Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: Interest Rates

Chicagoans had to Choose Between Venal and Feckless for Mayor

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, April 8, 2015: 

In Tuesday’s mayoral runoff in Chicago, voters had only two choices: to vote for the venal Rahm Emanuel or the feckless Chuy Garcia. Four years ago Emanuel rode Barack Obama’s coattails to victory, winning in a walk with 55 percent of the vote. In February, Emanuel couldn’t squeeze out a majority, getting only 46 percent of the vote and forcing a runoff with a far-left progressive on the Cook County Board of Commissioners, Jesus “Chuy” Garcia.

With the help of an estimated 100 “friends of Rahm,” Emanuel buried Garcia, raising some $30 million for his campaign, eight times what Garcia was able to raise. On Monday Emanuel held an 18-point lead over Garcia.

Garcia was hoping for a miracle.

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Politics and Mathematics Collide in Chicago

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, March 4, 2015:

English: Downtown Chicago, Illinois at night. ...

Downtown Chicago, Illinois at night.

Chicago is a microcosm of Illinois: it has a determined unwillingness to face reality. Even Moody’s, in its latest downgrade of Chicago debt, has failed to grasp the enormity of the shortfalls facing the city and the state.

Moody’s tried to be realistic, using unrealistic numbers:

[Our rating] incorporates expected growth in Chicago’s already highly-elevated unfunded pension liabilities and continued growth in costs to service those liabilities, even if recent pension reforms proceed and are not overturned….

The “expected growth” will likely surprise to the downside even the realists at Moody’s, as the real shortfall in the five pension plans the state is funding is vastly greater than even the $100+ billion the state faces. A “special pension briefing” performed back in November by the state’s Commission on Forecasting and Accountability showed the accrued liabilities on those plans to be

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China’s Economy Headed for a Hard Landing

This article first appeared online at TheNewAmerican.com on Monday, February 9, 2015:

The China bubble is imploding at an accelerating rate and has caught Wall Street economists off guard, according to the Wall Street Journal on Sunday.

Why they should be surprised is hard to fathom, given the predictions offered for months on end about the ending of the great Chinese economic “miracle.” As recently as three weeks ago, Minxin Pei, professor at Claremont McKenna College and professional observer of the Chinese economy, said, “If the official Chinese data should be believed at all … China’s GDP growth at 7.4% in 2014 … could have been worse.”

Indeed, it probably was.

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Economic Forecasting is a Dangerous Business

This article first appeared at The McAlvany Intelligence Advisor on Monday, February 9, 2015:

English: New York Yankees catcher Yogi Berra i...

Yogi Berra

Nearly everyone has an opinion about forecasting and its dangers. Some, like Yogi Berra, will tell you, “It’s tough to make predictions, especially about the future.” Others, like John Kenneth Galbraith, will say, “The only function of economic forecasting is to make astrology look respectable.” Still others will warn about setting either the exact event, or its timing. Do either one, they say, but not both.

Apparently the forecasters enlisted by the Wall Street Journal last week to give their best estimates of growth in China weren’t listening, or didn’t care. Or perhaps they believe in Keynesian miracles alongside those of the Tooth Fairy.

Nevertheless, when asked about import and export growth in China for the month of January, they missed reality by a country mile. The Journal tallied up the results and their seers and prognosticators concluded that

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U.S. Government’s Interest Costs to Quadruple in 10 Years

This article first appeared online at TheNewAmerican.com on Thursday, February 5, 2015: 

On Tuesday, the Wall Street Journal reported that the federal government will be paying $800 billion annually just to service the interest on its massive debt by 2025, up from just over $200 billion currently. By 2021, those interest costs will equal what the government is projected to be spending on national defense, and on non-defense (so-called “discretionary” items), and will greatly exceed those two budget items just by 2025. The Journal also noted that “non-discretionary” items (so-called “mandatory” expenditures) will continue their inexorable march upward, from $2 trillion currently to more than $4 trillion by 2025.

Surprisingly, few eyebrows were raised over the announcement,

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Latest CBO Report shows Deficits Approaching $1 Trillion

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, February 4, 2015: 

English:

When the Congressional Budget Office issued its Budget and Economic Outlook 2015 to 2025 in January, few could be bothered to do a serious review of it as it seemed to contradict the present meme of the Goldilocks economy: job growth accelerating, interest rates low, consumer confidence improving, deficits shrinking, and so forth. Even those taking the time to look at it, scoffed at its conclusions. Said the CBO:

The federal budget deficit, which has fallen sharply during the past few years, is projected to hold steady relative to the size of the economy through 2018.

Beyond that point, however, the gap between spending and revenues is expected to grow, further increasing federal debt … which is already historically high.

The CBO explained why:

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China Stock Market Off Sharply After Regulatory Crackdown

This article first appeared online at TheNewAmerican.com on Monday, January 19, 2015:

Chateau Lafite Rothschild Label for the 1999 v...

Chateau Lafite Rothschild Label for the 1999 vintage

During Monday’s session, stocks traded on the Shanghai stock market fell to their lowest level since June 2008, losing nearly eight percent.

Hardest hit were three brokerages that have been heavily involved in allowing Chinese small investors to open margin accounts, through which investors are able to borrow a portion of the money needed to buy securities, using the securities as collateral. When many of them were unable to settle their accounts, rather than forcing margin calls (a demand by a broker that an investor deposit further cash or securities to cover possible losses), the brokerage houses simply allowed them to

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Yes, Karen, There’s an Auto Loan Bubble After All

This article first appeared at The McAlvany Intelligence Advisor on Monday, January 12, 2015:

2007 Chrysler Sebring photographed in USA.

Chrysler Sebring

There’s little doubt that Karen Weise enjoyed her weekend. Back in August she tried to raise concerns about the bubble in auto financing, but couldn’t pin them down. A reporter for Bloomberg Businessweek in Seattle, all she could find back then were Fed spokesmen pooh-poohing concerns that too many broke people were getting car loans, that such fears were “misplaced,” that “it’s unlikely the composition of auto loan originations in our data will radically change since last year,” as New York Fed spokesman Matthew Ward put it.

She quoted four economists from the New York Fed who were unanimous:

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Energy Junk Bond Investors Heading for the Exits

This article first appeared online at TheNewAmerican.com on Sunday, December 14, 2014:

English: Oil well An oil rig used for training.

An oil rig used for training.

As crude oil prices continue their breath-taking fall, the ripple effect is beginning to reach far beyond the gas pump. On Friday crude oil dropped below $60 a barrel, causing some experts to predict $55 a barrel the following week and $40 a barrel within a few months.

That is putting pressure on oil producers to service their massive debts — some $550 billion incurred in the last five years — and scaring bond investors who are now looking to sell.

It’s a mania, said Tim Gramatovich of Peritus Asset Management who oversees a bond portfolio of $800 million: “Anything that becomes a mania — ends badly. And this is a mania.”

Bill Gross, who used to run PIMCO’s gigantic bond portfolio and now advises the Janus Capital Group, explained that “there’s very little liquidity” in junk bonds. This is the language a bond fund manager uses to tell people that

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Santa Clara’s Field of Dreams

This article was first published at The McAlvany Intelligence Advisor on Monday, July 21, 2014:

Cover of "Field of Dreams (Widescreen Two...

Ray Kinsella, meet the Mayor of Santa Clara, California, home of the brand new Levi’s Stadium where the San Francisco 49ers are scheduled to play their home games starting this fall. And where, it is predicted, their fans will come to watch.

Whether enough of them will is an open question.

Already nearly a third of the 49ers’ season ticket holders have

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Taxpayers On the Hook for New 49ers Stadium in Santa Clara

This article first appeared at TheNewAmerican.com on Monday, July 21, 2014:

A custom San Francisco 49ers GMC Yukon XL at t...

A custom San Francisco 49ers GMC Yukon XL at team headquarters in Santa Clara, California.

Last Thursday every politician, every bigwig, every banker, every individual with any interest whatsoever in the new Levi’s Stadium in Santa Clara, California, showed up for the invitation-only celebration of its grand opening. The beer was flowing, the confetti was flying, and self-congratulatory exuberance was on every lip.

Present were Santa Clara Mayor Jamie Matthews, San Francisco 49ers CEO Jed York, John York (Jed’s father and co-chairman of the team), 49ers president Paraag Marathe, NFL Commissioner Roger Goodell, 49ers coach Jim Harbaugh, and some of his star players including Patrick Willis and Joe Staley. In the background were executives from Levi Strauss, who paid big bucks to name the stadium.

The only people not in the audience were the ordinary taxpayers, who could find themselves on the short end of one of the most massive financial disasters in modern history.

In a toast to the fans who are expected to fill the 70,000-seat extravagance starting with preseason games in early August, Jed York said, “You deserve to have the best stadium in the world. And now you have it!” 49ers president Marathe added, “You can feel the difference [here] and you know the fans are going to feel the difference.”

At one point in the ceremony, noted Mike Rosenberg, a writer for the San Jose Mercury News who attended the affair,

Hundreds of workers wearing white “I built Levi’s Stadium” shirts and hard hats marched down two red-carpeted giant staircases. Thousands of white, red and gold pieces of confetti burst into the air at the end of the event, as dozens of cheerleaders waved their pom-poms and guests rushed to take selfies in front of a giant screen on stage.

The deal has been in the works for years, with initial plans to demolish Candlestick Park and replace it with an updated version in its parking lot. Financial squabbles and traffic glitches finally deep-sixed those plans, and in 2006 the team’s new owners announced they were moving 40 miles south to the tiny burg of Santa Clara, home of the 49ers’ administration offices.

Negotiations with the city council began in earnest the next year, with promises that no new taxes would be needed and that the huge stadium would bring in additional revenues without liability. Free money, in other words.

On June 8, 2010 Measure J was passed, with 15,000 voters in favor and 10,000 against. Those voting for it were persuaded by the language in the ballot which said, in part:

No use of City General or Enterprise funds for construction; no new taxes for residents for stadium; private party pays all construction cost overruns; no City/Agency obligation for stadium operation/maintenance.

Within a year that ballot language had already been breached: Twelve percent of the cost of the $1.3 billion stadium was provided by the city, with another $330 million to be borrowed by the city’s Stadium Authority. Goldman Sachs headed up a consortium of banks that provided some $850 million in construction financing (with Goldman taking its usual 10-percent fee) while Levi Strauss ponied up another $200 million to be paid out over the next 10 years. The NFL itself loaned the Stadium Authority $200 million to help out, expecting to be paid back out of gate revenues, seat leases, trinket and beer sales, and so on.

The assumptions underlying the project are mind-boggling: First, it is assumed that the 49ers will continue to have a winning team for as far as the eye can see into the future, drawing fans from not only San Francisco but also other cities within a 100-mile radius of the stadium. That expectation, however, is already flawed, as more than 30 percent of those loyal fans in San Francisco holding season tickets have given them up, as the 40-mile drive each way and the potential traffic jams on game day were just too daunting.

Second, the interest rate on the financing is short-term, and most of the loans will have to be refinanced no later than 2015. Even a small uptick in short-term interest rates could put debt service requirements out of reach of the authority.

Third, the cost of subsidies negotiated to bring the 49ers to Santa Clara haven’t been measured but include the NFL’s requirement that all revenue from its events “be exempt from sales, amusement or entertainment taxes or other surcharge obligations.”

Judith Long, who teaches urban planning at Harvard, concluded that even these costs are usually underestimated when proposed to the taxpayers:

Governments pay far more to participate in the development of major league sports facilities than is commonly understood due to the routine omission of public subsidies for land and infrastructure, and the ongoing costs of operations, capital improvements, municipal services and foregone property taxes.

Adjusting for these omissions increases the average public subsidy by $50 million.

That would bring the taxpayers’ cost for the “free” Levi’s Stadium to more than $200 million, not counting any obligation incurred by the Stadium Authority. Another part of the risk is that Santa Clara itself is such a small town, with such a small tax base. Even adding in the county, its population is just 10 percent of the 17 million populating metro San Francisco. No matter how one does the math, the town is making a massive bet on everything turning out just right. As writers Darrell Preston and Aaron Kuriloff of Bloomberg expressed it, “The city is taking what may be the largest per-capita risk for any municipal sports facility [in the country].” The budget for the city itself is just barely $140 million a year.

Roger Noll, a retired professor of economics at Stanford University, looked at the numbers and came to the same conclusion:

The thing that makes this such a dog is that Santa Clara first of all is a small town. There’s some amount of financial hit the city could probably pay [if things don’t pan out as projected], but the probability that it’s going to exceed that is certainly not zero.

That is how a retired college professor says that Santa Clara is taking a huge risk. Within the next three to five years, after “normalization” about attendance, winning games, traffic congestion, interest rates, and maintenance expenses, the taxpayers will know.

Now that the stadium is finished, all the people behind the massive project are counting on those fans to come. Just because they built it doesn’t mean they will.

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Chinese Economist at IMF warns of Global Housing Bubble

Board of Governors - International Monetary Fu...

Board of Governors – International Monetary Fund (IMF) (Photo credit: Wikipedia)

The false assumption that regulators can be safely counted upon to steer economies – local, national or global – to full employment with minimal inflation while avoiding booms and busts was unknowingly exposed in the latest yelp from the Deputy Managing Director of the International Monetary Fund (IMF), Zhu Min. In Chinese, his name means “people rule” or “democracy” but his ideology is firmly rooted in the Keynesian fallacy that economies can be successfully managed by experts without assistance or input from the common folk.

In announcing that the IMF has launched a new website, Global Housing Watch, Min delights in thinking that the world’s economy can be driven by looking through the rear view mirror. He said:

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ARMs are Costing People their Homes

Subprime Crisis No Barrier to Affordable Housing

Subprime Crisis (Photo credit: woodleywonderworks)

Back in September, the Associated Press took a close look at U.S. census data and learned that the supposed economic recovery was leaving an awful lot of people behind. One segment is homeowners who bought the dream of owning a home using ARMs – adjustable rate mortgages – and who are now finding out how these sub-prime mortgages really work. They are working to

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Fed Transcripts from 2008 Reveal Experts to be Clueless and Confused

English: President Barack Obama confers with F...

President Barack Obama confers with Federal Reserve Chairman Ben Bernanke following their meeting at the White House. (Photo credit: Wikipedia)

Followers of the Fed have carefully analyzed the 1,865 pages of transcripts it released in February of its eight regularly scheduled meetings and six emergency meetings in 2008 and have concluded that these experts were clueless and unaware of the opening economic abyss yawning before them. Even the New York Times was forced to admit, following its review of the documents, that

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Detroit’s Bankruptcy plan Reveals Fraud in Funding Pensions

Once Kevyn Orr, Detroit’s emergency financial manager during the city’s bankruptcy, presented his “plan of adjustment” – code for compromise in which no one is going to be happy – criticism was most loudly proclaimed by two people who have no financial interest in the outcome:

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Latest CBO Outlook Ignores Birth Rates and Tipping Points

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, February 5, 2014:

Just reading the headlines, the average citizen is likely to think that now that the deficits are under control Washington can focus on problems elsewhere. The Congressional Budget Office (CBO) estimated in May that the current year’s deficit would come in at $560 billion, half what it was just two years ago. In its report released on Tuesday, it was pleased to note that

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Rosy CBO Report Leaves out Critical Factors

At first reading the latest report on the government budget and the economy released on Tuesday by the Congressional Budget Office (CBO) is all sunshine and roses. In its summary of the 182-page report the CBO noted that deficits this year (from last October to next September) will be even lower than initially estimated, dropping to $514 billion, down from $680 billion last year and $1.1 trillion in 2012. And, in the very short run at least, further declines in deficits are expected through 2015, perhaps touching a low of

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S&P Downgrades France’s Debt again, to Third Tier, Halfway to Junk

In its announcement that credit rating agency Standard and Poor’s (S&P) was cutting its rating on France’s debt for the second time in less than two years, the agency minced no words:

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The Bubble in the Caribbean: Puerto Rico

This article was first published at The McAlvany Intelligence Advisor on Wednesday, October 30, 2013:

The complacency of municipal bond holders ended in July with the filing for bankruptcy by Detroit, an unhappy town of just 700,000 owing more than $18 billion to investors. Haircuts there have variously been estimated to be between 15 and 60 percent.

Since then, those holders have been looking around to find the next shoe to fall, and they have found it:

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Why are Puerto Rico’s Bond Prices Falling?

Despite the fact that Puerto Rican (PR) municipal bonds are triple-tax-exempt (no federal, state or local income taxes apply on their interest), those interest rates have skyrocketed since the Detroit bankruptcy first ended the complacency among municipal bond investors in July. High quality municipal bonds are paying little more than 1 percent annually but PR bonds, even though they remain investment grade (barely), have spiked

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.