The Mess That Greenspan Made

Big government and the Fourth of July

2009-07-04T16:17:00.000-07:00

Richard Ebeling offers these thoughts over at the American Institute for Economic Research about the history of big government in the U.S., that is, before it became the U.S.

A Declaration of Independence from Big Government
The Declaration of Independence, signed by members of the Continental Congress on July 4, 1776, is the founding document of the American experiment in free government. What is too often forgotten is that what the Founding Fathers argued against in the Declaration was the heavy and intrusive hand of big government.

Most Americans easily recall those eloquent words with which the Founding Fathers expressed the basis of their claim for independence from Great Britain in 1776:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness – That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed – That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

But what is usually not recalled is the long list of enumerated grievances that make up most of the text of the Declaration of Independence. The Founding Fathers explained how intolerable an absolutist and highly centralized government in faraway London had become.

There's much more over at the AIER - happy Fourth of July everyone!

And now, for something completely different

2009-07-03T16:44:00.000-07:00

A new approach aimed at getting Air New Zealand airline passengers to pay closer attention to the safety instructions provided before each flight.

A reflex more than anything else

2009-07-03T13:47:00.000-07:00

To be honest, I didn't even read this story in the Wall Street Journal before deciding to make it the subject of a post. With glasses like the ones worn by Mr. Langerman and the well worn phrase "Easy Money" in the title, how could I go wrong?

Managers Bemoan Loss of Easy Money
Mutual-fund managers, especially those with a value-stock approach, said tighter credit has had such an effect on the market that it has changed the way they look at stocks.

The issue, said managers, is that so much cheap money headed to private-equity firms in recent years that it allowed the firms to buy up companies if a stock's price fell too low. The demise of that system has removed a floor in stock prices, said managers, adding a layer of uncertainty.
...
Fund managers said that while they didn't rely on what is known as the "private-equity put" in their strategies, the presence of private equity factored into their thinking.

"It was an analysis that a lot of value players used," said Peter Langerman, chief executive of Mutual Series, a group of value funds offered through Franklin Templeton Investments.

But as easy money has dried up, private-equity firms have been far less active.

While "dried up" easy money is, undoubtedly, a welcome development in this world, perhaps it would be best to read the article next time before making any rash decisions about its suitability for this blog. Then again, the idea that value fund managers would be unduly affected by such a development is kind of interesting.

A hearing we'd like to see

2009-07-03T12:59:00.000-07:00

Spotted over at the Daily Bail, just in time for the nation's 233rd birthday (wow - that number is an unpleasant reminder of just how old you are if you remember the 200th).
Jefferson would surely not be pleased with how things developed. Hamilton, on the other hand, may think they turned out swimmingly. Is that Hamilton all the way on the left?

Cash-strapped states start a new fiscal year

2009-07-03T08:59:00.001-07:00

California leads a gaggle of states that entered a new fiscal year on Wednesday with no viable plan to fund their spending. The AP reports that Florida, Oregon, North Carolina and other states have similar problems, though none quite as severe as in the "Golden State".

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.

Until home prices stop falling and unemployment stops rising, there doesn't appear to be any improvement on the horizon.

Pennsylvania and Ohio seem to have problems as well. Hopefully, it's just a coincidence that I've lived in three of the states mentioned in this story - Pennsylvania, California, and Oregon.

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.
...
"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."

This cartoon by R.J. Matson is really starting to grow on me...

Manhattan real estate prices tumble

2009-07-03T06:40:00.000-07:00

It's about time... Nothing against New Yorkers - it's all about sharing the pain at this point.

Friday morning links

2009-07-03T05:49:00.000-07:00

TOP STORIES
• GM awaits judge's ruling on sale plan - AP
• Job Losses Dampen Hopes for Recovery - Wash. Post
• Seven banks bring 2009 U.S. failures total to 52 - MarketWatch
• GM could exit Chapter 11 this month, IPO in 2010 - MarketWatch
• Cash-poor California turns to IOUs - CNN/Money
• The scandal of overdraft fees - Salmon, Reuters
• On giving Goldman a chance - True Slant
• California sends out IOUs - LA Times

MARKETS/INVESTING
• Oil's record high, one year later - CNN/Money
• Gold edges up on overseas markets, rupee - Economic Times
• Rogue oil trader blamed for Tuesday's spike - MarketWatch
• Hurricanes May Increase in Gulf as El Nino Shifts - Bloomberg
• June jewellery sales soar in Abu Dhabi - Commodity Online
• OPEC president satisfied with current oil price - Globe & Mail

ECONOMY
• Taking a weed whacker to green shoots - CNN/Money
• American Jobs Data Are Worse than We Think - Pimco
• Grim jobless numbers damp economic recovery hopes - LA Times
• Is free checking on its way out? - CNN/Money
• That ’30s Show - Krugman, NY Times

INTERNATIONAL
• World markets slide on grim US jobs report - AP
• PBOC's Zhou: China is saving too much - MarketWatch
• Darling: Bankers will be 'brought back to earth' - Telegraph
• Major nations should back dollar as key currency: Japan - Reuters
• Japan's Hayashi: U.S. economy has yet to hit bottom - MarketWatch
• Appraising the European Central Bank: Hard talk, soft policy - Economist
• Green Power Takes Root in the Chinese Desert - NY Times
• The relaunch of Gordon Brown: The vision thing - Economist

HOUSING
• House prices and the wealth effect - Economist
• Manhattan real estate market finally craters - WalletPop
• Spring U.S. housing market hints at awaited recovery - Reuters
• Bear Market in U.S. Housing to Last Years - Rosemanblog

FED/TREASURY/BANKING
• Crisis Won’t End Until Balance Sheets Get Real - Bloomberg
• US toxic securities funds launch seen at $20 bln - Reuters
• Fed Assets Shrink to $2.01T as Lending Declines - Bloomberg
• Small business lending falls sharply - CNN/Money

INTERESTING
• Recession-fed tensions grow in luxury hotel industry - LA Times
• NYPD rookie makes arrest moments after graduation - AP
• The Strange Ingredients in Fireworks - LiveScience
• A comedian in the Senate: Eight months later - Economist

###

Illinois gains ground on Georgia

2009-07-02T21:46:00.000-07:00

It was a busy Thursday for the FDIC as seven banks were shut down, prompting the question, "What the heck is going on in Illinois?" Are they trying to challenge Georgia, the clear leader in failed banks? MarketWatch reports that the "Prairie State" is catching up quickly.

Seven banks bring 2009 U.S. failures total to 52
Seven banks were closed by regulators on Thursday, including six in Illinois, bringing the total for 2009 to 52 as the U.S. banking system remains under pressure from rising unemployment and record foreclosures.
...
More than 1,000 banks may fail in the next three to five years as the recession intensifies and loan losses climb, RBC Capital Markets estimated in February.

Bank failures on such a scale will deplete some of the money the FDIC has stored to pay depositors. On Thursday, the FDIC estimated that the seven bank failures will cost its deposit-insurance fund a total of roughly $314.3 million.

You can go to the FDIC website and get a list of all the banks that have failed since October of 2000, sortable by name, state, and closing date.

Unfortunately, you can't download the list as spreadsheet, but, based on a manual count, it looks as though Georgia holds onto first place with 15 bank failures since 2007, followed by a surging Illinois with 13. California holds down the third spot with 10.

Peter Bookvar on gold

2009-07-02T14:02:00.000-07:00

Equity strategist Peter Bookvar of Miller Tabak explains the many reasons why every investor should own some gold (and maybe not just a little of the stuff).

Rosenberg on the CS-HPI "green shoots"

2009-07-02T10:55:00.000-07:00

David Rosenberg at Gluskin-Sheff comments on Tuesday's cheery 0.6 percent monthly decline in the 20-city Case-Shiller Home Price Index (CS-HPI).

Even Robert Shiller himself seemed excited about the fact that his own home price index was down just 0.6% in April, which admittedly compares favourably to the 2%+ slides posted since last October. But it's one month for crying out loud and we have seen these sorts of brief periods of more moderate home price declines before in this cycle that triggered premature bouts of optimism. If memory serves us correctly, in the spring of 2007, we went through about three or four months when the Case-Shiller index was declining by just 0.2% and this got a whole lot people excited that the worst was over (Alan Greenspan being one of them). Then from May to July of 2008, after a series of awful declines, the Case Shiller posted numbers of -0.8% or better – again, the moderation in the pace of decline was brief. It could well be that we have seen the worst in terms of the pace of decline, but it seems hardly reason to be enthused by the fact these 'green shoots' which are little more than noise on what is still a fundamental downtrend.

Maybe a chart would help to put the latest data into its proper context...

Well, Rosy appears to have it about right.
While it seems improbably that we'll return to the -2.0 to -2.5 percent monthly declines for a sustained period of time, you can see how a multi-month period of smaller price declines would be typical of stretches during 2007 and 2008 that were not followed by higher prices.

Rep. Mark Kirk on China's gold buying plans

2009-07-02T10:14:00.001-07:00

Here's the video to go along with yesterday's item about the Chinese wanting to exchange lots more U.S. dollars for gold. Skip directly to 3:20 to hear about their future buying plans.

There doesn't seem to be any uncertainty from Rep. Kirk who notes, "...they plan to buy $80 billion worth of gold - that's two Fort Knoxes", though it's not clear how he figured that Fort Knox has about 1,300 tonnes of gold. Wikipedia says it's about three times that amount.

Bewilderingly complex Elliott Wave Theory

2009-07-02T08:31:00.000-07:00

Peter Brimelow at MarketWatch comments on the latest prognostications from the group of perma-deflationists over at Elliott Wave International.

The good news: One successful survivor of the Crash of 2008 thinks the bear-market rally has further to go. The bad news: It's still a bear market, and it will end in devastating deflation.
...
Elliott Wave Theory can be bewilderingly complex. One reason it tends to leave investors incensed is that they believe EWFF's overlapping waves constitute a sort of bait-and-switch, always leaving the forecaster with an out.

Right now, for example, EWFF is showing what it calls the "intermediate" trend as down. But the somewhat longer "primary" trend, which began in March, is intact and is projected to reach 9,000-10,000 on the Dow.

EWFF writes: "The probabilities favor a second phase of advance that carries the rally off the March lows to new recovery highs later."

For the record, EWFF also shows a "grand supercycle," beginning in January 2000 and ending at 400. Yes, that was FOUR HUNDRED.

Like many others, Elliott Wave Theory has always been bewildering to me, but that may have something to do with the fact that I have a degree in engineering and worked as a hardware/software designer for more than twenty years.

Absent that background, maybe it would make a whole lot more sense...

Here's a simplified version of the five waves.
Don't ask me to explain it but, from my limited exposure to it, there always seems to be a debate between wave 3 and wave 5. There's more from Wikipedia here.

Labor market "more bad" in June

2009-07-02T06:20:00.000-07:00

The Labor Department reported a sharp decline in nonfarm payrolls last month and a slight increase in the unemployment rate as the labor market continues to shed jobs during the worst recession in decades.
Employers in the U.S. cut a total of 467,000 jobs in June following losses of 519,000 in April and 322,000 in May. Revisions to prior months resulted in 8,000 fewer jobs lost than previously reported, the May total revised downward from -504,000 and the June data revised upward from -345,000.

The unemployment rate continued to rise, up from 9.4 percent in May to 9.5 percent in June, however, this was the smallest increase since last September, just prior to the financial market and economic crisis taking a turn for the worse. The current 9.5 percent rate is the highest since August of 1983.

In a separate report, new claims for unemployment insurance fell to 614,000 for the week ended June 27 from an upwardly revised 630,000 the week before.

Since the start of the recession in December of 2007, non farm payrolls have declined every month, the total labor market decline now totaling 6.5 million jobs.

By category, June job losses were concentrated in the manufacturing and business services sectors that shed 136,000 and 118,000 positions, respectively, and the decline in manufacturing payrolls included 26,500 fewer jobs in the auto and auto parts industries.
As usual, the education and health care sectors added to the work force, a gain of 14,900 seen in education services and 18,600 more workers now collecting paychecks in the health care and social assistance sectors.

Government payrolls posted their second consecutive decline, down 52,000 in June after a drop of 10,000 in May, much of this a result of layoffs for temporary workers hired to prepare for the 2010 census. Over a million temporary workers are expected to be hired in the months ahead to conduct the census next year.

Thursday morning links

2009-07-02T05:33:00.000-07:00

###

More "green shoots" today ... apparently

2009-07-01T18:46:00.000-07:00

Well, we just got back from a quick trip to Cali (as they call it up here in Oregon) and, after catching bits and pieces of the news on the way back - the ISM manufacturing index and pending home sales were both up - we were sure there was a "green shoots" revival underway.

In looking at the actual data, Tom Toles probably had it right yesterday.
The increase in pending home sales, reported by everyone's favorite trade group the National Association of Realtors, was pretty funny - we must have heard four or five times today about how "pending home sales were up last month" without hearing any figures.

As it turned out, it was a monthly increase of just 0.1 percent, but that didn't stop talking heads from spouting "After today's rise in pending home sales..." I'm not so sure it's a good thing that XM radio carries CNN, CNBC, Bloomberg, and Fox News.

The Chinese want more gold

2009-07-01T11:58:00.000-07:00

It comes as no surprise that the Chinese want to swap some of their U.S. dollar holdings for dumb 'ol gold bars, but the amount is a bit of a shock. Numismaster has the details:

It wasn't until about June 9 that the mainstream media was told that the Chinese government was planning to purchase an additional huge quantity of gold. The information became public when U.S. Rep. Mark Kirk (R-Ill.) was interviewed on Fox News by Greta Van Susteren.

Kirk accompanied Treasury Secretary Timothy Geithner on his trip to China in May. While the Chinese were laughing at Geithner during his speech at Beijing University for claiming that the U.S. dollar was strong (By the way, laughing at a speaker is a major social no-no in China, a sign that Geithner's comments were not respected at all!), Kirk was engaged in a private conversation with lesser Chinese officials. In this non-public discussion, Kirk was told that the Chinese were extremely concerned about the likely near term decline in the U.S. dollar because of the explosion of government debt. As part of the reaction to this concern, the Chinese government had established another reserve to stockpile petroleum and was planning to purchase another $80 billion of gold (about 85 million ounces at today's price level).

Kirk's revelation about the Chinese plan to purchase another $80 billion of gold was the very last comment in the interview. This extraordinary news received almost no coverage until last week when multiple hard-asset Web sites picked up the interview.

The Chinese are different than the Japanese in many ways - this is one of those ways...

Hyperinflation nation

2009-07-01T10:22:00.000-07:00

This has been making the rounds...

Parts 2 and 3 are here and here.

Signs of a housing bottom in home staging

2009-07-01T07:01:00.000-07:00

In this commentary at Bloomberg today, Caroline Baum stirs memories of the late, great housing bubble as it was inflating and looks at the current "home staging" mania.

When CondoFlip.com debuted in 2004, you knew housing was headed for a tumble.

Here was a Web site where customers could buy and sell, sight unseen, condominiums that had yet to be built. It was confirmation of the degree to which home prices had come untethered from housing fundamentals.

If CondoFlip.com represented the peak of the home-buying frenzy, the proliferation of “home staging” businesses to gussy up houses for sale may turn out to be a sign of a bottom. That would certainly validate the message from recent reports showing home sales and single-family starts moving sideways for the last four to six months and home prices falling at a slower pace.

Note that the panic buttons shown above didn't appear until Condoflip.com was about to turn into Condoflop.com, as BusinessWeek noted a few years back.

As for home staging, where we used to live, before the "Reduced Price" signs began popping up atop the For Sales signs, you'd often see "Newly Staged" as an enticement for potential buyers to come in.

What is home staging? Caroline explains...

The term, if not the concept, was new to me.

I was dimly aware that real estate agents rearrange the deck chairs in order to make a home appealing to prospective buyers, especially in a down market. But I had no idea there was such an animal as an Accredited Staging Professional, an ASP mission statement, books and courses on the subject and, what else, a reality TV show.

My education started when a press release for a new book, “Staging to Sell: The Secret to Selling Homes in a Down Market,” by Barb Schwarz, landed in my inbox.

The pitch included rave reviews -- a “must-read” -- testimonials by brokers on the secrets of Barb’s success, and compelling data: “Even in today’s slower housing market, 95 percent of staged homes sell, on average, in 35 days or less.” There was no indication what price those staged homes fetched.

At a minimum, the success rate would seem to offer more Hope for Homeowners than all the government programs combined.

There's lots more at Bloomberg - a sign of the times, to be sure.

Here come the California IOUs

2009-07-01T06:06:00.000-07:00

Senate President Darrell Steinberg and Senate Republican leader Dennis Hollingsworth leave the California Senate chamber last night after failing to reach a budget agreement.
The combined efforts of Democrats and Rebublicans in the most recent round of negotations saw the state dig an even deeper budget hole, by some $2 billion, after yesterday's failure to cut education spending, the deficit now standing at more than $26 billion.

Naturally, state of fiscal emergency has been declared and a special session has been called for the legislature, this Sacramento Bee report providing the latest details.

Tuesday's failure to cut education spending and shift redevelopment funds expanded the deficit overnight because of the way school funding formulas are calculated.

Schwarzenegger plans to declare a new state of fiscal emergency today, launch another special session and propose additional program cuts to solve the larger deficit problem, spokesman Aaron McLear said.
...
Senate President Pro Tem Darrell Steinberg said Schwarzenegger's veto threat against a stopgap package to cut the 2008-09 education budget and delay IOUs "may be the most irresponsible act I have seen in my 15 years of public service. And for what? It's a monumental blunder."

But Schwarzenegger said Democrats instead were to blame for failing to compromise with him on a plan to solve the entire $24 billion deficit with enough spending cuts and permanent program reductions.

"The Legislature's latest proposal is no different than what Sacramento has been doing for the past two decades – kicking the can down the alley," McLear said in a written statement.

Absent a significant budget deal today, state Controller John Chiang has warned he must take the next step of issuing IOUs on Thursday to vendors who do business with the state, local governments and people who are owed tax refunds. Chiang said IOUs are necessary to preserve enough cash to meet constitutionally mandated obligations to schools and state bondholders in July.

Hallye Jordan, a Chiang spokeswoman, said the first batch to go out would consist of 28,742 IOUs, worth a total of $53.3 million, to taxpayers awaiting refunds.

This really is a perpetual crisis.

Wednesday morning links

2009-07-01T05:36:00.000-07:00

TOP STORIES
• 11th-hour votes on state budget fail - LA Times
• California Misses Deadline to Avoid the Need for IOUs - Bloomberg
• Ten or more face possible Madoff charges - Reuters
• Program saves 60 percent of homes from foreclosure - Reuters
• Mr. Sunshine? Ron Paul Wins Support to Audit Fed Reserve - Fox News
• Treasury OKs 3 firms for mortgage relief program - AP
• GM CEO makes case for bankruptcy asset sale - Reuters
• Retired From G.M. at 54. Pensionless at 74? - NY Times

MARKETS/INVESTING
• Oil rises above $71 as US crude inventories drop - AP
• Gold firms a day after sell-off, dollar in focus - Forex Pros
• No major Iraq oil output increase in next 5 years - Reuters
• Boom in scrap gold sales in India, Middle East - Commodity Online
• Banks Falling 23% Since May Foreshadow S&P 500 Slump - Bloomberg
• Stock Fund Inflow Continued In May - AP

ECONOMY
• Private sector sheds 473,000 jobs in June - Reuters
• A Forecast With Hope Built In - New York Times
• Small businesses vital to economic recovery go bankrupt - USA Today
• Consumer confidence falls on gloomier jobs view - MarketWatch
• Consumers hit again as some banks raise credit rates, fees - USA Today

INTERNATIONAL
• Chinese Want To Purchase Another $80B Of Gold! - Numismaster
• China Manufacturing Expands a Fourth Month - Bloomberg
• Fiat CEO says Chrysler cash burn slows - Reuters
• Japan’s Tankan Confidence Rebounds Less Than Expected - Bloomberg
• China's Huawei needs makeover to win big markets - Reuters
• Iraq Fails to Award Most Oil Contracts in Bid Round - Bloomberg
• Bank Woes Deepening in Europe - NY Times
• Australia’s Retail Sales Climb 1% - Bloomberg

HOUSING
• Next Housing Segment To Crash: $1+ Million McMansions - ClusterStock
• McMansions Another Black Eye For Housing Market - The Atlantic
• Phoenix Housing Market Finally Feels Uptick - HousingWire
• Home price decline slows in many places - USA Today

FED/TREASURY/BANKING
• Fed's Yellen: rates could be near zero for years - Reuters
• FED to Monetize Another $1.75 Trillion in 2009 - Liberty Maven
• Banks Balk at Agency Meant to Aid Consumers - NY Times
• Bernanke still a speed demon - Asia Times

INTERESTING
• What Supersonic Looks Like - LiveScience
• Michael Jackson's death sparks bus brawl - AP
• Lion prides form to win turf wars - BBC
• Man nabbed 3 times in week for skipping on tab - AP

###

And ... we have another winner!

2009-06-30T20:11:00.000-07:00

Today's closing prices for a barrel of oil and an ounce of gold were $69.89 and $926.60, respectively, making ycching the winner of the sixth "Guess the Price of Oil and Gold" contest by a narrow margin over jlowey and Bruno T.
In first place for the last three weeks as prices moved very little, ycching wins a free one-year subscription to the companion investment website Iacono Research.

Sadly, the Inscrutible Chicken came up short in his late move toward the top, finishing fourth.

Better cluck next time...

A list of the top-ten finishers (out of over 80 guesses) is shown below. Interestingly, the type of calculation makes a difference for the second and third place finishers, but not for the top spot (i.e., the "Diff. Alt." column is a square root of the sum of the squares calculation versus the simple sum of the percent differences in the "Total Diff." column).
The average guesses of $59 for a barrel of oil and $936 for an ounce of gold were off by a total of almost 16 percent and, during the almost two months that the contest went on, the oil price rose from just under $60 a barrel to almost $70 and the gold price moved up about five dollars from around $920 an ounce.

Ycching, please send me your email address and I'll get an account set up for you.

Thanks to all who participated.

There should be a much more exciting year-end edition of this contest set to kick off sometime in October. With the notable exception of 2008, as the oil price was heading toward almost $150 a barrel in June, the year-end editions have always been much more exciting than the mid-year editions due to generally larger price moves.

To learn more about investing in natural resources using commonly traded ETFs, stocks, and mutual funds, see this description at Iacono Research. Or, sign up for a free trial.

Cash4Gold to buy the U.S. gold reserves?

2009-06-30T13:18:00.000-07:00

Last week, after seeing it pop up in a number of other places, this video from The Onion about Cash4Gold wanting to buy all of the 8,000+ tonnes of U.S. gold reserves was shared here because, well, it was pretty darn funny.

You'd think that would the end of this story but, yesterday, Commodity Online (originating from India and, perhaps, not all that familiar with American-style satire) ran this story about the video, apparently not realizing that The Onion is not really "American's Finest News Source" but a satire website offering only fake news.

Cash4Gold, America's leading buyer of precious metals direct from the general public, announced an offer to purchase the U.S. national gold reserve for $240 billion.

Cash4Gold stated in a press release that it learned of the federal government's plan to turn the nation's gold into cash after the Onion News Network broke the story at the Radio and Television Correspondents' Association Dinner in Washington last week. President Obama and scores of other political and media leaders were on-hand as the Onion aired a video news segment announcing the emergency economic plan aimed at helping the United States pay off its debts.

Now, these Onion videos are good, but they're not that good...

The funniest part about this whole thing is that it brings a bit more attention to the absurdity of the numbers. The U.S. government has already made some $13 trillion worth of guarantees as a result of the financial crisis, it has a debt of over $11 trillion, and a 2010 budget deficit of almost $2 trillion, but their entire gold reserves are only worth a little over $200 billion.

Appearing on The Onion to explain the government's plan to work with Cash4Gold, Deputy Treasury Secretary Edward Kuehnel estimated the value of the pure gold bars that comprise the U.S. federal gold reserve at $200 billion. Cash4Gold's unprecedented $240 billion offer reflects the full melt value of the U.S. stockpile, plus an added 20 percent. Melt value refers to the value of actual precious metal contained in an item that a refinery can extract and recycle, and does not account for the decorative, artistic, historic, or sentimental value of a given item.

As part of a current promotion called Gold Rush, Cash4Gold is currently paying an additional 20 percent on all items received before July 4. A transaction concluded with the U.S. government would put Cash4Gold 240,000 percent above its advertised goal of purchasing $100 million in gold by the July 4 Independence Day holiday.

Treasury Secretary Timothy Geithner devised the plan to sell the federal gold reserve after viewing one of Cash4Gold's commercials on television, according to the Onion.

Just the fact the Cash4Gold is purportedly paying over the melt value should have been a big tip-off that this wasn't the real deal.

And, of course, a quick visit to The Onion would reveal another shocking development which probably isn't true:

Obama To Hold Job Performance Review With Every American Worker

I just got a "cubicle flashback" after hearing about self-evaluations about 30 seconds in...

The lighter side of the California budget crisis

2009-06-30T11:41:00.000-07:00

A good summary of the California budget morass from Steve Greenberg.

There are surprisingly few good cartoons on this subject - at least that I've been able to locate in a few minutes of searching. If anyone knows of more, please provide a link in the comments section below. Here's one that almost went up in place of what you see above.

The California IOUs are coming...

2009-06-30T09:42:00.000-07:00

We're back in California for a couple of days and, having caught a few minutes of the local news from Sacramento a short time ago, there appears to be little progress being made in the effort to avoid state issuance of IOUs in the days ahead.

The local paper carries news that the last day of the fiscal year should be quite an interesting one in the state capital, with each passing hour the odds increasing that the IOU man cometh.

Both houses likely will be in session all day and into the evening, but look for the real action at the negotiating table in the Governor's Office.

A key issue is $3.3 billion in budget savings that have to be approved by midnight -- in the current fiscal year -- or will be lost forever. Democrats are pushing the cuts to schools and redevelopment agencies to be approved by midnight, but the GOP and the governor want a full package before signing off.

The 1992 version of this melodrama ended badly, with drunken shouting, a fistfight, and a mysteriously stopped clock in the Assembly. Ultimately, the production ran all summer, with IOUs, court fights and rock-bottom performance ratings for politicians of all stripes.

Maybe someone will do the state a favor and roll a hand-grenade into the governor's office and a new group of "leaders" can begin the budget process anew.

Too harsh? Probably.

But, it seems clear that nearly all lawmakers in California are hopelessly out of touch with reality these days, many of them likely viewing the recent economic downturn as being just a temporary setback in what is seen as a birthright of ever-rising real estate prices, the absence of which makes the state, basically, ungovernable.

The idea that an Obama bailout might also materialize, despite recent assurances to the contrary, is no doubt making the sense of urgency a bit less than it might otherwise be.

The San Francisco Chronicle files this report of no progress being made in the stalemate.

Despite a deadline looming tonight, Gov. Arnold Schwarzenegger and the Legislature were at a loss Monday over how to close the state's massive deficit, and there were no signs a compromise would be reached soon.

If no plan is adopted by 12:01 a.m. Wednesday, the state plans to issue IOUs to contractors, vendors, local governments and taxpayers expecting refunds beginning Thursday. The governor plans to force 220,000 state workers to take a third unpaid day off beginning in July; and the state will forfeit more than $3 billion in budget savings through cuts to education that had to be made in the fiscal year ending today.

Before the Legislature adjourned late Monday, Democratic leaders had scrambled to pass a plan to solve the impending insolvency of the Golden State, but the governor fired back, insisting he would not support their budget bills because they included taxes and not enough spending reductions to close the $24.3 billion deficit through June 2010.

"I will veto any majority-vote tax increase bill that punishes taxpayers for Sacramento's failure to live within its means," Schwarzenegger said Monday.

Since the state has had to issue IOUs before (during the 1990s housing bust, by no small coincidence), it seems unlikely that the embarrassment of having to do so again will be any deterrent this time around.

Consumer confidence "more bad" in June

2009-06-30T08:03:00.000-07:00

Financial markets are reacting rather poorly to the first "more bad" report in months on consumer confidence from the Conference Board. Usually cheery Econoday notes that the "consumer sector appears to have crumbled in June" after the one-two punch of sagging consumer confidence and a disappointing report on chain-store sales.
The consumer confidence index dropped some ten percent, from 54.9 in May to 49.3 in June, news that came as a surprise to analysts who were looking for further improvement as rising unemployment and rising gasoline prices continue to take their toll.