White House

A late afternoon update from Stone McCarthy's Nancy Vanden Houten provides some much needed clarity on the topic that will be next week's number one topic (absent another colored swan joining the clusterflock): the threat of a government shutdown. It appears that Obama's warning that it would "height of irresponsibility" to shut down the government over a spending battle may have pushed republicans to come to an compromise. From SMR: "Increasingly, it looks as though Congress will be able to pass legislation funding the government for the rest of fiscal 2011, which is now half over and ends on September 30." And naturally this is merely one more of those strawmen whose inevitable resolution will be seen as an upside catalyst even if the probability of a downside outcome is impossible: after all the US government can not afford a shutdown period. So the only natural outcome will serve as the latest piece of news to get the momentum algos ramping the market into overdrive even though there is nothing notably catalytic about this development.

The backdrop is pretty simple but is too terrifying for the brainwashed amongst us to admit. The old order, of corporatist/fascism is on its last legs and it clutching onto its power desperately. This includes the Central Banking system itself and by extension pretty much all governments around the world. When rats are cornered they attack and that is what is happening now. In their attempts to save a dead system they will do everything they need to try to survive. The well being of the citizenry is largely irrelevant. Keeping them quiet and subservient is much more important. Well, the problem here is that in order to do this various countries need to achieve conflicting goals. In the West, the governments are merely attempting to keep standards of living flat or masking the deterioration (inflation) and in the emerging economies they must continue to raise living standards rapidly. Both of these things cannot happen in a centrally controlled global economy where money is being spewed from spigots and no one is investing. Let’s get real, everyone I know with half a brain and a lot of money is hedging themselves. Whether this means precious metals, a second passport, growing their own food, buying land overseas or all of the above, one thing they are not doing is investing in this economy. So instead of trying to deal with the root of the problem (monopoly money, rampant corruption in D..C and no rule of law) they just print money. If the root problems were dealt with, the TBTF banks shut down and executives jailed, the Federal Reserve shutdown gradually and replaced with hard money I promise you after a very challenging recession the smartest Americans would put their money to work and this economy would boom. Of course this won’t happen because the rats are in charge so an uncontrollable collapse is more likely the outcome. They would rather bring us all down into the depth of Hades rather than lose their grip on power. - Mike Krieger

Our Nobel peace prize winning former constitutional law professor in Chief is arguably even MORE BRUTAL than Bush ...

While we expect the imminent attempt at refutation from Hillary Clinton, we can't help but admire the symmetry between the handling of this campaign and that of Afghanistan where Al Qaeda also ended up on the receiving end of US generosity.

• Fed’s Bullard Says QE2 Exit Debate Likely ‘Key’ 2011 Issue (Bloomberg)
• Obama Defends Libya Fight (WSJ)
• Radiation Found Outside Japan Reactor, Signaling Meltdown (Bloomberg)
• Radioactive Flood in Japan Reactor Tunnels (FT)
• SEC focusing on hedge funds that outperform “market indexes by 3% on a steady basis.” (Securities Docket)
• Schaeuble Sees Portugal Seeking Bailout, Handelsblatt Reports (Bloomberg)
• Budget negotiations breaking down (WaPo)
• Democrats, White House Said to Back $20 Billion of Additional Budget Cuts (Bloomberg)
• A Requiem for Detroit (WSJ)

States can't have their proverbial cake & eat it, too. In times of economic and financial distress, they can jack-up taxes on "the rich," to their hearts' content, but they cannot do so without consequence. States prosper when the fortunes of "the rich" increase and share in the pain when they decrease.

Keynesian economists are propagandizing the media with a unified message; in one breath lightly touching on the human tragedy in Japan, while in the next anticipating with delight the economic recovery it will (supposedly) create. The natural disaster in Japan is tragic both on a human level and economically. Japan may, possibly, enjoy a GDP boost in six months or so as a result of some rebuilding, but the billions in present-day lost productivity will easily negate any future upside...Let’s follow the Keynesian approach. I have come up with the top ten ways we can boost the US economy using that same Keynesian rationale.

Financial writer Yves Smith wrote on the same topic today, and the policy under discussion is bad for free market economies ... And if we're not going to stand up to THIS, we're less likely stand up to the Dear Leaders' communist manipulations which destroy the value of our investments ...

My take on a big story today.

Given the presidency’s dual role as chief of state as well as chief executor, celebration of a multitude of ceremonies is necessary and fitting – all the more in times of peril when the nation’s spirit needs uplift. But Mr. Obama’s sports addiction, his gliterrati extravaganzas, his causal acknowledgement of our closest allies’ tragedies, and his wife’s Marie-Antoinette progressions are increasingly bizarre. Importing a Chicago Daley mob family member, supposedly as a pragmatic chief of staff, so far has not injected restraint much less austerity.

Today the Congressional Budget Office slammed the president's unrealistic budget presented recently, concluding that the cumulative deficit over the decade between 2011-2021 would be $9.5 trillion, or $2.3 trillion higher than that estimated by the White House. The reason for the differences according to the CBO is  "differences in the underlying projections of what would happen under
current law ($1.3 trillion) as well as from differing assessments of the
effects of the President’s proposals ($1.0 trillion)." Then again, as we fail to recall when was the last time even the slightly more realistic CBO predicted a correct cumulative deficit ten years forward, we are fairly certain both will vastly underestimate the actual deficit by 2021. And as gross debt issuance tends to run about 50% over cumulative deficits, Zero Hedge expects that the best case scenario is for $15 trillion in debt issuance over the next 10 years as a baseline, and likely far more (bringing total marketable debt to around $25 trillion by 2021). This is problematic to say the least, because as the AP notes, the White House's goal is to reach a point where the budget is balanced
except for interest payments on the $14 trillion national debt. Such
"primary balance" occurs when the deficit is about 3 percent of the size
of the economy, and economists say deficits of that magnitude are
generally sustainable. Instead, just the interest expense per the CBO will be greater than this threshold: "Outlays would be greater under the President’s budget than in CBO’s baseline in each of the next 10 years, largely because the proposed reduction in revenues would boost deficits and thus the costs of paying interest on the additional debt that would accumulate. In particular, net interest payments would nearly quadruple in nominal dollars (without an adjustment for inflation) over the 2012–2021 period and would increase from 1.7 percent of GDP to 3.9 percent." And once again, this is based on numbers which will likely way undershoot the final outcome.

Right now there is a mass exodus out of the city of Tokyo. But not everyone can leave the city. There are over 30 million people living in and around Tokyo. So where in the world could you possibly put 30 million refugees?

Before you freak out, the authorities say it will be very low-level radiation which will not cause any health effects. (But can we, um, get our own radiation monitoring network up and running to make sure?!)

A small story in the midst of a very big story.

Japan's nuclear crisis has deepened and we deeply regret to say that there is now the real possibility of a nuclear catastrophe. Investor panic has set in with the Nikkei down over 16.5% in two days and the Topic index down by 17% - its worst two-day loss since the 1987 Wall Street stock market crash. The cost to insure Japanese debt has surged to a record with credit-default swaps protecting Japanese government debt for five years soaring 27 basis points to a record of 125 basis points. One UBS trader said that the deteriorating nuclear crisis had led to "near panic across local credit-default swap markets." While most equity indices and commodities have fallen, some sharply, gold has remained resilient and is down 1% in US dollar terms and is higher in Australian dollars which like other so called 'commodity' currencies has come under pressure in recent days. Gold remains marginally higher in all currencies since the tragedy began last Friday.