A new paper from the folks at The R Street Institute and The National Taxpayer’s Union, 2 pretty solidly conservative to libertarian thought leaders.
Defense isn’t a black hole which conservatives can continue to throw money down and feel OK about it. The military is expensive and conservatives need to come terms with this. (Many are thankfully.)
Wars, contrary to what Keynesian (mostly liberal) economists will tell you, drain the economy. For the most part war is a poor use of resources, at least the kind of wars this country has been engaged in as of late.
The Pentagon needs to be cut just like the rest of government needs to be cut, and in a big way. Sequestration, for all the gnashing of teeth is a tiny part of what needs to happen in coming years. The military must have a smaller footprint and soon.
(From the paper)
“Conservatives should insist that defense spending be examined with the same seriousness that we demand in examining the books of those government agencies that spend taxpayer money in the name of welfare, the environment, or education. We laugh at liberals who declare that their favorite spending programs should be exempt because the spending is for a noble cause.” – Grover Norquist
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Federal aid for college students, it’s really no secret, is driven by what works politically, not what’s best for students. While logic and evidence strongly suggest that aid mainly enables colleges to raise their prices at breakneck speeds, politicians talk nonstop about aid making college “affordable.” Financial reality simply does not trump appearing to “care.” But on Friday, the Obama administration appears poised to take aid exploitation to a new level.
Tomorrow, the President will host what sounds like will be a textbook, campaign-style event featuring lots of no doubt somber – but oh-so-grateful-to-the-President – looking college students. With the photo-op thus set up, Mr. Obama will demand that Congress do something to stop the impending doubling of interest rates on subsidized federal loans from 3.4 percent to 6.8 percent.
But the GOP-led House has done something, and it is largely along the lines of what the President has called for. Last week, the House passed legislation that would peg student loan interest rates to 10-year Treasury bills, and would even cap rates at 8.5 percent or 10.5 percent, depending on the type of loan. It’s not exactly what the President wants – rates will vary over the life of the loan rather than being set at the origination rate, and the add-on to T-bill rates is higher – but the plans are still pretty close.
At this point, you’d think the President would be negotiating, not grandstanding. But then you wouldn’t understand federal student aid (or, really, almost anything government does). It is first and foremost about politicians – who are normal, self-interested people – getting what they need: political support, not sane college prices. And you get a lot of that support by appearing to want to “help people” more than the other guys.
If ever there will be a blatant, inescapable demonstration of what really drives federal aid policy, it will be the event we are likely to witness tomorrow. Let’s hope the public will get the right message: Politicians aren’t primarily driven by a desire to make college affordable. They’re driven by a desire for political gain. And that’s why we need them to get out of the student aid business.
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IT’S HEAD FOR “THE MATRESSES” TIME FOR SAVERS WORLDWIDE
Posted on March 22, 2013 by Liberty Staff
Throughout the colorful history of organized crime in the United States, periodic eruptions of inter-gang Mafia violence have dotted the criminal landscape. When turf wars broke out between competing crime families in major cities such as New York and Chicago, the combatants would conduct their warfare from unsavory redoubts such as abandoned warehouses or low-rent hotels and apartments. In such locations, the soldiers would spend their off hours sleeping on rented mattresses until the internecine conflicts had run their course; hence the expression “going to the mattresses.”
Well, there is another turf war going on, a worldwide one, one that threatens the entire economic and political landscape of the planet. It is between all the hard working savers on the planet and the ever greedy criminal bankers and their cohorts in government. The real big canary singing out an extreme danger warning to all traditional savers who wish to entrust their wealth to banks and other paper vehicles – stocks, bonds, etc., is the incredible emergency banking shutdown in the tiny island nation of Cyprus. Granted, Cyprus represents only .02% of the population of the European Union. Yet what is occurring there is the harbinger of great risk to traditional savers on every continent; and equally important, there are many more scary danger signs raising their ugly heads as well.
To recap for a moment, let’s briefly itemize the situation in Cyprus. Cyprus, like just about every other country on the planet, has for decades been politically committed to a socialist based economy. In this scenario, politicians have promised benefits to the various voting classes which have far exceeded their annual tax revenue. This has caused its government to continually accumulate deficits that have resulted in a very large national debt in relation to its GDP. This debt has been collateralized by sovereign bonds sold to and purchased by large banks in Europe and elsewhere. Now this debt has become so large the government of Cyprus can no longer afford to pay even the interest, let alone reduce principal. What happens at this juncture, is that a powerful international banking institution, in this case, the European Central Bank (substitute your favorite lender of last resort – the Federal Reserve, the IMF, the World Bank, etc., etc.), has agreed to come to the rescue of the cash strapped government and help it make its current annual debt payment.
However, this emergency funding comes with a draconian penalty for the trusting taxpaying savers. In this instance, the European Central Bank has cut a secret deal with the Cypriot government to raid the bank accounts of all the country’s bank depositors, between six and ten percent. This proposed robbery, if it comes to pass, will confiscate billions from citizens and non-citizens alike who have placed their trust in the security of Cyprus’s banks. What has resulted, of course, is riotous response throughout the nation and frantic sell-offs in world equity markets.
What is important to understand here, though, is that this same game plan has been occurring for several years now in many countries throughout the world. Here is the short list of some of the transgressions that unscrupulous governments, under pressure from their major bank lenders, have perpetrated, and continue to perpetrate upon unsuspecting savers.
October 2008 – Argentina’s leftist government, facing a gigantic revenue shortfall, proposes to nationalize all private pensions so as to meet national debt payments and avoid its second default in the decade.
November 2010 – Headline – Hungary Gives Its Citizens an Ultimatum: Move Your Private Pension Fund Assets to the State or Permanently Lose Your Pension – This is an effective nationalization of all pensions.
November 2010 – Ireland elects to appropriate ten billion euros from its National Pension Reserve Fund to help fund an eighty-five billion euro rescue package for its besieged banks. Ireland also moves to consider a regulatory move that compels some private Irish pension funds to hold more Irish government debt, thereby providing the state with a captive investor base but hugely raising the risk for savers.
December 2010 – France agrees to transfer twenty billion euros worth of assets belonging to its Fonds de Reserve pour les Retraites (FRR), the funded portion of its retirement system, to help pay off recurring social benefits costs. No pensioners are consulted.
April 2012 – Argentina announces that its Economy Ministry has taken an emergency loan from the national pension fund in the amount of $4.3 billion. No pensioners were consulted.
June 2012 – Treasury Secretary Timothy Geithner unilaterally appropriates $45 billion from US federal pension funds to help tide over US deficits for the remainder of fiscal year 2011.
January 2013 – Treasury Secretary Geithner again announces that the government has begun borrowing from the federal employees pension fund to keep operating without passing the approaching “fiscal cliff” debt limit. The move effectively creates $156 billion in borrowing authority from federal pension funds.
March 2013 – Open Bank Resolution finance minister, Bill English, is proposing a Cyprus style solution for potential New Zealand bank failures. The reserve bank is in the final stages of establishing a rescue scheme which will put all bank depositors on the hook for bailing out their banks. Depositors will overnight have their savings shaved by the amount needed to keep distressed banks afloat.
Ladies and gentlemen, this trend is JUST getting underway. Bank failures, sovereign bond collapses, and national government bankruptcy are just around the corner. Because of the interconnectedness of world debt markets and derivatives risk, counted in hundreds of trillions of dollars, the risk to traditional investment vehicles looms ever closer. We’re at critical eleventh hour crossroads where savvy investors need to head for “the mattresses” to protect their life savings. We may be biased but we strongly feel that the very surest and safest “mattress plan” in this extremely dangerous financial environment, is to invest in the one vehicle that has survived every crisis in recorded history, precious metals. When all else fails, gold and silver will be there to save you.
Statistics: Posted by yoda — Tue Mar 26, 2013 10:03 pm
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QE IS NOT ROCKET FUEL, IT’S A BUNGEE CORD
Posted on 25th March 2013 by Administrator in Economy |Politics |Social Issues
Crash, John Hussman
It’s only a matter of time. It might be 1 week. It might be three months. It might even be 1 year. But reality will rear its ugly head as it did in 1929, 1987 and 2000. I highly recommend that you read this.
John P. Hussman, Ph.D.
“The issue is no longer whether the current market resembles those preceding the 1929, 1969-70, 1973-74, and 1987 crashes. The issue is only – are conditions like October or 1929, or more like April? Like October of 1987, or more like July? If the latter, then over the short-term, arrogant imprudence will continue to be mistaken for enlightened genius, while studied restraint will be mistaken for stubborn foolishness. We can’t rule out further short-term gains, but those gains will turn bitter.”
February 2000 (S&P 1425)
“On Wall Street, urgent stupidity has one terminal symptom, and it is the belief that money is free. Investors have turned the market into the carnival, where everybody ‘knows’ that the new rides are the good rides, where the carnival barkers seem to hand out free money just for showing up. Unfortunately, this business is not that kind – it has always been true that in every pyramid, in every easy-money sure-thing, the first ones to get out are the only ones to get out.”
March 2000 (S&P 1400)
“We’ve seen a continuous movement from trough to peak, and investors appear all too willing to label it a New Economy. At current valuations, even optimistic assumptions lead to the conclusion that a long-term buy-and-hold approach will underperform Treasury bills during the next decade and perhaps beyond (using today as a starting point). Of course, stocks may offer excellent returns beginning from some future trough, but from current levels, investors are unlikely to enjoy much reward for the risk they are accepting. That’s a long-term statement. Unfortunately, long-term thinking means little to investors here… Bullish sentiment remains high. Our view is that the massive bubble in tech stocks is only beginning to burst. One of the hard lessons that investors will learn in the coming quarters is that technology stocks are actually cyclicals.”
John P. Hussman, Ph.D., Hussman Investment Research & Insight, August 2000 (S&P 1480)
We are in very familiar – if frustrating – terrain here. While valuations are not as extreme as they were in 2000, the level of investor confidence in “free money” is nearly identical, as is my conviction that this belief in free money will end in tears. Even on the optimistic assumption of 6.3% nominal economic growth for the indefinite future, we estimate a probable 10-year nominal total return on the S&P 500 averaging just 3.6% annually (see Investment, Speculation, Valuation and Tinker Bell for a set of historically accurate models that share that conclusion). Above, I’ve chosen quotations spanning several months in 2000 to emphasize the drawn-out nature of the 2000 peak – the seeming “resilience” of the market above the 1400 level certainly did not prevent the market from losing half of its value over the following 2-year period, wiping out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996.
Early 2003 provided a good opportunity to shift to a constructive view for a while. We gradually found ourselves back in a defensive stretch (see Critical Point in November 2007), which was followed by a market decline of more than 50%, which erased the entire preceding bull market gain in the S&P 500 index, and wiped out the entire total return of the index – in excess of Treasury bill returns – all the way back to June 1995.
At the 2009 low, our estimates of prospective 10-year S&P 500 total returns moved above 10% annually, but in that case – unlike 2003, and unlike what I expect in future market cycles – the extreme nature of economic conditions forced us to contemplate Depression-era outcomes and stress-test our approach against that data. My regret in hindsight is not that I insisted on ensuring that our approach could navigate out-of-sample Depression-era data – that was fiduciary duty, plain and simple. Rather, my regret is that over time, even I had been lulled into the idea that Depression-era data was too outdated to worry about, so we had to address that need in the thick of things. It’s important to recognize that the need for stress-testing was not in response to any significant difficulty with our approach, which had navigated the crisis well.
Preparing for uncertainty is different than preparing for risk. Risk involves possible events within a reasonably known range of outcomes (like the possibility of rolling a number greater than 5 on a six-sided die). Uncertainty involves possible events where the range of outcomes is not known (like the possibility of rolling a number greater than 5 when you don’t even know how many sides the die has). It would have taken only a few days to “back-fit” some model to Depression-era data, but we don’t believe in back-fitting because it typically doesn’t work out-of-sample (that is, in data that the model has not “seen” before). It’s a much more challenging problem to develop methods that can navigate extreme data that is outside the bounds that the model is based upon – and without letting the approach “see” that data. Ensemble methods turned out to be well-suited to the problem of uncertainty.
While we don’t require an improvement in prospective returns to 10% annually in order to justify a constructive outlook (we certainly did not observe those levels in 2003), I continue to expect that the best opportunity to shift to a constructive or aggressive investment stance will emerge at the point when a move to less extreme valuations is followed by an early improvement in market action. That’s what encouraged a constructive outlook in 2003, and what we might have embraced in 2009 had stress-testing concerns not dominated.
In any event, to disregard our present concerns because of our “miss” in the recent cycle is like disregarding a Great White shark because the swimmer who accurately warned about the last two predators fell short in the recent lap – due to the time required to secure shark repellant.
As in 2000, and as in 2007, it is not necessarily the case that stocks will decline immediately. Still, the percentage of bearish investment advisors reported by Investors Intelligence has declined to just 18.6%, from 18.8% the week earlier. The last times that bearish sentiment was below 20%, at a 4-year market high and a Shiller P/E above 18 (S&P 500 divided by the 10-year average of inflation-adjusted earnings – the present multiple is 23) were for two weeks in May 2007 with the S&P 500 about 1525, two weeks in August 1987, and 3 weeks of a 5-week span in December 1972 and January 1973, which was immediately followed by a 50% market plunge. Still, a handful of observations in March-May 1972 preceded the late-1972 peak and were followed by a modest further advance, and that lag is enough to discourage any near-term conclusions in the present instance. To complete the record, the instance before that was in February 1966, which was promptly followed by a bear market decline over the following year.
When you realize that the 2000-2002 decline wiped out 6 years of S&P 500 total returns in excess of T-bills, and that the 2007-2009 decline wiped out 14 years of excess returns, it may be clear why I am unsympathetic to the idea that we should abandon our discipline in response to a mature – though seemingly endless – market advance today. It’s been said that the best time to invest with a good investor is when he is having his own bear market. The difficulty today is the same one I described approaching the 2000 top – “over the short term, arrogant imprudence will continue to be mistaken for enlightened genius, while studied restraint will be mistaken for stubborn foolishness.”
The present environment is characterized by unusually overvalued, overbought, overbullish conditions, with rising 10-year Treasury bond yields, heavy insider selling, valuations on “forward earnings” appearing reasonable only because profit margins are more than 70% above historical norms (fully explained by the negative sum of government and personal savings as a share of GDP), with the S&P 500 at a 4-year market high, in a mature market advance, with lagging employment indicators still positive but more than half of all OECD countries already in GDP contraction, Europe in recession, Britain on the cusp, and the EU imposing massive losses on depositors in order to protect lenders in an unstable banking system where Cyprus is the iceberg’s tip. Investors have assumed a direct link between money creation and stock market performance, where provoking yield-seeking and discomfort among conservative investors is the only transmission mechanism of a nearly-insolvent Fed. Investors have assumed that stocks can be properly valued on the basis of a single year of earnings reflecting the benefit of massive fiscal deficits, depressed household saving, and extraordinary monetary distortion – when the more relevant long-term stream of earnings will enjoy far less benefit. Historically, extreme overvalued, overbought, overbullish, rising-yield syndromes have outweighed both trend-following and monetary factors, on average. For defensiveness to be inappropriate even in this environment, investors must rely on the present instance to be a radical outlier.
“Every bull and bear market needs a ‘hook.’ The hook in a bear market is whatever the bear serves to keep investors and traders thinking that everything is going to be all right. There is always a hook.”
Richard Russell, Dow Theory Letters, November 2000 (S&P 1400)
One of the striking things about the late-1990’s bubble was that even investment professionals who should have known better were swept into New Economy thinking. To some extent, the same dynamic is true today – even among some investors whom I greatly admire.
For example, back in 1999, Warren Buffett correctly warned “In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%… Maybe you’d like to argue a different case. Fair enough. But give me your assumptions. The Tinker Bell approach – clap if you believe – just won’t cut it.”
Yet today, with corporate profits near 11% of GDP – a level that is clearly explained by massive federal deficits and depressed personal savings – not a peep.
The “hook” today is the dramatically elevated, deficit-induced level of profit margins. While the complete faith of investors in the Federal Reserve may prove to be the hook for ordinary investors, it’s not enough to draw in more careful observers. The real hook, in my view, is the absence of a bubble in any individual sector, and instead a bubble in profit margins across the entire corporate sector. That is the hook that serves to keep investors and traders thinking that everything is going to be all right.
Even the revered bond investor Howard Marks, who appears correctly concerned about the depressed risk premiums in high-yield debt, seems to give a pass to stocks. He does observe that “appreciation at a rate in excess of the cash flow accelerates into the present some appreciation that otherwise might have happened in the future.” But then, even Marks gets snagged by the “hook” – basing his view of stock valuations on “projected earnings for the year ahead,” and the corresponding “earnings yield” compared with the yield on bonds (see Investment, Speculation, Valuation, and Tinker Bell for an extensive historical perspective on this metric, compared with far more reliable models).
Again, it is the absence of an obvious bubble in any individual sector, and instead a bubble in profit margins across the entire corporate sector, that is likely to be the “hook” that drags investors deep into eventual bear market losses.
A few additional notes – Warren Buffett once noted “when people forget that corporate profits are unlikely to grow faster than 6% per year, they tend to get into trouble.” Marks comments “I doubt he intended anything special about 6%, but rather a reminder than when assets appreciate faster than the rate at which their value grows, it isn’t just a windfall, but also a warning sign.”
I would suggest that Buffett does indeed intend something special about 6%, as the entire post-war history of S&P 500 earnings is nicely contained – with brief and rare exception – within a trend channel growing at a rate of just 6% annually from peak-to-peak across economic cycles. As I noted last week, our own estimate of 3.6% annual total returns for the S&P 500 over the coming decade reflects the assumption that nominal GDP, revenues, and cyclically-adjusted earnings will grow at an annual rate of 6.3% over that period. This may or may not be optimistic in the present instance, but that growth assumption is certainly not pessimistic. The more important issue here is that profit margins are demonstrably an artifact of historic federal deficits and depressed household savings. A hundred million individual transactions may have produced this result, but in equilibrium, the deficit of one sector must be the surplus of another.
A final point – I was intrigued by Marks’ comment that “many institutions have allocations to equities that are well below the average of the last fifty years, and no one’s rushing to move them up.”
Strictly speaking, Marks’ observation is correct, but to see what’s actually happening here, it’s important to think in terms of equilibrium. Why do investors seem to be “underweighted” in equities relative to debt (especially compared with the allocations over the past fifty years)? Very simply, because there is so much more debt to be held, and someone has to hold it. The chart below shows the expansion of both equity and debt outstanding since 1950.
Notably, the market value of U.S. equities relative to GDP – though not as elevated as at the 2000 bubble top – is not depressed by any means. On the contrary, since the 1940’s, the ratio of equity market value to GDP has demonstrated a 90% correlation with subsequent 10-year total returns on the S&P 500 (see Investment, Speculation, Valuation, and Tinker Bell), and the present level is associated with projected annual total returns on the S&P 500 of just over 3% annually.
Make no mistake – every share of stock, every bond certificate, every dollar of monetary base that has been created is being held by someone, and will continue to be held by someone until each of those securities is retired.
UBS noted last week that “The Federal Reserve and global central banks are now the dominant holders of Treasuries; if they decide to sell, the money will not directly flow into equities.” I would actually go one step further. If central banks decide to sell, the public will hold more Treasuries, and the public will hold less monetary base. The change in the relative supply of Treasury securities and base money (currency and bank reserves) may cause a change in interest rates that makes stocks more or less desirable, but in the end, investors in aggregate will not hold a single share of stock more, or a single share of stock less, than the outstanding quantity of stock that has been issued by companies.
What global central banks have done is to take Treasuries out of public ownership, replacing those Treasuries with zero-interest base money (which someone has to hold until it is retired). But because it is uncomfortable to hold zero-interest money, each successive “someone” has felt the need to reach for alternatives. That continual process of hot potato has driven the prices of speculative assets higher, and the equilibrium of that process has created a world where the prospective return on stocks (at least on a 5-7 year horizon) is also zero – or less.
While it is impossible for the economy as a whole to “rotate” out of bonds and into stocks – since both must be held in exactly the amount that has been issued – global central banks have already forced a “rotation” by the public out of Treasury bonds and into far more zero-interest money than they would ever voluntarily hold. The consequence is near-zero prospective returns on virtually every asset class, looking out over a 5-7 year horizon, though some with dramatically greater exposure to interim losses than others.
On the subject of quantitative easing, I have no expectation that the Fed will suspend QE in the foreseeable future, though I do believe that the requisite 40 weeks of zutz are now behind us. Still, as we parsed the Fed’s statement on Wednesday, we couldn’t help noticing that the Fed replaced “until such improvement is achieved” with “until the outlook for the labor market has improved substantially.” There was also a subtle easing of promises, deleting “will continue” and inserting “decided to continue,” and dropping the phrase “will, as always.”
As I’ve noted before, quantitative easing has invariably operated along the following sequence: 1) the stock market declines significantly from its peak of about 6 months earlier; 2) quantitative easing is initiated; 3) the market recovers its prior loss over a period of about 40 weeks. Notably, since 2007, there has been a negative correlation of -76% between the 6-month drawdown in the S&P 500 and the 40-week growth rate of the monetary base (with a 10-week lag – the deeper the market loss, the greater the monetary response), and a positive correlation of 54% between the 40-week growth rate of the monetary base and the subsequent recovery of the market, resulting in a negative correlation of -34% between the 6-month drawdown in the S&P 500 and the advance in the S&P 500 itself over the following 40 weeks. Quantitative easing is not rocket fuel. At best, it is a bungee cord.
As economist David Rosenberg has noted, if recent decades have taught investors anything, it is that every time the Federal Reserve drives interest rates to negative levels after inflation, it creates a bubble that subsequently bursts. As part of this painful learning experience, investors have become at least somewhat practiced in identifying bubbles within individual sectors – technology, housing, and debt, for example. The problem, in my view, is that the present bubble is systemic – with short-term interest rates at zero, the prospective returns of nearly every asset class, looking out over a 5-7 year horizon, is also close to zero. Equity investors, in particular, don’t see it because part of this bubble is captured in profit margins rather than in prices (unless one uses cyclically-adjusted earnings, which make the overvaluation more evident). But the result is the same – stock prices are dramatically elevated on the basis of the long-term stream of cash flows that investors can actually expect to receive over time. It may make investors feel better that current profit margins are elevated enough to make price/earnings ratios seem “reasonable.” But then, that’s the hook.
The foregoing comments represent the general investment analysis and economic views of the Advisor, and are provided solely for the purpose of information, instruction and discourse. Only comments in the Fund Notes section relate specifically to the Hussman Funds and the investment positions of the Funds.
As of last week, the market environment remained characterized by an unusually extreme variant of overvalued, overbought, overbullish, rising-yield conditions, with bearish sentiment among investment advisors falling to just 18.8%, a Shiller P/E (S&P 500 divided by the 10-year average of inflation-adjusted earnings) above 23, the S&P 500 at a 4-year high and pushing its upper Bollinger band (2 standard deviations above its 20-period moving average) at daily, weekly, and monthly resolutions, and the 10-year Treasury yield above its level of 6-months prior. We have not observed this syndrome of conditions in prior market history without also observing deep subsequent market losses over the following 18-months or so, but this instance may be different. I doubt that it is different, though I don’t have any particular belief that the resolution of these conditions will be immediate.
Strategic Growth remains fully hedged, with a staggered strike hedge that raises its put option hedges somewhat closer to market levels, at a cost of about 1% in additional time premium looking into late-Spring. Strategic International remains fully hedged. Strategic Dividend Value remains hedged at about 50% of the value of its stock holdings. Strategic Total Return continues to have a duration of about 3 years in Treasury securities (meaning that a 100 basis point change in interest rates would be expected to impact Fund value by about 3% on the basis of bond price fluctuations), with about 10% of assets in precious metals shares and a few percent in utility shares.
Statistics: Posted by yoda — Mon Mar 25, 2013 10:17 am
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We have a lot of love for Peter Schweizer at ACC. I know him personally and had him on a panel discussing crony capitalism that I did in New York last October. He is for real. He pulls no punches, and he punches both sides of the aisle.
This short speech which he gave at CPAC last week is excellent. In 6 minutes he explains why it is so important that we fight crony capitalism and why the fight in Washington for the soul of the Republic might be more cultural than ideological. Washington itself stinks. Versailles on the Potomac is rotten and the rot is found all over, in both parties.
As Peter says in the speech, many who once called Washington DC a “cesspool” get elected get comfortable, and then come to see DC as less a “cesspool” and more like a hot tub to party in. Politicians and hot tubs are not a good mix. I believe Ted Kennedy had one installed in his Senate office.
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I know a number of people who align themselves generally with the Democratic Party who are very much in favor deep reform in public schools, and school choice. But the teachers unions roll all over these folks.
Many teachers are under the mistaken notion that schools exist for their employment. They like things the way they are. They like having summers off. And a week off at Christmas. And another at Easter. And snow days. They like state and county funded pensions. That the public school system has been failing in many parts of the country for decades (and it is certainly not due to lack of funds) is simply not as important to many teachers (but absolutely, definitely not all teachers) as getting a check.
Reforms are fought on all fronts by the unions, to the detriment of our young people.
(From Reason Magazine)
Reason: Describe what it’s like to try to challenge union control of the education system as a Democrat.
Romero: Where do I begin? When we talk about education and education reform, it automatically means change agents have to take on and confront the No. 1 political force in California, and that’s the [California Teacher’s Association]. Simply to talk about education reform, to enact legislation means you’re dealing with the power of money. Unfortunately we’d been stymied in many of our reform efforts because of the power of money. I still think we have to try. We have made progress. We’ve gone two steps forward, one step back. If we can’t get it through the ballot box or legislature, we have to go through the courts.
The post This Is What It’s Like to Take on School Unions As a Democratic Leader in California appeared first on AgainstCronyCapitalism.org.
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It’s Going To End Badly
Posted by Deviant Investor on March 14th, 2013
Jim Cramer from CNBC: “We all know it’s going to end badly, but in the meantime we can make some money.” Thank you Mr. Cramer for telling us the truth about QE and our economy.
Stan Druckenmiller, Legendary Hedge Fund Manager, on CNBC 03/05/2013: “I don’t know when it’s going to end. But my guess is it’s going to end very badly.”
by GE Christenson – aka Deviant Investor
The media encourages us to believe that practically everything in our economy is either good or getting better. Another way of stating the media hype is “all of our problems will be solved through the combined efforts of our capable politicians coupled with the wisdom and competent management of The Federal Reserve.”
Seriously? Congress has a miserably low approval rating, for good reason, and the Fed is busy creating and pumping money into banks and the bottomless pit of government spending. Neither has much interest in small businesses or the average American.
What is going wrong? In no particular order, here are a few that come to mind:
John Mauldin as stated by his friend Juan Carlos: “In Argentina, we have the ability to make the same mistake many times, and nothing happens to change things. Why? Because there is a pervasive belief that the state can provide all that people need: jobs, welfare, everything.” This should sound familiar to Americans and Europeans? Don’t forget that Argentina has inflated their currency to near worthlessness several times in the last 30 years. It also could happen here.
Ellen Brown, February 24, 2013: “Quantitative Easing (QE) is supposed to stimulate the economy by adding money to the money supply, increasing demand. But so far, it hasn’t been working. Why not? Because as practiced for the last two decades, QE does not actually increase the circulating money supply. It merely cleans up the toxic balance sheets of banks. A real ‘helicopter drop’ that puts money into the pockets of consumers and businesses has not yet been tried.”
Official National Debt is approaching $17 Trillion and increasing about 12% per year. Is the economy growing in excess of 12% per year? Clearly not! Maybe debt can increase to infinity without horrible consequences, but I doubt it.
Unfunded liabilities for Social Security, Medicare, Medicaid, government pensions, etc. are estimated at $70 Trillion to well over $200 Trillion, depending on who is counting and what assumptions are used. The actual total does not matter since even the lowest estimate is unpayable. So we have an overwhelming liability that is beyond the capability of the economy to pay, and we continue to spend as if the country had $70 Trillion in excess assets instead of $70 Trillion in unfunded liabilities.
Nearly 49,000,000 Americans are currently on food stamps (SNAP). What about this indicates economic strength and healthy growth?
The Senate has not passed a budget in several years. Apparently there is no need for a budget. You know the old saying, “We must have money left – there are still checks in the checkbook.”
Bob Rinear: “If the Fed’s do not continually shoot juice into the system, we’ll get flushed down the toilet. So they have made it quite clear that they will use ‘every manner possible, both conventional and non-conventional’ to keep the economy from a deflationary depression.” In other words, there is an excess of debt and the economy cannot produce enough to pay for current expenses, government, wars, interest on debt, and old debts going bad. Hence, the Federal Reserve must create a huge amount of new money each month to “fill the hole.” If the economy and the banks were healthy, would the Fed need to pump $ Trillions into the banks and to monetize government debt?
According to Shadowstats, which calculates unemployment and inflation as they were calculated about 30 years ago, the non-politicized unemployment rate is about 23% and the inflation rate is about 9.2%. These numbers seem more real than the official numbers. A healthy economy does not have 23% unemployed and nearly 10% inflation in real costs.
So What Do We Do?
Remember what Jim Cramer said, “We all know it’s going to end badly, but in the meantime we can make some money.” You can make some money in fixed assets that will appreciate as the Fed monetizes debt.
Trust your instincts and observations more and government statistics and the mainstream media less.
Put your savings and retirement, if possible, into investments that will benefit from “printing money,” money supply increases, economic decline, currency wars, devalued paper currencies, and out-of-control government spending. Gold, silver, farmland, some real estate, diamonds, crude oil, food, and many more come to mind.
Some of the extra liquidity created by the Fed is finding its way into the stock market. Hence, the Dow just made a new high and is much higher than its crash low four years ago. When will the “juice” run out? In the meantime, more central bank liquidity feeds market strength. Don’t fight the Fed! More QE will occur – it could “juice” the stock market higher and almost certainly will “juice” gold and silver, which are at significant lows and ready to rally.
Read Ten Steps To Safety.
Gold and silver have been a store of value for over 3,000 years. ALL paper money systems throughout history have eventually failed. Do you want to risk that the US Dollar and the Euro will be the exceptions? Put some money into gold and silver. They are insurance, value investments, and a safe way to preserve your purchasing power.
Read Silver – Keep it Simple!
Statistics: Posted by yoda — Thu Mar 14, 2013 1:45 pm
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Potential Cost Of A Nuclear Accident? So High It’s A Secret!
WEDNESDAY, MARCH 13, 2013 AT 5:37PM
Catastrophic nuclear accidents, like Chernobyl in 1986 or Fukushima No. 1 in 2011, are, we’re incessantly told, very rare, and their probability of occurring infinitesimal. But when they do occur, they get costly. So costly that the French government, when it came up with cost estimates for an accident in France, kept them secret.
But now the report was leaked to the French magazine, Le Journal de Dimanche. Turns out, the upper end of the cost spectrum of an accident at the nuclear power plant at Dampierre, in the Department of Loiret in north-central France, amounted to over three times the country’s GDP.
Hence, the need to keep it secret. The study was done in 2007 by the Institute for Radiological Protection and Nuclear Safety (IRSN), a government agency under joint authority of the Ministry of Defense and the Ministry of Environment, Industry, Research, and Health. With over 1,700 employees, it’s France’s “public service expert in nuclear and radiation risks.” This isn’t some overambitious, publicity-hungry think tank.
It evaluated a range of disaster scenarios that might occur at the Dampierre plant. In the best-case scenario, costs came to €760 billion—more than a third of France’s GDP. At the other end of the spectrum: €5.8 trillion! Over three times France’s GDP. A devastating amount. So large that France could not possibly deal with it.
Yet, France gets 75% of its electricity from nuclear power. The entire nuclear sector is controlled by the state, which also owns 85% of EDF, the mega-utility that operates France’s 58 active nuclear reactors spread over 20 plants. So, three weeks ago, the Institute released a more politically correct report for public consumption. It pegged the cost of an accident at €430 billion.
“There was no political smoothening, no pressure,” claimed IRSN Director General Jacques Repussard, but he admitted, “it’s difficult to publish these kinds of numbers.” He said the original report with a price tag of €5.8 trillion was designed to counter the reports that EDF had fabricated, which “very seriously underestimated the costs of the incidents.”
Both reports were authored by IRSN economist Patrick Momal, who struggled to explain away the differences. The new number, €430 billion, was based on a “median case” of radioactive releases, as was the case in Fukushima, he told the JDD, while the calculations of 2007 were based more on what happened at Chernobyl. But then he added that even the low end of the original report, the €760 billion, when updated with the impact on tourism and exports, would jump to €1 trillion.
“One trillion, that’s what Fukushima will ultimately cost,” Repussard said.
Part of the €5.8 trillion would be the “astronomical social costs due to the high number of victims,” the report stated. The region contaminated by cesium 137 would cover much of France and Switzerland, all of Belgium and the Netherlands, and a big part of Germany—an area with 90 million people (map). The costs incurred by farmers, employees, and companies, the environmental damage and healthcare expenses would amount to €4.4 trillion.
“Those are social costs, but the victims may not necessarily be compensated,” the report stated ominously—because there would be no entity in France that could disburse those kinds of amounts.
Closer to the plant, 5 million people would have to be evacuated from an area of 87,000 square kilometers (about 12% of France) and resettled. The soil would have to be decontaminated, and radioactive waste would have to be treated and disposed of. Total cost: €475 billion.
The weather is the big unknown. Yet it’s crucial in any cost calculations. Winds blowing toward populated areas would create the worst-case scenario of €5.8 trillion. Amidst the horrible disaster of Fukushima, Japan was nevertheless lucky in one huge aspect: winds pushed 80% of the radioactive cloud out to sea. If it had swept over Tokyo, the disaster would have been unimaginable. In Chernobyl, winds made the situation worse; they spread the cloud over the Soviet Union.
Yet the study might underestimate the cost for other nuclear power plants. The region around Dampierre has a lower population density than regions around other nuclear power plants. And it rarely has winds that would blow the radioactive cloud in a northerly direction toward Paris. Other nuclear power plants aren’t so fortuitously located.
These incidents have almost no probability of occurring, we’re told. So there are currently 437 active nuclear power reactors and 144 “permanent shutdown reactors” in 31 countries, according to the IAEA, for a total of 581 active and inactive reactors. Of these, four melted down so far—one at Chernobyl and three at Fukushima. Hence, the probability for a meltdown is not infinitesimal. Based on six decades of history, it’s 4 out of 581, or 0.7%. One out of every 145 reactors. Another 67 are under construction, and more are to come….
Decommissioning and dismantling the powerplant at Fukushima and disposing of the radioactive debris has now been estimated to take 40 years. At this point, two years after the accident, very little has been solved. But it has already cost an enormous amount of money. People who weren’t even born at the time of the accident will be handed the tab for it. And the ultimate cost might never be known.
The mayor of Futaba, a ghost town of once upon a time 7,000 souls near Fukushima No. 1, told his staff that evacuees might not be able to return for 30 years. Or never, for the older generation. It was the first estimate of a timeframe. But it all depends on successful decontamination. And that has turned into a vicious corruption scandal
Statistics: Posted by yoda — Wed Mar 13, 2013 9:53 pm
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47% of property owners in Detroit didn’t pay their property taxes last year. Honestly who can blame them?
The police chief has already warned visitors not to come into the city because it’s too dangerous. The lights are out over huge swathes of the urban wasteland every night.
I’d say Detroit resembled Robocop more than Mad Max (Robocop was about a future distopian Detroit after all) but it appears that not even an army of robots could save the place now.
Again I call on the leaders of Detroit, turn your city into a tax-free zone. Privatize everything. The only thing you have to lose is despair. It’s really your only option.
(From The Washington Times)
“Why pay taxes?” asked Fred Phillips, who owes more than $2,600 on his home. “Why should I send them taxes when they aren’t supplying services? It is sickening. … Every time I see the tax bill come, I think about the times we called and nobody came.”
Simple services like paying for electricity for the crime-ridden city’s streetlights have fallen by the wayside. Just a few months ago, the city announced it was going to start shutting it’s police stations after 4 p.m.
The post Detroit Continues It’s Decent into the World of Mad Max appeared first on AgainstCronyCapitalism.org.
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Daniel J. Mitchell
Much to the horror of various interest groups, it appears that there will be a “sequester” on March 1.
This means an automatic reduction in spending authority for selected programs (interest payments are exempt, as are most entitlement outlays).
Just about everybody in Washington is frantic about the sequester, which supposedly will mean “savage” and “draconian” budget cuts.
If only. That would be like porn for libertarians.
In reality, the sequester merely means a reduction in the growth of federal spending. Even if we have the sequester, the burden of government spending will still be about $2 trillion higher in 10 years.
The other common argument against the sequester is that it represents an unthinking “meat-ax” approach to the federal budget.
But a former congressional staffer and White House appointee says this is much better than doing nothing.
Here’s some of what Professor Jeff Bergner wrote for today’s Wall Street Journal:
You know the cliché: America’s fiscal condition might be grim, but lawmakers should avoid the “meat ax” of across-the-board spending cuts and instead use the “scalpel” of targeted reductions. …Targeted reductions would be welcome, but the current federal budget didn’t drop from the sky. Every program in the budget—from defense to food stamps, agriculture, Medicare and beyond—is in place for a reason: It has advocates in Congress and a constituency in the country. These advocates won’t sit idly by while their programs are targeted, whether by a scalpel or any other instrument. That is why targeted spending cuts have historically been both rare and small.
Bergner explains that small across-the-board cuts are very reasonable:
The most likely way to achieve significant reductions in spending is by across-the-board cuts. Each reduction of 1% in the $3.6 trillion federal budget would yield roughly $36 billion the first year and would reduce the budget baseline in future years. Even with modest reductions, this is real money. …let’s give up the politically pointless effort to pick and choose among programs, accept the political reality of current allocations, and reduce everything proportionately. No one program would be very much disadvantaged. In many cases, a 1% or 3% reduction would scarcely be noticed. Are we really to believe that a government that spent $2.7 trillion five years ago couldn’t survive a 3% cut that would bring spending to “only” $3.5 trillion today? Every household, company and nonprofit organization across America can do this, as can state and local governments. So could Washington.
And he turns the fairness argument back on critics, explaining that it is a virtue to treat all programs similarly:
Across-the-board federal cuts would have to include all programs—no last-minute reprieves for alternative-energy programs, filmmakers or any other cause. All parties would know that they are being treated equally. Defense programs, food-stamp recipients, retired federal employees, the judiciary, Social-Security recipients, veterans and members of Congress—each would join to make a minor sacrifice. It would be a narrative of civic virtue.
It’s worth noting, however, that the sequester would not treat all programs equally. Defense spending is only about 20 percent of the budget, for instance, yet the Pentagon will absorb 50 percent of the savings (though defense spending still increases over the next 10 years).
At the risk of oversimplifying, the sequester basically applies to so-called discretionary spending. So-called mandatory spending accounts for a majority of federal spending, but it is largely exempt, so entitlement reform will still be necessary if we want to address the nation’s long-run fiscal challenges.
To close, Bergner notes that “meat-ax” isn’t the right term to describe very small across-the-board cuts:
Talk of axes versus scalpels is designed to deflect reform. Whatever carefully targeted budget cuts might animate our dreams, the actual world of divided government suggests only one realistic way to achieve real spending reductions. It is not a meat ax. A scalpel that shaves a bit off all programs equally would work just fine.
In other words, the sequester is simply a very modest step in the right direction.
And while we should be radically downsizing the federal government, it’s worth reiterating that modest steps are capable of yielding big results.
Simply restraining the budget so that it grows 2.5 percent annually, for instance, is all that would be needed to balance the budget in 10 years. Not big budget cuts. Not small budget cuts. Just a bit of measly fiscal restraint.
Yet President Obama thinks that’s asking too much and instead wants ever-higher taxes to support an ever-growing government.
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