The More Things Change, The More They.....

"In the United States, also, economic crisis has led to an extension of the activities of the executive and to the pillorying, by irresponsible agitators, of certain groups and sections of the population as enemies of the rest. There have been efforts to exalt the power of the central government and to limit the rights of individuals."

The above words were spoken by Winston Churchill in 1945.

Prayer from Dr. Johnson

Almighty and most merciful Father, Creator and Preserver of mankind, look down with pity upon my troubles and maladies. Heal my body, strengthen my mind, compose my distraction, calm my inquietude, and relieve my terrours, that if it please thee, I may run the race that is set before me with peace patience constancy and confidence. Grant this O Lord, and take not from me thy Holy Spirit, but pardon and bless me for the sake of Jesus Christ our Lord.

Private Personal Income - The Lost Decade

This chart and commentary from economist Michael Mandel is pretty shocking:

Each month the BEA releases figures for personal income and disposable personal income. These figures are a mix of private sector income and money received by individuals from the government. These government payments take the form of wages paid to government employees, and social benefits such as Medicare and Medicaid.

So I decided to take a shot at calculating ‘private’ personal income. From personal income I removed government social benefits (about $2.1 trillion in 2009) and wages paid to government employees (about $1.2 trillion). Then I added back in contributions for government social insurance, such as Social Security and Medicare payroll taxes (just under $1 trillion). Finally, I adjusted for inflation and population size to get a figure for real ‘private’ personal income per capita.

Here’s a chart of the 10-year growth rate of real private personal income per capita (the first quarter figure for 2010 is based on the average of January and February).

Over the past decade, real private personal income per capita has fallen at a 0.2% annual pace, the first time that has happened since the Great Depression.

Let’s compare this with the usual figure quoted by economists, real disposable income per capita. Real disposable income per capita–which includes government wages and social benefits, and adjusts for tax changes–rose at a 1.2% rate over the past ten years. In other words, when we add in government spending increases and tax cuts, real incomes per capita rose rather than fell.

The logical conclusion is that the private sector has been crapped out for the past ten years. Even before the crisis hit, the main thing that kept the economy afloat was the succession of Bush tax cuts and the expansion of federal spending which boosted benefits, particularly in healthcare.

This was a bad bad decade.

Hussman on Extend and Pretend

John Hussman on "Extend and Pretend":

With regard to credit conditions, the U.S. financial system continues to pursue a strategy of "extend and pretend." A year ago, the Financial Accounting Standards Board (FASB) suspended rule 157, which had previously required banks to mark their assets to market value when preparing balance sheet reports. The basic argument was that fair values were not appropriate because there was "no market" for troubled assets. Certainly, the FASB could have implemented something at least modestly reasonable, such as 2-year or 3-year averaging, but instead, they changed the rules to allow "substantial discretion" in the valuation of bank assets in their financial reports.

......The impact of "extend and pretend" is to create a gap between the reported value of assets and the value they would have on the basis of the cash flows that those assets can reasonably be expected to generate over their maturity. In order to avoid having to restate assets, banks have allowed an increasing gap to develop between the volume of delinquent loans and the volume of loans actually in foreclosure, creating a growing "shadow inventory" of impaired but unmodified and unforeclosed loans.

......The real concern from my perspective remains the potential for a second wave of delinquencies beginning in data as of the first quarter of 2010 and extending well into 2011. While we've seen some suggestions that many Alt-A and Option-ARM loans have already been modified, the premise of this argument is problematic since it is also true that about three-quarters of modified mortgages go on to default a second time, and few of these modifications result in substantial alterations in principal or interest payments beyond 12 months.

In short, my impression is that investors are deluding themselves about the solvency of the banking system. People learned in the 1930's that when you don't require the reported value of assets to have a clear and tangible link to the value that the assets would have in liquidation, bad things happen. Yet this is what regulatory and accounting rules are allowing for the banking system at present. While I do believe that bank depositors are safe to the extent of FDIC guarantees, my impression is that the banking system is still quietly insolvent.

Distressed Home Sales

Some interesting data and charts from Core Logic:

.......distressed home sales – such as short sales and real estate owned (REO) sales – accounted for 29 percent of all sales in the U.S. in January: the highest level since April 2009. The peak occurred in January 2009 when distressed sales accounted for 32 percent of all sales transactions

Lifetime of Reading

One more from Dr. Grant:

1. Read--“A broad interest in books usually means a broad interest in life.” Lyman Abbott

2. Read Deeply--“ Reading is to the mind what exercise is to the body. Richard Steele

3. Read Out of Your Time--“I hate to read new books. Contemporary writers may generally be divided into two classes—one’s friends or one’s foes. Of the first we are compelled to think too well, and of the last we are disposed to think too ill, to receive much genuine pleasure from the perusal, or to judge fairly of the merits of either.” William Hazlitt

4. Read Classically--“A classic is a book that has never finished saying what it has to say.” Italo Calvino

5. Read Above Your Head--“You may perhaps be brought to acknowledge that it is very well worthwhile to be tormented for two or three years of one’s life, for the sake of being able to read all the rest of it.” Jane Austen

6. Read and Re-Read--"Re-reading, we always find a new book." C.S. Lewis

7. Have a Plan--“It is a good plan to have a book with you in all places and at all times.” Oliver Wendell Holmes

8. Medium Is Nearly as Vital as Message--“If you cannot read all your books, at any rate handle, or as it were, fondle them.” Winston Churchill

9. Follow the Footnote Trail--“If a book is worth reading, it is worth buying.” John Ruskin

10. Leave a Legacy--“A little library, growing every year, is an honorable part of a man’s history.” Henry Ward Beecher

11. Joy in the Journey--“When I get a little money, I buy books; and if there is any left, I buy food and clothes.” Desiderius Erasmus

Eleven Biblical Resolves

From the venerable Dr. George Grant:

1. Pray more.
"Pray without ceasing." 1 Thessalonians 5:17

2. Listen first.
"Be quick to hear, slow to speak, slow to anger." James 1:19

3. Work harder.
"Work heartily, as for the Lord and not for men." Colossians 3:23

4. Serve others.
"Let us not grow weary of doing good, for in due season we will reap, if we do not give up." Galatians 6:9

5. Defend life.
"Rescue those who are being taken away to death; hold back those who are stumbling to the slaughter." Proverbs 24:11-12

6. Grumble less.
"Do not grumble against one another; behold, the Judge is standing at the door." James 5:9

7. Do justice.
"Let justice roll down like waters, and righteousness like an ever-flowing stream." Amos 5:24

8. Love mercy.
"He has shown you, O man, what is good and what the Lord requires of you: but to do justice, and to love mercy, and to walk humbly with your God." Micah 6:8

9. Walk humbly.
"The fear of the Lord is instruction in wisdom, and humility comes before honor." Proverbs 15:33

10. Rejoice always.
"Rejoice always." 1 Thessalonians 5:16

11. Trust Jesus.
"Hallelujah! For the Lord our God, the Almighty reigns." Revelation 19:6

Coburn on Oil Drilling Plan

Senator Coburn answers a few questions on President's Obama announcement regarding drilling off the shores of the United States:

“Question: Does the Administration’s announcement regarding the current 5-year program mean that the area off Virginia in the Mid-Atlantic OCS planning area will be opened for oil and gas development?

Not necessarily. Offering the sale off of Virginia is only the first step in an orderly process that includes environmental reviews and analyses, regulatory compliance, exploration, testing and other considerations. The announcement does not guarantee that that area will be leased, evaluated, explored and developed for oil and gas.

Question: Does the Administration’s announcement for the new 5-year program (2012 -2017) mean the Mid Atlantic, South Atlantic, and Eastern Gulf of Mexico OCS planning areas will be open to oil and gas development in the next 5-year program?

Not necessarily. Scoping in an area or inclusion in an Environmental Impact Statement does not mean that an area will ultimately be made available for leasing. However, an area must be analyzed in the EIS in order to be considered for leasing. Decisions as to whether to schedule lease sales in these areas, and if so, whether to remove from leasing consideration those parts of the planning areas with conflicting uses (e.g., military training requirements; shipping lands) or particular sensitivity, will come later in the process of developing the new 5-year program and the pre-sale process.”

And what is the most important detail of all? Much of the plan cannot even go into place until 2022 at the earliest because of a drilling moratorium in the eastern Gulf of Mexico.

In other words, nothing really changes.

Rather than offering false hope, as this plan does, Congress and the President should be straightforward with the American people.

The truth is that we are energy dependent by choice. We are blessed with vast sources of traditional and renewable resources that can be accessed safely and responsibly. Yet, by law and by regulation, we have marginalized both at great cost to our nation. The 2009 trade deficit of $517 billion included $204 billion in petroleum imports.

Congress should end its moratorium in the eastern Gulf now, allowing energy producers to apply for leases through the normal process. It should end non-sense regulations that are designed expressly to frustrate and prevent exploration. And it should stop placing barriers in the way of renewable energy development on the more than 650 millions acres of federally owned land.

Who Pays?

From Clusterstock:

Here's why government spending is really out of control.

First of all, half of Americans don't even pay income taxes, but it gets worse. If we look at total federal taxes, 20% of Americans pay 70% of taxes, as shown above. 40% of Americans pay 95% of federal taxes.

Yet when it comes to deciding how these tax dollars are distributed, those that pay 95% of the taxes are outnumbered by the 60% who pay just 5%. Thus, when it comes to the politics of government spending, most Americans are arguing about how to use other people's money. No wonder nobody wants to see real spending cuts.

(According to the 2006 data from the Congressional Budget Office's latest tax burden release.)

Boomism

This entire article from Dana Rubinstein in the New York Observer is worth reading, but I wanted to stress the quotes from Jimmy Kuhn, president of the brokerage firm Newmark Knight Frank:

“There already seems to be a lot of capital out there that thinks that just because it cost $1,000 a foot a few years ago that $500 a foot is cheap,” said Mr. Kuhn, referring to office building prices, which, during the heady boom years, routinely exceeded $1,000 a square foot, even, and most egregiously, for a comparatively modest office building in Soho. “There are a lot of people starting again to underwrite office buildings with aggressive projections for growth in rents.”

“The worst invention in real estate history was the project and Argus models that encourage investors to compound growth rates so that the ultimate projected sale makes up the majority of the value. This lesson will never be learned. The great investors like Buffet and others don’t need inflation to bail them out. It’s why large oil companies will buy smaller companies with assets in the ground rather than waiting for oil to reach 150 dollars a barrel. So as in real estate the big money will be in the acquisitions that take advantage of weak borrowers, over leverage, or structural problems rather than buying based on 100 rent expectations that may or may not reach most buildings.”