MACRO ANALYSIS REPORT
ECONOMICS, CENTRAL BANK POLICY
BANKS, BONDS, GEOPOLITICS


* Miscellaneous Morsels
* The Privileged Protected Banks
* USTreasurys at Tipping Point
* Veiled QE by USFed Forever
* Housing Not to Ride Inflation Wave
* Scourge of Shadow Inventory
* Inflation Monster Shows Itself
* The Squirming USEconomy


HAT TRICK LETTER
Issue #85
Jim Willie CB, 
“the Golden Jackass”
10 April 2011

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title." ~ Anonymous (too true)

"Anything Ben Bernanke says, just do the opposite!" ~ Jim Rogers

"I rather fear these political forces will push it into a recession. In my opinion, the country could actually absorb some more debt in order to get the economy going." ~ George Soros (ponzi prince)

"Jim Sinclair said, 'THE MADNESS WILL NOT STOP. THE SITUATION IS OVER THE EDGE. THE DAMAGE IS DONE. HYPER-INFLATION IS ASSURED.'  I am afraid Jim is right. Governments could have prevented it, but did not want to pay the price. Fiat currencies will pay the price. The US dollar will both waterfall and lose its reserve currency status, which in turn will ignite rampant inflation." ~ Jim Sinclair, followed by Harry Schultz

"We now have an economy in which five banks control over 50% of the entire banking industry, hold a greater share of the nation's wealth than any time since 1930. This sort of concentration of wealth [is way out of balance.] Four or five corporations own most of the mainstream media, and the top 1% of families holding such power is a classic setup for the failure of a democratic republic and the stifling of organic economic growth." ~ Jesse (more like recipe for unbridled fraud and systemic failure)

"This is the stuff that social disorder and protest is made of. The cheated taxpayers were forced by the US government to bail out the dishonest banks to the tune of $billions, without the consent of the people, and those same banks have committed widespread fraud against the very citizens who bailed them out. Now, the government will investigate the fraud. But Americans can hardly trust the outcome since lobbying (basic bribery) of our politicians by wealthy corporate America is also a widespread practice." ~ blogger on 60Minutes website

MISCELLANEOUS MORSELS

◄$$$ THE USECONOMY IS AT HIGH RISK OF A GREEK STYLE FINANCIAL COLLAPSE, DESPITE ALL THE ADVANTAGES OF CONTROLLING THE GLOBAL RESERVE CURRENCY AND ITS MONETARY SPIGOT. AT THE ROOT OF THE PROBLEM IS MAMMOTH DEBT AND PHONY ACCOUNTING, THE HUGE GAP FOR WHICH CREATES A RISK OF COLLAPSE FROM LOST CREDIBILITY AND INTEGRITY. THE USFED IS SOWING SEEDS OF INFLATION AND FOREIGN RESENTMENT. THE MORAL HAZARD OF BIG USBANK BAILOUTS HAS CAUSED SEVERE RISK OF FURTHER FINANCIAL CRISIS. THE RESPONSE TO CRISIS HAS RAISED THE RISK OF AMPLIFIED CRISIS. $$$

Rob Arnott believes the United States is in great danger of a Greek style collapse. At Research Affiliates he manages $75 billion in assets. He gives an grave warning. He said, "I think the US is playing Russian roulette the same way the Greeks were. We are using phony accounting just as they were using phony accounting. The GAP accounting, if it was applied to the US government, would have shown our deficit in 2009 not at 10% of GDP, but at 18%. The 18% of GDP [is arrived at] if you factor in new unfunded social security and medicare obligations, if you factor in GSEs, if you factor in the off-balance sheet spending that does not appear on the balance sheet. If you factor all of these in, we spent 18% more than we produced as a nation in 2009. Well, that is horrific. And so is it worse than Greece before they hit the wall. Under correct accounting it is worse. Bernanke has been on record as saying, 'LOOK, THE STOCK MARKET IS UP, PEOPLE ARE OUT SPENDING, AND THEREFORE THIS IS WORKING.' What he adamantly denies is that it ripples beyond stocks. But it is ridiculous that the cascading effect would stop at the convenient point of equities before it reaches the inconvenient point of commodities. Of course it is affecting commodity prices all over the world, and of course that is creating some geopolitical instability. So is the Fed sewing seeds of dissension in parts of the world where the consumption basket is mostly commodities? Yeah of course it is. The Fed will not acknowledge it but it is true. If too big to fail, [the big banks have been allowed to] roll the dice and play the moral hazard game of heads I win multi-billion dollar bonus pools, tails the taxpayer takes multi-hundred billion dollar hits. That is wrong. We looking at a situation where we have allowed moral hazard to create a financial crisis and the response to that financial crisis is to allow the moral hazard issues to become more severe than ever. So I do view the current situation as fraught with a certain measure of risk."

Contrast the tempered warning with surprisingly vacant and cavalier comments by Doug Noland of the Prudent Bear. He is smarter than this. Noland wrote, "Yet, markets will most likely three months from today be operating without additional Fed liquidity injections. As policymakers had hoped, QE2 provided a powerful jolt. Continued massive issuance of Treasury debt has been accommodated; equity prices have surged; confidence has been boosted; corporate debt issuance has boomed; leveraged lending has been fully revived; an M&A boom has been unleashed; the hedge fund industry has more than recovered; intensive animal spirits have been enlivened throughout, and some private sector jobs have returned." One can accuse Noland of turning dumb from USFed cocktails. Confidence among the public is depressed. Private sector jobs are eroding quickly. Everything positive is queer from inflation fever spawned by the USFed heavy liquidity, as known as hyper-inflation. The USFed liquidity from continued QE will be around as engrained policy for years, when the jobs and sentiment turn sick & ugly. USTreasury debt is accommodated without foreign participation at auction anymore. Equity stock prices are lifted from constant USGovt intervention. Big bank lending remains fully stalled. The puffed hedge fund mesomorph sector lives off the anti-USDollar trade, which depends upon the QE itself. Private sector jobs are a myth, which will be made clear by September. This is shocking from Noland, formerly a solid analyst. See the Safe Haven article (CLICK HERE).

◄$$$ THE MAJORITY OF U.S. REGISTERED CORPORATIONS PAY LITTLE OR NO INCOME TAX. THEY ARE TRAINED WELL TO USE THE RULES OF THE GAME, EVEN TO HELP PAY FOR RULE CHANGES. THE FASCIST BUSINESS MODEL IS AT WORK. LOBBYIST DONATIONS ENABLE SIGNIFICANT CRAFTING OF LAWS IN A SORDID LOOP OF INFLUENCE PEDDLING. $$$

A shocking two thirds of US corporations pay zero federal income taxes. A new campaign called the Uncut Movement is pushing to bring tax reform and forced tax payment. Over a week ago, from coast to coast, more than forty cities joined in a day of action protesting the tax avoidance of very large corporations. The nation's citizens are stuck to pay taxes, but most corporations do not, as they peddle heavy influence on the USGovt policy itself. While big corporations are pointed to as the main source of the country's deficit, the bigger factors are clearly endless war (whether cold or hot) and bad economic policy. Bank of America has not paid a red cent in federal income taxes for the past two years, while benefiting from an additional $1 billion in tax benefits. It is more like largesse and payola, from a return on lobbyist investment. Renewed bank profits have flowed after the grant of $45 billion in aid from taxpayers. Never lose sight of the fact that in 2010, Bank of America handed out $2.2 million in campaign contributions to Congressional representatives and political action committees (36% to Democrats, 64% to Republicans). They help craft legislation that permits them to escape paying taxes. Many Congressional hacks live off such donations from the powerful banking lobby, the biggest except perhaps for the defense contractor lobby. The resentment grows even as mortgage foreclosure evictions continue without proper contract documentation. See the Alternet article (CLICK HERE) or the Daily Bail article (CLICK HERE).

By the way, the same bank lobby group influenced the Financial Regulatory Bill that granted wider deeper powers to the criminal bank sector on Wall Street. In my view, reform is not possible. So systemic failure comes. The corporate tax system devised by the USCongress is a patchwork crafted by whores with secretive clients. The Senators gather to protect their turf corporations. See Cornyn of Texas, who sponsored oil & gas tax breaks. See Grassley of Iowa, who sponsored ethanol tax breaks. See Menendez of New Jersey, who sponsored pharmaceutical firm tax breaks. See Stabenow of Michigan, who sponsored hybrid car tax breaks. See Wyden of Oregon, who sponsored internet tax moratorium (Intel Silicon Forest). The Fascist Business Model has a sub-model of corporate favoritism. With profits, they have purchased the USCongress and turned it into a policy tool that is constantly in apologetic mode.

◄$$$ DIMON OF JPMORGAN BELIEVES 100 MUNICIPALITIES WILL SUFFER A DEBT COLLAPSE IN THE UNITED STATES. SO MEREDITH WHITNEY MIGHT BE PROVED CORRECT. DIMON BELIEVES IT IS JUST PART OF A CREDIT CYCLE. NOT SO, RATHER PART OF A COLLAPSE, PRECISELY AS WHITNEY WARNED A FEW MONTHS AGO. CURSE THE MESSENGER UNLESS HE COMES FROM THE WALL STREET PRIESTHOOD. $$$

JPMorgan Chase CEO Jamie Dimon believes many municipalities will need to renegotiate debt. Dimon anticipates that at least a hundred municipalities will not survive and will default on their debt. Rest easy, because he urges not to panic. To a US Chamber of Commerce event in WashingtonDC, he said, "You are going to see some municipalities not make it. I do not think it is going to shatter America. I just think it is a part of the credit cycle." What a stupid rejoinder forecast to a reasonable debt bust call. So the Lehman Brother failure, the Fannie Mae adoption, and the AIG inclusion was also normal credit cycle stuff too, along with ongoing big USbank welfare, even their ongoing black hole costs. What a corrupt arrogant megalomaniac! The speculation about widespread municipal bond defaults intensified last December when bank analyst Meredith Whitney predicted that hundreds of $billions in municipal bonds would default in 2011 amid pressure to balance budgets. She was pilloried for her expressed viewpoint, but here Dimon as a high priest delivers the same message. Whitney gave the message in dire tones as part of a debt collapse scenario. Dimon assures it is just credit cycle as usual. Watch the tip of the iceberg be exposed higher and higher, and the muni problem to worsen by an order of magnitude in the coming 12 to 24 months. See the Bloomberg article (CLICK HERE). Bear in mind that the US press is attempting to portray Dimon as some kind of folk hero in bizarre fashion. Dimon has also publicly stated his reluctance to participate in the bank realignments and to accept bank aid, a total distortion. Dimon is an upper echelon leader at the helm of the financial crime syndicate in power.

◄$$$ AMERICANS FACE A PERSONAL WEALTH TRAGEDY MOVING TO THE NEXT STAGE. WITH HOME EQUITY DOWN HARD, AND PENSIONS OFTEN WIPED OUT, THEIR REMAINING SAVINGS WILL NOT GO FAR AS PRICE INFLATION RAVAGES THE USECONOMY. JOB SECURITY IS WANING BADLY. POWERFUL CORROSIVE INFLATION IS COMING, THE RESULT OF MULTIPLE FACTORS IN CONVERGENCE $$$

A great many warning signs of imminent hyper-inflation have been posted in view. Most Americans fail to properly recognize them, either from ignorance or belief of deflation warnings. The Natl Inflation Assn believes a serious risk of hyper-inflation could break out by the second half of 2011, a point the Jackass is in full agreement. They believe hyper-inflation is almost guaranteed to occur by the end of this decade. They wrote, "In our estimation, the most likely time frame for a full-fledged outbreak of hyper-inflation is between the years 2013 and 2015. Americans who wait until 2013 to prepare, will most likely see the majority of their purchasing power wiped out. It is essential that all Americans begin preparing for hyper-inflation immediately." The NIA identified the top 12 warning signs in impressive detail. See the National Inflation Assn website article (CLICK HERE) and the Activist Post article (CLICK HERE).

1)      The Federal Reserve is Buying 70% of USTreasurys. In recent months, foreign central bank purchase volumes have declined from 50% down to 30%, and USFed purchases have increased from 10% up to 70%. Foreigners have almost declared a boycott. No more debt export means higher domestic price inflation.

2)      The Private Sector Has Stopped Purchasing USTreasurys. The US private sector previously bought 30% of USGovt bonds sold. Today, they are actually net sellers in volume of that debt. The PIMCO flagship fund went from the single largest private sector owner of USGovt bonds to zero total holdings. The safe haven has transformed from USTreasurys to Gold.

3)      China Moving Away from USDollar as Reserve Currency. The USDollar is no longer backed by gold and China has become the world's largest manufacturing base. Global trade settlement in USDollar terms will naturally go away. The Chinese Yuan is moving toward reserve status.

4)      Japan Has Begun Dumping USTreasurys. With a peak of $886 billion in US$-based reserves, the once reliable Japan has begun to go into reverse. They must spend $300 billion over the next year to rebuild parts of their country that were destroyed by the recent earthquake, tsunami, and nuclear disaster.

5)      The Fed Funds Rate Remains Near Zero. The USFed has been stuck near 0% since December 2008. A flood of excess liquidity has resulted, which continues, even amplifies. The USEconomy should currently be in an extremely deep recession, except for the USFed money printing. NIA believes gold, and especially silver, are much better hedges against inflation. (Actually it is in deep recession, disguised by rampant price inflation, much of which is relabeled as growth.)

6)      The Rate of Annual CPI Growth Has Almost Doubled in Three Months. That is the corrupted Bureau of Labor Statistics consumer price index. The true CPI rate is close to 10% right here, right now. Even if the BLS manages to artificially hold the CPI down around 5% or 6%, NIA believes the real rate of price inflation will still rise into the double digits within the next year.

7)      Mainstream Media Denies the Fed Inflation Target Is Surpassed. The Fed has an informal inflation target of 1.5% to 2.0%. Focus has shifted more to the core CPI, that meaningless figure which excludes the raging food & energy price increases.

8)      Record USGovt Budget Deficit in February of $222.5 Billion. The February federal deficit was more than the entire fiscal year of 2007. In fact, the monthly deficit on an annualized basis comes to a whopping $2.67 trillion. NIA believes this is a preview of future budget deficits. (The Jackass forecast is for a $2.0 trillion deficit next year.)

9)      High Budget Deficit as Percentage of Total Spending. The projected USGovt budget deficit for fiscal year 2011 is $1.645 trillion. That figure is 43% of the total $3.819 trillion in projected total federal spending in 2011. Check out Brazil in 1993, whose budget deficit as a percentage of expenditures was the same proportion immediately before they suffered hyper-inflation.

10)  Obama Deceived On Foreign Policy. Barack Obama campaigned as an anti-war President, making numerous promises. None were kept. War spending keeps the federal deficits high. The United States spends $1 billion per day on war, and $1 trillion annually on military expenses.

11)  Obama Changed the Definition of Balanced Budget. The Admin admits that no balanced budget is possible until year 2015, and the budget deficits could keep rising until the year 2021. Obama actually has set as a goal to balance the budget, excluding interest payments on the debt, by 2015. Obama is implicitly redefining a balanced budget to exclude interest payments.

12)  Expect Interest Payment Increases. With US inflation beginning to spiral upward, the NIA expects to see upward moves in long-term bond yields. Within the next two years, the NIA believes the Federal Reserve will be forced to raise the Fed Funds Rate in a last-ditch effort to prevent hyper-inflation. When both short and long-term interest rates rise, the impact from interest payments on our national debt will become acute. Interest payments on the federal debt could reach $500 billion within the next two years, even higher later on. (The Jackass disagrees, in that long-term rates will remain low from constant bond market intervention.)

THE PRIVILEGED PROTECTED BANKS

◄$$$ THE USFED RELEASED THOUSANDS OF PAGES OF RECORDS FROM ITS T.A.R.P. DISBURSEMENT AND DISCOUNT WINDOW ACTIVITY. THE DOCUMENT RELEASE HAS EXPOSED THE BIG USBANKS ARE LIARS AND THIEVES, AND SHOWS THAT SUPPORT OF FOREIGN FINANCIAL FIRMS HAS BEEN PREVALENT. THE USFED SPECULATED AND AIDED THEIR FELLOW SYNDICATE BANKS IN DEEP TROUBLE. THE USFED ACCEPTED ROTTEN BONDS AS COLLATERAL, AN ILLEGAL MOVE. THEY ALSO ACCEPTED STOCK EQUITY AS COLLATERAL, ALSO ILLEGAL. $$$


Finally, with great anticipation justifiably, thousands of pages of USFed documents have been released on activity at their loan window. The revelations are scummy. The details pertain to the USFed and the Clearinghouse Assn, where the Primary Dealers do much of their work in the basement. Under court order, the paper flood came almost three years after Bloomberg LP first requested details of the central bank hidden grandiose support to big banks across the world during the financial crisis. The records reveal the names of financial institutions that borrowed directly from the central bank through the so-called Discount Window. The USFed was cornered from lost appeals before the US Supreme Court. The Jackass thought the high court would side with the USFed, glad to be wrong. The public interest is finally served. The central bank provided the documents after months of attempts to shield them from public view. It has argued the need to keep their records of activity secret, like any crime syndicate would. Precedent was set. The central bank has never revealed identities of borrowers since the Discount Window began lending in 1914, almost a full century. Bowing to the banking lobby, the Dodd-Frank financial regulatory bill exempted the facility last year when it required the USFed to release details of emergency programs that extended $3.3 trillion to financial institutions to stem the credit crisis. That is like requiring details on checks sent without looking at the checking account full monthly statements, absurd!

Objections from the syndicate fortress came from Donald Kohn, former USFed vice chairman and senior fellow at the Brookings Institution. He sold his soul long ago. He dutifully said, "I am concerned that in the next crisis, it will be more difficult for the Federal Reserve to play the traditional role of lender of last resort. Having these names made public, or the threat of having them made public, could well impair the efficacy of a key central bank function in a crisis, to provide liquidity to avoid fire sales of assets, because banks will be reluctant to borrow." Instead, the records will show corruption on its face, and prove the big US banks liars. The records will also slow basic improper lending. The USFed has steadily argued that its lending records should not be subject to the Freedom of Information Act, because revealing which banks were tapping the Discount Window might attach a stigma to those banks and stir depositor runs or roil markets. What a crock! That is what free markets are for, to remove valuations from dead financial entities, especially the homes of profound fraud. Their position is a billboard marquee label on the Fascist Business Model itself. See the Zero Hedge article (CLICK HERE).

Charles Young is a spokesman for the Govt Accountability Office. He pointed out how the Dodd-Frank Act gives the agency authority to audit operational integrity of the Discount Window and controls prospectively only. Arthur Wilmarth is a professor at George Washington University Law School. He made an insightful observation, when he said "Solvency is the big issue. Was the Fed keeping banks alive when they should have died?It is surprising that the Congress did not say they wanted the GAO to confirm that Discount Window borrowers were solvent." In other words, the USFed is in the practice of serving the dead if not corrupt banks, entirely contary to their charter. See the Bloomberg article (CLICK HERE).

Focus on the big US banks, the center of the financial crime syndicate that has wrested control of the USGovt finance ministry and related appendages in totality. The large banks claimed over two years ago not to need any of these aid programs, surely not to require them for any bout with survival, implying they did not use the Discount Window. Yet the records show a curious mixture of large banks that actually did use these programs, including heavy money grabs by JPMorgan in the Asset Backed Commercial Program. Harken back to a Goldman Sachs statement, made under oath in front of the Financial Crisis Inquiry Commission. They said, "We used it one night at the request of the Fed to make sure our systems were linked with their systems, and it was for a de minimis amount of money." Peter Wallison, a member of the FCIC, queried further, "You never had to use it after that?" Cohn of GSax replied, "No, and as I said, we used it on the Fed's request." The data says otherwise, to the contrary. Goldman Sachs in fact hit the Discount Window five times, not once. That was a false statement under oath, called perjury. Dexia, a large conglomerate and Franco-Belgian firm, hit the window several times. Not just the frequent appeal to the window is of material importance. The USFed apparently accepted more than $100 billion in defaulted bonds and stocks as supposed collateral, which is not permitted in their charter. The letter of the law requires that all lending be fully collateralized. The transformed USFed mandate from practicality, as in maintaining the public confidence in their retirement and savings investments, has no legal basis. They are not charged with supporting the stock market. Some analysts call it the Fourth Mandate. It is abundantly clear that the USFed was breaking the law that strictly requires sufficient collateralization produced for all loans made, every loan remaining fully secured. The USFed is directly prohibited from taking market risk in its lending, as in speculating that a big bank's rotten assets will be made good after a year of inflation support. Other violations came in the form of aiding banks in the Middle East and North Africa, banks whose nations are banned from US commercial participation.

The law is clear on loans and collateral. At the time Section 13.3 read: "That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation, the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe." Common stocks and defaulted bonds are not, by any reasonable definition, secured collateral. See the Market Ticker article (CLICK HERE).

◄$$$ THE BIG USBANKS CONTINUE TO DOMINATE THE INDUSTRY, DESPITE THEIR INSOLVENT CRIPPLED CONDITION. THE LARGEST FIVE BANKS OWN 63% OF THE NATION'S MORTGAGES. THE TOO BIG TO FAIL MANTRA IS A LICENSE TO DEFRAUD AND A BLANK CHECK TO HAVE GRAND LOSSES COVERED BY USGOVT WELAFRE. THEIR STEPS TOWARD RECOVERY HAVE DEPENDED UPON HEAVY CONTROL OF THE USGOVT ITSELF. THE NEXT LEG DOWN IN HOUSING PRICES WILL RESULT IN FURTHER RUIN AND ANOTHER FORMAL REQUEST FOR BAILOUT. $$$

After a veritable death experience in late 2008, the Wall Street banks have managed, despite being zombie organizations, to amass considerable profits in 2009 and 2010. The bank profits have totaled nearly $80 billion, but they came during unspeakable growing balance sheet coincident insolvency. They were broke on the books, but have been permitted to continue with USTreasury carry trade and USGovt welfare programs. They borrow at the short end cheaply, and invest at the long end to earn a profit, thus helping to keep rates down. Wall Street employees all through the ranks have been on the receiving end of $43 billion in bonuses over the two year period. Their steps toward recovery and revitalization have directly resulted from control of politicians and regulators, and access to money printing apparatus. They could not have made progress without undue and corrupt influence of the Financial Accounting Standards Board, the Securities & Exchange Commission, the Internal Revenue Service, the Federal Deposit Insurance Corp, and the USCongress, along with numerous USGovt agencies and the subservient lapdog US presss networks. The FASB suspended mark to market asset valuation on the balance sheet, plain & simple. The master plan has funneled hundreds of $billions from taxpayers to the banks that were responsible and liable for the greatest financial collapse in world history, laced with bond fraud.

The bankruptcy laws were averted as the Too Big To Fail mantra was invoked into policy. The criminally negligent Wall Street banks could have been liquidated in an orderly bankruptcy. Doing so would have set off an enormous avalanche of credit derivative accidents, the impact for which is uncertain even to the most trained, aware, and savvy analysts. It also would have rendered the big US banks as legless powerless agents to prevent their control of the USGovt. Some believe the nation could have achieved balance. Instead to the contrary, my firm belief is that the nation would have been sent to a wasteland much like a nuclear blast would level a region, from a chain reaction of derivative explosions. That is not to say liquidation should be averted. My view is that liquidation is the first essential step to true recovery, during which the credit derivatives should be fully revealed and treated, perhaps even nullified in many respects. Let the big US banks deal with the contract dissolution issues from their Shadow Banking syndicate activity.

The current banker welfare plan continues unabated. They exploit the USTreasury carry trade, borrowing at the 0% discount rate and earning a risk-free 2% or 4% return. The loosened tax rules on restructured commercial loans helped also. By October 2010, in the absence of success to restore health to the big US banks, the QE1 program gave way to the QE2 program. The Bernanke Fed expanded their balance sheet to $2.6 trillion by injecting $3.5 billion per day into the stock market, and by purchasing over $100 billion per month in USTreasury Bonds. The USFed took $1.3 trillion of bad loans off their books, while the value of their remaining loans has been overstated by 40%. The USFed is guilty of phony accounting too. The big US banks transformed into speculators, not lenders, turning a deaf ear to Main Street credit requests. The USFed has increased the monetary base by $500 billion in just the last three months in a desperate attempt to keep a floundering USEconomy limping along, at the grand cost of lifting all commodity prices based in USDollar denomination. The graphs show the cyclone of new monetary creation recently. The world has reacted with hostility and revolt. The next bailout request will not be so easy with the current USCongress, which is locked in the budget debate and faces a USGovt shutdown.

The big four of JPMorgan, Citigroup, Bank of America, and Wells Fargo continue to function as zombie banks pretending to be healthy, beneficiary of special welfare treatment. They reported profits of $34.4 billion in 2010. They take liberties with regulatory requirements too. Neither Citicorp nor Bank of America have filed their 10K reports after three months, a telling fact. The former giant bank is the main handler of CIA project funds and retirement funds. The latter giant bank is the core processor for money laundering of the military narcotics funds. These four Too Big To Fail bastions of crooked banking and crony capitalism have $340 billion of commercial real estate loans on their books. They are broadly the object of extension of loan provisions beyond the contract limits, as the value on the bank books is pretended to be higher than reality. The industry calls it Extend & Pretend, in the empty hope that in the near future the loans will be restored. These four banks have $1.1 trillion of outstanding mortgage debt on their books. Imagine the next phase, and the impact of a further 20% decline in home prices to their balance sheets from heavy loss writedowns. They are already insolvent, and the next punch down will render even greater damage and require even greater gymnastics to sustain the system. The USCongress will not be willing or able to help. These biggest banks own 63% of the mortgage market, incredibly. They do almost what they please, are immune to prosecution, and will seek another bailout sooner rather than later. The aid they demand and receive will be hidden from view from slush fund sources. The hidden effect is higher costs to the entire USEconomy without benefit of higher wages, an elite tax systemically. Hat tip to Barry Ritholz for the story.

◄$$$ ECONOMISTS LOVE THE BANKING CARTEL SINCE IT SERVES AS PROTECTOR & PROVIDER, AND ENFORCES MONOPOLY RULES. COMPETITION IS NOT THE DOMINANT THEME IN THE BANKING SYSTEM. THE CARTEL FUNDS, RECRUITS, AND SUSTAINS THE SYSTEM THROUGH TIGHT SUPPORT LINKS WITHIN THE ACADEMIC UNIVERSITIES. HOWEVER, THROUGH THE FOREVER POROUS INTERNET, THE USFED CASTLE WALLS ARE UNDER ATTACK. $$$

Economists not only love the US Federal Reserve, they worship it and regard it as sacred, with its policy actions sacrosanct. The Federal Reserve System acts as the central bank of the United States, founded by the USCongress in 1913. The actual vote took place during a holiday period when few members were present to vote. My view is that the Bank of England and the powerful London bankers waited 137 years to take back control of the colonies, but by secret moves disguised as performing a vital function. The Londoners established a banking cartel. The economics of banking must be viewed within the contextual economics of cartels. Imagine if all newsletters had were licensed and regulated. They would be totally corrupt in twelve months.

  • All modern banking systems are based on government licensing & regulation
  • All licensing & regulation systems create barriers to entry
  • All barriers to entry created by government enable cartels
  • All central banks are enforcement agents of the national banking cartel.

No chapter on central banking in any introductory or upper division economics textbook published by a mainstream publisher used in universities describes central banking in this light. The chapter on central banking is typically placed apart from the chapter on money & banking, and never cross-referenced. Such is the educational practice since the end of World War II. This is just one of my pet peeves regarding the educational process of modern US economists, who are badly trained. Numerous chaired posts are funded by the big US banks, by the USDept Treasury, and connected think tanks with heavy political ties. Several debates by the Jackass with PhD Economists (even Ivy League) have revealed shocking blind spots regarding sound money, managed inflation, debt propagation, cause of crisis, dependence upon asset bubbles, accuracy of economic statistics, level of fraud by Wall Street firms, and integrity of financial markets. Libraries are stacked with modern economists tomes, but they rarely bind the popular journals. The majority of fresh PhD Economists act like apprentices in some medieval urban guild, as they seek a strong income through entry into the cartel. The USFed routinely has editors of the academic journals on its payroll.

Gary North of the Lew Rockwell Institute wrote, "Once [inside and accepted], they do not want the guild to lose its ability to enforce barriers to entry. To lose this power would be to face free market competition. They have worked too hard for too long to accept this outcome. Academics are, in the language of mainstream economics, rent seekers. So, economists do not apply economic analysis to the academic cartel. The Federal Reserve is untouchable inside academia. But it is beginning to have critics outside of academia. The bust and bailout in the fall of 2008 sent a message that finally penetrated the information barriers imposed by Old Boy Network: THE BANKING SYSTEM IS RIGGED TO FAVOR THE BIGGEST BANKS. This has been true ever since 1914. The FED still has a free ride inside academia. It does not have one on the Internet. QE2 will backfire. There will be either price inflation or another attempted Exit Strategy. The exit strategy failed in 2010. There is no permanent exit strategy, other than a Great Depression II. When it comes, either before or after hyper-inflation, the USFed Kings-X within the ranks of academia, with its depleted pension portfolios, will finally end."

In a sense, as North points out, the US economists serve as bagmen for the USFed itself. They carry the central bank water as errand boys in the ideological dissemination. In a crime syndicate, a bagman runs errands, hands out money to politicians for influence and immunity, and shields it from both criticism and prosecution. The bold Huffington Post in 2009 published an important article entitled "Priceless: How the Federal Reserve Bought the Economics Profession." From 1991 to 1994, the USFed dispensed $3 million to over 200 professors to conduct research, a practice that continues. The Fed Board of Governors employs 220 PhD level economists in a steady rise each year. But the big growth in influence has come in contracts. The US Federal Reserve, according to its own PR staff, spent $389.2 million in 2008 on monetary and economic policy, money spent on analysis, research, data gathering, and studies on market structure. For 2009, a ripe $433 million is budgeted for more intellectual influence. The cartel is a vast club with many wings. Around 500 PhD level members of the American Economic Assn specialize in monetary matters or public finance. In the private sector, about 600 are part of the National Assn of Business Economists in the Financial Roundtable. Add up the economists on the payroll and economists receiving grants, plus those who have submitted applications or resumes, a significant majority of the field is accounted for. The cartel is well entrenched, but things have begun to change as the castle walls are under gradual attack. They have enlisted the full support and co-opted the integrity of the colleges & univesities for at least three decades. The economics theory has been subverted to support phony money, managed inflation, credit centrifuge, dependence upon asset bubbles, and market intervention. The syndicate in charge of the fiat money must protect its multi-$trillion fraud racket. So they enlist an army of economists and bankers who have, with or without knowledge, sold their souls to the devil. See the Lew Rockwell article (CLICK HERE).

◄$$$ THE F.D.I.C. BANK DEPOSIT INSURER HAS RAISED THE LIMIT ON INSURED ACCOUNTS TO AN UNLIMITED AMOUNT. THE RULE CHANGE LAST DECEMBER MIGHT SIGNAL A LARGE BANK GOING BUST SOON. THE RELAXED RULE MEANS THE DEPOSIT INSURANCE BENEFIT WILL BE GIVEN ACROSS THE BOARD WITHOUT THE TIME CONSUMING DECISIONS TO BE MADE. EXPECT BIG BANK RUNS, FOR WHICH THE F.D.I.C. WILL BE READY. $$$

An important notice took place at the end of 2010. The Federal Deposit Insurance Corp might have just signaled an intention to go into high volume production and processing of dead banks. The new rule, no limit on the size of deposit insured, means no decisions must be made in what could become a heavy volume task. And with each dead bank whose assets must be processed, the job will be much simpler. From 31 December 2010 through 31 December 2012, all non-interest bearing transaction accounts are to be fully insured, regardless of the balance of the account and the ownership capacity of the funds. This coverage is available to all depositors, including consumers, businesses, and government entities. The unlimited coverage is totally removed from the insurance coverage provided for a other accounts held at an FDIC-insured bank.

Technically, a non-interest bearing transaction account is a deposit account where a) interest is neither accrued nor paid, or b) depositors are permitted to make an unlimited number of transfers and withdrawals, or c) the bank does not reserve the right to require advance notice of an intended withdrawal. Neither Money Market Deposit Accounts (MMDAs) nor Negotiable Order of Withdrawal (NOW) accounts are eligible for this temporary unlimited insurance coverage, regardless of the interest rate, even if no interest is paid. The FDIC will be sugar daddy to all non-interest bearing accounts regardless of the size of the balance. It seems the problem is the lack of organization and staff at the FDIC needed to take over a bank with over $10 billion in deposits. They typically must complete the liquidation work over a weekend, in a minimal disruption directive. When the bank is very large, they do not have enough time for the due diligence, before making decisions on the depositors one at a time. One might infer that the FDIC thinks it will need to take over larger banks, and this policy change facilitates the process. Another line of thought points to extremely large depositor accounts by the power elite, who have demanded full insurance. The challenge comes from the reverse gear to the fractional banking. The banks owe $1 million to depositors for every $100k held in reserve assets. The new FDIC rule could be in anticipation of bank runs, in addition to big bank collapses. Expect some powerful magnificent bank events, maybe bank runs soon. See the Economic Policy Journal article (CLICK HERE).

◄$$$ THE F.D.I.C. HAS ITS HANDS FULL WITH DEAD AND DYING BANKS. THE PACE CONTINUES UNABATED IN THE DEATH PROCESS, THE SAME PACE SEEN SINCE MID-2009. THE NUMBER OF PROBLEM BANKS CONTINUES TO GROW, BUT THEIR VOLUME OF INSURED DEPOSITS HAS LEVELED OFF. THE USBANK SYSTEM HAS BECOME A COLLECTION LED BY ZOMBIES. $$$

The rate of bank death events in year 2011 is following the same pace as 2010, brisk but steady, and faster than 2008. That continued pace showed an acceleration from the pace in the first half of 2009. Since mid-2009, a relentless killing field has been the case. Every Friday afternoon the FDIC announces its usual fare of bank failures, with hardly a ripple of impact from the news anymore. Bank failures have become the norm, even passe, without hint of panic. Just a slow trickle of failure. Despite the extraordinary measures to maintain fraudulent accounts, and from what is known as extending and pretending on toxic loans that will never be restored, many more banks will die and soon. For example, the 10 major regional banks with the highest risk from commercial real estate loans once had $133 billion of commercial real estate loans on their books. All remain in business. Their real estate loans are worth 30% to 50% less than they are being carried on the books, a great distortion of reality. A true valuation of these loans would put all 10 of these banks out of business. They are dead banks walking, grand zombies. Over 900 banks are insolvent, fixtures on the official FDIC Problem List. The number of banks in deep trouble continues to grow, but their total assets under insurance has stabilized. The federal tool liquidation firm FDIC, the Wall Street harlot has processed 300 banks. At least $200 to $300 billion of losses lie in the pipeline, as constipation from toxic credit assets clogs the US financial system. The size of the problem in full view, evident in the graphs, makes liars of bank leaders who claim a recovery is in progress. Total collapse is in progress in a gradual and inexorable deterioration with massive momentum.

USTREASURY BONDS AT TIPPING POINT

◄$$$ NONSENSE ABOUT THE USFED HIKING INTEREST RATES IS INTENDED TO SUPPORT THE BUBBLE INFESTED USTREASURY BOND. PLANTED USFED COMMENTS SOUND ABSURD ON THEIR FACE. READ ISOLATION AND DESPERATION FROM THE LOW VOLUME MURMURING. THEY RECOGNIZE THE INFLATION RISK, BUT DO NOT COMPREHEND IT IS HERE & NOW, SOON TO BE SEVERE. $$$

Word comes from inside the USFed from a senior member that the venerable syndicate helm could raise interest rates by year end, much sooner than expected by financial markets. What a joke! And the housing market would roll over more quickly. And the stock market would require even more frequent intervention support action. And the credit derivative monster would experience a lit fuse with unknown damage in ramifications. The Jackass thinks not on a rate hike, just like through the 2009 year the talk of an Exit Strategy was vacant. The USFed has painted itself into a corner. It cannot exit. It is stuck. Minneapolis Fed President Narayana Kocherlakota signaled the Fed could raise benchmark borrowing costs, which are now close to zero, by 75 basis points by the end of the year. He also claims the USEconomy should grow by 3.0% this year, an unlikely event unless all manner of price inflation is collected and relabled as growth. He implies no detrimental effects from the termination of the QE2 debt purchase program in June. He is delusional. Kocherlakota is a voting member on the Fed Board this year, often considered one of the stronger anti-inflation hawks on the panel. Some notable stirring based upon deep discomfort can be detected by opponents to unbridled monetary inflation as an official solution. They wish to tighten financial conditions before an inflationary psychology takes root. Kocherlakota noted his surprise that the QE programs have stoked inflation expectations. He urges a hike of the target rate by more than 50 basis points to properly realign. They are more concerned about expectations of inflation than its reality!

Within the same vocal chorus of dissent, Richmond Fed President Jeffrey Lacker believes the USFed should consider cutting short its $600 billion bond buying program as the USEconomy shows signs of improvement. He stated that every $100 billion counts without mention of how many hidden $trillions have been printed. Lacker has one eye set on reality. He said "At this point in the business cycle, the risk of overshooting, of getting a bigger ratcheting up of inflation than we want, is very real." A bit late for worry about overshooting, like 18 months. The same sentiment is echoed by St Louis Fed President James Bullard, who started the dissent by suggesting the Fed's bond purchases might be cut short. The unemployment rate stubbornly remains at an elevated 8.9%, helped by not counting many severely unemployed, the chronic. Economists disagree on the potential ability of monetary policy to address the current economic stagnation. They might notice that high powered monetary centrifuge spew does not form new businesses or lead to new hiring, but instead the opposite. It causes the entire cost structure to rise, squeezing the entire USEconomy. Rather, the QE programs to buy USTBond securities with newly printed money are designed to alleviate the pressure on extreme USGovt debt issuance, aggravated by absent and very angry foreign creditors. See the CNBC article (CLICK HERE).

◄$$$ USGOVT DEBT IS AT A TIPPING POINT. UNLIKELY DEBT REPAYMENT, ESCALATING DEBT LEVEL, AND GROWING INSOLVENCY ARE GREAT THREATS. URGES HAVE COME FOR THE USFED TO HALT ITS DEBT MONETIZATION AND MONETARY AGGREGATE GROWTH SPIGOT. WARNINGS COME FROM INSIDE THE USFED ITSELF, HARDLY A COHESIVE BAND IN DEFENSE OF A FORTRESS. $$$

The voting member Richard Fisher of the USFed has been vocal. One would think the banking generals would shut him up. A sign of lack of cohesion at the USFed fortress is the steady critique from its lower ranking members. Dallas Fed President Fisher believes the USGovt debt situation is at a tipping point, as tremendous damage is imminent. He urged the US central bank to refrain from any further stimulus measures. Although debt cutting measures would be painful, he expected the USGovt to take the same austerity medicine as European counterparts. He pointed to current price inflation pressures. He believes the USFed must stop pumping out more monetized debt. He warned of a return to dangerous speculation. He antiticipates the exit strategy will be laid out at the appropriate time. That is never in my opinion. He also senses the economy as moving under its own power increasingly. So he remains a bit delusional. Economists regard him as one of the most hawkish policymakers on the team.

Fisher spoke in two different settings, revealing much in clear stark terms. He said, "Having done our job, I see many risks to the Fed overstaying its welcome. Our duty is most distinctly not to monetize the debt of fiscally imprudent government. [Doing so] has proven to be a direct path to economic perdition. Inflationary impulses are gaining ground in the rest of the world. My gut tells me that this will result in some unpleasant general price inflation numbers in the next few reporting periods. It may well be that we should consider curtailing what remains of QE2. Just as we pressed on in doing our duty through extraordinary, exigent measures, we must now discipline ourselves to just as persistently normalize our operations in a timely way."

He continued in another venue to say, "If we continue down on the path on which the fiscal authorities put us, we will become insolvent. The question is when. The short-term negotiations are very important. I look at this as a tipping point. The Fed has done enough, if not too much, and we should do no more. In my opinion no further accommodation is necessary after June, either by tapering off the bottom of Treasuries or by adding another tranche of purchases outright. We are seeing speculative activity that may be exacerbating price rises in key commodities such as oil. The real question is when do we stop accommodation. We need to continue to discuss the exit policy. But before you can tighten, you have to stop accommodating. There are different views on the impact from Japan and the Middle East being expressed, but we are central bankers. We have to think about the long term. It is way too early to tell." The last comment on Japanese impact proves he has zero perceptual capability and less forecast ability. He needs to subscribe to the Hat Trick Letter. See the Yahoo Finance article (CLICK HERE).

◄$$$ BILL GROSS OF PIMCO EXPECTS A USTREASURY BOND DEFAULT, BUT IN A HIDDEN FASHION, AS IN STEALTH THEFT. PRICE INFLATION AND DEBT DEVALUATION ARE COMING, ALONG WITH A CONSTANT ULTRA-LOW INTEREST RATE ENVIRONMENT. NEVER LOSE SIGHT OF HOW ARTIFICIALLY LOW RATES ARE THE SENTINEL SIGNAL FOR THE GOLD BULL MARKET, ITS ENGINE AFTER CONTINUED LINGERING PRESENCE. GLOBAL ISOLATION COMES, AND CURRENCY RUIN. $$$

Bill Gross is vocal, angry, and defiant. He has turned against the bond fountain head. His PIMCO flagship fund has totally abandoned USTreasury Bonds in its vast portfolio, a stunning gesture. He is specific about the discredited USTreasury Bond, the debt security for the USGovt. Gross believes that unless entitlements (welfare, social security, medicare, government pensions) are substantially reformed, the country will default on its debt. He does not anticipate a default in the usual conventional way. He expects the villain doing the theft will be the ransacking of savers. He expects a combination of less observable devices to steal from the US population, namely inflation, currency devaluation and low to negative real interest rates. He reminds the debtor giant colossus that his PIMCO clients from unions, cities, US-based and global pension funds, foundations, even Main Street citizens, choose not to be shortchanged or to be victims of concealed theft via strained monetary policy. He urges the USGovt to preserve the integrity of the USTreasury market, to promote a stable USEconomy, to reduce entitlements, to address future liabilities in healthcare, and to contain Social Security costs. His laundry list of high priorities has been the central area of spending failures by the USGovt, lofty goals nonetheless. He summarized, saying in very colorful imagery that the USCongress should hear something like "I sit before you as a representative of a $1.2 trillion money manager, historically bond oriented, that has been selling Treasurys because they have little value within the context of a $75 trillion total debt burden." He screams in his own style how the USTBonds are rapidly going worthless. See the Zero Hedge article (CLICK HERE).

Medicare, Medicaid and Social Security account for 44% of total federal spending, and rising. The reckless practice of assuming the USGovt can grow out of its onerous debt burden is utter blind folly at best and intentional delusion at worst. The USEconomy is stuck in a recession, protected from the official statistics but obvious to industry and households. The implications to severe slash of entitlements are far reaching, too painful to enact, the beneficiaries too entrenched and vocal to defend against. The release valves for the vast debt pressure cooker involves a combination of nasty monsters. The US leadership will not taken the bold action required to restore integrity and reduce the grotesque imbalances. The global response will be total isolation, forcing hyper-inflation and currency ruin. gross foresees these impacts:

  • outright contractual abrogation, simply abandoning certain entitlements
  • accelerating higher inflation, but hardly a cure
  • a declining dollar, currently happening broadly, seen in ugly food & energy impacts
  • continuing to pay savers less on their money than the rising costs.

◄$$$ THE USMONEY SUPPLY HAS GONE VERTICAL AGAIN SINCE THE START OF 2011. THE USFED HAS TRULY HIT THE PANIC BUTTON, JUST LIKE IN LATE 2008. TO PREVENT SPILLOVER OF SUCH STAGGERING SUMS OF MONEY INTO THE FINANCIAL SYSTEM WILL BE IMPOSSIBLE. ONLY SMALL PORTIONS WILL GO WHERE THE BANKERS WANT IT TO GO. THE ARBITER OF ABUSE IS THE COMMODITY MARKET AND GOLD, WHICH RISES IN COMPENSATION TO MONETARY HYPER-INFLATION. $$$

A picture often is worth 1000 words, here in particular with the adjusted US monetary base. It reveals how much money the USFed officially has injected into the system. As footnotes, consider that several $trillion was handed to the central bankers across the world in the months following September 2008 as part of the hidden TARP dispensation. Regard the chart below as the USFed hitting the panic button from in reaction to a breakdown in the first several weeks of 2011. The rampup of money production does not jibe with the calm confidence that the Secretary of Inflation Bernanke shows publicly. The monetary response episode late in 2008 of an extra $1 trillion is clear. The USFed has pumped in $500 billion in the last three full months. Something is going on, something big! Witness a panic by the bankers in charge. They cannot blame it on QE2. The fingerprints of the massive recent injection has little if anything to do with QE2, which would show up in the last half of 2010. The USFed is freaking out from what it sees happening. They are monetizing USTBonds and mortgage bonds of many types with abandon again. They might be buying up Interest Rate Swaps, those scummy contracts that attract little public attention, even though they fasten together the USTreasury complex from the short end to long end with a gigantic hidden corset. All is not well behind the curtains. See the Silver Doctors article (CLICK HERE). Be sure to know that the commodity market responds to the gradual and sudden ruination of the USDollar. What the myopic Chairman Bernanke believes is free usage of the Printing Pre$$ has a tremendous impact on the entire cost structure as well as a highly damaging effect on the USDollar integrity. He is burning the USDollar in a bonfire of failure laced with vanity. And certainly, the prestige of the USFed is greatly undermined.

VEILED QUANTITATIVE EASING BY USFED FOREVER

◄$$$ THE USFED HAS PURCHASED 83% OF USGOVT DEBT SINCE QE2 BEGAN. HOWEVER, THAT IS A CONSERVATIVE FIGURE. PRIMARY DEALERS ARE OFTEN REIMBURSED WITHIN ONE MONTH BY THE USFED IN OPEN MARKET OPERATIONS TO COVER THE REST OF THE 100%. THE DEALERS WORK IN NON-COMPETITIVE BIDS TOO. WITNESS WEIMAR AMERICA. THE USFED IS ISOLATED AS THE MAIN BUYER OF USGOVT DEBT. THE USTREASURY MARKET HAS BEEN WRECKED. $$$

The USFed has served as the source for 83.4% of USTreasury cash requirements since the start of the second round of QE. Since the launch of the USS QEII ship of fiat state in November, the USDept Treasury has issued a gross $890 billion in debt in the form of various Bond, Bill and TIPS (the supposed inflation protected bonds). These the funds the USGovt received in exchange for promises to pay interest and principal at maturity on securities. Over the past five months, another $291 billion in debt maturity was paid down, to redeem principal to the fortunate on USGovt debt at maturity. The remainder $589 billion in debt was issued between November 1st and March 31st, essential funds for the ongoing operations of the United States. This is from public data. Each auction is with a breakdown of Direct, Indirect, and Primary Dealer takedowns. They are proclaimed as resounding successes, one and all, the public is led to believe. Internal distortions are stark. The stated Bid/Cover ratios over 2.0 are not legitimate. The Primary Dealers act as USFed intermediaries, not for distribution of USTBonds to private sector investors like pension funds, but rather for a quick turnaround to the USFed (almost in secret) for reimbursement in open market operations. Any Bid/Cover ratio under 2.0 is a failed auction. Less known is that the true deals in USTreasurys occur in the secondary market, or that dominated by the US Federal Reserve. Primary Dealers promptly flip bonds purchased during a primary auction right back to the USFed. In so doing they corrupt the auction results as they complete the debt monetization loop at almost 100%. Since the start of QE2, the Federal Reserve has purchased $491 billion of Treasurys in the Open Market, plus another $556 billion since the start of QE Lite.

Therefore to sum it up, out of $589 billion in net issuance, the USFed has been responsible for 83.4% of the money needed to fund government transfer payments. In the months April through June, the USFed will fund at minimum another $400 billion in USGovt cash needs for operations, bureaucracies, entitlements, and war. To put the budget battle into perspective, the USCongress squabbled over a government shutdown due to a $30 billion discrepancy on the two sides, the amount the USFed monetizes in one single week. Who are what will step in to provide this 83.4% of ongoing cash needs ($100 billion per month) when the debt monetizing controlled avalanche ends on June 30th? Any sudden halt to the debt monetization machinery would result in a rapid disintegration of the USTBond Carry Trade that the big US banks have grown dependent upon. The USFed will obviously be forced to fill the vacuum, and continue the Quantitative Easing programs, even if in secret. They will not tolerate the ruin of financial institutions in the US that rely on borrowing at short rates and lending at long rates. The big US banks have acted more like hedge funds since Lehman Brother will killed. The central bank withdrawal from the inflation factor floor would cause a sudden second insolvency of the US banking system. So obviously QE to Infinity Forever!! An asterisk on average maturity of the $1.33 trillion in USTreasury holdings on the USFed balance sheet. Maturity has declined consistently in the last eight months ago, from over 80 months to under 67 months. They are converting to short dated securities from long dated maturities rapidly, seizing the moment. It will be under five years (60 months) by end June. Therefore, do NOT expect any USFed rate hike, since they would torpedo their own balance sheets that have gone to shorter maturities. This is so plain to see. So disregard the propaganda about USFed hikes to ward off price inflation or to confirm the USEconomic recovery. It is all nonsense. See the Zero Hedge article (CLICK HERE).

Some details on a typical POMO open market shell game. The Primary Dealers flip their bonds to conceal the USFed monetization. The integrity of the bond system has been turned into a farce play on stage, nay a Weimar Tragedy. On April 4th, the USFed monetized 50% of Primary Dealer bidded bonds from a 7-year auction conducted on March 30th. The biggest CUSIP marking monetized on record was QB9, of which the USFed purchased $5.99 billion from a total $8.03 billion. In all, the USFed bought back 50% of the $12.115 billion the Primary Dealer took down, marked by QB9. The quick coverage was the fastest episode of bonds flipped on record. Over the last five years, the USFed has bought between 50% and 70% of all auctions, a proportion that gradually rises. Furthermore, a key point on price. These are non-competitive bids submitted by the Primary Dealers. They accept the average price among their pack, unlike the competitive bidders who put in a priced bid. See the Zero Hedge article (CLICK HERE).

◄$$$ USFED MONETIZATION WILL CONTINUE. THE QE2 WILL GRADUALLY BECOME MELDED WITHIN THEIR REGULAR MONETARY POLICY. THE FOUR BIGGEST DOMESTIC REASONS FOR CONSTANT QUANTITATIVE EASING ARE 1) ABSENCE OF USTREAUSURY BOND BUYERS, 2) THE GARGANTUAN USGOVT DEFICITS, 3) THE WRECKED HOUSING MARKET, AND 4) THE BLOAT OF PROPERTY RELATED TOXIC ASSETS ON THE BANK BOOKS. THEN ADD ON THE FOREIGN POLICY IN OPPOSITION TO THE CANCEROUS PROPAGATION FROM THE USFED. AS EVIDENCE OF THE CANCER, NOTICE THE MARGINAL BENEFIT OF NEW DEBT. IT IS LONG PAST SATURATION, WHERE PRICE INFLATION HAS NO MORE RESISTANCE. $$$

Debt monetization will continue, all claims of testing the financial system without training wheels being total deceptive rubbish and colorful bravado. Next, as Jim Rickards of Omnis indicated a month ago, the vast engines of Quantitative Easing will slide into the center rails of policy. Talk will slowly turn to not requiring it, a grand deception among many, as the debt monetization on a huge scale paid for my freshly printed free money will morph into regular policy, but more hidden from view and from the statistics. Thus the bankers in charge of the nation will attempt to get away with monetary murder of the USDollar. They will not succeed. The principal thread of systemic failure in any semi-closed system like a national economy is its currency. The USDollar has a bad case of rampaging cancer. If QE is withdrawn in any substantial sense, the USEconomy will contract rapidly, broadly, noticeably. Nothing is ready to pick up the USTBond demand, since the industrial base is carved and shipped away to Asia, the asset ATM units (home equity) are declining again, and the retail mall machine has badly stal led.

The United States has run out of assets to pump, cannot lean on its factories, and faces a scourge of cost inflation. After its high profile failure, the vast inflation factory of Wall Street has yielded control to the Printing Pre$$ factory in the USFed basement. The QE engines from the inflation factory are all that remains, tragically. They will NOT be turned off. Talk of their idling will be the next big lie in a vast betrayal of the US citizens. China is often mentioned as keeping their workers busy, even if building ghost cities. The USGovt must next be concerned about keeping their workers busy. Efforts have failed. Worse, the QE game played by the USFed has challenged foreign central banks to resist a unified policy led by the Americans, using tremendous antagonism and caustic interactions. See Germany and the Euro Central Bank rate hike, and China with its greater tightening. The USFed is soon to be isolated. See the Zero Hedge article (CLICK HERE).

The futility of QE lies not only in its ruinous isolation of the USTBond market, but also in the lack of potential benefit in the USEconomy. The nation is saturated in debt. New debt extended cannot achieve traction. The debt has local sources for cars, homes, and credit card usages, even shopping sprees. Keep this chart in mind when US bank leaders talk about extending credit to the big US banks and to consumers, even to government. It is not succeeding!! Debt and inflation are all they know. They are architects of failure. The United States faces a systemic failure, whose climax will be a USTreasury Bond default. Expect it to come in the form of a grand debt restructure, maybe forged at a global summit. It could happen within the next two years, maybe sooner. Watch the Bretton Woods summit planned for the new IMF global reserve currency, another elite circle jerk. The forum might later be used to forge the USTBond debt restructure.

◄$$$ THE USFED IS STILL BUSTED. THE RECENT LESS OBVIOUS EXPANSION TO THEIR BALANCE SHEET IS FROM THE COMMERCIAL REAL ESTATE SECTOR. THEY ARE RESCUING THE MORTGAGE BACKED BOND MARKET IN QUIET FASHION, IN HEAVY VOLUME. DESPITE A COMEDOWN, THE PROPERTY MARKET PRICES ARE BEING SUSPENDED HIGHER THAN REALITY DICTATES. $$$

As the USFed with seeming stealth grew its balance sheet to around $2.75 trillion, it conducted a shadow bailout of residential real estate and commercial real estate. The commercial market has been the silent beneficiary lately of central bank largesse. They have bought its toxic bonds in heavy volume. Commercial real estate (CRE) values have plunged $3 trillion from their peak in 2008. While residential real estate values peaked in 2006, CRE paused two years before falling rapidly. The quick move down in price occurred because the regional banks held firm onto $trillions of CRE loans to form its vacuum. The properties have in many  cases lost half their value. The wreckage includes hotels with low occupancy, empty shopping centers, and multi-use projects (condominiums & shops) lacking demand. Little is ever mentioned about this $3 trillion commercial industry that is benefitting just as much from USFed largesse and balance sheet expansion as the well known residential side. The CRE sector has been bailed out without the knowledge of the public, not by a Congressional TARP decree, but by the USFed. That allowed the big US banks to conduct their Extend & Pretend charade in a massive float of insolvent red ink. The mark to market accounting was suspended, enabling many institutions to roll over CRE debt, enabling also the borrowers to renew loans even if they currently are non-paying. The banks pretending that they will eventually be repaid, a grand coverup.

The residential home loan holders are not given that same opportunity to refinance in rollover. The USFed has in the process permitted the entire CRE market to be suspended in midair at fictional prices. In late 2009 it was clear to the USFed and the USDept Treasury that the $1.2 trillion in commercial loans maturing between 2010 and 2013 would cause thousands of bank failures if the existing regulations were enforced. The USDept Treasury interceded with a rules change. New tax rules adopted by the IRS indirectly aiding the big US banks, allowing commercial loans that were part of investment pools known as Real Estate Mortgage Investment Conduits, or REMICs, to be refinanced without triggering tax penalties for investors. The USFed continues to purchase mortgage backed securities, expanding its balance sheet constantly at peak. The CRE bond market lacks demand for real estate in all forms. So in yet another market, the central bank is really the only buyer. The CRE bond market is in its third of five years for high volume maturity. The strains are happening in force. The property market and the bond market are all wrecked. As the cost squeeze filters through the USEconomy, consumers will pull back even more. The shopping malls and commercial centers will face even more blight from the reduced cash flows. The strain on capital is growing more acute.

◄$$$ THE STRAIN FROM COMMERCIAL REAL ESTATE WILL BE THE NEXT IMPORTANT BURNING LOG ON THE USFED BONFIRE. IT IS SOAKED WITH KEROSENE FROM EXTEND & PRETEND ACCOUNTING. NUMEROUS ARE THE THREATS TO BANKS, BUT WITH MATURITIES IN HIGH GEAR, THE DAMAGE TO BANKS WILL BE GREAT. A SLOWER USECONOMY FROM THE COST SQUEEZE ASSURES MORE SUDDEN LOSSES ON THE COMMERCIAL SIDE OF THE LEDGER. $$$

Political capital has been exhausted on bank bailouts for their toxic credit portfolios. The CRE bond market will have to stand on its own, default broadly, or be bailed out by the USFed. In taking on the duty, the USFed subjects itself to even more insolvency risk. Direct bailouts for failed luxury hotel projects or empty shopping malls that catered to a wealthy class will not fly. No more tolerance exists. So the USFed accepted their ruined bonds on the quiet. The commercial real estate  market provides the shopping marts for the great consumption extravaganza that is coming to a painful tragic end. Its wisdom was found in the same as a Jack Daniels bottle of whisky. Feel bad? Go shopping. Maxxed out on credit cards? Use a new offered card. Just buy a home? Fill it with furniture right away. Want to impress that gal? Treat her to diamonds. Feel impotent in midlife? Buy a boat and some viagra. The debt ridden American public carries a debt burden on its income capacity, which is strained and faltering. The folly filled engine of the USEconomy, the consumption class, has entered another critical contraction governed by rising food & gasoline costs. Banks internally know problems are occurring, and have responded with a reduction in credit. Check the MIT chart on contracting commercial loans being made.

Too little demand is realized for new commercial sector projects. The entire monetary strategy that leads the stimulus strategy is flawed. The inflationary environment engineered by the Secretary of Inflation at the giant inflation factory known as the august USFed is intended to cover the national debts across the bond spectrum. Inflation as the solution will not succeed, as the USTBond and USDollar will be ruined in the process. Their policy actions merely postpone the day of reckoning, while accelerating the capital destruction. The problem is not lack of credit but rather that incomes are lacking and the USEconomy remains grotesquely out of balance. The massive hidden CRE bailout is never mentioned in the broadcast media, the publication media, or the radio media. It is part of the grand process to bail out banks by allowing them to continue to keep toxic ruined loans on their books, while using current bailout funds to speculate in the USTreasury carry trade in order to rebuild their balance sheets.  The extreme cost is borne by the working and middle class of this country, who have seen the entire cost structure rise as a consequence. The CRE market had a peak national value of $6.5 trillion three years ago. Its current value stands at an $3.5 trillion, except that it benefits from the widespread Extend & Pretend practice which maintains artificially elevated prices. Banks have not come to terms with those unrealized losses. So the CRE market might be properly valud at a cool $1.0 to $1.5 trillion less!! See the MyBudget360 article (CLICK HERE).

HOUSING NOT TO RIDE INFLATION WAVE

◄$$$ THE DETAILS OF COMMERCIAL PROPERTY ARE WOEFUL. ITS DECLINE HAS BEEN WORSE THAN RESIDENTIAL, YET COMMERCIAL LOSSES TO THE BANKS HAVE NOT OCCURRED IN GREAT VOLUME YET. THEY ARE ASSURED SINCE VAST AIR POCKETS SUPPORT THE NICHE MARKET ON BANK BOOKS. VACANCIES AND DELINQUENCIES ARE RAMPANT, WHILE COLLATERAL IS GROSSLY INADEQUATE TO SUPPORT THE LOANS WITH TIME EXTENSIONS. $$$

The US Federal Reserve is tasked with bank oversight, to make sure their loans are properly valued through adequate collateral. Commercial loans have been modified across the board, unlike the residential market, which sees foreclosures rather than generous term extensions. The plan was to amend the terms so that the commercial borrower could avoid an impossible refinance of the strained loan. The banks hoped to be made whole later when conditions improved. They have not improved. The USFed coerced the banks to do what they called troubled debt restructurings, which involved modifying an existing loan by making favorable changes to the terms or breaking the loan into pieces. One part is healthy and properly collateralized, the other a veritable piece of toxic sludge resting on a bank shelf jar. Spokesmen for the USFed trot before the USCongress to paint unrealistic pictures that present grand distortions. They claim the worst is over for the CRE market. From 2008 through 3Q2010, commercial banks had incurred only about $80 billion of losses from commercial real estate exposure. The losses should be five times that much, at least.

The regulators who preside over banks, thrifts, and credit unions quietly gave lenders flexibility in how they classified distressed commercial mortgages. Banks were able to separate distressed loans into performing and non-performing portions, and institutions were able to reduce the total reserves set aside for non-performing loans. The regional banks parked those reserves at the USFed, earning interest, but more importantly, thus concealing the USFed insolvency. The SEC is suddenly openly worried that banks are covering up losses, when they were involved in encouraging the coverup of such losses. Tragically, $billion in commercial loans are currently in distress because tenants are dropping like flies in the scorching hot sun. And the cost squeeze has only just begun. While banks have extended the terms of the debt with more interest reserves, the loans continue to be classified as performing, but the values of the collateral property behind these loans has fallen 43% with alarm bells ringing. The loans should never have been extended in the first place. The borrowers are grossly upside down with much lower collateral than loan balances. According to Trepp LLC, a data firm specializing in commercial data, non-performing commercial real estate loans makes up 72% of the $320 million in non-performing loans reported by banks in February. These figures are after the extremely liberal definition of non-performing in the industry. The niche market is a wreck.

The details on the commercial real estate (CRE) market are abysmal. The loan portfolios is mired in deep toxic swill, soon to come into the open in the form of writedown losses. The cost squeeze will only make the following ugly statistics much worse, as the USEconomy slows further.

  • The vacancy rate for office space in the US is currently 16.5%
  • The vacancy rate for industrial space in the US is currently 14.2%
  • The vacancy rate for retail space in the US is currently 13.0%
  • The delinquency rate within collateralized debt obligations in CRE loans rose to 14.6% in February. The increase signals a trend of higher delinquencies in the bond segment.
  • Moodys reports CRE prices are down 4.3% from a year ago and down 43% from the peak in 2007
  • The delinquency rate on loans packaged and sold in commercial mortgage backed securities rose to a record 9.2% in February, according to Moodys
  • Regional and local community banks have as much as 80% of their balance sheets tied up in commercial real estate, without income to offset any fresh CRE losses.

◄$$$ HOME LOAN DELINQUENCIES CONTINUE UNABATED. NO RECOVERY ANYWHERE IN SIGHT. EVEN LOWER HOME PRICES ARE COMING, A STRONG MOVE DOWN AGAIN. THE PIPELINE IS SLOWING DOWN A LITTLE ON HOME FORECLOSURES, WHICH APPEAR TO BE LEVELING OFF. $$$

LPS Applied Analytics has provided a snapshot of the delinquency picture. Overall mortgage delinquencies (DQ) declined slightly in February, but the pipeline is still heavy. The DQ rate resumed the decline after an increase in January while foreclosure inventories remain stable, slightly below the historic highs set a year ago. Delinquencies continue to improve as new problem loan rates decline and loan cure rates increase. Foreclosure start declines and foreclosure suspensions are reducing the upward pressure on inventories caused by the moratoriums that have been instituted on foreclosures and sales. To be sure, an enormous backlog of foreclosures still exists with overhang at every level. Details are ugly.

  • 2.49 million loans under 90 days delinquent
  • 2.16 million loans 90+ days delinquent
  • 2.2 million loans in the foreclosure process
  • 3 times the number of loans over 90+ days delinquent versus foreclosure starts
  • 3 times the number foreclosure starts versus foreclosure sales
  • Foreclosure inventory is over 30 times monthly foreclosure sale volume.

This graph below shows percentage of homes in delinquency, in foreclosure, and in non-current mortgages. By non-current is meant late, not on time, but not yet 90 days late. According to LPS, the DQ rate is 8.80% of mortgages (down from 8.90% in January), and another 4.15% are in the foreclosure process for a total of 12.96%. The volume in FC process has not changed much from 4.16% since January. The national total comes to 6.86 million loans delinquent or in foreclosure. A large slice of these DQ and FC homes will end up as bank inventory within the Shadow Inventory bulge bloat. It appears that the foreclosure process is soon to level off finally. But the home price effect will be staggering since so pentup and collected, ready to release from the accumulated inventory within bank books. See the Calculated Risk article (CLICK HERE) for other graphs like the breakdown of serious deliquencies.

◄$$$ THE HOUSING MARKET BLUES ARE BACK IN FORCE, SOON TO BECOME EXTREME ENOUGH TO GATHER NATIONAL ATTENTION AWAY FROM THE CORRUPT CLOWNS IN THE USCONGRESS STRUGGLING ON A BUDGET AND DEBT LIMIT. THEY STILL WILL NOT TOUCH THE WAR MACHINE EXCEPT WITH A FEATHER. THE USGOVT PROGRAMS TO AID HOMEOWNERS HAS BEEN A TOTAL SHAM. CRISIS BUILDS. THE PANIC WILL SHOW VERY SOON ON BANKERS. $$$

The bleeding continues on both homeowner equity and bank credit portfolios. The USFed bond purchasing program (QE2) has been an utter failure. Recall its secondary purpose was to support housing prices. Not happening. Staggering liquidity sloshes around in the financial markets, but primarily to replace absent USTBond buyers and to lift the stock market. The bankers do not want the stock market to accurately reflect the powerful recession in the USEconomy. Housing prices have resumed the descent unmistakably. The crisis is coming back fast & furious. It never went away. Bernanke purchased $1.7 trillion in toxic mortgage backed securities (MBS) to prevent the big US banks from suffering major losses. They are more worthless with each passing month. The Paulson Fed steered $700 billion of TARP Funds into the same big US banks, redeeming deeply damaged assets of many stripes at nearly 100%. It was a sham. However, despite all the official initiatives nothing was restructured or fixed. The housing market continues down. The mortgage bonds continue to lose value rapidly. The HAMP and HOPE programs are a joke, useful for propaganda and nothing more. The cramdown initiatives (forced lower home loan balances) were mostly bluster. Homeowner defiance from loan payment scoffing will soon blossom like the spring azalias, jonquils, and daffadils.

More crisis comes. In fact, the number of sides to the crisis is growing. The management of the crisis will soon be recognized as an impossibility, whose epicenter remains the housing and mortgage finance markets. My September 2008 forecast of an eventual USTreasury Bond default is moving closer to reality. The last ditch efforts of home loan reductions is the next sham movement. The volume of money devoted to loan modification is laughable. Bank of America has made strides in this direction, too late and way too little. A $700 million grant to California from the USDept Treasury is also a drop in the bucket. The size of the aid packages to reduce home loan balances must be over $2 trillion to make a difference. That will never happen.

According to Bloomberg News, "Residential real estate prices dropped in January by the most in more than a year, raising the risk that US home sales will keep slowing. The S&P/Case-Shiller index of property values in 20 cities fell 3.1% from January 2010, the biggest year-over-year decrease since December 2009. Rising foreclosures are swelling the number of houses on the market, which may put additional pressure on prices in coming months. At the same time, a further decline in home values may keep potential buyers on the sidelines, as they foresee better deals, hurting construction and consumer spending as owner equity evaporates. Foreclosure filings may climb about 20% in 2011, reaching a peak for the housing crisis, according to RealtyTrac Inc. The median price of existing homes, which make up more than 95% of the market, slid 5.2% from a year earlier, erasing all gains made after February 2002, according to the National Assn of Realtors." According to Case-Schiller, housing prices are now off by 31.4% from their peak, but the widely watched index is conservative in my opinion on measuring the price decline. The housing sales have really turned down hard, both existing and new. The housing market is a total wreck. The bankers with USGovt help and Fannie Mae centrifugal participation, built a many headed monster in a housing bubble. Witness the predictable widespread wreckage from its reversal, fully forecasted since 2005 in the Hat Trick Letter. Wall Street made $trillions, committed fraud, and still is in control of the USDollar finance ministry. The crisis is building toward a new crescendo.

The Bernanke Fed is lost. They focus quietly on the vanished foreign creditors from the USTreasury market. They focus secretly on the S&P stock index with their daily lifts at 10am and 3pm. They focus openly in mild desperation to rescue the housing market with indirect aid through the mortgage bonds. Curiously, the mortgage bond situation has separated from the housing inventory problem, now two distinct black hole centers of crisis. The public has begun to experience widespread shock. They react by withdrawing from home purchase, figuring correctly that a cheaper price comes later. They react by scoffing at mortgage payments to banks they regard as criminal acting with impunity. Bernanke is looking lost and confused, but tries to put a confident front before the matting crowds in the legislature. A detachment between the financial markets in stocks & bonds has taken place. Price inflation is fast rising, moving toward 10% in our real world, while the long-term USTBond yield fights around 4%. It is controlled by JPMorgan with Interest Rate Swap contracts even as the USFed monetizes $100 billion per month. The USEconomic recession builds force. Corporate profits suffer from the cost squeeze, while the S&P500 stock index marches higher. It is controlled by the Working Group for Financial Markets (aka Plunge Protection Team), no longer hidden, so that the stock index itself retains a near constant value after USDollar devaluation steadily. Watch the bankers show their panic in the next few months.

◄$$$ CBS 60 MINUTES HAS PUBLICIZED THE ABSENT LOGIC OF PAYING FOR A MORTGAGE WHEN DEEPLY INSOLVENT. IT MAKES NO SENSE TO CONTINUE MAKING PAYMENTS ON A HOME LOAN WHEN THE LOAN BALANCE GREATLY EXCEEDS THE HOME VALUE, ESPECIALLY WHEN SO MUCH BANK FRAUD IS INVOLVED WITH THE ASSOCIATED BONDS AND CONTRACTS. EXPECT A BIG RISE IN DEFIANCE, WITH LOAN SCOFFING BY THE 11.1 MILLION UNDERWATER MORTGAGE HOLDERS. CIVIL DISOBEDIENCE HAS MET A BILLBOARD TO GUIDE DEFIANT BEHAVIOR. PUBLIC ANGER DIRECTED AT BANKS IS HUGE. $$$

The highly popular 60 Minutes show was aired on a topic widely called Fraudclosure, the contract fraud practices within the mortgage foreclosure process. Expect a public reaction steeped in defiance. The people are angry, and to date have had difficulty in appropriately directing their anger. Expect hundreds of thousands to scoff at banks when as homeowners they are badly underwater on their home loans. They see huge USGovt aid going to big US banks caught in bond fraud and foreclosure fraud but without prosecution. A curious analysis was performed on the shoulders of JPMorgan's analyst Michael Feroli. It can be quantified that the total volume of unpaid mortgages already defiant to their bankers is $50 billion per year, equal to 0.4% of GDP nationally. They simply squat in their own homes, awaiting bank action for delinquency. Many people figure they can escape the consequences for several months when just not paying anymore. The banks are often frozen in inaction themselves since foreclosure and short sale would result in a huge bank loss. Many banks are overwhelmed with foreclosures and have inadequate staff. Given the heavy volume of home loans in such status, banks are slow to react naturally. They are swamped, and in no rush to book a heavy loss case by case. Consider the public reaction to the popular television show, a horrendous exposure of widespread unchecked contract fraud that has not been legally addressed. This has come after multi-$trillion mortgage fraud in the bond market on top of the contract fraud at the grassroots level, with consequences finally to the cost structure as the world punishes the USDollar for the big US bank sins!!

Expect the scoffing of home loan payments from distressed homeowners, whether employed or not, to increase sharply. It would be a surprise if 12 to 18 months from now, that the volume on unpaid defiant mortgages had not reached $100 billion per year. The lesson taught is that paying mortgages when down & out is for suckers. Nationally there are 48 million mortgage borrower making payments, and 11.1 million underwater mortgages among them. They will be one step closer to throwing in the towel on feeding the mortgage monster, that great appendage to the financial crime syndicate in power. The public has been given a demonstration on a mechanism to strike back. The Jackass does not advocate illegal or improper action, but it should be expected. The pipeline is ripe and loaded for future foreclosures and home loss. A hefty 4.6 million mortgages are currently delinquent over 30 days. The potential for future scoffing among them is tremendous, and could actually work perversely to put more money in consumers hands. Bear in mind that the bank industry is actually considering a voluntary settlement package to work its way from under the legal penalty of their comprehensive fraud. They are considering a $20 billion settlement deal, including grants to homeowners, aid for legal counsel, and more. Any such gratuity to wiggle out of legal liability should be $1 trillion minimum, not a trifling $20 billion. The amount even pales against the potential of $100 billion in scoffed mortgage bills. See the Zero Hedge article (CLICK HERE).

The civil disobedience movement was first mentioned in the Hat Trick Letter several months ago. Its potential for systemic disruption was ripe. It has grown enough to qualify as being of critical mass. The refusal to pay on home loans, if done by a big enough slice of the nation's inhabitants, can be a very powerful action by the public to force a policy change, even a systemic change. It can be a radical disruptive social response. The entire credit dependent system could fold if a sufficient proportion of the population defied the banks on home loans, car loans, and credit cards, the backbone of the debt structure. The big US banks could retaliate by limiting cash dispensed at ATM machines. Expect it. The Jackass would never advocate such behavior, but theoretically it could result in magnificent and unexpected changes, emergency meetings by bank leaders, and major concessions toward true restructure, like home loan balance reductions in a broad manner.

◄$$$ HOME BUILDERS ARE BEING CRUSHED BY FALLING HOME PRICES, SHORT SALES, AND FORECLOSURE SALES. HOUSING DEVELOPMENT PROJECTS ARE CUTTING BACK. ON THE OTHER SIDE, LENDING INSTITUTIONS MUST LAY OFF WORKERS IN THE LOAN PROCESSING CENTERS. BOTH ENDS ARE IN RUINS. $$$

The competition between home builders and the heavily discounted sales from home foreclosures is fierce. The advantage of home builders is a structure free of damage, but with a certain number of niggling little initial problems from completion of the construction project. The banks are having a horrible time discriminating which properties are ready to sell, even at big losses, since so many are damaged, sabotaged, even vandalized. Some banks have yet to fully examine what is on their REO books of homes in inventory. The home builders across the board are facing profit slowdowns. Some have been processing large project liquidations, even from other builders. Some have been processing loans to Fannie Mae, as reported in past reports, in portfolio arbitrage processing conducted with FDIC blessing for big bank benefit. As the home prices fall on a national level far below construction costs, my forecast, any home builder will be very fortunate to remain in business. My forecast is for existing home prices to descend to a 20% or 30% discount below construction costs. The competition is fierce.

New home sales are at the lowest level in almost 50 years, having to compete against foreclosure sales. Home construction in the United States is coming to a virtual halt, almost the lowest in modern history. Sales of new homes plunged in February to an annual rate of 250 thousand, the third straight monthly drop. New home sales are just half the pace of 1963, despite 120 million greater US population. Small homebuilders are due soon to shut down. The median price of a new home is down to $202k, the lowest since 2003. The surge in foreclosures is forcing down prices for existing homes even faster than for new homes. New homes are becoming less attractive to buyers on a price basis. New homes have accounted for a mere 5% of all sales this year, a sharp decline from the typical rate of nearly 15%. Only 183 thousand new homes were available for sale in February, the smallest inventory supply in four decades. Builders have scaled back on new development projects, breaking ground on about 40% of normal volume. It is just plain cheaper to buy an existing home, many of which are selling below the seller's home equity. See the Tennessean article (CLICK HERE).

On the other side of the housing industry lies the lenders. Apart from their corruption in the bond market and the foreclosure document arena, they have business centers. Many are honestly run, others not. Basic economic deterioration, job insecurity, slightly rising mortgage rates, realistic appraisal processes, and tougher lending standards have conspirred to reduce consumer demand for home loans and refinancings. Wells Fargo has joined other industry leaders in making serious job cuts from the loan processor centers and other related workers. The San Francisco based bank, the biggest mortgage lender in the nation, has handed pink slips to about 1900 workers who had processed loans generated both by their own mortgage unit and by independent brokers. The notifications went out March 23rd telling affected workers their jobs would end in 60 days. The refinance volumes have declined by 60% while the prevailing 30-year rates have increased somewhat from 4.21% in October to the 4.93% currently. See the Calculated Risk article (CLICK HERE).

SCOURGE OF SHADOW INVENTORY

◄$$$ THE SHADOW HOME INVENTORY HELD BY USBANKS DECLINED BY A SMALL AMOUNT, AS MORE PROPERTIES WENT TO MARKET, COMPLETED AS SHORT SALES. A WHOPPING NINE MONTHS OF ADDITIONAL INVENTORY SUPPLY REMAINS IN THE OVERHANG, WITH 2 MILLION MORE HOMES SUFFERING 50% NEGATIVE EQUITY IN WAIT. $$$

CoreLogic has reported that the deeply damaging Shadow Inventory (sometimes called pending supply) declined sightly in the last month. Take no solace, since it still contains almost a year's worth of supply as a powerful overhang. The invisible inventory (not on Multi-Lists for realtors) still is very large, but it has reduced a little. The reason why is liquidations, which is how the market home prices fall. Homes have begun to hit the market hard. Their graph below is comprehensive, showing the estimated number of 90+ day delinquencies, the total home foreclosures, and the bank held REOs (from home foreclosure seizures) not currently listed for sale. Once listed for sale, a house is removed from the shadows. CoreLogic reported that the current residential shadow inventory as of January 2011 declined to 1.8 million units, representing a nine month supply. The count is down from 2.0 million units from a year ago. It is still critically high and being steadily supplied. Homes enter from the delinquency path, and exit from the short sale path. Be sure to know that the national statistics never include the shadow inventory in reported unsold inventory. The shadow supply has a huge flow still to come from the several million homes in negative equity. Some details. Of the 1.8 million unit Shadow Inventory supply, 870 thousand units are seriously delinquent (4.2 months supply), 445 thousand are in some stage of foreclosure (2.1 months supply), and 470 thousand are already in REO (2.2 months supply). In addition to the current Shadow Inventory supply, roughly 2 million loans strained by at least 50% negative equity will likely enter this shadow supply in the near future. See the Calculated Risk article (CLICK HERE).

◄$$$ THE SHADOW INVENTORY IS PROOF POSITIVE OF ANOTHER 20% DECLINE IN HOUSING PRICES IN THE USECONOMY, WHICH WILL RESULT IN CONTINUED DAMAGE FOR CONSUMER SPENDING POWER, FOR CORPORATE EXPANSION CAPABILITY, AND FOR BANK INSOLVENCY. HUGE PRESSURE FOR SYSTEMIC FAILURE LURKS IN ALL CORNERS OF THE USECONOMY. THE MASSIVE COST SQUEEZE HAS BEGUN, AND WILL INTENSIFY. $$$

The US housing market is destined to decline another two years or more, and suffer at least a 20% price decline, well below construction costs. A national disaster is in mid-course, nowhere near completion, sufficient to cause systemic failure and an inflationary depression. The housing reliance for economic growth in the United States from 2002 to 2006 was deeply rooted in asset bubbles, a house built on shifting unstable sands covered by a fraud-ridden finance cloud. The downside would ordinarily be very deadly to any economy. But the US shipped off much of its manufacturing base to China, seeking low-cost solutions in a truly suicidal mass movement directed by corporate chieftains, as part of a grand treaty with China. They received Most Favored Nation status. They received huge foreign direct investment, like $23 billion from the US & Canada in 2002 alone. They promised to recycle their anticipated outsized trade surpluses into USTreasury Bonds. But the kicker was secret, a key part of the deal. The Wall Street bankers took on lease a huge hoard of Mao Tse Tung Gold & Silver, to be returned by 2005. The US broke the deal, betrayed China, and earned their great anger. That is a main reason why the Chinese are motivated to pursue the Gold & Silver bullion market, to diversify their reserve holdings out of the USDollar, and to foment a global movement to provide an alternative reserve currency in the Yuan.

Back to housing. The downside to the housing bust has caused damage to the USEconomy, leading it into an unending recession. It has not ended. Worse, the lack of industrial capacity goes hand in hand with inadequate income from factory workers, always a key mainstay in any healthy economy. Thus the USEconomy cannot find its footing through industry during the decline, which should gather momentum into a catastrophic episode. The USEconomy is so imbalanced that its absent factory foundation will very likely enable a systemic failure. My forecast is for growing chaos and accelerating deterioration. Capital is burning from obscene monetary inflation. To think an entire national economy could derive a constant stream of income from an inflating asset like housing was utterly insane, not just reckless. It actually motivated in great part the launch of the Hat Trick Letter to warn Americans of a deadly trap that would unfold. The national response to the housing bust has been a colossal display of banker corruption and steered banker welfare from the USCongress, complete with extreme heavy handed power maneuvers by Goldman Sachs out of the commandeered USDept Treasury. The result has been failure in restructure, zero meaningful liquidations to the insolvent pillars in the banking industry, no prosecutions for bank and bond fraud, and a climax of monetary inflation to cover the USGovt debt in monetization, together with large rafts of mortgage bonds. Global anger and revolt resulted. Hence the systemic burst of cost inflation without matching higher wages. A massive squeeze has begun, very evident by later this year.

Hints of recovery will come like glittering stones in a vacant abandoned weeded lot. Expect the low-cost discounters like Wal-Mart and Costco to post some good sales reports, maybe even decent earnings. The people will seek discounts with eagerness turning to desperate motivation. The displaced upper class will turn to the discount stores. People will turn down the winter thermostats. They will turn up the summer air conditioner temperature settings. They will scale down their meat consumption. They will give up going to restaurants for the most part. Their entertainment budgets will be slashed. Difficult tradeoffs will be made to survive. The decision to stop paying the banks for monthly mortgages will be the basis of a populist uprising. Think in terms of massive shortages, social unrest, civil strife, class warfare, great dislocations, millions out of work, countless without homes, mortgage scoffing turned rebellious, rampant corporate shutdowns, widespread debt default, city & state debt defaults, and ultimately a USGovt debt default with restructure. Sadly, the policy decisions by the USFed and USGovt finance ministry has been to permit powerful price inflation, if not hyper-inflation, since it is considered more favorable to a deflationary collapse and exploding interest rates.

◄$$$ A BIG PARADOX FACES THE INFLATION ENGINEERS. THE HOUSING MARKET IS SET TO DECLINE HARDER AS THE USFED KEEPS PRESSURE ON THE MONETARY EXPANSION FROM QE2 AND THE NEXT QE3. THEY PURSUE INFLATION OF ASSETS, BUT CAN ONLY MANAGE TO LIFT STOCKS AND FARMLAND, OBVIOUSLY OUTRAGED BY A COMMODITY PRICE LIFT. THE BIG USBANKS ARE VULNERABLE TO THE NEXT PHASE DOWN IN HOUSING PRICES. ONE BIG USBANK IS LIKELY TO FAIL. HOME PRICES WILL FALL MORE. $$$

If the entire story were told, the inflation engineers are often directed by the oil industry on both foreign policy and monetary policy. The inside word the Jackass hears is that President Obama and numerous high ranking syndicate players have $billion investments in green renewable energy companies. They want a $150 crude oil price in order to kick into a higher gear their fledgling industry stuck in first gear. That is correct, Obama is a billionaire already, a byproduct of the rewards that came from being a selected (not elected) president with strong past allegiance to the CIA. Narcotics funds go a long way in not only keeping the big US banks running, but also in rewarding the syndicate chieftains. The leading narco barons have personal net worths exceeding $1 trillion. They purchase nations with their money, south of the Central American borders. Details will not be shared, since dangerous information. The Jackass chooses to forget.

Back to the housing market, and the perverse effect on home prices during the next phase. The rising wave of price inflation will not lift housing, whose market is totally wrecked. A home is a financial asset appendage with a debt millstone, not a hard asset. The market is beleaguered by a Shadow Inventory outlined in some detail. The current situation is entirely unique, gone global, since debt has saturated the Western world for more than a full generation. Real estate is not a tangible asset, but rather a toxic leveraged financial asset governed by the non-callable homeowner futures contract (mortgage). Its queer futures contract features the ability of the homeowner to abandon, which will happen in droves. The next chapter will be fascinating to observe, since the many asset classes will be divided up or down, on the effect from powerful inflationary pressures. The Deflationist clowns are incapable to discern which rise or fall. Pure tangible assets will rise and rise and rise, seemingly without end, since they are not encumbered by debt. The other debt related assets will continue to be crushed from basic debt default and liquidation. The price gains for farmland, crude oil, energy deposits, mine fields, and precious metal bullion have been and will continue to be astonishing, being pure assets without adulteration. Commodity related stocks are a difficult class to judge. Some will soar if not burdened by debt or heavy stock dilution to cover costs, not to mention jurisdictional confiscation. Others will languish. Many such stocks unfortunately are shorted by the hedge funds, some such activity funded by Barrick Gold. Recall that Barrick has two Boards of Directors, one being a mega-political agency Who's Who, including a narco baron.

The debate by the nitwits focused on Deflation will become amusing, as they will continue to be blind in ability to differentiate. For three years, they have yet to comprehend the complexity of the monetary hyper-inflation and its ravaging effects. They are like simpletons in the corner vying for attention, not noticing the strong winds, compounded by their own flatullence. In several months, the USEconomy should see some Cost Push with widespread end product price hikes but also some limited wage increases. But the cost push will mainly be in rising end product prices and service prices. The bankers and USGovt officials (puppets controlled by big bankers) will try hard to prevent wage increases, since their plan is Western slavery. THE ENTIRE COST STRUCTURE IS RISING, AND WILL SLOWLY KILL THE USECONOMY, VERY SLOWLY, unless wages are permitted to rise. My forecast is for wages not to rise much at all. A broad episode of systemic price inflation that included wage gains, uniformly applied across the USEconomy would force long-term interest rates up, trigger a credit derivative explosion centered in Interest Rate Swaps, and deliver a rapid death to the big US banks. So they prefer recession without adequate wage gains, which they call secondary effects in arrogant elitist terms. With millions out of work, the labor market will not see much rise in wages, except for pockets of specialties. With inflation, since it is primarily cost structure in its basis, the result will be massive inflationary recession, later turning into an inflationary depression. The Jackass foresees inflation and deflation working to create a massive even greater storm leading to ruin. For a more complete slam essay against the clueless wrong-footed hack Deflationists with considerable detail, check the Gold-Eagle article entitled "Deflationist & Blind Eyes" (CLICK HERE). Rick Ackerman was singled out for his arrogant shallow arguments weakened by blindness, delivered with no recognition of a past string of erroneous expectations.

The list of REO bank owned properties will continue to rise in a seeming never-ending fever for the bank executives, bond holders, and stock holders. The Shadow Inventory of bank held homes will become a cancer in every sense of the word, sufficient to keep the housing market in a persistent decline, and keep the banks deeply insolvent, even push them over the edge toward outright failure. At least one big US bank will fail before mid-2012, my forecast. Yet its failure will be disguised as an important restructure, like Citigroup dividing its many parts in a reversal of its insurance business. As the cost squeeze continues to render great harm to businesses and households, the businesses will make job cuts while the consumers will purchase less in a vicious cycle. The squeeze will be on working capital, which must pay the commodity tax imposed by the USFed in highly visible fashion from its debt monetization. Monetary hyper-inflation carries a heavy cost. The job cuts will result in further home loan delinquencies and foreclosures, more more home loan scoffing on payments. The people will simply not receive sufficient wage increases to compensate for the grand cost rise. The housing market will continue down in a deadly slow bleed.

The resulting economic nightmare will send home prices down another 20%, which will confuse the hell out of American economists. They will be too busy denying any price inflation in the midst of hyper-inflation. They will be too distracted by what they perceive as economic growth, which is actually price inflation unrecognized. Very little will rise in price that is wanted. Even farmland, in a powerful rise, will become a problem, since marginal acreage going into production must pay for the amortized cost of the newly bought land. Stocks will rise, but only to the extent that the USDollar loses value, in a net zero result. Eventually the resumed housing decline will force the big US banks to appeal for more bailouts from the USGovt. They will not be able to cover up the next round of heavy portfolio losses. They are already insolvent, and soon to be more deeply insolvent. Even the highest high priest Alan Greenspan realizes the next phase down in housing will cripple the big US banks, since as he points out, since many homes are on the edge of going insolvent, owing more on loans than the homes are worth. Millions more citizens will go into negative equity.

INFLATION MONSTER SHOWS ITSELF

◄$$$ ENERGY PRICES (LIKE FOOD) ARE A DIRECT REFLECTION OF MONETARY POLICY AND DO NOT RESPOND TO THE SUPPLY FACTOR. THE GASOLINE PRICE RISES RELENTLESSLY AND WILL CONTINUE TO DO SO. EXPECT THE PRICE RISE TO BE RELENTLESS AND TO CONTINUE FOR A LONG TIME WITHOUT ABATEMENT. $$$

Nobody can escape the fast rising gasoline prices. Hikes occur often more than once per week. Worse, the present sequence of months typically has the weakest gasoline demand of the year. The ramp-up in price is a direct consequence of the USFed monetary policy. The value of money is declining, so the price of everything is rising. Gasoline, like food, is very visible. In no way are the price effects a result of Supply & Demand dynamics for the product, but rather supply of money. The Cushing Oklahoma facilities are full to the brim at historic high levels, where the NYMEX light sweet crude contract is delivered. Their tanks are being bypassed. Fast rising gasoline prices coincide with the USFed monetary expansion. Chairman Bernanke intentionally is monetizing USGovt debt, to such a heightened degreee, that the overflow spillage has hit every single commodity including the energy products. His asset price initiative has lifted the stock market but it has also struck the commodity complex in its entirety. Housing is not an asset being lifted, not at all. The blunt instruments used by the USFed cannot be aimed, since they act like a firehose held without a firm grip by the good chairman. The USEconomy will respond in the usual way, either with vanished profit margins or higher prices. It cannot withstand these oil and gasoline prices without a sizeable contraction. Capital is squeezed, along with consumers. Observe less traffic and fewer shoppers, but more rage. Great systemic stress has begun and will intensify. The most visible areas are food and gasoline for the public. The gasoline price has risen in parabolic fashion, attracting great attention, the litmus test of failed USFed policy. The upward trajectory for gasoline will not be subdued until the USFed Quantitative Easing programs are halted. My forecast is that their QE programs will be permanent but made more hidden. Prepare for chaos and crackup.

◄$$$ THE COST PUSH HAS BEGUN TO APPEAR. THE PRICES PAID WITHIN THE MANUFACTURING CHAIN SHOW A STEADY RISE, BUT WITHOUT MUCH ATTENTION GIVE TO IT. SUPPLY COSTS ARE BEING PASSED ON. THE MONETARY POLICY HAS BEGUN TO BACKFIRE IN A VERY PREDICTABLE MANNER. $$$

The recent Institute for Supply Mgmt report showed a cost push in the Prices Paid component. It went from 82 to 85 but without notice or fanfare. That is a warning unheeded, very elevated and with no sign of letting up. Business inventories are also below normal, which implies that retailers are delaying the re-stock process, hoping for a lower price later. So supplier costs are rising when their own inventory replenishment demand is restrained. New orders are also down from last month. Order backlog is down. The squeeze has begun on profit margins and it will cause pain very quickly. Suppliers cannot absorb the higher costs, and vendors cannot push the suppliers under siege to eat the costs. Inflation expectations will be soon damaged deeply. The typical billboard message will be denial followed by admission that nobody could have anticipated the price inflation monster being unleashed. The Hat Trick Letter anticipated it completely, but few in the mainstream did. Witness the toxic fruit of banking and monetary policy, an easy call several months ago. See the Market Ticker article (CLICK HERE).

◄$$$ PRICE INFLATION HAS ALREADY ARRIVED IN THE USECONOMY. THE WAL-MART EXECUTIVES AND THEIR FOLLOWERS ARE WELL AWARE. NOTICE THEY ARE NOT FEATURED ON THE NEWS NETWORKS MUCH. PRICE INFLATION IS COMING FROM SEVERAL CORNERS (MATERIALS, SUPPLIERS, SHIPPING, AND FOREIGN EXPORTERS) TO THE USECONOMY. THE MAJOR RETAIL CHAIN IS THE FLAGSHIP, THE CANARY, THE BILLBOARD. $$$

Wal-Mart is an accurate gauge of the USEconomy, since it is so large and dominant as a retail chain, the world's biggest. CEO Bill Simon expects price inflation, serious inflation in his works, in the months ahead for clothing, food, and other products. Despite being in a better position than competitors to minimize the price effects, still Simon expects price inflation to be serious. He said, "We are seeing cost increases starting to come through at a pretty rapid rate. We are in a position to use scale to hold prices lower longer, even in an inflationary environment. We will have the lowest prices in the market." Some prices were increased as the company paid for costly store renovations. The major chain is famous for low prices. When their price structure rises, then all retailers will have raised theirs too. The modest price inflation figures promoted by the USGovt propagandists and Wall Street shills will turn upward, even after their usual gimmicks to soften through adjustments. The Wal-Mart business incorporates the cost effects from numerous factors, as suppliers must deal with higher input material costs. Foreign vendors export their finished products, largely from 160 Chinese manufacturing plants owned entirely by Wal-Mart. The higher shipping costs are built in also, passed along.

John Long is a retail strategist at Kurt Salmon. He believes raw material costs will be joined by labor costs in China and fuel costs for transportation globally, to put great pressure on retailers. He predicts prices will start increasing at all retailers in June. He said, "Every single retailer has and is paying more for the items they sell, and retailers will be passing some of these costs along. Except for fuel costs, US consumers have not seen much in the way of inflation for almost a decade. So a broad based increase in prices will be unprecedented in recent memory. [Wal-Mart can mitigate some cost increases from] access to any factory in any country around the globe. It is certainly going to have an impact. No retailer is going to be able to wish this new cost reality away. They are not going to be able to insulate the consumer 100%." See the USA Today article (CLICK HERE).

◄$$$ FOOD PRICE INFLATION HAS ARRIVED IN FORCE, IN THE FORM OF REDUCED PACKAGING. CALL IT CONTAINER SHRINK. VENDORS CAN KEEP THEIR PRICES FIRM, BUT THE SMALLER SIZE IS EASILY NOTICED. LATER ON THIS YEAR, THE WIDESPREAD PERCEPTION WILL BE OBVIOUS, AND GIMMICKS WILL NOT WORK. PERCEPTIONS ARE CHANGING FAST ON PRICE INFLATION. $$$

Whether potato & corn chips, candy, or vegetables, even restaurant portions, packages are being reduced so as to maintain the price per unit. The unit is shrinking, a backdoor maneuver of price inflation imposition. Food price inflation has been kept somewhat hidden through the use of smaller packaging. Vendor companies in recent months have tried to camouflage price increases by selling their products in smaller packages. The changes are most visible at the grocery stores and supermarkets, where shoppers pay the same amount, but buy less. The cases are numerous for the package stories. Bags of Doritos, Tostitos, and Fritos now hold 20% fewer chips than in 2009. Whole wheat pasta packages have gone from 16 ounces to 13.25 ounces. Many canned vegetables dropped to 14 ounces from 16 ounces. Baby wipes went to 72 from 80 per box. Sugar sacks are 4 lbs, no longer 5 lbs. Cans of corn have gone from 16 ounces to 11 ounces. A can of Chicken of the Sea albacore tuna is 5 ounces, instead of the former 6 ounce version. Kraft Foods packages for its Nabisco Premium saltines and Honey Maid grahams each have 15% fewer crackers than the standard boxes. Procter & Gamble promotes its Future Friendly products, which use 15% less energy, water, or packaging than before. They are more environmentally friendly, but they are also smaller packages. The standard size for Edy ice cream went from 2 liters to 1.5 liters in 2008, long ago. Tropicana shifted to a 59-oz carton instead of 64-oz last year, after the cost of oranges rose. The Jackass has notice at Kentucky Fried Chicken in Costa Rica, that the chicken thighs are smaller and the coleslaw cartons in combo meals are a little smaller. So a swap to domestic restaurant chain has worked well, where ample servings continue.

At HJ Heinz, prices on ketchup, condiments, sauces, and Ore-Ida products have already been increased, without apology. Heinz CEO William Johnson is a straight shooter. He said in March, "I have never regretted raising prices in the face of significant cost pressures, since we can always course correct if the outcome is not as we expected." Where companies cannot change sizes, like with clothing or appliances, they have warned that prices will be going up, as the costs of cotton, energy, metals, and other materials are rising. The effect is sneaky. Comparisons for same sized packages are no always possible, before and after. The USGovt agencies will probably skip the adjustment for volume altogether, grateful for the vendor maneuvers. Gimmicks like greener for the environment, or handier for carrying, or healthier with fewer calories are common. But for necessities, such games fall flat. John Gourville is a marketing professor at Harvard Business School. He said, "Consumers are generally more sensitive to changes in prices than to changes in quantity. And companies try to do it in such a way that you do not notice, maybe keeping the height and width the same, but changing the depth so the silhouette of the package on the shelf looks the same. Or sometimes they add more air to the chips bag or a scoop in the bottom of the peanut butter jar so it looks the same size."

Thomas Alexander is a finance professor at Northwood University. He admits that businesses had little choice these days when confronted with increases in the costs of their raw input supplies. He said, "Companies only have pricing power when wages are also increasing, and we are not seeing that right now because of the high unemployment." Thus the massive squeeze. The bright side is that overweight Americans could be forced onto a cost driven diet. With prices for energy and for raw materials like corn, cotton, and sugar advancing and expected to surge even more later this year, companies soon will not be capable of concealing the price hikes. The perceived inflationary effects are slowly becoming obvious. The smaller packaging is not exactly subtle. They have been shrinking by noticeable amounts. See the Yahoo Finance article (CLICK HERE).

THE SQUIRMING USECONOMY

◄$$$ USECONOMY IS ALREADY OVER THE CLIFF'S EDGE, LED BY HOUSING. EARLY IN THE 2000 DECADE, THE ENTIRE USECONOMIC GROWTH MOMENTUM WAS DERIVED FROM THE HOUSING & MORTGAGE BOOM (ACTUALLY PHONY BUBBLE). INDUSTRY DEPARTED THE NATION, NOT NEEDED DUE TO THE RELIANCE UPON THE PROPERTY MARKET WITH ITS CREDIT LEASH. THE CURRENT 2010 DECADE WILL SEE UNINTERRUPTED MOVEMENT TOWARD SYSTEMIC FAILURE, DRAGGED DOWN BY THE RELENTLESS POWER OF THE FALLING HOUSING MARKET. SOON HALF THE HOME SALES WILL BE WITHIN THE FORECLOSURE PROCESS. IF BANKS SOLD THEIR INVENTORY, THE PROPORTION WOULD BE LIKE 70%. WITNESS A TOTALLY BROKEN MARKET THAT DRAGS THE NATION INTO THE ABYSS. $$$

Given the very heavy reliance upon the housing & mortgage finance markets for USEconomic growth, it stands to reason that the down ramp will be powerful. Its power is amplified by both momentum and the absence of the industrial sector that largely went to China. So in the void, the national economy faces the heightened risk of systemic failure. The main engine (home equity, mortgage bonds) are in strong decline, whose descent is made much worse by the missing legitimate income from factories in an industrial base. Worse, US leaders do not comprehend the entire concept of legitimate income or how to build industry that creates jobs. They only know household handouts, dumb stimulus, and bond fraud. The USGovt leadership is a combination of the dumbest (on economics) and most corrupt (on integrity) in the Western world. The USEconomy pays the heavy price, along with the US people. Its crippled financial foundation is already over the edge, facing the nasty specter of another financial meltdown. No solution, no remedy, no reform, no attempt even at legitimate business stimulus was made. Thus the risk of a return to deep crisis is assured. Housing will deliver the blows, echoed with certainty by the mortgage sector. The banks hold huge shadow inventories from foreclosure seizures, too many of which have been vandalized or damaged in non-trivial ways. Two weeks ago, Jim Sinclair offered details why the nation is already way over the edge right and why gold is going much higher in price. Here are some important items selected from his post. He wrote,"You must realize that the economic and political damage is already done. You must realize that the mountain of OTC derivative paper is not going away. You must realize that this means the mountain of OTC derivative weapons of mass financial destruction can only grow. You must realize that it is not whether or not QE will continue, it is what it already has done to the Western economies that much higher gold prices will reflect. You must realize the monumental change in the Middle East is NOT positive for the West in any manner, shape or form. You must realize that it is the currency that breaks, not the country." The USDollar is destined to render relentless ruinous harm to the USEconomy and US people.

The alarm bells are ringing. Systemic failure awaits. The USGovt is on a fiscal path towards insolvency, matched by grotesque insolvency in the banking system, in home equity, and in absent industry. Policymakers are at a critical tipping point, facing runaway deficits and no way to finance them except from hyper-inflation on a monetary press. It is merely a matter of when the insolvency catches up to the nation in its financial standing. The USFed with its ready Printing Pre$$ can do only so much. When it converts into a fixed policy machine, the credibility of the USTreasury Bond and its USDollar marking become subject to attacks, since integrity has gone. And confidence is extremely critical, the linchpin, in a fiat faith based system of currency. Confidence and prestige in the US Federal Reserve have vanished during the successive phases of Quantitative Easing, more of which will come despite denials.

The impetus for that precise push over the cliff could easily come from the housing market, even while the banks hide their toxic paper tethered to real estate. For a description of cliff dynamics, consider comments by John Williams of Shadow Govt Statistics. In his latest report, Williams says, "Both existing and new home sales moved sharply lower in February 2011, down 9.6% and 16.9% on a monthly basis. Foreclosure activity remained an intensifying distorting factor for home sales, with Distressed activity accounting for an estimated 39% of existing sales in the National Assn of Realtor's February reporting, the highest portion seen since Spring 2009, and up from 37% in January. [Look for an] intensifying double-dip recession and a rapidly escalating inflation problem."  If 4 out of every 10 homes sold are foreclosures, then that market is surely fractured and broken! A record one million homes were foreclosed by the banks in 2010, and another record breaking year in 2011 is a certainty given the expired clunker home program, err the tax credit program. The housing market serves as a massive wet blanket on the USEconomy attempting any recovery. It more accurately is a two-ton millstone around its neck, as the USGovt corrupted clowns fiddle over miniscule budget cuts. The Ryan Budget Plan has substance, with $4 trillion in cuts, is worth watching. The leaders operate near the cliff's edge. Remember that protection for both individuals and corporations is best taken in the form of defensive measures against the twin threats of the USTreasury Bond and the USDollar. Each faces ruin with staggering consequences. The former is careening out of control with a flood of supply and artificial demand. The latter is descending into a Banana Republic status with its twin lapel pins being fraud and war. The following graph is downright scary, thanks to the Shadow Stats folks. The share of home sales from foreclosures is almost at 40%. It would be above 70% if the banks actually tried to sell what they hold on their balance sheets at mythical exaggerated value. See the USA Watchdog article (CLICK HERE).

◄$$$ THE USECONOMY MOVED TOWARD A FINANCIAL SECTOR DOMINANCE IN THE LAST THREE DECADES. THE RESULT HAS BEEN A PROFOUND LOSS OF WEALTH AND INCOME CAPACITY. WITNESS THE BITTER FRUIT OF INFLATION MISMANAGEMENT. US CITIZENS HAVE BECOME MORE DEBT RIDDEN IN RECENT YEARS. PERSONAL INCOME DECLINED IN JANUARY EVEN WITH THE SUBSTANTIAL BENEFIT FROM CHANGES TO F.I.C.A. TAX WITHOLDINGS. $$$

The Chinese economist was correct when he said the USEconomy is only $7 trillion in activity if one strips out the worthless destructive financial sector and its many branches. Financial engineering is destructive of capital, jobs, income, and investments. The American standard of living, and the national course, changed paths in the early 1980 decade. A temporary lift came in the Reagan cold war boom years in the 1980 decade. Inflation ate away most of the wage gains, which in my view are falsely portrayed in national statistics. Too little inflation is adjusted and removed from wages, too little to reflect the reality of heavy price inflation and its erosion. A clear line of demarcation is evident at the end of the 1970. The nation shifted from a manufacturing and production to a financial and service based society. Whether through the lens of GDP, debt, income, saving, or consumption, a notable decline in national financial health is obvious, since the 1980 decade. Wealth continues to decline. See the Zero Hedge article (CLICK HERE).

Real Median Household Income, which is calculated using the spurious government sponsored CPI, has not grown in 14 years. That means it has fallen in the world of reality in which we live. Since the tech telecom bust of 2000, incomes have fallen hard, worse when proper inflation adjustments are made. For instance, the official CPI reports a 2.5% to 3.0% CPI nowadays, when the Shadow Govt Statistics report a 9% CPI that is rising.

Furthermore, the average US family household net worth declined 23% between 2007 and 2009, according to the venerable US Federal Reserve. A rare survey by them of US households, initially performed in 2007 but repeated in 2009 in order to measure the effects of the recession, was titled "Surveying the Aftermath of the Storm." It concluded the median net worth of households fell from $125k in 2007 to $96k in 2009. The 2008 financial crisis resulted in the vaporization of $trillions in household wealth, primarily extended from home equity value declines. The numbers paint a stark picture. Families that owned stock portfolios saw them lose more than one third in value, from $18.5k to $12.0k on average. Families took on more debt, running up total debt levels to $75.6k from $70.3k in median. Median household income declined to $49.8k from $50.1k per year.

In February, personal income increased $38.1 billion (=0.3%) while disposable personal income increased $36.0 billion (=0.3%). This according to the Bureau of Economic Analysis. In January, personal income increased $147.4 billion (=1.2%) while DPI increased $92.0 billion (=0.8%), as food & energy costs mounted to make an impact. Bear in mind that January pocket money in households was significantly boosted by the tax changes for FICA, the Social Security Tax that is not deductible. The benefit to individuals flows directly to the federal deficit. But real disposable income decreased 0.1% in February, in contrast to an increase of 0.5% in January. That means inflation adjusted income. Put aside that the adjustment is not adequate, and simply make comparisons. So money available to spend for households fell despite the one-time gift from the liberal FICA grant. The end result is still a loss in purchasing power. The January change in personal contributions for government social insurance reflected the Tax Relief, Unemployment Insurance Reauthorization & Job Creation Act of 2010, which temporarily decreased the social security contribution rate for employees and self-employed workers by 2.0% for 2011, an effect of $105.4 billion in January.

Rather than reform oppressive federal regulations, or cut the war spending, or encourage a return of the factories, they gave yet another handout that was overwhelmed by the rising food & energy costs which resulted from two full years of $trillion subsidies to the fraud-ridden broken unfixable big US banks. What a travesty! The USGovt specializes in meaningless fleeting handouts. A quick comment on the $105.4 billion change in tax receipts in one month. The Congressional Budget Office estimated the FICA benefit to add $400 billion to the deficit for the full year. One cannot extrapolate the figure to twelve full months. The USGovt might be in for over half a $trillion on the FICA grant to households. The nitwits in the USCongress are arguing forcefully and deliberately over peanuts in a mere $60 or $100 billion in spending cuts. They have gone so far as to propose $65 billion in defense budget cuts, a drop in the depleted uranium bucket, which will be compensated by two months worth of narcotics profits. Furthermore, recall that January is not a typical month, since so many annual bonuses are paid out in the first month. See the payroll withholding tax chart from last month, with January high outliers.

◄$$$ GOVERNMENT WORKERS DOMINATE BY 2:1 THE MANUFACTURING INDUSTRY IN THE UNITED STATES, A TOTAL REVERSAL FROM 50 YEARS AGO. THE GROTESQUE IMBALANCES FROM FINANCIAL FACTORS HAS A CORRESPONDING IMBALANCE IN INDUSTRY. THE BIG GROWTH IN THE GOVT SECTOR GOES HAND IN HAND WITH INEFFICIENCY, BLOCKED COMPETITION, AND JOB SECURITY (OFTEN FOR LIFE). $$$

In the last 50 years, tremendous distortions have been built into the USEconomy. The legitimate income producing sector of manufacturing has seen over a 35% reduction since its peak in 1980. The so-called clean financial revolution turned out to be a ticking time bomb that largely destroyed the national economy, turning the nation into an insolvent land. The government sector jobs have tripled in 50 years, hardly a healthy sign. Today nearly twice as many people work for some part of the government (22.5 million) than in all of manufacturing (11.5 million), almost the exact reversal of the situation in 1960. At that time, 15 million workers plied their trade in manufacturing and 8.7 million performed a service for the government. The perspective worsens. More Americans now work for the government than work in construction, farming, fishing, forestry, manufacturing, mining, and utilities combined. We have moved decisively from a nation of makers and tradesmen to a nation of takers and bureaucrats. Not surprisingly, many states and cities cannot maintain their solvency, and are in unrecoverable debt.

California, with the highest budget deficit in the history of all states, has an incredible 2.4 million government employees on the payroll, twice as many as in manufacturing. New Jersey has a 2.4 to 1 ratio of government employees to manufacturing. The ratio in Florida is over 3 to 1. The New York ratio is also over 3 to 1. The state of New Mexico wins the prize with more than six government workers for every manufacturing worker. The numbers are truly staggering. In New York for instance, the financial sector employs roughly 670 thousand people. That is less than half of the state's 1.48 million government employees. In recent years only government agencies have been hiring, and better yet, they offer near lifetime security. People regard such things as attractive in a rotten economic climate. They would rather work at the Dept of Motor Vehicles, than in making cars. They would rather issue orders for workplace safety than actually work in a factory. To be sure, some of the employment trends can be explained by the benefits of productivity improvements in such traditional industries as farming, manufacturing, and telecommunications. These produce far more output per worker than in the past. Today's farmers produce at least three times more output than in 1950.

The productivity decline is painfully evident in government functions. From 1970 to 2005, school spending per student adjusted for inflation has doubled, but at the same time standardized achievement test scores were flat. Over that same time period, public school employment doubled per student, according to a study by researchers at the University of Washington. This is rampant negative productivity. Consider mass transit. Its agencies spend more every year and yet a much smaller share of Americans use trains and buses than in past decades. The private sector has companies spur productivity by releasing under-performing employees and rewarding excellence. In government employment, in high schools and even in universities, tenure shields workers from this basic system of reward and punishment. The teachers and civil servants enjoy near lifetime employment with security in a system that tends to breed mediocrity. Competitive contracts are a non-entity in many government functions, often stifling cost containment. Unions have blocked a great many efforts. See the Wall Street Journal article (CLICK HERE).

◄$$$ JOB GROWTH DURING THE SUPPOSED USECONOMIC RECOVERY IS ANEMIC AT BEST, AND MYTHICAL AT WORST. A GROWING NUMBER OF PEOPLE ARE BEING REMOVED FROM THE WORK FORCE, THUS GENERATING SOME FAVORABLE STATISTICS. HENCE THE BILLBOARD PROPAGANDA DEPENDS UPON HOUSEHOLD FAILURE FOR FAVORABLE STATISTICAL EVIDENCE. THE SIMPLEST STATISTICS MEASURES ARE THE MOST ACCURATE, AND THEY INDICATE THE ONGOING RECESSION IS ELIMINATING JOBS STILL. $$$

If every single discouraged job-seeking jobless worker would only quit looking for work, the US unemployment rate would go to 0% and the US leaders could campaign on a grand success!! Let's look at the reality. The labor market statistics grow worse in a festering manner as the years pass, a reflection of the housing market. The USEconomy in 2007 had 146 million workers employed, or 63% of the working age population. In early 2011, only 139.9 million workers are employed, or 58.5% of the working age population. Over this time frame, an additional 7.1 million Americans entered the working age population. That is great movement in reverse during a supposed recovery. In 2007 a ripe 26.3 million Americans were on food stamps, or 8.6% of the total US population. Now a higher 44.2 million Americans are on food stamps, or 14.3% of the US population. This is the bitter fruit of a chronic engrained economic recession, whose disaster is called in pure Orwellian style a recovery. Let's trot out that often shown comparative chart of job growth from the recesion nadir, its low point. One can see that almost no recovery at all has occurred, and the job losses continue. Debt saturation and busted asset bubbles have wrecked much damage, while bank leaders seek to promote the final asset bubble, USTreasury Bonds. The USGovt claims fewer job losses than before, when in reality more people are falling completely out of the job market and not counted any longer. Witness a repeat of the Great Depression in modern terms.

The recent March Jobs Report made the argument that 216,000 jobs were added, trumpeted proof of a recovering USEconomy. Balderdash, bullocks, and bull cookies! The unemployment rate fell to 8.8%, down from 9.8% in April 2010, made possible by 2.8 million Americans who left the labor force. Hardly a success note. Focus on the labor Participation Rate, that handy device produced by the Clinton Admin, where the roots of statistical deception can be traced easily. They oversaw the Decade of Stolen Prosperity. The percentage of Americans in the labor force at 64.2% is the lowest since 1983. The employment to population ratio of 58.5% is also the lowest since 1983. These obscenely horrendous labor figures are the bitter fruit of a falsely reported USEconomic recovery after 18 months. The weekly unemployment claims remain steady around the 390 thousand level. Games continue with revisions of the previous weeks so that the next data release can be called a reduction. Games continue to changes to the seasonal adjustment process so that a desired result can be reported.

The percentage of the American working population in the workforce consistently ranged between 66% and 67% from 1998 through 2008. The current situation is 2% below the norm. The true jobless rate is over 22%, a figure defended by the Shadow Govt Stats folks. Counting the discouraged workers, a more meaningful unemployment rate is closer to 17%. The jobless proportion of the population (in black) gives a more accurate reading on the labor market, free of chicanery and gimmickry. For a better perspective, consider that the nation has only 1.8 million more people employed than at the depths of this Greater Depression. The working age population has grown by 3.2 million people since 2009. However, the civilian workforce has declined by 736 thousand over this same period of time. In the graph below, notice the drop in the Jobless Rate (in red) comes at the direct expense of the Participation Rate (in blue). The Obama Admin leans on the theory that people are returning to school, seeking training, raising children with a parent at home, and depending upon their working spouse who thrives. They say some decide finally to retire. This is all propaganda and weak kneed lies. All respected studies reveal that Boomers have not saved enough to retire and will be forced to work into their 70′s and beyond.

◄$$$ THE FOOD STAMP PROGRAM HAS CREPT UP TO YET ANOTHER RECORD OF POOR AMERICAN PARTICIPANTS. THE NATION STEPS CLOSER TO THE THIRD WORLD. THE SWOLLEN RANKS OF PEOPLE IN NEED OF SUBSISTENCE AID HAS GROWN BY 22% IN THE LAST 2-1/2 YEARS SINCE THE RECESSION SUPPOSEDLY ENDED. $$$

More Americans dropped below the poverty level threshold last month, a count measured at 105 thousand people. The total Food Stamp program participation in January hit an all time record 44,187,831 according to the USDept Agriculture. The average monthly benefit on a per person and per household basis, has been in decline for two years straight. The benefit from which to buy food is at the lowest level since April 2009. A fast growing number of Americans are living on government subsistence, as they receive the lowest aid since 2009, equal to $133 per month. And worse still, with rising food prices, that monthly stipend does not go as far as it used to, not to mention gasoline prices. An all-time high of 44.2 million Americans and 20.7 million households are in the food stamp program. This is 14.3% of the American population and 18% of all the households. Since the mythical end of the economic recession in late 2009, the number of people added to the Food Stamp rolls has increased by 8 million, equal to 22% of the national population. The annual cost for this program will reach $70 billion this year, up from $33 billion in 2007. The data makes liars of all those who claim an economic recovery. Consider it the echo from the housing market wreckage, which is also not in recovery.

Thanks to the following for charts StockCharts,  Financial Times,  UK Independent,  Wall Street Journal,  Zero Hedge,  Business Insider,  Calculated Risk,  Shadow Govt Statistics,  Market Watch.