Archive for March 16th, 2012
Hmmm…. I was asked about this in an interview yesterday (it’ll be published in the next few days) and thought it was worthy of a Ticker comment as well:
Washington, DC—At the request of CME Clearing Europe Limited (CMECEL), pursuant to Section 7 of the Commodity Exchange Act, the Commodity Futures Trading Commission issued an Order on March 13, 2012, vacating the registration of CMECEL as a derivatives clearing organization.
The Order of Vacation is available on the CFTC’s website (see Related Links).
Well, the firm did ask — they didn’t get thrown out, they walked off.
One can only surmise that they have detected a potential problem that they don’t want to be a part of. Might it be a question of whether the CDS on European debt have any sort of actual margin against them, and if not, whether they might get “urged” (or worse) to backstop those bets?
I suspect so. I further believe, as I’ve repeatedly noted, that the European banking system is dramatically over-levered and no attempt has been made at all to take that leverage down. This was remarkably stupid prior to 2007 but now is into the realm of criminally stupid, not that anyone seems to care from a regulatory point of view in the EU. A good part of the reason for that willful blindness is simply the structural flows from Germany (in particular) to the periphery — in short the entire European “experiment” is predicated on continuing to hide the transfer of wealth from German citizens to the periphery who cannot afford the goods exported from Germany to their nations.
If and when the Germans decide they’ve had enough of this crap — or the rest of the PIIS decide to say “since Greece got to pay half, we demand equal treatment or you’ll get nothing” the game will truly be over — and that blowup is likely come with little or no warning. Now add to that backdrop the oft-repeated CME claim (right up until MF Global blew up) that no customer of a CME firm had ever lost a nickel of segregated funds and you’ve got the making of a real mess. The system survived the first “dislocation in the farce” but would it survive another?
This move by the CME thus looks to be defensive — and well-founded.
Are you better off today than you were four years ago? If not, then you are just like most other Americans. According to a CBS News/New York Times poll that was released a few days ago, 80 percent of Americans say that their financial situation is not “better today” than it was four years ago. But if you turn on the television and listen to what the “pundits” are saying, you would be tempted to think that we were in the midst of a robust economic recovery. You would be tempted to think that the U.S. economy is in great shape and that we are heading for a really bright future. But the fact that the stock market is soaring does not mean much to most Americans. In fact, most Americans couldn’t care less that the Dow is well above 13,000 and that the NASDAQ is above 3,000. What most Americans care about is having a job and being able to provide for their families. If you haven’t paid the mortgage in three months or if you don’t have enough money to take your daughter to go see the doctor it really is not going to matter to you how well the boys and girls over on Wall Street are doing. Right now most American families are doing worse than they were doing four years ago, and no amount of media hype is going to change that fact.
Yes, the stock market is doing really well for the moment, but the truth is that more than 50 percent of all stocks and bonds are owned by just 1 percent of the U.S. population.
Good for them. It looks like the trillions of dollars that the Federal Reserve poured into the big Wall Street banks is really paying off nicely for the financial community.
Meanwhile, much of the rest of the country is deeply suffering.
It was recently reported that 1.5 million American families live on less than two dollars a day (before counting government benefits).
That is horrifying.
According to the U.S. Census Bureau, the percentage of Americans living in “extreme poverty” is now sitting at an all-time high.
All across this country poverty is exploding. Food banks are experiencing more demand than ever before and those offering free healthcare are absolutely swamped.
And every single measure of government dependence has gone way up since Barack Obama entered the White House.
For example, since Barack Obama became president the number of Americans on food stamps has gone up by 45 percent.
Just think about that.
At this point the federal government is helping to feed an all-time record 46.5 million Americans every month.
Oh yeah, times are good.
According to the U.S. Census Bureau, 49 percent of all Americans live in a home that receives direct monetary benefits from the federal government.
That is much higher than it has been historically.
For example, back in 1983 less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.
The big problem is that there are simply not enough jobs for everyone.
Listening to the media, you would be tempted to think that the U.S. economy is now pumping out huge numbers of good jobs.
But that is simply not the case.
Right now there are 5.6 million fewer jobs than there were when the last recession began back in late 2007.
So where are the millions of jobs you promised us Obama?
The federal government is trying to convince us that the unemployment rate is going down, but that is not really true.
The key is to look at the percentage of working age Americans that actually have jobs. During the last recession that percentage fell dramatically as you can see from the chart below. After every other recession since World War II the employment to population ratio has always bounced back. But it has not happened this time. Instead, the employment to population ratio has remained between 58 and 59 percent since the end of 2009….
We have not had a jobs recovery. Hopefully we will have one before the next recession hits, but we are running out of time for that.
Tonight there are millions upon millions of hard working Americans that are staring at their television screens and wondering why they can’t find good jobs. The pretty people on television are telling them that the employment situation is getting much better but they can’t find work no matter how hard they try. It is a cruel joke on them.
When Barack Obama entered the White House, the number of “long-term unemployed workers” in the United States was approximately 2.6 million. Today, that number is sitting at 5.6 million.
Thanks for the improvement Obama.
Meanwhile, the average duration of unemployment continues to hover near a record high. Just look at the chart posted below. Does this look like a “jobs recovery” to you?….
But of course Obama and those that support him want to make things sound like they are getting better. They want people to run out and vote for him again in November.
If things are going well for you right now, be thankful, and also remember the millions upon millions of Americans out there that are deeply hurting in this economy.
If you gathered together all of the workers that are “officially” unemployed in the United States at this point into one nation, they would constitute the 68th largest country in the entire world. It would be a nation larger than Greece or Portugal.
That is a lot of people.
Obama promised us that the Wall Street bailouts would make everything better. He promised us that if we poured gigantic mountains of money into Wall Street that it would end up helping “Main Street”.
Well, the last time I looked Goldman Sachs was doing just fine.
So where is the help for Main Street?
In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.
How much wealthier do they have to get before they start creating more jobs for the rest of us?
Obama (like most of our politicians) is a complete fraud when it comes to the economy. He is all saddle and no horse. He talks a good game but he doesn’t have any game.
As Wall Street has recovered, the rest of the country has actually been in decline. Median household income in the United States is down 7.8 percent since December 2007 after adjusting for inflation. Millions of American families are reaching the breaking point and millions of other families have already reached it.
Incomes have been declining but the cost of living has not.
For example, health insurance costs have risen by 23 percent since Barack Obama became president.
Has your paycheck increased by 23 percent?
The average price of a gallon of gasoline in the United States has increased by more than 90 percent since Barack Obama became president.
Has your paycheck increased by 90 percent?
Millions of American families have lost their homes while Obama has been president and millions more will soon lose their homes. At this point there are more than 6 million mortgages in the United States that are overdue.
It is a horrible, horrible feeling to know that you can’t pay your mortgage and that you will soon lose your home and your family will be put out on the street.
None of us would ever want to end up in that situation.
And the housing market sure has not shown any signs of recovery under Barack Obama.
In January, U.S. home prices were the lowest that they have been in more than a decade.
Weren’t home prices and home sales supposed to be turning around by now?
Under Barack Obama, new home sales in the United States set a brand new all-time record low in 2009, they set a brand new all-time record low again in 2010, and they set a brand new all-time record low once again during 2011.
That trend is not going in the right direction.
Of course Barack Obama is not solely responsible for the performance of the U.S. economy. Congress should share part of the blame as well, and the Federal Reserve is more responsible for our economic performance than anyone else is.
But one area where Barack Obama has had a huge impact is in the area of government spending.
While Barack Obama has been president, the U.S. national debt has risen from 10.6 trillion to 15.5 trillion.
During the first three years of the Obama administration, the U.S. government has accumulated more debt than it did between 1776 and 1995.
So is Obama planning a change of course?
Of course not.
At this point, our national debt is increasing by about 150 million dollars every single hour.
So should we be thanking Obama for stealing 150 million dollars from our children and our grandchildren every hour?
Should we be thanking Obama for ruining our future?
I think not.
But you know what?
According to the CBS News/New York Times poll mentioned above, about half of America would actually vote for Obama if the next presidential election was held today.
That alone is a clear sign that this country is in a massive amount of trouble.
The truth is that the leaders we elect are an accurate reflection of who we are as a country.
And when you look at the collection of misfits in Washington D.C. right now, that does not say a lot about the character of this nation.
So where does America go from here?
That is up to you America.
Oh look here, someone who can balance a checkbook!
In a speech Wednesday that Volcker himself said was intended to be “a little provocative,” he challenged U.S. leaders to go further in raising taxes and cutting spending than suggestions laid out by bipartisan deficit-cutting commissions and panels.
“The problem is the United States can no longer claim unchallenged leadership over the world economy,” Volcker said at the Economy Summit sponsored by The Atlantic. “We have to do better . . . only a strong economy can ensure our political strength and national security.”
Yeah well, there’s a problem with that Paul, and you know damn well what it is. We’ve got a GDP that doesn’t represent actual demand. Instead, it’s been “goosed” for the last four years sequentially borrowing more and more money, sending false demand signals.
There’s a difference between a short-term rescue and structural spending as well. Unfortunately our structural deficit games go back to 2001 post-9/11 and encompass both Democrats and Republicans.
Structural deficit spending is a massive problem and it is how Greece got in trouble. It’s also how virtually every other nation that has found itself in the middle of a debt crisis got there. When false demand signals become embedded in the economy they then become politically impossible to remove, as the entire compounded effect of them over time will immediately come off.
Economic advisers thus strongly recommend that politicians do no such thing, as they are well-aware that withdrawal of the false demand will lead to an instant economic Depression and that, of course, leads to immediate loss of power (through electoral defeat.)
In short you have a bunch of lawmakers that are drunk on power and are willing to wantonly, recklessly and intentionally violate their oath of office along with violating the people for their own personal aggrandizement and power.
Am I surprised? No.
But can this sort of thing avoid the inevitable — that which awaits all who try to abuse compound growth functions? Nope.
I expect Volcker to be ignored for the same reason that everyone else is ignored in this regard, right up until the math forces contraction in government services, increased taxes or both — Volcker is well-aware that every dollar of tax increase is a dollar that doesn’t get spent in the economy, since deficit reduction through tax increases is a net GDP negative on a dollar-for-dollar basis.
He’s right, but he’s also being disingenuous in that Tall Paul is not putting numbers to paper and pointing out exactly how much government must contract or taxes must rise (or some combination of the two) to restore balance.
That’s probably because we’re talking about a doubling of taxes or a 50% reduction — or more — in federal spending.
Best of luck with the path we’re on folks.
America is just going through the motions because we have no other choice–or so we believe.
I have long thought that America Is Just Going Through the Motions–of caring about the deficit, of financial “reform,” and everything else:
Let’s be honest, shall we? There never was any fire for real reform of the financial sector. It was all rote, a foul, stupid play-act, a passionless pantomime of “caring” and fake-”progressiveness” displayed for propaganda purposes.
I now think we’re just going through the motions because we have no other choice than to “extend and pretend” the Status Quo. Choice is of course a matter of perception, a situation where perception defines what is “possible” and what is “impossible.”
Interestingly enough, the “possible” is what we think we can manage, while the “impossible” is what happens to us whether we thought it possible or not.
Consider the Federal Reserve. Liberal media mainstay The Atlantic published a fawning puff-piece lauding Ben Bernanke as the man who “saved the economy”:The Villain: The left hates him. The right hates him even more. But Ben Bernanke saved the economy—and has navigated masterfully through the most trying of times.
We all know what Ben “saved,” and it wasn’t the economy–it was the fraud-based crony-capitalist financial sector. In case you missed the primer that explains the fundamental frauds at the heart of our economy:
Claiming that “saving the financial sector was necessary to save the economy” is akin to claiming that saving the massive tapeworm coiled inside the patient is necessary to save the patient: the logic is backward. The financial sector (tapeworm) is the cause of the economy’s (the patient) weakness and collapse.
Ben is no genius nor is he a hero. He is simply doing what he has to because he has no other choice. What would happen if Ben didn’t funnel hundreds of billions of dollars into the financial tapeworm? It would die, and the “too big to fail” banks–for all intents and purposes, the Fed’s partners, and the generous funders of political toadies–would cease to exist. Extremely wealthy and powerful people–the top 1/100 of the top 1%–would lose great wealth and the power it buys.
In a system that has become dependent on crony-capitalism and fraud for its very survival, then that is obviously not even a choice.
How about the political class of toadies, sycophants, leeches and cowards who passed a 2,300-page “reform” bill that nobody read, much less actually understands? Senator Dodd recently penned a bloviated defense of his “save the poor tapeworm” legislation, the Dodd–Frank Wall Street Reform and Consumer Protection Act in The Economist, claiming that it was “impossible” to “reform” our “complex” financial system with a mere 37 pages of legislation, the length of the original Glass-Steagal Act that separated commercial and investment banking:What If We’re Beyond Mere Policy Tweaks? (February 6, 2012)
Consider the Glass-Steagall Act, at 37 pages in length, and the 2,319-page monstrosity of the “Dodd-Frank Wall Street Reform and Consumer Protection Act:” (Source)
Back in December, Nick Schulz helped put the size of the 2,074-page healthcare bill into some historical context by comparing its length to some previous bills that rank among the most consequential in U.S. history, like the 82-page Social Security Act of 1935 and the 74-page Civil Rights Act of 1964.Now that Congress has passed the “Dodd-Frank Wall Street Reform and Consumer Protection Act,” it might be a good time to compare the 2,319-page financial reform bill (245 pages longer than the healthcare bill) to the previous bills listed below (and see graph) that are considered among the most consequential legislative acts for banking and finance.
1. Federal Reserve Act (1913) – 31 pages.
2. Glass-Steagall Act (1933) – 37 pages.
Actually, the entire fraudulent tapeworm could be killed with a single page of legislation, or more correctly, a single five-point paragraph: To wit:
1. Commercial banks cannot conduct any investment banking, and investment banks cannot conduct any commercial banking. Any financial institution that accepts deposits or issues loans or financial instruments of any nature will be regulated as a bank.
2. All assets of any nature must be listed at the close of business daily marked to market, as in the futures and options markets. If there is no regulated market for a class of financial instruments, the Treasury is instructed to establish and regulate a market for that class of financial instruments. Holding assets off-balance sheet is a criminal offense with a minimim fine of $10 billion per asset. If the fine cannot be paid in full, the FDIC is instructed to seize the bank and liquidate its assets in an orderly and timely manner.
3. No bank will be permitted to have assets or liabilities in excess of the smallest gross domestic product (GDP) of the 50 states.
4. No private banks may create any money through debt. All loans must be made out of existing deposits and equity. (via David V.)
5. No exceptions or exemptions are allowed to these statutes.
That would pretty much do it. Separate commercial from investment banking, require all assets to be marked to market every day, and limit banks from expanding to the point of being able to blackmail the nation, i.e. “too big to fail.”
Instead, by one count, Dodd-Frank requires regulators to create 243 rules, conduct 67 studies, and issue 22 periodic reports. Does anyone seriously believe this complexity will “fix” anything?
But the legislators had no other choice. If they killed the TBTF banks, they would have killed their good friends and generous donors, so that was never a possibility. Ditto with healthcare “reform” and all the other phantom “reforms”–actually changing the Status Quo would cause immense financial pain in the class of wealthy people who fund the politicos and lobbyists, and trim money flows elsewhere in the system.
“Having no other choice” is a social fractal. Why do families persist in taking on $100,000 student loans for mostly mediocre educations with mostly mediocre “benefits” in the job market? Because they feel they have no other choice.
Why do people persist in mortgaging their future and accepting the yoke of debt-serfdom to own a house? Because they feel they have no other choice, and owning a house has become integral to the “American dream.”
Why do local state, county and city politicos continue playing absurd budget games, shuffling funds, borrowing from their employees’ pension plans to make this year’s pension plan contribution and similar threadbare tricks? You guessed it: they have no other choice, lest someone somewhere feel some pain.
Why do our Federal “leaders” borrow $1.5 trillion each and every year now, fully 10% of the nation’s total output, knowing full well that this level of borrowing will bankrupt the nation? (Don’t forget to add in the “supplemental” off-budget borrowing.) You know: they have no other choice, lest someone somewhere feel some pain.
So instead they keep the accelerating vehicle pointed straight for the cliff. There are only two end-states to this level of borrowing: hyper-inflation or default. Any other “choice” is mere fantasy.
As noted above, what’s possible is what you perceive, and what’s impossible is what happens later whether you thought it possible or not. The Status Quo of a fraudulent financial system and a borrow-trillions-every-year-til-Doomsday Central State will implode, regardless of how many people think it “impossible.”
If you take a star of sufficient heft such that it burns through its fuel at a rapid clip, then it will implode in a supernova whether you thought it possible or not.
“We have no other choice” is partly “deer in the headlights,” partly fear of consequence and partly intellectual laziness, i.e. a continuing failure of imagination. Just to take two examples of many: anyone who is convinced they “have no other choice” but to enslave themselves with $100,000 in student loans should read Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents. Yes, it requires sacrifices and hard work, but it does outline a debt-free choice.
The Status Quo depends on debt-serfs who feel they “have no other choice” for its survival, but there are other ways of perceiving our financial options, for example Early Retirement Extreme: A philosophical and practical guide to financial independence.
OK, so these options may not be for everyone, but to deny they exist is delusional.
Consider America’s second favorite obsession (the first being achieving “fame” by appearing on broadcast TV), losing weight. Here are two articles on the physics of weight loss by a UC-Berkeley physicist who lost 30 pounds: (via Ken R.)
Is it “convenient” to lose weight? no, it is generally inconvenient and requires sacrifice, discipline and embracing responsibility–all the attributes of life we avoid by perceiving no other choice.
What’s possible is what we perceive, and what’s impossible is what happens later whether we thought it possible or not. The “impossible” systemic collapse will happen because we’ve left no other option open. We will get “wake-up calls” along the way, but these will be ignored because to change anything in the Status Quo will cause pain to someone somewhere, i.e. it is inconvenient.
Could we choose another future other than collapse? At this point, the answer is no, because we have no other choice.
Charles Hugh Smith – Of Two Minds
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment.
The gasoline index rose sharply in February, accounting for over 80 percent of the change in the all items index. The gasoline increase led to a 3.2 percent rise in the energy index despite a decline in the index for natural gas. The food index was unchanged in February, with the food at home index unchanged for the second month in a row as major grocery store food indexes were mixed.
But remember, nobody needs any food and especially any energy. And while natural gas is diving, gasoline is going up faster.
The big table (Table 1) remains amusing; Rick Santelli was on CNBS with a very legitimate screed about the CPI, one that I wrote about extensively in Leverage. Specifically, the weighting is only “valid” for the “average” consumer. But of course incomes are rarely average. A lower-income person uses an extraordinary amount of their income for food, shelter and energy compared to higher-income people. This means that costs in those areas have a wildly disparate impact on poorer Americans, and the poorer you are the worse it is.
Then there’s hedonics. Rick needs to use a better example; I like the television one since everyone can relate to it (we all have idiot boxes, right?) The government claims that a LCD TV is “better” by a material amount — 70% in fact. This is true, of course — a LCD TV does have a sharper picture, uses less energy and is physically smaller. As such since the government says that a LCD TV is 70% “better” than a CRT one, if the price is 70% higher there is no “inflation” since you’re getting the same utility value for the money spent.
That would be a decent argument if you could still choose to buy a CRT TV! But you can’t because they’re not made any more. Your options are to spend 70% or get nothing, and yet this is not called “inflation.”
If you want to watch TV and yours just broke, I suspect you disagree.
There’s a number of other interesting claims in the table too. For example, “food away from home” is listed as up 3.1%. One wonders what’s going on there as I’ve noticed both price increases and negative changes in quality and quantity in eateries that are vastly more than 3% in the last year. When you actually notice it the change is typically somewhere between 10-20% — consider that a 3% change in a $20 check is sixty cents. It’s highly unlikely that you would note the cost of eating out going up at that rate, or the quality of the food going down — unless it was dramatically more than 3%.
There are other problems for lower-income citizens as well. Water, sewer and trash collection services are up (according to the table) 4.7% over the last year. That’s non-trivial. Fuel oil of course is up big (as is gasoline, up 12%.) Apparel is up sharply as well, as is transportation, with the largest cost increases coming in the form of fuel.
In the final analysis however the report did not surprise, and the market pretty-much ignored it. Then again the TNX (10 year Treasury yield) says “no mas” on these figures as it continues its march higher, now over 2.3% and up 2.2% on the day.
May you live in interesting times.
When it comes to the New Normal, there are just two precedents: complacent and doomed debt slaves, such as Greece, which continues to voluntarily hand over any and all of its real assets to the vampiric banking oligarchy in exchange for simply being the member of a doomed club, while trembling at constant threats of fire and brimstone if it dares to split away from its monetary parasites (and where unemployment rises by 3% in one quarter), or the rare success story such as Iceland, which showed the bankers a middle finger, took the red pill and disconnected from the globalization matrix. And while even Bloomberg recently extolled the virtues of the Iceland “case”, which will likely be solitary until the entire ponzi scheme comes crashing down, we are heartened when we observe all incremental milestones of further economic and financial success by the one country that dared to call the banker bluff, and won. Such as this press release from the IMF.
Iceland to Repay Early Some Outstanding Obligations to the IMF Press Release No.12/84 March 15, 2012
Iceland announced today that it repaid, ahead of schedule, obligations to the IMF amounting to some SDR 288.8 million (US$ 443.4 million). The payment was made on March 12.
The early repayment is about one fifth of the SDR 1.4 billion (US$2.15 billion) that Iceland borrowed from the IMF under its Stand-By Arrangement (SBA) (see Press Release 08/296). The amounts repaid early are the obligations falling due in 2013 under the original repayment schedule.
Together with a scheduled payment made in February 2012, this early repayment will reduce Iceland’s outstanding obligation to the IMF to SDR 1.041 billion (about US$1.60 billion). This outstanding balance is projected to be repaid during 2012-16.
After this early repayment, and taking into account a similar early repayment of Iceland’s Nordic loans, reserve adequacy—as measured by the ratio of reserves-to-short term debt—will remain above the standard benchmark of 100 percent.
Congratulations Iceland. We can only hope even one other country had the testicular fortitude to follow in your footsteps and realize that all hollow threats of mutual assured destruction if one dares to turn their back on the banking supercabal, are just that. Hollow.