Debt Ceiling Analysis (Apologies To Sistine Chapel)

Here is a link to an article in GQ magazine with illustrations of the major players in the debt ceiling controversy.  Take a look. How many can you identify?

Debt Ceiling Update

Not long ago headlines were screaming about our supposed debt crisis - we had to fix it by taking away benefits for Americans with modest incomes or we are all doomed.

We may be doomed, but not because of the federal debt. Not in the short or medium term, at least.

It is amazing, after all the hype, how little uproar there has been at the failure of the "super committee."

In my view, it would be good to get the debt level down, but by putting people back to work so federal expenditures decline and revenues increase. We need greater aggregate demand and an effective industrial policy as well.

A bigger debt problem is the overhang of private indebtedness. As the most recent data shows, Nonfinancial private sector debt is about 170% of GDP, but is declining. The last time private sector debt exceeded 170% of GDP was at the height of the depression, when it exceeded 230%. At that time, GDP plunged but existing debts retained their nominal values.

The recent decline in debt to GDP ratio is good for individual debtors, but not good for the economy. If everyone tries to pay off their debts at once, the economy will contract.

Unless the Europeans do something different than they have been doing, this seems likely to happen in the Euro Zone. Both economists and investors seem to believe the US economy will follow Europe into contraction.

OECD Joins Critics Of Economic Dithering

Today the Organization for Economic Cooperation and Development (OECD) joined the chorus of economic observers and major players calling for urgent action to put "weakening global [economic] activity back on track."

The OECD calls for action both by Europe and the United States. OECD's latest Economic Outlook report foresees serious risks to the global economy.

OECD Chief Economist Carlo Padoan observes that “Prospects only improve if decisive action is taken quickly.” 

The Outlook’s baseline scenario assumes that policy-makers take sufficient action to avoid disorderly sovereign defaults, a sharp credit contraction, systemic bank failures and excessive fiscal tightening. It sees GDP across the OECD countries slowing from 1.9% this year to 1.6% in 2012, before recovering to 2.3% in 2013. Unemployment in the OECD area is also projected to remain high for an extended period, with the jobless rate staying at around 8% through the next two years.

“We are concerned that policy-makers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy,” Mr Padoan said during the launch of the report in Paris. “We see the US  growth recovering only slowly, the euro area entering into mild recession and Japan growing faster because of reconstruction, but this boost is temporary and will fade away.”

Japanese Carrier Force Gets Underway

Exactly seventy years ago, November 26, 1941, a Japanese carrier force, the Kido Butai, under command of Vice Admiral Chuichi Nagumo, got underway from Hitokappu Wan in the Kurile Islands, under strict and effective radio silence. The force of six aircraft carriers, with 359 airplanes embarked, was the most powerful carrier force with the greatest concentration of naval air power ever assembled up to that time.

Accompanying the force were two fast battleships, two heavy cruisers, one light cruiser, nine destroyers and three fleet (long-range) submarines. An advanced expeditionary force including twenty fleet submarines and five midget submarines, had already departed Japan enroute to the objective area. The force also was accompanied by eight oilers for refueling along the way.

The day the Kido Butai left the Kuriles, Japanese negotiators in Washington received a note from US Secretary of State Cordell Hull proposing a solution to the crisis in the Far East. Japanese leaders dismissed the Hull note as the same old proposal they had rejected before.

Japan had not yet made an irrevocable decision for war. Nagumo got underway with the understanding that if "negotiations with the United States reach a successful conclusion, the task force will immediately put about and return to the homeland." The final decision was to be made early in December.

November 26th was a particularly active day on the diplomatic front in Washington as Ambassadors Nomura and Kurusu frantically sought agreement with Secretary of State Hull. Messages to them from Tokyo (intercepted, decoded and translated by US Army and Navy intelligence) emphasized the importance of oil. Tokyo wanted agreement for the US to supply 4 million tons of oil per year.

Nomura and Kurusu reported diminishing hopes for agreement, and dutifully reported that Hull was meeting with the Chinese ambassador as well as with them. Nomura and Kurusu knew nothing about the Kido Butai's movements.

The clock was ticking.

Spelling Assistance

Those of you who are "spelling challenged" may wish to know that even the venerable New York Times occasionally gets a word wrong. But the "gray lady" knows how to fix it without making a fuss.

Two minutes ago, I was reading the front page of the on-line edition of NYT, adorned with a photo of Governor Rick Perry in his uniform as a Texas A&M cadet. The caption explained that he was in his "core of cadets uniform." I began reading the caption to my wife, to point out the error, and as I was reading it, the spelling changed to "corps of cadets uniform."

No fuss, no muss, just quietly change it. There was not even a strike-through as in "core corps of cadets uniform."

I'm waiting to see if they acknowledge the error.

Euro - The First Decade

Next year will be the tenth anniversary of the introduction of the Euro into circulation.

We were living in Europe (though not in the Euro Zone) at the time. As I recall, the Euro was worth about 85 cents when it was introduced. It was a great convenience to travelers, who over much of Europe no longer had to convert dollars into a dozen different currencies.

But I always wondered how the common currency would work in practice. We now know the answer - not very well.

Unless the Europeans get their act together, the first decade of the Euro may well be the last.

Greece, Italy And Now...Germany?

News from Europe isn't improving. Today, Germany attempted a bond auction and couldn't find buyers for about a third of the bonds. Looks like investors are casting a jaundiced eye even on Germany as a safe haven.

In truth, by some measures (primary deficit), Italy is performing better than Germany.

Austerity doesn't seem to be working for anyone. Investors, both in Europe and in the US, seem to be less concerned about deficits and sovereign debt and more concerned about the possibility of further deflation, recession and economic contraction. Americans should worry about what is happening in Europe, because a breakup of the Euro could drag the US economy down with it.

Keep your fingers crossed.

By the way, the US Treasury is having no trouble marketing securities at historically low rates.

So much for Standard and Poor's.

Oriental Election Recount

At the request of Mr. Hugh Grady, candidate for Oriental town commissioner, the Pamlico County Board of Elections met today to conduct a complete recount of votes for the commissioner race.  The recount confirmed the count reported after the official canvass held November 15. The bottom line: write-in candidate Warren Johnson defeated ballot candidate Hugh Grady by three votes, to win the fifth seat on the board.

TOWN OF ORIENTAL COMMISSIONER (Vote For 5) 1 of 1 Precincts Reporting Percent        Votes Michele Bessette 13.29%         211 Hugh Grady 10.01%         159 Sherrill Styron 20.34%         323 Larry Summers 17.76%         282 Barbara Venturi 16.62%         264 Candy Bohmert (Write-in) 0.63%           10 Pat Herlands (Write-in) 8.63%         137 Warren Johnson (Write-in) 10.20%         162 Jennifer Roe (Write-in) 0.44%            7 Write-in (miscellaneous) 2.08%           33