Meltdown

[BachQ]

The US will probably take many countries down with it, particularly those that are overly dependent on export if it does go down. 

Three of the US's largest trading partners are indeed reeling from the US's contraction:

WSJ: Yesterday Mexico announced that its GDP fell at an annualized rate of 21.5% in 1Q, the worst performance since the 1995 peso crisis.  Mexico's decline followed by a day Japan's report that its economy contracted in the first quarter at a 15.2% clip, its worst performance since 1955. Last week, Germany said its first quarter decline in GDP, an annualized 14.4%, was the worst since 1970.

[BachQ]

The dysfunctional political system of the US's wealthiest state represents all that remains broken in American politics[/size]

Pascal Zachary guardian.co.uk, Thursday 21 May 2009 17.53 BST Article history

While the new Obama administration is commanding global attention, America's future may be written – as so many times before – in and by its largest state. Once the lodestar for American optimism and achievement, California now illustrates the difficulties confronting the US – and how much more can still go wrong domestically.

The most populous and wealthiest of America's 50 states, California has long been a beacon of opportunity for talented and enterprising people from all over the world. One in every four California residents was born in a foreign country. California's two most famous industries, Silicon Valley and Hollywood, depend on infusions of talent from abroad. Its robust agricultural sector is a massive exporter of food, benefiting from the growing appetites of consumers in developing countries.

Yet California's technological and entrepreneurial might – standing alone, the state would be the world's eighth largest economy – coexists with a dysfunctional political system that has brought it to the edge of fiscal bankruptcy. On 19 May, the state's voters, in a special election, rejected an array of tax increases and spending cuts required to balance its budget. Now, California faces either an embarrassing federal bailout or a prolonged period of rule by judges, who under California law have the power to vacate labour agreements, abrogate contracts, and generally restructure the state's financial commitments.

For President Barack Obama, California's crisis imperils his own reform agenda. Because other American states also face tough fiscal conditions, the political price of bailing out California may be bailing out dozens of other states too.

A massive state bailout, while adding enormously to pressure on Obama's government, would expose the weak link in the US system of governance. So-called "unitary" nations such as Britain, France, China, or Kenya essentially have a single set of government obligations: one national police force, one employer for all public school teachers, one overall pension system, etc. By contrast, the US has an "asymmetric" form of government, which allows many overlapping government entities – 7,000 in California alone – to incur debts, hire and fire employees, and impose taxes.

Making sense of these asymmetries is difficult. When financial markets concentrate on the fiscal health of the federal government, they miss the extent of government obligations as a whole.

The complexity of American governance threatens the benefits of Obama's decision to stimulate the economy through deficit spending. While the national government expands, state governments, such as California's, contract.

Moreover, California's crisis is more than an economic one. California is the most diverse US state; more than half of its 37 million people are non-white. For believers in the benefits of diversity, California represents the largest social experiment in human history, bringing people of different backgrounds together in a way unimaginable in, say, Germany, China, or Brazil.

California's governor, Arnold Schwarzenegger, was an immigrant (from Austria) before he was a movie star. In his six years in office he has repeatedly tried to bypass a polarised state legislature – even the annual budget requires a two-thirds majority – by appealing directly to voters. Ballot initiatives were created 100 years ago to empower ordinary citizens, but in recent decades the process has been captured by self-serving elites.

Even as California's roads fall apart and public institutions decline – the result of too little spending and public workers who are too expensive – the state continues to operate the finest set of public universities in the US. But the secret of the University of California's success is its ability to obtain ever-higher amounts of funding from private sources and the federal government.

Disengagement from the California polity also is true of the state's economic engines. Intel, the world's biggest chip maker and a Silicon Valley mainstay, hasn't built a factory in California for more than 20 years. Hollywood shoots an increasing number of films elsewhere. Agriculture relies heavily on illegal workers from Mexico, who live temporarily near the fields and take their earnings back home.

How to forge a single community out of a state so diverse remains an elusive challenge. Some influential people, including Schwarzenegger, say the state needs a new constitution that would restrict ballot initiatives and make budgets easier to pass. More radical thinkers insist that California is ungovernable and should be broken into two or even three states.
Creating more Californias would of course require the approval of the federal government in Washington, where elected representatives from California – mainly from Obama's Democratic party – have more power today than at perhaps any time in US history. Nancy Pelosi, the House majority leader, is from San Francisco. Californians run the two most powerful House committees, Energy and Commerce and Education and Labor. Two of the most influential senators also come from California.

Why these Washington politicians are idle while their state slides towards ruin says much about what's broken in American politics. Schwarzenegger is a Republican, so Democrats privately wish him to fail. There's a deeper problem: politicians across the spectrum, beholden to special interests, are habituated to denying serious problems.

Obama will be forced to help craft a compromise to keep the state financially afloat. Yet as a condition, he may insist that Californians, who are already among the most heavily taxed Americans, pay more. If Californians refuse, Obama could face a widening revolt against the idea of expanded government as the chief response to what ails America at home.

California desperately needs a new constitution; it is completely dysfunctional with its current framework.  If CA doesn't receive a federal bailout, things will get very, very interesting.

If CA does get a bailout, at least 47 other states will be in line for federal bailouts.  What a can of worms.

[Coopmv]

WSJ: Recession Turns Malls Into Ghost Towns

General Growth, the second largest American mall owner/operator filed for CH11 not long ago.  The reason is simple, people are not shopping and stores in malls across the US are closing in record numbers.  The loss of stores means mall owners cannot collect rent and therefore they start to default on their mortgages.

http://finance.yahoo.com/news/Why-Commercial-Real-Estate-minyanville-15275531.html?.v=1

[Coopmv]

California desperately needs a new constitution; it is completely dysfunctional with its current framework.  If CA doesn't receive a federal bailout, things will get very, very interesting.

If CA does get a bailout, at least 47 other states will be in line for federal bailouts.  What a can of worms.

No bailout for CA!!!

[Coopmv]

Three of the US's largest trading partners are indeed reeling from the US's contraction:

WSJ: Yesterday Mexico announced that its GDP fell at an annualized rate of 21.5% in 1Q, the worst performance since the 1995 peso crisis.  Mexico's decline followed by a day Japan's report that its economy contracted in the first quarter at a 15.2% clip, its worst performance since 1955. Last week, Germany said its first quarter decline in GDP, an annualized 14.4%, was the worst since 1970.

The NAFTA has been a farce from day 1.  It should have included ONLY the US and Canada.  Only our politicians were foolish enough to include a third-world country where most of its citizens want to bolt from that country and form some economic alliance with it.  NAFTA has not cured the illegal immigration problem.  The EU was smart enough not to have approved membership for Turkey and has taken a while before memberships were approved for the poorer Southern European and Eastern European countries.  Rich and poor countries to belong in the same economic bloc never makes any sense ...

[Coopmv]

Three of the US's largest trading partners are indeed reeling from the US's contraction:

WSJ: Yesterday Mexico announced that its GDP fell at an annualized rate of 21.5% in 1Q, the worst performance since the 1995 peso crisis.  Mexico's decline followed by a day Japan's report that its economy contracted in the first quarter at a 15.2% clip, its worst performance since 1955. Last week, Germany said its first quarter decline in GDP, an annualized 14.4%, was the worst since 1970.

The US must significantly beef up its border patrol in view of this grim economic news from Mexico, which is entering a depresssion given the 20+% decline in GDP ...

[BachQ]

 

The US must significantly beef up its border patrol in view of this grim economic news from Mexico, which is entering a depresssion given the 20+% decline in GDP ...

You nailed it, Coop.  Mexico will be entering a steep downward spiral ... soon!  I have no idea what the solution is in terms of border patrol.

Within a few years (or a few months), Mexico will experience a major crisis as its oil exports plummet.  In April, 2009, production from Mexico's largest oil field (Cantarell) plunged 18.2% to levels unseen since 1990.

Oil revenues are a key plank of Mexico's economy and the slide in exports was the latest gloomy data for a country already knocked into recession by a drop in US demand for its factory exports. Tourism revenues have also been dented this year by the H1N1 flu outbreak.

Mexico's oil output is down 7.4% in the 1st 4 months of 2009.  This is a very dire situation that receives remarkably little press coverage.

[Lethevich]

Dm - do you still have the same doom-thoughts about civilisation being unready for the running out of oil, or does this current much reduced demand without us turning into cavemen ease your worries?

The UK government is still playing silly buggers in avoiding a sensible stab at making a sizable amount of energy consumption fueled by renewables. Some ministers need a sharp slap about the head to bring them out of their stupor - low oil prices at the moment do NOT mean "wow we can get away with not investing in boring tidal energy projects" - it means they have time to before things screw up. Obama's potentially wonderful "green jobs" plan has been adopted and promoted by the local Green party, but even in times like this they will not make any headway (as usual)...

Edit: Typo fix. I am good at those - both the typos and the fixes. Kind of.

[Coopmv]

Dm - do you still have the same doom-thoughts about civilisation being unready for the running out of oil, or does this current much reduced demand without us turning into cavemen ease your worries?

The UK government is still playing silly buggers in avoiding a sensible stab at making a sizable about of energy consumption fueled by renewables. Some ministers need a sharp slap about the head to bring them out of their stupor - low oil prices at the moment do NOT mean "wow we can get away with not investing in boring tidal energy projects" - it means they have time to before things screw up. Obama's potentially wonderful "green jobs" plan has been adopted and promoted by the local Green party, but even in times like this they will not make any headway (as usual)...

I have read that with prices of crude down more than 50% from its peak, the UK politicians are starting to waver on all the proposed green projects offshore, which all have steep price tags.  At $150 oil, those price tags can be stomached.  But at $60 oil?  I don't for a moment feel bad for many of those onetime US ethanol millionaire farmers, many of whom are now bankrupt due to over-expansion and plunging corn prices.  Diverting corn from animal feed and other food production to ethanol production and in the process sending food prices through the roof is just lousy policy - robbing Peter to pay Paul - where the consumers are the biggest losers.  Biofuel must not be derived from food source. 

[BachQ]

Dm - do you still have the same doom-thoughts about civilisation being unready for the running out of oil, or does this current much reduced demand without us turning into cavemen ease your worries?

The UK government is still playing silly buggers in avoiding a sensible stab at making a sizable about of energy consumption fueled by renewables. Some ministers need a sharp slap about the head to bring them out of their stupor - low oil prices at the moment do NOT mean "wow we can get away with not investing in boring tidal energy projects" - it means they have time to before things screw up. Obama's potentially wonderful "green jobs" plan has been adopted and promoted by the local Green party, but even in times like this they will not make any headway (as usual)...

Good question, Lethe.

A funny thing happened on the way to running out of oil: the global economic house-of-cards collapsed, oil demand plummeted, and all politicians became focused on bailouts and stimulus packages.  As you mentioned, as far as politicians are concerned, low oil prices have placed all concerns about peak oil on the back burner.

This is a very bad result for several reasons: (1) the next several months will be society's last clear chance to undertake a transition from a cheap-oil world to a world constrained by ever-increasing oil prices; (2) investments in alternative energies have declined; and (3) investments in oil/petroleum infrastructures have been put on hold given tight credit and low oil prices.  We have set ourselves up for the perfect storm.

Amid these plunging oil prices, the reality and significance of peak oil hasn't changed (i.e., the geological fact of limited oil reserves coupled with society's utter dependence on oil hasn't changed).  Only our flawed perceptions of the imminence and immediacy of peak oil has changed.  And we will pay the price for this.

I am far more doomy about peak oil than I was when oil was at $147/bbl, because now the US and Eurozone are deeply in debt, their economies have contracted the most in modern times, and they have squandered valuable time putting out financial fires while the ultimate threat of peak oil has grown more severe.

The global economies have bankrolled banksters and bailed out dysfunctional car companies instead of investing in alternative energies, mass transit, energy efficient homes, and the like.

The doom is only months away. 

[Lethevich]

Hehe thanks. Bring the doom, I say! I'll welcome it with Dvořák at full blast.

[Coopmv]

Hehe thanks. Bring the doom, I say! I'll welcome it with Dvořák at full blast.

Enjoy the good music while you still can ...   

[DavidRoss]

Even as California's roads fall apart and public institutions decline – the result of too little spending and public workers who are too expensive – the state continues to operate the finest set of public universities in the US. But the secret of the University of California's success is its ability to obtain ever-higher amounts of funding from private sources and the federal government.

UC is not operated by the state, but by a board of regents, only four of whom are state officials (out of 29).

From the UC Regents website:

The University is governed by The Regents, which under Article IX, Section 9 of the California Constitution has "full powers of organization and governance" subject only to very specific areas of legislative control. The article states that "the university shall be entirely independent of all political and sectarian influence and kept free therefrom in the appointment of its Regents and in the administration of its affairs."

[Coopmv]

UC is not operated by the state, but by a board of regents, only four of whom are state officials (out of 29).

From the UC Regents website:

But who controls the purse string?  If UC becomes a private university like Harvard or Yale, then it will not be subject to any state funding restrictions.

[Coopmv]

CA has the worst credit rating among the states.  The state is toast if the voters there keep voting down tax increases and refuse to face up to reality ...

Michigan's April jobless rate was highest in US
44 states lost jobs in April, led by payroll cuts in California, Texas, Michigan, Ohio

Jeannine Aversa, AP Economics Writer
On Friday May 22, 2009, 3:04 pm EDT

WASHINGTON (AP) -- Forty-four states lost jobs in April, led by California where employers slashed 63,700 positions, as the recession took a further toll on U.S. workers.

Trailing California in over-the-month job losses were: Texas, which saw 39,500 jobs vanish; Michigan, which lost 38,400 jobs; and Ohio, where payrolls fell 25,200, according to a U.S. Labor Department report issued Friday.

The few winners included Arkansas and Montana, followed by Florida -- a dose of good news for a state that's been battered by the housing collapse.

California's unemployment rate dipped to 11 percent last month, fifth-highest in the country. Michigan's jobless rate was the highest at 12.9 percent, followed by Oregon at 12 percent, South Carolina at 11.5 percent and Rhode Island at 11.1 percent.

As the recession eats into sales and profits, companies have laid off workers and turned to other cost-cutting measures, such as holding down hours and freezing or trimming pay.

Since the recession began in December 2007, the U.S. has lost a net total of 5.7 million jobs. The nationwide unemployment rate now stands at 8.9 percent, a quarter-century high.

Federal Reserve Chairman Ben Bernanke and some economists hope the pace of layoffs will moderate as the recession eases its grip and likely ends later this year.

But even if employers reduce firings, the nationwide unemployment rate is expected to hit double digits by year's end. Employers won't be in any mood to ramp up hiring until they feel confident that any recovery has staying power, economists say.

In Friday's report, Arkansas and Montana tied for the biggest over-the-month payroll gains at 1,500 a piece. They were followed by Florida, which saw an increase of 1,300 jobs.

On the hiring front, North Dakota again registered the nation's lowest unemployment rate -- 4 percent. It was followed by Nebraska with a 4.4 percent jobless rate, Wyoming at 4.5 percent and South Dakota with 4.8 percent.

In another bit of mildly encouraging news, the Labor Department reported that mass layoffs -- job cuts of 50 or more by a single employer -- dipped to 2,712 in April, from a record-high of 2,933 in March. Still, more than 271,000 workers were fired in last month's cuts, more than double the total from April 2008.

Layoffs in manufacturing, construction and retail are common threads running through the states with the highest unemployment rates. Another thread: difficulties faced by South Carolina, Michigan, Rhode Island and other states, to lure new types of companies to help cushion the loss of manufacturing jobs and retrain laid-off factory workers for other kinds of employment.

Nearly 6.7 million people nationwide are drawing state unemployment insurance, the highest on records dating to 1967, the federal government reported Thursday. The crush has exhausted unemployment funds in California, New York and elsewhere, forcing them to tap the federal government for money to keep paying benefits.

States are hurting as the recession cuts into revenues.

Saddled with a $21.3 billion budget deficit, California Gov. Arnold Schwarzenegger has said thousands of state employees must be laid off and billions of dollars must be slashed from the budget. His administration has started sending layoff notices to 5,000 state employees with the goal of cutting the general work force by 5 percent.

Since December, California has led the nation in monthly job losses, according to the U.S. Labor Department.

Against that backdrop, Californians' personal income fell statewide for the first time since 1938, leading to a sharp drop in tax revenue.

One in every 138 California households received a foreclosure filing last month, according to RealtyTrac Inc. That was the third-highest rate in the country behind Nevada's one in every 68 households, and Florida's one in every 135 households.

If California tries to borrow more to help pay its bills, it will be costly. The state has the worst credit rating in the nation. The state treasurer's office estimates that California would pay an extra $500 million to $1 billion in lender fees on a $15 billion short-term loan.

[Lilas Pastia]

So have most world currencies. Actually they haven't risen, it's the greenback that slipped. Time to place that big BRO order...

[Coopmv]

So have most world currencies. Actually they haven't risen, it's the greenback that slipped. Time to place that big BRO order...

There is nothing to gain from buying from BRO since BRO has to first convert the increasingly worthless Dollar into Pound or Euro in order to build its inventory.  After all, there are few US classical labels that are worth buying.  Certainly Telarc is not in my book to be worth buying.

[Lilas Pastia]

Wrong. That's not how these things work.

[Coopmv]

Wrong. That's not how these things work.

How so?  Do you expect BRO to sell you CD's at a loss?  If it has to fork over more dollars to buy its CD's from Europe, why would it not pass the added costs along?  You need to explain your reasoning ...

[BachQ]

No bailout for CA!!!

NYT Golden State bailout.