Home Refinance Calculator: June 2011

Thursday, June 30, 2011

Mish's Global Economic Trend Analysis

Managing Director of Sovereign Ratings at S&P on Possible US Debt Downgrade to "D" Default if Debt Ceiling Not Raised
Corn, Soybean, Wheat Futures Plunge on Crop Report; Inflation, Interest Rate Outlook
Obama-Pimco Fear-Mongering Duet Chants More Sour Notes
Weekly Unemployment Claims Exceed 400,000 12th Consecutive Week, Exceed 420,000 Nine out of last 10 Weeks

Managing Director of Sovereign Ratings at S&P on Possible US Debt Downgrade to "D" Default if Debt Ceiling Not Raised

Posted: 30 Jun 2011 03:34 PM PDT

John Chambers, managing director of sovereign ratings at Standard & Poor's, talks about the outlook for U.S. lawmakers to reach an agreement to raise the debt limit and avoid an S&P downgrade of the sovereign top-level AAA ranking on the U.S. to D.

Select Quotes

If any government doesn't pay its debt on time, the rating of that government goes to D
We are talking about the sovereign rating of the US government
If you get to the situation where the government hasn't paid its debt, you will have very serious disruptions throughout the money markets, in the repo markets, the foreign exchange markets and the bond market.
It will be much more chaotic than September 2008 [collapse of Lehman].
This also supports our view this will not happen. The policy makers will understand that.
They [the government] can prioritize payments and that would not be a default by definition. However, you would have to contract payments in a massive way overnight. And that would have a very sharp negative fiscal impulse to the economy
Government has raised the debt ceiling 78 times, many times at the 11th hour but later on the month of July, Democrats and Republicans will reach a compromise.

It is interesting to see the statement "policy makers will understand". We are talking about Congress here.

One could equally say "we are talking about the S&P raters here".

Either way I am hoping there will be no compromise. The more government spending is cut, the better off taxpayers will be.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Corn, Soybean, Wheat Futures Plunge on Crop Report; Inflation, Interest Rate Outlook

Posted: 30 Jun 2011 10:14 AM PDT

Grain futures are sharply lower across the board as traders had positioned themselves for shortages because of Midwest flooding and increasing demand from emerging markets and China.

Instead, corn stocks were 11 percent bigger than analysts expected and a bumper crop could be on the way according to the report.

Please consider Grain markets plunge on US acres, stocks

The U.S. corn supply is far larger than thought and a bumper crop could be on the way, the Agriculture Department said on Thursday in a report that shocked traders and shoved grain markets sharply lower.

Farmers defied expectations by planting significantly more corn acres despite rain and floods, and sky-high prices curbed demand which left June 1 stockpiles 11 percent larger than traders had predicted.

The dramatic turnaround from fears of bare-bones supplies could signal comfortable supply levels for the coming year and ease fears about high world food prices.

"American producers stepped up," [USDA's] Vilsack told Reuters Insider.

At the Chicago Board of Trade, corn for July delivery was down 10 percent, or 72 cents per bushel, at $6.26 in morning trade, and deferred contracts were locked down the limit of 30 cents per bushel. The July contract is in its delivery period and trading without limits.

July wheat was down 8 percent, or 49 cents, to $5.92-1/4. July soybeans were down 1 percent, or 19 cents, to $13.15-1/4.

Red-hot demand from corn exporters, livestock feeders and processors had been expected to consume every bushel grown in 2010 and eat into reserves, but the higher stocks number was a sign that demand has been rationed.

"We planted more acres than the trade had thought earlier in the year because we sent the signal to plant," said analyst Don Roose of U.S. Commodities. "The other thing was, we did find a way to slow down usage."

The USDA said the corn stockpile was 3.67 billion bushels on June 1, and it pegged plantings at 92.28 million acres. With normal weather and yields, a record-large crop could be harvested.

The soybean stockpile was 4 percent larger than anticipated by analysts, although plantings were 2 percent smaller. The soybean crop would still be the third-largest on record, but supplies are expected to run tight for another year.

Wheat stocks were 4 percent larger than traders expected and plantings were down marginally.

The USDA reports imply that corn growers would harvest 13.5 billion bushels of corn, which would be a record, and 3.2 billion bushels of soybeans, which would be the third-largest on record. Both estimates are Reuters' calculations and assume normal weather conditions and yields.

A mammoth crop would fatten the corn stockpile to nearly 1 billion bushels, but soybeans would run tight through fall 2012.

Grain Futures

December corn was limit down 30 cents. However, front month contracts are in delivery warning period and there is no limit. Those playing front-month contracts on expectations of a lousy crop report were massacred.

Corn Daily Chart

Inflation Outlook

With crude prices falling and corn hammered, expect the next set of CPI figures to be tame.

Bear in mind I do not consider prices to be a valid measure of inflation. Oil rising because of peak oil has nothing to do with inflation. Nor does rising grain prices based on flooding. Nor does demand from China have anything to do with inflation in the US.

Thus, this plunge has nothing to do with inflation or deflation either.

Inflation and deflation are monetary phenomena. As far as inflation goes, these price movements are noise. However, for those who think price is what matters, prices are headed down.

Interest Rate Outlook

If oil and food prices continue to drop, ECB president Jean-Claude Trichet may change his tune on rate hikes. Of course Trichet will be out of the picture soon as his term expires in October.

In the US, the Bernanke Fed got another signal to keep rates excessively low.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Obama-Pimco Fear-Mongering Duet Chants More Sour Notes

Posted: 30 Jun 2011 09:11 AM PDT

The Obama-Pimco fear-mongering duet is chanting the same sour notes again today. This time the spotlight is on the president.

Bloomberg reports Obama Assails Republicans as Gulf in U.S. Debt-Limit Talks Remains Wide

President Barack Obama accused Republicans of siding with corporate jet owners over children and the elderly in deficit negotiations and compared Congress's work ethic unfavorably with that of his pre-teen daughters.

Obama's comments underscored the distance between the White House and Republicans on talks to cut the deficit and raise the government's debt limit as Standard & Poor's warned it would downgrade U.S. debt to junk status in the event of a default and the Senate canceled its July 4 recess to continue talking.

"The yellow light is flashing," Obama said yesterday during a news conference, warning of dire consequences if Congress doesn't raise the borrowing limit before Aug. 2, when the Treasury Department projects it will no longer be able to meet all its obligations.

"This is a jobs issue," he said. "This is not an abstraction. If the United States government, for the first time, cannot pay its bills, if it defaults, then the consequences for the U.S. economy will be significant and unpredictable."

If the U.S. misses a payment on its debt because Congress doesn't raise the debt ceiling in time, Standard & Poor's would cut the U.S. credit rating from its sovereign top-level AAA ranking to D, the last rung on its scale, said John Chambers, chairman of the company's sovereign rating committee.

Obama cast the differences in moral terms. "Before we ask our seniors to pay more for health care, before we cut our children's education," he said, "it's only fair to ask an oil company or a corporate jet owner that has done so well to give up that tax break that no other business enjoys."

House Speaker John Boehner rebuffed him, saying in a statement issued soon afterward that Obama "is sorely mistaken if he believes a bill to raise the debt ceiling and raise taxes would pass the House. The votes simply aren't there, and they aren't going to be there."

Senator Tom Coburn, an Oklahoma Republican who last month dropped out of a bipartisan group of senators trying to reach a deficit-reduction deal, said on PBS's "The Charlie Rose Show" on June 28 that it is increasingly likely House Republicans won't act on the debt limit by the Aug. 2 deadline.

"If we don't have major changes to entitlements, I don't see how you get that vote through the House," Coburn said.

Obama Sings the Pimco "Unpredictable" Note

Obama is singing the same tune as Pacific Investment Management Co. LLC Chief Executive Officer Mohamed El-Erian who said "We would be in the land of the unpredictable if lawmakers fail to reach an agreement to raise the $14.3 trillion debt ceiling".

Like the president, El-Erian is singing his book. For details, please see "Land of the Predictable": Pimco CEO Warns U.S. Debt Default Might Have "Catastrophic" Effect

As noted previously, president Obama is a hypocrite.

President Obama's Hypocrisy

Inquiring minds just may be interested in knowing Obama's track record on debt ceilings when he was Senator Obama.

The Obama administration is warning of catastrophic consequences if Congress does not increase the debt ceiling, the legal limit on how much the federal government can borrow, but Barack Obama held a different view on the issue as a senator in 2006.

Five years ago, then-Sen. Obama (D-Ill.) voted against raising the debt ceiling and even spoke about it on the Senate floor before the Republican-controlled Senate voted 52-48 to increase it.

"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure," Obama said on March 16, 2006. "Leadership means that 'the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America's debt limit."

Failure of Leadership

I remind the president "The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better."

Expect Duet to Grow to Mormon Tabernacle Choir Size

As we approach the deadline, expect the duet to grow in size. To be fair, there are a more than a handful of fear-mongers already. Ben Bernanke wants Congress to do something about the deficit, just not now. So does the IMF. Other Fed governors have chimed in with similar statements already.

Yellow Light is Flashing

I agree with the president that a "yellow light is flashing". The president however, does not understand the meaning. The light is flashing because the time to do something about the budget deficit is now.

Please disregard the self-serving fear-mongering of president Obama and Pimco CEO El-Erian. Americans deserve better, and the way to do that is to act responsibly on a deficit-reduction package now, not 10 years from now.

Phone your Congressional representative and let them know what you think.

Click Here For Congresional Phone And Fax Numbers

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Weekly Unemployment Claims Exceed 400,000 12th Consecutive Week, Exceed 420,000 Nine out of last 10 Weeks

Posted: 30 Jun 2011 07:10 AM PDT

The labor market remains stuck in the mud since April second, the last time seasonally adjusted initial unemployment claims fell below 400,000.

Initial Unemployment Claims For 2011

Please consider the Department of Labor Weekly Claims Report.

In the week ending June 25, the advance figure for seasonally adjusted initial claims was 428,000, a decrease of 1,000 from the previous week's unrevised figure of 429,000. The 4-week moving average was 426,750, an increase of 500 from the previous week's unrevised average of 426,250.

The recovery is now 2 full years old. Yet, the 4-week moving average of weekly claims remains an elevated 426,750.

4-Week Moving Average of Weekly Claims

The 4-week moving average of weekly unemployment claims is at or above recession levels.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mortgage and Loans - Mortgage Refinance, Home Loans

IRA Beneficiary Planning Strategies
Advance Spanish for FHA Loan Originators
What is the best liability insurance for personal trainers?

IRA Beneficiary Planning Strategies

Posted: 30 Jun 2011 01:40 AM PDT

Here is an estate-planning technique which allows you to decrease the tax sting to your heirs, and that reduces your retirement income in case you do not think you will need all your Individual Retirement Account funds in retirement. It is called a “stretch IRA,” or “Multi-generational IRA,” a complex investment tools which allow you to extend the tax-deferred status of your IRA long after your death.

By naming your kids and grandchildren as the beneficiaries of your retirement assets, you allow them to extend the annual distributions of that IRA over the course of their lifetimes.

Structuring the stretch

You will find 4 primary approaches to structuring a stretch IRA; the traditional, spousal-rollover, participant-direct and the mixed, or combination, approach.
In the traditional set-up, your spouse is the main beneficiary and your children or grandchildren are the contingent beneficiaries, nevertheless distributions and income tax deferral are extended only through the life expectancy of the oldest beneficiary. By utilizing the Spousal Rollover Approach rather, your spouse remains the primary heir and children or grandchildren become the beneficiaries with their own IRAs. This strategy allows the distributions and income tax deferrals to extend through-out the lifetime of the beneficiaries you name. That, in turn, provides significantly more tax deferral and a lot longer opportunity for that IRA investment to grow.

If neither you nor your spouse need to dip into the IRA during your lifetime, you can also consider structuring your multi-generational IRA utilizing the Participant Direct approach, which could provide the greatest tax benefit of all.

Using this strategy, you will be asked to break up your retirement assets into a number of different IRAs like the spousal rollover-except that your children and grandchildren, not your spouse, are listed as the primary beneficiaries, so you can lower the amount of the minimum distributions you are forced to take out as soon as you hit age 70-1/2, and leave more money behind for your heirs.

Lastly, there is the Mixed approach. A combination of strategies from the stretch IRA, it is structured as a spousal rollover with the remainder under the participant direct category. You might want to give this strategy a closer look if the surviving spouse does not need the IRA assets, however reigns whilst he or she is still alive. Consult a qualified financial planner experienced in Stretch IRAs for more specifics on these plans and which approach is correct for you and your family.

You can freely reprint this article as long as the author, bio, and live links are left intact.

Advance Spanish for FHA Loan Originators

Posted: 29 Jun 2011 02:21 PM PDT

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What is the best liability insurance for personal trainers?

Posted: 29 Jun 2011 12:13 PM PDT

I am in the market for excellent liability insurance as a cpt. I am not necessarily looking for the cheapest but the most sufficient available. Thanks in advance.

Wednesday, June 29, 2011

Mish's Global Economic Trend Analysis

Medicaid Annual Spending in 1965 $1 Billion, Today $450 Billion, Projected $900 Billion by 2019; Three Things to Fix Medicaid

Posted: 29 Jun 2011 05:52 PM PDT

Medicaid was created in 1965 as a supposedly small program with expenditures of $1 billion. It has since ballooned to $450 billion and now the Department of Health and Human Services projects Medicaid will cost $900 billion by 2019.

The solution is simple. Abolish Medicaid and give states block grants so they have the flexibility to figure out how best provide healthcare for their citizens.

Two Perverse Elements of Current System

States have an incentive to spend more money to get matching funds
Consumers do not care about costs with government footing the bill

Three Proposals to Fix Medicaid

Cap Medicaid Spending
Give Block Grants to States
Allow states Full Flexibility to Define Eligibility and Benefits

Congressman Paul Ryan and Alice Rivlin former Director of the White House Office of Management and Budget under President Bill Clinton have teamed up to propose a block grant program. Rivlin was also appointed by President Obama to his National Commission on Fiscal Responsibility and Reform.

Paul Ryan - Alice Rivlin Proposal

If you agree with the approach outlined above, please contact your congressional representative and urge them to cap Medicaid and replace it with block grants.

Click Here For Congresional Phone And Fax Numbers

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Uneven Aging of America; Cultural Shift Coming; Competition for Resources Between Young and Old Will Be Intense

Posted: 29 Jun 2011 12:14 AM PDT

William H. Frey, Senior Fellow, at the Brookings Institution discusses the Uneven Aging and "Younging" of America as noted in the 2010 census.

America is beginning to show its age as the baby boom generation advances toward full-fledged senior-hood. But the pace of this aging will vary widely across the national landscape due to noticeable geographic shifts in the younger population, with implications for health care, transportation, and housing, and possible impacts upon our ability to forge societal consensus.

An analysis of data from the 1990, 2000, and 2010 decennial censuses reveals that:

Due to baby boomers "aging in place," the population age 45 and over grew 18 times as fast as the population under age 45 between 2000 and 2010.

Although all parts of the nation are aging, there is a growing divide between areas that are experiencing gains or losses in their younger populations.

Suburbs are aging more rapidly than cities with higher growth rates for their age-45-and-above populations and larger shares of seniors. People age 45 and older represent 40 percent of suburban residents, compared to 35 percent of city residents.

There are far more charts, graphs, and analysis, in the Complete PDF The Uneven Aging and 'Younging' of America: State and Metropolitan Trends in the 2010 Census. The excerpts above were from a summary.

Cultural Shift Coming

The Washington Post discusses demographic changes in If baby boomers stay in suburbia, analysts predict cultural shift

During the past decade, the ranks of people who are middle-aged and older grew 18 times as fast as the population younger than 45, according to Brookings Institution demographer William Frey, who analyzed the 2010 Census data on age for his report, "The Uneven Aging and 'Younging' of America." For the first time, they represent a majority of the nation's voting-age population.

The political ramifications could be huge as older voters compete for resources with younger generations.

"When people think of suburban voters, it's going to be different than it was years ago," Frey said. "They used to be people worried about schools and kids. Now they're more concerned about their own well-being."

The nation's baby boomers — 76 million people born between 1946 and 1964 — were the first generation to grow up in suburbia, and the suburbs is where many chose to rear their own children. Now, as the oldest boomers turn 65, demographers and local planners predict that most of them will not move to retirement areas such as Florida and Arizona. They will stay put.

"If you ask younger boomers, who are 45-ish, a lot say they expect to move and retire elsewhere," said John Kenney, chief of aging and disability services with the Montgomery County health department. "But as people get to 65 and 70, whether because of choice or default, they end up staying. We are planning on people being here."

"Retirement used to be the golden years," said Kenney. "No more."

Local governments are starting to grapple with the implications.

"Clearly, the age wave is coming," said Pat Herrity (R-Springfield), a county supervisor who heads the 50-plus committee.

Although Florida and Arizona remain retirement magnets, 17 of the 25 states with the highest concentrations of senior citizens are cold-weather states.

Older Americans now represent 53 percent of voting-age adults.

"The political clout of older Americans will be even more magnified if the traditional higher turnout of this group continues, and as the competition for resources between the young and the old becomes more intense," Frey writes.

Retirement No Longer Golden Years

I have been discussing social trends and changing social attitudes for quite some time. Here is a snip from May 2008 on Demographics Of Jobless Claims

Structural Demographics Poor

Structural demographic effects imply that prospects in the full-time labor market will be poor for those over age 50-55 and workers under age 30. Teen and college-age employment could suffer a great deal from (1) a dramatic slowdown in discretionary spending and (2) part-time Boomer reentrants into the low-paying service sector; workers who will be competing with younger workers.

Ironically, older part-time workers remaining in or reentering the labor force will be cheaper to hire in many cases than younger workers. The reason is Boomers 65 and older will be covered by Medicare (as long as it lasts) and will not require as many benefits as will younger workers, especially those with families.

In effect, Boomers will be competing with their children and grandchildren for jobs that in many cases do not pay living wages.

One of the many consequences of boomer demographics is the longer the US opus of reform of Medicare, and Social Security, the more difficult it will become because of voting demographics.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mortgage and Loans - Mortgage Refinance, Home Loans

Keiser Report №28: Markets! Finance! Scandal!
Specialist Home Insurance: Data for Home Proprietors
Bad credit mortgage lenders Florida, Debt settlement agency Atlanta GA
SFL Leads in Questionable Insurance Claims
Small Business Loans: The Dirty Little Secret and …
Mortgage market and interest rate update for Tuesday, December 30, 2008

Keiser Report №28: Markets! Finance! Scandal!

Posted: 29 Jun 2011 07:11 AM PDT

This time Max Keiser and co-host Stacy Herbert look at the scandals of the Nobel Prize winner that threatens the world; the US paying more than Buffett, and the big ambitions behind 12000 calories per day. Keiser also talks to Helen Skopis of Athens International Radio about the Greek debt crisis.

Specialist Home Insurance: Data for Home Proprietors

Posted: 29 Jun 2011 04:03 AM PDT

Every homeowner understands the importance protecting their property. Many times, however, the modus operandi is more difficult than you would suspect. Not every residential property may be seen as a “standard” property which has the qualifications for equally standard coverage. A lot of facets of the property may qualify the property to be deemed as a “specialist”property. Once it is listed as such, this estate is qualified for insurance under a more inclusive specialist home insurance coverage. How can you find out if this relates to you? Read on to find out more about this type of non-standard cover.

Subsidence or Risk of Flood

To be considered a flood risk, your house must be sitting in an authoritatively designated flood risk neighbourhood, or in a place where there may be a flood over the next year. If this is the case, a standard insurance provider might believe you are at risk for damage from a flood and decline insurance protection. Subsidence is also an issue. This is still another thing that has a bearing on whether a standard insurance company will insure your estate, or whether this standard protection is the right choice for you.

Thatched Roof Homes and Listed Buildings

Obviously, a residence with a thatched roof is at very high risk of drastic destruction as a result of fire. For that reason, sufficient insurance cover is difficult to attain from the standard insurance businesses. Listed buildings are still another sort of construction that standard insurance agencies oftentimes refuse coverage on. This is because of the fact that such buildings get individual protection under specific laws. If there is damage or loss in a listed building, the proprietor is sometimes obligated to reconstruct or reinstate it almost back to the original state. In order to achieve this, one may need to get unique materials and special workers which are not protected under standard homeowner’s insurance coverage. For ample coverage, a lot of thatched roof residence owners get specialist home insurance.

In Regards to Unoccupied and Farm Buildings

If your property is unoccupied for more than 30 days, it’s highly unlikely you’ll be able to find adequate cover from standard insurers. This will leave you at a drastic risk for damages or loss to the actual structure and also the contents inside. A specialist insurance company is beyond willing to give the client customised insurance coverage which has been completely adapted to your special requirements. Farms are another type of property that has unique needs, because a farm is both a business and a residence Since business coverage or homeowner’s coverage is inadequate for farm coverage, you really need a specialist policy.

Non Standard Construction Cover

Many properties do not conform to the definitions specified in standard home policies, especially if they aren’t constructed of traditional materials such as brick and tile. To illustrate, when your home is constructed with a timber of steel frame, or is constructed by using methods such as wattle and daub, sustaining sufficient insurance protection might be really challenging.

No one but specialist home insurance companies have professionals on staff that can set up ample coverage for all these kinds of edifices. Specialist home is a dire necessity for homeowners who have non standard.

Bad credit mortgage lenders Florida, Debt settlement agency Atlanta GA

Posted: 28 Jun 2011 09:33 PM PDT

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SFL Leads in Questionable Insurance Claims

Posted: 28 Jun 2011 07:10 PM PDT

WSFL News Update 06/28/11 10.59p SFL Leads in Questionable Insurance Claims

Small Business Loans: The Dirty Little Secret and …

Posted: 28 Jun 2011 04:49 PM PDT

www.504Experts.com SBA Loan Expert, Chris Hurn, discusses the ticking timebomb of small business lending. When small business owners want to buy commercial property, often many lenders gloss over (or omit altogether) certain loan options and focus only on ones that are more beneficial for the lender. This video explains what we like to call the “Dirty Little Secret” of small business lending — and it has to do with lenders withholding certain information from their borrowers in order to make more money, much to the detriment of small business owners.

Mortgage market and interest rate update for Tuesday, December 30, 2008

Posted: 28 Jun 2011 10:09 AM PDT

Mortgage market and interest rate update from Bruce Brown, CMPS with First Security Mortgage and radio host of Dollars and Homes on KMCO Talk Radio 710 in Kansas City.

Tuesday, June 28, 2011

Mish's Global Economic Trend Analysis

China's Top Auditor Warns of Chinese Local Government Defaults
Air Conditioning Afghanistan Troops Costs $20 Billion Per Year; Cost of One Soldier is $1 Million a Year; Hotel California
Congratulations to California: State to Pass Budget, Close $9.6B Deficit, Without Tax Hikes
"Land of the Predictable": Pimco CEO Warns U.S. Debt Default Might Have "Catastrophic" Effect; Obama's Hypocrisy

China's Top Auditor Warns of Chinese Local Government Defaults

Posted: 28 Jun 2011 04:16 PM PDT

Lost in the worry over Greek debt defaults, China Daily reports on a default story of more significance. Please consider Local governments run up huge debts, risk defaulting

Local governments had an overall debt of 10.7 trillion yuan ($1.65 trillion) by the end of 2010, said China's top auditor on Monday in a report to the National People's Congress.

He warned that some were at risk of defaulting on payments.

It was the first time the world's second-largest economy publicly announced the size of its local governments' debts. The scale amounts to more than one-quarter of its GDP in 2010, which stood at 39.8 trillion yuan.

Concerns are rising that the problem of local government debt could destabilize the financial system of the country if it is not managed properly, especially after the central government's tightening of the housing market, which could affect local fiscal revenue that is highly dependent on land sales and make debt repayment more difficult.

In addition, China's ambitious plan to construct 36 million affordable homes during the coming five years, including 10 million in 2011 and 10 million in 2012, added to worries about increasing capital tension and rising non-performing loans in commercial banks.

About 79 percent of the local government loans were made by banks across the country, according to the NAO.

Lu Zhengwei, chief economist at the Industrial Bank, said the figures released were moderate compared with previous estimates, and risks lying in these loans are quite limited.

"Overdue loans take up only a small proportion of the total lending and local governments didn't pay them in a timely way mainly because deadlines were too concentrated, not because of deteriorated ability to repay."

$1.65 Trillion is a mountain of cash even to the US. How much of that is at risk is the question, but even 10% would be significant.

Moreover, it is certain that what cannot be paid back, won't be paid back. As in the US, once assets backing loans crash, so will willingness and ability to pay back the loans. Thus, efforts by some to downplay the odds should fall on deaf ears.

Speculation in China is as least as rampant as it was in the US. For example, please consider Ponzi Financing Involving Copper Trade Gone Wild In China.

Also consider Wave of Violent Protests, Rioting, Bombings Hits China; Expect More Riots When China's Credit Bubble Pops, Exposing Mountains of Fraud

Finally, please consider World's Biggest Property Bubble: China's Ghost Cities Revisited; 64 Million Vacant Properties

As long as credit bubbles expand, no one heeds warnings like that issued by China's top auditor. Then when the bubble bursts, everyone cries they were not warned, they were taken advantage of, and they deserve a bailout.

One thing's for certain, when China's credit bubble pops, it will rock the world.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Air Conditioning Afghanistan Troops Costs $20 Billion Per Year; Cost of One Soldier is $1 Million a Year; Hotel California

Posted: 28 Jun 2011 03:06 PM PDT

If people realized how much we were wasting in stupid wars that should never have been fought, there might be far more protests.

Please consider Among The Costs Of War: $20B A Year In Air Conditioning?

The amount the U.S. military spends annually on air conditioning in Iraq and Afghanistan: $20.2 billion, according to a former Pentagon official.

That's more than NASA's budget. It's more than BP has paid so far for damage during the Gulf oil spill. It's what the G-8 has pledged to help foster new democracies in Egypt and Tunisia.

"When you consider the cost to deliver the fuel to some of the most isolated places in the world — escorting, command and control, medevac support — when you throw all that infrastructure in, we're talking over $20 billion," Steven Anderson tells weekends on All Things Considered guest host Rachel Martin. Anderson is a retired brigadier general who served as Gen. David Patreaus' chief logistician in Iraq. He's now in the private sector, selling technologies branded as "energy-efficient" to the Department of Defense.

Why does it cost so much?

To power an air conditioner at a remote outpost in land-locked Afghanistan, a gallon of fuel has to be shipped into Karachi, Pakistan, then driven 800 miles over 18 days to Afghanistan on roads that are sometimes little more than "improved goat trails," Anderson says. "And you've got risks that are associated with moving the fuel almost every mile of the way."

Anderson calculates more than 1,000 troops have died in fuel convoys, which remain prime targets for attack. Free-standing tents equipped with air conditioners in 125-degree heat require a lot of fuel. Anderson says by making those structures more efficient, the military could save lives and dollars.

Still, his $20.2 billion figure raises stark questions about the ongoing war in Afghanistan. In the wake of President Obama's announcement this week that 33,000 American troops will soon return home, how much money does the U.S. stand to save?

Dollars And Cents

The 33,000 troops who will return home by the end of next year match the numbers sent to Afghanistan in 2010, at a cost of about $30 billion. That comes out to about $1 million a soldier.

But the savings of withdrawing those troops won't equal out, experts say.

"What history has told us is that you don't see a proportional decrease in spending based on the number of troops when you draw them down," Chris Hellman, a senior research analyst at the National Priorities Project, tells Martin.

"In Afghanistan that's going to be particularly true because it's a very difficult and austere environment in which to operate," he says.

That means most war expenditures lie not in the troops themselves but in the infrastructure that supports them — infrastructure that in some cases will remain in place long after troops are gone.

"We're building big bases," American University professor Gordon Adams tells Martin. The costs of those bases are, in economic terms, "sunk" costs, he says.

"We're seeing this in Iraq. We're turning over to the Iraqis — mostly either for a small penny or for free — the infrastructure that we built in Iraq. But we won't see back any money from that infrastructure."

And more importantly, Hellman says, "[Afghan President Hamid] Karzai indicated a couple years back that [Afghanistan] wasn't going to be a position to support their own military forces 15, 20 years out. I suspect we're going to be called on to pay a substantial part of that bill going forward."

One outspoken critic is Sen. Joe Manchin (D-WV). He notes the wars in Afghanistan and Iraq have cost hundreds of billions of dollars so far, and he argues a larger troop drawdown isn't a national security risk.

"When you have this many people in a country that doesn't want you there — that has no economy, no infrastructure and a corrupt government — and you're trying to stabilize it and build them into a viable nation? I'm not sure we have enough time, and I definitely know we don't have enough money," Manchin says.

Do the Troops Deserve Air Conditioning?

Some may be asking if US troops deserve air conditioning? The question may sound reasonable, but it poses a false dichotomy. There are more important considerations.

First and foremost, US troops deserve to not be put in harm's way for no reason. The simple fact of the matter is that there is no legitimate reason to be in Afghanistan, in Pakistan, in Iraq, or in 140 other countries at a cost to US taxpayers. Thus, the air conditioning question should never arise in the first place.

If other countries want us there, they should foot the bill. If they don't want us there then we should leave.

The US could cut its military budget by 50% or more with no detriment to actual defense of the United States. In fact, there would probably be a huge improvement in the defense of the United States. The reason is simple - terrorist problems have arisen because we are meddling in countries where we have no business being in the first place.

Iraq vs. Vietnam

For an interesting perspective, please consider Iraq War Deaths Exceed Vietnam War Numbers

However, it is not fair to just look at US deaths. Wikipedia notes "the Vietnamese communist government in 1995 estimated that 2,000,000 Vietnamese civilians on both sides died in the war."

The absurd war in Vietnam did not end until US citizens got fed up with it and demanded change. Unfortunately millions of lives were ruined before change came.

Hotel California

How much more will people put up with now before they demand change?

How long will the US remain in Iraq and Afghanistan?

Before answering that last question answer this one: How long has the US been in South Korea and Japan?

As with the Hotel California, the US may check out, it just never leaves.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Congratulations to California: State to Pass Budget, Close $9.6B Deficit, Without Tax Hikes

Posted: 28 Jun 2011 11:32 AM PDT

Congratulations to all California legislators willing to tell governor Jerry Brown where to stuff it. Without needing republican votes, California set to pass budget, close $9.6B deficit

California lawmakers and Gov. Jerry Brown are set to achieve something rarely accomplished in California -- getting a budget signed into law by the July 1 start of the fiscal year.

Both houses of the Legislature have scheduled late afternoon sessions Tuesday to vote on a Democratic budget that can be passed with a simple majority vote. That means no Republican support is needed.

Democratic lawmakers and the governor crafted the plan after Brown vetoed a budget approved on the Legislature's constitutional deadline, June 15. The state controller determined that plan was not balanced and used the provisions of a recent ballot initiative to halt lawmakers' pay.

This plan relies on spending cuts, a projected $4 billion rise in tax revenue and fee increases to close a $9.6 billion deficit.

Balanced Budget Mirage

Bear in mind this so-called "balance budget" is a mirage. Tax revenue is not going to be sustainable.

When this plan fails, and it will fail (but only after it passes), Republicans can stand firm again and demand more cuts.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

"Land of the Predictable": Pimco CEO Warns U.S. Debt Default Might Have "Catastrophic" Effect; Obama's Hypocrisy

Posted: 28 Jun 2011 01:29 AM PDT

In yet another of the seemingly endless self-serving fear-mongering exercises, Pimco's El-Erian Says U.S. Debt Default Might Have 'Catastrophic' Effect

Pacific Investment Management Co. LLC Chief Executive Officer Mohamed El-Erian said a short-term default by the U.S. on its debt might have "catastrophic" legal consequences.

"We would be in the land of the unpredictable" if lawmakers fail to reach an agreement to raise the $14.3 trillion debt ceiling and the U.S. misses a payment "simply because of the technical linkages," El-Erian said in an interview on CNN's "Fareed Zakaria GPS" program, scheduled to air today.

U.S. lawmakers are seeking a path to increasing the debt limit and to cutting at least $1 trillion from the long-term deficit before an Aug. 2 deadline. President Barack Obama plans to hold separate meetings at the White House June 27 with Senate leaders Arizona Democrat Harry Reid and Kentucky Republican Mitch McConnell in an effort to break an impasse that scuttled a seven-week negotiating effort led by Vice President Joe Biden.

"My advice is please try and get together and solve this issue in the context of a medium-term reform package," El-Erian said. "If you can't do that and you're going to kick the can down the road, kick the can rather than face something that could be catastrophic in terms of legal contracts being triggered."

"So when we look at Treasuries, we see the big buyer stepping away from the market, for certain. And we ask the question, who else is going to be buying at these levels, and we can't identify another buyer of the size of the Fed."

El-Erian said the U.S. fiscal problems are dwarfed by those of Greece, whose debt reached 143 percent of gross domestic product last year.

"It is inevitable that Greece would have to restructure its debt," he said. "Greece has two problems: it has too much debt and it cannot grow. And until these problems are solved, more and more of Europe is going to become contaminated."

"Land of the Predictable"

I mock the lame fear-mongering excuses of government officials, politicians, and in this case buyers of government and agency debt who do not want to see interest rates rise out of fear of what it would do to the short-term value of their portfolios.

Thus it was entirely predictable that Pimco would issue a "Catastrophic" warning. As for who would buy US government debt, that answer is quite easy to explain: China and Japan would as a function of trade-deficit math, and they would add to that total, as would the UK, Canada, and Europe. El-Erian knows just that (as much as anyone knows anything in the land of the unknowable).

The biggest irony in El-Erian's statement is Pimco would be a buyer, and so would millions of others if interest rates rose high enough.

Finally, interest rates would come crashing back down as soon as an agreement was worked out and there is no doubt an agreement will be reached sooner rather than later.

The only thing "unpredictable" is the exact nature of that agreement.

Shutdowns Happened Twice Before

Please note that US government shutdowns have happened twice before, in 1995 and 1996 under president Clinton.

The United States federal government shutdown of 1995 and 1996 was the result of a conflict between Democratic President Clinton and the Republican-controlled Congress over funding for Medicare, education, the environment and public health. It took place after Clinton vetoed the spending bill which Congress sent him. Thereupon, the Federal government of the United States put non-essential government workers on furlough and suspended non-essential services from November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996. The major players were President Bill Clinton and the Speaker of the U.S. House of Representatives Newt Gingrich.

Nothing Catastrophic Happened

Amidst all this fear-mongering by president Obama, Pimco, and others, I calmly point out that nothing catastrophic happened last time, and there is no reason to believe anything catastrophic would happen this time.

President Obama's Hypocrisy

Inquiring minds just may be interested in knowing Obama's track record on debt ceilings when he was Senator Obama.

The Obama administration is warning of catastrophic consequences if Congress does not increase the debt ceiling, the legal limit on how much the federal government can borrow, but Barack Obama held a different view on the issue as a senator in 2006.

Five years ago, then-Sen. Obama (D-Ill.) voted against raising the debt ceiling and even spoke about it on the Senate floor before the Republican-controlled Senate voted 52-48 to increase it.

"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure," Obama said on March 16, 2006. "Leadership means that 'the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America's debt limit."