First, the ‘Good’ News…

Last week’s financial headlines offered a study in contrasts. On the ostensibly sunny side of the news was the explosive evacuation coaxed forth by General Motors’ IPO. Economic optimists must have rejoiced at this spectacle, oversubscribed and charged with hubris as it was. Just like in the good old days, speculators and Wall Street bunko artists couldn’t get enough of a bad thing. Or are we perhaps being unfair to GM?  At best, we’d say the jury is still out, given that it has taken $50 billion worth of Federal largesse to elevate the once-mighty automaker from basket case to dubious recovery story. Nowhere in the torrent of stories about the IPO was there even a word about the actual cars that GM builds. Not that this would be a concern on Wall Street, with its idiot savant focus on the deal itself. For the record, we’ll mention that the latest Consumer Reports is not exactly gung-ho on GM’s, um, product.  Although the company has made strides in engineering and quality, notes the magazine, it still has a ways to go before it catches up with foreign competitors. (And let’s not even mention the Volt, a GM hybrid that looks like it will take every bit of a planned $7000 subsidy to dislodge the car from showrooms.)

For all its splendor, California faces extemely hard times

So if the hoopla-and-hubris surrounding GM was last week’s “good” news, what was the bad?  In case you missed it, a bankruptcy-in-progress that will eventually dwarf GM’s took another small step toward the abyss. We are of course referring to the latest bond sale by the Golden State — a $10 billion debacle that drew such a tepid response that California was forced to cancel a second debt offering this week worth $267 million.  Too bad they don’t have a Federal Reserve-type bank of their own to take up the slack, since sucking up $10 billion worth of the wishfully named “revenue anticipation” notes would have been mere chump change if handled Bernanke-style.  Come to think of it, California may have laid the groundwork for just such an experiment when, earlier this year, Sacramento paid its employees with IOUs.  Why not simply issue more such IOUs to buy its own bonds?  That would almost exactly mimic what the Federal Reserve has been doing through its “quantitative easing” con-game. An added plus is that the tactic might spur some public discussion of quantitative easing itself, possibly enlightening the mysophiliacs who bring us the news each day. Business reporters, pundits and columnists — even that loony leftist who writes on economics for The New York Times — seem not to understand the process of quantitative easing very clearly, since, as far as we are aware, none of them has even bothered to ask the question, “How does the Fed pay for all of that Treasury paper it has been buying?”  Isn’t it time they looked into this?

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  • roger erickson November 27, 2010, 5:56 pm

    two articles in the Washington Post put a good epithet to the GM debacle.

    Banks buy $2.37 billion more in General Motors shares
    http://www.washingtonpost.com/wp-dyn/content/article/2010/11/26/AR2010112604004.html

    The markets room, nerve center of the U.S. Treasury Department
    http://www.washingtonpost.com/wp-dyn/content/article/2010/11/26/AR2010112604911_Comments.html

    comments here are priceless, especially by FloridaChick

  • roger erickson November 22, 2010, 9:53 pm

    Michael Murphy has some videos that are funny & entertaining, yet have a killer flaw.

    http://survivethegreatinflation.com/cartoon1-2/
    http://survivethegreatinflation.com/cartoon2-2/

    The real point of currency “convertibility” is to anchor people’s perception of currency to supposedly “real” value they can understand & leverage.
    Why not skip arbitrary commodities (gold, etc), and jump closer to honest reality?

    Currency convertible upon demand to:

    Tax liabilities
    Public Purpose
    Group Coordination
    etc, etc;

    Once you do that, it’s clear there’s no long term purpose in trying to sequester anything except the ability of a populous to coordinate group intelligence. In all honesty, anything less is a self-deluding sham that, at best, only helps protect individuals that don’t trust their own population, or neighbors. Don’t get me wrong, that’s ALWAYS going to be a hedge over short intervals, but irrelevant long term. No amount of Libertarian hermits can scale up to a coordinated population capable of defending national boundaries against the slings & arrows of outrageous fortune.

    Some wag here said it best: If your neighbors don’t have your back, you’re toast [no matter how much gold you have under the mattress].

  • Robert November 22, 2010, 8:17 pm

    “Earlier this year, Sacramento paid its employees with IOUs. Why not simply issue more such IOUs to buy its own bonds? That would almost exactly mimic what the Federal Reserve has been doing through its “quantitative easing” con-game.”

    – You nailed it, Rick.

    How can the Feds fight California without exposing and obviating their own hypocricy?

    All complex systems which contain the procedural mechanism to increase their own complexity will always fail catastrophically, and it is never due to an identified flaw in the system- it is always some small, insignificant variable that triggers the collapse by suddenly going fractal in its systemic impact.

    Hence the term “The straw that broke the camel’s back”

    How can printed money be the cause of our societal ills? I mean, we have been issuing purely fiat money for 40 years…right?

    At some point- historians may identify the exact moment in time at which one FRN became one too many.
    🙂

  • Mark November 22, 2010, 7:18 pm

    The solution for balanced budgets is to set the budget the year after the taxes are collected. It may take ten years maybe less to move to this but when the bills are priced and that amount subtracted from the state bank account reaches Zero no more spending bills would be allowed. The only bonds allowed would be for projects like roads, school buildings, other building contracts. The bond length would be for half the projected life of the project.

  • warren November 22, 2010, 7:09 pm

    Individual states going belly up seems to me like the wheels falling off the wagon.

  • dave November 22, 2010, 6:36 pm

    In the summer of 2009, here, in Pa then Governor Rendell went to the Mideast to try and sell the Pa turnpike to the reps of a Sovereign Wealth Fund. So think yard sale, Ca size, involving anything that gathers in coin and not IOU’s..

    • Robert November 22, 2010, 8:04 pm

      I read that story about the turnpike… crazy.

      How many more “toll roads” will begin popping up all over the country, so that the revenue stream can be securitized and sold in “current capital for future cash flow” trade?

      I know California is bursting with new toll roads, probably for this very purpose.

      I think I need to get a helicopter.

  • Benjamin November 22, 2010, 6:14 pm

    The problem can be fixed easily enough by exchanging the IOUs in Cali, for the Volts in Detroit. That way, GM is bailed out with a larger debt, while Californians have cars. Only one stinks, er… sinks! Get away, all you mysophiliacs!… while the other is saved for a few minutes.

  • walter fields November 22, 2010, 5:45 pm

    Rick, maybe it’s time for a re-make of Night of the Hunter
    only this time make Mitchum a banker. Banking fills alot
    of the metaphysical slots of God. In lieu of the famous good/evil tattoos, maybe work out a debt vs. belief scheme
    to demonstrate the power of sucker systems – belief always
    win. There are SO MANY parallel tracks to be explored.
    Just the underwater scene of Shelly Winters sitting behind
    the wheel, her throat slit. How many houses are under
    water now, their throats slit?
    Walter Fields

  • Larry D November 22, 2010, 5:44 pm

    2011 Chevy Volt………………………..$40,280 MSRP
    2011 Chevy Corvette 1LT Coupe….$48,950 MSRP

    Drum roll…

    The Volt gets a $7,500 rebate *er* tax credit. Like a bad penny, taxpayers can’t get away from GM.

  • Steve W November 22, 2010, 10:37 am

    I heard a local state congressman on talk radio the other day tauting his bill he was going to introduce to the legislature. As the law stands now, if a business is paid by the state with an IOU, the business is not allowed to pay his state income taxes with the state issued IOU. The congressman is trying to change that. So if that law does get changed, who knows what other unintended consequences may result. Purchasing CA bonds with IOU’s, or better yet, paying federal taxes with a CA IOU. The limitations to this fun is bound by only one’s imagination.

    • roger erickson November 22, 2010, 6:12 pm

      That would actually make a lot of sense. If your national currency supply mgrs are idiots, localities can shield themselves considerably by utilizing sane mgt of a local currency. Making local taxes payable in a local currency is the key. After that, it’s far easier for locals to organize to effectively stick together and work for one another, instead of getting so sidetracked by traitors wanting to employ slave labor in China & oil from Saudi instead of their neighbors.

    • Robert November 22, 2010, 7:44 pm

      That is hilarious…

      The Fed’s are gonna be in a serious pinch. I mean, the IRS and the Federal Reserve are fighting the Idaho and South Carolina State Legislatures over their Bills to re-instate weights and measures that would re-assert Silver as legal tender.

      How can the Feds fight against “hard” money in some states, while simultaneously fighting against “soft” money in California?

      The Coinage Act of 1792 is still the law of the United States. Idaho and other states are trying to bring this fact back to the forefront of the public consciousness, while California is surreptitiously doing exactly the same thing, only they are taking exactly the opposite tact.

      The irony in all of this is epic.

    • Robert November 22, 2010, 7:57 pm

      “Making local taxes payable in a local currency is the key. After that, it’s far easier for locals to organize to effectively stick together and work for one another, instead of getting so sidetracked by traitors wanting to employ slave labor in China & oil from Saudi instead of their neighbors”

      This brings to mind the episode of “Pawn Stars” that was on the History channel yesterday (Sunday)

      A guy was in the shop pawning off some old “Company Store” tokens from a Coal mining company. These tokens served as circulating currency in mining, timber, and other frontier towns, and they were only redeemable in the stores of the company that issued them.

      The short of it is that the company would issue the coins (which were mainly denominated steel or iron slugs) as wages, and since the coins were only redeemable in the stores that the issuing comany owned, the company basically “owned” the standard of living of it’s employees. Food was always over priced, so the lowest tiers of the workforce always had barely enough to feed their families, and at the same time, “extraneous luxuries” like fur hats, suits, and Gentlemen’s canes were always quite cheap, so that the more “privileged” workers in Management got to enjoy the excesses of their position a bit more easily…

      The parallels to today jumped out at me rather strongly. The FRN is simply another “Company Store” token.

      It was the tax issue that ultimately destroyed these worthless tokens as meduims of exchange.

      As it has always been, so to shall it always be…

    • roger erickson November 22, 2010, 9:46 pm

      http://www.ithacahours.org is a better example; there are lot’s of stable, local currencies in multiple countries; Bali village temple hours are perhaps the oldest continuously in use;

      Point is that coordinated group intelligence always trumps all. Any commodity or nominal bookkeeping currency is only a tool, and is only as useful as the group wielding it.

    • fred November 27, 2010, 1:39 pm

      Seems like you might have coined a term for the new Ca. currency – caiou –

  • Steve November 22, 2010, 5:49 am

    Boarders, borders – another chink to attack.

  • Steve November 22, 2010, 5:43 am

    Who California? The district of California under the Buck Act, a territory [1940’s]. The democracy of California under that constitution in 1879. The Original California Constitution from, when was that 1859? Or, that “Nation” Republic California shown on the 1843 map authorized by Congress? Let us see; 1846 California had a flag, a Constitution, People, and established National Boarders. Or; we may anarchy it and just call it the moving populous Kalafornicate morphing into whatever one wants it to be Today, and for ME. No History. No Culture. No Contract. No Life.

    ARTICLE III
    1879 constitution for california:

    SEC. 2. The boundaries of the state are those stated in the Constitution of 1849 as modified pursuant to statute.

    And for the secessionists:
    SEC 1. The State of California is an inseparable part of the United States of America and the United States Constitution is the supreme law of the land [new section adopted November 7, 1972]

    Rick’s writing was about ‘bonds’. So, my question is; who will be holding the bag? Which California is selling the bonds, the private democracy, or the Original State? And, will it matter under contract law? I’d guess that if someone refuses to say contract law matters, that that person is going to try and put the liability on all persons whether they assent to the lawlessness or not. The new paradigm; I did it, I do it, I caused it, but; don’t you dare hold me responsible cause I’m “_______________”! Wallpaper, if anyone actually held a certificate and paste to glue it to the wall. That is “Value” of a corporate bond tallied in federal reserve notes. Wallpaper and paste – THAT IS ALL THERE IS.

    “Be Prepared”

    Trustworthy
    Loyal
    Helpful
    Friendly
    Courteous
    Kind
    Obedient
    Cheerful
    Thrifty
    Brave
    Clean
    Reverent

    There aren’t any Boy Scouts buying bonds are there!

  • jon November 22, 2010, 3:58 am

    Either the lending loosens up (radically), and (for everyone), or until prices of homes go to the same as they were in the 50’s, don’t look for improvement, as the whole U.S. economy was based on property appreciation. ——Or O will keep listening to Timmy and Benny, and things will continue down this black hole.—-Or, did the PTB orchestrate this all on design?

    Or, It’s a powder day tommorrow in CO.

  • SDavid November 22, 2010, 3:05 am

    I can’t really consider it a successful IPO for GM when it can’t close above the price in which it opened on the first day. it looked to me like people couldn’t get out fast enough.

  • VegasBob November 22, 2010, 2:12 am

    I think it will quickly become apparent to state budget officers across the country that (1) there is no real economic recovery, (2) Bernokio’s money-printing is of no use to the states and (3) there will be no new bailouts from the Republican House of Representatives.

    So I would look for state budget cuts to accelerate sharply after the holiday season ends.

    California’s finances probably could be repaired if California politicians learned how to use a meat cleaver on their budget. Unfortunately for California, the bond market is likely to impose a fiscal solution on the state since the politicians will not fix their problems voluntarily.

    I would not want to be an Illinois resident. With respect to finances, the State of Illinois is definitely beyond repair, no matter what tax hikes the politicians are able to ram through.

    • Robert November 22, 2010, 7:27 pm

      Agreed-

      California has something like 900 agencies on record with titles that begin “California dept. of…”

      HOW is that possible?

      Let them eat cake.

  • Other Paul November 22, 2010, 1:14 am

    “How does the Fed pay for all of that Treasury paper it has been buying?”

    Most people don’t even know the question.

    Of those who do know the question, most don’t want to know the answer.

    • Rich November 22, 2010, 4:32 am

      Does it make one a GM hebephrenic scatologist to note that despite all the abundant talk of QEII, the money supplies barely budged, the multiplier and velocity are contracting, not to forget the usual one to two year lag?

      http://www.shadowstats.com/charts/monetary-base-money-supply

      The $41,000+ GM hybrid reiteration of the more functional Prius, the Volt that goes 40 miles on its batteries and another 260 miles on its 9.3 gallon gasoline tank, claiming 230 mpg and approaching two tons with batteries and 4 passengers max? Wait till people learn they have to install a $2500 240 volt charger if they want to recharge faster than 19 hours.

      http://www.nationalreview.com/planet-gore/242092/gm-volt-electric-lemon-greg-pollowitz

      When the state fiscal fit hits the shan, many may wish to be more than 300 Volt miles from state capitals.

      Thanksgiving is having a warm heart and family place with a full stomach.

      Increasingly, America’s foreclosed homeowners turned campers do not. Every night in this resort town of affluence there is an old timer in the snow bent over in the dark on a walker with a sign that says HELP! looking for a safe place to lay his head. So much for the Medicare and Social Security safety net and the non-extension of unemployment benefits…

    • Robert November 22, 2010, 7:25 pm

      “Thanksgiving is having a warm heart and family place with a full stomach.”

      – For many of us, I hope this sentiment will resound particularly strongly during this holiday season… Goodwill to all