Posted on 11 August 2010.Standard Podcast: Hide Player | Play in Popup | Download
Thursday, August 12, 2010
Jennifer Schonberger at Motley Fool
In August 2006, Peter Schiff, president of Euro Pacific Capital, offered what many considered to be an outlier prognosis for the economy: The exuberance would end, real estate prices would crash back down to earth, and consumers would revert to saving from spending. In short, a deep recession was in the works.
As outlandish as he may have sounded at the time, he was right. Four years and the worst recession since the Great Depression later, Schiff stands alone again with a bleaker diagnosis for the economy: an inflationary depression.
In an interview, Schiff, president and chief global strategist of Euro Pacific Capital, a candidate for U.S. Senate in Connecticut, and author of the new book How an Economy Grows and Why It Crashes, said he thinks the government's policies -- massive fiscal stimulus and a zero interest-rate policy -- have put the U.S. on a track for a collision course.
As such, to protect one's wealth, Schiff recommends divesting U.S. assets and dollar-denominated debt in favor of emerging markets. He likes natural resources economies like Australia, Norway, and Canada. (more)
Latest estimates are that man has existed for 2.5 million years. Capitalism for only the last couple hundred or so of those years. Before capitalism there was always the understood social contract that the leader or leaders of a society were expected to provide for the general welfare of the society’s people. Whether it was a tribal chief or king, there was always the implication that at some level there was a duty to provide for the safety and general welfare of the people.
Some societies were more egalitarian and shared better than others, but there was always the duty of the strong to provide for the weak. It would be foolish to postulate that the majority of civilizations and societies were more egalitarian than the U.S. after the Revolution. Many were not, but there was always the duty for the strong to protect and provide for the weak. It may not have been done well, but it was there. (more)
The economic profession and bankers on Wall Street have taken a hit to their credibility with missing the biggest recession since the Great Depression. It is understandable for the average person on the street to miss something as nuanced as a tiny recession but for a group of professionals whose mission statement involves understanding the economy and then to miss the biggest economic headwinds in a century is just inexcusable. This is no tiny recession. We have witnessed the unfortunate destruction of trillions of dollars and untold damage to the American working and middle class. Yet we are told from these same professionals that we are in a recovery. There is plenty of room to remain skeptical about this group.
If we look at the wealth destruction of U.S. households it becomes obvious why there is little feeling of recovery going around: (more)
Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.
What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.
Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”
But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.” (more)
Marc Faber: Protect Your Property with High Voltage Fences, Barbed Wire, Booby Traps, Military Weapons and Dobermans
He’s suggested that war, including traditional international conflict, civil war and non-traditional terror strikes, may eventually affect the United States and potentially turn it into what would could be perceived as a third-world country. Even if the US were to avoid a war on our own soil (which is unlikely according to Faber), the economic crisis will lead to serious problems for citizens by driving most into bankruptcy through hyperinflation of the US dollar, forcing most to literally fight for food and resources – thus he sees social unrest and riots on the horizon.
In addition to investment advice, Marc Faber also provides practical advice for those looking to preserve their well being. His advice is often looked at as a joke, but make no mistake, Faber is totally serious, even if he has a grin on his face when he says that the world as we know it is coming to an end. (more)
It is the most powerful economic data Statistics Canada produces, capable of making and breaking governments, moving markets and influencing interest rates. But questions are being raised about whether the monthly jobs reports are too wonky to trust.
Eyebrows were raised last week when the respected agency released its employment numbers for July, with some analysts saying they should be thrown out.
The big head-scratcher was the claim 139,000 full-time jobs had vanished, including 65,000 in education. Full-time jobs collapsed, but actual hours worked increased 0.3 per cent. And the country supposedly added 93,000 jobs in June but the number of hours worked fell. (more)
Government statisticians have put a number on Californians' paycheck pain last year: about $40 billion.
The federal Bureau of Economic Analysis said personal incomes of Golden State workers fell by that amount in 2009 compared with the previous year – the state's first year-to-year decline since World War II. In the Sacramento region, income was off about $800 million.
The bureau said 2009 income statewide totaled $1.56 trillion, down about 2.5 percent from $1.6 trillion in 2008. The 2009 level also came in just under the 2007 total.
California's decline was a third more than the national 1.8 percent personal income drop, reflecting the relative intensity of the state's recession. (more)
FORTUNE -- The Great Depression. Wall Street in 1987. Japan in 1997. Points of economic collapse are generally crystal clear in the rear-view mirror. Professional politicians in Japan have been telling stories for 20 years as to why they can prevent economic stagnation. In the US, the storytelling started in 2007. All the while, stock market and real-estate prices have repeatedly rallied to lower-highs, then collapsed again, to lower-lows.
Despite the many differences between Japan and the US, there is one similarity that continues to matter most in the risk management model my colleagues and I use at Hedgeye, our research firm -- debt as a percentage of GDP. Now that the US can't cut interest rates any lower, the only option left on the table is what the Fed just announced it would start doing -- buying Treasury debt. And that could lead the country to the brink of collapse: According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90% debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It's a point from which it's almost impossible to return. (more)
"Unfortunately what the Fed was able to do yesterday was confirm our fears that we're in an economic soft patch, and that they're going to continue with monetary policy that we had in the past," said Art Hogan, chief market strategist at Jefferies & Co.
Bringing it back into the loss column for the year, the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,379, -265.42, -2.49%) declined 265.42 points, or 2.5%, to 10,378.83.
Alcoa Inc. /quotes/comstock/13*!aa/quotes/nls/aa (AA 10.52, -0.14, -1.31%) led the blue-chip decline that extended to all 30 of the Dow's components, with shares of the aluminum manufacturer down 6.1%.