Monday, August 2, 2010

Debt is devouring Sovereign Nations. In the US, the Deficit is being Funded and Monetized by the Fed

by Bob Chapman, The International Forecaster

While we wait, watch and listen, the Fed decides when the banks will be given the word to start lending to get the domestic economy back to neutral. Action is needed quickly because the world economy is quickly deteriorating, and the recovery is simply not happening, as the administration admits to a fiscal deficit of $1.4 trillion. That would be down from a deficit of $1.9 trillion in 2009. Our long-term estimate has been $1.6 to $2 trillion. Over the past 18 months and after joint expenditures by government and the Fed of $2.3 trillion, all the administration has to show for their efforts are five quarters of stimulus growth of about 3-1/2%, which is now ending. In addition, economies worldwide are slowing as well. At the same time the credit crisis continues as the Fed’s money machine funds banks and other financial institutions worldwide in a sea of perpetually degraded dollars. The only real mission for the Fed is to keep the financial sector afloat until the elitists are ready to finally pull the plug and bring about worldwide deflationary depression, as a trigger mechanism to force people’s of the world to accept world government. Most of the major banks of the world are insolvent and keeping them functioning is the Fed’s primary mission. (more)

Are We There Yet? - John Mauldin's Weekly E-Letter

"... [this economic condition] has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things."

- Friedrich August von Hayek, Nobel Speech 2010 1974

Those of us who have taken young children on long road trips to somewhere they wanted to go are familiar with the plaintive question "Are We There Yet?" As a nation and indeed the developed world, it is not unreasonable to be asking "Are We There Yet?" about the road to recovery. The NBER, those self-appointed economists who are the official keepers of the score sheet of recessions and recoveries, have yet to tell us we are out of recession. Yet the economy is growing. Kind of. Today we look at the most recent data on second-quarter US GDP (which came out this morning), and even though it is backward-looking data, we'll see what we can discern that might help us chart the direction of the future. And then, if there is time, I'll highlight what is a very serious and growing problem for our state and local governments. There is a lot to cover and so, with no "but firsts," let's dive in.

Are We There Yet? (more)

America's Worst Job Market: What 27.6% Unemployment Looks Like

By Rob Silverblatt

El Centro, Calif., is the largest U.S. city to be situated entirely below sea level. At the moment, it's also home to the country's most underwater job market. Nationally, the unemployment rate sits at 9.5 percent. But in the El Centro metropolitan area, it's a staggering 27.6 percent. And as workers across the country struggle to navigate the anemic labor market, El Centro has emerged as a case study about just how fragile the economic recovery can be.
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In recent years, California's multibillion-dollar budget shortfall and its painful cutbacks have gotten plenty of attention. But even by California standards, El Centro's situation is unusually dire. Since the recession hit, the area's housing market has fallen apart, its wages have remained dismal, and its unemployment rate has soared.

Amit Singh, director of operations at the worker-placement firm Labor Finders International, saw firsthand how the recession savaged El Centro's economy. Labor Finders used to have an office in El Centro, but the company was forced to close down that branch earlier this year. "Unfortunately, the economy there was hit hard, and it just wasn't supporting our business. We tried there for many years to find better avenues, but the opportunities were just not there," says Singh. "We just didn't find that there were any future growth opportunities. Actually, the picture looks pretty grim." (more)

Is This The Bottom In The Weekly Rice Chart?

The downtrend in the RSI has finally broken, the MA are close to crossing, and the price downtrend that started in December of 2009 appears to be almost over.

How can we avoid the next financial crisis? Urgently listen to those who foresaw this one

By Gregory Zuckerman, The Telegraph

“The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd; indeed, in view of the silliness of the majority of mankind, a wide-spread belief is more likely to be foolish than sensible”

Bertrand Russell

A few savvy investors - most with little relative experience in real estate, derivatives or mortgage investing - anticipated a historic housing and financial collapse. Their remarkable success begs an obvious question: why did this unlikely group predict the crumbling of the housing market and the resulting pain felt around the globe, even as the experts were stunned by the developments?

Top regulators, including Alan Greenspan, Ben Bernanke, Henry Paulson and Timothy Geithner, were caught flat-footed. Senior bankers like Robert Rubin, Charles Prince, Stanley O’Neal, Richard Fuld and James Cayne oversaw firms that lost hundreds of billions of dollars from mortgage holdings. Top analysts, traders, economists and academics expected housing to hold up. Real-estate, mortgage and derivative investors all missed the huge trade, as did so-called short sellers, investors who go to sleep at night dreaming of calamities they can bet against. (more)


We have arrived at critical juncture in the ongoing financial crisis. Have the government actions of the last year successfully spurred the animal spirits of Americans, resulting in a self-sustaining recovery?

The Obama administration and most of the mainstream media would answer yes. GDP has been positive for the last four quarters. Consumer spending has increased in five consecutive months. Corporate profits have been relatively strong. The country has stopped losing jobs. The missing piece has been a housing recovery.

No need to worry. Famous or infamous (depending on your point of view) $15 billion man John Paulson has assured the world that house prices will rise 8% to 10% in 2011. His basis for this forecast is that California prices have rebounded 8% to 10% in the last year, and this recovery will spread to the rest of the nation. (more)

Yves Lamoureux: Far From a Bubble, Treasuries Are Still a Buy

Treasury yields fell Friday, with the 2-year note hitting a record low 0.55%, after the government said U.S. GDP grew a weaker-than-expected 2.4% in the second quarter.

Get used to both more weak economic data and lower Treasury yields says, Yves Lamoureux, investment advisor at Macquarie Private Wealth.

"If you're looking at leading [economic] indicators, they are pointing down," he says. "There's no doubt the next quarter and the one following are going to be disappointing." (On Friday, the ECRI said its weekly leading index rose to 121.1 for the week ended July 23 from 120.6 the prior week; but the index's growth rate fell for an eighth-straight week.)

With the economy slowing, the "secular bull market" in Treasuries should continue, Lamoureux says, predicting 30-year bond yields will fall as low as the average of comparable debt in Japan and Germany, which is currently 2.575%. (more)

FDIC flashes SOS – 1,000 bank failures before recession is over – FDIC not too far away from tapping into U.S. Treasury $500 billion taxpayer lifeline

By the end of the recession, there will be approximately 1,000 bank failures. Does this sound extreme? It should but the numbers don’t cover the entire story. Since 2008 the number of bank failures has reached 269 and this doesn’t include consolidations done through the FDIC where bigger banks ate up smaller banks before they officially failed. Last week, 7 banks failed. At that pace, we are looking at 364 bank failures per year and the actual number of closings per week has consistently gone up. The FDIC is in a precarious situation. The Deposit Insurance Fund (DIF) is technically speaking, broke. They have added additional cash reserves by front loading premiums on surviving banks but this can only stunt the financial bleeding for so long. The problems in the banking system run deep and many of the smaller regional banks are failing because of commercial real estate loans going bad. (more)

How To Stay on the Winning Side of the Trade

Simon Maierhofer,

The area was known to be an idyllic sanctuary. Snowcapped mountains, crystal clear lakes, warm summers, a gentle autumn ... you get the picture. For nearly 180 years, Mount St. Helens remained silent, towering over the beautiful scenery below.

However, there were early warning signs pointing towards a potentially catastrophic eruption of the volcano. Most viewed them as nothing more than hot air (no pun intended).

Doug, a farmer who lived close to the foot of the mountain refused to evacuate. 'My mountain wouldn't do that to me' he said. Less than 24 hours later, Doug and his farm were buried beneath 70 feet of mud and volcanic debris.

What's the moral of this story?

1) Even subtle signs can foreshadow a significant event

2) Just because an event doesn't occur regularly doesn't mean it can't happen.

What does the 1980 eruption of Mount St. Helens have to do with the stock market? More than you'd think. (more)

State and Local Debt Bombs Ticking Throughout U.S. Heartland

By: David A. Patten, Newsmax

The 50 states have racked up a record $2.4 trillion in bond debt during the economic downturn – the highest level of state and local indebtedness in history, economic analysts warn.

State and local bond debt now consume a whopping 22 percent of the nation’s annual Gross Domestic Product – a bigger slice of the economic pie than ever before, according to Manhattan Institute senior fellow and City Journal senior editor Steven Malanga.

Based on an analysis of federal data on state indebtedness, Malanga calculates that state and local debt has skyrocketed from 12 percent of GDP in 1980, to 15 percent of GDP in 2000, to an estimated 22 percent in 2010. That’s the highest it has ever been, and those figures do not include the estimated $3 trillion in state and local pension obligations. (more)

US Economic Calendar For August 02-06

Aug 02 10:00 Construction Spending
-0.4% -0.8% -0.2%
Aug 02 10:00 ISM Index Jul
53.0 54.2 56.2
Aug 03
08:30 Personal Income Jun
0.1% 0.1% 0.4%
Aug 03
08:30 Personal Spending Jun
-0.1% 0.0% 0.2%
Aug 03
08:30 PCE Prices - Core Jun
0.1% 0.1% 0.2%
Aug 03 10:00 Factory Orders Jun
-1.0% -0.5% -1.4%
Aug 03 10:00 Pending Home Sales Jun
-5.0% -5.0% -30.0%
Aug 03 14:00 Auto Sales Jul
NA 4.0M 3.70M
Aug 03 14:00 Truck Sales Jul
NA 5.0M 4.8M
Aug 04 08:15 ADP Employment Change
25K 25K 13K
Aug 04 10:00 ISM Services Jul
52.0 53.0 53.8
Aug 04 10:30 Crude Inventories 07/31

NA NA 7.31M
Aug 05 08:30 Continuing Claims 07/24
4500K 4530K 4565K
Aug 05 08:30 Initial Claims 07/31
460K 455K 457K
Aug 06 08:30 Nonfarm Payrolls - Private Jul
70K 82.5K 83K
Aug 06 08:30 Unemployment Rate Jul
9.6% 9.6% 9.5%
Aug 06 08:30 Hourly Earnings Jul
0.0% 0.1% -0.1%
Aug 06 08:30 Average Workweek Jul
34.1 34.1 34.1
Aug 06 15:00 Consumer Credit Jun
-5.0B -5.7B -9.10B