Global Economy Bursting?

[Randolph Kinney]

EU to leverage EFSF to 1 trillion euros - Begging China to participate

Euro-zone leaders plan to leverage the region's 440 billion euro ($609 billion) bailout fund to give it 1 trillion euros in firepower, Reuters reported Wednesday. The fund, known as the European Financial Stability Facility, has between 250 billion to 275 billion euros still available after bailouts for Greece, Ireland and Portugal. The plan is to leverage the fund by around four times through a special investment vehicle and a debt-insurance plan, the report said. Euro-zone ministers are meeting Wednesday night in an effort to complete a wide-ranging plan to address the euro-zone's debt crisis. News reports said French President Nicolas Sarkozy would call Chinese President Hu Jintao to urge China's participation in the investment vehicle.

 

[Randolph Kinney]

European banks need to raise $147 billion

Europe's biggest banks need to raise 106 billion euros ($147 billion) by June to comply with capital requirements agreed by European leaders in a Brussels summit meeting on Wednesday, the European Banking Authority said. Greek banks need to raise 30 billion euros, the EBA said. The increased capital requirements are one element of a multi-part plan European leaders are attempting to put together in an effort to address the euro zone's debt crisis.

 

[Couch Potato]

The Truth About California's Prop. 13

Before voters limited property taxes, they say, California was a paradise of well-financed public services, but since then has evolved into something like Mississippi, in which a tiny, selfish overclass oppresses a burgeoning, mostly nonwhite underclass.

Indeed, one leftish critic titled his book, "Paradise Lost."

The anti-Proposition 13 propaganda always becomes louder when the economy is in recession and government budgets face big deficits, as they are now.

The problem with the anti-Proposition 13 hypothesis, however, is that financial facts don't support it.

In 1977-78, according to the state Board of Equalization, schools and local governments collected $10.3 billion in property taxes. The amount plummeted to $4.9 billion in 1978-79 as Proposition 13 cut the average property tax rate by more than half.

By 2010-11, however, property tax collections had risen to precisely 10 times as much – $49 billion per year – due to new construction and re-evaluation of existing property, even though the property tax rate was fixed at slightly over 1%.

During that same 33-year period, state general fund revenue, principally sales and income taxes, increased seven-fold – scarcely two-thirds the property tax revenue growth rate.

Incidentally, inflation and population growth combined were about 400% during that same period, less than half of the 1,000% expansion in property taxes.
Obviously, the assertion that Proposition 13 has been an unconscionable barrier to revenue growth doesn't hold up. But what about the oft-voiced argument that our property taxes are out of whack with those of other states?

According to Tax Foundation data, California's property tax burden is the nation's 15th highest as a proportion of homeowners' personal income at 3.59%, well above the national average of 3.03%. The reason: California's below-average property tax rate is more than offset by its above-average property values.

It's logically impossible to assert that public budgets are in disarray because Californians are undertaxed. Political dysfunction and overspending are more likely culprits.

Nice try, but it totally ignores reality. The state's population has increased by about 50% since prop13 passed. Current revenue of 49Billion is still more than 10% short of pre-prop13 revenue adjusted for inflation and population growth. The whole has gotten deeper every year for over 30years, and it is unlikely California will ever recover it is so deep at this point. Like most of Europe it is a nice place to visit, but it sucks as a place to live.

 

[Randolph Kinney]

Nice try, but it totally ignores reality. The state's population has increased by about 50% since prop13 passed. Current revenue of 49Billion is still more than 10% short of pre-prop13 revenue adjusted for inflation and population growth. The whole has gotten deeper every year for over 30years, and it is unlikely California will ever recover it is so deep at this point. Like most of Europe it is a nice place to visit, but it sucks as a place to live.

Property taxes increased from $4.9 billion to $49 billion, or a factor of 10 from 1978-79 to 2010-11. Population growth plus inflation combined were about 400% during that same period, less than half of the 1,000% expansion in property taxes.

So looking at the effect of Prop 13 on property tax revenue, it did not slow the growth in property tax revenue.

I don't believe the assertion you make about pre-Prop 13 has any merit. What the truth is, state spending has out striped revenue growth considering sales and income taxes increased seven-fold (700%) over the same 33 year period along with a ten-fold (1000%) increase in property tax revenues.

Here is a chart on spending from the state: http://www.dof.ca.gov/budgeting/budget_faqs/documents/CHART-B.pdf

Notice the total EXPENDITURES including federal funds in 1978-79 was $26.082 billion.

Notice the total EXPENDITURES including federal funds in 2010-11 was $227.353 billion.

Notice that state spending increased 872% over the same 33 year time period.

 

[Couch Potato]

Property taxes increased from $4.9 billion to $49 billion, or a factor of 10 from 1978-79 to 2010-11. Population growth plus inflation combined were about 400% during that same period, less than half of the 1,000% expansion in property taxes.

So looking at the effect of Prop 13 on property tax revenue, it did not slow the growth in property tax revenue.

I don't believe the assertion you make about pre-Prop 13 has any merit. What the truth is, state spending has out striped revenue growth considering sales and income taxes increased seven-fold (700%) over the same 33 year period along with a ten-fold (1000%) increase in property tax revenues.

Here is a chart on spending from the state: http://www.dof.ca.gov/budgeting/budget_faqs/documents/CHART-B.pdf

Notice the total EXPENDITURES including federal funds in 1978-79 was $26.082 billion.

Notice the total EXPENDITURES including federal funds in 2010-11 was $227.353 billion.

Notice that state spending increased 872% over the same 33 year time period.

Your totally ignoring the impact of the cut from 10.3 to 4.9 caused by prop13. If the 4.9 was sufficient, your analysis would make sense. However, that is not the case. That cut of over 50% resulted in an accumulated effect from which the state has never recovered.

 

[Randolph Kinney]

Your totally ignoring the impact of the cut from 10.3 to 4.9 caused by prop13. If the 4.9 was sufficient, your analysis would make sense. However, that is not the case. That cut of over 50% resulted in an accumulated effect from which the state has never recovered.

Your assertion of cause and effect is not supported by the data or facts.

It is very clear by the data that the rate of property tax was fixed at 1% of value by Prop 13, however, the property tax revenue increase by 1000% over 33 years.

The analysis shows that every time a property was sold, it was revalued to the sales price and taxed at 1% on an ongoing basis at that new value. Property values rose faster than the growth rate of population and the rate of inflation.

Therefore Prop 13 had a "stimulus" effect at producing more revenue, not less. The payback of the cut was immense but was overpowered by increased spending.

 

[Randolph Kinney]

House of Cards - Watch My Hand, No Default

http://www.businessweek.com/news/20...gger-credit-default-swaps-isda-rules-say.html

ISDA will decide if the credit-default swaps should pay out depending on whether it judges losses to be voluntary or compulsory. European leaders said in today’s agreement they “invite Greece, private investors and all parties concerned to develop a voluntary bond exchange” into new debt.

“As long as the agreement is voluntary, then CDS aren’t triggered,” said Cagdas Aksu, an analyst at Barclays Capital in London. “Provided it’s voluntary, CDS wouldn’t be triggered unless the Greeks missed a payment.”

A failure to compensate bondholders for writedowns may undermine confidence in credit-default swaps as a hedge and force banks to look at other ways of laying off risk.

“If they find a way to avoid a trigger event in the CDS, then people will doubt the value of credit-default swaps in general, leading to more dislocations in the market.”

 

[Randolph Kinney]

Not Enough Money

California Gov. Brown to Seek Sweeping Pension Cuts

http://www.foxnews.com/politics/2011/10/27/california-gov-brown-to-seek-sweeping-pension-cuts/

SACRAMENTO, Calif. – Gov. Jerry Brown will propose sweeping rollbacks to public employee pension benefits in California, including raising the retirement age to 67 for new employees who are not public safety workers and requiring state and local employees to pay more toward their retirement and health care, according to a draft of the plan obtained Wednesday by The Associated Press.

The governor will also propose Thursday a mandatory "hybrid" system in which future retirees would get their retirement from a guaranteed benefit and a 401(k)-style plan subject to market whims. For employees with at least 30 years of service, retirement benefits would aim to replace about 75 percent of an employee's salary through retirement funds and Social Security, according to the draft.

 

[Randolph Kinney]

California Company Bringing 1100 Jobs To Indiana

http://www.wibc.com/news/Story.aspx?ID=1562228

Governor Mitch Daniels and Indianapolis Mayor Greg Ballard joined company CEO & Founder Bob Yanagihara who made the official announcement Wednesday. Yanagihara says his company will build a 125-thousand square foot plant and production studio on vacant land just east of 86th Street and Georgetown Road.

Yanagihara says Indiana's friendly business climate and $9.8 million in performance based tax incentives were crucial to his decision to invest $21 million to re-locate the firm from Los Angeles. 900 jobs will be based out of the 84th street facility with another 200 jobs based out of the firm's 12-thousand square foot space at 146 Washington Street in downtown Indianapolis. Yanagihara says construction will begin in 60 days with completion set for late spring.

LITEBOX makes mobile event centers and giant LED screens compatible with Panasonic and Bose technology. Jobs starting at $22-an hour include production workers and internet technology among other positions.

 

[Workbox]

Howdy Folks, now that all the rumors and anticipation of the Europe bailout is over, what is next? What is the next big news to rally? At this moment the fund managers are worried if they did or did not get in at the right time and may start buying to finish the year strong. But the VIX is low and that is when they get in at the wrong time for their 401k and Mutual Fund clients. The statement that we say is, "when the VIX is Low, you GO. When the VIX is High you BUY. The SnP is high and the VIX is LOW. But some indices are still strong on stochastic s, but volume is weak.



I think we are going to have a slow retracement, but the XLF, SMH and IWM are still strong on the weekly stochastic, but the volume is so low for the past weeks and anything can happen. It is just a matter of waiting. As I have always stated and waited for was for the SPX to hit the 200dma. We are at the same point as in 2008 which of some concerning while Wall Street is celibrating and giving high 5's.



They may rally this market a little bit more and then maybe sell off at the end of the day. Yet, the main indices are still strong. All I know is that the Euro Drama is over for now, the market is over extended, the volume is still low, it’s a good time for profit taking after this rally. The daily stochastic are exhausted. I’m just going to be patient.



Cheers.