Anthony Martin’s Weblog

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Not only is it too early to get excited, this is worse than bad.  This is a result of the government's desire to get banks to lend.

So the banks lent to the most logical party: builders.  If the builder defaults, the bank gets the building.  But the bank doesn't really want the building because there is already two years worth of inventory.

Once the builders default, now who will the banks lend to?

Bloomberg News, sent from my iPhone.

U.S. Economy: Housing Starts Unexpectedly Jumped

March 17 (Bloomberg) -- U.S. housing starts in February unexpectedly snapped the longest streak of declines in 18 years, raising optimism the market may be finally finding a floor.

Work began on 583,000 homes at an annual rate, a 22 percent increase from January that was propelled by a surge in condominiums, apartments and townhouses, Commerce Department figures in Washington showed today. A separate report showed gains in producer prices slowed, underscoring a lack of inflationary pressures with the economy in a recession.

“It’s a bit too early to get too excited, but we are nearing the bottom in housing,” said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis, who had forecast an increase in starts.

The lifting gloom pushed up builder shares, led by gains at Toll Brothers Inc., the nation’s largest developer of luxury homes, and Pulte Homes Inc., the largest homebuilder. The Standard & Poor’s 500 Supercomposite Homebuilding Index advanced 6.4 percent to close at 188.92 in New York.

Building permits, a sign of future construction, rose less than starts, indicating construction may again slow. Developers are still contending with record foreclosures that depress prices and profits, and put pressure on the Federal Reserve, which meets today and tomorrow, and the Obama administration to solve the credit crisis.

Starts were projected to fall to a 450,000 annual pace, according to the median forecast of 71 economists surveyed by Bloomberg News. Estimates ranged from 400,000 to 500,000. January’s starts were revised up to 477,000 from a previously estimated 466,000.

More Permits

Permits increased 3 percent to a 547,000 annual pace. They were forecast to drop to a 500,000 annual rate, according to the survey median.

“You get the sense from a lot of the data coming out now that we’re beginning to get to a bottom,” Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts, said in an interview with Bloomberg Television. “We’re not quite there yet.”

The Labor Department reported wholesale prices rose 0.1 percent in February as the cost of energy products, cigarettes, light trucks and household appliances increased.

The increase was less than forecast and followed a 0.8 percent advance in January. Excluding food and fuel, so-called core prices rose 0.2 percent.

Compared with February 2008, producer prices were down 1.3 percent.

Slack, Prices

“There’s just a huge amount of slack now in the U.S. economy and the global economy” that’s keeping prices down, said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “That’s going to hang around for some time.”

Economists predict Labor will report tomorrow that consumer prices increased 0.3 percent in February for a second month. January’s gain was the first in six months. Excluding food and energy costs, consumer prices rose 0.1 percent, according to a Bloomberg survey.

Fed Chairman Ben S. Bernanke said last week that the central bank is “not anticipating deflation,” or a prolonged drop in prices that hurts profits and makes it difficult to repay loans.

Bernanke on Inflation

“We are committed to price stability, we believe we have the tools in place to do that,” Bernanke said March 10 in response to a question after a speech to the Council on Foreign Relations in Washington. “Right now both the objectives for price stability and the objectives for growth are pointing in the same direction and that is for strong support of the economy.”

Fed policy makers will keep the benchmark interest rate near zero following their two-day meeting tomorrow and discuss additional measures to calm the credit crisis, economists said.

Bernanke and his colleagues are examining whether to expand existing asset-purchase and lending programs or initiate fresh measures, such as buying Treasuries. The central bank also is purchasing Fannie Mae, Freddie Mac and Federal Home Loan Bank debt under a program aimed to reduce mortgage costs.

The Commerce report showed construction of single-family homes climbed 1.1 percent to a 357,000 rate. Work on multifamily homes, such as townhouses and apartment buildings, surged 82 percent to a 226,000 pace from 124,000 in January.

Northeast Surges

The increase in starts was led by an 89 percent jump in the Northeast.

Banks need to “go the extra mile” and keep credit flowing to businesses to prevent the economy from worsening, Treasury Secretary Timothy Geithner said in remarks at the White House yesterday. The economy has lost 4.4 million jobs since the recession began in December 2007.

President Barack Obama has pledged a $275 billion rescue to help keep as many as 9 million borrowers in their homes and trim foreclosures. His efforts also include a tax break of up to $8,000 for first-time homebuyers that wouldn’t require repayment.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

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It's going to get much worse.  Raising taxes in California will result in much less revenue, not more.  It will force people to spend less than they are doing already.  Notice they're talking about a $12 billion shortfall by 2010,  but I say at least tripple that.

Bloomberg News, sent from my iPhone.

California Budget Runs $8 Billion Short, Analyst Says

March 13 (Bloomberg) -- California’s revenue over the next 16 months will fall at least $8 billion short of what Governor Arnold Schwarzenegger and lawmakers assumed when they passed a budget in February, the state’s fiscal analyst said.

The shortfall would leave California with a $6 billion deficit by June 2010, after a $2 billion budget reserve is spent, state Legislative Analyst Mac Taylor said in a report to lawmakers today. The shortfall would grow to $12 billion in the fiscal year that begins July 1, 2010, he said.

The new forecast shows how quickly the state’s finances are being upended by the worst recession since the Great Depression. Just three weeks ago, Schwarzenegger and lawmakers agreed to close a record $42 billion deficit with a package of tax increases, spending cuts and borrowing plans that were supposed to leave the government with a surplus 16 months from now.

“Unfortunately, the state’s economic and revenue outlook continues to deteriorate,” Taylor said in the report. “Even in the few weeks since the budget was signed, there have been a series of negative developments.”

The Legislature and governor will need to adopt “billions of dollars in additional solutions” to rebalance the budget, Taylor said.

Schwarzenegger’s budget anticipated an unemployment rate of 9.1 percent this year, a figure that has already been eclipsed as businesses continued to fire workers. In January, the rate reached 10.1 percent.

Rising Taxes

The $130 billion budget signed in February raised the state sales-tax rate to 8.25 percent from 7.25 percent and boosted vehicle license fees to 1.15 percent from 0.65 percent of the value of an automobile.

The spending plan also added 0.25 percentage point to all personal income tax brackets for two years, so that a resident taxed at 8 percent will face an 8.25 percent levy. That increase may drop to 0.125 percentage point depending upon how much money California receives under the economic stimulus measure signed by President Barack Obama. The budget anticipates at least $7.8 billion in such federal funds.

The spending plan also cut $15 billion of spending, half from schools and colleges, and anticipates issuing $5 billion of bonds backed by the state’s lottery, though voters must approve the debt in an election in May.

“Our year of shared sacrifice isn’t over,” said Noreen Evans, a Napa County Democrat and chairwoman of the Assembly Budget Committee. “As grim as it is, this forecast is not even the worst-case scenario facing California. We must be prepared for more bad news to come.”

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

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---------- Forwarded message ----------
From: <governor@governor.ca.gov>
Date: Tue, Mar 10, 2009 at 12:01 PM
Subject: Re:Budget
To: gov.ca.gov@martin-studio.com


Thank you for writing about tax increases included in the budget I recently signed.  I value your input about this important issue during this challenging time.

As you know, our nation is facing an economic crisis, and California is no exception.  In fact, California has been hit the hardest of all states - to the point that we faced a $42-billion shortfall if nothing was done.  Think about that: this deficit is almost half of our annual budget.  Rather than approaching this unprecedented crisis with gimmicks and temporary solutions, we took the difficult but responsible steps to address our $42-billion budget deficit and pass historic bipartisan reform measures.

I did not run for office to increase taxes on Californians or cut funding for crucial state programs.  I hate taxes and while I am fundamentally opposed raising them, I have reluctantly concluded that you cannot erase a $42-billion deficit by cuts alone.  To get us through this economic down-turn, we are temporarily increasing the state sales tax, the vehicle license fee and income tax.   These increases are tied to budget reform, which will go before the voters in a special election.  If the reform passes, the tax increases would sunset in no more than 4 years; however, if the reform fails, the tax increases sunset in 2 years.   To help lessen any negative impact these increases may have on our economy, the budget includes an economic stimulus package that, among other provisions, will help small businesses hire new employees and speed up crucial infrastructure projects to get shovels in the ground and get people back to work.

Just as tax increases were necessary to balance the budget, so were spending cuts.  In fact, the budget makes $14.9 billion in cuts to state programs.  In my office alone, we have reduced costs by more than $700,000, and we will continue to reduce by another 10 percent.  We are also working to make government more efficient by eliminating waste and redundancy in state agencies and departments.

This was a very difficult budget that forced us to make decisions we didn't want to make, but we have turned this crisis into an opportunity to make real, lasting reforms for California.

Sincerely,


Arnold Schwarzenegger

---------- Original message ----------
From: Anthony Martin <amartin75@gmail.com>
Date: Fri, Feb 13, 2009 at 3:22 PM
Subject: Budget
To: Arnold Schwarzenegger <gov@gov.ca.gov>

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Maldonado is a traitorous swine.

Bloomberg News, sent from my iPhone.

California Senate Approves Budget Fix, Ending Impasse

Feb. 19 (Bloomberg) -- The California Senate passed tax increases and spending cuts needed to close a record budget deficit, ending a political deadlock in the Legislature that gripped the Capitol for more almost six days.

The measures moves to the Assembly, where if it is approved would be sent to Governor Arnold Schwarzenegger for his signature.

A $13 billion tax increase passed 27-12 after Republican Senator Abel Maldonado of Santa Maria broke ranks with his party to cast the deciding vote in exchange for support for unrelated changes to election law. His support allowed the budget package to attain the two-thirds majority needed for approval.

“This could be a career-ender for me,” he told reporters in the Senate chamber in Sacramento before the vote. “In difficult times, you need to step up to the plate.”

The Senate action came amid nearly round-the-clock talks. More than a year of economic recession has hammered California’s tax collections, creating a gap in the budget that forced the state to shut down thousands of construction projects, delay payments of income tax refunds and left it with the lowest credit rating of any U.S. state.

While Democrats control both chambers of the Legislature, taxes and budgets must be approved by a two-thirds supermajority equal to 27 of 40 seats in the Senate and 54 of 80 in the Assembly.

Tax-Increase Provisions

The tax increases, totaling as much as $13 billion through June 2010, are part of a budget package backed by Schwarzenegger, a Republican, and Democrats. The Senate also passed proposed cuts to the budget.

The vote broke a deadlock that threatened to drain the state of cash and unnerved investors.

Standard & Poor’s on Feb. 2 cut the rating on $46 billion of California’s bonds to A from A+, giving it the lowest credit grade of any U.S. state. A California bond due in 2036 that pays 4.5 percent interest last traded at 82.8 cents on the dollar to yield 5.75 percent. On Feb. 13, that bond traded for an average 86 cents to yield 5.48 percent, according to Municipal Securities Rulemaking Board data. The higher yield indicates investors believe risk has increased.

Maldonado’s decision to break ranks followed a tumultuous day of lobbying, as Schwarzenegger and Democrats sought to salvage the budget after Senate Republicans ousted their leader for endorsing the tax increase.

Government Overhaul

To secure Maldonado’s support, Democratic leaders decided to take up government overhaul measures he sought, including a plan to create open primaries where Republicans and Democrats are free to select in whichever party’s election they want to participate. The proposal would require voter approval.

The negotiations, conducted behind closed doors in late- night sessions with no public input, drew criticism from some who voted for Maldonado’s changes to break the impasse.

“This is a disgusting process,” said Senator Gloria Romero, a Democrat from East Los Angeles. “This is not good government. This is not political reform. This is old fashioned special interests.”

The revenue proposal would raise the state sales-tax rate to 8.25 percent from 7.25 percent and boost vehicle license fees to 1.15 percent from 0.65 percent of the value of an automobile.

The package doesn’t include a gasoline tax increase, and it would cut a surcharge levied on paid income taxes, depending on how much California receives under the economic stimulus measure signed by President Barack Obama, according to an analysis distributed by Senate Democrats.

Scaling Back Operations

California’s government had slowly began to shut down as politicians debated for four months on how to cut spending or raise revenue to replace lost tax collections.

This week, as no agreement was forthcoming, the state told some 20,000 workers that they may lose their jobs.

The tax increases drew fire from most Republicans, who said they would hurt residents who are already reeling from the worst recession since the 1930s.

“We need to stop treating the taxpayers of California as our personal ATM,” said Senator Tony Strickland, a Los Angeles- area Republican.

To contact the reporter on this story: William Selway in San Francisco at wselway@bloomberg.net

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