Bloodthirsty Liberal

Portugal, Ireland, Greece, Spain

Much has been written about the EU debt bomb, cleverly called PIGS.

The inevitable “sovereign debt panic” finally struck last week, causing severe one-day drops in stock markets from New York to London to Toronto on Thursday.

Ostensibly, the epicentre of the crisis is Greece, in danger of defaulting on its debt payments to worldwide holders of its government bonds, or sovereign debt.

But the fear about state defaults quickly spread to Spain, Portugal and Ireland, fiscal train wrecks that together with Greece now go by the unfortunate acronym PIGS.

Even then, the scope of a potential second global financial crisis so soon after the credit crisis of 2008-09 goes far beyond the euro zone, the 16 nations sharing a common currency, the euro.

Last week’s dramatics could have been far worse. And they may yet manifest themselves in an ugly fashion in weeks to come if the euro-zone countries don’t rescue what Greek Prime Minister George Papandreou described last week as “the weakest link in the euro zone.”

Greece accounts for just 3 per cent of the euro-zone economy. The crisis in the cradle of Western civilization serves merely as proxy for government over-indebtedness everywhere.

Only a few months ago, a Dubai on the edge of default had to be bailed out by oil-rich neighbour Abu Dhabi. [hard to keep these guys straight, isn’t it? - Aggie] A debt-strapped Argentina recently tried and failed to pay debts by raiding its central-bank treasury.

Greece’s debt-to-GDP ratio is an eye-popping 95 per cent. But then, the U.S. isn’t far behind at 84 per cent. (The Canadian ratio is estimated at 35.5 per cent in the current fiscal year.) Greece’s deficit-to-GDP ratio is an alarming 13 per cent. But then, Britain isn’t far behind at 12.6 per cent.

And so on. Any thoughts? Maybe this is the End Of The Western World that the Iranians are drooling about? Then again, maybe it is just the usual nonsense.

Elections have consequences:

The U.S. looms largest. President Barack Obama just tabled a budget that projects a doubling in America’s national debt, to $28 trillion (U.S.), by decade’s end. That’s twice the size of the U.S. economy.

- Aggie

First, let’s take a moment to congratulate The New Orleans Saints and the city of New Orleans. That was thrilling to watch.

Ok, on to the perplexing state of our nation. Did you know that the chief executive of JP Morgan Chase is a good buddy of Barack Obama? Isn’t that fascinating?

If the Democratic Party has a stronghold on Wall Street, it is JPMorgan Chase.

Its chief executive, Jamie Dimon, is a friend of President Obama’s from Chicago, a frequent White House guest and a big Democratic donor. Its vice chairman, William M. Daley, a former Clinton administration cabinet official and Obama transition adviser, comes from Chicago’s Democratic dynasty.

But this year Chase’s political action committee is sending the Democrats a pointed message. While it has contributed to some individual Democrats and state organizations, it has rebuffed solicitations from the national Democratic House and Senate campaign committees. Instead, it gave $30,000 to their Republican counterparts.

I am flabbergasted. I thought he didn’t like bankers?

No wait!

Just two years after Mr. Obama helped his party pull in record Wall Street contributions — $89 million from the securities and investment business, according to the nonpartisan Center for Responsive Politics — some of his biggest supporters, like Mr. Dimon, have become the industry’s chief lobbyists against his regulatory agenda.

Republicans are rushing to capitalize on what they call Wall Street’s “buyer’s remorse” with the Democrats. And industry executives and lobbyists are warning Democrats that if Mr. Obama keeps attacking Wall Street “fat cats,” they may fight back by withholding their cash.

Let me assure the bankers and the democrats that Mr. Obama will stop attacking Wall Street “fat cats”. They need the money. It will stop. Take a chill.

But this article in the NY Times today is the intellectual equivalent of finding out that John Edwards had a love child. Instead of the sex tapes with the mistress, we get hanky-panky with the bankers. Sure, I imagine this was all part of the public record, but how odd that a President who has spent considerable energy bashing business leaders and bankers, hangs out with them in his free time.

Wall Street fund-raisers for the Democrats say they are feeling under attack from all sides. The president is lashing out at their “arrogance and greed.” Republican friends are saying “I told you so.” And contributors are wishing they had their money back.

Huh. To tell you the truth, I’m not opinionated about this mess. I don’t understand finance at all and know what I don’t know. But, to a casual observers of the Obama campaign and first year in office, it is astonishing to me that the financial people didn’t perceive his hostility. It wasn’t a secret. I wonder what they were thinking?

- Aggie

What are the unemployed: racist?

The number of newly laid-off workers filing initial claims for jobless benefits rose unexpectedly last week, evidence that layoffs are continuing and jobs remain scarce.

The rise is the fourth in the past five weeks. Most economists hoped that claims would resume a downward trend that was evident in the fall and early winter.

The Labor Department said Thursday that new claims for unemployment insurance rose by 8,000 to a seasonally adjusted 480,000. Wall Street economists had expected a drop to 460,000, according to Thomson Reuters.

The four-week average, which smooths fluctuations, rose for the third straight week to 468,750.

The figure is the highest in the past two months.

Serious betters, I hear, say never to bet against a streak. In that case, I’m betting against the experts and putting all my available cash ($46.21) on unemployment remaining “unexpectedly” high.

The number of people continuing to claim benefits was unchanged at 4.6 million. That data lags initial claims by a week.

But the so-called continuing claims do not include millions of people who have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government.

More than 5.8 million people were receiving extended benefits in the week ended Jan. 16, the latest data available, up from about 5.6 million the previous week.

I’m willing to concede that the economy grew last quarter, if not by the gaudy 5.7% initially claimed. But when the entire population of Maryland has been out of work for so long that they’ve come to think of their relief check as a paycheck, there is very little reason for rejoicing, or even optimism.

When not enough people are employed to generate the taxes, the government thinks “Bailout”.

Don’t look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system.

A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits.

Instead of helping to finance the rest of the government, as it has done for decades, our nation’s biggest social program needs help from the Treasury to keep benefit checks from bouncing — in other words, a taxpayer bailout.

No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week.

The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116).

This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30.

Why disregard the interest? Because as people like me have said repeatedly over the years, the interest, which consists of Treasury IOUs that the Social Security trust fund gets on its holdings of government securities, doesn’t provide Social Security with any cash that it can use to pay its bills. The interest is merely an accounting entry with no economic significance.

Social Security hasn’t been cash-negative since the early 1980s, when it came so close to running out of money that it was making plans to stop sending out benefit checks. That led to the famous Greenspan Commission report, which recommended trimming benefits and raising taxes, which Congress did. Those actions produced hefty cash surpluses, which until this year have helped finance the rest of the government.

But even then, it was clear the surpluses would be temporary. Now, years earlier than projected, Social Security is adding to the government’s borrowing needs, even though the program still shows a surplus on paper.

Hey, BTL! Can I blame this on Obama too?

- Aggie

Uh-Oh, the population of San Francisco just lost its job:

The U.S. may lose 824,000 jobs when the government releases its annual revision to employment data on Feb. 5, showing the labor market was in worse shape during the recession than known at the time.

Not to mention the millions who’ve given up looking for work entirely.

To be fair, the adjustment falls mainly in the Bush administration. But if Bush can take the hit for stuff happening a year after he left office, Obama can surely be held responsible for events before he was sworn in. Business markets anticipate conditions, and his election was see as likely if not certain by October at the latest. No self-respecting capitalist would dare invest a penny without knowing exactly how raving a socialist this raving socialist would be.

Waste, fraud and abuse

Take your blood pressure meds before you read this.

Many window-making companies struggle because of the recession’s effect on home building. But one little window company, Serious Materials, is “booming,” says Fortune. “On a roll,” according to Inc. magazine, which put Serious’ CEO on its cover, with a story titled: “How to Build a Great Company”.

Vice President Joe Biden appeared at the opening of one of its plants. CEO Kevin Surace thanked him for his “unwavering support.” “Without you and the recovery (”stimulus”) act, this would not have been possible,” Surace said.

Biden returned the compliment: “You are not just churning out windows; you are making some of the most energy-efficient windows in the world. I would argue the most energy-efficient windows in the world.”

Gee, other window-makers say their windows are just as energy efficient, but the vice president didn’t visit them.

Biden laid it on pretty thick for Serious Materials: “This is a story of how a new economy predicated on innovation and efficiency is not only helping us today but inspiring a better tomorrow.”

Serious doesn’t just have the vice president in his corner. It’s got President Obama himself.

Company board member Paul Holland had the rare of honor of introducing Obama at a “green energy” event. Obama then said: “Serious Materials just reopened … a manufacturing plant outside of Pittsburgh. These workers will now have a new mission: producing some of the most energy-efficient windows in the world.”

How many companies get endorsed by the president of the United States?

How many indeed? Read on.

When the CEO said that opening his factory wouldn’t have been possible without the Obama administration, he may have known something we didn’t. Last month, Obama announced a new set of tax credits for so-called green companies. One window company was on the list: Serious Materials. This must be one very special company.

But wait, it gets even more interesting.

On my Fox Business Network show on “crony capitalism”, I displayed a picture of administration officials and so-called “energy leaders” taken at the U.S. Department of Energy. Standing front and center was Cathy Zoi, who oversees $16.8 billion in stimulus funds, much of it for weatherization programs that benefit Serious.

The interesting twist is that Zoi happens to be the wife of Robin Roy, who happens to be vice president of “policy” at Serious Windows.

Of all the window companies in America, maybe it’s a coincidence that the one which gets presidential and vice presidential attention and a special tax credit is one whose company executives give thousands of dollars to the Obama campaign and where the policy officer spends nights at home with the Energy Department’s weatherization boss.

Or maybe not.

There may be nothing illegal about this. Zoi did disclose her marriage and said she would recuse herself from any matter that had a predictable effect on her financial interests.

But it sure looks funny to me, and it’s odd that the liberal media have so much interest in this one company. Rachel Maddow of MSNBC, usually not a big promoter of corporate growth, gushed about how Serious Materials is an example of how the “stimulus” is working.

When we asked the company about all this, a spokeswoman said, “We don’t comment on the personal lives of our employees.” Later she called to say that my story is “full of lies.”

But she wouldn’t say what those lies are.

On its website, Serious Materials says it did not get a taxpayer subsidy. But that’s just playing with terms. What it got was a tax credit, an opportunity that its competitors did not get: to keep money it would have paid in taxes. Let’s not be misled. Government is as manipulative with selective tax credits as it is with cash subsidies. It would be more efficient to cut taxes across the board. Why should there be favoritism?

How’s that transparency in government thing working? Windows are transparent, right? So the government is supporting this window maker to create more transparency…

Oh never mind.

- Aggie

Young Americans and minorities put Obama into the White House. How will that decision affect their futures?

In a federal budget filled with mind-boggling statistics, two numbers stand out as particularly stunning, for the way they may change American politics and American power.

According to the 2011 budget, the projected deficit in the coming year is nearly 11 percent of the country’s entire economic output.

The first is the projected deficit in the coming year, nearly 11 percent of the country’s entire economic output. That is not unprecedented: During the Civil War, World War I and World War II, the United States ran soaring deficits, but usually with the expectation that they would come back down once peace was restored and war spending abated.

But the second number, buried deeper in the budget’s projections, is the one that really commands attention: By President Obama’s own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next 10 years. In fact, in 2019 and 2020 — years after Mr. Obama has left the political scene, even if he serves two terms — they start rising again sharply, to more than 5 percent of gross domestic product. His budget draws a picture of a nation that like many American homeowners simply cannot get above water.

For Mr. Obama and his successors, the effect of those projections is clear: Unless miraculous growth, or miraculous political compromises, creates some unforeseen change over the next decade, there is virtually no room for new domestic initiatives for Mr. Obama or his successors. Beyond that lies the possibility that the United States could begin to suffer the same disease that has afflicted Japan over the past decade. As debt grew more rapidly than income, that country’s influence around the world eroded.

Or, as Mr. Obama’s chief economic adviser, Lawrence H. Summers, used to ask before he entered government a year ago, “How long can the world’s biggest borrower remain the world’s biggest power?”

This is so sad.

The Chinese leadership, which is lending much of the money to finance the American government’s spending, and which asked pointed questions about Mr. Obama’s budget when members visited Washington last summer, says it thinks the long-term answer to Mr. Summers’s question is self-evident. The Europeans will also tell you that this is a big worry about the next decade.

The NY Times sticks a on the topic by the end of the article, claiming that things will turn around for unknown reasons.

Stein’s law has been recited in many different versions. But all have a common theme: If a trend cannot continue, it will stop.

What does that mean? It means: Things will get better. For unknown reasons.

Elections have consequences, but the young people that chose this path have also chosen it for their own children. Middle class American students have grown up in a world of almost endless possibility. They have traveled and studied to their heart’s content. They assumed that they would then go on to fulfilling careers. But most of that is based on a different economy than this President will bequeath his successors and the rest of us.

- Aggie

Does it really matter that the Secretary of State is delaying the certification of Scott Brown?

Why yes, it does.

The Senate agreed yesterday to raise the legal limit on government borrowing to a record $14.3 trillion, a total that would permit the Treasury Department to cover the nation’s bills through the end of this year.

The vote fell strictly along party lines, with all 60 Democrats supporting and 39 Republicans opposing a plan to increase the cap by $1.9 trillion. Democratic leaders were able to prevail only because Senator-elect Scott Brown of Massachusetts, a Republican, has yet to be seated. If lawmakers had approved a smaller increase, Democrats would have had to revisit the deeply unpopular topic of the soaring national debt before facing voters in November.

Not only are the voters of Massachusetts disenfranchised, all citizens of the United States are similarly misrepresented. By denying our rights to one group, the State of Massachusetts has denied them to all.

- Aggie

Finally!

At long last, some good news:

The economy grew at a faster-than-expected 5.7 percent pace in the fourth quarter, the quickest in more than six years, as businesses made less-aggressive cuts to inventories and stepped up spending.

…

“Wow, great number. It’s very solid and gives us a running start into the second half of the year when we can’t rely on government stimulus,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

“That’s part of the plan, to get us moving as fast as possible so when life support is removed we’ll have a pulse.”

Awesome! I can’t believe it.

What’s that? I shouldn’t?

The robust performance closed out a year in which the economy contracted 2.4 percent, the biggest decline since 1946.

Oh. Bummer. I guess this would be as good a time as any to point out that the 3rd quarter numbers were revised downwards, twice.

So the 5.7% growth will probably shrink, and the 2.4% contraction will probably expand. (Aren’t you glad I’m around to explain this to you?)

No matter. I’m going to accept this good news at face value. Let housing starts do their worst, I choose to believe.

Those who watched the STFU—sorry, SOTU—noted that Congress leapt to its feet 86 times last night.

You would have found the rest of America on its feet, too, but that’s because they were standing in a breadline:

The number of Americans filing for initial unemployment insurance fell last week, the government said Thursday.

There were 470,000 initial job claims filed in the week ended Jan. 23, down 8,000 from a revised 478,000 the previous week, the Labor Department said in a weekly report.

A consensus estimate of economists surveyed by Briefing.com expected new claims to fall to 450,000.

…

“It was good news to see it move lower,” said John Lonski, a chief economist at Moody’s Economy.com. “Nonetheless, the 4-week moving average did rise for a second consecutive week and this warns of a possible softening of the labor market.”

…

The 4-week moving average for ongoing claims fell by 94,250 to 4,669,250 from the previous week’s revised 4,763,500.

But the drop may just mean that more filers are dropping off those rolls into extended benefits.

Continuing claims reflect people filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks. The figures do not include those people who have moved to state or federal extensions, or people whose benefits have expired.

…

“The latest news on jobless claims offers no news for celebration,” said Lonski. “They are down from the previous week, yet this metric of labor market conditions leaves a lot to be desired.”

Until the 4-week moving average falls below 400,000, job growth will not be sustained, said Lonski.

And in a classic example of making chicken salad out of chicken [bleep]:

“January’s payroll will get a special boost from the fact that the seasonally adjusted loss of jobs in retailers will be less than otherwise, mostly because retailers didn’t hire as many people as they normally would,” he said.

Since no one’s hiring, there’s no one left to lay off. I guess that’s another green shoot of recovery I used to hear so much about.