The UK is now not only in much worse shape than ever imagined, but apparently going to default (meaning fail to pay a portion of its debts when they come due) within a few years. A recent story at http://www.thisismoney.co.uk/news/article.html?in_article_id=508582&in_page_id=2&expand=true#StartComments#ixzz0uBpJzAjj explains that the UK debt load is expected to increase by £1.13 trillion over the next year, pushing the UK debt/GDP ratio well above the 100% danger line into about 140%. This puts the UK on track to bankrupt entirely by 2013. Of course if the UK defaults on its debt we can expect all hell to break lose. It may be what is prompting the US to attempt to officially encourage Israel to attack Iran in a desperate bid to “do something” about the economies.

While I’ve expected the UK to bankrupt at some point, I was thinking more on the lines of 2017 to 2020 more than 2012 or 2013. You almost have to question if they are trying to go bankrupt as quickly as possible on purpose the way they are spending money. Could they really be quite that incompetent? Most likely, yes.

If the UK goes bankrupt in 2012 that will cause a dramatic rise in interest rates that will drive the US, Japan, and a host of other countries to bankrupt faster as well. So if the UK bankrupts by 2012, expect the US to bankrupt by 2016. And of course I’m using the term bankrupt loosely to mean unable to pay debt payments as opposed to a legal process, which does not exist for most countries. When a country government runs out of money there is no set program in place. Its a chaotic and expensive process with no easy answers.

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Starting next year US businesses will be required to file an additional 200 forms called 1099 forms… one for each and every purchase over $600 that they make. Of course, this will end up costing some $10,000. Say goodbye to small businesses over the next two years. And say hello to the almighty mega-corporation. The legislation, hidden in the Health Care Reform bill, will take until 2012 to implement.

The US government wants to collect an additional $300 billion dollars to make up for their approximately $300 billion dollars more in additional spending. Of course its laughable to think that America can afford this. Expect the depression to get pretty nasty next year as a result if this 1099 form cost.

See details at:

http://money.cnn.com/2010/05/21/smallbusiness/1099_deluge/index.htm?source=cnn_bin&hpt=Sbin

The smarter small businesses are already starting to close shop before they start losing too much money.
See details at:

http://www.abovetopsecret.com/forum/thread595126/pg1

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Its big news that cities are doing something that is a fair idea… that is new for them. The residents of cities are indifferent and non-participants in democracy, leading to failure across the board. But now that they are running completely out of money things are slightly changing. Cities in some cases are outsourcing to avoid the excessive wages required by unions.
See: http://online.wsj.com/article/SB10001424052748704334604575339153865582376.html

Another significant thing that has happened is an unknown trader or group has apparently attempted to corner the European cocoa bean market. In specific, a purchase the size of the entire annual supply of Eurozone was made and is in the process of delivery. Several large ship-loads will be in transit.
See: http://www.telegraph.co.uk/finance/markets/7895242/Mystery-trader-buys-all-Europes-cocoa.html

Another thing I want to mention is that there are a number of people out there who insist deflation (prices going down) is not happening. Hmmm, they must not have gone to Wal-Mart lately. They have made it a point to lower their prices. Deflation is happening. The money supply as measured by M3 is going down at a 6% annual rate. The money supply as measured by M1 is still going up, but going up slowly. The money supply of course seems like the most important factor in price inflation. If the money supply is going up we can expect prices to go up. Well, the money supply is going down. The people talking about inflation going on should look into the basic math of the situation.

Sure there is a lot of money being printed up and spent by governments, but I guess its just not enough to push up the end supply of money. Eventually I expect that to change dramatically as the government prints ever more money, but its hard for me to understand how that will ever happen with a declining M3. Inflation is on hold, even though money printing is going up. Its a paradox. Mostly I think its due to banks re-capitalizing. And the thing is, they may want trillions more before they are fully capitalized in a process that takes years. Therefore, we could surprisingly end up with a deflationary depression before getting into a hyper-inflationary breakdown.

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According to the home page of http://www.usdebtclock.org/ Kentucky’s state debt load is 32% of GDP. Of course the citizens of Kentucky will have to pay those debts on top of the nations 92% of GDP debt load. It wouldn’t be one bit unfair to consider the people of Kentucky debt slaves as if they already are not paying more than half of their earnings to the government, that day will come soon. Kentucky is well known for being a state in poverty, and given their debts one can only wondering how they’ve managed to not begin starving to death.

I’ve been wondering what state will default on its debts next. California was first when it issued IOUs despite the constitution of the United States very clearly stating that all state debts must be paid in gold or silver bullion rather than IOUs. Well, it looks like Kentucky may be that state. Lawmakers there expect the pension fund to go broke in 2019. The question is not so much whether the state will go broke, but rather how citizens will handle the experience.

Looking at the comments of the linked “Adviser Describes a Worst Case” article, the people of Kentucky blame it squarely on the politicians. Therefore they clearly don’t believe they have a democracy. If they had a democracy in Kentucky, it would be obvious that they should blame it on their neighbors for failing to vote out irresponsible morons from office. Of course that is the truth of the matter. The people of Kentucky will continue the cycle of violence (debt slavery is an act of violence) by ensuring politicians (and therefore corporations) remain in charge of things. Clearly it is the fault of Kentuckians. If they got their act together they’d immediately start ignoring everything their politicians were doing and would solve the matter them self. That is what democracies do. In a democracy, people lead. they don’t wait around for politicians to fix things.

The numbers don’t really add up but I’ve been working on a project that will solve that for some time. The debt-GDP is said to be 32% by www.usdebtclock.org and the GDP is listed at about $158 million by www.usgovernmentspending.com (see http://www.usgovernmentspending.com/gdp_by_state). This would be about 51 billion in debt for the state. But the debt is listed as $6.9 billion at http://www.kentucky.com/2010/04/16/1226408/legislative-session-ends-without.html implying a debt-GDP of about 14%, not 32%. I’ll hopefully be able to start working on that project with half-decent speed starting on the 17th and will make a goal right now of finishing that project by the end of this year.

What is the solution to the world’s financial problems?
Easy. People need to stop voting for leaders and start being like one them self. Democracy is leadership by the people. If you are voting for a leader then you quite clearly don’t have a democracy. You can call what we have today tyranny by majority or a large number of other things but you cannot fairly call it democracy when people are voting for leaders rather than followers.

Here is why the entire world is on the path to turn into a miserable hell-hole. When a good chunk of the population go to the polls they are thinking…. what do other people have that I can get when I go to the polls? The other half is thinking… which is the least bad of these two or three choices? Then, you’ve got an epic problem that will lead to total disaster. Just like the Soviet Union, these systems will all collapse in an unpleasant fashion just as they have started to do for about two years now. Basic math shows this to be true.

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Its well known in many circles that the US Federal government made ownership of gold & silver illegal from about 1931 to 1971. After about 1971, they decided to be slightly less barbaric and allow people to own gold in any quantity they wish.

Now once again, the US federal government is resuming their anti-constitutional and flatly tyrannical attack on people’s basic property rights by requiring them to report transactions involving gold or silver of $600 or more. This is believed to be a move not only to bully around the competition for money but also to collect $17 billion in additional taxes, since they figure taking away half of Americans money couldn’t possibly be enough and they’d probably rather have all of it.

The fundamental problem of course is that the US government wants to print US dollars and give them to their best friends, the wealthy bankers. If you think the US government would ever print up a US dollar and issue it to your buddy down the street with a perfect 800 credit score, forget it moron. That money belongs to Goldman Sachs and other wealthy corporations.

Those of us who have a basic common sense about life by doing things like holding government to the same standard we hold everyone else see the obvious problems. Firstly, filling out government forms is work. Therefore, by the government having people work for them by filling out forms and then not paying them for that work, they are violating the laws against slavery. Federal minimum wage is supposed to be something like $7.50 per hour. But if you tried to sue them they would laugh out loud that you dare question their ability to violate any law on the books at any time and have actual consequences for the crimes they commit. The government has made a joke of itself when they ask me to work for them for free. A joke. The “US government” is not a government. It is a joke and this “work for us for free or go to jail” idea they have proves this quite well.

Secondly, being required to fill out a government forms is very obviously a violation of the freedom of expression. People have a right to not say things… such as how much they sold a gold coin for. Its none of the government’s business what people are doing on their private property. If I ask my neighbor how much he paid for his lawn mower and he doesn’t tell me, he has that right. Therefore, if the government asks me how much I sold my gold coin for and I don’t tell them, I have that right just the same. Simple and very obvious to those of us who don’t hold up government as if it were a deity. Government is not supposed to be a God to be worshipped, but rather it is supposed to be simply a group of people. That is where the phrase “we the people” comes from… the government is supposed to be simply a bunch of people with equal rights.

Thirdly, and most five-year-olds will be able to tell you this but the US government can’t… the big problem here is that taking without asking is wrong. Taking without asking is stealing. Therefore taxes on these transactions is theft. But the roads. But the schools. Yeah ummm… the roads and schools are what?… 1% of government expenses. Maybe people need to think more about the wasteful spending and the wasteful death and pointless killing this tax money actually is spent on instead of whining about fictional problems that never crop up in real life where if people want something they will find a way to get it in a free market system.

Free market advocates are laughed at as impractical while the very same people will advocate a system that is very well proven in real life to be entirely impractical. What we have now… borrowing and spending and sending the bill to our grandchildren using extortion tactics of the IRS… is so obviously destroying the country that if you can’t see that I just don’t know what to say to you. The system we have now is as impractical as you can get.

Libertarians have the ideas that are down to Earth and are well proven with the facts. Most Republicans… now those are the people with the pie in the sky ideas that don’t work in real life. Pre-emptive wars that turn out to be a good thing? I’ve never seen that happen. Most Democrats… now those are the people with foolish pie in the sky ideas that don’t work in real life. How are those social programs turning out such as social security which is going bankrupt, Britains’s NHS which is going bankrupt, etc. Sorry, but Greece and France prove that a bunch of social programs only lead to total economic disaster.

The people in prison because they have conscientious objection to the process of extortion often called taxation are also living proof that our system of taxes is barbaric and violent.

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After about three months of running my blog I couldn’t help but notice I was getting what I estimate to be 0.3 cents worth of traffic despite working on each post for at least a couple of hours. That amounts to 0.15 cents per hour, a figure I find to be too low. I’m not running the blog for profit, but still it would be nice to get more than 10 readers. Therefore, I’m going to shift my blog away from economics, which nearly all people find to be boring, and towards politics, which only a strong majority of people find to be boring. I’ll see how it goes.

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World Record Government Inefficiency
While we’ve all heard the stories of $200 wrenches and $300 toilet seats, what hasn’t been known is that the US Federal Government just spent $998,798.38 to rush two washers worth 19 cents each to Iraq or Afghanistan. Although the total markup is about 5,250,000%, it would be fair to account for about $50 worth of shipping which makes the total waste only about 20,000%. The following illustrates what the washers may have looked like:

Notice how Home Depot lists even just a single washer at 18 cents, compared to the 19 cents each the US Department of Defense paid for two washers. They didn’t seem to get a very good deal even before shipping.

Leading Economic Indicator Index
The leading economic indicator index is designed to predict booms and busts. But, despite that the indicator has been steadily going up to beyond where it was before the recession started, the economy has not been in a significant recovery. See the chart:

The only idea I can think of is that this index is being advanced by the wild government spending spree going on, which of course does little to help out the economy though seems to have increased the profits of large corporations quite significantly somehow… likely only temporarily.

City of Los Angeles Faces Bankruptcy
A recent article in the LA times reported “the city is struggling to meet its pension obligations”, saying “This year, the city will need to come up with $423 million to cover those costs.” If that is the case, Los Angeles is virtually guaranteed to go bankrupt. Los Angeles has a budget of $7 billion. Yet, the article reports that the pension budget is planned to steadily increase, saying “In 2015-16, Los Angeles will have to come up with more than $1 billion just to pay its retired police officers and firefighters their pensions and to cover their healthcare.”

Creativity in Economics
City economists often don’t have enough data or prompt enough data from federal sources. People like Ted Egan, chief economist in the San Francisco controller’s office uses their own indicators, like “counting people getting on and off subways on the weekends” to track their local economy, saying, “The three main indicators that we’re working with are available to us in a timely way are the subway counts, the parking garage counts, and also the Craig’s list indicators” … “We look on Craig’s list for information about apartment levels.” … “When we look at people getting on an off the subway on the weekends, that’s a pretty good measure of how many people are out to shop. And we saw when the recession started that number went way down. And now we’re seeing it level off.” … ” We could wait for several months to get official sales tax statistics, but there are advantages to getting that information faster.” … “Frankly our parking garage indicator has been less volatile than the sales tax indicator itself.”
The brief NPR interview is at http://www.npr.org/templates/player/mediaPlayer.html?action=1&t=1&islist=false&id=125837367&m=125837354

I suppose these sort of indicators will be much less prone to error or even blantant manipulation than the federal statistics.

Bankster Fraud, Giant Money Hole, Going Bankrupt

Singapore Economy Growing at 32% Annual Pace
Singapore is one of the few countries that can generally be classified as a capitalist system, so it is no surprise that it is one of the few countries leading the world away from recession. As a result, unlike many other countries, I expect the boom happening is Singapore is probably a hardy one that will stick.
http://seekingalpha.com/article/199156-a-gdp-canary-in-the-inflation-coal-mine

US Cargo Traffic Up
US railway traffic is up about 10% over the past year while Long Beach port traffic is up 13%. Especially notable was a 66.1% increase in non-recycled metals railway traffic on over the past year. This re-inforces information from my last posting noting a dramatic increase in smaller-sized ship traffic over the past six months.

I speculate this traffic traffic increase is due to increases in government spending and therefore is temporary. This is true not only in the USA but in most countries (see my “Worldwide Economic Collapse” post).

Correlation Between Oil Production and Oil Prices
The following link shows just how strong the correlation is between the inflation-adjusted oil price and the production of oil.
http://seekingalpha.com/article/199191-price-value-and-the-commodities-market

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Spend Money to Save Money
Last year the US government’s Cash for Clunkers program was designed as a way to stimulate the economy. The idea was to give buyers of fuel efficient cars about $4,000 to trade in their fuel inefficient vehicles that would then be destroyed.

The program lasted three months and many more buyers than expected participated in the program. “The “clunkers” destroyed averaged 15.8 mpg; the new vehicles averaged 24.9 mpg.” By using a few rules of thumb and the data from the link that means over five years about $6,000 in gas money would be saved.

But, since the program (according to crunching numbers from the Autoblog source) costed $4,170 per car this is savings goes down to $1,830. Furthermore, if the car wasn’t destroyed it could have been sold, so after you subtract $2,500 for the price of the car that has been destroyed the economy actually took a hit for $670 per car in the program. Not exactly a great way to help the economy!

But it still gets worse. If the stimulus money is paid back at 4% interest over fifteen years, that is an additional cost of $3,340 per car. Also, a couple of days ago the BLS released inflation data. As it turns out, destroying 690,000 used cars really pushed up used car prices! The April 14, 2010 report shows used car prices have increased by 16.3% over the past year. Sales of used vehicles are approximately 2 million cars per year in the US according to Edmunds Inc. If the 16.3% cost holds for another two years, and 1/4 of that increase is because of the cars-for-clunkers program, and used cars average (I’ll guess since I don’t know where to find the data) $5,000 per car, that represents another $815 million dollars total, which comes out to $1,181 per car destroyed.

So in summary the US government accomplished a savings of roughly $6,000 by spending roughly $11,000. That is a loss for the economy of $5,000 per car.

But did the program stimulate the economy? Yes. According to data by Edmunds and the White House, roughly 3 million more units were sold, which would be roughly $60 billion in auto sales if the cars sold were priced at about $20,000. See chart:

What isn’t clear is whether these cash-for-clunker sale are simply sales that would have happened anyway but were moved earlier. What also isn’t clear is whether the stimulated economy was really of any real value to people besides people who owned car factories or car dealerships. But, what is clear is that since profit margins on cars are nowhere near $5,000 per car, the program is still a loss for the economy since each sale did not bring $5,000 worth of benefit per car to the auto industry. Spending $11,000 to save $6,000 isn’t good… its just stupid.

IMF Starts Moves Toward Status as Global Currency
Few people seem to know about the IMF’s SDR (“Special Drawing Rights”). The SDR is basically a mixture of different currencies including the Euro, US Dollar, Yen, and the Pound. While no markets so far accept SDR as currency for purchases, SDRs can be used by governments to make a payment to another governments. Therefore, SDRs are a form of currency. So far, the IMF has created about $50 billion worth of SDR notes. The IMF plans to create $500 billion more worth of SDR and offer a wide number of participating countries a line of credit. By using SDRs instead of dollars, governments decrease a need for US dollars.

Giant Money Hole, Global Governance

Sign of Global Recovery
While I’ve recently mentioned how international freight traffic has remained low, I have overlooked the BHSI index which represents shipping traffic of smaller vessels:

Shipping in smaller vessels is dramatically higher over the past nine months as shown by the Baltic Exchange chart. Given the vast borrow & spending mania by governments around the world you would expect to see at least some activity. There is at least a chance that other countries will manage a recovery without the help of the US, which is due for another decade or two of stagnation due to an apocalyptic debt load.

Skipped Mortgage Payments and Consumer Retail Spending
A few days ago I mentioned that the mysterious increase in US retail spending may be in part due to skipped mortgage payments. Mark Zandi of Moody’s recently emailed a “guesstimate” to blogger Tyler Durden predicting what this effect is, saying: “With some 6 million homeowners not making mortgage payments (some loans are in trial mod programs and paying something but still in delinquency or default status), this is probably freeing up roughly $8 billion in cash each month. Assuming this cash is spent (not too bad an assumption), it amounts to nearly one percent of consumer spending.”

A few days ago I also mentioned that the increased consumer spending was also due to increased government payments to individuals. Factoring both of these things together its fair to say this small bump up from the bottom in consumer spending isn’t really all that good of news when you look at where the money came from. The money from the government is all borrowed money which has to be paid back and then some. The money from skipped mortgage payments is at least partially temporary until foreclosure or moving into another household. Given that households are merging together at a fast pace, at least some of this increase in spending due to skipped mortgage payments will become a long-term increase.

Housing Price Collapse Spreads to Chicago
“The percent of loans in foreclosure on small two- to six-unit properties jumped to 8.75 percent in the fourth quarter of 2009 from 1.67 percent five years ago. On large seven-plus unit rental properties foreclosure rates jumped from 0.3 percent in 2004 to 3 percent in the fourth quarter of 2009.” The article also cites a decline in rental prices in the area.
See the rest of the article at http://www.suntimes.com/business/2145998,multi-family-chicago-foreclosure-040710.article

I keep talking about the housing price collapse more than almost any other topic because its vastly more important than almost any other topic. The economic mess we’re in is all about the credit bubble, and a very large fraction of that bubble is because of the sharp spike in housing prices and the excessive loans that caused it.

$4.00/gallon Gasoline Ahead for US?
About the time that oil hit $120 per barrel I believed that it would be the last financial straw that broke America’s back. That turned out to be the case. After the collapse of the banking sector in 2008 some great relief was found in much lower gasoline prices. Oil then dropped like a rock hit a low of about $35 per barrel. Though I was pretty sure it would have to return to at least $50 per barrel soon, I wasn’t so sure it would keep going right up. It has now reached over $80 per barrel, causing speculation that gasoline will soon be $4.00 per gallon again in the US.

Of course just like high gasoline prices was the final straw that sent the house of cards that is the US economy crashing in 2008, this newest price increase in gasoline could send the US economy crashing yet again in 2010… only this time even harder since the credit bubble is even bigger!

USDA OK’s Tainted Meat
People generally entrust the government to handle the safety of their food. This trust is laughable to many free market economists. The USDA acts as the meat inspector in the United States. The trust in the USDA may be quite a mistake. A USA today article recently commented “In 2008, for example, Mexican authorities rejected a U.S. beef shipment because its copper levels exceeded Mexican standards, the audit says. But because there is no U.S. limit, the FSIS had no grounds for blocking the beef’s producer from reselling the rejected meat in the United States.”

The article makes no suggestion that private certification companies should be formed so that people don’t have to rely on the USDA or another government agency for something so important as our food. Rather the article ends by saying “The audit “shows clearly the need for quick action by Congress to place some reasonable limits on the use of antibiotics in farm animals,” says Rep. Louise Slaughter, D-N.Y., who has more than 100 co-sponsors on her bill to ban seven types of antibiotics from being used indiscriminately in animal feed. “If we don’t remedy this problem, who knows what kind of havoc these residues will have on our bodies.”

Commodities Manipulation
Yet another whistle-blower has detailed the price manipulation in the silver market. These allegations are sometimes labeled “conspiracy theories”. Personally I’d call it simple and obvious math… if there is incentive to manipulate markets, why would they not be manipulated? Is a good sense of morality on Wall Street going to keep them from doing this? Its not even clear that much of this manipulation is either illegal or immoral in the first place. See details at:
http://www.zerohedge.com/article/exclusive-second-whistleblower-emerges-deep-insiders-walkthru-silver-market-manipulation

Also, John Rubino is a commodities expert who explains a bit about market manipulation in commodities markets at the following URL:
http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/1614

Also:
Two economic geniuses, “Mish” and Marc Faber debate whether inflation or deflation is ahead:
http://finance.yahoo.com/tech-ticker/the-great-%22inflation-or-deflation%22-debate-mish-vs.-dr.-doom-441196.html

General analysis of the US / worldwide economic crisis:
http://news.goldseek.com/GoldSeek/1271264455.php

There has been plenty of news the past few days but I have not released much on my blog. This is because I’ve been working on a massive project that will result in a very important blog entry. So, I may not post as frequently over the next few days but when I release my research it will be well worth the less frequent updates!

Commodities Markets, Economic Collapse, Market Manipulation, Mortgage Crisis