FedUpUSA

Archive for December 10th, 2009

I spoke with some friends who are Greek and also in the shipping
business. They hate the problems that Greece is facing. The 12.7%
budget deficit is the highest in the EU and is not sustainable. Efforts
to cut government expenses have caused a political backlash against PM
Papandreou. The only available solution is to raise taxes and crack
down on tax evaders.

The Shippers are largely untaxed on their global operations. Their
status is ‘protected’ under the constitution. Taxing the shippers would
go a long way toward closing the budget gap. The changes in tax laws
will not come easy. There is no certainty of the outcome. The sense
that I got from these discussions was that there is a short window open
for Greece to come up with a plan to cut its deficit to approximately
9%. I asked for both a ”good” and a “bad” news scenario. Although the
responses to the question I asked are speculation, they have
interesting implications.

“If Greece is able to restructure its tax code and install a
plan to reduce its deficits to 8% of GDP, then China will invest Euro
25 billion in Greek bonds.”

The issue of the Chinese investing in Greece was first raised on November 29 by the WSJ.
I think it was one of those well placed rumors. If this were to happen,
it would be of significance. It would establish that China is assuming
a role as some form of ‘lender of last resort’. The bilateral trade
conditions that would be attached to a deal of this magnitude would
re-raise the issue of China’s trade hegemony and economic muscle. For
me, the most significant aspect of this is that it would represent yet
another significant diversion of China’s investable funds away from the
US.

If this were to happen, the $40 billion under discussion would not
impact the supply demand equation for US debt. But the direction of
this would be significant. The US desperately needs China to
significantly increase their holdings of US IOU’s in the coming years.
They are under no obligation to do so. What if they were to take a
stance with the US similar to Greece? We would get a headline that
looked like:

Of course we are not going to see a headline like that anytime soon,
but the developments in Greece are a possible first step in that
direction. If China bails out Greece in 2010 it is a game changer from
a number of perspectives.

“If Greece is unable to address its budget deficit the Chinese
will not invest and financial conditions for the country will
deteriorate quickly. One consequence would be that Greece would be
forced to separate from the Euro.”

This is not a high probability outcome. However, talk of  it would have
a very significant impact on the FX markets. The people who I spoke
with made an interesting observation, “Switzerland
is very much integrated with the EU and the Euro, but they have
maintained their own currency. If Greece had its own currency it could
adjust it to achieve a trade advantage that would address the
fundamental imbalances.” (Same argument as “the weak dollar is good
for the USA”). These same people point to the fact that the Swiss
National Bank has been intervening in the currency market to weaken the
Swiss Franc in order to achieve a trade advantage. The thinking is, “If it works for the Swiss, then Greece should do it too!”

Consider where this could go. If there is talk of this happening, it
would raise the same issue for Spain and Italy who are suffering from
their association with they Euro. This could lead in the direction of a
two-tiered Euro. One would be strong. The other weak. The implications
for the dollar would be significant in both the short and long term. It
could be the source of instability as the process unfolds.

The Greece story has already gotten the money moving. It is a story
that could take us in some surprising directions. I got the sense that
there was a short fuse on this. The next three months may put some
powerful forces into play.

Is there anything behind the Chinese/Greece connection? I think so. I
always assume there is something to it when you get statements like the
following. Asked whether Greece is negotiating with China to sell
bonds, a government spokesman said:

“It may be true, and if it is true, we do not want to comment. But even if it isn’t true we wouldn’t want to comment.”

Inquiring minds are interested in projects that Put America To Work. Please consider this Stimulus Checkup courtesy of Senator John McCain and Senator Tom Coburn.

Good jobs for millions of Americans.
Investments in priorities that create sustainable economic growth for the future.
Those were the promises made to uneasy Americans when Congress approved the $787 billion American Recovery and Reinvestment Act, or economic stimulus bill, in February.

Nine months later, with over $200 billion of stimulus funding already spent,1 the rolls of the unemployed have grown by millions and, by any measure, more jobs have been lost than created.

Since the stimulus bill was enacted in February, nearly three million Americans have lost their jobs and the percentage of people who are without work has risen to 10 percent. Many who had been looking to the government for help have already lost hope.

As this and the last report, 100 Stimulus Projects: A Second Opinion, suggests billions of dollars of stimulus funding have been wasted, mismanaged, or directed towards silly and shortsighted projects. Many projects may not produce the types of jobs that most Americans had hoped for or expected.

Some of the close to seven billion dollars in projects in Stimulus Checkup create few jobs; benefit private interests over the public good; or make improvements where they are not necessary. Some send money to companies facing fraud charges. Others take millions of dollars to do work local officials and experts admit are not needed or will not help.

Stimulus money has been, or will be, spent on dinner cruises, golf courses, puppet shows and stimulus road signs. Many Americans will question whether investing $787 billion in these projects are the highest national priorities.

….

In the previous report, one hundred questionable projects were identified that did not appear to hold out promise for helping the economy grow. The Administration was quick to review these projects and to its credit addressed a number of them. In the months that followed, many more questionable stimulus projects costing millions and even billions of dollars were identified. This follow-up, Stimulus Checkup, takes a closer look at 100 more projects that raise questions about how stimulus money has been used so far.

Sincerely,
Tom Coburn, M.D.
U.S. Senator

John McCain
U.S. Senator

100 Ridiculous Projects Sample

1. “Almost Empty” Mall Awarded Energy Grant ($5 million)
The Department of Energy has announced an award for up to $5 million6 to install a geothermal energy system capable of heating an ?almost empty? mall in Oak Ridge, Tennessee.

2. Renovations for Federal Building as Expensive as New Building ($133 million)
Taxpayers in Oregon may be surprised to learn that the largest stimulus project in their state is not a new road or bridge, but a $133 million makeover for the federal building in downtown Portland. The money will go toward ?greening the Edith Green/Wendell Wyatt Federal Building in the hope of making it a model for energy efficient government offices in the Northwest. That said, for $133 million some may wonder why they did not simply tear it down and start over.

Agency officials expect to construct a type of vegetative skin—made of plants—on the exterior of the building, to help with heating and cooling costs.

In 2007, a new federal building was constructed in downtown San Francisco with similar state-of-the-art energy efficiency features for $144 million—nearly the same cost to merely renovate the Portland Federal Building. Both buildings are eighteen stories tall, built with energy efficient technologies, and house federal agency offices. The major difference is that the San Francisco building is much larger, with an additional 100,000 usable square feet in comparison with its counterpart in Portland.

3. DTV Advertising Agency Generates Three Jobs ($5.9 million)
An advertising agency that ultimately reported little job creation received a multi-million dollar contract to help the government overcome a poorly managed transition to digital television, only to report three jobs created.

4. Research to Develop Supersonic Corporate Jets ($4.7 Million)
Lockheed Martin will receive a total of more than $21 million in federal money—with $4.7 million funded through the American Recovery and Reinvestment Act—from the National Aeronautics and Space Administration (NASA) to advance research for supersonic jet travel. High ticket costs, fuel-guzzling and the infamous sonic ?boom helped doom commercial supersonic travel in the past; the last Concorde jet flew in 2003.

5. Water Pipeline to a Money-Losing Golf Course ($2.2 million)
A $2.2 million stimulus grant will help pay for new pipes to pump recycled water to the Sharp Park Golf Course in San Francisco, California. Unfortunately, the golf course may not exist for much longer. The City Council is considering closing the public course over concerns for the California red-legged frog and the San Francisco garter snake that live in the area.

7. Program to Control Home Appliances From a Remote Location ($787,250)
Fifty homes on Martha‘s Vineyard in Massachusetts will participate in a test program to allow an outside party to control their energy use, ?Big Brother style. The initiative will allow participating households to purchase discounted appliances from General Electric (GE) that are capable of communicating with – and being controlled by – an off-site computer system.

20. Repaved Georgia Road . . . Getting Repaved Again ($88,000)
Georgia Department of Transportation (GDOT) contractors are using stimulus funds to repave a busy street in Atlanta—part of which was repaved just two years ago. Rebecca Serna, a local bicyclist, noted that the existing road is ?pretty much the smoothest ride in town right now, adding about the new project, ?I don‘t know if it‘s necessary, but it‘s nice.

23. Studying the Icelandic Arctic Environment in the Viking Age ($94,902)
The University of Massachusetts-Boston received an almost $95,000 stimulus grant to ?count pollen grains collected from farms in Iceland and allowed researchers to continue studying the role the arctic environment played in the evolution of civic life during the Viking Age.

33. Study on “Hookup” Behavior of Female College Coeds ($219,000)
The National Institute of Health (NIH) is using stimulus funds to pay for a year-long $219,000 study to follow female college students for a year to determine whether young women are more likely to ?hookup — the college equivalent of casual sex — after drinking

35. Study of Wildflowers in a Ghost Town ($448,995)
A few dilapidated buildings are largely what remains in Gothic, Colorado, a ghost town that is also home to the Rocky Mountain Biological Laboratory. Over the next five years, however, Gothic will host a $448,995 National Science Foundation study by Dr. David Inouye on the impact of climate change on the town‘s wildflowers.

38. Recovering Crab Pots Lost At Sea ($700,000)
A $700,000 grant will pay for 48 people to help Oregon crabbers recover crab pots they have lost at sea. The two-year project expects to yield 2,000 lost pots a year. Oregon crabbers reportedly lose an estimated 15,000 crab pots a year. The effort will use 10 boats, planes, and a telephone hotline for people to phone in crab pot sightings. If all 4,000 pots are recovered as expected, the grantees will spend an average of $175 per crab pot, though John‘s Sporting Goods in nearby Everett, Washington sells new crab pots online for as little as $19.95.

50. Arizona Ants Work While Some Arizonans Remain Unemployed ($950,000)
Two major universities in the state are receiving a combined $950,000 to examine the division of labor in ant colonies. Arizona State University was awarded $500,000 in stimulus funding by the National Science Foundation, while the University of Arizona will receive $450,000.

51. Study On Why Young Men Do Not Like Condoms ($221,355)
Indiana University professors received $221,355 in economic stimulus funds to study why young men do not like to wear condoms.

56. Homeland Security Funds Assist Boat Tours of Alcatraz ($50,783)
A ferry service that once contracted for the federal government will receive over $50,000 in stimulus homeland security grants, despite no longer doing any work for the government.

60. Town of 838 to Renovate Old Hotel into a Welcome Center ($300,000)
Tourism may not be booming in Crofton, Kentucky (population 838),267 but the town has received $300,000 in stimulus funds to convert an abandoned downtown hotel into a visitors‘ center.

79. Money for Lighthouse Repairs on Uninhabited Island (Nearly $1.5 million)
Located on a barrier island accessible only by water, Monomoy National Wildlife Refuge on Cape Cod, Massachusetts, is an area that has been empty for decades. However, the Department of the Interior will spend nearly $1.5 million in federal stimulus funds to fix the lighthouse and other facilities on the Refuge. The project will restore the lighthouse, living quarters and an oil shed.

This is totally outrageous but not unexpected. Every bit of this is pure waste. It is exactly what happens when government gives out free money.

Supposedly this waste adds to GDP. Government spending, no matter how absurd or destructive adds to GDP by definition. And with all this money sloshing around, the only bump we got out of this was a 2.8% rise in GDP, no doubt most of it wasted.

And if that’s not bad enough, Geithner is extending TARP and will use up to $550 billion as a petty cash slush fund for purposes other than intended by Congress. See TARP Extended, Now a “Petty Cash Drawer for Politically Favored Interests” for details.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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