U.S. Consumer Confidence Plummets On Job Worries:

By Ruth Mantell, MarketWatch - June 29, 2010, 11:12 a.m. EDT

WASHINGTON (MarketWatch) -- U.S. consumers are increasingly worried about jobs and the economy, the Conference Board said Tuesday, as it reported that its consumer confidence index plummeted to 52.9 in June -- the lowest level since March -- from a downwardly revised 62.7 in May.

"Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence," said Lynn Franco, director of Conference Board's consumer research center. "Until the pace of job growth picks up, consumer confidence is not likely to pick up."

Earlier this month the government reported that nonfarm payrolls grew by a seasonally adjusted 431,000 in May, but most of the new jobs were temporary jobs at the U.S. Census, with very weak private-sector hiring. The government's next payrolls report is due out Friday, with economists polled by MarketWatch looking for a June contraction of 130,000.

Economists had expected a June reading for consumer confidence of 62.8. The Conference Board's prior reading for May was 63.3.

Consumers' view on the present situation and their expectations deteriorated in June, with both reaching the lowest levels since March, according to the Conference Board. Their view on the present situation fell to 25.5 in June from 29.8 in May, while the expectations barometer declined to 71.2 from 84.6.

Respondents saying current business conditions are "good" fell to 8% in June from 9.7% in May, while those saying jobs are "hard to get" rose to 44.8% from 43.9%.

Respondents saying they expect business conditions to be worse in six months rose to 14.9% in June from 11.9% in May, while the percentage of those expecting better business conditions fell to 17.2% from 22.8%. Those expecting fewer jobs rose to 20.8% from 17.8%, while those expecting more jobs fell to 16% from 20.2%.

Double dip?:

While the confidence report could fuel fears of a "double-dip" recession undercutting U.S. gross domestic product, analysts at RDQ Economics said such worries may be misplaced.

"Confidence has double-dipped in the last two recoveries (in early 1992 and early 2003) without the economy falling back into recession and the June pullback in confidence is far less severe than either of those two episodes," according to an RDQ research note. "Furthermore, we think that the response to the oil leak in the Gulf of Mexico is depressing confidence."

Meanwhile, analysts at Barclays Capital Research said the confidence report contains volatility, and they expect a positive overall trend in confidence as the job market expands in the new few months.

"Despite the drop in today's report, the headline confidence index remains substantially higher than its recent trough," according to a Barclays research note. "Furthermore, this survey is usually conducted near the time of the release of the payroll report and places more emphasis on household reaction to labor market conditions, which may explain some of the pessimism in June since the May rise in private payrolls disappointed expectations."

Buying Plans Impacted:

Consumers with plans to buy a home within six months fell to 1.9% in June - the lowest level since 1982 other than 1.7% in December, according to the Conference Board. In May 2.1% had plans to buy a home.

Those with plans to buy an automobile fell to a record low of 3.7% in June from 6% in May. The data go back to 1967.

Those with plans to buy major appliances fell to 22.9% in June from 26% in May.

"While the recession may have technically ended last summer, consumers remain skittish about job and income prospects and are refraining from consuming in a sufficient enough manner as to create substantial growth in GDP," wrote Dan Greenhaus, chief economic strategist with Miller Tabak, in a research note.

Expectations for the 12-month inflation rate fell to 5.2% in June from 5.3% in May.

Ruth Mantell is a MarketWatch reporter based in Washington

http://www.marketwatch.com/story/us-consumer-confidence-plummets-on-job-worries-2010-06-29-102500?dist=countdown

Yet Another Bailout for Reckless Savers and Investors:

Weiss Research Group - Nilus Mattive - June 29, 2010

http://www.moneyandmarkets.com/yet-another-bailout-for-reckless-savers-and-investors-39534?FIELD9=1

We all watched in horror as Washington bailed out failing financial institutions … dishonest lenders … and greedy borrowers and speculators with our tax dollars.

And as responsible savers and investors, we continue to suffer from the fallout as the Federal Reserve’s policies are keeping interest rates on traditional savings vehicles near zero.

Yet now our legislators are going to add one more little piece of insult to all this injury in their sweeping financial overhaul package by retroactively compensating thousands of depositors who lost money beyond the amounts covered by FDIC insurance.

A Quick Recap of FDIC Insurance:

Most individual bank accounts — including checking, savings, trust, certificates of deposit (CDs), etc. — are covered by the Federal Deposit Insurance Corporation up to certain limits.

Until the financial crisis hit in 2008, that limit was $100,000 for each individual account owner per financial institution. Yes, a single owner could get higher amounts covered depending on the specific types of accounts owned — but in most cases, this simple rule is the easiest and simplest way to guarantee coverage.

So if a husband and wife had a joint savings account, for example, they were typically protected up to $200,000. If a sole account owner had the same $200,000 … he would have been wise to open two $100,000 accounts at two separate banks to get full coverage.

I am probably not telling you anything you don’t already know. After all, these fairly simple rules of FDIC coverage were advertised and drilled into our collective heads about as frequently as the idea that smoking cigarettes causes cancer.

Simply put, back in 2008, nearly everyone in America — especially anyone with assets in the six figures! — should have known darn well how much of their money was covered by FDIC insurance, and how to easily get full coverage if they had more than $100,000.

But apparently, thousands of people using Indymac Bank — the California behemoth that went under in July 2008 — did NOT understand these things.

I say that because under the financial regulation overhaul now working its way through Washington, a little-known provision will retroactively insure about 8,700 depositors at Indymac Bank and five other institutions that went belly up before lawmakers increased FDIC coverage to $250,000 per account owner. All told, the cost of this bailout will be anywhere from $180 million to $200 million.

In a small Los Angeles Times article, one depositor who will get reimbursed put the bailout this way:

“It’s nothing to the U.S. government but it will help keep my wife and I slightly above poverty level for a couple more years.”

Okay, wait a minute. You had deposits in excess of $100,000 and this bailout will keep you above the “poverty level?” And at the same time, a couple hundred million is a drop in the bucket for everybody else?

This is the logic that bailouts are founded upon.

Meanwhile, in the same story, another depositor blamed everyone from a misinformed teller to bank regulators for the fact that she put $360,000 in a single account.

Never once did she acknowledge that two minutes of research on her own part would have made it completely clear that all her money wouldn’t be protected in one account.

Call me crazy, but if I was about to deposit that amount of money, I might spend a little time performing a simple web search or calling the FDIC myself.

I Wonder Why We Even Pretend to Have Rules At All:

Let’s put this in another context: Say you decide to drive your car around without collision insurance. You should know darn well that if you get into an accident you’re going to pay out of pocket, right? And you probably understand how to get collision insurance added to your policy, too. If not, you probably shouldn’t be driving in the first place!

Now, let’s say you get into an accident. Should you be allowed to call up the insurance company and add collision insurance after the fact to cover your accident?

Of course not! Heck, even if the insurance company decides to provide collision insurance to all its customers a month later, why on earth would you expect your accident to be covered?

It’s the same thing with this FDIC situation.

To be fair, some of the affected depositors are claiming paperwork wasn’t filed correctly … that joint owners weren’t added … and that other clerical errors caused some of them to miss out on coverage that they thought they had.

I don’t want to seem unsympathetic. Some of that could be true, and I really do feel bad for their losses. However, it’s still on each depositor to check that things have been done properly, isn’t it? And what about all the other people who get bailed out undeservedly?

I should also note that even before this measure, the FDIC had already reimbursed depositors $0.50 for every $1 in deposits they had above the original $100,000 coverage, too.

So in the end, emotions aside, this seems like yet another example of “he who behaves most irresponsibly and whines the loudest, wins.”

I’m left wondering why we even pretend to have rules at all, when they’re so easily bent and exceptions are so easily made.

More to the point, I’m left wondering when the rest of us — hard-working savers, yield-starved retirees, responsible borrowers, and people who perform their due diligence — will get a fair shake!

Really, the only silver lining of this financial overhaul is that the raised $250,000 FDIC coverage will probably get made permanent. But with interest rates remaining so pathetically low, that’s an awfully thin thread to celebrate.

As far as I’m concerned, you’re still far better off looking at higher-yielding alternatives that provide solid income, relative safety, and are far less subject to the rather arbitrary and unfair decisions coming out of Washington these days.

And obviously, if you do have more than $250,000 under a single social security number at a single bank … please reconsider your strategy immediately. Many banks are still going belly up, and there is absolutely no reason any of your money has to be at risk.

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Government Lowers GDP Estimate for the First Quarter 2010:

http://stockmarketchartanalyst.blogspot.com/

Economy grows by 2.7 percent in first quarter, a slower pace than previously estimated.

Christopher S. Rugaber, AP Economics Writer, On Friday June 25, 2010, 11:17 am EDT

WASHINGTON (AP) -- The government lowered its estimate of how much the economy grew in the first quarter of the year, noting that consumers spent less than it previously thought.

Gross domestic product rose by an annual rate of 2.7 percent in the January-to-March period, the Commerce Department said Friday. That was less than the 3 percent estimate for the quarter that the government released last month. It was also much slower than the 5.6 percent pace in the previous quarter.

The economy has now grown for three consecutive quarters after shrinking for four straight during the recession -- the longest contraction since World War II.

In normal times, 2.7 percent growth would be considered healthy. But it's relatively weak for a recovery after a steep recession. After the last sharp downturn in the early 1980s, GDP grew at rates of 7 percent to 9 percent for five straight quarters.

"It's what I call a halfhearted economic advance," said Stuart Hoffman, chief economist at PNC Financial Services Inc. The economy is likely to grow at a similarly modest pace for the rest of the year, he said. That may reduce joblessness, but at a slow pace. He anticipated a slight reduction, from the current rate of 9.7 percent to about 9.3 percent by the end of the year.

The European debt crisis is likely to slow world trade in the second half of the year and businesses may pull back on spending once they have rebuilt their inventories, said Paul Dales, U.S. economist with Capital Economics.

"Overall, the U.S. economy may be performing much better than those in Europe, but this is still the weakest and longest economic recovery in U.S. postwar history," Dales said.

Factories are churning out more steel, cars, appliances and other goods, but not because consumer demand is particularly strong. Instead, they are producing the goods for companies that let their stockpiles drop during the steep recession, to bring them in line with lower sales. Now those companies are restocking their warehouses as sales revive.

Once that process is complete, inventory restocking will provide less of a boost to GDP.

Another factor inhibiting growth will be a reduction in government spending. The impact of the federal stimulus program is expected to fade toward the end of the year. Economists also warn that state and local governments are likely to rein in spending and raise taxes as they struggle to close budget gaps. That was apparent in the latest GDP estimate, which showed state and local governments reducing their outlays by about 4 percent.

The department's report is the third of three estimates it makes for each quarter's GDP, the broadest measure of the nation's economic output. The first quarter's growth rate declined from earlier reports because consumers spent less than previously estimated, while the nation imported more goods from overseas.

The government updates the figures with new information that is released after the initial reports.

Still, there were signs of health. Consumers boosted their spending by 3 percent, almost double the pace of the previous quarter. That's below the previous month's estimate of a 3.5 percent increase, but is still the largest increase in three years. Businesses ratcheted up their spending on equipment and software by 11.4 percent.

Growth of roughly 3 percent is needed just to generate enough jobs to keep up with increasing population. Many economists say growth needs to reach 5 percent for a full year to lower the jobless rate, currently at 9.7 percent, by one percentage point.

In the past three quarters, growth has averaged 3.5 percent.

GDP measures the value of all goods and services produced in the United States and is considered the best measure of the country's economic health.

http://finance.yahoo.com/news/Government-lowers-growth-apf-1988566378.html?x=0&sec=topStories&pos=3&asset=&ccode=

Fed Strikes More Cautious Tone On Recovery, Noting Risks Overseas; Holds Rates At Record Lows:

http://finance.yahoo.com/news/Fed-strikes-more-cautious-apf-2953770810.html?x=0&sec=topStories&pos=4&asset=&ccode=

Jeannine Aversa, AP Economics Writer, On Wednesday June 23, 2010, 5:35 pm EDT

WASHINGTON (AP) -- The Federal Reserve struck a more cautious tone about the strength of the U.S. economic recovery, indicating Europe's debt crisis poses a risk to it.

Wrapping up a two-day meeting Wednesday, the Fed in a 9-1 decision retained its pledge to hold rates at record-low levels for an "extended period." Doing so is intended to energize the rebound.

The Fed expressed confidence that the recovery will stay intact despite threats from abroad and at home. But Chairman Ben Bernanke and his colleagues offered a slightly more reserved outlook than the last time they convened.

The Fed said the economic recovery is "proceeding." That was a bit less upbeat than the view at the April meeting when the Fed said economic activity continued to "strengthen." The Fed also said the labor market is "improving gradually."

While not mentioning Europe by name, the Fed said "financial conditions have become less supportive of economic growth ... largely reflecting developments abroad."

The fragile economic picture increases pressure on President Barack Obama and lawmakers in Washington. Near-double-digit unemployment is certain to factor into the way Americans vote in congressional midterm elections this fall. If it fails to come down after that, the jobless rate could play a significant role in the 2012 presidential election.

At the same time, the president has limited options. Congress has run into opposition on extending unemployment benefits and providing more aid to cash-strapped states. While some liberal Democrats maintain that government spending is the best way to stimulate the economy, a growing number of moderate and conservative Democrats share Republican concerns that the government's exploding budget deficits pose a greater risk.

The subtle shift in the Fed's outlook drew little reaction from stock investors. The Dow Jones industrial average was essentially flat after announcement.

The decision to keep rates at record lows boosted demand for safe-haven assets like Treasurys, sending interest rates lower. The yield on the 10-year Treasury note, a widely used benchmark for mortgages and other consumer loans, fell to 3.13 percent from 3.25 percent late Tuesday. The 10-year note hasn't closed at that level in more than a year. Rates had already fallen earlier in the day after the government said new-home sales dropped 33 percent last month.

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, for the fourth straight meeting was the sole member to dissent from the Fed's decision to retain the "extended period" pledge.

Hoenig fears keeping rates too low for too long could lead to excessive risk-taking by investors and feed new speculative bubbles in the prices of stocks, bonds and commodities.

He's also expressed concern that low rates could eventually unleash inflation. And Hoenig said he worries that keeping the "extended period" pledge will limit the Fed's stated "flexibility" to start modestly bumping up rates.

Given the risks to the recovery, the Fed left a key bank lending rate at between zero and 0.25 percent. The rate has remained at that level since December 2008.

That means rates on certain credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans will remain low. Commercial banks' prime lending rate would stay at about 3.25 percent, the lowest point in decades.

Low rates serve borrowers who qualify for loans and are willing to take on more debt. But they hurt savers. Low rates are especially hard on people living on fixed incomes who are earning scant returns on their savings.

Still, if the rates spur Americans to spend more, they would help invigorate the economy. That's why the Fed maintained its pledge, in place for more than a year, to keep rates at record lows for an "extended period."

Because the fragile recovery is more vulnerable to shocks, from home and overseas, economists increasingly say the Fed probably won't start boosting rates until next year -- or possibly into 2012. That's a change from a few months ago, when economists thought the Fed would begin raising rates at the end of this year.

"Increased market volatility and uncertainty on the economic outlook may cause the Fed to delay raising rates until well into next year," said Kurt Karl, chief U.S. economist at Swiss Re.

The Fed has leeway to hold rates at record lows because inflation is essentially nonexistent. In fact, the Fed noted that the price of energy and other commodities have dropped in recent months, and that underlying inflation has "trended lower." That seems to suggest that Fed policymakers are a bit more concerned about the remote prospect of deflation, versus inflation.

T.J. Marta, a market strategist at Marta on the Markets, called the Fed's policy statement "more dovish" and reinforces the belief that the central bank won't need to start boosting rates any time soon to fend off inflationary pressures.

After suffering the worst recession since the 1930s, the economy has been growing again for nearly a year. Manufacturing activity is picking up. Businesses are spending more. And Bernanke has expressed confidence that the nation won't fall back into a "double dip" recession.

Still, the strength of the recovery could be affected by the European debt crisis, an edgy Wall Street, cautious consumers, a fragile housing market and high unemployment.

If the U.S. recovery were to flash signs of a relapse, the Fed would likely take other steps to get it back on course. The Fed has left the door open to resuming purchases of mortgage securities, a move that would drive down mortgage rates and bolster the housing market. It ended a $1.25 trillion mortgage-buying program in March.

Dead On Arrival: Financial Reform Fails:

http://stockmarketchartanalyst.blogspot.com/

By Simon Johnson - June 21, 2010 at 7:04 am

The House-Senate reconciliation process is still underway and some details will still change. But the broad contours of “financial reform” are already completely clear; there are no last minute miracles at this level of politics. The new consumer protection agency for financial products is a good idea and worth supporting – assuming someone sensible is appointed by the president to run it. Yet, at the end of the day, essentially nothing in the entire legislation will reduce the potential for massive system risk as we head into the next credit cycle.

Go, for example, through the summary of “comprehensive financial regulatory reform bills” in President Obama’s letter to the G20 last week.

The president argues for more capital in banking – and this is a fine goal, particularly as the Europeans continue to drag their feet on this issue. But how much capital does his Treasury team think is “enough”? Most indications are that they will seek tier one capital requirements in the range of 10-12 percent – which is what Lehman had right before it failed. How would that help?

“Stronger oversight of derivatives” is also on the president’s international agenda but this cannot be taken seriously, given how little Treasury and the White House have pushed for tighter control of derivatives in the US legislation. If Senator Lincoln has made any progress at all – and we shall see where her initiative ends up – it has been without the full cooperation of the administration. (The WSJ today has a more positive interpretation, but even in this narrative you have to ask – where was the administration on this issue in the nine months of intense debate and hard work prior to April? Have they really woken up so recently to the dangers here?)

“More transparency and disclosure” sounds fine but this is just empty rhetoric. Where is the application – or strengthening if necessary – of anti-trust tools so that concentrated market share in over-the-counter derivatives can be confronted. The White House is making something of a show from Jamie Dimon falling out of favor, but all the points of substance that matter, Dimon’s JP Morgan Chase has won. The Securities and Exchange Commission is beginning to push in the right direction, but the reconciliation conference looks likely to deny them the self-funding – CFTC and FDIC, for example, collect fees from the industry – that could help build as a regulator. At the same time, the conference legislation would send a large number of important questions to the SEC “for further study”. None of this makes any sense – unless the goal is to block real reform.

The president also asks for a “more effective framework for winding down large global firms” but his experts know this is politically impossible. The G20 (and other) countries will not agree to such a cross-border resolution mechanism – and this was an important reason why Senators Sherrod Brown and Ted Kaufman argued so strongly that big banks had to become smaller (and be limited in how much they could borrow). Now administration officials brag to the press, on the record, about how they killed the Brown-Kaufman amendment. These people – in the White House and around the Treasury – simply cannot be taken seriously.

And as for “principles for the financial sector to make a fair and substantial contribution towards paying for any burdens”, this is a sad joke. This is not an oil spill, Mr. President. This is the worst recession since World War II, a 40 percentage points increase in government debt (attempting to prevent a Second Great Depression), loss of at least 8 million jobs in the United States, and a painfully slow recovery (in terms of unemployment) – not to mention all the collateral damage in so many parts of the world, including Europe. Could someone in the White House at least come to terms with this issue and provide the president with a sensible and clear text? Honestly, as staff work, this is embarrassing.

There is great deference to power in the United States, and perhaps that is appropriate. But those now calling the shots should remember that they will not be in power for ever and – at some point in the not too distant future – there will be a more balanced assessment of their legacies.

Simply claiming that the president is “tough” on big banks simply will not wash. There are too many facts, too much accumulated evidence, pointing exactly the other way. The president signed off on the most generous and least conditional bailout in world financial history. This is now widely understood. The administration has scrambled to create some political cover in terms of “reform” – but the lack of substance here is already clear to people who follow it closely and public perceptions will shift quickly.

The financial crisis of fall 2008 revealed serious dangers have developed in the heart of the world’s financial system. The Bush-Obama bailouts of 2008-09 confirmed that our biggest banks are “too big to fail” and the left, center, and right can agree with Gene Fama when he says: “too big to fail” is perverting activities and incentives.

This is not a leftist message, although you hear people on the left make the point. But people on the right also increasingly understand what is going on – there is excessive and abusive power at the heart of our financial system that completely distorts markets (and really amounts to a hidden, unfair and dangerous taxpayer subsidy).

This administration and this Congress had ample opportunity to confront this problem and at least wrestle hard with it. Some senators and representatives worked long and hard on precisely this issue. But the White House punted, repeatedly, and elected instead for a veneer of superficial tweaking. Welcome to the next global credit cycle – with too big to fail banks at center stage.

http://baselinescenario.com/2010/06/21/dead-on-arrival-financial-reform-fails/#more-7767

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Jobless Claims, Manufacturing Numbers Hit Stocks.:

http://finance.yahoo.com/news/Jobless-claims-manufacturing-apf-1070019902.html?x=0&sec=topStories&pos=1&asset=&ccode=

Stock traders question rebound after jobless claims increase, Philly manufacturing disappoints:

Tim Paradis, AP Business Writer, On Thursday June 17, 2010, 12:08 pm

NEW YORK (AP) -- Stocks fell Thursday after a surprise increase in new claims for jobless benefits and a weaker regional manufacturing report raised concerns about the economy.

The Dow Jones industrial average fell about 40 points in midday trading after rising four the last five days. Broader indexes also dropped. Treasury prices rose, pushing down interest rates, after traders became more cautious.

The government said that the number of people putting in new claims for unemployment benefits rose unexpectedly last week. Initial claims for jobless benefits increased 12,000 to 472,000. That's the highest level in a month and follows three straight weeks of declines. Economists had forecast another drop.

A plunge in the Philadelphia Federal Reserve's index of regional manufacturing also hit stocks. The Philly Fed said manufacturing continued to expand in June but at a slower pace than in May. Its index of manufacturing activity dropped to 8 from 21.4 the month before. Traders are concerned that the slowdown signals that a recovery is fading in one of the strongest parts of the economy.

The reports provided more reminders that the economy isn't bouncing back quickly.

"It adds up to a modest, uneven recovery," said Paul Ballew, chief economist at Nationwide Insurance in Columbus, Ohio, and a former senior economist with the Federal Reserve. "We're not expecting some light switch being turned on here."

The jobs report is often the most closely watched number of the week because a recovery in the labor market is crucial to a sustained rebound in the economy. The government's most recent monthly jobs report found that employers added only 41,000 private-sector jobs in May. That was far weaker than expected and raised concerns that a pickup in hiring was slowing. The unemployment rate fell to 9.7 percent from 9.9 percent, however.

A stronger euro helped contain some of the selling. The euro rose after a bond offering by Spain's government drew solid demand. Traders have been concerned that European countries like Spain with high debt loads would have trouble raising money because of worries about defaults. A stronger euro is seen as a sign of confidence in Europe's ability to cut its debt without jeopardizing an economic rebound. The euro climbed to $1.2357.

At midday, the Dow fell 40.06, or 0.4 percent, to 10,369.10. The Standard & Poor's 500 index fell 2.55, or 0.2 percent, to 1,112.06, and the Nasdaq composite index fell 1.69, or 0.1 percent, to 2,304.24.

Bond prices rose, pushing down interest rates. The yield on the benchmark 10-year Treasury note fell to 3.21 percent from 3.27 percent late Wednesday.

Crude oil fell 70 cents to $76.96 per barrel on the New York Mercantile Exchange. Gold rose.

Shares of BP PLC rose 31 cents, or 1 percent, to $32.16 after CEO Tony Hayward told a House panel that he was "deeply sorry" for the Gulf of Mexico rig explosion and oil spill.

Hayward's appearance on Capitol Hill came a day after BP agreed to put $20 billion into a fund for victims of the spill and to suspend dividend payments for the rest of the year. BP had been scheduled to pay $2.6 billion in first-quarter dividends next week. The company's shares have lost about half their value since the rig it operated exploded in April.

The government also reported that consumer prices fell for the second straight month, as expected. The Consumer Price Index dropped 0.2 percent because of a decline in the cost of gasoline and other energy expenses. However so-called core prices, which excludes often volatile food and energy costs, ticked up 0.1 percent in May. A tight job market and excess capacity at the nation's factories are some of the forces helping to keep inflation under control.

Three stocks fell for every two that rose on the New York Mercantile Exchange, where volume came to 400 million shares compared with 429 million shares traded at the same point Wednesday.

The Russell 2000 index of smaller companies fell 1.50, or 0.2 percent, to 664.63.

Britain's FTSE 100 rose 0.3 percent, Germany's DAX index rose 0.5 percent, and France's CAC-40 gained 0.2 percent. Japan's Nikkei stock average fell 0.7 percent.

Retail Data Put Double-Dip Back on the Table:

Hey, Big Spender...

by Irwin Kellner - Wednesday, June 16, 2010

http://stockmarketchartanalyst.blogspot.com/

Commentary: Retail data put double-dip recession back on table

Where are the big spenders, now that we really need them?

The unexpected decline in May's retail sales has many economists questioning the strength and durability of the nascent recovery.

This was the first month-to-month retreat for retail sales since last autumn. What is more, it was pretty much across the board — even if you exclude autos.

On the surface, this seems at odds with consumers' attitudes. The latest survey of consumer sentiment shows a better-than-expected gain.

However, by historical comparisons, consumer moods are still fairly dour. And at any rate, these consumer surveys are not a good predictor of how much people actually spend. Rather, they mainly tell us how people felt on the day that they were queried by the pollsters.

Cheerful or not, consumers are increasingly reluctant to open their wallets. They are making fewer trips to malls and shopping centers, and when they do buy, they are buying mainly necessities — not discretionary, big-ticket, or luxury goods.

They tend to frequent big-box stores and other discount outlets — and only when these merchants run big sales.

This hunkering down extends to consumers in all income brackets.

Lower- and middle-income families are worried about jobs, their mortgage, and the rising cost of food and health care. The rich are less worried about jobs, but they have taken a beating in the stock market, second homes, art and other investments.

There's less eating out than there used to be. The only restaurants that seem to be doing well are fast-food stores and new, trendy upscale establishments.

Since retail sales make up over half of all consumer spending, it is safe to say that at least one-third of the gross domestic product is now falling. It is also not a stretch to conclude that the rest of consumer spending, which is services, is soft as well.

Add to this the ongoing weakness in housing sales and new home construction, the slowing in exports as the dollar rises in world financial markets and the sharp cutbacks by states and local government, and most of the economy — except for inventories — appears to have stopped growing and may well be contracting.

In plain English, double-dip is back on the table.

Yet, policy makers have increasingly begun to discuss the need for both fiscal and monetary policies to tighten up.

Now I am as concerned as anyone else about the size of Washington's budget deficit, as well as the amount of liquidity that the Federal Reserve has injected into the financial system.

That said, now is not the time for policy to tighten. Rather we should make better use of the ease we already have.

Since we learned from the experience of the 1930s that fiscal policy is a more effective tool to support the economy than monetary policy, the administration should redirect the remaining funds from last year's stimulus program to where it will do the most good — creating jobs.

This is not as easy as it sounds, since businesses' reluctance to add to staff traces to more than the murky economic outlook.

It is also due such issues as health care, energy, climate control, regulations and tax increases — uncertainties created by the administration itself.

Irwin Kellner is MarketWatch's chief economist.

http://finance.yahoo.com/banking-budgeting/article/109816/hey-big-spender?mod=bb-budgeting&sec=topStories&pos=8&asset=&ccode=

How the Reagan Revolution Succeeded: Strangling Government in a Bathtub and Destroying Public Services:

Submitted by Mark Karlin on Monday, 06/14/2010

http://stockmarketchartanalyst.blogspot.com/

As President Obama pleads for a measly $50 billion to prevent teachers, fire men and women and police from being laid off, any frank analysis of trends in U.S. economic policy -- despite the stimulus packages -- would recognize that regardless of a Democratic Congress and President the snake venom of the "Reagan Revolution" is metastasizing like advanced lung cancer throughout society. Obama, in his abundant caution and admiration for and mollycoddling of entrenched wealth and the ruling elites, is no match for the long-term, ongoing impact of the Republicans "strangling and then drowning government" in a bathtub.

The latest "conventional wisdom" among elected officials in Washington, Wall Street, the corporate mainstream media, and corporate lobbyists and the wealthy that the deficit must be lowered is just an attempt to preserve wealth for the Reagan/Bush tax-cut rich, further shrink public services, and bankrupt state and local governments, not to mention help ruin public education by denying it much-needed funds and laying off public teachers and other public employees essential to the future of our nation.

The success of the right wing strategy known as the "Reagan Revolution" is like a toxic underground river that keeps gaining in strength and can only be seen from time to time as it emerges to the surface and grows in strength and power as it undermines the common good.

The ongoing and accelerating ruinous impact of creating a society with 1% or so of economic super rich and 99% of economic losers is clear in so many ways, including the economic tanking of our economy. It can most vividly be seen in the virtual bankruptcy of countless states in the U.S., including California, which used to symbolize the promise of America's future, but now is the national bellwether in economically going down the tubes. This is a direct result of redistributing income to the few who don't need it for anything more than greed and excess riches, while the rest of us pay increased fees for what used to be free services for the common good. This is because the reduced taxpayer revenue cannot pay for services that we used to regard as part of the public commons.

And there is no serious talk of increasing taxes on the super rich to prior levels to help balance the budget; no, Washington wants to cut the meat out of government services, make public education untenable and put college out of reach except for the children of the wealthy.

Forget for the moment that in laying off tens of thousands of teachers, the Reagan "make America into a Third World Country of the obscenely wealthy, a shrinking middle class, and a growing percentage of poor" Revolution is wildly succeeding in seeing its dream of privatizing government services -- including public transportation, toll roads, schools, and even our water supplies -- by governments at all levels to obtain much-needed one-time cash payments to help plug budgets on the verge of collapse. As a result, increased flat users fee to private companies become a flat tax, just under another name, that adversely affects all but the wealthy. Meanwhile, the assets that had previously been owned by the public are now being transferred to unreliable and greedy corporations that take their cues from the likes of BP: profit before the public good.

The acceleration of privatization is just one more means of transferring wealth from the shrinking middle class and poor to the wealthy. It is the kind of economic system most often seen in the third world. On a non-governmental level, it is best symbolized by a private company like Wal-Mart which makes its money off of inadequately paid workers who do minimum wage labor in a store patronized by other underpaid or unemployed Americans buying cheap goods made in China and other slave shops that the customers at Wal-Mart used to make themselves. Meanwhile, the Walton family -- the descendants of founder Sam Walton -- move up the ranks of the wealthiest people in the world, while most Americans move steadily downward.

In the "Reagan Revolution," government only exists to allow the wealthy to become wealthier or to allow cronyism and revolving door government regulators, politicians, lobbyists and corporate executives to make fortunes from the likes of the longest war in America's history -- Afghanistan -- and to use the taxes of the already downsized incomes, if they have one, of most Americans to fund industrial-military complex industries who rely on war to justify new weapons systems and deplete current military supplies so that they can make more money by replacing them. Of course, GIs, NATO forces, Afghani military members and police, and Afghani civilians get killed in the process. But there is money to be made in the death industry, plenty of it.

And then there are wars, like Iraq and Afghanistan, that are really fought for an empire's thirst for oil and natural resources, a trillion dollars worth curiously and allegedly just discovered in Afghanistan, according to the New York Times. But we pay for the private contractors to enrich themselves and their companies as GIs who couldn't find any other jobs fight on and die as essentially soldiers of economic need for the most part, ensuring the last days of America's rein as an empire.

It's up and down the government feeding chain: "users fees," college tuition increases, education and public services cutbacks, the creation of private entities for what used to be in the public commons, the radical cutbacks in subsidies for public institutions like museums and zoos (remember when they used to be free, not $15-$25 a shot?) are all part of the Reagan Revolution's cancerous success that far out paces any ability of Obama to expand the federal budget to try -- like the Dutch boy -- to plug the wholes in the dike. Message to Obama, the dike has broken and the deluge is drowning what is left of American government, particularly at the state and local levels, and Grover Norquist is seeing his dream realized of seeing the public good breathe its last breath as its head is held under water until it breathes its last gasp.

And no one dares to speak the fiercely urgent truth. The inequitable and unjust gluttonous tax reductions on the wealthy need to be dramatically reduced with all due speed.

Otherwise, we are well on the way to becoming an over sized nation that more resembles the economic injustices and educational backwardness of the Confederacy than of a nation leading the world into a prosperous, environmentally sound, and healthy future.

But isn't that what the Reagan Revolution was about all along -- and no one in D.C. is even faintly addressing its growing and ruinous impact.

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Are We Going the Way of Rome?...

http://stockmarketchartanalyst.blogspot.com/2010/06/are-we-going-way-of-rome.html

By Lawrence W. Reed

There's an old story worth retelling about a band of wild hogs which lived along a river in a secluded area of Georgia. These hogs were a stubborn, ornery, independent bunch. They had survived floods, fires, freezes, droughts, hunters, dogs, and everything else. No one thought they could ever be captured.

One day a stranger came into town not far from where the hogs lived and went into the general store. He asked the storekeeper, "Where can I find the hogs? I want to capture them." The storekeeper laughed at such a claim but pointed in the general direction. The stranger left with his one-horse wagon, an ax, and a few sacks of corn.

Two months later he returned, went back to the store, and asked for help to bring the hogs out. He said he had them all penned up in the woods. People were amazed and came from miles around to hear him tell the story of how he did it.

"The first thing I did," the stranger said, "was to clear a small area of the woods with my ax. Then I put some corn in the center of the clearing. At first, none of the hogs would take the corn. Then after a few days, some of the young ones would come out, snatch some corn, and then scamper back into the underbrush. Then the older ones began taking the corn, probably figuring that if they didn't get it, some of the other ones would. Soon they were all eating the corn. They stopped grubbing for acorns and roots on their own.

"About that time, I started building a fence around the clearing, a little higher each day. At the right moment, I built a trap door and sprung it. Naturally, they squealed and hollered when they knew I had them, but I can pen any animal on the face of the earth if I can first get him to depend on me for a free handout!"

The moral to that story happens to be the connecting link between the course of ancient Rome and the path which America has been taking for much of the last century.

Roman civilization began many centuries ago. In those early days, Roman society was basically agricultural, made up of small farmers and shepherds. By the second century bc, large-scale businesses made their appearance. Italy became urbanized. Immigration soared as people from many lands were attracted by the vibrant growth and great opportunities the Roman economy offered. This growing prosperity was made possible by a general climate of free enterprise, limited government, and respect for private property. Merchants and entrepreneurs were admired and emulated. Commerce and trade flourished and large investments were commonplace.

It is certainly true that slavery existed within Rome's sphere of influence. That's deplorable from any standpoint, of course. But to be fair to the Romans, it must be said that slavery was far more common and far more brutal in the rest of the world in those days.

Remarkable Achievements:

Historians still talk today about the remarkable achievements Rome made in sanitation, transportation, the arts, public parks, banking, architecture, education, and administration. The city even had mass production of some consumer items and a stock market. With low taxes and low tariffs, free trade and private property, Rome became the center of the world's wealth.

At one time, the political and military power of Rome dominated Europe and the Mediterranean. Roman roads facilitated speed of travel and communication to a degree that would not be surpassed until the development of the railroad, the steamship, and the telegraph in the 19th century. Roman law and justice enabled the traveler to journey throughout the empire with a considerable degree of safety. "The benefits of the Pax Romana [the peace of Rome]", says Arther Ferrill in "The Fall of the Roman Empire," "included the development of one of man's most impressive codes of law and an administrative system that met the needs of men of varied languages, ethnic backgrounds and cultural traditions. The poet Virgil was not far wrong in claiming that his nation ruled the world in peace and justice."

All this disappeared, however, by the fifth century ad, and when it was gone, Europe was plunged into darkness and despair, slavery and poverty. In the space of 700 years, explains Max Shapiro in his book, "The Penniless Billionaires," "the Appian Way, where Roman legions had frequently paraded in celebration of victory, was clogged with rubble and weeds. Wild dogs roamed through the ruins of the Forum, in search of food. And the 60,000 souls who inhabited the desolate place which had once been called the Eternal City now referred to it as `the great cow pasture.'"

Why did Rome decline and fall? The record is abundantly clear on this point. Rome fell because of a fundamental change in ideas on the part of the Roman people-ideas that relate primarily to personal responsibility and the source of personal income. In the early days of greatness, to a considerable degree, each Roman regarded himself as the chief source of income. Each individual looked to himself-what he could acquire voluntarily in the marketplace-as the source of his livelihood. Rome's decline began when large numbers of citizens discovered another source of income: the political process or, the state.

When Romans abandoned self-responsibility and self-reliance and began to vote themselves benefits, to use government to rob Peter to pay Paul, to put their hands into other people's pockets, and to envy and covet the productive and their wealth, they set into motion Kershner's First Law: "When a self-governing people confer upon their government the power to take from some and give to others, the process will not stop until the last bone of the last taxpayer is picked bare."

The legalized plunder of the Roman welfare state was undoubtedly sanctioned by people who wished to do good. As Henry David Thoreau once said, "If I knew for certain that a man was coming to my house to do me good, I would run for my life." Another person coined the phrase, "The road to hell is paved with good intentions." Nothing but evil can come from a society bent upon coercion, the confiscation of property, and the degradation of the productive.

Early in the process, a politician named Clodius ran for the office of tribune on a "free wheat for the masses" platform and won. Candidates for office began spending huge sums to win public favor and then plundered the population afterwards to pay their campaign debts.

When Julius Caesar came to power in 48 bc, he found 320,000 persons on government grain relief. Temporarily slowing the welfare state bandwagon, he ordered the welfare rolls cut to 200,000. Within a half-century, the rolls were back up to well over 300,000.

Government Bread:

A real landmark in the course of events came in the year 274 ad. Emperor Aurelian, wishing to provide cradle-to-grave care for the citizenry, declared the right to relief to be hereditary. Those whose parents received government benefits were entitled as a matter of right to benefits as well. Aurelian gave welfare recipients government-baked bread (instead of the old practice of giving them wheat and letting them bake their own bread) and added free salt, pork, and olive oil. Not surprisingly, the ranks of the unproductive grew fatter, and the ranks of the productive grew thinner.

Surely, many Romans opposed the welfare state and held fast to the old virtues of work, thrift, and self-reliance. Just as surely, some of these sturdy people gave in and began to feed at the public trough in the belief that if they didn't get it, somebody else would. That attitude only hastened the slide into bankruptcy.

The central government also assumed the responsibility of providing the people with entertainment. Elaborate circuses and gladiator duels were staged to keep the people happy. The equivalent of a hundred million dollars per year in the city of Rome alone is one modern historian's estimate of what was poured out on the games. These days, many Americans think that by virtue of being artists they are entitled to grants from the federal government at other people's expense. If handouts for the arts constitute a legitimate function of government, by what possible rationale can just about any other handout be resisted?

In Rome, the emperors were buying support with the people's money. After all, government can give only what it first takes. The emperors, in dishing out all these goodies, were in a position to manipulate public opinion. As Alexander Hamilton observed, "Control of a man's subsistence is control of a man's will."

By the second century ad, many cities had spent themselves deeply into debt. Beginning with the emperor Hadrian, municipalities which got themselves into financial difficulties lost their independence as the central government placed them under the authority of imperial curators. Local authority was increasingly replaced by the power of the central government.

Taxes & Regulations:

Civil wars and conflict of all sorts increased as faction fought against faction to seize control of the huge state apparatus and all its public loot. Of 27 emperors or would-be emperors between 180 and 285 ad, all but two met violent deaths.

High taxes and burdensome regulations were the order of the day. Business enterprise was called upon to support the growing body of public parasites.

By the time of Emperor Antoninus Pius, who ruled from 138 to 161 ad, the Roman bureaucracy was as all-embracing as that of modern times. The historian Trever wrote that by the third century, "the relentless system of taxation, requisition, and compulsory labor was administered by an army of military bureaucrats . . . . Everywhere were the ubiquitous personal agents of the emperors to spy out any remotest case of attempted strikes or evasion of taxes."

Another writer, W. G. Hardy, said several years ago that in later Rome, "what the soldiers or the barbarians spared, the emperors took in taxes." The crushing cost of the military, the top-heavy bureaucracy, and the public programs taxed the middle class out of existence.

Clearly, the state gradually became the prime source of income for an increasing number of Romans. The high taxes needed to finance this drove business into bankruptcy and then nationalization. Whole sectors of the economy came under government domination in this manner. The first industry in Rome to be taken over was transportation-shipping in particular. Interestingly, the first industry in America to suffer comprehensive control was also transportation-specifically, railroads.

Emperor Nero may have been the original architect of urban renewal legislation. In the 10th year of his reign (64 ad), a great fire left more than half of Rome in ashes. It was rumored then, and many historians now believe, that Nero had ordered the conflagration to be lighted to clear the ground for a rebuilding of the city.

Nero is said by Gaius Suetonius in "De Vitae Caesarum" to have once rubbed his hands together and declared, "Let us tax and tax again! Let us see to it that no one owns anything!" That reminds this author of Harry Hopkins' famous allusion to the welfare state during the Roosevelt years: "tax and tax, spend and spend, elect and elect."

In 91 ad, the government became deeply involved in the business of agriculture. Emperor Domitian, to reduce the production and raise the price of wine, ordered the destruction of half the provincial vineyards.

As the old virtue of self-reliance gave way to political redistribution of income, priests, teachers, and intellectuals extolled the virtues of the almighty emperor, the provider of all things. The interests of the individual were considered a distant second to the interests of the emperor and his legions. A spiritual vacuum ensued, which was filled partly by the rise of cults and partly by worship of the emperor. The latter reached its zenith under Emperor Diocletian in 285 ad. No one could approach him without prostrating himself on the ground and kissing the hem of his garment. Formerly, the proud, free citizens of Rome had refused to render such servile adoration to any of their magistrates and rulers.

Natural Disasters:

The Roman Empire, amid this sickening spectacle of moral decay, fell victim to an unfortunate series of natural disasters and plagues. Earthquakes, volcanoes, and harsh storms caused great damage. By 200 ad at least one-fourth of the population of the whole empire, both civilian and military, had perished by a plague brought from the East. A later one, from 252 to 267, was nearly as bad. A morally righteous and strong people might have recovered and rebuilt, but these disasters only reinforced the growing despair of a desperate people. The fabric of Roman society was rotting away under the influence of government paternalism, bureaucracy, and spiritual malaise.

Cheapened Money:

Rome also suffered from the bane of all welfare states-inflation. The massive demands on the government to spend for everything created pressures for the multiplication of money. The Roman coin, the denarius, was cheapened and debased by one emperor after another to help pay for the expensive programs. Once almost pure silver, the denarius by 268 ad was little more than a piece of junk containing only .02 percent silver. American dimes, quarters, and half dollars, incidentally, contained 90 percent silver as recently as 1964; today, they contain no silver at all.

Flooding the economy with all this new and cheapened money had predictable results: prices skyrocketed; savings were eroded, and the people became angry and frustrated. Businessmen were often blamed for the rising prices even as government continued its spendthrift ways.

The easy money policies produced periodic crises in the economy. The panic of 86 ad and a severe economic contraction of a few years later are examples. The government responded by imposing penalties for trading in gold, especially for exporting it, much as Franklin Roosevelt did in 1933.

Demanding relief from economic disorder, the people of Rome cried out for a strongman. He arrived in the person of Diocletian who, in the year 301, imposed his famous "Edict of 301." This law established a system of comprehensive wage and price controls, to be enforced by a penalty of death. The chaos that followed inspired the contemporary historian Lactantius to write in 314: "After the many oppressions which he put into practice had brought a general dearth upon the empire, he then set himself to regulate the prices of all vendible things. There was much bloodshed upon very slight and trifling accounts, and the people brought provisions no more to market, since they could not get a reasonable price for them; and this increased the dearth so much that at last after many had died by it, the law itself was laid aside."

From Welfarism to Despotism:

Diocletian also ordered that all offices, trades, and professions, in so far as possible, were to be made hereditary. Young men were forced to carry on in the trade of their fathers. There was no escape from this regimentation. The welfare state had become a despotism.

This tyrant left his mark on history in other ways, too. It was during his reign that fully half the men of the Empire were on the government payroll. Not only did he impose across-the-board wage and price controls in relative peacetime, but he also resigned from office, in the year 305. Nearly 17 centuries later, Richard Nixon would become the first American president to impose peacetime wage and price controls and also our first chief executive to resign from office.

All this robbery and tyranny by the state was a reflection of the breakdown of moral law in Roman society. The people had lost all respect for the sanctity of private property. This author is reminded of the New York City blackout of 1977, when all it took was for the lights to go out for hundreds to go on a looting spree.

The Christians were the last to resist the tyranny of the Roman welfare state. Until 313 ad, they had been persecuted because of their faith and their unwillingness to worship the emperor. Under Diocletian, Christians were cast into dungeons, thrown to the wild beasts in the amphitheater, and put to early death by every other mode of torture that ingenious cruelty could devise. In this year, Emperor Constantine granted them toleration in exchange for their acquiescence to his authority.

Constantine himself professed Christianity but his personal morality belied his word. Within three years of his announced conversion, he put a nephew to death, drowned his wife in a bath, and murdered his son.

Meanwhile, Constantine showered the Church with land, gifts, and patronage at taxpayer expense. Thus corrupted, the Church lost its old simplicity and high moral standards. It, too, had jumped aboard the gravy train.

In the year 380, a sadly perverted Christianity became the official state religion under Emperor Theodosius. Rome's decline was like a falling rock from this point on.

Foreign Policy:

In another arena, the foreign policy of Rome in the third, fourth, and fifth centuries had become one of weakness and appeasement. Politicians, too busy buying votes at home with pie-in-the-sky programs, ignored the Empire's defense. Barbarian "converts," whose loyalty was still suspect, were even permitted to hold important posts in the Roman military establishment.

In 410, Alaric the Goth and his primitive Germanic tribesmen assaulted the city and sacked its treasures. For three days, Rome was plundered. Palaces and temples were stripped and Roman citizens were raped and killed by the thousands. The once-proud Roman army, which had always repelled the barbarians before, now wilted in the face of opposition. Why risk life and limb to defend a corrupt and decaying society?

The end came rather anti-climactically in 476, when the German chieftain Odoacer pushed aside the last Roman emperor, Romulus Augustulus, and installed himself as the new authority.

Some might say that Rome fell because of the attack by these foreigners. Such a claim overlooks what the Romans had done to themselves. When the Vandals, Goths, Huns, and others reached Rome, many citizens actually welcomed them in the belief that anything was better than their own tax collectors and regulators. It is more accurate to say that Rome committed suicide. Like the wild hogs, Romans first lost their freedom, and then they lost their lives.

History does seem to have an uncanny knack of repeating itself now and then. America, by elevating government power at the expense of individual responsibility, has made some of the same mistakes that Rome made centuries ago. In a famous statement, philosopher George Santayana warned that those who ignore history are condemned to repeat it.

No one reading this, however, should despair for the future. The growing intrusiveness of government in America is not inevitable; it is not something beyond the control of the American people. It is, rather, the consequence of faulty ideas, which can change if only this message is carried forth by those who cherish liberty. Indeed, there are very promising indications that the intellectual battles these days are being won-often decisively won-by the friends of freedom and limited government, not by those who foolishly seek to put government in the driver's seat.

Most people who cherish freedom oppose the welfare state for moral, philosophical, spiritual, and economic reasons. We would do well to add another reason: the lessons of history!

As we work to restore and preserve those ideas and institutions which made our nation both free and great,

let's keep these words in mind:

The penalty men pay for indifference to public affairs is to be ruled by evil men. -Plato

All that is necessary for evil to triumph is for good men to do nothing. -Edmund Burke

The hottest places in Hell are reserved for those who-in a period of moral crisis-maintain neutrality. -Dante

http://www.citizensforaconstitutionalrepublic.com/reed9-1-01.html

SEC Launches 'Circuit Breaker' Rules For Stocks:

http://www.sec.gov/news/press/2010/2010-80.htm

by The Associated Press - June 10, 2010

Federal regulators have put in place new rules aimed at preventing a repeat of last month's harrowing "flash crash" in the stock market.

Members of the Securities and Exchange Commission on Thursday approved the rules, which call for U.S. stock exchanges to briefly halt trading of some stocks that have big swings.

The exchanges will start putting the trading breaks into effect as early as Friday for six months.

The plan for the "circuit breakers" was worked out by the SEC and the major exchanges following the May 6 market plunge that saw the Dow Jones industrials lose nearly 1,000 points in less than a half-hour.

"Under the proposed rules, which are subject to Commission approval following the completion of the comment period, trading in a stock would pause across U.S. equity markets for a five-minute period in the event that the stock experiences a 10 percent change in price over the preceding five minutes. The pause would give the markets the opportunity to attract new trading interest in an affected stock, establish a reasonable market price, and resume trading in a fair and orderly fashion. Initially, these new rules would be in effect on a pilot basis through Dec. 10, 2010."

Volcker: Reconsidering Basic Tenets of Financial Theory:

http://stockmarketchartanalyst.blogspot.com/2010/06/volcker-reconsidering-basic-tenets-of.html

Today’s must read media piece comes from former Fed Chair Paul Volcker, in the NY Review of Books:

“Some five years ago, at a conference of the Stanford Institute for Economic Policy Research, I lamented that “the growing imbalances, disequilibria, risks” were giving rise to “circumstances as dangerous and intractable” as any I could recall—intractable not just because of the combination of complicated issues, but because there seemed to be “so little willingness or capacity to do much about it.”

That is merely the intro. It takes a few paragraphs for Paul to work up a good head of steam — the man who broke the back of inflation isn’t holding back:

“Has the contribution of the modern world of finance to economic growth become so critical as to support remuneration to its participants beyond any earlier experience and expectations? Does the past profitability of and the value added by the financial industry really now justify profits amounting to as much as 35 to 40 percent of all profits by all US corporations? Can the truly enormous rise in the use of derivatives, complicated options, and highly structured financial instruments really have made a parallel contribution to economic efficiency? If so, does analysis of economic growth and productivity over the past decade or so indicate visible acceleration of growth or benefits flowing down to the average American worker who even before the crisis had enjoyed no increase in real income?

There was one great growth industry. Private debt relative to GDP nearly tripled in thirty years. Credit default swaps, invented little more than a decade ago, soared at their peak to a $60 trillion market, exceeding by a large multiple the amount of the underlying credits potentially hedged against default. Add to those specifics the opacity that accompanied the enormous complexity of such transactions.

The nature and depth of the financial crisis is forcing us to reconsider some of the basic tenets of financial theory. To my way of thinking, that is both necessary and promising in pointing toward useful reform.”

Nice to see Paul is not giving up his fight to get the financial sector back on a leash...



http://www.ritholtz.com/blog/2010/06/volcker-2/

Source:

‘The Time We Have Is Growing Short' by Paul Volcker
NY Review of Books, June 24, 2010
http://www.nybooks.com/articles/archives/2010/jun/24/time-we-have-growing-short/

My God, Is There A Rule Of Law? by Karl Denninger:

http://stockmarketchartanalyst.blogspot.com/2010/06/my-god-is-there-rule-of-law-by-karl.html

Posted at 08:37 - Monday, June 7. 2010

It may not be here in the US, but this could be a start! ( http://tinyurl.com/38quko9 )
(Warning: In German!)

Interestingly enough, Der Spiegel, which usually has an English version of most articles, doesn't have one of this entry I can find. I was therefore forced to Google Translate it - take a read. ( http://tinyurl.com/2crovme )

The keys to this are the allegation that the "greek bailout" is unlawful under the Lisbon Treaty (no really?)

The government has responded (big surprise - NOT!) that if an injunction issues the result would be a self-fulfilling default and cites that "EU countries could be vulnerable."

No, really? I thought that was what you called it when you didn't have the money to pay your bills!

That of course isn't the point of the complaint. The complaint rests (properly, in my opinion) on the premise that the so-called "boom" in many parts of Europe was financed with German capital, which was effectively appropriated under false pretenses.

Gee, where have we seen this before? Banksters lying and cheating (cough-liar loans-cough!) and trading in derivatives without any money behind them (cough-AIG-cough!) and when the smoke clears suddenly the national governments are told "hand over hundreds of billions right now or the puppy dies!"

Uh huh...

G20 governments are increasingly coming to the realization that "borrow and spend" doesn't - and can't - work in the intermediate and longer term. Despite the bleating of Geithner at the G20 meeting he got nowhere trying to jawbone people into more Keynesian-style games.

We blew $4 trillion in the United States over the last two years and change and got nothing for it, and as a consequence we are stuck with the debt and haven't solved the problem. $4 trillion, of course, is about 30% of GDP, and this "support" has amounted to roughly 11% of GDP over the last three years.

We can either recognize that this won't work (just as it didn't in 2003 - all it did was create asset bubbles) and stop it, taking the pain we tried to defer (and added to) or we can take the risk of a complete detonation in the weeks and months ahead. Europe and the rest of the G20 appear to have woken up and decided that the Keynes-cum-idiocy is in fact idiocy, irrespective of the foolhardy and even criminally-insane bleating by Geithner and the Obama Administration.

The game, my friends, is afoot...

http://market-ticker.org/archives/2379-My-God,-Is-There-A-Rule-Of-Law.html

VIDEO - Fundamental & Technical Analysis of the S&P 500's Daily & Weekly Charts:

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Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...

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Happy Trading this week...
zigzagman

Why U.S. Debt Matters to You:

http://money.cnn.com/2010/06/03/news/economy/U.S._debt_impact/index.htm

By Jeanne Sahadi, Senior Writer June 3, 2010: 11:38 AM ET

NEW YORK (CNNMoney.com) -- Letting U.S. debt grow unabated is often framed as an unforgivable burden to heap on one's grandchildren.

But there are plenty of reasons today's parents might be concerned for themselves and their kids.

If Congress doesn't craft a plan to address long-term fiscal shortfalls after the economy recovers, potential problems could arise sooner rather than later, debt experts say.

Slower economic growth: After examining data from dozens of countries over the past two centuries, economists Carmen Reinhart and Kenneth Rogoff found a connection between high debt and reduced economic growth. Specifically, they found that when a nation's gross debt reaches 90% of its economy, it often loses about one percentage point of growth a year.

U.S. gross debt -- currently $13 trillion -- will hit the 90% threshold this year. Gross debt includes money owed to those who hold U.S. bonds and money owed to government trust funds such as Social Security.

Reinhart has said the relationship between high debt and low growth is "self-feeding." Low growth ravishes government revenue and increases the need to borrow. More borrowing builds debt. Higher debt increases pressure to tighten fiscal policies in order to reduce the risk that investors lose confidence in the country. But tighter policies can slow economic growth.

One percentage point lower growth may not seem huge. But it's equal to roughly a third of the average annual GDP forecast over the next decade.

And slower growth can reduce the number of jobs created, which in turn can hold down household incomes.

High interest payments: Interest rates are still very low and may continue to be as the debt crisis in Europe makes the United States a more attractive safe haven for investors.

That means the government can borrow on the cheap right now. But rates will rise as the world economy recovers. By 2020, annual interest owed on U.S. debt will approach $1 trillion, or roughly 21% of projected federal revenue for that year, according to Congressional Budget Office estimates.

Interest rates may rise further than expected if credit rating agencies or investors start to doubt U.S. resolve to rein in the growth in debt. And that would jack up the cost of borrowing for businesses and consumers.

Ironically, some debt experts would almost prefer that rates rise so there will be more urgency to deal with the debt situation. It might hurt, but not as much as if rates stay very low for a long time -- planting the seeds for the next credit bubble and bust when U.S. debt levels are that much higher.

Less government support: The more debt the government accrues, the more it will pay in interest and the less it will have to spend on the basic services Americans expect from their government.

Spending for everything from education to infrastructure and defense could be compromised. And, many argue, not being able to make strategic investments in these areas can weaken the country competitively.

Also, the government will be hamstrung in responding to emergencies such as natural or man-made disasters, terrorist attacks or future economic downturns.

Inflation: There don't appear to be any official signs of inflation brewing today. But throughout U.S. history, high levels of debt have usually brought high rates of inflation, Reinhart and Rogoff found.

Some economists -- including Kansas City Federal Reserve Bank President Thomas Hoenig -- have said they are concerned about what could happen if the United States faces a debt crisis. In such a case, the Federal Reserve may cave to political pressure to let inflation rise, which reduces the real value of the country's debt but also devalues people's savings and income.

Harsh choices: No one can say when or even if a debt crisis will occur. But lawmakers will tempt fate if they wait too long to address the imbalances on the U.S. balance sheet, fiscal experts say.

Fiscal experts believe it's entirely possible that, absent action, the United States would experience a debt crisis within the next 10 to 20 years.

"Most believe it would happen much sooner than 20 years," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. Many believe it could happen within the next five to 10 years, she said.

And waiting too long would force lawmakers to make much more draconian and abrupt changes than they would otherwise.

Experts are increasingly convinced that Congress won't act until a true crisis is on the U.S. doorstep -- for two reasons. The first is the sharp partisan divide. The second is that no politician likes to run on promises to implement difficult and unpopular measures.

So until there's sufficient public support for debt reduction, don't expect to see much political will for it.

"Like the proverbial frog that fails to jump out of the soup pot as the temperature slowly rises, Americans seem terrifyingly unwilling to act until the pain of debt can no longer be ignored," Syracuse University professor Len Burman wrote in a recent essay. "As the frog learns in its final moments, by then, it's too late."

Put Patients and Doctors Back in Control of Healthcare:

http://www.thedailybell.com/1095/Ron-Paul-Put-Patients-and-Doctors-Back-in-Control-of-Healthcare.html

by Dr. Ron Paul - The Daily Bell - Wednesday, June 02, 2010



Most everyone agrees that health care in the United States has major problems, the biggest problems relating to skyrocketing costs.

No one doubts the system is in need of reform. However, too many in Washington see tighter government controls as the solution. In fact, the problems are rooted in past government controls that created more problems than they solved.

Ironically, laws and policies in the 1970's promoting Health Maintenance Organizations (HMOs) resulted from desperate attempts to control spiraling costs. However, instead of promoting an efficient health care system, HMOs took far too much control away from patients and physicians and gave it to the insurers. This excessive reliance on third-party payers instead removed incentives for insured patients to economize on health care costs, and allowed the problem to snowball. Furthermore, the third-party payer system created a two-tier health care system where people whose employers could afford to offer "Cadillac" plans have access to top quality health care, while others face financial obstacles in obtaining quality health care.

For these and other reasons, I introduced the Private Option Health Care Act last week. This bill places individuals back in control of health care by replacing the recently passed tax-spend-and-regulate health care law with reforms designed to restore a free market health care system.

First, the bill would provide all Americans with a tax credit for 100 percent of health care expenses. This tax credit is fully refundable against both income and payroll taxes. It would also allow individuals to roll over unused amounts in cafeteria plans and Flexible Savings Accounts (FSAs). Next, it would provide a tax credit for premiums for high-deductible insurance policies connected with a Health Savings Account (HSAs) and allow seniors to use funds in HSAs to pay for medigap policies. In addition, it would repeal the 7.5 percent threshold for the deduction of medical expenses, and thus would make all medical expenses tax deductible.

This bill would also create a competitive market in health insurance by exercising Congress's Constitutional authority under the Commerce Clause to allow individuals to purchase health insurance across state lines. Ending these state-imposed bans would create a competitive national marketplace in health insurance.

The Private Option Health Care Act would also ensure that people harmed during medical treatment receive fair compensation while simultaneously reducing the burden of costly malpractice litigation on the health care system. The bill achieves this by providing a tax credit for negative outcomes insurance purchased before medical treatment. This type of insurance would provide compensation for any negative outcomes without having to go through lengthy litigation or giving huge sums to trial lawyers.

Finally, the Private Option Health Care Act would lower the prices of prescription drugs by reducing barriers to the importation of Food and Drug Administration (FDA)-approved pharmaceuticals. Under my bill, anyone wishing to import a drug simply submits an application to the FDA, which then must approve it unless it is either not approved for use in the United States or is adulterated or misbranded.

The Private Option Health Care Act allows Congress to correct the mistake it made last month by replacing the new health care law with health care measures that give control to individuals, instead of the federal government and corporations. Our health is too vital to allow for the typical results of government interference and "fixes".