Archive for January 5th, 2012
Ok, that might be a bit hyperbolic — he’s only going to kill your pension (which could, indirectly, kill you.)
According to the article, the Obama administration could announce a program modeled on one that was originally devised by Columbia University economists Glenn Hubbard and Christopher Mayer. Under that plan, all homeowners with a Fannie or Freddie-backed mortgage can refinance with a new mortgage at a fixed rate of 4.2% or less if they have been current on their payments for at least three months. And the clincher is that the plan imposes no other qualification – no appraisal or income verification.
The typical borrower would reduce his or her principal and interest payments by about $350 dollars, a total reduction in mortgage payments of nearly $100 billion per year, according to Hubbard. It is expected to help refinance $3.7 trillion in mortgages and would come at an immediate fixed cost of $121 billion to the government.
I can’t begin to tell you what happens if that occurs.
Remember that everything is in fact a balance sheet. Someone owns all those mortgages — Fannie and Freddie guarantee them but do not own most of them.
Who owns them?
Little old ladies. Literally.
Your pension fund — both public and private pension funds.
You, maybe, through various bond funds and other similar instruments.
Note that pension funds typically assume about 8% in total returns a year. Most current coupons that would be refinanced are in the 6-7% range, so this would be a cut in income to those holders of roughly 1/3rd, making it even more-impossible for those pensions to ever pay as agreed (they’re already in monstrous trouble, by the way.)
This plan, if Obama were to do it (and violate the Constitution again in making the appointment) will not increase GDP materially, nor will it actually improve the economy. It simply will take that $100 billion a year from MBS investors, most of whom are in fact pension funds and others who would and do immediately spend that money, and give it to homeowners.
In other words it will screw retired (and soon-to-be-retired) people and give their money (again) to those who foolishly overspent on houses they cannot afford under the current terms, just as have “zero interest rates” generally.
Do not be fooled. This will generate fee income for the banks of course but there will be little or no net economic benefit as a whole – it will simply take funds from one person and give them to another. In fact, when you account for the fees, it is negative sum to everyone except the banks (who get the fees.)
We have all been lied to. For decades, the leaders of both major political parties have promised us that they can fix our current system and that they can get our national debt under control. As the 2012 election approaches, they are making all kinds of wild promises once again. Well you know what? It is all a giant sham. The United States has gotten into so much debt that there will be no coming back from this. The current system is irretrievably broken. 30 years ago the U.S. debt was a horrific crisis that was completely and totally out of control. If we would have dealt with it back then maybe we could have done something about it. But now it is 15 times larger, and we are adding more than a trillion dollars to the debt every single year. The facts that you are about to read below should set America on fire with anger. Please share them with as many people as you can. What we are doing to our children and our grandchildren is absolutely nightmarish. Words like “abuse”, “financial rape”, “theft” and “crime” do not even begin to describe what we are doing to future generations. We were the wealthiest nation on earth, but it wasn’t good enough just to squander all of our own money. We had to squander the money of our children and our grandchildren as well. America has been so selfish and so self-centered that it is hard to argue that we don’t deserve what is about to happen to this country. We have stolen the future of America, and yet we strut around as if we are the smartest generation that ever walked the face of the earth.
All of this prosperity that we see all around us is just an illusion. It is a false prosperity that has been purchased by the biggest mountain of debt in the history of the world.
Did you know that if you added up all forms of debt in the United States and divided it up equally that every single family in the country would owe more than $683,000?
We are a nation that is absolutely addicted to debt, and the U.S. debt crisis threatens to destroy everything that our forefathers built.
Yes, everything may seem fine for the moment, but what do you think would happen if the federal government suddenly adopted a balanced budget?
1.3 trillion dollars a year would be sucked right out of the economy and we would be looking at an “economic readjustment” that would be mind blowing.
Enjoy this false prosperity while you can, because it is not going to last.
Debt is a very cruel master, and our day of reckoning is almost here.
The following are 34 shocking facts about U.S. debt that should set America on fire with anger….
#3 During 2011, U.S. debt surpassed 100 percent of GDP for the first time ever.
#4 According to Wikipedia, the monetary base “consists of coins, paper money (both as bank vault cash and as currency circulating in the public), and commercial banks’ reserves with the central bank.” Currently the U.S. monetary base is sitting somewhere around 2.7 trillion dollars. So if you went out and gathered all of that money up it would only make a small dent in our national debt. But afterwards there would be no currency for anyone to use.
#5 The U.S. government spent over 454 billion dollars just on interest on the national debt during fiscal 2011.
#6 The U.S. government has total assets of 2.7 trillion dollars and has total liabilities of 17.5 trillion dollars. The liabilities do not even count 4.7 trillion dollars of intragovernmental debt that is currently outstanding.
#7 During the Obama administration, the U.S. government has accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office.
#8 It is being projected that the U.S. national debt will surpass 23 trillion dollarsin 2015.
#9 According to the GAO, the U.S. government is facing 34 trillion dollars in unfunded liabilities for social insurance programs such as Social Security and Medicare. These are obligations that we have already committed ourselves to but that we do not have any money for.
#10 Others estimate that the unfunded liabilities of the U.S. government now total over 117 trillion dollars.
#11 According to the GAO, the ratio of debt held by the public to GDP is projected to reach 287 percent of GDP by 2086.
#12 Others are much less optimistic. A recently revised IMF policy paper entitled “An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?” projects that U.S. government debt will rise to about 400 percent of GDP by the year 2050.
#13 The United States government is responsible for more than a third of all the government debt in the entire world.
#14 If you divide up the national debt equally among all U.S. taxpayers, each taxpayer would owe approximately $134,685.
#15 Mandatory federal spending surpassed total federal revenue for the first time ever in fiscal 2011. That was not supposed to happen until 50 years from now.
#16 Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period.
#17 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.
#18 When you add up all spending by the federal government, state governments and local governments, it comes to 46.6% of GDP.
#19 Our nation is more addicted to government checks than ever before. In 1980, government transfer payments accounted for just 11.7% of all income. Today, government transfer payments account for 18.4% of all income.
#20 U.S. households are now actually receiving more money directly from the U.S. government than they are paying to the government in taxes.
#21 A staggering 48.5% of all Americans live in a household that receives some form of government benefits. Back in 1983, that number was below 30 percent.
#22 Back in 1965, only one out of every 50 Americans was on Medicaid. Today,one out of every 6 Americans is on Medicaid.
#23 In 1950, each retiree’s Social Security benefit was paid for by 16U.S. workers. According to new data from the U.S. Bureau of Labor Statistics, there are now only 1.75 full-time private sector workers for each person that is receiving Social Security benefits in the United States.
#24 The U.S. government now says that the Medicare trust fund will run out five years faster than they were projecting just last year.
#25 Right now, spending by the federal government accounts for about 24 percent of GDP. Back in 2001, it accounted for just 18 percent.
#26 If the U.S. government was forced to use GAAP accounting principles (like all publicly-traded corporations must), the U.S. government budget deficit would be somewhere in the neighborhood of $4 trillion to $5 trillion each and every year.
#27 If you were alive when Christ 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 add more than a trillion dollars to the national debt.
#28 If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.
#29 A trillion $10 bills, if they were taped end to end, would wrap around the globemore than 380 times. That amount of money would still not be enough to pay off the U.S. national debt.
#30 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 470,000 years to pay off the national debt.
#31 If Bill Gates gave every penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.
#32 According to Professor Laurence J. Kotlikoff, the U.S. is facing a “fiscal gap” of over 200 trillion dollars in the future. The following is a brief excerpt from a recent article that he did for CNN….
The government’s total indebtedness — its fiscal gap — now stands at $211 trillion, by my arithmetic. The fiscal gap is the difference, measured in present value, between all projected future spending obligations — including our huge defense expenditures and massive entitlement programs, as well as making interest and principal payments on the official debt — and all projected future taxes.
#33 If you add up all forms of debt in the United States (government, business and consumer), it comes to more than 56 trillion dollars. That is more than$683,000 per family. Unfortunately, the average amount of savings per family in the U.S. is only about $4,735.
#34 The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was created back in 1913.
But do our leaders care about statistics such as these?
In fact, Barack Obama says that we need to raise the debt limit by another 1.2 trillion dollars.
The absurdity of raising the debt limit when we are already in so much debt is beautifully illustrated by the video posted below….
I just thought that video was so well done.
The “huge cuts” that Congress has agreed to are absolutely meaningless when compared to how rapidly our debt is exploding.
Calling those cuts “pocket change” would be an insult to pocket change.
But it is not just U.S. debt that is the problem. The European debt crisisthreatens to completely unravel in 2012 and Japan actually has the highest debt to GDP ratio in the entire industrialized world.
In 2012, a total of 7,600,000,000,000 dollars of debt must be rolled over by the G-7 nations, Brazil, Russia, India and China.
That doesn’t even count new borrowing. That number just represents old debts that are coming due that must be refinanced.
Anyone out there that insists that this debt bubble can be fixed under our current system is lying.
A massive amount of financial pain is coming.
It is time for Americans to wake up from their television-induced comas.
It is time for Americans to get very angry.
Your future has been destroyed and the future of your children and grandchildren has been destroyed.
You better take action while you still can.
First, we have the ADP report:
ADP today reported that employment in the U.S. nonfarm private business sector increased by 325,000 from November to December on a seasonally adjusted basis. The estimated advance in employment from October to November was revised down slightly to 204,000 from the initially reported 206,000.
Good Lord; the futures spiked, of course, when that hit the tape.
Let’s look at the table:
I’m not sure I believe it, quite bluntly, but if this is real we should see a +250k print tomorrow, more or less.
Again, this is very, very suspect and way outside expectations — including mine, but forces an expectation of +250k for tomorrow, irrespective of what I believe and what the claims and other economic data tend to indicate.
In terms of the markets the instant reaction almost completely erased what was a quite-negative premarket that had developed as a consequence of concerns over Europe. It will be very interesting to see if it holds up — the S&P channel looked to be about to violate (badly) this morning on the open, but with this report we may have just seen a nice “save” for today.
Next, we have Unemployment claims:
In the week ending December 31, the advance figure for seasonally adjusted initial claims was 372,000, a decrease of 15,000 from the previous week’s revised figure of 387,000. The 4-week moving average was 373,250, a decrease of 3,250 from the previous week’s revised average of 376,500.
Heh that’s really good, right? Sure looks like it….. so what’s this?
The advance number of actual initial claims under state programs, unadjusted, totaled 535,112 in the week ending December 31, an increase of 37,423 from the previous week.
We’ll see how this seasonal adjustment works out. The Labor Department does seem to do reasonably well at smoothing things over the year, but this number is particularly important due to the ADP release.
The big table is not very interesting this week; remembering that this is for the week of the 17th, it is basically flat, down 8,311 from the prior week across all programs.
My macro-level view for the number tomorrow would be around 100-125k, but that ADP number is so far out of whack that I have to run with a +250k estimate (with the usual 50k error band either side) even though I don’t believe it.
I’ll be very interested in the household data tomorrow, especially if there is divergence with the official establishment results.
Then, we have Non-Manufacturing ISM:
The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. “The NMI registered 52.6 percent in December, 0.6 percentage point higher than the 52 percent registered in November, and indicating continued growth at a slightly faster rate in the non-manufacturing sector.
Eh. Look, I need to see something that confirms this ADP services employment index. Is it there?
In fact, ISM Non-Manufacturing claims that employment is contracting in the services sector.
|Backlog of Orders||45.5||48.0||-2.5||Contracting||Faster|
Pull the other one ADP.
Put them all together, and what do you get?
With Non-Manufacturing ISM’s increase (purportedly showing continued growth which is faster than expected) ADP’s additional 325,000 Non-Farm Jobs (seasonally adjusted of course) and the Initial Claims Report (showing further declines in the newly unemployed) one would be lead to believe we were off to a great start in 2012.
Maybe we should think again, knowing what we know about government figures and the current global economic climate.
Perhaps these numbers, tweaked prior to release as they are, are intended to portray exactly that…Bunnies and Kittens and Rainbows for All!…while those “in the know” continue to prepare their bunkers against global economic collapse. Perhaps all of this rosy information is intended as reassurance to the masses that it is safe to get back into the financial waters, and invest again…so “they” can trade against you, leaving you broke and ill-prepared for the collapse “they” KNOW is coming.
Perhaps the numbers are real, and we really ARE having a great start to 2012.
Time will tell…do you want to risk being wrong now?
Well that was a nice drunk we had over the holiday, eh? Time to face the hangover….
Hungary is an interesting situation; they’ve “restructured” but not in financial thought way, playing games with the “independence” of their central bank and government structure. But Hungary has yet to face reality – spending other people’s money only works until you run out of the other people’s money, and eventually they get tired of working so you can take it from them and spend it.
The Stoxx Europe 600 Index (SXXP) lost 0.8 percent at 10:45 a.m. in London as UniCredit SpA, Italy’s biggest bank, tumbled for a second day. Standard & Poor’s 500 Index futures slid 0.8 percent. French 10-year bond yields were little changed after a government debt sale. The euro weakened 0.8 percent to $1.2845. Hungary’s forint sank 0.4 percent to 321.61 versus the euro.
Oh look at the spin. I heard earlier, incidentally, when Bloomberg TV reported that the French debt sale went “ok.” Really? They didn’t sell everything on offer — that would be considered a fail anywhere else!
And note carefully folks, this is an allegedly-triple-A nation!
Have we reached the point of revulsion? Quite possibly. If so things are about to get very, very rocky on a world-wide basis.
Greek Prime Minister Lucas Papademos said yesterday deeper cuts in incomes and an agreement on international aid are the only way for the country to avert economic collapse and a “disorderly default.” France sold 10-year bonds at an average yield of 3.29 percent, up from 3.18 percent in December, and the yield on Hungary’s one-year bills climbed to the highest level since 2009. The U.S. service industry probably grew last month and jobless claims fell last week, economists said before reports today.
Here’s the problem with Greece — there is no “international aid” that is going to fix anything. The only solution for Greece, as with everywhere else, is to stop spending more money than the government takes in via taxes!
That’s the beginning and end of it.
Unicredit sold “rights” and got hammered; they wound up having to give a 43% discount to get the offering to subscribe, basically giving it away. The investing public obviously doesn’t see this as a particularly impressive and going concern.
The sleeper story to watch, however, is Deutsche Bank. There are rumors of liquidity problems and may I remind everyone that they’re running with something like 50:1 leverage?
I said in my annual update that I expected the triggering “event” to come from Europe this year — I did not believe it would happen immediately in the new year, but these sorts of events are almost impossible to get the timing nailed on, as they tend to come on slowly — then all at once.
I advise extreme caution – if you’re illiquid or need credit to survive as a business or consumer, you better get that problem solved, right here and now.
I suspect that we’re running out of time, happy-faced BS coming from the media notwithstanding.
Coyhaique, Northern Patagonia Simon Black is an international investor, entrepreneur, permanent traveler, and self-described free man
Yesterday we discussed certain events that, in my view, are nearly mathematical certainties. Things like a restructuring of public pensions and Social Security in Europe and the US. Western governments blocking Internet and mobile networks. War. The US government being forced to issue debt in a foreign currency.
All of these events are underpinned by a simple premise:
1) Public and private debts included, most western nations are insolvent. Big time.
2) History shows that economic growth in such an environment is nearly impossible when such a large percentage of GDP must be allocated solely to interest. Most countries in this position either default or [hyper]inflate. Both have catastrophic consequences.
3) Continued political and monetary intervention in the economy is counterproductive. From ‘Cash for Clunkers’ to negative real interest rates, such intervention only serves to make the problems, and their impacts, much worse.
4) The combined ingredients of sovereign insolvency; a global financial system based on worthless paper currency; and consumptive, import-oriented, public entitlement economies have created conditions for an epic, long-term economic depression.
5) Deteriorating economic conditions drive social unrest. [In fact, there's a great paper by two European economists which defines an explicit correlation between government budget cuts and things like rising crime rates, riots, and even attempted revolution.]
6) Faced with a marauding population that threatens their own survival, governments will stop at nothing to maintain the status quo: their power, our expense. Again, history shows that police states, boogeyman enemies, a total loss of privacy, capital controls, higher taxes, etc. will all become the norm.
7) None of these delay tactics can prevent human and financial capital from eventually migrating to where they are treated best. This will ultimately force a complete system reset by starving the beast.
8) This is not the first time this has happened, and it won’t be the last. This time is NOT different. Our modern society is not a unique and special snowflake that can ward off the consequences that have plagued empires for millennia.
Everything from the way I invest to how I allocate my time and plan for the future is based on this view. It’s why I’m in Chile, why we purchased a 1,000+ acre farm, and why we plan on sharing it with like-minded people.
I may be a bit early, but I’d much rather be early than thinking through these implications while I’m packing my bags. After all, things can ‘feel’ quite normal for a long time. Changes take place gradually, then faster and faster, until the decay looks like an upside-down hockey stick.
The Roman Empire, for example, began its spectacular decline shortly after Augustus became de facto emperor in 27 BC. He was followed by a long series of dismal failures– Tiberius, Caligula, Claudius, Nero, etc. But Rome muddled along for hundreds of years, wavering between growth and decay.
The changes were gradual. A little currency debasement here, a bit of excess spending there, and throw in plenty of assassinations and foreign wars for good measure. Along the way, though, thinking people could see the writing on the wall… and many of Rome’s citizens set sail for greener pastures.
The gradual changes became more and more pronounced… and the more pronounced, the more people left. As Gibbon recounts in his seminal work, The History of the Decline and Fall of the Roman Empire, the city of Rome lost nearly 75% of its population in the Empire’s final 50-years in the 5th century.
History is full of other examples of once proud nations that, facing problems for decades (or even centuries), completely unwound in a matter of years. The Ottoman Empire. The Ming Dynasty. Feudal France. The Soviet Union.
Bottom line, when the real change comes, it comes very, very quickly.
Think about the pace of change these days. It’s quickening. Europe is a great case study for this– when concerns about Greece first surfaced, European leaders were able to contain the damage. There was disquiet, but it soon dissipated.
Fast forward to today. We can hardly go a single day without a major, market-rocking headline. And European politicians’ attempts to assuage the damage have a useful half life that can be measured in days… sometimes hours now.
Like the Ottomans, the Soviets, the Romans before them, Western civilization is entering the phase where its rate of decline will start looking like that upside-down hockey stick.
There is no crystal ball that can tell us exactly how/when it will all go down. It stands to reason that certain events (perhaps this year’s Presidential elections in the US, Russia, France, etc.) will be pivotal in the decline, but suffice it to say that time is not on our side given the pace of change.
Each of us has a finite amount of resources– time, energy, capital, etc. And I really want to encourage you to think clearly and deliberately about how you allocate those resources… e.g. you’re better off buying an ounce of gold than making a political campaign contribution.
2011 was a challenging year. 2012 will likely prove even more. But this isn’t anything to dread. It’s is an incredibly exciting time to be alive– change should be embraced, not feared.
Empires always run their course. Bubbles burst. But creative, thinking human beings always survive and thrive.
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As if we aren’t already there….from The Hill this morning:
The Federal Reserve is turning its attention to reviving the ailing housing market, calling on policymakers to provide a boost to the sector and lift the broader economy.
The Fed on Wednesday sent a 26-page white paper to Congress, providing a framework — including several steps that are already in the works within the Obama administration — designed to provide greater stability for the sector and the overall economy.
Uh huh. As if there is something wrong with asset values correcting to come back into line with incomes.
And here’s the blatant return to feudalism:
The Obama administration is examining ways to reduce the number of vacant, foreclosed homes by putting together properties to sell to investors for rental units.
Sen. Jack Reed (D-R.I.) is pushing legislation that would convert hundreds of thousands foreclosed properties into rentals as demand rises for those types of properties.
Isn’t that nice? Subsidize investors (neo-Lords, many of the same culprits who caused this mess in the first place) so they can rent us (the serfs) back our own foreclosed homes without the banks taking a loss.
It goes on to explain:
“We caution, however, that although policy action in these areas could facilitate the recovery of the housing market, economic losses will remain, and these losses must ultimately be allocated among homeowners, lenders, guarantors, investors and taxpayers,” the paper said.
Here is an idea, why don’t we remove taxpayers from the line above and insert — banksters, congressmen, senators, legislative aides, lobbyist and employees of the Federal Reserve system. That way we can stick the losses onto the back of the people who caused the losses.
Now that would create real improvement in the economy.