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Tuesday 03.14.2017

Higher Interest Rates Could Explode Budget Deficits and Our National Debt

The Federal Reserve is expected to raise the target interest rate next week, continuing its long climb back to traditional levels. While the economic impact of rate hikes is intensely debated, less attention has been focused on the extraordinary impact they will have on federal spending and the national debt. The short answer is that higher interest rates can cost taxpayers trillions of dollars.

The budget outlook is already perilous: After gradually declining since 2010, annual budget deficits are projected by the Congressional Budget Office (CBO) to soar past $1.4 trillion a decade from now, and then keep growing thereafter. And that is the rosy scenario; it assumes no recessions, wars, terrorist attacks, tax cuts, or federal spending expansions.

It also assumes only modest interest rate increases, which is important given that the national debt already sits at $20 trillion and is slated to increase by another $10 trillion over the next decade. CBO estimates that each one-point rise in interest rates adds $1.6 trillion to the ten-year budget deficit — $262 billion of which comes in the tenth year, as costs accelerate. Thus, a four-point interest-rate hike would cost taxpayers $6.4 trillion over the decade, and more than $1 trillion in the tenth year alone — far more than the cost of defense or Medicaid spending.

Fortunately, interest rates have remained low. Because of the Federal Reserve’s policies and the sluggish economy, the average interest rate paid on the ten-year Treasury bond (which is similar to the average interest rate Washington pays on its debt) is currently 2.4 percent, and is projected by CBO to rise to just 3.6 percent in a decade. By comparison, the average interest rate was 10.5 percent in the 1980s and 6.6 percent in the 1990s. Even in the 2000s, which ended with a massive recession that collapsed interest rates, the rate averaged just 4.5 percent.

Ford's Lincoln plans to produce luxury SUV in China by late 2019

Ford Motor Co's (F.N) luxury unit Lincoln plans to produce luxury SUVs in China by late 2019, as it steps up its move into the world's largest auto market and aims to catch up with German and U.S. rivals who already manufacture in the Asian nation.

The plan is to build an all-new sports utility vehicle (SUV) to suit Chinese tastes, Lincoln China said in a statement. Ford plans to use an existing assembly plant it jointly operates with Chongqing Changan Automobile Co Ltd (000625.SZ) to produce the Lincoln vehicles, a Ford spokesman in Shanghai said.

Lincoln vehicles are currently imported into China, and their sales have jumped nearly 180 percent in 2016, the statement said. "The move to local production is a key next step in Lincoln’s evolution in China and will complement continued imports from North America," it said.

The statement gave no other details about the plans. The Ford spokesman declined to give the model's anticipated production volume or describe the model other than to say it is an SUV. The Changan-Ford joint venture is in the process of getting approval for this move to produce Lincoln vehicles locally in China, said the spokesman.

Jobs that pay good money will come from one Trump promise in particular, economist says

Infrastructure spending is the key to increasing economic growth, because it will give Americans better-paying jobs, a prominent investment banker and economist said.

"The private sector has done all it reasonably can, yet the U.S. labor market remains a shadow of its former self. It is time to rebuild America," Daniel Alpert, a founding managing partner of Westwood Capital, said Monday in a presentation titled "The Case for Aggressive Fiscal Spending on Infrastructure in 2017."

Alpert's argument makes a strong counterpoint to economists who believe that investing in infrastructure won't help the labor market now because the country is already at "full employment" — meaning most people who want a job, have a job.

Last week's jobs report showed solid growth in the U.S. labor market, and low unemployment. But overall economic growth has held near a slow 2 percent level.

Midwest Off-Price Retailer Gordmans For Bankruptcy, Will Liquidate

A week after reports suggested that midwest retailer Gordmans was preparing to file for bankruptcy, the off-price retailer has done so and revealed plans to liquidate assets.

Gordmans announced Monday that it filed for Chapter 11 bankruptcy in Nebraska and entered into an agreement for the sale in liquidation of inventory and other assets of its stores and distribution centers.

The agreement with Tiger Capital Group and Great American Group, which is subject to bankruptcy court approval, was seen as the best option for the retailer, Bloomberg reports. For now, the company says that all 106 stores in 22 states are operating “as usual without interruption.”

“The management team and all of our associates remain committed to continuing to provide great merchandise and service to our guests during this process,” Andy Hall, president and CEO, said in a statement. Like other retailers, the Nebraska-based company, which has been in business for more than 100 years, has been the victim of changing customer shopping preferences.

Gold Prices Heading Towards Record Highs - Jeff Christian

Platoon of Driverless Trucks Test Cooperative Adaptive Cruise Control

A platoon of driverless trucks equipped with Cooperative Adaptive Cruise Control (CACC) appeared on the 110 freeway in San Pedro. The system controls speed, braking, and spacing of the convoy. The goal is to increase safety and fuel economy.

Three big rigs barrelled up and down the 110 Freeway on Wednesday, mirroring one another in a tight pattern. Two of the Volvo big rigs bore special antennas to “talk” to one another and radar that can detect movement around them. They were accelerating and navigating without human help.

It was only a test, but the partially automated trucks provided a peek into the future of long-haul trucking. The demonstration’s sponsors hope it provides a step toward completely automated transport in the years ahead. “It’s smooth, safe and efficient,” said Carrie Brown, Caltrans’ district director for Los Angeles and Ventura counties.

Using what’s called “cooperative adaptive cruise control,” the heavy trucks drive tightly together, responding to one another and their surroundings with computerized sensors, saving fuel and releasing fewer emissions. Well-plotted trips would also ease congestion, experts believe. “Simply put,” she said, “the trucks are driving as a stable unit.”

Trump May Give Students Debt Relief That Obama Refused

Alums of a disgraced for-profit college chain have spent years trying to cancel their federal student loans. For three years in federal court, the Obama Department of Education told them to keep on paying. Improbably, the Trump administration is poised to say different.

Under a preliminary accord, the federal government would invite tens of thousands of former students, who more than 20 years ago attended beauty and secretarial schools owned by defunct Wilfred American Education Corp., to petition the Education Department to cancel their unpaid debt and receive refunds on past payments, according to four people familiar with the case, who spoke on condition of anonymity because they were discussing confidential settlement negotiations. The applications are almost certain to be approved, these people said, and the government would foot the bill.

The deal—which is not complete and may change—would resolve a 2014 class-action lawsuit against the Education Department brought by seven former Wilfred students who claimed the feds for decades had been wrongfully collecting on debt that students needn’t repay. Federal law allows borrowers to cancel their loans when their schools violate certain rules, and Wilfred routinely flouted the law by falsely certifying that its students were eligible for government loans, according to the complaint. The lawsuit claimed the department knew the loans were eligible to be forgiven, yet it made no effort to inform debtors of this right.

If finalized, the settlement would represent one of the largest debt-forgiveness schemes undertaken by the Education Department. That it didn't happen under Obama, who championed student debt relief measures, and instead could happen under Trump, who in November agreed to pay $25 million to settle several lawsuits tied to his own foray into for-profit education, could upend expectations that a Trump-overseen Education Department would favor the interests of for-profit schools over those of allegedly defrauded students.

The Federal Reserve Bank of Atlanta Has a New President

Raphael Bostic, a former Obama administration housing official, was named president of the Federal Reserve Bank of Atlanta, becoming the first African-American selected to lead one of the 12 regional Fed banks in the institution's century of existence.

Mr. Bostic, a 50-year-old professor of public policy at the University of Southern California in Los Angeles, will take over June 5, the Atlanta Fed said Monday. He succeeds Dennis Lockhart, who retired at the end of February after a decade of service, and his appointment was approved by the Atlanta Fed's board of directors and the Fed board of governors, the bank said.

Mr. Bostic's selection is notable for a central bank that has faced diversity issues. Even as the Fed is led by Chairwoman Janet Yellen, the central bank's leadership has been dominated by white males. There have been three African-Americans on the Fed's board of governors, the last of whom, Roger Ferguson, left office in 2006.

The hiring of Mr. Bostic was heralded by the left-leaning activists of the Center for Popular Democracy's Fed Up Coalition, which has been pressing the central bank to ensure its policy actions benefit all members of the economy and not just the wealthy.

JPMorgan On The Number One Reason You Should Own Physical Gold

105 years ago, American financier J.P. Morgan testified before Congress. When asked if the control of credit involved a control of money, Morgan responded by saying, “Not always. [Credit] is an evidence of banking, but [credit] is not the money itself. Money is gold, and nothing else.”

Although they are not the same, “money” and “credit” are used interchangeably in our vocabulary today. Given the massive credit expansion over the past four decades, understanding the difference between the two has never been more important. Until 1971, GDP and credit grew in tandem. However, in the 46 years since, credit has grown three-times faster than the economy.

As we know, 1971 was the year Richard Nixon took America off the gold standard. When the dollar was tied to gold, it limited the amount of credit creation. Since the shift to a fiat system, credit has been created, more-or-less, out of thin air.

As credit and debt are two sides of the same coin, governments and citizens have taken on huge amounts of debt—living beyond their means. This can be seen by looking at the increase in public and private debt levels. Much of this “credit” has been funneled into financial assets. Today, household financial assets relative to disposable income is at another “all-time” high.

Why so few are worried about likely Fed rate hike this week

For years after the Great Recession ended, investors fretted — sometimes panicked — over the prospect that the Federal Reserve might begin to raise interest rates from record lows. Now? The Fed seems all but sure to raise rates Wednesday for the third time in 15 months and to signal more hikes probably coming. And the response from investors has been something akin to a yawn.

Wall Street appears too busy extending the stock market rally that began with President Donald Trump's election in November, cheered by the prospect of tax cuts, an easing of regulations and higher spending for infrastructure to worry about a rate hike.

Fed watchers, it seems, are more buoyed by expectations for a vigorous economy than worried about whether slightly higher rates might slow growth. When Chair Janet Yellen and several other Fed officials separately suggested earlier this month that the economy was sturdy enough to withstand a modest raising of loan rates, investors quickly raised their estimate of the probability of a rate hike at the Fed's meeting this week from around 20 percent to 80 percent.

After Friday's robust February jobs report — 235,000 added jobs, solid pay gains and a dip in the unemployment rate to 4.7 percent — the likelihood has grown to 91 percent, according to the CME Group, which tracks investor expectations of Fed actions. Yet no one seems very concerned.

Moody's: US to Keep Aaa-Rating After Debt Ceiling

Moody's Investors Services said on Monday the United States will retain the rating agency's top-notch debt rating as long as it meets its interest payments even if the government's borrowing cap is reinstated on Thursday.

Back in November 2015, federal lawmakers suspended the federal debt ceiling, which would be about $19.9 trillion, if they do not vote to extend the suspension which ends on Wednesday.

"While the periodic impasse over raising the debt ceiling is a credit negative feature of the country's debt management, it has not affected the sovereign's credit rating to date," Moody's analysts wrote in a research report published on Monday.

Like Moody's, Fitch has kept its top AAA-rating on U.S. government debt. However, Standard & Poor's downgraded the U.S.' rating by one notch to AA+ in August 2011. It cited its high level of debt and uncertainty about the federal government's ability to manage that debt load following a debt ceiling showdown.

Trump Says 'Job-Crushing' Regulations Being Rolled Back

$21,714 For Every Man, Woman And Child In The World – This Global Debt Bomb Is Ready To Explode

According to the International Monetary Fund, global debt has grown to a staggering grand total of 152 trillion dollars. Other estimates put that figure closer to 200 trillion dollars, but for the purposes of this article let’s use the more conservative number. If you take 152 trillion dollars and divide it by the seven billion people living on the planet, you get $21,714, which would be the share of that debt for every man, woman and child in the world if it was divided up equally.

So if you have a family of four, your family’s share of the global debt load would be $86,856. Very few families could write a check for that amount today, and we also must remember that we live in some of the wealthiest areas on the globe. Considering the fact that more than 3 billion people around the world live on two dollars a day or less, the truth is that about half the planet would not be capable of contributing toward the repayment of our 152 trillion dollar debt at all. So they should probably be excluded from these calculations entirely, and that would mean that your family’s share of the debt would ultimately be far, far higher.

Of course global debt repayment will never actually be apportioned by family. The reason why I am sharing this example is to show you that it is literally impossible for all of this debt to ever be repaid.

We are living during the greatest debt bubble in the history of the world, and our financial engineers have got to keep figuring out ways to keep it growing much faster than global GDP because if it ever stops growing it will burst and destroy the entire global financial system. Bill Gross, one of the most highly respected financial minds on the entire planet, recently observed that “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road”.

Yahoo's Marissa Mayer is up for a $23-million 'golden parachute' severance package

Yahoo Inc. chief Marissa Mayer is up for a $23-million severance package, the company said Monday in regulatory filings that also named the top executives who will lead what's left of the company after its digital services are sold to Verizon Communications Inc. and disclosed new details about negotiations with Verizon.

Mayer, Yahoo’s chief executive and president, is to stay at the company until the $4.48-billion Verizon deal closes. That's expected to happen by the end of June.

According to the filing, Mayer will receive a severance package worth about $23 million if her job is terminated within a year of the sale. The package comprises just above $3 million in cash, equity that as of March 8 was worth nearly $20 million, and benefits worth nearly $25,000.

The figure is lower than the $44-million valuation disclosed in September because $21 million in stock options and other awards have vested in Mayer's account since then. Verizon agreed to buy Yahoo's online business after a long slump at the Sunnyvale, Calif., Internet company, but the deal was later jeopardized after Yahoo disclosed major computer hacking attacks that compromised the personal information of more than 1 billion users. The breaches were the two biggest in Internet history.

FDIC unveils Dodd-Frank alternative for "better" bank regulation

The Vice Chairman of the Federal Deposit Insurance Corp. just unveiled a proposal to regulate banks in a way he feels will be superior to current Dodd-Frank financial reform. Speaking at the Institute of International Bankers Annual Washington Conference, Thomas Hoenig said that while Dodd-Frank is well intended, the regulations are too burdensome for all banks, “especially smaller banks.”

To remedy those issues, Hoenig presented an alternative. “Today I will outline an alternative approach to better address the challenge of too-big-to-fail, regulatory burden, and competitive equity,” he said to the conference. The proposal will partition nontraditional bank activities into separately managed and capitalized affiliates. This will result in a return of the safety net — a common term describing the ways and means by which the Federal government ensure prudent bank operations.

From his speech: The proposal also would require greater owner equity at risk for large, complex, universal banks, as defined in the accompanying term sheet. With these conditions in place, too-big-to-fail would be well on its way to being addressed, and a true opportunity for regulatory relief for these largest banks would be provided. We could pare back the thousands of pages of rules that inhibit bank performance and level the competitive playing field without undermining the stability of our financial system and economy.

Hoenig added that the safety net is now cast wider than ever, covering ever-larger portions of commercial bank operations. Therefore banks continue to enjoy a competitive advantage over nonbanks in some aspects of financial operations, namely investment banking.

There is Only One Way Out of Poverty

Report: Obama Admin Spent $77M in 2016 to Advertise Obamacare

The Obama administration last year spent more than $77 million on advertising costs to promote Obamacare, which a Republican-controlled White House and Congress are now working to repeal.

According to federal government contracts obtained by the New York Post, the Democratic-leaning public relations firm Weber Shandwick was hired to promote the Affordable Care Act. The Obama administration and Weber Shandwick spent $74.15 million on advertising on July 28, 2016, and another $3.69 million on Sept. 9, 2016.

Of the $77 million of taxpayer money spent, $64 million was used for television, digital, and radio advertisements, $4 million for creative development and production, $5 million for direct response marketing, $2 million for campaign strategy, $1 million for branding, and $1.5 million for encouraging small business enrollment.

Despite efforts by the Obama administration, enrollment numbers for the Affordable Care Act at the end of 2016 were on track to be lower than the previous year. In addition, only 22 percent of Obamacare enrollees rated their health care plan as good, very good, or excellent in 2017, according to one survey.

The American Apparel Eliminates Hundreds of Jobs, Considers Outsourcing

American Apparel, the downtown apparel company in Los Angeles started layoffs of its employees last week. Thus far, over 500 employees in the area have lost employment, said an insider who is aware of the layoffs.

In the southern California area, American Apparel has close to 4,600 employees. In February, the company was able to emerge from bankruptcy and has tried since to move past a difficult two-year period that saw Dov Charney the founder ousted, store closings and huge fire sales to clear out merchandise that was unsold.

In a letter last week directed to employees, CEO Paula Schneider put blame on the reduction in employees on a redesign of the production process, which will include making less garments throughout the course of the year to lower inventory that eventually must be discounted.

Schneider hinted as well that manufacturing of complicated pieces such as jeans could be soon outsourced to a third parties, though she insisted that those products would remain American-made.

Oil Extends Losses to Three-Month Lows, Tests Slide

Oil prices were steady to soft after touching three-month lows on Monday, testing a slide that began last week when the market became less optimistic that OPEC's efforts to restrict output would reduce a global oil glut amid swelling U.S. supplies.

Prices have fallen by more than 8 percent since last Monday, its biggest week-on-week drop in four months, and analysts said the slide may not have much further to run. After more than two months of reduced production from the Organization of the Petroleum Exporting Countries, the market is facing evidence that U.S. production remains high and global markets remain oversupplied.

"There is growing skepticism that the production cut has been enacted long enough to take care of the overhang," said Gene McGillian, director of market research at Tradition Energy. "The longs who piled in last year are turning on the market because there seems to be a realization that a six-month agreement isn't long enough to rebalance the market.

Brent crude futures fell 6 cents to $51.31 a barrel by 1:30 p.m. Eastern (1730 GMT), having earlier hit a session low of $50.85, the lowest level since Nov. 30. U.S. West Texas Intermediate crude (WTI) fell 17 cents to $48.32 a barrel. Goldman Sachs said in a note it remained "very confident" about commodity prices and maintained its price forecast of $57.50 for WTI in the second quarter.

The Robot That Can Fold Your Laundry In Less Than Three Minutes

Gal Rozov has a simple but beautiful dream. He wants to free us from the tyranny of that most monotonous of household chores: folding clothes.

“My wife always claims I’m one of the worst laundry folders in the world, and she’s right. I hate it. It’s tedious,” says Rozov. “We have a washer, dryer, vacuum cleaners, dishwasher. So where is the laundry folder? Why don’t we have it already?” He isn’t alone in his frustration: According to a recent survey by Braun Research on behalf of Whirlpool, 46% of homeowners long for an appliance that can fold their clothes.

A self-proclaimed “technology freak,” Rozov set out to build a gadget of his own. “I couldn’t resist at least exploring the opportunity to see if it could be done,” the father of three says.

In 2010, he quit his job as a software developer and product manager in Israel to spend two years working with researchers on how build his bot. In 2012, he moved to the U.S. to work with a robotic team in Silicon Valley, where he founded FoldiMate. By 2013, he had a patented technology for folding laundry robotically. And by 2016, after an initial round of investment from family and friends, Rozov was finally able to produce a rough prototype that shares a name with the company itself. Marketed as a “folding friend,” Rozov’s machine folds, softens, and even infuses fragrance into dry clothing. The user clips a garment to FoldiMate’s feeder, and in just three seconds, the item is scented (that’s optional), dewrinkled, folded, and neatly placed on a pile. It’s the size of a European washer and requires approximately two and a half minutes to fold an average laundry load of 25 pieces of clothing.

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