The Tasgall Group

I saw an updated version of the chart that Quicksilver posted a while back… here is the current version of the chart:

From Zero Hedge.

Here’s a well done graphic that reminds us where the government gets its revenue from, and where it all goes…

(click for bigger version)

More from WaPo.

Someone recently shared this quote from Murray Rothbard’s Ethics of Liberty (ch. 24):

Many libertarians assert that the government is morally bound to pay its debts, and that therefore default or repudiation must be avoided. The problem here is that these libertarians are analogizing from the perfectly proper thesis that private persons or institutions should keep their contracts and pay their debts. But government has no money of its own, and payment of its debt means that the taxpayers are further coerced into paying bondholders. Such coercion can never be licit from the libertarian point of view. For not only does increased taxation mean increased coercion and aggression against private property, but the seemingly innocent bondholder appears in a very different light when we consider that the purchase of a government bond is simply making an investment in the future loot from the robbery of taxation. As an eager investor in future robbery, then, the bondholder appears in a very different moral light from what is usually assumed.

While I don’t completely agree with this quote, it is certainly thought provoking. I think revenue bonds suffer less from this ethical dilemma than general obligation bonds…

Your thoughts?

John Hussman sees a double dip coming… While Hussman has been bearish or cautious frequently, it is not without rigor. Here is his analysis of why we have some rough times ahead of us:

Our policy makers have spent their ammunition in the attempt to bail out bondholders and to create an entirely deficit-financed appearance of economic strength. It would be better to allow insolvent, non-sovereign debt to default (including long-term Fannie and Freddie obligations, and obligations to bank bondholders), and to instead use public funds to take receivership of failing institutions and to defend customers and depositors from the effects. Restructuring is probably a more useful word, but in any case, the key element is that those who actually made the loans, not the public, should absorb the loss. Restructuring means simply that the payment terms are rewritten to reflect the lower amount that will delivered over time. I can’t emphasize this point often enough – “failure” of a financial institution means only that the bondholders don’t receive 100 cents on the dollar plus interest. Failure is only a problem when it requires piecemeal liquidation, as occurred in the case of Lehman. This is not necessary when appropriate regulators can take receivership of insolvent bank and non-bank institutions (as the new financial regulatory bill now provides).

My greatest concern is that these new receivership powers will not be implemented because the Fed and the Treasury are both in bed with major Wall Street and banking institutions. Yet there is no effective alternative. Having squandered trillions in an empty confidence-building exercise, it will be nearly impossible for those same policies to build confidence again in the increasingly likely event that the economy turns lower and defaults pick up again. The best approach will still be to allow bad debt to go bad, let the bondholders lose, and defend the customers by taking whole-bank receivership (as the FDIC does seamlessly nearly every week with failing institutions). Almost undoubtedly, however, our policy makers will choose to defend bondholders again, pushing our government debt to a level that is so untenably high that little recourse will remain but to suppress the real obligation through long-term inflation (though as noted below, the near-term effects of credit crises are almost invariably deflationary at first).

David Einhorn has an interesting perspective on the current state of the world as he recently penned in a NY Times op-ed piece…

Are you worried that we are passing our debt on to future generations? Well, you need not worry.

We’ve made the problem so bad that our generation — not our grandchildren’s — will have to deal with the consequences.

The whole article is worth a read.

Yay, the stock market is up, the economy is getting better, and we solved the mortgage problem — all it cost us was a few trillion dollars (ok, more than a few). We’re out of the woods, right?

Here is the chart we looked at a while ago with when mortgages with variable rates reset those rates… notice the big wave of green-ish stuff in 2007 and 2008? That’s what we just finished dealing with.

You might also notice that in front of us there is a big wave of yellow-ish stuff in 2010 and 2011. Interesting, no?

John Hussman wrote about this in his weekly review:

Below is a slightly different schedule we’ve seen. It doesn’t show the first round of sub-prime resets that ended in early 2009, and is based on different classifications, but is largely consistent with the overall profile we can anticipate.

…To reiterate what the reset curve looks like here, the 2010 peak doesn’t really get going until July-Sep (with delinquencies likely to peak about 3 months later, and foreclosures about 3 months after that). A larger peak will occur the second half of 2011. I remain concerned that we could quickly accumulate hundreds of billions of dollars of loan resets in the coming months, and in that case, would expect to see about 40% of those go delinquent based on the sub-prime curve and the delinquency rate on earlier Alt-A loans.

If it cost us several trillion dollars, including nationalizing Fannie and Freddie to deal with the subprime wave of resets, what might happen with the second wave?

More great stuff from Hussman’s weekly commentary on Monday:

Aside from the shorter-term suspicion that unemployment has not peaked, I want to be clear that my main concern about the employment situation is with servicing debt, not providing for the basic needs of the population. I’m certainly not talking about Malthusian macroeconomic shortages or an inability for our nation to support itself. It is the gap between cash flows and household debt service that strikes me as problematic.

Hussman agrees with something I stated a while back… this is not your grandfather’s depression. While people starved to death in the dust bowl of the 30s, our struggle is less about survival and more about quality of life.

He then goes on with this comment:

Over the past decade we have greatly threatened that that stability through the ridiculous misallocation of resources in speculative bubbles and unproductive “investments,” but I am convinced that we will re-learn, painfully or otherwise, to better allocate our resources. My impression continues to be that the current deleveraging cycle will likely be a multi-year process that is presently far from complete.

Foreign trade can also be the source of mutual economic benefit, but only if it ultimately improves the allocation of resources. On our current path, we have instead relied on cheap imports from China and other countries while at the same time destroying our own capital through poorly allocated speculative investments, followed by bailouts to the lenders who provided that capital. The only plausible outcome of that dynamic is that foreigners will gradually acquire claims on our nation (Treasury debt or private securities), and with them, the ability to acquire our productive assets. No doubt many analysts on the financial channels will gurgle with excitement every time a foreign acquirer bids for ownership of a U.S. company, but this is how we will pay for our the difference between our consumption and our income. Again though, I am convinced that we will ultimately re-learn to better allocate our resources.

Good stuff.

From the Daily Reckoning… I for one am disheartened by this chart.

From last week’s Hussman weekly commentary…

Last week, the Mortgage Bankers Association released the most comprehensive report available on third quarter delinquencies. Here is a summary of points from that report:

“The delinquency rate for mortgage loans on one-to-four residential properties rose to a seasonally adjusted rate of 9.64% percent of all loans outstanding as of the end of the third quarter of 2009. The delinquency rate breaks the record set last quarter. The records are based on MBA data dating back to 1972. The combined percentage of loans in foreclosure or at least one payment past due was 14.41% on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.

“Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures (on a quarterly basis) from 1.07 percent to 1.42 percent,” said Jay Brinkmann, MBA’s Chief Economist.

“Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures. The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54 percent of the quarterly increase in loans 90 days or more past due but not yet in foreclosure. The performance of prime adjustable rate loans, which include pay-option ARMs in the MBA survey, continue to deteriorate with the foreclosure rate on those loans for the first time exceeding the rate for subprime fixed-rate loans.

“The outlook is that delinquency rates and foreclosure rate will continue to worsen before they improve. The seriously delinquent rate, the non-seasonally adjusted percentage of loans that are 90 days or more delinquent, or in the process of foreclosure, was up from both last quarter and from last year. Compared with last quarter, the rate increased 82 basis points for prime loans (from 5.44 percent to 6.26 percent), and 216 basis points for subprime loans (from 26.52 percent to 28.68 percent).”

Yikes.

Here’s a nice chart from Clusterstock…

How to read this? For the year 2005, the year I bought my house, over 30% of the mortgages have negative equity.

I’ve probably heard a hundred times that the stock market is a leading indicator for the economy.

Well, it is a leading indicator, except when it isn’t. Bob Hoye sheds some light on the topic:

For those whose dwell in GPD-Land, [the 2007 peak] is very important. At normal peaks, the cycle for stock certificates leads the peak in business activity by some 12 months. For example, the Dot-Com peak was in March 2000 and the NBER determined that it officially started in March of 2001.

The only times the peaks have been coincidental has been at the climax of a great financial mania.

For those who appreciate official numbers, in 1873 the crash began in mid September and the NBER determined that the recession started that October. In 1929, as everyone knows, the crash began in mid-September and the NBER date was set as that fateful August.

He goes on to point out a few interesting points…

• In 1930 when the Secretary of Labor was on the “upswing”, unemployment was around 9 percent, as it is lately.
• Unemployment in the 30s did not reach 25% until 1933 — a full 4 years after the stock market peak