FedUpUSA

Archive for August 2nd, 2011

Well here it comes, although they didn’t say that up front…. or did they?

New York, August 02, 2011 — Moody’s Investors Service has confirmed the Aaa government bond rating of the United States following the raising of the statutory debt limit on August 2. The rating outlook is now negative.

OK, so you affirmed the rating.  But that we already knew.  The problem is here:

In assigning a negative outlook to the rating, Moody’s indicated, however, that there would be a risk of downgrade if (1) there is a weakening in fiscal discipline in the coming year;

What Congress did is not enough and the coming year is important, which means that waiting until after the election to make the difficult choices will not work.

(2) further fiscal consolidation measures are not adopted in 2013;

You know those promises Congress?  You better keep them (and we know you won’t.)

(3) the economic outlook deteriorates significantly;

We’re screwed. This is a foregone conclusion.  I wish it wasn’t, but it is.

or (4) there is an appreciable rise in the US government’s funding costs over and above what is currently expected.

We’ll probably get away with this, if for no other reason than The Fed will get involved (again.)

That’s 3 for 4 – the wrong way.

Buckle up.

Earlier today, in Spain, Italy, Belgium Bond Spreads Hit Euro Record; Italy 10-Year Bond Yield Highest Since 1997; Self-Fulfilling Crisis I was wondering how long it would take for emergency meetings.

Any bets on when the EU has another emergency meeting? I suspect two more days of this action might do it. Now answer this: what can they do that makes any sense?

Depending on your definition of “emergency meeting” the correct answer may have been less than a day.

Italy to Hold Financial Stability Meeting

Please consider Italy to hold financial stability meeting.

Finance Minister Giulio Tremonti will hold a meeting of Italy’s financial stability committee on Tuesday, including representatives from the central bank and bourse regulator Consob, a source said.

The committee will discuss “the sovereign debt market situation and the implications for the banks and the economy,” the source told AFP.

The meeting will take place at 1430 GMT at the finance ministry in Rome.

Italy’s Financial Stability Safeguard Committee, as it is formally known, was set up in 2008 as the global economic crisis first hit and includes representatives from stock market and insurance regulators.

Prime Minister Silvio Berlusconi is set to address parliament on the financial crisis on Wednesday and meet trade union leaders on Thursday.

Zapatero Delays Vacation to “Closely Watch Economic Indicators”

The Walll Street Journal reports Spain PM Delays Vacation To Deal With Economic Woes

Spanish Prime Minister Jose Luis Rodriguez Zapatero Tuesday postponed a scheduled vacation and Finance Minister Elena Salgado was talking to several of her European counterparts as borrowing costs for Spain and Italy hit new euro-era highs.

Zapatero cancelled his vacation in order “to more closely follow” the country’s “economic indicators,” according to a statement from his office. A spokesman added that Zapatero was in close contact with Salgado, while the finance minister has been talking with her Italian, French and German counterparts.

The new spike in borrowing costs comes two days ahead of a Spanish bond auction Thursday, where the treasury plans to sell between EUR2.5 billion and EUR3.5 billion of three- and four-year bonds.

It also heightens concerns about the abilities of Italy and Spain, the euro zone’s third- and fourth-largest economies, respectively, to finance themselves. In a recent research note, analysts at Deutsche Bank said Greece, Ireland and Portugal started to get frozen out of financial markets when their 10-year bond yields reached levels of between 6% and 7%.

Those three countries were then forced to seek bailouts from the European Union and the International Monetary Fund.

For Spain, the heightened market tensions come at an awkward time, politically, as the country gears up for an early general election on Nov. 20. Lacking a parliamentary majority and his popularity undermined by the economic crisis, Zapatero announced Friday that he was calling elections ahead of the end of his four-year term in March.

Does canceling a vacation to hold discussions with counterparts in Italy, France, and Germany constitute an “emergency meeting”? I think so, even if it is an informal one.

EU Claims “No Rescue Plans for Italy, Spain”

While pondering the definition of “emergency meeting”, please consider EU not considering rescue plans for Italy, Spain.

The European Union has no plans to provide rescue loans to Italy and Spain, despite the rising borrowing costs facing these countries, a European Commission spokeswoman said Tuesday.

“We are absolutely confident that the Spanish authorities will take all steps which are necessary,” Hughes said. “The question of a rescue plan is not on the table.”

“The situation is very similar for Italy,” she added.

Mish Translation of EU Statements

“We are scared completely s***less by these events. If we were not scared s***less, there would be no need to comment at all. Finally, if yields head North for another day we will call an emergency meeting to discuss rescue plans for Italy and Spain.”

Mike  “Mish”  Shedlock
Global Economic Analysis

The Retirement fantasy – middle class Americans are quickly realizing that a secure retirement future may only be a myth.  Stagnant income, debt illusion, and the future outlook for working Americans.

Americans are having a tougher time finding extra disposable income to save and create wealth.  It is hard to plan for the future when you are worrying about having enough money to purchase a couple of frozen meals.  When looking at overall statistics we rarely get a glimpse at how tough things have become for the working and middle class.  We usually get data discussing retirement account worth but most of these reports fail to acknowledge that 1 out of 3 Americans have zero dollars to their name.  That is obviously an important caveat.  You also have a banking system that imposes predatory practices on those least able to afford it.  Case after case has been reported of those living paycheck to paycheck while having to pay multiple overdraft fees that can range from $25 to $40 per charge.  Banks realize they can simply place a stop but why let all this easy money free?  For those who can save and end up purchasing a home, most of the wealth is derived from home equity which in a nationwide housing bubble is like having all your money in one stock.  Income is not a good measure of wealth.  The per capita income in the United States is $25,000 and after paying the mortgage or rent, healthcare costs, and buying food little is left over.  What all these items point to is that retirement as many envisioned may largely be a fantasy that is only available to a select few.

Personal savings rate deceptive

Part of the big change since the recession hit in 2007 has been access to debt to American households.  Working and middle class Americans have been under the illusion, not all but many, that somehow debt equaled wealth.  This credit binge could only last for as long as the banking system did not transform into a Ponzi like system, which it did.  The housing market at one point simply relied on the greater fool theory of investing and became so ludicrous, that it was destined to pop and pop hard.  Yet the above chart shows this new change which on the surface may seem positive but really is reflecting a decreased standard of living.

A few years ago some articles started making their rounds talking about how great it was that Americans were saving.  However what wasn’t mentioned was the subsequent collapse of access to debt which many Americans were simply substituting for actual earned money.  The above chart shows this change.  Revolving credit has contracted by a stunning 18 percent since peaking in 2008 reversing a multi-decade long trend.  Hundreds of billions of dollars in debt purchasing power has been sucked out of the economy.  So it should be no surprise that many Americans have enabled the rise of the dollar store in many regions.  Bigger stores like Target in many regions have added consumables since many have shifted from needs to wants.

Read the rest at My Budget 360

Go down the list, one by one, of the “Yea” House and Senate votes on the Debt Increase bill.  (Yes, I know the title is hinky – that’s because the House played games – again – to get this passed just as it did with TARP.)

They’re the people to thank for the selloff this afternoon, which got materially worse and added volume to it as soon as the Senate approved.

Make sure you thank each and every one of them for the losses you’ve taken over the last seven days in your 401k and IRA.  You were told, Americans, that passing this “borrow more to bankrupt us” would halt the slide in the market.

Guess what?

You were lied to exactly as you were in 2008 with TARP, which, when it passed, still left us with another huge slide before the market bottomed and resulted in a huge selloff – when it passed.  It was only when Congress allowed banks to lie about asset values that the slide stopped.

Unfortunately that card has already been played and isn’t available to play again.

Since your Reps and Senators told you that the market would stop collapsing if they passed this, ask them if they’ll cover your losses – even if just today’s losses.  Heh, it’s only 225 DOW points… today.

Welcome to 2008, Part Deux, where every lie that Congress tells you come with no consequence for them and there will be no apologies either.

Make sure you thank OBAMA too.  You’ve just seen close to 10% come off the markets entirely due to his demand to keep spending money we do not have.

The market is now negative for the year, incidentally.

How many times do you have to lose your retirement money before you stop allowing this crap to go on?

It appears that GDP data revisions are not the only thing that the administration enjoys fudging with in order to make the Chinese ministry of Truth seem like a real ministry of truth. After last month the data for April food stamp recipients indicated the we may, just may, be reaching an inflection point in the foodstamp participation following a mere 60 thousand jump in those receiving Supplemental Nutrition Assistance Program (SNAP), today’s just released data confirmed that the BLS and BEA may have had a hand or two when determining this latest data series. Because the just announced jump in foodstamp usage of over 1.1 million is entirely out of the blue, and as the chart below shows, is the highest single monthly jump in Foodstamp participation since mid 2009, when eligibility requirements were adjusted. Yes, that’s 45.8 million people (obviously an all time record) living on foodstamps which amount to the whopping $133.80 per person (an increase of $0.54 M/M) and $283.65 (an increase of $1.29) per household. Obviously, annualizing the latest monthly rate of 1.1 million people, it means that over 13 million Americans will live on about one third what the cheapest iPad costs in about a year.

But wait, there’s more. Digging into the numbers reveals something pecuiliar: virtually the entire surge in monthly SNAP participation is due to one state alone: Alabama, which saw those living on foodstamps jump from 868K to 1.762MM. Is this merely a grand rehearsal for the Jefferson County bankruptcy? Did the state see a mass surge in foodstamp use as hundreds of thousands are trying to game the system in advance of what will be an apic Chapter 9? And if yes, what does that mean for all the other states which will promptly follow in the footsteps of Jefferson County, and for US foodstamp participation?

Which begs the question: will Obama be the first president under whose rule total foodstamp usage hit 100 million? Surely, by then there will be a Nobel price for destroying one’s middle class better and faster than any communist in the history of the world, so at least there will be something to memorialize it with.

h/t Papa and John L

ZeroHedge

Anyone who thinks that “deficits don’t matter” needs to look at the absolute slaughter going on in Europe.

It is often said that Europe “isn’t like us” because they can’t print money.  Oh, but they can – they just need to do it in a coordinated fashion, just like our 50 states do (through the Federal Government.)

The problem is that printing doesn’t work.  It simply debases the currency.  No nation has ever managed to print its way to prosperity – or even stabilization.

We tried it in 1933 and it didn’t work.  It was 1941 before we found “stability”, and then only because we went to war and bombed to dust our global competitors’ ability to produce.

We’re trying it here too folks.  The Fed’s “QE” games are simply monetization – that is, money-printing.  $600 billion in deficits over approximately six months (or nearly $1,200 billion annualized) absorbed in government deficits.  Some call this “successful” and I suppose it is, if you measure it in the price of gallon of gasoline – which skyrocketed.

And why wouldn’t it?  If you increase the divisor of something (the number of dollars) the value of each of those things goes down. Duh.

Does the government care?  Not really.  They think “globalization” will save them.  If so how come China is slowing down?  Uh, perhaps because we exported a huge part of our inflation to them, and when you’re living at a subsistence level if that’s not stopped the people starve and thus riot?  They thus can’t allow that to happen or their nation burns – literally.

Is there a resolution to this problem?  Not a painless one.  Oh sure, we tried.  The government here literally printed up and sold Treasuries to falsely inflate final demand in our economy by 12% a year for three years, and when the market threatened to throw up on that The Fed came in and debased the currency.  But the claim of “pump-priming” turned out to be false; there was no water under the wellhead, and so once the prime ran out, so did the engine’s ability to run.

I said back last August – one year ago – that what was being done (1) would not work, (2) was simply compounding the damage, and (3) six to nine months later would filter through into the economy and start to show up.

So far, right on all three.  Three months ago we saw the first hints from consumer staples companies about cost-push problems.  This earnings season while earnings were ok forward guidance was consistently weak.  And now we’ve had a bad GDP report, a bad ISM report and this morning a bad consumer income and spending report.

The “talking heads” are saying that the weakness today is all about “uncertainty” over the debt deal.  Nonsense.  How about the flash-crash in the DAX futures yesterday after their cash close?  Are you going to tell me that the German markets collapsed because of us? Baloney.  That was “algos run wild”, just as we see here – right here, right now – and the German government is no more willing to address it and stick a sock in the big banks trading operations than we are.

Well, fine.  Just be aware of one thing: The next big collapse in the markets leaves The Fed and government with no ammunition to counteract it – rates are at zero and QE didn’t work except to crank up the price of food and energy.

You think this won’t happen eh?  Ok, go ahead and believe that.  Go ahead and believe that “we’re special.”  It worked out real well for you in 2008 and the value of your IRA or 401k, didn’t it?

I know, I know, there’s a bunch of people who say “it can’t happen again because the banking system is incredibly strong”, including Geithner.  Really?  Then why is Unicredit locking out down-limit day after day?  Why are European indices collapsing as I write this, with the ATX down 2.5%, the Dax down 1.6%, the CAC down 1.7%, Stockholm down 2.6% and the Swiss, usually the bastion of stability, down 3.68% with a rampaging Swiss Franc?

Oh yeah, that’s stability all right – in a pig’s eye.

I said in my 2010 update that Europe will not get their debt situation under control.  Well?  How’s it going for the Europeans?  You want to tell me that things are “under control”?  How?

Remember that in 2009 we were told by everyone that the recession “ended.”  Well how come Feldstein is on CNBC right now saying that we’re still in a recession?

Oh really?  Still in one eh?  I thought we were all done with recession in 2009?  Paul Krugman where are you?  Oh yeah, speaking of him, his solution is to print up yet more money and drive energy and food prices even higher, so we can be like the Chinese and starve 1/4 of the population, then try to figure out how to keep them from rioting!  You want to know how it’s stopped?  You stop the debasement – by force if necessary through Congress removing Bernanke via emergency legislation – and perhaps by removing The Fed itself. We will no more allow the dollar to be destroyed in that fashion than the Chinese will allow their people to starve as a result of our policies.

Four years ago this was solvable with a lot of pain but it would have been bearable and resolvable.  Today it’s worse.  If we don’t cut this crap out there will be no resolution at all and the ultimate result will be severe, widespread and potentially revolutionary civil unrest.

The madness must stop and those who advocated the positions and policies we adopted back in 2007 and 2008 must be held to account for their failed prognostications and the economic rape they have served upon the nation.  Remember, they claimed that we could “prime the pump”, “get lending going again” and thus “get the consumer back on track”..

These claims were lies as the reason we got in trouble in the first place was that the consumer’s ability and willingness to take on new credit was exhausted!

How much more evidence do you need folks?  Is not what we have on the table now enough?  Is not the fact that consumer spending is rolling over and multiple nations in Europe are threatened with monetary collapse sufficient evidence that “spend more to avoid going broke”, as Vice-President Biden said, does not work?

For exactly how long will you, the American people, sit back and allow this clown-car brigade in Washington and in the ivory towers of America to run proved failed policies and claim “they’ll work, just give us more time”?  Another year?  Two?  Five?

Will your tolerance level for this utter and complete crap run out before or after you’re starving and living under a freeway overpass?

We were promised results and “accelerating growth.”  What we got was a collapse in alleged “growth” instead, and now income, spending and soon employment will follow, as the only “recovery” was due to fake demand created by massive and utterly-unsustainable deficit spending.

See, I told you so.

Incidentally….