Nouriel Roubini's Global EconoMonitor

Are There Bright Spots Amid the Global Recession?

Today we take a look at which countries have best weathered the global recession and credit crunch. All economies have been affected by the crisis, but a combination of policy responses and strong fundamentals has given some countries, especially some emerging market economies, a relative edge. These same strengths could lead the countries we highlight below to perform better as the global recovery begins, even if their growth rates remain well below 2003-2007 trends.

What commonalities are visible among these countries?  One major theme is that they tended to have lower financial vulnerabilities due to more restrictive regulation and less developed financial markets, as well as larger and stronger domestic markets that sustained domestic demand. Moreover, they had the resources to engage in counter-cyclical fiscal and monetary policies, actions that were not possible in past crises. In contrast, countries that borrowed heavily to finance domestic consumption in the days of easy money are now facing sharp economic contractions.   Despite the relative strength of these countries, however, their ability to return to sustained growth will depend on structural reforms that support consumption.

Latin America

A couple countries in Latin America have thus far been able to weather this crisis better than their neighbors.  Brazil and Peru stand out for their relatively healthy fundamentals and financial systems.  Both countries have benefitted from being relatively closed economies and from having diversified export markets and products.  They also took advantage of the boom years (2003-2008), reducing external vulnerabilities and increasing savings (fiscal and international reserves).  By the time the crisis hit, both countries had well regulated financial systems that saved them from being contaminated by toxic assets.  The fact that their domestic credit markets are at an early development stage (so consumption is not very dependent on credit) helped them shelter internal demand.  Finally, these countries enjoyed strong policy credibility.



The Brazilian economy is definitely showing signs of resilience, given the massive adjustments among the developed economies.  As early as Q1 2009, GDP data showed signs of resilient consumption despite the contraction in investments and the collapse of the industrial sector. Throughout the second quarter, manufacturing continued to show very weak performance vis-à-vis 2008 levels, although the sector has shown some tentative signs of improvement on a monthly basis. In the meantime, the retail sector continues slowly to adjust to a much less favorable environment than in 2008, and sales growth keeps on moderating—due to slower real income growth and a challenging credit atmosphere. Yet consumer confidence, which has now almost returned to pre-crisis levels, could support consumption, despite the labor market losses to come. The central bank’s own assessment of the state of the economy suggests that the monetary and fiscal stimuli will remain in place to help the recovery process. The fiscal packages for infrastructure and the housing sector, as well as the tax breaks to the auto industry and capital goods sales, should in part support the labor markets and the expansion of domestic production.


Peru’s economic performance has been relatively strong compared to its global and regional peers despite slowing sharply.  In fact, Peru’s economy continued to grow in Q1 2009, with domestic confidence holding up and real lending to the private sector keeping growth at high levels. Construction projects continued, and the currency did not experience sharp fluctuations.  Although Peru’s economy might contract mildly in Q2 and Q3 2009 due to tardy monetary policy actions and slow implementation of fiscal stimulus (an infrastructure development program), these programs are likely to take hold and prompt the economy to bounce back by the end of the year. A high level of international reserves also helped the central bank avoid destabilizing currency movements and properly provide liquidity to the financial system.  Moreover, previous liability management operations helped Peru to reduce risks associated with maturity and currency mismatches, and to reduce external debt.

Asia Pacific


Australia narrowly escaped a technical recession by force of luck and policy. Despite a slowdown in global manufacturing activity, China and other emerging markets continued to tap Australia’s abundant natural resources, boosting Australia’s net exports in 2009. Meanwhile, a leap in fiscal spending and a reduction in policy interest rates prevented a sharp falloff in consumer spending and housing prices. Thanks to resilience in Australia’s twin pillars of growth – exports and domestic demand – expenditure GDP growth turned positive in Q1 2009. Production and income measures of GDP nevertheless indicate Australia is effectively in recession, but the good news is that the bottoming of production around the world suggests Australia will avoid technical recession this year and that its effective recession will be brief. (For more, see Australia Effectively, Though Not Technically, in Recession.)


China’s aggressive fiscal and monetary stimulus helped reaccelerate growth in H1 2009 from a near stall at the end of 2008. Manufacturing is expanding, new orders are up, and the property market correction has been clipped. Yet it remains uncertain whether the government’s response merely bought time. China’s stimulus adds its own risks, including those of asset bubbles, overcapacity and non-performing loans. Yet there are some signs that, supported by government incentives, domestic demand has been stronger than anticipated. A sustained increase in consumption, which has lagged overall growth in recent years, would require a reallocation of funds domestically, likely through patching holes in the Chinese social safety net. The Chinese stimulus has been dominated by infrastructure projects, which could boost productive capacity but would do little about structural factors that keep national savings rates high. However, there could be space to implement some such countercyclical policies in H2 2009 and 2010. If so, the Chinese recovery could have greater legs and could provide more support to other countries. If these efforts fail or are delayed however, Chinese and global growth could be much more sluggish.


Despite slowing from highs of 8%-9% growth, India’s economy will grow close to 6% in 2009. Amid domestic and global liquidity crunch, large domestic savings and corporate retained earnings are financing investment. Sluggish labor market and wealth effects have hit urban consumption. But low export dependence, a large consumption base and the high share of employment (two thirds) and income (one half) coming from rural areas has helped sustain consumption. Pre-election spending, especially in rural areas, and high government expenditure, are also pluses. Timely monetary and credit measures have played a key role in improving private demand, liquidity and short-term rates and reducing the risk of loan losses. Credit is largely channeled by domestic banks, especially state-controlled ones, which have low loan-to-deposit ratios and little exposure to toxic assets. IT exports have held up despite repercussions on jobs and consumer spending. The oil price correction cushioned India’s trade deficit and large foreign exchange reserves helped the country withstand capital outflows in 2008. High returns in real estate and infrastructure and planned liberalization also helped boost capital inflows and asset markets when global risk appetite revived recently.


The Philippines’ stalwart consumers saved the economy from the recessions that plagued its more export-dependent neighbors. Remittances proved surprisingly resilient despite the global economic slowdown as Filipino laborers, especially professional or skilled workers, continued to find strong demand overseas.  This was partly due to the government’s diligence in forging new hiring agreements with several countries. Unperturbed remittance growth shielded domestic demand from high unemployment rates at home, which is obscured by the country’s very loose definition of employment. In the meantime, however, dependence on external demand for Filipino labor denotes a lack of progress in developing the local economy. Apart from land grabs by Persian Gulf countries, the Philippines has attracted little foreign investment of the kind needed to create jobs and lift Filipinos out of the poverty that afflicts a third of the country’s 90 million people. (For more, see Philippines 2009 Growth Outlook: A Recession-less Bright Spot in Asia?)


The global downturn and commodity correction have hit Indonesia’s exports and government revenues. But a low export-to-GDP ratio and a greater reliance on domestic demand relative to its Asian peers have cushioned growth. Chinese stimulus is, to a degree, boosting commodity exports. Fiscal stimulus and election spending, along with monetary, credit and foreign exchange measures since late 2008, have sustained private demand and financing needs, despite tight external credit. Corporations’ external liabilities and banks’ non-performing loans are significantly lower compared to the 1997-98 crisis. External loans and attractive yields, meanwhile, are financing the fiscal deficit. A revival of risk appetite and the carry trade has buoyed capital inflows. Swap agreements with Asian central banks have cushioned exchange rate pressures and the scarce foreign exchange reserves. Favorable election outcomes and aggressive anti- extremist measures have boosted investor confidence despite some recent risks, and investors are bullish about ongoing reforms and unexploited opportunities in the resource sector.



Amid the general Eastern European malaise, Poland’s economy has been a bright spot. In the first quarter, the economy posted positive real growth of 0.8% y/y, outperforming all other EU economies with the exception of Cyprus.

Why is Poland a stand-out? For starters, Poland’s economy did not boom to the same extent as its regional peers in the Baltics and Balkans, and therefore did not build up the same level of accompanying external imbalances, which helps explain its milder downturn. Second, as Eastern Europe’s biggest economy, Poland has a large domestic market, making it relatively less dependent on exports to ailing Western Europe.  Third, the country’s flexible exchange rate and record-low interest rates have helped cushion the slowdown. Finally, Poland proactively distinguished itself from others in the region and boosted investor confidence in May by securing a US$20.5 billion Flexible Credit Line from the IMF – a special facility reserved for emerging markets with strong fundamentals. While Poland’s economy has weathered the global turmoil better than its regional peers, a rapid recovery is unlikely and the outlook is not without risks. In particular, Poland’s fiscal situation is deteriorating, which will likely push back the country’s planned euro adoption in 2012.


Although Norway ‘s economy slipped into negative growth in the fourth quarter, its downturn will be among the mildest of advanced economies, with analysts expecting a contraction in the range of 1.0-2.0% in 2009 and a return to growth in 2010. What sets Norway apart are years of current account and budget surpluses (both in the double-digits as a % of GDP), a sizeable public sector and a hefty war chest of oil revenues amassed in the Government Pension Fund. Consequently, Norwegian policymakers have had ample room to use fiscal and monetary policy to soften the downturn.

Statistics Norway estimates the impetus from fiscal policy in 2009 to be 3% of mainland GDP – the strongest stimulus since the 1970s. Meanwhile, the benchmark interest rate is at an all-time low of 1.25%, down from 5.75% in October 2008. Also helping to alleviate the pain of contraction is the fact that Norway’s economy is well equipped with automatic stabilizers. Given Norway’s comparatively bright outlook, there is talk that the country will be the first among advanced economies to hike rates. The central bank sees the first hike coming in Q2 2010, though some analysts think it may come earlier.


The French economy managed to avoid a recession in 2008 and is expected fare best among the big four eurozone member countries in 2009. France’s more balanced domestic demand-led growth model has served it relatively better during a synchronized global downturn. The large social safety net fully served its automatic-stabilizer purpose in a countercyclical manner. Fiscal measures were targeted to the short-term and included mostly non-recurring spending. France’s relatively healthy banking sector received targeted support and is in a position to fully sustain the recovery in the eurozone.

North America


Despite relatively sound finances that helped it outperform the rest of the G7 in 2008 and early 2009, Canada’s exposure to the U.S. for trade and investment suggests its recovery may lag that of the U.S. (a trend that Q2 2009 data seems to support).  However, a more consolidated financial sector with lower leverage, lower default rates, as well as a revival of domestic demand, should support recovery in 2010, albeit one characterized by below- potential growth.  Canadian households and corporations still have more access to credit than their U.S. counterparts, a factor that helped buffer Canada from a more severe property market correction. Yet the nascent revival in consumption may be weaker than the Bank of Canada expects. The rebound in commodity prices is mixed news. Higher commodity prices and greater demand for metals, if not yet for oil and cheap natural gas, should contribute to an expansion of mining and energy output–but too strong a surge could boost the Canadian dollar, exacerbating Canada’s manufacturing weakness as it boosts labor costs.

Middle East and  North Africa

Overall, countries in the Middle East and North Africa (MENA) region were relatively sheltered from the financial spillovers, but suffered from reduced demand. Expansionary fiscal policies throughout the region and effective – if belated in some cases – financial sector support offset the export and investment weakness. The GCC countries most reliant on foreign financing to fund credit expansion, such as the UAE, are suffering the sharpest effects. However, past savings provide a cushion. In the long-term the region’s growth outlook depends on the price and effective deployment of its hydrocarbon endowments.


Despite Egypt’s GDP growth slowdown to be well below recent trends in 2009 (about 3.8% instead of the 7% in 2007 and 2008), the country has been able to weather the financial crisis better than its peers. The narrow exposure of Egypt’s financial sector to foreign structured finance, coupled with a low reliance on foreign bank loans, sheltered the country. Egypt’s countercyclical monetary and especially fiscal policies also shielded the economy somewhat, and previous reforms reduced financial vulnerabilities. Doubling the country’s stimulus package took the budget deficit to 6.9% of GDP for the last fiscal year (similar to the previous one). Should the FDI slowdown persist, financing this deficit will be more costly, however, and political issues surrounding the succession of Egypt’s president could potentially hamper reforms.


Driven by an increase in liquefied natural gas (LNG) exports and government investment, Qatar is expected to be one of the fastest growing economies in the world, with real GDP growth verging on the double-digits in 2009. Government support allowed Qatar’s financial sector to more easily weather the turmoil than some of their Emirati or Kuwaiti counterparts.  Noticeably slower growth in the economy’s non-hydrocarbon sectors, combined with lower loan growth, contributed to lower profitability and the weakening of balance sheets, prompting the government  to buy stakes in local banks and as well as property and equity holdings on the balance sheets of local banks. Qatar’s relative strength contributes to the fact that Qatar’s sovereign wealth fund was among the first to return to significant foreign investment.


Lebanon appears to be withstanding the crisis remarkably well.  The Lebanese banking sector was protected by regulations that restricted investment in sub-prime assets and in general kept Lebanese banks isolated from foreign credit. Domestic political uncertainty also added to the isolation. Unlike most emerging and frontier markets–but like Morocco and Tunisia–Lebanon continued to attract an impressive inflow of funds in 2008, although at a slower pace, meaning its asset markets outperformed.  The recent political stability has given a boost to the tourism and real estate sectors.  Stronger performance, however, would require Lebanon to more aggressively reduce its extensive debt burden, something which may not happen until 2011.

401 Responses to “Are There Bright Spots Amid the Global Recession?”

T´COUGARAugust 5th, 2009 at 9:36 pm

Pardon Dear JLarkin, I forgot a detail: there are 2 principles in Economy – the endogenous and the exogenous! 100% of the mainstream and more then 99,99% of the anti-mainstream are exogenous! All of them wrong, shure. Problem: even in error they are objectives – they are all of them in the reality, they are part of the reality and are players. They make diagnosis, they prescribe, sometimes they win, sometimes they lose in ther prediction and mesures. What they never know is the reality it self, they don´t know how they get what they get, or lose what they lose. Markets command! In the crises, in the recovery…. the markets! The liberal phantasy is that economists, or government are innocuous! The keynesian phantasy is that economists, or government are exogenous, or can be exogenous! The global economy is creating some of the main conditions of the cyclical growth – there are some serious risks, but the next cycle asks for its space. Sure, the retake of the growth doesn´t depends of the retake in the labour market! Something we may track: the USD Index.Look the USD Index… maybe, soon, it can lead us to a Great Depression.Thanksobs: excuse my poor English

JLarkinAugust 5th, 2009 at 3:35 pm

I would love to see more data on China. As a centrally planned, directed economy, it seems likely that the infrastructure projects are going to create many bridges to nowhere. Super-highways in the wrong place, industrial parks that may not be needed for a few years, beautiful airports and high rise apartments; all will be awaiting the return of exports.

AnonymousAugust 5th, 2009 at 9:49 pm

What a wonderful observation. We are creating lots of highways and lowways to the moon. Never mind, these ways at least connect every single village where the villages used to have to walk to get to Beijing and Shanghai. Now they are walk all the way to the moon by detour of these lowways. At the same time, I guess you can just assume we are a nation where everybody lives on half a dollar a day. Cheers to JLarkins.

Pecos BankerAugust 6th, 2009 at 3:38 am

Thought I would repost this from the last thread. It is very germain to the present analysis by the RGE team and was posted too late on the last thread to generate much comment.”The Coming China Meltdown by Martin Hutchinson Prudent Bear | August 04, 2009Shares are trading at 35 times earnings. Banks in the last six months have lent more than the entire Gross Domestic Product for the period. Interest rates are below the inflation rate, while monetary growth is far above it. The seven largest bond transactions in the world in 2009 were domestic deals in this country.Looks like a bubble to me, and bound to end in tears. In a Western economy, one would be sure of it. So why should we think China’s different, and what would be the effects of a Chinese economic meltdown?Various very intelligent people have seen their hair turn grey waiting for a Chinese bubble to burst. Ever since 1998, it has been clear that the Chinese banking system has contained hundreds of billions of dollars in bad debts. A real estate boom in empty office buildings in 2003-04 pushed the assumed total of bad debts up further, and when Ernst and Young in 2006 estimated its total at $911 billion (and then retracted the figure under pressure) that seemed a reasonable estimate. Yet the Chinese economy has continued to grow almost as fast as the estimates of bad debts in the banking system and no signs of collapse have been seen. Indeed, the major Chinese banks did international Initial Public Offerings in 2006-07, all of which were outstandingly successful.So why are things different now? It has been clear for a decade that Chinese public figures overstate the country’s growth rate, so that the apparent 16% growth in the second quarter of 2009 is largely fictional. Indeed, income tax receipts data suggest that growth in the first quarter may have even been negative. However, that is hardly surprising; after all, the country’s exports were down around 30% at the peak of the trade recession of last winter. Even if China’s second quarter growth was really at an 8-10% annual rate, after, say, a 5% rate of decline in the first quarter, that is still a better growth rate than any other major economy in the world. So why should we image that China’s relative outperformance cannot continue?Here the example of Japan is instructive. From the 1950s to the 1980s Japan enjoyed apparently unstoppable growth. The global recession of 1974-75 brought only a brief interruption of that growth. That of 1980-82 (when the Japanese economy had adapted better to high energy prices) brought no interruption at all, although during the 1980s there was a noticeable slowing.Yet in 1990, after an incredible boom in real estate and stocks that took the theoretical value of the Emperor’s back garden higher than that of the state of California (it was admittedly better tended) it all stopped. The real estate bubble burst, the stock market bubble burst and Japan has now suffered almost two decades of negligible growth and relative economic hardship.Nobody now considers Japan to be the world’s great growth economy like they did in the 1980s. Yet the Japanese virtues of superb education, dazzling technology and a grinding work ethic are still as evident as ever.In some ways, the Japanese example should be encouraging to China. While some areas of China have enjoyed astonishing growth, its overall relative wealth is not even that of Japan in 1973, let alone that of 1990. Indeed, the Japanese example suggests China should enjoy several more decades of exceptional growth before its living standards get close to those in the West. At that point we may indeed see a crisis, but on that analogy, the crisis should not occur before 2030, at the earliest.Yet it is not inevitable that growth economies must almost catch up to western living standards before crisis intervenes. Thailand suffered crisis in 1997, after 30 years of excellent growth but far before it had reached Western living standards. Even South Korea at the time of its 1997 crisis was well behind the relative position Japan had reached in 1990. Thailand and South Korea have enjoyed some growth in this decade, but the intervening transition was painful indeed, involving a sharp drop in output and, in Korea’s case, the passage of the entire banking system through bankruptcy.On examination, China looks more like Thailand than Japan. Even 30 years ago, the Japanese economy was known for its transparency, with its own equivalent of the Glass-Steagall Act and a careful division not only between lending and brokerage, but even between different kinds of lending. National statistics were produced meticulously, according to norms laid down during the U.S. occupation. Politically, the same party won every election, but elections were properly contested democratic polls, and there was open competition between different factions in the ruling party as to whose policies would be followed. The state sector was small, and only a small fraction of the banking system was state owned. Much of the private sector dated back for centuries, and followed the stable traditions of family capitalism not dissimilar to Germany of the period.As its labor costs approached those of the West, inefficiencies in the Japanese system would become more apparent, and it was always likely that a crisis would intervene before Japan was fully modernized. But its education system was so superb, and the openness of it political and economic institutions so great that it was unlikely to reach a crisis before that point. Finally, in 1970 or so there was no great overhang of bad debts in the Japanese banking system, nor was real estate in any obvious excess. (The infrastructure excesses came later, in the 1990s.)China has none of Japan’s transparency. The government is undemocratic and a poor respecter of human rights; in this respect it is like Japan’s pre-World War II governments, aggressive and chauvinist. Unlike Japan, it maintains a huge military machine, which itself owns a plethora of companies. The state corporate sector is still gigantic and supported by state-owned banks. Savers are not permitted to take money out of China, and their huge savings prop up an overvalued stock market and a bond market that is comparable in size to the freely flowing international bond market. Private sector companies are either youthful fly-by-night operations or dubiously privatized state behemoths. Prices are still largely administered, and investment flows mostly to the politically connected rather than the economically attractive. Education is relatively poor outside the main population centers, and land ownership is still restricted.China is thus much more like pre-1941 Japan than post-1950 Japan and its economic inefficiencies are correspondingly greater. Because of those economic inefficiencies, the chances remain high of a meltdown far before China has achieved Western living standards. From the excesses in the Chinese economy currently, that meltdown appears now to be impending. Companies currently have more liquid assets than they can usefully invest and have been gambling with them in the stock market, a phenomenon last seen in size in Japan in the late 1980s. Shipments to retailers have increased by 15% in the first half of 2009, an increase reflected in the GDP statistics but not necessarily in sales to final consumers, although households without electricity or running water have reportedly been dragooned into buying washing machines.The most likely form of meltdown to occur is that of a banking system collapse, as the gigantic volume of recent loans goes bad and liquidity in the economy finally dries up. That would drain the huge Chinese savings pool and cause steep output contraction, particularly in the overleveraged and inefficient state-owned sector.The excess money in the system, with M2 money supply up 28.5% in the year to June, also suggests that a price explosion cannot be far away. Although official inflation is currently negative, the People’s Bank of China has already warned of a possible inflation resurgence. It must also be remembered that the social structure of China is now quite Latin American in nature, with a Gini (inequality) coefficient rising rapidly, already at 47 by 2007, well above its Asian neighbors and not far below Mexico (48) and Argentina (49). Thus an economic collapse is unlikely to be survived quietly, as was the case in Korea and Thailand.A Chinese economic collapse, which might well be accompanied by an Indian balance of payments crisis due to that country’s perpetual government overspending, would cause a sharp “second dip” in the global economy. The amount of foreign capital tied up one way or another in the Chinese economy is now so great that a Chinese market collapse would have global repercussions in an already weakened financial system. Furthermore, it is by no means certain that China would quickly resume its role of global growth engine; Japan didn’t, after all.China could be different – it always has been. But at some stage, the mysterious Chinese economy and its thoroughly opaque banking system must respond to the same constraints that affect the rest of us. Chinese economic policy has been more stimulative than ever before, its bank lending more reckless. If China’s run of apparently miraculous immunity from normal economic forces is finally about to end, the result will not be pretty for any of us. to this comment By Guest on 2009-08-05 14:32:02 “

GuestAugust 6th, 2009 at 6:51 am

What else do developers do with undeveloped land? You forgot to add in the retail centers where no one shops.

SoftwarengineerAugust 6th, 2009 at 4:26 pm

Its like any stimulus debtWhen China’s exports plummetted 80% YOY recently they went to a “buy Chinese” stimulus bill…it reminds me America’s….its like the scene in that recent Batman movie where The Joker burns the massive pile of cash….the good news, it wasn’t his half…LOL

Jason BAugust 5th, 2009 at 4:39 pm

“Wal-Mart just issued $1 billion in Samarai bonds in yen…”The Treasury’s borrowing needs have been exploding and the auctions are getting progressively weaker. This presents a serious problem for the dollar. Once 78 on the USDX is broken the index should freefall. We expect the government will staunchly defend 78, but will lose the battle probably in October or at least by the end of the year. As a result you will see more bonds being issued in foreign currencies such as the yen, yuan and euro bonds. Wal-Mart just issued $1 billion in Samarai bonds in yen. Issuance of foreign currency denominated bonds by corporations and eventually by the US Treasury will signal that the day of the dollar as the world’s reserve currency will be coming to an end. Lenders will want to get repaid in a currency they know will have future value. This kind of issuance puts more and more pressure on the dollar. Issuance of bonds in a foreign currency will be a clarion call that dollar hegemony is ending. The result will be other currencies will gain in strength versus the dollar, but the flip side is that they are all fiat currencies and all will fall versus gold.–Bob Chapman 08/01/0978 was broken on 08/01/09. Now what?

AnonymousAugust 5th, 2009 at 9:52 pm

What a clever bunch of Arkassonians! All the fundamentals are pointing to the Yen falling like a stone in 10 years. They borrow today with 1B US$ worth of Yen in 10 years they just need to repay 1/2B$ worth.

TwoSidesToEveryCoinAugust 6th, 2009 at 6:57 am

This explanation makes sense. The other one about lenders wanting to be repaid in Yen not as much. It’s hard to imagine Wal-mart not being able to do a successful bond issue in USD if they so chose.

MM CAAugust 5th, 2009 at 6:38 pm

Duh… so where’s the fixes? or is it where’s the beef Obama! If this happens, then we have yet to see anything yet regarding bank losses.About half of U.S. mortgages seen underwater by 2011NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.Home price declines will have their biggest impact on prime “conforming” loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.”We project the next phase of the housing decline will have a far greater impact on prime borrowers,” Deutsche analysts Karen Weaver and Ying Shen said in the report.Of prime conforming loans, 41 percent will be “underwater” by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties’ value, up from 29 percent, it said.”The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding,” the analysts said. Prime jumbo loans make up 13 percent of the total market.Deutsche’s dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006.Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were “affordability products” originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,Of option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011, up from 77 percent, the report said.Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.”For many, the home has morphed from piggy bank to albatross,” the analysts said.

GuestAugust 5th, 2009 at 6:42 pm

US prime borrowers slip behind with payments as housing slump goes onBy Nicole Bullock and Saskia Scholtes in New YorkPublished: August 5 2009 03:00 | Last updated: August 5 2009 03:00The number of US prime borrowers behind on home loan payments has risen sharply, signalling further problems for banks and investors.Standard & Poor’s said higher unemployment combined with a prolonged housing market slump had afflicted even the highest quality borrowers.The dollar volume of prime mortgages in delinquency or default rose 13.8 per cent between March and June, according to a study of private-label prime, subprime and Alt-A home loans conducted by S&P. Borrowers of Alt-A loans have slightly better credit histories than subprime borrowers.

The AlarmistAugust 6th, 2009 at 4:07 am

Deutsche should know. They have been opportunistically buying up a lot of this distressed debt hoping that things will work out for the better. They just recently had to take huge provisions for the reality that they might not, especially since some of Deutsche’s attempts to foreclose have been set aside by US Courts that insisted that Deutsche prove its ownership of the underlying mortages.I tell you, it would be more just to force the bankers to fight out foreclosures one-by-one in court than it would for the US Treasury to buy up all their toxic junk (a certain subsidy to the banks) or to force them into doing mortgage mods (that we could, given our experience in the last year, count on being subsidised by the US taxpayer).Have you heard the radio adds talking about a mortgage moratorium for workouts, where they actually talk about the “costs” being picked up by Uncle Sam? Pure evil.

SoftwarengineerAugust 6th, 2009 at 4:30 pm

2010 Property Taxes Assessments Coming in for SeattleA $1.2 million dollar house purchased 2005 is now assessed at $725K.

GuestAugust 7th, 2009 at 12:18 am

Now that’s wealth destruction, that fizzling sound is America’s bubble economy with the air escaping…

MM CAAugust 5th, 2009 at 6:40 pm

August 5, 2009The Thrill of a Lifetime?By John BrowneAnyone looking for thrills these days should forget roller coasters and skydiving. Instead, simply buy a few shares of U.S. stock. The past year has reminded us how truly stomach-churning the financial ride can be. And after a white-knuckled drop in 2008, investors who held on are now enjoying a dizzying ascent. In the past five months alone, the S&P has risen by 22 percent and the NASDAQ by 33 percent. Emerging markets are back almost to their pre-recession levels. Even individual American stocks have performed in a stellar manner. Apple, Cisco and Oracle have all risen by over 200 percent. Ford, an aging relic once given up for dead, has risen by 268 percent!But what we have seen is more than just a lesson in physics. Stocks are not going up only because they previously went down. We are witnessing a return of hope. While the change is heartening, it is sadly based on the flimsiest of evidence.The current rally has been sparked by some modestly good news: the Purchasing Managers’ Index is up, GDP has retracted by only 1 percent, and the fall in home values appears to be leveling off. Taken together, the appearance of these ‘green shoots’ has many, such as Larry Summers and Tim Geithner, convinced that the recession is over.Somewhat more guarded than his colleagues within the Administration, Fed Chairman Ben Bernanke testified to Congress that he foresaw a “jobless recovery.” One is left to wonder how an economy burdened with double-digit unemployment can recover without new jobs. In recent decades, there have been some jobless recoveries from mild recessions, but they were built upon asset booms. Today, we face a very deep recession. The asset boom has collapsed. A jobless recovery in an economy based on 72 percent consumer spending is an oxymoron. Unless our economy can go through a needed and painful reorganization, in which the industrial sector is revitalized, recovery from this recession will have to be based upon consumer demand. With unemployment increasing at over 500,000 workers a month, wages dropping, and hours worked declining, it is hard to see consumer demand rising convincingly enough to provide the engine for a rebound.Meanwhile, U.S. Treasury debt is exploding, the U.S. dollar falling, and unemployment rising. In such circumstances, how can the stock market rise be trusted? What is the reality?Added to this conundrum, credit remains tight, despite the injection into the banks of vast amounts of Fed funds at zero percent. And, for the first time, banks are being paid interest on the reserves required to be held at the Fed. Paradoxically, this hidden taxpayer boost to banks’ earnings is one of the prime reasons for tight credit. What bank would lend to corporations or individuals, incurring risk, when it can lend to the Fed – at considerable profit – without risk?With the consumer still in shock and denied credit, why do some indicators appear positive?The short answer for this is massive deficit and stimulus spending by the federal government. More than $3 trillion alone this year. That’s nearly $10,000 for every citizen of this country. Little wonder that some consumers have ‘handout’ money to spend. And it’s no surprise that after a massive sell-off, certain retailers are refilling their inventories, causing the Purchasing Managers’ Index to rise. Likewise, now the threat of a banking collapse has passed, albeit temporarily, the rate of job cuts can be expected to fall.Looking ahead, there is a $3.4 trillion commercial mortgage problem due to face the banks in September. This most sobering prospect, combined with the various pressures on consumers, would appear to indicate that the American economy is in the ‘eye’ of an economic hurricane. When jobs fail to materialize and credit remains frozen, look for corporate earnings to remain depressed. This reality can only be ignored for so long.Any investor in U.S. stocks and bonds should be extremely wary, particularly as autumn may well herald a rise in interest rates and, as a result, another round of collapses. The ride up may have been fun. But remember last year before you dare to hold on for more.

farnorth5August 5th, 2009 at 7:36 pm

A JOBLESS RECOVERY ?? Well yes statistically the GDP has to increase at a rate of at least 3% per annum before rehiring occurs.So yes a potential jobless recovery for at least 5 years based on real data.Something to think about.Will the President ditch Geitner and Bernanke both ,so as to get reelected? Does the President actually understand the banking fundamentals and the power currently being used to ensure no real financial change ??? I have no idea,but I dont like what I see so far.It appears he is being PROFESSIONALLY manipulated.

GuestAugust 5th, 2009 at 9:33 pm

Treasury debt exploding? no problem, as long as there is last one buying, Treasury can continue to auction $100+ Billion debt each week. falling US dollar? nothing wrong with letting it keeping falling as Fed prints $100+ Billion each week. May be one day Fed will announce $1000->$1 reverse split on dollar like zenbabwe event? unemployment? not a problem as long as Geithner revolve unemployment benefits extension. or Obama will sponsor cash for garbage/trash program. what about $100-1000 for 1 pound of garbage from your home? bet the free money for people will certainly turn the economy around.

MM CAAugust 5th, 2009 at 6:50 pm

This article kind fo sums the whole mess up. Infaltion on stuff we need, deflation on stuff we dont need, Rising unemployment (NO JOBS), WAGE DESTRUCTION, Declining house values and personall wealth, Rising forclosures. so they consider an increase in consumer spending as a green shoot… BS… its because thigns cost more. They seem intent on making life miserable for approx 300 Million americans and if you not one of the few close to finaancial system or the CEO’s you are insignificant. They are intent on taking it all from everyone. Look at the job loss for July in small buisness and medium business, it was horific and they play up Corprate job loss was less. Whoopdy Doo, 75% of the job loss in july was small and Med Biz.NO JOBS and WAGE DESTRUCTION and neither is coming back to previous levels for at least 10 years and possibly much longer. Get used to it AVERAGE JOE AMERICAN, unless you choose to stand up and be counted.Higher Prices Pushed Up Consumer Spending for JunePublished: August 4, 2009The broader economy may be testing the bottom, but for American consumers, there appears to be no end yet in sight for falling wages and higher living expenses.The New York TimesThat was the picture painted Tuesday by the government’s monthly report on personal incomes and consumer spending. While consumers spent more in June, they did so because prices of food and energy were rising, and not because they were ready to spend freely again.Personal incomes sagged as employers continued to cut wages and reduce working hours. And the personal saving rate, which had been rising, dropped sharply from a month earlier as one-time transfer payments from the government stopped arriving in people’s bank accounts.“Consumers are not spending any more money,” Steven Ricchiuto, chief economist at Mizuho Securities, said. “They’re still consolidating.” Personal income fell back 1.3 percent in June, just a month after a one-time $250 payment to Social Security recipients lifted it by the same amount. And in a sign of continuing troubles for American workers, private wages and salaries fell for a fourth month, slipping a seasonally adjusted $28.6 billion after a $11.3 billion drop a month earlier.Private wages and salaries have fallen for each of the last 10 months as businesses trimmed costs by freezing pay, imposing salary cuts and reducing the work week. Personal income has dropped by a seasonally adjusted $372 billion since September.“Wage and hour cuts are big right now,” Adam York, an economist at Wells Fargo, said. “The economy remains fairly weak, and the labor market even weaker. We’ve lost 6 million jobs, and unemployment is rapidly heading toward 10 percent. There’s just not a lot of wage pressure out there right now.”The Commerce Department’s report showed that while consumer spending was no longer falling precipitously, shoppers were still extremely cautious with their money. Personal spending rose by a seasonally adjusted 0.4 percent in June, but factoring in price changes, real consumer spending slipped 0.1 percent.Economists said a strong response to the government’s “cash for clunkers” auto purchase program was likely to lift spending in July.The personal saving rate dropped to 4.6 percent, from 6.2 percent in May, reflecting how people had saved their one-time Social Security payments.Since the recession began in December 2007, the national unemployment rate has risen to 9.5 percent, and economists are expecting it to reach 9.6 percent when the government reports its July jobs numbers on Friday. Forecasters expect that the economy lost an additional 328,000 jobs last month after shedding 467,000 jobs in June.A report on home sales that have gone under contract, but not yet closed, offered a bit more cause for optimism. The National Association of Realtors’ index of pending home sales was higher for a fifth month in June, rising 3.6 percent in another sign the country’s housing market might have hit bottom.Economists were expecting a monthly increase of 0.7 percent.Lower mortgage rates, falling prices and a tax credit for first-time home buyers have ignited new activity in once-foundering local housing markets. Last month, a closely watched gauge of housing prices showed some of its first positive moves in years, and sales of new and previously owned homes are beginning to stabilize.

MM CAAugust 5th, 2009 at 6:50 pm

This article kind fo sums the whole mess up. Infaltion on stuff we need, deflation on stuff we dont need, Rising unemployment (NO JOBS), WAGE DESTRUCTION, Declining house values and personall wealth, Rising forclosures. so they consider an increase in consumer spending as a green shoot… BS… its because thigns cost more. They seem intent on making life miserable for approx 300 Million americans and if you not one of the few close to finaancial system or the CEO’s you are insignificant. They are intent on taking it all from everyone. Look at the job loss for July in small buisness and medium business, it was horific and they play up Corprate job loss was less. Whoopdy Doo, 75% of the job loss in july was small and Med Biz.NO JOBS and WAGE DESTRUCTION and neither is coming back to previous levels for at least 10 years and possibly much longer. Get used to it AVERAGE JOE AMERICAN, unless you choose to stand up and be counted.Higher Prices Pushed Up Consumer Spending for JunePublished: August 4, 2009The broader economy may be testing the bottom, but for American consumers, there appears to be no end yet in sight for falling wages and higher living expenses.The New York TimesThat was the picture painted Tuesday by the government’s monthly report on personal incomes and consumer spending. While consumers spent more in June, they did so because prices of food and energy were rising, and not because they were ready to spend freely again.Personal incomes sagged as employers continued to cut wages and reduce working hours. And the personal saving rate, which had been rising, dropped sharply from a month earlier as one-time transfer payments from the government stopped arriving in people’s bank accounts.“Consumers are not spending any more money,” Steven Ricchiuto, chief economist at Mizuho Securities, said. “They’re still consolidating.” Personal income fell back 1.3 percent in June, just a month after a one-time $250 payment to Social Security recipients lifted it by the same amount. And in a sign of continuing troubles for American workers, private wages and salaries fell for a fourth month, slipping a seasonally adjusted $28.6 billion after a $11.3 billion drop a month earlier.Private wages and salaries have fallen for each of the last 10 months as businesses trimmed costs by freezing pay, imposing salary cuts and reducing the work week. Personal income has dropped by a seasonally adjusted $372 billion since September.“Wage and hour cuts are big right now,” Adam York, an economist at Wells Fargo, said. “The economy remains fairly weak, and the labor market even weaker. We’ve lost 6 million jobs, and unemployment is rapidly heading toward 10 percent. There’s just not a lot of wage pressure out there right now.”The Commerce Department’s report showed that while consumer spending was no longer falling precipitously, shoppers were still extremely cautious with their money. Personal spending rose by a seasonally adjusted 0.4 percent in June, but factoring in price changes, real consumer spending slipped 0.1 percent.Economists said a strong response to the government’s “cash for clunkers” auto purchase program was likely to lift spending in July.The personal saving rate dropped to 4.6 percent, from 6.2 percent in May, reflecting how people had saved their one-time Social Security payments.Since the recession began in December 2007, the national unemployment rate has risen to 9.5 percent, and economists are expecting it to reach 9.6 percent when the government reports its July jobs numbers on Friday. Forecasters expect that the economy lost an additional 328,000 jobs last month after shedding 467,000 jobs in June.A report on home sales that have gone under contract, but not yet closed, offered a bit more cause for optimism. The National Association of Realtors’ index of pending home sales was higher for a fifth month in June, rising 3.6 percent in another sign the country’s housing market might have hit bottom.Economists were expecting a monthly increase of 0.7 percent.Lower mortgage rates, falling prices and a tax credit for first-time home buyers have ignited new activity in once-foundering local housing markets. Last month, a closely watched gauge of housing prices showed some of its first positive moves in years, and sales of new and previously owned homes are beginning to stabilize.

GuestAugust 5th, 2009 at 6:54 pm

My daughter just graduated and falls into this group. Like above, it will be decades before things get fixed.Lost generation? U.S. grads work for free, look abroadBy Wendell Marsh – AnalysisWASHINGTON (Reuters) – Americans fresh out of university are discovering their expensive degrees are not the entry ticket to a job they had hoped in the face of high unemployment.Some young graduates are working for free to enhance their skills and bolster their resumes. Some are looking abroad for work while others are determined to push their way into the U.S. job market.Jessicalind Ah Kit got off to a great start in her job search. One company flew her abroad and gave her a rental car. After a first day of interviews, the company told her it had a freeze on global hiring.Ah Kit studied management information systems, economics and Japanese in college. After an 18-month search, she has taken an unpaid internship — her third.The National Association of Colleges and Employers says only 19.7 percent of 2009’s graduates who applied for jobs had them as of May 2009. During the second quarter this year, unemployment for workers under 25 years of age was 17.3 percent, nearly double the national average.Economists worry that unless the new graduates get on the job ladder soon, it will leave a void in a country where a wave of retiring Baby Boomers need a healthy young work force to pay for their Social Security government retirement benefits.The generation — known as Generation Y or the Millennial Generation typically born in the 1980s and early 1990s — is made up of the children of Baby Boomers.The Millennials run the risk of following Japan’s lost decade. Years of economic stagnation and a sluggish recovery have had what economists call a hysteretic effect on Japan’s economy — something akin to a spring stretched too far.Changes in Japan’s labor force resulted in a larger portion of the population being employed under contract with few benefits. This lost generation missed out on the opportunity to gain skills, resulting in widespread socioeconomic woe in a country known for its rigid corporate structure.STUDENT DEBTMany U.S. graduates face a further hardship scrambling to pay off loans they took to finance a university education. Many were counting on the higher incomes that college degrees usually promise.They graduate with an average debt of $27,000 with no means to pay it off and almost 30 percent — or 13.2 million in 2007 — of them are uninsured. One concern is that the graduates will lack the skills they need once the jobs come back.Gaps in employment can cause problems for workers of any age — a point U.S. Federal Reserve Chairman Ben Bernanke emphasized in recent testimony.”People who are out of the labor force tend to lose their skills and their connection to the labor force. When the economy recovers, they may not even be employable,” Bernanke said in testimony in June.Research has shown that unemployment early in a person’s career makes a lasting imprint.A working paper by labor economist Lisa Kahn at the Yale School of Management showed that among white male college graduates, the most employed group, there are “large, negative and persistent” effects for those graduating during recessions.Graduating into a bad economy for this group could mean 6 percent to 8 percent less in wages earned for each additional percentage point in the national unemployment rate. Even 15 years later, there is a 2.5 percent difference for each extra percentage point in the unemployment rate.Similarly, if they fail to start developing assets, their ability to support major economic activity will be hampered.LOST? OR NOT?Despite all that, some recent graduates have gone to great lengths — figuratively and literally — to chart a new path in tough times.Princeton graduate Jason Harper said he and his friends were looking abroad, having exhausted their job search in the United States since graduation in June.”As much as I want to work in LA, or work in New York, or Chicago, it’s just shut-door after shut-door,” said the German media and aesthetics major. He said he had made some progress in Berlin.

The AlarmistAugust 6th, 2009 at 4:15 am

Quite often I interview people who think they are going to come in here and run things and do deals. Offer them a job as a receptionist or in document production and they sneer at it because of their lofty education and experience.BTW, the initial work of an investment banker is to typically redo powerpoint presentations 16 hours a day, and they do this for quite some time before we would trust them with anything resembling deal making.

SoftwarengineerAugust 6th, 2009 at 4:38 pm

Should have been flipping burgers years agoI warned you bloggers years ago, get your kids working while going to school….the worse thing you can do is give ’em a credit card and paid tuition/dorm room.Imagine if they flipped burgers for 5-6 years and got their business degree….they’d be a likely shoe-in for that regional fast food manager position.The job market today isn’t anywhere [like it was years ago], its the few paths leading to the few berries left.And don’t wait for the boomers to retire and open up job slots for the young, with 1% CDs, etc and busted 401Ks with a possible $500B cut to their Medicare to possibly/likely pay for a theoretical Health Care Reform Bill…they’ll work until they die….LOL

MM CAAugust 5th, 2009 at 6:58 pm

There will be no recovery this year or next year. Belive what you want and if you listen to Obama and all the talking heads you are taking in bad advice. It’s amazing how many people have said the past month the recession is over and we are in recovery. Based on what a, Ponzi, Propped up, Illegitmate, irrevleant STOCK MARKET?WASHINGTON (MarketWatch) — U.S. non-manufacturing industries contracted for the 10th consecutive month in July, the Institute for Supply Management reported Wednesday.The ISM non-manufacturing index fell to 46.4% in July from 47% in June.Economists surveyed by MarketWatch expected a small increase to 48%. The index had risen three months in a row. The index bottomed at 37.4% in November.Readings under 50% indicate that most firms say business is still getting worse, or at least not getting better. The index has been below 50% for 10 straight months.Seven of 18 industries were growing in July, led by real estate, entertainment and agriculture. “The majority of respondents’ comments reflect a sense of uncertainty and cautiousness about business conditions,” ISM said.”While clearly signaling economic conditions that are nowhere near as bad as late last year and earlier this year, the level of the overall index remains consistent with basically stagnant conditions,” wrote Joshua Shapiro, chief economist for MFR Securities.”Firms are waiting to reevaluate the economic landscape before undertaking any new hiring or business investment,” wrote Omair Sharif, an economist for RBS Securities. “The recovery was never going to be a straight-line process, so while this report is disappointing, we would view it as a temporary pause on the way to renewed growth later this year.”The new orders index fell to 48.1% from 48.6%. The business activity (production) index fell to 46.1% from 49.8%. The prices-paid index dropped to 41.3% from 53.7%. The employment index fell to 41.5% from 43.4%.

GuestAugust 5th, 2009 at 9:38 pm

“The ISM non-manufacturing index fell to 46.4% in July from 47% in June.”but the pace of decline slowed? reason to be bull, lets bring out the Champagne, cheers 🙂

Guest ho ho ho ohAugust 5th, 2009 at 8:46 pm

A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.Mark TwainUS humorist, novelist, short story author, & wit (1835 – 1910)

The AlarmistAugust 6th, 2009 at 4:21 am

Actually, the whole article reminds me of a reputed Churchill dialog:Bessie Braddock: “Sir, you are drunk.”Churchill: “And you, madam, are ugly. But in the morning, I shall be sober.”

The AlarmistAugust 7th, 2009 at 2:21 am

Lady Astor said she would poison his tea if he were her husband, to which he replied that if he were her husband he would drink it.

GuestAugust 5th, 2009 at 9:04 pm,%20Did_You_Hear_That_Democrats_Won_The_Election.html.david michael green,.That George Bush, man – what a monster, eh? I mean, could you even have imagined a president so destructive?It’s actually worse than you thought, though. Lately, there’s been a spate of fresh revelations about some of the incredibly disastrous policies that were executed by the Bush administration.Did you know, for instance, that they……steered hundreds of billions of bail-out dollars to the very people who drove the country into the worst economic crisis since the Great Depression, required nothing of these sharks in return, and did almost nothing for ordinary Americans struggling to survive this disaster?…opposed congressional legislation limiting financial institution incentive pay packages that put the whole global economy at risk?…opposed legislation allowing shareholders the right to have even a non-binding say on salaries, even though executives took home billions in bonuses last year while their companies were hemorrhaging money so badly they required a trillion bucks in taxpayer bail-out?…actually threatened Britain, America’s closest ally in the world, with withdrawal of intelligence data that could prevent terrorist attacks unless the British government blocked one of its courts from accepting documented evidence of torture at Guantánamo?…sent droves of Predator-launched missiles into Pakistan – supposedly one of America’s allies – killing groups of civilians, even at weddings, thus intensifying hatred toward the United States?…tried to shut down a charity’s illegal-surveillance suit against the government on the basis of a supposed constitutionally-grounded state secrets privilege which would allow the president to kill any legal case before it is even heard?…undertook a blitz of immigration enforcement without reform of civil rights violations so nasty that one professor of immigration law described the policies as “literally the worst of all worlds”?…refused to set legally enforceable immigration detention rules covering such basics as health care and legal representation, instead relying on a flawed contractor-based monitoring system?…pressured a member of Congress to withdraw an amendment that would have ended the military’s disastrous “Don’t Ask, Don’t Tell” regime, simply by defunding it?…asked a federal court to dismiss a case in which the plaintiffs challenged the discriminatory Defense of Marriage Act, arguing to the court that heterosexual marriage is “the traditional, and universally recognized, version of marriage”?…dramatically increased the influence of religion in government, directly violating the First Amendment, by lavishly spending federal dollars on “faith-based’ programs, and giving religious groups massively increased power and access within the White House to shape policy questions?…stood by silently, allowing climate legislation to be watered down to nothing, to include generous pollution allowances to coal utilities, and to undermine the EPA’s authority to control carbon emissions?…backed healthcare legislation that did little for the public and actually increased wasteful federal expenditures, while continuing to enrich insurance, medical, hospital and pharmaceutical corporation vampires?…and lots and lots more.Can you believe it? Can you imagine anything as absolutely evil as the Bush administration? Can you believe the stunts they pulled?Well, try this on for size: Every item above actually reflects the actions of the Obama administration in just its first six months – not George Bush! (Although, of course, Bush did a lot of these things too, and would have likely done them all, given the chance.)That’s right, that’s right. Yep. This is the record of the guy liberals scrambled to put into office, the guy who promised big-time change, and the guy whom foaming-at-the-mouth regressives run around screaming is a socialist ruining America.I don’t know about you, but I think maybe all those government officials and media reporters who say Democrats won the last election (actually, the last two of them) have just been having a great big ol’ laugh at our expense! Whataya think? This is change from the last eight years?? This is the party that opposed the horrors of the Bush administration and the Republican Congress?? This is out-of-control liberalism?And let’s not even talk about the things they aren’t doing……Real change in Middle East policy? Haven’t seen it….Remotely serious response to the existential threat of global warming? Nope – might offend somebody….Single-payer healthcare system, to provide the only cost-effective and fair solution for universal coverage? Wasn’t mentioned by Harry in the commercial. Or Louise….Serious cuts to annual defense spending now equal to twice what every other country in the world spends, combined? Nein, dummkopf. The Pentagon’s budget is rising – you know, in order to protect America from its big bad enemy, the, uh…, the, um, what’s-their-names again…?…Full-court press to curb hugely expanding wealth disparities and protect the economy from Wall Street predators? Hell, nowadays those clowns have their offices right in the West Wing. In fact, now it’s called the Goldman Sachs Wing.Look, I’ll be honest. I supported (sorta) Obama and I voted for him. But I did so with open eyes. I knew he could be a progressive once installed in the Oval Office, but that he might well also be a Clinton-like hack for the money boys and a complete coward in standing up to the insane right that is gobbling up America on a steady diet of hate and paranoia.In other words, I’m not shocked that he’s not FDR. But why is this guy carrying water for George Bush, covering up his worst crimes? Why are his civil liberties positions so bad that one attorney described them as “the good old Bush-Cheney inherent presidential power theory” all over again? Why is he working so hard to make sure Wall Street sucks every drop of blood it possibly can out of the pale-white corpse of the American middle class, even while it ruins the global economy in yet another get-rich scam, then turns to the government for a bail-out when it all comes a cropper, all the while – and without a hint of irony – still loudly singing its effusive praises of Ayn Rand? Why is it this guy can’t simply stand aside and let Congress defund Don’t Ask, Don’t Tell, a program even the military now wants to jettison? Why does he go to court arguing on behalf of homophobic repression? What in the world is this dude going to tell his children when their country is broke and broken, and their planet parched and dying? “I was just one person. What could I do?”I guess Democrat is the new Republican nowadays.Sure, the pathetically feeble Dems are less likely to launch big wars based on lies (at least since LBJ left the White House), and that’s nothing to sneeze at. (Maybe Obama will even end Bush’s debacle in Iraq, like he said he would. Maybe. I take nothing on faith with this guy, that’s for sure.)And, yeah, Democrats will move slightly faster in the quest to do nothing and to get nowhere when it comes to protecting the environment, civil rights or civil liberties. Woo-hoo.Otherwise, I’m having a hard time seeing the difference. Bill Clinton (he of WTO, NAFTA, welfare reform and Telecommunications Bill fame) was the best friend Wall Street could ever have imagined, and they still tried to ride him out on a rail. Now Obama’s got the same Goldman Sachs retreads in there ripping us off again, even as the ship is still going down from the last round.So Democrats won the last election, huh?Coulda fooled me. But here’s the bigger question:What for?

T´COUGARAugust 5th, 2009 at 9:48 pm

“could you even have imagined a president so destructive?”Yes, unfortunately…, and you too! And he is the govern just now… You get the name! Other one in the Oval would be the same. The problem is not in the person, you know!

Pecos BankerAugust 6th, 2009 at 11:24 am

Yeah, but you know, Obama has his secret plan to get us all out of this mess and he will soon turn on those evil doers in his administration and pull a TR on them!

GuestAugust 5th, 2009 at 9:30 pm

THERE’S SMOKE AT GS, AND THERE’S SMOKE AT JPM…| Nathan’s Economic Edge | Aug. 5, 2009Get the marshmallows and weenies ready, the fire’s coming soon. Karl Denninger is seeing smoke coming from the Goldman offices. Guess what…Karl knows simple math!….Is This Statistically Reasonable? (GS)Remember what was said about Madoff when people started looking at his operation?There were only two possible explanations for the firm’s apparently never-losing trading. They were either front-running or cheating in some other fashion, or the entire thing was a gigantic ponzi scheme.We later learned that #2 was the case.But is there an example of #1 somewhere? Hmmmm…Aug. 5 (Bloomberg)—Goldman Sachs Group Inc. made more than $100 million in trading revenue on a record 46 separate days during the second quarter, or 71 percent of the time, breaking the previous high of 34 days in the prior three months.Trading losses occurred on two days during the months of April, May and June, down from eight in the first quarter, the New-York-based bank said today in a filing with the U. S. Securities and Exchange Commission. The company made at least $50 million on 58 of the 65 trading days during the quarter, or 89 percent of the time.Just two days of losses in the entire quarter?There are a lot of very good traders in the world, but nobody has that sort of record in any sort of consistent basis unless they’ve managed to rig the game.….Rigged game? Absolutely.And then there’s the smoke over at the house of Morgan—JPMorgan. Actually, it’s already on fire, the public just doesn’t see the flames yet. The fire will eventually eat through the walls of their “house,” and then you are going to see the flames—it’s just a matter of time. There are charts and table breakouts from the OCC reports like I’ve been showing you at the following link—below is just as excerpt:…Derivatives Interest Rate Swaps, The Elephant in the Room (by Rob Kirby)*I’d like to delve into the numbers, or math, showing how J.P. Morgan’s derivatives book canned be ‘hedged’.As per their call reports filed with the Comptroller of the Currency Office we know J.P. Morgan’s derivatives book grew by a cancerous 12 Trillion from June 07 to Sept. 07. The OCC’s Quarterly Derivatives Report serves as the public’s only peek into the opaque and murky world of derivatives-flim-flammery.…If you’re wondering why J.P. Morgan never seems to get caught up in any sort of hideous mark-to-market losses concerning their derivatives or hedge book—consider that back in the spring of 2006, Business Week’s Dawn Kopecki reported,“President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register dated May 5, 2006 that was opaque to the trained eye.”So do any of you think that J.P. Morgan gets a pass? I would suggest to you that if they had not—our whole financial system would already have collapsed in a heap.You see folks; hubris has been cast upon us in an attempt to have us believe that wealth is really created on a printing press and on trading desks in N.Y. at J.P. Morgan or Goldman Sachs.….Well said, I’ve got my marshmallows ready because the jungle is burning around these financial “lions.” Hmmm, I’m thinking s’mores, how ‘bout you?*

FEDupAugust 6th, 2009 at 8:33 am

Sad, so sad that all of the abuse of the financial system, cheating and manipulation is faciliated and then ignored by our leaders. These institutions can receive billions in taxpayer bailouts and bonuses for totally reckless behavior while we stand by and watch millions lose their homes, jobs, pensions and futures. A system that breeds this type of corruption must be changed before it’s too late!

GuestAugust 6th, 2009 at 11:59 am

What results can one expect when Goldman and JP Morgan have a key to the bank, to the U.S. treasury? Any time they want, they can tap into the taxpayers’ money. Once a day? Twice a day? The sky’s the limit.If you’ve got the key to the treasury, “investing” is like shooting fish in a barrel. It’s great skill, right? No! The fact that many people think it is only shows the extent of the problem. When someone says GS is “smart,” what he’s really saying is, “ Hey. Look at me; I’m stupid. I’m helping the boys steal. I don’t’ criticize!” Goldman has its officials in every key spot in the nation; it owns and has phone access to the Fed, it owns the PPT, it machine-controls the equity markets—privy and head of every sale and buy. And who but Blankfein and Dimon knows how many billions Goldman and JPM are making in other countries by strong-arming with their leverage.I’m just really surprised Goldman didn’t make money on those two days it recorded losses. Whose watch was it that day, anyway? It’s like saying Caesar’s Palace had a bad day; the customers beat the house.

The AlarmistAugust 7th, 2009 at 2:23 am

What makes you think they didn’t make money on those two days, but merely recorded losses for the optics of appearing to be human.

GuestAugust 5th, 2009 at 10:20 pm

Robert Scheer’s ColumnsBanking Bandits Get Their Reward 08/04/09By now everybody must know that the top banking executives responsible for our economic meltdown have no shame. Otherwise they would not have dared give themselves such hefty bonuses as a deeply perverse reward for actions that caused millions of Americans to lose their jobs and homes. The $33 billion that the executives of the nine banks bailed out with taxpayer funds paid themselves in 2008 is all one needs to know about the depth of their amorality.But it also speaks volumes about the inefficiency of a system of rewards that has nothing to do with performance. “No Rhyme or Reason: the ‘Heads I Win, Tails You Lose’ Bank Bonus Culture” is the title of the report by New York’s Attorney Gen. Andrew M. Cuomo unmasking this scandal. It concludes: “ … compensation for bank employees has become unmoored from the banks’ financial performance.”That would not be of public concern if bank executives and their stockholders would bear the full price of such folly. But not one of those top nine banks that distributed bonuses of at least $1 million to each of 5,000 top executives faced the consequences on their own. Instead, taxpayers were called upon to pony up what will eventually be trillions of dollars to save the banks and the nation from this disaster. As the Cuomo report notes:“Two firms, Citigroup and Merrill Lynch suffered massive loses of more than $27 billion at each firm. Nevertheless, Citigroup paid out $5.33 billion, in bonuses, and Merrill paid $3.6 billion in bonuses. Together, they lost $54 billion, paid out nearly $9 billion in bonuses and then received TARP bailouts totaling $55 billion. For three other firms—Goldman Sachs, Morgan Stanley, and J.P. Morgan Chase—2008 bonus payments were substantially greater than the banks’ net income.”In each instance, those bonuses on average more than doubled earnings and were in turn more than doubled by the government bailout in TARP funds. Those funds, and the nonrefundable tens of billions passed on through the AIG bailout and other government programs, come from the very taxpayers already reeling from a banking collapse brought on by reckless lending practices.Yet the $306 billion in toxic assets that Citigroup—a leader in the irresponsible practices that created such “assets”—managed to pile up are also now guaranteed by taxpayer funds. And being on the public dole didn’t prevent Citigroup CEO Vikram Pandit from “earning” $38 million last year.The Merrill Lynch bonuses were paid as the company was about to collapse. It was saved at the last minute by being purchased for $50 billion by Bank of America in a deal engineered by the federal government and facilitated by $45 billion in bailout funds to BofA. On Monday, Bank of America agreed to pay $33 million in penalties to the Securities and Exchange Commission to settle an SEC complaint that BofA had deceived shareholders about those billions in bonuses.One of those handsomely rewarded was Thomas Montag, now with BofA, who received a $39.4 million bonus for his work at Merrill Lynch, a reward for his performance as Merrill’s trading and sales chief, a position in which he presided over the billions in mortgage acquisitions that fueled the company’s downfall.The banks, considered “too big to fail,” were quickly showered with enormous amounts of money, contributing to a U.S. deficit expected to grow to $1.86 trillion this year. But homeowners are not too big to fail, and they were left to the tender mercies of the very bankers who swindled them with flaky mortgages.On Tuesday, the Treasury Department criticized the major banks for their abysmally weak effort to aid distressed homeowners who are more than 60 days delinquent on their mortgages. Only 9 percent of those who qualify for assistance under President Obama’s foreclosure prevention plan have been entered into trial programs to determine whether their mortgages will be modified. BofA, one of the major holders of distressed mortgages, has entered only a scant 4 percent of its eligible mortgage holders in the program.Citigroup has managed to begin the process with 15 percent of those eligible, while Wells Fargo has begun with only 6 percent of its eligible borrowers. Compare that snail speed in helping folks keep their homes with the alacrity with which the federal government responded in bailing out the banks when they got into trouble.The choice from the beginning of this debacle has been: Do we bail out the banks that caused the problem in the hopes that they will help ordinary folks or do we start with government relief for distressed mortgage holders? The decision to aid the bankers first was based on the assumption that for the first time in their lives they would do the honorable thing and surrender space in the lifeboats to those most vulnerable.

The AlarmistAugust 6th, 2009 at 4:00 am

Rather than force the banks into doing subsidised writeoffs, it would be better to let them fight it out in bankruptcy courts as they pursued each of these borrowers individually. It would also be more fun to watch. I think there you would see the bankers get the comeuppance that you mistakenly believe they will get by being forced to do mods.

Pecos BankerAugust 6th, 2009 at 11:32 am

Ask yourself, do you have any wealth at all in your 401k, bank account, housing equity, jewellry, art, gold and silver? If the answer is yes, then rest assured, there is still more wealth that can be transferred upward. Think of it this way. Obama-Bush-Cheney has put us in a $23 trillion hole. Where did that money go? To the rich, the wealthpower giants, as Mom likes to say. How can all this debt be paid? By you, your children, and your grandchildren. Thus, the rich have robbed several generations in one fell swoop. They could live in luxury on the moon at this point. (I wish they would go there–perhaps $23 trillion is not too much to pay if we could be permanently rid of them.)

GuestAugust 6th, 2009 at 10:05 pm

i told you Obama, Pelosi, and Geithner are Clowns Co that is enjoying shadow government originating tsunami of Treasury, T-Bill, and TIPS to dupe people. TIPS inflation hedge or not, too much will be worthless funny paper too. people dont understand the meaning of value.

GuestAugust 5th, 2009 at 11:21 pm

There are still a lot of people out there who keep on insisting that oil has had, will have, or is already having, a substantial effect on the financial crisis, but who wouldn’t want to make a bet on whether oil will be $5 or $500 a barrel 1 year from now, or 2 years. Nor would they be able to spell out what effect which price would have on the economy. For some reason this makes me think of an unrelated Susan Ertz quote:Millions long for immortality who don’t know what to do with themselves on a rainy Sunday afternoon.It may be unrelated, but millions also blame oil for the credit crisis who wouldn’t recognize that crisis if it hit them squarely in their pocketbooks. Or if it did, they’d just bitch louder at the pump.My take is that while many have a more or less working mental model of the limits inherent in the oil industry, they have a ways to go in the understanding of the financial crisis. The center of the world is not made of oil. Nor is it made of money, for that matter. The center of the world is a teeming stew of molten greed and stupidity. And it so happens we have been easily more than greedy and stupid enough to run out of money way before we’ll ever get a chance to run out of oil.Oil today, purely from a supply/demand picture, is overpriced by 100-200%, and maybe even more. Still, if it were $20 a barrel, would a substantially larger number of homeowners get to stay in their homes? Would job losses go down big-league? Would debts be paid off more or faster? Would Goldman Sachs start refusing taxpayer money?According to the EIA, in 2008 U.S. Motor Gasoline Consumption was under 9 million barrel per day. it’s way less now, but let’s keep the 9 bpd number. At $70 per barrel, the cost is some $225 billion per year, or about $450 billion at the pump, $3 per gallon, 42 gallons a barrel.What do you think the average American spends on gas for their vehicles per year? How about $1500, for every man, woman and child? That coincidentally adds up to maybe $450 billion. So if you’d halve the gas price, what would the effect on the economy be? Well, you’d save, but less than $225 billion.That’s only slightly more than what we’ve spent so far just to ‘save’ AIG alone. It’s also no more than about 30% of the Obama stimulus plan. It’s less than 2% of the total estimated $13.8 trillion committed in taxpayer Wall Street ‘assistance’. And it’s maybe 0.75% of what estimates put total US loss of wealth at to date, some $30 trillion.If you want to focus on oil in the financial crisis, those are a few of your numbers to work with. Finance versus oil. And sure, you’re right, oil is not just the gas in your car, it’s everywhere around you. But everywhere around you is shrinking, and there’s no evidence that that has anything at all to do with prices or production, no matter whether one or both go up or down. Oil demand is plummeting, even as prices have long come down from their 2008 high. The credit crisis needs no help in changing what you can believe in, thank you very much.The magnitude of the losses is simply too overwhelming to digest, I think. The $13.8 trillion ihat’s been committed to rescue banks that are beyond rescue represent some $45.000 per capita, including toddlers, grannies and everyone else. And that comes on top of all the losses on the ground, in tax revenues for all levels of government, in property prices, in job losses, foreclosures, and all the other issues where “value” is being lost. Some losses are obvious, just take a look at tent cities, jobless claims and boarded up homes. But most are still hidden, and all the recovery talk depends on the fact that they remain so. Which will not happen.The hidden damage will be exposed to daylight as we go forward. Scores of states and counties and cities that have managed to hang on until now, cutting every bit of fat they could while hanging on to their people, have nothing left to cut but the same people. Tens of thousands of companies that still employ millions of people that are no longer truly contributing to much of anything in a productive sense will have to adjust their dreams of better days to what their bottom line tells them. Those people will have to go as well. Unemployment? You ain’t seen nothing yet. 15% U3 is a low estimate for 2010. Go back to Sunday morning’s Three Stooges interviews, they all say more jobs will keep being lost into the second half of next year.And where’s the alleged connection here with oil prices? Many people will argue that it’s at the pump that oil becomes a real issue, and they DO notice the price changes. But it’s in the increasing job losses, the foreclosures and the soon to be raised tax bills that they will feel what the financial crisis means. And where they really hurt, much more than at any gas station. A $30 trillion loss of wealth is $100.000 per capita, since the crisis started. It’ll take you years to put that sort of money into your tank. So many years, in fact, that we may indeed run out of oil before you ever get close.For now, going into this fall and further into next year and beyond, the one tale that matters far more than anything else for “ordinary people” is that of unwinding and disappearing credit, accumulated debt deteriorating services, vanishing jobs and boarded up homes. The cost of oil is but a bit player on that stage.

GuestAugust 5th, 2009 at 11:25 pm

The other real estate bubblePetrino DiLeo analyzes the pleas of the not-so-suffering victims of another real estate crisis–and explains why they shouldn’t get a bailout.August 5, 2009New office towers under construction in Charlotte, N.C. (James Williamor)DURING A special hearing of Congress’ Joint Economic Committee in mid-July, Rep. Carolyn Maloney, a Democrat, talked about the growing volume of bad mortgages and said, “Doing nothing is not an option.”Right-wing Republican Sen. Sam Brownback chimed in, too. “Now it’s on us,” he said, “and I think we need to look at what it is that’s taking place, and what policy issues we can address to try to make it better, or at least not as bad as it possibly could get.”What’s this? After years of mounting losses, foreclosures and evictions, is Congress finally getting serious and coming up with a real plan to help homeowners in danger of default?With more than 3.2 million foreclosures expected to take place in 2009 (on top of 3.1 million in 2008), and 15 million homeowners owing more on their mortgages than their homes are worth, such legislation would be grossly overdue.The help on offer from the federal government has been paltry compared to the need. For example, according to the Treasury Department, only 270,000 homeowners have been offered loan modifications under Barack Obama’s Making Home Affordable program as of early July–and only 131,030 loans had actually been modified.So is something about to change? Sadly, no.Instead, Maloney and Brownback were voicing their concern about the crisis of commercial real estate–that is, office buildings, shopping centers, apartment complexes, light industrial warehouses, hotels and so on.Instead of finally doing more to help ordinary people, Congress seems poised to jump to the aid of another group of millionaires and billionaires–and throw federal dollars at exactly the people who don’t really need it.- – – – – – – – – – – – – – – -THE JOINT Economic Committee hearing was farcical. Those testifying consisted entirely of representatives from major commercial real estate trade groups, a commercial real estate analyst and an official from the Federal Reserve Bank. The bipartisan panel of lawmakers lofted softball questions at these “experts,” who took the opportunity to plead poverty and ask for a laundry list of government handouts and new legislation.At one point, Maloney declared her sympathy for their plight. “I find it shocking,” she said, “that some of the most respected and successful businessmen and women from the district that I am honored to represent tell me they can’t get loans.”Missing from the hearing was any discussion of whether the owners and developers of commercial real estate actually need a bailout.By definition, you have to be wealthy to invest in commercial real estate. But the assumption in Corporate America now is that no one has to take a loss on their investments–because the government will step in with a handout. That’s why a group as odious as real estate developers feels emboldened to ask for help.This isn’t a question of preserving jobs. If commercial property owners default on loans, this doesn’t mean their buildings–and the businesses operating in them–will shut down. Office towers don’t close down if the owners’ mortgage goes bad, only if they lose their tenants.Thus, General Growth Properties–the second-largest owner of shopping malls in the country–filed for bankruptcy earlier this year, and all of its properties are still operating while the firm tries to restructure its debt. In other cases, commercial buildings will pass into the control of the lending banks, which will continue to operate them.These looming handouts to commercial property owners can’t be justified as helping the economy as a whole–only the wealthy few who can use them to avoid investment losses.The other issue missing from the congressional hearing on commercial real estate was the industry’s own responsibility for the mess it’s in. None of the lawmakers pointed out how realtors and developers profited off the inflating financial bubble in commercial real estate prices. Instead, investors and developers got to portray themselves as victims of the credit crunch.Compare this to the discussion when the housing bubble deflated. Whenever the question of aid to homeowners was broached in Congress, conservatives complained that those facing foreclosure had been “irresponsible,” and the rest of us “shouldn’t have to pay for their bad debts.”The crisis in residential real estate was attributed to speculation and home “flippers”–and homeowners who got stuck with predatory sub-prime mortgages were portrayed not as victims, but as culprits, who gamed those poor mortgage lenders and brokers by lying on their applications in order to get homes they couldn’t afford. Some financial executives and political figures even tried to pin the blame for sub-prime mortgages on laws to promote minority home ownership.None of these kinds of accusations are heard about commercial real estate development–even though “speculation,” with the aim of making bigger profits, is the sole purpose of these investments.Instead, at the congressional hearing, Brownback invited “you, or any of your industry associations, to come up with specific proposals to put forward, because certainly in my office, we’d be interested in putting them forward, whether we get them through or not… That’s what I see our role as trying to do is to–to help you get money back in the marketplace.”- – – – – – – – – – – – – – – -THE WIDER purpose of the hearing in Congress and similar public relations exercises outside it is to build up the case that the commercial real estate crisis represents a “systemic threat” to the financial system–and lawmakers need to act quickly and on the same massive scale as the Bush-Obama Wall Street bailout to head off financial catastrophe.It is true that there will likely be hundreds of billions of dollars in losses in commercial real estate in the coming years. But commercial real estate sector is much smaller than residential real estate. Overall, there’s about $12 trillion in outstanding residential mortgage debt compared to $3.5 trillion for commercial real estate. Similarly, the total value of commercial real estate is one-third to one-fourth the size of the residential sector.The difference, of course, is that homeowners don’t have massive lobbying operation to plead their case, nor have they been able to line politicians’ pockets with contributions over the years.This isn’t to say that commercial real estate isn’t facing a crisis. As with the residential sector, low interest rates and abundant opportunities for borrowing caused property values to balloon. Those values are now plummeting precipitously.Moreover, the sector is being affected by the downturn in the economy. As layoffs continue and businesses close, office vacancy rates rise–and consumer spending falls, hammering the retail sector. Business and recreational travel are both down, which is hurting tourism.Thus, vacancy rates are rising in every part of the commercial real estate market. Since the market’s peak, the number of commercial real estate deals have dropped by 95 percent, and property values are down by as much as 40 percent, with further to fall, according to analysts. The decline is already worse than the 27 percent in the commercial property downturn of the late 1980s and early 1990s, and is also outpacing the drop in home prices, which have fallen by about 30 percent.Another recent report showed that $2.2 trillion worth of U.S. commercial properties bought or refinanced since 2004 are now worth less than the original price. All told, more than 5,000 commercial properties worth $108 billion are now in default, foreclosure or bankruptcy.The pain is showing up at banks. In their recent earnings reports, Morgan Stanley and Wells Fargo reported large losses associated with commercial real estate holdings. Colm Kelleher, Morgan Stanley’s chief financial officer, said he didn’t see the light “at the end of the commercial real estate tunnel yet”–after the bank reported a $700 million writedown on its $17 billion commercial property portfolio in the second quarter. Wells Fargo saw non-performing loans in commercial real estate jump 69 percent in the second quarter.There will continue to be defaults, delinquencies and foreclosures in the commercial real estate sector as long as the economy remains weak, and that will show up at the banks–and not just the large banks where the residential mortgage crisis ended up being concentrated, but at hundreds of regional and local banks exposed to losses from commercial properties. Already in 2009, close to 70 banks have failed–triple the total for 2008.- – – – – – – – – – – – – – – -THE QUESTION remains, however, whether our money should be spent to bail out this sector–especially since, contrary to the claims of industry trade groups that they are innocent bystanders of the ongoing credit crunch, commercial real estate owners and developers clearly acted irresponsibly in recent years.At the peak of the market, low-interest loans covering 100 percent or more of a building’s value were widely available, and the same sort of loan conditions that caused problems in the residential market–for example, loans with low-interest teaser periods, before ballooning in later years–existed on the commercial side.In fact, unlike residential mortgages, most commercial real estate loans aren’t designed to be paid off at all. Instead, the idea is for borrowers to make small payments at low interest rates for years, and when bigger payments kick in, the borrower either refinances or sells the property, thereby avoiding the larger payments entirely.But when the whole party stops, there’s a problem. Right now, borrowers can neither refinance nor sell–which is a major reason why defaults, delinquencies and foreclosures are on the rise.Another huge problem is that banks were overly generous in evaluating assets when they made loans. They assumed prices and rents would continue to rise, and therefore the income stream from the property would continue to grow. In reality, the opposite has transpired–values are falling and properties aren’t generating the cash flow necessary for borrowers to pay back debts.In addition, at the peak of the market, somewhere between a quarter and a third of commercial mortgages were tied to Wall Street’s securitization machine–that is, the loans were packaged together into huge bonds, which were then sold off in pieces to the biggest investors. In the peak year of 2007, these loans accounted for $230 billion of total commercial mortgages–last year, the number was $12 billion, and so far in 2009, it has been almost zero. In other words, the credit crunch hitting commercial real estate is the result of Wall Street’s crisis, not “irresponsible” homeowners.Real estate owners and developers are using this as an excuse to agitate against new financial regulations. At the congressional hearings, Richard Paruks, head analyst of commercial mortgages for Deutsche Bank, said: “I think many of the panelists here today believe, along with I, that securitization is critically important to play a role in helping to improve the situation as we go forward, and that there are today quite a number of proposed regulations which pose a significant threat to securitization…I think that we need to think very carefully about those proposed new regulations.”The question that needs asking is whether commercial mortgage-backed securities machine should be restarted again–and whether it would be a good thing to return to the times when owners and developers could get a commercial mortgage loan with inflated assumptions about rent and property value increases for the full value of the property.Another galling feature of the congressional hearings was the fact that the federal government and the Federal Reserve Bank have already initiated programs to aid the commercial real estate sector. The problem is that the industry isn’t happy enough with what the government did.If there was a deeper crash in commercial real estate, it could wreak havoc with pensions. Many pension funds are heavily invested in commercial property and have already lost a lot of money. Further declines would be a problem.But the bailout being talked about won’t go to workers’ pensions. It will end up in the bank accounts of a few wealthy owners and developers–the same group of people who have benefited from every measure the government has carried out since the financial crisis began to unfold.Isn’t it time that our side got a bailout instead?

The AlarmistAugust 6th, 2009 at 4:29 am

You don’t suppose Williamson is letting a little personal bias show when he refers to her as “Rep. Carolyn Maloney, a Democrat” and to him as Right-wing Republican Sam Brownback.

The AlarmistAugust 6th, 2009 at 3:54 am

OK, so these economies were somewhat buffered from the storm due to some combination of inflexibity or lack of participation in the global economy. to what conclusion is the analyst trying, either correctly or incorrectly, lead us to?What would be more useful in this sort of an analysis is a side-by-side comparison with the per capital GDP (or some other proxy for personal wealth) development in each of these countries versus those in the countries that were rocked by the storm. Then we could better decide if we want to trade wealth for stability.

The AlarmistAugust 6th, 2009 at 4:22 am

Actually, the whole article reminds me of a reputed Churchill dialog:Bessie Braddock: “Sir, you are drunk.”Churchill: “And you, madam, are ugly. But in the morning, I shall be sober.”

Pecos BankerAugust 6th, 2009 at 4:17 am url provides access to recent artiles by Antal Fekete. His latest article on 7/19/09 is entitled “The Federal Reserve as an Engine of Deflation.” In this article, he makes the point that bond speculators typically sell treasuries and buy the long bond to profit from the arbitrage between the two. They make their money on the fact that short term rates are less than long term rates given a yield curve with positive derivative. This becomes risk free for bond speculators when the Fed broadcasts its intentions in advance to buy treasuries as it has the habit of doing.If the Fed did not buy treasuries, the effect of the bond speculators arbitrage would be to flatten and eventually invert the yield curve. However, with the Fed purchases of treasuries, the bond speculators’ arbitrage has the effect of lowering interest rates across the yield curve.At this point, Fekete cites his idea of the “liquidation value of debt” to show that as interest rates drop, the amount of money needed to liquidate the debt increases. Of course, a drop in interest rates raises bond prices, so that makes sense. In a previous article, “The Iron Law of the Burden of Debt”, Fekete explains how cutting interest rates in half doubles the liquidation value of debt.This being the case, companies must lower their prices to obtain the funds to pay off their increased debt, thus leading to competitive price cutting by firms and, hence, deflation. Fekete puts the lie to those who claim that monetization by the Fed, with its massive money printing, based on Keynesian economics, leads necessarily to hyperinflation. For hyperinflation, you must have massive money printing and a limited supply of goods to purchase, as in Zimbabwe. In the US, on the other hand, he claims that speculators will always prefer bonds to commodities, and hence, commodities will deflate.Fekete’s reasoning is on the dense side, making him a difficult read at times. It is not unlike reading a mathematical proof. You are forced to concentrate on each line of his “proof” to get the sense of it and then go back and read the whole to see how everything fits together. Most people will sense that they are more or less lost after the first paragraph or two and lose patience. However, his reasoning has an inner consistency and logic as well as some surprisingly original ideas from an economic point of view. Given his mathematical background, it is natural for Fekete to examine the same phenomenon from opposing or inverse points of view, such as view a bond from both the creditor’s and the debtor’s point of view. At the same time, there is not a single mathematical expression or reference to mathematics in the article. Fekete has no interest in displaying his mathematical prowess–he’s already done that in his professional life as a mathematician. Rather, he uses those very useful habits of thought to look at things from a new perspective.He is one of the most interesting “thinkers” I have had the pleasure of reading. Yet I am not sure how much to trust his ideas. For instance, he seems to discuss the role of the Fed in the economy as a closed system, perhaps a downside of having a mathematical bent. There is no discussion of the role of international flows of funds, etc.In any case, Fekete’s reasoning could not be more different from Roubini’s. Roubini doesn’t seem to involve himself with theory at all. Rather he amasses a ton of economic data and seems to look at it from a more or less unquestioned Keysian point of view. Since Fekete shows convincingly that Keynesianism is an error en soi, Fekete’s ideas deserve a concentrated reading. Clearly, the institutionalized Keynesianism we see enthroned in Obamaland is leading us down a rathole.

AnonymousAugust 6th, 2009 at 9:20 am

government devoured by superwealth:”…It does not require a tax lawyer to figure out that it is easier to hide assets (and income from assets) than wages and salaries. The IRS is good at keeping track of income; wealth is another matter.What we do know is that there has been a large movement of assets to offshore tax havens. It is, of course, impossible to know with certainty how much wealth has slipped away, not just from the IRS’s, but from anyone’s, ability to keep track of it. But there is troubling evidence that there might be enough of it to explain some of the wealth/income anomaly. Tax Justice Network, an organization headquartered in the U.K., has used data published by banking interests to come up with an estimate of assets held offshore. Their recent report cited estimates by the Boston Consulting Group that $1.6 trillion in offshore assets were held by wealthy North Americans – out of about $9 trillion in offshore assets worldwide.In October of 2000, the IRS asked the major credit card companies for their records of accounts in Caribbean tax havens that were routinely used for transactions in the United States. The intent was to uncover taxpayers who were evading taxes by hiding assets in the tax havens and using credit cards to access their accounts. The IRS was surprised by results. From the records obtained from the credit card companies the Service estimated that one to two million U.S. citizens may be using such accounts. Most were thought to have incomes that would put them in the top one percent. There is nothing illegal about having an offshore account as such; failure to report it is a felony. The IRS admitted that it was overwhelmed by the results of the credit card investigation; it simply lacked the resources to pursue all of the likely tax evasion. The Financial Times (January 14, 2003) quotes tax experts as saying that as much as $70 billion in taxes may be lost each year due such offshore schemes. To date the IRS has collected about $3.7 billion from an amnesty program.The same investigation turned up dozens of companies involved in the promotion of offshore tax avoidance schemes. In April of this year the IRS announced that it had obtained over 100 injunctions against the promoters of such schemes.The most significant case against a promoter of abusive tax shelters was brought against KPMG. The Justice Department alleged that the fraudulent tax shelter designed by the accounting firm cost the United States at least $2.5 billion in evaded taxes. KPMG agreed to a fine of $456 million.The IRS has also pursued the use of tax avoidance schemes involving the transfer of stock options or restricted stock to family controlled entities. Under these schemes corporate executives, sometimes assisted by the corporations, transfer stock options to related entities created for the purpose of receiving the options and avoiding taxes on compensation income. In February the IRS announced the settlement of cases involving 42 corporations, a large number of corporate executives, and over $700 million in unreported income.Again, presumably because of a lack of resources, the IRS is resorting to an amnesty program. There have been no published estimates of how much the other purveyors of such schemes may have cost the United States.The limited ability of the IRS to deal with large complex cases is not an accident. And it certainly is not a matter of laziness, stupidity, or the inherent ineptitude frequently attributed to the government by a certain type of politician. Rather, it is a matter deliberate policy. In his book, “Perfectly Legal,” David Cay Johnston describes the deliberate measures taken to gut the IRS’s enforcement powers, including hearings on IRS “abuses” that were simply a hoax.Efforts on this scale, involving a major Senate committee, do not come out of nowhere. One must ask, for whose benefit was this elaborate fandango performed? One thing for certain is that it was not done on behalf of the average middle class taxpayer. The notion that ordinary citizens organized themselves and marshaled vast amounts of political influence in a cause that facilitated tax evasion by the very rich defies good sense. It had to have been inspired by people who had a very great deal at stake…”

AnonymousAugust 6th, 2009 at 9:30 am

Women and the Minimum WageTsedeye Gebreselassie and Paul K. Sonn July 24, 2009It has been dubbed the “mancession.” During the past year’s economic collapse, job losses have been sharply higher in male-dominated industries like manufacturing and construction than in sectors like health care, services, retail, and hospitality where many women tend to work. This reality is forcing families to rely more than ever on women’s wages to make ends meet.But while unemployment is lower for women, so are their wages. That’s why this month’s boost in the federal minimum wage from $6.55 to $7.25 an hour couldn’t come at a better time, especially because the overwhelming majority of minimum-wage earners are adult women, many of whom support children.The minimum wage effectively sets pay scales for jobs like home health aides, child-care workers, waitresses, retail clerks, and janitors — in which millions of women today spend their career. The decline in the real value of the minimum wage over the past 40 years has dragged down pay in these sectors, which are some of the fastest-growing sources of jobs in the 21st-century economy. The upcoming increase, while modest, will help slow falling living standards for this deserving work force.Equally important for our economy — which is powered by consumer spending — this increase will provide a much needed economic stimulus. Minimum-wage increases go directly to those workers who will spend it immediately on basic necessities like food, gas, rent, and clothing. Economists at the Federal Reserve Bank of Chicago have shown that minimum-wage increases boost consumer spending substantially more than tax cuts do, and the Economic Policy Institute estimates that the July minimum-wage increase will generate $5.5 billion in spending over the next year. A strong minimum wage is therefore key to boosting consumer demand and shifting our economy back to one that is built on good jobs rather than on consumer debt.In anticipation of this modest increase, critics have dusted off the discredited playbook they use in good times and in bad, arguing that a higher minimum wage will cost jobs. Some have unabashedly called on Congress to take back the increase, betting that the current economic climate will give their tired pitch more resonance. But it doesn’t take an economist to tell you that the factors driving unemployment during this recession have everything to do with the bursting housing bubble and resulting collapse in consumer demand and business investment and very little to do with how much or how little businesses must pay their frontline staff.In reality, actual experiences with minimum-wage increases over the past 15 years — and the most careful research — have found that they produce substantial benefits for low-wage workers and little evidence of job losses. As a result, in 2006 more than 650 economists, including five Nobel laureates, called for a minimum-wage increase, finding that it would “significantly improve the lives of low-income workers and their families, without the adverse effects that critics have claimed.”Furthermore, opposition to this modest increase completely ignores that even at $7.25 an hour, a full-time minimum-wage worker will earn just $14,500 a year — not nearly enough to meet basic needs anywhere in the United States. During the postwar decades when the minimum wage boosted pay more broadly, it was approximately 50 percent of the average U.S. worker’s wage — which would translate to more than $9 an hour today.For tipped workers like waitresses and nail salon workers — a group that is overwhelmingly female — the situation is even worse. For them, the federal minimum wage is a shockingly low $2.13 an hour. And under another outdated exemption, workers in the fast-growing home-health-care industry, in which millions of women tend to the most vulnerable in our society — seniors, persons with disabilities, and the ill — are not guaranteed any minimum wage at all.Moreover, while 10 states have recently indexed their minimum-wage rates to automatically adjust each year, the federal government has not. As a result, the wage level remains frozen for years at a time, eroding its real value. The increase approved by Congress in 2007 was the first in 10 years. And the tipped-worker wage has been frozen at $2.13 an hour for 18 years. Needless to say, the cost of supporting a family has not followed suit.Our stagnant minimum wage is one of the most significant reasons why women across our economy continue to receive low wages. Even before the recession, women’s incomes were absolutely critical for keeping families afloat. Now, with the difference between male and female unemployment at a half-century high, it’s an issue we can no longer afford to ignore.

GuestAugust 6th, 2009 at 2:31 pm

The kind of people with independent means who would serve out of the sense of duty and honor. Even a pre-capitalist, aristocratic system of government seems preferable in comparison with the obscene rule of plutocracy in “the land of the free.”

The AlarmistAugust 6th, 2009 at 6:22 pm

ROFL … right. Even if they served for free, a leadership role in the US is perhaps the most sure way from rags to riches in modern day America. I was just watching Robert Waxman on the Daily Show flogging his new book … I haven’t read it, but he let slip that he has. Do you think all these books by the elected … nay, chosen ones are anything but the feathering of their nests by special interests. Duty and honor my butt.And its not just the elected ones, but also the higher level appointees. I watched a former Comptroller of the Currency go from regulator to $6m / yr senior bank officer overnight, and he is but the tip of the iceberg.But we all knew that. I just had to get it off my chest after the “Duty and Honor” line.

GuestAugust 6th, 2009 at 9:13 pm

t,revolving representation with real influence, based onrepresentation of the people. that was the premise.

GuestAugust 7th, 2009 at 10:21 am

The Little Man dreams about “honest,” “incorruptible” saviors who, for some mysterious reason, would honestly take care of his rather than their own interests. The Little Man is full of noble indignation at “all those politicians,” elected by the Little Man, who permanently betray his “trust.” But in reality the Little Man is afraid only of one thing–to have the government of little men by little men for little men. The problem is not in the ruling class, but in the ruled.

Ungrateful PeonAugust 7th, 2009 at 4:15 pm

So, what are are your plans Big Man? How are you going change the US / essentially the entire world to suit your vision of reality?I’m interesting hearing your thoughts on how not to be ‘ruled’.I’m thinking that folks are either in the game or they’re going to be eaten by it.Is there an alternative that I don’t know about?With genuine curiosity from the bottom of the food chain.

Ungrateful PeonAugust 7th, 2009 at 4:28 pm

Apologies. That should be … I’m … ‘interested’ in hearing your thoughts on how NOT to be ‘ruled’.On top of everything else that’s currently screwed-up, I’m functionally incapable of expressing myself, too.There’s no money in that. What’s the point in living?I’m not looking for sympathy, either. Common sense would suffice at this juncture of history.

subgeniusAugust 6th, 2009 at 11:15 am

Worth a read:Temporary Recession or the End of Growth? by Richard Heinberg at

GuestAugust 7th, 2009 at 10:09 pm

It’s very simple. The Little Man must overcome his fear and make the world without rulers and the ruled. He can do this by holding hands with other Little Men like him. No more Little Men, no more Big Men, just Men, equal in their creatural dignity and in the eyes of each other. Call it the “inclusive democracy” or the councils of producers or the soviets… words are not important, the idea is the same: those who produce material and spiritual values must take over production and collectively decide all social questions. The only alternative to this is fascism and a new world war. So far the Little Man in this country is more likely to accept even his own destruction together with three thousand years of civilization rather than take power in his hands together with other Little Men. The country has been emptied spiritually, not just economically, people were made one-dimensional, taught to think of themselves as “consumers” or “work force,” taught lies about other peoples and human history. All human emotions became debased. Love, friendship, family relations, every natural feeling is hostage to Little Man’s fear of tomorrow. His existence is unprovided, in question. Period. Between him and nothingness is but a few pay checks. This is the root of everything else. The unprovidedness of human existence. Not in midst of a jungle, not in the Stone Age or other primitive conditions but in the “land of the plenty,” at the height of modern civilization or modern barbarity. This is the question the Little Man must answer having looked around himself: Do I live in the state of civilization or civilized barbarity? But the Little Man cannot answer because the question itself remains outside his imagination.

GuestAugust 8th, 2009 at 4:00 pm

g,this little man can answer. “civilized” barbarity,civilized in quotes as it is just technologicallysynthetic, you know, not civilized. brilliantwriting as always..Starving In The Belly Of A Whale(Tom Waits/Kathleen Brennan 2000)Life is whittledLife’s a riddleMan’s a fiddle that life plays onWhen the day breaks and the earth quakesLife’s a mistake all day longTell me, who gives a good goddamnYou’ll never get out aliveDon’t go dreamingDon’t go schemingA man must test his mettleIn a crooked ol’ worldStarving in the bellyStarving in the bellyStarving in the belly of a whaleStarving in the bellyStarving in the bellyStarving in the belly of a whaleDon’t take my wordJust look skywardThey that dance must pay the fiddlerSky is darkeningDogs are barkingBut the caravan moves onYou tell me, who gives a good goddamnYou’ll never get out aliveDon’t go dreamingDon’t go schemingA man must test his mettleIn a crooked ol’ worldStarving in the bellyStarving in the bellyStarving in the belly of a whaleOh we’re starving in the bellyStarving in the bellyStarving in the belly of a whaleAs the crow fliesIt’s there the truth liesAt the bottom of the wellE-o-Leven goes to heavenBless the dead here as the rain fallsDon’t trust a bull’s hornA doberman’s toothA runaway horse or meDon’t be greedy, don’t be needyIf you live in hopeYou’re dancing to a terrible tuneStarving in the bellyStarving in the bellyStarving in the belly of a whaleOh starving in the bellyStarving in the bellyStarving in the belly of a whale

GuestAugust 6th, 2009 at 11:18 am

The bullet below from “Putting it all Together: Managing Money as you Peer into the Abyss” regarding areas of investment opportunites, puts the lie to the Fed’s claim that there are no savers in America, hence no ordinary folk to suffer from its below inflation interest rates. America’s people, unrepresented in Congress, must endure in silence as the Fed, aka Goldman Sachs and JPMorgan (Rockefeller/Rothschild), engages in conspiracy to defraud them. Is it any wonder that in March of 2006 the Fed Board of Governors quit reporting M3, which included CD’s of $100,000 or more? I contend the devalued purchasing power of savings has had a very negative effect on consumption.· Treasuries: Bearish consensus will likely be proved incorrect. Households currently own $8.8 trillion of equities, $7.7 trillion of deposits and cash (earning next to nothing in yield), and $273 billion of treasury notes and bonds. Even with China and other traditional foreign purchasers becoming skittish about U.S. debt purchases, given the unprecedented volatility and riskiness on display in equities, it is only a matter of time before the U.S. consumer moves to allocate more and more wealth to this least represented holding (at the expense of cash and equity allocations). We expect Treasury yields to remain at depressed levels for the remainder of the economic restructuring.

wethepeepsAugust 6th, 2009 at 11:43 am

Is it just me or does anyone else think the recent rash of SEC settlements for misrepresentation look conspicuously low in comparison to tax-payer support? Misrepresentation is still fraud, right?

GuestAugust 6th, 2009 at 12:17 pm

My thoughts exactly: and, as always, how did Goldman escape the hangman’s noose? Could it be that Goldman is not only leader of the pack, but also judge and jury…and hangman?

The AlarmistAugust 6th, 2009 at 1:44 pm

You should ask someone from Lehman Bros. that last question.Look, they do enough to make the little people who hear it on the MSM think, “Oh, they really got him.” But I am sure by now that even the dumbest or least informed of the little people know that a $15m fine is peanuts in comparison to the billions and trillions that have been looted.Time to follow the Chinese lead and have a few executions?

noviceAugust 6th, 2009 at 12:06 pm

I have been following the comments here for a couple years now, and it seems that most believe that things are going from bad to worse. I am wondering if any of you would like to share your prediction as to when you think the bottom may fall out of this current ponzi scheme- or if you think it can be sustained ad infinitum?

FEDupAugust 6th, 2009 at 1:30 pm

In a highly manipulated system, govt and the financial elite will strive to keep it propped up as long as possible forever devising new creative methods to extract more from the people. Since the majority of people are clueless or don’t know what to do, the ponzi scheme can continue for many more years. Keep in mind, US is the biggest bully on the block and through financial, economic and military means will dictate policies it deems best for the elite. Until newly elected, honest, incorruptible politicians are running things (not likely), the trend towards 3rd world status will continue and then, only begin to change, if enough people wake up and demand an end to a corrupt system. (i.e. remember the dot com bust happened at the flip of a switch without warning and it was the biggest players who pulled the plug while everyone else was still buying shares!)

The AlarmistAugust 6th, 2009 at 1:46 pm

If you had asked me a year ago, I would have said 2017. I never thought the government would be so dominated by people willing to ram through such a destructive agenda in such a short time, so I will go with 2012, since that seems to be a popular year with the doomsdayers.

GuestAugust 6th, 2009 at 2:27 pm

The capture of an economic system by a bankers’ Crime Syndicate is not market-run capitalism.Without a market-driven economy, America’s prosperity cannot be sustained. The currency-manipulating, Congress-dominating, machine-trading, arm-twisting, president-puppeteering Crime Syndicate is closing all economic exits once open to the people. Unless the dismantling of this Crime Syndicate begins within the next year, America’s prosperity as we’ve known it will be gone forever. Says James Quinn: “The existing Ponzi scheme will have to collapse before we can adopt a rational financial system for America. It may take decades, or it may happen in 2010. No one knows.”IMO, there is no way America has decades. America’s moment is are excerpts from Quinn–America’s Economic CollapseGrand Illusion – Secrets of the Federal Reserve by James QuinnCutting Edge Economic Crisis Analyst March 16, 2009…The American public is being misled by government officials, politicians, and the Federal Reserve regarding the causes of this crisis and the solutions needed to solve our economic tribulations.The average American does not know much about the Federal Reserve. The government and the Federal Reserve prefer to operate in the shadows. If the American public understood what their policies have done to their lives, they would be rioting in the streets. Most Americans believe that the Federal Reserve is part of the government. They are wrong. It is a privately held corporation owned by stockholders. The Federal Reserve System is owned by the largest banks in the United States. There are Class A,B, and C shareholders. The owner banks and their shares in the Federal Reserve are a secret. Why is this a secret? It is likely that the biggest banks in the country are the major shareholders. Does this explain why Citicorp, Bank of America and JP Morgan, despite being insolvent, are being propped up by Ben Bernanke and Timothy Geithner?…Our most recent horrifying experience with an all powerful central bank has led to the current worldwide financial crisis. In less than one century the Federal Reserve Bank of the United States has destroyed our currency and has allowed bankers to gain unwarranted power over the country. They had the ability and opportunity to bring down the worldwide financial system. When the average American is told that the dollar has lost 95 percent of its purchasing power since the inception of the Federal Reserve in 1913, they look at you with a blank stare and start wondering whether American Idol is on TV tonight. The systematic inflation purposely created by the Federal Reserve silently robs the average American of their standard of living. The government began keeping official track of inflation in 1913, the year the Federal Reserve was created. The consumer price index (CPI) on January 1, 1914 was 10.0. The CPI on January 1, 2009 was 211.1. This means that a man’s suit that cost $10 in 1913 would cost $211 today, a 2,111 percent increase in 96 years. This is a 95 percent loss in purchasing power of the dollar.In the years following the creation of the Federal Reserve, inflation ran at double digit rates to finance Woodrow Wilson’s foreign intervention into World War I…The period from 2010 to 2020 will show a dramatic jump caused by all of the money printing and reckless spending that is occurring today.The average American might just conclude that prices always go up, so what’s the big deal about inflation. This is where the Federal Reserve and politicians have pulled the wool over your eyes. The CPI was 30.9 in 1964. Today, it is 211.1. This means that prices have risen 683 percent since 1964. The only problem is that your wages have not risen at the same rate, even using the government manipulated CPI. Using a true CPI figure, average weekly earnings are 64 percent below what they were in 1964. This explains why a family of five could live well with one parent working in 1964, but even with both parents working and using debt in prodigious amounts, the average family does not live as well today….No organization with as much power as the Federal Reserve should be permitted to operate in the shadows….The hyperinflation that takes hold will lead to social unrest, rioting, and a drastic reduction in the American standard of living.There is no solution that will not be painful to everyone in the United States. The only solution that would put America back on a path of sustainable prosperity would be a gold/precious metals backed currency that would force government and its citizens to live within its means. Congress would need to vote for something that would take away its power. With our current political system, this is impossible. Money is power. This leads to only one conclusion. The existing Ponzi scheme will have to collapse before we can adopt a rational financial system for America. It may take decades, or it may happen in 2010. No one knows.Cutting Edge Economic Crisis Analyst James Quinn is a senior director of strategic planning for a major university.

GuestAugust 6th, 2009 at 2:49 pm

More James Quinn, this from “Government and Financial Institutions Controlled by Evil Men, Trillions Stolen from the American People 05/ 26/09:The…graphs tell the story of a country (USA) in decline and a country (China) on the rise. We proudly proclaim that we are a consumer society that creates 70% of its GDP by buying stuff and saving nothing. Instead of encouraging and rewarding saving, which leads to productive investment, our government pours an additional $7.5 billion into GMAC and demands them to lend the money to millions of subprime borrowers, because they deserve to drive a BMW just like any big time Corporate Treasurer.While America was “inventing” Twitter so Americans could waste more time on useless bull#%&, China built three nuclear power plants and two refineries.China on the other hand is sailing an entirely different course. With gross national saving of 52% of GDP it is only a matter of time before China becomes the world economic leader. The 21st Century will be China’s century. There is much wrong with their society. Pollution, human rights abuses, and fraud are major issues, but the enormous amount of saving and investment in infrastructure, manufacturing plants, nuclear power plants and refineries will overcome these issues. As the Obama administration and the Federal Reserve double down on failed socialist policies that will bankrupt our country, the Chinese increase their productive capacity and use their depreciating dollars to buy up natural resources around the globe.”

MM CAAugust 6th, 2009 at 4:50 pm

I have thought since last Fall it would be XMAS of 2009 when it chrashes really hard and Average Joe American gets the true picure of what really is happening. I still believe that time fram, possibly sooner. But I have admit I am amazed at how they have been able to prop it all to date. Isuspect they coudl do even more manipulation and and hard crash could extend well into 2011. But By end of 2011 the collapse i truly beleive will be complete. Collapse being Financal system, banks, Stock markets, jobs, all of it. It will become a different way of living life here in the USA.Remember NO JOBS and WAGE DESTRUCTION are still in full blown collpase as we speak. So are Corprate Revenues, consumer spending, mortgages, foreclosures. There is no let up oocurring in any of it.

GuestAugust 6th, 2009 at 12:14 pm

OBAMA AND THE ECONOMY by Llewellyn H. Rockwell, Jr. | LewRockwell.comAugust 6, 2009 — Travel with me back to yesterday, the early days of the Reagan administration, when taxes were being cut and spending increases were being curbed (the actual cuts were few), and when journalists were losing their heads about the supposedly catastrophic state of the economy.The prevailing ethos in those days in the White House was somewhat sensible. The idea was that the recession had to be permitted to run its course. The late 1970s inflation coupled with recession had wrought dollar depreciation plus high unemployment and high interest rates. These were part of the adjustment process. No one doubted it.Now, there was a time, only a few years earlier, when the Keynesian orthodoxy claimed the power to control the economy the way we control our cars. One could adjust the inflation up to drive unemployment down, and adjust the inflation down and pay the price in higher unemployment. It was a trade off, and the wise economists would decide what was socially optimal.One can only marvel at the naïveté, but it all came crashing down with the advent of the simultaneous appearance of both inflation and unemployment, and Keynesian confidence was shaken to its core. The better members of the Reagan team were more realistic. They believed that the goal of government policy was to create the conditions for economic growth, and if that meant letting bad policies wash themselves away during the transition, so be it.The journalistic establishment at the time hated them and their free-enterprise ideas. So, of course, all bad news was treated as not only worse than it really was, it was also blamed on the Reagan administration, as if it had the control over events that Keynesians imputed to government. So, if times were bad, who were to blame but the people in control?Every day the headlines blasted away, as if the media establishment were trying to whip the public up into a hysterical frenzy against tax cuts. People were encouraged to blame That Man in the White House for all existing evil, and the nightly newscasts were filled with furrow-browed anchors doing stories on the poor suffering masses and their desperate plight. Their political agenda was aggressively on display, brazen beyond belief.And then something amazing happened. The economy began to recover. Unemployment fell, inflation crashed, interest rates came down, and growth returned. The criticism later changed: the Reagan administration was accused of being too pro-growth and unleashing greed and “cowboy capitalism.” But it fell on deaf ears, and Reagan won a landslide reelection in 1984.Now, I’m not saying that Reagan was laissez-faire or that the economic recovery didn’t owe something to a newly fashioned form of military Keynesianism. Rather, my focus here is on the spin: the press hated him, and exaggerated the failings of the economic structure in order to destroy policies it hated.The contrast with the Obama administration can’t be more stark. No one in these ranks said that malinvestments have to be washed out of the system and bankruptcies and unemployment must be tolerated for a time in order to get back on a growth. Nay, nay, they pulled out the old bag of tricks and claim that they only needed to loot the public of hundreds of billions and spend it on building up government, and then, wow, like magic, the entire economy would come back to life.But it hasn’t. The stock markets survive, but that’s no indication. Stock markets are never better performing than during a hyperinflation. Interest rates are rock bottom, but only through artificial means. Gross Private Domestic Investment is still falling off a cliff, having already completely erased ten years of investment from the record of history. Here is a fundamental factor that suggests that terrible things are still to come our way. And I guess I’ll have to put this in italics because the point seems to be lost in the shuffle: unemployment is still rising, even soaring straight to double digits!The sociology of this intrigues me to no end. Unemployment is one of the human elements that journalists are supposed to glom onto. Oh, look at poor Bob and Jane and how they lost their jobs and have nowhere to go, etc., etc. Talk about human interest! Where are the weepy stories about the plight of people wandering around with no work? Instead, we get happy clappy stories about how things are not nearly as bad as they might be had the great and powerful Obama of Oz not appeared to save the day. There is also the remarkable spin that things are getting worse, yes, but at a slower pace than before – an observation that might be most commonly heard in Hell.Obama himself has other lines.”In the last few months, the economy has done measurably better than expected.”Well, that depends on your expectations, doesn’t it? It is irrefutable. But the press is glad to be the echo chamber. “Figures released last week showed that the economy contracted more slowly in the second quarter than many economists had expected.”And then there are the benchmarks, and that might be the scariest part of all. The Obama administration is convinced that we can have no real and lasting recovery until homes go up in price. A top adviser said: “until we see a robust recovery in housing markets, housing prices, in jobs and family income, we’re not anywhere near out of the woods.”This is precisely the same inanity that afflicted the Hoover and Roosevelt administrations. They saw falling prices as the problem to be remedied rather than the saving grace of an otherwise abysmal economic environment. So they kept trying to stamp out good things thinking that they were bad things, effectively burning the crops instead of killing the rats that were poisoning the wheat following harvest.We can fully expect the mainline press not to understand economics. I can deal with that. But not even to draw attention to the awful reality of the current economic situation, simply because many members of the mainstream press are sympathetic to the idea that the government should be stealing ever more money from us for the state? Here is where ideology leads to blindness, which leads to the worst form of propaganda.I suspect that they will no more get away with this now than they did in the 1980s.

The AlarmistAugust 6th, 2009 at 1:48 pm

Tell the lie big, tell the lie often … just tell the lie, and soon it will become the Truth.There is no truth, there are only words.

Guest ho ho ohAugust 6th, 2009 at 4:33 pm

t,there is a truth and or many truths, it is justthat words are used by people to conceal it.perhaps.

GuestAugust 6th, 2009 at 5:22 pm

t,here another good one..Fiction is obliged to stick to possibilities. Truth isn’t.. Mark Twain

Pecos BankerAugust 8th, 2009 at 9:09 pm

“Gross Private Domestic Investment is still falling off a cliff, having already completely erased ten years of investment from the record of history.” Exactly as Fekete predicts with lowering interest rates. Time to read Fekete.

JasaAugust 6th, 2009 at 2:06 pm

That’s it. Cohen of Goldman Sachs said that this is the beginning of a bull market. In Goldmanese that means: we are done with pushing this shit and we need to sell to those losers. Time to go short!

GuestAugust 7th, 2009 at 12:00 am

Cohen is like some kind of wind-up doll with one phase that repeats over and over as it unwinds: It’s a bull market, it’s a bull market… Has she ever seen a bear she didn’t call a bull?

GuestAugust 6th, 2009 at 3:00 pm

Rep. Steny Hoyer (D) Called A Liar, Shouted Down For Presenting Misleading Economic Data | Zero Hedge (video)”The American people are becoming more educated… and more angry…”In other news, Obama’s healthcare plan appropriately compared to Erie Canal, set to flush cash out of pockets of majority — Tyler Durden

GuestAugust 6th, 2009 at 4:57 pm

THE EXPIRING ECONOMY by Paul Craig RobertsAugust 5, 2009—Tent cities springing up all over America are filling with the homeless unemployed from the worst economy since the 1930s. While Americans live in tents, the Obama government has embarked on a $1 billion crash program to build a mega-embassy in Islamabad, Pakistan, to rival the one the Bush government built in Baghdad, Iraq.Hard times have now afflicted Americans for so long that even the extension of unemployment benefits from 6 months to 18 months for 24 high unemployment states, and to 46 – 72 weeks in other states, is beginning to run out. By Christmas 1.5 million Americans will have exhausted unemployment benefits while unemployment rolls continue to rise.Amidst this worsening economic crisis, the House of Representatives just passed a $636 billion “defense” bill.Who is the United States defending against? Americans have no enemies except those that the US government goes out of its way to create by bombing and invading countries that comprise no threat whatsoever to the US and by encircling others—Russia for example—with threatening military bases.America’s wars are contrived affairs to serve the money laundering machine: from the taxpayers and money borrowed from foreign creditors to the armaments industry to the political contributions that ensure $636 billion “defense” bills.President George W. Bush gave us wars in Iraq and Afghanistan that are entirely based on lies and misrepresentations. But Obama has done Bush one better. Obama has started a war in Pakistan with no explanation whatsoever.If the armaments industry and the neoconservative brownshirts have their way, the US will also be at war with Iran, Russia, Sudan and North Korea.Meanwhile, America continues to be overrun, as it has been for decades, not by armed foreign enemies but by illegal immigrants across America’s porous and undefended borders.It is more proof of the Orwellian time in which we live that $636 billion appropriated for wars of aggression is called a “defense bill.”Who is going to pay for all of this? When foreign countries have spent their trade surpluses and have no more dollars to recycle into the purchase of Treasury bonds, when US banks have used up their “bailout” money by purchasing Treasury bonds, and when the Federal Reserve cannot print any more money to keep the government going without pushing up inflation and interest rates, the taxpayer will be all that is left. Already Obama’s two top economic advisors, Treasury Secretary Timothy Geithner and director of the National Economic Council Larry Summers, are floating the prospect of a middle class tax increase. Will Obama be maneuvered away from his promise just as Bush Sr. was?Will Americans see the disconnect between their interests and the interests of “their” government? In the small town of Vassalboro, Maine, a few topless waitress jobs in a coffee house drew 150 applicants. Women in this small town are so desperate for jobs that they are reduced to undressing for their neighbors’ amusement.Meanwhile, the Obama government is going to straighten out Afghanistan and Pakistan and build marble palaces to awe the locals half way around the world.The US government keeps hyping “recovery” the way Bush hyped “terrorist threat” and “weapons of mass destruction.” The recovery is no more real than the threats. Indeed, it is possible that the economic collapse has hardly begun. Let’s look at what might await us here at home while the US government pursues hegemony abroad.The real estate crisis is not over. More home foreclosures await as unemployment rises and unemployment benefits are exhausted. The commercial real estate crisis is yet to hit. More bailouts are coming, and they will have to be financed by more debt or money creation. If there are not sufficient purchasers for the Treasury bonds, the Federal Reserve will have to purchase them by creating checking accounts for the Treasury, that is, by debt monetization or the printing of money.More debt and money creation will put more pressure on the US dollar’s exchange value. At some point import prices, which include offshored goods and services of US corporations, will rise, adding to the inflation fueled by domestic money creation. The Federal Reserve will be unable to hold down interest rates by buying bondsNo part of US economic policy addresses the systemic crisis in American incomes. For most Americans real income ceased to grow some years ago. Americans have substituted second jobs and debt accumulation for the missing growth in real wages. With most households maxed out on debt and jobs disappearing, these substitutes for real income growth no longer exist.The Bush-Obama economic policy actually worsens the systemic crisis that the US dollar faces as reserve currency. The fact that there might be no alternative to the dollar as reserve currency does not guarantee that the dollar will continue in this role. Countries might find it less risky to settle trade transactions in their own currencies.How does an economy based heavily on consumer spending recover when so many high-value-added jobs, and the GDP and payroll tax revenues associated with them, have been moved offshore and when consumers have no more assets to leverage in order to increase their spending?How does the US pay for its imports if the dollar is no longer used as reserve currency?These are the unanswered questions

SoftwarengineerAugust 6th, 2009 at 5:23 pm

Take Heart GuestWhen the top 5% of household incomes see 20-30% of their jobs in unemployment/underemployment; then there will be no one to spread the Dem/Rep message that the globalism cod liver oil is good for you. That time is coming soon at a theater near you.Watch for a new MSM that starts selling newspapers again, because our corporate controlled lapdog two party system will be destroyed. Its MSM influence will be moot, the high income elites will be out of work too.

GuestAugust 6th, 2009 at 6:16 pm

Well, they didn’t listen to protests against wars for empire, offshoring, corporate-sponsored open borders to displace American workers, bailouts for international bankers, trillions for deficit spending, asset bubbles, TARP, and Cap and Trade. As unemployment hits their own turf, maybe they’ll listen now. But as you say, it will be moot. The high income elites will be out of work, too. The witlings have killed the golden goose.And they thought looting was duck soup!

GuestAugust 6th, 2009 at 7:20 pm

g,” wine, wine the gooses drank wine.the monkey chewed tobacco on a street car linethe line broke, the monkey got chokedand they all went to heaven in a little row boat.clap hands….”

Ungrateful PeonAugust 6th, 2009 at 10:05 pm

This tobacco chewing monkey is just waiting for the day.Cosmic justice … “clap hands”

GuestAugust 6th, 2009 at 5:13 pm

Mish has a chart-accompanied analysis of unemployment today–The Dismal State of Unemployment—with “job losses about to go from bad to worse” and this quote from Contrary Investor:”The jobs hard to get response is pushing up against 30 year highs seen in the last few months. Likewise the jobs easy to get component of the survey has hit a new low for the current cycle. We’ll just have to see how hard the folks at the Bureau of Labor stats can goose the headline payroll numbers for July with further Birth/Death model estimates. We’ll be surprised at nothing. But consumers are telling us labor market conditions have worsened, despite the government numbers. And without question this has driven their consumption behavior.

GuestAugust 6th, 2009 at 5:52 pm

Tudor Investment Calls Stock Gain a Bear-Market RallyAug. 6 (Bloomberg) — Tudor Investment Corp., the $10.8 billion hedge-fund firm run by Paul Tudor Jones, said equity markets could decline later this year, creating buying opportunities.Slowing growth in China and the return of front-page stories on swine flu may be “further catalysts for global equity markets to pause in September,” the Greenwich, Connecticut-based firm said in an Aug. 3 client letter, a copy of which was obtained by Bloomberg News.Tudor said the 47 percent gain in the Standard & Poor’s 500 Index of the largest U.S. companies since March 9, when it fell to a 12-year low, is a “bear-market rally.” The index topped 1,000 for the first time in nine months this week after companies reported better-than-expected profits.“Impressive counter-trend rallies are a feature, not an oddity, of secular bear markets,” Tudor said. “We are not inclined to aggressively chase the market here. Many doubts remain about the sustainability of this recovery, most prominently the weakness of household income growth.”Tudor’s biggest hedge fund, the $8.9 billion Tudor BVI, gained 10 percent this year through July after losing 4.5 percent in 2008. Hedge funds on average lost a record 19 percent last year, according to Chicago-based Hedge Fund Research Inc.The firm said that a year-end gain in stocks may be another bear market rally with equities falling in 2010…

GuestAugust 6th, 2009 at 5:53 pm

Middle Class And HungryLawrence Delevingne|Aug. 6, 2009, 5:41 PM|7An economist is saying the recession is over, Goldman Sachs is making money again and the Dow Jones is up almost 5.5% for the year. But Shangrai-La this is not.According to this telling report, middle class folks in Detroit are hungry. That’s right — they don’t have enough food:”The food crunch is intensifying, and spreading to people not used to dealing with hunger. As middle class workers lose their jobs, the same folks that used to donate to soup kitchens and pantries have become their fastest growing set of recipients.’We’ve seen about a third more people than before,’ said Jean Hagopian, a volunteer at the New Life food pantry, part of the New Life Assembly of God church in Roseville, a suburb some 20 miles northeast of Detroit. Hagopian said many of the new people seeking assistance are men, former breadwinners now in desperate need of a food basket.”And it’s not just Motor City: for the first time, more than 34 million Americans are recieving food stamps — that’s about one in nine Americans. Looks like those green shoots aren’t everywhere

GuestAugust 6th, 2009 at 6:15 pm

Come on now, we’ve seen the pictures, and those people are huge. They might be hungry, but they are not starving.

GuestAugust 6th, 2009 at 9:04 pm

Several years ago I stopped viewing all homeless men as society’s derelicts or chronic winos. And when I did, I became that brother who often could “spare a dime.” It was after I asked for government shelter for a man who had lost his job and was living out of his car in a vacant lot. And America’s “welfare” system laughed at me.For as Peter Marin writes in “Abandoning Men: Jill Gets Welfare–Jack Becomes Homeless”: the problem of homelessness “is essentially a problem of single adult men.”Far more men than women, and far more single adults than families, end up homeless. Until we understand how and why that happens, nothing we try to do about homelessness will have much of an impact.” Marin wrote that in 1991 and nothing much has changed since.“The most convincing statistics I know,” says Marin, “can be found in James Wright’s small book, “Address Unknown, The Homeless in America”. According to Wright, out of every 1,000 homeless people in America, 100 or so are adults with children, another 100 are the children themselves, and the rest will be single adults. Out of that total, 150 will be single women, and 650 will be single men. Break that down into percentages. Out of all single homeless adults, 80% are men; out of all homeless adults, 70% are single men; out of all homeless people–adults or children–fully 65% are single men.”But even these figures do not give the full story, wrote Marin… “Our federal welfare system aids mainly women with children and, on occasion, intact families. That means most of the families on the streets have either fallen through cracks in the welfare system or not yet entered it. They will, in the end, have access to some sort of shelter and aid, while it is the single adults who will be left permanently on their own…four-fifths of whom are men…men without money, or men in trouble.”Why do so many more men than women end up on the streets? asks Marin.He lists several reasons, but “more important, still, may be the question of work. Traditionally, the kinds of work associated with transient or marginal life have been reserved for men. They brought in crops, worked on ships and docks, built roads and railroads, logged and mined. Such labor granted them a place in the economy while allowing them to remain on society’s edges…“Now, of course, the nature of work has changed and society has little need for such men… The low-paying service-sector jobs that have replaced manual labor go mainly to women (and lower-wage immigrants)…not to the men who once did the nation’s roughest work.”And, finally, writes Marin, there is the federal welfare system: “I do not think most Americans know how the system works, or how for decades it has actually sent men into the streets, creating male homelessness at the same time it aids women and children…“When it comes to ‘able-bodied’ (and employable) single adults, there is no federal aid whatsoever. Individual states and localities sometimes provide their own aid. But this is usually granted only on a temporary basis or in emergencies. And in those few places were it is available for longer periods, it is almost always so niggardly, so ringed with capricious requirements, that it is of little use to most of those in need.”Says Marin,“To put it simply: men are neither supposed nor allowed to be dependent…by being in need of help, men forfeit the right to it.”… Finally, said Marin, “whatever particular griefs men may have experienced on their way to homelessness, there is one last, devastating kind of sorrow all of them share: their sense of betrayal at society’s refusal to recognize their need. Most of us–both men as well as women–grow up expecting, deep in our hearts, that when things go terribly wrong someone, from somewhere, will step forward to help us. That this does not happen, that all watch indifferently from the shore as each of us, in isolation, struggles to swim and then sinks, is perhaps the most terrible discovery that anyone in any society can make. When troubled men realize this, as they all do sooner or later, then hope vanishes completely. Despair rings them round; they become what they need not have been: the homeless men we see everywhere around us.”And that is why I support The Salvation Army, because of its support for these forgotten men, and why I will never patronize Target, the Simon Legree that banned the Army’s bell ringers from its doors—at Christmas time.

GuestAugust 6th, 2009 at 6:59 pm

read my lips, Fed will keep 0% rate for 2 years. watch CRB and Gold to lift off, blast off to outer-space. Fed will deliberately trash the USD.

GuestAugust 6th, 2009 at 7:03 pm

by the way, can we get cash for clunkered Air Condition or Central Air Condition installation program? quick congress pass this new cash program.

GuestAugust 6th, 2009 at 10:07 pm

seriously, we all can use a energy efficient AC in this hot summer. Cash for clunkered AC will be blockbuster program.

GuestAugust 6th, 2009 at 10:19 pm

dont forget cash for clunkered refrigerator for energy efficient one program. YES WE CAN STOP GLOBAL WARMING. and cash for clunkered tube TV for energy efficient LCD/plasma program. ok here is $4500 for your clunkered refrigerator or clunkered tube TV. congress needs to expand clunkered program to other products. just tell Fed to buy buy $75Billion treasury from Geithner and pump the money into clunkered program.

Guest eAugust 7th, 2009 at 7:07 am

g,cash for clinker wife and kids.clunker shoes and laptop. clunker apartmentand house too.need more cash….and more time to spend for clunker for clunker government.

Pecos BankerAugust 7th, 2009 at 12:00 am

Thanks, guest, for the insight. I’m going to base my investment decisions on that. If they go wrong, I know that guest will be willing to take the blame.

CLSAugust 7th, 2009 at 7:36 am

Celente makes his bread by predicting doom. It’s doubtful he could make his pay by predicting sunshine.

GuestAugust 6th, 2009 at 10:53 pm

Let us look at the big picture.1)Cash for Banksters is still ongoing.2)Cash for Pharma will come with Health Care Reform.3)Cash for Military is still at highest levels.4)Cash for Infrastructure and make work projects.Do you not get the feeling that by the time this is over, the government will subsidize the totality of the economy. How did we get here?Are all the lobbyists busy drafting reform legislation to facilitate more cash for their clients?This is INNEFICIENT AND CORRUPT. This makes the Banana Republic types look like pikers. Nobody is lobbying for Joe Sixpack and the future of his children. Where is the revenue and employment to pay for all these expenditures?

ChignosAugust 6th, 2009 at 11:51 pm

Hey, dude……………… the Congress, the stimulus, cap and trade, health care reform, TARP, the whole Obama government is “Cash for clunkers.”

GuestAugust 7th, 2009 at 12:53 am

Cash for Clunkers… Has a ring to it, somehow. The sales pitch for GM’s (Government Moters) first car 2010, maybe? The Obama Clunker.Or, perhaps, after the public sees it and rides in it, they’ll be offering cash to get their old Clunkers back.

GuestAugust 7th, 2009 at 6:59 am

next Democrats election slogan “Cash for Clunkered” with hidden message, TAX you all to death, hehehe.

The AlarmistAugust 7th, 2009 at 2:29 am

You forgot “$250m Cash for three more Gulfstream V’s in the 89MAW because G5 is sometimes not available when Speaker Pelosi wants one for the weekend.”

Irving T PhemlmphAugust 6th, 2009 at 11:26 pm

Here’s what we should be bailing out..our planet. and as we bail we create 100’s of thousands of jobs..all else is folly-“A “plastic soup” of waste floating in the Pacific Ocean is growing at an alarming rate and now covers an area twice the size of the continental United States, scientists have said.The vast expanse of debris – in effect the world’s largest rubbish dump – is held in place by swirling underwater currents. This drifting “soup” stretches from about 500 nautical miles off the Californian coast, across the northern Pacific, past Hawaii and almost as far as Japan.Charles Moore, an American oceanographer who discovered the “Great Pacific Garbage Patch” or “trash vortex”, believes that about 100 million tons of flotsam are circulating in the region

ChignosAugust 6th, 2009 at 11:42 pm

Good grief, all this blogging opinion, much of it not germane to the world scene.The rest of the world without the United States, is an absolute disaster. These other countries have absolutely no idea how to create a society that their people will believe and work for. Therefore they have no creativity, no resilience, no way to bring on an economic revival for the world.Look at China. They don’t really even believe in consumption, they believe in something else that isn’t especially stimulative to world economic growth. I’m not sure exactly what that belief is, but some of our blogggers here will probably fill us in……The overwhelming fact is that the United States leads the world in creating economy, so we might as well get used to it. We might as well get on with the next phase of economic development. So………what might that be??I think the key words are “precision”and “refinement,” and “work.”Our investments need to take the wonderful blessing of the resources at our disposal, including and especially the recyclable resources, and make them into wealth. Take an incompletely/poorly conceptualized business and make it a going concern. Come in on top of someone else’s idea and make it work. Buy an item from the thrift store, wash it up to make it sparkle and sell it for 30 times as much as you paid for it on ebay… …Take the steel from a recycled car and melt it down. The resulting steel has been purified by fire at least twice–it belongs in a BMW engine, ready to rum for 400,000 miles at 90 mph.In short, everyone is looking for the next big thing. I got news for you baby boomers. The next big thing involves you working for a living. There’s no such thing as retirement. C’mon, work can be fun if your heart is in it. Just work at restoring something really fine precisely.

The AlarmistAugust 7th, 2009 at 2:35 am

In the ROW, the majority of people go to work because they have to pay their rent and put food on the table, but some really enjoy what they are doing, and some of those even create new companies in the pursuit of making a living and/or pursuing their passion. That sounds oddly enough like what most working Americans are doing on any given day.But the Europeans who surround me are amazed how Americans can literally take nothing and sell it to the rest of the world (Coca Cola = fizzy water with sugar marked up 50x).If more Americans lose the passion to make something out of nothing, and go on to merely work to make a living, all is lost.

Melvin T Furd III EsqAugust 7th, 2009 at 7:36 am

“I got news for you baby boomers. The next big thing involves you working for a living. “Actually the next big thing is the Big Sleep. As a boomer or I like to call one or two of us, the counterculture, we’ve been busting our behinds for 30-40 years. That means raising families, working for the man 9-5 and trying to stay afloat in this blasted wasteful society. Many giving time to make a better world. Our regret might be that we failed to do enough letting future generations a big mess. There is a misconception that all boomers are a bunch of consumerists. I personally know a number of counterculture folks who don’t own cars, don’t watch no stinking tv, donate their time to the community and don’t eat no corporate food for 40 years. They quietly go about their lives yet we know they are part of what makes this country great. Strength of character and a determination to swim against the currents of mindless ‘entertaining ourselves to death.’

Melvin T Furd III EsqAugust 7th, 2009 at 7:39 am

correction- not ‘letting’ future generations a big mess but “leaving” future generations a big mess.

GuestAugust 7th, 2009 at 1:00 am

The problem right now seems to be that, the 700-billion bail-out has blurred the vision so much that trillions now seem to go unnoticed. A billion or two here or there– the cash for clukers program– is something which isn’t even worth noting. Its as though there is a blank check, there is a problem, and there is a solution: Throw the money on it. However, unfortunately, someone will have to pay for it, and our children seems like a pretty imaginative paradigm now. I am afraid at this rate there is no way back, the empire will go bankrupt very soon, at some point our foriegn lenders will pulll the plug, things happen faster that they can be conceived…because though there is real wealth, value is just perception, whether of gold, diamonds, dollar or another paper currency, and many other things….wealth is the basic necessities such as sugar, corn, wood, or brick…but apart from that, it might not take a lot to change people’s perception…the whole world might think now that there is no other way but the US, soon enough there perception might change on a lot of things, especially those things that are a matter of value, and they might realize that there is actually no other way but without the US…we know through the stock market that as far as perception and values are concerned, they are boundless on the upside as well on the downside….Its time to tighten up for the US govt, a little bit of pain now might go a long way in long-term healing or the Keynesians will take us with them, to quote, “In the long-term, we are all dead”.

GuestAugust 7th, 2009 at 6:36 am

Obama, Pelosi, and Geithner Co (OPGC) will raise alots of tax on rich and middle-class people, and hard working people. and they democrats will tax and spend, tighten up is never really their strength.another rumor, look for USPS to look for bailout by OPGC. USPS need to pay for their high pay employee, high pension benefits, and health benefits. USPS will not tighten up, so bailout by OPGC is necessary, trust me, OPGC will deliver.

The AlarmistAugust 7th, 2009 at 7:01 am

You just don’t get it. Spending vast sums of newly created money is but the first step to a post-money economy in the new workers paradise.Why would you seek to acquire with money when all of your needs will be met by the regime?

GuestAugust 7th, 2009 at 11:52 am

exactly, USA has obligation to start all kind of CASH FOR CLUNKERED program to satisfy our need. we the people need to consume on freebie from Obama, Pelosi, and Geithner Co (OPGC). Let OPGC raise tax on all other hard working dumb people or issue tons of T-Bill, Treasury, or TIPS. OPGC regime will satisfy all our need, including ObamaCare. This is ultimate American Dream.

GuestAugust 7th, 2009 at 1:17 am

from Single-Payer Groceries, Anyone? by Thomas J. DiLorenzo……If a government-run monopoly is good for healthcare, they will eventually argue, why not food, cars, and other essentials of modern life? They are socialists, after all.Since I always try to keep a step ahead of the bad guys, it will be useful to think through how say, a single-payer grocery industry would work. Such an exercise will also teach us some lessons about what can be expected of a “single-payer,” government-run healthcare monopoly.Here’s my take on how central planning for the new American single-payer grocery industry monopoly would work: First, all groceries will be paid for by the taxpayers, who are sometimes confused with “government” by the media. Anyone at any time – even illegal aliens – can walk into a grocery store and walk out with whatever groceries and other items they “need.” A national government I.D. will be needed so that the state can “track” our grocery purchases with it. It will be as easy to obtain for illegal aliens as it is for citizens, since illegal aliens are such an important voting block in support of the American Socialist Party. The government grocery stores will keep track of all food purchases so that they can better administer the state’s new anti-obesity/mandatory exercise campaign. The stated purpose of this “campaign” will be to cut healthcare costs by forcing us all into healthier lifestyles (as defined by the state). With government in charge of health and lifestyle planning, that old saying will be altered to say “a ton of prevention for an ounce of cure.”Since the laws of economics have not been repealed, one problem is that since groceries are free, many people will tend to consume far more than is necessary. Cats and dogs will dine on filet mignon, salmon, and sushi, for example, which might drive the pet food industry out of existence. Good riddance, some would say. In economics lingo, there will be an explosion of consumer demand, which will cause a subsequent explosion in costs in most of the food industries (these are called “increasing cost industries” by economists, since average costs of production tend to increase as they expand). Thus, “free” food will become expensive beyond belief. This phenomenon is what economists call “the moral hazard problem” of government subsidies.In response to the government-created explosion of food costs, the government will wage nationwide propaganda campaigns to raise taxes, complete with televised pictures of starving babies, similar to the “feed the children” television commercials that raise charitable donations for starving children in the Third World. All opposition to the tax increases will be denounced by Nancy Pelosi and her comrades as “Hitler-like,” and worse.The booboisie will eventually recognize that the food cost explosion (and the healthcare cost explosion that will inevitably come with single-payer healthcare) cannot be paid for indefinitely by the Fed chairman’s announcements of the printing and/or borrowing of another trillion dollars this week, a trillion more next week, etc. They will demand that “something be done” about the out-of-control costs of food as their tax burden escalates, and the politicians will comply.Politicians typically have only one response to the cost explosions that their own policies cause: price controls, usually euphemistically called “global budgeting,” “price caps,” or some other deceitful phrase. The new price controls on food will stimulate consumer demand even further, while stifling food production and supply, since they will take much of the profit out of farming, which for the time being will still be in private hands. Food shortages are the inevitable result, which of course will call for even more government intervention in the form of a new government food-rationing board, similar to what occurred during World War II when there were price controls on food and many other items. The more affluent will be able to bribe their way into adequate food purchases, while the poor will simply be out of luck, as they always are whenever government rations anything. The affluent always have more political influence than the poor.I would expect the new government grocery stores to be unionized, as the American Socialist Party will change the labor laws to make it mandatory, just as the government did with airport employees after 9/11. This will give tremendous clout to the public grocery union since a strike can literally shut down food distribution. It will essentially transfer much of the power to tax to the public employee grocery union. Consequently, grocery industry workers will be among the highest paid people in America. This will be an additional cause of a further cost explosion, which will ignite more tax-increasing campaigns and the demonization of the taxpaying public whenever it resists the additional plunder.With no genuine profit-and-loss statements in our new single-payer grocery industry there will be no way in the world to know whether or not agricultural resources are being used efficiently, that is, whether say, a million dollars in grain is turned into food products that are worth more than a million dollars. When that occurs, there is a profit in the private sector, but the private sector will be only a memory. Consequently, there will be perpetual economic chaos in the food industry. We are talking about socialism here, after all…

Graf PotozkyAugust 7th, 2009 at 7:18 am

Let’s see. if you don’t pay for your groceries, then you have more free income. if you have more free income, then more taxation wont affect your purchasing powers. if more sectors of the economy will be free, then your salary can go down and down since you need less and less of it. eventually you will need very little since much of it is free.

CLSAugust 7th, 2009 at 7:32 am

Let’s not get ridiculous, okay? There really does need to be reform to health care. The system we have now does not work.

The AlarmistAugust 7th, 2009 at 8:32 am

Nonsense. When I go to the US I get checkups, etc, and the care is top notch, much better than what I get in Europe. No problem there. And then I pay for it. Again, no problem.Up til now I haven’t had cancer or needed a heart-transplant, but if I did I would expect my catastrophic care insurance (which would be eliminated by the current House health-care proposal) to cover it in exchange for the premiums I have been paying. Assuming it would, no problem there.The system works fine … getting it to work for little or nothing out of your own pocket doesn’t work fine, and that is what has the parasite class whining about reform.

GuestAugust 7th, 2009 at 11:02 am

What’s the Little Man’s worst nightmare that keeps him awake at night? That another Little Man will bite more out of the “socialist” pie that he, the “hard workin” Little Man.

GuestAugust 7th, 2009 at 1:21 am

“Prof Roubini flew into Kalgoorlie for only a few hours on his first visit to Australia, amid unconfirmed reports he was paid $100,000 for a one-hour appearance at the conference.”- This is guy who said that the March rally was “a sucker’s rally”.

The AlarmistAugust 7th, 2009 at 2:40 am

What, the good Dr. is not permitted to be a good capitalist and to capitalise on his name and stature while it is still worth something ???If he can ask for $100k for a speech and get it, more power to him.

Melvin T Furd III EsqAugust 7th, 2009 at 7:49 am

meanwhile 40percent of our kids live in poverty. “Something is rotten in Denmark.”

The AlarmistAugust 7th, 2009 at 8:37 am

Get real. 49.999% of the population is living below the median income. I guess we shouldn’t rest until we have pulled them all above that line.

Melvin T Furd III EsqAugust 7th, 2009 at 9:48 am

I agree with you. We should not rest, there is no reason for anyone in this country to go hungry.Overall, the 36.2 million adults and children who struggled with hunger during the year was up slightly from 35.5 million in 2006. That was 12.2 percent of Americans who didn’t have the money or assistance to get enough food to maintain active, healthy lives.Almost a third of those, 11.9 million adults and children, went hungry at some point. That figure has grown by more than 40 percent since 2000. The government says these people suffered a substantial disruption in their food supply at some point and classifies them as having “very low food security.” Until the government rewrote its definitions two years ago, this group was described as having “food insecurity with hunger

Melvin T Furd III EsqAugust 7th, 2009 at 10:01 am

I’m a “boomer” sometimes we call ourselves counterculture and still do! anyone who fell for the consumerist notion of lifestyle was a sucker. Many of us saw this coming a looooong time ago. we knew we were going to get ripped off . we don’t trust no plastic people in suits. Tell me what an mBA is. It’s someone who’s going to take you for your money man. we installed solar a long time ago, rode our bicycles to work, took mass transit, planted gardens and used graywater to water our gardens.we bought no corporate food cause that sh:t causes cancer. we also saved every penny and didn’t invest in 401 ks. We protested every stinking pos war America was involved in. from Vietnam to Iraq. We wanted national health care 30 years ago but the suits won out cause the ‘boomers’ fell for the advertisments. some of us didn’t fall for the ads, we turned off our tv’s 30 years ago. we bought land and know our strength lies in community and the song says-“Plastic people,oh baby, you’re such a drag”

The AlarmistAugust 7th, 2009 at 1:48 pm

“… there is no reason for anyone in this country to go hungry.Unless they are one of the 58 million people who are overweight, or one of the 30 million who are obese, or one of the 3 million who are morbidly obese. Oddly enough, like smoking, this sort of stuff clusters in people who seem to need our help the most. Go figure. Let’s give them a TV too to round things out.

GuestAugust 7th, 2009 at 8:15 am

Remember, GS Executives are exceptionally smart and value added to the U.S. economy. This is why they each deserve to be paid annually, on average the living wage equivalent of 100 families.

The AlarmistAugust 7th, 2009 at 8:38 am

Who do you think writes the checks to the ACORN people now doing the survey work for the government?

GuestAugust 7th, 2009 at 8:32 am

Wages and Salaries Fell 4.7%, Most On Record“Consumers have started to change their behavior and they are going to save more,” said Richard Berner, co-head of global economics at Morgan Stanley in New York and a former researcher at the Fed. “You have pressure on wages, you have employment still declining.”Wages and salaries, which drive recoveries in spending, fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, according to Commerce Department figures released yesterday. The Obama administration’s tax cuts, extended jobless benefits and a one-time Social Security bonus have helped mask the damage done by the worst employment slump since the Great Depression.Personal incomes, which include interest income, dividends, rents and other payments as well as wages, tumbled 1.3 percent in June, more than forecast and the biggest drop in four years, yesterday’s Commerce report showed. Excluding the effects of the stimulus plan, June incomes would have dropped 0.1 percent after no change in May, according to the report. In May, one-time additional payments to Social Security recipients boosted incomes 1.3 percent.One of every 10 American workers will be without a job by early 2010, economists project, shaking the confidence of those still on payrolls and discouraging spending. It may take as long as 15 years for consumers to fully repair finances battered by the decline in home values, stocks and employment, said Edmund Phelps, winner of the Nobel prize in economics in 2006.Decreasing pay is not the only hurdle for consumers. Plunging home prices and stocks reduced household net worth by a record $13.9 trillion from the third quarter of 2007 through this year’s first quarter, according to figures from the Fed.“Households are going to have to do an awful lot of rebuilding of their wealth,” Phelps, a professor at Columbia University in New York, said this week in an interview on Bloomberg Television. “Even if that rebuilding goes on at a pretty good clip, it will take 12 or 15 years for households to get to the wealth level that they had several years ago. Consumer demand is going to take a long time to rebuild to normal levels.”As for unemployment, I think we see 10% by September or October at the latest. Right now I am sticking with my forecast of 9.8% by August.In regards to balance sheet repair, 15 years has ominous implications for jobs and the stock market.In regards to rebuilding wealth, “never” may be a better estimate than 12-15 years for boomers now retiring. Those boomers need to draw down savings during retirement while stock market gains will likely be hard to come by.Of course most of that “wealth” was all imaginary in the first place, especially in regards to home prices.Mike “Mish” Shedlock

The AlarmistAugust 7th, 2009 at 8:41 am

I really feel for the poor boomers … imagine actually having to draw down your savings when you have no other means of income. Isn’t that the way things used to be before nearly every asset class become over-inflated by boomer borrowing and spending and/or speculating?

Melvin T Furd III EsqAugust 7th, 2009 at 10:05 am

I’m a “boomer” sometimes we call ourselves counterculture and still do! anyone who fell for the consumerist notion of lifestyle was a sucker. Many of us saw this coming a looooong time ago. we knew we were going to get ripped off . we don’t trust no plastic people in suits. Tell me what an mBA is. It’s someone who’s going to take you for your money man. we installed solar a long time ago, rode our bicycles to work, took mass transit, planted gardens and used graywater to water our gardens.we bought no corporate food cause that sh:t causes cancer. we also saved every penny and didn’t invest in 401 ks. We protested every stinking pos war America was involved in. from Vietnam to Iraq. We wanted national health care 30 years ago but the suits won out cause the ‘boomers’ fell for the advertisments. some of us didn’t fall for the ads, we turned off our tv’s 30 years ago. we bought land and know our strength lies in community and the song says-“Plastic people,oh baby, you’re such a drag”

CLSAugust 7th, 2009 at 9:41 am

Personal income and assets are so last year. Everyone knows it’s “confidence” that the consumer spends, and damn, if this job number doesn’t make me feel confident. Never mind that some months down the road, when this number has long been forgotten, it will be revised upward, significantly. Who cares about negative equity. I, the consumer, now have confidence, officially sanctioned, by our government and the BLS (Bull Labor Statistics). And if that isn’t worth a dime I don’t know what is.

The AlarmistAugust 7th, 2009 at 8:41 am

I’m feeing even more bullish. My colleagues have declared the recession to be over. Time to short something else?

FEDupAugust 7th, 2009 at 10:16 am

What A Rally! Keep in mind that up until yesterday when Abbey Cohen of Goldman Sachs announced “the bull market may have started last March”, it was only the govt and the market makers propping up stocks. Once the public dives back in, the days are numbered when a repeat of the “turn out the lights, pull the rug out, dot com bust effect” will take place. The market is so overbought it isn’t even funny, yet it continues to rise suckering and keeping in the average investor. At what point will it tank? Ask Goldman as they will be among the first to sell.

GuestAugust 7th, 2009 at 11:22 am

Two quotes from Nathan’s take on the markets and employment figures this morning:“In a nutshell, keep in mind that this current economic crisis has been going on for so long that there are now many people droppng off the back side of being counted. The consumer is still burdened with debt and more and more people are losing their incomes. Talk of employment growth is simply premature. The higher stocks go without real earnings and without clearing the debts from consumers, the higher price to earnings rations will go. It is ultimately earnings that underpin the equity markets and the price of stocks has NEVER been so high compared to earnings.“It would take a heck of a lot of growth to pull P/E’s back into a normal historic range, and the only reason they look as “good” as they do is because the financial industry was allowed to go back and mark their assets to fantasy—otherwise the large banks are still insolvent and would not have earned a nickel.”and“… What you’ll notice is that almost all the job gains are still in the government sector while all the losses are in the private sector. This is the trend and has been for quite some time. Of course it requires private sector money to pay for those in government and you can see that our economy is getting stilted further and further out of balance with BIG government being the understatement of the century.”

GuestAugust 8th, 2009 at 10:39 pm

I retract this comment. No offense intended to Abbey Cohen who is a decent person and has every right to call the market as she sees it. Too much wine and I thought it sounded funny.

GuestAugust 7th, 2009 at 10:21 am

You Tube Pulls Hundreds Of Ron Paul VideosPopular C-Span Junkie user channel suspended, 6400 videos gonePaul Joseph WatsonPrison Planet.comAugust 5, 2009You Tube has expanded its zealous copyright crusade by suspending the popular C-Span Junkie user channel, and in doing so has pulled hundreds of viral Ron Paul videos, which are now completely dead.The C-Span Junkie user channel, a non-partisan archive of short clips taken from C-Span broadcasts of events in the Congress and the Senate, has been the home of the vast majority of You Tube videos you have seen of Bernanke, Geithner, Paulson and others being confronted in Congress, as well as Ron Paul’s speeches on the House floor. A total of more than 6400 videos in all have been pulled, hundreds of which featured the Texan Congressman.Whether or not C-Span itself requested that You Tube pull the channel is not known, but it is clearly in the public interest and constitutes fair use to show a clip less than 10 minutes in length of what the people who are supposedly our Representatives are saying in Congress on our behalf.As we have highlighted before, You Tube arbitrarily suspends accounts based on flimsy copyright claims that aren’t even properly investigated.We had our own You Tube account suspended following a copyright complaint from a separate party who didn’t even own the copyright on the original material. In addition, the copyright claim was clearly erroneous as it was based on the fact that Alex Jones held up a printed version of an online newspaper story for a few seconds on camera. The channel was eventually reinstated after You Tube received a flood of complaints.“I don’t know if you can imagine what it’s like to in a moment see 6400 videos gone,” writes the channel owner on the C Span Junkie website, “Figure 6400 hours (easily) poof GONE! I did this for the common good and now it all gone.”The channel has now been replaced with a new account but it’s unlikely to survive long if the owner dares to post anything of substance.Truth is no longer acceptable on You Tube as it transforms itself into a pale reflection of Hulu, a site owned and operated by NBC Universal (GE) and Fox Entertainment Group (News Corp), that is to say a joint venture by a corporation owned by a death merchant (GE manufactures attack helicopters and jet engines) and a disinformation platform owned by a notorious neocon, Rupert Murdoch.In the Hulu-ized universe, there is no room for truth or alternative media — all channels will contain the same schlock and mindless pablum already available on cable and broadcast television.Videos of members of Congress grilling Bernanke and his cohorts about auditing the Fed and finding out where trillions in missing TARP funds has disappeared to just aren’t part of the sanitized and lobotomized video landscape that You Tube wants to portray.If you post videos about people eating each other’s vomit or clips of plastic bimbos with their breasts hanging out then you’ll be left alone, but God forbid should anyone try to give the country a window on what’s actually happening in Congress and what their own Representatives are talking about – in that case your thought crimes will immediately be censored and removed.

Melvin T Furd III EsqAugust 7th, 2009 at 10:55 am

Thanks G for your post”In the Hulu-ized universe, there is no room for truth or alternative media — all channels will contain the same schlock and mindless pablum already available on cable and broadcast tv”Protest is not an easy road. Don’t expect to be welcomed with open arms. People get assassinated for telling the truth. My solution is to read books and don’t watch mind numbing media and stay involved with those in your community”.

GuestAugust 7th, 2009 at 12:19 pm

More on Obama and Cyber Czar… I found this rather telling: “Cybersecurity is ‘a major priority for the president,’ White House spokesman Nicholas Shapiro said…Hathaway…initially…considered a leading contender to fill the cyber post permanently…lost favor with the president’s economic team after she said it should consider options for regulating some private-sector entities to ensure they secure their networks.” IMO, America is qickly morphing into a police state. And what do “Obama’s” economic team and Larry Summers have to do with cyber security, anyway? IMO, the American people need cyber security from Larry Summers.Security Cyber Czar Steps Down | WSJ 08/04/09WASHINGTON– The White House’s acting cybersecurity czar announced her resignation Monday, in a setback to the Obama administration’s efforts to better protect the computer networks critical to national security and the global economy.The resignation highlights the difficulty the White House has had following through on its cybersecurity effort. President Barack Obama first outlined his cybersecurity plans in a high-profile speech May 29, announcing his intention to create a top White House cybersecurity post — a position he has yet to fill.Melissa Hathaway, who completed the Obama administration’s cybersecurity review in April, said in an interview that she was leaving for personal reasons. “It’s time to pass the torch,” she said, adding that she and her colleagues have provided an “initialdown payment for what’s needed to start to address cybersecurity.”In the past year, intelligence officials have grown increasingly concerned about Chinese and Russian cyberspies surveilling U.S. infrastructure and military networks.People familiar with the matter said Ms. Hathaway has been “spinning her wheels” in the White House, where the president’s economic advisers sought to marginalize her politically.Cybersecurity is “a major priority for the president,” White House spokesman Nicholas Shapiro said, adding that the administration is “pursuing a new comprehensive approach to securing America’s digital infrastructure.” In the search to fill the top cyber post, “the president is personally committed to finding the right person for this job, and a rigorous selection process is well under way,” he said.Ms. Hathaway had initially been considered a leading contender to fill the cyber post permanently. She lost favor with the president’s economic team after she said it should consider options for regulating some private-sector entities to ensure they secure their networks, said cybersecurity specialists familiar with the discussions. Being a holdover from the Bush administration didn’t help either, they said.In February, the White House tapped Ms. Hathaway, a senior intelligence official who had launched President George W. Bush’s cybersecurity initiative, to lead a 60-day cybersecurity policy review. Ms. Hathaway completed her review in April, but the White House spent another 60 days debating the wording of her report and how to structure the White House cyber post. National Economic Adviser Larry Summers argued forcefully that his team should have a say in the work of the new cyber official.The result was a cybersecurity official who would report both to the National Security Council and the National Economic Council. Supporters said that arrangement would cement cybersecurity as a critical security and economic issue; detractors said it would require the new official to please too many masters and would accomplish little.Cybersecurity experts inside and outside the government heralded Mr. Obama’s May 29 speech, but since then, several people have turned down offers for the job.”It’s almost like the system has become paralyzed,” said Tom Kellermann, a former World Bank cybersecurity official who served on a commission whose work influenced the White House’s cyber planning.In recent weeks, new front-runners have emerged, including a former Clinton assistant defense secretary, Franklin Kramer, and Howard Schmidt, a former top security officer at eBay Inc. who has served on several presidential cybersecurity panels. Mr. Kramer didn’t respond to a request for comment, and Mr. Schmidt couldn’t respond because he was traveling, a spokeswoman said.Ms. Hathaway said she took her name out of the running two weeks ago. “I finished what they asked me to do,” she said, noting she has set up and staffed the bulk of the cybersecurity office.

GuestAugust 7th, 2009 at 11:55 am

·All great things have to end | Brad Stetser Follow the MoneyPosted on Tuesday, August 4th, 2009By bsetserThis will be my last blog post, at least for the foreseeable future.I have accepted a new job, one that will require a certain level of discretion. I am excited by its challenges: ‘Balanced and sustainable” growth is something that I believe in. But suspending this blog is still hard.I started blogging almost five years ago, back when blogging felt new and the barriers to entry were much lower. I was also lucky: first Nouriel Roubini and RGE and then the CFR were willing to pay me to, at least in part, write a niche blog on global imbalances and global capital flows. The CFR in general – and Richard Haass and Sebastian Mallaby in particular – took a risk (a calculated risk?) that I could maintain a blog with open comments that could live up to the standards of the Council on Foreign Relations.I started writing a blog almost by default. There wasn’t an obvious source of demand for the kind of work that I wanted to do. My interests were too grounded in current events to fit well with academia, especially as I neither am a true economist nor a true political scientist. And I was too interested in policy issues to match, consistently, the interests of the market — especially as I am a bit better at seeing risks than opportunities. No private bank keeps a specialist on the TIC data on their payroll.Plus writing a blog gave me the freedom to write what I wanted when I wanted – and on occasion to work from where I wanted to work.Over time, I devoted more time to the blog and less to more academic publications than I should have. Blog posts “decay” faster than academic papers. At the same time, all my short-term incentives worked the other way: this blog’s traffic was never was all that high, but it still attracted more readers in an average week than have bought the book I wrote together with Dr. Roubini – and more readers than downloaded the paper I wrote exploring the strategic consequences of relying on foreign governments for financing… For the rest of the story and comments…

GuestAugust 7th, 2009 at 12:21 pm

He is? It can’t be: please give details when available. Frankly, I’m appalled. The circle seems to be closing in on America.

AnonymousAugust 7th, 2009 at 12:10 pm

i miss PeteCa, Peter JB, Mark, Capone,LB, MA, etc etcwhere are you guys??? i think i know why they arent posting anymore, but hey think of us bloggers, the good DR maybe had been abducted by body snatchers(or something more sinister plot)we dearly need your guys insight, or youve guys already taught us all we need to know, so am i a Jedi now?? lolanyway some people are still amazed by the ability / persistent power of TPTB to keep blowing the bubble / kicking the canwell let me say this “do you know your enemy?” (if you consider them your enemy)i like to relate them to this story…a tribe was glorified and honored by God as He choose men among them to reveal his secrets and show them path to enlightenmentThe catch was they cant fish on Saturday, simple, and to this they agreed you all can probably guess, God decided to test them, their resolve, Every Saturday, strangely, all types of Fishes were jumping, flying ,in short… there’s a lot of fish…the choosen tribe saw this trend, So what did they do?They constructed traps and channeled the water into ponds , TECHNICALLY they aint fishing, they just enticing the fish, we aint fishing they say.. well they got zap for thatmoral of the story, even if youre God, they will still devise way to swindle you, that is how persistent they arei hope they will be zapped againp/s: sorry got burned, stoopid boobama comments on bad unemployment numbers.. i hope he’ll get zapped too…

AnonymousAugust 7th, 2009 at 12:10 pm

i miss PeteCa, Peter JB, Mark, Capone,LB, MA, etc etcwhere are you guys??? i think i know why they arent posting anymore, but hey think of us bloggers, the good DR maybe had been abducted by body snatchers(or something more sinister plot)we dearly need your guys insight, or youve guys already taught us all we need to know, so am i a Jedi now?? lolanyway some people are still amazed by the ability / persistent power of TPTB to keep blowing the bubble / kicking the canwell let me say this “do you know your enemy?” (if you consider them your enemy)i like to relate them to this story…a tribe was glorified and honored by God as He choose men among them to reveal his secrets and show them path to enlightenmentThe catch was they cant fish on Saturday, simple, and to this they agreed you all can probably guess, God decided to test them, their resolve, Every Saturday, strangely, all types of Fishes were jumping, flying ,in short… there’s a lot of fish…the choosen tribe saw this trend, So what did they do?They constructed traps and channeled the water into ponds , TECHNICALLY they aint fishing, they just enticing the fish, we aint fishing they say.. well they got zap for thatmoral of the story, even if youre God, they will still devise way to swindle you, that is how persistent they arei hope they will be zapped againp/s: sorry got burned, stoopid boobama comments on bad unemployment numbers.. i hope he’ll get zapped too…

MichelleAugust 7th, 2009 at 1:29 pm

I stopped posting because I was tired of all the negative backlashes I received from posters when I encouraged everyone to buy stocks back a few months ago and my primary reason was liquidity injections, not fundamentals. People only hear what they want, and even now there’s still a lot of negativity. This isn’t to say the economy is great but it’s no where as bad as it was, and I will continue to repeat my buy message – liquidity is driving the markets higher, and only when liquidity is drained from the system will stocks head back down. I see no catalysts going forward that would jeopardize the availability of liquidity. I expect a pull-back next week but I’ll use that opportunity for buying, not selling.

GuestAugust 7th, 2009 at 4:04 pm

Thanks Michelle, some of us listen and watch and then learn. You have been correct. Please let us know when you see changes.Fear, prejudice and hate seem to be alive and well. Right wing entertainment sure seems to fill many brains with bullshit, even educated brains. Thanks SWK for speaking out for those of us who I hope are the silent majority.hlowe

kilgoresAugust 9th, 2009 at 9:17 pm

Don’t mention it, hlowe. Engaging fellow citizens in open and honest debate is a civic duty and a hallmark of a functioning democratic society.SWK

AnonymousAugust 7th, 2009 at 12:30 pm

i hate to say this, but i think you are RIGHTits not dead because of our economy is out of the woods, or the DR prescribed the wrong diagnosis..aaahh i better shut up..

GuestAugust 7th, 2009 at 12:29 pm

Well, Roubini, I am now officially busted from investing based on your assessment of the economy. Even a stopped clock is right twice a day, and as far as I can tell you are no better than a stopped clock.

AnonymousAugust 7th, 2009 at 12:37 pm

ghis assessment of the Economy was more or less correctmaybe we underestimated TPTB reactions, power..however its strange how we are now in the same position as the investors back in the 1930’s, i mean after the first crash there was a huge upswing, well you know the story..i had enough of wall street main street,Govt data, inflation VS Deflation debates,guessing the surf ups/down, now im half cash, qtr gold/silver, qtr anything else..its been a long time since ive taken a vacation….

GuestAugust 7th, 2009 at 1:23 pm

Yeah, I’m exhasusted too. There is absolutely nothing you can do but hurt yourself no matter what you do. Even cash hurts.

GuestAugust 7th, 2009 at 1:14 pm

A post on Zero Hedge on Last Week’s Insiders Transactions says “the ratio of insider buying to selling transactions is 5 to 145. Total transaction value: Buys: $13.4 million; Sells: $1,042 million. At least insiders are feeling (or its dyslexic equivalent, fleeing) the new bull market.” The post displays a complete list of each Ticker, Owner and Transaction –

SoftwarengineerAugust 7th, 2009 at 1:26 pm

We Lost a Quarter of a Million Jobs In July, Its Getting WorseThen unemployment went down 0.1%….how’s that….well it acually may of only gone down 0.01%, because it was 9.46% [9.5% rounded off].Also, the 9.4% anomaly could be moot point number manipulation during the June improvement [?] as follows:”….One of the reasons the unemployment rate did not rise more than it did in June was due to a shrinkage of the labor force of 155,000 workers, partially offsetting the labor force gain in May of 350,000 workers….”The rest of the URL: think when the 9-10% low-ball unemployment calculation hits the top 5% of household incomes very soon, the MSM and Dem/Reps won’t be calling a quarter of million monthly job losses a reason to rejoice and break out the champaign. This MSM nonsense won’t have a willing mouthpiece anymore.

SoftwarengineerAugust 7th, 2009 at 1:32 pm

Population Growth and Chronic Unemployment IncreasesThe mixture of growth and job loss did not occur during GD I, but we have this plague today, a good article in part:“…Furthermore, the loss of 6.5 million jobs over the 18 months of this recession dramatically understates the hole in the current labor market. To keep up with population growth, the economy needs to add around 127,000 jobs every month, so the labor market needed to grow 2.3 million jobs over this period. All told, the labor market is currently 8.8 million jobs below where it would need to be to maintain pre-recession employment levels. If there is any good news in this report, it is that despite the increase in job loss from May, the pace of losses still appears to be slowing from the enormous declines of earlier this year. In the first quarter of 2009, the economy shed 691,000 jobs per month, on average, but in the second quarter the losses averaged 436,000 jobs per month.The continued losses, however, mean unemployment is still rising. This recession has set a new unemployment benchmark as unemployment has increased by 4.6 percentage points, higher than the rise of unemployment in the 1980s recession. Unemployment rose from 9.4% in May to 9.5% in June as 218,000 people were added to the jobless rolls. One of the reasons the unemployment rate did not rise more than it did in June was due to a shrinkage of the labor force of 155,000 workers, partially offsetting the labor force gain in May of 350,000 workers. There are now 14.7 million unemployed workers in this country, up 7.2 million from the start of the recession. The picture changes dramatically, though, when considering the broader measure of underemployment. If the ranks of the “marginally attached” (jobless workers who want a job but are not actively seeking work and so are not counted as officially unemployed) and “involuntary part-time workers” (those who want full-time jobs but can’t get the hours) are added to the mix, the figure rises to 25.9 million, which means nearly one in six U.S. workers (16.5%) is either un- or underemployed….”The rest of the GD II URL:

SoftwarengineerAugust 7th, 2009 at 2:03 pm

Even Obama Agrees With Me On UnemploymentArticle in part:”…The new Labor Department numbers show that employers cut 247,000 jobs in July, another job loss but also the smallest reduction of any month this year. The unemployment rate dropped marginally from 9.5 percent to 9.4 percent, although one of the reasons for that change is that hundreds of thousands of people left the labor force….”The rest of the URL:

MM CAAugust 7th, 2009 at 6:05 pm

NO JOBS continues! Todays data is reflective of thousands falling off the rolls and also a deceling base wof workers.

GuestAugust 8th, 2009 at 12:08 pm

I’ll add that, for this month in particular, it’s worth mentioning the seasonal adjustment. In the establishment data, before seasonal adjustments 1.333 million jobs were lost.

GuestAugust 7th, 2009 at 3:22 pm

Ruined. Totally ruined. There is nothing anyone can say or do to repair the damage I have done to myself. A bear I was. Can’t stand the pain of it anymore. Anguish heartbreak. Lost everything this year. Nothing more to do. Ruined ruined ruined. Larry Kudlow and Jim Cramer laughing as they crush their heel into my face. Roubini gone silent in my hour of need.

Harley QuinnAugust 7th, 2009 at 5:04 pm

Dear Guest,No, it wasn’t me. I have no book to give you now. My book is a work in progress. I only have a few dozen short stories. I’d be glad to share those with you.Best wishes,Harley Quinn

GuestAugust 7th, 2009 at 4:29 pm

Don’t despair. NR cannot accurately predict the direction or the amplitude of the market; very few can (GS?). The problem most of us had was that his predictions on the financial crisis and economy were so good, that we as well as NR started to believe that he could predict the markets! Wrong, wrong, wrong. Now, look at this: From the Dow high to low (14200-6500)= 7700 points. The market has rallied (9300-6500)= 2800 points. 2800/7700 x 100=36% retracement (still bearish) and can easily go 50% retracement or (7700/2)=3850 points from the low of 6500= 10350. Reversals typically retrace up to 50% of total point losses before a new market (bull or bear) is defined. This is the critical point that NR left out of his bear market sucker’s rally scenario! Knowing this, one could have jumped in around 7000 and still be long in this bull/bear market rally and then reassess if market hits 10350. Let’s see what happens. The key is to learn from one’s mistakes as quickly as possible in order to be on the right side of the market trend. I hope that helps.

GuestAugust 7th, 2009 at 4:12 pm

This is not investment advice—Michelle is much better at that than I. I could not have foreseen all the machinations of liquidity injections orchestrated by the Fed. Perhaps Marc Faber did: I know on July 17 he said that the S&P 500 index might go as high as 970 or even 1020 but then it will turn down again. As to what he was telling clients then? “I think the summer is shaping up nicely…take a holiday… Because I think the gravy is out. We had a huge rally March to June.”As to fundamentals, though, it’s getting to the point where even Joe 6Pak can see the weakness in the financial sector and in company financial statements. All show profits up, sales down. What’s this? Cisco Profit Off 46% in latest quarter; Shares rise as quarterly results beat expectations? How much more of this can a sane man take?And who’s left who can’t see that the big banks would be insolvent if they couldn’t use mark-to-fantasy accounting to boost bank operating profits when they report quarter results, discing the mark-to-market rules which have required them and other corporations to assign a value to an asset, such as mortgage securities, credit-card debt or student-loan investments, based on the current market price for either the security or a similar asset?It was to cover this insolvency that prompted the Financial Accounting Standards Board four months ago to give auditors more flexibility in valuing illiquid mortgage assets that may have long-term value (Rest in Pieces, Mark-to-Market).The now-you-see-it, now-you-don’t machinations used in the unemployment reports have massaged the actual figures till truth is nearly obliterated. Thus, the reports have to be couched in thousands of clarifying explanations by analysts, such as this one regarding this week’s figures: “What likely can’t last, though, is the unexpected drop in the unemployment rate, which was due entirely to a 422,000 drop in the labor force…” –Ian Shepherdson, High Frequency EconomicsThe question is, Why? does it come as any surprise that the Fed is using its Treasury auctions to monetize government issued debt, mimicking the actions of a banana republic?Read about it in “The Fed’s UST-POMO Pyramid Scheme Exposed” on Zero Hedge. Says Tyler Durden: “In a brilliant piece of investigative reporting, Chris Martenson has uncovered that the Fed, merely a week after issuing $28 billion in 7 year bonds via its puppet, the US Treasury, of which $10 billion ended up being purchased by primary dealers, has turned and bought 47% of the primary allocated bonds in Open Market Purchases. This is undisputed monetization removed simply via one primary dealer and less than 5 days of temporal separation in order to leave no easy trace.” why would the Fed do that? Well, it may be fake but it’s good for market rallies: “Results came as welcome news for investors after the previous two- and five-year sales failed to attract much demand, raising the cost of borrowing for the U.S. government as it seeks to cover its rising budget shortfall.”In short, none of this has the earmarks of a lasting or even the beginnings of recovery; rather it has the signs of impending catastrophe, IMO, of a system that is over-leveraged, pressed by China, out of control and with few tools remaining in its bag of tricks. This current banking cartel dominated by Goldman Sachs and its officials in the White House has inflicted one of the greatest body blows ever to hit America in its history. But America is not going to fail. The banking cartel is going to fail. Because America is going to have to go in and pull them out by the roots and branches–every last one of them—and put itself back on the road to real recovery.As one blogger said: “When you think about the Fed doing all this buying and printing, I get the increasing sense that they aren’t motivated by crony capitalism with Wall Street (though that’s happening), but that the Fed and the Govt are scared as hell and don’t know what to do anymore.“They were obviously hoping that a re-inflate for a year or so would improve the job and consumption picture and it hasn’t. I wonder if they have some sense of when they’ll just have to admit these shell games aren’t working.”I agree. How this affects the market is not my expertise. But I can assure you of one thing, crisis is coming. It may be 12 months down the road, it may be 18 months, but it is coming. That’s the way I see it. The system is going to be cleared out, one way or another.

GuestAugust 7th, 2009 at 4:49 pm

Unemployment Report DistortionsFriday, August 7, 2009, 8:49 am, by cmartensonThe release of the July unemployment report was filled with a wide array of distortions and inexplicable results (especially from the Birth-Death model), which have undoubtedly resulted in a better-than-warranted reported gain. In this post we’ll explore these oddities in some detail.The news:______________U.S. economy sheds fewer jobs than expectedWASHINGTON (Reuters) – U.S. employers cut 247,000 jobs in July, far less than expected and the least in any month since last August, according to a government report on Friday that provided the clearest evidence yet that the economy was turning around.With fewer workers being laid off, the unemployment rate eased to 9.4 percent in July from 9.5 percent the prior month, the Labor Department said, the first time the jobless rate had fallen since April 2008.___________________________Wait, how can you lose jobs and have the rate of unemployment fall? This doesn’t make sense, because it is the equivalent of saying, “I spent more than I earned and my savings went up.” The key here is understanding the ways in which the government measures unemployment.First, job gains/losses are measured by a sampling of businesses (called the “establishment” data). This gives us the headline number of 247,000 jobs lost. Second, the rate of unemployment comes from a completely different sample, this one of households, which gives us the 9.4% rate of unemployment.As always, the devil is in the details. Without the Birth-Death model providing the largest addition of jobs in its entire series for July, the 247,000 jobs lost number would have been higher.The table below shows the contributions or subtraction of jobs provided by the Birth-Death model in each month of July since its creation. This July sports the highest addition ever: (Chart approximations: July 2000, +11; July 2001, -12; July 2002, -60; July 2003, -82; July 2004, -80; July 2005, -71; July 2006, +21; July 2007, -2; July 2008, +2.5; July 2009, +32)Normally, July and January are “true-up” months, where all the past overstatements of the Birth-Death model are cleaned up.Does it make sense to you that this July, out of all months, the Birth-Death model should be showing the largest monthly gain in the series? It makes sense to me that July 2006 could have squeaked out a positive, since that was at the tail end of a strong period of growth. But July 2009? No, not even in the slightest.If the B-D model had turned in a far more normal looking -60k to -80k result, then the number of reported lost jobs would have been in the range of 350,000 job losses, not the 237,000 reported.However, I would have expected the fact that the B-D model has added 879,000 this year since the last true-up in January, during the worst period of economic growth since the Great Depression, to have been a strong indication that this July would have resulted in one of the largest negative July adjustments on record. Instead we got the strongest positive one!!This is simply so far out of the bounds of “reasonable” that I am almost out of words.But it gets worse.In the table below showing the Household data (source), we can see that the way in which the rate of unemployment dropped from 9.5% to 9.4% was almost entirely due to the fact that 637,000 people were dropped from the labor force – not from an increase in employment.If we left these 637,000 people in the labor force, then the rate of unemployment would have increased from 9.5% to 9.8%. What’s the difference between unemployment slipping to 9.4% rather than increasing to 9.8%?All the difference in the world when you have a major initiative underway:[Note: I am not displaying any sort of partisan or political bias in posting this news item – I am devoutly non-partisan and my track record spanning administrations will bear this out]__________________________________________Obama Setting Out to Put Brighter Face on EconomyAugust 4, 2009WASHINGTON — The White House is making a major push this week to persuade Americans that President Obama’s policies are helping bring the nation out of recession. But a four-letter word — jobs — may well get in the way.With poll numbers showing that support for Mr. Obama’s handling of the economy has declined, the president and other top administration officials — Vice President Joseph R. Biden Jr., Energy Secretary Steven Chu and Commerce Secretary Gary Locke — will hit the road on Wednesday in a coordinated show of force.They will try to make the case, as the president said Saturday in his weekly address, that “in the last few months, the economy has done measurably better than expected.”They have some statistics to back them up.__________________________________________If you are wondering about the political pressure that propels the BLS (et al.) to produce misleading but favorable economic statistics, you need look no further than this article. Obama, like every president before him, has a strong desire to use his station to inject optimism into the economy. That’s hard to do when the statistics are dismal, so every effort is made to have them be brighter and more favorable than they really are. Same as it ever was.Bad statistics can be good for politicians, but not so much for sound decisions.Do we have the “clearest evidence yet that the economy is turning around,” as the original article claimed above, or do we have evidence of something else, like, perhaps, statistical trickery?

GuestAugust 8th, 2009 at 12:08 pm

I’ll add that, for this month in particular, it’s worth mentioning the seasonal adjustment. In the establishment data, before seasonal adjustments 1.333 million jobs were lost.

MM CAAugust 7th, 2009 at 6:10 pm

@Michele- you were saying 2 motnhs ago things were going to be good in the markets, at least for a while. June 24th i went back all in on Foreign Equities, Where i had been 100% since 2001 thru june of 08 when i bailed before the bloodbath. Needles to say I’ve seen approx 30% gain since. However i am convinced all the markets gains are short term and will go way down again. My timeline for gwetting back 100% is early Sept- mid october when i will once bail again, hopefully this time before any losses.

MichelleAugust 7th, 2009 at 7:16 pm

MM, that’s great to hear! Congratulations! I agree that the market may veer down a bit, but since the money I plan to invest is long term money, buying on dips is and has been my current strategy. I don’t expect the markets to dip very far, however. A 10% correction at most and it’s off to the races again, and I’ll again qualify that it’s all dependent on liquidity. Any catalyst that may jeopardize liquidity indicates a possible sell.

GuestAugust 7th, 2009 at 7:58 pm

Well, I’m happy you are raking it in. As for myself, my long-held company stock in GE is still down more than 50% from when I was basking in my pension fortune a year or so ago. That’s fate, or bad investing, I guess. The market goes up, but it doesn’t take me with it. Sure, GE dropped to $5,87 and is now back to 14.70, but that’s still a long way from 30. Well, they said I was in for the long haul. But I’m beginning to wonder, whose “haul”? However, I’m fortunate I didn’t panic as a friend of mine did who couldn’t take the pressure and cashed out near the low.Any tips for 40l(k) dummies would be greatly appreciated. But if what you’re saying goes, it pretty much looks as if this train has already left the station.

GuestAugust 7th, 2009 at 6:58 pm

Comstock Partners on Deleveraging (Not for the Fainthearted) | Naked Capitalism, Yves SmithComstock Partners has a new newsletter out, and it makes a cogent case that there is no pretty way out of our over-leverage mess. The disheartening bit is not only the narrative but a series of charts. One, on debt to GDP, shows that is has risen in the last year (debt was roughly $49 trillion as of last year, it is now $52 trillion this year). So we have had a lot of economic pain with NO reduction in aggregate indebtedness, This isn’t simply shifting private debt onto the public balance sheet (in effect); this is actually an increase in the underlying pathology.That debt to GDP chart is controversial, because the comparability of older data to current figures is debatable. But the key message is that debt to GDP shot up after the stock market fall in the Great Depression due to the collapse in GDP. And while large scale deficit spending did help pull the economy out of the rubble, it was also accompanied by large scale debt reduction, via bankruptcies and bank failures (not pretty, mind you) and restructurings. But in this time around, there is perilously little in the way (yet) of restructurings of underlying debt. That does not bode well for recovery.From Comstock Partners (hat tip DoctoRx):We are in the process of deleveraging the most leveraged economy in history….this deleveraging as a major negative that will weigh on the economy for years to come and we could wind up with a lost couple of decades just as Japan experienced over the past 20 years. It is true that Japan didn’t act as quickly as we did but our debt ratio presently is much worse than Japan’s debt ratios throughout their deleveraging process…This seems to us to be a “mini bubble” of stocks reacting to an abundance of “money printing” by governments all over the world since stocks are rising worldwide. Of course, if the U.S. doesn’t recover there will be no worldwide recovery since the rest of the world is still dependent upon the U.S. consumers’ appetite for their goods and services (despite the so called growth of domestic consumption in China and India). We, however, don’t believe that the U.S. massive stimulus programs and money printing can solve a problem of excess debt generation that resulted from greed and living way beyond our means. If this were the answer Argentina would be one of the most prosperous countries in the world….Most investors believe the bailouts, stimulus plans, and quantitative easing will lead to inflation. In fact, almost all of the bearish prognosticators are negative because of the fear that interest rates will rise once the inflation starts to work its way into the economy. They point to the doubling of the monetary base which they believe will soon lead to rising prices as more dollars are created chasing the same amount of goods. We, on the other hand, are not as concerned about the doubling of the monetary base because we believe the excess money will need the money multiplier and increases in velocity in order to increase aggregate demand and eventually inflation. As long as velocity (turnover of money) is stagnant we expect the increases in the monetary base and all the quantitative easing will lead to a stagnant economy and deflation until the consumer goes into the same borrowing and spending patterns that was characteristic of the 1990s through 2007.Yves here. This point echoes a Gillian Tett piece today. Back to the newsletter”Remember, over the past decade (when we believe the secular bear market started) the total debt in the U.S. doubled from $26 trillion in 2000 to just over $52 trillion presently (peaking a few months ago at $54 trillion). This consists of $14 trillion of gross Federal, State and Local Government debt and $38 trillion of private debt. We expect the private debt to continue declining in the future as the deleveraging of America unfolds, while the government debt will very likely explode to the upside as the government tries to slow down the private deleveraging by helping out the entities and individuals in the most trouble with debt (such as over-extended homeowners).We wrote a special report in January of this year titled “Substituting Debt for Savings and Productive Investment” in which we explained why the U.S. economy historically prospered because of hard working Americans saving a substantial amount of their income which was used for productive investment. Unfortunately, all of this changed over the past few decades and got worse over the past decade. In fact, we stated in the report that it took $1.50 of debt to generate $1 of GDP in the 1960s, $1.70 to generate $1 of GDP in the ’70s, $2.90 in the ’80s, $3.20 in the ’90s, and an unbelievable $5.40 of debt to generate $1 of GDP in the latest decade. Over the past two decades, while most investors thought this trend could continue indefinitely, we have been warning them of the catastrophic problems associated with this ballooning debt….We expect the total debt in the U.S. to decline during the deleveraging period directly ahead, with the government debt exploding while the private debt collapses. The private debt in Japan was almost the reverse of the U.S. where most of our excess debt was in the household sector and most of the excess debt in Japan was in the corporate sector. The debt to GDP figures in Japan were not easy to come by from the typical sources until the mid 1990s and had to be estimated, but should be pretty close to the numbers used above. Our sources on the above Japanese debt figures came from Ned Davis Research and the Federal Reserve Bank of San Francisco. NDR’s report, “Japan’s Lost Decade– Is the U.S. Next?” have great statistics and information and the Fed’s report “U.S. Household Deleveraging and Future Consumption Growth” is well worth reading.The Fed study charted the peak of the debt related bubble of the stock and real estate assets in Japan in 1991 (1989 for stocks and 1991 for real estate) and overlaid it with the peak of U.S. debt associated with the same assets in 2008. They concluded that if we are able to liquidate our debt at the same rate as Japan we would have to increase our savings rate from the present 6% (artificially high due to the recent stimulus paid to households) today to around 10% in 2018. If U.S. households were to undertake a similar deleveraging, the collective debt-to-income ratio which peaked in 2008 at 133% (H/H debt vs. Disposable Personal Income) would need to drop to around 100% by 2018, returning to the level that prevailed in 2002.If the savings rate in the U.S. were to rise to the 10% level by 2018 (following the Japanese experience), the SF Fed economists calculate that it would subtract ¾ of 1% from annual consumption growth each year. We did a weekly comment about this very subject on June 25 of this year and came to a similar conclusion. In that same report we showed that from 1955 to 1985 that consumption accounted for around 62% of GDP. Because of the debt driven consumption over the past few years at the end of March 2009 consumption accounted for over 70% of GDP. If the percentage dropped to the normal low 60% area of GDP it would subtract about $1 trillion off of consumption (or from $10 trillion to $9 trillion)….We expect that the U.S. deleveraging will follow along the path of Japan for years as real estate continues to decline and the deleveraging extracts a significant toll from any growth the economy might experience. We also expect that, just like Japan, the stock market will also be sluggish to down during the next few years as the most leveraged economy in history unwinds the debt.The newsletter also has some charts (not in the text, you need to click on them…..I figured I’d send the curious over there).

GuestAugust 7th, 2009 at 7:02 pm

Baltic Dry Index–worst week since OctoberFrom Bloomberg:The Baltic Dry Index, a measure of shipping costs for commodities, had its worst week since October as Chinese demand for shipments of coal and iron ore slowed.The index tracking transportation costs on international trade routes today slid 135 points, or 4.6 percent, to 2,772 points, according to the Baltic Exchange. That took its weekly drop to 17 percent, the most since the end of October.“The Chinese have backed off and it’s starting to show in the number of shipments this month,” Gavin Durrell, a Cape Town-based official at Island View Shipping SA, Africa’s biggest commodities shipping line, said by phone today. “Iron ore and coal seem to be slowing down.”China’s record coal and iron ore imports in the first half helped the index to advance as much as fivefold this year, reversing some of the record 92 percent collapse in 2008. Demand rose after the country’s government announced a 4 trillion yuan ($586 billion) stimulus package….Rates are declining as Chinese steelmakers delay imports while they negotiate annual iron ore prices with producers such as Rio Tinto Group, BHP Billiton Ltd. and Vale SA, Durrell said. “I don’t think they will come back until they agree,” he said.The drop reflects a wider slide in demand for raw materials that will likely push prices for metals, commodities and energy lower, Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt, said

GuestAugust 8th, 2009 at 1:52 pm

Okay, Okay, I will make my meger contribution…Dr. Housing Bubble does not seem to get much reference here, but it’s really well documented analysis on the evolving housing market in the US and California. the 6th, he did a great job of describing Shadow Housing Market which is the term for non-paying homeowner. Some have not paid on their mortgage for over seven months, but the bank does nothing. No late payment notice, no delinquency notice, no foreclosure notice, no nothing.Dr. Housing Bubble reports that in California some 235,670 homes entered into foreclosure (NTS and REO). That would mean roughly 122,000 homes were added to the real estate Multiple Listing Service (MLS). But we only had 114,495 home sales recorded during this time! So we are missing some 40,000+/- homes from the MLS! Thus, banks are preforming silent “40-year loan modifications” which are self serving for the bank because the principal isn’t touched and the bank can still claim it has an “asset” that is valued at $500,000 when the real market value is more like $250,000.Torsten Slok, senior economist at Deutsche Bank in New York, said about 1.8 million homes are currently in foreclosure nationwide and they will continue to weigh on home prices at least for the rest of this year.Steven Wood, chief economist at Insight Economics in Danville, California said “It appears that there is a significant amount of shadow inventory in the form of bank owned properties, which will continue to grow with the rising in delinquencies.” It can take about 6-18 months for a house to go through delinquency, default, foreclosure, clean-out, and ready for sale.

GuestAugust 8th, 2009 at 1:58 pm

“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising them the most benefits from the public treasury, with the result that a democracy always collapses over a loss of fiscal responsibility, always followed by a dictatorship. The average of the world’s great civilizations before they decline has been 200 years. These nations have progressed in this sequence: From bondage to spiritual faith; from spiritual faith to great courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to complacency; from complacency to apathy; from apathy to dependency; from dependency back again to bondage.”

Ungrateful PeonAugust 9th, 2009 at 1:05 am

Yadda, yadda, yadda and blah, blah, blah. Get back to me when your mind has been freed from the chains of corporatism.

GuestAugust 10th, 2009 at 12:26 am

I would say we had entered the stage of apathy to dependency but that something went wrong with the dependency. It became undependable. And now, it looks as if apathy may be turning into action, and the circle may be broken. Thank Heaven!

GuestAugust 8th, 2009 at 2:13 pm

More Million Homeowners with Negative Equity or No Equity in Their Homes. 33 Percent of California Mortgages Underwater.50% (73.5 million) Americans (and illegals) rent their dwellings. 31% (24 million) homeowners have no mortgage and own their homes. The other 50% (73.5) million are mortgage holders. 16 million of these homeowners owe more than their home is worth and another 5 million have zero equity or a few percent in equity (which is irrelevant if you consider selling costs of 5 to 6 percent).Some 29% (21 million) Americans already have negative equity or will have no equity in the coming months. What Deutsche Bank is predicting is that we will have 34% (25.8 million) people with negative equity by 2011.As we have seen in the last six months, this is not a static picture. The banks and government will continue gimmick the system and sucker in new homeowners only to loose their investments as well.

GuestAugust 8th, 2009 at 4:24 pm

The expiring economyBy Paul Craig RobertsOnline Journal Contributing WriterAug 7, 2009, 00:18Tent cities springing up all over America are filling with the homeless unemployed from the worst economy since the 1930s. While Americans live in tents, the Obama government has embarked on a $1 billion crash program to build a mega-embassy in Islamabad, Pakistan, to rival the one the Bush government built in Baghdad, Iraq.Hard times have now afflicted Americans for so long that even the extension of unemployment benefits from six months to 18 months for 24 high unemployment states, and to 46-72 weeks in other states, is beginning to run out. By Christmas 1.5 million Americans will have exhausted unemployment benefits while unemployment rolls continue to rise.Amidst this worsening economic crisis, the House of Representatives just passed a $636 billion “defense” bill.Who is the United States defending against? Americans have no enemies except those that the US government goes out of its way to create by bombing and invading countries that comprise no threat whatsoever to the US and by encircling others — Russia for example — with threatening military bases.America’s wars are contrived affairs to serve the money-laundering machine: from the taxpayers and money borrowed from foreign creditors to the armaments industry to the political contributions that ensure $636 billion “defense” bills.President George W. Bush gave us wars in Iraq and Afghanistan that are entirely based on lies and misrepresentations. But Obama has done Bush one better. Obama has started a war in Pakistan with no explanation whatsoever.If the armaments industry and the neoconservative brownshirts have their way, the US will also be at war with Iran, Russia, Sudan and North Korea.Meanwhile, America continues to be overrun, as it has been for decades, not by armed foreign enemies but by illegal immigrants across America’s porous and undefended borders.It is more proof of the Orwellian time in which we live that $636 billion appropriated for wars of aggression is called a “defense bill.”Who is going to pay for all of this? When foreign countries have spent their trade surpluses and have no more dollars to recycle into the purchase of Treasury bonds, when US banks have used up their “bailout” money by purchasing Treasury bonds, and when the Federal Reserve cannot print any more money to keep the government going without pushing up inflation and interest rates, the taxpayer will be all that is left. Already Obama’s two top economic advisors, Treasury Secretary Timothy Geithner and director of the National Economic Council Larry Summers, are floating the prospect of a middle class tax increase. Will Obama be maneuvered away from his promise just as Bush Sr. was?Will Americans see the disconnect between their interests and the interests of “their” government? In the small town of Vassalboro, Maine, a few topless waitress jobs in a coffee house drew 150 applicants. Women in this small town are so desperate for jobs that they are reduced to undressing for their neighbors’ amusement…etc.

GuestAugust 8th, 2009 at 9:37 pm

Fed will print money to keep government going regardless of inflation and rise in interest rate. Fed and Geithner all work for Obama and Pelosi that promote CASH FOR CLUNKERED BAILOUT, ObamaCare for everyone, and UNLIMITED revolving unemployment benefits. It is Obama and Pelosi’s NEW DEAL, cheers. 🙂

GuestAugust 8th, 2009 at 6:04 pm

evil Obama and Pelosi encourage subprime lending practices”loosening of Fannie Mae and Freddie Mac rules in order to boost the number of borrowers that refinance and modify their loans by increasing the percentage of the home value the mortgage can represent to 125% of the house’s value”

GuestAugust 8th, 2009 at 11:07 pm

The trouble is, somebody’s going to end up paying for all this, and it won’t be the bankers, or Obama and Pelosi.I heard on talk radio last week that more and more Americans are leaving the country, for good. Why? Because more and more people are worried about taxes, and they feel they are being targeted. And these people aren’t the hopeless huddled masses, not yet anyway. That’s why they’re getting out, before it happens, especially those now retiring who need to stretch their dough.The only problem, if Americans abroad don’t want to pay taxes to spendthrift ol’ Uncle Sam, they have to renounce their citizenship.Americans and Canadians now living abroad is about 7 million (according to The Washington Post), and growing steadily and expected to more than double within ten years.So, with new tax pressures from Washington facing America’s citizens abroad, international tax lawyers say there’s a rising demand from many of these citizens to renounce ties with the United States. The U.S. is the only developed country that taxes its citizens while they are overseas. Americans abroad are also taxed in foreign countries where they reside.And now that Obama, only a few months in office and already $1.4 trillion deeper in debt, is on a tax-hungry witch hunt for Americans in foreign countries, more probably will go underground in order to evade his pursuit. With the IRS and Obama looking over their shoulders, British and Swiss banks aren’t going to put up with it and are telling American workers and retirees to get their accounts out of their banks. Says America’s citizen of the world, Obama, this is an acceptable price to pay for obedience.Unfortunately, current politicians in Washington want to raise tax rates even higher on beleaguered taxpayers, which will create even more incentive for tax evasion and tax avoidance abroad, IMO.So. Open borders for some; closed borders for others. What some people won’t do to get in these days, and what others won’t do to get out. I expect when tax paying Americans get their bills for their share of Goldman’s (et al.) $23.7 trillion in Tarp and the nation’s $11.4 trillion in debt, plus free healthcare for 20 million illegals and trillions in cap and trade costs to Goldman for administering the world’s air, the borders are going to get even more crowded.But I do have one question. Why is Obama not scouting around in the Cayman Islands for all those multibillionaire international corporations who dodge taxes? And why is it that two-thirds of all U.S. corporations pay no federal income tax at all? Isn’t something awfully wrong here?

GuestAugust 9th, 2009 at 12:27 am

higher tax not just scare rich american to seek refuge in abroad. it will scare upper-class, middle-class talent american to seek refuge in abroad. it will scare foreign talent from working for american company. Obama and Pelosi’s NEW DEAL will destroy America. without talent, American will be 3rd rated country without innovation.

Ungrateful PeonAugust 9th, 2009 at 12:53 am

pfffft … talent? Please! We can do without anymore ‘talent’, thank-you very much.Let ’em all leave the country. Maybe then the blatant looting will stop.It’s one thing to be robbed but quite another to hold the thieves who’re robbing you in high esteem. Get real!

ArmchairAugust 9th, 2009 at 2:49 pm

Have you ever heard of the Foreing Earned Income Exlusion? Check out Section 911 of the IRC. Is 87K not enough of an exlusion? Good for you fat-cat! Can’t you be satisfied with your 15% capital gains tax?

The AlarmistAugust 11th, 2009 at 2:33 pm

You ever hear of the Alternative Minimum Tax Foreign Tax Credit Limitation ??? You can bet that one is going to come back, and it will once again mean we are double taxed for the privilege of walking around the world with a target on our back and a rude greeting from TSA and INS when we come home.Can you say “Taxation without representation?”

GuestAugust 10th, 2009 at 9:30 am

And I have a question. Do those allowed double citizenship in the U.S, the Mexicans and the Jews, have to continue to pay U.S. taxes if they elect to return to their homelands?

GuestAugust 8th, 2009 at 7:17 pm

ENTERING THE GREATEST DEPRESSION IN HISTORYMore Bubbles Waiting to Burst | August 8, 2009by Andrew Gavin Marshall of the Centre for Research on GlobalizationIntroductionWhile there is much talk of a recovery on the horizon, commentators are forgetting some crucial aspects of the financial crisis. The crisis is not simply composed of one bubble, the housing real estate bubble, which has already burst. The crisis has many bubbles, all of which dwarf the housing bubble burst of 2008. Indicators show that the next possible burst is the commercial real estate bubble. However, the main event on the horizon is the “bailout bubble” and the general world debt bubble, which will plunge the world into a Great Depression the likes of which have never before been seen.Housing Crash Still Not OverThe housing real estate market, despite numbers indicating an upward trend, is still in trouble, as, “Houses are taking months to sell. Many buyers are having trouble getting financing as lenders and appraisers struggle to figure out what houses are really worth in the wake of the collapse.” Further, “the overall market remains very soft […] aside from speculators and first-time buyers.” Dean Baker, co-director of the Center for Economic and Policy Research in Washington said, “It would be wrong to imagine that we have hit a turning point in the market,” as “There is still an enormous oversupply of housing, which means that the direction of house prices will almost certainly continue to be downward.” Foreclosures are still rising in many states “such as Nevada, Georgia and Utah, and economists say rising unemployment may push foreclosures higher into next year.” Clearly, the housing crisis is still not at an end.[1]The Commercial Real Estate BubbleIn May, Bloomberg quoted Deutsche Bank CEO Josef Ackermann as saying, “It’s either the beginning of the end or the end of the beginning.” Bloomberg further pointed out that, “A piece of the puzzle that must be calculated into any determination of the depth of our economic doldrums is the condition of commercial real estate – the shopping malls, hotels, and office buildings that tend to go along with real-estate expansions.” Residential investment went down 28.9 % from 2006 to 2007, and at the same time, nonresidential investment grew 24.9%, thus, commercial real estate was “serving as a buffer against the declining housing market.”Commercial real estate lags behind housing trends, and so too, will the crisis, as “commercial construction projects are losing their appeal.” Further, “there are lots of reasons to suspect that commercial real estate was subject to some of the loose lending practices that afflicted the residential market. The Office of the Comptroller of the Currency’s Survey of Credit Underwriting Practices found that whereas in 2003 just 2 percent of banks were easing their underwriting standards on commercial construction loans, by 2006 almost a third of them were relaxing.” In May it was reported that, “Almost 80 percent of domestic banks are tightening their lending standards for commercial real-estate loans,” and that, “we may face double-bubble trouble for real estate and the economy.”[2]In late July of 2009, it was reported that, “Commercial real estate’s decline is a significant issue facing the economy because it may result in more losses for the financial industry than residential real estate. This category includes apartment buildings, hotels, office towers, and shopping malls.” Worth noting is that, “As the economy has struggled, developers and landlords have had to rely on a helping hand from the US Federal Reserve in order to try to get credit flowing so that they can refinance existing buildings or even to complete partially constructed projects.” So again, the Fed is delaying the inevitable by providing more liquidity to an already inflated bubble. As the Financial Post pointed out, “From Vancouver to Manhattan, we are seeing rising office vacancies and declines in office rents.”[3]In April of 2009, it was reported that, “Office vacancies in U.S. downtowns increased to 12.5 percent in the first quarter, the highest in three years, as companies cut jobs and new buildings came onto the market,” and, “Downtown office vacancies nationwide could come close to 15 percent by the end of this year, approaching the 10-year high of 15.5 percent in 2003.”[4]In the same month it was reported that, “Strip malls, neighborhood centers and regional malls are losing stores at the fastest pace in at least a decade, as a spending slump forces retailers to trim down to stay afloat.” In the first quarter of 2009, retail tenants “have vacated 8.7 million square feet of commercial space,” which “exceeds the 8.6 million square feet of retail space that was vacated in all of 2008.” Further, as CNN reported, “vacancy rates at malls rose 9.5% in the first quarter, outpacing the 8.9% vacancy rate registered in all of 2008.” Of significance for those that think and claim the crisis will be over by 2010, “mall vacancies [are expected] to exceed historical levels through 2011,” as for retailers, “it’s only going to get worse.”[5] Two days after the previous report, “General Growth Properties Inc, the second-largest U.S. mall owner, declared bankruptcy on [April 16] in the biggest real estate failure in U.S. history.”[6]In April, the Financial Times reported that, “Property prices in China are likely to halve over the next two years, a top government researcher has predicted in a powerful signal that the country’s economic downturn faces further challenges despite recent positive data.” This is of enormous significance, as “The property market, along with exports, were leading drivers of the booming Chinese economy over the past decade.” Further, “an apparent rebound in the property market was unsustainable over the medium term and being driven by a flood of liquidity and fraudulent activity rather than real demand.” A researcher at a leading Chinese government think tank reported that, “he expected average urban residential property prices to fall by 40 to 50 per cent over the next two years from their levels at the end of 2008.”[7]In April, it was reported that, “The Federal Reserve is considering offering longer loans to investors in commercial mortgage-backed securities as part of a plan to help jump-start the market for commercial real estate debt.” Since February the Fed “has been analyzing appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and other mortgage assets as collateral for its Term Asset-Backed Securities Lending Facility (TALF).”[8]In late July, the Financial Times reported that, “Two of America’s biggest banks, Morgan Stanley and Wells Fargo … threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loan,” as “The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.” The commercial property market, worth $6.7 trillion, “which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery.”[9]The Bailout BubbleWhile the bailout, or the “stimulus package” as it is often referred to, is getting good coverage in terms of being portrayed as having revived the economy and is leading the way to the light at the end of the tunnel, key factors are again misrepresented in this situation.At the end of March of 2009, Bloomberg reported that, “The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year.” This amount “works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.”[10]Gerald Celente, the head of the Trends Research Institute, the major trend-forecasting agency in the world, wrote in May of 2009 of the “bailout bubble.” Celente’s forecasts are not to be taken lightly, as he accurately predicted the 1987 stock market crash, the fall of the Soviet Union, the 1998 Russian economic collapse, the 1997 East Asian economic crisis, the 2000 Dot-Com bubble burst, the 2001 recession, the start of a recession in 2007 and the housing market collapse of 2008, among other things.On May 13, 2009, Celente released a Trend Alert, reporting that, “The biggest financial bubble in history is being inflated in plain sight,” and that, “This is the Mother of All Bubbles, and when it explodes […] it will signal the end to the boom/bust cycle that has characterized economic activity throughout the developed world.” Further, “This is much bigger than the Dot-com and Real Estate bubbles which hit speculators, investors and financiers the hardest. However destructive the effects of these busts on employment, savings and productivity, the Free Market Capitalist framework was left intact. But when the ‘Bailout Bubble’ explodes, the system goes with it.”Celente further explained that, “Phantom dollars, printed out of thin air, backed by nothing … and producing next to nothing … defines the ‘Bailout Bubble.’ Just as with the other bubbles, so too will this one burst. But unlike Dot-com and Real Estate, when the “Bailout Bubble” pops, neither the President nor the Federal Reserve will have the fiscal fixes or monetary policies available to inflate another.” Celente elaborated, “Given the pattern of governments to parlay egregious failures into mega-failures, the classic trend they follow, when all else fails, is to take their nation to war,” and that, “While we cannot pinpoint precisely when the ‘Bailout Bubble’ will burst, we are certain it will. When it does, it should be understood that a major war could follow.”[11][CELENTE VIDEO: THE BAILOUT BUBBLE IS THE MOTHER OF ALL BUBBLES], this “bailout bubble” that Celente was referring to at the time was the $12.8 trillion reported by Bloomberg. As of July, estimates put this bubble at nearly double the previous estimate.As the Financial Times reported in late July of 2009, while the Fed and Treasury hail the efforts and impact of the bailouts, “Neil Barofsky, special inspector-general for the troubled asset relief programme, [TARP] said that the various US schemes to shore up banks and restart lending exposed federal agencies to a risk of $23,700bn [$23.7 trillion] – a vast estimate that was immediately dismissed by the Treasury.” The inspector-general of the TARP program stated that there were “fundamental vulnerabilities . . . relating to conflicts of interest and collusion, transparency, performance measures, and anti-money laundering.”Barofsky also reports on the “considerable stress” in commercial real estate, as “The Fed has begun to open up Talf to commercial mortgage-backed securities to try to influence credit conditions in the commercial real estate market. The report draws attention to a new potential credit crunch when $500bn worth of real estate mortgages need to be refinanced by the end of the year.” Ben Bernanke, the Chairman of the Fed, and Timothy Geithner, the Treasury Secretary and former President of the New York Fed, are seriously discussing extending TALF (Term Asset-Backed Securities Lending Facility) into “CMBS [Commercial Mortgage-Backed Securities] and other assets such as small business loans and whether to increase the size of the programme.” It is the “expansion of the various programmes into new and riskier asset classes is one of the main bones of contention between the Treasury and Mr Barofsky.”[12]Testifying before Congress, Barofsky said, “From programs involving large capital infusions into hundreds of banks and other financial institutions, to a mortgage modification program designed to modify millions of mortgages, to public-private partnerships using tens of billions of taxpayer dollars to purchase ‘toxic’ assets from banks, TARP has evolved into a program of unprecedented scope, scale, and complexity.” He explained that, “The total potential federal government support could reach up to 23.7 trillion dollars.”[13]Is a Future Bailout Possible?In early July of 2009, billionaire investor Warren Buffet said that, “unemployment could hit 11 percent and a second stimulus package might be needed as the economy struggles to recover from recession,” and he further stated that, “we’re not in a recovery.”[14] Also in early July, an economic adviser to President Obama stated that, “The United States should be planning for a possible second round of fiscal stimulus to further prop up the economy.”[15]In August of 2009, it was reported that, “THE Obama administration will consider dishing out more money to rein in unemployment despite signs the recession is ending,” and that, “Treasury secretary Tim Geithner also conceded tax hikes could be on the agenda as the government worked to bring its huge recovery-related deficits under control.” Geithner said, “we will do what it takes,” and that, “more federal cash could be tipped into the recovery as unemployment benefits amid projections the benefits extended to 1.5 million jobless Americans will expire without Congress’ intervention.” However, any future injection of money could be viewed as “a second stimulus package.”[16]The Washington Post reported in early July of a Treasury Department initiative known as “Plan C.” The Plan C team was assembled “to examine what could yet bring [the economy] down and has identified several trouble spots that could threaten the still-fragile lending industry,” and “the internal project is focused on vexing problems such as the distressed commercial real estate markets, the high rate of delinquencies among homeowners, and the struggles of community and regional banks.”Further, “The team is also responsible for considering potential government responses, but top officials within the Obama administration are wary of rolling out initiatives that would commit massive amounts of federal resources.” The article elaborated in saying that, “The creation of Plan C is a sign that the government has moved into a new phase of its response, acting preemptively rather than reacting to emerging crises.” In particular, the near-term challenge they are facing is commercial real estate lending, as “Banks and other firms that provided such loans in the past have sharply curtailed lending,” leaving “many developers and construction companies out in the cold.” Within the next couple years, “these groups face a tidal wave of commercial real estate debt – some estimates peg the total at more than $3 trillion – that they will need to refinance. These loans were issued during this decade’s construction boom with the mistaken expectation that they would be refinanced on the same generous terms after a few years.”However, as a result of the credit crisis, “few developers can find anyone to refinance their debt, endangering healthy and distressed properties.” Kim Diamond, a managing director at Standard & Poor’s, stated that, “It’s not a degree to which people are willing to lend,” but rather, “The question is whether a loan can be made at all.” Important to note is that, “Financial analysts said losses on commercial real estate loans are now the single largest cause of bank failures,” and that none of the bailout efforts enacted “is big enough to address the size of the problem.”[17]So the question must be asked: what is Plan C contemplating in terms of a possible government “solution”? Another bailout? The effect that this would have would be to further inflate the already monumental bailout bubble.The Great European BubbleIn October of 2008, Germany and France led a European Union bailout of 1 trillion Euros, and “World markets initially soared as European governments pumped billions into crippled banks. Central banks in Europe also mounted a new offensive to restart lending by supplying unlimited amounts of dollars to commercial banks in a joint operation.”[18]The American bailouts even went to European banks, as it was reported in March of 2009 that, “European banks declined to discuss a report that they were beneficiaries of the $173 billion bail-out of insurer AIG,” as “Goldman Sachs, Morgan Stanley and a host of other U.S. and European banks had been paid roughly $50 billion since the Federal Reserve first extended aid to AIG.” Among the European banks, “French banks Societe Generale and Calyon on Sunday declined to comment on the story, as did Deutsche Bank, Britain’s Barclays and unlisted Dutch group Rabobank.” Other banks that got money from the US bailout include HSBC, Wachovia, Merrill Lynch, Banco Santander and Royal Bank of Scotland. Because AIG was essentially insolvent, “the bailout enabled AIG to pay its counterparty banks for extra collateral,” with “Goldman Sachs and Deutsche bank each receiving $6 billion in payments between mid-September and December.”[19]In April of 2009, it was reported that, “EU governments have committed 3 trillion Euros [or $4 trillion dollars] to bail out banks with guarantees or cash injections in the wake of the global financial crisis, the European Commission.”[20]In early February of 2009, the Telegraph published a story with a startling headline, “European banks may need 16.3 trillion pound bail-out, EC document warns.” Type this headline into google, and the link to the Telegraph appears. However, click on the link, and the title has changed to “European bank bail-out could push EU into crisis.” Further, they removed any mention of the amount of money that may be required for a bank bailout. The amount in dollars, however, nears $25 trillion. The amount is the cumulative total of the troubled assets on bank balance sheets, a staggering number derived from the derivatives trade.The Telegraph reported that, “National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors – particularly those who lend money to European governments – have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.”[21]When Eastern European countries were in desperate need of financial aid, and discussion was heated on the possibility of an EU bailout of Eastern Europe, the EU, at the behest of Angela Merkel of Germany, denied the East European bailout. However, this was more a public relations stunt than an actual policy position.While the EU refused money to Eastern Europe in the form of a bailout, in late March European leaders “doubled the emergency funding for the fragile economies of central and eastern Europe and pledged to deliver another doubling of International Monetary Fund lending facilities by putting up 75bn Euros (70bn pounds).” EU leaders “agreed to increase funding for balance of payments support available for mainly eastern European member states from 25bn Euros to 50bn Euros.”[22]As explained in a Times article in June of 2009, Germany has been deceitful in its public stance versus its actual policy decisions. The article, worth quoting in large part, first explained that:“Europe is now in the middle of a perfect storm – a confluence of three separate, but interconnected economic crises which threaten far greater devastation than Britain or America have suffered from the credit crunch: the collapse of German industry and employment, the impending bankruptcy of Central European homeowners and businesses; and the threat of government debt defaults from loss of monetary control by the Irish Republic, Greece and Portugal, for instance on the eurozone periphery.”Taking the case of Latvia, the author asks, “If the crisis expands, other EU governments – and especially Germany’s – will face an existential question. Do they commit hundreds of billions of euros to guarantee the debts of fellow EU countries? Or do they allow government defaults and devaluations that may ultimately break up the single currency and further cripple German industry, as well as the country’s domestic banks?” While addressing that, “Publicly, German politicians have insisted that any bailouts or guarantees are out of the question,” however, “the pass has been quietly sold in Brussels, while politicians loudly protested their unshakeable commitment to defend it.”The author addressed how in October of 2008:“[…] a previously unused regulation was discovered, allowing the creation of a 25 billion Euros “balance of payments facility” and authorising the EU to borrow substantial sums under its own “legal personality” for the first time. This facility was doubled again to 50 billion Euros in March. If Latvia’s financial problems turn into a full-scale crisis, these guarantees and cross-subsidies between EU governments will increase to hundreds of billions in the months ahead and will certainly mutate into large-scale centralised EU borrowing, jointly guaranteed by all the taxpayers of the EU.“[…] The new EU borrowing, for example, is legally an ‘off-budget’ and ‘back-to-back’ arrangement, which allows Germany to maintain the legal fiction that it is not guaranteeing the debts of Latvia et al. The EU’s bond prospectus to investors, however, makes quite clear where the financial burden truly lies: “From an investor’s point of view the bond is fully guaranteed by the EU budget and, ultimately, by the EU Member States.”[23]So Eastern Europe is getting, or presumably will get bailed out. Whether this is in the form of EU federalism, providing loans of its own accord, paid for by European taxpayers, or through the IMF, which will attach any loans with its stringent Structural Adjustment Program (SAP) conditionalities, or both. It turned out that the joint partnership of the IMF and EU is what provided the loans and continues to provide such loans.As the Financial Times pointed out in August of 2009, “Bank failures or plunging currencies in the three Baltic nations – Latvia, Lithuania and Estonia – could threaten the fragile prospect of recovery in the rest of Europe. These countries also sit on one of the world’s most sensitive political fault-lines. They are the European Union’s frontier states, bordering Russia.” In July, Latvia “agreed its second loan in eight months from the IMF and the EU,” following the first one in December. Lithuania is reported to be following suit. However, as the Financial Times noted, the loans came with the IMF conditionalities: “The injection of cash is the good news. The bad news is that, in return for shoring up state finances, the new IMF deal will require the Latvian government to impose yet more pain on its suffering population. Public-sector wages have already been cut by about a third this year. Pensions have been sliced. Now the IMF requires Latvia to cut another 10 per cent from the state budget this autumn.”[24]If we are to believe the brief Telegraph report pertaining to nearly $25 trillion in bad bank assets, which was removed from the original article for undisclosed reasons, not citing a factual retraction, the question is, does this potential bailout still stand? These banks haven’t been rescued financially from the EU, so, presumably, these bad assets are still sitting on the bank balance sheets. This bubble has yet to blow. Combine this with the $23.7 trillion US bailout bubble, and there is nearly $50 trillion between the EU and the US waiting to burst.An Oil BubbleIn early July of 2009, the New York Times reported that, “The extreme volatility that has gripped oil markets for the last 18 months has shown no signs of slowing down, with oil prices more than doubling since the beginning of the year despite an exceptionally weak economy.” Instability in the oil and gas prices has led many to “fear it could jeopardize a global recovery.” Further, “It is also hobbling businesses and consumers,” as “A wild run on the oil markets has occurred in the last 12 months.” Oil prices reached a record high last summer at $145/barrel, and with the economic crisis they fell to $33/barrel in December. However, since the start of 2009, oil has risen 55% to $70/barrel.As the Times article points out, “the recent rise in oil prices is reprising the debate from last year over the role of investors – or speculators – in the commodity markets.” Energy officials from the EU and OPEC met in June and concluded that, “the speculation issue had not been resolved yet and that the 2008 bubble could be repeated.”[25]In June of 2009, Hedge Fund manager Michael Masters told the US Senate that, “Congress has not done enough to curb excessive speculation in the oil markets, leaving the country vulnerable to another price run-up in 2009.” He explained that, “oil prices are largely not determined by supply and demand but the trading desks of large Wall Street firms.” Because “Nothing was actually done by Congress to put an end to the problem of excessive speculation” in 2008, Masters explained, “there is nothing to prevent another bubble in oil prices in 2009. In fact, signs of another possible bubble are already beginning to appear.”[26]In May of 2008, Goldman Sachs warned that oil could reach as much as $200/barrel within the next 12-24 months [up to May 2010]. Interestingly, “Goldman Sachs is one of the largest Wall Street investment banks trading oil and it could profit from an increase in prices.”[27] However, this is missing the key point. Not only would Goldman Sachs profit, but Goldman Sachs plays a major role in sending oil prices up in the first place.As Ed Wallace pointed out in an article in Business Week in May of 2008, Goldman Sachs’ report placed the blame for such price hikes on “soaring demand” from China and the Middle East, combined with the contention that the Middle East has or would soon peak in its oil reserves. Wallace pointed out that:“Goldman Sachs was one of the founding partners of online commodities and futures marketplace Intercontinental Exchange (ICE). And ICE has been a primary focus of recent congressional investigations; it was named both in the Senate’s Permanent Subcommittee on Investigations’ June 27, 2006, Staff Report and in the House Committee on Energy & Commerce’s hearing last December. Those investigations looked into the unregulated trading in energy futures, and both concluded that energy prices’ climb to stratospheric heights has been driven by the billions of dollars’ worth of oil and natural gas futures contracts being placed on the ICE – which is not regulated by the Commodities Futures Trading Commission.”[28]Essentially, Goldman Sachs is one of the key speculators in the oil market, and thus, plays a major role in driving oil prices up on speculation. This must be reconsidered in light of the resurgent rise in oil prices in 2009. In July of 2009, “Goldman Sachs Group Inc. posted record earnings as revenue from trading and stock underwriting reached all-time highs less than a year after the firm took $10 billion in U.S. rescue funds.”[29] Could one be related to the other?Bailouts Used in SpeculationIn November of 2008, the Chinese government injected an “$849 billion stimulus package aimed at keeping the emerging economic superpower growing.”[30] China then recorded a rebound in the growth rate of the economy, and underwent a stock market boom. However, as the Wall Street Journal pointed out in July of 2009, “Its growth is now fuelled by cheap debt rather than corporate profits and retained earnings, and this shift in the medium term threatens to undermine China’s economic decoupling from the global slump.” Further, “overseas money has been piling into China, inflating foreign exchange reserves and domestic liquidity. So perhaps it is not surprising that outstanding bank loans have doubled in the last few years, or that there is much talk of a shadow banking system. Then there is China’s reputation for building overcapacity in its industrial sector, a notoriety it won even before the crash in global demand. This showed a disregard for returns that is always a tell-tale sign of cheap money.”China’s economy primarily relies upon the United States as a consumption market for its cheap products. However, “The slowdown in U.S. consumption amid a credit crunch has exposed the weaknesses in this export-led financing model. So now China is turning instead to cheap debt for funding, a shift suggested by this year’s 35% or so rise in bank loans.”[31]In August of 2009, it was reported that China is experiencing a “stimulus-fueled stock market boom.” However, this has caused many leaders to “worry that too much of the $1-trillion lending binge by state banks that paid for China’s nascent revival was diverted into stocks and real estate, raising the danger of a boom and bust cycle and higher inflation less than two years after an earlier stock market bubble burst.”[32]The same reasoning needs to be applied to the US stock market surge. Something is inherently and structurally wrong with a financial system in which nothing is being produced, 600,000 jobs are lost monthly, and yet, the stock market goes up. Why is the stock market going up?The Troubled Asset Relief Program (TARP), which provided $700 billion in bank bailouts, started under Bush and expanded under Obama, entails that the US Treasury purchases $700 billion worth of “troubled assets” from banks, and in turn, “that banks cannot be asked to account for their use of taxpayer money.”[33]So if banks don’t have to account for where the money goes, where did it go? They claim it went back into lending. However, bank lending continues to go down.[34] Stock market speculation is the likely answer. Why else would stocks go up, lending continue downwards, and the bailout money be unaccounted for?What Does the Bank for International Settlements (BIS) Have to Say?In late June, the Bank for International Settlements (BIS), the central bank of the world’s central banks, the most prestigious and powerful financial organization in the world, delivered an important warning. It stated that, “fiscal stimulus packages may provide no more than a temporary boost to growth, and be followed by an extended period of economic stagnation.”The BIS, “The only international body to correctly predict the financial crisis … has warned the biggest risk is that governments might be forced by world bond investors to abandon their stimulus packages, and instead slash spending while lifting taxes and interest rates,” as the annual report of the BIS “has for the past three years been warning of the dangers of a repeat of the depression.” Further, “Its latest annual report warned that countries such as Australia faced the possibility of a run on the currency, which would force interest rates to rise.” The BIS warned that, “a temporary respite may make it more difficult for authorities to take the actions that are necessary, if unpopular, to restore the health of the financial system, and may thus ultimately prolong the period of slow growth.”Of immense import is the BIS warning that, “At the same time, government guarantees and asset insurance have exposed taxpayers to potentially large losses,” and explaining how fiscal packages posed significant risks, it said that, “There is a danger that fiscal policy-makers will exhaust their debt capacity before finishing the costly job of repairing the financial system,” and that, “There is the definite possibility that stimulus programs will drive up real interest rates and inflation expectations.” Inflation “would intensify as the downturn abated,” and the BIS “expressed doubt about the bank rescue package adopted in the US.”[35]The BIS further warned of inflation, saying that, “The big and justifiable worry is that, before it can be reversed, the dramatic easing in monetary policy will translate into growth in the broader monetary and credit aggregates,” the BIS said. That will “lead to inflation that feeds inflation expectations or it may fuel yet another asset-price bubble, sowing the seeds of the next financial boom-bust cycle.”[36]Major investors have also been warning about the dangers of inflation. Legendary investor Jim Rogers has warned of “a massive inflation holocaust.”[37] Investor Marc Faber has warned that, “The U.S. economy will enter ‘hyperinflation’ approaching the levels in Zimbabwe,” and he stated that he is “100 percent sure that the U.S. will go into hyperinflation.” Further, “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”[38]Are We Entering A New Great Depression?In 2007, it was reported that, “The Bank for International Settlements, the world’s most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.” Further:“The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.“[…] In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be “cleaned up” afterwards – which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.”[39]In 2008, the BIS again warned of the potential of another Great Depression, as “complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression.”[40]In 2008, the BIS also said that, “The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point,” and that all central banks have done “has been to put off the day of reckoning.”[41]In late June of 2009, the BIS reported that as a result of stimulus packages, it has only seen “limited progress” and that, “the prospects for growth are at risk,” and further “stimulus measures won’t be able to gain traction, and may only lead to a temporary pickup in growth.” Ultimately, “A fleeting recovery could well make matters worse.”[42]The BIS has said, in softened language, that the stimulus packages are ultimately going to cause more damage than they prevented, simply delaying the inevitable and making the inevitable that much worse. Given the previous BIS warnings of a Great Depression, the stimulus packages around the world have simply delayed the coming depression, and by adding significant numbers to the massive debt bubbles of the world’s nations, will ultimately make the depression worse than had governments not injected massive amounts of money into the economy.After the last Great Depression, Keynesian economists emerged victorious in proposing that a nation must spend its way out of crisis. This time around, they will be proven wrong. The world is a very different place now. Loose credit, easy spending and massive debt is what has led the world to the current economic crisis, spending is not the way out. The world has been functioning on a debt based global economy. This debt based monetary system, controlled and operated by the global central banking system, of which the apex is the Bank for International Settlements, is unsustainable. This is the real bubble, the debt bubble. When it bursts, and it will burst, the world will enter into the Greatest Depression in world history.Notes[1] Barrie McKenna, End of housing slump? Try telling that to buyers, sellers and the unemployed. The Globe and Mail: August 6, 2009: Gene Sperling, Double-Bubble Trouble in Commercial Real Estate: Gene Sperling. Bloomberg: May 9, 2009: AL Sull, Commercial Real Estate – The Other Real Estate Bubble. Financial Post: July 23, 2009: Hui-yong Yu, U.S. Office Vacancies Rise to Three-Year High, Cushman Says. Bloomberg: April 16, 2009: Parija B. Kavilanz, Malls shedding stores at record pace. CNN Money: April 14, 2009: Ilaina Jonas and Emily Chasan, General Growth files largest U.S. real estate bankruptcy. Reuters: April 16, 2009: Jamil Anderlini, China property prices ‘likely to halve’. The Financial Times: April 13, 2009: Reuters, Fed Might Extend TALF Support to Five Years. Money News: April 17, 2009: Francesco Guerrera and Greg Farrell, US banks warn on commercial property. The Financial Times: July 22, 2009: Mark Pittman and Bob Ivry, Financial Rescue Nears GDP as Pledges Top $12.8 Trillion. Bloomberg: March 31, 2009: Gerald Celente, The “Bailout Bubble” – The Bubble to End All Bubbles. Trends Research Institute: May 13, 2009: Tom Braithwaite, Treasury clashes with Tarp watchdog on data. The Financial Times: July 20, 2009: AFP, US could spend 23.7 trillion dollars on crisis: report. Agence-France Presse: July 20, 2009: John Whitesides, Warren Buffett says second stimulus might be needed. Reuters: July 9, 2009: Vidya Ranganathan, U.S. should plan 2nd fiscal stimulus: economic adviser. Reuters: July 7, 2009: Carly Crawford, US may increase stimulus payments to rein in unemployment. The Herald Sun: August 3, 2009:,21985,25873672-664,00.html%5B17%5D David Cho and Binyamin Appelbaum, Treasury Works on ‘Plan C’ To Fend Off Lingering Threats. The Washington Post: July 8, 2009: Charles Bremner and David Charter, Germany and France lead €1 trillion European bailout. Times Online: October 13, 2009: Douwe Miedema, Europe banks silent on reported AIG bailout gains. Reuters: March 8, 2009: Elitsa Vucheva, European Bank Bailout Total: $4 Trillion. Business Week: April 10, 2009: Bruno Waterfield, European bank bail-out could push EU into crisis. The Telegraph: February 11, 2009: Ian Traynor, EU doubles funding for fragile eastern European economies. The Guardian: March 20, 2009: Anatole Kaletsky, The great bailout – Europe’s best-kept secret. The Times Online: June 4, 2009: Gideon Rachman, Europe prepares for a Baltic blast. The Financial Times: August 3, 2009: JAD MOUAWAD, Swings in Price of Oil Hobble Forecasting. The New York Times: July 5, 2009: Christopher Doering, Masters says signs of oil bubble starting to appear. Reuters: June 4, 2009: Javier Blas and Chris Flood, Analyst warns of oil at $200 a barrel. The Financial Times: May 6, 2008: Ed Wallace, The Reason for High Oil Prices. Business Week: May 13, 2009: Christine Harper, Goldman Sachs Posts Record Profit, Beating Estimates. Bloomberg: July 14, 2009: Peter Martin and John Garnaut, The great China bailout. The Age: November 11, 2008: Paul Cavey, Now China Has a Credit Boom. The Wall Street Journal: July 30, 2009: Joe McDonald, China’s stimulus-fueled stock boom alarms Beijing. The Globe and Mail: August 2, 2009: Matt Jaffe, Watchdog Refutes Treasury Claim Banks Cannot Be Asked to Account for Bailout Cash. ABC News: July 19, 2009: The China Post, Bank lending slows down in U.S.: report. The China Post: July 28, 2009: David Uren. Bank for International Settlements warning over stimulus benefits. The Australian: June 30, 2009:,,25710566-601,00.html[36] Simone Meier, BIS Sees Risk Central Banks Will Raise Interest Rates Too Late. Bloomberg: June 29, 2009:, We Are Facing an ‘Inflation Holocaust’: Jim Rogers. CNBC: October 10, 2008: Chen Shiyin and Bernard Lo, U.S. Inflation to Approach Zimbabwe Level, Faber Says. Bloomberg: May 27, 2009: Ambrose Evans-Pritchard, BIS warns of Great Depression dangers from credit spree. The Telegraph: June 27, 2009: Gill Montia, Central bank body warns of Great Depression. Banking Times: June 9, 2008: Ambrose Evans-Pritchard, BIS slams central banks, warns of worse crunch to come. The Telegraph: June 30, 2008: HEATHER SCOFFIELD, Financial repairs must continue: central banks. The Globe and Mail: June 29, 2009: originally appeared on Global Research.Andrew Gavin Marshall is a Research Associate with the Centre for Research on Globalization (CRG). He is currently studying Political Economy and History at Simon Fraser University.

V1_BrazilAugust 8th, 2009 at 11:52 pm

For each credit, there is a debt. The owner of a property walk away, the creditor was supposed to lose part of his money, but bailout fill this with fresh printed money. The real value of money shrink. But nominally, the creditor will have the same.

V1_BrazilAugust 9th, 2009 at 12:01 am

The banks are buying stocks because they see inflation in the horizont. I dont think bankers stupid. I divide the money suply in money for investors and for workers. The money for investors go to stocks or another game, and for workers go to consumption. The investors will hold some part in cash and will diversify. The investiment initially inflate. The money of workers seek food, goods, etc, and are deflating.

V1_BrazilAugust 9th, 2009 at 12:15 am

The banks will have relatively protected assets (not in worth, but at least nominally), and will pay devaluated dollars in future. Oil and comodities prices go high because speculation, prices of goods are updated. Then Inflation starts to workers money.

V1_BrazilAugust 9th, 2009 at 12:24 am

Then demand shrinks. Inflation cannot self sustain, and prices go down. The bubble bust again. Welcome to the W shape…

V1_BrazilAugust 9th, 2009 at 12:45 am

The economy waves are very unstable now… Investors will not put money in real estate again. So, economy is cripled. What i call “geometric multiplicator” of the economy will shrink, and stabilize in a low level. More job losses. Government will print money this time to workers. Inflation this time hurt investors. If government control deficit, inflation can be contained, but will hurt population and halt production. Anyway, the inflation ajusted GDP will drop.

V1_Brazil.August 9th, 2009 at 1:00 am

But al least, the leverage of the economy will reduce because of inflation. Once inflation is contained, the real recovery will start slowly. The entire process will take years, and will happen not only in US, but Japan, EU, etc… China, not enough data to preview… Brazil: negative growth, but not like developed countries.

V1_BrazilAugust 9th, 2009 at 1:11 am

No war, no “crash”. Just inflation and negative growth for years. Workers will continue slave of system. Creditors will continue owner of the system, but with less degree of inbalance, everybody lose money, the game now is how to lose less money.

V1_BrazilAugust 9th, 2009 at 12:01 am

The banks are buying stocks because they see inflation in the horizont. I dont think bankers stupid. I divide the money suply in money for investors and for workers. The money for investors go to stocks or another game, and for workers go to consumption. The investors will hold some part in cash and will diversify. The investiment initially inflate. The money of workers seek food, goods, etc, and are deflating.

GuestAugust 11th, 2009 at 3:38 pm

As you say, “Everybody loses money, the game now is how to lose less money.” I agree. That is the question. I wish I knew the answer.You also say,”No war, no ‘crash.’ Just inflation and negative growth for years. Workers will continue as slaves of the system. Creditors will continue as owners of the system.”That is true if the current system continues in America. But, IMO, the odds are it won’t. Case in point: There were many handheld signs at a congressional town meeting yesterday. Most of the signs held by supporters of Obamacare had a uniform look, indicating they weren’t produced by the people holding them, whereas the protesters against the government plan carried homemade looking signs. One woman’s sign in particular suggests where the whole debate over government and the people is headed. And, in my opinion, the ultimate resolution. The sign:We Are All AmericansYou Will Never Control Us!The exclamation point is mine.Thanks for your comments on this great tome. I found them quite significant.

GuestAugust 8th, 2009 at 9:16 pm

Roubini makes the Honor Roll…of the researchers who really did “see it coming”“No-one saw this coming?” Balderdash! | Steve Keen’s DebtwatchPublished in July 15th, 2009Posted by Cassander in Debtwatch233 CommentsThe widely believed proposition that this financial crisis was “a tsunami that no-one saw coming”, and that could not have been predicted, has been given the lie to by an excellent survey of economic models by Dirk Bezemer, a Professor of Economics at the University of Groningen in the Netherlands.Bezemer did an extensive survey of research by economists or financial market commentators, looking for papers that met four criteria:“Only analysts were included who:1. provide some account on how they arrived at their conclusions.2. went beyond predicting a real estate crisis, also making the link to real-sector recessionary implications, including an analytical account of those links.3. the actual prediction must have been made by the analyst and available in the public domain, rather than being asserted by others.4. the prediction had to have some timing attached to it.”On that basis, Bezemer found eleven researchers who qualified:Researcher/ Role/ Forecast DateDean Baker, US Co-director, Center for Economic and Policy Research 2006Wynne Godley, US Distinguished Scholar, Levy Economics Institute of Bard College 2007Fred Harrison, UK Economic Commentator 2005Michael Hudson, US Professor, University of Missouri 2006Eric Janszen, US Investor & iTulip commentator 2007Stephen Keen, Australia Associate Professor, University of Western Sydney 2006Jakob Brøchner Madsen & Jens Kjaer Sørensen, Denmark Professor and Graduate Student, Copenhagen University 2006Kurt Richebächer, US Private consultant and investment newsletter writer 2006Nouriel Roubini, US Professor, New York University 2006Peter Schiff, US Stock Broker, investment adviser and commentator 2007Robert Shiller, US Professor, Yale University 2006Having identified eleven researchers who did “see it coming”, Bezemer then looked for the common elements in the way that these researchers analysed the economy. He argued that if there were common elements—and if these differed from the approach taken by the overwhelming majority of economists, who didn’t have a clue that a crisis was approaching—then the only useful economic models would be ones that included these common elements.He identified four common elements:1. “a concern with financial assets as distinct from real-sector assets,2. with the credit flows that finance both forms of wealth,3. with the debt growth accompanying growth in financial wealth, and4. with the accounting relation between the financial and real economy.”A non-economist might look at these elements in puzzlement: surely all economic models include these factors?Actually, no. Most macroeconomic models lack these features. Bezemer gives the topical example of the OECD’s “small global forecasting” model, which makes forecasts for the global economy that are then disaggregated to generate predictions for individual countries—like the ones touted recently as indicating that Australia will avoid a serious recession.He notes that this OECD model includes monetary and financial variables, however these are not taken from data, but are instead derived from theoretical assumptions about the relationship between “real” variables—such as “the gap between actual output and potential output”—and financial variables. As Bezemer notes, in the OECD’s model:“There are no credit flows, asset prices or increasing net worth driving a borrowing boom, nor interest payment indicating growing debt burdens, and no balance sheet stock and flow variables that would reflect all this.”How come? Because standard “neoclassical” economic models assume that the financial system is like lubricating oil in an engine—it enables the “real economy” to work smoothly, but has no driving effect—and that the real economy is a miracle machine that always returns to a state of steady growth, and never generates any pollution—like a car engine that, once you take your foot off the accelerator or brake, always returns to a steady 3,000 revs per minute, and simply pumps pure water into the atmosphere.The common elements in the models developed by the Gang of Eleven that Bezemer identified are that they see finance as more akin to petrol than oil—without it, your “real economy” engine revs not at 3,000 rpm, but zero—which can contain large doses of impurities as well as hydrocarbons. The engine itself is seen as a rather more typical gas-guzzler that pumps not merely water and carbon dioxide, but sometimes unhealthy amounts of carbon monoxide as well.That’s encapsulated in the flowchart that Bezemer copied from a paper by Michael Hudson, shown below. Without credit from the Finance sector, producer/employers don’t get the finance needed to run their factories and hire workers; but with credit they accumulate debt that has to be serviced from the cash flows those businesses generate.The component left out of the above flowchart—but incorporated in all the models praised by Bezemer for seeing the crisis coming—is that the finance system can fund not merely “good” real economy action but “bad” speculation on financial assets and real estate as well. This also leads to debt, but unlike the lending to finance production, it doesn’t add to the economy’s capacity to service that debt.The growth in thus unproductive debt was the common element identified by Bezemer’s “Gang of Eleven”, which was why we most definitely did see “It” coming.I’ll finish this analogy-laden article with a sideswipe at an inappropriate one—that this crisis is “like a tsunami”. Though that image captures the suddenness and devastating nature of the crisis, it is wrong not merely once but twice in characterizing how it came about.Firstly, unlike a tsunami, this crisis was predictable by economists who take what Bezemer characterized as a “Flow-of-fund or accounting” approach. Secondly, a tsunami is actually caused by a huge shift in the planet’s tectonic plates, and the shift itself relieves the tension that caused the tsunami in the first place: in a sense, the tsunami resets the system to a tranquil state.This financial tsunami was caused by the bursting of asset price bubbles driven by excessive levels of debt, but the bursting of those asset bubbles hasn’t eliminated the debt—far from it. Instead, economic performance for the next decade or more will be driven by the private sector’s attempts to reduce its debt levels, and this will depress economic activity for years. Unlike a tsunami, a debt crisis is a wave of destruction that keeps on rolling unless the debt is deliberately eliminated.Everything that is being done by policy makers around the world is instead trying to restart private borrowing. A better analogy is therefore not a tsunami but a drug overdose—and our “neoclassical” economic doctors are attempting to bring the patient back to health by administering more of the same drug.

GuestAugust 8th, 2009 at 9:38 pm

Fed will print money to keep government going regardless of inflation and rise in interest rate. Fed and Geithner all work for Obama and Pelosi that promote CASH FOR CLUNKERED BAILOUT, ObamaCare for everyone, and UNLIMITED revolving unemployment benefits. It is Obama and Pelosi’s NEW DEAL, cheers. 🙂

HubbsAugust 9th, 2009 at 7:37 am

I think Mike Shedlock (Mish) has correctly pointed out that only 400 billion of sidelined cash has entered the recent stock market frenzy. The rest, 2.3 Trillion, it might be deduced, has been delivered by the FED through its proxies…. necessary to keep the stock market afloat for reasons of supporting the pension funds and preserving any “wealth effect”that might lead to more consumer spending.Interesting that corporate insiders are still selling like mad. Have they considered the money pumping effects of the FED into the value of their stock?The housing ATM effect no longer will support consumer spending through borrowing.The problem is, will sitting on cash during an inflationary rebound be worse than climbing on board the quasi stock market, even though by traditional valuation methods, especially in view of a tapped out consumer, profits must decline? The caveat may be consumption by the developing world, and thus big multinationals may do better, which also may put a floor under commodity prices.This bogus treasury auction of 7 yr treasuries recently whereby the FED had to buy up a significant portion, essentially print money to buy them, would seem to guarantee inflation, except that the working man has no money. Keeping bond prices low thus supports the stock market as well.In inflationary times, the only thing worse than not being able to keep up with inflation is to not have a job and therefore any income.Those who have orchestrated/participated in this financial strip mining of the peoples’ assets will have an enormous wealth advantage, the effects of inflation which may come back to bite them notwithstanding.

GuestAugust 9th, 2009 at 9:48 am

If you want to know what software Obama is running, go back to this lecture by Richard Koo, chief economist from Nomura. His latest book revision has a recommendation from Larry Summers. The lecture was in April 2009, but the prescriptions match the Obama course of action without exception. Every nuance has been followed. What struck me the most was the statement that military spending does not add to consumer supply and therefore is the best stimulus in an oversupply situation. He says that the toxic assets will be kept out of the market for a long time.He describes the events of the Latin American Debt Crisis and he describes the Japanese Crisis. This 1 1/2 hour discussion with questions(don’t miss the questions)has given me more insight about the actions of the Obama administration than anything else I haveseen or read. I now see the big picture and I still think that there approach will not work. This is the Central Banker Approach to this crisis. I would be very interested in hearing the opinion of all of youto his comparisons and concepts. The administration is running a Japanese solution to this crisis and following every nuance detailed by Richard Koo. It is only when we know the software they are running that we can test it for defects. I am convinced this is the model for their actions. Please comment and feel free to criticize my premise. I like criticism. Falsifying my presumptions would be greatly appreciated.

FEDupAugust 9th, 2009 at 12:18 pm

Great article and great charts; however, what worked for the GD and Japan in the 90s likely will not work now because it’s like treating methacillin resistant staph infection with penicillin-it may initially slow down the infection, but ultimately will not stop it. In this current crisis, insolvent businesses like banks, insurance and auto companies are being artificially propped up by govt printing money, lending at 0% and all sorts of other measures that solvent businesses don’t have access to. All of these methods of capital injection (fiscal and monetary policy) we are told are absolutely necessary to prevent a total collapse of the system. Stop right there and ask yourself-which system? Is it the system of millions of small businesses which employ the vast majority of workers and are the genesis of innovation for future economic growth? Is it the average American worker with a mortgage who has now lost the equity in his home, had his credit line cut or frozen? In short, the path chosen is to preserve the status quo and to only consider solutions that achieve that goal. When I wrote Paulson 2 years ago warning him of the impending collapse in residential real estate (as I have contacts from CA to FL) and laid out a plan including allowing people to refinance and lowering interest rates to 3-4% temporatily to prevent and buy time on the pending foreclosure avalanche, I received a standard form letter reply: thank you for your concern”. Now, 2 years and 5 million foreclosures later, the banks are handed billions, can borrow at 0%, change their accounting methods, etc and we have more homeless in America than in the last 20 years. But back to the article: financial institutions were so over leveraged and hid this fact as long as they could, that the dominoes are all lined up and will continue to fall until the govt realizes (they probably already have and are working on contigencies) their actions are only slowing down the deleveraging process in the short term but creating a larger problem of unsustainable debt (govt, corporate and personal) and ultimately a loss of confidence by foreign govts and investors in lending us money. (China has been accumulating gold, silver and other commodities like crazy lately). Compounding this problem are the large numbers of layoffs by companies, price increases in food, energy, taxes and fees by state govts, etc.Add on to the camel’s back another stimulus plan or two, health care reform and a new energy plan and those left with a job will eventually wake up, cut all spending and join the rest of those Americans who have already lost everything in loud protests and marches. As Gerald Celente bluntly puts it “those who have lost everything and have nothing left to lose, LOSE IT!” What, then are the solutions? None of them are pretty: 1)use trade and immigration restrictions and rebuild U.S. manufacturing. 2)start some large wars (or other crisis) to generate jobs and income for the war corporations. 3)slowly squeeze more money out of the taxpayer under the guise of hope and looking to a better future. My solution is for people to unify over these simple principles: demand full transparency, regulation and accountability from our govt and corporate leaders with an end to lobbying and allow each state to run itself without govt interference and to answer solely to the votes of the people, not special interest groups. Place a high value on small business and restrict businesses from becoming “to big to fail”. This is the critical starting point and fundamental building block required to build a healthy democracy that benefits everyone or we can spend the next 200 years watching the 2 parties argue about every issue imaginable to gain political advantage while the country and most American’s dreams falls deeper into the abyss.

GuestAugust 9th, 2009 at 11:05 am

The Fed Buys Last Week’s Treasury NotesGood grief! Just last week, when the Treasury auction results wereannounced it was trumpeted to great fanfare that there was “more thansufficient” bid-to-cover, “strong demand” and all the rest.And now it turns out that 47% (!) of the bonds that were taken by theprimary dealers in that auction have been quietly bought by the Fed andpermanently secreted to its balance sheet.They didn’t even wait a full week! A more honest and open approachwould have been for the Fed to simply buy them outright at the auctionbut this way, using “primary dealers” and “POMOs” and all these otherextra steps the basic fact that the Fed is openly monetizing USgovernment debt is effectively hidden from a not-too-terriblyinquisitive US press and public.The speed of the shell game is accelerating….don’t expect any stock market weakness while so many billions arebeing shoveled out the Fed and into the pockets of the primary dealers.They’ll have to do something with all that freshly minted cash…

GuestAugust 9th, 2009 at 11:25 am

there you have it, FED secretively monetizing debt, gov budget, ObamaCare, and Geithner’s revolving unemployment benefits.

Guest oAugust 9th, 2009 at 11:00 pm

g,”fresh minted cash”… “shell game”…equities, bonds, games and shills.pump pump and dump. timing.equities to bonds as all thatprinted money will be needed to printmore money and buy commodities.what is the mechanism to a deflationary spiral orhyperinflation? how will it unfold, be orchestrated?timing? on the board game of life and death.

JLCAugust 9th, 2009 at 11:40 am

I have an interesting anecdote regarding all the “green shoots” reporting. One of my longtime friends hardly ever watches the news, does not read blogs, has never followed markets or economics. He works for a Federal law enforcement agency and his job is absolutely secure. Yet in a conversation the other day he observed that the government and media are lying to us, promising us things are getting better when in reality they are getting worse. He determined this by comparing what he is seeing on the street to what the media is saying. He has concluded that the propaganda machine is in full swing, and it is hard to know what is ‘real’ anymore outside of what is personally experienced.My point is – here is a relatively unsophisticated guy who has never cared and never paid attention. Yet even has figured out the name of the game – confidence. It is the last straw of a dying system. They can’t change the real economy, all they can do is create a stock bubble, doctor up some statistics, and unleash propaganda that “everything is fine”, barely keeping the system afloat with liquidity in the hope that the people are gullible enough to go out and spend spend spend.If my friend can see right through it, it is likely that a great many J6Ps are seeing the same thing.

Family GuyAugust 9th, 2009 at 12:43 pm

This is from the White House official website (“There is a lot of disinformation about health insurance reform out there, spanning from control of personal finances to end of life care. These rumors often travel just below the surface via chain emails or through casual conversation. Since we can’t keep track of all of them here at the White House, we’re asking for your help. If you get an email or see something on the web about health insurance reform that seems fishy, send it to”And so it begins…..Chicago mob politics turns national and the government watchdog gestapo tactics begin. One must only be reminded of the poem “First they came…”“First they came for the communists, and I did not speak out – because I was not a communist;Then they came for the socialists, and I did not speak out – because I was not a socialist;Then they came for the trade unionists, and I did not speak out – because I was not a trade unionist;Then they came for the Jews, and I did not speak out – because I was not a Jew;Then they came for me – and there was no one left to speak out for me.”

tutterfrutAugust 9th, 2009 at 12:58 pm

I just flagged and sent this comment to the Whitehouse.Where do I collect my reward?Can I have it in euros, please? 🙂

GuestAugust 9th, 2009 at 2:41 pm

There’s a certain symmetry in that. Your reward will paid in the riches that come from challenging fringe elements like ‘birthers’ and ‘tea-bagger’ tools, who wouldn’t know freedom if it was staring them in the face.

GuestAugust 9th, 2009 at 5:38 pm

No. The reward comes in the form of CA. IOU’s. By the way, when you get the IOU, you are expected to pay tax to gov. We will be watching…

GuestAugust 9th, 2009 at 2:33 pm

It’s a snitch site.As one blogger said, “anyone who vocally disagrees with the policies/complacency/lack of any common sense of their so-called representitives is a ‘subversive’. God forbid anyone have their own opinion that they are passionate about: they must be getting paid to be so excited about something.”As to Nancy Pelosi ‘s claim that protesters are “carrying swastikas and symbols like that to a town meeting on healthcare,” when every audio and video and news report was searched and not a single swastika was found, what was the Speaker of the House’s comment? “No comment.” Can you imagine that? The Speaker of the House won’t comment. And all the while she’s been meeting behind closed doors with hospital executives!Now Obama’s sending out the union squads:”The nation’s largest federation of labor organizations has promised to directly engage with boisterous conservative protesters at Democratic town halls during the August recess.“In a memo sent out on Thursday, AFL-CIO President John Sweeney outlined the blueprint for how the union conglomerate would step up recess activities on health care reform and other topics pertinent to the labor community. The document makes clear that Obama allies view the town hall forums as ground zero of the health care debate. It also uses the specter of the infamous 2000 recount ‘Brooks Brothers’ protest to rally its members to the administration’s side.”The principal battleground in the campaign will be town hall meetings and other gatherings with members of Congress in their home districts,” reads the memo. ‘We want your help to organize major union participation to counter the right-wing ‘Tea-Party Patriots’ who will try to disrupt those meetings, as they’ve been trying to do to meetings for the last month.”In short, the White House is deliberately setting up unruly confrontation, hoping to provoke violence to discredit the town meetings–meetings that had been “boisterous” but orderly and lawful.As our Congressional reps fly home over the land of their constituents and look down from the clouds upon the tiny specks below gathering for the town meetings, they shrug it off as just an occasional dirty duty that comes with their high office : “Well, now we’ve got to go down there and deal with those tiny ants.”To them, it’s what Obama called the “tea party” protests. “Unhealthy.”

GuestAugust 9th, 2009 at 2:53 pm

There’s a national tea party March on Washington in DC on 9/12/09. Is anyone else going? If I were within 300 miles driving distance I would be there. As of 7/18 there were more than 10,000 individuals registered for the march, representing all 50 states.Someone said it’s impossible to tell how many people are actually going to show up, but that the blocks of hotel rooms the organizers reserved are all gone. Here’s the website for the event.

GuestAugust 9th, 2009 at 11:26 pm

f,the whitehouse requesting “fishy” correspondence be forwarded totheir attention. i don’t know whether to shat or go blind?either way it is funny but would be even funnier if i couldactually find the punch line.for one thing they could start by looking at the law, plenty”fishy” material there to throw out. some fishy odor comingfrom the central bank and treasury, someone should take a look.actually there is no shortage of fishy right under their nosebut i suspect they know all about that fishy already and are lookingfor some fresh don’t forward this. thanks in advance.

GuestAugust 9th, 2009 at 1:09 pm

Another Apartment-to-Condo Conversion Disasterby CalculatedRisk on 8/08/2009From the Las Vegas Sun:The worst investment over the past year was apartment conversions … [Larry Murphy, president of SalesTraq] said.The worst of the that segment was the Meridian at Hughes Center on Flamingo Road, east of the Strip that was converted from apartments to condominiums between 2005 and 2007, Murphy said.The property, which had a failed attempt at trying to convert into a condo-hotel because of Clark County regulations, sold for $604 per square foot when it first entered the market. The average price was $539,000, Murphy said.Through June, the average resale price has fallen to $87,611 or $121 a square foot, Murphy said. With that drop in price has come rising foreclosures. Murphy reports that 201 of the 680 units or 30 percent have been foreclosed upon, and that number is likely to rise. The foreclosures have been running as high as 25 a month so far in 2009, he said.Murphy said he’s not surprised apartment conversions have fared the worst because in essence some are 20-year-old buildings that have a new granite countertop. (end)And the lender for the purchase and conversion of the Meridian? Corus Bank. From 2005:”The Meridian consists of five four-story buildings containing 592,680 residential square feet.”Corus … felt comfortable with the market as this large conversion represents the Bank’s 8th transaction in the Las Vegas area within the last 13 months. “The Meridian appears to be a natural candidate for a condo conversion …” said John Markowicz, Corus Bank Senior Vice President.”Not only has the average price fallen 84%, but the current average sales price of $121 per sq ft is significantly below the price of the loan amount from Corus in 2005 (of $188 per sq ft) – before the granite counter top improvements.The Meridian appears to be a natural candidate for reconversion back to apartments.

GuestAugust 9th, 2009 at 1:28 pm

UK of course would love for the German industry to collapse.I would say that sort of sentiments, more than the reality, are behind the sort of B.S. Times articles quoted above and here:

“Europe is now in the middle of a perfect storm – a confluence of three separate, but interconnected economic crises which threaten far greater devastation than Britain or America have suffered from the credit crunch: the collapse of German industry and employment, the impending bankruptcy of Central European homeowners and businesses; and the threat of government debt defaults from loss of monetary control by the Irish Republic, Greece and Portugal, for instance on the eurozone periphery.”

EU collapse would mean one less competitor for money inflows and some sort of gratification for the not-really-part-of-it UK;-PThe really dumb part is of course that UK has been much worse hit by this crisis because it put a stop in UKs way of fueling its own economy (because the country does not have much industry to speak of).

GuestAugust 9th, 2009 at 7:51 pm

This recession is OVER. Get used to the idea. Next stop Dow 12,000, unemployment will return to 6%. You folks are mired in your mindset, much as the believers in Dow 36,000 were. Nothing is ever as good or as bad as you might imagine.

GuestAugust 9th, 2009 at 8:22 pm

ok I’ll concede your point if you can tell me where real growth is going to come from? Who is going to be on a hiring frenzy? I’ve been observing a steady loss of jobs and wages for 30 years only to be covered up by easier and easier access to credit with a steady lowering of interest rates to keep the game going, so now where is the real growth going to come from? If you told me through government spending and redistribution of wealth i’d say fine great but the capitalists have the masses brainwashed through talk radio so i don’t see excessive government stimulus any time soon unless it’s of course wasted on the top 1%. I really want to be an optimist but i see all the bull before me, please educate me…

GuestAugust 10th, 2009 at 12:08 am

To quote Nikki Alexander, “What is masquerading as government in America is a crime syndicate with a flag.”But it was capitalism of which you speak, founded by Adam Smith, that was the basis of America’s original economic system. Smith set forth ideas that led to a policy of economic liberty in the United States. In “The Wealth of Nations,” Smith lays down several basic economic principles. These economic principles were listed and acted upon by the founders of the United States when they wrote the Constitution.The central ideas upon which the rest of the structure of Classical Economics was built were:1. “Laissez-faire”, whose doctrines opposed governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights;2. “Free Competition”, which held that any person, partnership, or corporation can compete in the marketplace without government interference.But Adam Smith also stated in “The Wealth of Nations”:”Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring both his industry and capital into competition with those of any other person, or order of people.”In recent decades, that principle has been so violently violated in America that an entire economic system has developed around organized gangsterism to loot the country, based on a corrupted economic system of fascism is socialism with a capitalist veneer. As Russian historian James Brett says, “Socialism does not obviate the need for capital or ‘capitalists.’ It is merely a mode of control over the economy and the polity and the culture.”Smith, who was the first to advocate division of labor, “was not against government involvement in public projects too large for private investment, but rather objected to its meddling in the market mechanism,” says William Welch.“He also held that individuals acting in their own self-interest would naturally seek out economic activities that provided the greatest financial rewards. Smith was convinced that this self-interest would in turn maximize the economic well-being of society as a whole.”And so it did. America led the wealth of nations–until America’s moral base, the bedrock of her economic foundation, was deliberately destroyed. It is as easy as shooting sitting ducks for an organized criminal cartel to pool its resources to divide and conquer individuals who are operating separately on good will and a hand shake contract.“What is wrong,” says John Meakin in ‘The Achilles’ Heel of Capitalism,“is the direction that self-interest so often takes: looking after our own interests at the expense of our neighbor’s.”The Founders set in place as limited a government as they possibly could. The one function they really wanted from government was for individuals to be able to operate as individuals. Government was to allow competition and to keep the system open for free enterprise.The minute the criminals took over government, not only did they use it to take away those protections for individuals. They used it to subjugate individuals. They now use government to divide and conquer the individual. There can be no more shining example of this than the Obama Administration’s pushing through healthcare legislation that isn’t even written yet, bludgeoning opponents by calling them anything and everything but fellow citizens. This is antithetic to the whole Constitution that was written so that Adam Smith’s philosophy could be practiced.Continues Meakin:Some, out of a desire to compete and make a profit, will exploit their workers, gouge the opposition and otherwise conduct themselves in greedy, selfish and harmful ways. Others, motivated more by the positive side of human nature—altruism, idealism, a spirit of charity and a desire for the fulfillment of human development—will conduct themselves very differently.What is wrong with capitalism is not necessarily the ideal of capitalism itself—that those who work hard to provide a needed service or product will prosper and be able to provide for themselves and their loved ones—but the way people operate within the system. It is their values and morality that determine their way of living and doing business. It is wayward personal motivation and individual and collective selfishness that distorts and perverts the system: to steal from others, to lie or cheat, to deny others their freedom, to exploit people—all these things are contrary to the proper functioning of capitalism or any other system. In other words, it is unrestrained human nature that forms the Achilles heel of the system.What is needed to correct the abuses of this economic system are the core values that inform many religious and secular communities. You could summarize them in the words of the Golden Rule: Do to others what you would want them to do to you; or, put even more simply, treat others the way you’d like to be treated (Matthew 7:12, paraphrased).

Ungrateful PeonAugust 10th, 2009 at 3:39 pm

“What is needed to correct the abuses of this economic system are the core values that inform many religious and secular communities. You could summarize them in the words of the Golden Rule: Do to others what you would want them to do to you; or, put even more simply, treat others the way you’d like to be treated (Matthew 7:12, paraphrased).”A touching sentiment, but there’s not enough profits in it to satisfy wealthy global interests who have no investment in justice.

farnorth5August 10th, 2009 at 8:06 pm

Right !! Sentiment does not count. Only the Rule Of Law…In todays world Corporations only do what they are legally required to do ,even Democratically Elected Govts do not count.Without the RULE OF LAW and A GOOD COURT SYSTEM that represents the PEOPLE ,nothing will work ,because of abuse and manipulation by the WORLD,S WEALTH PEOPLE ….

GuestAugust 9th, 2009 at 11:08 pm

The unemployment rate could not have dropped any less, since it seems to be counted in tenths. That seems like slim evidence that everything is now better than over. Anyway, I hope you’re right, because everyone is ready for a raise and a new car.

Harley QuinnAugust 9th, 2009 at 9:02 pm

Making Love Takes a Back Seat. As the economy makes motels unaffordable, lovers have attempted to confine their activities to the rear seat of their vehicles. The American Association of Orthopedic Practitioners reported a sharp increase in back injuries caused by attempting to make love in the back seats of new, fuel efficient vehicles. As the hordes of would be lovers limp and crawl into emergency rooms across the nation, over-stretched hospitals are struggling to deal with the new crisis.An emergency session of the New York State Legislature hastily drew up guidelines for a system of triage to aid hospitals across the state. Other states have enacted similar measures. California lawmakers debated a spending measure that would direct one third of their stimulus money towards meeting the emerging crisis. Conservative lawmakers argued that the whole problem was a result of too much stimuli in the first place.The opposition argued that the problem would have been ten times as bad were it not for the stimulus. The conservatives demanded to know how you can measure the amount of backaches that didn’t happen. The liberals replied that they use the same measurements that allowed them to make statements about the amount of unemployment that didn’t happen, terrorist attacks that didn’t happen and plagues of locusts that didn’t happen.Meanwhile, back in New York, a bipartisan coalition, led by the Attorney General, demanded more transparency in vehicles sold in America. Senator Chuck Chickenchoker, representing the views of the Take My Back-Please! Society, blamed the problem on tinted windows hiding rear seat “hanky-panky”.Ms. Pollyanna Pangloss, a spokesperson for the president, said that we should look at this crisis as an opportunity. As a result of the rash of back injuries, there are less rashes of other kinds. G.E. reported a sharp increase in the amount of orders for MRI machines. Teen-age pregnancy rates have plummeted as well as the rates of STD’s. Pharmaceutical companies have ramped up production of anti-inflammatories and medical supply companies are doing a booming business in scooters, walkers and canes.The divorce rate has also plummeted as spouses find it increasingly difficult to cheat on each other given the rather obvious result. As reformed cheaters painfully make their way to their church pews, fellow parishioners exchange knowing looks. The reformed sinners’ past couldn’t be more obvious if they were wearing a scarlet “A”.In an attempt to show the American people that they strongly desire to be more responsive to the wishes of the consumer, GM announced they are introducing an economy model with an innovative, inflatable motel room that expands from the trunk. Production has been temporarily halted when one hapless couple deployed their bubbly trysting place in a tight parking space. The Jaws of Life were required to extricate them.All these events didn’t escape the attention of Wall Street. Investment banks, HMO’s and sovereign wealth funds all took advantage of cheap federal funding to reap quick profits from the painful public health crisis. CEO’s all expressed the same sympathetic sentiment when interviewed. In one voice, they all joyfully spoke of their anticipation of the coming swine flu epidemic so they can cash in again.A national media campaign was launched as the epidemic threatened to upset the entire health care initiative of the administration. Slogans flashed on TV’s, PC’s and periodicals in doctors’ offices: “If you try it in your Chevy, the cost will be heavy!” “Don’t do it in your Mini-Cooper or you’ll be a party pooper!” “A session in your Ford and pain for your reward!” “Do it in your Audi and your love life will be dowdy!”An old-timer sitting on his front porch, summed it up succinctly with a twinkle in his eye: “We’ll get through this jist fine. All we gotta do is keep tellin’ ourselves, “Yes, we can. Good ole American ingenuity will do the rest.”

GuestAugust 9th, 2009 at 10:22 pm

@p.b. above REVISIONIST THEORY AND HISTORYOF DEPRESSIONSAntal E. Fekete*San Francisco School of accounting principle, the Law of Liabilities, asserts that a firm ought to carry itsliabilities in the balance sheet at its value upon maturity, or at liquidation value,whichever is higher. This Law is ignored by present accounting standards. The result is arise in the liquidation value of debt, erosion of depreciation quotas, and wholesaledestruction of capital under a falling interest-rate structure caused by a faulty monetarypolicy, hailed as the savior, but which should be condemned as the destroyer.Recognizing the Law of Liabilities may help us to understand deflations and depressionsbetter.The Book-Keeper’s DilemmaOne of the plays of George Bernard Shaw branded “unpleasant” by the playwright himself isentitled The Doctor’s Dilemma. The protagonist is a physician who comes into conflict withthe Oath of Hippocrates (fl. 460-377 B.C.) He has developed a new treatment for a fataldisease, but the number of volunteers for the test-run exceeds the number of beds in his clinic.Unwittingly, the doctor finds himself in the role of playing God as he decides who shall liveand who shall die.By the same token a “most unpleasant” play could be written entitled The Book-Keeper’s Dilemma. The protagonist, a chartered accountant, finds himself in conflict with theletter and spirit of book-keeping as set out by Luca Pacioli (fl. 1450-1509). As a result ofcompromising the high standards of the accounting profession, the book-keeper becomes thedestroyer of Western Civilization. This play is, in effect, being written by history right now.————————————This is an updated version of my paper written a year ago: Is Our Accounting SystemFlawed? – It may be insensitive to capital destruction. Up-dating was prompted by eventsduring that fateful year. In several passages I had to change the subjunctive mood to theindicative: the hypothetical depression has, unfortunately but not unpredictably, becomean actual depression……..The U.S. government is apparently unconcerned about the fact that the liquidationvalue of its debt is escalating by several orders of magnitude due to falling interest rates. Ithas increased a thousand-fold during the past 25 years, due to this one cause alone! This nonchalanceis explained by the fact that, after all, the Fed has the printing presses to createdollars with which any liability of the government can be liquidated, however large.Cause: falling interest rates – effect: falling pricesAmerican producers are not so fortunate. They don’t have a printing press to make their debtburden lighter. They have to produce more and sell more if they don’t want to sink deeper indebt. But selling more may not be possible in a falling interest-rate environment except,perhaps, at fire-sale prices. What this shows is that the cause of deflation is not falling prices:it is falling interest rates. Falling prices is the effect.Let’s spell it out how this mechanism works. As interest rates fall, a vicious spiral isset in motion. Lower rates send prices lower, and lower prices send rates lower still. Bondspeculators take advantage of the opportunity created by open market operations. They frontrunthe Fed in buying government bonds first. The resulting fall in interest rates bankruptproductive enterprise that could not extricate itself from the clutches of debt contracted earlierat higher rates. The debt becomes ever more onerous as its liquidation value escalates past theability to carry it. In addition, inadequate depreciation quotas undermine the financialstructure of all firms, as explained above. The squeeze on capital causes wholesalebankruptcies among the producers.While they clearly have the power to put unlimited amounts of irredeemable currencyinto circulation, central banks have no power to make it flow in the “approved” direction.Money, like water, refuses to flow uphill. In a deflation it will not flow to the commodity andreal estate markets to bid up prices there, as central bankers have hoped. Rather, it will flowdownhill, to the bond market, where the fun is, bidding up bond prices. As the central bank11has made bond speculation risk free, the bond market will act as a gigantic vacuum cleanersucking up dollars from every nook and cranny of the economy. The sense of scarcity ofmoney becomes pervasive.In feeding ever more irredeemable currency to the money market the central bank cutsthe figure of a cat chasing his own tail. Contrary to the universal delusion that goes by thename “Quantity Theory of Money”, more fiat money pushes interest rates lower and fallinginterest rates squeeze producers more. They cut prices in desperation and cry out for thecreation of still more fiat money. To be sure, they get what they ask for. But their medicineturns out to be their poison. The creation of new money has a cost, namely, the F.R. banks’open market purchases of government bonds and the concomitant bull speculation in the bondmarket. Producers are squeezed further and are forced to make more price cuts. The viciousspiral is on.The interest rate structure and the price level are linked. Subject to leads and lags, theykeep moving together in the same direction. Falling interest rates sooner or later induce fallingprices. This is the lesson from the revisionist theory of depressions, a lesson that has beenignored by economists….Putting bank ratios in the viseAs the current global banking and credit crisis shows, destruction of capital was not confinedto the producing sector. Falling interest rates shrank bank capital across the board of thefinancial sector as well, without the shrinkage being detected. All banks were weakenedsimultaneously. They should have augmented their capital or should have reduced their assetspari passu with falling interest rates. They had done neither. In a mad pursuit of high leveragethey embarked upon a policy of increasing assets in the face of capital erosion. Bank ratioshave been put in the vise: they are squeezed on both sides. They are squeezed on the liabilityside because the liquidation value of liabilities stands to be revised upwards; but they are alsosqueezed on the asset side because the value of assets stands to be revised downwards.At first, the banks thought they were making fabulous profits. It was only later that itdawned upon them that, in fact, what they were paying out in the form of dividends andcompensation were phantom profits. This compounded the problem of capital erosion. By2008 the banks have reached the stage, more or less simultaneously, where all of their capitalwas wiped out. The credit crisis burst upon the scene with elemental force.Through its open market operations the F.R. has, unwittingly, generated a deflationaryspiral that ultimately bankrupted not just the producing sector, but the financial sector as well.Like the Sorcerer’s Apprentice, the F.R. started the march to the Black Hole of zero interest,but did not have a clue how to stop it when the pull of the Black Hole has become irresistible.At that point the deflationary spiral got out of control.more …etc…

Free TibetAugust 10th, 2009 at 6:59 am

Green shoots! How many of you got in on this?AIG opens Wed. Aug 5 = $13.64AIG closes Fri Aug 7 = $27.14I think they announced earnings on Fri, but the big move was on Wed. Oh, you all missed this? I thought so.

GuestAugust 10th, 2009 at 7:18 am

Ahhhh! Now the economy can recover since the banks are making lot of money again. Oh wait, what’s that you say? The government gave them taxpayer money to generate wealth! Unemployement is in double digits! The majority of homeowners will soon be underwater on their mortgages? Manufacturing jobs have left the U.S. in droves? Phewwwwy! The banks are wealthy again! This is the messure of the Obama recovery! P.S. All you honest tax payers, ante up your $45,000 share of the federal deficit now will ya?! We got to pay for the Obama recovery of the banks!

GuestAugust 10th, 2009 at 8:14 am

they owe us 180 Billion… makes no sense…Perfect example of a ponzi scheme… how many people got sucked into this…

The AlarmistAugust 10th, 2009 at 10:33 am

Sucked into this??? That implies we had a modicum of choice. How about, “How many people had a gun thrust into their backs along with a demand to fork over $45k for the greater good?”

Ungrateful PeonAugust 10th, 2009 at 3:56 pm

By no stretch of the imagine did I believe that rescuing a collapsed financial system, was ever intended for the ‘greater good’. Nationalization would have been for the ‘greater good’ and anything else is nothing short of the legalized looting of the real economy on behalf of wealthy financial interests.You insult people’s intelligence.

GuestAugust 10th, 2009 at 7:49 am

Ok, I’m looking for advice. I’m married, three kids, 42 yrs old, educated MS degree, and have roughly $100k mostly in a money market and a little in company stock tied up in retirement accounts. I have about 3 months expenses in the bank. I’m underwater on my house (probabaly $50k), but I don’t plan on moving any time soon. I have a good salaried job, but it’s tied to the fortunes of the manufacturing (auto) sector. I see the ponsi scheme the federal government is playing will all the liquidity to stave off a financial meltdown in the short term. I don’t see manufacturing jobs comming back to the U.S., therefor I believe historically high unemployment is the new “normal”. I believe another crash is just a matter of time along with rapid inflation. Given a moderately worse case scenerio, what is the safest thing to do with my assests to weather the approaching storm? There is no way I’m playing in the Obama fixed markets, which are being manipulated by the big banks. I think we all are screwed! Even if you think you are winning playing in the stock ponsi scheme, unless your intials are AIG or GS, you are fooling yourself. What does a middle class family do?????

GuestAugust 10th, 2009 at 8:17 am

Stay safe… interest income and bonds. pray that we are going to get lucky and we’ve seen the worst. but as you say, i dont beleive we have…i think form Sept to xmas it gets much worse then anything we have seen.

MichelleAugust 10th, 2009 at 1:41 pm

I have to disagree with the prediction things will be much worse than anything we’ve see. No way will it come close to being worse than last fall. Won’t happen, TPTB won’t let it. Buy on dips.

GuestAugust 10th, 2009 at 5:05 pm

My question is, what is a dip? If the market pulls back 2% this week, would this be a dip? Or if I buy in that dip, and it dips more the next week, what should my strategy be then? I just need more specifics on what you consider a dip because I am not real schooled in this.

MichelleAugust 10th, 2009 at 7:46 pm

Right now I’d say if you can get a 3-5% correction, I’d be buying and adding more if it dips even further. Getting a 10% correction would be a gift, but then one would need to examine why it dipped 10% and then decide whether to buy or not as that may be an indication of a liquidity problem, but nothing on the horizon even hints of this.

farnorth5August 10th, 2009 at 8:25 pm

I happen to agree with you,as to the fundamental question of Liquidity drives the Market,no matter who is suppling it (Govt /Fed Res./Banks / Hedge Funds etc.)BUT ,I have a Grandfather saying this is not a Deep Recession ,but a 1930,s style DEBT MANAGEMENT DEPRESSION,with several “W,s” to come until stability.(Translation -about 10 years for the Public to regain their equity in Housing and other assets.) Under those circumstances the regular rules don,t apply.So I guess WHO YOU BELIEVE is the important question, when it comes time to invest/re invest.

The AlarmistAugust 10th, 2009 at 10:31 am

Wouldn’t that now be AIU?What does a middle-class family do? Get a good government job and get into the game.

MM CAAugust 10th, 2009 at 8:26 am

NO JOBS!! Except Walmart, costco, etc… Good luck on a jobless recovery… July birth model manipulation in the jobs report was off the charts…. so far approx 1.3M birth model jobs added this year… That is why the only number that matters is The U6 number and even that number cannot be trusted, but it is about 20% now.Off the ChartsJob Growth Lacking in the Private SectorPublished: August 7, 2009FOR the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period. The total number of jobs has grown a bit, but that is only because of government hiring.accompanying charts show the job performance from July 1999, when the economy was booming and companies were complaining about how hard it was to find workers, through July of this year, when the economy was mired in the deepest and longest recession since World War II. For the decade, there was a net gain of 121,000 private sector jobs, according to the survey of employers conducted each month by the Bureau of Labor Statistics. In an economy with 109 million such jobs, that indicated an annual growth rate for the 10 years of 0.01 percent.Until the current downturn, the long-term annual growth rate for private sector jobs had not dipped below 1 percent since the early 1960s. Most often, the rate was well above that.As can be seen from the charts, there were some areas of strength in the economy. Health care jobs continued to grow, particularly jobs that involve caring for the elderly. Home health care employment rose at an annual rate of 5 percent, a rate that indicates a total gain of more than 60 percent. On an annual basis, that was twice the overall rate for health care of 2.4 percent a year.There were also job gains in education and in a host of service industries, including lawyers (0.7 percent a year), accountants (0.9 percent) and computer systems designers (2.4 percent). The field of management and technical consulting leaped at an annual rate of 5 percent.But while designing computers and related equipment was a growth field, building them was a very different story, as the manufacturing shifted largely to Asia. The number of jobs making computer and electronic equipment in the United States fell at an annual rate of 4.4 percent, substantially more than the overall decline in manufacturing jobs, of 3.7 percent.That was a better showing than that of the automakers, which shed jobs at a rate of 6.7 percent a year. By contrast, auto dealers cut jobs at a much slower rate of 1.3 percent a year, although that rate may accelerate later this year as General Motors and Chrysler dealerships are closed.Hard as it may be to believe, the consumer economy of the United States actually lost retail jobs over the decade, at a rate of 0.2 percent. There were fewer people working in food stores. But the category of general merchandise stores — like Wal-Mart and Costco — showed an impressive gain of 1 percent a year, even though the category also includes department stores like Macy’s, where the number of jobs has fallen.For a good part of the decade, the construction business was a growth industry. But there are now fewer jobs there than there were a decade ago.The total picture is of an economy that has changed in substantial ways over the decade. After the recession ends, job growth is likely to resume. But there is no indication that the secular trend toward a more service-oriented economy will reverse. A decade from now, there are likely to be still more jobs at architecture and engineering firms (up 1.2 percent a year over the last decade) and at bars and restaurants (up 1.8 percent a year). But few expect that manufacturing will reverse its long decline as a major employer in the United States.

MM CAAugust 10th, 2009 at 8:34 am

Talk about squeezing blood out of rock… if this is true almsot every Average Joe American got hit with this. it amounts to about $250.00 in fees for every person with a checking account(150 million people I estimate). It also says that Average Joe savings is Non-Exisitant. Another bold faced BS number they put out. There is no annual savings rate of 6% occuring.Banks make $38bn from overdraft feesBy Saskia Scholtes and Francesco Guerrera in New YorkPublished: August 9 2009 22:52 | Last updated: August 9 2009 22:52US banks stand to collect a record $38.5bn in fees for customer overdrafts this year, with the bulk of the revenue coming from the most financially stretched consumers amid the deepest recession since the 1930s, according to research. The fees are nearly double those reported in 2000.The finding is likely to increase public hostility towards the financial sector, which has been under political pressure to ease the burden on consumers by increasing credit availability and lending more fairly after being bailed out by taxpayers.EDITOR’S CHOICEIn depth: US banks – May-07US banks’ overdraft charges under fire – Aug-09The Federal Reserve is working on rules on overdraft fees, and rules on customer charges could be a priority of the Obama administration’s proposed Consumer Protection Agency if approved by Congress.Data from Moebs Services, a research company, show that the crisis has prompted many banks to lift charges on overdrafts and credit cards in order to boost profits.The median bank overdraft fee has this year rose from $25 to $26, according to Moebs, the first time it has gone up in a recession for more than 40 years.“Banks are returning to a fee-driven model and overdraft fees are the mother lode,” said Mike Moebs, the company’s founder.Overdraft fees accounted for more than three-quarters of service fees charged on customer deposits, he said.The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft revenues coming from 10 per cent of the 130m checking accounts in the US. Regular use of overdrafts is most common among consumers with low credit scores, Moebs discovered.Banks say that the fees compensate for the risk they incur when they pay on behalf of customers who do not have enough money in their accounts. “Overdraft fees are there for a reason, we take on a lot of risk,” a senior banker said. “It’s a service to our customers, they want us to pay their overdrafts.”The highest overdraft fees were charged by the largest banks, said Mr Moebs. At banks with assets greater than $50bn – a group including Citigroup, Bank of America, JPMorgan Chase and Wells Fargo – the median overdraft fee is set at $33.At BofA, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not realise they have a negative balance and continue spending, they could incur that fee as many as 10 times in a single day, for a total of $350. Failing to repay the overdraft within a few days results in an additional $35 penalty.BofA said that the bank was “committed to ensuring that our fees are transparent and predictable. We have a range of tools and services to give customers more control over their accounts and to prevent these fees”.Chase has tiered overdraft fees – the first overdraft within a 12-month period is charged at $25, the second to fourth at $32 and the fifth at $35.Chase declined to comment.SunTrust Bank charges the highest overdraft fee for a single overdraft at $36, according to the Consumer Federation of America while Citizens Bank levies a $39 fee after three overdraft items and follows with two separate “sustained overdraft fees” for repeat offenders.SunTrust said it offered waivers and discounts as well as overdraft protection services that made it easy for customers to avoid those fees.Citizens declined to comment.The survey by the Consumer Federation of America found that five of the ten largest banks have raised their overdraft fees in some way in the last year.Nessa Feddis, general counsel at the American Bankers’ Association said the higher fees are appropriate because big banks do not know their customers as well as small community banks, and need to be compensated for the higher risk.Consumer advocacy groups point to very low loss rates on overdrafts for all banks and argue that overdrafts are the least risky form of credit, while being the most expensive for consumers.Eric Halperin, director of the Center for Responsible Lending said: “The banks own your pay check before you do, so the only way you can default on your overdraft is if you choose to open another account and deposit your income elsewhere.”Copyright The Financial Times Limited 2009. You may share using our article tools. Please don’t cut articles from and redistribute by email or post to the web.

FEDupAugust 10th, 2009 at 11:44 am

Nice info. It is true and is affecting many people I know, especially the young, naive teenagers (my daughter and her friends) who routinely overdraw their account. BoA is of course, one of the leaders in terms of the amount charged, $35., lack of transparency and disclosure when signing people up. I keep telling everyone to take their money out of the big banks and put it in either a small local bank or credit union.

MM CAAugust 10th, 2009 at 8:39 am

As I’ve been saying……Lost Couple of Decades Looming for U.S. Economy.Check the charts out too: are in the process of deleveraging the most leveraged economy in history. Many investors look at this deleveraging as a positive for the United States. We, on the other hand, look at this deleveraging as a major negative that will weigh on the economy for years to come and we could wind up with a lost couple of decades just as Japan experienced over the past 20 years. It is true that Japan didn’t act as quickly as we did but our debt ratio presently is much worse than Japan’s debt ratios throughout their deleveraging process.Presently, the stock market is exploding to the upside, which you could say argues against the case we are attempting to make in this special report. However, if you step back and look at the larger picture, you can see that the stock market is still down over 35% from the highs reached in 2007 and also down over 33% from the highs reached in early 2000. In fact, the market now is acting in the same manner as it did in early 2000 at the peak of the dot com bubble and again in 2006 & 2007 at the combined housing and stock market bubble.This seems to us to be a “mini bubble” of stocks reacting to an abundance of “money printing” by governments all over the world since stocks are rising worldwide. Of course, if the U.S. doesn’t recover there will be no worldwide recovery since the rest of the world is still dependent upon the U.S. consumers’ appetite for their goods and services (despite the so called growth of domestic consumption in China and India). We, however, don’t believe that the U.S. massive stimulus programs and money printing can solve a problem of excess debt generation that resulted from greed and living way beyond our means. If this were the answer Argentina would be one of the most prosperous countries in the world. This excess debt actually resulted from the same money printing and easy money that we are now using to alleviate the pain.Most investors believe the bailouts, stimulus plans, and quantitative easing will lead to inflation. In fact, almost all of the bearish prognosticators are negative because of the fear that interest rates will rise once the inflation starts to work its way into the economy. They point to the doubling of the monetary base which they believe will soon lead to rising prices as more dollars are created chasing the same amount of goods. We, on the other hand, are not as concerned about the doubling of the monetary base because we believe the excess money will need the money multiplier and increases in velocity in order to increase aggregate demand and eventually inflation. As long as velocity (turnover of money) is stagnant we expect the increases in the monetary base and all the quantitative easing will lead to a stagnant economy and deflation until the consumer goes into the same borrowing and spending patterns that was characteristic of the 1990s through 2007.Remember, over the past decade (when we believe the secular bear market started) the total debt in the U.S. doubled from $26 trillion in 2000 to just over $52 trillion presently (peaking a few months ago at $54 trillion). This consists of $14 trillion of gross Federal, State and Local Government debt and $38 trillion of private debt. We expect the private debt to continue declining in the future as the deleveraging of America unfolds, while the government debt will very likely explode to the upside as the government tries to slow down the private deleveraging by helping out the entities and individuals in the most trouble with debt (such as over-extended homeowners).We wrote a special report in January of this year titled “Substituting Debt for Savings and Productive Investment” in which we explained why the U.S. economy historically prospered because of hard working Americans saving a substantial amount of their income which was used for productive investment. Unfortunately, all of this changed over the past few decades and got worse over the past decade. In fact, we stated in the report that it took $1.50 of debt to generate $1 of GDP in the 1960s, $1.70 to generate $1 of GDP in the ’70s, $2.90 in the ’80s, $3.20 in the ’90s, and an unbelievable $5.40 of debt to generate $1 of GDP in the latest decade. Over the past two decades, while most investors thought this trend could continue indefinitely, we have been warning them of the catastrophic problems associated with this ballooning debt.The attached chart of total debt relative to GDP shows exactly how much debt grew in this country relative to GDP (it is now 375% of GDP). The total debt grew to over $52 trillion relative to our current GDP of approximately $14 trillion. This is worse than the debt to GDP relationship in the great depression (even when the GDP imploded) and greater than the debt to GDP that existed in Japan in 1989. Even if you took the debt to GDP when the U.S. entered the secular bear market in early 2000 and compared that to 1929 and Japan in late 1989, our debt to GDP still exceeded both (by a substantial margin relative to 1929). The approximate numbers at that time were about 275% in the U.S. in early 2000, 190% in 1929, and about 270% in Japan in 1989.In fact, the similarities between Japan’s deleveraging and the U.S. presently are eerie. Japan’s total debt to GDP increased from 270% when their secular bear market started to just about 350% 7 years later (1998) before declining to 110% presently. The U.S. increased their total debt to GDP from 275% of GDP when our secular bear market started (in our opinion) to 375% presently (10 years later), and we suspect the total debt to decline similar to Japan’s even though the Japanese govenment debt tripled during their deleveraging. The government debt relative to GDP was about 50% in both the U.S. and Japan when the secular bear market started. We also suspect that our government debt will grow substantially just like it did in Japan as the private debt collapses. Also, the Japanese stock market doubled during the three years preceding their secular bear market in 1987, 1988, and 1989 while the U.S. market also doubled during the three years preceding the beginning of our secular bear market in 1997, 1998, and 1999.There also a few significant differences between the U.S. and Japan. The private debt in Japan was almost the reverse of the U.S. where most of our excess debt was in the household sector and most of the excess debt in Japan was in the corporate sector. The debt to GDP figures in Japan were not easy to come by from the typical sources until the mid 1990s and had to be estimated, but should be pretty close to the numbers used above. Our sources on the above Japanese debt figures came from Ned Davis Research and the Federal Reserve Bank of San Francisco. NDR’s report, “Japan’s Lost Decade– Is the U.S. Next?” have great statistics and information and the Fed’s report “U.S. Household Deleveraging and Future Consumption Growth” is well worth reading.The Fed study charted the peak of the debt related bubble of the stock and real estate assets in Japan in 1991 (1989 for stocks and 1991 for real estate) and overlaid it with the peak of U.S. debt associated with the same assets in 2008. They concluded that if we are able to liquidate our debt at the same rate as Japan we would have to increase our savings rate from the present 6% (artificially high due to the recent stimulus paid to households) today to around 10% in 2018. If U.S. households were to undertake a similar deleveraging, the collective debt-to-income ratio which peaked in 2008 at 133% (H/H debt vs. Disposable Personal Income) would need to drop to around 100% by 2018, returning to the level that prevailed in 2002.If the savings rate in the U.S. were to rise to the 10% level by 2018 (following the Japanese experience), the SF Fed economists calculate that it would subtract ¾ of 1% from annual consumption growth each year. We did a weekly comment about this very subject on June 25 of this year and came to a similar conclusion. In that same report we showed that from 1955 to 1985 that consumption accounted for around 62% of GDP. Because of the debt driven consumption over the past few years at the end of March 2009 consumption accounted for over 70% of GDP. If the percentage dropped to the normal low 60% area of GDP it would subtract about $1 trillion off of consumption (or from $10 trillion to $9 trillion). We also showed in that same report that H/H debt averaged 55% of GDP over the past 55 years and was 64% as late as 1995. It has since soared to over 100% of GDP giving a big boost to spending that will be reversed as the deleveraging takes place over the next few years.Other problems we have in the U.S. that will exacerbate the deleveraging are excess capacity, unemployment rates skyrocketing (putting a damper on wages), credit availability contracting, and dramatic declines in net worth. The attached chart of capacity utilization is self evident that excess capacity in the U.S. has just dropped to record lows with the manufacturing capacity dropping to under 65% and total capacity utilization is just a touch better at 68%. It is very hard to imagine corporations adding fixed investment at this time. With unemployment rates close to 10% and rising, it is unlikely that wages will grow anytime soon. The charts on credit availability and net worth reductions are self explanatory and will also put a damper on consumer spending rising anytime soon.We expect that the U.S. deleveraging will follow along the path of Japan for years as real estate continues to decline and the deleveraging extracts a significant toll from any growth the economy might experience. We also expect that, just like Japan, the stock market will also be sluggish to down during the next few years as the most leveraged economy in history unwinds the debt.

wethepeopleAugust 10th, 2009 at 9:24 am

It strikes me as odd, no it actually strikes me in my gut!…That we (the citizens of the USA) have: a government within our government (a Congress and Senate that don’t represent the people, and the use of unelected Czars), a military within our military (Blackwater and Halliburton), and a financial system within our financial system (Federal Reserve, GS and JPM, and dark pools). Sadly, we have lost control.

farnorth5August 10th, 2009 at 8:42 pm

Vey true .Money TALKS.Money is POLITICAL POWER.In theory only Voters should be making campaign contributions and deciding who gets elected/re-elected.You cant necessarily blame the New Politician when the Commercial Money decides the outcome of his/her first and subsequent reelections.It was not an accident that all the Commercial Banking/Finance Firewall Legislation was done away with over this past ten years ,on the recommendation of the Financial Community.

GuestyAugust 10th, 2009 at 10:04 am

A Cure for an Ailing Economy: Taxing the RichBy Shamus CookeGlobal Research, August 9, 2009 isn’t the only social ill in the U.S. that needs a serious remedy. The list is long and growing: state budget crises, unemployment, infrastructure, education, housing, food assistance, etc. These are all things that must be paid for, but the money seems to be in short supply. When a country is in as much debt as the U.S., – $12 trillion and counting — the tasks at hand seem all but unachievable.And this is exactly what many politicians would like you to believe.Fortunately, the seriousness of the crisis is forcing a return to a forgotten, “radical” debate. For the first time in decades, some mainstream media and politicians are posing an extremely controversial question: should we increase taxes on the rich — and if so, how much?The debate is being open to the public for lack of other options. The social inequality in the U.S. has been rising for decades, and has now reached the point where most of the population has zero disposable income; millions owe much more than they own. The only people who have money to spare are the wealthy. Another reason to tax the rich is that “…tax increases on high-income residents are less harmful than spending cuts; wealthier taxpayers tend to pay higher taxes from savings, not money they would otherwise spend.” (The New York Times, August 3, 2009).Not pursuing higher taxes on the rich is resulting in social devastation. Look no farther than California, where Governor Schwarzenegger proudly declared that the state budget deficit was balanced “without raising taxes.” Instead, the budget was balanced at the expense of education, health care, welfare, etc. The working class and poor bore nearly the full extent of the burden. This dynamic is quickly turning the country backwards to a world that resembles the last depression.Indeed, during the great depression tax rates for the wealthiest were raised significantly, from 24% in 1929, to 79% in 1936. Again, it was economic necessity — combined with a growing working class insurgency — that determined the tax increase.Tax rates for the wealthy remained high for decades — 90% at times — until Regan “revolutionized” the system. The man Obama speaks so highly of lowered the national income dramatically: taxes for the wealthiest individuals fell from 70% to 33% with both Democrats and Republicans voting for the reduction.In an attempt to partially fund some of his campaign promises, Obama plans to allow the Bush Jr. tax cuts for the rich to expire, which will raise taxes on the wealthiest a mere 3%. This insufficient amount has caused an uproar in some sections of the elite who use their control over media outlets to vent their frustration — branding Obama as a “socialist” (an insult to actual socialists). Their outrage is genuine, since they believe that giving up a little may cause people to then demand they give up much more.This increasingly venomous rhetoric against taxing the wealthy often comes with implied threats, the most common being: if you tax the super-wealthy and corporations, they will move themselves and their money oversees. Jobs will thus be lost; the economy will be sabotaged.It must first be noted that the rich are already professional tax evaders, while corporations are giant welfare recipients. Tax “exemptions,” off-shore tax havens, and the type of logic that allows mega-billionaire Rupert Murdoch to pay 17% in taxes from his stock market “earnings” are just a few of the problems in our tax system that need correcting.Correcting these numerous, irrational loopholes, while greatly increasing taxes on the wealthy and corporations is likely to create the predicted exodus of rich, for the same reasons that the wealthy Venezuelans and Cubans crowd the shores of Miami Beach.If this were to happen, we needn’t stand idly by as they further bankrupt the country. Such a purposely destabilizing act would require their bank accounts be frozen, and their excess property seized. Although harsh sounding, one must remember that this money isn’t legitimately theirs in the first place: they’ve acquired these billions by de-industrializing the country, driving down wages and slashing benefits, betting on housing bubbles and other financial schemes, bank bailouts, etc. In effect, they’ve bankrupted tens of millions of people and — if threatened by higher taxes — want to take their stolen money and run.It should also be pointed out that the very question of the rich fleeing from higher taxes proves a higher economic law: our economic system is completely owned and manipulated by a tiny majority of ultra-rich individuals, who shield themselves behind omnipotent sounding corporate names: Goldman Sachs, Wells Fargo, Boeing, etc. This is not a topic of abstract philosophizing, but the cause of the country’s economic crisis.For decades the whole economy has been run by and for the interests of the corporate elite, with the recent bank bailouts proving this beyond any question — the federal treasury has been opened up for the mega-banks to grab trillions of dollars, with no questions asked.This bankrupting of the country by bank bailouts and foreign wars is being used by sections of the elite to demand the end of a program long-hated by them: Social Security. The bedrock social program that many have referred to as “untouchable” is in danger of being molested by Obama’s corporate-dominated administration. And although Obama has hinted at the coming attack by repeatedly stating that “entitlement programs need to be reformed,” he has yet to be as blunt as the many recent articles appearing in national magazines and newspapers, intended to soften public opinion. The enormous national debt will be used as the pretext for the attack.This cannot be allowed to happen; working people and the poor have sacrificed enough. The giant shift of wealth that has occurred in the last 40 years towards the wealthy must cease and be drastically reversed. For society to regain any semblance of equilibrium, wealth must be re-distributed on a magnificent scale, since any society that intends to meet the basic needs of its citizens — food, housing, health care, education, etc. — is utterly incompatible with the current situation, where a small group of billionaires enrich themselves off bursting financial bubbles and war profiteering.The White House and Congress will do anything to avoid the urgently needed tax increases on the wealthy that the economic situation demands. All kinds of complicated tax increases on the working and middle-classes are likely to be proposed, such as the European-style Value Added Tax, and other taxes on consumption.Labor unions and community organizations must unite to demand that the very wealthy – the top 5 percent of the population — and corporations pay for the economic crisis that they’ve manufactured. The enormous national debt and the dire need to maintain and expand social services make this demand especially urgent. There’s no time to waste.And while placing the major burden of taxation on the rich who can afford it is an obvious necessity, a redistribution of existing wealth would be only a temporary solution to the current economic crisis. A basic restructuring of our society — taking political, economic, and social control out of the hands of the tiny group who have wielded power since the founding of this country — is the only road to a prosperous and sustainable future.

The AlarmistAugust 10th, 2009 at 10:28 am

First of all, what exactly would we call rich? The top 5% started somewhere around $160k for 2007 and paid more than 60% of the total tax burden.OK, so do we tax wealth? As you point out, it will be hidden, moved or simply taken out of service. Jobs will be lost. The move to surtax Yachts a few years ago was a great example, with rampant destruction of jobs among the people who built yachts. Yep, guess we can go down that road again.And even if the rich don’t get away, then what. The taking of wealth is a one-time event. If you take it all away once, the example is not lost on anyone who follows that the fruits of their hard work will be more hard work for the benefit of society rather than themselves, so why bother trying to get ahead, when there is no “ahead.”Cuba did something along those lines 50 years ago, and look what a bright shining example of fairness, prosperity and well being they are. And please don’t tell me they have good and free healthcare for all, because that, and the entire essay above is little more than demogoguery.

farnorth5August 11th, 2009 at 1:47 pm

-Well said Alarmist.The simple definition of a Communist Country is one where the person is technically paid $4000 per month and the Fed Govt taxes at 90% ,giving the person $400 per month and a “NEAR FREE” crap 1 br.Apt for $89 per month rent, for an extended family of eight ,including 1 set of Grandparents ,and then they are told to THANK their Communist Masters for the Governments true “BENEVOLENCE”.What Bullshit!!!!If some people are hung up on taxation /Govt services , you use a Sales tax or Value Added Tax at the Wholesale level, NOT Income tax to raise additional income.If you are serious about changing the status of the top 400 People who earned 20% of all income (1 Tenth of One Percent of all wage earners) there is some validity to a special income tax bracket ,but technically speaking the solution is through Death Duties ,where income and power gets re-distributed.You dont take away the basic INCENTIVE for everyone to get ahead…..You have to remember the Federal Income Tax Act was originally brought in to pay the Interest on the National Debt.It was not thought through well then and isnt now.

Ungrateful PeonAugust 10th, 2009 at 12:28 pm

“Labor unions and community organizations must unite to demand that the very wealthy – the top 5 percent of the population — and corporations pay for the economic crisis that they’ve manufactured. The enormous national debt and the dire need to maintain and expand social services make this demand especially urgent. There’s no time to waste.”Organizing is well underway and will only gain momentum as the looting, job and wage destruction continues to destroy the lives of hard working Americans.Folks are beginning to see through the last 40 years of corporate propaganda that allowed wealth to concentrate at the top of the food chain and undermine the democratic princples that separated the US from third world countries around the globe. Enough already!Good article.

GuestAugust 10th, 2009 at 8:11 pm

The elite have launched an all out attack through talk radio and are winning the mind war on the surface but as their own greed destroys the middle class and poverty grows no amount of Rush limbaughs or Sean hannity’s will work. how can you continue convincing the poor are poor because it’s their fault when the whole country is poor. I can’t wait for their ultimate demise!

Ungrateful PeonAugust 11th, 2009 at 2:23 am

Indeed. I’m even willing to accept a decrease in living standard if means a return to citizenship instead of consumerism and the marketing of stupidity needed to keep the whole scheme afloat. This has been a dark period in American history. The things that might have been accomplished with all the wealth that has been wasted dumbing-down and entire population. Truth is finally oozing through the cracks in the foundation and I can’t wait either.

Mother of GodAugust 11th, 2009 at 10:51 am

I love you, but you have the wrong idea about what economic justice would mean, UP – and this is an extremely important point: making the investment in economic justice will reap the biggest dividend possible: it will mean a huge INCREASE in living standards for 100% of people on this planet and a big increase in wealth for 99%.Go see that Lcurve dot org thang again on youtube, to get the accurate picture of just how much wealth the working people really are creating…to see how much self-earned wealth has been stolen off 99%…to see how much other-earned wealth the overfortunated 1% are really in possession of!Now picture a hand pushing down on that stratospheric spike on the right side of the graph, and see how high the leveling would lift 99% of people!!UP, I hope you’ll do this looking. People have the very wrong idea that making this country and this world more egalitarian will be a cost, when the truth is that justice will bring huge increase in living standards. THAT is the message that wins the day finally. It’s the simple truth that we gain, gain, gain, not lose, through doing economic justice for all.

The AlarmistAugust 11th, 2009 at 2:46 pm

Gee, I was just in what was the former DDR last weekend staying on what was once a party apparatchik’s lovely sea-side Dacha. It reminded me of the line from Animal Farm that some pigs are more equal than others. You can push down all you like on that spike, but the wealth of society will always be concentrated in the hands of those who generate it and those who sit in the positions of power that allow them the license to loot it in the name of social justice.Nice try, but no cigar.

kilgoresAugust 11th, 2009 at 9:32 pm

That’s why a democratic society needs a sufficiently progressive tax system to work. You can’t equalize everyone on a pecuniary basis, but you can take steps to give every citizen a chance at a decent standard of living. The wealthy will still remain wealthy, but less so; the poor will still be relatively poor, but not abjectly so; a healthier middle class will enjoy an opportunity for a higher standard of living; incentives to produce and invest will not be crushed; and both the economy and the participation of citizens in their government will thrive.SWK

farnorth5August 11th, 2009 at 2:00 pm

“The Top 5% ???. “Please change that to TOP 1% or lessOtherwise you catch all the hard working Professionals who go to work every day to make a real difference.Think : Doctors/Dentists/Engineers/Scientists/Local Business People ,.All those people who you know who make a real positive difference in your lives….

GuestAugust 12th, 2009 at 7:53 am

the guy who hauls my garbage away on that big truck makes a very positive positive difference in my life. so does the cleaning woman who sanitizes hospital rooms. are they working less hard than my dentist or local business people??

GuestAugust 10th, 2009 at 11:56 am

The Administration and proponents of Obama care are threatening freedom of speech, freedom to protest and petition the government, and freedom to assemble. And for the President of the United States to say that the opponents of his healthcare proposal should just “get out of the way,” and “not do too much talking,” and for the Speaker of the House of Representatives, third in line for the presidency, to call shouted questions to their representatives “un-American,” the path to tyranny is no longer just a nightmare.And remember: don’t do “too much blogging, er, I mean, talking!!!!”

Ungrateful PeonAugust 10th, 2009 at 1:04 pm

The administration is threatening to challenge ‘freeDUMB’ and the insidious spread of disinformation being marketed and fed to American citizens by the corporate interests who profit most from business a usual.And right wing hysteria and obfuscation is getting really tired old.

The AlarmistAugust 11th, 2009 at 2:23 am

Yeah, right. When it was protesting Bush and the War and eighteen other things that were, rightly or wrongly, believed to encroach on civil liberties, it was informed activism and a virtue to protest and dissent, sometimes even violently. Now that it is against the agenda of the former protesters and activists, it is the tyranny of the mob. If you live and prosper by Community Organising, then you are hardly in a position to bitch about it when it is turned against you.

GuestAugust 11th, 2009 at 12:50 am

If you ever wondered what the loss of freedom of speech is like, take a look at what government leaders are pushing now against the opposition to Obamacare.

kilgoresAugust 11th, 2009 at 9:37 pm

I can’t help but notice that you seem to be exercising YOUR rights of free speech. Just be glad the forces of evil haven’t taken over this blog yet.SWK

RelievedAugust 10th, 2009 at 12:24 pm

Well, I for one am relieved that the recession is ending and a depression has been averted. Now I look forward to job growth resuming in the coming months and the Dow above 12,000 within a year. Time to exhale and smile again!!!

BrianAugust 10th, 2009 at 1:15 pm

And don’t forget this one, it’s time to spend, Spend, SPEND again! Charge it all up on your credit cards, Relieved! And borrow against your home or car equity, after all, the values are going up to the moon! I recommend buying stocks on margin, of course, since leverage is the only way to REALLY make money in this market!Yes, up UP and AWAY! It’s the glory days again, my friend, buy anything and everything you don’t need since money is free!!…and keep smiling as long as you can…

RelievedAugust 10th, 2009 at 1:30 pm

Hey, no need for sarcasm here. You just have to have a flexible mindset. Don’t get caught up in one paradigm. Like tech will go up to the moon. Housing prices always go up. The economy is going to be swallowed up by an earthquake. Swine flu will kill us all. Of course there is some truth to all of these paradigms, yet their proponets make too much out of them and carry them too far. Chill out. It’s going to be fine!

GuestAugust 10th, 2009 at 1:45 pm“Lenders haven’t sworn off risky financial products. They’ve come up with a slew of new onesThat didn’t take long. The economy hasn’t yet recovered from the implosion of risky investments that led to the worst recession in decades — and already some of the world’s biggest banks are peddling a new generation of dicey products to corporations, consumers, and investors. In recent months such big banks as Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM) have rolled out corporate credit lines tied to complicated and volatile derivatives.Big Banks Offering Payday Loans. At the other end of the borrower spectrum, big banks are entering another controversial arena: payday loans, whose interest rates can run as high as 400%. Historically the market has been dominated by small nonbank lenders, which mainly operate in poor urban centers and offer customers an advance on their paychecks. But big lenders Fifth Third and U.S. Bancorp (USB) started offering the loans, while Wells Fargo continues to boost its payday-loan program, which it began in 1994.”Consequence of Obama and Geithner’s BS talk about to bailout Too Big Too Fail is ultimate moral hazard consequence that encourages banks to take more risks. Why not, Obama gov, Fed, and Treasury will always bailout Too Big Too Fail.

GuestAugust 10th, 2009 at 1:47 pm

and consequence of targetting 0% rate by Fed is to force institutions to take on risky trade. So who is to blame -> stupid FED Bernanke.

GuestAugust 10th, 2009 at 3:53 pm

Consequence of bailout Too Big Too Fail=TBTF is you must keep 0% for a long time for TBTF to want to venture into risky bets like lending. so Fed will need to target 0% rate for a long time, like after 2010 or after 2011, else will hurt TBTF very badly. gotta screw TAX PAYER to keep saving TBTF.

GuestAugust 10th, 2009 at 2:21 pm

This guy thinks the goverment has been involved in manipulating and buying the S&p 500. It makes sense. They have created value, but not wealth. Resources haven’t been allowed to divert to productive elements, so basically this artifical growth will necessarily lead to another major collapse.,%5EGSPC,SPY,DIA,XLF,SKF,TBT&sec=topStories&pos=8&asset=&ccode=

The AlarmistAugust 11th, 2009 at 2:25 am

It’s about getting pepple to feel good about their 401k’s again so they won’t be in such a lousy mood about other programmes on the agenda.Its freaking brilliant, but not sustainable.

GuestAugust 10th, 2009 at 2:34 pm

Why isn’t the Fed Chairman and Treasury Secretary democratically elected by the people?That way they will be accountable to only the people, whereas if the President elects them, then the economy is bound to be driven by short-term thinking and long-term malaise. It is time to reform democracy. It isn’t as though from feudalism to monarchy to representative democracy, this is the height of proper governance: we must always seek to improve the system.

farrnorth55August 10th, 2009 at 7:37 pm

‘Why isnt the Fed Chair / Treasury Sec. democratically elected ???”Thats simple. The system was designed ,starting in 1913 ,to permit unelected people to manipulate the system for the people holding the majority interest in the Federal Reserve Banking System.It was President Eisenhoer who asked the simple question when as the new President he was appointing the federal Reserve Chairman ,on the recommendation of the Federal Reserve Board of Directors.The question was “As we (The Fed Govt ) only own twenty percent of the shares of the Fed Reserve ,WHO owns the controlling interest?.He had heard rumors that the Bank of England (The Rothchilds with controlling interest of the Bank of England) actually had the controlling share.The answer was swift and clear. “The Bank is a Private Bank and you as President have no legal right to know who the shareholders are”.Nothing has changed,People still think it is BEST if the Federal Reserve is a Private Bank rather than an arm of the Federal Govt.Take your pick,who do you the taxpayer trust the least ? The Fed Reserve OR The Federal Govt? Who do you want to issue/control the money supply /Inflation/Interest Rates ???? So far the Treasury Sect has handed out about $850 Billion versus the Fed Reserve $2.5 Trillion .Take your pick.The truth is there is no accountablity when the Multinational Corps just out finance the Public at Election time..Until Election Contributions are only provided by the Public ,nothing will change.The POLITICAL POWER is with the money.The public continue to loose.

GuestAugust 10th, 2009 at 10:46 pm

Ron Paul has the best appraisal I’ve heard concerning the Fed. The Fed chair is immaterial. The people need to fire the Fed. When you have a system whereby a private group of bankers owns and controls the currency of the United States for no other reasons than to benefit themselves, then why sit around and debate whether its representative should be kept or not? Fire Bernanke and you’ll get another just like him. Keep him, and he’ll continue issuing the cartel’s orders. Surely there is no one left who still believes he’d suddenly start working for us.There is one point alone that wipes away all the arguments that the Fed is necessary. Bernanke “missed” the housing bubble. He bankrupted a few million people by the bubble he didn’t see and caused them to lose their homes. The bubble he didn’t see blew and threw these people out into the streets. The bubble he didn’t see destroyed years of home equity for millions of others, putting many under water.In short, Bernanke flunked. He ruined all these people. Then he helped, by the trillions, the people that helped him create the bubble, people who engaged in mortgage fraud” on a historic scale, outfits like Goldman Sachs and JPMorgan. These same people then used bailout money to loot the markets.America’s financial system lay in ruins because of the corruption in the Fed and for many it still lies in ruin;14.7 million people are walking the streets looking for jobs. Thousands of businesses and small banks have shut their doors. Bear Stearns is gone (purchased by J.P. Morgan Chase), Lehman Brothers, bankrupted, Merrill Lynch purchased by Bank of America, Morgan Stanley and Goldman Sachs, both converted to bank holding companies (God help us).The federal government placed Fannie Mae and Freddie Mac into conservatorship (taxpayer quarterly losses already amounting to a $150 billion), and took over insurance giant AIG. Millions of Americans can’t meet their mortgage payments. Consumer purchasing power has been devastated; the nation’s manufacturing job base has been exported to China; General Motors and Chrysler bankrupted… Detroit a ghost town…Goldman Sachser Hank Paulson working in China for Coda, co-chaired by former Goldman alumni Mac Heller, to fund a US-Chinese electric car to sell to jobless Americans…Says TradingHelpDesk: “The past 25 years has seen the economic balance of power shift too far from the fair equilibrium. The few are benefiting at the expense of the many. Goldman Sachs is a beneficiary. Wall Street as a whole is another beneficiary. Main St has suffered. But the individual, the workers, the micro-engines of the economy have suffered most. Unfortunately, one dollar one vote is more popular than ever in Washington.”It’s time to be ruthlessly honest, folks. Do you really think you can afford four more years of Bernanke?

The AlarmistAugust 11th, 2009 at 2:29 am

By making them removed from the electoral process they were supposed to then have the latitude to be apolitical.Nice theory, but very few selfless people get to the position where they can slide into such roles, and the ones who become “selfless” and altruistic once they reach this sort of role have a truly distorted view of the best interests of the country and the common person.The Fed was supposed to soften the darker side of capitalism, i.e. the swings of the cycles, but I think I would rather take my chances with true, naked capitalism rather than the crony capitalism that has dominated this past century.

GuestAugust 10th, 2009 at 3:33 pm

Obama, Pelosi, and Geithner’ American Dream => Work hard, we th government will tax you to death or print the money to make your hard earn money worthless. YES WE CAN SCREW YOU!!!

SoftwarengineerAugust 10th, 2009 at 4:20 pm

Even Obama knows the tripe, bad statistics and false rosy predictions won’t work anymore, to justify an amnesty overpopulation economy. Especially as his upper 5% of household incomes running/managing the Democrat party start experiencing the same horrifying depression level unemployment [with underemployed, giveups and not counted included] as the other 95% of household incomes. He’s lost his mouth piece.Read the following excerpt from my website, it came from a book author named Pete:”…The biggest obstacle we face in changing attitudes toward overpopulation is economists. Since the field of economics was branded “the dismal science” after Malthus’ theory, economists have been adamant that they would never again consider the subject of overpopulation and continue to insist that man is ingenious enough to overcome any obstacle to further growth. This is why world leaders continue to ignore population growth in the face of mounting challenges like peak oil, global warming and a whole host of other environmental and resource issues. They believe we’ll always find technological solutions that allow more growth.But because they are blind to population growth, there’s one obstacle they haven’t considered: the finiteness of space available on earth. The very act of using space more efficiently creates a problem for which there is no solution: it inevitably begins to drive down per capita consumption and, consequently, per capita employment, leading to rising unemployment and poverty….”

The AlarmistAugust 11th, 2009 at 2:31 am

Blah, blah, blah. You can put every family in the world into their own house and it would all fit neatly into Texas.Maybe that was what “immigration reform” was all about.

farnorth5August 11th, 2009 at 3:09 pm

You are correct.My Grandfather was born in 1900.There were 1 Billion people on this earth.There are now 6.7 Billion.The fundamental question is :What do you do when when there is now 80 % less farm land/fresh water and minerals ,including Oil and Natural Gas PER PERSON?This also includes National Parks,Lakes and Streams etc.When you do the Grade 6 Math ,the figures dont compute .It is strange. You can ask a Farmer (Educated or Illiterate) and they can tell you how many animals per acre can live in perpetuity on their own farm,but ask the same person “How many People per acre can live in perpetuity with a good standard of living ?”and you get a blank stare.With the huge improvement in Public Health over this last 200 years the increased average life span means only 0 to 4 babies per female have to be birthed to supply the world with a stable population.Not the traditional 8 to 12.It is part of the World Dynamic for International Stability .Our Economic System simply ignores all physical limitations as “Something the Engineers can always solve “Nothing is further from the truth.

GuestAugust 10th, 2009 at 5:12 pm

Danger signs ahead but bargain stocks a-plenty: Faber | Financial StandardThursday, 6 August 2009Leading contrarian investor Dr. Marc Faber wears his “ultra bearish” cap in his Australian visit, predicting another financial crisis could happen in the next five to 10 years – but even that doesn’t mean there aren’t any investment opportunities, particularly in Asia.Visiting Australia as a guest presenter for Treasury Asia Asset Management (TAAM), Dr. Faber said that the Federal Reserve’s policy in the past decade only added to the market volatility. By keeping rates artificially low and pumping money into the system, equities, markets and economies will face “unintended consequences”, including another financial crisis in the next five to 10 years.This crisis has not been fully cleansed out of the system, he said.He repeated his bearish views of the US dollar, which he believes will approach zero (not overnight, but it will happen) while many Asian currencies will rise on the back of a continually improving Chinese currency.Against that environment, he highlights various investment themes including going long on gold and silver (sovereign funds will likely buy gold when interest rates are around zero), corporate bonds and Asian equities (many markets in Asia are near 20-year lows).Tapping on socio-demographic trends, Faber is bullish on healthcare stocks in Asia, infrastructure stocks, commodities, REITs in emerging economies and tourism stocks (“every hotel will soon have a Chinese restaurant in it,” he said).As uncorrelated investments to more established equity markets, Faber also sees opportunities in plantations and farmland (in Latin America and Ukraine), Japanese banks and new regions including Cambodia and Mongolia.In short, Faber believes that based on how economies and markets fared over the last few years, a new world has emerged where it is now the poor countries driving global consumption and global markets.But for many fund managers who believe they can take a breather now that the GFC has passed, Faber believes US and European stockmarkets are still overvalued relative to the lows reached in previous recessions.”The ultimate crisis is still ahead of us,” he said

HubbsAugust 10th, 2009 at 5:22 pm

RE: Tax hikes for the rich.IMHO there has to be some distinction between taxing earned income (salary and wages) and passive income earned on investments (long and short term capital gains).Some people I know work very hard and long hours -whether salaried or self employed. I think it is is blatantly unfair to have a steep progressive taxation bracket that penalizes them on earned income.Passive income-now that’s another matter. Long term investors should have some reward as well, since that kind of investment lends toward more productive allocation of money and at least theoretically benefits society.Now these brokers and day traders (and I know there are probably quite a few on this blog so don’t stone me) especially from these big financial firms, taxing “profits” should be progressive.In view of the turmoil in the financial markets, can anyone honestly say that their activity is beneficial- except for themselves?I don’t buy all this crap about risks they take etc. as justification. They take risks with working people’s money, and earn fees regardless of their performance.

Ungrateful PeonAugust 10th, 2009 at 6:23 pm

I agree, but sound reasoning doesn’t get much airtime when the folks who oppose it, essentially have a monopoly on the marketing of ideas and information.Truly unfortunate.

GuestAugust 10th, 2009 at 8:30 pm

Low capital gains tax has destroyed the U.S. economy, contrary to what some might believe saved dollars add little to no value to an economy, excess money creates nothing they don’t work. if it’s used to in debt the working class to pay high interest rates well then it starts suffocating an economy when taxes are low on passive investments it steers capital away from job creating investments like starting businesses, if you’re wealthy you would be a fool to start a business when you can create tax free interest with low risk. low capital gains and high taxes on small businesses has been the key to destroying our economy and funneling the money into the bankers ponzi scheme.

GuestAugust 10th, 2009 at 8:47 pm

Excellent point about taxing passive earnings on investments, Hubbs. Currently, the financial sector makes all the rules, writes the laws, picks the president, pays itself if it stumbles, and, as everybody knows: writes the tax code. There is no other reason for their industry being taxed at 15% and everybody else is taxed at much higher progressive rates.

The AlarmistAugust 11th, 2009 at 2:35 am

Gee, do you have a mortgage? If yes, then you are shameless, because you are living off the passive investment of some other person you would have us stone.Go ahead and punish capital and investment, and you will soon find yourself living in tiny little apartments that you had to wait ten years to get, just like our friends in the former DDR and USSR.But you will no doubt feel good about the fact that some greedy capitalist didn’t make a little interest off your hard working back, and after all, isn’t feeling good what this is all about?

GuestAugust 11th, 2009 at 10:10 am

I think you missed the point on this one, Alarmist. What does having a mortgage have to do with the injustice of Goldman Sachs being taxed 15% on its “earnings” and me, an electrical engineer, being taxed at a progressive rate up to 33% (35% for earnings over $373,000) on my earnings? Larry Blankfein got up every morning, went to work at Goldman and made some money and I got up every morning, went to work to design robots, and made some money. Did Larry produce so much more than I, that he should be rewarded by the IRS? I’ve managed to set aside some earnings in a savings account; why is my “investment capital” twice-taxed at 33% and Larry pays 15%?As for my 401(k), why will it be taxed at a progressive income tax rate when I retire, but Larry’s will always be 15%?How can it be that Goldman Sachs Group Inc., which got $10 billion and debt guarantees from the U.S. government (taxpayers, i.e. me and thee) in 2008, only paid $14 million in taxes worldwide for 2008 on $2.3 billion in profits? That’s 1 percent in taxes.If the Investment Banker Queens are responsible for all the production in the world, how is it that the Mayflower settlers managed to build their log cabins and an economy without a mortgage loan from Goldman’s investment capital?Be fair, Alarmist. Is it economic justice for market investors to pay 15% on their earnings, and a saver and a production worker to pay double that rate on their earnings?

The AlarmistAugust 11th, 2009 at 2:54 pm

Goldman makes $X billion in any given year, and pays out dividends to shareholders who pay taxes, or makes further investments that generate further income that is taxed somewhere else along the line. Meanwhile, above the line, they pay $Y billion in salary and bonuses that might not be as taxed as you like but are taxed nonetheless.I hate the fact that Goldman has such a privileged and connected existence that allows it to pick a whole series of pockets around the world, but I don’t kid myself that they are not helping pull the wagon.BTW, don’t be so quick to kill Goldman and their ilk, because they are rapidly becoming the last viable international business model that the US has to reclaim a lot of those exported dollars that we used to buy cheap goods from the rest of the world on favorable terms. It may be a pirate ship, but it is our pirate ship.

GuestyAugust 11th, 2009 at 10:30 am

It’s well-known that capital formation is highest in the most egalitarian countries, but Alarmy wants you to believe you must give away your money to the rich, in order to have it work for commerce. He’s delusional and in denial of the obvious facts, obviously. Apologists for the system of extreme injustice are living off the cheap labor of others and they believe to the bottom of their stonecold hearts that this social darwinism is righteous and ordained.Alarmy is another dinosaur. He thinks he deserves bigger pay for doing no more work than millions of others do. He couldn’t care less how the underpaid feel about having to accept less pay for equal work.

GuestAugust 11th, 2009 at 12:19 pm

Actually, I kinda like Alarmy. He may be a little wayward and delusional as regards the 15 percenters, but a “dinosaur” with a “stonecold heart”? Nah! More like Puff, the magic dragon that lived by the sea. Little Jackie Paper loved that rascal Puff; twas a sad day when Puff, that mighty dragon, sadly slipped into his cave. Be good to Alarmy. ‘Twould be a dull day without his fearless roar…

Mother of GodAugust 11th, 2009 at 1:39 pm

Take Alarmy the person out of the picture. His refusal to acknowlege the bits of the economic picture he chooses to ignore, his perverse definition of freedom as merely the freedom to grow limitlessly rich, his misinformation, illogic, and irrationality – all of this is still carrying a deadly wrong message that needs to be murdered by exposing the pillars it stands on as a pack of lies and denials and fundamental misconceptions.Justice is a virtue essential to human happiness and economic justice is the most important justice.Alarmy thinks it’s justice to maintain a system that funnels money and wealth from poor to rich, but dare suggest to reverse the flow and he screams injustice.The worldview that defends funneling all the wealth to a fraction few is obsolete. The Alarmies, who refer to working people and working-poor people (actual wealth producers) as “the parasite class”, are a huge problem. The parasite class is the leisure class – and what could be more obvious?? The thieves in society are the ones with all the money – doing all the damage – raking in other-earned wealth at a clip they have cleverly ESCALATED via the financial and economic crisis they created!

The AlarmistAugust 11th, 2009 at 2:58 pm

Well, you wouldn’t have much of an unemployment check if I wasn’t busy taking money from the little people in other parts of the world and repatriating it to the US for you and the other little people to use back home.You’re welcome.

Mother of GodAugust 12th, 2009 at 7:00 am

As you go along forever trying to defend the indefensible, Alarmy, you will please immediately cease making absurd false assertions about me and about others who have worked hard all our lives. I’ve been working since I was 11 (babysitting and paper routes), “officially” (taxpayer) employed since I was 14 years old.I have NEVER received a single dime in unemployment compensation, nor have I ever received ANY other form of “welfare” payment of any kind.You got that straight now, Bozo? I HAVE NEVER EVER BEEN IN POSSESSION OF OTHER-EARNED WEALTH. I HAVE NEVER EVER BEEN ALLOWED TO POSSESS THE AMOUNT OF SELF-EARNED WEALTH I HAVE CREATED. THE SAME GOES FOR MY PARENTS AND ENTIRE FAMILY.So you can damn well kiss my rosy red cheeks, Mr. I love to suck other people’s self-earned wealth Greedhead Alarmy.

blindmanAugust 10th, 2009 at 8:05 pm

here a good one. controversial, contradictory and ironic.we’re rich!. BANK BALANCE SHEETSAntal E. FeketeProfessor of Money and BankingSan Francisco School of Economics…..Grand Canyon-size holes in the balance sheets.The banks cannot liquidate it without revealing Grand Canyon-size holes in theirbalance sheet, several times larger than bank capital. They desperately need toretain their portfolio of government bonds for “window-dressing” purposes, thatis, to show at least the remnants of what had been bank capital in happier times.They desperately try to hide the fact that even the ruins of their capital are gone.The much advertised “stress-test”, no doubt, is using the same metric that hassteered the banking system to the ground during the past four-and-a-half score ofyears: the metric assuming that government bonds can never lose value, and bankbalance sheets are there to falsify based on that false metric. Such an assumptionis especially dangerous when the interest-rate structure is at the low-end of thespectrum, and the country is suffering from a chronic balance of payments deficit.It is difficult to see how one can treat the stress-test and its results with respect.We shall see how adroitly Ben Bernanke will handle the printing press whichhe is in the habit of boasting that the U.S. government has given him to use in asituation like this. He will not be able physically to print FR notes so fast as toreplace electronic money that has been lost, or will be lost through rejection bythe public. Electronic money had been created in the belief that nothing more wasneeded to pacify the markets. But it is one thing to create electronic money with aclick of the mouse; it is quite another thing to print FR notes on real paper withreal ink.This is the secret of deflation, and the answer to the much-debated questionwhether you can have hyperinflation and deflation all at the same time. Theanswer is that you can, because hyperinflation refers to electronic money thatpeople reject, and deflation refers to FR notes that people hoard.The moment of truth has arrived. You cannot fool all the people all of the time.The Emperor is naked: the tailors who created his garments are impostors.Too bad for the impostors. Unlike in Andersen’s story where they decampedin a hurry, Bernanke and Geithner stayed and will have to face the ire of theEmperor — and that of the people when they find out that their deposits are “gonewith the wind”.April 27, 2009.simultaneous deflation and hyperinflation. sounds like a stage ina larger crisis of confidence.

GuestAugust 10th, 2009 at 8:41 pm

imports inflate while exports and domestic commodities deflate. This will force these bozo economists like Krugman and Roubini to realize globalization is not inherent to a free and high quality form of life, self-sustenance and localized economies are much healthier than their grandiose, utopic, ideals. Roubini and krugman calls for regulation and an end to laisez fare policy yet contradicts himself when he defends globalization and unfettered free markets and supports anti-protectionism. protectionism is a form of much needed regulation on out of control greed by out of control capitalists.

GuestAugust 11th, 2009 at 12:11 am

Looking for a clunker to buy or recycle for parts? Forget it! The government has crushed them “so they will not be sold for use in the U.S.”… to force you to buy new, maybe? All this and healthcare, too.Clunker plan crushes Oklahoma’s used parts supplies | JOHN A. WILLIAMS /08/10/09The government’s Cash for Clunkers program has left some auto salvage yard owners angry and confused.They said it could cut back the supply of used cars and used car parts.”I thought I was going to buy every car from every dealer around here, and somebody’s not giving me the information that I need,” said Marty Cope, owner of Stillwater’s 108 Auto and Truck Salvage.Cope said he buys about 300 cars a month, supplying him with motors, transmissions and body parts to sell. He said all he understands about the Cash for Clunkers program is that the old cars being traded have to be destroyed, making good used parts even harder to find.”I’ve got to crush those cars,” he said. Cope has more than 6,000 cars in the yard that need to be crushed.According to, the government’s official Web site on the CARS Act, the program requires trade-in vehicles be crushed or shredded so they will not be resold for use in the U.S. or elsewhere. Those responsible for crushing or shredding vehicles can sell some parts, but those parts cannot include the engine or drive train.Tim Huskey, owner of Cars and Parts by Tim Inc. in Guthrie, is outraged over the federal program.”This doesn’t make smart recycling sense, adding more cars to be crushed,” he said. “This is taking away from a man who needs to buy an engine for an older car that he can now get for around $700 and installed for another $500.”

The AlarmistAugust 11th, 2009 at 2:38 am

How exactly is it better for the environment to promote the manufacture of new cars requiring massive amount of energy and resources rather than to maintain existing commitments of resources that might use a fraction of the total energy commmitment going forward.Cash for Clunkers is sheer insanity, and little more than a bone tossed to union workers and environmentalists. I know I feel better for helping their cause, how about you?

GuestAugust 12th, 2009 at 7:56 am

Obama, Pelosi, and Geithner Co: to those crazy old car/parts people, YES WE CAN SCREW YOU. and take this screwing on you like a man and stop complaining, because YES WE CAN BAILOUT AUTO and screw everyone else, that include TAX payer.

GuestAugust 11th, 2009 at 12:38 am

“a banking ‘Berlin Wall'”…to keep Americans from escaping…The Creeping Financial Lock-Upby Jeff SnyderAugust 11, 2009–J.H. Huebert had an excellent article last Friday about the US attempts to force the Swiss bank, UBS, to divulge information about US account holders to the IRS. These efforts are nothing less than an attack on Switzerland’s sovereignty in the form of its ability to establish and maintain its own banking laws.This is the kind of arcane financial news that is easy to disregard. When people hear “Swiss bank accounts,” they may brush off the attacks as the problems of the ultra rich. If only we were so “unfortunate” to have this kind of problem to worry about, right? Unfortunately, however, I think we do. I believe that there is far more to this than a temporary, one-time money grab by the IRS from tax evaders. I believe this is also very bad news even for us “wage slaves.”The day Mr. Huebert’s article appeared, the Justice Department announced that the US and Switzerland had reached an agreement in principle to settle the US lawsuit against UBS AG seeking the names of 52,000 account holders. No details of the agreement were released but, given the amount of leverage that the US can bring to bear on UBS’s operations in the United States, it would be astounding if UBS had not agreed to some major accommodation to US demands.Let’s go back and supply a little context about how we get to this issue in the first place.Most countries with income taxes tax only income that arises from sources in their own country. The US is one of the few governments in the world that taxes its citizens on their worldwide income. As a result, the US is constantly seeking ways, through treaties, laws or, now we see, international strong arm measures, to track the international financial transactions of its citizens, whether in the name of preventing drug trafficking, money laundering, tax evasion or other crimes.US taxpayers are required to report, and pay taxes, on interest or other earnings derived from foreign accounts. Unlike US banks, which will send you and the IRS a Form 1099 each year, foreign banks do not have an obligation to report your earnings to the IRS. Accordingly, the IRS is keenly interested in finding out from you whether or not you have any such foreign accounts.Schedule B to Form 1040 (used for reporting interest and dividends) asks, “At any time during (the previous year), did you have an interest in or a signatory or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account?” As described by the law firm of Bove & Langa in an on-line article about this matter, the answer to this question has serious potential consequences:The question calls for nothing more than checking a “yes” or “no” box in response, but most taxpayers (and many tax preparers) just ignore it. The yes box or the no box, that’s it. There are no boxes that say, “maybe” or “I don’t understand the question,” or “I decline to answer on the grounds that an answer may incriminate me.” Maybe there should be such choices, since there are many who do not fully understand the serious implications of ignoring the question when such an account exists, or worse, of intentionally providing an incorrect answer, which, surprisingly, may include no answer at all. That is to say, intentionally leaving both boxes blank could be deemed a false answer by the IRS or a court.”In addition to this reporting obligation on Form 1040, a U.S. citizen, resident alien and even certain persons who are not resident but are doing business in the US with no other connection are also required, by the Bank Secrecy Act, to report the existence of a foreign account to the IRS on Treasury Department Form 90-22.1 if the combined total value of all such accounts exceeds $10,000 at any time during the year. The definition of the type of accounts that must be reported is very broad and includes even prepaid credit card and debit card accounts. The report must be filed even if the accounts generate no interest or other taxable income. As described by Bove & Langa, the penalties for a willful failure are quite severe:”[t]he civil penalties for failing to report the account on the prescribed form . . . can range from up to $10,000 for a “non-willful” failure, and for a willful failure the greater of $100,000 or half the balance in the foreign account. [emphasis supplied.] If criminal activities are involved, the monetary penalties are increased and may be accompanied by possible imprisonment for up to ten years.[footnote omitted] . . . [F]ailure to maintain adequate records of the foreign account may result in additional civil and criminal penalties. The IRS states that records should be kept for five years.”As Mr. Huebert pointed out, while the IRS is seeking information about approximately some $20 billion in UBS accounts, because of the possibility that most people with these accounts may have been accurately reporting all earnings and paying all applicable income taxes on those earnings, it is possible that the IRS will not obtain all that much money, especially when judged against the current federal deficit. However, since the intentional failure to report an account can result in loss of one-half of the entire account, the IRS does indeed have a very strong financial motivation to obtain the UBS information, because even a relatively small number of noncompliant taxpayers with very large foreign accounts could generate sizable revenues. The threat of this penalty alone will give the IRS considerable leverage for nonreporting taxpayers to settle somewhere between the penalties for unintentional and intentional failure, likely resulting in considerable tax revenues from persons who honestly didn’t know they were violating the law.More importantly, the IRS’s highly visible targeting of the “establishment” Swiss banking system will likely garner much greater future compliance with these reporting obligations, so that the IRS and US government will likely obtain detailed information about many more foreign accounts from people who have either intentionally hidden these accounts or who just want to “play it safe.” In this regard, please note that TDF-90-22.1 requires the reporting individual to provide the account number of the account itself, as well as the names of the account holders and name and address of the financial institution, thus providing all the information necessary to enable the governmental to file tax liens, seek the freezing of accounts or other enforcement actions available to it under tax treaties or applicable foreign laws.Still, it is very likely that these consequences will fall predominantly upon very high-income taxpayers. Unfortunately, the US strong arm tactics to compel foreign banks to disclose US account holders’ information are having an additional, and more disturbing effect on a far greater number of people, and one that is quite possibly also intended by our lords and masters. And that is this: to make it extremely difficult for Americans to have accounts abroad, and therefore to prevent both the safeguarding of wealth outside the United States and living outside of the United States.According to this Forbes article, Americans are fast becoming pariahs of foreign banks. Because of US demands and pressures, foreign banks in countries around the world are deciding to close Americans’ accounts, or are not permitting Americans to open new ones. In some cases, the banks are not terminating or rejecting new applications for just securities or investment accounts, but also current accounts, i.e., the standard checking accounts people use for their living expenses. In other words, the US is making it more difficult for you to live in another country, by creating international difficulties that, in the end, will seriously obstruct your ability to conduct everyday financial transactions in a foreign country. By creating high costs for foreign banks to permit US citizens to open and maintain even checking and savings accounts in foreign countries, US citizens will be unable to have the normal banking services they need to live in a foreign country, and will not be able to do things like pay rent, utilities, travel on public transportation and buy groceries.Possibly the most unequivocal sign that distinguishes a totalitarian system from a relatively free society is the simple right to leave. In totalitarian societies, the “iron curtain” falls, and “citizens” are not free to leave. The people and their assets are effectively property of the state. They, and everything they produce, are “human resources” that belong to the government. The “citizens” are more accurately described as prisoners confined within their national borders.The US government’s attacks on foreign financial institutions are one more means by which the US is slowly establishing controls that will prevent the populace from escaping their indentured servant status here, or just escaping, period. One of the effects of these attacks will be, to some extent, to lock American assets into American banks and keep funds here, onshore, where they are readily controllable, seizable and debasable. These attacks are a way of closing the borders, are the makings of a banking “Berlin Wall.”Slowly and methodically, we are being locked in.

GuestAugust 11th, 2009 at 1:52 am

How to make a right-libertarian lewrockeweller schmuck cry and whine every time: just suggest the richest richest should start paying something resembling their fair share.

The AlarmistAugust 11th, 2009 at 2:48 am

As one who is caught up in this conundrum, and not being one of the richest of the richest, I can tell you it is becoming more difficult to live abroad, and that is not in the interests of the US since a lot of commerce is facilitated by having its expatriates planted around the planet. Given a choice of whether to do business with a US firm or one nearly every where else, I’m having an increasingly difficult time throwing business back to the US when the regulation and taxation makes it increasingly unpleasant for a non-US firm to do business there.But hey, why should we care about jobs and production at the margins of the economy, when Big Govt will be there to take us all in when we get kicked back on shore.

GuestAugust 11th, 2009 at 4:23 pm

fine by me take your business and jobs out of the country but also your products, don’t think you pillage our country and take your profits else where it’s a double standard.

The AlarmistAugust 12th, 2009 at 6:49 am

OK, I think I understand what you are saying.In the process of plundering your country, we employ and pay well a number of your fellow country-persons who make products and services that other of your fellow country-persons willingly exchange their hard-earned money because our stuff provides them with a certain value that they do not derive from any of the home-grown products that pretend to compete with ours.Kick me out, and you only make your own society poorer for the experience. Sure, my loss, but much more yours as I will always be able to go somewhere else and generate value.

The AlarmistAugust 11th, 2009 at 2:59 am

FWIW, the WWF rates Cuba as the only country with sustainable development. Are they now so sustainable since the dramatic fall in the demand for sugar decimated what used to be Cuba’s biggest and least sustainable business? Is the average Cuban living better because of this? And I wonder if that rating will hold once the Chicoms and Russians get their Cuban-licensed oil drilling operations in the Gulf into full swing. But hey, they gotta pay for all that free healthcare somehow.

GuestAugust 11th, 2009 at 11:37 am

The World Wildlife Fund was set up by Prince Bernard of the Netherlands – … etherlands – who also set up the Bilderbergers – viewtopic.php?f=33&t=9230 – whose stated agenda is one-world government.The WWF is a World Wide Fraud – – Note these remarks: WWF helps to protect very small areas as nature reserves and therefore gives space for the indiscriminate destruction of huge remaining areas, by industry and small scale land grabbers. Their bluster about ‘illegal’ logging is merely a smoke screen to cover up the 95% of logging that is legal. WWF helps to develop remote places with large areas of intact nature and get control over it. As these remote areas are generally tribal lands of non-assimilated peoples WWF assists governments to get control over them and to assimilate them into the mainstream. Shanty towns and coca-cola are no replacement for a three million year old culture. The point here is that compensation is irrelevant anyway, since these people should not be forcibly removed in the first place. The argument about compensation is a red herring to divert attention from the genocide being conducted by NGOs who pretend to support human rights…As Do or Die says: “People from Indonesia to Zaire are being forcibly removed [by the WWF] from their ancestral homelands into shoddy shanty towns with poor sanitation and bad food. These people want to stay in their homelands, living as they always have; with no leaders and no civilization; hunting and gathering.”The “civilized” world is next: Welcome to the agenda of the WWF, of the Global Warmers, of the Goldman Cappers and Traders. It’s your turn now to be the victims of their national “preserves,” to have your land and home taken, your livelihood destroyed by their joint Government and WWF activities, your removal to make way for their railroads if there happens to be a gold mine on your territory.As Tom DeWeese says:The truth is now rapidly coming out. There is no man-made global warming – it’s a lie. There is no threat to Polar Bears – -it’s a lie. Drilling American oil is not a danger to the environment – it’s a lie. And yet, WWF continues to spread the lies and fan the fear.… We should call on the federal government to take away WWF’s non-profit status. We should complain to any television network that runs their lies. We should demand that such false advertising be pulled from the airways.The World Wildlife Fund is dangerous to our way of life – to our very civilization. We should no longer just treat them like some nice folks with a different point of view. Political debate is one thing, outright fraud is criminal.

GuestAugust 11th, 2009 at 10:29 am

We need to organize. It’s urgent, both locally and nationally. “We” — are wage workers, the cannon meat of capitalist economy and wars. No ideological slogans are needed, just one battle cry — all power to the people! As our bankrupt states and cities begin descending into misery and despair we need to organize by neighborhoods, by factories, by the brotherhoods of the unemployed, by the concerned parents groups, by state and federal employees, veterans organizations and so forth. Only then we’ll be able to take power and reorganize the entire economic and political order in this country in the interests of the great majority of working people. Again, all we need is All Power to the People.

GuestAugust 11th, 2009 at 12:48 pm

How clever of you to equate Goldman Sachs gangsterism with capitalism to further erode freedom.It is fitting, as the Goldman fascist-socialists in capitalist veneer build their iron curtain around America’s economic and physical freedoms, that we should quote their champion of economic egalitarianism, Nikita S. Khrushchev, in his 1956 report to the Central Committee:“Our enemies like to depict us Leninists as advocates of violence, always and everywhere. True, we recognize the need for the revolutionary transformation of capitalist society into socialist society. It is this which distinguishes the revolutionary Marxist from the reformist, the opportunist. There is no doubt that in a number of capitalist countries the violent overthrow of the dictatorship of the bourgeoisie and the sharp aggravation of class struggle are inevitable.”And who will be there to take charge when the inevitable violent overthrow of the “capitalist countries” takes place? Why Goldman Sachs, of course.

The AlarmistAugust 11th, 2009 at 3:02 pm

As I said earlier, don’t be so quick to kill Goldman and their ilk, because they are rapidly becoming the last viable international business model that the US has to reclaim a lot of those exported dollars that we used to buy cheap goods from the rest of the world on favorable terms.It may be a pirate ship, but it is our pirate ship.

GuestAugust 11th, 2009 at 4:44 pm

Alarmist, I am alarmed! You say “Goldman may be a pirate ship, but it’s OUR pirate ship”? Have you forgotten that Goldman controls the private banking cartel that is the Fed and the Federal Reserve Bank of New York– that controls the System? Have you forgotten that Paulson and Geithner were/are its men in the U.S. treasury who have indebted Americans by the trillions, or that Goldman controls the PPT that manipulates the markets and is front running the stock market with an HFT machine?This is Goldman, Alarmist, the chief lobbyist for de-regulation that brought on this disaster. It was Goldman’s over-leveraging that caused the bubble and the crash, for pity’s sake. Do you think Goldman did not know it was committing fraud when it sold packages of “liars’ loans” as triple “AAA” investments, selling more than anyone else, and then shorting them? And that it bought more credit default swaps than anyone else from AIG as insurance against the mortgages and the banks who held them from failing, knowing they probably would? And that it was the first to collect from the taxpayers all the billions it had paid AIG for insurance when AIG went belly up? You’re right, Alarmist. These people are pirates. But when’s the trial?Goldman is stealing us blind, sinking freedom, sinking the hopes and dreams of 300 million Americans for a representative government. And you think once Goldman sets sail on its own Jolly Roger it is going to split the Treasury with us? As you well know, anyone with a dissenting viewpoint such as yours and mine will be forced to walk the plank, saving Goldman the trouble of having us shot.Quick! Alarmist. Take back what you said, before someone else sees it.

The AlarmistAugust 12th, 2009 at 6:58 am

Nah, wouldn’t if I could.The political class is what beggared the nation. Goldman and their ilk merely found a way to gather up the golden crumbs that the politicos made possible with their social engineering disguised as “protected capitalism” and “home ownership for all.”My point is, without GS et al looting the world, the balance of payments would be completely tilted against the US and in that respect GS et al are doing us a favor.As for walking the plank, my life among the socialists of the world has taught me that the smart move is to join the Party … you don’t have to actually believe the Party Line, merely spout it and seem like you believe it …. I understand both the Fed and the UST are hiring, so we should be giving that serious consideration.

HayesAugust 11th, 2009 at 10:44 am

This is an interesting article (a bit too partisan) but its message rings true:Double-dip recession?Dire prospects rise along with borrowingBy Richard W. Rahn | Tuesday, August 11, 2009″We are likely to have a double-dip recession, and this is why. Your Uncle Sam has been having a hard time because he spends more than he makes. He engages in much unproductive behavior and wastes a lot of money on things that he doesn’t really need. He is easily influenced by his irresponsible children, Nancy and Harry, whose mantra is: “Spend, Sam, spend.” Sam is also sloppy with his finances. His record keeping is poor, and he is frequently ripped off by people who claim to be his friends.Recently, Sam experienced a big drop in his income, because his employer (the American taxpayer) had been taking financial hits. But Sam likes to live well, so he went to Mr. Goldman and Mr. Sachs’ bank and borrowed some money. He also hit up some of his friends in China…”

SoftwarengineerAugust 11th, 2009 at 8:11 pm

You got it right GuestMy HOA doesn’t qualify for FHA….Hooooorayyyyy!!!!!Now I don’t have to worry about low credit rating subprime gypsies moving next door, tearing up the place and going default anyway. You have to have a stable job and put like 20% down to live in my neighborhood….thank God, it sifts out the vermin.The bad news, the first time homebuyers in high RE priced Seattle evidently don’t even qualify for $139K HUD homes with no FHA [there’s an empty one in my neighborhood for 2 yrs]….LOLThank God I anticipated the RE bubble a decade ago due to uncontrolled overpopualtion, and bought half what I could afford…LOL….

kilgoresAugust 11th, 2009 at 11:42 am

From the Encyclical Letter “Caritas in Veritate” of the Supreme Pontiff Benedict XVI: “36. Economic activity cannot solve all social problems through the simple application of COMMERCIAL LOGIC. This needs to be DIRECTED TOWARDS THE PURSUIT OF THE COMMON GOOD, for which the political community in particular must also take responsibility. Therefore, it must be borne in mind that grave imbalances are produced when economic action, conceived merely as an engine for wealth creation, is detached from political action, conceived as a means for pursuing justice through redistribution.”Smart guy, that Pope…SWK

The AlarmistAugust 11th, 2009 at 3:09 pm

I would have to disagree in that the concentration of power in the hands of the political class combined with their ability to cloak their aims in the lofty rhetoric of social justice has done more harm and caused far more misery to far more people than unbridled capitalism ever has.

The AlarmistAugust 12th, 2009 at 2:19 am

The history of the world has been nearly all tyranny and oppression by the political class, often hand in hand with whatever religious classes have dominated at any given time, against the citizenry. Capitalism and democracy are but recent history, have only been tried in part, and have been corrupted once again by the political class. I think you can gather from that which I think came first.Given the Church’s past participation in the oppression and abuse of the people, I would be reluctant to accept its doctrine as the gospel for how we should organize our society.

GuestAugust 11th, 2009 at 11:59 am

It has been said the greatest volume of sheer brainpower in one place occurred when Jefferson dined alone…HOW DID JEFFERSON KNOW???Especially read the last quote from 1802.When we get piled upon one another in large cities, as in Europe,we shall become as corrupt as Europe .Thomas JeffersonThe democracy will cease to exist when you take away from thosewho are willing to work and give to those who would not.Thomas JeffersonIt is incumbent on every generation to pay its own debts as it goes.A principle which if acted on would save one-half the wars of the world.Thomas JeffersonI predict future happiness for Americans if they can prevent thegovernment from wasting the labors of the people under the pretense of taking care of them.Thomas JeffersonMy reading of history convinces me that most bad government results from too much government.Thomas JeffersonNo free man shall ever be debarred the use of arms.Thomas JeffersonThe strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government.Thomas JeffersonThe tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.Thomas JeffersonTo compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.Thomas JeffersonThomas Jefferson said in 1802:’I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered..”If you don’t read the newspaper you are uninformed, if you do read the newspaper you are misinformed.’-Mark Twain

GuestAugust 11th, 2009 at 2:11 pm

Money is not the only dog in the hunt as the investment bankers, brokers, realtors, university economists, and Bernanke and Congress would have us believe. More important are the opinions of Americans interested in their country, who would like to see the continuation of a country that would provide for them and their families’ futures.When Congressional staffs go in to write legislation, they are mainly talking to people whose main interest is money; Congressional legislation is the sum total of all this money, the realtors versus the AMA, the AMA versus the AARP, the AARP versus the pharmaceuticals, the pharmaceutical versus the bankers—all who with their paid lobbyists have their industries, their profits, as a priority. That, of course, sinks the priorities of the American people. We have our concerns, yes–about our retirement, our security, our investments, our jobs. And we push for those and we ask for those, but they are not our main concern.As Jefferson, to the benefit of the 300 million people now living in America and countless others in the world, we are interested in more than our own personal wealth. We are interested in our country.Economy is more than money; economy is the government of the home and the family. Freedom and a sufficiency of materials goods are necessary for the virtuous life of the average human being.Manipulators of money wield an enormous power with disastrous results to the nation and the people. In 1943 in England, 31 dignitaries signed a proposal for an honest National Monetary System, demanding the “cessation of hostilities towards a saner economic system.” It concluded thusly:“The issue and destruction of money by the money-lender is not a service, but a weapon which can be and has been used to perpetuate poverty amidst abundance, which renders individuals and nations powerless to protect themselves, and which may even be perverted to serve vast designs for the complete subjugation of the human race to tyranny, exploitation and the powers of evil and darkness.”Is Goldman Sachs not perpetuating poverty amidst abundance?

NoviceAugust 11th, 2009 at 12:41 pm sure how reliable the source is but a good graph of foreclosures at the link.Quote from the site: (Can anyone here verify it’s validity??)” The Fed is abandoning the printing presses (presumably) because China told Geithner to stop printing money or they’d sell their US Treasuries. It’s a wake-up call to Bernanke that the power is shifting from Washington to Beijing.That puts Bernanke in a pickle. If he stops printing; interest rates will skyrocket, stocks will crash and housing prices will tumble. But if he continues QE, China will dump their Treasuries and the greenback will vanish in a poof of smoke. Either way, the malaise in the credit markets will persist and personal consumption will continue to sputter.”

GuestAugust 11th, 2009 at 3:03 pm

What a brilliant summation–the entire US economy in the hands of one man, Bernanke, who’s in a pickle. But I guess we can say he does command a large army, all those whose livelihood is associated with the movements of money. Hail to the chiefs, our credit-makers, the banks, who serve “Big Money.”Inequality and injustice for all.

GuestAugust 11th, 2009 at 4:39 pm

The chinese are bluffing they don’t dare crash the dollar then they’ll have to compete with competence, anyway it’s an adjustment that has to happen sooner or later what goes up must come down. All the people calling for support of the dollar are traitors in a sense a trade imbalance must eventually correct itself so why are people in support of Chinas threat that we shouldn’t correct the trade imbalance. people are way over estimating China’s resilience they will suffer dearly if they force the correction-which they won’t.

GuestAugust 11th, 2009 at 1:01 pm

Well, the stock market finally is having a minor correction, so I expect a post from Roubini any day now about how the recession isn’t over yet, brown shoots etc.. Too bad he can’t see the bull market staring him in the face.

farnorth5August 11th, 2009 at 2:46 pm

The Bull Market ?Based on what ???? There are No job increases /No increase in sales /No increase in Real Estate Values (Both Individual and Commercial)No increase in Balance Sheet Assets .The “W” is alive and well and is repeatable, if the right actions arent taken.

HubbsAugust 11th, 2009 at 1:44 pm

As long as central banks keep infiltrating money into the stock market, the market will stay afloat? n’est-ce pas? But if valuations are in inflated dollars, then the stocks are…well..inflated.

GuestAugust 11th, 2009 at 2:46 pm

thievery of the national wealth; bogus capitalism continues: the Fed and Goldman Sachs now the market; the Fed never loses; captialism is deadFederal Reserve Capital LLC; Ben Bernanke Earning Your 2 and 20 With Daily Short Covering Diligence | Tyler Durden Zero Hedge: 08/11/2009Will someone audit these clowns already please?From David Rosenberg’s piece today:”When people kid around that the Fed has become another hedge fund now that it is the lender of first, second and last resort — to mention the market-maker for everyone including RVs and mobile homes — it really is no joke at all. See NY Fed in Hiring Spree as Assets Soar. The New York Fed is seeking to bolster its staffing of traders — not research staff, but traders — by nearly 70%!! When will the Fed start hiring investment bankers? That is what we would like to know.”

The AlarmistAugust 11th, 2009 at 3:15 pm

Gee, some of you laughed when I said that the US was on its way to having one Bank that took out all the middlemen.The question is, when will goldman sachs do the tender offer to take over the Fed?

GuestAugust 12th, 2009 at 7:49 am

FED another hedge fund? common now, with ability to print unlimited money and the power blessed by Obama, Pelosi, and Geithner Co and entire Democratic congress. FED is no hedge fund, but mega money printing money power machine that effect everything -> fiscally, politically, and socially. FED is awesome powerful.

Guest IIAugust 11th, 2009 at 3:34 pm

Advanta cooked, more or less. They are the company that (formerly) had a niche in issuing credit cards to small businesses.- Lost $330 million, or $8.14 per share, in the second quarter.- Plans to cut about 200 more jobs. Advanta said the next round of job cuts will leave it with 200 employees. Just last year, it had 900.- May need to develop and implement new business opportunities if it is going to continue operations. “There can be no assurance that we will be able to do that,” the company said in a regulatory filing.- Decided to shut down credit-card accounts to future use.

SoftwarengineerAugust 11th, 2009 at 3:35 pm

Just spend more of our grandchildren’s grandchildrens money and all will be well?Haven’t we been down that path wil Bush [$10 Trillion Dude] and look where it got us. An unemployment depression with banks using monopoly money and pretending its real, to not cause a panic.You may be of the camp that thinks FDR’s spending cured the last depression, but let’s be pragmatic….was it WWII’s manufacturing and the inventions that America subsequently dreamed up in the 60s and 70s that caused good times, while the federal spending was just a moot point creating long decades from 1930-1945 of no growth depression?Read your history books and you make the call….and yes, I hated Bush’s drunken sailor deficit spending too….Obama needs to learn from Bush’s mistakes; not simply repeat them.Don’t worry, the FDIC isn’t broke…LOLThen why is Senator Dodd recently proposing this:“…Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department…..”And with the $100s of Trillions or whatever the figure is in the NWO IMF, $500B is just a squirt gun at a blazing fire…The rest of the URL:'re just 2 hours of panic at the bank doors away from a full fledged depression and I’m sure almost all of you bloggers agree with me.

GuestAugust 11th, 2009 at 3:45 pm

Your retirement, Social Security and wages and savings are going to be worth pennies. It’s like handing the family finances over to mobsters. I’m getting to the point I can’t sleep at night, trying to figure out how to financially protect my family. Everything’s going up in smoke.

Pecos BankerAugust 11th, 2009 at 11:48 pm

I have to agree with you guest. I too lose a lot of sleep over the fact that everything is going up in smoke. Are we heading for slavery or what? If everything does go to hell in a handbasket, won’t the whole world erupt in war? Is that where we are headed? Even though this is an economics blog, it would be nice to have some discussion of the stakes on the international political scene linked to our economic discussions. Most of what is discussed is what is happening locally in the US. That is very useful, but the problems are international as well. As Spengler said at the end of his “Decline of the West”, blood always wins out over money.

The AlarmistAugust 12th, 2009 at 1:11 pm

Now you know how a Roman of the 4th Century felt as the geniuses running the empire debased the currency, provided bread and circuses to the underemployed masses, and propped up the whole mess by importing cheap laborers to man the army and provide other duties and services in jobs that good, upstanding Romans would not take.The problem with Human Nature is that it rarely changes … no matter how great the problems of our times, the base motivations socialized into us over millenia are what ultimately drive our actions.I understand the dark ages were rather bleak.

GuestAugust 12th, 2009 at 7:42 am

looking at how Fed originate unlimited short/long date Treasury, endless supply of TIPS. looking at FHA, Ginnie, how they originate more subprime loan with TAX payer’s money. Yeah, we spend alots of next generation’s money into blackholes. hehe, wait for FHA subprime lending bubble burst, then tons of TAX payer’s money will be lost. as for Treasury auction off unlimited debt to FED and use the money to buy more agency MBS. Treasury debt on FED’s balance sheet will be back by toxic agency MBS. wait for FED’s balance sheet bubble to burst too. yeah, future is looking brighter and brighter.

GuestAugust 11th, 2009 at 5:19 pm

I guess it depends on how you define “normality.” If that means high unemployment and underemployment, falling wages, falling home prices, a lack of credit for small businesses, etc., then it’s all systems go.

Wild BillAugust 11th, 2009 at 6:52 pm

The ability to protect one’s family from economic disaster is predicated on very narrowly defined assumptions and options. They are gone now. Get that through your head. They no longer exist. Now you can not protect your family alone. You must unite with others to regain control of the economy and the nation. If you are content to rend your garments and fill the blogosphere with lamentations and woe is me’s, go ahead. When things get bad enough so you have nothing left to lose, maybe you’ll abandon your egocentric position and join forces with those who can be effective.

GuestAugust 11th, 2009 at 8:34 pm

Are we meeting down at the end of the cul-de-sac? From there we march the many miles to the mall and get arrested by mall cops in the food court.

GuestAugust 11th, 2009 at 10:03 pm

well, it looks as if that day when most of us “have nothing left to lose” is rapidly approaching.South Florida a hot spot for ‘underwater’ borrowersAlmost half of single-family mortgage holders owe more than houses are worthSouth Florida Sun SentinelAugust 11, 2009 — Nearly half of the single-family mortgage holders in South Florida owe more than their houses are worth, a worrisome reminder of the region’s 3 1/2-year housing slump.In Palm Beach, Broward and Miami-Dade counties, 47 percent of the 837,177 single-family home mortgages are “underwater,” according to a second-quarter report released today by, a real estate company that compiles data from public property records.That’s up from 44 percent in the first quarter of 2009. Zillow did not release a percentage for the second quarter of last year.Nationwide, 23 percent of single-family homeowners with a mortgage had so-called negative equity during April, May and June. Many borrowers who owe more than the houses are worth put little or no money down and paid near-record prices in 2004, 2005 and 2006.”As a homeowner, how do you deal with that?” said Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter. “It can burn you up. For a lot of people, there’s no way out any time soon.”Because home prices have fallen by more than 40 percent since the boom years, underwater borrowers in South Florida may have to stay put for a decade or more until they can break even in a sale, housing experts say.In the meantime, these homeowners are at risk for abandoning their properties, which would add to the glut of foreclosures and extend the housing downturn.”Most people are good people who try to honor their obligations,” said Brad Hunter, a housing analyst with Metrostudy in West Palm Beach. “But there are a lot who have lost their jobs or have greatly reduced incomes and can’t make their mortgage payments anymore. It’s very likely that they will just walk away.”Hunter said homeowners who took out “option ARM,” or option adjustable-rate mortgages, in the past few years are in the most danger of being underwater. The balances on those loans have increased while property values decreased.Last week, a report from Deutsche Bank said that nearly half of all homeowners nationwide could owe more than their properties are worth by 2011. The report said 90 percent of homeowners in South Florida could be underwater in two years.,0,867098.story

GuestAugust 11th, 2009 at 10:44 pm

Haven’t heard from PeteCA in a long time, but Whitney was one of his favorites…It’s a Planned DemolitionTHERE IS NO RECESSION 08/10/09By MIKE WHITNEYCredit is not flowing. In fact, credit is contracting. When credit contracts in a consumer-driven economy, bad things happen. Business investment drops, unemployment soars, earnings plunge, and GDP shrinks. The Fed has spent more than a trillion dollars trying to get consumers to start borrowing again, but without success. The country’s credit engines are slowing to a crawl.Fed chairman Ben Bernanke has increased excess reserves in the banking system by $800 billion, but lending is still slow. The banks are hoarding capital in order to deal with the losses from toxic assets, non performing loans, and a $3.5 trillion commercial real estate bubble that’s following housing into the toilet. That’s why the rate of bank failures is accelerating. 2010 will be even worse; the list is growing. It’s a bloodbath.The standards for conventional loans have gotten tougher while the pool of qualified credit-worthy borrowers has shrunk. That means less credit flowing into the system. The shadow banking system has been hobbled by the freeze in securitization and only provides a trifling portion of the credit needed to grow the economy. Bernanke’s initiatives haven’t made a bit of difference. Credit continues to shrivel.The S&P 500 is up 50 per cent from its March lows. The financials, retail, materials and industrials are leading the pack. It’s a “Green Shoots” bear market rally fueled by the Fed’s Quantitative Easing (QE) which is forcing liquidity into the financial system and lifting equities. The same thing happened during the Great Depression. Stocks surged after 1929. Then the prevailing trend took hold and dragged the Dow down 89 per cent from its earlier highs. The S&P’s March lows will be tested before the recession is over. Systemwide deleveraging is ongoing. The economy is resetting at a lower rate of activity.No one is fooled by the fireworks on Wall Street. Consumer confidence is still falling. Everyone knows things are bad. Everyone knows the mainstream press is lying. The restaurants and malls are empty, the homeless shelters are bulging, and even the big-box stores have stopped hiring. The only “green shoots” are on Wall Street where everyone gets a handout from Uncle Sugar.Bernanke has pulled out all the stops. He’s lowered interest rates to zero, backstopped the entire financial system with $13 trillion, propped up insolvent financial institutions and monetized $1 trillion in mortgage-backed securities and US sovereign debt. Nothing has worked. Wages are falling, banks are cutting lines of credit, retirement savings have been slashed in half, and home equity losses continue to mount. Living standards can no longer be bandaged together with VISA or Diners Club cards. Household spending has to fit within one’s salary. That’s why retail, travel, home improvement, luxury items and hotels are all down double-digits. The money has dried up.According to Bloomberg:”Borrowing by U.S. consumers dropped in June for the fifth straight month as the unemployment rate rose, getting loans remained difficult and households put off major purchases. Consumer credit fell $10.3 billion, or 4.92 percent at an annual rate, to $2.5 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $5.38 billion in May, more than previously estimated. The series of declines is the longest since 1991.“A jobless rate near the highest in 26 years, stagnant wages and falling home values mean consumer spending… will take time to recover even as the recession eases. Incomes fell the most in four years in June as one-time transfer payments from the Obama administration’s stimulus plan dried up, and unemployment is forecast to exceed 10 percent next year before retreating.”What a mess. The Fed has assumed near-dictatorial powers to fight a monster of its own making, and achieved nothing. The real economy is still dead in the water.Bernanke is not getting any traction from his zero-percent interest rates. His monetization program (QE) is just scaring off foreign creditors. On Friday, Marketwatch reported:”The Federal Reserve will probably allow its $300 billion Treasury-buying program to end over the next six weeks as signs of a housing recovery prompt the central bank to unwind one its most aggressive and unusual interventions into financial markets, big bond dealers say.”Right. Does anyone believe the housing market is recovering? In the first 6 months of 2009, there have already been 1.9 million foreclosures.The Fed is abandoning the printing presses (presumably) because China told Geithner to stop printing money or they’d sell their US Treasuries. It’s a wake-up call to Bernanke that the power is shifting from Washington to Beijing.That puts Bernanke in a pickle. If he stops printing; interest rates will skyrocket, stocks will crash and housing prices will tumble. But if he continues, China will dump their Treasurys and there will be a run on the dollar. What to do? Either way, the malaise in the credit markets will persist and personal consumption will continue to sputter.The basic problem is that consumers are buried beneath a mountain of debt and have no choice except to curtail their spending and begin to save. Currently, the the ratio of debt to personal disposable income, is 128 per cent, just a tad below its all-time high of 133 per cent in 2007. According to the Federal Reserve Bank of San Francisco’s “Economic Letter: US Household Deleveraging and Future Consumption Growth”:”The combination of higher debt and lower saving enabled personal consumption expenditures to grow faster than disposable income, providing a significant boost to U.S. economic growth over the period. In the long run, however, consumption cannot grow faster than income because there is an upper limit to how much debt households can service, based on their incomes. For many U.S. households, current debt levels appear too high, as evidenced by the sharp rise in delinquencies and foreclosures in recent years. To achieve a sustainable level of debt relative to income, households may need to undergo a prolonged period of deleveraging, whereby debt is reduced and saving is increased.“Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates.” (“U.S. Household Deleveraging and Future Consumption Growth, by Reuven Glick and Kevin J. Lansing, FRBSF Economic Letter”)A careful reading of the FRBSF’s Economic Letter shows why the economy will not bounce back. It’s mathematically impossible. We’ve reached peak credit; consumers have to deleverage and patch their balance sheets. Household wealth has slipped $14 trillion since the crisis began. Home equity has dropped to 41 per cent (a new low) and joblessness is on the rise. By 2011, Deutsche Bank AG predicts that 48 per cent of all homeowners with a mortgage will be underwater. As the equity position of homeowners deteriorates, banks will further tighten credit and foreclosures will mushroom.The executive board of the IMF does not share Wall Street’s rosy view of the future, which is why it issued a memo that stated:”Directors observed that the crisis will have important implications for the role of the United States in the global economy. The U.S. consumer is unlikely to play the role of global ‘buyer of last resort’— other regions will need to play an increased role in supporting global growth.”The United States will not emerge as the center of global demand following the recession. Those days are over. The world is changing and the US role is getting smaller. As US markets become less attractive to foreign exporters, the dollar will lose its position as the world’s reserve currency. As goes the dollar, so goes the empire. Want some advice: Learn Mandarin.Sagging Employment: A “recoveryless” recoveryJuly’s employment numbers came in better than expected (negative 247,000) lowering total unemployment from 9.5 per cent to 9.4 per cent. That’s good. Things are getting worse at a slower pace. But what’s striking about the BLS report is that there’s no jobs surge in any sector of the economy. No signs of life. Outsourcing and offshoring are ongoing, and downsizing the path to profitability. That’s why revenues are down while profits are up. Businesses everywhere are anticipating weaker demand. The jobs report is a one-off event; a lull in the storm before the layoffs resume.Unemployment is rising, wages are falling and credit is contracting. All the money is flowing upwards to the gangsters at the top. Here’s an excerpt from a recent Don Monkerud article that sums it all up:”During eight years of the Bush Administration, the 400 richest Americans, who now own more than the bottom 150 million Americans, increased their net worth by $700 billion. In 2005, the top one per cent claimed 22 per cent of the national income, while the top ten per cent took half of the total income, the largest share since 1928.“Over 40 per cent of GNP comes from Fortune 500 companies. According to the World Institute for Development Economics Research, the 500 largest conglomerates in the U.S. “control over two-thirds of the business resources, employ two-thirds of the industrial workers, account for 60 per cent of the sales, and collect over 70 per cent of the profits.”… In 1955, IRS records indicated the 400 richest people in the country were worth an average $12.6 million, adjusted for inflation. In 2006, the 400 richest increased their average to $263 million, representing an epochal shift of wealth upward in the U.S.” (“Wealth Inequality destroys US Ideals” Don Monkerud, people are not being crushed by accident, but according to plan. It is the way the system is designed to work. Bernanke knows that sustained demand requires higher wages and a vital middle class. But Bernanke works for the banks, which is why the Fed’s monetary policies reflect the goals of the investor class. Bubblenomics is not the way to a strong/sustainable economy, but it is an effective tool for shifting wealth from one class to another. The Fed’s job is to facilitate that objective, which is why the economy is headed for the rocks.The financial meltdown is the logical outcome of the Fed’s monetary policies. That’s why it’s a mistake to call the current slump a “recession”. It’s not. It’s a planned demolition.

The AlarmistsAugust 12th, 2009 at 6:39 am

Gee, call me old fasioned … some would say ‘Dinosaur’ … but it is not in the long-run interests of the rich to destroy the middle class. It is, however, in the interests of the political class to do so and to turn them into dependents.

Mother of GodAugust 12th, 2009 at 7:40 am

Alarmy, are you Lanny Davis or are you Grover Norquist?Either way, since you’re not in America with my hardworking family and me, I hope you’re Very Happy where you are. And I hope someday you find another brain cell to rub up against that one you have. It is exactly your poisonous and ludicrous worldview that weakened government and let it be devoured by superwealth. Your ridiculous anti-government reactionary fantasies have left us all to suffer under the tender mercies of unlimited personal fortunes wealthpower giants.They call it “the leisure class” FOR A REASON.THE LEISURE CLASS ARE THE PARASITES.But then, you’ve already clearly revealed you are too stupid to make the necessary rational distinction between self-earned wealth and other-earned wealth.

The AlarmsitAugust 12th, 2009 at 1:16 pm

You, sir or madam, have it slightly wrong. The parasite class are the politicos. One can hold it against the poor dependents who threw in with them as their best way to survive, but the evil resides with those would use brute force or the guise of consent of the governed to loot from the society to buy their station.Don’t take it personally, MOG … it’s simply not about you.Lighten up.

GuestAugust 11th, 2009 at 11:05 pm

“While the Congressional Oversight Panel is seeing problems (finally) with small banks, they are still ignoring the gigantic problems at the large banks. All these balance sheet problems are going to fester until BOTH the DEBT and DERIVATIVES are cleared out of balance sheets. BOTH the BIG and SMALL banks that are infested wil not survive such a cleaning. THAT’s the problem, only no one wants to acknowledge, much less handle the truth.” Nathan’s Economic Edge“Overseers warn: Losses could pose threat to small banks”Congressional Oversight Panel says small banks may need to raise $21 billionWASHINGTON (MarketWatch) — The largest U.S. financial institutions are better able to handle a worst-case scenario for potential losses in their whole-loan portfolios than smaller public banks, which could face serious trouble, according to a report released by a bank-bailout oversight panel Tuesday.According to a report from the Congressional Oversight Panel, which is charged with overseeing the $700 billion Troubled Asset Relief Program, or TARP, the 18 largest financial institutions with over $600 million in assets would “be able to deal with” whole-loan portfolio losses projected in an analysis the group completed._________________________________________________________________________________’The reason it is so important to think about smaller financial institutions is because they do disproportionately more of the lending to small businesses.’Elizabeth Warren, Congressional Oversight Panel_________________________________________________________________________________However, the report’s analysis of troubled whole loans — based on a model developed by SNL Financial — suggests they pose a threat to smaller public banks, those with $600 million to $100 billion in assets. The report also takes issue with the Treasury department’s decision to delay indefinitely a program to buy toxic whole loans from banks.Whole loans refer to individual residential or commercial mortgages, as opposed to packaged mortgage securities, which have received much of the attention during the financial crisis.”We are trying to highlight the issue of smaller banks because we believe it has been ignored and until toxic whole loans are taken off their books, we won’t see them lending again in the way we need them to,” said COP chairwoman Elizabeth Warren. “The reason it is so important to think about smaller financial institutions is because they do disproportionately more of the lending to small businesses.”According to the report, smaller banks in the $600 million to $100 billion group will need to raise significantly more capital based on pessimistic assumptions the COP considered, as the estimated losses will outstrip the projected revenue and reserves.”The capital shortfall for those relatively smaller banks is primarily due to the lack of reserves, which on average account for only 25% of the expected loan losses.”The report said that, based on a less pessimistic scenario, smaller public banks would need to raise between $12 billion to $14 billion in capital to offset their losses. However, it added that based on a more stressful scenario, these institutions would need to raise $21 billion in capital to offset their losses.The model employed assumptions that were 20% more negative than stress-test assumptions employed by the Federal Reserve Board in an analysis it made earlier this year to examine how large financial institutions would handle a potential downturn in the economy…Warren and other members of the panel expressed concern about a failure to address the issues of smaller banks.

Mother of GodAugust 12th, 2009 at 7:57 am

Alarmy said: “…the wealth of society will always be concentrated in the hands of those who generate it…”Congratulations, Alarmy; your total disconnect from reality is complete.

GuestAugust 12th, 2009 at 10:20 am

DEFICIT SOARSThe federal budget has gone from surplus to deficit during the past decade.Fiscal year Surplus or deficit2000 +$236 billion2001 +$128 billion2002 -$158 billion2003 -$378 billion2004 -$413 billion2005 -$318 billion2006 -$248 billion2007 -$161 billion2008 -$459 billion2009* -$1,841 billion

The AlarmistAugust 12th, 2009 at 1:19 pm

MOG, finish the quote, please.” … and those who sit in the positions of power that allow them the license to loot it in the name of social justice.”

GuestAugust 12th, 2009 at 8:54 am

Mr. Market is on a bull run today as investors start piling in. Makes no sense to me but what do I know.

HubbsAugust 12th, 2009 at 11:06 am

Very simple -if one relies on the tired old standby of analogy. Let’s use cardiovascular disease.When one has a heart attack, the flow of blood(money) supplying the heart muscle (economy) has been cut off, and part of the heart muscle (manufacturing) may die. In comes the cardiologist/cardio-thoracic surgeon (Fed) to the rescue, opening the vessel by stenting or bypass graft(printing press). Once flow is restored, the patient can continue with his bad habits, smoking, drinking in excess, lack of exercise, etc.With Fed sponsored stock market “recovery” being well established we can start spending our wealth effect again.

MM CAAugust 12th, 2009 at 10:14 am

The top 5 Banks and GS and MS are all insolvnet. They have no way of writing down almsot 3 trillion dollars in losses other than Bankruptcy or being siezed. And the 3 Trillion could quickly become 4 trillion if Resdidential and commerical real estate do not stop thier downward spiral in values and forclosures. Until this problem is dealt with the pain will continue and it is going to get a lot worse. We have seen nothing yet.

GuestAugust 12th, 2009 at 10:18 am

U.S. Underwater Mortgages May Reach 30%, Zillow Says (Update2)BloombergBy Dan LevyAug. 11 (Bloomberg) — Almost one-quarter of U.S. mortgage holders owed more than their homes were worth in the second quarter and that figure may rise to as much as 30 percent by mid-2010 as job losses and foreclosures climb, said.Homeowners are being hurt by price declines. The estimated median value for single-family houses slid to $186,500 in the period, a 12 percent drop from a year earlier and the 10th consecutive quarterly decrease, the Seattle-based real estate data service said in a report today.“The negative-equity rate will rise and spin off more foreclosures,” Stan Humphries, Zillow’s chief economist, said in an interview. “I see a substantial downside risk to prices and don’t think we’ll see a bottom until the middle of next year.”The U.S. housing market is being hindered even as the pace of job cuts and price declines slows. Payrolls fell by 247,000 in July, after a 443,000 loss in June, the Labor Department said. Home prices in 20 major cities declined 17 percent in May from a year earlier, the smallest drop in nine months, according to the S&P/Case-Shiller index.Home values dipped in the second quarter from a year earlier in almost 90 percent of the 161 U.S. metropolitan areas surveyed by Zillow, the company said. Twenty-three percent of mortgage holders were underwater at the end of June, Zillow said.Deutsche Bank ForecastThe percentage of people owing more than their properties are worth may increase to almost half of U.S. mortgage holders before the housing recession ends, Deutsche Bank AG said Aug. 5.About 25 million homes, or 48 percent of mortgaged properties, will be underwater as prices drop through the first quarter of 2011, Karen Weaver and Ying Shen, analysts in New York at Deutsche Bank, wrote in the report.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.“We haven’t seen a bottom in home prices, and it could take into 2011 before we see equilibrium in the market,” said Michelle Meyer, an economist at Barclays Capital in New York.Foreclosure SalesIn June, foreclosures accounted for 22 percent of total U.S. home sales, and 29 percent of homes sold were purchased for less than what the owner originally paid, according to Zillow.The unemployment rate declined to 9.4 percent last month from 9.5 percent in June.Values declined the most in Merced, California, tumbling 40 percent to an estimated $106,500, Zillow said. El Centro, California, followed with a 38 percent drop to $117,400. Las Vegas was third with a 35 percent decline to $140,500.Madera and Modesto, in California, sank 34 percent to $144,400 and 31 percent to $140,500, respectively.Values decreased 12 percent to an estimated $361,000 in the New York City area; 12 percent to $318,000 in Washington; 15 percent to $393,800 in Los Angeles; 13 percent to $202,400 in Chicago; 6.4 percent to $316,000 in Boston; 4.6 percent to $132,600 in Dallas; and 15 percent to $490,500 in San Francisco, according to Zillow.Fayetteville, North Carolina, had the biggest increase in median value, rising 13 percent to an estimated $120,600. Oklahoma City gained 4.8 percent to $118,700; Binghamton, New York, advanced 4.5 percent to $112,300; Burlington, North Carolina, added 4.4 percent to $124,200; and Gainesville, Georgia, climbed 4.2 percent to $139,100, according to Zillow.The company compiles data from multiple listing services, county assessors and recorders, as well as its users.

Unhappy HomeownerAugust 12th, 2009 at 1:21 pm

I live in a relatively affluent suburb of Philadelphia. Here is what the foreclosure situation looks like in the county in which I live. Bear in mind, the time to file creates a two-month lag in the listings, i.e., the last date to file for an Aug. foreclosure sale is in June.Total Number of Properties Up for Foreclosure:……….Year……………….Incr/….% Incr/Month…2009….2008….(Decr)..(Decr)Jan……358…..327………31…….9%Feb……385…..280…….105……38%Mar……350…..267………83……31%Apr…….434…..287…….147……51%May……467…..324…….143……44%Jun……426…..316……..110……35%Jul……..455…..357………98……27%Aug……471…..345…….126……37%

subgeniusAugust 12th, 2009 at 2:05 pm

The June figures from the Commerce Department for housing starts and building permits, which purported to show a significant rise in new construction, carried this annotation: “The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.” In other words, maybe there was a rise in new construction numbers, and maybe there wasn’t.Yep, it’s gonna get worse…

TeaLeavesAugust 12th, 2009 at 11:57 am

From today’s RGE Monitor’s Newsletter:

“The secular trend towards lower nominal interest rates, which has sustained financial intermediation and credit markets in the past 25 years, has come to a halt.”


GuestAugust 12th, 2009 at 12:56 pm

Aaron Task, TechTicker: In late February, Robert Prechter of Elliott Wave International said “cover your shorts,” and predicted a sharp rally that would take the S&P into the 1000 to 1100 range.With that prediction having come to pass, Prechter is now saying investors should “step aside” from long positions, and speculators should “start looking at the short side.””The big question is whether the rally is over,” Prechter says, suggesting “countertrend moves can be tricky” to predict. But the veteran market watcher is “quite sure the next wave down is going to be larger than what we’ve already experienced,” and take major averages well below their March 2009 lows.Yes, the late 2007-early 2009 market debacle was just a warm-up to what Prechter believes will be the bear market’s main attraction. In this regard, he says the current cycle will echo past post-bubble periods such as America in the 1930s and England in the 1720s, after the bursting of the South Sea bubble.The 2000 market peak market a “major trend change” for the market from a very long-term cycle perspective, and the downside is going to continue to be painful well into the next decade, Prechter says. “The extreme overvaluation, the manic buying and bubbles in the late 1990s [and] mid-2000s are for the history books – they’re very large,” he says. “The bear market is going to have balance that out with some sort of significant retrenchment.”

GuestAugust 12th, 2009 at 3:03 pm

I guess he is wrong again. POPHARRY Markopolos — the whistleblower on Bernie Madoff who proved to be much smarter than the SEC — says there are evildoers out there who will make the Ponzi scum “look like small-time.” Markopolos gave a speech to 400 of the faithful at the Greek Orthodox Church in Southampton and predicted major scandals will soon be revealed about the unregulated, $600 trillion, credit-default swap market. “To put it in simple terms, it is like buying fire insurance policies from five different insurance companies on your neighbor’s house and then burning down the house,” he said. After his lecture, Hampton Sheet publisher Joan Jedell reports Markopolos was feted at a dinner at Nello Summertimes hosted by John Catsimatidis and his wife, Margo, who were joined by Al D’Amato and Greek shipping magnates Nicholas Zoullas and Spiros Milonas.