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Global Economy Bursting?

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NEIN, NEIN, NEIN, and the death of EU Fiscal Union

http://blogs.telegraph.co.uk/financ...n-nein-nein-and-the-death-of-eu-fiscal-union/

Judging by the commentary, there has been a colossal misunderstanding around the world of what has just has happened in Germany. The significance of yesterday’s vote by the Bundestag to make the EU’s €440bn rescue fund (EFSF) more flexible is not that the outcome was a "Yes".

This assent was a foregone conclusion, given the backing of the opposition Social Democrats and Greens. In any case, the vote merely ratifies the EU deal reached more than two months ago – itself too little, too late, rendered largely worthless by very fast-moving events.

The significance is entirely the opposite. The furious debate over the erosion of German fiscal sovereignty and democracy – as well as the escalating costs of the EU rescue machinery – has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer.

There can be no question of beefing up the EFSF to €2 trillion or any other sum, whether by leverage or other forms of structured trickery. "The financial markets are beginning to ask whether Germans can afford all this help. We must not risk the creditworthiness of the German state," he said.

Bottom line, €2 trillion is the starting point to roll over EU sovereign debt and make bondholders whole. Taxes pay the interest and principal on bonds and the Germans have that ability, not the PIIGS. A collectivisation of debts will under no circumstances be accepted.

Repeat after me:
THERE WILL BE NO FISCAL UNION.
THERE WILL BE NO EUROBONDS.
THERE WILL BE NO DEBT POOL.
THERE WILL BE NO EU TREASURY.
THERE WILL BE NO FISCAL TRANSFERS IN PERPETUITY.
 
California workers could suffer under Obamacare

http://www.sfexaminer.com/opinion/op-eds/2011/10/california-workers-could-suffer-under-obamacare

For those lawmakers in Sacramento who stubbornly refuse to believe that the president’s makeover of the nation’s health care system is bad for California, they should take a look at a new report released this week by the Kaiser Family Foundation, a nonprofit research group.

Annual premiums for employer-sponsored health insurance increased to $15,073 this year, according to the Kaiser study. That’s up 9 percent from 2010, which is nearly triple the rate of inflation over the past year, and more than quadruple the increase in average employee wages.

It is hardly a coincidence that this year’s dramatic run-up in the cost of premiums, following several years of relatively modest increases, comes before new Obama regulations take effect in 2012 requiring health insurers to justify to the federal government any increase in premiums of more than 10 percent.

White House static analysis assumes that employers will not change their behavior though faced with higher labor costs owing to Obama’s expensive new health care mandates.

But that’s just wishful thinking. The obvious reaction by employers to higher health costs for each worker on their payrolls is to hire fewer new employees than they otherwise would. That is, if they do not actually lay off workers to cut costs associated with new federal health mandates.

That’s the very last thing California needs with the state economy shedding jobs in July and August, according to the state Economic Development Department.

Anyone who says that full implementation of the health care law will improve, rather than worsen, the state’s job climate is smoking some of that medicinal marijuana sold in cannabis clubs throughout the state.

Meanwhile, California’s Democratic politicians continue to embrace Obamacare, continue to believe against all evidence to the contrary that it will create more jobs than it destroys here in the Golden State, and reduce, rather than increase, family health care bills.
 
Randolph Kinney said:
This economic collapse is a 'crisis of bigness'

http://www.guardian.co.uk/commentisfree/2011/sep/25/crisis-bigness-leopold-kohr

Leopold Kohr warned 50 years ago that the gigantist global system would grow until it imploded. We should have listened.
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Back in my college days I had a Chinese room mate. His family had been run out of China by the communist and they moved to Hanan Island. Then the communist took Hanan Island and the family moved to Vietnam. His dad work for US Aid in Vietnman in the late 1960's and I assume was later run out of Vietnam by the communist.
He used to have a set of Chinese wind chimes hanging in the window that chimed all the time and drove me crazy. He also has a list of the sayings of the Chinese Phisopher Confucius hanging on his wall. For some reason I never forget this one: "Why can't a giant oak tree grow up and reach the sky?" I think Kohr answered that question. Big communist states and big capitalist states all went belly up-the later even as we speak.
 
QUESTION: How much money (savings) would an individual have to have to retire providing 75% of income on his last year worked?

That would depend on the rate of return that his savings were able to earn. Lets say the last year worked you earned $50,000 gross. 75% of that is $37,500.

If someone retired today with $500,000 in savings, buying 30 year U.S. Treasury bonds yielding 3% on today's market will net him $15,000. That means you would have to have $1,250,000 invested at 3% to get $37,500.

The current Federal Reserve monetary polices of zero percent to 0.25% (2-yr treasury note) and sub 3% 30-yr treasury bond has the following effect:


  1. Reducing the standard of living for tens of millions of current and future retirees;
  2. Reducing long-term earnings growth rates for stocks, with a potentially major and long-term reduction in fundamental stock values;
  3. Setting off feedback loops that will further reduce both retiree lifestyles and stock valuations; and
  4. Increasing the chances of insolvency for state and local governments, as well as many major corporations.

Because the government shortfalls are in the tens of trillions of dollars over the coming decades, only a huge target would be able to bear this burden, and such a target has indeed been found: retirement investors, pension beneficiaries and Social Security recipients. The damage from this deliberate targeting of retiree lifestyles and retirement investors will not be confined to older Americans, however, but in combination with related Federal Reserve actions, will ripple out through the entire US economy, the investment markets, and the world economy as well.

There is no longer any pretense of a free market when it comes to interest rates, but rather the Federal Reserve has taken near complete control of short term, medium term and long term interest rates.

What this means from a retirement investor and retiree perspective is that there simply aren't good interest rates available anywhere, at least not on a risk-adjusted basis. Conventional retirement investment theory calls for investors to have a heavy weighting in fixed income investments after retirement.

Traditionally speaking, retirement investments are built on a twin base of bonds and stocks. The stock market as measured by the Dow Jones Industrial Average reacted to Operation Twist by falling 500 points in the immediate aftermath. So retirement investors took a major double hit – less money for their stocks and reduced income from their bonds.

Consumer prices have meanwhile climbed substantially in recent years, and at an annual effective rate that is well in excess of the return that can be earned on government bonds (the official inflation indexes notwithstanding). So retirees find themselves in a situation where the cost of utilities is climbing, the cost of food is climbing, the cost of clothing is climbing and so are the property taxes from their state and local governments. When it comes to monthly budgets, there are multiple major categories of expenditures that are ratcheting up, even as investment income and cost of living adjustments fall to near zero.

As a retiree, there's effectively only two ways of dealing with that situation. Either you increase the rate at which you spend down your savings, meaning you risk running out of money much faster than you've been planning, or else you have to slash your current spending and take the major standard of living hit that comes with that - with either predicament being a quite direct result of the Federal Reserve's policies.

If there is going to be virtually no income from bonds, this leaves only stocks for retirees and traditional retirement investors to fall back upon as a source of income. Unfortunately, there is a very direct and negative long term effect on stock values that flows from Federal Reserve's policies.

It is not only retirees who have less money to spend; this will also have a direct impact on those who are saving for retirement, particularly those in their last 10 or 15 years before planned retirement. If these middle-aged investors are going to maintain their expectations for the age at which they retire, and also be able to afford the lifestyle they have planned for in retirement - while sticking to conventional approaches - they can only do so by increasing their retirement investment purchases right now.

For any given future standard of living, if investment rates go down, the way to make up the difference is to put more in right now. So we are talking not just about tens of millions of current retirees, but also tens of millions of others who are currently privately saving for retirement, with both groups having less money to spend because of very low interest rates.

This reduction in spending by tens of millions is of course crucial because consumer spending accounts for about 70% of the US economy. And more than any other factor, it is consumer spending that determines corporate earnings. Corporate stock values are based not just on earnings from current consumer spending, but even more importantly, upon expectations of increases in corporate earnings that result from future increases in consumer spending.

However, if we simultaneously have tens of millions of retirees spending less each year because they have almost no interest income, along with tens of millions of middle-aged people in their peak earning years having to cut back on spending in order to put more money into their retirement savings – then we have a double drag on consumer spending which means that zero growth in spending might be a best case scenario, with declining consumer spending being the more likely result.

Either flat consumer spending or declining consumer spending are both essentially fatal for current stock market valuation levels, and the longer these conditions persist, the more likely that there will be a fundamentals-driven long term bear market in stocks. And when we combine virtually zero income from bonds with falling stock market values, then we have no source of investment income at all for current retirees who follow traditional retirement investment strategies, and we have no source of compounding for conventional retirement investors.
 
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the president’s makeover of the nation’s health care system is bad for California, ...[according to]...a new report released this week by the Kaiser Family Foundation, a nonprofit research
Click to expand...
My doctor quit and works the emergency room only in a local hospital. No more patients. My retired cousin's doctor quit and moved, and her and her husband have been trying to find a replacement doctor. Several doctors and clinics have told them they are not taking any new Medicare patients.

We will be in a crisis of shortage for doctors soon. We need to rapidly expand our medical colleges and give citizens priority over foreign students. We need to encourage Doctor's assistants to operate independent clinics. The government should insure those doctors E & O and impose "Loser pays" for tort lawyers. Make the tort lawyer put up a bond before they can file a claim. If they lose the bond must pay the legal expense of the defendant as well as court costs.

I'm not holding my breath.
 
Randolph Kinney said:
QUESTION: How much money (savings) would an individual have to have to retire providing 75% of income on his last year worked?

That would depend on the rate of return that his savings were able to earn. Lets say the last year worked you earned $50,000 gross. 75% of that is $37,500.

If someone retired today with $500,000 in savings, buying 30 year U.S. Treasury bonds yielding 3% on today's market will net him $15,000. That means you would have to have $1,250,000 invested at 3% to get $37,500.

The current Federal Reserve monetary polices of zero percent to 0.25% (2-yr treasury note) and sub 3% 30-yr treasury bond has the following effect:


  1. Reducing the standard of living for tens of millions of current and future retirees;
  2. Reducing long-term earnings growth rates for stocks, with a potentially major and long-term reduction in fundamental stock values;
  3. Setting off feedback loops that will further reduce both retiree lifestyles and stock valuations; and
  4. Increasing the chances of insolvency for state and local governments, as well as many major corporations.

Because the government shortfalls are in the tens of trillions of dollars over the coming decades, only a huge target would be able to bear this burden, and such a target has indeed been found: retirement investors, pension beneficiaries and Social Security recipients. The damage from this deliberate targeting of retiree lifestyles and retirement investors will not be confined to older Americans, however, but in combination with related Federal Reserve actions, will ripple out through the entire US economy, the investment markets, and the world economy as well.

There is no longer any pretense of a free market when it comes to interest rates, but rather the Federal Reserve has taken near complete control of short term, medium term and long term interest rates.

What this means from a retirement investor and retiree perspective is that there simply aren't good interest rates available anywhere, at least not on a risk-adjusted basis. Conventional retirement investment theory calls for investors to have a heavy weighting in fixed income investments after retirement.

Traditionally speaking, retirement investments are built on a twin base of bonds and stocks. The stock market as measured by the Dow Jones Industrial Average reacted to Operation Twist by falling 500 points in the immediate aftermath. So retirement investors took a major double hit – less money for their stocks and reduced income from their bonds.

Consumer prices have meanwhile climbed substantially in recent years, and at an annual effective rate that is well in excess of the return that can be earned on government bonds (the official inflation indexes notwithstanding). So retirees find themselves in a situation where the cost of utilities is climbing, the cost of food is climbing, the cost of clothing is climbing and so are the property taxes from their state and local governments. When it comes to monthly budgets, there are multiple major categories of expenditures that are ratcheting up, even as investment income and cost of living adjustments fall to near zero.

As a retiree, there's effectively only two ways of dealing with that situation. Either you increase the rate at which you spend down your savings, meaning you risk running out of money much faster than you've been planning, or else you have to slash your current spending and take the major standard of living hit that comes with that - with either predicament being a quite direct result of the Federal Reserve's policies.

If there is going to be virtually no income from bonds, this leaves only stocks for retirees and traditional retirement investors to fall back upon as a source of income. Unfortunately, there is a very direct and negative long term effect on stock values that flows from Federal Reserve's policies.

It is not only retirees who have less money to spend; this will also have a direct impact on those who are saving for retirement, particularly those in their last 10 or 15 years before planned retirement. If these middle-aged investors are going to maintain their expectations for the age at which they retire, and also be able to afford the lifestyle they have planned for in retirement - while sticking to conventional approaches - they can only do so by increasing their retirement investment purchases right now.

For any given future standard of living, if investment rates go down, the way to make up the difference is to put more in right now. So we are talking not just about tens of millions of current retirees, but also tens of millions of others who are currently privately saving for retirement, with both groups having less money to spend because of very low interest rates.

This reduction in spending by tens of millions is of course crucial because consumer spending accounts for about 70% of the US economy. And more than any other factor, it is consumer spending that determines corporate earnings. Corporate stock values are based not just on earnings from current consumer spending, but even more importantly, upon expectations of increases in corporate earnings that result from future increases in consumer spending.

However, if we simultaneously have tens of millions of retirees spending less each year because they have almost no interest income, along with tens of millions of middle-aged people in their peak earning years having to cut back on spending in order to put more money into their retirement savings – then we have a double drag on consumer spending which means that zero growth in spending might be a best case scenario, with declining consumer spending being the more likely result.

Either flat consumer spending or declining consumer spending are both essentially fatal for current stock market valuation levels, and the longer these conditions persist, the more likely that there will be a fundamentals-driven long term bear market in stocks. And when we combine virtually zero income from bonds with falling stock market values, then we have no source of investment income at all for current retirees who follow traditional retirement investment strategies, and we have no source of compounding for conventional retirement investors.
Click to expand...

:rof::rof::rof::rof:

Retirement planing is all about know how to invest your funds. Treasury bonds are about the riskiest place you can put your retirement savings. Stocks are a critical part of any good retirement plan and the market value of the stock is not particularly relevant as long as the company is healthy. For example I made an investment many years ago in 1200 shares of my local electric utility. The dividend from the stock at the time of purchase covered my electric bills. While my electric bills have doubled since the original purchase so have the dividends. I don't care what the market price of the stock is because I'm not selling. I have similar investments in Oil. I don't worry about rising oil prices because my income moves with the price of oil. Smart investing for the long term in your youth is the way to plan for retirement. Smart investors can't even tell you the current value of their portfolio because they invest for the long-term and don't make buy and sell decisions based on quarterly earnings or daily news.
 
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