Daniel J. Mitchell
Sigh. I feel like a modern-day Sisyphus. Except I’m not pushing a rock up a hill, only to then watch it roll back down.
Compared to educating journalists about fiscal policy, this is an easy task
I have a far more frustrating job. I have to read the same nonsense day after day about “deep spending cuts” even though I keep explaining to journalists that a sequester merely means that spending climbs by $2.4 trillion over the next 10 years rather than $2.5 trillion.
The latest example comes from the New York Times, which just reportedabout “deep automatic spending cuts that will strike hard” without bothering to provide a single concrete number about spending levels in any fiscal year.
Yes, you read correctly. A story about budget cuts did not have any numbers for spending in FY2013, FY2014, or any other fiscal year.
So, for the umpteenth time, here are the actual numbers from the Congressional Budget Office showing what will happen to spending over the next 10 years if we have a sequester.
I don’t mean to pick on the New York Times. Yes, the self-styled paper of record has been guilty in the past of turning budget increases into spending cuts, but the Washington Post is guilty of the same sin, having actually written in 2011that reducing a $3.8 trillion budget by $6 billion would “slash spending.”
And the NYT story actually has some decent reporting on how Republicans so far have (fingers crossed) avoided the tax-increase trap that Obama thought the sequester would create.
But one would still like to think that Journalism 101 teaches reporters to include a few hard facts when writing stories. Particularly if they’re going to use dramatic adjectives to describe what supposedly will happen.
Anyhow, this is just part of a larger problem. As I explained in these John Stossel and Judge Napolitano interviews, the politicians and interest groups have given us a budget process that assumes ever-increasing spending levels, which then allows them to make hysterical claims about “savage” and “draconian” cuts whenever spending doesn’t rise as fast as some hypothetical baseline.
This is why almost nobody understands that it’s actually relatively simple to balance the budget with a modest bit of spending restraint. My goal is reducing the burden of government spending, not fiscal balance, but it’s worth noting that we’d have a balanced budget in just 10 years if spending grew by “only” 3.4 percent annually.
View full post on Cato @ Liberty
How the bank dynasty heir’s City reputation is in tatters after a £700m investment scheme blew up in his face
By GEOFFREY LEVY and RICHARD KAY
PUBLISHED: 22:13 GMT, 19 October 2012 | UPDATED: 13:40 GMT, 20 October 2012
Even at 76, with untold wealth and the holder of a rare Order of Merit from the Queen, Lord Rothschild has continued to dream.
It is a father’s dream: that his only son Nat might one day lead the world’s most enduring banking dynasty to new heights, repairing an old family schism and burnishing its blue-chip image to even greater brilliance.
Today Jacob Rothschild is a bitterly disappointed, even angry man, as his son and heir fights to save his own dwindling reputation and, with it, the first soiling of the proud Rothschild name in centuries.
Living the high life: Nat Rothschild has seen his City reputation destroyed after a deal to invest in an Indonesian coal mining company turned sour
Nat himself can hardly believe what has happened. A mere tick of the dynastic clock ago he was widely seen to be on course to be the richest of all the Rothschilds.
Helped by the pulling power of his name, he was hailed as a financial genius, a young man — once a wild child but now drinking nothing stronger than Coca-Cola — with a unique networking ability to bring billionaires together to make deals.
His private £5?million Gulfstream was criss-crossing the globe for 750 flying hours a year. That was before he decided to raise £700?million from investors — ‘big players only’ he airily informed one relatively minor figure who expressed interest — to plough funds into an Indonesian coal-mining company called Bumi that a City contact had drawn to his attention.
By July, 2010, Bumi’s £10 shares had been absorbed into his own FTSE-quoted cash vehicle, a shell company called Vallar, which was then renamed Bumi plc.
For Rothschild’s new Indonesian partners, the Bakrie family (one of whom is currently standing for election as president of the country), the deal offered the back-door prestige of being quoted on the London Stock Exchange — quite a prize to businessmen in a part of the world not noted for the transparency of its corporate culture.
Crisis: A top City banker said ‘Nat Rothschild will never raise another dollar from anybody’ following after this deal went bad for some investors
Yesterday, after acrimonious disagreements and accusations in the Bumi boardroom, and Nat Rothschild having dramatically stood down as a director, his investors were showing a loss of three quarters of their money with the share price slumping to around £2.50.
Nat Rothschild’s fierce letter of resignation from the board arrived on Monday from an address in St Peter Port on the low-tax Channel island of Guernsey, where one of his corporate offices is registered.
Meanwhile, an internal investigation into allegations of financial impropriety at Bumi has expanded to include alleged threats and the hacking of email systems to snoop on exchanges of messages at boardroom level.
The company chairman Samin Tan claimed that Rothschild indicated he’d had ‘access’ to his emails and had been reading them.
Rothschild’s response was to declare that the allegations were ‘untrue and defamatory.’ Attention has also been drawn to the level of expenses paid to directors.
And he did not just fall out with the Bakrie family. Senior British industrialists he installed as independent directors to safeguard UK shareholders’ interests also had their disagreements with him.
Dynasty: The collapsed deal has reignited tensions between Lord Jacob Rothschild and his one-time wild-child son Nat Rothschild
Sir Julian Horn-Smith, former deputy chief executive of Vodafone, who is senior independent director of Bumi, asked Mr Rothschild to step down because of his ‘disruptive behaviour’ on the board.
The crisis has been a shock to Nat Rothschild’s overblown ego, especially as many feel his reputation can never fully recover, and one top City banker was quoted in The Times this week as saying that ‘Nat Rothschild will never raise another dollar from anybody’.
Another puts it this way: ‘His name has become toxic in the City of London.’
Now, his father Lord Rothschild, a figure of great integrity who was once a shoulder to cry on over lunch for a distraught Princess Diana, is the one who needs consoling, says a City friend.
To add insult to injury, it is NM Rothschild, the family bank from which Jacob Rothschild split three decades ago to found his own highly successful investment trust, that has been called in by Bumi plc to sort out the mess.
Playboy: Nat Rothschild had a reputation for being a wildchild
The last time there were tensions between Lord Rothschild and his son — he also has three daughters — it was because Nat was virtually running wild, drinking and partying to excess.
Nat has never denied an escort girl’s story that she was asked to provide strippers and drugs to a party he threw in 1994 at Waddesdon Manor, the magnificent Rothschild family seat in Buckinghamshire where Presidents Reagan and Clinton, as well as Lady Thatcher, have stayed, and which is now run by the National Trust.
According to the girl: ‘They were very precise in what they wanted — three slim black girls in stockings, suspenders and high heels. They also wanted the girls to do extras.’
In those days, just down from Oxford, Nat enjoyed his wildchild reputation with almost as much pleasure as, in recent years, he has relished being seen as a pivotal figure in the world of billionaire finance.
True, he spent not far short of £1?million on his own 40th birthday party last year in Porto Montenegro, in the tiny Balkan state, but most saw this as more of a classic networking bash — the invitations even included helpful details of where guests could park their private jets.
And Porto Montenegro, of course, is a development on the Adriatic coast in which he has a considerable personal investment.
But his most satisfying parties in recent years have been of the kind of gathering in Corfu on the £80?million yacht of his good friend and business associate Oleg Deripaska, the Russian oligarch, which ended in a spectacular and very public fall-out with his old Oxford Bullingdon Club friend George Osborne, now Chancellor of the Exchequer. It was to reveal a side of Nat Rothschild which those publicly pillorying him now would do well to consider.
For when Nat heard that Osborne had been repeating details of a private conversation with Peter Mandelson, who was also there, he in retaliation famously claimed that Osborne and the Tory party fundraiser Andrew (now Lord) Feldman had solicited a contribution to party funds from the Russian tycoon. Osborne issued an immediate denial, but considerable damage was done.
Friends in high places: Nat Rothschild entertained Chancellor George Osborne and former business secretary Peter Mandleson
Fast forward three years to a lunch party in 2011 near St Tropez. One of the guests, on being invited by old friends, explained he had Nat Rothschild staying with him, and could he bring him along? And Rothschild came — but not for long.
As one of those guests recalls: ‘We’d barely sat down to lunch when he breezily said he was off. I can’t even remember whether he ate anything. I can only imagine we weren’t important enough.’
Ex-wife: Nat Rothschild was married for three years to Annabelle Neilson, model friend of Kate Moss
And one figure close to him says: ‘Nat’s mind is always turning over deals. He used to be fun — more than that — but these days, apart from the odd girlfriend, his closest companion seems to be his St Bernard dog.’
Girlfriends there have certainly been, including the actress Natalie Portman and, most recently Florence von Preussen, a slim, attractive scion of the Guinness family.
He was also married for three years to Annabelle Neilson, model friend of Kate Moss.
Acquaintances find a somewhat unsettled sense about him.
He has homes in Paris, Moscow, New York and Greece but seldom spends more than a few days at a time in any of them.
The home where he spends most time during the winter is his sumptuous penthouse in Klosters. He was introduced to the Swiss ski resort by Canadian mining and property magnate Peter Munk.
While his father Lord Rothschild continued to live in Britain — holding board meetings in the basement kitchen of the London townhouse in St James’s he uses as an office — six years ago Nat took Swiss citizenship and became a tax exile.
His reputation already was that of a young man with the ability to make big money fast.
This was the point at which the personal fortune of the son and heir was poised to overtake the personal fortune of the father. This year’s Sunday Times Rich List places him 73rd with a personal fortune of £1?billion. His father is 192nd with a mere £465?million.
Over in Klosters his life is remarkably low-key. One place where he is a regular is the village’s only pizzeria, Alberto’s.
Carol Thatcher’s partner Marco Grass is his ski instructor, while his highly-supportive mother Serena — she and Jacob have been married 51 years today — is a regular winter guest. His peaceful life there is in stark contrast to the battle raging over Bumi.
But the dismay Lord Rothschild feels at the way the unseemly hostilities over the running of a public company have engulfed Nat cannot be underestimated.
‘He is furious with him — they are barely on speaking terms,’ says a family friend. ‘No Rothschild has ever before been involved in such a mess.’
Old Etonian Nat, of course, bears the name of his 19th-century ancestor Nathan Rothschild, who arranged the finance that helped the Duke of Wellington win the Battle of Waterloo.
‘Sometimes,’ says an acquaintance from his Oxford days of unfettered hedonism, ‘I wondered if he wouldn’t be able to cope with the weight of being a Rothschild, beyond its ability to pull the girls.’
Few City people who have encountered the slim, freckle-faced figure would agree with that assessment. They see a man who has cleverly exploited his family’s magnetic name to make a fortune — ‘well, wouldn’t anybody?’ says one banking figure.
But in the sensitive world of big money investment, it can take only one disaster to ruin a career.
For Nat Rothschild, the stakes may have been higher than even he initially realised.
Not so many months ago the thought was entertained that his entrepreneurial zeal could make him the best figure of the young generation to heal the family split of 1980 when Jacob left NM Rothschild to establish his own Rothschild Independent Trust, currently worth some £2?billion.
Not any longer. The favourite now to take over when the French head of the historic bank, Baron David de Rothschild, retires, is his son Alexandre.
For Nat there is one bright spot in the saga, however. His father was one of the ‘big players’ he invited to put money into Bumi. Wise old Jacob declined.
Statistics: Posted by yoda — Sat Oct 20, 2012 2:15 pm
View full post on opinions.caduceusx.com
Planet Earth – F.U.B.A.R.
MONDAY, MAY 14, 2012
Warning: This commentary is not for the faint of heart.
I thought I’d start this particular Monday morning, May the 14th, with a little rant. Sometimes it helps to ditch the uber-rational, cool-headed analysis and remind people just how screwed up things are on this third toxic landfill from the Sun.
F.U.B.A.R. is a military acronym from WWII – it stands for, "FUCKED UP BEYOND ALL RECOGNITION/ANY REPAIR/ALL REASON".
I can already hear the critics and naysayers chirping – "But, but, we’ve heard all of this before. You all have been talking about financial meltdown for years now, and it never happens. We just keep on chugging along like the little engine that could".
Bullshit! It has happened; it is happening. Every day for the past year has been one in which the Eurozone could erupt in flames, figuratively AND literally, and financial contagion could sweep through the global banking system. That is the definition of systemic meltdown – the critical point past which a system is constantly exposed to the risk of CRISIS.
We all know the story in Europe. The peripheral EZ economies are in freefall as private/public credit evaporates and unemployment soars, while the backlash against blatant wealth extraction, a.k.a. "austerity", has reached epic proportions. Greece is closer than ever to saying "SHOVE IT" and leaving the Union. So what happens after that??
Europe will be F.U.B.A.R., that’s what. Capital exodus, financial contagion, hyperinflation, social unrest, civil war – you name it – it’s all on the table. What if Greece manages to stay in and none of this happens? Does that mean everything is all better and the crisis point has been averted? Go ahead – sit back, relax and give it a few more weeks or months, but just remember that you will NEVER know when it will hit you like a MACK truck – only that it most certainly will.
And while you’re waiting for Europe to implode, maybe you can do some research on China. Google the definition of "a rock and a hard place", and you will see a picture of China with billions of little dots flashing across your screen. Here is an export economy that is watching its biggest export markets collapse, and a financial economy that barely got a few years of illusory wealth out of its speculative mal-investment. An industrial economy that wrecked its environment in record time and left its population with toxic shit for water. Google India while you’re at it.
Then there’s that other country which boasts the third-largest economy in the world – Japan. Let’s face it – if there is any one country for whom the bell tolls, then it is Japan. Between its zombie banking system, weakening export sectors, rapidly shifting demographics, lack of domestic energy resources and nuclear catastrophe that never ends, and can always get worse, the country has become a veritable disaster zone. Stick a fork in it.
Australia, Canada – the countries that miracously escaped the housing bubble and banking metldown. Or not. These comically complacent commodity countries can only muddle through by the skin of their knuckles for so long before the recent past catches up with them. WHEN the price of gas or gold or copper or… plummets with foreign demand, so do their financial sectors. Sorry guys, you almost made it, but not really.
Last and certainly least on my list of countries to rant against is the United States. This place is an amalgamation of the worst aspects of every other country. It’s a financially-fragile, energy-dependent, consumerist-minded, generationally-entitled, politically-fractured, demographically-fucked imperial police state. We may make it to November elections in relative peace just because our crony political establishment and media spin machines will pull out every trick play in their playbooks to keep the mind-numbingly ignorant population with blinders on until then. After that, all bets are off.
I have really only been ranting about economic issues so far – haven’t even bothered to mention systemic environmental degradation, energy scarcity, climate change, growing police states, escalating risks of slavery/genocide, never-ending wars, rising geopolitical tensions, and a whole host of other scary things that go bump in the night, EVERY night without fail. If you still recognize this world as the one from ten years ago, then you just aren’t looking at it hard enough.
And, with that, I will end this rant and wish you all a pleasant Monday morning (or whatever time/day it is, wherever the hell you happen to be).
Statistics: Posted by yoda — Mon May 14, 2012 1:11 pm
View full post on opinions.caduceusx.com
There Is Not Enough Money On Planet Earth
FRIDAY, MAY 11, 2012
No matter how you look at it, as The Automatic Earth and others have pointed out ad infinitum, in the end the US economy rests on two pillars: Jobs and Housing. They are where both all the good and bad in economic terms begin and end. Ben Bernanke and his Fed policies are majestically failing on both counts.
That is the reality that is shaping America’s reality today. Anything else is just a sideshow. Discard all the hubris on recovery, on falling unemployment; all that is but a mirage the political/industrial/financial/media conglomerate wishes you to see and believe in, so you won’t pay attention to what truly goes on. Which is that Fed and Treasury policies were never designed to support or revive the economy you depend on for your income and your well-being in general. They were and are designed to take your wealth away from you.
What is at issue? Easy as pie: banks were bailed out with many trillions of dollars in taxpayer funds (which they won’t pay back, they’ll just come back for more) without any scrutiny to speak of.
Bernanke and Geithner at best (yeah, right!) just "hoped" they would lend again, but they never made it a condition of the bailouts. What we find now is what I have repeatedly been saying for years now: The banks are far too deep in debt, even after the bailouts, to revive lending even to "healthy buyers". The entire bailout circus has been a scam, since the money was handed out to banks without looking at how much debt they really have on their books.
It’s all been one big massive wealth transfer, perpetrated under the guise of fixing the financial system and the economy in general. Neither was the real purpose behind the bailouts: they were and are nothing but a clever way to steal from the poor and fork over the loot to the rich. And they ain’t done yet. That, you can put your money on. That is a safe bet.
You need to wake up to this. You really do. You need to cut your dependence on the financial/political system to the maximum extent that you can. If you don’t, it will steamroller over you. The system is so deep in debt that it will come looking for every last penny it can find in your pockets. Many of you will be caught by surprise, and stuck with tens of thousands of dollars, and often many times, in debt. That will turn you into a potential slave. Or a prisoner, if you will. Terminology is not an urgent priority on the chaingang.
So where do Ben B.S. Bernanke’s deliberate "failures" show up? Have a look, I’ll try and paint you a picture. First, here’s Caroline Baum for Bloomberg:
Government’s Snake Oil Won’t Cure Jobs Ailment
Operating under the assumption that more stimulus will create more jobs, the Fed reduced its benchmark interest rate to 0 to 0.25 percent, pledged to keep it there at least through the end of 2014 and engaged in multiple rounds of bond buying to lower long-term interest rates. The Fed rationalized its stance, well after the crisis and recession had passed, as necessary to fulfill its full-employment mandate.
What if the Fed, through all its efforts, can’t buy more employment? What if unemployment is structural, with an inadequately trained workforce or labor immobility preventing employers and job seekers from hooking up? Signs are pointing in this direction. Long-term unemployment hasn’t been this high for this long since World War II, with 41.3 percent of the unemployed out of work for 27 weeks or more in April. The longer Americans are out of work, the more obsolete their skills.
The BLS unemployment rate may be 8.1% right now, but that’s only because many millions of Americans are not counted as unemployed and/or are not counted as part of the labor force at all. And even that doesn’t really make a dent of a difference: the Fed’s rationale that in order to "fulfill its full-employment mandate", it put its benchmark interest rate at 0% simply makes no sense at all. None. Never did, really, but certainly after doing it for years and seeing the outcome, it’s nothing short of bizarre. The only thing more bizarre, however, may be the pledge to keep at it until 2014 despite the numbers. Something doesn’t add up to say the least.
And who can still be surprised to see that the hardest hit Americans are the same ones that bear the brunt of the disaster doctrine in Greece and Spain, the young people? Sure, US youth unemployment hasn’t reached 53% yet. But it’s much closer than we like to think. And there is no more surefire way to blow up a society than to offer its young nothing but idleness and despair. You will see in your lifetime how and why that is so. Bonnie Kavoussi for Huffington Post:
Half Of Recent College Graduates Lack Full-Time Job, Study Says
Of all those who have graduated college since 2006, only 51 percent have a full-time job, according to a Rutgers University study released Thursday. Eleven percent are unemployed or not working at all.
The situation is even more dire for those who have graduated since 2009. Fewer than half of college graduates from those years found their first job within 12 months of graduating, much less than the 73 percent of those who graduated from 2006 to 2008. Those who graduated since 2009 are three times more likely to not have found a full-time job than those from the classes of 2006 through 2008. [..]
Graduates since 2009 have earned an average starting salary of $27,000, down from $30,000 for the classes of 2006 and 2007. That’s because employers can pay less with a surplus of job-seekers. In addition, many recent graduates take jobs below their skill level. The study found that 43 percent of employed recent graduates said their jobs do not require a college degree.
The wages of these recent college graduates will likely remain depressed for the next 10 to 15 years because they graduated into a weak economy, according to the Economic Policy Institute, a nonpartisan think tank. Many know it, too. Just half of employed recent graduates said they are satisfied with their income, opportunities for training and advancement, and progress toward career goals, the Rutgers study found.
Adding to that dissatisfaction, 55 percent graduate with student loan debt averaging $20,000, according to the study. One in four recent graduates with student loan debt have made no progress paying it off.
There’s your US jobs situation, ostensibly a main reason for that 0% benchmark rate. And one half of "the pillars of the American economy". Let’s go to the other half, housing. More Bernanke B.S. here. The 0% policy has led to the lowest mortgage rates ever. Amy Hoak writes for MarketWatch:
Mortgage rates hit record lows: Freddie Mac
Average interest rates on fixed-rate mortgages hit record lows in the most recent Freddie Mac survey of conforming rates, released on Thursday. Rates on the 30-year fixed-rate mortgage averaged 3.84% for the week ending May 3, down from 3.88% last week and 4.71% a year ago. Fifteen-year fixed-rate mortgages averaged 3.07%, down from 3.12% last week and 3.89% a year ago.
Meanwhile, rates on 5-year Treasury-indexed hybrid adjustable-rate mortgages averaged 2.85%, unchanged from last week and down from 3.47% a year ago. And 1-year Treasury-indexed ARMs also hit a record low at 2.7%, down from 2.74% last week and 3.14% a year ago.
Hey, that sort of worked, you could argue. Only, it doesn’t. Even at the lowest rates on record people are not buying homes. First of all of course because many of them are much worse off financially than before. No job at all, wage cuts, benefit cuts, student debt, health care debts, there are many reasons why many Americans are not buying homes. Affordability is a two-sided coin. It doesn’t help that home prices are still elevated either. They have a long way to fall; don’t listen to that housing market bottom nonsense that oozes from every pore of the industry these days, that’s just a sure sign of rot and fermentation.
Ben to the rescue: He doesn’t know why really, but that 0% benchmark rate fails in housing just as it does in jobs. And Ben warns this could take a while, because the banks insist on keeping the money the Fed and Treasury have doled out to them. Which takes Ben by surprise, he’d like you to believe. Glenn Somerville for Reuters:
Bernanke: even worthy borrowers can’t get mortgages
Banks have become so restrictive in making mortgages that many worthy home buyers are being frozen out of the U.S. housing market, and lending practices are not likely to loosen any time soon, Federal Reserve Chairman Ben Bernanke said on Thursday.
Speaking via satellite to a banking conference in Chicago, Bernanke highlighted ongoing problems in mortgage finance availability, even though banks are much healthier now as the 2007-2009 financial crisis has receded. "To be sure, a return to pre-crisis lending standards wouldn’t be appropriate," Bernanke said. "However, current standards may be limiting or preventing lending to many creditworthy borrowers." [..]
Bernanke implied the backlash by banks against criticism of their lending practices, which now are far tighter, might be overdone and will be extremely hard to reverse. "Many factors suggest this situation will be difficult to turn around quickly, including the slow recovery of the economy and housing market, continued uncertainty surrounding the future of the government-sponsored enterprises, the lack of a healthy private-label securitization market, and cautious attitudes by lenders," Bernanke said.
Overall, Bernanke said, home mortgage credit outstanding at banks has contracted about 13 percent from its peak.
The government-sponsored enterprises – Fannie Mae and Freddie Mac – are key vehicles in home-mortgage finance because they buy mortgages originated by banks and package them into securities that they resell to investors. The practice frees up funds for banks to make new mortgages. But Fannie Mae and Freddie Mac had to be bailed out by the government and were taken over at the height of the crisis. The government is considering options that include possibly winding them down, leaving it unclear what type of housing finance system eventually will emerge in future.
U.S. Housing Secretary Shaun Donovan told Reuters on Thursday he believed that 10 to 20 percent of potential home-buyers who could adequately carry the debt were being "locked out" of the market because credit was either not available or was available only at a restrictive price. "We had risk-amnesia going into the crisis and I think now we’ve gone a bit too far in the other direction," he said.
Bernanke said Fed surveys show that even when home buyers can make a 20 percent down payment, banks are often reluctant to offer mortgage money to any but the best qualified. "Most banks indicated that their reluctance to accept mortgage applications from borrowers with less-than-perfect records is related to ‘putback risk’ – the risk that a bank might be forced to buy back a defaulted loan if the underwriting or documentation was judged deficient in some way," he said.
Recent Fed surveys on credit conditions have found that, years after the crisis, banks remain worried about hangover from the bursting of the housing bubble and now also fear strains from the ongoing European debt crisis. [..]
Am I the only person on this planet who remembers that all that money was trucked out, and that benchmark rate was cut, with the explicit goal of making banks lend again? Am I the only one as well who thinks that if they don’t do that, we should demand for that money to be returned?! At times it feels like reality has become a lonely place to be.
Last week William D. Cohan tried valiantly to cut through this sort of crap for Bloomberg:
U.S. Perfecting Formula for Budget Failure
Erskine Bowles, a true Southern gentleman and co-chairman of President Barack Obama’s erstwhile budget-deficit commission, came to New York City from his home in North Carolina the other night to talk sense about the nation’s perilous fiscal condition.
"I think today we face the most predictable economic crisis in history," he told an audience on April 24 at the Council on Foreign Relations — an audience that might actually be able to help do something about the problem. "Fortunately, I think it’s also the most avoidable. I think it’s clear, if you do simple arithmetic, that the fiscal path that the nation is on is simply not sustainable."
Bowles, a Democrat, then laid on the crowd some pretty simple, but devastating, arithmetic. He explained that 100 percent of the tax revenue that entered the Treasury in 2011 went out the door to pay for mandatory spending — such as Medicare, Medicaid and Social Security — and to pay the interest on our staggering $15.6 trillion national debt.
That means that every single dollar we spent on everything else, including two wars, national defense, homeland security, education, infrastructure, high-value-added research and the like, was borrowed. "And," he warned, "half of it was borrowed from foreign countries. And that is a formula for failure in anybody’s book."
He said the U.S. is now paying $250 billion a year in interest on the debt, and that is only because, mercifully, interest rates are at historic lows. That’s chiefly because investors are more worried about the risk of default by European nations, and because the Fed is doing everything in its power to keep interest rates low. "It’s because we’re the best-looking horse in the glue factory," he said.
If interest rates were normalized, Bowles said, the annual bill would be $600 billion a year. "We’ll be spending over $1 trillion on interest alone before you know it," he said. To nervous laughter, he offered the example of the country’s obligation, by treaty, to defend Taiwan in the event that China decides to invade the island. "There’s only one problem with that," he said. "We’ll have to borrow the money from China to do it."
But wait, it gets worse. He reminded the audience of the numerous "cliffs" the country faces at the end of 2012 when the George W. Bush tax cuts expire: More than $1.1 trillion will be cut from the budget, about half of which will come from defense because of the infamous "sequester" of last year; the payroll tax cut will expire, as will the "patch" in the alternate minimum tax. "If you add all those up," he said, "it’s probably $7 trillion worth of economic events that are going to occur in December. And there’s been little to no planning for that." [..]
Without serious debt reduction, it won’t take much of an increase in interest rates to create a fiscal crisis for the country the likes of which only those who lived through the Great Depression can recall. Once interest rates reach a level that reflects the genuine risk inherent in our ongoing fiscal mismanagement, and debt-service eats up more and more of a shrinking pie, the financial crisis we just lived through (and are still living through) will seem like a sideshow.
"Deficits are truly like a cancer," Bowles said, "and over time they are going to destroy our country from within."
But if you would like to have a glimpse at reality, away from the empty dreamscapes incessantly fed you by pundits, presidents and assorted spokesmen, here’s a bit of a cold shower from Harry Wilson at the Telegraph.
Companies must raise £28 trillion ($45 trillion) to finance ‘wall’ of debt
Businesses will need to secure as much as £28.5 trillion to refinance old borrowings and fund new spending, raising major questions over the ability of the world economy to avoid a recession, according to a report from Standard & Poor’s.
British companies will have to find between £220bn and £268bn of new financing to fund their growth plans on top of refinancing hundreds of billions of pounds more of existing debt, according to the ratings agency. The scale of the refinancing required, as well as the amount of new debt companies must sell, could create what S&P described as a "perfect storm for credit markets".
The report continued: "Governments and banking regulators are now not as well placed to counter another perfect storm scenario given that they have already expended so much of their fiscal and monetary arsenal to mitigate the problems arising in recent years." The consequences of this are already being felt in the rising cost of borrowing faced by everyone from the largest banks to homebuyers when taking on new debt or refinancing existing loans.
British banks have dramatically reduced the size of their balance sheets in the past three years, as well as tripling the amount of capital they hold against potential losses. However, these moves have led to a shrinkage in the amount of credit available to businesses and soaked up some of the investor demand for new debt.
Anthony Peters at SwissInvest said it was likely there would "not be enough money" available in the coming years for companies to refinance and raise the amount of new debt required. "There is not enough money on planet Earth to fund it all. We are living on borrowed money and there is no way of avoiding that," he said.
Fears over the ability of countries to fund their debt have caused borrowing costs to soar. This week, Spanish 10-year bonds yields rose above the 6pc danger level, while Italian bond yields have also jumped. S&P said this is likely to only be the start of a wider credit crisis as national austerity programmes and sovereign debt fears combine to put "refinancing needs in jeopardy".
On Thursday, the Dutch central bank said it thought Europe was on the brink of a "lost decade" of low economic growth as the region struggles to get its finances in order. Against this backdrop, eurozone and British companies will have to have to deal with managing the £7.1 trillion debt pile they have accumulated, equivalent roughly to 80% of the region’s economy.
This is real. This is not something someone wants you to believe, it’s not a mirage or a dream. And those $45 trillion, mind you, is just what companies need to raise. It does not include countries. Which need at least as much on top of it. And it’s not as if Ben Bernanke is not familiar with these numbers; if anyone has access to the most accurate data, it’s him, collecting them is what the Fed does.
Once again: get out of the way as much as you can or you will be robbed blind and end up as a steamrollered debt slave. Put your remaining wealth somewhere where no-one can get their hands on it. And then lay low and try to ride it out, that perfect storm. The only way to outsmart it is to go where it can’t touch you. Even if that’s close to home.
Statistics: Posted by yoda — Fri May 11, 2012 1:44 pm
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Massive solar storm heading for Earth
Wednesday 7 March 2012
Airlines and energy suppliers are on alert as the largest solar storm in five years threatens to disrupt flights and power lines
• How do solar storms work?
Airlines and energy suppliers are on alert as the largest solar storm in five years heads toward Earth, threatening to disrupt flights and power lines.
The eruption on the surface of the sun, known as a coronal mass ejection (CME), has led to a "massive amount of solar particles heading towards Earth", which are due to hit the planet between 6am and 10am on Thursday morning, a Met Office spokesman said. But he added that the phenomenon was likely to go unnoticed by most.
The forecaster has advised airlines that they may reroute planes from near the polar regions where the radiation caused by the storm is likely to be most intense, while energy suppliers have been warned that the National Grid could also be affected.
Solar storms can also cause communication problems, such as radio blackouts, as well as affecting satellites, disrupting oil pipelines and making global positioning systems (GPS) less accurate.
"It should arrive some time tomorrow morning and last through tomorrow," the Met Office spokesman added. "In terms of what that means from the public’s point of view, there’s an increased chance of aurora borealis or Northern Lights being seen if conditions are right and the skies are clear."
But Gemma Plumb, a forecaster with Meteogroup, said most of the UK would be cloudy during the solar storm.
She said: "From midnight there will be widespread cloud so there is unlikely to be much visibility."
Forecasters at the US government’s Space Weather Prediction Center said the storm is growing in intensity as it speeds outward from the sun. The charged particles hit Earth at 4 million mph (6.4 million kph).
Nasa solar physicist Alex Young said: "It could give us a bit of a jolt."
The solar storm is likely to last until Friday morning, although further eruptions may follow.
In North America, auroras or Northern Lights could stretch as far south as the Great Lakes states or even lower, but a full moon will make them hard to see, said Joe Kunches, a scientist for the National Oceanic and Atmospheric Administration.
Solar storms have three ways they can disrupt technology on Earth: with magnetic, radio and radiation emissions. This is an unusual situation when all three types of emissions are likely to be strong, Kunches said.
In 1989, a strong solar storm knocked out the power grid in Quebec, Canada, leaving 6 million people without power.
Harlan Spence, an astrophysicist at the University of New Hampshire who is principal investigator on the Cosmic Ray Telescope for the Effects of Radiation (CRaTER) aboard Nasa’s Lunar Reconnaissance Orbiter, said the sun was on the ascendant phase of its 11-year cycle of solar activity, with the peak expected next year.
"It’s a clear harbinger that the Sun is waking up," Spence told Reuters.
Statistics: Posted by DIGGER DAN — Thu Mar 08, 2012 2:43 pm
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