Archive for April, 2013

Captain Rick: The S&P Case-Shiller index of home prices in 20 major markets posted a 9.3% rise over the last 12 months. It was the biggest 12-month gain in the index since May 2006, which was just one month after the index showed record-high home prices.

Even with the strong improvement in prices over the last 12 months, the index is still down 28% from the 2006 peak. Perhaps there is more price gain to be made, but conditions for another housing bubble appear to be forming rapidly.

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U.S. housing prices increasing at near record pace

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Phoenix Arizona showed biggest increase in home prices

The Case-Shiller index showed the biggest increases came in Phoenix, a market hit hard by the bursting of the housing bubble, where prices were 23% higher than a year earlier.
Prices were up more than 10% in half of the markets — San Francisco, Las Vegas, Atlanta, Detroit, Los Angeles, Minneapolis, Miami, San Diego and Tampa all posted double-digit percentage gains, and Denver just missed that mark. New York posted the smallest gain, with only a 1.9% rise in prices.

Another housing bubble being fueled by speculation

The housing recovery has been driven by a number of factors, including near record-low mortgage rates, a drop in foreclosures and reduced unemployment, all of which have helped lift both new-home sales as well as sales of previously owned homes. But, most importantly, it has been driven by investors flooding into some markets to buy homes in order to rent them out, outbidding the potential homeowners who want to live in a home. There are a growing number of inexperienced ‘armchair investors’ now buying into the boom … a sign that demand may be peaking,

Where will this end?

Home values are rising at an unsustainable pace. The end of this round of speculation could end up being not much prettier than the last round …possibly worse, in view of the fact that the U.S. economy is crawling along on extremely shaky ground in comparison to its relatively robust health prior to the Great Recession.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

Fiscal Cliff 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

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Captain Rick: Center-left Prime Minister Enrico Letta was sworn in Sunday to head a broad coalition of ministers from his own party and members of Silvio Berlusconi’s center-right party. The big question is … can he correct Italy’s current course of economic destruction?

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In a speech to parliament Monday, Letta stressed the need to stimulate growth and create jobs, but said Italy couldn’t borrow its way out of trouble. “After more than a decade without growth, we can’t wait any longer for a policy of recovery,” he said. “Without growth and without cohesion, Italy is lost.”

Letta’s appointment ends two months of political stalemate with hope of economic stability, but many doubts remain about the coalition’s durability and uncertainty over how it will achieve its economic goals.

The priorities for Letta’s government mirror those of 87-year old Italian President Giorgio Napolitano, who was persuaded to accept a second term after parliament failed to agree on an alternative. Napolitano established two expert committees to work on overhauling Italy’s convoluted electoral system and political institutions, and making structural reforms to restore competitiveness, boost growth and make a dent in the debt mountain.

Debt Crisis in Italy is severe

Government borrowing totals about two trillion euros, equal to around 127% of gross domestic product, a ratio surpassed in the eurozone only by Greece. The economy hasn’t grown for years, unemployment is near 12% and rising, and living standards for many are tumbling.

The eurozone’s third-biggest economy was brought to the brink of collapse in late 2011 when yields on its huge debt pile climbed to unsustainable levels around 7%. Tax increases and spending cuts by a technocrat government led by Mario Monti reassured investors. But they led to a backlash against austerity in February’s elections, boosting support for comedian Beppe Grillo’s protest movement and leaving no party able to form a government on its own.
Letta wants to adjust Italy’s unpopular austerity drive, and Berlusconi has campaigned for a tax on property to be reversed, but it is unclear how the new government would make up for the revenue shortfall as the economic situation continues to deteriorate.

Captain Rick wishes ‘Best of Luck’ to Enrico Letta, new Prime Minister of Italy

Enrico, I wish you luck in turning around the massive debt problem in Italy. Social greed for welfare is a sure invitation for economic destruction. Italy is one of the largest consumers of welfare spending in Europe. The party you represent loves welfare. I equate it to the Democratic Party in the U.S.

The U.S. debt has not yet reached the percentage of GDP as in Italy, but I see it as just a matter of time before it does. Americans will be watching what happens in Italy … perhaps as a ‘crystal ball’ vision of what awaits America.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

European Debt Crisis: https://atridim.wordpress.com/category/european-debt-crisis/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

Fiscal Cliff 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

Italy: https://atridim.wordpress.com/category/italy/

Captain Rick: Our cities welcome federal grant money, thinking the federal government has an endless supply of money that can be spent on anything its heart desires. The fact is the U.S. general fund is bankrupt, spending $1.1 trillion more than revenue received. Most federal grant dollars dished out by HUD are dollars printed with red ink…that add directly to the U.S. National Debt. Its time local government says NO to spending this red ink.

Three Gilbert Arizona Councilmembers have come forward to set an example for America to follow by placing their vote of NO for receiving federal grants from the U.S. Department of Housing and Urban Development (HUD). They are American pioneers. I hope other state and local representatives across America will pay attention to their lead and join the journey to save America form fiscal ruin.

The issue presented to the Gilbert, Arizona Town Council on April 4, 2013: Item 20: HUD Federal Grant of $748,764 for the benefit of low/medium income residents and to alleviate conditions of slum and blight, of which 20% ($149,753) is approved for administrative costs.

Councilmember statements presented during the meeting

image Jared Taylor

We have 16.8 trillion in national debt. Every day since Sep 28, 2007 we have added $3.86 billion to our national debt. The money for this appropriation doesn’t really exist. It may be something that congress passes on a bill, but the United States government is absolutely broke at the federal level. The local and state levels have constitutions and statutes that require us to have balanced budgets. The national government doesn’t and the are running massive deficits and so while they pass these allocations that say there is money available, it doesn’t exist. We are borrowing money from the Federal Reserve and its loaned money from China. That concerns me. What we are doing is putting a future burden on our children and that is not fair.

image Eddie Cook

The federal government doesn’t have the money. If we believe these are things we need to do, lets do it on our own dime…our own money. Taking federal money is just not the right decision at this point.

image Victor Petersen

Where we have power, we have responsibility. Tonight we have power over some of those funds. If we are going to participate in that federal spending, I don’t think it’s a good choice and I don’t think we can resolve ourselves of that responsibility. We need to temper our anxiety. If we do that I think we loose our moral position to complain about spending at the federal government.

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Captain Rick’s PROPER VOTE Award: I have awarded Councilmembers Petersen, Taylor and Cook for their ‘Proper Vote’ of ‘NO’. Their awards have been added to my Gilbert Council Scorecard:

Captain Rick’s Gilbert Council Scorecard: My scorecard keeps track of all of the ‘Proper Votes’ from previous important and controversial votes:  https://atridim.wordpress.com/gilbert-council-scorecard/

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

Federal Grants: https://atridim.wordpress.com/category/federal-grants/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

Fiscal Cliff 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

Captain Rick: Federal grants are a good thing when they are funded by real money … but the fact is many of America’s federal grants come from money that does not exist and adds directly to the U.S. national debt. Many federal grants are robbing the future of our children and grandchildren by burdening them with monumental debt.

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U.S. Budget Facts

U.S. Tax Revenue: $2.5 trillion
U.S. Spending: $3.6 trillion
U.S. Deficit: $1.1 trillion

U.S. Budget Details

Obligated expenses (backed by U.S. law)
Social Security: $781 billion (dedicated funded from the Social Security 6.2% payroll tax)
Medicare: $419 billion (dedicated funding from the Medicare 1.45% payroll tax)
Medicaid: $400 billion (a social welfare program, using money from the federal general fund)
Interest on National Debt: $223 billion (mandatory debt payment to prevent U.S. default)
Federal Pensions: $216 billion (includes civilian and military retirement benefits and veteran benefits)
Sub total: $2 trillion (this leaves only $500 billion for all other expenses before consuming all U.S. tax revenue)

Discretionary expenses:
Defense/Wars: $664 billon
Income Security: $352 billion (incudes unemployment compensation, various welfare programs such as family support and nutrition programs and earned income credits)
Other (including Federal Grants): $500 billion
Grand total: $3.6 trillion (a deficit of $1.1 trillion)

Conclusion: it is obvious that unless America wants to totally eliminate all money spent on defense, wars, unemployment, family welfare, etc. there is no tax revenue left to spend on any federal grant of any kind.

U.S. National Debt

America’s debt is now at a staggering $16.8 trillion and rising at a high rate of speed.
America’s debt represents a debt of $53,277 for every person in America…$148,265 for every tax payer.

Its time for everyone in America realize the seriousness of America’s debt crisis … including local and state politicians who love to accept those federal grant dollars that come from the ‘black hole’ and add directly to the U.S. National Debt.

Federal Grants 101

In the United States, federal grants are economic aid issued by the United States government out of the general federal revenue. A federal grant is an award of financial assistance from a federal agency to a recipient to carry out a public purpose of support or stimulation authorized by a law of the United States.

Some federal grants like those from the U.S. Department of Transportation for roads and transportation projects are partially funded by dedicated fuel and tire taxes, however the balance (about 1/3) comes from the general fund which is supported primarily by federal income taxes via tax returns. On the other hand, federal grants like community development block grants (CDBG) from the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of Homeland Security (DHS), have little or no dedicated tax funding and are mostly paid for by money in the general fund. Because the U.S. general fund runs a negative balance of $1.1 trillion each year…in essence, all federal grants not specifically funded by special taxes are adding directly to the U.S. national debt.

Federal grants are defined and governed by the Federal Grant and Cooperative Agreement Act of 1977, as incorporated in Title 31 Section 6304 of the U.S. Code.

A Federal grant is a
legal instrument reflecting the relationship between the United States Government and a State, a local government, or other entity when
1) the principal purpose of the relationship is to transfer a thing of value to the State or local government or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and
2) substantial involvement is not expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.”

Types of grants
Block grants are large grants provided from the federal government to state or local governments for use in a general purpose.
Project grants are grants given by the government to fund research projects, such as a research project for medical purposes.
Formula grants provide funds as dictated by a law. Categorical grants may be spent only for narrowly defined purposes and recipients often must match a portion of the federal funds.
33% of categorical grants are considered to be formula grants. About 90% of federal aid dollars are spent for categorical grants.
Earmark grants are explicitly specified in appropriations of the U.S. Congress.
They are not competitively awarded and have become highly controversial because of the heavy involvement of paid political lobbyists used in securing them.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

Federal Grants: https://atridim.wordpress.com/category/federal-grants/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

Fiscal Cliff 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

Captain Rick: The U.S. Legislature has failed to balance America’s budget almost forever. If it compromised by using the economic common sense rule of 20% of GDP for both revenue and spending, its budget crisis would end and a much brighter future would await the children of our world.

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Record Tax Revenue: I am glad to see we have hit a new record of $2.7T in revenues, just a tick above the previous record of $2.6T in 2007. As population grows, we better hope our tax revenue keeps going up every year. Things went far astray during the ‘Bush War and Tax Cut’ era, the Great Recession that followed and ‘Obamas Record Spending Spree’ to try to fix it, including a reckless 2 point payroll tax cut. Thankfully, it and some other irresponsible tax cuts vanished on Jan 1 as a result of the Fiscal Cliff and helped bring us closer to sanity. Unfortunately this new revenue record leaves America with a very anemic tax revenue of only 16.9% of GDP. The 40 year average is 18%. A healthy economy achieves revenue equal to 20% of GDP…so America is still far short of needed revenue…and part of the reason why America’s finances are in such terrible shape.

Record Spending: The other part of the reason America’s finances are in such terrible shape is because America’s spending is too high. America is currently spending $3.55T or 22.2% of GDP. That percentage is higher than almost every year since 1986. A healthy economy limits  spending equal to 20% of GDP…so America is still far over the limit for spending…the other part of the reason why America’s finances are in such terrible shape.

Republicans, Democrats, Conservatives and Liberals debate: Republicans and conservatives argue that taxes are too high and do not agree to any further increases. They say the entire answer lies in cutting spending. Democrats and liberals argue that spending levels should be held. They say the entire answer lies in tax increases. Its easy for me to see why our legislature is in gridlock. Both sides are stubborn and illogical. Neither side possesses the the solution. The solution resides in compromise. 

Captain Rick’s proposal of compromise: I propose that the U.S. Legislature uses the economical common sense guideline of 20% of GDP as a target for revenue and spending to achieve a balanced budget. 20% has proven to be workable figure for successful governments in the past. The figure can be argued…19 v 21…but 20% is a good starting point. Diminishing America’s national debt is a story for another day. It would require the balance to shift to more revenue and less spending…perhaps 21% of GDP revenue and 19% of GDP spending. Real compromise needs to begin soon … in order to protect the future of our children.  

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

GDP: https://atridim.wordpress.com/category/gdp/

Captain Rick: Gross domestic product in China grew 7.7% over the previous year during the first quarter. That is great by U.S. standards, which are hovering near 0%, but a significant loss from the 10% annual GDP that China has averaged during the past three decades, which propelled it to become the the world’s second largest economy. Reports on industrial production and retail sales disappointed. Economists are worried about a rapid expansion in credit and a red-hot housing market.

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Fitch ratings agency warned China of excessive debt levels and issued rare local currency downgrade
The ratings agency said it issued the rare downgrade because of three factors: Structural weaknesses in China’s economy, an expansion of easy credit and the rise of an opaque shadow banking system.
Credit in China has expanded quickly in the wake of the global financial crisis, with much of it issued to local governments and used to finance infrastructure projects.
Fitch believes local government debt levels are now so high that Beijing will, at some point, be forced to assume some of the burden.

In response to the global financial crisis in 2008, China moved to stimulate its economy by increasing the amount of available credit.
Banks and other lenders responded, with credit in China growing since 2009 at a quicker pace than gross domestic product. Only one country — Qatar — was issuing credit at a faster rate.
By the end of 2012, credit issued by Chinese banks to the private sector reached 136% of GDP, the third-highest level of any emerging market country rated by Fitch.
Much of the credit was issued to local governments, and used to finance infrastructure projects that helped China sustain rapid economic growth in the wake of the financial crisis.

Beijing has tried to get a handle on credit issuance in recent years, moving to cool the housing market and cut back on local government debt.
But when combined with low wages, Fitch said the persistent nature of the trends has created growing risks for China’s financial stability.

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Real Estate Bubble heating up and ripe for explosion

The housing market is heating up, leading some analysts to worry about the development — and possible deflation — of a housing bubble.
China’s central government is already stepping up efforts to cool prices, and Beijing has directed local governments to institute control measures of their own.
Several cities, including Beijing and Shanghai, have responded by announcing higher taxes and fresh restrictions on property purchases.
20% capitol gains tax has been added on home sales as well as higher interest rates and down payments for anyone buying a second home in cities where real estate prices are sharply on the rise.

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China is the second largest holder of U.S. debt (Japan is the largest)
China held about $1.15 trillion in U.S. bonds through August, the most recent reading available from the Treasury Department.
China had been buying U.S. Treasuries as a way to keep its currency, the yuan, pegged to the U.S. dollar. That helped lower the value of the yuan and made China’s exports more competitive in markets such as the United States.

Captain Rick’s Words of Caution: Notice I said China ‘had been buying U.S. Treasuries.’ Latest indication is that that has stopped. This could have grave consequences on Americas gigantic thirst for deficit spending. Japan remains the only major purchaser of American debt and those days could be numbered as well due to economic conditions in Japan not being anything to ‘write home about’. Our world is skating on very thin ‘fiscal ice’. Countries of our world, including China, depend on America to be a leader of fiscal responsibility. America has not been setting a very good example with its legislative gridlock on solving its monumental thirst for deficit spending. The world can only hope that America will wake up from its deep sleep and do what is necessary, before its speeding train goes over the ultimate ‘fiscal cliff’ and takes the world with it.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

China: https://atridim.wordpress.com/category/china/

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

GDP: https://atridim.wordpress.com/category/gdp/

Captain Rick: The Dow Jones started the day off with a major slide after dismal economic news from China, followed by a small gain and then a continuing slide as a result of the explosions that rocked the Boston Marathon that killed 2 and injured more than 70. The result was the largest one-day Dow plummet of 2013, erasing all gains of the past week. President Obama is addressing the nation.

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While many in the news media are accrediting this major market drop to the Boston explosions, that is not entirely true.  I circled in red in the chart above, the drop that occurred after the bombings occurred at about 2:45 EDT. Tomorrow’s market will reveal where we go from here.  I will report on more of this, especially the declining economic situation in China in future posts.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)