Weak arguments presented by "team Obama" lawyers supporting Obama's healthcare legislation took a beating yesterday, and the beating continued even more so today.
Today was the final marathon session of oral arguments over ObamaCare. It began this morning with the question of what to do with the rest of the law if the individual mandate is struck down, a very real possibility after yesterday's hearing.
On this issue, both sides agree that if the mandate falls, at least some of the other provisions must fall with it. Most of the Justices seemed skeptical that the entire law should be thrown out, but where to draw the line was a question the Court was clearly struggling with.
Some of the justices hinted that the difficulty in drawing that line could mean disaster for the whole law. Others noted that the Court has never struck down the heart of a statute but left an empty shell. At one point, Justice Kennedy expressed his concern that it might be worse to pick and choose which parts to strike down than to just overturn the whole law. Justice Scalia joked that forcing the Court to go through the law's thousands of pages and provisions one by one would be cruel and unusual punishment.
The four liberal justices appeared highly critical of the state's argument that conditioning pre-existing Medicaid funding on new expansions is too coercive. The conservative justices also expressed some skepticism that the forced expansion was unconstitutional, though they did press the administration to define the outer limits of that power.
Justices Ask if Health Law Is Viable Without Mandate
On the third and final day of Supreme Court arguments over President Obama's health care overhaul law, several justices on Wednesday indicated a reluctance to pick and choose among the law's other provisions should the requirement that most Americans have health insurance be struck down.
The questions from the justices indicated that at least some of them were considering either striking down just the requirement, often called the individual mandate, or the entire law.
Paul D. Clement, representing 26 states challenging the law, urged the court to overturn the entire law. Edwin S. Kneedler, a deputy solicitor general, took a middle ground, suggesting that the court remove the mandate and only a couple of other provisions.
The court separated the day's arguments into two sessions. After the morning session, which focused on the effect of overturning the mandate, the afternoon's hearing dealt with the law's expansion of Medicaid, part of its attempt to reduce the number of Americans without health insurance.
In the second argument, the court's more conservative justices expressed concern that the law's Medicaid expansion was unduly coercive to states.
"My approach would be to say that if you take the heart out of this statute," Justice Antonin Scalia said, "the statute's gone."
Justice Scalia, who suggested that the whole law would have to go, appeared to go further than some of the other justices, but many of them expressed skepticism that the rest of the law could remain intact if the court ruled the mandate to be unconstitutional.
Justice Ruth Bader Ginsburg called the court's task, should the key provision fall, a choice between "a wrecking operation" and "a salvage job."
Wrecking Operation or Salvage Job?
There is nothing of merit to salvage in Obamacare. Even if there was, the Supreme Court should not have to read through thousands of pages to find it.
The only things to "salvage" if key provisions are struck down, are Obama's inflated ego and his ability to say he passed healthcare legislation.
Memo to Nancy Pelosi
Hello Nancy: It seems the Supreme Court does not want to read the bill to find out what's in it.
Sorry Team Obama, your bill was more like "Healthwreck" than "Healthcare".
By the way, I have to ask: If the Supreme court strikes Obamacare, does it strike any provisions of Romneycare that passed in Massachusetts?
PIMCO founder and co-CIO Bill Gross spoke with Bloomberg Television's Margaret Brennan today, telling Bloomberg TV that the Fed will likely shift focus to mortgage securities to keep borrowing rates low when Operation Twist ends in June.
On Gross's view that we may see a sign from Bernanke in April that QE3 will be rolled out:
"I think [Chairman Bernanke] is very satisfied…I think the Fed is outcomes-oriented. They want an outcome in terms of a higher stock market, in terms of housing starts and lower unemployment. What [Bernanke] said on Monday, in terms of the employment, he suggested that up until now, we've done very well in terms of reducing unemployment but it'll be tougher going forward if only because of structural impediments that he outlined. Going forward, he's looking at jobs, at unemployment and the housing markets. You know, future QEs will the outcome-oriented type of strategy which seeks to provide jobs and provide higher housing prices and housing starts to continue on."
On the tool that Gross thinks the Fed might deploy in April:
"I have a sense that they'll continue with the Operation Twist, but not necessarily in terms of buying longer-term bonds and selling shorter dated Treasuries. I think that's basically been played out and the pension market itself in terms of liability structure has been damaged to some extent by lower 30-year yields. I think [Bernanke] will try to do is Twist in the mortgage market. Basically, buy current coupon mortgages in agency spaces and then basically Twist by repo-ing out the Treasuries that they currently own in short-term space. So, you know, a twist on another Twist I suppose, going forward."
On the ticker change for PIMCO's new ETF (to BOND):
"It is easy to recognize. I told my wife about it last night and in the middle of the night she started saying something about James. I hope she was referring to the ETF but you get the point… It's more easily recognizable. In this business you want to go with a ticker and a sticker that people can recognize and pass on to their neighbors."
On Gross's warnings to investors about management fees:
"We've noted that for a long time. This is simply a cautionary element that suggests that when interest rates come down close to zero and when the discounting of those interest rates and equity prices and other financial assets produce a perspective of 4-5% total return for the combined asset class is in our view, then it's incumbent upon a manager to keep expenses low and to alert investors as to the importance of expenses relative to lower returns in this new financial world that we speak to."
On investor appetite for PIMCO's new ETF:
"We wanted to be able to give investors a choice. We recognized the tremendous importance of the retail distribution network for PIMCO and for the Total Return Fund, which is now $253 billion. Thank you very much, we don't to discourage that. But there are investors in the $10,000-$20,000 category, who find it difficult to buy PIMCO Total Return. We thought this would be a good way to do this in the actively managed ETF space. By the way, we're outperforming the market in the first month or so by a good 200 basis points."
On PIMCO's appetite for Treasuries:
"We have an average appetite in terms of duration space. And to the extent that five-year Treasuries, which are being issued today and seven-year Treasuries tomorrow - they reflect a relatively firm commitment on the part of PIMCO, which reflects a relatively firm commitment on the part of the Fed that they'll keep interest rates firm until late 2014. Bernanke mentioned yesterday that that wasn't a commitment in total but it's subject to a relatively slow economy and contained inflation, which is what we see now. A five-year security at slightly above 1%, to our way of thinking, as it rolls down the yield curve and becomes a four-year, produces close to a 2% return and is that a super, deeper attractive type of return? Well it's up to history. No, it's not….but it's certainly better than nothing."
"We have reduced our Treasury commitment slightly. From the standpoint of duration, we have average duration of an average maturity across the board but we have been reducing Treasuries and investing in shorter duration corporates and rather heavily in the agency mortgage market. You can get, with a Fanny or a Freddie coupon that is a 4% coupon, you can realize 3% as opposed to the 2% or 1% - I mentioned in terms of five-year space. We're really focusing on spread and the lack of volatility going forward for the next two to three years which is really the domain of 30-year and 15-year mortgages."
On finding investing opportunities in developing countries:
"Where is that attractive growth? Countries like Brazil, countries in Asia, China-related of course. These countries don't come without risk. They don't come without a rather volatile situation in terms of inflation or potential currency disorder. If an equity investor is looking for growth, you want to go developing as opposed to developed. Even a bond investor, if you are looking for higher real rates such as in Brazil, you want to go to developing as opposed to developed."
On buying hedges against fat tail possibilities:
"What we're suggesting now is not an extremely negative possibility. That would be the fat left tail. But also the fat right tail, we've had a fat right tail in equity markets for the past 3-6 months…On the left-hand side, you know, the bi-model possibility in terms of a downturn are simply a reflection of the high degree of leverage, the high degree of debt and the policy coordination which may or may not be helpful in terms of producing this smooth, rather bell-shaped mode or median we're all used to."
No Real-World Point to Mortgage Twist
Note that Bill Gross' call on QE3 is not what he thinks the Fed should do, rather his take on what the Fed will do.
30-year mortgages are below 4% and 15-year fixed mortgage rates are near 3%. Other than goosing financial markets that are already back to nose-bleed level (if not outright bubble territory), there is no real-world point to an "Operation Twist" for mortgages.
February orders increased 2.2 percent but economists expected a 3 percent rise.
January durable goods orders fell 3.6 percent.
Orders for non-defense capital goods excluding aircraft rose 1.2 percent. Analysts' expected of a 2.0 percent gain.
Non-defense capital goods' orders fell 5.2 percent in January.
Excluding transportation which had an unsustainable sharp increase in civilian plane orders, durable goods orders were only up 1.6%.
Boeing received 237 aircraft orders in February, up from 150 in January, accounting for the 3.9 percent jump in transportation orders.
Motor vehicles and parts orders rose 1.6%.
Inventories of manufactured durable goods rose for the twenty-six consecutive month and are now at the highest level since the series was first published on a NAICS basis in 1992
High inventories and falling demand for non-defense capital goods' orders does not portend well for future GDP growth.
If the government can force you to buy health insurance, what can't they force you to do or buy?
That was the question posed by a number of Supreme Court justices throughout today's oral argument on the constitutionality of ObamaCare. And that was the question President Obama's lawyers couldn't seem to answer.
That question didn't seem to bother the four liberal justices, who appeared ready to uphold the law. At one point, Justice Breyer suggested that the government could force you to buy things such as cellphones and burial insurance. The remaining justices, however, appeared highly skeptical of the government's argument. Justice Kennedy and Chief Justice Roberts, largely believed to be the "swing votes" in this case, pressed the administration's lawyer hard for any kind of limit to the President's theory.
Chief Justice Roberts harshly noted that the type of insurance ObamaCare forces people to buy was completely different from the type of health care these people actually use. Justice Kennedy countered the administration's argument by saying that the government will say that every market is "unique."
The fact that the Obama administration didn't have a good answer for these questions could spell doom for the President's signature legislation. That doesn't mean the law will ultimately be struck down. After all, the government needs to convince only one of the conservative justices. But today's hearing illustrated just how uncomfortable they are with a law that, as Justice Kennedy proclaimed, "changes the relationship of the federal government to the individual in a very fundamental way."
The Obama administration's health insurance mandate faced severe skepticism Tuesday from conservatives on the Supreme Court during a pivotal morning of oral arguments on the landmark legislation.
Justice Anthony Kennedy, the court's most consistent swing vote, repeatedly voiced doubts about the mandate's constitutionality, suggesting he could side with the court's four staunch conservatives to overturn President Obama's healthcare law.
"That changes the relationship of the federal government to the individual in a very fundamental way," Kennedy said.
Jeffrey Toobin, a lawyer and legal analyst who writes about legal topics for The New Yorker called Tuesday a "train wreck for the Obama administration."
"This law looks like it's going to be struck down. I'm telling you, all of the predictions, including mine, that the justices would not have a problem with this law were wrong," Toobin said Tuesday on CNN. "I think this law is in grave, grave trouble."
Supporters of the law had seen Chief Justice John Roberts and Justice Antonin Scalia as possible supporters of the mandate in addition to Kennedy, but the two offered aggressive questions during the two hours of arguments.The debate hinged largely on whether the mandate requires people to enter the market for health insurance or regulates the market for healthcare. Verrilli argued that everyone either uses healthcare or is at risk of unexpectedly ending up in the market for healthcare services. The mandate simply ensures that those services are paid for, he said.
Scalia wasn't buying it.
"I don't agree with you that the relevant market here is health care. You're not regulating health care. You're regulating insurance," Scalia said. "It's the insurance market that you're addressing and you're saying that some people who are not in it must be in it."
Following an exchange between Verrilli and Scalia, Justice Sonia Sotomayor spent a full two minutes outlining the three main elements of the Justice Department's position, then she asked Verrilli, "Which of these three is your argument? Are all of them your argument?"
Roberts pressed Verrilli to explain where Congress's power to issue new mandates would stop. The lack of a "limiting principle" has dogged the Justice Department's case throughout the process, prompting one lower-court judge to question whether Congress could also require citizens to buy broccoli, because a healthy diet would cut down on healthcare costs.
The Supreme Court justices revived the broccoli analogy and ran through several more, asking whether the government could mandate the purchase of cellphones, gym memberships, cars, prescription drugs or burial insurance.
Conservative judges in lower courts have upheld the mandate on the grounds that healthcare is unique, due to the risk of accidents and the nature of its cost-shifting. Although other goods also get more expensive when people don't buy them, there are few parallels to the requirement to treat uninsured patients.
The mandate is also considered essential to effectively implementing other parts of the healthcare law. Provisions requiring insurance companies to cover sick people, and prohibiting them from charging those patients higher prices, could dramatically raise the price of insurance if not counterbalanced with the mandate.
"That seems to me a self-created problem" that could be solved by not imposing those regulations, Scalia said.
Senator Lee Says 5-4 Ruling Against Individual Mandate
Sen. Mike Lee (R-Utah) predicted Tuesday that the Supreme Court will rule against President Obama's signature healthcare legislation and declare the individual mandate unconstitutional.
"Based upon the questions from the bench, I am predicting that there's likely to be a 5-4 ruling in this case. I tend to think it's a 5-4 ruling holding that the individual mandate is unconstitutional," said Lee on Fox Business Tuesday.
Lee said that he sensed Kennedy, who is considered the traditional swing vote on the court, appeared "very skeptical" about the Justice Department's argument in defense of the mandate.
Lee, who clerked for Supreme Court Justice Samuel Alito on the U.S. Court of Appeals for the Third Circuit Court, also noted that today's hearing was uncharacteristically "lively."
The Illinois Policy Institute asks the correct question "If the government can force you to buy health insurance, what can't they force you to do or buy?"
Regardless of whether or not one thinks we need national healthcare, legislation ought to pass strict constitutional muster. Obamacare doesn't, and thus deserves to be flushed down the toilet. Congress can try again.
In the course of a quick 15 minute debate broken into a series of 30 second sound bites, it is sometimes difficult to get everything said that needed to be said. One point I did not get a chance to mention again, but I did bring up in my Blog rebuttal to Weisenthal, is that central bank planning of money supply and interest rates is in and of itself ridiculous. Repeat bubbles and bailouts prove it.
Soviet Style Planned Economies Do Not Work
It makes as much sense for a group of guys in a room to attempt to set a price and amount of money as it did for inept Soviet-style central planners to run an economy, setting the price and amount of steel production and other goods - precisely none.
Certainly the Greenspan Fed ignored (cheerleaded is a better word), the housing bubble every step of the way. Bernanke defended the housing bubble and failed to see its consequences.
Stability and Flexibility
The most amazing, and galling thing, is Bernanke has the nerve to preach about "price stability" in the wake of that collapse.
Jo wants the flexibility for the Fed to step in and cleanup messes. I don't want the flexibility of fractional reserve lending and fiat currencies because that is what created these messes in the first place.
Deputy U.S. Trade Representative Michael Punke and Treasury Deputy Assistant Secretary for International Monetary and Financial Policy Mark Sobel today began a two-day series of meetings at the World Trade Organization's (WTO) seminar on the relationship between exchange rates and trade, where they will advocate for market-determined exchange rates as a foundation of an open global trading system.
U.S. participation in the WTO seminar is premised on the importance of trade liberalization and recognition that persistently misaligned exchange rates and competitive devaluations undercut an open trading system.
Ambassador Punke stated: "Real exchange rates that are aligned with fundamentals are a necessary foundation for the global trading system."
The discussion is useless. China will float the Yuan when it is ready and not before.
Australian Prime Minister Julia Gillard said on Monday she was surprised at the scale of her ruling Labor party's defeat in state elections, widely seen as a dire warning for her fragile government.
Labor, which has ruled for 20 of the past 22 years in northern Queensland, suffered an unprecedented rout at weekend elections, taking so few seats that its official party status in the state is under threat.
When Labor came to power nationally in 2007 it also controlled all the state parliaments, but since then the four major east and west coast states have fallen to the Liberals, complicating passage of its policies and reforms.
After the Queensland vote, Labor is expected to have just seven seats in the state to the conservative Liberal National Party's 78.
The Labor Party is aptly named but US readers need to be aware that the strangely named Liberal National Party has a conservative connotation.
Compounding the irony, the World Socialist Web bemoans the alleged "pro-business" program of the Labor Party. You cannot make this stuff up.
Small Firms Struggle With Bills
Australian businesses are going to crash and burn as a result of Labor initiatives and a property bubble headed for a "big flush".
MORE than a quarter of small to medium-sized firms face going under because they are unable to pay their tax bills and outgoings, the latest survey by Bibby Financial Services says.
The study found that 26 per cent of firms struggled to pay their bills to suppliers, while 24 per cent faced an uphill task meeting their tax payments.
Only 30 per cent of firms said they intended to invest in their business, down from 33 per cent the previous year.
About 40 per cent of firms said managing cashflow, staffing issues, dealing with red tape and tax administration were among the biggest headaches they faced.
The cashflow problems were heightened with almost half of the firms experiencing delays in payment and 27 per cent had to deal with bad debts in the past year.
"Not surprisingly, many remain pessimistic about their future payment terms. Over a third (36 per cent) expect the length of time they must wait to be paid will increase further in the coming quarter," BFS managing director Greg Charlwood said.
Bank of Queensland Halted, Hit By Surge in Real Estate Losses
THE Bank of Queensland (BoQ) has been hit by a surge in residential and commercial property loans striking trouble, prompting the board to order a $450 million capital raising to shore up the regional bank's balance sheet.
The stock was put in a trading halt today as BoQ's chief executive Stuart Grimshaw revealed that the bank would record a $91 million after-tax loss for the first half of 2012. The statutory loss follows a $222m normalised underlying profit for the period.
The Party is Over
Turn out the lights, the party is over. Australia is headed for one hell of a hangover in the wake of residential and commercial real estate busts. Retailers will be especially hard hit as consumers throw in the towel on spending and store owners struggle to keep up with absurd labor costs and excessive lease payments or property taxes.
Retail prices in Australia are absurd. A 5% reduction in prices is hardly a bargain. As for the notion mining will carry the economy, forget about it. Commodity prices are going to plunge, and besides, commodities are not a big driver of jobs anyway.
There is no "floor" under retail. The bottom is going to fall out, and unemployment is going to soar. In turn, rising unemployment will clobber Australia's already deep-in-trouble housing sector.
As for small shops, they are completely doomed. Store owners with little leeway on wages will not get the income they need to pay taxes, interest, utilities, and rent.
Expect an across the board retail and housing bloodbath because one is coming.
Inquiring minds are asking How does Paul Ryan's budget plan stack up against president Obama's budget plan, item-by-item? With thanks to Ross Perez and Lori Williams at Tableau Software, let's take a look.
The idea for this post came from Lori Williams. I asked for the deficit and debt comparison tables at the bottom. Numbers are rounded to the nearest $100 billion.
In Path to Prosperity I found this interesting chart and commentary.
First, Figure 2 makes it very clear that, absent action, Social Security, Medicare and Medicaid will soon grow to consume every dollar of revenue that the government raises in taxes. At that point, policymakers would be left with no good options.
I happen to agree with that analysis, so what does Ryan propose to do about it? The answer is nothing.
Obama vs. Ryan Medicare Proposal
Note that Medicare expenses soar under both Obama's plan and Ryan's plan. Is this the best Ryan can do?
Obama vs. Ryan Deficit and Debt
Notice how both Ryan and president Obama make progress for three years, then nothing for the next seven. Ryan does a better job, but after 10 years of Ryan's proposal, national debt will rise from 11.5 Trillion to $16.1 trillion and that is if Ryan's revenue assumptions come in.
Here's a hint: They won't. Revenue assumptions for both Obama and Ryan will prove to be way too optimistic.
A point of note: Ryan and Obama use a different starting point for national debt, which coupled with arithmetic rounding, explains the slight discrepancy in the first column of numbers.
Path to Prosperity or Path to Ruin?
It's easy to make a comparison to Obama's budget and do better. Indeed it would be hard to do worse, but that does not make Ryan's budget any good.
Ryan does nothing about Medicare and makes the horrendously over-bloated defense budget even worse.
I happen to like some of Ryan's ideas, and hate others, but the overall budget proposal is not fiscally sound.
I would like to do similar analysis of Romney's plan. Unfortunately Romney does not have a plan, only vague promises of miracles, more far-fetched than what Ryan has proposed.
Steen Jakobsen, chief economist at Saxo Bank in Denmark discusses the illusion of cheap money, bond market yields, and the lack of European reform in his latest email.
In Spain, things are going from bad to worse. Last weekend's local election in Andalucia, where Spain's centre right People's Party failed to secure an outright majority, left Prime Minister Rajoy without a mandate to carry on with tough austerity.
It was a bad start to week where we on Thursday will see a major general strike aimed at… Yes, you guessed it: Austerity measures.
Spain 10-Year Bonds and 5-Year CDS
Illusion of Cheap Money
The European story remains one of major promises and no actual reforms. A low interest rate and an extreme sense of "security" created by the illusion of easy money and low interest rates won't last forever.
As I wrote in Interest rates: the market has it all wrong, we could be on route to an exit strategy from central banks which at a bare minimum will be a goodbye to "unconventional measures" and if so, the low in interest rate cycle is in place.
30 years of Japanisation?
The only way central banks can create a proper exit from unconventional is to hand over the torch to reforms from governments and politicians. Unlikely, yes, needed?
Absolutely, otherwise we are doomed to 30 years of Japanisation.
I concur with the above analysis. What cannot last forever by definition won't. That includes a market whose only focus at the moment is on the "illusion of cheap money".
In any given month, a large number of workers are being hired or are leaving their current jobs, illustrating the dynamism of the U.S. labor market. For example, between 2001 and 2007, private employers hired nearly 5 million people, on average, each month. Total separations, on average, were only slightly smaller. Taking the difference between gross hires and separations, the net monthly change in payrolls during this period was, on average, less than 100,000 jobs per month--a small figure compared to the gross flows.
The recent history of these flows suggests that further improvement in the labor market will likely need to come from a shift to a more robust pace of hiring. As figure 7 shows, the declines in aggregate payrolls during the recession stemmed from both a reduction in hiring and a large increase in layoffs. In contrast, the increase in employment since the end of 2009 has been due to a significant decline in layoffs but only a moderate improvement in hiring. To achieve a more rapid recovery in the job market, hiring rates will need to return to more normal levels.
The Change in Unemployment and Economic Growth: A Puzzle?
What will lead to more hiring and, consequently, further declines in unemployment? The short answer is more-rapid economic growth. Indeed, the improvement in the labor market over the past year--especially the decline in the unemployment rate--has been faster than might have been expected, given that the economy during that time appears to have grown at a relatively modest pace. About 50 years ago, the economist and presidential adviser Arthur Okun identified a rule of thumb that has come to be known as Okun's law. That rule of thumb describes the observed relationship between changes in the unemployment rate and the growth rate of real gross domestic product (GDP). Okun noted that, because of ongoing increases in the size of the labor force and in the level of productivity, real GDP growth close to the rate of growth of its potential is normally required just to hold the unemployment rate steady. To reduce the unemployment rate, therefore, the economy must grow at a pace above its potential. More specifically, according to currently accepted versions of Okun's law, to achieve a 1 percentage point decline in the unemployment rate in the course of a year, real GDP must grow approximately 2 percentage points faster than the rate of growth of potential GDP over that period. So, for illustration, if the potential rate of GDP growth is 2 percent, Okun's law says that GDP must grow at about a 4 percent rate for one year to achieve a 1 percentage point reduction in the rate of unemployment.
In light of this historical regularity, the combination of relatively modest GDP growth with the more substantial improvement in the labor market over the past year is something of a puzzle. Resolving this puzzle could give us important insight into how the economy is likely to evolve.
Okun's Law is Useless
There is no puzzle. Rather, Bernanke fails to see the obvious.
Demographics are vastly different today in the face of boomer retirements than they were 50 years ago.
This a not typical cyclical recession. Instead, it's a consumer deleveraging and balance sheet recession.
Instead of relying on charts, Okun's Law and the Beveridge Curve, how about a little common sense?
Bernanke concluded with ...
... cyclical rather than structural factors are likely the primary source of its substantial increase [in long-term unemployment] during the recession. If this assessment is correct, then accommodative policies to support the economic recovery will help address this problem as well. We must watch long-term unemployment especially carefully, however. Even if the primary cause of high long-term unemployment is insufficient aggregate demand, if progress in reducing unemployment is too slow, the long-term unemployed will see their skills and labor force attachment atrophy further, possibly converting a cyclical problem into a structural one.
If this hypothesis is wrong and structural factors are in fact explaining much of the increase in long-term unemployment, then the scope for countercyclical policies to address this problem will be more limited. Even if that proves to be the case, however, we should not conclude that nothing can be done. If structural factors are the predominant explanation for the increase in long-term unemployment, it will become even more important to take the steps needed to ensure that workers are able to obtain the skills needed to meet the demands of our rapidly changing economy.
Cyclical or Structural Problem?
Bernanke thinks the problem is cyclical. Moreover, his structural thesis involves training. Good grief. He is clueless on both counts.
The problem is debt and deleveraging, not retaining. Bernanke wants consumers to spend more. However, boomers are up to their eyeballs in debt, facing retirement with insufficient income, and a need to downsize lifestyles. These are not the typical cyclical forces, this is a massive demographic shift. Factor in global wage arbitrage and student debt, and the problems are massive.
Middle-Aged Borrowers Pile on Student Debt
Speaking of student debt, Bernanke also missed the fact that Middle-Aged Borrowers piled on student debt hoping to get a better job.
People going back to school and staying in school longer explains a significant part of the decline in the participation rate.
Disability Fraud
Looking for another reason for an artificially low unemployment rate?
Consider disability fraud, people claiming disabilities they do not have such as mental illness. Prior to the great recession 33% of applicants claimed mental illness. The number is 43% now.
There was fraud before, of course. There is even more fraud now.
There are lots of ways to interpret the Federal Reserve's continual talking down of the U.S. economy, but the comments from Ben Bernanke on Monday have a clear target: the bond market.
Ben has commanded: "Thou shalt take risk." He also has commanded from Mount Jackson Hole, and other venues: "Bond rates shall stay low."
But Wall Street traders were starting to disobey. The yield on the 10-year note 10_YEAR +1.70% has been heading the other way. UBS economists have declared the three-decade long bull rally in government bonds is set to end.
Bernanke is fearful that an increase in yields will kill off the recent gains seen in the U.S. economy. That's why the Fed has started quarterly press conferences and revealing the interest rate forecasts of Federal Open Market Committee members — all to keep a better grip on interest rates.
But that grip is loosening, and probably not helped by the hawks on the Fed who have been on the warpath saying the central bank really isn't committed to low rates, after all. Just an hour before Bernanke spoke, Philadelphia Fed President Charles Plosser was in Paris, warning an audience of a central bank without boundaries.
Bernanke is willing to tolerate the likes of Plosser and Dallas Fed Chief Richard Fisher in the name of academic diversity so long as no one actually believes them. But confronted with evidence the hawks are making inroads, Bernanke went to Arlington, Va. to say who's boss. The U.S. economy needs low interest rates and the Fed's bond purchases, Bernanke said
Is Bernanke commanding the bond market or is Bernanke simply clueless?
Six Things Bernanke is Clueless About
Bernanke somehow missed the fact that demographics are vastly different today than they were 50 years ago.
Bernanke somehow missed the fact this a not typical cyclical recession. Instead, it's a consumer deleveraging and balance sheet recession.
Bernanke missed student debt problems
Bernanke missed structural problems of debt deflation
Bernanke missed disability fraud explanation of falling participation rate
Bernanke missed middle-age re-schooling reason for falling participation rate
Through it all, Bernanke wonders why Okun's Law does not appear to work. Is that clueless or what?
New Greek bonds are priced at roughly 22 cents on the dollar. Simply put, the market expects yet another credit event. Yet try buying CDS protection on the new Greek bonds. You can't.
Yields on new Greek bonds have jumped sharply in the past week amid worries over a shutdown of the market in insurance-like products used to hedge the risk of holding Athens' debt.
Banks have stopped offering prices on Greek sovereign credit default swaps because a payout on new instruments could be forced immediately due to technical problems with the documentation used to settle contracts.
Yields, which have an inverse relationship with prices, have leapt more than 3 percentage points to 16.93 per cent on the new 2042 Greek bond – which is issued under a debt exchange with private sector bondholders and used to set the final payout on CDS contracts – since March 12, its first day of trading.
The market's concern centres on a so-called 60-day look-back clause in standard CDS contracts, which could be used to activate a payout on new contracts in the wake of a "credit event" that was declared on March 9, when Greece secured private sector participation for its debt restructuring.
Bankers fear the rising yields on Greek debt, and uncertainty surrounding the CDS trigger process, could hit sentiment in other eurozone bond markets, where borrowing costs for indebted governments have fallen from recent peaks.
"This is yet another problem that will deter investors and banks from buying Greek bonds," said a senior CDS trader at one European bank. "If you can't use CDS to hedge the risk of buying Greek bonds, then you may decide not to buy Greek bonds."
Greek CDS prices were last quoted on March 9, when a buyer of protection would have had to pay $7.8m up front to insure $10m of debt against default.
Markit, the data provider, said it needed at least three global banks to give it prices for Greek CDS before it could continue to quote them.
Did you catch that? The last quote was $7.8m up front to insure $10m of debt against default. We are talking about a near certain default on the new bonds.
I just did a check on Bloomberg. The last quote on a 1-year Greek bond shows the yield is 1,143%. The date of the quote is March 9th, the last date CDS was quoted.
The granddaddy of property tax revolts is now underway in North Dakota.
The North Dakota group, Empower the Taxpayer writes "On June 12, 2012, the voters of North Dakota will have the opportunity to make North Dakota truly 'Legendary', as the first to pass a state constitutional amendment that will abolish the property tax, prioritize spending by the legislature, and finally give local governments something they never had: true local control over spending."
Public unions and proponents of big government are now involved in a major wave of fearmongering because North Dakota counties get about 60 percent of their revenue from property tax.
If the amendment passes, school districts will simply have to get funding from another source, or cut budgets.
Many Minnesota residents expect a bigger bill when their property tax statements arrive this month. But across the border, North Dakota residents are considering a proposal to make the state the first in the nation to abolish property taxes.
Supporters gathered more than 28,000 signatures to put that question on the ballot next June.
Backers of the measure say there's plenty of revenue to go around without property taxes. But local government officials say eliminating property tax would create chaos.
In the north central North Dakota small town of Carrington, population 2065, Mayor Don Frye wonders if businesses will build in his city if the snow isn't plowed, or the sewers don't work.
Those are just scare tactics, says Charles Tuttle. He's one of the organizers behind a measure to abolish property taxes.
Eliminating property taxes would put more than $800 million back in the pockets of property owners, stimulate the economy and create thousands of jobs, Tuttle said, referencing the study [Eliminating Property Taxes in North Dakota] from a Massachusetts free-market think tank.
County governments across Michigan are keeping a close eye on Lansing as lawmakers zero in on the possible repeal of the personal property tax.
Personal property tax in Michigan is paid by businesses on property not permanently affixed to land, such as furniture, tools and computers. Michigan counties' reliance on personal property tax has increased in recent years as revenue from other sources has plummeted. The state is one of 43 that implement some form of a personal property tax.
Michigan Gov. Rick Snyder's (R) tax reform plan calls for eliminating personal property taxes. To ease the impact, alternatives have been rumored — including the state's taking over court costs. These costs represent one of the largest expenditures for counties in Michigan. Snyder favors a "revenue-neutral" elimination of the tax, but hasn't announced any proposal to replace the tax with another funding source.
Michigan is not the only state considering a possible repeal of the personal property tax. A constitutional amendment is being proposed by a citizen petition to abolish the North Dakota personal property tax. The measure will appear on the June 2012 election ballot. Illinois and Missouri are also looking into repealing their personal property taxes, but no legislation has been put forward.
Minnesota House Passes Legislation to Freeze then Phase Out Business Property Taxes
Saint Paul – (March 22, 2012) – The Minnesota House of Representatives today approved the Tax Relief and Job Creation Act by a vote of 72-62.
The Tax Relief and Job Creation Act freezes the statewide tax on business property for one year and phases out the statewide tax on business property over 12 years beginning in 2014. It also excludes 70 percent of the first $150,000 of value for all business property in 2013, benefitting small businesses throughout the state especially those in Greater Minnesota.
"Minnesota's business property tax rate ranks among the highest in the United States. Our property tax relief package helps create a stronger, competitive business climate by freezing the statewide business property tax rate for one year and phasing out this burdensome regressive tax to allow for more investment in products, services and employees," said Rep. Greg Davids (R-Preston), chief author of the bill.
That's a start but I have to ask, why should businesses own their homes free and clear without being subject to onerous taxation but not individual homeowners?
It's Our Home Not Theirs!
Please consider the following video Robert Hale Co-Author of Property Tax Revolution who says "It's Our Home Not Theirs!"
"The essence of freedom is property rights. It always has been. Yet, if you don't pay the government the tithe that they request, you lose your property."
Indeed!
You Never Own Your Own Home
Property taxes are an insidious form of taxation. They mean you never really own your home. Taxes even go up at the whim of local school boards and teachers unions who perpetually want more money, not for the kids, but for the school boards and teachers' unions.
Property taxes are particularly hard on senior citizens who can literally be taxed out of their own homes.
The public unions and local governments who have their hands in your pockets will be fighting hard with money and fearmongering ads. You can counter with donations to Empower the Taxpayer in North Dakota.
It's time to put an end to property taxes nationwide. The place to start is North Dakota.
Here is an exclusive undoctored image of Ben Bernanke as actually taken by the Atlantic Magazine.
Via the wonders of Photoshop, Atlantic editors managed to transform the above actual image of Bernanke into the following nauseating cover.
Insiders at the Atlantic say the transformation from goat to hero was meant as an April Fools' Day joke as was Roger Lowenstein, article when he proclaimed "The visceral criticism of Bernanke is hard to fathom."
Jean-Claude Trichet, the former president of the European Central Bank, said Saturday that he is worried that controversial quantitative easing and other nontraditional steps that global central banks have taken since the financial crisis could be here to stay.
The Fed has purchased $2.3 trillion of securities since it cut interest rates to zero in December 2008 in a bid to bring down long-term interest rates and boost economic growth.
These actions have led to criticism, especially during the early days of the Republican contest for the 2012 presidential nomination, that Fed Chairman Ben Bernanke was undermining the dollar and creating conditions for a sharp rise in inflation.
Speaking to a conference of influential central bankers from around the world and leading academic experts on monetary policy, Trichet said it could still turn out that the bond-buying, asset purchases and liquidity injections by global central banks might go away after the financial system gets back on its feet.
That is the optimistic scenario, he said.
But Trichet said there was a "less flattering conjecture" that the extraordinary actions will be part of a new "permanent regime."
Those factors may have created the permanent risk of "behavioral contagion" or a grave and immediate threat to the systemic functioning of the financial system, similar to the market meltdown in the wake of the collapse of Lehman Brothers.
"Nobody would have expected such a long time after Lehman Brothers, [central banks] would continue to have this level of expansion of our balance sheets," he said. "We are all still in crisis."
Who was it that started ECB bond buying? Why it was none other than Jean-Claude Trichet, acting against the advice of Axel Weber, German central bank president who resigned in protest rather than be part of the operation.
With the default of Greece, Trichet's bond-buying spree blew up in the ECB's face and so too will the ECB's buying of Portuguese and Spanish bonds.
Ultimately we are headed for a global currency crisis. Central banks headed by Greenspan, Bernanke, Trichet, and Draghi paved the way.
