FedUpUSA

Archive for September 19th, 2011

Long-time readers of FedUpUSA are familiar with Chris Whalen, but for those of you who are not, here’s a link to a bio.

Well well look what the cat dragged in…

Government intervention is the root cause of the financial crisis and the maladies identified by Roubini. Many of his proposals, such as debt restructuring and maintaining liquidity to solvent borrowers, are common sense initiatives that ought to be followed immediately. But the proposals by Roubini and others that governments should borrow and print even more fiat currency to fuel further fiscal stimulus are badly considered. Economists from Paul Krugman in the US to Adam Posen in the UK all call for more stimuli. They are all wrong.

Yep.  As I’ve repeatedly noted the premise of Keynesian Stimulus is mathematically bankrupt.  We’ve run this for the last 30 years and yet have not produced prosperity – we instead produced serial bubbles.

Deflation does hurt debtors and lenders, but it also advantages savers and institutions with cash to buy assets cheaply. The buyers of dead banks and bad assets generate real growth and jobs. When Roubini, Posen and other mainstream economists call for measures to avoid deflation, they actually cut off one of the few ways that consumers and private business have to offset the ill-effects of secular inflation — the real culprit behind the financial crisis.

Reversion if an inflationary bubble (the S&P 500 went from about 100 to 1200 today!) is not deflation.  It is mean-reversion.  If you inflate something to 10x it’s original size and then deflate it back, you did not experience “deflation.”  You repaired an unsustainable bubble.

But for the inflationary policies of the Fed and the ECB to stimulate pseudo “growth” over the past several decades, there would have been no financial bubble and no mountain of housing-related debt. Why do economists like Roubini and Krugman say we need more of this medicine? Such pathetic proposals for more-debt-driven government intervention are what pass for mainstream economic thinking today in the G-20 nations.

Keep in mind that there are still hundreds of billions in bad debts in the US and EU tied to real estate and other speculative endeavors — debt which must eventually default. Until the global financial system is cleansed of these bad debts, market volatility and uncertainty will remain high. Unless we bite the bullet and write down debts to levels that will allow private growth and employment, there will be no recovery.

You mean like this Chris?

That is what our government has created.  That’s the gross increase (or decrease) in GDP on a quarterly basis along with the gross increase (or decrease) in debt in all sectors.

Debt expansion must never exceed growth expansion on a durable basis.  The reason is that it mathematically can’t – you must always, to have a stable economy, grow from excess capital – that is, the amount of wealth left after you pay all the costs of production.

Borrowing has its uses, but it cannot replace capital formation.  If it does, you get what we got.  If you keep trying to run the scam you eventually go over the edge of the waterfall.

I hear roaring water around the next bend.

Recent Gallup polls show that Three Years After Crisis, Little Sign of Economic Relief in U.S.

1. There has been no improvement in underemployment (counting part-time workers) from a year ago
2. Job creation has been in a narrow range since October 2010
3. Consumer spending has been stagnant since January 2009
4. Economic confidence is near the lows seen at the depth of the depression

click on any chart for sharper image

Economic Confidence: Back at Recessionary Levels

Americans’ confidence in the U.S. economy is now at its lowest point since February 2009 — near the conclusion of the recession that officially ended in June 2009. Gallup’s Economic Confidence Index was -52 in August, above its financial crisis lows, but much lower than the -21 to -35 range measured from June 2009 to June 2011.

Americans’ current level of economic confidence — which represents their views on the current state and future direction of the nation’s economy — is decidedly negative. Seventy-seven percent said the economy was getting worse in August, the highest — by far — since February 2009, the month in which Congress passed a $787 billion stimulus bill in hopes of lifting the U.S. economy out the depths of the recession.

Job Creation: Improved From 2009-2010 Lows, but Far From Early 2008 Levels

The +13 Job Creation Index for August falls into the +10 to +15 range Gallup has measured since October 2010. The good news is that for nearly a year, Gallup has found consistently higher rates of net new job creation (the difference between hiring and letting go) than it did for the first two years after the global economic collapse. The not-so-good news is that the current rate of job creation is still just half of the +26 score Gallup found when it began tracking this metric in January 2008, when the nation was already technically in a recession.

Currently, 32% of workers say their employer is hiring and 19% say their employer is letting workers go, compared with 40% and 14%, respectively, in January 2008.

Underemployment and Employment: Stuck at Year-Ago Levels

Gallup found 18.5% of workers underemployed, including 9.1% unemployed, in August 2011. These figures are based on Gallup’s measure of employment, which is not seasonally adjusted. Both of the current figures are statistically similar to what they were a year ago, meaning the employment situation in the U.S. is no better now than it was at that time.

Consumer Spending: Nowhere Near 2008 Levels

Americans’ spending has remained essentially stagnant since it fell dramatically in January 2009. Spending in stores, restaurants, gas stations, and online has averaged $66 per day so far in 2011 — similar to the $65 is 2010 and $64 in 2009. This compares with an average of $96 per day in 2008. That year, Americans’ daily spending ranged from $81 to $114 per day in monthly averages. Since 2009, monthly spending averages have ranged between $58 and $75.

No Real Recovery

Clearly there has been no real recovery from the point of view of consumers. There was a financial recovery that is now crumbling, led by bank stocks.

BAC Bank of America

$BKX Banking Index

C Citigroup

Banks Stock fueled the decline in 2008 and have done so this year as well. There was never a recovery in the real economy and now bank stocks signal the financial recovery is over as well.

Mike  “Mish”  Shedlock

Global Economic Analysis

… into a wood chipper.  Politically and economically of course, not physically.

The title of the linked article is:

The world must insist that Europe act

This is sort of like the world insisted that Germany act, or that Japan act, right?

We know how those episodes ended, which is why my answer to those that argue such things is that they should be fed feet-first into a wood chipper with their pontifications on a political and economic basis.

There can be no return to the pre-crisis status quo. It is now clear that market discipline within monetary union is insufficiently potent and credible to assure sound finance. It is equally clear that the risk of self-fulfilling confidence crises becomes substantial when banks and sovereigns have no access to lender of last resort financing. The responsibilities of the ECB, national financial and regulatory authorities and EU officials can be defined in different ways. But there must now be simultaneously an increase in the central financial commitment to the financial stability of member states, and a reduction in their financial autonomy, if the common currency is to survive.

The real problem that Larry doesn’t want to admit to is that at its core this crisis was a function of his economic policies.  This entire mess (and it’s a big mess) is fundamentally about lying.

Lying to ourselves, lying about solvency, lying about balance sheets, lying about being able to stop drinking from the “cheap credit” well any time we want.

It’s all been a lie, and we’re all suffering from it.

The ridiculous “fear” of the boogeyman deflation is a chimera.  Once one puts together 30 years of massive inflation of credit reversion to the mean is not deflation, it is removing the influence of a massive and pernicious bubble.

Oh sure, those who “profited” from that bubble will get creamed if and when that is done.  But their “wealth” was never real in the first place.  It was not earned, manufactured or innovated – it was stolen through artifice and fraud and in fact never really existed.

Can we avoid recognition of the truth, here or in Europe?  For a while, perhaps.

But forever?

No.

The premise of our so-called “booming economy” was a lie.  Larry was a chief promoter of that lie.  Now that it’s coming apart, in fulfillment of the we’re screwed, they’re screwed worse basic statement of beliefs that I have put forward for the last few years, Larry and many others are cowering under the desk screaming for more booze to calm their shakes.

It won’t work because it can’t work.

Can the EU bail out the banks over there?  Maybe, although doing so will simply goad the markets to press into the next nation in the (correct) belief that the EU’s firepower is finite and the damage to be absorbed exceeds that firepower’s capacity.  But the EU shouldn’t bail out anyone.  Instead they should tell them all to twist and default the bad debt.  Remove the excess liquidity and credit, returning the economy to stability.

Will this require new banks as many of the current ones turn into smoking holes?  Sure.  We have to have a clearing mechanism for commerce.  That is, we need banks but not these specific banks that have manipulated people and nations both with the claim of “easy money” that in fact is nothing but a gigantic pyramid scheme that they knew must eventually fail.

That, in fact, is the key: These institutions knew this scheme could not continue forever.  They understand the math.  They just believe they can force you, the taxpayer, both here and abroad, to pick up the cost of their foolishness.

It is time to stand and say “no” while we still have the ability to determine the path that this cleansing takes, lest it become disorderly and not subject to our desires, whims and control.

The lies are no longer working.  We must choose truth.

Is the Federal debt a criminal enterprise, enabled by a criminal syndicate? Read on before you pass judgment.

Correspondent Doug laid out a compelling case that the Federal debt is fundamnentally a criminal scam, operated by the criminal syndicate of the Treasury and the Federal Reserve:

The Federal Reserve is a criminal syndicate buying debt that the  government eagerly creates and sells for spending money that dumps the debt on us civilians.What perplexes me is that the scam is so simple and all the intellectuals either don’t get it  or are handcuffed by mega-corporate media owners.The scam in simple terms:

1. Uncle Sam borrows money from The Fed, China, oil exporters, Bank of England, etc. by selling Treasury bonds

2. You are responsible for the bonds, i.e. IOUs

3. Uncle Sam collects taxes and pays the bondholders

4. The debt is breaking us; life will not be the same in the years to come

Uncle Sam borrows all its spending money from the non-government Fed and others,  and spends only borrowed dollars raised from exchanging bonds  for dollars as a debt plus interest on your back.

Uncle Sam collects income taxes and funnels the money to the holders  of these criminal Treasury bonds.

The Fed/Treasury is an evil axis defunding you and me: the debt is $14.5 trillion; this is our debt, not the government’s debt. The government does not generally earn money; we do. Therefore every criminal debt certificate (Treasury bond) the Treasury exchanges  for cash is a debt on you and  me–a promise to pay for which citizens are responsible to  pay, IOUs in simple terms. If the government printed the money instead of the  criminal Fed, there would be no debt.

Uncle Sam borrows bucks and you become automatically indentured to pay back the bond and pay the vig! How is this not a criminal enterprise? If you go to a loan shark, at least you get to have  the money in your hand and can spend it before you have to repay the loan and pay the vig!

Thank you, Doug, for explaining the criminal nature of the Federal Debt and the agencies and Fed that enable and enforce it.As we know, the Federal budget  (and the “supplemental appropriations” that add hundreds of billions of dollars in “off-budget” spending) is consolidated. In other words, the government doesn’t specify that taxes collected paid for X spending and that the remaining Y spending is paid by borrowing money via selling TReasury bonds, so what spending is “paid by debt” is a politically charged assessment.

What the ballooning debt actually funds depends on the political convictions and agenda  of the commentator, along with what constitutes “waste” in Federal spending. Some attribute the Federal deficit/borrowing to Medicare, others to hot wars and the Military-Industrial Complex, and still others to the endless bail-outs of financial Elites.

The common-sense perspective is to compare the circa 2000-01 $2.1 trillion annual Federal budgets of the pre-Global War on Terror (GWOT) and multi-trillion dollar bail-outs of banks/financial Elites with today’s $3.8 trillion annual budget (not counting all the political hot-potato spending hidden in “supplemental appropriations” to keep it out of the scrutinized budget). Since inflation was officially low for most of the decade, this vast increase in Federal spending cannot be explained as inflation; adjusted into real dollars (adjusted for inflation), it is still 40% pre-war, pre-bail-out levels.

Yes, Medicare spending is rising at 6%-7% annually, regardless of which political party is in power, and Social Security spending is outsripping the system’s tax revenue income. But clearly, a National Security State with few if any meaningful restraints on its spending (no “anti-terrorist” dictatorship shall go unrewarded/unfunded, etc.) or influence has added trillions in spending with little oversight or accountability.

The same can be said of the endless trillions squandered bailing out the banks and related financial Elites, including the quasi-Federal agencies (Fannie Mae and Freddy Mac) that funded the criminal enterprise known as the housing bubble/bust.

If the majority of the additional Federal spending was in fact squandered to boost the revenues, earnings and political influence of Elites, fiefdoms and special interests,  then the taxpaying citizenry footing the bill did not receive any measurable benefit from all this additional debt. As Doug observed, the taxpayers are in effect borrowing vast sums from the loan sharks and not even getting to spend the money on themselves: the money was squandered on Elites, supposedly on behalf of the taxpayers, who must pay interest (i.e. the vig, “vigorish”) on the fast-rising debt.

As Doug asked: how is this not a criminal enterprise?

Charles Hugh Smith – Of Two Minds

With Europe set to open in a little over 12 hours, and with rumors of Greek default once again flying around in their private taxpayer funded jets (only to turn back to their point of origin shortly after take off), we wish to remind readers that a chart is worth a thousand words. In this case several charts, courtesy of Reuters, which has created the ultimate in interactive data presentations on the Euro crisis. The data aggregates exposure across public debt, bank and non-bank private sectors, debt maturity, default risk. Note that the charts (based on BIS data) only include external-looking debt held on the books, and not debt subsequently repoed back to the ECB, for which the intermediary exposure is back to domestic banks, and the final is to Europe’s taxpayers themselves.

First, the doomed periphery…

Greece:

Ireland:

Portugal:

Spain:

Italy:

and on to the core:

Austria:

Begium:

Netherlands:

and France:

And Germany:

Whose debt matures when, on an absolute basis:

And proportional:

Bank default risk is close to all time highs across the board:

And last, and certainly most important, is the chart Zero Hedge created back in February 2010 explaining why Europe is doomed.

Rewriting history to suit one’s own view of how you wish it was seems to be a national sport.

Three years ago this week, the financial system came unhinged. In rapid-fire succession, one major financial institution after another crumpled as years of recklessness on Wall Street and regulatory neglect in Washington took their toll. Before it was over, the federal government had committed trillions of dollars to bail out the nation’s largest banks and the economy was in tatters, with gnawing questions remaining about what went wrong and who was responsible.

Actually, that’s not correct.  The federal government didn’t have to bail out the nation’s largest banks.  We need a banking system to clear payments.  We don’t need the specific banks that committed the acts in question.

The unraveling had dire consequences. Twenty-four million Americans are unemployed or unable to find full-time work, with wages as a share of gross domestic product at the lowest level since the 1930s. Meanwhile, the banks barely skipped a beat, with compensation at publicly traded Wall Street firms reaching a record $135 billion in 2010.

The demand represented by the 30-year old credit bubble was not real.  Therefore, neither were the jobs.  Both were a chimera of actual prosperity. That’s an unfortunate fact that your commission did not examine, but should have.

To date, we have seen few criminal prosecutions and too many civil enforcement cases settled for pennies on the dollar with no admission of wrongdoing. Yet, buttressed by the investigations of the Financial Crisis Inquiry Commission, the Senate Permanent Subcommittee on Investigations, and various enforcement agencies, there is now a rising tide of legal actions seeking redress from banks that acted improperly. Some of the cases are beginning to lap up onto Wall Street’s doorstep.

Really?  Exactly how many criminal referrals did the FCIC make Phil?  I think that number is “zero”, despite at least one very-pointed admission, under oath, that a large bank was selling loans knowing they did not meet their published criteria. 

What’s the word for that activity again Phil?

It’s critical that the banks not be given an unlimited pass for past transgressions – to ensure that the truth of what happened to our country is revealed and justice is not short-circuited by financial power.

Again, Phil, exactly how many criminal referrals did the FCIC make?

Oh, and would you compare and contrast that against the body that investigated the S&L crisis, where Bill Black was one of the prominent individuals leading that charge, and explain why his body managed to put forward thousands of referrals and garnered somewhere in the neighborhood of 1,000 felony convictions.

The American people thank you in advance for your (cough) candor.