partying harder and louder in the face of the housing boom than pretty much
any other part of the country.
The world's eighth largest economy is strapped for cash � in a big way. So
much so, that they have issued 900,000 IOUs worth nearly $355 million.
On Friday, came news that at least two major banks, Wells Fargo and Bank of
America, will stop accepting IOUs from California residents � many of whom
received these IOUs from income tax returns.
Beth Mills, spokeswoman for the California Bankers Association, said, "What's
ultimately in the best interest of everyone will be for the state to act quickly and
resolve the budget impasse."
Unfortunately, with a $26 billion budget gap � this impasse may take a bit
longer to resolve.
Will more 'stimulus' solve this problem? Bill Bonner wonders that in The Daily
Reckoning's Highlight of the Week, below…
Naturally, the calls for more stimulus spending are becoming louder.
People are wondering how come Washington bails out Wall Street but not California.
Wouldn't that stimulate the economy? The Golden State is issuing IOUs to paper over the holes in its budget. Wall Street has announced that it has found a way to make a buck on California's troubles; it will trade the IOUs just like bonds. But major creditors � fearing the paper could decline in value � may not take it...forcing California into a more immediate crisis.
This will make people wonder something else: how come creditors take
U.S. IOUs, but not California's? The feds' deficit is 70 times greater
than California's. Yet, lend money to the federal government for 10
years and you get just 3.5%.
Meanwhile, in the business sector, Bloomberg continues its reports on
the progress of the depression: "Earnings Drop Worldwide," says the
headline.
In the United States, dividends are going down faster than at any time in the last 50 years. Businesses are earning less and paying less in
dividends because shoppers have stopped buying.
Maybe it's just mid-summer. But despite the darkening clouds, there's
an air of eternity...like the stillness before a thunder storm...as if time
were stuck in a drop of amber...and lightning would never strike.
"The worst is behind us," says a report from the British Chamber of
Commerce. Of course, those words could have come from any one of
dozens of sources. Economists believe it. Businessmen. Investors. The
recovery may be "long" and "fragile." Maybe "L" shaped...rather than
the V we were hoping for.
The above is just an excerpt from Bill's standout essay from this week. You can
read it in its entirety on The Daily Reckoning site � it's an essay you don't want
to miss.
| Did you take an extended |
| Money Tsunami Capsizes the Global Economy by The Mogambo Guru Tampa Bay, Florida "Even the World Bank has revised its estimates, and now says the global economy will contract by 2.9% this year instead of their previous forecast of 1.7%, which is an error of 41%." Don't Let a Good Crisis Go To Waste by Patrick Cox Marco Island, Florida "Economics is called the 'dismal science' for a reason. And it often falls to rational economists to play the role of parent, explaining that we just can't afford all those cool toys people want right now." Hyperinflation or Deflation? by Puru Saxena Hong Kong, China "In the business of investing, the tape never lies and it is worth remembering that Wall Street is littered with the graves of those who got married to one particular outcome and then held on to their ill-conceived notions." Casting Blame, Part I by Barry Ritholtz New York, NY "The Fed not only failed to supervise lending institutions, but it also ignored the most significant shift in lending standards in the history of human finance. The results were disastrous." Bubble Deniers by Bill Bonner London, England "Do these setbacks cause economists to stop and wonder if their theories are bogus and their numbers are nonsense? Nope, they do what McNamara did. They turn up the heat. They propose to spend more money they don't have on more programs that don't work." A slower than anticipated economic recovery has been dragging on the commodities marketplace. This marketplace, which Reuters refers to as "one of Wall Street's favorite playgrounds" isn't seeing any new product rollouts lately. "I believe there were many products that were supposed to come out and I don't think there was a desire for them at the end of the commodities boom-bust cycle," Michael Pento, chief economist for Delta Global Advisors in New Jersey, said. "They are probably being held in abeyance, awaiting the right time." Not only that, but as Dennis Gartman, over at The Gartman Letter points out, "Commodity prices are weak, as the markets weigh the economic problems attendant to rising unemployment in the US. It is really quite that simple and one wastes one's time trying to analyze things any more deeply than that. If the US consumer, who's driven the global economy for decades, is retrenching and going on the unemployment lines, then who or what shall replace him or her? It is a reasonable question, and the answer, for the moment, is 'No one and nothing.'" You can catch Dennis Gartman (along with Agora Financial's best and brightest) at this year's Agora Financial Investment Symposium in Vancouver, B.C. The symposium promises to be the event of the year � so don't miss out! Secure your ticket now � before the event sells out! |
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