Lawyer Fighting Libertarian Microstate Project Murdered

Antonio Trejo Cabrera, a leading lawyer in the fight against the libertarian microstate project in Honduras known as "Future Cities", was shot dead last week at a wedding. According to the BBC, a group of masked men gunned Cabrera down outside the chapel went he excused himself from the Mass to use the phone. Trejo had reported to have been receiving death threats.

The suspects in the murder remain at large.

I fully support the Future Cities project, but I don't condone violence against those who oppose it. Trejo's death is truly a tragedy.

1/2 Of Americans Support Domestic Surveillance Drones

File this under "we don't care about freedom anymore". According to a recent survey conducted by The Associated Press and The National Constitution Center, 44% support the idea of police using unmanned aerial vehicles to track suspects and carry out investigations (pdf). (Who is dense enough to believe that drones would only be used for that purpose?) Only 36% said that they “strongly oppose” or “somewhat oppose” domestic use of drones. In other words, only 1/3 of those surveyed care about privacy from the state. The founding fathers are rolling in their graves.

$120+ Billion In Federal Student Loans In Default

Presenting the next bubble to burst. The Department of Education reported yesterday that $120+ billion in federal student loans are now in default. I reported in March (in one of my first posts) that 1/3 of federal student loans were in arrears. Today, just 6 months later, a full 1/2 of outstanding loans are in arrears and 13% are officially in default.

Notice in the following table that the federal student loan default rate of 13% and the amount of federal student loans outstanding (nearly $1 trillion) have nearly matched the rate and amount of subprime mortgage defaults during the peak of the mortgage meltdown in late 2007. Also notice that the projected subprime mortgage default rate during the peak of the crisis was 20%. A 20% default rate of federal student loans would be close to $200 billion. From Responsible Lending (.pdf):

Contrary to my libertarian principles, I stated back in April that if there's a government bailout program that is needed, it's student loan forgiveness. Federal student loans have made the cost of tuition rise exponentially (many of these loans shouldn't have been made), but the damage has already been done.

Drunk Trader Raised Price Of Oil 1%

For evidence that commodities prices are subject to the whims of (often irresponsible) traders, I present you the following story from oilprice.com:

On June the 30th 2009 oil mysteriously jumped by more than $1.50 a barrel during the night, to reach its highest price in eight months, the kind of swing that is caused by a major geopolitical event. The amazing, true cause of this price spike has now been released by a Financial Services Authority investigation (FSA). Although not authorised to invest company cash in trades Steve Perkins, a long standing, senior broker at PVM Oil Futures, had managed to spend $520 million on oil futures contracts throughout the night. On the morning of the 30th an admin clerk called Mr Perkins to ask why he had bought 7 million barrels of crude during the night. Mr Perkins had no recollection of the transactions, and it turned out that he had made the trades during a “drunken blackout.”

One man, in a "drunken blackout", managed to raise the worldwide price of oil by 1%. I'm an advocate of free market capitalism, but I think its sufficient to say that when one man has the power to raise worldwide prices of anything during a drunken stupor (using other peoples' Fed-printed credit/dollars), there's a serious problem.

Chinese Megacity On Verge Of Bankruptcy

For clear evidence that China's economy is souring, one need only looking to the province of Guangdong, the largest of all Chinese provinces and the province with the highest per capita GDP. The province's largest and most prosperous city, Dongguan (population 10 million) is on the verge of bankruptcy. From SMCP:

Dongguan's derelict factories and huge deficits send chilling warning to a China in slowdown. After three decades of spectacular growth, Guangdong's boom town of Dongguan is on the brink of bankruptcy. Up to 60 per cent of its villages are running up deficits and will soon need a bailout from the township, researchers at Sun Yat-sen University have discovered. It is a dramatic turn of fortune for Dongguan - one of the richest cities in China - and could foreshadow a wider fiscal crisis as the country's economy cools.  Local government debt hit 10.7 trillion yuan (HK $13.16 trillion) nationwide at the end of 2010, equivalent to about 27 per cent of gross domestic product. Credit rating service Moody's estimates the actual figure could be about 14.2 trillion yuan.

A backwater farm town until the late 1980s, as China boomed Dongguan was transformed into one of the most important hi-tech manufacturing centres in the world. An IBM vice-president famously said a mere 15-minute jam on the expressway there would be enough to cause worldwide fluctuations in computer prices. As industry thrived, the population swelled from 1.8 million in the '80s to more than eight million.

Notice the empty grand boulevard in the picture.

Income Actually Down 24% Under Obama

Fox News reported yesterday that median household incomes have fallen 8.2 percent since Obama took office and continue to drop despite the recession "ending" in 2009. This only tells a fraction of the story.

With inflation running at 6-8% per annum since the financial crisis (that's right, 6-8%), median incomes have actually dropped not from $55,198 to $50,678, as Fox has reported, but from $55,198 to $42,062 in inflation-adjusted dollars (Jan. 2009 baseline), a decline of 24%. This decline of 24% is due to the loss of 2 million jobs since Obama took office and the erosion of job quality. (The majority of jobs created since Obama took office have been of the part-time, low-wage variety.)

ECOMINOES Radio With Karl Denninger

Join us this Friday (Sept. 28) at 4 PM EST on KineticHifi.com as we speak with Karl Denninger, uber-economic contrarian, business magnate, high-profile libertarian, and co-founder of the Tea Party movement. Trust me, this guy can talk! You won't want to miss this show. Listen here.

Durable Goods Drop Worst Since Recession

The bottom has begun to drop out of the economy. From Reuters:

New orders for long-lasting U.S. manufactured goods in August fell by the most in 3-1/2 years, pointing to a sharp slowdown in factory activity... Manufacturing, which has been the main driver of the recovery from the 2007-09 recession, has been hit by turbulence from sluggish domestic and global demand.  Fears that the U.S. Congress could fail to avert a "fiscal cliff" -- the $500 billion or so in expiring tax cuts and government spending reductions set to take hold in 2013 -- have also left businesses with little incentive to boost production.

Yes, the "fiscal cliff" is indeed ominous, but that's just 1 of 4 primary challenges the economy faces. 20 states are already indicating recession, and the BEA recently slashed its Q2 GDP growth estimate from 1.7% to 1.3%. Here's your GDP trendline: Q4 2011: 4.1%; Q1 2012: 2.0%; Q2 2012: 1.3%. We're now a gnat's eyelash away from recession. The 2nd leg down of this economic depression has begun.

USPS Seeks Immediate Bailout From Dems

ZeroHedge said it best:

Color us unsurprised by this litte gem (via Bloomberg):    

*POSTAL SERVICE SAYS IT WON'T MAKE MANDATED PAYMENT ON SEPT. 30 

*POSTAL SERVICE COMMENTS ON HEALTH BENEFITS PAYMENT IN E-MAIL

*U.S. POSTAL SERVICE SAYS OPERATIONS WON'T BE AFFECTED

Miss a payment here, miss a payment there; never mind. It would appear that everyone wants to be bailed out before the election so they can pledge votes for taxpayer cash.

And to whom exactly will the American Postal Union pledge an especially large voter turnout in November in exchange for bailout cash? Democrats, of course. After all, the union and Democrats have had quite relationship over the years. From opensecrets.org:

 

Miles Driven Resume Their Recessionary Decline

The USDOT reported today that travel on all roads dropped by -0.3% (-0.8 billion vehicle miles) for July 2012 as compared with July 2011. The only part of the country that had a nominal increase in vehicle travel was the South Gulf region (anchored by Texas, which has fared much better during this economic depression than the other states of the union).

Gas prices don't explain the downturn. Prices peaked in April at close to $4.00 per gallon and then started falling, bottoming in July at an average of $3.50 per gallon. Last year, prices in July averaged $3.70.

Miles driven have remained flat since the "end" of recession in 2009 because jobs never recovered and a good number of jobs that have been created have been of the part-time, low-paying variety. (The sort of job one would be more likely find close to home...a "McJob".) Expect miles to resume a steady decline as job losses resume when the bottom drops out of the economy in the near future.

Dr. Doom Counts The Reasons For A Bad 2013 Economy

One "Dr. Doom", Marc Faber, famously said earlier this year that there's a "100% chance" for recession in 2013. Yesterday, Moneynews.com reported that the other "Dr. Doom", Nouriel Roubini, recently outlined to Foreign Policy Magazine the reasons he sees for 2013 shaping up to be a very bad year for the economy:

One is that the eurozone crisis gets worse and becomes a train wreck. The second one is that the fiscal cliff becomes severe in the United States and you have a contraction. The third one is that you might have a hard landing in China, and the fourth one is the risk of conflict in the Middle East. I think that each one of them alone could trigger a global economic downturn because they’re all systemically important, let alone if several of them were to occur at the same time in a virulent way.

The one domestic threat Roubini mentioned, the so-called "fiscal cliff, is a federal government budgetary conundrum that can be mitigated if Congress can come to a series of compromises by the end of the year. What can't be mitigated, on the other hand, is the 3 external threats Roubini outlined, the increasing number of states--20 so far--that are indicating recession, and the threat of a confluence of negative economic events (Roubini's "perfect storm").

Romney Hinted There Was More To U.S. Ambassador's Killing

As I argued in the controversial post entitled US Ambassador To Libya Killing: False Flag To Revive Economy?, a number of coincidences have made it appear as though U.S. Ambassador To Libya J. Christopher Stevens was killed to provoke a world war centered in the Middle East to combat this economic depression. In an interview with Carl Cameron of FOX News today, Mitt Romney and VP candidate Paul Ryan didn't suggest that Mr. Stevens was assassinated to start an "economically-beneficial" world war, but they did imply that the Obama Administration is attempting to cover up the details of the assassination. Romney:

I think they want to do their very best to keep the people of America from understanding exactly what happened... We'll leave it up to you to decide whether it's a coverup or not.

Also of note:

1) In an unusual move, 2 top senators on the Foreign Relations Committee, Sens. Bob Corker (R-TN) and Johnny Isaakson (R-GA), asked Secretary of State Hillary Clinton to immediately release to them Stevens's diplomatic cables.

2) The media have published a number of stories suggesting that Iran is expecting a military confrontation:

Iran Test-Fires Missiles Designed To Hit Warships

Iran unveils long-range drone: state TV

Ban alarmed by Iran, Israel ‘war talk’

Philly Fed Prez: QE Exit Plan Ends Badly

As I stated in the recent article entitled More Importantly From The Romney Vid: Upcoming Failed Treasury Auction, John Whitehead, former head of Goldman Sachs and the New York Fed, stated that the government is running out of buyers of its debt, and that will cause interest rates and inflation to increase. Well, today the head of the Philly Fed, Charles Plosser, admitted that the Fed's QE exit plan is risky and will also likely also lead to greater inflationary pressures, to be felt perhaps as soon as 2015:

I have been a student of monetary theory and policy for over 30 years. One constant is that central banks tend to find it easier to lower interest rates than to raise them. Moreover, identifying turning points is difficult even in the best of times, so timing the change in the direction of policy is always a challenge. But this time, exit will be even more complicated and risky. With such a large balance sheet, our transition from very accommodative policies to less accommodative policies will involve using tools we have not used before, such as the interest rate on reserves, term deposits, and asset sales. Once the recovery takes off, long rates will begin to rise and banks will begin lending the large volume of excess reserves sitting in their accounts at the Fed. This loan growth can be quite rapid, as was true after the banking crisis in the 1930s, and there is some risk that the Fed will need to withdraw accommodation very aggressively in order to contain inflation. At this point, it is impossible to know whether such asset sales will be disruptive to the market. A rapid tightening of monetary policy may also entail political risks for the Fed. We would likely be selling the longer maturity assets in our portfolio at a loss, meaning that we may be unable to make any remittances to the U.S. Treasury for some years. Yet, if we don’t tighten quickly enough, we could find ourselves far behind the curve in restraining inflation.     

While these risks are very hard to quantify, it is clear that the larger the Fed’s portfolio becomes, the higher the risk and the potential costs when it comes time to exit. And based on my economic outlook, that time may come well before mid-2015. In my view, to keep the funds rate at zero that long would risk destabilizing inflation expectations and lead to an unwanted increase in inflation.

Wow, two Fed presidents hinting that the Fed's endgame will end badly! If only Bernanke would come around...

As Entitlements Increase, Biz Investment Decreases

Showing the near-perfect inverse relationship between entitlement spending and business investment, a 60-year chart created by Bloomberg using data from the CBO shows that seizing money from the productive economy to pay for entitlements has a significant negative impact on fixed business investment. Fixed business investment is of course integral to business expansion, which is of course necessary for hiring, which is of great-most importance to the 28 million Americans who are either unemployed or severely underemployed. Notice how the divergence between entitlement spending and biz investment has grown throughout the years and has rapidly accelerated during this economic depression. We're headed in the wrong direction.

CNBC's Kaminsky On Bernanke: Kamikaze Pilot

CNBC's Gary Kaminsky (a real financial expert, not just a biz media reporter who knows little of economics and finance), went off on Ben Bernanke during a recent televised op-ed, stating that the exit strategy for Helicopter Ben's liquidity pumping programs is unrealistic. ("We know this will end ugly!" he screamed in reference to QE-Infinity.) Kaminsky's best line from the video: "Bernanke is a kamikaze pilot...experimenting in monetary policy and is destined to fail." No doubt a classic quote, but I do take exception to the kamikaze analogy: Kamikaze pilot's typically don't take passengers against their will.

Gov Edumacation: Verbal SAT Scores At New Record Low

Proof positive that dumping more and more money down the black hole that is the U.S. public education system doesn't produce better-educated students, Reading/Verbal SAT scores just hit a new record low. Let's hear it for the Department of Education, No Child Left Behind, and the vicious cycle of poorly-educated students who become poorly-educated teachers.

We Know What You're Doing

The beauty of a capitalist society is that someone will find a solution to everything. The "solution", in this case, is an aggregator that collects Facebook information looking for dirt: drug references, references to extra-marital affairs, etc. The site, weknowwhatyouredoing.com, is the ultimate in Big Brother snooping, except that it's not the government doing the snooping. (That will change, or for all I know the site was created by the FBI.) FB users, beware. They know what you're doing.

Wells Fargo Hurting For Money?

This is just anecdotal evidence, but still. I got a nasty call from a Wells Fargo collection agent yesterday. Your humble blogger got very ill (West Nile? Swine flu? I don't know.) and didn't pay his credit card on time for the first time in 10 years. Here's the thing: this is the same card I used for all of my business expenses for the paper. I went through my statements, and I've calculated that I've run close to $1 million through the card ($999,352.52, to be exact). I've paid the full balance each month for $997,883.40 of the close to $1 million I've run through the card. And yet they're calling me to collect because I was 3 days late this time, asking for a minimum payment of $72. They even verified my place of employment. If anything reeks of desperation, it's this.