Meltdown

[Coopmv]

For the first time EVER, China has surpassed the US in dependence on foreign oil.  

China thirsty for foreign oil

Steve Ladurantaye

INVESTMENT REPORTER — From Tuesday's Globe and Mail Last updated on Tuesday, Jun. 30, 2009 11:53AM EDT

China's dependence on foreign oil has surpassed that of the United States, as consumers race to the pumps to fill their new cars with gas and the country feverishly stockpiles supplies to take advantage of weak markets. The country's increasing appetite has driven it to spend billions to acquire foreign oil producers and construct vast storage facilities to safeguard future needs. It also helps explain a rapid rise in oil prices this year, which many attribute to speculators gambling on an economic recovery.

... China relied on imports for 57% of its petroleum production in May while the U.S. imported 55% of its needs. China's import dependency was less than 40% in 2003, and averaged 50% in 2008. ... Chinese imports surpassed four million barrels a day for the first time in May.

Oh, I know ...  I included it to augment John Dingell's 10-point analysis.

The US could and did fight the Gulf War.  How willing will China be to go to war for oil and when will it be capable to fight a faraway war if its major oil supply is disrupted?  It is trying to beef up its lousy navy by buying submarines,  destroyers and perhaps even an aircraft carrier from the willing Russians.  But its naval personnels are totally inexperienced.  Some article I read a while back said if China is to invade Taiwan and the US lives up to its commitment to the Treaty of Taiwan, the US 6th Fleet can sink the entire Chinese navy in very short order ...

[Coopmv]

Game over for California.  For Californians, there are only two options:  Either put up with the pains or bail out of the state ...

California government declares fiscal emergency over budget

SAN FRANCISCO (Reuters) – California Gov. Arnold Schwarzenegger on Wednesday declared a fiscal emergency to force lawmakers into a special session to tackle a state budget gap that has widened to $26.3 billion from $24.3 billion after they failed to close it on Tuesday.

Lawmakers debated late into the night Tuesday but could not agree on a plan to balance California's budget for its new fiscal year, which began early Wednesday morning.

That cleared the way for state officials to suspend payments owed to vendors and local agencies, who instead will get "IOU" notes promising payment.

The notes would mark the first time in 17 years the most populous U.S. state's government would have to resort to the unusual and dramatic measure -- and would follow warnings by Wall Street that the state's credit ratings may be lowered, which would increase its borrowing costs.

"Though the legislature failed to solve our budget problem yesterday, rest assured that solving the entire deficit remains my first and only priority, and I will not rest until we get it done. I will not be a part of pushing this crisis down the road -- the road stops here," Schwarzenegger said in a statement.

While California lawmakers struggle with budget deadlines nearly every year, this budget fight is taking place amid the state's worst drop in revenues from personal income taxes since the Great Depression as recession and rising joblessness worsen damage done to the state economy from the housing slump.

Democrats, who control the legislature, could not convince Republicans to either back their plans to tackle the shortfall or make a stopgap effort to ward off the IOUs. The two sides agree on the need for spending cuts, but are split over whether to raise taxes to help fill the gap.

Democrats have pushed for new revenues while Republican lawmakers and Schwarzenegger, also a Republican, have ruled out tax increases. They want deep spending cuts to balance the budget. Democrats say that would slash the state's safety net for the needy to the bone.

California bonds due in 10 to 30 years traded stronger in the secondary municipal market as it priced in a missed budget deadline, said Municipal Market Data analyst Domenic Vonella.

"We've seen Cal GO paper widen for the last three weeks or so ... Today things are a few basis points better," added Parker Colvin, head of municipal securities trading at Stone & Youngberg in San Francisco.

CASH CRISIS LOOMS

White House spokesman Robert Gibbs said the Obama administration is keeping a close eye on California's woes. State officials have proposed the U.S. government help with financial aid or by vouching for state debt. "We continue to watch the situation and we'll see as it develops," Gibbs said.

In Sacramento, California's capital, State Treasurer Bill Lockyer's office is preparing plans to issue short-term debt assuming Washington will not guarantee it.

"We've been operating since May under the assumption that there will be no help forthcoming," said Lockyer spokesman Tom Dresslar. "We did not ask for a bailout, repeat, we did not ask for a bailout. We wanted the federal government to step in and provide a backstop for our cash-flow borrowing."

Meanwhile, the lack of a budget may trigger action by Wall Street credit ratings agencies.

Fitch last week downgraded its rating on California's general obligation debt by one notch to A-minus, placing it four notches above speculative, or "junk" status, and making it the lowest rating of any U.S. state.

Fitch also warned of further downgrades, just as Standard & Poor's has warned of possible downgrades to California's general obligation debt. Moody's has said the state could see a multinotch downgrade of its A2 rating.

Moody's had no immediate comment on California's IOU plan or its failure to pass a budget. Fitch and S&P analysts were not immediately available to comment.

In Sacramento, tempers flared in the state Senate as the midnight start of the new fiscal year and IOUs neared.

"There is no excuse to hold this whole state hostage," state Senate President Pro Tem Darrell Steinberg told Republicans during a floor debate.

Senate Republican Leader Dennis Hollingsworth countered that major cuts are urgently needed. Otherwise, "there will be entire programs that will have to be lopped off," he said.

Due to its steep decline in revenue, California risks running out of cash later this month to pay all of its bills unless its books are balanced quickly. To conserve cash, State Controller John Chiang plans to issue IOUs by Thursday to state vendors, some local agencies and various recipients of state aid, including the elderly, disabled and college students.

Chiang plans to send $3.36 billion in IOUs this month to help make $10.9 billion in other payments, including money owed to investors holding California's debt. "The general obligation bonds will be paid," he told Reuters. "California has never defaulted on its debt obligation and we don't plan to do so."

California, which had the eighth largest economy in the world in 2006, according it its Legislative Analysts' Office, now needs to reassure Wall Street because state officials see the need to sell $7 billion to $9 billion of short-term debt once there is a budget agreement.

[Coopmv]

China may be a nation of prudent speculators.  Wouldn't it be fun to see its $1.5T reserves disappear with these bubbles ...     

SHANGHAI – China risks frittering away its stimulus spending on speculation in stocks and real estate, reports said Monday, citing economists who say surging bank loans risk inflating risky asset bubbles.

The comments by prominent economists came as Shanghai's benchmark Composite Index hit another high for the year, gaining 1.6 percent, or 47.10 points, to 2,975.31. The index has gained more than 60 percent since the beginning of the year.

While recent gains in shares and property prices are a welcome respite for investors, putting funds meant for stimulus projects into speculative investments could undermine the government's effort to boost growth and reduce the economy's heavy reliance on exports.

About 20 percent of bank lending is going into stock speculation, and another 30 percent or so is going into the property market, state-run newspapers cited Wei Jianing, an economist with a Cabinet-level think tank, as saying.

China's economic planners have urged banks to issue loans to support the government's 4 trillion yuan ($586 billion) stimulus program, aimed at protecting the economy from the global slowdown by pumping money into spending on building airports and other public works.

Wei and other economists told a conference in Beijing that the huge flow of money into shares and property could be fueling risky, unsustainable price increases, China Business News and other reports said.

Through an intermediary, Wei refused requests Monday for comment. The reports said Wei cited estimates based on his research, but noted that his comments were his own personal opinion, not that of the Development Research Center, which is affiliated with China's State Council, or Cabinet.

State media reports last week said new bank lending in June is estimated to have surged by 1.2 trillion yuan ($175.7 billion).

Added to the 5.8 trillion yuan ($849 billion) in new bank loans in January-May, that would push new lending in the first half of the year to about 7 trillion yuan (over $1 trillion).

That is more than the total annual new lending for China for any year.

But warnings against misuse of such funds for other purposes, such as stock speculation, are appearing increasingly frequently in the state-controlled media — including one in Monday's People's Daily, mouthpiece of the ruling Communist Party.

"Extraordinary times call for extraordinary measures," said the commentary, which noted that much of the spending, even on construction projects, was unlikely to yield much of a return.

"However we must at the same time improve the lending structure and guard against risks to ensure that lending supports good quality economic development," it said.

[BachQ]

The big test will come next year when the Obama Administration puts the big squeeze on these credit card issuers ...

Credit card losses hit record 10.4%
By Saskia Scholtes in New York

Published: June 30 2009 23:59 | Last updated: June 30 2009 23:59

Losses on US credit cards hit a record 10.44 per cent in June, squeezing profit margins for credit card securitisations to a 10-year low, according to Fitch Ratings.

Profits from off-balance sheet vehicles backed by credit loans in June fell below the 5 per cent threshold for the first time since November 1998, said Fitch.

Credit card securitisations have built-in triggers that force early repayment when profits fall below zero. Such triggers are designed to protect investors from prolonged exposure to bad credit card loans.

Rising losses on credit cards have in recent months pushed big US banks to come to the rescue of the off-balance sheet vehicles they use to transform hundreds of billions of dollars of consumer loans into securities sold to investors.

Banks have also raised interest rates on credit cards in a bid to counter rising borrower defaults, late payments and boost profitability, underscoring how the deteriorating health of the US consumer is opening new fronts in the financial crisis.

On Tuesday JPMorgan Chase said that, from August, some of its customers would see their minimum required payments rise from 2 per cent to 5 per cent of their unpaid monthly balances.

Most credit card loans are placed into pools – structured as trusts – that are used to back bonds sold to investors. The banks retain a small interest and manage the trust.

As credit card loans held in trusts are paid off, the money is used to fund new lending, while interest and other charges are used to compensate bondholders and cover any losses. Any remaining funds are profits and are paid to the issuing bank.

Mounting credit card losses are depleting those funds, however, prompting banks to support the securitisation trusts.

Banks rely on such securitisations to fund their huge levels of credit card lending while keeping risk off their books.

The doomsday scenario facing banks is that credit card losses will rise to levels that force the vehicles to repay bondholders early.

Deteriorating performance has forced some credit card vehicles to divert cashflows into special reserve accounts that are used to ensure investors are repaid. Fitch tracks six vehicles that are diverting cashflows in this way.

However, Michael Dean, analyst at Fitch, said the banks had thus far been able to maintain profits at levels above the danger zone and had prepared the securitisations for further losses, or charge-offs, meaning that ratings downgrades could be avoided.

Citigroup, Bank of America, JPMorgan Chase and credit card lender American Express have all provided support for their credit card securities in recent months.

Coop, 10.44% is pretty amazing ... and some economists predict the default rate will reach 12% within a year. 

Financial Times: Debt is capitalism's dirty little secret: "excessive lending was the only way to maintain the living standards of the vast bulk of the population at a time when wealth was being concentrated in the hands of an elite."

... Put simply, the benefits of economic growth have gone into the pockets of plutocrats rather than the bulk of the population. So why has there been no revolution? Because there was a solution: debt. If you couldn't earn it, you could borrow it. Cheap financing was made widely available. Financial innovations such as the asset-backed securities market aided this process, as did government-sponsored agencies such as Fannie Mae and Freddie Mac. Regulators welcomed it all while perhaps taking insufficient account of the moral hazard problem it posed: that ever-increasing leverage meant the authorities had to keep interest rates low, otherwise the debt burden would cripple consumption. This prompted more leverage, which exacerbated the problem. ...

Continued

[Coopmv]

Coop, 10.44% is pretty amazing ... and some economists predict the default rate will reach 12% within a year. 

Financial Times: Debt is capitalism's dirty little secret: "excessive lending was the only way to maintain the living standards of the vast bulk of the population at a time when wealth was being concentrated in the hands of an elite."

[url=http://www.ft.com/cms/s/0/e23c6d04-659d-11de-8e34-00144feabdc0.html?nclick_check=1] Continued

DM,

Thanks for the great article.  The only problem is a serious financial retrenchment by middle-class Americans will badly hurt such European companies like BMW, MB, Rolex and Louis Vuitton, etc, purveyors of luxury goods very badly.  Not to mention those newly rich Chinese whose companies depend on exports to the US to make their millions.  This negative feedback loop will in turn curb the appetitie in emerging markets for luxury goods.  IMO, this retrenchment is long over due ...

[Coopmv]

Crude at $70+/bbl cannot be justified in this lousy global economy, as EU and the US together probably consume some 50% of the global supply.  I will not be surprised if the price drops back to the 50's ...

Oil falls below $67 a barrel as dollar gains on euro, US unemployment rate rises to 9.5 pct

By Chris Kahn, AP Energy Writer
On Thursday July 2, 2009, 3:20 pm EDT
     
NEW YORK (AP) -- Oil prices tumbled to their lowest level in a month Thursday following the release of woeful job numbers in Europe and the U.S.

Benchmark crude for August delivery fell $2.58, nearly 4 percent, to settle at $66.73 a barrel on the New York Mercantile Exchange.

Crude hit an eight-month high in midday trading Tuesday, but prices have fallen at the close for five straight days now.

Nymex is closed Friday for the July Fourth holiday.

On Thursday, a Labor Department report showed the economy lost a larger-than-expected 467,000 jobs in June. The unemployment rate climbed to 9.5 percent from 9.4 percent in May, underscoring concerns about the pace of economic recovery.

Since the recession began in December 2007, the economy has lost a net total of 6.5 million jobs.

That has destroyed demand for energy on numerous levels. Employees who have lost jobs or are in fear of losing jobs are driving less and buying fewer goods, many of them petroleum based. Factories also have curbed production and are using less natural gas and electricity.

U.S. stores of natural gas continue to grow as energy demand has weakened. The government reported that the nation's surplus grew more than expected last week, and it's now 21 percent above the five-year average.

The job numbers in the U.S. came on the heels of an awful employment picture in Europe.

Unemployment in the 16 countries that use the euro spiked to a ten-year high in May. The seasonally adjusted unemployment rate for the euro zone in May stood at 9.5 percent.

After rising 41 percent in the second quarter, which ended Tuesdsay, energy prices are now showing signs of a retreat.

Oil prices have doubled since March, when the Fed committed $1.2 trillion dollars to prop up the banking industry. Investors poured money into commodities like oil as a hedge against inflation, and foreign traders found they had more buying power as the dollar weakened.

How long the weak dollar can support energy prices, if demand is still weak, remains to be seen.

But energy prices are still a relative bargain and if there is any benefit from the awful economy, it can be found at the pump.

Retail gas prices have been slipping since Father's Day. They lost less than a penny overnight to a new national average of $2.629 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Pump prices are 10.4 cents more per gallon than a month ago. At this time last year, gasoline cost $4.09 per gallon.

In other Nymex trading, gasoline for August delivery fell 6.82 cents to settle at $1.7908 a gallon and heating oil lost 6.41 cents to settle at $1.7016 a gallon. Natural gas for August delivery dropped 18 cents to settle at $3.615 per 1,000 cubic feet.

In London, Brent prices dropped $2.14 to settle at $66.66 a barrel on the ICE Futures exchange.

[Coopmv]

It is just pathetic that many US states do not have adequate rainy days funds to sustain them through an economic downturn.  The fact that major check-bouncers such as Barbara Boxer was elected to the US Senate speaks volumes about the intelligence of our voters ...   

States set to ring in Independence Day sans budget
States beleaguered by budget woes set to ring in Independence Day without fiscal game plan

By Andrew Welsh-Huggins, Associated Press Writer
On Friday July 3, 2009, 4:07 am EDT

COLUMBUS, Ohio (AP) -- Several states are facing the prospect of government shutdowns and program cuts as they enter the first weekend of the fiscal year and July Fourth holiday without a budget in place.

"This downturn, even more so than previous downturns, really is affecting every state right now," said Brian Sigritz, a staff associate with the National Association of State Budget Officers.

The Washington-based organization says 42 states wrestled with budget deficits this spring, the most since it began tracking budgets 30 years ago.

States weathered similar problems in the recessions of the early 1980s, 1990s and earlier this decade. The confluence of so many problems hammering the economy at once make the present situation seem dire.

"Numerous things look worse than some past recessions," said Bert Waisanen, a fiscal analyst with the Denver-based National Conference of State Legislatures. "The housing market is worse. Industrial production is worse. Wages are nearly worse."

The sputtering economy has created an across-the-board drop in tax collections. Taxes ranging from sales to personal income to property are all down, Sigritz said.

California Gov. Arnold Schwarzenegger declared a fiscal emergency and ordered state offices closed three days a month to save money as state officials began paying bills with IOUS on Thursday.

Deep budget cuts have already forced California school districts to cancel summer school programs, moves that have affected -- among others -- elementary and middle school students in Los Angeles, which has the country's second largest district.

School officials in North Carolina, Oregon, Florida and other states have also cut or limited summer classes.

North Carolina's budget crunch apparently wasn't bad enough to persuade lawmakers to work through the holiday weekend.

House and Senate negotiators said Thursday they will go home rather than iron out differences in taxes and spending, despite Gov. Beverly Perdue's stern advice to finish the budget.

Pennsylvania schools still don't know how much state money they'll receive and may have to reopen their budgets to add or subtract spending. The state's budget year began Wednesday with no sign of a deal between lawmakers and Gov. Ed Rendell.

Ohio Gov. Ted Strickland and lawmakers are stymied over a proposal to allow casino-style gambling to raise money. As a result, the state started its budget year with a one-week temporary budget.

That interim spending plan was already putting a strain on some social service groups.

The state food pantry agency has only $163,000 available to spend on produce this week, regardless of how much more they could purchase. The group spends $400,000 a week at the height of Ohio's harvest.

"This budget impasse is impacting real Ohioans," said Lisa Hamler-Fugitt, executive director of the Ohio Association of Second Harvest Food Banks. "People for the first time in their lives are now finding themselves standing in the food line because they've lost their jobs, their incomes aren't stretching."

[Coopmv]

California, the land of IOU's, is finally facing the Day of Reckoning ...

IOUs spell uncertainty for Calif. small businesses
Small businesses brace for impact as broke California sends out IOUs instead of cash

By Michelle Locke, Associated Press Writer
On Friday July 3, 2009, 3:58 am EDT
   
BERKELEY, Calif. (AP) -- Business consultant Katrina Kennedy has taken her young son out of preschool and put a family vacation on hold. Dairyman Mike O'Kelly is wondering whether he is going to have to let employees go.

The problem? They rely on contracts with state agencies for much of their business and, cash-strapped California may start sending them IOUs instead of money until the state has enough cash to cover all payments.

"I've dealt with the state for many, many years, and the failure of the state to come up with a budget has always caused problems for July and August," said O'Kelly, owner of Morning Glory Inc. in Susanville, which supplies milk and eggs to prisons. "This particular economic crisis, however, has me more worried than all of the others combined."

The reason for the IOUs is California's $26.3 billion deficit. Lawmakers have not been able to agree on a balanced budget by cutting spending, raising taxes or both.

Without a balanced budget, the state controller's office says the treasury does not have enough cash to meet all its financial obligations. So IOUs were scheduled to go out beginning Thursday to private contractors, state vendors, people getting tax refunds and local governments for social services.

Assistance payments to elderly, blind and disabled people will be disbursed as usual, because the federal government is paying the state's share.

For California's small businesses and social agencies, which are accustomed to a Legislature that rarely meets the June 30 budget deadline, a lean summer is not new. Most say they expect to cope despite delays in getting paid.

Wells Fargo, Bank of America and Chase bank say they will accept IOUs from existing customers through July 10, while other banks haven't decided. Some credit unions also said they'll take IOUs, but it was unclear if payday lending businesses would cash them.

Most small businesses and social agencies are confident the state will come through eventually, and say it's a matter of when -- not if -- they'll get their money. Still, having the government of the world's eighth-largest economy resort to IOUs creates uncertainty.

"Getting an IOU through the summer months -- I'd rather have the money, but we're prepared for it," said Kennedy, who runs management training programs for a number of state agencies. "It's when it goes past September and into October, which I'm completely anticipating this year, that things begin to get really tight."

State Controller John Chiang, who plans to issue about $3.3 billion in IOUs this month along with nearly $11 billion in regular payments, was scheduled to start printing the IOUs on Thursday, marking the first time since 1992 the state has found itself in this position.

Last time around, the IOUs went to state workers in place of paychecks, and the workers filed suit. A federal judge ruled it was a violation of the Fair Labor Standards Act, and the issue eventually was settled with the workers getting extra vacation time or, if they no longer worked for the state, cash payments.

So far, no lawsuits have been threatened over the latest round of IOUs.

The latest IOUs, called individual registered warrants, will be redeemable with interest in October by banks, individuals or anyone who still has them. The interest rate was set at 3.75 percent.

Bank of America will stop accepting IOUs after July 10 but will try to assist those customers in other ways, perhaps by waiving fees or making other arrangements on payments, bank officials said. Wells Fargo and Chase didn't elaborate on their plans for IOUs after July 10.

The California crisis came as lawmakers in several other states wrestled with recession-wracked budgets.

In Illinois, the legislative session ended with no plan for paying state employees or delivering services. In Pennsylvania, the governor is proposing a 16 percent tax increase.

Though the crisis has been coming for a while, some cannot believe California has gotten itself to this point.

"Twenty-four billion dollars -- that's just a number I can't even wrap my mind around," said Lynn Merritt, whose small business provides office supplies to several state agencies.

Getting IOUs for payment "would be terrible as a business person, and it would put me in a really bad bind," she said, "but they can't just keep going like they are."

[Coopmv]

DM, as you have pointed out, the Chinese commies are doing worldwide resource grabs ...

market pulse
Jul 3, 2009, 9:36 a.m. EST

China taking a $1.5 billion stake in Canada's Teck

By Steve Goldstein

LONDON (MarketWatch) -- The state-run China Investment Corp. is going to take a C$1.7 billion ($1.5 billion) stake in Teck Cominco, a deal that will give it a 17% equity stake with 6.7% voting interest in the Vancouver miner, according to a statement released Friday. The miner said the deal will have a "very positive effect" on its balance sheet and give it a deeper understanding of China, its top consumer. CIC plans to be a "long-term passive financial investor" and hold the stake for at least one year and then won't sell it to any other rival or material customer of Teck.

[Coopmv]

More economic news on the UK and rogue oil trader ...

News on the UK

By MarketWatch
LONDON (MarketWatch) -- Unauthorized trading in oil futures by an employee resulted in a nearly $10 million loss for brokerage PVM Oil Futures and is being blamed for a dramatic spike in futures prices earlier this week, according to news reports.

"As a result of a series of unauthorized trades, substantial volumes of futures contracts were held by PVM. When this was discovered, the positions were closed in an orderly fashion," PVM Managing Director Robin Bieber told The Wall Street Journal. The company immediately notified its clearing broker, the Financial Services Authority and the IntercontinentalExchange, he said.

Bieber told the Journal that the company had met its margin call and was conducting business "as normal." The firm is a subsidiary of independent, privately-owned oil broker PVM Oil Associates.

A broker at PVM's London office was said to have purchased between 7 million to 10 million barrels of ICE Brent crude futures early Tuesday.

Brent crude futures on the ICE exchange, as well as crude futures at the New York Mercantile Exchange, jumped more than 2% within a minute early Tuesday. The spike drove ICE Brent to an eight-month high of $73.50.

[Lethevich]

By Andrew Welsh-Huggins, Associated Press Writer

What a wonderful name

[Coopmv]

MOUNTAIN OF DEBT: Rising debt may be next crisis
MOUNTAIN OF DEBT: Legacy of debt from Founding Fathers not celebrated on Independence Day   

By Tom Raum, Associated Press Writer
On Friday July 3, 2009, 11:20 am EDT
     
WASHINGTON (AP) -- The Founding Fathers left one legacy not celebrated on Independence Day but which affects us all. It's the national debt.

The country first got into debt to help pay for the Revolutionary War. Growing ever since, the debt stands today at a staggering $11.5 trillion -- equivalent to over $37,000 for each and every American. And it's expanding by over $1 trillion a year.

The mountain of debt easily could become the next full-fledged economic crisis without firm action from Washington, economists of all stripes warn.

"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," Federal Reserve Chairman Ben Bernanke recently told Congress.

Higher taxes, or reduced federal benefits and services -- or a combination of both -- may be the inevitable consequences.

The debt is complicating efforts by President Barack Obama and Congress to cope with the worst recession in decades as stimulus and bailout spending combine with lower tax revenues to widen the gap.

Interest payments on the debt alone cost $452 billion last year -- the largest federal spending category after Medicare-Medicaid, Social Security and defense. It's quickly crowding out all other government spending. And the Treasury is finding it harder to find new lenders.

The United States went into the red the first time in 1790 when it assumed $75 million in the war debts of the Continental Congress.

Alexander Hamilton, the first treasury secretary, said, "A national debt, if not excessive, will be to us a national blessing."

Some blessing.

Since then, the nation has only been free of debt once, in 1834-1835.

The national debt has expanded during times of war and usually contracted in times of peace, while staying on a generally upward trajectory. Over the past several decades, it has climbed sharply -- except for a respite from 1998 to 2000, when there were annual budget surpluses, reflecting in large part what turned out to be an overheated economy.

The debt soared with the wars in Iraq and Afghanistan and economic stimulus spending under President George W. Bush and now Obama.

The odometer-style "debt clock" near Times Square -- put in place in 1989 when the debt was a mere $2.7 trillion -- ran out of numbers and had to be shut down when the debt surged past $10 trillion in 2008.

The clock has since been refurbished so higher numbers fit. There are several debt clocks on Web sites maintained by public interest groups that let you watch hundreds, thousands, millions zip by in a matter of seconds.

The debt gap is "something that keeps me awake at night," Obama says.

He pledged to cut the budget "deficit" roughly in half by the end of his first term. But "deficit" just means the difference between government receipts and spending in a single budget year.

This year's deficit is now estimated at about $1.85 trillion.

Deficits don't reflect holdover indebtedness from previous years. Some spending items -- such as emergency appropriations bills and receipts in the Social Security program -- aren't included, either, although they are part of the national debt.

The national debt is a broader, and more telling, way to look at the government's balance sheets than glancing at deficits.

According to the Treasury Department, which updates the number "to the penny" every few days, the national debt was $11,518,472,742,288 on Wednesday.

The overall debt is now slightly over 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product.

By historical standards, it's not proportionately as high as during World War II, when it briefly rose to 120 percent of GDP. But it's still a huge liability.

Also, the United States is not the only nation struggling under a huge national debt. Among major countries, Japan, Italy, India, France, Germany and Canada have comparable debts as percentages of their GDPs.

Where does the government borrow all this money from?

The debt is largely financed by the sale of Treasury bonds and bills. Even today, amid global economic turmoil, those still are seen as one of the world's safest investments.

That's one of the rare upsides of U.S. government borrowing.

Treasury securities are suitable for individual investors and popular with other countries, especially China, Japan and the Persian Gulf oil exporters, the three top foreign holders of U.S. debt.

But as the U.S. spends trillions to stabilize the recession-wracked economy, helping to force down the value of the dollar, the securities become less attractive as investments. Some major foreign lenders are already paring back on their purchases of U.S. bonds and other securities.

And if major holders of U.S. debt were to flee, it would send shock waves through the global economy -- and sharply force up U.S. interest rates.

As time goes by, demographics suggest things will get worse before they get better, even after the recession ends, as more baby boomers retire and begin collecting Social Security and Medicare benefits.

While the president remains personally popular, polls show there is rising public concern over his handling of the economy and the government's mushrooming debt -- and what it might mean for future generations.

If things can't be turned around, including establishing a more efficient health care system, "We are on an utterly unsustainable fiscal course," said the White House budget director, Peter Orszag.

Some budget-restraint activists claim even the debt understates the nation's true liabilities.

The Peter G. Peterson Foundation, established by a former commerce secretary and investment banker, argues that the $11.4 trillion debt figures does not take into account roughly $45 trillion in unlisted liabilities and unfunded retirement and health care commitments.

That would put the nation's full obligations at $56 trillion, or roughly $184,000 per American, according to this calculation.

Treasury Department "to the penny" national debt breakdown: http://tinyurl.com/yrxrsh

Peter G. Peterson Foundation independent assessment of the national debt: http://www.pgpf.org/

"Deficits do Matter" debt clock: http://tinyurl.com/l6mvjb

[Coopmv]

  
Check this out.  The embedded link actually did not work for some reason but the unembedded one works ...

http://www.usdebtclock.org/

[BachQ]

Crude at $70+/bbl cannot be justified in this lousy global economy, as EU and the US together probably consume some 50% of the global supply.  I will not be surprised if the price drops back to the 50's ...

Oil falls below $67 a barrel as dollar gains on euro, US unemployment rate rises to 9.5 pct

By Chris Kahn, AP Energy Writer
On Thursday July 2, 2009, 3:20 pm EDT
     
NEW YORK (AP) -- Oil prices tumbled to their lowest level in a month Thursday following the release of woeful job numbers in Europe and the U.S.

Benchmark crude for August delivery fell $2.58, nearly 4 percent, to settle at $66.73 a barrel on the New York Mercantile Exchange.

Crude hit an eight-month high in midday trading Tuesday, but prices have fallen at the close for five straight days now.

Nymex is closed Friday for the July Fourth holiday.

On Thursday, a Labor Department report showed the economy lost a larger-than-expected 467,000 jobs in June. The unemployment rate climbed to 9.5 percent from 9.4 percent in May, underscoring concerns about the pace of economic recovery.

Since the recession began in December 2007, the economy has lost a net total of 6.5 million jobs.

That has destroyed demand for energy on numerous levels. Employees who have lost jobs or are in fear of losing jobs are driving less and buying fewer goods, many of them petroleum based. Factories also have curbed production and are using less natural gas and electricity.

U.S. stores of natural gas continue to grow as energy demand has weakened. The government reported that the nation's surplus grew more than expected last week, and it's now 21 percent above the five-year average.

The job numbers in the U.S. came on the heels of an awful employment picture in Europe.

Unemployment in the 16 countries that use the euro spiked to a ten-year high in May. The seasonally adjusted unemployment rate for the euro zone in May stood at 9.5 percent.

After rising 41 percent in the second quarter, which ended Tuesdsay, energy prices are now showing signs of a retreat.

Oil prices have doubled since March, when the Fed committed $1.2 trillion dollars to prop up the banking industry. Investors poured money into commodities like oil as a hedge against inflation, and foreign traders found they had more buying power as the dollar weakened.

How long the weak dollar can support energy prices, if demand is still weak, remains to be seen.

But energy prices are still a relative bargain and if there is any benefit from the awful economy, it can be found at the pump.

Retail gas prices have been slipping since Father's Day. They lost less than a penny overnight to a new national average of $2.629 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Pump prices are 10.4 cents more per gallon than a month ago. At this time last year, gasoline cost $4.09 per gallon.

In other Nymex trading, gasoline for August delivery fell 6.82 cents to settle at $1.7908 a gallon and heating oil lost 6.41 cents to settle at $1.7016 a gallon. Natural gas for August delivery dropped 18 cents to settle at $3.615 per 1,000 cubic feet.

In London, Brent prices dropped $2.14 to settle at $66.66 a barrel on the ICE Futures exchange.

Coop, you are correct that the requisite demand for oil is absent as a justification for current high oil prices.  Given how  closely correlated oil and stock prices have been recently,*** it can be argued that surges in oil futures stems from speculation in FUTURE demand for oil rather than the fundamentals of current supply and demand.

***BTW, the price of Oil futures is now more closely correlated to the S&P 500 than at any other time in the past 20 years.


BTW, because we've reached peak oil, we can expect the oil supply curve to be relatively inelastic in the medium term; thus, with the slightest sign of a recovery, we can expect oil prices to shoot upwards rapidly (see below). 



Similarly, when investors realize that the recovery will be anemic (or non-existent), we can expect oil prices to fall.  Once it becomes clear that oil supplies will be in long-term decline due to geological and production constraints (peak oil), oil prices will escalate even amid weak demand (stagflation).



When the supply curve becomes nearly vertical, we can expect extreme volatility in the price of oil:



This helps explain the volatility of the price of oil viz. the fundamentals of supply and demand from 2007-2008 (oil prices skyrocket), and 2008 to 2009 (oil prices plunge amid deflationary depression and deleveraging):



"Demand curve for 2009 moves sharply left as the global economy contracts. It takes a steep drop in price to force enough producers to cut supply to balance the market. ... [Because] demand has collapsed, the demand curve for 2009 has moved sharply left as economies unravel. So the oil price has to fall far enough to force some companies to cut production. If it weren't for OPEC cutting a few million barrels per day from their production, the price would fall even further until the market actually cut below the operating costs for a large enough fraction of the world's oil fields."

[BachQ]

US Home Prices Seen Falling 40% Overall: Analyst
By: Reuters | 02 Jul 2009 | 04:14 PM ET

U.S. housing prices will fall by a double-digit percentage from already beaten-down levels, resulting in an overall 40 percent plunge by the time foreclosures peak in the second half of 2010, Barclays Capital economist Michelle Meyer said.

[BachQ]

California, the land of IOU's, is finally facing the Day of Reckoning ...

IOUs spell uncertainty for Calif. small businesses
Small businesses brace for impact as broke California sends out IOUs instead of cash

By Michelle Locke, Associated Press Writer
On Friday July 3, 2009, 3:58 am EDT
   
BERKELEY, Calif. (AP) -- Business consultant Katrina Kennedy has taken her young son out of preschool and put a family vacation on hold. Dairyman Mike O'Kelly is wondering whether he is going to have to let employees go.

The problem? They rely on contracts with state agencies for much of their business and, cash-strapped California may start sending them IOUs instead of money until the state has enough cash to cover all payments.

"I've dealt with the state for many, many years, and the failure of the state to come up with a budget has always caused problems for July and August," said O'Kelly, owner of Morning Glory Inc. in Susanville, which supplies milk and eggs to prisons. "This particular economic crisis, however, has me more worried than all of the others combined."

The reason for the IOUs is California's $26.3 billion deficit. Lawmakers have not been able to agree on a balanced budget by cutting spending, raising taxes or both.

Without a balanced budget, the state controller's office says the treasury does not have enough cash to meet all its financial obligations. So IOUs were scheduled to go out beginning Thursday to private contractors, state vendors, people getting tax refunds and local governments for social services.

Assistance payments to elderly, blind and disabled people will be disbursed as usual, because the federal government is paying the state's share.

For California's small businesses and social agencies, which are accustomed to a Legislature that rarely meets the June 30 budget deadline, a lean summer is not new. Most say they expect to cope despite delays in getting paid.

Wells Fargo, Bank of America and Chase bank say they will accept IOUs from existing customers through July 10, while other banks haven't decided. Some credit unions also said they'll take IOUs, but it was unclear if payday lending businesses would cash them.

Most small businesses and social agencies are confident the state will come through eventually, and say it's a matter of when -- not if -- they'll get their money. Still, having the government of the world's eighth-largest economy resort to IOUs creates uncertainty.

"Getting an IOU through the summer months -- I'd rather have the money, but we're prepared for it," said Kennedy, who runs management training programs for a number of state agencies. "It's when it goes past September and into October, which I'm completely anticipating this year, that things begin to get really tight."

State Controller John Chiang, who plans to issue about $3.3 billion in IOUs this month along with nearly $11 billion in regular payments, was scheduled to start printing the IOUs on Thursday, marking the first time since 1992 the state has found itself in this position.

Last time around, the IOUs went to state workers in place of paychecks, and the workers filed suit. A federal judge ruled it was a violation of the Fair Labor Standards Act, and the issue eventually was settled with the workers getting extra vacation time or, if they no longer worked for the state, cash payments.

So far, no lawsuits have been threatened over the latest round of IOUs.

The latest IOUs, called individual registered warrants, will be redeemable with interest in October by banks, individuals or anyone who still has them. The interest rate was set at 3.75 percent.

Bank of America will stop accepting IOUs after July 10 but will try to assist those customers in other ways, perhaps by waiving fees or making other arrangements on payments, bank officials said. Wells Fargo and Chase didn't elaborate on their plans for IOUs after July 10.

The California crisis came as lawmakers in several other states wrestled with recession-wracked budgets.

In Illinois, the legislative session ended with no plan for paying state employees or delivering services. In Pennsylvania, the governor is proposing a 16 percent tax increase.

Though the crisis has been coming for a while, some cannot believe California has gotten itself to this point.

"Twenty-four billion dollars -- that's just a number I can't even wrap my mind around," said Lynn Merritt, whose small business provides office supplies to several state agencies.

Getting IOUs for payment "would be terrible as a business person, and it would put me in a really bad bind," she said, "but they can't just keep going like they are."

Here's a good history lesson: 

Ex-Gov. Gray Davis reflects on fiscal crisis


The last time California issued IOUs, Gray Davis was the state controller who made the controversial call. It was 1992 and such a drastic step hadn't been taken since the Great Depression. Two years later, Davis was elected lieutenant governor and in 1998, governor. In 2003, a year after winning re-election, he was ousted in a recall campaign by Arnold Schwarzenegger, who promised voters he would fix the state's broken finances. At the time, he criticized the budget Davis had signed as having "more special effects than 'Terminator III.' "

So, what does Davis, 66, have to say about the current state of affairs in Sacramento? The former governor told The Chronicle he is "thrilled" not to be in Sacramento as state leaders try to break a stalemate over California's finances. "I've seen this movie before," Davis said.

(continued -- click here --)

[BachQ]

Moody's stripped Ireland of its last AAA credit rating on Thursday and warned Prime Minister Brian Cowen he needed to inflict more fiscal pain on his recession-wracked country or risk a further costly downgrade.


Independent --UK's banks are on life-support, says Bank of England member.


MarketWatch--Eurozone jobless rate hits 10-year high of 9.5%.  Spain's unemployment rocketed to 18.7% (compared to 18% in April and 10.5% in May 2008).


BRUSSELS, July 3 (Reuters) - Eurozone retail sales fell further than expected in May, data showed on Friday, dampening hopes that an improvement in consumer spending might ease the recession

[BachQ]

Why the Dow is headed to 6000.


Tim Knight: June 11 was the top for the stock market.



Preparing for "The Big One"

[BachQ]

LOL

Perhaps it should read "tax, borrow and spend" ... 

[BachQ]

This is fairly self-evident: when a homeowner does not have a substantial stake in his/her home, he/she will be much more likely to just walk away (i.e., be foreclosed upon).



New Evidence on the Foreclosure Crisis
Zero money down, not subprime loans, led to the mortgage meltdown.
By STAN LIEBOWITZ

What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house -- that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected. .... the important factor is whether or not the homeowner currently has or ever had an important financial stake in the house. Yet merely because an individual has a home with negative equity does not imply that he or she cannot make mortgage payments so much as it implies that the borrower is more willing to walk away from the loan.

The difference in policy implications is enormous: A significant reduction in foreclosures will happen when and only when housing prices stop falling and unemployment stops rising.  Although the government is throwing money -- almost $2 trillion and counting -- at the mortgage markets with the intent of stabilizing house prices, its methods are poorly targeted.

(continued)