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Archive for June 23rd, 2010
Crime, Inc.
June 23rd, 2010 | 
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I think it is every American’s duty to understand what is going on within our government.
Open Contempt: Will The Judiciary Sit For It?
By Karl Denninger
We have a dictator in the White House folks:
WASHINGTON – Interior Secretary Ken Salazar said Tuesday he will issue a new order imposing a moratorium on deepwater drilling after a federal judge struck down the existing one.
Salazar said in a statement that the new order will contain additional information making clear why the six-month drilling pause was necessary in the wake of the Gulf oil spill. The judge in New Orleans who struck down the moratorium earlier in the day complained there wasn’t enough justification for it.
That’s an open act of contempt of court.
The administration had its opportunity to argue it’s case. It failed to persuade, in no small part because it filed it’s brief containing the “report” in which it intentionally cast in false light the statements of several experts that were consulted.
The Judge properly saw through this and ruled against the administration.
The administration has a right of appeal and to ask for a stay on the judge’s order.
It does not have a right to ignore or circumvent the Judge’s order, irrespective of the fraudulent device it might choose to employ to do so.
We either live in a land where the judiciary is the place you go for adjudication of disputes or we live in a Kingdom with a self-appointed ruler and King.
Which is it?
District Judge Feldman is now compelled to hold Ken Salazar in contempt of court for willfully and intentionally evading his lawful order.
Salazar said in his late Tuesday statement imposing a moratorium “was and is the right decision.”
It doesn’t matter whether you believe it was the right decision or not. You were overruled by a court of law.
Getting a Grip on Reality – Reflation Dead in the Water
Economist Dave Rosenberg warns investors to Get a Grip on Reality.
Double-dip risks in the U.S. have risen substantially in the past two months. While the “back end” of the economy is still performing well, as we saw in the May industrial production report, this lags the cycle. The “front end” leads the cycle and by that we mean the key guts of final sales — the consumer and housing.
We have already endured two soft retail sales reports in a row and now the weekly chain-store data for June are pointing to sub-par activity. The housing sector is going back into the tank – there is no question about it. Bank credit is back in freefall. The recovery in consumer sentiment leaves it at levels that in the past were consistent with outright recessions. Last year’s improvement in initial jobless claims not only stalled out completely, but at over 470k is consistent with stagnant to negative jobs growth. And exports, which had been a lynchpin in the past year, will feel the double-whammy from the strength in the U.S. dollar and the spreading problems overseas.
Spanish banks cannot get funding and another Chinese bank regulator has warned in the past 24 hours of the growing risks from the country’s credit excesses. A disorderly unwinding of China’s credit and property bubble may well be the principal global macro risk for the remainder of the year. Indeed, perhaps the equity market finally realized yesterday that allowing China more control to defuse an internal property and credit bubble may well be a classic case of “be careful of what you wish for.”
The Bond Cycle and Deflation
I was at an event recently where I was able to see two legends among others – Louise Yamada and Gary Shilling. Louise made the point that while secular phases in the stock market generally last between 12 and 16 years, interest rate cycles tend to be much longer – anywhere from 22 to 37 years; and she has a chart back to 1790 to prove the point! So while all we ever hear is that this secular bull market in bonds is getting long in the tooth, having started in late 1981, it may not yet be over. After all, the deleveraging part of this cycle has really only just begun and if history is any guide, it has a good 5-6 years to go – at a time when practically every measure of underlying inflation is running south of 1%.
Double Dip, Anyone?
The data suggests that we are now seeing the consumer sputter with what looks like a very weak handoff into the third quarter. The housing sector is collapsing again. The export-import data are pointing to a sudden deceleration in two-way trade flows. Commercial real estate is dead in the water. Bank credit is in freefall right now.
There is still something left in the tank as far as capex and inventory investment is concerned, but by the fourth quarter, we could well be looking at a flat or even negative GDP print.Even if we don’t get a double-dip recession, economic growth will probably be insufficient to absorb the still-large amount of excess capacity in the system. What that means is that the U.S. unemployment rate will remain high for as far as the eye can see. It also means that inflation and interest rates will remain low for a sustained period of time, and that a stock market priced for peak earnings in 2011 could be in for some disappointment.
Yield Curve as of 2010-06-22
click on chart for sharper image
The above chart shows Weekly Closing Yields.
The chart does not reflect inflation, inflation expectations, reflation, or an improving economy. It does reflect what one would see after a reflation effort that has failed.
Yet, equities are priced not only for reflation, but for a strong reflation at that. Either stocks or the yield curve is wrong. I suggest you pay attention to the yield curve.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Politics Is The Art Of Boning The Public
By Karl Denninger
You didn’t really think it was about the “art of compromise” or “the art of the possible”, right?
June 23 (Bloomberg) — Senate negotiators will probably offer changes today that would soften the Volcker rule by allowing banks to sponsor hedge funds and invest their own money, within limits, alongside that of clients.
Yeah, here we go. “Invest their own money”?
Uh, what money is that, precisely?
Banks, of course don’t have any of “their own money.” They have deposits, which are your money, and they have shareholders and bondholders paid-in capital, which is the shareholder’s and bondholder’s money.
The former’s money isn’t supposed to be theirs, and the latter’s wasn’t given to the bank for the purpose of playing in high-risk commodity, futures, and “high frequency trading” markets.
To the contrary: Banks exist to take the latter and use it to make loans to individuals and corporations, which secured by collateral then use that for various business and personal purposes.
This, incidentally, when used for “productive investment”, manifesting in the purchase of a machine that makes car parts, a building to run an air-conditioning business from or a truck used to haul goods from a farmer to the grocery store, is how one uses leverage – that is, borrowed money – to attempt to further economic expansion and common benefit for the entrepreneur (he or she hopes) and society as a whole (through the provision of those goods and services.)
There are, of course, other uses for leverage. Consumption, otherwise known as “A Hamburger today for money next Tuesday!” is one common (if, in the main, idiotic) use of same.
But then there is speculative leverage – that is, the use of borrowed money simply to speculate on the future price of a thing – whether it be houses, stocks, bonds, commodities or the outcome of a soccer match.
That latter act serves no productive purpose in the economy. Oh sure, if you’re right it can make you wealthy, but by definition for every winner in such a contest there is a loser, and what’s worse, the house always gets a cut.
As approved by the Senate last month, the Volcker rule, named after former Federal Reserve Chairman Paul Volcker, would ban U.S. banks from trading with their own capital and running hedge funds. It has been the target of last-minute lobbying by banks including Bank of New York Mellon Corp. and State Street Corp. The two banks are concerned that their asset-management activities would be curtailed, since many of their funds could be considered hedge funds although they don’t engage in risky bets, people familiar with the banks’ arguments said.
Of course it is.
After all, we would never have banks and other institutions that might have inside information on the things they bet upon, thereby being able to know the outcome of a horse race before it is run right? We’d never see, for example, BP’s problems with a rig in the gulf get reported to MMS, and then magically Goldman Sachs would sell a huge stake in the firm – a month before it blows up and sinks.
And we’d never have banks that are involved in the routing and allocation of capital to firms for productive investment able to bet on the outcome of those same firms, right? After all, if you could both make decisions on the routing of that capital and bet on the outcomes, you’d be able to know in advance whether the bets were good in at least some of the cases, yes? That could invite mischief of various forms, yes?
I’m sure we can trust our banks and other financial institutions to only act in the best interest of America in general and the firms that are dependent on them for financing and clearing services. After all, there would never be any sort of back-stabbing or worse, outright fraud in things like securitized debt, taking notes in blank, assigning them to more than one pool (thereby getting paid twice) and other similar things. There’s also no record of banks and other financial entities bribing people and worse in various funding markets, like GIC contracts and sewer projects for our state and local governments.
Any concerns about such behavior are obviously the rantings of someone who is a conspiracy nut, without any reference to actual recent events over the last few years.
Yeah, right.
Posted in Banks, Corruption, Economic Crisis, Federal Reserve, Financial System, Fraud, Government, Money | 
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Middle class shackled by banking debt chains. 113 million households each owe an average of $113,000 in banking debt for mortgages, student loans, credit cards, and auto loans. $45 trillion in household sector debt, government debt, and domestic financial sector debt.
The middle class has been systematically shackled by large amounts of debt, banking debt to be exact in a new form of financial serfdom. Much of this started in the early 1970s on par with the deficits don’t matter policy that engulfed our monetary policy for the next four decades. Like any giant structure built on debt, there is usually a point where a sort of debtor’s spiral will hit. Many middle class Americans have seen this occur with their credit card debt, mortgages, and auto loans. This also comes at a time when we have a record amount of two (or more) income households. More people are working under one roof but earning less and less in low paying service sector jobs. If it wasn’t for the two income trap, we’d see how shackled the public is to the banking debt that is so pervasive in America.
This amount of debt will cripple any recovery. Take a look at the current trap:
Source: CNN
You can see how with even two breadwinners, many families are merely running fast enough to stay on the middle class treadmill. Lose one job like many millions of Americans are and the semblance of any middle class lifestyle is now gone. That is why we have 40 million Americans receiving food assistance and stories of people waiting at midnight at Wal-Mart during the end of the month for food purchases as their debit cards are refilled with government funds. You have to ask where these funds come from. The U.S. Treasury and Federal Reserve have bailed out everything in their line of vision including trillions of dollars to the banking system. Is it any wonder why foreclosures and bankruptcies are near peak levels? It is a carte blanche insolvency.
This massive growth in debt can be seen rather clearly starting in the 1970s:
But if we want to break down the debt even further, we can put the debt into smaller categories:
Add up the above sectors and you will find that the U.S. has $45 trillion in total outstanding debt! The household sector carries roughly $13 trillion of this but I think there is a misnomer when delineating between household debt and also, government debt. What is the government if not the aggregate of all the people in the nation? Who will carry the cost of all this debt going forward? If you want to try some troubling hypothetical scenarios try figuring out how long it will take us to pay off $45 trillion. It will never happen.
How heavy are the debt shackles for Americans? Let us simply look at the U.S. household debt sector that includes mortgage debt, student loans, auto loans, and credit cards.
Total U.S. households 113,000,000 / $12.77 trillion household debt = $113,000 average debt for each household
Now the above is a stunning figure. The median household income in the U.S. is roughly $52,000 so each household would have to put 100 percent of their gross income for two years to pay off their share of the household sector debt. If we run the numbers for the above $45 trillion the figure is simply daunting:
Total U.S. households 113,000,000 / $45.65 trillion in multiple sectors of debt = $403,000 average debt for each household
Now debt in itself isn’t necessarily bad. Yet when you rely on debt for the primary engine to move the economy that is when problems begin to arise. The two income trap for middle class Americans has been softened by the use of debt:
The single-income family in the early 1970s had more financial stability and wealth than the current middle class family that has a large part of their income going to servicing large amounts of debt. This all came to a boiling point with the housing bubble.
Middle class Americans are now taking on the brunt of this current correction while the banking sector seems protected from any outside influence. Banks can still suspend mark to market accounting while any middle class household that tries this will be foreclosed on or see their credit rating slashed. Imagine if you had the ability to value your assets as you saw fit at hyper inflated levels. Also imagine that you had the ability to borrow what would seem like an unlimited amount of money at zero percent from the Federal Reserve. Life would be better but you are no part of the banking elite so you have to operate in a world that is governed by artificial market forces. The debt you pay to banks operates under free market rules while the debt banks take on from the government operates in an oligarchic fashion.
The middle class is quickly disappearing. It doesn’t seem like any political party is willing to take on the battle for what is right for the nation. Piecemeal type of approaches won’t have any impact on a market that is crying for radical reformation. Instead, this crisis has actually provided a platform for the banking sector to consolidate power and really squeeze every ounce of productivity from the middle class. The chains of debt are being tightened on the hands of the working and middle class. The data we are seeing do not show any reversal of this trend.
Now The Cops May Be Getting Scammed!
By Karl Denninger
How much longer folks before we start throwing all the crooks in jail?
In the e-mail dated June 18, K. Wayne McLeod, who served as CEO of the Federal Employee Benefits Group, Inc., told clients he was terminating the “FEBG Fund,” a fund that had been marketed to retired federal law enforcement officers. McLeod said interest payments for the month of June had “been suspended” and “nothing further [would] be sent.” In the e-mail, he informed clients that he was praying that they would forgive him at some point in the future.
Forgive him at some point in the future?
That sounds like something someone would say at a sentencing hearing.
Eh, hope you didn’t have any money over there.
The key is “didn’t have” – not, if this report is correct, ”still have.”
Posted in Corruption, Economic Crisis, Economy, Fraud, Pension Crisis, Pension Underfunding, pensions |
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proudly supports:
Bill Still For President
for Congress
Michigan 11th District
By Bill Still
There is only one answer for the world economic situation; monetary reform.
1. No More National Debt
2. No More Fractional Lending
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