Pesky Questions

I am breaking from my usual format tonight (like I have one) to simply ask some questions that I think are worth asking. Things that may have no answer but are I think worth chewing on. You decide. Feel free to posit any answers in comments. So here we go:

1. Private debt reached all time highs in the past couple of years no matter how you measure it, but it has been coming down. I think it will take through 2012 at least to get back to historic norms but there are a host of variables impacting that time frame that are difficult to predict. Now there are various ways to reduce debt with the leading two being paying it down and default. Given unemployment, the markets being down drastically, home prices being down and the like, did the reduction in private debt to date in the U.S. for the past couple of years come mostly from people being frugal and paying it off or people defaulting? I have not seen stats on this so if you have I would appreciate seeing them.
2. Related to the last point, you have people saving more (though still not enough), some debt being paid off, unemployment high and everything else I said above, so where is consumer spending, which is around 70% of GDP, going to come from for the next year or two?
3. I just got a rescue dog recently and he takes a leak in the house every time I come home from work (really), so what can I do to stop this?
4. If the level of economic activity in this country for the past 10 years or more was built largely on easy credit and the resulting increased debt instead of people actually being able to afford what they could buy at the time they buy it, and if people are making less today collectively than they used to make due to unemployment, debt reduction and the like, where is the economic recovery coming from other than people foolishly returning to debt-laden ways if they are allowed to do so (as in a new bubble)?
5. Why do I always have to move toys to pull into my garage space at home?
6. If we do recover but in fact live within our means, instead of off debt, how much will that reduce GDP versus where it was in its debt-fueled days?
7. How does infusing banks with money (in multiple ways) so they can lend lead to a recovery when people have no way to pay the debt they already have and are becoming more frugal?
8. On a related note, what sense does it make to try to spur a heavily debt-laden country into spending again?
9. If Republicans in large part caused this mess and Democrats apparently failed miserably in fixing it, who the hell do you vote for?
10. We have massive excessive factory capacity in this country, so why would you give tax benefits to companies to spend more on factories and equipment?
11. Houses are selling in many markets for less than it would cost to build them and excess capacity along with shadow inventory will keep this so for a long time, so exactly how do we help builders by giving folks credits to buy houses they would buy anyway?
12. The stock market is up the past couple of days on very low volume on news that was mediocre at best, can it, will it, continue?
13. Do you double down on 7s when the dealer has 16 showing?
14. Everyone now, including those doing the tests, acknowledge that the EU bank tests really did not test everything they needed to test and major capital infusions are likely needed there (even if there is no sovereign defaults). And the spreads there for the PIIGS are at, above or near record highs reached in May, so what does the bond market there know that the stock markets seem to be ignoring?
15. Why is the toilet paper roll always empty when I go to take a dump?

Disclosures: None.

The Jones Factor

I have read a lot recently but have not read anything on the potential impact of this idiot Terry Jones with a church in Florida burning the Koran (Quran if you prefer) on the economies of the world. Now I am not expecting an immediate response economically but this jerk could easily cause a massive uptick in religious and political tensions, which last I checked is not good for economies. Last thing we need here is more troops going into the Middle East because some idiot in Florida wanted to make a name for himself. But it can happen and it can have a high cost - on many levels - to many countries, in terms of lives, in terms of folks having to serve time away from home, in terms of kids missing their mom or dad and in economic terms. Personally, the economic terms are the lowest consequence on my list but they are still there.

Even more personally, I vote for the U.S. making an exception, drafting the bastard Jones and sending his ass to Iraq. He wants to take a stand, let him do it next to those risking their lives. Indeed, better yet, he says he wants us to "stand up, confront terrorism," then give him and all those that support him the opportunity to go to Iraq, Iran, Afghanistan or the "evil" country of their choice with guns and let them "stand up" to terrorism personally and on their own. That should solve the issue. It is easy to sit behind a desk in Gainesville, FL, pontificate about standing up and burn some books for attention; it is different to actually put your life on the line for your country every day. I apologize for the less than PG fodder, which I truly do try to avoid, but this jerk has me really pissed off.

Rage aside, I return to the thought that this headline seeking A-hole will lead to a possible ignition of global repercussions, but nothing I have read is talking about this. As Taleb might say, this is in the fat tail of unexpected consequences. We will see, perhaps in as little as two days.

P.S. I wish all these generals and politicians would stop making speeches on how terrible the whole Quran burning thing is and simply call Jones and try to convince him to lay off. He is obviously just doing it for the publicity and headlines about Obama saying this, Hillary saying that, one general saying this and another general saying that, are only fueling the flames here. Note, I recognize the bit of irony in me doing a blog post on this and then saying folks should stop building press over it, but I tend to think the three of four people who read this post will not give Terry Jones a big head.

P.S.S. I read an Obama interview where he said Jones is causing a recruitment bonanza for al Qaeda but also noted there is nothing legally we can do about it because it is First Amendment protected free speech. Now I am a big fan of the Constitution and I know religious and political speech are in highly protected categories, but there are still limits. Remeber the whole "you cannot shout 'fire!' in a crowded theater" thingy? Well, you cannot hide behind the First Amendment and incite violence or support terrorists. I know Jones is not intending to support terrorists, but it is pretty blatant that he is doing precisely that. I doubt there is any one thing a Taliban leader could do to inspire so many to join his cause moreso than what Jones is doing. So yes, Jones is supporting terrorism. And he will incite people to commit murder. I do not view this as a First Amendment protected act.

Disclosures: None.

Build It and They Will Come

You see, once again the Administration takes a bass ackwards approach to fixing things. Now they want to front load for companies their ability to write off expense on investments in plants and equipment through 2011 instead of the over a longer period. In other words, the Administration is saying to companies go ahead and use some of the capital on your books to build plants and buy new equipment and we will provide billions in up front tax breaks instead of billions in over time deductions. Obviously the Administration thinks such spending will help spur the economy.

Only problem is that companies right now have more plants and equipment than they can use. Sure, maybe some equipment is a bit old and needs to be replaced but I suspect companies with the capital to do it are not holding off on needed purchases, and a tax break ain't going to get them spending capital on unneeded stuff. I just do not see it happening. Companies want solid proof that the economy is going to improve in a significant and sustained way before they spend, and they are not seeing it yet. With talk of double-dip, the EU having numerous countries in doubt and plenty of folks talking about Japan style stagnation in the U.S. for years, companies know that cash is king.

The other problem, as pointed out in this linked post, is that offer by the government really is very little financial incentive to them. If they have the money to spend in the first place they are not needing an instant deduction and with rates low waiting to get the deduction over time is not a big problem.

http://www.calculatedriskblog.com/2010/09/reactions-to-obamas-business-tax-break.html

This program is similar to what the Administration has tried with housing and cars; they incentivize folks to spend with tax credits or direct financial support but all they achieve is (1) giving breaks to those who would have bought anyway - including me on cash-for-clunkers and (2) front loading expenditures to the detriment of later spending. They consistently fail to realize that this is a debt driven recession and it can only end when debt is paid down, which will take a long time to achieve.

Don't Shed a Tear

Meredith Whitney believes Wall Street has some tough times ahead and she expects them to cut 80,000 jobs over the next 18 months. She expects 2010 bonus payouts to be down drastically and then the cuts. Now you might think good riddens but I suspect those being cut are not the idiots that produced this mess. Those idiots are still getting the big bonuses and are off thinking up new fleecing techniques to rebuild company profits. No, the 80,000 that may be let go are likely the folks at the other end of the totem pole.

http://www.bloomberg.com/news/2010-09-07/wall-street-firms-will-cut-up-to-80-000-jobs-over-18-months-whitney-says.html

Knock, Knock, Knocking at Greece's Door

The price to protect debt for the PIIGS is again reaching the record heights it saw in May. I noted a week and a half ago that the EU problems had been off the radar screen for a while but they were still there and would in time become the focus again. Well, it seems that this week they are back in focus. So what will the EU do for its next hat trick?

http://www.bloomberg.com/news/2010-09-07/u-s-stock-futures-decline-bank-of-america-citigroup-alcoa-shares-drop.html

http://www.bloomberg.com/news/2010-09-07/greek-debt-deals-hidden-from-eu-probed-as-400-yield-gap-shows-bond-doubts.html

Disclosures: None