Anonymous, National Debt, And British Tuition Hooligans

The markets ended on a mixed note - Dow down 0.02%, NASDAQ up 0.29%, S&P 500 up 0.38%. The day's better than expected jobless claims data helped prop things up, but the (comparatively) strong dollar ratcheted up commodities prices and served as an anchor on any company that actually makes things. Of course, that's not the only reason the markets were flat. What else happened?

First, the Bush tax cut "compromise" deal appears to be dead in the water. The House Democrats approved a resolution of opposition to it, and Speaker Pelosi will "honor the resolution".

Speaking of budget deficits and the problems on Capitol Hill, Erskine Bowles and Alan SImpson, co-chairs of the National Commission on Fiscal Responsibility and Reform, released a statement in which they sate that there needs to be a bipartisan agreement to reduce the $14 trillion[1] US national debt before any long-term increase in the debt limit is approved. "Our businesses will not be able to grow and create jobs and our workers will not be able to compete without a strategy to get this crushing debt burden off our backs." They have proposed an austerity program of sorts, relying on cuts in spending and streamlining of the tax code, but the panel's own members didn't support it.

Douglas Shulman, Commissioner of the Internal Revenue Service, announced that information from it's lawsuit against UBS AG "...has proved invaluable in supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks." This is, of course, in reference to the IRS pursuit of US taxpayers who shelter assets in overseas banks and then do not declare those assets. The IRS is also considering another amnesty program for tax evaders, since the one last year got around 15,000 individuals to declare their offshore assets.

By popular demand[2], we now turn to the Cyberwar. Operation Payback crippled Visa, MasterCard, and PayPal with a 30,000-node DDoS attack. www.paypal.com was down for several hours, rendering it unable to process payments, MasterCard's SecureCode service was also disrupted, although service has been restored, and both MasterCard's and Visa's websites went down for a while. Amazon.com has been declared the next target, not only for refusing to host Wikileaks but for then offering for sale a Kindle version of the Wikileaks documents[3].

What does all of this have to do with the market? Imagine the damage to Visa (symbol V), MasterCard (symbol MA), PayPal (a subsidiary of eBay, ticker EBAY), and Amazon.com (symbol AMZN) if Anonymous manages to keep them going down over the Christmas shopping season. Yeah. That got your attention.

In the "What Were They Thinking" department, the TSA pulled Meera Shankar out of line at the Jackson-Evers International Airport and frisked her. Because she was wearing a sari. Despite the presentation of her diplomatic credentials, establishing her identity as the Indian Ambassador to the United States. The Indian government is not happy about this...incident.

Finally, we have anarchy in the UK. Students protesting an increase in tuition fees in England[4] attacked the car containing Prince Charles and the Duchess of Cornwall. 37 people were hurt during the riot, and police made 22 arrests.

[1] Yes, trillion. With a "t".
[2] That is, one reader asked.
[3] Go figure.
[4] As much as 9000 Pounds sterling per year.

The Future's Are So Meh, You Don't Gotta Wear Shades

Right now, the domestic markets are still being driven by the news about the tax "compromise" from Monday. The news has helped drive Treasury prices down by 2%, pushing up yields. Why? Because this, combined with everyone's reaction to "Big" Ben Bernanke's comments on 60 Minutes, has bond traders worried about a long-term rise in the national debt.

Amusingly enough, the international markets are taking the improving yields as a good sign. According to Adam Cole[1], "the market is taking the rise in US yields as a positive for the dollar rather than a supply story. There are rising expectations for growth." As a result, the dollar is up against the euro and against gold.

China, which does not want to dominate the world thank you very much[2], does not agree. "For now, market attention is still on Europe and for the coming 6-12 months, it will not shift to the United States," said Li Daokui[3]. "But we should be clear in our minds that the fiscal situation in the United States is much worse than in Europe. In one or two years, when the European debt situation stabilizes, attention of financial markets will definitely shift to the United States. At that time, US Treasury bonds and the dollar will experience considerable declines."

Oh, apropos of nothing else, brace yourself for problems with your credit cards. Anonymous has declared war on MasterCard for blocking donations to WikiLeaks[4].

[1] The Global Head of Foreign Exchange Strategy for RBC Capital markets.
[2] "The international community should welcome and not fear China's peaceful development; help it and not hinder it; support it and not hold it back," says State Councilor Dai Bingguo. It doesn't have quite the same ring as "We will add your biological and technological distinctiveness to our own. Your culture will adapt to service us. Resistance is futile" or "all your base are belong to us", but it does carry a quiet air of understated menace.
[3] Director of the Center for China in the World Economy at Tsinghua University, and one of the academic members of the PBOC Monetary Policy Committee.
[4] A link that is probably not work safe, no matter where you are, now that Homeland Security is pushing to declare WikiLeaks a "terrorist website".

How Dare A Rumor Not Be True!

If you remember, the European markets were partly up on the rumor that the ECB was going to take action to deal with Europe's debt crisis by massively ramping up their purchase of the sovereign debt of troubled (and by troubled I mean PIIGS, not all the other troubled nations) debt.

Now? It appears that the ECB plans to just maintain its existing programs - i.e., it is ready to bail nations out if they self destruct, but it's not going to do anything else. And the markets are "disappointed". Their final response will wait until after 1330 GMT today, when ECB President Jean-Claude Trichet addresses the press, but only the delusional (I mean, optimistic) expect anything new.

So, what will happen when and/or if President Trichet disappoints the European markets? Well, in fine European fashion, probably.

“Debt is a prolific mother of folly and of crime”

Benjamin Disraeli said that. I have no idea how well he lived up to that as Prime Minister of Britain, but it doesn't actually impact the truth of the quote.

Recently, I've realized that my "dismal blog about this most dismal of sciences" has lacked any of the actual dismal science. So, let's rectify that with some basic concepts. We begin with definitions, courtesy of Investopedia:

Deficit: a situation in which liabilities exceed assets, expenditures exceed income, imports exceed exports, or losses exceed profits.

Debt: an amount of money borrowed by one party from another. Many corporations/individuals use debt as a method for making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

If you are facing a budget deficit - which is to say, you are spending more than you earn - you have three options:

1. You can reduce the amount you spend.
2. You can take on debt.
3. You can attempt to generate more income.

In reality, these are not mutually exclusive. All three, or any of the three in any combination, can be used simultaneously in an effort to reduce the deficit. But, regardless of which option(s) you choose to take, there are some things to keep in mind:

1. Spending less means actually reducing your total spending. It does not mean reducing the amount you spend on your current liabilities, and then taking the remainder and using it to take on more liabilities.
   
2. Debt is a liability. If not utilized properly, and if not managed wisely, it will make your situation far worse.
   
3. You may not actually succeed at generating more income. If you spend the income before you actually have it, and then you do not get it, you will make your situation worse.

If select option 1, and you fail to reduce your total spending, you increase your deficit. The fault, however, does not lie with the entity that encouraged you to take on the new liability.

If you select option 2, and you fail to manage your debt properly, you increase your deficit. The fault, however, does not lie with your lender.

If you select option 3, and you take on additional liabilities in anticipation of that income, and then you do not generate the anticipated income, you increase your deficit. The fault, however, does not lie with either the anticipated source of the anticipated income or the entity that encouraged you to take on the new liability.

The fault, in each case, lies with you. After all, you made the decision to take on the additional liability.

For Your Consideration...

Just a little information, relevant to the whole PIIGS situation.

Everyone is concerned about the inability of these nations to service their debts, because of their terrifying debt-to-income ratio. Now, the least bad off of the PIIGS nations - in terms of public debt to GDP - is Spain. Its ratio is only 53.20%. For your convenience, I have bolded the names of any nation on this list that is equal to or worse than this.

Member Nations of the European Union
Nation	Public Debt as a % of GDP	Tax Revenue as a % of GDP
Austria	66.40%	43.40%
Belgium	101.00%	46.80%
Bulgaria	14.80%	34.40%
Cyprus	56.20%	36.60%
The Czech Republic	34.00%	36.30%
Denmark	41.50%	50.00%
Estonia	7.10%	11.60%
Finland	40.30%	43.60%
France	77.60%	46.10%
Germany	73.20%	40.60%
Greece	113.40%	33.50%
Hungary	78.00%	37.30%
Italy	115.80%	42.60%
Latvia	36.60%	30.40%
Lithuania	29.50%	20.90%
Luxembourg	14.60%	36.40%
Malta	69.00%	35.20%
The Netherlands	60.90%	39.50%
Poland	46.40%	33.80%
Portugal	76.80%	37.00%
Republic of Ireland	64.80%	34.00%
Romania	24.00%	28.10%
Slovakia	35.70%	29.50%
Slovenia	31.30%	39.30%
Spain	53.20%	37.20%
Sweden	41.60%	49.70%
The United Kingdom	68.20%	36.60%
The BRIC Nations
Nation	Public Debt as a % of GDP	Tax Revenue as a % of GDP
Brazil	56.50%	Unknown
Russia	8.30%	36.90%
India	57.30%	17.70%
China	16.90%	17.00%
The United States
Nation	Public Debt as a % of GDP	Tax Revenue as a % of GDP
United States of America	53.50%	28.20%
Japan	192.90%	27.90%
Canada	82.50%	33.30%
The Whole World, on average	56.00%	Unknown

Comforting, isn't it?

"Brutal" Vote Ahead On Whether To Raise The National Debt Ceiling

There is nothing like the sight of fiscal responsibility in our nation's capital. And this? This is nothing like fiscal responsibility.

"Brutal" Vote Ahead On Whether To Raise The National Debt Ceiling
From The Christian Science Monitor (http://www.csmonitor.com/USA/Politics/monitor_breakfast/2010/1119/Brutal-vote-ahead-on-whether-to-raise-the-national-debt-ceiling)

By Dave Cook, Staff writer / November 19, 2010

Washington
Saying he "can't wait for the bloodbath in April," the co-chairman of President Obama's debt commission says that the "brutal" politics surrounding an upcoming vote on raising the national debt ceiling could force Congress to act on the commission's controversial recommendations.

"This is going to be beautiful politics - the brutal kind," said Alan Simpson, co-chair of the National Commission on Fiscal Responsibility and Reform. He spoke at a Monitor-sponsored breakfast for reporters on Friday along with Erskine Bowles, the other co-chair.

The panel is slated to release its recommendations Dec. 1. Last week the co-chairmen released a preliminary report that provoked widespread opposition. It called for gradually raising the Social Security retirement age, making cuts in Medicare and defense spending, and raising tax revenue by closing loopholes and boosting the gasoline tax.

The key political problem surrounding deficit reduction is that voters favor the concept in general but oppose specific cuts that would affect their pocketbooks.

The latest NBC News/Wall Street Journal poll found that nearly half the Republicans called the co-chair's plan a "bad idea" while about one third of Democrats saw it that way.

"The debt limit, when it comes in April or May, will prove who is a hero and who is a jerk and who is a charlatan and who is a faker," former Senator Simpson said. Roughly half of the new Republican members of the House of Representatives ran on a tea party-supported platform of cutting or curbing government spending.

"We've got guys who will not approve the debt limit extension unless we give them a piece of meat, real meat off this package" of deficit cutting plans, Simpson said. "They will say, 'I will not vote for the debt limit extension until you cut this.' "

The federal debt ceiling is now $14.2 trillion, and the debt now stands at $13.7 trillion. Sometime this spring the government will run out of borrowing authority and will have to shut down, unless it votes to raise the ceiling.

The panel is struggling to reach a consensus on final recommendations. Fourteen of the panel's 18 members must vote to support the recommendations for them to move forward.

Mr. Bowles, currently president of the University of North Carolina, expressed optimism that commission members could find some common ground. "You are going to be surprised when you talk to members of the commission ... to find out there is probably more middle ground than you think, still here in what is a very partisan town," Bowles said. "There is common ground there. If this town decides it really wants to come together and solve this problem today, it is doable."

As for the congressional battle over raising the debt ceiling, "I can't wait," Simpson said. "It will be something and I will be watching from our witness protection program."