The First Runner-Up in This Year’s Daily Reckoning Financial Darwin Awards

03/10/11 Buenos Aires, Argentina – Population: 37.5 million.
Unemployed: 2.2 million.
Food stamp recipients: 3.7 million.
Total debt: $367 billion.
Debt/GDP ratio: 18.80%…!

And, finally…

Total state debt per man, woman and child – working or not: $9,835.

Ladies and gentleman, Fellow Reckoners, people who enjoy overly dramatic, entirely non-scientific countdowns…

The First Runner-Up in this year’s Daily Reckoning Financial Darwin Awards: The State Edition is…

The Golden State: California! Congratulations!

Now, before we get all carried away with the celebrations, a couple of words…

Your editor happens to enjoy a few drinks with a couple of California locals when he visits that paradisiacal stretch of coastline from time to time. One such local happens to be his senior editor, Eric Fry, who resides in Laguna Beach. So, instead of launching into some kind of gratuitous, politico-bashing tirade about a state in which our good friend happens to reside – and in which we do not…

…we’re going to let our Fellow Reckoners do it for us; Fellow Reckoners who, mind you, also happen to live on California and, therefore, should know better than us the goings on there.

First up, from Reckoner Dimitri:

“The LA Times ran an investigative series last week showing how billions were mismanaged and squandered in an inept and failed attempt to upgrade the Los Angeles Community College campus. Why the perpetrators of this disaster haven’t been fired is beyond me – it unfortunately highlights the entrenched and increasingly incompetent infrastructure we are hopelessly saddled with. Yes, hopelessly – the chances of removing the incompetents is slim and none, but worse, I don’t see a cadre of competents around to take their places.”

Then there’s this, from another Golden State Reckoner, one who wishes to remain anonymous…

“There are over 600,000 California state workers getting fat pensions and health care and other retirement benefits. With benefits like [theirs] there is no hope of ever balancing the budget. We already have the highest State Income Tax, Gasoline Tax, Sales Tax and property tax. The only hope is to declare bankruptcy and let all benefits be scaled down by the legal system.”

And this, from Reckoner Peterson…

“California has a gigantic hole in this year’s budget [$24.5 billion; the largest state budget shortfall for 2012 in the entire country]. This is illegal, as the California Constitution insists the budget be balanced. Governor Schwarzenegger recalled the legislature to a special session to deal with the crisis last Fall, just before he left office.

“However, he could not get the legislature together. Many of the legislators were in Maui. As in, Hawaii. They were there to discuss green energy and who knows what else. The trip was paid for by California interest groups including the California Prison Guards union. What does the California prison guards union care about green energy, you ask? Absolutely nothing, of course. But, they care a great deal, and are willing to pay handsomely for, legislators’ votes on their pay and benefits.

“Thus, when new (old) Governor Jerry Brown took office, he was forced to propose a draconian budget that cuts all kinds of state services, including funding for education, medical care for children, and assistance to local governments. There were however no proposed cuts to the pay or benefits of the public service unions, including the California Prison Guards Union.”

Chimed Reckoner Edwardo…

“Greetings from California, the most over-governed state in the USA. A crazy place where prison guards earn 3x the rate for starting schoolteachers, and enjoy fabulous retirement benefits. The whole public sector is out-of-control, bleeding the private sector dry. Prison overcrowding has put the State under severe federal pressure.

“We have a whole government agency trying to collect sales taxes on out-of state purchases by Californians – which I would guess has a negative financial benefit to the state when all salaries, benefits, occupancy and other expenses are computed. The lunatics are running the asylum.”

And finally, we couldn’t resist printing this last email, in full. It’s a bit longer but, after having read through the entire mailbag from peeved California residents, we think it deserves a run…

“What is generally not covered in most any press is the government tyranny at the local level.

“5.3 (five point 3) YEARS ago I started the process to build a new home on a 50-acre parcel in Santa Clara County. Still no permit. The tyranny of ‘Planning’ is documented in a CATO report, showing how it created a CA real estate bubble.

“Besides being incompetent and lazy, the planners outright lie to the citizens. Not once in the 5 years did they meet the 30-day CA STATE LAW response time for filings. The top elected officials (Board of Supervisors) admit they are unable to fix the indolence, incompetency, and aggressive adversarial positions taken against the citizens.

“Since they have unchecked and unaccountable monopoly power, Planning has done what any good monopoly does when demand goes down – they have exorbitantly raised prices! Now, nearly triple the permits vs. 5 years ago are needed for – you name it!

“No matter how surly, insulting, or capricious a county employee may be, one must remember to always Kiss Their A** or they will get even. Don’t even think of escalating to a supervisor.

“At one time in the past, taxes paid for government and citizens had some control. Now, the bureaucracies do as they wish, and fee us to death, and we have no recourse.

“TO THE BARRICADES, I say!

“A. Reckoner and former CA resident

“P.S. Although I’m liquidating all CA real estate, please don’t use my name or there will be retribution by County employees.”

Tomorrow: The Daily Reckoning Financial Darwin Award winner. Stay tuned…

Joel Bowman
for The Daily Reckoning

Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

View articles by Joel Bowman

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

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The Second Runner-Up In This Year’s Financial Darwin Awards

03/09/11 Buenos Aires, Argentina – We’ve been talking a lot about the state of the state this week. The state, as a viable political concept, seems to be breaking down. At the very least, it is beginning to be called into question. Take a look at states in Africa…states in the Middle East…in Europe…even states within “The States.”

From toppled state governments in the MENA region to insolvent nation states across Europe’s periphery and flat broke states back in the US. Whether ruled by tyrannical, autocratic minority or tyrannical, democratically elected majority, the model of The State just doesn’t seem to work. The reason is simple enough: violence doesn’t work. Voluntary trade does. The state – being, by definition, an agent of force – is always and everywhere a net detractor from a market’s productive capacity. This rule holds equally true in the Libyan Desert as it does in fifty different state capitols scattered across the US.

Which brings us to the main reason for this little interjection… The Second Runner-Up in this year’s Daily Reckoning Financial Darwin Awards: The States Edition.

Let’s see… First we had ten finalists. We read them out over the weekend, in alphabetical order – California, Connecticut, Illinois, Louisiana, Massachusetts, Mississippi, New Jersey, New York, Ohio and Wisconsin.

Then, on Monday, we announced fifth place: Connecticut. We just couldn’t resist recognizing a state with the sometimes moniker of “The State of the Steady Habits” for out of control spending that saw it’s debt/GDP ratio soar to within a fraction of a percent of Greece’s. Great stuff, really.

Yesterday, we gave a tip of the hat for New Jersey. Although the Tax Foundation has found that New Jersey homeowners pay three and a half times the national median, the state is still on schedule to deliver a $10.5 billion budget shortfall for the year. Then there’s the union-won benefits, unfunded pension and healthcare liabilities, soaring debt/GDP level. Yep, Jersey for fourth.

Today we raise a glass to this year’s Second Runner-Up…

Writes one reader from today’s state:

“I am appalled at the continued political patronage hiring here. A recently retired State Senator was, at 75 years old, just handed a job at the local community college…paying $120,000 per year! And we are laying off teachers, police, and firefighters.

“Also, politicians refuse to give a Civil Service exam to fill state jobs, as required by law. They say there is no money for this. They then hire based strictly on political connections, disregarding any qualifications. They end up having to hire additional people to actually do the job. Budgets for some departments were actually higher than requested in exchange for political jobs – see the ongoing scandal in the Probation Dept. Some politicos may actually go to jail over this one.”

The state our Fellow Reckoner is referring to suffers under one of the highest debt/GDP ratios in all the land…a whopping 20.53%. Maybe you’ll guess it from this email, from another local resident:

“Our state and its ‘Big Dig’ has retired this dubious trophy years ago. When Tip O’Neil announced that he had 90% financing on our downtown boondoggle and we would only have to pay 100 million of the 1 billion cost, little did he know (or did he?) that the final cost would be $14 billion. Oh wait… We forgot the interest…dooooh… Make that $22 billion. And the screw-ups continue, whether it’s the Big Dig, our caddy driving governor giving freebies to a company that left for China, drunken pols, druken firefighters, pols sticking cash down their bras that only the feds can seem to find while our AG is clueless, three consecutive speakers of the house that have been convicted of felonies or are awaiting trial and grossly incompetent judges and pols that come from a one party state.”

Couldn’t guess? Here’s our Reckoner again, with the answer in slogan form:

“The new state slogan should be ‘Massachusetts: Incompetence, corruption, criminal behavior… We’ve got it all!’”

Congratulations go to Massachusetts, “The Bay State.” You’ve earned this year’s Second Runner-Up in our Daily Reckoning Financial Darwin Awards: The State Edition.

That means there are still two more prizes up for grabs…and seven finalists still in the running. More tomorrow…

Joel Bowman
for The Daily Reckoning

Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

View articles by Joel Bowman

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

Sign Up for The Daily Reckoning e-letter and receive a copy of our newest report How to Survive the Fall of Social Security… at NO CHARGE.

We Will Not Share Your Email.
We Value Your Privacy.

View the original article here

The Second Runner-Up In This Year’s Financial Darwin Awards

03/09/11 Buenos Aires, Argentina – We’ve been talking a lot about the state of the state this week. The state, as a viable political concept, seems to be breaking down. At the very least, it is beginning to be called into question. Take a look at states in Africa…states in the Middle East…in Europe…even states within “The States.”

From toppled state governments in the MENA region to insolvent nation states across Europe’s periphery and flat broke states back in the US. Whether ruled by tyrannical, autocratic minority or tyrannical, democratically elected majority, the model of The State just doesn’t seem to work. The reason is simple enough: violence doesn’t work. Voluntary trade does. The state – being, by definition, an agent of force – is always and everywhere a net detractor from a market’s productive capacity. This rule holds equally true in the Libyan Desert as it does in fifty different state capitols scattered across the US.

Which brings us to the main reason for this little interjection… The Second Runner-Up in this year’s Daily Reckoning Financial Darwin Awards: The States Edition.

Let’s see… First we had ten finalists. We read them out over the weekend, in alphabetical order – California, Connecticut, Illinois, Louisiana, Massachusetts, Mississippi, New Jersey, New York, Ohio and Wisconsin.

Then, on Monday, we announced fifth place: Connecticut. We just couldn’t resist recognizing a state with the sometimes moniker of “The State of the Steady Habits” for out of control spending that saw it’s debt/GDP ratio soar to within a fraction of a percent of Greece’s. Great stuff, really.

Yesterday, we gave a tip of the hat for New Jersey. Although the Tax Foundation has found that New Jersey homeowners pay three and a half times the national median, the state is still on schedule to deliver a $10.5 billion budget shortfall for the year. Then there’s the union-won benefits, unfunded pension and healthcare liabilities, soaring debt/GDP level. Yep, Jersey for fourth.

Today we raise a glass to this year’s Second Runner-Up…

Writes one reader from today’s state:

“I am appalled at the continued political patronage hiring here. A recently retired State Senator was, at 75 years old, just handed a job at the local community college…paying $120,000 per year! And we are laying off teachers, police, and firefighters.

“Also, politicians refuse to give a Civil Service exam to fill state jobs, as required by law. They say there is no money for this. They then hire based strictly on political connections, disregarding any qualifications. They end up having to hire additional people to actually do the job. Budgets for some departments were actually higher than requested in exchange for political jobs – see the ongoing scandal in the Probation Dept. Some politicos may actually go to jail over this one.”

The state our Fellow Reckoner is referring to suffers under one of the highest debt/GDP ratios in all the land…a whopping 20.53%. Maybe you’ll guess it from this email, from another local resident:

“Our state and its ‘Big Dig’ has retired this dubious trophy years ago. When Tip O’Neil announced that he had 90% financing on our downtown boondoggle and we would only have to pay 100 million of the 1 billion cost, little did he know (or did he?) that the final cost would be $14 billion. Oh wait… We forgot the interest…dooooh… Make that $22 billion. And the screw-ups continue, whether it’s the Big Dig, our caddy driving governor giving freebies to a company that left for China, drunken pols, druken firefighters, pols sticking cash down their bras that only the feds can seem to find while our AG is clueless, three consecutive speakers of the house that have been convicted of felonies or are awaiting trial and grossly incompetent judges and pols that come from a one party state.”

Couldn’t guess? Here’s our Reckoner again, with the answer in slogan form:

“The new state slogan should be ‘Massachusetts: Incompetence, corruption, criminal behavior… We’ve got it all!’”

Congratulations go to Massachusetts, “The Bay State.” You’ve earned this year’s Second Runner-Up in our Daily Reckoning Financial Darwin Awards: The State Edition.

That means there are still two more prizes up for grabs…and seven finalists still in the running. More tomorrow…

Joel Bowman
for The Daily Reckoning

Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

View articles by Joel Bowman

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

Sign Up for The Daily Reckoning e-letter and receive a copy of our newest report How to Survive the Fall of Social Security… at NO CHARGE.

We Will Not Share Your Email.
We Value Your Privacy.

View the original article here

The 4th Place Finisher in This Year’s Financial Darwin Awards

03/08/11 Buenos Aires, Argentina – Stocks are up. Stocks are down. The same goes, naturally, for the broader indexes that house them. Yesterday, for example, the Dow fell about 80 points. Today, last we checked, it was up almost as much. Over the past five days, it’s firmer by 95 points. But on the month, it’s lower by 80. And, by the time the bell rings this afternoon, all those numbers will have changed.

What to make of it? As a general rule, we don’t pay much attention to the minute-by-minute, hour-by-hour market moves that saturate the mainstream media. Why would we? We’re not trying to identify the specific cause of a single-day, fraction-of-a-percent move in a multi- trillion dollar market. For one, it’s a fool’s errand. The market is driven by hundreds of millions of individual human actions and emotions – some rational, others irrational. There’s no way of knowing with certainty what the next hour, day or maybe even month will bring. If we could know – if anyone could know – for sure, we’d be on a tropical island somewhere, minding our own business and keeping our secret to ourselves.

But if we had to guess, we’d say, on the whole – that is, over the long run – that the bull market we’ve seen run since the crash of 2008 is closer to its end than its beginning. A quick look back…

Remember, we had the crack-up boom of the late ’90s, which spilled plentifully into the early naughties. After a brief, mini-recession of 2001-02, it was full steam (and full credit) ahead…to the bust-up of 2008. Stocks – following houses and the banks that stood behind them – fell deeper and harder than all but a few fringe-dwelling contrarians had anticipated. Wall Street institutions – stalwarts that had weathered the First Great Depression, a couple of World Wars, the stagflation of the ’70s and the crash of ’87 – fell to their knees, were broken up or forced to marry equally distressed partners. Millions of employees fell out of work. Many of their jobs are gone…for good.

That, in a nutshell, was the first phase in what we see as a bigger, ongoing correction, one that could last for decades and reshape the world. Bill Bonner calls it the “Great Correction.” Doug Casey, perennial Vancouver favorite from whom we’ll hear more below, refers to it as the beginning of the “Greater Depression.”

Even the rosiest outlook calls for a fundamental paradigm shift in the way the world economy operates. China is due to overtake the US as the world’s largest market sometime in the 2030s. Then, barely two decades later, India will overtake China. We don’t know that these things will happen, of course. They’re just guesses, based mostly on inklings, feelings and hunches. (And some rather compelling demographic data. But that’s a story for another day…)

Were the bust of ’08 allowed to keep on busting, as it seemed determined to do, we might now have bottomed out and, with any luck, found ourselves ready to begin along a real road to a feasible recovery. In other words, we might have begun the long, hard slog back to sustainable economic expansion. But instead of exercising even a single degree of restraint, the Feds did what the Feds do best; that is, they made things worse.

It is almost impossible to know exactly how much money has been poured into the fight against the forces of economic nature. We’ve seen figures of 10…12…even 14 trillion dollars in total. Between the Fed’s many and varied programs – from its Term Asset-Backed Loan Facility to currency swaps, GSE debt purchases and various bank bailouts – to the Treasury’s own shenanigans – $700 billion for TARP, stimulus I and II, endless support for Fannie and Freddie – it’s easy to get lost in the paperwork. And that’s to say nothing of the FDICs ongoing obligations and other assorted boondoggles, like President Obama’s $300 billion “Hope for Homeowners” sinkhole.

The national debt, which stood at “only” $5.7 trillion dollars around the turn of the century, or $55,000 per taxpayer, is now on track to surpass $22 trillion, $186,000 per taxpayer, by 2015. State debt has risen from $750 billion to $1.16 trillion since 2000. And, it’s worth mentioning, those numbers do not include unfunded liabilities which, although brushed aside in the past, become ever more important with every retiring worker.

This year, 44 states are expected to register budget shortfalls. The total budget “gap” for fiscal year 2012 comes in around $125 billion. California owns the lion’s share, with $25.4 billion to fill, more than seven times Wisconsin’s shortfall. Illinois comes in next with a $15 billion shortfall, followed by Texas with $13.4 billion, New Jersey at $10.5 billion and New York at $9 billion.

But these numbers mean nothing. Not to the average man on the street, anyway. You could beat him over the head with 1s, 7s and 5s all day long and he’d scarcely feel a thing. He doesn’t understand that, no matter how much he wants healthcare for everyone, turkeys in every oven and American-made muscle cars in every garage, there simply isn’t any money left to pay for them.

The states are broke. Broke as in “B-R-O-K-E” broke.

Which brings us to our second Daily Reckoning Financial Darwin Award announcement for the week. Over the weekend we narrowed the field to ten finalists (in alphabetical order) – California, Connecticut, Illinois, Louisiana, Massachusetts, Mississippi, New Jersey, New York, Ohio and Wisconsin.

Yesterday, we awarded 5th place to Connecticut.

Today we have fourth place honors for a state whose unions, perhaps the most renowned in the country, work tirelessly to retard the economic progress of its otherwise hard working citizens. Although this state has a slightly lower debt to GDP ratio than 5th place, its projected 2012 budget shortfall, at $10.8 billion, is more than three times as large, making it a much larger problem for the nation if or when it goes down. It’s also managed to stack up some $54.4 billion in unfunded pension liabilities not to mention billions more in healthcare and “other” unfunded obligations.

In fact, it was concerns over these very liabilities that Standard & Poor’s cited when they downgraded this state’s credit rating earlier this year. And, as Fellow Reckoners well know, if the ratings agencies are on to you…it’s probably already too late.

How did they get to this point?

Writes one reader, with a clue, “I asked a turnpike toll collector what he makes after hearing the waste of money in this state and was told very proudly that he makes $76,000! That [job] is no better than a cashier and that’s not including benefits he receives. No wonder that the Christi administration is looking to privatize it.”

Congratulations…New Jersey! You receive 4th place honors in this year’s Daily Reckoning Financial Darwin Awards: The State Edition.

In tomorrow’s issue, we’ll have the first of our two runners- up…followed by the big winner, to be announced Friday. Stay tuned.

Joel Bowman
for The Daily Reckoning

Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

View articles by Joel Bowman

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

Sign Up for The Daily Reckoning e-letter and receive a copy of our newest report How to Survive the Fall of Social Security… at NO CHARGE.

We Will Not Share Your Email.
We Value Your Privacy.

View the original article here