FedUpUSA

Archive for April 10th, 2011

First, some analysis of the actual numbers from Co-Founder of FedUpUSA, Karl Denninger:

And now, let’s get the opinion of Mark Levin regarding the political angle.  Did the Republicans and the Tea Party really win?

Not so much.

Until we have a serious discussion about REAL cuts to what is contributing to our projected $14 TRILLION total debt load, we’re headed right off the cliff.

As you can see from the CBO chart below, to be serious about what is pushing us over the cliff, the discussion MUST be centered around Medicare and Medicaid.  Make no mistake, being at war on 3 different fronts is no small expenditure, but those who keep touting that if we just cut spending to the Pentagon, all would be well, are completely ignorant of where the MAJORITY of our ongoing, ballooning deficit comes from.  Medicare and Medicaid are more than TWICE the DoD budget.  Read that again and let it sink in.  This situation only gets WORSE from here on out, as our population has far more elderly adults about to retire than new workers coming in.  (Not to mention new workers unable to come into the workforce because of lack of jobs.)  We are not far away from Japan’s dilemma of only one worker supporting more than 3 retirees.

In order to actually spend as much as we take in, the entire government must be cut by 43%.

Get back to me when we even put a dent in that.  Until then, it’s all smoke, mirrors and lies from BOTH sides of the aisle.  It also means our Republic is headed for the rubbish bin at warp speed.  As Mr. Denninger explained above, the only thing that has kept it from happening so far, is the Federal Reserve’s purposeful devaluation of the US dollar.  How long before that little trick destroys what is left of our meager production due to unaffordability of energy needed to run those companies?  Or how long before all but the wealthiest Americans can afford to feed themselves due what the Federal Reserve’s policies are doing to the prices of food?  Not long.  Not very long at all.

Are you willing to lose your job (forever) and starve in order to allow the Federal Reserve to continue monetizing the deficit spending of our government?  That’s the question everyone needs to be asking themselves.

While we have a temporary ‘budget deal’ the debate is not over.  We still have to deal with the much bigger issues of the budget ceiling and the massive budget deficit.

If the U.S. government were to shut down for a while, would that really be such a bad thing?  Right now everyone in the mainstream media is freaking out as if the world is going to end, but the truth is that there have been government shutdowns before.  The apocalypse is not going to happen if there is another shutdown.  If Congress could find a way to get our troops and our border patrol agents paid, then what would be so bad about the government taking a “vacation” for a while?  After all, when was the last time that either the Republicans or the Democrats did anything that was actually good for America?  It has not mattered which political party has been in power – over the past couple of decades our “representatives” in Washington D.C. have passed an endless parade of bad laws and have gotten us into the biggest mountain of debt in the history of the world.  They literally seem unable to do anything right.  So would it really be so bad if a government shutdown slows them down for a while?  If our politicians are going to act like a bunch of idiots, why not let them shut it down?

Think of it this way – if you could eliminate all of the laws passed under George W. Bush and Barack Obama would you do it?

I think that most Americans would.

Almost every single law that has been passed over the past couple of decades has been bad for America.

But many Americans seem to be going into a panic at the thought that the “almighty government” might not be operating for a few days.

Many Americans seem to have bought into the lie that the federal government is the most important institution in our country.

But this is never what our founding fathers intended.  Our founding fathers intended for the federal government to be very limited.  Unfortunately, we have turned our backs on the principles of our founding fathers.

So exactly what is this fight between the Republicans and the Democrats all about?  Why have we been brought to the brink of a government shutdown?

We keep hearing that it is all about cutting the budget.  In fact, House Speaker John Boehner says that his party is “damn serious about it”.

But that is a joke.  The federal budget deficit for this year is going to be approximately $1.6 trillion dollars.  The Republicans were asking for just $61 billion in budget cuts (3.8% of the budget deficit) and there are rumors that Republican and Democratic negotiators have agreed to a figure of $38 billion in budget cuts.

$38 billion?

Is this why the Tea Party was sent to Washington?

$38 billion would just be 2.4 percent of the $1.6 trillion dollar deficit.

Wow, that is really wielding the budget cutting axe!

Look, the U.S. government cannot spend a single penny from now on without Republicans going along with it.

The Republicans control the House of Representatives.  Barack Obama and the Senate will not have a single dime to spend unless they can get the House to go along with it.

If the Democrats want money to implement Obamacare then they have to get the Republicans to go along with it.

If the Democrats want to give money to the EPA to implement Obama’s “green agenda” then they have to get the Republicans to go along with it.

In fact, pretty much whatever the Democrats want to do, they have to get the Republicans to agree to fund it.

So if you don’t like what Obama and the Democrats are doing, don’t just blame them.

Blame the Republicans as well.

Both parties are deeply corrupt and both parties have gotten us to the point we are at.

Sadly, it looks like any deal that the Republicans and the Democrats are going to agree to is going to include virtually everything that the Democrats want.

It is going to include full funding for Obamacare.

It is going to include full funding for Planned Parenthood.

It is going to include full funding for NPR.

It is going to include full funding for the EPA.

So what are the Republicans going to get?

$38 billion in spending cuts?

Is that supposed to be a “deal”?

The truth is that Boehner is a joke and he is not serious about cutting the federal budget.

But if we don’t start seriously cutting the federal budget we are heading for complete and total disaster.

David Stockman, who served as budget director under Ronald Reagan, says that if Congress is not serious about getting our financial house in order that a government shutdown could be precisely the kind of wake up call that we need….

If the Smithsonian, the Parks Service and the Cherry Blossom Festival get delayed or canceled, it’s the wakeup call that we really needed. The fools inside the Beltway are borrowing $100 billion month in and month out, and there’s nobody left in the world buying except the central banks—the Fed and the people’s printing press of China. There’s no way that’s sustainable or viable. It’s simply building up pressure in the monetary system that’s going to blow sky-high.

Look, the United States is heading straight for financial armageddon.  This is a crisis of historic proportions.  In a previous article on U.S. government finances, I detailed some absolutely horrifying statistics about the debt crisis that the U.S. government is facing….

*If you divide the national debt up equally among all U.S. households, each one owes a staggering $125,475.18.

*The federal government has borrowed 29,660 more dollars per household since Barack Obama signed the economic stimulus law two years ago.

*During Barack Obama’s first two years in office, the U.S. government added more to the U.S. national debt than the first 100 U.S. Congresses combined.

*In the new budget that the Obama administration has proposed, the U.S. government would spend 3.7 trillion dollars in 2012 and by 2021 the U.S. government would be spending a whopping 5.6 trillion dollars per year.

*The U.S. government currently has to borrow approximately 41 cents of every single dollar that it spends.

*The total compensation that the federal government workforce earned last year came to a grand total of approximately 447 billion dollars.

*The U.S. national debt is currently rising by well over 4 billion dollars every single day.

*The U.S. government is borrowing over 2 million more dollars every single minute.

*The U.S. national debt is over 14 times larger than it was just 30 years ago.

*Unfunded liabilities for entitlement programs such as Social Security and Medicare are estimated to be well over $100 trillion, and nobody in the U.S. government seems to have any idea how we are actually even going to come close to meeting all of those obligations.

*If you were alive when Jesus was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.  But this year alone the U.S. government is going to go about 1.6 trillion dollars more into debt.

*If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.

But even if the Republicans got every single thing that they have been demanding it would make essentially no difference as far as our national debt crisis is concerned.  It would basically be like spitting into Niagara Falls.

So which political party has the correct position in this battle?

Neither of them.  In fact, both political parties are a joke.  They are both acting like a bunch of idiots just like they have been for decades.

So let them shut it down.  The truth is that the number one threat to our liberties and freedoms right now is our own federal government.

In a recent article, J.B. Williams talked about why he thinks that it would be a really good idea to shut the government down….

I say, shut it down! The federal government has done as much to harm the union of states as it has ever done to improve freedom and liberty in America. We will be better off without a federal government, with each state able to fund and govern itself better than the Fed ever could.

Extreme threats demand extreme measures, and nothing threatens the future freedom and prosperity of the United States more than our own federal government. Enemies beyond, we can deal with. It’s the enemy within which threatens us most today. It’s time to shut it down and reset.

Just think about a few of the ways that our own federal government violates our liberties and freedoms every single day….

*If you want to get on an airplane in America today, you must either go through one of the incredibly intrusive full body scanners that are going into all U.S. airports and let airport security goons gawk at your exposed body, or you must allow airport security goons to feel you up using the new “enhanced pat down” techniques they are being instructed to employ.

*Thanks to the Patriot Act, if you are identified as a “terrorist”, you suddenly lose all of your constitutional rights.  We are told that detaining American citizens indefinitely and subjecting them to “enhanced interrogation” techniques will keep us all safer.

*The federal government controls our lives so tightly that now they even tell us what kinds of light bulbs we are allowed to buy.

*Barack Obama has been pushing a plan that would create a national database that will store the DNA of all individuals who have been arrested, even if they end up not being convicted of a crime.

*Just about anything can be used against you in court these days.  In one of the very first military commissions held under the Obama administration, a U.S. military judge ruled that confessions obtained by threatening the subject with rape are admissible in court.

*The federal government listens to our cell phones whenever they want and they require that all cell phone companies must be able to pinpoint the locations of all of their customers to within 100 meters.

*According to FBI Director Robert Mueller, ”homegrown terrorists” represent just as much of a threat to American national security as al-Qaeda does.

*In Washington D.C., if you do not submit to “random bag checks” while riding the Metro there is a good chance that you could receive a follow-up visit by the FBI or by the Department of Homeland Security.

*If you make food “incorrectly” there is a good chance that you will get raided by the federal government.  In fact, the feds raided an Amish farmer at 5 AM in the morning because they claimed that he was was engaged in the interstate sale of raw milk in violation of federal law.

So in light of how extreme our federal government has become, is there anyone out there that still thinks it would be a “crisis” if the government was to shut down for a while?

If our government is going to take away our liberties and freedoms instead of protecting them, then why would it be a bad thing if it shut down for a short time?

It might just get some of the control freaks off our backs for a while.

Yes, we do need to make sure our military men and women are paid.  We also need to make sure that our border patrol agents are paid.  But if Congress could actually get that accomplished it wouldn’t be too bad at all if the government were to shut down for an extended period of time.

The Economic Collapse

Congratulations to Icelandic voters who once again told the UK and Netherlands where to go. Please consider Iceland Rejects Icesave Debt Deal

Icelandic voters appeared Sunday to have rejected a government-approved deal to repay Britain and the Netherlands $5 billion for their citizens’ deposits in the failed online bank Icesave.

Partial results of a national referendum suggested the “no” side had gained more than half the votes — a reflection of enduring anger over the economic havoc wrought by Iceland’s risk-taking bankers.

Full results were not due until later Sunday. With partial results in from all six of Iceland’s constituencies, the no side had almost 57 percent of the votes and the yes camp just over 43 percent.

“This is of course a disappointing result,” said Prime Minister Johanna Sigurdardottir.

Icelanders overwhelmingly rejected a previous deal in a referendum last year. The government hoped a “yes” vote on an improved offer passed by parliament would finally resolve a dispute that has caused friction among the three countries and complicated Iceland’s recovery from its economic collapse in 2008.

The dispute has grown acrimonious, with Britain and The Netherlands threatening to block Iceland’s bid to join the European Union unless it is resolved.

“Taxpayers should not be responsible for paying the debts of a private institution,” said Sigriur Andersen, a spokeswoman for the Advice group, which opposes the agreement. “I think that sends the wrong message onto the market, and sets a wrong precedent.”

Icelandic voters want no part of “Icesave”. Even the name “IceSave” is preposterous. Iceland was save by the fact voters rejected “Icesave”. Icelanders would have been debt-slaves for decades had they accepted the original terms.

How many times do citizens have to say no? Hopefully voters give Prime Minister Johanna Sigurdardottir a well deserved boot in the next election.

Moreover, Iceland needs to rethink why it would want to be part of the Eurozone in the first place. I suggest Iceland put the Euro to another vote.

Finally, I am really disappointed in the wimps in Ireland. They should put Ireland’s “reverse bailout” to a vote as well. I can guarantee the results in advance.

Banks that make stupid loans should suffer for them, not taxpayers. So far, Iceland is the only country that has taken this common-sense stance.

Mike “Mish” Shedlock
Global Economic Analysis

The housing gamble: What if home prices remained stagnant until 2020? 6 charts laying out the argument for stagnant or declining home prices for another 10 years. Peak in dual income households, home prices still inflated relative to incomes, Federal Reserve unable to hold mortgage rates low forever.

What would happen if home prices remain stagnant for another decade?  It is hard to imagine that the cornerstone of the American dream would somehow become a bad investment for the next decade.  For decades every generation was conditioned into believing that housing was the best investment a family could make.  For many it provided a stable home for retirement once the mortgage was paid off.  One third of all homes in the United States that are owner occupied have no mortgage.  Yet this mindset of buying and paying off a mortgage has largely been lost.  No mortgage burning parties in the digital age.  It may be making a comeback not because people want this but because there is no other financial choice.  Given the current domestic and global trends, it is likely that housing will be suffering another troubled decade from 2011 to 2020 just like it experienced from 2001 to 2010.  I want to lay out six charts as to why I believe housing will have difficulty moving up in price in the next ten years.

Chart #1 – Dual income households peaking

One of the big reasons many families did not feel the deep pinch from 1970 to 2000 was because of the rise of the dual income household becoming the standard.  It should be obvious that with more incomes under one roof purchasing power would increase.  Yet this is really where we start seeing the loss of the middle class.  What used to be a path accomplished with one blue collar income now required two incomes.  Yet as the chart above highlights we may have hit a plateau in terms of dual income households as a percentage.  In the late 1960s 47 percent of households had both spouses working.  In the early 2000s it was up to 67 percent.

The biggest line item for a family is housing.  Household income growth has peaked and over the last decade it has gone stagnant.  It is hard to envision where the boost in income will come from.  Short of having your kids work and also live with you this does not seem like a likely option.  The market really shifted in 2000 and the only way the growth in housing prices continued was by the introduction of exotic mortgages that allowed incredible leverage and created the fertile ground for a bubble.  Now that incomes are being verified and the only game in town is government backed mortgages, the only way home prices on a national level will increase is simply if real income growth is generated.

Chart #2 – Case-Shiller 20 City Index

As measured by the Case-Shiller Index home prices are now back to levels last seen in 2003.  We are seeing a lost decade in many areas.  The bubble is rather clear in the chart above.  But with no household income growth why would home prices go up?  The Federal Reserve is trying to keep mortgage rates low via artificial means by buying up mortgage backed securities but how long can this go on?  At some point a market equilibrium is needed and the above chart shows that home prices are still inflated if we look at incomes.

Markets in Nevada and Arizona are seeing big sales jumps because prices have fallen 50, 60, and even 70 percent in some cities.  People will buy if the price moves low enough.  Can you imagine the above chart moving sideways for another 10 years?  In the short run, prices are still going lower.

Chart #3 – Case-Shiller last 12 months

Home prices over the last 12 months have fallen by 3 percent.  This may not sound like a lot to you but this is an asset that typically never moves lower even by a fraction of a percent.  The reason for this movement is the pressure of the large number of distressed properties out in the market.  You have to ask yourself why would a property become distressed?  It is likely, and the most common case, that many people simply cannot pay their mortgage with the household income that is coming in.  The middle class is shrinking and this is measurable by looking at household income and buying power.  As this power decreases, why would the biggest purchase of households keep moving up in price?  It simply cannot and that is why we still see home values moving lower.

Chart #4 – Federal Reserve holding prices high

Expensive home prices simply to have prices inflated is not a good strategy.  It seems counterintuitive but home prices should reflect actual buying power by American households, not an artificial floor set by the Federal Reserve.  The Federal Reserve has purchased trillions of dollars in mortgage backed securities simply to keep the 30 year fixed mortgage rate low.  The reason it does this is because a lower interest rate increases buying power since most households only focus on their monthly net payment for housing.  Yet this is the wrong side of the equation.  When we had more prosperous times in the nation home prices went up because household incomes went up, not the other way around.

This strategy isn’t new and was tried by Japan.  They lived through a real estate bubble and quantitative easing and what happened to the Japanese economy?

Chart #5 – Japanese real estate bubble lessons

Japan has had two lost decades in their economy because of the real estate bubble that burst but also the large banking bailouts that were conducted by their central bank. What this did is that it kept the market price of housing from being realized and served as an albatross for the rest of the nation.  With an aging population problems are creeping in their system even with low interest rates.  This real world example serves as a lesson for the United States if we wish to hear it.

So far we have gone down the path of ignoring reality.  Yet you can only pretend so long and ultimately home prices have to reflect what local area families can afford without massive subsidies.  This redirects investments from more productive sectors and that is why it is dragging our economy down just like it did to Japan.

Chart #6 – Housing starts

Finally those who actually build homes have not felt the need to add more housing units onto the market.  Why?  We probably have enough housing supply to last us a decade at the current pace.  Keep in mind you have many baby boomers that will want to sell and move into smaller homes.  This will add supply for younger families.  You also have many new homes that were built to over capacity and this too has added to supply.  Another factor is the large rental units on the market.  Ultimately there is a lot of housing to work through.  We have millions of homes that will be foreclosed on in the next few years.  More units of housing.  The above chart shows how devastating this bubble was.

Will home prices remain stagnant until 2020?  I would change my mind if we saw real household income growth for middle class families.  This I hope is the actual case here.  Yet there is little indication that this is happening.  Hard to imagine the American Dream icon being a drag for another 10 years but there you go.

My Budget360

Declining volume suggests the stock market has falling participation and is thus increasingly vulnerable.

The stock market adage “Volume is the weapon of the Bull” means that Bull markets are powered by strong demand for stocks, which translates into sustained buying volume. Courtesy of The Big Picture, here is a chart displaying volume and price of the S&P 500 over the past two years.

Volume peaked in July 2009, a few months off the March 2009 bottom, and has slipped since except for a modest blip up last summer–a period of decline, which suggests the volume was selling, not buying.

This year’s dramatic rise in stocks coincides with a collapse in volume. If volume is the weapon of the Bull, and volume is declining, then what we have here is either:

1. a market that lacks buying volume and is thus held aloft by opaque interventions

2. a new kind of Bull market which rises magically despite declining participation by investors.

Magic is of course not unknown in economics or finance; stripped of academic mumbo-jumbo, economic growth arises, we are told, from the emergence of “animal spirits.” Financial speculation, we are told, is akin to dancing to the music (sounds fun!), with the only advice being to keep dancing until the music stops.

This chart is saying the Bull Market is bogus. Many excellent technicians see no real evidence of weakness, and those analysts with a fundamental perspective see the Federal Reserve’s $6-$8 billion in near-daily injections of POMO cash and rising corporate profits as reasons for the market to loft ever higher.

The value of U.S. stock markets is around $14 trillion, roughly the same as the national GDP of around $14.5 trillion (if official stats are to be believed). Can $6 billion in daily cash buying really sustain a $14 trillion market? That is asking a lot of an essentially trivial sum of money.

As for corporate profits–it’s not just the profits that count, of course, it’s the multiple people are willing to pay to own that income stream. Depending on which profit numbers you’re using (trailing, i.e. reported, or estimated, i.e. projections), then the current market is at a multiple somewhere between 12 and 16, which is near its historical average.

At market bottoms, this multiple falls to around 6 or 7. So profits could remain at their current high level and the stock market could lose half its value, and it would remain within the boundaries of historical valuations.

Thanks to unprecedented government/Fed intervention, the SPX has shot up in the past two years.

Maybe it will climb all the way back to the 1500 level to trace out a multi-year triple-top pattern, or maybe not. Without any buying volume, then what exactly is going to keep driving it higher other than legerdemaine?

Of Two Minds