Today's Grim Economic News

How bad is it getting with the economy effectively shut down?

The Detroit News: Uneasy about coronavirus, record number of Michiganians face unemployment

Across the nation, a record 6.6 million people filed jobless claims last week, according to the Labor Department, double that of the record set the previous week.

Oh, and our governor wants to extend the shut down by another 70 days. I'

So our national unemployment rate which was a Goldilocks 3.5% prior to the Wuhan Flu hitting, is going past the Great Obama Recession level and heading for levels not seen since the Great Depression and is already calculated to be past the unemployment numbers for 1930 and 1931. We just hit an estimated 17% Unemployment and rising estimated to hit 32%, which blows past the Great Depression's unemployment peak of 24.9% under the New Deal in 1933.

This is what happens when you shut everything down.

Unless China or Iran get all sorts of frisky, we're also not going to be sucking the unemployed up into the armed forces, and given the nature and needs of today's armed forces, unlike in World War 2, we most likely wouldn't do that even if they did get really, really, frisky.

Two, our deficit ratio is hitting World War 2 levels without fighting a world war. Our debt level is already past World War 2 levels and the levels in the Cold War.

Three, the national debt is likely to hit $29 trillion. To put that in perspective, that's $94,722 per man, woman, and child in the United States. If you divide it by the number of actual taxpayers who will actually be the ones to have to pay it off, its $210,134.00 per taxpayer. I personally don't know anyone that pays that much in taxes. We're going to need a heckuva lot more taxpayers to pay that down, eventually. Eventually that kind of debt won't be sustainable, but no one knows at when that unsustainability level will hit nor what the effects of that will look like.

We may not have sufficient tools and room for deficit spending to get out of this mess, especially if we keep the economy in neutral by keeping things shut down as they are.

We can certainly hope that once things reopen that people will go out and spend based on their pent-up demand and the fact that they can't buy anything now except for bare necessities as everything else is shut down.

The problem is will they have anything left to spend to get the economy going again once this ends, especially as they aren't making money now and their expenses of living didn't go away?

Judgments And Liens To Be Removed From Credit Reports By Government Order - What Could Possibly Go Wrong?

Yes, the Consumer Financial Protection Bureau, that rather rogue agency created by the Obama administration decided it didn't like that judgments and tax liens were being reported and negatively affecting peoples credit scores - poor and minorities hardest hit doncha' know?

The Detroit Free Press: Credit scores may jump this month thanks to new scoring rules enacted after CFPB study

Of course, while this will help the scofflaws with outstanding judgments and tax liens, will now be more likely to get credit they otherwise would not, but this will likely increase the cost of credit for everyone as lenders won't be able to factor the risk that the money they lend many not be able to be paid back by the borrower after the borrower is garnished or has their assets seized to satisfy the outstanding judgments and tax liens.

What could possibly go wrong with making sure subprime and deep subprime borrowers get even more access to credit and with lenders not able to know the full scope of the risk they are making lending to them?

Closer To Home Than Greece, The Rich Port Isn't

Puerto Rico has also just announced it has run out of other people's money.

Powerline: Puerto Rico Goes Broke

Puerto Rico has also just retained Judge Rhodes, the judge who took Detroit through its Chapter 9 bankrupty in the matter.

The Detroit News: Rhodes on Puerto Rico: ‘It’s exactly like Detroit’.

I'm not sure if Rhodes means that Puerto Rico did itself in by a corrupt Democrat administration that squandered its funds through waste, fraud, incompetence and by paying the ruling party's cronies for contracts for in excess of the value received and sweet heart deals with Unions in return for political support. To be charitable to Puerto Rico, perhaps he just meant Puerto Rico's government was both borrowing too much and massively overspending beyond its capacity to repay.

It's the same, except of course Puerto Rico's debt is 4 times bigger than Detroit and there is both no surrounding state to bail it out as occurred for Detroit and no Chapter of the Bankruptcy Code to provide for the bankruptcy of a United States Commonwealth.

Perhaps Spain will offer to buy the island back in exchange for paying off the debt. That is of course assuming Spain doesn't join Greece in running out of other people's money, due to its debts, as it's debt loading on a per capita basis actually matches Puerto Rico's.

May you live in interesting times was indeed a curse and not a blessing.

Beware Of Greeks Bearing Debts

Whether you are an individual or a nation, you can only go on borrowing and spending above your means for so long. - and it looks like Greece, failing a further bailout, just hit the so long point.

The Detroit News: Greece to miss IMF debt payment and bailout to expire

EFM Orr Announces What We Already Know: Detroit Is Insolvent

Even as he announced that Detroit is insolvent he instructed creditors that they couldn't bring phones or recording devices to their initial meeting with him.

The Detroit Free Press: Orr to Detroit creditors: Don't bring phones to meeting on Friday

Methinks some ugly back-room deals that Orr doesn't want to get out in public are about to go down.

A letter from Kevyn Orr, the city of Detroit’s emergency manager, tells the city’s creditors to come without cell phones, cameras or recording devices to a Friday meeting to discuss his restructuring plan for the city, the Free Press has learned.

In a letter dated June 6 from Cleveland-based law firm Jones Day, creditors are also told that no group, company or institution is allowed to send more than two representatives and that “proof of identification and affiliation is required.”

According to the letter, from Dan Moss at Jones Day, Orr wants to discuss his restructuring plan for the city with creditors at a Friday meeting that starts at 10 a.m. at the Westin Hotel at Detroit Metropolitan Airport.

Well, at least they'll be meeting at a very nice hotel, one that is likely quite inconvenient for protesters to access.

The facts however are clear that Detroit is indeed insolvent and either going to go bankrupt or Or will try and get the City's creditors to take some neck-level haircuts.

Orr said the city spends more money than it takes in and is insolvent because it continues to borrow money to pay its bills.

The end result of unchecked corrupt Democrat Detroit certainly isn't pretty, and it's likely is going to become a whole lot uglier.

The Election Pandering Has Well and Truly Begun

As Act I of the Bread and Circuses for votes extravaganza, as Democrats vie for primary spots and then on to the general election: Let's forgive all the student loans!

The Detroit Free Press: It's time to forgive student loans, U.S. Rep. Hansen Clarke says

President Barack Obama signed a law Friday extending a cap on federal Stafford student loan interest rates -- but U.S. Rep. Hansen Clarke, a Detroit Democrat, argues it doesn't go far enough.

He's hoping the more than 1 million people who have signed a petition supporting a bill he's championing will force Congress to make more meaningful reforms to the student loan system.

"The demand is to change the system," he said June 25. "We've got to keep the bubble from bursting and help people who are swamped by debt. I would like to forgive a lot of these loans."

Clarke's bill, which is in committee in the House, would do just that.

Under his plan, people could have federal loans forgiven if they paid 10% of their disposable income -- which is basically any income exceeding 150% of the federally set poverty level -- for 10 years. The plan would apply to undergraduate, graduate and parent loans. Those in public service jobs could have loans forgiven after five years.

So the government created a program of student loans. This led a continual rise in tuition beyond inflation causing students (who lean Democrat, natch) to incur massive student loan debt as they had to get these loans to keep with the tuition increases that were always backed by the increased government loans that would cover the tuition increases.

Voila, One government created bubble, and to prevent it from bursting he's going to make it bigger. What could possibly go wrong?

Indeed, how is his proposal to forgive those loans to be funded? - With what money exactly?

Don't ask, it's election season after all, and he's trying to win a primary here.

Of course his proposal won't create a moral hazard from giving free money to people after they've to taken on unsustainable loans for unemployable majors?

"Nobody's getting a free ride here," he said. "They have to pay on the loan before they are eligible for forgiveness."

Well Democrats don't believe in the concept moral hazard anyhow. But, he's kidding right? How exactly is having 10-15 years worth of loan debt written off in return for paying only 5-10 not a free ride?

I also love his "public service" booster.

Look, public service jobs, with the exception of law enforcement, tend to draw Democrats like flies to honey.

For one thing, its about the only job they can often get with their sociology and basket-weaving studies majors.

For another thing, its a job. It pays money, often more than a private sector job of comparable worth. To claim that a public service job is a hair-shirt nobly worn that entitles one to more taxpayer debt forgiveness than a private sector job holder -- with the public service job holder's salary and debt forgiveness to be ultimately paid by the private sector -- just doesn't wash.

Clarke's bill would keep the interest rate at 3.4% for federal loans indefinitely. The version signed by Obama keeps the cap, which expired July 1, for only the next year.

So regardless of what the market does with interest rates, students will only pay 3.4% on a unsecured loan? Should interest rates jump, the feds will be losing even more money hand over first. Clarke's proposal keeps student loan debt in an academic world detached from reality, much like the debtors themselves as they go through college.

Then again, why should these Dem politicians care, they'll likely just print up a trillion dollars and wipe out student loans that way. After all, the proposal doesn't rationally explain how this largesse is going to be funded.

Bread, Circuses, and Goodies for Democrat and interest groups voters.

US Regulators Considering Exempting Sovereign Debt From the Volcker Rule

From Bloomberg:

U.S. banking regulators are exploring whether they can exempt sovereign debt from the Dodd-Frank ban on proprietary trading after foreign governments complained that the rule could raise borrowing costs and impede the flow of capital, a person familiar with the talks said.

Five regulatory agencies are taking public comments on a proposed version of the so-called Volcker rule, which was included in the 2010 financial regulatory overhaul to ban deposit-taking banks from trading with their own money.

While foreign government bonds would fall under the rule as proposed, U.S. government debt would be exempt. Officials from Canada, Japan, and the United Kingdom have sent letters to the Treasury Department and regulators saying the measure would harm their ability to raise money
. . . . .
Granting an exemption may have to overcome skepticism in Congress in the midst of the European debt crisis and the probe of MF Global Holdings Ltd (MFGLQ)., which collapsed after making a $6.3 billion bet on European government bonds.

The Volcker Rule is designed (not perfectly mind you but still) to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers and to prevent banks from engaging in high-risk speculation creating an unacceptable level of systemic risk.

Now regulators are strongly considering exempting what has been shown to be quite shaky sovereign debt from the rule and thus open US Banks to some very real system-wide risk.

What could possibly go wrong?

A Lesson from Court: Beware The Help of Debt Consolidation Companies

So I'm in court today for a motion, which I did win, which is always happy making.

Of course some leave court not too happy.

As I'm waiting to be called, I get to listen to a case where a creditor (a credit card company) has a $15,000 judgment against the defendant and she's filing a motion to object to their garnishment.

Her grounds are she doesn't like the interest rate, but since the interest rate is statutory, her argument doesn't get a lot of traction with the judge. The motion was pretty frivilous and an attempt to delay the creditor from garnishing her wages.

As the judge tries to get the parties to come to some kind of payment plan, she obstinately refuse to make a payment plan as she states that she's already sending her money to a debt consolidation company to supposedly reduce her debts.

Here's how this works (at least in this case): She hires the debt consolidation company. The DCC, for a fee, takes her money and accumulates it in an account while she does not pay her creditors and they don't pay her creditors.

The cunning plan is for the account to accumulate enough so that the DCC can negotiate with creditors for discounts in return for lump sum payments to settle the debts.

This obviously doesn't make creditors happy who are waiting to get paid, and they don't have to wait or deal only with the DCC.

Nor does it make this lady too happy considering she's being sued and garnished by creditors while she continues to pay the DCC to squirrel away her money and eventually negotiate with her numerous creditors.

She could have done the same thing herself without paying the fees and had more money to pay down her debts.

Now she's going to be stuck being garnished by at least one creditor who she can't compromise with and pay off with a lump sum as the DCC has her money and she's paying them and sending them money as her credit score goes downhill and she'll likely be sued by other creditors as well.

So if you're considering hiring a DCC, read the agreement carefully, make sure you understand how it supposedly works and what you're going to pay them to do it, and understand the consequences of retaining a DCC. Then get someone else you trust to read it over and see if it makes any sense to them before you consider doing it.

Some DCCs may very well be reputable and helpful, but there's a number out there that sell a desperate debtor a bill of goods and instead of helping get them sucked deeper into a morass of debt and trouble.

Instead of a lifeline, it can lead to a new nightmare.