FedUpUSA

Archive for September 18th, 2011

A bill to form a blue-ribbon commission to study the feasibility of a state-owned bank for California has suddenly and unexpectedly cleared both houses of the California legislature and now awaits Governor Jerry Brown’s signature. Californians need to contact the Governor and urge him to sign this, the first successful public banking initiative in nearly 100 years.

A state bank can allow states to pay ZERO interest on loans for state projects such as infrastructure.  North Dakota’s state bank, established in 1919, has allowed the state of North Dakota to be the ONLY state to keep a budget surplus since the economic crisis began, North Dakota also has the lowest unemployment rate at 3.5%, the lowest credit card default rate and one of the lowest tax rates in the country.

While there have been other state bank models that have failed, primarily because they were structured in such a way as to allow the state government to pick and choose to whom loans would be given, the State Bank of North Dakota’s model does not do this.  The government has absolutely no say with regards to who gets the loans; so, the government does not pick winners or losers.  It is these failed models that have given state banking a bad rap over the past few decades.  State banking does not have to be this way.  The North Dakota model is the model to follow.

A new gilded age shines on America – 50 million Americans roam the countryside uninsured.  45 million Americans receiving food stamps up by 18 million since the Great Recession began in late 2007.

Much of the country is in psychological denial to the damage being created by the current recession.  Some even believe that we are fully in a recovery.  Part of this has to do with the way the safety net is designed but also the lack of coverage presented in the media.  We have over 45,000,000 Americans on food stamps. It is likely someone you know may be on the food assistance program but you wouldn’t know it because they are issued a debit card that looks like any other credit card.  You also have this stubborn notion that any problems that befall a family are completely their fault while big bankers make egregious errors and somehow it is the market that caused their ill fortune.  This twisted logic has become more apparent with the economic disaster data released in the recent Census report.  46,200,000 Americans are now considered to be in poverty, over 15 percent of the population.  It is no coincidence that this figure aligns with the food stamp data.  In essence we have close to 50 million Americans who are one debit card payment away from being in complete financial trauma.  What is happening to our country?

Destruction of the middle class

We should first look at the food stamp data:

Source:  SNAP

I went ahead and plotted the number of Americans receiving food assistance since the Great Recession started.  According to official data the recession ended in the summer of 2009.  The above chart clearly shows that many Americans haven’t received this notification.  Many of those added to the food stamp program have fallen out of the middle class and straight into the poverty ranks.  A stunning 18,000,000 Americans have been added to the food stamp program just since the recession began in late 2007.  This data does not signify progress.

If you think these people are splurging we need only look at the rise of the dollar stores in the country.  Dollar stores have taken a large piece of sales from low cost stores like Wal-Mart and have catered to this large crowd of consumers that are simply seeking basic goods to get by per month.  Don’t think the money is large here.  The average food stamp payment per person for a month is $133.

The food stamp growth goes hand and hand with the number of Americans living in poverty:

The poverty rate is now back to that of the early 1980s.  The big difference this time is that we have trillions of dollars being funneled to a largely crony banking system that is preaching a free market for the poor and middle class and a form of plutocratic protection for the top one percent.  So far they are getting their wish since bought out politicians are adhering to their wishes.

A workless America in the new gilded era

Read the rest at My Budget 360

1.  We Can Use Income Taxes Alone to Reduce the Debt
No less an authority than Erskine Bowles, the co-chair of the President’s Fiscal Commission and chief of staff to former President Clinton, has admitted that the US cannot tax its way out of debt.

Some have suggested that we should raise taxes on the richest Americans, which–using taxes alone–could mean creating a top tax rate as high as 91 percent, according to an analysis by the Tax Policy Center. Although it seems counter-intuitive, a tax rate as high as 91 percent could decrease government revenue, as wealthy Americans choose to work less and find creative ways to bypass the top tax rate. Ask yourself: Would you work hard to earn an extra dollar if politicians required you to give them 91 cents of it in taxes?

That brings up another problem with “soaking the rich:” there aren’t enough of them. One-point-four million Americans make up the top 1 percent of taxpayers in this country; close to 139 million make up the remaining 99 percent. One percent of the country can’t realistically pay for the needs of remaining 99 percent—especially when they’re already paying nearly 40 percent of all income taxes.

If we’re going to pay for our debt through higher taxes, tax rates at all levels will have to increase and those who currently pay no income tax (over 51 million people in 2008, according to the Tax Foundation) may have to pay a modest rate as well.

2.  We Can Reduce the Debt Without Reforming  Social Security and Medicare
A CBO projection shows that the country is on a path where spending on entitlement programs, like Medicare and Social Security, could eventually consume every dollar of tax revenue that the US brings in. Plainly, a debt-reduction plan that ignores these two programs is no plan at all.

According to the Congressional  Budget Office (CBO), the federal government currently spends more money on  Social Security than it does on any other single program. Starting in 2016, the  Social Security “trust fund” will regularly pay out more money than it takes  in, and soon will be completely broke. And spending on health care, which  drives the cost of programs like Medicare, has been growing faster than the US  economy for many years.

Fortunately, if we act now to make  modest changes, we can reform these entitlement programs gradually instead of  suddenly. For instance, the President’s deficit commission demonstrated that  small and gradual alterations to the Social Security program would not only  close the its funding gap—it would also allow us to boost Social Security  payments for families in the bottom 20 percent of income earners. And a  proposal by former CBO director Alice Rivlin and Congressman Paul Ryan could  save the country billions of dollars while maintaining a Medicare benefit for  seniors.

3.  Repealing the Health Care Law Will Increase the National Debt
The health care law will require over $2 trillion in new spending in its first full decade. The misleading claim that this new entitlement can reduce our national debt—and that repealing it will increase our debt—is supported only by budget gimmicks, unrealistic Medicare cuts, and hundreds of billions in new taxes and fees.

A recent opinion editorial in The Wall Street Journal—authored by the former director and assistant director of the CBO, as well as the former associate director of the Office of Management and Budget—demonstrated the flaws in the economic reasoning of the health care laws’ advocates. Though the law spends billions to provide new health care subsidies, this spending is “offset” on paper by unrealistic new sources of revenue and other spending cuts that will be difficult to implement.

For instance, the spending cuts include trimming over $400 billion from the Medicare program, which even Medicare’s actuary has called “unrealistic” and warned that they could “jeopardize access to care for seniors.” When all gimmicks are accounted for, former director of the CBO Douglas Holtz-Eakin calculated that the health care bill will increase budget deficits by $562 billion in the next ten years—money that the US won’t have to borrow if the legislation is repealed.

4.  We Can Solve Our Debt Crisis By Making the Government More Efficient
Reducing our national debt by making the federal government more efficient has a nice ring to it—deficit reduction without the painful sacrifice. In reality, these cuts do almost nothing to address what the CBO has identified as the three long-term drivers of our budget deficits: Social Security, Medicaid, and Medicare.

Our yearly budget deficits are daunting, and our national debt so large, that even seemingly sizable cost savings fail to make a dent. Take one particular reduction in government waste as an example: increased use of teleconferencing technology by the Department of Energy. According to the CBO, if the department’s employees hold fewer meetings in person, it will save taxpayers $10 million over the next few years. That might seem like a lot of money, but it represents only .0003 percent—three ten-thousandths of one percent—of our total projected deficit over that time period.

Fiscal responsibility (even on small items) is always worth applauding, but if it’s done to avoid hard choices on reducing our country’s deficit, then “responsibility” is not the right word to describe it.

5.  The US Can Afford Higher Interest Rates
In February of 2010, Treasury Secretary Timothy Geithner confidently predicted that the US would “never” lose its perfect AAA credit rating. Yet that’s exactly what happened, when credit rating agency Standard & Poor’s downgraded our rating from AAA to AA+. The cost of the other agencies following suit—for our government, and for our individual pocketbooks—would be tremendous.

Credit ratings can seem abstract and complex. To put it simply, the loss of our AAA rating signals to investors that we’re less able to pay back our debts. How much could just a one percentage point rise in interest payments cost the US? The Congressional Budget Office estimates that, over the next ten years, that yearly one percentage point rise would cost us an additional $1.033 trillion in interest payments, on top of the $5.079 trillion we’re already paying. That’s an additional $283 million, every day—in addition to the $600 million a day in interest we are currently paying—for the next ten years.

That’s bad news for taxpayers counting on lower taxes, but it could also mean bad news for anyone who owns a home—higher interest rates on our debt could mean larger payments on your home mortgage and other forms of consumer credit.

Defeat The Debt

Is September 20 Greek Default Day?

If Greece is going to default, September 20th seems to be as good a day as any. Actually, it is far better than most to be GD-Day.

Two big bonds, the 4.5% of 2037 and the 4.6% of 2040 both have coupon payments due that day, totalling 769 Million Euro.  So if the IMF wanted to avoid letting another billion euro go down the drain, September 20th would be a good day to do it.  The IMF seems to have delayed approving another tranche for now, so Greece must already have the money for this payment?

The Fed Scheduled their meeting for 2 days.  It now starts on September 20th.  Maybe a co-incidence, but what better way to be prepared for new emergency policies?

CDS “rolls” on the 20th.  On the 21st, all Sept 2011 CDS will have expired.  My guess is that banks own more protection than they sold to the September 20th date, so defaulting while those contracts are still valid would be a net benefit to the banking system.  As a whole, triggering CDS will likely benefit banks as I can find banks that say they own protection against positions, but find more hedge funds are uninvolved or have sold protection to fund shorts in other sovereigns.

We just finished the big finance minister meeting.  They can all return home, brief their staff and be prepared for Tuesday.  Prior to D-Day there were lots of last minute preparations to make sure everyone was on the same page and as prepared as possible.  Why not before GD-Day?

Papandreou cancelled a trip to the U.S. And Venizelos mentioned that Papandreou had to be in Athens for “Initiatives”.  If you ever wanted some hand holding from your leader, it would be at a time of default.  He would have to be in country to calm things and mention all the deals he put in place last week on the conference call.

None of the headlines from Poland or comments from the IMF seem particularly positive.  I can’t even find the customary all is good, we are working together, this was a time of great progress, boiler plate statement having been released.  Maybe they are waiting for Monday to let the world in on all the joyous
progress.  I suspect they are more likely to wait on bad news than good news.  They have often tried to control bad news over the weekend.  Maybe they have decided it would be better to deal with it real time.

There is still a chance we see some bold new initiative or plan, but as I wrote last week, every step and virtually every comment made, for the past 8 days, is consistent with preparing for a default.

Peter Tchir of TF Market Advisors for ZeroHedge