Notice all the news stories that report lower housing prices as a bad development? Here's some sort of financial industry figure complaining that the prices of housing keeps dropping. Aren't lower prices supposed to be good? Bright spots are low prices, not high ones.
Month-over-month home prices fell in all 20 markets during January and are now at late 2003 levels.
"There are very few bright spots that one can see in the data," said David Blitzer, chairman of the index committee at Standard and Poor's. "Most of the nation appears to remain on a downward path, with all of the 20 metro areas reporting annual declines, and nine of the MSAs (metropolitan statistical areas) falling more than 20% in the last year."
All told, prices have plunged 29.1% nationally since they peaked during the second quarter of 2006, according to Case-Shiller.
This all sounds like good news to me. The forecast is for even bigger bargains.
Brett Arends of the Wall Street Journal says housing prices are still too high to be bargains.
Even today, prices overall have only reverted to levels seen in late 2003. Yet by that stage the bubble was already well inflated. You would expect a crash of this scale to retrace its steps much further. To find pre-bubble prices you have to go back to about 2000 – when values overall were about a third lower than they are today.
It's true that mortgage rates, now at 4.5% to 5%, are currently very low. But relying just on that is far too simplistic. Rates were also low from 2003 through 2005 – as many pointed out, disastrously, at the time.
So we are waiting for the real bargains.
RIO DE JANEIRO, March 28 (Reuters) - The government of Rio de Janeiro is building concrete walls to prevent sprawling slums from spreading farther into the picturesque hills of this world-famous tourist destination, an official said on Saturday.
Construction has begun in two favelas, or shantytowns, in the southern districts of Rio de Janeiro, a government spokeswoman told Reuters. One of the two is Morro Dona Marta, which police occupied in November to control crime and violence caused mostly by rival drug gangs.
That's one way to control urban sprawl. It illustrates how the rule of law isn't sufficient to maintain control. Physical barriers are needed.
Some people complain about Mexico as a failed state. But Brazil does Mexico a favor by being worse. Thankfully though for Brazil, El Salvador has an even bigger murder problem.
According to the latest statistics available from the UN, the murder rate in Mexico in 2006 was 10.97 per 100,000 people, with a total of 11,558 homicides that year. Assuming 6,000 people were killed in 2008 because of the drug violence compared to a conservative estimate of 1,500 in 2006, this rate would have risen to around 15 last year, all other factors being equal. Colombia, Brazil, Venezuela and Guatemala all have higher rates, according to various sources including the UN and the World Health Organization, while in Latin America the list is headed by El Salvador with, in 2006, a whopping 58 murders per 100,000 people.
Rio de Janeiro, Brazil - Checking car registrations in Rio de Janeiro is a thankless task.
So far this morning, transit official Roberto Barbosa has been verbally abused by drivers and chewed out by pedestrians. An entire busload of commuters screamed invectives as they rode past.
Mr. Barbosa, his colleagues, and hundreds of other city and state officials are the sharp ends of a new push to transform a city famous for its "anything goes" outlook into a metropolis where laws have meaning again.
"We Cariocas are famous and proud of our informality, but it had become illegality, too," Zuenir Ventura, a popular columnist and author, says of Rio's decline into one of the world's most crime-ridden cities. "There was no respect for public places, no respect for noise levels, no respect for traffic laws, no respect for rules of any kind."
In relation to the death squads (esquadrões da morte), Alston says that these extermination groups are formed by police and others with the objective of killing, mainly for financial gain. "Such groups sometimes justify their actions as an illegal tool of 'combating crime'. In cases where the groups are being contracted for money, the contractors sometimes integrate other criminal organizations, such as traffickers or corrupt politicians who feel threatened and are looking to dominate that threat, gain advantages over the other rival group, or to take revenge."
According to the report, data from the Public Ministry of Pernambuco indicates that approximately 70% of the assassinations in Pernambuco are carried out by death squads.
"One CPI (Parliamentary Inquiry Commission) of the national congress found that the majority of extermination groups are made up of government agents (police and prison agents) and that 80% of the crimes committed by these extermination groups involve police or ex-police," it added.
America's immigration law enforcement ought to be pursued far more aggressively to remove foreign criminals from our society. I do not want America to become more like Brazil or Mexico.
Think you have enough money to support you in good style in retirement? Health care costs are the Achilles Heel of many retirement plans.
A 65-year-old couple retiring in 2009 will need approximately $240,0001 to cover medical expenses in retirement2 even with Medicare insurance coverage, according to Fidelity Investments’ latest health care cost estimate. This figure is a 6.7 percent increase over the 2008 estimate of $225,000.
That is a $15,000 increase of total costs in just one year. Imagine someone at age 64 deciding "Hey, I've gotta save an additional $15k before I can retire next year". Suppose this $15k increase happens year after year. Someone retiring 10 years from now will need another $150k.
Getting sick is expensive, even if a government is footing most of the bill. Avoid sickness. You can't afford it.
Fidelity Investments has calculated an annual retiree health care cost estimate since 2002. For many Americans, health care is likely to be their largest expense in retirement. Over the past seven years, the amount needed for retiree health care costs has jumped $80,000 or 50 percent from $160,000 in 2002.
I'm forecasting de facto rationing of health care just like in Britain, Canada, and other countries with socialized medicine. How will the US government implement waiting queues?
Plan on working to age 75. If you are young enough plan on never retiring since rejuvenation therapies will make retirement obsolete and unaffordable. But before we reach that point I'm expecting much higher costs and rationing.
“American households, already under strain from the difficult economy, are facing another challenge to their financial security in retirement as medical costs continue to rise steadily,” said Brad Kimler, executive vice president of Fidelity’s Consulting Services business, which calculated the retiree health care cost estimate. “With employee-sponsored retiree health care coverage on the decline nationwide, it is imperative that today’s workers begin to set aside money themselves for medical expenses in retirement as part of their overall retirement strategy.”
As in years past, the Fidelity 2009 retiree health care cost estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program Medicare. The Fidelity estimate takes into account cost sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Medicare.
The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.
The jump in the retiree health care cost estimate from 2008 to 2009 can be attributed to a number of factors including higher costs (e.g. for doctor’s visits, diagnostic tests); increased expenses associated with new technology; and general price inflation.
What I want to know: What real tangible benefits are we getting in exchange for the higher costs?
For medical costs all you ever hear about are increases. We spend more every year. But at least in plastic surgery some costs are dropping. Laser resurfacing costs have dropped.
New trends reveal that laser technology is steering the future of the cosmetic surgery industry. The American Academy of Cosmetic Surgery (AACS), a leader in the cosmetic surgery industry, conducted its annual Procedural Survey and the most notable finding is the shift towards non-invasive laser treatments.
Over the past three years, cosmetic surgeons have seen a significant increase in both males (456%) and females (215%) electing to have laser resurfacing. Laser resurfacing is performed with a "super-pulsed" carbon dioxide (CO2) laser to minimize wrinkles and lines on the face. In addition, laser hair removal has jumped to the overall number two most performed non-invasive cosmetic procedure.
"Cosmetic surgery technology is advancing at the speed of light," states AACS President Patrick McMenamin, MD. "As we learn more about the cosmetic uses for lasers, the more patients benefit from effective results and quicker recovery time. It is an exciting time for both cosmetic surgery patients and physicians."
Although the economy is struggling, these laser procedures are looking to be recession proof. For instance, laser resurfacing has seen an approximate $450 decline in price since 2002. "As long these procedures are effective and affordable, I don't see their demand dropping."
Have any procedure costs dropped lately for non-plastic surgery treatments and surgeries? Has laparoscopic surgery cut the costs charged to patients and insurance companies?
BEIJING -- China called for the creation of a new currency to eventually replace the dollar as the world's standard, proposing a sweeping overhaul of global finance that reflects developing nations' growing unhappiness with the U.S. role in the world economy.The unusual proposal, made by central bank governor Zhou Xiaochuan in an essay released Monday in Beijing, is part of China's increasingly assertive approach to shaping the global response to the financial crisis.
Such a move would make it harder for China to maintain a large trade surplus with the US. China's currency might some day replace the US dollar as the world's reserve currency. But such a turn of events would reduce the power of the Chinese government to control trade and economic growth in China.
The Chinese could try to turn a group of currencies into a replacement for the dollar. But such a grouping would be very hard to manage. What would be the initial ratio between the currencies and how might the ratio change as different economies grow at different speeds?
The growth of Chinese economic power makes me worry about what happens when the Chinese become unhappy with freedom of speech and press in other countries. China has cut off Youtube due to a video showing Chinese soldiers beating Tibetan monks.
Earlier in the week, the BBC reported from Beijing that China cut off access to the website because it carried a video showing soldiers beating monks and other Tibetans.
The graphic video was released by Tibetan exiles and showed hundreds of uniformed Chinese troops swarming through a Tibetan monastery. It included footage of a group of troops beating a man with batons.
Turkey bans Youtube even while trying to become a member of the European Union. The Euro countries should not let Turkey into the EU. Turkey isn't compatible with secular liberal democracies.
China is not alone in prohibiting access to YouTube. Over the years several other countries have done the same thing.
Earlier this month Bangladesh blocked the site for 36 hours after a video was posted showing a tense meeting between the prime minister and angry army officials after a mutiny by border guards in Dhaka that left more than 70 people dead.
The site is presently being blocked in Turkey.
You might think our elites have discredited and weakened themselves as a result of the on-going financial debacle. Our biggest banks have either collapsed or have been bailed out with central bank and government money. We are descending into probably the biggest downturn since the 1930s Great Depression. Government-Sponsored Entities (GSEs) such as Freddie Mac and Fannie Mae played large roles in causing the disaster (egged on by Congressional critters who even now point the blame elsewhere with a total lack of shame). So time for a reduction in power in the hands of central governments and international institutions? Fat chance. Ross Douthat expects more centralization and more global regulation and control in the hands of our elites. Less democracy.
If the Western leadership class survives the current crisis, after all, the lesson they're going to draw from it is relatively simple: We must never let this happen again. And while that impulse could be a spur to greater decentralization and democratization, it's more likely to be produce greater supranational regulation, more expansive bureaucracy, and a more hand-in-glove relationship between big government and big business than existed before the crisis. In theory, one way to respond to a "populist whirlwind" would be to make governments more accountable to the voting public. But in practice, I suspect, the more likely response will be to build stronger dikes and firewalls against the dangerous and unpredictable masses, producing post-crisis institutions that are even more insulated from democratic accountability than they were before.
Of course we need to keep holding elections. Those elections bestow legitimacy on our rulers.
I think Holman W. Jenkins of the Wall Street Journal does a nice job of showing us what large segments of our elites think about our (us, the masses) role in this mess. If only the experts had not involved elected office holders in the development of solutions all would be well according to Jenkins.
Never was it a good idea to have a financial crisis in the middle of a presidential election. Involving Congress was a mistake. Letting the technical matter of keeping the banks afloat become a political football was a terrible idea. Letting our willingness to deploy giant sums of taxpayer money become the measure of credibility was a disaster. Letting all this be sold on Capitol Hill amid shrieks about the country collapsing into a Second Great Depression was a confidence killer across the economy, which until that point had held up well.
It's possible in hindsight to imagine a better course. Had matters simply been left in the hands of the Federal Reserve and fellow bank regulators, the "crisis" might have become fodder for little more than future late-night reminiscences by retired bureaucrats, pleasuring themselves with how closely the world came to burning down without the public ever knowing it.
Really, the Mandarins know best. I think we are going to become more like China. The upside: you won't need to feel responsible about larger events. You won't have any control over them.
Mexico City and Washington - The United States unveiled Tuesday a beefed-up, multiagency security plan for the US-Mexico border that reflects President Obama's recognition of the "two-way" street responsible for rising drug violence. The plan allows Secretary of State Hillary Rodham Clinton to emphasize cooperative action when she visits the embattled southern neighbor Wednesday.
The border security policy includes the formation of a new FBI-directed Southwest Intelligence Group, relocating 100 federal agents to the border to curtail gun trafficking, and sending more federal agents to Mexico to coordinate counternarcotics operations. But it does not endorse Texas Gov. Rick Perry's call for National Guard troops on the border.
The border would not cause large scale lawlessness and criminality in Mexico if crossing the border with illegal goals was not so easy to do. Imagine that walls and ditches with lots of barbed wire made illegal crossings at uncontrolled locations impossible. Imagine that the scale of the effort to search vehicles and trains was ramped up by an order of magnitude. Fewer illegals and much less contraband (whether drugs, guns, or stolen goods) would get thru. In America we'd see a reduction in crime, a slowing of the growth rate of social pathology, and the demographic decay would be less bad. In Mexico the organized crime organizations would have much less money to fund their activities. More people in Mexico would engage in constructive activity instead of criminal activity. Both countries would be better off.
US Congressional Representative and libertarian Ron Paul (R-TX) tells the Financial Times that we are headed into a long depression.
Unfortunately, cashing out will not protect the value of investments, he insists, because “fiat” currencies will all decline over the coming years as measures to try to haul the world economy out of recession fail. “The current stimulus measures are making things a lot worse,” says Mr Paul.
“The US government just won’t allow the correction the economy needs.” He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. “No one remembers that one. They’ll remember this one, because it will last 15 years.”
At some stage – Mr Paul estimates it will be between one and four years – the dollar will implode. “The dollar as a reserve standard is done,” he says. He sees little hope for other currencies where central banks have also created too much liquidity dating right back to the early 1970s.
Also, at the gambling911.com web site after arguing for legalized gambling Paul says we are already in a depression and government is extending it by delaying a needed massive liquidation of bad debt.
CONGRESSMAN PAUL: For some people, we're in a deep depression. I imagine if you live in Detroit, you wouldn't have to argue about when the depression is going to start. Government statistics on unemployment are always more optimistic then they really are; I think today they came out and unemployment is over 10% and that's getting pretty serious. But others in the private sector who count all the people who have quit looking for work - it's probably 17 or 18%. That's huge and the sentiment is so negative and the amount of welfare has been wiped of the books has been into the many many trillions of dollars so I would say that we are in a very very depressed condition - much worse than any recession we've had in a long time. I think we have a long way to go because the proper policies have not been solid. We're doing everything to prop up the bad system rather than allowing the debt to be liquidated and prices to fall. For instance, there are too many houses around; there are 19 million houses unoccupied and still the prices are too high and they're working hard to try to keep these prices up. But you want these prices to go down and people who have money to buy these houses so we can go back to building houses again. However, if the government keep interfering with this liquidation of all of the mistakes made then it just takes that much longer. So I think the economy is going to continue and eventually most people recognize this as a depression.
Paul argues the US needs something like the short deep downturn of 1921. Curiously, that downturn was longer and deeper for Britain whereas Britain had a much shallower downturn in the 1930s than the US did.
You can see lots of manifestations of this political resistance to market corrections. Financial and industrial companies are kept out of bankruptcy with government-provided money. Also, the big injections of federal money to increase mortgage availability and to prop up overpriced housing delays the recovery of the housing market. Obama and others on the Left will argue for affordable housing while trying to prevent prices from dropping.
I do not expect a 15 year downturn due to this financial crisis. But other problems such as the retirement of the baby boomers, the huge unfunded liabilities for old age benefits, Peak Oil, and the lower academic achievement of our growing NAM (Non-Asian Minority) population all argue for lower rates of economic growth and even economic contraction.
Update: Rolfe Winkler argues that Summers and Geithner would prescribe austerity for less developed countries faced with so much debt.
The great Ponzi scheme that is the Western World’s economy has grown so big there’s simply no “fixing” it. Flushing more debt through the system would be like giving Madoff a few billion to tide him over. Or like adding another floor to the Tower of Babel. To what end? The collapse is already here. The question is: How much do we want it to hurt?
Using the public’s purse to finance “confidence” in a system that is already kaput may delay the Day of Reckoning, sure, but at the cost of multiplying our losses. Perhaps fantastically.
Bottom line….We can bankrupt ourselves propping up a system that is collapsing anyway, or we can dig ourselves out of debt, if not with higher interest rates then certainly with fiscal austerity. That would be a hard sell to the American people, I know. But deep down, Summers and Geithner know it is the right thing to do. It is, after all, the prescription they wrote for emerging markets facing financial crises.
The propping up definitely transfers money between groups within our society. Renters and full home owners pay mortgage holders. The prudent pay the profligate. The American taxpayers pay the holders of bank debt and credit default swaps. I fear that reducing the cost of bad decisions by financial firms will cause far larger costs for us in the future.
In Latvia economists need to watch what they say or wind up in jail. Hey, didn't the secret police get phased out with the withdrawal of the Russian colonial power?
VENTSPILS, LATVIA - Last November, Dmitrijs Smirnovs, a young economics professor in this coastal university town, published an essay in a leading Latvian newspaper warning that the country was heading for a financial collapse to rival Iceland's.
Soon after, the secret police showed up at his home. They held Mr. Smirnovs for two days. The charge: spreading unrest and destabilizing Latvia's financial and banking system.
"I said we are bankrupt. I wrote that people should not have their money in banks, and they should not keep their money in Latvian lats," Smirnovs recalls, sitting in his cold office, the heat turned off, he says, to save money. "That was enough to have me detained. They are still investigating me."
Was Smirnovs exaggerating? No, Latvia is heading into a depression.
Latvia's economy grew at a double-digit pace for years since it joined the EU in 2004. But it fell 10.5 percent year-on-year in the last quarter of 2008. The gross domestic product is expected to decrease another 12 percent this year. Unemployment could reach 15 percent. Housing prices, once a boon, are down 25 percent, according to Global Property Guide.
Total economic contraction will exceed 20%. That's a depression, not a recession.
Harvard economist and former IMF chief economist Ken Rogoff offers some comments on just how big the economic problem has become (skip ahead to time 1:55 where his comments start).
Rogoff's comments support the views that put Smirnovs into police custody for a couple of days. Rogoff says some countries can not afford to guarantee away their bad bank debts because the debts are too large.
"In a lot of European countries the banking liabilities, what they owe, are three and five times national incomes. They can't guarantee them. So many of the policy makers are like deer caught in the headlights. They don't know what to do."
People who think Barack Obama and little Timmy Geithner know what to do should rethink their beliefs. These people are in over their heads. Their response has been too small scale in Rogoff's view. He also expects policy makers to embrace inflation as a solution.
"To fix the banking system would be a couple of trillion dollars... The trouble is if you don't put enough money, if you're not decisive enough, you've done nothing...That's what's been happening frankly. ...I personally believe we are going to end up deciding to inflate it away".
Rogoff underscores the immensity of what has happened.
"What's scary about this is that the financial system has imploded and you can't get going again without fixing it."
Rogoff faults US policy makers for their feelings of exceptionalism:
"They thought 'We're the United States, we're special, we can do this, we can borrow lots of money'." ... Its just incredible that with house prices doubling in 5 years just off the charts of things we've ever seen that you'd have the head of the Federal Reserve, the US Treasury Secretary, our leaders going and say 'this is fine, this is financial globalization, its just that we're doing a good job.' Its hard not to get angry".
Rogoff thinks it will take 4 years (the end of 2011) to get back to the level of incomes we had before this crisis started. Before then he thinks unemployment in the United States could reach 11% or even 12%. He also thinks housing could go down 2 more years till it hits bottom.
A MetLife study released last week found that 50% of Americans said they have only a one-month cushion -- roughly two paychecks -- or less before they would be unable to fully meet their financial obligations if they were to lose their jobs. More disturbing is that 28% said they could not make ends meet for longer than two weeks without their jobs.
Peggy Noonan says people are feeling a lot of fear.
Gun sales continue up. The FBI’s criminal background check system showed a 23% increase in February over the previous year, a 29% increase in January, a 24% increase in December and a 42% increase in November, when a record 1.5 million background checks were performed. Yes, people fear Obama will take away the guns he thinks they cling to, but a likely equal contributor to what The Wall Street Journal’s MarketWatch called a “gun-buying binge” is captured in the slogan on one firearms maker’s Web site: “Smith & Wesson stands for protection.” People are scared.
Also, people have lost faith in our leaders. No kidding.
I spoke to a Manhattan-based psychiatrist who said there is an uptick in the number of his patients reporting depression and anxiety. He believes part of the reason is that we’re in a new place, that “When people move into a new home they increasingly recognize the importance of their previous environment.” Our new home is postprosperity America; the old one was the abundance; we miss it. But he also detected a political dimension to his patients’ anguish. He felt that many see our leaders as “selfish and dishonest,” that “our institutions have been revealed as incompetent and undependable.” People feel “unled, overwhelmed,” the situation “seemingly unsalvageable.” The net result? He thinks what he is seeing, within and without his practice, is a “psychological pandemic of fear” as to the future of things—of our country, and even of mankind.
I find myself pining for life in a simpler paradise.
Can we run America down? Can we collectively act so foolishly that national bankruptcy becomes a possibility? Sure. We are going to average almost $1 trillion in debt per year for the next 10 years as Barack Obama tries to outdo George W. Bush in fiscal irresponsibility.
This year's budget deficit will hit $1.845 trillion, the nonpartisan Congressional Budget Office estimated Friday — a figure $600 billion higher than the CBO projected just six weeks ago.
The agency also predicted a total of $9.3 trillion in deficits over the next 10 years.
I think American triumphalism leads many to believe that surely we can't really and truly ruin the place. We keep doing more stupid things and ruin doesn't happen. So we begin to think we are immune. This just leads to doing even bigger stupid things. Hey, its not like we can be so incredibly stupid that we bust our biggest banks. Oh wait...
The result, according to the CBO, would be an ever-expanding national debt that would exceed 82 percent of the overall economy by 2019 -- double last year's level -- and threaten the nation's financial stability.
"This clearly creates a scenario where the country's going to go bankrupt. It's almost that simple," said Sen. Judd Gregg (N.H.), the senior Republican on the Senate Budget Committee, who briefly considered joining the Obama administration as commerce secretary. "One would hope these numbers would wake somebody up," Gregg said.
We are becoming more like southern Europe. A high debt puts us in league with Italy (with a public debt 105.6% of GDP for 2007). We are even bringing in Hispanic immigrants who some try to compare to Italians as a way to assure us it'll all work out. What could go wrong?
The retirement of the baby boomers and the worsening demographic condition of the country (the next gen isn't going to be as educated or as smart) are going to bring to a head a set of long developing problems. At a time when our problems are starting to come to a head Saint Barack wants to expand the Great Society. Really bad timing.
In his White House run, Obama assailed the economic policies of his predecessor, but the eye-popping deficit numbers threaten to swamp his ambitious agenda of overhauling health care, exploring new energy sources and enacting scores of domestic programs.
The dismal deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his Democratic allies controlling Congress would have to consider raising taxes after the recession ends or else pare back his agenda.
The battle of the 2010s is going to revolve around whether to cut benefits or raise taxes. Saint Barack is going to get one last big expansion of the Leviathan into place. But after that the cuts begin.
California 's chronic dysfunction shows America our future. We have high income and sales taxes. But the Leviathan just can't get enough. Constitutional provisions make it easier to increase spending than to increase taxes. Combined with liberal voters and a massive and growing immigrant permanent lower class the result is continued decay of the state government's fiscal position.
The bipartisan budget compromise passed last month included $12.5 billion in temporary tax increases, $15 billion in cuts, $8.5 billion in federal stimulus aid, $5 billion in borrowing and some funding shifts to close an unprecedented $42 billion deficit over the next 16 months.
Yesterday, Taylor said the budget has already developed an $8 billion hole because of a $6 billion projected revenue shortfall and $2 billion set aside in reserves. But he said the state could receive up to $3.5 billion more in federal aid for education, which could pare the shortfall to $3 billion or less.
While a deficit of that size would not be terribly daunting to lawmakers who routinely faced similar spreads in the past, the analyst forecast rapidly growing deficits starting again in the 2010-11 fiscal year.
“The reason for that is fairly simple. We have one-time solutions that drop out over time,” Taylor explained.
The projected deficit in 2010-11 is $12.6 billion, growing to $26 billion three years later. If voters reject Proposition 1A, the temporary tax increases approved last month would expire sooner, adding billions of dollars to the projected shortfalls.
How high will taxes go?
Former eBay CEO Meg Whitman is running for Governor of California as a Republican and she's campaigning against ballot measures coming up in May that Schwarzenegger wants to pass to close the $42 billion budget hole that preceded the new $8 billion budget hole. If these propositions do not pass the working assumption will rapidly change toward a much bigger deficit.
Proposition 1A would create a state spending limit and rainy day reserve fund while extending some of the tax increases that lawmakers and Schwarzenegger approved in the budget-balancing plan.
Proposition 1B would protect school funding when state revenue rebounds after a slump, and Proposition 1C would allow the state to borrow against future lottery earnings.
Propositions 1D and 1E would allow use of early childhood development and mental health funding for other children's programs. Proposition 1F would bar pay increases for state elected officials in years that the state runs a deficit.
Whitman said Proposition 1A was a "sustained tax increase masquerading as reform." She called Proposition 1B Proposition 1A's "working partner."
California governments are getting a large sum of money from Obama and the nation's taxpayers as part of Obama's stimulus spending. But most of that money can't be applied toward reducing the state deficit since it has to get spent on particular purposes.
To be clear, the federal spending package will actually deliver much more than $10 billion to California — some estimates peg the figure at as much as $50 billion in aid to local governments, business tax credits and other programs. But much of that money is earmarked for specific purposes, like unemployment and health benefits, and won't help plug the state's deficit.
Once the fiscal stimulus money is gone spent how are all the programs it funded going to get money to operate? These programs are creating more clients who want to keep the money and benefits flowing to them.
Britain's central bank expects price changes in Britain to go negative in coming months. The Bank of England reports a significant risk of Britain's falling into a depression.
The country is displaying early symptoms of being trapped in a so-called “debt deflation trap” where families find themselves pushed further and further into the red every month, according to a Bank report published today.
The stark warning will cause serious concerns, since it was this combination of falling prices and soaring debt burdens that plagued the US in the 1930s.
If the central bankers can't avoid a depression then they've learned little since the 1930s.
The show has just begun. Standard & Poor's expects most of the economic contraction will occur in 2009.
In our current view, we expect the U.S. recession will be deep and long and that it won't bottom out until the second half of 2009 as monetary and fiscal stimulus kicks in. Standard & Poor's expects that GDP will fall for four consecutive quarters, starting with the third quarter of 2008 through the second quarter of 2009. We now expect a peak-to-trough drop in real GDP of about 3.8%, but more will be in 2009 and less in 2008. Signs of recovery would likely show up in late 2009.
We expect GDP to fall 2.5% this year, much worse than the meager 1.1% increase in 2008. Growth will likely improve modestly in 2010, increasing just 2.0%. Housing will likely keep depressing the expansion through early 2010.
S&P do not expect housing prices to bottom until early 2010. This is not a good time to buy a house. Best to wait unless you are in an area where lots of auctions have driven down prices far below the peak.
S&P also see additional downside risk. Foreigners could stop buying US Treasuries and kick up US interest rates and inflation for example. The US has risk of getting stuck in a downturn for a much longer period of time like Japan in the 1990s.
All the property with values below the mortgages held on them will go further underwater this year. This increases the incentives for walking away from mortgages. The problems with walking away from mortgages have gotten smaller and better known. Expect more people to make that choice.
Europe did not escape the problems that swept the globe in 2008. The recession is hitting every country in the euro zone, where growth is likely to contract 2.7% in 2009, 3.4% less than last year's modest 0.7% performance.
We expect that Japan's recession will be its worst since World War II. After seven years of modest expansion, the Japanese economy will likely contract 4.0% in 2009 after already having fallen 0.7% in 2008. Two main engines of Japanese growth in recent years—corporate investments and net exports—have buckled under the credit crisis, the stronger yen, and a tumbling U.S. economy.
A 4% contraction in Japan. Ouch. They expect South Korea to contract 3.5%. South Korea still managed to grow 2.5% in 2008.
S&P expect China and India to grow 6.5% and 6% respectively.
The Obama Administration feels the need to reassure the Chinese government that America can afford to keep borrowing. I say America is even too bigger to fail than Citigroup. The Federal Reserve will bail out the government by inflating the currency. We'll avoid a default while wiping out debt holders.
“There’s no safer investment in the world than in the United States,” White House Press Secretary Robert Gibbs said yesterday at a briefing in Washington.
Gibbs was responding to comments from Wen that China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe. “I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets,” Wen said at a press briefing in Beijing.
On the irony. That's like the drug dealer telling the druggie to stay healthy so that the drug dealer can keep making deals with the druggie. China is our enabler for irresponsibility.
In a nutshell: the Chinese government would ideally like the US to run trade surpluses with some other countries, run no government deficit, and otherwise conduct ourselves in ways that will ensure they can always sell their US Treasury bond holdings for a profit. But at the same time the Chinese government wants to buy large amounts of our bonds in order to depress the value of the Chinese currency versus the dollar so that Americans buy far more from China than Americans sell to China. China wants us to live beyond our means but to stay financially solvent.
As long as some countries want to buy large amounts of US Treasuries as a safe haven holding the US will run a trade deficit and go further into debt to other governments and central banks.
The spreads on credit-default swaps for U.S. government debt jumped to 97 basis points Tuesday, nearly seven times higher than a year ago and 60% higher than the end of last year, to a level roughly in line with those of France, according to data supplied by Markit. The spreads also hit a record last week.
Bill Clinton, George W. Bush, and Barack Obama all got elected by the American people. Obviously we aren't showing signs of prudence in choosing elected officials for high office. This trend looks set to continue. So the higher insurance costs on US government debt seem a rational reaction on the part of the markets. One problem though: Which seller of debt default insurance for US sovereign government debt could possibly afford to pay off on default claims should the US government some day actually default?
Using GSS data Audacious Epigone finds that in America whites are the ethnic group which most strongly supports free speech. Since whites are a declining portion of the American population (on course to lose majority status) support for free speech is declining and will continue do so.
These are the wages of multiculturalism.
The decline in international trade is far larger than the decline in domestic economies around the world. If domestic economies collapsed as rapidly as trade then we'd be in a depression worse than the 1930s.
The U.S. trade deficit narrowed in January to $36 billion, the lowest level in six years, on tumbling American demand for everything from OPEC oil to Japanese automobiles, Commerce Department figures showed today in Washington. The Labor Department said prices of imported goods dropped for a seventh month in February, another byproduct of the global recession.
Imports fell faster than exports in large part due to lower oil prices. The US trade deficit will therefore shoot up when the economy starts expanding again - and even before then as lower oil production and less oil exploration reduce oil supplies. The decline in the deficit is less remarkable than the decline in overall trade flows. An approximate halving of trade is a massive reduction.
American exports have slumped at a 44 percent annual pace in the most recent six months of data, with imports shrinking 51 percent, probably the most since the Great Depression, according to Morgan Stanley analysts. The figures may add to pressure on the Obama administration to rework international agreements and include protections for U.S. workers and the environment.
The economic deterioration is similar to what happened in the 1970s but worse.
HONG KONG — China’s exports plunged by a record 25.7 percent last month, but investment spending surged as the country’s stimulus program took hold, Beijing authorities said Wednesday.
China still expects to run a large trade surplus and achieve a high rate of economic growth in 2009.
Mingchun Sun, China economist for Nomura International, lowered his forecast for China’s trade surplus this year to $155 billion, compared with $295 billion last year. But because so much of China’s exports consists of reprocessed imports — like assembling DVD players from imported computer chips and other foreign components — the Chinese economy may still reach the government’s target of 8 percent growth, he said.
I'm guessing they won't achieve 8% growth though.
By region in data not seasonally adjusted, the trade gap with Canada, the country's largest trading partner, continued to shrink, to 2.5 billion dollars, its weakest level since May 1999.
The politically sensitive massive gap with number-two trading partner China rose to 20.6 billion dollars in January from 19.9 billion dollars in December.
The January figures showed surpluses, in billions of dollars, with Hong Kong $1.0 ($1.0 for December), Singapore $0.7 ($0.7), Australia $0.6 ($0.7), and Egypt $0.2 ($0.2). Deficits were recorded, in billions of dollars, with China $20.6 ($19.9), Japan $4.3 ($5.3), OPEC $4.0 ($4.7), the European Union $3.5 ($7.0), Mexico $2.7 ($4.1), Canada $2.5 ($2.8), Korea $1.9 ($1.4), Taiwan $1.3 ($1.3), and Venezuela $1.1 ($1.2).
Advanced technology products (ATP) exports were $18.7 billion in January and imports were $20.7 billion, resulting in a deficit of $2.0 billion. January exports were $3.3 billion less than the $22.1 billion in December, while imports were $3.6 billion less than the $24.3 billion in December.
See this set of tables for some by-country breakdowns of US imports and exports. What leaps out at me: The US exported $4.178 billion of goods to China in January but imported $24.748 billion from China. That is a ratio of over 5.9 dollars of goods purchased per dollar of goods sold. Remember in the 1990s when business leaders and free market economists trumpeted a free trade agreement with China as opening up a vast market for our goods and services? What a joke that turned out to be.
Declining oil production and decline in prices for oil and other commodities spell trouble for Russia. Under Putin Russia's rise came from commodity sales. There was no great boom in the private sector across many industries. The decline in the value of the ruble in response to declining oil prices cuts living standards since Russia depends on imported manufacturing goods.
The immediate response from Moscow has not been greater humility, but deepened bitterness and aggression. Predictably, Russia blamed the United States for everything, from the economic crisis itself to instigating the recent gas conflict with Ukraine. The anti-American hysteria in Russian state media is deafening. The hubristic tone of Russia’s leaders is buoyed in part because the crisis is not yet starkly visible in Moscow. Restaurants may not be full, but they are still busy, and supermarkets are heaving with people.
In Russian homes and on the streets, however, the talk is of crisis. Stories of layoffs and reduced salaries, canceled projects, and frozen funding have replaced the chitchat about holidays abroad and new foreign cars. Slowly but surely, the truth is starting to set in: After eight years of economic boom, the growth of Russia’s economy is now slowing.
Real incomes are dropping at the same time utility bills are going up. Inflation is forecast at 13 percent, and the ruble has lost more than 30 percent of its value since last summer. Given that half of all goods Russians buy are imported, the impact on living standards will be dramatic. The long-term risk is that the crisis will undermine private initiative and empower inefficient monopolies and opaque state corporations. The new economic model that could emerge would reflect the worst mixture of the private sector and public sphere: nationalization of debts and privatization of profits. This, on top of Russia’s other chronic problems (which include dysfunctional public services, thriving corruption, and an aging, shrinking workforce), does not bode well for the country.
Russia could use a larger private sector with less state interference. Will the Russian leaders eventually realize they need a bigger private sector?
Vladimir Putin remains popular so far. But will that popularity last as living standards drop?
But the chances of a liberal renaissance as a result of Putin’s social contract unraveling are highly unlikely. There is nothing more misleading than to portray Russia as a liberal-minded society suppressed by a nasty bunch of former kgb agents. The uncomfortable truth is, as Mikhail Khodorkovsky, the jailed boss of the Yukos oil company destroyed by the Kremlin, put it: Putin “is more liberal and more democratic than 70 percent of the population.” And unlike late Soviet leaders who inspired the contempt of the population, Putin even now remains authentically popular.
Russia appears to have hit its second and likely final oil production peak at the end of 2007. Also, Russian natural gas production is probably near or past peak. So while commodity prices will recover Russia will have less to sell when prices start going up again.
For the US economy, things are getting “measurably worse,” Zandi said. He predicted 2009 would be a “very difficult year — washout,” with the economy contracting 2.5 percent. That is twice as big a decline in economic activity as the Obama Administration predicts in its budget.
Growth again in 2011
As for 2010, “I don’t think we go anywhere — basically a flat year,” Zandi says. He added, “I think we get growth in 2011.”
Ouch! So if you lose your job this year plan for an extended period of, er, leisure.
Nouriel Roubini has also become more gloomy about recovery. He's in the 24-36 month range for recession duration.
"We are in the 15th month of a recession," said Nouriel Roubini, a professor at New York University's Stern School of Business, told CNBC in a live interview. "Growth is going to be close to zero and unemployment rate well above 10 percent into next year."
Echoing a speech he made earlier in the day, Roubini said he sees "no hope for the recession ending in 2009 and will more than likely last into 2010."
Roubini sees a one third chance of a 3 year recession.
"We could end up ... with a 36-month recession, that could be "L-shaped stagnation, or near depression," Roubini said. He puts the chance of a severe U-shaped recession at 66.7 percent, and a more severe L-shaped recession at 33.3 percent.
Back in April 2008 Roubini was forecasting a 12 to 18 month recession. So he's definitely gotten more bearish.
I think the stock market's parallel with the early 1930s might continue for a while. Obama's use of the downturn to justify what he wanted to do anyway is not helping. He should stop treating the US economy as a golden goose who will lay eggs no matter what. He's quite capable of making things worse and he needs to figure that out. I'm guessing he'll stay oblivious though, to our detriment.
Writing in Foreign Policy E. J. Graff reports startling news about the widespread adoption of babies from less developed countries. Those countries where lots of babies are getting adopted by Westerners are probably countries where these babies were not orphans in the first place.
Westerners have been sold the myth of a world orphan crisis. We are told that millions of children are waiting for their “forever families” to rescue them from lives of abandonment and abuse. But many of the infants and toddlers being adopted by Western parents today are not orphans at all. Yes, hundreds of thousands of children around the world do need loving homes. But more often than not, the neediest children are sick, disabled, traumatized, or older than 5. They are not the healthy babies that, quite understandably, most Westerners hope to adopt. There are simply not enough healthy, adoptable infants to meet Western demand—and there’s too much Western money in search of children. As a result, many international adoption agencies work not to find homes for needy children but to find children for Western homes.
Since the mid-1990s, the number of international adoptions each year has nearly doubled, from 22,200 in 1995 to just under 40,000 in 2006. At its peak, in 2004, more than 45,000 children from developing countries were adopted by foreigners. Americans bring home more of these children than any other nationality—more than half the global total in recent years.
Where do these babies come from? As international adoptions have flourished, so has evidence that babies in many countries are being systematically bought, coerced, and stolen away from their birth families. Nearly half the 40 countries listed by the U.S. State Department as the top sources for international adoption over the past 15 years—places such as Belarus, Brazil, Ethiopia, Honduras, Peru, and Romania—have at least temporarily halted adoptions or been prevented from sending children to the United States because of serious concerns about corruption and kidnapping. And yet when a country is closed due to corruption, many adoption agencies simply transfer their clients’ hopes to the next “hot” country. That country abruptly experiences a spike in infants and toddlers adopted overseas—until it too is forced to shut its doors.
So we are corrupting less developed countries with our baby buying just as we are with our illicit drug buying. It reminds me of the Star Trek idea of non-interference with developing civilizations. Some societies can't handle Western culture, technology, money without serious problems as a result. We need to consider not just the good but also the bad effects of our influence.
Of course Chinese, Japanese, Korean, and south Asian residents of America are invisible. Don't know how they managed to pull that off. But how often do you see them mentioned in news articles about unemployment, crime, incarceration, adultery, illegitimate births, high school drop-outs, or other problems? You'd never know that they have lower rates of all those problems. They do not fit the reigning narrative on race which Attorney General Eric Holder is trying to defend by calling us cowards. Black and Hispanic unemployment levels are higher than the white unemployment level.
9.7 percent: The unemployment rate for Hispanics in January 2009, an increase of 3.5 percentage points from December 2007 and the highest level since 1995.
12.6 percent: The unemployment rate for African Americans in January 2009, an increase of 3.7 percentage points since December 2007 and the highest level since 1994.
6.9 percent: The unemployment rate for whites, an increase of 2.5 percentage points since December 2007 and the highest level since 1983.
Since I prefer a society that works better to one that works worse (making myself somewhat of a statistical outlier apparently) I immediately ask "Why not stop letting in Hispanics who will suffer higher levels of unemployment?" Do our liberal leaders want more unemployment, more high school drop-outs, more illegitimate births, and more other social pathology?
Did you know that Hispanic immigration lowers black employment and lowers black wages? As if things weren't bad enough already we've got to make them worse. Maybe our leaders want to have massive problems to solve. They just do not feel challenged enough. Let us run up massive trade deficits, massive budget deficits, raise unemployment rates, raise crime rates, increase pollution, increase strains on ecosystems, lower average levels of education, just really mess things up. Then see if their brilliances can solve all these problems. It is like someone playing tennis with one hand tied behind their back while lugging around a bowling ball tied to their ankle.
Hey, why not wear blindfolds too? That seems like one of their techniques. Show that the blind can achieve just as much as the seeing. That's gotta be what political correctness is all about. Handicap us by denying access to the truth. Then try to manage society with falsehoods. That's America in the post-1960s era.
An aging population, rising costs of medical care, and government funding of old age and poor folks medical care combine so that even during a time when the number of jobs is rapidly shrinking the health care sector is still hiring.
Employment figures for February are out today, and the numbers are a horror show: The economy lost some 651,000 jobs during the month. But health care added some 27,000 jobs.
Great news if you are in health care. Bad news for net taxpayers, employers, and those who need to pay for medical care.
This really is amazing and speaks to the need to fix the causes of rising health care costs. For example, do we really need to spend big money on the final few months of life? Also, we really need Total Quality Management philosophy brought to medical care to cut down on the errors and duplication and the huge amount of time waste.
Ever tried to help an elderly family member navigate thru getting appointments and running back and forth between specialists in their separate offices at different locations? You show up and they can't find the records or the records of tests from another specialist or hospital haven't arrived yet. Or your appointment got canceled and they didn't tell you. Or my favorite: you go to some clinic, pay for what you think are all the services they provided, and then you get a bill a few weeks later from some lab company you never heard of for a test you got while at the clinic. It boggles my mind that medical care providers can handle such huge sums of money without consolidating their billing. Imagine you went to get your car fixed, paid the bill, and then got a bill a month later for the alternator. You'd think that was totally retarded. But the medical profession does this as a normal business practice. How stupid and inconsiderate.
Update: Among the ways we could make substantial cuts in medical costs: use cheaper labor. I keep coming across studies like this one that shows nurses can diagnose and treat sleep apnea for lower cost and just as well as doctors.
They assessed the patients' sleepiness on the validated Epworth Sleepiness Scale (ESS) and set the minimal clinically significant change at +/- 2 points. They also assessed other outcomes of sleep, including quality of life measures, executive neurocognitive function on maze tasks and maintenance of wakefulness tests and CPAP adherence. In all, the study assessed almost 200 patients with moderate to severe OSA who were randomly assigned to the simplified or traditional model.
The patients in the nurse-led group spent about 50 minutes longer with the nurse than the patients in the physician-led groups, but were seen by physicians 12 percent of the time. Patients in the physician-led group, meanwhile, had an average of 2.36 consultations with physicians, as opposed to 0.18 for patients in the nurse-led group.
Despite these obvious differences, none of the secondary outcomes measured showed significant differences between the groups, and differences in ESS scores between groups were lower than the pre-determined minimum for clinical significance.
Notably, the patients in the nurse-led group were diagnosed and treated for $722 U.S. dollars less per patient than those in the physician-led group, but did not suffer from inferior care or outcomes.
Automate and let people use lower priced service providers. I would like to see more lab tests in drug stores. A friend tells me he can get a blood lipid test for cholesterol and triglycerides done at a drug store near him for $20. I would like to see a lot more of that. This would let people monitor the results of dietary and exercise changes.
Harvard econ prof Robert J. Barro says a historical comparison of countries that have had stock market crashes and depressions suggests the US has a 1-in-5 chance of a depression.
The U.S. macroeconomy has been so tame for so long that it's impossible to get an accurate reading about depression odds just from the U.S. data. My approach uses long-term data for many countries and takes into account the historical linkages between depressions and stock-market crashes. (The research is described in "Stock-Market Crashes and Depressions," a working paper Jose Ursua and I wrote for the National Bureau of Economic Research last month.) The bottom line is that there is ample reason to worry about slipping into a depression. There is a roughly one-in-five chance that U.S. GDP and consumption will fall by 10% or more, something not seen since the early 1930s.
What about the government policies designed to avoid a depression? Barro doubts these policies will help.
I wish I could be confident that the array of U.S. policies already in place and those likely forthcoming will be helpful. But I think it more likely that the economy will eventually recover despite these policies, rather than because of them.
One has to look at parallels. The 3 month T-Bill rate is at its lowest level since the Great Depression. Look at the graph on that page. We only came that close once since the Great Depression in 2002. If we do go into a depression a global saving glut should be noted as one of the causes. The East Asian money that flowed into the US caused an asset bubble that led to this crisis. There's a lesson here for laissez faire libertarians (not that they'll learn it): free trade and a floating currency do not prevent foreign governments from causing massive distortions in our capital market.
On the bright side the odds are against a repeat of the Great Depression. My guess is the US economy by itself won't go into a depression. The Federal Reserve could go on a massive buying spree and inject tens of trillions of dollars into the economy if that started to happen. But suppose economic panic brings down some other nations into depression. That could pull still more other countries down. A dominoes depression starting on the periphery (e.g. Eastern Europe and other smaller economies) is the one I still worry about.
Update: The Intrade betting market currently puts the odds of a depression at 38%. Another Harvard economist, Kenneth Rogoff, thinks we might just stagnate for a decade.
Fellow Harvard economics professor Kenneth S. Rogoff wrote in an e-mail yesterday that he found Barro’s analysis “highly informative” and “certainly more credible” than quantitative economic forecasts circulated by the Federal Reserve.
“I would guess that the risk of the US having a Japan-style lost decade, where the economy goes in and out of recession for years on end, is more likely than the risk of a catastrophic double-digit output collapse,” Rogoff wrote.
Rogoff and Carmen M. Reinhart argue that banking crises lead to prolonged slumps.
“There’s a domino effect,” said Kenneth S. Rogoff, a professor at Harvard and former chief economist of the International Monetary Fund. “International credit markets are linked, and so a snowballing credit crisis in Eastern Europe and the Baltic countries could cause New York municipal bonds to fall.”
Rogoff says inflation is the cure to prevent for deflation and depression. My guess is he's right.
Professor Kenneth Rogoff, former chief economist of the International Monetary Fund, said the threat of debt deflation called for revolutionary measures as an insurance policy.
"Excess inflation right now would help ameliorate the problem. For that reason, it would be far better to have 5pc to 6pc inflation for a couple of years than to have 2pc to 3pc deflation," he told the Central Banking Journal. The Fed has shifted tentatively to an inflation target, but one anchored nearer "stability".
At some higher level of unemployment the Fed will pull the emergency lever and inflation will burst forth from its den. Alternatively, maybe Obama will copy the FDR policies that prolonged the Great Depression.
Maria Bartiromo interviews Quantum Fund co-founder Jim Rogers about the economic crisis and Rogers says Obama's policies are making the economic crisis worse.
What do you think of the government's response to the economic crisis?
Terrible. They're making it worse. It's pretty embarrassing for President Obama, who doesn't seem to have a clue what's going on—which would make sense from his background. And he has hired people who are part of the problem. [Treasury Secretary Tim] Geithner was head of the New York Fed, which was supposedly in charge of Wall Street and the banks more than anybody else. And as you remember, [Obama's chief economic adviser, Larry] Summers helped bail out Long-Term Capital Management years ago. These are people who think the only solution is to save their friends on Wall Street rather than to save 300 million Americans.
So what should they be doing?
What would I like to see happen? I'd like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn't go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: "Well, too bad for you. We don't care if you did it right or not, we're going to bail out the 100,000 or 200,000 who did it wrong." I mean, this is outrageous economics, and it's terrible morality.
If the stock and bond holders of these financial companies lost all their investments then the market would become a lot more demanding on financial institutions to avoid risks and reveal what risks they are taking. This is why Citibank and other big financial institutions need to fail. We need those lessons.
What sorts of institutions are we propping up? When we taxpayers were forced to bail out AIG ($163 billion and rising) we were bailing out a massive hedge fund.
“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial-products division, this was a hedge fund basically that was attached to a large and stable insurance company.”
In his response to Bernanke's comments Mish Shedlock says we need to let the big financial institutions fail in order to speed the recovery.
By attempting to bail out Fannie Mae, Freddie Mac, AIG, Citigroup, Bank of America, and Merrill Lynch, the Fed is making irresponsible bets, taking huge losses, and has no regulatory oversight. There is a huge gap in the system, and that gap is the Fed itself.
There is no need to prevent another Lehman. Instead, there is precisely a need for more Lehmans. The sooner we stop trying to prop up failed institutions, the sooner the economy recovers.
The Japanese government made the mistake of keeping weak financial institutions alive in zombie condition in the 1990s. That contributed to a decade-long economic stagnation in Japan. Hope that doesn't happen in America. But a lot of forces are lining up to hold down growth in the future. First off, lending is becoming even more politicized than it already was. Second, the baby boomers are retiring and the US demographic picture for the working age is deteriorating. The new generation is going to be less cognitively able than generations that went ahead of them. That means slower economic growth and even declining living standards.
My fear is that we will enter an era like the 1970s when wage and price controls and other interference by government in the market contributed to deep recessions. At the same time, oil price will go way up again and that will drain America of money to pay for the oil imports. Living standards look set to drop.
Of course, even if the private sector learned its lesson from the financial crisis it might not matter for the next disaster anyway. Why? The Obama administration is going to use government-controlled Fannie Mae and Freddie Mac to fund reckless lenders handing out new massive amounts of money to undeserving borrowers.
In the last six weeks alone, the Obama administration has essentially transformed Fannie Mae and Freddie Mac into arms of the federal government. Regulators have ordered the companies to oversee a vast new mortgage modification program, to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers.
So us net taxpayers (those who pay more in taxes than they get in benefits) will be forced to subsidize bad credit risks to buy houses. The more questionable borrowers who, in the old America, would not have gotten loans are championed as victims of capitalism who deserve big possessions even though they don't earn the dough. These credit risks are people who the old America would have accurately seen as not fit to borrow large sums. But the parasites who run our country want to redistribute the wealth from the most productive to the less productive. They do not want to believe that they'll destroy wealth in the process. But that is what they are doing.
Steve Sailer comments that while Obama's father wanted political control of businesses in Kenya the son Barack is achieving increased political control over the private sector in a far wealthier (at least for now) country. That political control undermines the positions of wiser managers in sound financial institutions. If the unsound institutions were allowed to fail then the surviving institutions would expand to supply financial services to the old customers of failed institutions. So the wiser managers would expand their reach while the bad managers would lose their positions of power. But government bail-outs prevent much of the purging of bad decision makers.
We need to prevent financial catastrophes. How? Megan Mcardle modestly proposes a return to partnerships in banking as a way to reduce the desire to take risks.
Pretty much everyone agrees that two of our biggest problems are, first, excess risk-taking by banks, and second, the existance of institutions that are too big to fail. So why not force banks to operate the way they used to: as partnerships? I don't think that anyone believed they were creating the kind of massive systemic exposure we ended up with, and in fact the heads of the banks tended to have their personal fortunes tied up in the bank's operations. But the lower level employees, the ones who actually knew what was going on in their trading books, didn't. If the banks had been partnerships, I'm willing to bet that a lot fewer of them would have been tempted to lever up quite so far.
They also wouldn't have been able to get too big to fail; the rationale behind going public, other than sheer greed, was the ability to raise more capital. We'd have a lot of little banks, no one of them big enough to take the whole system down with it.
This idea has merit. But a realistic view of human interests is kept out of policy deliberations since realism would constrain policy makers from doing what they want to do.
Mexican state oil monopoly Petroleos Mexicanos produced an average of 2.68 million barrels of crude oil per day in January, down 9.2 percent from the same month last year.
Mexico's oil export decline is sharper than its production decline due to internal consumption growth. The internal consumption combined with the production decline will bring a halt to Mexico's oil exports in a few years.
Mexico's oil production decline is part of a larger pattern of oil production decline by non-OPEC oil producers.
There are simply too many non OPEC countries with declining production which cannot be offset by increasing production of about 0.50 mbd in 2009 from non OPEC countries including Australia (0.04), Azerbaijan (0.02), Brazil (0.19), Canada (0.10), Kazakhstan (0.07), Sudan (0.04) and Vietnam (0.04). Production declines in 2009 from Mexico (0.24), Norway (0.21), UK (0.19) and Russia (0.26) are expected to be about 0.90 mbd which is greater than the 0.50 mbd increase. Consequently, I am forecasting non OPEC-12 crude, condensate and oil sands production to be 41.0 mbd in 2009, 0.3 mbd down from 2008 and 1.1 mbd down from the 2004 peak of 42.1 mbd. The annual decline rate is expected to increase in 2010 because Australia, Brazil, Sudan and Vietnam are not expected to provide a production increase.
Since a large (though obviously declining) fraction of the Mexican government budget comes from oil exports this decline in production will further weaken a government already challenged by narco-paramilitaries and corruption. The United States should build a formidable barrier along the entire US border with Mexico in order to better insulate ourselves from worsening conditions and increasingly lawlessness in Mexico. Mexico's government has managed to maintain control even under severe economic conditions in the 1970s and 1980s. But we need to insulate ourselves from the possibility that Mexico could implode.
- In 2008, 6,000 people died in drug violence in Mexico, according to President Felipe Calderon. This was almost double the 3,042 who died in drug-related violence in 2007.
- In 2006 in the United States, 794 of the reported 14,990 homicides in the United States were narcotics related, according to the Federal Bureau of Investigation (FBI).
The article reports that more than a quarter of Mexico's drug-related homicides took place in Ciudad Juarez, on the border with Texas. If we got control of the border and made drug trafficking much more difficult then the drug business would shrink and northern Mexico would become more peaceful.
In Cuidad Juarez 250 have been killed in February alone. That translates into an annual rate of 3000 for just that city.
The drug war and the decline in Mexico's oil production make that country a growing problem for the United States. We should stop the flow of illegal aliens across the border and cut legal immigration from Mexico.
A big recent arrest of Mexican drug traffickers in the United States highlights the importance of keeping Mexican criminals out of the United States. If they were not here they would not commit crimes here.
WASHINGTON – Today Attorney General Eric H. Holder Jr., announced the arrest of more than 750 individuals on narcotics-related charges and the seizure of more than 23 tons of narcotics as part of a 21-month multi-agency law enforcement investigation known as "Operation Xcellerator." The Attorney General was joined in announcing the current results of Operation Xcellerator by DEA Acting Administrator Michele M. Leonhart.
Today, 52 individuals in California, Minnesota and Maryland were arrested as part of Operation Xcellerator, which targeted the Sinaloa Cartel, a major Mexican drug trafficking organization, through coordination between federal, state and local law enforcement, as well as cooperation with authorities in Mexico and Canada.
Mexico drug cartels wouldn't have big criminal networks in the United States if we had a lot fewer Mexicans in the United States. Keep Mexico's problems south of the border. We have enough problems of our own.