Central Perk

luni, 24 ianuarie 2011

The State of the Union and You

Your Daily Snapshot for
Monday, Jan. 24, 2011

The State of the Union and You

Tomorrow at 9 p.m. EST, the President will deliver the State of the Union address. Find out how you can get involved in the State of the Union and ask your questions of President Obama and the White House.

Learn more.

Photo of the Day

President Barack Obama looks inside a generator while touring the General Electric plant in Schenectady, N.Y., with GE CEO Jeff Immelt and Plant Manager Kevin Sharkey, right, Jan. 21, 2011. (Official White House Photo by Pete Souza)

Seth's Blog : Three ways to help people get things done

[You're getting this note because you subscribed to Seth Godin's blog.]

Three ways to help people get things done

A friend sent me a copy of a new book about basketball coach Don Meyer. Don was one of the most successful college basketball coaches of all time, apparently. It's quite a sad book—sad because of his tragic accident, but also sad because it's a vivid story about a misguided management technque.

Meyer's belief was that he could become an external compass and taskmaster to his players. By yelling louder, pushing harder and relentlessly riding his players, his plan was to generate excellence by bullying them. The hope was that over time, people would start pushing themselves, incorporating Don's voice inside their head, but in fact, this often turns out to be untrue. People can be pushed, but the minute you stop, they stop. If the habit you've taught is to achieve in order to avoid getting chewed out, once the chewing out stops, so does the achievement.

It might win basketball games, but it doesn't scale and it doesn't last. When Don left the room (or the players graduated), the team stopped winning.

A second way to manage people is to create competition. Pit people against one another and many of them will respond. Post all the grades on a test, with names, and watch people try to outdo each other next time. Promise a group of six managers that one of them will get promoted in six months and watch the energy level rise. Want to see little league players raise their game? Just let them know the playoffs are in two weeks and they're one game out of contention.

Again, there's human nature at work here, and this can work in the short run. The problem, of course, is that in every competition most competitors lose. Some people use that losing to try harder next time, but others merely give up. Worse, it's hard to create the cooperative environment that fosters creativity when everyone in the room knows that someone else is out to defeat them.

Both the first message (the bully with the heart of gold) and the second (creating scarce prizes) are based on a factory model, one of scarcity. It's my factory, my basketball, my gallery and I'm going to manipulate whatever I need to do to get the results I need. If there's only room for one winner, it seems these approaches make sense.

The third method, the one that I prefer, is to open the door. Give people a platform, not a ceiling. Set expectations, not to manipulate but to encourage. And then get out of the way, helping when asked but not yelling from the back of the bus.

When people learn to embrace achievement, they get hooked on it. Take a look at the incredible achievements the alumni of some organizations achieve after they move on. When adults (and kids) see the power of self-direction and realize the benefits of mutual support, they tend to seek it out over and over again.

In a non-factory mindset, one where many people have the opportunity to use the platform (I count the web and most of the arts in this category), there are always achievers eager to take the opportunity. No, most people can't manage themselves well enough to excel in the way you need them to, certainly not immediately. But those that can (or those that can learn to) are able to produce amazing results, far better than we ever could have bullied them into. They turn into linchpins, solving problems you didn't even realize you had. A new generation of leaders is created...

And it lasts a lifetime.

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duminică, 23 ianuarie 2011

Mish's Global Economic Trend Analysis

Camden NJ Police Union Rejects Offer to Save 100 Police Officer Jobs by 300-1 Vote; Camden a Living Hell; Mayor Accuses Union of Fear-Mongering
Timothy Geithner Meets Vladimir Lenin Stage II; Accounting Rule Changes at the Fed will Mask Losses
Sunday Funnies 2011-01-23 Student Loans; Solar Energy Madness in Europe
Jim Rogers Calls for $200 Oil, Remains Bullish on the Yuan; Limiting Factors Rogers Misses

Camden NJ Police Union Rejects Offer to Save 100 Police Officer Jobs by 300-1 Vote; Camden a Living Hell; Mayor Accuses Union of Fear-Mongering

Posted: 23 Jan 2011 09:04 PM PST

The Fraternal Order of Police in Camden New Jersey proved without a shadow of a doubt, public union willingness to toss fellow officers to the dogs.

In a 300-1 vote, the union rejected an offer that that would have saved 100 jobs. That offer called for three days a month of unpaid furloughs for patrol officers for six months, then one furlough day in each of the following 12 months.

Please consider Camden police union rejects concession deal that could bring back 100 laid-off officers

Two efforts to reverse some of the stunning police layoffs in one of America's most dangerous cities failed today.

A judge ruled that he won't force Camden to bring back 167 police officers who were laid off earlier in the week. Later, a union for most of the officers rejected a deal containing concessions, which would have put the majority of them back to work.

The layoffs reduced the size of the police force by nearly half in one of the nation's most impoverished and crime-ridden cities. Some civilian employees such as dispatchers also were laid off, along with about one-third of the city's firefighters.

Altogether, more than 15 percent of Camden's municipal workers, including 68 firefighters and about 100 civilians, were laid off as the city tries to fill a huge budget gap brought on by rising costs, decreased tax revenues and diminished aid from the state.

In an evening vote, the city chapter of the Fraternal Order of Police rejected a deal that would have reinstated officers in exchange for giving them unpaid furlough days.

F.O.P. Local 1 President John Williamson said the vote was 300-1 against the measure.

Mayor Dana Redd and Williamson both said about 100 officers could have been brought back under the deal. Williamson said the agreement called for three days a month of unpaid furloughs for patrol officers for six months, then one furlough day in each of the following 12 months.

Cannibalization at its Finest

That vote is one of the finest displays of union cannibalization (willingness to sacrifice junior officers for the sake of senior members) that you will ever see.

The police officers do not give a damn about their fellow officers or the city itself. All that matters is the senior members "get what they have coming to them".

Layoffs of Unprecedented Proportion Make for "Living Hell"

Please consider Camden struggles with lack of manpower due to police, firefighter layoffs

If you get into a car accident in Camden, the city's chief of police has this advice: Don't bother calling the cops unless there are injuries or blocked traffic. Likewise, don't call about vandalism. Or minor thefts.

With the city's police force cut almost in half by layoffs, Chief Scott Thomson said his department no longer has the manpower to respond to such calls. Not in Camden, which has struggled with graver problems like homicide, gun violence and drug dealing.

Other police agencies around the state have cut back, but nowhere have cuts been as deep as in Camden.

"I've never heard of a layoff of this proportion," said Rutgers Police Institute Executive Director Wayne Fisher.

Mayor Dana Redd and the police union held a last-ditch meeting Monday night but failed to reach an agreement.

"Instead of protecting and serving the city, the residents of Camden, they're choosing to protect their high salaries," Redd said. She said union concessions could still bring back 100 officers, but didn't provide details.

Union officials said they were open to wage freezes and furlough days.

"To say the union isn't bringing anything to the table is just not right," said Ed Brannigan, president of the state union. "But there's only so much you can give. How much blood do you have?"

Advertisements run by the police union say Camden may become a "living hell." One flier shows a robber pointing a handgun at a cowering store clerk under the title "Welcome to Camden."

Blood? What Blood?

The police union's preposterous offer was to freeze wages. Next the union whines "How much blood do you have?" as if the union was offering anything of substance in a wage freeze proposal.

Assuming the officers work 20 days a month, the city was asking for a 15% pay cut for 6 months and a 5% pay cut for the following year. Does that constitute blood? I think not. However, letting 100 officers go is certainly blood on the union's hands.

The firefighters union "negotiation" went even worse. They demanded small wage increases.

Both unions had the gall to run fear-mongering campaigns. Of course fear-mongering is standard public union operating procedure. The sad irony is that money to fear-monger comes straight from the taxpayers.

Mayor Accuses Police and Fire Unions of Fear-Mongering

Judge Declines to Intervene

Fortunately a New Jersey judge declined to intervene.

A New Jersey judge won't force Camden to bring back 167 police officers who were laid off Monday and Tuesday. The layoffs reduced the size of the police force by nearly half in a city that regularly ranks as one of the nation's most dangerous.

Unions for both rank-and-file officers and superiors argued the state Civil Service Commission did not take the right steps when it approved the layoffs. They also claimed the city laid off more officers than it originally planned.

Superior Court Judge Francis Orlando today said the proper place for the complaints is with the Civil Service Commission or an appeals court — not his court.

Camden is Bankrupt

On the surface, it is hard to understand the city's tactics here. Camden should have outsourced the entire police operation to the county sheriffs' association. I have not seen an instance yet where that action would not have saved money.

The real problem however, is Camden is bankrupt. It should declare bankruptcy. In bankruptcy court the union could then see what their salary and pension contract are worth.

Beneath the surface, the most likely explanation is the mayor might have to relinquish control of the city.

Governor Chris Christie should ask for a law to allow bankruptcy be imposed on a city, whether the city likes it or not. As with Detroit, only bankruptcy can save what remains of Camden, and Camden is clearly bankrupt.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To scroll Thru My Recent Post List

Timothy Geithner Meets Vladimir Lenin Stage II; Accounting Rule Changes at the Fed will Mask Losses

Posted: 23 Jan 2011 01:53 PM PST

Many people have taken notice of changes slipped into the Fed's balance sheet reporting rules that will allegedly shield the Fed from devastating losses. Please consider Accounting Tweak Could Save Fed From Losses.

Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely.

The significant shift was tucked quietly into the Fed's weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when originally announced on Jan. 6.

"Could the Fed go broke? The answer to this question was 'Yes,' but is now 'No,'" said Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey. "An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital."

The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability.

"Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible," said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.

"The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns since the announcement (of a second round of asset buys) about the possibility of Fed 'insolvency' in a scenario where interest rates rise significantly," Smedley and his colleague Priya Misra wrote in a research note.

Two Distinct Issues

Going forward, there are two key issues here (not counting losses with TARP), and none of the articles circulating properly explains either them, or when the real damage occurred.

Losses on Treasures as Interest Rates Rise
Losses on Fannie Mae and Freddie Mac Assets

Losses on Treasures as Interest Rates Rise

It is a simple statement of fact that there will be no losses on treasuries if the Fed hold the treasuries to term, which I believe is their intent. Note that the Fed concentrates purchases in the 3-7 year range, making it a relatively easy matter to hold those securities to term.

Moreover, if the economic recovery does not satisfy the Fed it can simply enter a program whereby it replaces expiring treasuries with new purchases. Should the Fed embark upon such a plan, it will offer an excuse that it is not expanding its balance sheet further.

I do not agree at all with the Fed's balance sheet expansion, I simply point out the risk of losses on treasuries is a theoretical issue, not a practical one.

Losses on Fannie Mae and Freddie Mac Assets

The accounting rule change will also allow the Fed to hide losses on MBS garbage on its balance sheet. Those toxic assets have a much longer duration. Can the Fed get rid of them for no losses?

The answer is yes, but it has nothing to do with accounting rule changes. The damage was done in late 2009 by Congress.

Timothy Geithner Meets Vladimir Lenin

Please consider John Hussman's January 4, 2010 article Timothy Geithner Meets Vladimir Lenin

"The best way to destroy the capitalist system is to debauch the currency."

Vladimir Lenin, leader of the 1917 Russian Revolution

Last week, while Congress and the nation were preoccupied with the holidays, the Treasury made a Christmas eve announcement that it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years.

Put simply, in a single, coordinated stroke, the Treasury and the Federal Reserve have encroached on spending powers that are enumerated for the Congress alone. Under the Housing and Economic Recovery Act of 2008 (HERA), the Treasury has no such open-ended authority. Indeed, the applicable portion of the Act explicitly limits the total amount of mortgage principal (not losses, but total principal) as follows:

"LIMITATION ON AGGREGATE INSURANCE AUTHORITY.—The aggregate original principal obligation of all mortgages insured under this section may not exceed $300,000,000,000."

That's $300 billion of original principal. If there is some loophole by which the Treasury's action is legal, it's clear that it was no part of Congressional intent, and certainly not broad public support. Taxpayers are now being obligated by the Treasury and the Fed to make good on a potentially much larger volume of bad mortgage loans, made by reckless lenders, guaranteed by Fannie Mae and Freddie Mac in return for a pittance (called a "G-fee"), and packaged into securities which are now largely owned by the Federal Reserve, which has acquired them through outright purchases (not traditional repurchase agreements).

As I wrote several weeks ago, "The Federal Reserve has expanded the U.S. monetary base by more than 150% since the beginning of the recession. That is not a typo. The monetary base has soared from $800 billion to over $2 trillion. Much of this has been accomplished through outright purchases of mortgage-backed securities (not repurchases) and an equivalent creation of base money. Unless these securities can be sold back out into private hands for the same value that was paid to acquire them, the Fed will have effectively forced the U.S. government to make its implicit guarantee of these agency securities explicit, without the authorization of Congress. To the extent that the underlying mortgages default, the U.S. government will be forced to issue additional Treasuries to retire the mortgage backed securities now held by the Fed. Alternatively, if the U.S. does not explicitly bail out Fannie Mae and Freddie Mac to the full extent, the Fed will have created money, with no recourse, and without the equivalent backing of assets or securities on its books. In short, the Fed is now engaging in unlegislated, back-door fiscal policy."

The Treasury's action last week completes this circle. It provides a surprise pledge of public resources to make these mortgage loans whole, and an unlegislated commitment to make the "implicit" backing of Fannie Mae and Freddie Mac explicit. All without debate, and without the force of public will. Even as the homeowners underlying these mortgages lose their property to foreclosure.

Accounting Rule Change Footnotes

From that perspective, and it's a proper one, these accounting rule changes are nothing but a tiny historical footnote on damage long ago done by Congress ceding power, knowingly or unknowingly to the Fed.

Fed Uncertainty Principle Yet Again

Clever readers will note this as a part of my Fed Uncertainty Principle.

Uncertainty Principle Corollary Number Two:

The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

That was written April 3, 2008, long before the Fed started usurping powers the constitution grants Congress.

Taxpayers are now on the hook for these losses, and the accounting rule change is a mere reflection of that fact.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To scroll Thru My Recent Post List

Sunday Funnies 2011-01-23 Student Loans; Solar Energy Madness in Europe

Posted: 23 Jan 2011 10:50 AM PST

Reflections on a Wise College Major

For more on the student loan scam, please see Budget Deficit Accounting Fraud and the Off-Balance-Sheet Student Loan Scam; Time to Scrap Entire Student Loan Program

Solar Energy Madness in Europe

In an effort to spur solar energy in France, Germany, Spain and other European countries, bureaucratic dunces decided to pay as much as 10 times market rates for those supplying energy to the power grid.

In response, farmers in France have started building "barns" that serve no other purpose than a place to put solar panels. Supermarkets put solar panels on their roofs and unused sections of parking lots.

It has been a boom to solar panel makers (China), but it is costing costing the French power company Electricite de France SA more than a billion euros ($1.3 billion) a year to meet government mandated pledges to accept solar energy from those supplying the grid.

At the end of 2010, EDF received 3,000 applications a day to connect panels to the grid. In 2008, the number of applications was 7,100 for the entire year.

The results should have been easy to predict in advance, but you can never explain anything to economic illiterates interfering in the free markets hoping to make things better. They never do.

Please consider EDF's Solar 'Time Bomb' Will Tick On After France Pops Bubble

France's solar power boom that's led to farmers building unneeded barns just to cover them in panels is costing Electricite de France SA more than a billion euros ($1.3 billion) a year as it meets state pledges to pay above-market prices for renewable energy.

The cost is siphoning off funds from EDF as it plans to spend 35 billion euros to extend the life of France's aging nuclear plants.

The tax shortfall will widen this year and last until 2017 even as the government moves to cool the solar rush, said Aurel BGC analyst Louis Boujard.

EDF shares have dropped 20 percent over the past year, compared with a 3.7 percent decline in Europe's Stoxx 600 Utilities Index. The Paris-based company had net debt of $57 billion euros at the end of June, according to a company filing.

Elsewhere in Europe, governments have stepped in to contain spiraling growth in solar generation.

The Czech Senate introduced a temporary tax on solar producers in December, and Spain limited the hours during which existing solar parks can earn premium rates. Germany almost doubled the surcharge consumers have to pay in renewable-energy subsidies starting this year.

To end what it has called a "speculative bubble," France on Dec. 10 imposed a three-month freeze on solar projects to devise rules that could include caps on development and lowering the so-called feed-in tariffs that pay the higher rate for renewable power. The tariffs were cut twice in 2010.

The French cuts haven't slowed demand for new solar projects. EDF received 3,000 applications a day to connect panels to the grid at the end of last year, compared with about 7,100 connections in all of 2008, according to the government and EDF. France could reach its 2020 target of 5,400 megawatts of solar generating capacity by the end of 2011 if all proposed projects are completed.

France's energy regulator estimates EDF will pay an average of 546 euros a megawatt-hour for solar power in 2011. That's almost 10 times estimated spot market power prices of 55 euros, and the highest among renewable energy sources.

The promise of rich returns spurred suburban supermarkets to put photovoltaic panels in parking lots and farmers to install units on empty, purpose-built barns, according to a French parliamentary report.

Politicians Never See It Coming

"We just didn't see it coming," French lawmaker Francois-Michel Gonnot said of the boom. "What's in the pipeline this year is unimaginable. Farmers were being told they could put panels on hangars and get rid of their cows."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Jim Rogers Calls for $200 Oil, Remains Bullish on the Yuan; Limiting Factors Rogers Misses

Posted: 23 Jan 2011 02:41 AM PST

Jim Rogers says oil will hit $200. Please consider this audio interview with Justin Rowlatt at the Business Daily.

Here is a partial transcript from the BBC.

Justin Rowlatt: Do you really believe the Chinese boom can continue, because lots of people are saying there are all sorts of asset price bubbles that are going to trip the Chinese up in the coming years?

Jim Rogers: Well, the only asset bubble I see potentially in China is in urban coastal real estate, but real estate is not nearly the entire Chinese economy as it was in America and the U.K. Sure, they will have setbacks.

Justin, in the 19th Century, America had a horrible civil war. We had 15 depressions with a 'D.' We had very few human rights. We had massacres in the streets regularly. We had very little rule of law. You could buy and sell - you can still buy and sell congressmen in America, but in those days they were cheap. America had horrible problems, but they came out of that and had a pretty good 20th Century.

Justin Rowlatt: So what does that imply about where people should put their money; where are the sensible investments in Asia?

Jim Rogers: Well, the best way to invest in Asia in my view is to buy commodities, because the Chinese have to buy cotton, they have to buy zinc, they have to buy oil, they have to buy natural resources because they don't have enough.

If you want to invest in China and you own cotton, they are going to be very nice to you Justin. They are going to pay the bills, they are going to take you to dinner, they are going to pay you on time. If you want to invest in stocks, you have to do a lot of homework and know what you are doing. Another way is to invest in the currency. I own the renminbi. I expect the renminbi to go up a great deal over the next decade.

Justin Rowlatt: But commodities are already at relatively high prices, aren't they? I mean hasn't that horse bolted already?

Jim Rogers: No, no, the only commodity I know which is making an all time high is gold. Some commodities are up, yes. Sugar is up a lot, but Justin, sugar is still 50% below its all time high. How can you say that's bolted? Silver is going up, but silver is 40% below its all time high. Yes, commodities have been going up recently, but they are still extremely depressed on a historic basis.

Justin Rowlatt: So what about oil? I mean oil prices are pretty high, aren't they? Almost $100 a barrel. Are they really going to go higher do you think?

Jim Rogers: Well, the surprise is going to be how high the price of oil stays and how high it goes, because Justin we have had no major elephant oil discoveries in over 40 years. The International Energy Agency is going around the world pleading with people to listen. Known reserves of oil are declining. It is not good news. Unless somebody discovers a lot of oil very quickly, prices are going to go much higher over the next decade.

Justin Rowlatt: How high do you think the oil price could go then?

Jim Rogers: Justin, the price of oil is going to make new highs. It will go over $150 a barrel. It will probably go over $200 a barrel.

Limiting Factors Rogers Misses

Not many people have investment timelines of a decade. Moreover, there are a lot of things that can happen along the way. If oil were to drop to $60 and stay there for a number of years I would not want to be in it praying for $200 at some time in the future.

Rogers compares China to the US but fails to point point out (figure out), that one reason the US was able to grow fast was cheap oil prices. Other factors supportive of growth are strong personal property rights and a rule of law.

From my point of view, peak oil is a limiting constraint on the China's growth. Thus, on a fundamental basis, the higher oil and commodity prices go, the less bullish one should be on China.

Near-term Rogers clearly misses property bubbles and rampant unsustainable credit growth, over three times China's GDP growth. When that credit bubble pops, and China's property bubble with it, the Yuan will likely take a plunge as well.

For now, I side with Jim Chanos, a China bear in this debate. Please see "Consensus Nonsense"; Is the Yuan Undervalued? Who Wins a Currency War? for additional details.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Seth's Blog : The pleasant reassurance of new words

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The pleasant reassurance of new words

It's a lot easier for an organization to adopt new words than it is to actually change anything.

Real change is uncomfortable. If it's not feeling that way, you've probably just adopted new words.

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sâmbătă, 22 ianuarie 2011

Mish's Global Economic Trend Analysis

Budget Deficit Accounting Fraud and the Off-Balance-Sheet Student Loan Scam; Time to Scrap Entire Student Loan Program
"Imagine There's No T-Bonds - It's Easy If You Try"
Illinois Comptroller Says Stack of Unpaid Bills will Soon Double Despite Tax Increase

Budget Deficit Accounting Fraud and the Off-Balance-Sheet Student Loan Scam; Time to Scrap Entire Student Loan Program

Posted: 22 Jan 2011 02:04 PM PST

Inquiring minds have been wondering why the federal debt has been rising far faster than cumulative federal deficits. The short answer is off-balance-sheet scams like student loans and Fannie Mae and Freddie Mac "assets".

A complete explanation comes from WC Varones in his post Mystery solved: the difference between the deficit and the increase in national debt

The ex-Wall Street types at ZeroHedge chewed on this but couldn't come up with a good explanation. Karl Denninger called it crooked accounting, but couldn't pinpoint the fraud. B-Daddy at the Liberator Today noticed the same thing and didn't have an answer. Then I threw the question over to the academics at Econbrowser:
If it's such a simple accounting identity, would you please reconcile the $1.9 trillion and $1.65 trillion debt increases in FY 09 and FY 10 with the alleged deficits of $1.4 trillion and $1.3 trillion for the same fiscal years?

And before you answer that it's the Social Security Trust Fund, intragovernmental holdings increased by just $320 billion over the two years.

So where's the other $530 billion?
None of the academics among the bloggers and commenters at Econbrowser could answer the question, until Menzie Chinn found an expert who could.

I and many others suspected the answer was in some off-budget shenanigans like Fannie/Freddie, GMAC, etc. It turns out we were right in general but missed the biggest specific off-budget item: student loans. In table S-14 of this FY2011 OMB Mid-Session Review shown to me by Menzie, you'll see that the financial asset "Direct loan accounts" increased from $489 billion to $689 billion. And the prior Mid-Session Review (table S-15) shows that account at $196 billion at the end of FY08. So an increase in student loans accounted for $393 billion of the missing money over the two years.

There's also an increase of $100 billion in "Government-sponsored enterprise preferred stock" (Because Fannie and Freddie are assets to the Treasury, not liabilities, right! How are those preferred dividends working out for you, Timmy?). Together with the student loans and the change in intra-governmental holdings, that explains the vast majority of the difference between the reported two-year deficit and the actual increase in debt.

Student Loan Scam

Thanks WC, I had been wondering that myself.

Let's dig into Table S-14 (page 55 - PDF page 65) and look at projections for "Guaranteed Loan Accounts" under the general heading of "Debt Held by the Public Net of Financial Assets".

Using Data from the Table S-14 I made this chart of student loan projections.

Student Loan Projections 2009-2020 in $Billions

Time to Scrap Entire Student Loan Program

That debt is government (taxpayer) guaranteed. It is one of the primary things fueling the ever-rising cost of higher education. Amazingly students scream for more aid, and Obama want to give it to them, even though the debt destroys millions of lives in the process.

I propose the entire student loan program be scrapped. Much of that alleged "aid" goes straight to corrupt institutions like the University of Phoenix which charges exorbitant amounts for fluff degrees leaving students trapped as debt slaves for the rest of their lives.

For more on the University of Phoenix and other collegiate scams, please consider ...

Subprime Goes to College; Students Buried in Debt; Who is to Blame?

Debt for Diploma Schemes and the Cookie Monster Principle

University of California Campus Erupts In Riots; Student Loan Scam Drives Up Cost Of Education; Expect More Riots

Since student debt cannot be discharged in bankruptcy, and since universities get paid by the government, the universities (even legitimate ones) do not care how many lives they destroy.

The way to end the madness is to phase out all student loans over the next 3 years, immediately halting all new loans to freshmen. If colleges want to lend directly to students, nothing stops them. However, those debts should not be guaranteed by taxpayers.

The second thing we need to do is accredit far more online colleges. There is no reason legitimate courses cannot be offered over the internet at amazingly low prices.

These actions would quickly pop the bubble in higher education costs and make college affordable for nearly everyone without putting taxpayers at risk.

In the meantime, all off-balance-sheet debt needs to be properly accounted for in budget deficit projections, not hidden in places like Table S-14 where it took an army of people to figure out what was happening.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

"Imagine There's No T-Bonds - It's Easy If You Try"

Posted: 22 Jan 2011 11:28 AM PST

In "World Comes Together to Save the Euro" I posted a video Beatles' tribute to the idea "Come Together".

In response, reader "Spiral" wrote sent in some lyrics that he wrote. The first is to the tune of "Come Together" the second to the tune of John Lennon's "Imagine".

I heavily modified the version of "Imagine" he sent in, but the first is entirely his.

"Come Together" (buy bonds from me)

Here come the issue
You get 3 percent coupon
You get at deep discount
You got 30 yr window
You got debt as far as the eye can see
You don't get yo money back ain't nothin' be free
Come together right now
Buy from me
-------------------------------------
We sell to China
We sell mucho Ja-pan
We sell fo Russian Rub-ble
Hey this ain't no Bub-ble
There ain't no Asian Contagion you see
But this far in the hole ain't no place to be
Come together right now
Buy from me
-----------------------------------

We on a roller coaster
With some Wall Street cracker
He got all our dough & our futures blacker
He say one fo all & all fo ME
He will cheat you till you all the way down on yo knee
Come together right now
Buy from me.............

"Imagine"

Imagine no Bernanke
It's easy if you try.
No Fed-hell below us,
Bills not to the sky.

Imagine all the people,
With no debt to pay.

Imagine there's no T-bonds,
It isn't hard to do.
No Federal Reserve notes,
And no T-Bills too.

Imagine real money,
Spendable today

You may say I'm a dreamer,
But I'm not the only one
I hope someday you'll join us
For a solid gold backed buck

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Illinois Comptroller Says Stack of Unpaid Bills will Soon Double Despite Tax Increase

Posted: 22 Jan 2011 04:31 AM PST

Illinois is so far behind paying bills that the comptroller says unpaid bills will soon double despite tax increase.

Please consider Illinois Statehouse News Old overdue bills still an issue for Illinois

The state's stack of unpaid bills will soon double despite an income tax increase, according to state Comptroller Judy Baar Topinka.

The four year, temporary personal income tax hike of 67 percent was approved on the final day of the previous Legislature and recently signed by Gov. Pat Quinn. In part, the income tax hike is designed to help Illinois catch up on past-due bills and stop being delinquent on its payments.

"Our current backlog of bills stands at $6 billion, and the increased revenues will help address this backlog," said Kelly Kraft, spokeswoman for the governor's Office of Management and Budget.

Not quite, according to Topinka, who is in charge of Illinois' checkbook.

"By the time we get through four years from now and all of this and what they're able to spend, we will probably have a debt of $12 billion of unpaid bills that have yet to be dealt with," the Riverside Republican said.

Topinka said her office is now working on getting last August's bills paid.

Shortly after the income tax increase passed the state House of Representatives, House Republican Leader Tom Cross said his caucus would be willing to consider voting for borrowing, but not without some concessions.

"We'll look at it to pay our vendors, but we're going to look at it a different way. It might be a smaller amount, we might say you've got to cut somewhere else, we might say you have to look at (workers' compensation), I don't know what else we might say," Cross said.

For her part, Topinka has not decided one way or another on the borrowing plan.

"It will help to some extent, in terms of paying the bills. I still want to look at that before we sign off on it and see exactly where it goes. I want to read that bill and see exactly what it does. I've signed off on borrowing when I was (state) treasure, but not all the time," she said.

If Republicans want concessions, I have one in mind: Make Illinois a right to work state, killing all prevailing wage laws along with it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Your Weekly Address: “We Can Out-Compete Any Other Nation”

Your Daily Snapshot for
Saturday, Jan. 22, 2011

Your Weekly Address: “We Can Out-Compete Any Other Nation”

President Obama discusses the steps he is taking to make America competitive in the short and long terms, and why he chose GE CEO Jeff Immelt to head up the new Council on Jobs and Competitiveness.

Watch the video.

Weekly Wrap Up

A quick look at the week of January 17, 2011:

Quote: “Dr. King obviously had a dream of justice and equality in our society, but he also had a dream of service, that you could be a drum major for service, that you could lead by giving back to our communities.” Read the Post. Watch the video.

State of the Union: On Tuesday, January 25, at 9 p.m. EST, President Obama will deliver the State of the Union address at the U.S. Capitol. Find out how you can get involved in the State of the Union and ask your questions of President Obama and senior Administration officials.

China State Visit: At the Arrival Ceremony for the China State Visit, President Obama welcomes President Hu of China and calls for more productive cooperation between the two nations. Watch the video.

West Wing Week: A Rather Large Painting: The President welcomes the presidents of China and Pakistan, serves the D.C. community in observance of Martin Luther King Day and speaks in remembrance of Ambassador Richard Holbrooke and President John F. Kennedy. Watch the video.

Notable Numbers: 86 and 68. In honor of President Hu's State Visit, President Obama presented the Chinese leader with a painting on canvas measuring 86 inches wide and 68 inches high – 8 and 6 are lucky numbers that coincide with China’s country code 86. See the paining.

Voices of Health Reform: Americans from across the country share their stories on how they are already benefiting from the health reform law, the Affordable Care Act. Listen to their stories.

The Cost of Repealing Health Reform: Repeal would be bad for business, bad for the economy, and bad for families’ bank accounts. Get the break down on the latest White House White Board.

The Most Creative and Innovative Businesses in the World: The President announced that GE Chairman and CEO Jeffrey Immelt will join his team of economic advisors as the head of the new White House Council on Jobs and Competitiveness - a board to get Americans back to work and strengthen our economy. Watch the video.

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