Saturday, December 31, 2011

GSA steps up cultivation of elusive agency 'customers'

By Charles S. Clark

The current frugality push across government presents a special opportunity for one agency in particular. The General Services Administration, which outfits other federal agencies with everything from purchase cards to cloud computing know-how, sees today's belt-tightening as a new "sweet spot," in the words of Federal Acquisition Service Commissioner Steven Kempf.
Because all agencies work with GSA, it can effect changes governmentwide, an ability that "puts us in a unique position to assist others -- particularly in these times -- to get better prices and services, and to leverage the resources they do have," he said. "If the agencies ever needed a best friend, now is the time."
In an interview with Government Executive, Kempf spoke enthusiastically of President Obama's November 2011 executive order directing agencies to curb spending on travel, personal technology devices, printing and vehicle fleets.
"One of the big changes it means here at FAS is that customers and industry are seeing the kind of things we actually offer for agencies to help them save money and do their jobs better," he said. "We're moving into more of a consultant role in helping them meet their business goals and get more for the mission."
Nearly all agencies count on GSA for such basics as purchase cards and landlord services, and many rely on its schedules, or catalogs of some 11 million commercial products and services available from thousands of companies.
But not all are as quick to embrace, say, GSA's governmentwide acquisition contracts for IT services. While fully 90 federal entities use GSA's domestic shipping and delivery services and 60 use its office supplies plan, only 24 use its print management tool, 20 use its general wireless devices plan and six use its special Wireless Telecom Expense Management Services. (See GSA's previously unpublished list of individual participating agencies here.)
Why is there reluctance? "Over the last 10 years, agencies received more sources and had more in-house capability to do things, so they got used to it," said Kempf, a former contract attorney with a business background. He acknowledged that agency pride also may explain some hesitation to call in GSA.
An April 2010 Government Accountability Office report examined the military's reasons for not using governmentwide acquistion contracts from GSA. It conveyed the sense that GSA prices were too high, that outsiders could not ensure that products were in compliance with Defense Department standards, and that such cooperation created a dependence on external agencies.
More recently, a December GAO study confirmed much of GSA's own research showing that interagency purchasing of office supplies saves the government money, but the report expressed some reservations about the GSA study's methodology.
Hence, some salesmanship is required to remind agencies, for example, that GSA contracts, which are available to state and local as well as federal agencies, assure compliance with all government regulations, such as those affecting the environment and economic fairness.
One of the tools GSA is using to persuade more managers that its fees and prices are a good deal is the Federal Strategic Sourcing Initiative. Defined as "optimizing the government's supply base while reducing total cost of ownership and improving mission delivery," strategic sourcing was introduced in 2005 by the White House Office of Federal Procurement Policy as a partnership between GSA and the Treasury Department.
"We went out and took a handful of commodities and put in place relatively large 'precompeted' contracts with great prices so the heavy work is done for them," Kempf said. "They don't have to spend a lot of resources to put it in place themselves," freeing up managers whose inboxes are always full to "focus on things more specific to their mission. We're seeing savings as much as 10 percent."
Strategic sourcing currently deals with supplies, wireless plans, printers and telecommuting, with two more functions set to roll out in the next two months. The most frequent users of the initiative are the Defense,Homeland Security, Treasury and Veterans Affairs departments, as well as GSA itself.
One of its notable success stories is the Commerce Department's use of what's known as the PrintWise campaign, Kempf said. "They worked with us early," when the department was spending $25 million annually on printing, generating 25 percent of its pages in color, 90 percent single-sided, and contracting with 350 or 400 vendors. GSA quickly helped Commerce shave off $3.5 million in costs through frugal paper purchasing, altering employee habits and abandoning desktop printers. The number of contractors, Kempf says, could be trimmed to two or three.
Dan Gordon, retiring this month as administrator of the Office of Federal Procurement Policy, told Government Executive that his office has "been pleased to see GSA focused on three key areas: listening to the user agencies to be sure that GSA is meeting their needs; negotiating good prices for the government; and increasing opportunities for small businesses. You see the results in the office supplies strategic sourcing effort: agencies looked at GSA's offerings, and concluded that GSA was offering what they needed at low prices. The result is that agencies are buying their office supplies through the GSA vehicles -- and more than 70 percent of the dollars are going to American small businesses."
GSA's reputation, Kempf said, "is on the rise and dynamic." The most recent customer loyalty survey, done by a private contractor, gave the agency an 8.5 of a possible 10. "But a better number is our sales," he said, "which rose from $54 billion to $55 billion in the past year. There's no better indicator of customer loyalty than spending more money on using us. And when we go out and talk to agencies, they're glad to see us."
Where the old GSA provided assistance or watched as agencies relied on their own resources, the new GSA is now helping with spending analysis and acquisition strategies, helping customers use the tools that "make them better users of GSA solutions," Kempf said.
True, some customers have said the agency needs to simplify and become easier to work with. So GSA employees now are commonly out in other agencies training contract officers in using GSA schedules, exploiting data and embracing such Digital Age tools as e-Buy, GSA Advantage, webinars and the site.
How does the economic downturn affect price negotiations with more eager private sector suppliers? "It puts us in an interesting place," Kempf said. "To some extent, more competition is good for the government because it can increase its effectiveness by leveraging procurement, by understanding more of what [it's] buying in order to maximize the volume discounts, the return on the procurement, and really use the effectiveness of good procurement to drive more value into each procurement and then deliver more for the mission and get more for every taxpayer dollar being spent."
Another big change at GSA acquisition, he said, is that the agency is less "coy" about getting its success stories out. "People talk about us as the best kept secret in government, and we want to erase that and get our story out. We want to share results of specific projects," Kempf said. "Then other agencies will see the opportunities and mimic them."

Are federal buyout incentives worth taking?

By Kellie Lunney

More than a few employees in and outside government dream of being paid to leave their jobs. In an ideal world, workers would take the money and run, as the Steve Miller Band advised in the 1976 song, to another job or to a well-deserved retirement. But this is not an ideal world, and when it comes to buyouts, federal employees might be better served to heed the wisdom in another 1970s song, The Gambler: "You've got to know when to hold 'em, know when to fold 'em."
The reality is, for most people, $25,000 just doesn't stretch as far as it once did. That's the maximum amount of cash -- before taxes -- available to eligible federal employees in buyouts, or voluntary separation incentive payments, as they are known in government jargon. After taxes, the amount shrinks to about $16,000 or $17,000, according to Arthur Stein, a certified financial planner with SPC Financial in Rockville, Md., who counts many federal employees among his clients.
For workers who are not planning an imminent retirement already and for those enrolled in the Federal Employees Retirement System -- which is the bulk of the government workforce -- taking a buyout can mean losing more money over time. "I don't think it's much of an incentive," says Stein. "The key question is can you afford to take a buyout?"
Stein says FERS employees who accept a buyout risk reduced Social Security benefits and losing the employer match in the Thrift Savings Plan, the government's 401(k)-style program. On the other hand, buyouts can be strong incentives for those planning to retire in any event, or for those employees covered under the Civil Service Retirement System.CSRS participants receive up to 80 percent of their annuity but are not eligible for Social Security or TSP benefits.
The federal buyout of $25,000, however, is "just not a lot of money," Stein says. Employees in the private sector who accept buyouts often can receive up to one year's salary. The 2002 Homeland Security Act allowed non-Defense agencies to seek buyout authority from the Office of Personnel Management when appropriate to manage the workforce, capping the pay out at $25,000. Congress is unlikely to increase that figure in the middle of a federal pay freeze and fights over government spending.
While the benefit of a buyout from an employee's perspective depends on individual circumstances, the advantages to agencies are clear. In recent months, agencies increasingly have turned to buyouts and early retirement packages as a way to save money and to avoid potential layoffs or furloughs in the face of impending budget cuts over the next decade. Agencies can combine the cash incentives with early-out options, which provide an early retirement with a reduced pension to eligible employees who are 50 or older and have 20 years of service, or those who have 25 years of service at any age. It's a more attractive option for agencies looking to downsize or reshape their workforce. It's also cheaper: Laying off employees still costs money because those workers are entitled to severance pay.
The appeal of buyouts to agencies has grown after the failure of the joint select committee on deficit reduction to agree on a plan to reduce spending by $1.2 trillion triggered across-the-board automatic spending cuts. Those cuts are slated to take effect in January 2013 unless Congress repeals sequestration. While there are no official figures available yet on how many employees accepted such incentives in 2011, tens of thousands were offered, and agencies en masse are sure to offer another round of buyouts heading into fiscal 2013.
In November, OPM Director John Berry sent a memo to agency human resources chiefs addressing the tools available to restructure the federal workforce, including buyouts, early outs, layoffs and reassignments. "The federal government is experiencing restructuring and downsizing in an increasing number of agencies," the memo stated. "As a result, some federal employees may ultimately find themselves in a position of having to transition to a new job."
The last time the government relied heavily on buyouts and early outs to reshape the federal workforce was during the 1990s as part of the Clinton administration's reinventing government initiative. The difference between then and now, however, is that agencies' use of the incentive in the 1990s was not budget-driven, but part of an overall initiative aimed at making government more efficient and streamlined. "In the 1990s, people felt they could leave the federal government and get a job," Stein says.
John Palguta, vice president for policy at the nonprofit Partnership for Public Service, says that while buyouts still are an effective incentive for "a decent number of employees," they are not as effective as they were during the Clinton years. Palguta and Stein say buyouts can be a good deal for federal employees who are eligible for retirement or have only a few years of service and not much invested in their pensions and TSP accounts.
Workers should weigh their options carefully when considering a buyout, observers say. "Federal employees still have very good benefits compared to most private sector employees, and they have better job security than your average private sector employee," says John Grobe, president of Federal Career Experts, an Illinois-based consulting firm.
Grobe spent more than two decades working at the Internal Revenue Service and took a buyout in 1997. "Anyone considering a buyout or leaving in general should sit back and focus on where they want to go, not where they want to be from," he says. "The decisions we make should be forward-looking."

The Youth Exodus

By Reid Wilson

Spurred by President Obama's campaign, younger voters proved a decisive, and growing, segment of the electorate in 2008. They turned out at higher levels than they had in generations, giving Democrats wins in swing states that had been off the table for a generation or more.

This year, Democrats are again counting on those younger voters to help Obama win a second term. But a new study from a Tufts University political scientist suggests the Obama campaign is going to have to work hard to prevent those younger voters from disappearing.

The study, from Tufts' Center for Information and Research on Civic Learning and Engagement, shows more than 48,000 young adults between the ages of 18-25 dropped off voter rolls in North Carolina. More than 80 percent -- 39,000 -- of those younger voters were registered Democrats. That's devastating for a state Obama won by just 14,000 votes.
In Nevada, more than 50,000 18-24 year-olds have dropped off voter rolls since 2008, the study found. Democrats still hold a hefty voter registration advantage in the Silver State, but the drop-off has been steeper among Democratic voters than among Republicans.
"The state-specific data for young voters from both of these battleground states shows what can only be described as a profound loss of the registration advantage Democrats held during the 2008 election cycle," Peter Levine, the Center's director, said in a statement. "That decline is a warning sign for Barack Obama, since more than two-thirds of young voters supported the Obama/Biden ticket in 2008."
Turning out younger voters is going to be a key part of Obama's re-election campaign. In a meeting with reporters ealier this month, Obama manager Jim Messina said the campaign would aim to register and turn out millions of younger voters through Operation Vote, a project spearheaded inside Obama's Chicago headquarters. Messina estimated there are 8 million voters who have turned 18 since Obama won election.
"Their brothers and sisters started this whole thing, and they're going to finish it," Messina said.
But getting those voters out is more difficult than it may seem. The DNC pledged to spend $30 million to turn out these and other irregular voters in 2010, an effort that yielded decidedly mixed results. Turnout among younger voters fell off a cliff in 2010; voters between 18-29 made up 12 percent of the electorate, far below the 18 percent they made up in 2008 (Turnout among black and Hispanic voters was down measurably as well).
Early test runs in states like North Carolina, where Charlotte Mayor Anthony Foxx won re-election by a wide margin, and in pro-labor efforts in Wisconsin and Ohio have Obama's team confident they can rebuild the coalition that won the 2008 election. Four years ago, those younger irregular voters were the icing on the cake, boosting Obama's already-winning margin. This time around, older voters are more skeptical of Obama, and those younger voters may prove the difference between winning and losing.

Is It Time For A New Declaration of Independence?

by Joe Wolverton, II

Recently there has been much discussion of the eradication of the panoply of fundamental principles of liberty by the Congress and attempts to convert the President into a totalitarian dictator with historic powers to apprehend and indefinitely detain American citizens. This author has questioned whether the permission for the absolute abuse of power soon to be codified as part of the National Defense Authorization Act is not a greater act of tyranny than any perpetrated by George III that precipitated the waging of America’s war for independence.
The “long train of abuses” of which Britain’s crown was accused are enumerated in the Declaration of Independence. This historic indictment of King George III was penned principally by Thomas Jeffersonand was laid out in a manner both methodical and lyrical. It stood on the rooftops and decried for the all the world to hear the despotic measures levied against the American colonies by the government ofGreat Britain.
As our own modern government passes one after the other laws eroding the bedrock of freedom upon which our Republic was built after the successful waging of the war against English oppression, the specific examples of the abuse of power cited in the Declaration of Independence may prove prophetic and may help to enlighten 21st-century Americans and embolden them in their efforts to restore liberty and the constitutional boundaries of government.
To this end, several organizations have been founded that seek to cause the drafting of a second document that would declare our independence from a federal authority that has grown unwieldy, unaccountable, and unchecked in its exercise of unconstitutional power.
One such group, for example, states on its website that “the actions of our government have created a moral and Constitutional crisis that demands a response from the people.”
Another party echoes that sentiment, proclaiming that present-day Americans “have patiently suffered mounting government outrages against us — lies, corruption, legal plunder and terror. We have waited in despair for reforms and redress, but the outrages have only gotten worse. We can now wait no longer.
The fundamental rights of ‘We the People’ must be restored now.”
What of these claims? That the federal government has behaved unconstitutionally is beyond debate. Equally, few would sensibly argue that the borders of freedom have not been invaded repeatedly by bureaucratic regulations masquerading as laws.
But the threshold question when one ponders the necessity of a second Declaration of Independence is, have these actions risen to a level that our Founding Fathers believed justified the dissolution of “the political bands” that bound them to the government of Great Britain?
To illuminate the matter a bit, one might consider the following three charges against George III contained in the original Declaration of Independence and the accompanying contemporary examples of similarly suspect suppressions of America’s God-given liberty as committed by her own leaders.
1. “He has refused to Assent to Laws”:
King George III was hereby accused of ignoring the constitution of Great Britain by taking from the American colonists the right to be represented in the legislature and by imposing his autocratic will on all who would not accede to the decrees made in the name of controlling the empire. Rights afforded all Englishmen since the days of the Magna Carta were summarily stripped from Americans and their ability to nullify such actions through the appeal to local governments was denied by the abolition of those colonial councils.
In our own day, we have witnessed an unsettling, albeit unofficial repeal of the protections mandated by the Fourth Amendment. Witness these words from a judge on the bench of the Indiana Supreme Court in a case regarding the right of law enforcement to enter a home without a warrant:
We believe … a right to resist an unlawful police entry into a home is against public policy. We also find that allowing resistance unnecessarily escalates the level of violence and therefore the risk of injuries to all parties involved without preventing the arrest.
Also, the cases where agents of the TSA have illegally searched and humiliated airline passengers are published on a near daily basis. For example, the story of a young woman
who along with her child was sexually assaulted by TSA staff after refusing to go through a naked body scanner, has gone viral on the Internet after it was picked up by the Drudge Report, a website leading the charge in the backlash against airport oppression at the hands of the TSA that has now led to the world’s largest pilot’s association boycotting the use of naked body scanners.
Such displays of inhumanity and totalitarianism were not unknown to our colonial ancestors. They toiled for years under the yoke of government oppression of liberty before finally throwing it off and declaring their independence from the oppressors.
2. “He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people and eat out their substance.”
So prevalent in today’s society are examples of this complaint taken from Jefferson’s indictment of the crown that it almost needs no recitation of modern re-enactments.
Read the story of Mike and Chantell Sackett who were forbidden by the Environmental Protection Agency from building their dream home on their own lot because it was suspected of being a federally protected wetland.
Representatives of the EPA informed the Sackets that every day they failed to conform to the mandates of the order they would be fined $32,500. Furthermore, applicable EPA regulations prohibited the family from challenging the agency’s compliance order in court.
And, what of the proliferation of regulations designed to ensure the safety of the food supply? The federal Food and Drug Administration has assumed the right to dictate to Americans what they may and may not legally eat and drink. FDA code states that Americans are only “allowed” to eat or drink those substances granted prior approval by the agency. The right to consume any food not declared “safe” by the FDA has been abolished and violations of the regulations will be punished by the imposition of severe fines.
3. “depriving us in many cases of the benefits of Trial by Jury”:
Both houses of the Congress of the United States recently passed the aforementioned National Defense Authorization Act (NDAA), a bill that gives the President the absolute power to arrest and detain citizens of the United States without their being informed of any criminal charges, without a trial on the merits of those charges, and without a scintilla of the due process safeguards protected by the Constitution of the United States.
Further, it unlawfully affords the President the absolute and unquestionable authority to deploy the armed forces of the United States to apprehend and to indefinitely detain those suspected of threatening the security of the “homeland.”
This last provision of the NDAA smacks of another Declaration-worthy abuse, namely that of “waging war against us” and the use of the military to “complete the works of death, desolation, and tyranny.”
The preceding are a few of the scores of examples that could be provided of ways in which our government has ceased being the servant of the people and has instead become their cruel master. In the words of Thomas Jefferson: “Our repeated Petitions have been answered only by repeated injury. A Prince, whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free people.”

Insane Levels of Leverage by the Too Big to Fail Banks – Not Deadbeat Borrowers – Caused the Financial Crisis

The Cause of the Financial Crisis: Fraudulent Creation of 3,000 Times Leverage On House Prices by the Big Banks

We’ve repeatedly noted that fraud by the big banks – more than anything done by the little guy – caused the financial crisis.
And we’ve repeatedly noted that excessive leverage helped cause the Great Depression and the current crisis.
Reader McFid – who has been a breach of fiduciary duty expert since 2003 – sent me the following article (edited slightly) which provides a new angle on both themes.
This article disabuses the notion that “deadbeat borrowers” caused the financial crisis. And offers an answer to the question that still lurks in the mind of every American; whether black, white, native American, asian or Hispanic; whether educated or not; whether English, Spanish, or Mandarin speaking.
Taking a big step back, and looking at it like a business process: “How could so many Americans ALL have made the same ill-advised mortgage borrowing decisions?” The answer lies in what did they ALL have in common…

It was all about leverage
What is leverage?Leverage is a way to control more of something when you can’t pay for it in full. We do it all the time; when we buy a car — except few of us actually buy the car, we finance it or lease it. We also do it when we buy a house — except almost no one pays cash for a house, we finance the purchase with a loan; it’s secured by a mortgage on the property.
Example of 5 times leverage:
When we buy a house and put 20% down, we buy a house worth 5 times as much as the down payment. If we put $100 thousand down we can buy a house worth $500 thousand. $500 thousand divided by the $100 thousand we put down equals 5 times leverage.
100 times leverage:
By the same calculation ZERO down mortgages were suffice it to say, 100 times leverage, it’s actually more but that’s a discussion for later. Repeat after me, no money down mortgages equal 100 times leverage.

Who controlled and approved EVERY leverage decision?

Leverage Approval #1 by:
TBTF Banks (ultimately) approved every one of these loans and bundled thousands of others like them initially into mortgage backed securities (MBS).
Leverage Approval #2 by: [the key, little known fact]
In the past, TBTF Banks used to sell them off (remember that word) to investors like mutual funds, insurance companies and pension plans. In the 2000′s TBTF banks issued almost $17 Trillion of MBS, but did not sell all of them OFF to 3rd parties. They held massive amounts of them to turbo-juice their bonus checks in a 2nd set of books (legally) in OFF balance sheet, special purpose entities. As a refresher Enron did the same type of thing. In the decades, make that for over 60 years before the 2000′s TBTF banks’ leverage was around 12 times; however when they concealed trillions worth of MBS — their leverage increased to over 30 times. Remember 5 times leverage? It was based on how much the house was worth right? And when TBTF banks add more leverage on top of the borrower’s leverage we don’t just add it — we ______? You guessed it — we multiply it.
3,000 times leverage on house prices:
100 times leverage on the borrowers side times 30 times leverage on the TBTF banks’ side is 3,000 times leverage ON house prices.
Lather, rinse and repeat — 100 times 30 equals 3,000 times leverage. Lather, rinse and repeat.
100 times 30 equals 3,000 times leverage.
Remember what I first told you about leverage?
Leverage lets you (or TBTF bank) control something that you can’t fully pay for. Well the TBTF banks’ way of financing them in the Asset Backed Commercial Paper market began to dry up in August 2008, so they couldn’t pay for these assets. This is the direct cause (but not the root) for the Fed and US Treasury to (have to) step in and pay CASH for them in the bailouts of 2008, and again in 2009, and again in 2010 and yet again 2011 via the Fed’s QE trifecta to the tune of over $20 Trillion dollars.
The interactive portion is about to begin:
Is it any surprise that the assets backing the commercial paper were ________? You may have guessed it — MBS.
Is it any surprise that the Fed created a new category to track ABCP in_______? You would be correct if you guessed 2006; just two swift months after Ben Bernanke was appointed chairman of the Federal Reserve by President Bush.
Is it just a random coincidence that almost $17 Trillion of Mortgage Securitieswere created by TBTF banks from 2001 to 2008?
What was that word I asked you to remember?
Oh, right it was OFF.
When TBTF banks’ CEOs, executives or prop traders got their year end bonus check did we hear reports that anyone said it was OFF (or that it was too much)? Nope.

Jim Rogers isn't too optimistic about stock markets in 2012, sees longer term systemic collapse

Author: BI-ME staff

Legendary global investor and chairman of Singapore-based Rogers Holdings, Jim Rogers has been talking about his 2012 predictions.
In a nutshell, he is neither too optimistic about the stock market for 2012 nor about what’s going to happen in the world in the next two or three years.
Speaking to Australia Financial News Network (AFNN) December 23, Rogers said: "The problems are going to continue to get worse until someone solves the basic underlying problem of too much spending and too much debt."
He sees the biggest risk to global growth in 2012 as "too much debt...too much consumption...and the central bank in the US which keeps printing money."
Rogers, seen as one of the world's most successful investors, highlighted the scale of the problem to his host: The problem is that the measures America needs [to solve the crisis] would cause huge pain for a while, but, if we don’t take our pain now, and we wait until the market forces the pain on us, then it’s going to be systemic collapse."
Refusing to get drawn into US politics, Rogers nevertheless provided a tacit endorsement: "Gary Johnson and Ron Paul seem to understand the problems that are facing America," he said.
So what is his prediction for stock markets in 2012?
"I am short stocks around the world.  I’m short American technology stocks, I’m short emerging market stocks, and I’m short European stocks," Rogers told AFNN.
"I’m not optimistic for the most part about stock markets.  I don’t own many stocks anywhere in the world.  The only offset for the caveat for me is that there is an election in the US, and in France, so wherever there are elections coming, and governments spend spend spend, and throw money out the window to buy votes, so some people are going to be much better off in 2012," he added.
Speaking to the BBC's Martin Webber December 26, Rogers reiterated his opposition to printing money as a solution to too much spending and too much debt: " You can debase currency, and history is replete with governments that have debased their own currency and ruined their own currency for hundreds of - well for thousands of years."
"You can do that and everything is okay for a while, but eventually you have inflation, you have high interest rates, you have currency turmoil, you have people no longer trusting each other to invest with each other, and then you have the end of the system, and we have chaos, and it starts over again," he added.
Social unrest, civil war and...a huge mess
Asked if it was right that government owned institutions [nationalized banks] were effectively buying government bonds, the investment guru said: "It is a recipe for disaster... It's a Ponzi scheme, it's a fraud, it's a sham and we are all going to have to - we are already starting to pay for it."
"Eventually one of two things has to happen. We have to get together now and ring-fence the problem and figure out how we are going to survive and start over. Or, in a year or two or three, the market is going to say, no more money, we won't put up any more money. And then the whole system collapses, then you have gigantic chaos, social unrest, governments failing, civil war - huge mess," Rogers predicted.
It's not the euro
Going against mainstream investment thinking, Rogers denied this was a 'euro crisis.'
"It's not the euro. The world needs the euro or something like it to compete with the US dollar. We need another sound currency. The eurozone as a whole is not a big debtor nation. The eurozone has some debtor problems, some debtor nations, debtor states, but it's not a big, big problem. The euro is good for the world. It needs to work," he told the BBC.
But is it a euro crisis?
Rogers, nonetheless is having "serious questions" on what to do about the Euro.  "It certainly won’t continue in its current form in 10 years," he told AFNN.
Monetary unions work by automatic transfers from productive regions to less productive ones. This is true in the US as it is true in every single nation with regional variations. No single currency has ever survived without some form of debt 'mutualization'.

Only Germany can reverse the dynamic of a European decay,” billionaire investor George Soros wrote in August in Handelsblatt, the Dusseldorf-based newspaper. “Germany and other countries with an AAA rating have to approve some sort of Eurobond regime. Otherwise, the euro will implode.”
The eurozone, in its current form, is beyond repair. The euro was an idealistic idea dreamed up by politicians. The idea was flawed and could not have worked without swift fiscal and political union. Even Jacques Delors, the architect of the euro, accepted this fact in a recent interview with the Telegraph.
Bankers keep their Lamborghinis
Rogers also expressed limited sympathy for the Occupy Wall Street movement.
"I do have sympathy with the fact that they are saying, we shouldn't have bailed out the banks. I would have let all those banks go bankrupt, as you've heard me say before, but beyond that, I don't have too much sympathy with them" he told the BBC's Webber.
"But beyond that I don't have too much sympathy with them. You know, we all want a free lunch. I would like somebody to pay my bills too. I would like somebody to take care of me the rest of my life too," Rogers added before launching into a rant:
"Listen it's outrageous that the government took the money and saved the banks. Absolutely, they are right about that. It's outrageous, totally outrageous that governments went and bailed out some banker so they could keep their Lamborghinis and their summerhouses".
Occupy Wall Street has made it hard to ignore that the proportion of wealth amassed by a small elite in the United States has increased dramatically over the last three decades. Consider the following comparison.
Between 1975 and 2006, average family income grew 32.3% in the U.S., whereas it only grew 27.1% in France. When you remove the top 1% of earners from the calculation, however, the increase drops nearly by half in the U.S. (to 17.9%), and by less than one point in France (to 26.4%).
This means, incidentally, that the income of the American 1% grew by 1447.9% over that period—80 times more than the rest of the population. Few Americans realize or approve that the top 20% of earners hold over 80% of the nation’s wealth, while the bottom 40% hold only 0.3% of it.
Where the future is
"My children speak perfect Mandarin like a native… their future is in Asia, just as my future is in Asia.  Asia’s going to suffer… don’t get me wrong, when the largest two economies in the world, Europe and the US have problems, everybody’s going to suffer.  Asia will suffer less than the developed world," Rogers told AFNN.
“If I were buying anything I’d be buying agricultural commodities,” he says.
“Going forward we’re going to have huge shortages of everything – including farmers – I think ag will be a great place for the next 10-20 years,” Rogers told CNBC yesterday.
“Yale did a study recently showing that investors made 300% more by putting money in commodities themselves rather than commodity stocks – that is unless you’re a great stock picker.”
About Jim Rogers
Jim Rogers has spent a career being one step ahead of mainstream investment thinking. Amongst his many accomplishments, Rogers was co-founder with George Soros of Quantum Fund. During his ten years with the fund, the portfolio gained more than 4,000%, while the S&P rose less than 50%.
Rogers retired from Quantum in 1980 and became a guest professor of finance at Columbia University Graduate School of Business and in 1989 and 1990, the moderator of The Dreyfus Roundtable, The Profit Motive with Jim Rogers, and a media commentator worldwide.
But ask Jim Rogers about his most important venture and he will answer without hesitation: fatherhood.
A Gift to My Children: A Father's Lessons for Life and Investing (RandomHouse, 85 pages, US$16) is Jim Rogers' love letter to his daughters, Happy and Baby Bee. Reminiscent of The Autobiography of Benjamin Franklin, which was also written by a father to his child, Rogers' book is full of no-nonsense, unsentimental fatherly advice.
Among Jim Rogers' best advice:
-- Conduct your own research and trust your own judgment.
-- Focus on what you yourself love.
-- Be persistent.
-- Broaden your horizons and see as much of the world as you can.
-- The most important thing you can learn is how to think and question everything you hear.
-- Study and learn from history.
-- Master more than one language - and make sure one of them is Mandarin.
-- Don't panic.
-- Take care of yourself and don't neglect the sunscreen.
-- Remember that boys need girls more than girls need boys.
Underscoring his convictions that future prosperity will come from China, Rogers' two young children speak Mandarin.

Saving the New Year

Megan McArdle

In between the happiness of Christmas and the promise of the New Year, permit me to introduce a sour note, a hint of a scold.  If you're like, well, almost everybody, you're not saving enough.  15% of each paycheck into the 401(k) is the bare minimum you can get away with, not some aspirational level you can maybe hope to hit someday when you don't have all these problems.  

I mean, obviously if one out of two workers in your household just lost their job, or has been stricken with some horrid cancer requiring all sorts of ancillary expenses, then it's okay to cut back on the retirement savings for a bit. But let's be honest: that doesn't describe most of us in those years when we don't save enough.

What describes most of those years when we aren't saving is normal life.  We moved.  We got married or had kids.  The kids required entirely expected things like food, clothes, and schooling.  Work was hard and we felt we wanted a really nice vacation.  Friends and family went through the same normal life stages that we were, requesting that we travel and bring gifts to the happy events.

These things are not an excuse to stop saving, for all that I have used these excuses myself from time (and regretted it later, at length).  The recession should have driven home some hard facts, but the nation's 3.5% personal savings rate indicates that these lessons haven't quite sunk in, so let me elaborate some of them.

1.  You cannot count on high asset growth rates to bail out a low savings rate.  In the 1990s, we believed that we could guarantee something like an 8% (average) annual return by pumping our money into the stock market and leaving it there.  The problem is, this may no longer be true. For the last few decades, there have been a number of factors pushing up the price of stocks:

a.  Low interest rates on bonds prompted investors to look for higher returns elsewhere

b.  People started believing that over the long term, equities offered a low-risk opportunity for higher returns.  Unfortunately in finance, many things are only true if no one believes they are true.  If everyone thinks that equities are low risk, they will bid away the "equity premium"--which is to say, the discount that buyers expected for assuming greater risk.  At which point, stocks no longer offer a low-risk excess return.

c.  Baby boomers who had undersaved started pouring money into the stock market in an attempt to make up for their lack of savings.

However, stock prices cannot indefinitely grow faster than corporate profits; eventually, you run out of greater fools.  And future corporate profits are going to be constrained by slower growth in the workforce as baby boomers retire, and by the taxes needed to pay for all the bailouts and stimulus we just did.  Unless there's a sudden boom in productivity--entirely possible, but entirely impossible to predict, or count on--there's every reason to expect that stock markets performance will continue to grow more slowly, and be more volatile, than we got used to.

We saw a similar cycle in houses.  A mortgage used to be a form of forced saving that gave you an (almost) free place to live in retirement and a little bit of value when you sold the house.  We didn't realize that a number of developments had been pushing up the price of homes:

a.  The development of the 30-year self-amortizing mortgage, which enabled people to pay a much higher price for a given house than they would have in the era of 5-year balloon mortgages.

b.  The baby boom, which increased demand for houses as they aged

c.  The run-up in inflation in the 1970s, which gave (relatively inflation-proof) real estate a boost--and then the subsequent decline in inflation (and interest rates), which gave people the illusion of being able to afford more house because the up-front payments were lower.

d.  More widely available credit, which let more people take on bigger loans

e.  The increasing value of (and competition for) a small number of slots at selective colleges, which put a rising premium on houses in good school districts

These trends gave people the illusion that houses were, in some fundamental way, an "excellent investment".  But they're risky in all sorts of ways: neighborhoods can get worse rather than better, local economies can stagnate, the style of your home can go out of fashion.  

Moreover, like the stock market, houses are still pretty expensive by historical standards, as this chart from Barry Ritholtz shows:

2011-Case-SHiller-updated (2).png
If you can't count on a steep run-up in asset prices to build up your retirement savings, that leaves you with one alternative: save a much bigger chunk of your income.

2.  People are still living longer in retirement.  The increases in life expectancy post-retirement aren't as dramatic as they were in the antibiotic era, but they're still creeping up.  That means that you have to take smaller sums out of the kitty each year, so that what you have left will be enough to live on.

3.  Government finances are extremely strained.  The Baby Boomers are about to dump an even heavier load on them.  That means yes, higher taxes--but it also means that despite their formidable voting power, retirements financed mostly on the public dime are very likely to get leaner.  Especially because birthrates are falling everywhere--which means that the supply of young, strong-backed immigrants to man the nursing homes will not be as ample as it is now.

4.  Employers are not kind to older workers.  I wish this weren't so, but I'm very much afraid it is.  People who say "I won't be able to retire" may not be given a choice in the matter.  Like most modern economies, we've cut a societal deal where you're underpaid in your twenties, and overpaid in your fifties and sixties . . . and as a result, it's very tempting to fire those overpaid oldsters when times get tough.

And once you're forced out in your fifties, it is very, very hard to find a new job of any sort, much less one that pays what you're used to.  Even if you're willing to take a big paycut to work a less prestigious job, employers are reluctant to hire the overqualified--particularly since 99 times out of 100 the overqualified 55-year old simply does not have the stamina or the life flexibility of the single twenty-somethings who are applying for the same job.  And physically, you may not be able to do many of the low rent jobs that paid your way through college: by the time you're sixty, you're quite likely to have back, joint, or skeletal problems that make it hard to stand on your feet all day or lift heavy objects.

The upshot is that you can no longer plan on "making up" anemic retirement contributions later.  You have to start making them--right now.

5.  Emergencies seem to be lasting longer than they used to.  Before the 1990s, unemployment used to crater sharply during recessions, then recover quickly along with demand.  We had our first "jobless recovery" under Clinton, and now we've got two more under our belt.  That means that the old advice of three to six months worth of emergency funds are no longer enough. 8 months to 1 year is more realistic.

When I write these posts, I generally get two types of responses:  people who smugly tell me that they are saving 30% or more of their income (way to go!) and people who tell me that it is simply not possible for them to save t15-20% of their income. 

You know better than I, of course.  But most of the research on consumer finance shows the same thing: people can usually save a lot more if they make saving a priority.  Most people don't.  Savings is an afterthought--it's the residual of whatever hasn't been spent on clothes, groceries, cars, dinners out, school trips, travel soccer team, college tuition, vacation, etc.  Unsurprisingly, there's frequently no residual.  However, if people decide how much to save, and then budget their consumption out of what is left, they suddenly realize that they could drive an uglier car, take the kids out of dance class, live with the kitchen the way it is, stay home for a week in August instead of going to Disneyworld, and so forth.  And those people are not, as you might think prospectively, made desperately unhappy by these sacrifices.  Savers are actually happier than the general population--in part, one assumes, because they're less worried.

Many people tell me they can't save because children are so expensive.  Children are indeed very expensive.  But they're getting more expensive every year, and that's because we're spending more money on them.  We're spending more money on houses to get them into good school districts, on activities so that they have every chance to get into Harvard (or the NHL), on clothes and cell phones and video game consoles and the list is endless, plus then there's that tuition to Harvard or some sort of even-more-expensive smaller private college.

These expenses are optional, not mandatory.  And before you tell me about how unhappy your child will be if you do not buy him all of these necessities, think about how unhappy he's going to be if you have to move in with him.  Better yet, volunteer for some outreach to the bankrupt seniors whose kids wouldn't let themmove in, and see how their lives are going.

This is not to criticize.  Saving is hard, which is why, just like you, we're trying to figure out how to hit even more ambitious savings goals in the New Year.  And consumption is fun.  That's why most people struggle to save very much.

But a lot of people are going along on autopilot; they're saving 5% because it seemed safe when they were 25 and so what if they're now 37?  They look at the neighbors spending a fortune on cars and school activities and figure that if it's safe for them, it must be safe for me too.  But this is the opposite of the truth.  If your neighbors aren't saving much (and trust me, they aren't), that means a less productive economy in the future--and more people trying to claim a very limited supply of public funds. You don't want to be among them.

It helps to remember that the object is not to turn yourself into a miser; it's to make your spending patterns sustainable.  Your splurges will actually be a lot more fun if you know that they aren't putting you at risk of bankruptcy, foreclosure or a retirement in poverty.

If you're not saving enough--and you know who you are--don't decide today that you're going to save 15%, and then forget about it tomorrow when you realize how daunting a task that will be.  Instead, try this: divert an extra 5% of your income into a 401(k), IRA, or other tax-advantaged savings plan.  If your 401(k) is stuffed but you don't have much of an emergency fund--or if, for some reason, you don't qualify for tax-advantaged savings--have 7% of every paycheck diverted to a bank account which isn't linked to your other accounts.  It's a slow week at work, the perfect time to fuss with HR paperwork.

The important thing is to pay yourself first.  Savings should be the first thing you do, not the last.  After you've saved, then you budget your consumption. I won't tell you what to cut, because when you confront your new, slightly leaner budget, you'll be perfectly able to calculate what's no longer worth the money to you.  I think you'll be pleasantly surprised to find that after a few weeks or a few months of initial pinch, you won't remember that you miss the money much.

If at the end of the year, you still aren't saving enough, then you can do the same thing again--pull another 5-7% out of every paycheck.  Within a few years, you'll be at a healthy level of savings, without excessive fiscal pain.

But the most important thing is this: don't start looking for reasons you can't.  If you hunt hard enough, you'll find them.  Unfortunately, those reasons aren't going to do a damn thing to pay your house payment if you get laid off, or keep you in prescription drugs when you retire.

Is it too late to save the Golden State?

Roger Gitlin 

According to the National Conference of State Legislatures, some 40,000 new laws take effect across the 50 States effective January 1, 2012.  California leads the nation in passing arguably the most absurd of these laws. The Assembly, State Senate and Governor Jerry Brown defy comprehension.

Among the thousands of California laws passed in 2011, California leads the pack of States with its composite head-in-the-toilet mentality. Here are a few of the inane laws which specifically address lesbian, gay, bisexual, and transgender Californians. Disabled are also included in this group, though I am not sure why those who are physically challenged are lumped into a sexual classification. 
  • Effective January 1, there will be new curricula in our schools. K-12 children will learn about all the positive accomplishments contributed by lesbians, homosexuals, bisexual, transgender, and disabled individuals in Social Science classes up and down the State.  The law bans teaching materials that reflect poorly on the above noted individuals. Never mind, teaching the truth; it is better to inculcate students with political dogma.  What ever happened to teaching the Revolutionary, Civil, and World Wars I and II? 
  • California’s growing food stamp program will renamed Cal-Fresh. I am not certain if a new bureaucracy will be created adding to the list of 571 California State agencies and commissions many of which are duplicative.
    • Beer with added caffeine will be banded from California stores, effective the New Year.
    • A minor who is 12 years of age will able to consent to medical care related to a sexually transmitted disease. No parental consent and knowledge required. Let’s remove the parents from the picture. The State will have ultimate jurisdiction over the child’s sexual behavior.
    • California continues to push the envelope and welcomes illegal aliens to the Golden State. Effective January 1, unlicensed and uninsured drivers who are snagged in sobriety check points will no longer have their vehicles impounded. Last year, thousands of illegally licensed drivers who also happen to be illegal aliens, lost their vehicles to impound. Law enforcement will be prohibited from impounding vehicles of drivers who operate vehicles without a license, if that is their only offense. The double standard is alive and well in California. 
    • While Alabama, Louisiana, Tennessee, South Carolina, and Georgia will implement the highly successful E-Verify program to ascertain one’s social security number to verify employment eligibility, California bucks the tide, thumbs its nose at the law, and, effective January 1, prohibits private employers in the State from utilizing the E-Verify system. This side stepping of the law impacts California workers who follow the rules and is a major reason the State’s unemployment rate is the one of the highest in the nation, exceeding 12%. 
    • Minors are not permitted to use tanning booths without parents’ permission. Interestingly, a minor as young as 12 in California can have an abortion without knowledge or consent of the parent but the child needs a note from the parent to use a tanning booth. Doesn’t it make you ponder who sits up at night and makes these laws? Do these lawmakers have children?
    I am curious to know, especially from the Left side of the aisle how progressives feel about these new laws. 
    In the meantime, California lawmakers and Governor Jerry Brown are looking to close yet another $2 billion gap in the budget by raising the sales tax again to near 10%, and levying yet additional taxes on California millionaires with out a thought of making the slightest effort to cut spending. Things that make you go Hmmm.
    California is an amazing State. Amazingly stupid! It may indeed be too late to save her.

Extreme Predictions 2012

 Yves Smith

I tend to avoid the year end retrospective/forecast blizzard, although some of the more creative compilations can be fun.
However, some 2012 forecasts crossed my screen, and two were such striking outliers that I thought I’d call them to your attention and seeing if readers have come across other Extreme Predictions for the new year (aside from the Mayan end of the world sort).
The first come from Matt Yglesias, “Happy Days Are Here Again!
Don’t believe the naysayers: An economic recovery is right around the corner.” No, this is not a parody, this is a real article. And whoever came up with the title at Slate has a subversive sense of humor. The song, “Happy Days are Here Again,” was an end-of-Roaring 20s confection (published and first recorded in 1929), and made famous in a 1930s movie and as the theme song for FDR’s 1932 presidential campaign. Needless to say, happy days (at least on the material front) proved to be far more remote than that standard promised.
Yglesias’s argument is (basically) that with interest rates super low, consumers will start “investing” again in cars, durable goods and housing. He relies on the idea of the natural rate of interest of Knut Wicksell. Yglesias claims it is “so fundamental that people sometimes forget to return to it.” Huh? This is the old loanable funds theory; it has been debunked repeatedly, recently and rather decisively debunked in an critically important BIS paper earlier this year by Claudio Borio (who with William White of the BIS called the international housing bubble in 2003) and Piti Disyatat. This paper makes an key conceptual contribution to economics yet does not seem to have gotten the attention it deserves (certainly not in the econoblogsophere, no doubt because it is too threatening to orthodox ideas).
To give you an idea of how far Yglesias has to stretch to make his case, his argument that the US has a housing shortage refers back to a recent Slate article of his own, which in turn refers back to another article of his that argues that we merely had a bubble in home prices, not home construction.
He ignores the overhang of unsold properties and shadow inventory (we have a post from Michael Olenick on that tomorrow that suggests it may be much larger than most people think), or what Calculated Risk calls “the distressing gap.”
Per CR:
Following the housing bubble and bust, the “distressing gap” appeared mostly because of distressed sales. The flood of distressed sales has kept existing home sales elevated, and depressed new home sales since builders can’t compete with the low prices of all the foreclosed properties.
I expect this gap to eventually close once the number of distressed sales starts to decline.
Let’s put this more simply: Japan has had 20 years of super low interest rates, and banks competing so desperately to lend to corporations that credit spreads are razor thin. People and businesses are not going to borrow and invest if they are not confident of their future. With short job tenures, over 30 years of stagnant real worker wages (and falling in the most recent 12 months), exactly what is there for the bulk of the population to be optimistic about?
We’ve had a very successful three decade effort to break the bargaining power of labor, and covered that up with rising consumer debt levels. That paradigm is over, but no one in authority seems willing to go back to an economic model where rising worker wages drive economic growth. Until we get policies that address that issue, I don’t see a reason to be expect robust growth levels.
On the other end of the spectrum, Max Gardener, a bankruptcy lawyer better known as the informal leader of a large group of effective foreclosure defense attorneys, has published his predictions for 2012. He manages to be more pessimistic than I am (well actually, I find his forecast for unemployment a bit cheerier than mine).
Admittedly, his ones on housing are realistic, which makes them sobering, For instance:
Home Values: Home values will continue to decline during 2012 and I do not expect the bottom of the real estate market to be reached until the 3rd Quarter of 2014. My best guess for any type of sustained recovery in the housing market is no sooner than the 3rd Quarter of 2021. The number of homes in foreclosure will double or triple from 2011 levels and home values will drop by another 15% to 20% by the end of year. I do not expect to see any real recovery in the housing market until at least 2022. A massive number of bank-owned homes (Real Estate Owned or REO property) will be turned into rental properties by the banks and/or mortgage servicers and many more foreclosed on homes will be sold in bulk sales to investors for the same purpose.
And we have this:
Nuclear Nightmares: Early in the New Year, Israel, with technical and logistical support from the United States, will launch a major military strike on all Iranian nuclear facilities and Iran will respond by deploying massive world-wide terrorist attacks and will engage in efforts to cut off all sea routes for the shipment of oil from the Gulf Region. The uncertainty of all out war with US troops on the ground will be present throughout the year and active US military intervention is at least a 50-50 bet.

Dioxin level guideline is no-brainer

No one would sit down and willingly have a bowl of Agent Orange for breakfast.
The defoliant used in the Vietnam War is one example of a product containing dioxins, chemicals that can cause cancer and are found in meat, seafood and dairy products.
We know they’re terrible for us. And now the Environmental Protection Agency is recommending setting a safety standard for daily exposure limits for dioxins. The proposed standard has no regulatory power, but agencies could use the guidelines to push for change.
It’s difficult to argue against eating fewer cancer-causing chemicals.
Yet that is what farmers and those in the food industry are saying, as they push back against the EPA, saying the standard could hurt business.
We should be sympathetic to business owners who might struggle if they can’t process cheap, unhealthy food?
What’s important here? The bottom line or the health of a nation?
Change is challenging for anyone. But people are doing it when the nation’s health is at stake. Recently, fast-food chains decided to take out the meats treated with “pink slime” ammonia product, making their foods healthier. If that industry, which has made a living on producing inexpensive food, can do it, so can others. And no doubt ranchers, farmers, dairies and more will have to make significant changes if the EPA standard is made into a regulation. But we shouldn’t reject knowledge and scientific study because it’s easy to just keep doing what we’re doing.
Would you willingly serve your family poison? That’s what some in the industry are suggesting we do.
We say: No. We want healthy food, healthy families and healthy business.
And we’re confident that our ranchers, farmers and others can make better food in better ways. This could be an opportunity to innovate and develop better products.
And we must protect people who aren’t buying local, organic food. For those of us relying on convenience foods and less-expensive options, we must make sure those choices are as healthy as possible.
Sometimes, we all need a push to do what’s right.

Canada Soars

A.M. Mora y Leon

As America's economy struggles, a funny thing happened on the way to the next-door neighbor nation that has up until now always been considered a dogleg off our economy. Canada's economy is soaring.
It's that they did anything particularly unusual. And it's definitely not that they are what economists casually dismiss as "a commodity economy" experiencing a temporary boom.
In reality, Canada has genuinely gone its own way, getting itself out from the shadow of the US economic picture at just the right time. The government of conservative Prime Minister Stephen Harper has embraced free markets, not just one or two things, but a whole banquet of all the things that make economies grow - smaller government, free trade, one tax cut after another, and energy development and security. Net result? Same as what Chile got when it tried the same kinds of reforms - a booming economy.
IBD wonders what the heck the U.S. would look like if it just followed the tax-cutting, government slashing model that has made even the dullest nation turn into the Canadian puma state. What really would it look like?