Month: August 2014

By EconMatters  

Fed Dominated Week

Monday

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When we last met Sergei Glazyev, Vladimir Putin’s chief ‘integration’ adviser (who has been regularly featured on these pages in the past (see Putin Adviser Threatens With Dumping US Treasurys, Abandoning Dollar If US Proceeds With Sanctions and Putin Adviser Proposes “Anti-Dollar Alliance” To Halt US Aggression Abroad for two examples) he explained “how the U.S. military and oligarchs are trying to maintain leadership in the global competition with China.”

Arguably the best informed man in Russia, his perspective seems important to grasp as he considers:

“The world today is going through a year of overlapping cyclical crises. This is a period when the global economy is changing as the structure that has driven economic growth for 30 years has exhausted itself. The world needs to transition to a new system and transition has always come about through war…

 

...

 

The last elections to the European Parliament showed that all European citizens are not fooled by the fals pro-American, anti-Russian propaganda… and by the constant stream of lies.

 

…

 

In order to avoid the constant threat of foreign asset confiscation, we need to build our own sovereign monetray macro-economic policy.”

Full must-watch dialogue below:

h/t The Vineyard of the Saker

As Glazyev concluded previously:

To further insulate its economy, Russia should abandon the use of the U.S. dollar as a reserve currency, according to Glazyev. Russia, which international reserves are the world’s fifth-biggest, needs to diversify its holdings to include China’s yuan, India’s rupee and Brazil’s real.  “If a country aspires to reserve status for its currency, it should behave properly, and that isn’t the case today,” Glazyev said.

And this is how Putin sees the world. De-escalation? Good luck.

via Zero Hedge http://ift.tt/1vylGSv Tyler Durden

It’s been 6 years since Lehman went bankrupt overnight, stunning bondholders who were forced to reprice Lehman bonds from 80 to 8 (see chart below) in a millisecond, and launching the world’s worst depression since the 1930s, which courtesy of some $10 trillion in central bank liquidity injections, has been split up into several more palatable for public consumptions “recessions”, of which Europe is about to succumb to the third consecutive one even if for the time being the Fed’s has succeeded in if not breaking the business cycle, then certainly delaying the inevitable onset of the next major contraction in the US economy.

Paradoxically, instead of taking advantage of this lull in volatility and relative economic calm, and making the financial system more stable, all so-called regulation has done, is paid lip service to the underlying problems, hoping that should the next crisis appear the Fed will be able to delay it yet again by throwing countless amounts of taxpayer money at the problem. In the meantime, the biggest banks have gotten so big that the failure of one JPM or Deutsche Bank, and their hundreds of trillions in gross notional derivatives, would lead to the biggest financial and economic catastrophe ever witnessed and make 2008 seem like a fond memory of economic euphoria.

So finally, with a 6 year delay, the western world’s “government leaders” have finally decided to do something about a TBTF problem that has never been more acute. According to Reuters, in November said leaders will agree “that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue, industry and G20 officials said.” In other words, suddenly the $2.8 trillion in Fed injected excess reserves, split roughly equally between US and European banks, are no longer sufficient, and while regulators are on one hand delaying the implementation of Basel III and its tougher capital rules, on the other they are tacticly admitting that whatever “generous” capital buffer banks have on their books right now will not be sufficient when the next crisis strikes.

Enter GLACs.

The bonds which will be issued by the top banks known as “gone concern loss absorption capacity” or GLAC, are seen by regulators as essential to stopping the world’s 29 biggest lenders from being “too big to fail.”

We will have some more to say on the “irony” of that statement in a moment, but here is the punchline – according to the G-20, instead of having to collapse liabilities to offset that scourge of the New abnormal, namely Non-Performing Loans, banks are hoping to lever up, pun intended, the current scramble for yield and instead beef if up their cash asset, even if it means increasing the liability side of the balance sheet by issuing more debt. Because really all the GLAC do is limit how the banks may use the proceeds from such bond issuance. Then again, these being banks, one can be certain that the moment the GLAC cash is wired in, the funds will be used to ramp risk instead of sitting in a drawer somewhere, awaiting rainy days. Because nobody in a bank is paid for avoiding a crisis, and everyone is paid to generate a return even if it means making the systemic bubble even bigger.

The plans are being drafted by the Financial Stability Board, the regulatory task force of the Group of 20 economies which declined to comment ahead of a G20 summit in November, when G20 leaders will discuss the reform before it is put out to public consultation.

 

The reform would put in place the final major piece of G20 regulation on banking as the global body turns to a “post-crisis” agenda of fostering economic growth and bedding down the rules it has approved.

 

There had been unease in Asia and parts of Europe over how big the bond issues need to be to provide this cushion but there is now a new optimism amongst bankers and regulators that the G20 will reach a deal in November.

What is unsaid is that the “unease” was there because banks were unsure there would be enough risk appetite for such bond issuance. But now that the central bank credit bubble is so immense it allows Ebola-stricken African nations to issue bonds at a 7% yield, there is nothing preventing the banks from merely funding their way to stability.

Of course, one has to be an idiot at this point and observe that the “risk buffer” would have to come from retained earnings, not from more debt, the source of the risk in the first place. However in a world in which banks can’t generate either the required GAAP earnings and certainly cash flows, to build said buffer, the G-20 will hope that everyone is dumb enough not to comprehend the fundamental flaw in this brilliant plan.

Speaking of the plan, it continues:

“The industry is definitely in favor of making resolution, supported by an appropriately flexible concept of GLAC, work. That is the key pending aspect on ending too-big-to-fail,” said Andres Portilla, director of regulatory affairs at the Institute of International Finance, a Washington-based banking and insurance lobby.

So according to Mr. Portilla, the solution to a TBTF problem resulting from record amounts of debt is more debt? Ok, just making sure everyone got that.

“What is likely to happen is that there will be a consultative proposal, but without all the detail that a lot of people would like,” Portilla added.

However, a G20 source said a deal was not only expected but would also be more detailed than some parties anticipate, which is essential for conducting a thorough impact assessment before finalizing the rules.  “The authorities and the FSB are working to have a proposal that will contain sufficient granularity of numbers to be a meaningful consultation and quantitative impact study to calibrate the final rule,” the source said.

Top banks expect they will have to hold GLAC bond capital equivalent to about 10 percent of their risk-weighted assets on top of their core capital buffers which currently stand at around 10 percent. But they hope for some leeway if they can show that they can already be wound down smoothly in a crisis because of simplified structures.

The G20 source poured cold water on this, saying regulators believe all the world’s top 29 banks earmarked for tougher supervision will need a significant cushion of such so-called “bail-in” bonds for some time to show they can be shut without public aid.

Regulators ultimately want to price bank debt better and end the cheaper funding that too-big-to-fail banks enjoy because markets assume governments would never allow them to collapse.

And the hilarious conclusion:

“Adopting GLAC is the final chapter in reforming the condition of banks,” said Thomas Huertas, a former UK banks supervisor and now a regulatory consultant with EY.

 

The plans for bail-in bonds are among the last of what G20 officials call the “heavy lifting” on banking industry reforms that came in the aftermath of the financial crisis.

So, to summarize: in lieu of being able to actually generate and retain funds from operations, banks will once again scramble to raise epic amounts of debt, only this time, the proceeds will be retained “pinky swear” as a capital buffer, i.e., cash on the books. Cash which nobody makes a single dime in bonus on anywhere in the bank’s org chart. Would anyone wish to wager how long before the trillions in GLACs are “mysteriously” found to have funded shanty town developments in Shanghai, to buy the S&P500 at the all time high, and naturally, the purchase of a golden commode or two in various US banks? How could this possibly fail…

And the absolutely brilliant punchline: who do these regulators and “leaders” think will be the purchasers of said debt? Why other systemically important, TBTF banks of course! Which means that, in the by now quite familiar “daisy-chaining” of counterparties and collateral, once one bank fails, its exposure via collateral, repo and certainly, funding of other bank balance sheets, everything will promptly freeze as risk reprices, a la Lehman bonds.

Because if one thing is certain when one bank’s liabilities are another bank’s assets, it is that such an arrangement is simply screaming for a systemic crisis to prove to everyone just how dumb this idea was from the get go.

And another certain thing: the only entity on the hook when this plan unravels like a house of cards the second a bank with a few trillion in “assets” collapses, will be the same one as always: the taxpayer. Only this time the total amount that will be handed over to the bankers who control the central banks pulling the strings of the next bail out, will be that much bigger, or X+GLAC for those mathematically inclined.

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Just what Europe needs… more QE… this is the real problem – not only is demand for credit weak in the periphery as the balance sheet recession rolls on, but "real" borrowing costs are at near-record highs… Despite Draghi's earlier comments and promises, cramming SME loans down the throats of borrowers at suppressed risks will do nothing but kill bank balance sheets (most critically the ECB's)…

These are "market" rates… i.e. what real risk is being priced at away from the hand of Draghi…

Chart: BofA

As Dr. Constantin Gurdgiev notes,

In summary, real cost of capital across the euro area 'periphery' shows one simple thing: investment is still a very costly proposition for businesses, especially compared to the pre-crisis period.

 

Spain:

 Two points:

• Current capital cost levels are consistent with crisis peak 
• Capital today is as expensive in real terms as in the pre-euro era.

Which means that Spanish real cost of capital is now as bad as in the pre-euro period and is much worse than during the credit boom of the late 1990s-early 2000s.

 

Italy:

 Two points:

• Just as in Spain, real capital costs in Italy are comparable with peak of the crisis and 
• Capital costs today are more expensive than in the 2000s, but less expensive than in pre-euro era.

Italy's overall real cost of capital is currently comparable to the one observed in the late 1990s, and is higher than the one experienced in the credit expansion period of the early 2000s. That said, the cost uplift on 2000s is relatively moderate.

 

Portugal:

Two points:

 

• Capital costs today is below the peak levels of the crisis in real terms, but is severely elevated relative to 2000s and on-par with pre-euro era costs;
• Capital cost volatility is high and it was high during the entire euro era.

Thus, Portugal's real cost of capital is highly volatile, but on average is higher today than in the entire period from 1997 through 2010.

 

Worse, it is now as expensive than (or comparable to) the cost averages for the pre-euro area period.

*  *  *

The above puts stark contrast between the cost of funding the banks (low) and Governments (historically low today) and real businesses (high).

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ABC News’ Laura Ingraham, Fox News’ Sean Hannity, Fox & Friends and other U.S. media commentators say that Muslims are silent and complicit in the barbarian crimes of ISIS.  Fox News host Andrea Tantaros said that all Muslims are the same as ISIS, and implied that all Muslims should be met “with a bullet to the head”.

Why don’t we hear Muslims condemning the barbarian ISIS terrorists?

Turns out they are loudly condemning ISIS … but our press isn’t covering it.

Father Elias Mallon of the Catholic Near East Welfare Association explains:

“Why aren’t Muslims speaking out against these atrocities?” The answer is: Muslims have been speaking out in the strongest terms, condemning the crimes against humanity committed by ISIS (or, as it is increasingly called, IS) and others in the name of Islam.

Father Mallon is right …

Vatican Radio – an official Vatican news site – reported last month:

Two of the leading voices in the Muslim world denounced the persecution of Christians in Iraq, at the hands of extremists proclaiming a caliphate under the name Islamic State.

 

The most explicit condemnation came from Iyad Ameen Madani, the Secretary General for the Organization of Islamic Cooperation, the group representing 57 countries, and 1.4 billion Muslims.

 

In a statement, he officially denounced the “forced deportation under the threat of execution” of Christians, calling it a “crime that cannot be tolerated.” The Secretary General also distanced Islam from the actions of the militant group known as ISIS, saying they “have nothing to do with Islam and its principles that call for justice, kindness, fairness, freedom of faith and coexistence.”

 

Meanwhile, Turkey’s top cleric, the spiritual successor to the caliphate under the Ottoman Empire, also touched on the topic during a peace conference of Islamic scholars.

 

In a not-so-veiled swipe at ISIS, Mehmet Gormez declared that “an entity that lacks legal justification has no authority to declare war against a political gathering, any country or community.” He went on to say that Muslims should not be hostile towards “people with different views, values and beliefs, and regard them as enemies.”

 

***

 

Gormez said death threats against non-Muslims made by the group, formerly known as Islamic State in Iraq and the Levant (ISIL), were hugely damaging. “The statement made against Christians is truly awful. Islamic scholars need to focus on this (because) an inability to peacefully sustain other faiths and cultures heralds the collapse of a civilization,” he told Reuters in an interview.

The Independent noted last month:

Muslim leaders in Britain have condemned the extremist group Islamic State of Iraq and the Levant (Isis), expressing their “grave concern” at continued violence in its name.

 

Representatives from both the Sunni and Shia groups in the UK met at the Palace of Westminster and relayed their message that the militant group does not represent the majority of Muslims.

 

***

 

Shuja Shafi, of the Muslim Council of Great Britain, said: “Violence has no place in religion, violence has no religion.

100 Sunni and Shiite religious leaders from the U.K. produced a video denouncing the Islamic State, saying they wanted to “come together to emphasise the importance of unity in the UK and to decree ISIS as an illegitimate, vicious group who do not represent Islam in any way.”

Breitbart noted earlier this month:

Two prominent Muslim leaders are urging Muslim men not to join the radical jihadists.

 

“The public have to be critical. This is not about [establishing] a Caliphate [Islamic State]; but [a group] working for its own cause and gains from a sectarian issue,” said Nahdlatul Ulama executive council chair, Slamet Effendy Yusuf.

 

The Nahdlatul Ulama is one of the largest Islamic organizations in the world and concentrates on traditional Islam.

 

***

 

Muhammadiyah, an organization with 29 million members, is more modern, well-known for educational activities, and avoids politics. Secretary Abdul Mu’ti said ISIS does not represent Islam.

 

“That’s my point, this [movement] is not in the context of religion [Islam],” Abdul said. “We all need to question the group’s goals. Don’t just follow radicals who tried to win their own wars in other countries; we will be the ones to suffer losses.”

 

***

 

These men are not the first Muslim leaders to denounce the Islamic State. The International Union of Muslim Scholars (IUMS) spoke out against IS’s expulsion of Christians in Mosul. The group claimed the rejection served to “violate Islamic laws, Islamic conscience and leave but a negative image of Islam and Muslims.”

Al Arabiya News reports that the Arab League Chief denounced acts committed by the Islamic State in Iraq as “crimes against humanity,” demanding that they be brought to justice, and he:

Strongly denounced the crimes, killings, dispossession carried out by the terrorist (ISIS) against civilians and minorities in Iraq that have affected Christians in Mosul and Yazidis.

The Daily Star writes that Egypt’s highest religious authority – Al-Azhar’s Grand Mufti Shawqi Allam –  denounced the Islamic State as a threat to Islam and said that the group violates Islamic law:

[They] give an opportunity for those who seek to harm us, to destroy us and interfere in our affairs with the [pretext of a] call to fight terrorism.

The Council on American-Islamic Relations (CAIR) – the largest Muslim group in the U.S. – called ISIS “un-Islamic and morally repugnant,” noted that the Islamic State’s “human rights abuses on the ground are well-documented,” called the Islamic State “both un-Islamic and morally repugnant” and called the killing of American journalist James Foley “gruesome and barbaric”.  See this, this and this.

The Islamic Society of North America (ISNA) – the largest Muslim organization on the continent –  released a statement denouncing the Islamic State “for its attacks on Iraq’s religious minorities and the destruction of their places of worship.” ISNA President Imam Mohamed Magid said, “ISIS actions against religious minorities in Iraq violate the Quranic teaching, ‘Let there be no compulsion in religion’  … ” adding, “Their actions are to be denounced and are in no way representative of what Islam actually teaches.”  INSA condemned the vicious execution of Foley at the hands of the terrorist group ISIS, terming it as “un-Islamic behaviour”, and said:

ISIS actions have never been representative nor in accordance to the mainstream teachings of Islam. This act of murder cannot be justified according to the faith practiced by over 1.6 billion people.

The head Shia religious leader in Iraq and Sunni religious leaders in Iraq have all condemned – and called for war against – ISIS.

Al Jazeera reports:

Saudi Arabia’s highest religious authority has condemned the armed groups Islamic State and al-Qaeda as apostates and labelled them the “number one enemy of Islam”.

 

***

 

“Extremist and militant ideas and terrorism which spread decay on Earth, destroying human civilisation, are not in any way part of Islam, but are enemy number one of Islam, and Muslims are their first victims” ….

The Muslim Public Affairs Council (MPAC) released a statement condemning “the barbaric execution of American Journalist James Foley by the Islamic State of Iraq and Syria (ISIS).” MPAC urged “all people of conscience to take a stand against extremism” and offered condolences to Foley’s family. MPAC also noted the importance of countering ISIS and other extremist groups by working “to empower the mainstream and relegate extremists to the irrelevance they deserve.”

ISIS and Al Qaeda Are FAKE Muslims

The 9/11 hijackers used cocaine and drank alcohol, slept with prostitutes and attended strip clubs … but they did not worship at any mosque. See this, this, this, this, this, this, this and this. Hardly the acts of devout Muslims.

Huffington Post reports:

Can you guess which books the wannabe jihadists Yusuf Sarwar and Mohammed Ahmed ordered online from Amazon before they set out from Birmingham to fight in Syria last May? A copy of Milestones by the Egyptian Islamist Sayyid Qutb? No. How about Messages to the World: the Statements of Osama Bin Laden? Guess again. Wait, The Anarchist Cookbook, right? Wrong.

 

Sarwar and Ahmed, both of whom pleaded guilty to terrorism offences last month, purchased Islam for Dummies and The Koran for Dummies. You could not ask for better evidence to bolster the argument that the 1,400-year-old Islamic faith has little to do with the modern jihadist movement. The swivel-eyed young men who take sadistic pleasure in bombings and beheadings may try to justify their violence with recourse to religious rhetoric – think the killers of Lee Rigby screaming “Allahu Akbar” at their trial; think of Islamic State beheading the photojournalist James Foley as part of its “holy war” – but religious fervour isn’t what motivates most of them.

 

In 2008, a classified briefing note on radicalisation, prepared by MI5′s behavioural science unit, was leaked to the Guardian. It revealed that, “far from being religious zealots, a large number of those involved in terrorism do not practise their faith regularly. Many lack religious literacy and could . . . be regarded as religious novices.” The analysts concluded that “a well-established religious identity actually protects against violent radicalisation“, the newspaper said. [Here's the Guardian report.]

 

For more evidence, read the books of the forensic psychiatrist and former CIA officer Marc Sageman; the political scientist Robert Pape [Pape found that foreign occupation – and not religion – made certain Arabs into terrorists; the CIA's top Bin Laden hunter agreed]; the international relations scholar Rik Coolsaet; the Islamism expert Olivier Roy; the anthropologist Scott Atran. They have all studied the lives and backgrounds of hundreds of gun-toting, bomb-throwing jihadists and they all agree that Islam isn’t to blame for the behaviour of such men (and, yes, they usually are men).

 

Instead they point to other drivers of radicalisation ….

 

When he lived in the Philippines in the 1990s, Khalid Sheikh Mohammed, described as “the principal architect” of the 11 September attacks by the 9/11 Commission, once flew a helicopter past a girlfriend’s office building with a banner saying “I love you”. His nephew Ramzi Yousef, sentenced to life in prison for his role in the 1993 World Trade Center bombing, also had a girlfriend and, like his uncle, was often spotted in Manila’s red-light district. The FBI agent who hunted Yousef said that he “hid behind a cloak of Islam”. Eyewitness accounts suggest the 9/11 hijackers were visiting bars and strip clubs in Florida and Las Vegas in the run-up to the attacks. The Spanish neighbours of Hamid Ahmidan, convicted for his role in the Madrid train bombings of 2004, remember him “zooming by on a motorcycle with his long-haired girlfriend, a Spanish woman with a taste for revealing outfits”, according to press reports.

And alleged Boston marathon bomber Dzhokhar Tsarnaev was a pothead. And his brother Tamerlan looked more like an ego-driven hustler than a devout Muslim (that’s his Mercedes in the background).

I agree with Bill O’Reilly when he said that it is unfair to call the Norwegian mass murderer a “Christian”.  Likewise, we shouldn’t call Arab terrorists “Muslims”.

Postscript:  I am not a Muslim.  I am, however, American.  And knee-jerk hatred of any group of people based on their religion – including Christians, Jews or Muslims,  – is deeply anti-American.

And the most crazed, radical Islamic terrorists would never have gained power if the U.S. and our allies hadn’t overthrown the more moderate Arab leaders.

via Zero Hedge http://ift.tt/1pUjWlP George Washington

Michael Franzese, a former mob boss for the Colombo crime family in New York (and GoodFellas character), told CNBC, “there’s a bubble there that’s going to burst at some point and when it does it’s not going to be good,” but there is another reason he says investors should avoid the U.S. stock market – “I did a lot of things at times with people on Wall Street.. a lot of guys are shady and they did shady things with me and I don’t trust them. And I don’t like other people that I don’t know really well taking care of my money.” As we noted earlier, his advice is to hold gold (in Physical bullion bars not ETFs), because “there will always be something there,” unlike stocks “where in our country, you go to sleep, everyone tells you everything is wonderful, you wake up and everything is gone.”

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President Obama’s ‘well-earned’ vacation on Martha’s Vineyard is drawing to a close as he heads back to Washington tomorrow. And what a time it’s been. As WaPo notes, his summer vacation has been a mix of golf, world crises, golf, domestic crisis, golf, time on the beach, and — well, you know…

The answer won’t surprise you…

Here’s the president’s vacation, by the numbers:

Days on Martha’s Vineyard this month: 15. The president returned to Washington briefly late last week for two days of meetings, but has otherwise been enjoying the island since August 9.

Rounds of golf: 8. The most notable activity of the president’s vacation, which has brought him criticism from some and defense from others. At the time of writing, the president has hit the links eight times. Given his love of the game, it is likely Obama will try and squeeze in another round or two over the weekend.

Press statements: 3. The president addressed the traveling White House press corps twice last week, and again on Wednesday. His remarks have covered elections in Iraq, the unrest in Ferguson, Mo. and the killing of James Foley. One of the statements took place outdoors, the others came from the canteen of Edgartown School.

Dinners out: 3. The president and first lady have dined out on the town three times while staying at Martha’s Vineyard — in Oak Bluffs, Edgartown and West Tisbury — including a quiet meal with Attorney General Eric Holder and his wife, as well as national security adviser Susan Rice and her husband. The Obamas dined in their house in Chilmark for the rest of the week.

Beach visits: 2. The president, first lady and their family have made two excursions to a beach in Edgartown.

Fundraisers: 1. Two days after Obama arrived on the Vineyard, he hosted a fundraiser in Tisbury at the home of Roger H. Brown and Linda Mason. The tickets ranged from $15,000 to $32,400.

Hikes, bike rides, fireworks displays: 1 each. The president, along with the first lady and their daughter Malia took a ride through a heavily wooded area last Friday. All three were dressed in athletic wear and cycled at a leisurely pace. This Friday, the president and first lady went for a morning hike in the Chilmark woods. Later in the evening, the Obamas took in the annual Oak Bluffs fireworks show.

Possible hugs: At least 1: With his former secretary of state, Hillary Rodham Clinton. After her spokesman promised that she and the president would “hug it out” over their differences on foreign policy, the pair met at a birthday party for Anne Jordan, a longtime friend of the Obamas. According to the White House, the president was “happy to spend time” with the Clintons and “a good time was had by all.” There was no confirmation or denial from the White House of whether the hug actually had taken place.

*  *  *

Next week, the president’s schedule is back to what passes for normal — but he won’t necessarily be back at the White House. He hits the road for a speech to the American Legion in Charlotte, N.C. on Tuesday, and plans to head to New York and Rhode Island for more fundraisers Friday.

Source: The Washington Post

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Events, food purchased away from home and live entertainment are increasingly unaffordable to the bottom 90%.

It's starting to feel like a $5 bill is the new $1 bill: everything that could be purchased with one or two dollars not that long ago is now $5 or even $10. A few days ago I was enjoying the Butte County Fair in California's farmbelt (the Central Valley), and it seemed like a rural county fair was a price baseline that was far enough away from the urban artifice of $100 meals at fancy bistros to reflect the statistically elusive real-world inflation.

Everything was $5, or close to it: the carnival rides for kids: $5. The games (ring toss, etc.): $5. Funnel cakes, cotton candy, etc.: $5.

Whatever wasn't $5 was $10: pulled pork sandwich, etc. There was almost no need for $1 bills, except at the admission booth: adults, $8/day, kids/seniors $4.

So let's add up the costs for a family of two adults and two kids. Let's say the kids each get four rides–that's 4 X $5 = $20 X 2 = $40. Each kid gets two food items: $5 X 2 = $10 X 2 = $20, and gets to play two games: $5 X 2 = $10 X 2 = $20.

That's $80. The parents get something to eat and maybe play a game or two: that another $40. The admission fee is $16 for adults and $8 for the kids, $24. Parking is $5.

The family spends about $150 at the county fair for a day. Add an extra kid or a few other purchases and the cost pushes up to $200.

This trend of $5 being the minimum purchase price and outings costing $200 is not unique to county fairs. Some friends attended a S.F. Giants baseball recently, and they were delighted to buy seats online for a discounted price of $64 each. Add in $25 parking (or $20 in BART train fare) and a few $10 cups of beers and $10 hotdogs, and it costs $200 for two people to attend a major-league baseball game (at least in a desirable locale with a winning team).

Now I readily confess to being frugal. Not making much money for extended periods of time tends to encourage frugality. Frugality is also only way most of us non-silver-spoon types can accumulate capital (savings) to invest in ourselves and our own enterprises.

$200 seems like a lot of money when I think of what else it can buy. $200 bought all the gasoline for our 2,000-mile camping trip last summer (our 1998 Honda Civic gets 40 miles to the gallon on the highway), and all the groceries for our household for a month (recall we have a garden, eat low on the food chain and shop almost exclusively at Costco and ethnic markets).

$200 will buy a new Skil 77 worm-drive Skilsaw ($149.99) or a new designer-label men's suit at a premium outlet (after being dragged to the outlet by foreign friends awhile back, I bought an excellent Calvin Klein suit for less than $200 that will last decades).

Meanwhile, earned income is declining when measured in purchasing power. The median household income in Butte County is about $43,000, and $54,000 nationally.

Courtesy of chartist extraordinaire Doug Short, here is a chart of the changes in median household income since June 2009:

How long can households afford $200 outings as their real (adjusted for purchasing power) incomes continues eroding?

We are constantly reassured that inflation near-zero–2% annually or less. On the ground, it seems that stuff manufactured in the global supply chain is still relatively cheap, as are energy and food, at least compared to what they cost elsewhere or could cost if supply chains get disrupted.

There are no limits on the cost of government services or government-controlled sectors such as healthcare. Our city garbage service fees just jumped from $356 quarterly to $453, a 27% increase. Note to Federal Reserve: 27% is not 2%.

Our monthly healthcare insurance (paid entirely by us, as we're self-employed) leaped $300 per month over the past few years, from $900/month to $1,200/month. These increases add up to thousands of dollars a year. That is not 2% inflation.

Clearly, healthcare, government services, events, food purchased away from home and live entertainment are increasingly unaffordable to the bottom 90%.

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