FedUpUSA

Archive for November 4th, 2010

Glenn Beck explains devaluation and how it effects you:

Jim Grant:  “Everyday Low Prices” Ending

Jim Grant gets this right: Bernanke is telling you that what you do every weekend – go out into the marketplace looking for low prices – is something he intends to destroy.

READ THAT AGAIN: HE INTENDS TO TAKE “FALLING PRICES” – WALMART’S ENTIRE BUSINESS MODEL – AWAY FROM YOU ON A PERMANENT BASIS!

Listen around 5:00 in here – if this doesn’t explain how you are going to get screwed by QE2 in a form you can understand nothing will.

Wake up America!  YOU’RE BEING ROBBED BLIND!  And not just you, but your children and their children. 

STOP THE LOOTING AND START PROSECUTING!

Time to:

1. Call your STATE Attorney General.  Tomorrow.

2. Your Congressman – including your NEW ONE, if your present one was just ousted.

3. Your Senators – and ditto on the ousted ones.

4. Your Sheriff.  He’s the county’s highest law-enforcement authority.

And make this clear: Until the prosecuting is done nothing else matters.  Nothing else is to be passed.  Nothing else is to be spent.  Nothing.  And if you don’t, the repercussions will be political and economic.  We, the people, have the power and these aren’t requests – they’re demands.

You think the people don’t get it eh?  Uh, yes they do.

David Stockman, former Reagan Budget Director – he gets it.

Here’s the deal folks.

The banksters asset-stripped the public.  Twice.  The first time in the 1990s with the Internet bubble, the second time in houses.  If you bought a home from 2003 onward you got screwed.  It doesn’t matter if you were a good borrower or not – you overpaid.  American business was also asset-stripped.  We covered this by shipping our labor off to China, India and Vietnam.

During the last part of the 2000 decade, the Federal Reserve, Bank Regulators, Government and the Banks themselves were all in on it.  We know this.  We know it because Citibank’s former Chief Underwriter has testified to it under oath.  It is not speculation or mathematics, it is admitted fact.  This was an intentional, malicious act that involved government and finance.  Your “representatives” didn’t represent you, they represented the banks.  They acted as guards not of your wealth, but instead they held you at gunpoint while the bank robbed you.  This is the proximate cause of the market and economic collapse – your productive wealth was literally stolen through these frauds.

Now they’re at it again.  First, Ben Bernanke imposed, without a vote, a tax on the American People of over $1 trillion through his original “QE ” game.  This went immediately into commodity and stock prices worldwide but was in fact a tax on you, and on every productive business.  This is the reason that unemployment remains at close to 10%.  By now we should be well on our way to recovery.  The government blew $600 billion on stimulus programs.  They got nothing for it because of QE, which took it all back out, plus more through the tax – a tax that went directly into the bankers pockets.  This unlawfully-imposed tax was used to cover the banks’ insolvencies, along with the blatant extortion practiced by Rep. Kanjorski on FASB (who, incidentally, lost his seat Tuesday.)  But the banks did not clear their balance sheets – they are, in fact, still insolvent.  Instead, they literally took the money and paid it in bonuses.

Now that the banks are once again running out of money Ben Bernanke is at it again.  He has announced another $600 billion in illegal taxation on America, and intends to give it again to the bankers.  A good part of it already showed up in oil and other commodities.  The rest of it will.  It is guaranteed.  The “benefit” will go overseas.  The tax will fall on you.

THIS IS THE LARGEST TAX EVER IMPOSED ON THE AMERICAN PEOPLE IN THE HISTORY OF THE NATION.  IT IS MORE THAN FOURTEEN TIMES THE BUSH TAX CUTS “ON THE RICH” THAT EVERYONE IS DEBATING.  GOLDMAN SACHS BELIEVES THAT BERNANKE WILL IMPOSE A TOTAL TAX THROUGH QUANTITATIVE EASING OF MORE THAN FOUR TRILLION DOLLARS OVER THE NEXT TWO YEARS, OR MORE THAN FIFTY SEVEN TIMES THE BUSH TAX CUTS.

If you, America, do not rise and stop this NOW you’re all going to be effectively dead economically.

Your assets will be stripped.

All of them.

Your homes.

Your businesses.

Your savings - as if having the earnings you can receive on a safe CD cut from 5% to 0.5% isn’t bad enough.

And, when the inevitable margin collapse comes in the corporate sector, your stock portfolio will detonate again and your pension funds, Medicare, Medicaid and Social Security will be gone.

Either you rise and stop Bernanke and The Fed, or he – and they – win – and we all lose.

There is no “individual path” that will keep your assets safe from this.  There is no means to hide, so long as you’re an American citizen and live in this nation.  

We have two choices: we collectively stop this madness or we all get destroyed. 

Those are the only choices.

For three years and change I have warned of this outcome.  I have pointed out that there is three trillion dollars or more of losses that have to be taken in the economy.

Those losses should fall on the banksters who committed these acts. Doing so will cause these banks to be taken into receivership.  They will have to be resolved.

Virtually none of those losses attributed to them have been taken by these institutions. 

These losses have all fallen on you, through unemployment, through higher energy prices and higher prices at the grocery store.  All of these are taxes that are being illegally imposed on you by a Central Banker who lacks the legal authority to impose a tax.

Yet he’s doing it, and you’re being told to cheer because the DOW is up 200 points.

I want to note that in 2007 I wrote a similar Ticker urging people to stop this bastard when he started interfering like this.  You did nothing, because the S&P was headed to 1576 and the DOW over 14,000 on the back of his original “rate cuts” and other machinations.  I was called all sorts of names, the kindest of which were “kook.”  You sat on your hands instead of rising to stop this crap and were repaid by watching your portfolio get cut by 60% in the next two years, two major banks blowing up in an uncontrolled fashion, and threats of tanks in the streets.

If you do not stop him – remove him from office – NOW - you will be destroyed. 

That is a certainty.

We no longer have the “margin” to absorb another mistake like the last one.  And the crap that Bernanke is pulling now is the mother and father of all mistakes.

It’s your choice America – but where this road leads is not open to debate.  These institutions that robbed you can only survive the consequences of their acts by destroying you, and they are hellbent and determined to do exactly that, with Ben Bernanke as the man who is literally destroying not only your economic present, but the future as well for yourself and your children.

You no longer have the luxury of time.

Buckle up and hold on – a new round of quantitative easing is here and things could start getting very ugly in the financial world over the coming months.  The truth is that many economists fear that an out of control Federal Reserve is “crossing the Rubicon” by announcing another wave of quantitative easing.  Have we now reached a point where the Federal Reserve is simply going to fire up the printing presses and shower massive wads of cash into the financial system whenever the U.S. economy is not growing fast enough?  If so, what does the mean for inflation, the stability of the world financial system and the future of the U.S. dollar?  The Fed says that the plan is to purchase $600 billion of U.S. Treasury securities by the middle of 2011.  In addition, the Federal Reserve has announced that it will be “reinvesting” an additional $250 billion to $300 billion from the proceeds of its mortgage portfolio in U.S. Treasury securities over the same time period.  So that is a total injection of about $900 billion.  Perhaps the Fed thought that number would sound a little less ominous than $1 trillion.  In any event, the Federal Reserve seems convinced that quantitative easing is going to work this time.  So should we believe the Federal Reserve?

The truth is that the Federal Reserve has tried this before.  In November 2008, the Federal Reserve announced a $600 billion quantitative easing program.  Four months later the Fed felt that even more cash was necessary, so they upped the total to $1.8 trillion.

So did quantitative easing work then?

No, not really.  It may have helped stabilize the economy in the short-term, but unemployment is still staggeringly high.  Monthly U.S. home sales continue to come in at close to record low levels.  Businesses are borrowing less money.  Individuals are borrowing less money.  Stores are closing left and right.

The Fed is desperate to crank the debt spiral that our economic system is now based upon back up again.  The Fed thinks that somehow if it can just pump enough nearly free liquidity into the banking system, the banks will turn around and lend it out at a markup and that this will get the debt spiral cranking again.

The sad truth is that the Federal Reserve is not trying to build an economic recovery on solid financial principles.  Rather, what the Federal Reserve envisions is an “economic recovery” based on new debt creation.

So will $900 billion be enough to get the debt spiral cranked up again?

No.

If 1.8 trillion dollars didn’t work before, why does the Federal Reserve think that 900 billion dollars is going to work now?  This new round of quantitative easing will create more inflation and will cause speculative asset bubbles, but it is not going to fix what is wrong with the economy.  The damage is just too vast as Charles Hugh Smith recently explained….

Anyone who believes a meager one or two trillion dollars in pump-priming can overcome $15-$20 trillion in overpriced assets and $10 trillion in uncollectible debt may well be disappointed.

In fact, economists over at Goldman Sachs estimate that it would take a staggering $4 trillion in quantitative easing to get the economy rolling again.

Of course that may eventually be what happens.  The Fed may be starting at $900 billion just to get the door open.  With these kinds of bureaucrats, once you give them an inch they usually end up taking a mile.

So why should we be concerned about quantitative easing?  The following are 9 reasons why quantitative easing is bad for the U.S. economy….

#1 Quantitative Easing Will Damage The Value Of The U.S. Dollar

Each time you add a new dollar to the system, it decreases the value of each existing dollar by just a little bit.  Now the Federal Reserve is pumping 900 billion dollars into the system and that is going to have a significant impact.  Bill Gross, the manager of the largest mutual fund in the entire world, said on Monday that he believes that more quantitative easing could result in a decline of the U.S. dollar of up to 20 percent….

“I think a 20 percent decline in the dollar is possible.”

#2 Inflation Is Going To Hit Already Struggling U.S. Consumers Really Hard

Already, investors have been fleeing from the U.S. dollar and other paper currencies and have been flocking to commodities, precious metals and oil.  That means that the price of food is going to go up.  The price of gasoline is also going to go up.  American families are going to find their budgets stretched even more in the months ahead.

#3 Once An Inflationary Spiral Gets Going It Is Really Hard To Stop

The Federal Reserve is playing a very dangerous game by flirting with inflation.  Once an inflationary spiral gets going, it is really difficult to stop.  Just ask anyone who lived through the Weimar Republic or anyone who lives in Zimbabwe today.  If the Federal Reserve is now going to be dumping hundreds of billions of fresh dollars into the system whenever the economy gets into trouble it is inevitable that we will see rampant inflation at some point. 

#4 Inflation Is A Hidden Tax On Every American

Tens of millions of Americans have worked incredibly hard to save up a little bit of money.  These Americans are counting on that money to pay for a home, or to pay for retirement or to pay for the education of their children.  Well, inflation is like a hidden tax on all of those savings.  In fact, inflation is a hidden tax on every single dollar that all of us own.  We have been taxed more than enough – we certainly don’t need the Federal Reserve imposing another hidden tax on all of us.

#5 The Solution To The Housing Bubble Is Not Another Housing Bubble

Today, approximately a third of all U.S. real estate is estimated to have negative equity.  The Federal Reserve apparently believes that by flooding the system with gigantic sacks of cash banks will start making home loans like crazy again and home prices will rise substantially once again – thus wiping out most of that negative equity.

But the solution to the housing bubble is not another housing bubble.  The kinds of crazy home loans that were made back in the middle of the decade should never be made again.  Market forces should be allowed to bring the housing market to a new equilibrium where ordinary Americans can actually afford to purchase homes.  But that is not how our system works anymore.  Today, everything has to be manipulated.

#6 More Quantitative Easing Threatens To Destabilize The Global Financial System

We have already entered a time of increasing global financial instability, and the Federal Reserve is not going to help things by introducing hundreds of billions of new dollars into the game.  Over the past two decades, bubble after bubble has caused tremendous economic problems, and now all of this new money could give rise to new bubbles.  Already, we see financial institutions and investors pumping up carry trade bubbles, engaging in currency speculation and driving up commodity prices to ridiculous levels.

#7 Quantitative Easing Is An Aggressive Move In A World Already On The Verge Of A Currency War

Quantitative easing will likely help U.S. exporters by causing the value of the U.S. dollar to sink.  However, this gain by U.S. exporters will come at the expense of foreigners.  It is essentially a “zero sum” game.  So all of those exporting countries that are already upset with us will become even more furious as the U.S. dollar declines.  Could we witness the first all-out “global currency war” in 2011?   

#8 Quantitative Easing Threatens The Status Of The Dollar As The World Reserve Currency

As the Federal Reserve continues to play games with the U.S. dollar, quite a few nations around the globe will start evaluating whether or not they want to continue to trade with the U.S. dollar and use it as a reserve currency.

In fact, a recent article on The Market Oracle website explained how this is already happening….

In September, China supported a Russian proposal to start direct trading using the yuan and the ruble rather than pricing their trade or taking payment in U.S. dollars or other foreign currencies. China then negotiated a similar deal with Brazil. And on the eve of the IMF meetings in Washington on Friday, Premier Wen stopped off in Istanbul to reach agreement with Turkish Prime Minister Erdogan to use their own currencies in a planned tripling Turkish-Chinese trade to $50 billion over the next five years, effectively excluding the dollar.

#9 It Is Going To Become More Expensive For The U.S. Government To Borrow Money

Right now, the U.S. government has been able to borrow money at ridiculously low interest rates.  But as the Federal Reserve keeps buying up hundreds of billions in U.S. Treasuries, the rest of the world is going to start refusing to participate in the ongoing Ponzi scheme.

Peter Schiff, the CEO of Euro Pacific Capital, says that one of the big reasons for more quantitative easing is because the U.S. government is already starting to have difficulty finding enough people to borrow from….

At the end of the day, all this deflation talk is a red herring. The true purpose of QE 2 is to disguise the decreasing ability of the Treasury to finance its debts. As global demand for dollar-denominated debt falls, the Fed is looking for an excuse to pick up the slack. By announcing QE 2, it can monetize government debt without the markets perceiving a funding problem.

But the truth is that foreigners are not stupid.  They can see the shell game that is being played.  As Bill Gross noted on Monday, U.S. government debt will soon become a lot less attractive to foreign investors….

QEII not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices.

As foreigners begin to balk at all of this nonsense, the U.S. government will either have to start paying higher interest rates on government debt in order to attract enough investors, or the Federal Reserve will just have to drop all pretense and permanently start buying up most of the debt.  Either way, once faith has been lost in U.S. Treasuries the financial world will never, ever be the same.

Most Americans have absolutely no idea how fragile the world financial system is right now.  Once the rest of the world loses faith in the U.S. dollar and in U.S. Treasuries this entire thing could completely unravel very quickly.   

The Federal Reserve is playing a very dangerous game.  They are openly threatening the delicate balance of the world financial system. 

Once the toothpaste is out of the tube, it is really hard to put it back in again.  Cross your fingers and hold on tight, because things are going to get really bumpy ahead.

The Economic Collapse

Consider the following number:

That’s the “marketable” debt – $9 trillion.

Here’s The Fed’s numbers in debt held, as of now, in billions:

834 – Treasuries
1,059 – Mortgages (at what embedded loss?)
150 – Agency (Fannie and Freddie) debt

There are some other things in here too, but that’s the basics as of October 27th.

The Fed proposes to buy $600 billion of additional Treasuries, and at the same time roll off agency debt and mortgages, rolling that into Treasuries.  Call the entire thing $800 billion.

So their balance sheet will look like this:

1,600 – Treasuries
959 – Mortgages
50 – Agency debt

Over time they expect the balance sheet to shift, so that the Treasuries are all that’s there.  This means they want it to look like:

2,700 – Treasuries

Yeah.

Now remember, as of right now, China holds $860 billion of Treasuries and Japan holds $836 billion.  The UK is down at $400 billion and then Oil Exporters, at $226. 

So once QE is done The Fed will own more than China and Japan combined, about 18% of the total.

Why is this a problem?

Simple: The purpose of issuing bonds into the market is to provide a putative check and balance on Treasury overspending.  That is, at some point the continued issuance causes the bond market to revolt and refuse to buy, driving rates much higher.  That in turn causes the interest expense to go to the moon. 

This threat is the primary check and balance on an out-of-control Federal Government.

The “Chartalists” (and their useful idiots everywhere) claim that the Federal Government simply spends money into existence, and thus they can do this all they want.  Well, technically true – you can print all the money you want.  However, you cannot control it’s value except through relative scarcity!

The Bond Market, rather than being a monetary tool as these people claim, is in fact a fiscal discipline enforcement device. 

This is what The Fed with its QE and now QE2 has destroyed.

When Ben Bernanke said “we will not monetize the debt” what he was saying is that he would not permit that fiscal discipline device to be removed from the scales of financial balance.  He lied – he not only removed it with QE1, he has now ratified that this discipline function will remain removed via QE2.

The problem with removal of this device of restraint is that fiscal discipline is in fact the only way one avoids imposing taxes on the public.  Taxes come either in the form of a literal tax that must be paid or they are financed by causing an increase in the price of things denominated in a currency as a result of debasement.

Taxes inhibit business profits by diverting income from the business and to government.  Therefore, in the general sense, the lower the tax rate the more business prospers.  Of course taxes cannot be zero, because the government must have funding to perform its essential functions – we merely argue over what those essential functions are and how to pay for them.

QE is effectively naked emission of currency into the economy by government spending.  It thus always results in shifting the price equilibrium on commodities in that currency to the right – that is, higher.  At the same time since input costs are effectively a tax on production pressure downward is increased on wages.  This in turn means that while cost pressures go upward, wages go downward.

Thus QE cannot spur employment.  It in fact does the opposite by imposing an effective tax on business operations and consumers, which tends to drive down after-tax compensation of employees. 

Ben Bernanke claims that QE is intended to “spur investment” by increasing the “wealth effect.”  But any such effect is in fact transitory, as one cannot support higher stock valuations while margins are being pressured.  You need margin expansion to be able to support higher valuations over time, and that means you need either lower input costs, higher employee after-tax earnings or both.

Bernanke’s policies are in fact pushing both of these factors the wrong direction. 

But worse, consider the certain “death spiral” scenario on the path we are now traveling:

1. QE is an implicit tax on the population.  Input costs go up.  This is an effective tax increase on everyone in the country.  A dollar increase in the price of gasoline is an effective $140 billion dollars a year in additional tax, as just part of the impact. Basic staples are already up about 10% annualized, despite Bernanke’s claim of “no inflation.”  Note that the “tax on the rich” everyone is talking about is a mere $70 billion a year by comparison. 
2. This in turn means lower disposable income for consumers.  That in turn hits discretionary spending.  And that, in turn, means companies don’t need to hire people to provide discretionary goods and services.  This is what Bernanke did with QE1.  He in fact destroyed job creation, which is a big part of why we still have 10% unemployment!  Bernanke CAUSED that unemployment by creating a price ramp in the commodity space!
3. This, in turn, means more demand for social programs.  More unemployment.  More Medicaid.  More food stamps.  More government spending of all sorts.  But there is no tax revenue increase coming in to pay for these increased demands (it’s all going to the commodity producers) so the government once again turns to the bond market and issues debt to fund this increased spending demand.   

4. Left alone, the bond market will react to this “never-ending” deficit spending cycle by increasing rates in an attempt to cut it off.  This in turn provokes The Fed into even more QE to “spur employment and increase asset prices.”

See the problem?  The more QE you do, the more jobs you destroy because you continue to trash margins through the imposition of an effective tax on the entire economic system.

Eventually The Fed ends up being, for all intents and purposes, the entire government bond market. 

At that point the issuance of credit money is no longer backed by anything at all – it is simply emitted raw, and for every dollar emitted in this fashion you have both a 100% transmission into prices and a premium applied on your threat to do more of it.

That’s Weimar Germany folks – it is exactly what happened there, and exactly what will happen here unless Bernanke stops this crap.  Since he won’t stop on his own volition it is up to Congress and the people to stop him.

Metals will not save you if this spiral occurs.  Nothing will save you, other than not being in the nation that this happens to.  Government will, in its last gasps of trying to prevent itself from being unable to pay the military, Congress, and of course Ben, find ways to literally confiscate everything in a futile attempt to increase the asset base upon which it issues its increasingly-worthless currency.

There is no exit that can come from a “growing” economy when you are continually increasing the implicit tax rates in the general economic system as your response to each previous tax increase.  That is, when your tax increase results in more unemployment and you respond by further increasing taxes, you are simply tightening the noose around your own neck.

The implied tax that has been imposed on the economy thus far since QE1 was put in place is a stunning $250 billion annually due to oil’s price increase alone, or nearly four times the so-called “Bush Tax Cuts” for the rich.   QE2 will add another $1/gallon (roughly) to gasoline which is another $140 billion, for a total of almost $400 billion each and every year.

And that’s just in oil prices – then you have to add in all the other input cost-push problems, from corn to wheat to oats to cotton to wood pulp.  The total effective tax increase from QE2 is in fact the entire $600 billion QE package, plus whatever the market anticipates Ben will do as a follow-on!

What is being done here, if it is not stopped by Congress and/or the people, will destroy the economy.  There is no ability to withdraw the QE-anything without causing all of the previously-hidden costs to immediately assert themselves in the economy.  This is not speculative – it is factual.  We cannot get wage inflation due to the lack of pricing power by labor in a market with 17% of the people either out of work or underemployed and another 7 million who are not counted as they are not part of the labor participation rate, which has declined by 5% in the last two years.  The true unemployment rate is thus closer to 25%. 

Without the ability to pressure wages higher there is no means available to set in motion Bernanke’s “virtuous cycle” he is looking for as there is no pricing power for labor today.

We won’t get a “high inflation” spiral.  We will instead get a downward-spiraling economic disaster where employment and productive investment is successively destroyed by these artificially-imposed tax increases that amount to hundreds of billions of dollars over the next six months – north of a trillion in just one year, or some seventeen times the amount Congress is “debating” with the “tax cuts for the rich.”

This is the true tax issue that will destroy our economic future – and nobody’s talking about it.