Why Inflation Fears Are Seriously Misguided
-Here is a quiz for all the hard-money advocates of the world: what common message do the following three figures tell us? The first figure shows for the combined balance sheets of households, non-profits, corporations, and non-corporate businesses the percent of total asset that are liquid ones. The traditional money assets include cash, checking accounts, saving and time deposits, and money market funds. The figure is created using the flow of funds data. Note the sudden and sustained spike in the liquid share over the past few years: The second figure shows the velocity of various money measures. Note that all velocity measures have fallen and remain well below pre-crisis levels: The third and final figure shows the level of total current dollar spending per capita. Note here that nominal spending per person as of the 2010:Q3 is where it was in 2007:Q2:
Pending Massachusetts Supreme Court Ruling May Invalidate Securitization Mortgage Transfers – 01/06/2011 – Yves Smith – Bloomberg has a bombshell today, that a case before the Massachusetts Supreme Court may invalidate certain types of mortgage transfers, a central process in mortgage securitizations. A ruling for the plaintiffs would render some past foreclosures invalid, raising the possibility that the borrowers could sue for damages. It would also have far reaching implications, since it would also be a significant setback to the argument made by the American Securitization Forum and the major securitization law firms who have issued opinion letters in support of securitization industry procedures. The securitization agreements called for the notes to go through a specific number of parties, usually at least two between the originator and its final home, a trust. They required the note have a specific chain of endorsements (as in in theory each party could still endorse in blank, meaning not sign it over specifically to the next required party, as long as each party in the chain did sign it in blank and it bore evidence of indeed having passed through all the required parties). It appears Massachusetts may have problems with the endorsement in blank process, which was allegedly pervasive.
China and India buying U.S. coal mines, and tar sands operations, invests in Chesapeake Energy
– China, for instance, has gained international renown for the speed at which it’s developed an alternative fuels manufacturing and power-generating sector. But the bigger money in China, and the alliances formed to make it, involve carbon-emitting coal, oil, and natural gas produced in and outside the fastest growing energy consumer on earth. Royal Dutch Shell, for instance, is collaborating with CNPC, the Chinese National Petroleum Corp., to develop big new natural gas reserves in the deep shales below Sichuan province in a project aided by the U.S. Department of Energy. Sasol, the big South African oil company, is negotiating to build a huge refinery in Ningxia province to turn coal into liquid fuels. The world’s engineering firms are lining up to help China turn a proposal into an actual project to build a 2,000-mile long pipeline from the Bohai Sea inland to desperately dry Xinjiang province to provide coal mines with process water and power plants with cooling water. Though China has announced its commitment to produce 15 percent of its electricity from renewable alternatives roughly 70 percent will still come from the 3.5 billion to 4.5 billion tons of coal it is expected to consume annually
by the end of the decade.
And now the euro slumps – crisis back in full force
– Euro down to under $1.30 overnight; bond yields rise in France, Italy and Belgium; Belgian CDS now up to 240bp; KBC has to make large provisions for its Irish exposures; western European government bonds are now riskier than emerging market debt for the first time, according to the iTraxx indices; Belgium’s royal mediator resigned after his proposal were rejected by the Flemish seperatists; two French MPs close to Sarkozy are making far-reaching proposals for eurozone governance reforms, including Eurobond; Sarkozy says 35-hour week is already effectively dead; Michel Barnier has proposed changes to allow bondholder bail-ins at banks; Germany FDP, meanwhile, has postponed the assassination of its leader. [more]
Housing bust creates new kind of declining city
– In the Inland Empire and other former home-building hot spots, the housing bust has created a new kind of declining city, different from the nation’s traditional rusting centers of industry, that could languish for years. Although the causes of the decline in these metropolitan areas are distinct from the loss of employment from shrinking manufacturing and industry in some of the nation’s old industrial powerhouses, these areas could experience fates similar to places such as Cleveland and Detroit, with neighborhoods experiencing high rates of vacancies for a very long time, according to a study to be released Thursday. "Some neighborhoods are going to suffer tremendously or are never going to come back or come back very, very slowly," Potential candidates for long-term decline named by the study are the areas hit hardest by the drop in home prices in recent years. They include several inland California metropolitan areas that grew rapidly during the boom, including Stockton, Modesto, Fresno, Riverside and San Bernardino. Las Vegas and Miami also made the list.
The Texas Omen, by Paul Krugman –
These are tough times for state governments. Huge deficits loom almost everywhere, from California to New York, from New Jersey to Texas. Wait — Texas? Wasn’t Texas supposed to be thriving even as the rest of America suffered? Didn’t its governor declare, during his re-election campaign, that “we have billions in surplus”? Yes, it was, and yes, he did. But reality has now intruded, in the form of a deficit expected to run as high as $25 billion over the next two years. And that reality has implications for the nation as a whole. For Texas is where the modern conservative theory of budgeting — the belief that you should never raise taxes under any circumstances, that you can always balance the budget by cutting wasteful spending — has been implemented most completely. If the theory can’t make it there, it can’t make it anywhere.
Henry Paulson Urges Debt Limit Increase Vote
– Former Treasury Secretary Henry Paulson
on Thursday urged lawmakers to raise the debt ceiling beyond the $14.3 trillion level, warning that failing to do so “is simply not an option.”“I applaud the commitment lawmakers have made to reduce spending and put the country on a more fiscally responsible path,” he said in a statement. “As they pursue smarter spending, it’s also vital to protect America’s creditworthiness, and therefore I’m confident Congress will act to increase the debt limit well before it is reached. To do otherwise is simply not an option.” Republicans have said they want major spending cuts in exchange for any vote to raise the debt ceiling.
and Asia’s impressive economic performance. But an analysis by The Economist finds that over the ten years to 2010, six of the world’s ten fastest-growing economies were in sub-Saharan Africa. On IMF forecasts Africa will grab seven of the top ten places over the next five years (our ranking excludes countries with a population of less than 10m as well as Iraq and Afghanistan, which could both rebound strongly in the years ahead). Over the past decade the simple unweighted average of countries’ growth rates was virtually identical in Africa and Asia. Over the next five years Africa is likely to take the lead. In other words, the average African economy will outpace its Asian counterpart.
The Biggest Tax Problem Facing Households and the IRS is…The Tax Code
– Each year for the past decade, Nina Olsen, the National Taxpayer Advocate at the Internal Revenue Service, has issued a report
to Congress on the most serious problems facing taxpayers. She usually focuses on individual provisions of the code, such as the Alternative Minimum Tax, or vexing tax administration problems. This year, Nina reached a quite different conclusion: The most serious problem encountered by taxpayers is…the Tax Code. The whole damn thing. As the report says
, “The most serious problem facing taxpayers—and the IRS—is the complexity of the Internal Revenue Code.” Olsen estimates that individuals and businesses spend 6.1 billion hours preparing their returns. That equal to a year’s labor by three million full-time workers. Individual taxpayers are so befuddled by the Code that she reports 89 percent either pay a preparer or buy commercial software to help with the paperwork. The total cost of compliance in 2008, Olsen estimates, was $163 billion, or more than 11 percent of total income tax collections. The average out-of-pocket cost per taxpayer: $258.