Saturday, May 14, 2011

Why Growth is Dead

Time to Prepare for the Coming Rout

The end of the second round of quantitative easing (QE II) is going to be a complete disaster for the paper markets -- specifically commodities, stocks, and then finally bonds, in that order, with losses of 20% to 50% by the end of October. The only thing that will arrest the plunge will be QE III, although we should remain alert to the likelihood that it will be named something else in an attempt to obscure what it really is. Perhaps it will be known as the "Muni Asset Trust Term Liquidity Facility" or the "American Prime Purchase Program," but whatever it is called, it will involve hundreds of billions of thin-air dollars being printed and dumped into the financial system.
A Premature Victory Lap

Bernanke recently stood at a lectern and announced to the assembled audience that the Fed's recent policies could be credited with elevated stock prices and an improved employment statistic while somehow keeping inflation low.

It was his own version of a 'mission accomplished' speech, just like the one GW Bush gave. And similarly, it does not mark the end of significant difficulties, but the probable beginning of a very long period of treacherous economic and financial disruption.

Here's one recent version of how the Fed's actions are being interpreted, courtesy of Bloomberg:

Bernanke’s QE2 Averts Deflation, Spurs Rally, Expands Credit

Ben S. Bernanke’s $600 billion strike against deflation is paying off, as stock and debt markets rise, bank lending grows and economists forecast faster growth.

The Standard & Poor’s 500 Index has gained 13.5 percent since the Federal Reserve chairman announced on Nov. 3 the plan to buy Treasuries through its so-called quantitative easing policy. Government bond yields show investors expect consumer prices to rise in line with historical averages. The riskiest companies are obtaining credit at the cheapest borrowing costs ever and Fed data show that commercial and industrial loans outstanding are rising for the first time since 2008.

“Looking at market indicators, you have to be convinced it’s been a success,” said Bradley Tank, chief investment officer for fixed-income in Chicago at Neuberger Berman Fixed Income LLC, which oversees about $83 billion. “When you get into periods of aggressive central bank easing, and we’re clearly in the most aggressive period of easing that we’ve ever seen, the markets tend to lead the real economy.”

A rising stock market, low inflation expectations, and lots and lots of cheap credit for even the riskiest companies. What's not to like?

The main problem is that this is all an illusion. If it were truly possible to print one's way to prosperity, history would have already proven that to be possible, yet such efforts have always failed. The reason is simple enough: Money is not wealth; it is a commodity that we use as a temporary store of wealth. Real wealth is the products and services that are made possible by an initial balance of high-quality resources that can be transformed by human effort and ingenuity.

For some reason, however, this basic concept has managed to elude the high priests and priestesses of the money temples throughout time. Somehow it always seems compelling to give money printing a try, maybe because this time seems different. But it never is. And it's not different this time, either.

Even as the markets are beginning to correct in anticipation of the end of QE II (which I predicted in my newsletters as early as March 8, 2011), we should note that the Fed is still pumping an average of $89 billion per month into the markets.

When we compare the $370 billion that the Fed has printed and placed into the financial system year-to-date against the levels of money flows going into and out of mutual funds, exchange-traded funds (ETFs), and money market funds, we observe that the Fed's actions swamp those flows by a factor of roughly 2:1. That is, the amount the Fed is putting in is quite significant, and its disappearance from the markets is something that needs to be carefully considered.

On the plus side, we can all be thankful for the one thing that money printing can do, and has done, which is buying a little more time for everyone. As I consistently advocate, such time should be used, at least in part, to ready oneself for a future of less and to become more resilient against whatever shocks are yet to come.

While money printing can so some wondrous things in the short term - (Hey, give me $2 trillion to spend and I'll throw a nice party, too!) - it cannot fix the predicament of fundamental insolvency. The United States has lived beyond its means for a couple of decades and promised itself a future that it forgot to adequately fund. The choice that remains is between accepting an unpleasant but relatively steady period of austerity leading to a new lower standard of living -- and a final catastrophe for the dollar. The former is akin to walking down around the side of a cliff, and the latter is jumping off.
Too Little Debt! (or, One Chart That Explains Everything)

If I were to be given just one chart, by which I had to explain everything about why Bernanke's printed efforts have so far failed to really cure anything and why I am pessimistic that further efforts will fall short, it is this one:

There's a lot going on in this deceptively simple chart so let's take it one step at a time. First, "Total Credit Market Debt" covers everything - financial sector debt, government debt (fed, state, local), household debt, and corporate debt - and is represented by the bold red line (data from the Federal Reserve).

Next, if we start in January 1970 and ask the question, "How long before that debt doubled and then doubled again?" we find that debt has doubled five times in four decades (blue triangles).

Then if we perform an exponential curve fit (blue line), we find a nearly perfect fit with an R2 of 0.99 when we round up. That means that debt has been growing in a nearly perfect exponential fashion through the 1970's, the 1980's, the 1990's and the 2000's. In order for the 2010 decade to mirror, match, or in any way resemble the prior four decades, credit market debt will need to double again from $52 trillion to $104 trillion.

Finally, note that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008 -- and it has not yet even remotely begun to return to its former trajectory.
This Explains Everything

It explains why Bernanke's $2 trillion has not created a spectacular party in anything other than a few select areas (banking, corporate profits) which were positioned to directly benefit from the money. It explains why things don't feel right, or the same, and why most people are still feeling quite queasy about the state of the economy. It explains why the massive disconnect between government pensions and promises, all developed and doled out during the prior four decades, cannot be met by current budget realities.

Our entire system of money, and by extension our sense of entitlement and expectations of future growth, were formed in response to and are utterly dependent on exponential credit growth. Of course, as you know, money is loaned into existence and is therefore really just the other side of the credit coin. This is why Bernanke can print a few trillion and not really accomplish all that much. It's because the main engine of growth is expecting, requiring, and otherwise dependent on credit doubling over the next decade.

To put that into perspective, a doubling will take us from $52 to $104 trillion, requiring close to $5 trillion in new credit creation during each year of that decade. Nearly three years have passed without any appreciable increase in total credit market debt, which puts us roughly $15 trillion behind the curve.

What will happen when credit cannot grow exponentially? We already have our answer, because that's been the reality for the past three years. Debts cannot be serviced, the weaker and more highly leveraged participants get clobbered first (Lehman, Greece, Las Vegas housing, etc.) and the dominoes topple from the outside in towards the center. Money is piled on, but traction is weak. What begins as a temporary program of providing liquidity becomes a permanent program of printing money, which the system becomes dependent on in order to even function.

In addressing these questions in Part II of this report: Positioning for the Coming Rout, I have become increasingly confident that the Fed's efforts to exit quantitative easing will lead to a substantial market rout that will roil all asset classes this year. That's just the short-term outlook. Continued and eventually greater turbulence will result from the government's subsequent response.

Click here to access Part II (free executive summary; paid enrollment required to access) for specific predictions on what to expect in the months ahead as well as recommendations for protecting your wealth.

Silver was 'manipulated' down, Sprott says

LAS VEGAS (MarketWatch) -- Silver has been manipulated down in recent weeks, Eric Sprott, head of Sprott Asset Management, said Thursday. Silver slumped by $6 in 13 minutes late on a recent Sunday, when the market was thinnest, Sprott noted during the SkyBridge Alternatives Conference in Las Vegas. That was followed by four margin increases, Sprott added. Sprott recently launched a silver fund and has been a gold bull for at least a decade. Despite the recent drop in precious metals, Sprott reckons they are a good way to protect against trouble in the banking system and a potential devaluation of the U.S. dollar and other paper currencies. "The market has judged the world's reserve currency as gold," he said on Thursday.

By Alistair Barr

Indiana School Employee: Education Reform=Nazi Ovens

Last week, my organization praised the Indiana lawmakers for passing some of the nation’s most significant education reforms. In one of Education Action Group’s weekly newsletters, we said that Indiana’s new voucher program and its decision to lift the cap on charter schools will transform the state’s public education system, to the benefit of all Hoosier families and students.
Well, EAG’s audacity in celebrating the idea of school choice generated a number of hateful email responses – from unionized Indiana teachers.

The writers (all with the telltale “” in the email address) accused us of “attacking public education” and “bashing” teachers. One writer blamed us for demoralizing “those of us in the trenches and on the front lines of the classroom.”

Anyone who dares challenge the status quo of Big Education can expect such name calling.

But as unhinged as unionized teachers can become, one Indiana educator stooped to new lows.

An email from a teacher at East Allen County Schools said this:

“Why do you distribute this propaganda? Do you have a conscience? Do you really believe any of this? I am not a union member but feel that Mitch’s agenda is killing Indiana. The education agenda is a holocaust against our children. Please understand I am speaking as a grandson of a Holocaust survivor. This is truly as bad or worse than what was done to the Jewish people only it is happening to innocent young people. It is frightening to me.” (emphasis added)

According to this—ahem—educator, allowing children to attend a charter school is “WORSE THAN” placing children in ovens like the Nazis did.

Even more disturbing than this teacher’s irresponsible comments is the fact that he is allowed anywhere near a place of learning. It’s darn near criminal that he’s allowed to shape the minds of Indiana’s youth. (By claiming to be “a grandson of a Holocaust survivor,” this teacher believes he is immune from charges of insensitivity.)

Now, some readers are likely thinking that we’re using the words of one loony teacher to smear all union teachers, but we’re not.

The accomplishments of this new crop of education reform-minded governors (Wisconsin’s Scott Walker, Michigan’s Rick Snyder, New Jersey’s Chris Christie, Indiana’s Mitch Daniels, to name a few) have caused unionized teachers to lash out at anyone supporting a reform agenda. We’ve received numerous profanity-laced emails sent from teachers who feel threatened by accountability and choice.

The teacher unions’ public image is one of standing up for the interests of kids. They’re just well-meaning teachers who believe in the value of public education. Right.

In reality, the teacher unions are dominated by a group of angry leftists who care far more about their compensation packages and collective bargaining privileges than they do about educating children.

That might strike some as a harsh conclusion, but we’ve got the emails to prove it.

Obama missing: National Police Week

President is present for rapper, absent for cop memorial

Sunday, May 15 is the 30th annual Peace Officers Memorial Service. Law enforcement from all over the country gathered in Washington for National Police Week to honor fallen comrades-in-arms. Too bad President Obama couldn’t be there.

Despite being invited to speak to the widows, children and friends of the 165 officers recognized this year as killed in the line of duty, he somehow didn’t think it was important to trek the two miles from the White House to the Capitol Building to participate. Perhaps it’s because Mr. Obama historically has had a conflicted relationship with law enforcement.

While he has hosted the “Top Cops” - officers recognized for heroism - in the Rose Garden, this president has consistently failed to mention National Police Week, which is observed every year with the thin blue line gathering in town. Mr. Obama spoke at the memorial service in 2010 - never mind that it was his next opportunity after infamously saying Cambridge, Mass., police acted “stupidly” in arresting Harvard professor Henry Louis “Skip” Gates when responding to a breaking-and-entering report. Mr. Obama declined to speak at the service in 2009, choosing instead to host baseball’s World Series winners, where he offered his condolences to a Philadelphia Phillie who lost his mother during the playoffs: “I know how tough that is. I lost my grandmother in the middle of my election. … I admired your perseverance during those trying times. I know how hard that must have been on you.”

President George W. Bush set a different example, speaking at the Peace Officer’s Memorial Service every year of his presidency except 2008, when being in Jerusalem made his attendance impossible. As he noted May 15, 2007, “I have been here ever since I’ve been the president… it’s fitting because this is a really important day for our country [when] we remember men and women who fell in the line of duty.”

Remembered or forgotten by the Obama White House, the families and friends of those killed in the line of duty weren’t expecting to be insulted during the week they remember their dead. On Wednesday, the White House hosted a poetry night at which rapper Common, author of at least one work praising a convicted cop-killer, performed. Fraternal Order of Police National President Chuck Canterbury sent a letter expressing his “profound disappointment” with the invitation and followed it up with a phone call reminding Mr. Obama’s staff that National Police Week is “a time to honor law-enforcement officers for their service and sacrifice.”

Though Mr. Obama lacks the experience of donning a uniform in service to his country or his community, that’s a reminder he shouldn’t have needed - particularly if he expects peace officers’ support come 2012

Obama Calls “Post American World” Author & TV Host Frequently For Advice

Barack Obama was photographed on the tarmac by Doug Mills of the New York Times with a book in his left hand titled “The Post-American World” by Fareed Zakaria back in 2008. (Freedom Phoenix)

Barack Obama regularly seeks advice from Fareed Zakaria, the CNN host and author of Post American World.
The Blaze reported:

How would you feel if you knew the president regularly sought the advice of a magazine editor/columnist ad TV host? It’s true. According to CNN, Obama has made a habit of seeking “wisdom and advice” from host Fareed Zakaria.

In an interview with fellow CNN host Elliot Spitzer, Zakaria admitted Obama and him talk regularly about the Middle East and international policy, a point that Spitzer said makes his heart “warm:” See the video @ link

The Peace Corps at 50: What’s a Little Rape, Murder, and Brutalization of Women Between Friends?

That great lefty favorite, the Peace Corps, just had a 50th birthday! You can tell, because it’s demanding presents. The Lefties who totally love conscience-salving stints in third world countries rejoiced and then swiftly returned to their soy lattes and organic arugula. Senator Harry Reid issued a breathless, sycophantic statement in which he, being Harry Reid, couldn’t resist making things up, pouting and petulantly trying to cling to funding.

I’m deeply discouraged that Republicans have proposed slashing significant funding for a program that trains workers for a 21st century global economy, builds good will around the world and promotes public service. Instead of reducing the effectiveness of a highly cost-effective program, we should cut government spending in a smart, responsible way that targets waste and excess while keeping our economy growing.

Of course, he had nothing to say in response to charges that perhaps the Peace Corps isn’t so peaceful. At least not for the women who were raped – and then blamed for being raped - during their stints in the corps. No ado was made about the House hearing on Wednesday investigating the same, or the legislation proposed by Congressman Poe (R-TX) that would require some Peace Corps oversight. In fact, the New York Times reported that Democrats wished to, as always, sweep such things under the rug in fear that their precious funding might be lost:

[W]hether such a bill would pass Congress is unclear. Representative Niki Tsongas, Democrat of Massachusetts, is co-sponsoring Mr. Poe’s bill, but other Democrats are skittish about it. They worry that the legislation, and Wednesday’s hearing, might be used to undermine the Peace Corps — the legacy of a Democratic president — and cut its funding.

Hey, what’s a little rape, with the added insult of victim blaming, as long as we keep our sweet, sweet funding? You know what I am skittish about, Democrats? Funding an organization wherein women are raped, assaulted and even murdered; 1,000 women have been sexually assaulted while in the Peace Corps in the past decade alone. And 23 Peace Corps volunteers have been murdered since its creation. This isn’t new, either. Peace Corps volunteer Deborah Gardner lost her life in Tonga in 1976.

Deborah Gardner was murdered by fellow Peace Corps worker Dennis Priven, who turned himself in. After stabbing her – 22 times – to death. The Peace Corps reaction? Try to cover it up:

“Even after everyone knew it was Dennis, already that effort by the Peace Corps to put the blame somewhere else. And to make things go away,” says [author Phil] Weiss. “That impulse has seized the Peace Corps within moments of Deb’s death.”

As revolting as that is, they went one further. The Peace Corps hired, and paid for, the best defense attorney available in Tonga. Priven was found not guilty and the Peace Corps quietly shuffled him back to the United States. Where he lived freely, for decades. Working for the government. No, really:

Weiss says Priven has led a small, anonymous life since then. He’s divorced, and he recently retired after working for decades for the U.S. government.

“Twelve years after Deb’s death, he was working for Social Security,” says Weiss. “And ultimately was their top computer guy in the Brooklyn office.

Kate Puzey was 24 years old when she was brutally murdered, her throat slit, while working for the Peace Corps in 2009. Her concerns about a fellow employee were ignored, and then the subject of an attempted cover-up after her death.

Jessica Smochek was gang-raped in Bangladesh in 2004. This is how the Peace Corps gave her aid afterward: not only medical malpractice, but they blamed her. For being gang-raped (emphasis mine):

Peace Corps medical officer refused to give her a proper physical examination. Instead, the medic confiscated the former English teacher’s cellphone so that she could not alert her fellow volunteers and instructed her to tell anyone who asked about her sudden departure from the program that she was returning to the U.S. to get her wisdom teeth out. When Smochek arrived in Washington, D.C., a Peace Corps official asked her to write down everything she had done to provoke the attack.

“Shortly after I left, the country director — who never attempted to contact me after I was raped — called a meeting of several women in my former volunteer group and told them, without my permission, what had happened to me,” she said. “Then, he told them that rape was a woman’s fault and that I had caused what happened to me by being out alone after 5:00 PM. As for the other women in the group, who had been very vocal about being constantly stalked and afraid, he threatened them with administrative separation.”

Jessica was one of the courageous women who testified before Congress on Wednesday. You know, that same Congress that contains members more concerned with loss of funding than actual women and the violent crimes committed against them.
Commentary Magazine asks “where are the feminists?” While the hypocrisy is, as always, staggering, that’s not a question I’d bother asking. Who cares where they are? It’s clear that “feminists,” and Democrats, are not For The Women ™ and they have never been. From their embracing of Obamacare, which harms women, to their frantic scurrying to cover up the exploitation of young girls by Planned Parenthood, it is painfully apparent that the end justifies the means to them. Agendas and “progressive” programs mean all; actual women mean nothing. And, as always, feminist groups do not speak for women, nor should we expect nor want them to. Ever.

The question that should be asked is why the Peace Corps is receiving $400 million in taxpayer funds a year.

Politics Daily points out the original reasoning for the creation of the Peace Corps:

In a 1986 interview, Peace Corps founding director Sargent Shriver, who was hospitalized Monday, described his organization’s raison d’ĂȘtre this way:

When [Gen. Augusto] Pinochet came into power a lot of Peace Corps volunteers were in Chile and they started protesting Pinochet and writing letters to newspapers. I was criticized in Washington for the actions of these volunteers. My response was that we should rejoice that we are the only country in the world that had the vision to send abroad people who are not under government control. Instead, they are independent free-standing human beings. I maintain that they are the greatest advertisement for the American system of government that there is in the world, they are worth a thousand Coca-Cola signs. There is no better advertisement for what this country stands for than an individual Peace Corps volunteer walking down the street unarmed, wearing the same clothes that the people do, eating the same food, living the same life, and being there as an independent free-standing person who believes in democracy and who is compassionate to his fellow man.

Maybe – and I’m not even convinced of this – that was all fine and dandy 40 years ago. Today, not so much. The world isn’t all unicorns and fairy dust. Moreover, this goodwill ambassadorship stuff doesn’t work, right? Doesn’t the world’s view of Americans change based on whether there is a Republican or a Democrat in the White House? I mean, that’s what we are told, over and over. The world hated us merely because, Bush. For years. And now they totally heart us again because, The One, right?

The world is a dangerous place sometimes. And sending women to places that are known dangers without adequate, or even mediocre for cripes sake, support is beyond irresponsible. Especially if the organization itself is complicit in the violence perpetrated against the women who volunteer for them. And, in fact, exacerbates the harm to the women by not only attempting to hide the crimes, but by blaming the victims. Taxpayer money should in no way be used to support violence against women, nor the revolting covering up of the same.

Editorial: Americans Have Hit The Ceiling Over Debt

National Debt: Ben Bernanke and Timothy Geithner say the sky will fall if the debt ceiling isn't raised on Monday. The American people say: Cut the Chicken Little spending.

Fed Chairman Bernanke warned on Thursday of "extremely dire consequences" if Congress did not raise the debt ceiling by Monday, and claimed "using the debt limit as a bargaining chip" to reduce government spending "is quite risky."

In the same alarmist vein, Treasury Secretary Geithner used the release of the Social Security and Medicare Trustee reports Friday to warn Congress "to move as quickly as possible, so that all Americans will remain confident that the United States will meet all of its obligations," including "our commitments to our seniors."

But the latest IBD/TIPP Poll finds Americans have hit a ceiling of their own, this one on patience with a government that's run up an inconceivable $14.3 trillion debt. They want spending restraint.

Asked to what extent they support or oppose legislation raising the debt ceiling, 40% of 917 adults surveyed May 1 to 6 were strongly against increasing the debt limit, while another 23% opposed it somewhat. Only 18% said they "support somewhat" raising the ceiling, while just 10% strongly support doing so.

Even "if Congress promises not to increase federal government spending as a precondition," anti-debt increase fervor remained. Some 51% were still opposed to raising the debt ceiling — including 30% strongly opposed. Only 40% supporting raising the limit, including just 13% strongly in support.

Most of those polled see through Bernanke's and Geithner's hysterics. As Sen. Pat Toomey, R-Pa., told MSNBC on Wednesday, "If we were never to raise the debt limit at all, the Treasury would still take in 70% of all the money they planned to spend in the form of tax revenue," which is "more than 10 times the revenue needed to avoid a default."

Toomey explained that while a partial government shutdown would occur if the debt ceiling were not raised, the catastrophe of a default wouldn't take place.
The Medicare and Social Security Trustee reports warn that both entitlement programs will go broke much sooner than expected. Meanwhile, the Congressional Budget Office reported that — oops! — its baseline forecast of $5.6 trillion surplus for 2002 to 2011 was off a tad — $11.8 trillion to be exact.

America is headed at warp speed toward a fiscal supernova. Instead of spreading disinformation about the debt ceiling, the White House should use its ongoing budget negotiations with Congress to save us from the real economic danger that's just around the corner.

Tea Party Express denounces NY-26’s self-identified Tea Party candidate, Jack Davis

Tea Party Express issued a harsh statement Friday denouncing Jack Davis, the congressional candidate in the New York special election who is running on the ‘Tea Party’ ballot line.

“Tea Party Express today denounced congressional candidate Jack Davis for fraudulently calling himself a ‘Tea Party’ supporter in the NY-26 special election, when in fact he opposes core Tea Party principles, and is attempting to spoil the race for conservatives,” said Tea Party Express in a press release Friday.

The group will head to western New York on Monday to hold events supporting the Republican candidate, Jane Corwin, in Rochester and Buffalo. Tea Party Express chairman Amy Kremer will speak, as will local favorite former gubernatorial Carl Paladino. Local Tea Party groups supporting Corwin will also speak.

“Though Davis is listed under ‘Tea Party’ on the ballot, his political past reveals him as a liberal Democrat with a history of supporting higher taxes, Obamacare, cap-and-trade legislation, contributing many thousands of dollars to far-left Democrat candidates, as well as endorsing Barack Obama for president,” says the press release.

Tea Party Express implied that Davis was running specifically to hurt the Republican candidate.

“It is extremely likely that he is running under the “Tea Party” name purely to confuse and deceive voters, in an effort to split the conservative vote and help a Democrat win the seat.”

In New York, a candidate can establish his or her own ballot line, if he obtains the requisite number of signatures on a petition. (See: The Rent is Too Damn High party). So Davis, who was denied the Republican nomination by the Republican central committee, was able to name his own ballot line.

“The Tea Party Express is disgusted and outraged at these sneaky, deceptive tactics, and is launching a campaign to educate voters on Davis’s anti-Tea Party past,” runs the press release. “The group will be in the district on Monday holding press conferences and announcing further details in a campaign to reveal the truth about Jack Davis, his fraudulent candidacy, and his long history of actively opposing Tea Party principles of fiscal responsibility and limited government.”

Davis’s supporters argue that he is very much a Tea Party candidate. James Ostrowski, who runs a Tea Party group that is supporting Davis and encouraged him to run calls the idea that he is a some kind of liberal plant a “weird conspiracy theory.”

“Jack is the real Tea Party candidate,” he said.

What If the U.S. Treasury Defaults?

'People aren't going to wonder whether 20 years ago we delayed an interest payment for six days. They're going to wonder whether we got our house in order.'


'A financial crisis is surely going to happen as big or bigger than the one we had in 2008 if we continue to behave the way we're behaving," says Stanley Druckenmiller, the legendary investor and onetime fund manager for George Soros. Is this another warning from Wall Street that Congress must immediately raise the federal debt limit to prevent the end of civilization?

No—Mr. Druckenmiller has heard enough of such "clamor and hyperbole." The grave danger he sees is that politicians might give the government authority to borrow beyond the current limit of $14.3 trillion without any conditions to control spending.

One of the world's most successful money managers, the lanky, sandy-haired Mr. Druckenmiller is so concerned about the government's ability to pay for its future obligations that he's willing to accept a temporary delay in the interest payments he's owed on his U.S. Treasury bonds—if the result is a Washington deal to restrain runaway entitlement costs.

"I think technical default would be horrible," he says from the 24th floor of his midtown Manhattan office, "but I don't think it's going to be the end of the world. It's not going to be catastrophic. What's going to be catastrophic is if we don't solve the real problem," meaning Washington's spending addiction.
Widely credited with orchestrating Mr. Soros's successful shorting of the British pound in 1992, Mr. Druckenmiller also built his own fund, Duquesne Capital, into a $12 billion titan. He announced plans last year to close the fund and now reports, "I have no clients." He is still managing his own money, which Forbes magazine recently estimated at $2.5 billion.

Whatever the correct figure is, it would be significantly larger if Mr. Druckenmiller hadn't given away so much of his wealth. The online magazine Slate reported last year that Mr. Druckenmiller and his wife gave away more money in 2009—over $700 million—than anyone else in the country. Over the last two decades, he has been the largest benefactor of the Harlem Children's Zone, a community service organization featured in the movie, "Waiting for 'Superman.'"
It's hard to think of someone with more expertise in the currency and government-debt markets, but Mr. Druckenmiller's view on the debt limit bumps up against virtually the entire Wall Street-Washington financial establishment. A recent note on behalf of giant banks on the Treasury Borrowing Advisory Committee warned of a "severe and long-lasting impact" if the debt limit is not raised immediately. The letter compared the resulting chaos to the failure of Fannie Mae and Freddie Mac and warned of a run on money-market funds. This week more than 60 trade associations, representing virtually all of American big business, forecast "a massive spike in borrowing costs."

On Thursday Federal Reserve Chairman Ben Bernanke raised the specter of a market crisis similar to the one that followed the 2008 bankruptcy of Lehman Brothers. As usual, the most aggressive predictor of doom in the absence of increased government spending has been Treasury Secretary Timothy Geithner. In a May 2 letter to House Speaker John Boehner, Mr. Geithner warned of "a catastrophic economic impact" and said, "Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover."

In a Monday speech at the New York Economic Club, Mr. Boehner fired back, saying that "It's true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process."

So the moment couldn't be better to consult Mr. Druckenmiller, who almost never gives interviews but is willing to speak up now because he thinks that fears about using the debt-limit as a bargaining chip for spending cuts are overblown—and misunderstand the bond market. "The Treasury borrowing committee letter speaks about catastrophic financial crises, comparing it to Fannie and Freddie. That's not what we're talking about here," he says.

He contemplates the possibilities for bond investors if a drawn-out negotiation in Washington creates a short-term problem in servicing the debt but ultimately reduces spending:

"Here are your two options: piece of paper number one—let's just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don't know, six days, eight days, 15 days, but I know I'm going to get it. There's not a doubt in my mind that it's not going to pay, but it's going to be delayed. But in exchange for that, let's suppose I know I'm going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured," he says.

Then there's "piece of paper number two," he says, under a scenario in which the debt limit is quickly raised to avoid any possible disruption in payments. "I don't have to wait six, eight, or 10 days for one of my many payments over 10 years. I get it on time. But we're going to continue to pile up trillions of dollars of debt and I may have a Greek situation on my hands in six or seven years. Now as an owner, which piece of paper do I want to own? To me it's a no-brainer. It's piece of paper number one."

Mr. Druckenmiller says that markets know the difference between a default in which a country will not repay its debts and a technical default, in which investors may have to wait a short period for a particular interest payment. Under the second scenario, he doubts that investors such as the Chinese government would sell their Treasury debt and take losses on the way out—"because I'll guarantee you people like me will buy it immediately."

Now suppose, Mr. Druckenmiller adds, that he's wrong. If the market implodes on day two of the technical default, Mr. Obama and Congress would be motivated to finally come to agreement. But he doesn't expect such market chaos. "My guess is that the bond market would rally as long as it believed the ultimate outcome was going to be genuine entitlement reform—that we wouldn't even have to find out about a meltdown because it wouldn't happen. And I have some history on my side here."

And the scars to prove it. In 1995, Bill Clinton was threatening to veto budget cuts advanced by the Republican House. In return, congressional leaders threatened not to increase the federal debt ceiling. Back then, before Americans knew what a real government spending crisis was, the debt stood at less than $5 trillion. (It has nearly tripled since then and is poised to race some $10 trillion higher in the next decade.)

Mr. Druckenmiller had already recognized that the government had embarked on a long-term march to financial ruin. So he publicly opposed the hysterical warnings from financial eminences, similar to those we hear today. He recalls that then-Secretary of the Treasury Robert Rubin warned that if the political stand-off forced the government to delay a debt payment, the Treasury bond market would be impaired for 20 years.

"Excuse me? Russia had a real default and two or three years later they had all-time low interest rates," says Mr. Druckenmiller. In the future, he says, "People aren't going to wonder whether 20 years ago we delayed an interest payment for six days. They're going to wonder whether we got our house in order."

Mr. Druckenmiller notes that from the time he started saying that markets would welcome a technical default in exchange for fundamental reform, in September 1995, "the bond market rallied throughout the period of the so-called train wreck . . . and, by the way, continued to rally. Interest rates went down the whole time, past the government-shutdown deadline, and really interest rates never went back up again until the Republicans caved and . . . supposedly the catastrophic problem was solved."

He adds, "I owned [Treasury] bonds and Rubin accused me and Soros of being short them, and that this was some sort of conspiracy. We made a fortune being long bonds during the whole fight. We were advocating a default and we were long bonds. That's kind of putting your money where your mouth is. By the way, I'm long them today."

Mr. Druckenmiller is puzzled that so many financial commentators see the possible failure to raise the debt ceiling as more serious than the possibility that the government will accumulate too much debt. "I'm just flabbergasted that we're getting all this commentary about catastrophic consequences, including from the chairman of the Federal Reserve, about this situation but none of these guys bothered to write letters or whatever about the real situation which is we're piling up trillions of dollars of debt."

He's particularly puzzled that Mr. Geithner and others keep arguing that spending shouldn't be cut, and yet the White House has ruled out reform of future entitlement liabilities—the one spending category Mr. Druckenmiller says you can cut without any near-term impact on the economy.

One reason Mr. Druckenmiller says he spoke up in 1995 was his recognition that the first baby boomers would turn 65 in 2010, so taxpayers would soon have to start supporting a much larger population of retirees. "Well," he says today, "the last time I checked, it's 2011. We don't have another 16 years this time. We're there. I don't know whether the markets give us three years or four years or five years, but we're there. We're not going to be having this conversation in 16 years. We're either going to solve it or we're going to find ourselves being Greece somewhere down the road."

Some have argued that since investors are still willing to lend to the Treasury at very low rates, the government's financial future can't really be that bad. "Complete nonsense," Mr. Druckenmiller responds. "It's not a free market. It's not a clean market." The Federal Reserve is doing much of the buying of Treasury bonds lately through its "quantitative easing" (QE) program, he points out. "The market isn't saying anything about the future. It's saying there's a phony buyer of $19 billion of Treasurys a week."

Warming to the topic, he asks, "When do you generally get action from governments? When their bond market blows up." But that isn't happening now, he says, because the Fed is "aiding and abetting" the politicians' "reckless behavior."

And they could get even more reckless. Mr. Druckenmiller acknowledged by 1996 that the Republican budget shutdown strategy had failed, and he agrees today that the worst outcome would be a technical default that still doesn't muster enough pressure to force the Beltway to change its spending habits. This possibility "scares the hell out of me because I don't know whether Obama would cave. I tell you one thing, if [Obama officials] believe what they're saying, they'll cave. If they believe this is Armageddon and this is worse than Lehman and this is the greatest catastrophe ever, they'll cave."

But what if Mr. Obama hangs tough, Republicans cave, and there is no spending reform between now and the 2012 elections? Would Mr. Druckenmiller sell his Treasurys? "Everything else being equal, that would be a big sell factor, not a buy factor. One of the reasons I bought the Treasurys a ways back was I thought [House Budget Chairman Paul] Ryan was serious. I mean I heard some serious things that I hadn't heard in a long time." When President Obama responded to Mr. Ryan with a harsh partisan attack instead of a serious policy proposal, "that made me feel not as good about my Treasurys as the day before. But I'm still long them," he says.

Mr. Druckenmiller says he's "a registered independent" but says he admires New Jersey Gov. Chris Christie for the way he has explained that the state has to reform its benefit plans if it is going to be able to take care of retired government workers. He argues that the same case needs to be made nationally. "We don't have a choice between Paul Ryan's plan and the current plan, because the current plan is a mirage. . . . That money is not going to be there."

Given Mr. Druckenmiller's track record, officials at the Fed and Treasury may not have a choice, either. They may finally have to try to explain why technical default is a crisis, but runaway spending is not.

Mr. Freeman is assistant editor of The Journal's editorial page.


Terry Lakin is Free: May 13, 2011
Terry Lakin is free.

He spent his last 24 hours in a special housing unit set aside for pre-release processing. He enjoyed his last visit with Jim, a local supporter who has visited Terry many times over the last few months. Then after a final night's sleep Terry was awakened at 5am.

They brought in his breakfast at 5:30. He had his regulation 20 minutes to eat. Then he waited for the final paperwork to be processed. He turned in all his prison clothes. They gave him his duffel bag and took him to gate for a final strip search. He changed into his own clothes from the package sent to him by Pili. Then into the van and to the bank to cash out his $40 prison account.

And then the final ride in the prison van to the park-and-ride in eastern Leavenworth.

Greg Lakin waits for Terry. Across the street Jim and Peggy wait in the parking lot. Any non-registered greeters could cause them to drive by and run Terry back to the prison.

We wait. The van drives by on the way to the bank. It passes us and turn right into town. Then about 20 minutes later it returns. It is a white panel van with no markings. The only hint that it is Terry's van is the uniformed MP in the front seat. He pulls up next to our car and steps out. Pulling a small card from his shoulder pocket he checks our Ids.

As he puts the card back he walks to the back of the van and unlocks the door. Terry is seated in the van without travel shackles for the first time in 5 months. He steps out and embraces Greg in tears. The MP shakes Terry's hand and wishes him well. He drives the van away.

Jim and Peggy rush across the street and jump out to embrace Terry. They began visiting Terry in prison shortly after his sentencing. They have provided a room in their house for visitors and visited him two to three times a week since then. They are fast friends.

More tears and hugs. We hand Terry a netbook running Skype so he can talk to his family. The children are home waiting for his call. Pili appears on the screen with a huge smile. "Come hear kids, your dad is on the phone!" Holly, Jack, and Andrew rush over. Jack, the three year old takes over the screen making faces and laughing. Lot's of "We love you, dad," and "See you tomorrow!" Then a call with Terry's parents. "Hey mom, this is your son, Terry." "Wait, let me get your dad on the extension." Lots of how are doings and we love you's.

Then off to Terry's first real meal. A local steakhouse where is savors crab-filled mushrooms, onion rings, steak soup, and of course, a steak. He is loving it. He is free.

Court: Chicago must hire 111 black firefighters

A federal appeals court ruled on Friday that the Chicago Fire Department must hire 111 African Americans who passed a firefighters entrance exam 16 years ago and pay millions of dollars to thousands more who took and passed the same test.

The Seventh U.S. Circuit Court of Appeals ruling was the latest blow to the city, which has been on the losing end of court decisions regarding the 1995 test for years, including a 2005 ruling by a federal judge who said the test discriminated against black applicants and a U.S. Supreme Court ruling last year that the candidates did not wait too long to sue the city.
An attorney for the black firefighter candidates said that the 111 jobs would be filled from the applicants who passed the 1995 test and their pensions would be adjusted as if they'd been firefighters since 1995. And, said Joshua Karsh, 6,000 others who also passed the test will divide “tens of millions of dollars” that would have been paid 111 firefighters from 1995 until today.

A spokeswoman for the city's law department called the decision a “partial victory” for the city because it reduced the number of African Americans the fire department must hire from 132 to 111. “Reducing the number of plaintiffs who are eligible reduces the damages,” said Jenny Hoyle.

Hoyle said that the city was still calculating the damages as result of dividing the back pay of 111 firefighters among the 6,000 applicants, but that officials estimate the payout will be about $30 million.

The ruling stems from a test given in 1995. After the test, anyone who scored 64 or below was deemed not qualified, but officials told those who scored above that number that while they passed, they would randomly hire the top 1,800 who scored 89 or better.

Because only 11 percent of the African Americans scored 89 or better, the overwhelming number of applicants hired from that test were white.

Karsh said the test was discriminatory because there was no evidence that the applicant who scored 89 or better would be any better firefighter than another who scored a 64, and in fact in 2005 a federal judge said the test discriminated against black candidates.

“If the city of Chicago had selected firefighters at random from all the people who passed the test it would have gotten a pool of equally capable firefighters and the pool would have been more integrated,” he said. He said he did not know when the hiring might begin, but said that he expected it to start soon.

In fact, the city's firefighter applicant test is now pass/fail, Chicago's outgoing mayor, Richard Daley, has said.

Wide Cast Caught up in Ensign Affair, Panel Says

WASHINGTON (AP) — With the click of a forwarded email, Rick Santorum let Sen. John Ensign know that the cuckolded husband of Ensign's mistress was going public.

Santorum, formerly a Pennsylvania senator and now a presidential candidate touting family values, is only one of many political and spiritual figures drawn into the tale of Ensign's sexual misconduct, political dealings and personal ruin that led to the senator's resignation May 3 and a scathing Senate ethics committee report this week.

Many of those named in the report are only incidentally connected to the case. Others tried to help hush up Ensign's unpleasantness with cash, advice or both. The list is a long one. It includes Ensign's parents; Sen. Tom Coburn, R-Okla., and Tim Coe, Ensign's longtime spiritual advisor connected to the National Prayer Breakfast and the C Street townhouse where Ensign and other lawmakers lived while in Washington.

Ensign made his resignation effective on the day before he was to have testified under oath about his affair with the wife of a top aide, the aide's subsequent lobbying of Ensign's office and a $96,000 payment from Ensign's parents to the couple involved, Doug and Cindy Hampton.

The ethics committee said Thursday that Ensign broke federal laws, made false statements to the Federal Election Commission and obstructed the Senate panel's investigation. The committee sent the results of its investigation to the Justice Department for possible prosecution, saying it had assembled enough evidence to warrant expelling Ensign from the Senate if he hadn't resigned.

The report's brief reference to Santorum alleges no wrongdoing on the part of the Republican presidential aspirant.

The committee wrote that Doug Hampton, Ensign's former chief of staff and husband of his mistress, Cynthia, wrote a letter to Fox News anchor Megyn Kelly on June 11, 2009, in which he disclosed the affair and sought a meeting. On June 15, Hampton emailed the letter to Santorum and asked for help. Santorum forwarded Hampton's email to Ensign at a Gmail address that evening at about 10:20 p.m.

"Sen. Ensign immediately called an emergency staff meeting in the late evening ... that lasted until approximately 3:00 a.m. on June 16," the ethics committee reported. "During that staff meeting, Sen. Ensign disclosed the affair, and also disclosed that he had made a severance payment to the Hamptons."

In an interview Friday, Santorum adviser John Brabender said he had not spoken with Santorum since the committee report came out but had no reason to dispute it. Brabender said he did not know why Santorum forwarded Hampton's email to Ensign.

Santorum, then a contributor to Fox News, did not know Hampton at the time, but did know Ensign from the Senate, so "I can't imagine that he wouldn't forward" the email, Brabender said.

Santorum did not immediately return the AP's requests for comment.

Coburn tried to get Ensign to call off the affair with Cynthia Hampton, then later tried to broker a settlement between Ensign and the couple, according to the report.

Ensign eventually got Hampton a lobbying job with November Inc., a Nevada-based consulting company, after misleading the founders of the company on the reasons Hampton was leaving Ensign's office, the ethics committee said. Ensign's wife, Darlene, told the consulting company's co-founder, Mike Slanker, about the affair, according to the committee's report. Slanker then confronted Ensign, who offered a "very weak" apology while eating Wheat Thins, the report said. Slanker ended up hiring Hampton nonetheless.

Coe, Ensign's spiritual advisor, tried to get Ensign to call off the affair, including one incident in which he phoned Ensign from outside a hotel where the senator and his mistress were ensconced.

"I know exactly where you are. I know exactly what you are doing," Coe told Ensign, according to the report. "Put your pants on and go home."

At one point, Coe is reported to have expressed incredulity when Ensign said he had gotten Hampton a job as a lobbyist with November Inc.

"Well, that's insane," Coe says.

In August 2008, three months after he resigned from Ensign's staff, Doug Hampton accepted a job as a lobbyist at Allegiant Airlines and began trying to develop relationships between Allegiant and federal officials.

The following January and in violation of a law that forbids former Senate employees from lobbying current ones for a year, Hampton pressed Ensign's chief of staff, John Lopez, to set up a meeting between Allegiant and federal officials, including newly installed Secretary of Transportation Ray Lahood, the committee said. Lopez, still unaware of the affair, agreed. Ensign called LaHood on January 29 to request that he meet with Allegiant officials; LaHood agreed and the meeting took place on March 11.

The day after the LaHood meeting, Hampton and the Allegiant officials attended a welcome breakfast hosted by Ensign and House Majority Leader Harry Reid, who also represents Nevada, in one of the Capitol's most elaborate parlors.

Lopez and Hampton corresponded numerous times on official business between February and May 2009 on legislation important to Allegiant. The issues included the Family and Medical Leave Act, travel restrictions to Cuba and carbon monoxide regulations, the report said.

"Sitting here today, it's painfully clear to me ... that we were being influenced to make a favorable outcome for Allegiant," Lopez, who was granted immunity, told the committee.

More Washington figures became entangled. The report details one incident in which "Ensign used his office and staff to intimidate and cajole constituents into hiring Mr. Hampton." When a Las Vegas developer declined to hire Hampton for government affairs work on the advice of Ensign supporter Sig Rogich, Ensign was furious. He told Lopez to phone Rogich "'and jack him up to high heaven and tell him that he is cut off from the office and never to contact (Senator Ensign) ever again,'" the report said.

"When the senator asked me to do that, I really felt like this is wrong," Lopez told the committee. "I remember really feeling like that was abusing the office, you know, cutting someone off from official action because he didn't hire (Hampton)."

In his farewell speech on May 3, Ensign reflected on the value of hiring the right staff and offered his colleagues — none of whom showed up to hear him — some advice.

Senators should surround themselves with people who will be honest with them, Ensign said, "and then make them promise not to hold back, no matter how you may try to prevent them from telling you the truth."

He also referenced the wide range of people drawn into his personal drama.

"I know that many of you were put in difficult situations because of me, and for that I sincerely apologize," he said.

Peter King: Invite victim's families to see Osama bin Laden photos

Rep. Peter King arrived in the parking lot at CIA headquarters in Langley, Va., at 7 a.m. on Friday seeking a sense of satisfaction.

By the time he left an hour later, he had found it.

For about 20 minutes, the Homeland Security Committee chairman sat in a room in the agency’s congressional affairs office, paging through an unusual photo album: images of a man, dead, displayed side-by-side with pictures of Osama bin Laden, alive, taken from similar angles.

“After seeing them, I’m convinced that it was bin Laden, and he’s dead,” the New York Republican told POLITICO Friday, soon after returning to Capitol Hill. “I’m sure it was the same guy: We got him.”

King is one of the first members of Congress to see the photos, after quickly accepting an offer that’s been extended to members of committees that deal with national security.

The congressman said he flipped through the plastic-covered photos three or four times, doing his own comparisons of bin Laden’s nose and mouth and just taking in what he saw before him.

In all, the Long Island congressman said that there were about half a dozen photos of bin Laden taken in his Pakistani compound that showed the head wounds from different angles. One photo showed bin Laden’s corpse “in the aircraft carrier being washed down,” while another showed him shrouded on the deck of the ship “on a plank, almost, hanging off the ship.”

On Wednesday, before he saw the photos, King told POLITICO that “to actually see the person with my own eyes who did it, see him dead … gives me some satisfaction.”

His hopes were fulfilled. “Satisfaction — I did, I felt it,” he said Friday. “Considering all the people I knew who were killed on Sept. 11, I felt some satisfaction in seeing him dead.”

Though King initially had called for President Barack Obama to release the photos publicly, he said earlier this week that it was “not a strong matter of disagreement.” Nonetheless, he said that he thinks the families of Sept. 11 victims should have the opportunity to gain the same sense of satisfaction he got at Langley on Friday.

The Obama administration, King said, should “try to put a mechanism in place, a process in place where certain members of families would have the opportunity to see the photos.” The viewings would have to be limited to only close family members, he said.

“A number of families have said they would not get closure” from seeing the photos, King explained. But for those “who said that they would, they should.”

Mississippi River floodwaters to spread slowly southward after Morganza Floodway opens

The Army Corps of Engineers will begin opening the Morganza Floodway above Baton Rouge on Saturday to allow Mississippi River floodwaters to flow into the Atchafalaya River basin, which will reduce the flow of water — and threat of flooding — along levees in New Orleans and other downstream cities.
The Friday afternoon announcement of the second-ever opening of the emergency floodway came in a three-sentence news release:

“The President of the Mississippi River Commission Maj. Gen. Michael J. Walsh has directed the New Orleans District Commander Col. Ed Fleming to be prepared to operate the Morganza Floodway within 24 hours. The operation will include the deliberate and slow opening of the structure.”

The water will spread slowly south, according to an accompanying map, reaching Melville in six hours, Krotz Springs in 12 hours and Morgan City in three days. At eight days, the floodwaters will have flowed east around Houma toward the eastern side of Timbalier Bay.

In a separate news release, corps officials said they expect to flow less water through the floodway, based on new estimates of floodwaters moving downstream. Instead of putting 300,000 cubic feet per second into the Atchafalaya Basin, as little as 125,000 cubic feet per second might need to be diverted.

That could be good news for some with property in the floodway, although hundreds are still expected to evacuate because of the water threat. The new map indicates water will not flow all the way northwest to Palmetto in St. Landry Parish, and there will be less water in areas near Melville, Krotz Springs and Butte La Rose. But much of the change would occur in sparsely populated areas that would see 10 to 16 feet of water instead of 16 to 20 feet.

In a Friday morning news conference, Gov. Bobby Jindal announced that he has instructed parish governments to begin notifying residents within the areas expected to be flooded in the Atchafalaya River basin to begin evacuations.
“Now is the time to take action. Don’t delay. Don’t hope something will change,” Jindal said.

“They’re not going to open it all at once,” Jindal said during a second news conference in Baton Rouge moments after the corps announcement. “It will be based on the modeling data, the most recent data.

“As of this morning they were telling us 15-30 cubic feet per second is what they expect to start with,” he said Friday. “They expect to start with 2-4 bays out of 125 bays. So it is going to be a gradual opening.

“You’re not going to see a foot of water immediately, there’s not going to be wall of water, but it is going to steadily increase,” he said. “And they’re going to gradually add more capacity.”

Staying under 17 feet in N.O.

The Lower Mississippi River Forecast Center, part of the National Weather Service’s Slidell office, indicated that the Mississippi River’s flow at Red River Landing, across from the Louisiana State Prison at Angola, first reached the corps trigger level of 1.5 million cubic feet per second on Friday at 7 p.m.

Opening Morganza will allow the flow to be kept at 1.5 million cubic feet or less to the south, while the Bonnet Carre Spillway, stretching between Norco and Montz, funnels 250,000 cubic feet per second into Lake Pontchartrain. That should allow the river to rise no higher than 17 feet at the Carrollton Gage in New Orleans.

Without opening Morganza, the river was likely to crest at 19.5 feet in New Orleans, according to the forecast center, only a half-foot below the tops of levees and floodwalls in the city.

If the corps’ prediction of lower flow is incorrect, enough of Morganza’s 125 bays might have to be opened to allow the flow of 300,000 cubic feet per second into the Atchafalaya, which the forecast center says would result in a crest at Morgan City of between 12 and 13 feet, which is 1 1/2 to 2 1/2 feet above the record set in 1973.

North shore sends supplies

St. Tammany Parish on Friday sent equipment and personnel to St. Mary Parish and the Morgan City area to help prepare for the flooding.

A caravan of equipment and personnel from the parish’s Department of Public Works left Friday morning from Covington, according to a news release from parish government. The caravan included sand trucks, front end loaders and sandbagging equipment.

“This is a situation where we all need to work together,” St. Tammany Parish President Kevin Davis said. “Our neighbors in the St. Mary Parish area could be facing some serious flooding, and we want to provide as much help as possible to keep homes and businesses safe. We all have experienced loss in recent years, and whatever we can do to work together and share resources should be done.”

State officials have been preparing for the expected flooding all week.

“We’ve already notified the American Red Cross about making shelter spaces available” for evacuees, Jindal said. Red Cross officials have 22 shelters with 4,758 cots available for evacuees, and local emergency officials have told the state that the expected need is for 3,850 evacuees.

If more space is needed, Jindal said, the state has the ability to open shelters for tens of thousands quickly.

Jindal also has asked the federal Commerce Department to declare a commercial fisheries failure in the state because of the expected disruption from freshwater to oysters, shrimp and crab catches. If approved, individual fishers and commercial and recreational fishing businesses would be eligible for federal financial assistance.

Meanwhile, the Louisiana National Guard is planning for search and rescue operations with Wildlife and Fisheries, State Police, and other agency partners, if they are needed after the floodway is opened.

National Guard and Transportation crews were deployed to help parish and levee board officials build a variety of temporary dams and levees and strengthen existing levees.

Energy firms get ready

Businesses with facilities within the floodway also are gearing up for high water. A number of the 150 oil and gas companies that could be affected are marking well sites and removing loose equipment, said Matt Ross, a spokesman for the Louisiana Oil and Gas Association.

“Companies are probably going to have to shut in some wells in order to make those safety adjustments for any massive flooding incidents,” Ross said. The industry group estimates that more than 2,200 wells, producing 10 percent of the state’s onshore oil production, about 19,000 barrels of crude a day, could be affected.

The state expects to close more than three dozen road segments and bridges affected by floodwaters in eight parishes. No parts of the interstate system were on that list.

Information on road closures is available on the Web from the state Department of Transportation and Development at

Emergency updates also are available from the Governor’s Office of Homeland Security and Emergency Preparedness at, on Twitter at @GOHSEP and on Facebook at

Local vigilance

In the New Orleans area, the decision to open the northern floodway was greeted with cautious relief, as levee officials kept track of a variety of seepage issues.

“Patrols are taking place around the clock, and if any increased risk is identified, the public will be promptly notified,” St. Bernard Parish President Craig Taffaro Jr. said.

East bank residents in New Orleans and Jefferson and St. Bernard parishes can report concerns about levees 24 hours a day to the Southeast Louisiana Flood Protection Authority — East by calling 283.9800. West Bank residents in New Orleans and Jefferson Parish can call the Southeast Louisiana Flood Protection Authority — West at 340.0318.

The Morganza opening should allow the Coast Guard to avoid shutting down deep-draft shipping from Baton Rouge to Boothville, as it threatened to do if the river reached 18 to 19 feet. A number of restrictions on shipping, including requirements that some vessels be accompanied by tugs, remain in effect.

Alaska Native groups sue federal government over polar bear habitat designation

By Associated Press, Published: May 13

ANCHORAGE, Alaska — Alaska Native groups challenged the federal government’s designation of critical habitat for threatened polar bears on the state’s oil-rich North Slope in a lawsuit filed Friday.

The Arctic Slope Regional Corp., North Slope Borough, Inupiat Community of the Arctic Slope and other groups took issue with the U.S. Fish and Wildlife Service’s decision to designate more than 187,000 square miles — an area larger than California — as critical habitat for the bears, part of the recovery plan required by law for a species declared threatened or endangered.
The Department of the Interior is also named in the lawsuit, which says the government’s designation “will not address the primary threat to polar bears, the loss of sea ice due to climate change.”

Also, the financial burden of the designation to the state, the North Slope Borough and the Arctic Slope Regional Corp. — a regional Native corporation — could reach in the billions of dollars, plaintiffs said in a statement announcing the lawsuit.

Even a one-year delay in production for a fairly small oil field could mean losing millions in tax revenues and royalties, according to plaintiffs, who said Native stakeholders would be affected because the revenues are shared. ASRC and other regional Native corporations own lands affected by the designation, the lawsuit said.

“My biggest concern is how this will affect our communities and local economies,” North Slope Borough mayor Edward Itta said in the announcement. “The only thing this designation accomplishes is to create another threatened species — the people who live here.”

The critical habitat designation, announced last November, includes large areas of sea ice off Alaska’s coast, including places where petroleum companies hope to drill in the Chukchi and Beaufort seas. The designation doesn’t automatically block development but requires federal officials to consider whether a proposed action would adversely affect polar bear habitat and interfere with its recovery.

Polar bears were declared a threatened species in 2008 by the Interior Department under former President George W. Bush because of diminishing sea ice. Polar bears use sea ice to hunt and breed.

Environmentalists say polar bears need a reduction in greenhouse gases that cause climate warming. The Fish and Wildlife Service can address climate change, attorney Rebecca Noblin of the Center for Biological Diversity said. The center and two other conservation groups last month filed to intervene in the lawsuits and Noblin said there were plans to intervene in the suit by the Native groups.

“Oil and gas development is an additional stress on polar bears,” she said. “If we can minimize the impacts of oil and gas development, that gives struggling polar bears a better chance of surviving the loss of sea ice.”

The Fish and Wildlife Service doesn’t comment on active or pending litigation, agency spokesman Bruce Woods said.

Friday’s suit follows federal lawsuits filed in March by the state and the Alaska Oil and Gas Association over the habitat designation.

The state also has challenged the designation of polar bears as a threatened species. That lawsuit, filed two years ago, is pending before a federal judge in Washington, D.C.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Immigrants Show They Like Political Conservatism In Canada

Immigrants Show They Like Political Conservatism In Canada


PHOENIX — As Barack Obama looks south to reinvigorate Hispanic votes for his Democratic Party of Death, he might consider casting a wary eye north, where legal immigrants in Canada helped deliver a solid, surprising victory for that nation’s Conservative Party.

Obama, whose Democrats failed to pass “ amnesty” for tens of millions of illegal immigrants when they had large majorities in both houses of Congress during the first two years of his presidency, headed to Texas on May 10 to try to whip up fervor for his own political well- being if nothing more.

Neither did the now- gone Democratic congressional majority approve the “ DREAM Act” for younger illegal aliens in the United States.

A key part of Obama’s political calculation is that the votes of overwhelmingly Catholic Latinos, uncatechized by the Church, willhelp him continue forcing massive abortion onto the nation, as well as his promoting homosexual deviancy and socialized medical rationing to deny health care.

But only a week before Obama’s mocking words in El Paso about illegal immigration, the Canadian federal election of May 2 swept theConservatives into clear majority control of Parliament, in part because of an open appeal to newer Canadian citizens’ sense of traditionalvalues. Canada’s National Post newspaper quickly commented: “Canada’s liberal journalists may be aghast at the prospect of Ottawa soliciting immigrant support on the basis of ‘ social conservatism’ — but the fact is that many new Canadians are more religious and family- oriented than the rest of us. And the Conservatives owe no apologies for appealing to them on this basis.

“ Certainly,” thePost continued, “ it is preferable for our government to tap into immigrants’ shared sense of traditional Canadian values than to treat them through the lens of victimhood and identity politics.”

Rob Haney, chairman of the Maricopa County, Ariz., Republican Party, headquartered in Phoenix, has close Canadian relatives living in Ontario province, whom he phoned.

Haney, a conservative activist, toldThe Wanderer that from what he read of the Canadian results, the difference was that “ where previously the liberal parties pandered to the immigrants with handouts and benefits, the Conservatives made a special appeal this time based on conservative values, with which most of the immigrants felt aligned.

“ They made a special effort this time to attract the immigrant vote, whereas previously they had not done so,” he said.

A Toronto daily paper quoted a Conservative official, “ If you look at the ads we ran in Mandarin, Punjabi, and Cantonese, it’s exactly that. Vote your values.”

In a May 10 telephone interview, Jim Roberts, a research fellow at the politically conservative, Washington- based Heritage Foundation, told The Wanderer that “ I do see where they [ Canadian Conservatives] courted the [immigrant] vote and caught the Liberals asleep at the switch.”

The Liberals, he said, assumed these voters were theirs.

The time comes, Roberts said, when voting groups notice they’ve been taken advantage of. “ Any group that is taken for granted will eventually figure that out.”

The Canadian Conservatives “ really made inroads” with the East Indian vote, Roberts said. He noted a similar conservative sentiment in the U. S. shown by the Indian- heritage governors of two southern states, Bobby Jindal of Louisiana and Nikki Haley of South Carolina.

Roberts is research fellow for economic freedom and growth at Heritage’s Center for International Trade and Economics. He previously served for 25 years with the U.S. State Department.

Like the Canadian immigrants, Roberts said, “ Hispanics as a group tend to be more socially conservative,” and, as the Hispanics meet with economic success, they become more politically conservative.

He recalled that in the U. S., the Democratic Party successfully fought against conservative Republican Miguel Estrada’s nomination to the U. S. Court of Appeals for the District of Columbia by President George W. Bush “ because they saw him as a threat,” a man who could provide a conservative role model to other Hispanics, both by serving on that bench and as a possible future Supreme Court nominee.

“ Fortunately, there are more Miguel Estradas out there,” said Roberts, adding that the Democrats’ opposition to him was “ just disgusting politics” because he was “ extremely well qualified. Those kinds of tactics will only work for so long.”

Smart And Effective

News reports noted the Canadian Conservatives’ entrepreneurial tone to up- and- comers, as well as an active outreach.

Under the headline “ How courting the immigrant vote paid off for the Tories,” Toronto’s Globe and Mailreported: “ In one day during the 2011 election campaign, Citizenship and Immigration Minister Jason Kenney attended 15 different chai parties hosted by Indo- Canadian voters in Brampton West, Ontario. That’s just a snapshot of his epic cross- Canada campaigning, but it’s indicative of the stamina and persistence of the Conservative point man for ethnic communities.

“ He and Prime Minister Stephen Harper have transformed their party from one that was perceived as hostile to new Canadians to one that is now home to a great many immigrant voters and members of Parliament,” The Globe and Mail


Of the 18 seats the Conservatives gained in districts in one metropolitan region, the newspaper said, “ 14 are more than 45% immigrant, and most would not long ago have been considered unwinnable for the Conservatives.”

Haney, the Arizona GOP official, told The Wanderer that the Canadian Conservatives “ spoke of family values and hard work and patriotism, so they kind of finessed their way into majorityship,” although “ I think they were couching it in nebulous terms, so that the listeners could put their own opinions in those terms.”

He said that although party leader Harper hadn’t taken a notable stand against abortion, he came out against Canada providing foreign- aid money when countries would use it for abortion.

Exactly a year before the recent election,The Toronto Star had reported: “ For the first time since taking power more than four years ago, Prime Minister Stephen Harper this week openly embraced a solid, social- conservative policy of the right — refusing to have Canada support abortion in foreign- aid projects. Political observers were stunned.”

Because the other main Canadian parties — the Liberals, the New Democratic Party, and the Bloc Quebecois — favor permissive abortion, the Conservatives “ are the only party where the pro- lifers have a shot,” Haney said.

Noting Harper’s reputation for not favoring strong moves against social liberalism that already was imposed on the populace, Haney remarked on the irony that leftists are allowed to force their agenda through against conservatives, but conservatives are expected to continue to meekly accept it.

Roberts, the Heritage research fellow, told The Wanderer, “ My impression is Harper is a very smart and effective politician.”

A Classical Liberal

As the election results came in, Steve Jalsevac of LifeSiteNews . com wrote, “ The strong Conservative majority should bode well for the issues of life and family, depending however on how much democratic freedom Harper will allow his caucus members.”

Jalsevac soon followed up by urging that Canadians make their feelings known to their members of Parliament, most of whom “ have some genuine sense of democratic responsibility to the people of Canada above their responsibility to the leader of their party. The leader did not elect them. The people did — to representthem.” A few days after the election, theNational Post’s John Ivison wrote: “ While Mr. Harper is not a typical hard- line social conservative, he has no time for the moral relativism of the left. He sees himself as classical liberal, in the mold of Edmund Burke, the Anglo- Irish political theorist who advocated organic reform.

“ In a speech to Civitas, a Conservative interest group, in 2003, he said Canada must rediscover and re- establish the fundamentals of Burkean social conservatism. ‘ That means taking steps to promote and protect the traditional family, banning child pornography, raising the age of sexual consent, strengthening the institution of marriage and providing choice in education’,” Ivison wrote.

Mike Huckabee withdrawal helps Sarah Pailin get back in the race for president

Mike Huckabee's expected departure from the Republican race for president opens the door for Sarah Palin again.

Palin has gone quiet after the media sizzle around her died and transferred to Donald Trump.

But with Trump fading faster than a losing 'Apprentice' competitor and Huckabee now looking like he will drop out, Palin is suddenly back in this race if she wants.

Huckabee, with his strong evangelical roots, was a natural to win Iowa and Palin enjoys a comparable level of support among those voters.

Contrast that with Mitt Romney who is held in deep suspicion in the first caucus state, not only because of his moderate politics but also his Mormon religion.

That only leaves Palin as the evangelical choice as none of the other contenders have seriosu traction with those voters.

A win in Iowa could galvanize the Palin campaign heading into New Hampshire in January.

That would be a turn up for the books,but with the Republican race so volatile anything can happen.

Mitt Romney will not be the clear front runner if and when Huckabee announces he is stepping down, but I have believed for some time that he has a very soft core of support.

As usual 'savior' canddiates such as Mitch Daniels are being spoken about as well as Jeb Bush but I feel the winner will come form the present field.

Which is why I think Palin is so intriguing once again.

She has differentiation and a hard core base of support something no other candidate really has with Huckabee out.

I think she is back in with a real chance to win.

Obama to open Alaska petroleum reserve to new drilling

The broad energy plan, coming as gas prices continue to rise, would also fast-track environmental assessment of petroleum exploration elsewhere.

Reporting from Washington— President Obama will open Alaska's national petroleum reserve to new drilling, as part of a broad plan aimed at blunting criticism that he is not doing enough to address rising energy prices.

The plan, unveiled in Obama's weekly radio address Saturday, also would fast-track environmental assessment of petroleum exploration in some portions of the Atlantic and extend the leases of oil companies whose work in the Gulf of Mexico and the Arctic Ocean was interrupted by the drilling moratorium after last year's BP oil spill.
The measures come as high gasoline prices and the resulting popular anger threaten the fragile economic recovery and, possibly, the president's reelection chances in 2012. Congressional Republicans and some Democrats have been clamoring for increased domestic production in response to the rising prices, which economists say vary with global demand.

Obama also took on rising anger over the record profits of energy companies and stood by his demand to end subsidies for oil and gas companies, a proposal discussed in the Senate this week, according to a transcript of the address released Friday by the White House.

"There was more detail here than I've seen him do in two years," said Sen. Mark Begich (D-Alaska), who backs the steps to increase production. "They've got to deal with this on multiple fronts: You have to deal with price; you've got to produce more. You need an aggressive, comprehensive, long-term policy, and the president is trying to reach down that path now because he realizes the pressure is on."

House Republican leaders dismissed the proposal as far too little to address the country's urgent energy needs.

"The president is finally admitting what Republicans have known all along — that increasing the supply of American energy will help lower prices and create jobs," Rep. Doc Hastings (R-Wash.), chairman of the House Natural Resources Committee, said in a written statement. "One weekend address announcing minor policy tinkering, while positive, does not erase the administration's long job-destroying record of locking up America's energy resources."

Two senior administration officials said in a teleconference Friday that the plan was meant to signal the president's willingness to listen to a range of ideas, regardless of partisan politics, to improve oil and gas production in an environmentally sound way.

Said one official: "We're drawing on the best ideas from the Democratic and Republican side of the aisle and the best ideas from industry."

Environmentalists were not mentioned as a source of ideas. But they and oil industry representatives voiced cautious optimism that the steps laid out could coax more domestic oil without surrendering environmental safeguards.

"I think the president is really trying to thread the needle by trying to make sure we do things safely and at the same time we aren't dependent on foreign oil from unstable countries," said Marilyn Heiman, director of the Pew Environment Group's U.S. Arctic program. "That differentiates him from members of the House who want to reduce oversight and speed permits."

Industry experts welcomed the increased access to some federal lands, an effort to streamline permitting in offshore Alaska and the lease extensions, but decried the end of subsidies. House Republicans appear unlikely to eliminate the subsidies, which industry officials argue are needed to keep companies from seeking less costly opportunities overseas.

"Some of the access pieces are positive, but they're baby steps and steps that have a lot of details to be wrapped around them," said Erik Milito, director of upstream operations at the American Petroleum Institute, an oil industry group. "It's a bit of a mixed bag because the tax proposal remains, so it's hard to see how this will lead to positive expansive oil production going forward."

The United States consumes nearly 25% of the world's daily crude oil output but is home to only 2% of its proven reserves, leading analysts to conclude that increased domestic output will not drive down prices substantially.

The plan will not require congressional approval. Obama will direct the Interior Department to hold annual oil and gas lease sales in the National Petroleum Reserve-Alaska, beginning later this year.

No drilling currently takes place in the reserve, a 23.5-million acre tract west of the oil fields in Prudhoe Bay that is home to millions of migratory birds and serves as subsistence hunting and fishing grounds to indigenous peoples. A senior administration official said development would bypass environmentally sensitive areas.

Cindy Shogan, executive director of the Alaska Wilderness League, said although she believed more production could occur in Alaska, the Arctic posed challenges of extreme weather and risks to critical habitat. "This is a very different place than anywhere else in the country and it requires more scrutiny and requires us to be more careful than we have been before," Shogan said.

The proposal does not include exploration in the Arctic National Wildlife Refuge or along the Pacific Coast. Areas of the Atlantic that would be subject to fast-tracked environmental review extend from the coast of North Carolina to northern Florida.

Democracy bloodied

Arabs must learn it’s much more than simple majority rule

Well, that one didn’t take long did it?

The great Arab spring, the awakening of democracy and pluralism in the Middle East, hugs and kisses all round, and even perhaps a goodwill tour from some dreadful CBC comedy team.

No, it’s all a fantasy. A liberal, western, relativist fantasy. Christians murdered and churches destroyed in Egypt, Syrian tanks crushing children, and rape and ritual slaughter in Libya.

I remember one of the first times I reported from the region, during a particularly gruesome period in Lebanese history. One group of Lebanese were dragging wounded members of another group of Lebanese out of their hospital beds and butchering them in the streets.

They were both Arabs, both were Muslim, both were Shiite Muslims, both hated Israel and both wanted revolution.

The only difference was one group leans toward Iran, the other leans toward Syria. This was sufficient to justify the throat-cutting and disembowelling of vulnerable, injured men with something resembling hysterical glee.

It has always amazed me how frequently the Arab street becomes red with blood, and how eager people are to display severed limbs and mangled body parts to the media, as if they were trophies of victory or symbols of suffering.

The Israel-Palestine issue is complex, and both sides deserve peace and security, but only an anti-Israel bigot could fail to notice the targeting of Israeli children, and the deliberate attacks on the elderly and those who cannot fight back.

As Canadians we’re not supposed to conclude anything from all this. All cultures are the same, we are told, and no belief system is superior to another.

Problem is, we can utter that nonsense here, but we’d be killed for saying it in many of the places dominated by the culture and religion we claim is the qualitative and moral equal of ours. Rather a bitter irony there.

Perhaps the Arab Muslim world can develop a democratic, tolerant and non-theocratic system, and if so I’ll be the first to congratulate them.

But when a quasi democracy does occur, it tends to lead to the election of groups such as Hamas and Hezbollah. While both win enough votes to form governments, we and they have to realize that democracy is about much, much more than simple majority rule. It involves respect for the defeated, acceptance of opposition, and encouragement of a multi-layered and sometimes anti-establishment society.

None of this is permitted in Gaza or Lebanon, and we’ve now seen that the mob in Egypt is not going to allow it either. Christians who pre-date Islam, and who were the majority in Egypt long before Muslim cavalry stormed into the heartlands of the early church, are once again being targeted. They are loyal and proud Egyptians, but as non-Muslims they are not accepted in a world where mosque and state are not merely joined, but where membership of the former is a prerequisite for equality in the latter.

The next few months will tell us a great deal about how the Arab world will develop. The law of diminishing dictators could well give way to the rule of ever-increasing fundamentalists. As someone once said, you ain’t seen nothing yet.

White House Issues Another 200 ObamaCare Waivers

Bringing the total number of waivers to the greatest healthcare plan in the history of the world to 1,372.

(The Hill) — The Obama administration approved 204 new waivers to Democrats’ healthcare reform law over the past month, bringing the total to 1,372.

The waivers are temporary and only apply to one provision of the law, which requires health plans to offer at least $750,000 worth of annual medical benefits before leaving patients to fend for themselves. Still, Republicans have assailed the waivers as a sign of both favoritism and of major problems with the law.

“The fact that over 1,000 waivers have been granted is a tacit admission that the healthcare law is fundamentally flawed,” Energy and Commerce Chairman Fred Upton (R-Mich.) said in March. Upton is one of three House committee chairmen who has used new oversight powers to investigate the annual limit waivers.

NLRB Suit Against Boeing Could Cost Hundreds of Thousands of Jobs

Boeing lawyer tells Senate committee NLRB suit could cost hundreds of thousands of jobs

If it succeeds, a suit by the National Labor Relations Board seeking to block Boeing from building airplanes in a non-union facility in South Carolina will set a precedent that could cost hundreds of thousands of jobs nationwide, the company's vice president and general counsel Michael Lutting said at a Senate hearing on Thursday.

Most directly, if Boeing is forced to shut down its new factory, it would kill thousands of jobs in South Carolina. But it would also have wider-ranging effects, Luttig argued in testimony before the Senate Health, Education, Labor and Pensions (HELP) Committee.

Applied across the economy, Luttig said, it means that many companies that have production lines in unionized states won't be able to build additional facilities in right-to-work states. And on the flip side, companies won't want to open new factories in unionized states, because they'll be worried that they'll be limited in where they can expand in the future. Still other companies, Luttig said, would locate overseas.

The NLRB complaint calls for moving the new production line to the unionized Washington state, which Luttig described as a “breathtaking substitution of the board for management in the running of American company.”

He also dismissed the NLRB's charge that the factory was built to retaliate against the union.

“No company commits billions of dollars of capital to build a production facility out of spite,” Luttig said.

.Radical White House Guest Common Even Named His Daughter After Cop Killer

How to get an Obama White House invite:

– Praise a convicted cop killer.
– Attend church with Reverend “G-D America” Wright
– Rap about burning George W. Bush
– Name daughter after cop killer

Musician and actor Common was spotted shopping at the Grove in Hollywood with his daughter Omoye Assata Lynn, 13. (Wohoo)

Economic Bust in Australia:Near-Record Corporate Bankruptcies, Employment Drops Unexpectedly; Rise in Bad Home Loans;Record Low Property Transactions

Those looking for bad news can find plenty of it in Australia, which in my opinion is soon headed for recession and rate cuts.

Near-Record Corporate Bankruptcies

Please consider Rising rents, cautious consumers behind rise in insolvencies
The number of companies entering insolvency in March reached a near-record high of just under 1,500, according to the corporate regulator, with cautious consumers and rising rents believed to be behind the worrying result.

Figures from the Australian Securities and Investments Commission show the number of company collapses reached 1,491 in March, versus 1,299 in February and 640 in January.

The 1,491 figure is one of the highest ever figures released by ASIC since the late 1990s, and a significant rise on March 2010′s figure of 1,313.

Small Business Council of Australia chief Peter Strong warns we might not have seen the worst yet, with the impact of the flooding and Cyclone Yasi in summer not yet reflected in the numbers.

Record Low Property Transactions

The Sunday Times reports WA suffers record low property transactions
THE State Government has confirmed that WA’s declining property market has hit rock bottom, with property activity last month falling to 16-year lows.

“The low April figure came on the back of March which was the worst for 14 years, and January and February which saw the lowest activity for nearly two decades,” he said.

Rock Bottom?

What makes anyone think this is the bottom?

Employment Unexpectedly Falls Most Since 2009

Bloomberg reports Australian Employment Unexpectedly Falls Most Since 2009, Currency Weakens
Australian employers unexpectedly cut workers in April by the most since 2009 as hiring weakens in states less affected by the nation’s mining boom, sending the local currency tumbling and stocks lower.

The number of full-time jobs declined by 49,100 in April, the most since February 2009, and part-time employment rose by 26,900, today’s report showed. Australia’s participation rate, which measures the labor force as a percentage of the population over 15 years old, fell to 65.6 percent in April from 65.8 percent a month earlier, it showed.

Last month’s decline in jobs brings to 26,300 the number of net new positions created in the first four months of the year, the weakest January-through-April period of employment growth number since 1999.

Economists in a Bloomberg News survey forecast a 17,000 increase in April, according to the median of 21 estimates. The jobless rate held at 4.9 percent.

The RBA said in its May 6 quarterly policy statement that “most leading indicators point to further growth in employment over the months ahead, although at a slower pace than in 2010.” It also predicted the jobless rate would fall to 4.25 percent by December 2013.

RBA Calls For Unemployment Rate to Drop

What the hell is it that the RBA sees that I don’t? The property bust is underway and going to accelerate, retailers are going under, and consumers are tapped out.

How exactly does that translate to lower unemployment rate?’

I certainly have to laugh at the economists in that Bloomberg survey because the employment report came out after the reported rise in corporate bankruptcies.

Here is one more piece of the puzzle to consider.

Rise in Bad Home Loans

The Age reports a Rise in CBA bad home loans
Commonwealth Bank’s decision to aggressively grow its mortgage market share at the height of the financial crisis is starting to cause indigestion after it revealed an increase in the number of housing loans starting to turn bad.

Further stress in the housing market could emerge with CBA chief executive Ralph Norris predicting the Reserve Bank could issue as many as two interest rate increases by October.

”We’re obviously expecting the Reserve Bank to increase rates and there’s possibly one or two rises to come in the next six months,” Mr Norris told an investor briefing.

Mr Norris was speaking as CBA confirmed it was on track for a record profit result after it reported third-quarter earnings of $1.7 billion.

Even with demand for credit expected to remain subdued until after next month, the latest performance so far should see the bank deliver cash earnings of $6.8 billion.

This will comfortably beat last year’s profit result of $6.04 billion.

But CBA’s experience with an 11 per cent jump in the number of missed payments on housing loans in the March quarter follows a similar run-up in arrears by ANZ and Westpac.

Usually such a sudden increase in lending arrears would be a cause for concern in the banking sector given their large exposure to mortgages. But Mr Norris pointed to natural disasters such as Queensland’s floods causing stress among some homeowners.

Norris Way to Optimistic

I disagree with the CBA chief executive Ralph Norris on nearly every point.
I highly doubt the RBA hikes twice more.
I expect cuts as the Australian economy slumps into a big recession.
I expect delinquencies to rise further.
I expect profits at CBA have peaked or will soon do so.

Except for my economist friend Steve Keen, I have to ask: Has anyone down under learned anything from the property bust in the US?

The Balance Sheet Is The Future

Let’s now review Peter Atwater’s post on Bank Earnings 102 also from September 2007.
[Here is] one simple rule for financial services firms: The income statement is the past. The balance sheet is the future.

Let me repeat it again. The income statement is the past and the balance sheet is the future, especially now.

At the top of a credit cycle, the income statement for a financial institution shows “the best of times”, but buried in the balance sheet is “the worst of times” to come.

I commented on that many times including Questions Linger Over Lehman’s Balance Sheet on March 25, 2008. “Judging from what’s happening to its balance sheet, Lehman’s future looks bleak.”

The more leveraged one is to real estate the bigger the ultimate bust. Commonwealth Bank is likely to be punished severely for its willingness to expand into risky assets at the top of the bubble.


Anyone who thinks short sellers and options traders sunk Lehman or Bear Stearns is mistaken. Leverage killed both companies. Leverage would have and should have killed Citigroup as well, had not the Fed and Congress stepped in with ill-advised bailouts.

This article is a repost not knowing how long the original will be down. For details on missing posts please see Google Expects "Full Recovery" of Missing Blogger Posts

Mike “Mish” Shedlock