Futures Surge on "Pathetic" Debt Deal; Congress Should be Ashamed; US Deserves Debt Downgrade; Is Boehner Balking Over Cuts to Military Spending?

After spending a day in the garden weeding and transplanting I arrive at my computer to see S&P futures up 20 points, 1.5% on news a compromise was reached. Quite frankly this is ludicrous given that anyone not brain dead knew a deal would be reached.

Let's pick up the action starting with U.S. Stock Futures Advance as Obama, Lawmakers Agree to Raise Debt Limit

U.S. stock futures rose, indicating the Standard & Poor�s 500 Index may rebound from its worst weekly loss in a year, as President Barack Obama announced an agreement to raise the federal debt limit and avoid a default.

Obama said in remarks at the White House that both parties in the U.S. House and Senate had reached an agreement to raise the nation�s borrowing limit and cut the federal deficit.

�A lot of people were short the dollar and U.S. equities into the weekend, betting that we wouldn�t have a deal,� Frederic Dickson, who helps oversee $28 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. �Now investors will be reversing those positions as things are looking better than they did on Friday, even though there are still some hurdles to climb in the next 48 hours.�

Let's stop right there and point out genuine BullSweet starting with a US dollar intraday chart.

US$ 15-Mimute Chart



Does anyone see a short covering rally in the dollar? I sure don't.

Had there been an agreement to reduce the deficit by $4 trillion we might have seem one, but this deal changes nothing. Bear in mind this is coming from someone who is currently bullish on the US dollar.

Let's ask another question: Who did not expect a deal?

I accuse Frederic Dickson of genuine BullSweet.

The article continues ...

The framework of the debt agreement would raise the $14.3 trillion debt ceiling through 2012, cut spending by about $1 trillion and call for enactment of a law shaving another $1.5 trillion from long-term debt by 2021 -- or institute punishing reductions across all government areas, including Medicare and defense programs, according to congressional officials.

Senate Majority Leader Harry Reid, a Democrat, endorsed the emerging accord among Republican leaders and the Obama administration even as negotiators were working out the final details. Senate Minority Leader Mitch McConnell told senators tonight that the U.S. will not default on its obligations.

Both S&P and Moody�s Investors Service are weighing a reduction of the U.S. credit rating. The impasse boosted to 50 percent the chance S&P will cut the grade from AAA within three months, the ratings company said last month.

Pathetic Deal

This is a pathetic deal. It's no wonder futures are rallying. My dead grandmother could find more cuts than this. The S&P, Moody's, and Fitch should all downgrade US debt on this deal.

$1 trillion up front and promises to cut another $1.5 trillion is the wimpiest of wimpy deals. The deficit is 1.4 Trillion. The immediate cut is a back loaded $100 billion. Then there is a possibility of another $150 billion back loaded cuts.

Anyone voting for this monstrosity should be ashamed.

Is Boehner Balking?

Here is something I picked up from Zero Hedge.

The Wall Street Journal "Washington Wire" comments on the The U.S. Debt Battle

5:24 pm: House Speaker John Boehner (R., Ohio) appears to be balking at the debt ceiling deal that Senate Democratic Majority Leader Harry Reid of Nevada has signed. Mr. Boehner is concerned about provisions in the deal that could lead to sharp cuts in military spending, say people familiar with the situation. House aides have warned that just because Mr. Reid has signed off on the deal doesn�t mean the deal is done.

Ludicrous Deal Solves Nothing

This deal is ludicrous because it does not cut enough. Congress should be ashamed.

If Boehner is concerned about excessive cuts to military spending in this deal he has truly lost his marbles.

If it was up to me, I would pull all our troops out of Iraq, Afghanistan, Japan, Europe, and 140 countries where we have troops. If we did that, we could concentrate on protecting our borders instead of being the world's policeman. The savings would be enormous.

By the way, it would be fitting if this futures ramp was the mother of all gap-and-craps. This deal solves nothing.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Weekend Diversions: "Spectacular" Double Meteor Shower This Week; Space-Time Cloak Could Make Events Disappear; Invisibility Cloaks from Calcite

Had enough of the debt ceiling fiasco? If so here are a few interesting weekend diversions courtesy of National Geographic.

"Spectacular" Double Meteor Shower This Week

One of the best shooting star events of the year is the annual August Perseid meteor shower. However this year's peak, on August 12, happens to coincide with a bright full moon�drastically cutting down the number of meteors visible to the naked eye.



Yet while the main event might be blocked out by the blinding moonlight, the opening act promises to be much better.

This year the lesser known Delta Aquarid meteor shower is expected to peak on Friday night, when the Delta Aquarids' more productive Perseid cousin is just starting to ramp up.

Together the showers will produce anywhere between 15 and 30 shooting stars per hour under clear, dark skies.

On average, the Perseids begin falling at a rate of around five meteors per hour. They're visible for a couple of weeks before mid-August, when they peak at hourly rates of 60 to 120 meteors.

Most people around the world can see the showers, best seen with the naked eye in a dark, rural area away from city lights. Since meteors will be streaking across the overhead skies, lie down on a blanket or recline in a lawn chair and allow your eyes to become adapted to the darkness, Samra suggested.

"Meteor shower activity always increases as the night progresses towards dawn. If you are a night owl, then staying up to catch a more spectacular show might be worth it."

But all may not be lost with the Perseids�observing the sky show a few days before the August 12 peak may work too, noted astronomer Geza Gyuk of the Adler Plaentarium in Chicago.

"For example, on the night of the ninth, morning of the tenth, there will be a couple hours after the moon has set [about 2 a.m. local time] and before the morning twilight begins when it's close enough to the peak that one might expect 15 per hour."

"They are also known for the occasional nice fireball with a long-lasting 'smoke trail,'" Gyuk said. "If we get more of these than usual, then even moonlight won't spoil the fun."

Perseid Pictures: Meteor Shower Dazzles Every August



One of many images in the link.

Space-Time Cloak Possible, Could Make Events Disappear?

It's no illusion: Science has found a way to make not just objects but entire events disappear, experts say.



According to new research by British physicists, it's theoretically possible to create a material that can hide an entire bank heist from human eyes and surveillance cameras.

"The concepts are basically quite simple," said Paul Kinsler, a physicist at Imperial College London, who created the idea with colleagues Martin McCall and Alberto Favaro.

Unlike invisibility cloaks�some of which have been made to work at very small scales�the event cloak would do more than bend light around an object.

(Also see "Acoustic 'Invisibility' Cloaks Possible, Study Says.")

Instead this cloak would use special materials filled with metallic arrays designed to adjust the speed of light passing through.

In theory, the cloak would slow down light coming into the robbery scene while the safecracker is at work. When the robbery is complete, the process would be reversed, with the slowed light now racing to catch back up.

If the "before" and "after" visions are seamlessly stitched together, there should be no visible trace that anything untoward has happened. One second there's a closed safe, and the next second the safe has been emptied.

Currently, nobody knows how to do that except in fiber optics, in which the speed of a signal can be varied by a few percent by changing the intensity of the light.

There are still a few hitches to address, though, before attempting such an experiment, according to the University of St. Andrews's Leonhardt.

For instance, being able to cloak an event lasting more than a few femtoseconds�one-millionth of a nanosecond�would require light from an immensely powerful laser, he said.

"The experiment is not entirely impossible, but it is at the limit of what one can do with present technology in an ordinary university laboratory," Leonhardt said.

New Invisibility Cloak Closer to Working "Magic"

A pink object seems to vanish behind a chunk of calcite, underwater and illuminated by green light.

Harry Potter and Bilbo Baggins, take note: Scientists are a step closer to conquering the "magic" of invisibility.

Many earlier cloaking systems turned objects "invisible" only under wavelengths of light that the human eye can't see. Others could conceal only microscopic objects. (See "Two New Cloaking Devices Close In on True Invisibility.")

But the new system, developed at Massachusetts Institute of Technology and the Singapore-MIT Alliance for Research and Technology (SMART) Centre, works in visible light and can hide objects big enough to see with the naked eye.

The "cloak" is made from two pieces of calcite crystal�a cheap, easily obtained mineral�stuck together in a certain configuration.

Calcite is highly anisotropic, which means that light coming from one side will exit at a different angle than light entering from another side. By using two different pieces of calcite, the researchers were able to bend light around a solid object placed between the crystals.

"Under the assembly there is a wedge-shaped gap," said MIT's George Barbastathis, who helped develop the new system. "The idea is that whatever you put under this gap, it looks from the outside like it is not there."

It is quite amazing the stuff scientists are working on and the images from National Geographic are spectacular. Inquiring minds will want to give some of those articles a closer look.

My weekend diversion is gardening and golf.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Deal or No Deal? ABC Says Tentative Deal to Raise Debt Ceiling Reached; White House Aid Denies Report; Does it Matter?

I was just getting ready to make a post titled After "Angry Exchange" Reid Postpones Senate Vote on His Plan; Majority Leader Conrad Hints at Raising Revenue Measures; Compromise in the Air.

Just before I hit enter on posting, word came that a deal was reached. I will continue with my original post (so that you can see sausage in the making) followed by the a description of the alleged yet White House denied deal.

Hints Compromise Amid Feud

Talk of compromise is in the air. House Majority Leader Conrad is surprisingly hinting at revenue raising measures. Meanwhile Senator Kyle suggests more progress is being made than it seems, even though Senator Reid postpones a vote on his proposal after an "angry exchange" with Republicans.

This negotiation smacks of a "don't blame me" effort from both parties that will put off all hard choices until later.

Reid Postpones Vote After Angry Exchange

The New York Times reports Hint of Deal as Congress Wrangles Over Debt Crisis

After a tense day of Congressional floor fights and angry exchanges, Senator Harry Reid, the majority leader, called off a planned showdown vote set for after midnight, but said he would convene the Senate at noon on Sunday for a vote an hour later. He said he wanted to give the new negotiations a chance to produce a plan to raise the federal debt limit in exchange for spending cuts and the creation of a new Congressional committee that would try to assemble a long-range deficit-cutting proposal.

The first indication off a softening of the hard lines that have marked weeks of partisan wrangling over the debt limit came in the afternoon when the two leading Congressional Republicans announced that they had reopened fiscal talks with the White House and expected their last-ditch drive to produce a compromise.

Following the House�s sharp rejection of a proposal by Mr. Reid to raise the debt limit and cut spending, Senator Mitch McConnell of Kentucky, the Republican leader and a linchpin in efforts to reach a deal, said he and Speaker John A. Boehner were �now fully engaged� in efforts with the White House to find a resolution that would tie an increase in the debt limit to spending cuts and other conditions.

The deal they were discussing, this person said, resembled the bill that Mr. Boehner won approval for in the House on Friday more than it did the one that Mr. Reid had proposed.

It would immediately raise the debt ceiling by about $1 trillion, accompanied by a similar range of spending cuts, and set up a new bipartisan committee that would work to find deeper cuts in exchange for a second debt limit increase that would extend through the 2012 election.

A failure of the new committee to win enactment of its proposal could then set off automatic spending cuts across the board, including to entitlement programs.

After Mr. McConnell sounded a hopeful note, Mr. Reid called members of the Senate to the floor to hear him dispute the claims by his Republican counterpart and accuse Republicans of failing to enter into serious negotiations even as the Treasury risked running out of money to pay all its bills after Tuesday.

�The speaker and Republican leader should know that merely saying you have an agreement in front of television cameras doesn�t make it so,� Mr. Reid said after returning from a visit to the White House with Representative Nancy Pelosi of California, the Democratic leader in the House.

The Treasury Department calculates that the government will exhaust its ability to borrow money at the end of Tuesday, forcing the government to pay its bills from a dwindling pile of cash. Independent analysts estimate the government has enough money on hand to pay all of its bills for another week, more or less, before it starts missing payments.

That sounds like more feud than compromise so let's take a look at the viewpoint on Bloomberg posted roughly three hours later at 10:41.

Majority Leader Conrad Hints at Raising Revenue Measures

Bloomberg reports Senate Postpones Vote on Reid Debt Plan as Talks Continue

�There are negotiations going on at the White House now,� Reid said on the Senate floor, and those involved in the talks wanted more time before a vote was held on whether the Senate moved ahead with his measure.

A planned 1 a.m. vote was pushed forward 12 hours, to 1 p.m. Reid said the Senate would convene at noon tomorrow.

�There are many elements to be finalized and there is still a distance to go before any arrangement can be completed,� Reid said of the talks involving Obama and congressional leaders.

Reid�s plan, which the House symbolically rejected earlier today, would lift the $14.3 trillion debt limit by $2.4 trillion.

Conrad, a North Dakota Democrat who is chairman of the Senate Budget Committee, said a few bipartisan groups of senators have drafted three alternative plans to supplement a proposal offered by Reid. The Republican-run House today defeated Reid�s plan.

The alternative plans include possible new revenue as part of their formula for cutting the federal deficit, according to Conrad. Republican leaders have said from the start of negotiations that a net increase in tax revenue is unacceptable.

�All three involve the possibility of revenue,� Conrad said. McConnell wasn�t among the Republicans involved in the alternative bipartisan plans, according to Conrad.

White House, Republicans Strike Tentative Deal To Raise Debt Ceiling

What follows now is breaking news of a deal. Please consider White House, Republicans Strike Tentative Deal To Raise Debt Ceiling

ABC News' Jonathan Karl reports:

ABC News has learned that Republicans and the White House have struck a tenative deal to raise the debt ceiling before the Aug. 2 deadline. It's not done yet, but here is the framework of the tentative deal they have worked out, according to a source familiar with the negotiations:

• Debt ceiling increase of up to $2.8 trillion
• Spending cuts of roughly $1 trillion
• Vote on the Balanced Budget Amendment
• Special committee to recommend cuts of $1.8 trillion (or whatever it takes to add up to the total of the debt ceiling increase)
• Committee must make recommendations before Thanksgiving recess
• If Congress does not approve those cuts by late December, automatic across-the-board cuts go into effect, including cuts to Defense and Medicare.

A senior White House aide pushed back against the idea that a deal was struck.

"Talks continue, but there is no deal to report," the aide said.

Deal or No Deal?

Even if there is a deal, it is no bargain to anyone. A vote on a balance budget will not pass so why bother other than for political finger-pointing purposes?

$1 trillion in presumably back-loaded spending cuts is a farce.

The special committee will not accomplish a thing. Even if by some miracle it achieves another $1.8 trillion in spending cuts, that still only brings the total to a lousy $2.8 trillion, or $280 billion a year in a $1.4 trillion deficit.

This is not even a reasonable down payment on what needs to happen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Canada GDP Declines .3%, Largest Drop in Two Years - Don't Worry It's "Temporary"; Canadian Apologists Be Warned

Lost in the US deficit battles and the pathetic US GDP statistics comes yet another surprise: Canada�s Economy Shrank 0.3% in May Posting the Largest Drop in Two Years

Canada�s gross domestic product fell in May by the most in two years due to temporary disruptions in the mining and oil and gas sector, government data showed.

Output fell 0.3 percent in May to C$1.26 trillion ($1.32 trillion) on a seasonally adjusted basis, after being little changed in April and gaining 0.3 percent in March, Statistics Canada said today in Ottawa. Economists in a Bloomberg survey forecast the economy would grow 0.1 percent, based on the median of 24 responses.

The Bank of Canada said July 20 the economy�s growth probably slowed to 1.5 percent in the second quarter of this year, its slowest pace since the country emerged from recession in 2009, because of �supply disruptions� related to the earthquake and tsunami in Japan, slowing government spending and the impact of higher food and energy prices. Governor Mark Carney has kept the central bank�s benchmark policy rate at 1 percent since September.

�The weakness is slightly over-stated� in May because of temporary factors, said David Tulk, chief Canada macro strategist at TD Securities, though the numbers highlight how expansion in the second quarter has been a �lost cause.�

Canadian Apologists Be Warned

Canadian apologists say weakness is overstated and temporary. I say it's understated because few realize what is happening and how serious this is.

Global stimulus has faded. It's gone. Kaput. And that stimulus was the only thing holding this global economy together.

Strip out government spending, QE madness in the US, and unsustainable credit growth in China and you have a flatline global economy at best.

It's Not Temporary

Headline be damned, it's not temporary.

Europe is now in austerity-mode, US cities and states are cutting back, the odds of more fiscal stimulus in the US are roughly zero, the US might (and should) lose its AAA rating, Australia is a basket case on the bursting of its property bubble, Canada has the second or third largest property bubble next to China and Australia, the bond market is targeting Italy and Spain, Brazilian defaults are soaring, China is overheating and needs to slow, yet the average economist is looking for a robust second-half. Go figure.

In aggregate, economists are the most optimistic group on the planet.

For a look at the US GDP situation, please consider US GDP on Verge of Contraction in 1st Quarter, Mere 1.3% Annual Rate 2nd Quarter; Summary of Massive Revisions; Second-Half Recovery Nonsense

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

43 Senate Republicans Sign Letter Opposing Reid�s Plan, Impasse Continues; Exchange with a Reader Over Tax Hikes

The impasse continues. Bloomberg reports Senate Republicans Will Reject Reid�s Debt Plan.

Senate Republicans will block Majority Leader Harry Reid�s debt-limit plan this weekend, Minority Leader Mitch McConnell said as a partisan impasse over deficit reduction continued days before a threatened default.

Reid�s bill �will not pass,� McConnell said today as the Senate resumed debate on the measure. He said 43 Senate Republicans signed a letter opposing Reid�s plan.

Reid, a Nevada Democrat, who offered modifications to a Democratic plan that he said are designed to attract Republican support, has accused Republican leaders of rebuffing his efforts to negotiate.

Reid said when he attempted to engage McConnell, a Kentucky Republican, in talks, �we had no one to negotiate with.� The majority leader plans a 3 p.m. news conference today.

Shortly after the Senate rejected Boehner�s plan, the House scheduled a preemptive vote for today on Reid�s proposal -- planning to defeat it even before the Senate takes it up. The House, back in session, plans to vote at about 2 or 2:30 p.m.

The Senate plans a procedural vote on Reid�s plan at about 1 a.m. tomorrow. A Senate vote on the plan then could be held at about 7 a.m. on Aug. 1, allowing the measure to return to the House before the Aug. 2 deadline.

The new plan would yield debt savings of $2.2 trillion -- about the same as the total borrowing authority extended -- and call on a 12-member bipartisan congressional committee to draft legislation to lower the deficit to 3 percent or less of gross domestic product.

Senator Scott Brown, a Massachusetts Republican, said his staff has been working with Reid�s to put �more teeth� in the joint committee plan.

Senator Lisa Murkowski, an Alaska Republican, said �absolutist� lawmakers aligned with the Tea Party have put the U.S. �on the brink.�

�If we don�t come to an agreement, we could lose our country�s AAA credit rating, not because we didn�t have the capacity to pay our bills -- we do -- but because we didn�t have a AAA political system to match our AAA credit rating,� Obama said earlier yesterday at the White House.

Senate Budget Committee Chairman Kent Conrad expressed confidence that lawmakers will head off a default.

Once again, and as recently noted in Great Divide; Boehner Rams Through Bill that Senate Quickly Rejects; Obama's Idle Threats and Fear Mongering the idea of a default is complete silliness.

Nonetheless, expect both parties and president Obama to crow when a gaseous plan is passed that will allegedly have "saved the US from default"

Fear Mongering

Caroline Baum repeated my message on Friday in Obama, Geithner May Regret Threats of Default

Instead of dangling the default threat every chance they get, Obama and Geithner should be telling the world that the U.S. has every intention, and the resources, to meet its debt obligations. They should shout it from the rooftops, put a banner on the Treasury Direct website, and use the Sunday talk shows to reassure investors, not frighten them.

Toothless Details

Senator Scott Brown wants to put �more teeth� in the joint committee plan. One tooth would suffice because the plan is currently toothless.

Guaranteed Vote is Meaningless

This whole idea of McConnell's about abdicating responsibility to a "powerful" committed with a "guaranteed" vote on proposals is of course ridiculous.

Look at the rejection of Reid's plans in the Senate and House, and the Rejection of the Boehner's plan in the Senate. Look at the whining of Nancy Pelosi about cuts to Medicare and Medicaid, and Social Security.

So what does the "guaranteed vote" do but put lipstick on a turkey?

The "Gang-of-Six" put together a $4 trillion proposal that was a down payment on attacking the deficit and that could not pass. Somehow a "Gang-of-Twelve" is going to do better. Please be serious.

The more people you put into a mix, the harder it will be to get an agreement. Even if by some miracle an agreement from the "Gang-of-Twelve" is reached, you still have a hurdle of passing the "guaranteed vote" in the House and Senate.

This "Gang-of-Twelve" idea is nothing but a plan to put off doing anything about the deficit until after the election. Republicans and Democrats will both have wimped out if that is the "solution".

Exchange with Reader "Grant"

Reader "Grant" responded to my post, and we had the following exchange.

Grant: Why you take Obama at his word when he says he was willing to make "hard choices" continues to elude me, especially given his track record of reneging on pretty much every campaign promise he made (wars, transparency, civil liberties, indefinite detentions, etc.) still mystifies me.

Mish: Nowhere did I say the Democrats would have accepted. Indeed I think and have stated several times before they wouldn't. However, the offer would put Republicans in a No-Lose situation.

Would Democrats have gone along? If not, Obama and the Democrats would have been seen as the deal-killers, not Republicans. If the Democrats accepted, it would have been well worth it.

Republicans win if the deal was accepted, they win if the deal was rejected.

Grant: Except this scenario already played out. Who got the blame? Not Obama. Not the Democrats. Boehner and the GOP did.

Mish: And why is that Grant?

The answer is Republicans would not accept any tax hikes. My deal allowed them.

Some Things Far More Important than Trivial Tax Hikes

Some things are far more important than concession on closing a few loopholes to get $1 trillion in tax hikes. President Obama repeatedly said he was willing to make "hard choices". Republicans could easily have put him to the test.

My proposal was to challenge Obama to accept the tax hikes he asked for on a 3-1 ratio of cuts-to-to hikes in return for these three things Republicans want.

1. Scrapping Davis Bacon
2. Ending collective bargaining of public unions
3. National right-to-work legislation

I would gladly trade $1 trillion in tax hikes for those badly needed measures. Would Democrats have accepted? Probably not but one never knows unless one tries. However, either way the Republicans would have won.

Had Obama backed down it would have been his fault. Had he accepted the bargain would have well worth it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Great Divide; Boehner Rams Through Bill that Senate Quickly Rejects; Obama's Idle Threats and Fear Mongering

In a nearly useless face-saving maneuver, House Speaker John Boehner managed to twist enough arms to narrowly pass his bill that was instantly rejected in the Senate.

Questions abound.

Was there any point to this? If so, what was it? Since everyone knew his plan would be rejected in the Senate, why bother?

The only conceivable answer is to save face, but how much face could possibly have been saved when Boehner had to twist the arms of every Republican to narrowly pass his gaseous proposal?

As long as his proposal was going to be rejected anyway, Boehner would have been better served to come up with a rock-solid plan that Republicans would have loved to sign.

If Boehner wanted to make a statement, that would have done it. Instead, Boehner came out looking like a limp dishrag.

Senate Quickly Kills Boehner Debt Bill

The New York Times reports Senate Quickly Kills Boehner Debt Bill

After a 24-hour delay and concessions to conservatives, the House on Friday narrowly approved a Republican fiscal plan that the Senate quickly rejected in a standoff over the federal debt ceiling that was keeping the government on a path to potential default.

Demonstrating the deep partisan divide coloring the budget fight, the House voted 218 to 210 to approve the plan endorsed by Speaker John A. Boehner to increase the federal debt ceiling in two stages. No Democrats supported the measure; 22 Republicans opposed it. The White House condemned it as a �political exercise.�

In the Senate, Democrats filed a motion on Friday that started debate, running down the procedural clock while Republicans expressed their opposition. The first vote on overcoming the procedural hurdles would come early on Sunday. Unless the Democrats can win over enough Republicans to cut off debate and move to approve the Reid bill or some variant, the Republicans would be forced to hold the floor continuously, awaiting some kind of deal.

The main legislative focus was on the search for an acceptable �trigger� that would guarantee that no second installment of a debt limit increase would be provided without consideration of further spending cuts or program policy changes. Democrats say they are willing to allow a new special committee to consider sweeping deficit reduction and tax policy changes but want the debt limit increase assured; Republicans do not want President Obama to get a second increase without meeting some standard, which would be passage of a balanced budget amendment through Congress under the new House plan.

Default Hype

Notice that the New York Times in the very first paragraph repeated the Obama hype regarding defaults. The odds of default at this stage are roughly zero%.

I discussed that at length on Thursday in Not Raising the Debt Ceiling Would be Blessing; Debt Limit Analysis; Interactive Map, You Decide What Not To Pay

Contrary to popular belief, the US would not default. Troops would still be paid. Medicare and Medicaid would not stop. The Bipartisan Policy Center has a nice analysis in a PDF on Debt Limit Analysis.

Prioritization



Obama's, Geithner's, and Bernanke's statements about default simply are not credible. Nor are threats of cutoffs to military pay or Social Security. Indeed those totals allow Medicaid and Medicare to be paid. ....

Idle Threats and Fear Mongering

Caroline Baum repeated my message on Friday in Obama, Geithner May Regret Threats of Default

Scare Tactics

The Treasury is not going to default in August, nor in subsequent months for that matter. An estimated $172.4 billion of tax revenue next month is more than enough to cover the $29 billion of August interest payments. For fiscal 2011, which ends Sept. 30, the Treasury is expected to take in revenue of $2.2 trillion, while only $214 billion is needed to service the debt.

And even if it lacks the authority for new borrowing, the Treasury can continue to roll over existing debt.

Instead of dangling the default threat every chance they get, Obama and Geithner should be telling the world that the U.S. has every intention, and the resources, to meet its debt obligations. They should shout it from the rooftops, put a banner on the Treasury Direct website, and use the Sunday talk shows to reassure investors, not frighten them.

The administration�s stated desire to remove the uncertainty hanging over the economy flies in the face of their saber-rattling. Why, one might even conclude that they are -- perish the thought -- playing politics with the debt ceiling!

Fear Card vs. Common Sense

Notice the common sense approach of Caroline Baum vs. that of Geithner, Obama, and Bernanke. Yes, a default would be a monstrous disaster. However, we are months, not days away from that.

Why Republicans do not call the president on his fear-mongering is certainly a mystery. Are Republicans that bamboozled by Presidential BS?

Great Divide

One of the more interesting political posts of the week is The Great Divide by Washington Post columnist Charles Krauthammer.

We�re in the midst of a great four-year national debate on the size and reach of government, the future of the welfare state, indeed, the nature of the social contract between citizen and state. The distinctive visions of the two parties � social-democratic vs. limited-government � have underlain every debate on every issue since Barack Obama�s inauguration: the stimulus, the auto bailouts, health-care reform, financial regulation, deficit spending. Everything. The debt ceiling is but the latest focus of this fundamental divide.

The sausage-making may be unsightly, but the problem is not that Washington is broken, that ridiculous ubiquitous cliche. The problem is that these two visions are in competition, and the definitive popular verdict has not yet been rendered.

I have every sympathy with the conservative counterrevolutionaries. Their containment of the Obama experiment has been remarkable. But reversal � rollback, in Cold War parlance � is simply not achievable until conservatives receive a mandate to govern from the White House.

Consider the Boehner Plan for debt reduction. The Heritage Foundation�s advocacy arm calls it �regrettably insufficient.� Of course it is. That�s what happens when you control only half a branch. But the plan�s achievements are significant. It is all cuts, no taxes. It establishes the precedent that debt-ceiling increases must be accompanied by equal spending cuts. And it provides half a year to both negotiate more fundamental reform (tax and entitlement) and keep the issue of debt reduction constantly in the public eye.

Obama faces two massive problems � jobs and debt. They�re both the result of his spectacularly failed Keynesian gamble: massive spending that left us a stagnant economy with high and chronic unemployment � and a staggering debt burden. Obama is desperate to share ownership of this failure. Economic dislocation from a debt-ceiling crisis nicely serves that purpose � if the Republicans play along. The perfect out: Those crazy Tea Partyers ruined the recovery!

Why would any conservative collaborate with that ploy? November 2012 constitutes the new conservatism�s one chance to restructure government and change the ideological course of the country. Why risk forfeiting that outcome by offering to share ownership of Obama�s wreckage?

Refreshing Talk of Keynesian Gamble

It is marvelously refreshing to see a mainstream media writer trashing Keynesian nonsense. That paragraph alone makes me want to stand up and salute.

However, after careful reconsideration I still come to the conclusion Boehner screwed up badly.

Indisputable Facts

• Boehner wanted to compromise, announced a compromise, then walked out on talks with Obama.
• Boehner submitted a $3 trillion deficit cutting package the CBO said came in at mere $850 billion. The Tea Party rejected his proposal and rightfully so.
• The best Boehner could do in a rework of that bill was to come up with a total of $950 billion.
• Boehner announced he had votes for passage. In a feat of massive humiliation, Boehner could not twist enough arms to secure passage.
• Boehner lost whatever credibility he had in that pathetic set of maneuvers.
• In a face-saving attempt, Boehner was barely able to scrape up enough votes to pass a bill on Friday that was immediately rejected by the Senate
  

Those are the indisputable facts of the matter and I covered them at length in the following set of posts.

• Not Raising the Debt Ceiling Would be Blessing; Debt Limit Analysis; Interactive Map, You Decide What Not To Pay


• Boehner's Credibility Gone in Revised Proposal; Boehner Tells Congress to "Get Your Ass in Line"; Best Deal Republicans Can Get?


• Boehner Humiliated, Cancels Vote, Stock Futures Tank; Stocks and Treasuries Unusually Correlated

No one knows for sure whether Obama can win another election or not. If he does win, Republicans will probably not get another chance at 3-1 spending cuts vs. tax hikes.

Indeed, unless Republicans win a filibuster-proof Senate and the Presidency they may not get another chance.

Many contend the chance was an illusion, that Democrats were not really offering 3-1 cuts. They are correct.

However, nothing was stopping Republicans from making sure the cuts were real. Moreover, and as I have stated many times, Obama said he was willing to make "hard choices".

Republicans did not even put Obama to the test. In return for $1 trillion in tax hikes, Republicans could have asked for virtually anything.

Deal of the Century

I would gladly trade $1 trillion in tax hikes for ...

• The scrapping of Davis Bacon
• The end of collective bargaining of public unions
• National right-to-work laws

Would Democrats have gone along? If not, Obama and the Democrats would have been seen as the deal-killers, not Republicans. If the Democrats accepted, it would have been well worth it.

Instead, no one knows what will happen in the next election, and Republicans will likely compromise on some meaningless plan that will not do a damn thing to fix the deficit.

Unless some miracle happens, the Republicans flat out blew it, and Boehner is one of the reasons. He may not be the next speaker, even if Republicans retain the House.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Foreclosed 23-Story, 475,789 Sq. Ft. KeyBank Center Auctioned Off for $7.15M; Handing Over the Keys, Cleveland Style

Bidders did not exactly come out of the woodwork in Cleveland as the 23 story KeyBank Center auctioned off for $7.15M

Bidding has ended on Cleveland�s foreclosed 23-story KeyBank Center. The 475,789 square foot building on Superior Avenue sold for $7.15 million.

Bidding began on Monday afternoon at $3.5 million and ended at 2 p.m. on Wednesday.

Building Sells for $15.03 a Square Foot

Math is simple enough.
$7.5 million divided by 475,789 square feet = $15.03 per square foot.

This should give you an idea of what property is worth in Cleveland.

Handing Over the Keys, Cleveland Style

Inquiring minds might be interested in the assessed value for property taxes.

Crain's Cleveland Business reports KeyBank Center headed for auction

The lender controlling the 23- story office building at 800 Superior Ave. in downtown Cleveland is going the auction route to find a way out of owning KeyBank Center, better known as the former McDonald Investments Center.

LNR Partners, the real estate financing and investment concern based in Miami Beach that took title to the 440,000-square-foot building in February 2010, has listed the property at Real Estate Development Corp.'s website Auction.com for an online auction running from 10 a.m. July 25 to 10 a.m. July 27.

The property carries an asking price of just $3.5 million, well below the $44 million market value the Cuyahoga County assigns it for property tax purposes.

Alex Jelepis, a Grubb & Ellis Co. senior vice president who is marketing the property with Guggenheim Realtors in Beachwood, said the low starting price is to attract interest in the offering. He said he expects the building to sell for more than the asking price.

The building, which dates from 1969, will have occupancy of just 37% when the Calfee Halter & Griswold law firm exits for a nearby building next year. Its owner, LNR Partners, handles bank-owned properties and invests in buying defaulted loans or distressed properties from banks.

Dallas-based real estate firm Behringer Harvard handed over the keys to LNR rather than face the daunting task of finding new tenants for the building after Calfee moves. The red-brick KeyBank Center is a different structure from Key Tower, the tallest building in the state and KeyCorp's headquarters.

Prime Cleveland Location

This is not a horrible looking building or a poor location either.

Courtesy of Akron News please consider this image and commentary.

The building used to showcase McDonald Investments on its facade and lists a prestigious downtown financial district address of 800 Superior Avenue, but is now in foreclosure. It's prime -- right behind PNC, across from Bank One and Charter and Huntington, in case you're looking for bankers as neighbors. The auction house soliciting bids for the property notes it's had a "long history of housing some of Cleveland most prominent financial institutions," including Key Bank. When it was built in 1969, it was the city's fifth tallest structure.

The office property has been in play for more than a year. In a March 2010 story "Commercial real estate challenges apparent in downtown Cleveland corridor," The Plain Dealer noted the building had passed from owner to a lender and wasn't the only major office building in the city's financial district impacted by foreclosure.

It's quite a deal for a building boasting almost a half-million square feet of office space as well as an attached 328-space parking garage on more than an acre and a half of prime Cleveland downtown space.

There you have it. Prime building space in Cleveland is worth $15.03 a square foot. The building assessed at $44 million went for $7.15 million, "priced low to attract bidders".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

US GDP on Verge of Contraction in 1st Quarter, Mere 1.3% Annual Rate 2nd Quarter; Summary of Massive Revisions; Second-Half Recovery Nonsense

The stunner of the day is not only an anemic 2nd quarter GDP of 1.3 percent annualized, but of huge revisions all the way back to to 2007.

Please consider Economy in U.S. Grows Less Than Forecast

Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, rose 0.1 percent.

�The second-half rebound is melting away,� said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, the only forecaster polled to correctly estimate the gain in GDP.

Revisions to GDP figures going back to 2003 showed that the 2007-2009 recession took a bigger bite out of the economy than previously estimated and the recovery lost momentum throughout 2010. The world�s largest economy shrank 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the previously reported 4.1 percent drop.

Summary of Revisions

• For 2007-2010, real GDP decreased at an average annual rate of 0.3 percent; in the previously published estimates, real GDP had increased at an average annual rate of less than 0.1 percent.
  
• From the fourth quarter of 2007 to the first quarter of 2011, real GDP decreased at an average annual rate of 0.2 percent; in the previously published estimates, real GDP had increased at an average annual rate of 0.2 percent.
• The percent change in real GDP was revised down 0.3 percentage point for 2008, was revised down 0.9 percentage point for 2009, and was revised up 0.1 percentage point for 2010.
• The revisions to the annual estimates for 2008 and 2010 reflect partly offsetting revisions to the quarters within the year. For example, for 2010, the annual rate of change in GDP was revised up 0.2 percentage point for the first quarter and was revised up 2.1 percentage points for the second quarter, while the growth rates for the third and fourth quarters were revised down 0.1 and 0.8 percentage point, respectively. The downward revision to the change in real GDP for 2009 reflects downward revisions to the first and fourth quarters.
• For the 13 quarters from the fourth quarter of 2007 to the first quarter of 2011, the average revision (without regard to sign) was 0.9 percentage point. The revisions did not change the direction of the change in real GDP (increase or decrease) for any of the quarters.
• For 2007-2010, the average annual rate of growth of real disposable personal income was revised down 0.6 percentage point from 1.2 percent to 0.6 percent.
• From the fourth quarter of 2007 to the first quarter of 2011, the average annual rate of increase in the price index for gross domestic purchases was revised up from 1.4 percent to 1.6 percent. The average annual rate of increase in the price index for personal consumption expenditures (PCE) was revised up from 1.6 percent to 1.7 percent, and the increase in the �core� PCE price index (which excludes food and energy) was revised up from 1.5 percent to 1.6 percent.
• National income was revised up 0.4 percent for 2008, was revised down 0.6 percent for 2009, and was revised up 0.1 percent for 2010.
• Corporate profits was revised down 1.1 percent for 2008, was revised up 8.3 percent for 2009, and was revised up 10.8 percent for 2010.

The above summary is from the BEA Gross Domestic Product: Second Quarter 2011 (Advance Estimate)

Chart of Revisions

Doug Short has a chart of revisions in his post GDP Q2 Advance Estimate: A Stunning 1.3 Percent



click on chart for sharper image

Second-Half Rebound Melts Away

Economists did not see this coming. They never do. Economists in general cannot see a slowdown coming no matter how obvious the slowdown is. Quite frankly, this slowdown was damn obvious.

Moreover, given budget constraints in the US including cutbacks at city and state levels, given Europe will soon be in recession in conjunction with various austerity measures (assuming Europe is not in recession already), given a slowdown in China, and an outright economic bust in Australia, the idea of a huge second-half surge is complete silliness.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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New NASA Data Blow Gaping Hole In Global Warming Alarmism; Idiocies of Cap-and-Trade Exposed

Forbes Magazine reports New NASA Data Blow Gaping Hole In Global Warming Alarmism

NASA satellite data from the years 2000 through 2011 show the Earth's atmosphere is allowing far more heat to be released into space than alarmist computer models have predicted, reports a new study in the peer-reviewed science journal Remote Sensing. The study indicates far less future global warming will occur than United Nations computer models have predicted, and supports prior studies indicating increases in atmospheric carbon dioxide trap far less heat than alarmists have claimed.

In addition to finding that far less heat is being trapped than alarmist computer models have predicted, the NASA satellite data show the atmosphere begins shedding heat into space long before United Nations computer models predicted.

Scientists on all sides of the global warming debate are in general agreement about how much heat is being directly trapped by human emissions of carbon dioxide (the answer is "not much"). However, the single most important issue in the global warming debate is whether carbon dioxide emissions will indirectly trap far more heat by causing large increases in atmospheric humidity and cirrus clouds.

Alarmist computer models assume human carbon dioxide emissions indirectly cause substantial increases in atmospheric humidity and cirrus clouds (each of which are very effective at trapping heat), but real-world data have long shown that carbon dioxide emissions are not causing as much atmospheric humidity and cirrus clouds as the alarmist computer models have predicted.

Real-world measurements show far less heat is being trapped in the earth's atmosphere than the alarmist computer models predict, and far more heat is escaping into space than the alarmist computer models predict.

When objective NASA satellite data, reported in a peer-reviewed scientific journal, show a "huge discrepancy" between alarmist climate models and real-world facts, climate scientists, the media and our elected officials would be wise to take notice. Whether or not they do so will tell us a great deal about how honest the purveyors of global warming alarmism truly are.

Will this stop the global-warming fear-mongers? Of course not. Worse yet, even if global warming was a genuine threat, the cap-and-trade measures proposed as solutions are downright idiotic.

The Wall Street Journal blasted Obama's cap-and-trade proposal in March of 2009 in Who Pays for Cap and Trade?

Cap and trade is the tax that dare not speak its name, and Democrats are hoping in particular that no one notices who would pay for their climate ambitions. With President Obama depending on vast new carbon revenues in his budget and Congress promising a bill by May, perhaps Americans would like to know the deeply unequal ways that climate costs would be distributed across regions and income groups.

Politicians love cap and trade because they can claim to be taxing "polluters," not workers. Hardly. Once the government creates a scarce new commodity -- in this case the right to emit carbon -- and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag -- now Mr. Obama's budget director -- told Congress last year that "Those price increases are essential to the success of a cap-and-trade program."

An economy-wide tax under the cover of saving the environment is the best political moneymaker since the income tax. Obama officials are already telling the press, sotto voce, that climate revenues might fund universal health care and other new social spending. No doubt they would...

Cap and trade, in other words, is a scheme to redistribute income and wealth -- but in a very curious way. It takes from the working class and gives to the affluent; takes from Miami, Ohio, and gives to Miami, Florida; and takes from an industrial America that is already struggling and gives to rich Silicon Valley and Wall Street "green tech" investors who know how to leverage the political class.

Cap-and-trade confers benefit to existing polluters at the expense of new businesses who will have to buy credits from existing ones. It sets up lucrative trading schemes that will benefit Wall Street derivatives traders and those peddling otherwise economically nonviable clean energy schemes.

Cap-and-trade also benefits China, the largest, most flagrant producer of greenhouse gasses. China will not go along with cap-and-trade so driving up costs elsewhere only serves to drive business to China!

Finally, and as Forbes states, cap-and-trade is a tax on consumers who will have to pay for such nonsense.

If global warming is a problem, the free market (not derivative traders, not nonviable clean-energy schemers), will find a solution.

Fortunately cap-and-trade died in the US senate. Unfortunately, no amount of research is likely to stop GE and other beneficiaries (as well a misguided fools led by Al Gore) from pushing the idea.

Addendum:

Some people have attacked the credibility of the Forbes article. I knew in advance they would. They miss my point in writing.

My point is about the silliness of cap-and-trade as a solution. The Forbes article gave me a chance to reiterate those points and I took it. I side with the Wall Street Journal adding my own reasons as well.

My points are valid whether or not one believes in the merits of the Forbes article as presented.

Addendum II:

My friend "HB" writes ...

I have always said the global warming hysteria was essentially based on a hoax. Yet governments spend nearly $60 billion globally on such dreck every year!

What would you do if you were a climate scientist, employed in a discipline that received a few 100 thousand dollars per year of government research funding to study global warming?

If they admit it's a hoax, they are jumping off a huge gravy train.

Exactly. Money flows to those bound to a set of predetermined answers that dictate 1. global warming exists in a meaningful way and 2. something sensible can be done about it on the slim chance it does exist in a meaningful way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Boehner Humiliated, Cancels Vote, Stock Futures Tank; Stocks and Treasuries Unusually Correlated

Thursday morning Bloomberg reported House Majority Leader Cantor Predicts House Republicans Will Pass Debt Plan Today

House Majority Leader Eric Cantor predicted Republicans would pass a debt-limit increase plan today as some freshman lawmakers pledged support for the measure in the face of unified Democratic opposition in the Senate.

Vote Cancelled

Kiss that prediction of Cantor goodbye. Thursday evening Republicans put off vote on debt limit because Boehner clearly lacks the votes.

An intensive endgame at hand, Republican leaders abruptly postponed a vote Thursday night on legislation to avert a threatened government default and slice federal spending by nearly $1 trillion.

"The votes obviously were not there," conceded Rep. David Dreier, R-Calif., after Speaker John Boehner and the leadership had spent hours trying to corral the support of rebellious conservatives.

The decision created fresh turmoil as divided government struggled to head off an unprecedented default that would leave the Treasury without the funds needed to pay all its bills. Administration officials say Tuesday is the deadline for Congress to act.

Senate Democrats stood by to scuttle the bill -- if it ever got them -- as a way of forcing Republicans to accept changes sought by Obama.

Based on public statements by lawmakers themselves, it appeared that five of some two dozen holdouts were from South Carolina. The state is also represented by Sen. Jim DeMint, who has solid ties to tea party groups and is a strong critic of compromising on the debt issue.

Others said conservatives wanted additional steps taken to try to ensure that a constitutional balanced-budget amendment would be sent to the states for ratification. As drafted, the legislation merely requires both houses of Congress to vote on the issue.

Even before the House voted, Reid served notice he would stage a vote to kill the legislation almost instantly.

"No Democrat will vote for a short-term Band-Aid that would put our economy at risk and put the nation back in this untenable situation a few short months from now," he said.

Boehner Humiliated

Boehner was humiliated and justifiably so. He had nothing to gain and everything to lose by attempting to ram-rod a gaseous bill through the House that was guaranteed dead-on-arrival in the Senate.

Majority leader Cantor made matters worse by predicting passage.

Stock Futures Tank in Unusual Correlation with Treasuries

Please consider U.S. S&P 500 Futures Retreat as McCarthy Says No Vote on Debt Plan Tonight

Futures on the Standard & Poor�s 500 Index fell after the U.S. House of Representatives postponed a vote to increase the nation�s debt limit, boosting concern that the lawmakers are far from an agreement to avoid default.

S&P 500 futures expiring in September lost 0.8 percent to 1,286.9 at 12:28 p.m. in Tokyo. The decline suggests the U.S. equity benchmark may extend its 3.3 percent slump from the past four days when markets open in New York.

Stocks and Treasuries are moving in tandem twice as often as they normally do, a sign investors are growing convinced the U.S. will lose its AAA credit rating and that an impasse among lawmakers may spur losses in both markets. The S&P 500 has risen or fallen together with 10-year Treasury notes 80 percent of the time in the last 10 days, compared with the average since 2000 of 41 percent, according to data compiled by Bloomberg.

Not Raising the Debt Ceiling Would be Blessing

I am sticking to what I said in Not Raising the Debt Ceiling Would be Blessing; Debt Limit Analysis; Interactive Map, You Decide What Not To Pay

All things considered, especially since Boehner's credibility is gone in his latest gaseous proposal, the best thing for Congress to do would be to NOT hike the debt ceiling and work out a credible plan over the next month.

Is Mish a "closet Liberal-humanist?"

In response to that post I received a humorous email from "BC" who wrote...

Mish, your choices reveal your empathy! Are you a closet Liberal-humanist?!

Your choices favor the elder working class, the working-class and poor ill, unemployed, poor and "food challenged", and imperial legionaries and auxiliaries against the corporate-statists!!!

Are you one of those maladjusted working-class types who just doesn't "get it"?!

Wink , wink ;-) ;-).

To see my choices as to what I would cut and to make your own choices about what to do if the debt ceiling is not raised, click on the above link for an interactive map.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Not Raising the Debt Ceiling Would be Blessing; Debt Limit Analysis; Interactive Map, You Decide What Not To Pay

As the chances of a gaseous Congressional compromise to do nothing about deficit reduction grow larger, inquiring minds wonder just what might happen if nothing passes.

Contrary to popular belief, the US would not default. Troops would still be paid. Medicare and Medicaid would not stop. The Bipartisan Policy Center has a nice analysis in a PDF on Debt Limit Analysis.

NO �SILVER BULLETS� TO EXTEND DATE

• Our analysis also shows that the X Date will fall between August 2 and August 9. On July 1st, Treasury publicly reaffirmed their estimate of the X Date as August 2
• The 14thAmendment does not provide a reasonable basis for challenging the constitutionality of the debt ceiling. The Administration will not attack the debt ceiling on this basis
• Treasury has no secret bag of tricks to finance government operations past August 2. Treasury will not attempt to �firesale� assets during a crisis.
  
• Other ideas are impractical, illegal and/or inappropriate (gold loans, IOUs)
• There is no precedent; all other debt limit impasses have been resolved without passing the X Date
• The government shutdown of 1995 �96 does not provide a precedent
  

Prioritization



Obama's, Geithner's, and Bernanke's statements about default simply are not credible. Nor are threats of cutoffs to military pay or Social Security. Indeed those totals allow Medicaid and Medicare to be paid.

The PDF covers alternate scenarios of what can and cannot be paid.

Interactive Map, You Decide What Not To Pay

I contend there is easily a month or more to work out a better deal. There are many programs we can easily do away with that should not be funded at all.

Please consider You choose: who gets paid (and who doesn�t)

On August 2, the federal government will not have enough cash to pay for all of its programs and obligations. The U.S. will take in a total of $172.4 billion in revenue during the month, but its total payments exceed $306 billion, resulting in a $134 billion shortfall. If a debt-limit increase is not approved, the U.S. Treasury will have to choose among 80 million monthly payments and prioritize which programs are funded and which ones are not.

Mish Choices



click on chart for sharper image

As you can see, I have $30.6 billion to spare.

The first thing TO pay is interest on the national debt. It is non-payment of interest that would constitute default. Given $29 billion is easily payable, talk of default if Congress does nothing is the height of silliness.

The first thing to NOT pay should be congressional salaries.

As you can clearly see there are many things that would be a benefit to not pay, and never pay again.

Things to Not Pay and Never Pay Again

• Department of Education - $20.2 Billion
  
• Health and Human Services Grants - $8.1 Billion
  
• HUD - $6.7 Billion
  
• Department of Energy - $3.5 Billion
  
• Department of Labor - $1.3 Billion
  
• Small Business Administration - $0.3 Billion
  
• Other Spending - $52.8 Billion
  

Clearly those things would have to be phased out, but the total of those things is a whopping $92.9 billion. That "Other Spending" category may have some essentials, but certainly most of it is not. Also bear in mind, I have $30.6 billion to spread around as needed. Some can go to salaries, but certainly not salaries of Congress.

In contrast, please see Boehner's Credibility Gone in Revised Proposal; Boehner Tells Congress to "Get Your Ass in Line"; Best Deal Republicans Can Get? for Boehner's revised cop-out.

All things considered, especially since Boehner's credibility is gone in his latest gaseous proposal, the best thing for Congress to do would be to NOT hike the debt ceiling and work out a credible plan over the next month.

Addendum:

The link at the top has been changed.

I received an email from Michael Stubel at the Bipartisan Policy Institute thanking me for the post and sending out an updated link.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Boehner's Credibility Gone in Revised Proposal; Boehner Tells Congress to "Get Your Ass in Line"; Best Deal Republicans Can Get?

It was bad enough when Boehner proposed a $3 Trillion deficit cutting proposal that the CBO said would only cut the deficit by a mere $850 billion.

Please see Rating the Obama, Reid, and Boehner Deficit Reduction Plans on Mish's 10-Point Credibility Scale for details.

However, one can make excuses for a "one-time" mistake. However when you submit a second plan that the CBO says will only cut the deficit by $950 billion you lose all credibility. Nonetheless, Boehner tells Congress ...

"Get Your Ass In Line"

Bloomberg reports Boehner Revises Debt Proposal as Aug. 2 Nears

Republican leaders were moving ahead with plans to vote on the measure tomorrow, less than one week before a potential U.S. default Aug. 2, and sought to ease party members� concerns that it wouldn�t cut spending enough. The Congressional Budget Office said Boehner�s new plan would cut $915 billion in spending over a decade, still short of the $2.2-trillion Senate plan.

Boehner, when asked by radio host Laura Ingraham whether he told members at a closed-door meeting today to get �your A-word in line� behind his debt bill, said: �I sure did. Listen, this is time to do what is doable.�

Boehner�s plan would promise another debt-limit showdown in the 2012 election year unless Republicans and Democrats agree by the end of this year to reduce deficits. President Barack Obama and congressional Democrats insist on extending the nation�s borrowing authority through the 2012 elections, saying continued uncertainty would harm financial markets.

An analysis by the nonpartisan CBO of Boehner�s revised plan said it would cut spending by $915 billion, compared with $850 billion for his original plan. This still was less than the $1.2 trillion advertised by party leaders for an initial round of cuts, which prompted leaders to cancel today�s scheduled House vote on the bill.

Boehner's Credibility Gone In Second Gaseous Proposal

The best Boehner could come with over the course of 10 full years, is another $65 Billion! My dead grandmother could find more than that.

With that gaseous proposal, Boehner�s credibility is burnt toast.

Moreover, the Senate will likely reject any of these proposals of Boehner that require a balanced budget amendment. So what is the point other than to put on a ridiculous show?

It would be one thing if his plan contained debt reductions of substance. But in two attempts, Boehner could only find a mere $95 billion a year in cuts when the deficit is a shocking $1.4 trillion.

On my 10-point credibility scale, Boehner passed #7 "Nauseous" and is now solidly in the #8 spot of "Gaseous". The next step is "Imaginary" where President Obama's nonexistent plan sits.

Governor Chris Christie Blasts Obama

New Jersey Governor Chris Christie blasted Obama for not having a plan, telling the president ""You Can't Lead From Behind".

Please see Chris Christie on Obama's Unwillingness to Submit a Deficit Plan "You Can't Lead From Behind" for details and a video.

Exercise in Futility

Meanwhile in an exercise in futility Boehner Moves Ahead on Debt.

House Republican leaders pleaded with their recalcitrant rank and file Thursday to back a plan to stave off an unprecedented government default next week. The House vote would bring President Barack Obama and congressional leaders one step closer to the endgame before Tuesday's deadline.

Republicans are seeking deep spending cuts in exchange for raising the nation's $14.3 trillion debt limit. The White House has threatened to veto the House GOP bill even if it makes it through the Senate, where it faces unanimous opposition among Senate Democrats. Still, getting the newly modified House plan passed on Thursday was seen as an important step toward the process of finding a compromise between the House and Senate proposals.

In a closed-door GOP meeting just hours before a scheduled vote, Speaker John Boehner, R-Ohio, made headway in getting toward the 217 votes necessary to pass his plan in the House. No Democrats were expected to support it. Boehner told the Republicans he expected to round up enough votes but was not there yet.

"But today is the day," he said, according to people in the room.

"I think it's the best deal we can get," said Rep. Steve Chabot, R-Ohio, who said he had dropped his opposition. Rep. Walter Jones, R-N.C., said he would back the measure to ensure that Boehner "has a seat at the table" for the endgame negotiations.

Best Deal You Can Get?

Notice the rank and file starting to cave in to Boehner's gaseous proposal. Rep. Steve Chabot, R-Ohio called it "the best deal we can get."

No it's not. It's not even the best deal you can't get. The Senate will not go along, so there is nothing to get.

As long as you are going to submit proposals you can't get, you may as well make it a good one. $950 billion over 10 years is not a good deal. It's not even a down payment on a good deal, and with that, Boehner just pissed away his credibility.

In the end, something will pass. But it will not do a damn thing credible to reduce the deficit. Reid's plan and Boehner's plan are both back-loaded.

Republicans had a golden opportunity to attempt to extract some major concessions in return for tiny tax concessions. Instead, they are going to settle for nothing. This fiasco is exactly why Republicans need someone like Chris Christie running for president. No one else has managed to show any leadership.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Italy Bonds Smacked in Selloff, Yields Now Approach Spain; Vote of "No Confidence" on Debt Plan

Investors wasted not time in a vote of no confidence on the latest debt package supposed to save Europe. 10-year Spanish government bonds are back above 6% and yields on Italian government bonds are close behind.

Bloomberg reports Italian Bonds Decline After Borrowing Costs Rise at Nation�s Debt Sale

Italian bonds fell for a second day, increasing the yield spread over German bunds, after the nation�s borrowing costs rose at a sale of 10-year debt and Standard & Poor�s said Greece risks further defaults.

Italy�s 10-year yield surged to the most in more than a week amid speculation a probe into a former aide of Finance Minister Giulio Tremonti may force him to step down. German yields fell to near a five-month low versus their U.S. counterparts as American lawmakers pushed conflicting plans to raise the nation�s debt ceiling. Bunds rose for fifth day, the longest streak since April.

Italian Auction

Italy sold 2.7 billion euros of its 10-year benchmark security, less than the maximum target of 3 billion euros. The debt was priced to yield 5.77 percent, higher than 4.94 percent the last time the securities were sold on June 28, and drew bids for 1.38 times the securities on offer, compared with 1.33 times. In six sales of 10-year bonds this year, the average bid- to-cover ratio was 1.42 and the average yield was 4.81 percent.

�With Italy investors have recognised that the debt ratio is 120 percent� of gross domestic product, said Julian Callow, chief European economist at Barclays Capital in London. �That�s very high. Any country really above 80 ought to be getting concerned and looking at ways of bringing down that ratio. When you�re above 100, that�s flashing red signals. As well, in Italy you�ve had very weak economic growth.�

Irish bonds advanced for a third day after an S&P report said some provisions of the EU�s rescue plan would help protect Ireland and Portugal.

Italy 10-Year Government Bonds



Spain 10-Year Government Bonds



Vote of "No Confidence"

Although yields on Italian and Spanish debt are off the highs of the day, the direction is crystal clear. The proper way to look at trends of Spain and Italy is as a vote of no confidence in the latest plan, not as a vote of confidence on Finance Minister Giulio Tremonti .

Yields on Portuguese and Irish debt fell, supposedly on the belief the latest debt deal will lower borrowing costs. It won't. The S&P''s statement "some provisions of the EU�s rescue plan would help protect Ireland and Portugal" is laughable.

There is no way the EU's EFSF, the European Financial Stability Facility, can cover Spain, let alone Italy.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Long-Term Trends in Durable Goods, Two New Charts

Doug Short had an interesting set of charts on durable goods on his site earlier today.

His post, The "Real" Goods on Today's Durable Goods Orders showed "real" inflation-adjusted, population-adjusted charts of durable goods and durable goods ex-transportation.

Those charts show just how anemic this recovery has been. I asked Doug for two additional charts, showing "real" inflation-adjusted, population-adjusted charts of durable goods ex-defense, and ex-defense and ex-transportation.

Courtesy of Doug Short here are those charts. They will be posted on his site tomorrow.

Durable Goods Excluding Defense




click on chart for sharper image

Durable Goods Excluding Defense and Transportation




click on chart for sharper image

I asked for those charts because they offer a better picture of "core" durable goods orders of consumers (TVs, furniture, appliances, etc.)

The per-capita and real-per-capita charts tell a story of decay, and that decay started with the ascent of Chinese manufacturing and continued even through the housing boom years.

Ex-defense, the peak per-capita durable goods production was September 1997.

Doug Short has additional charts, not per-capita adjusted in Durable Goods Orders In Perspective

Here is an interesting chart from that set.

Durable Goods vs. S&P 500




click on chart for sharper image

If durable goods take a dive, and I believe they will, expect the stock market to take a dive as well.

Addendum:

I asked for one more chart that I thought would show the effect of the housing bubble.

Durable Goods Ex-Defense, Not Inflation or Per-Capita Adjusted



click on chart for sharper image

The 1990's was fueled by the internet boom and the 2000's by the housing bubble. Durable goods are still not back to the internet bubble peak in 2000 in spite of massive global stimulus.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Chris Christie on Obama's Unwillingness to Submit a Deficit Plan "You Can't Lead From Behind"

Chris Christie takes on Republicans and Democrats in a blast at both party's unwillingness to compromise. Christie also takes Obama to task for failure to produce a plan at all.



Link if above video does not play: Governor Christie on National Debt Talks: The Need for Bipartisan Compromise

Select Quotes

• When you take these jobs, and you have to exert executive leadership, you have to put your cards on the table. The fact of the matter is the president has spoken in platitudes, but we have not seen a plan in writing form the president. That does not give an excuse to Republicans or Democrats to not come to an agreement.


• There is no substitute to executive leadership. That means taking risks. We did it here [reducing entitlements and spending], but that only happened because I took risks first. I put a plan out there in writing.


• Republicans and Democrats in Congress, and the president of the united states has to put his plan in writing and show it to people. And let's have a great debate about it. But you can't lead from behind.


• I will put up our record of accomplishment, in divided government, with bipartisan work together against anybody in the country.

Chris Christie would make a tremendous president. I hope he reconsiders.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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