Tuesday, December 21, 2010

Predictions for 2011: Tap Dancing in The Minefields

1. There Will Be No Recovery in the US: As a nation, we will borrow about $1.8 trillion at all government levels (Federal, State and Local), of which roughly half will be by way of money printing. Simply put, the answer to a problem of debt is not more of it. One day soon enough we will have to live within our means.. and we will not do it voluntarily but at the point of a bond market's spear like Greece. The American people will begin to understand in 2011 that the only recovery thats happening is on Wall Street. Look for the U6 measurement of unemployment to stay above it's current 17%.

2. Muni Bond Implosions: With the end of the Build America Bonds program.. which was an important financial tool for local governments.. and the election of a Republican House, it seems that pretty much all Federal aid to state and local governments will end. With this, look for states to balance their budgets by cuts to local governments. I think dozens of cities and counties will bite the dust financially this year, either with a formal declaration of bankruptcy or by simply falling dramatically behind on their bills. California, Illinois, Michigan, Florida, Nevada and New Jersey cities and counties look particularly vulnerable. Look for Obama to try.. but fail.. to throw them a lifeline. Bernanke may also begin purchasing Muni's. Muni's will lay off at least 200,000 employees. These failures will shake ordinary Americans.

3. Euro Crisis v2.0.. the Spanish Flu: The EU/ECB/IMF plans to deal with the cascade of bad debts, overleveraged banks and overindebted governments is suspect. The EU's central bank, the European Central Bank, has essentially reached the limits of what it can do. Look for Spain, which needs to borrow $400 billion this year.. much of it in the first quarter.. to hit the wall and need to be bailed out. Belgium and Portugal are also in trouble. I forsee the EU/IMF fumbling the ball and asking Bernanke for a backstop, which I believe he will do.. and will catch holy hell back in Wash DC, but I do think the financial system will not crumble. If this one is mishandled, it could be exceedingly dangerous very quickly. In general, the economic conditions in Europe scare the bejesus out of me. The EuroBond is one possible and real answer, but I doubt Germany will agree to essentially co-sign all of Southern Europe's debts.

4. QE 3.0.. the MBS Edition: I look for Bernanke to begin purchases of MBS in fall; look for it to be in the neighborhood of $500 billion. The state of the US housing market will become dire by mid summer, threatening the health of many big banks.

5. Stock Markets: I don't see a lot changing.. the Dow will continue to be stuck in neutral, bouncing between 10,000 and 12,000. Many thanks will be sent to Ben Bernanke for keeping this casino open.. and sadly, that is what the NYSE has become.

6. US Gov't Bonds: I forsee the US Ten Year Bond, which today is at 3.35%, to touch 4.5% at some point in 2011. If the crisis in Europe plays out as I suspect (or some other crisis abroad) or there is a sharp stock market correction here, look for the yield to go below 2.75% again.

7. Commodities: I believe commodities will have an up year as the economic surge in Asia continues. If the Euro Crisis is serious enough, it could bring commodities downward as the US Dollar surges. Look for crude to hit $100, silver to hit $35 and wheat to hit $8.50 again. Americans will grumble loudly as gasoline approaches $3.50/gal and grocery bills are higher, due in large part to Mr.Bernanke's printing presses.

8. Beware of Black Swans: The world is a complex and dangerous place and has an exceedingly fragile economic system. One good shove will likely be enough to send the world's economy over the edge. A new Korean War, a war with Iran, a revolution in Greece or even an angry Mother Earth might be enough to send us all into an economic apocalypse thanks to the monstrous debt levels and credit default swaps. In 2002, the world's total debt was $60 trillion. This year, that amount reached $188 trillion, nevermind the hundreds of trillions more in credit default swaps. As I have always said, one day this will end very badly and very quickly.. but I doubt 2011 will be the year.

Saturday, December 18, 2010

Macroeconomics 101

I've always wanted to do an article explaining the basics of economics in terms my daughters could understand and why I'm so grim about our future. Being severely overcaffeinated this morning, I've decided to let my fingers fly..

Banking System 101: We now have what's known as a "fractional reserve system". What this means is this: lets take "JeffBank", which has $10mm in the vault. Most people in America believe that this means JeffBank can loan out $10mm. Not true. In 1913, they insitituted the fractional reserve lending and the 10-1 leverage ratio rule, which means that banks can lend out ten dollars for every dollar in the bank. Therefore JeffBank can loan out $100mm.. but if 1/10th of these loans go bad, JeffBank is toast because he only has that $10mm in the bank. Beginning in the early 1980's, regulators threw out the 10-1 rule (especially for bigger banking institutions) and essentially let them loan out whatever they wanted. Big US banks wound up with 30-1 leverage, and so if only 1/30th of their loans went bad, these big banks were either forced into finding cash to cover their losses or go under. In Europe, the banking system is even worse; most bigger banks in Europe are leveraged at like 60-1 these days.

Credit Default Swaps (CDS): Credit Default Swaps are a form on insurance written on many things such as Certificate of Deposits (CD), simple savings accounts, bonds, etc. Here's an example: Lets say that you have $1 million ($1mm) in JeffBank and lets say that its in the form of a 5 year CD, therefore you cannot simply walk into the bank and cash out any day you wish.. you have to wait the 5 years to get your million out. Lets say that JeffBank had loaned a huge amount of money to Lindsay Lohan, and as Lindsay gets dragged by the cops to yet another rehab clinic, you begin to worry about the whether JeffBank is going to survive Lindsay's antics.. and specifically worry about the fate of your $1mm CD. Therefore you turn to "JennyBank" (which is the exact same size of JeffBank and therefore has $10mm in the vault) and ask them if they will write an insurance policy on your $1mm CD in JeffBank.. so if JeffBank goes under and your $1mm CD is gone, JennyBank will pay you the $1mm as long as you pay JennyBank a monthly premium for this insurance. This insurance policy is known as a Credit Default Swap.

There is also something called a "naked" Credit Default Swap, and here is what this is: lets say that a month after you get the CDS from JennyBank on your million CD you get a call from a loan officer at JennyBank who says: "Ya know, if you really think JeffBank is going under, we can write you another Credit Default Swap for $12mm if you want to make the monthly premiums".  This new "naked" CDS isn't really protecting an asset like the first one is.. it is, as it's heart, essentially a bet. Most big US banks write these naked CDS for anything under the sun.. the biggest ones are for interest rates. For example, "LisaBank" is worried that if interest rates go up, their costs also go up and they might become insolvent, so LisaBank contacts JeffBank, who agrees to underwrite a big "naked" CDS for LisaBank just in case interest rates go to 9%. The big US banks have written naked CDS's for the City of Detroit, the Greek Government, GM, and most commonly on each other. When Lehman Brothers went under on September 15th 2008, it triggered an avalanche of CDS's. The very next morning, AIG.. who had underwritten hundreds of billions of CDS on Lehman, was toast. The rumor was that if AIG had not been saved, their collapse would've taken down Citibank, RBS (England's biggest bank) and UBS (Switzerland's biggest bank). They were essentially dominos thanks in large part to these CDS's. There are still hundreds of trillions of them laced in the system, thus making the failure of any bank, big company or government four or five times as bad as it need be.

So now lets go back to JeffBank, who now has a 25-1 leverage ratio (ie he's loaned out $250mm and only has $10mm in the vault). JeffBank has also underwritten a slew of naked CDS's worth another $250mm to LisaBank in regards to interest rates. Overall, JeffBank has a 25-1 leverage ratio.. and possibly 50-1 thanks to the CDS's. Because LisaBank and others pay JeffBank monthly premiums, bank profits are skyrocketing !! Hurray Happy Day !! But if interest rates go up to 9%, JeffBank will be forced to pay LisaBank the $250mm.. and JeffBank only has $10mm in the vault. Whoops. If JeffBank bites the dust, JennyBank is now on the hook for the $12mm CDS you got from them. The problem is, JennyBank only has $10mm. Therefore JennyBank also bites the dust. JennyBanks's failure then triggers other CDS's, destroying other banks. The Domino Effect. This is what was happening in September of 2008 and why it's so dangerous. If you are p!ssed that such an inherently dangerous system was allowed to become reality, you should be.

United States: In the 1970's and before, most Americans could'nt get loans for anything except a house.. and even then you needed at least 1/5th down and had to show you had savings just in case. The 10-1 leverage ratio on banks essentially meant that they did'nt have tons of money to loan out and therefore had to be careful about who they loaned to. Home ownership in the 1970's was about 33%.. the other 2/3rds of people rented. But with the arrival of Alan Greenspan in the early 1980's, the 10-1 rule was tossed aside. Soon enough, we as a nation began living a pretty nice lifestyle.. the Reagan years, the Clinton years, the Bush years.. this was a prosperous 30 years. The problem was, it was built on a mountain of debt. As a nation, we essentially spent six dollars for every five we produced for thirty years. By 2008, over 70% of adults owned houses. In 2005, a friend of mine got what was called a "no doc" mortgage.. she did'nt even have to prove she had income !! Are you serious ?? Banks were loaning anything to anyone with a pulse. The banks found themselves leveraged 25 and 30-1 in most cases. By 2007, the party was ending. Foreclosures and losses began skyrocketing. The banks, which had loaned out way too much, were beginning to totter. Americans began defaulting on credit card debts, car loans and mortgages because they had gotten themselves into too much debt. These losses began taking their toll on banks, and in 2008 we had a banking crisis caused by too much debt, and multiplied many times over due to the above mentioned CDS's.

And here we are.. we as a nation are still way over our heads in debt due to Greenspan's policies. What would you do if you had a $50,000/yr income and debts of $285,000 (your mortgage is $220,000 of this) ? This is the position we as a nation find ourselves in. Realistically, we can do two things.. tighten our belts and slowly pay down the debts or default (which would crash the entire economy in days). In 2009 and 2010, we as a nation chose a third path.. the US Government began borrowing trillions of dollars and the Federal Reserve began printing trillions more to try and ease the pain that needs to come and try to get people to borrow and spend like they did in the past to kickstart the consumer economy. The problem is.. thanks to high unemployment (and under employment) and people defaulting on their debts, there just are'nt that many credit worthy people out there to loan to anymore. We as a nation will one day feel the pain.. and the pain we are feeling today is only a small, bitter taste of what needs to come. We cannot forever kick the snowball down the hill by borrowing money and handing the bill to our own children. Here's my favorite video.. it's an interview with Kyle Bass a few months ago, who's pretty much the smartest economist on this continent, on the US economy: http://video.foxbusiness.com/v/4372206/hedge-fund-manager-debt-defaults-ahead/

Europe: The problems in Europe are very similar to the ones described above.. too much debt, overleveraged banks, credit default swaps. The difference is, their problems are much worse.. the European banking sector is on average twice as leveraged as the American banks are. Worse, in many cases, the size of these banks dwarfs the nations where they're located. The most dangerous example here is Ireland, a nation of only 4 million souls, who has titanic size banks that have loaned out way too much to way too many. These banks are in serious trouble, and the government of Ireland is trying to prop them up. Because of their size, however, Ireland's government has had to borrow vast sums of money.. for every dollar the Irish government took in tax revenue this year, they are spending four dollars.. most of this to prop up these rotten banks. It's rather like watching a dirt squirrel trying to catch a falling hippo. Switzerland, with only six million souls, is also in this boat. Now the Irish Government is having problems financing itself. The EU's answer ? Yes you guessed it.. more loans !! Greece is in a similar position. Spain is getting there. But when the IMF and the EU give Ireland and Greece loans, they demand that these governments cut spending somewhere.. usually this means slashing the jobs and wages of public employees. Ireland in particular has suffered from this. Worse yet, as time goes by, their economies continue to shrink {caused in part by these spending cuts), and so these nations' tax revenues shrink as well, forcing yet more cuts in government spending. It's called a deflationary death spiral. Ireland's unemployment rate is 14.1% and soaring. Spain's last summer went over 20%. Strikes and riots are occuring in Athens as I type this. This is Bernanke's worse nightmare, and its why he's printing money. My fear here is that one day, the people and/or government of one of these nations will simply say "Screw This" and will let their own banks fail.. and we have another Lehman style crisis thanks to the trillions in CDS's.. Spain is particularly worrysome because of the size of their banking sector's debt ($1.8 trillion), their already high unemployment, and the inability of the other EU nations to deal with a problem of this size. Spain will need to borrow $400 billion in 2011, and their rates have been rising. Left alone without help of some sort, I highly doubt Spain makes it this year. Portugal will not make it this year. If Spain begins to totter, be afraid.. very afraid. Oh yes.. and Europe's Central Bank, the ECB, has a leverage ratio of.. get this.. 331 to 1. Yesterday it was leaked out that the ECB needed a $10 billion credit line from the Bank of England. The answer is the EuroBond, which essentially means Germany will be helping their southern neighbors in perpetuity.. but will they agree ? 2011 could be very interesting.

Japan: Japan's economy is the first modern economy to suffer a real estate/banking crash, which happened in the 1980s. The response of the Japanese Government was much the same as we are today doing.. have the government prop up these rotten banks at all cost. As a result, Japan's government is severely over it's head in debt. For example, Greece is Europe's most overindebted government.. it owes 120% of it's GDP in debt and spends about 1/4th of their government revenues just to pay the interest on this debt. The figure for Japan you ask ? 210% as of this year. There is, however, a major difference.. Greece relies on foreigners to supply the loans to it's government. Japan, however, is very lucky in that their own people supply their government with the needed loans. Because of the amount of debt the Japanese Govt does owe, any rise in interest rates will hit their government's finances very hard. For example, a rise in interest rates of 2% would force the Japanese Govt to halt all funding to their Defense Dept and Medicare. So far, the Japanese people have been willing and able to finance their government. My concern here is that Japan as a nation is getting very old very fast. Fewer and fewer younger people are expected to not only pay down this debt but provide for the huge and growing elderly population. Japan's government this year spent two dollars for every dollar they took in as tax revenue. One day, something's gotta give.

Wednesday, December 15, 2010

2010 Predictions Revisited

"Jobs" Bill: Not sure how big, but the politicians are a tad scared about the unemployment rate (and well they should be lest they themselves meet that same fate in the next election). Aid to local governments will also be a part of this to avoid a muni bond implosion. Look for new taxes (trader's tax, etc) to partially pay for this. The healthcare bill might also contain immediate taxes on the wealthy": On 12/6, Obama and the new Republican congress agreed on a megadeal: Allow all of the Bush tax cuts for another two years and also extend unemployment for another 13 months. They also reduced the payroll deduction. All of this amounted to a $900 billion stimulus. I'll give myself a "B" here because no new taxes were added and municipalities were not helped

"Another QE: Expect Bernanke to announce another round of MBS purchases in the $600bln range, and perhaps another round of Bond purchases depending on how the roll over rates on short term bonds look. Look for Japan to curtail their rollovers of US debt" I got the amount exactly correct.. but not the form it took (it was Bonds that were purchased, not MBS). Lets call this one a "B"

"The FDIC will get another injection of aid from somewhere, likely the Fed, to deal with the bank failures" The FDIC raised their rates and forced big banks to pay years in advance.. but to be precise the Fed did not bail out the FDIC. Lets give this one a "C".

"The Bank of Japan will announce QE in some form, perhaps bond purchases" Hit.. in April the BOJ announced a series of measures to increase liquidity, though so far bond purchases were not among the measures. Again, lets call this a "B".

"The US Gov't deficit will be north of $1.25 trillion" This one was easy.. an "A".

"Unemployment will hover around 11%" It's hovering around ten percent.. and if they would've stopped their endless extensions of unemployment, my 11% would be right on the money. Still.. lets call this one a "C".

"This printing will have an effect somewhere in the world; the "carry trade" will, somewhere, inflate someone's stock market and real estate prices to unrealistic levels. Look for a crash somewhere, likely in Asia. Many other nations have begun to restrict the inflow of money; Taiwan and Brazil to begin with, and the list will probably grow" China's stock market and real estate markets have come back to earth in part because of our own monetary policies; money printed here is finding its way there, resulting in inflation. Over the last two months, China's government has been trying to stop this inflation by hiking bank capital requirements and will likely now try interest rate hikes. Vietnam, Taiwan, Brazil and Peru have resorted to capital controls to stop the inflows. I'll give myself an "A" here. 

"Look for at least one sovereign default in 2010. Ukraine, Mexico and Greece head this list of shame. They'll get bailed out in one fashion or another, but there will be serious damage done to EU banks in the process. Also refer back to point #7 for other candidates in Asia. These panics will not crash the system, but will scare investors out of equities and back into bondsThis was a clear hit.. "A".

"There will be no recovery back to the good ole days. We are as a nation still WAAAYY too far indebted for this to happen anytime soon,and this will continue for the better part of a decade at the very least" So far go good.. but a decade still to go. "B".

"US Bond rates: There is some $3 trillion in short term bonds that needs to be rolled over in 2010...nevermind the additional $1.25 trillion that Obama will need to borrow. Then we get to the borrowing needs of other nations, other states, other cities all over the world. In short, there is a chance that despite Bernanke's efforts, rates will rise.. unless.. the stock markets take a hit, in which case investors flee stocks and (voila !) begin buying bonds again. A minor panic or two in exotic locales will help encourage yet more investors to once again purchase US bonds" So far there seems to be absolutely no problems funding the deficit. But.. this was due not to a stock crash, but rather a major panic in a very large exotic locale (Europe) as well as the Fed purchasing vast quantities of Bonds. Rates this summer were at Lehman era lows when Europe was having it's crisis, but they've crept up very smartly after QE2 was announced. Lets call this one an "B+". 

"Stock market: Because of #10 (bond rates) I fully expect a dandy pullback beginning early in 2010; look for the DOW to sink to at least 9000ish at some point. Lets just hope that it does'nt turn into a stampede for the exits, and there exists that possibility, though I think it won't turn out that way"  A clear miss, especially given the time frame I mentioned. "F" 

"Commodities: Since I expect a stronger dollar and a sluggish economy (and thus demand for commodities) I see commodities having a down year. Gold will cool off, but I would'nt look for it to get much below $900/oz again" The CRB Index (a broad measure of commodities vs the USD) went from 290 at the beginning of the year to 258 in June, indicating that commods started the year as I expected. My call on gold was a clear miss. Since September, the CRB has rocketed upwards, hitting 319 today. Lets give this one a "C-".

"Currencies: When the stock market begins to tank, the USD will strengthen some versus both commodities and other currencies. Bernanke will not allow it to strengthen so much as to bring about deflation, but he will allow it to go up some" A clear hit. The USDX (which measures USD strength) started the year out at 78. By June, the dollar strengthened up to 88. In July it began a Bernanke engineered descent to the current level of 80. Lets give this one an "A".

Overall, I'm going to give myself a "B". 

Sunday, December 12, 2010

Iceland's Temptation

Starting in the 1990s, Iceland's three largest banks.. Landsbanki, Kaupthing and Glitnir.. began loaning out vast sums of money in relation to their size and became quite profitable. Foreign investors.. notably British and Dutch.. rushed in to invest and get their piece of the pie after Landsbanki set up a Continental wing named Icesave. After all, it was guaranteed by the Icelandic government if all else failed.

Sure enough, by 2008, these three entities had leverage ratio's exceeding 75-1 (thats 75 dollars loaned out for every dollar in the vault). Predictably, these held up about as well as the Metrodome's roof did last nite as the snow piled on.. it collapsed. In late September 2008, the Icelandic authorities took control of Glitnir and Kaupthing. Two weeks later, their partner in greed and stupidity Landsbanki also bit the dust. The Icelanic currency, the Kroner, fell dramatically as well.

The Icelandic government, essentially unable to borrow money and with collapsing tax revenues, decided on a two-fold strategy: let Glitnir, Kaupthing and Landsbanki completely collapse and begin printing money to fill the budget deficits. An IMF loan agreed upon a couple months later helped. But the effects were profound for Iceland.. as well as over 500,000 British, Swedish and Dutch depositors, who were unable to get their money out of Icesave (Landsbanki's operations on the Continent) and Kaupthing, which had operations in Sweden.

The British and Dutch governments were understandably upset and asked the Icelandic government to make good on the deposits of UK and Dutch depositors of Icesave. Indeed the UK's Chancellor of the Exchequer Alistair Darling issued an order freezing the assets of Landsbanki, the Icelandic Central Bank and Icelandic Government.. using a 2001 anti-terrorism law as the pretense. The UK and Netherlands also opposed IMF loans to Iceland until their government agreed to financially compensate Icesave depositors. Nine months later, an agreement was reached, promising to pay UK and Dutch depositors €3.8 billion was passed by the Icelandic legislature under intense EU pressure. The Icelandic Volcano Gods showed their displeasure with the eruption of the Eyjafjallajokull volcano in late 2009, spewing ice and ash over the Ccontinent, with Britain getting the lions share of it's anger. More was to come.

Shortly after the vote, the people of Iceland began marches and strikes in protest, enough to force Iceland's President Olafur Grimmson to refuse to sign it until the matter came before a national referrendum. The Icesave Referrendum was held on March 6th, 2010 under the ash cloud of Eyjafjallajokull.. with 93% of the population opposed and only 2% in favor. In short, Iceland's people gave their foreign creditors the middle finger. The eruptions ceased shortly thereafter.

But how has tiny Iceland fared ? It's been a little over two years since the collapse of Landsbanki. In the beginning, it was indeed awful: the currency fell sharply in value, foreign currency exchanges were essentially halted, the stock market closed for roughly three weeks after dropping 90% in value. Unemployment skyrocketed, beginning with Landsbanki and Glitnir employees. Food prices soared. 2009 and 2010 were miserable.

But something has happened recently.. the Icelandic economy is showing some very real signs of life again. In the third quarter of 2010, their economy grew by 1.2%. Their budget deficit for 2010 was only 6.3% of GDP. For 2011, more robust growth will lead to.. get this.. a budget surplus. Their unemployment rate has fallen from a high of 9.7% to 7.3% this year. The stock market is on a modest upswing again. Now lets take a look at Ireland: their unemployment rate is 14.1% and rising. Their budget deficit, including the backstopping of bad banks, is 32% of GDP. Unlike Iceland, they are Euro members and cannot simply print money as did Iceland. Ireland will soon join Greece and Spain in the deflationary death spiral, though it must be said that although the Irish budget has been approved, the IMF rescue package has yet come up for a vote. Irish PM Brian Cowen's popularity is on par with the Potato Famine for agreeing to it.

Iceland's President Grimmson last week had this to say comparing Iceland to Ireland.. much to the displeasure of EU officials: "The difference in Iceland is that we allowed the banks to fail. These were private banks and we did'nt pump money into them in order to keep them going. The state should not shoulder the responsibility". A tempting course of action indeed.

Friday, December 3, 2010

The 99'ers

Earlier this year, the US Congress agreed to extend benefits for the millions of people on unemployment; the total term one could stay on unemployment was 99 weeks, hence the term "the 99'ers". There are a little more than two million of these people.. and their time on unemployment has ended, beginning yesterday. By Christmas, all two million will see an end to their benefits. As next year unfolds, yet more people will lose these benefits with each passing month as well, but not in a deluge like this month.

There is now a battle in Congress by Democrats to try and extend this; the Republicans are putting their foot down, siting the need to reduce spending. Some conservative Democrats, calling themselves the "Blue Dogs", have agreed to extend the benefits.. so long as there are corrosponding spending cuts elsewhere. The total cost of extending these benefits three months would come to $12.5 billion.. which in Washington really is a spit in the ocean. Many Republicans argue that it's time these folks get off their @sses and get a job, no matter how menial.

For years, I myself would've lean towards the Republican position.. I myself have never in my adult life been without a full time job and have never received a dime from welfare, unemployment or any other social aid agency. But this time I'm leaning towards something different, and it's because I believe that America's problems are more serious now than at anytime since the Depression. I simply refuse to believe that this is a cyclical recession; these job losses are a permanent facet of life.

Unemployment is one of the few ways the US Government can directly help us folks on Main Street that does not involve trickling down through Wall Street. It also helps those who through no fault of their own are without a way to earn a living. As well as these things, it does some dandy things in the macroeconomics arena as well.. it helps consumer spending. The cut in benefits will hurt consumer spending.. at Christmas time as well. Better yet, it enables millions of families to continue paying on their credit card, mortgage and other bills instead of defaulting on them. For politicians, the immediate rise in the unemployment rate from 9.6% to over 11% might not be attractive either. At some point, even us econo-nerds must also realize the pain this will inflict on millions of families.

Therefore, my solution is this: extend benefits for those who live in counties where the unemployment rate exceeds 9% for six months.. which is probably better than 2/3rds of the 99'ers. These people are simply unable to find work. For those who are in counties where it is not, it's time to find a job. Here in Minnesota, we have plenty of entry level jobs available.. many thousands of people here simply don't want to go out into the cold and work for a living. Unemployment is not for people like this. How do we pay for it ? Given that this would cost approximately $2 billion a month, I propose the following cuts:

* Department of Defense: $1 billion/mo
* Department of Education: $500 million/mo
(slice aid to non citizen students)
* Slice "Earmarks": $500 million/mo

America's unemployment problems are not cyclical; we will not grow our way out of this. It's high time we as a nation begin to think about the serfs instead of sending armies abroad to fight in places we can't even pronounce and the pet projects of corrupt politicians.

Update 12/6pm: Obama has apparently reached an agreement with the Repubs: another 13 month extension of u/e benefits and all of the Bush tax cuts will remain in place for another two years. This is going to blow a gaping hole in the deficit. It's apparent that the path of least resistance in Wash DC is to just borrow and spend ad finitum. Tomorrow will be an interesting day in the Bond markets.