Global Economy Bursting?

[Randolph Kinney]

Iowa governor warns California: We are coming to take your jobs

http://latimesblogs.latimes.com/cal.../05/iowa-governor-california-budget-jobs.html

Every year that California has budget trouble -- basically the last 10 -- another state licks its lips and boasts how it will reap the benefits as businesses and residents flee the Golden State. These poachers are usually more conservative southwestern states like Arizona or longtime California rival Texas.

So, um, add Iowa to the list.

That's right, Iowa, land of snow, farms, presidential caucuses and ... snow. In an interview with The Times, the state's Republican governor, Terry Branstad, boasted how he balanced the state's budget without raising taxes and is getting calls from California businesses looking to move.

“They want to get out of California as quick as they can," Branstad said. "We welcome them to Iowa. I’ve got California companies on my call list right now.”

Branstad declined to name the California firms he plans to call, but said just Monday he met a California businessman at an Iowa groundbreaking who described how terrible the business climate was in the state.

“So I’m going to be making personal calls to this company to encourage them to consider moving their business here,” he said, echoing Texas Gov. Rick Perry, who discussed going on “hunting” trips to California, in search of businesses that want to move out of the state. “I make those kind of personal calls, that could make a difference.”

Gov. Jerry Brown's office did not immediately respond to a request for comment.

Updated at 2:55 pm: Brown spokesman Gil Duran fired back: "This is a Republican myth that is often repeated yet simply not true. Reputable studies have shown that businesses are not fleeing the state for the cold, empty and desolate hinterlands."

 

[Randolph Kinney]

California’s Net Metering at a Crossroads

Virtually every state in the nation has adopted net metering, making it one of the most prevalent and powerful drivers of small-scale solar generation. In fact, while other solar market mechanisms – feed-in-tariffs and renewable energy certificates (RECs) come to mind – attract much of the industry’s attention, net metering has arguably been the policy foundation of the customer-sited solar industry. In California, which is still the top solar state by a wide margin, more than 110,000 homes, businesses, schools, farms, and other facilities use net metering. Only a slight fraction of solar system owners are not using net metering.

Net metering, however, is at a tipping point. Even despite the 25,000+ jobs created by the solar industry in California, the more than $10 billion in investment in the state, and the fact that direct incentives have plunged to all-time lows while the rate of solar installations continues to climb, net metering has now come under fire from utilities, which have proposed significant new fees on new and existing net metered customers.

This conflict over net metering will soon come to a head in the Golden State. Nearly a year ago, the Interstate Renewable Energy Council filed a motion requesting that the California Public Utilities Commission (CPUC) review the methodology by which the state’s cap on the total amount of allowable net metered capacity is calculated. This cap – written in law as 5% of “aggregate customer peak demand” – could be reached in much of the state as soon as mid-2013, making this a critical issue for California’s solar installers, manufacturers, and investors.

After receiving input from stakeholders, CPUC President Michael Peevey issued his findings last month. In short, the Commission found that the state’s investor-owned utilities have been using an overly restrictive approach which halves the amount of solar that can be net metered, and is contrary to both the letter and intent of the law.

The CPUC could vote as soon as May 24th to compel California’s utilities to use the correct calculation, which would provide thousands of additional homes and businesses the benefits of net metering. Success in this area would give policymakers and the industry significant additional time to conduct studies and address perceived issues of cost shift in both regulatory and legislative arenas, before the cap is reached next year.

Source: Clean Technica (http://s.tt/1c7GZ)

A cap of 5% of "aggregate customer peak demand" is a big problem. As green construction and replacement takes hold reducing demand, that cap number gets lower. At some point, those who enjoy net metering will be pushed off or the 1 for 1 energy credit exchange will be less than 1.

All those ROI justifications to buy a solar system won't make sense.

 

[Randolph Kinney]

Who will pay for the massive US public debt?

http://www.mybudget360.com/us-public-debt-irs-audits-for-million-dollar-incomes/

Some interesting data was released by the IRS regarding audits. In the last year the chances of being audited have jumped for those making millions of dollars. For those making $10 million a year or more it is 30 percent. What this tells us of course is that the government is running out of places to find people to pay for all this spending. Even with these measures, we are still running trillion dollar deficits and will deal with another debt ceiling soon. Who will pay for all this debt?

Our total credit market debt is simply off the charts and over three times annual GDP:

Some serious challenges are coming online in the near future:

-1. Unemployment benefits are phasing out and expiring for many
-2. 2001 and 2003 tax cuts set to expire
-3. The debt limit will be reached again by the end of the year
-4. Payroll tax cut will expire and increase from 4.2% to 6.2%
-5. AMT will drop from $74,000 or higher to $45,000 or higher. This will make it harder for middle class families to use deduction in effect creating a tax increase.

Many purists would argue that we either go full on tax increases or full on cuts. The reality is, the economy is incredibly weak. Most of the economy is still fueled by subsidies via home owner mortgage interest deductions, bailout funds to banks, government backed student loans, food stamps, and unemployment insurance. In other words, transfer payments are holding many people from full on economic disaster.

 

[Randolph Kinney]

Greece's Big Run

http://www.businessinsider.com/char...Of The Day&utm_campaign=Moneygame_COTD_051712

The story of the moment: deposit flight!

That's the nice way of saying: A run on the banks.

Sky News' Ed Conway has put together this chart on the relative level of deposits in various countries' banking systems since the beginning of 2011.

Greece has just been taken to the woodshed over the last year or so. Note that this doesn't include the latest data, which would probably show an increasing in outflows over the last month and a half, as fears of a Grexit get even more real.

 

[gregb]

Vultures looking to feast:
[url]http://richardbrenneman.wordpress.com/2012/05/17/the-vultures-are-circling-high-in-grecian-skies/[/URL]

 

[Randolph Kinney]

Greek, Spanish woes push euro towards 2012 low; yen off high

http://www.reuters.com/article/2012/05/18/us-markets-forex-idUSBRE83Q0O120120518

The euro rose from a four-month low against the dollar on Friday as investors pared bets against the single currency after a 4 percent drop this month, but concerns about Greece and Spain were likely to keep it under pressure.

Despite Friday's gains, investors preferred the relative safety of the U.S. dollar and the Japanese yen. They were reluctant to increase risk exposure after Moody's cut the credit ratings of 16 Spanish banks on Thursday.

With no U.S. data to drive foreign exchange markets, investors are most likely to consolidate positions ahead of the weekend following days of euro losses.

The euro tumbled to $1.2640, not far from its trough of 2012, before recovering to trade 0.2 percent higher at $1.2718.

 

[Randolph Kinney]

California screaming: Spending its way to oblivion

http://www.nypost.com/p/news/opinion/opedcolumnists/california_screaming_1oGTSJirpAIFXKeQrdv0tI

Look upon California and despair.

Last weekend, Gov. Jerry Brown delivered the latest in a long line of bad news. Turns out the budget deficit is far worse than he claimed in January: What then looked like “just” $9 billion worth of red ink is now $16 billion.

The Golden State boasts the world’s ninth-largest economy — and an 11 percent unemployment rate. For all its natural beauty and vast resources, it now has the worst business climate in America.

And now California has been driven to the brink of insolvency and ruin by a progressive political culture that doesn’t know when to say when.

Brown claims the tax hike would rake in another $9 billion a year, with most of the money supposedly going to schools.

It’s all baloney — and Brown knows it.

Most of the money, in fact, would go to teacher pensions. The California State Teachers’ Retirement System has a yawning unfunded liability of more than $60 billion.

That $9 billion figure assumes the rich are dumb. In 2008, 43,000 Californians reported adjusted gross incomes of $1 million or more. In 2009, just 34,000 did — a 20 percent drop. Those are the people Brown’s tax hikes would hit hardest. How many will pull up stakes and head for friendlier climes?

 

[Randolph Kinney]

Will California Ever Learn?

http://online.wsj.com/article/SB10001424052702303448404577410383666060266.html

Democratic Gov. Jerry Brown is making California lawmakers out to be models of Franciscan frugality. Last year they made "tough cuts across state government to reduce General Fund spending as a share of the economy to its lowest level" in 40 years," he says. Hold the holy water, Friar Brown.

The state constitution mandates a balanced budget, so revenues and expenditures as a share of GDP must match, at least on paper. For the past several years legislators have been using special funds (fees earmarked for specific purposes) to pay for programs that are usually financed by general fund spending.

The lack of structural reform helps explain why the state is running a $16 billion deficit, which is equivalent to about 20% of the general fund. Mr. Brown has proposed a ballot initiative to raise taxes on millionaires by 30%. He says the tax hike will help erase the state's chronic deficits, but history suggests that it'll raise little revenue without concomitant economic growth.

This year general fund tax collections make up about 4.6% of the state economy, which is way down from their recent peak of 5.5% in 2005 and the state's 25-year average of 5.2%. Democrats blame the low revenues on last year's expiration of temporary sales and income tax increases. In 2009 lawmakers raised the sales tax by one-percentage point and income taxes by a quarter-of-a-percentage point. However, the tax hikes raised revenue as a share of GDP to just 4.8% in 2010—not enough to keep up with spending growth. Notwithstanding the higher tax rates, the state faced a $20 billion deficit in 2010.

Similarly, when the state increased sales and income taxes in 1991, adding a top marginal rate of 11% for married couples earning more than $400,000, revenues as a share of GDP flat-lined at about 5%. That was until 1996 when the state cut top marginal rates back down to 9.3% (which coincided with the dot-com bubble). Revenues as a share of the economy shot up to 5.9% in 1999.

The lesson here is that raising rates won't guarantee higher revenues or eliminate structural deficits, which are primarily functions of a weak economy and overly generous entitlement programs. And to the extent that the tax hikes deter investors from realizing capital gains and businesses from expanding, they could dampen revenue growth.

 

[Terrel L. Shields]

Why Greece Matters

[URL="http://www.navigator-consulting.com/articles/cypriot-bank-exposure-to-the-greek-debt-crisis/17"][url]http://www.navigator-consulting.com/articles/cypriot-bank-exposure-to-the-greek-debt-crisis/17[/URL][/URL]

Cypriot banks are exposed to Greek government bonds (GGB), which must be written down by approximately 50% of their value in line with the private sector involvement (PSI) agreement of October 26th, 2011.
b. Cypriot banks are exposed to non-performing Greek private sector loans (Greek NPL). According to Moody’s, up to 20% of all Greek private sector loans may be classified as non-performing in the next 18 months
c. Cypriot banks are also increasingly exposed to non-performing Cypriot private sector loans (Cypriot NPL), which have been hard-hit by the declining situation in the real Cypriot economy.

This is called "contagion" and we may see this ping into N. Africa then Pong into Asia....and Lord only knows where else...

 

[Randolph Kinney]

The Number of Those Working Past 65 Is at a Record High

http://www.nytimes.com/2012/05/19/b....html?nl=todaysheadlines&emc=edit_th_20120519

THE retirement dream seems further away for a lot of baby boomers, and they appear to be responding to that by holding on to their jobs if they can. But that may have worsened the employment prospects for younger workers.

Labor Department figures indicate that the percentage of workers over the traditional retirement age of 65 is at a record high. But, the figures show, job totals fell sharply for men under 55 during the recession and have only started to recover, while the proportion of women ages 25 to 54 with jobs also slid and is close to the lowest level of the last two decades.

“The fact of the matter is that this aging-but-not-yet-aged segment of the baby boomer class can’t afford to retire,” said David A. Rosenberg, the chief economist of Gluskin Sheff, a Canadian firm, noting that overall household net worth was 15 percent lower than at the prerecession peak. “Dreams of the 5,000-square-foot McMansion being a viable retirement asset have morphed into nightmares of a deflationary ball and chain.”

The accompanying charts show the percentage of various age groups with jobs since the end of 2006, when the overall percentage of people with jobs hit its cyclical peak. Each of the charts has a different range, but the same spread between the top and the bottom, so that a move of a given size represents the same gain or loss in percentage points.

For the first time since the government began keeping track of the numbers in 1981 — and probably the first time ever — one in nine American men over the age of 75 was working in April. About one in 20 women over that age have jobs.