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

* Miscellaneous Morsels
* The New Year Filled with Chaos
* Breakdown in the United States
* USTreasurys & Budget Battle
* Big USBanks Lose in Court
* Housing Recognized in Decline
* Economy in Transition for Inflation


HAT TRICK LETTER
Issue #82
Jim Willie CB, 
“the Golden Jackass”
12 January 2011

"I do not see why anybody is playing chicken with the debt ceiling. If we get to the point where we damage the full faith and credit of the United States, that would be the first default in history caused purely by insanity." ~ Austan Goolsbee (new chairman of the US Council of Economic Advisers)

"If we are forced to do some [emergency actions] again, these measures could delay the date by which the limit is reached by several weeks. Once these steps have been taken, no remaining legal and prudent measures would be available to create additional headroom under the debt limit, and the United States would begin to default on its obligations." ~ Treasury Secy Timothy Geithner

"Online sales have to lead you to question the whole retail selling strategy. We have 21 square feet of selling space for every man woman and child in this country. We already have double of what we need. With the explosion of online sales, what happens to all these retail malls and shopping centers which are marginals? Huge changes are going to be taking place as people continue shopping online. A revolution in retail is coming in both size and location of stores, a trend almost starting with the advent of much smaller Wal-Mart stores" ~ Howard Davidowitz (retail analyst expert)

"Get some gold, beans, water, anything that Bernanke cannot destroy. Ron Paul is right. We are entering a global monetary conflagration. If a sell-off of USTreasury bonds starts, it will be an Armageddon." ~ David Stockman (Office of Mgmt & Budget, Reagan Admin)

"The extraordinary efforts and attempts to save the big US banks will be the precise policy that leads to systemic failure and the USTreasury Bond default, all in time." ~ the Jackass (quoted by USA Watchdog)

MISCELLANEOUS MORSELS

◄$$$ HAT TRICK TIP OF RESPECT TO AUSSIE & NEW ZEALAND. THEY HAVE A VERY HIGH PER CAPITA REPRESENTATION TO THE NEWSLETTER CLIENT BASE. ALSO, THANKS TO ALL FRIENDS FOR ANOTHER YEAR OF SHARED DATA, OPINIONS, ARTICLES, AND INFORMATION. $$$

The Hat Trick Letter client base consists of 76.1% United States, 11.8% Canada, 6.9% Europe, and 5.2% Asia. The Asian count includes Australia and New Zealand, whose total of subscribers actually equals that of England and Germany. Bear in mind that the population of the pair of nations Down Under is small at 27.0 million, while the latter pair in Europe claim a population of 132.0 million. Clearly, the Aussies and Kiwis have a deep interest in both the commodity world and the precious metals arena. Despite being one-tenth the size of the USA for as long as memory serves, Canada maintains almost a 6.5/1 ratio with their more stout American neighbors in client counts. The Canadians have always kept a strong interest in commodities, especially energy. The name that borrowed the hat trick term from hockey was done with respect to Canada and their national sport. The Jackass don't do hockey, but respects the great skating talent. The editor has a love for football, soccer, baseball, basketball, and track. On a personal level, the sports over my adult life have been geared to softball, tennis, cycling, running, swimming, weightlifting, and billiards. The name hat trick has always been way cool.

◄$$$ USGOVT DEBT LIMIT EXTENSION MUST BE DECIDED THIS SPRING. MAJOR SHOCKS COME. THE ANNUAL FEDERAL $1.5 TRILLION DEFICIT HAS BECOME A FIXTURE. BUDGET CUTS WILL REVEAL THE TRUE NATIONAL PRIORITIES. $$$

Assessments have begun. Those in charge of the federal budget process are making frightening statements about catastrophe, in the event the USGovt debt ceiling limit is not raised. The attention given to the conflict is certain to bring more tarnish to the debt, the deficit, the bond securitization, and the methods used to finance the debt. It is all horribly negative. Austan Goolsbee is the new chairman of the US Council of Economic Advisers. He said if Congress fails to approve the debt ceiling hike, the "impact on the economy would be catastrophic. I do not see why anybody is playing chicken with the debt ceiling. If we get to the point where we damage the full faith and credit of the United States, that would be the first default in history caused purely by insanity." HE MENTIONS THE WORD DEFAULT!! The legal limit of $14.3 trillion on the USGovt debt is expected to be reached and surpassed by the end of March. Battles on the USCongress floor will rage, where members will demand tough budget cuts in exchange for their votes to raise the cap on federal debt. Movement to hit the debt limit continues at a brisk pace, due to the annual $1.3 to $1.5 trillion deficits that have become mainstays. The Obama Admin task force, the Debt Reduction Panel, is a joke. Not two months after their findings were released and discussed, the President announced a costly tax bill for a economic stimulus. Whether urgently needed or not, whether well fashioned or not, the deficit will rise.

The traction from USEconomic response to policy change is in my view very minimal, since it lacks a critical mass of an industrial base, and remains subject to asset bubble temptations amidst continued but sputtering speculation patterns. The plan from the task force would have increased taxes by $1 trillion by 2020 by scaling back or eliminating hundreds of deductions, exclusions, and credits such as homeowners to deduct interest on their mortgage payments. It would also have cut individual and corporate income tax rates in offset. The time between reached limits has turned shorter. What used to be four to six years has become one to two years before the next debt limit extension becomes required. See the Bloomberg article (CLICK HERE). The historical QE2 monetary printing exercise coincides with the chronic outsized USGovt deficits, a clear sign that the USTreasury market lacks legitimate buyers. Witness the modern day Weimar Olympic monetary champion, printer of free money at no cost, just ruin. The money spew exits where excrement paper of diminished value is thrust into the system, and wherever it touches, capital dies, like an anti-matter fertilizer.

◄$$$ EVIDENCE OF THE UNITED STATES SLIDING INTO THE THIRD WORLD IS STACKING UP. THE ECONOMIC AND DEMOGRAPHIC AND TRADE INFORMATION IS ALARMING. WITH RISING INTEREST RATES AND STATE IMPLOSIONS, TOGETHER WITH USGOVT DEFICITS THAT CANNOT BE FINANCED, EXPECT AN ACCELERATION IN THE RAMPANT AGGRAVATED DECLINE. THE  BATON OF DOMINANCE IS SLOWLY BEING PASSED FROM THE UNITED STATES TO CHINA, AMIDST A GROWING TRADE WAR AND HEIGHTENED FRICTION. $$$

The amazing aspect of collapse is that if it occurs slowly, people tend not to notice the overall trend and pattern. The analogy is a frog that does not notice being boiled alive in a kettle atop a kitchen stove. Snapshots every six to twelve months would be far more shocking, rather than the daily slide. Warning signs abound like rising long-term interest rates, threats of downgrade for USGovt debt, lack of improvement in the job market, continued home foreclosures, rising food and gasoline prices, cities and states going bust in their finances, vanishing pensions, the isolation of the props to the stock market, and new dependence of the USTreasury market on QE2 monetary printing, the continuation of the costly endless wars, birds falling dead from the sky, fish washing up dead on the shores, and the further erosion of rights at airports, banks, and foreign embassies. A sense of malaise has gripped the nation, but not loud open alarm like what is seen in Europe. A collage of ugly signposts was collected in a blur that goes without attribution or credit, captured by a friend who shared the list. The United States in my view is at a tipping point in its slide to the Third World, which at the same time indicates a slow motion internal collapse. In the last 20 years, the US prison population has jumped five-fold from 480 thousand to over 2.5 million last year. The incarcerated inmate count coincides with monetary inflation since the Vietnam War. It is the largest jail population in the world, both in raw count and as a percentage of overall population. Considering the total number of people in jail and all those on probation, find 1 in every 30 US citizens in the prison system a highly disturbing statistic. The prison count for citizens should be taken in direct contrast to the high end agenda of heroin and cocaine production and trafficking conducted by the security agencies.

According to an shocking new poll, fully 40% of all US-based medical doctors plan to exit the profession over the next three years. The official USGovt reported unemployment rate has been above 9% for almost two years. The under-employment rate has been over 15% almost that entire time. The US Census Bureau estimates 6.3 million American homes are currently vacant, either for sale or for rent. At the end of the third quarter of 2010, a wretched 22.5% of all residential mortgages in the United States were in negative equity, with loan balances in excess of the home value. The US monetary base has more than doubled since the last recession, but with no economic recovery. Large US states are scrambling to avoid debt defaults, like California and New Jersey and Michigan. Innovation has reached the desks of governors and mayors. The California Governor Jerry Brown wants to find $29 billion in budget cuts. The New Jersey Governor Christie plans to cut state pensions, out of necessity, not authority. Detroit Mayor Dave Bing (former pro basketball player) wants to cut 20% of Detroit off from essential social services such as road repairs, police patrols, lit street lights, and garbage collection. Camden New Jersey is preparing to furlough half its police. All across the United States cities and boroughs, local governments have begun instituting police response fees. In New York City for instance, a plan is in proposal for a $365 fee to be charged if police are called to respond to an automobile accident where no injuries are involved. If injuries are involved, the fee would be much higher.

The full year 2010 bilateral trade deficit with China could reach $270 billion dollars. What was once 7.2% for American blue collar jobless in 2000, has reached 19.5% today. The Chinese foreign exchange reserves total $2.65 trillion, the most eyepopping data point on global imbalances. The US middle class is shrinking, down 10% since 2000. The number of middle class jobs has fallen during the decade from 72 million to 65 million. The United States employs the same number of people in manufacturing as it did back in 1940, but the population has risen from 132 million to over 300 million people today. Older Americans must continue to work if to survive. In 2010, a rising 55% of Americans between the ages of 60 and 64 years were in the labor market, compared to 47% ten years ago. The United States used to be the leading global energy consumer for a century. The role was taken over by China last summer. At the start of 2007, about one million Americans had been unemployed for half a year or longer. The figure has moved to over six million Americans today. Back in 1998, the United States had 25% of the global high-tech export market versus 10% for China. The status has flipped, since by 2008 the US had gone below 15% while China commands over 20%. The USGovt budget deficit increased to a whopping $150.4 billion in November, the biggest deficit on record for the month. Our leaders claim conditions are improving. They speak with forked tongue. The required debt rollover for existing debt combined with fresh new debt is equivalent to 27.8% of the entire GDP in 2011.

◄$$$ AMERICANS ARE NOWHERE PREPARED FOR RETIREMENT. MULTITUDES ARE PERILOUSLY CLOSE TO HOMELESS, WITHOUT SAVINGS, LIVING NEAR THE EDGE, WITH JOBS NOT SECURE. $$$

Americans are nowhere prepared for retirement. They are not in possession of pension funds to any adequate amount. A great fantasy pervades the nation regarding status of retirement accounts. If truth be known, what viable pension funds do exist, they are propped by the USGovt in the general stock market and puffed up by imaginary bond valuations. The shocker statistic is that one out of three Americans has nothing (zero dollars) in a retirement account. Half of Americans have under $2000 in savings, less than one month away from requiring aid to escape the street if their situations change for the worse. The average retirement account has value around $50,000 but the skew is grand since many have nothing and the wealthy have very large accounts. The vast majority of retirees depend on Social Security as their primary source, in volume that exceeds their private pension. The national wealth accumulation is a privilege for the elite and upper echelons. From 1950 to 1989, the top 1% of the US workforce earned 7% to 8% of nationwide income. Today the figure is closer to 20%, as the data takes on more resemblance to Great Depression levels. Many Americans live precariously near the edge of financial insolvency. They flirt with their own disaster, with job losses and home foreclosures and bankruptcies littering the landscape. The US press media puts forth a story of relative vibrance and strength still in the middle class. Not so!! Many citizens if not aware and desperate, are deceived and living a fantasy that the current financial situation will someday soon revert to normalcy with financial equilibrium attained. A ripe 43 million Americans depend upon USGovt food assistance to cope. However, the majority are merely living from paycheck to paycheck, spinning their treadmills. Stability, once a hallmark of the nation, has gradually washed away. See the MyBudget260 article (CLICK HERE).

◄$$$ HUGE OUTFLOWS HAVE STRUCK FROM US-BASED BOND FUNDS, WHILE THE OUTFLOWS CONTINUE FOR STOCK FUNDS SINCE MAY 2010. EVEN THE FLAGSHIP PIMCO BOND FUND SAW NET REDEMPTIONS. THE PUBLIC IS STEPPING ASIDE AS THE USFED DOES ITS DESTRUCTIVE WORK. $$$

No end is in sight for the stock fund outflows. A public boycott seems firmly in place. The new event is the largest bond fund outflow in almost 30 months. The Investment Company Institute reported that in the week ended December 15th, another massive outflow took place from domestic stock funds. It was the 33rd week in a row, amounting to an exit of $2.4 billion. Worse, taxable and municipal bonds saw a nasty shocker of $8.62 billion in outflows, which included another record $4.9 billion in muni bond outflows. Bond mutual funds had the biggest client withdrawals in more than two years, as a flight from fixed income investments has accelerated. The withdrawals were the largest since mid-October 2008, when investors pulled out $17.6 billion from bond funds. The US bond fund retreat showed acceleration signs, since the rise was from $1.66 billion the week before, according to the ICI report. So outflows are in progress for both US stocks and US bonds!! Year to date, investors have yanked $100 billion in funds from US-focused equity mutual funds, offset by a smaller $16 billion in comparable inflows into equity strategies via ETFunds. The $250 billion PIMCO Total Return Fund, managed by Bill Gross, had its first net withdrawals in two years in November as investors pulled $1.9 billion, according to Morningstar.

Ridiculous illogical and ludicrous interpretations continue to be disseminated about the USEconomy in recovery. The false story has become a billboard message of deception. We are told that investors are retreating from bond funds after signs of an economic recovery and a stock market rally, which have lifted interest rates broadly. The reality is something quite different. The selloff in USTreasurys happened exactly after the US Federal Reserve in November offered specific details on its pledge to purchase $600 billion in bond assets to revive the sluggish USEconomy. The 10-year USTreasury yields lie in the 3.2% to 3.4% range, much higher than the 2.49% in the first week of November. The bond market contradiction to the USFed monetization plan is without precedent in US bond market history, a grandiose insult. The bond market is spooked by two important factors. The USFed seems to be the primary bid on USTreasurys, as foreign creditors are departing. The main foreign bid for USTBonds has been from central banks warding off currency appreciation that puts their export trade at risk. The effect of monetary inflation, the US version of Weimar style, bigger volume and broader applications with huge secret locations of debt monetization, has taken place for over two full years. See the Zero Hedge article (CLICK HERE).

◄$$$ THE QE2 TEAM IS BUYING $100 BILLION IN USTBONDS PER MONTH, TAKING UP THE SLACK, WITHOUT PRODUCING ANY DECLINE IN BOND YIELDS. THE USFED IS RUNNING A DANGEROUS DESPERATE GAMBIT. ATTEMPTS TO HOLD TOGETHER THE USTREASURY MARKET DURING ITS QE2 STRONGARM EPISODE ARE UNDERWAY. $$$

Taking up the slack is obviously the USFed with outsized USTBond purchases as part of its QE2 program. Some call it a Hail Mary initiative, urged by questionable hope, no assurance of success, laced in desperation. An approved posse of market specialists is buying hundreds of $billions of USTreasury securities on the open market. They are filling a vacuum. They are offsetting global creditors in abandonment. They bought in 2011 a full 75% of all USGovt debt issuance, an incredible black eye to USTreasury prestige!! The monetization engines are running full speed. They must keep the interest rates low. They must prevent a credit derivative blowup event. The USFed is fast losing all credibility, exhausting its power, testing its limits, fighting off demands for independent audits. On the ninth floor of the New York Fed headquarters fortress in the Operations Room, the QE2 team seeks the best price available. However, due the fully advertised initiative and the heavy volume, is destined to pay a premium price. They have tipped their hand, as they buy $100 billion per month in USTreasurys. It is not possible to be a known buyer with a schedule and agenda, and execute favorable prices. An unexpected backfire occurred on the way to the QE2 launch. Bond yields are not performing as planned. They have stopped falling, in direct defiance of the USFed itself. See the New York Times article (CLICK HERE).

◄$$$ THE FACEBOOK DEAL TO SELL $450 MILLION IN PRIVATE STOCK TO GOLDMAN SACHS OFFERS MANY SIGNALS. THE STORY HAS GIVEN GREAT DISTRACTION TO HOW RETAIL INVESTORS HAVE ABANDONED THE STOCK MARKET. FACEBOOK AVOIDS S.E.C. ACCOUNTING RULES. GSAX IS IN THE LEAD POST TO OFFER I.P.O. STOCK LATER. EXPECT FACEBOOK TO BE ALIGNED WITHIN THE SECURITY AGENCY COMMUNITY, THE INEVITABLE OUTCOME. $$$

Goldman Sachs plans a special investment vehicle with private investors to pony up $2 million as a minimum per person. It is already over-subscribed with keen interest. That would create up to 250 new investors, enough to exceed the limit of 500 imposed by the Securities & Exchange Commission without publicly provided annual statements with some level of disclosure. An Initial Public Offering is considered a certainty within 18 months, probably sooner. Facebook has an estimated $50 billion marketcap with only $2 billion in annual revenue, which makes for an absurdly high multiple. But they are a marketing tech darling that challenges Google. One must find it intruiging that Microsoft has been relegated to an also-ran, a tired monopolist, pushed to the side by Google, even raided for its best talent by Google. Now the lead dog internet marketing network phenom is FaceBook. CEO Mark Zuckerberg has climbed in bed with Goldman Sachs, most assuredly with promises of wealth and protection. He has made a deal with the devil, having ignored the warning signals of criminal activity in direct conflict with their clients.


Comparisons with Google are interesting. The supposed top talent of internet software and marketing specialists are flocking to Facebook, whereas in the recent few years, they flocked to Google. As for expansion and development, Google has grown at a 33% annual growth rate on revenues in the past few years, while Facebook grew at 100% rate in 2010. Google has 25 thousand employees, versus a mere 2000 at Facebook. Clearly stock option incentives will work in favor of Facebook for attracting the best talent, just like the incentive used to favor Google over Microsoft in the recent past. Lastly, Goldman Sachs has announced in disclosure it holds the right to take opposing positions to FaceBook. Their vague warning should worry investors, who probably expect GSax to help propel the stock much higher with a much anticipated Initial Stock Offering. They might, at least for a time. They also might engineer a magnificent decline if it suits them profitably. Feeding off their own client base to dissect an entire leg of an investor is a routine acceptable practice for GSax, the giant vampire squid. Their specialty is to set up vast contract insurance investment arrays positioned to profit from a magnificent decline for an entire sector. See bond Credit Default Swap contracts for the mortgage sector. Their other speciality is to attack their hedge fund clients, view the portfolio positions, and lay waste to them while pulling the credit lines, all while enlisting the USGovt regulatory support in declaring the speculative risk as damaging to the system. Goldman Sachs continues to face potential prosecution in Europe for criminal bond sales and illegal deceptive currency manipulation. In my view GSax is the singlemost destructive financial force on earth.

THE NEW YEAR FILLED WITH CHAOS
◄$$$ THE NEW 2011 YEAR WILL FEATURE MORE CHAOS, BUT WITH THE DISTINCTION OF MORE BREAKDOWN IN FULL VIEW. NUMEROUS ARE THE HOTSPOTS AROUND THE NATION AND AROUND THE WORLD, FULLY CONNECTED. THE USGOVT BUDGET BATTLE HAS A MORE DAMAGING STATE BUDGET COLLAPSE IN ECHO. THE EUROPEAN SOVEREIGN DEBT WILL BLOW UP, CENTERED IN SPAIN. THE USBANKS ARE IN PERILOUS CONDITION, HELD TOGETHER BY THREADS, PULLED WITH STRONG FORCES IN SEVERAL DIRECTIONS. THE YEAR 2011 WILL BE A COMPETITION TO LOCATE THE SITE OF A CHAOTIC SYSTEMIC BREAKDOWN. $$$

The year 2008 was when the global banking system in the West died, notably the United States, the United Kingdom, and Western Europe. The year 2009 was when a solution was shown as a fake, one totally lacking substance, since props and phony accounting and farcical stress tests were intended to deceive rather than demonstrate viability. In 2009, the Western banking system turned into recognized Zombies in array. Much deception came with calls of Green Shoots for economic reawakening, even public regular pronouncements for an end to the easy accommodative monetary policy, with bantered Exit Strategy. Neither had any substance or merit, easily shot down by the Jackass (early, during, after). The year 2010 was when the system reverted to breakdown mode and in visible fashion, with open insults at the G-20 Meeting handed to the USGovt team of quack hacks managing the banks (Bernanke & Geithner). The Stress Tests in Europe were as phony as baseless as done in the US the year before, useful to prop their stock valuations. Chaos and breakdown was much more powerfully evident in Europe than in the US, where the Wall Street marketer trumpets and the USGovt decepticons have been aided by propaganda spewed from the controlled US press networks.

The US disseminated the arrogant thesis in 2010 that its mammoth deficits do not matter, a notion that should be shattered in year 2011. Huge deficits became a fixture, overruling the temporary notion. It will be the year when the system breakdown explodes in full view, with numerous sides and broken platforms. It will be the year when an alternative to the USDollar is possibly introduced. Foreign economies have a tough choice to sink with the US or to oppose the USDollar in a functional manner. It will be the year that China suffers some shocks, but responds impressively, unlike the US. Their reserves, large industrial base, ample labor force, greater tendency toward capitalism, and ability to bring about true reform will distinguish them from the US, which is committed to its power base and full blossomed failure. It will be the year when in the United States, several major states will go into debt default and ruin, like California, Illinois, Florida, New York, and New Jersey. They will appeal to the USGovt, which will tell them to renege on worker pensions, then to return hat in hand. It will be the year when the US banking system suffers the shock of at least one big bank entering a death spiral, fully denied, but occurring in full view, denied until its bailout request is registered with the USGovt. The consequence of the bank failure will be to threaten the entire US banking system with a possible bank holiday shutdown. The wild card for the United States is a leak of the Mexican Civil War. There is no other accurate way to describe it. The chaos was forecasted in the summer 2007 by the Jackass, timed to show by 2010. It did.

The concept of Too Big To Fail will return to tabled discussions for more debate. In my view, this concept represents a commitment to systemic failure and vigorous defense of the broken status quo, including its tilted power structure where Wall Street almost completely controls the USGovt. True reform and restructure is vigorously blocked by Wall Street firms, as they steer the USGovt finances and gut it for their own welfare. Those who believe that Wall Street does not have strong ties with the Pentagon war machine are totally incorrect. They planned and executed the 9/11 project together, with diverse critical system support. They direct the narco money laundering back to New York giant banks, led by Bank of America. They assist the CIA in theft of $100 bill templates, offered like a business card on a platter from USDept Treasury vaults. Such bill production, together with JPMorgan counterfeit of USTreasurys, and Wall Street naked USTBond sales, represent mind-numbing larceny apart from the mortgage bond fraud with Fannie Mae nucleus. Wall Street and the Pentagon are two pillars of the same Syndicate, increasingly run by the intelligence community with the USFed their facilitator. The year 2011 will be when their grip of the USGovt loses control, turns ugly, turns downward, spreads nationally, opens the door to chaos, and invites an international response.

◄$$$ INVESTMENT THEMES FOR 2011 INVOLVE THE EUROPEAN BOND MARKET, THE AUSTRALIAN CHINA CONNECTION, USGOVT BUDGET BATTLES, MEMBER STATE RISKS WITHIN THE UNITED STATES, FALLOUT FROM USFED SCRUTINY AND CHALLENGES, AND BIG USBANKS FALTERING. THE AUSSIE-CHINA TRADE LINK IS IN THE PROCESS OF EXTREME STRESS TESTS FROM HARSH WEATHER DOWN UNDER. $$$

Exceptionally high risk hotspots exist in droves for the new 2011 year. Numerous are the key pivot points that make for systemic risk across the world, as the bond market implosion continues. Given that the major world currencies rest atop the sovereign bond market, the global monetary system will continue to fracture, no longer to favor the USDollar by sick comparison. European debt with stumble badly with bond rollovers that fail in their tracks, with debt reschedules and defaults, in a grand domino destructive effect. The next domino to fall will be the biggest yet, Spain, the Big Enchalada, twice larger than Greece, Ireland, and Portugal combined. The surprise fiasco will be Italy, which cannot avoid its day with the meat cleaver, even though its risk is always minimized as having a small debt ratio. Ratios do not matter when debt volume cannot be refinanced since too large. The key is volume. The Irish example will not be followed, an extremely foolish and suicidal decision to take the IMF austerity medicine. Dublin will regret their decisions for two decades.

A parallel exists. The United States resembles the European Union with insolvent state debt. Apart from the staggering USGovt budget battles, which is a huge risk in itself, the major states are almost all busted with broken finances and impossible debt rollover. They will strain in functions linked to all operations. Many astute analysts expect that state debt will break down quickly in 2011, agreed in my view. The Muni Bond arena is a disaster waiting to boil over, or already boiling over, with fragile finances, no insurance hedges available as vehicles, and powerful breakdown assured. When the first large state topples, others will follow in series. That some bond analysts actually call the Muni arena threat of breakdown overblown and exaggerated is absolutely astonishing. Their blindness and corrupted thought is alarming. The fast exodus retreat will accelerate to the Muni sector, as rising bond yields will make refinance utterly impossible. Bond fund withdrawals have become major headline news. Even laws are being changed in order to accommodate the expected bond failures and state bankrutpcies. The economic impact from state cutbacks, debt restructure, and project cuts will be immense to the national USEconomy. Most economists have a blind spot in connection with the untold damage from job cuts at local levels. The hidden motive from absent federal aid to states is to crush and destroy the state employee labor unions, as mentioned in the December reports. Watch for outsourcing to take root, no solution at all. When the cities and towns show dysfunction in structural ways visible to all, huge public outcry will come. Talk will center on welfare for the big US banks, but not for the population centers across the land.

The extreme weather problems in Australia have the potential to disrupt the entire Chinese industrial engine, much like tossing in wooden shoes to the machinery. The curtailment of coal of several types from Aussie supply sources will deliver shocks to the Chinese factories in ways that asset bubble reversals cannot. The gradual monetary tightening in China is not in early stages, but rather in its second year. The guarantee is for a Chinese stumble, buffeted by $2.65 trillion in savings. In fact, the Chinese stumble in 2011 will distract focus from the USGovt, US States, USEconomy, and US financial markets. China will exit its problems swimmingly, but the United States will face struggles to avert a systemic failure and USTreasury default. A surprise fallout victim in the entire integrated Asian supply chain mess will be a serious falter in Australian property prices. It is overdue. The distraction from the US woes and downward spiral will take a hiatus, still steeped in deception. The rising US price inflation will be called growth. The lack of job growth will prove it a lie eventually. The US economists and USGovt mavens are expert at grotesquely under-statement of price inflation. The error is now at least 5% or 6% on the low side of price inflation, to widen to a 7% to 8% error. The USEconomic growth will therefore be 7% to 8% slower than the boasted 3% to 5% growth, all a mirage. The US will be stuck in a powerful inflationary recession, the precursor to a recognized depression.

A war over the USGovt budget will likely expand into a war over the royal-like USFed independence in spotlight. The predatory and secretive deals struck by the USFed will be front & center, as legal challenges mount. The USFed conducted between $13 and $20 trillion in secret loan deals in late 2008, whose cover was given by the TARP Fund extensions. Global elite control and slavery is their objective. The Ron Paul challenges will be easier to conduct, since he occupies the chairman post of the powerful USCongress financial committee. The Wall Street lackey Barney Frank will step aside after a shameful performance for two years, branded by limp wrist obedience to Wall Street lobbyists. The Ron Paul scrutiny will take on strong momentum under full throttle, until he is sidetracked by threats or an accident, my forecast. See the Ross Perot story from 1992. Paul has become too much a threat, and has learned where the important bodies are buried. Paul is too much a risk to permit to run loose with Congressional powers to subpoena and preach from the pulpits.

Unusually deep scummy revelations are eventually to surface, related to Interest Rate Swaps linked to JPMorgan. Unusually deep scummy revelations are inevitably to surface, related to heavy pipelines linked to Fannie Mae and AIG. The rising rates will wreak great damage generally to hidden structures protected by the USGovt that are associated with systemic market interference and systemic elite fraud schemes. The very real unintended consequent risk is for the USEconomy to falter badly from the disrupted US corrupted financial engines, where rising crude oil prices and food prices will shock the nation. The US is held captive to the corrupt tentacles from the bank sector, tragically. Extraction of the tentacles could result in magnificent fallout events in a cascade. The return to normalcy cannot possible be achieved without entire limbs decaying and falling off as rotten. Numerous economic appendages will fall into the abyss. The geopolitical risk elements from each of the above factors makes for a nightmarish witch's brew. The world will be lucky to avoid some isolated conflagrations.

BREAKDOWN IN THE UNITED STATES

◄$$$ DEPENDENCE UPON FINANCIAL FRAUD AND MONEY LAUNDERING MIGHT BE THE MAJOR FACTOR KEEPING THE U.S. FINANCIAL SYSTEM GOING. LAW & ORDER ARE THE MORTAL ENEMY OF FASCIST BUSINESS ORGANIZATIONS. $$$

Charles Hugh Smith has been of two minds for a long time. He puts forth a powerful essay as indictment of the United States for embedded fraud. He does not focus on money laundering, since conventional fraud is so widespread, that he can make his points adequately. He wrote, "Fraud, collusion, embezzlement, manipulation, and misrepresentation of risk are not isolated incidents. They are now the essential fabric of our entire financial system. Though fraud and complicity are presented in the mainstream media as isolated conspiracies outside the status quo, the truth is that the status quo is now entirely dependent on fraud and complicity for its very survival. Every level of the status quo would immediately implode, were fraud and complicity suddenly withdrawn from the system. Like parasites living the high life in a household funded by the Mafia's trading in addiction and corruption, the American Power Elites do not dare allow Law & Order to sweep through Wall Street and the banking mortgage sector, lest their privileged lifestyle abruptly end." Wow, powerful words!! See the Of Two Minds article (CLICK HERE). The list of major fraud enterprises is vast. Fannie Mae is the central clearing house for several $trillion fraud schemes. Wall Street firms have depended for over two years on naked shorting of USTBonds for income and cash flow purposes. The evidence is the massive failures to deliver of such bonds. Without the USGovt props to the stock market, it would show the stubborn recession. The Interest Rate Swap contracts keep the USTreasury market propped, along with the recent $trillion monetization of debt by the USFed. The nation depends upon the fraud and constant market interventions.

◄$$$ GREENSPAN WARNED OF A POSSIBLE BOND MARKET COLLAPSE. HE HAS COME FULL CIRCLE FROM BOASTING OF SOPHISTICATED OFFLOADED RISK, TO CONCLUDING THE SYSTEM IS BROKEN AND TEETERING ON THE EDGE. STOCKMAN WAS MORE SPECIFIC ON THE IMMINENT BOND MARKET CRISIS, AND THE WAR COSTS THAT ASSURE ITS OCCURRENCE. $$$

Sir Alan Greenspan did more to bring about the financial disaster to the US as a nation than any single person, except perhaps Robert Rubin. As longstanding USFed Chairman, Greenspan fed the nation its elixir of clean financial engineering, the toxic debt brew that helped to ruin the many platforms upon which the USEconomy stands. He was a great advocate of the dominant financial sector, over rust belt industry. He brought ruin in bulk volume. Finally, Greenspan has awakened to the ruinous situation. Greenspan is extremely worried about the $1.5 trillion annual USGovt deficits, fixtures of wreckage. He must be aware that they cannot be financed, and thus must be monetized, a practice with huge risks. He sees a 50-50 chance of a bond market collapse. He must regard the European model as offering a preliminary warning to the US and England. He gives undue attention to the supposed wealth created by a rising stock market. Much like Bill Clinton, the knighted former USFed chairman has managed to avoid serious criticism and charges of direct responsibility for the systemic failure in progress. He resigned in order for Ben Bernanke, a mere university professor ignorant of business, to serve as bagholder during the breakdown. Greenspan often argued in his defense that he gave what the nation wanted, easy money. He turned his back on capitalism and enabled the nation to turn into a gigantic casino, where industrial capital was destroyed, home equity savings vanished, and whose ruin was predictable and pre-ordained. He remains defiant toward his critics. See the Business Insider brief article with video interview (CLICK HERE).

David Stockman served as Director of the Office of Mgmt & Budget in the Reagan Admin. He is famous for warnings about budget overruns. He gave a chilling perspective of the USMilitary war costs and the impact on the nation. He made direct reference that the United States has reached the point of no return (in his words) with its artificial creation of wealth, and will eventually face a sharp economic decline. He said, "We are now at a historical inflection point at which the time has arrived for a classic post-war demobilization of the entire military establishment. The Cold War is long over. The wars of occupation are almost over, and theywere complete failures, Afghanistan and Iraq. The American empire is done. There are no real seriously armed enemies left in the world that can possibly justify an $800 billion national defense and security establishment, including Homeland Security. I do not have much hope that what needs to be done will be done until it is finally forced on us by a world bond market crisis, which will happen sooner or later." What needs to be done is to reduce and greatly dismantle the US war machine. See the Washington Blog (CLICK HERE).

◄$$$ MICHAEL RUPPERT WARNS OF THE IMMINENT THREAT OF ECONOMIC COLLAPSE IN THE UNITED STATES. HE POINTS TO A MESSY BUMPY TRANSITION FROM AN INFINITE CONSUMER GROWTH MODEL INTO A POST-PETROLEUM ERA MARRED BY SHORTAGES. NUMEROUS IMPORTANT FACTORS CONSPIRE TO GENERATE A BROAD DANGEOUS LEVEL OF CHAOS. $$$

The United States will have a difficult time during the transition into the post-petroleum era, as it struggles mightily to sustain an established level of lifestyle. The convergence of opinion among cutting edge analysts is that a common realization has been reached. The United States is out of time, due to numerous unresolvable problems. The Quantitative Easing initiative to print $trillions of funny money, combined with the breakdown of the European monetary system, combined with the broken giant banks, combined with the global initiative among USGovt creditors to find a USDollar alternative, combined with the global movement already seeing progress to bypass the US$ in trade settlement, these factors suggest strongly that a devastating economic downturn worse than Great Depression lies over the horizon, not year away, but months away. The new USCongress will permit states to go bankrupt, where a hidden motive exists to break government worker unions. Michael Ruppert has survived three poison events, for which he accuses the US security agencies. His offices in Oregon have been ransacked, even burned. He used to operate From The Wilderness, but now from Collapse Net with cooperation from Transition US. See the YouTube video presentation (CLICK HERE).

◄$$$ THE NET NEUTRALITY MOVEMENT IS SIMPLY A BOLD POWER GRAB WITH SWEET BANNERS OF FREEDOM, PROTECTION, AND OPENNESS. THEY HIDE A USGOVT DESIRE TO CONTROL AND CIRCUMVENT THE RECENT COURT DECISIONS. THE GRAND GOAL IS CENSORSHIP AND TOTAL CONTROL. THE F.C.C. WILL CONTINUE TO BE THWARTED AND FRUSTRATED, ALWAYS AT LEAST TWO YEARS BEHIND THE BATTLES FOUGHT. $$$

The Federal Communications Commission (FCC) will mark the winter solstice by taking an unprecedented step to expand the USGovt reach into the Internet. It will attempt to regulate its inner workings and information on-ramps. In doing so, the agency will attempt to circumvent the USCongress and disregard a recent court ruling. Once more, the labels are as opposite the actual motive and intention, just like the Patriot Act shredded the US Consitution and opened the gates for fascism. There is nothing neutral in the elite movement for Net Neutrality, since control is the goal. For years, proponents of so-called Net Neutrality have been calling for strong regulation of broadband on-ramps to the Internet, like those provided by your local cable or phone companies. Their objective is to focus on the concentrated chokepoints. Rules are needed, the argument goes, to ensure that the Internet remains open and free, and to discourage broadband providers from thwarting consumer demand. That sounds good if you say it fast and do not bother to deploy any thought process. Goebbels would wink at the manual being drawn. Nothing is broken that needs fixing, in this case. Extra rules and arbitrary enforcement almost never result in more openness and more freedom. Robert MacDowell of the Wall Street Journal is cynical that the USGovt will succeed in controlling the Internet, even the vast on-ramps.

My research has found two important trends at work. The first is of greater efficiency in internet content delivery itself, with contractors bidding behind the walls to provide that quick cheap delivery, with slick rotaries to replace four-way intersections, with remote legs filling gaps in the service. Progress with efficiency occurs at regular intervals every year. The second phenomenon is that from a legal standpoint, the USGovt initiatives to control the Internet are between two and five years late. They consistently fight yesterday's battles. To be sure, the FCC attempts to slip in their clauses for legislation while backs are turned, attention is diverted, and the lights are low. But the technology flow is too fast for them. They are jumping onto a bus that left the station hours earlier.

USTREASURYS & BUDGET BATTLE

◄$$$ MORE DECEPTION ON THE USTREASURY YIELDS RELATIVE TO PRICE INFLATION. THE USTREASURY INSURANCE AGAINST DEFAULT HAS FALLEN IN PRICE AS WORRY OVER DEFAULT HAS REDUCED STRANGELY. AGAIN, WATCH AS RISING PRICE INFLATION IS CALLED ECONOMIC GROWTH FALSELY. $$$

The spin has begun in earnest. Rising long-term USTreasury Bond yields are a direct reflection of massive USFed monetary expansion to cover the USGovt debt, in reality. Rising long-term USTBond yields are a direct reflection of fading international support for the USGovt debt, even an isolation. Yet the financial press networks trumpet faster more robust USEconomic growth as the cause for the bond yield jump, with grand deception. The financial press actually openly denies that any concern over rising budget deficits is a problem, or that they will drive investors away from government debt. Bond yields are rising, despite the known outsized USFed demand. By the end of December, the price of Credit Default Swaps that cover USGovt debt declined to 41.5 basis points from 48.4 basis points at the end of September, according to Bloomberg data. The fall in default insurance prices is believed to show that bond vigilantes are not prepared to punish the United States for its wantom spending. Vigilantes have been sidelined after they ran roughshed over USTreasury securities in the last half of the 2010 year. The full spectrum pressure is powerful from the USFed monetary stimulus to the Obama Admin tax extensions and reform. The prevailing belief is that the USGovt has made its commitment to spur growth. They are all in, with full risk. They point to some phony economic data in support of their argument for successful policy. Despite the shocking deficits at record high levels, the bond market is giving the USGovt loose rein and plenty of time to address structural budget imbalances.

While not vigilantes, the primary bond dealers do serve the paper game capably. They offer an opinion on the movement of long-term USTBond yields. Bloomberg News conducted a survey of the 18 bond dealers that serve as counterparties to the Federal Reserve in its open market transactions. They anticipate the 10-year Treasury yield will rise to 3.65% from the 3.30% level registered on December 31st. They anticipate the 2-year yield will rise to 1.05% from 0.59% recorded at year end. Doctored auction results are a trademark of the USFed, in order to hide the deep distress and bond market gradual loss of integrity. Supposedly, bond dealers and foreign and domestic investors bid $494 billion for $165 billion of offered Treasury securities, auctioned during December. That came to a 3:1 bid-to-cover ratio. Bond analysts point to the lack of distress during auctions, unlike in Germany and China where auctions failed repeatedly. The USFed has numerous offshore agencies in the Caribbean, and others with British registry, useful to falsify auction bid results. The TIC Report data is vividly clear. The Caribbean and British centers do not have in possession vast sums of wealth to support the USTreasury sales, like what has been seen in gigantic USTBond purchases in accumulation. They are the locations for USFed hidden monetization, in plain view.

The bond mavens continue to offer flimsy propaganda support. Take Tony Crescenzi from PIMCO. He claims, "There is no risk currently of a resurgence of inflation" without benefit of opening his eyes to the economic landscape. Take Christopher Sullivan from the United Nations Federal Credit Union in New York. He said, "That should restrain the bond vigilante desire to push yields up aggressively. Yields need to normalize as the economy gradually improves. We should see that in the coming quarters, but it should be fairly gradual." He must believe in the fabled Second Half Recovery, that mirage planted on billboards and signposts. See the Bloomberg article (CLICK HERE). What the USEconomy will see next is rising price inflation, which the clueless cast of economists will call economic growth as they greatly under-estimate the price inflation, their greatest deception calling card!!

◄$$$ WORLD COURT ACTIONS CONTINUE, SEEKING TRACTION FOR ENFORCEMENT. ARREST WARRANTS HAVE BEEN HANDED DOWN, BUT THE CHALLENGE IS FOLLOW-UP WITH POLICE AUTHORITIES. A MOVEMENT IS AFOOT WITH MANY SIDES, PROSECUTION FOR HIGH FINANCIAL CRIMES, A TRIBUNAL FOR USTREASURY DEFAULT, AND A NEW GLOBAL CURRENCY TO SUPPLANT THE USDOLLAR. ALL INITIATIVES ARE DONE IN SECRECY, IN ORDER TO AVOID RETALIATION FROM THE USGOVT, WALL STREET, AND THE USMILITARY. $$$

Something big is brewing. My impression for the longest time has been that the World Court developments for financial crimes make for good stories, but they are toothless for enforcement. Whether issued from The Hague or Interpol, any arrest warrant must be handed to legal authorities, where the local syndicate sits on it, with hooks well dug into the government, without action. They have only the power that governments give them, and it is not given. A good test of that granted power has been the Interpol arrest warrants from late 2009 and early 2010. In recent weeks, the World Court has handed down numerous additional arrest warrants. Dozens have sat on desks, not acted upon. Refer to VP Cheney, VP Biden, Secy State Hillary Clinton, Treasury Secy Geithner, Deutsche Bank CEO Ackerman, and many more. The list includes most Wall Street firm executives. Their financial crimes pertain to money laundering, payments to finance the 9/11 events, and massive bond fraud. Activity at the World Court in the past several weeks has been elevated, according to two independent sources. Something big is going on, impossible to verify completely. Hardly any continued coverage was given to a very important development in December 2009, when the Obama Admin granted jurisdiction to Interpol on US soil, giving them subpoena power to demand and gather documents.

In my opinion, enormous preparations are being made for bringing a halt to USGovt banker terrorism, and for a USTreasury default event. The former is to end the victimization. The latter has obvious implications for global impact. Word has spread that much of the $12.7 trillion dispersed under the cover of TARP Fund distraction and darkness, delivered by the USFed, revealed by the brief USCongressional audit, was to foreign USTBond creditors, who have demanded insurance on their reserve holdings in the event of a USTreasury default. The curious part is the continued purchase of USTBonds by the same creditors, but the motive for many has become to offset the Competing Currency War effect. They must slow down their own rising currencies. The ongoing shock story is that the United States is already in the hands of the World Court. They have taken action, due to the stark reality that no branch of the USGovt is willing to stop the global financial terrorism. A recent decision by the USMilitary Joint Chiefs of Staff was a refusal to participate in arrests or to halt illegal activity. In my view, they are too deeply committed to Pentagon misappropriation and passive support for narcotics activity.

What the world needs is a major initiative to replace the USDollar as global reserve currency. If the USGovt cannot police itself, whether the Wall Street bond fraud, Fannie Mae fraud schemes, USDept Treasury roll programs, or Pentagon weapons extravaganza, then the USDollar rug must be pulled out from underneath, rendering the global reserve currency as powerless. That process is indeed occurring, undertaken by the Eastern Alliance, led by Germany, with main players Russia and China, with Arab nations in tow. They must work in secrecy, since the USGovt enterprises continue to ply their trade, and have shown a predilection for vengeance. The Eastern Alliance has a project in the New Nordic Euro currency, which will have a gold component. If and when an alternative such as this currency is launched, it will be the death knell for the USDollar and the USEconomy. The Americans would be compelled to purchase the new competitive currency with bloated USDollars in over-supply from mammoth Printing Pre$$ operations, called euphemistically Quantitative Easing. The USFed is already isolated with monetization from QE2 to support the gargantuan USGovt deficits. The new currency and the alliance are engaged in a project to assure financial survival against the USDollar acts like a global cancer. Actions by the USFed are steeped with confiscation.

◄$$$ USGOVT BUDGET BATTLES ARE SURE TO REVEAL THE TRUE FASCIST MOTIVES OF THE CONGLOMERATE SYNDICATE. THE PEOPLE WILL BE DENIED WHILE THE WAR MACHINE IS PRESERVED, GUNS & BOMBS OVER BREAD & BUTTER, BIG BANKS OVER HOUSEHOLDS. IN FACT, THE DEFENSE BUDGETS WILL NOT BE REDUCED. RATHER, DEFENSE CONTRACTORS WILL BE FORCED TO EAT COST OVERRUNS WITHOUT VOLUME CUTBACKS IN WEAPON UNITS AT ALL. THE WAR IS SACRED, THE SIGNATURE MARK OF THE FASCIST STATE (DICTATORSHIP, NOT REPUBLIC). FEAR AND AGGRESSION ARE THEIR CALLING CARDS. $$$

The USGovt seems to have suddenly found religion in reducing the budget and its deeply engrained deficit. It is more superficial than from the heart with conviction. The new wave is all about perceptions. To be sure, some in the USCongress are worried sick and scared pale over the prospects of a structural $trillion deficit. A decade ago such a deficit magnitude would be considered a telltale signature of a Banana Republic nation sliding toward the Third World perilously. The budget battle with the new USCongress will be extremely revealing of the priorities for the Syndicate in full control of the USGovt and press networks. The budget process will in my view continue to place the narco war as a sacred priority not to be touched, not to be altered, not to be disrupted. In rough terms, the USGovt budget contains components 20.0% Defense, 21.0% Social Security & Medicare, and 14.0% Safety Net System.

The US press is covering the battle, which pits the people, households, and employment centers against the war machine, the defense contractors, and the elite who control them. Big bank welfare is ongoing and not even in debate. In my view, the budget cuts will come exclusively from the people and their homes and work centers. Tax deduction cutbacks will be a centerpiece. The war machine will not be touched. Early indications are tilted clearly toward preserving as intact the war machine. Cost pushback has come to defense contractors. The base military budget is $536 billion. The extended budget for the wars adds another $170 billion in supplemental spending, which officials prefer to call Overseas Contingency Operations since it sounds more sophisticated. In fact, it is more like suffocation. The outsized yawning Defense spending is a primary cause for USGovt insolvency. It has a staggering deficit impact on the budget and the negative international image of the nation. Watch the unfolding events as the USGovt and USCongress grapple with spending cuts. They will avoid Pentagon and defense budget cuts with fierce opposition. This is a key part of the Fascist Business Model, as sacred as Wall Street largesse. The total sum, over $700 billion per year, is the actual cost of the USMilitary. It includes hundreds of overseas bases and lavish embassies, vast outlays of weaponry, even outsourced purchase of bullets.

No disrespect is meant to soldiers who have sacrificed. One must wonder for what cause their sacrifice has been, and toward what outsized profits to defense and service contractors, even Syndicate bank accounts. Talk has already begun, that "out of respect for our fighting soldiers and veterans" who have served in active duty, the defense budget will be spared of cuts. Watch the priorities be revealed as the battle unfolds over the budget. In my view, the potential for defense cuts and huge savings is great but it will not be tapped. Instead the people will be asked to expect less aid, to rely upon less, and to starve. My full expectation is that if defense cuts are demanded by the civilian politicians with too loud a voice, more terrorist threats will be unleashed. They are part of the Fascist Business Model and its nasty inner ripcords at work from the internal security organizations.

◄$$$ GEITHNER DEMANDED AN URGENT RAISE OF THE USGOVT DEBT CEILING LIMIT TO AVOID A DISASTER. THE CLASH WITH THE USCONGRESS HAS BEEN ENGAGED, EVEN SUDDENLY ELEVATED. THE FEISTY USCONGRESS REPUBLICANS HAVE MADE THE DEBT LIMIT INCREASE DECISION MORE DIFFICULT FOR PASSAGE. THE BATTLE LINES HAVE BEEN DRAWN. $$$

Through their Goldmans Sachs mouthpiece and low ranking lieutenant, the Obama Admin has urged the USCongress to raise the USGovt debt limit with urgent dispatch. They chose to use the diminutive Treasury Secy Geithner. The debt from the USGovt source is expected to reach its legal borrowing limit by the end of March and no later than mid-May 16th. Geithner urged House and Senate leaders to move quickly to raise the debt ceiling so as to avoid an unprecedented disaster or even default. The new USCongress is loaded with mavericks, angry independent types, and lone wolves determined to bring change. Many newcomers have openly pledged to vote against any increase to the debt limit. The stage is set for legislative brinkmanship between the president and legislators, a battle that has played out several times in past decades. The budget showdown features Republicans who will try to force President Obama to accept deep cuts in domestic spending as the price for their votes. The outstanding gross national debt stands at $13.95 trillion, only $335 billion below the $14.29 trillion debt limit set by the USCongress last February 2010. That headroom slack is sufficient until through the calendar 1Q2011. The limit is expected to be breached this spring. The Obama Admin was leaving to the USCongress the decision on how much to raise the limit.

Geithner made the official statement, "If we are forced to do some [emergency actions] again, these measures could delay the date by which the limit is reached by several weeks. Once these steps have been taken, no remaining legal and prudent measures would be available to create additional headroom under the debt limit, and the United States would begin to default on its obligations. Failure to increase the limit would be deeply irresponsible. It is important to emphasize that changing the debt limit does not alter or increase the obligations we have as a nation. It simply permits the Treasury to fund those obligations the Congress has already established. Given the gravity of the challenges facing the United States and world economies, the world's confidence in our creditworthiness is even more critical today." HE MENTIONS THE WORD DEFAULT!! Geithner openly mentioned some stopgap devices the USDept Treasury is prepared to use as exceptional actions, but the result would only be buying a few weeks time. A failure to increase the debt limit in timely fashion would force the USDept Treasury to default on legal obligations and payments to bondholders at home and abroad, thus causing catastrophic damage to financial structures. The official response in stopgap measures would include a halt to regular payments for a range of federal benefits, including military salaries, federal pension payments, as well as Social Security and Medicare. Some agencies might be temporarily shut down, but clearly nothing in support of the Syndicate organization. The bonafide solution is not a raised ceiling, but rather a restructure of the debt and a discontinuation of the high spending breeding ground. When (not if) the debt limit is raised, the USCongress will breathe a sigh of relief, then resume their spending.

The new House speaker, Representative John Boehner has taken charge. He said, "The American people will not stand for such an increase unless it is accompanied by meaningful action by the president and Congress to cut spending and end the job killing spending binge in Washington." Last week, the House approved the new rules driven by the new leadership, effectively making more difficult the passage of a debt limit increase. No longer will an increase be automatic with passage of a budget resolution. Instead, the important decision must be voted on separately. See the New York Times article (CLICK HERE). Geithner and the Syndicate would like the USCongress to act very quickly, like it did with the Patriot Act, the TARP Funds, and other events strewn with wreckage containing their fingerprints on them.

◄$$$ USGOVT WILL SOON TAKE THE #1 SPOT IN TAXATION, MAKING THE UNITED STATES LESS COMPETITIVE. THE NATION HAS NO CLUE HOW TO ENCOURAGE JOB GROWTH. THE CONCEPT OF CAPITAL FORMATION HAS BEEN TOTALLY LOST. GREAT PROGRESS HAS BEEN MADE AMONG O.E.C.D. NATIONS, WHICH HAVE ISOLATED THE UNITED STATES AS UNCOMPETITIVE. $$$

Soon the United States will have the highest corporate tax rate in the world. Currently Japan holds the shameful distinction of having the highest corporate income tax rate, at the 39.5% rate. Japan will soon relinquish the top spot to the US. Tokyo leaders recognize what the rest of the industrialized world realized over a decade ago, but what the USGovt remains blind to. A low corporate income tax rate is vital for economic growth in a global economy with intense competition and globalization of factory output. The Japanese Govt announced over the holidays that it will reduce its corporate income tax rate by a full 5% down to near 35%. Their tax rate remains above the 25% average rate of other industrialized countries, but progress in reform has begun in Tokyo.

The cut in the Japanese tax rate will leave the United States in the awkward position of having the highest corporate income tax rate in the entire industrialized world. It is no longer the beacon of capitalism, but rather the center of corporate fascism. The US backed into the top tax spot because it stood still while the rest of the world was cutting its rates. The USGovt is far too distracted by bank failures, bond fraud, and the mirage of stimulus. As the chart below shows, in 1990 the US corporate tax rate was of medium level, slightly below the global average. At that time, the US rate was ranked 16th out of 23 nations. Since then, every other industrialized country has aggressively lowered its tax rate. By contrast, in 1990 the German corp tax rate was 54.5%, the highest among the OECD. However, in the following 20 years, Germany lowered their corporate tax rate by 24.4%, the greatest amount within the organization. The OECD average has fallen by nearly 16% since 1990, leaving the US rate punitive and uncompetitive, isolated for view. Nearly two thirds of the OECD nations have tax rates between 24% and 31%.

The USGovt has lost its way, totally ignorant of the primary principles of capital formation. Along with such blindness, it has lost its awareness of the need to encourage business to locate on US shores for conducting operations. It is no longer a privilege for foreign firms to do business from within the USEconomy. An arrogance has filled the room. The top marginal corporate income tax rate is an important factor that discourages economic growth and job creation. No business wishes to minimize the retained profits it earns from investments. The tax rate is a large determinant when businesses decide where to locate certain projects, and where they will hire new employees. The high rate in the US has pushed businesses and jobs to other countries, even US-headquartered businesses. They seek outsourcing and offshore solutions. Those jobs will continue to flow to other countries if the US continues to levy a counter-productive high corporate income tax rate. See the Heritage article (CLICK HERE).

◄$$$ A BIG MUNICIPAL BOND DUMP IS IN PROGRESS. GRAND MUNI SHOCK WAVES WILL BE FEATURED IN 2011. THE RIPPLE EFFECTS COULD EASILY REACH THE USTREASURY COMPLEX. WATCH AS THE USCONGRESS STANDS IDLY BY, ORDERED BY ITS WALL STREET HANDLERS. THE RULING ELITE WISH TO CRIPPLE THE STATES AND TO END THEIR LAVISH PENSION PROGRAMS. $$$

Municipal bond investors are trying to unload bond holdings at the fastest pace in well over ten years. The trend is marred by fast rising mutual fund redemptions and the recent rise in USTreasury yields. The Muni Bond bid index has reached historical high record levels. The imbalance has brought instability to the market, assuring of air pockets for sudden price declines. Bondholders were seeking buyers for $896 million in municipal securities on a daily basis up to December 22nd, an historical record high, according to Bloomberg. Data goes back to August 1996. During another crisis time in March 2008, Muni Bond sellers had sought bids for $783 million on average daily, the second highest tally. The Muni Bond sales accelerated notably after banking analyst Meredith Whitney publicly forecasted on December 19th that hundreds of $billions in municipal defaults would occur in year 2011. She expects widespread state fiscal disstress will trigger a string of defaults among municipalities. She gained recent professional recognition for distinguished competence when in early 2008, she correctly predicted Citigroup would order a controversial dividend cut.

Outflows have been stunning large. Investors withdrew more than $2.72 billion from municipal bond mutual funds in the week ended December 15th, the fifth straight week of outflows, according to Lipper data. Investors have pulled $9.12 billion from municipal bond funds since the week ended November 11th. The USFed reports that individual investors make up 37% of the $2.86 trillion Muni market. On the margin, the statistic often followed is bids for sale. The Whitney response was powerful. The daily value of Muni Bonds put out for bid exceeded $1 billion on December 21st, before settling back to $546 million by December 22nd, according to Bloomberg data. Not all Muni Bonds are equal, depending upon usage. General obligation bonds and debt for essential services such as water and sewers are safer than unrated bonds and securities for certain hospitals. See the Bloomberg article (CLICK HERE).

Some bond analysts with a good grip of reality believe the US Muni Bond market has the potential to drag down the USTreasury market. There is something sacred about the municipal bond niche, always known for its tax-free income. Another sacred feature pertains to state debt, since states cannot declare bankruptcy by law. Their bonds can default though. Some states are embarked on a movement to change their state laws so as to liberalize the failure process. These two factors seem the perfect prescription for puncturing the USTreasury Bond bubble, or at least directing toward USTBonds a horrible headwind loaded win spears with a massive stench. A USTreasury default will occur, with unknown timing or lead events. The default might include a series of Muni Bond defaults on a national level like dominos. A loose connection exists between the state debt structure and the federal debt structure.

The Global Europe Anticipation Bulletin points to October 2011 in its LEAP/E2020 publication, as the timing for a likely chaos in turn of events in the United States. The GEAB expects several large US cities and states to plunge into an inextricable financial situation. The combination of the US state (non-federal) deep distress and the escalation of the European member nation deep distress will create a double barreled crisis in competition for news network coverage. The USGovt debt situation will be dragged on, since it can be temporarily papered over by newly printed money. The GEAB team correctly anticipated the US Muni Bond market woes last June 2010. They believe the Muni Bond market was given a foretaste in November 2010, as the mini-crash sent all the year's gains go up in smoke in a few days. The GEAB team expects the contemporaneous shocks in the United States and Europe to create a very disturbing situation comparable in magnitude and importance to the Bear Stearn crash that led to the Lehman Brothers failure event. The abandonment process for Muni Bond funds is equally rapid as it was in the autumn months of 2008. Expect a major event to be triggered, leading to widespread defaults in major cities and states. It will be interesting and intriguing (like watching a major fire) to see how far it spreads, and whether it will affect the USTreasury Bond complex.

BIG USBANKS LOSE IN COURT

◄$$$ MORTGAGE CHAOS CONTINUES WITH A STATE COURT RULING IN MASSACHUSETTS AGAINST THE BIG USBANKS. THEY CANNOT SEIZE HOMES IN FORECLOSURE, SINCE THEY FAILED TO PROVE OWNERSHIP OF THE HOME LOANS. THEY PEDDLED IN MORTGAGE BONDS IN GROTESQUELY CORRUPTED FASHION WITH PERVASIVE CONTRACT FRAUD, AND IGNORED THE UNDERLYING NOTES TIED TO THE PROPERTY TITLES. THE FLOODGATES AGAINST THE BIG USBANKS ARE OPENING GRADUALLY. PLENTY OF DISAGREEMENT EXISTS WITHIN THE LEGAL PROFESSION. DO NOT EXPECT ALL STATES TO LINE UP IN ACCORD. AFTERSHOCKS HAVE COME QUICKLY WITH PENSION FUND DEMANDS FOR BETTER SCRUTINY OF BANK PRACTICES. $$$

The Supreme Court of Massachusetts ruled in favor of the homeowner and against US Bancorp and Wells Fargo in a major foreclosure legal case. The case is certain to guide lower courts in that state in the clash between fraudulent bank practices and longstanding state real estate law. Other states might be influenced but they each act independently, and to date, not in entirely consistent fashion. In Boston, the state Supreme Judicial Court last week upheld a bench decision that ruled two foreclosures were invalid because the banks did not prove they owned the home loan mortgages. The judge cited how the loan notes were improperly transferred into two mortgage backed trusts, basically sloppy filing. Justice Ralph Gants wrote, "We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. [Securitization documents properly transferring mortgages along with] a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to be proof that the assignment was made by a party that itself held the mortgage. However, there must be proof that the assignment was made by a party that itself held the mortgage." As such, the court decision held out the possibility of securitization documents properly transferring mortgages, and provided details on such transfer. See the Bloomberg article (CLICK HERE).

The next challenge is for the invalidated foreclosures to force loan originators to buy back mortgages wrongly transferred into loan pools with defective contracts. Other states will follow Massachusetts, but some will not, as states have the right to their own decisions and determinations. This is the first time the mortgage bond securitization concept is squarely before a high court for ruling on validity. Contract fraud and securities malfeasance triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed. If loans were not transferred properly, the banks that sponsored such trusts may have to repurchase them at a cost potentially in the $trillions, Adam Levitin stated in testimony in the USHouse of Representatives in November. He is a professor at Georgetown University Law Center in WashingtonDC. The broader conflict is over the efficiency of title transfer within mortgage bonds versus the importance than real property law.

Predatory actions have proceeded. Big US banks have been actively purchasing heavily discounted mortgages tied to appraised values, and in the process, have wiped out all of the defendant equity. The courts are steadily upholding that the banks do not have the right to foreclose homes. They are being blocked from the foreclosure step without a mortgage assignment recorded in a local land office, which links to property. At dispute is the assignments, since they tend not to name the assignee. These blank mortgage assignments were never recorded and they were not legally recordable. At issue is this common practice done by sloppy banks, too busy with bond fraud dealings. The American Securitization Forum, an industry lobbying group, said in a November 16th white paper that recent rulings cast doubt on the rule whereby the mortgage follows the note. See the Bloomberg article (CLICK HERE). My ongoing concern is that the corrupted USCongress will eventually pass some law that enables the big US banks to paper over their past contract and securities fraud. They own the USCongress. See the Financial Regulatory Bill that they wrote last autumn, a travesty. It contained only two or three unpleasant pills for the bankers.

The fallout from the court ruling has been quick and immediate. The banking syndicate responsible for colossal mortgage and related bond fraud has four big US banks at its center. Seven of the largest US pension funds have formed their own coalition for action, and have made formal demands. New York City Comptroller John Liu has organized five US attorneys general and comptrollers from New York, Connecticut, Illinois, North Carolina, and Oregon. Together their pension funds control $432 billion in investments. They have demanded that "the boards of directors of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo immediately undertake independent examinations of the banks mortgage and foreclosure practices." The action is clear, the words are weak!! John Liu made a clear statement that technical glitches and paperwork error are not the issue, but something much deeper. He dances around the fraud issue. He has demanded immediate action in the form of a swift unbiased audit in order to protect the interests of pensions for 700,000 active and soon retired New York workers. He needs to force the audit with court action using attorneys, rather than depend upon voluntary action by the banks. The coalition of pension funds called for their Audit Committees to launch independent examinations of their loan modification, foreclosure, securitization policies, and legal procedures. They have started the pushback process at least. The coalition members insist on immediate action, a reflection of the urgency of their concerns over mishandled mortgages. The pension funds will next do battle with the Syndicate. See the Zero Hedge article (CLICK HERE).

◄$$$ BANK OF AMERICA SUFFERED A MAJOR LEGAL DEFEAT IN THE COURTS. THEY LOST A LEGAL BID IN A INSURANCE MORTGAGE LIABILITY LAWSUIT. THE DISPUTE IS WITH M.B.I.A. OVER DEFECTIVE HOME LOANS. A STATISTICAL APPROACH TO HANDLE 368 THOUSAND LOANS GONE BAD WAS APPROVED AS LEGALLY ACCEPTABLE AND BINDING. A SAMPLE OF 6000 (UNDER 2%) WILL BE EFFECTIVE. ALLSTATE HAS A SIMILAR CASE AGAINST BANK OF AMERICA, AS THE PIG PILE OF AGGRIEVED GROWS. ALLSTATE SUED COUNTRYWIDE OVER A $700 MILLION INVESTMENT, AS THE PUT-BACK BATTLES RAGE. THEY CLAIM NEGLIGENCE IN THE HOME LOAN UNDER-WRITING SINCE 2003. THE BIG USBANKS WANT TO DRAG THE PROCESS OUT, IN ORDER TO ATTACH FUTURE PROFITS, BUT ALSO IN HOPE OF NEW USCONGRESS LEGISLATION. $$$

The case will go to the fast track. So far, the USCongress has refused to touch the legal statutes, except for faint gestures. The big US banks are lined up for the kill, many in the same position, like JPMorgan, Citigroup, and Wells Fargo. Bank of America lost a major procedural ruling in a lawsuit over its liability for allegedly toxic mortgages. The ruling could set a standard for similar disputes and remove an obstacle used by the big bank. Bank of America had tried to set a high bar for plaintiff MBIA Insurance by requiring that the files for each of 368,000 or more disputed loans be evaluated individually. That process would have cost MBIA $75 million, and required a team of 24 people over four years to complete a full evaluation, the insurer estimated. Instead, the New York State Supreme Court in late December declared that MBIA can pursue its case by focusing on a statistical sample of 6000 disputed loans, thus paving the way for a trial to proceed as scheduled in 2011. Legal analysts and attorneys have called the ruling a huge setback for Bank of America and their heavy handed defense. The MBIA case is at the forefront of a widening battle over troubled mortgages, where many bond transactions included money back guarantees in the legal fine print. BOA and other big US banks (corrupt and insolvent) are facing legal demands that they buy back $billions of loans from investors, maybe over $1 trillion worth. The loans are alleged to never have satisfied the lender quality assurances, known as Representations & Warranties. In other words, they were defective, and assembled into bonds in haphazard reckless fashion that resulted in massive losses. See NINJA and No-Doc loans, at the center of controversy.

The MBIA case is a variation on the theme. It focused on loans issued by Countrywide Financial, since acquired by Bank of America, cesspool and all. When Countrywide pooled loans into securities and sold them to investors, MBIA provided insurance coverage on the principal and interest payments to bond investors in the event the borrowers defaulted. In the lawsuit, MBIA seeks to recoup money lost in honoring its insurance policies. The strategy by BOA is to stretch out any required costs and damages over several years, cutting into future profits. Newly appointed CEO Brian Moynihan described the battle over the loans as day-to-day, hand-to-hand combat in his words. Notice the tombstone in red, which needs some white powder sprinkled.

MBIA has argued that the Countrywide breaches to proper loan underwriting were pervasive. An MBIA review found that 91% of defaulted or delinquent loans in 15 Countrywide loan pools show material discrepancies from underwriting guidelines, MBIA wrote in its lawsuit. Allstate Insurance, which bought more than $700 million of Countrywide mortgage backed securities, filed a lawsuit against Bank of America of similar type in the following days, making similar claims. Allstate said Countrywide systematically approved loans that deviated from its own guidelines for such loan to value ratio measures and debt to income ratio measures for borrowers. Also at issue is the owner occupation clause for certain better loan rates, so alleges Allstate. In an internal e-mail from 2006, snagged by Allstate, a Countrywide audit found that "approximately 40% of the Bank's reduced documentation loans could potentially have income overstated by more than 10% and a significant percent of those loans would have income overstated by 50% or more." Think smoking guns. See the Washington Post article (CLICK HERE).

The legal process for mandatory home loan putbacks has begun, in heavy volume. Bank of America and Countrywide have been sued in court by the purchasers of $375 billion of mortgage bond securities, according to Bank of America regulatory filings submitted in early November. The bank acquired Countrywide Financial for $4.2 billion in July 2008. Allstate, the biggest publicly traded US home and auto insurer, recorded a $1.7 billion loss in 2008. The insurer had $102 billion of investments at the end of 3Q2010. In its complaint, Allstate claimed that Countrywide began ignoring its own underwriting standards in 2003 in an effort to increase its share of the home mortgage market. The company adopted an internal strategy to match any mortgage product feature offered by a competitor, in which they mixed and matched the worst features of mortgage products in the industry. Allstate makes the case for reckless ambition. Liberty Mutual Insurance, an Allstate competitor, is also seeking damages in lawsuits over mortgage related investments that suffered ruin during the fraud riddled financial crisis. Last July, Liberty Mutual sued Goldman Sachs in federal court, accusing the firm of misleading investors in 2007 when it sold preferred stock in Fannie Mae. This is a gigantic pile of rotten paper, seeking a putback into the laps of the fraud kings who sold them on Wall Street. See the Bloomberg article (CLICK HERE) and the Zero Hedge article (CLICK HERE).

A colleague who has followed the series of cases on this battle mentioned his view that US attorneys have mutually agreed to drag this out as long as possible, thus maximizing their fees. They nibble around the edges, when the keystone to the whole rotten mortgage securities confrontation is the lack of a perfected property lien. From the beginning, the MERS title database opted not to update the linked liens, as mortgages were sold over and over again. BobO in Wichita Kansas believes the current mortgage holders would be hard pressed to produce a legal lien on 1 out of 100 properties. My best guess is 5% to 10% of liens might be valid, but that could be generous.

HOUSING RECOGNIZED IN DECLINE

◄$$$ THE CONVENTIONAL HOME INVENTORY (LIKE WITH BROKERS AND MULTI-LIST) REMAINS AT A VERY HIGH LEVEL. INVENTORY IS DOUBLE THE NORM FROM EARLY IN THE 2000 DECADE. THIS TALLY EXCLUDES BANK OWNED HOMES IN THE SHADOWS. $$$

◄$$$ THE SHADOW HOME INVENTORY ADDS ANOTHER 50% TO 80% TO THE WORKING SUPPLY, HALF OF THAT FROM PENDING SEIZURES, HALF FROM BANK OWNED UNITS FESTERING ON THEIR BALANCE SHEETS. HOME PRICES CANNOT RISE IN SUCH A DEEPLY DISTRESSED CLIMATE. THE UNOFFICIAL SHADOW INVENTORY IS ANOTHER ONE MILLION HOMES. $$$

◄$$$ THE DELINQUENCY PIPELINE IS FULL ON HOME MORTGAGES, BOTH RESIDENTIAL AND COMMERCIAL. THEY PRECEDE HOME FORECLOSURES. NOTHING CAN STOP THE PATH OF DESTRUCTION, SINCE BANKING SYSTEM REFORM IS NOWHERE, AND SINCE THE MANUFACTURING BASES IS ABSENT. THE HOME FORECLOSURE TALLY ROSE TO 2.2 MILLION UNITS. THE WORST COMMERCIAL NICHES ARE MULTI-FAMILY RESIDENTIAL AND HOTELS. $$$

Significant delays have taken place in resolving unpaid mortgages. The robo-signing of mortgage documents has caused major congestion with languished delinquent loans. The shadow inventory looms over the housing market in a manner never seen before in US history. Talk of a housing market recovery is the height of lies laced in propaganda. Lender Processing Services (LPS) reported the volume of loans moving from delinquency to bank seizure dropped in November during suspensions to the foreclosure process by major lenders during legal disputes and homeowner confusion. LPS says the number of home loans moving into 90-day delinquent status far exceeded the number of foreclosure starts moving out of the 90-plus day category. By end of November, nearly 2.2 million loans were 90 days or more past due, soon to be visited by a foreclosure attorney. Of these, over 30% have not made a mortgage payment in a full year. Also in the month of November, another 261,153 home loans were referred to foreclosure, actually a 0.7% decline from the previous month. LPS says the US foreclosure inventory continued to rise for the fifth straight month. They define such inventory as loans that have been passed on to an attorney but not yet at the final stage of foreclosure sale.

The total US foreclosure inventory rate rose to 4.08% as of the end of November, with 2,157,000 loans working through the pipeline somewhere in the foreclosure process. The big blue thumb sticking out in the process is jumbo prime home loans. These large loans to high quality borrowers are nearly seven times higher than in January 2008. The inventory of Fannie Mae & Freddie Mac prime loans is nearly six times higher. Lastly, the foreclosure inventory of option adjustable rate mortgages is almost five times the inventory in January 2008. So Jumbos, Option ARMs, and Fannie/Freddie loans are an order of magnitude more prevalent in the foreclosure pipeline. New problem loans declined 5.4% from October to November, the only bright spot. The LPS study concluded the total number of delinquent loans is nearly 2.1 times historical averages, at 9.02% of outstanding home mortgage loans, while the national foreclosure inventory is currently at 7.7 times historical averages. What Lender Processing Services describe is a staggering housing market depression, not a recovery. See the DSNews article (CLICK HERE).

The delinquency rate for loans packaged within commercial mortgage backed securities (CMBS) rose again. The December percentage of home loans 30 or more days delinquent, in foreclosure, or already seized by banks rose 27 basis points to 9.20%, according to research and tracking firm Trepp LLC. It is the highest delinquency rate in history for US commercial real estate loans in CMBS bonds. The total volume value of delinquent commercial securitized loans exceeds $61.5 billion. Any hint of reversal during October was overwhelmed in the next months, as November saw a 35 basis point rise and December a 27 bpt rise. Manus Clancy is managing director for Trepp. He said, "Many have speculated that between the emergence of new CMBS lending, the resolution of many troubled CMBS loans, and an uptick in trophy property sales, that the commercial real estate crisis was nearing its final stages. The December delinquency rate underscored that there still may be some nasty surprises in store even as the market shows some signs of healing." Based on the Trepp analysis, multi-family remains the worst performing property type with a delinquency rate of 16.5%. A new blemish category is industrial delinquencies. It spiked last month, to push the DQ rate to 8.97% in December, up a staggering 233 basis points from the month before. The hotel sector logged a DQ rate of 14.31% in December. Despite the bad attention to the retail store sector, its DQ rate is only 7.86%. The lowest category in DQ rate is 6.93% for office space. See the DSNews article (CLICK HERE).

◄$$$ FORECLOSURES ARE LIKELY TO TOP 100 THOUSAND IN JANUARY, AS THE BANKERS MAKE UP FOR LOST TIME FOLLOWING DELAYS. THE HOME FORECLOSURES RESUME THEIR TRAGIC MARCH UPWARD, DRAGGING DOWN HOME PRICES. A FLOOD OF SUPPLY COMES, TO RELIEVE THE TEMPORARY DELAYS FROM SCANDAL AND HOLIDAY REPRIEVE. BANKERS CONTINUE TO DREAM THAT A RECOVERY WILL RESCUE THEM FROM A SWAMP. IT WILL NOT. $$$

The US home foreclosures should hit a record 100,000 in January, as the freeze ends and banks deal with backlogs. They will make up for lost time. Many foreclosures have been put on hold, due to holiday reprieve and the controversial scandals over robo-signers for mortgage documents. Rick Sharga of RealtyTrac expects a massive pickup in home seizure activity. He said, "I would be really surprised if we did not see a probably record quarter in the first quarter of this year. We always have a seasonal uptick in the first quarter. I think it will be accelerated because of delays that the servicers will be making up for in the first couple months." Sharga expects banks to repossess close to 100,000 homes in January alone. The pipeline is eagerly awaiting supply, a dreaded development. Real estate agents are bracing for an increasing number of vacant homes waiting for buyers. Industry observers expect it inevitable that the majority will enter foreclosure eventually. The main issue is a dump of more home supply on a market already bloated with excessive inventory and hidden bank owned inventory. The dumping process will occur over a few months time. Some like Lawrence Yun, chief economist at the National Assn of Realtors, acknowledge a fragile housing market, but cling to fantasy. Yun said, "Hopefully the improving economy, job creation, will provide the necessary housing demand to absorb the shadow inventory that will be reaching the market." Dream on!! Lenders have tightened standards for loan approval, this stubborn wishful thinking mode often described as Extend & Pretend. See the National Public Radio article (CLICK HERE).

New home foreclosures rose 31% in 3Q2010, according to Standard & Poors. Another wave of homeowners ran out of time and avenues. Loan servicers began foreclosure on 382,000 homes in the third quarter, a 31.2% rise over the second quarter, but only a 3.7% rise over 3Q2009. The inventory of homes in the foreclosure process increased to 1.2 million, up 4.5% over the second quarter and 10.1% over last year. News from the past week dampened spirits, as home prices have resumed their downward course, precisely as the Jackass forecasted. Temporary devices such as tax credits, and frozen conditions from robo-signer document scandals cannot possibly offer a sustained lift to the housing market. They provide pauses, no more. Home prices continue to fall in the major cities. A bright ray of light came in the form of first lien mortgages serviced by big banks and thrifts, of which 84.7% were current as of the end of 4Q2011, the same percentage as the previous quarter. See the Barrons article (CLICK HERE).

◄$$$ HOUSING PRICE DECLINES ARE OBVIOUS FOR 2011. THE SLUGGISH PRESSURE HARMING THE USECONOMY IS ALSO OBVIOUS. DENIALS ARE BASELESS, AMATEURISH, AND EVIDENCE OF IGNORANCE. THE HOUSING MARKET AND LABOR MARKET ARE INEXTRICABLY INTERWOVEN, ACTING AS DAMPENING EFFECT ON HOUSEHOLD WEALTH. THE BANK OWNED INVENTORY IS THE GIGANTIC OBSTACLE (HAIRBALL) WITHIN THE SYSTEM THAT MAKES IMPOSSIBLE A MARKET CLEARANCE TO ATTAIN EQUILIBRIUM. THE MAINSTREAM IS REALIZING THE REALITY OF RESUMED HOUSING MARKET DECLINE. $$$

The Case Schiller housing index report hit like cold water in the face. No surprise here, since foreclosures and bank inventory add up to resumed housing market decline, well forecasted by the Jackass. After all, Supply vs Demand does factor into price systems, despite the messianic-like proclamations from heretic bankers and moron-driven drivel from politicians. The housing market is ready for a powerful double dip decline, sufficient to cause a recognized USEconomic recession. The tax credit equivalent of a Clunker Car program has ended. Worse, the mortgage rates have risen. After a brief time above 5.0% on the 30-year fixed mortgage, the prevailing rate has come down to 4.73% but that is much higher than the spring months of 2010, when it was closer to 4.0%. A mini-perfect storm is brewing against the housing ramparts, led by rising rates and tougher lending standards. The USEconomic recovery will not arrive this summer. Claims of economic revitalization will be based upon wrong calculations of price inflation, calling it growth. The contradictions come with poor job reports and resumed housing declines. The drop in home prices went hand in hand with the 31% jump in home foreclosures in the third quarter. As a mass of foreclosed homes continues to slam the market, home prices are surely going to be weighed down noticeably. It is like a series of powerful small tsunami waves that do not let up. The Standard & Poors/Case-Shiller index across 20 major US cities fell 1.3% in October from September, the third straight national decline. Six cities (Atlanta, Miami, Seattle, Tampa, Charlotte North Carolina, and Portland Oregon) have plumbed to new lows. Atlanta showed the steepest decline, with prices falling 2.9% from the prior mo nth.

Major economists continue to focus on the wrong things, like the condition of the consumer, whose reckless capital destruction over the last two decades was celebrated, leaving millions dispossessed as reward. Nothing is more suicidal to an economy than reliance upon a housing bubble as foundation for growth, then converting home equity into consumption. This is the hallmark banner of destruction to the USEconomy, fully encouraged by economists, some of which the Jackass believes wanted to wreck the nation for Syndicate purposes. Housing, labor, and the USEconomy are inextricably interwoven, where far too much of citizen wealth is locked into home equity. Which leads which is irrelevant. What the nation urgently needs is legitimate income sources, not reliable liquidity channels. David Blitzer, the Chairman of the Index Committee at S&P, made a statement where he said "Home prices across the country continue to fall. The trends we have seen over the past few months have not changed. The double-dip is almost here."

A moronic pronouncement came from a Moodys economist. Alex Miron actually said, "We expect house prices to decline again slightly in 2011. We are projecting ultimately they will bottom in the third quarter of next year. We are expecting peak-to-trough decline of more than 30%. Until the market works through those [foreclosed] homes, the house prices are going to be flat [or] down." Yet another stupid Second Half Recovery claim, incredible. The decline has already been registered at over 30%. Moron Miron offered no justification for his opinion of bottoming out in Q3, despite the resumption of foreclosure waves. In fact, he contradicted himself with further comments. Miron pointed to the growing number of homes that are owned in banker inventory, which have passed through the default process but have failed to sell at auction. He said, "These are the homes that are most likely to be sold at bargain basement prices. There are almost one million of [banked owned properties], and the number has been rising for the past three years." Miron must not listen to himself, as his marketing propaganda flows freely. See the Huffington Post article (CLICK HERE) and the Bloomberg article (CLICK HERE). Most economic commentary is totally worthless, if not inconsistent and contradictory. It qualfies often as shallow cheerleading in the face of adversity by reckless compromised fools.

US Federal Reserve policy makers in late December mentioned the depressed housing market and high unemployment as constraints on consumer spending. Therefore they will proceed with their disastrous monetary expansion in Quantitative Easing #2. A voice of reason came from US-based economist Dean Maki, chief economist at Barclays Capital in New York. He said, "We will remain in negative territory for several more months. The housing market does remain weak and none of the recent data suggest a substantial pickup." Basic common sense, sufficient to earn a reprimand.

◄$$$ HIGHER PROPERTY TAXES ARE THE REALITY, DESPITE FALLING HOME PRICES. A PARADOX IS AT WORK. REGARD THE PATTERN AS AN INDICATION OF THE EXTREME DISTRESS TO LOCAL GOVT FINANCES AND CONTINUED PENSION OBLIGATIONS. HOME FORECLOSURES HAVE HAD A HUGE NEGATIVE IMPACT ON TAX COLLECTION LOCALLY. $$$

House valuations have fallen by 30%, but property taxes have not responded in kind. In fact, taxes keep rising. Property taxes continue on an upward path. The massive reduction in home equity delivered a powerful blow to American households, cutting deep wounds in the Middle Class. The continued rise in higher property taxes has created a double barreled blow. Even though house prices have declined roughly 30% nationally since the 2006 peak of the housing bubble, property taxes have continued their decade long rise. Taxes are up $45 billion just since 2008, over 10%. This is the opposite of what one might expect as a result of falling home prices. Local governments are responding to declining sales tax revenues, declining tax income from abandoned and foreclosed homes, by raising all taxes and city usage fees with reckless abandon. To counteract sharp declines in property values, municipalities are raising their property tax rates, squeezing homeowners without mercy. They pursue constant revenues to meet rising costs and continued need for funds to keep the cities and states going with essential services. They have their cost structure and the outrageous pension needs. See the Zero Hedge article (CLICK HERE). The rise in property taxes was a Jackass forecast through 2008 and 2009.

◄$$$ BANKS ARE WIDELY DISHONORING RATE LOCK PROVISIONS WITHIN THEIR MORTGAGE LOAN CONTRACTS. SO FAR THEY HAVE ESCAPED LEGAL PROSECUTION FOR CONTRACT VIOLATIONS. THE BANKS ARE INSOLVENT FROM THE LAST BUST. THEY DO NOT WISH TO GO UNDERWATER QUICKLY ON THE NEXT ROUND, FROM MERE RISING LOAN RATES. $$$

The bank involved is Provident. The subscriber offering her account is CatherineH from California. My advice to her early in the email exchanges was to contact an attorney and enforce the provisions of the rate lock for the home loan. She did battle with the bank in late December. She wrote, "I mentioned the problems I was having with my home loan refinance a week ago. Here is an email from the mortgage broker, who has been trying to get this loan through. So, apparently they are in crisis mode, or say they are. The bank let one lock expire, and then when they approved another lock, they reneged on it too. The original lock was for 3.8%. Then afterwards, they let that expire by not funding the loan. They locked at 4.25% then changed that arbitrarily. There is no longer any rule of law here within contract provisions. Rules and locks are broken for convenience by banks. I will let you know if the 4.375% goes through. Doc signing is tomorrow. I wrote letters to various agencies complaining about Provident. I will let you know if anything comes of them."

The banker wrote to her in explanation. He wrote, "Apparently the market is in a crisis state and all locks are being suspended until the rates become less volatile. I showed them how I sent in for the extension before the crisis mode was put into affect. They told me they would

give me pricing as of 12/10/2010 when it was better than today, but not as good as when I initially sent in for the extension (rate is 4.375%). They told me they would make sure your new final docs would be back at the title company no later than tomorrow, and this is the best they could do. Sincerely, Mike Mueller (President, Trilogy Mortgage)" Amazing, as he admits contract violations with limp apologies.

CatherineH wrote to me in followup. She has done the research with diligence. She wrote, "I just spoke with the notary at our signing today. Although she did not go into detail, she indicated that problems such as ours were happening with a number of banks, and only recently since the low interest rates were rising. Since she is employed by banks and title companies, she could really not name names. I have contacted state and federal agencies. So we will see what happens. If I do not get any satisfaction from them, the next step will be an attorney. Most people roll over on this stuff, but I am not going to. I was on the Federal Reserve site. I looked up information on rate locks, and what I found were a few paragraphs under a section entitled Complaints About Rate Lock-Ins, that contained this passage: But what if your lock-in does lapse? If you believe that the lapse was due to delays caused by your lender or someone else involved in the loan process, you should try first to reach a mutually satisfactory agreement with the lender. If this effort fails, consider writing to the appropriate state or federal regulatory agency. In another part of the section it states: Failing to process your loan diligently, or causing your lock-in terms to expire are improper and may even be illegal. In addition, because you may have contractual rights under your lock-in or loan commitment, you may want to consult an attorney."

USECONOMY IN TRANSITION FOR INFLATION

◄$$$ THE NECESSARY KEY CONDITION TO THE USECONOMY IS JOB GROWTH. WITHOUT IT, THE STAGNATION LEADS TO DEEP DETERIORATION, MAKING LIARS OF LEADING. NO JOB RECOVERY IS REMOTELY IN PLACE, UNLESS ONE COUNTS HALF OF 1% AS WORTH SPIT. $$$

◄$$$ JOB LAYOFFS (RED BARS) ARE A STEADY FEATURE RENDERING DAMAGE TO THE USECONOMY. HIRES ARE LETHARGIC (DARK BLUE LINE). JOB OPENINGS (YELLOW LINE) HAVE TURNED UP, BUT STILL ARE AT A LOW LEVEL. LET'S SEE IF FOREIGNERS FILL THE JOB OPENINGS. NOT MUCH POSITIVE IN THE LABOR MARKET. $$$

◄$$$ THE SERVICE SECTOR EMPLOYMENT INDEX HAS FINALLY TURNED INTO GROWTH MODE, AFTER A DEADLY PLUNGE FOR OVER TWO YEARS. THE OVERALL EMPLOYMENT INDEX STRUGGLES TO TURN POSITIVE. THE PRICING POWER REALIZED BY BUSINESSES WILL SOON EVAPORATE, AS RISING COSTS EAT THE PROFIT MARGINS. $$$

◄$$$ THE NON-SEASONAL ADJUSTED JOBLESS CLAIMS TELL A WRETCHED STORY STILL. OVER 400 THOUSAND PEOPLE ARE LOSING THEIR JOBS EVERY WEEK, WHICH IS SPUN SOMEHOW AS GOOD SINCE NOT HALF A MILLION. NO RECOVERY IS VISIBLE EXCEPT TO THOSE DELIVERING USGOVT AND WALL STREET SPIN. $$$

The raw labor data continues to tell the story of a deteriorating USEconomy for citizens not involved in USGovt bureaucracy or Wall Street financial promotion for primary employment. The fly in the ointment is the decline of 380k claims for federally extended benefits. The important aspect is not so much from jobs found as running out of federal extensions to state benefits. It created a huge distortion in the December mainstream U-3 unemployment report. Thanks to John Galt for simple accurate data, which shows no hint of improvement, in fact, a rise from autumn months. Seasonal adjustment is the biggest distortion technique used in economic statistics reporting by the USGovt. Theirs changes monthly to suit a need!!

◄$$$ THE JOBLESS RATE CONTINUES TO SHOW TREMENDOUS STRAIN. AS WITH JOBS CLAIMS, THE RECENT TREND IS FOR UNDER-EMPLOYMENT TO BE ON THE RISE. THE KEY IS TO AVOID SEASONAL ADJUSTMENT. GALLUP POINTS TO A BROAD POVERTY EFFECT. $$$

Gallup cuts through the divergence between disparate data sets. They admit the labor market is confusing these past few months. They measured a slight improvement in November, which contradicted the USGovt assessment. Gallup put blame on their seasonal adjustment methods, without making sharp criticisms. For December, the Gallup folks reported the jobless rate rose, as companies let go of holiday workers. Their Job Creation Index shows monthly average hiring and firing conditions essentially unchanged over the past three months. Gallup went further to mock the hokey Birth-Death Model. The Gallup method involves no such adjustments. When rejiggered well enough, they can permit any desired lift and result. Gallup surveys take place continuously. They resort to no spin. They wrote, "Whatever the government reports about unemployment on Friday, Gallup's US under-employment data for the end of 2010 show that nearly one in five Americans continue to be unemployed or employed part-time looking for full-time work. In turn, this underscores the importance of job creation as a top national priority. It is therefore too bad the top national priority is and continues to be manipulating stock markets, and creating a wealth effect for some and a poverty effect for most." See the Zero Hedge article (CLICK HERE). A damning accusation!!


◄$$$ THE ECONOMIC STEP-DOWN IS A HIDDEN POWERFUL EFFECT IN THE DE-INDUSTRIALIZATION OF AMERICA. THE JOB GROWTH IS NOT A SUFFICIENT CONDITION FOR THE USECONOMY RECOVERY, CLEARLY. PEOPLE ARE TAKING LESSER JOBS, WITH HUGE DECLINES IN INCOME. FEWER OPPORTUNITIES EXIST, WHILE SURVIVAL DEMANDS TOUGH DECISIONS. $$$

The endless USEconomic recession has an ugly trademark. People are taking steep pay cuts, enduring lasting reductions in wages. People are taking jobs far below their skill levels. Between 2007 and 2009, more than half the full-time workers who lost jobs (held for at least three years) and found new jobs later reported wage declines, according to the USDept Labor. The detail is 36% of them reported the new job paid over 20% less than the previous lost job. An effect rarely seen in recessions since the Great Depression, wages have taken a sharp and swift decline for a significant slice of the labor market. THIS IS A THIRD WORLD HARBINGER. It is worse for many others. The unemployment rolls include 14.5 million people, even 6.4 million stuck jobless for more than six months. A key part of earnings losses, according to the survey, is that workers skills acquired over the last two decades that are fast becoming outdated and obsolete. Then instead of gaining new skills for a higher paying job, they often settle for a lower wage and stop their job hunts, unable to benefit from training. Lack of retraining programs is a huge dropped ball by the USGovt, whose economists cannot find their ass with their hands. Research shows that children of workers who lose jobs and settle for lesser jobs also suffer in a domino effect. A 2008 study conducted by economists tracked the wages of 60,000 father-child pairs from 1978 to 1999. The children whose fathers went through mass layoffs in the 1982 recession ended up with 9% lower earnings. Even those fortunate to remain on the same jobs have seen wage cuts. Many assume more duties too. See the Wall Street Journal article (CLICK HERE).

◄$$$ THE DECEPTION RELATED TO PRICE INFLATION HAS BEGUN, PRECISELY AS FORECASTED HERE. COSTS ARE WIDELY RISING, WITH BROAD RECOGNITION. ECONOMIC GROWTH IS BEING REVISED UPWARD. RISING PRICES ARE BEING EQUATED WITH A STRONGER USECONOMY AND MORE PROSPERITY. NOTHING COULD BE FURTHER FROM THE TRUTH. PRICE INFLATION HAS ARRIVED, SOME IMPORTED. IN ADDITION, PRICE INFLATION IN THE USECONOMY WILL COME FROM THE DENOMINATOR PACKAGE SIZE. THE SNEAKY PROCESS HAS BEGUN. $$$

The financial networks will soon make a gigantic reporting error. They will proclaim the arrival of rising prices as a beneficial sign for the USEconomy. They will regard any pricing power as good, without the wisdom to detect that rising costs are deadly. The networks have little or no comprehension of profit margins for businesses and discretionary spending budgets for households. Both are being squeezed without mercy. On a recent ABC Good Morning America, a somber note was discussed about the general increase of prices across the spectrum in 2011. Popular concern showed when reference was made to a former Shell Oil executive who claimed gasoline prices could reach $5.00 per gallon. The hidden errant consensus is that, like with housing, rising prices means increased economic activity and more business hires. The only distinction worth making is for food & energy. The cost of milk, bread, and eggs, together with the cost of gasoline, form the nucleus of public perceptions, none being good when rising. Several popular news anchors and talk show hosts have warned that the USFed's profligate ways will result in rising prices systemically, but they are often ignored as alarmists and quacks. The heretical viewpoint to be promoted is that the USEconomy is improving, retail is alive, hiring is on the mend, and that prices will rise because we can afford more. What a gigantic lie!! See the Big Journalism article (CLICK HERE). Imagine everything you need in the COST structure rising, but the assets continue to fall in price. It is not just hyper-inflation. It is COST inflation but the other half is DEPRESSION. So assets fall but costs rise. This has been and will continue to be the nastiest INFLATIONARY DEPRESSION in US history.

The falling USDollar and fast eroding world currencies has sparked a commodity price explosion. The cost structures are rising. The USEconomy has seen an acceleration in import price increases. This is deadly since the US imports so much, especially after dispatching much of its industrial base to China. Big increases have been registered in import prices. US  import prices rose 1.1% in December, after increasing 1.5% in November and 1.1% in October. Import prices advanced 4.8% in 2010, with a 3.7% jump in the last three months, according to the US Bureau of Labor Statistics. Translation into price inflation at the consumer level is a lock. Claims of tame price inflation are blatant propaganda deceptions. See the brief Economic Policy Journal article (CLICK HERE).

The powerful effects of monetary inflation have begun to show. The deceptions are everywhere with innovative lies told. In fact, this Greater Depression has been hidden by the USGovt cheerleaders, the USFed high priests, and the Wall Street controllers of the WashingtonDC holy grail where many helm offices are located like the US$ Printing Pre$$. The evidence of price inflation will be subtle at first, then as obvious as a hammer over the head. A sneaky device used by vendors is to reduce the size of packages, but to hold firm on the price. Imagine the extreme when a half gallon of milk is only a quart plus, or two liters is only a liter plus. Announcements have been made by Tropicana whose orange juice containers are 5 ounces less. By Kraft, whose macaroni boxes are a little smaller. By Scott paper products, toilet paper and napkins, whose sizes are a little smaller. By Haagen Daz ice cream, whose cartons are 15 ounces less. Then again, Americans should go on a diet.

◄$$$ DAVIDOWITZ SCREAMS HIS CASE ON THE BROAD RETAIL DISTRESS, WITH DETAILS. HE WARNS OF HUGE UNRESOLVED PROBLEMS WITH COMMERCIAL PROPERTY LOANS, WITH GREAT STRESS FOR LANDLORDS. A PARADIGM SHIFT IS UNDERWAY, FOR SMALLER FOOTPRINT SHOPPING CENTERS, AS THE UNITED STATES FOOTPRINT IS DOUBLE ANYTHING REASONABLE. THE CONSUMER MODEL IS FAST BREAKING DOWN. $$$

Howard Davidowitz does not mince words, as he destroyed the illusion of a USEconomic recovery, pointing out absolutely no consumer renaissance. During an interview by Pimm Fox, retail expert Howard Davidowitz shattered the consensus klapptrapp, with quality content and logical thought. He said, "I am not surprised by the strength of retail sales, because I knew that 30% of consumers are responsible for retail sales, and these 30% did much better because of the performance of capital markets. I do not think it is indicative of anything going forward. I do not think the economy is going to get any better. If you look at our fiscal and monetary policy, we went two trillion dollars in the hole last year. Two trillion, to produce this, and unemployment went up to 9.8%! We have spent two trillion dollars. We are printing money. We are going bananas. Our the balance sheet, we have $2.6 trillion on there, and for what? Look at government securities, and mortgage backed securities. If interest rates go up a point Bernanke's bankrupt. Everything he has bought is underwater. All the mortgage bonds are underwater, the whole country is underwater. Does anyone see the issue now with why rising interest rates, aside from predicting a supposed recovery, may also, courtesy of its [greatly increased wrecked bond investments], actually predicts the insolvency of the Federal Reserve?" Zero Hedge has long called the US Federal Reserve the world's largest hedge fund, a very large and very broken fund. The Jackass one year ago began to argue its grotesque insolvency, which in my estimation has balance sheet worth around minus $1 trillion.

Davidowitz provided several key observations on the supposed retail renaissance. Wal-Mart makes for 10% of US retail sales, has 150 million customers, and its stock it is down six consecutive quarters, not a good sign. Sears is the largest department store in America, but their stock is in terrible shape. Best Buy suffered a huge earnings miss. The financial loss recorded by ToysRUs increased last quarter. Supermarket chain A&P recently filed for bankruptcy. Department store chain Loehmanns just filed for bankruptcy. Charming Shoppes announced plans to close 100 stores. TJMaxx just liquidated AJRight. Davidowitz honed in on Sears for crucifixion. Sears is in the tank, ready to fold its tents in his opinion. Eddie Lampert took over the company recently from his hedge fund position, lacking any conceivable operational experience. He has engrained a policy that departs from price competition. He has not invested in capital equipment upgrades. He has sold his best stores. His online investment has not succeeded. The corporation is gutted, heading for the dumpster, then cemetery. If Lampert were smart, he would sell the company to a greater fool. A joke has surfaced, that A&P might merge with Stop & Shop, with a new corporate name of Stop & Pee, which would open enormous marketing potential.

In addition to dissecting the collapse of Sears, analyst Davidowitz observed what should be a loud glaring alarm signal for guys like Ackman and all those who are betting on the resurgence of the US mall storefront with vehicles like General Growth. The bulk of retail store traffic is moving online, where incidentally the only jobs created are those of packagers and quality control line people either in China or in some warehouse in Texas, California, or Florida. Davidowitz said, "Online sales have to lead you to question the whole retail selling strategy. We have 21 square feet of selling space for every man woman and child in this country. We already have double of what we need. With the explosion of online sales, what happens to all these retail malls and shopping centers which are marginals? Huge changes are going to be taking place as people continue shopping online. A revolution in retail is coming in both size and location of stores, a trend starting with the advent of much smaller Wal-Mart stores. In the end what to do with the retail space is going to be a huge question for retail in the next ten years. That is why Wal-Mart is starting to build smaller stores. That is why Wal-Mart is building more overseas than they are building here. It is going to be the biggest retail change that we have ever seen." The bulldozing of half the US retail malls will be a positive move for economic progress, but extremely disruptive.

The biggest losers in the maverick analyst's estimation will be commercial real estate landlords. Expect great pain for the REIT investments (stock trusts). Howard continues in his railing, making the point of commercial loans next collapsing, a point made by the Jackass for the last 18 months or more. He said "Landlords better start figuring it out pretty quick because they already have occupancy problems, rent problems, and everything else right now. I do not think the Commercial Real Estate (CRE) problems are fixed by any means. That is why we are going to close hundreds of community banks going forward. We are going to close hundreds more. Those CRE debts are coming due and they will not be able to be rolled over. We have lots of problems still coming up in the banking system, and the problems in the real estate issue is here for a long time. In other news, Kool Aid to be served in aisle 5 of the next door Sears box from now until permanent closing time." The man is solid as a rock in his retail analysis, accurate as a sharp knife. See the Zero Hedge article (CLICK HERE) with the included video clip interview of Davidowitz (CLICK HERE).

◄$$$ STATE BUDGET SHORTFALLS AND DECLINING TAX RECEIPTS ARE STARK EVIDENCE OF ECONOMIC RECESSION, NOT RECOVERY. CONDITIONS ARE WORSENING AND APPROACH BREAKDOWN. THE HOUSING MARKET IS A MAJOR FACTOR FOR AN HISTORICAL DECLINE IN TAX RECEIPTS. WATCH ILLINOIS, WHICH IS MAKING DESPERATE MOVES LEADING TO BREAKDOWN. ALSO, WATCH THE DAMAGE TOLL FINALLY HIT COLLEGES AND UNIVERSITIES, WHOSE STUDENT ENROLLMENT WILL SHRINK. SOME WILL SHUT DOWN. $$$

The 50 US States continue to feel a powerful impact from the USEconomic recession. Witness the steepest decline in state tax receipts in modern history. State tax collections have fallen 12% below levels seen in 2001. States continue to face large budget gaps even after making very deep spending cuts over the last two years. At least 46 states must contend with huge shortfalls when adopting 2011 fiscal year budgets. The revenue is hard to secure for supporting critical public services, which threaten hundreds of thousands of jobs. Continued chronic high unemployment will keep state income tax receipts down, while at the same time raising the need level other essential services. Diminished household wealth due to fallen property values will continue to reduce consumption, and thus reduce sales tax receipts. Therefore, expect for state budget shoftfalls to continue to be significantly larger than in the last recession, and last longer. The estimates shown in the graph are all very low and conservative, with clear vested interest to protect their own Muni Bonds. See the article by the Center on Budget & Policy Priorities (CLICK HERE).

A quick story as an example of desperation and bad judment. Illinois legislators proposed a 75% income tax hike. That should backfire badly. Spending cuts have been tough to bring about. Governor Pat Quinn and the leaders of both houses of the Illinois General Assembly have agreed on raising the state income tax. If the bill passes, the plan would raise the personal income tax rate from 3.0% to 5.25%. A standard bill passed earlier for $1000 in higher taxes would jump to $1750 next year and continue over a four year span. Clownish legislators believe the income tax increase, a corporate tax hike, and a $1/pack tax increase on cigarettes can erase the state $15 billion budget deficit. They overlook the impact on the tax change, as usual. The pressing need is repayment of an $8.5 billion loan used to pay overdue bills. Another block would go to property tax relief in the form of annual $325 checks, in lieu of tax exemptions. The state seeks permanent property tax relief. They have no choice but to raise taxes as one part of a solution to the massive Illinois budget crisis. The state deficit could reach $15 billion in the coming year. The government is borrowing money to cover some obligations, letting bills go unpaid for months, and cutting corners everywhere from state prisons to state parks to nursing home aid. The state is in total disarray, in a race to become the first state to go bust in visible fashion. See the Chicago CBS Local article (CLICK HERE).

The internal blemish for the United States is the upcoming string of college & university victims. The United States has a higher education bubble ready to burst in a matter of months.

This bursting bubble will have lasting effects on American culture. The value of higher education is in question, due to reduced career opportunities. The costs of college education in the United States has risen in every single year since 2006, despite the crisis in American wealth reversals. Annual tuition for a private four-year college in America stands at $27,293, up 29% from five years ago. Meanwhile, the the labor market in the US has suffered great erosion. College students have not altered their patterns. They added $106 billion in total student loans for the 2009-2010 school year, up from $96 billion for the 2008-2009 school year. Total student loan debt for Americans currently stands at $830 billion, enough to exceed credit card debt. The endowment funds for US colleges & universities have suffered major declines, reported in the past. They are cutting back in faculty, scholarships, facilities, expansion, projects, sports programs, and employees. Some will shut down, beginning in 2011.

◄$$$ THE 2010 FULL YEAR PERSONAL BANKRUPTCIES CONTINUE TO RISE, DEFYING ALL DECEPTIVE TALK ABOUT A RECOVERY. THE TRAGEDY CONTINUES. THE HOUSING MARKET DECLINE MAKES FOR A POWERFUL DOWNWARD EFFECT. $$$

US consumer bankruptcy filings rose 9% last year versus 2009, reaching a total of 1.53 million, according to the American Bankruptcy Institute. They project the full year 2010 bankruptcies to total 1.6 million. Some good tidings though. The pace of bankruptcy filings slowed in 4Q2010, with fewer petitions in October and November. The ABI director assessed that fewer people stand on the ledge of personal failures. The region responsible for the rise is the SouthWest states, also the Pacific Southwest and the Southeast. The California tally of bankruptcies rose a staggering 25% from a year earlier. In Arizona, they rose nearly 24% like matching housing bubble kill zones.

In 2010, individuals filed for bankruptcy in volumes similar to peak years leading to 2005, when the USCongress passed legislation making it more difficult for individuals to discharge debt under court protection. The 2005 revision of the bankruptcy statute was designed to make it more difficult for consumers to shed their debts. Debtors instead have been directed into Chapter 13 filings, where repayment plans are worked out with creditors in a debt restructure. By contrast, a Chapter 7 filing involves the forfeit of assets and forgiveness of debt, a slate wiped clean. The continued rise in bankruptcies is testimony to the devastating momentum in the USEconomy, pulled down by the housing millstone. In all, over four million consumer bankruptcy filings have been recorded in the past three years. Surveys of debtors by the Institute for Financial Literacy report that while most earn less than $30,000 and lack college degrees, a growing minority are middle-class families with incomes above $60,000 and holders of college degrees. See the Bloomberg article (CLICK HERE) and the Wall Street Journal article (CLICK HERE).

◄$$$ THE CONSEQUENCES OF ARTIFICIALLY CHEAP MONEY, THE COST OF USURY, HAS BEEN WIDESPREAD CAPITAL DESTRUCTION IN THE USECONOMY. THE NATION IS TOLD OF ECONOMIC STIMULUS FROM CHEAP MONEY, WHEN THE AUTHENTIC CONSEQUENCE IS ECONOMIC DESTRUCTION OF THE CAPITAL ENGINES. ENHANCED ACCELERANTS WERE DEVISED TO HASTEN THE DESTRUCTION, NAMELY HOME EQUITY EXTRACTION. THE NATION IS LEFT WITH DEBTS AND VANISHED INDUSTRY, ALONG WITH A LEFTOVER DESIRE TO SPECULATE ON BROKEN TABLES. $$$

Rob Kirby calls 0% money the pox on humanity. He is brilliant and with unique cutting perspective. Putting the cost of money as almost free has contributed to widespread capital destruction in the USEconomy. The 0% usury is the root cause, since asset speculation led to neglect of working capital in industry, then its departure. The 0% usury has required continuous powerful extreme leverage with Interest Rate Swaps to enforce over two decades, resulting in extreme distortion of every financiall market, and granting license for massive fraud. So perverse is the capital destruction, that vehicles like home equity extraction accelerated the process, gutting homes and setting up owners for foreclosure. Hundreds of thousands of Americans fell into the trap. Furthermore, the negative real rate of interest (cost of money minus the actual price inflation rate) and crumbling monetary system are major factors lighting a fire under the Gold & Silver price. The inept US economists remain ignorant of both the fire and the capital ruin. See the Jackass article entitled "The Ultimate Cost of 0% Money" (CLICK HERE).

Thanks to the following for charts StockCharts,  Financial Times,  UK Independent,  Wall

Street Journal,  Northern Trust,  Business Week,  Merrill Lynch,  Shadow Govt Statistics.