Saturday, September 29, 2012

Lawyer Fighting Libertarian Microstate Project Murdered

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.

$120+ Billion In Federal Student Loans In Default

$120+ Billion In Federal Student Loans In DefaultPresenting 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):

$120+ Billion In Federal Student Loans In Default - table


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%

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.

Thursday, September 27, 2012

Chinese Megacity On Verge Of Bankruptcy

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.

Wednesday, September 26, 2012

USPS Seeks Immediate Bailout From Dems

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:

USPS Seeks Imminent Bailout From Dems - chart 1 
USPS Seeks Imminent Bailout From Dems - chart 2

Miles Driven Resume Their Recessionary Decline

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).

Miles Driven Resume Their Recessionary Decline - chart 1
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.)

Miles Driven Resume Their Recessionary Decline - chart 2

Tuesday, September 25, 2012

Philly Fed Prez: QE Exit Plan Ends Badly

Philly Fed Prez: QE Exit Plan Ends BadlyAs 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

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.

As Entitlements Increase, Biz Investment Decreases - chart

Monday, September 24, 2012

CNBC's Kaminsky On Bernanke: Kamikaze Pilot

CNBC's Kaminsky On Bernanke: Kamikaze Pilot
CNBC's Gary Kaminsky 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."

Gov Edumacation: Verbal SAT Scores At New Record Low

Gov Edumacation: Verbal SAT Scores At New Record Low
More proof 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.

Gov Edumacation: Verbal SAT Scores Set New Record Low - chart

Sunday, September 23, 2012

We Know What You're Doing

We Know What You're DoingThe 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. FB users, beware. They know what you're doing.