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Austerity measures : UK and US home prices

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View from California: The US lags Europe in austerity measures, but it is coming. We have a huge, well paid public sector, who can retire far earlier than the private sector with very generous pension payments for life. We also spend a lot of money on entitlements.

 

The public sector is in a bubble. What used to be lowish paying jobs with good benefits and lifelong security have turned into great paying jobs with tons of benefits, lifelong security – far better than the private sector. It’s a tough bubble to prick for obvious reasons.

 

However, we can’t afford the salaries or pension payments anymore. They were calculated on the basis of great growth. California, where I live, is particularly exposed and doing little about it. We are getting close to voting on a budget (months late and getting close to IOUs again) and the end result of all the negotiations seems to be adopting a “rosier” forecast for growth and “hope” that the Federal government will give us more money than previously projected . . .

 

We are cutting spending too ($7.5 bln) and it is getting increasingly tough in CA. The schools are suffering, public services etc. However the real problems aren’t being tackled. The number of people working is being cut, but real efforts to reduce the cost of employing a person are not.

 

The private sector who have been hammered by the recession are angry about this. Chances are when the elections come in November, it will be on a mandate to cut costs and reduce the debt.

 

So what will happen to housing? If the public sector gets hit, housing may get hammered again.

 

Or will it be possible for the gov’t to inflate our way out of this? Therefore being able to afford the salaries and pensions without making difficult decisions . . .

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I think the Nov election may provide some sort of watershed, as the May election did in the UK

 

Politicians do not want to promise hard times when they are campaigning

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November will be interesting! There was a very strong shift to the right up until a couple of weeks ago when some of the people elected in the primaries turned out to be pretty loony. People are worried now that simply "voting the bums out" may have some drawbacks . . .

 

We have big problems that need clear headed thinking by leaders - what we're getting right now is mud slinging and deception aided by special interests on both sides. The black and white solutions we prefer are not there.

 

You know that feeling you get when you vote and really think you've got it right and you've voted for someone really great? I don't think we're going to feel that way in November, just because the candidates on both sides aren't up to the task. But it should veer more towards the right and balance congress a bit more, which I think is needed, hopefully without the loons.

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... simply "voting the bums out" may have some drawbacks . . .

 

We have big problems that need clear headed thinking by leaders - what we're getting right now is mud slinging and deception aided by special interests on both sides. The black and white solutions we prefer are not there.

 

You know that feeling you get when you vote and really think you've got it right and you've voted for someone really great? I don't think we're going to feel that way in November, just because the candidates on both sides aren't up to the task. But it should veer more towards the right and balance congress a bit more, which I think is needed, hopefully without the loons.

Yeah.

They voted for CHANGE in 2008, didn't they?

They havent had quite the change that they wanted.

 

The problem is, in the US the major parties are all into THE BIG LIE, that things are going to get better through government action.

 

It is time they started telling THE BIG TRUTH, that ordinary citizens are being robbed by an elite, and both major parties support that elite. That much is being expressed in the Tea Party movement. JHK calles them the "Tea Bag" movement, because they are small minded, and lack cohesion around a big idea.

 

You listen to his podcasts, since usualy has something pithy to say: http://www.kunstlercast.com/

 

Doug Casey also had some interesting comments about the Tea Party... from a recent thread :

Doug Casey on the Tea Party Movement

 

L: I think I can guess, but why do you say that? As much as you dislike the government, isn't it a good thing that so many people are finally fed up with it and at long last are showing signs of willingness to throw the bums out?

 

. . .

The problem with the Tea Party movement is that it has no underlying philosophical basis. Without that sound foundation, it's either going to fail or transform into something really ugly. On average, Tea Party members know something is wrong. They're disgruntled, and they want change. Not the Obama type of change – but what? You just don't know which direction they may go, and there are some very disturbing directions they could end up taking.

 

L: Such as?

 

Doug: They tend to be thoughtless and reflexive. They conflate some muddled feelings of "tradition" with an actual belief system. They operate on a stimulus-response basis. They're religious in exactly the same way as fundamentalist Muslims. And they're hypernationalistic.

 

"My country, right or wrong." "Support our troops." That sounds good, until you realize they're just a bunch of heavily armed kids who are blindly doing what they're told in some fly-blown place they can't even find on a map. The Germans supported their troops when they invaded Poland. "Us" against "them." Wave the flag. That sort of thing. It's like a gigantic replay of the Milgram experiment. It's just another dramatization of collectivism and jingoism.

 

L: The one that really gets me, and not just from Americans but from people all around the world, is: "My country, right or wrong!" That means you're willing to support what you know is wrong. It's pathological.

 

Doug: And a complete abnegation of individual responsibility. It's almost a Pavlovian stimulus-response type of reaction, more appropriate to chimpanzees around a watering hole than rational humans who can think things out for themselves.

 

The very strong, atavistic, religious streak to Tea Party types is a related danger. Glenn Beck is one of their standard-bearers. He's always admonishing people to do things because God wants them to. That's potentially very problematical – which god? Yahweh? Allah? Probably not Thor or Baal – but maybe it's Jesus. What would Jesus do if he were in the CIA in Afghanistan? What does Glenn Beck think the Holy Ghost would advise? So many people claim to know what their gods want everyone to do, and if a god commands you to do something, I suppose you have no choice in the matter. But they can't all be right.

 

(skipped some)

 

Doug: —but most of them are going to be just like the laws being passed now: arbitrary, ill-informed, misguided, symptomatic of group-think, and ultimately destructive. They are simply legal manifestations of the psychological aberrations of the politicians who enact them.

 

L: Weakening the separation of church and state.

 

Doug: Exactly. If you view religion as the quest for a spiritual reality, I have no problem with it. But, very unfortunately, whether in Christendom or the world of Islam, in reality it amounts to thought control and enforced morality. There's a real strain of "old time religion" in the Tea Party movement. I don't think the men who signed the Declaration of Independence would approve.

 

And that's not all; there's also a bit of a class problem brewing in the Tea Party pot. To use an admittedly broad and somewhat nebulous short-hand, we can say there's still a visible lower, middle, and upper class in America today.

 

The problem with the lower class is that their emotional level varies between desperation and apathy. Both are destructive forces, really bad. It's why most members of the lower classes are cemented there.

 

And the upper class, their problem is a poisonous mix of arrogance, greed, and delusions of superiority.

 

I'm a fan of the middle class, made as it is of people who want to work hard, create and run businesses, move up in life, and so forth. When a country doesn't have a middle class, it's in trouble. So, it's a good thing.

 

But, entirely apart from the fact the U.S. is rapidly losing its middle class – which is another huge problem – the American middle class today has a dark underbelly, and that is a deep and driving fear. For one thing, fear of losing what they have; that's a fear that's going to grow like a cancer as the Greater Depression gets worse. For another, fear of outsiders – Mexicans and Muslims, for example. They fear anything that may challenge or change their culture. Fear is the lowest common denominator of the middle class.

 

The Tea Party is a middle-class movement that channels this fear into the political arena – and politics always caters to the lowest common denominator. Fear is very dangerous, it can have all kinds of very nasty results. Fear causes people to act irrationally.

 

L: And fear is most dangerous when combined with its ugly twin, ignorance.

 

Doug: The result is self-serving myopia, of which there is plenty in the Tea Party movement. They want to cut spending – but not for their Social Security benefits. They want less government – but they want the government to protect or "create" jobs. They want to close the borders – forgetting that we're all immigrants. They want a "strong national defense" – but they forget that fear has turned the U.S. into a paranoid "national security" state.

 

The bottom line is that the Tea Party is just a hodgepodge of discontent and grumbling. Tinged with some inchoate rage around the edges. It stands for nothing. It's simply a reaction.

 

L: No bright side?

 

Doug: Well, it has caused a reaction in the Republican Party, where most of these people came from, which is starting to realize that they could be hurt badly by this division…

 

L: They could be outflanked on the right.

 

Doug: Exactly. So they've come up with a new "Pledge to America," which echoes that ridiculous "Contract with America" that the Republicans came up with in 1994.

 

L: We used to call that the "Contract on America."

 

Doug: I've read it, and it's the most stupid political blather that you could ever imagine. The 1994 Contract was basically meaningless and unenforceable verbiage. It centered on making technical changes in the way Congress was run. Its net result was zero. Its lasting effect is that things are much worse today and destructive policies much more ingrained.

 

L: I just googled the new one, and here are the actual pledges:

(skipped some)

 

L: So much for "the party of principle."

 

Doug: This is inherent in politics. Unfortunately, there are no political solutions to political problems (see our conversation on anarchy).

 

L: Rent seeking pretty much precludes that. But let's back up a minute. You said earlier, somewhat tongue in cheek, that a successful Tea Party might accidentally enact some laws with positive consequences. I would guess, for example, that a lot of them are hard-money advocates. If they could actually gain the upper hand or become the swing-vote that forces the Republicans to accept some of their demands, they might get the dollar put back on the gold standard. That'd be a big step in the right direction, wouldn't it?

 

Doug: That's possible, but the only way we can make progress, at this point, is not by passing more laws – even ones you and I might think are marginally good ideas – but by repealing the laws that have already been passed. That would allow the free market to correct the economic distortions all these years of government meddling have created, as it should.

 

The problem, fundamentally, is that people keep on looking to the government to solve their problems. So they come up with a new party or a new movement, and they propose new laws. This is not just the wrong approach, but the exact opposite of the right approach. The only way to get back on the right track is to undo the expansion of government and interference in the economy we've seen over the last 100-plus years. Repeal the laws, abolish the agencies. Get rid of it all, and free to the market to administer its harsh but effective treatments.

 

Instead, these people just want new and different laws. The prognosis is not good.

 

KEY POINTS he made:

+ The problem with the Tea Party movement is that it has no underlying philosophical basis.

+ The problem, fundamentally, is that people keep on looking to the government to solve their problems. So they come up with a new party or a new movement, and they propose new laws. This is not just the wrong approach, but the exact opposite of the right approach.

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"They haven't had quite the change they wanted"

 

so true.

 

"ordinary citizens are being robbed by an elite, and both major parties support that elite"

 

. . . this is the message that people seem to be waking up to now. So who to vote for? :mellow:

 

Thanks for the other info - very interesting!

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Beware the Tooth-Fairy, and Beware of Paul Krugman

 

... he thinks that we can avoid hard times, simply thru more stimulus.

Paul must think Bills never need to be paid:

 

So don't talk of austerity, it may ruin his whole day:

 

... current examples of austerity are anything but encouraging. Ireland has been a good soldier in this crisis, grimly implementing savage spending cuts. Its reward has been a Depression-level slump — and financial markets continue to treat it as a serious default risk. Other good soldiers, like Latvia and Estonia, have done even worse — and all three nations have, believe it or not, had worse slumps in output and employment than Iceland, which was forced by the sheer scale of its financial crisis to adopt less orthodox policies.

 

So the next time you hear serious-sounding people explaining the need for fiscal austerity, try to parse their argument. Almost surely, you’ll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good. And real-world policy — policy that will blight the lives of millions of working families — is being built on that foundation.

 

/more: http://www.nytimes.com/2010/07/02/opinion/...amp;ref=opinion

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A Q&A Roadmap To European Austerity

Submitted by Tyler Durden on 10/06/2010 18:41 -0500

 

SocGen's Daniel Fermon as penned a must read presentation titled "All you ever wanted to know about European austerity plans... but were afraid to ask" which answers pretty much all open questions about the European plan to streamline its economy, and strengthen its currency. Unlike the US, Europe at least is on the right path. Which is why at the end of the day, the EUR may rise and it may fall, but as long as the Fed refuses to acknowledge that America itself is in dire need of cost cutting, it will certainly be the USD that hits zero first in the competitive game of devaluation. What is truly sad is that this is precisely what the Fed wants: the destruction of the entire US middle class.

 

As for the relevant questions asked, the top 5 are:

1) Why is it necessary for European countries to deliver austerity plans?

2) What do we really know about the different austerity measures?

3) Do past examples fully justify these austerity measures?

4) Which variable should you look at to analyze the success of these austerity plans?, and

5) How to invest under an austerity plan scenario.

 

All the answers are inside.

 

/more: http://www.zerohedge.com/article/qa-roadma...opean-austerity

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View from California: The US lags Europe in austerity measures, but it is coming. We have a huge, well paid public sector, who can retire far earlier than the private sector with very generous pension payments for life. We also spend a lot of money on entitlements.

 

You do there, it's a shocker. Know a retired vice cop from E. Brooklyn, he's 59 now and left the police force when he was 42. Get this! He's been drawing a pension of $2XXX a month . . . the day after he left!!! They don't wait until they're 65 (or 238 I think is the pension age now in the UK), they draw it from the day after they leave.

 

Explains FED printing presses and gold plated tungsten bars.

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Dr: Funny you mention Paul Krugman, I can't pick up a paper these days without seeing his "opinion" and I can't find an opinion I agree with (or can even be bothered to read the whole way through).

 

Col: * Police officers can retire at the age of 50 with almost their whole salary as a pension for the rest of their life.

 

* Public sector pensions can and are often "spiked" in the last year (which is what retirement is based on) so that holiday days, unused sick days and a big final year salary increase mean that pensions are based on a ridiculously high number.

 

* There was an article here that was debating the $250k a year that Obama wants to cap tax cuts on. It was a serious article saying he would be penalising the working class because $250k could easily be what a policeman with overtime and a teacher make. The average income in the US is $46,000.

 

* Public sector workers can retire, get rehired while still getting retirement and then claim unemployment if they get laid off.

 

But we don't need austerity measure here, oh no, we'll just wait for things to get better. They always do, don't they?

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Dr: Funny you mention Paul Krugman, I can't pick up a paper these days without seeing his "opinion" and I can't find an opinion I agree with (or can even be bothered to read the whole way through).

 

Col: * Police officers can retire at the age of 50 with almost their whole salary as a pension for the rest of their life.

 

* Public sector pensions can and are often "spiked" in the last year (which is what retirement is based on) so that holiday days, unused sick days and a big final year salary increase mean that pensions are based on a ridiculously high number.

 

* There was an article here that was debating the $250k a year that Obama wants to cap tax cuts on. It was a serious article saying he would be penalising the working class because $250k could easily be what a policeman with overtime and a teacher make. The average income in the US is $46,000.

 

* Public sector workers can retire, get rehired while still getting retirement and then claim unemployment if they get laid off.

 

But we don't need austerity measure here, oh no, we'll just wait for things to get better. They always do, don't they?

 

 

This guy went on to be sub-chief of NY's busiest fire house, I guess he pulls a pension from there too. I was staggered they don't wait until 60 to collect.

 

This is where austerity needs to kick in. Bloated public sectors, over paid. It isn't anywhere near as bad as this in the UK, although it has crept up under a Labour government which is . . . traditional.

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Dr: Funny you mention Paul Krugman, I can't pick up a paper these days without seeing his "opinion" and I can't find an opinion I agree with (or can even be bothered to read the whole way through).

 

Col: * Police officers can retire at the age of 50 with almost their whole salary as a pension for the rest of their life.

 

* Public sector pensions can and are often "spiked" in the last year (which is what retirement is based on) so that holiday days, unused sick days and a big final year salary increase mean that pensions are based on a ridiculously high number.

Krugman is the village idiot of "global Village" fostered by the Mainstream press.

 

I had lunch with some HK based investors. One was French, and he was talking about how retirement should be based on the number of years that one works and pays tax (& into a retirement fund). He suggested 42 years. So if you start working at 20, you may be able to retire at 62.

 

If you want to retire "early" with less years worked, but you are over 65, you can do it, but you will get paid less. So if you worked 21 years and retire at 65, you would get 50% of the normal pension.

 

Make sense, and sounds fair to me

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Your French friend makes perfect sense. Why can't things be as simple as this?

We seems to want to try many stupid things, before we try sensible and fair things

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Senior citizens brace for social security freeze.

 

http://finance.yahoo.com/news/Senior-citiz...set=&ccode=

So when do we get the public sector salary freeze / cut??

BOCA RATON, Fla. (AP) -- Seniors prepared to cut back on everything from food to charitable donations to whiskey as word spread Monday that they will have to wait until at least 2012 to see their Social Security checks increase.

 

The government is expected to announce this week that more than 58 million Social Security recipients will go through a second straight year without an increase in monthly benefits. This year was the first without an increase since automatic adjustments for inflation started in 1975.

 

"I think it's disgusting," said Paul McNeil, 69, a retired state worker from Warwick, R.I., who said his food and utility costs have gone up, but his income has not. He lamented decisions by lawmakers that he said do not favor seniors.

 

I am sorry to tell you Mr. McNeil, bit the squeeze is only just beginning, especially for "retired state workers".

 

The sad reality is that some were given a large slice of pie, that doesn't really exist

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"The Paralysis of the State"

 

http://www.nytimes.com/2010/10/12/opinion/12brooks.html

 

a good article including these points:

 

"New Jersey can’t afford to build its tunnel, but benefits packages for the state’s employees are 41 percent more expensive than those offered by the average Fortune 500 company. These benefits costs are rising by 16 percent a year.

 

New York City has to strain to finance its schools but must support 10,000 former cops who have retired before age 50.

 

California can’t afford new water projects, but state cops often receive 90 percent of their salaries when they retire at 50. The average corrections officer there makes $70,000 a year in base salary and $100,000 with overtime (California spends more on its prison system than on its schools).

 

States across the nation will be paralyzed for the rest of our lives because they face unfunded pension obligations that, if counted accurately, amount to $2 trillion — or $87,000 per plan participant."

 

Now, let's look at cities to see if things are better there . . .

 

http://www.cnbc.com/id/39626759

 

"US Cities Face Half a Trillion Dollars of Pension Deficits"

 

. . . . raising concerns that defaults will rise. The cities may try to recover the money that they HAVE to pay by raising taxes, but guess what, people can move from the areas where the problems are worst.

 

And if you look at the other side of this, the 2010 census shows a record gap between rich and poor - the richest 20% earned 49.4% of all income. Buffett and Soros both agree that the highest earners need to be taxed more. I agree. The bank bonuses are a joke. And a big disparity between the rich and poor isn't healthy at all for a country.

 

However it is going to be hard for the government to raise taxes until the salary and pension disparity is cut and people see that tax money is being used efficiently. I wish the Republicans would see the need not to extend tax cuts to the rich - there could be a watershed moment if this happened. Which it won't.

 

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"The Paralysis of the State"

 

http://www.nytimes.com/2010/10/12/opinion/12brooks.html

 

a good article including these points:

 

"New Jersey can’t afford to build its tunnel, but benefits packages for the state’s employees are 41 percent more expensive than those offered by the average Fortune 500 company. These benefits costs are rising by 16 percent a year.

 

New York City has to strain to finance its schools but must support 10,000 former cops who have retired before age 50.

 

California can’t afford new water projects, but state cops often receive 90 percent of their salaries when they retire at 50. The average corrections officer there makes $70,000 a year in base salary and $100,000 with overtime (California spends more on its prison system than on its schools).

 

States across the nation will be paralyzed for the rest of our lives because they face unfunded pension obligations that, if counted accurately, amount to $2 trillion — or $87,000 per plan participant."

 

Now, let's look at cities to see if things are better there . . .

 

http://www.cnbc.com/id/39626759

 

"US Cities Face Half a Trillion Dollars of Pension Deficits"

 

As Mish Shedlock would say: They need to go bust, and cut down to size those excessive benefits.

Until that happens, I could totally understand why people in those states would want to legally minimise their tax payments

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I was looking for a house in West London about six months ago. I am still getting the emails from estate agents, and the number of "reduced" prices properties I am getting has increased.

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I was looking for a house in West London about six months ago. I am still getting the emails from estate agents, and the number of "reduced" prices properties I am getting has increased.

Did they try to push prices back up after Rightmove?

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I think that the austerity measures going through in the UK make so much sense and will make the UK much a stronger and better place. Mr Krugman disagrees of course! I hope that the US is watching, I guess we'll see after the election.

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