FedUpUSA

Archive for July 27th, 2010

Paris, France – There are two major schools of thought on what is coming next…and two renegade, home-schools too. There are those who believe we have a recovery…though weak…that will continue and eventually bring the economy back to health. This is the line of the Obama Administration and most mainstream economists.

Then, there are those who think the recovery will not come as planned…and that the feds’ efforts to spur a recovery – along with strong demand from Asia and the emerging markets – will lead to higher levels of inflation, destroying the dollar and bonds. This is what Marc Faber expects. He urges listeners to avoid going too heavily into cash, since it might be the number one victim of inflation. Instead, you’ll do better in stocks and real estate, he says.

A third line of thinking is what Faber calls “hard core deflationism” – typified by Robert Prechter and Gary Shilling. They think the de-leveraging trend will be catastrophic – leading to outright deflation, taking the Dow down below 1,000, for example.

Then, there’s The Daily Reckoning line. You can call it “soft-core deflationism”:

1) There is no recovery; there won’t ever be a recovery
2) The de-leveraging period will be longer and harder than people expect…leading to spells of deflation and double…triple…dipping
3) The feds will fight it with every weapon available
4) However, they will not push the ‘nuclear button’ – wanton, reckless money printing – until the bond market cracks
5) It will not crack soon, because the feds are incompetent; they will not succeed in getting higher rates of inflation; at least, not soon.
6) The dollar will remain strong. Bonds will go up…for now…
7) The Dow will fall…but not below 1,000…probably not below 5,000

What does that mean for gold? Well, it means gold won’t do spectacularly well. It might decline…say, down to $850 or so.

Eventually, the bull market in gold will resume, however. You can’t keep a good metal down. Just don’t expect it to go up dramatically while the private sector is reducing its debts in an orderly fashion.

Does that mean you should sell your gold? We wouldn’t if we were you. Because something could go very wrong. Another big bank failure. A blow-up in China. It wouldn’t take much to cause a panic. Investors could turn to gold for security.

Or, maybe the feds will panic…and dump dollars from helicopters as Ben Bernanke threatened.

Besides, we could be wrong. Predictions are always difficult to get right. Especially when they’re about the future.

Regards,

Bill Bonner
for The Daily Reckoning

Bailed out Blankfein’s $41 million Hamptons pad.

Transparency piece from the Financial Times this morning.  The $400 Bilsky figure is just for Q1 of ’09.  BIS hasn’t gotten around to the other nine months of lies.

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As many as five US banks failed to report hundreds of billions of dollars in credit derivatives bought from foreign counterparties during 2009, leaving those risks below the radar of regulators in the US and Europe.

The banks’ underreported exposures to credit default swaps came to light as the US Federal Reserve and the Bank for International Settlements were preparing first-quarter reports of the industry’s lending and risk activities. It was revealed as a footnote to the BIS report’s lengthy tables.

The BIS became alarmed at the discrepancy, according to one official familiar with the report.

“This underscores how little transparency there was and how much information was missing,” said one BIS official familiar with the report.

The missing exposures came from a group of financial institutions that were hastily granted bank holding company status in 2008 as panic engulfed the world’s financial system. The rapid conversion to bank status allowed them to borrow cash from the Fed, if needed, as liquidity threatened to dry up.

The mishap underlines how the conversion also introduced those companies to a raft of complex bank reporting standards, and raises new questions on the lack of scrutiny they faced under previous regulators.

The Fed, following a review of its quarterly report on cross-border risks, discovered that the group, which included Goldman Sachs, Morgan Stanley, American Express and CIT, only submitted claims on credit derivatives up to the amount where there was a corresponding position to hedge against. The additional risks, which totalled $400bn in the first quarter, were left out.

• Continue reading at the FT

The Daily Bail

Without millions more good jobs, the U.S. economy is simply never, ever going to recover.  But at this point, there is every indication that the U.S. economy is going to continue to bleed jobs.  In the past, employment would bounce up and down as the economy went through various cycles.  But today what we are witnessing is something much different.  Over the past 30 or 40 years, literally millions of good jobs have been shipped off to China, India and to dozens of third world nations where half-starving workers are more than happy to slave away for big global corporations for less than a dollar an hour.  In the new “global economy” that we were promised would be so good for us, the expensive American worker is obsolete.  The giant global predator corporations that now dominate our economy do not exist to provide you and your family with a nice home, two cars and college educations for all your children.  No, their goal is to keep costs as low as possible so that their profits will be as high as possible.  For many of these giant global predator corporations, that means that paying workers as close to zero as possible is the best decision for the bottom line. 

The truth is that the American people were never told that “free trade” and a “global economy” would mean that they would soon be lumped into a giant global labor pool and would be forced to compete for jobs with people on the other side of the globe.

No, we were just told that we should enjoy all of the cheap plastic crap made overseas that all of the “big box” retail stores were pushing us to buy.

Well, the party was fun while it lasted.  Americans ran up unprecedented amounts of debt on their credit cards buying all this stuff, while our once great manufacturing cities degenerated into rotted-out war zones.

But isn’t it a good thing to get all these products at such a cheap price?

After all, who wants to pay substantially more for things?

Well, running an economy this way is kind of like tearing off pieces of your house in order to keep your fire going.  Sure the fire will burn brightly for a while, but eventually you will have torn down your entire house.

One way or another, we end up paying dearly for the jobs we have shipped overseas.

You see, the millions of Americans who are now chronically unemployed because of “free trade” have to be supported by the U.S. government.

That means that it is the U.S. taxpayers who end up footing the bill.

You didn’t think that we were going to let all of those unemployed workers starve in the streets, did you?

Without good jobs, an increasing number of Americans are becoming completely dependent on government handouts.

Already, state governments across the United States are going broke trying to pay out unemployment benefits to the hordes of Americans who don’t have a job and can’t find a job.

In addition, for the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.

Also, according to one new study, somewhere around 21 percent of all children in the United States are living below the poverty line in 2010, which is the highest rate in 20 years.

The truth is that more Americans are dependent on direct payments from the federal government than ever before.

But how long can we afford to support the millions upon millions of Americans who have been impoverished by this new “global economy”?

The U.S. government budget deficit was a record $1.4 trillion in 2009.  Now the White House says that we will exceed that figure in 2010 and again in 2011.

So just how long can we afford to run deficits equivalent to 10 percent of GDP?

Anyone with half a brain knows that these kind of debts are not anywhere close to sustainable.

So where is the money going to come from to pay for these exploding government programs?

Well, from you of course.

Recently I dubbed 2011 “the year of the tax increase”.  A whole slew of new taxes is scheduled to go into effect starting next year that will impact every single American taxpayer.

It is almost enough to make you want to stop working and start collecting government handouts instead.

But the American people don’t need even more handouts.

Handouts are only a temporary solution to a long-term problem.

What the American people need are good jobs.

But where in the world are these jobs going to come from?

The reality is that in the new “global economy”, the United States is a very unattractive place to do business.

If you were a global corporation, would you rather open a new facility in the third world where there are very few rules and regulations and where people will work for less than a dollar an hour, or would you rather open a new facility in the United States where there are literally thousands of laws and regulations to comply with and where you are going to have to pay workers at least ten times as much?

It doesn’t take a genius to see where all of this is headed.

For decades, an increasing number of Americans have been forced into lower paying service jobs, but now there aren’t even nearly enough of those to go around. 

But it isn’t just the jobs that have been shipped overseas that are depressing wages and causing unemployment to skyrocket.  The millions of illegal immigrants that have flooded unchecked across the border have depressed wages and fundamentally changed the employment picture in industries such as construction and food service. 

Not only that, but in this environment not even high tech workers are safe.  In fact, there are some corporations in the high tech industry that have been openly abusing worker visas to ship in large numbers of foreign workers to replace more expensive American employees.

What all this means is that it is becoming much more difficult to live a middle class lifestyle in the United States.

Perhaps that is why one of my articles struck such a nerve recently.  An article that I originally wrote for The American Dream blog and adapted by Business Insider has gone mega-viral and has ended up on Yahoo Finance.  The article was entitled “The Middle Class In America Is Radically Shrinking – Here Are The Stats To Prove it” and it has received over 9000 comments on Yahoo.

So why did it provoke such an extraordinary response?

Well, because it hits people where they live.

Today, millions of American families are really struggling.  Record numbers of middle class Americans are receiving foreclosure notices and record numbers of middle class Americans are going bankrupt.

In fact, more Americans than ever find themselves just trying to survive.

According to a poll taken in 2009, 61 percent of Americans ”always or usually” live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.

You see, the truth is that most American families are not concerned with saving for retirement or even with planning for next year.  In this economic environment, most American families are worried about how they are going to survive until next month.

So who has been doing well in the new global economy?

The very, very wealthy of course.

According to Harvard Magazine, 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans.

Now, the truth is that there is absolutely nothing wrong with making money, but by any reasonable standard an economic system that produces such skewed results is horribly broken.

So will “redistributing the wealth” solve things?

No, it won’t.

At best, “redistributing the wealth” is only a temporary solution and it always ends up creating a lot of long-term problems.

What the American people really need are millions more good jobs.

But as we have seen, the current imbalances in the new “global economy” make it more likely that the American people will continue to lose millions more good jobs rather than gaining them.

Unless something is done, the standard of living for middle class Americans will continue to be forced down as labor increasingly becomes a global commodity.

So are you just going to accept that, or are you going to start demanding that your representatives change things?

The choice is up to you.

The Economic Collapse