US Economy

[a_majoor]

The ominous truth. US unemployment is far greater and deeper than the official numbers. The current administration's taxation policies reduce the amount of investment money available to turn this around and their political manipulation of the economy for their preferred classes of rent seekers eliminates a lot of incentive to invest. This is the critical issue for the United States, and by extension, all of her allies and trade partners:

http://www.telegraph.co.uk/news/worldnews/northamerica/usa/barackobama/7005943/Can-Barack-Obama-turn-things-around.html

It is possible that by the time Obama runs for a second term, the public will have grown to swallow Dr Obama's medicine with a smile. By far the most menacing issue to his prospects is unemployment. It's fair criticism that jobs, not health, should have been his first priority. The stimulus bill, written by a deeply unpopular Congress, had too much pork, too little for infrastructure projects, and anyway only a fraction of it has been spent. Since the great recession began, some 8.5 million jobs have been lost.

The official rate of 10 per cent understates the gravity. A detailed study by MB Zuckerman suggests that the real unemployment rate is a staggering 22 per cent. The official figure does not include the million men and women who have given up, it does not describe the demoralisation of the six million who have been out of work for 28 weeks or more, nor the millions who get by with odd jobs; what the Daily Beast website has called "the gig economy".

 

[Antoine]

Herein some news that could influence the US Economy as view by the geek community, count me as an active member  ;D

Congressional Outlook For 2010, Chemical & Engineering News, January 18, 2010, Volume 88, Number 3, pp. 10 - 15 :

As the second session of the 111th Congress gets under way this week, the Democrats continue to control majorities in the Senate and the House of Representatives, as well as the White House. This situation typically translates into lots of congressional action, but during this election year, activity will be tempered.

Topics familiar from the first session will continue to dominate congressional activity. That means health care, Wall Street financial reform, and economic-stimulus-related legislation all will again compete for congressional attention. Being added to the agenda this year is the reauthorization of the USA Patriot Act, congressional staff point out.

Such priorities will leave little time for members of Congress to dig into other big Administration priorities such as climate-change legislation. The just-reached Copenhagen Accord adds pressure on Congress to complete its work on a bill defining U.S. policy in this area.

Other important science and technology issues that were on the 2009 agenda will be vying for Congress’ attention again this year. For example, Congress will continue its debate on legislation setting permanent chemical plant security regulations, improving food and drug safety policies, and reforming the decades-old chemical regulation law.

The following is C&EN’s annual analysis of what to expect from Congress in the coming months.

More at www.pubs.acs.org/cen/coverstory/88/8803cover.html

 

[Antoine]

We are going to see more and more of the following, and probably more and more North American/Europeen "brain drain" to The Middle Kingdom.

Rebecca Trager, US science lead slips, Chemistry World, 25 January 2010

rsc.org/chemistryworld/News/2010/January/25011002.asp

The US appears to be losing its global lead in science and technology according to data released by the US National Science Foundation (NSF).  The 2010 Science and Engineering Indicators report, produced every two years by NSF, was released on 18 January, and suggests that emerging economies are upping their game when it comes to science and technology. In 2007, global R&D expenditures totaled more than $1.1 trillion (£700 billion). The US is responsible for about one third of this total, broadly equal to the expenditures of the next four countries combined (Japan, China, Germany and France). However, it is China that 'continues to exhibit the most dramatic growth pattern,' and threaten the US's dominance, the indicators warn.
China's R&D growth over the past decade has averaged nearly 20 per cent annually, dwarfing that of the US and EU at about 5 per cent.

'The world's S&T [science and technology] capabilities have expanded quite considerably and have shifted towards developing Asia,' confirms Rolf Lehming, NSF's programme director for the indicators. 'In most S&T aspects, the United States maintains its leadership role, but with a gradual erosion in many specific areas,' he says. Patrick Clemins, the American Association for the Advancement of Science's (AAAS) director for R&D budget and policy, agrees that the US lead is at risk. 'East Asia is really ramping up,' he tells Chemistry World.  'The threat does not seem to be immediate, but the data indicate that we could be losing our edge that we have enjoyed for decades.'

Data on publication of scientific papers worldwide highlight some striking differences. The average annual growth rate in article production between 1995 and 2007 was high in China at 17 per cent, versus just 0.7 per cent in the US. In 2007, research articles in chemistry and physics accounted for just under half of China's science papers, but in the US accounted for just 17 per cent. Data on research paper citations offer additional insight. In 1998, the US produced more than 21 per cent of all chemistry-related papers, but by 2008 that figure had slipped to 18 per cent. Furthermore, the US share of the top 1 per cent of chemistry papers cited was over 51 per cent in 1998, but had fallen to 38 per cent by 2008. China has increased its share of these prized papers from 0.3 per cent in 1998 to 8.1 per cent by 2008. The downward slide in the US is not unique to chemistry. The region's share of all science and engineering articles has dropped from 34 per cent in 1998 to less than 29 per cent in 2008.

The new statistics may prompt a US government effort to evaluate the country's R&D programmes and educational initiatives to determine which are helping it to 'advance scientifically', AAAS' Clemins suggests. The House of Representatives' key Science and Technology Committee is already citing the indicators as proof of the need to increase government investment in science, technology, engineering and maths education and training programmes.

 

[a_majoor]

Fiscal bad news just keeps piling up:

http://taxprof.typepad.com/taxprof_blog/2010/01/pete-dupont-the.html

Pete DuPont: Coming Tax Hikes Will Cause Greater Economic Collapse Than 2008-09

Wall Street Journal op-ed, An Economic Time Bomb: Even If Congress Does Nothing, Tax Hikes Will Hit Hard a Year From Now, by Pete DuPont (Chairman of the Board, National Center for Policy Analysis):

Weather-wise it has been a very cold January, and politically the Scott Brown Senate victory has chilled Washington Democrats even further. But if the Democratic economic policies continue nevertheless, this year will be nothing like the bitter economic January we will be living in a year from now.

Government spending has already hugely increased, and so has the size and scope of government, but next year there will also be substantial tax increases for a great many Americans. ...Add on to all of these increases the biggest government deficits and spending increases (to 26.5% of gross domestic product from 21%) in half a century, the protectionism of free trade downsizing through the "buy American" requirements, China import restrictions, and the administration limitations of Columbia, South Korea, and Panama free trade agreements, and we have a very different, and not very prosperous, America ahead of us. ...

[W]hen the huge tax-increase agenda arrives a year from now, the economy will begin to decline, and will be some 3% to 4% smaller than it otherwise would have been. The artificially high growth in 2010 followed by artificially low growth in 2011 would "represent a larger collapse than occurred in 2008 and early 2009," Mr. Laffer writes.

 

[Edward Campbell]

For the first timer ever (10 years) the US has slipped below 80 in the Heritage Foundation's Index of Economic Freedom. It is in 8th place, with a score of 78.0, one place behind Canada with a score of 80.4.

The Heritage foundation describes economic freedom as:  "the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself." The foundation measures ten "freedoms:" Business Freedom; Trade Freedom; Fiscal Freedom; Government Spending; Monetary Freedom; Investment Freedom; Financial Freedom; Property rights; Freedom from Corruption; Labor Freedom.

Not surprisingly Hong Kong and Singapore top the list while Cuba, Zimbabwe and North Korea bring up the rear of a list of 179 countries that were measured. A few, including Afghanistan, were not assessed.

The report is on line

 

[a_majoor]

Reading GDP figures is bscoming an exercise in reading tea leaves (or is that T.E.A. leaves?). It only seems like good news until you look deeper:

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/28/AR2010012804107_pf.html

Big jump in GDP may veil weakness in economy

By Steven Mufson
Washington Post Staff Writer
Friday, January 29, 2010; A14

A year ago, the Union Pacific railroad was scouring the country for places to park its idle freight cars -- about 60,000 of them. With auto, coal and chemical shipments plunging, Union Pacific's chief executive, James R. Young, was also scouring the landscape for a bright spot.

"We're so low right now and inventories are so low, if we do see a spark, things could pick up pretty quick," he said last February.

On Friday, the federal government is scheduled to release numbers that many analysts expect will show a 4.6 percent jump in inflation-adjusted gross domestic product, but Young is wondering just how much spark the economy really has.

Union Pacific still has 44,000 idle freight cars and 1,700 idle locomotives. And its freight car loadings are still running nearly 20 percent below the peak levels of a couple of years ago. Young worries that what's really behind the pickup in GDP numbers is that companies have stopped running down inventories and their actual sales to customers haven't changed much.

"I'd say things are stable and maybe there are some signs of strength, but we've got a long ways to go," Young said Thursday.

The example of Nucor

Many economists agree and warn against reading too much into a jump in GDP figures for the last three months of 2009. Ed Yardeni, president of Yardeni Research, said that even if there were no change in final sales of goods, the GDP figures would show a 4 percent increase simply because businesses that were emptying their warehouses a year ago are now buying enough goods to keep stockpiles steady.

"A lot of it is the arithmetic of inventories," said Yardeni, who is expecting a 6.5 percent jump in the GDP number. "Even if there is a very strong number for the fourth quarter, if it's [all because of] inventories, it will raise real questions about the strength of the economy in 2010."

Nucor is a good example. Reeling from the downturn last year, the Charlotte-based steelmaker practically stopped buying pig iron, which it uses as raw material. Instead it used up much of the pig iron it had stockpiled for normal times and suddenly didn't need. For the last quarter of 2008 and the first three quarters of 2009, Nucor bought infrequently.

Now, said the company's chief executive, Daniel R. DiMicco, "we've worked them down to the absolute minimums necessary to meet the demand of market." So the company has gone back to buying more regularly. But steel demand remains weak, and Nucor's mills are running at a little over 60 percent of capacity.

"We're keeping things lean like all our customers," said DiMicco.

DiMicco said that "nothing's really changed in our opinion from the standpoint that the economy is going to be very slow in growing out of this serious recession that we've had."

One of the key indicators that executives say they are watching are employment figures, which remain weak.

On Thursday, the Labor Department said first-time claims dropped 8,000 last week to a seasonally adjusted 470,000. Analysts had expected a steeper drop to 450,000, according to Thomson Reuters. The four-week average, which smooths out fluctuations, rose for the second straight week, to 456,250. The average had fallen for 19 straight weeks before starting to rise.

"One of the key measures I look at from a macro perspective is hiring," Young said. "And I use my own business. We had a peak of 52,000 employees and now we're running at about 42,000 right now. For all practical purposes, our hiring has been shut off for about a year."

He added: "Right now I'm not in a hiring mode for at least the next three or four months. Until we see some positive movement on jobs being added, it's going to be tough to move the economy forward."

Separately, the Commerce Department on Thursday reported that factory orders for manufactured goods rose 0.3 percent in December, far less than the 2 percent advance economists had expected. For all of 2009, durable goods orders plunged 20.2 percent, the largest drop since 1992.

Mixed picture

But Union Pacific's Young said performance varies widely from sector to sector. The railroad's shipments of automobiles in January are up 80 percent from a year ago, but still lag far below levels of two years ago. Shipments of chemicals are up 12 percent so far in January, after being down 2 percent in the fourth quarter. But shipments of industrial products, such as lumber, cement and steel used in infrastructure or construction, are down slightly from the previous January and far below levels of two years ago.

Some companies have taken a more sanguine view. "GE's environment has improved and we saw some encouraging signs at year-end," GE chief executive Jeffrey Immelt said last Friday on a conference call about the company's earnings. He said fourth-quarter infrastructure orders increased $3.7 billion from the third quarter to $22.1 billion. GE's service orders grew 14 percent, and consumer delinquencies were "stabilizing," Immelt said.

But economists and executives remain cautious. Yardeni, more optimistic than the consensus about the fourth quarter, cautioned that "a lot of people lost their jobs in industries likely to remain depressed, particularly housing and automobile-related industries. . . . Many of those people will have to change careers because their jobs aren't going to come back."

 

[a_majoor]

Forecasting just go so much easier [/sarcasm]:

http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/Obamas-2011-budget-will-include-phantom-cap-and-trade-revenue-83075057.html

Obama's 2011 budget will include phantom cap-and-trade revenue
By: Mark Tapscott
Editorial Page Editor
01/29/10 6:29 PM EST

A trade publication is reporting this afternoon that President Obama's 2011 federal budget proposal will assume receipt of billions of dollars in revenue generated from the cap-and-trade program even though that proposal appears now to be all but dead in Congress.

"The White House told Sen. John Kerry's office that the president plans to assume revenue from the controversial climate policy approach. Kerry aides said they had assurances the revenue won't be designated for issues unrelated to energy policy and combating climate change.

"Obama last year proposed in his fiscal 2010 budget that a cap-and-trade program would raise some $650 billion over 10 years via a full auction of emission credits, with the money primarily going to pay for middle-class tax cuts and development and deployment of clean energy technologies," Energy and Environment News senior reporter Darren Samuelson wrote in the publication that is subscription-only.

Obama repeated during his State of the Union address Wednesday evening his hope that Congress would pass the energy reform bill that featues as its anti-global warming centerpiece establishment of a cap-and-trade program of government credits for carbon emissions reductions that businesses would buy and sell.

The proposal's main Senate co-sponsors are Sen. Barbara Boxer, the California Democrat who is chairman of the Environment and Public Works Committee, and Kerry, the Massachusetts Democrat. A similar bill co-sponsored by Representatives Henry Waxman of California and Ed Markey of Massachusetts was approved by the House last year.

The House bill projects cap-and-trade revenues of $873 billion.

Whether it's the $650 billion projected by the Senate bill or the $873 billion of the House bill, it appears highly unlikely, to put it charitably, that either measure will make it to Obama's desk with the cap-and-trade program intact. That means Obama will be counting phantom revenue as part of his next federal budget proposal.

But then Obama's $787 billion economic stimulus program has produced two million phantom jobs located in phantom zip codes in phantom congressional districts, so perhaps nobody should be surprised to see phantom revenues in a White House budget proposal. 

Read more at the Washington Examiner: http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/Obamas-2011-budget-will-include-phantom-cap-and-trade-revenue-83075057.html#ixzz0eE1afvEz

 

[a_majoor]

And more phantom money. I remember a movie ("Dave") where a character says: "If any businessman did his books like the government, they'd be in jail"

http://legalinsurrection.blogspot.com/2010/02/1-trillion-obama-will-never-see.html

$1 Trillion Obama Will Never See

Raising tax rates on high income earners is the key to the Obama way, both during the campaign and in his latest budget and tax proposals. Taxing the wealthy, or rather, taxing those making over $250k a year, is the gospel according to Obama.

Obama is raising taxes on people making over $250k by over $1 trillion (yes, with a "t") over ten years.

Those with the power to tax never learn from history. I've written about the "revolt of the kulaks" phenomenon in which the producers of society would rather not produce than be subjected to confiscatory taxation. A related phenomenon is tax avoidance, in which people structure their lives so as so avoid creating taxable income (for example, purchasing municipal bonds rather than corporate bonds).

Whether it is a revolt of the kulaks, or mere tax avoidance, there is economic distortion from high rates of taxation.

The British are seeing this effect in their current budget, as wealthy Brits engage in tax avoidance (structuring their financial lives so as to legally avoid taxes) in anticipation of a rise from a 40% to a 50% rate:

High earners will cost the public purse hundreds of millions of pounds through tax dodges as they avoid the new 50p rate of income tax, a minister indicated yesterday.

Lord Myners, the City Minister, said that the Treasury had “significantly reduced” its estimate of the revenue to be earned from the historic change.

He said that he believed that the new top rate, due to come into force this April, would still generate extra income from the wealthiest 2 per cent of the national workforce. But he cast doubt on whether the Treasury would pocket the £1.13 billion it has earmarked for 2010, and the £2.5 billion it hopes to raise in 2011. “We still believe it will be beneficial,” he said.

Lord Myners told peers that “behavioural consequences of the new higher rate of taxation” — shorthand for tax avoidance — had forced the Treasury to lower its expectations.

Guaranteed future headline: "Obama administration surprised at lower than expected revenues from taxes on the wealthy."

They never learn, do they?

 

[a_majoor]

Looking at the winners and losers in the Stimulus game:

http://pajamasmedia.com/blog/honey-they-shrunk-the-private-sector/

Honey, They Shrunk the Private Sector

Posted By Tom Blumer On February 5, 2010 @ 12:00 am In . Positioning, Column 2, Money, Politics, US News | 22 Comments

There’s a reason why Americans who don’t happen to work for the government or directly benefit from its largesse are not sensing an economic recovery. For them, it’s mostly not happening. ADP’s January employment report [1] showing 22,000 private-sector jobs lost, the last available jobs-related information available when this column was written, only confirms that feeling.

A look at what has happened to the nation’s inflation-adjusted gross domestic product (GDP), the value of all goods and services produced in the economy, during the last six quarters [2] is sadly instructive. Comparing the fourth quarter of 2009 with the second quarter of 2008, we see that:

    * Even after six months of “recovery,” the economy as a whole has shrunk by almost 2%.
    * Uncle Sam’s level of annualized consumption and “investment” has grown by 8.5%.
    * Despite the incessant pleadings of poverty by most state and local governments, their consumption and “investment” have hardly changed.
    * What remains, i.e., the private sector, is over 3% smaller.

The private-sector shrink is really about one percentage point higher than indicated, because the above data treats General Motors and Chrysler as if the government and a meddling Congress aren’t in control of them. This of course [3] is nonsense [4].

Meanwhile, the past year and a half has been a great period to be a federal government employee. While the private sector has shed almost 6.4 million jobs [5] on a seasonally adjusted basis during that time, federal non-postal employment has leaped by over 150,000 [6], a stunning increase of over 7.5%. Two-thirds of the increase occurred during the first eleven full months of the Obama administration, even though the severity of the recession was drop-dead obvious well before he took office. Even higher federal employment is on the horizon [7].

The burgeoning ranks of federal employees are in an enviable situation compared to their private-sector counterparts — or perhaps I should say, “underlings.” In December, USA Today reported [8] that:

    * The average federal worker’s annual pay is over $71,200, compared to just over $40,300 in the private sector.
    * Almost one in five federal workers makes $100,000 a year or more — “and that’s before overtime pay and bonuses are counted.” It’s also before considering a far better than average benefits package.
    * In late 2007, “the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000.”
    * Effective in January, despite a virtually zero-inflation environment and while pay and jobs were still being slashed in the private sector, a typical federal worker saw his or her pay increase by over 3%.

There is little doubt that whether or not the economy ever returns to something resembling normalcy again, the government’s influence on our daily lives, absent a historic pushback, will be demonstrably larger.

Chalk all of this up as yet another “accomplishment” of what I have identified and have been calling the POR (Pelosi-Obama-Reid) economy [9] since (imagine that) mid-2008.

Others, including editorialists at the Wall Street Journal and Investor’s Business Daily, have more recently named what we are living through “the uncertainty economy.” But the key to understanding what has transpired is accepting the truth about when it really began. Its origins go back to June 2008 [10], when Nancy Pelosi, Barack Obama, and Harry Reid injected enough of the aforementioned uncertainty to cause deep concerns about the future among the people who matter most when it comes to creating and sustaining economic growth: entrepreneurs, businesspeople, and investors.

June 2008 is when the terrible triumvirate went visibly wacko on energy. In the name of “protecting” humanity from the horrible consequences of supposedly settled assertions that have since been exposed as utterly without credible support [11] — namely that global warming is occurring and that human activity is causing it — they promised to starve the nation of the conventional energy it needs to function, in the likely vain hope that acceptable, affordable alternatives will just, like, well, y’know … show up. The fact that they and their party intend to pursue their radical cap-and-tax plan in spite of the comprehensive scientific debunking that the colossal Climategate scandal represents merely proves that the business community’s fear-based mid-2008 reaction was more than justified. Their accurate advance perception was that the “climate change” discussion isn’t really about the environment; it’s about control.

At the same time, Pelosi, Obama, and Reid — but especially Obama — promised to punitively tax the five percent of the nation’s most productive so they could redistribute money to everyone else. These promises were routinely accompanied by heavy doses of business-bashing, pseudo-populist rhetoric. Again, those who saw big trouble on the horizon in mid-2008 from a potentially hostile government have been more than vindicated. Few of us ever thought that a president of the United States would be telling bankers who had money forced onto them at figurative gunpoint [12] but who fully repaid their loans that he still “wants our money back [13]” — and that he would then mobilize/mob-ilize his minions [14] in an attempt to create the pressure to make it happen.

In mid-2008, perceptive entrepreneurs, businesspeople, and investors reacted defensively — as anyone who has decided that they are under attack would — by abandoning expansion plans, trimming employment, and cutting their spending to the bone. Thus, the second-quarter-of-2008 recovery [15] from the previous quarter’s difficulties abruptly ended. In the third quarter, the recession as normal people define it [16] began.

Matters only worsened in ensuing months. The decades-in-the-making Fannie Mae- and Freddie Mac-driven [17] housing and mortgage lending debacles, the “stimulus” that has only stimulated bogus claims [18] of jobs “created and saved,” and the “Chicago way” conduct of the Chrysler [19] and GM [20] bankruptcies have only reinforced the business community’s justifiable siege mentality.

In this POR “rebound? what rebound? [21]” economy, it should not surprise anyone that the government has become bigger, bolder, and more intrusive, while a worried private sector has contracted. Is there any good reason to believe that this has not been part of the plan all along?

Article printed from Pajamas Media: http://pajamasmedia.com

URL to article: http://pajamasmedia.com/blog/honey-they-shrunk-the-private-sector/

URLs in this post:

[1] ADP’s January employment report: http://adpemploymentreport.com/

[2] during the last six quarters: http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=6&FirstYear=2008&LastYear=2009&Freq=Qtr

[3] of course: http://www.reuters.com/article/idUSTRE60R7GS20100128

[4] nonsense: http://www.businessweek.com/magazine/content/09_50/b4159000314215.htm

[5] almost 6.4 million jobs: http://i739.photobucket.com/albums/xx40/mmatters/BLSprivateSectorJobs2007to2009.jpg

[6] by over 150,000: http://i739.photobucket.com/albums/xx40/mmatters/BLSunclesamJobs2007to2009.jpg

[7] is on the horizon: http://washingtontimes.com/news/2010/feb/02/burgeoning-federal-payroll-signals-return-of-big-g/

[8] USA Today reported: http://www.usatoday.com/news/washington/2009-12-10-federal-pay-salaries_N.htm

[9] the POR (Pelosi-Obama-Reid) economy: http://www.bizzyblog.com/2008/07/03/the-pelosi-obama-reid-recession-porr-may-have-begun/

[10] to June 2008: http://pajamasmedia.com../../../../../blog/going-galt-got-going-last-summer/2/

[11] utterly without credible support: http://pajamasmedia.com../../../../../blog/climategate-noaa-and-nasa-complicit-in-data-manipulation/

[12] at figurative gunpoint: http://www.bizzyblog.com/2008/10/15/cnbc-paulson-put-a-gun-to-all-their-heads/

[13] wants our money back: http://www.youtube.com/watch?v=OGeBJX6E8vU

[14] mobilize/mob-ilize his minions: http://i739.photobucket.com/albums/xx40/mmatters/ObamaOFAonBankTax011510.jpg

[15] the second-quarter-of-2008 recovery: http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&FirstYear=2008&LastYear=2009&Freq=Qtr

[16] as normal people define it: http://www.investorwords.com/4086/recession.html

[17] Fannie Mae- and Freddie Mac-driven: http://pajamasmedia.com../../../../../blog/fan-and-fred-frauds-by-design/

[18] bogus claims: http://www.washingtonexaminer.com/maps/Bogus-jobs-created-or-saved-by-the-Stimulus.html

[19] Chrysler: http://online.wsj.com/article/SB124167388473695227.html

[20] GM: http://www.bizzyblog.com/2009/05/22/here-we-go-again-this-time-govt-is-trying-to-shaft-unsecured-gm-creditors/

[21] rebound? what rebound?: http://pajamasmedia.com/blog/economic-rebound-what-economic-rebound/

 

[a_majoor]

A real plan which could staunch the economic bleeding. American readers feel free to pass this on to your elected representatives (Canadians have a huge stake in preventing an economic meltdown in the United States!). The deficit has exploded from @ $100 billion/year on average during the Bush Administration to $90 billion/month under the Obama administration.

A similar plan can be enacted for Canada as well, eliminating transfers to other governments, subsidies and crown corporations would reduce government spending on the order of $80+ billion dollars, enough to pay off the entire national debt in only six years (and if continued would cover the currently unfunded liabilities [CPP, government pensions etc.] after 12 years). This does not take into account any virtuous circle effects of reducing government operations costs or eliminating the $30 billion/year carrying costs of the debt; major tax cuts can be funded out of those savings:

http://biggovernment.com/tcampbell/2010/02/10/we-can-do-much-more-to-reduce-the-federal-deficit/

We Can Do Much More to Reduce the Federal Deficit
by Tom Campbell

The White House has just announced its proposed budget for fiscal year 2011, with a projected deficit of a staggering $1.27 trillion.  Last year’s budget estimated a $1.17 trillion deficit, but the actual number now appears to be $1.60 trillion. Applying that same likely growth from projection to actual deficit, we are looking at a federal budget deficit closer to $1.74 trillion this year.

The size of the deficit is unconscionable and unsustainable. As a nation, we now owe more than $12 trillion, a number almost as large as the entire GDP of the United States.  Even worse, we are adding to this deficit at a rate of more than 10 percent of the GDP—an alarming rate that most economists consider dangerous for any economy.

To finance our deficit, we print money and spend it—or we borrow money and spend it.  When we print the money, we set the stage for massive inflation, which will occur as soon as the economy revives. When we borrow the money, we place a lever in the hands of citizens and governments of China and other nations, now our largest creditors (surpassing the 50 percent mark two years ago). It is morally wrong to spend money now and expect our children to pay the price—and it is hazardous to give to foreign sovereigns the tools to destroy our economy if they decide to “call in” their loans.

It is our responsibility and duty to stop this. We must not condemn the next generation to economic ruin because we lack the courage to do what must be done now. As President Reagan famously said, “If not us, who?  If not now, when?”  If we didn’t borrow another dollar, it will still take more than 300 years just to pay back what our country already owes.

We can stop the debt from growing by lowering the federal budget deficit to zero. We’ve done it before and there’s no reason that we cannot do it again. The last time we had a balanced federal budget was in 2000. The mechanism that helped achieve this was the Gramm-Rudman-Hollings Act, a law that has now been allowed to expire. Gramm-Rudman-Hollings required across-the-board cuts if the President and Congress did not reach agreement on set deficit reduction goals. In effect, it supplied the backbone needed to control spending when backbone was lacking. We need to restore Gramm-Rudman-Hollings at once.

We also need leaders in the House, Senate, and White House who agree that the time is now, and the responsibility is ours. I propose that we not only restore Gramm-Rudman-Hollings, but that we dramatically cut the federal budget deficit proposed by the President by more than half.  We not only can achieve this, we must.

Here’s how we can achieve this:

First, cap non-defense discretionary spending to fiscal year 2009 levels for a savings of $101 billion. The White House Budget caps this item at fiscal year 2010 levels of $690 billion, but this category already grew from $589 billion in fiscal year 2009—a 30 percent increase.  They let it rise by 30 percent before deciding to cap it. We should cap it at once.

To achieve this overall cap, many specific budget items in this category could be eliminated entirely including the $3 billion annual expenditure in subsidies for corn ethanol. And we should sell the portfolio of Freddie Mac and Fannie Mae, and end any future government subsidies for them.

There is no evidence that the stimulus bill has produced the 2 million new jobs the President claims, over what the private sector would have produced if the same funds had been allowed to stay with the private sector.  Yet the White House proposes increasing the amount spent from $202 billion in [delete FY] fiscal year 2009 to $353 billion in fiscal year 2010 and $232 billion in fiscal year 2011.  I propose cutting this increase in spending over fiscal year 2009 in half for a savings of $292 billion.

This savings could be used to forgive the FICA tax for businesses that hire employees who have been out of work for at least two moths.  Add this amount to the $33 billion the President has already proposed for tax relief to small business hiring, and we will have increased targeted assistance for new jobs ten-fold

Use the TARP money the banks are returning to pay down the debt for a savings of $200 billion.  The money was approved for a specific purpose: to buy the bad mortgages from banks. Since the banks are now returning the money, it should be used to reduce our federal borrowing. It’s not “free money,” available for other uses, as the White House has proposed.

Medicaid and SCHIP are 7 percent of the federal budget and spending in this category rose nearly 30 percent from fiscal year 2009 to fiscal year 2010. We need to approach Medicaid and SCHIP the way we did welfare in 1996: don’t trim at the edges but announce that there will be a cap and stick with it.  Doing so would save $45 billion.

Taken together, these proposals would save an estimated $750 billion in fiscal year 2010 alone, well more than half of the entire projected deficit. The time to act is now. The clock is running — for our children, our national security and America’s greatness.

 

[a_majoor]

Well the "new economy" is good for some people. Please note this is also the sort of culture that brought the Japanese economy down in the 1990's and threatens the Chinese economy:

http://www.washingtonexaminer.com/politics/Under-Obama_-crony-capitalism-again-rules-the-day-84271222.html

Under Obama, crony capitalism again rules the day
By: Michael Barone
Senior Political Analyst
February 14, 2010
(AP photo)

In his best-seller "Inside U.S.A.", the hugely readable journalist John Gunther described America as it was in the last year of World War II. He interviewed hundreds of politicians, businessmen and journalists, but only four men rated a separate chapter -- three politicians and Henry J. Kaiser, the California construction magnate who built dams and ships and manufactured concrete and steel and aluminum.

Kaiser was, Gunther wrote, "tough, creative, packed with ideas and energy, above all a man who likes to make things." But he was also, he noted, a "link of enterprise by government, since government was on his side."

That was putting it mildly. Kaiser hired Tommy Corcoran, a brilliant former aide to Franklin Roosevelt, to open doors and got a $645 million contract to build ships and $28 million financing to manufacture magnesium. Corcoran, according to the first-rate biography by longtime Democratic staffer David McKean, got $200,000 in fees. Believe it or not, that was a lot of money in Washington in the 1940s.

Government spent a lot of money in World War II, and mostly spent it well. Kaiser delivered on his contracts and even managed to build ships out of concrete, most of which did not sink. But, as always happens when government is shoveling out money, lobbyists thrived.

Fast-forward to the present day. Lobbyists, reports the Center for Responsive Politics, had a record 2009 in Barack Obama's Washington. Despite candidate Obama's promises to shun them, they raked in $3,470,000,000. Somewhere up there, Tommy Corcoran is chuckling.

Last week, amid Washington's blizzards, Obama was asked about the $17 million bonus awarded to JPMorgan Chase Chief Executive Officer Jamie Dimon and the $9 million bonus for Goldman Sachs CEO Lloyd Blankfein.

"I know both these guys; they are very savvy businessmen," he said. "I, like most of the American people, don't begrudge people success or wealth." So much for campaign-trail denunciations of "fat cat" bankers and bloated bonuses.

From what I know, Dimon and Blankfein are in fact first-rate CEOs, as able in their way as Henry J. Kaiser. Their banks soured on mortgage-backed securities before most of their competitors and started unloading them early or, in Goldman's case, getting them insured by AIG (and getting the government to pay 100 cents on the dollar for them, thanks to Treasury Secretary Timothy Geithner, then head of the New York Fed). They paid their Troubled Asset Relief Program money back as fast as they could, with interest.

But the savviness that Obama handsomely acknowledged has been evident not only in their business judgment but in their politics. Goldman employee contributions to Democrats in 2008 ranked second only to those employed by the University of California. JPMorgan Chase's employees ranked No. 7. The stereotype of Wall Street being Republican is decades out of date.

Crony capitalism is now the order of the day in the United States. The government and the United Auto Workers own General Motors and Chrysler, which aren't likely to pay back their billions in TARP money any time soon, if ever. Meanwhile the government tells Americans to stop driving Toyotas.

The government was going to remake the health care sector, and so Billy Tauzin and other health care industry lobbyists were busy in the White House cutting deals to keep their clients above water. The government was going to remake the energy sector, and utility CEOs and lobbyists have been busy flaunting their green credentials.

As my Washington Examiner colleague Timothy Carney has been documenting, Big Business has been busy lobbying Big Government for "reforms" that serve big companies' interests. Wal-Mart backs a health care mandate, Philip Morris shapes tobacco regulation, General Electric is setting up a joint venture to trade carbon offsets (wasn't that Enron's line of work back in the day?).

The picture is not pretty. Government's pets or, in the president's words, "savvy businessmen," use government to get policies that will give them competitive advantages and stifle smaller competitors. Pleasing their masters in government is now absorbing the psychic energy of CEOs who used to concentrate on meeting consumers' needs in order to make profits.

Back in the 1940s, there was an excuse for crony capitalism -- there was a war on. And FDR had a gift for picking people who, like Kaiser, delivered the goods. Today that excuse is not available, and it's far from apparent that Obama has that gift.

Read more at the Washington Examiner: http://www.washingtonexaminer.com/politics/Under-Obama_-crony-capitalism-again-rules-the-day-84271222.html#ixzz0fZY6Ejis

 

[a_majoor]

A sign of things to come? Unionized public service employees in the United States have the ability to bring down municipal and State governments through massive unfunded pension and benefit liabilities (and as noted in the article, far beyond what private sector employees can hope to get). This isn't unique to the United States either. Just this summer I read a newspaper article in Gagetown which pointed out Fredericton was $20 million in the hole this year alone for public service pensions and benefits, and the situation was forecast to escalate.

http://www.businessinsider.com/henry-blodget-unionized-rhode-island-teachers-refuse-to-work-25-minutes-more-per-day-so-town-fires-all-of-them-2010-2

Unionized Rhode Island Teachers Refuse To Work 25 Minutes More Per Day, So Town Fires All Of Them

A school superintendent in Rhode Island is trying to fix an abysmally bad school system.

Her plan calls for teachers at a local high school to work 25 minutes longer per day, each lunch with students once in a while, and help with tutoring.  The teachers' union has refused to accept these apparently onerous demands.

The teachers at the high school make $70,000-$78,000, as compared to a median income in the town of $22,000.  This exemplifies a nationwide trend in which public sector workers make far more than their private-sector counterparts (with better benefits).

The school superintendent has responded to the union's stubbornness by firing every teacher and administrator at the school.

A sign of things to come?

Mish Shedlock has the details at Mish's Global Economic Trend Analysis:
Central Falls Rhode Island Fires Every High School Teacher

Here is an interesting email from "Jason" regarding high schools in Central Falls Rhode Island. Jason writes:

    Hi Mish,

    As I'm sure you're aware, Rhode Island has one of the highest unemployment rates in the nation.

    Central Falls is one of the poorest towns in the state. It looks like the pictures everyone's seen of Detroit or Flint. There are lots of boarded up windows, abandoned buildings, decrepit factories with broken windows, etc. It's an absolutely depressed community. According to Wikipedia, the median income in the town is $22k.

    Teacher salaries at the high school average $72-78k. Apparently 50% of the students at the school are failing all of their classes, and the graduation rate is also under 50%. In an effort to turn the school around, the superintendent requested some changes be made whereby the school day would be slightly extended, teachers would perform some extra tutoring, etc.

    The union balked and refused the terms, so now she is firing the entire teaching staff of the high school and replacing them. This is yet another example of unions digging their own graves by refusing to negotiate or accept reasonable terms. Sentiment is on the side of the superintendent, at least among the folks I have discussed the issue with.

    Jason

With that backdrop, please consider Central Falls to fire every high school teacher.

The teachers didn’t blink.

Under threat of losing their jobs if they didn’t go along with extra work for not a lot of extra pay, the Central Falls Teachers’ Union refused Friday morning to accept a reform plan for one of the worst-performing high schools in the state.

The superintendent didn’t blink either.

After learning of the union’s position, School Supt. Frances Gallo notified the state that she was switching to an alternative she was hoping to avoid: firing the entire staff at Central Falls High School. In total, about 100 teachers, administrators and assistants will lose their jobs.

Gallo blamed the union’s “callous disregard” for the situation, saying union leaders “knew full well what would happen” if they rejected the six conditions Gallo said were crucial to improving the school. The conditions are adding 25 minutes to the school day, providing tutoring on a rotating schedule before and after school, eating lunch with students once a week, submitting to more rigorous evaluations, attending weekly after-school planning sessions with other teachers and participating in two weeks of training in the summer.

 

[GAP]

Maybe with that example, more school divisions/city/town governments will start getting a backbone......

ps: remember how unions tiptoed around for years after Regan fired all the Air Traffic Controlers....

 

[a_majoor]

Even some members of the Fed are becoming nervous:

http://www.ft.com/cms/s/0/c918b8dc-1b37-11df-953f-00144feab49a.html?nclick_check=1

Lone voice warns of debt threat to Fed

By Alan Rappeport in Washington

Published: February 16 2010 20:23 | Last updated: February 16 2010 20:23

The US must fix its growing debt problems or risk a new financial crisis, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, warned on Tuesday, adding a mounting deficit could spur inflation.

Mr Hoenig said that rising debt was infringing on the central bank’s ability to fulfil its goals of maintaining price stability and long-term economic growth. “Stunning” deficit projections were putting political pressure on the Fed to keep interest rates low, infringing on its independence at the risk of inflation, he said.

“Without pre-emptive action, the US risks its next crisis,” Mr Hoenig said in a speech at the Pew-Peterson Commission on Budget Reform.

He was the only Fed member who dissented at last month’s meeting against language indicating that interest rates should remain near zero for an “extended period”.

On Tuesday he said that the worst option for the US was a scenario where the government “knocks on the central bank’s door” and asks it to print more money. Instead, the administration must find ways to cut spending and generate revenue. He called for a “reallocation of resources” and noted that the process would be painful and politically inconvenient.

The US budget deficit is projected to be $8,000bn (€5,800bn, £5,000bn) in the next decade. Barack Obama, US president, recently lifted the government’s borrowing authority to $14,300bn.

If the Fed succumbed to pressure to increase the money supply, Mr Hoenig said, inflation would lead to a loss of confidence in the dollar and in the economy. Meanwhile, a potential stalemate between the fiscal and monetary authorities that govern the economy could allow growing imbalances to go unchecked, thus raising the costs of borrowing and of capital for the US.

The hawkish Kansas Fed president also warned against “dire” consequences of the central bank prolonging its holdings of mortgage-backed securities, which it purchased in an effort to prop up the US housing market. Mr Hoenig painted a picture of a slippery slope, where a less independent Federal Reserve was asked to find ways to support other ailing sectors, such as agriculture.

The Federal Reserve is purchasing $1,250bn in MBS through March. Mr Hoenig said that it must shrink its balance sheet as quickly as possible while being careful and systematic.

Being pulled into the political framework has complicated the Fed’s job, which Mr Hoenig said should remain focused on the Fed funds rate and price stability.

Holding tightly to the notion of Fed independence, he rejected a suggestion published in a paper by Olivier Blanchard, chief economist at the International Monetary Fund, that central banks should set higher inflation targets. He also said he hoped to avoid political pressure to restore quantitative easing policies.

“That’s when independence will be more important than ever,” he said.

 

[Redeye]

I fail to see how it would be possible to simply stop funding transfer payments to the provinces.  It sounds great on paper, except for the fact that those payments fund a myriad of public works and services that are vital.  The idea that we could somehow see tax cuts as a result is ridiculous - because whatever we might see in savings in federal taxes would be immediately offset by the tremendous rise in provincial taxes that would be needed to continue to manage services.  It would be a classic case of robbing Peter to pay Paul - fine examples of which can be seen in recent Canadian history, like Ontario during the Mike Harris years.  How do you balance the budget and fund tax cuts?  Sell assets and download the costs to other levels of government.  So what happens?  Either services get slashed, or those lower levels of government raise their own taxes to fund the liabilities they've inherited.  Net result?  Nothing!  (well, in Ontario, not nothing.  A lot of out-of-date and convoluted maps from highways being re-numbered, and a hidden deficit that was passed on to the next government).

A real plan which could staunch the economic bleeding. American readers feel free to pass this on to your elected representatives (Canadians have a huge stake in preventing an economic meltdown in the United States!). The deficit has exploded from @ $100 billion/year on average during the Bush Administration to $90 billion/month under the Obama administration.

A similar plan can be enacted for Canada as well, eliminating transfers to other governments, subsidies and crown corporations would reduce government spending on the order of $80+ billion dollars, enough to pay off the entire national debt in only six years (and if continued would cover the currently unfunded liabilities [CPP, government pensions etc.] after 12 years). This does not take into account any virtuous circle effects of reducing government operations costs or eliminating the $30 billion/year carrying costs of the debt; major tax cuts can be funded out of those savings:

http://biggovernment.com/tcampbell/2010/02/10/we-can-do-much-more-to-reduce-the-federal-deficit/

 

[a_majoor]

Several points being missed here:

1. If the Federal Liberals had not been downloading their spending onto Ontario, the Harris revolution would have had far greater impact. As it is, anyone can Google relevant figures like tax receipts, economic growth and job creation figures from that period to see the positive effect of tax cuts. The only real fault of the Harris government was not to reduce spending while times were flush (and as noted this was due to extra costs pushed onto them).

2. A great deal of "services" is political rent seeking and only serves those who are claiming our tax dollars. Check the health care thread in the Canadian politics section of Army.ca and you will see that the massive increases in Canadian health care spending have not resulted in real improvements in actual health care, waiting times etc. If provinces and municipalities were forced to budget out of their own resources, massive savings would have to be achieved out of sheer necessity, at the expense of the rent seekers.

3. Re services. Many of these so called services are "entertainment", and often in competition with the private sector. London, to name one example, has several municipal golf courses (among other things) even though there are literally a dozen in or in close proximity to the city.

4. Since labour and capital are mobile now, no province or municipality could massively increase taxes without suffering an instant outflux of investment followed by people. The United States provides evidence, the net outflow of people and investment from high tax "Blue" states to low tax "Red" states is ongoing. The collapse of investment in Michigan or California is now matched by the outflux of people to name two easily Googled examples.

5. Tax savings in the outline are to come from reduction in Federal government operations spending as programs are closed, and reduction in the carrying costs of the debt (about $5 billion/year for the debt alone). Further savings are possible as the economy shakes off the distortions caused by transfer payments, subsidies etc. and investment and job creation take off. This also reduces the size of the $61 billion in transfers to individuals as people are no longer dependant on federal transfers, increasing the virtuous circle. The potential $84 billion in spending cuts due to the ending of transfer payments goes to debt repayment, and becomes available to the productive economy six (if only the debt is paid off) or twelve years (if all unpaid liabilities like pensions are paid off as well) after the program begins.

 

[a_majoor]

Mixed signals in the economy. Since the TARP and stimulus packages didn't work, a lot of cash is floating around, but wealth destruction is continuing apace. I still would lean towards escalating inflation being the greater threat (especially as more money has fewer goods to chase, bidding up the prices), but we are in an unstable equilibrium and economics is a chaotic, non-linear system, and could change in unexpected ways:

http://www.ft.com/cms/s/0/46edaf82-1d5f-11df-b12e-00144feab49a.html?nclick_check=1

US consumer prices rise just 0.2%

By Alan Rappeport in Washington

Published: February 19 2010 14:27 | Last updated: February 19 2010 14:27

The prices of US goods and services, excluding food and fuel, fell last month for the first time since 1982, as aggressive measures to stimulate economic growth failed to inflate the cost of living.

The closely watched “core” consumer price index fell 0.1 per cent in January, labour department figures showed on Friday, as prices for new cars and housing dropped from the previous month. Prices including food and energy rose a less-than-projected 0.2 per cent.

Compared with a year ago, consumer prices are up 2.6 per cent.

Energy prices, which climbed by 2.8 per cent during the month, supported the overall uptick, while the cost of food rose a moderate 0.2 per cent. Medical care increased in price, but this was offset by declining prices for new vehicles and homes, as the car and housing sectors continue to sputter.

“That underlying core inflation pressures remain benign is consistent with our view that core price measures will keep to a disinflationary path this year owing to a very wide output gap,” said Joshua Shapiro, chief US economist at MFR, in a research note to clients.

Friday’s figures follow a higher-than-expected reading on wholesale prices on Thursday. The 1.4 per cent monthly rise was also fuelled by energy prices but there was little sign of inflation in other sectors.

The CPI is unlikely to change the outlook of the Federal Reserve, which has said it expects inflation to remain “subdued” for some time. In a speech on Friday, William Dudley, president of the Federal Reserve Bank of New York, said he expected modest economic growth with price pressures remaining “well contained”.

The Fed has been supporting the economy with “near zero” interest rates but has begun to debate how to start withdrawing some of that support. Although the lack of inflation reduces pressure for the Fed to begin tightening its monetary policy, it said on Thursday it would raise the discount rate at which commercial banks borrow from the central bank in a step to “normalise” its policy.

Michael Feroli, an economist at JPMorgan Chase, argues that deflation risks remain a concern and notes that core prices have been flat in the last three months.

“The policy implications of today’s number are clear, core inflation is moving further below the Fed’s implicit inflation target and in the process real interest rates are moving higher,” Mr Feroli said. “Recent declarations of ‘mission accomplished’ in the fight against deflation risks now look somewhat premature.”

 

[Redeye]

By what measure did TARP not work?  It brought the TED spread down rapidly, stabilized most of the US banking system, and has already started to be paid back.  While credit markets in the US are still somewhat tight the plan has very cleary been successful.

Mixed signals in the economy. Since the TARP and stimulus packages didn't work, a lot of cash is floating around, but wealth destruction is continuing apace. I still would lean towards escalating inflation being the greater threat (especially as more money has fewer goods to chase, bidding up the prices), but we are in an unstable equilibrium and economics is a chaotic, non-linear system, and could change in unexpected ways:

http://www.ft.com/cms/s/0/46edaf82-1d5f-11df-b12e-00144feab49a.html?nclick_check=1

 

[a_majoor]

By what measure did TARP not work? 

By the simplest measure possible; the "toxic assets" are still in circulation. Just to add an aggravating factor, Freddie and Fannie have received massive new bailouts and are still continuing to underwrite the sorts of mortgages that started the cycle in the first place (and the CRA hasn't been repealed either).

This sort of crony capitalism did in Japan from the early 1990's to today, so it is instructive to look at what happened there to see if there are some lessons to be learned here.

 

[Old Sweat]

My wife and I were driving across the Florida panhandle a few days ago. I heard a commercial telling the public that they could own a home with no money down and no credit history. As this just registered in my consciousness partways through the commercial, I have no idea of the lending institution. However it scared the crap out of me.