Friday, June 19, 2015

How Australia’s Big 4 Banks Can Sink the Entire Economy – They’re Not Only Too Big Fail. For Australia, They’re Too Big To Save.

Wolf Richter,
By Lindsay David, Australia, author of Print: The Central Bankers Bubble, founder of LF Economics:
Australia’s Big 4 put the American Big 4 to shame
JP Morgan, Bank of America, Citigroup, and Wells Fargo are the four largest banks in the United States. The total assets on their balance sheets combined equaled the equivalent of 48.3% of total American GDP in 2014.
That sounds like a crazy number until you compare that to the total assets of the Big four Australian banks: ANZ, Commonwealth (CBA), National Australia Bank (NAB), and Westpac (WBC) hold relative to Australian GDP
This was not always the case.
Using the CBA as an example, its balance sheet has grown at a stifling pace relative to the size of the Australian economy.

So how does a bank like the CBA go from holding assets the equivalent of 14% of Australian GDP in 1999 to 51% of GDP by 2014? The answer to that question is simple:
By taking on more risk.
It did so via a get-rich-quick scheme by getting a nation to depend on using leverage to flip houses as it’s wealth creation model).
It’s funny how the balance sheets of four primarily domestic-focused retail banks have become so much larger over the period when house prices have significantly outpaced all other economic fundamentals.
So the next question:
How do you save four banks holding assets on their balance sheets the equivalent of almost 220% of Australian GDP if the Australian economy goes belly up? By Lindsay David, Australia Boom to Bust Blog, author of Print: The Central Bankers Bubble
Australia’s households are the third most indebted in the world, relative to GDP, after having passed the Netherlands in 2014. Aussies are now closing in on the leader of the pack, Denmark, and second place, Switzerland. And it’s all based on one factor, the Great Australian Household Debt Trap. Read… Australia’s “Largest Housing Bubble on Record” in 4 Charts

Never Before Has The World Piled Up So Much Debt. U.S. Budget Has Worsened Dramatically. A Day Of Reckoning Is At Hand.…
Never before has the world piled up so much debt. A day of reckoning is at hand. The U.S. Congressional Budget Office just said that “the long-term outlook for the federal budget has worsened dramatically.”

McDonald’s Closing More Stores Than It’s Opening For First Time In At Least 40 Years

()  For the past several months McDonald’s and its new CEO Steve Easterbrook have attempted to initiate a turnaround for the slumping Golden Arches including earmarking nearly 700 stores for closure. As a result of those measures the company’s footprint is expected to shrink for the first time in nearly four decades.
That is according to a new analysis from the Associated Press that looked at McDonald’s regulatory flings and found that the fast food giant’s plan to close more stores than it opens this year makes 2015 the first non-growth year for the company since at least 1970.
McDonald’s filings with the Securities and Exchange Commission only started reporting store numbers in 1970. The AP theorizes that the company hadn’t actually slowed its growth since the mid-1950s.
A spokesperson for McDonald’s declined to provide a year for which the company last shrank and couldn’t comment on the specific number of stores closing this year — or whether it was more than the 700 announced previously.
However, the company says the reduction is “minimal” when compared to the 14,300 McDonald’s restaurants in the U.S. The closing stores will be a mix of franchise and company-owned locations.
The closures are part of a strategic review intended to set the stage for future growth, the spokesperson says.
The AP reports that the shrinking footprint of the company is in stark contrast to the rapid expansion it has become known for.
Industry analysts say that the once unstoppable growth of the chain likely led to a “natural overconfidence,” despite new chains like Chipotle gaining customer love.

RELATED-McDonald’s To Open A Restaurant Run By Robots In Phoenix

Colt’s Bankruptcy Isn’t Because Civilian Gun Sales Are Down

(Hognose)      The media love the idea that the firearms market is in a state of collapse. This propaganda theme is being fed to them by Bloomberg-funded gun-ban groups, and by Bloomberg’s own propaganda arm, Bloomberg News, and, like any good propaganda campaign, it reinforces the presuppositions, biases, and slants of the intended targets (in this case, Acela Corridor newsmen) with a Narrative® that’s Too Good To Check™.
One writer who didn’t check his Narrative®, or much of anything else, was David Francis at Foreign Policy, the magazine/website that’s expert in strategy because it employs Beltway drones with degrees from The Right Schools. (Most of whom can only function overseas where Loud Slow English is understood).
Colt guns may have won the West. But they aren’t sufficient for winning modern wars, and now the iconic American weapons-maker, which has been making arms since the 19th century, has filed for bankruptcy.
As we’ve pretty conclusively demonstrated here, Colt hasn’t got its fiscal thingie in the wringer because its guns are no good (we buy them with our own money, and recommend them), but because their management has hollowed the company out financially for years.
In 2013, the Pentagon decided Colt’s M4 rifles weren’t up to snuff and awarded a key $77 million contract to supply the Army with rifles to F.N. Herstal, a weapons-maker based in Belgium.
What? Where did he get that nonsense? In the real world the rest of us live in, the Pentagon decided that FNH offered a better deal on the same guns made using the same technical data package. Even the brain-deads in the professional Beltway media got that mostly right at the time. Colt couldn’t meet FNH’s price, which is not surprising as they have UAW labor (high cost/low productivity) and a high-energy-consumption (spelled “cold”) and very high-tax location. (Where the governor just added $2 Billion in increased state taxes). Nobody decided Colt’s guns were “not up to snuff.” They will serve alongside the FN rifles for decades, absent a revolution in firearms design.
And, oh yeah, Colt has to charge enough to pay down $350 Million or so in debt, much of which capital was pocketed rather than reinvested. So, shocker: their bid wasn’t the best. (The real shocker is that it was even competitive, with all those burdens on the company). But Francis isn’t done getting it wrong:
The Belgian guns allow soldiers to fire continuously; the Colt weapon fires in three-round bursts.
There is so much fail in that sentence that one’s hair hurts, even if one is bald. Let’s enumerate a few things that Francis could have got right if he had the integrity and ambition to deploy Google:
  1. The FNH guns are made in the USA, in South Carolina. The Company is Belgian, historically; the factory is here.
  2. The three-round burst was not a Colt initiative (except as an experiment), but one insisted on by the customers during the M16A2 development program. Most of the M16A2 design impetus came from the Marines, but this particular bit of retardation came in singing, “The Caissons are Rolling Along.” It was an attempt to save training money by no longer teaching fire control.
  3. Practically since the dawn of the M4, there has been a conventional-forces burst-fire M4 and a special-operations-peculiar M4A1 with the M16A1-vintage full-auto setting on the selector.
  4. The Army has decided to give up on burst and purchase only full-auto-capable M4A1 carbines going forward. Thus, both the FNH and Colt entries had safe-semi-auto selectors.
The loss of the DoD business, combined with the decreasing demand for guns after the wars in Iraq and Afghanistan, raise serious questions about whether Colt can raise the $350 million it needs to pay off its debt.
Lord love a duck. How innumerate is this guy? Exercise for the reader: with the average pistol, rifle or carbine on a .gov contract selling for around $1k, assuming gross margins of a generous 25%, how many guns does Colt have to sell to pay down the debt? Assume for the sake of simplicity that the interest on the debt is not compounding (which it is, at 8-10%).
Well, they’re making $250 on a gun (again, we’re being generous), and they owe $350,000,000 (roughly. Last number we heard was $355M). We’ll do the math for the innumerates out there in Bloomberg’s lap: about 1.4 Million firearms. That’s roughly 10% of the entire US civilian market in a year, or about one gun for every swingin’ Dick (and Jane) on active duty.
Meanwhile, through the magic of compound interest, the debt is going in the wrong direction — escalating.
So why else is Colt in the hole, if we’re going to ignore the hedgelephant in the room?
For their part, law enforcement officers are increasingly turning to Glock pistols as a sidearm, as opposed to Colt’s 1911 gun. This is because many believe the Glock to be a more reliable pistol; there is a long record of complaints about the Colt gun jamming.
Yeah, because nothing says “20th Century Cop Gun” like a 1911A1.
The 1911 was always a tiny minority gun in police work. Police departments like the Glock for the same reason they liked their real previous gun, the double-action revolver: it’s really simple and the most inept Barney Fife can usually operate it with instruction. (Of course, without instruction, he shoots himself, or another officer). Very few cops have the gun savvy to want to carry a 1911.
As far as Colt’s dependence on government contracts for the 1911, except for the niche M45 for the Marines, the last contract Colt got was up seventy years ago.
If this is the end of the road for Colt…
…David Francis is not the guy to tell you.
One last screwup of his, then we’ll move on to another Ambassador from Bloombergia.
Even the Rangers have abandoned the gun for Sig Sauer pistols.
What? Ah, he means the Texas Rangers. Being as he’s a defense expert with Foreign Policy, he’s probably never heard of any other kind.
Francis’s ignorance of what he’s reporting on isn’t exactly rare, but his laziness and lack of simple reporterly integrity does. This kid’ll go far.
Within the Beltway, that is, not literally far. That’s not what Foreign Policy is about!
via Why Cops and Soldiers Fell Out of Love with Colt Guns | Foreign Policy.
The next example of spin is from Bloomberg hireling Paul Barrett, and Barrett starts strong with a dead-on descriptor of why Colt is in this pickle in the first place:
[T]he main reason the company hasn’t weathered rocky market conditions since the winding down of the wars in Iraq and Afghanistan is that the New York financiers who control the company borrowed too much and paid themselves lavishly.
As I reported in a feature story last year, the private equity firm Sciens Capital and its affiliates loaded Colt with debt since the mid-2000s while taking cash out in the form of “distributions” and “advisory fees.” Sciens remains the controlling owner of Colt Defense, according to a regulatory filing. An executive with Sciens did not immediately return a message seeking comment.
Barrett did not note that the suddenly renegotiated lease for the plant, which is owned and leased to Colt by Sciens insiders, is one more example of the Sciens hedgies “taking cash out,” which they’ll continue doing until the parasitic load kills the host. (If you thought that this bankrupcty was the end of the ride for Sciens and its vampire management style, so did we, and so, probably, did Barrett. But we were all wrong, at least for the time being).
It will be interesting to see if a creditor or group of creditors tries to intervene and get Sciens booted out of the drivers’ seat.
So, mostly Paul Barrett’s reporting is the incisive financial analysis that he was the first to apply to Colt, several years ago. But then, having stated the problem and the cause, he goes astray:
In 2009 and 2010, meanwhile, Colt somehow missed out on the “Obama surge,” a run of strong civilian gun sales prompted by fears whipped up by the National Rifle Association that the Democratic president would stiffen federal gun control.
Yeah, it was all artificial fears whipped up by the NRA. Fast and Furious, Choke Point, ATF 5.45 and M855 bans, executive orders overturning black-letter law — none of that really existed, it’s all just a figment of the NRA’s feverish imagination, and they have no better friend than Barack Obama. (Unless it’s Eric Holder). This is a common Bloomberg propaganda theme, and the media are full of it (in both senses of the expression). For example, to whip the whipping boy we started with, Foreign Policy, here’s former made-guy on the Democrat policy-coordination Journolist, Dave Weigel, a few years ago:
Barack Obama won the presidency in 2008, but he was no Bill Clinton — let alone a Lula. Firearm and ammo sales spiked. Obama didn’t restore the Assault Weapons Ban. Rep. Gabrielle Giffords was shot in the head. But Obama made no moves whatsoever to restrict firearms.
Hey, who are you gonna believe, lyin’ Dave Weigel or your lyin’ eyes? But that was the Bloomberg line then. (“Obama is a supporter of  the 2nd Amendment, but….) Ah, but what’s the line now? The line is that sales are down. We already saw that in Barrett’s story above — there was a “spike” in 2009 and 2010, which Colt missed.
Using NSSF adjusted NICS data (members-only .pdf), both those years had about 9.5 million NICS checks executed; sales went up every year until 2013’s peak of 14.8M adjusted NICS checks; 2014’s NICS fell back to 13M, still the 3rd highest in history. (The rank is 2013, 2012, 2014). Taking the year-to-date adjusted NICS as of 31 May and multiplying by 12/5 suggests this year will fall between 2012 and 2014 if sales continued at the same rate, but this disregards the seasonality in the data: historically, April through August are the sales doldrums, and the peak months of the year, the fall hunting season and the Christmas gift-giving season, are ahead. Asthe FBI says (.pdf):
The NICS Section observes an increase in transaction activity associated with major hunting seasons and year-end holidays. Since the inception of the NICS, the day after Thanksgiving continues to be a day that the NICS processes a high volume of firearm background checks. In 2014, the day after Thanksgiving ranked as the second highest day ever, when the NICS Section’s staff processed 175,754 NICS background checks (see chart below)
Here’s that chart. Note that four of the top 10 days in the history of the system were in 2014. The others were mostly in 2012, and there’s one holdout, Black Friday 2013, in the #10 of 10 slot. What happened to Barrett’s examples of 2009 and 2010?
Gee, did you know that sales were continuing at record levels? Not if you read the mainstream media’s narrative team.
The panic-based buying that lifted the small arms industry has now eased, making it even more difficult for Colt to move the military-style semiautomatic rifles it had hoped would be its salvation. “The industry’s recent rapid growth is expected to slow over the next five years, increasing at a more modest average annual rate of 4.1 percent,” according to the research firm Ibisworld.
Yeah, the industry is dead… it’s expected to advance at 4.1% in the contracting economy that uncertainty and rule of men, not law, has produced.
Colt’s problem is not lack of customers. They may have some product problems (which comes of distributing the money that could have developed new products, if that were a priority for Sciens), but the basic problem they’ve got is that they’re so overleveraged that they’d need to sell more guns than they can reasonably build to get out from under the debt burden.
For months, for years, there has been no way Colt could reasonably pay its debts. It has been, for all that time, de facto if not de jure insolvent, although it could kick cans and pretend there was no foreclosure coming by borrowing on the line of credit to pay the vig on the interest-only loan. The reckoning can be delayed, but it can’t be stopped.
It has, however, been a master class in (1) techniques of delay and milking a captive company on the one hand, and (2) modern propaganda techniques as practiced by the media on the other. So there is that in it for all of us.
But if you take one set of facts away from this post, take this:
Colt isn’t in bankruptcy because civilian gun sales are down; it’s in bankruptcy because it’s been badly managed, and in the industry as a whole, sales aren’t even really down.

Fiddling While the World Burns

In the mid-to-late 1970s, the U.S. began grappling with the energy crisis as Jimmy Carter pushed investments in alternative energies and called for conservation, but then Ronald Reagan arrived on the scene. Now, the world faces a much greater crisis, says David William Pear.
By David William Pear
The United States has no limit on the amount of money, treasure, lives and inalienable rights it is willing to sacrifice against terrorism. It justifies it by saying that it is necessary to keep the American people safe. There is little proof that it does.
An American today, and into the far future, is much more likely to suffer from human-caused climate change than any terrorist attack. Even the military knows that climate change is a bigger threat than ISIS. But the response is to put off corrective action to far into the future, minimize a response, debate the seriousness, deny its cause and fiddle while the Earth literally burns.
President Jimmy Carter's solar panels being installed on the White House roof.
President Jimmy Carter’s solar panels being installed on the White House roof.
The U.S.A. has done little but wring its hands about the problems with fossil fuel, even before climate change became a known major threat. For half a century the response to the need for alternative energy has been to procrastinate. President after president have come and gone.
On April 18, 1977, President Jimmy Carter made a formal address to the nation on energy. [Watch it here.] Carter warned of a world that he said was simply running out of oil. The growing demand was more than new supplies from discoveries, he said, adding that imported oil, especially from the Middle East, had proved to be too unreliable.
Earlier, during Richard Nixon’s presidency, the Arab countries had led an oil embargo by the Organization of Petroleum Exporting Countries (OPEC) against the U.S., which had angered the Arab member countries by backing Israel in the 1973 Yom Kippur War.
Oil prices skyrocket 400 percent because of the oil embargo, with oil jumping from $3 per barrel to $12 per barrel. Shortages of gasoline caused rationing and long lines at the gas pumps. The sudden jump in oil prices led to hyperinflation. The public was outraged and frightened.
In his speech – less…
Read more

How rising debt causes inequality and crisis (English & French)

In a (for me!) brief presentation with 7 slides, I explain why rising private debt necessarily causes increased inequality, and leads to an economic crisis when the rate of growth of debt exceeds the rate of decline of wages as a share of national income. Crucially, the actual breakdown is preceded by an apparent period of tranquility–a “Great Moderation”.
This was a short talk to a public audience at ESCP Europe in Paris, which was presented in English and also translated into French by Gael Giraud, Chief Economist of the French Development Agency and the translator of Debunking Economics (so the soundtrack is in both English and French).

The Money Masters - Full

THE MONEY MASTERS is a historical documentary that traces the origins of the political power structure. The modern political power structure has its roots in the hidden manipulation and accumulation of gold and other forms of money. The development of fractional reserve banking practices in the 17th century brought to a cunning sophistication the secret techniques initially used by goldsmiths fraudulently to accumulate wealth. With the formation of the privately-owned Bank of England in 1694, the yoke of economic slavery to a privately-owned "central" bank was first forced upon the backs of an entire nation, not removed but only made heavier with the passing of the three centuries to our day. Nation after nation has fallen prey to this cabal of international central bankers.

Target laying off another 140 employees

MINNEAPOLIS — Target Corp. announced Wednesday that it is laying off 140 headquarters-based employees and eliminating another 50 jobs as part of a corporate restructuring.
Most of the jobs being eliminated are part of the company’s Business Performance Optimization Center of Excellence and “were places we identified redundancies or opportunities for greater efficiencies,” Target spokeswoman Molly Snyder said in a statement.
Snyder said the cuts are not connected to the announcement Monday that the company is selling its in-store pharmacies to CVS Health for about $1.9 billion.
The layoffs continue a trend for the Minneapolis-based retailer, which laid off about 1,700 corporate workers and eliminated an additional 1,400 open positions in March. That followed 550 headquarters job cuts in January related to the retailer’s exit from the Canadian market. The closing of the Canadian stores resulted in about 17,000 job cuts there.
Target’s stock gained 1.4 percent Wednesday, closing at $82.10.
The Pioneer Press is a media partner with Forum News Service.

Pension tidal wave is about to crash down on taxpayers

(Steven Malanga)  The New Jersey legislature, looking to solve a budget crisis back in 1992, passed a bill that changed some of the accounting principles of the state’s government employee pension system. The technical changes, little understood at the time, made the system seem in better financial shape than it actually was, allowing the legislature to reduce contributions for pensions by $1.5 billion over the next two years. Legislators seized those extra dollars and redirected them into other spending.
Jersey officials could manipulate their pension system because local governments have latitude in how they run their own retirement plans. So what they did was not unique. Around the country, state and local officials have increasingly discovered over the years that they can exploit the complex and sometimes ill-defined accounting of government pension systems, as well as loopholes in their own laws governing those pensions.
Over time, elected officials came to promise workers politically popular new benefits without setting aside the money to pay for them, declared “holidays” from contributions into pension systems and changed their own accounting systems midstream to make the systems seem better funded — all just ways of passing obligations on to future taxpayers. In the process, government pension systems became one of the chief vehicles that state and local politicians used to massage their budgets.
Now we face the consequences. Our elected representatives played a deceptive game of chicken with pension funds. And now the chickens have come home to roost.
Years of gimmicks and politically motivated benefit increases for government workers have left America’s states and municipalities with pension funds that are short at least $1.5 trillion — and possibly as much as $4 trillion if the investment returns of these funds don’t live up to expectations in coming years. Just so the word “trillion” does not pass by too quickly, let’s put it another way: That shortfall may be $4,000,000,000,000.
Taxpayers are already paying the price. Since 2007, states and localities have been forced to increase annual contributions into pensions by $43 billion, or 65 percent, and in various places these rising payments are crowding out other government services or driving taxes higher or both. Retirement debt has even played a crucial role in high-profile government bankruptcies — including in Detroit; Stockton, California; and Central Falls, Rhode Island. Fixing the problem is proving expensive, and it won’t happen quickly in places with the worst debt.
At the root of the trouble are government pension systems, which today differ vastly from the way they looked when many were created about 100 years ago. Most states and localities initially designed systems based on conservative accounting principles that were meant to provide employees with a modest financial cushion for retirement — pensions calculated to last a few years at best. The country’s largest government employee pension, the California Public Employees’ Retirement System, or Calpers, was formed in just such a way when it began operating in 1932.
The system set the retirement age for employees at 65 years old, at a time when the average worker 21 years of age could expect to live for another 45 years, or until age 66. To reduce risks for the taxpayer, California law limited the pension fund to invest in relatively safe securities, such as U.S. Treasury bonds. Since these investments generally produced modest returns, pensions themselves were modest. A worker retiring after qualifying for a full pension could expect to receive about 55 percent of his final salary in retirement.
But as government employees gained political influence, especially through the emergence of public sector unions beginning in the late 1950s, they began lobbying for higher benefits. Politicians looking for a way to satisfy those demands without busting their budgets fashioned changes that made pension systems riskier to taxpayers, who cannot pass the buck on to anyone else.
Hoping to generate higher returns, for instance, states and cities began allowing retirement systems to invest in more speculative financial products, such as stocks. Politicians also boosted benefits without genuinely accounting for what that would cost over time.
Some people grew worried. A 1978 report to Congress on state and local government retirement plans warned “there is an incomplete assessment of true pension costs at all levels of government,” which “impeaches the credibility” of many of the pension plans.” Adding that “the potential for abuse is great,” the report called for federal regulation of state and local pension plans. But officials in Washington, fretting that legislation regulating state government operations wouldn’t be constitutional, instead recommended changes to accounting standards that the states were free to adopt — or ignore.
What seemed like an emerging problem receded into the background once the stock market boom began in the 1980s. Assets in pension systems grew rapidly as stocks went on a 20-year run, with just occasional short downturns interrupting the good times. To elected officials and public sector workers, the stock surge seemed to provide free money. Some local governments responded by sharply increasing the benefits they promised. They lowered retirement ages to 50 for public safety workers and to 55 or 60 for other government employees, even as Americans were living longer. They also increased pension paychecks. In California, for instance, legislation in 1999 allowed public safety workers to earn up to 90 percent of their final salary as a pension upon full retirement.
States and cities added expensive perks, such as cost-of-living increases. In Illinois, thanks to changes over the years that came to guarantee retirees an annual boost in the value of their pension, a worker retiring with a full pension at age 62 could double his pension over the next 14 years. Governments began granting retirees another costly perquisite — health insurance for life — even though the majority of those governments set no money aside to pay for these promises.
The stock boom perversely encouraged politicians to take on ever more risk. Many states and cities, for instance, stopped making meaningful contributions from their budgets into pension funds and instead began borrowing money and depositing it into their retirement systems, betting that their investment managers could generate better returns in the stock market than the cost of interest on the bonds. The move was the equivalent of a worker taking out a home equity loan and placing the money in his IRA to invest for retirement, something no responsible investment adviser would counsel.
From the late 1980s through 2009, according to a study by the Boston College Center for Retirement Research, 236 state and local governments issued nearly 3,000 pension bonds totaling $53 billion. In 1998, for instance, New Jersey floated $2.7 billion in debt for its underfunded pension system, agreeing to pay investors back $10 billion over 30 years for the borrowing. Illinois went much further, issuing a whopping $10 billion in bonds in 2003 alone. Financially troubled Detroit, short of cash, floated $1.44 billion in pension bonds in 2005.
One perverse consequence of these offerings is that the borrowed money made pension systems seem better funded than they actually were, which provoked further benefit increases. From 1999 to 2003, New Jersey’s legislature increased worker benefits 13 times at an additional cost of $5 billion to the pension system. In Detroit, the pension system handed out bonus checks to retirees after the 2005 borrowing, even as the city’s finances deteriorated and Detroit spiraled toward bankruptcy.
All of this new risk started to unravel pension systems when the stock market stalled, first in 2000 with the end of the technology stock bubble, and then again in late 2001, with the sharp decline in markets after the Sept. 11 attacks, and then again in 2008, when the housing bubble burst. Assets in pension systems plunged, and those with the riskiest investment strategies suffered the most. California’s giant Calpers fund had forged heavily into speculative real estate investment starting in the late 1990s. When the mortgage bubble burst in 2008, the fund’s real estate portfolio lost nearly half its value.
Some government retirement systems, facing severe shortfalls, began demanding greater contributions from governments. San Jose, California, for instance, saw its required pension contributions soar from $72 million annually in 2002 to $250 million by 2012. Short of cash and anxious to keep costs from growing even more, the city began laying off workers, eventually shrinking its workforce by 2,000.
Across the country in New York City, pension costs rose from $1.5 billion annually in 2002 to $8.5 billion by 2012. Those increases ate up big chunks of money the city had stashed away during the stock market boom. School districts, where compensation is a significant part of total costs, also faced rapidly growing payments. The Philadelphia school district spent about $35 million of its budget on pensions in 2005; last year pensions cost the Philly schools $155 million. In response, the state legislature allowed Philadelphia to raise taxes by tens of millions of dollars.
In some places, politicians unwilling to make tough decisions initially refused to raise payments into pension systems or cut benefits, hoping that some unanticipated stock market boom would solve their funding problems. But such delays only made things worse. In 2010, a state government report warned that California’s teacher pension fund was on a “path to insolvency.” Not until last year, however, did the state finally resolve to send more money into the system — at a great cost to school districts around the state. Between now and 2020, their payments for pensions will triple, from less than $1 billion in the aggregate annually to more than $3.7 billion.
Similarly, after the stock market tanked in 2008 and the country dipped into a deep recession, the Pennsylvania legislature allowed school districts to reduce their contributions into the pension system for teachers. But legislators also resisted cutting the cost of the pension system by reducing benefits. Now the teachers’ pension system is so badly funded that the state, under pressure from fiscal watchdogs, has demanded sharply higher contributions from schools equivalent to 16 percent of the teachers’ salaries. That’s the highest contribution rate in the history of the fund dating back to 1955. Years of similarly steep pension contributions lie ahead.
Around the country, taxpayers watching these scenarios unfold began demanding reforms and then electing politicians promising change. But in many places, reformers woke up to a startling reality: Over the years, legislators and state courts had granted unusually strong protections to government worker pensions, far greater than the kinds of protections that private workers enjoy. That has made cutting the cost of pensions difficult, if not impossible, in some places with the deepest debts.
In 1974, Congress passed the Employee Retirement Income Security Act to provide standards and protections for private sector pensions. That law, and the way federal courts have interpreted it, protects the pension wealth that a worker has already earned. But an employer has the right to change the rate at which a worker earns pension benefits in the future. And so, an employer who is setting aside the equivalent of 10 percent of a worker’s salary toward pensions could decide that next year it will contribute only 5 percent. The worker has the right to accept that, or find other employment.
But the ERISA law doesn’t apply to state and local pensions. As a result, state legislators and courts have shaped pension law for government employees, and in half of the states, reformers have found it virtually impossible to make any changes to pensions for any current workers, even for work they have yet to do. In Arizona, for instance, a judge in 2012 overturned pension reforms that required state workers to contribute more toward their pensions, ruling that those changes could apply only to new workers.
In California, a court undid significant portions of reforms passed by San Jose voters in a 2012 ballot initiative that sought to have workers contribute more toward their retirements. The judge based her decision on previous state court rulings that had said state legislation creating government pensions is a contract with the worker that goes into effect on the first day of the worker’s employment — and can’t be altered for as long as he works for the government.
The problem that governments face in states like this, where virtually any changes to pensions for current workers are banned, is that the cost of paying for benefits that workers are earning is rising even as municipalities struggle to pay off the debt that’s already amassed. Consider the case of Sacramento. Its price tag for funding new pension benefits increased by $9 million, or 37 percent, from 2006 to 2013. At the same time, Sacramento’s bill for paying off the debt accumulated in its pension funds soared from $12 million in 2006 to $23.4 million in 2013. The net increase from both of those factors amounted to nearly $21 million, or 55 percent, in higher costs in just six years.
These laws and rulings that make it difficult to reform pensions have contributed to fiscal meltdowns in places such as Detroit and Stockton. After Detroit came close to running out of money, Michigan Gov. Rick Snyder hired an outside financial manager to study the city’s predicament. That emergency manager, Kevyn Orr, said the city’s debts, including $3.5 billion in unfunded pension obligations and another $5.7 billion in promises to pay healthcare for retirees, were simply too great for the city to pay off, especially with Michigan’s strong protections against any changes to pensions. Orr instead placed Detroit into federal bankruptcy court in 2013, where it’s possible to reduce such debt. Employees lost some of their pension and retiree healthcare benefits as a result.
Similarly, officials in Stockton spent years enhancing benefits to workers without understanding the debts they were accruing. The city agreed back in the 1990s, for instance, to pay not only its own share of contributions into the pension system, but those of staff, too. It also guaranteed healthcare for life for retirees.
“Nobody gave a thought to how it was eventually going to be paid for,” said Bob Deis, a financial manager the city hired in 2010 to start clearing up its financial mess. Facing $400 million in pension debt and $450 million in promises for future healthcare, the city declared bankruptcy in 2012. Employees lost some of their perks, like healthcare in retirement, but citizens suffered, too. Trying to save money, the city cut essential services, including the police department, and crime soared. “Welcome to the second most dangerous city in California,” said a billboard placed in Stockton around the time of the bankruptcy.
Places that cannot reform pensions, or where legislators were slow to act, are inevitably seeing tax increases to finance these steep obligations. In Pennsylvania, 164 school districts applied in 2014 to increase property taxes above the state’s 2.1 percent tax cap. Every one of them listed pension costs as a reason for the higher increases. In West Virginia, the state has given cities the right to impose their own sales tax to pay for increased pension costs.
Several cities, including Charleston, have already gone ahead with the new tax. Chicago Mayor Rahm Emanuel tried to impose a $250 million property tax increase last year to start wiping out pension debt in the Windy City, where pensions are only 35 percent funded. When the City Council balked, Chicago instead passed $62 million in other taxes, including a levy on cell phone use, as a stopgap measure. But the city faces a pension bill that is scheduled to rise by half a billion dollars annually in 2016.
Not every place is facing such fiscal stress. Although the total debt of state and city pensions is worryingly large, the burden is not evenly distributed. Some states and municipalities remained true to responsible accounting principles and didn’t increase benefits without funding them. Others moved swiftly to fix problems as soon as they emerged.
Utah, for instance, had a pension system that was nearly 100 percent funded in 2007. When its debt rose after the stock market meltdown of 2008, the state quickly enacted reforms for new workers. It created a defined contribution plan, in which workers accumulate money in individual accounts, for new employees, and placed a limit on how much the state would contribute to pensions.
Other states, such as Colorado and Rhode Island, have reduced or eliminated annual cost-of-living adjustments. Although these increases, sometimes averaging 3-5 percent annually, can seem small, over time COLAs add significantly to the cost of a pension system, especially since workers can live for 20 years or more after retiring. One 2010 study by two finance professors, Robert Novy-Marx of the University of Rochester and Joshua Rauh of Stanford University, estimated that COLA promises alone account for nearly half of all the state and local pension debt.
But digging out of pension debt for other states will be far harder because they’re so deep in the mire. A 2013 Moody’s report ranked the states with the biggest pension debt relative to their state revenues as Illinois, Connecticut, Kentucky and New Jersey. New Jersey passed pension reform in 2011 that suspended COLAs, required higher contributions by workers toward their pensions and raised retirement ages. But the state, which a decade ago was contributing virtually nothing out of its budget into pensions, still faces rising taxpayer contributions to fix the system.
By 2018, Jersey will have to pay about $4 billion a year into pensions, even after the reforms of 2011, so Gov. Chris Christie has proposed new reforms, including closing the current pension system, where workers earn a percentage of their final salary as a pension, and shifting workers into a defined contribution plan similar to what most private workers now enjoy, where they accumulate a pot of money in an individual retirement account. Last week, the Supreme Court said Christie could forego a $1.6 billion pension fund payment.
The varying levels of retirement woes among states and cities will produce a landscape of winners and losers. In places with the deepest debt, taxpayers face rising taxes and declining services, which is hardly the sort of place that a family or a business wants to call home. As Emanuel said back in 2012, without reform of its pension system, the city faced a future where “you won’t recruit a business, you won’t recruit a family to live here.”
The problem for America is that Chicago is not alone — far from it.
Steven Malanga is City Journal’s senior editor, a Manhattan Institute senior fellow, and author of Shakedown: The Continuing Conspiracy Against the American Taxpayer.

Yellen: Greek Crisis Could Have Spillover Effects on U.S.

June 17 — Federal Reserve Chair Janet Yellen comments on the Greek debt crisis during a news conference in Washington.

When you look back on this time in history, a decade from now, you will wonder how could they have been so foolish.

by James Quinn 
I’ve done it again. For those who don’t like to read a detailed analytical assessment of the stock market valuation, I’ve picked out the key bits from Hussman’s weekly letter. When you look back on this time in history, a decade from now, you will wonder how could they have been so foolish. History books will call this the the Era of Delusion & Idiocy. Ignore the words below at your own peril.
When you look back on this moment in history, remember that spectacular extremes in reliable valuation measures already told you how the story would end.
When you look back on this moment in history, remember that the valuation of the median stock was never higher. Ever. Even at the 2000 peak.
When you look back on this moment in history, remember that S&P 500 returns had never materially exceeded zero over the decade following similar valuations.
When you look back on this moment in history, remember that rich valuations had not only been associated with low subsequent market returns, but also with magnified risk of deep interim price losses over shorter horizons.
When you look back on this moment in history, remember that dismal return/risk prospects were grounded in objective historical evidence, not simply opinion.
When you look back on this moment in history, remember that extreme valuations had already been joined by deterioration in market internals and credit spreads.
When you look back on this moment in history, remember that the strongest historical prerequisites for a market crash were already in place.
When you look back on this moment in history, remember that many investors ruled out the possibility of major losses over the completion of the current market cycle because they presumed relationships that could not be established in the data, and assumed the absence of any material economic or financial shock in the coming years.
When you look back on this moment in history, remember that the popular “Fed Model” was a statistical artifact, not a “fair value” relationship.
When you look back on this moment in history, remember that many investors implicitly believed that depressed interest rates and high valuations were good for future stock market returns.
When you look back on this moment in history, understand that all of this evidence was freely available.
Read Hussman’s entire Weekly Letter

Is there a Shortage of Gold in Europe? Will it Be Confiscated?

Some people have misread my posting on an observation in Spain. The retail sales of gold coins in Spain was virtually nonexistent. This is not a shortage of gold. In Italy there were bullion coins being sold in stores. It is France that is after gold coins demanding no cash sales and reporting on buyers and sellers. Even the rare coin shows have left Paris for the dealers refused to comply with such reporting. The French were driving to Belgium to deal in gold and the French government was complaining about that.
Even the banks are requiring explanation of every deposit in an account to get mortgages in the USA. Gold refiners are now required to report even to the US government every shipment of gold reporting where it comes from and where it went.
They seem to be keen on watching gold bullion. The question is why? That seems to be clear from the stand point of eliminating any alternative if they seek to move toward a cashless society.  Look at the former speaker of the House Dennis Hastert who has been charged with lying to federal agents and evading financial reporting requirements called STRUCTURING, reportedly while attempting to conceal past sexual misconduct. This is money you have paid taxes on, but you are withdrawing it in cash to pay off someone else. So you withdraw cash in amounts under $10,000 to avoid reporting. So this is NOT tax evasion, this is failing to tell the government you have paid someone else in cash and they didn’t pay their taxes.
So can they make gold illegal? Only a fool would say no. If it is illegal to pay someone in cash, they will make it illegal to pay someone in gold. This is the direction we are headed in. This is not a personal attack on gold and sure the gold promoters will say I am wrong for they are afraid it might reduce the whole idea of buying gold as an alternative to dollars. But this is the world we face. They are closing in the net from every possible angle. This is not just gold. This is hunting spare change in any form.
Will they confiscate? History repeats because the passion of man never change. We have to understand this is a economic meltdown. They will not go quietly into the light. They will scream and rage all the way.

The Monsanto Protection Act is Back, and Worse Than Ever

Comment by truth yesterday
Latest changes to the Pompeo “DARK” Act create an anti-democracy, anti-consumer, anti-environment mega-bill June 15, 2015 (Washington, D.C.) - Center for Food Safety (CFS) today expressed strong opposition to Representative Pompeo’s newly revised genetically engineered (GE) food labeling preemption bill (H.R. 1599), which now has been greatly expanded to not only prohibit all labeling of GE foods, but also to make it unlawful for states or local governments to restrict GE crops in any way. These new provisions would not only prohibit any future state and local laws, but also undemocratically nullify GE crop regulations that have existed in numerous counties across the country for over a decade. The bill would also further weaken already weak federal regulation of GE crops, while at the same time forbidding local communities from opting to protect their citizens, their farmers, and their environments. The bill draft will be discussed at a House hearing on Thursday.
“The Monsanto Protection Act is back, and it’s even worse than before. This bill would strip away a state or local government’s basic rights of local control, and hands the biotech industry everything it wants on a silver platter. No Member of Congress that cares about the rights and concerns of his or her constituents should support this bill,” said Andrew Kimbrell, executive director at Center for Food Safety.

With 46 million on foodstamps and 93 million out of the workforce a “defense” budget this big is unjustifiable.

With 46 million on foodstamps and 93 million out of the workforce a "defense" budget this big is unjustifiable.
( – The number of beneficiaries on the Supplemental Nutrition Assistance Program (SNAP)—AKA food stamps–has topped 46,000,000 for 38th straight months, according to data released by the Department of Agriculture (USDA).
In October 2014, the latest month reported, there were 46,674,364 Americans on food stamps. Food stamp recipients have exceeded 46 million since September 2011.
ype=”node” title=”Food Stamps Exceed 46,000,000 for 38 Straight Months
The 46,674,364 on food stamps in October was an increase of 214,434 from the 46,459,930 on food stamps in September.
As of July, the national population was 318,857,056, the Census Bureau estimates. Thus, the 46,674,364 on food stamps equaled 14.6 percent of the population.
The number of households on food stamps increased from 22,749,951 in September to 22,867,248 in October, an increase of 117,297.
( – The number of Americans 16 years and older who did not participate in the labor force–meaning they neither had a job nor actively sought one in the last four weeks–rose from 92,898,000 in February to 93,175,000 in March, according to data released today by the Bureau of Labor Statistics.
That is the first time the number of Americans out of the labor force has exceeded 93 million.
Also from February to March, the labor force participation rate dropped from 62.8 percent to 62.7 percent, matching a 37-year low.
Five times in the last twelve months, the participation rate has been as low as 62.8 percent; but March’s 62.7 percent, which matches the participation rate seen in September and December of 2014, is the lowest since February of 1978.
ype=”node” title=”labor chart
BLS employment statistics are based on the civilian noninstitutional population, which consists of all people 16 or older who were not in the military or an institution such as a prison, mental hospital or nursing home.
In March, the civilian noninstitutional population was 250,080,000 according to BLS. Of that 250,080,000, 156,906,000 — or 62.7 percent — participated in the labor force, meaning they either had or job or had actively sought one in the last four weeks.
US Defense Spending


Chip maker Intel laying off, but the economy is GREAT!

No worries…they will probably replace the laid off people with H1-B visa holders…….
Intel is quietly making plans to lay off employees across the company later this month in response to disappointing sales.
A confidential, internal memo obtained by The Oregonian/OregonLive indicates that Intel wants to keep expenses flat to match the company’s reduced revenue outlook for 2015, citing plans it announced in April to cut its research and administrative budget by $300 million this year.
Intel’s pending round of job cuts start Monday, part of a broad effort to reduce spending in response to a disappointing start to the year.
A letter that will go to laid-off employees, obtained by The Oregonian/OregonLive, spells out the rationale for the cuts and explains what benefits are available to employees losing their jobs.
“Intel Corporation… has decided to reduce spending in the second half of 2015. As part of that effort, we have made the difficult decision to terminate your employment,” begins the standard notification cover letter, dated June 15. It says laid-off employees will be paid through July 15.


Ron Paul’s “Financial Collapse” Is FINALLY Going To Happen Worldwide

Ron Paul was right about many things, but just ahead of his time. Now there is so much going on at the macroeconomic level that coincides with what Ron Paul has been saying for DECADES that it would take a very dull person or research to not see signs of what may be coming. Not in years or decades, but this year.
Financial collapse is coming. But luckily, we have real alternatives this time, and we’ll be just fine when the banking class eats itself alive and then eventually implodes due to unsustainable debt the rest of us simply have not consented to.…

LICENSE TO WORK – 30% of U.S. Workers Require a License to Perform Their Job

LICENSE TO WORK – 30% of U.S. Workers Require a License to Perform Their Job
1. Occupational licensing drives up costs to consumers. Licensed workers earn 15% more on average than their unlicensed counterparts in other states. Across the U.S. economy, occupational licensing adds at least $116 billion a year to the cost of services.
2. For several occupations that are regulated in some states but not others (e.g. librarians, nutritionists and respiratory therapists), employment growth for those professions was about 20% greater in the unregulated states between 1990 and 2000 than the regulated states.
3. In the 1970s, only about 10% of workers needed an occupational license, but by 2008, almost 30% of the work force needed them.
4. Occupational licensing does nothing to close the inequality gap in the US, and in fact probably makes it worse because it raises wages for some licensed professions but “does little to help the bargaining power of the most vulnerable workers.” In Minnesota, more classroom time is required to become a cosmetologist than to become a lawyer. Becoming a manicurist takes double the number of hours of instruction as a paramedic. In Louisiana, the only state in the country that requires licenses for florists, monks were until recently forbidden to sell coffins because they were not licensed funeral directors. Professor Kleiner goes on to explain that the growth of occupational regulation has prompted opposition from both the right (concerns about economic liberty and reduced competition) and the left (concerns about the poor, who are forced to pay higher prices and face barriers to getting jobs), and then offers some public choice reasons for the ongoing expansion of occupational licensing:
work employment license “job agency” agency u.s. usa america “united states” stats lawyer doctor job “skilled work” electrician Labourer safety inspection research student apprentice apprenticeships expert university certificate “college course” college trust 2015 2016 plumber standard course regulation professional “work visa” profession hairdresser beautician builder “elite nwo agenda” unemployed education “study abroad” “law school” graduate degree “student loan” debt un payed work experience salary training corporate slave real estate alex jones infowars rant max keiser coast to coast am jim rogers end game collapse russia china forex dollar mcdonalds walmart american dream positive thinking daboo77 daboo777 lindsey williams louis farrakhan
MP: In other words, it’s a classic case of well-organized, well-funded, concentrated special interest groups using the political process to take advantage of disorganized, dispersed consumers. The well-organized special interest groups can offer politicians benefits and payoffs in the form of political support, donations and votes, while the disorganized consumers offer the politician nothing. Elected officials won’t generally lose any votes or donations from rationally ignorant consumers by supporting more or stricter occupational regulations, but will be handsomely rewarded with votes and donations from the special interest occupations. As Mencken observed, the political process is often like two foxes (special interest groups and politicians) and a chicken (consumers) taking a vote on what to eat for lunch. MP: In other words, it’s a classic case of well-organized, well-funded, concentrated special interest groups using the political process to take advantage of disorganized, dispersed consumers. The well-organized special interest groups can offer politicians benefits and payoffs in the form of political support, donations and votes, while the disorganized consumers offer the politician nothing. Elected officials won’t generally lose any votes or donations from rationally ignorant consumers by supporting more or stricter occupational regulations, but will be handsomely rewarded with votes and donations from the special interest occupations. As Mencken observed, the political process is often like two foxes (special interest groups and politicians) and a chicken (consumers) taking a vote on what to eat for lunch. The best slave is a slave that doesn’t know he’s a slave. #2 The percentage of working age Americans that have a job right now is still about the same as it was during the depths of the last recession. Posted below is a chart that shows how the employment-population ratio has changed since the beginning of the decade. Does this look like a full-blown “employment recovery” to you?…