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Thursday, July 16, 2009
There is no Economy left to Recover
There is no economy left to recover. The US manufacturing economy was lost to offshoring and free trade ideology. It was replaced by a mythical "New Economy."
The "New Economy" was based on services. Its artificial life was fed by the Federal Reserve's artificially low interest rates, which produced a real estate bubble, and by "free market" financial deregulation, which unleashed financial gangsters to new heights of debt leverage and fraudulent financial products.
The real economy was traded away for a make-believe economy. When the make-believe economy collapsed, Americans' wealth in their real estate, pensions, and savings collapsed dramatically while their jobs disappeared.
The debt economy caused Americans to leverage their assets. They refinanced their homes and spent the equity. They maxed out numerous credit cards. They worked as many jobs as they could find. Debt expansion and multiple family incomes kept the economy going.
And now suddenly Americans can't borrow in order to spend. They are over their heads in debt. Jobs are disappearing. America's consumer economy, approximately 70% of GDP, is dead. Those Americans who still have jobs are saving against the prospect of job loss. Millions are homeless. Some have moved in with family and friends; others are living in tent cities.
Meanwhile the US government's budget deficit has jumped from $455 billion in 2008 to $2,000 billion this year, with another $2,000 billion on the books for 2010. And President Obama has intensified America's expensive war of aggression in Afghanistan and initiated a new war in Pakistan.
Link
The "New Economy" was based on services. Its artificial life was fed by the Federal Reserve's artificially low interest rates, which produced a real estate bubble, and by "free market" financial deregulation, which unleashed financial gangsters to new heights of debt leverage and fraudulent financial products.
The real economy was traded away for a make-believe economy. When the make-believe economy collapsed, Americans' wealth in their real estate, pensions, and savings collapsed dramatically while their jobs disappeared.
The debt economy caused Americans to leverage their assets. They refinanced their homes and spent the equity. They maxed out numerous credit cards. They worked as many jobs as they could find. Debt expansion and multiple family incomes kept the economy going.
And now suddenly Americans can't borrow in order to spend. They are over their heads in debt. Jobs are disappearing. America's consumer economy, approximately 70% of GDP, is dead. Those Americans who still have jobs are saving against the prospect of job loss. Millions are homeless. Some have moved in with family and friends; others are living in tent cities.
Meanwhile the US government's budget deficit has jumped from $455 billion in 2008 to $2,000 billion this year, with another $2,000 billion on the books for 2010. And President Obama has intensified America's expensive war of aggression in Afghanistan and initiated a new war in Pakistan.
Link
This isn't a Recession, This is Collapse
(snippet)
Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin. If you think this idea is outrageous, then you’ve still not come to terms with a core reality of our current situation: the structure of this financial crisis is wholly different than any in our post-war era. This isn’t a recession. This is collapse.
In Recession vs. Collapse published in March, this blog explained that in a normal recession existing savings are used to support government debt issuance and that those who remain employed increase their savings to also support government debt issuance.
Neither phenomenon is at work today. Yes, the savings rate has soared in the US. But this has not resulted in any actual accrued savings. Because private sector debt came to define the internal structure of the US system, savings currently is little more than debt service. Also, bank purchases of US Treasuries are really just a result of the circularity of monetization. It’s just money from the FED being recycled into Treasuries. There is no privately driven growth of bank deposits, in the aggregate. Americans as a class are broke. What the savings rate more accurately measures is a collapse of consumer spending.
Link
Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin. If you think this idea is outrageous, then you’ve still not come to terms with a core reality of our current situation: the structure of this financial crisis is wholly different than any in our post-war era. This isn’t a recession. This is collapse.
In Recession vs. Collapse published in March, this blog explained that in a normal recession existing savings are used to support government debt issuance and that those who remain employed increase their savings to also support government debt issuance.
Neither phenomenon is at work today. Yes, the savings rate has soared in the US. But this has not resulted in any actual accrued savings. Because private sector debt came to define the internal structure of the US system, savings currently is little more than debt service. Also, bank purchases of US Treasuries are really just a result of the circularity of monetization. It’s just money from the FED being recycled into Treasuries. There is no privately driven growth of bank deposits, in the aggregate. Americans as a class are broke. What the savings rate more accurately measures is a collapse of consumer spending.
Link
Mass exodus out of NY? Terrifying 57% Tax Hike Looming
Congressional plans to fund a massive health-care overhaul could have a job-killing effect on New York, creating a tax rate of nearly 60 percent for the state's top earners and possibly pressuring small-business owners to shed workers.
New York's top income bracket could reach as high as 57 percent -- rates not seen in three decades -- to pay for the massive health coverage proposed by House Democrats this week.
Link
New York's top income bracket could reach as high as 57 percent -- rates not seen in three decades -- to pay for the massive health coverage proposed by House Democrats this week.
Link
Wednesday, July 15, 2009
Connecticut on the brink of collapse
Cash-poor Connecticut may sell land, buildings
Wed, Jul 15 19:03 PM EDT
NEW YORK (Reuters) - Connecticut, one of a handful of states that missed its budget deadline, on Wednesday began drawing up a list of assets to sell, from buildings to a seaside site, to help close a two-year $8 billion deficit.
Though Republican Governor Jodi Rell and Democratic lawmakers agreed not to disclose their budget talks after she vetoed their proposal, Rell in a statement said "the concept of raising revenue from the sale of state assets has been embraced by all those involved in negotiations."
The Democrats wanted to raise $112 million by selling state property. Rell, who faulted them for not saying what should be sold, has now told all state agencies to use their creativity to find candidates, including capital equipment.
"We must consider parting with those parcels or buildings that we would not have considered in the 'ordinary' course of business or that we would like to hold onto because of stunning natural settings, such as the Seaside property in Waterford," she said.
Connecticut's properties include the Seaside Regional Center in Waterford and a former tuberculosis sanitorium. Rell's spokesman could not immediately say if that was the site that might be sold. Shore properties can still command handsome prices though values have fallen during the recession.
Next week, Democrats should reconvene to consider overturning Rell's vetoes. She also sent them her budget director's forecast that 14 of the bills she vetoed would cost the state $1.5 billion a year.
Her list included a green buildings tax credit, a way to help municipal, nonprofit and small business employees self-insure health care via the state health plan, and creating an authority, run by an appointed individual, to "take over health care policy and decision-making."
(Reporting by Joan Gralla; Editing by Diane Craft)
Wed, Jul 15 19:03 PM EDT
NEW YORK (Reuters) - Connecticut, one of a handful of states that missed its budget deadline, on Wednesday began drawing up a list of assets to sell, from buildings to a seaside site, to help close a two-year $8 billion deficit.
Though Republican Governor Jodi Rell and Democratic lawmakers agreed not to disclose their budget talks after she vetoed their proposal, Rell in a statement said "the concept of raising revenue from the sale of state assets has been embraced by all those involved in negotiations."
The Democrats wanted to raise $112 million by selling state property. Rell, who faulted them for not saying what should be sold, has now told all state agencies to use their creativity to find candidates, including capital equipment.
"We must consider parting with those parcels or buildings that we would not have considered in the 'ordinary' course of business or that we would like to hold onto because of stunning natural settings, such as the Seaside property in Waterford," she said.
Connecticut's properties include the Seaside Regional Center in Waterford and a former tuberculosis sanitorium. Rell's spokesman could not immediately say if that was the site that might be sold. Shore properties can still command handsome prices though values have fallen during the recession.
Next week, Democrats should reconvene to consider overturning Rell's vetoes. She also sent them her budget director's forecast that 14 of the bills she vetoed would cost the state $1.5 billion a year.
Her list included a green buildings tax credit, a way to help municipal, nonprofit and small business employees self-insure health care via the state health plan, and creating an authority, run by an appointed individual, to "take over health care policy and decision-making."
(Reporting by Joan Gralla; Editing by Diane Craft)
The US Is Insolvent: Proof
Facts: The US must sell over 2 trillion in debt. Any ideas? (Besides keep printing money.)
Sprott June 2009
Sprott June 2009
88% of UK Pension Funds in the RED-US Pension Funds sue..
The scale of the pensions crisis was laid bare yesterday as figures showed the deficit in company schemes had soared above £200billion. A staggering 88 per cent of the country's 7,400 defined-benefit pension schemes face a shortfall amid pressure from falling stocks and people living longer. In June 2007, pension funds were registering a surplus of more than £100billion. A year later this had turned into a deficit of £13billion. But yesterday's figures from industry safety net the Pension Protection Fund showed the shortfall between assets and liabilities in the 7,400 plans rocketed to £200.1billion at the end of June.
Link
U.S. pension fund sues Moody's, S&P, Fitch
NEW YORK, July 15 (Reuters) - Calpers, the biggest U.S. public pension fund, has sued the three largest U.S. credit rating agencies for giving perfect grades to securities that later suffered huge subprime mortgage losses.
Tuesday, July 14, 2009
Harry Dents Forecast: Depression 2010-2011
Stock Market will retrace 50%. Sell your Real Estate NOW! New wave of collapse will come in the fall. Interest rates will go up. No Recovery. Prepare for a depression.
Jobless benefits run out in record numbers
With the recession midway through its second year, the number of people running out of jobless benefits has reached a record high.
Just as first-time claims for unemployment insurance surged in the sour economy, final payments – made when laid-off workers have exhausted their initial benefits and all extensions – are climbing, with Mecklenburg County numbers more than double from a year ago.
As a result, more people are seeking help from already strained assistance agencies and trying to find creative ways to generate income, from babysitting to braiding hair to refinancing loans to taking on roommates.
(snippet)
The current recession, however, is the worst since at least the early 1980s and possibly the Great Depression, economists say. That severity plus the Charlotte region's robust population growth in recent years have resulted in the record number of people running out of benefits.
The next several weeks probably won't bring much relief. Although many economists say layoffs have slowed, most companies haven't resumed hiring. Job seekers also compete in a larger labor pool during the summer, when students, teachers and new graduates search for work.
Given that outlook, even people who haven't yet exhausted jobless benefits are searching for other sources of income.
Link
Just as first-time claims for unemployment insurance surged in the sour economy, final payments – made when laid-off workers have exhausted their initial benefits and all extensions – are climbing, with Mecklenburg County numbers more than double from a year ago.
As a result, more people are seeking help from already strained assistance agencies and trying to find creative ways to generate income, from babysitting to braiding hair to refinancing loans to taking on roommates.
(snippet)
The current recession, however, is the worst since at least the early 1980s and possibly the Great Depression, economists say. That severity plus the Charlotte region's robust population growth in recent years have resulted in the record number of people running out of benefits.
The next several weeks probably won't bring much relief. Although many economists say layoffs have slowed, most companies haven't resumed hiring. Job seekers also compete in a larger labor pool during the summer, when students, teachers and new graduates search for work.
Given that outlook, even people who haven't yet exhausted jobless benefits are searching for other sources of income.
Link
26% Of Mortgage Defaults have the ability to make the payments
Reporting from Washington -- Would you, under any circumstances, default on your home mortgage, even if you could afford to make the monthly payments?
That's a trickier question than you might assume, according to new research from the University of Chicago's Booth School of Business and Northwestern University's Kellogg School of Management.
The study found that 26% of the record numbers of home mortgage defaults across the country are "strategic" -- that is, calculated economic decisions to bail out of loans by owners who actually have the money to make the payments but can't handle the negative equity they're carrying caused by local property value declines.
Nationwide, according to data from Zillow.com, 22% of all homeowners were underwater, with mortgage debts that exceeded their home values, in the first quarter of 2009.
In some parts of California and Nevada, more than half of all households have negative equity. In a few localities, the size of the equity deficit is staggering: In the Salinas, Calif., metropolitan area, for example, the median equity for people who bought their homes in 2006, near the peak of the boom, is now a negative $214,305, according to the study.
When researchers questioned two nationally representative statistical samples of households about strategic defaults, they found that moral and social beliefs play a constraining role, but negative equity and the frequency of defaults in local ZIP Codes have significant contrary effects.
Link
Does Goldman Sachs Run the Government?
Everyone agrees that Goldman Sachs pretty much runs the government's economic and financial agencies.
As the New York Times explained last October in a must-read 4 page article, the presence of Goldman Sachs alumni in virtually all of the top government financial posts is so great that their team is dubbed "Government Sachs":
Indeed, Goldman’s presence in the [Treasury] department and around the federal response to the financial crisis is so ubiquitous that other bankers and competitors have given the star-studded firm a new nickname: Government Sachs.
The Times points out that Goldman alums include:
* Former treasury secretary Hank Paulson
* Paulson's bailout chief Neel Kashkari
* Interim Treasury investment officer Reuben Jeffrey
* Key Treasury players Dan Jester, Steve Shafran, Edward C. Forst, and Robert K. Steel
* Key New York Federal Reserve players Stephen Friedman (head of the New York Fed board of governors, who sat on Goldman's board and owned a substantial stake in Goldman while he was making official decisions - and see this), William C. Dudley (head of the New York Fed's unit that buys and sells government securities), and E. Gerald Corrigan (charged with convening a group to analyze risk on Wall Street)
Link
Monday, July 13, 2009
Where will the world find $5 trillion to finance government debt?
There is no doubt that the US is in financial trouble. Those talking of a strong recovery are just not dealing with reality. But the US is in better shape than a lot of countries. This week, we begin by looking at Japan. I have written for years about how large their debt-to-GDP ratio is, yet they keep on issuing more debt and seemingly getting away with it. But now, several factors are conspiring to create real problems for the Land of the Rising Sun. They may soon run into a very serious-sized wall. And it is not just Japan. Where will the world find $5 trillion to finance government debt? We look at some very worrisome graphs. Those in the US who think that what happens in the rest of the world doesn’t matter just don’t get it. There is a lot to cover in what will be a very interesting letter. I suggest removing sharp objects or pouring yourself a nice adult beverage.
(snippet)
Goldman Sachs went after an employee who stole some of their latest and greatest software this last week. The US assistant attorney general said in the courtroom that the software had the potential to manipulate the market. Imagine that. I am shocked. There is gambling going on in the back room? Gee, commissioner, I had no idea. All this “algo” (algorithmic) trading also gives a very false impression of volume. If you are a fund and see 10 million shares a day traded, you might feel comfortable that you could hold one million shares and exit your trade easily. But if 80% of the volume is false “algo” trading, that volume isn’t really there. You may have a position that will be a problem if you want to exit, and not know it.
“High-frequency trading strategies have become a stealth tax on retail and institutional investors. While stock prices will probably go where they would have gone anyway, toxic trading takes money from real investors and gives it to the high frequency trader who has the best computer. The exchanges, ECNs and high frequency traders are slowly bleeding investors, causing their transaction costs to rise, and the investors don’t even know it.” (Themis Trading)
More Here .pdf file
More Crisis: Boomers, Winter is Coming
Anyone who is being honest recognizes the country is on a path towards a major calamity. We have been living beyond our means for decades and the fiscal mismanagement of the country will come to a dramatic climax in the next decade. What many deny is that this crisis was pre-ordained based upon a predictable timeline of generational forces repeating over and over again throughout history. The elites are continuously stunned that every 20 to 25 years a fresh mood engulfs the country and new generations act differently than the generations who proceeded them. The privileged are astounded because they don’t want to accept the fact that progress is not linear and that society will undergo highs and lows over the course of a century.
Strauss and Howe have been able to trace consistent 80 to 100 year generational patterns throughout modern history. The 20 to 25 year quartiles are a High (1st Turning), an Awakening (2nd Turning), an Unraveling (3rd Turning), and a Crisis (4th Turning). They have also identified four archetypes that occupy their necessary position within the 80 to 100 year cycle. These archetypes are Prophets, Nomads, Heroes, and Artists. History forms the generations as the generations create history in a repetitive dance throughout the ages. The archetypes always follow the same path. As an example, the Prophet archetype is always born during a High, comes of age during an Awakening, enters midlife during an Unraveling, and spends their elderhood during a Crisis.
(snippet)
It is very likely that Barack Obama will lead the country into the next Crisis. He will not lead us out of the Crisis, as it is unlikely to subside until 2025. As the Unraveling transitions into Crisis the apathy reflected in historic low voter turnout will reverse itself as Americans become mobilized by the Crisis. The economy always undergoes wrenching transformations during a Crisis. The U.S. economy will likely be racked by panic, depression, inflation and war. We have witnessed a preliminary financial panic, but the real panic will be much more traumatic. The separateness and blame witnessed during the Unraveling will transform into gathering and family togetherness. McMansions will become useful as three generations will more frequently live under one roof. Immigration will decline as the population will fear outsiders and place strict restrictions on foreigners entering the country. During the coming crisis, our culture will likely be cleansed, censored, and harnessed for the public good. The current ongoing financial debacle will ultimately contribute to the Crisis causing trigger of a worldwide oil shortage.
Much More Here
Strauss and Howe have been able to trace consistent 80 to 100 year generational patterns throughout modern history. The 20 to 25 year quartiles are a High (1st Turning), an Awakening (2nd Turning), an Unraveling (3rd Turning), and a Crisis (4th Turning). They have also identified four archetypes that occupy their necessary position within the 80 to 100 year cycle. These archetypes are Prophets, Nomads, Heroes, and Artists. History forms the generations as the generations create history in a repetitive dance throughout the ages. The archetypes always follow the same path. As an example, the Prophet archetype is always born during a High, comes of age during an Awakening, enters midlife during an Unraveling, and spends their elderhood during a Crisis.
(snippet)
It is very likely that Barack Obama will lead the country into the next Crisis. He will not lead us out of the Crisis, as it is unlikely to subside until 2025. As the Unraveling transitions into Crisis the apathy reflected in historic low voter turnout will reverse itself as Americans become mobilized by the Crisis. The economy always undergoes wrenching transformations during a Crisis. The U.S. economy will likely be racked by panic, depression, inflation and war. We have witnessed a preliminary financial panic, but the real panic will be much more traumatic. The separateness and blame witnessed during the Unraveling will transform into gathering and family togetherness. McMansions will become useful as three generations will more frequently live under one roof. Immigration will decline as the population will fear outsiders and place strict restrictions on foreigners entering the country. During the coming crisis, our culture will likely be cleansed, censored, and harnessed for the public good. The current ongoing financial debacle will ultimately contribute to the Crisis causing trigger of a worldwide oil shortage.
Much More Here
Sunday, July 12, 2009
Goldman Sachs made 2 Billion via Illegal Trading Program
Analysts predict the bank earned more than $2 billion in the March-June period, thanks to its trading prowess across world markets. If they are right, the bank’s rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so dramatically only months after the nation’s financial industry was shaken to its foundations.
The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall.
“They exist, and others don’t, and taxpayers made it possible,” said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships.
Startling, too, is how much of its profits Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 per employee. Top producers stand to earn millions.
Goldman was humbled along with the rest of Wall Street when the financial markets froze last year. As a result, it lost money in the final quarter of the year, a rarity for the bank. Along with other big banks, it was compelled to accept billions of dollars in federal aid, which it paid back last month.
More
The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall.
“They exist, and others don’t, and taxpayers made it possible,” said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships.
Startling, too, is how much of its profits Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 per employee. Top producers stand to earn millions.
Goldman was humbled along with the rest of Wall Street when the financial markets froze last year. As a result, it lost money in the final quarter of the year, a rarity for the bank. Along with other big banks, it was compelled to accept billions of dollars in federal aid, which it paid back last month.
More
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