I woke early one morning,
The earth lay cool and still
When suddenly a tiny bird
Perched on my window sill,
He sang a song so lovely
So carefree and so gay,
That slowly all my troubles
Began to slip away.
He sang of far off places
Of laughter and of fun,
It seemed his very trilling,
brought up the morning sun.
I stirred beneath the covers
Crept slowly out of bed,
Then gently shut the window
And crushed his fucking head.
I'm not a morning person
Wednesday, 30 September, 2009
China’s anxieties after 60 years
In reflecting upon the 60th anniversary of China’s Liberation Day, one must use the occasion not only to assess where China may be going to in the global firmament, but also where it has come from.
China’s history should give the world some idea of its anxieties and aspirations.
When Mao Zedong stated that never would China be humiliated again, as a Chinese nationalist and keen historian, he was acutely aware of China’s shamed past. There are many distinctive (or “unique”) characteristics about China. There is, of course, its 4,000-year-old history, its national unity stretching back to the emperor Qin Shi-Huang in the 2nd century BC. But also one must not forget its precipitate decline in the course of the 19th and first half of the 20th centuries.
No nation, no civilization, fell so low from so high so quickly. As the Middle Kingdom, China correctly saw itself as the centre of global civilization. Everything else was, to a greater or lesser extent, barbarian. And this state of affairs also radiated as far as the West.
There was an aura about China that greatly captivated Western imagination; this was true not only in the pages of Marco Polo’s Travels in the 13th century, and continued in the accounts written by Jesuit missionaries from China in the 16th and 17th centuries, but also in the works of the 18th century Enlightenment philosophers. China was rich in cultural and material terms.
The decline can be gauged from China’s global economic standing. In 1820, China accounted for 33% of global gross domestic product. By the time Mao entered Beijing, it had fallen to somewhere in the region of 3%. In the interim, China can be said to have been “gang-raped”.
China was repeatedly invaded—first by the British in 1839 in the First Opium War; then by the British again, this time with the help of the French, in the Second Opium War; then in the ensuing decades by virtually every other Western power. Finally, from the late 19th century onwards, the Japanese presence, starting with the Sino-Japanese War of 1894-95, manifested itself most egregiously in the Nanking Massacre of 1937.
Though bits and pieces of the Chinese periphery were colonized—Hong Kong by the British in 1841, Taiwan in 1895 and Manchuria in 1931 by the Japanese, with Tibet also being invaded by the British in 1904—mainland China per se, unlike India, was not colonized. In theory, it remained a sovereign state. As the leader of the 1911 Revolution and founder of the first Chinese Republic, Sun Yat-sen stated, however, that China had become a “poly-colony”.
In other words, no single nation actually colonized China, but multiple nations cut out their spheres of influence and their own neo-colonial outposts. One of the features of these neo-colonial outposts were the “treaty settlements”. These consisted of areas reserved for Westerners (and eventually Japanese) and that were under Western and not Chinese jurisdiction and jurisprudence. In reality, China was everybody’s puppet state.
After World War I, the Chinese discovered at the Paris Peace Conference that the Germans’ Chinese concessions were being secretly handed over to the Japanese. This caused numerous riots and brought together Chinese nationalist reformist intellectuals who founded what came to be known as the May 4th (1919) Movement, which in turn lay the foundations for the establishment of the Chinese Communist Party (CCP) two years later. It took an additional 30 years and five months for liberation at the hands of Mao.
Many have argued that though the CCP was undoubtedly Marxist-Leninist (at least initially) and eventually Maoist, it was perhaps above all nationalist. Marxism-Leninism-Maoism was seen as the means to restore China’s place in the world and to liberate its people from feudalist and imperialist oppression.
In the first three decades after 1949, there was some very bitter and quite violent ideological infighting between the so-called “capitalist roaders”—the pejorative term for those seen to side with bourgeois ideas—and the Maoist fundamentalists. But the battle remained essentially one of means: What was the best means to restore Chinese greatness?
There was, on the part of the Maoists, a justified fear that if China chose the capitalist road, once again it would be flooded and overwhelmed by neo-imperialist foreign capital. In 1979, as China began liberalizing under Deng Xiaoping, leading reformist intellectual Zheng Bijian noted: “The most important strategic choice the Chinese made was to embrace globalization rather than detach themselves from it.”
It seems to have been indeed a very wise choice. China has soared in the global economy from virtually nowhere. Not only has it emerged as a major economic power, but it has also resumed its position as a leading global nation. Once humiliated, China is now highly respected. But while the wounds of the past century and a half of humiliation may have healed, the scars are still there.
This 60th anniversary constitutes an appropriate occasion for everyone, Chinese and non-Chinese, to reflect on the past. While conscious of the many daunting challenges ahead, the West and China (and other nations such as India) must work together. But, in seeking to go forward, ignoring history would be definitely perilous.
Jean-Pierre Lehmann is professor of international political economy at IMD, a business school in Lausanne, Switzerland
China’s history should give the world some idea of its anxieties and aspirations.
When Mao Zedong stated that never would China be humiliated again, as a Chinese nationalist and keen historian, he was acutely aware of China’s shamed past. There are many distinctive (or “unique”) characteristics about China. There is, of course, its 4,000-year-old history, its national unity stretching back to the emperor Qin Shi-Huang in the 2nd century BC. But also one must not forget its precipitate decline in the course of the 19th and first half of the 20th centuries.
No nation, no civilization, fell so low from so high so quickly. As the Middle Kingdom, China correctly saw itself as the centre of global civilization. Everything else was, to a greater or lesser extent, barbarian. And this state of affairs also radiated as far as the West.
There was an aura about China that greatly captivated Western imagination; this was true not only in the pages of Marco Polo’s Travels in the 13th century, and continued in the accounts written by Jesuit missionaries from China in the 16th and 17th centuries, but also in the works of the 18th century Enlightenment philosophers. China was rich in cultural and material terms.
The decline can be gauged from China’s global economic standing. In 1820, China accounted for 33% of global gross domestic product. By the time Mao entered Beijing, it had fallen to somewhere in the region of 3%. In the interim, China can be said to have been “gang-raped”.
China was repeatedly invaded—first by the British in 1839 in the First Opium War; then by the British again, this time with the help of the French, in the Second Opium War; then in the ensuing decades by virtually every other Western power. Finally, from the late 19th century onwards, the Japanese presence, starting with the Sino-Japanese War of 1894-95, manifested itself most egregiously in the Nanking Massacre of 1937.
Though bits and pieces of the Chinese periphery were colonized—Hong Kong by the British in 1841, Taiwan in 1895 and Manchuria in 1931 by the Japanese, with Tibet also being invaded by the British in 1904—mainland China per se, unlike India, was not colonized. In theory, it remained a sovereign state. As the leader of the 1911 Revolution and founder of the first Chinese Republic, Sun Yat-sen stated, however, that China had become a “poly-colony”.
In other words, no single nation actually colonized China, but multiple nations cut out their spheres of influence and their own neo-colonial outposts. One of the features of these neo-colonial outposts were the “treaty settlements”. These consisted of areas reserved for Westerners (and eventually Japanese) and that were under Western and not Chinese jurisdiction and jurisprudence. In reality, China was everybody’s puppet state.
After World War I, the Chinese discovered at the Paris Peace Conference that the Germans’ Chinese concessions were being secretly handed over to the Japanese. This caused numerous riots and brought together Chinese nationalist reformist intellectuals who founded what came to be known as the May 4th (1919) Movement, which in turn lay the foundations for the establishment of the Chinese Communist Party (CCP) two years later. It took an additional 30 years and five months for liberation at the hands of Mao.
Many have argued that though the CCP was undoubtedly Marxist-Leninist (at least initially) and eventually Maoist, it was perhaps above all nationalist. Marxism-Leninism-Maoism was seen as the means to restore China’s place in the world and to liberate its people from feudalist and imperialist oppression.
In the first three decades after 1949, there was some very bitter and quite violent ideological infighting between the so-called “capitalist roaders”—the pejorative term for those seen to side with bourgeois ideas—and the Maoist fundamentalists. But the battle remained essentially one of means: What was the best means to restore Chinese greatness?
There was, on the part of the Maoists, a justified fear that if China chose the capitalist road, once again it would be flooded and overwhelmed by neo-imperialist foreign capital. In 1979, as China began liberalizing under Deng Xiaoping, leading reformist intellectual Zheng Bijian noted: “The most important strategic choice the Chinese made was to embrace globalization rather than detach themselves from it.”
It seems to have been indeed a very wise choice. China has soared in the global economy from virtually nowhere. Not only has it emerged as a major economic power, but it has also resumed its position as a leading global nation. Once humiliated, China is now highly respected. But while the wounds of the past century and a half of humiliation may have healed, the scars are still there.
This 60th anniversary constitutes an appropriate occasion for everyone, Chinese and non-Chinese, to reflect on the past. While conscious of the many daunting challenges ahead, the West and China (and other nations such as India) must work together. But, in seeking to go forward, ignoring history would be definitely perilous.
Jean-Pierre Lehmann is professor of international political economy at IMD, a business school in Lausanne, Switzerland
Tuesday, 29 September, 2009
Population: Overconsumption is the real problem
THERE is a pervading myth that efforts to fight climate change and other environmental perils will be to no avail unless we \"do something\" about population growth.
Even seasoned analysts talk about the threat of "exponential" population growth. But there is no exponential growth. In most of the world fertility rates are falling fast, and the countries where population growth continues are those that contribute least to our planetary predicament.
Back in the late 1960s, when Paul Ehrlich wrote his seminal book The Population Bomb, rapid population growth was arguably the number 1 threat to the planet's future. Many believed that only strict birth control could prevent doomsday. But after scandals about forced vasectomies in India and China's draconian one-child policy, such views fell into disrepute. What's more, Ehrlich's prediction of hundreds of millions of deaths from famine in the 1980s fortunately failed to be borne out.
Now the demographic monster has become a hot topic again. Yet the arguments still don't fit the reality. The population "bomb" is fast being defused. Women across the poor world are having dramatically fewer babies than their mothers did - mostly out of choice, not compulsion.
Half a century ago, the worldwide average for the number of children a woman had was between five and six. Now she has 2.6. In the face of such a fall it is hard to see what more "doing something" about global population might achieve.
Half the world now has a fertility rate below the replacement level, which, allowing for girls who don't make it to adulthood, is around 2.3. This includes most of Europe, east Asia, North America and the Caribbean.
There are holdouts in a few Muslim countries - but not Iran, where fertility is 1.7 - and many parts of Africa. But rich or poor, socialist or capitalist, Muslim or Catholic, secular or devout, with tough government birth control policies or none, most countries tell the same story.
This hasn't yet stopped the world's population from rising. It stands at 6.8 billion, and is growing by 75 million a year. This is mostly because the huge numbers of young women born during the 20th-century's worldwide baby boom are still fertile: they may typically only have two children each, but that is still a lot of babies. Soon, however, if fertility rates continue to decline, each generation of women will be smaller than the last.
Of course fertility rates may not continue to decline, but to date the evidence of countries that have got down to the replacement level is that they don't stick there, they carry on declining.
. The reasons for this may have a lot to do with the changing position of women in society. Where men take a greater role in bringing up children, and the state intervenes to help working mothers, fertility rates stay quite close to replacement. Where they do not, then super-low fertility may follow; women, in effect, go on childbirth strike.
Even if the world population does stabilise soon and starts to glide downwards, that won't solve the world's environmental problems. The real issue is not overpopulation but overconsumption - mostly in rich countries that have long since given up adding substantial numbers to their population.
The key problem facing humanity... is how to bring a better quality of life for 8 billion or more people without wrecking the environment entirely in the attemptE
O. Wilson
Take one measure: carbon dioxide emissions. Stephen Pacala, director of the Princeton Environmental Institute, calculates that the world's richest half billion people - that's about 7 per cent of the global population - are responsible for 50 per cent of the world's emissions.
Meanwhile, the poorest 50 per cent are responsible for just 7 per cent of emissions. One American or European is more often than not responsible for more emissions than an entire village of Africans.
Every time those of us in the rich world talk about too many babies in Africa or India, we are denying our own culpability. It is the world's consumption patterns we need to fix, not its reproductive habits
Read more: The population delusion
Even seasoned analysts talk about the threat of "exponential" population growth. But there is no exponential growth. In most of the world fertility rates are falling fast, and the countries where population growth continues are those that contribute least to our planetary predicament.
Back in the late 1960s, when Paul Ehrlich wrote his seminal book The Population Bomb, rapid population growth was arguably the number 1 threat to the planet's future. Many believed that only strict birth control could prevent doomsday. But after scandals about forced vasectomies in India and China's draconian one-child policy, such views fell into disrepute. What's more, Ehrlich's prediction of hundreds of millions of deaths from famine in the 1980s fortunately failed to be borne out.
Now the demographic monster has become a hot topic again. Yet the arguments still don't fit the reality. The population "bomb" is fast being defused. Women across the poor world are having dramatically fewer babies than their mothers did - mostly out of choice, not compulsion.
Half a century ago, the worldwide average for the number of children a woman had was between five and six. Now she has 2.6. In the face of such a fall it is hard to see what more "doing something" about global population might achieve.
Half the world now has a fertility rate below the replacement level, which, allowing for girls who don't make it to adulthood, is around 2.3. This includes most of Europe, east Asia, North America and the Caribbean.
There are holdouts in a few Muslim countries - but not Iran, where fertility is 1.7 - and many parts of Africa. But rich or poor, socialist or capitalist, Muslim or Catholic, secular or devout, with tough government birth control policies or none, most countries tell the same story.
This hasn't yet stopped the world's population from rising. It stands at 6.8 billion, and is growing by 75 million a year. This is mostly because the huge numbers of young women born during the 20th-century's worldwide baby boom are still fertile: they may typically only have two children each, but that is still a lot of babies. Soon, however, if fertility rates continue to decline, each generation of women will be smaller than the last.
Of course fertility rates may not continue to decline, but to date the evidence of countries that have got down to the replacement level is that they don't stick there, they carry on declining.
. The reasons for this may have a lot to do with the changing position of women in society. Where men take a greater role in bringing up children, and the state intervenes to help working mothers, fertility rates stay quite close to replacement. Where they do not, then super-low fertility may follow; women, in effect, go on childbirth strike.
Even if the world population does stabilise soon and starts to glide downwards, that won't solve the world's environmental problems. The real issue is not overpopulation but overconsumption - mostly in rich countries that have long since given up adding substantial numbers to their population.
The key problem facing humanity... is how to bring a better quality of life for 8 billion or more people without wrecking the environment entirely in the attemptE
O. Wilson
Take one measure: carbon dioxide emissions. Stephen Pacala, director of the Princeton Environmental Institute, calculates that the world's richest half billion people - that's about 7 per cent of the global population - are responsible for 50 per cent of the world's emissions.
Meanwhile, the poorest 50 per cent are responsible for just 7 per cent of emissions. One American or European is more often than not responsible for more emissions than an entire village of Africans.
Every time those of us in the rich world talk about too many babies in Africa or India, we are denying our own culpability. It is the world's consumption patterns we need to fix, not its reproductive habits
Read more: The population delusion
Sunday, 27 September, 2009
▬Middle East Oil Realism▬
No matter how important rising oil powers outside the Middle East are becoming, the region will continue to be the world’s main source of energy for years to come.
Unlike Russia, the Middle East’s OPEC members act as a cartel that produces well under capacity. At current production rates, Russia will be out of the running by 2020. The conditions are not radically different in Africa.
This means that energy security will remain highly dependent on Middle Eastern politics, with the region’s oil producers continuing to seek to dictate terms to the world market.
Of special concern are the links between military ambitions and the transfer of wealth that oil exports can bring. Iran’s nuclear weapons programme and Iraq’s formidable military build-up of the 1990s exemplify the lethal link between hyper-militarization and energy-market power.
Politically-driven threats to oil supplies, as always, dominate energy-security debates. As the Iraqi case shows, wars and domestic upheavals can not only affect the short-term level of oil supplies, but also undermine the long-term productive capacity of a country by hindering maintenance and investment.
Yet, the potential threat to Middle Eastern oil supplies is nonetheless over-stated. Against all odds and predictions, regimes in the Middle East have survived both the failures of pan-Arab nationalism and the challenges of Islamic extremism. Nor are the concerns that terrorist attacks can force the oil industry to its knees very plausible. So far, the damage from such attacks has proven to be short-lived.
And the doomsday scenario of an Israeli-Iranian showdown leading to an Iranian blockade of the Straits of Hormuz is not especially credible, either. It is doubtful that Iran has the military capacity to block the straits, and, were it to try, it would confront a truly global coalition in response.
Moreover, closing the straits would amount to a self-imposed blockade that would hit Iran’s own domestic energy needs hard, owing to its lack of refining capacity.
So, although the mystic power of the oil weapon still prevails, it has proven to be an impotent tool. Some continue to see oil as “the energy equivalent of nuclear weapons.” But the truth is that the 1973 Arab oil embargo was a colossal failure.
Had it been successful, President Anwar Sadat of Egypt would not have rushed to Jerusalem to strike a peace deal with Israel just a few years later. The oil weapon did not force Israel to withdraw to its 1967 borders, nor were the oil powers capable of absorbing for very long the costs to their own economies of the drop in revenues.
A massive use of the oil weapon along the lines of the 1973 oil embargo is out of the question nowadays.
Nevertheless, some people, like former CIA Director James Woolsey, predict that a radical seizure of power in Saudi Arabia might usher in the use of the oil weapon against the West.
But to be radical is not tantamount to being irrational, and whatever its religious or political colour might be, no Saudi state could forfeit its means to hold the reins of power. The colossal wealth that comes from oil makes producers no less dependent on oil than consumers.
The real threat is not that a radical Saudi Arabia might cease exporting oil, but that it would continue doing so even if the country turned radical. Billions of petrodollars would then become the financial firepower behind global Wahhabi designs.
But is this really a scenario much different from the one we face today? After all, Saudi oil wealth has been underwriting terrorism for quite some time now. Conspicuously, al Qaeda is happy with Saudi power in the oil markets.
In one of its pronouncements, it even admitted that Saudi Arabia “must remain safe… because it is the primary source of funds for most Jihad movements.”
If energy security means the availability of sufficient supply at affordable prices, then the real security problem comes from market power, from a cartel-based price system that dictates artificially high prices that could never exist in a competitive market.
Indeed, the aspiration to maintain market control explains OPEC’s opposition to the Kyoto Protocol, whose implementation might reduce global oil demand by as much as 20%, and its fear that the US might follow Europe’s example and fight oil addiction by a drastic increase in energy taxes.
President Barack Obama has repeatedly warned that the transfer of wealth to hostile oil producing countries is a major threat to US national security. His plan for a substantial cut in US oil consumption to meet lower carbon emission targets and a ten-year plan to develop clean energy are commendable aspirations. But policies aimed at reducing oil consumption are bound to clash with the urgent need to revive America’s economy.
Maintaining stability in the Middle East for the sake of energy security has now become secondary to the pressing need to deal with the challenges posed by the problems in Iran, Iraq, and Afghanistan.
But, even if the US managed to reduce oil consumption by as much as 17%, it would still have to depend on Gulf oil, and hence on energy security in the region.
Unlike Russia, the Middle East’s OPEC members act as a cartel that produces well under capacity. At current production rates, Russia will be out of the running by 2020. The conditions are not radically different in Africa.
This means that energy security will remain highly dependent on Middle Eastern politics, with the region’s oil producers continuing to seek to dictate terms to the world market.
Of special concern are the links between military ambitions and the transfer of wealth that oil exports can bring. Iran’s nuclear weapons programme and Iraq’s formidable military build-up of the 1990s exemplify the lethal link between hyper-militarization and energy-market power.
Politically-driven threats to oil supplies, as always, dominate energy-security debates. As the Iraqi case shows, wars and domestic upheavals can not only affect the short-term level of oil supplies, but also undermine the long-term productive capacity of a country by hindering maintenance and investment.
Yet, the potential threat to Middle Eastern oil supplies is nonetheless over-stated. Against all odds and predictions, regimes in the Middle East have survived both the failures of pan-Arab nationalism and the challenges of Islamic extremism. Nor are the concerns that terrorist attacks can force the oil industry to its knees very plausible. So far, the damage from such attacks has proven to be short-lived.
And the doomsday scenario of an Israeli-Iranian showdown leading to an Iranian blockade of the Straits of Hormuz is not especially credible, either. It is doubtful that Iran has the military capacity to block the straits, and, were it to try, it would confront a truly global coalition in response.
Moreover, closing the straits would amount to a self-imposed blockade that would hit Iran’s own domestic energy needs hard, owing to its lack of refining capacity.
So, although the mystic power of the oil weapon still prevails, it has proven to be an impotent tool. Some continue to see oil as “the energy equivalent of nuclear weapons.” But the truth is that the 1973 Arab oil embargo was a colossal failure.
Had it been successful, President Anwar Sadat of Egypt would not have rushed to Jerusalem to strike a peace deal with Israel just a few years later. The oil weapon did not force Israel to withdraw to its 1967 borders, nor were the oil powers capable of absorbing for very long the costs to their own economies of the drop in revenues.
A massive use of the oil weapon along the lines of the 1973 oil embargo is out of the question nowadays.
Nevertheless, some people, like former CIA Director James Woolsey, predict that a radical seizure of power in Saudi Arabia might usher in the use of the oil weapon against the West.
But to be radical is not tantamount to being irrational, and whatever its religious or political colour might be, no Saudi state could forfeit its means to hold the reins of power. The colossal wealth that comes from oil makes producers no less dependent on oil than consumers.
The real threat is not that a radical Saudi Arabia might cease exporting oil, but that it would continue doing so even if the country turned radical. Billions of petrodollars would then become the financial firepower behind global Wahhabi designs.
But is this really a scenario much different from the one we face today? After all, Saudi oil wealth has been underwriting terrorism for quite some time now. Conspicuously, al Qaeda is happy with Saudi power in the oil markets.
In one of its pronouncements, it even admitted that Saudi Arabia “must remain safe… because it is the primary source of funds for most Jihad movements.”
If energy security means the availability of sufficient supply at affordable prices, then the real security problem comes from market power, from a cartel-based price system that dictates artificially high prices that could never exist in a competitive market.
Indeed, the aspiration to maintain market control explains OPEC’s opposition to the Kyoto Protocol, whose implementation might reduce global oil demand by as much as 20%, and its fear that the US might follow Europe’s example and fight oil addiction by a drastic increase in energy taxes.
President Barack Obama has repeatedly warned that the transfer of wealth to hostile oil producing countries is a major threat to US national security. His plan for a substantial cut in US oil consumption to meet lower carbon emission targets and a ten-year plan to develop clean energy are commendable aspirations. But policies aimed at reducing oil consumption are bound to clash with the urgent need to revive America’s economy.
Maintaining stability in the Middle East for the sake of energy security has now become secondary to the pressing need to deal with the challenges posed by the problems in Iran, Iraq, and Afghanistan.
But, even if the US managed to reduce oil consumption by as much as 17%, it would still have to depend on Gulf oil, and hence on energy security in the region.
▬▬▬▬Oil market outlook▬▬▬▬▬
Crude prices collapsed to an eight-week low last week as renewed concerns over the pace of economic recovery triggered a sell-off in both equities and commodities.
An unexpected buildup in US crude inventories also pressured crude prices. West Texas Intermediate settled on Friday at $66.02 a barrel, down more than $6 from a week earlier.
The US dollar rebounded to $1.469 against the euro as investors switched from riskier assets to the safe-haven greenback on increasing fears over the slow recovery of the US economy.
The Federal Reserve kept interest rates unchanged at 0-0.25%, but will slow its purchases of mortgage-related debt in order to avoid igniting inflation. However, the dollar fell on Friday after the G-20 meeting pledged to keep stimulus measures in place until the global economy recovers.
US crude stocks for the week ended Sept 18 surprisingly rose by 2.8 million barrels to stay at a five-year high of 335.6 million, against the forecast rise of 1.5 million, as imports rebounded and demand from refineries fell.
Gasoline inventories grew by 5.4 million barrels to 213.1 million with the end of the summer driving season. Distillate stocks increased 3.0 million barrels to a 26-year high above 175 million. The large stock buildup suggested that energy demand will be slow to recover.
Another sign of weak demand was seen in Japanese crude imports, which tumbled for the seventh consecutive month in August by 12.4% from a year earlier.
The 7% decline in domestic demand was due to the economic downturn, an ageing population and a switch toward greener energy. On the other hand, oil demand in China rose for the fifth month in August by 2.9% year-on-year, boosted by massive stimulus spending. But gasoline and diesel exports hit five-year highs as new refining capacity outpaced domestic demand.
Some support for crude prices came from demand recovery for Opec crude. The cartel's exports rose 160,000 barrels to 22.49 million bpd. Saudi Arabia's oil minister said he did not expect Opec to cut its quota next year as demand would grow with the recovery.
Thaioil estimates that crude prices this week will fluctuate within the range of $65 to $70 a barrel.
US economic data, including consumer confidence, final second-quarter GDP, the Chicago PMI, motor vehicle sales, personal incomes and outlays, and unemployment, will be the focus.
Dollar and equity movements will again affect crude prices, while expected positive US economic data will support a price floor above $65 a barrel.
Tracking the global decline, gasoline in Singapore dropped almost $10 a barrel to settle at around $69 last Friday. The market was also weighed down by easing demand from the top two regional buyers. Indonesia will cut its imports next month with the end of the Ramadan last week.
Imports from Vietnam will ease after its refinery restarts this week from a month-long outage. Looking forward, soft gasoline demand is expected to persist for the rest of the year.
Diesel prices in Singapore closed at around $71 a barrel, down nearly $6. The market remained weak as supply continued to increase with no sign of demand picking up significantly.
Due to the global recession, diesel stocks in Singapore, the US and Europe have been above the five-year average since January. However, heavy refinery maintenance and increasing demand for the winter season will help draw down diesel stocks, providing support to prices in the coming months.
Bangkok Post
An unexpected buildup in US crude inventories also pressured crude prices. West Texas Intermediate settled on Friday at $66.02 a barrel, down more than $6 from a week earlier.
The US dollar rebounded to $1.469 against the euro as investors switched from riskier assets to the safe-haven greenback on increasing fears over the slow recovery of the US economy.
The Federal Reserve kept interest rates unchanged at 0-0.25%, but will slow its purchases of mortgage-related debt in order to avoid igniting inflation. However, the dollar fell on Friday after the G-20 meeting pledged to keep stimulus measures in place until the global economy recovers.
US crude stocks for the week ended Sept 18 surprisingly rose by 2.8 million barrels to stay at a five-year high of 335.6 million, against the forecast rise of 1.5 million, as imports rebounded and demand from refineries fell.
Gasoline inventories grew by 5.4 million barrels to 213.1 million with the end of the summer driving season. Distillate stocks increased 3.0 million barrels to a 26-year high above 175 million. The large stock buildup suggested that energy demand will be slow to recover.
Another sign of weak demand was seen in Japanese crude imports, which tumbled for the seventh consecutive month in August by 12.4% from a year earlier.
The 7% decline in domestic demand was due to the economic downturn, an ageing population and a switch toward greener energy. On the other hand, oil demand in China rose for the fifth month in August by 2.9% year-on-year, boosted by massive stimulus spending. But gasoline and diesel exports hit five-year highs as new refining capacity outpaced domestic demand.
Some support for crude prices came from demand recovery for Opec crude. The cartel's exports rose 160,000 barrels to 22.49 million bpd. Saudi Arabia's oil minister said he did not expect Opec to cut its quota next year as demand would grow with the recovery.
Thaioil estimates that crude prices this week will fluctuate within the range of $65 to $70 a barrel.
US economic data, including consumer confidence, final second-quarter GDP, the Chicago PMI, motor vehicle sales, personal incomes and outlays, and unemployment, will be the focus.
Dollar and equity movements will again affect crude prices, while expected positive US economic data will support a price floor above $65 a barrel.
Tracking the global decline, gasoline in Singapore dropped almost $10 a barrel to settle at around $69 last Friday. The market was also weighed down by easing demand from the top two regional buyers. Indonesia will cut its imports next month with the end of the Ramadan last week.
Imports from Vietnam will ease after its refinery restarts this week from a month-long outage. Looking forward, soft gasoline demand is expected to persist for the rest of the year.
Diesel prices in Singapore closed at around $71 a barrel, down nearly $6. The market remained weak as supply continued to increase with no sign of demand picking up significantly.
Due to the global recession, diesel stocks in Singapore, the US and Europe have been above the five-year average since January. However, heavy refinery maintenance and increasing demand for the winter season will help draw down diesel stocks, providing support to prices in the coming months.
Bangkok Post
Thursday, 24 September, 2009
History of the United States
"The United States debt, foreign and domestic, was the price of liberty. The faith of America has been repeatedly pledged for it... Among ourselves, the most enlightened friends of good government are those whose expectations of prompt payment are the highest.
The American Civil War resulted in dramatic debt growth. The debt was just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt grew steadily into the Twentieth Century and was roughly $22 billion as the country paid for involvement in World War I.
The national debt as a percentage of the gross domestic product
In recent years there has been a "debt ceiling" in effect. Whereas Congress once approved legislation for every debt issuance, the growth of government fiscal operations in the 20th century made this impractical. (For example, the Treasury now conducts more than 200 sales of debt by auction every year to fund over $4 trillion in debt operations.) The Treasury was granted authority by the Congress to issue such debt as was needed to fund government operations as long as the total debt did not exceed a stated ceiling. The "ceiling" is routinely raised by passage of new laws by the United States Congress.
1803: Albert Gallatin
The World Wars
postwar Turbulence
Century Ends
To justify and preserve their confidence; to promote the increasing respectability of the American name; to answer the calls of justice; to restore landed property to its due value; to furnish new resources, both to agriculture and commerce; to cement more closely the Union of the States; to add to their security against foreign attack; to establish public order on the basis of an upright and liberal policy; these are the great and invaluable ends to be secured by a proper and adequate provision, at the present period, for the support of public credit."
Alexander Hamilton, 1790, First Report on the Public Credit
1768 Bond
Public debt is a fact of life. The U.S. has had debt since its inception. Our records show that debts incurred during the American Revolutionary War amounted to $75,463,476.52 by January 1, 1791. Over the following 45 years, the debt grew.
Notably, the public debt actually shrank to zero on January 8, 1835, under President Andrew Jackson. But soon after, it quickly grew into the millions again.The American Civil War resulted in dramatic debt growth. The debt was just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt grew steadily into the Twentieth Century and was roughly $22 billion as the country paid for involvement in World War I.
The buildup to World War II brought the debt up another order of magnitude from $51 billion in 1940 to $260 billion following the war. After this period, the debt's growth closely matched the rate of inflation until the 1980s, when it again began to increase rapidly. Between 1980 and 1990, the debt more than tripled. The debt shrank briefly after the end of the Cold War, but by the end of FY 2008, the gross national debt had reached $10.3 trillion, about 10 times its 1980 level.
The national debt as a percentage of the gross domestic productIn recent years there has been a "debt ceiling" in effect. Whereas Congress once approved legislation for every debt issuance, the growth of government fiscal operations in the 20th century made this impractical. (For example, the Treasury now conducts more than 200 sales of debt by auction every year to fund over $4 trillion in debt operations.) The Treasury was granted authority by the Congress to issue such debt as was needed to fund government operations as long as the total debt did not exceed a stated ceiling. The "ceiling" is routinely raised by passage of new laws by the United States Congress.
In February 2009, Congress raised the debt limit to $12.104 trillion.
1776: The Birth of Public Debt1803: Albert Gallatin
The World Wars
postwar Turbulence
Century Ends
Wednesday, 23 September, 2009
'Safe' bonds may be hiding risk
The Fed is keeping interest rates near zero to help the economy, but that's really hurting savers. Many are flooding into bonds for better returns -- without taking note of the risks.
The Federal Reserve's policy of driving interest rates down toward zero may have kept the financial system alive. But it is killing savers and driving them to do desperate things.
Stocks or bonds: Which are best for you?
Nearly 78% of taxable money market funds, the traditional parking place for savings, are offering 0.1% or less in annualized yield, according to Crane Data, a research company. On a $10,000 balance, that will earn you a maximum of 83 cents -- yes, $0.83 -- in monthly interest income. All told, these funds hold $1.3 trillion that will generate a return of just about zilch for the people who worked so hard to save it.
Is it any wonder that investors are barging into bonds? At Vanguard Group, more than $51 billion has cascaded into bond funds this year. "It's been like Niagara Falls," said Robert Auwaerter, Vanguard's head of fixed-income investing. Industrywide, investors sank more than $40 billion into bond funds in August, an all-time high for a single month, and are on pace to break that record in September.
That might not be troubling if investors were merely taking baby steps out of money market funds, whose three-month average maturities minimize the danger of losses if interest rates rise. Remember, rising rates mean falling bond prices.
Last month, investors put twice as much money into intermediate-term and junk-bond funds as into short-term bond portfolios. As a result, they have exposed themselves to much greater risk from rising rates or falling credit quality. When interest rates go up, as in 1994, investors in longer-term bonds can get slaughtered.
"People feel they have to choose between the frying pan of zero yields and the fire of risk," said Crane Data's president, Peter G. Crane. "And they're sick of the frying pan, so they're jumping into the fire."
Safer than stocks but riskier than before
Bonds are safer than stocks. But at today's high prices and low yields, bonds are riskier than they were a few months ago.
Thus, if you can't stand the pain of a money market fund that offers no gain, your best bet is a short-term fund that has significant holdings of corporate bonds.
The Federal Reserve's policy of driving interest rates down toward zero may have kept the financial system alive. But it is killing savers and driving them to do desperate things.
Stocks or bonds: Which are best for you?
Nearly 78% of taxable money market funds, the traditional parking place for savings, are offering 0.1% or less in annualized yield, according to Crane Data, a research company. On a $10,000 balance, that will earn you a maximum of 83 cents -- yes, $0.83 -- in monthly interest income. All told, these funds hold $1.3 trillion that will generate a return of just about zilch for the people who worked so hard to save it.
Is it any wonder that investors are barging into bonds? At Vanguard Group, more than $51 billion has cascaded into bond funds this year. "It's been like Niagara Falls," said Robert Auwaerter, Vanguard's head of fixed-income investing. Industrywide, investors sank more than $40 billion into bond funds in August, an all-time high for a single month, and are on pace to break that record in September.
That might not be troubling if investors were merely taking baby steps out of money market funds, whose three-month average maturities minimize the danger of losses if interest rates rise. Remember, rising rates mean falling bond prices.
Last month, investors put twice as much money into intermediate-term and junk-bond funds as into short-term bond portfolios. As a result, they have exposed themselves to much greater risk from rising rates or falling credit quality. When interest rates go up, as in 1994, investors in longer-term bonds can get slaughtered.
"People feel they have to choose between the frying pan of zero yields and the fire of risk," said Crane Data's president, Peter G. Crane. "And they're sick of the frying pan, so they're jumping into the fire."
Safer than stocks but riskier than before
Bonds are safer than stocks. But at today's high prices and low yields, bonds are riskier than they were a few months ago.
The easiest way to tell is by looking at duration: the change in a bond's market value when interest rates go up or down by 1 percentage point. If, for example, you own a bond with a duration of four, then its value will go up about 4% if interest rates fall by a percentage point; the bond will lose about 4% if rates rise by a point. For Treasury bonds, rising interest rates are the main form of risk; for corporate, municipal and other bonds, the financial soundness of the underlying assets raises another kind of risk.
Duration generally rises in tandem with bond prices, meaning that bonds are now primed to lose even more money if interest rates go up. This is, in short, a dangerous time to chase yield.
A year ago, according to Barclays Capital, the duration of seven- to 10-year Treasury securities was 7.0; now, it is 7.5. Similarly, the duration on municipal bonds has risen to 8.3 from 8.1. Assuming a $10,000 investment, you will lose roughly $750 on an intermediate-term Treasury note and about $830 on the average tax-free bond if rates rise by a percentage point, up from roughly $700 and $810, respectively, a year ago.The rising durations reflect the huge gains in the bond market this year. Municipal bonds have returned 15%, corporate issues almost 17% and junk bonds at least 25%. "The easy money's been made," warns Vanguard's Auwaerter. Treasury bonds, unlike corporates or municipals, can't gain from an improving economy; if interest rates rise, Treasurys will get hammered.
Treasurys riskiest of all
The riskiest bonds of all right now are Treasurys. If the economy improves and rates rise, they will get hit hard. The longer the bond, the harder the hit.Corporate bonds also will get hurt by rising rates. But an improving economy should narrow the spread between corporate bonds and Treasurys, which will lessen your losses.
Video: The trouble with TreasurysThus, if you can't stand the pain of a money market fund that offers no gain, your best bet is a short-term fund that has significant holdings of corporate bonds.
Human World
Human World
The women of the Tiwi tribe in the South Pacific are married at birth.
When Albert Einstein died, his final words died with him. The nurse at his side didn't understand German.
St Patrick, the patron saint of Ireland, was not Irish.
The lance ceased to be an official battle weapon in the British Army in 1927.
St. John was the only one of the 12 Apostles to die a natural death.
Many sailors used to wear gold earrings so that they could afford a proper burial when they died.
Some very Orthodox Jew refuse to speak Hebrew, believing it to be a language reserved only for the Prophets.
A South African monkey was once awarded a medal and promoted to the rank of corporal during World War I.
Born 4 January 1838, General Tom Thumb's growth slowed at the age of 6 months, at 5 years he was signed to the circus by P.T. Barnum, and at adulthood reached a height of only 1 metre.
Because they had no proper rubbish disposal system, the streets of ancient Mesopotamia became literally knee-deep in rubbish.
The Toltecs, Seventh-century native Mexicans, went into battle with wooden swords so as not to kill their enemies.
China banned the pigtail in 1911 as it was seen as a symbol of feudalism.
The Amayra guides of Bolivia are said to be able to keep pace with a trotting horse for a distance of 100 kilometres.
Sliced bread was patented by a jeweller, Otto Rohwedder, in 1928. He had been working on it for 16 years, having started in 1912.
Before it was stopped by the British, it was the not uncommon for women in some areas of India to choose to be burnt alive on their husband's funeral pyre.
Ivan the terrible claimed to have 'deflowered thousands of virgins and butchered a similar number of resulting offspring'.
Before the Second World War, it was considered a sacrilege to even touch an Emperor of Japan.
An American aircraft in Vietnam shot itself down with one of its own missiles.
The Anglo-Saxons believed Friday to be such an unlucky day that they ritually slaughtered any child unfortunate enough to be born on that day.
During the eighteenth century, laws had to be brought in to curb the seemingly insatiable appetite for gin amongst the poor. Their annual intake was as much as five million gallons.
Ancient drinkers warded off the devil by clinking their cups
The Nobel Prize resulted form a late change in the will of Alfred Nobel, who did not want to be remembered after his death as a propagator of violence - he invented dynamite.
The cost of the first pay-toilets installed in England was tuppence.
Pogonophobia is the fear of beards.
In 1647 the English Parliament abolished Christmas.
Mao Rse-Tang, the first chairman of the Chinese Communist Party, was born 26 December 1893. Before his rise to power, he occupied the humble position of Assistant Librarian at the University of Peking.
Coffee is the second largest item of international commerce in the world. The largest is petrol.
King George III was declared violently insane in 1811, 9 years before he died.
In Ancient Peru, when a woman found an 'ugly' potato, it was the custom for her to push it into the face of the nearest man.
For Roman Catholics, 5 January is St Simeon Stylites' Day. He was a fifth-century hermit who showed his devotion to God by spending literally years sitting on top of a huge flagpole.
When George I became King of England in 1714, his wife did not become Queen. He placed her under house arrest for 32 years.
The richest 10 per cent of the French people are approximately fifty times better off than the poorest 10 per cent.
Henry VII was the only British King to be crowned on the field of battle
During World War One, the future Pope John XXIII was a sergeant in the Italian Army.
Richard II died aged 33 in 1400. A hole was left in the side of his tomb so people could touch his royal head, but 376 years later some took advantage of this and stole his jawbone.
The magic word "Abracadabra" was originally intended for the specific purpose of curing hay fever.
The Puritans forbade the singing of Christmas Carols, judging them to be out of keeping with the true spirit of Christmas.
Albert Einstein was once offered the Presidency of Israel. He declined saying he had no head for problems.
Uri Geller, the professional psychic was born on December 20 1946. As to the origin of his alleged powers, Mr Geller maintains that they come from the distant planet of Hoova.
Ralph and Carolyn Cummins had 5 children between 1952 and 1966, all were born on the 20 February.
John D. Rockefeller gave away over US$ 500,000,000 during his lifetime.
Only 1 child in 20 are born on the day predicted by the doctor.
In the 1970's, the Rhode Island Legislature in the US entertained a proposal that there be a $2 tax on every act of sexual intercourse in the State.
Widows in equatorial Africa actually wear sackcloth and ashes when attending a funeral.
The 'Hundred Years War' lasted 116 years.
The British did not release the body of Napoleon Bonaparte to the French until twenty days after his death.
Admiral Lord Nelson was less than 1.6 metres tall.
John Glenn, the American who first orbited the Earth, was showered with 3,529 tonnes of ticker tape when he got back.
Native American Indians used to name their children after the first thing they saw as they left their tepees subsequent to the birth. Hence such strange names as Sitting Bull and Running Water.
Catherine the First of Russia, made a rule that no man was allowed to get drunk at one of her parties before nine o'clock.
Queen Elizabeth I passed a law which forced everyone except for the rich to wear a flat cap on Sundays.
In 1969 the shares of the Australian company 'Poseidon' were worth $1, one year later they were worth $280 each.
Julius Caesar wore a laurel wreath to cover the onset of baldness.
Ernest Bevin, Minister of Labour during World War II, left school at the age of eleven.
At the age of 12, Martin Luther King became so depressed he tried committing suicide twice, by jumping out of his bedroom window.
It is illegal to be a prostitute in Siena, Italy, if your name is Mary.
The Turk's consider it considered unlucky to step on a piece of bread.
The authorities do not allow tourists to take pictures of Pygmies in Zambia.
The Dutch in general prefer their french fries with mayonnaise.
Upon the death of F.D. Roosevelt, Harry S Truman became the President of America on 12 April 1945. The initial S in the middle of his name doesn't in fact mean anything. Both his grandfathers had names beginning with 'S', and so Truman's mother didn't want to disappoint either of them.
Sir Isaac Newton was obsessed with the occult and the supernatural.
One of Queen Victoria's wedding gifts was a 3 metre diameter, half tonne cheese.
Alexander Graham Bell, the inventor of the telephone, never phoned his wife or his mother, they were both deaf.
It was considered unfashionable for Venetian women, during the Renaissance to have anything but silvery-blonde hair.
Queen Victoria was one of the first women ever to use chloroform to combat pain during childbirth.
Peter the Great had the head of his wife's lover cut off and put into a jar of preserving alcohol, which he then ordered to be placed by her bed.
The car manufacturer Henry Ford was awarded Hitler's Grand Cross of the Supreme Order of the German Eagle. Henry Ford was the inventor of the assembly line, and Hitler used this knowledge of the assembly line to speed up production, and to create better and interchangeable products.
Atilla the Hun is thought to have been a dwarf.
The warriors tribes of Ethiopia used to hang the testicles of those they killed in battle on the ends of their spears.
On 15 April 1912 the SS Titanic sunk on her maiden voyage and over 1,500 people died. Fourteen years earlier a novel was published by Morgan Robertson which seemed to foretell the disaster. The book described a ship the same size as the Titanic which crashes into an iceberg on its maiden voyage on a misty April night. The name of Robertson's fictional ship was the Titan.
There are over 200 religious denominations in the United States.
Eau de Cologne was originally marketed as a way of protecting yourself against the plague.
Charles the Simple was the grandson of Charles the Bald, both were rulers of France.
Theodor Herzi, the Zionist leader who was born on May 2 1860, once had the astonishing idea of converting Jews to Christianity as a way of combating anti-Semitism.
The women of an African tribe make themselves more attractive by permanently scaring their faces.
Augustus II, the Elector of Saxony and King of Poland seemed to have a prodigious sexual appetite, and fathered hundreds of illegitimate children during his lifetime.
Some moral purists in the Middle Ages believed that women's ears ought to be covered up because the Virgin May had conceived a child through them.
Hindus don't like dying in bed, they prefer to die beside a river.
While at Havard University, Edward Kennedy was suspended for cheating on a Spanish exam.
It is a criminal offence to drive around in a dirty car in Russia.
The Emperor Caligula once decided to go to war with the Roman God of the sea, Poseidon, and ordered his soldiers to throw their spears into the water at random.
The Ecuadorian poet, José Olmedo, has a statue in his honour in his home country. But, unable to commission a sculptor, due to limited funds, the government brought a second-hand statue .. Of the English poet Lord Byron.
In 1726, at only 7 years old, Charles Sauson inherited the post of official executioner.
Sir Winston Churchill rationed himself to 15 cigars a day.
On 7 January 1904 the distress call 'CQD' was introduced. 'CQ' stood for 'Seek You' and 'D' for 'Danger'. This lasted only until 1906 when it was replaced with 'SOS'.
Though it is forbidden by the Government, many Indians still adhere to the caste system which says that it is a defilement for even the shadow of a person from a lowly caste to fall on a Brahman ( a member of the highest priestly caste).
In parts of Malaya, the women keep harems of men.
The childrens' nursery rhyme 'Ring-a-Ring-a-Roses' actually refers to the Black Death which killed about 30 million people in the fourteenth-century.
The word 'denim' comes from 'de Nimes', Nimes being the town the fabric was originally produced.
During the reign of Elizabeth I, there was a tax put on men's beards.
Idi Amin, one of the most ruthless tyrants in the world, before coming to power, served in the British Army.
Some Eskimos have been known to use refrigerators to keep their food from freezing.
It is illegal to play tennis in the streets of Cambridge.
Custer was the youngest General in US history, he was promoted at the age of 23.
It costs more to send someone to reform school than it does to send them to Eton.
The American pilot Charles Lindbergh received the Service Cross of the German Eagle form Hermann Goering in 1938.
The active ingredient in Chinese Bird's nest soup is saliva.
Marie Currie, who twice won the Nobel Prize, and discovered radium, was not allowed to become a member of the prestigious French Academy because she was a woman.
It was quite common for the men of Ancient Greece to exercise in public .. naked.
John Paul Getty, once the richest man in the world, had a payphone in his mansion.
Iceland is the world's oldest functioning democracy.
Adolf Eichmann (responsible for countless Jewish deaths during World war II), was originally a travelling salesman for the Vacuum Oil Co. of Austria.
The national flag of Italy was designed by Napoleon Bonaparte.
The Matami Tribe of West Africa play a version of football, the only difference being that they use a human skull instead of a more normal ball.
John Winthrop introduced the fork to the American dinner table for the first time on 25 June 1630.
Elizabeth Blackwell, born in Bristol, England on 3 February 1821, was the first woman in America to gain an M.D. degree.
Abraham Lincoln was shot with a Derringer.
The great Russian leader, Lenin died 21 January 1924, suffering from a degenerative brain disorder. At the time of his death his brain was a quarter of its normal size.
When shipped to the US, the London bridge ( thought by the new owner to be the more famous Tower Bridge ) was classified by US customs to be a 'large antique'.
Sir Winston Churchill was born in a ladies' cloakroom after his mother went into labour during a dance at Blenheim Palace.
In 1849, David Atchison became President of the United States for just one day, and he spent most of the day sleeping.
Between the two World War's, France was controlled by forty different governments.
The 'Crystal Palace' at the Great Exhibition of 1851, contained 92 900 square metres of glass.
It was the custom in Ancient Rome for the men to place their right hand on their testicles when taking an oath. The modern term 'testimony' is derived from this tradition.
Sir Winston Churchill's mother was descended from a Red Indian.
The study of stupidity is called 'monology'.
Hindu men believe(d) it to be unluckily to marry a third time. They could avoid misfortune by marring a tree first. The tree ( his third wife ) was then burnt, freeing him to marry again.
More money is spent each year on alcohol and cigarettes than on Life insurance.
In 1911 3 men were hung for the murder of Sir Edmund Berry at Greenbury Hill, their last names were Green, Berry , and Hill.
A firm in Britain sold fall-out shelters for pets.
During the seventeen century , the Sultan of Turkey ordered his entire harem of women drowned, and replace with a new one.
Lady Astor once told Winston Churchill 'if you were my husband, I would poison your coffee'. His reply …' if you were my wife, I would drink it ! '.
There are no clocks in Las Vegas casinos.
The Great Pyramid of Giza consists of 2,300,000 blocks each weighing 2.5 tons.
On 9 February 1942, soap rationing began in Britain.
Paul Revere was a dentist.
The Budget speech on April 17 1956 saw the introduction of Premium Savings Bonds into Britain. The machine which picks the winning numbers is called "Ernie", an abbreviation, which stands for' electronic random number indicator equipment'.
Chop-suey is not a native Chinese dish, it was created in California by Chinese immigrants.
The Russian mystic, Rasputin, was the victim of a series of murder attempts on this day in 1916. The assassins poisoned, shot and stabbed him in quick succession, but they found they were unable to finish him off. Rasputin finally succumbed to the ice-cold waters of a river.
Bonnie Prince Charlie, the leader of the Jacobite rebellion to depose of George II of England, was born 31 December 1720. Considered a great Scottish hero, he spent his final years as a drunkard in Rome.
The Liberal Prime Minister, William Gladstone, was born of the 29th December 1809. Apparently, as a result of his strong Puritan impulses, Gladstone kept a selection of whips in his cellar with which he regularly chastised himself.
A parthenophobic has a fear of virgins.
South American gauchos were known to put raw steak under their saddles before starting a day's riding, in order to tenderise the meat.
There are 240 white dots in a Pacman arcade game.
In 1939 the US political party 'The American Nazi Party' had 200,000 members.
King Solomon of Israel had about 700 wives as well as hundreds of mistresses.
Urine was once used to wash clothes.
North American Indian, Sitting Bull, died on 15 December 1890. His bones were laid to rest in North Dakota, but a business group wanted him moved to a 'more natural' site in South Dakota. Their campaign was rejected so they stole the bones, and they now reside in Sitting Bull Park, South Dakota.
St Nicholas, the original Father Christmas, is the patron saint of thieves, virgins and communist Russia.
Dublin is home of the Fairy Investigation Society.
Fourteen million people were killed in World War I, twenty million died in a flu epidemic in the years that followed.
People in Siberia often buy milk frozen on a stick.
Princess Ann was the only competitor at the 1976 Montreal Olympics that did not have to undergo a sex test.
Ethelred the Unready, King of England in the Tenth-century, spent his wedding night in bed with his wife and his mother-in-law.
Coffins which are due for cremation are usually made with plastic handles.
Blackbird, who was the chief of Omaha Indians, was buried sitting on his favourite horse.
The two highest IQ's ever recorded (on a standard test) both belong to women.
The Tory Prime Minister, Benjamin Disreali, was born 21 December 1804. He was noted for his oratory and had a number of memorable exchanges in the House with his great rival William Gladstone. Asked what the difference between a calamity and a misfortune was Disreali replied: 'If Gladstone fell into the Thames it would be a misfortune, but if someone pulled him out again, it would be a calamity'.
The Imperial Throne of Japan has been occupied by the same family for the last thirteen hundred years.
In the seventeenth-century a Boston man was sentenced to two hours in the stocks for obscene behaviour, his crime, kissing his wife in a public place on a Sunday.
President Kaunda of Zambia once threatened to resign if his fellow countrymen didn't stop drinking so much alcohol.
Due to staggering inflation in the 1920's, 4,000,000,000,000,000,000 German marks were worth 1 US dollar.
Gorgias of Epirus was born during preparation of his mothers funeral.
The city of New York contains a district called 'Hell's Kitchen'.
The city of Hiroshima left the Industrial Promotion Centre standing as a monument the atomic bombing.
During the Medieval Crusades, transporting bodies off the battlefield for burial was a major problem, this was solved by carrying a huge cauldron into the Holy wars, boiling down the bodies, and taking only the bones with them.
A ten-gallon hat holds three-quarters of a gallon.
George Washington grew marijuana in his garden.
The women of the Tiwi tribe in the South Pacific are married at birth.
When Albert Einstein died, his final words died with him. The nurse at his side didn't understand German.
St Patrick, the patron saint of Ireland, was not Irish.
The lance ceased to be an official battle weapon in the British Army in 1927.
St. John was the only one of the 12 Apostles to die a natural death.
Many sailors used to wear gold earrings so that they could afford a proper burial when they died.
Some very Orthodox Jew refuse to speak Hebrew, believing it to be a language reserved only for the Prophets.
A South African monkey was once awarded a medal and promoted to the rank of corporal during World War I.
Born 4 January 1838, General Tom Thumb's growth slowed at the age of 6 months, at 5 years he was signed to the circus by P.T. Barnum, and at adulthood reached a height of only 1 metre.
Because they had no proper rubbish disposal system, the streets of ancient Mesopotamia became literally knee-deep in rubbish.
The Toltecs, Seventh-century native Mexicans, went into battle with wooden swords so as not to kill their enemies.
China banned the pigtail in 1911 as it was seen as a symbol of feudalism.
The Amayra guides of Bolivia are said to be able to keep pace with a trotting horse for a distance of 100 kilometres.
Sliced bread was patented by a jeweller, Otto Rohwedder, in 1928. He had been working on it for 16 years, having started in 1912.
Before it was stopped by the British, it was the not uncommon for women in some areas of India to choose to be burnt alive on their husband's funeral pyre.
Ivan the terrible claimed to have 'deflowered thousands of virgins and butchered a similar number of resulting offspring'.
Before the Second World War, it was considered a sacrilege to even touch an Emperor of Japan.
An American aircraft in Vietnam shot itself down with one of its own missiles.
The Anglo-Saxons believed Friday to be such an unlucky day that they ritually slaughtered any child unfortunate enough to be born on that day.
During the eighteenth century, laws had to be brought in to curb the seemingly insatiable appetite for gin amongst the poor. Their annual intake was as much as five million gallons.
Ancient drinkers warded off the devil by clinking their cups
The Nobel Prize resulted form a late change in the will of Alfred Nobel, who did not want to be remembered after his death as a propagator of violence - he invented dynamite.
The cost of the first pay-toilets installed in England was tuppence.
Pogonophobia is the fear of beards.
In 1647 the English Parliament abolished Christmas.
Mao Rse-Tang, the first chairman of the Chinese Communist Party, was born 26 December 1893. Before his rise to power, he occupied the humble position of Assistant Librarian at the University of Peking.
Coffee is the second largest item of international commerce in the world. The largest is petrol.
King George III was declared violently insane in 1811, 9 years before he died.
In Ancient Peru, when a woman found an 'ugly' potato, it was the custom for her to push it into the face of the nearest man.
For Roman Catholics, 5 January is St Simeon Stylites' Day. He was a fifth-century hermit who showed his devotion to God by spending literally years sitting on top of a huge flagpole.
When George I became King of England in 1714, his wife did not become Queen. He placed her under house arrest for 32 years.
The richest 10 per cent of the French people are approximately fifty times better off than the poorest 10 per cent.
Henry VII was the only British King to be crowned on the field of battle
During World War One, the future Pope John XXIII was a sergeant in the Italian Army.
Richard II died aged 33 in 1400. A hole was left in the side of his tomb so people could touch his royal head, but 376 years later some took advantage of this and stole his jawbone.
The magic word "Abracadabra" was originally intended for the specific purpose of curing hay fever.
The Puritans forbade the singing of Christmas Carols, judging them to be out of keeping with the true spirit of Christmas.
Albert Einstein was once offered the Presidency of Israel. He declined saying he had no head for problems.
Uri Geller, the professional psychic was born on December 20 1946. As to the origin of his alleged powers, Mr Geller maintains that they come from the distant planet of Hoova.
Ralph and Carolyn Cummins had 5 children between 1952 and 1966, all were born on the 20 February.
John D. Rockefeller gave away over US$ 500,000,000 during his lifetime.
Only 1 child in 20 are born on the day predicted by the doctor.
In the 1970's, the Rhode Island Legislature in the US entertained a proposal that there be a $2 tax on every act of sexual intercourse in the State.
Widows in equatorial Africa actually wear sackcloth and ashes when attending a funeral.
The 'Hundred Years War' lasted 116 years.
The British did not release the body of Napoleon Bonaparte to the French until twenty days after his death.
Admiral Lord Nelson was less than 1.6 metres tall.
John Glenn, the American who first orbited the Earth, was showered with 3,529 tonnes of ticker tape when he got back.
Native American Indians used to name their children after the first thing they saw as they left their tepees subsequent to the birth. Hence such strange names as Sitting Bull and Running Water.
Catherine the First of Russia, made a rule that no man was allowed to get drunk at one of her parties before nine o'clock.
Queen Elizabeth I passed a law which forced everyone except for the rich to wear a flat cap on Sundays.
In 1969 the shares of the Australian company 'Poseidon' were worth $1, one year later they were worth $280 each.
Julius Caesar wore a laurel wreath to cover the onset of baldness.
Ernest Bevin, Minister of Labour during World War II, left school at the age of eleven.
At the age of 12, Martin Luther King became so depressed he tried committing suicide twice, by jumping out of his bedroom window.
It is illegal to be a prostitute in Siena, Italy, if your name is Mary.
The Turk's consider it considered unlucky to step on a piece of bread.
The authorities do not allow tourists to take pictures of Pygmies in Zambia.
The Dutch in general prefer their french fries with mayonnaise.
Upon the death of F.D. Roosevelt, Harry S Truman became the President of America on 12 April 1945. The initial S in the middle of his name doesn't in fact mean anything. Both his grandfathers had names beginning with 'S', and so Truman's mother didn't want to disappoint either of them.
Sir Isaac Newton was obsessed with the occult and the supernatural.
One of Queen Victoria's wedding gifts was a 3 metre diameter, half tonne cheese.
Alexander Graham Bell, the inventor of the telephone, never phoned his wife or his mother, they were both deaf.
It was considered unfashionable for Venetian women, during the Renaissance to have anything but silvery-blonde hair.
Queen Victoria was one of the first women ever to use chloroform to combat pain during childbirth.
Peter the Great had the head of his wife's lover cut off and put into a jar of preserving alcohol, which he then ordered to be placed by her bed.
The car manufacturer Henry Ford was awarded Hitler's Grand Cross of the Supreme Order of the German Eagle. Henry Ford was the inventor of the assembly line, and Hitler used this knowledge of the assembly line to speed up production, and to create better and interchangeable products.
Atilla the Hun is thought to have been a dwarf.
The warriors tribes of Ethiopia used to hang the testicles of those they killed in battle on the ends of their spears.
On 15 April 1912 the SS Titanic sunk on her maiden voyage and over 1,500 people died. Fourteen years earlier a novel was published by Morgan Robertson which seemed to foretell the disaster. The book described a ship the same size as the Titanic which crashes into an iceberg on its maiden voyage on a misty April night. The name of Robertson's fictional ship was the Titan.
There are over 200 religious denominations in the United States.
Eau de Cologne was originally marketed as a way of protecting yourself against the plague.
Charles the Simple was the grandson of Charles the Bald, both were rulers of France.
Theodor Herzi, the Zionist leader who was born on May 2 1860, once had the astonishing idea of converting Jews to Christianity as a way of combating anti-Semitism.
The women of an African tribe make themselves more attractive by permanently scaring their faces.
Augustus II, the Elector of Saxony and King of Poland seemed to have a prodigious sexual appetite, and fathered hundreds of illegitimate children during his lifetime.
Some moral purists in the Middle Ages believed that women's ears ought to be covered up because the Virgin May had conceived a child through them.
Hindus don't like dying in bed, they prefer to die beside a river.
While at Havard University, Edward Kennedy was suspended for cheating on a Spanish exam.
It is a criminal offence to drive around in a dirty car in Russia.
The Emperor Caligula once decided to go to war with the Roman God of the sea, Poseidon, and ordered his soldiers to throw their spears into the water at random.
The Ecuadorian poet, José Olmedo, has a statue in his honour in his home country. But, unable to commission a sculptor, due to limited funds, the government brought a second-hand statue .. Of the English poet Lord Byron.
In 1726, at only 7 years old, Charles Sauson inherited the post of official executioner.
Sir Winston Churchill rationed himself to 15 cigars a day.
On 7 January 1904 the distress call 'CQD' was introduced. 'CQ' stood for 'Seek You' and 'D' for 'Danger'. This lasted only until 1906 when it was replaced with 'SOS'.
Though it is forbidden by the Government, many Indians still adhere to the caste system which says that it is a defilement for even the shadow of a person from a lowly caste to fall on a Brahman ( a member of the highest priestly caste).
In parts of Malaya, the women keep harems of men.
The childrens' nursery rhyme 'Ring-a-Ring-a-Roses' actually refers to the Black Death which killed about 30 million people in the fourteenth-century.
The word 'denim' comes from 'de Nimes', Nimes being the town the fabric was originally produced.
During the reign of Elizabeth I, there was a tax put on men's beards.
Idi Amin, one of the most ruthless tyrants in the world, before coming to power, served in the British Army.
Some Eskimos have been known to use refrigerators to keep their food from freezing.
It is illegal to play tennis in the streets of Cambridge.
Custer was the youngest General in US history, he was promoted at the age of 23.
It costs more to send someone to reform school than it does to send them to Eton.
The American pilot Charles Lindbergh received the Service Cross of the German Eagle form Hermann Goering in 1938.
The active ingredient in Chinese Bird's nest soup is saliva.
Marie Currie, who twice won the Nobel Prize, and discovered radium, was not allowed to become a member of the prestigious French Academy because she was a woman.
It was quite common for the men of Ancient Greece to exercise in public .. naked.
John Paul Getty, once the richest man in the world, had a payphone in his mansion.
Iceland is the world's oldest functioning democracy.
Adolf Eichmann (responsible for countless Jewish deaths during World war II), was originally a travelling salesman for the Vacuum Oil Co. of Austria.
The national flag of Italy was designed by Napoleon Bonaparte.
The Matami Tribe of West Africa play a version of football, the only difference being that they use a human skull instead of a more normal ball.
John Winthrop introduced the fork to the American dinner table for the first time on 25 June 1630.
Elizabeth Blackwell, born in Bristol, England on 3 February 1821, was the first woman in America to gain an M.D. degree.
Abraham Lincoln was shot with a Derringer.
The great Russian leader, Lenin died 21 January 1924, suffering from a degenerative brain disorder. At the time of his death his brain was a quarter of its normal size.
When shipped to the US, the London bridge ( thought by the new owner to be the more famous Tower Bridge ) was classified by US customs to be a 'large antique'.
Sir Winston Churchill was born in a ladies' cloakroom after his mother went into labour during a dance at Blenheim Palace.
In 1849, David Atchison became President of the United States for just one day, and he spent most of the day sleeping.
Between the two World War's, France was controlled by forty different governments.
The 'Crystal Palace' at the Great Exhibition of 1851, contained 92 900 square metres of glass.
It was the custom in Ancient Rome for the men to place their right hand on their testicles when taking an oath. The modern term 'testimony' is derived from this tradition.
Sir Winston Churchill's mother was descended from a Red Indian.
The study of stupidity is called 'monology'.
Hindu men believe(d) it to be unluckily to marry a third time. They could avoid misfortune by marring a tree first. The tree ( his third wife ) was then burnt, freeing him to marry again.
More money is spent each year on alcohol and cigarettes than on Life insurance.
In 1911 3 men were hung for the murder of Sir Edmund Berry at Greenbury Hill, their last names were Green, Berry , and Hill.
A firm in Britain sold fall-out shelters for pets.
During the seventeen century , the Sultan of Turkey ordered his entire harem of women drowned, and replace with a new one.
Lady Astor once told Winston Churchill 'if you were my husband, I would poison your coffee'. His reply …' if you were my wife, I would drink it ! '.
There are no clocks in Las Vegas casinos.
The Great Pyramid of Giza consists of 2,300,000 blocks each weighing 2.5 tons.
On 9 February 1942, soap rationing began in Britain.
Paul Revere was a dentist.
The Budget speech on April 17 1956 saw the introduction of Premium Savings Bonds into Britain. The machine which picks the winning numbers is called "Ernie", an abbreviation, which stands for' electronic random number indicator equipment'.
Chop-suey is not a native Chinese dish, it was created in California by Chinese immigrants.
The Russian mystic, Rasputin, was the victim of a series of murder attempts on this day in 1916. The assassins poisoned, shot and stabbed him in quick succession, but they found they were unable to finish him off. Rasputin finally succumbed to the ice-cold waters of a river.
Bonnie Prince Charlie, the leader of the Jacobite rebellion to depose of George II of England, was born 31 December 1720. Considered a great Scottish hero, he spent his final years as a drunkard in Rome.
The Liberal Prime Minister, William Gladstone, was born of the 29th December 1809. Apparently, as a result of his strong Puritan impulses, Gladstone kept a selection of whips in his cellar with which he regularly chastised himself.
A parthenophobic has a fear of virgins.
South American gauchos were known to put raw steak under their saddles before starting a day's riding, in order to tenderise the meat.
There are 240 white dots in a Pacman arcade game.
In 1939 the US political party 'The American Nazi Party' had 200,000 members.
King Solomon of Israel had about 700 wives as well as hundreds of mistresses.
Urine was once used to wash clothes.
North American Indian, Sitting Bull, died on 15 December 1890. His bones were laid to rest in North Dakota, but a business group wanted him moved to a 'more natural' site in South Dakota. Their campaign was rejected so they stole the bones, and they now reside in Sitting Bull Park, South Dakota.
St Nicholas, the original Father Christmas, is the patron saint of thieves, virgins and communist Russia.
Dublin is home of the Fairy Investigation Society.
Fourteen million people were killed in World War I, twenty million died in a flu epidemic in the years that followed.
People in Siberia often buy milk frozen on a stick.
Princess Ann was the only competitor at the 1976 Montreal Olympics that did not have to undergo a sex test.
Ethelred the Unready, King of England in the Tenth-century, spent his wedding night in bed with his wife and his mother-in-law.
Coffins which are due for cremation are usually made with plastic handles.
Blackbird, who was the chief of Omaha Indians, was buried sitting on his favourite horse.
The two highest IQ's ever recorded (on a standard test) both belong to women.
The Tory Prime Minister, Benjamin Disreali, was born 21 December 1804. He was noted for his oratory and had a number of memorable exchanges in the House with his great rival William Gladstone. Asked what the difference between a calamity and a misfortune was Disreali replied: 'If Gladstone fell into the Thames it would be a misfortune, but if someone pulled him out again, it would be a calamity'.
The Imperial Throne of Japan has been occupied by the same family for the last thirteen hundred years.
In the seventeenth-century a Boston man was sentenced to two hours in the stocks for obscene behaviour, his crime, kissing his wife in a public place on a Sunday.
President Kaunda of Zambia once threatened to resign if his fellow countrymen didn't stop drinking so much alcohol.
Due to staggering inflation in the 1920's, 4,000,000,000,000,000,000 German marks were worth 1 US dollar.
Gorgias of Epirus was born during preparation of his mothers funeral.
The city of New York contains a district called 'Hell's Kitchen'.
The city of Hiroshima left the Industrial Promotion Centre standing as a monument the atomic bombing.
During the Medieval Crusades, transporting bodies off the battlefield for burial was a major problem, this was solved by carrying a huge cauldron into the Holy wars, boiling down the bodies, and taking only the bones with them.
A ten-gallon hat holds three-quarters of a gallon.
George Washington grew marijuana in his garden.
Monday, 21 September, 2009
100 Years Ago...
100 Years Ago...
A lot of this is applicable to our grandparents, and even some of our parents.
It May Be Hard to Believe That A Scant 100 Years Ago...
The average life expectancy in the United States was forty-seven.
Only 14 percent of the homes in the United States had a bathtub.
Only 8 percent of the homes had a telephone. A three minute call from Denver to New York City cost eleven dollars.
There were only 8,000 cars in the US and only 144 miles of paved roads.
The maximum speed limit in most cities was ten mph.
Alabama, Mississippi, Iowa, and Tennessee were each more heavily populated than California. With a mere 1.4 million residents, California was only the twenty-first most populous state in the Union.
The tallest structure in the world was the Eiffel Tower.
The average wage in the U.S. was twenty-two cents an hour. The average U.S. worker made between $200 and $400 per year.
A competent accountant could expect to earn $2000 per year, a dentist $2500 per year, a veterinarian between $1500 and $4000 per year, and a mechanical engineer about $5000 per year.
More than 95 percent of all births in the United States took place at home.
Ninety percent of all U.S. physicians had no college education. Instead, they attended medical schools, many of which were condemned in the press and by the government as "substandard."
Sugar cost four cents a pound.
Eggs were fourteen cents a dozen.
Coffee cost fifteen cents a pound.
Most women only washed their hair once a month and used borax or egg yolks for shampoo.
Canada passed a law prohibiting poor people from entering the country for any reason, either as travelers or immigrants.
The five leading causes of death in the U.S. were:
1. Pneumonia and influenza
2. Tuberculosis
3. Diarrhea
4. Heart disease 5. Stroke
The American flag had 45 stars. Arizona, Oklahoma, New Mexico, Hawaii and Alaska hadn't been admitted to the Union yet.
Drive-by-shootings, in which teenage boys galloped down the street on horses and started randomly shooting at houses, carriages, or anything else that caught their fancy, were an ongoing problem in Denver and other cities in the West.
The population of Las Vegas, Nevada was thirty. The remote desert community was inhabited by only a handful of ranchers and their families.
Plutonium, insulin, and antibiotics hadn't been discovered yet. Scotch tape, crossword puzzles, canned beer, and iced tea hadn't been invented.
There was no Mother's Day or Father's Day.
One in ten U.S. adults couldn't read or write. Only 6 percent of all Americans had graduated from high school.
Some medical authorities warned that professional seamstresses were apt to become sexually aroused by the steady rhythm, hour after hour, of the sewing machine's foot pedals. They recommended slipping bromide, which was thought to diminish sexual desire,into the woman's drinking water.
Marijuana, heroin, and morphine were all available over the counter at corner drugstores. According to one pharmacist, "Heroin clears the complexion, gives buoyancy to the mind, regulates the stomach and the bowels, and is, in fact, a perfect guardian of health.
Coca-Cola contained cocaine instead of caffeine.
Punch card data processing had recently been developed, and early predecessors of the modern computer were used for the first time by the government to help compile the 1900 census.
Eighteen percent of households in the United States had at least one full-time servant or domestic.
Sunday, 20 September, 2009
▬▬▬▬▬ The FDIC▬▬▬▬▬
This week we continue to look at what powers the forces of deflation. Continue to stress, getting the fundamental question answered correctly is the most important issue we face going forward. And the problem is that we cannot use the usual historical comparisons. This week we look at one more factor: bank lending.
Here is a sneak preview of what will be an explosive report from Institutional Risk Analytics about the problems in the banking sector. Are you ready for the FDIC to be down as much as $400 billion? This should be an interesting.
Outrageous! - Artificial Deflation!
It seems the US Bureau of Labor Statistics, in the CPI next week, will treat the subsidy received by those 800,000 car buyers who bought a car in the "Cash for Clunkers" program as if the price of a car fell by $4,500. Really? Your tax dollars account for nothing?
This does several things. It will decrease the inflation used to adjust the GDP for this quarter. Not the end of the world, but annoying. But what really matters is that the CPI is used to calculate Social Security increases and interest paid on TIPS.
If you tried to defraud one of your clients using such accounting legerdemain, I would be shut down, sued, and taken to court (at the minimum) by the host of regulators who look over my shoulder.
You don't make such changes in the rules to your own benefit. But that is what the BLS did. This policy should be overruled immediately. There are enough deflationary forces in the world without having to artificially create some more. OK, off the soapbox and onto the banking system.
The Hole in the FDIC
And speaking of holes, let's look at a huge one that is looming at the FDIC. Institutional Risk Analytics (IRA) is maybe the premier bank-analyst service in the country. They charge over six figures for their flagship service.
"Prime Solution" http://www.institutionalriskanalytics.com/
IRA takes the data from the FDIC and crunches it with their own set of risk parameters. While the FDIC has a little over 400 banks on its current "watch" list, IRA gives 2,256 banks an "F." They project that over 1,000 banks will either fold or be taken over during the current cycle. To date in 2009, a total of 92 banks have failed across the country, compared with 25 for all of 2008, according to the FDIC. 900 more to go.
Turning to a note from IRA: "An important point in the analysis is that estimated losses for failed bank resolutions by the FDIC are running around a quarter of failed bank assets, a level much higher than between 1980 and 1995, when failures cost an average 11 percent.
Here is a sneak preview of what will be an explosive report from Institutional Risk Analytics about the problems in the banking sector. Are you ready for the FDIC to be down as much as $400 billion? This should be an interesting.
Outrageous! - Artificial Deflation!
It seems the US Bureau of Labor Statistics, in the CPI next week, will treat the subsidy received by those 800,000 car buyers who bought a car in the "Cash for Clunkers" program as if the price of a car fell by $4,500. Really? Your tax dollars account for nothing?
This does several things. It will decrease the inflation used to adjust the GDP for this quarter. Not the end of the world, but annoying. But what really matters is that the CPI is used to calculate Social Security increases and interest paid on TIPS.
If you tried to defraud one of your clients using such accounting legerdemain, I would be shut down, sued, and taken to court (at the minimum) by the host of regulators who look over my shoulder.
You don't make such changes in the rules to your own benefit. But that is what the BLS did. This policy should be overruled immediately. There are enough deflationary forces in the world without having to artificially create some more. OK, off the soapbox and onto the banking system.
The Hole in the FDIC
And speaking of holes, let's look at a huge one that is looming at the FDIC. Institutional Risk Analytics (IRA) is maybe the premier bank-analyst service in the country. They charge over six figures for their flagship service.
"Prime Solution" http://www.institutionalriskanalytics.com/
IRA takes the data from the FDIC and crunches it with their own set of risk parameters. While the FDIC has a little over 400 banks on its current "watch" list, IRA gives 2,256 banks an "F." They project that over 1,000 banks will either fold or be taken over during the current cycle. To date in 2009, a total of 92 banks have failed across the country, compared with 25 for all of 2008, according to the FDIC. 900 more to go.
Turning to a note from IRA: "An important point in the analysis is that estimated losses for failed bank resolutions by the FDIC are running around a quarter of failed bank assets, a level much higher than between 1980 and 1995, when failures cost an average 11 percent. The likely loss rate peak for the US banks in this credit cycle is 2x 1990 loss rates or, as noted by the IMF, around 4 percent of total loans. Since total loans and leases held by all FDIC-insured banks was some $7.7 trillion as of Q2 2009, the IMF estimate implies a cumulative loss of over $300 billion.
"If you start with the internal assumptions used by our firm that roughly half of the banks currently rated "F" or some 1,000 banks will fail and/or be merged with another institution and that the loss to the FDIC bank insurance fund will be approximately 20-25% of total assets, then the cost of these resolutions to the FDIC through the full credit downturn could be in excess of $400-500 billion.
Keep in mind that in making this alarming estimate and ignore other banks currently in ratings strata above "F" and that some of these institutions may indeed fail as well.
Overall "worst case" or maximum probable loss ("MPL") for large US banks above $10 billion in assets is $800 billion through the current credit cycle."
From almost $60 billion last fall, the FDIC's reserves have been drawn down to only about $10 billion today (after set-asides), a 16-year low. A quick look at the FDIC's own data shows us how inadequate those reserves are compared to the deposits they are now insuring. The FDIC only has about two-tenths of one cent for every dollar of assets it covers. Look at this chart from my friends at Casey Research.
The FDIC can borrow $100 billion in an emergency line of credit, and through 2010 it can get another $500 billion. But if and when that money is borrowed, it will have to be paid back. Remember the money that was lost in the savings and loan crisis 20 years ago? The FDIC had to borrow a mere $15 billion. You are still paying that 30-year loan back.
The FDIC has two options to replenish its insurance fund in the short run: it can charge banks higher fees or it can take the more radical step of borrowing from the US Treasury. It has already levied a "special fee" that garnered over $5 billion.
Now, let's hold that thought, as we will come back to it in a minute.
A growing economy requires a growing credit market. If credit is shrinking it signals a receding economy. But banks are having to raise capital, and that means many banks are having to curtail lending. First, let's look at a chart of total bank loans for the last five years. Notice that there was a big jump in late 2008 as commercial paper became hard to obtain and businesses hit their credit lines. Since then banks have been cutting back. 
This next chart is again total bank loans but goes back to 1947. Notice that loan growth was relatively smooth with only a few sideways drifts during recessions and never dropping significantly, as it has in the last year. And the data suggests that banks intend to keep reducing their loan exposure as they try to increase their capital (at least the large number of banks that have problems).
Consumer credit-card lending is down. Banks have cut their outstanding and unused bank lines to corporations. Remember the money that the Fed used to purchase toxic assets so that banks could lend? They are increasingly using that money to buy Fannie and Freddie loans and banking the interest in an effort to improve their profitability.
Why are they raising capital? Because their loan losses are high and rising. Look at this chart from Northern Trust. What it shows is consumer loan losses rising, and so far there is no sign of those losses topping out. The lines are still going up. The same can be said for real estate loans at commercial banks, which are now running over 9% delinquent. These are loans the banks kept on their books.
Everyone knows that commercial real estate loans are the next shoe to drop, and write-offs may be as large as $400 billion. This will force some banks to go under, but other banks will simply have to absorb the losses.
Now, let's come back to the FDIC. Sheila Bair, who heads the agency, has emphatically said that the FDIC will not ask Congress for a capital infusion. That means, as noted above, that the FDIC will have to either use their credit lines or ask for more "one-time" special-fee contributions.
If the FDIC borrows the money, and it is highly likely they will, they are going to have to raise the rates they charge member banks for the government backing. And to pay back $3-400 billion? Rates will have to be raised quite high, on the very banks struggling to raise capital and make a profit.
This is going to be a huge drain on future profits of US banks for a very long time. It is going to make it even harder for them to increase their capital – and they need to. But it has to happen. Zombie banks, those that are bound to fail, need to be taken out and put into stronger hands so that credit growth can once again start to rise. But this will not happen overnight. It is going to take time.
This is a problem all over the developed world. Banks that have to raise capital and reduce loans are not growing credit and are a drag on growth. As credit shrinks it is a large deflationary force. And that is not even taking into account the implosion of the shadow banking system.
You are seeing statistical growth in the economy this quarter and probably the next. But unemployment is rising and wages and incomes are falling. We will go into that next week.
We are in for a very poor, jobless recovery, and the risk of falling into a double-dip recession is quite high. The stock market is pricing in a steep V-shaped recovery in both GDP and corporate profits.
How Can Just Four Stocks Be 40% of the NYSE Volume?
It appears that recently up to 40% of the volume in the NYSE is in just four low-priced financial stocks.
"According to Reuters, four beaten-up financial companies - Bank of America (BAC), Citigroup (C), Fannie Mae (FNM), and Freddie Mac (FRE) - have accounted for upwards of 40 percent of the trading volume on the New York Stock Exchange to begin this week."
The stocks are basically churning in price. Why is this? There are a lot of theories, It might have something to do with flash trading. With high-frequency program trading hedge funds and sophisticated brokers can make as much as 0.5 cents buying and selling a share of stock at breakeven. Supposedly, the exchanges pay these premiums for adding liquidity. But we are seeing liquidity in stocks where none is needed.
The SEC announced this week that they are going to look into halting these programs. Allowing certain funds and brokers to basically front-run the average fund or individual because they have their servers on the actual trading floor is just wrong. This must stop. And if program trading is actually driving the volume in these four names, it needs to be stopped as soon as possible.
There's no way of knowing what the true reason for the volume is. Maybe it is something simple and innocent. But deeply suspicious. It's doubtful that people are buying the Bank of America, which has seen its volume as high as 238 million shares, or Citi at 973 million shares, in ONE day!
This for stocks that are severely financially impaired? Someone needs to be on top of this. As in Monday.
Tuesday, 15 September, 2009
Just how reliant is the US on foreign oil?
Since federal limitations on domestic oil production in the 1980s, there has been a steady decline in US production. By 1994, the US was importing more than its total domestic production. Restrictions on supply help to drive up prices and unnecessarily contribute to US reliance on foreign oil.
As much as 66 percent of all US crude oil is imported from other countries, and the amount of oil imported from OPEC nations is roughly equal to the amount of oil produced domestically.
Petroleum, natural gas and coal are the primary sources of energy consumed in the United States because they are the most energy rich resources available. So far, renewables have only been capable of providing a small portion of total energy consumption, and their contribution to energy consumption has remained limited over the last two decades.
However, with increasing government and private focus on green energy sources, renewables are likely to go from strength to strength in the near future.
One of the major alternative fuels emerging as a genuine alternative to oil and gas is the ethanol-based biofuel, made from corn crops.
The real price of corn was significantly higher than the nominal price of corn until 1996. However, while the nominal and real price of corn remained relatively stable for ten years, both the real and nominal price of corn are back on the rise. With pressure to produce biomass fuels containing higher concentrates of ethanol, prices of corn appear to be further increasing.
For every dollar of US GDP, the amount of GHGs and CO2 emissions that are produced in the process has been slowly falling. When countries develop and prosper they create more efficient means of production. As a result, American economic growth has brought more energy efficiency and less pollution per GDP dollar.
Until we find the renewables capable of replacing fossil fuels, oil and gas will remain the world's most important commodities, meaning the US will continue to import great volumes from overseas.
But just how reliant is the US on the importing of foreign oil?
As much as 66 percent of all US crude oil is imported from other countries, and the amount of oil imported from OPEC nations is roughly equal to the amount of oil produced domestically.
Petroleum, natural gas and coal are the primary sources of energy consumed in the United States because they are the most energy rich resources available. So far, renewables have only been capable of providing a small portion of total energy consumption, and their contribution to energy consumption has remained limited over the last two decades.
However, with increasing government and private focus on green energy sources, renewables are likely to go from strength to strength in the near future.
One of the major alternative fuels emerging as a genuine alternative to oil and gas is the ethanol-based biofuel, made from corn crops.
The real price of corn was significantly higher than the nominal price of corn until 1996. However, while the nominal and real price of corn remained relatively stable for ten years, both the real and nominal price of corn are back on the rise. With pressure to produce biomass fuels containing higher concentrates of ethanol, prices of corn appear to be further increasing.
For every dollar of US GDP, the amount of GHGs and CO2 emissions that are produced in the process has been slowly falling. When countries develop and prosper they create more efficient means of production. As a result, American economic growth has brought more energy efficiency and less pollution per GDP dollar.
Until we find the renewables capable of replacing fossil fuels, oil and gas will remain the world's most important commodities, meaning the US will continue to import great volumes from overseas.
But just how reliant is the US on the importing of foreign oil?
Friday, 11 September, 2009
Economic Fundementals Suggest This Fall and Winter Could Get Ugly
Since March of this year, we have seen growing consensus and excitement from the mainstream media and government about an economic recovery underway. Scattered economic indicators are released and spun in a positive light when they are proportionally minuscule improvements compared to the declines already experienced for each given indicator.
They typically use this sugarcoated data and ignore reality to say “the worst is behind us, yet perhaps we’ll still see a 10-15% correction in the markets, and growth might be slow for quite awhile”. In under six months from the low, the markets have rallied over 45%. Yet this type of market move up hasn’t been seen since the lead-up to the crash of October, 1987.
It is extremely difficult to find a true bright spot in the economy that indicates improvement enough to warrant such optimism. To begin, here is a brief update about the 4 key underlying economic problems outlined within Arbitrary Vote’s original warning article:
The mainstream media and government are communicating that the economy is on a positive track toward recovery while downplaying the likelihood of another economic catastrophe similar or worse than that experienced in the fourth quarter of 2008 and first quarter of 2009.
In actuality, there is a significant chance that the U.S. will experience a severe economic collapse, beyond what has already been experienced, either this year or within the next few years. If there is a perceived, sustainable economic rebound before this happens, do not be fooled - the underlying economic problems still exist and will likely eventually surface in economic collapse.
1.Unprecedented, massive amounts of existing and coming national debt – U.S. national debt has continued to increase and there is no sign of future debt letting up.
2.Foreign reluctance to fund U.S. debt – China, Russia, Brazil, etc continue to back away from U.S. Treasurys, diversify into other investments, and make moves toward trade in non-U.S. currency.
3.Declining productivity and indicators of poor future productivity – GDP has continued to fall and unemployment has continued to rise. Recent political action, reform currently on the table, and mounting taxation all point to future productivity damage.
4.Unprecedented, massive levels of money printing – The printing presses have been running non-stop and there’s no real sign of them letting up. Much of the recovery hype has stemmed from economic illusions caused by this temporary “fix”.
All of these factors have continued and mostly worsened since June. Each plays as significant a role as ever in the near- and long-term direction of the economy.
The situation is worse than described by most mainstream sources, and because of developments thus far this year and events unfolding in the near future, there are particular reasons to beware of the months ahead. A few communication sources are predicting stock market crashes and corrections for the autumn of 2009, but rarely outline specifically what could be so dangerous about this timing and potential big-picture implications.
A large segment of this analysis is devoted to outlining the near-term factors that could cause serious economic and societal problems in the coming months. The outline of factors is broken down as follows:
1.Current activities and conditions - Those activities and economic conditions that continue to be underway and could lead to additional economic problems in the near-term.
2.Scheduled near-term activities - Those activities that are scheduled to take place within this autumn or winter and could lead to economic harm.
3.Uncertain near-term activities - Those activities that could happen within this autumn or winter and could lead to economic harm.
After walking through the statistics and information under each of these three sections, everything will be tied together to depict the overall impact on the economy.
Current Activities and Conditions
The following is an outline of activities and economic conditions that continue to be underway and could lead to additional economic problems in the near-term.
Commercial real-estate
Many predict commercial real-estate to be the "next shoe to drop" in the economic crisis. We are certainly seeing early signs that this is correct, and there is a lot more to come.
◦Commercial real-estate mortgage maturities begin to ramp up in the 4th quarter of 2009. There is an estimated $400 billion of commercial real-estate exposure for this year.
Residential real-estate
The subprime mortgage crash ignited the economic crisis. We are now faced with another residential real-estate crisis just beginning to ramp up.
◦The first significant wave of Alt-A and Option Adjustable Rate Mortgage (Option ARM) resets are beginning, and there is $1.1 trillion to $2.6 trillion in estimated exposure over the next couple of years. Exposure between these mortgage types and prime mortgages is likely to be at least in the tens of billions over the next six months.
◦As of September 4th, a total of 89 banks had failed in 2009
◦The FDIC reports that more than 1 in 4 banking institutions are unprofitable
◦More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.
◦Large banks are under-capitalized unlike what the government has communicated:
As banks become more stressed because of growing problems in residential and commercial real-estate, bank lending will become more restrained, but more importantly, bank failures will become more likely. Depending on the size of the bank, the government will either offer a bailout, nationalize the bank, or a combination of the two. Both do harm to the economy beyond what would occur by allowing them to fail.
The next topic is about the state of the FDIC, which covers the government's potential route to bank bailouts more clearly.
Federal Deposit Insurance Corporation (FDIC)
Government money is provided to replenish failed banks’ balance sheets and/or facilitate acquisitions of these banks by healthier banks. Historically, the FDIC is the vehicle to do this, although the government has recently used other means in addition to the FDIC.
The FDIC is an organization that was created to give citizens the comfort that their bank deposits are safe and fully backed by the U.S. government.
Here is the current state of the FDIC:
◦The FDIC's fund has dropped to 0.22 percent of insured deposits, below a Congressionally mandated minimum of 1.15 percent.
◦Falling from $45.2 billion in the second quarter of 2008 and $13 billion at the end of March 2009, the fund is now at $10.4 billion.
◦Excluding the stress-test list, banks with non-performers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. That is now almost 19 times the size of the FDIC’s deposit insurance fund.
◦Assets of the FDIC’s list of 416 troubled banks total 29 times the size of the fund.
◦1% of all money deposited under $250k (i.e. the FDIC insured level) totals $700 billion
◦According to the Center on Budget and Policy Priorities, 48 states addressed or were facing budget deficits totaling $166 billion as of July 2009.
23 states have a budget gap over 0% and under 10% of the state’s general fund
14 states have a budget gap between 10% to 15% of the state’s general fund
7 states have a budget gap greater than 15% of the state’s general fund
◦Because of budget shortfalls, some form of government shutdown is occurring in many states including California, Michigan, Rhode Island, Maine, Maryland, Wisconsin, Colorado, Alabama, Georgia, Arizona, etc.
◦Publicly traded retailers' sales fell at 1.34 percent on average for the first seven months of 2009
◦U.S. Census Bureau calculated retail and food services sales are down 8.3% from July of 2008. Sales were down 0.1% in July alone and that includes the boost of sales from the Cash for Clunkers program.
◦Major short-term retail financier, CIT Group, has closely avoided bankruptcy and is likely to continue to struggle with liquidity issues as more of their lent debt is due to mature next year. Retailers will have difficulty funding inventory and other operations through borrowing as CIT and others in the space are feeling stress. This can be exacerbated during the holiday retail season.
◦Of the top 10 most sold car brands through the recent Cash for Clunkers program, two were American car brands.
◦Auto sales for August will likely come in quite high, but will likely see a strong drop-off shortly thereafter as Cash for Clunkers was the short-term cause of the spike.
Slower near-term sales within the retail and automotive sectors can cause additional bankruptcies in already pained industries. Another important sector to keep an eye on is the airline industry. Although, the breaking point for many airlines is projected to be more around the spring of 2010.
Unemployment
Unemployment continues to rise and plague consumers. The unemployment situation is actually worse than that openly described by the mainstream media and government.
◦The official Bureau of Labor Statistics (BLS) unemployment rate (U-3) is 9.7%, the highest rate in 26 years.
◦The BLS U-6 measure has unemployment at 16.8%. This measure includes those who have given up looking for work, marginally attached workers, and those employed part-time for economic reasons.
◦The Shadow Government Statistics organization uses U-6 plus an estimate of those who have not looked for work in over a year (defined away during the Clinton administration) to calculate a current unemployment rate of 20.6% (using July as latest data).
◦There are now 19 metropolitan areas with U-3 unemployment above 15%, the highest of which is El Centro, California with 30.2% unemployment.
◦Personal income is down approximately 11.5% since its peak in 2006 and 8.5% since the beginning of the recession. Hours worked has fallen at a 7.6% annualized pace for the last six quarters and a 9% pace since the first quarter of this year. Statistics like these act as additional hidden unemployment.
◦This fallcongress is likely to pass a bill aimed at offering various unemployment insurance extensions through 2010. This would still leave large numbers of people with extremely low, if any, income or ability to make purchases.
◦President Obama’s job approval ratings have been declining at one of the fastest paces of any American president at this point into their presidency. In additional to the trend toward a crossover to the downside of approval and disapproval averages among polls, one of the historically most accurate polls (i.e. Rassmusen) shows that the crossover has already taken place. A continued decline in confidence in the president reflects declining confidence in the government and economy.
◦During Congress’ recess (through Labor Day) there have been many intense town hall meetings and mounting protests around health care reform, taxes, and the government’s general policy direction. It is apparent that people are growing upset with state of the country and government.
Foreign diversification
Foreign movement away from dependence on the U.S. dollar and economy continues.
◦Instances of cross-border trade historically transacted using the U.S. dollar are recently being conducted through other currencies.
◦China and Hong Kong covered more than half of the increase in U.S. Treasurys sold to the public in 2006. In 2008, they covered 22%, and in the first half of 2009 the figure is down to 9%.
◦As of September 2nd, China had signed an agreement to purchase $50 billion of International Monetary Fund (IMF) issued notes. This is the first time a purchase like this has been made. This type of note has recently been promoted by China as an eventual replacement for the U.S. dollar.
◦In August, Japan’s election was won by the Democratic Party of Japan, which is the opposition to the party that has held office for the last 54 years. In May, the Democratic Party of Japan stated that if elected they would continue to buy U.S. bonds only if they were denominated in Yen.
Scheduled Near-term Activities
The following is an outline of activities that are scheduled to take place within this autumn or winter and could lead to economic harm.
U.S. fiscal year-end
The U.S. fiscal year ends on September 30, 2009. This timing could have significance in a couple of ways:
◦The U.S. government financial statement for fiscal 2009 is due to be released in December. The government's previous estimates and public’s expectations compared to actual results of the financial state of the country could have significant impact on confidence domestically and internationally.
◦Treasury Secretary Tim Geithner recently requested that Congress increase the federal debt ceiling. He said that the country is likely to reach its debt limit as soon as mid-October. This is not likely to be a big issue to get through Congress, but if it becomes an issue in the public eye at a time when the perception of a growing debt-load is quite negative, investor confidence could be harmed.
Iran deadline
Depending on Iran's response, the September deadline for them to respond to demands of halting its nuclear program could ignite domestic and international tensions contributing negatively to the economy.
Uncertain Near-term Activities
The following is an outline of activities that could happen within this autumn or winter and could lead to economic harm.
Oil price pressure
The price of oil has pushed $75 a barrel fluctuating between $60 and $75. If it breaks above $80, the resulting increase in gas prices could have considerable impact on consumers' and business's wallets
◦Production is falling in Mexico, the U.S.’s third largest supplier. Pemex’s (Mexico’s national oil company) output fell 7.1% in July, the fastest drop since 1942. Yields from Mexico’s largest oil field, Cantarell, have been dropping by annualized rates of more than 35% in recent months.
◦As of June, Saudi Arabia, the U.S.’s second largest supplier, cut its oil production by nearly 16% from less than a year earlier.
◦The count of U.S. oil rigs has fallen from above 2000 this time last year to below 1000. While oil production in the U.S. is recently up, demand is rising again as well.
◦Foreign diversification out of U.S. Treasurys
◦Expiration of Fed quantitative easing programs
◦Texas – (#2 in U.S. in crop production) A severe drought in Texas has resulted in $3.6 billion of crop and livestock losses since November of ’08. As of August of 2009, estimates say losses could surpass $4 billion by year-end.
◦India – A weak monsoon has caused a rain shortfall of 8% and an expected shortfall of 15% for the quarter ending in September. About 60% of India’s crop land is dependent on rain water as opposed to irrigation. Food grain shortages are expected in 2010.
◦Soybeans – The U.S. got a late start to soybean planting this summer and pod-setting is behind average by 7% (14-22% behind in key areas). The U.S. soybean stockpile is at a 32-year low and China has increased its soybean purchases by 70% in the last year. Farmers are dreading the possibility of an early frost that would kill off significant portions of the harvest.
◦Wheat fungus – The Ug99 fungus poses a major threat to world wheat crops. It is estimated that up to 80% of world wheat crops could be destroyed from this fungus and 19% (in Asia and Africa) are in imminent danger.
All of these existing problems and potential threats increase commodity prices and thus the price of food for the consumer.
U.S. stock markets pressure
The U.S. stock markets can impact consumers' financial positions and confidence. Stock market performance can also directly affect businesses.
◦As of the latest compiled data, the trailing 12-month PE ratio for the S&P 500 is 129.19. As of the end of August, the S&P 500 index’s PE ratio based on the average inflation-adjusted earnings over the last 10 years (different from trailing PE, which is over the last 12 months) is 17.67. This is compared to a stock market average of 16.3 over the past 140 years according to a stock market database by Yale University’s Robert Shiller. Either method of calculating PE ratios indicates that the stock market is significantly overvalued.
◦Recent futures prices indicated that the VIX, a gauge of expected stock swings, is likely to increase significantly in the next several weeks. This indicates potential strong moves in the market one way or the other. Given the market’s overvalued status, a move down is the likely direction.
◦Since the Dow Jones was created 115 years ago, the month of September has returned an average of -1.2%, making it the worst performing month of the year with no other month coming close. During September, the S&P 500 has returned an average of -1.3% since 1929 and it is the only month to fall 50% of the time. There are several studies and theories that try to explain the reason for this phenomenon; however, there is no proof of a cause. Nonetheless, the long-term historical data speaks for itself and offers reason for caution moving into the autumn.
◦The Baltic Dry Index (BDI) has declined 44% over the last 3 months and 31% in the last month. The BDI, based on worldwide shipping prices of raw materials, is closely traced by the Dow Jones and FTSE 100 with the two indexes time-lagging behind the BDI - In other words, the BDI points to an approaching decline in stock markets.
They typically use this sugarcoated data and ignore reality to say “the worst is behind us, yet perhaps we’ll still see a 10-15% correction in the markets, and growth might be slow for quite awhile”. In under six months from the low, the markets have rallied over 45%. Yet this type of market move up hasn’t been seen since the lead-up to the crash of October, 1987.
It is extremely difficult to find a true bright spot in the economy that indicates improvement enough to warrant such optimism. To begin, here is a brief update about the 4 key underlying economic problems outlined within Arbitrary Vote’s original warning article:
The mainstream media and government are communicating that the economy is on a positive track toward recovery while downplaying the likelihood of another economic catastrophe similar or worse than that experienced in the fourth quarter of 2008 and first quarter of 2009.
In actuality, there is a significant chance that the U.S. will experience a severe economic collapse, beyond what has already been experienced, either this year or within the next few years. If there is a perceived, sustainable economic rebound before this happens, do not be fooled - the underlying economic problems still exist and will likely eventually surface in economic collapse.
1.Unprecedented, massive amounts of existing and coming national debt – U.S. national debt has continued to increase and there is no sign of future debt letting up.
2.Foreign reluctance to fund U.S. debt – China, Russia, Brazil, etc continue to back away from U.S. Treasurys, diversify into other investments, and make moves toward trade in non-U.S. currency.
3.Declining productivity and indicators of poor future productivity – GDP has continued to fall and unemployment has continued to rise. Recent political action, reform currently on the table, and mounting taxation all point to future productivity damage.
4.Unprecedented, massive levels of money printing – The printing presses have been running non-stop and there’s no real sign of them letting up. Much of the recovery hype has stemmed from economic illusions caused by this temporary “fix”.
All of these factors have continued and mostly worsened since June. Each plays as significant a role as ever in the near- and long-term direction of the economy.
The situation is worse than described by most mainstream sources, and because of developments thus far this year and events unfolding in the near future, there are particular reasons to beware of the months ahead. A few communication sources are predicting stock market crashes and corrections for the autumn of 2009, but rarely outline specifically what could be so dangerous about this timing and potential big-picture implications.
A large segment of this analysis is devoted to outlining the near-term factors that could cause serious economic and societal problems in the coming months. The outline of factors is broken down as follows:
1.Current activities and conditions - Those activities and economic conditions that continue to be underway and could lead to additional economic problems in the near-term.
2.Scheduled near-term activities - Those activities that are scheduled to take place within this autumn or winter and could lead to economic harm.
3.Uncertain near-term activities - Those activities that could happen within this autumn or winter and could lead to economic harm.
After walking through the statistics and information under each of these three sections, everything will be tied together to depict the overall impact on the economy.
Current Activities and Conditions
The following is an outline of activities and economic conditions that continue to be underway and could lead to additional economic problems in the near-term.
Commercial real-estate
Many predict commercial real-estate to be the "next shoe to drop" in the economic crisis. We are certainly seeing early signs that this is correct, and there is a lot more to come.
◦Commercial real-estate mortgage maturities begin to ramp up in the 4th quarter of 2009. There is an estimated $400 billion of commercial real-estate exposure for this year.
◦So far this year, there have been defaults, foreclosure or bankruptcy on $83 billion of office, retail, industrial and apartment properties. This number is expected to double by the end of 2009. Lenders have foreclosed on less than 10 percent of defaulted loans.
◦The Commercial Mortgage Backed Securities (CMBS) sector's delinquency rate was 3.14% in July, more than six times the level a year earlier.
◦Banks hold $1.7 trillion of commercial mortgages and construction loans (different from CMBS). Delinquencies on this debt already have contributed to the rise in bank failures this year.
◦Most of the $6.7 trillion in commercial real estate is privately owned
◦Anecdotally, you can probably look around your neighborhood shopping centers, strips, and malls and observe the difference in vacancy within recent months and over the past year.
Residential real-estate
The subprime mortgage crash ignited the economic crisis. We are now faced with another residential real-estate crisis just beginning to ramp up.
◦The first significant wave of Alt-A and Option Adjustable Rate Mortgage (Option ARM) resets are beginning, and there is $1.1 trillion to $2.6 trillion in estimated exposure over the next couple of years. Exposure between these mortgage types and prime mortgages is likely to be at least in the tens of billions over the next six months.
◦As of August 20th, 13% of homeowners with a mortgage have fallen behind on their payments or are in foreclosure.
◦The portion of delinquent loans that return to current payment status each month (i.e. the “cure rate”) is down to 4.3% from a 30.2% historical average for Alt-A, 6.6% from a 45% historical average for prime, and 5.3% from a 19.4% historical average for subprime mortgages.
◦California’s 90-day mortgage foreclosure moratorium expires in the middle of this September. This will add to the rising tally of foreclosures.
Banking industry
Both commercial and residential real-estate problems will continue to build pressure on the banking industry, which is already quite unhealthy.
◦As of June 30th, there were 416 troubled banks (up from 305 in Q1) on the FDIC’s list; Assets at troubled banks totaled $299.8 billion
Both commercial and residential real-estate problems will continue to build pressure on the banking industry, which is already quite unhealthy.
◦As of June 30th, there were 416 troubled banks (up from 305 in Q1) on the FDIC’s list; Assets at troubled banks totaled $299.8 billion
◦As of August 24th, banking analyst Richard Bove predicted 150-200 more bank failures
◦As of August 21st, banking analyst Meredith Whitney predicted over 300 more bank failures
◦As of September 4th, a total of 89 banks had failed in 2009
◦The FDIC reports that more than 1 in 4 banking institutions are unprofitable
◦More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.
◦Large banks are under-capitalized unlike what the government has communicated:
Bank of America – Loan value was $64.4 billion less than their balance sheet indicated (58% of the bank’s Tier 1 common equity)
as of June 30th
Wells Fargo – Loan value was $34.3 billion less than their balance sheet indicated (73% of the bank’s Tier 1 common equity)
Wells Fargo – Loan value was $34.3 billion less than their balance sheet indicated (73% of the bank’s Tier 1 common equity)
as of June 30th
◦More foreclosures will likely surface now that the Making Home Affordable programs are fully underway and all available options for modifications and other solutions are exhausted.
As banks become more stressed because of growing problems in residential and commercial real-estate, bank lending will become more restrained, but more importantly, bank failures will become more likely. Depending on the size of the bank, the government will either offer a bailout, nationalize the bank, or a combination of the two. Both do harm to the economy beyond what would occur by allowing them to fail.
The next topic is about the state of the FDIC, which covers the government's potential route to bank bailouts more clearly.
Federal Deposit Insurance Corporation (FDIC)
Government money is provided to replenish failed banks’ balance sheets and/or facilitate acquisitions of these banks by healthier banks. Historically, the FDIC is the vehicle to do this, although the government has recently used other means in addition to the FDIC.
The FDIC is an organization that was created to give citizens the comfort that their bank deposits are safe and fully backed by the U.S. government.
Here is the current state of the FDIC:
◦The FDIC's fund has dropped to 0.22 percent of insured deposits, below a Congressionally mandated minimum of 1.15 percent.
◦Falling from $45.2 billion in the second quarter of 2008 and $13 billion at the end of March 2009, the fund is now at $10.4 billion.
◦Excluding the stress-test list, banks with non-performers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. That is now almost 19 times the size of the FDIC’s deposit insurance fund.
◦1% of all money deposited under $250k (i.e. the FDIC insured level) totals $700 billion
◦The FDIC has a credit line with the U.S. Treasury of up to $500 billion if needed. This money, and anything needed beyond it, is obviously printed.
State budgets
States pay the paychecks of their government’s employees, supply many vendors with contracted business, and fund many programs that offer welfare and support to their citizens. Stress in state governments’ budgets is stress on states’ economies.
◦State tax revenues had declined almost 12% in the first 3 months of 2009. This is the largest decline in the 46 years the data has been collected by the Nelson A. Rockefeller Institute of Government.
State budgets
States pay the paychecks of their government’s employees, supply many vendors with contracted business, and fund many programs that offer welfare and support to their citizens. Stress in state governments’ budgets is stress on states’ economies.
◦State tax revenues had declined almost 12% in the first 3 months of 2009. This is the largest decline in the 46 years the data has been collected by the Nelson A. Rockefeller Institute of Government.
◦According to the Center on Budget and Policy Priorities, 48 states addressed or were facing budget deficits totaling $166 billion as of July 2009.
◦There are 28 states that have had budget shortfalls greater than $1 billion just before or since their most recent budget was adopted.
◦As of the end of this past July:
23 states have a budget gap over 0% and under 10% of the state’s general fund
14 states have a budget gap between 10% to 15% of the state’s general fund
7 states have a budget gap greater than 15% of the state’s general fund
◦Because of budget shortfalls, some form of government shutdown is occurring in many states including California, Michigan, Rhode Island, Maine, Maryland, Wisconsin, Colorado, Alabama, Georgia, Arizona, etc.
◦It is likely that California will revisit their budget woes in the near future.
The state’s government has continuously made poor judgments on expected revenue and expenditures. Continued budget problems and current and future cuts will stress the state’s economy as fewer state vendors will get paid, layoffs and furloughs will stress citizens, and businesses will flee the state due to tax hikes and poor economic climate compared to other parts of the U.S. and world.
One recent significant example is Toyota closing a major CA factory to move elsewhere.
Also, in late September, California will begin selling $10.5 billion of revenue anticipation notes (RANs) to mature in the spring. The expectation is that investors will gobble up these notes because of their competitive return. It may be worth observing the actual results. California is the 9th largest economy in the world and makes up 13% of U.S. GDP.
Retail and automotives
The retail and automotive sectors are vital to the U.S. economy. Below are recent statistics and information about both industries.
◦Sales at privately held retailers fell 3.63 percent on average for the first seven months of 2009
Retail and automotives
The retail and automotive sectors are vital to the U.S. economy. Below are recent statistics and information about both industries.
◦Sales at privately held retailers fell 3.63 percent on average for the first seven months of 2009
◦Publicly traded retailers' sales fell at 1.34 percent on average for the first seven months of 2009
◦U.S. Census Bureau calculated retail and food services sales are down 8.3% from July of 2008. Sales were down 0.1% in July alone and that includes the boost of sales from the Cash for Clunkers program.
◦Thompson Reuters reported a 5.1% July drop in retail sales based on a survey of 30 major retail chains.
◦Retail professionals are predicting the worst back-to-school season in a decade. Back-to-school season is the second largest retail season of the year behind Christmas.
◦Citigroup analysts estimate same-store August to September sales to fall 3-4%.
◦As a recent indicator of back-to-school sales potential, chain store sales were down 0.5% for the August 29 week according to ICSC-Goldman reporting.
◦The Michigan consumer sentiment poll continues to decline and is at its lowest level since March. The conference board consumer confidence index shows confidence as slightly up, but had little improvement in an already low measurement of income expectations, which likely translates to light spending due to uncertainty.
◦Major short-term retail financier, CIT Group, has closely avoided bankruptcy and is likely to continue to struggle with liquidity issues as more of their lent debt is due to mature next year. Retailers will have difficulty funding inventory and other operations through borrowing as CIT and others in the space are feeling stress. This can be exacerbated during the holiday retail season.
◦Of the top 10 most sold car brands through the recent Cash for Clunkers program, two were American car brands.
◦Auto sales for August will likely come in quite high, but will likely see a strong drop-off shortly thereafter as Cash for Clunkers was the short-term cause of the spike.
Slower near-term sales within the retail and automotive sectors can cause additional bankruptcies in already pained industries. Another important sector to keep an eye on is the airline industry. Although, the breaking point for many airlines is projected to be more around the spring of 2010.
Unemployment
Unemployment continues to rise and plague consumers. The unemployment situation is actually worse than that openly described by the mainstream media and government.
◦The official Bureau of Labor Statistics (BLS) unemployment rate (U-3) is 9.7%, the highest rate in 26 years.
◦The BLS U-6 measure has unemployment at 16.8%. This measure includes those who have given up looking for work, marginally attached workers, and those employed part-time for economic reasons.
◦The Shadow Government Statistics organization uses U-6 plus an estimate of those who have not looked for work in over a year (defined away during the Clinton administration) to calculate a current unemployment rate of 20.6% (using July as latest data).
◦There are now 19 metropolitan areas with U-3 unemployment above 15%, the highest of which is El Centro, California with 30.2% unemployment.
◦Personal income is down approximately 11.5% since its peak in 2006 and 8.5% since the beginning of the recession. Hours worked has fallen at a 7.6% annualized pace for the last six quarters and a 9% pace since the first quarter of this year. Statistics like these act as additional hidden unemployment.
◦New jobless claims are still at 550k+ levels each week. The continuing claims tally recently rose to 6.23 million. The key reason for recent occasional dips in continuing claims is because of the number of people falling off of the government’s standard 26-week benefits period and onto extended benefits, which are not classified as continuing claims.
◦The National Employment Law Project estimates that 540,000 Americans will exhaust their unemployment insurance benefits by the end of this September, and 1.5 million will run out of coverage by year end.
◦This fallcongress is likely to pass a bill aimed at offering various unemployment insurance extensions through 2010. This would still leave large numbers of people with extremely low, if any, income or ability to make purchases.
Additionally, the money to cover such extended programs will be coming from the federal government, which means more printing.
Confidence
Confidence is an extremely important factor in maintaining political and economic stability. Current trends are pointing to a broad decline in confidence.
◦As we move into the autumn and winter months, there is risk of a dire realization by Americans. People may begin to see that despite a few sugarcoated government statistics, the build-up of bad statistics and painful firsthand experiences will reveal that things are not actually getting better, government measures are not working, and the printing of anymore money for bailouts will only cause further harm to the economy. This realization and resulting loss of confidence among consumers and business is a key factor in decisions around investing in U.S. stock markets and the U.S. dollar.
Confidence
Confidence is an extremely important factor in maintaining political and economic stability. Current trends are pointing to a broad decline in confidence.
◦As we move into the autumn and winter months, there is risk of a dire realization by Americans. People may begin to see that despite a few sugarcoated government statistics, the build-up of bad statistics and painful firsthand experiences will reveal that things are not actually getting better, government measures are not working, and the printing of anymore money for bailouts will only cause further harm to the economy. This realization and resulting loss of confidence among consumers and business is a key factor in decisions around investing in U.S. stock markets and the U.S. dollar.
◦President Obama’s job approval ratings have been declining at one of the fastest paces of any American president at this point into their presidency. In additional to the trend toward a crossover to the downside of approval and disapproval averages among polls, one of the historically most accurate polls (i.e. Rassmusen) shows that the crossover has already taken place. A continued decline in confidence in the president reflects declining confidence in the government and economy.
◦During Congress’ recess (through Labor Day) there have been many intense town hall meetings and mounting protests around health care reform, taxes, and the government’s general policy direction. It is apparent that people are growing upset with state of the country and government.
Foreign diversification
Foreign movement away from dependence on the U.S. dollar and economy continues.
◦Instances of cross-border trade historically transacted using the U.S. dollar are recently being conducted through other currencies.
◦China and Hong Kong covered more than half of the increase in U.S. Treasurys sold to the public in 2006. In 2008, they covered 22%, and in the first half of 2009 the figure is down to 9%.
◦As of September 2nd, China had signed an agreement to purchase $50 billion of International Monetary Fund (IMF) issued notes. This is the first time a purchase like this has been made. This type of note has recently been promoted by China as an eventual replacement for the U.S. dollar.
◦Recently a top China banker called for sales of bonds denominated in Yuan rather than U.S. dollars. A move to sell U.S. bonds denominated in other countries' currencies where the U.S. has a trade deficit would currently require the printing of money, which would result in the devaluation of the U.S. dollar.
◦In August, Japan’s election was won by the Democratic Party of Japan, which is the opposition to the party that has held office for the last 54 years. In May, the Democratic Party of Japan stated that if elected they would continue to buy U.S. bonds only if they were denominated in Yen.
Scheduled Near-term Activities
The following is an outline of activities that are scheduled to take place within this autumn or winter and could lead to economic harm.
U.S. fiscal year-end
The U.S. fiscal year ends on September 30, 2009. This timing could have significance in a couple of ways:
◦The U.S. government financial statement for fiscal 2009 is due to be released in December. The government's previous estimates and public’s expectations compared to actual results of the financial state of the country could have significant impact on confidence domestically and internationally.
◦Treasury Auctions in July totaled $725 billion. Auctions in August totaled $782 billion. September is likely to be another heavy auction month. The performance of Treasury auctions during the autumn should be closely watched as the U.S. rolls over debt, adds new debt, and moves into a new fiscal year’s budget.
Expiration of Fed programs
The Fed’s $1.75 trillion quantitative easing (QE) programs expire this October and December. Up to $300 billion in Treasury purchases expire by the end of October. Up to $200 billion of agency purchases and up to $1.25 trillion of mortgage back security agency purchases will expire at the end of December 2009.
Expiration of Fed programs
The Fed’s $1.75 trillion quantitative easing (QE) programs expire this October and December. Up to $300 billion in Treasury purchases expire by the end of October. Up to $200 billion of agency purchases and up to $1.25 trillion of mortgage back security agency purchases will expire at the end of December 2009.
The expiration of these programs could be a double-edged sword. On one side, allowing them to expire could cause interest rates to move up significantly and propped asset classes to fall. Extending these programs, or increasing their dollar values and extending them, would send a damaging message that the economy is still in bad shape while adding to future inflation risk.
New regulation
There are a few significant pieces of legislation moving through to vote this fall, all of which can have an impact on the economy.
◦The Obama administration’s push for dramatic health care reform is expected to culminate in a vote on October 15th. Health care makes up about 17% of U.S. GDP. Significant levels of business activity have been slowed or halted due to the uncertainty of health care direction in the country. Also, depending on how quickly the ensuing changes would occur, the economic impact from poor change decisions and inefficient implementation could be harmful in the following months after passing.
New regulation
There are a few significant pieces of legislation moving through to vote this fall, all of which can have an impact on the economy.
◦The Obama administration’s push for dramatic health care reform is expected to culminate in a vote on October 15th. Health care makes up about 17% of U.S. GDP. Significant levels of business activity have been slowed or halted due to the uncertainty of health care direction in the country. Also, depending on how quickly the ensuing changes would occur, the economic impact from poor change decisions and inefficient implementation could be harmful in the following months after passing.
◦Ron Paul’s Fed audit bill is to be incorporated into broader financial legislation expected to pass in October. Depending on how accurately the bill matches Ron Paul’s original intentions, the opening of Fed books could reveal information of significant concern to domestic and international investors.
◦Treasury Secretary Tim Geithner recently requested that Congress increase the federal debt ceiling. He said that the country is likely to reach its debt limit as soon as mid-October. This is not likely to be a big issue to get through Congress, but if it becomes an issue in the public eye at a time when the perception of a growing debt-load is quite negative, investor confidence could be harmed.
Iran deadline
Depending on Iran's response, the September deadline for them to respond to demands of halting its nuclear program could ignite domestic and international tensions contributing negatively to the economy.
Uncertain Near-term Activities
The following is an outline of activities that could happen within this autumn or winter and could lead to economic harm.
Oil price pressure
The price of oil has pushed $75 a barrel fluctuating between $60 and $75. If it breaks above $80, the resulting increase in gas prices could have considerable impact on consumers' and business's wallets
◦Production is falling in Mexico, the U.S.’s third largest supplier. Pemex’s (Mexico’s national oil company) output fell 7.1% in July, the fastest drop since 1942. Yields from Mexico’s largest oil field, Cantarell, have been dropping by annualized rates of more than 35% in recent months.
◦As of June, Saudi Arabia, the U.S.’s second largest supplier, cut its oil production by nearly 16% from less than a year earlier.
◦The count of U.S. oil rigs has fallen from above 2000 this time last year to below 1000. While oil production in the U.S. is recently up, demand is rising again as well.
◦Oil imports to China jumped 18% from July to August and China car sales rose 48% in June from a year earlier.
All of these factors put pressure on the price of oil and are reasons for economic concern in the coming months.
Interest rate pressure
The interest rate on the 10-year Treasury bond hit nearly 4% and has been fluctuating between 3.3% and 4% since late May. A strong move past 4% will cause additional stress on home purchasers and mortgage companies. Further upward movement can cause stress for many other sectors of the economy. A spike of 50 basis points or so in a single day could cause panic among foreign and domestic investors.
Factors influencing interest rates in the near-term are:
◦Massive levels of U.S. debt that continues to rise
All of these factors put pressure on the price of oil and are reasons for economic concern in the coming months.
Interest rate pressure
The interest rate on the 10-year Treasury bond hit nearly 4% and has been fluctuating between 3.3% and 4% since late May. A strong move past 4% will cause additional stress on home purchasers and mortgage companies. Further upward movement can cause stress for many other sectors of the economy. A spike of 50 basis points or so in a single day could cause panic among foreign and domestic investors.
Factors influencing interest rates in the near-term are:
◦Massive levels of U.S. debt that continues to rise
◦Foreign diversification out of U.S. Treasurys
◦Expiration of Fed quantitative easing programs
◦Potential fading confidence in U.S. Treasurys
Food price pressure
Weather problems (mostly droughts) last year and this year in major agricultural centers across the globe are straining crops and their output.
Food price pressure
Weather problems (mostly droughts) last year and this year in major agricultural centers across the globe are straining crops and their output.
A few examples of trouble with food supplies are:
◦California – (#1 in U.S. in crop production) Due to drought, government water restrictions, and low demand from the crisis, 260,000 of the 600,000 acres that normally grow tomatoes, lettuce and other crops have been removed from production this year.
◦California – (#1 in U.S. in crop production) Due to drought, government water restrictions, and low demand from the crisis, 260,000 of the 600,000 acres that normally grow tomatoes, lettuce and other crops have been removed from production this year.
◦Texas – (#2 in U.S. in crop production) A severe drought in Texas has resulted in $3.6 billion of crop and livestock losses since November of ’08. As of August of 2009, estimates say losses could surpass $4 billion by year-end.
◦India – A weak monsoon has caused a rain shortfall of 8% and an expected shortfall of 15% for the quarter ending in September. About 60% of India’s crop land is dependent on rain water as opposed to irrigation. Food grain shortages are expected in 2010.
◦China – As of August, a severe drought in China has affected 11.3 million hectares of grain crops making up 30% of China’s autumngrain output.
◦Sugar - Raw sugar prices have risen the most in 28 years because of production shortfalls in Brazil and India. Large U.S. food companies have been warning that the U.S. could run out of sugar given the administration’s current import restrictions and rising sugar prices.
◦Soybeans – The U.S. got a late start to soybean planting this summer and pod-setting is behind average by 7% (14-22% behind in key areas). The U.S. soybean stockpile is at a 32-year low and China has increased its soybean purchases by 70% in the last year. Farmers are dreading the possibility of an early frost that would kill off significant portions of the harvest.
◦Wheat fungus – The Ug99 fungus poses a major threat to world wheat crops. It is estimated that up to 80% of world wheat crops could be destroyed from this fungus and 19% (in Asia and Africa) are in imminent danger.
All of these existing problems and potential threats increase commodity prices and thus the price of food for the consumer.
U.S. stock markets pressure
The U.S. stock markets can impact consumers' financial positions and confidence. Stock market performance can also directly affect businesses.
◦As of the latest compiled data, the trailing 12-month PE ratio for the S&P 500 is 129.19. As of the end of August, the S&P 500 index’s PE ratio based on the average inflation-adjusted earnings over the last 10 years (different from trailing PE, which is over the last 12 months) is 17.67. This is compared to a stock market average of 16.3 over the past 140 years according to a stock market database by Yale University’s Robert Shiller. Either method of calculating PE ratios indicates that the stock market is significantly overvalued.
◦Recent futures prices indicated that the VIX, a gauge of expected stock swings, is likely to increase significantly in the next several weeks. This indicates potential strong moves in the market one way or the other. Given the market’s overvalued status, a move down is the likely direction.
◦Since the Dow Jones was created 115 years ago, the month of September has returned an average of -1.2%, making it the worst performing month of the year with no other month coming close. During September, the S&P 500 has returned an average of -1.3% since 1929 and it is the only month to fall 50% of the time. There are several studies and theories that try to explain the reason for this phenomenon; however, there is no proof of a cause. Nonetheless, the long-term historical data speaks for itself and offers reason for caution moving into the autumn.
◦Sales of company stock by company insiders has risen to 30.6 times the level of insider stock purchases, the highest level since TrimTabs began tracking the data in 2004. This could signal that the management of many businesses believe the stock market and their own stock prices are overvalued.
◦The Baltic Dry Index (BDI) has declined 44% over the last 3 months and 31% in the last month. The BDI, based on worldwide shipping prices of raw materials, is closely traced by the Dow Jones and FTSE 100 with the two indexes time-lagging behind the BDI - In other words, the BDI points to an approaching decline in stock markets.
China credit bubble
Many report that there is a credit bubble forming in China from a $1.1 trillion (i.e. about 25% of the country’s GDP) increase in lending in the first half of 2009 to compensate for their dramatic decline in export demand. Commercial and residential real-estate in China is currently overvalued, and manufacturing has over-expanded given the real lack of demand. A bursting of this bubble would cause economic waves across the globe.
Swine flu
A top presidential panel is estimating that this autumn the swine flu could infect 30-50% of the U.S. population. The panel projects 30,000 to 90,000 deaths and up to 1.8 million hospital visits. The government has been flat wrong about statistics like these in the past; however, if we even approach the low end of these levels, the economic impact will be quite harmful.
◦Hospital resources will be strained by a spike in demand and recently downsized capacity
Many report that there is a credit bubble forming in China from a $1.1 trillion (i.e. about 25% of the country’s GDP) increase in lending in the first half of 2009 to compensate for their dramatic decline in export demand. Commercial and residential real-estate in China is currently overvalued, and manufacturing has over-expanded given the real lack of demand. A bursting of this bubble would cause economic waves across the globe.
Swine flu
A top presidential panel is estimating that this autumn the swine flu could infect 30-50% of the U.S. population. The panel projects 30,000 to 90,000 deaths and up to 1.8 million hospital visits. The government has been flat wrong about statistics like these in the past; however, if we even approach the low end of these levels, the economic impact will be quite harmful.
◦Hospital resources will be strained by a spike in demand and recently downsized capacity
◦State and local budgets will be strained
◦People that are infected will be less likely to work or shop during the time they are infected
◦People that are infected will be less likely to work or shop during the time they are infected
◦Many that are not sick will be less likely to participate in economic activity away from home (e.g. shopping, dining out, etc) for fear of getting sick
Natural disaster
Natural disasters are unknown events that can negatively impact an economy, especially when the economy is already in a fragile state. Hurricane season peaks in September and ends on November 30th. Florida is one example of a state where the economic impact (e.g. insurance costs, tourism, etc.) of a single destructive hurricane would be quite devastating given the timing. California’s continued drought causes economic problems directly, but also indirectly through offering a productive environment for massive forest fires.
Resulting Economic Impact
All of the factors described to this point have developed throughout this year or are developing this fall and winter. Each factor alone is reason for concern. However, they all interlink throughout the economy to put us in a questionable and potentially dangerous situation for the near-term. Below is a diagram to depict the relationships between the aforementioned problems we face and their impact on stock markets, the value of the dollar, and ultimately, you.
Natural disaster
Natural disasters are unknown events that can negatively impact an economy, especially when the economy is already in a fragile state. Hurricane season peaks in September and ends on November 30th. Florida is one example of a state where the economic impact (e.g. insurance costs, tourism, etc.) of a single destructive hurricane would be quite devastating given the timing. California’s continued drought causes economic problems directly, but also indirectly through offering a productive environment for massive forest fires.
Resulting Economic Impact
All of the factors described to this point have developed throughout this year or are developing this fall and winter. Each factor alone is reason for concern. However, they all interlink throughout the economy to put us in a questionable and potentially dangerous situation for the near-term. Below is a diagram to depict the relationships between the aforementioned problems we face and their impact on stock markets, the value of the dollar, and ultimately, you.
Each issue described above fits in one way or another into at least one of the blue boxes within this diagram.
The boxes stacked on the left side of the diagram are the problems we have been facing or will likely face within the coming months. The arrows show what areas of the economy these problems will negatively impact. The degree of negative impact is assumed uncertain. You may notice relationships that are not indicated on the diagram, such as the negative impact of struggling business on unemployment; however, this type of impact is assumed given that unemployment is listed as a growing problem we face in the near future.
“Pre-existing issues” are those issues which have already transpired over the last couple of years that have made the economy vulnerable and continue to cause trouble.
A few examples are:
Businesses continue to deal with poor borrowing conditions and inventory problems, consumers are struggling with unemployment and personal debt, both are getting hammered by added taxation, and residential and commercial real estate are still marred by rising defaults and lending problems. "Unknowns" are negative economic results from scheduled or uncertain near-term activities, such as what might happen if the Iran deadline causes international tension or if the supposed China credit bubble bursts.
To sum it up in a nutshell, the problems we face this fall and winter could translate into problems with your stock investments, employment security, pension, fixed income investments, and potentially every U.S. dollar you possess.
Impact on the Dollar
A major question to ask (indicated by the only gray arrow on the diagram) when thinking about the consequences of these economic activities is, how will the dollar fare if there is another panicked leg down in the markets?
While money printing and foreign diversification will continue to impact the dollar negatively, a perception that the dollar is still a safe-haven could help it weather another powerful market drop.
During the crisis panic last fall, there was a flight to safety with strong investment in U.S. Treasurys and the U.S. dollar. What will be the reaction the next time around? Are people still confident in U.S. debt after seeing the massive budget deficit on the year coupled with White House projections of $9 trillion in deficits (with a likelihood of being higher) to come over the next 10 years - and especially given the nearly $11.8 trillion of existing debt and the many tens of trillions in debt already anticipated from Social Security and Medicare?
There are arguments circulating the web that as we reduce our trade deficit, the need for foreign U.S. Treasury purchases will diminish as it will be absorbed by America's purchases. Can this be something that we can rely on?
Aside from federal intragovernmental holdings and Fed interventions, it is difficult to envision capable and willing buyers in America. Some of the largest groups of American purchasers simply can't afford it. For example, state and local governments have their own deficit and debt problems, public and private pension funds are about to collapse, and what individual American or business would want to put their money into a “safe" debt investment that they know will be severely deluded in value at its point of maturity?
With a dramatically growing Treasury supply and stagnating or declining purchase capacity from American purchasers, relying on our own country to bail us out is not a safe bet.
Additionally, while in the short-term it is advantageous for foreign holders of U.S. debt to stay invested, they continue to gradually diversify out of this position to minimize their vulnerability.
A dramatic move to dump the dollar at some point will likely be less harmful to them than it once was, especially considering the harm that would be caused by remaining a holder.
A related continuing argument circulating the web and mainstream is the question of inflation or deflation. We may still be going through a powerful period of deflation given the level of debt contraction still unfolding. That does not mean that the money supply cannot rise while many prices fall. This occurred in Weimar Germany during their hyperinflation. It also does not mean that critical resources (e.g. energy and food) cannot rise in price and cause additional economic harm.
Also, just because price inflation has not spiked yet, doesn’t mean it won’t. The economy and dollar are both fragile and vulnerable, and the Fed continues to have an inflationary policy mindset. It is also possible that a significant move up in price inflation could still be a ways down the road - perhaps several years. Nonetheless, deflation can precede hyperinflation.
With no guaranteed answer for timing and magnitude of either economic direction, why not be prepared for both?
In such a time of uncertainty, one can hopefully diversify investments to hedge and gradually make adjustments as new information reveals reality.
As for the social consequences of a given economic path considering the circumstances, the eventual result is pain. Being mentally and physically ready for a potential economic collapse is key to surviving it.
Read suggestions about preparation as well as a discussion of the broader economic outlook in Arbitrary Vote’s original warning article, but also take the initiative to do an analysis yourself.
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