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Thursday 08.25.2016

States Face A $1 Trillion Pension Shortfall

The U.S. is facing a $1 trillion pension shortfall because states aren't paying enough money into their retirement plans for public workers. Just 15 states contributed enough into public pension funds in 2014 to both pay retiree benefits and start to pay down their debt, according to a Pew Charitable Trusts report released Wednesday.

In that year, state-run retirement systems had a $934 billion gap between benefits promised and how much is saved to fund those payments. Because of strong investment returns, that's a smaller shortfall than the previous year. But preliminary data shows that the funding gap will grow again in 2015, topping $1 trillion -- thanks to weaker returns.

"The lesson here is that state and local policymakers cannot count solely on investment returns to close the pension funding gap over the long term," the report said. They also need to change their funding policies so they start paying down their pension debt -- which means contributing more than 100% of the needed funding to meet benefit obligations.

The 15 states that did contribute enough in 2014 are: West Virginia, New York, Indiana, South Dakota, Louisiana, Utah, Wisconsin, Oklahoma, Tennessee, Nebraska, Maine, Idaho, Vermont, North Carolina and Delaware. Some of those have well-funded plans, but others like Louisiana -- whose system is 65% funded -- are playing catchup. Some states like Oregon have a fully funded system even without making a huge payment in 2014.

Janet Yellen’s “Jihad” Against Retirees

Imagine for a moment some congressman in a bad suit pitching the next exciting stimulus program… He proposes paying for Wall Street’s repeated failed bets off the backs of working class retirees. That’s right, he wants to transfer hundreds of billions from the bank accounts of retirees directly to Wall Street’s balance sheets each year for the next seven years.

What would happen to that politician if he made such a proposal? Tarred and feathered? Tied to a chair and forced to listen to an endless loop of Hillary Clinton cackling? Most would say that plan is so outrageous that no one would have the balls or stupidity to ever propose it. So why the hell have we let the Fed get away with implementing it for the past seven years?

Someone who’s done everything in his power to stop this massive wealth transfer by the Fed is David Stockman. He’s a former congressman, director of the Office of Management and Budget under President Reagan, and 20-year Wall Street veteran. For years, Stockman has been railing against the Federal Reserve’s zero interest rate policy because it’s transferred trillions of dollars from Main Street to Wall Street.

Stockman refers to it as as “a jihad against savers and retirees.” And it’s a topic he spoke about in detail as a guest on my Trend Following Radio program. Basically, it all boils down to this… We now have an entire generation of retirees who tried to do the right thing during their working lives. They scrimped and saved to accumulate a nice nest egg so their golden years would be a little more golden. Historically, these folks could park their savings in FDIC-insured CDs or low-risk bonds and get their 5% income return each year. But the Fed has screwed them by setting and keeping rates at zero.

Treasury To EU: Back Off On Tax Probes Of US Companies

There's a giant pot of corporate gold sitting outside the United States, and the U.S. Treasury and the European Commission are squabbling over how to get their hands on it.

American multinational corporations have stashed more than $2 trillion in profits and assets outside to avoid paying what many companies argue are unduly high U.S. corporate tax rates.

Over the past few years, the European Commission has opened investigations into a handful of those companies, including Apple, Starbucks and Amazon, to determine whether they owe taxes to European countries.

But the Treasury Department, in a "white paper" released Wednesday, said those investigations have gone too far. The paper attacked the legal approach the EU is using to determine tax liabilities on American companies, saying it targets "income that (European) Member States have no right to tax under well-established international tax standards."

Mylan CEO Faces Calls to Explain 400% EpiPen Increase

Deutsche Bank, UBS, Others Follow JPMorgan, Citi In Digital Currency

Deutsche Bank (DB), UBS (UBS), Bank of New York Mellon (BK) and Banco Santander (SAN) are jointly developing a blockchain-based currency to clear securities trades more quickly, following efforts by JPMorgan (JPM), Citigroup (C) and Goldman Sachs (GS) to develop their own digital methods to settle such transactions.

Blockchain, the technology initially used to move Bitcoin transactions, allows stock and bond trades and other such exchanges to take place through a shared ledger database system, cutting down on the middlemen often needed to allow those transactions to take place. Banks have become increasingly interested in the technology, and the "fintech" startups that use it, as a way to modernize their own infrastructure and potentially save billions in transaction-settlement costs for trades.

Deutsche Bank, UBS, Bank of New York Mellon, Banco Santander and ICAP, an electronic broker, will try to sell the plan to develop what they call the Utility Settlement Coin to central banks, the Financial Times reported.

The Utility Settlement Coin, which would be convertible into a variety of currencies at central banks, was first introduced last year by UBS and tech firm Clearmatics, another participant in the joint effort. The firms hope to launch the digital coin on a small scale by 2018. Development efforts will focus on the "financial structuring" of the digital currency, building the platform out through several phases intended to draw more users, Deutsche Bank said in a statement Wednesday. The firms plan to test the digital currency in a real-market environment.

Unlocking Golds True Value

The true value of gold is much higher than the spot price quoted in the market. This is due to several factors, but the most important reason is misunderstood by just about every economist and monetary scientist in the world today. Those who are able to understand the information in this article, will finally be able see the value of gold (money) in a totally different way.

It has taken me years of research and reflection to understand GOLD’s TRUE VALUE. Unfortunately, the majority of economists and precious metal analysts look at gold in a very specialized way. While precious metals analysts see gold as real money versus the Keynesian view of a Fiat Dollar System, both fail to grasp gold’s true value.

Gold is more than a precious metal based on supply and demand. Furthermore, the Austrian School of Economics looks at gold as a foundation of money in the procurement of goods and services. However, gold’s real value comes from energy in all forms and in all stages in its production.

Gold’s real values comes from energy in all forms and in all stages in its production. I have been saying this in interviews and writing about it for years, but I still believe a lot of people just don’t get it.

Here's The Salary You Have To Earn To Buy A Home In The Biggest US Cities

For many prospective homebuyers in the U.S., earning enough to pay for even an average-priced home can be a struggle (not to mention saving enough or a down payment). A new report from mortgage site HSH.com backs up that assumption.

Median home prices rose in most of the country's 27 largest metro areas, even as incomes remained stagnant. Their analysis reveals just how much someone needs to earn in order to afford the interest, taxes, and insurance on a median-priced home.

Not surprisingly, the Rust Belt provides the best bargains. The most affordable city was Pittsburgh, requiring a salary of just $32,390.09 to afford a median-priced home of $140,500. Pittsburgh was followed by Cleveland ($34,433.95) and Cincinnati ($37,179.18).

These cities remained the most affordable despite substantial home price increases over the previous quarter. Cleveland's home prices went up 24 percent while Pittsburgh and Cincinnati's home prices went up 17 percent. On the other end of the spectrum, high-demand coastal California cities like San Francisco and San Diego, required salaries of $161,947.60 and $109,440.97, respectively, to maintain a median-priced abode.

The Real Reason Your Paycheck Is Not Good Enough

When politicians talk up their economic plans, they never promise just to generate jobs. They invariably speak of creating “good” jobs—a necessary modifier given that most Americans haven’t gotten a meaningful pay raise over the past three or four decades.

What accounts for such stagnation? Economists and other experts have offered all sorts of explanations: the impact of technology and globalization; the weakening of organized labor; an erosion in the value of the federal minimum wage; endless rounds of corporate restructuring; and an inordinate focus on handing gains to shareholders instead of employees.

Yet Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, puts his finger on another cause that is often overlooked: a lack of robust employment itself. In fact, Bernstein maintains that a persistent absence of “full employment”—the point at which all eligible people who want a job can find one—may well be the most important reason that paychecks have been stuck in neutral for so long.

At a time when many companies can tap cheap labor all over the world and unions don’t have much clout, “full employment is one of the only ways many middle- and low-wage workers muster bargaining power,” explains Bernstein, who served as chief economist to Vice President Joe Biden and was the executive director of the White House Task Force on the Middle Class.

Insurance Startup Oscar Quits Markets, Rethinks Obamacare Plans

Health insurance startup Oscar Insurance will reevaluate its approach to President Barack Obama's health-care law after suffering significant losses under the U.S. program and will pull out of two markets next year.

Oscar, which pitches itself as a tech-savvy alternative to traditional health insurers, plans to end sales of Affordable Care Act plans in Dallas, a market it entered this year, and New Jersey. It's part of a more conservative approach by the New York-based company as it plans to introduce insurance products for businesses next year.

"The individual market isn't working as intended and there are weaknesses in the way it's been set up," Chief Executive Officer Mario Schlosser said in an interview. "We want to focus on the markets we understand well, we want to focus on the markets where we have our own model in place.

Closely held Oscar, is backed by venture capital firms including Josh Kushner's Thrive Capital, Founders Fund and GV, which is Alphabet Inc.'s venture capital arm. It was formed to take advantage of the new markets and millions of people who would gain coverage under the Affordable Care Act. Yet the company, with its cartoon ads on New York subways and consumer-focused approach, has run into many of the same problems that have forced bigger, more experienced rivals like UnitedHealth Group Inc. and Aetna Inc. to scale back from the Affordable Care Act's exchanges as well.

World Economy Still Sputtering, Trade Figures Show

The amount of goods traded globally fell sharply in the second quarter after a flat performance in the first few months of 2016, highlighting a major challenge for leaders around the world grappling with soft growth.

The volume of merchandise traded globally dropped by 0.8% from April to June following no change in the first quarter, according to the CPB World Trade Monitor produced by the Netherlands.

Weaker trade patterns reflect fresh economic struggles in various countries and less demand among consumers, the main drivers of growth. Import volume fell the most in the Euro area (-1.8%) in the runup to the Brexit vote. Imports to Japan also dropped 1.3% and they declined 0.6% in the U.S.

Export volume fell 0.7% overall, but the poor performance was not universal. Exports rose 0.4% in the U.S. after declining in the prior two quarters. Export volume also climbed 1% in Japan, with the eurozone the major laggard. There are some signs world trade has partly rebounded in the third quarter, but 2016 is shaping up to be a difficult year. The IMF, World Bank and OECD, the three most influential global economic organizations, have all recently cut global growth forecasts for 2016 in part because of a soured trade outlook.

Lawrence White on the Fed’s policy problems

Bankrupt Coal Miner Peabody Energy Seeks Approval To Pay $12M in Bonuses

Coal miner Peabody Energy Corp, which filed for Chapter 11 bankruptcy protection in April, asked a bankruptcy court on Wednesday to let it pay up to US$11.9 million in incentives to its executive leadership team should the group meet certain performance targets.

Peabody’s president and chief executive officer Glenn Kellow and the five other members of the executive leadership team are in line for the bonuses under the company’s short-term incentive plan. The incentives hinge on Peabody reaching its target for adjusted earnings before interest, taxes, depreciation, amortization and restructuring costs (EBITDAR) and on achieving certain safety improvement goals.

If the group meets all targets, CEO Kellow would see his pay rising to US$3.9 million from US$1 million, Reuters reports. In April this year, Peabody declared bankruptcy after coal prices collapsed and demand stalled. Peabody had suffered a dramatic fall from grace, after paying US$5.1 billion to acquire major coal-producing assets in Australia in 2011.

In the U.S., cheap natural gas and environmental regulation had led to coal’s downfall in the electric power sector. Abroad, a slowdown in China had hurt both thermal and metallurgical coal demand. China’s demand for steel had slowed, and it is undertaking a shift away from coal because of air pollution, leaving the world’s top coal producers with a vastly smaller market than they had expected just a few years ago.

Economic Watch: Manufacturing Declines, GDP Expectations Lowered

A preliminary look at the nation’s manufacturing sector shows it continues to expand following a recent downturn. Separate reports show expectations of long-term economic growth have been moved lower and the housing market is suffering from low inventory levels.

U.S. goods producers saw a further upturn in overall business conditions during August, though the rate of improvement was softer than seen in July, according to a first reading for the month from the Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) provided by the financial information services provider IHS Markit.

It registered 52.1 in August, down from July’s nine-month high of 52.9. The August reading pointed to a moderate rate of improvement that was weaker the post-Great Recession average. While output continued to rise markedly, total new work rose at a slower pace and employment expanded at the weakest rate in four months.

U.S. manufacturers signaled increased output for the third month running in August. The rate of expansion remained solid overall, having edged up slightly from July to a nine-month high. Anecdotal evidence suggested that new product launches, stronger underlying demand and new marketing strategies supported production growth in August.

This Year, The Deficit Is Rising Faster Than Predicted

Congress left town this August for an extended recess without passing a budget or any required spending bills, and spending has largely been ignored as a major issue in the presidential election. But just because the politicians and media are distracted doesn’t mean the nation’s most critical problems are going away.

Case in point: The Congressional Budget Office just released its updated budget projections, and the unrelenting deluge of spending, debt, and deficits continues to grow larger by the year.

Deficits are back on the rise in 2016, no matter how much the president and others may claim that they’re no longer a problem. And they’re growing faster than expected: The CBO had to increase its deficit projection by $50 billion for this year, up from $540 billion in March to $590 billion in the updated data.

In total, that’s a whopping $150 billion (35 percent) increase in the deficit compared to 2015, amounting to the largest annual increase in the deficit since 2009. Indeed, the CBO estimates that deficits will return to trillion-dollar levels in 2024, just eight years from now. These deficits are projected to feed the rapid expansion in federal debt, which is expected to climb to $28 trillion within 10 years. That’s up from $19 trillion today and almost triple the level of debt held when President Barack Obama took office in 2009. The public debt (the portion of debt traded in credit markets) will continue its worrisome climb, hitting 86 percent of gross domestic product within a decade.

Americans’ Future Quality of Life Will Depend on Keeping People Working

It is becoming increasingly clear that reforming federal policies to keep people in the workforce is the primary economic policy challenge of our time. Americans’ future quality of life will depend on our getting this right.

Americans’ standards of living, and indeed our economic power as a nation, are reflections of our productive output. Only that which we produce can be transmuted into desirable things ranging from the goods that we buy and consume privately, to the public goods that we share, to the strength of our defenses in a dangerous world. While a great deal of our public policy debate focuses on how national wealth is distributed, we cannot distribute what we don’t have. More fundamentally, it is our economic output that determines the quality of life Americans can enjoy.

Our economic growth is basically a function of two primary factors: how many Americans are working, and how productive we are during the hours we work. It is straightforward to understand that the more productive we are, the more wealth we will have together. Indeed, a graph of recent annual growth in Gross Domestic Product (GDP) shows that it is generally higher when our productivity grows faster. Thus a good deal of our prosperity comes from Americans learning to work faster, better, smarter and more efficiently. (Note: multifactor productivity incorporates not only labor productivity but also output on capital services; the GDP decline of 2008-09 arose primarily from decline in the latter.)

As striking as the correlation is between productivity growth and total economic growth, employment growth is perhaps even more important. To be productive, Americans must work. Assuming given levels of productivity, the more Americans who are working, the more wealth our society generates. A similar graph comparing recent annual GDP growth with annual changes in total employment renders this relationship inescapable. Our economic output generally rises (and falls) with the numbers of Americans in jobs.

Government Defends Obamacare, Saying Headlines Exaggerate Costs

As the nation’s largest health insurers dial back on their participation in the exchanges created under the Affordable Care Act (ACA), the Obama administration is fighting back after a slew of negative press.

The U.S. Department of Health & Human Services (HHS) on Tuesday afternoon released an analysis that concludes that even if all premium rates were to rise by double digits next year, the vast majority of Americans who buy coverage through the Obamacare exchanges will still have affordable options.

If all rates increased 25 percent, nearly three-quarters of people who use the exchanges would still be able to purchase coverage for less than $75 a month, according to the agency.

Under Obamacare, consumers are shielded from the impact of rate increases by tax credits that rise along with the premiums, along with their ability to shop for the best plan. Despite projections last year of double-digit rate increases for ACA plans, the average premium rose only $4 a month for Obamacare participants with tax credits, and seven of 10 of those using the exchanges could buy 2016 coverage for less than $75 a month, and 74 percent had an option for $100 or less, the analysis maintained.

Insulin price has now spiked 3,000% in 14 years

Amid reports of the rising cost of EpiPens comes news of another drug that has increased in price. Insulin has gone up in price over the years and there have been diabetes patients who can't afford it.

As a result of not being able to afford insulin, which has to be taken every day, some patients have had to go without. Some have even lost limbs and their sight. Insulin is a drug that is injected and some patients can't take it daily because of its price. Some forms of insulin can cost patients hundreds of dollars, when they don't have health insurance or if they have a high deductible.

One medical professor tracked the price of insulin over the years. They said a one-month supply of a popular version of insulin once cost $45 wholesale. Years later, the price of it increased by almost 3,000 percent to $1,447. That's just the wholesale price and not retail.

The Consumerist quoted a pharmacist and diabetes educator, who said that patients are desperate, so they go without insulin or they skip doses. Sometimes they lower their prescribed dose, but then they end up in the emergency room with long-term complications such as vision problems, leg amputations and kidney failure.

Gerald Celente Predicts Trump Wins White House

The Hidden Risk to the Economy in Corporate Balance Sheets

America has a debt problem, but it's not what you think. Yes, the federal government owes trillions of dollars more than it did a few years ago. Yes, Americans are still struggling to pay off mortgages and student loans. But it's the buildup in debt elsewhere that is most worrying some experts, and the big borrower this time may come as a surprise: Corporate America.

You might think big U.S. companies, if anything, have been too conservative with their finances. They've collectively hoarded hundreds of billions of dollars in cash, instead of spending it to hire workers or expand their operations.

The reality is different, and more worrisome. Much of the cash is held by just a precious few companies, while debt is ballooning at other, weaker businesses as investors desperate for income rush to lend to them. These investors could face losses, perhaps steep, if economic growth falters. The broader economy is also vulnerable because companies with more debt have to cut back further and lay off more whenever downturns hit.

"There's a misconception that companies are swimming in cash," says Andrew Chang, a director at S&P Global Ratings. "They're actually drowning in debt." It turns out there's a wealth gap among companies, just like among people. Of the $1.8 trillion in cash that's sitting in U.S. corporate accounts, half of it belongs to just 25 of the 2,000 companies tracked by S&P Global Ratings. Outside of Apple, Google and the rest of the corporate 1 percent, cash has been falling over the last two years even as debt has been rising. It now covers only $15 of every $100 they owe, less than it did even during the financial crisis in 2008 when finances were crumbling.

There Will Soon Be Only One Howard Johnson Restaurant Left In The Country

In a few weeks, one of two remaining Howard Johnson restaurants will close down, which means that there will only be one remaining to serve up fried clam strips and other favorites of customers past.

After Sept. 6, the HoJo in Bangor, ME, will be closed, the Associated Press reports. One waitress has worked there since 1966 — in the only job she’s ever had — but she’s prepared for the end.

“It’s bittersweet, but it’s nothing to be sad about,” she told the AP. “I’ve been here for 50 years — and it’s time.” In its heyday, the franchise chain — known as Howard Johnson or Howard Johnson’s — boasted more than 800 orange-roofed locations in the U.S. And lest there be any confusion, the restaurants came before Howard Johnson hotels, though they were often paired together. The restaurants served as an easy spot for travelers who could park the car with the family, have a meal, and spend the night.

The husband and wife owners of the Bangor HoJo say they had kept the place going by scaling back to just serving breakfast and lunch in the last four years, but it was just getting too hard.

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