Mish's Global Economic Trend Analysis

Great Divide; Boehner Rams Through Bill that Senate Quickly Rejects; Obama's Idle Threats and Fear Mongering
Foreclosed 23-Story, 475,789 Sq. Ft. KeyBank Center Auctioned Off for $7.15M; Handing Over the Keys, Cleveland Style
US GDP on Verge of Contraction in 1st Quarter, Mere 1.3% Annual Rate 2nd Quarter; Summary of Massive Revisions; Second-Half Recovery Nonsense
New NASA Data Blow Gaping Hole In Global Warming Alarmism; Idiocies of Cap-and-Trade Exposed

Great Divide; Boehner Rams Through Bill that Senate Quickly Rejects; Obama's Idle Threats and Fear Mongering

Posted: 29 Jul 2011 10:29 PM PDT

In a nearly useless face-saving maneuver, House Speaker John Boehner managed to twist enough arms to narrowly pass his bill that was instantly rejected in the Senate.

Questions abound.

Was there any point to this? If so, what was it? Since everyone knew his plan would be rejected in the Senate, why bother?

The only conceivable answer is to save face, but how much face could possibly have been saved when Boehner had to twist the arms of every Republican to narrowly pass his gaseous proposal?

As long as his proposal was going to be rejected anyway, Boehner would have been better served to come up with a rock-solid plan that Republicans would have loved to sign.

If Boehner wanted to make a statement, that would have done it. Instead, Boehner came out looking like a limp dishrag.

Senate Quickly Kills Boehner Debt Bill

The New York Times reports Senate Quickly Kills Boehner Debt Bill

After a 24-hour delay and concessions to conservatives, the House on Friday narrowly approved a Republican fiscal plan that the Senate quickly rejected in a standoff over the federal debt ceiling that was keeping the government on a path to potential default.

Demonstrating the deep partisan divide coloring the budget fight, the House voted 218 to 210 to approve the plan endorsed by Speaker John A. Boehner to increase the federal debt ceiling in two stages. No Democrats supported the measure; 22 Republicans opposed it. The White House condemned it as a "political exercise."

In the Senate, Democrats filed a motion on Friday that started debate, running down the procedural clock while Republicans expressed their opposition. The first vote on overcoming the procedural hurdles would come early on Sunday. Unless the Democrats can win over enough Republicans to cut off debate and move to approve the Reid bill or some variant, the Republicans would be forced to hold the floor continuously, awaiting some kind of deal.

The main legislative focus was on the search for an acceptable "trigger" that would guarantee that no second installment of a debt limit increase would be provided without consideration of further spending cuts or program policy changes. Democrats say they are willing to allow a new special committee to consider sweeping deficit reduction and tax policy changes but want the debt limit increase assured; Republicans do not want President Obama to get a second increase without meeting some standard, which would be passage of a balanced budget amendment through Congress under the new House plan.

Default Hype

Notice that the New York Times in the very first paragraph repeated the Obama hype regarding defaults. The odds of default at this stage are roughly zero%.

I discussed that at length on Thursday in Not Raising the Debt Ceiling Would be Blessing; Debt Limit Analysis; Interactive Map, You Decide What Not To Pay

Contrary to popular belief, the US would not default. Troops would still be paid. Medicare and Medicaid would not stop. The Bipartisan Policy Center has a nice analysis in a PDF on Debt Limit Analysis.

Prioritization

Obama's, Geithner's, and Bernanke's statements about default simply are not credible. Nor are threats of cutoffs to military pay or Social Security. Indeed those totals allow Medicaid and Medicare to be paid. ....

Idle Threats and Fear Mongering

Caroline Baum repeated my message on Friday in Obama, Geithner May Regret Threats of Default

Scare Tactics

The Treasury is not going to default in August, nor in subsequent months for that matter. An estimated $172.4 billion of tax revenue next month is more than enough to cover the $29 billion of August interest payments. For fiscal 2011, which ends Sept. 30, the Treasury is expected to take in revenue of $2.2 trillion, while only $214 billion is needed to service the debt.

And even if it lacks the authority for new borrowing, the Treasury can continue to roll over existing debt.

Instead of dangling the default threat every chance they get, Obama and Geithner should be telling the world that the U.S. has every intention, and the resources, to meet its debt obligations. They should shout it from the rooftops, put a banner on the Treasury Direct website, and use the Sunday talk shows to reassure investors, not frighten them.

The administration's stated desire to remove the uncertainty hanging over the economy flies in the face of their saber-rattling. Why, one might even conclude that they are -- perish the thought -- playing politics with the debt ceiling!

Fear Card vs. Common Sense

Notice the common sense approach of Caroline Baum vs. that of Geithner, Obama, and Bernanke. Yes, a default would be a monstrous disaster. However, we are months, not days away from that.

Why Republicans do not call the president on his fear-mongering is certainly a mystery. Are Republicans that bamboozled by Presidential BS?

Great Divide

One of the more interesting political posts of the week is The Great Divide by Washington Post columnist Charles Krauthammer.

We're in the midst of a great four-year national debate on the size and reach of government, the future of the welfare state, indeed, the nature of the social contract between citizen and state. The distinctive visions of the two parties — social-democratic vs. limited-government — have underlain every debate on every issue since Barack Obama's inauguration: the stimulus, the auto bailouts, health-care reform, financial regulation, deficit spending. Everything. The debt ceiling is but the latest focus of this fundamental divide.

The sausage-making may be unsightly, but the problem is not that Washington is broken, that ridiculous ubiquitous cliche. The problem is that these two visions are in competition, and the definitive popular verdict has not yet been rendered.

I have every sympathy with the conservative counterrevolutionaries. Their containment of the Obama experiment has been remarkable. But reversal — rollback, in Cold War parlance — is simply not achievable until conservatives receive a mandate to govern from the White House.

Consider the Boehner Plan for debt reduction. The Heritage Foundation's advocacy arm calls it "regrettably insufficient." Of course it is. That's what happens when you control only half a branch. But the plan's achievements are significant. It is all cuts, no taxes. It establishes the precedent that debt-ceiling increases must be accompanied by equal spending cuts. And it provides half a year to both negotiate more fundamental reform (tax and entitlement) and keep the issue of debt reduction constantly in the public eye.

Obama faces two massive problems — jobs and debt. They're both the result of his spectacularly failed Keynesian gamble: massive spending that left us a stagnant economy with high and chronic unemployment — and a staggering debt burden. Obama is desperate to share ownership of this failure. Economic dislocation from a debt-ceiling crisis nicely serves that purpose — if the Republicans play along. The perfect out: Those crazy Tea Partyers ruined the recovery!

Why would any conservative collaborate with that ploy? November 2012 constitutes the new conservatism's one chance to restructure government and change the ideological course of the country. Why risk forfeiting that outcome by offering to share ownership of Obama's wreckage?

Refreshing Talk of Keynesian Gamble

It is marvelously refreshing to see a mainstream media writer trashing Keynesian nonsense. That paragraph alone makes me want to stand up and salute.

However, after careful reconsideration I still come to the conclusion Boehner screwed up badly.

Indisputable Facts

Boehner wanted to compromise, announced a compromise, then walked out on talks with Obama.
Boehner submitted a $3 trillion deficit cutting package the CBO said came in at mere $850 billion. The Tea Party rejected his proposal and rightfully so.
The best Boehner could do in a rework of that bill was to come up with a total of $950 billion.
Boehner announced he had votes for passage. In a feat of massive humiliation, Boehner could not twist enough arms to secure passage.
Boehner lost whatever credibility he had in that pathetic set of maneuvers.
In a face-saving attempt, Boehner was barely able to scrape up enough votes to pass a bill on Friday that was immediately rejected by the Senate

Those are the indisputable facts of the matter and I covered them at length in the following set of posts.

Not Raising the Debt Ceiling Would be Blessing; Debt Limit Analysis; Interactive Map, You Decide What Not To Pay

Boehner's Credibility Gone in Revised Proposal; Boehner Tells Congress to "Get Your Ass in Line"; Best Deal Republicans Can Get?

Boehner Humiliated, Cancels Vote, Stock Futures Tank; Stocks and Treasuries Unusually Correlated

No one knows for sure whether Obama can win another election or not. If he does win, Republicans will probably not get another chance at 3-1 spending cuts vs. tax hikes.

Indeed, unless Republicans win a filibuster-proof Senate and the Presidency they may not get another chance.

Many contend the chance was an illusion, that Democrats were not really offering 3-1 cuts. They are correct.

However, nothing was stopping Republicans from making sure the cuts were real. Moreover, and as I have stated many times, Obama said he was willing to make "hard choices".

Republicans did not even put Obama to the test. In return for $1 trillion in tax hikes, Republicans could have asked for virtually anything.

Deal of the Century

I would gladly trade $1 trillion in tax hikes for ...

The scrapping of Davis Bacon
The end of collective bargaining of public unions
National right-to-work laws

Would Democrats have gone along? If not, Obama and the Democrats would have been seen as the deal-killers, not Republicans. If the Democrats accepted, it would have been well worth it.

Instead, no one knows what will happen in the next election, and Republicans will likely compromise on some meaningless plan that will not do a damn thing to fix the deficit.

Unless some miracle happens, the Republicans flat out blew it, and Boehner is one of the reasons. He may not be the next speaker, even if Republicans retain the House.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Foreclosed 23-Story, 475,789 Sq. Ft. KeyBank Center Auctioned Off for $7.15M; Handing Over the Keys, Cleveland Style

Posted: 29 Jul 2011 01:10 PM PDT

Bidders did not exactly come out of the woodwork in Cleveland as the 23 story KeyBank Center auctioned off for $7.15M

Bidding has ended on Cleveland's foreclosed 23-story KeyBank Center. The 475,789 square foot building on Superior Avenue sold for $7.15 million.

Bidding began on Monday afternoon at $3.5 million and ended at 2 p.m. on Wednesday.

Building Sells for $15.03 a Square Foot

Math is simple enough.
$7.5 million divided by 475,789 square feet = $15.03 per square foot.

This should give you an idea of what property is worth in Cleveland.

Handing Over the Keys, Cleveland Style

Inquiring minds might be interested in the assessed value for property taxes.

Crain's Cleveland Business reports KeyBank Center headed for auction

The lender controlling the 23- story office building at 800 Superior Ave. in downtown Cleveland is going the auction route to find a way out of owning KeyBank Center, better known as the former McDonald Investments Center.

LNR Partners, the real estate financing and investment concern based in Miami Beach that took title to the 440,000-square-foot building in February 2010, has listed the property at Real Estate Development Corp.'s website Auction.com for an online auction running from 10 a.m. July 25 to 10 a.m. July 27.

The property carries an asking price of just $3.5 million, well below the $44 million market value the Cuyahoga County assigns it for property tax purposes.

Alex Jelepis, a Grubb & Ellis Co. senior vice president who is marketing the property with Guggenheim Realtors in Beachwood, said the low starting price is to attract interest in the offering. He said he expects the building to sell for more than the asking price.

The building, which dates from 1969, will have occupancy of just 37% when the Calfee Halter & Griswold law firm exits for a nearby building next year. Its owner, LNR Partners, handles bank-owned properties and invests in buying defaulted loans or distressed properties from banks.

Dallas-based real estate firm Behringer Harvard handed over the keys to LNR rather than face the daunting task of finding new tenants for the building after Calfee moves. The red-brick KeyBank Center is a different structure from Key Tower, the tallest building in the state and KeyCorp's headquarters.

Prime Cleveland Location

This is not a horrible looking building or a poor location either.

Courtesy of Akron News please consider this image and commentary.

The building used to showcase McDonald Investments on its facade and lists a prestigious downtown financial district address of 800 Superior Avenue, but is now in foreclosure. It's prime -- right behind PNC, across from Bank One and Charter and Huntington, in case you're looking for bankers as neighbors. The auction house soliciting bids for the property notes it's had a "long history of housing some of Cleveland most prominent financial institutions," including Key Bank. When it was built in 1969, it was the city's fifth tallest structure.

The office property has been in play for more than a year. In a March 2010 story "Commercial real estate challenges apparent in downtown Cleveland corridor," The Plain Dealer noted the building had passed from owner to a lender and wasn't the only major office building in the city's financial district impacted by foreclosure.

It's quite a deal for a building boasting almost a half-million square feet of office space as well as an attached 328-space parking garage on more than an acre and a half of prime Cleveland downtown space.

There you have it. Prime building space in Cleveland is worth $15.03 a square foot. The building assessed at $44 million went for $7.15 million, "priced low to attract bidders".

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

US GDP on Verge of Contraction in 1st Quarter, Mere 1.3% Annual Rate 2nd Quarter; Summary of Massive Revisions; Second-Half Recovery Nonsense

Posted: 29 Jul 2011 09:30 AM PDT

The stunner of the day is not only an anemic 2nd quarter GDP of 1.3 percent annualized, but of huge revisions all the way back to to 2007.

Please consider Economy in U.S. Grows Less Than Forecast

Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, rose 0.1 percent.

"The second-half rebound is melting away," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, the only forecaster polled to correctly estimate the gain in GDP.

Revisions to GDP figures going back to 2003 showed that the 2007-2009 recession took a bigger bite out of the economy than previously estimated and the recovery lost momentum throughout 2010. The world's largest economy shrank 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the previously reported 4.1 percent drop.

Summary of Revisions

For 2007-2010, real GDP decreased at an average annual rate of 0.3 percent; in the previously published estimates, real GDP had increased at an average annual rate of less than 0.1 percent.
From the fourth quarter of 2007 to the first quarter of 2011, real GDP decreased at an average annual rate of 0.2 percent; in the previously published estimates, real GDP had increased at an average annual rate of 0.2 percent.
The percent change in real GDP was revised down 0.3 percentage point for 2008, was revised down 0.9 percentage point for 2009, and was revised up 0.1 percentage point for 2010.
The revisions to the annual estimates for 2008 and 2010 reflect partly offsetting revisions to the quarters within the year. For example, for 2010, the annual rate of change in GDP was revised up 0.2 percentage point for the first quarter and was revised up 2.1 percentage points for the second quarter, while the growth rates for the third and fourth quarters were revised down 0.1 and 0.8 percentage point, respectively. The downward revision to the change in real GDP for 2009 reflects downward revisions to the first and fourth quarters.
For the 13 quarters from the fourth quarter of 2007 to the first quarter of 2011, the average revision (without regard to sign) was 0.9 percentage point. The revisions did not change the direction of the change in real GDP (increase or decrease) for any of the quarters.
For 2007-2010, the average annual rate of growth of real disposable personal income was revised down 0.6 percentage point from 1.2 percent to 0.6 percent.
From the fourth quarter of 2007 to the first quarter of 2011, the average annual rate of increase in the price index for gross domestic purchases was revised up from 1.4 percent to 1.6 percent. The average annual rate of increase in the price index for personal consumption expenditures (PCE) was revised up from 1.6 percent to 1.7 percent, and the increase in the "core" PCE price index (which excludes food and energy) was revised up from 1.5 percent to 1.6 percent.
National income was revised up 0.4 percent for 2008, was revised down 0.6 percent for 2009, and was revised up 0.1 percent for 2010.
Corporate profits was revised down 1.1 percent for 2008, was revised up 8.3 percent for 2009, and was revised up 10.8 percent for 2010.

The above summary is from the BEA Gross Domestic Product: Second Quarter 2011 (Advance Estimate)

Chart of Revisions

Doug Short has a chart of revisions in his post GDP Q2 Advance Estimate: A Stunning 1.3 Percent

click on chart for sharper image

Second-Half Rebound Melts Away

Economists did not see this coming. They never do. Economists in general cannot see a slowdown coming no matter how obvious the slowdown is. Quite frankly, this slowdown was damn obvious.

Moreover, given budget constraints in the US including cutbacks at city and state levels, given Europe will soon be in recession in conjunction with various austerity measures (assuming Europe is not in recession already), given a slowdown in China, and an outright economic bust in Australia, the idea of a huge second-half surge is complete silliness.

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

New NASA Data Blow Gaping Hole In Global Warming Alarmism; Idiocies of Cap-and-Trade Exposed

Posted: 29 Jul 2011 08:12 AM PDT

Forbes Magazine reports New NASA Data Blow Gaping Hole In Global Warming Alarmism

NASA satellite data from the years 2000 through 2011 show the Earth's atmosphere is allowing far more heat to be released into space than alarmist computer models have predicted, reports a new study in the peer-reviewed science journal Remote Sensing. The study indicates far less future global warming will occur than United Nations computer models have predicted, and supports prior studies indicating increases in atmospheric carbon dioxide trap far less heat than alarmists have claimed.

In addition to finding that far less heat is being trapped than alarmist computer models have predicted, the NASA satellite data show the atmosphere begins shedding heat into space long before United Nations computer models predicted.

Scientists on all sides of the global warming debate are in general agreement about how much heat is being directly trapped by human emissions of carbon dioxide (the answer is "not much"). However, the single most important issue in the global warming debate is whether carbon dioxide emissions will indirectly trap far more heat by causing large increases in atmospheric humidity and cirrus clouds.

Alarmist computer models assume human carbon dioxide emissions indirectly cause substantial increases in atmospheric humidity and cirrus clouds (each of which are very effective at trapping heat), but real-world data have long shown that carbon dioxide emissions are not causing as much atmospheric humidity and cirrus clouds as the alarmist computer models have predicted.

Real-world measurements show far less heat is being trapped in the earth's atmosphere than the alarmist computer models predict, and far more heat is escaping into space than the alarmist computer models predict.

When objective NASA satellite data, reported in a peer-reviewed scientific journal, show a "huge discrepancy" between alarmist climate models and real-world facts, climate scientists, the media and our elected officials would be wise to take notice. Whether or not they do so will tell us a great deal about how honest the purveyors of global warming alarmism truly are.

Will this stop the global-warming fear-mongers? Of course not. Worse yet, even if global warming was a genuine threat, the cap-and-trade measures proposed as solutions are downright idiotic.

The Wall Street Journal blasted Obama's cap-and-trade proposal in March of 2009 in Who Pays for Cap and Trade?

Cap and trade is the tax that dare not speak its name, and Democrats are hoping in particular that no one notices who would pay for their climate ambitions. With President Obama depending on vast new carbon revenues in his budget and Congress promising a bill by May, perhaps Americans would like to know the deeply unequal ways that climate costs would be distributed across regions and income groups.

Politicians love cap and trade because they can claim to be taxing "polluters," not workers. Hardly. Once the government creates a scarce new commodity -- in this case the right to emit carbon -- and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag -- now Mr. Obama's budget director -- told Congress last year that "Those price increases are essential to the success of a cap-and-trade program."

An economy-wide tax under the cover of saving the environment is the best political moneymaker since the income tax. Obama officials are already telling the press, sotto voce, that climate revenues might fund universal health care and other new social spending. No doubt they would...

Cap and trade, in other words, is a scheme to redistribute income and wealth -- but in a very curious way. It takes from the working class and gives to the affluent; takes from Miami, Ohio, and gives to Miami, Florida; and takes from an industrial America that is already struggling and gives to rich Silicon Valley and Wall Street "green tech" investors who know how to leverage the political class.

Cap-and-trade confers benefit to existing polluters at the expense of new businesses who will have to buy credits from existing ones. It sets up lucrative trading schemes that will benefit Wall Street derivatives traders and those peddling otherwise economically nonviable clean energy schemes.

Cap-and-trade also benefits China, the largest, most flagrant producer of greenhouse gasses. China will not go along with cap-and-trade so driving up costs elsewhere only serves to drive business to China!

Finally, and as Forbes states, cap-and-trade is a tax on consumers who will have to pay for such nonsense.

If global warming is a problem, the free market (not derivative traders, not nonviable clean-energy schemers), will find a solution.

Fortunately cap-and-trade died in the US senate. Unfortunately, no amount of research is likely to stop GE and other beneficiaries (as well a misguided fools led by Al Gore) from pushing the idea.

Addendum:

Some people have attacked the credibility of the Forbes article. I knew in advance they would. They miss my point in writing.

My point is about the silliness of cap-and-trade as a solution. The Forbes article gave me a chance to reiterate those points and I took it. I side with the Wall Street Journal adding my own reasons as well.

My points are valid whether or not one believes in the merits of the Forbes article as presented.

Addendum II:

My friend "HB" writes ...

I have always said the global warming hysteria was essentially based on a hoax. Yet governments spend nearly $60 billion globally on such dreck every year!

What would you do if you were a climate scientist, employed in a discipline that received a few 100 thousand dollars per year of government research funding to study global warming?

If they admit it's a hoax, they are jumping off a huge gravy train.

Exactly. Money flows to those bound to a set of predetermined answers that dictate 1. global warming exists in a meaningful way and 2. something sensible can be done about it on the slim chance it does exist in a meaningful way.

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

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Mish's Global Economic Trend Analysis

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