A 95 Year old Leukemia Patient Needs to Be Strip Searched but a Nigerian without Valid ID or a Valid Boarding Pass Breezes Through?

This is just crazy.  I think we all remember the story of the 95 year old leukemia patient that was violated by the TSA and forced to change her adult diaper before boarding the plane.  What makes this even more infuriating is that there was a security breach where a Nigerian, without a passport or other form of identification, was able to board a plane with an expired boarding pass.  The TSA of course says he was "screened".  But what exactly does that mean?  Isn't it a part of screening to check ID's, boarding passes and make sure passengers aren't on no-fly lists?  Whenever I am about to get on a plane I have to have ID and a boarding pass and show it to the TSA agent before even getting into the security line.  Why was he not required to do that?  And then I am also sure that he probably wasn't patted down by the TSA as it seems they like to focus on people that won't scream "profiling" like grannies, toddlers and travelers with special needs going to Disney World.  It's just ridiculous.  Have they forgotten that the whole point of the TSA is to make us SAFER?  Enough with these completely random searches, it's time to focus on people who have greater than a 1 in a billion chance of being a terrorist.

Obama's Press Conference was Full of Inaccuracies (and an outright lie or two)

Obama gave his first press conference in 3 months due to pressure from his own party to get involved in the debt ceiling issue.  His performance illustrates why he doesn't like giving them too often.  It really does put his mucked up view of the world out there for all to see.  Here are some statements which I had issue with (the official transcript wasn't available as I'm writing so I am getting quotes from here and here).:

"We have to tackle spending in our tax code." - Talk about Orwellian logic.  Taxes are revenues and expenses are spending, not the other way around.  The only way his statement makes sense logically is if he assumes that all income in the United States (both individual and corporate) is the property of the United States Government so when they allow you to keep more, it's an expense.  That would be extremely scary if he thought that.  Maybe those people who think he is a Manchurian candidate have a point.

"I spent the last two years cutting taxes for ordinary Americans." - Actually no.  He spent much of his tenure trying to ram through his healthcare reform package which seems to increase taxes on ordinary Americans (government representatives have been arguing in court that his individual mandate penalty is a tax despite what he argued with George Stephanopoulos).  And I believe he only extended the Bush tax cuts under duress.

"The tax cuts I am suggesting are for millionaires and billionaires, for oil companies and hedge fund managers and corporate jet owners." - So the tax increases are only for millionaires and billionaires (I'm assuming he meant closing the tax cuts on millionaires and billionaires or it was just a transcription error, I don't remember what he said when I was watching)?  How many of those does he think are out there.  The cutoff for the top 1% of adjusted gross income is $380k, so if he is just looking to raise taxes on millionaires and billionaires then he is only going to raise taxes on a fraction of 1% of Americans.  Somehow I doubt that as even with a large tax rate increase there would not be meaningful revenue derived from them.  My guess is that the people that will be affected will include many small business owners.  Last I checked, they tended not to have corporate jets.

"I've been willing to say we need to see where we can reduce the cost of healthcare spending and medicare and medicaid, not by shifting the cost to the elderly." - So I guess that means he is for "death panels"?  I don't see what choices you have other than restricting use or cost shifting to users, especially after he already made cuts to finance Obamacare.  Plus, doctors and hospitals are already losing money on every medicare or medicaid patient they see, so I don't think they can cut reimbursement to providers again.  Well okay, they can try, but that will just further limit the number of doctors accepting patients with government funded healthcare.

"You can't reduce the deficit to levels that need to be reduced without revenue in the mix." - Why?  Government spending has increased 28% since 2008.  If you simply bring us back to those levels, you'll have cut the deficit pretty much in half.  Also, you can increase revenue without raising tax rates.  You can actually grow the economy.  Why doesn't he focus on some pro-growth policies for a change?

"If we do not have revenues, that means that there are a bunch of kids out there that aren't getting college scholarships." - Won't someone please think about the children, uhh, I mean teenagers bordering on adulthood?  You know you can choose what you spend money on.  Somehow I'm going to bet that we can cut spending without pushing grannie over a cliff or forcing junior into the mines.

"Companies need the freedom to relocate, and they also need to follow the law." (referring to the Boeing/NLRB kerfuffle) - Is it illegal now to open a new plant in South Carolina?  How?

"What defies common sense is the notion that we would be shutting down a plant because workers and management can't come to an agreement." - No, we would be shutting down a plant because the people you put on the NLRB wanted it shut down.  It's not like Boeing was shutting down their Seattle plant, they were still going to use it, they just built another one in another state.  Why are workers in Washington considered more important by your regulatory agencies than those in South Carolina?

"Are we really going to start paying interest to Chinese and not pay people their Social Security checks?" - Isn't that racist or something?  I have to think that if Bush had said it there would be a major issue there.  What percentage of the Federal debt is owned by China.  China owns about 7% of the total debt.  The majority is owned by domestic institutions, so not paying actually hurts us more than any other country.  Plus, guess where the elderly have always been told to stick their money?  Fixed income funds.  You don't pay the interest, they are going to be the population most impacted.  Also, if Obama is so worried about grannie, maybe he can get the Democrats to cave to the GOP on the tax increases?  What is more important, punishing the rich or making sure social security checks go out?  My guess is he would love the talks to break down as he believes the GOP would be blamed and he would get re-elected.  That could be why he isn't trying too hard.

"We know what to do. We know that if we are educating our kids well we will be more competitive. We know if we invest in infrastructure it will pay off." -  Last I checked public schools were locally funded so that is once again the equivalent of screaming "won't someone please think about the children".  And how did the infrastructure spending in the stimulus bill pay off?  Anyone?

"I've been here. I've been doing Afghanistan and bin Laden and the Greek crisis and — you stay here. Let's get it done." - I'm sorry, so Obama was too BUSY to negotiate over the debt limit?  Is that why he is too BUSY to even submit a budget proposal?  Bin Laden was almost two months ago so I don't think you can really bring that up seriously.  Also, it wasn't like Obama jumped from a plane and strangled him himself.  He watched it on TV at home.  I guess he did have to get Afghanistan in there to placate his base in time for the elections but does it really take that long to completely ignore the recommendations of all your generals? And the Greek crisis?  I guess the Greek budget is more important than our own?  Also, isn't this Europe's responsibility?  He is so lame.

Seriously, I get the feeling he wants a US default so he can find someone else to blame for the mess we are in.  I'm sure much of the mainstream media will take the bait but he IS the President.  The final responsibility will always be his.  "The Republicans ate my homework" may not work.

Why Doesn't Greece Just Default?

Courtesy of ZeroHedge, here are some of the austerity measures that will be coming up for a vote tomorrow in Greece (originally compiled by the BBC) with a focus on the taxation portion:

• Taxes will increase by 2.32bn euros this year, with additional taxes of 3.38bn euros in 2012, 152m euros in 2013 and 699m euros in 2014.
• A solidarity levy of between 1% and 5% of income will be levied on households to raise 1.38bn euros.
• The tax-free threshold for income tax will be lowered from 12,000 to 8,000 euros.
• There will be higher property taxes
• VAT rates are to rise: the 19% rate will increase to 23%, 11% becomes 13%, and 5.5% will increase to 6.5%.
• The VAT rate for restaurants and bars will rise to 23% from 13%.
• Luxury levies will be introduced on yachts, pools and cars.
• Some tax exemptions will be scrapped
• Excise taxes on fuel, cigarettes and alcohol will rise by one third.
• Special levies on profitable firms, high-value properties and people with high incomes will be introduced.

This kind of reads like "how to crash an economy in 10 easy steps".  Greece is currently in the midst of a deep recession/depression with GDP falling about 5.5% this year and while people are already having a tough time paying the bills you are going to make it even harder by increasing taxes on both your income AND your purchases (through the VAT)?  Also, people who are pretty much living under the poverty line will be required to start paying income taxes, thanks to a reduction of the tax free threshold from 12,000 to 8,000 Euros. 

So from Greece's point of view, why aren't they simply defaulting and going to the Drachma.  I know why the international community wants them to not default and stay with the Euro.  Greece defaulting would cause an international financial crisis similar to or even bigger than Lehman.  It wasn't that long ago that Greek debt was considered to be just about as safe as German debt, thanks to its inclusion in the Euro, and so you have Greek debt just about everywhere, as well as that of key banks.  But at this point, what does Greece get out of it?  The low interest rates that Greece enjoyed following inclusion in the Euro are gone, nobody but the EU/ECB is lending to them right now anyway.  And this austerity budget will make sure that the Greek economy does not recover for a long, long time.  Between wage cuts and across-the-board tax increases nobody will have a spare dime to spend on anything but necessities.  And that massive increase in the VAT rate on restaurants and bars will make it that much more expensive for tourists to go to Greece and maybe they will go somewhere else, like Turkey, which has similar scenery but is cheaper.

If Greece decides to default and return to their old currency, things won't be rosy but my guess is that they will recover faster than if they take another hit of heroin from the EU.  Yes, they will be cut off from extrernal funding sources for years but they will be in charge of their own monetary policy for a change.  They will likely start printing more drachmas as a way to both boost the economy and pay debts and then the Drachma will fall in value rather quickly.  This will cause massive inflation of any imported goods but on the positive side it will make all Greek products relatively cheap.  This will help to boost both tourism from abroad as well as the purchase of Greek products (think about it, thanks to both having the same currency, Greek products are about as expensive as German ones, which one would you rather buy?).  You might also see some more foreign direct investment as Greek labor just got much cheaper than the rest of Europe.

It seems like the choice for Greece is either a) continue in this economic death spiral, mainly for the benefit of non-Greeks or b) take a quick hit and all its immediate consequences but build the groundwork for an economic recovery.  Neither choice is ideal, but after years over fiscal mismanagement they are the only choices that seem to be available and it seems like default and an exit from the Euro is the better choice for Greece.

Can This Headline Be More Inflammatory?

Time Magazine has a headline "How US Budget Cuts Prolong Global Slavery" in which the writer describes how the State Department's Office to Monitor and Combat Trafficking in Persons (TIP) had their budget cut after the GOP victory in 2010.  Oh those evil Republicans, see this is proof they like slavery!  Actually no.  It looks like the $5-6 million that was cut from TIP's budget was part of a package that cut $8 billion from the State Department in general.  I would argue that State Department largesse in other areas is probably more responsible for the budget cuts than any GOP desire for more global slavery. 

Also, I'm not sure how much TIP was actually stopping global slavery.  The writer in the article mentions how the State Department paid $336,000 for a shelter in Cambodia which houses 50 former sex slaves and teaches them how to sew, to do someone's hair and was a place for them to do aerobics together.  Based on that rate of spending, the budget cuts would leave approximately 1,000 former slaves without shelter.  Now, I don't want to get into a discussion about how much every life is worth, as using that argument there is no program you cannot justify.  But when you consider that there are probably about 1.5 - 1.8 million persons trafficked within and without international borders every year, the impact of TIP is paltry, with or without the budget cuts.  Also, I don't think that even if we spent billions of dollars on TIP  that we would be making that many inroads against global slavery.  If you look at TIP's trafficking report, the countries that typically have major slavery problems and no intention of fixing them (i.e. are Tier 3 based on their coding system) are not liberal democracies with individual freedoms.  Some of the countries are Communist/Socialist, like North Korea, Venezuela, Zimbabwe and Cuba (also, China is on a watch list to be downgraded to Tier 3), others are simply dirt poor with corrupt or ineffective governments like Liberia, while others are relatively wealthy but have a long history of slavery, like Saudi Arabia and Kuwait.  Just as Foggy Bottom couldn't stop North Korea from getting nukes, I don't see how they can stop them from trafficking in slaves.

It's okay to oppose budget cuts but to say that they "prolong global slavery" is libelous.

The Real Estate Market Double Dip

S&P/Case-Shiller came out with their monthly report on housing prices today. While there was a small seasonal increase from March to April, the year over year change in housing prices, which naturally adjusts for seasonality, continues to fall:

As you can see, we are currently seeing home prices fall at about the same rate as during the 1991 recession, right after the S&L crisis. What is most worrisome is that this contraction is occurring while we have near record low mortgage rates, which have recently become even lower thanks to the "flight to safety" into US Treasuries due to the Euro crisis. And it is simple math to figure out that the lower the interest rate, the more someone can afford to pay for a house. So what happens when interest rates start to rise? And if this economic "soft-patch" actually turns into a recession and unemployment goes up, what happens when all those people start defaulting on their loans?

Obama, Hands Off My Minivan!

As if the coming ban of the sale of normal inexpensive light bulbs wasn't enough, Obama is intent of furthering the impact of the environmental fascists on our lives.  According to the Wall Street Journal, he is looking to increase CAFE standards to 56.2 miles per gallon for all new cars and light trucks sold in 2025.  CAFE standards for 2010 were just 27.5 mpg.  So unless we have vast improvement in fuel cell technology, which is possible though definitely not guaranteed, vehicles like my Honda Odyssey may no longer be sold by 2025.  It's no secret that the bigger the car is, generally the lower the mpg rating for the car will be.  And while it may be easy to make a car the size of a prius "environmentally sound", making an SUV or a minivan have an mpg rating above 30 is incredibly challenging.  Often, with hybrid SUV's, you are often paying thousands of dollars more for the car for less than a 5 mpg benefit.  And current electric car technology is pretty much impractical for those of us living outside of cities. The compact Chevy Volt only has an electric range of 35 miles, even less in the winter time.  If you put that sort of engine in a minivan, the range would probably be 20 miles or less.  Other than maybe going to the grocery store or dropping the kids off at school, there is not much you can do with that.

Now I used to not like minivans, they are probably the unsexiest class of cars in existence.  However, when you have kids you realize how incredibly practical and helpful they are for your life.  Say you have two small children, both of whom need strollers, if you are lucky enough to fit them (the strollers, not the kids) in the trunk of your sedan, you will have no room for ANYTHING else.  With a minivan, they each have lots of space in their own captain's chairs and you not only have lots of room for the strollers, but you can even load up at Costco without ever having to wonder, "now where am I going to put that?"  The benefits with even more children is even greater.  If you have 3 kids, all in boosters or child safety seats in a normal sedan, the middle one is essentially trapped there until other kids are released, also it's an incredibly tight squeeze and the kids are liable to start hitting each other.   With a minivan, you have that third row so everyone continues to be happy and you can still find room for anything you need to buy or even for any of your kids' schoolfriends you might be driving around.  Minivans are also incredibly helpful when going to the airport as you can fit everyone and their luggage in one vehicle.  Without minivans you'd pretty much need one car for the passengers and another for the luggage.

If these new CAFE standards are enacted, my guess is I, and people like me, will be forced to drive smaller vehicles, spend more money on them and also be incredibly inconvenienced.  And for what?  If Obama was serious about cutting our addiction to foreign oil, wouldn't he be letting us drill across the United States?  He is only doing this to appease those whacko environmentalists who have very little regard for people.

Bernanke is Horrible at Predicting the Economy

A great clip that really doesn't give you the warm and fuzzies.

Michele Bachmann's Extremely Pro-Israel Youtube Video

Pretty good stuff (h/t powerline).

Another Day, More Negative Economic Data

You know things are bad when the Chairman of the Federal Reserve says something like "We don't have a precise read on why this slower pace of growth is persisting." as Bernanke said yesterday during his press conference.  Clearly, given the plethora of negative economic data, we are well past the discussion of statistical anomalies and into the realm of "oh crap, how bad are things going to get?"  


Today, we had two more negative datapoints.  The weekly jobless claims number was, once again, worse than expected with 429,000 new claims filed, up 9,000 from the week before, which was revised up from 414,000 to 420,000 (it seems the revisions almost always go up, never down recently).  Also, the Chicago Fed National Activity Index was released, again, missing expectations and pointing towards an economy double dipping.  See the chart below, which shows the 3 month moving average for the statistic (the Chicago Fed recommends using a 3 month average as the monthly number tends to add a lot of noise).  

Currently, the 3 month moving average is at -0.19.  A reading at -0.7 would indicate that there is a good chance we have entered a recession.  Looking at the chart, it looks like we have a ways to go until we hit -0.7, but the March number was a positive 0.34, so once we get the June number and March drops out, our 3 month moving average will drop down to the -0.4 to -0.5 range, assuming June is like April and May.  I'm sure many of you are asking "is there anything magical about -0.7?", nope just like any statistic, it is just that, a statistic.  But based on the historical data, if after a period of economic recovery we start hitting -0.7 a recession often follows.  See the chart below with recessionary periods in gray shading:

One last point I would like to make is that, looking at this chart, it's pretty clear that our current recession is the worst since 1974, when we had the President resign in disgrace, we retreated from Vietnam and had a arab oil embargo.  What is also very clear is that our current recovery is nowhere near as robust as prior recoveries.  The economy was a mess in the mid-1970's, but it was still able to bounce back nicely after 1974.  In the current recovery, the 3 month moving average has only been positive for 6 months since Obama took office!  The start of the recession was clearly not his fault (unless voting "present" takes away from manufacturing activity) but the failure of the recovery IS.  If only he hadn't blown our wad on temporary infrastructure spending, perhaps he would have more weapons in his arsenal going forward.

What's Going on with the Debt Limit Increase?

I swear, there sometimes seems to be little difference between politicians and college students.  Besides juvenile behavior on the Internet, in the case of the debt limit debate, it seems that politicians can't meet a deadline to save their lives (I seem to remember all my English major friends constantly getting extensions on their papers). According to Politico,  Senator Dick Durbin is pushing for some sort of short term deal as he believes there is no way they will reach an agreement by August 2nd, less than a month and a half away.  A short term deal would raise the debt limit by a smaller amount than the one requested in order to give them more time to negotiate.  The only problem is that if they extend the deadline, you know that they will just wait until a month or two before it in order to start really negotiating.  And once again we will be told how the sky will fall, dogs and cats will be living together if the limit is not raised at least temporarily.  Kicking the can is the favorite pastime of politicians after all, who wants to actually do something that might create effective negative campaign ads by future challengers?

I'm also getting worried that the Republicans will chicken out of this fight like they did the 2011 budget fight, which after all the hand waving still increased government spending by $3.3 billion over 2010 (obviously nowhere near the $38.5 billion in cuts they were claiming).  Apparently there is talk about cutting $220 billion over the next decade by changing the way the official CPI is calculated from the current method to a "chained" method in order to lower cost of living adjustments.  The chained method does have a certain logic to it, as it better accounts for switching between product categories due to cost (for example if you start eating more pork instead of beef because of increasing prices) and it would lead to a slightly smaller CPI. 

But I have a few problems with this tactic.  First, and most importantly, the GOP was not swept into control of the House in 2010 to fiddle with statistics.  They are supposed to be making structural cuts in government to help bring our budget back under control and to take government out of our lives as much as possible.  If they fold on this, voters in 2012 may look at their performance and realize they have accomplished nothing. This could lead to a loss of the House to the Democrats, another four years of Barack "insane in the membrane" Obama and possibly the formation of a third party which could draw many of the more fed up members of the GOP coalition (remember it wasn't that long ago that the Perot people cost the GOP the 1992 and possibly also the 1996 election).  Second, there is no guarantee that this change will actually lead to lower baseline spending because inflation might be higher than the current group of government beancounters expect.  It doesn't look like the Federal Reserve will be raising rates anytime soon and unfortunately our zero interest rate policy is creating structural weakness in the dollar and stoking commodity prices which increases inflation.  Also, it is not outside the realm of possibility for a broader conflict in the Middle East, either involving Israel or some of the current or future Arab Spring countries.  That could cause oil prices to go completely out of control.   Third, I have a problem with the government fiddling with statistics constantly.  When statistics like the CPI and unemployment rate are manipulated it just makes it that much harder to get an objective view of the economy and to compare where we are to prior historical periods.

Let's hope the Republicans show more backbone this time.  It's not like there isn't room in our budget for cuts, it's grown 28% since 2008!

What's the Big Deal About Voter ID Laws?

Today, E.J. Dionne has the usual nonsense about how voter ID laws are an attempt by the GOP to rig the 2012 elections and also to suppress minority voting (i.e. it's all about racism because all Republicans do is cackle maniacally while smoking cigars and think about ways to discriminate against African Americans).  I don't understand what's the big deal about requiring an ID in order to vote, hell you need an ID just to step on a plane.  Considering how important voting is, it seems like it is not outlandish to make sure the only people who are voting are those that can legitimately vote.  In 2008, the Supreme Court decided the Crawford v. Marion County Election Board case in which an Indiana voter ID law was upheld as constitutional, with the majority opinion written by none other than the liberal scion of the court for a generation, John Paul Stevens.  He wrote:

Because Indiana's cards are free, the inconvenience of going to the Bureau of Motor Vehicles, gathering required documents, and posing for a photograph does not qualify as a substantial burden on most voters' right to vote, or represent a significant increase over the usual burdens of voting. The severity of the somewhat heavier burden that may be placed on a limited number of persons—e.g., elderly persons born out-of-state, who may have difficulty obtaining a birth certificate—is mitigated by the fact that eligible voters without photo identification may cast provisional ballots that will be counted if they execute the required affidavit at the circuit court clerk's office. Even assuming that the burden may not be justified as to a few voters, that conclusion is by no means sufficient to establish petitioners' right to the relief they seek.

So much for voter ID laws being some sort of right wing conspiracy.  But don't let logic stop Dionne, who starts putting on his tin foil hat when he claims "the rank partisanship of these measures is discouraging the media from reporting plainly on what's going on.".  Somehow the mainstream media is too afraid to report on the story of voter suppression because they are afraid of being called anti-GOP?  Seriously?  When has that every stopped them before?  Maybe they don't report on these stories because there is little to no evidence of actual voter suppression.  Dionne says there is "evidence" but then doesn't name a single study.  The only hard evidence he does cite is that Texas accepts concealed handgun licenses at the polls but not student ID's.  See it's all a conspiracy as handgun owners tend to vote for the GOP and students tend to vote Democratic.  Or it could simply be due to the fact that to get a concealed handgun license in Texas you need to provide:

1. Social security number
2. Valid driver license or identification card
3. Residential and employment information for the last five years
4. Information regarding any psychiatric, drug, alcohol, or criminal history
5. Valid email address
6. Valid credit card

Reading these requirements I'm a little surprised that Texas has not been sued by the liberal groups for discriminating against minorities for their onerous requirements to get a license, as gun ownership is a constitutional right.  But I guess they hate guns more than they love suing on the basis of discrimination.  But I digress. 

What does it take to get a student ID?  It really depends but at the minimum the requirement is not very high and of course there is no citizenship requirement so even illegal immigrants can have student ID's.  Even though it shouldn't, it still amazes me how liberals can cry racism without any evidence and expect the rest of us to take them seriously.
 

Does Obama Think He Is the King?

This is pretty disturbing news coming from the New York Times, a paper which is finally starting to focus on abuse of power in the Obama administration.  So the Office of the General Counsel, backed up by Obama's own Attorney General and the Pentagon's General Counsel all said that our Libya intervention counted as "hostilities" and therefore would require Congressional approval to continue past May 20th.  Did Obama listen to them? Of course not.  He found other lawyers that gave him an analysis that allowed him to do whatever he wanted and just followed them.  This is all highly irregular and really stinks to high heaven.  Clinton's head of the Office of Legal Counsel is quoted as saying "“Decisions about the lawfulness of major presidential actions should be made by the Department of Justice, and within the department by the Office of Legal Counsel, after consultation with affected agencies."  Which kind of makes sense from an ethical standpoint right?  The Attorney General is the Chief Compliance Officer of the United States, therefore the chief executive shouldn't be over-ruling him just because he can.   It's as if Obama thinks he is some kind of monarch who can do whatever he wants by divine right or something.  Maybe this is why he is not releasing his transcripts?  Perhaps he failed constitutional law?  I'm not even sure he did so well even in middle school civics class.

Obama seems to have a history of this type of behavior, that "I'm the President and I can do whatever I want."  Remember when he told the GOP "I won" during negotiations over the failed stimulus?  Remember when he told McCain "the election is over" at the Healthcare Summit?  Or when he said he didn't want the GOP "to do a lot of talking"?  As if getting 52.9% of the vote allows him to get unlimited power and the right to shut up the opposition (which he continues to try to do, e.g. his proposal to require government contracts to disclose their political donatons in order to allow him to blackball GOP firms).  He doesn't seem to understand that we are not an absolute monarchy, we are a constitutional republic with checks and balances and that while the majority rules, the minority still has rights.  That the President can't actually start wars without Congressional approval and UN Security Council Resolutions, while giving cover from an international law perspective, do nothing to make our intervention legal by US legal standards.

We're at the point where even Dennis Kucinich is praising Bush for going to Congress to approve our interventions in Afghanistan and Iraq and slamming Obama for not doing the same with Libya.  I remember when protesters were calling our wars in Iraq and Afghanistan  "illegal", though in fact both of them were perfectly legal under both US and International law.  It actually took a liberal like Obama to get us involved in an "illegal" war.

The Economy Is Deteriorating at an Extremely Fast Rate

In case you missed it, today was the release of the Philly Fed Survey, which was another disastrous economic datapoint.  Expectations were for a reading of +7, indicating minor growth, instead it came in at -7.7, indicating contraction.

Looking at this chart, the thing that pops out at me is how fast both the current activity and the future activity indices (expectations for activity in the next 6 months, which as you can see people always think things will either be the same or better) have been collapsing over the last 3 months.  So I decided to look at the historical data, that goes back to 1968, to see when were the other times the 3 month change was this bad.  The problem is, it's actually never been this bad.  Below is the chart for the 3 month change in the Current Activity Index:

The last time the 3 month change even came close to the level of deterioration we've seen (51.1 points) was the 4th quarter of 1974 (50.5 points).  This was right after Nixon resigned in disgrace and was a period when we were dealing with the ramifications of our loss in Vietnam, a stock market crash and an oil embargo.  Also, we are currently dwarfing the deterioration we saw in the 4th quarter of 2008 (remember how we all felt the world was falling apart then?) which had a 3 month change of 34.7 points.  What is even worse is that the current 3 month change is greater than the change we saw in this index between November 2007 and November 2008, which was a decline of 47.4 points.  Now let's take a look at the same analysis with the Future Activity Index, which looks 6 months out:

Yup, that chart is correct, since 1968, we've never had a deterioration in this index that even came close to what we are seeing right now.  There really is no way to sugar coat this, it is a disastrous reading.  Also, the actual absolute reading itself is the lowest since the 4th quarter of 2008 when the world was coming apart at the seams.

It would be nice if we had a President who actually wanted to do something about the economy.  After watching the GOP debate the other night, I came to the conclusion that I wouldn't mind if any of them were President.  They would all do a better job than the current joker whose idea of stimulus is taking money from the productive members of society and giving it to unskilled labor so they can dig holes.

Obama the Corrupt

I realize that all politicians are corrupt at some level, they all have done favors for donors that may not be completely in the public interest.  What makes Obama so much worse than the rest is the scale of the corruption.  I've never been a fan of Obama, that is not a surprise to anyone who knows me, but I still found this article at Politico shocking.  Obama has put 200 of his biggest donors into government positions and advisory posts, that is as much as W put into government positions in his entire 8 year stretch.  Something else that was extremely troubling was that 80% of those bundling $500,000 or more (a bundler is someone who pools funds from many different donors) ended up in "key administration posts" including 12 ambassadorships (24 bundlers total became ambassadors).  It is blatantly obvious that this administration is more for sale than any other in recent memory.  The article mentions that Level 3 Communications, which had a Chairman bundle $100,000, a Vice Chairman bundle $50,000 and a VP bundle $500,000 received stimulus grants of $13.8 million.  A lot of the rest of the stimulus seemed to be spent on other Obama supporters, government employees and unions.  Could this be why the stimulus failed as badly as they did because projects weren't chosen by their value to the economy but by the pull of the people involved with them?

Video of Ron Paul at the Debate

ZeroHedge posted a link to this video of the GOP debate edited to only show the Ron Paul responses. As a libertarian, it is great to see someone talking like this on a national stage:

My Thoughts on the GOP Debate Last Night

So a miracle happened last night and somehow I was able to actually watch the GOP debate while it was going on and neither Ben10 (my kids' favorite) nor So You Think You Can Dance (my wife's favorite, as is just about any reality show that is on) entered into the picture at all.  This is something that happens about as often as a full solar eclipse so I'm grateful, especially because I really did enjoy watching the debate last night, which was unexpected.  Anyway, I thought I'd jot down some of my thoughts of how the different candidates fared in the debate and my general impression of them as candidates.  Just so you know, my critique will be based solely on impressions of the candidates at the debate and will not draw on any of my preconceived notions (of which, I have many).  Also, many of my comments may be highly superficial in nature as, for the most part, there was little difference between what the candidates said.  After all, they are all gunning for the same electorate, the conservative activists who tend to vote in primaries.

Romney:  The clear winner of the debate.  His style was the most Presidential and I could see him going toe to toe with Obama in a debate and wiping the floor with him.  The only issue I had with him, and it was minor, was that he looked like he not only aged in the last few years, but it looked like he rotted.  It was as if he were Dorian Grey and someone accidentally damaged his portrait.  Am I being too mean?  Don't we all age?  Yes, we do.  But it's important that we don't come across as a bunch of senior citizens looking to battle the youthful Obama, like we did last election.  Youthful vigor wins elections and has for much of the last 50 years (Obama over McCain, Clinton over Dole, Clinton over Bush, etc.).  You might think Reagan was an exception but given how wimpy Carter came off as, Reagan actually seemed more vigorous despite being older. 

Pawlenty:  A bit of a letdown early on.  As many others have noted, he should have gone in for the kill earlier on, in a sincere and principled way.  I think he probably had too much advice earlier on about not going too negative and how people might be put off by that.  Unfortunately, his Rube Goldergesque explanation of his Obamneycare comment (which he was implying was only a criticism of Obama) made him seem insincere and wimpy.  And I now he could have done so much better with just a few tweaks as he did have a much better debate later on when he had warmed up a little and killed some of the butterflies in his stomach.  The only other issue I had with him was that I kept wondering if he had a spray tan.  He is from Minnesota, he doesn't have to be tan!

Bachmann:  She is definitely a star and her debate performance was great.  She was much more polished and confident than anyone else on the stage other than Romney.  I liked it when she said she was running for President of the United States so wouldn't try to meddle in state affairs. The only thing I didn't like was when she kept saying she took in 23 foster kids.  I know she is trying to sound generous, which I am sure she is.  But for me and other east coasters, I think it just comes across as weird and perhaps a bit creepy.  I don't know why but it does.  I also wasn't a huge fan of the hair, which looked like it had 10 cans of hairspray and seemed hard enough to repel bullets. I was also surprised by the giant crows feet around her eyes, that might be a function though of the 6 inches of makeup she was wearing for the debate as I've seen her before and they weren't so pronounced (hey I said some of my comments would be highly superficial)

Paul:  I normally don't like Ron Paul, but I did enjoy his performance at the debate.  He, of course, focused on the fundamental problems with big government.  Of course, the National Journal said he continued to be a fringe candidate because he was bringing obscure topics like "monetary policy" into the debate.  I'm sorry, monetary policy is obscure?  Maybe for you English major reporters but not for anyone who cares if the government is printing money and continuously devaluing the dollar for the last ten years. Anyhoo, the only critique I have for Paul's performance was that he kept referring to the "church" as a substitute for government.  Couldn't he have said non-profit community organizations or something?  Maybe try to be a little more inclusive?  Libertarians are a small enough minority, now he has to bring religion into it?

Santorum:  He did okay in the debate but I couldn't get over a couple of things.  First, his nose looks way too small for his face.  Did he have some sort of weirdo nosejob?  He kind of has this Michael Jackson thing going on, at least to my eyes.  Also, he always looked like he was in pain every time he said something.  I mean, if he can't answer a fluff question like "Leno or Conan" without looking extremely constipated, he has a problem.

Gingrich:  He did a wonderful job I thought, other than his wishy washy response to the Ryan plan question.  He was generally confident and highly intelligent.  Based on the debate by itself, I'd say he has a shot.  But based on the fact he is kind of a whacko and extremley inconsistent, I don't think so.

Cain:  A cartoon character of a candidate.  I really could make no sense of his answers to the "will you have a Muslim in your cabinet" question, they would make sense for a little bit and then he would contradict himself.  I think he could get the nomination of the Rent is Too Damn High Party.  I think I liked the idea of him much more than what I saw last night.

At this point, I think Romney looks like he will be very tough to beat in New Hampshire.  I also think that unless Pawlenty can become more confident I think he might lose Iowa to Bachmann, who is a much more exciting speaker.  Anyway, we'll see what happens at the Ames Straw Poll in a couple of months, it should be interesting!  Other than these three, I don't see anyone escaping the single digit range in primaries.

Are We Heading Towards Another Financial Crisis?

Definitely maybe.

It's always hard to predict the future (as the saying goes, those who live by a crystal ball shall eat crushed glass) but I will say that all there are signs that we are approaching another leg of the financial crisis.  One possible sign is that despite being in an environment where they should be making money, hand over fist, bank stocks are underperforming.  In fact, the KBW bank index is down 10.1% this year.  Stocks moving up or down 10% are usually not a reason to worry as equities are notoriously volatile, but the weird thing is that they are underperforming like this with a steep yield curve.  A steep yield curve simply means that banks can perform short term borrowing for very little and then loan out that money for quite a bit more.  When you add leverage into the equation, this is when banks are supposed to shine.  It is when a yield curve flattens or inverts that things usually get dicey as there is almost no way to make money borrowing in the near term and then lending for the long term as those rates might be the same, or might even be lower longer term.

So the question people have been asking lately is why have they been underperforming like they have been when they should be doing really well in this environment.  One answer is like a phoenix rising out of our memories of the last crisis, mortgage backed securities.  Yes, banks still have them, and while they might have been able to get rid of some of them, they seem to still own hundreds of billions of dollars worth.  And as you can see from the chart below, showing the index for 20 AAA CDO's,, they are starting to nosedive.  You can see a bunch of related charts here.

Another issue with banks seem to be their exposure to the Euro crisis.  It's been my understanding that it was European banks who were selling a lot of the insurance on Greek sovereign debt.  According to the Bank for International Settlements data, as waded through by The Street Light blog, that understanding was wrong.

US institutions have sold approximately $34.1 billion in insurance on Greek sovereign debt, about 56.3% of the total!  It's as if we learned nothing from AIG!  Of course, our exposure doesn't end there, we've sold $54 billion in default insurance on Ireland and another $41.2 billion on Portugal.  So if a Greek default, starts some sort of cascade, the numbers add up quickly, to the tune of $129.3 billion for those 3 countries alone.  Given these totals don't include any insurance sold on bank debt in those three countries, our true exposure to defaults is probably much greater.  Are we going to have to bailout our banks again???  You just have to cringe at the thought.

So when could a default happen?  It depends, it might not happen until next year, or it can happen this year if Greece is bailed out and as one of the conditions for the bailout is "private sector participation".  Any private sector participation would be considered a default by the ratings agencies and at that point, our banks will be on the hook.  And things don't look good, S&P downgraded Greece debt to CCC today, the cost of sovereign bond insurance is at record levels, and the Bundesbank President just said that the Euro will remain stable in the case of a Greek default (a little pregame damage control?). 

Cash may turn out to be king, once again.

Senate Democrats Want to Raise Taxes to Fund More Infrastructure Based Stimulus? Are They Insane?

Democratic Senate stalwarts like Tom Harkin, Jay Rockefeller and Ken Conrad are all promoting another infrastructure based stimulus plan that would be funded by raising taxes on corporations (aka "closing loopholes").  I think I nearly fell out of my chair when I read this.  Are they completely meshuga?  There are so many things wrong with this proposal, I really don't know where to start.  But let me try anyway:

1. Obama is considering lowering employer payroll taxes in order to spur hiring, does it make sense to turn around and raise other taxes on these same companies? 
2. Diane Feinstein is quoted as admitting this will mostly help "largely unskilled people who need a manufacturing-type job".  Since this stimulus plan would have to be "paid" for, there will be a dollar for dollar transfer of cash from productive & skilled members of society (business owners, corporations and shareholders) to largely unproductive members of society.  Does this sound like a way to create wealth to you?  Taking money that could be invested in new businesses and instead giving it to people to fill a ditch or patch a pothole?
3. Infrastructure projects are not self-sustaining.  Once the road is patched or bridge is done, you need to find more funding from taxpayers for the next project.  Conversely, when you spur investment in new businesses, you actually have a chance to CREATE wealth and jobs.  Long term, that is the only way our economy is going to get out of the current mess we are in, by new industries sprouting up and creating jobs for people who will end up working in careers that may not even exist yet.  15 years ago, there was no Google and no Facebook.  If the Internet boom had not happened, where would all those people be working?  Some extremely bright people might not be employed at all or might be wasting their lives working for some regional telephone company at some dead end job.
4. From a GDP growth perspective, this proposal makes no sense, will probably not help and might even lower GDP.  According to Obama's old Chair of the Council of Economic Advisers, Christina Romer, the multplier on tax changes is 3, so if you raise taxes by 1%, GDP will fall by 3%.  How much is the multiplier on government spending?  According to Robert Barro, the Nobel Prize Winning economist, it is about 0.6-0.7.  If an economy is really weak, the multiplier goes up by 0.1 per 2% in unemployment.  So even at 12%, the multiplier is 1, one third of the tax multiplier.  Even if you don't like Robert Barro, other economists seem to point to a government spending multiplier of 1.4-1.5, still half the tax multiplier.  So in the end, this plan might end up costing us growth and because of that, jobs.
   
5. The last infrastructure based stimulus plan spent $1.3 million per job created, does that really seem to be a good use of cash right now?  $862 billion was spent to create 659,000 jobs.  If you assume this infrastructure plan will be as successful as the last one, that means this plan might only create 76,450 jobs!  That is not growth, it's barely a mild swelling.

It really is shocking that the Democrats can't come up with anything better than infrastructure spending to spur growth.  Okay, I understand they don't like cutting taxes, and we may not be in a fiscal position to do much of that anyway thanks to the first stimulus plan, not without concurrent massive spending decreases.  Then, how about a plan to cut regulations and make it easier for companies to grow and hire more workers (like Boeing who wants to open a plant in South Carolina but the NLRB is suing them because it will piss union guys off in Washington)?  I can't imagine that not being popular with just about everyone who has a brain and a pulse.

Another Reminder of How Free Israel is Compared to the Entire Arab World

Israel and the Jewish people have a lot in common with the people living in the surrounding areas.  We are both semitic, kosher rules are very similar to halal (though they are allowed to eat camels, which are unkosher) and homosexuality is forbidden according to both of our religious rules.  The biggest difference though is how much these rules are imposed upon the nonreligious population.  And we are seeing a great example of that today, the day of the Tel Aviv Gay Pride Parade, where even religious homosexuals take part in the festivities.  Honestly, would any of the nations neighboring Israel have a gay pride parade that looks like this?:

Here's a hint, the answer is no.  And this is not even the only gay pride parade in Israel, Jerusalem has one as well.  Conversely, other than a small gay pride parade in Lebanon a few years ago, which seemed to receive zero local press, there doesn't seem to be any gay pride parades in the entire Arab world, which has 350 million people.

Next time you see someone with a rainbow flag protesting Israeli actions, make sure you let them know how much they would be persecuted in the Arab world and how free they would be in Israel, the most liberal and progressive country, by far, in the middle east.

A Greek Bailout Still Doesn't Seem Plausible

Last Thursday there was a rumor that a Greek bailout was agreed to "in principle", something vehemently denied by the powers that be.  This Thursday we are getting some color of what the bailout might look like.  60 billion Euros from the EU and IMF (which means US taxpayers will be on the hook for billions), 30 billion coming from Greek privatizations (oh yeah, I'm sure they'll be able to raise that money quickly as the country is throwing molotov cocktails on all the assets) and 30 billion from the private sector (bondholders). 

This proposal seems so not serious that I almost suspect that it was leaked to deflect attention from the Troika Report on Greece which said that Greek reforms were at a "standstill".  Why is the proposal not serious you ask?  I dealt with some of the issues last week, but in short trying to get 30 billion from bondholders through some sort of restructuring will be impossible without Greece being in technical default on their debt.  This default of a sovereign nation in the Euro region will have dire consequences, some that can be foreseen and some that can't.  Remember how AIG got into so much trouble selling default insurance on mortgage debt?  Guess who sold tons of insurance on Greek sovereign debt?  European banks.  Also, guess who tends to hold the most Greek sovereign debt?  European banks.  And don't forget that many of them also hold the debt of Greek banks who will almost immediately become insolvent on a Greek default.

Another issue which could put a kabosh on the whole process is that there is a July 5th hearing at the German constitutional court as to whether a German bailout of Greece is a violation of European and German Basic Law.  Officially, bailouts are banned by the EU treaties, which Germany has signed, so there is a not insignificant chance that the court may rule that the bailouts are illegal.  We shall have to see.  Given that European politicians have a history of bending the rules when it suits them, especially EU rules (remember the 3% deficit limit in the Maastricht treaty?) which limit their freedom to do whatever they want to do.

Is Obama's New Stimulus Plan Doomed To Failure?

Right now the Obama administration is floating a "trial balloon" by purposely leaking a plan to temporarily cut the payroll tax paid by employers.  As this is a leak, not a full plan, it's unclear how much will be cut or how long it will last but likely it will be a 2-7.65% cut for 1 or 2 years.  While this is a better idea than further infrastructure spending, I'm worried it is also doomed to failure.  My big problem with it is the temporary nature of the cut.  Most businesses are not just looking for temporary labor (unless they are summer camps and theme parks) but employees who will stay with the company for years so they can soak up and build up the organizational knowledge that has accrued over the years.  Sure, it's a good thing if the cost of having an employee is cheaper in 2011 and 2012 and maybe 2013, but what about after that? 

Also, besides pay, there is another variable which has companies worried about adding to their current employee count, benefits.  My company's health insurance premiums went up almost 30% in 2011 compared to 2010 thanks to the new Obamacare regulations about pre-existing conditions and allowing 26 year olds to be on their parents insurance.  In talking to other people, not just in my area but around the country, it seems that premiums have increased by between 25-50% compared to a year ago.  Come January 1, 2012, there will likely be another increase.  Considering that in many cases, the cost of insurance can be 25% or more of gross pay, another increase of 25-50% could prove disastrous for many companies.  And who knows what will happen in 2013 and beyond with healthcare costs and all the regulations Obamacare will be throwing down for businesses that offer insurance (no wonder McKinsey predicts that 30% of businesses might be incentivized by Obamacare to dump their health insurance).  This huge unknown is a major reason many businesses aren't hiring and it is not going to go away through a temporary cut in payroll taxes.

Another issue is more long term but just as important.  Medicare is supposed to go bankrupt in 2024 and Social Security in 2036, is raiding the funding mechanism for these programs such a great idea?  Won't it just accelerate the bankruptcy date?  It's amazing how often Obama wants to drink from the Medicare well, first he used cuts in Medicare to fund Obamacare, now he is once again raiding its funding mechanism.    That doesn't seem very responsible.  And God forbid he actually reform social security and medicare to make them sustainable.

What is Worth More? A Jewish Life or a Carpet?

If you were to go by the statements of the United Nations Special Coordinator for the Middle East Peace Process Robert Serry, the carpet.  Apparently some pissed off residents of Judea and Samaria through a burning tire through a mosque, damaging a carpet.  This is what the UN respresentative had to say about the matter:

The actions of Israeli extremists are highly provocative and threatening. I note the condemnation of this attack by the Israeli government and stress the need for forceful action against this and other like attacks...  Consistent with its obligations under international law as the occupying power, the Israeli government must ensure the accountability of those responsible and protect the human rights of Palestinians and their property, including religious sites.

When he mentioned religious sites, I started to remember the recent attack in which Palestinian authorities, while shouting "Allahu Akbar", shot and killed a Jewish worshiper at one of our holiest sites, Joseph's Tomb.  I decided to google any statements the illustrious Robert Serry might have made about the attack.  I found nothing.  It is always possible he did say something but the press ignored it, but I doubt he said anything.  This is the guy who welcomed the inclusion of Hamas in the Palestinian government, calling it "overdue".  So I must conclude that he thinks it is more serious for a carpet to get vandalized than a Jew being killed in cold blood simply because of his religion.

In other anti-semitic news, Yale just killed its Initiative for the Interdisciplinary Study of Antisemitism, after complaints from the PLO and other anti-semites.  This of course is the same University that published a book about the Danish cartoons of Mohammed, but then didn't include the cartoons themselves in the work out of fear.  I wonder how long it will be before they remove the Hebrew letters from their logo? 

As further proof of the need to study anti-semitism, the Turkish Prime Minister Recep Tayyip Erdoğan blamed a Jewish conspiracy for the Economist endorsement of his opposition.  Michael Rubin from Commentary added:

During Erdoğan's tenure, Mein Kampf again became a best-seller in Turkey, books hit the market promoting wacky conspiracy theories delegitimizing Mustafa Kemal Ataturk, the founder of modern Turkey, on the grounds that he was a secret Jew, and Erdoğan's own wife endorsed Valley of the Wolves, a crude piece of propaganda suggesting Jews were exploiting the Iraq war to sell the organs of Muslims to Israel. When I was in Turkey this past November, I found copies of The Protocols of the Elders of Zion in every bookstore I visited. Erdoğan's media and education system has inculcated anti-Semitic conspiracy theories into a generation of Turkish school children and civil servants.

Visual Proof of the Failed Stimulus

They say a picture is worth a thousand words. Check out the chart below, which was the one presented by Christina Romer, former Chair of Obama's Council of Economic Advisers to show the positive impact Obama's stimulus plan would have, and what would happen without it.  On top of that is a plotting of the official unemployment rate, courtesy of Tyler Durden (obviously not his real name) at ZeroHedge:

As you can clearly see, the stimulus plan was a complete failure and did not do anything close to what they thought it would do.  In fact, the reality is probably much worse than this picture as the real unemployment rate is over 2% higher than the official one, as I show here (the unemployment rate is being depressed by a plummeting labor participation rate, which is at a 30 year low), which would literally put the current rate off the charts.

Could things have been worse without the stimulus?  Maybe, but I doubt it.  According to a recent study from Ohio State, private sector jobs were not created at all by the stimulus and best case saved/created 659,000 public and private jobs.  Considering the $862 billion cost of the stimulus, that is about $1.3 million per job.  Not a very efficient use of funds now is it?  Part of the problem was the focus on infrastructure spending, thanks to Paul Krugman, something I never did understand.  Once you patch a bridge or a highway, the job is done, with no wealth created.  And it is not self-sustaining as you need to find additional funding for the next project.  No wonder there was little to no effect from it.  Maybe if they had tried lowering tax rates, the effect would have been more immediate and impressive.  People would have spent that money in their local businesses, helping them grow, expand, hire new workers, who would have then spent more, helped businesses expand, hire more people.  It doesn't seem that hard.

Obama needs to get cracking on this and soon.  Maybe it would help if his economic team stopped running for the exits.  Peter Orszag, head of the OMB, resigned in July 2010.  Christina Romer resigned just two months later and then Larry Summers left two weeks later.  And just recently, Austan Goolsbee, Romer's replacement,  resigned after only 10 months on the job.  That's not very reassuring.

Have We Lost South America?

It looks like another country in South America has gone to the dark side.  First it was Venezuela, when it elected Chavez in 1998, then Bolivia, when it elected Evo Morales in 2005, followed by Ecuador, which elected Rafael Correa in 2006.  Now it's Peru's term, as they elected Ollanta Humala as President, sending the Peruvian market down 12.5% (the equivalent of 1,500 points on the Dow!!!).  How bad is Humala?  Only time will tell, this time around he campaigned as a benign socialist like da Silva from Brazil, despite the fact that he embraced (and was embraced by) Chavez and Morales in the last Presidential election 2006.  Also, it is not clear how "benign" he is as he wants to increase the corporate tax rate from 30-45% and enact a windfall tax on mining companies.  He also comes from batsh*t crazy roots.  His mother said in 2006 that all homosexuals should be shot and his father was a communist and an ideological leader in the Movimiento Etnocacerista, a group that wanted massive nationalizations, legalization of coca farming and the destruction of Chile, apparently the sworn enemy of Peru. 

Luckily for Peruvians, he won't be able to govern as a dictator (yet) as his party only has 36% of the seats in the parliament and Humala himself only received 30% of the vote in the first round of voting (he won with 51% in the second round, thanks in part to the hatred of the family of his challenger, Keiko Fujimori, daughter of the ex-President Alberto Fujimori.  Let's hope he over-reaches and self-destructs before he can consolidate his power like Chavez and Morales.

I am wondering though whether our State Department and intelligence agencies have been asleep at the wheel when it comes to South America.  How did things get so bad?  It seems that the only states we can probably count on at his point are Colombia and Chile.  The left is in control of almost all of the rest, ranging from relatively democratic socialists in Brazil and Argentina (though Argentina's seizing of private pensions makes you wonder how much they actually value private property) to outright enemies like Bolivia and Venezuela (Venezuela has become a base for just about all our enemies, including Hezbollah and Iran).  Don't you think there would have been something we could have done to stop at least the Chavez and Morales takeovers?  And in the case of Chavez, why didn't W support the military coup against him in 2002.  It's not likely that his replacement would have been worse and probably much better.  While I realize he was busy trying to bring democracy to the Arab world, maybe he should have spent more time defending and reinforcing democracy in the Americas.  It really is amazing how complacent we have been.

We May Be Past The Point of No Return On Iranian Nukes

After all the hoopla about Stuxnet, I really hoped that the threat of Iranian nuclear weapons was delayed for a while, at least a few years.  Unfortunately, according to Gregory S. Jones at RAND, using data from the IAEA, Iran will have enough enriched uranium to build a nuclear weapon in 8 weeks.  He also states that it is too late to stop Iran with airstrikes, only a military occupation would be effective enough to stop the Iranian nuclear program.  Since we all know a US military invasion is a complete nonstarter, if this report is true, it looks like our biggest enemy in the world will soon have nukes.  I remember growing up, living in fear of a nuclear conflict with the Soviet Union (I did tend to watch a lot of post-apocalyptic themed movies).  When the Soviet Union fell, I breathed a sigh of relief and thought that I'd never have to worry about it again.  I guess I might have been wrong.  We do still have two hopes though, first, that the report is simply incorrect and that the IAEA data is inaccurate.  That is a distinct possibility since you never know if what the IAEA is actually seeing is the truth.  It could be a potemkin village built by the Iranians to hide the fact that their systems have been crippled by Stuxnet. 

Another hope is that internecine warfare between the mullahs and Ahmadinejad causes them to take the eye off the prize as the two camps kill each other.  Although this has been ignored by the mainstream media, you can see some evidence of this conflict here.  Apparently, some of Ahmadinejad's supporters have been arrested for "sorcery" and periodically you hear denunciations for "deviance" and "occultism".  It's not news that Ahmadinejad is mad as a hatter and is trying to accelerate the coming of the 12th Imam.  It could be the mullah's are sick of his messianic fantasies.  Or maybe his allies are just taking too much money from their allies.  Either way, this is a fight where the more casualties, the better.  Maybe if there is enough tumult, both parties will be thrown out and a free and democratic Iran will rise (okay, now I'm having the fantasies, but there is some chance of that happening, albeit miniscule). 

Unemployment is Far Worse Than It Appears

So the parade of bad economic news keeps on rolling.  Today we had some pretty bad unemployment figures for the month of May.  What makes this especially bad is that the unemployment rate is at 9.1% despite the fact that we took out approximately 4 million workers from the labor force since November 2008.  Take a look at the chart below which shows the labor force participation rate since January 1981.

As you can see, the % of the population above the age of 16 that has been participating in the labor force has been at 66% or above since 1988.  Since November of 2008, however, this rate has fallen to 64%, a level not seen since the early 80's when the economy was recovering from years of stagflation.  Why is this important?  The labor force figure provides the denominator in the unemployment rate calculation.   As the next chart will show you, almost all of the decline in the "official" unemployment rate has been because of this decline in the size of the labor force participation rate. In the chart below, I plotted the "official" unemployment rate (in Red) against the unemployment rate if the labor force participation rate had held constant at 66% since November 2008 (in Blue).

As you can see, what I would consider to be the true unemployment rate has barely budged at all off its peak and the rate is also much higher than people realize.  According to the "official" unemployment numbers, the rate peaked in October of 2009 at 10.1% and is now at 9.1%.  But if you use my calculations, the rate peaked at 11.8% in November of 2010 (a level not seen since the depression) and is now at 11.5%.  This is an absolutely dismal and if it was the official printed rate the news stories would be far more apocalyptic than they are today.  An official datapoint that does corroborate my analysis is the employment-population ratio.  That is simply the percent of the population over 16  that is currently employed.  See the chart below:

Again based on this graph, there really has been no recovery in employment, it's all been a statistical mirage.  What is really scary is that there has been no recovery despite the fact that our monetary policy is at 1980's Latin American central bank sort of looseness levels and our fiscal policy as the loosest its been since World War II and yet employment has not budged at all.  With the economy rolling over again, what do we do now?  Let's hope Obama doesn't start arguing for another huge stimulus that goes to infrastructure projects. We now have pretty strong evidence that they do nothing for employment levels over time.

Another Greek Bailout? I'll believe it When I See It

This story has the Euro rallying right now:

The Economic and Financial Committee (EFC) of deputy ministers and senior officials of the 17-nation currency zone approved the Greek programme in principle in talks in Vienna that ended after midnight, the source said.
The second programme for Greece, which will effectively supersede the 110 billion euro ($160 billion) bailout agreed in May 2010, will involve some participation of private sector investors but limited to avoid triggering a credit event, the source said.
Details of that involvement, and the apportionment of the additional official international funding, remain to be worked out in time for a June 20 meeting of euro zone finance ministers, the source said.

Those are some pretty big details left to be sorted out.  Considering it's often difficult for the US House and Senate to come to agreement about slightly different versions that pass both houses, getting 17 nations, with sometimes diametrically opposed interests, to agree on details of ANOTHER Greek bailout is going to be tough.  You have some northern European countries that basically don't really care what happens to Greece because their houses are in order.  Others, like Germany, have their houses in order but their banks have lots of exposure to Greek sovereign and bank debt. The trick is with them is that the populace doesn't necessarily care about the banks that much and will likely kick out any government that agrees to bailout a country that has a history of cooking their books (they were only able to join the Euro after all by including prostitution in GDP). Then of course, you have the southern European countries who probably just want Greece to be bailed out once and for all, probably with the least stringent terms possible, as they might be next. 

The biggest issue to deal with is "private sector participation" which is an Orwellian euphemism for saying that bond investors won't get the money they were promised, when they were promised it, i.e. default (they have also tried to use the phrase "reprofiling the debt" but that one didn't stick).  Note the line about how they want to "avoid triggering a credit event".  That is something that would happen in the case of a default, which would a financial crisis as bad or even worse than what happened when Lehman went bust.  Greek sovereign debt and bank debt is in so many places in Europe that a default would eat into their capital ratios and cause loads of unintended consequences (remember when the Lehman bust caused a run on money market funds after one of them "broke the buck" because they were holding Lehman debt?).  Also, according to this article, European banks have been net sellers of Credit Default Swaps (CDS) which are insurance against default.  In other words, they will not only get hit on the bonds they own, but have to pay out on the insurance to the North American investors who bought the CDS'.   Essentially, they need to figure out a way to default without actually defaulting. 

Good luck with that. 

Does Huntsman Have a Shot to Win the GOP Nomination?

Jon Huntsman, former Utah Governor and Ambassador to China, had a nice op-ed in the WSJ today in which he really sounded like a true free market conservative, who is willing to make the hard decisions:

Unless we make hard decisions now, in less than a decade every dollar of federal revenue will go to covering the costs of Medicare, Social Security and interest payments on our debt. We'll sink even deeper in debt to pay for everything else, from national security to disaster relief. American families will fall behind the economic security enjoyed by previous generations. Our country will fall behind the productivity of other countries. Our currency will be debased. Our influence in the world will wane. Our security will be more precarious.

Some argue for half-measures, or for delaying the inevitable because the politics are too hard. But delay is a decision to let America decline. The longer we wait, the harder our choices become.

The debt ceiling must be raised this summer to cover the government's massive borrowing, and we must make reductions in government spending a condition for increasing the debt ceiling. This will provide responsible leaders the opportunity to reduce, reform, and in some cases end government programs—including some popular but unaffordable subsidies for agriculture and energy—in order to save the trillions, not billions, necessary to make possible a future as bright as our past. It also means reforming entitlement programs that won't deliver promised benefits to retirees without changes that take account of the inescapable reality that we have too few workers supporting too many retirees.

His record in Utah, for which he received a "B" from the Cato Institute makes me relatively certain that he is sincere when he says he is for putting our fiscal house in order.  After all, unlike most schools and universities there is definitely no grade inflation at Cato, where they have no problem handing out C's, D's and F's.  I only have one small issue with his op-ed, that is when he says:

I admire Congressman Paul Ryan's honest attempt to save Medicare. Those who disagree with his approach incur a moral responsibility to propose reforms that would ensure Medicare's ability to meet its responsibilities to retirees without imposing an unaffordable tax burden on future generations of Americans.

In politispeak, that pretty much means nothing.  Admiring an honest attempt?  That sort of sounds like he is saying "close but no cigar".  Or it's like when a southerner uses the phrase "bless her (or his) heart" when someone can't seem to get something right.   In other venues, like Good Morning America, he was much more supportive of Ryan's plan so I'm a bit confused about what he is saying about it, but this doesn't necessarily mean anything.  When you are President, you want to have your own plan, not just sign on to someone else's.  Also, Ryan's plan isn't gospel and doesn't even touch Social Security which definitely needs changing.  The Republican Study Committee, a group of very conservative House members, came up with their own plan themselves that goes even farther.

The big problem for Huntsman, though, is whether he actually has a path to victory in the GOP nomination race.  There is no national primary, instead, there is a gauntlet of caucuses and primaries that are must win for a candidate to be able to even make it in the race to Super Tuesday.  You need to win in Iowa, New Hampshire or South Carolina in order to get the funding and the volunteers that are necessary to continue with the campaign.  In fact, since the inception of the South Carolina primary in 1980, no GOP candidate has won the nomination without first winning South Carolina.  So when judging Huntsman's candidacy, you really shouldn't be thinking about whether GOP voters in general will vote for him but whether GOP voters in Iowa, New Hampshire and South Carolina will vote for him.  Let's take the states one by one:

Iowa - The Iowa Caucuses are really not very representative.  It's not like a primary where you can just go in, vote for your candidate and then go home.  It's kind of a like a town hall format, where you have to go to your precinct caucus, listen to people talk about the different candidates and only then, after some hours, actually vote.  In some precincts it's even done by a show of hands (no secret ballot there).  In the end, the person who wins the Iowa caucus is the person who can rent the most buses to get the most supporters to the precincts.  Still, it does create momentum for the winner and can easily kill the campaigns of the losers.  Remember Howard Dean?  Coming in #3, coupled with the Dean Scream, killed his campaign.  And when Hillary lost to Obama in 2008, she almost immediately started having financial issues as donors started switching en masse to Obama.  For Huntsman, he really has an uphill battle.  According to Public Policy Polling, a Democratic leaning polling firm, he had a total of 1 supporter in Iowa in their sample.  Not 1%.  1.  Remember that Pawlenty is from a neighboring state and Iowa has a disproportionate number of evangelicals who will likely vote for a socially conservative candidate (Huntsman is relatively libertarian socially).  There is already talk about him skipping Iowa, which just puts more pressure on him to do well in New Hampshire and South Carolina.

New Hampshire - Huntsman could actually do well there given the libertarian streak in the state, though Ron Paul and Gary Johnson will likely take some of those votes.  Also, Romney is from the neighboring state and while he did not win the 2008 primary, it was close 37% to 31%, and McCain had been a darling of New Hampshire GOP voters since he upset W in 2000.  New Hampshire voters are notoriously independent though so if Hunstman comes across as a real free market type who has an independent streak, he could win it.

South Carolina - As mentioned above, the primary here has picked the GOP nominee since its inception in 1980.  If at the point of the South Carolina primary, Huntsman has not won either Iowa or New Hampshire, he is probably in trouble.  First, the winner(s) of Iowa and New Hampshire will have momentum, in media coverage, in funding and in volunteer support.  It will be unbelievably difficult for Huntsman to win after two losses like that.  Plus, whoever Jim DeMint, endorses in the race will have the wind at their backs.  Jim DeMint is a tea-partier so he will probably choose the candidate who is most conservative and electable in the race.  That is probably not Huntsman.  Unless Rick Perry from Texas runs, I would think he would endorse Pawlenty, especially if he has won Iowa already.

Basically, while clearly a quality candidate, thanks to the details of the primary process, Huntsman seems like a real longshot.  But who knows, stranger things have happened.  It will be extremely important for him to do well in the upcoming debates of the candidates and not to sound wishy washy about the issues.