Global Economy Bursting?

[Mike Garrett RAA]

I didn't live in the Great Depression but my parents and grand parents did. Sorry, guys but I see the present economic situation as a mere speed bump compared to what our fore fathers suffered.

Pretty hard to be depressed when the average American has 3 or more TVs and two cars. Is there wide spread hunger and homelessness? The media would like us to believe that.

 

[Randolph Kinney]

'The School District’s Already Insolvent,' Barnett Says

http://www.voiceofsandiego.org/education/article_a8fec84e-9a5f-11e1-bb6e-001a4bcf887a.html

Seven months ago, school board trustee Scott Barnett came up with a plan to fix the San Diego Unified School District’s financial problems. He wanted employees to take an across-the-board pay cut that would avoid city schools having to endure hundreds of layoffs.

That plan didn’t get much traction.

Now, Barnett’s got another plan: He wants the district to declare itself insolvent, roll back the 1,600 layoffs it has announced, and pass a budget that’s nowhere near balanced.

It’s a financial kamikaze that would place the district in the direct control of a state-appointed trustee. The superintendent would be fired and the school board would be relegated to an advisory board, with the trustee making all of San Diego Unified’s budgetary decisions instead of politicians.

But Barnett thinks there are distinct benefits to declaring insolvency now. He says the district could keep schools fully staffed until next spring, and he says it’s time for a new system of running city schools, since the school board has effectively run local education into the ground.

 

[Randolph Kinney]

U.S. prods California lawmakers to take quick action on bullet train

http://latimesblogs.latimes.com/california-politics/2012/05/california-bullet-train.html

Concerned about possible delays in state funding of high-speed rail, U.S. Transportation Secretary Ray LaHood told California leaders Thursday that the Legislature needs to send a signal that it is committed to the project by including money for it in the state budget to be approved next month.

LaHood traveled to Sacramento for meetings with Gov. Jerry Brown, legislative leaders and some lawmakers who are questioning whether to continue funding for the $68-billion project, for which the federal government has pledged $3.3 billion in matching funds.

"What I have said to them is, 'We need a strong signal that you are committed to the money for the match, sooner rather than later. We can’t wait until the end of summer,'" LaHood recounted at a news conference following his meeting with state Senate leaders.

LaHood said he was "reassured" by Assembly Speaker John Perez (D-Los Angeles) and Senate President Darrell Steinberg (D-Sacramento) "that they are committed to high-speed rail and they are committed to making sure that California is able to provide the match that is needed."

Steinberg told reporters the Legislature has a lot on its plate between now and June 15, and he did not provide a date for action. "I understand the urgency on high-speed rail,'' he said. "I think it’s an opportunity to create jobs and to boost the economy and we’ll work it out with the [Brown] administration and with the federal administration in terms of a date to take a vote on it.”

LaHood’s message went beyond the leadership to the skeptics. "I wanted to be sure that I personally deliver the message that President Obama’s administration is committed to high-speed rail in California," he added. "We have made a commitment of over $3 billion. We want to make sure that our partners here realize what is at stake."

_______________________


Lets take the money from education and spend it on the Bullet Train!

Or, lets pretend that the voters have approved the tax increase and lets over estimate the tax revenue from that to balance the budget while increasing the spending for Bullet Trains.

 

[Randolph Kinney]

California Ugly

Soaking the rich isn't working on the left coast.

http://online.wsj.com/article/SB10001424052702304070304577398560693030608.html?mod=googlenews_wsj

It looks like that Facebook IPO may not be enough to save California's fisc after all. Facebook co-founder Eduardo Saverin has renounced his U.S. citizenship to move to Singapore, which has no capital gains tax. And now we learn the Golden State's budget deficit will come in at $16 billion, up from a merely awful $9.2 billion estimate in January.

California Controller John Chiang reported last week that April tax collections were a gigantic 20.2%, or $2.44 billion, below 2012-13 budget projections. You have to admire Mr. Chiang's capacity for understatement as he noted that "revenues disappointed." Yes, and J.P. Morgan's whale trade was a $2 billion rounding error.

Among the biggest surprises is a 21.5% or nearly $2 billion decline in personal income tax payments from what Governor Jerry Brown had anticipated. This reinforces the point that when states rely too heavily on the top 1% of taxpayers to pay the bills, fiscal policy is a roller coaster ride.

California is suffering this tax drought even as most other states enjoy a revenue rebound. State tax collections were up nationally by 8.9% last year, according to the Census Bureau, and this year revenues are up by double digits in many states. The state comptroller reports that Texas is enjoying 10.9% growth in its sales taxes (it has no income tax), while California can't seem to keep up despite one of the highest tax rates in the land.

This would seem to suggest that California should try cutting tax rates to keep more people and business in the state, but Sacramento is intent on raising them again. Governor Brown and the public-employee unions are sponsoring a ballot initiative in November to raise the state sales tax by a quarter point to 7.5% and to raise the top marginal income-tax rate to 13.3% from 10.3%. This will make the state even more reliant on the fickle revenue streams provided by the rich.

Meanwhile, an analysis by Joseph Vranich, who studies migration of businesses from one state to another, finds that since 2009 the flight of businesses out of California "has increased fivefold due to high taxes and regulatory costs."

This month Chief Executive magazine reports that its annual survey of CEOs ranked California dead last among the 50 states in business climate. Texas was number one. The silver lining for Jerry Brown, if not for the California fisc, is that if you're already ranked 50th you can't get any lower—though he seems willing to try.

 

[Randolph Kinney]

Tobacco-tax increase on California ballot, but it can't help solve budget crisis

Read more here: http://www.sacbee.com/2012/05/13/4487237/tobacco-tax-increase-on-california.html#storylink=cpy

SACRAMENTO, Calif. -- In the past decade, red and blue states alike have approved more than 100 tobacco tax increases in a desperate hunt for budget revenues.

But not one has passed in California, whose 87-cent cigarette tax dropped from third-highest in the nation in 1999 to 33rd today despite the state's ongoing budget problems.

That confounds health advocates, who otherwise consider California to be a trailblazer when it comes to bans on smoking in bars and restaurants, and public campaigns urging tobacco users to quit.

But longtime state budget watchers are hardly surprised. They largely blame the state's supermajority requirement to pass tax increases in the Legislature. That forces tobacco tax proposals to the ballot, where industry can spend unlimited sums to defeat them.

The June ballot in California includes Proposition 29, a tobacco tax that would raise $735 million in its first full year.

An early PPIC poll showed 67 percent of likely voters in support in March, but backers believe it will ultimately be a close contest under the weight of heavy industry opposition.

Baldassare observed that support for tobacco taxes "fits the tax-the-other-person mentality."

The state Department of Public Health said last year that the adult smoking rate dropped to 11.9 percent, compared with 27.7 percent in 1985.

The No on 29 campaign states on its website, "Billions in New Taxes, but Nothing to Fix the State Budget." It also points out that funds would not go to schools, unlike other general fund revenues.

 

[Big ole Boy]

No November elections?

bullet train money will immediately be misappropriated to give California cash until November ....

.... things are now at the point where money is being transferred under the "guise" of propaganda headlines .....

.... the state of things ..... is .... to the point that we may not see a November election

 

[Workbox]

We currently have a 5% pullback and the 50 and 25 day moving averages have crossed downward which is pushing the markets downward. Usually at the 5% there is a rally, yet we have those crossovers and can we go lower? Yes we can go to the 200 DMA.

I have read the above posts and some are about our current situation if we are in a depression or recession. I agree with many of the posts that we could be somewhere in the middle. I was expecting a significant downturn awhile back, but we were caught off by the QE's and Operation Twist, along with the Euro bailouts. At this point we can still go down another further 5%. So it brings me too some observations.

With the JPM announcement of losses which are small compared to what they are actually holding in trillions is effecting the market is kinda bugging me, because now it is being focused as a catalyst for real problems. Lets keep that in mind.

Now we go to Europe starting with Greece which we are now getting headlines of it leaving the Euro. Yet only headlines at this moment and until we see a confirmed head line of "Greece leaving the Euro" it is still a media driven market either higher or lower.

So it brings me to a conclusion which is only my POV. Are we being set up for another Quantitative Easing? Of course we have to get a rest in the market, but some indicators are indicating that the drop is a typical drop and others are have had significant reactions, but the drops can be hyped to significant hysteria so buyers will sell there positions so the big boys can get the stocks at lower prices. Yet the JPM loss is too small and we need concrete statements from Europe, and 5-10-15% pullbacks are normal. We are also in an election year and the FED can not be seen as doing favors so it needs to lay off for awhile.

We could expect a bounce back on one of those 5-15% pullback or some kind of consolidation. But I do know that we do have some ugly news at this time and that may be a set up for The Bernak to come to the rescue with QE. I am not saying we are not in trouble, but we may have become a stagnant economy. This is not the 1930's depression due to many safety nets that have been set up both good and bad. But we can not ignore the cracks.

 

[Randolph Kinney]

Concerning the big $2 billion loss (so far) at JPM, it is a symptom of FED policy and flooding banks with liquidity (easy money at zero cost).

Banks do not want to make loans in this environment that have the potential either to default or to exist on the books for decades at super low interest rates. Therefore most of the excess liquidity is used, not making loans, but hedging of positions already taken before 2008 and speculating on commodities, currencies, country risk CDS, money flows, and interest rates.

The more central banks continue with quantitative easing and injecting liquidity to affect their currency exchange rates and interest rates and asset prices, the more volatility and bubbles are created. There is most certainly a distortion of reality. Risk is under priced in order to sell CDS but can be hedged with other positions taken in equity markets.

If another Lehmann's insolvency occurs where capital is withheld for fear of non payment, that forces a credit event and those derivative contracts are called upon to make good but these third parties don't have cash to make good, they have to liquidate positions to raise cash. The result? Another implosion of money markets, credit markets and equity markets.

CDS and Synthetic CDOs Explained

http://www.tamcoforensicgroup.com/goldman/SECvGoldman.htm

VIDEO explains CDS & CDO hedging

http://www.youtube.com/watch?feature=player_embedded&v=rYIvSsItCPo

 

[Randolph Kinney]

The core problems with JPMorgan's failed trades

http://www.reuters.com/article/2012/05/14/us-jpmorgan-trades-idUSBRE84D04X20120514

The strategy involved credit default swaps, a kind of derivative that was at the center of the 2008 financial crisis. The swaps were originally used to hedge the bank's exposure to other investments it owns and included contracts tied to North American investment grade and junk corporate bonds, as well as bonds in Europe and Asia.

JPMorgan helped invent the market for such swaps, known as "synthetic" positions because they trade risk without trading the actual bonds. But two things made these particular positions untenable and costly for JPMorgan, according to traders in the market and derivatives experts.

First, as bond markets shifted and forced JPMorgan to realign its hedges, the bank layered swap on top of swap, complicating the structure and increasing the risk that its hedges would fail to offset losses from one swap with gains from another.

Second, the sheer size of JPMorgan's swap position became more than the thinly traded market could easily manage. The lack of liquidity meant the exit door was too small for JPMorgan to fit through quickly once the trades started to deteriorate.

Making matters worse, because JPMorgan was so dominant in this market it became clear to hedge funds and other trading entities that it was isolated and at risk - providing opportunities for those who could successfully trade against the bank's position. The complexity of the trades made it difficult for the bank to stay on top of the risks as its position worsened.

 

[Randolph Kinney]

California governor calls for higher taxes, 4-day state workweek to fill $16 billion gap

http://usnews.msnbc.msn.com/_news/2...s-4-day-state-workweek-to-fill-16-billion-gap

California Gov. Jerry Brown on Monday asked state employees to work a four-day, 38-hour week as part of a package of massive spending cuts needed to help the state close an unexpected $15.7 billion budget deficit.

In addition to the unusual four-day workweek, Brown's proposed budget calls for even deeper reductions in health and welfare programs and passage of a tax initiative he is supporting on the November ballot.

"I am a buoyant optimist," Brown said at a news conference, "but this is the best I can do" about the deficit, which is about $7 billion greater than Brown predicted when he proposed his initial budget in January.

He blamed tax collections that hadn't come in as high as had been expected and billions of dollars in state cuts that have been blocked by lawsuits and federal requirements.

The tax plan Brown is pushing in November would raise the state sales tax to 7.5 percent from 7.25 percent, which is projected to increase sales tax receipts by about 3.5 percent.

"Tax receipts are coming in lower than expected, and the federal government and the courts have blocked us from making billions in necessary budget reductions. This means that we will have to go much further and make cuts far greater than I asked for at the beginning of the year."