Daily Digest - July 27

• 1) Spain shines on stress test, Germany flunks (By Ambrose Evans-Pritchard)

"As analysts sift through the wealth of new detail from the tests, they are baffled by the chaotic criteria.

"We have a ludicrous worst-case scenario that Greek house prices fall by 2pc in 2011: when you first read it you think their must be a typo," said David Owen from Jefferies Fixed Income.

Austria's worst-case is a 2.7pc rise in house prices, or zero for Poland, and -2pc for Italy. Mr Owen said these assumptions would be demolished by a serious recession. Yet the tests assume that all eurozone states would contract at the same rate in a downturn. In reality, Club Med states and Ireland would almost certainly fare worse since they are already coping with the triple effects of debt-deleveraging, lost competitiveness, and fiscal tightening. "

"Yet views remain polarized. Alastair Whitfield from RBC said a large number of lenders would have failed if the Tier 1 capital ratio had been raised from 6 to a more credible 7, including Deutsche Post Bank, Monte dei Paschi, Espirito Santo, Piraeus, and Allied Irish.

Credit Suisse said the entire Greek banking system and a string other lenders would have failed if "core" Tier 1 had been used, disallowing hybrid capital."

........................1A) Roubini: EU Stress Tests Criteria Not Realistic

"The pan-European stress tests on the banking sector were not tough enough to reflect future worsening conditions for the continent's economy, Nouriel Roubini, economist and chairman of Roubini Global Economics, told CNBC Monday. "

""The assumptions made about economic growth, about sovereign risk are not realistic enough," said. Roubini, who was dubbed by the media "Dr. Doom" but prefers to be called "Dr. Realist."

Plus, most of the sovereign risk was held in maturity books and the tests did not allow for a default, he added."

• 2) One Fifth of Loans to China's Local Governments May Go Bad (WSJ just changed the headline..here's the original)

"BEIJING—About a fifth of the loans made to China's local governments are at risk of not being fully repaid, according to data collected by China's banking regulator, a person familiar with the situation said Tuesday.

The data, submitted by commercial banks to the China Banking Regulatory Commission, show about 20% of loans to local government financing vehicles weren't backed by sufficient guarantees or cash flow, making them high risk, the person said.

On Monday, the Century Weekly, one of China's most respected business magazines, cited unnamed sources saying that the CBRC last week disclosed during a teleconference with banks that outstanding loans to local governments' financing platforms totaled 7.66 trillion yuan ($1.13 trillion) at the end of June.

According to official estimates, outstanding loans to local-government financing platforms totaled 7.38 trillion yuan at the end of 2009, which represented a 70.4% increase from a year earlier and accounted for 18.5% of outstanding bank lending nationwide.

The report couldn't be independently confirmed. In a note sent in response to questions the CBRC said the loans wouldn't necessarily become bad debts.

Local infrastructure investment was a key platform of China's efforts to stimulate the economy in the wake of the global financial crisis, but many of the projects that city and provincial authorities launched were paid for not by government spending, but by off-budget financing vehicles that borrowed heavily from banks and in capital markets. "

...............2A) China banks face 'serious' default risk: report

• 3) Median Unemployment Hits 53-Year High In US

"According to the Federal Reserve of St. Louis, the median amount of time someone who's unemployed in 2010 remains unemployed rose to over 25 weeks in June.

For comparison, here's a look at the longest median unemployment times for prior Administrations:

George W. Bush, Jan. '10: under 11 weeks

Bill Clinton, Oct. '94: 10 weeks

George H.W. Bush, Nov. '92: 9.3 weeks

Ronald W. Reagan, May '83: 12.3 weeks

Jimmy Carter, May '77: 7.9 weeks

Gerald Ford, May '75: 9.4 weeks

Richard M. Nixon, May '71: 6.7 weeks

Lyndon B. Johnson, Oct. '67, 4.9 weeks"

................................3A) Average (Mean) Duration of Unemployment (St. Louis Fed graph)

• 4) Russian Drought Raises Bondholder Risk on Rising Grain Price, Funding Need

"July 27 (Bloomberg) -- Russia’s worst drought in a decade will probably generate losses for bondholders as food prices rise and the government may be pushed to tap debt markets for funds to support farmers.

High temperatures, which rose to a record 37.4 Celsius (99 Fahrenheit) yesterday in Moscow, have damaged 32 percent of land under cultivation and forced Russia to declare states of emergency in 23 regions. Grain prices may double this year because of the drought, according to the Grain Producers’ Union.

Inflation may quicken to 8.1 percent by the end of December, compared with the government’s annual forecast of less than 6.5 percent, according to Yaroslav Lissovolik, Deutsche Bank AG’s head of research in Moscow. "

• 5) State budget gaps total $84 billion: study

"NEW YORK (MarketWatch) -- State budget gaps are now expected to total $83.9 billion for fiscal 2011, with shortfalls anticipated for the next couple of years, according to a study released Tuesday by the National Conference of State Legislatures.

That bleak assessment contains one ray of good news: The total is slightly less than the estimate in March for an $89 billion gap.

The biggest shortfall to make up may be the reduction in federal aid for medical programs. Congress hasn't approved extending this aid after increasing support as part of last year's stimulus package.

Officials in many states told NCSL that revenues have started to improve, or at least the rate of decline has slowed. But they still worry stabilizing revenues won't be enough to replace the loss of federal stimulus funds, and several states project deficits through 2013. "

"Almost half of all states said fiscal 2011 gaps would be 10% or more of their general fund. The largest was Nevada, with its budget deficit amounting to 45% of its general fund, NCSL said.

New Jersey, Arizona, Maine, North Carolina and three others had gaps of at least 20%. "

• 6) Small-Business Program From Obama May Create $300 Billion of `Junk' Loans

"July 26 (Bloomberg) -- President Barack Obama is on the verge of creating as much as $300 billion in credit for small businesses as bankers raise doubt about whether there’s demand for new loans and how much will be repaid.

The U.S. Senate may vote this week on a bill to funnel $30 billion of capital to community banks, whose business customers typically are small firms. Banks could leverage the sum to make $300 billion in loans that create jobs, according to a Senate summary. That could more than double the commercial and industrial loans at eligible banks as of the first quarter, according to data compiled by KBW Inc.

Bankers say the problem isn’t scarce credit, it’s lack of demand from creditworthy firms in a weak economy. The result may be more loans given to distressed firms and higher losses. "

• 7) Gov. Paterson, angry at labor leaders, says planning for layoffs must begin 'immediately' (NY)

"Gov. Paterson is preparing to slash the state's workforce.

Escalating his battle with public employee unions, Paterson said Monday planning for layoffs must begin "immediately" because labor leaders have not agreed to concessions.

"Some unfortunate people who don't deserve it are going to get laid off," Paterson said. "And it burns me to have to say that because I don't think it's fair to them. But it's the only way we're going to be able to balance our budget."

The governor was uncertain how many layoffs would be needed and when they'd start. He said the no-layoff pledge he signed with the unions a year ago was not binding because it presumed the state would get more federal Medicaid funding than it did.

"We lost what may be $1 billion from that source, and everybody is going to have to make a sacrifice," Paterson said.

Union leaders slammed Paterson's remarks as irresponsible and insisted the pledge is binding."

• 8) California Home Builders Rent Out Finished Units to Finance Completion

"The housing crisis has proved problematic for many builders who are running out of financing before completing new subdivisions, but one Bakersfield, Calif., developer has taken a novel approach: renting out finished homes to finance the rest of the construction.

Now business is booming at the Silverado Ranch -- the rental business, that is. The subdivision is currently 100 percent rentals.

HousingWatch has written many stories on buying versus renting, but this time it's the sellers that have changed their game."

• 9) Home prices rise in May for the second straight month as tax credits attract more buyers

"Nationally, prices have risen 5.1 percent from their April 2009 bottom. But they remain 29 percent below their July 2006 peak."

• 10) Can NJ keep its pension promises? No way, many officials concede

"Jack Curtis was driving with his wife to the grocery store recently when the 63-year-old elementary school principal from Morris County announced that they needed to downsize their retirement dreams

Why? Because the state's pension system is so far in arrears that Curtis doesn't think he can't count on it any more.

The reality of New Jersey's pension system crisis is sinking in.

The numbers are mind-numbing. As of June 2009, the state's pension systems faced unfunded liabilities of $45.8 billion. That number assumed an annual 8.25 percent return on investments, an actuarial standard that many experts are now declaring as unrealistic. In the past decade, the pension system averaged 2.56 percent a year, not nearly enough to keep pace with projected costs.

More pessimistic assumptions about rates of return peg the pension system liability as high as $173.9 billion — not to mention some $55 billion in unfunded health care costs.

Experts and officials have begun to say it more clearly: There is no way New Jersey will ever be able to pay for the promises it has made to current and retired workers.

State Treasurer Andrew Sidamon-Eristoff says he will forward a list of recommendations for reforming the pension system to Gov. Chris Christie by the end of this week. Those would include some that are "out of the box," he said.

Sidamon-Eristoff said he would not rule out the possibility that even already retired workers may receive reduced pensions or have to pay more for medical care."

• 11) BP oil spill to cost U.S. taxpayer almost $10 billion

"(Reuters) - Oil giant BP said it plans to offset the entire cost of its Gulf of Mexico oil spill against its tax bill, reducing future contributions to U.S. tax coffers by almost $10 billion.

BP took a pretax provision of $32.2 billion in its accounts for the period, for the cost of capping the well, cleaning up the spill, compensating victims and paying government fines.

However, the net impact on BP's bottom line will only be $22 billion, with the company recording a $10 billion tax credit, most of which will be borne by the U.S. taxpayer, a spokesman said."

• Other news and headlines:

China to Launch Credit Default Swaps in H2

China overtakes US as Brazil's largest investor

Pentagon can't account for $8.7 billion in Iraqi funds

BP Spill Costs Rile Gulf Towns Shut Out of $20 Billion Fund

BP triples asset disposals target to $30 billion

BP posts record $17.2 bln loss in Q2, taps Dudley as new CEO

Natural Gas Could Lead To New Lebanon-Israel War (NPR)

Europe's population above half a billion

India Increases Rates More Than Economists' Estimates

Huge leap in bankruptcy among women (UK)

MIT-Harvard Study: Foreclosure drops house value by 27%

Retail Vacancy Rate in Springfield and the rest of County Climbs

Silicon Valley jobless tap retirement plans to survive (July 23 article)

Violent Crime Spike Follows Oakland Police Layoffs

Record number in RI receiving Social Security benefits

Gantert: Medicaid paid dead people

Banks Charge States Millions in Debt Binge to Fix Subprime Bust

Pa.: 28 pension plans distressed

Orange County schools looking for tax payers to bail them out ($90 million deficit)

Schwarzenegger threatens to leave office without signing budget

Inmate farmers cut state costs

Economy In Depression (Bahamas)

Dunmore Weighs Financial Options

BP Oil Spill: Clean-Up Crews Can't Find Crude in the Gulf

EU adopts ‘unprecedented’ Iran sanctions

Hotel Defaults More Than Double (California)

Consumer Confidence in U.S. Fell in July to a Five-Month Low

Super algae that creates fuel?

Fools. If this comes about the inadvertant spillage will eventually lead to an uncontrolled super algae. It will only be a matter of time before it is impossible to kill with available herbicides. Then what? We all drown in a solution of bio fuels? The earth burns?

As if the engineered seeds that have cross pollinated to create super weeds and genetically morphed, hazardous life forms did not teach anyone anything.

Playing with life on the genetic scale is going to prove the death of the planet. It's one thing to lose control of a trained monkey, or farm animal. Quite another to lose control of a faulty genetic code.

Has anyone else seen evidence of third generation mutations in mammals after ingesting GMO products? You know the hamsters that grow hair in their mouths and are born sterile?

I can't wait to see what kind of piss we are going to put in our fish bowl next.

 http://www.cnbc.com/id/38427247

 A new Another Recession Due Circa 2012: Jim Rogers  A new recession will be due around 2012 but central banks will not be able to throw cash at it any more, Jim Rogers, chairman of Rogers Holdings, told CNBC Tuesday.

Adam Gault | Digital Vision | Getty Images

India's central bank raised its interest rate Tuesday, joining other monetary authorities such as the Canadian and Norwegian central banks in hiking rates to stem inflation.

"We do have inflation in the world… most central banks should resign," Rogers said.

There has always been a recession every four to six years in the US "since the beginning of time," and that would mean another one is due around 2012, according to Rogers, a hedge fund pioneer who started the Quantum Fund with George Soros in 1970.

"When the next one comes the world is going to be in worse shape because the world has shot all its bullets," he said.

"Is Mr. Bernanke going to print more money than he already has? No, the world would run out of trees," Rogers added.

The fact that second-quarter earnings have been better than expected does not necessarily mean that the recovery is stronger than anticipated, he said.

"I'm sure some of it is expectation management… but remember what the comparison is. We are talking about the second quarter of 2009, when we thought the world was coming to an end," Rogers said.

"Worry about next year, don't worry about the second quarter now. That's history," he added.

Rogers reiterated his view that the pan-European stress tests into the health of banks were just public relations and said he still owns the euro

Jager06:

Aye! Just to follow up on your post: Unintended consequences of genetic engineering can have very dangerous repercussions. Back in the 1990s, potentially all plant life on Earth may have been in jeopardy.

"These bacteria would therefore get into the root systems of all terrestrial plants and begin to produce alcohol. The engineered bacterium produces far beyond the required amount of alcohol per gram soil than required to kill any terrestrial plant. This would result in the death of all terrestrial plants, because the parent bacterium has been found in the root systems of all plants where anyone has looked for its presence. This could have been the single most devastating impact on human beings since we would likely have lost corn, wheat, barley, vegetable crops, trees, bushes, etc, conceivably all terrestrial plants."

Read the story here:
http://www.donabee.com/health/klebsiella...

We already know what Chinese carp, Zebra mussels, cane toads, rabbits, rats, and pigs can do. Don't think it can't happen with genetic engineering. It's the unknown, unintended consequences that are scary.

Poet

http://www.businessspectator.com.au/bs.nsf/Article/carbon-trading-tax-McKibbin-T\
reasury-RBA-pd20100723-7LV94?

McKibbin powers up
Robert Gottliebsen
________________________________________

Forget Julia Gillard's carbon announcements today and Tony Abbott's insistence that there will be only be a carbon tax over his dead body, Australia is going to have an effective carbon tax – and a big one – no matter who wins on August
21. That's the message from this week's KGBTV interview with Reserve Bank board member and director of the Australian National University's Centre for Applied Macroeconomic Analysis, Warwick McKibbin. McKibbin and I share the same view that the failure of politicians and make a decision on carbon pricing means that we are not getting the level of investment in base-load power generation that is essential to supply the growth to our major centres of population. (Turnbull trashes the tax, June 17.)

For a long time, I have seen that crisis developing, and have pointed to the brownouts and blackouts we will witness over the next few years if the rate of investment remains inadequate. McKibbin says I am wrong, and the crisis is a decade away. However, the reason behind the difference in our views will not be particularly reassuring. McKibbin
believes that the recent big rises in power bills in most capital cities are only the beginning. According to McKibbin, power bills are going to rise dramatically because we need to fund the back-log in distribution facilities and the increase in renewable energy generation. And, as a result, the power price rises will be so steep that they will reduce consumption and delay the base-load crisis.

McKibbin does not describe the power price rises as a carbon tax, but in effect that's what they are. However, more expensive power bills will not encourage base-load power generation and there will be little compensation for the
population – except perhaps higher interest rates (that's my comment not McKibbin's, who was careful to steer away for banking and interest rates given his position on the Reserve Bank board).

I notice this morning that China is considering carbon pricing in the next five years because they believe it is the only way they can moderate carbon emissions (China to launch carbon trading: report, July 22). McKibbin has a novel solution to the problems of a global carbon tax. If Kevin Rudd had pushed this model at Copenhagen the outcome might have been different.

In essence McKibbin says that the proceeds of a carbon tax should go back to the people and that it is easy to develop a formula that can give a carbon tax rating to other measures taken by countries to reduce carbon. That way we can
have a virtual carbon score that gives credit to direct action as well as carbon taxes.

Meanwhile, if McKibbin is right, and we are indeed headed for power charge increases that change the consumption of energy in Australia, then we are facing an enormous change both the industrial and consumer fabric of our society. Our
households are organised on the basis that power is an essential item. With a vast number if houses and offices in hot or cold parts of Australia so reliant on air conditioning, the impacts will be considerable. Meanwhile who could believe the following exchange from the interview? Bartholomeusz: "But at the moment neither side of politics is advocating any kind of carbon price anytime soon, Warwick?"

McKibbin: "Well, the irony in all this is that the Greens probably have closest to the best policy on climate change. It's nowhere near as good as what I want, but it's better than the other two parties. And when you're in a situation where
the Greens are actually winning the policy debate then you know there's something wrong with the policies of the major two parties and I think they've both completely gone off the tracks".

I honestly thought this was tongue in cheek.  At any rate, these kinds of fears seem a bit overblown in this particular instance (although Cat's Cradle was a favorite of mine).  What interests me is the evidence of Peak Oil that abounds without comment from the MSM.  BP funding offshore wind platforms (hat tip Damn the Matrix, comment #22 to yesterday's DD).  Exxon funding alegea growth.  These facts go reported without reflection.  I guess I just continually forget how radical reality really is.

[Moderator's Note: The rules are quite clear.  Discussion about global warming belong in the controversial topics folder only.]

[Moderator's Note: The rules are quite clear.  Discussions about global warming belong in the controversial topics folder only.]

[Moderator's Note: The rules are quite clear.  Discussions about global warming belong in the controversial topics folder only.]