FedUpUSA

Archive for January 3rd, 2010

The next economic perfect storm – should start mid February.

By Daniel

it may crush the existing structure of Fannie and Freddy and drag the economy further down, no matter how many dollars the fed throws at it

here are the events:

each individual event will have no visible effect, but combined will crash the economy:

these are all pending events, many listed on MW as individual events, but no one looks at them all together – but that is how we will feel them in our wallets

financial:
- the next wave of ARMs will start to reset,
- mortgage rates will go up,
- the next wave of foreclosures will hit,
- the default on holiday expenditures will cause more chapter 7 and 13 filings,
- retailers will know how little they made, and many will go chapter 11, or just close

taxes:
- the fed will start seeing how little revenue they got from business because of COBRA extensions and funding, and push for new taxes
- states will start locking in on the lower incomes from wage taxes, and looking to raise taxes,

employment
- employer hiring will slow even more, as the employer tax mandates for health care kick in
- employers will see the new unemployment tax rates which will come due, and lay off or not hire to be able to meet those expenses
- seasonal job losses will be posted as the holiday labor surge ends
- this also be when the numbers are issued for the “new” unemployment extension enrollment and it will “true” the unemployed picture,

health reform effect:
- consumers will see the effect of the new FICA rates and cut spending even more
- the 40% luxury tax on those fine health plans will kick in, and families will see a 20 – 30 % drop in disposable income
- the insurance companies will pass on the taxes they have under the new health bill, and that will cut another 5 – 10% off of each person’s disposable income
- the manufacturers of medical products (tampons, bandages, medical wipes, chairs etc) will pass on the tax they were given, further affecting disposable income
- the Fed will have published the health bill details – and states will see how much they will have to pay, forcing tax increases
- insurance company rates will climb as a result of the new health plan taxes, effective immediately

banking:
- FDIC will collect next 3 years worth of fees to cover the depleted funds from the bank failures
- banks will tighten lending even more, as they scramble to meet the FDIC “tax”,
- 10% of banks will become financially unstable because of the depleted reserves and will be taken over by the newly funded FDIC

and so the next economic collapse happens -just in time for the elections

those that remember history will see that this perfect storm will make the impact of the “luxury” tax and it’s effect on RV’s, Boats and similar look like nothing

- P-T-Barnum-was-right

The Fallacy of Gold Backed Money

To download a printable version, click on The Fallacy of Gold Backed Money

Bill Still – The Still Report, Why Gold Money Won’t Work Part I (5:47):

Bill Still – The Still Report, Why Gold Money Won’t Work Part II (9:59):

Sunday Funnies…..

Funniest Economic Video of the Year 2009 award goes to…

The Government Can:

Is the US Goverment Preparing the Lifeboats for the Next Financial Disaster?

Zero Hedge has an interesting review of proposed rule changes by the SEC and the Obama Administration which you can read in its entirety here.

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7.

The primary concern seems to be the new ability of money market fund managers to freeze redemptions (withdrawals) of funds at their discretion.

“A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to ‘suspend redemptions to allow for the orderly liquidation of fund assets.’”

If you have the time, you should sit down and read through the entire essay at ZH, because it is fascinating. I understand that many will not because of the length and density of the piece, which is really not all that bad, and fairly well written as all of their pieces tend to be. I am not so adverse to some of the other changes in the MMFs such as the tightening of durations, but that is more a quibble.

One also has to wonder if and when the government will begin to more aggressively manage the access of private citizens to their 401K’s and IRA’s and other forms of savings. Or is it just sufficient to manage the things that one might hold in them. Hard to say.

Now that the government will be forcing Americans to buy private health insurance (and presumably use it to prevent certain trasmittable diseases for the public good as your private health insurer will have your records) where will they stop? What about life insurance, long term disability insurance, and retirement plans? How about psychological counseling and sensitivity training for social malcontents? “A gram is better than a damn.”

Here is the concluding paragraph from this essay and I wanted to highlight it here because otherwise it will be overlooked by many who should read and understand it. The conclusions that the author draws about WHY the changes are being made are more important perhaps than the changes themselves. Or at least to me, because I have very little money in any US money market fund, and even that is 100% short term Treasuries. The fraud and mispricing of risk in the US financial system has become pervasive and epidemic, such that a good stiff headwind could have taken it all down, and because of a lack of serious reform, still can. Rather than fixing potential causes of the next disaster, the Obama Administration seems content to block the escape routes and issue priority passes to the big Wall Street banks and a favored few.

“At this point it is without doubt that even the government understands that when things turn sour, and they will, the run on the bank will be unavoidable: their solution – prevent money from being dispensed, when that moment comes. The thing about crises, be they liquidity, solvency, or plain-vanilla, is that “price discovery” occurs all at once, and at the very same time. And all too often, investors “discover” they were lied to, as the emperor, in any fiat system, always has no clothes.

Just like in September 2008, when the banks were forced to look at each-others’ balance sheet and realize that there are no real assets on the left backing up the liabilities on the right, so the moment of enlightenment occurs are the most importune time: just ask Hank Paulson. Had he known his action of beefing up Goldman’s FICC trading axes would have resulted in the “Ice-Nine’ing” (to borrow a Mark Pittman term) of money markets, who knows- maybe Lehman would have still been alive. Perhaps risking the cash access of 20% of US households and 80% of companies was not worth the few extra zeroes in Goldman’s EPS. But we will never know.

What we will know, is that now i) the government is all too aware that the market has become one huge ponzi, and that all investment vehicles, even the safest ones, are subject to bank runs, and ii) that said bank runs, will occur. It is only a matter of time. And just as the president told everyone directly to buy the market on March 3, so the SEC, the Group of 30, and Barney Frank are telling us all, much less directly, to get the hell out of Dodge. Alternatively, the game of “last fool in”, holding the burning hot potato, can continue indefinitely, until such time as the marginal utility of each and every dollar printed by Ben Bernanke is zero.”
This Is the Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied – ZeroHedge

Stand your ground and wait. All is well. Someone has to take the big hit while the important people are transported to safety.

The only constraint on the Fed’s printing money is the acceptability (marginal value) of the Bond and the dollar, which is the bond of zero duration. And the people making the decisions about printing and distributing those dollars are more unworthy of holding such power than you might imagine, even in your lowest expectations.

And if, even now, you do not ‘get this’ then the next ten years could be particularly disappointing.