US Economy

[Brad Sallows]

The exact measure doesn't really matter except to people making pedantic points about "on whose watch" bad things happened.  People who are unemployed and underemployed know who they are, and can vote, regardless whether they are actively looking for work.

 

[cupper]

I'm pretty sure that if the situation was reversed Thucydides and others of the same leanings, they'd be quoting the 8.2 % number as being the real number.

 

[a_majoor]

Why would I? It is impossible to make an informed decision without accurate data, and without accurate data, it is also impossible to find the source of the problem and fix it.

Which is why historical data is so interesting and important, by following the successful policy prescriptions from the past we can achieve success. Pick times and governments when U3 was lower, see what the government of the day was doing and implement that again.

Of course once people do that and see names like Margaret Thatcher, Mike Harris, John F Kennedy, Ronald Reagan and so on (big tax cutters all) they become apoplectic and no longer participate in rational discussion.

 

[cupper]

Of course once people do that and see names like Margaret Thatcher, Mike Harris, John F Kennedy, Ronald Reagan and so on (big tax cutters all) they become apoplectic and no longer participate in rational discussion.

Let's not forget that Reagan did cut taxes big time, only to reverse himself 11 times during the remainder of his presidential terms.

Which is why G.H.W. Bush came up with the slogan "Read my lips! No new taxes", and promptly got hoisted on his own petard.

 

[PuckChaser]

I'm pretty sure that if the situation was reversed Thucydides and others of the same leanings, they'd be quoting the 8.2 % number as being the real number.

Sounds like the argument of someone who can't dispute the facts, call into question the character of the person(s) posting them. You should run attack ads for the Democrats.

 

[cupper]

Sounds like the argument of someone who can't dispute the facts, call into question the character of the person(s) posting them. You should run attack ads for the Democrats.

What's to dispute? The generally accepted unemployment rate is 8.2%. The Dems use it. The GOP uses it. If you want to factor in part time employed, people who decided to go back to school to improve their employment options, and so forth, and claim that it is more realistic, then so be it.

But the narrative is that Obama has done nothing to improve the situation. And by using a statistical cross section that makes the situation look worse, it strengthens your argument. If McCain had won, and the faced the same situation, the left would be citing the larger numbers, and the right would be crying foul and quoting the lower number.

Simple as that.

As for calling into question another's character, it's a fact of human mature and statistics. When trying to sell your side of an argument, you are going to use facts and statistics that are favourable to you (assuming that you are not either a pathological liar, or bat poop crazy). Tell me that I'm wrong.

As for running attack ads for the Obama campaign, nah. Not worth it. Romney is doing a great job of attacking his own self.

 

[a_majoor]

More on lies, damn lies and statistics. It seems that we are now devolving into Kremlinology to find the basic facts about the US economy. (A very similar effort exists attempting to gauge the true state of the Chinese economy by comparing things like electrical output, coal consumption, raw material purchases and so on to the "official" output numbers.) The worrying fact in both China and the US is various indicators no longer add up to the "official" numbers. Without clear metrics, investors are blind (a possible reason behind the US "capital strike" where companies simply refuse to invest their capital).

http://www.businessinsider.com/chart-of-the-day-the-us-garbage-indicator-economy-2012-7#ixzz21kvqeWsP

CHART OF THE DAY: The US Garbage Indicator Is Sending An Ominous Sign For The Economy
Sam Ro | Jul. 26, 2012, 4:53 AM | 34,494 | 40

Among the 21 categories of items shipped by rail, none have a tighter correlation to GDP than waste.
According to a 2010 piece on Bloomberg, economists Michael McDonough and Carl Riccadonna note that waste has an 82 percent correlation to US economic growth.
This should be pretty intuitive.  The more you produce, the more you throw out.
McDonough, a Bloomberg BRIEF economist, tweeted out an update on the indicator.
And frankly, it stinks.  Waste carloads are way down.

Read more: http://www.businessinsider.com/chart-of-the-day-the-us-garbage-indicator-economy-2012-7#ixzz22ATmxPfy

and additional comentary from Instapundit:

UPDATE: Reader Stephen Barron writes:
That waste car load chart also hints there may have been some creative accounting regarding GDP numbers during “Recovery Summer”, after pretty decent correlation in previous years.

Perish the thought.

Related: The Channel-Stuffed GDP Report: “Just like last year, marginal economic growth overall seems to be backfilled with a tide of inventory.”

 

[a_majoor]

Remember the downgrade? One year has passed without any substantive action from the Administration or Senate. This article suggests that one reason the bond vultures havn't swooped in yet is the overwhelming amount of bad news elsewhere; which makes the US seem like a relatively safe haven. Lord knows that thousands of wealthy French people have rushed to buy US property since the election of the Socialists in France, which should give you an indication of what the rest of the world thinks:

http://www.thefiscaltimes.com/Articles/2012/08/05/S-and-P-Downgrade-One-Year-Later-a-Message-Unheeded.aspx#page1

S&P Downgrade: One Year Later, a Message Unheeded
By YUVAL ROSENBERG, The Fiscal Times August 5, 2012

What little difference a year makes. On August 5, 2011 — one year ago today — Standard & Poor's shook global markets and rattled the U.S. political establishment by downgrading the federal government's credit rating from AAA to AA+.


Yet despite the high drama surrounding the move, dramatically little has changed in terms of the fiscal and political issues S&P pointed to in making its move.

The downgrade followed a divisive debate over the debt ceiling in Washington, and it capped a tumultuous time on Wall Street. The recommendations of the bipartisan commission headed by Erskine Bowles and Alan Simpson had been largely ignored. Instead, President Obama and Republicans in Congress became bogged down in an ugly and prolonged battle over raising the nation’s debt limit and reducing the deficit. The agreement they reached at the eleventh hour averted a possible default but fell short of what S&P analysts deemed necessary to stabilize the country’s fiscal future.

For investors, worries about Europe — particularly Spain and Italy — were mounting quickly. On the day before the S&P announcement, spooked investors drove the S&P 500 stock index nearly 5 percent lower. The European Central Bank stepped in to buy government bonds in hopes of stemming the spiraling debt crisis — as it did again this week. Investors were left disappointed and skeptical about whether the authorities were acting forcefully enough — as they were again this week. In all, the market had plunged more than 10 percent over a span of two weeks.

In many respects, the global economic situation has gotten worse since then. “At that time, we were in what looked to be the early stages of a recovery,” says Brett Rose, an interest rate strategist at Citigroup. “Europe was a concern but not a front-burner concern at that point. Both of those things have changed dramatically since then.” But many, if not all, of the major economic concerns that dominated the headlines last August are still in play. And lawmakers are still kicking around a deficit-reduction plan along the lines proposed by the Bowles-Simpson commission nearly two years ago.

On the day of the downgrade, the rumors started early but the news came late. That Friday, shortly after 10:30 a.m., a blogger at The Wall Street Journal noted the percolating buzz: “It's out there on other blogs now, so we might as well address it,” he wrote of the chatter that S&P would announce its downgrade after the end of trading. The reporter, Mark Gongloff, added that a ratings cut “would be an extraordinarily brazen move” that would make S&P “more universally hated than LeBron James's Miami Heat. Dow[n]grade the US after the bell on an August Friday in the middle of the worst market chaos since 2008? The political hellstorm would curl your hair from five miles away.”

The hellstorm hit at 8:13 p.m., when S&P announced its cut. Though it was unprecedented, the downgrade wasn't really a surprise. S&P had warned twice in the months leading up to its move that if President Obama and Congress failed to work out a credible long-term plan for reducing the national debt, it would follow through with the downgrade.

While most analyses largely dismissed the dangers of the S&P downgrade — and many pointed out that the credit rating agencies didn’t have much credibility left given their track record before the financial crisis — some had warned that it could increase borrowing costs for the government, among other potential effects. S&P itself had said that a downgrade spurred by the lack of a credible debt-reduction deal could cause a “moderate rise” of 0.25 percent to 0.5 percent in long-term interest rates “due to an ebbing of market confidence.” It also forecast that businesses and consumers could become more cautious, slowing GDP growth by as much as 0.5 percentage points.

The economy has slowed in recent months, but rather than rising, the yield on 10-year Treasuries has fallen about one percentage point, from 2.58 percent a year ago to 1.56 percent now — and has been as low as 1.43 percent in recent days. “The U.S. continues to be, for better or for worse, considered a relative safe haven,” says Ted Weisberg, the founder of Seaport Securities. “You see that reflected in treasuries and in continued demand for treasuries even though the interest rates remain basically zero.”

Bond investors have had few attractive alternatives. “At this point, you’ve got almost no sovereigns remaining that you could say are entirely pristine,” Rose says. Switzerland and some Scandinavian countries would be exceptions to that, he says, but their bond markets are relatively small. S&P early this year stripped France and Austria of their AAA credit ratings and also downgraded seven other European countries. Another rating agency, Moody’s Investors Service, last month warned that Germany’s Aaa rating was at risk.

U.S. stocks, meanwhile, certainly haven’t suffered because of the downgrade. The Standard & Poor’s 500-stock index has chugged 16 percent higher over the last 12 months, albeit in fits and starts.

Still, those gains don’t mean that investors are sanguine about the U.S. situation, fiscal or political. “It doesn’t mean it’s not a problem,” Citi’s Rose says. “It just means that it’s being overwhelmed by other issues in the near term. Investors still have concerns that the long-term fiscal situation in the U.S. is unsustainable, but in the near-term you’ve got far more concerns about countries such as Spain or Italy, and the weakness in growth in the U.S., Europe and globally.”

In explaining the downgrade, Standard & Poor’s pointed to U.S. fiscal policy, including the specifics of the agreement to resolve the debt-ceiling debacle. “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics,” S&P’s analysts wrote.

But the rating agency made clear that its move was also a condemnation of the dysfunctional politics behind those debt dynamics. “The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed,” the S&P analysts wrote. “Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a ‘AAA’ rating and with ‘AAA’ rated sovereign peers.”

“The rating agency actually did this country a huge favor,” says Weisberg, “because it sent a very very strong message to the politicians to stop what you’re doing and clean up your balance sheet.”

With a presidential election looming, the message has essentially been ignored. “Nothing has changed,” Weisberg says wistfully. “Nothing has changed.”

Not that officials didn’t respond to the downgrade. Even before S&P’s officially announced the downgrade, Treasury officials went back and forth with the ratings agency, pointing out a $2 trillion mistake in its analysis. S&P went ahead with the downgrade anyway, prompting a blistering response:

“Independent of this error, there is no justifiable rationale for downgrading the debt of the United States,” John Bellows, then the Treasury Department’s acting assistant secretary for economic policy, wrote in a blog post the next day. “There are millions of investors around the globe that trade Treasury securities. They assess our creditworthiness every minute of every day, and their collective judgment is that the U.S. has the means and political will to make good on its obligations. The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action.”

President Obama addressed the downgrade the following Monday, noting in a speech from the White House state dining room that S&P had proceeded with the cut “not so much because they doubt our ability to pay our debt if we make good decisions, but because after witnessing a month of wrangling over raising the debt ceiling, they doubted our political system’s ability to act.”

Obama went on to acknowledge the fiscal and political issues, according to a transcript on the White House website, before adding that, “Our problems are eminently solvable.” Obama pointed to the spending cuts agreed to as part of the debt-ceiling deal and suggested that, “What we need to do now is combine those spending cuts with two additional steps: tax reform that will ask those who can afford it to pay their fair share and modest adjustments to health care programs like Medicare.”

The president also said he hoped that the downgrade would lend a “renewed sense of urgency” to the Super Committee tasked with devising a long-term budget plan as part of the agreement to raise the debt ceiling last year. “I assure you,” Obama said, “we will stay on it until we get the job done.”

The Super Committee, of course, failed to reach an agreement, meaning that $1.2 trillion in automatic cuts of defense and other programs are set to take place as of next year. Those changes, combined with the tax cuts also set to expire at the end of the year, have left the country approaching a “fiscal cliff” at the end of the year – an added dose of uncertainty at a time when the economic recovery appears to be slowing.

“Markets can deal with good news, markets can deal with bad news,” says Weisberg. “What markets cannot deal with is uncertainty. And the markets, unfortunately, are hostage to the politicians both in the U.S. and in Europe.”

RELATED: 10 'Kicked Cans' That Can Send the U.S. Over the Cliff

S&P also still sees increased political polarization as a threat to fiscal progress. “[W]e think that recent shifts in the ideologies of the two major political parties in the U.S. could raise uncertainties about the government’s ability and willingness to sustain public finances consistently over the long term,” S&P noted in a June report reaffirming its AA+ rating and negative outlook.

And given the depth of the political quagmire, S&P’s ratings analysts don’t place much faith in the idea that the election could finally lead to decisive action. “Although the 2012 elections could resolve the U.S. fiscal debate, we see this outcome as unlikely,” S&P’s June report said. “If, as commentators currently expect, the election is close, the race could, in our view, reduce bipartisanship from its already low level as each side strives to rally support by more clearly distinguishing itself from the other.”
[/quote]

 

[a_majoor]

In a report which is sure to make many heads explode, the Fed points out the cause of the 2008 recession. (On a similar note, economic historians point the finger to the same causal agent for the 1929 crash and subsequent Great Depression):

http://www.aei-ideas.org/2012/08/fed-study-says-bush-and-banks-didnt-cause-the-great-recession-the-fed-did/

Fed study says Bush and the banks didn’t cause the Great Recession. The Fed did
James Pethokoukis | August 6, 2012, 9:28 pm

It’s probably President Obama’s most politically effective line of attack against Mitt Romney.

The president argues that it was the unchecked, reckless, casino capitalism of the George W. Bush years — bank deregulation, tax cuts for the rich — that lead to the nation’s worst economic downturn since the Great Depression. And if Mitt Romney is elected in November, the Republican will bring those policies right back, risking another financial collapse.

Here’s what Obama said during that same speech where he told America’s entrepreneurs that “you didn’t build that”:

But I just want to point out that we tried their theory for almost 10 years … and it culminated in a crisis because there weren’t enough regulations on Wall Street and they could make reckless bets with other people’s money that resulted in this financial crisis, and you had to foot the bill. So that’s where their theory turned out.

But a book by Robert Hetzel, a senior economist at Federal Reserve Bank of Richmond, says it wasn’t Bushonomics or greedy bankers or broken markets that caused the Great Recession. In The Great Recession: Market Failure or Policy Failure, Hetzel pins the blame squarely on the Federal Reserve and Team Bernanke.

Oh, the downturn first started with “correction of an excess in the housing stock and a sharp increase in energy prices” — the housing bust and the oil shock. Indeed, those two things were enough, in Hetzel’s view, to cause a “moderate recession” beginning in December 2007.

But only a moderate one. It was the Fed’s monetary policy miscues after the downturn began that turned a run-of-the-mill downturn into a once-in-a century disaster. Hetzel:

A moderate recession became a major recession in summer 2008 when the [Federal Open Market Committee] ceased lowering the federal funds rate while the economy deteriorated. The central empirical fact of the 2008-2009 recession is that the severe declines in output that in appeared in the [second quarter of 2008 and the first quarter of 2009] … had already been locked in by summer 2008.

Not only did the Fed leave rates alone between April 2008 and October 2008 as the economy deteriorated, but the FOMC “effectively tightened monetary policy in June by pushing up the expected path of the federal funds rate through the hawkish statements of its members. In May 2008, federal funds futures had been predicting the rate to remain at 2% through November. By mid-June, that forecast had risen to 2.5%.

And it wasn’t just the U.S. central bank. Hetzel thinks all the major central banks — the European Central Bank, the Bank of England, the Bank of Japan, sat on their hands as the global economy weakened. “The fact that the severe contraction in output began in all these countries in 2008:Q2 is more readily explained by a common restrictive monetary policy than by contagion from the then still-mild U.S. recession, Hetzel writes in a Fed paper that inspired the book. “Restrictive monetary policy rather than the deleveraging in financial markets that had begun in August 2007 offers a more direct explanation of the intensification of the recession that began in the summer of 2008. Irony abounds.”

Here’s another reason Hetzel lets Wall Street off the hook. If a banking collapse was the true villain rather than the Fed, bank lending should a) have been a leading indicator and b) should have declined more significantly than in past recessions. But this chart of bank lending, adjusted for inflation with recessionary periods shaded, shows “bank lending behaved similarly in this recession to other post-war recessions.”

The irony here, of course, is that Federal Reserve Chairman Ben Bernanke is a much-noted student of the Great Depression and of the work of the late Milton Friedman whose landmark book, A Monetary History of the United States, pinned the blame for the Great Depression on a too tight Fed. As Bernanke told Friedman and his co-author, Anna Schwartz, on the economist’s 90th birthday a decade ago, ”You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

But if Hetzel is right, the Fed blew it again.

The analysis will be much debated and probably won’t have much impact on the election or public perception of the Bush years anytime soon. And bankers are unlikely to see their approval ratings rise. But Hetzel’s work suggests policymakers should take notice and perhaps think twice about placing more faith and power in regulators or abandoning pro-market polices because they somehow caused the financial crisis and Great Recession.

From the replys:

Mr Bernanke studied and studied the Great Depression and learned the lessons so well that he has been able to replicate nearly all of them in detail. Well, at least enough of them to leave us in chronic economic malaise.

 

[a_majoor]

Looking at how the Ryan plan would rework the tax and spending ratios of the US Federal government. The two tier taxation levels are not quite a single tax, but evidence from many nations that do have "flat taxes" demonstrate that this form of taxation does indeed provide greater revenues by broadening the tax base. People looking for those arguments should go here

http://opinion.financialpost.com/2012/08/14/william-watson-ryan-plans-secret-more-tax-revenue/

William Watson: Ryan plan’s secret: more tax revenue
William Watson | Aug 14, 2012 10:31 PM ET | Last Updated: Aug 15, 2012 6:49 AM ET
More from William Watson

Question: Of the four candidates for national office in the United States this year — Obama, Biden, Romney and Ryan — which wants to double Americans’ taxes over the next decade and see the share of taxes in GDP rise by three percentage points?

If your answer is Obama or Biden, you’d be wrong. The correct answer is in fact Representative Paul Ryan, whom Mitt Romney just chose as his running-mate. Mr. Ryan, Chair of the Budget Committee of the House of Representatives, is the author of or at least principal spokesman for “The Path to Prosperity,” a budget plan he brought out early in 2011 in an attempt to end congressional gridlock on taxes, spending and deficits.


Related
What is Paul Ryan’s view on U.S. energy strategy?

Growing pains on campaign trail for Mitt Romney and Paul Ryan as Obama sharpens attack on GOP Medicare plans

`Where are the jobs, Mr. President?’: Ryan wastes no time establishing himself as Romney’s chief attack dog

Like it or not, Romney's now stuck with the Ryan Plan


By restraining government spending and lowering the top tax rate while broadening the base, Mr. Ryan does what he’s accused of failing to do — he raises overall tax revenue enough to tame the U.S. deficit.

The summary tables to that document contemplate federal revenues rising from $2.4-trillion in 2012 to $4.6-trillion in 2022 — basically a doubling of revenue and in absolute terms a whopping $2.2-trillion increase. At the same time, federal government outlays rise from $3.6-trillion in 2012 to $4.8-trillion in 2022, an increase of 50%. Not nearly as much as the rise in taxes but not chicken feed, either.

A Republican rebuttal that focused on the unfairness of insider deals in Washington could well resonate with lots of votersNow, there are many grounds on which to criticize these numbers. They’re in nominal dollars so they don’t take inflation into account and as a result exaggerate the real growth of taxes and public spending. They’re not based on any very detailed analysis. They make assumptions that may turn out to be heroic about economic growth. They can’t even be relied on as a rough estimate of first fiscal steps since in the U.S. system, unlike our own, the legislature routinely alters presidential budgets beyond recognition. The president’s numbers may start the debate but Congress finishes it. And so on and so on.

But in an election season — and it has been election season in the U.S. for 18 months now — everyone understands that such numbers are more the result of political calculation than arithmetic. What’s politically interesting about Mr. Ryan’s numbers is that, right there in black and white, tax revenues rise so much, from 15.8% of GDP in 2012 to 18.7% in 2022, just under three full percentage points. True, spending falls more, from 23.4% of GDP to 19.8%, or by 3.6 percentage points. But still. By the current standards of U.S. politics it’s a balanced package.


Mind you, it doesn’t actually get the U.S. federal budget back into balance. The deficit is still 1.2% of GDP in 2022. But it does get the overall debt falling as a share of GDP, which puts the U.S. government back on a sustainable fiscal path. You can keep the debt growing forever — if you think that’s a good idea — so long as the economy is growing faster.

Unlike Mitt Romney, who doesn’t want to change income tax rates in the short term, Mr. Ryan’s plan envisions a two-rate system: 10% and 25%. The increase in revenues comes from economic growth and from simplifying the tax system, a policy that could be pleasingly populist.

Ordinary folk are less angry with rich people as a type — Steve Jobs was both rich and widely admired — than with rich people who seem to have come by their money by hook, crook and loophole“A [tax] code with high rates and lots of loopholes benefits those who can afford the best lawyers and lobbyists in Washington,” declares Mr. Ryan’s document, which includes a graph showing that the infamous top 1% of income-earners now averages more than $250,000 in tax savings from exemptions and credits while those in the bottom 20% get virtually nothing. In a stark and disappointing departure from his healer, hoper and unifier campaign of 2008, President Barack Obama in his current commercials is running against those who want to cut taxes for rich people and loosen regulation on banks. (Is there anything dumber, by the way, than the “I’m Barack Obama and I approved this ad” tag-lines to spots in which Mr. Obama speaks continuously into the camera? He’s Barack Obama and maybe he doesn’t approve of what he just said?)

A Republican rebuttal that focused on the unfairness of insider deals in Washington could well resonate with lots of voters. Ordinary folk are less angry with rich people as a type — Steve Jobs was both rich and widely admired — than with rich people who seem to have come by their money by hook, crook and loophole. If Mr. Obama can be painted as a friend to lobbyists, which is not far-fetched given his penchant for subsidizing this and that, his popularity will suffer. Such an attack would be perfectly hypocritical, of course. The Republicans did not oppose all of the 2,400 separate changes that Mr. Ryan says have been made in the tax code since the great Reagan reform of 1986. Far from it. But hypocrisy in politics won’t shock anyone.

What’s most interesting about both the Ryan and the Romney economic plans is how conservative they are in the strictest sense of that word. Mr. Romney’s target for federal spending is 20% of GDP, which has been its historic level. (“Since the 1950s,” his document says, “federal spending has hovered around 20% of GDP.) Mr. Ryan’s target for federal tax revenues is 19% of GDP, also justified by consistency with “the historical norms of 18% to 19%.” Mr. Obama and Mr. Biden, by contrast, are willing to go higher-than-historic on both taxes and spending.

The Democrats seem delighted that, with Mr. Ryan’s entry into the race, the battle will now be “ideological,” as if Mr. Obama and Mr. Biden don’t have ideologies. Like most elections in most countries, it’s going to be about whether public spending and taxes are going to be a point or two of GDP higher or a point or two lower. Thanks to Mr. Ryan’s candour about the need for tax revenues to rise, it can now proceed in a more adult way.

 

[a_majoor]

"Success" in the case of the $80 billion auto bailout must be situational, since GM is heading for bankruptcy yet again. In political terms this can only hurt the Administration and their election chances, but it is even more instructive as to what happens when taxpayer dollars replace the rigor of the marketplace. GM hasn't made any products that stand out in the marketplace (the Malibu is dead last when compared to cars in its segment and overall market share is declining) because there was no need to with taxpayer dollars keeping it afloat. This is also a frightening forecast of what the medical industry is going to look like under Obamacare, and with the President proclaiming he wants to apply the same solutions to the rest of the US manufacturing industry (and by extension the economy as a whole, since this would eventually encompass the supply chain), you really don't need a crystal ball to see what that will do for jobs and the standard of living:

http://www.forbes.com/sites/louiswoodhill/2012/08/15/general-motors-is-headed-for-bankruptcy-again/

General Motors Is Headed For Bankruptcy -- AgainMove up Move down
Joann Muller
 
President Obama is proud of his bailout of General Motors.  That’s good, because, if he wins a second term, he is probably going to have to bail GM out again.  The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.

Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company.  It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday.  This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.

Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share.  However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.

It’s doubtful that the Obama administration would attempt to sell off the government’s massive position in GM while the stock price is falling.  It would be too embarrassing politically.  Accordingly, if GM shares continue to decline, it is likely that Obama would ride the stock down to zero.

GM is unlikely to hit the wall before the election, but, given current trends, the company could easily do so again before the end of a second Obama term.

In the 1960s, GM averaged a 48.3% share of the U.S. car and truck market.  For the first 7 months of 2012, their market share was 18.0%, down from 20.0% for the same period in 2011.  With a loss of market share comes a loss of relative cost-competitiveness.  There is only so much market share that GM can lose before it would no longer have the resources to attempt to recover.

To help understand why GM keeps losing market share, let’s look at the saga of the Chevy Malibu.

The Malibu is GM’s entry in the automobile market’s “D-Segment”.  The D-Segment comprises mid-size, popularly priced, family sedans, like the Toyota Camry and the Honda Accord.  The D-Segment accounted for 14.7% of the total U.S. vehicle market in 2011, and 21.3% during the first 7 months of 2012.

Because the D-Segment is the highest volume single vehicle class in the U.S., and the U.S. is GM’s home market, it is difficult to imagine how GM could survive long term unless it can profitably develop, manufacture, and market a vehicle that can hold its own in the D-Segment.  This is true not only because of the revenue potential of the D-Segment, but also because of what an also-ran Malibu would say about GM’s ability to execute at this time in its history.

GM is in the process of introducing a totally redesigned 2013 Chevy Malibu.  It will compete in the D-Segment with, among others, the following: the Ford Fusion (totally redesigned for 2013); the Honda Accord (totally redesigned for 2013); the Hyundai Sonata (totally redesigned for 2011); the Nissan Altima (totally redesigned for 2013); the Toyota Camry (refreshed for 2013); and the Volkswagen Passat (totally redesigned for 2012).

Automobile technology is progressing so fast that the best vehicle in a given segment is usually just the newest design in that segment.  Accordingly, if a car company comes out with a new, completely redesigned vehicle, it had better be superior to the older models being offered by its competitors.  If it is not, the company will spend the next five years (the usual time between major redesigns in this segment) losing market share and/or offering costly “incentives” to “move the metal”.

Uh-oh.  At this point, it appears that the 2013 Malibu is not only inferior to the 2012 Volkswagen Passat, it’s not even as good as the car it replaces, the 2012 Chevy Malibu.

If you follow the automobile enthusiast press, you know that, under the leadership of then product czar Bob Lutz, GM went all out to develop a competitive D-Segment car for the 2008 model year.  The result was the 2008 Chevy Malibu, which managed to get itself named by Car and Driver magazine as one of the “10 Best Cars” for 2008.

However, when tested head to head against six other D-Segment sedans in the March 2008 issue of Car and Driver, the 2008 Malibu came in third, behind the Honda Accord and the Nissan Altima.  Adjusted to the points scale that Car and Driver uses today, the 2008 Malibu scored 187 points, 6% lower than the winning 2008 Honda Accord’s 198 points.

Still, third was a respectable showing.  The previous generation of the Malibu, a darling of rental car fleets, would have come in dead last in any D-Segment comparison test.

Acknowledging the importance of the D-Segment to the company’s future, GM’s CEO, Dan Akerson, ordered that the introduction of the redesigned 2013 Chevy Malibu be advanced by six months, from the fall of 2012 to the spring of 2012.

In their March 2012 issue, Car and Driver published another D-Segment comparison test, pitting the 2013 Chevy Malibu Eco against five competing vehicles.  This time, the Malibu came in dead last.

Not only was the 2013 Malibu (183 points) crushed by the winning 2012 Volkswagen Passat (211 points), it was soundly beaten by the 2012 Honda Accord (198 points), a 5-model-year-old design due for replacement this fall. Worst of all, the 2013 Malibu scored (and placed) lower than the 2008 Malibu would have in the same test.

Uh-oh.

Digging deeper, the picture just gets worse.  Despite its mild hybrid powertrain, which is intended to provide superior fuel economy (at the cost of a higher purchase price and reduced trunk space), the 2013 Malibu Eco delivered the same 26 MPG in Car and Driver’s comparison test as the Passat, the Accord, and the Toyota Camry.

In a recent speech, Dan Akerson admitted that GM’s powertrain technology had fallen behind that of competitors in some cases.  This is illustrated by the Malibu Eco’s EPA gas mileage ratings.  At 25 MPG City/37 MPG Highway, the Malibu Eco is not as fuel-efficient as the conventionally-powered 2013 Nissan Altima (27 MPG City/38 MPG Highway).

It might be possible for GM to give the Malibu a better powertrain during its five-year-product life cycle.  Unfortunately, there is no way that they will be able to correct its biggest design flaw, which is its short wheelbase.

For years, automobile companies have been trying to design cars with the longest possible wheelbase (distance between the front and rear axles) for a given overall vehicle length.  A longer wheelbase provides advantages in the areas of styling, ride, and legroom.

In developing the 2013 Malibu, GM decided to shorten the wheelbase by 4.5 inches from that of the previous-generation Malibu, from 112.3 inches to 107.5 inches.  This gave the 2013 Malibu the shortest wheelbase in the entire D-Segment.

The Car and Driver comparison-test-winning Passat has a wheelbase of 110.4 inches, which gives it a “unique selling proposition”, the roomiest back seat in the D-Segment.  The Passat has combined front and rear legroom totaling 81.5 inches, 3.5 inches more than the Malibu.

This may not sound like a lot, but, like baseball, automobile design is “a game of inches”.

For a 6’1” tall man, sitting in the back seat of the 2012 Passat behind a similar-sized driver is like sitting in a limo.  His knees will be nowhere near the back of the front seat.  In contrast, the same sized man would have to struggle to get into the back seat of the 2013 Malibu, and would have to sit with his legs splayed once he did.

Rear seat legroom is important in the family sedan market, not only for the comfort of adult passengers, but also for the ease of using children’s car seats.  The 2013 Nissan Altima also has longer wheelbase and more rear seat legroom than does the Malibu.

Chevrolet is not a premium brand, like Mercedes or BMW.  Since the 1920s, Chevy’s essential market positioning has been “more car for your money”.  Unfortunately, the 2012 Volkswagen Passat is more car for the money than is the 2013 Malibu.  There will not be anything that GM will be able to do about this for the next five years other than to reduce the price of the Malibu by offering “incentives”.  This will eat into the company’s profitability, which is already weak.

As a company, General Motors peaked in 1965, when it commanded 50.7% of the U.S. market, and made a stunning-for-the-time $2.1 billion dollars in after-tax profits.  Adjusted by the GDP deflator to 2011 dollars, GM made $12.1 billion in after-tax profits on $117.9 billion in revenue.

In 1965, Volkswagen was tiny compared to GM.  It produced only 1.6 million vehicles, about 22% of GM’s 7.3 million.  VW’s total revenues were only 11% of GM’s.  The most powerful engine you could get in VW’s volume family car, the Beetle, had 40 horsepower.  The biggest engine you could get in GM’s equivalent, the 1965 Chevy Impala, had 425 horsepower.

In the first half of 2012, Volkswagen sold almost as many vehicles as GM did, 4.6 million vs. 4.7 million.  And, its total revenues were much higher, $119.2 billion vs. $75.4 billion for GM.  Part of this is the result of currency exchange rates, but VW had a significantly higher operating profit margin than GM, 6.8% vs. 5.7%.

Under the leadership of Ferdinand Piech, who is kind of like a German-speaking, automobile industry version of Steve Jobs, Volkswagen is determined to become the biggest and most profitable car company in the world.  And, right now, they are eating GM’s lunch.

Not only has Volkswagen taken an important share of the U.S. D-Segment with their new Passat, but they are pulling away from everyone in the troubled European market, where GM is losing money on its Opel subsidiary.  The headline in the current edition of Automotive New Europe’s “Global Monthly” is, “Buried: VW Uses Europe’s Crisis to Crush Rivals”.  In this case, GM is one of the “crushees”.

Will GM be able to turn itself around, and save American taxpayers from losing $26.5 billion on Obama’s bailout?

One way to answer that question is to compare the 2013 Chevy Malibu against the 2012 Volkswagen Passat, as Car and Driver did.  Results: VW, first out of six; GM, dead last.  However, additional insight can be obtained by looking at how GM’s CEO, Dan Akerson (63), stacks up against Professor Doctor Martin Winterkorn (65), the man handpicked by Ferdinand Piech in 2007 to be his replacement as CEO of Volkswagen AG.

Akerson has an engineering degree, but he also has a Master’s Degree in Economics, and his first big job was as CFO of MCI.  Akerson was CEO of General Instrument, and then of Nextel, and then of XO Communications, which went bankrupt in June 2002.  He joined the private equity firm, the Carlyle Group, in 2003.

Akerson got his first job in the automobile industry when he was named CEO of GM in late 2010.  Recently, he has been hiring and firing top GM executives at an alarming pace, and he is understood to be working on a major reorganization of the company.  Akerson recently gave a televised speech to GM employees on the need for “integrity”.

Martin Winterkorn has a PhD in Metallurgical Engineering, and he has spent his entire career in the automotive industry.  At the 2011 Frankfurt Auto Show, Winterkorn was caught on amateur video sitting in, and studying Hyundai’s newly introduced i30, a competitor to VW’s best-selling family car, the Golf.  Here is an excerpt from a story about this incident published along with the video by The Truth About Cars, an auto industry blog: (Interpolation: this is what a market driven company does all the time if it wants to succeed).

“(Martin Winterkorn) pulled on the adjuster of the steering column, and heard – nothing. At Volkswagen, there is an audible (“klonk!) feedback whenever the steering column is adjusted.

Immediately, Klaus Bischoff, head of Volkswagen Brand Design was summoned. He pulled on the adjuster: No sound. “Da scheppert nix,” exclaimed Winterkorn in his heavy Bavarian accent. “There is no rattle!”

Winterkorn was livid: “How did he pull that off?” He, the blasted Korean. “BMW doesn’t know how. We don’t know how.” He, the blasted Korean, must have found out how to battle the dreaded Scheppern.

Tension is high. This could affect careers. Someone quickly explains that there had been a solution, “but it was too expensive.” That gets Winterkorn even more enraged. “Then, why does he know how?” For less money. He, the Korean. There is no answer. Hyundai has beaten Volkswagen at the Scheppern front.

Winterkorn measures the A-pillar, runs his hands over the plastic. He walks away, his entourage trots after him. Deeply in thought and very worried.”

Uh-oh.  While Dan Akerson is busy rearranging the deck chairs on GM’s Titanic, Martin Winterkorn is leading VW to world domination via technical excellence.

“The game isn’t over until it’s over”, but if President Obama wins reelection, he should probably start giving some serious thought to how he is going to justify bailing out GM, and its unionized UAW workforce, yet again.  And, during the current campaign, Obama might want to be a little more modest about what he actually achieved by bailing out GM the first time.

Read more:
For GM, Bankruptcy Talk Is Its Own Fault

Chicken Little’s Second GM Bankruptcy: The Gold Medal For Silly Op-Ed Pieces
--------------------------------------------------------------------------------
This article is available online at:
http://www.forbes.com/sites/louiswoodhill/2012/08/15/general-motors-is-headed-for-bankruptcy-again/

 

[a_majoor]

Canada to the rescue! These ungrateful Americans apparently are not tracking the fact these Canadian shoppers are providing a tax break for the citizens of that town ( up to $1000/person as calculated by one of the commenters). Of course the free market laws of supply and demand are at work here, so any government or regulatory interference will leave a lot of unsatisfied Canadians paying more for groceries and a lot of these townspeople holding the bag for higher property taxes:

http://blog.chron.com/hottopics/2012/08/costco-shoppers-want-‘american-only’-hours/

Costco shoppers want ‘American only’ hours

Shopping and waiting … and waiting .. at Costco. (Photo is from a Miami Costco, by Creative Commons Flickr user miamism).
If you’ve ever shopped at Costco on a weekend, you know it’s like an endurance sport, with tough parking, packed crowds and competitive lines for those mini-sausage samples.

But Costco shoppers in Bellingham, Wash. have an additional challenge: Canadians. It seems that the store, 90 miles north of Seattle and near the border, attracts flocks of Canadians in search for cheaper American milk and gas. And that’s making some locals grouchy.

A Facebook page has emerged to vent the grumpiness, called “Bellingham Costco needs a special time just for Americans.” With more than 4,200 likes so far, it features rants about crowds, parking and rude Canadians who buy up all the milk (by the double-gallon) and take forever in the gas line (with their extra gas cans). There’s at least one photo of a bad British Columbian park job that committed the sin of hogging up two spaces.

“Costco should make a special time during the day that is American members only,” wrote the page’s administrator, who described local Costco shoppers as “Founding customers.”

“They used to do it for Business members, why cant they do it for us.”


But not everyone is complaining about the “mob show” at the Bellingham Costco. One Facebook poster called the comments “discrimination” and wrote, “I say to Canadians boycott, and watch how fast your city begs for Canadians to return.”

Bellingham Mayor Kelli Linville also continued to welcome Canadians. “The unpleasant comments we’ve seen on social media regarding Canadians are offensive and inappropriate,” Linville said Monday.

The Facebook page creator wrote that the problem isn’t Canadians personally, but the need for a larger store. That may not happen any time soon. An executive with Issaquah, Wash.-based Costco told CBC News the company wants to expand, but there’s no room on the current property.

Also, don’t expect any special U.S.-only shopping hours. Costco said it’s planning to continue its policy of letting Costco members shop in any Costco they choose.

For more on Costco, and the secrets behind its odd success, here’s a gallery from the story: Peek inside the ‘Costco craze‘:

 

[a_majoor]

One of the biggest reasons our economic recovery isn't faster is we are still highly dependent on the United States as our biggest single trading partner. We are "missing" something on the order of 33 million potential US customers (the U3 unemployment figure), pretty much the entire population of Canada. To compund the problem, the remaining potential customers are suffering from a declining income since 2008; much less to spend on goods and services that we provide:

http://news.investors.com/articleprint/623476/201208241814/obama-so-called-recovery-leaving-middle-class-behind.aspx

You Call This an Economic Recovery?
Posted 08/24/2012 06:14 PM ET

Back in August 2010, Treasury Secretary Timothy Geithner wrote an Op-Ed titled "Welcome to the Recovery." Two years later, most Americans would be right to ask: What recovery?

Yes, the economy is technically growing, and corporate profits are up. But the pace of growth during the Obama "recovery" has been so slow that it's leaving most Americans further behind.

The latest sign: Real median household income has fallen 4.8% since the so-called recovery officially began in June 2009. That's a steeper decline than occurred during the recession itself, when incomes dropped 2.6%, according to a new report from Sentier Research.

Almost every demographic group has seen incomes drop during the alleged Obama recovery, Sentier found. Even those who report being continuously employed watched their real incomes drop nearly 5% over the past three years.

A separate report last week from the Pew Research Center found that over the past decade, the middle class has "shrunk in size, fallen backward in income and wealth, and shed some ... of its characteristic faith in the future."

Meanwhile, there are 800,000 more long-term unemployed than when the "recovery" started, and the ranks of those who aren't in the labor force at all have swelled by nearly 8 million.

The unemployment rate remains stuck above 8%, and shows no sign of coming down any time soon. And the dreaded misery index — which combines inflation and unemployment — is 20% higher than it was three years ago.

Even unions have suffered, with membership down more than half a million since 2009.

Now the Congressional Budget Office warns that the economy is so fragile it will drop back into a recession if Congress doesn't do something to stop a raft of tax hikes and automatic spending cuts from kicking in at the start of next year.

And Fed Chairman Ben Bernanke is talking about how the central bank still has room to pump additional stimulus into the economy and "strengthen the recovery."

Is it any wonder that, according to the Pew study, 85% of the middle class say it's more difficult now than it was a decade ago to maintain their standard of living? Less than a third of those asked say they're in better shape now than they were before the recession started.
The only mystery is why the public refuses to pin the blame where it belongs. According to Pew, just 34% say Obama deserves "a lot" of blame for today's middle class woes. More blame George W. Bush, foreign competition, Congress, banks and big companies.

That no doubt suits Obama, who has spent his entire first term accusing everything from the GOP takeover of the House to the Japanese tsunami for the ongoing subpar recovery.

But Obama got everything he wanted in his first two years in office, when Democrats overwhelmingly controlled Congress. And at the time, he promised his policies would propel the country forward, forecasting a growth rate of 4% or better this year and next.

Instead, the $830 billion stimulus, the $5 trillion in new debt, the auto bailouts, the huge "green energy" subsidies, Dodd-Frank, ObamaCare and hugely expensive environmental regulations have combined to produce the weakest economic recovery since the Great Depression.

On the campaign trail this year, Obama says his program is working, but he needs more time to dig the country out of the deep recession hole.
Truth is, his policies are choking economic growth and leaving the middle class further and further behind.

 

[GAP]

First Audit Results In The Federal Reserve’s Nearly 100 Year History Were Posted Today, They Are Startling!
Saturday, September 1, 2012
Article Link

~~~~
What was revealed in the audit was startling:

$16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious – the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.

To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is “only” $14.5 trillion. The budget that is being debated so heavily in Congress and the Senate is “only” $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world.

In late 2008, the TARP Bailout bill was passed and loans of $800 billion were given to failing banks and companies. That was a blatant lie considering the fact that Goldman Sachs alone received 814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion.

    “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”- Bernie Sanders (I-VT)

When you have conservative Republican stalwarts like Jim DeMint(R-SC) and Ron Paul(R-TX) as well as self identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.

Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and supercorporations like Halloween candy. If the Federal Reserve and the bankers who control it believe that they can continue to devalue the savings of Americans and continue to destroy the US economy, they will have to face the realization that their trillion dollar printing presses will eventually plunder the world economy.

The list of institutions that received the most money from the Federal Reserve can be found on page 131of the GAO Audit and are as follows..

    Citigroup: $2.5 trillion ($2,500,000,000,000)
    Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
    Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
    Bank of America: $1.344 trillion ($1,344,000,000,000)
    Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
    Bear Sterns: $853 billion ($853,000,000,000)
    Goldman Sachs: $814 billion ($814,000,000,000)
    Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
    JP Morgan Chase: $391 billion ($391,000,000,000)
    Deutsche Bank (Germany): $354 billion ($354,000,000,000)
    UBS (Switzerland): $287 billion ($287,000,000,000)
    Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
    Lehman Brothers: $183 billion ($183,000,000,000)
    Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
    BNP Paribas (France): $175 billion ($175,000,000,000)
    and many many more including banks in Belgium of all places

View the 266-page GAO audit of the Federal Reserve (July 21st, 2011):

More on link

 

[Edward Campbell]

First Audit Results In The Federal Reserve’s Nearly 100 Year History Were Posted Today, They Are Startling!
Saturday, September 1, 2012
Article Link

~~~~
What was revealed in the audit was startling:

$16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious – the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.

To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is “only” $14.5 trillion. The budget that is being debated so heavily in Congress and the Senate is “only” $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world.

In late 2008, the TARP Bailout bill was passed and loans of $800 billion were given to failing banks and companies. That was a blatant lie considering the fact that Goldman Sachs alone received 814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion.

    “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”- Bernie Sanders (I-VT)

When you have conservative Republican stalwarts like Jim DeMint(R-SC) and Ron Paul(R-TX) as well as self identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.

Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and supercorporations like Halloween candy. If the Federal Reserve and the bankers who control it believe that they can continue to devalue the savings of Americans and continue to destroy the US economy, they will have to face the realization that their trillion dollar printing presses will eventually plunder the world economy.

The list of institutions that received the most money from the Federal Reserve can be found on page 131of the GAO Audit and are as follows..

    Citigroup: $2.5 trillion ($2,500,000,000,000)
    Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
    Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
    Bank of America: $1.344 trillion ($1,344,000,000,000)
    Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
    Bear Sterns: $853 billion ($853,000,000,000)
    Goldman Sachs: $814 billion ($814,000,000,000)
    Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
    JP Morgan Chase: $391 billion ($391,000,000,000)
    Deutsche Bank (Germany): $354 billion ($354,000,000,000)
    UBS (Switzerland): $287 billion ($287,000,000,000)
    Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
    Lehman Brothers: $183 billion ($183,000,000,000)
    Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
    BNP Paribas (France): $175 billion ($175,000,000,000)
    and many many more including banks in Belgium of all places

View the 266-page GAO audit of the Federal Reserve (July 21st, 2011):

More on link

No and yes:

1. It is the very nature, indeed purpose, of central banks to print money and give it away. It would be malignant folly to give such power to elected politicians or, worse, the people ~ the former are venal and the latter stupid; but

2. Gresham's law still applies but now that exchange rates are set in the market, no mater what governments or central banks or the "people" say or do, the decline of a debased currency is predictable and one can defend against it.

 

[a_majoor]

While the "cue ominous music" theme on the Chinese thread is bad enough; the fact that this is out in the open staring at the American people should be the cue for the "Psycho" screaming violins...

http://www.americanthinker.com/blog/2012/09/bob_woodward_inadvertently_confirms_the_coming_economic_apocalypse.html

Bob Woodward Inadvertently Confirms The Coming Economic Apocalypse
Monty Pelerin

Bob Woodward has yet another book coming out, and the consummate Washington insider provides us with a glimpse of what's in it. In doing so, he inadvertently confirms what so many internet pundits have been warning about -- an economic catastrophe of unimaginable proportions.

In the article in the Washington Post, Woodward describes the debt-ceiling confrontation between Congress and the President. It is likely that Mr. Woodward or most other political types do not recognize the admissions contained within the article. For these people, politics is a game of winners and losers. That is where the drama and excitement is.

For these folks, economics is a sideshow.  To them, economics is to politics like the Toledo Mud Hens are to the New York Yankees.  If the Mud Hens send someone to the majors, then these people consider how it might affect the Yankees' chances of winning the World Series.

It is Woodward's fascination with the interplay of politics and politicians that dominates his article. The title of the article evidences this Beltway fixation: Inside story of Obama's struggle to keep Congress from controlling outcome of debt ceiling crisis. The real story is missed. That is the admission of the hopeless condition of the US economy.

Anyone concerned with the impending economic collapse will find Woodward's account fascinating, although not for the reasons he intended. He stumbled into truth, important truth, and seems to have missed it entirely. What follows is an excerpt from the article with the italics added by me:

    Another possible outcome, Geithner said, was perhaps worse. "Suppose we have an auction and no one shows up?"

    The cascading impact would be unknowable. The world could decide to dump U.S. Treasuries. Prices would plummet, interest rates would skyrocket. The one pillar of stability, the United States, the rock in the global economy, could collapse.

    "So," the president said, "if we give $1.2 trillion now in spending cuts" - the amount in the House bill to get the first increase in the debt ceiling for about six to nine months - "what happens next time?" The Republicans would then come back next year, in the middle of the presidential campaign, and impose more conditions on the next debt ceiling increase. He could not give the Republicans that kind of leverage, that kind of weapon. It was hostage taking. It was blackmail. "This will forever change the relationship between the presidency and the Congress.

    "Imagine if, when Nancy Pelosi had become speaker, she had said to George W. Bush, 'End the Iraq war, or I'm going to cause a global financial crisis.' "

    So, Obama said, they had to break the Republicans on this. Otherwise, they would be back whenever it suited them politically.

    They were out of options, Geithner said. The only one might be accepting the House bill, loathsome as it might be. "The 2008 financial crisis will be seen as a minor blip if we default," he said.

    The president said, "The Republicans are forcing the risk of a default on us. I can't stop them from doing that. We can have the fight now, or we can have the fight later on, but the fight is coming to us."

    So, no, Obama said, he was not going to cave. Period. He said good night, got up and left. He was very agitated.

    Geithner thought there was one other consideration. He did not mention it to anyone, not even the president, but he had thought about it a great deal. It was not just that Obama faced an economic choice or a political choice. He faced a moral choice.

    The president should not put himself in the position of saying unequivocally that he would veto, Geithner concluded, for one simple reason: No one could be sure how to put the American or the global economy back together again. The impact would be calamitous.

    "And the people who would bear the pain of that would be the people less prepared," Geithner told others, "less able to absorb that cost. It would be something you could not cure. It is not something you can come back and say, a week later, 'Oh, we fixed it.' It would be indelible, incurable. It would last for generations."

Turbo Timmy Geithner confesses the desperate nature of the situation. The government is broke.  Geithner fears the world knows this when he says: "Suppose we have an auction and no one shows up?" Geithner knows that we cannot finance our deficits using traditional credit markets. The deficits are too large and the government has no credibility regarding the required spending cuts. Geithner was admitting that markets would not allow the US government to continue its profligate ways. That admission is major news, although not to Woodward and his politically-oriented audience.

Credit markets have (or nearly have) stopped US government debt financing. That's why we have the Federal Reserve, the counterfeiter of last resort. If government can raise the debt limit, then it would be legal for the Treasury to issue new debt. The Treasury's sibling, the Fed, would buy it by printing new money. That would allow the government to pay its bills for a while longer.

One must wonder about the intelligence and stewardship of Timmy and the other attendees of this meeting. When Geithner declares:  "It would be indelible, incurable. It would last for generations," he is stating the inevitable. Raising the debt limit does nothing to change the US condition other than temporarily postpone his predicted outcome.

The two italicized sentences of Geithner's reveal what the American people need to know. No one will buy US Treasuries other than the Federal Reserve. Raising the debt limit only puts the government more hopelessly in debt, ensuring that Treasuries will be even more difficult to sell. Without intending it, Geithner admits that Bernanke will be printing money until the electricity is shut off or until hyperinflation shuts everything economic down. In either case, we reach his "indelible, incurable" situation which will "last for generations."

Now, don't you feel better knowing Woodward's inside account of what is going on. These geniuses were rearranging the deck chairs on the Titanic instead of addressing the iceberg that will sink the country. At least Woodward seemed to enjoy the political intrigue.

Read more: http://www.americanthinker.com/blog/2012/09/bob_woodward_inadvertently_confirms_the_coming_economic_apocalypse.html#ixzz26DmwbtvB

 

[a_majoor]

Another downgrade. No one with even a minimal schooling in classical or Austrian economic theory would have ever suggested flooding more cash ito the economy, and even Keynesians should have recognized that the $800 billion "stimulus" and the $5 trillion in deficit spending since 2008 has failed (the 11% U3 unemployment figure and 7% drop in US median incomes is a devastating answer to anyone who would claim otherwise). Watch for the bond hawks to start coming out:

http://www.cnbc.com/id/49037337

US Credit Rating Cut by Egan-Jones ... Again
Published: Friday, 14 Sep 2012 | 3:43 PM ET

By: CNBC.com With Reuters

Ratings firm Egan-Jones cut its credit rating on the U.S. government to "AA-" from "AA," citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country's credit quality.

Getty Images
The Fed on Thursday said it would pump $40 billion into the U.S. economy each month until it saw a sustained upturn in the weak jobs market. (Read more: Fed's 'QE Infinity' — Four Things That Could Go Wrong)

In its downgrade, the firm said that issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.'s real gross domestic product, but reduces the value of the dollar.

In turn, this increases the cost of commodities, which will pressure the profitability of businesses and increase the costs of consumers thereby reducing consumer purchasing power, the firm said.

In April, Egan-Jones cuts the U.S. credit rating to "AA" from "AA+" with a negative watch, citing a lack of progress in cutting the mounting federal debt.

Moody's Investors Service [MCO  43.82    0.07  (+0.16%)  ] currently rates the United States Aaa, Fitch rates the country AAA, and Standard & Poor's rates the country AA-plus. All three of those ratings have a negative outlook.

For those of you who don't recognize the term; Bond Hawks demand higher interest "risk premiums" on securities, so while the Fed may wish to have almost 0% interest rates, bond hawks will not purchase Treasuries until the Fed offers a higher risk premium.

And an update with a more detailed analysis:

http://princearthurherald.com/news/detail/?id=054129c1-3550-46c5-b1cb-21982a939d64

The Federal Reserve declares war on savers
by Erik Scanlon
15 September 2012

The Fed lowers the interest rates in the hope of stimulating more investment and job growth. The flip side is that the Fed is penalizing savers, especially retirees.

The Federal Open Market Committee (or Fed colloquially) chaired by Ben Bernanke has released its policy statement today confirming Fed watchers’ expectations of a new bond-buying program.  The new program already called QE3, for quantitative easing 3, will consist of monthly purchases of mortgage-backed securities worth 40 billion dollars for an indeterminate amount of time.  So what are all the implications of such a program and how will it affect Americans in their day-to-day lives or how it may affect the rest of the world for that matter?

Firstly, the intent of QE3 is to stimulate the economy. Unemployment is high in the US and rate of growth of the economy is low, which means people are not as wealthy on average as they could be. The Fed lowers the interest rates in the hope of stimulating more investment and job growth. Consequently, more people will refinance mortgages at lower rates or new credit cards get approved at lower rates, which triggers more spending and are conducive to more investment in a business-friendly environment. However, the flip side is that the Fed is grilling savers. If you are working, earning a salary, and living on credit, such policies as QE3 are great! But, if you are retired and living on savings, the Fed’s action are tantamount to a kick in the teeth.

Imagine living on the interest of your hard earned savings. You are 73 and you had purchased an American government bond that matured in 15 years back in 1997, when it was yielding ~7% or so. You had saved money and sold your huge house for a smaller condo as your kids moved out raising a nest egg of $500,000 which you stuffed into the above mentioned bonds. You had been living of the $35,000 dollars worth of yearly interest quite well. Now it’s 2012 and that 1997 bond has matured, so you need to roll over your investment to continue getting interest to maintain your living costs. If you were to buy the same bond today maturing in 15 years, you would be looking at an interest rate of under 1.75% and revenue of just under $9,000 dollars a year. Even your Canadian Pension Plan cheque will be bigger, so you can forget Cuba and any other vacations you planned to take!

While this is a very specific and simplified example of the effect of the Fed’s policies on retirees, the damage is representative. This is not however the only harm being done to the economy and to ordinary citizens. There is a long laundry list of harms one could list here with regards to Bernanke’s ‘easy monetary policy`, especially since the 1990s inflation targeting has been the most widely adopted policy stance for central bankers. That is, central bankers have tried to create a financial climate, free of uncertainty, regarding the value of money. Rejecting the policies of past central banks made businesses confident that they could expect inflation of 2% every year, so that the value of their investments and efforts would not go down the drain through hyperinflation. Central to this expectation was the promise that inflation targeting was the only concern of Central Banks.

“If the outlook for the labour market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities”

From the FOMC press release, September 13th

Ben Bernanke has rejected this approach, as evident from the language in the FOMC’s most recent communiqué, which reads like a policy approach for employment targeting – something every economist has now rejected as impossible to achieve and absurdly counter-effective. Bernanke cannot receive all the blame for this approach as the Fed remains one of the last central banks to have a dual mandate of employment maximization and inflation targeting. Up until Bernanke’s tenure as Chairman at the Fed, the FOMC had been understood to prioritize inflation in order to obtain maximum employment in the long run. This policy of rejecting its mandate in all but name had serve greatly in establishing a well-anchored expectation of low inflation for the future. Already analysts are beginning to fret that inflation vigilantes are readying their knives and are dumping government bonds. If inflation were to rear its ugly head, expect to see retirees suffer doubly from the low interest policies. Not only will their interest income be insufficient to cover life expenses, but inflation will nibble away, if not chew away the value of that income.

Precious few of us remember the 70s and 80s and how stagflation, the combination of high inflation and low growth, hurt our economies in those years. It would seem the Fed is the first of many to have forgotten the ills of those times and does not fear their return. What should also scare today’s workers and savers is that there is no end in sight for these irresponsible policies. What has surely prompted the monetary policy shift in the US is the abdication of fiscal policy to Washington for resolving the problems of the American economy. Unless some economic rationality and hawkishness makes a return to the halls of power in the world’s greatest economy, I am not confident the troubles of the past 4 years will be remembered by history books as the bottom of the crisis.

Expect more bubbles forming as low interest rates and perverse incentives by the government attract this flood of easy money, by speculators, crony capitalists and desperate savers looking for higher rates of return. F.A. Hayek is probably shaking his head in economist's heaven right now.

 

[tomahawk6]

Can you say desperation ? 8)

 

[tamouh]

The question needs to be asked is how much should a person gain from their money sitting doing nothing with little or no risk (i.e. gov't bonds, T-Bills). Can we justify 7% interest earned now a days on GICs? I've noticed in the past 10 years that many low income and middle income families now endulge in what was considered at a time fancy stuff. Take for example the increased number of people who dine at more expensive restaurants $20+ per plate , or consider a $4 capuccino cup the norm from Starbucks.

I believe middle class is using this low interest rate to get a taste of the rich life. While the rich is using that money to get even more rich and find something the middle class can't do yet!

Granted, we're witnessing an exceptional time. The US interest rates have not been this low since the federal reserve was established. Also, if inflation is edging up at 1.5%-3.5% annually, shouldn't our money invested in GIC gain at least  double that amount?

 

[Edward Campbell]

I pay attention to three indices: transparency - which defines levels of government corruption; education - which defines how "ready" a country is for change (because change always happens) and this one, economic freedom. This is a somewhat depressing review, reproduced under the Fair Dealing provisions of the Copyright Act from the National Review Online:

America’s Vanishing Economic Freedom
We’re on a slippery slope.

By Michael Tanner

September 19, 2012

The 2012 Economic Freedom of the World report was released this week by the Cato Institute and Canada’s Fraser Institute, and it showed that the United States has plummeted to 18th place in the ranked list, trailing such countries as Estonia, Taiwan, and Qatar. Even such notorious welfare states as Finland and Denmark, not to mention Canada, have freer economies than we do.

Actually, the decline began under President George W. Bush. For 20 years the U.S. had consistently ranked as one of the world’s three freest economies, along with Hong Kong and Singapore. By the end of the Bush presidency, we were barely in the top ten.

And, as with so many disastrous legacies of the Bush era, Barack Obama took a bad thing and made it worse.

During the past four years, the U.S. saw significant declines in nearly all categories of the economic-liberty index. Most significant — and this should come as no surprise to anyone paying attention — is that the size of government grew substantially, particularly when measured by size of government subsidies and transfers and by government consumption as a share of national consumption.
As recently as 2005, the U.S. ranked 45th in size of government among the 144 nations surveyed. That was bad enough, but it still had us in the top third of the 144 countries surveyed. Today, government has grown dramatically, and our ranking has fallen to 61st place. By the metrics used, the U.S. now has a bigger government than Ukraine or Syria.

The United States has also seen a substantial increase in business regulations, labor-market restrictions, and barriers to trade. Our standing fell in all those categories, and we have undergone a long-term deterioration in ranking on property rights as well.

To anyone wondering why the U.S. is having such a hard time recovering from this recession, the 2012 report provides a pretty devastating diagnosis. We are clearly headed in the wrong direction.

Yet discussion of economic freedom seems curiously missing from the presidential campaign. President Obama, in fact, would further restrict economic liberty. He proposes a host of new subsidies and regulations. And don’t forget that the largest parts of Dodd-Frank kick in next year.

Meanwhile, when it comes to defending economic liberty, Mitt Romney has spent most of his time in a defensive crouch. He occasionally breaks form to promise he won’t really reduce taxes on the wealthy, won’t cut Medicare, and wants to keep some parts of Obamacare. He’s actually running ads attacking the president for not confronting China over trade.

Americans instinctively know the importance of economic freedom. They know that it is their ability to invest, start businesses, and hire workers that builds a prosperous country. They know that millions have come to this country and prospered because they had freedom to pursue their economic aspirations as well as their personal ones. And they find this freedom now slipping away.

They need a candidate to speak for them . . . and for freedom.

— Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

On the transparency index the key ratings are:

1. New Zealnd          - Least corrupt
5. Singapore
10. Canada              - Not very corrupt at all
12. Hong Kong
24. USA                    - Not very corrupt
46. Bahrain              - Pretty corrupt
180. Afghanistan  )
182. North Korea  )  - Irredeemably corrupt
182. Somalia        )

On the educational attainment index the key ratings are much harder to define and find but, generally, Canada ranks very high, often on top, the USA is high - almost always in the top 10 on everything except standardized test scores where it is often well below the top 10, Singapore and Hong Kong score lower on attainment, which is measured by years in school, but very, very high on standardized test scores. Very broadly:

  + Singapore and Hong Kong are full of very smart people, most of whom do not go to graduate school;
  + Canada and New Zealand are full of reasonably smart people who often go to grad school; and
  + America has far fewer smart people but an awful lot of them go to graduate school anyway.