Meredith Whitney video with Maria B. regarding state finances

This video is only a couple weeks old.  Meredith is a “numbers person” which is why her past calls on the banking sector were so incredibly accurate.  She also correctly predicted a bottom for banks in early 2009 on the basis that the government would bail them out.  In this most recent video she applies her numerical analytics to the states and has, apparently, rated the states in terms of financial soundness.  #1 is Texas in no small part to the fact that TX had its banking crisis in the 1980s and thus had more conservative banking rules in place.  Worst state of course is my birth state, California, whose corrupt government never saw a vote buying program that it wasn’t willing to spend money it didn’t have on.

Perhaps most eye opening is that Meredith draws a close parallel between the states and the banks pre-crisis.  The same kind of off balance sheet con games are being played by state bureaucrats as were being played by banking bureaucrats in order to cash in on the system.  I see it as all part of a larger problem.   The banks are marginal in the big picture relative to states so banks were hurt first and ultimately will be hurt the worst.  But states are in for some serious pain and there will be no easy solutions.

Lots of people talk about recovery, etc. but the way I see it nothing has been fixed yet.  The day of reckoning has only been kicked down the road a bit more.

http://www.youtube.com/watch?v=-sbk_Zlt9bI

Businesses flee California's taxation

I have written about this trend in the past but with major corporations throwing in the towel the CA government better get a clue before silicon valley becomes silicon wasteland.

http://nevadanewsandviews.com/2010/08/25/companies-fleeing-california-for-utah-over-confiscatory-tax-rate/

Obviously the software centric companies are the first to leave because they don’t have huge silicon fabrication plants or other manufacturing assets in place which can be impossible to move cost effectively.  This makes them canaries in the tax exodus coal mine.  But make no mistake: if the exodus is allowed to reach critical mass then CA will be screwed for many decades to come.  Each business that leaves means that the “fixed cost” of government has to be divided by the remaining tax slaves.  In this regard it can easily turn into a situation similar to that which has been seen with Florida condos. 

In case you were not aware, when the condos were full of owners the HOA fees were manageable because they were divided by lots of people.  But as people fled their plummeting condo investments, the HOA fees were considered fixed costs to be divided by those remaining.  This caused these ridiculous condo fees to skyrocket in a very short period of time.  In many cases the condo fees ended up being more than the monthly bank note payment.  The people who cut their losses early and moved on got out with minimal damage.  Those who failed to see the new reality got devastated because the more people that left, the higher the condo fees became for current and new prospective owners.  The end result was that the condo values had to fall to the point where bank note payment+HOA payment was still affordable.  Some of these places are nearly empty as a result.  The condo fee scam has made them un-sellable.  Eventually the HOA fees will not be paid at all.  Those collecting the HOA fees serviced their customers to death.

CA is treating government like a fixed expense, as if taxes were HOA fees that will be paid before anyone else gets anything.  What it should be doing is focusing on downsizing government, especially the government business of giving away money to social services whose real goal is vote buying.  One way or the other, CA government is going to get a lot smaller but the worst damage will be done by trying to stay as big as possible for as long as possible.  Once the jobs leave, good luck getting people to pay $300-$700k for a shoebox ranch home built in 1960.  People will follow the jobs.  CA legislators should be absolutely freaking out about the loss of Ebay, Electronic Arts (EA) and Adobe jobs.  These are high paying jobs which have low environmental impact.  Collecting taxes from these salaries is the easiest money a government could ever want.  People that make big salaries can buy expensive shoe box homes and pay property taxes on them.  But if the big paying jobs leave the state and the majority of the tax collection has to come from migrant worker salaries then good luck making ends meet. The fact that CA government is not even talking about it does not bode well for the future of CA. 

We are now in a very unique time here in the US.  This will likely turn into a big state vs. state struggle for survival.  The states with the best overall tax revenues will win and they will only win by stealing the best jobs and workers from neighboring states.  The way they will generate more overall taxes is to cut individual taxes and to make it up in volume.  That means that states will have to engage in beggar thy neighbor policies, providing all manner of long term incentives to attract businesses and workers. 

The states that figure this out the quickest will be the biggest winners and those who never figure it out will probably go bankrupt.  Sadly, CA appears to be a mania entering the decline phase.  The best thing CA voters can do for themselves at this point is to demand smaller government sooner rather than later.

China offering to prop up weakest players in Eurozone?

"With its foreign exchange reserve, China has already bought and is holding Greek bonds and will keep a positive stance in participating and buying bonds that Greece will issue," Wen said, speaking through an interpreter. "China will undertake a great effort to support euro zone countries and Greece to overcome the crisis."

http://www.foxbusiness.com/markets/markets/markets/2010/10/02/chinas-wen-offers-buy-greek-debt/?test=dcreport

The way I see it, the US oligarchy only cares about a recovery in which US hegemony is maintained.  Any recovery which results in someone else being seen as the new global leader will actually be considered a threat to US security IMO.  In other words, they really don’t care about recovery, they only care about staying in power.  

So what happens when someone else comes in to play the white knight that the US cannot play this time due to our own internal problems?  China certainly knows that the Greeks (and other PIIGS) are already in over their heads with debt and thus cannot afford to repay additional debt underwritten by the Chinese.  Chinese are not buying Greek debt because they think it is a good investment but rather in order to create indebted minions/allies in the game of global politics.  Greek leadership can easily become a puppet of the Chinese government if China becomes the lender of only resort to Greece.  I wonder how long until other PIIGS take the Chinese debt. 

If this happens, the US cannot openly complain about it.  That means our “leaders” will have to come up with some other response.  By no means will they just sit there and watch US hegemony slip away due to inaction.  They will justify any action they take in the name of protecting US security.  If you think about it, US hegemony and US security can easily be argued as synonymous by our oligarchs.  One way to foil China’s move would be to surreptitiously accelerate the collapse of the PIIGS (and thus the whole Eurozone) before China can stabilize it.  If I can come up with this analysis then you can bet 100 government “analysts” came up with the scenario years ago and have already set up trigger points at which action must be taken along with specific actions to take.

“Only the paranoid survive”

-Andy Grove, ex-CEO Intel corporation

Ecuador government welches on Wimpy Promises to police and other public "servants"

In response, the police staged an armed coup which was put down by the military.  These are the kinds of things that can happen when you promise people things and then come back later and tell them you were just kidding about those fairy tale promises…

http://www.bbc.co.uk/news/world-latin-america-11451470

When you read in media stories that there is unrest regarding “austerity measures” that is just doubletalk for “the government made unkeepable promises which it is now admitting were a pack of lies”.  No, the government should not lie to people.  No, people should not blindly believe what governments tell them, especially if the basic math doesn’t add up.  There was fault on both sides.  It’s a simple interaction between a con man and a victim who was willingly conned because the good sounding promises played to his greed.

Japan warns of Chinese military rise

http://www.bbc.co.uk/news/world-asia-pacific-11450791

Hmmm.  What’s the order here?  If I were writing the history book it might read something like this:

1. Japan screws up and preemptively strikes the USA during WW2 at Pearl Harbor.
2. Japan gets double nuclear smack down courtesy of Fatman and Littleboy.
3. Japan surrenders to USA.
4. USA behaves like victorious Romans of old, collecting the spoils of war capturing women and children as slaves, putting all the men to death and burning their villages is one of the first nations in human history to realize that all future value comes from human labor, that slaves have always been the best way to achieve cheap labor, and that dead slaves are of little use.  America also perfects the notion that the best slave is one who thinks he is free.
5. USA installs puppet government in Japan and then promises to protect it.  As a result, military bases go up in Japan and never leave forgives Japan and allows Japanese people to go about their way to develop themselves and their culture without any interference or strings attached. 
6. In 1950 the USA sends Demming to Japan.  He goes to impose upon them discipline in manufacturing that we ourselves lacked in many cases.  Demming’s job was to ensure that our war slaves served us efficiently.  Japan goes to work building cheap goods for US consumers. to help them better themselves out of the goodness of his heart and as an expression of his close kinship to the Japanese people.
7. Over the next 20-30 years, Japan becomes extremely efficient and productive at manufacturing causing the USA to become fearful about the Frankenmanufacturer that we created.  Steps are taken to crash the Japanese economy and to keep it down for more than 2 decades running but not before GM is dealt a death blow.  The slave uprising is thwarted but Japan’s utility as slave labor is diminished going forward.
8. After many years of America vilifying Chinese simply because they have a different political orientation than we do, Nixon turns to China as a new source of slave labor for USA consumers.  At the time, China is a serious backwater that has cheap labor but nearly nothing else to speak of.  The people are poor and uneducated and the leaders are corrupt making the Chinese easy to exploit.  A few Chinese at the very top become wealthy but most of the people continue to live hand to mouth to this very day embracing them in the selfless spirit of human kinship and love that has always characterized American politicians.
9. China eventually grows up in many ways, takes out Japan as the #2 economy of the world and then starts to thumb its nose at USA leadership.  Repeated “suggestions” over a period of several years that China is manipulating its currency to the detriment of the US economy fall on the deaf ears of Chinese leadership who are quietly but rapidly building up internal infrastructure, a massive military strike capability, and a big gold reserve.
10. Opting for an indirect initial confrontation, the USA orders Slave Japan to pick a fight with Slave China.  In reality it is just a political shot across China’s bow by the USA.  China knows full well that the US military is finishing its baseless war in the middle east and has some spare time on its hands.  Slave Japan agrees to participate because China has been pushing its newfound economic and political strength in the region for the past few years and also because it knows that the USA is still required to defend Japan should a pissing match turn into a shoving match or a fist fight.  Japan and Chinese boats meet in disputed waters literally in the middle of nowhere. The Japanese captain, who is rumored to be a military officer on a supposedly civilian fishing boat, actually rams the Chinese patrol boats thus conveniently creating an international incident at the same time that US moneymen are publicly vilifying Chinese monetary policy and US congress is legislatively enabling Obama to start a trade war with China.
11. Japan’s Prime Minister goes public with fears that Chinese are amassing a scary military capability.  Intelligent people are wondering how a small, non lethal boating incident in the middle of nowhere can possibly have turned into such big stink.  At the same time, supposedly random people off the Japanese streets surround a bus load of Chinese tourists and begin to kick the bus and shout insults.  The bus must have had a big sign on it that read “evil Chinese civilians inside” when it drove into a section of town where there were a bunch of unemployed Japanese people just milling about with nothing better to do.  The USA knows that if tensions get too high that capital flight will occur from China and their pumped up economy will crash potentially to the point of destabilizing its disobedient government.  

Wondering how many more convenient coincidences will happen this year...

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