). Rather, we are witnessing an inversion of Reagan’s sort of playing chicken, once called “starve the beast” (which I thought was a wrong notion), a philosophy of cutting taxes to cut revenue to starve the federal government’s excessive spending in the face of spiraling deficits.

Under Obama’s “gorge the beast” version, America will simply write so many bounced checks, run up such an enormous $10 trillion debt, that taxes will have to rise on “them”– and wasn’t this really the point of it all anyway: to “spread the wealth around” and “never let a crisis go to waste”?  Since new programs never shrink, but, like Johnson grass, grow with impunity, and since Democrats, even more so than wasteful Republicans, don’t worry about deficits, taxes must escalate to avoid catastrophe.

The Bad Guys

Ponder a simple fact: The Obama administration is dispersing income lavishly to those who do not pay taxes and it will have to be paid for by those who do. For all the talk of that awful percentile who make over $200,000, this administration has not distinguished the hyper-rich 1% that make untold money (e.g., the Buffets, Soroses, Turners, Gateses, Kerrys, Gores, etc), from the much more demonized, larger 5% of the population whose income does not come from investments and insider influence and deal-making, but rather from providing more tangible goods and services — the family doctor, the plumbing contractor, the small lumber company owner, the car dealer, the local family-held insurance company, the airline pilot, the car-leasing firm, the patent attorney, etc.

“Their Fair Share”

Last fall we heard that this percentile was unpatriotic, did not wish to spread the wealth around, and had made off like bandits under Bush. But the fact is, to quote Mayor Gavin Newsome’s “like it or not,” they are precisely those who decide most dynamically whether to hire, fire, expand, contract, buy/sell goods, etc.

And the results of the Obama war against them are threefold: 1) in major key states, the productive minority’s state income taxes will near or exceed 10%; their federal rates will go to 40%; the abolition of caps on FICA will ensure 15% plus of most of their income will go for new Medicare and Social Security bites; and they may well be eligible for a newly proposed punitive health-care surcharge tax of 4-6%.

Add It Up

If one were to add all that up (forget rises in sales taxes, inheritance taxes, luxury taxes, etc.), then one can get to 70% of one’s income. So right this minute, the electrical contractor is thinking:

“I made $412,000 last year due to Saturday jobs, overtime, risky bidding, gambles on new equipment, and new lines of credit, but under Obama I will pay maybe $50-80,000 more of my income to the government. In other words the cost of, say, hiring two more entry-level electricians, or the cost of outfitting an entire new van with boom and equipment, or what I cleared every Saturday last year — all that will go to the government.”

Ripples of Doubt

And that means rippling throughout this key sector of the economy — even before these taxes have been enacted — are hesitation, stasis, and ultimately constriction — at first for psychological reasons, soon confirmed by the actual facts of less money. In short, very bright people will be thinking how to hide income, how to barter, how to slow down and not produce goods and services, rather than blast full speed ahead and enrich angry others.

A Certain Paranoia

2) Do not discount again the psychological element. This putative electrical contractor also knows that after handing over his profits to the new government, and delaying or ending his plans for enlargement, he will not be praised, but continually demonized (I scanned CNN, MSNBC, CBS, and NBC the other evening, and all the stories had a common theme: the “rich” (yes, you see, ACME Electric is now about the equivalent to  AIG and Citibank) will have to pay their “fair share” for all sorts of “overdue” necessities: cap-and-trade, nationalized health care, education grants and freebies, and new social programs.

You Owe Us

So our electrician senses that despite his newfound, sizable contribution to the public good, he will a) not be thanked but only further ridiculed; b) see his money diverted from his own wise use of it, to anonymous agencies’ liberal expenditures of it: the money will not be just lost, but invested in things that will make  things worse, not better, through subsidies of failed programs and the destruction of incentives;  c) see that the world under Obama is now unfair in Orwellian fashion: the Citibanks and AIGs, in Robert Rubin fashion, are so well connected to both parties that they will suffer little for their mistakes; the Ivy-League and Washington technocratic class that is to run all this is happy with its government perks and does not think new taxes and compliance apply to themselves (cf. Dodd, Rangel, Geithner, Daschle, Murtha, etc.).

You Never Needed All That Anyway

3) Finally the now chastised and ossified electrician will begin to see that his new truck, his boat, his vacation home, all these are somehow immoral in carbon, political, cultural, racial, and social terms. And he senses that others, who do not pay any income taxes (approaching 50% of the population), see themselves at war with him: the more he pays in taxes, the more others see that his compliance with such new burdens is proof of what he “really” owed all the time, and a sign that he can pay even more next round.

A Most Revolutionary Vision

Final observations: Obama brilliantly conflated the Wall Street class with the upper-tier of Main Street in Animal Farm fashion: the former gets lectured, but stays enriched through bailouts; the latter takes both the moral hit for the former’s crimes and greed and the actual hit in higher taxes.

(Nota bene: the new Democrats, in Prince Charles fashion, like the taste and culture of the hyper-rich, who care little about taxes, are sensitive behind their ramparts to the less well off, and know high-culture (think Streisand, Gates, Soros, the Georgetown/Hollwood/Silicon Valley, Upper East Side, Cambridge, Mass, set). These aristoi despise the wheeler-dealer, always on the move, uppity, wanna-get-rich scrambler that is desperately trying to get his get kid through Public U, and add a wing on his gross MacMansion, while towing his outboard up to the lake for five hours of water-skiing, without an opera, symphony, or NPR analysis on the radio).

Bottom line

This recovery cannot work, other than a brief spurt that results from trillions in printed money, because we are rewarding unproductive areas of the economy (federal money for more wind farms, federal hurdles for pumping more known natural gas or nuclear power construction; more of the community-organizing model, less of the productive small business model) and punishing the engines of the economy.

The New Culture of “Pay Up, Mister–or Else!”

For Obama to pull this off, an entire sort of new vocabulary, rhetoric, and attitude is necessary. And the model is California: the carpenter and the bricklayer are laid off, and the state snoozes; while the assistant solid waste inspector of Green Acres is on television every night (his union can afford the advertising) to weep, and claim that if he and those like him (retire at 55 with $100,000 for life) are laid off, then Dantesque things follow.

Remember the logic: the poor Californian voter who works at Starbucks or Target is angry that the grandee social worker is unnecessary and grossly overpaid at $90,000 a year, with lush retirement and benefits, and so is told that if he does not raise taxes to over 10% income and 9% sales, then firemen, police, and water workers will quit/be laid off/furlow and so he will starve, be murdered, and have no sewage.

Screw the Fool Hammering, Save the Grandee Behind the Desk — and Call it Egalitarian Morality

That is the model here in California and that is the model we are soon to see in Washington: the government worker and those who receive his largess, are kings; those who pay for them, and who work in private enterprise for far less, are, well, less than fools.

Whereas thousands are fleeing the natural paradise of California for the arid deserts of no-tax Nevada, there is no Nevada to the United States — the last hope of an otherwise depressing planet.

Article printed from Works and Days: http://pajamasmedia.com/victordavishanson

 

[a_majoor]

Say, wasn't the first American revolution about unjust taxation......?

http://pajamasmedia.com/rogerkimball -

Are We There Yet? Preparing for the Coming Tax-Revolt
Posted By Roger Kimball On July 16, 2009 @ 6:41 am In Uncategorized | 52 Comments

Megan McCardle [1] expressed surprise at “just how little money you can raise by slapping a 5.4% surtax on incomes above a million.” She shouldn’t be surprised. After its orgy of irresponsible spending, the Obama administration is certainly going to have to find some way to raise money, especially since its economy crushing initiatives have [2] drastically reduced tax receipts, a trend that most observers predict will continue.

But it doesn’t matter that increasing taxes on successful people will not bring in much dough. What matters is punishing success, not filling the treasury.

No one should be surprised at this. Whatever else you can say about Obama, he has never made a secret of his redistributionist philosophy. Economics for him is not about the creation of wealth. It is about 1) the redistribution of wealth and 2) penalizing those who have had the temerity to succeed.

I wrote about this during the campaign. [3] In April of 2008, for example, I noted that when Obama talked about “fairness” he really meant penalizing success: “It is time for folks like me,” Obama told Rick Warren at the famous Saddleback Church event with John McCain, “who make more than $250,000 to pay our fair share.”

“Our fair share.” That is the Obama refrain. “[W]e will save Social Security for future generations by asking the wealthiest Americans to pay their fair share.” It’s a small step from the invocation of “our fair share” to Obama’s call for a tax on “the windfall profits of oil companies,” a tax increase on capitals gains, elimination of the tax on Social Security tax, etc., etc.

The crucial point here is that what Obama is interested in is not increasing but in promulgating redistributionist policies that make it harder for people to prosper economically. McGurn recalls Obama’s response to ABC’s Charlie Gibson when Gibson observed that raising taxes led to decreased revenues: “Well, Charlie,” Obama replied, “what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.”

“For purposes of fairness”: that means, “for purposes of economic egalitarianism.” McGurn comments:

t doesn’t really matter whether a tax increase actually brings in more revenue. It’s not about robbing from the rich to give to the poor. Robbing from the rich will do, especially if it’s done in the name of fairness.

Now there are good reasons Mr. Obama is not likely to pursue the revenue side of the fairness question. As this newspaper noted in a recent editorial, the latest data from the Internal Revenue Service does not show to Mr. Obama’s advantage. As we come to the end of the Bush administration, the top 1% of American taxpayers already pay 40% of all income taxes — the highest level in 40 years. The top 10% of income earners pay 71% of the taxes.

The bottom line is that when Obama invokes “fairness,” he wants us to feel guilty about economic success. This is the secret of his appeal to the socialistically inclined

Behind this redistributionist fantasy, I noted, is not only the rancid ideal of an egalitarian society. There is also a rage against success and the wealth that it brings in its wake. That rage is a prime emotional ingredient in the liberal worldview. James Piereson, in a [4] memorable article for The Weekly Standard, gave it the perfect name: “punitive liberalism.” “From the time of John Kennedy’s assassination in 1963 to Jimmy Carter’s election in 1976,” Piereson writes,

the Democratic party was gradually taken over by a bizarre doctrine that might be called Punitive Liberalism. According to this doctrine, America had been responsible for numerous crimes and misdeeds through its history for which it deserved punishment and chastisement. White Americans had enslaved blacks and committed genocide against Native Americans. They had oppressed women and tyrannized minority groups, such as the Japanese who had been interned in camps during World War II. They had been harsh and unfeeling toward the poor. By our greed, we had despoiled the environment and were consuming a disproportionate share of the world’s wealth and resources. We had coddled dictators abroad and violated human rights out of our irrational fear of communism.

As I said in the column cited above, Piereson’s great insight is to stress the punitive, the chastising side of this orgy of guilt. Liberals like Obama come telling us they are making a better world; they omit to mention that what they mean by “a better world” is a world that is distinctly worse for certain groups, in particular groups that liberals decided had hitherto been unfairly privileged. “The punitive aspects of this doctrine,” Piereson writes,

were made especially plain in debates over the liberals’ favored policies. If one asked whether it was really fair to impose employment quotas for women and minorities, one often heard the answer, “White men imposed quotas on us, and now we’re going to do the same to them!” Was busing of school children really an effective means of improving educational opportunities for blacks? A parallel answer was often given: “Whites bused blacks to enforce segregation, and now they deserve to get a taste of their own medicine!” Do we really strengthen our own security by undercutting allied governments in the name of human rights, particularly when they are replaced by openly hostile regimes (as in Iran and Nicaragua)? “This”–the answer was–”is the price we have to pay for coddling dictators.” And so it went. Whenever the arguments were pressed, one discovered a punitive motive behind most of their policies.

It was, as Piereson notes, one of Ronald Reagan’s great achievements to overcome, at least temporarily, the emotional mandate of punitive liberalism. Piereson quotes from Reagan’s speech at the Republican Convention of 1980: “My fellow citizens,” Reagan said, “I utterly reject that view. The American people, the most generous on earth, who created the highest standard of living, are not going to accept the notion that we can only make a better world for others by moving backwards ourselves.” What a breath of fresh air, especially after four years of Jimmy “Mr. Malaise” Carter!

The question that confronts us now is what reservoirs of confidence we still can draw upon. Did Reagan really “vanquish” punitive liberalism, or did he merely rebuff it momentarily? The extraordinary, uncritical acclamation accorded to Obama by the Left suggests that “we have scotched the snake, not killed it.” But at least now we know what we are fighting. Punitive Liberalism is alive and well in the Democratic Party, at The New York Times, in our courts and universities. It would be nice if another Ronald Reagan were to appear and remind us that we cannot move forward by moving backwards.

In the meantime, Megan McCardle poses an interesting question in her post about the proposed 5.4% sur tax on families making more than $1 million. “I also wonder, ” she writes,

at what point serious political resistance to taxes sets in. I know, it’s common to claim that Americans are tax haters. But actually, Americans, even the wealthy, pay their taxes at a rate that would shock an Italian. We grumble, but in the end, we pay.

But at some point, that changes.

Indeed. Anyone wish to open a book on when Obama will cross that line?

Article printed from Roger\’s Rules: http://pajamasmedia.com/rogerkimball

URL to article: http://pajamasmedia.com/rogerkimball/2009/07/16/are-we-there-yet-preparing-for-the-coming-tax-revolt/

URLs in this post:
[1] expressed surprise: http://meganmcardle.theatlantic.com/archives/2009/07/more_thoughts_on_the_health_ca.php
[2] drastically reduced tax receipts: http://investment-blog.net/tax-receipts-are-35-below-normal-and-will-go-much-lower/
[3] In April of 2008: http://pajamasmedia.com/rogerkimball/2008/08/19/obamas-punitive-liberalism-or-why-treating-success-a
s-a-form-of-failure-is-wrong/

[4] memorable article for The Weekly Standard: http://www.weeklystandard.com/Content/Public/Articles/000/000/004/245kubju.asp

 

[a_majoor]

More on unjust taxation. I suspect the next great social/political movement in the United States is beginning (with the political blogosphere, John Galt strike and T.E.A. parties laying the groundwork); the productive citizenry vs political rent seekers:

http://cjunk.blogspot.com/2009/07/taxation-without-representation.html

Taxation Without Representation

What a scam ... ensure power by setting it up that those who vote you in, don't have to pay tax. The only thing is, that the 50% who vote you in are too stupid to realize that in almost all cases taxes run down hill ... that is, small businesses and corporations pass on tax debt to their customers. If they can't, they simply leave town to more hospitable places. That's why Texas is booming as tax exhausted individuals and companies flee the "progressive" economies in other states:

It’s worth recalling that when the Founding Fathers led the American colonists in revolt against British oppression, they weren’t rebelling against torture on the rack or being chained in galleys or having to let aristocrats deflower their daughters. They were rebelling against taxes. To them, having to pay duties they hadn’t voted for themselves was a tyrannical taking of property—theft—and, in true Lockean fashion, they concluded that since government exists to protect life, liberty, and property, a regime that does the opposite renders itself illegitimate. What would they make, then, of today’s New York City, where 1.2 percent of the taxpayers—40,000 households—pay 50 percent of the income taxes, and half the households pay no income tax at all? If the tax code ensures that those who pay the bulk of the taxes are always a minority of those who vote for the legislature that imposes the taxes, isn’t that taxation without representation? Isn’t it also the tyranny of the majority that the Founders tried to prevent?

The rent seekers have spent gnerations enlisting the "uninformed masses" and corrupting language and institutions so most people seem to believe that Government programs are "free". It is now the turn of the productive class to change the terms and conditions of the political landscape or face the consequences.

 

[a_majoor]

A very interesting article, which shows how the "Blue State" model is disintigrating before our eyes. Since this is the model of governence the Obama administration seems determined to follow, it is a must read. Economics, demographics and technological change are all intertwined with these arguments. Note, the article is very long, so I exerpted the first part; read the rest at link:

http://www.american.com/archive/2009/july/the-blue-state-meltdown-and-the-collapse-of-the-chicago-model

The Blue-State Meltdown and the Collapse of the Chicago Model
By Joel Kotkin
Wednesday, July 22, 2009

Filed under: Big Ideas, Government & Politics

This should be the moment the Blue Man basks in glory. An urbane president sits in the White House and a San Francisco liberal runs the House. But blue states are undergoing a meltdown.

On the surface this should be the moment the Blue Man basks in glory. The most urbane president since John Kennedy sits in the White House. A San Francisco liberal runs the House of Representatives while the key committees are controlled by representatives of Boston, Manhattan, Beverly Hills, and the Bay Area—bastions of the gentry.

Despite his famous no-blue-states-no-red-states-just-the-United-States statement, more than 90 percent of the top 300 administration officials come from states carried last year by President Obama. The inner cabinet—the key officials—hail almost entirely from a handful of cities, starting with Chicago but also including New York, Los Angeles, and the San Francisco area.

This administration shares all the basic prejudices of the Blue Man including his instinctive distaste for “sprawl,” cars, and factories. In contrast, policy is tilting to favor all the basic blue-state economic food groups—public employees, university researchers, Silicon Valley, Hollywood, Wall Street, and the major urban land interests. 

The administration’s skewed allocation of resources reflects its roots in contemporary Chicago. It derives from a pattern of rewarding core constituencies as opposed to lifting up the whole economy.Yet despite all this, the blue states appear to be continuing their decades-long meltdown. “Hope” may still sell among media pundits and café society, but the bad economy, increasingly now Obama’s, is causing serious pain to millions of ordinary people who happen to live in the left-leaning part of America.

For example, while state and local budget crises have extended to some red states, the most severe fiscal and economic basket cases largely are concentrated in places such as New York, New Jersey, Illinois, Pennsylvania, Michigan, Oregon, and, perhaps most vividly of all, California. The last three have among the highest unemployment rates in the country; all the aforementioned are deeply in debt and have been forced to impose employee cutbacks and higher taxes almost certain to blunt a strong recovery.

The East Coast–dominated media, of course, wants to claim that we have reached “the twilight” of Sunbelt growth. This observation seems a bit premature. Instead, traditional red-state strongholds such as the Dakotas, Idaho, Texas, Utah, and North Carolina, dominated the list of fastest-growing regions recently compiled for Forbes by my colleagues at www.newgeography.com.

When the recovery comes, job growth also is most likely to resurge first in the red states, while the blue states continue to lag behind. For reasons as diverse as regulatory policy, aging infrastructure, and high levels of taxation, blue states continue to be more susceptible to recessions than their red counterparts.

This assumption is borne out by an analysis of economic cycles by the website JobBait.com, which has found that since 1990 the states most vulnerable to economic downturns include the Great Lakes states of Michigan, Illinois, Ohio, and New York as well as Connecticut and California. Those most resistant have been generally red bastions such as the Dakotas, Nebraska, and Texas, and resource-rich states such as Alaska, Montana, New Mexico, and Wyoming.

This suggests that even the hardest-hit red states, notably Florida and Arizona, are likely better positioned in the long term for a recovery. A generation of out-migration may be slowing down temporarily due to the recession, but many people moved to places such as Arizona, Florida, Texas, and Georgia over the first seven years of the decade; in contrast, the high-tax blue states, including New York, New Jersey, and California, lost 1,100 people every day between 1998 and 2007. Most of them headed to the red states.

“When the economy comes back,” notes veteran California-based economist and forecaster Bill Watkins, “there will be a pent-up demand. People will compare and move to the places that are affordable and don’t have the fundamental tough tax and regulatory structures.”

Devolution in Blue

These demographic and economic trends will have a long-term political impact. The net in-migration states—almost all of them red—will gain new representatives in Congress after the next census while New York, Pennsylvania, Michigan, and perhaps even California could see their delegations shrink.

In fact, amidst the Blue Man’s current political ascendency, the devolutionary process is likely to continue. Its roots are very deep, and will prove more difficult to reverse than media and policy claques suggest. In historic terms, blue states’ relative decline represents one of the greatest shifts of political and economic power since the Civil War.

In the modern period that starts with the end of the Second World War, the states that are now blue were also, to a large extent, the best. They included the undisputed centers of finance, industry, culture, and education. Blue-state politicians also dominated both parties, either directly or behind the scenes.

In contrast, the Red Man was disdained. As late as 1940s, Los Angeles—still then very much in its red period—as well as Houston, Dallas, Charlotte, and Phoenix, were all not listed on the Social Register, the ultimate list of the socialite elite. You might visit Texas or invest in its oil, buy Los Angeles real estate, or winter in Scottsdale, but these were not places of consequence. These cities were not for civilized, serious people.

Yet demographic forces changed this balance of power forever. In sharp contrast to Europe, often the preferred model for the Blue Man, the United States’ population exploded in the postwar era. This expansion could not be comfortably accommodated in the old cities.

For reasons as diverse as regulatory policy, aging infrastructure, and high levels of taxation, blue states continue to be more susceptible to recessions than their red counterparts. New demographics and timing shaped America’s urban patterns in largely unforeseen ways. Urban theorist Ali Modarres notes that America’s population over the second half of the 20th century grew by 130 million, essentially doubling, while the populations of France, Germany, and Britain together increased by 40 million, or 25 percent.

In Europe slower population growth meant that planners could accommodate expansion through gradual expansion of existing cities. In contrast, America’s huge growth could only be accommodated by creating new places and vastly expanding others. This led to the growth of suburbs everywhere, but the bulk of expansion took place in vast emerging metropolitan areas such as Los Angeles, and later Phoenix, Dallas, Houston, Atlanta, Miami, and Las Vegas.

This trend held up through much of the past decade. Nevada’s s population grew at four times the national increase of 8 percent while Arizona expanded three times as much and Florida twice the average. In contrast, growth in the blue states of the Northeast and Midwest generally stood well behind the national average.

More important still, the new regions experienced a broad entrepreneurial explosion that reshaped the whole economy. In many cases, this growth came directly at the expense of the blue states. When major companies relocated they tended to leave places like New York, Pittsburgh, Cleveland, and Chicago for the burgeoning red cities.

In 1950 Atlanta did not rank among America's most important economic centers; 50 years later it stood among the most popular cities for large corporations and their subsidiaries. The same could be said for places like Houston, Dallas, and Charlotte. It was the quintessential American story, evidence, as Marxist scholar William Domhoff observed, that America’s “open class system is almost the opposite of a caste system.”

 

[Yrys]

Keeping Their Eggs in Their Backyard Nests

As Americans struggle through a dismal recession, many are trying
to safeguard themselves from what they fear will be even worse
times ahead. They eat out less often. They take vacations closer to
home.They put off buying new cars.

And some raise chickens. Lloyd Romriell, a married father of four in
Annis, Idaho, recently received seven grown chickens and a coop from
a relative. The hens lay a total of about two dozen eggs a week.

“It’s because times are tough. You never know what’s going to happen,”
Mr. Romriell said. Although he manages a feed store, he had not kept
chickens since he was a child. “If you lose your job tomorrow, you’ve
still got food.”

As a backyard chicken trend sweeps the country, hatcheries that supply
baby chicks say they can barely keep up with demand. Do-it-yourself
coops have popped up in places as disparate as Brooklyn, suburban
Chicago and the rural West.

In some cities, the chicken craze has met with resistance, as neighbors
demand that local officials enforce no-poultry laws. In others, including
Fort Collins, Colo., enthusiasts have worked to change laws to allow
small flocks (without noisy roosters).

rest of article on link

 

[tomahawk6]

Ran across this pdf by Eric Sprott outlining why he thinks the US is in the early stage of a depression. Sprott has credibility because he predicted the meltdown last summer. I feel the economy is at a tipping point. If healthcare and cap'n trade are enacted then we will see a depression. If they arent enacted we have a shot at a jobless recovery.

http://www.sprott.com/Docs/MarketsataGlance/July_2009.pdf

 

[a_majoor]

Certainly the government is getting deeper into trouble as tax revenues continue to fall. Who is John Galt?

Tax Revenues Fall 18%, Biggest Drop Since Depression

From the Associated Press:
Tax receipts are on pace to drop 18% this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion. Other figures in an Associated Press analysis underscore the recession's impact:
Individual income tax receipts are down 22% from a year ago.
Corporate income taxes are down 57%.
Social Security tax receipts could drop for only the second time since 1940
Medicare taxes are on pace to drop for only the third time ever.
See the dramatic graph here.

 

[a_majoor]

I doubt the low expectations required for the presumptive re election will be met, but the MSM might be able to spin even a very weak set of numbers into a recovery. I await the economic and politcal reporting leading up to the 2010 midterms (and comparing that to what is seen out the window). The writer also seems to forget that stagflation is a positive feedback loop, and I expect the numbers of unemployed and inflation to be higher than predicted.

http://pajamasmedia.com/blog/economic-forecast-calls-for-slow-job-growth-and-inflation

Economic Forecast: Slow Job Growth and Inflation

Posted By Arnold Kling On August 9, 2009 @ 12:00 am In . Column2 04, Media, Money, Politics, US News | 26 Comments

With regard to the economic outlook, President Obama is faced with at least two factors that are beyond his control. One is that the economic cycle appears to have become longer and more difficult to manage. The other is that the news cycle has gotten shorter.

The short news cycle means that pundits are already speaking of this as the Obama economy, even though it is too early for any of his policies to have an effect. The economy does not know that the administration changed in January. Like a large ship, the economy takes a long time to turn.

If anything, the economy has become slower to turn over the last two decades. The period from 2001 through 2003 was notable as a “jobless recovery,” in which businesses were slow to add workers, even though demand was picking up. That was in the context of a relatively shallow recession. (See this analysis of the Dotcom recession [1].) The current recession is much worse, and if there is a similar lag in boosting employment, we may not see the unemployment rate fall back below six percent for five years or more.

Why has the employment cycle become longer and more difficult to manage? I believe that an important factor is the change in the nature of the American work force, as documented in The Race Between Education and Technology [2] by Claudia Goldin and Lawrence Katz. As recently as forty years ago,  two-thirds of American workers had no more than a high school education. The most significant source of unemployment was temporary layoffs of low-skilled workers from manufacturing firms.

Today, over two-thirds of the labor force has at least some college education. Job losses tend to be permanent, not temporary, and matching workers to jobs is much harder given the diversity of skills. Workers need to find new firms, new industries, and sometimes new occupations. The government does not have any special insight about how to redeploy the work force. You cannot re-employ investment bankers as road builders.

Traditionally, fiscal stimulus would increase the demand for automobiles and for other consumer durable goods. Growth in these sectors would then spill over into the rest of the economy. Today, however, many of the automobiles, televisions, and other durable goods that Americans buy are manufactured abroad.  Much of the low-skilled labor that meets American demand for these goods works overseas. Thus, the ability to increase employment in this country by stimulating demand for consumer durables is not what it used to be.

Another reason to expect employment gains to be sluggish is that most of the fiscal stimulus does not kick in for another year or more. In fact, if the economic recovery begins this year, we will have the irony of a recovery that largely precedes the stimulus, rather than the other way around.

Even though employment growth will be sluggish, we could see an upturn in inflation somewhat earlier than in past recoveries.  There are several reasons for this.

First, the dollar is vulnerable to a decline. Foreign investors may be saturated with U.S. assets, and as they become less willing to absorb American securities our currency may decline. This would boost the prices of goods that come from overseas.

Second, the heavy reliance on government stimulus means less use of the natural forces of supply and demand to guide economic activity. Government might raise demand for workers where it already is strong (in health care, for example) rather than where it is weak. This could put upward pressure on wages and prices in high-demand sectors even though there is continued high unemployment in low-demand sectors.

Third, we will be in a situation in which the Federal Reserve faces considerable pressure to provide excessive monetary growth.  In retrospect, the Fed policies from 2001-2003 are viewed by many economists as too expansionary, helping to ignite the housing bubble. However, at the time, a number of economists, citing the “jobless recovery,” argued that Fed policy was too tight (see the citations of Brad DeLong and Paul Krugman in this article written in 2002 [3].). If we go into an election year with an unemployment rate of 7.5 percent or higher, it is safe to say that the politicians will not support any Fed tightening, even if inflation has begun heating up.

I expect that growth in real GDP will pick up strongly over the next year, as pent-up demand for new household formation and durable goods purchases produces a strong rebound. However, for reasons given above, employment growth will be sluggish while inflation pressures will slowly build. Thus, the scenario might be as follows: In 2010, unemployment averages 8.25 to 8.75 percent, with inflation between 1.0 and 2.0 percent; in 2011, unemployment averages 7.5 to 8.0 percent, with inflation between 2.0 and 3.0 percent.  In 2012, unemployment averages 6.5 to 7.5 percent, with inflation between 3.0 and 4.5 percent. Those numbers will probably be good enough to enable President Obama to get re-elected, but his second term will be plagued by rising inflation, high interest rates, and unsustainable deficits, along with stubbornly high unemployment.
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Article printed from Pajamas Media: http://pajamasmedia.com

URL to article: http://pajamasmedia.com/blog/economic-forecast-calls-for-slow-job-growth-and-inflation/

URLs in this post:

[1] this analysis of the Dotcom recession: http://econlog.econlib.org/archives/2008/11/lectures_on_mac_2.html

[2] The Race Between Education and Technology: http://www.amazon.com/Race-between-Education-Technology/dp/0674028678

[3] this article written in 2002: http://www.techcentralstation.com/article.aspx?id=082602A

 

[a_majoor]

The state issued "IOU's" are repudiated by the very government that issues them! Now consider how many other "Blue" states are close to budgetary implosions, followed by "Blue" civic governments that have huge unfunded pension and benefit liabilities? They will discover that issuing "special warrants", selling state or municipal bonds and debentures or other revenue raising schemes will be rejected by the public (who now see these will not be repaid or honoured), while raising taxes will result in greater tax avoidance activities, up to and including outmigration.

Fiscal armegeddon might be coming to the United States faster than anyone thinks, driven from the bottom rather than by the Administration at the top (although the Administration has no room to move anymore either)

http://www.courthousenews.com/2009/08/04/California_Won_t_Accept_Its_Own_IOUs.htm

California Won't Accept Its Own IOUs
By MARIA DINZEO
ShareThis
    SAN FRANCISCO (CN) - Small businesses that received $682 million in IOUs from the state say California expects them to pay taxes on the worthless scraps of paper, but refuses to accept its own IOUs to pay debts or taxes. The vendors' federal class action claims the state is trying to balance its budget on their backs.
    Lead plaintiff Nancy Baird filled her contract with California to provide embroidered polo shirts to a youth camp run by the National Guard, but never was paid the $27,000 she was owed. She says California "paid" her with an IOU that two banks refused to accept - yet she had to pay California sales tax on the so-called "sale" of the uniforms.
    The class consists mostly of small business owners, many of whom rely on income from government contracts to keep afloat. They say California has used them as "suckers" as it looks for a way to bankroll its operations while avoiding its own financial obligations.
    "Instead of seeking funds through proper channels, the State has created a nightmare," the class says. "Many of these businesses will not survive if they are required to wait until October 2009 to have these forced IOUs redeemed by the State."
    The class claims the state is violating the Fifth and Fourteenth Amendments. It demands that California be ordered to honor its own IOUs, plus interest. They are represented by William Audet. 

 

[a_majoor]

Cap and Trade, by the numbers:

http://www.powerlineblog.com/archives/2009/08/024249.php

Cap and Trade: Measuring the Disaster

The Heritage Foundation has released a new economic analysis of Waxman-Markey, the cap and trade bill that is dead--we hope--at least for this year. The results aren't pretty. Heritage finds that Waxman Markey would, by 2035:

* Increase gas prices 58% above the increases included in the baseline forecast.
* Increase electricity prices by 90%.
* Raise energy costs for an average family of four by $1,241 per year.
* Cause the average family of four to pay $4,609 more per year, including increased taxes.
* Reduce GDP by an aggregate amount of $9.4 trillion.
* Increase the national debt by an additional $12,803 per person.

This chart illustrates the projected increases in energy costs; click to enlarge:

 

[a_majoor]

The stateof the economy explained in iconography!

 

[a_majoor]

Mark Steyn:

http://www.ocregister.com/articles/obama-percent-sign-2536772-president-government

Mark Steyn: Stimulus hits a pothole

And Obamacare can't be rationalized on economic or medical grounds because it's not about that. It's about moving America left.

By MARK STEYN
Syndicated columnist
Comments 15 | Recommend 11

The other day, wending my way from Woodsville, N.H., 40 miles south to Plymouth, I came across several "stimulus" projects – every few miles, and heralded by a two-tone sign, a hitherto rare sight on Granite State highways. The orange strip at the top said "PUTTING AMERICA BACK TO WORK" with a silhouette of a man with a shovel, and the green part underneath informed you that what you were about to see was a "PROJECT FUNDED BY THE AMERICAN RECOVERY AND REINVESTMENT ACT." There then followed a few yards of desolate, abandoned scarified pavement, followed by an "END OF ROAD WORKS" sign, until the next "stimulus" project a couple of bends down a quiet rural blacktop.

I don't know why one of the least fiscally debauched states in the Union needs funds from "the American Recovery and Reinvestment Act" to repair random stretches of highway, especially stretches that were perfectly fine until someone came along to dig them up in order to access "stimulus" funding. I would have asked one of those men with a shovel, as depicted on the sign. But there were none to be found. Usually in New Hampshire, they dig up the road, regrade or repave it, while the flagmen stand guard until it's all done. But here a certain federal torpor seemed to hang in the eerie silence.

Still, what do I know? Evidently, it's stimulated the sign-making industry, putting America back to work by putting up "PUTTING AMERICA BACK TO WORK" signs every 200 yards across the land. And at 300 bucks a pop the signage alone should be enough to launch an era of unparalleled prosperity, assuming America's gilded sign magnates don't spend their newfound wealth on Bahamian vacations and European imports. Perhaps if the president were to have his All-Seeing O logo lovingly hand-painted onto each sign, it would stimulate the economy even more, if only when they were taken down and auctioned on eBay.

Meanwhile, in Brazil, India, China, Japan and much of Continental Europe the recession has ended. In the second quarter this year, both the French and German economies grew by 0.3 percent, while the U.S. economy shrank by 1 percent. How can that be? Unlike America, France and Germany had no government stimulus worth speaking of, the Germans declining to go the Obama route on the quaint grounds that they couldn't afford it. They did not invest in the critical signage-in-front-of-holes-in-the-road sector. And yet their recession has gone away. Of the world's biggest economies, only the U.S., Britain and Italy are still contracting. All three are big stimulators, though Gordon Brown and Silvio Berlusconi can't compete with Obama's $800 billion porkapalooza. The president has borrowed more money to spend to less effect than anybody on the planet.

Actually, when I say "to less effect," that's not strictly true: Due to Obama, one of the least-indebted developed nations is now one of the most indebted – and getting ever more so. We've become the third most debt-ridden country, after Japan and Italy. According to last month's IMF report, general government debt as a percentage of GDP will rise from 63 percent in 2007 to 88.8 percent this year and to 99.8 percent of GDP next year.

Of course, the president retains his formidable political skills, artfully distracting attention from his stimulus debacle with his health care debacle. But there are diminishing returns to his serial thousand-page, trillion-dollar boondoggles. They may be too long for your representatives to bother reading before passing into law, but, whatever the intricacies of Section 417(a) xii on page 938, people are beginning to spot what all this stuff has in common: He's spending your future. And by "future" I don't mean 2070, 2060, 2040, but the day after tomorrow. Democrats can talk about only raising taxes on "the rich," but more and more Americans are beginning to figure out what percentage of them will wind up in "the richest 5 percent" before this binge is over. According to Gallup, nearly 70 percent of Americans now expect higher taxes under Obama.

But the silver-tongued salesman sails on. Why be scared of a government health program? After all, says the president, "Medicare is a government program that works really well," and if "we're able to get something right like Medicare," we should have more "confidence" about being able to do it for everyone.

On the other hand, says the president, Medicare is "unsustainable" and "running out of money."

By the way, unlike your run-of-the-mill politician's contradictory statements, these weren't made a year or even a week apart, but during the same presidential speech in Portsmouth, N.H. At any rate, in order to "control costs," Obama says we need to introduce a new trillion-dollar government entitlement. It's a good thing he's the smartest president of all time and the greatest orator since Socrates because otherwise one might easily confuse him with some birdbrained Bush type. But, if we take him at his word, then a trillion-dollar public expenditure that "controls costs" presumably means he's planning on reducing private health expenditure – such as, say, your insurance plan – by at least a trillion. Or he'll be raising a trillion dollars' worth of revenue. Either way, under Obama nothing is certain but death panels and taxes – i.e., a vast enervating statism and the confiscation of the fruits of your labors required to pay for it.

That's why the "stimulus" flopped. It didn't just fail to stimulate, it actively deterred stimulation, because it was the first explicit signal to America and the world that the Democrats' political priorities overrode everything else. If you're a business owner, why take on extra employees when cap-and-trade is promising increased regulatory costs, and health "reform" wants to stick you with an 8 percent tax for not having a company insurance plan? Obama's leviathan sends a consistent message to business and consumers alike: When he's spending this crazy, maybe the smart thing for you to do is hunker down until the dust's settled, and you get a better sense of just how broke he's going to make you. For this level of "community organization," there aren't enough of "the rich" to pay for it. That leaves you.

For Obama, government health care is the fastest way to a permanent left-of-center political culture in which all elections and most public discourse will be conducted on Democrat terms. It's no surprise that the president can't make a coherent economic or medical argument for Obamacare because that's not what it's about – and for all his cool he can't quite disguise that. Apropos a new poll, the Associated Press reports that Americans "are losing faith in Barack Obama."

"Losing faith"? Oh, no! Fall on your knees and beseech the One: "Give me a sign, O Lord!"

But he has. They're all along empty highways across rural New Hampshire: "This Massive Expansion Of Wasteful Statism Brought To You By Obama Marketing Inc."

©MARK STEYN

 

[tomahawk6]

Its looking like Obamacare is DOA. Most of the country doesnt want it. Provisions in the bill are just too extreme for most americans. If enacted each american would be required to link their personal bank account with their health insurance so the government could directly debit their account for services renedered. The bigger issue is that mandating participation by all is unconstitutional. Of course that hasnt been an impediment to the President yet,but that day is fast approaching.

 

[a_majoor]

Something is fast approaching anyway. The light at the end of this administration's tunnel is the train's headlight.....

http://gregmankiw.blogspot.com/2009/08/preview-of-midsession-review.html

Preview of the Midsession Review

Before you read this story, here is one number you need to know: the U.S. federal government's debt is now about $7.4 trillion. That is the accumulation from past budget deficits.

With that number firmly in mind, here is a story from the Washington Post about the path of future fiscal policy:

The nation would be forced to borrow more than $9 trillion over the next decade under President Obama's policies, the White House acknowledged late Friday, bringing their long-term budget forecast in line with independent estimates.

The new projections add approximately $2 trillion to budget deficits through 2019. Earlier this year, the administration had predicted that Obama's policies would require the government to spend $7.108 trillion more than it collects in tax revenue over the next decade.

An administration official, speaking on the condition of anonymity because the report will not be formally released until Tuesday, said the change is due primarily to updated projections of economic growth that are far less rosy than data used when the White House released its first long-term budget outlook in February.

 

[a_majoor]

Interesting. What is really going on behind the scenes I wonder?

http://pajamasmedia.com/instapundit/

IS THE STOCK MARKET RALLY TOPPING OUT? My answer is, as usual, who knows? But this bit interested me:

    However, traders have been concerned that on several days in the past week, market volume was dominated by heavy trading in low quality financial names, like Fannie Mae [FNM 2.04 0.12 (+6.25%) ], Citigroup [C 5.23 0.18 (+3.56%) ], AIG [AIG 50.23 2.39 (+5%) ] and Freddie Mac [FRE 2.40 0.16 (+7.14%) ]. “If you took the top traded stocks and gave them normal volumes, overall volume would be down 30 percent,” said Hogan.

So much of the “rally” is in junk-financial stocks for companies that are, basically, controlled by the government? I’m not sure exactly what that means, but it’s hard to see it as anything promising.

 

[tomahawk6]

The experts think the stock market boom will be short lived as we are heading into a double recession if not a depression. The real unemployment numbers are said to be around 16-18%,meaning folks who have given up looking for a job and with no unemploylement benfits left arent counted in the official numbers. Sort of like the healthcare debate US deaths compared to Europe include combat deaths which skew the numbers a bit.

 

[Edward Campbell]

This, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail, probably says all we need to know about how the “smart money” views the state of the US financial sector:

http://www.theglobeandmail.com/report-on-business/caution-rules-in-bankers-us-forays/article1271437/

Caution rules in bankers' U.S. forays
TD's relatively low offer for BankUnited shows how carefully Canada's banks tread with U.S. expansion plays

TARA PERKINS

Tuesday, Sep. 01, 2009 03:03AM EDT
FINANCIAL SERVICES REPORTER

Toronto-Dominion Bank's best offer for assets of BankUnited Financial Corp. was nearly $1-billion (U.S.) less than the next lowest offer, a move that speaks volumes about the growth strategy of Canadian banks in the United States.

TD submitted two bids to U.S. regulators on May 19, the final deadline for offers for Florida's largest regional bank, which had been pushed to the brink by a shortage of capital and troubled mortgage loans.

TD's highest bid for assets came in $980.9-million lower than one from a private equity consortium led by billionaire investor and turnaround expert Wilbur Ross, according to documents available from the Federal Deposit Insurance Corp.

But the relatively low offer speaks to the reasons why, more than a year after the FDIC began brokering a wave of U.S. government assisted deals, no Canadian bank has participated in one. It seems this country's banks are choosing the route of extreme caution when it comes to U.S. expansion.

TD is not the only Canadian bank considering scooping up troubled lenders that are being auctioned off by U.S. regulators. Top executives at Royal Bank of Canada and Bank of Montreal each say that they too would take a look at those opportunities.

The deals can be a coup for banks that win them. A report in The Wall Street Journal yesterday pointed out that the FDIC has agreed to assume most of the risk on $80-billion in loans and other assets because of "loss-sharing" deals it has struck to secure the fate of dozens of collapsed banks.

For example, when regulators arranged the sale of Alabama's Colonial Bank to BB&T last month, the FDIC agreed to assume more than 80 per cent of the future losses on a portfolio of more than $14-billion of mortgages, construction loans and other assets. (BB&T is one of RBC's main competitors in the U.S. Southeast, and TD was a rumoured contender for Colonial's assets.)

"In some of the most recent deals with loss-sharing, I think that the people who bought stand to make a good profit over time," said Howard Adler, a Washington-based lawyer with Gibson, Dunn & Crutcher.

For those who had doubts, it became clear in late August that the FDIC is willing to do these deals with foreign banks, with Texas's Guaranty Financial going to a Spanish bank.

"I think it would be a reasonable thing for us to be involved in looking at FDIC-assisted transactions," BMO chief executive officer Bill Downe said last week.

One stumbling block has been the relative lack of opportunities in the U.S. region where BMO operates, around Illinois, Indiana, and Wisconsin. "The second thing is, if we are going to acquire a bank through an FDIC process, we have to be satisfied that they have high-quality branches, that the customer base can be retained," Mr. Downe added.

"It's hard work," he said of the process of scouring through the possibilities. Some of the banks that are being liquidated have very "hot deposits," meaning customers are pulling their money out, he noted. "You could acquire the buildings and not really have a core deposit base. You'd be paying for deposits that you couldn't retain."

RBC chief executive Gordon Nixon has long expressed a similar degree of caution. Looking at the banks that have changed hands in the region where RBC operates, one still sees a tremendous amount of real estate exposure on their balance sheets, he said last week.

The documents about TD's bid for BankUnited assets were originally released by the FDIC in response to a freedom of information request, a practice that the regulator quietly stopped this summer over fears about the effect it might be having on bids. A notice on the FDIC's website says it is reviewing its policy on releasing information about failed bids. "There's a real furor over that, and I think that ultimately they're not going to be able to get away with [not releasing the information]," Mr. Adler said.

While banks that bid for assets might not like having the information become public, others say the record of information helps them to formulate bids for assets that become available in future.

A proper “recovery” will not, indeed cannot happen, in the USA, until the US financial/banking sector is “sound.” A full Canadian recovery will not/cannot happen without a US recovery.

 

[GAP]

If the FDIC is looking to pick up most of the risk that's probably another Trillion in Obama's plate. From the little I have gleened, most small bank(s) are rife with toxic assets.