Tag: recession

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Your home garden may soon come under Federal Regulation

http://blog.friendseat.co…es-small-farms/

Looks like big business is making another power grab via lobbying government officials to pass onerous laws that would shut down smaller businesses, and may be so poorly written and loosely defined that your regular gardener would fall under purveyance of the Feds.

Just look at this definition of a “Food Production Facility” from the bill (HR 875):

(14) FOOD PRODUCTION FACILITY- The term ‘food production facility’ means any farm, ranch, orchard, vineyard, aquaculture facility, or confined animal-feeding operation.

Note that what qualifies as a farm is not defined. I’m skeptical about this bill for two reasons:

  1. In an economic crisis like now, that the government would actively try and stifle growing your own produce seems beyond absurd. However, I have almost no faith in government being reasonable, rational, or competent enough to stop special interests from ridiculously offesnive power grabs such as this.
  2. A law that stopped home gardening could cause revolt. Americans do not want to be told what they can do on their own land. When that is growing illegal drugs like marijuana, most Americans will bend to puritanical beliefs. But when we’re talking about growing tomatoes? That’s a whole ‘nother can of worms.

The more bills I see that go before Congress, the more my fundamental distrust and conclusion of rampant government corruption is confirmed. For further reading, see HR 600 which would put back into practice the sort of borrowing practices that led to the subprime debacle, housing boom, and housing bust.

This bill is designed to allow corporations, with the help of their hired government guns, to force small competitors (you and me) out of business. This is as evil as it gets, folks. Since the dawn of man we have hunted and farmed our own food——it’s second nature. To be stripped of the most fundamental act of survival is equivalent to the kind of mass enslavement you only read about in history books, like the kind under Pharaohs in ancient Egypt.

Lurking within the maze of technical lawyer-like jargon, the bill places wildly restrictive regulatory incumbrances on the average vegetable growing Joe-The-Plumber, small organic farmer, or anyone for that matter who may one day decide to grow a small garden. The bill would require anyone associated with growing, storing, transporting or processing food to be subject to inspections by federal agents of their property and all records related to food production; you would be required to conduct specials tests, maintain samples and records, and allow government officials to mandate the use of chemical pesticides, fertilizers, specific types of nutrients, packaging, and temperature controls. Violation of any of these provisions would subject the offender to property seizure, imprisonment and fines up to $1,000,000. The implementation of these bogus regulations are designed to be so cost and time prohibitive, no one would bother to grow their own food or risk being jailed and fined for participating in a black market.

(H/T Implode)

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How the United States will go Insolvent

http://www.oftwominds.com/blog.html

Charles Hugh Smith has a fantastic, easy-to-follow post today titled, The Road to National Insolvency. Therein Smith details the debt-rolling finance structure that the United States Treasury has employed to pay off existing debt, interest on said debt and new deficit spending. He then explains how current factors have kept a lid on borrowing costs (interest rates or bond yields) on Treasuries. Finally, he speculates on how going forward the dampened global economy and demand for yield by investors (i.e. investors will only accept marginal yields on debt for so long) will put enormous upward pressures on borrowing costs, thereby ultimately leading to much higher interest rates, sovereign debt-servicing costs and finally to U.S. insolvency.

I happen to agree with Smith, so I’m biased in that regard (Disclosure: short TLT via puts and long TBT). I think the biggest unknown is just when we hit the tipping point and yields start spiking dramatically. It could happen very quickly and with little notice. So be careful out there!

Well organized, written and worth the read in it’s entirety: the clip below is just CHS’s conclusion:

Four short years of $2 trillion deficits will effectively double the U.S. national debt and the interest it pays. The Social Security surpluses are “borrowed” every year without any notice, so the U.S. debt rose by $300 billion a year even when it supposedly ran a slight surplus; that $300 billion+ a year in new debt goes on top of the stated $2 trillion/year in deficit spending.

So the nightmare scenario is this: the debt doubles over the next 4-5 years, causing interest payments to double from $450B to $900B a year. But interest rates also double due to the global shrinkage of surplus capital and the monumental rise in demand for capital (borrowing). The $900B in interest then doubles to $1.8 trillion–roughly equal to Medicare, Social Security and the Pentagon combined.

Can’t happen? Really? With tax revenues dropping along with profits, employment and assets, then where will the political will arise to cap entitlements and other spending? I predict the U.S. will continue borrowing trillions of dollars until it is no longer able to do so.

By then, the interest owed each and every year will crowd out all other spending. With the debt machine broken, the government will simply be unable to service its debt and fund all its mandated entitlements and other programs. It will be insolvent.

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Jon Stewart Throttles CNBC

http://www.thedailyshow.c…inancial-advice

Jon Stewart absolutely destroyed CNBC last night on The Daily Show. The first half of the bit (Approximately the first 4 minutes) goes on the offensive against Rick Santelli who was supposed to be a guest on the show before he “bailed out.” Santelli is one of the few rational, intelligent, and authentic personalities on CBNC, frequently going against his peers’ opinions. Even so, he is still on CNBC. Since CNBC is basically a rah-rah cheerleading outfit for Wall Street, Santelli’s attack on mortgage payment subsidization (See Santelli’s Chicago Tea Party) makes him an easy target.

So that is funny, but it isn’t the best part. Stewart goes on to illustrate just how wrong CNBC has been throughout the emergence of the recession / bear market / depression / bubble bust. He does it with video clips from CNBC that pump Bear Stearns, Lehman Brothers, Merrill Lynch, Wachovia, AIG, Bank of America, and General Motors (GM). He takes jabs at Fast Money and Squawk Box — “Reasoned financial reporting that combines the raw speed of fast money with the intelligence of a box of parrots. You just had to know how to listen!”

He has clips from Wall Street executives (i.e. John Thain) where they say essentially “everything is ok!” And what takedown of CNBC wouldn’t be complete without clips of Jim Cramer? So he nails that, too.

“If I’d only followed CNBC’s advice I’d have a million dollars today provided I’d started with $100 million dollars.” How do they do it?”

And to cap off Stewart’s hilarious piece, he ends with a gut-busting clip from an interview between Squawk Box‘s Carl Quintanilla and Ponzi-criminial Sir Allen Stanford that you just have to watch yourself.

Well done Jon Stewart!

 

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Eight reasons not to go to grad school

http://blog.penelopetrunk…th-grad-school/

Via Patri, found this great article (and site!) over at Penelope Trunk. The full out post is a linkfest to other material (much of which looks worth reading) on Penelope’s site. If I only had the time.

Anyway, I’m very much anti-schooling these days. I feel this way for a multitude of reasons, but the main two are:

  • Schooling in no way mimics real life. Schooling is centrally controlled, rigid, boring, one-size-fits-all, socially backward and doesn’t encourage students to take chances, be curious, use their brains, etc. For all of these reasons, schooling as we know it (across all levels of the education system — grade school to graduate) stunts the growth of human beings.
  • Schooling is antiquated. We have the internet. I’ve learned more following my own curiosity scouring the Internet than I learned in 20 years of school. And that was in five years? The schooling system was broken already, but now its downright moot.

Here are Penelope’s eight reasons not to go to graduate school (Go to her site if you want her additional commentary on each reason):

  1. Grad school pointlessly delays adulthood.
  2. PhD programs are pyramid schemes
  3. Business school is not going to help 90% of the people who go.
  4. Law school is a factory for depressives.
  5. The medical school model assumes that health care spending is not a mess.
  6. Going to grad school is like going into the military. . . . Military is the terrible escape hatch for poor kids, and grad school is the terrible escape hatch for rich kids.
  7. Most jobs are better than they seem: You can learn from any job.
  8. Graduate school forces you to overinvest: It’s too high risk.
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We need shock and awe policies to halt depression

http://www.telegraph.co.u…depression.html

It’s not unusual to read sobering words from the Telegraph’s Ambrose Evans-Pritchard, but his latest commentary is particularly dire.

I wonder to what extent “we have been lulled into a false sense of security by the lack of ‘soup kitchens.'” As the Dow went decidedly under 7,000 today and the S&P sits at 700 — market levels we’ve not seen since I was a freshman in high school (!) — I am more numbed than shocked. It’s hard to believe that six months ago we were at DJIA 11.5K (link). For someone who expected the market to plummet for months only to see it rise or be stick-saved again and again, that it’s now at these incredibly low levels is a bit surreal — not to mention frustrating in that most of my short positions have been closed!

Finally, I wonder what will come of commodities and the dollar. Pritchard seems to believe that the U.S. is still in charge. Is that the case? If so, why has the Fed been so gun-shy about buying Treasuries and flooding dollars onto the system? Or is it similar to us not seeing scenes of rampant poverty — there is just a lag in the inflationary system?

Time will tell all.

Stephen Lewis, from Monument Securities, says we have been lulled into a false sense of security by the lack of “soup kitchens”. The visual cues from Steinbeck’s America are missing. “The temptation for investors is to see this as just another recession, over by the end of the year. But this is not a normal cycle. It is a cataclysmic structural breakdown,” he said.

Fiscal stimulus is reaching its global limits. The lowest interest rates in history are failing to gain traction. The Fed seems paralyzed. It first talked of buying US Treasuries three months ago, but cannot seem to bring itself to hit the nuclear button.

As the Fed dithers, a flood of bond issues from the US Treasury is swamping the debt market. The yield on 10-year Treasuries has climbed from 2pc to 3.04pc in eight weeks. The real cost of money is rising as deflation gathers pace.

US house prices have fallen 27pc (Case-Shiller index). The pace of descent is accelerating. The 2.2pc fall in December was the worst month ever. January looks just as bad. Delinquenc-ies on prime mortgages were 1.72pc in September, 1.89pc in October, 2.13pc on November and 2.42pc in December. This is the trajectory eating away at the banking system.

Graham Turner, from GFC Economics, fears the Dow could crash to 4,000 by summer unless there is a “quantum reduction” in mortgage rates. The Fed should swoop in to the market – armed with Ben Bernanke’s “printing press” – and mop up enough Treasuries to force 10-year yields down to 1pc and mortgage rates to 2.5pc. Monetary shock and awe.

This remedy is fraught with risk, but all options are ghastly at this point. That is the legacy we have been left by the Greenspan doctrine. We are at the moment of extreme danger in Irving Fisher’s “Debt Deflation Theory” (1933) where the ship fails to right itself by natural buoyancy, and capsizes instead.

From all accounts, the Fed was ready to launch its bond blitz in January. Something happened. Perhaps the hawks awoke in cold sweats at night, fretting about Weimar.

H/T to The Mess for the link.

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Synchronized Boom, Synchronized Bust

http://online.wsj.com/art…6689503909.html

A narrative from Marc Faber in the WSJ on the boom/bust that was, including some astute commentary (That I happen to agree with) on how we got here.

But because interest rates during this time continuously lagged behind nominal GDP growth as well as cost of living increases, the Fed never truly implemented tight monetary policies. Indeed, total credit increased in the U.S. from an annual growth rate of 7% in the June 2004 quarter to over 16% in early 2007. It grew five-times faster than nominal GDP between 2001 and 2007.

The complete mispricing of money, combined with a cornucopia of financial innovations, led to the housing boom and allowed buyers to purchase homes with no down payments and homeowners to refinance their existing mortgages. A consumption boom followed, which was not accompanied by equal industrial production and capital spending increases. Consequently the U.S. trade and current-account deficit expanded — the latter from 2% of GDP in 1998 to 7% in 2006, thus feeding the world with approximately $800 billion in excess liquidity that year.

When American consumption began to boom on the back of the housing bubble, the explosion of imports into the U.S. were largely provided by China and other Asian countries. Rising exports from China led to that country’s strong domestic industrial production, income and consumption gains, as well as very high capital spending as capacities needed to be expanded in order to meet the export demand. An economic boom in China drove the demand for oil and other commodities up. Rapidly accumulating wealth allowed the resource producers in the Middle East, Latin America and elsewhere to go on a shopping binge for luxury goods and capital goods from Europe and Japan.

As a consequence of this expansionary cycle, the world experienced between 2001 and 2007 the greatest synchronized economic boom in the history of capitalism. Past booms — of the 19th century under colonial economies, or after World War II when 40% of the world’s population remained under communism, socialism, or was otherwise isolated — were not nearly as global as this one.

Another unique feature of this synchronized boom was that nearly all asset prices skyrocketed around the world — real estate, equities, commodities, art, even bonds. Meanwhile, the Fed continued to claim that it was impossible to identify any asset bubbles.

The cracks first appeared in the U.S. in 2006, when home prices became unaffordable and began to decline. The overleveraged housing sector brought about the first failures in the subprime market.

Sadly, the entire U.S. financial system, for which the Fed is largely responsible, turned out to be terribly overleveraged and badly in need of capital infusions. Investors grew apprehensive and risk averse, while financial institutions tightened lending standards. In other words, while the Fed cut the fed-funds rate to zero after September 2007, it had no impact — except temporarily on oil, which soared between September 2007 and July 2008 from $75 per barrel to $150 (another Fed induced bubble) — because the private sector tightened monetary conditions.

In 2008, a collapse in all asset prices led to lower U.S. consumption, which caused plunging exports, lower industrial production, and less capital spending in China. This led to a collapse in commodity prices and in the demand for luxury goods and capital goods from Europe and Japan. The virtuous up-cycle turned into a vicious down-cycle with an intensity not witnessed since before World War II.

Sadly, government policy responses — not only in the U.S. — are plainly wrong. It is not that the free market failed. The mistake was constant interventions in the free market by the Fed and the U.S. Treasury that addressed symptoms and postponed problems instead of solving them.

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Small business owners tighten their [black] belts

Al Tracy, a martial arts studio owner, is warning other martial arts studio owners of the difficulties they will be facing in a worsening economy. I found the article interesting in light of having recently joined a dual CrossFit/Jiu Jitsu gym.

Fortunately for this gym, I think CrossFit is really taking off and most of the participants are adults. Nonetheless, I found Tracy’s warning worth sharing. It is unfortunate, but I can only assume that the effects of a deteriorating economy will grow in the days to come.

July 6, 2008

For too many studios my advice will be too late

3,200++ Martial Arts Studios went out of business in the month of May alone.

In the history of Martial Arts in the United States – nothing like this has ever happened. In one month about 20% of all studios closed their door. Most will never reopen! Most should never been in business to start with.

Fact: Starbucks is closing 600 locations this year because people cannot afford to pay $3 for a cup of coffee.

How do studio owners – especially those with 90% kids expect parents to pay $100 per month plus testing fee’s? Now they have the added expense of $4 a gallon gas.

This is a no brainier for parents: Cut out the kids Karate and Dance lessons.

Hat tip to Mish.

In other unfortunate economic developments, not only is copper wiring being ripped out of homes (both foreclosed or still being built), but reports have emerged that catalytic converters are being sawed off of vehicles for the platinum they contain.

I don’t plan on blogging economics much on this site, but all of this is sad and I only see it getting worse in the coming months. I implore readers to save what they can, get out of debt, and (while hoping for the best) prepare for the worst.

Also, it probably wouldn’t hurt to invest in a bit of gold and silver (if this sounds crazy to you, just do some research — diversifying your savings away from financial assets and real estate by getting into commodities, particularly precious metals, is pretty basic advice).