Global Economy Bursting?

[Restrain]

Another solar company goes broke, and now Congress is finding that Energy Dept and WH officials went outside the govt email system. The reason was that they were emailing each other to find ways to make the subsidies and pork payments even when the companies did not meet the minimum requirements and were very shaky.

 

[Randolph Kinney]

Retirees Wrestle With Pension Buyout From General Motors

http://www.nytimes.com/2012/07/19/b....html?nl=todaysheadlines&emc=edit_th_20120719

 

[Randolph Kinney]

Loan defaults drain $37 billion from 401(k)s each year

http://money.cnn.com/2012/07/17/retirement/401k-loan-defaults/index.htm

Defaults on 401(k) loans are draining retirement savings by as much as $37 billion a year, according to a study conducted by Robert Litan, a researcher at the Brookings Institution.

"When times are tough -- as they have been since the beginning of the Great Recession -- many more people with 401(k) plans have no other choice but to borrow from their accounts to maintain even a reduced standard of living," according to the study, which examined industry data on 401(k) default rates and outstanding loans.

 

[Randolph Kinney]

Government Proposal for a Mandatory Guaranteed Retirement Annuity

http://www.bos.frb.org/economic/neer/neer1992/neer292b.pdf

The purpose of this paper is to reiterate the case for reassessing the current favorable treatment accorded qualified plans and to explore some possible approaches for introducing current taxation. Part I addresses the issue of revenue loss, considering the impact not only on the personal income tax but also on the payroll tax. Concluding that the revenues forgone are large no matter how they are measured, Part II explores what taxpayers are buying for their money. Qualified plans provide retirement income to a steadily declining and decidedly nonpoor proportion of the population, and they do not appear to have increased national saving. In short, the favorable tax treatment of compensation received in the form of accrued pension benefits does not appear to be achieving high-priority social goals.

__________________________

One element of the scheme was to create a Mandatory Pension System and fund it with a one-time 15% tax on retirement assets and a recurring 15% tax on retirement plan income.

 

[Riick]

Government Proposal for a Mandatory Guaranteed Retirement Annuity
..........accrued pension benefits does not appear to be achieving high-priority social goals.....

Right!, Check!, Read you 5 by 5!, Pension Money put aside doing too well, Rodger Will Co, will confiscate, will someone report the money's Twenty so we can pick-up ASAP.

10-4

 

[Randolph Kinney]

A Doomsday Machine

http://teapartyeconomist.com/2012/07/20/the-most-important-article-on-the-economy-in-20-years/

We have a whole generation – the Baby Boom – that’s about ready to retire, and they have no retirement savings. We have a federal government that is bankrupt, literally. Its [debt is] $16 trillion and growing by a trillion a year. Something’s going to give. We can’t pay for all these entitlements. There won’t be the revenue generation in the economy to do it.

Austerity is something that happens to you when you’re broke. And yes, it is painful and spending will go down and unemployment will go up and incomes will be impaired, but that is a consequence of the excess debt creation that we’ve had for the last thirty years. So austerity is what happens when you break the rules.

If the bond ever starts falling in price, they unwind the carry trade. . . .

Then you get a message, “Do not pass go.” Sell your bonds, unwind your overnight debt, your repo positions. And the system then begins to contract – exactly what happened in September and October of 2008. Only, that time it was an unwind to the repo on mortgage-backed securities and CDOs and so forth. That was a minor trial run for the great unwind that is going to happen when the Treasury market is finally shattered with a lack of confidence because, on the margin, no one owns a Treasury bond: they just rent it on borrowed money. If the price starts falling, they’ll get out of that trade as fast as they got out of toxic CDOs.

Well, if they run away from the Treasury, it sends compounding forces of contagion through the entire financial system. It hits next the MBS and the mortgage market. The mortgage market then scares the hell out of people about the housing recovery, which hasn’t happened anyway. And if there isn’t a housing recovery, middle-class Main-Street confidence isn’t going to recover, because it is the only asset they have, and for 25 million households it’s under water or close to under water.

The Fed has destroyed the money market. It has destroyed the capital markets. . . . .

And you can’t have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That’s essentially what we have today.

They are monetary central planners who are attempting to use the crude instrument of interest-rate pegging and yield-curve manipulation and essentially buying debt that no one else would buy, in order to keep this whole system afloat. It’s Ponzi economics.

As a result of that you have a doomsday machine.

As I was saying when the great margin call comes and they start selling the Treasury bond, they’ll take everything else with it. Real estate is priced off Treasuries. Mortgaged-backed securities are priced off Treasuries. Corporates are priced off Treasuries. Junk bonds are priced off Treasuries. Everything. The stock market will go into a panic.

Forget about yield. Forget about return. Just keep yourself liquid and preserve your capital, because you can’t predict the day when, as I say, the great margin call in the sky comes down.

 

[Terrel L. Shields]

This morning a friend was talking. He retired about 2 yr ago...maybe 3. He said, "Too many of my friends my age have no retirement savings." None. nada.zip...too true. He said that he wanted to build a new house on his small farm (the old house burned) but instead kept a house in town because of taxes. He said, "It costs me $350 a month for taxes and insurance and I don't owe a dime. Why not sell it and just rent? If I build a new house, sell the one in town, I pay capital gains on that house, then will owe even more in insurance and RE taxes..."

The Euro is facing a huge crisis and the inevitable dissolution (at least in part) of the EU. Spain...clearly in worse trouble than the EU admits..If it falls, Portugal and Italy are next. No ifs' No and's....and what is to keep it from boomeranging back on the nation that has the worst trade deficit in the world?

 

[Randolph Kinney]

Drought Fallout

http://www.businessinsider.com/drought-fallout-2012-7

Hungry people standing in bread lines start revolutions: France in 1789, Russia in 1917, Egypt in 2011. That fact must make certain regimes around the world uneasy as the global drought now unfolding causes crops to fail and grain prices to surge. For everyone else, higher food prices are in store and a return to global inflation looms.

In the United States, the world’s largest grain exporter, a warm spring encouraged early planting and predictions of record crops. Instead, the hot summer is now scorching the country’s farmland. The last 12 months have been the hottest since the US started keeping records in 1895. According to the US Drought Monitor, 53% of the country is experiencing drought conditions, the most since 1956. The US Department of Agriculture has already cut its corn crop forecast by 12%.

Globally, land temperatures are now the highest on record. According to the Global Drought Monitor, severe conditions extend from the US and into Canada; reach across much of central Africa, India, Europe, and central Asia; and affect parts of Australia and South America. The International Grains Council recently cut its global forecast, particularly for wheat.

The worldwide drought has already pushed corn futures up 56% since the start of June. Wheat is close behind, jumping nearly 40%. Soybeans recently hit a new record high. Barley, rice, rapeseed, and other grain prices are also up.

The spike in grain prices is beginning to spill over into the broader economy. US ranchers are reducing their cattle herds because of the higher feed costs, which eventually will mean higher meat prices. Restaurants and food packaging companies could see their thin margins squeezed even tighter. If sustained, the pass-through of higher food prices will also show up in the general price level, complicating policy options for central bankers currently accustomed to benign inflation.

The implications are especially challenging for emerging markets, where food has a larger weight in consumer prices indexes. Low inflation has provided room for interest rate cuts to spur growth in many countries. Higher prices could take away that room for maneuver and even force a policy reversal. China, in particular, could be in for a rude shock in the months ahead, just in time for their leadership transition in the fall.

This is now the third surge in grain prices in five years. In 2007-08, food riots broke out in more than thirty countries. In 2010, many governments began to restrict exports. When Russia suspended supplies to Egypt, soaring food costs subsequently helped set the stage for what turned into the Arab Spring. So far, global inventories are holding up, but the year is barely half over and no one knows just when the drought will end. Higher grain prices can cause inflation. Food shortages cause regime change.

_____________

Now if a country could control weather ...

 

[Terrel L. Shields]

Hungry people standing in bread lines start revolutions: France in 1789, Russia in 1917, Egypt in 2011

how about closer to home? Arkansas 1931.
[url]http://www.encyclopediaofarkansas.net/encyclopedia/entry-detail.aspx?entryID=1308[/URL]

I am not sure that 2012 will be the hottest year on record. 1934 and1936 had more "hot" days but the extent of the drought was slightly smaller then and if the next 4 months are abnormal, then this could be the hottest year since the 1800s....But historically, it appears the first millinum was much drier than the last 1100 years.

The Classic Mayan Civilization apparently collapsed due to drought.

The Anasazi's suffered a multigenerational drought in the 9th, 12th, and 13th century in the SW part of the U. S.

Mega drought was more common than it has been in the past 400 years. The Rockies went into a drought about 1999 and lasted about 7 years, now they have potentially ended another 7 years of plenty (pretty biblical, eh?)

The Dust Bowl lasted about 12 years. Such droughts are far more common than many would like to believe. That is one reason I think we need to consider that for the West, in particular, there is a limit to the population that it will support...and we may have reached it.

High prices for grain reflects badly on the ethanol hoax since it consumes about 30% of the corn crop. About one or two more years of floods in the rice deltas of the Indian subcontinent and drought here and in Austrailia and the world gets in serious trouble.

 

[Michigan CG]

Many do not have a clue that everything is affected by corn prices. Corn will most likely set a record price this year. Soybeans and wheat will follow along with beef, chicken and every other meat.

Then ethanol will be a mute debate. Corn is in plastics and many other food products like soda and ketchup.

By March restaurants will be in trouble, the government will decide that food stamp recipients need more money because of rising food prices. Who will pay for that?

For the last few years I have told people to buy John Deere stock and it went up steadily. With one of the worst crops in history coming up I would be selling that John Deere stock. The price of corn will be high, but yields will be very low. 30% of the crop is already lost.