Great graphic breaking down U.S. Fiscal Deficit problem

from theincidentaleconomist.com

If you're looking for two different perspectives on the House Republicans' "Pledge to America," to be officially unveiled later today, see Ezra Klein and Avik Roy. For a concise summary of what's in it on health care and how it relates to current law, see Igor Volsky. I want to focus on just one thing, and it isn't really about the Pledge, though it relates to something Avik wrote in reaction to it.

Importantly, the Pledge says almost nothing about the biggest and most difficult questions in health policy: Medicare and Medicaid reform. It criticizes PPACA's "massive Medicare cuts" without offering an alternative solution for putting the program on stable long-term footing.

If there is one thing I would love for all Americans to have in mind when evaluating politicians' pronouncements about what we have done or should do with respect to government health spending it is this graph of projected federal revenue and spending as a percent of GDP, from the CBO:

A long but comprehensive analysis of the Australian Housing Market - oh yes, another bubble ..

by: Leith van Onselen September 27, 2010

There is currently a widespread debate in Australia and abroad over whether Australia is experiencing an unsustainable housing bubble, or asset inflation based upon sound fundamentals.

Recent analysis by the Economist, the IMF, Demographia, Morgan Stanley, and Jeremy Grantham of GMO argue that Australian house prices are severely overvalued and due for correction.

On the other hand, Australia’s banks, the property industry, and industry 'experts' claim that Australia’s housing market is different to other countries and underpinned by sound fundamentals, including a strong economy, high population growth and housing shortages, as well as a robust banking system.

So which camp is right? Is Australia’s housing market a debt-fuelled time bomb underpinned by ‘Ponzi finance’ that requires the ‘greater fool’ and ever-increasing levels of debt to perpetuate it? Or are current valuations justified? Let’s examine the data.

PIMCO lays out why the "New Normal" isn't going to work so well for pension funds ...

by William H. Gross  October 2010

Stan Druckenmiller is Leaving

• The New Normal has a new set of rules. What once pumped asset prices and favored the production of paper, as opposed to things, is now in retrograde.
• The hard cold reality from Stan Druckenmiller’s “old normal” is that prosperity and over-consumption was driven by asset inflation that in turn was leverage and interest rate correlated.
• Investors are faced with 2.5% yielding bonds and stocks staring straight into new normal real growth rates of 2% or less. There is no 8% there for pension funds. There are no stocks for the long run at 12% returns.

So the hedgies are in retreat and, in some cases, on the run. Ken Griffin at Citadel is considering cutting fees, and Stan Druckenmiller at Duquesne/ex-Soros is packing his bags for the golf course. Frustrated at his inability to replicate the accustomed 30% annualized returns that his business model and expertise produced over the past several decades, Stan is throwing in the towel.

Rare earths & China - a quick background

Forwarded by:  William Dahmer

The apparent pressure tactics in the delays of Chinese shipments of “rare earth” minerals to Japan last week have highlighted the need to develop alternative source of materials that have become increasingly important.
The restrictions on supply occurred after Japanese officials detained the captain of a Chinese fishing vessel in disputed waters. The fishing captain has now been released, and the kerfuffle is over, but the implications remain.

European Financial Stability Facility - financing structure & risks

By Satyajit Das

In the first half of 2010, angst about European sovereign debt receded and market volatility eased. In the second half of 2010, concerns about Greece, Ireland, Spain and Portugal returned to dominate headlines.
Greece passed its initial inspections on its restructuring plan from the supervising “Troika” (made up of the European Central Bank (”ECB”), European Union (”EU”) and International Monetary Fund (”IMF”)). In truth, there was no choice, as money had to be made available to enable Greece to continue to function.