Nouriel Roubini's Global EconoMonitor

RGE Monitor – The G20’s Crowded Agenda

This week we review the critical issues G20 leaders will focus on when they meet this week in Pittsburgh. The coordinated and unilateral policy actions taken by these countries and others—including aggressive fiscal and monetary stimulus, increased funding to the IMF, and backstopping financial systems globally—helped stop the economic freefall. The economic outlook has improved since their last meeting in April, but the challenge of navigating towards sustainable growth is equally difficult, and the coming period brings the risk of policy missteps as countries begin to plan their exit strategies. On the eve of the G20 meeting, there remain significant divides over the timing and scope of exit strategies from monetary accommodation, the path towards fiscal consolidation, and the drive for financial regulatory reform.

As RGE highlighted recently, financial regulation will continue to be a key part of the leaders’ debate. New capital requirements seem more likely, in the vein of suggestions raised by the Bank of International Settlements (BIS) and the Financial Stability Board. The recent meeting of the G20 finance ministers and central bank governors supported such moves. The meeting broke, however, without an agreement on compensation reforms to avoid a procyclical focus on short-term returns, a policy championed by the European Union. The issue of banks’ balance sheets still being impaired also needs to be addressed.

All G20 countries have pledged to maintain fiscal and monetary accommodation for as long as is required to ensure a stable recovery. That implies that countries and central banks might begin exiting at different paces. Some countries have already begun to remove some of the excess monetary accommodation (Israel and China are perhaps the most noticeable), and others are likely to follow through rate hikes or other measures later this year and in 2010. The record growth in national debt will force some countries towards fiscal consolidation in the not-so-distant future, though tax hikes could weaken a recovery of private demand.

While G20 leaders are likely to repeat their pledge to support the Doha round of multilateral trade talks, real movement on removing trade barriers is unlikely in the coming months, given that trade remains weak. Some countries, like Canada, have unilaterally removed barriers in sectors that benefit domestic investment, but overall, more sluggish trade will raise the incentive for trade barriers. In fact, trade disputes are on the rise, particularly between the U.S. and China . In September, the U.S. raised tariffs on Chinese tires, a move that was countered by Chinese investigation of U.S. trade practices. These disputes may not escalate and spread and given the importance of the bilateral trade relationship, action on trade seems unlikely.

The U.S. wants to put a focus on reducing global imbalances and promoting the sort of structural reforms that would increase domestic demand in export-focused economies like China. Imbalances have narrowed since the onset of the financial crisis, with the U.S. current account deficit falling to US$98 billion in Q2 2009, but it remains to be seen if this narrowing will be sustainable once consumption begins to grow again. The Chinese fiscal stimulus and those of other export-oriented countries have supported domestic consumption, yet consumption in these countries is not yet a major growth driver, neither for the countries themselves nor for the world. In fact, Chinese consumption may continue to lag overall growth in 2009 and 2010. Many economists worry that the crisis and financial shocks might increase emerging market countries’ propensity to self-insure through collecting reserves, which could exacerbate imbalances. Meanwhile, some economists continue to debate the role of global savings and investment ratios played in financial instabilities.

Even if global imbalances are a problem, it remains unclear whether the G20 is the best forum through which to address them. It is perhaps too large and too diverse a group to tackle the issues of imbalances and sustainable demand in an effective manner. As RGE has noted, the U.S. and China agree that the U.S. needs to save more and China needs to consume more, but they differ on the timing of such a shift and how to bring it about. Boosting China’s consumption would require reallocations of capital between the corporate and the household sector as well as patching holes in the social safety net to reduce the propensity to save for health, education and retirement.

G20 leaders will probably avoid making specific reference to individual currencies, and particularly avoid reference to the U.S. dollar. A new plaza accord to support the dollar seems unlikely. The most vocal U.S. creditors like Russia and China are likely to make only very muted calls for new reserve assets and fiscal consolidation in the U.S. The voicing of dollar solvency concerns in June only added to pressure on the U.S. dollar and increased these countries’ (dollar-dominated) reserve accumulation. The increase in use of the IMF’s special drawing right (SDR) through IMF bonds is one step. Yet for now, all plausible alternatives to the U.S. dollar lack liquidity and in some cases convertibility. As recently detailed RGE, China and Japan in particular have continued to purchase U.S. government debt, lest their currencies appreciate. But should U.S. fiscal consolidation be delayed, these creditors might not be as willing to provide financing.

Despite the fact that almost all the major countries are making significant steps in promoting renewable energy—in part because of job creation hopes—countries remain divided over the timing and scope of emissions cuts. Most of the G20 leaders attended the UN climate summit yesterday, sponsored by UN Secretary General Ban Ki-Moon, which attempted to ease the roadblocks on the way to the December 2009 Copenhagen summit. While countries agree on long-term emissions-cutting goals, they doubt the sincerity or ability of their counterparts to make the near- and medium-term sacrifices. In particular, emerging markets and developing economies are reluctant to agree to any emissions caps that might cool their growth, and European leaders have grown weary of delays in the passage of the U.S. climate change bill. However, the reduction of global emissions in 2008 from lower consumption and industrial output might bring some breathing space. Even if an overarching grand bargain seems hard to achieve, domestic policies are changing—even in the U.S. and China, the largest emitters.

308 Responses to “RGE Monitor – The G20’s Crowded Agenda”

GuestSeptember 23rd, 2009 at 7:37 pm

FMAC, I did not know you read! Surprising how the two blogs seem to draw people with similar interests 😀

Guess sssttttSeptember 23rd, 2009 at 7:48 pm

g,you are no more nor less thanmyself. though i have told and said…trust, it will never be known.we are safe here. the same, friends, amongfriends.who do you think “you” are?

PeteCASeptember 23rd, 2009 at 6:39 pm

Taking a fresh look at the Baltic Dry Index at the following link:Baltic Dry IndexThis is not the behavior you would expect to see for a global economy that is now recovering. No doubt the lack of rebound in trade is a reflection of the very tight conditions that exist for credit and bank loans around the world. It goes without saying – those countries that are hoping for a miraculous rebound in their GDP due to “export recovery” had better be thinking again.PeteCA

Wolf in the WildsSeptember 23rd, 2009 at 9:59 pm

Actually, I think it refers to something far more basic than trade finance. The lack of trade could well be driven more by final demand than the ability to finance. I have been talking to some trade finance folks and in general, the trade finance model has returned to near pre-crisis conditions. The big problem is that no one is actually trading. Orders have not picked up. Factories in China are still waiting or the flood of X’mas orders. And it is already mid-September. Normally, orders come in August. If by the first week of October the orders remain slack, then X’mas will be a washout.Taken in conjuction with the “Iron Curtain” of idle containerships, bulkers and tankers anchored outside the major ports of the world, and we get a very clear picture of the real economic condition. Today, Japan reported a 36% drop in exports YOY. Wasn’t there suppose to be a trade recovery? Where is it?? Further analysis point to month on month drops as well across the board. One has to wonder then where the economic recovery is coming from.The leaders of this world clearly have misunderstood or chose to ignore the real economic issues that is driving this crisis. Instead of focusing on the underlying leverage within the system, they chose to focus on replacing the leverage in the banks. That DID NOT flow down to the real economy. As a result, the real economy suffers. The liquidity driven Ponzi credit and equity markets are the result of the massive expansion in money supply. That money supply did not flow down to the real economy because the consumer balance sheet is still distressed and under repair.That is the fundamental problem with the actions that have been used to address the crisis. The failure to analyse and understand the problem and the lack of vision and planning have led to resources wasted and probably put the global economy on an irreversible path of either deflationary depression or hyperinflationary depression.

The AlarmistSeptember 24th, 2009 at 2:48 am

‘They’ aren’t ignoring reality … they are declaring victory and hoping for the best, i.e. the plebes buy it and start buying again.

Free TibetSeptember 24th, 2009 at 7:39 am

Wolf, most of the retail orders for holiday merchandise would have been placed in May for shipment now. Orders received now sould be “fill in” orders. Everything has to be on the shelf by end Oct.Trade finance may have been an issue last year as banks were in no mood to extend credit to anybody. Though, if that were the only problem we might have expected shortages. We didn’t. Today’s shipments reflect retailers anticipation of demand as they placed their orders last May. We will see if they have either over or under estimated that.

GuestSeptember 24th, 2009 at 3:00 pm

I think what happened was they missed the revolution.People no longer wish to be slaves to Chinese trinkets, or, for that matter, US govt debt, though the later is a bit harder to disconnect from (other than become unemployed).The World Architects lost and are not yet aware of this fact. I’ll be interesting to see what happens when then become aware…

11b40September 24th, 2009 at 4:18 pm

Yes, Mr. Wolf, you nailed it – lack of demand.As noted in earlier posts, I am an agent/rep in the home furnishings industry and for almost 20 years leased a showroom in the Atlanta Gift Mart. Demand in our industry is awful, and my customers range from independent retail stores (Main Street) to the largest chains in the country.The only correction I would make in your post has to do with timing. Spring is the ordering season for imported goods. The orders start right after Chinese New Year in Feb, and in what were ‘normal’ times, if orders were not placed by mid-May, you might not get shipped. The heaviest flow of goods leave China between 7/15-9/1, and booking containers during that period in the past could be difficult. Not anymore. The retail chains have been hedging all year, and many orders placed late, but I asure you, demand is way down.As a result, import companies are struggling badly on this side of the pond, and the exporters and factories on the other side are folding in large numbers. There is a lot of fear all around.And for another view of Main Street, this from the business pages of Yahoo Finance:Why Small Businesses See a Gloomy FutureBy Rick NewmanOn Thursday September 24, 2009, 10:13 am EDTIf small businesses are the backbone of the U.S. economy–as politicians routinely claim–then we’re in worse shape than a lot of people realize.Most economists, including Federal Reserve Chairman Ben Bernanke, believe the recession is technically over and the economy is growing again. But the news apparently hasn’t trickled down to the people who run delicatessens, plumbing outfits, and Web start-ups. A recent survey by the nonprofit Kauffman Foundation found that 68 percent of entrepreneurs do not believe the economy is beginning to recover, and 61 percent think the economy’s on the wrong track. Only 13 percent believe a recovery is underway.[See why we’re stuck with one ugly economy.]Entrepreneurs are usually optimists inclined to believe things will work out, which is why they’re willing to try something as laborious as starting their own business. But the recession has put them in a foul mood. A startling 94 percent said the recession will last at least another year. Only 3 percent believe the pain will end within six months. And 66 percent believe the United States is facing a long period of high unemployment.Entrepreneurs aren’t economists, but it’s possible that their street-level view of the economy actually meshes with the predictions of analysts crunching numbers and running computer models. Bernanke, for instance, has tempered his own optimism by saying that “it is still going to feel like a very weak economy for some time.” The Congressional Budget Office predicts that the unemployment rate will be 10.2 percent in 2010–which would be worse than this year–and an unpleasant 9.1 percent in 2011. So maybe the entrepreneurs in the survey spend their spare time reading Federal Reserve and CBO reports.Still, the entrepreneur blues are a big worry because small businesses often pick up the slack when big businesses slash their payrolls, as they’ve done over the past 18 months. Recessions tend to create “accidental entrepreneurs” who start a business because they get laid off and have no choice. Others may take a buyout from their firm to avoid the ax later on and use part of the cash to fund a start-up. Ray Nowak was a design manager for auto-supplier Johnson Controls who accepted a buyout offer in October 2008, figuring he’d rather pocket the cash voluntarily than be forced to accept a much worse deal later on. Four months later, he opened a Fast-teks franchise in Holland, Mich., offering onsite computer support to businesses and individuals. He has three employees, expects his business to become profitable soon, and is already thinking of expanding. “It’s not too often you get a buyout and a new chance to discover what you can do,” he says.A Kauffman Foundation study published in June found that a disproportionately large number of successful businesses tend to get started during tough economic times. More than half of the Fortune 500 companies were founded during a recession or bear market, for instance, even though such economic contractions occurred only about one third of the time. The formation of new firms dipped during the recessions that began in 1991 and 2001 but returned to prior levels or exceeded them within a year or two.Layoffs in the 2008-2009 recession have been steeper than during most other downturns of the past century, and there are plenty of anecdotal reports of bankers, software engineers, lawyers, and retail employees who got laid off and started their own businesses. But there are no reliable data yet on whether there’s been an overall surge of start-ups, and it’s too early to tell how many of those that did get started became profitable.Meanwhile, there’s at least one powerful discouraging factor: scarce credit. Some entrepreneurs use their savings or borrow from friends and family to set up shop, but sooner or later most businesses require loans to grow and expand. And with the financial sector still in rough shape, loans are hard to come by.Aggressive government intervention in the economy probably prevented an even worse financial meltdown, but entrepreneurs, typically free-marketeers, are turned off by the bank bailouts and the $787 billion stimulus package. Still, 58 percent of the respondents in the Kauffman survey said the government should do more to encourage entrepreneurship, and many would like the government to cut their taxes and fix the healthcare system while they’re at it. Wouldn’t we all.Independent Contractor

The AlarmistSeptember 24th, 2009 at 5:09 pm

The fact that small business is the backbone of the American economy is an inconvenient reality for the big govt types. It is harder for them to have their way with the individual and the economy when they have to interact with so many varied players, which is a key reason why the current regime is hell-bent on supporting behemoths like GE and the TBTF banks and actively waging war on the small and medium sized enterprises by tearing down the economy as we know it.

GuestSeptember 24th, 2009 at 5:16 pm

As they say, opportunity is there for those who see it. I don’t agree that the small business person need be doomed. If their business has to do with Food, Shelter or Water then they should be in a good position for the long-run: I wouldn’t say that anyone is going to make a killing (profit-wise), as no one should, but they can more readily realize a sustainable business. Those who try to keep dealing in trinkets from abroad will have picked the wrong path and will perish as a result.

11b40September 24th, 2009 at 6:52 pm

Nor do I think the small business person is doomed. In fact, there may be a renaissance in small business given time. A lot will not make it, however. I read earlier this year that an alarming number of small business owners have stopped paying themselves. Many others are thinking seriously about shutting down to preserve what they have rather than watching it slowly circle the drain. There is always opportunity, but it is not always abundant and not always available to everyone. Not sure what you have against trinkets, but if you want something to cook in, eat off of, or serve with, it will likely be made abroad. If you want something to sit on, hang on the wall, or a light to read by – yep, it probably comes from abroad. If you want some thing to wear, to watch, or to listen to – well, you know the story. Very few Main Street merchants can survive today without goods from abroad….Who knows about tomorrow. Personally, I started shifting my account base toward discount and grocery accounts a couple of years ago, thank goodness.Independent Contractor

GuestSeptember 25th, 2009 at 10:43 am

11b40, good move on your part!As we will see, all those goods produced abroad will be viewed as trinkets. Think back to all the trinkets that the Native Americans gobbled up (and sold out to); some things had value, much did not, especially in their more fundamental culture.The more valuable trinkets will once again be manufactured here. (transportation will become increasingly less affordable)

wdm223September 23rd, 2009 at 7:39 pm

By facilitating the development of a “Shadow Banking System” the Fed and Treasury, SEC, etc., abdicated control over the system to their “Proxies”.The Fed and Treasury are now hostages to these financial buccaneers.Reminds me of the CIA who set up “Islamic Freedom Fighters” in Afghanistan as proxies against the Soviet Union.Economic and monetary policy in the U.S. largely consists of appeasement–there is no longer any pretense of theoretical or historical support for these policies.The Bernanke “I studied the depression of the 1930’s and found out what mistakes they made and therefore do not want to repeat them” doesn’t even pass the elementary tests of logical reasoning…I’d say it’s a belief or article of faith like “Supply-side economics” or “Free markets”, or maybe an attempt to frighten people so he can do what he wants to do.and then there’s Bernanke’s problem with “denial”..wdm223

FAMCSeptember 23rd, 2009 at 7:59 pm

Bernanke’s exit strategy: one more broken pledge?————Is he inspired by some older historical facts?Happy new year, Oligarchs!——————–Murray Rothbard:The first government paper money in the Western world was issued in the British American province of Massachusetts in 1690. Massachusetts was accustomed to engaging in periodic plunder expeditions against prosperous French Quebec. The successfulplunderers would then return to Boston and sell their loot, paying off the soldiers with the booty thus amassed. This time, however, the expedition was beaten back decisively, and the soldiers returned to Boston in ill humor, grumbling for their pay. Discontentedsoldiers are liable to become unruly, and so the Massachusetts government looked around for a way to pay them off.It tried to borrow 3 to 4 thousand pounds sterling from Boston merchants, but the Massachusetts credit rating was evidentlynot the best. Consequently, Massachusetts decided in December 1690 to print £7,000 in paper notes, and use them to pay the soldiers. The government was shrewd enough to realizethat it could not simply print irredeemable paper, for no one would have accepted the money, and its value would havedropped in relation to sterling. It therefore made a twofold pledge when it issued the notes: It would redeem the notes in gold or silver out of tax revenues in a few years, and thatabsolutely no further paper notes would be issued. Characteristically, however, both parts of the pledge quickly went by the board: the issue limit disappeared in a few months, and the bills continued unredeemed for nearly 40 years. As early as February 1691, the Massachusetts government proclaimed that its issue had fallen “far short,” and so it proceeded to emit £40,000 more to repay all of its outstanding debt, again pledging falsely that this would be the absolutely final note issue. The typical cycle of broken pledges, inflationary paper issues, price increases, depreciation, and compulsory par and legal tender laws had begun—in colonial America and in the Western world.

The AlarmistSeptember 24th, 2009 at 5:13 pm

Did you ever stop to think why the Fed and Big Govt are so heavily aligned to saving the TBTF Banks? We are going to miss the shadow banking system when the regulators have finished the business of driving the stake through the heart of the last of its players, as we will see what was otherwise affordable capital dry up.

Pecos BankerSeptember 23rd, 2009 at 8:28 pm

Why the US system needs violent crime.This is a topic that is hardly ever mentioned in an economic context, at least on this blog. Yet the presence and ubiquitousness of violent crime in America serves as a great motivator to work hard in order to have enough money to move to a safe neighborhood with safe schools. Good neighborhoods in America are basically fiscal fortresses that keep crime at bay. The worst possible thing that can happen to middle class people is to lose the means of living in such a fortress and being forced to move into crime-ridden areas.Needless to say, business benefits from this need for security. People with children sense the menace of crime and work themselves to death to avoid it. (This also applies to having employer provided health insurance.) Without this constant menace of falling into the arms of thugs and killers, Americans would become more like Europeans, content with less opulant life styles and seeking more time off from work to enjoy life. This European lifestyle is hateful to Americans, who have made a virtue of necessity, finding “self-fulfillment” in work, rather than just a means of paying the bills. And to think that the original promise of industrialization was to liberate us from the shackles of work!Now that the system seems to be unraveling, we even hear talk on this blog of buying guns and ammo for protection. That turns out to be just the other side of the same coin.

GuestSeptember 23rd, 2009 at 9:25 pm

Do not have a reference, but if memory serves, violent crime in Great Britain (usually with knifes) exceeds the USA gun violence.

The AlarmistSeptember 24th, 2009 at 3:05 am

Sure, there is violent crime, but significantly less than I see or hear about when in the US and the UK. Either the Europeans are very effectively supressing fact, or there really is lower crime. Considering how much less grafitti and vandalism I see in my neck of the Continent versus trips to even suburban US, I think it might be a credible statement that there is significantly less violent crime here. I certainly don’t feel the urge to lock my car doors or avoid certain parts of the city here.

GolemSeptember 24th, 2009 at 8:36 pm

You might want to re-think that whole violent crime thing in Europe – recent history would beg to differ.Perhaps in Northern & Western Europe over the past several decades, a very civilized, well- educated, economically self-sufficient populous has been able to enjoy a very high standard of living. (much higher than the USA)In this European scenario, if one were to cross-paths with a street criminal, there is a very good chance that through reasoning any negative outcome could be avoided.Unfortunately, in the USA there is no chance for reason to prevail in a similar situation.However, economic circumstances in Europe are changing as we speak and with that change the harshness of the violent past could return – beware.

The AlarmistSeptember 25th, 2009 at 8:40 am

Analysis is a bit off the mark. Actually it’s a combination of a much smaller upper-middle and upper classes hiding their wealth just a little bit better than is the case in the US along with with a lower spread between the so-called middle class and the working poor. Compounding on that is a relative lack of social mobility. A higher standard of living is, for the most part, a myth. More social homogenaity is a major factor, so as the demographics change there will not doubt be a diminution of the peace. But because the Europeans are relatively lightly armed, the struggle should not be so long and bloody for the victors as it might be in the US.

GolemSeptember 25th, 2009 at 6:08 pm

Thank you for nicely evolving the interaction.Yes, it is worthwhile to clarify the intended meaning of “higher standard of living ” – in my previous usage of the phrase – it was more about overall quality of life as alluded to by Pecos Banker in his 2nd full paragraph that began this sub-thread.I would also like to illuminate that the European demographic referenced is extremely adept in logistics, organization and implementation on a massive scale(i.e. local/nat’l/int’l transport systems for starters).Please consider this when you remark comparatively about potential events being “long and bloody.”

PeteCASeptember 23rd, 2009 at 9:22 pm

PB: In fact, not only have gun sales gone up, but demand for bullets in the USA is now outstripping all available supply. There’s your investing opportunity – LONG on ammo manufacturers. I can only surmise that the general public fears either a dramatic turnaround in violent crime rates, or a true crash in the US financial system that could create widespread disorder.PeteCA

CLSSeptember 24th, 2009 at 3:34 pm

Interesting comment. When you think about it, most rural areas are low crime, so if you are a low-wage worker in a crime-ridden urban area you could, in effect, make an even money exchange to live in a low crime area. That doesn’t generally happen, I don’t think. So that kind of blows your hypothesis.

Pecos BankerSeptember 25th, 2009 at 3:56 am

The hypothesis had to do with violent crime being a motivator to work hard–negative reinforcement, if you will. I haven’t seen anyone address that directly. Rather, the discussion has turned to whether there is more or less crime in Europe. (Living in Europe, I can say that it is a relief not to always have to look over my shoulder, as in the US, but that is beside the point.) However, the question has to do with how violent crime plays an integral role in forcing people to work harder than they otherwise might–kind of like the threat of losing your health care if you lose your job. Both are negative motivators, but that’s how I see our system working. We also live with job insecurity because there are no unions. All these negative things are very American and exist to a much smaller extent in western Europe. The idea is to instill fear, keep the peons quaking in their boots. We Americans are so used to this and other privations that we are not even able to imagine what life could be like without these negative motivators. Instead, we fantasize about getting rich, which only ends up decimating our 401K’s and making us even more insecure. The question is, who benefits from this? Cui bono?

The AlarmistSeptember 25th, 2009 at 8:45 am

Well, one group who benefits are the various members of police forces on Long Island, who by their 5th year of service are pulling down something in the neighbourhood of $100k per year + relatively generous benefits. Ugly business, but is it really that ugly out in Ronkonkoma and the Hamptons? And of course the Crime Czar and his professional minions as well as the command structure of the FOP. And Mitre Corp, Rand, and quite a few others who do crime studies.What a racket … think we need a RICO investigation of that gang?

wdm223September 23rd, 2009 at 8:47 pm

The Really Scary Thing About Low Interest RatesSavers are in deep trouble…the boomers who were going to retire and live on income–it’s worse than inflation:they used to give 15% plus a toaster,now it’s nothingWhat income?there isn’t any—so they Dial up “Fast Money”and give it to the Three Card Monty playersSo invest in GE-No one believes GE accounting, but even they admit that the NW (12/08) = $105billionIntangibles (incl Goodwill)= $97 billionNet tangible book (including a lot of very shaky assets) = $8 billionTotal Debt = $520 billion (incl. $193 short-term debt)–almost infinite leverageIs GE solvent?They needed a government bailout already this year.Is it worth a $181 billion.Or is it just air?wdm223

GuestSeptember 23rd, 2009 at 9:37 pm

That’s the BIG question. All we need here is for the Chinese to rattle-our-cage with threats, or another Middle-east/Russian oil embargo (to boost prices), or a BRIC moderate movement out of the Dollar and into other currencies and…WAM! Debt ratios shift a few percent, and BAM! GE, C, GS, AIG, et. al. leveraged 30:1, have collateral calls. And WHOOSH! They are gone; along with all the talking heads on NBC & CNBC. That alone might make it worth the trouble!

The AlarmistSeptember 24th, 2009 at 3:07 am

GE makes wind turbine generators and they own the state propaganda organ NBC, so of course they will be bailed out.

GuestSeptember 24th, 2009 at 3:03 pm

New jingle?”Good things [govt bailouts] brings GTE back to life”? (from “GE Brings Good Things to Life”)

The AlarmistSeptember 24th, 2009 at 5:15 pm

No, the GE jingle is more insidious than that … “GE, We bring good things to life.” Note the collectivist ‘We’.

GuestSeptember 23rd, 2009 at 8:58 pm

GATA will seek to bring a lawsuit in federal court to appeal the Fed’s denial of our freedom-of-information request. While this will require many thousands of dollars, the Fed’s admission that it aims to conceal documentation of its gold swap arrangements establishes that such a lawsuit would have a distinct target and not be just a fishing expedition.The Fed’s September 17 letter to GATA confirming that the Fed has gold swap arrangements can be found here:

kilgoresSeptember 23rd, 2009 at 9:19 pm

Good luck with that. I predict GATA will lose that case, big time. The Fed’s gold swap transactions are EXEMPT from FOIA disclosure, as far as I can tell. As the Fed’s web site explains:”Under the Freedom of Information Act (FOIA), 5 U.S.C. § 552 (b), the following records of the Board are exempt from disclosure:(1) National defense. Any information that is specifically authorized under criteria established by an executive order to be kept secret in the interest of national defense or foreign policy and is in fact properly classified pursuant to the executive order. The Board does not have original classification authority; however, there may be instances in which Board records contain classified information that would be withheld.(2) Internal personnel rules and practices. Any information related solely to the internal personnel rules and practices of the Board. This exemption may also be used to withhold internal policies (e.g., security procedures) whose disclosure might lead to circumvention of those policies.(3) Statutory exemption. Any information specifically exempted from disclosure by statute (other than 5 USC 552b), if the statute (A) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue or (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld. Information the Board has withheld under this exemption includes grand jury materials and currency transaction and suspicious activity reports.(4) Trade secrets; commercial or financial information. Any matter that is a trade secret or that constitutes commercial or financial information obtained from a person and that is privileged or confidential. In the context of requests for applications and application-related materials, the exempt information often includes business plans, pro forma financial information, nonpublic portions of transactional agreements, and descriptions of due diligence procedures and findings. Other information, such as copies of individual loan files obtained during an examination, and voluntarily submitted proprietary information, may fall within the scope of this exemption.(5) Inter- or intra-agency memorandums. Information contained in inter- or intra-agency memorandums or letters that would not be available by law to a party (other than an agency) in litigation with an agency. Information the Board has withheld under this exemption includes staff analyses and recommendations and inter-agency or intra-agency communications on proposals.(6) Personnel and medical files. Any information contained in personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. Information the Board has withheld under this exemption includes the names and/or personal addresses of shareholders holding less than 10 percent of the shares of a bank or bank holding company, completed interagency biographical and financial reports, and nonpublic portions of employment or non-competition agreements.(7) Information compiled for law enforcement purposes. Any records or information compiled for law enforcement purposes, but only to the extent that the production of such law enforcement records or information (A) could reasonably be expected to interfere with enforcement proceedings, (B) would deprive a person of a right to a fair trial or an impartial adjudication, (C) could reasonably be expected to constitute an unwarranted invasion of personal privacy, (D) could reasonably be expected to disclose the identity of a confidential source, including a state, local, or foreign agency or authority or any private institution that furnished information on a confidential basis, (E) would disclose techniques and procedures for law enforcement investigations or prosecutions or would disclose guidelines for law enforcement investigations or prosecutions if such disclosure could reasonably be expected to risk circumvention of the law, or (F) could reasonably be expected to endanger the life or physical safety of any individual. Information the Board has withheld under this exemption includes investigatory records related to pending or potential enforcement actions (7(b)(A)); details on individuals who are targets of or witnesses to pending or completed investigations (7(b)(C)); and materials reflecting the Board’s procedures for conducting investigations (7)(b)(E)).(8) Examination, inspection, operating, or condition reports, and confidential supervisory information. Any matter that is contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions, including a state financial institution supervisory agency. Information the Board has withheld under this exemption includes examination reports, examination-related correspondence, examiners’ work-papers, and audit plans.(9) Geological and geophysical information and data, including maps concerning wells. The Board does not receive or maintain this type of information and has not invoked this exemption.”_____Given these constraints, why do you believe GATA has a colorable claim under the law for release of the records it is seeking?SWK

GuestSeptember 23rd, 2009 at 9:43 pm

It not wise to debate a verbal gymnastic who’s bread & butter is contingent upon out-manoeuvring the opponent regardless of the debate point.

kilgoresSeptember 24th, 2009 at 9:22 pm

My bread and butter is not contingent on out-manoeuvering anyone in this forum. Quite the contrary, it takes up valuable free time for me to state my position on these issues and refute those of others, and I sure don’t get paid $450 an hour to do it, either. It’s more out of a sense of civic duty to engage in rigorous debate that I participate in this forum. That’s not to say it’s not sometimes fun, too.SWK

11b40September 26th, 2009 at 9:34 am

….and it’s both informative and fun for us, too, SWK. Appreciated, also. This site is rewarding on multiple levels, but the main reason I come here is to learn from others.Indepedent Contractor

GuestSeptember 24th, 2009 at 9:39 am

Gold just dropped about $20/oz down to $995. Wonder how much gold the IMF had to sell to move the market that much?

GuestSeptember 23rd, 2009 at 10:38 pm

Census worker hanged with ‘fed’ on bodyA U.S. Census worker found hanging from a tree near a Kentucky cemetery had the word “fed” scrawled on his chest, a law enforcement official said Wednesday, and the FBI is investigating whether he was a victim of anti-government sentiment., Why would they take such an obvious suicide case and make it into a anti-government crime?

Pecos BankerSeptember 24th, 2009 at 12:22 am

I figured there had to be a new *carry trade*, based on borrowing in dollars and investing in other countries bonds.From an article in yesterday’s Washington Post by Steven Pearlstein encouraging is what’s happening on Wall Street. It turns out that all those bold and necessary steps by the Federal Reserve to prevent the financial system from collapsing wound up creating so much liquidity that it has now spawned another financial bubble.Let’s start with the $1.45 trillion that the Fed has committed to propping up the mortgage market — money that, for the most part, was simply printed. Effectively, most of that has been used to buy up bonds issued by Fannie Mae and Freddie Mac from investors, who turned around and used the proceeds to buy “safer” U.S. Treasury bonds. At the same time, the Fed used an additional $300 billion to buy Treasurys directly. With all that money pouring into the market, you begin to understand why it is that Treasury prices have risen and interest rates fallen, even at a time when the government is borrowing record amounts of new money.As it was printing all that money, the Fed was also lowering the interest rate at which banks borrow from the Fed and each other, to pretty close to zero. What didn’t change was the interest rate banks charged everyone else. As a result, “spreads” between what banks pay for money and what they charge are near record highs.So who is borrowing? By and large, it’s not households and businesses, which are reluctant to borrow during a recession. Rather, it’s hedge funds and other investors, who have been using the money to buy stocks, corporate bonds and commodities, driving prices to levels unsupported by the business and economic fundamentals.The excess liquidity is even being used to finance a new “carry trade” in which global investors borrow at U.S. rates and buy government bonds in places like Australia, where prevailing rates are higher. Because the carry trade involves exchanging dollars for foreign currencies, it has been a major contributor to the recent decline in the dollar.

PeterJBSeptember 24th, 2009 at 3:46 am

@ Guest on 2009-09-23 14:00:56Nailguns have no morality so why would one expect the keepers and manipulators of nailguns (carpenters) to have any morality or ethics, for that matter?Guns have no morality so why would one expect the keepers and manipulators of guns (gunsmiths) to have any morality or ethics, for that matter?Stones have no morality so why would one expect the keepers and manipulators of stones (masons) to have any morality or ethics, for that matter?Fires have no morality so why would one expect the keepers and manipulators of fire (firemen) to have any morality or ethics, for that matter?My Dear Guest: From the previous thread – Context: morality, money and bankers.Neither ‘fires’, guns, ‘nailguns’, nor ‘stones’ can be correctly used as being analogous to “money” and therefore your statements are flawed and invalid.Ho hum

GuestSeptember 24th, 2009 at 6:49 am

‘fires’, guns, ‘nailguns’, and ‘stones’ are simple objects just as “money” and therefore your statements are flawed and invalid.

PhilTSeptember 25th, 2009 at 8:03 pm

To quote the accomplished comedian Chris Rock:”Guns don’t kill people – BULLETS do !”This of course was the preamble to his audience lobbying his policy to tax bullets and other ammunition to the point that one bullet might cost $5000- implying that a bullet at that cost would demand solid justification for usage and would have exponentially positive impact on precision targeting while nearly eliminating collateral damage. Brilliant – that Chris Rock is …

GuestSeptember 24th, 2009 at 4:00 am

The U.S. wants to put a focus on reducing global imbalances.They’d better focus on reducing internal imbalances:The Obama administration is continuing the Bush administration policy of refusing to comply with the Prompt Corrective Action (PCA) law. Both administrations twisted a deeply flawed doctrine – “too big to fail” – into a policy enshrining crony capitalism.Historically, “too big to fail” was a misnomer – large, insolvent banks and S&Ls were placed in receivership and their “risk capital” (shareholders and subordinated debtholders) received nothing. That treatment is fair, minimizes the costs to the taxpayers, and minimizes “moral hazard.” “Too big to fail” meant only that they were not placed in liquidating receiverships (akin to a Chapter 7 “liquidating” bankruptcy). In this crisis, however, regulators have twisted the term into immunity. Massive insolvent banks are not placed in receivership, their senior managers are left in place, and the taxpayers secretly subsidize their risk capital. This policy is indefensible. It is also unlawful. It violates the Prompt Corrective Action law. If it is continued it will cause future crises and recurrent scandals. Paulson/Bernanke started under Bush is now continued by Geithner/Bernanke under Obama. No change, further protection of the (wealthy and self-serving enough to be) well connected ones.The imbalances between the connected ones and the others are becoming too big and too obvious. Bailout of the connected ones at cost of non-connected citizens. As the rest of the world knows this, US authority will not be accepted anymore. Obama will be seen as a hypocrytic preacher in chief who isn’t able to live up to his preachings in his own backyard.Little Saver

PeterJBSeptember 24th, 2009 at 5:42 pm

“As the rest of the world knows this, US authority will not be accepted anymore.”Indeed and it has begun where yesterday in the UN – 49 developing countries voted against the West (US) in the matter of Israel to sign the NPT – never before has this happened – and the motion was carried (but naturally, it will never be implemented).andMany Nations are now following China to replace the USD as the accepted global currency.and at home (in the USA)guns and especially ammunition appear to be in great demand.I would say that there is plenty of evidence to suggest that the US “Authority” (“leadership”) is done!Add: Afghanistan’s requirements for tens and perhaps hundreds of thousands of more US youth for the US war on anything.Ho hum

Octavio RichettaSeptember 24th, 2009 at 5:07 am

With interest rates at virtually 0%*, what happens when the world reserve currency becomes a carry trade currency?The stage gets set for the creation of the mother of all bubbles!The burst of the Tech bubble/9-11 resulted in AG keeping rates at 1% for a year and under 2% for nearly 3 years.This time around, it is 0% and a systematic attempt at lowering ALL interest rates by trashing the FED BS.A great analogy to drug addiction could be made here.What is it gonna take next time around?*0%: you and I cannot get those low rates but the big boys in the carry trade get it by shorting Treasuries. Look up the 2yr note yield and you will see watz financing the beginning of the greatest bubble in mankind’s history.

London BankerSeptember 25th, 2009 at 4:02 am

@ OctavioI don’t agree that we are in for a huge dollar carry trade bubble (or at least not much bigger than that already delivered this year).At 0 percent, or a tad above, those with capital to invest have little incentive to lend it to those who would pump up the bubble. As a result, total debt cannot expand much further – and contraction of debt and leverage are deflationary.This year we have seen contraction of consumer lending, contraction of corporate lending, contraction of trade finance, and disruption to municipal finance. The only growing debt is the debt of the central governments. But even that is suspect, as some now believe the Fed is rigging the Treasury auction results by using a daisy chain of proxies among similarly circumstanced central banks and a few favoured insiders in the asset management industry.The Saudi Arabian Monetary Authority confirmed in a published report that it bought fewer US Treasuries in H1 2009. The Chinese have been publicly declaring their appetite diminished. This leads me to think they do not find the low rates and high risks appealing. And if they are not financing further debt expansion, then the game is almost up.The “mother of all bubbles” may be less likely to materialise than “the mother of all deflationary bubble popping”.The Fed and TPTB may have one or two more rounds of orchestrated dollar appreciation (e.g., through prime broker and OTC derivative margin calls as last year), but sustained debt growth is not proving easy.Interesting times.

Free TibetSeptember 25th, 2009 at 9:39 am

Those with capital to lend would not be lending it to those who would pump up the ($) bubble. They would be borrowing from those who would pump the bubble and investing in other than $ denominated assets. The potential for a carry trade bubble exists. But it doesn’t produce just another asset bubble as I think OR suggests, but the mother of all inflations. Still, that inflation can be exported by the US through a carry trade. As did Japan who continued to see deflation. So, why not? No immediate consequences to the US for printing a bunch of funny money. Another leg down in the Fed’s day-traded markets and there will be no more talk of withdrawing liquidity. Fed’s balance sheet is up another $41b this week (after declining slightly for a couple of weeks).US trade deficit has been declining. Saudi Arabia bought fewer T’s because they had less revenue to invest. China too (less surplus). If they choose to continue to run current account surpluses they have no choice but to continue to make those low return, high risk investments.Outside of govt., the US, is de-leveraging. Yes you’ve seen contraction in lending. And yes, that’s deflationary. The govt. response has been to counter that necessary correction to over-indebtedness by inflating the currency. But there must be a finite limit, a tipping point longer term. At some point it’s better to just write it off – even China’s 2t$ in T’s and agencies – rather than keep throwing good money after bad.If that were to happen it will happen suddenly. But as in the case of a bankruptcy it doesn’t have to come from one of the major creditors (China, Japan). It can come from some minor source. A margin call on the US. And if that were to happen it DESTROYS international trade. I keep hearing it said that the $ is immune from that kind of attack because it’s the reserve currency and there is nothing to take its place. So what? So, nothing takes it’s place. Think about that. No reserve currency.

Octavio RichettaSeptember 27th, 2009 at 6:35 am

LB, FT: Many thanks for your posts moderating my extreme, impulsive call.There is no question there is a carry trade on the USD going on right now. It should last at the very least until interest rates start going up. The creation of a new bubble presumably should take a lot longer than the carry trade will last. But bubble creation dynamics are very complex. The US carry trade may be the catalyst that starts the new bubble and then other factors such as herd mentality, take over. In addition, interest rates may go above zero but stay low enough to provide an incentive to keep borrowing, and then selling the USD (i.e., maintain the carry trade alive).No one can really tell what the future will bring. But one thing for sure, the USD carry trade going on now is SIGNIFICANT; and it is propping up the prices of all kinds of risky assets. Just like in previous asset bubbles, head-line inflation may stay low.On deleveraging, this is true in general. But there is a significant number of players including the GSs of the world who did not go broke and are back at the casino playing the leverage game.So bottom line: The US carry trade creating the mother of all bubbles [in the long term] may be an extreme/exaggerated/low probability scenario. But what matters is that the right now, the direction of asset prices is up thanks to the carry trade. And many are trying to make a buck out of it until the music stops – And it looks like there are quite a few more songs in the play list before it does [stop].

wdm223September 24th, 2009 at 6:52 am

THE TRUTH ABOUT THE SUCKER RALLY IS LEAKING OUTSeptember 24, 2009 – Moonraker Fund Management, the independent investment boutique, is concerned that banks may have been using their bailout money to buy equities, helping to fuel a rally that is vulnerable to a major correction if they consequently sell in thinly traded markets.Instead of lending to businesses and homebuyers, banks may have been using some of their bailout money to buy stocks from an oversold base in March, Moonraker believes. The British Bankers’ Association’s own figures show that gross mortgage lending by the banks has fallen from a high of £21.5bn in June 2007 to £9.1bn in August 2009, while new term lending to small businesses was £796m in July, compared with around £900m last October.Jeremy Charlesworth, Chief Investment Officer of Moonraker and manager of the Moonraker Commodities Fund and Global Opportunities Fund, commented: “Little of the bailout money given to banks seems to have been passed on to businesses or consumers. But it must have gone somewhere and it might have gone to the proprietary desks of the banks to punt the markets. Given all the calls for more transparency, it would be good if the banks could clarify this.“The banks have every right to use the money they borrow in any way they choose. But it would be good to know how much of the bailout money has been used to buy equities. Clearly, someone has been buying, and given that it hasn’t been ordinary investors and the institutions that does just leave the banks.“The banks’ balance sheets will certainly have benefited from their equity holdings. If they could sell these investments into a rising market then they would be in a better position to repay their debts. But there will be a problem if the public and institutions do not join the rally and the banks have to sell equities into a vacuum.”WDM223

HubbsSeptember 24th, 2009 at 1:08 pm

If such a vacuum is perceived and/or real, then “the banks” will not, can not, sell. Then we will have yet another frozen pool of money: That on the FEDs / banks balance sheet, and that in the stock market.This new logjam would support the theory that the stock market just might hang on for a long time in a trading range, at least until it becomes painfully obvious to the public that the market has been on government life support.

The AlarmistSeptember 25th, 2009 at 8:47 am

Analysis is a little off the mark. We elected very smart but inexperienced people who can do a much better job of destroying the nation than a group who are merely avaricious hacks.

Winston SmithSeptember 26th, 2009 at 11:23 am

I think Obama is doing a helluva good job considering the absolute mess our planet is in. We all need to quit this disrespect for our President and quit whining and do something to help. Turn off your televisions and get onto the street and clean up the waterways, the human catastrophe and the problems we have at every turn.

GuestSeptember 24th, 2009 at 2:35 pm

I think, we see the Fellah-Problem:If the US-Pharaos choose for the US Fellahs full competition with CN Fellahs,then US Fellah will see, that his wage, his health care, pensions, schools etc. will go down to CN levels.Because of that, it seems to me ok, to go the way of controlled globalisation and not the way of the globalisation, that only serves first the finance industry and the few global companies.globumedes

FEDupSeptember 24th, 2009 at 8:11 am

Breaking news by Bloomberg: Initial jobless claims in US unexpectedly decreased to 530,000 last week and US stock-index futures gain as Jobless Data point to Economic recovery. And WHO exactly is recovering? The un or underemployed, the foreclosure victims, commercial real estate, wholesalers, retailers…..

The AlarmistSeptember 24th, 2009 at 8:45 am

Yippee. Another half-million jobs are gone. Things can only get better, right?IMHO, it’s a first-derivative recovery.

MM CASeptember 24th, 2009 at 9:09 am

It’s all lies. they have slowly this year manipulated and changed all the data… NO JOBS Continues at an alarming rate! We will all sit here next year wondering how it happned….great article: look at the charts too…BLS Jobs Numbers Contradict BLS Jobs Numbers Jeff Nielson September 23, 2009 | about: DIA /I have been one of the most outspoken critics of the monthly nonsense which the U.S. Bureau of Labor Statistics calls its “non-farm payrolls report”. Because the BLS has adopted numerous “techniques” for “adjusting” its numbers (i.e. lying), I have steered clear of their doctored numbers in previous criticisms – and focused on one of the few pieces of “hard data” available on U.S. employment: the weekly lay-off reports.Traditionally, once those weekly lay-off reports begin to significantly exceed one million when totaled up on a monthly basis, the U.S. economy begins to experience net job-losses. Thus, when the weekly lay-offs soared to as high as 3 million per month, I pointed out that as a matter of simple arithmetic, the net job-losses had to increase to somewhere close to 2 million per month. In fact, this is likely a conservative estimate, as the weekly lay-off reports only capture a portion of the U.S. jobs market.However, I recently begin looking at a different report – reported by the same BLS – that releases the same data, but on a state-by-state basis. I was motivated to do so after reading the unmitigated drivel in a recent article from the Financial Times which was analyzing the U.S. jobs reports. The following statement caught my eye:Although U.S. joblessness has shown signs of easing nationally in recent months, it continues to accelerate at the state level.In other words, the oxymoron which the Financial Times (and the rest of the propaganda-machine) is trying to pass-off is that the United States has two, entirely separate economies. There is the “national” economy – where the propaganda-machine assures us “the recession is over”, then there is the separate, state-by-state economy, where the “recession” continues to get worse.It should therefore not be a big surprise to regular readers that the BLS’s recent, state-by-state numbers have absolutely zero correlation with their aggregate reports. To use less technical language, not only do the state-by-state numbers not add up to the aggregate national numbers, there is simply no relationship between the two sets of numbers.This complete divorce between the two sets of data has taken place over the last 3 months, which also should not be a surprise – since this is the same time period where I have accused the BLS of producing its largest lies (see “U.S. created 2 million jobs in August, claim experts”).To provide some context for this period, I will refer back to our only hard data: the weekly lay-off reports. Weekly lay-offs peaked at roughly 3 million per month, during the spring of this year.While there has been some improvement, lay-offs are still adding up to roughly 2.5 million per month – far above the 1.2 million lay-offs per month which the U.S. was experiencing when it began losing jobs monthly on a net basis.As I have written on many occasions, lay-offs at this level imply net monthly job-losses of at least 1.5 million jobs (see “U.S. economy to lose 20 MILLION jobs this year”).Conversely, here are the fictional numbers from the BLS for those same, three months:June 467,000 jobs lostJuly 247,000 jobs lostAugust 216,000 jobs lostClearly, the BLS has been instructed to produce steadily improving reports, every month – regardless of what is actually occurring in the real world. Given that the propaganda-machine is now stating unequivocally that the U.S. recession “is over”, we can expect the BLS to produce either a tiny number of lost jobs for September, if not some mythical increase in employment.This brings us to the separate reports from the BLS, with which it reports payroll changes on a state-by-state basis. Sadly, data is not included for every state, however the data which is present proves that when the BLS produces its aggregate number that it is not simply a total of the jobs lost in the 50 U.S. states – in other words, its headline aggregate number is obviously a fabrication (here are the complete reports).Here are the tables of “statistically significant” changes in employment for the last three months:The data which is contained provides data on all states with “statistically significant” job losses, along with a tally of how many states lost jobs (or gained jobs) over the month. Here is that last piece of data, over the previous three months:June 39 states down, 10 states up (1 unchanged)July 29 states down, 21 states upAugust 42 states down, 8 states upAlready, we can see a huge discrepancy in the numbers. While both sets of data, show huge, fictional improvements between June and July, the state-by-state data shows a reversal for August – with the labour market obviously deteriorating dramatically based upon their own measurements. However, this didn’t stop the BLS from refuting its own data to report an improvement between July and August, when it released its aggregate number.The disconnect between the two sets of data is even more stunning when we look at “states with statistically significant employment changes” month to month, “seasonally adjusted”. Before I discuss the data, a few comments are in order.To begin with, when the BLS refers to “statistically significant” changes in state employment, this means they are selecting these numbers based on the relative size of state job-losses, not the absolute size.For example, the BLS reported a “statistically significant” total of 2,800 net jobs lost in North Dakota between July and August – based upon North Dakota’s relatively tiny population of little more than 600,000 people. For California to show an equally “significant” jobs total (in terms of its population of more than 34 million) it would have had to show job losses totaling roughly 160,000.The other point to make is that all these numbers are “seasonally adjusted”. “Seasonable adjustments” are made by all nations when they report their unemployment rate. For example, in the summer, large numbers of students flood into the job market, so the unemployment rate is adjusted to reflect this seasonal change. Similarly, every Christmas shopping season, companies engage in a wave of hiring, and so the unemployment rate must be adjusted for that seasonal factor.The data shown here does not report unemployment rates. It is simply reporting total jobs lost, in absolute terms. What this means is that there is no possible justification for making any “seasonal adjustments”. Either someone was hired, or they weren’t. Either someone was fired, or they weren’t. This fact does not change regardless of whether it occurs in July or December.Thus, when the BLS reports that these numbers have been “seasonally adjusted”, what it is actually saying is “these are the numbers we are reporting, after having factored-in all of our statistically-indefensible lies.” I don’t want anyone to make the mistake of believing that I am endorsing the state-by-state numbers as fact.I am simply using the BLS’s own state-by-state numbers as a comparison with its own aggregate number, since quite obviously the aggregate number and the total of the state-by-state numbers must be the same. They are not.In June, when the BLS reported a total of 467,000 jobs lost for June, it also reported 14 states had registered “statistically significant” changes. As mentioned previously, these are not the largest state changes (in absolute terms), but merely the largest relative changes (by population).The total number of jobs lost by only those 14 states (all of which reported net job losses) amounted to 313, 500 jobs. Thus, a sample of less than 1/3rd of U.S. states comprised 2/3rds of the aggregate total. This is a slightly suspicious figure, but not necessarily an outright contradiction of the aggregate monthly total.Among those 14 states listed were states with huge populations – like California, New York and Texas, so this small sample could have produced a larger proportion of total jobs lost.It is when we get to July that we see that the Bureau of Labor Statistics severed all ties with the real world and began publishing absolute fiction. In a month where the U.S. economy still registered 2.5 million lay-offs (roughly the same number as August, and only slightly less than June), the BLS reported a staggering improvement in state-by-state employment.Suddenly (and magically), the BLS reported that only 29 states had registered net, job losses – while 21 supposedly registered increases in employment. Furthermore, the 12 states with “statistically significant changes” showed a net increase of more than 100,000 jobs. Presumably, the Obama regime dialed-up the BLS and told them it wanted an ‘extra-special’ lie for July – “proving” to everyone what a spectacular success the “Cash for Clunkers” programs represented.Let me repeat, there were still 2.5 million lay-offs in July. The tens of thousands of jobs in the auto sector which were immediately produced by “Cash for Clunkers” could not possibly offset more than 1% of those lay-offs. Meanwhile, it was too soon for that program to have generated “spin-off” employment in the broader economy. Thus, in the month of July, both the aggregate number, and the state-by-state numbers were huge lies – but in this case, the state-by-state lies were much larger.We now come to August. With its aggregate report for that month, the BLS reported further improvement. Yet, as mentioned earlier, when we view the state-by-state numbers, we see a complete reversal. Instead of 29 states “down” and 21 “up”, as was reported in July; in August 42 states reported job losses, while only 8 states reported increases.Meanwhile, when we view the “statistically significant”job losses for August, we see that only 16 states reported a net total of job losses of 279,800.Once again, I will repeat these figures to make sure the magnitude of this lie is not lost on people. In its aggregate report for August, the BLS claims only 216,000 jobs were lost. However, the state-by-state numbers for only 16 states exceeded that total by over 25% (279,800) – and one of those 16 states supposedly had an increase in employment.Furthermore, of the states listed, only one of the five most-populous states was included: Texas. Thus, if we subtract those 16 states (less than 1/3 of the U.S.), we are left with 26 more states which reported job losses, only 7 states reporting increases – and most of the large-population states had yet to be added to that total. Given these demographics, it is a reasonable extrapolation to estimate that the complete state-by-state totals would have been nearly three times as large, or over 800,000 jobs lost.As I continue to point out, with each new fraudulent reported which is issued by these incompetent liars, these are not simply “poor estimates” (made in good faith) – because even the BLS’s own internal numbers (after they have incorporated all their statistical lies) are wildly different from the fiction it releases in its aggregate monthly report.I will reiterate one more time: these numbers have no statistical validity. These numbers have absolutely no connection to the real world…and the lies are getting bigger every month

FEDupSeptember 24th, 2009 at 10:35 am

If Nielson’s article is accurate, the economic canoe in not just “up the creek” but rather heading for Niagara falls!

SoftwarengineerSeptember 24th, 2009 at 1:09 pm

The (9/21/09) Area Online News Desk Agrees With YouArticle in part:”…Forty-two states reported job losses in August, with 14 states reporting unemployment rates of 10 percent or above, according to the U.S. Department of Labor, The heaviest losses came in Texas, which lost 62,200 jobs in August, with the manufacturing, construction, and leisure industries combined reaching 35,500 losses. In Michigan, 42,900 jobs were lost, with 25,000 of them in manufacturing; the state’s unemployment rate rose to 15.2 percent, the highest in the United States. Georgia and Ohio had the third- and fourth-highest losses in August, with 35,000 and 30,100 jobs lost, respectively. Nevada had the second-highest unemployment rate at 13.2 percent, with Rhode Island third at 12.8 percent and California and Oregon tied for fourth with 12.2 percent. Six states had increases in employment in August: North Carolina saw the biggest gains with 7,000, followed by Montana with 5,100 and West Virginia with 2,800. North Dakota, South Dakota, and Nebraska had the lowest unemployment rates in August, at 4.3 percent, 4.9 percent, and 5.0 percent, respectively…”I ran an avg job loss educated estimate of the states 5-47, not in the article and came up with a net American 742K job losses for Aug 2009, very close to your 800K estimate 🙂

PeteCASeptember 24th, 2009 at 1:11 pm

Interesting comments on real US unemployment. If true, these comments support the idea of further deep contractions in credit in the private sector in America. In fact, you have to wonder if the private sector is teetering on the verge of a complete “credit collapse”. One strong indicator of this would be a rapid rise in the failure rate for small & medium sized banks.PeteCA

11b40September 26th, 2009 at 10:16 am

What we are also very close to is a major rise in small business Chapter 11 filings. As a broker/agent for over 25 small businesses, I get a broad snapshot of the health of wide variety of companies. The main indicator for me is how I get paid. Commission checks are not only much smaller (to be expected), but they are much slower in coming, they must be checked much more closely for accuracy, rates are being challenged and reduced, and the overall picture gets uglier by the month.On the one hand, my clients see their business contracting from lack of demand. On the other hand, deciding which customers you can safely ship product to is of growing concern. The payables/recievables cycles are getting stretched and the risk of something like what happened last year with the banks occuring in business seems possible to me. Vendors are becoming afraid to ship goods to retail accounts on credit terms just as banks were afraid to lend to other banks.This is a year of survival for many companies. Forget profits – just make it through to live until things improve. But wait! Things are improving! I saw it on CNBC. I better get down to the Post Office to see if any of those late commission checks have arrived.Independent Contrator

Little SaverSeptember 24th, 2009 at 8:46 am

America Digs Deeper Into Debt09/22/2009America Digs Deeper Into Debt It’s amazing but true. Even after all we’ve been through and all we have supposedly learned about the danger of being over leveraged and borrowing more than you can pay back, we are still piling on debt.I know that’s not what you hear in the media. Wall Street and Washington are busy telling you that we are continuing to pay down debt and the health of the country’s balance sheet is improving.The truth is that consumers and businesses are paying down debt but their budgetary prudence is more than being offset by the profligacy of the government.We can see from the Flow of Funds quarterly report put out by the Federal Reserve that households are reducing their debt at a 1.7% annual rate and business at a 1.8% annual rate. However, while the private sector gets their finances in order the Federal government is increasing its debt at a 28.2% annual rate!The net effect is that the annual rate of increase in our nation’s debt is currently 4.9%, which is even faster than the rate of increase of 4.1% experienced in Q1 2009. Yep, we are increasing our debt at a faster pace. So all the talk about the economy healing, as consumers save and businesses pay down debt is false. Since the government’s debt is our debt, there has been no deleveraging in the economy and there has been no repair made to the country’s balance sheet. All we have done is trade an overleveraged consumer and financial institution’s balance sheet for a now vastly overleveraged public balance sheet.

GuestSeptember 24th, 2009 at 3:16 pm

Makes it sound like this game can keep going for another 10 years, I highly doubt that.U.S. Debt Crisis May Cause ‘Fall of Rome’ Scenario, Duncan Says

Sept. 23 (Bloomberg) — U.S. budget deficits will continue to pile up in the next decade, eventually reaching an unsustainable level that may result in an economic collapse, according to Richard Duncan, author of “The Dollar Crisis.”The U.S. has little chance of resolving its deteriorating financial position because the manufacturing industry continues to shrink, leaving the nation with few goods to export, said Duncan, now at Singapore-based Blackhorse Asset Management.

FAMCSeptember 24th, 2009 at 6:10 pm

US May Face ‘Armageddon’ If China, Japan Don’t Buy Debt, I would like to know if someone here knows if thenumbers are reliable, i.e., can foregners lie about”Estimated foreign holdings of U.S. Treasury marketable and non-marketable bills, bonds, and notesreported under the Treasury International Capital (TIC) reporting system are based on annual Surveys of Foreign Holdings of U.S. Securities and on monthly data.”?

GuestSeptember 24th, 2009 at 7:45 pm

Keep in mind the saying that it’s not so much the votes that count, but who counts the votes. Consider who is counting…

PeteCASeptember 24th, 2009 at 9:03 pm

I don’t think they are making up the numbers – but I could be wrong. Who really knows anymore.The main suspicion is that the Fed may be using fictitious identities to purchase some US Gov’t securities themselves e.g. are all purchases by Carrib Banking Centers really foreign buyers, or has the Fed set up its own holding company to buy some of this stuff? Who knows.PeteCA

FEDupSeptember 25th, 2009 at 7:34 am

LACK of transparency allows for any and all scenarios-most of them not good. It trumps all measures to understand and ultimately fix the system. The people must wake up to this crucial point if we want to avoid future crisis and continual ripping off of 99% of Americans.

GuestSeptember 25th, 2009 at 10:50 am

Sadly, I’m afraid, if it were really known the state of things we’d find that it IS one big Ponzi Scheme which has, for all intents and purposes, run into the wall (out of new recruits, suckers and natural resources).

RachelSeptember 29th, 2009 at 10:32 pm

Hi FAMC, I think the numbers are credible – with a couple of caveats. check out our routine coverage of the TIC data for more details. if China buys through an intermediary in the UK, it doesn’t show up as a Chinese holding until the more detailed survey is done on an annual basis at a major lag.but as I point out above, one outcome of a fall in US consumption is that US imports and the current account deficit has narrowed. meaning that even if the US govt is issuing more debt, a smaller share is in the hands of foreigners – then again a shift from 55% to 50% is not a great drop.

PeterJBSeptember 24th, 2009 at 6:14 pm

Speaking of “the US war on everything” @ Guest (a prolific poster):Context: Afghanistan and US “authority” hum

GuestSeptember 24th, 2009 at 6:53 pm

Thanks PeterJB (for acknowledging me 🙂 ).While Margolis has it nailed, I think that William Lind’s credentials in this matter are a bit more powerful.Last Exit Before QuagmireI also like Justin Raimondo’s recent piece:McChrystal’s ConundrumBetween the lot of these people it is clear that McChristal is a tool of the defense contractors…Speaking of defense contractors and hypocrisy:Today ACORN, Tomorrow … Lockheed Martin? Northrop Grumman?A two-class society for sure…

blindmanSeptember 24th, 2009 at 9:50 pm

g,i too would like to acknowledge you and yourposts as exceptional and would like to take thisopportunity to make an observation or two, asksome questions and perhaps condense and burn.firstly, those pictures of the defense contractors in afghanistan certainly are inflammatory, and that “prostitute” looks like she has a shadow, maybe a dude?, but i say “what do you expect”?they were hired to protect an embassy put in place to provide political cover for drug, opium, production and initial phases of smuggling.why shouldn’t they party at night by the camp fire. they are healthy, youthful, gainfully employed and american. no mystery or hypocrisy here, or if it is here it pales in comparison tothe larger hypocrisy. prime time murder, genocide and land grab. mom, apple pie and all that..i could see how this might not appear “kosher”to the local who has seen his or her relative bleedto death or the one who cannot sleep wonderinghow the cells of a loved one could nearly instantaneously be separated from each other inan explosive way, rendering their loved one, perhaps, bits of atmosphere.we are americans. we can win them over as thebrits of old could..why we will fail..we will fail because that is where the quick money is. failure in human terms is nothing butopportunity for profit making in the speculativefinancial virtual universe. no vision needed,excellent! failure is just success, after all.crime, terrorism, war, environmental degradation,disease, starvation you name it, it is all goodand all of it represents a money making opportunity. yes? this is what life is for,making money, whatever money might be for the moment, or it may be just credit/debt, so letus kill one another for a better credit rat tingin the rat race of time and man, fuse lite,tick tock, f.. it. but no… heap ridicule here.or here.i have noticed, among the ones i speak with,optimism is ingrained like the fabric of thedna, the cell itself. .why?because without this “optimism” serious thoughtand reconsideration would be mandated by theintellect itself, this is, unthinkable? they allthink, (believe), there must be a way, someone isfixing it, so i can continue to do what i havedone and it will continue to be O.K. for me and…f… those poor bastards who have lost or willloose their limbs or lives. they should have beenmore like me, luckier or smarter, then they would be O.K.. but theywere not, they were different, this is why theyare now dead or lame. america/israel sleeping anddreaming of opium profits and cruel nuclear safety.your arrogance and insipid money masturbation willnot sell. the world of man, at this moment, willnot follow an adolescent, sustainable growth theorizing, public sexual profiteerover the cliff while you collect a tax at the edgeof the abyss. wake the f… up.the mountain regions of pakistan or afghanistando not harbor the seeds of the destruction of western civilization. so, where to look for thesource of the great terror of the 21st century?yes, right at is bullshit, for sure, excepting purebullshit itself, which is what it is. truly yours,peas.

blindmanSeptember 24th, 2009 at 10:50 pm

psss.speaking of insipid adolescent posturing and stupidity in the face of global sanity and reality let us consider the u.s. and israeli response, walkingout, to the offered statement of momar k. and thatguy from iran with the name from hell..why not just take a shit on the floor of the united nations? oh, i see, listening and thinking and diplomacy are beneath you. power corrupts,right..corruption destroys power, right.ass holes, one and all.peas.pssss. who will die for your ignorance?psssss. i heard there are four species thatcan recognize themselves in a mirror. man, apes,dolphins and elephants. i don’t think this iscorrect as i know dogs, at least my dog, recognizes herself in the mirror and i’m not surethat “man” can do this.

GuestSeptember 25th, 2009 at 10:53 am

It’s all hypocrisy to the highest degree… And orchestrated/approved by TPTB (in order to detract the commoner from seeing that their strings are being pulled).

GuestSeptember 24th, 2009 at 10:56 pm

He seems to be too close to the establishment these days. Last year he was yelling about the $3.6 trillion loss in the banking system; 1,500 banks that would fail; and the collapse of the Investment Banking industry. Then, I guess, someone told him to cool it.This is the odd thing; he predicted the collapse of the financial industry, but he does not want it to fail. If it were the same Roubini as last year, then he would be pointing out all of the Fed’s machinations and its eminent impact on the economy. But no; the young turks over at Zerohedge seem to have the momentum now. And, that’s why we read ZH and report back over here.Also, the uncertainty factor has really increased so Roubini may be overly cautious. Or maybe he has had enough of us doom and gloomers with our constant righteous bitchiness.

JLCSeptember 25th, 2009 at 2:27 am

I would have to agree that Zero Hedge now has the “edge” that this blog once had. They are really interested in changing the status quo. It does seem to me that, with all due respect, the professor is trying not to rock the boat too much.

London BankerSeptember 25th, 2009 at 3:33 am

There have been a lot of straws in the wind lately pointing to a big move by TPTB to consolidate their control of the system – and ensure continued free access to public monies. I suspect another “event” may be orchestrated soon to crash global equity and commodity markets and strengthen the dollar. The event will be used to ram through the Treasury/Fed legislation giving the Fed absolute power over “financial stability” and to stop the progress of the “audit the Fed” crusaders.As with the Lehman failure last year, the headline “event” will not be what causes the damage. Lehman’s failure itself did relatively little immediate damage. The seizing up of global liquidity resulted from withdrawals from money market funds and a co-ordinated round of global margin calls on prime brokerage clients as GS/MS/Citi doubled the required margin a week later (e.g., halving hedge fund leverage). The resulting global asset sell off and repatriation of proceeds is what caused the surge in the dollar (margin has to be paid in dollars) and led to the need for the central bank currency swaps.The crashing global markets were the perfect backdrop for forcing through the Paulson Plan for unreviewable distribution of $700 billion to the very banks who triggered the global crash with their margin calls.The power to call margin is the power to destroy. Margin calls trigger a sudden liquidity crisis, and if they can only be met by liquidation of assets, then markets crash very fast indeed. The OTC derivative markets and prime brokerage accounts have no public reporting of margin calls, but control the bulk of global liquidity. Margin calls in these two sectors caused the sudden seizure in October last year.Since then margin requirements have eased off, fueling the rise of global markets, allowing leverage to approach pre-crash levels.The Fed audit bill will go to the House next week with assured passage. If TPTB are going to make a move to stop it, it will be soon.Same again, please!

Pecos BankerSeptember 25th, 2009 at 4:17 am

Fascinating and frightening but it has the ring of truth, LB! Can you point to any recent signs in markets that would lend credibility to this hypothesis? Perhaps someone over at Zerohedge has also noticed that something like this is afoot. What are some of these straws in the wind, if I may ask.

London BankerSeptember 25th, 2009 at 4:40 am

Some of the straws:- expiry of the money market fund guarantee by Treasury;- Fed QE announced limit for 2009 approaching;- Fed floating idea of withdrawing QE liquidity by reverse repos to money market funds;- DOE reports of rapid decline in energy demand;- patterns of similar stories about potential collapse of Chinese markets;- pattern of stories about trade finance and trade collapse in run up to Christmas season (which could have been written any time but are just now appearing);- lots of behind the scene meetings between Fed and other CBs in the run up to the G20;- G20 announcing “new economic order” which adopts Fed/Treasury models and global “financial stability” goal;- hints of dissatisfaction in Europe and Asia with being patsies again;- IMF gold sales actually being planned (rather than just announced, as usual);- Chinese demand for physical delivery of gold (like a huge margin call on base monetary reserves).I’m beginning to feel the same way about “financial stability” as I do about the “war on terror”. Both are marketing handles for massive frauds on the taxpayer for the benefit of an unaccountable elite.If we believe in capitalism, then we should abhor “financial stability” which entrenches a privileged few through access to central bank liquidity while allowing the same few to rig markets and prey on investors through coordinated margin calls and market moves.

crgordnSeptember 25th, 2009 at 7:06 am

LB,Good to see you spending more time on this site.Instead of straws, I see each of these bits of information as a small tile – you are setting each tile (straw) in place and a clear picture emerges. Looking at one, two or even a few pieces in a mosaic and the picture can be missed. Assembling all the tiles and stepping back enables the picture to jump off the floor, so to speak. The ability to assemble seemingly disparate small pieces into an understandable “picture” is a gift that you enjoy.

Free TibetSeptember 25th, 2009 at 10:19 am

Any of us who have read Naomi Klein’s book already know how TPTB will create & use a crisis to further their own control. Old news. But TPTB seem to be grasping at straws and one of those that you mention is particularly interesting.“ – Fed floating idea of withdrawing QE liquidity by reverse repos to money market funds”A few blogs picked up on that and the underling FT article said that using primary dealers in a traditional reverse repo might yield only 100b$. Last Mar. the Fed created nearly 1t$ – voila. To think that the 20 primary dealers’ balance sheets might find it inconvenient to purchase >100b$ in T’s (or toxics we don’t yet know) – what does that say about our ability to meet a margin call today? See my comment further upstream.How tightly tied are the PD’s? Can we really create all those excess reserves and not be able to raise more cash? Is it a duration mis-match?Moral hazard: at some point workers and savers will refuse to produce and save and be exploited by those who squander their savings.

GuestSeptember 25th, 2009 at 4:02 pm

Obama willing to lose credibility? Remember he has recently claimed some of the credit for market enhancements.hlowe

The AlarmistSeptember 25th, 2009 at 8:51 am

I tell you again, an ‘audit’ is merely going to find that the Fed follows whatever generally accepted accounting principles apply to it and that no material internal control weaknesses were found. Pretty much the same audit report most of TBTF Banks have received and continue to receive.

AnonymousSeptember 25th, 2009 at 12:16 pm

From today’s hearings (courtesy of ZeroHedge):Alan Grayson: Who actually executes the trades for the Federal Reserve in the markets?Scott Alvarez: The Federal Reserve Bank of New York, which executes trades through Primary Dealers.Alan Grayson: Can you name one Primary Dealer?Scott Alvarez: JP Morgan ChaseAlan Grayson: Do you mind if we have a GAO audit to see if there has been front-running or insider trading by them? Do you mind? Is that ok with you?Scott Alvarez: I am not sure if I have that authority…

SeanSeptember 29th, 2009 at 9:14 am

London Banker –“The Saudi Arabian … it bought fewer US Treasuries in H1 2009. The Chinese … declaring their appetite diminished. … if they are not financing further debt expansion, then the game is almost up”London Banker, I recalled reading one of your comments stating that the USA government is secretly buying Treasury as richer foreign central banks are giving up — a conspiracy proposal.But I have a different suggestion. Did you read David Rosenberg? He was previously famous Merrill Lynch chieft economist calling the top in equities in 2007. He said there have been huge new inflows into bond mutual funds from the USA public investors shunning equities since March. I think the ratio was like 20-1, as public is secularly switching to safety. This explain the bond demand.USA new savings rate is much bigger than the foreign central bankers money, according to his statistics.

PeterJBSeptember 25th, 2009 at 6:48 am

” I’m beginning to feel the same way about “financial stability” as I do about the “war on terror”.” Both are marketing handles for massive frauds on the taxpayer for the benefit of an unaccountable elite.”@ LBI have separated this, your LB, paragraph as two situations exist here; the first where I believe that you are correct as identifying the “financial stability” aka the “global economic collapse” as the same political hot gas haze as “the war on terror”, and, where,the massive frauds, although they have certainly been instigated, I suggest that they were not conspiratorial as seemingly inferred by your statement. Mere post-opportunism in my opine.However, IMO your overall grasp of the situation is correct where what we have is utterly no political or bureaucratic comprehension of the “big picture”, that is to say, “leadership” don’t have any idea of what is happening as they are constrained by lack of competence, intellectual and cognitive dysfunction and alternative focus of self agenda led by lobby influences. However, I believe that the main Cause of “leadership” applied ineptitude, is the inability to grasp the overall plot; a condition common throughout all societal levels.Or, if you like, a specialist understanding of the World, shuttered by its own limitations and unassisted by volumetric consilience due to a lack in the necessary achieved volumetric mass. That is, undifferentiated; a typical sub-human condition.What I am saying is this condition is a human condition and a human or societal fundamental not considered, in the ruling conditions of socio-economic practice.The outcome of Paul’s 1207 actually will be a measure of the level of fear running through the US Senate and Congress; fear of being hung by the electorate, that is to say.Ho hum

The AlarmistSeptember 28th, 2009 at 2:22 am

Remember, the War on Terror is being fought by the same people who have been fighting the War on Drugs for more than 40 years. You are very correct to have misgivings.

11b40September 26th, 2009 at 11:13 am

A mixture of both.The way we now run/fund elections guarantees we will have self-serving ego maniacs who are eager to sell out their fellow citizens for power and personal enrichment in leadership positions.Independent Contractor

wdm223September 25th, 2009 at 7:20 am

Obama’s Ppularity continues at Low after Plunge- Propaganda Machine Now Using Bush “Terror Alerts” Scare Tacticswill they bring in Dick Cheney from Retirement?Drudge Report Headlines:”FBI arrests Jordanian for downtown Dallas bomb plot…Illinois man charged in plot to bomb federal offices…Terror suspects accused of targeting Marine base in Quantico…Men vanish after taking photos of Philly subway system… “”CAUGHT BY SURPRISE: IRAN BUILDING SECOND NUKE PLANT”Tail Wagging Dog Again–Diversion from High Unemployment, as Housing Decline continues UnabatedWill Obama resort to the Argentine “Falklands War” Strategy?WDM223

HubbsSeptember 25th, 2009 at 8:11 am

From my visit to both Arg and Falks, just a bunch of cigar chomping, whiskey drinking, card playing honchos with political aspirations needed a war, so decided to start one over two stupid rocks, with nothing other than a very quaint little village and a few sheep and moss which was used to heat the homes. Sent a bunch of young untrained soldiers. Little did they know that the Brits still had a stateswoman in command. So what does Argentina do? Build a big memorial in Buenos Aires (Vietnam Wall Memorial style) with two guards.Interestingly, Marc Faber has concluded that when the financial system breaks down…when, he admits he doesn’t know 1-3-5-10 years, then countries will go to war.

FEDupSeptember 25th, 2009 at 7:39 am

Just out: “US Durable Goods drop steeper than forecasat 2.4$ in August”. As Gomer Pyle would say “Well, surprise, surprise”. If these numbers continue to decline, the day of reckoning or as NR might say- “the double dip” is just around the corner.

JLarkinSeptember 25th, 2009 at 7:55 am

The bearish news is always “unexpected”. These guys just don’t give up.NEW YORK, Sept 25 (Reuters) – U.S. stock index futures turned negative on Friday on doubts about the strength of the economic recovery, after data showed new orders for long-lasting goods unexpectedly fell in August.

PeteCASeptember 25th, 2009 at 9:04 am

Chart of the Day is showing a pretty nice chart for single family home prices at the following link:href=””>Blow Off Top Completed for Home PricesAccording to this data, the parabolic price rise in US home prices (over the last few years) has now been restored to an equilibrium value.Personally, however, I suspect the long term trend for home prices will still be down for a while. For one thing, these parabolic blowoffs usually create a “down cycle” that overshoots the equlibrium price in the economy. And for another thing, the two-tier price structure in US housing has not yet been resolved. Prices on lower-value homes have come down substantially, but high-price homes have not declined by the same amount. It’s not possible to have this kind of price gap within a market – the logical resolution is for higher-price homes to continue to decline in value.PeteCA

SoftwarengineerSeptember 26th, 2009 at 9:58 am

Hi Pete:My advice is just reference links as to their source/author/date and copy/paste us the salient part [don’t give us a monster size chunk either…LOL] of the link in your blog. I tried a small URL too and lost my blog in the RGE Twilight Zone. If you do try to blog URL references, make sure you copy your blog for possible resend before you send it and lose it…LOL

11b40September 26th, 2009 at 11:21 am

Decline they will, as the next round of defaults/foreclosures moves from sub-prime to prime. Coming soon to an upscale neighborhood near you.Independent Contractor

MM CASeptember 25th, 2009 at 9:24 am

Could it be NO JOBS FOREVER?Great Recession transforms workplace, work forceGoing to work may never be the same again.By JAY REEVES and CHRISTOPHER LEONARDAssociated Press WritersGoing to work may never be the same again.The Great Recession has reshaped the American workplace and work force in ways that will last years, if not longer.The work force is graying as college graduates can’t find jobs, young workers get laid off and older workers delay retirement. People in white-collar jobs are feeling increasingly vulnerable to economic downturns, an insecurity that blue-collar workers have known for years.Perhaps the most enduring change is the permanent loss of millions of jobs across the manufacturing, services and retail sectors.For textile factories and service sector employers like customer service call centers, the next wave of significant job creation will occur abroad, where labor is cheaper. That trend was under way before the recession and will accelerate, according to labor economists. Americans who would have held these jobs will have to retrain themselves for other jobs, such as assembling microchips and medical devices.For retailers, growth will be limited by more cautious consumer spending, in part because the days of easy credit are over. That means fewer retail clerks milling about stores around the holidays, and fewer merchandise buyers and other staff jobs at headquarters.”We’re in a very deep jobs crisis, and we’re not coming out of it,” says William George, professor of management at Harvard Business School. “It’s too glib to say that jobs are a lagging indicator” and that hiring will return to normal once the economy does, he says.The national unemployment rate, now 9.7 percent, is forecast to rise above 10 percent before the end of the year and isn’t expected to return to a “normal” level near 5 percent until 2014.Of course, layoffs aren’t the only thing transforming the workplace.The need to cut costs deeply and quickly has forced businesses to get creative – not just go the easy route of layoffs. It’s the central responsibility of managers these days, says Alec Levenson, a research specialist with the Center for Effective Organizations at the University of Southern California.Through furloughs, fewer shifts and other cutbacks, employers have reduced the average work week to a near-record low of 33.1 hours.About 400 workers at Nebraska meatpacker Premium Protein Products were told this week they will remain on unpaid furloughs for at least another two weeks, having been on unpaid leave since June. States also have joined in, with Utah State University asking employees to take a furlough next summer after taking a weeklong furlough last spring.Reducing hours of all workers instead of eliminating jobs of a few is a strategy that had slowly been gaining favor in recent years because it saved companies money in several ways: It reduced the need for severance packages, as well as the cost to rehire and train these new workers once the economy rebounded.The practice became much more widespread during last year’s financial crisis and is likely to be repeated in future recessions, says Peter Cappelli, professor of management at the University of Pennsylvania’s Wharton School of Business.Workers aren’t necessarily complaining.Bonnie Gerard, a business developer with the Knowledge Institute consulting firm in Exeter, N.H., has seen her work week cut from five days to four. That’s made it harder to keep up with paying bills. But it beats losing the job. And, she acknowledges, it’s made her more efficient.”It keeps you more focused on the days you’re here,” she says. “You’ve still got the same goals, whether you’re here four days or five days, and you’ve got to do the work.”No matter how creative companies get at cost-cutting, or how strong the recovery is, millions of jobs will never come back, George, the Harvard professor, says.Over the past year, the U.S. non-farm payroll has shrunk to about 131 million people, a decline of more than 5.8 million auto workers, stock brokers, bankers, landscapers, carpenters, truckers, journalists, mechanics, cooks, maids and more. More than 1.6 million manufacturing jobs have disappeared in the last 12 months, along with 1 million construction jobs and 435,000 financial sector jobs.In low-skilled manufacturing, the U.S. can’t compete with countries like China, India or Mexico where labor costs are a fraction of those here. Likewise, cost pressures will continue to push information technology jobs overseas.American workers will need to be retrained in the coming years to have a shot at the jobs that will be created. George says these jobs will require specialized knowledge, such as how to install energy-saving systems in buildings.Community colleges and vocational schools that train people for such jobs could become as important as four-year universities.Plenty of today’s unemployed could benefit from such training.”There are a lot of good people who are really stuck,” says John Challenger, chief executive of the outplacement firm Challenger, Gray & Christmas. “They’ve been out of work for a long time, and that’s made it all the harder for them to compete because they have to explain why they have not been chosen.”A record 4.98 million people had been out of work 27 weeks or longer in August, in part because this recession, which started in December 2007, has stretched longer than any since World War II.That has forced a record number of people into part-time work. People forced to work part-time jobs because they can’t get full-time positions has jumped 54 percent from a year ago to 9 million.For those who still have a full-time job, flexibility is key.At a factory that makes foundry equipment in suburban Birmingham, teams that once did specific jobs – welding, grinding castings, fitting parts, assembling machines – have had to learn multiple skills.The shop, which once had 150 workers, now employs only 30.”The ones we have now have to do it all,” foreman Gerry Peoples says. That includes sweeping the floors since the janitors were laid off. “This is probably going to linger for years,” says Peoples, who has survived two rounds of cuts and is down to a 32-hour work week.About 40 percent of workers are now over 55 or older, the highest level since it was 40.8 percent in 1961, according to a Pew Research Center survey released this summer. More workers are delaying retirement for economic and personal reasons, locking up jobs that are sought by younger workers entering the work force.Years ago, Jerry Bannister, 67, anticipated a more leisurely routine at his age. He oversees 10 maintenance workers at the Mays Chapel Ridge retirement community and has no plan to quit soon. He took the job seven years ago, after working 38 years at a Bethlehem Steel plant.His Social Security and retirement benefits might be enough to live on, but he couldn’t quit without making big changes to his lifestyle, such as cutting out vacations and golf.”When I get to a point where I say, ‘You know, I’m as old as the residents,’ then it’s time to step down,” Bannister says.Fewer workers these days feel as confident as Bannister does about controlling their destiny.Job security has diminished after every recession since the 1970s, says David Lipsky, professor at Cornell University’s School of Industrial and Labor Relations.As workers fought to get their jobs back, unions dropped long-held contract provisions like cost-of-living adjustments and job-security clauses, he says. That contributed to declining union membership, further weakening workers’ bargaining position with employers.Among white-collar workers, job security began to disappear in the recession of the early 1990s as technology allowed jobs to be shipped abroad. It may be gone now.Over the past year, the unemployment rate jumped 64 percent for managers and professionals like lawyers, doctors and fund managers. That compares with a 56 percent increase in overall unemployment, according to Labor Department data.Among people with a bachelor’s degree or higher, the unemployment rate is still low at 4.7 percent, but it’s up from 2.7 percent a year ago.For some younger white-collar workers, job insecurity is so high that just hanging on has replaced asking for a raise or a promotion.Rusty Meador, 35, a development manager at Plantation Building Corp., a construction company in Wilmington, N.C., walks past empty desks daily. He once worked in the office as a general manager and had a team of project leaders who reported to him from the field. Now he’s back on job sites, doing the work of laid-off colleagues – without a word of complaint. Even if the economy turns around, the memory of this recession will stick with him.”You’re so grateful to have a job,” he says.Reeves reported from Birmingham, Ala. Leonard reported from St. Louis.

The AlarmistSeptember 28th, 2009 at 2:31 am

Touching, but nauseating.You just get on with life, and if you have the right attitude and add value, you are rewarded. If you are merely hanging on, then you deserve what you get.Every year I have received a raise, better than the inflation rate for that matter, and I have never asked for one or threatened leaving. I have also been sacked a few times along the way when times got tough (they used the term ‘laid off’ or made redundant, but it felt just as personal as being fired), and even through those times the upward trend continued. I have never felt ‘grateful’ for merely ‘hanging on to a job’ and actually was glad in a couple cases to be forced to move on.

MM CASeptember 25th, 2009 at 9:34 am

There is no victory and there is no recovery. Open your eyes Average Joe American, it’s all a digital and compter illusion…. they surevive to keep fighting naother day without fixing things…. NO JOBS, INSOLVENT BANKS, RISING FORECLOSURES and TANKING CONSUMER SPENDING….This folks is your 2010 XMAS present from them to us:Giethner comments:Industry experts and Obama administration officials warn that the financial sector, while more stable, is still vulnerable. Foreclosures are still rising, unemployment is expected to remain high for months, banks still hold bad assets on their balance sheets and the commercial real estate market poses a significant threat to small banks whose failure rate has not abated.Many economists warn that a too-slow recovery could dip into recession again.”It is too early for anyone to declare victory,” Geithner told members of the House Financial Services Committee on Wednesday.

MM CASeptember 25th, 2009 at 9:38 am

anyone notice any bad news is always unexpected? Dont they get that most maericans dont beleive anyhting they say anymore… and when will mainstream press and tv start reporting the thruth, isntead of using words like “unexpected” you have to be a flat out stupid, ingnorant idiot to not understand things are still VERY VERY BAD!Existing-Home Sales Unexpectedly Fall ABy Bob WillisSept. 24 (Bloomberg) — Sales of existing U.S. homes unexpectedly fell last month for the first time since March, signaling the housing recovery will be slow to gain speed.Purchases dropped 2.7 percent in August to a 5.1 million annual rate, the second-highest level in the last 23 months, the National Association of Realtors said today in Washington. The median price dropped 12.5 percent from August 2008. A government report showed unemployment claims declined.

MM CASeptember 25th, 2009 at 9:40 am

What’s the real reason that banks aren’t foreclosing? Best reason yet?By Greg Fielding on Sep 24, 2009…Driving around Fort Lauderdale, it became extremely clear just how big a hit its economy has taken as a result of the real estate market’s collapse. It’s like a different world compared to what it was like just a few years ago: overgrown grass rises above many curbs and sidewalks; homes and businesses sit empty and abandoned; most blocks display multiple “for sale” or “for rent” signs.…During my trip to Florida I heard about families who have lived in their homes as long as two years without paying, because the banks haven’t gotten around to foreclosing. And that’s a problem. Until the real estate market recognizes all its losses — including accounting for all foreclosures — it won’t be able to regain real stability and move on. Of course, that has implications for the broader economy as well.…But what are the actual numbers as they pertain to this shadow inventory of foreclosures? They’re hard to get exact, given the very nature of the problem — these foreclosures have not yet been completed. But the (Wall Street) Journal does provide some statistics to work with:As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgagesMoreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier.…So why do we have this shadow inventory? There are three possible causes:The first is explained in the WSJ piece. It’s taking quite a long time to figure out which borrowers qualify for the Obama administration’s mortgage modification program. It’s also taking time to process the deluge of applications. During the wait, borrowers remain in their houses which, otherwise, would be in foreclosure. Those who don’t get the modification will ultimately face foreclosure.Second, with so many foreclosures, banks likely just have logistical issues getting them all processed in a timely manner. There’s a heap of paperwork and other red tape involved in making a foreclosure happen. Banks have never experienced a flood of foreclosures like this, so they aren’t equipped to handle so many very quickly.Third, banks may not want to foreclose on all of these homes immediately. A WSJ source above used the analogy of foreclosures hitting the market like “a fire hose or a garden hose or a drip.” Which do you think would be better for housing prices? The drip.While it’s clear that the “shadow inventory of foreclosures is enormous, I don’t agree that any of these reasons are the real reason why banks aren’t foreclosing.First, banks have had plenty of time to sort out who qualifies for a modification. In the couple of months after the modification plan was announced NODs and NTSs began to increase rapidly…indicating that the banks were able to sort through their customers quickly. However, in the last couple of months, NOD and NTS activity has fallen dramatically. See the chart below from ForeclosureRadar. There must be another reason why banks aren’t foreclosing.Second, banks have been gearing up for the tidal wave of foreclosures for 2 years now. I work with asset management companies that hired and trained new employees in 2007 and 2008, only to let them go in 2009 because the business isn’t coming. And, none of the asset managers I work with at banks are very busy either. Being overworked isn’t the problem.Third…I think this is where the reporter comes close, but misses the bigger picture. Banks don’t care about home prices. They care about not losing money. Because the government changed mark-to-market accounting rules, the link between low prices and losing money is broken.Banks make more money by NOT foreclosing on homes. Banks are dragging out the foreclosure process for their own selfish reasons. Until the day they foreclose, the amount of money owed to them is an asset…sure, it’s an asset that isn’t paying interest payments…but it is still an asset. The day they foreclose, a $400,000 asset could become a $150,000 asset and a $250,000 loss.Multiply that loss by 10, 20, or even 30 times leverage and there are several million dollars worth of new loans that the bank can’t make.Faulty government programs and doctored accounting rules have produced the fiasco before us: There are roughly 4 million homes that should be foreclosed on but they won’t be any time soon. This enormous can is continuing to get kicked down the road.Economists are predicting a recovery. They say that our various programs are making an impact. In reality, all they’ve done is kick our can of reckoning a little further down the road.

GuestSeptember 25th, 2009 at 9:41 am

Housing Crash to Resume on 7 Million Foreclosures, Amherst SaysBy Jody ShennSept. 23 (Bloomberg) — The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.

GuestSeptember 25th, 2009 at 9:57 am

KB Homes: No Substantial Recovery Any Time Soon (KBH)KB Homes doesn’t expect improvement on the housing front any time soon.In their latest fiscal quarter, KB missed analyst estimates by fourteen cents per share with an 87-cent loss for their fiscal third quarter. Inventory, joint venture, and land-related writedowns weighed down on earnings. The company could lose $2.75 per share for 2009, and then still be in red during 2010 as per consensus estimates. KBH shares are down over 6% today.KB Homes CEO: “While tentative indications are that some negative economic trends are slowing or leveling out to varying degrees in certain markets, the ongoing impact of and the potential for increased foreclosures and mortgage delinquencies, higher unemployment, tighter credit standards, and relatively weak consumer confidence make the timing and extent of a sustained rebound still uncertain.”More worryingly, average selling prices remained well below their level one year ago, and 7% down from last quarter.

MM CASeptember 25th, 2009 at 9:43 am

California will need 15 Billion by January…. and if you look at these drops in revenues it jsut proves that the consumer and GDP has to be tanking…..California Cash Already Below Budget EstimatesThe San Francisco Business Times reports California’s cash coming in below guessesCalifornia’s controller said the state’s general fund revenue in August was $237 million below estimates made in the 2009-2010 budget.That’s 3.6 percent lower than estimates in the recently amended budget act, said John Chiang in his office’s monthly report.Chiang said his office’s “stress-testing” of California’s budget had accounted for some shortfalls in revenue. Some of the missing revenue can be made up, Chiang said, but “I am concerned that they constitute nearly one half of the State’s $500 million budget reserve.”Personal income tax revenue in August was $247 million, or 8.9 percent, lower than estimates, while sales taxes were down $185 million, or 5.5 percent, below the state’s latest guesses.That didn’t take long.

MM CASeptember 25th, 2009 at 9:48 am

They have resorted to guessing…jsut like Obama, Geithner, “we have entered a recovery Bernanke”, congress, Wall street, the banks, the Markets… they are all just guessing!!!!!!!!!!California’s cash coming in below guessesSan Francisco Business Times – by Steven E.F. Browncontroller said the state’s general fund revenue in August was $237 million below estimates made in the 2009-2010 budget.That’s 3.6 percent lower than estimates in the recently amended budget act, said John Chiang in his office’s monthly report.Chiang said his office’s “stress-testing” of California’s budget had accounted for some shortfalls in revenue. Some of the missing revenue can be made up, Chiang said, but “I am concerned that they constitute nearly one half of the State’s $500 million budget reserve.”Personal income tax revenue in August was $247 million, or 8.9 percent, lower than estimates, while sales taxes were down $185 million, or 5.5 percent, below the state’s latest guesses.Only corporate income taxes were higher than estimates. They topped guesses by $27.3 million, or 22.6 percent in August.During August, California issued $862 million in “registered warrants” — those are IOUs — and also put off another $471 million in scheduled payments. By Aug. 31, the state had a $12.6 billion cash deficit.

MM CASeptember 25th, 2009 at 9:53 am

read the whole article and document… very intersting…Iestimate the banks are sittign on 3 Trillion of toxic garbage – whos going to picj that up- answer -no one, not even the bankrupt US TAX payers…cant collect taxes form people that arent working… Losses Triple-Slam The BanksVincent Fernando|Sep. 25, 2009, 7:45 AM | 1,516 |2The latest Fed data shows that syndicated loan losses for major banks tripled in 2009 to $53 billion.Furthermore, “Criticized Assets”, ie. those assets which are rated as bad loans at risk of loss (Special mention, substandard, doubtful, or loss) rose 72% in a single year to a whopping $642 billion. The result is that 22.3% of the loans now held by institutions under federal supervision carry the Criticized designation (Shown in red below).Clearly the bad loan situation remains extraordinary, with a mountain of bad debt in the system.Guess your loss rate, multiply by $642 billion, and you can arrive at a very rough back-of-the-envelope estimate for future loan losses. This wouldn’t even include potential further deterioration for other loan assets.Please find the full Annual Nation Credits Review below.

MM CASeptember 25th, 2009 at 9:56 am

No one has control anymore…. is it me or has anyone else seen a big rise in print and on TV on debt redcution, mortgage modfication, general banks ads claiming to want to help you…. seesm thats all that on radio and tv these days…. They literally are picking at the AVERAGE JOE AMERICAN CARCASS….Overwhelmed Regulators Can’t Handle Scammy Foreclosure “Rescue” CompaniesLawrence Delevingne|Sep. 25, 2009,Sketchy mortgage vultures keep circling.As we’ve written, they’re preying on distressed homeowners instead of their old scheme, hawking houses people can’t afford.Problem is, the authorities charged with stopping the often illegal practices are overwhelmed.Propublica/Marketplace: During the go-go years of the real estate bubble, shady mortgage brokers thrived, thanks to the sluggish response of regulators and law enforcement agencies. Amid the ruins of the crash, there’s a new boom attracting unscrupulous mortgage professionals: “Foreclosure rescue” companies promising — in exchange for a large up-front fee — to persuade lenders to modify desperate homeowners’ mortgages. And authorities are again finding themselves ill-equipped to deal with the deluge.In a giant game of whack-a-mole, law enforcement agencies at all levels across the country have filed suit against 150 such companies, but they continue to proliferate, and the number of consumer complaints continues to rise.California Attorney General Jerry Brown is one of those on the offensive, going after numerous companies in his state.”The loan modification industry is teeming with confidence men and charlatans, who rip off desperate homeowners facing foreclosure,” Brown said in July. “Despite firm promises and money-back guarantees, these scam artists pocketed thousands of dollars from each victim and didn’t provide an ounce of relief.”But as Propublica points out, even when officials go after one of these companies, the results can be poor.Four states have sued 21st Century, and at least three more have open investigations. Over 150 consumers from more than 30 states have filed complaints against 21st Century with the Better Business Bureau. No active firm has more complaints.Yet the company forges on. Operating under a new name, Fidelity National Legal Services, it continues to solicit consumers nationwide, even in states where authorities have won court injunctions.Tthe game has changed but the players have not. Subprime is alive and well, though it has a new name

MM CASeptember 25th, 2009 at 9:59 am

Marc Faber: “The Future Will Be A Total Disaster With A Collapse Of Our Capitalistic System As We Know It”Video at: Blodget|Sep. 25, 2009, 6:15 AMWe had Marc Faber on TechTicker this week. He hasn’t changed a bit!Aaron Task: “The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society,” Marc Faber writes in the September issue of The Gloom, Boom & Doom Report.A statement like that pretty much speaks for itself, but it’s a bit more complicated than appears on first blush.Faber has been bullish — especially on commodities and emerging market stocks — for some time now and believes the current global recovery trade will last another two-to-three years, as discussed in more detail in a forthcoming clip. But he has major long-term concerns about the dollar’s long-term viability given rising U.S. deficits, massive unfunded mandates and the fact “we have a money-printer at the Fed.”This combination will eventually lead to runaway inflation, wholesale debasement of the dollar, and a major lowering of living standards for most Americans and many Europeans as well, says Faber, who is “highly confident” in this grim prediction.

PeteCASeptember 25th, 2009 at 10:33 am

Pecos BankerHere’s a little story for you. It’s a true story from Detroit. I just heard it from a work associate yesterday.My colleague has a brother who works in Detroit. This man still has a high-paying professional job – one of the few remaining in Michigan. His family lives in one of the nice suburban neighborhoods of Detroit – located 20-30 miles from the city center. At the time they bought their house, Detroit was doing better. But after things started to go bad, they continued to hope that thinks would be OK because they were located a fair distance from the city center.Alas – no longer. Over the last few months this family has been the victim of three robberies in their home. Two incidents happened during the day – while they were out. But the third (recent) incident happened when an armed robber came into their house – with the family all at home. In fact, the man’s mother was also visiting and was also one of the victims. So everyone was held up at gunpoint. Fortunately, no-one was hurt – but they were very rattled by the incident.As a result, this family is now buying another house in Michigan. The new house is located a long way out in the rural countryside. The man will now have to commute for 1-1/2 hours each way to get to work, but that is the price of safety. Meanwhile, they simply walked away from their old house. They plan to sell it, but they will take whatever they can get. Lives are worth more than houses.This is just one story. Conditions in Detroit are clearly very rough. Most US cities are not nearly this bad – yet. But stories like this may explain why more Americans are arming themselves, or choosing to move to completely new surroundings.PeteCA

CrosbySeptember 25th, 2009 at 12:00 pm

I’m sure they walked away from their home. They couldn’t sell it. My in-laws live in the suburbs of Detroit. My brother-in-law paid a bit more than $1M for his house about 6 years ago. The current going rate is $450K.

Pecos BankerSeptember 25th, 2009 at 1:28 pm

Thanks for the story PeteCA. It’s one thing to think of things in the abstract and another entirely to see how individual lives are affected. I keep reminding myself of all the suffering that is going on among the “formerly middle-class” and “middle-class-by-the-skin-of-their-teeth.” What a rotten system we have that people who worked hard all their lives and try to do the right thing are being thrown to the wolves, partly because of an inept president and a bought and paid for congress.

GuestSeptember 25th, 2009 at 11:12 am

PITTSBURGH – President Barack Obama and the leaders of France and Britain said Friday the revelation of a previously secret Iranian nuclear facility puts heavy new pressure on Tehran to quickly disclose all its nuclear efforts — including any moves toward weapons development — “or be held accountable.”French President Nicolas Sarkozy said Iran has until December to comply or face new sanctions. Before that, the Iranians are to meet next week with the U.S. and other major powers to discuss a range of issues including Iran’s nuclear program.”We will not let this matter rest,” said British Prime Minister Gordon Brown, who accused Iran of “serial deception.”Said Obama: “The Iranian government must now demonstrate through deeds its peaceful intentions or be held accountable to international standards and international law.”Their dramatic three-way statement opened the G-20 economic summit here. it Iraq all over again?

FEDupSeptember 25th, 2009 at 12:02 pm

Where there is smoke…there is fire.When all else fails…they turn to WAR.And when deception rules…kiss democracy goodbye!

noviceSeptember 25th, 2009 at 2:59 pm

wait didn’t we hear not long ago that Iran was going to have until the end of September to comply? The sounds of another tin can being kicked off into the future huh?

GuestSeptember 25th, 2009 at 3:34 pm

here we have it, Obama is no different from other crooks. Is Obama pulling a Bush WMD scare? they are all ponzi crooks like Madoff.

The AlarmistSeptember 28th, 2009 at 2:39 am

Come on, now. You should be glad one of the Western European states is getting serious about defending itself instead of relying on the beneficence of the US taxpayer.

GuestSeptember 25th, 2009 at 1:00 pm

THIS HOUSING INDICATOR IS POINTING TO LOWER HOME PRICES25 September 2009 by TPC 0 CommentsIf you’re looking for a real-time housing indicator look no further than the futures price of lumber. As we’ve long opined, the housing market has benefited in recent quarters from strong seasonal trends and the first time home buyers credit. Yesterday’s housing data was the first sign that our assumptions are true. Perhaps more important are lumber prices, however. Lumber has been forecasting weakness in housing since the beginning of June. Since topping out in early June lumber futures have declined nearly 20%. Lumber prices and new housing starts have a very high correlation.Gauging from the recent move in lumber futures it’s safe to say that analysts might be overly optimistic about the recovery in housing. If lumber futures continue their trend downwards and reflect the seasonal weakness I expect across housing it’s safe to assume that our woes in the housing market might not be over.

GuestSeptember 25th, 2009 at 1:14 pm

Ultimately it comes down to home affordability, and with the job losses it sure isn’t looking to the up-side.I suppose some big investors could gobble up housing, but I think that that would be a mistake for them, unless they’re feeling charitable that is.Ryskamp was well ahead of us on all of this. He, like I, were stating what is likely to happen rather than what he wanted to happen (well, I can say so in my case, just the messenger, no real personal bets in this). With the government taking on the debt of the private sector this is basically what is happening, albeit somewhat indirect (and most like far less effective).

PeteCASeptember 25th, 2009 at 1:50 pm

G-20 Does Nothing Again – As Usual !!!Todays News …”PITTSBURGH – Major world leaders formed themselves into a new board of directors for the global economy Friday, vowing to overhaul lax financial regulations and work harder to control dangerous imbalances that contributed to a financial meltdown.President Barack Obama and the other leaders declared that going forward, their meetings of the Group of 20 nations would be the primary way of coordinating global economic policy. That group will take over the job that had been done for more than three decades by a smaller group of the wealthiest countries known as the G-7 which was expanded late in the last decade to the G-8 to include Russia.The old system of international economic cooperation is over. The new system, as of today, has begun,” declared British Prime Minister Gordon Brown. He said that the G-20, which includes not only developed nations but fast-growing emerging markets such as China, Brazil and India, would become the “premier economic organization for dealing with economic management around the world.”You can read the rest on Yahoo news. It’s the same old rubbish from the G-20 banks.We’re in a situation now where:* The US housing market is still collapsing (just as it should be doing!)* Major central banks (USA, Japan, UK) are pouring out liquidity at near-zero interest rates* A huge new volume of carry trades based on the US dollar is growing rapidly* A gigantic overhead of financial derivatives have been neogiatated on the foundation of an insolvent Western banking system* Everyone – and his dog – realizes that the US dollar is dead as the world’s reserve currencyBut does the G-20 have the guts to go after any of these issues???Heck NO.You know what the fundamental flaw in the whole G-20 arrangement is? These banks have got NO IDEA where the global economic system will be in 20 years. Exactly how should the GDP of China compare to the GDP of the USA … twenty years from now? How exactly should the yen be valued against the dollar and the euro in another two decades? No-one has got the foggiest notion. So the G-20 keeps trying to inch forwards using outdated policies that cannot possibly work.That is their problem in a nutshell – how do you manage a transition to a new global economy, when you’ve got no idea where the final ending point will be? Answer … you can’t.PeteCA

The AlarmistSeptember 28th, 2009 at 9:13 am

If ever there was a case to be made for ‘outside’ directors, it would be the first line of the article above.

NoviceSeptember 25th, 2009 at 3:02 pm

They’re still playing monopoly, they’ve just invited a few more to join that’s all- same game more players

wethepeepleSeptember 25th, 2009 at 3:06 pm

The Myth of Federal Reserve IndependenceOne main argument spouted repeatedly by Federal Reserve apologists is that it must ‘remain’ independent of politicising monetary policy. Bullshit! Here is just one stone at that glass house. Let’s talk about the massive lobbying effort (i.e. payola) of Wall Street in Washington throughout the history of U.S. Central banking. The Federal Reserve’s member banks including the largest banks are also the primary dealers of government securities including our national debt via the U.S. Treasury. Can anyone with a straight face tell the American public that this cartel is independent of peddaling influence and favor through lobbyists to the Congress and Senate? Independence is a two way street, either you don’t want to give the transparency and are willing to eliminate all lobbying efforts including political donations to any member or the House or Senate or PAC, or you want to influence lawmakers and will gladly submit to independent, regular and full audits. The Federal Reserve and its propaganda machine cannot on one hand beg for independence and with the other hand line the pockets of weak law makers who craft or uncraft legislation that protects the Federal Reserve and the banking industry, or does not enforce laws currently on the books designed to protect investors, depositors, consumers against the cartel. To earn independence is to practice independence! The Federal Reserve cannot have it both ways!

kilgoresSeptember 25th, 2009 at 7:29 pm

The problem I see with wethepeople’s comment is that they conflate, directly or indirectly, the Federal Reserve Board of Governors, the Federal Open Market Committee, the Federal Reserve Banks, and the private member banks of the Federal Reserve System. The Fed is basically transparent, with certain statutory exceptions that relate to its exercise of monetary policy. The Fed is NOT transparent or subject to audit with respect to those exceptions because that would politicize monetary policy.Being transparent and exercising lobbying opportunities are two different issues. The private members banks are subject to extensive federal regulation and transparency, but that doesn’t mean they can’t lobby the federal government. As long as corporations, state and local governments, and other entities are allowed to lobby the federal government, I don’t see why banks and the Board of Governors of the Fed itself should not be entitled to lobby as well. Cities and counties lobby state legislatures and the Congress all the time, as do state judicial divisions and state agencies. This is not unusual in the least, and has nothing to do with the issue of transparency of operations and finances of those bodies.Now, personally, I think lobbying should be left to natural persons. I don’t think banks or any other for-profit corporations or not-for-profits owned by for-profit corporations should have a right to lobby members of Congress or to spend money towards their campaigns or to express “opinions” for or against candidates or issues. If Jamie Diamond wants to lobby personally for bank concessions, fine, but his banking empire should not be able to hire lobbyists and throw money at politicians to influence financial regulations.SWK

wethepeepleSeptember 25th, 2009 at 8:12 pm

The Federal Reserve politicizes (via its’ member’s lobbying efforts)the monetary system, but doesn’t want monetary policy to be politicized? That is absolute bullshit. Independence means free from influence, not free to influence without accountability.”Basically transparent”? Either its transparent or its not, no propaganda doublespeak.Any agent, direct or indirect of the U.S. Government, must be held accountable to the people, or we lose our democratic principals. If we allow the Federal Reserve to remain unaccountable politically, we cannot exercise our right to displace a ruling elite or tyranny. Those who so easily and willingly give up our rights to “throw the rascals out” do an injustice to democracy.What is more important the independence of a private banking cartel or the independence of American people?As long as the American taxpayers are de facto underwriters of financial institutions the definition of independence will be defined by us and not the Federal Reserve or its’ member banks, or their apologists.The idea of the Federal Reserve wanting independent monetary policy in order to best fight inflation, has proven to be totally without merit. The Fed and its member banks with fractional reserve deposit lending have done a terrible job of preserving the purchasing power of the dollar since 1913. They alone are responsible for inflation as they are the only entity creating bank credit otherwise known as money.

kilgoresSeptember 25th, 2009 at 9:38 pm

First, again, you are conflating the Board of Governors and the members. Monetary policy is made by the Board and the FOMC, not the members or their lobbyists or Congress.Second, pure independence doesn’t exist for you, for me, for the Fed, for Congress, for the banks, or for anyone, my friend. We are INTERdependent. The Fed will never be completely free from influence, nor should it. It is accountable to Congress, but Congress can’t directly dictate monetary policy to it. It is quasi-independent, and quasi-governmental.The world is not black and white. It’s not a question of being either transparent or not. The FEd is, by and large, transparent, but for monetary policy decisions, and that’s to keep the politics out.Your rhetorical question presents a false choice. We don’t have to choose between an independent banking “cartel” and the independence of the American people.I am an American taxpayer, and I disagree with your “definition of independence.” So where does that leave us?The Fed’s independence generally has served this country well since the inception of the Fed. I don’t want Congress or the President making monetary policy based on whether Democrats, Republicans, Libertarians, Greens, or anyone else are in charge.Fractional reserve deposit lending is something you apparently don’t understand, either. What do you want? A gold standard based on 100% reserves? Even then, money is not a fixed quantity, but varies continuously with the level of commercial activity and the amount of gold available in the world. This created a great deal of mischief before the Fed was created in 1913.Please quit shouting out “bullshit” at anything one says with which you happen to disagree. Just give your arguments, please.SWK

FAMCSeptember 25th, 2009 at 9:08 pm

The case against the FED:By far the most secret and least accountable operation of the federal government is not, as one might expect,the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities. It istrue that the committee hearings and activities are closed to the public; but at least the people’s representatives in Congressinsure some accountability for these secret agencies.It is little known, however, that there is a federal agency that tops the others in secrecy by a country mile. The Federal Reserve System is accountable to no one; it has no budget; itis subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation’s vital monetarysystem, is accountable to nobody—and this strangesituation, if acknowledged at all, is invariably trumpeted as a virtue.Thus, when the first Democratic president in over a decade was inaugurated in 1993, the maverick and venerable Democratic Chairman of the House Banking Committee, Texan Henry B. Gonzalez, optimistically introduced some of his favorite projects for opening up the Fed to public scrutiny. His proposals seemed mild; he did not call for fullfledged Congressional control of the Fed’s budget. The Gonzalez bill required full independent audits of the Fed’s operations; videotaping the meetings of the Fed’s policymaking committee; and releasing detailed minutes of the policy meetings within a week, rather than the Fed being allowed, as it is now, to issue vague summaries of its decisionssix weeks later. In addition, the presidents of the twelve regional Federal Reserve Banks would be chosen by the president of the United States rather than, as they are now, by the commercial banks of the respective regions.It was to be expected that Fed Chairman Alan Greenspan would strongly resist any such proposals. After all, it is in the nature of bureaucrats to resist any encroachment on theirunbridled power. Seemingly more surprising was the rejection of the Gonzalez plan by President Clinton, whose power, after all, would be enhanced by the measure. The Gonzalezreforms, the President declared, “run the risk of undermining market confidence in the Fed.”On the face of it, this presidential reaction, though traditional among chief executives, is rather puzzling. After all, doesn’t a democracy depend upon the right of the people toknow what is going on in the government for which they must vote? Wouldn’t knowledge and full disclosure strengthen the faith of the American public in their monetary authorities? Whyshould public knowledge “undermine market confidence”?Why does “market confidence” depend on assuring far less public scrutiny than is accorded keepers of military secrets that might benefit foreign enemies? What is going on here?The standard reply of the Fed and its partisans is that any such measures, however marginal, would encroach on the Fed’s “independence from politics/’ which is invoked as a kind of self-evident absolute. The monetary system ishighly important, it is claimed, and therefore the Fed must enjoy absolute independence.”Independent of politics” has a nice, neat ring to it, and has been a staple of proposals for bureaucratic intervention and power ever since the Progressive Era. Sweeping the streets; control of seaports; regulation of industry; providing social security; these and many other functions of government are held to be “too important” to be subject to the vagaries of political whims. But it is one thing to say thatprivate, or market, activities should be free of government control, and “independent of politics” in that sense. But these are government agencies and operations we are talking about,and to say that government should be “independent of politics” conveys very different implications. For government, unlike private industry on the market, is not accountable either to stockholders or consumers. Government can only be accountable to the public and to its representatives in thelegislature; and if government becomes “independent of politics” it can only mean that that sphere of government becomes an absolute self-perpetuating oligarchy, accountableto no one and never subject to the public’s ability to change its personnel or to “throw the rascals out.” If no person or group, whether stockholders or voters, can displacea ruling elite, then such an elite becomes more suitable for a dictatorship than for an allegedly democratic country.And yet it is curious how many self-proclaimed champions of “democracy,” whether domestic or global, rush to defend the alleged ideal of the total independence of the Federal Reserve.Representative Barney Frank (D., Mass.), a co-sponsor of the Gonzalez bill, points out that “if you take the principles that people are talking about nowadays,” such as “reforminggovernment and opening up government—the Fed violates it more than any other branch of government.” On what basis, then, should the vaunted “principle” of an independentFed be maintained?

Average JaneSeptember 25th, 2009 at 10:00 pm

FAMC, I just couldn’t help but think as I was reading through your remarks how many of them applied to Dick Cheney, our former VP. /wry smile/

FAMCSeptember 25th, 2009 at 10:11 pm

Perhaps you are right but this does not mean that Fractional Banking is a good thing.——————–Other examples of “here to stay”:1) “No, not even God could sink the Titanic”2) USSR (CCCP) 1917-1990

Little SaverSeptember 26th, 2009 at 1:51 am

Thomas E. Woods, Jr. Testimony in Support of HR 1207, The Federal Reserve Transparency Act of 2009 before the House Financial Services Committee, September 25, 2009.I am speaking this morning in support of HR 1207, the Federal Reserve Transparency Act. As the Committee knows, this bill would require a full audit of the Federal Reserve by the Government Accountability Office (GAO).On November 10, 2008, Bloomberg News ran the following headline: “Fed Defies Transparency Aim in Refusal to Disclose.” The story pointed out that the Fed was refusing to identify the recipients of trillions of dollars in emergency loans or the dubious assets the central bank was accepting as collateral. When the initial $700 billion congressional bailout was being debated last September, Fed chairman Ben Bernanke and then-Secretary of the Treasury Hank Paulson couldn’t emphasize their commitment to transparency strongly enough. But “two months later, as the Fed [lent] far more than that in separate rescue programs that didn’t require approval by Congress, Americans [had] no idea where their money [was] going or what securities the banks [were] pledging in return.”There is no good reason for Americans not to know the recipients of the Fed’s emergency lending facilities. There is no good reason for them to be kept in the dark about the Fed’s arrangements with foreign central banks. These things affect the quality of the money that our system obliges the American public to accept.Perhaps the most frequent of the claims is that a genuine audit would jeopardize the alleged independence of the Fed. Congress could come to influence or even dictate monetary policy.This is a red herring. The bill is not designed to empower politicians to increase the money supply, choose interest-rate targets, or adopt any of the rest of the Fed’s central planning apparatus, all of which is better left to the free market than to the Fed or Congress. It seeks nothing more than to open the Fed’s books to public scrutiny. Congress has a moral and legal obligation to oversee institutions it brings into existence. The convoluted scenarios by which merely opening the books will lead to an inflationary catastrophe at the hands of Congress are difficult to take seriously.Moreover, try to imagine a Fed chairman doggedly seeking to maintain the value of the dollar even if it meant refusing to monetize a massive deficit to fight a war or “stimulate” a depressed economy. It is not possible.If there is any truth to the idea of Fed independence, it lay in precisely this: the Fed may reward favored friends and constituencies with trillions of dollars in various kinds of assistance, while keeping the public completely in the dark. If that is the independence we’re talking about, no self-respecting American would hesitate for a moment to challenge it.Opponents of HR 1207 have sometimes tried to claim that the Fed is already adequately audited. If this were true, why is the Fed in panic mode over this bill? It is the broad areas these audits exclude that the American public is increasingly interested in investigating, and these are the gaps that HR 1207 seeks to fill.My point is simply this: if our monetary system were really as strong, robust, and beyond criticism as its cheerleaders claim, why does it need to rely so heavily on public ignorance? How can it be a sound banking system that depends on keeping the public in the dark about the condition of its financial institutions?Let me also make clear that supporters of this legislation are strongly opposed to a watered-down version of the bill – which, incidentally, would only increase public suspicion that someone is hiding something.If the Federal Reserve Transparency Act passes and the audit takes place, the American people will have achieved a great victory. If the legislation fails, more and more Americans will begin to wonder what the Fed could be so anxious to keep hidden, and the pressure for transparency will simply intensify. A recent poll finds 75 percent of Americans already in favor of auditing the Fed. The writing is on the wall.At the same time, as we hear this objection repeated time and again, we might wonder just how independent the Fed really is, what with its chairman up for reappointment by the president every four years. Have these critics never heard of the political business cycle? Fed chairmen have been known to ingratiate themselves into the president’s favor close to election time by means of loose monetary policy and the false (and temporary) prosperity it brings about. Let us not insult Americans’ intelligence by pretending this phenomenon does not exist.The Fed enjoys a government-granted monopoly on the creation of legal-tender money. It is not an unreasonable imposition for Americans to demand to know about the activities of such an institution.It is common sense.

wethepeepleSeptember 26th, 2009 at 11:14 am


kilgoresSeptember 26th, 2009 at 12:09 pm

>CREATING…MONEY IS A GOVERNMENT FUNCTION CURRENTLY AND TEMPORARILY GIVEN TO THE FEDERAL RESERVE AS A PRIVILEGE. THAT PRIVILEGE NEEDS REVIEW, ACCOUNTABILITY BY THE AMERICAN PEOPLE.I generally agree. Not sure I would characterize it as a “privilege,” however, and I believe there is already sufficient review and accountability of the Fed through Congressional oversight and by way of the various audits that are already conducted each year.SWK

FAMCSeptember 26th, 2009 at 2:38 pm

My case against central banking is summarized by this excerpt (Rothbard):The first producers or holders of the new money will find their stock increasing before very many of their buying prices have risen. But,as we go down the list, and more and more prices rise, the people who get the money at the end of the process find that they lose from the inflation. Their buying prices have all risen before their own incomes have had a chance to benefit from the new money. And some people will never get the new money at all:either because the ripple stopped, or because they have fixed incomes—from salaries or bond yields, or as pensioners or holders of annuities.”If you expanded money supply by 2% as Friedman’s (“Laptop Computer”) had suggested the effect would not be so bad (if you consider population growth and productivity increase) – only a “small counterfeiting” as M0,M1… keep expanding,but what Ben “Rudolf Havenstein” has done is a massive transfer of wealth from taxpayers and dollar holders to TBTF institutions.

FAMCSeptember 25th, 2009 at 4:28 pm

CNBC: Banks Made $5.2 Billion From Derivatives in 2nd Quarter25 Sep 2009 | 1:20 PM ET Text Size”U.S. commercial banks earned $5.2 billion trading derivatives in the second quarter, as the level of risk eased in the global market for the complex financial instruments, according to a government report released Friday.Derivatives, traded in an unregulated $600 trillion market, were partly blamed for the financial crisis that ignited a year ago. ….”——————————Easy to make huge money with the support of printed money (hidden tax on everyone that uses dollars), Or not??———————-Remember President Andrew Jackson:”I have always been afraid of banks.””I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country.””I weep for the liberty of my country when I see at this early day of its successful experiment that corruption has been imputed to many members of the House of Representatives, and the rights of the people have been bartered for promises of office.””It is to be regretted that the rich and powerful too often bend the acts of government to their own selfish purposes. “”The bold effort the present (central) bank had made to control the government … are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.””You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.””To the victors belong the spoils.”As you know:Richard Lawrence that tried to kill Jackson told the he had recently lost his job painting houses and claimed that with the President dead, “money would be more plenty” (a reference to Jackson’s struggle with the Bank of the United States) and that he “could not rise until the President fell.”

GuestSeptember 26th, 2009 at 2:17 am

Gee, why didn’t they use this on the Tea Baggers? Oh wait, the Tea Baggers were organised to oppose democratic reforms.

AnonymousSeptember 26th, 2009 at 4:19 am

“nice” way of obfuscationi like it how you “try” relate it to tea baggers…oppose democratic reforms??like what “more regulations” for the banksG your kind are a dying breedprepare for thunderstorm that’s bout to come…

The AlarmistSeptember 28th, 2009 at 9:16 am

Because the TeaParty’ers were an angry but peaceful mob and for the most part cleaned up after themselves, in total contrast to the ‘peace-loving’ and ‘gentle’ lefty crowd protesting the G20.

Guest ZSeptember 26th, 2009 at 8:25 am

And in Honduras, that same weapon is being used by the golpistas against the Brazilian embassy, inside of which building President Zelaya is being sheltered.International incident. The coup-clowns are also using chemical weapons against those inside that embassy. What will the United Nations do about this?

Guest ZSeptember 26th, 2009 at 9:50 pm

What doeswho does or doesn’t support Zelayahave to dowith the fact that an illegitimate military coup regime has now used weapons to attack a sovereign nation’s embassy??

GuestSeptember 27th, 2009 at 1:40 pm

Chavez only complicates the situation.As you know Chavez founded the left-wing Fifth Republic Movementafter orchestrating a failed 1992 coup d’état againstformer President Carlos Andrés Pérez.

Guest ZSeptember 27th, 2009 at 8:55 pm

@ Guest 13:40:51. That would be, as you know, neoliberal President Carlos Andrés Pérez – who was impeached a year later on grounds of corruption.

PeterJBSeptember 26th, 2009 at 7:24 am

“‘fires’, guns, ‘nailguns’, and ‘stones’ are simple objects just as “money” and therefore your statements are flawed and invalid.”@ Guest on 2009-09-24 06:49:16Mr Guest: May I suggest that you should be right in your assessment that “money” is a simple object, and therefore, murderers, killers, policemen, builders, pyromaniacs, soldiers, etc., etc., all carry a burden of humanity upon their shoulders when dealing with that object or ‘tool’***, whatever, which allows them to effect their impact and responsibilitiesy upon our socio-economic dynamic.But, unfortunately, in the argument and therefore context on “money” because, wait for it, “money” has become an opiate or drug, if you prefer; a religion, a fetish, an object of emotional desire, a focus of endeavour; an habit Mr Higgins; an addiction, a social institution; an International Institution; a political anxiety, an object of greed (avarice), theft, deceit, deception: a religion; a philosophy; a profession, an academic following and more; the overarching worship of peoples of all Nations, upon Nations.Money, alas, is not a craft; it is a medium of exchange; piece of paper and the cheapest of ores, debased to zero and lesser, if possible, in order to cheapen the values of society whilst enhancing the perception of the values of thoughtless and most useless bureaucrats and inept “leadership”, endlessly spun and imposed on an unsuspecting and trusting public which they profess to represents, but never do.So, money has ceased to be an object per se, and has become, not the transactional grease of the mercantile nature of men at work, play and pleasure, but the object of zeal, above all, and at all and any cost, for other facets of social harmony that purportedly brings, er, social prominence, respect, and loyalty to those that steal and accumulate the most.And indeed, as any religion, bastions of battalions of sword yielding lying priests, the ever faithful true believers – have sprung forth with pride, lance and banner to pursue the forceful course of their ideology, albeit yet again, in ignorance and to impose their corrupted superstition on those that should be milked of their energy and courage whilst marching forth to certain death singing Onward Christian Soldiers, onwards to blood, death and glory for “Dear Leader(s)” et al.Therefore unfortunately dear Mr. Guest, Esquire; I believe that your objective belief in, that is to say, “money” as, er, such, an object, has been left behind somewhat, in the practices of some 2 millennium or more. where your “money ” has becomes a well known religion as opposed to being an object.But, I do grant you, that, you should be correct.*** a penis also comes to mind as an object and or “tool”.Ho hum

ChrisLSeptember 26th, 2009 at 8:07 am

Deflation, depression and war.Our leaders, heads of governments, central banks, and largest corporations of the world’s richest nations, know that a depresssion caused by an accelerating deflation of all excess non self liquidating credit accumulated during the 1933-2007 expansionist era, is UNAVOIDABLE.Let me repeat that : our leaders know that a depression is unavoidable.All attempts at trying to reflate our economies have failed : trying to stop and reverse the trend of accelerating deflation of private non selfliquidating credit with an accelerating expansion of public non selfliquidating credit has failed. The keynesian prescription failed.”They” finally know it by now. They finally understand that the more they try to accumulate public non selfliquidating credit to try to stop the contraction of total credit demand, the more people feel they need to save in order to compensate the future tax burden, and the more private self liquidating credit contracts, and that therefore THEY CAN’T DO ANYTHING ABOUT IT : Total Worldwide demand for Credit will eventually collapse: they can only “buy time”, one year, tow years, maybe five, but the supply of money will eventually contract, the immense reverse credit leverage of our phony 20th century selfish megalomania, “negative-reserve” fractional banking, will become the primary fuel for the mother of all deflationary crash : the necessary liquidation of all excess non selfliquidating credit that has gorged our financial system during the last century and help build the richest nations’ false prosperity. Those generations stole from the future, this future is now reality.Now the time will come and our dear leaders will need an outside event, an alibi, a trigger, that will stop them from trying to buy time and precipitate this unavoidable worldwide depression. As always, the resulting choc, fear and anger, and the devastation of our economies will encourage radical politics, and even more centralization of power.It is this dowturn in social moods towards anger and fear that causes this reversal from worldwide expansion of credit to worlwide contraction as well as leads people to want to fight with one another. War and delation are the results of the same cause.Now rests to know what will be this outside event, this trigger, and who will fight another. The results, whatever they are, will define our human development in the century to come.Methinks the most likely fight will involve the richest war-mongering nations (USA, France and UK) against the strongest developing war-mongering nations (China, Russia, India), the fight will most likely be over how to ration oil between them. Anybody who thinks there are enough oil reserves to guarantee the maintenance of our rich nations’ standard of living as well as allow another billion people to obtain that same standard of living within the next 25 years, is a pathological optimist. The most likely trigger will be a rapidly deteriorating crisis over a nation with very large oil reserves. A nation like Iran.But I don’t think this war will necessarily be fought militarily : a trade war seems more likely, and will be as devastating for the world’s economy.

FEDupSeptember 27th, 2009 at 7:14 am

The invasion of Iraq appears to have been a key step along the road of establishing strategic military bases in theMiddle East as well as control of their oil. It is interesting to note that these “over the top missions” are usuallydone under the cover of an “impending catastrophe”(WMDs) when it is much easier to ignore “rules of war” (torture),the democratic process and the “rights of the innocent”. Let’s see how the control of Iraq is leveraged in the nextBIG MOVE towards world control by the elite.

Mr. Guest, Esq.September 26th, 2009 at 8:37 am

“But, I do grant you, that, you should be correct.” And I, in the same vein of gentleman’s debate, will concede that individuals impart emotionality into simple objects. Collectors of all sorts (e.g., gun, stamp, coins, comic books) put themselves in such a position that objects run their lives.I now understand you rationale, I see money “the object” while you see money as as symbol of the power of government to control value of the currency. And returning to the quote:”‘money has no morality’ (correctly) so why would one expect the keepers and manipulators of money to have any morality; or ethics, for that matter?”You can see why I was confused. You did not mean one who holds money, you were referring to the power of government to control value of the currency.PS: The way you, and SWK for that matter, can talk-trash tells me how much you love the game of debate, but it’s not my cup of tea. I apologize for upsetting you.

kilgoresSeptember 26th, 2009 at 12:41 pm

Talk trash? (the hyphen’s not necessary, BTW). What exactly do you mean by that, my learned friend? Are you criticizing what I say, how I say it, or both? Can you give me a couple of examples so I understand what you mean?SWK

blindmanSeptember 26th, 2009 at 10:02 am

speaking of talking trash, bullshit,the real stuff that runs the world, hereis some more. note: due to the conceptualnature of mans symbolic and social orientationembedded in a dynamic and evolving living environmentthe majority , most if not all, individuals canbe, will be, led to believe anything or many thingsthat their own eyes would contradict. the creationof reality has become a big business / religion!again..Evil Speaks – Are We Listening?Of course notby Justin Raimondo, September 16, 2009. bullshit! relative and absolute truth!spy verses spy ( see history of mad magazine )!mind control! delusional perspective based onfalse and poorly prioritized information!lobbyist want to eat your children!girls just want to have fun ( and income )!bullshit! “special interest” law! more bullshit!the power of linear surface surveys and groundpenetrating radar! halls of mirrors!evaporating seas! light from distant objects!emanation vs reflection! ground hog day!poetry and money! overgrown membranes withdecreasing porosity! emphysema! second or thirdparty induced with a rope or bag of some sort!my own mental shoeboxwhere all my thoughts smell of foot or factoryodors! why eternity has been occupied byspyware and other malevolent viral sofwareand hardware!the secret accord of t.v., air conditioningand hot dogs!why all my computer cycles are spent detectingviruses and spyware!digital illusions verses houdini’s hands!ghosts of terrors past! santa clause andmacys! “santa clause is drunk” t.w.! santaclause uses gresian formula 409 and has movedto an undisclosed desert or mountainous location!lost weight and went on dialysis! died but hiselves saved his penis! and stole all his “money”and started their own cult with it, fractionalreserve based of course! sex hazing inductionceremonies mandatory! ( usually no one is”physically” hurt for more than a day or two )!when the hazing is over all bets are off!technology development, war based! for peace!.lesser keywords: understanding! cooperation!simplicity! forgiveness! love! peace! value!truth!. g, somewhere up above…yes, obviously really and totally blind! we havemore in common than we are willing to admit isuspect.

MM CASeptember 26th, 2009 at 11:32 am

more BS reporting… who are these idiots that do the forecating? why is everythign bad unexpected?U.S. Economy: Durable Goods Orders Unexpectedly DropBy Timothy R. Homan and Bob WillisSept. 25 (Bloomberg) — Demand for U.S. durable goods unexpectedly fell in August and sales of new homes rose less than forecast, restraining the pace of the economic recovery.Orders for goods made to last several years dropped 2.4 percent, the biggest decline since January, the Commerce Department said today in Washington. Consumer sentiment improved, a separate report showed.

tutterfrutSeptember 26th, 2009 at 11:58 am

Should be applauded as good news, because it means those goods become more and more durable.Some day some will last for generations again…

blindmanSeptember 26th, 2009 at 12:18 pm

m,opportunity has to be manufactured in a freemarket. the profitable insider selling opportunitieswould best be served by proper pump, media,functioning as it does. (b.s.) if reporting was more “rational” or risk informed the pump part of pump and dump would not work at all, destroying the profitable part of insider dumping.deleveraging is being gamed asymmetrically ismy guess. makes me think of what they usedto call “gorilla warfare”, now asymmetric, ithink, but in the fractional, derivative digitaljungle as the pace increases and informationis overloading everything and the processorsnow have the opportunity to lie or manufactureany self serving statement or image and thenmove on to the next round of bullshit as no onehas time to think or integrate anything intoa coherent view. fear. when the insiders havefinished enjoying the dump, the pump willbe turned off…then we will experience the full devaluation ofassets.?

PeteCASeptember 26th, 2009 at 1:32 pm

I have spoken about this before – along with others. We see the first hints now that the economy of Spain is headed into a full-fledged economic depression. Of course, Ireland is going almost right along with Spain. And quite frankly, with the yen soaring … it is hard to imagine that Japan is not headed towards some very hard times in the near future as well.Maybe all that hot air we heard from the G-20 meeting … was really just world leaders trying to put a positive spin on a very bad situation? Headed Into Real Depression?PeteCA

PeterJBSeptember 26th, 2009 at 5:02 pm

” PS: The way you, and SWK for that matter, can talk-trash tells me how much you love the game of debate, but it’s not my cup of tea. I apologize for upsetting you.”@ Mr. Guest, Esq. on 2009-09-26 08:37:52Apology not necessary as you had not upset me at all, whereby you made me critically examine my position in light of your opinion and hence uncover what may be considered a flaw in my general and specific thinking.”Money” is a medium of exchange (or should be)and it is worthless being mainly paper and cheap tin, etc., but we have allowed through our own hand, our society to worship this God and thereby create High Priests, and Higher Priests, “experts”, schools, University, elite groups that create wars, death and destruction it Its name; we have granted to the Holy God of Economics, insane dispensation from being subjected to the scrutiny, examination and analysis of scientific principles and have not only been ignored emphatically, but we have cheered as this pseudo religion termed “economic” has sought its own Temple away from the open phenomenal school of “socio-economics” – while joining into the feeding frenzies, resulting there from, on our fellow man.IOW we have created a massive ideological virus within our midst and have fed it, on our knees, at worship, our values; our children and our souls; it is a faith-based superstition which we have granted the status of Supreme God. As it has been written, ‘it only takes an ideology to create massive destruction of our society’ – I paraphrase. I have previously stated that ideologies as, paradoxes, cannot exist as they are an unfounded product of ignorance at play for domination and control; types of cancer that eat its host until ‘extremis’ is reached – like now.And for @blindman and all that should understand, Adam Smith’s “invisible Hand” is incorrectly named (imo), he should have termed it, ‘the quiet hand’ for it is only sound (sense) that excites all of its harmonics. The French have been known to refer to it as ‘La Force Tranquille’ – please note that it is feminine gender and thereby creative.I don’t write to debate: I write for me and for you to contribute to my learning processes so I thank you for your valued contribution thereto.Ho hum

blindmanSeptember 26th, 2009 at 5:50 pm

pjb,thank you for that statement. you area rare source of clarity and light, i wouldsay an emanation of human sort.if my particular dissonance provides constrastfor the framing or appreciation there of …i say ” oh well “. so be it. and …sense is context dependent and context can bestructured as to make sense appear/seemsenseless / destructive / illegal / insane.’extremis’. absurd / mad etc……… andddd….i should understand a great many things thati struggle with to this day but i do understanda few things that i struggle with to this day……thanks again for your attention in this, stalk, leaves and fruit. the tree, itself,never sees the forest. it only knows it isgrowing among trees. that can be enough.?

PeterJBSeptember 26th, 2009 at 10:11 pm

” the tree, itself,never sees the forest. it only knows it isgrowing among trees.”?Are your so sure that the tree ‘knows’ it is growing among the trees?Every species of life, that is to say, every variety of emergent phenomena, has its own level and type of consciousness cum intelligence in support of its own function and therefore each functional entity contains its own unique time cycle for this necessary functional support. The question then begs: Does the forest of trees have its own cycle of time differentiated from that of any and therefore all, individual trees?The answer is obviously affirmative and the cycle of time of the forest is not identical to that of any tree.This then suggests that the emphasis on faith-based ideologies and the adoption of same as the foundation of the socio-economic evolution of humanity, eg economics as opposed to socio-economics, is self-destructive and thoughtless, irresponsible and a waste of the gifts of life themselves.We are still encapsulated in Plato’s Cave – by voluntary induction.Ho hum

autistic blindmanSeptember 27th, 2009 at 8:55 am

pjb.yes, i’m sure.collapse of a paradigm, economics, forest, what have you, is a functionof its failure to support itself. it outgrows its support starves itself in some way. poisons itself. the whole beingdestructive to the parts or its environment.then a new species of tree eventually emerges slowly from the ground at a time perhaps in proximity or communication with other trees?maybe not? either way the new species will emerge and a new foresttoo but the perspective of the individual consciousness is limitedto it’s position. is all i meant to say.i think in the case of forests and trees the species with themost aggressive and stable root system eventually dominates?that would be the hardwoods mostly and the giant sequoia incertain propitious locals..”We are still encapsulated in Plato’s Cave – by voluntary induction.”.yes. people love the cave, especially if it has a t.v., air conditioning,and pop corn, or a computer and coffee!sorry to report. what will be, we’ll see, but the opportunityto see this paradigm shift occur is here, now.the status quo has become indefensible and unsustainable at its root,main stem, branch, leave and canopy and the resistance to thisobvious fact is becoming more and more ludicrous and the cave shadowshave limited persuasive powers..

GuestSeptember 27th, 2009 at 10:08 am

“yes. people love the cave, especially if it has a t.v., air conditioning,and pop corn, or a computer and coffee!sorry to report. what will be, we’ll see, but the opportunityto see this paradigm shift occur is here”.Seems like you realy are blind-;) PERHAPS you have never been to TURKEY,people still live in caves over there and yes those caves are air conditioned, satellite tv equiped. Perhaps we are frogs in pond to someextent but you my freind are a frog in a bowl. -:)

blindmanSeptember 27th, 2009 at 10:22 am

g,cave in this context is nothing more thana analogous reference. as a domicile i’msure a cave would be a step up for me personally.i am not a “frog” in a bowl but perhaps a”frog” in a pan. or in a shack, or under alog. a log that is on fire and the fireis being fed by “leadership”. never enoughgasoline.

kilgoresSeptember 27th, 2009 at 1:21 pm

Damn. It’s really fine to hear someone who can reference Plato’s Allegory of the Cave in a meaningful way on this blog! 😉 I really wish Florida weren’t quite so far from Aussie-land. I’d love to sit with you over a few Fosters’ and chew the fat. If you get to Tampa, it’s be Ybor Gold or Landshark!SWK

GuestSeptember 26th, 2009 at 6:23 pm dated March 28, 09Soros on price inflation, currency moves and real estate.Shadow inventory explained?From the Author “The recovery phase will bring monetary inflation: the multiplication of the monetary base. That will do the renters of busted businesses no good. It may bail out owners of these properties if they can keep the banks from foreclosing. It’s a race against time.hlowe

GuestSeptember 26th, 2009 at 6:40 pm

Give Americans a bail-out!Eliminate poor credit histories and give them jobs! That will be the real recovery, the news is that the real economy has teetered of the cliff again, and retail sales at stores is collapsing. Back to Feb and March, pumping money and handing it to banks to inflate asset prices hasn’t worked, need to flood the real economy with liquidity. Consumers and banks went on a binge, if banks deserve a second chance, so do the consumers!

gAntonSeptember 26th, 2009 at 6:45 pm

The Show is Over, But The Game Goes OnBubble-Master Bernanke (Big Ben), et al, are telling us that the economic crisis was “probably over”. (Over for whom? Cerainly not for steel workers.) Anyway, all governmental economists were telling us that economically speaking, everything was turning up rosas.Now the governmantal big cheese (Obama) tells us that that we were “on the brink”. “On the brink” of what? That doesn’t sound good to me. But not to worry. Acording to Obama, he G-20 nations have now made promises that have transported us from “the brink” to Nirvana Land.Frankly, I am confused. I am certain that Obama, all his underlings, and his sole superior (Big Ben) are honerable and intelligent men (shades of Antony’s speech in Shakespeare’s “Julius Caeser). But the lead singer seems to be singing one song, and his orchestra and lead vocal support (I assume that Big Ben is a baritone) seem to be playing and singing another.If anyone out there can give me a rational explaination of what’s going on, I would appreciate it.

Little SaverSeptember 27th, 2009 at 1:05 am

Too many invisible hands grabbing in the dark crevices of society, resulting in huge dis-utility effects.The belief in the beneficial invisible hand (Adam Smith, Jeremy Bentham), a fundament of economic theory, is what it is: a belief, not a corroborated fact. The belief in the beneficial invisible hand, the basis for the free market theory, is allowing its preachers to get away with mothers of all deregulations. Invisible grabbing hands’ wet dream.Beware of those claiming invisibility in the name of independence. Fed anyone?Joseph E. Stiglitz on this topic:The reason that the invisible hand often seems invisible is that it is often not there.” Stiglitz explains his position:Adam Smith, the father of modern economics, is often cited as arguing for the “invisible hand” and free markets: firms, in the pursuit of profits, are led, as if by an invisible hand, to do what is best for the world. But unlike his followers, Adam Smith was aware of some of the limitations of free markets, and research since then has further clarified why free markets, by themselves, often do not lead to what is best. As I put it in my new book, Making Globalization Work, the reason that the invisible hand often seems invisible is that it is often not there.Whenever there are “externalities”—where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated—markets will not work well. Some of the important instances have been long understood—environmental externalities. Markets, by themselves, will produce too much pollution. Markets, by themselves, will also produce too little basic research. (Remember, the government was responsible for financing most of the important scientific breakthroughs, including the internet and the first telegraph line, and most of the advances in bio-tech.)But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always.Government plays an important role in banking and securities regulation, and a host of other areas: some regulation is required to make markets work. Government is needed, almost all would agree, at a minimum to enforce contracts and property rights.The real debate today is about finding the right balance between the market and government (and the third “sector”—non-governmental non-profit organizations.) Both are needed. They can each complement each other. This balance will differ from time to time and place to place.

FAMCSeptember 27th, 2009 at 9:55 am

LS,In a general setting we could consider that Invisible Hand have generated ALL what we have now.Men working condidering their self-interest are responsible by FED, communism, wars, etc…But this is not what Adam Smith meant. His boundaries were more constrained and certainlyhe was not thinking about free markets WITH Deposit banks that turned Fractional becauseof the greed of goldsmiths that began to issue more paper certificates than their stored gold.Unfortunately, Courts condsidered (see Foley v. Hill and Others, England , 1848) money depositedon banks a credit and not a bailment (despite the fact that money can be withdrew immediately).So that what we have today is not a free market in the sense of Smith as one of the main variables,the price of money – interest rated is not determined by the market but by discretionary monetarysupply control using the (electronic) printing press of central banks.Therefore the proposed regulation IS NOT a “regulation of a free market” but only the addition of somerules to perpetuate the “printing press-oligarch TBTF based-bubble market”.

Little SaverSeptember 28th, 2009 at 2:26 am

One could say that the invisible hands of TBTF are destroying utility once more. Perhaps, all these destructive forces must receive more attention in economic research. Not that great personal rewards must be expected from that kind of work…

GuestSeptember 27th, 2009 at 9:58 am

Indeed. Insanity has been unleashed on humanity with this anti-intellectual, religious economic vacuousness. Mindless worship of an ‘invisible hand’ has no place in the 21st Century.End-time mentally is sheer insanity! Where is ‘leadership’?

GuestSeptember 26th, 2009 at 7:01 pm

The notion is that if bussinesses will get liquidity, they will come back to prosperity. Unfortunately, it is the American consumer who needs liquidity, as bussiness can get all the liquidity in the world but go bankrupt regardless. The cash for clunkers was a lame idea, it reistricted consumer’s free choice, probably sustained bussiness which will only go bankrupt in the long-term, and punished bussinesses in the short-term which provided the consumers what they needed. There is only one way, give consumers the liquidity and free choice to let productive bussiness survive, and that can be done by eliminating poor credit histories. The idea has got to be not to give bussineses what they need, as it brings and tends an economy towards large-scale distortions, but give the consumer that choice, of what he wants, and what he will be inclined towards in the medium-term, thereby sustaining that which is capitalistic and productive in principle. One way of accomplishing this is by giving the consumer the bail-out he deserves, rather than ben only flying his helicopter filled with US dollars over Goldman Sachs and the big banks only.

ChignosSeptember 26th, 2009 at 11:19 pm

Good grief, if the only way out of this economic depression is to give people created money to spendin order to increase the velocity of created money in order to stimulate the economy in order to getthe whole system created again……………………..then I think we ought to ask a witch doctor to stick a pin in a babboon’s butt and ask him toblow us up a bubble so we can all feel good about out sisters.

ChignosSeptember 28th, 2009 at 8:12 am

Right. We should just bail out everybody……I mean, what are we waiting for?Money for nothing and chicks for free!!!

Octavio RichettaSeptember 27th, 2009 at 6:44 am

As posted above:LB, FT: Many thanks for your posts moderating my extreme, impulsive call.There is no question there is a carry trade on the USD going on right now. It should last at the very least until interest rates start going up. The creation of a new bubble presumably should take a lot longer than the carry trade will last. But bubble creation dynamics are very complex. The US carry trade may be the catalyst that starts the new bubble and then other factors such as herd mentality, take over. In addition, interest rates may go above zero but stay low enough to provide an incentive to keep borrowing, and then selling the USD (i.e., maintain the carry trade alive).No one can really tell what the future will bring. But one thing for sure, the USD carry trade going on now is SIGNIFICANT; and it is propping up the prices of all kinds of risky assets. Just like in previous asset bubbles, head-line inflation may stay low.On deleveraging, this is true in general. But there is a significant number of players including the GSs of the world who did not go broke and are back at the casino playing the leverage game.So bottom line: The US carry trade creating the mother of all bubbles [in the long term] may be an extreme/exaggerated/low probability scenario. But what matters is that the right now, the direction of asset prices is up thanks to the carry trade. And many are trying to make a buck out of it until the music stops – And it looks like there are quite a few more songs in the play list before it does [stop].Bottom line: The US carry trade may not ultimately result in the mother of all bubbles being created. But what matters is that: 1. the direction asset prices are moving right now supports a trend that would result in such a bubble if unstopped; and, 2. one could make a few bucks out of the current situation in the short-medium term at a somehow controlled level of downside risk.BTW, I am up to 40% in high yield quality equities. I added PM, JNJ to my list of holdings (PG, MO, PFE, KFT, PVU, XLU)ECRI’s forecast continues in an upbeat note with increased confidence pitch:

London BankerSeptember 27th, 2009 at 1:18 pm

@ OctavioI always wish you well, my friend. And I am glad that you are propering in the current environment of monetary profligacy.Still, I fear for you. If you can bank 40 percent, perhaps that is enough. The downside risks are growing as the constraints on liquidity become more apparent. Sure the Fed and its cohorts can weave a Daisy Chain, but how strong is it?How much profit is enough? That is the question that separates us from those we decry.

ChrisLSeptember 27th, 2009 at 4:19 pm

Beware with ECRI. We haven’t had this kind of deflationary environment since ECRI has been in business. It’s not at all clear (yet)that ECRI gives you that much visibility.What is a leading indicator in an inflationary environment might be a lagging indicator in a deflationary one. And vice versa.

Free TibetSeptember 27th, 2009 at 5:18 pm

Octavio, I very much agree with LB. The downside risks are growing. These markets are manipulated and unsustainably so. And the manipulation is all about taking your money. When the music stops it will stop in the middle of a phrase and you will be caught off sides. That said, it’s not more wrong for you to be trading these markets than for the Amish to keep farming until the second coming. It’s your decision. Still, asset allocation is more important now than ever. This is a speculative market. Ok for your speculative funds. But keep something under the mattress.For my part, I’m as far out of this as I can get and won’t be going back.

Free TibetSeptember 27th, 2009 at 5:25 pm

actually, OR, that’s a conservative portfolio. if there is a tomorrow those companies will be part of it.

GuestSeptember 27th, 2009 at 8:33 am

1)The OTC derivatives market has an inherent capacity to BYPASS ALL GLOBAL FINANCIAL REGULATIONS. This concept is not properly being communicated to the American people. This is the key concept that sets the stage for a global systemic risk meltdown. Think of Derivatives as “Transformers” that are engineered to morpharound all the global financial laws. Total deregulation of the World Financial System has been in existence for years, but only the Quantitive Financial Community isprivy to details. Knowledge is power, and the Quants and their Investment Bank Masters derive great power from this condition.2)The second problem is that the Fed has now engineered a “DOLLAR CARRY TRADE BUBBLE” that is very dangerous. For the last 19 years we have had a “Yen Carry Trade”in borrowing cheap in Yen and investing in higher yield instruments with the money. The Japanese Perpetual Recession, the demographic stability, and the Japanese character of Economic Thrift made this Carry Trade rather predictable in “currency risk”. The worse that could happen was that as risk aversion was triggered in the global markets and the speculators knew the Yen would go up in value, they would sell equities and bonds to buy enough cheaper yen to pay offf the debts as cheap as possible. This sometimes lead to correlated sell-offs in stock markets. However the new condition allowed by the Fed in financing our debt with short term treasuryinstruments and therefore driving the investment yield to near zero on short term treasuries has created a Dollar Carry Trade that has a higher spread than its Yencounterpart.Why is this dangerous? The dollar is the reserve currency of the World and is also the currency of the country that provides a geopolitical military umbrella to the restof the World of Commerce. The dollar usually appreciates when there is a geopolical event that accents the military power of the US over all energy assets and naturalresources. The “CURRENCY RISK” of the “dollar carry trade” is potentially much higher and the fluctuations could be much more severe. The only ones that could profit from such a volitile environment are the Investment Banks that have inside Geopolitical Information, and this leads us to THE ULTIMATE CONFLICT OF INTEREST.The Investment Banks have so much control regardless of which administration is in control, and THEIR INTERESTS CONFLICT with the interests of the American People. The probability of Geopolitical Conflict is now greater, because the Investment Banks are in the unique position of having enough ex-employee alumni in the corridors of power to give them an edge in profiting from a geopolitical event. THE POTENTIAL TO PROFIT FROM GEOPOLITICAL EVENTS HAS BEEN INCREASEDEXPONENTIALLY because the dollar carry trade is much more manipulable by military and geopolitical events. This hightens the probability of a WWW III event.The more intense the crisis, the more profitable the shorting opportunity with leverage. I can imagine the investment banks shorting their own clients as the dollarunexpectedly rises due to a severe geopolitical event. WHERE THERE IS THE POTENTIAL FOR MONEY,”THERE WILL BE BLOOD”.(stole it from a movie)

London BankerSeptember 28th, 2009 at 12:09 pm

The Dollar Carry Trade Bubble is inherently deflationary, just as the Yen Carry Trade Bubble was deflationary (for Japan). ZIRP makes it impossible for investors to achieve a reasonable risk adjusted return in the same country as the borrowing, leading them to sell the borrowed currency to invest somewhere with higher rates of return. The dollar weakens, velocity plummets, lending is constrained even further, and the economy continues down the path of contraction to deflation.This must be what the Fed wants, because these principles have been understood since Walter Bagehot first wrote them out in Lombard Street.

AnonymousSeptember 28th, 2009 at 3:48 pm

Hi LB – long time follower – I’ve seen you posting over at ZeroHedge as well – any chance that you will be reactivating your blog or at least publishing an article at some point?Separately I am a bit confused with your comment about a Dollar Carry Trade Bubble that you reference just above my post here and your comment earlier on that “I don’t agree that we are in for a huge dollar carry trade bubble ” (maybe someone else could weigh in on this as well.)Thanks

London BankerSeptember 29th, 2009 at 1:11 am

@ AnonymousSee reply downthread. I thought you were Hayes, so replied to his posting of your comment below.

MM CASeptember 27th, 2009 at 10:22 am

Excellent report on NO JOBS!Another Reason We Won’t Have A V-Shaped Recovery: NO JOBS! Blodget|Sep. 27, 2009, 10:17 AM | 211 |4In order for the U.S. economy to go roaring right back to the 3%-4% long-term growth the bulls are looking for, consumer spending will have to rebound.Consumer spending is still 70%+ of the economy, and it’s hard to get a supertanker cruising along at top speed if 70% of its power is removed.In order for consumer spending to come roaring back, however, one critical thing has to happen:Consumers have to be employedIf consumers don’t have jobs, they don’t have much disposable income. They also can’t borrow as easily (because, at least temporarily, banks have decided not to be stupid). And if consumers aren’t employed, companies that sell to them can’t grow as quickly, which affects the other 30% of the economy.And how is consumer employment going? Badly.The unemployment rate is now nearing the post-war peak of just over 10%. Yes, the unemployment rate is a lagging indicator–in part because it doesn’t count unemployed people who have given up looking for a job. (As a recovery begins, these folks start looking for jobs, so the ranks of “unemployed” as defined by the BLS suddenly swells). But the rate is high enough that, unless it drops sharply, it’s hard to see where the disposable income necessary to drive strong consumer spending growth (and borrowing capacity) is going to come from.In the recession of the early 1980s, the unemployment rate dropped quickly in the beginning of the recovery. In the two more recent recessions, however, it did not.The bulls say we’ll have a sharp recovery this time because the rate of jobs recovery matches the rate of decline: Panicked employers cut too many jobs and now they’ll have to hire them back. Anything is possible, but this bullish argument does not explain how the job market will rapidly absorb the huge amount of slack that is not reflected in the unemployment rate. It also does not explain how companies will rapidly increase their payrolls when they’re selling to consumers that are hunkering down and trying to rebuild savings.Specifically:A record-low work-week suggests that employers have a lot of room to ramp production without hiring new employees (or old ones back). David Rosenberg estimates that just increasing the work-week back to normal levels will be the same as creating 3 million jobs.Consumers still have debt coming out of their ears (consumers are customers of most of the companies that need to start hiring)Consumers’ wealth has been clobbered, so they need to start saving instead of spending again (ditto)Approximately 4 million jobs in finance, construction, and real-estate are gone for good (or at least a while)Getting the unemployment rate back to 5% in 5 years would require average monthly job creation of 250,000. The average for the major boom of the 1990s was 150,000. The average for the past 30 years has been about 50,000.The number of job openings to unemployed job-seekers has now hit a record high of 1-to-6. So it will be a long time before we get back to normal on this ratio, let alone create a job-seekers’ market.Peter Goodman of the New York Times takes a close look at the latter problem. His conclusions are presented quickly in the chart at right. Click here to see a bigger version and read the whole article.During the last recession, in 2001, the number of jobless people reached little more than double the number of full-time job openings, according to the Labor Department data. By the beginning of this year, job seekers outnumbered jobs four-to-one, with the ratio growing ever more lopsided in recent months. [It’s now 6-to-1]Though layoffs have been both severe and prominent, the greatest source of distress is a predilection against hiring by many American businesses…Shrinking job opportunities have assailed virtually every industry this year. Since the end of 2008, job openings have diminished 47 percent in manufacturing, 37 percent in construction and 22 percent in retail. Even in education and health services — faster-growing areas in which many unemployed people have trained for new careers — job openings have dropped 21 percent this year. Despite the passage of a stimulus spending package aimed at shoring up state and local coffers, government job openings have diminished 17 percent this year. (Read the whole thing >)To understand why it’s unlikely that employment will come roaring right back, it also helps to dig into the unemployment statistics. In his weekly email letter, John Mauldin dissects the job numbers to show what is really going on.John calculates the number of jobs we’ll need to get back to a 5% unemployment rate (15 million) and asks where those jobs are going to come from. He also observes that, to get to 5% unemployment in 5 years, we’ll need to average 250,000 new jobs every month. The average has never been this high, even in a strong economy.The average job creation over the past 30 years is 50,000 jobs a month. The average job creation from 1991 to 2000 (a major boom) was 150,000 jobs a month. The average in 2006, the best year in the recent boom, was 232,000.You can read John’s whole letter, email it to others, and sign up for free delivery here. We’ve included an excerpt below.John starts with a look back at the recent recessions.[T]he unemployment rate is now officially at 9.7%. We are approaching the official high we last saw at the end of the double-dip1982 recession. In the chart below, notice that unemployment rose throughout 1980 and then began to decline, before rising rapidly as the economy entered the second recession within two years. Also notice the rapid drop in unemployment following that recession, as opposed to the recessions of 1991-92 and 2001-02, which have been characterized as jobless recoveries. Unemployment was as low as 3.8% in 2000 and saw a cycle low of 4.4% in early 2007…This headline unemployment number (9.7%) is what we see when we read the paper. What we typically don’t see is the real number of unemployed. For instance, if you have not actively looked for a job in the last four weeks, even if you would like one, you are not counted as unemployed. You are called a “marginally attached” or “discouraged” worker. Often there are very good reasons for this. You could be sick, dealing with a family emergency, going back to school, or not have transportation.Right now, about one-third of marginally attached workers actively want jobs but have not bothered to look because they believe there are no jobs in their area, at least not for them. If you add that extra 758,000 to the unemployment data, you get what is called U-4 unemployment, which today is 10.2%. If you count all marginally attached workers the unemployment number is 11% (U-5 unemployment).And if you add those who are employed part-time for economic reasons (i.e., they can’t get full-time jobs) the unemployment number rises to 16.8%. (That is called U-6 unemployment.)Now, stay with me for the next two tables taken directly from the BLS website. The first is the total number of people in the US civilian work force. Notice how each year the number of potential workers rises. In fact, the number of workers has risen by about 15 million over the last ten years. This is from population growth and from immigration. Also notice that the normal rise did not happen last year. That is because the number of discouraged workers has risen rapidly and, as noted above, they are not counted. We will revisit this point later. But for now, there are 154,577,000 people in the available work force.Next we look at the tables for the actual level of employment. Here we note that we are down almost 8 million jobs sincd the onset of this recession, and that there are almost 15 million people unemployed.Going back to the part-time workers, there are roughly 9 million people who are working part-time because of business conditions, or those are the only jobs they could find. The average work week is at an all-time low of 33 hours. The chart below is from my friend David Rosenberg.David wrote in a special report today:”What does all this mean? It means that when the economy does begin to recover, when we finally get to the other side of the mountain, companies are going to raise their labour input first by lifting the workweek from its record low. Just to get back to the pre-recession level of 33.8 hours would be equivalent to hiring three million workers. And, the record number of people working part-time against their will are going to be pushed back into full-time, which will be great news for them, but not so great news for the 125,000 – 150,000 new entrants into the labour market every month. They won’t have it so easy because employers are going to tap their existing under-utilized resources first since that is common sense. Also keep in mind that there are at least four million jobs in retail, financial, construction and manufacturing jobs lost this cycle that are likely not coming back. In fact, the number of unemployed who were let go for permanent reasons as opposed to temporary layoff rose by more than five million this cycle. This compares to the 1.2 million increase in the 2001 tech-led recession and in the 1990-91 housing-led recession (when Ross Perot talked about the sucking sound of jobs into Mexico).”Then there is the matter of average weekly earnings. If you adjust for inflation, workers are making roughly what they did in 1980. The chart is straight from the BLS website.And What We Don’t SeeThose are the facts. Now it’s time to look at what we don’t see, and what you don’t read or hear from the mainstream media.We saw above that we are adding about 1.5 million workers to the workplace every year. That means over the next five years we are going to need 7.5 million jobs just to maintain that growth, or about 125,000 a month. That is on the low side of what economists normally estimate, which is around 150,000 per month. If we used the 150,000 estimate, it would mean we need 9 million jobs.There are at least 1 million (and probably more like 2 million) discouraged workers who would take jobs if the economy got better. You can derive that number by going back to early 2007 and seeing the level of discouraged workers. That means, by the end of 2014 we are going to have 163 million people in the work force (see table above).Today we have 139.6 million jobs, and that number is likely to slip at least another half million (last month the economy lost 216,000 jobs, with a very suspicious birth-death ratio accounting for a lot of job creation). So let’s call it 139 million current jobs.Let’s assume that we would like to get back to a 5% unemployment rate. That would not be stellar, but it would certainly be better than where we are today. Five percent unemployment in late 2014 will mean 8.1 million unemployed. To get to 5% unemployment we will have to create 14 million jobs in the five years from 2010-2014. (163 million in labor pool minus 8 million unemployed is 155 million jobs. We now have 139 million jobs, so the difference is roughly 15 million.) Plus the equivalent of 3 million jobs that Rosenberg estimates, just to get back to an average work week. And maybe the extra 1.5 million a year I mentioned above.But let’s ignore those latter jobs and round it off to 15 million. Let’s hope that by the beginning of next year we stop losing jobs. That means that to get back to 5% unemployment within five years we need to see, on average, the creation of 250,000 jobs per month. As an AVERAGE!!!!!Look at the table below. It is the number of jobs added or lost for the last ten years. Do you see a year that averaged 250,000? No.If you take the best year, which was 2006, you get an average monthly growth of 232,000. If you average the ten years from 1999, you get average monthly job growth of 50,000. If you take the average job growth from 1989 until now, you get an average of 91,000 a month. If you take the best ten years I could find, which would be 1991-2000, the average is still only 150,000. That is a long way from 250,000.Want to get back to 4%? Add another 25,000 jobs a month to 2006.Let’s jump forward to next September. We will need at least 1.5 million jobs to take into account growth in the population. Plus another half million jobs that we are likely to lose before we start to grow again. What is the likelihood of average job growth of 160,000 a month? Anyone want to take the “overs” bet?Go back to 2003, the year after the end of the last recession. A few hundred thousand jobs were created. Why so slow? Because employers gave more time to those who were already employed and to part-time workers. Because of the near-certain loss of jobs for the next few months and the slow recovery, it is a very real possibility that unemployment will still be well over 10% a year from now.Even with robust growth of 200,000 jobs a month thereafter for the next two years, unemployment will still be close to or over 9%. That would only be an additional 1.8 million jobs (making the most optimistic assumptions) over the new jobs needed for population growth.

GuestSeptember 27th, 2009 at 10:25 am

Merkel centre-right hopes at risk as Germans voteThe vote was taking place amid heightened security. Authorities have placed heavily armed police at airports and trainstations after several al Qaeda videos last week threatened Germany with a “rude awakening” if voters back a governmentthat keeps troops in Afghanistan.Some 4,200 German soldiers are stationed there as part of a NATO-led force and all the main parties support the deployment,except the far-left “Linke,” or Left party.The election also comes at a crucial time for the German economy, which is just emerging from its deepest recession of thepost-war era. like now every governament in the world is following the US model of FEAR Politics to win elections.Who says we don’t export anything.

autistic blindmanSeptember 27th, 2009 at 11:38 am

g,the media blitz is ramping up. it is palpable.and phony. palpably phony.this is media mind control in full force, divertingattention and energy away from the factsthat have become obvious to everyone payingattention. it has all been said over and overand the media just continues to roll out thefear of the innocuous while dismissing the horror,of zombie like leadership and systemic rot.necromantic war mongersfeeding fear to their children for lack of human decency.where is the triage tent i used to here somuch about? i guess the butcher stole the stakes tofeed the zombies.

GuestSeptember 27th, 2009 at 10:48 am

Employment (not the rate, but the actual number of jobs crated) only relatively recently became a lagging indicator. Since the 80’s consumer spending did not suffer drastically due to unemployment because even the unemployed continued to borrow and spend. That option is not available currently. Consumer spending and unemployment are now linked in a downward spiral.

ChrisLSeptember 27th, 2009 at 4:07 pm

Of course, because the default rate never went parabolic (at least not since the greate depression). So from now on, the more debt we pile on, the more we will default (whether public or private by the way, as households are responsible for ALL liabilities). That’s why deflation of total credit is unavoidable. It can’t grow beyond the current limit of 350% of GDP, however fast we try to grow government debt and other public liabilities, the faster private debt will decrease.So the longer we’ll take to liquidate something like 150% of GDP worth of debt, the longer we’ll be in this quagmire, and unemployment will remain clearly a leading indicator.But Bernanke/Obama/Geithner/Congress/Bankers trust etc… don’t care. They just want to buy time. Because they want to make sure that everything looks well during the time they have the job. After, that’s not their problem. They have absolutely no incentive to clean up the mess now, but leave it for the next ones. So they are going to try all they can, spend as much as they can, in order to avoid that the mother of all bubbles collapses now. Just try to buy another 7 years. Maybe it can hold for that long….You know the American people. Do you think Obama would have any chance of getting reelected if he’d let the bubble collapse within the next three years ? He’d get eaten alive.

autistic blindmanSeptember 27th, 2009 at 1:53 pm there any historical example of honestyand clarity of thought and feeling being a prerequisiteto understanding and human advancement?yes, of course. but today,who cares?obviously, a “crime” is being committed and covered up,obfuscated.. then there was / is this …”Here’s to the crazy ones. The misfits. The rebels.The troublemakers. The round pegs in the square holes.The ones who see things differently. They’re not fondof rules, and they have no respect for the status quo.You can quote them, disagree with them, glorify and vilify them.About the only thing you can’t do is ignore them because theychange things. They push the human race forward.And while some may see them as crazy, we see genius.Because the people who are crazy enough to think theycan change the world, are the ones who do.”. end of advertisement. Gandhi : Audio : Spiritual Message”… all that i can advise is to not attempt the impossible.”best,peas

GuestSeptember 27th, 2009 at 4:43 pm

hahahaFOMC meeting outcome -> 0% interest and liquidity pumping bubbles forever!!! printing money forever. watch what FED does not what they said. words not back by action are bXXXXXXt!! hahahapeople is still clueless about how long FED gonna monetize debt and fiscal budget. that is forever. hahahaha

London BankerSeptember 28th, 2009 at 1:43 am

Big moves in currencies this morning that look coordinated. I think the Fed/Wall Street might be making their moves to take down global asset markets and strengthen the dollar. It wouldn’t surprise me if the warmongering rhetoric ratcheted up a notch too. Watch out for the storms of October . . .

AnonymousSeptember 28th, 2009 at 3:37 am

watch USD chart movement, if it is’nt manipulation, i dont what isA LOT of people got hurt, i think even institutional investors..someone isnt about to let go their crown of poweri hope they dont initiate ops “Samson”that will be the end of us….

AnonymousSeptember 28th, 2009 at 4:16 am

tis’ for you MMCA35 Million Americans on Food Stamps:12 Percent of U.S. Population on Food StampsHighest Since Records Kept in 1969

GuestSeptember 28th, 2009 at 11:36 am

hehe, get a real investment 101 lesson and stop complaining. first rule, dont fight the FED or you lose. market rally continue when FED signaled 0% interest rate and liquidity pumping bubbles forever. DIE DOLLAR DIE. haha

PeterJBSeptember 28th, 2009 at 9:04 am

Speaking of insanity and a total lack of “leadership”:”So to all conspiracy theorists claiming that gold is being manipulated on a daily basis by the Federal Reserve: when it occurs over and over, and is so well documented, it is no longer a theory, it is merely sad. And the fact that the US government goes to great lengths to hide the illicit dealings of the Federal Reserve, which through its monetary tentacles, has prima facie control over not just US policy but also over sovereign governments, is an unprecedented failure in the checks and balances system that the founding fathers had planned when they created the United States of America. Yet saddest is that the United States no longer pursues strategic goals that are in the best interest of the majority of its citizens, but merely manipulates other, less powerful nations into a servile existence that only provides gain to a very limited subset of the American financial oligarchy. It is time for the Fed’s unprecedented control over affairs, both global and domestic, to end.” hum

HubbsSeptember 28th, 2009 at 12:44 pm

Interesting point in ZH comments section about perceived value of gold, and arguments today that it is no longer a factor since people are so used to not using it as a medium of trade or valuation.However, as long as people and government could keep borrowing after the 1971 gold standard exodus, there was no overt consequence, so it was just a memory whose significance wasn’t even taught in history or economic class….just like people who could borrow enormous amounts of money to purchase homes that were inflating in value right before their eyes.Now I wonder… Faced with a new harsh reality of having to earn and pay as you go rather than borrow, and the prospect of dollar denominated asset pseudo appreciation only (rather than real appreciation of savings/invetsments) folks may start revisiting the luster of the “barbarous relic”.

PeteCASeptember 28th, 2009 at 9:41 am

Checking the charts – after London Banker’s comments – it looks like the British pound is headed towards a significant breakdown. It’s not clear whether this is a currency intervention, or a major selloff in the currency markets. The big issue will be whether the pound drops below the 200-day MAV. If the pound breaks down in a major way, the effects will hit the markets. Other currencies seem reltively less affected.PeteCA

PeteCASeptember 28th, 2009 at 1:08 pm

As you undoubtedly know, the ratio of debt to GDP for the UK has been growing to alarming levels. Look up some of Nadeem Walayat’s articles for some charts on this (hope I spelled his name correctly … I think you can find him on or So, if you believe that the global “free economy” must eventually assrt itself (despite what the central banks may do), then this does not bode well for the pound. But i am not going to make any specific suggestions. Right now, gold, yen and euro have been rising against the US dollar – it’s no secret that China has been trying to diversify its holdings in this way. People who have been short on the dollar and long on these other currencies (or alternative currencies) have been doing quite well for themselves. I can’t tell you when the trend will stop – but i wonder to myself how much pain the Japanese are willing to withstand with the rising yen before the BOJ makes a serious intervention. None of these comments are intended as any kind of investment advice … be careful with currencies because of the risk of adverse surprise moves. If the G20 plan fails, then a period of currency crisis could take place.PeteCA

PeteCASeptember 28th, 2009 at 2:08 pm

Michelle – that’s a very interesting question. It’s definitely worthy of a separate discussion, so I’ll re-post it below. I’d like to see what other people think about the subject as well.PeteCA

PeteCASeptember 28th, 2009 at 2:41 pm

UNDER WHAT CIRCUMSTANCES COULD THE G-20 FAIL ???Michelle’s question above is worthy of a broader discussion. Let’s see what readers here have to say about this possibility.It seems to me that the G-20 could fail for several reasons. I’m not saying these things WILL happen … only that they are scenarios that could play out. It’s also possible that the G-20 could “save the day” and find a meandering path through the big problems ahead of us.1. Failure of the G-20 Because of a Loss Of Policy Cohesion Between Member StatesThe G-20 can only enact a “comprehensive plan” provided they can cooperate. Cooperation will become a more difficult proposition if economic conditions around the world deteriorate from here i.e. if the world heads towards a global depression. The “pain factor” that would likely cause disintegration of the banking system’s coordination would be unemployment. If unemployment levels continue to rise, this would put a lot of pressure on politicians to respond. Political realities may overshadow agreements between banks. In essence, countries may take much stronger steps to protect themselves and try to ensure that their jobs are not further eroded. Examples would be: Currency interventions by central banks that were not agreed to by the G20; unilateral announcements of currency devaluations (promoting a currency wars); and trade restrictions, embargos and tarriffs. Although many economists recognize that these things may not be desirable, I don’t think politicians will avoid them if they get enough pressure from labor groups.2. Rising Burdens of Debt Put Strains on Banking UnityFor example, an economic collapse in Spain, the Balkans and E. Europe puts enormous strain on the European community and the European Bank (ECB) becomes ineffective due to in-fighting and rancorous debate.3. A Major Problem Occurs With Global Derivatives TradesThe G-20 has left itself wide open to ambush from “Black Swan events” by failing to limit the huge build-up in global derivatives trades. The risk in the system is coming from various forms of netting and agreements that spread risk between parties. If financial risks were spread widely then perhaps this would not be a problem. But the number of parties with huge financial exposure is comparatively small in the world of derivatives, so a major failure could shut down or collapse the whole system. Examples of events that might cause problems: unexpected wars, price shocks for essential resources (esp. oil), and systemic failures of the worldwide system of computer links used for trading. Peronally, my biggest objection to the global derivatives trade is that it is an enormous form of malinvestment. Most trading activities are comparatively short-term investments, whereas what the world really needs are long-term investments aimed at solving big long-term problems (e.g. energy, transportation). The G-20 is not attacking this at all.4. War and Unexpected ConflictsLooking at things in the broadest sense, we are at a stage where nations are vying over scarce resources. Economic rivalry is one way to gain access to these resources. War is another alternative, esp. if particular countries are highly dependent on certain resources (esp. oil, energy) and “overexposed” in terms of a lack of means to find good (short-term) alternatives.Just my thoughts.PeteCA———————————————————————–

MichelleSeptember 28th, 2009 at 8:47 pm

Thanks, Pete, for putting together a good analysis of scenarios.One thing I have been giving a lot of thought to are the derivatives markets. As many of these derivatives contracts are denominated in dollars, a breakdown in any one of them would create a need for dollars, just as we saw in the CDS blowup. Some here speculate that China may dump gold derivatives into the market, which could have disastrous effects, especially in the currency markets. Given that, it wouldn’t be in their best interest to do so as the consequences would be felt globally, thereby plunging economies further into the abyss. These derivatives contracts are certainly every country’s problem and doesn’t seem to be isolated here, and I think it has become obvious to the G20 that no one better make any fast and unexpected moves or the whole thing blows up. I’m probably giving them too much credit, but I think they all know this and will work together in spite of their differences. Teamwork will need to be their primary focus because without it, the global economy will be in the toilet, and lack of coordination I believe will have devastating consequences.

GuestSeptember 28th, 2009 at 9:35 pm

Pete, IMO, government intervention is the problem, not the solution. As you said earlier, the G-20’s conundrum is “how do you manage a transition to a new global economy, when you’ve got no idea where the final ending point will be? Answer … you can’t.” Novice hit the nail squarely: “They’re still playing monopoly, they’ve just invited a few more to join that’s all–same game more players.”Frankly, when did Bernanke and the other central bankers ever ask the American people if they wanted the government to intervene to establish a “transition to a new global economy” they defined?Market economies, whether they operate in a small village or in a nation or in the world, are still best based on allowing each entity, whether it be individuals, corporations, or countries, to operate with as much freedom as possible to make their own marketing agreements. If a small village is controlled by two or three rich men who own most of the real estate and select the council and mayor, sheriff, et cetera, it’s just as damaging to the market economy as powerful members of the G-20 making agreements that benefit only the most powerful elites using the lie of globalization as an excuse. Because money can be transferred electronically in seconds around the world, contracts can be negotiated and agreed to on the Internet and corporate and government jet aircraft can connect the world’s capitals, nothing has changed the simple authenticity of two parties agreeing to a contract or sale where both will benefit mutuallly. Unfortunately, powerful oligarchs are using the offices of their governments to blackmail, threaten with force and even occupy other countries for their own economic advantage; hardly an environment one should call globalizationThe G-20, strong-armed by internationalists such as Goldman and JP Morgan, does not intend to repair Main Street, USA. Representation by these central bankers, all in confab prior to meetin’ time, just means more secrecy and more market interventionism to benefit themselves and monopolize power. We’ve already got their market intervention up to our eyeballs. It has not proven beneficial to Main Street.As Ludwig von Mises points out in “Human Action,’ when one looks at the catastrophic consequences of the great paper money inflations, it’s futile to retort that these catastrophes were brought about by the improper use which the governments made of the powers that credit money and fiat money placed in their hands and that wiser governments would have adopted sounder policies. For money, says Mises, can never be neutral or impartial:“Whatever a government does depends necessarily upon the rulers’ personal value judgments. It also furthers the interests of some people at the expense of other groups. It never serves…the public welfare… Money is never indifferent. It determines the course of the cash-induced changes in purchasing power. The question is only WHO should make the choice: the people buying and selling on the market, or the government?”We aren’t talking here just about some current, impartial economic dip that is accidentally destroying America’s middle class while creating an even more powerful ruling plutocracy of Goldman Sachs multi-billionaires. We’re talking deliberate policy.We’re talking about people losing their homes, suicide, divorce, the loss of a child’s future, erased jobs and careers, the inability of a man to provide for his family, severe debt, economic entrapment, devastation of self esteem. We’re talking life and death. And it just keeps going on. I ask you, where is my benefit, or your benefit, from the bailouts of the TBTF bankers? Where is the nation’s?Lately, says Ron Paul, the free market “has been wrongly accused of doing so many things it just doesn’t do, that are really the fault of crony corporatism and convoluted government policies that brought on the crisis. Too many people equate the free market with big business doing whatever it wants, but that is not the free market. Unconstitutional taxpayer-funded bailouts are what allow giant corporations to run roughshod over the economy. The free market is what puts them out of business when they misbehave…“The free market is about respecting property rights and contracts. It is not about building up oligarchs and monopolies and confiscatory tax-theft. These are creatures of government. We must watch out when government comes up with interventionist solutions to interventionist problems. The root of our problems lies in interventionism. Trusting the free market is the solution.”

Pecos BankerSeptember 29th, 2009 at 2:08 am

PeteCA,Pardon me, but I have a real problem seeing these global get-togethers of national leaders as anything but window dressing. Thus, the whole question as to whether the G-20 will “fail” seems to me irrelevant. Do these big boy meetings ever accomplish anything? Perhaps somebody could chime in on this. I have no idea. If they “fail”, ie, if they do not succeed in turning this downward economic spiral around, they can certainly refer back to your list to find appropriate excuses. So perhaps the question should be, “Which of the aforementioned possibilities will provide the most plausible excuse for their feckless inaction?” In my opinion, all of the present western world leaders–Obama, Sarkozy, Brown, Merkel (perhaps to a lesser extent than the others), Berlesconi–are completely lacking in vision or forcefulness of character. In the US, the hope was for some adult intervention after the Bush years, but Obama turns out to be another politician who can’t see beyond his own self-interest, like the others. It’s still recess–play time in the sandbox–for these folks. Still waiting for some adult intervention.

The AlarmistSeptember 29th, 2009 at 2:54 am

Me, I’ll take a little wild-west capitalism about now. The nice thing about everybody wearing a six-gun was that the cheats occasionally got a little prairie justice. The world didn’t really start to go downhill until we got a lot more ‘adult supervision’ during the 20th century.

ChrisLSeptember 29th, 2009 at 4:46 am

Obama, Sarkozy, Brown, Merkel and others can’t succeed in turning this downward economic spiral around. The only thing they can do is postpone it.And that’s what they will do because their predecessors during the last three decades have succeeded in turning us, the people, into addicts of this phony credit led growth and we do not want to give up on our illusions of fake prosperity.They have no choice. If they were to take away our drugs, ie let deflation of credit follow its natural course, this would lead to such an economic collapse, the mother of all depressions, phenomenal social unrest, revolutions, civil wars… It’s not that they lack vision, it’s that their goal is clear : they don’t want to be the leaders who let this happen, they want to get reelected, and they don’t want to pass in history as those who were “responsible” for the collapse of our society : so they will try to continue with this illusion as long as possible.We, the people of the world’s richest nations demand that we remain with our illusions of false prosperity, for we are addicts.

MedicSeptember 29th, 2009 at 7:16 am

I think Chris is absolutely correct – the best any of our supposed “leaders” can hope for is to kick this can down the road far enough that they are not on watch when the whole thing explodes.WE are the problem. We fell victim to the false reality that they sold us – that we could continue to grow and expand forever on the extension of credit. If the uneducated, unobservant, ignorant masses ever realize just how bad this whole thing is, they will revolt – and no leader wants to be the one left holding the bag when they come to the door.The financial disaster will not be averted, but it can, will, and is being post-poned.American Football fans will recognize what’s happening as a “prevent defense”. TPTB are not playing to win (allowing the weakest banks to fail, acting to protect the public, cleaning up this mess) – they are play to not lose (read: be in office when the torches and pitchforks crowd comes to call).

ChrisLSeptember 29th, 2009 at 9:46 am

I like your analogy !That’s why there is no hope. Our leaders and the economists advising them have no incentive to tell the truth, the people would never accept it, it would be a revolution, total chaos. So they are buying time.The truth is that real net worth is negative for all advanced economies (real value of assets minus real liabilities is negative !), as real savings were negative for the last three decades. Our economists can’t even calculate properly and their theories are maintaing the illusion of prosperity.Therefore growth cannot come from savings and the only way is that we continue with this shopping frenzy as long as some fools are willing and capable of financing it.WE ARE DOOMED, chaos will come, our only hope is that it comes late enough so that we are all dead by then, but I’m not that opttimist…Those who say I’m too pessimistic refuse to understand how our phony credit based monetary system works: They are lke addicts who refuse to accept the fact that they are addicted.

HayesSeptember 28th, 2009 at 3:52 pm

@LBHi LB – long time follower – I’ve seen you posting over at Zero Hedge as well – any chance that you will be reactivating your blog or at least publishing an article at some point?Separately I am a bit confused with your comment about a Dollar Carry Trade Bubble that you reference a few comments above my post here and your comment earlier responding to OR where you state “I don’t agree that we are in for a huge dollar carry trade bubble “(maybe someone else could weigh in on this as well.)Thanks

Octavio RichettaSeptember 28th, 2009 at 6:05 pm

Hayes,I don’t know how frequently you are posting as I am still not capable of keeping up with all posts as I am still away from Argentina. Whatever, it is nice to see you are around.

London BankerSeptember 29th, 2009 at 1:09 am

@ HayesGood to see you. I’m still not able to post a blog, but can’t resist hanging with the blog buddies here in the comments.Clearly a great deal of the easy money from QE in US, UK and EU has ended up in speculative momentum in asset markets (equities, commodities, bonds) as a new carry trade. Virtually none of it has gone to financing productive investment or increased retail/commercial lending that would promote consumption/growth in the real economy. The result is a bubble in asset prices blown up by the easy money, with no realistic basis in actual consumer, business or economic fundamentals. As a result, it is clearly unsustainable. When it will burst is anyone’s guess.I think it’s a pre-meditated set up that will be burst to achieve a political agenda – just as with the Lehman failure/Reichstag Fire for the Paulson Plan looting. And I think the Fed and PBs are positioning things now to burst the bubble soon – if only to forestall the Audit the Fed Bill. The PBs are being recapitalised by coordinating actions with each other and the Fed, so that they can frontrun what they know will be seminal events in market direction.The game here for the Fed is to export losses and import profits. The mechanism for this is margin calls on leveraged investors/leveraged markets. The reason for pumping up the asset classes globally has been to benefit from the foreknowledge of this on the upside, and the foreknowledge of this on the downside. GS and buddies will all profit handsomely. The failures and major losses will all be targeted at foreign competitors and domestic competitors so that those left standing get a larger percentage of a shrinking pie.The power to call margin is the power to destroy. In leveraged markets, the withdrawal of leverage necessitates collapse as forced selling wipes out value. Those destroyed on the downswing lose all their assets as collateral to the creditor bank. Those assets are held and then sold on the next rally. Lather, rinse, repeat = perpetual motion profit machine for a more and more concentrated and powerful financial elite.We no longer have market capitalism. We have state capitalism which depends on the liquidity of the central bank to drive momentum in markets and determine change in direction. The Fed is about to stop QE, withdraw liquidity through reverse repos, etc., and that will force the change in direction which will justify the PBs calling margin on all the leverage extended earlier this year. A trigger even (foreign bank failure/state or municipal government default/attack on Iran) will destabilise markets. The margin calls into the uncertain markets will force liquidations, crash global markets, destroy weaker players, and create a political opportunity to force more bad legislation and bad policy through a frightened Congress.It worked before to expropriate taxpayers of trillions of dollars. Same again, please?Of course, this is a conspiracy theory, but some conspiracies can be very profitable and last a long time. Control fraud is always a conspiracy by those holding power, and is always very profitable and quite low risk.

London BankerSeptember 29th, 2009 at 2:11 am

A further thought which came to me when I cross posted to Zero Hedge:I should note that the reason for choosing this thread is the connection to US dollar revaluation. Virtually all margin under global standard derivatives, prime brokerage and securities lending agreements is in US dollar. The result of a margin call by the prime brokers and major investment banks is therefore a sudden, sharp demand for US dollars to prevent default.Foreign assets are sold and the proceeds swapped into dollars to meet the margin call. Foreign assets and currencies crash, dollar strengthens.Look at October 2008 for the template. Prime brokers discreetly raised margin on PB clients from an average of 15 percent to an average 35 percent. Because all PB is unreported bilateral business, there was no public announcement of this and no public record of this. All the public saw was the crash of global asset markets and a rapidly strengthening US dollar. And, of course, Congressional caving to pass the Paulson Plan looting.

MichelleSeptember 29th, 2009 at 7:51 am

Exactly my point from above. All assets classes were liquidated to meet this margin call, and even precious metals suffered. No asset class was exempt.

ptmSeptember 29th, 2009 at 4:13 pm

LB,Enjoyed your operational description of the profitable and low risk”conspiracy of convenience” that surrounds the Fed and its club ofprimary broker banks. It’s probably something you have seen in yourformer life as a bank regulator.But I have have yet to comprehend how these banks can be aggressivemarket manipulators on one hand, yet be so over leveraged themselves.Are not the two incompatible? If not, how are these primary dealerbanks able to keep from shooting themselves in the foot?Thanks,

HayesSeptember 29th, 2009 at 8:20 am

Thanks very much for the response LB -OR – I’ve been spending time at ZeroH, CR and some of the technical blogs (SlopeofHope)- became a bit disillusioned with the Professor when I learned of Larry Summers ownership and management position in RGEmonitor, particularly because it was never disclosed. I monitor the top financial blogs at a site from Canada called

GuestSeptember 28th, 2009 at 9:47 pm

MORE LIES, MORE DECEPTION”What does imperialism mean? It means the assertion of absolute force over others.” Robert Lowe 1878By Paul Craig RobertsSeptember 25, 2009 — The G-20 ministers declared their meeting in Pittsburgh a success, but as Rob Kall reports in, the meeting’s main success was to turn Pittsburgh into “a ghost-town, emptied of workers and the usual pedestrians, but filled to overflowing with over 12,000 swat cops from all over the US.”This is “freedom and democracy” at work. The leaders of the G-20 countries, which account for 85% of the world’s income, cannot meet in an American city without 12,000 cops outfitted like the emperor’s storm troopers in Star Wars. And the US government complains about Iran.The US government’s complaints about Iran have reached a new level of shrillness. On September 25 Obama declared: “Iran is breaking rules that all nations must follow.” The heads of America’s British, French, and German puppet states added their two cents worth, giving the government of Iran three months to meet the “international community’s demands” to give up its rights as a signatory to the non-proliferation treaty to nuclear energy. In case you don’t know, the term “international community” is shorthand for the US, Israel, and Europe, a handful of arrogant and rich countries that oppress the rest of the world.Who is breaking the rules? Iran or the United States?Iran is insisting that the US government abide by the non-proliferation treaty that the US originated and pushed and that Iran signed. But the US government, which is currently engaged in three wars of aggression and has occupying troops in a number of other countries, insists that Iran, which is invading and occupying no country, cannot be trusted with nuclear energy capability, because the capability might in the future lead to nuclear weapon capability, like Israel’s, India’s, and Pakistan’s–all non-signatories to the nuclear proliferation treaty, countries that, unlike Iran, have never submitted to IAEA inspections. Indeed, at this very moment the Israeli government is screaming and yelling “anti-Semite” to the suggestion that Israel submit to IAEA inspections. Iran has submitted to the IAEA inspections for years.In keeping with its obligations under the treaty, on September 21 Iran disclosed to the International Atomic Energy Agency that it is constructing another nuclear facility. The British prime minister Gordon Brown confused Iran’s disclosure with “serial deception,” and declared, “We will not let this matter rest.”What matter? Why does Gordon Brown think that Iran’s disclosure to the IAEA is a deception. Does the moronic UK prime minister mean that Iran is claiming to be constructing a plant but is not, and thus by claiming one is deceiving the world?Not to be outdone in idiocy, out of Obama’s mouth jumped Orwellian doublespeak: “The Iranian government must now demonstrate through deeds its peaceful intentions or be held accountable to international standards and international law.”The incongruity blows the mind. Here is Obama, with troops engaged in wars in Iraq, Afghanistan, and Pakistan demanding that a peaceful nation at war with no one demonstrate “its peaceful intentions or be held accountable to international standards and international law.”It is the US government and its NATO puppet states, and militarist Israel, of course, that need to be held accountable to international law. Under international law the US, its NATO puppets, and Israel are war criminal governments. There is no doubt about it. The record is totally clear. The US, Israel, and the NATO puppet states have committed military aggression exactly as did Germany’s Third Reich, and they have murdered large numbers of civilians. Following the Fuhrer’s script, “the great democratic republics” have justified these acts of lawlessness with lies and deceptions.Rudy Giuliani, the former US Attorney who framed high profile victims in order to gain name recognition for a political career, keynoted a rally against Iran in New York on September 25. According to Richard Silverstein at AlterNet, the rally was sponsored by an Israeli lobby group and an organization with connections to an Iranian terror organization (probably financed by the US government) that calls for the violent overthrow of the Iranian government.The efforts to build pressure for acts of war against Iran continue despite the repeated declaration from the IAEA that there is no sign of an Iranian nuclear weapons program, and despite the reaffirmation by US intelligence agencies that Iran abandoned its nuclear weapons program years ago.Meanwhile, the US and Israeli governments, who are so solicitous of international law and holding accountable countries that violate it, have moved to prevent the report of Judge Richard Goldstone from reaching the UN Security Council.Why?Judge Goldstone’s report found Israel guilty of war crimes in its massive military assault against civilians and civilian infrastructure in Gaza.The continuous efforts of the world’s two militarist-aggressor states–the United States and Israel–to demonize Iran was addressed by Ahmadinejad in his speech to the UN General Assembly (September 23). Ahmadinejad spoke of the assault on human dignity and spiritual values by the selfish material interests of the US and its puppet states. Seeking hegemony “under the mantle of freedom,” the US and its puppets use “the ugliest methods of intimidation and deceit” to disguise that they are “the first who violate” the fundamental principles that they espouse and apply to others.Why, Ahmadinejad asked the UN General Assembly, do the countries of the world sit there while Israel murders and dispossesses the Palestinian people?Why, asked Ahmadinejad, do the countries of the world sit there while the US, from thousands of miles away, sends troops to the Middle East, “spreading war, bloodshed, aggression, terror and intimidation in the whole region,” while blaming the countries that are suffering the West’s naked aggression?Ahmadinejad told the General Assembly what most of the UN representatives already know, that “selfishness and insatiable greed have taken the place of such humanitarian concepts as love, sacrifice, dignity, and justice. . . . Lies have taken the place of honesty; hypocrisy has replaced integrity, and selfishness has taken the place of sacrifice. Deception in foreign affairs is called foresight and statesmanship, looting the wealth of other nations is called development efforts; occupation is said to be a gift that promotes freedom and democracy; and defenseless nations are subjected to repression in the name of defending human rights.”It could not be put any clearer. However, if Ahmadinejad’s speech is reported by the US print and TV media, statements will be taken out of context and used to enrage the conservatives and Christian Zionists in order to unify them behind the Obama/Israeli assault on Iran.America will not be satisfied until, like Rome, she has more enemies and more wars than she can survive.

autistic blindmanSeptember 28th, 2009 at 11:05 pm…note: no working group on human rights? no…Working Group 2 – Reinforcing international co-operation andpromoting integrity in financial marketsThis working group will monitor actions and developproposals to enhance international co-operation in theregulation and oversight of international institutions andfinancial markets, strengthen the management and resolutionof cross-border financial crises, protect the global financialsystem from illicit activities and non-co-operative jurisdictions,strengthen collaboration between international bodies, and monitorexpansion of their membership.Co-chairs: Alejandro Werner, Deputy Minister of Finance Mexican Ministry of Finance,and Jorg Asmussen, State Secretary in the German Federal Ministry of Finance…………………………………….……..AMY GOODMAN: We’re talking to Arundhati Roy. She’s speaking to usfrom New Delhi, India. She has just published a new book calledField Notes on Democracy: Listening to Grasshoppers. Arundhati,why “listening to grasshoppers”?.ARUNDHATI ROY: Oh, it was the name of a lecture that I didin Turkey last year on the anniversary after the death ofHrant Dink, the Armenian journalist who was shot outsidehis office for daring to talk about the Armenian genocideof 1915, which you’re not supposed to talk about in Turkey.And my lecture was really about the historical linksbetween progress and genocide.And “listening to grasshoppers” was—referred to the testimonyan old lady called Araxie Barsamian, who’s the friend—motherof my friend David Barsamian, who is Armenian and who talkedabout how, you know, the wheat had ripened in her village in 1915,and suddenly there was this huge swarm of grasshoppers that arrived.And the village elders were very worried about this and saidit was a bad omen. And they were right, because a few months later,when the wheat had ripened, the Turks came, and that was thebeginning of the Armenian genocide for her.And so, I talk about—the whole lecture was really about howsocieties are prepared for genocide and how genocide is,you know, it’s like part of free trade, and how, you know,genocides that are acknowledged, and denied, and prosecuted,all have to—all depend on world trade, and always have done,and about how I worry that a country like India, that is poisedon the threshold of progress, could also be poisedon the threshold of genocide.And that essay was written in January of last year. And now,as you see, the troops are closing in on the forest areas wherethe poorest people live. And they will be sacrificed at the altarof progress, unless we manage to show the world that we have tofind a different way of seeing and a different way ofgoing about things.But here in India, there’s the smell of fascism in the air.Earlier, it was a kind of an anti-Muslim, religious fascism.Now we have a secular government, and it’s a kind of right-wingruthlessness, where people openly say, you know, every countrythat has progressed and is developed, whether you look at Europeor America or China or Russia, they have a quote-unquote “past,”you know, they have a cruel past, and it’s time that Indiastepped up to the plate and realized that there are some peoplethat are holding back this kind of progress and that we need tobe ruthless and move in, as Israel did recently in Gaza,as Sri Lanka has recently done with its hundreds of thousandsof Tamils in concentration camps. So why not India? You know?Why not just do away with the poor so that we can be aproper superpower, instead of a super-poor superpower?AMY GOODMAN: Arundhati Roy, we just have less than a minute.What gives you hope?ARUNDHATI ROY: What gives me hope is the fact that thisway of thinking is being resisted in a myriad ways in India,you know, from the poorest person in a loincloth in the forestsaying, “We’re going to fight,” right up to me, who’s at the other end,you know. And all of us are joined together by the determination that,even if we lose, we’re going to fight, you know? And we’re notgoing to just let this happen without doing everything we can to stop it.And that gives me a tremendous amount of hope…

autistic blindmanSeptember 28th, 2009 at 10:22 pm Gary Null Show – 06/24/09“Obama Regulatory Reform Plan Officially EstablishesBanking Dictatorship” -Paul Joseph Watson, Steve Watson [GlobalResearch 23jun’09]Conversations With Remarkable MindsProf Robert Auerbach: professor of Public Affairs,Lyndon Baines Johnson School of Public Affairs, U of Tx, Austin.For eleven years he was the economist for the House of RepresentativesCommittee on Banking & Financial Services during the reignsof four Fed chairmen: Arthur Burns, William Miller, Paul Volcker & Alan Greenspan.He worked closely with House Representative Henry Gonzalez, at the timethe ranking member of the Banking committee, to investigate & carry oversightinto the operations of the Fed being led by Greenspan.

GuestSeptember 29th, 2009 at 12:16 am

Is The Market About To “Undo” The Federal Reserve’s Purchases? – Vanguard to Use Floating BenchmarksSome index funds to use Barclays Capital float-adjusted bond indexesSeveral of Vanguard’s index funds will be switching to Barclays Capital’s float-adjusted bond indexes from the Barclays indexes that currently serve as the funds’ target benchmarks. According to Vanguard, the new benchmarks better represent actual liquidity in the marketplace and should help insulate Vanguard’s bond index funds from securities whose prices may be distorted by significant reduction in supply as a result of Federal Reserve buybacks. The term “float” refers to the amount of a given security available for public trading; it excludes amounts such as those held by company insiders, affiliates, or governments. “We believe that float-adjusted indexes more accurately represent an investor’s opportunities in a particular market,” said Gus Sauter, Vanguard’s chief investment officer, in a release announcing the shift. “Whenever possible, Vanguard’s index funds will seek to track benchmarks that follow this best practice.”Dow Jones – Vanguard Shifts Bond Index Due To Fed BuysThe Vanguard Group plans to switch 12 of its bond index funds to benchmarks designed to exclude the hefty chunk of bonds the government has purchased through its buyback program. Other fund providers may follow suit. Eight existing and four proposed Vanguard bond index mutual funds and exchange-traded funds will switch to tracking the Barclays Capital U.S. Aggregate Float Adjusted Index and its sub-indexes by year’s end. Unlike the indexes now in use, the new indexes adjust for so-called float, or the number of shares currently available for trading, a practice more commonly associated with stock benchmarks that seek to disregard shares owned by governments, company insiders or corporations, which have no intention of selling. Vanguard says the new bond benchmarks more closely represent actual liquidity in the market, and thus should help insulate the funds from price distortions created by the Fed’s buybacks. The money manager says it expects no significant change in the risk attributes, including duration, of the bond index funds.Barclays – (July 30) Barclays Capital Announces the Creation of the US Aggregate Float Adjusted IndexA New Benchmark of the Dollar-Denominated Investment Grade Bond MarketBarclays Capital, the investment banking division of Barclays Bank PLC and publisher of leading broad market bond benchmarks, today announced the launch of the US Aggregate Float Adjusted Index, a new benchmark of the dollar denominated investment grade bond market that excludes Treasuries, agencies and MBS held in Federal Reserve accounts. The new index will be published alongside the firm’s other leading indices, including the Global Aggregate, US Aggregate, Pan European Aggregate and Asian Pacific Aggregate. With an inception date of July 1, 2009, the new benchmark will offer investors a rules-based market value weighted index as a complementary alternative to the flagship US Aggregate Index, which includes agencies and MBS held in government accounts. The underlying constituents of the US Aggregate Float Adjusted Index will be the same as those of the US Aggregate Index, but net purchases and sales by the Federal Reserve will be excluded from the float adjusted index on a monthly basis, thereby reducing the market value weight of these securities. Sub-indices of the new index will also be available, including a US MBS Float Adjusted Index created specifically for mortgage investors.CommentWe discussed this back in May and June and said:The indexers are correct in including the MBS bought by the Federal Reserve as part of the float if they assume these securities will be sold back into the market once the economy improves. For now, this seems to be a likely scenario once the Federal Reserve wants to unwind its balance sheet. See the story above as it sure implies the Federal Reserve is going to eventually see these purchases back into the marketplace.If, however, the Federal Reserve changes its mind and decides to hold these securities to maturity, then the float has been permanently reduced and the indexers have their weightings wrong.Apparently bond managers are now concluding the Federal Reserve is not going to sell their holdings acquired through their QE operations. So, they are demanding the calculation of, and in the case of Vanguard, the adopting of “float-adjusted” indices as their benchmarks.If this is the beginning of a trend, it has the potential to be a big deal. As the Federal Reserve buys, weightings in the float-adjusted indices fall (see the first table below). Managers seeking to keep their weightings constant will then sell the same securities the Federal Reserve purchases. Effectively this “undoes” the Federal Reserve purchases and defeats the purpose of the program. In the end, it merely changes the ownership of securities and does little to push yields lower.

Little SaverSeptember 29th, 2009 at 3:46 am

Old stuff, still revealing concerning US financial policies, which didn’t change much since, I think.Capitalist foolsby Joseph E. Stiglitz January 2009 passage of a bailout package on October 3, 2008The original proposal by Treasury Secretary Henry Paulson, a three-page document that would have provided $700 billion for the secretary to spend at his sole discretion, without oversight or judicial review, was an act of extraordinary arrogance. He sold the program as necessary to restore confidence. But it didn’t address the underlying reasons for the loss of confidence. The banks had made too many bad loans. There were big holes in their balance sheets. No one knew what was truth and what was fiction. The bailout package was like a massive transfusion to a patient suffering from internal bleeding—and nothing was being done about the source of the problem, namely all those foreclosures. Valuable time was wasted as Paulson pushed his own plan, “cash for trash,” buying up the bad assets and putting the risk onto American taxpayers. When he finally abandoned it, providing banks with money they needed, he did it in a way that not only cheated America’s taxpayers but failed to ensure that the banks would use the money to re-start lending. He even allowed the banks to pour out money to their shareholders as taxpayers were pouring money into the banks.

Little SaverSeptember 29th, 2009 at 3:54 am

More of the same:The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.Or how the good doing invisible hand has committed suicide.

GuestSeptember 29th, 2009 at 8:30 am

Not many people are left who call this the “invisible hand”: the actions of a government taken over, managed, controlled and directed by a private cartel is a visible hand playing a shell game. Isn’t it time to stop referring to dictatorship as capitalism and free enterprise?

Little SaverSeptember 29th, 2009 at 8:55 am

Not so invisible anymore, that’s right. Isn’t it time to think about the risk that unbridled capitalism and free enterprise concentrate money and power in fewer hands, able to buy their way into ever growing power (dictatorship)?

autistic blindmanSeptember 29th, 2009 at 8:05 pm

l,as was suggested above the gentle hand ispreoccupied with its “tool” of choice, be itmoney or otherwise.

Little SaverSeptember 30th, 2009 at 1:01 am

If the gentle hands wake up and find the right tools, there may be an escape from this moral, financial and social impasse?

GuestSeptember 29th, 2009 at 12:58 pm

“The government has been relying heavily on Fannie Mae and Freddie Mac in its efforts to stimulate the U.S. housing market by buying more mortgage loans, easing refinancing and helping homeowners avoid foreclosure.”Can’t help but expect more $ printing in order to give huge principal reductions after they buy buy buy these toxic loans. Will they begin buying the jumbos also? Would like to have a 360 degree view of the ramifications, besides “sticking it” to the prudent. Will nature win?hlowe

SeanSeptember 29th, 2009 at 9:13 am

London Banker –“The Saudi Arabian … it bought fewer US Treasuries in H1 2009. The Chinese … declaring their appetite diminished. … if they are not financing further debt expansion, then the game is almost up”London Banker, I recalled reading one of your comments stating that the USA government is secretly buying Treasury as richer foreign central banks are giving up — a conspiracy proposal.But I have a different suggestion. Did you read David Rosenberg? He was previously famous Merrill Lynch chieft economist calling the top in equities in 2007. He said there have been huge new inflows into bond mutual funds from the USA public investors shunning equities since March. I think the ratio was like 20-1, as public is secularly switching to safety. This explain the bond demand.USA new savings rate is much bigger than the foreign central bankers money, according to his statistics.

GuestSeptember 29th, 2009 at 9:51 am

USA savings is around $300 billion a year – you cannot expect all of those will be poured into bonds.At the mean time, treasuries are issued at $2 trillion a year – 3 times as much as in previous years. hard to find that many buyers, it is just a simple mathematic question.

PeteCASeptember 29th, 2009 at 10:13 am

MichelleThere’s no question that another period of deleveraging in the USA would likely mean a bounce upwards in the US dollar – for exactly the reasons you are describing. The exact timing of this bounce is unknown of course – but a lot of people are expecting it to occur sometime soon. There are a number of important questions, though. First, will the dollar bounce as high this time as it did during the last “flight to safety”? It’s not clear that the answer is YES because global investors are becoming a lot more wary of dollar-demoninated assets at this stage. So yes, some big players must buy dollars in order to settle CDS contracts. But does this mean that many smaller investors will also flee to safety in dollars … that’s not at all clear.For me, I look on these dollar bounces as corresponding to periods of time when the US consumer is deleveraging i.e. US households are cutting back on consumption. Or to be more precise, the dollar bounces correspond to times when the market factors that deleveraging into the actual prices of assets and currencies. These periods when Americans reduce their consumption are absolutely necessary to the transition that must occur – because we all know that the USA has been consuming too many resources for too long. I just saw some estimates this week that Americans may reduce new purchases of auto’s by as much as another 1 million units/year. That’s a huge reduction, on top of the drop in auto sales that has already occurred. Not only would that spell doom for any attempts to rescue the US auto industry, it would also place the auto industry in Europe under extreme stress.But here’s my real point. The last major period of stress and deleveraging in the USA saw several major banks go under, the demise of the balance sheets of Fannie and Freddie, the destruction of AIG, and the elimination of the US auto industry as a viable competitor. Some of these players are still in business – but only because they received huge gov’t bailouts. So the real question is … who goes next? Another major period of deleveraging could well eliminate another sector of the US economy. The answer to that question will determine which CDS contracts must be settled.PeteCA

CaponeSeptember 29th, 2009 at 2:14 pm

Happy Anniversay US Financial Dictatorship!Today marks a very interesting anniversary indeed. There were MANY scary bad down days in the market last year. The European/ World sell off due to that “rogue trader” over a US holiday, the Lehman and Bear Sterns debacles among them. However, if you had to rate those 3 events along side the House not passing a bill, which one would you think should have created the largest sell off?(Sorry, I am too lazy to look up the numbers. I only know with certainty this was the largest one day event.) I agree all four were shocking. However, I find it quite interesting that the largest sell-off of all was the one that virtually guaranteed the transfer of 700 billion dollars to the US financial dictatorship. The invisible hand made at least somewhat if not a COMPLETE and TOTAL save on the first 3 events – 2 of them catastrophic – Bear Sterns and Lehman gone? Maybe the PPT was on coffee break when House did not cooperate.Today is an anniversary to me. It is the anniversary of the PPT allowing a crash to occur to pass a $700 billion bill.Lights camera action.President: days before the vote – Americans, we need this bill or face dire consequences… Blah, blah, blahHouse wisely does not pass the billPPT – allows worst drop of entire financial dramatic catastrophe in one day.People believe they need to bill as they lost their 401K money. They are scared. Gee, we must have really needed that bill.Legislators scramble to revote… 700 billion transfer to Dictators passesguess what happens nextpass the bill and drum rollWE CRASH ANYWAYS !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Cancel the bill now right? WRONG! Real Estate crashed lower property taxes right? WRONG! Consumers in a consumption based economy can not buy things from the corporations, they are debt strapped. Cap or lower card rates right? WRONG!This is not a democracy. This is Financial Dictatorship. A benevolent dictator may treat their subjects better than this financial dictatorship operating under the guise of democracy.

FEDupSeptember 29th, 2009 at 4:06 pm

Exactly-all financial decisions are made on the basis of “the needs of the few far outweighthe needs of the many”! And we are caught in one bubble-bust cycle after another with continual”surprises at how something like this could happen”. All evil deeds are well planned inadvance and simply result in greater wealth transfer to the elite. We can land a spaceshipon Mars and collect and analyze soil samples, but we can’t stop the “fleecing of Americans”!Lack of transparency and accountability from our representatives fuels this “criminal runaway”financial dictatorship!