FedUpUSA

Archive for the ‘Collapse’ Category

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.

One has to wonder after yesterday’s Fed statement and the screaming harpy nonsense out of the Democrat party.

First, let’s talk a bit more about that Fed Statement.  The Federal Reserve has stated that their base case is now for zero to negative economic growth for the next two years.  This is the only justification for zero interest rates; ergo, you just heard their forecast through their actions.

Next, you’re seeing the impact of fiscal consolidation in Greece.  We had better learn from this as it’s coming here.  Their “fiscal consolidation” is leading (temporarily) to lower revenue (taxes), exactly as one would expect.  Why?  Because when you make the necessary reforms you crimp profits which in turn crimps taxes, since taxes are assessed on earnings (either personally or corporately.)  Therefore when you make the necessary changes to a bloated government that is deficit spending tax receipts always decline in the short term.  Greece’s deficit widened as a consequence, and will for some time.

So will ours, if and when we take our necessary fiscal medicine.

Third, we better learn from Great Britain.  Rioting has gone on now for four nights.  Why?  Price increases on necessary commodities coupled with the loss of legitimacy of government.  The latter is extremely dangerous and it’s very real – including here.  A new Rasmussen poll says that just 17% of likely US voters believe the federal government has the consent of the governed.  This is down from 24% in May to the lowest level measured yet.

I don’t know what you can possibly say that’s positive about that.  Further, only eight percent of Americans believe that their Congressman (or woman) listens to the voters as opposed to “party leaders.”  And only six percent rate Congress’ job performance as “good” or “excellent.”  These are numbers best-associated with monarchies or governments about to be beset by actual revolution, not functional representative republics.

Folks the fact is that we – collectively – blew it.  Our representatives and other members of government listened to the “Captains of Wall Street” instead of their constituents – and mathematics.  Instead of forcing those who did imprudent things – both borrowers and lenders – to eat their own cooking and blow up, we bailed them out and then went even further in that we did not force them to change their bad behavior. In fact we not only ratified that bad behavior we enhanced it by formally permitted “mark to fantasy” as a business practice on bank balance sheets.

This is a convenient fantasy but that’s all it is: A fantasy.

Eventually the cash flow always wins, because you can’t spend anything other than cash.  This presents a huge problem in that the lack of real cash flow forces people to start kiting checks and otherwise scrounging in the couch cushions for pennies, along with pledging worthless assets for yet more lent money.  Since the private economy has no real borrowing capacity left this ultimately winds up back on the sovereign balance sheet, which would be ok if there was tax revenue to support it.

But of course there’s not, because as unemployment goes up tax receipts go down.

This morning we’re back to insane volatility, this time downwards.  Since the close yesterday we’ve seen a 30 handle range in the S&P 500 – a nearly 3% move.  The Dow futures are down 200 after being up about 60 early in the evening last night. 

Why? 

The BS over in Europe hasn’t been fixed and can’t be without recognizing the frauds and resolving them.  Unicredit and SocGen are again front-and-center and despite The Fed’s proclamation no government in the western world – not ours, not in Europe – has forced their banks to come clean and clear out their trash.

I hope you enjoy the markets over the coming weeks and months.  You’ve already had your 401k and IRA trashed in the last two weeks and now we’re at it again – if you bought back into the huge ramp in the last hour of yesterday much of those gains are now gone and we’re headed for the toilet – again – this morning.  Rumors will dominate and huge moves are now commonplace.  This is unlikely to be over – not today, not next week, and not next month – until the stupidity by governments end.

Who knows where this ends, or if it ends before the people force it to end through either general strikes and destroying the government’s ability to collect taxes or even more-destructive acts.

All I do know is that there are times when one should step back and be prepared to fend for themselves rather than “believe”, and this is one of those times.  We need leadership in Washington DC that will look at the fundamental mathematics and force those facts front and center into the debate, refusing to bend and demanding that all who come with any sort of solution or policy recommendation square them against the fundamental mathematical fact that debt cannot grow faster than productive output on a sustained basis. 

There’s more than thirty years of hard mathematical fact that all economic policies of the last 30 years in this country, irrespective of party, has in fact devolved into an utter mathematical impossibility when one considers the longer-run future.

This organized fraud upon the public by both political parties and their minions must end right now.

We are in the end stages of this Ponzi Scheme and are teetering on the edge of full-on collapse.  If immediate action is not taken to stop the accumulation of yet more debt and piling up of more leverage upon that which cannot be paid we will go down the toilet. 

It may be too late even now, but this much is certain: The path we are on leads to CERTAIN disaster.

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

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

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

Guess what?

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

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

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

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

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

The market is now negative for the year, incidentally.

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