Quote of the Week : “Where there is a radical difference of opinion in an organization, one (side?) must yield. A great lesson for democracies to learn is for the majority to give the minority a full, free opportunity to present their side of the case, and the minority, having failed to win a majority, gracefully to submit and to recognize the action as that of the entire organization, and cheerfully to assist in carrying it out, until they can secure its repeal.” – Henry Roberts (of Robert’s Rules of Order fame).
The Commerce Department reported on July 31st that in the Second Quarter GDP had grown by 1.7% YoY, much better than the 1.1% expected – one cannot help but wonder about the credibility of this number, given that it had just revised its First Quarter number downward to 1.1% from its earlier 1.8% (which it previously had slashed from the initial 2.4% rate).
Charles Cave was the founder of London-based Cursitor-Eaton Asset Management which he sold in the mid-90’s to Alliance Capital only to turn around to found, in 2001, Hongkong-based GaveKal (which provides investment advisory services to institutional clients & manages a couple of NASDAQ-listed funds). Amid recent talk that the official US new job creation numbers are misleading since they do not differentiate between full- & part-time jobs) Cave has provided an historical perspective on this issue. From 1968 to 1994 the number of full-time jobs in the US economy grew from 58MM to 90MM (i.e. at a 1.7% compound annual rate) while part-time jobs grew almost twice as fast from roughly 10MM to 25MM (3.1%), then, during the next 14 years, i.e. until the onset of the Great Recession, the reverse was true, the former grew from 90MM to 112MM (1.6%) while part-time jobs grew only from 22MM to 25MM (0.9%), & since then there has actually been a decline in the number of full-time jobs to 108MM (-0.7%), albeit up from a nadir of less than 106MM, while that of part-time jobs increased to 28MM (2.3%). Among the factors contributed to this are believed to have been employers seeking to avoid having to pay benefits and, more recently, the imminence of Obamacare under which employers must pay health insurance for full-time employees – the CBO estimates that by the end of this year 7MM people will have lost their employer-provided health insurance coverage (which right-wing economists say will have an effect on consumption & on spending not unlike a tax increase).
Another interesting titbit about the nature of recent job growth emanated from the St. Louis Fed. For it noted that since 2008 employment of those in the 54+ year age cohort has grown from 26MM to almost 32MM, while the number of those with jobs in the 24-54 year age cohort actually declined from 100MM to < 95MM. The main reasons for the former are deemed to include concern about security of future Social Security pay-outs, the negative wealth effect of the stock-, & real estate market crashes during the recession, the low rates of interest being paid on savings, & the return to the parental home of many adult children. Be that as it may, the result is the same : fewer employment opportunities for young people that in the short run could have a potentially socially destabilizing effect & longer term will have adverse implications for the economy’s growth potential as fewer young people get the opportunity to develop job- & workplace skills. Another insight from the St. Louis Fed came from a chart it originated that showed that while in 1970 US GDP & the total credit outstanding in the US were roughly equivalent at, say, US$2TR, while since then the former has grown eight-fold to US$16TR & the latter to almost thirty-fold close to US$60TR (which is clearly not a sustainable trend).
This week one of my more useful financial market letters listed 25 relevant facts about Detroit’s fall from grace. Among the seemingly more interesting ones were :
$ it has over 100,000 creditors;
$ in 1960 it had the greatest per capita income of any city in the nation (whereas today it is not even among the Top 100);
$ almost half its citizens are functionally illiterate;
$ 60% of its children live in poverty;
$ there are 70 “Superfund” hazardous waste sites within the city limits;
$ since 2008 two-thirds of its parks have been closed down; and
$ in the past decade its police force has been cut 40%; as a result its average response time is now 58 minutes, most police stations are closed 16 hours/day, the crime rate is 5x the annual average & the murder rate 11x New York City’s, less than 10% of all crimes are solved, & the police is warning visitors they “enter Detroit at their own risk.”
It notes that if someone had asked the people of Detroit fifty years ago if their city could ever go bankrupt no one would have believed it possible & says the lesson of Detroit for all other economic & political entities is that borrowing too much for too long leads to a situation in which the potential benefits thereof decline, if not go negative.
On August 1st TransCanada proposed building a $12BN, 1.1MM bbld “Energy East” pipeline to carry Alberta oil to Central Canada to replace the 750,000 bbld foreign oil currently consumed there & move the rest to the East Coast for processing & export – this is a “Field of Dreams”-type of proposal. It does not make economic sense for the owners of the resource to transport it thousands of miles to Central- & Eastern Canada when the distance to the Pacific Ocean, the gateway to the world’s most energy-hungry markets, is a fraction thereof, when increasing amounts of oil are being discovered of Canada’s East Coast, when Central Canada is not just looking for oil, but for cheap oil (which will allow such a line’s opponents to tag the Energy East pipeline proposal as instalment 2.0 of the much-detested National Energy Policy of the Trudeau era, when the deep, deep discount on Alberta oil that resulted from the oil logjam at Cushing, Okla. no longer looks as permanent as it once did and when, from a national economic benefit perspective, it may make more sense, if BC doesn’t want to play, to move the oil North from Fort McMurray across the Northwest Territories’ border & then West, to the North of the Alberta & BC borders, to Valdez, Alaska where the decline in Alaska North Slope oil production since 2002 has created excess oil shipping terminal capacity.
GLEANINGS II – 522
Thursday August 1st, 2013
RACING THE CLOCK (National Journal, Norman Ornstein)
$ While in the Senate we are seeing a retreat from lunacy as a number of prominent Republican Senators oppose shutting down the government unless the President abandons Obamacare, in the House it’s a horse of a different colour. While some House Republicans are pragmatic enough to appreciate that shutting down the government will create chaos in the economy & likely a backlash against the Republican Party, Speaker John Boehner (R.-Ohio), after having evolved from a revolutionary bomb thrower into a real legislator, he has become the prisoner, rather than the leader, of his caucus, unable to pull it into a direction that doesn’t suit many of its members. He now has two options. The passive aggressive one is to wait until a bill gets to the point where the hardliners realize they will suffer from inaction; but, while this has worked on at least three occasions in the past (the fiscal cliff, aid to Hurricane Sandy victims & the Violence against Women Act), it may no longer be much of an option The other is to mollify the hardliners by promoting extremist policies to show he is one of them; thus he said recently “Obamacare is bad for America” (which has resulted in the House spending more time on this issue than on everything else combined). And, while in the past he has often acknowledged that allowing the US to default would be catastrophic, he now says he will join those who are demanding draconian budget cuts (on top of those already put in place by sequestration). equal in size to any increase in the debt limit.
$ After the recess the House will have just nine legislative days to pass the appropriations bills that will fund most of the government & to reconcile them with those of the Senate, and the chances of that happening are zero.
Boehner has since conceded that there is no hope of passing the necessary appropriation bills before the onset of the new fiscal year on September 30th and, while promoting the idea of a possible stopgap measure to keep the government machinery funded after that date, is using language suggesting it would take a serious climb-down by President Obama to get his party in the House to even agree to that much. The first warning of a train wreck/dangerous game of ‘chicken’ in the making?
NEW SNOWDEN LEAKS UPSTAGES US MOVE TO DECLASSIFY DOCUMENTS
(Reuters, Patricia Zengerle)
$ On August 1st the Guardian published NSA training material provided by Edward Snowden known as the XKeyscore program that it described as the NSA’s most wide-reaching surveillance program covering “nearly everything a typical user does on the Internet” & showing that the US intelligence agencies have access to a massive online tracking tool. In response US intelligence officials have continued to insist without providing any concrete proof thereof that its surveillance programs have helped to thwart terrorist attacks and saved many American lives, & that “the implication that the NSA’s date collection is arbitrary and unrestrained is false” and that Xkeyscore is part of its “lawful foreign signals intelligence collection system.”
$ That same day intelligence officials were grilled at a Senate Judiciary Committee hearing about their data gathering, lack of transparency and security lapses that allowed Snowden to get away with so much information, with Chairman Patrick Leahy (D.-Vt) observing “If a 29 year-old school dropout could come in and take out massive, massive amounts of data, it’s obvious there weren’t adequate controls … Has anybody been fired?” And two Democratic Senators, Minnesota’s Al Franken & Connecticut’s Richard Blumenthal announced they will introduce forthwith bills to force the Administration to provide more information about its data collection programs and, more specifically, on how many records of Americans have been reviewed by federal agents, with Franken saying “The government has to give proper weight to (strike a proper balance between) keeping America safe from terrorists and protecting Americans’ privacy.”
The officials’ ‘end justifies the means’ defense is little more than a 21st century reincarnation of the concept of “Befehl ist Befehl” that some WW II war criminals sought to hide behind; some of those who ‘gave their lives in defense of democracy’ must be spinning in their graves at supersonic speed at this line of argument by supposedly responsible government officials.
JOHN KERRY SAYS EGYPT ARMY ‘IS RESTORING DEMOCRACY’ (BBCNews)
$ In a TV interview in Pakistan on August 2nd he said “The military was asked to intervene by millions and millions of people, all of whom were afraid of a descendance into chaos and violence … the military did not take over to the best of our knowledge – so far. To run the government there’s a civilian government. In effect they were rescuing democracy.” But he said Washington was “very, very concerned” about the killing of dozens of pro-Morsi protesters in clashes with security forces, calling it “absolutely unacceptable”
$ Morsi, detained since July 3rd, on July 31st was allowed foreign visitors : EU foreign policy chief Catherine Ashton (who reported he was “well”) & an AU delegation.
His remarks were at best delusional & at worst self-serving, as were his comments that “the (drone) program will end as we have eliminated most of the threat and continue to eliminate it” and that “I think the president has a real time line and we hope it’s going to be very, very soon.”
EXPERT WARNS LOCAL GOVERNMENTS UNAWARE OF TRUE DEBT (China Daily)
$ On August 1st Yu Yongding, a former member of the Monetary Policy Committee of the People’s Bank of China warned those attending the Netease Annual Economist Conference that local government debt is an issue that should draw “great concern” since they “have no idea” how large it really is, saying “Why I am so concerned? Because, based on my experience of dealing with local governments, I am skeptical whether they are willing and are able to repay the debts.”
Meanwhile, Beijing has launched a government-wide ‘debt audit’ in part as part of its anti-corruption campaign (& more specifically to establish how much of the local borrowing had ‘disappeared’ due to corruption, according to Caixin Guangzhou City (the capital of Guangdong Province), which has the third largest GDP of all Chinese cities, said on July 30th that it must repay almost 26.1BN yuan, equivalent to almost 20% of its annual revenues. by December 31st (by which time its total outstanding debt is expected to have grown to 134BN yuan – up 17.3% YoY & equivalent to 99.5% of its GDP) & Bloomberg reported that Chinese banks have 539.5BN yuan in bad loans, 0.96% of their outstanding total.
ZIMBABWE ELECTION WAS A HUGE FARCE SAYS MORGAN TSVANGERAI (BBCNews)
$ On August 1st Zimbabweans went to the polls to elect a president, 210 lawmakers, and local councillors, & the Zimbabwe Electoral Commission has until August 6th to declare the winner. Meanwhile, the Zanu-PF Party of the 89 year-old President Robert Mugabe (who was running for the ninth time after 33 years in power) has claimed victory, his rival, Prime Minister Morgan Tsvangerai, called it a “huge farce” & a “sham election”, the largest group of (domestic) election observers described the vote as “seriously compromised” (saying as many as 1MM of the 6.4MM voters, most of them in the urban opposition strongholds, had been prevented from voting), although some international observers praised the way it had been conducted.
The situation in Zimbabwe being what it has been for years, & still is, it is hard to believe that any election would not result in the loser protesting against the outcome, even though, given the Zanu-PF’s track record, the benefit of the doubt should likely go Tsvangerai.