Tuesday, July 27, 2010

What's Really Going On in the Economy: It's Worse than the 'Great Recession' of 2008

Consumer Metrics Institute is out with their latest numbers. It isn't pretty. As I have pointed out, CMI data is real time and light years ahead of the data put out by the government, it should be taken seriously as the best indicator of what is going on in the economy in terms of demand for capital goods in the consumer sector. Here's their latest:
Since last week our Daily Growth Index has weakened further, surpassing a year-over-year contraction rate of 3%. This daily measurement of on-line consumer demand for discretionary durable goods has now dropped to the lowest level it has recorded since late November 2008.

► The current contraction in consumer demand for discretionary durable goods has now extended for more than 6 months.

► The day to day level of the year-over-year contraction is now worse than a similar reading of the 'Great Recession' of 2008 was after 6 months. [Although the 2008 Recession did dip lower, it was recovering at this point in time due to Bernanke's money printing in late 2008 into early 2009-RW]

► Although this contraction has not yet reached the extreme contraction rates that were seen during 2008, after 6 months it has not yet formed a bottom. Furthermore, it is now likely to last longer than the 2008 event.
What's going on here can be understood in terms of Austrian Business Cycle Theory. The first leg of the downturn was reversed as a result of extremely aggressive Fed printing between late 2008 and early 2009. That money printing started to manipulate the economy higher in a distorted manner back into the capital goods sector.

The current second leg is the result of the money slowdown that began in early 2009. It isn't as "deep" because of the liquidations that occurred in the first leg of the downturn, e.g., a house in this short a time period doesn't go through foreclosure twice. The second leg is mostly about completely new liquidations that are occurring because of the propping up the Fed did with their brief late-2008, early 2009 printing.

See the lecture below by Roger Garrison, Professor of Economics at Auburn, for a great and entertaining exposition of how all this happens.

Wednesday, June 23, 2010

How the Government Slowed Down the Gulf Cleanup

Tuesday, 22 Jun 2010 03:31 PM
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By: Ernest Istook
Our own government has quietly admitted that America needs foreign help to handle the oil spill — almost two months after pushing that help away.

Far more oil could have been intercepted before it fouled the Gulf Coast. So why hasn’t our government apologized?

By refusing foreign assistance, we banned both the latest technology and cleanup vessels that far exceed the capacity of America’s oil spill response vessels (OSRVs). We rejected ships with 10 times the capability of the vessels we used instead.

In a quiet announcement on June 18, the Federal On-Scene Coordinator (FOSC) finally agreed that we need help, describing a conclusion reached two days before:

“. . . the FOSC, in coordination with other federal agencies, determined on June 16, 2010, pursuant to 46 U.S.C. §55113, that there are an insufficient number of specialized oil skimming vessels in the U.S. to keep pace with the unprecedented levels of oil discharges in the Gulf of Mexico. Based upon this determination, foreign specialized skimming vessels may be deployed to response operations.”

Technically, the Jones Act remains unwaived and continues to restrict use of foreign vessels other than OSRV’s. Officials invoked only a limited exemption that was put into law after Hurricane Katrina.

By their delay, our bureaucracy and government regulation have made a horrible situation even worse. There were two weeks between the April 20 explosion on the Deepwater Horizon and the time when the first oil made landfall. And it was almost six additional weeks before specialized equipment from overseas was approved by our government for limited use.

The Dutch formally offered help on April 25. Not until June 14 did the U.S. State Department announce that some foreign help would be welcomed from the 17 nations who had been trying to assist.

We violated a basic rule of oil spills: “The key to avoiding catastrophic damage and extreme liability is a fast response.”

So what’s different about the foreign equipment that at long last is being deployed? Capacity, for one. They can do far more and do it more quickly.

To protect the North Sea — a major petroleum-producing area — Europe created cooperatives such as Norway’s Norwegian Clean Seas Association for Operating Companies (NOFO), assembling resources that far surpass America’s.

The largest American OSRV I’ve found has only a 4,000-barrel capacity. Compare that to Norway’s new cleanup standards, which state, “An active effort must always be made to achieve the largest possible tank capacity. Under no circumstances must the tank capacity for storage of recovered oil be less than 1,500 m³.” 1,500 cubic meters is 9,400 barrels. None of our U.S. oil recovery vessels appear to come even close to this standard.

The European Union maintains a multi-faceted inventory of OSRVs. The Netherlands alone lists 11 ships that exceed this 9,400-barrel capacity, including vessels like the Geopotes 14 that reportedly can pick up and contain 47,000 barrels at a time. That’s 10 times larger than any U.S. ship we’ve been using.

Collecting more oil in each run enables more time spent collecting oil and less time carrying oil back to a storage facility.

There’s another problem with how U.S. regulations are slowing down the cleanup. The Dutch are now providing skimmers that can be attached to American vessels. But because most of what’s skimmed is unavoidably water, not oil, they complain that America’s EPA standards won’t let them put back the water. Thus their tanks fill up with a mixture that is mostly water.

That mix is a serious problem. The Incident Commander, Coast Guard Admiral Thad Allen, told the media on June 11, “We have skimmed, to date, about 18 million gallons of oily water — the oil has to be decanted from that [and] our yield is usually somewhere around 10 percent or 15 percent on that.”

That means 85 percent to 90 percent of what is collected is water, not oil. If complaints are correct, then unless vessels can separate these at sea and discharge the water, most of what they haul back to a storage facility is water. That means six or seven trips to carry one full load of skimmed oil. Complaints are that our EPA says discharged water from the skimming cannot exceed 15 ppm (parts per million) of oil.

Radio Netherlands reported:

“The Americans don’t have spill response vessels with skimmers because their environment regulations do not allow it. With the Dutch method, seawater is sucked up with the oil by the skimmer. The oil is stored in the tanker and the superfluous water is pumped overboard. But the water does contain some oil residue, and that is too much according to U.S. environment regulations.

“Wierd Koops [head of the Dutch consortium, Spill Response Group Holland] thinks the U.S. approach is nonsense, because otherwise you would have to store the surplus seawater in the tanks as well.

“[Says Koops], “We say no, you have to get as much oil as possible into the storage tanks and as little water as possible. So we pump the water, which contains drops of oil, back overboard.”

“U.S. regulations are contradictory, Mr. Koops stresses. Pumping water back into the sea with oil residue is not allowed.”

He is not alone in criticizing America’s restrictions on the cleanup efforts. Several Democrats in Congress have joined the calls to get our bureaucracy out of the way.

Rep. Corinne Brown, D-Fla., said at a hearing, "We are in emergency mode; we need skimmers . . . There are small boats, I guess, but we need the big ones. I understand they are available in other countries."

We indeed need the big cleanup ships that America must get from overseas. Who knows how many livelihoods — and how much of the environment — would have been spared if our government had not drug its bureaucratic feet and invited them two months ago?

Tuesday, June 22, 2010

I had to post this video of President Obama showing off his golf swing:

Wednesday, June 09, 2010

Friday, March 12, 2010

Saturday, February 06, 2010

How not to explain the Section 1031 Exchange of Like-Kind Property

Take a look at this YouTube video. The lady explains that in a 1031 one "rolls the gain" over into a new property to defer the recognition of gain. Starting with a $500,000.00 property with $300,000 in "equity" -- which presumably is the original down payment and some as yet unrecognized capital gain -- she speaks of "taking all the equity" and rolling it into a new property. It certainly sounds like she is suggesting exchanging into a $300,000.00 property and paying off the $200,000 ("non-equity") mortgage on the relinquished property. But if you do that you will have received "cash boot" in the amount of $200,000.00 (represented by the forgiveness of the debt secured by the mortgage) which is as fully taxable as if you had actually received cash. To avoid this, one must replace the old debt with new debt (or cash) and exchange into a property worth at least $500,000.00. See my website for how to structure a 1031 exchange.

This is good. Roll Tide!

Sunday, January 10, 2010

Bernanke Exposed: