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Monday, November 21, 2011

If We Could Only Get That Fat Lady To Keep Singing!

Sigh. We seem to be in the everything-goes-splat mode. It's not clear how this develops from here - a few more cards are going to have to be turned face up on the table before we figure out just how bad Chinese banks really are, for example, and most of all, just how broke those local Chinese governments are.

As for Europe, absolutely none of the players have a clue as to how to deal with the situation. The worse it gets, the more they rely on fantasy solutions. Not only hasn't this improved, it has gotten worse. This time I do believe that the Austrian/Eastern bloc line of credit gets busted.

Bundesbank is indulging in Wagnerian gloom, and if it ain't happening in Germany, it ain't happening anywhere in Europe. Due to the German property boom I wonder if the Bundesbank is too negative - domestic investment in building ought to carry them through an export drop with near 2% growth. Yet Bundesbank is generally very good at projecting changes in the German economy, so we'll see.

China, India, Singapore and Japan are all seeing some internal difficulties as well as negative changes in the global economy. They will not provide much help. Japan is probably only a few years out from its collision with its own sovereign debt crisis. What will happen and how that will adjust remains to be seen, but Japan has to remain a net exporter, and the nuclear power transition is going to impede them.

Right now commodity prices are being supported by the flight ex-currency, but they appear to have advanced too far - all too many commodities can't maintain market absorption at current pricing - so we are likely to see some discontinuities develop.

At the current time, Ireland, Spain, Italy and Greece are all basically locked out of the sovereign debt market. If ECB weren't buying, both Spain and Italy would be seeing yields above 7% on a very consistent basis. Italy's plight is worse, because short-term yields are quite high. Rumors that the EFSF bought part of its last penny-ante bond offering persist. This is a real issue - the EFSF is the only avenue to funnel money to Ireland and Greece really, and if it fails to be able to raise funds, the ECB and Europe needs to turn its attention quickly to rescuing the EFSF. ECB could buy the bonds - that may be where it ends up.

In the US, CFNAI confirms that we pulled out of one dip but strongly suggests that we are about to enter another with six weeks. Gas sales are startlingly weak. Diesel is strong; how long this continues probably has a lot to do with Snarky Mark's port traffic projections.

Within two years, the US is going to have to launch a massive austerity campaign of its own. It won't be pretty, and it will induce a restructuring of the US economy to a more Germanish 68/32 or so consumption/production ratio.

The Census and the NY Times did something worthwhile for a change. This article on the "near-poor" captures something important about the US economy:
Perhaps the most startling differences between the old measure and the new involves data the government has not yet published, showing 51 million people with incomes less than 50 percent above the poverty line. That number of Americans is 76 percent higher than the official account, published in September. All told, that places 100 million people — one in three Americans — either in poverty or in the fretful zone just above it.
This is also the reason why the cost estimates for health care reform were so hugely underestimated. The Supreme Court can rule however it wants to - it is simply not possible financially to implement the darned thing:
Another surprising finding is that only a quarter of the near poor are insured, and 42 percent have private insurance. Indeed, the cost of paying the premiums is part of the previously uncounted expenses they bear.
If ACA ever were to go into effect, a substantial number of these households would discover that they have more economic stability if they earn less, plus more access to medical care. They will - they will go on Medicaid. Another large portion of these households will find themselves pushed down a level by medical premiums and high copays, or the alternative fine (most of these families can't afford to pay premiums). The subsidy is not high enough to help them stay in their current living arrangements.

So we have an impending discontinuity in China, two very large impending discontinuities in the US (fiscal adjustment and dumping health care reform), an ongoing splat in Europe which this times seems likely to take out a big chunk of the Eastern bloc, and no solutions in sight.

A drop in commodity prices MAY bail India out next year. Or it may not. The rupee is collapsing, the balance of trade is quite negative, inflation is soaring well above real rates of economic growth, and suggested government initiatives are likely to raise the fiscal deficit again. Growth of 8% with a fiscal deficit of 4-5% is one thing, but a fiscal deficit of over 5% with growth at 6-7% gets frighteningly close to the line. I think there is only a 20% chance of a real Indian spin-in next year, but it is a very unwelcome prospect, and it cannot be ruled out.

"Another surprising finding is that only a quarter of the near poor are insured, and 42 percent have private insurance. Indeed, the cost of paying the premiums is part of the previously uncounted expenses they bear."

Someone, this morning, pointed out this sentence makes no sense. The sentence should probably be that 25% do NOT have insurance.
They mean that only a quarter of them have insurance, and that of that 25% who have insurance, 42% are buying it privately.

The cost of insurance and medical expenses was one of the factors used to adjust official incomes and create this category of the "near-poor".
Rick - Table 4 on page 10 of this Census paper gives you the group at 1-2 times poverty level. Adjusted this way (SPM, second part of table), about 16% of the population is below poverty level, and almost 32% more is at 1 to 2 times FPL.

This group of the population is much less likely to have access to public insurance (although in theory that will change under ACA), and it also cannot possibly afford to pay family coverage insurance rates in aggregate. If they don't have insurance through work they don't have insurance, and a large number of these families don't insure their chidren. The exception would be large families living together, so the younger adults without children can swap rent for insurance.

In Table 2 page 7 you can see at the bottom a breakout for insurance rates of those in the total population, those in poverty by the official measure, and those in poverty by SPM. Note that 31.2% of those in poverty by SPM are uninsured, roughly double the population rate. But of those insured, only 29.8% have private insurance.

However the rate of uninsured persons actually rises in the next group of those near poverty by SPM, because they have less public coverage.
I read this somewhat clueless article, refuting the idea of near poor. It said basically,of course they don't need much income. They own their houses! It was written by someone that has never paid property taxes. It's $3500 a year for our house, currently valued around $155-180,000. That's two full months of my boyfriend's disability on social security. And it's not about having medical insurance. Many policies, like mine, have significant deductibles. Add the high cost of gas and food to the list of things that have now become necessities (cell phones, Internet, cable tv), and you have a lot of households under stress.

If you want a good laugh, I can send you a link to our governor's attempt at dealing with a $1.4b shortfall. You'll be amazed at how little she found to cut in the natural resources budget.
Teri - I'd like the link. It's better than Chinese consumption stats.

The poor and near poor have to pay food, medical, utility and fuel costs, all of which have risen quite sharply.

Property taxes have increased over 10 years so hugely in many locations that a lot of people will have to leave their homes. This greatly constrains the future of the housing market. There's a pretty big generation in the early 20s, but by the time they get to the point of buying a lot of older people in many states will be forced out, so there is going to be a pretty rapid roll for existing housing.

One of the few possible survival strategies for many older persons is to sell where they are and move to much cheaper areas with lower tax and energy costs. Between taxes and heating costs, it can be almost impossible for an older person to stay in their home across the metro-ish areas of the northern states.
Here's the link to the whole mess: WA state budget . I realize that the education and social service budgets are larger than the other items. Still, with such a huge shortfall, you'd think they could be more serious than this.
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