Larry Levin's Day Trading Blog: A New Low

Congress is doing a bad job. You know where I stand on that clown-posse, but as it turns out most Americans agree with me. In the following article we read about the Rasmussen poll, with a few highlights below.

Congressional Performance

http://www.rasmussenreports.com/public_content/politics/mood_of_america/congressional_performance

Voter approval of the job Congress is doing has fallen to a new low – for the second month in a row.

Just six percent (6%) of Likely U.S. Voters now rate Congress’ performance as good or excellent, according to a new Rasmussen Reports national telephone survey. Last month, Congressional approval ratings fell to what was then a record low with eight percent (8%) who rated its performance good or excellent.

Sixty-one percent (61%) now think the national legislators are doing a poor job, a jump of nine points from a month ago.

Most voters don’t care much for the way either party is performing in the federal debt ceiling debate. The majority of voters are worried the final deal will raise taxes too much and won’t cut spending enough.

Only 11% of voters believe this Congress has passed any legislation that will significantly improve life in America. That ties the lowest ever finding in nearly five years of surveys, last reached in January 2009. Sixty-nine percent (69%) think Congress has not passed any legislation of this caliber, a six-point increase from June and the most negative assessment ever. Nineteen percent (19%) are not sure.

With divided control of Congress, neither party’s voters are very happy. Eight percent (8%) of GOP voters give Congress positive marks, compared to five percent (5%) of Democrats and six percent (6%) of voters not affiliated with either of the major parties.

No doubt people are upset but who wants to bet me that most of these clowns will be reelected?

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

Larry Levin's Day Trading Blog: No Deal Pt. 2

Continue the last post "No Deal", we will learn about "No Deal Pt. 2" with Larry Levin. Now, let's learn to trade!

Monday was a very low volume day with a decent move shortly after the open. Once that initial rally slowed, the normal type of (recent) day resumed: low volume and absolutely no volatility. I believe the reason for this is that the market was waiting on news of a real debt-ceiling “deal;” however, there was once again no deal.

On the other hand, there was more bickering.

The first salvo came via Senators Reid and Schumer. There were two segments in the plan that was surprising; no new taxes from Democrats, and a huge “savings” that in my opinion is not “savings” at all.

To the Democrats credit, it would certainly look like they want to get this deal done since they are proposing a deal with no new taxes. The second segment, however, I found ridiculous even though it is par for the course in DC: no real cuts, just less increased spending.

In Washington DC if next years budget had been scheduled to increase by $200 billion for example, but Congress agrees on a budget with a $190 billion INCREASE, it is heralded as a 5% spending cut. Moreover, some politicians will use a ridiculously high presidential fiscal spending proposal as a baseline – even if it is NOT written into law – and then lie about so-called “cuts” while not telling the electorate exactly how these phantom cuts were derived.

Senators Harry Reid and Charles Schumer surprisingly acknowledged that $1 trillion of the so-called cuts in their plan will be from the removal of troops from Afghanistan and Iraq. Why should we believe them now, when 2009 presidential hopeful Barack Obama said they would be removed shortly after he was elected? But even if we can all agree that they will be coming home soon; doesn’t that mean that this was scheduled and therefore is not a new spending cut? On top of that, an additional $400 billion of saved interest payments are included – because of the aforementioned “cut.” This was all going to happen anyway.

George Will nailed this type of nonsense with the following comment in the Washington Post in 2009 “Why, one wonders, not ‘save’ $5 trillion by proposing to spend that amount to cover the moon with yogurt and then canceling the proposal?”

In the press conference Senators Reid and Schumer repeatedly claimed that the Republicans had also used the war savings in their own plans. Congressman Paul Ryan disagrees and fires off his salvo here http://budget.house.gov/News/DocumentSingle.aspx?DocumentID=253640

Claim 1: “Winding down the wars in Iraq and Afghanistan will save $1 trillion.”

Reality: The Reid plan relies on the inaccurate assumption that surge-level spending in Iraq and Afghanistan is scheduled to continue over the next decade. An honest budget cannot claim to save taxpayers’ dollars by cutting spending that was not requested and will not be spent. Senate Democrats are employing a budget gimmick that will not fool the credit markets and does not address the urgent need for Washington to get its fiscal house in order.

Claim 2: “Paul Ryan’s budget also included this savings in its deficit reduction calculation.”

Reality: False. The House-passed budget cuts $6.2 trillion in spending relative to President Obama’s Fiscal Year 2012 budget request. This $6.2 trillion figure assumes ZERO savings from the global war on terror relative to the President’s budget.

Read that last part again. Did you catch the scam not mentioned by Republican Ryan? He is counting PHANTOM cuts from a FY2012 “request.” How can you count “cuts” from – well, let’s use his own words against him – An honest budget cannot claim to save taxpayers’ dollars by cutting spending that was not requested and will not be spent. OK, it may have been requested but that doesn’t make it valid: it was never written into law!

And this sort of childish bickering and blatant lying by both sides is why I rarely write about politics. At the present time, however, the clown-posse in DC is directly affecting the market.

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

Larry Levin's Day Trading Blog: No Deal

Last ditch efforts to finalize a deal that would raise the debt ceiling have failed Sunday evening. Although the market is down a little Sunday evening, it has not fallen apart. Surely a deal will get done sometime this week.

http://www.nationaljournal.com/boehner-finishing-six-month-debt-plan-despite-obama-opposition-20110724

Senate Majority Leader Harry Reid, D-Nev., and House Minority Leader Nancy Pelosi, D-Calif., met at the White House for a meeting at 6 p.m. that lasted a little more than an hour. The meeting started an hour after the first of the Asian global markets opened. House Speaker John Boehner, R-Ohio, on Saturday had asked for a debt framework before then, intended to give the Asian markets time to process a last-ditch bid to ward off the market turmoil.

Reid is taking a proposal for “at least” $2.5 trillion in spending cuts as part of a debt-ceiling deal, seeking Obama’s approval, according to an aide.

Both Reid and Boehner are advancing plans to raise the debt ceiling. The biggest difference is that the Reid plan would increase the borrowing limit through at least the November 2012 election, while the Boehner proposal would have two stages – with the debt ceiling increase coming early next year and allowed only if matching spending cuts are enacted. Democrats have said that carrying the borrowing authorization past the election is a make-or-break provision. Republicans want two votes, saying they hope to wring more savings.

In a conference call with rank-and-file GOP House members on Sunday afternoon, Boehner said the House and Senate were nearing agreement on a six-month solution, according to one participant.

Boehner said he was ready to proceed with that short-term deal, without Obama’s sign-off, the participant said.

In the conference call, Boehner asked for support. He said compromises were necessary, but he promised to use the “Cut, Cap, and Balance” amendment as a basis for any compromise, according to a source familiar with the call.

Pointing out that the Senate had brushed aside the Cut, Cap and Balance amendment, Boehner said: “So the question becomes – if it’s not the Cut, Cap, and Balance Act itself – what can we pass that will protect our country from what the president is trying to orchestrate?”

But the more Boehner’s plan relies on House GOP support, the less likely it would be to clear the Senate. Democrats in the House, Senate, and White House have all signaled unwillingness to sign off on a debt-ceiling hike that does not carry into 2013. Obama has vowed to veto an extension of borrowing authority that does not last into 2013 — after the presidential election.

Geithner laid out two paths: a two-tiered approach involving a savings package followed by a tax code and entitlement reform, and another option that hews to the one-swipe “grand bargain” that Obama and Boehner had been hashing over before talks fell apart late on Friday.

The first and more likely path could establish a powerful special committee to devise a blueprint for additional savings and revenues, fanged with deadline authority and tools to circumvent the traditional legislative byways.

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

Larry Levin's Day Trading Blog: Euro-Tarp

Because the 6th or 7th Greek bailout was about to unravel yet again, the Euro-snobs got together for a power meeting. In this meeting they decided on not only a Greek bailout but what sounds like a full fledged Euro-TARP and their very own Plunge Protection Team (PPT).

Partial draft statement.
Since the beginning of the sovereign debt crisis in the euro area, important measures to stabilize the euro area, reform the rules and develop new stabilization tools have been taken. The recovery in the euro area is well on track and the euro is based on sound economic fundamentals. But the challenges at hand have shown the need for more far reaching measures. We reaffirm our commitment to the euro and to do whatever is needed to ensure the financial stability of the euro area as a whole. We also reaffirm our determination to reinforce convergence, competitiveness and governance of the euro area.

Today, we agreed on the following measures:

Greece
1. We welcome the measures undertaken by the Greek government to stabilize public finances and reform the economy as well as the new package of measures recently adopted by the Greek Parliament. These are unprecedented, but necessary efforts to bring the Greek economy back on a sustainable growth path.

2. We agree to support a new program for Greece and to provide an additional amount of up to [xx] euros. This program will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece. We call on the IMF to contribute to the financing of the new Greek program in line with current practices.

3. We have decided to lengthen the maturity of the EFSF loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years. In this context, we will ensure adequate post program monitoring. We will provide EFSF loans at lending rates equivalent to those of the Balance of Payment facility (currently approx. 3.5 percent) without going below the EFSF funding cost. This will be accompanied by a mechanism which ensures appropriate incentives to implement the program, including through collateral arrangements where appropriate.

4. We call for a comprehensive strategy for growth and investment in Greece. Structural funds should be re-allocated for competitiveness and growth under a European “Marshall Plan”. Member States and the Commission will mobilize all resources necessary in order to provide exceptional technical assistance to help Greece implement its reforms.

5. Greece is in a uniquely grave situation in the Euro area. This is the reason why it requires an exceptional solution. The financial sector has indicated its willingness to support Greece on a voluntary basis through a menu of options (bond exchange, roll-over, and buyback) at lending conditions comparable to public support with credit enhancement.

6. All other Euro countries solemnly reaffirm their inflexible determination to honor fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The Euro area Heads of Statesor Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the Euro area as a whole.

Stabilization tools:

7. To improve the effectiveness of the EFSF and address contagion, we agree to increase the flexibility of the EFSF, allowing it to:

– intervene on the basis of a precautionary program, with adequate conditionality;

– finance recapitalization of financial institutions through loans to governments including in non program countries;

– intervene in the secondary markets on the basis of an ECB analysis recognizing the existence of exceptional circumstances and a unanimous decision of the EFSF Member States.

Fiscal consolidation and growth in the euro area:

8. We welcome the progress made on the implementation of the programs in Ireland and Portugal and reiterate our strong commitment to the success of these programs. The EFSF lending conditions we agreed upon for Greece will be applied also for Portugal and Ireland. In this context, we note Ireland’s willingness to participate constructively in the discussions on the Consolidated Common Tax Base draft directive (CCTB) and in the structured discussions on tax policy issues in the framework of the Euro+ pact framework.

9. All euro area Member States will adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances. Deficits in all countries except those under a program will be brought below 3 percent by 2013 at the latest. In this context, we welcome the budgetary package recently presented by the Italian government which will enable it to bring the deficit below 3 percent in 2012 and to achieve balance budget in 2014. We also welcome the ambitious reforms undertaken by Spain in the fiscal, financial and structural area. As a follow up to the results of bank stress tests, Member States will provide backstops to banks as appropriate.

10. We will implement the recommendations adopted in June for reforms that will enhance our growth. We invite the Commission to enhance the synergies between loan programs and EU funds in all countries under EU/IMF assistance. We support all efforts to improve their capacity to absorb EU funds in order to stimulate growth andemployment.

In case you missed it, the PPT section was #7 above…
To improve the effectiveness of the EFSF and address contagion, we agree to increase the flexibility of the EFSF, allowing it to:

– intervene on the basis of a precautionary program, with adequate conditionality;
– finance recapitalization of financial institutions (read: banksters) through loans to governments including in non program countries;
– intervene in the secondary markets on the basis of an ECB analysis recognizing the existence of exceptional circumstances and a unanimous decision of the EFSF Member States.
What’s next, a European QE program? Umm, yeah I’m sure it’s on the way.

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

Larry Levin's Day Trading Blog: Honest Accounting

"Honest Accounting" will be the topic that we will learn more with Larry Levin this time. Take note the news for your trading!

Presenting an 8-point plan to fix the economy – LONG TERM – without the normal can-kicking exercises. Since this would be too perfect and cause too many banksters to lose their jobs, it has no chance of ever being discussed – let alone being passed.

You Want to Fix the U.S. Economy? Here’s a Start…by Charles Hugh Smith from Of Two Minds

A simple 8-point plan would restore both the banking and the real estate sectors, and end the political dominance of the parasitic “too big to fail” banks.

Craven politicos and clueless Federal Reserve economists are always bleating about how they want to fix the U.S. economy and restore “aggregate demand.” OK, here’s how to start:

1. Force all banks to mark all their assets to market at the end of each trading day, including all derivatives of all types, including over-the-counter instruments.

2. Allow citizens to discharge all mortgage and student loan debt in bankruptcy court, just like any other debt.

3. Banks must mark all their real estate to market weekly as defined by “last sales of nearby properties” adjusted for square footage and other quantifiable measures (i.e. like Zillow.com).

4. Require mortgage servicers and all owners of mortgage-backed securities to mark every asset within each pool to market weekly.

5. Any mortgage, loan or note which was fraudulently originated, packaged and sold, including the misrepresentation of risk, the manipulation of risk ratings, fraudulent documentation by any party, etc., will be discharged as uncollectable and the full value wiped off the books and title records without recourse by any of the parties.

If a bank fraudulently originated a mortgage and the buyer misrepresented material facts on the mortgage documents, then both parties lose all claim to the note and the underlying asset, the house, which reverts to the FDIC for liquidation, with the proceeds going towards creditors’ claims against the bank.

6. Any bank which misrepresents marked-to-market asset values will be fined $10 million per incident.

7. Any bank which is insolvent at the end of a trading day will be closed and taken over by the FDIC the following day, and liquidated in an orderly manner via open-market auctions of all assets, including REO (real estate owned).

8. All derivative positions held by the insolvent bank will be unwound immediately, and counterparties who fail to make good on their claims will also be closed, given to the FDIC and liquidated.

You know what this is, of course: a return to trustworthy, transparent accounting. And you know what the consequences would be, too: all five “too big to fail” banks would instantly be declared insolvent, and most of the other top-25 big banks would also be closed and liquidated.

At least $3 trillion in impaired residential mortgage debt would be written off, maybe more, and $1 trillion in impaired commercial real estate would also be written down. Derivative losses are unknown, but let’s estimate it’s at least $1 trillion and maybe much more.

If $5.8 trillion of fantasy “value” is wiped off the nation’s books, that’s only a 10% reduction in net household and non-profit assets, which total $58 trillion. Even an $11 trillion hit would only knock off 20%. If that’s reality, if that’s what the assets are really worth in the real world, then let’s get it over with. Once we’ve restored truthful accounting and stopped living a grand series of debilitating lies, then the path will finally be clear for renewed growth.

The net result would be the destruction of the political power of the “too big to fail” banks, the clearing of the nation’s bloated, diseased real estate market, and the restoration of trust in institutions which have been completely discredited.

Bank credit would flow again, and we could insist on a healthy competitive system of 250 small banks instead of a corrupting system of 5 insolvent parasitic monsters and 20 other bloated but equally insolvent financial parasites.

Those who lied would finally get fried. At long last, those who misprepresented income, risk, etc. would actually pay some price for their malfeasance. Criminal proceedings would be a nice icing on the cake, but simply ending the pretence of solvency would go a long way to restoring banking and real estate and ending regulatory capture by TBTF banks.

What’s the downside to such a simple action plan? Oh boo-hoo, the craven politicos would lose their key campaign contributors. On the plus side, the politicos could finally wipe that brown stuff off their noses.

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

Larry Levin's Day Trading Blog: Conversation

Larry Levin continues sharing with traders happenings around the market to make it easier for all in trading. The topic this time will be as a "Conversation."

I had an interesting conversation with a friend this afternoon after the close. Among other things, he wanted to know how excellent trading was today due to the indices huge gains. He was rather surprised when I told him how lame trading has really been intra-day, since the closing gains or losses had seemed so large.

It went something like this…

Wow, what a great day it was, the Dow, S&P, and Nasdaq were up huge.
Although many people would see a Dow that closes higher by 202-points as a “volatile” or “great trading” day, I’m an intra-day trader and that was miserable. For weeks now the majority of most days we’ll see a quick move higher or lower that is immediately followed buy hour after hour of absolutely no trade. Tuesday’s big up day was no exception.

Oh, that’s odd. Why do you think this is happening?
Perhaps it is just the “summer” trade, but volume is also very low. As an example, Tuesday’s huge up day should have come with about 3.5 to 4-million mini S&P contracts traded. Even with the late surge of position squaring after the NY close it only managed 2.09-million. This is pathetic.

Earnings probably helped, right?
Sure, earnings before the bell were very good for Coke and IBM so I wasn’t surprised by the good open. Sadly, that was followed by what I just mentioned: NO volatility. The ES traded in a very narrow range for four hours until the market somehow got a boost from a supposed debt ceiling deal.

Oh yeah, I saw the president on TV again. Did they all finally agree on something?
No they didn’t agree on a specific deal so I was surprised by the reaction to this. Furthermore, there isn’t a single person on this planet that doesn’t believe Congress will, without a doubt, raise the debt ceiling. The bond market sees it this way with a trading range of just 4-handles in the 30-YR for 2 and a half months. How could this be “news?” I guess the market was looking for any excuse to go higher.

Well, when they do agree I guess that will be great for the economy, right?
What? It is a scam. Congress and Presidents of both sides of the isle have claimed for DECADES that they had a “10-yr plan to reduce the deficit.” None of them worked. None of them will ever work because that’s the way Congress wants it. Congress will fix nothing because they like it that way. Congressmen would make good punters for the NFL because they keep kicking the can down the road and this is simply another can-kicking exercise.

I have NO FAITH in any of them, with the exception of Ron Paul who will actually tell you the truth, whether you like it or not.

For example, we are supposed to believe that “too big to fail” banks miraculously turned the corner, but we are never told how that happened, which was the repeal of FASB 157. Congress just changed the rules and voila – all better.

Similarly, Congressmen will soon be on television telling us all how they agreed to a crummy $150 or $200-billion per year cut (for 10-yrs, big deal) in a $1.5 TRILLION annual deficit. But they will NOT tell you how the majority of that is getting done, which is yet another change to the CPI. With this change in the CPI, granny won’t be getting her COLA increases and that will cause more spending in the future. You can bet that once the AARP threatens to cut off campaign contributions if there are no “put backs” with new legislation and it’s off the headline news, it will be put back. Thus, no actual cut in the deficit.

Moreover, our cost of living will also go up with granny’s, while the Fed & BLS tell us there is no inflation because with the stroke of a pen – Congress decreed it to vanish.

So you don’t believe in the potential agreement then.
No Jim, it’s a scam.

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

BlogCatalog

Larry Levin's Day Trading Blog: Stressed

At one point on Monday the US indices were down quite a bit from Friday’s close. That close, however, was artificially high due to a late short-covering spike. Nevertheless, the markets were slammed with more bad news out of Europe: the banking “stress tests” were a scam.

Please consider the Wall Street Journal report It Isn’t Just Sovereigns Stressing Europe’s Banks

During Europe’s 15-month financial crisis, investor and analyst fears have centered largely on banks’ holdings of sovereign debt issued by governments in financially shaky countries such as Greece, Ireland and Portugal. If those countries were to default, it could saddle banks and other holders of their bonds with big losses.

But Friday’s test results shed light on another potential problem for Europe’s banks: huge piles of residential mortgages, small-business loans, corporate debt, and commercial real-estate loans to institutions and individuals from ailing countries. As those economies struggle, the odds of rising defaults grow.

As of Dec. 31, its four largest banks—BNP Paribas SA, Crédit Agricole SA, BPCE Group and Société Générale SA—were holding a total of nearly €300 billion ($425 billion) in loans and other debt issued to institutions and individuals in Portugal, Ireland, Italy, Greece and Spain, the countries that are among Europe’s most troubled. That’s largely a result of some of the French banks having big retail- and commercial-banking operations in Greece, Italy and Spain.

The French banks’ portfolios of commercial and retail loans in those countries dwarf their holdings of sovereign debt. For example, the four banks have a total of about €51 billion of loans to Spanish customers, according to the Journal’s analysis. That compares with about €15 billion of Spanish sovereign debt, according to a separate analysis of stress-test data for the Journal by research firm SNL Financial. In Greece, whose economy is in a tailspin, the French banks have €33 billion of various types of loans, more than three times their sovereign-debt holdings.

It’s a similar story in Germany. The dozen German banks that disclosed their stress-test results were exposed to €174 billion of commercial and retail loans to Greek, Irish, Italian and Spanish borrowers as of Dec. 31. They are holding an additional €70 billion of sovereign debt issued by those countries, according to SNL.

Some banks opted not to disclose details of their loan portfolios. For example, Lloyds Banking Group PLC is in the process of shutting down its Irish banking business, which has cost the big British bank billions of pounds in loan losses. But in its stress-test materials on Friday, Lloyds didn’t provide a breakdown of loans to countries other than the U.K. and the U.S.

A Lloyds spokeswoman said the bank’s Irish loans are included in a catch-all category marked “other.”

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

Larry Levin's Day Trading Blog: Back to the Basics

This will be a nice post for any of you who wants to learn more about the markets and day trading techniques. Let's see what is going to be shared!

Considering that the debt ceiling tug-of-war is based on what government expenses should be cut, which taxes should be raised, and how that affects the economy I thought a primer was in order. John Mauldin’s “Back to the Basics” is a good place to start in view of this tug-of-war.

In the US, the real question we must ask ourselves as a nation is, “How much health care do we want and how do we want to pay for it?” Everything else can be dealt with if we get that basic question answered. We can radically cut health care along with other discretionary budget items, or we can raise taxes, or some combination. Both have consequences. The polls say a large, bipartisan majority of people want to maintain Medicare and other health programs (perhaps reformed), and yet a large bipartisan majority does not want a tax increase. We can’t have it both ways, which means there is a major job of education to be done.

The point of the exercise is to reduce the deficit over 5-6 years to below the growth rate of nominal GDP (which includes inflation). A country can run a deficit below that rate forever, without endangering its economic survival. While it may be wiser to run some surpluses and pay down debt, if you keep your fiscal deficits lower than income growth, over time the debt becomes less of an issue.
GDP = C + I + G + Net Exports

But either raising taxes or cutting spending has side effects that cannot be ignored. Either one or both will make it more difficult for the economy to grow. Let’s quickly look at a few basic economic equations. The first is GDP = C + I + G + net exports, or GDP is equal to Consumption (Consumer and Business) + Investment + Government Spending + Net Exports (Exports – Imports). This is true for all times and countries.

Now, what typically happens in a business-cycle recession is that, as businesses produce too many goods and start to cut back, consumption falls; and the Keynesian response is to increase government spending in order to assist the economy to start buying and spending; and the theory is that when the economy recovers you can reduce government spending as a percentage of the economy – except that has not happened for a long time. Government spending just kept going up. In response to the Great Recession, government (both parties) increased spending massively. And it did have an effect. But it wasn’t just the cost of the stimulus, it was the absolute size of government that increased as well.

And now massive deficits are projected for a very long time, unless we make changes. The problem is that taking away that deficit spending is going to be the reverse of the stimulus – a negative stimulus if you will. Why? Because the economy is not growing fast enough to overcome the loss of that stimulus. We will notice it. This is a short-term effect, which most economists agree will last 4-5 quarters; and then the economy may be better, with lower deficits and smaller government.

However, in order to get the deficit under control, we are talking on the order of reducing the deficit by 1% of GDP every year for 5-6 years. That is a very large headwind on growth, if you reduce potential nominal GDP by 1% a year in a world of a 2% Muddle Through economy. (And GDP for the US came in at an anemic 1.75% yesterday, with very weak final demand.)

Further, tax increases reduce GDP by anywhere from 1 to 3 times the size of the increase, depending on which academic study you choose. Large tax increases will reduce GDP and potential GDP. That may be the price we want to pay as a country, but we need to recognize that there is a hit to growth and employment. Those who argue that taking away the Bush tax cuts will have no effect on the economy are simply not dealing with either the facts or the well-established research. (Now, that is different from the argument that says we should allow them to expire anyway.)
Increasing Productivity

There are only two ways to grow an economy. Just two. You can increase the working-age population or you can increase productivity. That’s it. No secret sauce. The key is for us to figure out how to increase productivity. Let’s refer again to our equation:
GDP = C + I + G + net exports

The I in the equation is investments. That is what produces the tools and businesses that make “stuff” and buy and sell services. Increasing government spending, G, does not increase productivity. It transfers taxes taken from one sector of the economy and to another, with a cost of transfer, of course. While the people who get the transfer payments and services certainly feel better off, those who pay taxes are left with less to invest in private businesses that actually increase productivity. As I have shown elsewhere, over the last two decades, the net new jobs in the US have come from business start-ups. Not large businesses (they are a net drag) and not even small businesses. Understand, some of those start-ups became Google and Apple, etc.; but many just become good small businesses, hiring 5-10-50-100 people. But the cumulative effect is growth in productivity and the economy.

Now, if you mess with our equation, what you find is that Investments = Savings.
If the government “dis-saves” or runs deficits, it takes away potential savings from private investments. That money has to come from somewhere. Of late, it has come from QE2, but that is going away soon. And again, let’s be very clear. It is private investment that increases productivity, which allows for growth, which produces jobs. Yes, if the government takes money from one group and employs another, those are real jobs; but that is money that could have been put to use in private business investment. It is the government saying we know how to create jobs better than the taxpayers and businesses we take the taxes from.

The balance of the article and charts can be found here, http://www.frontlinethoughts.com/

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

Larry Levin's Day Trading Blog: Congress

When you hear Congressmen speak of the “pain and suffering” that comes this way if the debt ceiling isn’t raised, they certainly aren’t talking about themselves. I came across an interesting video that is linked below that you should watch.

I checked “the list” that is mentioned for Republicans and Democrats in Illinois. No Illinois Republicans made the list; however, an Illinois Democrat is #1 on his side of the isle: Louis Gutierrez of Chicago. His wealth has exploded by 3,669% according to this study.

The video is in the middle of the page and can be expanded to fit your screen.

http://governmentgonewild.org/

Or click here to watch it on youtube

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

Larry Levin's Day Trading Blog: The Ben Bernank

To make it more convenient for traders in day trading floor to lean to trade, Larry Levin keeps sharing information around the markets daily. We will start the news with "The Ben Bernank."

Wednesday’s tragic financial comedy came the way of Ben Bernanke and his testimony to the US Congress. In this testimony he said three important things; gold is NOT money (what it is, he did not say), QE3 is on the way, and that the Federal Reserve’s QE program has been a “PROFIT CENTER for the Treasury.” The two statements and the QE3 proclamation are all ridiculous; however, the “profit center” comment is the most absurd.

Have you thought through just what kind of relationship there is between the Treasury and the Fed? First, when the Treasury auctions bonds that are purchased by hedge funds, pension funds, or individual citizens, the purchaser uses his own funds to buy them and the Treasury pays him a rate of return for the use of his money. This is the way it is supposed to work; however, things get dicey when the Fed is involved.

When the Fed buys Treasuries it isn’t using cash on hand today from last quarter’s profit. It is conjuring up money out of thin air in order to pay for the bonds. When Bernanke was recently asked about this (not today) he said it wasn’t money printing. When asked where the money came from he smiled and said “from the Fed,” but it wasn’t money printing. When pressed again and asked if the money was on the books the prior day to pay for the multi-billion bond purchase he said no; it was indeed counterfeited for the purchase.

OK, we know that the Fed counterfeits money for these purchases (oh, and by the way, I DO understand that when a government prints money it is not actually counterfeiting but I don’t care – I will continue to use that analogy) but why was today’s statement laughably absurd? It was ridiculous because the Fed does not pay for bond purchases (QE) with its own money, it prints this money at a cost to the American people (read: INFLATION). Moreover, the Treasury pays the Fed the interest rate on the bond then the Fed remits that same interest payment back to the Treasury. And that’s a “profit center?” Are you kidding me? That’s a circle jerk!

How in the hell can that be a “profit center?”

If you’re married and your wife sells you a bond so she can go shopping, and you pay her with the kids Monopoly money, then she gives you some bucks from the money she “saved on sale items” for the cost of borrowing the Monopoly money, and then you “remit” those dollars back to her…was that a f%$!#* “profit center” for her? NO! It is a financial f%^$!#@ circle jerk that most people do not want to even understand.

“Bernanke is on TV? Who is that guy? I like his beard though, whoever he is. Is TMZ on yet?” Sadly, the average slack-jawed voting yokel is like this.

Here come the bears again. If you have NOT watched this whole video, please do so now. If you HAVE watched it, please view it again since it is relevant another time with today’s testimony of The Ben Bernanke.

This news will be sharing daily, just keep up with any information what guide you how to trade!