DEBTOR NATION

RUMBLINGS FROM THE PIT

"Threat of Default": US hits debt limit on Saturday, but by using a slew of shuffle maneuvers, shell games, tricks, and devices, the US won't actually run out of money until "after Labor Day," Treasury Secretary Jacob Lew told Congress in a letter. In his previous statement, the US would be "okay until Labor Day." Today, he was more frantic. He begged Congress to get its act together and do something "sooner rather than later" to “remove the threat of default.” In its infinite wisdom, Congress had suspended the debt limit till May 18, rather than dealing with it. The debt, though still over the limit, declined in April and early May; tax extractions were fattened by asset bubbles. But since May 10, the debt has once again been rising.

US Consumers haven’t felt this good since July 2007, just before all heck broke loose. An "encouraging sign," Reuters sez. For short sellers? The preliminary results of the Thomson Reuters/University of Michigan's consumer sentiment index jumped to 83.7 in May from 76.4 in April. Big part of the reason: households in the upper third of the income bracket felt flush from the ballooning stock market – the wealth effect. The Fed giveth.... They were able to brush off the payroll tax increase, which Wal-Mart shoppers, as we’ve seen, had a harder time brushing off. The Consumer Expectations index rose to 74.8 from 67.8. And the Current Economic Conditions index leaped to 97.5 from 89.9, the highest since October 2007, a month before the stock markets began to swoon. Impeccable timing, the hallmark of consumers.

Car sales in the EU crept up 1.7% in April, from a horrible April last year. The fact that the parade of ever worsening numbers has finally stopped, at least for a moment, was greeted with a huge sigh of relief. The details of the report aren’t that rosy: sales in the UK, now the second largest market after Germany, jumped 14.8%. Without the UK, sales for the rest of the EU actually dropped 0.46%. It wasn't exactly a smooth trend across the member states: Greece finally seems to have hit bottom, and sales increased 20.9%; in Denmark, they jumped 30.7% and in Finland 142.6%; but they crashed 26% in the Netherlands and 51.9% in Cyprus; they rose 3.8% in Germany but dropped 5.3% in France.

Deafening US media hype: Japan Core Machinery Orders jumped 14.2% in March, seasonally adjusted, from February. The eternal money-printing and fiscal-stimulus apologists dragged it out as proof that Abenomics is working massively. Alas, these are highly volatile big-ticket items, though “core” orders exclude container ships, nuclear reactors, etc., which are even more volatile. To iron out the volatility, the Cabinet Office also offers quarterly numbers. Soooo, core orders in the first quarter of 2013 were actually 4.8% lower than in the first quarter of 2012, when Noda was prime minister. Kampai!

The Japanese take care of their college grads: 93.9% of all those who graduated on March 31, the end of the academic year, had jobs by April 1, the beginning of the business year. This was the second year in a row that the percentage increased, so it’s NOT related to Abenomics, please! College recruitment, like so many things in Japan, is a highly structured process with the idea to get pretty much everyone squared away before the end of the academic year. But those who miss this entry into Japan Inc. have the greatest difficulty getting through the door later. The system is unforgiving punitive to those who don’t toe the line.

About that secret inflation in Argentina: famously, no one is allowed to accurately track or discuss inflation, but all the whisper numbers floating around peg it at over 20% annually. Now confirmation has come from official sources: wage negotiations between unions and the government of President Cristina Fernández Kirchner. Unions are her base. In fact, she personally met with the leaders of six unions that represent about 2 million workers, or 40% of all workers covered by wage negotiations, and made a deal, similar to the deals she’d made with Railway and Bus Drivers’ unions. The agreed-upon wage increases this year to keep the purchasing power of her voters intact? The closest estimate to official CPI that Argentina has? 24%!

 

Thursday, May 16, 2013

Last time French-made cars were sold is the US? 1980? Long time ago. But... French-made models of the Toyota Yaris are coming to the US, Canada, and Mexico, apparently to keep the plant in Onnaing, near Valenciennes, busy. Car sales in Europe have been catastrophic, and plant shutdowns and layoffs are hard to do, especially in France where even thinking about it causes a huge political ruckus. In 2012, 182,841 Yaris were sold in Europe, accounting for 22% of Toyota's total European sales - a highly successful model at the low end of the lineup. North America will get US versions, not EU versions. So no diesels.

Plunging price of gasoline shaves 0.4% from Consumer Price Index in April. Total energy prices dropped 4.3%, with gasoline down 8.1%. We’ll remember those days fondly because that cheap gasoline is now history; prices have been climbing in May! Food prices rose 0.2%. Core CPI, which excludes food and energy, rose 0.1%. For the 12-month period, CPI is up 1.1% and core CPI 1.7%. The Fed might complain that this is below target; but it’s still inflation, and it still whittles down the value of your and my dollars, and everything denominated in them, and it’s still higher than the interest that banks pay on most deposits and CDs, though it’s better than 4.3%, as we had some months in 2011.

Another blow to US manufacturing: Philadelphia Fed's Business Outlook Survey – for manufacturing in eastern Pennsylvania, southern New Jersey, and Delaware – dropped into the negative, to -5.2 in May, from 1.3 in April (below zero = decline). The New York Fed's Empire State Manufacturing survey, reported yesterday (below), had also pointed at a contraction. Ominous: new orders dropped to -7.9, the worst since June last year, from -1 in April; the Workweek Index dropped to -12.4, and the Employment Index dropped to -8.7. Manufacturing is only a small part of the US economy, and this region is a small part of the US, so we’re not going to panic just yet...

US Housing Bubble confirmed: Heard an ad on the radio on how to get rich quick by flipping houses – and we’ll show you how. It conveniently offered an 800-number. Something or other was free.... but keep your credit card handy. These kinds of things usually appear late in a bubble.

Death penalty for financial fraud in China. A court in Wenzhou slapped a local, 39-year-old gal, former general manager of Wenzhou Xinfu Investment Consulting Co., with the maximum penalty available, death, for having illegally raised funds for investments starting in 2007. Everything worked fine until October 2011, when her scheme collapsed and she ended up defaulting on a 428 million yuan loan ($69.6 million). Leaves open the question if they’d slap the same penalty on TBTF bank CEOs every time their banks need a bailout. A bit draconian maybe, but something the US might want to consider as well, after not having prosecuted anyone responsible for the financial crisis and for the Fed’s bailouts that followed, though they did hound, as in China, small-scale crooks like Bernie Madoff.

Bad loans at Chinese commercial banks swelled by 6.8% in the first quarter, to 526.5 billion yuan ($85.6 billion), the sixth consecutive quarter of increases, raising the non-performing loan ratio to 0.96%. And NPLs are expected to rise further. One of the many elements in a boundless debt-fueled scheme that will eventually, like the micro-case above, unravel.

The Japanese Diet rubber-stamped the ¥92.6 trillion ($926 billion) budget for fiscal 2013, which started April 1. A breath-taking ¥43 trillion ($425 billion) will have to be borrowed to make ends meet - that's 46.4% of the total outlays! But no problem. Abenomics will get Japan out of its fiscal quagmire, one way or the other, by printing money. Government spending on public works – welfare spending for Japan Inc. – will rise to ¥5.3 trillion. In a show of rare fiscal discipline, welfare spending for the poor will be cut by ¥67 billion. Priorities of Abenomics are becoming clear.

Japanese GDP growth less than a year ago! The economy grew 0.9% in the first quarter 2013 from Q4 last year, or a 3.5% annual rate. Private demand was up some, with investment in housing being fairly strong, but corporate investment lackluster. Public demand – government spending and investment, including boondoggles – jumped, as promised by Abenomics. Exports rose, and so did imports, but not as much. All seasonally adjusted. Great? Give credit to Abenomics for that 0.9% growth in GDP? Because it was the fastest growth since... oops, well, since the first quarter of 2012, when the economy grew 1.3%. Abenomics can't even keep up with Noda's maligned era.

 

Wednesday, May 15, 2013

Megabanks "are NOT too big to jail," claimed Attorney General Eric Holder today in a heroic about-face at a House Judiciary hearing, after he'd explained to the Senate Judiciary Committee in early March why exactly they were indeed too big to jail. The Justice Department has not prosecuted any megabanks despite their shenanigans leading up to the Financial Crisis and continuing to this day. A debacle I wrote about.... 'Regulatory Capture' Emasculated The Regulators Of Megabanks.

French purchasing power plunges 1.5% per capita, and 0.9% for all households together in 2012 (difference due to population growth), the worst performance since 1984. Combination of: disposable income creeping up only 0.9%, and prices rising 1.9%. Ah yes, the many benefits of "moderate" or even "below-target" inflation.

Tough day for US manufacturing: industrial production dropped 0.5% in April, after increasing in February and March; year-over-year, it's up only 1.9%. Within it, manufacturing fell 0.4%; fingers point at motor vehicles and parts, down 1.3%. Capacity utilization fell 0.5% to 77.8%, and is 2.4 percentage points below long-term average. Add to that: the New York Fed's Empire State Manufacturing Survey for May dipped into the red (-1.43, from 3.05 in April). Employment sub-indices were mixed, with number of employees up slightly, but hours worked down sharply. Darkest cloud: new orders were negative. Executive optimism for the next six months declined, second month in a row. Not an exemplary picture of a growing economy.

"My question is, who is going to jail?" wondered House Speaker John Boehner about the IRS scandal. So why didn't he and other Republicans ask that question after the financial crisis, the largest scandal in the US ever?

Swooning energy prices, particularly gasoline, pushed down wholesale prices by 0.7% in April, seasonally adjusted. Food prices also dropped, a godsend for those of us who like to eat, with veggies and meat down the most. Without food and energy, which are highly volatile, the core Producer Price Index rose 0.1%. For the 12-month period, the unadjusted PPI is up a scant 0.6%. If they could just keep it that way!

Warning shot: Russian car sales plunged 8% in April. For the year, they are now 2% below the same period last year, a record year during which sales had jumped 11% from 2011. The good times appear to be over. Is the EU malaise heading east?

Europe stuck in recession: the Eurozone economy shrank 0.2% in the first quarter, from Q4, the sixth quarter of recession in a row, another glorious record. The 27-nation EU contracted 0.1%. Year over year, they’re down 1.0% and 0.7% respectively. Germany's economy inched up 0.1% in Q1, after having plunged 0.7% in Q4, thus barely avoiding the red stamp of recession. Both quarters combined, Germany is in the hole. The lousy performance in both quarters surprisingly surprised pundits. France is formally in a recession; its economy contracted 0.2% in Q1, third contraction in four quarters. Italy and Spain both shriveled 0.5%. Unperturbed, German stocks, while down a smidgen for the day so far, are still above their prior all-time intra-day high of July 2007. This will be seen as the greatest accomplishment of the central bank money-printing binge: separating (at least temporarily) stock markets from reality and allowing them to float in a dream world.

China's pile of foreign exchange grew by 294 billion yuan to 27.363 trillion yuan ($4.41 trillion) in April, according to the People's Bank of China, the fifth month in a row of increases. For the first four months of 2013, the monthly influx averaged 400 billion yuan, nine times the average in 2012. Earlier this month, the State Administration of Foreign Exchange, the top forex regulator, had threatened to crack down on foreign money flooding the country. China is where the hot money goes – on the bet that the yuan will continue to rise against the dollar which, through the arduous and heroic efforts of the Fed, will continue to lose value.

Nikkei jumps 2.29%, to 15,096, highest since December 28, 2007. If it keeps going like this, it will be above 40,000 soon. This thing has become a joke – even more so than the US stock markets. Japanese government bonds continue their descent, pushing yields up, with the 10-year JGB hitting 0.90% but then settled down at 0.85%. The yen skidded.

 

Tuesday, May 14, 2013

Ex-leaders of consumer electronics: Sharp's huge loss is a sign of how Japanese powerhouses have lost the edge to Korean, US, and Chinese rivals. A doozy: ¥545 billion ($5.3 billion) in red ink, a record in its storied century-long history. A top exec reshuffle has been announced, but it won't fix the real issue that is bedeviling Sharp and other Japanese consumer electronics companies, once world leaders, now not even also-rans. Abenomics won't be able to cure that either. This isn't an issue of costs and exchange rates, but of innovation, products, and now increasingly brand (they squandered it).

China's white paper on human rights, helpfully issued in English so that foreigners like me can get their brains washed, starts out promisingly: "Since the arrival of the 21st century, the Chinese people have been making constant efforts in advancing human rights protection along the path of building socialism with Chinese characteristics under the leadership of the Communist Party of China (CPC) and the Chinese government." Further into it, the paper clarifies priorities: "China has a population of over 1.3 billion. For such a populous country, it would be impossible to protect the people's rights and interests without first developing the economy to feed and clothe the people." Money before rights. But it also points out how the government has become much more transparent in many ways, which few people will dispute (text in full).

Inflation hits Japan: wholesale prices rose for 5th month in a row in April, by 0.3% from March, with the index at 101.4 (2010 prices = 100). Electricity, gas, water, lumber, and wood products jumped over 3%. Some of it was due to the weakening yen that made imported fuels and raw materials more expensive. How exactly higher prices would cure Japan’s economic ills remains a mystery, though it will give a stylish haircut to all those owning Japanese Government Bonds....

Japanese Government Bonds skid once again: yields rose, for the 10-year JGB to 0.85%, from 0.79% yesterday, from 0.69% on Friday, and from 0.315% on April 5, the day they went bonkers. While yields are still ultra-low, the rise has been relentless, not at all what the BOJ wants – and now there's also volatility, rare sight in the JGB market. Japanese institutions and individuals are buying foreign bonds with higher yields to diversify out of the yen that has been doomed by Abenomics to decline. If this turns into a massive dumping of yen, if the BOJ cannot keep it under control, the selloff might turn into a rout, and the BOJ and government-controlled institutions will be the only ones left buying. In sympathy, mortgage rates are creeping up, as are bank loans. The opposite of what Abenomics wants to accomplish. Free money is suddenly becoming more expensive. 

Click for Older Rumblings....

VIDEOS

Wolf Richter on Max Keiser's "On The Edge" 
"The Pauperization of America"

Wolf Richter on the Keiser Report
"Where the Money Goes to Die"

Clarke and Dawe: European Debt Crisis
Two favorite Australian Comedians

Clarke and Dawe: Quantitative Easing
Big industrial-strength printers, all facing the window

The Fastest Drive Ever Through San Francisco
Don't try to do this yourself
 

humanERROR - by "Frying Dutchman"
Powerful, lyrical appeal to the Japanese. Slams nuke industry, MSM, bureaucrats, and politicians.

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Tuesday
Jun192012

Compassion – Killer of Society?

Contributed by Rex van Schalkwyk. A former justice of the Supreme Court of South Africa, he has written three books, the most recent of which, published in 2009, is titled Panic for Democracy (Casey Research).

In politics, it is the idea that counts. So also in philosophy, pop music, pedantry and philanthropy. The idea is everything. And between the idea and the reality, there lies that vast uncharted terrain of promises unfulfilled, of lies and deceit and of naked hypocrisy, all of which account for the failure of the public discourse and of public life. In short, this self-inflicted deception accounts for the failure of society.

Bertrand Russell, who is said by some to have been the greatest philosopher of the 20th century, and a notable socialist, proposed that in the one-world society he envisaged, the supply of food should be used as a lever to ensure social compliance. This is what he wrote on the need to prevent the increase of the world's population: "If this is to be done otherwise than by wars, pestilence and famines, it will demand a powerful international authority. This authority should deal out the world's food to the various nations in proportion to their population at the time of the establishment of the authority. If any nation should subsequently increase its population, it should not on that account receive more food…"

In this way, the philosopher would have contrived a one-world totalitarian dictatorship in a perpetual state of starvation. Russell did not even consider where the world's food, without which people were to be starved into submission, would realistically be produced. The most extraordinary thing of all is that he could suggest such an idea in pursuit of his ideal of the utopian life. Were it not for the fact that his work, The Impact of Science on Society, is no laughing matter, it might have been read as a malicious satire.

There is a conundrum here: why is it that so many of those who enthusiastically embrace a benign cause conduct themselves with such malevolent intent? The answer in Russell's case and many others besides is that the real object of their concern is not the welfare of the individual, or of the collective, or the world, as the case may be. The real preoccupation is the idea, and close by the idea is the individual who will see self-interest as synonymous with the public good.

And so it is easy for Warren Buffett, Charlie Munger, George Soros, and others who have made their billions to adopt neo-socialist causes and to plead the morality of higher taxation because, having made their pile, they can with impunity identify with the perceived interests of the disadvantaged. They can adopt the mantle of compassion because there is no real cost involved.

The worst crimes in human history were committed in the name of the communist ideology, whose central premise was the brotherhood of men. Everyone was a comrade, except when they were not, which was practically all the time. Never included in the common definition were the rulers, although they were routinely referred to by the same fraternal denomination.

George Bernard Shaw actually visited Russia in the company of a clutch of like-minded intellectuals after the commencement of Stalin's infamous purges. When he returned to the safety of London, he proclaimed to have been well-pleased by the progressive nature of Russian society.

How did this man of letters come to a conclusion so perverse? The answer is that he traded his integrity in exchange for the acknowledgement of the intellectual establishment of the time. It was believed then, particularly among the intellectual classes of Oxford and Cambridge, that communism was the way of the future. In Major Barbara, Shaw had excoriated the wealth derived from machines of death and destruction. What better trade for a playwright of his inclinations than to feign ignorance of the depravity of Stalin's Russia. In this way he would find favor with the masters of the intellectual universe.

In a letter written to The Manchester Guardian on March 2, 1933, Shaw and 20 other fellow travelers made this observation: "We desire to record that we saw nowhere evidence of such economic slavery, privation, unemployment and cynical despair of betterment as are accepted as inevitable and ignored by the [British] press… Everywhere we saw the hopeful and enthusiastic working-class, self-respecting and free up to the limits imposed on them by nature and a terrible inheritance from tyranny…"

If Shaw were to be believed, he was well aware of the tyranny of the tsar but blissfully ignorant of the savagery of Joseph Stalin, of the ubiquitous secret police, the extermination of the kulaks and the mass deportation and starvation of vast swaths of the Russian population. On his visit, he did not even notice the ever-present apparatus of Stalin's propaganda machine.

Joseph Schumpeter, who was both a sociologist and an economist, had the measure of human nature. In every democracy, votes are exchanged for favors. As the democracy matures and as the prize of political office becomes ever more seductive, the promises become ever more extravagant. By this process the democratic bribe must, according to Schumpeter, result in government that becomes increasingly socialist.

Add to this the requirement of the bankers and of the lesser financial institutions to secure political advantage, and it becomes easy to follow the money. This also explains the paradox of capital making common cause with socialism. If there is hypocrisy in those who choose to ignore the contradictions of their actions, this hypocrisy is multiplied in those who regard such conduct as a promotion of the public good.

When, as Treasury Secretary, Hank Paulson went down on his knees in his abject supplication before Nancy Pelosi, the high priestess of Congress, was it for the survival of the economy or his share-option scheme that he most fervently prayed? Whose interests was he guarding when he provided his banker friends and colleagues with insider information about the imminent collapse of Freddie Mac and Fannie Mae – a possibility that only weeks before he had publicly and emphatically dismissed?

The "liberated" South Africa is governed by the African National Congress (ANC), which comprises an assortment of socialists, communists, trades unionists and a sprinkling of pragmatists. The one thing that this unruly crowd has in common is its conspicuous consumption. In the process, billions of rand are misspent, unaccounted for or simply stolen. The chief in the office of former president Thabo Mbeki, Smuts Ngonyama, once proclaimed that he had not engaged in the liberation struggle to be poor. Candor of this kind is, however, rare; far more likely, a critic of government corruption will be met with the accusation of racialism.

The poor and the dispossessed are routinely exploited for the social and political ambitions of their rulers. Winnie Mandela, the former wife of the idealized former president, was convicted of the common-law crimes of kidnapping and assault. Were it not for an opportunistic appeal-court judgment, she might have spent many years in jail. Although she no longer goes by the moniker "Mother of the Nation," she still cuts a prominent and elegant figure on the many occasions she appears in public. Her kidnap victim was found dead, but her compassion is always on display: she never misses a photo shoot opportunity in the immediate presence of misery.

If the politicians and intellectuals are masters at the art of hypocrisy, Hollywood actors and pop stars have a sublime skill in the promotion of humbug. One such practitioner is Paul David Hewson, also known simply as Bono, the lead singer and lyricist of the accomplished Irish rock group U2.

Bono has turned his talents and his genius for publicity to the international populist causes of the day. He has organized many benefit concerts, eagerly supported by the "me-too brigade" who make up much of the entertainment industry. The most woebegone victims invariably attract the greatest artistic support, which is always provided for free.

For his efforts, Bono has consorted with presidents and kings and accumulated an assortment of titles and awards. Formally granted an honorary knighthood in March 2007 and thrice nominated for the Nobel Peace Prize, the former Time Person of the Year has been described by Paul Theroux as a "mythomaniac"; a person who wishes "…to convince the world of (his) worth." The sociologist and political commentator Muhammad Idrees Ahmad has condemned Bono's conduct as "…a grand orgy of narcissistic philanthropy." So we have it on good authority: narcissism and philanthropy can coexist.

If the hypocrisy of the pop stars is nauseating, the grandiloquent but meaningless oratory of the aspirant political "leaders," of which much will be seen and heard in the coming months, is almost certain to produce results, the very opposite of what is pledged.

Greece, Spain, Portugal, Italy and others besides have fallen into the trap of bribing their electorates with promises that become ever more unsustainable. In each of these states, expectations have been created that cannot be met and that cannot now be undone. This is surely a recipe for social unrest.

These will not be the only countries to succumb to failure. The national debt, the unaffordable long-term cost of social security, health care and a myriad other entitlements and the mounting evidence of the insolvent state point to the same outcome for the UK and the US. Failure is ensured; the more pressing question is, what happens next?

Rex van Schalkwyk is a former judge of the Supreme Court of South Africa and has written three books, the most recent of which, published in 2009, is titled Panic for Democracy. Thought-provoking commentary like this from guest contributors helps make The Casey Report a must-read newsletter. Focused on big-picture trends worldwide and filled with specific, actionable investment advice, it can help you grow your portfolio during these uncertain economic times.

 

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Reader Comments (3)

excellent post. problem is "what happens next " is a scary question.

this isn't 1976. when you look at the local degeneracy in america---the rampant abuse of entertainment/drugs/food----and you look at the criminal drug cartels--the mass media---and the food companies. you get one conclusion:

when the shit hits the fan, and people's incomes shrivel up, the government renegs on social security and pensions, and the average person has MUCH less OR when the shit hits the fan and massive money printing accomplishes the same end with rapid inflation ( hard to believe that will happen to anything but gold perhaps ) ---------the criminal gangs outside of government and the criminal gangs inside of government will be hard to resist.

how is the american public going to resist the criminality of our society. I just don't think the aggregate of fighting men out there have enough organization or firepower to rest control over social institutions to make that happen.
what's left is a truly decaying society with an entire generation of agrieved young men not knowing what sort of society is worth fighting for.

You get a bunch of communists or hardcore nazi's. There just isn't room for any other type of 'freedom fighter'. This is a recipe for doom---either way you cut it, whether they 'win' or not. and they are hardly likely to 'win' anything by the time this all shakes out.
June 20, 2012 | Unregistered Commenterzeev
Excellent summation of the existing condition of governance. It begs one question, the implication is that there is something that they must know, some event of even, perhaps, galactic proportions, that is coming that justifies a policy of 'just keep the show going a little while longer, at any future cost" Some event that justifies a governance styled as if there were no tomorrow.. Maybe it isn't all sociopathy, criminality, greed and foolishness, maybe TPTB know something that we don't..
June 20, 2012 | Unregistered CommenterArnie Lerma
The losers will vote for the candidate that offers the biggest tit. Inflate, tax, attack those foreign interests, they and most readers here, will swallow it whole. Self sacrifice is for chumps and religious simpletons, right wingnuts. Occupy all governments!
June 20, 2012 | Unregistered CommenterOldernu

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