Financial Parasites Have Killed the American Economy
A Review of Economist Michael Hudson

By Washington's Blog

Global Research, August 27, 2009

Washington's Blog - 2009-08-26

Michael Hudson is a highly-regarded economist. He is a Distinguished Research Professor at the University of Missouri, Kansas City, who has advised the U.S., Canadian, Mexican and Latvian governments as well as the United Nations Institute for Training and Research. He is a former Wall Street economist at Chase Manhattan Bank who also helped establish the world’s first sovereign debt fund.

Hudson has frequently described Wall Street as "parasitic". For example, in a 2003 interview, Hudsonsaid:
The problem with parasites is not merely that they siphon off the food and nourishment of their host, crippling its reproductive power, but that they take over the host's brain as well. The parasite tricks the host into thinking that it is feeding itself.

Something like this is happening today as the financial sector is devouring the industrial sector. Finance capital pretends that its growth is that of industrial capital formation. That is why the financial bubble is called "wealth creation," as if it were what progressive economic reformers envisioned a century ago. They condemned rent and monopoly profit, but never dreamed that the financiers would end up devouring landlord and industrialist alike. Emperors of Finance have trumped Barons of Property and Captains of Industry.
More recently, Hudson said:
You can think of the financial sector as being wrapped around the real economy, almost like a parasite, and that's why it's been called parasitic for so long. The financial sector extracts interest from the economy, the property sector extracts economic rent, as do monopolies. Now the key thing about parasites, is that it's not simply that they extract nourishment from the host. The parasite takes over the host's brain, to make it think it's part of the economy, to make it think it's part of the host's own body, and, in fact, that's it almost like a child of the host, to be protected. And that's what the financial sector has done today.

You have Obama coming out and saying, "We have to save the banks in order to save the real economy". The fact is, you can't serve both the parasite and the host.
And see this.

Today, I heard the podcast of an interview by KPFA radio host Bonnie Faulkner in which Hudson went even further. Specifically, he said:

• The giant financial institutions have already killed their host - the real American economy

• Since they realize that the American economy is dead, they are trying to suck as much blood out of America as possible while the corpse is still warm

• Because the American economy is dead, their plan is to soon jump to another host. They will ship all of their money overseas

Liquidity to Keep the Financial System from Collapsing in a Heap

By Mike Whitney

Global Research, August 31, 2009

Ben Bernanke never should have been reappointed as Fed chairman. Obama made a big mistake. The main thing to remember about Bernanke is that, in the two years since the financial crisis began, he's made no effort to force the large banks and financial institutions to write-down their losses. Nor has he pushed for the regulations that are needed to restore confidence in the system. The credit system is still clogged because the banks are buried under $1.5 trillion in toxic assets and non performing loans which are defaulting at the fastest pace on record. At the same time, Bernanke has failed to push for reform of derivatives trading, off-balance sheet operations, securitization or capital requirements for financial institutions. The good news is that Bernanke has demonstrated great creativity in providing sufficient liquidity to keep the financial system from collapsing in a heap. The bad news is that the core problem is not liquidity at all, but solvency. A good portion of the banking system is underwater. That's why Bernanke's actions have been a complete flop.

The banks can't fix themselves, because--to do so--would drive many of them out of business. If the FDIC doesn't sort them out, they will continue to be a drain on public resources. Lending will continue to contract and GDP will shrink. That's what is happening now, except Obama stimulus has triggered a slight uptick in growth that is being confused for recovery. But there is no recovery. Things are simply getting worse at a slower pace. That's to be expected. Housing prices will not go to zero; they flatten out over time. That doesn't mean things are getting better. They're not; they're getting worse. Personal consumption is in the tank, business investment has never been lower, the rate of bank failures is accelerating, and unemployment is headed higher. So where are the "green shoots"?
 
The only real cure is political. The notion that the market will fix itself is pure fantasy. We are following the same path as Japan--perennial recession.

Many people believe that the Federal Reserve is the head of a banking cartel. But that's not entirely true. Bernanke is actually an employee of the banking cartel; an apparatchik who carries out the policies that best serve the interests of his constituents. The Central Bank's serial bubblemaking has been a successful means of transferring capital from working people to the investor class and corporate elites. The facts speak for themselves.
A report by University of California, Berkeley economics professor Emmanuel Saez concludes that income inequality in the United States is at an all-time high, surpassing even levels seen during the Great Depression.

The report shows that:

* Income inequality is worse than it has been since at least 1917

* "The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007"

* "In the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth."

The Fed disguises its stealth-looting of the middle class with ideological mumbo-jumbo about "supply side" this and "trickle down" that. Ripping off working people has a long  history going back 30 years Reagan's "Voodoo" economics, but the severity of the current recession has pitted market fundamentalism against the sobering reality that the US consumer is not an inexhaustible resource. Debt-fueled consumption has reached its apex and is descending rapidly. This is apparent in all of the recent research and data. Between 2000 and 2007 US households increased their aggregate debt by nearly $14 trillion. The household debt-to-disposable income ratio rose to 135% and has only recently declined to 128%. For the first time in 60 years, households have begun saving. (although much of what is classified as "saving" is, in reality, just paying down debt) The larger point is,that US consumers are undergoing a generational shift and will not be able to lead the way out of the recession as they have in the past. Nor will they miraculously "bounce back" and provide demand for products made abroad. In fact, the export-driven model (Germany, South Korea, Japan, China) is sure to be challenged in ways that were unimaginable just two years ago. With credit lines being cut, and outstanding credit shrinking by trillions in the past year alone, and unemployment nudging 10 per cent (16 per cent in real terms) the consumer will not be the locomotive driving the global economy. Credit destruction, asset firesales, defaults, and foreclosures will continue for the foreseeable future choking off growth and pushing unemployment higher. Consumption patterns are changing dramatically, although their impact won't be fully-felt until government stimulus programs run out. That's when the signs of Depression will become apparent once more.

This is why Bernanke should never have been reappointed as chairman. Bernanke has a good grasp of the issues---underwater banks, overextended consumers, exotic debt-instruments (derivatives), and an out-of-control financial system--but he refuses to do anything about them. The institutional bias of the Fed provides no wiggle-room for structural change. The Fed represents the status quo.

Bernanke's reappointment isn't just wrong because he failed to detect the biggest housing bubble of all time, or for supporting the loosey-goosey monetary policies which triggered the current Great Recession, or for shrugging off Congress's attempts to audit the Fed, or for rejecting Bloomberg News (legal) claims that the Fed should release information about which financial institutions received $1.5 trillion in Fed loans, or for $12.8 trillion to keep a corrupt and insolvent system operating while millions of working people lose their homes, their jobs and their prospects for the future. These are bad enough, but, worse still, is the fact that Bernanke's strategy has no chance of succeeding; it just kicks the can further down the road.

The economy is experiencing system-wide deleveraging and deflation is now visible in every sector of the economy. Exports are down, so is trucking. Railroad freight is off 18 per cent year-over-year. Department stores, building materials, restaurants, furniture sales, appliances, travel, retail, outdoor equipment, tech; down, down, down, down, down and down. You name it; it's down. Consumer credit is plummeting and personal savings are up. Industrial production is down, PPI down. Capacity utilization has slipped to 68.5 per cent.(another record) There's so much slack in the system, inflation could be low for years. Commercial real estate--a $3.5 trillion industry--is plunging faster than residential housing. Corporate bond defaults are at record highs, Treasury yields are flat, and the dollar index is teetering at the brink. It's a wasteland.

Bernanke has put himself and the country in the direct path of a debt-liquidation avalanche; a near-endless flow of rising defaults, foreclosures and bankruptcies. His liquidity injections and monetization programs have inflated another speculative bubble in the stock market, but eventually that will run its course and stocks will retest their March lows. The massive debt-purge will continue despite the Fed chief's best efforts. The trend is irreversible.

Debt-reduction can't be put off forever. Markets eventually "correct" and red ink gets mopped up. That's just the way it is. Bernanke is simply trying to prevent the market from clearing. It's futile. And, that's why he shouldn't have been reappointed.

U.S. Farm Profit Plunging on Lower Crop, Dairy Prices

By Alan Bjerga

Global Research, August 30, 2009

Bloomberg - 2009-08-27

Profits for U.S. farmers will plunge more than expected this year, dropping 38 percent from 2008 as the recession erodes demand for crops, livestock and dairy products, the government said.

Net farm income will sink to a seven-year low of $54 billion, down from a February forecast of $71.2 billion and last year’s estimated $87.2 billion, the U.S. Department of Agriculture said today in a report. Farm-product sales are dropping faster than costs for energy and feed, the USDA said.

The price of corn, the biggest U.S. crop, has plunged 46 percent in the past year, hog farmers lost an estimated $4.5 billion since September 2007, and dairy herds are being culled because of a milk surplus. Profits have declined for grain processors including Cargill Inc. and makers of farm equipment such as Deere & Co. and Agco Corp.

“Hogs were devastated by the H1N1 flu, and dairy isn’t getting off the mat,” said Bruce Babcock, the director of the Center for Agricultural and Rural Development at Iowa State University in Ames. “The outlook for crops is rosier.”

Falling Crop Values

Crop receipts will decline 9.8 percent to $164.7 billion, and livestock revenue will fall 15 percent to $118 billion, as input costs fall 6.4 percent, the USDA said.

The total value of farm production for 2009, which includes rent, government aid and other benefits from agricultural operations, is projected at $322 billion, down 12 percent from last year, the department said.

The report may signal a second straight year of lower farmland values, which fell 3.2 percent in 2008 after 21 years of gains, as well as less spending on farm equipment, said Dan Manternach, director of agricultural services at Doane Advisor Services Co. in St. Louis. Lower profits will probably have little impact on fertilizer or seed costs, he said in an e-mail.

Corn, wheat and soybean prices have plunged from records reached last year, and lower input costs aren’t helping farmers who made most of those purchases as early as one year ago, said Darrin Ihnes, who grows all three crops about 25 miles (40 kilometers) southwest of Sioux Falls, South Dakota.

‘Struggling’ Ethanol Industry

“The ethanol industry is struggling, the livestock industry is struggling, and crops are starting to struggle as well,” Ihnes said. Next year should be better as smaller herds help boost livestock prices and exports improve, he said.
Hog futures tumbled 36 percent in the past year through yesterday as the recession and an outbreak of H1N1 swine flu curbed pork consumption. Producers have lost an average $21 per animal sold for slaughter since September 2007, as feed costs rose to a record last year and the recession and the H1N1 virus curbed pork demand in 2009, Don Butler, the president of the National Pork Producers Council, said last week. 

Producers including Smithfield Foods Inc. and Tyson Foods Inc. have culled their breeding herds to limit losses. Smaller hog farmers will need to do the same, said Dave Bauer, the president of Brite Futures Inc. in Milwaukee.

“As long as we continue to go down the same path that we’re going down now, pork producers are not going to see any income,” Bauer said. “Somebody has to go out of business here.”

In dairy, milk futures have plunged almost 50 percent from their June 2007 peak as record production and competition from imports flooded the market with inexpensive supply.

Dairy Losses

“I haven’t talked to a dairy farmer who isn’t losing money,” said Jim Goodman, an organic-milk producer who farms 500 acres about 70 miles northwest of Madison, Wisconsin.

Farms with at least 1,000 cows are losing $30,000 to $40,000 a month, Goodman said. Revenue from dairy products may fall 34 percent this year to $23 billion, while the value of meat animals will drop 11 percent, according to the USDA.

The agency this week said milk and egg prices will fall more than had been expected this year and meat costs will rise more slowly. Milk may decline 6 percent from last year, eggs may slip as much as 16 percent, while meat and poultry’s increase will be no more than 2.5 percent, the USDA said.

Among farm expenses, the cost of fertilizer will decline about 25 percent from last year to $16.9 billion, while pesticides will increase 2.6 percent to $12 billion, according to the government report. Petroleum costs will drop 30 percent to $11.3 billion.
Government subsidies will rise 3 percent in the first full year of a new farm bill to $12.6 billion.

The USDA plans to update its forecasts in November.

Federal Reserve Threatens Economic Disaster If Forced to Reveal Secrets

Global Research, August 30, 2009

Reuters

NEW YORK (Reuters) – The U.S. Federal Reserve asked a federal judge not to enforce her order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received, saying such disclosure would threaten the companies and the economy.
The central bank filed its request on Wednesday, two days after Chief Judge Loretta Preska of the U.S. District Court in Manhattan ruled in favor of Bloomberg News, which had sought information under the federal Freedom of Information Act. [...]
“Immediate release of these documents will cause irreparable harm to these institutions and to the board’s ability to effectively manage the current, and any future, financial crisis,” the central bank argued.
It added that the public interest favors a delay, citing a potential for “significant harms that could befall not only private companies, but the economy as a whole” if the information were disclosed. [...]
The Clearing House Association LLC, which represents banks, in a separate filing supported the Fed’s call for a delay. It said speculation that banks’ liquidity is drying up could cause runs on deposits, and trading partners to demand collateral.
“Survival can depend on the ephemeral nature of public confidence,” Clearing House general counsel Norman Nelson wrote. “Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow.”
The Clearing House said its members include ABN Amro Holding NV, Bank of America Corp (BAC.N), Bank of New York Mellon Corp (BK.N), Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE), HSBC Holdings Plc (HSBA.L), JPMorgan Chase & Co (JPM.N), UBS AG (UBSN.VX), U.S. Bancorp (USB.N) and Wells Fargo & Co (WFC.N).

Inflation is on Its Way

By Bob Chapman

Global Research, August 29, 2009

The International Forecaster

The public option for Obama insurance coverage has been described as just a sliver of the overall proposal. Universal coverage directly by government was not an essential element says Health & Human Services. Of course it was. The program is in retreat and the only way the Democrats can get passage of any kind is to re-craft a toothless passage and ram it through in a party line vote. The public is enraged at what the liberals and socialists have tried to foist on them. Worse yet, the administration has submitted to Wall Street and the insurance giants, which they intended to do from before the beginning. Just look at the line up of campaign contributors. The same goes for the euthanasia section. This could well have been a loss leader to get the rest of this monstrosity passed. The exercise will cost the President and Congress dearly as their approval ratings sink to 41% and 12% respectively. November of 2010 will be the time of reckoning.

We remind you that presidents do not make presidential policies. They are made by the bureaucratic types, who receive their marching orders from the Illuminists above them. This is why you had the seamless transition from the neocon administration to the current one now in power. Team A replaced Team B from the Council on Foreign Relations, Trilateralists and Bilderbergers. Nothing really changed. 

If you accept the premise that they are all intent on creating world government then you can understand why they all are preparing us for controlled collapse. These planners expected problems, but they were not prepared for the potential of major social unrest displayed at Town Hall meetings nationwide.  There is finally growing social unrest and rightly so. All that was initiated by bailing out the rich financial sector to the tune of $23.7 trillion, and then the lying about where funds were going and how they were being used, then more lies, and then the bonuses at AIG and Goldman Sachs and at other Illuminist companies. The public has begun to listen to our story and the elitists cannot let the truth see the light of day. The system is rigged toward the rich insiders and now the public isn’t even getting crumbs and everything is being taken away from them. Those insiders who are dismissive of population and the fairness of the system should check with the ancestors of the 300,000 who lost their heads in France during the revolution.

Government no longer serves the people or the general good and the healthcare and cap & trade are typical issues. It is not what Americans want, but what corporate America and politicians want. All the rewards to the crooks on Wall Street and in banking that have destroyed our financial system. We have just been on the receiving end of dreadful government for 8 years and Americans feel helpless after electing a new president. The result thus far has been disastrous. Still few of their elected representatives listen to anything they have to say and it is no wonder we saw the outpouring of unhappiness displayed at Town Hall meetings. This in part is why people are walking away from debt and not paying their taxes. They believe they have an illegitimate government, which refuses to serve and listen to them. They now only represent corporate America.  

Historically about 1/3rd of Americans do not file income tax and only 15% of illegal aliens file. That has cost government about $500 billion a year. Americans are fed up and more are becoming non-filers and more are underestimating or hiding income. It is essentially a tax revolt. Why do you think federal revenues fell so precipitously? People are sick and tired of taxation without representation. They are also outraged at the bailout of banks, Wall Street and insurance companies and a few crumbs for the average American.
They also realize that America’s debt will never be repaid, that they will have hyperinflation and that the dollar is collapsing versus other currencies. In time the public will discover gold, but that will happen as the depression goes further forward.

We have already entered the inflationary spiral again. Its force will depend on the strength of the deflationary undertow and the monetization of monetary aggregates. Make no mistake higher inflation is on the way and probably hyperinflation. It will also be affected by a break down in the tax system as well. The trio leads to economic, financial, social and political dysfunction.

What else should the elitists expect? All the revolving door bureaucrats from the Council on Foreign Relations, The Trilateral Commission and the Bilderberg Group are going to do is give us more of the same, as we had for the previous eight years.

Team A replaced Team B. They are furthering the same financial conditions that brought us the current disaster. We are seven months into the new administration and it has already destroyed any credibility it could have had. Writing blank checks to the financial community, which financed your campaign, does not endear you to the voters, as they are thrown a bone.

After the announcement, that the president had re-nominated Ben Bernanke as Chairman of the Federal Reserve, we were led to believe he saved us from a fate worse than death. Bernanke created enough money and credit to temporarily overcome the deflationary undertow in the economy. Ben created the problem along with Sir Alan Greenspan and now he wants us to believe he is going to save us by solving the problem. This is the same Ben that gave Greenspan academic cover. He had the temerity to blame the credit crisis on foreigners who created a savings glut, particularly Asians. He said this suppressed bond yields. That was probably true, but he conveniently forgets to mention that the Fed created all those dollars in the first place and were responsible for lower interest rates. Ben believes any slowdown or shock to the system can be easily handled by injecting more money and credit into the system.
Ben is the man who is going to lead us to a federal deficit of 100% of GDP over the next decade, as deficits swell to more than $1 trillion a year.

What must be remembered here is that it is not going to be easy or even possible to pull the punchbowl away. In 1936 they tried to slick up liquidity to prevent speculation. It turned out to be premature as money and credit fell into negative territory. By 1937 fiscal stimulus programs ended. The federal deficit fell, creating a counterforce.

This is the kind of risk Ben faces when and if he decides to withdraw the punchbowl. When Ben believed he saw in November 2002, the danger of deflation, he acted by increasing aggregates. There is no doubt he will see the same thing again if he cuts money and credit and raises interest rates. That means the system is entrapped in an endless cycle of money and credit creation, inflation and a lower dollar. Ben fears deflation far more than inflation and so the course will not be altered.

If we are experiencing a bottom it is accompanied by unprecedented budget deficits, which presents a huge financial problem during a recovery.  That will be accompanied by inflation. That is what commodities, such as oil and copper are telling us. This presents us with stagflation. The bottom line is more of the same is not going to work and that is what Ben will give us. He simply doesn’t know any other way out of the maze. This also shows us that the president is totally ignorant of what is going on around him. None of the players believe in sound money and we will pay the price for that.

In September we see a renewal of monetization where officially the Fed will buy more and more Treasuries, Agencies and CD’s from banks, besides what they are doing in secret. A large part of the budget deficit, real estate expansion and banks’ bad debt will be monetized by the Fed, which is very inflationary. This is what went on in Argentina and the Weimer Republic and this is where Ben is headed. This is why you have to have gold and silver related investments; they will be your only protection.
            
The dollar may weaken through “established lows” as signs of a global economic recovery drive gains in equities and oil, Goldman Sachs Group Inc. said.
            
“That kind of shift could easily be prompted by continued good news from the macro front and the persistently negative dollar-equity and dollar-oil correlations,” Thomas Stolper, an economist at Goldman Sachs in London, wrote in a report yesterday. “Dollar bulls could well end up disappointed. Even a short-term move beyond our three- and six-month forecasts of $1.45 per euro is getting increasingly likely.”
            
The Dollar Index, which Intercontinental Exchange Inc. uses to track the U.S. currency against the euro, yen, pound, Canadian dollar, Swiss franc and the Swedish krona, has weakened as the Standard & Poor’s 500 Index of U.S. shares gained more than 85 percent of the time since June and more than 50 percent of the time since September as investors sought higher-yielding assets on signs on an economic recovery.

The index fell 11 percent from its high this year on March 4, during which time the S&P 500 gained 44 percent. The index was little changed at 78.592 as of 7:29 a.m. in New York. S&P 500 Index futures were unchanged.
            
“More and more foreign-exchange players have positioned themselves for a dollar bounce without much impact on the spot market,” Stolper said. Since early June, traders have moved toward favoring contracts that give them the option to buy the dollar against the pound, while “spot remains stuck in the mid- $1.60s,” Stolper said.
            
The cost of betting that the dollar will rise against the pound in one month’s time are at the highest since July 14, and near the most since March, according to 25 Delta risk reversals.
            
“All this suggests that the underlying dollar trend is still downward sloping and the risk is that normalization in positioning pushes the dollar through the established lows,” Stolper said.
            
Sales of newly constructed homes leaped unexpectedly in July to hit their highest level since last September.
            
New homes sold at an annualized rate of 433,000 during the month, according to a joint report issued by the Census Bureau and Department of Housing and Urban Development.
            
That far exceeded analysts' forecasts and was up 9.6% from the revised 395,000 rate recorded in June. A consensus of industry experts surveyed by Briefing.com had predicted July sales of 390,000.
            
U.S. building permits for July were revised to down 1.1% from June to a seasonally adjusted rate of 564,000, the Commerce Department reported Wednesday.
            
July building permits were originally reported as being down 1.8% at a seasonally adjusted rate of 560,000.
           
Mortgage applications filed last week increased a seasonally adjusted 7.5% compared with the week before, boosted mainly by filings to refinance existing home loans, the Mortgage Bankers Association said Wednesday.
            
Refinancing applications rose 12.7% for the week ended Aug. 21 from the prior week -- the third increase for such applications over the last four weeks.
            
Overall filings had increased a seasonally adjusted 5.6% in the week ended Aug. 14, data compiled by the Washington-based MBA showed. The MBA survey covers about half of all U.S. retail residential mortgage applications.
            
Applications for mortgages to purchase homes were up a seasonally adjusted 1.0% last week compared with the week before, due to increased demand for government mortgages, including those backed by the Federal Housing Administration.
            
This latest increase marks the fourth consecutive weekly gain for home-purchase applications -- a streak last seen in March, when interest rates on fixed-rate mortgages dropped and stayed below 5%. See related story.
            
Overall applications for the latest week were up an unadjusted 34.1% from the same week in 2008. The four-week moving average for all mortgages was a seasonally adjusted 3.5%.
            
Refinancings made up 56.5% of all applications last week, up from 53.3% the week before. Adjustable-rate mortgage accounted for 6.5% of filings, unchanged from the week before.
            
According to the MBA survey, rates on 30-year fixed-rate mortgages averaged 5.24% last week, up from 5.15% the week before.
            
The average rate on 15-year fixed-rate mortgages stood at 4.58% last week, up from 4.52% in the week ended Aug. 14. And one-year ARMs averaged 6.74%, up from 6.66%.
            
To obtain the rates, the 30-year fixed-rate mortgage required payment of an average 1.07 points, the 15-year fixed-rate mortgage required an average 1.18 points and the 1-year ARM required an average 0.17 point. A point is 1% of the mortgage amount, charged as prepaid interest.
            
Only one crime was solved by each 1,000 CCTV cameras in London last year, a report into the city’s surveillance network has claimed. The internal police report found the million-plus cameras in London rarely help catch criminals.
            
In one month CCTV helped capture just eight out of 269 suspected robbers. David Davis MP, the former shadow home secretary, said: “It should provoke a long overdue rethink on where the crime prevention budget is being spent.”

He added: “CCTV leads to massive expense and minimum effectiveness. 

“It creates a huge intrusion on privacy, yet provides little or no improvement in security.
            
“The Metropolitan Police has been extraordinarily slow to act to deal with the ineffectiveness of CCTV.”
            
Toll Brothers Inc., the largest U.S. builder of luxury homes, reported a wider loss for the third quarter as the recession weighed on sales. The company said it has begun raising prices as the market starts to recover.
            
The net loss for the three months ended July 31 swelled to $472.3 million, or $2.93 a share, from $29.3 million, or 18 cents, a year earlier, Horsham, Pennsylvania-based Toll said in a statement today. The loss, which included tax charges and writedowns of $554 million, was bigger than analysts’ estimates.
            
Massachusetts Mutual Life Insurance, was stripped of its AAA rating by Standard & Poor's on the drop in the value of asset management units.
            
The credit and financial-strength ratings were cut to AA+ "because of its lower quality of capital and reduced financial flexibility," the ratings firm said yesterday.
            
Nevada's unemployment rate hit a record in July, climbing to 12.5 percent statewide and 13.1 percent in Las Vegas, according to a state report issued Friday.
That puts the Silver State 3.1 percentage points above the national unemployment rate of 9.4 percent, according to figures from the Nevada Department of Employment, Training and Rehabilitation.

The state's unemployment rate was the third highest in the nation, behind Michigan at 15 percent and Rhode Island at 12.7 percent, the agency said.
            
The number of U.S. workers filing new claims for jobless benefits declined last week, falling in line with economists' observations that labor market conditions appear to be slowly stabilizing.
            
Meanwhile, total claims lasting more than one week also fell back down after ticking up the previous week.
            
Initial claims for jobless benefits fell 10,000 to 570,000 in the week ended Aug. 22, the lowest level since Aug. 8, the Labor Department said in its weekly report Thursday.
            
Economists surveyed by Dow Jones Newswires had expected a decline of 11,000. The previous week's level was revised from 576,000 to 580,000.
            
The four-week average of new claims, which aims to smooth volatility in the data, fell 4,750 to 566,250. That was the lowest average since the week ended Aug. 8.
            
Manufacturing activity in the Federal Reserve Bank of Kansas City's district slipped in August, but expectations moved sharply higher, according to data released by the bank Thursday.
            
The bank's production index fell back into negative territory, dropping to -7 from 2 in July and 9 in June, in a month-over-month comparison. From a year ago, the August production index dropped to -60 from -50 in July.
            
The August index covering production expectations for six months from now more than doubled to 24 from 10 in July. August's reading was the highest since August 2008.
            
Readings under zero denote contraction and describe the breadth of the retreat.
            
On a monthly comparison, the August shipments index fell to -12, from 7 in July; from a year ago, the index fell to -57 from -50 in the prior month.
            
The August employment index improved to -6 from -13 in July. Back in March, the employment index hit a record low -41. From a year ago, the index worsened to -66 from -57.
            
The prices paid index rose to zero in August from -6 in July, while the prices received index increased to -11 from -17 in July. On a year-ago comparison, the prices paid index rose to -17 from -27, but the prices received index worsened to -27 from -24.
            
The Kansas City Fed district includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.
            
The U.S. economy took a first step toward recovering from the worst recession since the 1930s in the second quarter as companies reduced inventories, spending started to climb and profits grew.
            
Gross domestic product shrank at a 1 percent annual rate from April to June, less than the 1.5 percent decline projected by economists in a Bloomberg News survey, a Commerce Department report showed today in Washington. Corporate earnings rose by the most in four years, the department also said. [If you believe this you may be interested in a bridge we have for sale.]
            
Government programs, including the “cash-for-clunkers” and first-time homebuyer incentives, are boosting manufacturing and housing, indicating the gain in sales that began last quarter will be sustained in the second half of the year. Another report showed unemployment may jeopardize the strength of the economic rebound.
            
Applications for unemployment fell by 10,000 to 570,000, a higher level than forecast, in the week ended Aug. 22 from a revised 580,000 the week before, Labor Department data showed today in Washington. The total number of people collecting unemployment insurance fell to the lowest level since April.
            
The U.S. added 111 lenders to its list of “problem banks” in the second quarter, a 36 percent increase that pushed the group to a 15-year high.
            
A total of 416 banks with combined assets of $299.8 billion failed the Federal Deposit Insurance Corp.’s grading system for asset quality, liquidity and earnings, the most since June 1994, the Washington-based FDIC said in a report today. Regulators didn’t identify companies deemed “problem” banks.
            
“For now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry’s bottom line,” FDIC Chairman Sheila Bair said in a statement.
            
Regulators have taken over 81 banks this year, including Guaranty Financial Group Inc. in Texas and Colonial BancGroup Inc. in Alabama. Twenty-four banks collapsed in the second quarter as the pace of failures accelerated amid the worst financial crisis since the Great Depression.
            
The surge in failures prompted the agency to charge the industry an emergency fee in the second quarter to raise $5.6 billion to replenish its insurance fund, which fell to $10.4 billion as of June 30 from $13 billion in the previous quarter, the agency said. An $11.6 billion increase in loss provisions for bank failures caused the decline in the fund, the FDIC said.
            
FDIC-insured banks reported a net loss of $3.7 billion in the second quarter, compared with a $5.5 billion gain in the first quarter. The loss, the second quarterly one the industry has reported in 18 years, was driven by increased expenses for bad loans, the FDIC said.
            
A new law just passed in Massachusetts imposes fines of up to $1000 per day and up to a 30 day jail sentence for not obeying authorities during a public health emergency. So if you are instructed to take the swine flu vaccine in Massachusetts and you refuse, you could be facing fines that will bankrupt you and a prison sentence on top of that.
            
Sales for last month for new homes, while 13.4% lower than in July 2008, are up 31.6% from the January bottom, the data showed. 
        
Government statisticians have low confidence in the monthly report on new-home sales, which is subject to large revisions and large sampling and other statistical errors. 
        
In most months, the government isn't sure whether sales rose or fell. The standard error in July, for instance, was plus or minus 13.4%. The government says it can take up to five months to establish a statistically meaningful trend in sales.
        
For all of 2008, 485,000 homes were sold. In 2007, it was 776,000.   [How can 433k now be good?]
        
Sales rose in three of four regions, led by a 32% rise in the Northeast [from 3k to 4k] and followed a 16% gain in the South.  Sales rose 1% in the West but fell 8% in the Midwest.     
            
If one takes the time to read the details of the US Census’ report on New Home Sales, they will find that Not Seasonally Adjusted, New Home Sales are DOWN 31.1% year-to-date!  They will also find that NSA July sales increased only 3k from June (39k from 36k) or 8%.
            
Of the 39k New Homes sold in July, 28k or 72% are less than $300k in price, 86% are less than $400k and only 16k are completed houses. The median home sales price in July fell11.5% y/y and 0.1% m/m to $210,000.
            
We are celebrating estimated 2009 annualized sales that are forecast to be down 12% from 2008. We will add our caveat about all the unnatural stimulants that have been injected to get home sales to improve to -12% y/y estimated. The NAR estimates that first-time buyers are 30% of home sales.  This is another unnatural usurpation of the natural recovery cycle.
            
The real US unemployment rate is 16 percent if persons who have dropped out of the labor pool and those working less than they would like are counted, a Federal Reserve official said Wednesday.  "If one considers the people who would like a job but have stopped looking -- so-called discouraged workers -- and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent, said Atlanta Fed chief Dennis Lockhart. 
http://www.breitbart.com/article.php?id=CNG.4452bed82adf3124e5884678e236d7fb.361&show_article=1
            
Chris Martensen: The Shell Game - How the Federal Reserve is Monetizing Debt
        
The Federal Reserve has effectively been monetizing US government debt by cleverly enabling foreign central banks to swap their Agency debt for Treasury debt. 
        
The shell game that the Fed is currently playing obscures the fact that money is being printed out of thin air and used to buy US government debt. 
       
The Federal Reserve is monetizing US Treasury debt and is doing so openly, both through its $300 billion commitment to buy Treasuries and by engaging in a sleight of hand maneuver that would make a street hustler from Brooklyn blush…   
http://www.chrismartenson.com/blog/shell-game-how-federal-reserve-monetizing-debt/25806
            
Low inflation has made food and gas more affordable during the recession, but there's a downside: Social Security beneficiaries probably won't get a raise next year, and the IRS may reduce the amount workers can contribute to their 401(k) plans.
            
The IRS will announce 2010 contribution limits for 401(k) plans in October, based on a formula tied to the inflation rate in the third quarter vs. the year-ago quarter. For 2009, most workers can contribute up to $16,500 to their 401(k) plans, plus an additional $5,500 if they're 50 or older.
            
Unless inflation picks up in August and September, the IRS could be forced to reduce the cutoff to $16,000 in 2010, according to an analysis by Mercer, a human resources consultant. The threshold for catch-up contributions could be reduced to $5,000. This would mark the first time the IRS has reduced 401(k) contribution limits. Consumer confidence levels slipped a bit in August compared with the previous month, a report Friday said.
The Reuters/University of Michigan consumer sentiment index for August moved down to 65.7 - the lowest reading since April - from 66.0 in July and 70.8 in June. It was higher, though, than the 63.2 in the preliminary August index. The end-August figure was expected to move up a touch from mid-August, to 64, according to a survey of economists by Dow Jones Newswires.

The current conditions index for August was 66.6, the lowest since March, compared with 70.5 in July and from June's 73.2, while the expectations index was 65.0 in August from 63.2 in July and from 69.2 the month before that.

The one-year inflation expectations reading was 2.8% in August from 2.9% in July, and the five-year reading was 2.8% after July's 3.0%.

Whirlpool Corp. announced Friday that it will close its manufacturing plant in Evansville, Ind., eliminating about 1,100 full-time jobs by mid-2010.

Consumer spending increased 0.2% in July for its third consecutive time, on the back of a 1.3% increase on durable goods, namely automobiles, while personal income remained unchanged, following a 1.1% decline in June. The Dollar picks up against Euro and Pound

Banks are increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the credit-market debacle began in 2007.

Credit Suisse Group AG and Scotia Capital, a unit of Canada’s third-largest bank, said they’re offering credit to investors who want to purchase loans. SunTrust Banks Inc., which left the business last year, is “reaching out to clients” to provide financing, said Michael McCoy, a spokesman for the Atlanta-based bank. JPMorgan Chase & Co. and Citigroup Inc. are doing the same for loans and mortgage-backed securities, said people familiar with the situation.

“I am surprised by how quickly the market has become receptive to leverage again,” said Bob Franz, the co-head of syndicated loans in New York at Credit Suisse.
The Swiss bank has seen increasing investor demand for financing to buy loans in the past two months, he said.
The 7-year Treasury auction bid to cover was 2.74% versus the average of the past six auctions at 2.44%.
            
Recovery no less, bad numbers yes. The market is up 50% off its lows or more but still off 35% from two years ago. Cash for clunkers and $8,000 first time buyer home purchases rebates won’t change the underlying problems. The economy is only borrowing from tomorrow. These types of moves only guarantees the fall of the dollar further and the further bankruptcy of the treasury and the fed. As an extension of that a dollar collapse will take every other currency with it and make gold and silver the premier asset.
Despite loads of propaganda and some signs of improvement in consumer confidence, retailers are in a death spiral.

US commercial paper outstanding rose for the week of 8/26 by $43.7 billion to $1.154 trillion. Asset backed CP rose $41.5 billion to $457.8 billion. Unsecured issuance rose $12.4 billion after rising $38.1 billion for the previous week.

More than 500,000 ARMs are scheduled to have their monthly repayments bounce from comfortably low initial ones to unaffordable higher ones over the next four years. Since February, defaults and foreclosure rates on Option ARMs have passed those on subprime mortgages. Many Option ARMs are not available for refinancing. One firm expects banks to lose $112 billion on Option ARMs written in 2005-07.
It is now cheaper to borrow the dollar than the yen for the first time in 16 years.
The number of problem US banks and thrifts rose sharply to 416 in the second quarter from 305 q-o-q as the industry reported a $3.6 billion loss. At the end of the second quarter the FDIC’s assets fell 20% to $10.4 billion.

ABN Ambro, Bank of America, Bank of NY, Deutsche Bank, HSBV, JP Morgan, US Bank, and Wells Fargo, have filed a Declaration Statement with the court in the case of FOIA of Bloomberg versus the Fed, in which they essentially state that if the court allows access to Fed documents and if an “Audit the Fed” laws are passed, it could lead to a complete financial system collapse.
The audacity and arrogance of these thieves is unmatched by anything ever seen in the history of the US or any other country. This is like letting pedophiles run a day care center for children. What they are telling you is these banks are all broke.

The FDIC is technically broke and has guaranteed $320 billion in TLGP loans, including $260 billion for “Bank & Thrift Holding Companies,” non-insured affiliates such as CIT Financial. The FDIC has no authority to create money out of thin air, so proclaiming that no one will ever lose money is either naïve or criminal. Bair is guaranteeing trillions in debt obligations with no funds to do so.
California will pay no fees and 3% interest on a $1.5 billion loan from JP Morgan Chase to pay for IOU’s. The loan will be repaid by the issuance of tax anticipation notes. This is an extremely favorable loan – a gift if you may.

Debt has doubled in the US since 1976 or over the last 38 years. The annual rate of increase is 9.55% annually. A bondholder would need a 14% return to get a profit and pay taxes.
Since 1971 gold has gone from $35.00 to $940.00, or an annual return of 9.04%. If not for taxes gold has done a remarkable job of holding its value.
We have some new twists from the latest document sent out by USAA Federal Savings Bank.
The bank, we, may charge your bank account or accounts that may own with our affiliates for amounts you owe the bank. In other words loans could be due and payable at their whim. That includes deposits of federal or state pension or Social Security benefits. If you do not want this you must change your benefit deposit instructions with the benefit payer. In other words go back to receiving a check and cashing it for cash – that is if the bank will give you cash.

The USAA also stated, we reserve the right to reject any outgoing or incoming wire transfers and to limit the availability of such services.

The bank may require reasonable advance notice for large cash withdrawals. The bank may refuse to honor a request to withdraw funds in cash from your account or to cash a check (including a cashier’s check or other official item) if the bank believes the amount is unreasonably large or that honoring the request would cause the bank undue hardship or security risk.
The bank may provide 7 days notice to withdraw or transfer funds from any account.
If you have a wire or check in foreign funds the bank may determine, in its discretion, to assign a currency exchange rate to your transaction without informing you. In other words they will charge you whatever they please.

The noose is tightening. Keep only three months operating expenses in a bank, six months for businesses, and keep $5,000 or more at home in small bills for emergencies with your gold and silver coins. Let this be a lesson to you. They are preparing for currency controls. Maybe not for a year or two, but they are coming.
The issue of Fed secrecy falls under the rule of law and the constitution. Only totalitarians want to operate in the shadows without scrutiny, oversight or restraint. Remember Jackson and Jefferson told us the biggest threats to America were elitist banking interests. The days of banker control are coming to an end. Their threatening financial and economic calamity if they do not get their way is over. Bankers should remember if they blow up the financial system there is a good likelihood they will lose their heads.
               
John Williams regularly notes that Gross Domestic Income is the theoretical equivalent to GDP.  GDI declined 2.1% in Q2 while GDP declined only 1.0%.
               
Mr. Williams: Where GDP reflects the consumption side of the economy and GDI reflects the offsetting income side. When the series estimates do not equal each other…the difference is added to or subtracted from the GDI as a "statistical discrepancy."  Although the BEA touts the GDP as the more accurate measure, the GDI is relatively free of the monthly political targeting the GDP goes through.
            
The Fed increased its balance sheet by $14.4B for the week ended Wednesday. The Fed monetized $8.8B of Treasuries, $5.6B of agencies and $13.3B of MBS.  Currency swaps fell again, by $8.8B.
            
The US Treasury’s Inspector General provides a major reason why China and other foreign investors are fleeing GSE debt in its review of the demise of National Bank of Commerce (Berkley, Illinois).
         
The primary cause of NBC‘s failure was its significant losses from preferred stock holdings in Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), (also referred to as Government Sponsored Enterprises (GSE) securities in this report).
           
These losses depleted NBC’s capital and strained its liquidity.
           
Retrospectively, the lesson to be taken from the NBC material loss is that banks and regulators need to be cognizant that securities that are not backed by the full faith and credit of the U.S. government do entail risk, and high concentrations of such holdings elevate that risk. That risk was clearly underscored by NBC’s failure.
The refusal by ABC and NBC to run a national ad critical of President Obama's health care reform plan is raising questions from the group behind the spot -- particularly in light of ABC's health care special aired in prime time last June hosted at the White House.   [What do you expect from GE-owned (Immeltdown CEO) NBC?]
          
Section 431(a) of the bill says that the IRS must divulge taxpayer identity information, including the filing status, the modified adjusted gross income, the number of dependents, and "other information as is prescribed by" regulation…Section 245(b)(2)(A) says the IRS must divulge tax return details…there's no specified limit on what's available or unavailable...to the Health Choices Commissioner. The purpose, again, is to verify "affordability credits." 
        
Section 1801(a) says that the Social Security Administration can obtain tax return data on anyone who may be eligible for a "low-income prescription drug subsidy" but has not applied for it.
        
Over at the Institute for Policy Innovation (a free-market think tank and presumably no fan of Obamacare), Tom Giovanetti argues that: "How many thousands of federal employees will have access to your records? The privacy of your health records will be only as good as the most nosy, most dishonest and most malcontented federal employee.... So say good-bye to privacy from the federal government. It was fun while it lasted for 233 years."
We find it of interest that as the Fed discusses exit strategies that the Fed bought an additional $301 billion in treasuries, mortgages and agencies, bringing their 2-weeks of net purchases to $100.7 billion. The Fed is accelerating the monetization of debt. This also means they may have completed their $300 billion purchase of Treasuries. We are at a major crossroad. The Economic Cycle research Institute Index is at its worst level since May 28, 1971. The result was major inflation and 20.5% interest rates, which led to a move in gold from $200 to $860.

The ERCI weekly leading index for the week-ended 8//21/09 fell to 124.4 from 124.9. The annualized growth rate was at a 38-year high of 19.6%.
Atlanta Fed Chief Dennis Lockhart says real unemployment is 16%, we guess he won’t be around for long.
            
The U.S. Federal Reserve won a delay of a federal judge's order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received.
            
Chief Judge Loretta Preska of the U.S. District Court in Manhattan stayed her August 24 order in favor of Bloomberg News, which had sought the information under the federal Freedom of Information Act, so that the central bank could appeal.
            
The Fed's board of governors has worried that disclosure would stigmatize the participating banks, threatening both them and the U.S. economy.

The Second Wave of The Depression: Hyperinflation is Likely

By Webster Tarpley

Global Research, August 17, 2009

The Rock Creek Free Press - 2009-07-15

The second wave of the world economic depression is coming soon. Larry Summers, the economics czar of the Wall Street puppet regime currently in power in Washington, recently confessed to the Financial Times in an unguarded moment: "I don't think the worst is over .." A few weeks earlier, Jacques Attali, who served in the 1980s as the main economics adviser to French President Mitterrand, told an audience at the International Economic and Financial Forum (FIEF) in Paris that the world might well soon face a planetary Weimar "in the form of a hyperinflationary depression similar to the German events of 1922 - 1923. 

During the last world economic depression, the first wave came in the form of the famous New York Stock market crash of October 1929. But this was only the beginning, and hardly the main event. The world depression of the 1930s was made irreversible by the British bankruptcy of September 1931, when the Bank of England ceased gold payment. At that time, the vast majority of international trade was financed by pounds sterling bills of exchange drawn on London. When the British Pound began to float through a series of competitive devaluations, the lack of a stable reserve currency - and not the US Hawley-Smoot tariff - strangled world trade, thus making that depression as severe as it was. British default in turn undermined the US banking system, setting the stage for the banking panic which ravaged the United States in 1932 and 1933, to the point that not a single bank in the country was still operating by the time Franklin D. Roosevelt assumed the presidency in March of 1933. The United States would almost certainly have been lashed by additional waves of depression had it not been for the banking triage implemented by the Roosevelt administration during the bank holiday, and for other New Deal measures which succeeded in mitigating the Depression. Other countries, notably Germany, went into a permanent depression which was expressed in a series of military campaigns which aimed at the economic looting of the other countries of Europe. Whatever the ideological fanatics of the discredited Austria and Chicago schools of economic analysis may claim, there is no automatic business cycle capable of lifting the modern world out of serious economic disintegration. The depression will end when adequate New Deal style policies are implemented, and not before, as I show in my new book, the second edition of Surviving the Cataclysm. 

TODAY: BETWEEN 1929 AND 1931 

Today, therefore, we are, so to speak, in the trough between the October 1929 wave (which corresponds to the derivatives crisis and banking panic of 2008) and the September 1931 wave, which this time around is highly likely to take the form of a hyperinflationary dollar crisis, or in other words a hyper stagflation and depression of the world economy radiating out from Wall Street and the City of London. What then might be the leading characteristics of the next wave of the current world economic breakdown crisis? 

The next wave is likely to involve a worldwide dollar panic. Using ballpark figures, we can say that there are about $4 to $5 trillion sloshing around the world in the form of hot money, US Treasury securities, Euro dollars, and various forms of zeno-dollars. Japan has about a trillion, China almost $2 trillion, and so forth. It is naturally very unwise for a developing country like China to hold so many dollars rather than using them to purchase needed infrastructure and capital goods, and the Chinese leaders are now very uncomfortable with their own foolish decision, which was of course taken under heavy US pressure. But the point is that this $4.5 trillion overhang is by its very nature exceedingly unstable. Every country that holds large sums of dollars or US Treasury bonds is nervously eyeing every other such country to see if they show signs of bolting for the exit. Up to now, so far as we know, no large holder of dollars has attempted to reduce its exposure to the battered greenback by dumping these dollars on the international market. If anyone did so, it would cause a true universal financial panic which would create chaos and mayhem not just in the United States and Great Britain, but in the vast areas of the rest of the world as well. This is concretely how hyperinflation could now very well arise: if one or more US creditor nations attempts to abruptly lighten up on dollars, the value of the US currency could undergo a catastrophic collapse, and that would spell runaway hyperinflation on the US domestic front. 

World Dollar Panic Imminent? 

We need to recall that the value of a modern currency is not determined inside the country, but rather on the international foreign exchange markets. This is where the fatal vulnerability of the US dollar is located. In the ruined form of the Bretton Woods system which has prevailed for almost 40 years since Nixon's colossal historical vandalism of August 15, 1971, the US has emerged as the only country with a permanent license to finance imports by simply printing more of its own currency and sending those banknotes overseas. Every other country has to manufacture and export something that others want to buy in order to earn the necessary foreign exchange to pay for its own imports. The US license to print has made this country the buyer of last resort and the dumping ground for the unsold junk of the world, leading in the process to high permanent unemployment here. There are many signs that this inherently unworkable arrangement has now reached the breaking point. 

International Currency Relations, Not Money Supply, Are The Key 

Ms. Ellen Brown, who apparently supports the doctrines of the social credit movement of the 1930s, has recently argued that deflation is now on the agenda, and that hyperinflation can be ruled out. She bases this analysis on the fact that the private credit markets in this country have largely collapsed, and on the contention that the M1 and M2 money parameters have either declined or increased only slightly. But all of this is beside the point. The Federal Reserve and the Treasury have so far provided almost $13 trillion of new loans to banks, insurance companies, credit card companies, and other purely financial institutions. 

This is being done in an effort to bailout the $1.5 quadrillion world derivatives bubble, of which something like two-thirds or more, meaning one quadrillion dollars, can be located inside the dollar zone. The world depression started when this derivatives bubble went into reverse leverage, meaning that super losses instead of super profits were generated at the apex of the speculative pyramid, as seen in the case of the $3 trillion AIG hedge fund located in London. The Obama regime is engaged in an hysterical attempt to restart derivatives production in the form of securitization, i.e. the creation of more and better asset backed securities derivatives. At the same time, the Obama regime has cynically and deliberately driven the Detroit automakers into bankruptcy, destroying hundreds of thousands of the few remaining industrial jobs here in the United States. 

This means that US industrial production continues in drastic decline. The mere mention of production reminds us that the assorted Austrian, Chicago, and social credit schools are predominantly or exclusively concerned with money and banking, and pay little or no attention to industrial, agricultural, and infrastructural production, meaning of course that they neglect the creation of those tangible physical use values, capital goods, and related forms of real wealth upon which human existence depends. With bailouts increasing and all forms of commodity production declining, we have the classic situation of far too much money chasing too few goods. Internal pressure towards hyperinflation comes from the fact that the bailout and public debt lending, on top of the bloated, fictitious, and exponentially growing mass of kited derivatives, are all charges which must be added to the prices of commodity production. 

Add this to the more important factor of looming dollar panic in the international exchanges, and the preponderance of the evidence points towards hyperinflation. "Helicopter Ben" Bernanke got his name from his famous recipe of throwing bales of dollars out of helicopters onto the lawns of bankers to stimulate the economy out of a depression, and this reminds us that the profile of the Anglo-American financial leadership from Gordon Brown, Alistair Darling, and Mervyn King to Summers, Geithner, and Bernanke is decidedly hyperinflationary. Ms. Brown's belief that hyperinflation is impossible is therefore mistaken. 

The German 1923 hyperinflation was generated internationally, not within Germany, as a campaign of economic warfare by Britain and France against their defeated rival. Germany had signed the Rapallo agreements with Soviet Russia, creating an economic combination which was more than a match for the Anglo-French. To abort the potential of Rapallo by creating chaos in the German economy, the Anglo-French systematically destroyed the value of the German Reichsmark on the international exchanges, taking advantage of the Versailles reparations system and the French occupation of the industrialized Ruhr area. The mark went down every day when the London exchange rate was announced. Today, it is the enormous international dollar overhang which threatens to annihilate the US greenback. 

The one way deflation might actually come about is if someone like the self-professed Austrian school ideologue Ron Paul were to take power. Ron Pauls "libertarianism" alternative to Obama's continued bailouts of Wall Street is evidently an immediate deflationary crash, which he asserts will be followed by an automatic recovery. Ron Paul is a modern representative of the so-called liquidationist school to which 1920s Treasury Secretary Andrew Mellon belonged. Mellon demanded the liquidation of stocks, bonds, real estate, and labor. German Chancellor Heinrich Brüning, another liquidationist, savagely cut German unemployment benefits (Ron Paul's "nanny state") at the height of the Depression, helping to bring on the debacle of January 1933. Liquidationists tend to be people who have money and who believe they will continue to have money even after an all-out crash, when they will be able to buy up distressed assets and desperate unemployed workers for rock-bottom prices and cash in. But liquidationism obviously cannot be a solution to depression of the entire society. 

The recent meetings of the leaders of the expanded G-8 countries in L'Aquila, Italy were marked by a growing awareness that the US dollar, because of the criminally irresponsible policies of the Wall Street financiers who have dominated the Bush and Obama administrations, can no longer play the role of the single world reserve currency. Russian President Medvedev showed off a sort of future world coin to try to prod the Obama regime in the direction of serious world monetary reform, which is of course the urgent task before everyone. 

Naturally, finance oligarchs like Summers, Geithner, and Bernanke want to continue to play the role of world currency dictators, and not be forced to negotiate the end of Anglo-American hegemonism. The world needs to go toward a new pro-growth world monetary system in which the euro, the yen, the dollar, the ruble, the Chinese yuan, a possible Latin American monetary unit, and a possible Arab monetary unit would all be included. It will be important to make the transition toward such a new system as orderly as possible, since a catastrophic collapse of the dollar in the short term would be to no one's advantage, and would rather represent a sure path to universal ruin. World economic growth rates under the 1944 to 1971 Bretton Woods system were the highest in recorded history before or since. This was accomplished through statism and dirigism in the form of narrow bands of isolation among the currencies, combined with gold settlements of surpluses and deficits among the nations, which provided an indispensable reality principle to restrain the hyperinflationary tendencies of the Anglo-Americans. The new world monetary system should include the abolition of the International Monetary Fund and the World Bank in their current forms, since these institutions have strangled the economic progress of the developing sector. Rather, the goal of the new monetary system should be to restart the export of high technology capital goods of the most modern type from Europe, Japan, and the United States toward the impoverished countries of Africa, South Asia, and certain parts of Latin America. 

The Federal Government Should Stop Borrowing And Start Lending 

Here in the United States, we need to wipe out the derivatives bubble with the help of a 1% Tobin tax or securities transfer tax, on all speculative financial transactions, including futures, options, stocks, bonds, commodities, foreign exchange, and so forth. A California Tobin tax would solve the state budget crisis. The top 16 Wall Street banks are zombie institutions that need to be seized and liquidated under Chapter 7 bankruptcy at once, with all of their derivatives going into the shredder. Foreclosures on homes, farms, and businesses should be banned outright for five years or for the duration of the depression, which ever lasts longer. To provide a credit supply, the Federal Reserve should be seized and nationalized, and used as a vehicle to issue 0% Federal credit for productive activities only, not for speculation. 

To revive credit demand, state and local governments could then take out 0% Federal loans for such long overdue projects as the construction of 1,000 hospitals, the building of 50,000 miles of modern maglev rail systems, and 100 fourth-generation, high temperature, pebble bed nuclear reactors, plus the rebuilding of water systems and the interstate highway network. Idled auto plants should be reconverted for these purposes. Science drivers in the fields of space exploration and colonization, high energy physics, and biomedical research should also be fully funded in this way to provide technological modernization.
 
The social safety net needs to be expanded and developed, with larger Social Security pensions for a generation whose 401(k)s and IRAs have been largely destroyed, along with increased Medicare and Medicaid benefits for those whose insurance companies are insolvent, like AIG and The Hartford, which have been devastated by derivatives speculation. These are quite simply the requirements for the maintenance of human civilization in this part of the world. Until measures like these are carried out, the United States and the world will continue to sink deeper into the bottomless pit of economic depression. 

Webster Tarpley is an economic historian, radio host and author of 9/11 Synthetic Terror: Made in USA, Obama, The Postmodern Coup and Surviving The Cataclysm and other books.

The Economy is in Deep, Deep Trouble...
Question for Bernanke: "Do you have the cojones to raise rates?"

By Mike Whitney

Global Research, August 14, 2009

Booyah. It's morning in America. The jobless numbers are stabilizing, the stock market is sizzling, quarterly earnings came in better than expected, traders have turned bullish, housing is showing signs of life, and clunker-swaps have given Detroit a well-needed boost of adrenalin. Even Cassandra economists --like Paul Krugman and Nouriel Roubini--have been uncharacteristically optimistic. Is is true; did we avoid a Second Great Depression? Is the worst really behind us?
Maybe. But there is only one way to find out for sure. Raise rates.
Bernanke should welcome the opportunity to show everyone how he's pulled the world's biggest economy back from the brink of disaster. All he needs to do is stop giving away free money, shut down a few of his so-called lending facilities, and stop manipulating interest rates by purchasing mortgage-backed securities (MBS) from Fannie and Freddie. How hard is that? The S&P 500 has skyrocketed 48 percent since March 9. What's Bernanke waiting for; a 75 percent increase; a 100 percent increase??? How high do stocks have to go to convince Bernanke that the economy can stand on its own two feet without the torrent of cheap liquidity issuing from the Fed?
Bernanke can prove to his critics that the US economy doesn't need the Fed's monetization programs and price fixing; that it doesn't need the liquidity injections and the buying up of junk mortgages. ($80 billion last month alone) After all, as Bernanke opines, "The fundamentals of our economy are strong!"
Right. Now prove it.
All Bernanke has to do is boost rates by a point or two and demonstrate that he's willing to mop up some of the $13 trillion he's pumped into the financial markets. With just one announcement, the Fed chair could show our biggest creditor--China--that he's serious about defending the dollar and the trillion dollars of US Treasuries China purchased believing that the US was a responsible trading partner who would never write checks on an account that was overdrawn by $12 trillion. (The National Debt)
So, go ahead, Ben. Raise rates, shut down the printing presses, roll up the corporate welfare programs. Be a He-man. Make your critics eat their words. This is from Bloomberg News 8-12-09:
"The Fed’s policy-setting Open Market Committee will today keep the target rate at zero to 0.25 percent and retain plans to buy as much as $1.45 trillion of housing debt by year-end to help secure a recovery, analysts said. The FOMC’s statement is expected at about 2:15 p.m. in Washington."
Hmmmmmm. So all the "green shoots" happy talk is pure gibberish, right? There is no recovery. Bernanke plans to continue flooding the financial system with cheap liquidity. It's all a fraud. Things aren't better; they're worse.
Look at the facts.
There were 1.9 million foreclosures in 2009 in the first six months, and there will be another 1.5 before the end of the year. Is that better? According to Bloomberg: "A glut of unsold homes is also pushing down prices. The 3.8 million homes for sale in June would take 9.4 months to sell at the current pace of transactions, according to the National Association of Realtors. The inventory turnover rate averaged 4.5 months in the six years from 2000 to 2005.....More than 18.7 million homes, including foreclosures, residences for sale and vacation homes, stood vacant in the U.S. during the second quarter. That compared with 18.6 million a year earlier, the U.S. Census Bureau said July 24
Total home sales fell 23.7 percent in June versus a year earlier." Bloomberg)
Massive supply, falling prices, record foreclosures, flagging demand--and according to Deutsche Bank--48 percent of all mortgages will be underwater by 2011. It's all bad.
Here's another clip from Bloomberg today 8-12-09:
"Home price declines in the U.S. ACCELERATED in the second quarter, dropping by a record 15.6 percent from a year earlier, as foreclosures weighed on values.
The median price of an existing single-family home dropped to $174,100, THE MOST IN RECORDS dating to 1979, the National Association of Realtors said today.
“I don’t think we’re at a bottom yet in home prices,” said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. “There’s also a pretty big shadow supply of houses. People are kind of waiting for the bottom but there’s a pent up supply out there.”...Home prices are tumbling even as mortgage rates remain near all-time lows. The average U.S. rate for a 30-year fixed home loan was to 5.22 percent last week, down from 5.25 percent the prior week." (Bloomberg)
The decline in housing prices is ACCELERATING, not slowing down. The historic collapse in real estate is ongoing and it is wiping out trillions in homeowner equity making it increasingly difficult for consumers to borrow on the diminishing value of their collateral. This is why foreclosures, defaults and personal bankruptcies are soaring. (According to the American Bankruptcy Institute: consumer bankruptcy filings reached 126,434 in July, a 34.3% increase year over year, and a 8.7% increase sequentially (116,365 in June). July's number is the highest monthly total since the October 2005 bankruptcy reform aka the Bankruptcy Abuse Prevention and Consumer Protection Act.)
This is why households and consumers can no longer spend as much as they had before the crisis. Credit lines are being pared back; personal savings are rising, and GDP (excluding fiscal stimulus) is shrinking. Every one of the 3.5 million foreclosures represents hundreds of thousands of dollars the banks will never recoup. NEVER. That's why the rate of bank failures will be much greater than current estimates. The banks are facing a triple-whammy; soaring foreclosures, plummeting asset prices, and a meltdown in commercial real estate. The combo has created a gigantic capital-hole which is forcing the banks to slow lending even to applicants with flawless credit. The Fed has built up excess bank reserves by $800 billion, but it hasn't made a bit of difference. They banks are still not able to lend.
The uptick in housing last month reflects seasonal changes and a shifting of pain from the low end of the market to higher priced homes; nothing more. Homes that are priced over $1 million are now sitting on the market for 20 months; a lifetime in real estate parlance. High-end neighborhoods have turned into leper colonies. Zero interest; zero traffic. Expect a crash this year.
Now take a look at this from CNBC's Diana Olick:
"The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg," said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington. According to Zillow's latest Homeowner Confidence Survey, 12 percent of homeowners said they would be "very likely" to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8 percent said "likely," while 12 percent said "somewhat likely." Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million U.S. houses, condos and co-ops, Humphries said.
According to the National Association of Realtors, the market is currently on track to sell 4.89 million homes annually.
"At this pace, it would take about four years to run through this amount of backlogged inventory," he said. "Shadow inventory has the potential to give us another leg down on home prices during the second half of the year," said Steven Wood, chief economist at Insight Economics in Danville, California. (Diana Olick, "Shadow inventory lurks over US housing recovery" CNBC)
The banks are using all types of accounting tricks to hide the real losses or the true value of downgraded assets. The only difference between a common crook and a commercial banker is a well-paid accountant. The banking system is broken and its only going to get worse as the hammer comes down on the commercial real estate market. The Fed and Treasury are already working out the details for another stealth bailout that they'll initiate without Congress's approval. It's all very "hush-hush". The plan will involve more mega-leveraging of government liabilities. Bernanke has appointed himself the de facto Czar of Hedge Fund Nation, Clunkerville USA.
An article in this week's Financial Times further illustrates how the Fed has transformed the economy into a riverboat casino:
"The Federal Reserve Bank of New York is aggressively hiring traders as its seeks to manage its burgeoning securities holdings, making the central bank one of Wall Street's most active recruiters of financial talent.
The New York Fed - the arm of the US central bank that implements its monetary policy - plans to increase the staff in its markets group to 400 by the end of the year - up from 240 at the end of 2007.
The Fed, which says that most of its new recruits come from private sector financial firms, is hiring employees as many banks, rating agencies, hedge funds and private equity groups shed staff. New York city officials recently estimated that the sector's woes would lead to a loss of up to 140,000 jobs.
The Fed's need for more traders is a direct consequence of the central bank's efforts to keep credit flowing through the US economy. The Fed has been buying fixed-income securities at such a rate that its assets have more than doubled to $2,000bn in the past year, leading the central bank to conclude that it needs more people to monitor the markets and to manage its credit risks." (Financial Times, "NY Fed in hiring spree as assets soar", Aline van Duyn)
Nice, eh? So now the Fed needs to enlist a gaggle of professional speculators just to keep all the balls in the air. What a joke. This isn't a rebound; it's just more hype. Here's Warren Buffett summing it up on CNBC:
"I get figures on 70-odd businesses, a lot of them daily. Everything that I see about the economy is that we've had no bounce. The financial system was really where the crisis was last September and October, and that's been surmounted and that's enormously important. But in terms of the economy coming back, it takes a while.... I said the economy would be in a shambles this year and probably well beyond. I'm afraid that's true." "The economy is in a shambles". That's from the horse's mouth. Inventories are down 11 percent year-over-year, durable goods are down 10.4 percent y-o-y, industrial capacity is at record lows, manufacturing is still contracting, housing is in the tank, shipping and rail freight are scraping the bottom, retail is in a long-term funk, and--according to Krugman--the slight dip in unemployment was a statistical anomaly. Here's Bob Herbert's great summary of the unemployment data:
"Some 247,000 jobs were lost in July, a number that under ordinary circumstances would send a shudder through the country. It was the smallest monthly loss of jobs since last summer. And for that reason, it was seen as a hopeful sign. The official monthly unemployment rate ticked down from 9.5 percent to 9.4 percent....The country has lost a crippling 6.7 million jobs since the Great Recession began in December 2007...
The percentage of young American men who are actually working is the lowest it has been in the 61 years of record-keeping, according to the Center for Labor Market Studies at Northeastern University in Boston. Only 65 of every 100 men aged 20 through 24 years old were working on any given day in the first six months of this year. In the age group 25 through 34 years old, traditionally a prime age range for getting married and starting a family, just 81 of 100 men were employed.... The numbers are beyond scary; they’re catastrophic.
This should be the biggest story in the United States. When joblessness reaches these kinds of extremes, it doesn’t just damage individual families; it corrodes entire communities, fosters a sense of hopelessness and leads to disorder....
A truer picture of the employment crisis emerges when you combine the number of people who are officially counted as jobless with those who are working part time because they can’t find full-time work and those in the so-called labor market reserve — people who are not actively looking for work (because they have become discouraged, for example) but would take a job if one became available.
The tally from those three categories is a mind-boggling 30 million Americans — 19 percent of the overall work force.
This is, by far, the nation’s biggest problem and should be its No. 1 priority.("A Scary Reality" Bob Herbert, New York Times)
Sorry, Bob, the media has no time for unemployment news. It tends to undermine the positive vibes from green shoots stories.
The stock market rally has made it harder for people to see the truth. But the facts haven't changed. Deflation is setting in across all sectors and the economy has reset at a lower rate of economic activity. Housing prices are falling, consumer spending is slowing, layoffs are rising, and demand is getting weaker. That means growth will be sub-par for the foreseeable future. Here's an excerpt from a speech given by San Francisco Fed Janet Yellen drawing the same conclusion:
"I don’t like taking the wind out of the sails of our economic expansion, but a few cautionary points should be considered... a massive shift in consumer behavior is under way.. American households entered this recession stretched to the limit with mortgage and other debt. The personal saving rate fell from around 8 percent of disposable income two decades ago to almost zero. Households financed their lifestyles by drawing on increasing stock market and housing wealth, and taking on higher levels of debt. But falling house and stock prices have destroyed trillions of dollars in wealth, cutting off those ready sources of cash. What’s more, the stark realities of this recession have scared many households straight, convincing them that they need to save larger fractions of their incomes.... a rediscovery of thrift means fewer sales at the mall, and fewer jobs on assembly lines and store counters....
This very weak economy is, if anything, putting downward pressure on wages and prices. We have already seen a noticeable slowdown in wage growth and reports of wage cuts have become increasingly prevalent—a sign of the sacrifices that some workers are making to keep their employers afloat and preserve their jobs. Businesses are also cutting prices and profit margins to boost sales..... With unemployment already substantial and likely to rise further, the downward pressure on wages and prices should continue and could intensify....
If the economy fails to recover soon, it is conceivable that this very low inflation could turn into outright deflation. Worse still, if deflation were to intensify, we could find ourselves in a devastating spiral in which prices fall at an ever-faster pace and economic activity sinks more and more."
"Falling prices." "Deflation." "Devastating spiral." That's not the kind of honesty that one expects from a Fed chief. Yellen must not be drinking the lemonade.
And don't forget the banking system is still broken. Not a dime from the $700 billion TARP bailout was used to purchase toxic assets. The banks are still drowning in red ink. . Bernanke has known since last September when Lehman Bros. defaulted, that the bad assets would have to be removed before the economy could recover. An underwater banking system is a constant drain on public resources and a drag on growth. Bernanke knows this, but rather than remove the assets by nationalizing the banks or restructuring their debt (as he should have done) he expanded the Fed's balance sheet by $1.2 trillion which provided the liquidity that financial institutions pumped into the stock market. "Bernanke's Rally" has generated the capital the banks needed to keep them from writing-down their debts or filing for Chapter 11, but the problems still persist right below the surface. Just this week, Elizabeth Warren's Congressional Oversight Panel released a damning report which stressed the need to address the issue of toxic assets. According to the COP's report:
"Financial stability remains at risk if the underlying problem of toxic assets remains unresolved....
If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value. Banks will incur further losses on their troubled assets. The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix....
Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem. In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem.
The problem of troubled assets is especially serious for the balance sheets of small banks. Small banks‘ troubled assets are generally whole loans, but Treasury‘s main program for removing troubled assets from banks‘ balance sheets, the PPIP will at present address only troubled mortgage securities and not whole loans.
Given the ongoing uncertainty, vigilance is essential. If conditions exceed those in the worst case scenario of the recent stress tests, then stress-testing of the nation‘s largest banks should be repeated to evaluate what would happen if troubled assets suffered additional losses."
To sum up: There will be NO real recovery until the toxic assets problem is resolved. Unfortunately, the Treasury and Fed have shown that they intend to sweep this issue under the rug for as long as possible.
Toxic assets, falling home prices, widespread malaise in the credit markets are just part of the problem. The deeper issue is the dismal condition of the US consumer who has seen his home equity dissipate, his retirement funds sawed in half,his access to credit curtailed, and his job put at risk. Ordinary working class Americans now face what David Rosenberg calls, "the era of consumer frugality---new paradigm of savings, asset liquidation and debt repayment ." Life styles will have to be toned-down and living standards lowered to meet the new deflationary reality. More and more people will be forced to jettison their credit cards and live within their means.
It's not the end of the world, but it does foreshadow a protracted period of negative growth, social unrest and persistent high unemployment. Here's how the Wall Street journal sums it up: "A surprisingly large number of money managers and economists are warning that, despite the hopeful signs, the economy is still deep in the woods, not strong enough to support a long-running stock and bond recovery....Even after the recession ends, economists expect the gradual reduction of the nation's massive consumer debt to take years.
The debt data are striking. According to the Federal Reserve, total household indebtedness peaked at the end of 2007 at 132% of disposable income. That was by far the highest level since at least the end of World War II, nearly quadruple the 36% of 1952. By the end of March, with families boosting savings, repaying debt and defaulting, the ratio had fallen to 124%, a tad lower but still miles from the level of, say, 69% in the middle of 1985. Consumer spending today accounts for two-thirds or more of economic output. But as they boost savings and cut borrowing, consumers can't be the drivers of economic growth that they were at the end of other recent recessions.
Consumer borrowing fell in June for the fifth consecutive month....
"Consumers are under significant financial pressure," Goldman notes in its report. "The weakness in household income -- partly resulting from the sharp slowdown in hourly wage growth -- will make it harder to raise saving without significant constraints on consumption."
As for home building and capital spending, two other possible growth motors, "we do not expect a 'traditional' rebound in these sectors, largely because the overhang of unused capacity in both the housing and business sectors remains enormous," Goldman said." ("Debt Burden to Weigh on Stocks", E.S. Browning and Annelena Lobb, Wall Street Journal)
Stock market euphoria can last a long time, but the laws of gravity still apply. The economy is in deep, deep trouble and Bernanke knows it or he'd be raising rates right now. The patient is haemorrhaging my friends, and no amount of happy talk is going to stop the bleeding.

The Second Wave of The Depression: Hyperinflation is Likely

By Webster Tarpley

Global Research, August 17, 2009

The Rock Creek Free Press - 2009-07-15

The second wave of the world economic depression is coming soon. Larry Summers, the economics czar of the Wall Street puppet regime currently in power in Washington, recently confessed to the Financial Times in an unguarded moment: "I don't think the worst is over .." A few weeks earlier, Jacques Attali, who served in the 1980s as the main economics adviser to French President Mitterrand, told an audience at the International Economic and Financial Forum (FIEF) in Paris that the world might well soon face a planetary Weimar "in the form of a hyperinflationary depression similar to the German events of 1922 - 1923. 

During the last world economic depression, the first wave came in the form of the famous New York Stock market crash of October 1929. But this was only the beginning, and hardly the main event. The world depression of the 1930s was made irreversible by the British bankruptcy of September 1931, when the Bank of England ceased gold payment. At that time, the vast majority of international trade was financed by pounds sterling bills of exchange drawn on London. When the British Pound began to float through a series of competitive devaluations, the lack of a stable reserve currency - and not the US Hawley-Smoot tariff - strangled world trade, thus making that depression as severe as it was. British default in turn undermined the US banking system, setting the stage for the banking panic which ravaged the United States in 1932 and 1933, to the point that not a single bank in the country was still operating by the time Franklin D. Roosevelt assumed the presidency in March of 1933. The United States would almost certainly have been lashed by additional waves of depression had it not been for the banking triage implemented by the Roosevelt administration during the bank holiday, and for other New Deal measures which succeeded in mitigating the Depression. Other countries, notably Germany, went into a permanent depression which was expressed in a series of military campaigns which aimed at the economic looting of the other countries of Europe. Whatever the ideological fanatics of the discredited Austria and Chicago schools of economic analysis may claim, there is no automatic business cycle capable of lifting the modern world out of serious economic disintegration. The depression will end when adequate New Deal style policies are implemented, and not before, as I show in my new book, the second edition of Surviving the Cataclysm. 

TODAY: BETWEEN 1929 AND 1931 

Today, therefore, we are, so to speak, in the trough between the October 1929 wave (which corresponds to the derivatives crisis and banking panic of 2008) and the September 1931 wave, which this time around is highly likely to take the form of a hyperinflationary dollar crisis, or in other words a hyper stagflation and depression of the world economy radiating out from Wall Street and the City of London. What then might be the leading characteristics of the next wave of the current world economic breakdown crisis? 

The next wave is likely to involve a worldwide dollar panic. Using ballpark figures, we can say that there are about $4 to $5 trillion sloshing around the world in the form of hot money, US Treasury securities, Euro dollars, and various forms of zeno-dollars. Japan has about a trillion, China almost $2 trillion, and so forth. It is naturally very unwise for a developing country like China to hold so many dollars rather than using them to purchase needed infrastructure and capital goods, and the Chinese leaders are now very uncomfortable with their own foolish decision, which was of course taken under heavy US pressure. But the point is that this $4.5 trillion overhang is by its very nature exceedingly unstable. Every country that holds large sums of dollars or US Treasury bonds is nervously eyeing every other such country to see if they show signs of bolting for the exit. Up to now, so far as we know, no large holder of dollars has attempted to reduce its exposure to the battered greenback by dumping these dollars on the international market. If anyone did so, it would cause a true universal financial panic which would create chaos and mayhem not just in the United States and Great Britain, but in the vast areas of the rest of the world as well. This is concretely how hyperinflation could now very well arise: if one or more US creditor nations attempts to abruptly lighten up on dollars, the value of the US currency could undergo a catastrophic collapse, and that would spell runaway hyperinflation on the US domestic front. 

World Dollar Panic Imminent? 

We need to recall that the value of a modern currency is not determined inside the country, but rather on the international foreign exchange markets. This is where the fatal vulnerability of the US dollar is located. In the ruined form of the Bretton Woods system which has prevailed for almost 40 years since Nixon's colossal historical vandalism of August 15, 1971, the US has emerged as the only country with a permanent license to finance imports by simply printing more of its own currency and sending those banknotes overseas. Every other country has to manufacture and export something that others want to buy in order to earn the necessary foreign exchange to pay for its own imports. The US license to print has made this country the buyer of last resort and the dumping ground for the unsold junk of the world, leading in the process to high permanent unemployment here. There are many signs that this inherently unworkable arrangement has now reached the breaking point. 

International Currency Relations, Not Money Supply, Are The Key 

Ms. Ellen Brown, who apparently supports the doctrines of the social credit movement of the 1930s, has recently argued that deflation is now on the agenda, and that hyperinflation can be ruled out. She bases this analysis on the fact that the private credit markets in this country have largely collapsed, and on the contention that the M1 and M2 money parameters have either declined or increased only slightly. But all of this is beside the point. The Federal Reserve and the Treasury have so far provided almost $13 trillion of new loans to banks, insurance companies, credit card companies, and other purely financial institutions. 

This is being done in an effort to bailout the $1.5 quadrillion world derivatives bubble, of which something like two-thirds or more, meaning one quadrillion dollars, can be located inside the dollar zone. The world depression started when this derivatives bubble went into reverse leverage, meaning that super losses instead of super profits were generated at the apex of the speculative pyramid, as seen in the case of the $3 trillion AIG hedge fund located in London. The Obama regime is engaged in an hysterical attempt to restart derivatives production in the form of securitization, i.e. the creation of more and better asset backed securities derivatives. At the same time, the Obama regime has cynically and deliberately driven the Detroit automakers into bankruptcy, destroying hundreds of thousands of the few remaining industrial jobs here in the United States. 

This means that US industrial production continues in drastic decline. The mere mention of production reminds us that the assorted Austrian, Chicago, and social credit schools are predominantly or exclusively concerned with money and banking, and pay little or no attention to industrial, agricultural, and infrastructural production, meaning of course that they neglect the creation of those tangible physical use values, capital goods, and related forms of real wealth upon which human existence depends. With bailouts increasing and all forms of commodity production declining, we have the classic situation of far too much money chasing too few goods. Internal pressure towards hyperinflation comes from the fact that the bailout and public debt lending, on top of the bloated, fictitious, and exponentially growing mass of kited derivatives, are all charges which must be added to the prices of commodity production. 

Add this to the more important factor of looming dollar panic in the international exchanges, and the preponderance of the evidence points towards hyperinflation. "Helicopter Ben" Bernanke got his name from his famous recipe of throwing bales of dollars out of helicopters onto the lawns of bankers to stimulate the economy out of a depression, and this reminds us that the profile of the Anglo-American financial leadership from Gordon Brown, Alistair Darling, and Mervyn King to Summers, Geithner, and Bernanke is decidedly hyperinflationary. Ms. Brown's belief that hyperinflation is impossible is therefore mistaken. 

The German 1923 hyperinflation was generated internationally, not within Germany, as a campaign of economic warfare by Britain and France against their defeated rival. Germany had signed the Rapallo agreements with Soviet Russia, creating an economic combination which was more than a match for the Anglo-French. To abort the potential of Rapallo by creating chaos in the German economy, the Anglo-French systematically destroyed the value of the German Reichsmark on the international exchanges, taking advantage of the Versailles reparations system and the French occupation of the industrialized Ruhr area. The mark went down every day when the London exchange rate was announced. Today, it is the enormous international dollar overhang which threatens to annihilate the US greenback. 

The one way deflation might actually come about is if someone like the self-professed Austrian school ideologue Ron Paul were to take power. Ron Pauls "libertarianism" alternative to Obama's continued bailouts of Wall Street is evidently an immediate deflationary crash, which he asserts will be followed by an automatic recovery. Ron Paul is a modern representative of the so-called liquidationist school to which 1920s Treasury Secretary Andrew Mellon belonged. Mellon demanded the liquidation of stocks, bonds, real estate, and labor. German Chancellor Heinrich Brüning, another liquidationist, savagely cut German unemployment benefits (Ron Paul's "nanny state") at the height of the Depression, helping to bring on the debacle of January 1933. Liquidationists tend to be people who have money and who believe they will continue to have money even after an all-out crash, when they will be able to buy up distressed assets and desperate unemployed workers for rock-bottom prices and cash in. But liquidationism obviously cannot be a solution to depression of the entire society. 

The recent meetings of the leaders of the expanded G-8 countries in L'Aquila, Italy were marked by a growing awareness that the US dollar, because of the criminally irresponsible policies of the Wall Street financiers who have dominated the Bush and Obama administrations, can no longer play the role of the single world reserve currency. Russian President Medvedev showed off a sort of future world coin to try to prod the Obama regime in the direction of serious world monetary reform, which is of course the urgent task before everyone. 

Naturally, finance oligarchs like Summers, Geithner, and Bernanke want to continue to play the role of world currency dictators, and not be forced to negotiate the end of Anglo-American hegemonism. The world needs to go toward a new pro-growth world monetary system in which the euro, the yen, the dollar, the ruble, the Chinese yuan, a possible Latin American monetary unit, and a possible Arab monetary unit would all be included. It will be important to make the transition toward such a new system as orderly as possible, since a catastrophic collapse of the dollar in the short term would be to no one's advantage, and would rather represent a sure path to universal ruin. World economic growth rates under the 1944 to 1971 Bretton Woods system were the highest in recorded history before or since. This was accomplished through statism and dirigism in the form of narrow bands of isolation among the currencies, combined with gold settlements of surpluses and deficits among the nations, which provided an indispensable reality principle to restrain the hyperinflationary tendencies of the Anglo-Americans. The new world monetary system should include the abolition of the International Monetary Fund and the World Bank in their current forms, since these institutions have strangled the economic progress of the developing sector. Rather, the goal of the new monetary system should be to restart the export of high technology capital goods of the most modern type from Europe, Japan, and the United States toward the impoverished countries of Africa, South Asia, and certain parts of Latin America. 

The Federal Government Should Stop Borrowing And Start Lending 

Here in the United States, we need to wipe out the derivatives bubble with the help of a 1% Tobin tax or securities transfer tax, on all speculative financial transactions, including futures, options, stocks, bonds, commodities, foreign exchange, and so forth. A California Tobin tax would solve the state budget crisis. The top 16 Wall Street banks are zombie institutions that need to be seized and liquidated under Chapter 7 bankruptcy at once, with all of their derivatives going into the shredder. Foreclosures on homes, farms, and businesses should be banned outright for five years or for the duration of the depression, which ever lasts longer. To provide a credit supply, the Federal Reserve should be seized and nationalized, and used as a vehicle to issue 0% Federal credit for productive activities only, not for speculation. 

To revive credit demand, state and local governments could then take out 0% Federal loans for such long overdue projects as the construction of 1,000 hospitals, the building of 50,000 miles of modern maglev rail systems, and 100 fourth-generation, high temperature, pebble bed nuclear reactors, plus the rebuilding of water systems and the interstate highway network. Idled auto plants should be reconverted for these purposes. Science drivers in the fields of space exploration and colonization, high energy physics, and biomedical research should also be fully funded in this way to provide technological modernization.
 
The social safety net needs to be expanded and developed, with larger Social Security pensions for a generation whose 401(k)s and IRAs have been largely destroyed, along with increased Medicare and Medicaid benefits for those whose insurance companies are insolvent, like AIG and The Hartford, which have been devastated by derivatives speculation. These are quite simply the requirements for the maintenance of human civilization in this part of the world. Until measures like these are carried out, the United States and the world will continue to sink deeper into the bottomless pit of economic depression. 

Webster Tarpley is an economic historian, radio host and author of 9/11 Synthetic Terror: Made in USA, Obama, The Postmodern Coup and Surviving The Cataclysm and other books.

Bankrupt US Financial System: The Bubble Bursts and the Economy goes into a Tailspin.

By Mike Whitney

Global Research, August 8, 2009

The World needs a breather from the US. And they'll get it sooner than many think

We're making this way too complicated. It's simple really.
The Fed has only one tool at its disposal; to create more money. Typically, the way the Fed adds to the money supply is by lowering interest rates. When the Fed lowers rates below the rate of inflation; they're basically selling dollars for under a buck. That's a good deal, so, naturally, speculators jump on it and trigger a credit expansion. What follows is a frenzy of market activity that ends in a housing, credit, tech or equity bubble. Eventually, the bubble bursts and the economy goes into a tailspin. Then, after a period of digging-out, the process resumes again. Wash, rinse, repeat. It's always the same. The moral is: Cheap money creates bubbles; and bubbles move wealth from workers to rich motherporkers. It's as simple as that. That's why the wealth gap is wider now than anytime since the Gilded Age. The rich own everything.
The Federal Reserve is the policy arm of the big banks and brokerage houses. Period. Ostensibly, its mandate is to maintain "price stability and full employment". Right. Anyone notice how many jobs the Fed has created lately? How about the dollar? Is it really supposed to zig-zag like it has been for the last decade? The central task of the Fed is to shift wealth from one class to another. And it succeeds at that task admirably. The Fed's "mandate" is public relations claptrap. Bernanke hasn't lifted a finger for homeowners, consumers or ordinary working stiffs. "Yer on yer own. Just don't expect a handout. That's socialism!" All the doe is flowing upwards...according to plan. The Fed is a social engineering agency designed to serve as the de facto government behind the smokescreen of democratic institutions. Did you really think a black, two year senator with no background in foreign policy or economics was calling the shots?
Puh-leeese! Obama is a public relations invention who's used to cut ribbons, console the unemployed, and convince Americans they live in a "post racial" society. Right. (Just take a look at the footage from Katrina again) The Fed has complete control over monetary policy and, thus, the country's economic future. Bernanke doesn't even pretend to defer to Congress anymore. Why bother? After Lehman caved in, Bernanke invoked the "unusual and exigent" clause in the Fed's charter and declared himself czar. Now he has absolute power over the nation's purse-strings.
The $13 trillion the Fed has committed to the financial system since the beginning of the crisis --via loans and outright purchases of mortgage-backed garbage and US sovereign debt--was never authorized by Congress. In fact, the Fed stubbornly refuses to even identify which institutions got the "loans", how much the loans were worth, what kind of collateral was accepted for the loans, or when the loans have to be repaid.
In truth, the loans are not loans at all, but gifts to the industry to keep asset prices artificially high so that the entire financial system does not come crashing down. Check this out:
"In an analysis written by economist Gary Gorton for the Federal Reserve Bank of Atlanta’s 2009 Financial Markets Conference titled, "Slapped in the Face by the Invisible Hand; Banking and the Panic of 2007", the author shows that mortgage-related securities ballooned from $492.6 billion in 1996 to $3,071.1 in 2003, while asset backed securities (ABS) jumped from $168.4 billion in 1996 to $1,253.1 in 2006. All told, more than $20 trillion in securitized debt was sold between 1997 to 2007. "
$20 trillion! How much of that feces paper--which is worth just pennies on the dollar-- is sitting on the balance sheets of banks and other financial institutions just waiting to blow up as soon as the Fed asks for its money back? And the Fed will never get its money back because the prices of complex securities and derivatives will never regain their pre-crisis values. Why? Because these derivatives are linked to underlying collateral (mortgages) which have already declined 33% from their peak and are headed lower still. Also, these toxic assets were sold as risk-free (many of them were rated triple A) and have now been exposed as extremely risky or fraudulent. Because these assets were heaped together in bundles to strip out their interest rates, they cannot be easily separated which means that they are worth considerably less than the 33% that has been lost on the underlying collateral (mortgages) The securitization markets are not expected to rebound for a decade or more, which means that the Fed will have to find other more-creative way to goose the credit system to avoid a downward spiral.
But how?
Zero percent interest rates haven't worked because qualified borrowers are cutting spending and saving their disposable income, while people who need to borrow, no longer meet the banks' tougher lending standards. Bank credit is shrinking even though excess bank reserves are nearly $900 billion. When banks stop lending, the economy contracts, business activity slows, unemployment soars and growth sputters. Presently, the economy is still contracting, but at a slower pace than before. "Less bad" is the new "good". All the recession indicators are still blinking red--income, employment, sales, and production--all down big! But it doesn't matter because it's a "Green Shoots" rally; plenty of cheap liquidity for the markets and a freeway off-ramp (for sleeping) for the unemployed.
The Fed's lending facilities are designed to pump liquidity into the system and inflate another bubble by generating more debt. Unfortunately, most people accept Bernanke's feeble defense of these corporate-welfare programs and fail to see their real purpose. An example may help to explain how they really work:
Say you bought a house at the peak of the bubble in 2005 and paid $500,000. Then prices dropped 40% (as they have in Calif) and your house is now worth $300,000. If you only put 5% down, ($25,000) then you are underwater by $175,000. Which means that you own more on the mortgage than your house is currently worth. (This is essentially what has happened to the entire financial system. The equity has vaporized, so institutions are using dodgy accounting tricks instead of reporting their real losses.) So Bernanke comes along and gives you $175,000 no interest, rotating loan to you so that no one knows that you are really busted and you can continue spending just as you had before. Not bad, eh? This is what the lending facilities are all about. It is a charade to conceal the fact that a large portion of the nation's financial institutions are insolvent and propped up by state largess.
But there's more, too.
Now that Bernanke has given you $175,000 no interest, rotating loan; you expect that eventually he will ask for his money back. Right? So your only hope of saving your home, in the long run, is to engage in risky behavior, like dabbling the stock market. It's like playing roulette, except you have nothing to lose since you are underwater anyway.
This is exactly what the financial institutions are doing with the Fed's loans. They're betting on equities and hoping they can avoid the Grim Reaper.
Here's how former hedge fund manager Andy Kessler summed it up last week in the Wall Street Journal: "By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market." (Andy Kessler, "The Bernanke Market" Wall Street Journal)
Only a small portion of the money that has gone into the stock market in the last 6 months (since the March lows) has come from money markets. The fed's loans are being laundered into stocks via financial institutions that are rolling the dice for their own survival. The uptick in the markets has helped insolvent banks raise equity in the capital markets so they don't have to grovel to Congress for another TARP bailout. Everybody's elated with Bernanke's latest bubble except working people who have seen their wages slashed by 4.5%, their credit lines cut, the home values plunge, and their living standards sink to third world levels. And the Fed's spending-spree is not over yet; not by a long shot. The next wave of home foreclosures (already 1.9 million in the first half of 2009) is just around the corner--the Alt-As, option arms, prime loans. The $3.5 trillion commercial real estate market is capsizing. The under-capitalized banking system will need assistance. And there will have to be another round of fiscal stimulus for ailing consumers. Otherwise, foreign holders of US Treasurys will see that the US can no longer provide 25% of global demand and head for the exits.
Bernanke's back is against the wall. The only thing he can do is print more money, shove it though the back door of the stock exchange and keep his fingers crossed. The rest is up to CNBC and the small army of media cheerleaders.
There is some truth to the theory that Bernanke saved the financial system from a Chernobyl-type meltdown. But that doesn't change the facts. Accounts must be balanced; debts must be paid. The Fed chief has committed $13 trillion to maintain the appearance of solvency. But the system is bankrupt. The commercial paper market, money markets, trillions of dollars of toxic debt instruments, and myriad shyster investment banks and insurance companies are now backed by the "full faith and credit" of the US Treasury. The financial system is now a ward of the state. The "free market" has deteriorated into state capitalism; a centralized system where all the levers of power are controlled by the Central Bank. If Bernanke's Politburo withdraws its loans--or even if he raises interest rates too soon-- the whole system will collapse.
The economy is now balanced on the rickety scaffolding of the dollar. As the Obama stimulus wears off, the rot in the economy will become more apparent. Household red ink is at record highs, so personal consumption will not rebound. That means US assets and US sovereign debt will become less attractive. Foreign capital will flee. The dollar will fall.
The world needs a breather from the US. And they'll get it sooner than many think.

The Real US Unemployment Rate Hits a 68-Year High
Comparing the Bureau of Labor Statistics' "U-3" and "U-6" rates

By John Miller

Global Research, July 25, 2009

Dollars & Sense magazine

Although you have to dig into the statistics to know it, unemployment in the United States is now worse than at any time since the end of the Great Depression.
From December 2007, when the recession began, to May of this year, 6.0 million U.S. workers lost their jobs. The big three U.S. automakers are closing plants and letting white-collar workers go too. Chrysler, the worst off of the three, will lay off one-quarter of its workforce even if it survives. Heavy equipment manufacturer Caterpillar and giant banking conglomerate Citigroup have both laid off thousands of workers. Alcoa, the aluminum maker, has let workers go. Computer maker Dell and express shipper DHL have both canned many of their workers. Circuit City, the leading electronics retailer, went out of business, costing its 40,000 workers their jobs. Lawyers in large national firms are getting the ax. Even on Sesame Street, workers are losing their jobs.
The official unemployment rate hit 9.4% in May-already as high as the peak unemployment rates in all but the 1982 recession, the worst since World War II. And topping the 1982 recession's peak rate of 10.8% is now distinctly possible. The current downturn has pushed up unemployment rates by more than any previous postwar recession.  (see Table 1).


Source: Table A-1, Bureau of Labor Statistics, U.S. Labor Department, www.bls.gov.
The comprehensive U-6 unemployment rate adjusts the official rate by adding marginally attached workers and workers forced to work part time for economic reasons to the officially unemployed. To find the U- 6 rate the BLS takes that higher unemployment count and divides it by the official civilian labor force plus the number of marginally attached workers. (No adjustment is necessary for forced part-time workers since they are already counted in the official labor force as employed workers.)
Calculating the Real Unemployment Rate
The BLS calculates the official unemployment rate, U-3, as the number of unemployed as a percentage of the civilian labor force. The civilian labor force consists of employed workers plus the officially unemployed, those without jobs who are available to work and have looked for a job in the last 4 weeks. Applying the data found in Table 2 yields an official unemployment rate of 9.1%, or a seasonally adjusted rate 9.4% for April 2009.
Accounting for the large number of marginally attached workers and those working part-time for economic reasons raises the count of unemployed to 24.0 million workers for May 2009. Those numbers push up the U-6 unemployment rate to 15.9% or a seasonally adjusted rate of 16.4%.
Some groups of workers are already facing official unemployment rates in the double digits. As of May, unemployment rates for black, Hispanic, and teenage workers were already 14.9%, 12.7% and 22.7%, respectively. Workers without a high-school diploma confronted a 15.5% unemployment rate, while the unemployment rate for workers with just a high-school degree was 10.0%. Nearly one in five (19.2%) construction workers were unemployed. In Michigan, the hardest hit state, unemployment was at 12.9% in April. Unemployment rates in seven other states were at double-digit levels as well.
As bad as they are, these figures dramatically understate the true extent of unemployment. First, they exclude anyone without a job who is ready to work but has not actively looked for a job in the previous four weeks. The Bureau of Labor Statistics classifies such workers as "marginally attached to the labor force" so long as they have looked for work within the last year. Marginally attached workers include so-called discouraged workers who have given up looking for job- related reasons, plus others who have given up for reasons such as school and family responsibilities, ill health, or transportation problems.
Second, the official unemployment rate leaves out part- time workers looking for full-time work: part-time workers are "employed" even if they work as little as one hour a week. The vast majority of people working part time involuntarily have had their hours cut due to slack or unfavorable business conditions. The rest are working part time because they could only find part- time work.
To its credit, the BLS has developed alternative unemployment measures that go a long way toward correcting the shortcomings of the official rate. The broadest alternative measure, called "U-6," counts as unemployed "marginally attached workers" as well as those employed "part time for economic reasons."
When those adjustments are taken into account for May 2009, the unemployment rate soars to 16.4%. That is the highest rate since the BLS began calculating the U-6 rate in 1994. While not exactly comparable, it is also higher than the BLS's earlier and yet broader adjusted unemployment rate called the U-7. The BLS began calculating the U-7 rate in 1976 but discontinued it in 1994 in favor of the U-6 rate. In the 1982 recession the U-7 reached 15.3%, its highest level. In fact, no bout of unemployment since the last year of the Great Depression in 1941 would have produced an adjusted unemployment rate as high as today's.
Why is the real unemployment rate so much higher than the official, or U-3, rate? First, forced part-time work has reached its highest level ever, going all the way back to 1956 and including the 1982 recession. In May 2009, 8.8 million workers were forced to work part time for economic reasons. Forced part-timers are concentrated in retail, food services, and construction; about a quarter of them are young workers between 16 and 24. The number of discouraged workers is high today as well. In May, the BLS counted 2.2 million "marginally attached" workers. That matches the highest number since 1994, when the agency introduced this measure.
With the economy in the throes of a catastrophic downturn, unemployment, no matter how it's measured, will rise dramatically and impose yet more devastating costs on society and on those without a job or unable to find full-time work.
John Miller teaches economics at Wheaton College and is a member of the Dollars & Sense collective.
Sources: 

U.S. Dept. of Labor, "The Unemployment Rate and Beyond: Alternative Measures of Labor Underutilization," Issues in Labor Statistics, June 2008; John E. Bregger and Steven E. Haugen, "BLS introduces new range of alternative unemployment measures," Monthly Labor Review, October 1995.

Inside Wall Street: Government Bets on Positive Spin to Save Failing Banks

By Shah Gilani

Global Research, July 10, 2009

Money Morning

Just when you thought the U.S. banking system had regained its footing, the reality is that a carefully woven federal-government PR campaign may actually be masking the next phase of the worst financial crisis since the Great Depression.
Indeed, it's what's just out of sight that has some analysts and economists scared to death.
To rebuild public confidence in America's ailing banks the government has greased the system's liquidity wheels, directly injected capital, backstopped and guaranteed loan facilities, lowered banks' cost of funds, changed accounting rules to make balance sheets look better, bestowed passing grades on high profile stress tests and then allowed the propped-up (but still not healthy) banks to pay back government loans.
Analysts and economists question whether this race to instill confidence will outpace rising unemployment and lagging economic data, or will trigger the next phase of the global financial crisis if shaky banks end up snapping borrower lifelines.
The big confidence game began with a single "relief" program. Now, many of the titanic banking system's torpedoed institutions are remaining afloat only because of some rescue programs developed by the U.S. Federal Reserve and U.S. Treasury Department. Deemed absolutely necessary to prevent total financial collapse at the time of their hasty implementation, the legacy of these programs will be their indiscriminate reinforcement of weak links in the banking system and the acceptance of moral hazard. The Trouble With TARP
The granddaddy of all these rescue plans - the Troubled Asset Relief Program, or TARP - is a $700 billion program that was originally designed on fewer than four pages, and that was sold to Congress as a plan to buy toxic assets from sick banks.
That never happened.
Once passed, TARP immediately morphed into a direct-capital-infusion system for banks, allowing them to meet regulatory capital requirements and stay afloat. A wide variety of other relief programs followed. There were programs to backstop the commercial paper market, money market mutual funds, and issuers and purchasers of various asset-backed securities. There was a mortgage-relief initiative. And now there is even a re-constituted public-private partnership plan - worth between $1 trillion and $2 trillion - that is supposed to buy toxic assets from the same banks that still hold them.
With all the government backstopping going on directly and indirectly behind the scenes, what remains to be seen is whether the banks can succeed without the federal government cheerleading the public into believing that these institutions are actually standing on their own feet - when, in reality, many are still on their knees.
Without these plans, many banks would certainly be on their last legs.
Underlying all the relief programs, the U.S. Federal Reserve has done everything in its power to keep interest rates low - especially the benchmark Federal Funds Rate, the rate at which banks borrow from each other on an overnight basis.
One of the positive signs being pointed to lately by government public relations spinners is the positive net interest income being earned by banks. What they don't point out is that it's only as positive as it is because the government is artificially keeping banks' "cost of funds" low through a 0.00% Fed Funds Rate policy, and by continuing to grease every lever of liquidity to keep funding cheap. What's eventually likely to be overwhelming will be the impact on net interest income when artificially cheap funding dries up, interest rates rise and commercial-paper and money-market spigots are not gushing funds like they did before the global financial crisis took hold.
The combination of capital injections, relief programs and low interest rates was designed to work together to facilitate liquidity in the vast interwoven system of institutions and markets that makes business and finance possible. Banks are the singular linch-pin in the system, without whose proper functioning the entire system would seize up.
And yet, in spite of all that was being done to keep the banking system afloat, it was still sinking. Rock-Paper-Scissors
Not unlike the children's game rock-paper-scissors, the Fed's scissors that were used to cut out impediments to liquidity were smashed by the falling Rock of Gibraltar - namely the continuing erosion of trust in crumbling banks, to the point that only by papering over losses at banks could the game be won.
With a strong push from lobbyists, legislators threatened to make legal changes to accepted accounting standards. With a nod of approval from the highest government powers attempting to triage ailing banks, legal changes weren't necessary. Instead, two amendments to U.S. Generally Accepted Accounting Principles (GAAP) were hastily approved by the Financial Accounting Standards Board (FASB):
* The first of the two amendments gave guidance to assist preparers on how to determine whether a market is not active and a transaction is not distressed, which provides allowances for sidestepping mark-to-market rules and essentially allows internal modeling of asset values. * The second amendment provides a neat trick that facilitates changes in the recognition and presentation of other-than-temporary impairments on debt instruments. In short, if you don't want to declare losses in full view of the public, stick them in a walled-off section of your financials where you can pretend that they are going to be held to maturity and paid back in full. Scissors beats paper in the children's game, and in the case of banks the scissors of any sharp accountant will eventually shred the paper façade that's masking huge losses.
Not content to try and get the public to merely notice things might be getting better, the federal government PR machine decided that bank stress tests would provide definitive proof that progress was being made. The result of the much-ballyhooed stress tests was, indeed, effective. The announcement - more like a pronouncement - proclaimed the system sound, saw a strengthening of institutions in general and only pointed to a few laggards.
But in a recent Bloomberg Markets article entitled, "Stress Management," Janet Tavakoli, president of Structured Finance Inc., told writer Yalman Onaran that "the Federal Reserve, which designed the stress tests, used a 21% to 28% loss rate for subprime mortgages as a worst-case assumption. Already, almost 40% of such loans are 30 days or more overdue."
Tavakoli predicts defaults actually might reach 55%. Positive Earnings or Positive Spin?
The release of the stress-test results coincided with some strong first quarter financials from banks. The markets rallied amid fertilized talk of "green shoots" and the actual arrival of spring. Now that's really good PR. Too bad, like a lot of PR, it was managed to look that way.
Using the accountant's scissors embedded in Onaran's Bloomberg Markets article, Citigroup Inc. (NYSE: C) picked up 25% of its 2009 first quarter net income from a debt securities accounting rule change. It subsequently increased its loan-loss provisions more slowly - even as more loans were souring. Without the accounting changes Citi, would probably have posted a net loss of $2.5 billion for the quarter, concluded Martin Weiss, founder of the Jupiter, Fla.-based Weiss Research. Inc.
Weiss also found that "the new standards let Wells Fargo (NYSE: WFC) boost its capital $2.8 billion by reassessing the value of some $40 billion of bonds, and augmented net income by $334 million because of the effect of the rule on the value of debts held to maturity."
In June, in a McKinsey Quarterly piece, writersLowell Bryan and Toos Daruvala are even more outspoken about the problems that accounting rules are masking, stating, "It might seem odd that accounting methodologies can make such a big difference. At the end of the day, what counts is the net present value of the cash flow from each asset, but those are unknowable until after a debt is repaid. Fair-value accounting, based on mark-to-market principles, immediately discounts assets when the expectation of a default arises and ability to trade the asset declines. Fair value therefore makes the holder of the asset look worse, sooner. Hold-to-maturity accounting works in reverse and makes the holder look better for a long time." Looking Good is All That Matters
Why would 10 banks on the edge of the financial abyss only a few months ago want to pay back $68 billion in government bailout money when they have:
* No idea what the future holds for them? * Or if they'll need to make a return visit to the taxpayer-filled rescue trough?
And why would the government, after all its bluster, let them pay the money back, especially in the face of a firestorm about extraordinarily excessive executive compensation at those same institutions?
Because it's all about looking good.
It's part of the PR spin to make banks look healthier than they are. And it just might spin out of control.
You can put lipstick on a pig, but you can't make a silk purse out of a sow's ear. Instead of admitting the depth of systemic risk we're facing from teetering banks and making the hard decision to shut some of them down or break them up once and for all, the federal government would rather pretty up the picture to try and convince us to open our purses again and more-quickly recharge our consumer-driven economy.
The danger in this government PR campaign to make banks look healthy is that if another meaningful economic bump rattles consumer confidence in a banking system the government says is safe, the resulting fear of a separate reality might engender a run on banks that would make the Great Depression look like a walk in the park.

America is now the world’s biggest debtor
Market Review

By Bob Chapman

Global Research, July 11, 2009

The International Forecaster

The latest Treasury auction of $19 billion of 10-year notes was at a yield of 3.365%. The bid to cover was 3.28 to 1, the highest ever. This was the third of four sales this week totaling $73 billion.

Consumer credit fell $3.23 billion in May, as credit fell 1.5% to $2.5196 trillion from $2.522 trillion in April. Four monthly declines matches June-December of 1991. Big loans fell $400 million, or 0.3%. Revolving credit fell $2.9 billion, or at a 3.7% rate.

We are now al most six months into the depression approaching a 1932 scenario. America is now the world’s biggest debtor. The US has had a fiat currency for 38 years and major trade deficits for more than 30 years. Is it any wonder we are in depression? Is it any wonder the dollar is under pressure even though our government supports it at every turn in the market?

The world is looking aghast at the dollar as the Treasury runs short of money to fund its deficit beyond revenues of $1 to $3 trillion and as the Fed monetizes trillions of dollars. What would you think if you had 64.5% of your foreign exchange in US dollars?  That is almost $1.8 trillion. Some of these buyers have ceased buying and if that continues interest rates will head higher and the cost of carrying such debt will increase. As a result the dollar, of course, would move lower.

Higher yields on 10-year T-bills translate into higher mortgage rates as real estate inventory continues to grow, a terrible formula for the economy.
We estimate fiscal 2009 to have a deficit of more than $2 trillion and incoming revenues will only make up less than half of that. In spite of the protestations of our Treasury Secretary Tim Geithner that the deficit will be reduced, our president guarantees $1 trillion annual deficits as far as the eye can see. Cuts will never come and the dollar will fall because that is the way the elitists want it to be. Only from the ashes of economic and financial collapse can the new world order rise.
Our government says one thing and does another. They want to maintain confidence and trust, but at the same time proceed with the destruction of the monetary and financial system.
We are told that next month the monetization will end, when in fact the Fed will not have completed its $3 trillion monetization of Treasuries and Agencies and bank toxic garbage.
Europeans, the Japanese and the British all want their currencies lower in value versus the dollar, believing that a cheaper currency is somehow a magic elixir for trade and, of course, that isn’t always the case. In fact, the latest efforts to subdue the euro haven’t been very successful. The dollar has been incapable of breaking up and out of 81 on the USDX. At the same time, for now the euro has retreated from $1.42 to just above $1.38, but it won’t last. Simply, the US is in worse trouble than the eurozone.
The latest madness to come out of CNBC/Wall Street and Washington is Rebuild America Retirement bonds. This idea is being foisted on us by none other than the resident CNBC shill Jim Cramer.
These bonds do not as yet exist, and Cramer’s proposal regarding them is a trial run to gauge investor reaction. The idea was proposed on “Mad Money,” which we found appropriate. These bonds supposedly would strike a medium between risk, safety and income. They certainly wouldn’t offer growth with the dollar falling in value. Cramer said investment options are somewhat limited today, and that he didn’t want to see people falling prey to investment scams. He probably had his friend Bernie Madoff in mind.
This “Mad Man Cramer” has called upon the Treasury Department to issue 30-year, 5% bonds. As you know our Treasury has so much paper to sell that it has had to ask the Fed to monetize, create money out of thin air, to fund $3 trillion in treasuries, Agencies (Fannie –Freddie-FHA, etc.), and toxic garbage securities from America’s biggest elitist banks. Inadvertently, the secret Fed refuses to divulge what they are paying for such garbage. These 30-year, 5% Treasuries would be offered as a way to help families, who are desperate after having lost some 50% of their investments in the market to recover their savings. You might call them modern day Continentals.
This newest monstrosity is designed specifically for 401(k)’s, IRA’s and 529 college savings plans. They’d be commission free and the 5% would compound. Cramer tells us they’d double in 14.5 years.
Supposedly these funds would go toward economic recovery. How can that be when the Treasury is struggling to cover a $1 trillion plus budget shortfall? What Cramer and the elitists are trying to do is entice the average American into funding the administrations out of control spending.  Don’t forget our president has told us we’ll have annual budget shortfalls of $1 trillion or more as far as the eye can see.
Fools and their money are soon parted. This is another scam to keep the American economy afloat. Anyone who invests in US government paper is stupid and they deserve to lose their money.
This shows you how the elitists totally control CNBC to do their bidding.
            July 3 MBA Mortgage Applications rise 10.9%.
About $29 billion from President Barack Obama’s $787 billion economic stimulus package has been provided to state and local governments, a pace slightly ahead of schedule, according to congressional auditors.
Most of the money is allocated for health care and education and makes up about 60 percent of the stimulus funding states and local governments will get for fiscal 2009, the Government Accountability Office said in a report obtained by Bloomberg News.
More than 90 percent of those funds are being used to maintain benefits under Medicaid, the government health-care plan for low-income Americans, and to shore up education programs, the report said.
Many states are using money allocated for highway improvements on repaving projects because they put people to work quickly, it said. State officials said bids are coming in below estimates because so many contractors are looking for work.
The analysis was based on information from 16 states and the District of Columbia, which represent about 65 percent of the U.S. population.
            The $3.5 trillion commercial real estate market is a ticking “time bomb” that may lead to a second wave of losses at large U.S. banks, congressional Joint Economic Committee Chairwoman Carolyn Maloney said.
            About $700 billion in commercial mortgages will need to be refinanced before the end of 2010 and “doing nothing is not an option,” Maloney, a New York Democrat, said at a committee hearing today. This “looming crisis” may lead to significant losses for banks, force shopping center and hotel owners into bankruptcy, and impede economic recovery, she said.
            The response by banks to this “growing threat has been slow and inadequate,” said James Helsel, a partner at RSR Realtors in Harrisburg, Pennsylvania, and treasurer for the National Association of Realtors. “The lack of liquidity and banks’ reluctance to extend lending are also becoming apparent in the increasing level of delinquent properties.”
            There were 5,315 commercial properties in default, foreclosure or bankruptcy at the end of June, more than twice the number at the end of last year, with hotels and retail among the most “problematic,’ Real Capital Analytics Inc. said in a report yesterday. Losses on commercial mortgage-backed securities, or CMBS, will total 9 percent to 12 percent of the market, or as much as $90 billion, said Richard Parkus, a research analyst for Deutsche Bank Securities in New York.
            Government insured home loans jumped to 36 percent of all U.S. mortgage applications in June, the highest since 1990, the Mortgage Bankers Association said.
Federal Housing Administration and Veterans Administration loan applications increased in market share from 25.7 percent in May and from 27 percent a year earlier, the Washington-based trade group said today in a statement.
            Borrowers are turning to government backing to offset stricter lending by banks. About 50 percent of banks tightened requirements for prime borrowers in the first quarter, asking for bigger down payments and more savings, the Federal Reserve said in June.
            “Credit standards are tightened so much, home-buyers have turned to the government,” said Michelle Meyer, economist for Barclays Capital. “I think that as the financial markets normalize and credit markets heal, you’ll start to see the share of conventional mortgages increase again.”
            The Mortgage Banker’s index of applications to purchase a home or refinance a loan rose 11 percent to 493.1 in the week ended July 3. Purchase applications rose 6.7 percent while requests to refinance gained 15 percent.
            The number of Americans filing claims for unemployment benefits fell last week to the lowest since January, as early automotive plant closures altered the timing of layoffs that typically happen at this time of year.
            Initial jobless claims fell by 52,000 to 565,000, a lower level than forecast, in the week ended July 4, from a revised 617,000 the prior week, the Labor Department said today in Washington. Meanwhile, the number of people collecting unemployment insurance jumped to a record in the prior week.
            Manhattan apartment rents fell as much as 18 percent in the second quarter from a year earlier as rising unemployment curbed demand.
            The median price dropped 3.1 percent to $3,100 a month, appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said today. Studio prices fell 18 percent to $2,000; one-bedrooms declined 13 percent to $2,795; two-bedrooms were down 5.1 percent to $4,550 and three-bedrooms dropped 4 percent to $7,673. A separate report from broker Citi-Habitats Inc. showed average rents fell 8 percent for studio and one- bedrooms and 11 percent for two- and three-bedrooms.
            U.S. wholesale inventories fell again in May as distributors kept working to clear their shelves of excess supply built up by the reduced demand of the recession.
            Wholesalers lowered inventories 0.8% to a seasonally adjusted $402.2 billion, the Commerce Department said Thursday. April inventories fell 1.3%, revised from an originally reported 1.4% drop.
            A gauge of excess supply, the inventory-to-sales ratio, fell a second straight month, indicating wholesalers were slowly getting inventories under control.
            The sales of these middlemen of the economy crept up 0.2% in May to a seasonally adjusted $311.3 billion, after staying flat in April. April sales were originally seen down 0.4%. For the year, sales in May were 19.9% lower.
            Year over year, inventories were down 7.6%.
            The nation’s retailers were already reeling from the new consumer frugality but in June, incessant rain and rising unemployment further dampened sales. Stores that had made strides in recent months reverted to double-digit declines.
            Overall, the industry posted a 6.7 percent decline in sales for the month, in contrast to a 3.9 percent increase a year ago, according to the Goldman Sachs Retail Composite Index. Wal-Mart, which had been a bright spot in the retailing world and helped lift the overall industry number, is no longer reporting monthly sales. Retailers are also facing challenging year-over-year sales comparisons because this June there were no tax rebate checks to help bolster shopping.
            The US Treasury on Wednesday pushed ahead with scaled back plans for public- private partnerships to buy toxic assets, naming nine fund managers and allocating $30bn of public funds, but without securing any further backing from the Federal Reserve.
            Officially, the US central bank is still considering providing additional financing for investors buying bubble-era residential mortgage-backed securities, but its decision not to announce anything on Wednesday strongly suggests that it does not intend to take this step.
            Government insured home loans jumped to 36 percent of all U.S. mortgage applications in June, the highest since 1990, the Mortgage Bankers Association said.
Federal Housing Administration and Veterans Administration loan applications increased in market share from 25.7 percent in May and from 27 percent a year earlier, the Washington-based trade group said today in a statement.
            Borrowers are turning to government backing to offset stricter lending by banks. About 50 percent of banks tightened requirements for prime borrowers in the first quarter, asking for bigger down payments and more savings, the Federal Reserve said in June.
            “Credit standards are tightened so much, home-buyers have turned to the government,” said Michelle Meyer, economist for Barclays Capital. “I think that as the financial markets normalize and credit markets heal, you’ll start to see the share of conventional mortgages increase again.”
            The Mortgage Banker’s index of applications to purchase a home or refinance a loan rose 11 percent to 493.1 in the week ended July 3. Purchase applications rose 6.7 percent while requests to refinance gained 15 percent.
            In June, the government-insured share of purchase applications climbed to 38.6 percent from 27.8 percent a year earlier, the MBA said. The federally backed share of refinance applications increased to 33.6 percent. It touched a record high 38.4 percent in October, according to the MBA.
            Home loan rates climbing from a record low 4.78 percent in April are one reason buyers are looking for other ways to reduce costs. The 30-year fixed U.S. mortgage rate was 5.2 percent this week, according to McLean, Virginia-basedFreddie Mac.
            “A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans,” said Orawin Velz, associate vice president of economic forecasting for MBA. “In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance.”
            God help Goldman if this is true and the government goes after them.  This would constitute massive unlawful activity.  Indeed, the allegation is that Goldman alone was given this access!
           God help our capital markets if this is true and is ignored by our government and regulatory agencies, or generates nothing more than a "handslap."  Nobody in their right mind would ever trade on our markets again if this occurred and does not result in severe criminal and civil penalties.
           There apparently is reason to believe that Sergey might have been involved in exactly this sort of coding implementation.  Specifically, look at the patent claims cited on DailyKos; his expertise was in fact in this general area of knowledge in the telecommunications world.
           This is precisely the sort of thing that a Unix machine, sitting on a network cable where it can "see" traffic potentially not intended for it, could have an interface put into what is called "promiscuous mode" and SILENTLY sniff that traffic!
           ASSUMING THE TRAFFIC IS PASSING BY THE MACHINE ON THE WIRE THIS IS TRIVIALLY EASY FOR ANY NETWORK PROGRAMMER OF REASONABLE SKILL TO DO.  IF THAT TRAFFIC IS EITHER UNENCRYPTED OR IT IS EASY TO BREAK THE ENCRYPTION.
           Folks, I have no way to know what the code in question does, but if there's anything to this - anything at all - there is a major, as in biggest scam of the century - scandal here - something much, much bigger than Madoff or Stanford.
            Trade at international ports is on track to drop more than 10% this year, one of the steepest declines ever, according to a new maritime industry report.
           Cargo ships will carry 27 million fewer containers by year's end than they did in 2008 -- a reduction roughly equivalent to all of the cargo containers handled by the five busiest U.S. seaports in a typical year, according to London-based Drewry Shipping Consultants' Container Forecaster Report.
           “There has never been a decline like this before. We have never seen numbers like these," said Neil Dekker, editor of the Drewry report. "The container industry is looking at a $20-billion black hole of losses. We can expect a lot of casualties."
            Nationally, 24% of consumers say the economic conditions in the United States are getting better, down five points from the end of last week. Fifty-two percent (52%) of adults say the economy is getting worse.  
           The Rasmussen Investor Index, which measures the economic confidence of investors on a daily basis, fell to its lowest level in three months. At 70.3, investor confidence is down fourteen points over the past week and fifteen points over the past month. 
            The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 32% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty- seven percent (37%) Strongly Disapprove giving Obama a Presidential Approval Index rating of –5.
             A new Rasmussen Reports national telephone survey shows that 41% would vote for their district’s
Republican congressional candidate while 38% would choose the Democratic candidate. 
            A record 33.8 million people received food stamps in April, up 20 percent from a year earlier, as unemployment surged toward a 26-year high.
            The Bloomberg consensus for AA earnings was -.38.  AA reports -.47 but -.26 after adjustments - and everyone says earnings were better than expected?!?!?   Hope & hype are eternal on The Street.
            Average rates for 30-year mortgages fell for the second straight week, but still remained above record lows reached earlier this year, Freddie Mac said yesterday.
            The average rate for a 30-year fixed home loan was 5.2 percent this week, down from 5.32 percent last week, Freddie Mac said. At this time last year, the average rate for a 30-year fixed mortgage averaged 6.37 percent.
            Rates on 30-year mortgages fell to a record low of 4.78 percent earlier this year, spurring refinance activity.
            But rates then rose as high as 5.6 percent in June after yields on long-term government debt, which are closely tied to mortgages rates, climbed as investors worried that the huge surplus of government debt hitting the market could trigger inflation.
            Since then, the yield on the 10-year Treasury note has fallen back from an eight-month high of 4.01 percent reached in June to 3.38 percent yesterday.
            The American Bankers Association reported that the number of home equity loans 30 days or more delinquent rose to a record high of 3.52 percent in the first quarter, Nothaft noted.
            This week, the average rate on a 15-year fixed-rate mortgage fell to 4.69 percent, down from 4.77 percent last week, according to Freddie Mac.
            The rates do not include add-on fees known as points. The nationwide fee for 30-year and 15-year fixed rate mortgages averaged 0.7 point. 
            CIT Group Inc. shares tumbled on concern that the Federal Deposit Insurance Corp. won’t give the commercial lender access to its Temporary Liquidity Guarantee Program.
            The Group of Eight nations approved $20 billion in aid over three years to help poor farmers in developing nations grow and sell more food.
            The G-8 will work with international organizations such as the World Bank to fund the program, President Barack Obama told reporters on the final day of a G-8 summit in L’Aquila, Italy. The initiative aims to cut the number of malnourished people from about 1 billion today. The G-8 agreed to add $5 billion to an earlier proposal for a $15 billion program, Obama said.
            The U.S. trade deficit unexpectedly narrowed in May to the lowest level in almost a decade as exports jumped while imports of crude oil and auto parts declined.
The gap between imports and exports decreased 9.8 percent to $26 billion, the smallest deficit since November 1999, from a revised $28.8 billion in April that was lower than previously estimated, the Commerce Department said today in Washington. Imports fell while exports rose the most since July 2008.
            A shrinking deficit signals trade will contribute more to U.S. gross domestic product as exports to emerging economies such as Brazil increase. Meanwhile, U.S. demand for imported auto parts was held down in May by production cutbacks and factory shutdowns by Detroit-based General Motors Corp. and Chrysler LLC, based in Auburn Hills, Michigan, two of the nation’s three largest automakers.
            “Trade looks like it’s going to be a big plus for second quarter GDP,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “It looks like the plunge in exports is over, which is of course consistent with the goal of the economy starting to stabilize after a dramatic collapse.”
            Prices of goods imported into the U.S. rose in June for a fourth straight month as oil costs jumped by the most in a decade.
The 3.2 percent gain in the import price index followed a revised 1.4 percent increase the month before that was larger than previously estimated, according to a Labor Department report today in Washington. While prices excluding fuels rose 0.2 percent, they were down a record 6.5 percent from June 2008. [Of course there is no inflation].
             President Obama's signing statement, tacked onto last month's war supplemental bill, claimed he could ignore Congress's mandate to pressure the World Bank on labor and environmental standards.
Consumer confidence levels dropped hard in the middle of July. 
Released Friday, the Reuters/University of Michigan preliminary July consumer sentiment index moved to 64.6, from 70.8 in June. It had been expected to stand at 70.0. 
            The preliminary current conditions index was 70.4, from 73.2, while the expectations index was 60.9, from the prior month's 69.2.
On the price pressure front, the one year inflation reading was 3.0%, from June's 3.1%, while the five year inflation reading was 3.1%, from 3.0%
The Federal Reserve's latest weekly money supply report Thursday shows seasonally adjusted M1 fell by $16.2 billion to $1.653 trillion, while M2 fell $36.2 billion to $8.349 trillion.
The figures are preliminary estimates for the week extending through June 29 and are subject to revisions.
More details on the report, along with weekly information on the Fed's custody holdings, repurchase agreements, Treasury portfolio and free reserves, can be found on the Internet at http://www.federalreserve.gov/releases/.
The U.S. trade gap narrowed unexpectedly to $26 billion in May, the smallest since November 1999, as exports rose and domestic demand for foreign goods slumped, government data on Friday showed.
            The Commerce Department said exports increased 1.6 percent in May, while imports declined by 0.6 percent. Economists said the drop in imports signaled continued weakness in the recession-mired U.S. economy.
Zero Hedge (May 5, 2009): Previously Zero Hedge observed the rather curious integration of Goldman Sachs within the fabric of the NYSE's program trading environment, which, by their own admission, has everything to do with Goldman being the (monopoly) actor in the NYSE's Supplemental Liquidity 2 Provider program.
I highlighted that the program was set to expire on April 30.
Today, unsurprisingly, the NYSE posted a notice of a proposed rule change extending the SLP program another six months, until October 1, 2009 (this does not change my commitment to providing weekly NYSE program data). I appreciate our readers' existing and future feedback in this matter.
The full text of the comments by Jeffrey S. Davis of the NASDAQ Stock Market LLC is presented below, but here are some very relevant snippets.
NYSE fails to explain why proprietary liquidity is more valuable than agency liquidity, or why proprietary liquidity should be favored over agency liquidity. NYSE claims that the proposal is designed to prompt liquidity provision but it simultaneously disqualifies large liquidity providers.
In NASDAQ's view, these irregularities reveal that NYSE's true motivation for the SLP Proposals is to discriminate among its members and to burden some members' ability to compete with NYSE.
And who is the one and only beneficiary of this rampant disregard for almost 80 years of market regulatory practice? Who is it that has now become the de facto provider of "market liquidity" which however has much more sinister connotations when reading through the comments of not just some blogger but the NASDAQ Stock Market itself?http://zerohedge.blogspot.com/2009/05/more-observations-on-supplemental.html
When a firm has an 87.5% trading accuracy record, something unnatural is occurring. And we wonder why the buy side has been so docile and malleable when the money is being derived from them!
Over the past decade the move to electronic trading and pricing in pennies was heralded by Street insiders as a means to improve liquidity for clients. This appears to be a deception. Virtually every facility benefitted proprietary trading at a select few firms. Who’s the patsy?
Anyone with a modicum of industry experience understands that ‘providing liquidity’ is at best a euphemism for front-running order flow. Anyone that regularly ‘provides liquidity’ will go broke.
GS jumped yesterday on this: (BN) Goldman Sachs Trading Revenue May Beat 2007 Record, Moszkowski Note Says
Goldman Sachs Group Inc. is on track to beat its 2007 trading-revenue record, enabling it to boost compensation by an estimated 64 percent from last year, according to Bank of America Corp. analyst Guy Moszkowski. Goldman Sachs has ``unmatched risk-taking/risk-management skills in a market that strongly rewards these because of decline in competitor risk appetite,''…Six months ago, Goldman Sachs was supported by $10 billion from the U.S. Treasury and relied on government guarantees to issue debt. Moszkowski predicts the company will reap $26.45 billion from trading this year, a gain from $25.36 billion in 2007 when the firm shattered Wall Street profit records.
Remember this BN story from May? Goldman Sachs’s $100 Million Trading Days Hit Record Goldman Sachs Group Inc. reaped more than $100 million in trading revenue on a record 34 separate days during the first three months of 2009, up from the previous peak of 28 in last year’s first quarter.
The first-quarter number was almost double the total for all of 2005.
Zero Hedge: Citadel Joins the Program Trading Industrial Espionage Fray, Sues Malyshev And Teza The gloves are now completely off in the escalating program trading fiasco that was started by Goldman's former Sergey Aleynikov. Oddly, while Zero Hedge was fully expecting the Teza injunction to come from Goldman, it seems Griffin was more than happy to burden himself with that task. Hopefully Citadel is not faced with a case of reverse discovery and forced to document the 40% returns that it generated compliments of Malyshev when all its other groups on average lost around 50% in 2008.
http://zerohedge.blogspot.com/
Citadel Investment Group LLC, the $12 billion hedge fund firm founded by Ken Griffin, sued three former executives and the firm they founded, Teza Technologies LLC, claiming violation of noncompetition agreements.
Teza described itself in a July 6 e-mail as a “formative” firm that is neither trading nor investing.
            Named after a river in western Russia, the Chicago-based firm was co-founded by Misha Malyshev, Jace Kohlmeier and Matt Hinerfeld. All were named in the complaint…
            Malyshev worked at Citadel for almost six years and until February was its head of high-frequency trading. He was on the team that ran a $1.8 billion tactical trading fund that uses computer model to make trades every few seconds. The fund climbed 40 percent last year, while its main funds tumbled 55 percent.
American International Group is preparing to pay millions of dollars in bonuses this month to several dozen top corporate executives after an earlier round of payments four months ago set off a national furor. [Revolucion!]
China has launched its highest-profile criticism of the dominant role of the US dollar as a global reserve currency at a meeting of the world’s biggest economies.
            Dai Bingguo, Chinese state councillor, raised the issue on Thursday when he joined the leaders of four other emerging economies for talks with the leaders of the Group of Eight industrialized nations
The Treasury Department apparently made a change in early June in the way how they compute indirect bids. No one seems to have a definite answer as to what changed, but Indirect Bidder percentage in Treasury Auctions in June has been significantly higher in most cases, prompting the speculation by the traders of manipulation or massaging of the numbers so that the market sees high indirect bids (considered to be the proxy for foreign interest in Treasuries).
Top officials in China and Russia have expressed unease about the growing U.S. budget deficit, slated for a record $1.75 trillion in fiscal 2009 alone. This means that traders pay extra close attention to foreign demand figures.
The Treasury's changes, contained in a June 1 entry to the Federal Register, relate to what it considers a "guaranteed bid." Under the previous arrangement, once a primary dealer offered securities at a prespecified level to its customer, that bid was considered to be the dealer's own.
"We are not precisely sure what this all means," said Ward McCarthy, managing director at Stone & McCarthy Research Associates in Princeton, New Jersey.
            "We spoke with some very seasoned market players with decades of experience on dealer trading floors who were similarly unsure what to make of the contents of the Federal Register."
To no one’s surprise Fed insiders are protesting that a Congressional audit of its operations will compromise its independence. Only the most gullible or ignorant believe the Fed has independence.
And once again we must warn that Americans are exhausting their unemployment benefits at a record rate (49.17% as of 5/31). And when one draws ‘extended benefits’ they drop off the jobless claims roles.
            Rasmussen: Just 27% Favor Second Stimulus Plan This Year, 60% Oppose.
            It’s not just economic and financial data that is purposely corrupted to depict a better than reality picture. The LA Times: LAPD's public database omits nearly 40% of this year's crimes.
http://www.latimes.com/news/local/la-me-lapd-crimemap9-2009jul09,0,909582.story
            Up To 10,000 Illinois Prisoners May Be Released; Gov. Pat Quinn: Release Of
Inmates Could Save Taxpayers $125 Million.
In the realm of electronic trading, systems are being fed into prop desks so traders can see all real money flows into and out of stocks and groups.
Recent revelations at Goldman Sachs show there is major automated front-running going on. The sources for this illegal activity finding orders loaded into the system and trading against them; and discovering and then front-running electronic orders by a penny or more by exploding the lag in execution. Firms grabbing pennies are making billions of dollars a day. The Street has been and is furious that the media regulators and our duly elected are not even discussing what could be the second biggest scam and abuse of our times. The biggest is the suppression of gold and silver prices.
Worse yet, few people realize that exchanges actually pay firms to trade against order flow when they act as a “supplementary Liquidity Provider.” Exchanges pay firms ¼ of a penny if they provide liquidity when an order appears in the system. This is extra incentive to front-run order flows. Can you imagine that this is a policy of the NYSE led by the pirates of Goldman Sachs?
The Treasury is supposedly putting the clamps on derivatives yes, and we have a bridge for sale.
The CFTC says it will move aggressively to rein in excessive speculation in energy and metals. Let’s see if they force the banks to cover some of naked shorts in gold and silver.
This is a major development because of the concentrated positions of JPM, HSBC and Goldman in gold and silver. We could finally get a break – let’s see what happens. It could also be that the Comex gold and silver inventories are a scam and something has to be done about it now.

            In the FDIC Friday Night Financial Follies: Bank of Wyoming, with $70 million of assets and $67 million of deposits, was closed by the state’s Department of Audit, Division of Banking and the Federal Deposit Insurance Corp. was named receiver, the FDIC said today in a statement. Central Bank & Trust in Lander, Wyoming, will assume the deposits and the failed bank’s only office.
AIG has been talking with the Obama administration's compensation czar,
Kenneth Feinberg, about paying out about $235 million in bonuses, which are due to be paid on July 15 to about 400 employees in that group, according to published reports. The Washington Post first reported the story this morning.
            AIG does not actually need Feinberg's approval to pay out the bonuses -- he has to review only payments that were contracted beginning in 2009 -- but AIG wants him to review the bonuses so as to avoid the public uproar that took place in March when AIG paid out $135 million in bonuses to employees of its financial products division. The $235 million in bonuses was contracted in 2008.
            A firestorm of criticism surrounded AIG after it disclosed the March bonuses, causing some employees to return chunks of their payouts, with several resigning. AIG lost $99 billion last year, most of which came from derivatives written by that unit.
The Treasury is supposedly putting the clamps on derivatives yes, and we have a bridge for sale.
The CFTC says it will move aggressively to rein in excessive speculation in energy and metals. Let’s see if they force the banks to cover some of naked shorts in gold and silver.
This is a major development because of the concentrated positions of JPM, HSBC and Goldman in gold and silver. We could finally get a break – let’s see what happens. It could also be that the Comex gold and silver inventories are a scam and something has to be done about it now.

Fed Independence or Fed Secrecy?

By Ron Paul

Global Research, July 13, 2009

Ron Paul

Last week I was very pleased that hearings were held on the independence of the Federal Reserve system. My bill HR 1207, known as the Federal Reserve Transparency Act, was discussed at length, as well as the general question of whether or not the Federal Reserve should continue to operate independently.
The public is demanding transparency in government like never before. A majority of the House has cosponsored HR 1207. Yet, Senator Jim DeMint’s heroic efforts to attach it to another piece of legislation elicited intense opposition by the Senate leadership.
The hearings on Capitol Hill provided us with a great deal of information about the types of arguments that will be levied against meaningful transparency and how the secretive central bankers will defend the status quo that is so beneficial to them.
Claims are made that auditing the Fed would compromise its independence. However, by independence, they really mean secrecy. The Fed clearly cherishes its vast power to create and spend trillions of dollars, diluting the value of every other dollar in circulation, making deals with other central banks, and bailing out cronies, all to the detriment of the taxpayer, and to the enrichment of themselves. I am happy to challenge this type of “independence”.
They claim the Fed is endowed with special intellectual abilities with which to control the market and that central bankers magically know what the market needs. We should just trust them. This is patently ridiculous. The market is a complex and intricate thing. No one knows what the market needs other than the market itself. It sends signals, such as prices, that should be reacted to and respected, not thwarted and controlled. Bankers are not all-knowing and cannot ignore the rules of supply and demand. They might act as if they are, but their manipulation of the market just ends up throwing it wildly off balance, which gives us the boom and bust cycles.
They claim the Fed must remain apolitical. No organization is apolitical that relies on the President to appoint the Chairman. In fact, it is subject to the worst sort of politics – power to create trillions of dollars and affect the value of every dollar in the country without the accountability of direct elections or meaningful oversight! The Fed typically enacts monetary policy that is favorable to particular administrations close to elections, to the detriment of long term considerations. They do this partly because of the political appointee process for the Chairmanship.
The only accountability the Federal Reserve has is ultimately to Congress, which granted its charter and can revoke it at any time. It is Congress’s constitutional duty to protect the value of the money, and they have abdicated this responsibility for far too long. This was the issue that got me involved in politics 35 years ago. It is very encouraging to finally see the issue getting some needed exposure and traction. It is regrettable that it took a crisis of this magnitude to get a serious debate on this issue.

Market Review: Failing US Banks seized by regulators

By Bob Chapman

Global Research, July 4, 2009

The International Forecaster

            The Friday night, June 27th FDIC Financial Follies were presented again at 9:00 pm EST. That is so the public will not hear about the failures.
            Five U.S. banks with total assets of about $1.04 billion were seized by regulators, pushing this year’s tallyof failures to 45 as a recession drives up unemployment and home foreclosures.
            Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles were closed yesterday by state regulators, according to statements from the Federal Deposit Insurance Corp. The FDIC was named receiver of the four banks.
            Wilshire Bancorp’s Wilshire State Bank will take over all of Mirae’s $362 million in deposits, and will purchase $449 million of assets, the FDIC said in a statement.
            Sunwest Bank of Tustin, California, acquired most of MetroPacific’s $73 million in deposits and $80 million in assets, the FDIC said. Stearns Bank of St. Cloud, Minnesota, bought Horizon Bank’s $69.4 million of deposits. Stearns will purchase $84.4 million of Horizon’s assets, the FDIC said.
            The FDIC didn’t find a buyer for Community Bank of West Georgia, and said it will mail checks to reimburse insured depositors. The bank has deposits of $182.5 million. Charter Financial Corp.’s CharterBank will assume Neighborhood Community Bank’s $191.3 million of deposits and purchased some assets in a loss-share agreement with the FDIC, according to the agency.
            “The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector,” the FDIC said. “The agreement also is expected to minimize disruptions for loan customers.”
            Regulators have seized the most U.S. banks this year since 1993. The U.S. economy has shed about 6 million jobs since the recession began in December 2007. Foreclosure filings surpassed 300,000 for the third straight month in May, according to RealtyTrac Inc.
            The U.S. banking industry said it made $9.8 billion during the first quarter trading derivatives and securities as investors started returning to the markets amid signs the recession bottomed.
            The surge was led by trading in interest-rate derivatives, which allow investors to hedge against rate swings, as the banks reported revenues that were more than triple any quarter during at least the past five years, the U.S. Treasury’s Office of the Comptroller of the Currency said today in a report.
            Revenue rose as banks, constrained by the worst financial crisis since the Great Depression, charged “wide” bid-ask spreads, or the fees that traders make from the gap between prices at which they’ll buy and sell the contracts, Deputy Comptroller Kathryn Dick said in a statement.
            Revenue from trading interest-rate contracts soared to $9.1 billion from $1.9 billion a year earlier and from a $3.4 billion loss in the fourth quarter of 2008, according to the report. Currencies contracts accounted for $2.4 billion in the 2009 first period. The banks lost $3.15 billion from trading credit.
            The Friday Night FDIC Financial Follies came on Thursday, July 3rd, due to the holiday weekend. We are told that before the year is out 400 banks will go under. There have been a number of banks that have been merged with other stronger banks, which greatly distorts this picture.
            Six banks in Illinois and one in Texas were seized by regulators as the deepening financial crisis pushed the toll of failed U.S. lenders this year to 52, the most since 1992.
            Twelve banks have failed this year in Illinois, the most of any state. The seven lenders seized today, with total assets of $1.49 billion and deposits of $1.34 billion, were closed by state or federal regulators and theFederal Deposit Insurance Corp. was named receiver, according to statements from the FDIC. Buyers were named for each of the closed institutions.
            The Illinois banks are affiliates of Peotone Bank & Trust Co., in Peotone, Illinois, about 45 miles (72 kilometers) south of Chicago. The failures resulted primarily because of soured loans and losses on investments in collateralized debt obligations, the FDIC said. Illinois, with an unemployment rate above the national average, was one of seven states to begin the fiscal year yesterday without a spending plan.
            “The six failed Illinois banks are all controlled by one family and followed a similar business model that created concentrated exposure in each institution,” the FDIC said. CDOs, which packaged bonds and loans into notes of varying risk and yield, lost money as real estate defaults soared.
            Regulators this year have closed the most banks since the savings-and-loan crisis of the 1990s as lenders struggle with mounting losses on mortgages and commercial loans. The total for 2009 is more than double the 25 banks shuttered in 2008 and surpasses the 50 that were closed in 1993. The prior year there were 181 failures or government-assisted transactions.
            The House did it. They succumbed to the biggest tax increase in history for Americans. The American Clean Energy and Security Act passed by 219-212, a disgrace to our country. The worst legislation since CAFTA, NAFTA, the Income Tax and the Federal Reserve Act. Trillions more in taxes and millions of job losses. A 1,200 page piece of legislation that not one Congressman or woman read. If allowed to be passed in the Senate it will be the greatest economic threat to Americans in history.
            Costs to American will be 20% of disposable income. An increase in gasoline tax of $0.77 a gallon and a doubling of every electric bill in the country. The taxes go to government past of which will go to fund the UN and IMF.
            This bill has to be stopped in the Senate. Hit every Senator with emails, phone calls, Fax’s and letters. Short and sweet – do not vote yes on any legislation to limit greenhouse-gas emissions, such as the American Clear Energy & Security Act.
            America’s biggest oil companies will probably cope with U.S. carbon legislation by closing fuel plants, cutting capital spending and increasing imports.
Under the Waxman-Markey climate bill that may be voted on today by the U.S. House, refiners would have to buy allowances for carbon dioxide spewed from their plants and from vehicles when motorists burn their fuel.Imports would need permits only for the latter, which ConocoPhillips Chief Executive Officer Jim Mulva said would create a competitive imbalance.
            “It will lead to the opportunity for foreign sources to bring in transportation fuels at a lower cost, which will have an adverse impact to our industry, potential shutdown of refineries and investment and, ultimately, employment,” Mulva said in a June 16 interview in Detroit. Houston-based ConocoPhillips has the second-largest U.S. refining capacity.
            The same amount of gasoline that would have $1 in carbon costs imposed if it were domestic would have 10 cents less added if it were imported, according to energy consulting firm Wood Mackenzie in Houston. Contrary to President Barack Obama’s goal of reducing dependence on overseas energy suppliers, the bill would incent U.S. refiners to import more fuel, said Clayton Mahaffey, an analyst at RedChip Cos. in Maitland, Florida.
            “They’ll be searching the globe for refined products that don’t carry the same level of carbon costs,” said Mahaffey, a former Exxon Corp. refinery manager.
Prices Seen Rising
            The equivalent of one in six U.S. refineries probably would close by 2020 as the cost of carbon allowances erases profits, according to the American Petroleum Institute, a Washington trade group known asAPI. Carbon permits would add 77 cents a gallon to the price of gasoline, said Russell Jones, the API’s senior economic adviser.
House Passes Climate-Change Plan, an Obama Priority (Update2)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aPwZANlDq4R0                                                                         
After having written so long about the Fed nothing should rally surprise you. The Fed, under attack by Ron Paul’s HR-1207, came out with a strong offense for a defendable defense. Being granted more financial dictatorial power it is the antithesis of what America needs. In essence America is being handed a financial dictatorship. This will make the fed even more unaccountable then it already is. We will be faced with across the board problems and more secrecy from this privately owned bank. Continue to bombard the House members on HR 1207 and Senate members on S. 604, sponsored by Senators Sanders and DeMint.
It is proposed that the Fed will be the systemic risk regulator and supervisor of the too big to fail institutions, which own the Fed. We call that incestuous. The Fed will supply liquidity to save its shareholders. A council of regulators will be created to replace the President’s Working Group on Financial markets. That group would be chaired by the Treasury, but with advisory powers only. That means the power to manipulate all markets without interference will solely be left to the Fed. . They would be able to make any market in the world what they want it to be. There are no free markets now. The Fed would have full fascistic control. This would give the Fed’s owners the opportunity to totally loot the system and the American public.
For almost 20 years the Fed has advocated no regulation of derivatives, now they are to regulate them. That would include writers maintaining at least 5% interest in the derivatives.
The Fed would create a Consumer Financial Protection Agency with rules against predatory lending and transparency standards at the retail level. This is a farce in as much as the major banks own the Fed.
A new resolution mechanism that would clear big bank balance sheets of all toxic waste throughout the financial system, that you as taxpayers, would get to pay for.
The Fed would be the leader in the formation of global financial regulation and supervision, as part of a plan for the consolidation of all such enforcement on the path to world government. The Fed would marry into the new European Systemic Risk Council comprised of EU central bank governors. This Council would breach US sovereignty by issuing warnings and recommendations, somewhat like the Bank for International Settlements does. The Fed would work in conjunction with the EU, but at this time not be controlled by an international body. This is the foot in the door approach. Once set up the Fed would become part of this international cross border agency. From the very beginning there would be a single rulebook applicable to all financial institutions, which belies the fact that the agency would in reality control all financial institutions from its inception.
The President’s plan requires all advisers to hedge funds and other pools of capital, including private equity funds, and venture capital funds, a some fixed level, to register with the SEC.
Financial derivatives will be regulated. Standardized credit default swaps and other OTC derivates will be required to clear through a central counterparty and trade on exchanges and other transparent trading venues. The custom products will have to register as well.
The Ron Paul, Federal Reserve Transparency Act of 2009 now has 244 co-sponsors. A very upset Fed three weeks ago herded former Enron lobbyist Linda Robertson to payoff and pressure House members. Now the Securities Industry and Financial Markets Association has been brought into the fray to counter the populist backlash against bankers. The spearhead will be led by two former aides to former Treasury Secretary Henry Paulson. The plan is to target every representative in the House and unleash a multi-million dollar media blitz in city by city. A massive propaganda campaign has begun. Former treasury aides Michele Davis, a PR type and Jim Wilkinson, a former chief of staff are leading the charge. Engaged as well is Democratic polling company, Brilliant Comers Research & strategies.
SIFMA has 600 securities firms led by Goldman Sachs, JP Morgan Chase and Citicorp. The theme is lets work together. Yes, these are the firms that have looted American citizens of their hard earned wages for years.
Opinion Research found 34% of investors are angry and Share Owners.org 58% are less confident in the fairness of the financial markets.
All this wouldn’t be necessary if Treasury, the Fed and the major firms were not manipulating the markets.
The Fed, banking and Wall Street are responsible for the destruction of about 40% of worldwide wealth. Yet, they think they have done nothing wrong. They have disemboweled both residential and commercial real estate, which was in part responsible for a fall in the Dow from 14,100 to 6,600.
They have bamboozled the public with stress tests, which were bogus to prove false solvency. That avoided government oversight and as a give up allowed a special master of compensation for those, who took taxpayer funds, to escape insolvency. Wall Street denizens view their large salaries, bonuses and options as a right – an entitlement. These are the same people who destroyed the American dream and put their firms into insolvency.
The Fed and the Treasury had hundreds of billions of dollars for banking, Wall Street and insurance companies, but they couldn’t allow borrowers, facing foreclosure, a break. That would have staved off two million foreclosures and preserved $300 billion in equity. Congress couldn’t help average Americans, only the rich. We are in the greatest financial crisis since the early 1870s or the 1930s. These people have ravaged the financial and economic world and they are still in complete control of the system. That is because they have bought Congress and they have created a revolving door between NYC and Washington. Last year, banking, securities and investment firms gave $154.9 million in political payoffs. Real estate interests stuffed $136.7 million into politician’s pockets; commercial banks gave $37.1 million and hedge funds $16.7 million, for a total of $345.4 million. This is why campaign contributions have to end along with lobbying. When are Americans going to wake up to what is being done to them?
It is only a matter of when before there will be insufficient buyers of Treasuries to fund bond issues. We believe this has previously happened from time to time and that buying by the Fed from offshore accounts has held the market up. This we believe is why the Fed doesn’t want an audit. When foreign central banks stop buying, the Fed will monetize more and more as they are currently doing. They will be buying $3 trillion worth of Treasuries, Agencies and CDO toxic waste from banks over the next three months.
On June 5th, we saw the 2-year and 10-year Treasury yields spike as the Fed lost control of the market. We noted the actions at that time. It won’t be long before most long dated paper, that is over 5 years, will have to be monetized in a very big way. That also means interest rates will continue to move higher. We believe the treasury will be in the market for $1.2 to $1.5 trillion. That means the Fed may have to buy $600 billion to $1 trillion in Treasuries.  They have already committed for $300 billion. It is hard to know exactly what this private corporation is up to because much of what they do is in secret. As rates rise it becomes very difficult to finance mortgages. At a 5.5% mortgage rate, 80% of pending and future mortgages cannot be consummated.
In another area of finance the commercial paper market continues to contract. It is a very important source of borrowing for business and industry. As it contracts it keeps companies from producing goods and services and the economy contracts. The available paper has contracted by some 50% over the last two years, in spite of the Fed assisting that market. As available funds are reduced, production falls and unemployment rises.
Bank credit has fallen by $23 billion to $9 trillion, this in spite of a 3.6% rise yoy. In 2009, credit has fallen by $170 billion. Consumer borrowing is dropping and savings just hit 6.9%. In spite of late payers other borrowers are paying off their loans. Consumer credit usage has fallen about 8%, the same as in the 1990s recession.
As we write (6/27/09) the dollar on the USDX is 79.90. That is the dollar index where six other currencies are weighted and compared to the dollar. We not too long ago called a top at 89.50. The dollar has been unable to break above 81 for several weeks, which  tells us the dollar is headed lower, perhaps sharply lower, to its former low of 71.18 before the year is out – and, perhaps much sooner. If you remember in the first two quarters of 2008, all over the world, vendors, businesses and others were refusing to take dollars, which is going to happen again. That could be a catalyst that could bring on a bank holiday. There is no question that the Fed and the Treasury will inflate until they cannot anymore. Foreigners will be looking at enormous losses and all dollar denominated debt held by foreigners could be dumped. Another event that could case a bank holiday. As that happens the cost of imports and the resultant inflation would skyrocket, as US interest rates soar. These are very probable scenarios..
 American citizens owe massive debt to the world. Total debt to GDP is 370%. It was only 260% in 1929. In order to pay this off government spending would have to be cut by 80% and taxes would have to be raised to 80%. We see neither happening. As we said previously there will come a time over the next few years that all currencies will be devalued against one another and that all defaulted debt will be settled. All US bankers, Wall Street, Washington and the Fed are doing is trying to gain time, a fruitless pursuit. Debt is some 14% of GDP, and budget deficits are growing. Is it any wonder that foreign buyers of dollar denominated assets are disappearing?
            Mounting job losses and other economic realities caught up with Americans in June, pushing down a key barometer of consumer sentiment after a streak of gains built on glimmers of hope.
            Some economists say the reality check offered by yesterday’s report from the New York-based Conference Board may not augur well for spending in the critical months ahead.
            The Conference Board said its Consumer Confidence Index now stands at 49.3, down from its revised May level of 54.8.
            U.S. options trading rose 4.6 percent during the first half of the year and headed for a seventh consecutive annual record as investors embrace computer-driven strategies and shun private transactions.
            About 1.82 billion contracts linked to stocks, indexes and exchange-traded funds have changed hands in 2009, according to the Options Clearing Corp., which tracks trading on U.S. exchanges. During all of 2008, 3.28 billion traded. Average daily volume has climbed 5.4 percent to 14.6 million this year.
             Fannie Mae and Freddie Mac will begin refinancing mortgages with loan-to-value ratios of as much as 125 percent as the Obama administration seeks to boost participation in its anti-foreclosure programs.
            Shaun Donovan, secretary of Housing and Urban Development, made the announcement in a statement yesterday. Currently Fannie Mae or Freddie Mac, through President Obama’s Home Affordable program, can refinance mortgages they own or guarantee when the loan is worth as much as 105 percent of the home’s market value.
            The continuing slide in home prices has pushed millions of Americans beyond that 105 percent loan-to-value ratio, limiting participation in Obama’s initiative. Fannie Mae and Freddie Mac have refinanced 80,000 loans under the program, which set out to help as many as 5 million people who may owe more than their homes are worth, Federal Housing Finance Agency director James Lockhart said last month.
            [Government did not learn its lesson.  Here we are back with subprime garbage again. These loans will fall out within 6 months to a year. Bob ]
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            467K jobs cut in June; jobless rate at 9.5 percent
http://finance.yahoo.com/news/467K-jobs-cut-in-June-jobless-apf-749843232.html/print;_ylt=AtAOQtZBiTqWNQW2IZppz_veba9_?x=0
           
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            Ford Motor Co. says its June U.S. sales fell only 10.7 percent from a year earlier, a far smaller drop than in previous months and a sign that auto sales may be recovering.
            Crabtree & Evelyn Ltd., the maker of soaps, gifts and toiletries sold in 126 stores in 34 states, filed for bankruptcy protection in New York, citing a decline in consumer spending.
            The International Monetary Fund’s board of directors approved the issuance of bonds to the lender’s 186 members for the first time as it seeks additional sources of money to lend during the global recession.
            The board made the move in a vote today and did not place a limit on the note sales, Andrew Tweedie, the Washington-based IMF’s finance chief, said on a conference call with reporters. The bonds are part of a wider effort to seek $500 billion in new funding as the lender helps countries from Iceland to Pakistan combat the global financial crisis.
            The consumer confidence index fell to 49.3 in June from 54.8 in May; 55 was expected.
            TrimTabs Weekly Macro Analysis – June 30, 2009:  Real Savings Rate 0.9%, Not BEA’s 6.9%; Year-over-Year Growth in Wages and Salaries; -4.8% in May, Not -1.1% as BEA Reports
            In addition, real-time tax data indicates wages and salaries fell 4.8% y-o-y in May, not 1.1% y-o-y as the BEA reports.   And while the BEA reports that personal income rose 0.3% y-o-y in May, real-time tax data shows it fell 3.6% y-o-y.  Consumers are in much worse shape than government statistics suggest and have little money left over to repair their tattered balance sheets.
http://www.trimtabs.com/site/index.php
            Bloomberg: Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.
            Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said.
            The Fed monetized $7B of 7s through 10s on Tuesday. While the deficit only affects the state, California's deepening economic malaise could make it harder for the entire nation's economy to recover. 
            When the state stumbles, its sheer size - 38.3 million people - creates fallout for businesses from Texas to Michigan. 
        "California is the key catalyst for U.S. retail sales, and if California falls further you will see the U.S. economy suffer significantly," said retail consultant Burt P. Flickinger, managing director of Strategic Resource Group. He warned of more bankruptcies of national retail chains and brand suppliers. 
            Will Ben, Hank, Little Timmy and Congressional leaders explain to the American people how it is possible for Wall Street to have near record remuneration AFTER the US taxpayers were put on the hook for about $12 trillion of guarantees to The Street?  And will they explain to Americans that while Street insiders ‘earn’ record pay they must suffer a severe recession or depression, possibly record future inflation, collapsing home values, job losses and an income contraction?
            More from Zero Hedge on Government Sachs: Is Goldman Legally Frontrunning Its Clients?  Everyone who is anyone on Wall Street has at some point used the Goldman 360 portal whether for research, news, keeping a track of prime brokerage portfolio or, disturbingly, for trading, via the REDI Plus 9.0 platform (now loaded with enhanced algo trading features to make life for you, dear soon to be front ran Goldman client, so much easier). A second widely accepted Wall Street concept is that a disclaimer is the last thing that anyone reads, if ever. Yet after taking a close look at the Goldman disclaimer for the 360 portal, which is an umbrella waiver or all downstream websites, including REDI, one discovers the following gem:
         Monitoring by GS: Your use of the products and services on this Web site may be monitored by GS, and that the resultant information may be used by GS for its internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory organization.
         One second: by using Goldman 360 a client voluntarily allows Goldman to provide keystroke by keystroke data of everything the client does, even if that includes launching trades via REDI, to Goldman for the internal business purposes. The third thing everyone on Wall Street agrees on is that "internal business purposes" usually (and in Goldman's case, almost exclusively) means proprietary trading.
http://zerohedge.blogspot.com/
            As many as one in five U.S. hotel loans may default through 2010 as the recession means companies are spending less on travel and perks, according to University of California economist Kenneth Rosen.
            A Florida woman tragically committed suicide on the day she was getting evicted from her home.
            Heather Newnam, 28, of Tamarac, Fla., shot herself when a real estate agent, a locksmith and movers showed up at her home on Monday after she failed to pay her rent. She told them she had to secure the dogs first, and then a shot was fired, according to the Broward Sheriff's Office . The SWAT team arrived on the scene and found her dead from a gunshot wound to the head.
            Newnam documented her life on Twitter as user rsangel04. Her last post on June 24 read, "Rich get richer, poor get poorer, families on the street, govt doesn't care. God bless the usa, but can He save it?"
            The day before, Newnam seemed in better spirits. "Five minutes til Rescue Me, Woo Hoo! then bed, Im beat."
            According to the New Times , Newnam worked in sales at the Success Research Group in Oakland Park, Fla.
            The housing market in Florida is among the worst in the country. According to a recent Wall Street Journal report , Florida was third in the country with the highest foreclosure rate behind Nevada and California. {This is only the beginning, unfortunately many more will follow. The blame rests at the feet of the Illuminists.}
            “Washington Post Publisher Katharine Weymouth today canceled plans for a series of policy dinners at her home after learning that marketing fliers offered lobbyists access to Obama administration officials, members of Congress and Post journalists in exchange for payments as high as $250,000.”
            The controversial climate bill that is set to be taken up by the Senate on Monday after its passage in the House will legislate home inspections by government regulators who will demand to audit every aspect of your property under the threat of substantial and repeated fines if their visits are denied or their demands not satisfied.
Here is the deal.
            The US has lost its manufacturing, so the government is going to "create jobs" by pouring tons of gratuitous regulatory compliance on us all, to justify hiring inspectors at taxpayer expense who will in turn force us to purchase improvements to our homes. Everybody works!!!!!
            But here is where the "solution" breaks down. Where is the money coming to PAY for all this regulatory compliance? The government is still acting as if they believe there are vast sums of cash floating around out here in the real world, and that saving the economy is simply a matter of taking it away from all of us.
            SAIC, one of the Pentagon's largest contractors, conspired with federal officials to rig a $3.2 billion technology contract and tried to cover up the scheme by destroying documents and electronic records, federal prosecutors said in newly unsealed court documents.
            The Justice Department announced yesterday that it had joined a whistleblower lawsuit filed in federal court in Mississippi asking for a monetary judgment against SAIC, which has already been paid $116 million under the contract.
The MBA mortgage purchase applications index fell 4.5% and the total market index fell 18.9%. The refi index fell 30% vs. plus 5.9%. The 30-year fixed rate mortgage fell 10 bps to 5.34% and the 15’s fell 12 bps to 4.81%. Applications fell to a 7-month low. This does not bode well for the biggest real estate month of the year.
The MBA, Mortgage Bankers Association, of purchase and refinance loans decreased 18.9%, the lowest since 11/21/08. Higher rates and unemployment is hurting the market.
Barry Sotoro (Barak Obama) has the public bamboozled while his Team B from the Illuminati replace Team A as official looters. The House and Senate aids and abets. What is going on can only end badly. On Wednesday, the dollar took another blow being unable to break back above 80 on the USDX, closing a very weak 79.66. The dollar is setting up for a major fall to 7.18 by the end of October, maybe even sooner.
US private employers cut 473,000 jobs in June, off from 485,000 lost in May.
Challenger reports planned job cuts will be 74,393 down from 111,182 in May.
The Monster Employment Index fell 1-point month-on-month in June to 117, off 11.81%.
The ISM Index of national factory activity edged up to 44.8 in June from 42.8 in May. Prices paid were 50.0.
May pending house sales rose 0.1% to 90.7 from 90.6 in April.
May construction spending was the lowest in five years at a minus 2.9%. Private construction dropped 1%, the lowest in six years. That marks up 35% of private building. It fell 3.4%, its lowest level since 12/95. Public construction fell 0.6% in May. Highway and street construction fell 1.3% and power plant construction fell 6.5%. Transportation rose 0.6% and education was up 0.5%.
San Francisco Fed bank president Janet Yellen says lending rates could stay near zero for a couple of years.
We see trade war soon. Countries are all manipulating their currencies, subsidizing products and Russia and China are making arrangements that exclude the US and the dollar, further undermining the US dollar – the world’s reserve currency. The paper dollar war, which began in the late 1960s, is soon going to explode and we could have serious problems, which could become a bank holiday.
Russia and China have ambitions for world domination and they are slowing undermining the US position of power. This can only end in nuclear war.
Fed Chairman Ben Bernanke says an audit of the Fed would destroy the dollar and he is right. It would expose all the offshore secret accounts, the market rigging via their 21 dealers whom they direct. That there is little gold left in Fort Knox and all the secret agreements the Treasury and the Fed have with other governments and corporations are secret. All the real figures on money and credit would be exposed as well as their sweetheart deals with banks and Wall Street. Their part in aiding and abetting crime would be exposed as well. We’d find out what we have been paying for toxic bank assets. We would find all the major banks and brokerage firms are bankrupt. The public would find out who has been screwing them for all these years. The Fed is a fraud and it is broke. It could be they cannot deliver.
The BLS, the Bureau of Labor Statistics, using the Birth/Death ratio added 185,000 jobs in June from out of thin air. U6 officially is 16.5% unemployment. Our research puts the unemployed at 20.5%.
The commercial paper market continues to deteriorate. It fell $18.1 billion to $1.136 trillion, down from $1.155 trillion the prior week. In two years it fell from $2.2 trillion.
Asset backed CP fell $13.6 billion vs. a fall of $21.3 billion the prior week. Unsecured financial issuance fell by $3.2 billion after rising $18.2 billion the prior week.
There has been absolutely no attempt by the Treasury, the Fed, the SEC, CFTC, the Congress or the FDIC to find out what went on at AIG. Trillions of taxpayer funds have been poured into and through this CIA front. This is criminal.
It might interest you to know that Larry Summers is a big equity holder in Blackrock, He recently handed out a slew of no bid contracts to Blackrock, which is certainly a conflict of interest. They will manage government mortgage portfolios for Fannie Mae and Freddie Mac.
Big banks have just raised fees 20% more than smaller lenders. Some are billing small-business customers for FDIC insurance increases.  ATM charges, stop-payment fees, checking-account fees, and overdraft fees are soaring. This is how they will make up revenue lost on credit cards.
Bonuses at Goldman Sachs will average $700,000 per employee to total $20 billion. That is double last year.                                   
            The FCC had all records on criminals like Paulson, Geithner, Ruben, Summers & others engaging in that illegal activity. But all the records of those illegal trades were destroyed when WTC 7 was brought down by thermite on 9/11!
            911 was a public snuff film used to shock the public and enact the end of the Bill of Rights & invasion of oil bearing countries, & make money for private companies like Halliburton, (stock from 10 to 50 a share)!
            By destroying the WTC, they were able to cover up theft of gold bullion & destroy illegal financial transaction records performed just prior to the attacks
            Silverstein spends 140 million to make 7 billion almost over night; Silverstein said it was demolished by explosives, (pull it)
            It reminds me of CIA man Byrd, the owner of TX School Book Depository, who turned a 2.5 million insider purchase into 26 million dollars thanks to JFK assassination!
            Lear Corp., the world’s second- largest maker of automotive seats, is planning to file for Chapter 11 bankruptcy after reaching an agreement with representatives of secured lenders and bondholders.
            Battered mortgage giant Freddie Mac received $6.1 billion in new funds from the Treasury Department to help offset its mounting liabilities, according to a regulatory filing submitted Wednesday.
            The company could also be close to naming a new, permanent CEO, according to a report in The Wall Street Journal.
            The Federal Housing Finance Agency, which has been operating Freddie Mac since last fall, requested the funds for Freddie Mac after the mortgage firm's liabilities exceeded its assets by more than $6 billion, according to the filing with the Securities and Exchange Commission.
            After drawing the funds, Freddie Mac has now received $51.7 billion from the Treasury Department and still has access to an additional $149.3 billion to help it finance operations.