More Panic Talk Out of Greece

These guys have no clue as to what to do.

As financial sophisticates continue to pound on Greek debt, Greek Finance Minister George Papaconstantinou said he can’t call for outside aid.

“The worst possible signal which we could send out is one calling for outside help,” he said in an interview with Bloomberg Television in Athens yesterday. “We will tackle the deficit,” he said, adding that tax revenues in January exceeded forecasts “by some percentage points.”

European Central Bank President Jean- Claude Trichet cut short his trip to a Reserve Bank of Australia symposium in Sydney by one day so that he could deal directly with the escalating problem of the PIIGS.

Geithner to Meet with Global Warming Crazies and Opportunists, in Snow Buried D.C.

On Tuesday morning, Treasury Secretary Geithner will host a breakfast meeting for members of the U.S. Climate Action Partnership, an alliance of leading businesses and environmental organizations that have advocated for federal climate legislation.

Secretary Geithner will then join the President and the Vice President to meet with bipartisan leaders of the House and Senate to discuss working together on the economy and jobs. Expected attendees include Senator Harry Reid (D-NV), Senator Mitch McConnell (R-KY), Speaker Nancy Pelosi (CA-8), Representative Steny Hoyer (MD-5) and Representative John Boehner (OH-8).

Later, Secretary Geithner will meet separately with Senator Tom Coburn (R-OK), Senator Kirsten Gillibrand (D-NY), and Senator Daniel Inouye (D-HI). These meetings are closed press.

In the afternoon, Secretary Geithner will attend the President's economic daily briefing at the White House

The Breakdwon of the BLS Models

Last week, when the BLS numbers came out, I highlighted the huge upside swing in the birth/death index:

Most bizarre about the January number is that the notorious and mysterious fudge factor, the birth/death index had a huge downward adjustmnet.. The January Birth/Death adjustment was -427,000 from +25,000 in December. Got that? Without the Birth/Death downward index adjustment (which is generally positive every other month) employment would have been up by an incredible 407,000. This no doubt is really an adjustment for those who lost seasonal Christmas related jobs, rather than a sudden January collapse in new business hires, with a good dose of direct hands on BLS adjusting to get a near flat unemployment number for January.

This huge Birth/Index decline is what was probably behind a HUGE seasonal adjustment in the other direction in January to make the unemployment number come out pretty much flat. But the very nature of a seasonal adjustment number means something that was boosted in January must be taken down at some other time period during the year.

Mish thinks the down swing part of the seasonal adjustment will come between March and April. And because it was a dozy of a seasonal adjustment to the upside in January, it is also going to be a dozy to the downside in March and April. In other words, the unemployment numbers could be real bad in March and April. Here's Mish:

•There is always a big BLS adjustment in January

•There is always a reversion to the mean that overshoots to the downside between March and April

•There is always a secondary rebound back above the 0.0% line in July, followed by a smaller overshoot to the downside in October.

The problem is in the increasing amplitude of these swings, in both directions. It really makes you wonder just what the hell the BLS is doing and why.

I have data charted all the way back to 1999. Prior to January 2009, the biggest January swing was .6 percent, in both 2004 and 2003. In 2008 the January swing was only .5 percent.

The amplitude of January swings in both 2009 and 2010 was .9 percent, way outside the data range for the last 10 years, by a factor of 50 percent (.3/.6).

Likewise, the prior swings in October peaked at -.4 percent on a couple of occasions but hit -.7% in October 2009.

Unless it's different this time (I figure it is not) a reversion to the mean that slightly overshoots in a May-June timeframe will lop off a whopping 1.3 percent off the posted seasonally adjusted rate of 9.7 percent just announced.

In other words, all things being equal (no job gains or losses), we could expect to see the unemployment rate approach 11% by May! Of course we have to factor in actual job growth (or lack thereof). We also have to factor in census bureau hiring.

Heaven knows what census hiring will do to the BLS algorithms. Your guess is as good as mine. However, whatever it does, census hiring will also revert to the mean.

Also remember that it takes 100,000 to 120,000 jobs per month just to hold unemployment rate steady. Think that's going to happen? If so (and again discounting census hiring), then you are living in Bizarro world along with everyone else who thinks the unemployment rate is going to come crashing down.

What's really going on here is that the employment models the BLS has been, well, employing have broken down because of the financial crisis. The seasonal adjustment factors along with employment estimates are not reflecting actual movements in unemployment. Put simply, the algorithms are even more off course than nornal, which means the always edgy numbers are becoming even more edgy, with wild swings making it difficult to determine anywhere close to the true magnitude of the unemployment situation, both on the upside and downside. Just keep all this in mind when the numbers are actually released in coming months.

The Porn Surfer Gang

The NYT is running a goofy puff piece on the notorious porn surfers, the SEC.

I have no idea what the purpose of this piece is other than some kind of bad PR effort by some outside PR agency trying to prove they are earning the money the SEC is paying them.

As for real work, SEC incompetence, harassment of traders and political favoritism continues.

They continue to protect their inner club, they still haven't told us who the top "examiner" at the SEC is who spent most of his time surfing for porn. They haven't gone near what appears to be insider trading in Congress. But they do have time to pose for this ridiculous photo shoot. The only thing that makes any real sense about this photo shoot is that new SEC head of enforcement, Robert Khuzami, must be doing some early ground work for an eventual political run.

For the record, from the left are, Ken Lench, Daniel M. Hawke, Cheryl Scarboro, Khuzami, Tom Sporkin, Robert Kaplan and Lorin Reisner. Since they won't identify who the porn surfers are in the group, if you run into anyone from this crowd, I wouldn't shake any of their hands.

LA School District to Raise $1.75 Billion

Keep an eye on this.

The Los Angeles Unified School District, the nation’s second-largest after New York, plans to sell as much as $1.75 billion of bonds in mid-February to fund a school construction program called the largest in the U.S.,. reports Bloomberg

About a third of the offering will be conventional tax- exempt debt and two-thirds taxable Build America Bonds.

Taxable Los Angeles school securities due in 2034 last traded in a $1 million block Feb. 4 at a price-to-yield 6.33 percent, while comparable Build America debt issued by the state offered an average 1.4 percentage points more in yield that day, according to data compiled by Municipal Securities Rulemaking Board and Bloomberg. The yield difference between the two issues has widened more than 0.2 percentage points in large block trades since the end of October.

The bonds will be priced Feb. 17 and 18.

Standard & Poor’s assigned an AA- rating, the firm’s fourth highest, to the new issue and reaffirmed the same rating on the district’s $9.7 billion outstanding general obligation debt.

Revenue to pay the interest on the bonds comes from a special property- tax levy that district voters approved. The tax is collected by Los Angeles County and paid directly to bondholders.

This debt issue should go smoothly given the special tax that is collected to make the interest payments, but it is in California, where there are serious budget problems, so it pays to watch how well the deal closes. If there are any problems with this debt raise, it is a serious problem for California.

$8 Billion Bet Against the Euro

Traders and hedge funds have bet nearly $8 billion against the euro, amassing the biggest short position in the euro ever, reports FT.

Investors increased their short positions against the euro to record levels in the week ending February 2, according to the latest figures from the Chicago Merc.

The build-up in net short positions represents more than 40,000 contracts traded against the euro, equivalent to positions worth $7.6 billion.

This kind of size suggests that there are major players involved, hedge funds and the like.

However, it is not clear to me that shorting the euro is the way to play the European debt crisis. If the EU bends and decides to print euros to bailout the PIIGS, then this is a great trade. In my mind, it is difficult to see how Germany would be willing to lead the strong EU members in a mass bailout of the PIIGS. That said, given the non-printing of money by the Fed, dollar strength versus the euro is likely anyway, but not because of the crisis.

The crisis environment, however, will make traders nervous and add fuel to dollar strength.

Bleg

I have been using Google's Blogger to post at EPJ. However, I have been posting via their FTP option which allows me to post away from Google and not use them as host for EPJ.

Google is taking away this option, which means that for me to stick with Blogger/Google I will have to use Google as my host site. Given the nature of my posts, I can see this as a problem in the making. More than likely someone, at some point, is going to complain to Google that I called the evil bastard Ezekiel Emanuel an evil bastard---or some kind of complaint along those lines. This will result in Google shutting me down until I contact them and they release the block, or maybe they won't.

I have already been shutdown once by WordPress.

Anyway, it is time to move on from the big boys. Bye, bye Blogger. Bye bye WordPress.

If anyone has any thoughts or recommendations as to what type of blogging software is out there that might work for EPJ, please let me know. Alternatively, a web template software where I can post with some type of alternate comment software might be something I might consider. Perhaps, someone can recommend a web designer that can create some type of site for EPJ.

I was planning on upgrading the site later this year, this move by Blogger will just speed things up. Also, if any of you have any thoughts on what I should add or remove from the EPJ site, please let me know. Now's the time to have an impact.

Rumor of the Day: Goldman Sachs and George Soros as Tag Team

Goldman Sachs and George Soros are rumored to be leading the attack on Greek debt.

Crushing a profligate spending government is not a bad thing. Go George, Go Lloyd!

Hedge Fund Manager: I Want My Rent Control!

NyPo reports:

A hedge-fund millionaire is fighting to keep the greatest deal in New York real estate since Peter Minuit bought Manhattan Island -- a $380-a-month Park Avenue duplex.

Ross Haberman has a conniption in a Manhattan Supreme Court lawsuit over a vote by the building's board -- which is made up of his own family members -- to get the rent on his sprawling luxury apartment at 737 Park Ave. closer to market value.

"The proposed rent increase would increase the rent rate for Ross' apartment by as much as 30 times," the suit notes.

A search of recent rentals in the building -- across the street from 740 Park, one of the city's most prestigious addresses -- shows one-story units on the same line averaging $8,000 a month in rent

. For an analysis of the distortions caused by rent controls see Walter Block here.

US Magazine Circulation Falls 9 pct at Newsstands

It's all about the internet.

The second-half 2009 drop in newsstand sales follows a decline in the first half of 2009, when publishers saw a year-over-year drop of 12 percent, according to figures released Monday by the Audit Bureau of Circulations.

Paid subscriptions, meanwhile, fell by 1.1 percent in the second half.

Exploded Connecticut Power Plant Was a Goldman Sachs Deal

Goldman Sachs underwrote the $985 million Kleen Energy plant, where at least 5 died on Friday when the plant exploded. US Power Fund was the lead investor.

On June 13, 2008, US Power Fund II, along with affiliated EIF fund US Power Fund III, committed the majority of the construction equity in the 620 megawatt natural gas- and oil-fired combined-cycle power generation facility that was under construction in Middletown, Connecticut. This commitment followed the Fund's investment in the development of the project.

In March 2009, Project Finance, a Euromoney publication, awarded the Kleen construction financing the prestigious "2008 North American Single Asset Power Deal of the Year".

Deutsche Bank And Unicredit Cease Lending Against Greek Collateral

It's bad out there.

Google translation from Greece's Banking News (via ZeroHedge):

We came to where big banks like Deutsche Bank German and Italian Unicredit Group does not accept bonds as collateral Greek and refuse to lend in the repo market for Greek banks.

It should be noted that Greek banks say when we mean big banks too big. In the last 2 to 3 weeks 3 -4 Greek banks have been requested by Deutsche Bank and Unicredit Group to lend in the repo market, but refused on the grounds that they do not want to risk having to Greek bonds.

A Greek default on its debt obligation appears very likely. They are trapped because:

1. It does not appear the EU strong will back up Greek debt to the degree necessary (Though they may make public statements that they will)..

2. Greece is part of the EU, therefore, they have no independent currency that they can inflate to pay off their debt.

3, An IMF type austerity program would lead to civil unrest.

Wolin in Jeddah

Of note:

On Sunday, February 14, 2010, Deputy Treasury Secretary Neal Wolin will participate in the Jeddah Economic Forum's Panel Discussion on Global Economic Governance after the Crisis Hilton Hotel ,North Corniche Road, Jeddah, Saudi Arabia.

Wolin, of course, is the Deputy Treasury Secretary whose bio was erased from the web site of his former employer and also removed from Google cache, at the time it was announced he was appointed Deputy Treasury Secretary.

The erased bio is here.

Is Clueless Ben about to Crash the Economy, Big Time?

This is the most remarkable financial report that I have ever seen. It comes from Jon Hilsenrath at WSJ:

Federal Reserve Chairman Ben Bernanke will begin this week to lay out a blueprint for a credit tightening, to be followed once the Fed decides the economy has recovered sufficiently.

The centerpiece will be a new tool Congress gave the central bank in October 2008: an interest rate the Fed pays banks on money they leave on reserve at the central bank. Known as "interest on excess reserves," this rate is now 0.25%.

The Fed is still at least several months away from raising interest rates or beginning to drain the flood of money it poured into the financial system in 2008 and 2009. But looking ahead to when the economy is strong enough to warrant tightening credit, officials have been discussing for months which financial levers to pull, when to start and how best to communicate their intent.

When the Fed is ready to tap the brakes, it plans to raise the rate paid on excess reserves, according to Fed officials in interviews and recent speeches. The higher rate would entice banks to tie up money they otherwise might lend to customers or other banks. The Fed expects such a maneuver to pull up other key short-term rates, including the federal-funds rate at which banks lend to each other overnight—long the main tool for steering the economy.

Over the last six months M2(nsa) has grown at only a 1.7% annualized rate. One of the slowest money growth rates in decades.

The current stock market weakness and weakness in gold are the direct result of this slow growth. For some at the Fed to think they have to tighten credit at some future point from here is simply remarkable, although a stable non-growth money supply would be ideal, it appears that the Fed is not looking at the situation from this perspective, rather they believe they are maintaining an easy money policy simply because interest rates are low.

Short-term rates are low not because of easy money, but because of an enormous flight to safety as a result of the financial crisis. The flight to safety has resulted in a very strong desire to hold cash and near cash instruments, such as Treasury bills. This is the factor behind the low rates, not the Fed. If the Fed actually attempts to raise rates under these conditions, and it appears some members see such a likelihood down the road, the Fed would more than likely end up shrinking the money supply, which in turn would make the Great Depression look like a Super Bowl party.

This confusion by Fed members including Bernanke is not new. In January, I pointed out this confusion on Bernanke's part. I also warned about this confusion, after a Bernanke speech in December 2009.

It now appears that this confusion will lead to policy errors on the part of the Fed where they tighten money supply, thinking it is near out of control just because interest rates are low, when in fact there has been under 2% money supply growth.

I repeat, a tightening under current conditions could result in an actual shrinkage of the money supply, which would bring about huge price deflation.

The only other possible interpretation, and there is nothing to indicate Bernanke is thinking this way, is that what Bernanke really means is that he will raise the rate on excess reserves IF banks begin to aggressively use the excessive reserves to make new loans, which would result in a rapid increase in the money supply. Under these conditions, a hike in the interest rate paid on excess reserves would be justified. However, there is no indication from Bernanke's speeches that he gets the subtleties of this quite different scenario.

Stay tuned.

Lord William Rees-Mogg on Sound Money, Austrian Economics and British Government Reform

The editors of The Daily Bell are pleased to present an exclusive interview with legendary London Times editor, Lord William Rees-Mogg.

Introduction: Former London Times editor Lord William Rees-Mogg attended Charterhouse and Balliol College, Oxford and was President of the Oxford Union in 1951. He became a writer for The Financial Times in 1952, and then moved to The Sunday Times in 1960. He was first Deputy Editor and then editor of The Times (from 1967 to 1981). He was also a member of the BBC's Board of Governors and chairman of the Arts Council, With James Dale Davidson, he authored such popular, free-market oriented books as The Sovereign Individual, The Great Reckoning, and Blood in the Streets. He is Chairman of The Zurich Club and also of the London publishing firm Pickering & Chatto Publishers.

Daily Bell: Thanks for speaking to us. We appreciate the opportunity to ask you questions.

Rees-Mogg: My pleasure.

Daily Bell: How did you become interested in free-markets and economics?

Rees-Mogg: I became interested in economics and history when I was in University. Later I became more interested in the free market and economics because of the monetary strain of what you would call Keynesian economics. This was mustered to deal with the growing pressure of inflation in the 1960s and more in the 1970s, and to explain them. The longer that these pressures went on, the more dissatisfied I became with the explanations of economics, which I had previously accepted.

Daily Bell: Fill us in some more on your career and professional interests.

Rees-Mogg: I went to the Financial Times in March 1952 after coming back from Oxford and doing an American debating tour. By 1955, I was named the principal leader writer for the Financial Times. After having done a spell in the Parliamentary lobby, that naturally developed my interest in the questions of economic policy.

Daily Bell: Would you characterize yourself as an Austrian economist?

Rees-Mogg: Yes. I am an Austrian economist more than anything else. I knew Friedrich von Hayek and liked him very much. I don't say I went as far as he did but I was very sympathetic to his point of view.

Daily Bell: Is it hard to be pro-free-markets in Britain these days?

Rees-Mogg: No, I don't think so. I think the majority of people who are connected to the more right wing view of politics or the liberal view of politics in the old sense, would describe themselves as pro free market. I think people are more reflective. That is to say, these were great battles that were fought, and they are more apparent when we have had a major recession. The gaps between what Keynes thought , and what Milton Friedman thought, is much less wide than we used to assume.

Daily Bell: Why isn't the British House of Lords more pro-free-market? Or is it?

Rees-Mogg: Well the British House of Lords is a rather elderly body of people. You are appointed for life, and usually get appointed in your early 60s and therefore they are a generation of people who learned their economics from Keynes. Keynesian ideas are still reacting in essence to the subjects at hand in the 1930s. So you have a fair number of Peers whose ideas belong to the Keynesian theory. Then you have people such as Nigel Lawson, who is an ex-Chancellor, who is a free market economist.

Daily Bell: Why is there so much corruption in the British political system?

Rees-Mogg: I don't think there is more corruption in the British political system than there is on average in others. The reason that a particular kind of corruption or near corruption evolves was that the government of the day, and this goes back to the 1960s, thought it would be better to give pay increases to members of parliament in terms of expense allowances rather than in terms of salary increases. This was done in order to avoid having to make concessions to trade unions on various issues. It started in the 1960s when Harold Wilson was the Prime Minister. I don't think people realized that this would come to be regarded as money that belonged to Members of Parliament to be spent how they wished. Suddenly that was how it was administered, and the Members of the House of Commons who drew on these allowances had the idea that this was their own money. I think that is the explanation of why there is that particular scandal.

Read the full interview here.

Geithner's Monday

Today's public schedule for Treasury Secretary Geithner is unusually light.

The only item on his public calendar for Monday is the President's economic daily briefing at the White House, which Geithner will attend in the morning.

Las Vegas Marijuana Convention Plans Go Up in Smoke

Marijuana convention organizer Lou Woznicki said Mandalay Bay notified him that his March 19-21 Cannapalooza convention had been canceled the day after he met with law enforcement authorities to discuss security concerns, reports AP.

The event had been billed as the "largest head shop on the planet," a 50,000-square-foot marketplace for all things related to marijuana culture, from hand-blown glassware to hemp clothing and cosmetics.

At a January meeting with law enforcemnet officials, Woznicki said he walked into a room of more than 100 police officers, undercover vice cops, surveillance and security staff from Mandalay Bay, and gaming control and alcohol bureau officers.

Woznicki said the event was expected to draw 50,000 people and would have been good for the struggling Las Vegas economy.

Woznicki said he was embraced by the Las Vegas Convention and Visitors Authority and major Las Vegas resorts when he first pitched the event.

But he said he noticed "trouble brewing" when he talked to Mandalay Bay officials in December.

"I felt there was a negative vibe there," he said. "Even at the meeting, a Mandalay Bay security guy said, `Pot smokers don't drink and gamble and that's where we make our money. It's bad for business.'"

All Hell Could Break Loose in Europe This Week; CDS Counter-Party Risks Again

Here's Simon Johnson's well reasoned take:

The entirely pointless G7 meeting this weekend only served to underline the fact that Europe is again entering a serious economic crisis.

At the end of the meeting yesterday, Treasury Secretary Tim Geithner told reporters, “I just want to underscore they made it clear to us, they the European authorities, that they will manage this [the Greek debt crisis] with great care.”

But the Europeans are not being careful – and it’s not just about Greece any more. Worries about government debt and associated public sector liabilities (e.g., because banking systems are in deep trouble) have spread through the eurozone to Spain and Portugal. Ireland and Italy are next up for hostile reconsideration by the markets, and the UK may not be far behind...

The IMF cannot help in any meaningful way. And the stronger EU countries are not willing to help – in part because they want to be tough, but also because they do not have effective mechanisms for providing assistance-with-strings. Unconditional bailouts are simple – just send a check. Structuring a rescue package that will garner support among the German electorate – whose current and future taxes will be on the line – is considerably more complicated.

The financial markets know all this and last week sharpened their swords. As we move into this week, expect more selling pressure across a wide range of European assets.

As this pressure mounts, we’ll see cracks appear also in the private sector. Significant banks and large hedge funds have been selling insurance against default by European sovereigns. As countries lose creditworthiness – and, under sufficient pressure, very few government credit ratings will hold up – these financial institutions will need to come up with cash to post increasing amounts of collateral against their derivative obligations (yes, the same credit default swaps that triggered the collapse last time).

Remember that none of the opaqueness of the credit default swap market has been addressed since the crisis of September 2008. And generalized counter-party risk – the fear that your insurer will fail and this will bring down all connected banks – raises its ugly head again.

In such a situation, investors scramble for the safest assets available – “cash”, which actually (and ironically, given our budget woes) means short-term US government securities. It’s not that the US is in good shape or even has anything approaching a credible medium-term fiscal framework, it’s just that everyone else is in much worse shape.

Another Lehman/AIG-type situation lurks somewhere on the European continent, and again our purported G7 (or even G20) leaders are slow to see the risk.

It may not all breakdown this week, but Johnson has the picture correct. Phase one of the double dip Great Recession, and the accompanying great demand to hold cash, has resulted in extreme financial pressure on the most profligate government spenders, who won't be able to get enough cash to meet their future debt obligations.

In the old days, these countries would simply print more money, but the PIIGS (Portugal, Italy, Ireland, Greece, Spain) are all in the Eurozone pen and it is unlikely that Germany and France will agree to debase euros, by printing more of them, to bailout the PIIGS. Thus, the continued intensifying global sovereign debt crisis

The UK is in a different situation, given that they CAN print their way out of a financial crisis, though with enormous inflationary consequences. But who is going to look at the niceties of differences during a global sovereign debt panic? The answer as to who should be looking is, of course, you.

The sophisticated play here is to go long UK debt on any weakness, while hedging the currency risk by shorting the pound. Any flight into Treasury securities should, of course, be looked at as temporary in nature and an opportunity to add to these short positions.

Latest Kentucky Senate Polling Results

Rand Paul looks strong.

From Rasmussen:

Rand Paul (R) 47, KY Atty Gen. Jack Conway (D) 39

Rand Paul (R) 48, KY Lt. Gov Dan Mongiardo (D) 37

KY Sec of State Trey Grayson (R) 44, KY Atty Gen. Jack Conway (D) 40

KY Sec of State Trey Grayson (R) 49, KY Lt. Gov Dan Mongiardo (D) 35

Top Ten

Below are the Top Ten most viewed EPJ posts for the week ending Saturday February 6, 2010:

#1 Wells Fargo Expecting Much Higher Interest Rates

#2 Ben Bernanke Is Clearly Worried About Ron Paul's Audit the Fed/End the Fed Movement

#3 The Secret Bank Bailout (3rd week on list)

#4 Ed Yardeni: "We Are All Austrians Now"

#5 Shock: Inside the Healthcare Bill (31st week on list)

#6 Iran Has a Plan for 2-11

#7 Paulson: Russia Tried to Get China to Blow Up Fannie and Freddie

#8 Breaking Down the Unemploymnet Numbers

#9 Is Obama Behind the Curious Toyota Recall?

#10 US Crosses the Bernholz Line -- Hyperinflation Early Warning Signal (3rd week on list)

Serbia On the Edge of Hyper-Inflation

In 2008, it took 80 Serbian dinars to buy one euro. On Friday the official exchange rate of the currency was 98.68 dinars for one euro.

The only reason the euro hasn't climbed above 100 dinars is because of heavy intervention in foreign exchange markets by Serbia's central bank. Reportedly the Serbian CB has sold over 250 million euro since January 1, in attempt to halt the dinar collapse.

It is unclear just how much the Serbian CB holds in foreign currency that could be used to further prop up the dinar. It is not likely to be a massive hoard.

The collapse of the dinar has an immediate impact throughout much of Serbia, as everyone from homeowners to businessmen have loans outstanding that are payable in euros. Thus the collapse of the dinar has an effect on all who must convert their depreciating dinars into euros to make their monthly loan payments.

Geithner Quizzed On U.S. Credit Rating

Treasury Secretary Tim Geithner was asked this morning on ABC's "This Week" whether the U.S. was in danger of losing its AAA credit rating.

Moody's Investors Service recently issued a warning that the government's credit rating could eventually be in jeopardy if nation's finances don't improve.

Geithner responded that the U.S. would "never lose" its top credit rating. In one sense Geithner could be right, in that the Fed can simply print up money to pay off any debt. This would be highly inflationary, of course, but it could be done.

It is noteworthy, though, that this question is being asked on mainstream television. The government debt is a problem, but is the new mainstream focus on the debt a set up to justify higher taxes?

Obama's Super Bowl Party Guest List

President Obama holding a Super Bowl Party. Here's the guest list:

Members of Congress:

Rep. Xavier Becerra (D-CA)
Rep. Rick Boucher (D-VA)
Rep. Joseph Cao (R-LA)
Rep. Andre Carson (D-IN)
Rep. Brad Ellsworth (D-IN)
Rep. Baron Hill (D-IN)
Rep. Barbara Lee (D-CA)
Senator Chris Dodd (D-CT)

Cabinet Members:

Secretary Shaun Donovan
Secretary Arne Duncan
Attorney General Eric Holder
Administrator Lisa Jackson
Secretary Janet Napolitano
Ambassador Susan Rice
Secretary Kathleen Sebelius
Secretary Eric Shinseki
Secretary Tom Vilsack

Via HuffPo

Thank the Heavens for Hank Paulson's Wonderful Memory

Former Treasury Secretary Henry Paulson Jr. is out with his new book, On the Brink, where he details his version of events that occurred on Wall Street and Washington D.C.during the financial crisis while he was Treasury Secretary.

All that you really need to know about this fairy tale can be found in the front of the book in what is labeled as "Author's Notes". In this preface, Paulson tells us that he doesn't take notes and doesn't use email and his staff was frustrated because he didn't send out memos, but fortunately, he tells us, he has a very good memory.

He then goes on to say that most of what he did was by telephone, but that not all the calls were logged and that there are inaccuracies in the calls that were logged.

Getting back to his excellent memory, he then tells us that because the crisis period was hectic and stressful that there are many details he may have forgotten.

In the first chapter, he tells that he is a "free market" man, and then proceeds to tells us that when he worked in the Nixon Administration he proposed to Nixon that a value added tax be launched.

Fortunately for America, Nixon saw the dangers in a VAT. He told Paulson that once established such a tax would become a huge new source of revenue for the government, and fearing future Democratic control of such an instrument, Nixon went on to tell Paulson that he did not want to start the country down that road, much to the chagrin of "free market" Paulson.

Seemingly out of the blue, Paulson mentions in the book the resignation of Eliot Spitzer as governor of New York. Spitzer resigned after being caught using hookers. Paulson tells us that, while many on Wall Street were gleeful of the jam Spitzer found himself in, he was merely "shocked and saddened." So shocked and saddened, I guess, that he had to bring it up in his book about the financial crisis.

Paulson early in the book also reminds us just how tight the inner circle is. He tells us that one of the last Goldman Sachs conferences that he was involved with before leaving for Treasury took place in Chicago where the guest speakers were Warren Buffett and then-Senator Barack Obama.

As for the crisis, itself, he's sticking to the story that he saved the country.

No One Is a Keynesian Anymore (Except for Government Apologists)

John Maynard Keynes is dead and so is his prescription for fixing economic downturns.

Outside of bought and paid for Keynesian government apologists, it seems no one is a Keynesian anymore.

A new Rasmussen Reports national telephone survey finds that 70% disagree with Keynes advice to increase the deficit during an economic downturn. Most say it would be better to cut the deficit.

In fact, 59% think Keynes had it backwards and that increasing the deficit at this time would hurt the economy rather than help.

To help the economy, most Americans (56%) believe that cutting the deficit is the way to go.

For the forecasting failures of Keynesian economists be sure to watch Tom Woods' speech on the topic.

How Many Government Employees Does It Take to Read an Upside Down Fax?

John Stossel reports:

What would you do if someone sent you a fax, but it arrived upside-down? You’d turn the paper around so you could read it.

So here’s a joke: How many government officials does it take to handle an upside-down fax?

An infinite number, apparently, and lots of time.

Erik Sherman of BNet.com reports that the US Patent Office actually sends letters that say:

The faxed submission was received upside down. We are unable to continue processing these images.

Please resubmit your document.

We called the Patent Office to see if that was true. Spokeswoman Jennifer Rankin said it was, but that it was “not a stupid government policy.” Rather, it’s a problem with their antiquated IT system. She said their system automatically sends such letters when a fax is received upside-down, and that nobody in the department actually sees the faxes or sends the letters.

She said that their IT department was “working on it, and it should be fixed in March.”

Judge Bars Testimony Relating to Carlyle Group Knowledge of Bribe

This is why you have Papa Bush as an adviser. Bad things disappear or are never brought up. From the Michigan Citizen:

The prosecution’s cast of witnesses in the Sam Riddle bribery trial is dominated by shady characters, with Carlyle Group subsidiary Synagro starring. Jurors have heard Synagro’s vice president of business development Pam Racey on tape apparently discussing bribes of former City Council President Monica Conyers.Former interim Detroit Mayor and City Council member Kenneth Cockrel, Jr.’s, Chief of Staff John Clark admitted earlier to taking Synagro bribes...

Jurors may never hear key evidence regarding Synagro. Carlyle/Synagro executives at a national level likely approved, and at least knew about, Synagro’s 2007 efforts to obtain a $1.2 billion city wastewater sludge contract through bribery, according to court testimony.“Why don’t you go after the Carlyle-Synagro group?” Riddle asked Detroit’s FBI Chief Andrew Arena in published pre-trial remarks before Cohn gagged him. “Deal with people on the board, like the Bush family.” ...

Cohn issued an order barring Riddle or his attorneys from pursuing the matter. During a cross-examination Jan. 29, he barred the defense from even asking about the Carlyle Group.

Greenspan On Bank Regulation

Forbes editor-at-large Geoff Colvin sat down recently with Alan Greenspan for a wide-ranging interview. Aside from Greenspan's self-serving comments about why he was justified in printing huge mounds of money that created the housing boom and general economic crisis, Greenspan had some interesting comments about bank regulation and what banks know about each other versus the information held by bank regulators:

...he doesn't believe tougher regulation by the Fed could have saved the banks. The problem in his view is that regulators would be much worse than the banks themselves at judging banks' counterparty risk. "I was on the board of J.P. Morgan prior to becoming Fed chairman," he says. "I knew what J.P. Morgan knew about Citi, Bank of America, Wells, and others. When I arrived at the Fed, I quickly learned that J.P. Morgan's knowledge of those organizations was far greater than what the Fed knew."

Once you think about this for a minute, it shouldn't come as a surprise, even though a government agency has an edge in collecting any data it wants by simply demanding it.

It is very valuable for banks to understand their competitors and their counterparties, and so they do so. A bank regulator, on the other hand, does not have the kind of knowledge of what data is important that comes from actually competing in an industry. The data he will collect will be that of an individual one step away from actual decision makers. To a regulator, the risks that AIG took on may have looked to be within certain bounds of pre-established safety guidelines. On the other hand, a firm like Goldman Sachs had an insider's view of what the real risk was, since they were selling AIG the risk. That's why Goldman bought so much CDS type protection based on a collapse of AIG.


Further, the agenda of a bank regulator is different from that of a competitor, a bank regulator,, blind to the costs of serving certain types of clients may began and end part of his focus on whether a politically favored group is actually receiving their "fair share of loans." Whereas a banker is most assuredly very concerned with the costs of doing business with different groups of potential clients, politically favored or not.

Bottom line: Regulators are always one step behind. To insure true discipline on banks, the decision of risk appetite must be left with the individual banks BUT the moral hazard safety net must be removed so that banks realize that they will be at risk if they make an error by placing funds where the risk of loss is great.

A Light Public Schedule for Geithner

The only item on Treasury Secretary Geithner's public schedule today is his scheduled attendance at the President's economic daily briefing at the White House. this morning.

Geithner's Saturday in Iqaluit

On Saturday, Treasury Secretary Geithner will attend the G-7 Meeting of Finance Ministers and Central Bank Governors in Iqaluit, Canada. The Secretary will meet with G-7 Finance Ministers and Central Bank Governors "to discuss a range of issues including the world economic outlook, financial reform, trade and development, and how G-7 countries can help support implementation of the 'Framework for Strong, Sustainable, and Balanced Growth.'"

In the morning, Secretary Geithner will attend the Ministerial Meeting.

At 10:00 am, EST, Secretary Geithner will participate in a G-7 Finance Ministers and Central Bank Governors family photo.

Later, Secretary Geithner will attend a working lunch.

At 1:15 pm EST, Secretary Geithner will participate in a joint G-7 Finance Ministers press conference at Cadet Hall.

The Secretary will return Saturday evening to Washington, DC.

Keynesian Predictions vs. American History

The video version of Tom Woods talk at the Mises Circle in Houston that he gave on January 23, 2010 is out. If you are trying to understand the difference between Keynesian economics and Austrian economics this video is a must see. Woods is quite simply one of the best at making Austrian economics understandable. And if you already have Austrian economics down, the video is a must see as Woods details the incredible forecasting errors of Paul Samuelson, Arthur Okun and Paul Krugman.

Another Financial Earthquake for the Eurozone: Portuguese govt defeated on austerity plan

Portuguese opposition parties defeated a government austerity plan on Friday and passed their own bill that lets the country's autonomous regions rack up even more debt, AP reports.

Portugal's 2009 deficit is expected to hit 9.3 percent of gross domestic product, a national record. The government has pledged to bring the deficit to below 3 percent — the limit for countries using the shared euro currency — by 2013 by cutting government jobs, freezing civil servants' pay and curbing other spending. The vote kills any hope of austerity.

Portugal's public debt is expected to climb to 85.4 percent of GDP this year, up from 76.6 percent in 2009.

After the vote, the Lisbon Stock Exchange closed down 1.4 percent.

Can the split up of the Eurozone be far behind, with reckless spending a demand of the populous of some of the members? What sound Eurozone country will support the madness going on in Greece and Portugal?

Maybe the CIA has Agents Moonlighting in the NFL

As Janinie Wedel reports, it appears that CIA agents are moonlighting for Goldman Sachs, and the like, where they are:

sitting and watching and scrutinizing.... business news on CNBC.

watching for tells from CEO's to see what kind of characters they really are.

Now comes word that an NFL player when shown by CNBC a picture of Fed chairman Ben Bernanke sure nailed the guy. Lew Rockwell explains:

Every year, CNBC’s Squawk Box quizzes some of the Super Bowl players on current financial issues. I only caught a little of it this morning, when they were asked to identify a photo of Ben Bernanke. One untutored guy was full of wisdom: “I don’t know who he is, but he looks like a crook. He looks like he would take every single thing you have.”

Should We Blame the Chinese for the Recession?

by William L. Anderson

When the economies of Singapore, Indonesia, and other Southeast Asian countries crashed more than a decade ago, mobs of people rampaged in the streets, seeking out ethnic Chinese merchants and workers and beating and killing them. Why? Well the Chinese were convenient scapegoats.

Today, Paul Krugman, while not advocating mayhem and murder against Chinese (thank you for being civilized, Paul), nonetheless is trying once again to blame China for at least some of our current troubles. China, he declares, is using a "beggar-thy-neighbor" policy against us.
China's "crime," it seems, is undervaluing the Renminbi relative to the U.S. Dollar, having an official exchange rate that values its currency lower than it could get in the market. This makes Chinese exports cheaper relative to U.S. goods, which is one reason that American consumers can purchase inexpensive Chinese products.

However, such a policy encourages China to send its goods abroad, and it also means that such goods are more expensive at home than they would be in a free market. Thus, if anyone is being "beggared," it is Chinese consumers, who are being fleeced in order to permit Americans to consume more goods from China.

Read the rest here.

IMF Says A Greek Bailout Could Cost Up To $25 Billion

IMF insiders are projecting that it would cost $20 to $25 billion to pay for a Greek bailout, France΄s daily Le Monde said on Friday quoting unnamed sources.

Le Monde said the Greek government had not ruled out the idea of IMF aid and others, including the French economy ministry, wanted to keep the door open to IMF help.

"The experts from the IMF, estimate that one would need to put $20 billion to $25 billion on the table to reassure the markets of the solidity of a rescue for Greece," the paper said.

It then quoted an unnamed IMF source as saying: "We don΄t really see Paris freeing up $3 billion to fly to the rescue of Athens. And Berlin would have similar problems."

Meanwhile, Dr Inside, Nouriel Roubini, projects that the EU or the IMF will probably offer financial assistance to Greece so that it will avoid default.

“I expect there is going to be eventually some financial support,” Roubini said in a Bloomberg Television interview. That support will come “either directly from the European Union or the ECB or, as I suggest, Greece should be going to IMF to get an IMF package,” he said

CIA Agents Moonlight for Goldman Sachs

CIA officers are allowed to moonlight, and ply their espionage skills elsewhere in their free time, reports Janine Wedel.

The source for her charge is a new book by Eamon Javers, Broker, Trader, Lawyer, Spy: The Secret World of Corporate Espionage. She writes:

Some active duty CIA officers, Javers reports, have been on the payroll of a company called BIA (deliberately named to resemble the CIA). For BIA, they reportedly practice "deception detection" to aid Wall Street companies and hedge funds in their business transactions.

Like the TV series, "Lie To Me", in which a psychologist analyzes facial, body, and vocal expressions to ferret out who's lying and who's not in criminal investigations, these officers use their CIA training to read the cues that CEO's and market analysts unwittingly send off. They help clients, including Goldman Sachs, figure out if other executives are on the up-and-up when they tout the health of their company. It conjures up an absurd image of an elite, precision-trained spy, sitting and watching and scrutinizing.... business news on CNBC.

But are the roles of CIA agents, when they are BIA agents, limited to sitting and watching televison for tells a corporate exec may give off? Wedel correctly asks:

As players blend and blur their roles across organizations, the boundaries and purposes of those organizations also blend and blur. What are we to make of the BIA? Is it an offshoot of the CIA? As they trundle back and forth between Wall Street and Washington, does the information the CIA officers glean in one venue seep into the other?

Ron Paul versus Rand Paul....

...there is a difference.

Rand Paul has released his first campaign TV ad:

Update to Geithner's Schedule

While attending the G-7 meeting in Iqaluit in Nunavut, Canada, the Treasury has added evening meetings to Secretary Geithner's schedule. In the evening, he will participate in bilateral meetings with UK Chancellor of the Exchequer Alistair Darling and Japanese Finance Minister Naoto Kan.

Africa and the Arrogance and Ignorance of Bill Gates, Bono, and Jeffrey Sachs

by Hannes Wessels

Most African governments are at best lacklustre in their response to environmental problems; at worst, in a host of countries they are fully complicit in a wide range of unlawful activities ranging from poaching, to uncontrolled fishing and logging. Worsening the problem are the ubiquitous ‘do-gooders’ from abroad who seem to spring up in all the wrong places with all the wrong ideas and invariably do more harm than good.

One need look no further than Gorongoza National Park in central Mozambique for an example. Prior to the end of Portuguese colonial rule it was one of the great African game reserves, with a range of flora that stretched from enchanting Fever Tree forests to sprawling plains and sandstone cliffs. It accommodated an abundant variety of wildlife that made it a unique natural marvel. Of course, this was before it was turned intoa butchery by the newly installed Frelimo regime following the end of Portuguese colonial rule. In the ghastly process the buffalo of the neighbouring Zambezi delta, numbering over 100,000 animals, were virtually wiped out; much of the meat processed into ‘bully-beef’ and shipped to Afghanistan to fill the bellies of Soviet soldiers. But despite the mayhem some game survived. This attracted the benevolent, but blundering attentions of an American IT multi-millionaire by the name of Greg Carr who admirably sought to save the park from further destruction.

Sadly he has failed. Ignoring the advice of many regional experts familiar with the wiles of the crooked governing kleptocrats, he leapt joyfully into the latter’s welcoming embrace. Sickeningly, Carr appears to have lauded their labours in relieving him of over $20 million with little to show for it short of a mountain of wrecked vehicles and hundreds of bloated employees. Worse, word has spread, and he has managed to create a socio-economic magnet for people who now see Carr as a soft touch; instead of protecting the wildlife (it is a Game Reserve), he has triggered an influx of predatory villagers. The plight of the remaining game is now probably more precarious than before Carr’s intervention.

But Carr keeps illustrious company in compounding Africa’s conservation woes. Western governments have long been generous benefactors for the various government agencies tasked with protecting wildlife, but sadly, much of the money is spent on the salaries of incorrigibly corrupt officials, providing them with transport to expand their nefarious activities. Thanks to the arrogance and ignorance of folks like Bill Gates, Bono, and Jeffrey Sachs, the continent has been showered in millions of chemically-treated mosquito nets, most of which have by-passed the bodies they were supposed to protect and ended up lining fishing nets. Perfect if one wants to poison fish and sterilise watercourses. “Without Western aid the law-enforcement agencies would not have been able to move and sell all the illegal meat, ivory, and fish,” says a safari-operator who wishes to remain anonymous.

Read the rest here.

Breaking Down the Unemploymnet Numbers

The unemployment rate fell from 10.0 to 9.7 percent in January, and nonfarm payroll employment was essentially unchanged (-20,000), the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and in transportation and warehousing, while temporary help services and retail trade added jobs.

The number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up in January at +203.000, reaching 6.3 million. Since the start of the recession in December 2007, the number of long-term unemployed has risen by 5.0 million.

The nonfarm payroll number for December was revised downward from -85,000 to -150,000

The continued growth in temporary help is indicative of how worried employers are about the current recovery , that is, they continue to use temporary help rather than bringing on new permanent help.

Most bizarre about the January number is that the notorious and mysterious fudge factor, the birth/death index. The January Birth/Death adjustment was -427,000 from +25,000 in December. Got that? Without the Birth/Death downward index adjustment (which is generally positive every other month) employment would have been up by an incredible 407,000. This no doubt is really an adjustment for those who lost seasonal Christmas related jobs, rather than a sudden January collapse in new business hires, with a good dose of direct hands on BLS adjusting to get a near flat unemployment number for January. The fudge factor man at the BLS is obviously one man who will never have to fear ending up on the unemploymnet line.

Rent Control as Economic Stupidity

by Walter Block

“In many cases, rent control appears to be the most efficient technique presently known to destroy a city except for bombing.”

“Rent control has in certain western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.”

“That great sacred cow – Rent Control – is a textbook case of Economic stupidity.”

It is no surprise that free market economists would oppose rent control, root and branch. It is, however, a bit “man bites doggish” that even economists with sterling left wing credentials would oppose it too, and about as bitterly. The sources of those three quotes? Assar Lindberg, from The Political Economy of the New Left”; liberal Swedish economist Gunnar Myrdal; and the New York Times’ own Paul Krugman.

Why the consensus? It’s because this law, which supposedly helps impoverished tenants, actually does the opposite.

Every so often, saner elements in government try to repeal rent stabilization’s stranglehold on New York City. But they inevitably fail. Just this week, two frightening developments further cemented its place. First, Tishman Speyer walked away from their investment in Stuyvesant Town, mainly because it was not allowed to increase rents. Second, a State Supreme Court ruling said that some 300,000 rent-stabilized residents had their rents “illegally” raised. We’re talking an extra $45–$85 a month, on rents under $1,000.

Wouldn’t we all like such protections? Alas, the court ruling simply illustrates the benefits certain New Yorkers get from winning the housing lottery – and how the rest of us pay for it.

If you’re just moving to New York City, big dreams and ideas in your head, living in Manhattan will cost you, on average, $2,253 a month for a studio and $3,026 for a one bedroom. Pricey. If you’re in the middle class, you’re probably railing against the rich Wall Streeters and greedy landlords who are keeping you from making it in Gotham.

Except the average rent for the city in 2008 was only $950 a month.

How is this possible? Because 48% of rental housing is stabilized, meaning increases are regulated, and another 2% are rent-controlled, meaning increases are almost non-existent. Another 14% of units are public housing and other projects.

Read the rest of the article here.

An afterword by Walter Block:

An editor from the New York Post asked me to publish with him an 800-word column on rent control. Well, at least that is initially what I thought he wanted. However, I learned during the process of batting the piece back and forth, that while he did indeed desire a general article on this subject, he wanted it linked with recent goings on in the Big Apple on this topic. Also, he required some statistics on this subject, and I had not originally included any. So, nothing loath, I changed my first draft of this piece to suit his desires. (One lesson I learned from Murray Rothbard, as his associate editor on the old Review of Austrian Economics, is to be willing to compromise on anything, as long as it is non-substantive. And, certainly, adding some data, and linking an article to current events hardly violates libertarian or Austrian principles.) Also, my initial draft was a bit longer, okay, okay, a lot longer than the 800-word column he finally ran with (it was almost 1500 words). Further, this editor changed the title; he gave it quite a bit more pizzazz than I did. I guess that’s why they pay him the big bucks. (On a more serious note, I think he did a magnificent job of tailoring what I had originally written to better suit his own readership.)

Lew Rockwell expressed interest in publishing, also, the longer unexpurgated version of this essay. There is quite a bit of overlap between what appears at LRC, and what was actually published by the New York Post. But, hopefully, there is enough material that appears above, that did not appear in that leading New York City newspaper, to make the publication of this longer version still worthwhile. What you see at LRC, then, is the first draft of the article I originally sent to the editor, in response to his invitation.

Reinhart : You can rescue one country. You can maybe rescue two. But you can’t rescue all of them.

WSJ's Jon Hilsenrath interviewed University of Maryland Professor Carmen Reinhart co-author of, “This Time Is Different: Eight Centuries of Financial Folly,” a catalogue of financial crises, their causes and consequences.

In the interview she provided a guide to the countries that have currently have the greatest debt problems, and possible outcomes:

WSJ: How serious a danger do you see in Greece right now?

REINHART: Since independence in the 1830s, Greece has been in a state of default about 50% of the time. Does that tell you something? They were in a state of default until the mid-1960s. If you relocated Greece right now outside of Europe, anywhere, you plop it down in Latin America or Asia or anywhere else, bet on an Argentina-style default. But it is a part of Europe. The European community sees itself very threatened by this. They’re going to do what they can. What I think is a likely scenario is that rather than have a default with a big bang, we’ll have a quieter type of default. If you look at a Standard & Poor’s definition of a default, it is anything that changes a debt contract to less favorable terms from the original contract to the lenders. In other words, lower interest rates or longer maturities. What we’re already seeing in Greece is the makings of that. We’re going to see a voluntary and less-than-voluntary shifting in Greece from marketable debt to non-marketable debt, with a bit of arm twisting.

WSJ: The market is asking, ‘Who’s next?’

REINHART: There are a lot of scary scenarios out there. Take governments that were virtuous governments, and continue to be virtuous. I’m talking about Ireland now. Their public debts were trending down and they have acted quickly and they’re credible. But external debt in the private sector is huge, more than 300% of GDP. In a crisis environment, private debts become public debts pretty quickly. Who knows what will happen with the Iceland referendum, and whether they vote to default on the Danish and the Brits.

WSJ: Are we seeing a second-wave of financial distress?

REINHART: [My co-author]Ken [Rogoff} and I have been arguing fairly forcefully that historically, following a wave of financial crises especially in financial centers, you get a wave of defaults. You go from financial crises to sovereign debt crises. I think we’re in for a period where that kind of scenario is very likely. I don’t think a repeat of the fall of 2008 is at stake here, where it looks like the world is going to end. But I do think there is still, for reasons that are beyond me, quite a bit of complacency out there. Eastern Europe is another source of concern, and Europe has limited resources. You can rescue one. You can maybe rescue two. But you can’t rescue all of them. The Baltics are very vulnerable. Romania is vulnerable. Hungary is vulnerable. Problems in these countries feed back to their lenders. Austrian bank exposure to Eastern Europe is great. The Italian exposure to Eastern Europe is great. The Swedish exposure is non-trivial. You started out with a major financial crisis in 2007 and 2008, in which some of these countries have seen their worst recessions, in a way that really harms fiscal sustainability, even if you were in a good shape fiscally at the outset of the crisis. It is the pattern that has been prevalent in the past, that these major financial crises have been followed by an afterwave of debt crises.

Greek, Portuguese and Spanish CDS Rates Continue to Soar

The cost of insuring Greek, Portuguese and Spanish government debt against default rose to record highs according to monitor CMA DataVision, reports Reuters.

According to CMA DataVision, Greece's five-year sovereign credit-default swap spreads climbed to 4.46 percentage points in early trading Friday, up around .19 percentage point from Thursday's record wide close of 4.27 percentage points.

Geithner to Attend a Friday Evening Fireside Chat

On Friday morning, Treasury Secretary Geithner will attend the President's economic daily briefing at the White House..

Later, Secretary Geithner will depart for Iqaluit in Nunavut, Canada to attend the G-7 Meeting of Finance Ministers and Central Bank Governors February 5-6, 2010. The Secretary will meet with G-7 Finance Ministers and Central Bank Governors to discuss a range of issues including the world economic outlook, financial reform, trade and development, and how G-7 countries can help support implementation of the “Framework for Strong, Sustainable, and Balanced Growth.”

On Friday evening, Secretary Geithner will attend the G-7 working dinner and Minister Flaherty’s Fireside Chat.

US Default Protection Up 200%

It's nowhere near panic levels, but protection against default on debt of the United States government is up over 200% since late 2009.

Zero hedge writes:

Today, US CDS, on which we have been constructive since it hit 20 bps in September, as unprecedentedly cheap insurance, are trading 55/60, or almost 200% "higher." This is the most 5 year US protection has cost since the market lows in March.

Given that Bernanke can print the United States government out of default, if it ever comes to that, it is remarkable that sophisticated investors (Retail investors are not buying credit default swaps)are bidding up CDS protection.

Bottom line: Market participants continue very spooked and some are hedging against extremely unlikely scenarios.

Buy More Popcorn!

To defend himself against today’s civil fraud charges, former Bank of America CEO Ken Lewis plans to call Henry Paulson and Ben Bernanke to the stand, reports Charles Gasparino.

Ken Lewis' defense team is led by the revolving door opportunist, the former US Attorney, Mary Joe White. According to Gasparino, White hopes to get Paulson and Bernanke to reveal that Lewis did not mislead the government about BofA's deteriorating financial condition in the aftermath of its Merrill Lynch deal.

In a statement, White said that Lewis is being "public vilified by the political search for accountability for the financial meltdown."

Of all the crooks involved in all the shady deals surrounding the bailouts, it is remarkable that Lewis ends up as the fall guy for having made the error of making a bid to buy Merrill Lynch, which he tried to back out of, but was muscled by Paulson and Bernanke into continuing with the acquisition.

Of course, the charges against Lewis, by New York attorney general Andrew Cuomo, are all about politics and Cuomo setting up a resume for future political runs that may include a run for New York state governor and eventually the White House. His modus operandi, as is that of most attorney generals, is to charge the highest ranking person surrounding a scam that does not have strong political connections.

In a serious trial, which Cuomo has no interest in conducting, Paulson, Geithner and Bernanke would be frogged marched through the streets of Manhattan on their way to trial.

Pennsylvania State Capital Mulls Bankruptcy

The threat of crashing governments spreads across the globe from Greece and Portugal, to California and San Francisco and even small cities such as Harrisburg, PA.

Bloomberg reports:

Harrisburg, the capital of Pennsylvania, will consider Chapter 9 bankruptcy protection along with tax increases and asset sales as options to address $68 million in debt service payments due this year, the chairwoman of a City Council committee said last night.

Every option, including tax and fee increases, bankruptcy and a state takeover through Pennsylvania’s Act 47 municipal oversight program will be considered, said Susan Brown-Wilson, chairwoman of the Budget and Finance Committee, which began a week of hearings last night to consider a 2010 spending plan.

The $68 million in debt service payments that Harrisburg faces in connection with the construction of a waste incinerator this year is four times what the city of 47,000 expects to raise through property taxes, and $4 million more than the city’s entire proposed operating budget.

It's all about arrogant politicians continuing to spend more and more, and a tax collection system based on ever increasing monetary inflation, a monetary inflation that simply doesn't exist at the present time.

How this all ends up will largely be in the hands of newly reconfirmed Fed chairman Ben Bernanke. Will he print huge sums of money to bail out the United States government, which will, as a byproduct, result in the bailout of states, cities and foreign governments, or will he hold tough, talk a good game, but let the house of cards collapse?

The kneejerk reaction of most of the hard money crowd is that Bernanke will print and print, and inflation will reach record levels. There is nothing that causes me to rule out this scenario. However, Bernanke has acted in an unpredictable fashion in the past (as evidence I submit the money supply (m2) slowdown during the summer of 2008 and the current money slowdown). It is fully possible that Bernanke will hold his money printing gun until things are in major decline. I am not brave enough to say that he will ignore all political pressure and not bailout the government at any point, but he may hold back longer than most expect.

Fortunately, there is generally plenty of time at the start of a Bernanke shift in policy to adjust investments accordingly. For long term gold holders, there is no reason to sell your positions, gold will come back in price. However, for gold traders., the most money is going to be made in the near term by trading gold from the downside.

Investigation Chief: Swine Flu Pandemic Was A Hoax

By Paul Joseph Watson

Appearing on The Alex Jones Show, outgoing Chair of the Council of Europe’s Sub-committee on Health Wolfgang Wodarg said that his panel’s investigation into the 2009swine flu outbreak has found that the pandemic was a fake hoax manufactured by pharmaceutical companies in league with the WHO to make vast profits while endangering public health.

The Parliamentary Assembly of the Council of Europe, a 47 nation body encompassing democratically elected members of parliament, began hearings last month to investigate whether the H1N1 swine flu pandemic was falsified or exaggerated in an attempt to profit from vaccine sales.

Wodarg said that governments were “threatened” by special interest groups within the pharmaceutical industry as well as the WHO to buy the vaccines and inject their populations without any reasonable scientific reason for doing so, and yet in countries like Germany and France only around 6 per cent took the vaccine despite enough being available to cover 90 per cent of the population.

Wodarg said he was alarmed when the WHO cited early cases in Mexico as a threat and quickly moved to pandemic status, despite the fact that the cases were relatively mild and the virus was not new.

“This was the mildest flu ever and the people were much more clever than the government so we have to find out what was going on with WHO – why did they do this pandemic alarm,” asked Wodarg, noting that pharmaceutical interests within the World Health Organization were instrumental in creating the panic and reaping the financial dividends.

“We don’t know what really happened, we only know that they changed the definition of a pandemic, which was a very dangerous thing before and now is just a normal flu, and this is why business for pharmaceutical companies was open,” said Wodarg, adding that select pharmaceutical companies were handed a monopoly on creating the vaccine.

Read the full article here.

Behind the Mad Math of Adjustable Rate Mortgages

WSJ's Carrick Mollenkamp explains why some adjustable rate mortgages are going up and others down:

Tens of thousands of homeowners with adjustable-rate mortgages have seen their monthly payments jump or stay high even as they have fallen for other homeowners. This disparity owes to the indexes used to calculate those payments have moved in unexpected ways.

The behavior of these indexes, which have controlled monthly payments on more than $100 billion of adjustable-rate mortgages, means that many homeowners are paying as much as 25% more than homeowners with similar loans. The higher payments, which can total $269 a month on a $250,000 loan, come as many homeowners are struggling to avoid default.

Few homeowners have heard of or understand these indexes, which have acronyms like Cosi, Codi and Cofi, along with the better-known Libor. And few know how they are calculated or what they mean for borrowers...

All of the indexes have one thing in common: They effectively measure the rates banks pay to borrow money. Banks then add about 2.5 percentage points to the rate when they lend the money to borrowers...

Some of the moves in these mortgage indexes are directly or indirectly linked to Wells Fargo & Co., one of the biggest mortgage lenders in the country. Wells inherited some of the mortgages through its purchase of Wachovia, which itself bought Golden West Financial in 2006 just before the housing crisis hit.

In some cases, borrowers could choose which index their mortgage would be tied to. The indexes had historically moved in the same direction at similar times and were presented to customers as nearly identical. Borrowers who got mortgages from Golden West used three indexes to set their payments: Cosi, or the cost of savings index, which was tied to the bank's own deposits; Codi, or the certificates of deposit index, was based on the price of three-month certificates of deposit. A third index overseen by the Federal Home Loan Bank of San Francisco was a lesser-used benchmark.

Cosi accounted for 54% of Golden West's mortgage balance of $121 billion, or $65 billion, as of May 2006 when Wachovia agreed to buy Golden West. Codi accounted for 37% of the Golden West portfolio, or $44 billion. The unpaid balance for the portfolio of loans tied to Cosi and Codi was about $103 billion at the end of 2009.

There was one difference between the two indexes: Codi is based on short-term borrowing costs, which have fallen significantly .... Cosi includes long-term CDs that are paying higher yields, keeping Cosi elevated above Codi.

The net result is that in the most recent postings for the two indexes, Codi was at a super-cheap 0.4875%, while Cosi was 2.35% as of Jan. 14.

Those who are patting themselves on the back by choosing a short-term interest rate index, should heed this warning: In the very near future all interest rates will be headed higher, and eventually, not necessarily right away, short-term rates will trade ABOVE long term rates. This is not the time to hold any type of adjustable rate mortgage, it is a time to lock in fixed rates.

Remember, Nicholas Taleb correctly says every human being should be shorting Treasury securities. If you have an adjustable rate mortgage, you are doing the exact opposite---you are counting on stable to declining rates.

U.S. Banks Abetting Corrupt Regimes: Money Laundering Corrupt Politico Style

The global bank HSBC may be running offshore accounts for central banks, reports Lucy Komisar.

The central banks through shell companies wash funds through HSBC and then use the funds for a variety of purposes, often personal in nature.

According to a Senate Subcommittee on Investigations report to be released today and obtained by Komisar, from 2004 to 2008, Teodoro Nguema Obiang Mangue, son of the president of Equatorial Guinea, employed two lawyers, Michael Berger and George Nagler, to set up U.S. shell companies – Beautiful Vision Inc., Unlimited Horizon, Inc., Sweetwater Malibu LLC, Sweetwater Management Inc., and Sweet Pink Inc. – with no employees or places of business, to open bank accounts and move money.

The lawyers used their attorney client and law office accounts to hide the origin of the money and transfer it to an account in Citibank, which would never see a wire transfer from Equatorial Guinea. At this time Obiang was the subject of criminal investigations and complaints in the U.S. and France.

The lawyers moved nearly 30 million dollars in wire transfers to buy a 30-million-dollar residence in Malibu, on the California coast. An escrow agent, the Sidley Austin law firm, sent 900,000 dollars to help purchase the Malibu mansion.

When the law firm inquired of the Justice Department if it was okay to accept the funds, part of a 21-million-dollar transfer that initially was to buy a Gulfstream jet, the department replied it had no basis for seizing the funds, the report said.

Money moved from Obiang’s bank in Equatorial Guinea to a correspondent account at Wachovia Bank which then transferred the funds to Bank of America in Oklahoma City. In a six-month period, about 73 million dollars went through the Wachovia account. Another 37 million dollars went through Citibank.

Also according to Komisar:

In a Nigeria case, the report described how Jennifer Douglas, the fourth wife of Atiku Abubakar, who was vice-president of that country, helped him bring 40 million dollars in suspect funds into the U.S. Some of it was bribe payments made by Siemens, the German electronics company that paid some two billion dollars in global bribes.

Edward Weidenfeld, Douglas’s lawyer, received funds from offshore accounts and told the committee that he assumed that it was Abubakar’s money. Under the law, he was not required to inquire further.

The late president of Gabon, Omar Bongo, hired a U.S. lobbyist, Jeffrey Birrell, to arrange to buy an armoured car from a Utah company and to purchase a U.S.-made C130 transport aircraft from Saudi Arabia.

He got U.S. permission for the aircraft deal – required because U.S. military sales require permission for resales – and had no trouble moving money from shell companies for the deal. Along the way Birrell was sending out wire transfers directed by Bongo and his advisors, some to accounts in Brussels, Paris and Malta.

Bottom line: If you have the money, you can find ways to move the money.

Toyota Issuing 'Goodwill' Checks to Dealers

Exclusive-EconomicPolicyJournal.com has learned that Toyota is so concerned about its relations with its dealers, because of the current negative publicity surrounding the recall, that it is informing dealers that each will be issued a "goodwill check" from Toyota.

Toyota will be sending checks to dealers based upon sales volume. The checks will range in size from $7, 500 to $75,000.

Berkshire Hathaway Downgraded By S&P From AAA to AA+,

The cost of money just gone up for Berkshire Hatahway. S&P has just bitch slapped Warren Buffett, with a downgrade of Berkshire Hathaway from AAA to AA+

Check out what S&P has to say about Berkshire:

The rating actions are based on our view that Berkshire's overall capital adequacy, as well as that of its insurance operations, has weakened to levels no longer consistent with a 'AAA' rating and is not expected to return to extremely strong levels in the near term. Furthermore, we expect that the consolidated liquidity position of BRK will be reduced from extremely strong historical levels as a result of the acquisition. As capital adequacy and liquidity levels have declined, investment risk remains very high in our view, compounding the need for extremely strong capital and liquidity given potential investment volatility. A key concern is that BRK's risk tolerances appear to have increased, yet we believe they remain ill defined while the organization increases in complexity. Generally, we believe Berkshire has a high risk tolerance for capital volatility and investment risk. We do not believe that the company's overall risk management framework has evolved at the same pace as the organization's complexity and that enterprise risk management practices remain in silos within each investment...

The outlook on the ratings is stable. We expect BRK's consolidated operating earnings to improve in 2010, in line with an overall gradual economic recovery in the U.S. BNSF also likely will contribute to earnings for Berkshire in 2010 and prospectively. Despite this increase in earnings, sizable declines in capital adequacy and liquidity are expected to result in a multiyear rebuilding period for the company to restore to historical levels. Furthermore, earnings remain potentially volatile because of the insurance operations' exposure to any sizable natural peril or man-made catastrophe. Our expectation is that any such event would result in lower earnings in a given year but not an overall loss that would reduce capital in 2010. We expect financial leverage and coverage metrics to improve from their current levels over the next three years as BRK repays the debt related to the BNSF acquisition. The ratings could come under more pressure if BRK further increases its investment risk tolerance or if its overall level of capital adequacy relative to its risks deteriorates further. We currently do not expect that we would raise the ratings in the intermediate term.

If you read between the lines, one might say that S&P is believes that Berkshire Hathaway is too big for Buffett to manage properly and that the quality of the management risk teams underneath him are unclear. Further, they are looking at Buffett's older investing strategy, and looking at his new taste for higher risk and less liquidity, and saying, WTF?

Fitch and Moody’s downgraded Berkshire in 2009.

The Tight Money Supply Market Crush; Gold Down Near 4.0%, Oil Down 5.0%

Only tight money suppply can explain today's major market swings of a down stock market, down gold, down oil and a strong dollar.

Shortly after noon, here's the picture of today's trading:

Dow 10,060 -210 -2.05%
Nasdaq comp 2,143 -48 -2.20%
S&P 500 1,071 -26 -2.35%
GlobalDow 1,869 -48 -2.49%
Gold 1,068 -44 -3.96%
Oil 73.11 -3.87 -5.03%

Meanwhile, the dollar index, DXY, is up 79.94, +0.57, +0.72%, to a seven month high.

Greece’s Biggest Union Sets Strike, Threatens Cuts

Greece’s biggest union has approved a mass strike this month. It is the second major union in Greece to do so.

GSEE, which represents about 2 million workers in the private sector, voted at a meeting in Athens today to walk out Feb. 24. The main public-employee union plans a Feb. 10 strike to protest spending cuts.

Grrek President Papandreou has appealed twice this week for Greeks to accept “painful” measures, saying the country can’t afford strikes and blockades.

ADEDY called its Feb. 10 strike to oppose plans by Papandreou to deepen spending cuts and to limit wage increases to those earning less than 2,000 euros ($2,782) and to trim bonuses for all state workers.

Papapandreou widened the wage freeze to all public workers on Feb. 2.

The complex mix of the public and private sector in Greece and the dire financial situation of the government makes for a highly explosive situation that could rock world financial markets, given the precarious financial situation of a number of governments around the world. All traders need to be monitor this situation closely.

Taleb Says ‘Every Human’ Should Short U.S. Treasuries

I have seen recommendations before, but none as colourful as this one from Nassim Nicholas Taleb.

Taleb said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Fed chairman Bernanke and the Obama administration, according to Bloomberg.

It’s “a no brainer” to sell short Treasuries, Taleb at a conference in Moscow today. “Every single human being should have that trade.”

“Democracies can’t handle austerity measures very well,” Taleb added. “We’re going to have a severe problem.”

He's right. My just a little less colorful way of explaining the situation is that, over the next decade you can make a career out of shorting the bond market.

Independent Analyst: Toyota Concerns Overblown; NOT LINKED TO ANY ACCIDENTS

Not even most Toyota dealers believe their government would intentionally harass Toyota, but it continues to be a highly suspicious situation, especially when you take into consideration what independent experts are saying..

AFP reports:

David Champion, director of automobile testing for Consumer Reports magazine, said the reaction to the recall was overblown.

"When you look at the statistics we are putting an awful lot of effort on a very small risk," he said.

"There has been something like 2,000 complaints of unintended acceleration in some 20 million Toyota vehicles -- it's almost like trying to find a needle in a haystack."...

he said a congressional investigation was an "overreaction" and noted that the "sticky" pedal problem that caused Toyota to halt production and sales of eight models last month was not linked to any accidents or injuries.

Geithner's Thursday

In the morning, the show testimony will continue, with Senators taking their turn at beating up on Treasury Secretary Geithner, before he goes back to his office, and later the White House, for more plotting.

At 10:00 am, Secretary Geithner will testify before the Senate Budget Committee. The Secretary will discuss the President’s Fiscal Year 2011 Budget.

In the afternoon, Secretary Geithner will meet with Chilean Finance Minister Andrés Velasco at Treasury.

Later, Secretary Geithner will meet with President Obama at the White House.

In the evening, Secretary Geithner will meet with Lithuanian Prime Minister Andrius Kubilius at Treasury.

Top Ten Posts for the Month of January

Below are the Top Ten most viewed EPJ posts for the month of January 2010:

#1 Robert Rubin: All Hell Could Break Loose Because of the Huge Government Debt

#2 The Secret Bank Bailout

#3 Does the Fed Want to Crash the Housing Market a Second Time?

#4 US Crosses the Bernholz Line -- Hyperinflation Early Warning Signal

#5 Shock: Inside the Healthcare Bill

#6 HOT: S & P Downgrades California

#7 Just Ahead: Worst FDIC Losses From Bank Failures, Ever

#8 Fitch: U.S. State and Federal Debt to Hit 94% of GDP

#9 Geithner Conspires to Dupe Investors email note by Taylor Conant

#10 It's Up Hill for Peter Schiff, Again

Medina Momentum in the Lone Star State

Lew Rockwell writes:

Debra Medina, the C4L national board member and former state and county coordinator for Ron Paul, is getting an astounding 16% in the Texas Republican primary race for governor. Can she beat Kay Bailout Hutchison to get into a run-off with Rick “Merck” Perry?

The Rasmussen Report advises:

A new Rasmussen Reports telephone survey of likely Texas voters finds incumbent Republican Governor Rick Perry leading former Houston Mayor Bill White 48% to 39%. Five percent (5%) like some other candidate, and eight percent are undecided.

Senator Kay Bailey Hutchison still runs best against the Democrat, leading White by 13 points, 49% to 36%. Seven percent (7%) prefer another candidate, while another seven percent (7%) are not sure. The findings for both these match-ups are little changed from mid-January.

The surprise, as in the new Rasmussen Reports survey of the GOP gubernatorial primary, is the growing strength of Debra Medina, a businesswoman active in the state’s Tea Party movement. Medina now edges White 41% to 38%. Last month, White had a 44% to 38% lead on her. In this contest, six percent (6%) favor some other candidate, but a more sizable 16% are undecided.

Voters not affiliated with either major party prefer the Republicans in all three match-ups by double-digits.

Politicaldoc's reports Tom Woods, author of Meltdown, has endorsed Medina. Here's his statement via Politicaldoc's:

In response to an inquiry from the Medina camp, I gladly offer the following endorsement:

“What an insufferable bore the Texas gubernatorial race would be without Debra Medina. She is giving her fellow Texans a rare choice. They can pick a business-as-usual drone and make the New York Times happy. Or, by choosing a real human being who speaks her mind and tells the truth, they can teach America that there is nothing inevitable about being governed by cliche-spouting robots. Debra’s knowledge of history, economics, and much else, and her contempt for the phony conservatives who have sold Texans out time and again, make her the obvious choice for a thinking person — and for anyone who’d like to kick sand in the face of the political establishment. Vote for anyone else and absolutely nothing changes, as usual. Vote for Debra Medina and the bad guys tremble. You can’t put a price tag on that. Don’t let us down, Texas — the whole country is watching.”

Walter Block Does the Impossible

An attendee at economist Walter Block's speech at Columbia University writes to say that Block did something that any Econ 101 student will find hard to believe:

i had a fantastic time...he was so entertaining...he's got something very woody allen about him. the audience was interested for the entire 2 hours and there were times where he drew econ graphs on the board which typically puts people to sleep.

I understand that Professor Block's speech was videotaped, so hopefully we will all have an opportunity to view it.

Ed Yardeni: "We Are All Austrians Now"

Former Columbia University's Graduate School of Business professor, who was an economist with the Federal Reserve Bank of New York, and has held positions at the Federal Reserve Board of Governors and the U.S. Treasury Department, Ed Yardeni, writes:

We are all Austrians now. Over the past few weeks, in Los Angeles, San Francisco, Sacramento, New York City, and London, I’ve run into more and more institutional investors whose economic and financial views either knowingly or unknowingly reflect the influence of the Austrian School of Economics. I am in Zurich today and Geneva tomorrow. … How do you know if you are an Austrian? Here is a simple test. Answer yes or no to the following question: “I believe that this will all end very badly.” If you agree, then you are probably worried that all the government policies that rescued us from a depression in 2008 and 2009 only postponed the coming wipe-out of debt and the collapse of asset prices–and will actually make the inevitable calamity even worse.

Curiously, Yardeni's comment on what Austrian economics is, and the role of globalization, indicates he may require further thinking about the subject. He continues:

I share these concerns, but I believe that Globalization will save us from such an awful fate. The end of the Cold War marked the end of the greatest trade barrier of all times. The resulting proliferation of free trade liberated billions of people around the world from their lives of quiet desperation. Standards of living are rising rapidly, especially in emerging economies, as prosperity displaces subsistence. Previously immiserated people are less miserable. They are earning enough so that they can both save and have more discretionary income to improve their material well-being. In other words, Globalization is stimulating more growth in incomes, saving, and consumption. Such growth is the best antidote for the grim Austrian prescription of debt deflation.

It is simply unclear how Yardeni expects the distorted capital structure of central bank money printing to be corrected in any other way than what Yardeni calls "debt deflation."

Globalization, in other words, won't do much to help, for example, those who are now suffering in houses that are way under water and where scheduled mortgage payment increases may be ahead.

(Via The Ethiopian Review)

San Francisco's Budget Nightmare May Mean Retirement Payment Cuts for SF Government Employees

SF government employees are likely to see huge cutbacks in their retirement plans. The numbers don't work any other politically feasible way, not that cutting retirement payouts will be a favorite among government employees, but it is the choice that city leaders will be forced into making, even if their heads are in the fog .

SF Gate explains the problem:

San Francisco's enormous budget deficit for the coming fiscal year has swelled even more in recent weeks due to poor performance by the city's retirement investment accounts and bleak budget news from Sacramento.

The projected deficit for the 2010-11 fiscal year had been $522 million, of which Mayor Gavin Newsom shaved off more than $20 million through his recent midyear cuts. But that small dent has already been negated by news the city must pay $20.7 million more into its retirement system next year than anticipated.

The city planned to contribute 12.1 percent of its total payroll to the retirement system, but the investments are performing so poorly it must instead pay 13.6 percent.

And that's the relatively good news. The same actuarial projections show the city must pay an even bigger percentage every year for the next several years, topping out at 27.3 percent of its total payroll in 2014-15. That's equal to a one-year contribution of $675 million - or more than it takes to run San Francisco General Hospital for a year, said Supervisor Sean Elsbernd.

(ViaJuniorDeputyAccountant)

Saul, Barack, and Me

by Robert Ringer

Most readers have probably not noticed it, but in all the articles I’ve written about BHO, I have never referred to him as “President Obama” except when quoting someone else. As you might have assumed, this has not been by accident.

I’ll never forget the time I was standing in line at a bookstore, chatting with someone about BHO. A stranger standing a couple of people away from me overheard my comments and abruptly admonished me, “Whether you like it or not, he’s our president.”

To which I responded, “He may be your president, but he’s not mine. That was the end of any thought I may have had about conceding and accepting the fact that BHO had been elected to the highest office in the land. The reason I have never seen BHO as the president of the United States is because he swore to uphold the Constitution, but from the day he took an oath to that effect, he immediately began violating it.

I concede that all of our presidents have violated the Constitution, but even the worst of them have at least made a gratuitous attempt to honor it to some degree. BHO’s actions make it clear that he does not even acknowledge its existence.

But enough of my intransigence. My humble objective is to get a handle on what makes this self-defensive, arrogant young socialist so angry and so anxious to take away the rights of American citizens. Call it my personal contribution to the noble cause of preventing him from making good on his promise to fundamentally transform America.

BHO’s actions have been deceitful to such an extreme that some have gone so far as to suggest that he is the Antichrist. Others stop short of that label, but see him as the epitome of evil.

Well, this may surprise you, but I don’t see Chairman Obama as evil. I really don’t. After a good deal of study and observation, my take on him is that he is a man without a soul. And, as a soulless individual, his actions are not hampered by trivial moral considerations.

If you read his autobiographies (two in print before he even made it to the White House!), along with some of the other books written about him, you see a very troubled young man. I, for one, have a great deal of compassion for anyone who has experienced a difficult childhood.

And, clearly, Obama had a dysfunctional life growing up — a white Marxist mother, a black African Muslim father who was a drunk and a philanderer, then, of all things, an Indonesian Muslim stepfather. And, of course, there were the years he spent in a Wahabbi Muslim school in Indonesia (Wahabbi schools being most famous for teaching students hatred for Western countries).

Given all this, it’s not hard to understand why a youngster would become vulnerable to a “down–with-the-rich” proselytizer. And in BHO’s life, it seems clear that that proselytizer came in the form of American communist Frank Marshall Davis, whom he refers to in his memoirs simply as “Frank.”

Ironically, BHO attended Punahou High School in Honolulu, which is the most upper-crust school in Hawaii. Like so many other things about BHO’s life, where he got the money to attend such an expensive school, not to mention Columbia and Harvard, has never been revealed.

In this series of articles, I’m going to try to get inside BHO’s head by dissecting the man and the book that perhaps had more influence on his anti-capitalist, anti-American attitude than anyone or anything else in his life. I’m talking, of course, about the infamous Saul Alinsky, founder of modern community organizing, and his equally infamous book, Rules for Radicals.

Alinksy, who died in 1972, was the son of Russian immigrants. He grew up in Chicago and was a street-smart kid whose early community organizing efforts were focused on the downtrodden Back of the Yards neighborhood in Chicago (made famous years earlier by Upton Sinclair in his classic novel The Jungle).

Because I always keep in mind that it is critically important to know your enemies, I recently reread Rules for Radicals, and was surprised by how certain parts of it struck me. For example, would you believe that there was much about Saul Alinsky that I actually liked? He was a fascinating character with a great sense of humor.

In fact, Alinksy was a witty, congenial, intellectual man with whom I probably would have enjoyed having lunch once a month. As I reread Rules for Radicals, I pictured what it would have been like to have engaged in friendly philosophical debates with my fantasy friend at the other end of the political spectrum.

I think my attitude toward him would have been, “Saul, I love ya, pal, but I feel obliged to tell you that you’re full of crap.” And with that, we’d have another friendly debate over human nature, philosophy, politics, and life. Alinksy was no Jeremiah Wright or Bill Ayers. He was a serious thinker.

In Part II of this article, I’ll tell you some of the things in the early part of Rules for Radicals that make me believe that I would have liked Saul Alinsky. Before concluding that I’ve lost my mind, be sure to read what I have to say.

Read Part II here.

Read Part III here.

Read Part IV here.

Read Part V here.

Read Part VI here.

Read Part VII here.

Read Part VIII here.

Fear the BLOB

John Carney has a nice piece on the BankingLOBby.

The BLOB is a secret club that consists of current Senate staffers and Wall Street lobbyists that control what banking legislation makes its way through Congress.

According to Carney and his source:

[Blob members] frequently socialize together, often organizing happy hours and parties.

"They move in a pack. They socialize together," the person says. "Hell. They even inter-marry."

The Blob is made up of both Republican and Democratic staffers. Outsiders tend to think the Blob members view themselves as "cooler" than other Capitol Hill staff members...

"The very worst example of the revolving door in Congress," is how the person described the Blob.

"The idea that these people would actually develop legislation that Wall Street
opposes" is a joke, the person said. "They are genetically incapable of doing it."

If the Blob existed to keep markets free that would be one thing, but I suspect most of the time the Blob is creating legislation that will prevent others from entering the industry and hampering those who are already in the industry but don't have the Blob on the payroll.

Walter Block at Columbia

Here's a pic from last night's speaking engagement by economist Walter Block, at Columbia University. EPJ contributore Michael Labeit is putting a piece together on the event, with tons of details. Keep an eye out for it here at EPJ.



(Photo courtesy of Michael Labeit)

Pimco Says California Yields May Revisit 2009 Peak on Deficits

Bloomberg reports:

California, the world’s eighth-largest economy, faces a $20 billion hole in the budget during the next 17 months. With its cash dwindling, the government may need to issue IOUs for the second straight year unless Governor Arnold Schwarzenegger and two-thirds of the Legislature can agree on a fix. Once the budget is balanced, the state is poised to sell billions of dollars of bonds after flooding the market with $36 billion in debt last year.

California’s credit default swaps, insurance contracts that are generally used to protect against default, have risen 97 percent since late October to $314,000 to protect an investment in $10 million of bonds. The state has $73 billion of general obligation debt outstanding, according to Treasurer Bill Lockyer, who has repeatedly dismissed any suggestion the state may not make required payments.

A taxable California bond that matures in 2039 traded on Feb. 2 for an average yield of 7.70 percent, 3.14 percentage points more than 30-year Treasuries. On July 1, the day before the state issued IOUs, the difference widened to as much as 4.03 percentage points, according to data compiled by Bloomberg.

Kenneth Naehu, who invests $2.5 billion for Bel Air Investment Advisors in Los Angeles, sold California bonds late last year as he saw deficits mounting -- and says he’s not ready to buy back in yet.

Naehu, 43, is among investors including Newport Beach, California-based Pacific Investment Management Co. and Thornburg Investment Management in Santa Fe, New Mexico, forecasting that the state’s yields -- which move inversely to prices -- may increase relative to other municipal bonds because of the financial strains. Pimco, the world’s biggest fixed-income manager, predicts the yield on 30-year debt may rise above 6 percent, the highest since last summer’s fiscal crisis.

Couple this with the huge federal debt that will have to be issued this year, that will push up all rates, and California general obligation debt has to be one of the best bond shorts on the boards.

Ben Bernanke Is Clearly Worried About Ron Paul's Audit the Fed/End the Fed Movement

At today's swearing in ceremony for his second term as Fed chairman, Ben Bernanke devoted a good portion of his swearing in ceremony remarks to Fed transparency. Clearly, Ron Paul's Audit the Fed/End the Fed movement is having an impact on Bernanke. When he devotes so much of his swearing in speech to Ron Paul's concerns, you know Ron Paul is on his mind, big time.

Below is Bernanke's full swearing in remarks with the section devoted to Ron Paul concerns in italics:

It is with considerable gratitude and not a little humility that I begin a second term as Chairman of the Board of Governors. I thank President Obama for the confidence he has shown in me by renominating me and the members of the Senate for confirming my nomination.

The past four years have been an extraordinary time. In many respects, this period has shown this institution at its finest, as we moved rapidly, forcefully, and creatively to confront the deepest financial crisis since the Great Depression and help prevent a looming economic collapse. This swift and effective response would not have been possible without the remarkable dedication, professionalism, and personal sacrifices of the Federal Reserve staff. I would like to express my deep appreciation to all of you for your creativity and hard work. America and the world owe you a debt of gratitude.

At the same time, this institution, like our country, faces enormous challenges, challenges that will demand continued commitment and professionalism from staff members in every division.

On the economic front, the resumption of growth in the nation's output of goods and services is encouraging. But far too many people remain unemployed, foreclosures continue at record rates, and bank credit continues to contract. We at the Federal Reserve cannot hope to solve all these problems on our own--other policymakers and those in the private sector must do their part--but we must continue to do all that we can to ensure that our policies are helping to guide the country's return to prosperity in an environment of price stability.

At the Federal Reserve and other agencies, the crisis revealed weaknesses and gaps in the regulation and supervision of financial institutions and financial markets. Working together, the Fed staff and the Board have made considerable progress in identifying problems and improving how we carry out our oversight responsibilities. We are restructuring our supervisory framework, for example, to incorporate a more systemic, multidisciplinary perspective. We are engaging with international colleagues to develop tough, comprehensive regulations to promote the safety and soundness of financial institutions, and we have developed and implemented strong new protections for consumers. We will continue to work with the Congress to develop an effective, comprehensive reform of financial regulation. As we move forward, we must continue to do all that can be done to ensure that our economy is never again devastated by a financial collapse.

The Federal Reserve has been granted, both in law and in political tradition, considerable independence and autonomy. That independence serves important public objectives. Critically, it allows the Federal Open Market Committee to make monetary policy in the longer-term economic interests of the American people, rather than in the service of short-term political imperatives. It also allows the Federal Reserve to make supervisory decisions based on the facts of each case and the need to preserve financial stability, not on the basis of political considerations. In the interest of maintaining public confidence and promoting economic and financial stability, we must continue to protect our independence.

At the same time, in a democratic society like our own, institutional independence brings with it fundamental obligations of transparency, responsiveness, and accountability. The Federal Reserve is already one of the most transparent and accountable central banks in the world, providing voluminous information and explanation concerning all of its activities. However, I believe that we should be prepared to do even more, to become even more transparent. It is essential that the public have the information it needs to understand and be assured of the integrity of all our operations, including all aspects of our balance sheet and our financial controls. We will continue to work with the Congress to ensure maximum transparency of America's central bank, without compromising our ability to conduct policy in the public interest.

These are just some of the challenges that we will all face in the coming months and years. I thank you for the many expressions of support I received during the confirmation process, for your hard work and dedication, and for your service to your country. I look forward to continuing to work with all of you to strengthen our economy and to make the Federal Reserve as effective as it can possibly be in advancing the economic wellbeing of all Americans. Thank you.

It's Official Bernanke Sworn in for Second Term

Ben S. Bernanke was formally sworn in for a second four-year term as Chairman of the Board of Governors of the Federal Reserve System at a ceremony Wednesday afternoon in the atrium of the Board's main building in Washington.

The oath was administered by Vice Chairman Donald L. Kohn in a ceremony attended by Board employees. Witnesses included Chairman Bernanke's wife, Anna Bernanke.

Chairman Bernanke began his second term on February 1 following his confirmation by the Senate on January 28 and a hearing on December 3 by the Senate Committee on Banking, Housing and Urban Affairs. President Obama announced his intention to nominate Chairman Bernanke on August 25. He originally took office as Chairman on February 1, 2006.
Chairman Bernanke's new term as Chairman ends January 31, 2014, and his 14-year term as a member of the Board ends on January 31, 2020.

Donations to U.S. Colleges Dropped in 2009 by 11.9%

The recession has had a strong impact on money raising by private universities.

Private donations to U.S. colleges and universities dropped 11.9% in 2009 from the previous year to $27.85 billion, according to the Voluntary Support of Education Survey released this week by the Council for Aid to Education.

The 20 institutions that raised the most in 2009 received $7.28 billion — $1.13 billion less than the top 20 institutions raised in 2008, the Council said.

The top 20 institutions in terms of donations dollars raised in 2009 are:

Stanford University
Harvard University
Cornell University
University of Pennsylvania
Johns Hopkins University
Columbia University
University of Southern California
Yale University
University of California, Los Angeles
University of Wisconsin-Madison
New York University
University of Washington
Massachusetts Institute of Technology
Duke University
University of California, San Francisco
University of Minnesota
University of North Carolina at Chapel Hill
University of Michigan
University of California, Berkeley0
University of Chicago

WSJ has the full dollar breakdowns here.

Ray LaHood a Complete Government Hood

Transportation Secretary Ray LaHood has not in his entire life ever received a paycheck from a private sector non-government affiliated enterprise. He joined the government by teaching in public schools and has hop scotched in government and government related jobs ever since then. Bottom line, this guy is a total government hood.

Before becoming Secretary of Transportation, LaHood served for 14 years in the U.S. House of Representatives from the 18th District of Illinois (from 1995-2009). Prior to his election to the House, he served as Chief of Staff to U.S. Congressman Robert Michel, whom he succeeded in representing the 18th District, and as District Administrative Assistant to Congressman Thomas Railsback. He also served in the Illinois State Legislature, according to his Transportation Department bio.

Before his outright political career, Secretary LaHood was a junior high school teacher, having received his degree from Bradley University in Peoria, Illinois. He was also director of the Rock Island County Youth Services Bureau and Chief planner for the Bi-States Metropolitan Planning Commission in Illinois.

LaHood received a 0% rating from the conservative and anti-earmark Club for Growth 2007 RePORK Card. He received an 11% rating from the conservative lobbying group Citizens Against Government Waste for 2007 and holds a lifetime 49% rating from the group.

The man has never earned a private sector penny and now is in a position to harass, and tell Toyota how to run their business. Do you think he would be as forceful if the problem was with General Motors? Not a chance.

LaHood Backtracks On 'Don't Drive Your Toyota' Comment

Secretary Ray LaHood now says he misspoke when telling owners of recalled Toyotas to stop driving then, reports CBS.

Instead, LaHood says take them to dealerships to get them repaired.

LaHood told reporters it was "obviously a misstatement" when he told a House panel earlier Wednesday that he would advise owners not to drive recalled vehicles. The remark came during testimony to the Appropriations subcommittee on transportation.

LaHood Crushes Toyota

Wow, they are really going after Toyota.Transportation chief Ray LaHood says Toyota owners should stop driving cars affected by recall. I would like to see some independent stats on how many cars have actually accelerated because of this problem.

Is Tim Geithner a Goner No Later Than Early 2012?

Simon Johnson thinks it could be:

The White House is floating, ever so gently, the notion that they are open to nominations for the position of “Tim Geithner’s Successor.”

It’s not clear if they mean this job is likely to be advertised formally sometime in 2012 or 20 minutes after the November midterms. Nor is it obvious if this is a real request for proposals – it could be just an effort to make critics “put up or shut up.”

Johnson doesn't say what his evidence is, but he does suggest a possible successor: Kansas City Fed President Tom Hoenig.

The way I see it, if Geithner leaves, the job is Jamie Dimon's and only if he turns it down will any other names be considered.

The Simplicity Test: A Simple Policy Guide for Job Growth

by Mark Cuban

The simplest way to create more jobs is to allow small business and entrepreneurs to spend less time and money on lawyers and accountants and redirect that intellectual and financial capital to the core competencies of their business.

Any new government policy that requires the hiring of lawyers and accountants will not lead to new jobs, it will lead to time and money being wasted and fewer jobs being created.
Like the administration before it, the current administration seems to have no concept of what it takes to start, run and grow a small business. None.

Here is a hint. If you want to see more jobs created by Small Businesses and entrepreneurs REDUCE the amount of paperwork required. Dramatically simplify the tax code. In other words, if you REDUCE THE OVERHEAD of small business, you effectively create capital for them through reduced costs. Not only do you improve their financial position, but you reduce that great big time suck known as dealing with your accountants and lawyers. The more time wasted with “professional services”, the less time spent doing your job. This seems to be a concept lost on government.

One last thing. It appears to be a goal of the administration to free up loans to small businesses. For the sake of this comment, let me re-define Small Business as those companies with fewer than 20 employees. There are exceptions, but more often than not, the stupidest thing a business of this size can do is borrow money. Its stressful enough for a small business in these times to be profitable. Add to that stress the need to repay a loan and success becomes far more difficult.

If we want to accelerate the formation and growth of these small businesses we need to first reduce the costs imposed on them by the government (at all levels) and then simplify and reduce the costs of raising capital. Forget government loan guarantees. Make capital gains on investments up to $1mm in small companies tax free. Make this process paperwork free for the small business and a 1 page form for the investor.

Thats how we will see economic and job growth in this country

Mark Cuban is the owner the NBA Dallas Mavericks. The above originally appeared at Blog Maverick, Cuban's personal blog.

Canadian Politician Comes to U.S. for Heart Surgery

So much for Canadian national healthcare. Watch where they go for care, not where they send their constituents.

Canada's National Post reports:

Newfoundland Premier Danny Williams will undergo heart surgery later this week in the United States. He is expected to be away from four to six weeks.
A decision to leave Canada for the surgery, especially if it is available here, raises questions about the Premier's confidence in Newfoundland's health care system

(ViaMarkPerry)

More Beating Up on Geithner Today, Followed by Scamming

At 10:00 am, Treasury Secretary Geithner will testify before the House Ways and Means Committee. Expect plenty of anti-Geithner posturing, that results in zero change in the Obama Administration proposed budget.

In the afternoon, Secretary Geithner will meet at Treasury with Members of Congress and leaders of Community Development Financial Institutions. According to the Treasury, Geithner will "discuss ways in which Treasury can encourage lending to small businesses in the country’s hardest-hit communities." In other words, they will discuss how the Obama Administration can further distort the economy in favor of the politically favored.

When a Reporter Gets Praaged...

...it's done by Goldman Sachs chief spokesman Lucas Van Praag.

New York magazine explains here, with a detailed report of Praag attacks.

I once told Praag he is the only person at Goldman that deserves a bonus. His Praag attacks are not always accurate, afterall his job is to defend the evil one, but his attacks always result in a beautiful rainbow of fireworks. It makes you sometimes glad that there is a firm like Goldman to be kicked around, if for no other reason than to see how reporters, detailing truth, will get Praaged.

How Hedge Funds Got Taken for a Billion Dollar Ride in Hollywood

by Edward Jay Epstein

File this under: So Much for Efficent Markets

The movie studio MGM is out of money, near bankruptcy, and it's up for sale. A secret MGM deal book tells the story of the company's finances, and it's not a pretty picture. Revenue has dropped significantly since the company was bought in 2004, and four prominent New York hedge funds have taken losses of nearly a billion dollars.

On the other hand, Hollywood execs at Sony (who put together the hedge fund deal) made out beautifully. It's a story of Hollywood duping Wall Street, and it's not an altogether uncommon one.

Today MGM no longer has sound stages, backlots or other physical facilities, and produces only a handful of movies, but it does own an incredibly valuable asset: a film library with 4,100 motion pictures and 10,600 television episodes. The crown jewels of this collection: its James Bond movies. By licensing these titles over and over again to Pay-TV, cable, and television stations around the world, and selling DVDs from it, the entire library until recently brought in $600 million a year.

But this gross is an elusive number, as it has to be split with others who have rights in the titles. When Viacom considered buying in 2004, it assigned a team of 50 of its most experienced specialists to estimate how much each and every title would bring in over a decade. The Herculean job took the team two months. From this analysis, Viacom's executives agreed MGM was worth between $3.5 and $4 billion. But Viacom's President, Mel Karmazin, predicted that income might well decline in the digital era, so it passed on bidding.

Sony, however, stepped up to buy, realizing that any partnership with MGM would be key in its gambit to establish its Blu-ray DVD format, which at the time was competing against Toshiba and Microsoft's HD-DVD.

To accomplish this strategic goal, Sony did not need to itself spend billions to acquire MGM, it only had get effective control of its library for a few years. So it put together a consortium that would be financed mainly by Wall Street private equity funds. Even though the deal would wind up costing $4.85 billion, Sony invested only $300 million of its own funds (and for that it got the profitable right to distribute MGM movies). Another $300 million came from The Comcast Corporation in return for the rights to put the MGM's library on Pay Per View on its vast cable system. The rest of the equity money came from four renowned Wall Street investors: Providence Equity Partners, Texas Pacific Group, DLJ Merchant Banking Partners, and Steve Rattner's Quadrangle Group. These savvy funds put in a billion dollars. The leverage part of the deal was organized by JP Morgan Chase, which arranged for the consortium to borrow $3.7 billion (or up to $4.2 billion, if needed) from some 200 banks. The deal closed in September 2004.

For Sony, the gambit succeeded brilliantly. Putting some 1,400 MGM titles exclusively on Blu-ray, helped established Blu-Ray as the industry standard for high-definition, and it won the format war. It also made back a large share of its $300 million investment just on the distribution fee it earned on two new Bond movies - Casino Royale (2006) and Quantum of Solace (2008).

But for the Wall Street players, it was nothing short of a disaster. To cut to the chase, they lost almost their entire billion dollar investment.

Read the complete article here.

Edward Jay Epstein is the author of 14 books, including two examining the movie business: The Hollywood Economist: The Reality Behind The Movie Business will be published by Melville House later this month, which follows his 2005 book The Big Picture: Money and Power in Hollywood.

(Thanks to Nick)

Creeping (Galloping?) Governmnet Growth: President Obama's New Budget

From Keith Hennessey:

Green is last year’s proposal, blue is this year’s proposal, and dotted pink (30-years) and red (50-years) are historic averages.

We can conclude:

1.The President is proposing significantly more spending than he proposed last year: 1.8% of GDP more in 2011, and roughly 1 percentage point more each year over time.

2.Spending is and will continue to be way above historic averages.

At its lowest point in the next decade federal spending would still be 1.7 percentage points above the 30-year historic average. Over the next decade, President Obama proposes spending be 12% higher as a share of the economy than it has averaged over the past three decades.

(ViaGregMankiw)

Insane Healthcare Expansion from the Obama Administration

Megan McArdle writes:

Apparently, the administration has issued rules requiring parity for mental health treatment with other illnesses. They'll take effect July 1st. If you want to know why health insurance costs keep marching upward seemingly uncontrolled, this is why: mandating new benefits is always popular, and the government doesn't have to pay for them.

I am very sympathetic to the plight of the mentally ill. Unfortunately, most of the people who will tap the benefits are not severely ill people who need intensive care; they're people who are unhappy. Unhappiness is not a condition for which psychotherapy, or antidepressants, have been shown to be very effective. (Severe clinical depression, yes. But contrary to the belief of people who felt awfully down the time their boyfriend left them, these two conditions are not the same thing.) Since the moderately unhappy and dissatisfied are much more prevalent than those with serious disorders, that's most of what we'll be paying for: someone to listen to complaints

Toyota Sales Fall as a Result of Obama Administration Harassment

Toyota Motor today estimated that it lost about 20,000 sales in the last week of January after it recalled millions of vehicles and temporarily stopped selling some of its most popular models. The recalls were made at the request of the Department of Transportation, and appear highly suspicious by some Toyota execs, given the extremely small number of vehicles that have experienced the gas pedal problem (under 200 out of some 1.8 million).

As a result of the harassment of Toyota, the bailout baby General Motors said its sales increased 14 percent. But even Obama Administration harassment of Toyota couldn't help Chrysler. It's sales decreased 8 percent.

If you want a good deal on a car right now, find a seller of a low mileage slightly used Toyota. Thank Obama and his cronies.

The SEX Obsessed SEC

The work computer of one regional supervisor for the U.S. Securities and Exchange Commission showed more than 1,800 attempts to look up pornography in a 17-day span: "It was kind of distraction per se," he later told investigators, reports the Washington Times.

But he wasn't alone. More than two dozen SEC employees and contractors over roughly the past two years have faced internal investigations after they were caught viewing pornography on their government computers, according to records obtained by WaTi through the Freedom of Information Act and other public documents.

As I have stated before, and I am not joking, I really think some SEC employees target insider trading investigations where there is a porn star, stripper etc. involved.

More Harassment of Toyota Scheduled

I pointed out earlier this week that some Toyota execs suspect that the muscled recall of Toyota vehicles by the Transportation Department may be a political operation to slowdown Toyota for the benefit of government bailed out U.S. automakers. It looks like Transportation Secretary LaHood as further harassment planned for Toyota.

Here's the latest via AFP:

Toyota's massive recall of cars and trucks in the United States to fix an accelerator problem only came after pressure from the US government, a top US official said Tuesday.

"Since questions were first raised about possible safety defects, we have been pushing Toyota to take measures to protect consumers," Transportation Secretary Ray LaHood said.

"While Toyota is taking responsible action now, it unfortunately took an enormous effort to get to this point," he said in a statement.

Department of Transportation officials flew to Japan in December "to remind Toyota management about its legal obligations and followed up with a meeting at DOT headquarters in January to insist that they address the accelerator pedal issue," LaHood said.

"We're not finished with Toyota and are continuing to review possible defects and monitor the implementation of the recalls."

Sarah Palin Harasses Rahm Emanuel

Sarah Palin posted a note on her Facebook page late Monday calling for President Obama to fire his Chief of Staff Rahm Emanuel for comments he made that she said were offensive to children with developmental disabilities, reports NyPo.

In the Facebook posting entitled “Are You Capable of Decency, Rahm Emanuel?,” Palin called for his firing for comments attributed to him in a Jan. 26 Wall Street Journal article where he called plans by liberal groups to run ads against moderate Democrats "F—ing retarded."

“I would ask the president to show decency in this process by eliminating one member of that inner circle, Mr. Rahm Emanuel, and not allow Rahm’s continued indecent tactics to cloud efforts,” Palin said in the posting.

“Just as we’d be appalled if any public figure of Rahm’s stature ever used the “N-word” or other such inappropriate language, Rahm’s slur on all God’s children with cognitive and developmental disabilities – and the people who love them – is unacceptable, and it’s heartbreaking,” the post continued.

Go Sarah, the more we can harass the evil bastards, the less harm they can do to us. Keep them on the defensive, I say. Rahm Emanuel and his brother Ezekiel are two of the most dangerous men in America. They don't come much hungrier for power and control than these two.

Paul Krugman Is Not an Economist, He Is a Political Operative

by William L. Anderson

In his January 29 column, "March of the Peacocks," we see proof of what I have been saying for years: Paul Krugman is not an economist. He is a political operative, period.

OK, why do I claim that a NOBEL LAUREATE in economics is not an economist? Is not the Nobel given to someone who has contributed something important to economic science? (Not really, but that will not be the topic of discussion today, as this column is dedicated to debunking the wit and wisdom of Paul Krugman, not trashing the Swedish Academy of Sciences, which gives the award.)

Instead, we deal with Krugman's latest missive of rage that Obama has announced a toothless "spending freeze," which apparently turns the poor president into a ... Republican. Besides Krugman's gratuitous insults of President Obama, however, I also think this column presents a very good view of what Robert Higgs calls "vulgar Keynesianism." So, let us begin.

Right out of the box, Krugman proclaims:

Last week, the Center for American Progress, a think tank with close ties to the Obama administration, published an acerbic essay about the difference between true deficit hawks and showy “deficit peacocks.” You can identify deficit peacocks, readers were told, by the way they pretend that our budget problems can be solved with gimmicks like a temporary freeze in nondefense discretionary spending.

Horrors! Obama has endorsed such a scheme, and The Great One is enraged:

What’s going on here? The answer, presumably, is that Mr. Obama’s advisers believed he could score some political points by doing the deficit-peacock strut. I think they were wrong, that he did himself more harm than good. Either way, however, the fact that anyone thought such a dumb policy idea was politically smart is bad news because it’s an indication of the extent to which we’re failing to come to grips with our economic and fiscal problems.

So, let us stop for a moment and think. What is a "dumb policy idea"? Why, according to Krugman, it is anything that lessens the burden that government place on individuals. And it gets better:

The nature of America’s troubles is easy to state. We’re in the aftermath of a severe financial crisis, which has led to mass job destruction. The only thing that’s keeping us from sliding into a second Great Depression is deficit spending. And right now we need more of that deficit spending because millions of American lives are being blighted by high unemployment, and the government should be doing everything it can to bring unemployment down.

Only in Paul Krugman's Wonderland can such a series of words be put into one supposed coherent thought. We are in a severe financial crisis because the financial institutions followed the government's directive and went bonkers in lending money for housing, paying no attention to the growing bubble. Furthermore, they took these risks not because the bank regulators had been seized by "Reaganite free market ideology," but because of the explicit and implicit guarantees by government authorities and especially the Federal Reserve System.

Furthermore, deficit spending is making things worse, not better. It adds to our crushing debt and it further distorts the fundamentals of the U.S. economy in a way that makes us worse off now than when presidents Bush and Obama began their attempts to "spend our way out of the recession."

Unfortunately, as they say on the late-night infomercials, "Wait! There's more!"

Read the rest here.

Largest-Ever Federal Payroll

Obama is all about BIG GOVERNMENT.

The Obama administration says the government will grow to 2.15 million employees this year., according to the Washington Times.
. It will be the largest in history and clearly is a further indication of how bogus the current recovery is.

Most of the increases are on the civilian side, which will grow by 153,000 workers, to 1.43 million people, in fiscal 2010. Think of it like this: More bureaucrats ruling over your ability to get on with your life.

The Administration does say that the civilian work force will drop by 80,000 next year, mostly because of a reduction in U.S. census workers added in 2010 but then dropped in 2011 after the national population count is finished. That still leaves 1.35 million civilian federal employees on the payroll in 2011.


(ViaDrudge)

Dubai CDS jumps on ongoing sovereign worries, now at 518 bps. (via zerohedge)

No wonder Steve Jobs was cranky about Google. iPhone market share is falling.

Obama's Growth Projections in the Budget

Bob Murphy points out:

Here's a scary summary: "The White House budget proposal released Monday assumes the U.S. economy is heading for a six-year run of above-average economic growth with no sign of a worrisome spike in inflation or interest rates." And it's not as if, in exchange for such rosy scenarios, the White House forecast shows balanced budgets as far as the eye can see...

Of course, Murphy is very right to be concerned. There is no way there will be anything like that kind of growth. I doubt they can even get manipulated numbers that high.