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Archive for the ‘Collapse’ Category

Goldman Sachs is doing it again.  Goldman is telling the public that everything is going to be just fine, but meanwhile they are advising their top clients to bet on a huge financial collapse.  On August 16th, a 54 page report authored by Goldman strategist Alan Brazil was distributed to institutional clients.  The general public was not intended to see this report.  Fortunately, some folks over at the Wall Street Journal got their hands on a copy and they have filled us in on some of the details.  It turns out that Goldman Sachs secretly believes that an economic collapse is coming, and they have some very interesting ideas about how to make money in the turbulent financial environment that we will soon be entering.  In the report, Brazil says that the U.S. debt problem cannot be solved with more debt, that the European sovereign debt crisis is going to get even worse and that there are large numbers of financial institutions in Europe that are on the verge of collapse.  If this is what people at the highest levels of the financial world are talking about, perhaps we should all start paying attention.

There is a tremendous amount of fear in the global financial community right now.  As I wrote about the other day, the financial world is about to hit the panic button.  Things could start falling apart at any time.  Most of these big banks will not admit how bad things are publicly, but privately there is a whole lot of freaking out going on.

According to the Wall Street Journal, Brazil believes that “as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China’s growth may not be sustainable.”

Perhaps most startling of all is what the report has to say about the debt problems of the United States and Europe.

For example, this following excerpt from the report sounds like it could have come straight from The Economic Collapse Blog….

“Solving a debt problem with more debt has not solved the underlying problem. In the US, Treasury debt growth financed the US consumer but has not had enough of an impact on job growth. Can the US continue to depreciate the world’s base currency?”

Remember, this statement was not written by some guy on the Internet.  A top Goldman Sachs analyst put it into a report for institutional investors.

The report also goes into great detail about the financial crisis in Europe.  Brazil writes about how the euro is headed for trouble and about how dozens of financial institutions in Europe could potentially be in danger of collapse.

But in any environment Goldman Sachs thinks that it can make money.  The following is how Business Insider summarized the advice that Brazil gave in the report regarding how to make money off of the impending collapse in Europe….

• Buy a six-month put option on the Euro versus the Swiss Franc, thus betting the Euro will drop against the Franc (the Franc being the currency that an official Goldman report recently referred to as the most overvalued in the world)
• Buy a five-year credit default swap on an index of European corporate debt—the iTraxx 9. This is a bet that some of these companies will default, and your insurance policy, the CDS, will pay off

This is so typical of Goldman Sachs.  They will say one thing publicly and then turn around and do the total opposite privately.

For example, prior to the financial crisis of 2008, Goldman Sachs was putting together mortgage-backed securities that they knew were garbage and marketing them to investors as AAA-rated investments.  On top of that, Goldman then often privately bet against those exact same securities.

The CEO of Goldman Sachs has even acknowledged that the investment bank engaged in “improper” behavior during 2006 and 2007.

For much more on the history of all this, please see this article: “How Goldman Sachs Made Tens Of Billions Of Dollars From The Economic Collapse Of America In Four Easy Steps“.

So will Goldman Sachs ever get into serious trouble for any of this?

No, of course not.

Yeah, they will get a slap on the wrist from time to time, but the reality is that the top levels of the federal government are absolutely littered with ex-employees of Goldman Sachs.  Goldman is one of the “too big to fail” banks and they are going to continue to do pretty much whatever they feel like doing.

Sadly, the power of the “too big to fail” banks just continues to grow.  At this point, the “big six” U.S. banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to approximately 60 percent of America’s gross national product.

Goldman Sachs was the second biggest donor to Barack Obama’s campaign in 2008, so don’t expect Obama to do anything about any of this.

We have a financial system that is deeply, deeply corrupt and all of that corruption is a big reason why things are falling apart.

Sadly, the 54 page report mentioned above is right – we really are facing a global debt meltdown and we really are heading for an economic collapse.

You aren’t going to hear the truth from the mainstream media or from our politicians because “keeping people calm” is much more of a priority to them than telling the truth is.

The debt crisis in the United States is unsustainable and the debt crisis in Europe is unsustainable.  Right now we are in the calm before the storm, and nobody knows exactly when the storm is going to strike.

But let there be no doubt – it is coming.

The amazing prosperity that we have enjoyed for the last several decades has largely been a debt-fueled illusion.  It was a great party while it lasted, but now it is coming to an end and the aftermath of the coming crash is going to be absolutely horrific.

Keep watch and get prepared.  We don’t know exactly when the collapse is going to happen, but it is definitely on the way and now even Goldman Sachs is admitting that.

The Economic Collapse

It would be a good idea to become grounded in it folks, because it’s coming, and it’s not going to be fun if you’re not well-grounded in the facts.

Let’s take a few examples, some of them from the forum and some from my own personal experience, and flesh them out.

Take many if not most allegedly “middle-class” and “upper middle-class” business owners and managers.  They live in a nice 3,500 sq/ft house in the suburbs with a manicured lawn and the service that comes once a week.  Their home is immaculate and full of granite counter tops and Viking appliances.  There are two $50,000 automobiles in the driveway – and perhaps another one, or some sort of recreational vehicle (a boat or RV) in the garage or a nearby storage area.

Now look at how much actual wealth they have, on a balance-sheet basis.  Their home is likely underwater or has limited equity – 10 or 20% of the current market value at most.  Their vehicles are not owned outright, they all have notes on them.  There’s $100,000 or less in their retirement accounts, but they’re middle-aged – in their 40s.

On the spending side they have a $200/month cellphone bill for themselves and their kids ($2,400 a year), spend $300/month on utilities ($3,600 a year) and pay $5,000 or more in property taxes and hazard insurance.  Between these there’s more than $10,000 that goes out the front door, plus their income tax burden.  This family also eats out a couple of times a week ($200/month or $2,400 a year) and in general treats money and credit as though it’s something they have access to and thus will use.

This prototypical family manages to make it work predicated on being paid by the government for the use of leverage through the mortgage tax deduction.  This has induced them to (among other things) refinance serially, since as a loan amortizes the interest percentage drops and so does the tax write-off. To keep that “extra” $3,000 a year in deduction the family has buried itself in debt – intentionally – through serial refinances, while stripping every dime of equity they could get their hands on to spend on their lifestyle.  What they don’t admit to is that they’re simply pyramiding debt upon debt, goaded on by a tax system that has encouraged profligacy, immaturity and a mathematically-inevitable economic collapse.

As they head toward “retirement age” their children have gone off on their own.  They treated their kids as chattel during the time they were kids, smothering them and yet at the same time showering them with “things.”  A car at 16.  An extravagant prom experience.  Travel-team soccer at hundreds of dollars a month.  New clothes from the latest trendy place – several times a year.  A college that costs $20,000/year.  None of this was earned by Junior, it was “deserved” because the little darlings “should have the best.”

These people will argue, to the last man and woman, that they’ve done “everything right all their lives.”

They’re deluded, and if you’re reading this you’re probably one of them.

The fact is that the bubble that made possible the appearance of rapid accumulation of wealth was just that – a bubble.  It was a fraud.  This prototypical family, and the majority of Americans live like this even today, having learned nothing from the last few years,  is literally one disruption in the ability to put leverage upon leverage from a full-blown economic disaster.

But bubbles always pop.

Always.

It’s not a bubble eh?  Care to rethink that in light of this chart?

If you want to know where that came from, look right here:

When did the market start to take off?  Right after 1980, right when the government, industry and you set forth upon the path of borrowing more and more money to spend beyond your means, saving nothing, investing nothing.

This drove asset prices higher.  But this game must eventually end, because every dollar you borrow comes with interest, and eventually you are unable to borrow any more, since your borrowing has outrun your earnings capacity.

That’s what happened in 2007.  It is why all the games with QEx have failed – all they did was create more “excess reserves” that could be loaned out, but the economy’s ability to absorb more loans and pay more interest has been exceeded.

Pressing that bet further and further will not work.  It cannot work.

Now we’re in trouble, and lots of it.  We’re faced with the reality of what we’ve done because when that leverage comes out of the system and it will the market is likely to go right back where it started – or fairly close to it.  Contemplate that, and read the Ticker I posted yesterday, because that’s the macro economic impact of that leverage being removed.

But on a personal note the impact is going to suck too. In no particular order you might want to consider all of the following:

• Americans have levered themselves up to the gills.  Despite claims in the media, that leverage has not been taken down.  Think about yourself, your family, neighbors and friends. Would you be ok if you had no credit cards, in fact no credit of any sort, no government handouts and no job – for six months.  Very few families would be able to survive such a thing without ending up in the street, yet without that ability you have excessive financial leverage in your life.  You have not removed that leverage.  You had better start – now.  If you didn’t believe in the risk in 2007 when I started writing about this, the 2008/09 market collapse should have convinced you.  If that wasn’t enough this latest swoon should have underlined the point.  If neither of those two events has made clear what you must do – right now – then like it or not you deserve what’s going to happen to you, despite the fact that I’m sure I’ll get hate mail for saying it.
• Can you make it in “retirement” – by whatever means, including continuing to work, without government support?  If not, you’re not unlevered.  You’ve simply believed the lies told to you by the political establishment that it could lever itself up on an indefinite forward basis and give the benefits to you despite the fact that the demographics – that the Baby Boomers were going to retire en-masse and overload the Medicare and Social Security systems – has been known for more than 30 years.  The government did nothing about it because fixing this would have meant curtailing forward promises of benefits or massive tax increases thirty years ago.  Today, that problem cannot be solved with tax increases as the money is not there and cannot be extracted from the economy.  As a consequence major benefit cuts are going to happen, irrespective of the political demands placed on the government.  You must be prepared to survive and continue onward without any government support.  Figure it out, right now and alter your lifestyle today, or suffer the consequences.

• Did you successfully transition your relationship with your children (if any) from one of dependence to one of mutual respect?  This doesn’t always work, by the way.  Kids are independent human beings, and no matter how you parent them some percentage will be anti-social jackasses as will some parents.  This is reality.  However, it doesn’t help if you treated your kids as chattel or worse, abused them or worse, or showered them with all sorts of “entitlements” as kids, because now they’ll expect the same as adults!  Historically the solution to getting older meant living in extended family units.  It will again – if you didn’t ruin those connections with your children.  If you did, I hope you’re wealthy – truly wealthy – or you’re in lots of trouble.  Begging sucks as does apologizing for your previous acts along with repairing broken family relationships but it beats the hell out of starving and/or freezing to death.  Choose wisely and choose today.

• Got faith?  There may or may not be a God, but it’s a fact that there’s a congregation in the corner Church on Sunday.  Consider that if the Zombie Apocalypse comes knocking your local faith community may be the best option for mutually-arranged self-defense, the patching of any holes that might get made in places you’d rather not have them, and the provision of basic human needs, including most-particularly something hot to put down the pie hole.  Is faith practical?  You decide, and consider this along with the following indisputable fact: Once you know for sure if there’s a God it’s too late to change your mind.

• Resolve self-regulation issues – now.  The majority of Americans are overweight or obese.  A minority exercise three times a week for 20 minutes at a moderate to intense level of activity.  One of the Christian “seven deadly sins” is gluttony, and it’s not just found in the bottle or the dope bag – it’s also found in the grocery store, at the fast-food joint and on the couch.  America has enjoyed the ability to call “911″ any time and have an ambulance magically appear to whisk you to the hospital when you feel that nasty tightness in your chest.  In fact, an amazing number of municipalities have managed to vote into place ridiculous tax increases (including my local area) to pay for exactly that.  Instead, a volunteer fire department would be sufficient without the “ALS” ambulance service at a quarter of the cost – and the average homeowner, who pays $250 a year or more for that “enhanaced” level of service, could buy more than enough running shoes and save five times that much or more on food not consumed – and not need the EMS!  The same thing happens in the doctor’s office every day: “Doc, do you have a pill for that?”  Guess what – we can’t afford to pay for your pills, the EMS, or the hospital – you can’t cover it individually and we can’t cover it as a society.  Therefore, either solve your self-regulation issues or suffer the inevitable consequences.  It’s time to grow up America.
• Come to grips with your mortality.  If you prefer to use faith, that’s fine.  If you don’t believe in God, that’s fine too – Darwin will do as well.  Nonetheless we are all mortal and we are going to have to deal with the fact that we cannot have medical services we are unable to personally pay for.  This is a major shift after the idiotic moves of the last 30 years, but it is nonetheless a fact.  Leverage enabled the pulling forward of demand for medical services into today that were promised to be paid for tomorrow, but now tomorrow has come and there’s no more ability to pull that demand forward.  See the “Self-Regulation” bullet point above and consider that your success or failure in dealing with that will materially change your interaction with this point, then choose.  If you believe that with the global finance ponzi collapsing you’ll be able to demand a pair of $100,000 hips, a $90,000 prostate cancer treatment or $250,000 for bypass surgery from “society”, you’re wrong.  The money doesn’t exist any more, which means you either earn and stash it yourself during your productive years, do what you need to so those things are unnecessary (to the extent you can), or face the fact that we all die and your time might be now.

If you’d like the above in a “religious” format someone on the forum posted a link to the a sermon tracking much of the above.  Yeah, it’s 45 minutes.  But it’s pretty much spot-on in Christian terms.

Time is short; choose wisely.

So another week goes in the books with the market averages down about 5% each.

In Europe it’s much worse.  The DAX was off about 10% in the last two days.  Bank stocks worldwide are collapsing, with some threatening their 2008/09 lows and a few exceeding them.

The US market as a whole has lost nearly 20%, nearly straight down, with four straight weeks of losses.  The entirety of the “gains” since QE2 was announced are now gone – a year of market advance destroyed in less than four weeks.

Why is your 401k and IRA being ravaged – again?

Simply put, we have not stopped financial institution lies.

Sarbanes-Oxley allegedly makes every public company CEO attest under penalty of perjury (and a separate criminal offense) that the financials they present to the public are true, correct and complete.  If this law is being followed and violations prosecuted can someone explain to me why Colonial Bank, along with others, failed and then had their assets valued by the FDIC during consolidation at 20, 30, even 40% less than the publicly-presented values on those balance sheets just weeks before?

Why aren’t the executives who “signed” those balance sheets all facing federal indictment?

This is not (just) a United States problem, but the banks over in Europe that are in trouble have, in many cases, branches here in the US and trade in United States markets.  Some – such as Barclays, Credit Suisse, Deutsche Bank and HSBC, are even “primary dealers” and thus participants in US Treasury auctions.  Why is not US law applied to those firms that are considered “essential” to US financial stability?

Our government has turned balance-sheet games and lies into a legitimate business model.  This in turn has left the markets worldwide subject to rumor and innuendo, along with fact.  This is not acceptable in a financial system that is claimed to “need” these big institutions to remain stable.

The simple fact of the matter is that our entire market structure over the last 30+ years has been built on fraudulent edifice after fraudulent edifice.  The premise of “Credit Default Swaps” being traded over the counter means that there’s no nightly margin position enforcement and “netting” sounds great but is by and large a scam.  You cannot ask a bank CEO exactly how much his bank is underwater or to the good in his present positions across these markets and get an accurate answer, because he doesn’t know.  This lack of knowledge is both intentional and structural – and it must change right now.

This is distinct from trading in the regulated markets.  When I trade futures if I’m underwater by $200,000 in my positions that is tracked “by the minute” and my buying power reflects that.  Each night I am forced to post cash against any underwater positions, and it is “held back” from my cash balance.  If I run out of cash then an ominous number appears on my screen: Dollars to liquidation – and it means what it says; when that gets to zero the brokerage automatically closes my positions and my account goes poof!

Why don’t we implement the same thing for banks?  Markets have prices for nearly everything.  If there’s no price, then the value is simple: For the purpose of required reserves it’s zero.  That is, you must have one dollar of actual capital against anything you claim has no market price, or for which you refuse to accept the market’s valuation.

We must also end ZIRP.  Right now.  Pull liquidity out of the system (start by selling down The Fed’s balance sheet until it is at normal levels) until the short end of the curve rises to at least 1% above inflation.  Borrowing is supposed to come with a cost and it should be expensive enough that it is unattractive to do so for anything except productive purposes – that is, it should be unattractive to borrow to consume, speculate or try to create Ponzi schemes.  Left alone the market guarantees this will be the case – if The Fed won’t stop interfering on its own then it must be forced to do so.

This stops all the BS immediately.  It prevents market panics.  It protects depositors without the possibility of one dime of loss of their funds.  It forces bondholders to do diligence on what they’re lending money for and what institutions are doing with it.  It forces all credit instruments onto an exchange or forces banks to hold one dollar of capital for each dollar of notional exposure.  If they want to trade them over the counter that’s fine, but then they are by doing so refusing to accede to a market price valuation and by doing so must accept that they are unsecured credits – in full.

Oh, it also prevents banks from levering up 50:1, 30:1 or whatever, hiding risk and claiming that all is ok without strict proof.

But it is that strict proof and transparency that the market needs.  It is how we prevent market panics, it is how we prevent “bear raids” and it is how we stop the insanity.

Yes, it also stops banks from looting the population and transferring huge percentages of domestic output to themselves.  It prevents governments from financing their desire to deficit spend with various fraudulent artifices (such as was done in the case of Greece) in order to hide their exposures.  It forces recognition that both government and private industry cannot grow credit faster than productive output and ends the Ponzi schemes.

It will result in a major, worldwide adjustment to the economy.  Downward.  GDP will contract – inevitably.  All the big banks with these lies on their balance sheets will fail.  This is good, not bad, as there will be new banks and sound banks that will take their place.  Unemployment will temporarily go up, not down and tax receipts will temporarily dive.  As such this path of action must come with fundamental tax and spending reform – not the crap being bandied about by both political parties, but something such as The Fair Tax or the proposal I put forward last week, not the intentionally bogus statements from people like Buffett.  It must come with trade reform such that we stop allowing wage and environmental arbitrage to be used as bludgeons – both by us and by other nations.  It must come with medical system (NOT “Medicare” and “Medicaid”) reform because the simple fact of the matter is that we cannot continue to support the outrageous looting that the medical industry in all its forms imposes on America.  It must come with the removal of leverage from the educational system, especially the post-secondary system, as there is no defense available on an economic basis for a 20-year old taking out $40, 50 or even $100,000 in debt for an “education” that is of dubious value in the marketplace.  Education must be returned to a cost structure that can be paid for by an enterprising individual willing to flip pizzas or fix computers during weekends and evenings, exactly as it was in the 1980s.

All of this has to happen now, and the first part of it – reconciling the banks and their bogus accounting – must occur today.  Europe is on the brink of a funding lockup, and if it occurs then the “bare bank tits” that I spoke of quite often in 2007 and 2008 are once again going to be exposed to the market and shown to be silicone-filled fakes.

There are many who say this is not 2008.  They’re right – it’s worse by an order of magnitude.  We now have financial institutions that are effective elements of the state that have bought unpayable bonds from nations, and then used them as collateral to lever up against.  The embedded losses at today’s market prices are enough to destroy all of these institutions and again the question arises on exactly who wrote credit protection against them and do they have the money.  The answer to the latter is exactly as it was in 2008: NO.

The problem is that this time around we in the United States have not only destroyed capital formation and savers with ZIRP and thus have little or no Federal Reserve policy response available, the Federal Government has taken on $4.5 trillion in new debt in a puerile and futile attempt to “stimulate the economy” and yet has failed at the goal.  Most of that money went straight into people’s pockets who had little cash and thus it should have been highly-efficient in promoting consumption and been passed back to through to sustainable production – or so the economists told us.

They were wrong: All it did was temporarily replace productive output; unemployment did not come down materially, the employment participation rate has not moved and thus the tax base has not recovered.

We tried their prescriptions, we used up our time and treasure with a path that I said at the time would not work as credit capacity within the economy had been exhausted and now we’re faced with the reality: We do the right thing and accept the consequences, here and now, or we risk a 1930′s style Creditanstalt collapse.

If you thought that 2011 was a bad year for the world economy, just wait until you see what happens in 2012.  The U.S. and Europe are both dealing with unprecedented debt problems, the financial markets are flailing about wildly, austerity programs are being implemented all over the globe, prices on basics such as food are soaring and a lot of consumers are flat out scared right now.  Many analysts now fear that a “perfect storm” could be brewing and that we could actually be headed for an economic pocalypse in 2012.  Hopefully that will not happen.  Hopefully our leaders can keep the global economy from completely falling apart.  But right now, things don’t look good.  After a period of relative stability, things are starting to become unglued once again.  The next major financial panic could literally happen at any time.  Sadly, if we do see an economic apocalypse in 2012, it won’t be the wealthy that suffer the most.  It will be the poor, the unemployed, the homeless and the hungry that feel the most pain.

The following are 20 signs that we could be headed for an economic apocalypse in 2012….

#1 Back in 2008 we saw major rioting around the world due to soaring food prices, and now global food prices are on the rise again.  Global food prices in July were 33 percent higher than they were one year ago.  Price increases for staples such as maize (up 84 percent), sugar (up 62 percent) and wheat (up 55 percent) are absolutely devastating poverty-stricken communities all over the planet.  For example, one expert is warning that 800,000 children living in the Horn of Africa could die during this current famine.

#2 The producer price index in the U.S. has increased at an annual rate of at least 7.0% for the last three months in a row.  We are starting to see huge price increases all over the place.  For example, Starbucks recently jacked up the price of a bag of coffee by 17 percent.  If inflation keeps accelerating like this we could be facing some very serious problems by the time 2012 rolls around.

#3 The U.S. “Misery Index” (unemployment plus inflation) recently hit a 28 year high and many believe that it is going to go much, much higher.

#4 Jared Bernstein, the former chief economist for Vice President Joe Biden, says that the unemployment rate in this country will not go below 8% before the 2012 election.  In fact, Bernstein says that “the most optimistic forecast would be for about eight-and-a-half percent.”

#5 Working class jobs in the United States continue to disappear at an alarming rate.  Back in 1967, 97 percent of men with a high school degree between the ages of 30 and 50 had jobs.  Today, that figure is 76 percent.

#6 There are all kinds of indications that U.S. economic growth is about to slow down even further.  For example, pre-orders for Christmas toys from China are way down this year.

#7 One recent survey found that 9 out of 10 U.S. workers do not expect their wages to keep up with the rising cost of basics such as food and gasoline over the next year.

#8 U.S. consumer confidence is now at its lowest level in 30 years.

#9 Today, an all-time record 45.8 million Americans are on food stamps.  It is almost inconceivable that the largest economy on earth could have so many people dependent on the government for food.

#10 As the economy crumbles, we are also witnessing the fabric of society beginning to come apart.  The recent flash mob crimes that we are starting to see all over America are just one example of this.

#11 Some desperate Americans are already stealing anything that they can get their hands on.  For example, according to the American Kennel Club, dog thefts are up 32 percent this year.

#12 Small businesses all over the United States are having a really difficult time getting loans right now.  Perhaps if the Federal Reserve was not paying banks not to make loans things would be different.

#13 The U.S. national debt is like a giant boulder that our economy must constantly carry around on its back, and it is growing by billions of dollars every single day.  Right now the debt of the federal government is $14,592,242,215,641.90.  It has gone up by nearly 4 trillion dollars since Barack Obama took office.  S&P has already stripped the U.S. of its AAA credit rating, and more downgrades are certain to come if the U.S. does not get its act together.

#14 Tensions between the United States and China are rising again.  A new opinion piece on Chinadaily.com is calling for the Chinese government to use its holdings of U.S. debt as a “financial weapon” against the United States if the U.S. follows through with a plan to sell more arms to Taiwan.  The U.S. and China are the two biggest economies in the world, so any trouble between them would mean economic trouble for the rest of the globe as well.

#15 Most state and local governments in the U.S. are deep in debt and flat broke.  Many of them are slashing jobs at a feverish pace.  According to the Center on Budget and Policy Priorities, state and local governments have eliminated more than half a million jobs since August 2008.  UBS Investment research is projecting that state and local governments in the U.S. will cut 450,000 more jobs by the end of 2012.  How those jobs will be replaced is anyone’s guess.

#16 The U.S. dollar continues to get weaker and weaker.  This is renewing calls for a new global currency to be created to replace the U.S. dollar as the reserve currency of the world.

#17 The European sovereign debt crisis continues to get worse.  Countries like Portugal, Italy and Greece are on the verge of an economic apocalypse.  All of the financial problems in Europe are even beginning to affect the core European nations.  For example, German industrial production declined by 1.1% in June.  There are all kinds of signs that the economy of Europe is slowing down and is heading for a recession.  French President Nicolas Sarkozy and German Chancellor Angela Merkel are proposing that a new “economic government” for Europe be set up to oversee this debt crisis, but nothing that the Europeans have tried so far has done much to solve things.

#18 The Federal Reserve is so desperate to bring some sort of stability to financial markets that it has stated that it will likely keep interest rates near zero all the way until mid-2013.  The Federal Reserve is operating in “panic mode” almost constantly now and they are almost out of ammunition.  So what is going to happen when the real trouble starts?

#19 Central banks around the world certainly seem to be preparing for something.  According to the World Gold Council, central banks around the globe purchased more gold during the first half of 2011 than they did all of last year.

#20 Often perception very much influences reality. One recent survey found that 48 percent of Americans believe that it is likely that another great Depression will begin within the next 12 months.  If people expect that a depression is coming and they quit spending money that actually increases the chance that an economic downturn will occur.

There is already a tremendous amount of economic pain on the streets of America, but unfortunately it looks like things may get even worse in 2012.

The once great economic machine that was handed down to us by our forefathers is falling to pieces all around us and we are in debt up to our eyeballs.  The consequences of our bad economic decisions are hurting some of the most vulnerable members of our society the most.

As the following video shows, large numbers of formerly middle class Americans are now living in their cars or sleeping in the streets….

It is a crying shame what is happening out there on the streets of America today.

Please say a prayer for all of those that are sleeping in cars or tents or under bridges tonight.

Soon even more Americans will be joining them.

The Economic Collapse

We blew it.

We, the people, and governments, blew it.

In 2007 I began writing about the banks and the fraudulent accounting that they were employing world-wide, and had been for decades.  The premise of holding things on their balance sheet at “unobservable” prices, yet counting them as assets and claiming that they were “money good” is in fact a scam as that “value” is predicated on one and only one thing – trust in the person making the claim.  There is no externally-observable and verifiable confirmation on these valuation claims – it is a parlor trick in that the alleged “chocolates” have proved time and time again to be used dog food.

Bear Stearns and then Lehman blew up when the charade of their claimed valuations became subject to reasonable doubt, the market refused to accept their collateral and claims of “value” and ultimately those “values” were exposed as falsehoods, resulting in the destruction of the company and loss of all shareholder value.

Now it’s happening again.  Bank of America is trading at half of their claimed book value.  There are only two possibilities: The book value is a lie or the market is radically wrong about valuation.

The “black box” at the time was counterparty derivative exposure – and still is.

We refused, after the 2007/08/09 crash, to force full and complete transparency on these books of risk by forcing them all onto an exchange with nightly mark-to-market and the posting of cash margin against any underwater positions.

Clearinghouses do not solve this problem.

This morning we have Grasso on CNBS once again trying to defend the practice of these “customized OTC derivatives.”

Abject nonsense.

These so-called “customized” derivatives are nothing more than an ability to rob customers by denying them the ability to see, in real time, bid, offer, open interest and size across the entire market.  This in turn means that the bank on the other side can take advantage of its customer because the customer is severely disadvantaged.

This is one of the banks’ big money-makers – and why not?  When the customer can’t see it’s easy to rob him blind!

But it is this very structure, along with allowing banks to mark their assets wherever they wish along with understating provisions and releasing loss reserves far in excess of reason that allows playing with earnings numbers but results in gross overstatements of value – and capitalization.

Ultimately, as the market calls “BS!” on the claimed values, rumor becomes reality as the nobody will accept your claim of solvency if you potentially are on the hook to pay them but the market says your book value is half of what you claimed it to be!

The solution to this is to prevent banks from playing this game.  One Dollar of Capital ends all of this cock-and-bull nonsense instantaneously by requiring that for each dollar of unsecured lending – that is, a loan that is not backed by a market-priced asset – the bank must have one dollar of actual capital – free-and-clear cash or a cash-equivalent (which is NOT pledged in a repo or other transaction.)

It also ends the ability to crank leveraged returns by banks, of course.

But is this bad?  No, it’s good – because all of the panics in recent memory have had to do with banks that have lost confidence.  1987.  The Asian and Latin American implosions.  2007/08.

And now.

This morning the source of the dive is a rumor from un-named sources that Asian banks are “reducing counterparty exposure” to French banks.  The effect was instantaneous – it detonated our futures, sending them down more than 30 handles, or about 3%, in minutes.

We cannot stop these rumors and the periodic panics that are easily-ignited and destroy value until we get rid of the ability of banks to lie and obscure asset valuations.  Only when we demand that these institutions place an actual dollar of capital behind every unsecured act of lending, no matter how it’s conducted (e.g. in derivatives), and that every asset be marked to the market on a daily basis and treated as unsecured if the claim is made that no market price is available will this crap end.

This is NOT about fiat .vs. hard-backed currencies.  It has nothing to do with the form of money and everything to do with the issuance of credit against hot air – that is, nothing – where the liability created is real but the asset’s value is a myth.

Our CONgress and Executive, along with Ben Bernanke, must be held personally accountable for their utter refusal to stop the balance sheet games and false claims of value.  This is nothing more than state-sanctioned fraud and our refusal to put a stop to it is now threatening to once again blow our markets and economy straight to Hell.

Well, this pretty much covers it.  I have a few small nits I could pick with it, but if you want a video that will explain everything that is happening worldwide with the economic situation to even your most uneducated of friends or family, this would be the one.