The headline of this piece refers to the housing-market disequilibrium that caused our economic troubles and not to its consequence, which is the persistence of a 9 to 10 percent unemployment rate.
Monday, January 31, 2011
Sunday, January 30, 2011
Saturday, January 29, 2011
In the spring of 2009, Dena Cooper received what she thought was a lifeline from the US government. The single mother of four had her monthly mortgage payment cut to $1,000 from $1,500 under a federal programme intended to reduce defaults and foreclosures.
Less than two years later, her housing situation is again critical. Even the lower payments proved too expensive for Ms Cooper once her income as a nurse’s assistant in Morris Plains, New Jersey, was cut after surgery kept her out of work for several months. She has since fallen behind again on her mortgage, joining a growing number of American borrowers who redefault on home loans even after their payments are substantially reduced. “I just can’t get back on my feet,” says Ms Cooper.
Until the housing market recovers there will be no true recovery in consumer spending and the economy will remain dependent of stimulus packages.. how large can the deficit grow?
The US has given Egypt an average of $2bn annually since 1979, much of it in military aid, according to the Congressional Research Service. The combined total makes Egypt the second largest recipient of US aid after Israel.
The White House said on Friday it would review US aid to Egypt based on events in the coming days amid mass protests aimed at ending President Hosni Mubarak's 30-year rule.
Here are some facts about the aid:
- In 2010, $1.3bn went to strengthen Egyptian forces versus $250m in economic aid. Another $1.9m went for training meant to bolster long-term US-Egyptian military cooperation. Egypt also receives hundreds of millions of dollars' worth of excess military hardware annually from the Pentagon.
- The Obama administration has asked Congress to approve similar sums for the 2011 fiscal year.
Will the US provide this level of military aid to a new Egyptian government which may be dominated by the Muslim Brotherhood? if not where will this hardware go?
Friday, January 28, 2011
Thursday, January 27, 2011
Activists trying to oust Egyptian President Hosni Mubarak played cat-and-mouse with police on the streets into the early hours of Thursday, as unprecedented protests against his 30-year rule entered a third day.
Four people were killed in the clashes on Tuesday. An Egyptian security official said that an additional two deaths in Cairo late on Wednesday were caused by a car crash and not by clashes between protesters and police,contradicting comments made earlier by another security source.
The protests, inspired by a popular revolt in Tunisia and unprecedented during Mubarak's strong-handed rule, have seen police fire rubber bullets and tear gas at demonstrators throwing rocks and petrol bombs.
In central Cairo on Wednesday demonstrators burned tires and hurled stones at police. In Suez, protesters torched a government building.
Demonstrations continued well into the night. By the early hours of Thursday, smaller groups of protesters were still assembling in both cities and being chased off by police.
Wednesday, January 26, 2011
A second wave of falling home prices is battering some cities that had escaped the worst of the housing market bust.
Prices in Seattle, Charlotte, N.C., and Portland, Ore., have hit their lowest points since peaking in 2006 and 2007. Denver and Minneapolis are nearing new lows. High unemployment and rising foreclosures are taking a toll even on markets that never overheated during the boom years.
Home values are dwindling in nearly every American market. Prices fell in November in all but one of the 20 cities in the Standard & Poor's/Case-Shiller index released Tuesday. Eight of those markets hit their lowest point since the housing bubble burst.
The damage from the real estate bubble has spread well beyond Las Vegas, Phoenix and Miami, which built frantically during the mid-2000s, and is sapping prices from coast to coast. In many places, prices are expected to keep falling for at least the next six months.
Tuesday, January 25, 2011
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Monday, January 24, 2011
Our disequilibrium course is reflected in the ratio of the median house price to median family income, steady around 4 in the 1990s, recovering to its previous high of 4.15 in 2001, and then surging to the unprecedented high of 5.2 in 2005. Economically, we borrowed massively from future income-based growth in housing demand, financing it by credit creation: from 1997 to 2010, the total market value of housing rose by $4.09 trillion, while mortgage debt rose by $4.52 trillion, a dismal sector performance. Some 23 percent of homeowners owe more than their home is worth on the market, and their demand for goods is restrained by the need to pay down debt. This is the essence of a balance-sheet recession, and is what underlies the so-called Keynesian liquidity trap.
Most postwar recessions also had origins in housing but were much less severe. All past sustained recoveries have been accompanied by a recovery in housing, hence the uncertain sustainability of the current recovery.
The flip side of homeowner negative equity is bank negative equity—to wit, insolvency. The Fed took care of that by relieving the banks of some $1.2 trillion in shaky assets in late 2008, rescuing the system from the consequences of its own decisions, not good policy but deemed by the Fed to be far better than the alternatives. When you are left with no good options, the important lesson for the future is to avoid getting into that bind in the first place and to start rethinking what you have been up to.
The banks were saved but home owners are still loosing on their investment
Sunday, January 23, 2011
Saturday, January 22, 2011
Most everyone is familiar with the disastrous consequences of the war on drugs: drug gangs, drug lords, drug suppliers, gang wars, muggings, robberies, thefts, corruption of judges, prosecutors, and law-enforcement officials, murders, assassinations, overcrowded jails, asset forfeiture, and on and on. The fact is that nothing good is produced by the war on drugs. All the results are bad. If you have any doubts, just ask the people of Mexico, who have experienced the unbelievable number of 30,000 drug war deaths in the last 3 years alone.
Making drugs illegal causes the price to increase, which motivates suppliers to enter the black market to make money. The state gets angry over this economic phenomenon, imposing harsher penalties and more brutally enforcing the laws. That causes prices to go up even more, which motivates more people to enter into the market as suppliers. Ultimately, the black market price gets so high that ordinary citizens are lured into the market in the hopes of scoring big financially.
All the bad consequences of the drug war, however, are not the primary reason for why we should legalize drugs. Freedom is the primary reason to legalize drugs. When the state has the power to put people into jail for ingesting a non-approved substance, there is no way that people in that society can be considered free.
A person is sitting in the privacy of his own living room. He decides to smoke marijuana, snort cocaine, or inject himself with heroin. The state — e.g., the members of Congress, the president, the DEA, the Justice Department — claim the authority to punish the person for doing that.
But it’s that person’s mouth, it’s his body, it’s his health.
Alas, not under terms of the drug war. The state says: We own you, we control you, we regulate you. You do as we say with respect to what you put into your mouth, or else.
How can that possibly be reconciled with fundamental principles of freedom? A society in which freedom is genuine is one in which people are free to engage in any activity, so long as it is peaceful and non-fraudulent. That includes, at a minimum, conduct that could be considered self-destructive.
You want to smoke? That’s your decision. You want to drink? That’s your decision. You want to ingest other drugs, no matter how harmful? That’s your decision. That’s what freedom is all about — the right to live your life the way you want, so long as you don’t initiate force or fraud against others.
Unfortunately, statists take an opposite approach. They say that every person ultimately belongs to society and, therefore, can be controlled and regulated by the state for the benefit of society. Since a person taking drugs is harming society, the collectivist argument goes, the state can send him to his room when he is caught violating drug laws, as much as a parent can do so to a child who violates rules on what he should and shouldn’t put into his mouth.
Most everyone now realizes that government officials benefit tremendously from the drug war, just as drug lords and drug gangs do. There is the ever-burgeoning business of asset forfeiture, including against innocent people, which is a way that the state helps fills its coffers without going through the legislative process of raising taxes. There are the bribes of public officials. And there are simply the jobs that the drug war produces — drug war agents, prosecutors, judges, clerks, and so forth. Thus, it isn’t surprising that among the people who still favor the drug war, government officials and drug lords are at the top of the list. Both groups would be put out of work immediately with drug legalization.
We live in a universe in which bad means beget bad ends. It is not surprising that the drug war produces nothing but bad consequences. Violating a fundamental principle of freedom — what a person chooses to ingest — brings about death, destruction, crisis, chaos, violence, corruption, and other bad consequences. Legalizing drugs would be a major step toward restoring the freedoms of the American people, while also bringing an immediate end to the bad consequences that the drug war produces.
January 21, 2011
Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at The Foundation for Economic Education. In 1989, Mr. Hornberger founded The Future of Freedom Foundation. He is a regular writer for The Foundation’s publication, Freedom Daily. He is a co-editor or contributor to the eight books that have been published by the Foundation.
China is the world’s largest creditor nation. While the US Federal Reserve has overtaken it as the largest owner of US debt, it is China, not the Fed, that determines the world’s attitude towards the US’s financial situation.
After all, the Fed has become the toxic waste depository for all of Wall Street and so consequently must continue its US Treasury buying in order to maintain the illusion that the US financial system is solvent.
China, on the other hand, is a voluntary purchaser of US Treasuries. And what China does, the rest of the world will follow.
With that in mind I want to alert you to the below news story:
China’s Sure Bet
As the dollar wobbles, China is pulling back from U.S. Treasury securities and buying up hard assets around the world. THIS YEAR, FOR THE FIRST TIME EVER, China has been investing more overseas in assets like iron, oil and copper than it puts into U.S. government bonds. China in this year's first half spent $31 billion on hard assets, compared with $23 billion on Treasuries and other U.S. government bonds…China’s preference for hard assets over Treasuries, taken by itself, will put upward pressure on U.S. interest rates and make U.S. economic growth somewhat more difficult…
I’ve commented on this news story previously in other articles. However its importance cannot be overstated. Understand that China CANNOT simply dump US debt on the open market in large quantities without risking a full-scale systemic meltdown (if it did, other US-debt holders would follow suit resulting in a full-scale implosion).
Instead, China must handle this issue delicately until it can risk a direct confrontation with the US without putting its economy at too much risk. With that in mind, consider that China has cut its US Treasury holdings by 7% year over year.
This is a serious warning shot of what’s to come. We’re talking about China dumping some $68 billion in US debt in just one year. Indeed, it is clear China is making moves to continue its ascent to super power status, removing any potential weakness it might face in future conflict with the US (such as overreliance on the US as a trade partner or reserve currency).
To be clear, China has proven itself EXTREMELY adept at matters of international finance/ trade. With that in mind, it won’t openly challenge the US regarding monetary policy or diplomatic matters until it holds ALL the trump cards and can openly challenge the US without exposing its economy to a massive downturn (much as it did with Japan during the fishing boat scuffle).
In that regard, going forward I believe China’s monetary/ economic moves will focus on two areas:
1) Shifting its reserves away from the US Dollar
2) Shifting its trade focus away from the US economy
Regarding #1, over the last five years, China has been on a mega-buying spree of natural resources. Because of its close proximity and natural resource riches, Australia has been the primary focal point of these efforts. Indeed, the below list compiled by The Australian represents just a handful of China’s moves in this regard:
March 2007: Shougang Corp steel group spent $56 million buying 13% or iron ore developer Australian Resources and agreed to fund $US2.1 billion development of the Balmoral South project;
July 2007: CITIC spent $113 million lifting its stake in Macarthur Coal from 11.6% to 19.9%;
September 2007: Queensland government awards Chalco rights to develop $3 billion bauxite project near Aurukun;
September 2007: Anshan Iron & Steel paid $39 million for 13% of Gindalbie Metals and signed $1.8 billion joint venture deal to fund Karara iron ore project in WA;
January 2008: consortium of five Chinese companies given FIRB approval to fund $3 billion Oakajee port and rail project in WA;
January 31, 2008: Shougang Corp spent $400 million buying another 20% of WA iron ore company Mt Gibson Iron, but has since been forced to sell for breaching takeover rules;
January 25, 2008: Sinosteel spent $100 million for more than 10% of WA iron ore hopeful Midwest Corp;
February 3, 2008: Chinalco spent $15.5 billion for 9% of Rio Tinto shares in London;
February 26, 2008: China Metallurgical Group announces proposed $400 million acquisition of Cape Lambert Iron’s namesake WA project. CMG already owns 20% of nearby $5 billion Sino Iron Project;
April 28, 2008: FIRB approves China Petrochemical Corporation paying $600 million for 60% control of the Puffin oil field in the Timor Sea, the first time a foreign government has operated an Australian oil field;
April 29, 2008: Midwest board recommends agreed $1.36 billion bid from Sinosteel priced at $6.38 a share.
Again, I want to stress that list represents just a handful of China’s moves in the natural resource space (my own research shows China grabbing as much as $20 billion worth of Australian resource companies from February-April 2009 ALONE).
As a stand-alone subject, these purchases can be taken as China merely trying to satisfy its economic demands. However, taken in the context of China’s dumping of US Treasuries, these moves are clearly part of a monetary shift away from US Dollar denominated assets.
Indeed, aside from its acquisitions of natural resource deposits, China’s shift away from US Dollar denominated assets has also involved it heavily investing directly in commodities themselves:
China’s Gold Imports Surge Five-Fold
Gold imports into China have soared this year, turning the country, already the largest bullion miner, into a major overseas buyer for the first time in recent memory.
The surge, which comes as Chinese investors look for insurance against rising inflation and currency appreciation, puts Beijing on track to overtake India as the world’s largest consumer of gold and a significant force in global gold prices.
The size of the imports – more than 209 tonnes of gold during the first 10 months of the year, a fivefold increase from an estimate of 45 tonnes last year – was revealed on Thursday. In the past, China has kept the volume secret.
Thus, we see China addressing its first weakness concerning the US (an over-investment in US Dollar assets) by moving out of US Treasuries and buying up natural resources and commodities (US Dollar hedges).
Regarding its second weakness related to the US (an overreliance on the US for trade), over the last five years China has been aggressively expanding its trade with non-US countries. Consider the table below:
As you can see, in just four years, the US has gone from accounting for nearly a third of China’s exports to less than a quarter. That is a MASSIVE shift in less than a decade (at this pace the US will be down to just 15% of China’s exports by 2015).
All of the moves I’ve outlined thus far, while hugely significant, have not involved China explicitly stating it was moving against the US and its currency. Indeed, to most commentators, China’s moves to acquire natural resources and commodities have been seen in the context of feeding its economic demands.
However, once you step back and begin to look at these moves in the context of China trying to rid itself of an over-reliance on the US currency and economy, this latest decision to dump the Dollar for all trade with Russia represents the first monetary move China has made that explicitly involves dumping the US Dollar.
This in turn should serve as a major red flag that going forward China will be challenging the US more explicitly which will most likely lead to trade wars and potentially even a physical war.
Indeed, we’ve already seen hints of this a few months ago when the US moved to put tariffs on Chinese tires. China responded by increasing duty taxes on US automotive parts and poultry.
Expect to see more of this. As in MUCH more of this. China has made it clear that it is NOT pleased with the US’s current monetary policy (China has blamed the Fed for its inflation woes with some officials going so far as to label the Dollar’s status as a reserve currency, “absurd”). The US has in turn responded by labeling China a currency manipulator and blaming it for the US’s economic woes.
This issue will continue to fester between the two countries and is likely to break out into more direct confrontations going forward. Considering the wide array of sectors that China exports to the US, virtually every good you can imagine will be at risk of potential price hikes due to potential supply shortages from tariffs or trade wars in the coming years.
PS. If you’re getting worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.
I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).
Again, this is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com and click on FREE REPORTS.
PPS. We ALSO publish a FREE Special Report on Inflation detailing three investments that have all already SOARED as a result of the Fed’s monetary policy.
You can access this Report at the link above.
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Friday, January 21, 2011
Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.
Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.
But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.
Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.
Austerity is about to hit... like it or not
The claim: A White House fact sheet released Wednesday to coincide with the state visit of Chinese President Hu Jintao said: "In preparation for this visit, several large purchases have been approved including for 200 Boeing airplanes. ... The approval, the final step in a $19 billion package of aircraft, will help Boeing maintain and expand its market share in the world's fastest growing commercial aircraft market."
What we found:
The deal President Hu signed does not include any new jet orders.
Delivering the formal approval during Hu's visit is designed to make the Chinese government appear responsive to U.S. concerns about the balance of trade.
I guess that all politicians try to spin in their own favor... but does it help when it is so blatant
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Thursday, January 20, 2011
Social Security is unraveling, and aligning its outlays to its income requires a new understanding of tough truths.
Social Security is imploding before our very eyes. As I laid out in The Fraud at the Heart of Social Security (January 17, 2011) and To Fix Social Security, First Ask Why It Is Deep in the Red (January 18, 2011), the system is already running massive deficits in 2010 that weren't supposed to occur until 2018, and the deficit in 2011 is transpiring 15 years earlier than the seers at the Social Security Administration (SSA) anticipated.
There is no mystery why the system's revenues are collapsing: 9 million jobs have vanished, and millions more have slipped from full-time to part-time or temporary. The Social Security payroll tax (including the Medicare sliver) is 15.3% of payroll. So as total payroll plummets, so does Social Security's revenue.
Roughly 8% of all private-sector jobs have vanished for good, despite what various cheerleaders project. Another 8% have slipped to "part-time for economic reasons," and another 15% are self-employed/free-lance/contract workers who have seen their incomes decline by 5%.
All of these factors have reduced taxable wages and income, cutting Social Security's tax receipts by $66 billion just from 2009 to 2010. As noted yesterday, The End of (Paying) Work (January 21, 2009) is not cyclical, it is structural, and the decline is far from playing out. SSA payroll tax receipts will not recover to 2009 levels, they will continue to decline.
Wednesday, January 19, 2011
The single biggest problem in the U.S. real estate market is simple: There are very few homebuyers.
That seems obvious, but the “buyers’ strike” has caused house prices to drop, along with an epidemic of foreclosures. What’s worse, the long depression in real estate is probably not over. S&P has forecast that home prices will drop by 7% to 10% this year. The S&P Case-Shiller Index has dropped for most of the 20 largest real estate markets over the last several months. RealtyTrac recently reported that more than one million homes were foreclosed upon in 2010.
Many economists argue that the housing market may take four or five years to recover. Even if that’s proven to be true, the all-time highs of 2006 may never be reached again.
A true recovery depends on the stabilization of the housing market... no recovery in consumer spending until house prices stop dropping.
Tuesday, January 18, 2011
Two weeks after we presented Niall Ferguson's video lecture - "Empires On The Verge Of Chaos" to tremendous reader response and almost 30,000 views, we follow up with another must watch video presentation, this time highlighting the intellectual rigor of Ferguson, David Gergen and Mort Zuckerman. The topic once again is the Financial Crisis, and specifically how, why and whether it will lead to America's decline. Of particular note is Ferguson's spot on characterization of the primary deficiency in the so-called brains of economists, namely that they see patterns, equilibria and stable systems where there are absolutely none: i.e., in the complex (as in Lorenzian) world of economics: "Complex systems look like they are in equilibrium, but they are not: they are constantly adapting, highly decentralized, interdependent systems and this process of adaptation can continue for quite a long time. And you think to yourself when you look at it, that's in a wonderful equilibrium. That's how we think about the economy. That is how economists teach economics. They talk about it in terms of equilibrium. The bad news is that in fact we inhabit a complex system that has virtually nothing to do with the neoclassical model that you are taught in Econ 101. And that's why the economists failed to predict the financial crisis... For me American power if you generalize beyond the realm of finance through the geopolitical system is a perfect example of a highly complex system which looks like it is in equilibrium but like all the great empires of the past is quite close to the edge of chaos. And our nightmare scenario should be that something happens to us like happened to the Soviet Union... It suddenly just falls apart. And I think the trigger, the catalyst if you want to switch to chaos theory the butterfly in the tropical rainforest that flaps its wings and posits the distant thunderstorm is going to be the credibility of fiscal policy. That just seems to me like the obvious place where things can turn nasty, and they turn nasty with amazing speed."
Monday, January 17, 2011
In India, people are upset about onions. Expensive cooking oil is causing hoarding in China, a practice banned by the government. Meanwhile, flour and bread are the main source of riots in Algeria and now Jordan.
Worries over food prices are gathering pace and triggering alarm among politicians across the world. For there is nothing more likely to bring down a government than ignoring starving citizens, as Marie Antoinette found to her cost during the French Revolution and the Tunisian ruler found this week when he was toppled by rioting protestors.
Rice, the main food of most Asian countries, is seeing relatively stable prices thanks to good harvests from Thailand. It is countries reliant on wheat, the biggest global staple, that are likely to see the most civil discontent, especially in Africa.
Ironically, global stockpiles of wheat are higher than they have been in years, despite the fact that the price has hit a record of more than £200 per tonne in London, having risen 90pc during last year.
Part of the problem is that the food isn't going where it's needed. And partly futures prices are rising on fear of supply shortages to come.
If basic food becomes the subject of speculation by hedge funds and TBTF banks such as J P Morgan then the world is in for a hard time and there will be considerable unrest
Commodities enthusiasts are investing five years too late, according to legendary fund manager Anthony Bolton.
"The best time for commodities was in 2006, when the whole world was growing above trend," said Mr Bolton, who manages the Fidelity China Special Situations investment trust.
"Western economies are anaemic at the moment, and I am not sure emerging market growth is enough to keep commodities going."
Despite many managers believing that commodities are a key part of the emerging markets story, Mr Bolton holds only one commodities stock in his fund, a gold mine.
It is uncertainty about America that is keeping Mr Bolton from increasing his exposure to commodities. While China is experiencing a bull market, he warned that the "stars of one bull market are not necessarily the stars of another".
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Sunday, January 16, 2011
In any given month, the government’s income dwarfs its debt-service obligations, which means that the government could simply pay all interest on Treasury bonds out of its cashf ...
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Friday, January 14, 2011
As the financial struggles of cities and states become ever more worrisome to investors, the market in their debt has hit its lowest level since the financial crisis, the Wall Street Journal reports.
It's been a dismal few months for local governments. The market in their bonds fell every day this week, the WSJ reports, capping a nine-week stretch of net selling, an indication of investor pessimism. As investors get skittish, and as ratings agencies affix downgraded labels, cities and states will find it increasingly more difficult to resolve their financial woes.
In a sign of local governments' worsening plight, it became even more expensive for them to borrow money Thursday, as yields on 30-year high-rated debt rose to 5.01 percent, the first time that figure has broken five percent since the financial crisis.
Some experts believe a large-scale crisis in the roughly $3 trillion municipal bond market isn't possible, given the long-term nature of local government debt. But a growing group of veteran players says municipal budget strains could plunge the country into another financial crisis. JPMorgan CEO Jamie Dimon this week echoed analyst Meredith Whitney, investor Warren Buffett and others, as he said he expects more cities to declare bankruptcy.
"Be very, very careful," Dimon said, according to Bloomberg.
The new mantra of the Republican Party is the old mantra -- regulation is a "job killer." It is certainly possible to have regulations kill jobs, and when I was a financial regulator I was a leader in cutting away many dumb requirements. But we have just experienced the epic ability of the anti-regulators to kill well over ten million jobs. Why then is there not a single word from the new House leadership about investigations to determine how the anti-regulators did their damage? Why is there no plan to investigate the fields in which inadequate regulation most endangers jobs? While we're at it, why not investigate the areas in which inadequate regulation allows firms to maim and kill. This column addresses only financial regulation.
Deregulation, desupervision, and de facto decriminalization (the three "des") created the criminogenic environment that drove the modern U.S. financial crises. The three "des" were essential to create the epidemics of accounting control fraud that hyper-inflated the bubble that triggered the Great Recession. "Job killing" is a combination of two factors -- increased job losses and decreased job creation. I'll focus solely on private sector jobs -- but the recession has also been devastating in terms of the loss of state and local governmental jobs.
Thursday, January 13, 2011
History is littered with the carcasses of men that in their exaggerated hubris attempted to stop the forces of nature and the markets only to fall flat on their faces. We tell the stories of these men in history books and myths from prehistory, but it never stops men of successive generations from trying it all over again. What the current political class the world over (at the behest of Wall Street financial terrorists and other big corporate interests) are doing falls into the same exact formula of prior historical failures. Some of the historical figures that attempted to beat back nature were great warriors or kings that just reached too far. Some of them were evil megalomaniacs whose desire was nothing short of absolute power in their hands over any of the unfortunate human beings that happened to be in the way. Ben Bernanke is neither of these. He is a just a little dweeb with an electronic printing press. Tragically, because of modern technology and the way the monetary system works today he has the ability to cause more damage than any other one person in the history of mankind and he is doing it. I shudder to contemplate the ultimate effects of the inflationary holocaust he has unleashed on the six billion mesmerized and helpless souls present on earth at this time. The signs are starting to show up again just like in early 2008. Food is becoming scare at a “reasonable” price in many parts of the globe and the symptoms of this are starting to bubble up to the surface. For example in recent days we have witnessed food riots in Algeria and Tunisia where at least 14 people are reported to have died in each country.
Its all in the timing.. the Fed still has enough firepower to delay the collapse for perhaps years and in that time any number of things can change.
Tuesday, January 11, 2011
The financial implosion in Europe reached a new chapter this week with both China and Japan stepping forward to buy bonds from EU or EU rescue funds. The export markets have showed up with cash in hand. Importers can rejoice, funds have arrived. That’s the good new’s, the bad news is the same issues. Europe is relying on its vendors to keep the party rolling.
Vendor financing is one of the last stages of a blow off bubble in reallocation of capital. We have a snake eating itself and discussing how good the meal tastes. This won’t end well. The ability to kick the can down the road, is rapidly shrinking. The half-life of how long a special interventions lasts is dropping. This wont continue long. There is no “Shock or Awe” in the actions taken at this point.
The interesting aspect of the Chinese purchase is that it is rumored to be a Sovereign 144 private placement. That is, China and the Sovereign in question, will do a deal in private where the details are not subject to public transparency. This allows the Sovereign in question to raise funds with out the Bond Vigilantes adjusting the selling prices.
Monday, January 10, 2011
There is a telling detail in the US retail chain store data for December. Stephen Lewis from Monument Securities points out that luxury outlets saw an 8.1pc rise from a year ago, but discount stores catering to America’s poorer half rose just 1.2pc.
Tiffany’s, Nordstrom, and Saks Fifth Avenue are booming. Sales of Cadillac cars have jumped 35pc, while Porsche’s US sales are up 29pc.
Cartier and Louis Vuitton have helped boost the luxury goods stock index by almost 50pc since October. Yet Best Buy, Target, and Walmart have languished.
Such is the blighted fruit of Federal Reserve policy. The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs.
Yet surely Ben Bernanke’s `trickle down’ strategy risks corroding America’s ethic of solidarity long before it does much to help America’s poor.
The gap between rich and poor is widening with the middle class shrinking... a recipe for class conflict
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Sunday, January 9, 2011
The implications of the crash of 2008 have made one thing very clear. China has emerged as the engine of growth in the world. The US became the land of sub-prime loans, and Europe is the land of finely dressed paupers. The Europe of today is not the Europe of old.
When the economic crash came, it took a second Marshall plan, with the US pouring trillions of US dollars into European banking subsidiaries, helping to prop up the western economic system.
The reality is that European bankers did not have the capital to cover the trades they held on their books. Risk management is Risk management. You only have to look to the rogue French trader for context of the risk management controls in place during the build up to 2008.
A full two years have passed, and the only area in the world where the economic storm is still unfolding is in Sovereign European finances. The US has many economic issues of its own, but let’s be honest. The US Treasury, with access to the Federal Reserve system as it stands today, has a self funding structure unlike that to which the EU has access.
The EU understands it doesn’t have access to real capital on the scale that the US Fed/Treasury do. Ergo, they’ve raised their deposited capital to 10 Billion Euros from its earlier 5 Billion. Yes, those are real numbers.
Saturday, January 8, 2011
U.S. investigators have gone to court to demand details about WikiLeaks' Twitter account, according to documents obtained Saturday – the first revelation about the criminal case Washington is trying to build against those who leaked classified U.S. documents.
WikiLeaks founder Julian Assange said he believed other American Internet companies such as Facebook and Google may also have been ordered to divulge information on himself and colleagues.
The U.S. District Court for the Eastern District of Virginia issued a subpoena ordering Twitter Inc. to hand over private messages, billing information, telephone numbers, connection records and other information about accounts run by Assange and others.
The subpoena also targeted Pfc. Bradley Manning, the U.S. Army intelligence analyst suspected of supplying the site with classified information; Birgitta Jonsdottir, an Icelandic parliamentarian and one-time WikiLeaks collaborator; and Dutch hacker Rop Gonggrijp and U.S. programmer Jacob Appelbaum, both of whom have worked with WikiLeaks in the past.
The subpoena, dated Dec. 14, asked for information dating back to November 1, 2009.
Privacy is a thing of the past.. anything committed to electronic media is fair game
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Friday, January 7, 2011
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