The Debts of the Spenders: California Unemployment Rate Breaks 11%

And these are the official rates. One wonders just how bad the situation truly is. Meanwhile, the stock and equity markets continue to price in green shoots. More like green weeds.

The recession continued to punish California as employers cut 66,500 jobs in June to put the state at an unemployment rate of 11.6 percent, the nation's sixth highest.

A report issued Friday by the Employment Development Department in Sacramento also hints at how the state budget deficit will affect California, which lost 6,700 government jobs in June.

"That's the tip of the iceberg," said Stephen Levy with the Center for the Continuing Study of the California Economy in Palo Alto.

Levy said layoffs and furloughs of state workers will worsen the state economy, which has already been hit harder than the nation as a whole by the collapse of the housing bubble.

The U.S. unemployment rate is 9.5 percent. Michigan has the nation's highest rate of 15.2 percent.

http://www.sfgate.com/cgi-bin/
article.cgi?f=/c/a/2009/07/17/BUQI18QSKL.DTL&type=business

The Debts of the Spenders: Yahoo Interview W/Ron Paul

Even though Ron Paul is a goldbug, his talking points continue to resonate common sense regarding fiscal stability, financial regulation, and central banking. In this clip, he also addresses foreign policy and unemployment.


http://finance.yahoo.com/tech-ticker/article/
282246/How-a-%22Very-Pessimistic%22-Ron-Paul-
Would-Fix-the-Economy

The Debts of the Spenders: Will Obama's Health Care Lead to Stagflation?

Can America afford socialized medicine? Many writers don't think so. Although I agree wholeheartedly with this section:

Typical of Obama reforms, the measure is being rushed through Congress without adequate discussion of consequences, without bi-partisan consensus, and with scant disclosure by the Democrat party that has filibuster-proof control of the US Congress. Most Republicans are expected to vote against the measure.

http://capital-flow-analysis.com/capital-flow-watch/
why-obamas-healthcare-scheme-portends-stagflation.html

The Debts of the Spenders: British Backdoor To Hide Commercial Real Estate Losses

July 16 -- (Bloomberg) -- U.K. banks may transfer commercial property loans into real estate investment trusts to purge their balance sheets of debt and avoid future writedowns.

Banks are considering using REITs as publicly traded “exit vehicles” that could limit the losses they and their borrowers face, said Ian Marcus, head of real estate at Credit Suisse Group AG. The British Property Federation has recommended the idea to the government as a solution for state-owned banks weighed down by real estate loans, said Peter Cosmetatos, the London-based industry body’s finance director.

“It’s obviously being considered by all relevant parties because the sector needs to recapitalize and that is one methodology of doing so,” Marcus said in a telephone interview. The concept is in its early stages, he said.

Source:

http://www.bloomberg.com/apps/

news?pid=20601085&sid=aTq8Faqupmho

The Debts of the Spenders: May TIC Data

Foreign institutions continue to sell treasuries.

Big exception here is China which decided to accrue more interest.

Treasury International Capital (TIC) Data for May

WASHINGTON – The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for May 2009. The next release, which will report on data for June 2009, is scheduled for August 17, 2009.

Net foreign purchases of long-term securities were negative $19.8 billion.

• Net foreign purchases of long-term U.S. securities were $7.9 billion. Of this, net purchases by private foreign investors were $31.3 billion, and net purchases by foreign official institutions were negative $23.4 billion.

• U.S. residents purchased a net $27.7 billion of long-term foreign securities.

http://www.treasury.gov/press/releases/tg216.htm

For more info on TIC analysis:

http://ex-skf.blogspot.com/2009/07/
tic-treasury-international-capital-data.html

The Debts of the Spenders: Massachusetts Investigates Levered ETFs

Galvin Investigating Leveraged ETFs

By Money Management Executive

July 16, 2009

Massachusetts Secretary of State William F. Galvin is investigating the sales materials of fund companies that sell leveraged exchange-traded funds, The Boston Globe reports.

The state has sent letters to three of the leaders in the space, Direxion Funds, Rydex Investments and ProShares.

“These are highly volatile instruments,” Galvin said. “We want to make sure that if they are sold to average investors, they are told there is risk here. This is not a save-and-hold investment.”

Specifically, Galvin is investigating whether leveraged ETFs should be sold with detailed warnings about the funds’ ability to double or triple losses. He is also concerned that there are 140 leveraged ETFs on the market with $33 billion in assets.

Late last month, the Financial Industry Regulatory Authority asked brokers and registered investment advisers to provide it withinformation on the sale of leveraged and inverse exchange-traded funds between Oct. 1, 2008 and March 30 to investors who held them for 10 business days or longer. The authority is looking for all sales and marketing materials, customer communications and complaints, arbitration claims and written supervisory procedures regarding the sale of such funds.

But the companies at the heart of the probes defend both their approach and marketing strategies, saying they are complying with current regulations.

Source: http://www.financial-planning.com/news/
galvin-massachusetts-etfs-2663301-1.html

The Debts of the Spenders: PIMCO Urges Fed to Inflate Faster

Bond giant, PIMCO, is urging the Fed to print faster as a way to offset deflation. While PIMCO has a good track record of investing, they are also prone to talking their book w/o disclosing conflicts of interest.

“The way to make monetary policy effective is for the central bank to promise to be irresponsible,” McCulley wrote in a July commentary posted to Pimco’s Web site, citing a 1998 paper written by Princeton University economist Paul Krugman.

If consumers and businesses continue to hoard cash, monetary policy makers may need to boost inflation until prices are as high as they would have been without deflation, McCulley wrote.

Stop right there. McCulley makes valid points. But he does not say how or where the government spending should be targeted.

The most effective way to free up funds is to hit the area where Americans devote the largest parts of their budget - health care spending. Health care is the black hole of both public and private finance since costs continue to rise year in and year out. But if the government is able to free up funds by removing the biggest variable cost from consumers' lives then that leaves more room for consumers to load up on flat screen tv's, x-boxes, leather sofa sets, and gas guzzling SUVs. Then there is at least some hope that the government will receive a return on its investment through stronger tax receipts and avoid the costs of paying for negative externalities like combating higher crime rates or increased workfare costs.

By the way, wishing for inflation is never a good idea as you might just get it:

Prices paid to U.S. producers rose in June by twice as much as anticipated, led by surging gasoline costs, a Labor Department report showed yesterday. The 1.8 percent increase in prices paid to factories, farmers and other producers followed a 0.2 percent gain in May, the department said. Excluding food and fuel, so-called core prices rose 0.5 percent.

http://www.bloomberg.com/apps/
news?pid=20601087&sid=akpxGSwUoMuA