California As A Role Model
by Sinclair Noe
DOW
+ 80 = 13,471
SPX + 11 = 1472
NAS + 15 = 3121
10 YR YLD + .04 = 1.89%
OIL + .77 = 93.87
GOLD + 16.80 = 1675.80
SILV + .50 = 30.96
SPX + 11 = 1472
NAS + 15 = 3121
10 YR YLD + .04 = 1.89%
OIL + .77 = 93.87
GOLD + 16.80 = 1675.80
SILV + .50 = 30.96
So,
those are the closing numbers. At least, we think those are the
closing numbers; give or take; kinda, sorta. It could be off a bit.
The stock exchanges have a bit of a problem with something called the
consolidated tape, which provides trade data. Seems
it went out for about an hour at the New York Stock Exchange Tuesday,
making it tough to see in anyone had traded in 165
securities. And the NYSE's screw up follows a similar snafu last week
at the Nasdaq. The consolidated tape at Nasdaq went totally blank
last week. The consolidated tape is the record of securities
transactions across all US exchanges. If you're keeping track, the
exchanges have recently had to admit they can't always run IPO's
competently, there are some problems with faulty data and trade data.
So, that's the closing numbers, more or less.
The
World Economic Forum is underway in Davos, Switzerland. The annual
gathering of the wealthy and influential includes the publication of
a survey which outlines the concerns of about 1,000 experts. This
year's report seemed to focus on the interplay between the
environment and the economy, saying: “A
sudden and massive collapse on one front is certain to doom the
other’s chance of developing an effective, long-term solution.
That
diagnosis underscores several points of contention in the United
States, where there is a push for increased domestic energy
production despite concerns from green groups about environmental
impacts.The report said governments should invest in infrastructure
upgrades to bolster resiliency to climate change and associated
natural disasters.
Even if policymakers can recover to handle
climate change, the report said experts wondered if we have "already
passed a point of no return and that Earth’s atmosphere is tipping
rapidly into an inhospitable state.”
While
recognizing climate change is happening, the report said policymakers
will need to become more comfortable making decisions without a
conclusive set of data. At the same time, governments must boost
research funding to gather more complete information.
The report also highlighted the income divide between rich and poor, ballooning government deficits, water shortages and aging populations as causes for concern.
For
the past three years, the focus of Davos was the Euro-zone debt
crisis. There seems to have been a shift away from worries about
Euro-land and back to the political and budgetary process in the US,
and whether the dysfunction will devolve into a political fistfight.
Of course, it doesn't really matter what the rich folks think in
Davos; the Forum isn't an official anything, just a lot of talk.
When it comes to most of the major political disputes in Washington, congressional Republicans insist Democrats focus on reducing the debt Republicans built up during the Bush/Cheney era. It underpins everything from the budget fight to the debt ceiling to efforts to expand public investments. What the debate tends to ignore is the debt reduction that's already happened; nearly $2.4 trillion in deficit reduction scheduled for the next ten years has already been signed into law. Roughly three-quarters of the deficit reduction has come is in the form of spending cuts.
As we enter the new year, the nation's most pressing economic problem remains the slow recovery, particularly the job market. Unemployment is still far too high and the rate at which we are creating new jobs is far too low. At the present rate of job growth, we are still several years away from full employment. The ability of monetary and fiscal policymakers to combat the slow recovery is constrained by three things: fear that aggressive monetary policy will drive up inflation to an unacceptable level; fear that tax cuts or increases in spending will worsen our long-run debt problem; and political disputes over taxes and the size and role of government.
There
is debate that fiscal and monetary policymakers should do more to
push an economic recovery, but the recent minutes from the last FOMC
meeting indicate some reticence on the part of the Fed, and the
question then becomes whether the Fed will try to increase rates and
exit quantitative easing before the economy can enter a virtuous
circle of growth. From the fiscal side, the best we can hope for is
that the political standoffs over the deficit don't become
disruptive.
Exactly
how to avoid a political brawl remains to be seen. The debt ceiling
will be breached some time in February. If nothing is done, the
government will soon be unable to pay all of its bills in a timely
manner. This unprecedented event would profoundly damage the
government’s credit rating and send the financial system into a
tailspin. So
far, President Obama isn't giving in. Last week, he said he: “will
not have another debate with this Congress over whether or not they
should pay the bills that they've already racked up through the
laws that they passed.”
So,
what are the options? Well, one idea floated is the $1 trillion
dollar platinum coin. And I'm sure we'll talk more about this plan in
coming days and weeks; it's really a pretty good idea in some ways,
and far too fantastic in others. The President could ignore the debt
ceiling and direct the Treasury to issue more bonds to cover its
obligations; a move that would likely result in even more political
acrimony. And another plan has been used on multiple occasions in the
nation's history, and as recently as 2009 – print IOU's.
The
President could threaten to issue scrip — “registered warrants”
— to existing claims holders (other than those who own actual
government debt) in lieu of money. Recipients of these I.O.U.’s
could include federal employees, defense contractors, Medicare
service providers, Social Security recipients and others.
The
scrip would not violate the
debt ceiling because it wouldn't constitute a new borrowing of
money backed by the credit of the United States. It would merely be a
formal acknowledgment of a pre-existing monetary claim against the
United States that the Treasury was not currently able to pay. The
president could therefore establish a scrip program by executive
order without piling a constitutional crisis on top of a fiscal one.
To
avoid any confusion with actual Treasury debt, and to be consistent
with the law governing claims against the United States more
generally, the scrip would not pay interest in most cases. And unlike
debt, it would have no fixed maturity date but rather would become
redeemable in cash only when the secretary of the Treasury was able
to certify that there’s enough money available in the Treasury’s
general fund to cover it.
The
idea may sound crazy, but remember that California did it in 2009;
the state issued registered warrants, totaling $2.6 billion to
individual and business claimants, including recipients of aid
programs, recipients of tax refunds and government contractors. Those
holders who needed immediate cash were usually able to sell their
registered warrants to banks at face value, though some institutions
limited such purchases. Eventually a budget was worked
out and the scrip was redeemed for cash. California continued
to pay its public debt service in cash and on schedule and never lost
an investment-grade credit rating.
California
is expected to post a budget surplus of $851 million for the fiscal
year that begins July 1. The solution was a combination of deep
budget cuts and billions in new taxes approved by voters last year.
Schools
will be the big winner in the governor's new spending plan, receiving
$56.2 billion in state funds, an increase by $2.7 billion over the
last year. That funding is set to jump to more than $66 billion by
2016. The budget also dedicated an additional $350 million to the
state’s public insurance program, Medi-Cal, to help implement
President Obama’s healthcare law. This is a tentative surplus, and
there is plenty of debt, but this is another small positive step. The
plan in California is to increase spending slightly, about 5%, in
the upcoming year after several years of budget cuts. California as a role model; go figure.
Nearly
a third of the nation's homeowners have no mortgage at all, according
to an estimate released by real estate website Zillow. The
free-and-clear class includes, predictably, retirees who have chipped
away at their debts for decades, but also a surprisingly high
percentage of young people and those who live in relatively
affordable regions. Zillow
found that the nation's most elderly were the most likely to own
their homes, with 77% of those older than 85 owning their homes
outright, followed by those ages 74 to 84, at about 62%. One outlier
was those homeowners ages 20 to 24. Out of that relatively young
demographic, about 34% owned their homes outright.
As
the economy picks up, regions with high percentages of free-and-clear
owners probably will get a boost. That means there is a lot more
disposable income, and that is positive for the local economies. Out
of the nation's largest metro areas, Pittsburgh, Tampa, New York,
Cleveland and Miami had the highest percentages of mortgage-free
homeowners. Washington, Atlanta, Las Vegas, Denver and Charlotte,
N.C., had the lowest.
