| Two Sides (Republican and Democrat), of the Same Bloated War-Mongering Military Over-Spending Debate; Eject Neanderthals from Congress Posted: 14 Oct 2011 01:45 PM PDT There is not much difference between Republicans and Democrats when it comes to military spending. Most likely your representative is for maintaining bloated military expenditures no matter what their party affiliation. Moreover, key Republicans are even willing to raise your taxes to support this bloat. Please consider GOP, Dems Differ on How to Save Defense BudgetU.S. Representative Howard P. "Buck" McKeon, the California Republican who leads the U.S. House Armed Services Committee, and Adam Smith of Washington, the panel's top Democrat, are urging Congress's supercommittee to avoid further cuts to the Pentagon's budget.
Their Senate counterparts are likely to do the same. Where McKeon and Smith disagree is on how that might be done.
In the Senate, Carl Levin of Michigan, chairman of the armed services panel, and John McCain of Arizona, the panel's top Republican, repeatedly said this month and last that they wouldn't recommend further cuts beyond the roughly $450 billion in reductions already projected over the next 10 years.
Hawaii Democrat Daniel Inouye, who leads the Senate Appropriations panel, said last week that cutting the defense budget more than already planned would be "detrimental" to national security.
McCain today called for no further defense cuts. In a letter to the supercommittee, he supported a proposal made by President Barack Obama to establish an annual enrollment fee for the military's Tricare for Life health insurance program.
"While this fee increase would hit those age 65 and over, a group on mostly fixed incomes who are vulnerable to unanticipated changes in expenses, I believe this fee increase is a reasonable step," McCain wrote.
The Defense Department faces cuts of about $450 billion from its 10-year spending plans, even before the supercommittee makes its recommendations. If Congress fails to act on the recommendations by Dec. 23, the August budget bill signed by President Barack Obama calls for automatic cuts, including an additional $500 billion from defense spending over a decade, not including interest.
McKeon told an audience at the American Enterprise Institute on Sept. 12 that his "suspicion" was "the White House and congressional Democrats insisted on that defense number for one purpose: to force Republicans to choose between raising taxes or gutting defense."
During a question and answer period after his speech, McKeon said that, if he were faced with the choice between raising taxes or protecting the defense budget, he would "go to strengthen defense." Radical Plan for Cutting Defense BudgetThere you have it, Howard P. "Buck" McKeon would rather raise your taxes than cut the defense budget. Here is the alternative from retired Col. Douglas Macgregor (hardly a pacifist): A Radical Plan for Cutting the Defense Budget and Reconfiguring the U.S. Military by retired Col. Douglas Macgregor. In the spirit of spending wisely, here is my plan to reconfigure the military for the demands and threats of the 21st-century world and, in doing so, dramatically cut the Pentagon budget:
Today, there are more than 317,000 active-duty U.S. military personnel stationed or deployed overseas. In the Central Command theater of operations, encompassing Iraq and Afghanistan, there are approximately 180,000 active-component personnel as well as over 45,000 reservists. Approximately 150,000 active-component U.S. military personnel are officially assigned to Europe and Asia. And some estimates note that there are two civilians and supporting contractors for each service member in certain locations.
The United States long stayed secure without this kind of sprawling imperial apparatus. But as the Cold War drew to a close, instead of adjusting force structure and spending to a strategic environment newly friendly to U.S. and allied interests, the U.S. military began a dramatic expansion of its overseas presence into areas where, historically, it had been episodic at best. America's Cold War commitments, meanwhile, continued without interruption. After expelling the Iraqi Army from Kuwait in 1991, the U.S. military was directed to stay in the Persian Gulf and build massive facilities. And following the 9/11 attacks, the global war on terror resulted in major new Army and Air Force installations from Europe to Central Asia.
Why does America need all these facilities? The original Cold War goal of protecting European and Asian societies from communist threats and internal subversion has long ago been met, and many overseas U.S. bases are now redundant. What better time than now, when the United States faces fiscal calamity but few real military threats, to judiciously sort those that are truly needed from those the Pentagon can live without? It's time to declare victory and go home.
U.S. troops remained ashore in Europe and Asia long past the point when it was clear that a military presence was a needless drain on American resources. Today, new technology and a different mix of forces enables a lighter, less intrusive footprint. For instance, area control is no longer a mission that demands a large surface fleet on the World War II model. The U.S. nuclear submarine fleet augmented with fewer surface combatants employing long-range sensors, manned and unmanned aircraft, communications, and missiles can dominate the world's oceans, ensuring the United States and its allies control access to the maritime domain that supports 91 percent of the world's commerce.
In the Islamic world, the U.S.-led interventions were and remain speculative investments with questionable returns on taxpayers' investments. For the moment, operations in Afghanistan and Iraq, and more recently over Libya, have resulted in less and less funding available to reorganize and replace obsolescent, unsustainable, or worn-out Cold War-era forces designed for aerospace, maritime superiority, and ground combat -- one more reason to end or drastically reduce U.S. involvement in those conflicts as soon as possible. Other Worthy IdeasIn a four page article Mcgregor goes on to highlight a number of areas where the US can and should save money. Here are his ideas. - Estimated annualized savings resulting from withdrawals from overseas garrisons and restructuring the United States' forward military presence: $239 billion
- Estimated annualized savings from reorganizing the Army and Marine Corps: $18 billion
- Estimated annualized savings from reductions in naval surface forces and Marine fixed-wing aviation: $10 billion
- Estimated annualized savings from eliminating the F-35B: $2.5 billion
- Estimated annualized savings from reducing the number of unified commands and single service headquarters: $1 billion
- Estimated annualized savings from eliminating the Department of Homeland Security and restructuring national intelligence and the Army National Guard: $7 billion
Total Savings: $279 Billion I agree with all of Macgregor's points. His total savings: $279.5 billion a year. Eject Neanderthals like McCain from CongressIn contrast war-mongers McCain, "Buck" McKeon, and Democrat Adam Smith cannot find a single penny to cut. Quite frankly it's disgraceful. It's high time we eject the Neanderthals from Congress (from both parties), and that includes McCain. Note that the savings from Macgregor's modest proposals would be $2.79 trillion over 10 years! That may not practical all at once but it should be possible to make those changes over a 5 or six year period. Footnote: Col. Douglas Macgregor (ret.), a decorated combat veteran, writes for the Committee for the Republic in Washington, D.C. His most recent book is Warrior's RageMike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| French Government Bond Yields Widen to Record vs. Germany; Portugal Faces National Emergency; Trichet Says "ECB Will Not Be Lender of Last Resort" Posted: 14 Oct 2011 09:42 AM PDT Credit stress has now hit France sovereign debt. The spread between 10-year French bonds and German government bonds is at a Euro-era record 97 basis point differential. France 10-Year Government Bonds Germany 10-Year Government Bonds Italy 10-Year Government Bonds Portugal 10-Year Government Bonds Spain 10-Year Government Bonds
Greece 1-Year Government Bonds French Bond Yields Jump Most Since 2008 Bloomberg reports French Bond Yields Jump Most Since 2008 on Bank ConcernTen-year French yields climbed 38 basis points this week, the most since the euro was introduced in 1999. The extra yield investors demand to hold 10-year French bonds instead of German bunds also expanded to the most since the euro started. Spain's 10-year bonds fell for a fifth day after Standard & Poor's cut the nation's credit rating. Yields climbed across the euro area after European Central Bank President Jean-Claude Trichet said the ECB will not act as a "lender of last resort."
The eight largest U.S. money-market funds reduced their lending to French banks by 44 percent last month, according to filings compiled by Bloomberg and published in today's Bloomberg Risk newsletter.
Spanish 10-year yields climbed four basis points to 5.24 percent, even after the ECB was said by people with knowledge of the deals to have bought the nation's securities. S&P cut Spain's ranking by one level to AA-, with the outlook remaining negative, the company said yesterday.
Portugal Faces National Emergency
Portugal 10-year yield increased five basis points to 11.64 percent. The nation is planning to deepen budget cuts next year as it faces a moment of "national emergency," and has to do more to meet its budget goals, Prime Minister Pedro Passos Coelho said. Trichet a Proven LiarDoes this look like anything has been contained or does it look like the problem is spreading to France (as a result of foolish containment efforts)? By the way, Trichet is a proven liar. The ECB is already acting as a lender of last resort by supporting Italian bonds and foolishly buying Greek bonds previously. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| More Alarming Shipping News and Charts: Railfax Railroad, Ceridian Trucking, Harper-Petersen Shipping; Reader Anecdotes Posted: 14 Oct 2011 08:20 AM PDT Weak shipping reports have now spread to rail traffic, truck traffic, and ocean shipping. We will look at each of those in turn, but first a brief recap on the Unprecedented Drop in Port Traffic: A Sobering Omen for Holiday Sales. The five busiest container ports in the United States said that imports in August 2011 were lower than or even with 2010 volumes. In Long Beach, the second-busiest container port by volume, August imports fell by 14.2 percent from August 2010. Many analysts remain optimistic about a strong Christmas season anyway, prompting me to write .... So what are analysts thinking? Or are they thinking at all?
Shippers don't see it, the labor market does not see it, and consumer sentiment does not reflect more willingness to spend. Are analysts giddy over this 1-week rally in the stock market or are they simply cheerleading "rah rah sis-boom bah" as they do 99% of the time? Railfax Rail Traffic Year-over-Year Percent Change 13 Week Rolling Averages Chart courtesy of RailfaxThe steady deterioration in the rail indices is obvious. The next set of charts is even worse. Harper Petersen Shipping  Chart courtesy of Harper Petersen
Ceridian PCI Truck Fuel UsagePlease consider the Ceridian-UCLA Pulse of Commerce Index®, September data. Pulse of Commerce Index Falls For the Third Month In a Row
This is alarming news for the third quarter and beyond.
In the last three months, the PCI has declined at an annualized rate of 10 percent per year as illustrated in the figure above. This rate of decline has been exceeded only in the deep recession of 2008/09, and equaled only once outside of a recession in March 2000. In other words, since June, trucking activity has been receding at a pace that would be expected to show up in other economic measures soon. Two or three more months like this would confirm an official recession.
With the past three negative months, the PCI declined at the annualized rate of 4.3 percent in the third quarter of 2011 compared with the second quarter. Outside of the recessions, we have never experienced such a large quarterly decline in the PCI. Our near-recession situation is made only slightly less concerning by two facts: the declines in the recessions have been much larger than 4.3 percent, and the PCI decline in 2011Q3 is almost as much in 2003Q2.
October 12, 2011 3 With hopes that the September data would be positive, last month we wrote, "Based on the July and August data, the PCI will likely decline in the third quarter and this suggests GDP growth of zero to 1.0 percent." Due to the disappointing September number and the consequent third quarter 4.3 percent decline of the PCI, it will be difficult to get a positive GDP number in 2011Q3 — but trucking activity tends to lead the economy, and the effect of the positive growth in the PCI from 2011Q2 lingers on. As such, this makes the PCI-based forecast for third quarter GDP growth equal to zero, meaning just as likely to be negative as positive.
More ominously, the last weeks of September were the weakest, promising more of the same in October.
The positive point of view on this extremely disappointing news is that businesses, in the face of the considerable concerns about growth, appear to be unwilling to restock for a potentially vibrant holiday season at the same time as normal, and they are planning to ramp up inventories late this year, if and when the sales start to materialize. In other words, what we are observing this month is only a weak forecast of future sales, a forecast that doesn't have to be self-fulfilling. With lean inventories, increases in sales mean increases in production and in jobs.
Retail Sales and the PCI: Inventories in Motion
Viewing the PCI as a measure of inventories in motion, it appears that inventory restocking in 2010 got ahead of real retail sales, and the decline in the PCI in the second half of 2010 was an indication of inventory reductions realigning with sales. This year we have experienced an ominous cessation of growth of both the PCI and real retail sales, and now in September 2011, a sharp decline in the three-month moving average. In the coming months, we are going to see either an improvement in the PCI or a deterioration of real retail sales. Reader Anecdotes Big Ship writes .... Hi Mish,
Your story about the unprecedented drop in port traffic reminded me of something I recently noticed about shipments that the company I work for gets from Asia. I work for a major publisher in New York City that prints many of its titles in Asia due to lower costs. What we've noticed in the past several months is that shipments of our books get delayed due to a lack of ship traffic from Asia to N. America. Basically what happens is our stuff gets printed and then it waits for weeks at the docks until the ship is full and ready to transport the cargo.
To give you a perspective, it takes us twice as long now to receive stock from Asia than it did two years ago. For all intents and purposes we're a relatively 'poor' industry so we're likely at the back of the line in terms of preference but it cannot be denied that there is excess capacity and that no one is interested in increasing it because there clearly is nothing to ship. Without question this is yet another sign of the various deflationary pressures that the economy is under.
Warmest regards,
Big Ship Nancy Drew comments ... Hello Mish
From what I see at Walmart and Target, those two stores have visibly reduced their inventory. Even grocery stores seem to have reduced inventories. Also look at how many stores are advertising "layaway" for the holidays and all the online stores offering free shipping.
It sounds like a lot of retailers are expecting a bleak holiday season.
I remember a year ago Gerald Celente said Christmas was going to evolve into a holiday that centers around religious festivities and traditional food, with gifts being greatly diminished or eliminated except for small children. In response to Nancy Drew, Cross Country Runner replies ... We only buy gifts for children. The adults don't need anything and we have almost everything we want. We'd prefer to just keep our money and our sanity. I'm tired of crowded stores and trying to find a gift for those who don't need anything.
Credit Crumbs writes ... Actually, the best thing to give to kids these days are silver coins. They will grow up with a fond memory of the reward that comes from saving. Collectively the various shipping reports tell a story of very weak Christmas demand. Consumer demand can change on a dime, but there is no reason whatsoever to expect it to do so. The jobs market has been exceptionally weak, real wages are down, sentiment is down, and small yet unprecedented protests have spread to Wall Street. Globally things look worse. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Chinese Banks Deteriorate; Loan Sharks Come Knocking; Copper Ponzi Financing Revisited; 5 Reasons to Expect Lower Commodity Prices Posted: 14 Oct 2011 01:06 AM PDT On September 29, with thanks Google Translate and some links in Chinese sent by a reader, I reported China Loan Shark Market Crashes; Scores of Chinese Business Owners Unable to Pay Black Market Loans Commit Suicide or DisappearThat story has now gone mainstream. the New York Times reports As China's Economy Cools, Loan Sharks Come KnockingThe 300 employees of Aomi Fluid Equipment here were delighted recently when the owner offered an all-expenses-paid, two-day trip to a mountain resort three hours away.
The owner, Sun Fucai — or Boss Sun, as he's known — was so insistent that his workers attend that he imposed a $30 fine on any employee who refused the getaway. Nearly everyone went.
Except Boss Sun.
When the employees returned from their holiday, they found that the factory had been stripped of its equipment and that Boss Sun had fled town. "It was entirely empty," Li Heying, a former Aomi worker, said of the factory. "It was like what happens in war time."
The boss, as it turned out, was millions of dollars in debt to loan sharks — underground lenders of the sort that many private businesses in China routinely use because the government-run banks typically lend only to big state-run corporations.
In recent months, at least 90 business executives from this coastal city, a one-hour flight south of Shanghai, have disappeared because of mounting debts and impending bankruptcies, according to a local government report.
Whether out of fear of mafia-style loan enforcers — kidnappings and broken kneecaps are common tactics — or the family dishonor that is its own harsh penalty in China, some of the Wenzhou missing have gone into hiding. Others have fled overseas.
And in the last few weeks, at least three have attempted suicide by jumping off high-rises in the city, according to the state-run news agency, Xinhua, which reported that two of them died and the other survived with a broken leg.
"This is not just happening in Wenzhou," said Chang Chun, who teaches at the Shanghai Advanced Institute of Finance. "Some companies borrow from the state banks and then lend into the underground market. Many are doing this type of arbitrage."
"This informal lending was aggravated by the credit tightening that made borrowing from the official banking system more difficult," said Wang Tao, a UBS economist based in Hong Kong. Tight Credit SillinessThe idea espoused by UBS economist Wang Tao that "credit is tight" in China is absurd. Credit is not tight. Credit has expanded so rapidly that China is overheating and inflation is high. This has been going on for so long, that no capital intensive and commodity intensive projects make any economic sense whatsoever. I touched on that theme on May 5 in Ponzi Financing Involving Copper Trade Gone Wild. As I have repeated numerous times, those looking for massive inflation can find it in China, not the United States. Demand for credit is so insane in China, that businesses will go to any length to get it.
Courtesy of Michael Pettis at China Financial Markets, please check out the insane way some companies in China obtain credit. Via Email, Pettis writes ...China had been importing for many months far more copper than was needed for real use – and this in spite of a huge surge in domestic infrastructure and real estate development which has boosted the demand for copper. Imports continued even when London prices exceeded Shanghai prices by more than the equivalent of China's value-added tax.
Instead of being shipped to end users, it seems that copper was being stockpiled in warehouses. Why? One possibility of course was pure speculation. If you think domestic Chinese copper use is going to soar, and with it prices too, then it might make sense to buy copper and hoard it. But there seemed to be a lot more hoarding than normal, and anyway with London prices often above the tax-adjusted Shanghai prices, why would anyone want to speculate on foreign copper when it could be bought more cheaply domestically?
It turns out, that the copper purchases were not entirely, or even mainly, speculative. They were part of a financing scheme for companies that, in spite of the avalanche of new lending occurring both within and outside normal RMB lending, were having trouble accessing bank credit. Interestingly, Pettis insists that credit cannot really be considered tight in China, rather demand for credit has gone through the roof.
In my model, rapidly expanding credit is a sign of a huge inflation problem. For comparison purposes, many forms of credit are still stagnant or declining in the US.
This is supposed to end well? For who? Clearly this did not end well for "Boss Sun" or those who leaped from buildings, were kidnapped, or simply vanished as noted in the first link above. Copper Weekly Chart Anyone plowing into the copper Ponzi finance scheme since the beginning of 2010 is now underwater. Because of storage costs, loan fees, etc, that even includes those lucky enough to catch the price dips in early 2010. Worse yet, those who bought copper above $4 (anyone who bought since mid-November 2010 until 4 weeks ago), are in deep trouble. The loan sharks are about to come knocking, if they haven't already. China Banks DeterioratingJim Chanos Says China Banks DeterioratingJim Chanos, the hedge-fund manager who's been betting that Chinese bank stocks will tumble, said a rally spurred by government purchases of the shares hasn't changed his bearish outlook.
"The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating," Chanos, founder of New York-based hedge fund Kynikos Associates, said in an interview with Bloomberg Television's Michael McKee today.
Chanos, who told Bloomberg News last month he was selling short shares in "virtually all of the large banks in China," said today that the country's property market is in the "first parts of a very serious pullback" and that he's also betting against Brazil's Vale SA (VALE), the world's largest iron-ore producer, on expectations demand from China will slow. Chanos Video on ChinaRio Tinto CEO says China to Overcome 'Wall of Worry'I side with Chanos and Pettis. This is not even close. There is a real risk of a Chinese implosion as well as a commodities implosion led by five factors. - Recession in Europe
- Recession in US
- Slowdown in China
- Regime change in China in 2012 with more focus on Chinese consumption and far reduced focus on commodity-sensitive infrastructure projects
- Chinese housing market crash
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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