The government is still shut down. The market is fluctuating wildly on any rumor - flying up on rumors Tuesday that Janet Yellen will be the next chairman of the Fed, dropping Wednesday as it's noticed that this doesn't change anything right now, flkying up Thursday and Friday on rumors of a big deal between Obama and republicans; dropping on Monday when the deal doesn't materialize. The "Official" treasury drop-dead date is October 17th, this Thursday, but things won't get seriously grim until Nov. 1 when the Treasury won't be able to send out Social Security checks on time. I'm on record: the shut down will continue until the last minute, Halloween more or less. The shutdown has been, is, and will continue to dominate world economic news until it's over.
Why are the republicans forcing a government shutdown? I'll never know what's in their secret individual hearts, but they say it's all about the deficit. The chart at the right is a nice illustration of a curve us engineering types call "exponential." Exponentials don't last long in the universe. But the democrats assure us that 1 more trillion dollars won't hardly count for anything and it will get us through the next election. There are about 150 million working adults in this country, but only about 30 million actually pay taxes. If your kids are going to be earning more than about $60,000 per year, they're accumulating $30,000 per year in additional debt to pay off. They already owe just short of $500,000 each. Of course this will never be paid off, of course there will be decades of 10% per year inflation, making the wild assumption that the Fed and the government can manage inflation and keep it from blowing up.
Government Shut-down watch: The Treasury runs out of borrowing authority on about Oct.17th. However, they will still have $30 billion in cash on that day, and more tax revenue comes in every day. When will they really run out of money and start bouncing checks? No one is certain, but it looks like perhaps Nov.1, when SS, Medicare and military pay all go out. The shutdown could easily go right up to the wire, and it would not be shocking if the shutdown passed the wire by a bit. It takes two to fight, and we got two that are spoiling for a fight. All the commentators I read think it's obvious that the republicans should stop screwing around and just pass a debt limit increase. I don't agree. My kids haven't signed up for nor earned the trillions of dollars in debt they're going to have to deal with because our tax-and-spend democrats learned a new trick: borrow-and-spend. However, I'm always mindful of something I learned in college economics: old people get three votes: their own vote; the vote of their working children who want them cared for by someone else; and the vote of younger adults who will be old one day and want a good deal for their older selves. Kids get only one vote: they don't get to vote for themselves, old people don't care about them, only their parents vote in their favor. So we're screwing our kids for short term political gain.
And how is the shutdown implemented? What is essential, unessential, forbidden?
Who's getting furloughed? See the chart below for a clear answer of who Obama thinks we need and who we can live without.
The shut down is about to start spreading. States rely on the Feds for roughly a quarter to a third of their budgets, so we're about to see a whole bunch of state workers get furloughed - perhaps equaling the number of federal workers. There's a popular Henry Ford quote going around, "Any man who thinks he can be happy and prosperous by letting the government take care of him had better take a closer look at the American Indian." Apparently that now also includes "Any state."
Back in June I said Janet Yellen would be our next Fed chairman. Obama nominated her this week. She's got all the requirements: jewish, liberal, used to be a professor at the University of California, People's Republic of Berkeley campus along with her Nobel- prize winning husband, and favors even easier money than Bernanke. Nominating her in the middle of an intense battle over government debt is a rather strange decision - her nomination hearings are almost certainly going to include no small amount of public grandstanding by various senators. I don't like this. She's clearly of the school that believes that if we just borrow enough money, if we just make the banks sufficiently rich, then the manufacturing and construction jobs will come back for uneducated Americans. The Fed pays lip service to something known as the "Taylor Rule," which set a level for interest rates determined by the economy. Under the Taylor Rule the interest rates have been deep in bubble-inducing territory for several years now. Greenspan has taken a lot of heat for a far smaller violation of last decade. Those of you who thought it couldn't get worse than Bernanke, so sorry, I think it's about to get worse.
The German high court is going to rule in the immediate future about the legality of the European Central Bank's OMT policy - their version of TARP. It's likely they will find it ok, perhaps with a few provisions like requiring the German government be kept informed of bond purchases. What's interesting about this is observing how the EU works: imagine if the US budget and the FED policies were subject to a veto by, say, the North Carolina Supreme Court. The EU is neither a republic nor a federation, it's more like an exclusive club of the member states.
I decided it was time to figure out this social security benefits mess. Here's a simple result:
Honda has a new Accord Hybrid which they claim matches the Prius for gas mileage. Unfortunately, Honda has a record for their hybrids not living up to spec due to battery problems, and the new Accord costs $5,000 - $10,000 more than the Prius. We'll see.
Yale's Rudd Center for Food Policy released a study that says that Payton Manning's junk food endorsements for pizza, oreos and Gatorade had a more negative effect on American's health than any other athlete. A couple years ago Payton was approached by Papa John's for an advertising deal - instead of payment, Payton was given 21 franchises in the Denver area. He now has a vested interest in selling you junk.