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

* Miscellaneous Morsels
* The Sordid Bankers
* Yawning USGovt Debt & Monetization
* Broad Powerful Property Decline
* Broken USEconomy Without Crutches



HAT TRICK LETTER
Issue #76
Jim Willie CB, 
“the Golden Jackass”
14 July 2010

"There is no possibility to restore 8 million jobs lost in the Great Recession. We inherited a godawful mess. [There is] no way to regenerate $3 trillion that was lost, not misplaced, lost." -- US Vice President Joseph Biden

"The economy is still in the gravitational pull of the Great Recession. All the booster rockets for getting us beyond it are failing. Home sales are down. Retail sales are down. Factory orders in May suffered their biggest tumble since March of last year. So what are we doing about it? Less than nothing." -- Robert Reich (Labor Secy in Clinton Admin)

"There is nothing like deflation to bring on hyper-inflation. Governments desperate to prop up prices and economies, despite being broke, print reams of money, money that eventually enters the market in a rush, flipping deflation to inflation." -- Merryn Somerset Webb (editor of MoneyWeek)

"The housing market is stabilizing. It will come back as markets do. It will take time for housing to straighten itself out." -- Thomas Hoenig (Kansas City Fed President)

MISCELLANEOUS MORSELS

◄$$$ EQUITY OUTFLOWS WERE HUGE IN JUNE, A CONTINUING TREND. FUNDS ARE DEPARTING THE U.S. FRAMEWORK, SEEKING VALUE AND SAFETY ELSEWHERE. HIGH FREQUENCY TRADING DETAILS READ LIKE A STRANGE NOVEL BOUND IN INTRIGUE WITH LITTLE OR NO REALITY. THE HIGH FREQUENCY ALGORITHMS ARE DOMINATING MOST ACTIVITY, CONFIRMING THE EXIT BY HUMANS, EXPOSING A FRAUD-RIDDEN CORE. $$$

The stock indexes are a distraction from reality nowadays. The Lipper/AMG fund flow data reported $11.6 billion in equity fund outflows, for the week ended July 7th. The Dow surged by around 500 points in four days as Europe sniffed some relief and resolution on sovereign debt. Stocks have made decent upmoves even as mutual funds suffered the biggest weekly outflows in 2010. One favored alternative is investment grade corporate bonds, enjoying inflows of $896 million on the week. Money market funds saw their biggest inflow in 2010, at $18.5 billion. See the Zero Hedge article (CLICK HERE) complete with some sass.

Trading volume has become concentrated in fewer and fewer stocks, as the claim of a broad equilibrium based market has turned into a absurdity. A liquidity analysis by Abel-Noser indicates that the US stock market has now become a concentrated pool in which the top 99 stocks account for 50.1% of total domestic trading volume. In June, the top 20 stocks accounted for a record 28.9% of all domestic volume. The High Frequency Trading algorithms trade fewer stocks with each passing week as firms try to corner only the most liquid stocks. In the process they drive out the actual investors, and slowly ruin the stock market. The fraudulent core is exposed as a fast spinning orb. Not a surprising statistic, the top 978 stock issues account for 90.0% of total domestic volume, while the remaining 17,597 account for just 10% of all trades on a value basis. The leading 5 stocks and their June domestic volume ratios were: SPY (10.5%), Apple Computer (AAPL: 2.84%), Barclays Global iShares (IWM: 1.92%), QQQQ (1.71%), and British Petroleum (BP: 1.39%). The former HFT darlings, are Citigroup (C) and Bank of America (BAC) which managed to remain barely in the top 10. See the Zero Hedge article (CLICK HERE).

◄$$$ THE PLUNGE PROTECTION TEAM USED BY THE USGOVT AND WALL STREET WAS MENTIONED ON C.N.B.C. OPENLY, WITH A MINOR AMOUNT OF DEBATE. THE ARENAS ARE WELL AWARE, BUT NOT THE PUBLIC, STILL A FACTOR SHIELDED BY THE PRESS. $$$

A CNBC guest claimed that without the Plunge Protection Team actions, the stock market would fall badly. The props are that necessary. The network anchor team disagreed in feeble fashion. Guest Damon Vickers of Nine Points Capital had an unexpected moment of frank discussion that took the lead financial network off guard. He said, "Unless the Plunge Protection Team comes in over the next couple of days, the markets are looking very dicey here." The stand-in clown Joe Kernan, the jocular figure rarely with much intelligent to add, asked if Vickers was joking about the PPT. The response from Vickers was, "Absolutely not. It is common knowledge that the government steps in and does things to step on the gas and buy stock here and there." Even toady guest on the CNBC set Byron Wien showed umbrage with a pithy denial. The PPT is using any hint of decent economic news to trample the shorts into a forced cover of positions, which means almost no new funds enter the stock market. See the Zero Hedge article and the brief video clip (CLICK HERE). The CNBC crew is either deeply ignorant, incredibly naive, thrives on lies, or well paid to deceive. Personally, their greatest value comes with the sound off, as my preference is to gaze at the Aussie Sheila named Mandy during deep thought and telephone conversations. She has plenty intelligent to say too, unlike most of the American cast in the fictional production laced with occasional comedy.

◄$$$ TAX HIKES ARE SOON TO KICK IN FOR AMERICANS. PEOPLE WILL BE SLAMMED AND SHOCKED. MAYBE THE CAPPER WILL BE THE HOME INSPECTION TAX FROM THE PROPOSED CAP & TRADE SHAM IF THAT DEEP CON LEGISLATION EVER PASSES. $$$

After nearly a decade of federal tax cuts treated by the Republican wing of the political cabal, Americans could awaken New Year's Day with a nasty hangover treat from the Democrat wing of the political cabal. Numerous tax breaks linked to child tax credits and the death tax are due to expire then. Higher tax bills will be the new norm for nearly every American citizen. Scott Hodge is president of The Tax Foundation. He said, "We have never in history seen anything quite like this, where such a major portion of the tax code is set to expire on a single date and affect so many Americans all at once." Consider it change you can believe in. Phase-out would trigger tax increases for small businesses. Two thirds of small businesses are taxed at the top rate, set to move to 39.6% from 35% currently. Obama ran on campaign promises not to raise taxes, but is doing the opposite. One is hard pressed to find a single campaign promise honored by the man, mainly financial disclosure, tax relief, and the war cutback. The public is deeply concerned about deep deficit spending, and the prospect of not digging out of the debt hole. Federal spending is out of control, unsustainable, and could destroy the nation. Actually, it will likely destroy the USDollar via global abandonment as creditors observe the threat to their debt securities holdings. Typical Americans are soon to suffer shock, many frozen in action, unsure how to proceed with spending and investments. See the Pittsburgh Live article (CLICK HERE). My political overview is simple, that the Left and the Right represent mere jacket color differences to the syndicate. Anyone who expects change for the better from a jacket change after four years is a moron deserving of residence in a Third World nation, stripped of wealth. Jacket changes mean different committe heads, like flipping chapters in a tragedy.

Details can be cited. Broad tax cuts enacted in 2001 and 2003 will expire unless the USCongress extends them. President Obama has proposed extending some tax breaks, like for couples with under $250k in annual combined income. The Tax Foundation produced analysis that includes summary items. Married couples with two children and a $50k income would face income tax due to triple to $2825 a year, while a married couple with no children earning $1 million would face an increase in income tax of $44k per year, to reach a total bill of $298,510. The impact will be felt immediately in the first paycheck in 2011, sure to cause a public outcry. Some summary items:

  • Across the board income tax increases of 3% to 5% for every bracket
  • The so-called death tax on estates would return after a one-year hiatus, at 55% on estates over $1 million
  • Capital gains tax would rise to 20% from 15%, and dividends tax would rise to 39.6% from 15%
  • The child tax credit would be cut in half to $500 per child.

In particular, health care costs are due to rise fast, very fast. Welcome to the National Health Care Project, where cost of care for the uninsured and poor will fall on the general public. Subscriber BenR in North Carolina wrote, "In speaking with Health Insurance agencies that I am contracted to sell through, effective January 1st of 2011, everyone's Individual Health Insurance will be going up three times the premium. So, if a family is currently paying $420 a month, their new premium will be approximately $1260 a month." Remember the defensive cry by the Obama Admin proponents, that the program will pay for itself. There is nothing like a big hefty tax hike during an endless recession to prick the public. Retail analyst Howard Davidowitz argues that new regulations governing loans to small businesses are only making matters worse, which will result in community banks packing up and quitting, in his words. Over 500 new financial regulations are set to hit the system, owing principally to the highly confusing Health Care Program thrust upon people and businesses. Many businesses are frozen in inaction (expansion, hiring) due to the blitz of regulatory and taxation changes, as uncertainty is the new norm. My view is a firm one, convinced from the start that Obama's objective has been to destroy the USDollar and USEconomy so that martial law can be imposed, a backdoor marxism path. While Bush II seemed corrupt, but Obama seems amateurish.

The American public is fed a constant stream of spin, myths, and utter lies about both the condition of the USEconomy and official actions to improve it. Informed decisions are a major challenge in the current climate. Some things are certain. Tax hikes are coming. The Gulf of Mexico is a mess. Almost every state is dead broke. Banks are not lending. Credit cards are as if from loan sharks. Regulations in the US are cumbersome. Corporations still look to exit the US in favor of foreign locales. And lastly, much of the USGovt stimulus aid foreign economies more than the USEconomy, a sick byproduct of mind-numbing structural imbalances. Recall that Third World nations lack an adequate industrial base, and that is the imbalance referred to.

◄$$$ MEDIA OWNERSHIP CONCENTRATION HAS RESULTED IN A STRANGULATION OF THE FREE PRESS AND A DIM OF THE BRIGHT LIGHT IN ITS PROMISE. THE UNITED STATES HAS THIRD WORLD PRESS NETWORKS. $$$

Harken back to 1983. At the time, Ben Bagdikian was labeled an alarmist in his book, "The Media Monopoly" concerning concentrated power. He cited how 50 corporations in 1983 controlled the vast majority of all news media in the United States. In his 4th edition, published in 1992, he wrote "In the US, fewer than two dozen of these extraordinary creatures own and operate 90% of the mass media." The group controlled almost all of America's newspapers, magazines, TV & radio stations, books, records, movies, videos, wire services, and photo agencies. Bagdikian predicted the oligoply would over time consolidate to about half a dozen companies, a call greeted with skepticism at the time. When the 6th edition of "The Media Monopoly" was published in 2000, the number within the oligopoly had fallen to six, precisely as warned. In 2004, Bagdikian's revised and expanded book entitled "The New Media Monopoly" demonstrates that only 5 huge corporations, Time Warner, Disney, News Corporation (Murdoch), Bertelsmann (in Germany), and Viacom (formerly CBS), now control the great majority of the media industry in the United States. The conglomerate of NBC by General Electric aspires to join the control center, but surely has a strong niche.

The trend of consolidation and merger has worked to ruin the US Press objectivity, thus rendering it vulnerable to control by powerful groups putting to work important agendas. Anyone who denies that big bankers are involved on media firm Boards of Directors is just plain ignorant. My view is that mergers should be banned in the press & media. Let dying firms die and permit new firms to spring up. Bigger media firms promote the big corporation agenda, and with the Fascist Business Model instituting a corporate & state merger, that agenda is the opposite of populist.

THE SORDID BANKERS

◄$$$ DEBT VALUATION ADJUSTMENTS HAVE MADE A COMEBACK AS AN EXTREME ACCOUNTING FRAUD DEVICE TO PUSH UP BANK PROFITS. INSTEAD OF BOOKING A LOSS WHEN CERTAIN BONDS FALL IN VALUE, THE BANKS ARE BOOKING AN EQUAL GAIN. MUCH OF THIS YEAR'S PROFITS ARE TIED TO THIS FRAUDULENT PRACTICE. SIMPLE VOODOO, TYPICAL OF ENGRAINED ENDORSED AMERICAN FRAUD. $$$

Bank of America and Wall Street have resorted to an accounting fraud technique that was critical over a year ago. BOA will record a $1 billion gain in 2Q2010 from writing down its debts to their market value, so-called debt valuation adjustments. Morgan Stanley also recorded around $1 billion in the same fraudulent gimmick in Q2. In fact Citigroup confirms the method, from a report by analyst Keith Horowitz. Almost 20% of BOA pre-tax income and 60% of Morgan's pre-tax income came from a nifty FASB endorsed accounting rule that allows banks to book profits when the value of their own bonds falls. It is called Statement 159, an accounting rule adopted by the Financial Accounting Standards Board in 2007, which allows banks to book profits when the value of their bonds falls from par. The backward accounting gimmick is back in vogue, an utter abomination. Fluctuations in the value of the debt do not change the amount the banks owe, yet they book a profit. In the past, writing down impaired assets involved booking a loss, honest accounting. This is typical of US banking, pure fraud, endorsed fraud. Counting GSax and JPMorgan, the four banks exploited the rule to account for a bogus 18% of profits. Even Citigroup could have booked $400 million under the accounting rule, estimated Bank of America analyst Guy Moszkowski. These fraud kings are observing each other's fraud with surprising precision. If only they would slip and comment on their narcotics money laundering from the CIA. A footnote, the BOA credit derivatives rose by 34% in Q2, a favorable nether wind from the European sovereign debt chaos. Morgan Stanley's doubled in value and those held by Goldman Sachs Group jumped 86% in value. See the Bloomberg article (CLICK HERE).

◄$$$ GOLDMAN SACHS VICE PRESIDENT PERJURED HIMSELF WHEN DENYING THE FIRM'S ABILITY TO PROPERLY ACCOUNT FOR DERIVATIVES TRADING. $$$

The Goldman Sachs Chief Financial Officer David Viniar testified before a USCongressional panel that the financial firm (bank holding company, syndicate nexus) could not effectively separate its derivatives data from trading in cash securities. He said, "We do not have a separate derivatives business. It is integrated into the rest of our business." Of course it can be separated, especially with their sophisticated computer equipment and advanced software. As a colleague mentioned, "It would be truly amazing that GS does not track the trading of each individual trader, certainly for performance if not bonus reasons. Structured product traders do not trade cash securities. Viniar's testimony is so false, it smells all the way around the world." See the Bloomberg article (CLICK HERE).

Bill Gates of Microsoft once was on a flight sitting next to a Forbes Magazine editor years ago. The editor related a comment made by Gates during the long trip. Gates admitted that the #1 competitor for Microsoft in recruiting the best talent for employment came from Goldman Sachs. Of course GSax can separate the data, if they can defraud so effectively, if they can monitor NYSE trades before they occur so effectively. By the way, a requirement for elevation to VP at GSax, a rite of passage, is a major fraud that eluded the legal authorities, much like a murder to the mafia rite of passage.

◄$$$ WELLS FARGO WAS INVOLVED IN MEXICAN DRUG MONEY LAUNDERING, WAS CAUGHT, BUT WILL NOT SUFFER MUCH IN CONSEQUENCES. THE IMPACT IS SIMPLY A MINOR COST OF DOING BUSINESS, A BOOKED ENTRY. $$$

Wachovia is hip deep (more then knee deep) in Mexican druglord money laundering schemes. Wells Fargo has adopted the messy business through bank merger, which has big payoffs of 25% to 40% cuts, depending on the relationship. The cost to the established big bank is a slap on the wrist and a fine, no big deal. Minor players would serve jail time, fork over huge sums of money, and even suffer RICO asset seizures, but not the syndicate. The method of money transport has been DC-9 aircraft like the ones used in April 2006 at the international airport in the port of Ciudad del Carmen, 500 miles east of Mexico City. It carried 128 black suitcases, packed with 5.7 tons of cocaine, valued at $100 million. The stash was interrupted on a delivery run from Caracas Venezuela to drug traffickers near Mexico City. Worse, and revealing the tight relationship with Wachovia and Bank of America, the smugglers had purchased the big aircraft with laundered funds they transferred through US facilities at the two big US banks. The story was covered by Bloomberg Markets magazine in its August 2010 issue.

The incident was admittedly not isolated. The admissions were made publicly before the US courts, which enforce little if anything with teeth. Wells Fargo admitted in court of failed monitoring to report suspected money laundering by narcotics traffickers, including the cash used to acquire four airplanes used to ship a total of 22 tons of cocaine. Wachovia admitted inability to spot illicit funds in handling $378.4 billion in cash from Mexican currency exchange houses from 2004 to 2007. Know it to be the largest violation of the Bank Secrecy Act in US history, making a mockery of the anti money laundering law. That is like not noticing an elephant trample through your living room at the dinner hour every day, every week, for four years. Of course, they knew. The 1970 Bank Secrecy Act requires banks to report all cash transactions above $10,000 to regulators and to inform the USGovt about any suspicious movement of funds.

No big US bank has ever been indicted for violating the Bank Secrecy Act or any other federal law. That fact is the clincher on syndicate participation, collusion, and oversight. Instead, the USDept Justice settles criminal charges by using deferred prosecution agreements, in which a bank pays a fine and promises not to break the law again. Chalk it up a business cost, at a fraction of the profit from the continued practice. What a cozy deal!! In the view of many analysts, the Too Big To Fail syndrome is an important factor. Indictment of a big bank could trigger a bank run by investors, wreck legitimate depositors, render deep damage to shareholders, and even cause panic in financial markets. The result is carte blanche for bank crimes. In practice, no capacity to regulate or punish the big banks exists, none. See the Global Economic Analysis article (CLICK HERE). The big US banks are integrated parts of the financial crime syndicate that extends widely, even to military contractor fraud. Be sure that US bank money laundering for narcotics is not limited to Mexican operations, but the USMilitary operations are better protected using military contractors and CIA equipment.

◄$$$ ROBERT RUBIN IS THE UBER-MEISTER OF USGOVT FINANCIAL MINISTRIES, IN FULL CONTROL THROUGH SURROGATES LIKE GEITHNER. WHEN RUIN IS THE BYPRODUCT DURING A SYNDICATE ERA, TOTAL CONTROL IS THE REWARD. GEITHNER WAS SELECTED FOR HIS MEDIOCRITY AND THE ABILITY TO CONTROL HIM LIKE A PUPPET. POLICY IS MADE BY RUBIN. $$$

Robert Rubin was one of history's best currency masters at Goldman Sachs. He went on to serve as Treasury Secy in the Clinton Admin, where he assisted Wall Street firms in leasing gold at almost zero cost, dumping the national treasury, suppressing the gold price for a decade, and enjoying obscene profits. He went on from there to Citigroup, where overly ambitious sights attempted to create a bank, brokerage, and insurance giant, except that it went broke in a tremendous failure. A fine resume item by Rubin was the theft of the multi-$billion Native American funds with USGovt and Wall Street collusion. Rubin has moved on to the circus role of managing his malleable puppet Tim Geithner as Treasury Secy, after pushing the mediocre fellow for the job. His resume would best be described for treason charges, not a role of Rasputin in trust. The photo sizes are proportional to their stature.

    

Chris Whalen is a highly respected independent minded fellow. The founder and managing director at Institutional Risk Analytics believes Robert Rubin still pulls the strings in USGovt finance ministry policy, even runs the economic policy in the Obama Admin from behind the scenes through his many surrogates. Leading among them is Geithner. Whalen said, "It comes as a surprise to many people that, despite the fiasco at Citigroup and his role in causing the subprime mess, Rubin remains inside the circle at the White House. Nearly two decades after first migrating to Washington, he apparently is still calling the shots of US financial and economic policy with the full support of President Barack Obama. Working through his favorite marionettes, Treasury Secretary Tim Geithner and Economic Policy Czar Larry Summers, most recently Rubin managed the defense of Wall Street following the great crisis. No matter what Secretary Geithner says or when he says it in public, you can be sure that those utterances have the full knowledge and approval of his handler Larry Summers and their common political owner and sponsor, Robert Rubin." The key question for global investors in USTreasurys and US corporate bond & equity positions center upon issues related to policies that pit the urgent need for fiscal discipline against the desperate need for effective stimulus. Whalen believes the next crisis probably involves US interest rates and the USDollar. In recent months, Rubin has been engaged in a clumsy walk that hardly balances the responsibility of federal deficits against the importance of preserving the USDollar valuation. Whalen, like the Jackass, fully believes this former Goldman Sachs CEO still in the driver seat of the policy bus, despite a skein of wrecks that have left many dead. This is the hallmark of USEconomic policy!

The former genius Rubin effortlessly floats through the chambers of political and finance, without leaving a trail of slime. Not burdened by humility, Rubin once appeared at the right hand of God (err, Alan Greenspan) on the legendary February 1999 Time Magazine cover entitled "The Committee to Save the World" ironically. It was a cursed warning of later collapse. Rubin is the Inside Man Extraordinaire, keeping a cellphone with connections at all times to Goldman Sachs while serving public office and ransacking the national wealth. He has had a hand in the financial regulatory reform resulting in more entrenchment, less scrutiny. Its end result is inconvenience for the financial services industry and more expense for the taxpayer and the consumer. With his watchful eye and guiding hand, Wall Street has managed to dodge the worst effects of public anger at the industry's collective malfeasance, if not syndicated criminal fraud. Whalen implies that Obama's victory to secure the White House post was ensured by the support of Bob Rubin and Goldman Sachs, likewise his prospects in 2012. Campaign promises mean nothing compared to following orders from the presidential masters in the shadows. See the Zero Hedge article (CLICK HERE).


◄$$$ ARROGANCE OF THE USFED COMES THROUGH AS CONTEMPT FOR RATIONAL ECONOMIST ANALYSIS, DESPITE THEIR OFFICIAL TRAGIC DIRECTION AND COUNSEL, WHICH HAS LEFT THE U.S. BANKING SYSTEM INSOLVENT AND THE USECONOMY A WRECK. $$$

Let it be known that US economists are the most incompetent in the world, compromised by their fealty to Wall Street and the USDept Treasury, subservient to the corporate objectives, and prisoners to fiat money system tied to the debt risk. Even the education process is corrupted, by virtue of funding for chairs and foundation scholarships (fellowships) that tilt and twist the perceptions toward the system's continuation. So here we have the USFed bashing its critics, often coming from the internet (like the Jackass analyst), as they tell the general public to ignore anyone who does not possess parchment in display of an Economics PhD. My personal bio at the end of public articles was carefully crafted. It reads "unencumbered by the limitations of economics credentials" and that says it all. My education in economics, mostly self-achievement, avoided the heretic teachings by professors replete with useless formulas and absurdly complex diagrams about Money & Banking (my last course, dropped before completion). Somehow, university textbooks in Economics curriculum failed to cover the current situation of extraordinarily high bank inventory of foreclosed homes, working opposite to an extraordinarily strong decline in home purchase applications, amidst a banking system heavily dependent upon $100 billion temporary intermediate credit lines, while the big banks park their Loan Loss Reserves at the USFed, and the USFed struggles to avoid repeated powerful Quantitative Easing programs. Try to read this last sentence a few times without laughing or crying.

Way back in August 2003, before the launch of the Hat Trick Letter, a unique article was crafted by the Jackass, posted on Financial Sense, which has sinced fallen off the archive list. Maybe it deserves a new submission as a formal rebuttal to the hacks at the USFed itself. Nice idea! The article was entitled "A STATISTICIAN INDICTMENT OF ECONOMISTS: 12 Counts of Incompetence, Deception, Collusion" in which the counts were delineated like in a criminal court procedure. The work was the result of a few years of personal research and notes, as my statistics training left me with a cold impression of pitiful analysis by the economics practicioners, who serve more like front men, paid shills, carnival barkers, and ideologues. Their employ at any of the groups where the Jackass worked would be brief and ugly, with quick dismissal. The indictment listed 12 charges with critical precision:

COUNTS WITHIN INDICTMENT:

1)      Ignorance and Revision of History

2)      Intellectual Support of an Intervention Policy

3)      Disputable Assumptions used as Policy Foundation

4)      Myopic Statistical Analysis Methods

5)      Incomplete Statistical Analysis System

6)      Legislative Divisions to Promote Political Agendas

7)      Institutional Conflict of Interest

8)      Distortion in Economic Reporting

9)      Pursuit of Public Adulation by Fed Chairman (Pied Piper)

10)  Collusion with Corrupt Financial Power Elite

11)  Deceptive Indoctrination of Economic Definitions

12)  Benign Negligence during Pillage of National Gold Treasure

Back to the absurd USFed official criticism and urging. Consider one Kartik Athreya, with Economics PhD from the University of Iowa, no slouch school but only second tier, not Harvard or Univ of Chicago. This former associate VP at Citigroup lasted only seven months before sudden exit, only to land in the back offices at the USFed. So this snob produced a piece of stupidity bound in paper, with little awareness of the USFed track record that has destroyed 98% of the USdollar purchase value since 1913, and enables serial killer recessions, culminating with a systemic breakdown of economics and finance whose failure is playing out in painful manner. The shallow diatribe was spotted on a Bruce Krasting weblog.

Kartik penned an article entitled "Economics is Hard; Don't Let Bloggers Tell You Otherwise" which seems lacking as an apologetic piece. Kartik wrote, "I argue that neither non-economist bloggers, nor economists who portray economics, especially macroeconomic policy, as a simple enterprise with clear conclusions, are likely to contribute any insight to discussion of economics and, as a result, should be ignored by an open-minded lay public... In what follows I will argue that it is exceedingly unlikely that these authors have anything interesting to say about economic policy... Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy... The response of the untrained to the crisis has been startling. The real issue is that there is an extremely low likelihood that the speculations of the untrained, on a topic almost pathologically riddled by dynamic considerations and feedback effects, will offer anything new. Moreover, there is a substantial likelihood that it will instead offer something incoherent or misleading. Economics is hard. Really hard. You just will not believe how vastly hugely mind-boggingly hard it is. I mean you may think doing the Sunday Times crossword is difficult, but thats just peanuts to economics. And because it is so hard, people should not blithely go shooting their mouths off about it, and pretending like it is so easy. In fact, we would all be better off if we just ignored these clowns." His cloaked diatribe had motive to discredit and malign contributors such as Matt Yglesias, John Stossel, Robert Samuelson, and Robert Reich. The supposed case made by this blessed adopted heretic turned out to be four pages of meandering thoughts that lacked cohesion. See the Zero Hedge article (CLICK HERE). My analytic work has often directed attention to vicious feedback cycles that devastate the US financial and economic systems, with apparent blindness shown by our national crew of economists. My work has criticized their hack economists for absurd emphasis paid to sentiment indicators over proven reliable indicators. They support the fiat currency system, and thus rely consistently on controlled indicators (like inflation expectations, or sentiment indexes) that lack any value in any worthwhile framework. Their corrupt thought process is therefore logical.

Kartik Athreya serves as senior economist for the Richmond Fed, who has come to the stage to condemn economic contributors on the internet journals as chronically stupid and a threat to public order. Wow! What a display of myopia, incapable of detecting destruction policy from inside the USFed itself. The Richmond Fed is one of the least prestigious, by the way. He implies that matters of economic policy should be the sole province of the recognized sanctioned priesthood, which carry the proper doctoral credentials like pedigree. However, such discrimination would have excluded David Hume, Adam Smith, and John Maynard Keynes himself.

Tyler Durden of Zero Hedge pitched in with a solid powerful rebuttal. He wrote, "The current generation of economists have led the world into a catastrophic cul de sac. And if they think we are safely on the road to recovery, they still fail to understand what they did. Central banks were the ultimate authors of the credit crisis since it is they who set the price of credit too low, throwing the whole incentive structure of the capitalist system out of kilter, and more or less forcing banks to chase yield and engage in destructive behaviour. They ran ever-lower real interests with each cycle, allowed asset bubbles to run unchecked (Ben Bernanke was the cheerleader of that particular folly), blamed Anglo-Saxon over-consumption on excess Asian savings (half true, but still the silliest cop-out of all time), and believed in the neanderthal doctrine of Inflation Targeting. Have they all forgotten Keynes's cautionary words on the 'Tyranny of the General Price Level' in the early 1930s? Yes they have. They allowed the M3 money supply to surge at double-digit rates (16% in the US and 11% in Euroland), and are now allowing it to collapse (minus 5.5% in the US over the last year). Have they all forgotten the Friedman-Schwartz lessons on the quantity theory of money? Yes, they have. Have they forgotten Irving Fisher's "Debt Deflation Causes of Great Depressions'? Yes, most of them have. And of course, they completely failed to see the 2007-2009 crisis coming, or to respond to it fast enough when it occurred. The Fed has since made a hash of Quantitative Easing, largely due to Bernanke's ideological infatuation with Creditism. QE has been large enough to horrify everybody (especially the Chinese) by its sheer size, lifting the balance sheet to $2.4 trillion, but it has been carried out in such a way that it does not gain full traction. This is the worst of both worlds. So much geopolitical capital wasted to such modest and distorting effect. The error was for the Fed to buy the bonds from the banking system." Wow! That is a comprehensive rebuttal with power and depth.

My personal rebuttal is this entire newsletter, motivated by the forecast of a ruined US banking system, wrecked homeowners, and depleted pensions, followed by a USTreasury default, and the thrust of the nation into the Third World when the USDollar is rejected globally. The displaced US industrial base stands as such an obvious sign of failure. My colleague and friend Rob Kirby has harped on the the original economic policy crime, driving down the cost of money to artificially low levels, forcibly keeping it low, pronouncing victory over inflation, doctoring inflation statistics, and falsely preaching as to what inflation constitutes. He calls it the false cost of usury, which has spawned asset bubbles. Tyler Durden, Rob Kirby, and the Jackass write rebuttals from the same page.

YAWNING USGOVT DEBT & MONETIZATION

◄$$$ USGOVT DEFICITS CONTINUE TO RISE AT BREAKNECK PACE. ALL NORMS ARE BEING SHATTERED. TALK OF THE GAPS DOES NOT BRING ABOUT PROPER ADDRESS. THE DEBT IS A NATIONAL CANCER RUNNING RAMPANT. LEADERS ARE BLIND TO REMEDY, WHICH IS CAPITAL FORMATION AND CREATING AN ATTRACTIVE BUSINESS ENVIRONMENT, ALONG WITH ENDING A PRIVATE SYNDICATE WAR OVERSEAS THAT BEARS STAGGERING COSTS WITH THE MAIN BENEFIT BEING SOLDIERS RETURNING HOME TO DEAL WITH STRESS AND PROSTHETIC LIMBS. $$$

On the last week of June, history was made, but with a shameful ring. The national debt surged $166 billion in a single day last week, the third largest increase in US history. The event occurred at a time when the USCongress was in heated dispute and consternation as to how to reduce spending. They are engaged in a key policy battleground, but have made zero moves in reducing the budget, where the war is still sacred. The one day increase for June 30th totaled $165,931,038,264 which is more than the $140 billion in supposed savings the new Health Care bill is boasted to generate over its first 10 years. The $166B figure turns out to be around $1500 for every US household, equal to 10 times the median daily household income. It was a bad hair day for WashingtonDC. All three of the largest single day debt increases have occurred under the guiding hand and watchful eye of President Obama. The overall trend line is heading up up up. The urgently needed economic stimulus, after the failed first initiative, has been stalled on deep concerns over red ink. Just last week, House Democrats had to use a slick Parliamentary tactic to pass an emergency bill that included significant war spending. It is all about priorities.

The war had a false casi de belli (justification), hidden motives (capture of Iraq's oil supply and central bank gold), massive slush funds (pillaged by Halliburton), deep religious violations (destruction of Askariya Shiite shrine), and a thick narcotics theme in Afghanistan. Vast Weapons of Mass Destruction were indeed found and neutralized inside Iraq, but they were over 99% purchased by Saddam from the USMilitary during previous administrations (an item from a military contractor source). The drain from the war on the USGovt budget, although sacred, has been catastrophic. The topic is taboo for discussion, as those who proffer it have been labeled unpatriotic. Thus indirectly forced patriotism supports an official narcotics role. The beneficiaries are private firms and the syndicate in the $trillions (no exaggeration).

The heads of President Obama's national debt commission painted a gloomy debt picture. Republican Alan Simpson and Democrat Erskine Bowles told a meeting of the National Governors Assn that everything needs to be considered, including curtailing popular tax breaks, such as the home mortgage deduction, and instituting a financial trigger mechanism for gaining Medicare coverage. Simpson, the former Wyoming Senator, and Bowles, the former White House chief of staff under Clinton, head an 18-member commission charged with coming up with a plan by December to reduce the annual USGovt deficits to 3% of the national economy by 2015. Simpson stressed how the entirety of the nation's current discretionary spending is consumed by the Medicare, Medicaid, and Social Security programs. Simpson said, "The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans, the whole rest of the discretionary budget, is being financed by China and other countries." Bowles summarized the debt situation well, when he said "This debt is like a cancer. It is truly going to destroy the country from within. Just think about that: All that money [to pay interest on the debt] going somewhere else, to create jobs and opportunity somewhere else. What we do is not so hard to figure out. It is the political consequences of doing it that makes it really tough." Their conclusions should be either ignored or a plank leading to the Third World. It is a very safe bet that the defense and war budget are off limits.

◄$$$ ERIC SPROTT DELIVERS HARSH CRITICISM TO PAUL KRUGMAN, AND CASTS A SUSPICIOUS EYE AT THE USTREASURYS FOR THE HOUSEHOLD CATEGORY. IT IS A BLATANT LEDGER ITEM FOR ILLICIT MONETIZATION. THIS IS A CRIME SCENE, WORTHY OF CLOSE INSPECTION. SPROTT DIRECTS HIS ACCUSATIONS LIKE A SKILLED PROSECUTOR. SPROTT REINFORCES THE CLAIM OF PONZI SCHEME CITED BY BILL GROSS OF PIMCO. $$$

Eric Sprott of Sprott Asset Mgmt delivered a surgical critique of the USGovt and USFed concerning its blatant discernible monetization of debt. A minimum of intelligence is required to follow the simple arithmetic. He calls the solution to finance the mammoth USGovt deficits to be the actual problem. The solution is not discussed, but rather must be inferred. The Hat Trick Letter is in perfect synch with his line of reasoning and accusation, as the "Household" accounting ledger item is the culprit. Data in bloody detail is offered in his indictment. Sprott points out that in order to balance the budget for fiscal 2009, the USGovt needed to sell $2041 billion in new debt, equal to three times the new debt that was issued in fiscal 2008. No purchasing groups could could afford to increase their 2009 USTreasury purchases by 200%, a simple conclusion. So by process of elimination, the monetization source arises most visibly, but he shows where it appears in the accounting.  

In the latest USDept Treasury Bulletin published in December 2009, ownership data reveals that the United States increased the public debt by $1.885 trillion dollars in fiscal 2009. That much is clear. According to this report, there were three distinct groups that increased their purchases from 2008 levels. The first was "Foreign & International Buyers" which purchased $697.5 billion worth of USTreasury securities in fiscal 2009, a 23% rise from fiscal 2008. The second group was the US Federal Reserve itself. Their published balance sheet reveals an increase in its USTreasury holdings by $286 billion in 2009, a 60% annual rise. Consider that jump to be a direct result of the official USFed Quantitative Easing program announced in March 2009. Quick summaries cover the other groups. Q1, Q2, and Q3 data from 2009 suggests that the State & Local Govts and US Savings Bonds groups were net sellers of USTreasurys in 2009. Then the pension funds, insurance companies, and depository institutions increased their purchases by only a paltry amount. The remainder was purchased by a category called loosely "Other Investors" as a catch-all. This other group purchased $90 billion in 2008, but then jacked up in extreme hyper-drive its purchases to $510.1 billion of freshly minted USTreasury securities so far in the first three quarters of fiscal 2009. On an annualized rate of purchase, the catch-all category is on pace to buy $680 billion of USTreasurys this year, over seven times the 2008 level. So the murky vague "Other Investors" saved the day and financed a gargantuan amount of the USGovt deficit.

Go to the source. The USDept Treasury Bulletin identifies "Other Investors" as consisting of Individuals, Government Sponsored Enterprises (GSE, as in Fannie Mae & Freddie Mac et al), Brokers & Dealers (who sell as intermediaries), Bank Personal Trusts & Estates, Corporate & Non-Corporate Businesses, Individuals, and Other Investors. It is far-fetched to believe parties in these groups had $700 spare billion to invest in the USTreasury market in fiscal 2009. Sprott dug deeper, like a surgeon looking for an abscess full of puss. The Federal Reserve Board of Governors Flow of Funds Data provides a detailed breakdown of the owners of USTreasury securities to 3Q2009. Within these parties, the GSE group acted as small buyers of a mere $5 billion this year. Brokers & Dealers were sellers of $80 billion. Commercial Banks were buyers of $80 billion. Corporate & Non-Corporate Businesses collectively were buyers of $11.6 billion. Add these cited parties to arrive at a net purchase of only $16.6 billion. The huge increase of purchases in 2009 came solely from one source within the "Other Investors" group.  It is defined in the Federal Reserve Flow of Funds Report as the infamous "Household Sector" which is a grab bag catch-all miscellaneous ledger item. The Hat Trick Letter has honed in on this corrupted ledger item in past reports. This category purchased $15 billion worth of USTreasurys in 2008, then jumped with jet (printing press) assist in 3Q2009 to a staggering $528.7 billion in purchases, a 35-fold increase. The Household is on track to buy $704 billion worth in all fiscal 2009. Hold onto your seat. By the end October 2009, the "Household" accounting category owned more USTreasurys than the US Federal Reserve itself. That is correct. Monetized USTreasury bonds account for more than what the USFed holds. SO WHERE EXACTLY ARE THE USTBONDS HELD???

The bulk buyers of the $1885 billion in USTreasurys through Q3 of 2009 were:

1. Foreign & International buyers which purchased $697.5 billion

2. The US Federal Reserve which bought $286 billion

3. The Household Sector which bought $528 billion (think printing press).

To say this makes little sense is a grotesque under-statement. The pensions, banks, brokers, and corporations are under great stress, one and all. Sprott points out that this gigantic "Household" investment was made beyond the scope of Money Market Funds, Mutual Funds, Exchange Traded Funds, Life Insurance Companies, Pension & Retirement funds, and Closed-End Funds, which all have distinct reporting categories. The big question is begged.

The Household Sector is actually just a catch-all category. It represents the miscellaneous buyers left over who cannot be categorized easily. In the past, the values for the Household Sector are calculated as residuals, securities on loan across groups, even inclusive of rounding error. To quote directly from the Flow of Funds Guide, "For example, the amounts of Treasury securities held by all other sectors, obtained from asset data reported by the companies or institutions themselves, are subtracted from total Treasury securities outstanding, obtained from the Monthly Treasury Statement of Receipts & Outlays of the United States Government and the balance is assigned to the Household sector." What is the Household Sector? It is a combination of miscellaneous, ledger adjustments, and blatant monetization. Sprott calls it a PHANTOM that does not exist, but serves the purpose to balance the ledger in the US Federal Reserve Flow of Funds report. The monetization is no longer hidden. He concludes that USTreasurys have become one giant Ponzi scheme. Much remains after the USFed purchased almost 50% of the new USTreasurys in Q2 and almost 30% in Q3, under the direction of Quantitative Easing. The utter failure lies in USTreasury Bonds issued, unable to attract outside capital to finance deficits, whether new of rolled over. The printing press is one of the world's greatest inventions, for the mass production of books. The fiat monetarists led by the banking syndicate have turned the invention on its head, printing money that like a cancer destroys capital. The next chapter of history will include books on how the monetary printing press destroyed the Western economies. What irony!!

Bill Gross of PIMCO recently disclosed that the giant bond fund cut holdings of USGovt debt and raised cash levels to the highest levels since 2008. His fund is a net USTBon seller recently. Earlier in 2010 he called the US a 'Ponzi Style Economy.' The comment barely attracted attention, since the USTreasurys are considered a queer safe haven security. All Ponzi schemes eventually fail under their own weight. The US version being no different. Foreign USTBond holders share their worry openly. Zhu Min is deputy governor of the Peoples Bank of China. In a recent discussion on the global role of the USDollar, he told an academic audience that "The world does not have so much money to buy more USTreasurys. The United States cannot force foreign governments to increase their holdings of Treasuries& Double the holdings? It is definitely impossible." With foreign sources unwilling or unable to support USGovt debt, the monetization card will be used repeatedly and powerfully inside the desperate US quarters. When the process is more widely recognized and publicized, the USDollar will be trashed. It is that simple.

Sprott wrote, "We are now in a situation, however, where the Fed is printing dollars to buy Treasurys as a means of faking the Treasury's ability to attract outside capital. If our research proves anything, it is that the regular buyers of US debt are no longer buying. It amazes us that the US can successfully issue a record number Treasurys in this environment without the slightest hiccup in the market... [The year] 2009 has been witness to spectacular government intervention in almost all levels of the economy. This support requires outside capital to facilitate, and relies heavily on the US governments ability to raise money in the debt market. The fact that the Federal Reserve and US Treasury cannot identify the second largest buyer of Treasury securities this year proves that the traditional buyers are not keeping pace with the US governments deficit spending. It makes us wonder if it is all just a Ponzi scheme." He describes in detail the blatant concealed illicit monetization!

◄$$$ THE USFED HAS STOPPED THE OFFICIAL MONETIZATION (Q.E.) PROGRAMS. SECRETLY, MUCH OF THE NEWLY ISSUED USTREASURY DEBT IS BEING FINANCED BY DRAWING DOWN THE EXCESS RESERVES OWNED BY BIG BANKS, AS CASH HELD AT THE USFED. SO BANKS ARE FUNDING THE NEW DEBT, WILLINGLY OR BY COERCION. $$$

The US Federal Reserve continues to soak up the bulk of USTreasurys issued. Since the retirement of the official Quantitative Easing programs on April 1st, some tell-tale signs are visible of shenanigans, again playing with the balance sheets, but not announcing the tactics publicly. The volume of securities held outright by the USFed is flat on a net basis. The Emergency Programs for all intents and purposes are wound down, inactive. Both are flat. Notice the Supplemental Liquidity Program (SFP), slowly being drawn down since January, reduced by $175 billion. Something must have entered the equation to continue purchasing USTBonds as new demand. The easy conclusion is that Excess Cash Reserves are funding USTreasury Bonds, which essentially are a gradual removal of the Loan Loss Reserves of big banks posing as surplus excess. So big banks, truly insolvent, are having their cash funds designed for handling losses removed. Big banks will run naked. The banks will likely take fewer risks, and lend even less. Furthermore, the USFed will lose its most healthy equity, and will be exposed as bankrupt insolvent. The Excess Reserves helped to show the USFed as solvent. Whether a deal was struck with banks to use their cash, or whether coercion, time will tell.

Reader Don from Zero Hedge weblogs pitched in with some sterling analysis. Let him summarize the sleight of hand. He wrote, "The net printing shown above has come through a decline in bank Excess Reserves. Whereas before such declines in Excess Reserves were met by Fed sterilization through a shrinkage of the Fed's own balance sheet (for example, see May - July 2009), nothing of the sort has happened this time. That money is just being allowed to enter the system, period. The next logical question is where the bank lending that has replaced the Excess Reserves is heading. Well, we know it is not hitting the consumer debt market, given the latest Fed reports. Consumer credit has continued to shrink, and the government is the only marginal lender. And just 20 days later, risk assets began falling hard. It seems doubtful that they are ramping up risky lending at a time like this. My theory is that the money has floated into the Treasury market. A lot of people have wondered how the Treasury would be able to continue running record deficits without the Fed buying. Well, we now know that the banks are picking up a lot of slack in the lending markets, and they are doing so in the midst of very dicey market conditions. Is it that much of a stretch to posit that the Fed reached an agreement with them whereby the banks would take over where the Fed left off?"

◄$$$ OBAMA WAS RECKLESS AT THE G-20 MEETING IN TORONTO, AS HE URGED EUROPEAN NATIONS TO BE MORE PRUDENT WITH SPENDING MEASURES. THE USGOVT DOES THE PRECISE OPPOSITE. IN FACT, SPENDING RESTRAINT BY EUROPE ACTUALLY WOULD LEAD TO THEIR WEAKNESS IN THE NEAR TERM, THUS GIVING A BOOST TO THE USDOLLAR. $$$

Michael Hudson is a hard hitting geopolitical economic analyst. He criticizes President Obama for irresponsibility at best and hypocrisy at worst. While the USGovt has racked up almost $3 trillion in deficits for the two years running, Obama urges Europe not to go too far in its austerity of government spending. What a travesty! The man implicitly advises allies in Europe not to force a grand recession and produce an army of unemployed, but the pathway is from total wreckage of government fiscal conditions. The source of USGovt deficits is not so much demographics as interest on debt, junk loans, funding Black Holes, and massive financial fraud on Wall Street with their impaired bonds redeemed at rosy prices. Both asset backed bonds and sovereign debt bailouts will go bad, as the economy lacks recuperative powers. Unfortunately, the tragedy continues since creditors are to be paid only at the economy's expense. The economic victim is capital investment, employment, and social spending. Any interest rate rise would shatter the budgets altogether, thus the 0% trap will become a permanent fixture. Proper cost of money is a thing of the past, a major Keynesian casualty.

The prevailing financial strategy and pathway is the problem, since it is predatory. Given a choice between operating the banks to promote the economy through capital formation, job growth, and efficient resource allocation, OR running the economy to benefit the banks, assuring bonuses, and redeeming failed balance sheets, the US bankers in full charge of the USGovt always will choose the latter alternative, taking care of their own. The Clinton Admin remains a key portal in my view for the USEconomic destruction, as Goldman Sachs was invited to manage the USDept Treasury. The rest is history, the subject of six years of Hat Trick Letter analysis, documentation, and chronicles of the unmitigated broadbased ruin. The Obama Admin has continued the government of the banks, by the banks, for the banks. He speaks against austerity since foreigners must support the wrecked US$-based bonds that clutter their banks. If the United States is to wreck its finances, then the Competing Currency War dictates that foreign nations wreck their finances with equal strokes.

Austerity is a ruse. A half century of failed IMF austerity plans has imposed on victimized Third World debtors nothing but devastation and poverty. Not one single example of IMF imposed debt restructure via austere reforms has proved successful, yet this weapon of economic destruction remains a key Anglo device to keep emerging nations poor. Prudent capital formation, efficient resource allocation, attractive regulatory climate, and sane debt management are the path to prosperity is via austerity. After nearly a generation of nothing but asset bubbles and absurd debt management, the commonly accepted austerity is not the path. THE REAL PATH TO PROSPERITY IS SCRAPPING THE SYSTEM, FORCING OUT THE FIAT MONETARISTS, DISMISSING THE MILITARY ARCHITECTS, IMPOSING SOUND MONEY, LIQUIDATING THE BIGGEST BANKS, AND PERMITTING THOSE IN POWER TO BE PAUPERS AND PRISON INMATES. A new tax revenue source could be to visit and taunt bankers in prison, for a fee. Maybe shoot paper clips at them, or at least water squirt guns, as symbols of their accounting fraud and liquidity abuses.

Hudson goes esoteric and abstruse on us with his conclusion. He wrote, "The ground has been paved for this attitude by a generation of purging the academic curriculum of knowledge that there ever was an alternative economic philosophy to that sponsored by the rentier Counter Enlightenment. Classical value and price theory reflected John Lockes labor theory of property: A person's wealth should be what he or she creates with their own labor and enterprise, not by insider dealing or special privilege. This is why I say that Europe is dying. If its trajectory is not changed, the EU must succumb to a financial coup d'etat rolling back the past three centuries of Enlightenment social philosophy. The question is whether a break-up is now the only way to recover its social democratic ideals from the banks that have taken over its central planning organs." See the CounterPunch article (CLICK HERE). Intense but sensible in my view. Keep the fruits of one's own labor, and eliminate insider privilege to wealth.

◄$$$ ONE OF THE FEW C.N.B.C. REGULARS OF VALUE OR INTEGRITY IS RICK SANTELLI. HE DELIVERED ANOTHER NOTABLE RANT ABOUT THE NEED TO STOP FEDERAL SPENDING. AS A BREATH OF FRESH AIR, SANTELLI AGREED TO APPEAR AS GUEST TO ERIC KING ON THE RADIO SHOW OF GROWING FAME. $$$

Another instant Santelli classic hit the airwaves in late June, which went simply "Stop Spending, Stop Spending, Stop Spending!!" in unmistakable English. In a typical commonly viewed debate on CBNC, another in a series was stirred about the state of USGovt spending and taxation. Rick Santelli ranted for nearly a minute, simply saying  to Stop Spending repeatedly. Network wonk economics reporter Steve Liesman, whose arguments seem bought & paid for by the Keynesian Kastle of Klutzes, then mentioned some official statistics. Santelli erupted. He usually makes excellent arguments that the volume of stimulus is nowhere as important as the quality of stimulus, and quality has been totally lacking. He has been harping on the mammoth deficits and their scourge. See the Business Insider article (CLICK HERE). The photo of Santelli is how he is common presented.


On a later date, yet another smackdown took place on the national financial network, which increasingly features very attractive women, in the defense of horrible ratings. The inimitable and irrepressible Rick Santelli attacked all that is fiat, alongwith its henchmen. Santelli told Liesman after disgust ran over his countenance, "Go read some Austrian economist instead of the funny pages." Liesman, in lame style, calling on humor since his substance is so vacuous and vapid, replied "I am ready to talk about Fred Hayek, John Hayek, and Selma Hayek." Not without a ready salvo in follow-up attack, Santelli fired back a coup du jour, when he said "Go back to Russia where you understand the state and the citizen." The object of his scorn had spent a few years in Russia as a correspondent, fluent in their language, but cannot spot the growing Politburo committee in the USGovt. The Jackass has always admired the assets of Selma, whose name came up. For Selma Hayek lovers, check out her famous dance on the table top in the wild vampire movie "From Dusk Till Dawn" (1996) with George Clooney, Harvey Keitel, Cheech Marin, and Juliette Lewis (CLICK HERE or HERE). Any able bodied man who fails to respond to that dance has no warm blood coursing through his veins. Sorry, got off track. Don't blame me, since Leisman brought her name up. Just continuing the debate in thorough fashion, as all angles must be examined. What she possesses is better than Laffer Curves! Whether she subscribes to sound money principles needs further research, like an interview.

In the first few days of July, the CNBC business news spokesman from the Chicago Pits went on a prominent radio show. Rick Santelli stepped away from the floor of the Chicago Board of Trade to grant King World News listeners an uninterrupted interview with substance, depth, and realism that should shock mainstream knuckleheads and sheeple. Rick joined the CNBC Business News as on-air editor in June 1999, with several daily live reports. His comments are always meaningful, frank, enlightening, and somewhat entertaining. Occasionally he is not seen for a few days after loud outbursts against the failing system. He might receive coaching during the hiatus. In the King World News interview, his focus is primarily on interest rates, foreign exchange, and the Federal Reserve.  A veteran trader and financial executive, Santelli has much experience and knows that which he speaks, and he speaks freely. In a past life, he worked at the Institutional Financial Futures & Options at Sanwa Futures LLC. In that post, he served as VP in charge of institutional trading and hedge accounts for a variety of futures related products. See the King World News video broadcast (CLICK HERE).

◄$$$ USCONGRESSIONAL BUDGET OFFICE WARNED OF A POTENTIAL DEBT DEFAULT IN THE UNITED STATES. AWARENESS IS GROWING. $$$

The USCongressional Budget Office recently released its Long-Term Budget Outlook. In it they deliver more dire warnings on the projected USGovt debt  to date. They cite Health Care and Social Security as usurping the budget. They warn of fast rising national debt unless lawmakers act. CBO Director Douglas Elmendorf warned, "CBO projects, the aging of the population and the rising cost of health care will cause spending on the major mandatory health care programs and Social Security to grow from roughly 10% of GDP today to about 16% of GDP 25 years from now, if current laws are not changed." The cockeyed aspect pertains to the ludicrous assumptions whereby USGovt spending on activities such as defense and a wide variety of domestic programs would decline to the lowest percentage of GDP since before World War II. Such is wholly unreasonable and derived from fantasy. The CBO cobbled arguments about the federal debt versus GDP that seem unaware that their 2020 forecast has already occurred this year. The CBO made some wishy washy conclusion about long-term changes to spending and consequent revenue impact, the potential damage to the USEconomy, the sacrifices across generation lines, and required adjustment times. All in all, the CBO painted a scary picture, even if using coke bottle glasses.

◄$$$ THE POWERZ NEED A DEFLATION SCARE, BUT ONLY WITH A DECLINE IN GOLD & SILVER PRICES SIMULTANEOUSLY. THE SCARE WILL OPEN THE POLITICAL PATHWAY TO ANOTHER HUGE ROUND OF MONETARY INFLATION, FULLY ENDORSED AND BLESSED. BUT THEY MUST HAVE ANOTHER SCARE, SINCE OPPOSITION IS PREVALENT. $$$

Jesse of the Cafe Americain echoes perfectly the Hat Trick Letter sentiment about the need to conjure up a frightful event in order to gain political approval for another massive monetary inflation initiative. The attitude to cut spending and to be fiscally responsible that has swept the USGovt in the last couple months is about 20 years too late, and totally out of place, given the degree and depth of the current crisis. The USEconomy is collapsing. The US banks are insolvent. It is like ordering an oil change on a car with a ruined engine, a missing gas tank, and the driver seated backwards. Structural defects must be addressed. Again, the United States has the worst and most intellectually corrupted economists in the world. Below, the word 'fascist' is used in the context of merged corporate & state. Think Wall Street banks.

Jesse wrote brilliantly, "Bernanke knows how unpopular he and his fascist institution are right now after all of the crimes they have committed in plain view since 2008. As such, he knows he needs cover for QE2 and that means some sort of deflationary shock that scares the masses and makes many clamor for help like sad, scared little children (we are being conditioned like animals). This is why I think the Fed and others have been fine with the recent market plunge. The only issue for them is they absolutely need gold, silver, and other commodities to collapse as well. Bernanke cannot have the S&P500 at 850 and gold at 1200 and announce QE2. Gold would surge to new highs and it would look horrible. This is why so much emphasis is being placed on getting gold and silver to retreat in a major way via propaganda pieces and also likely surreptitious selling behind the scenes. While there has been a decent pullback, it is nothing close to what they need and I am particularly impressed with how well silver is hanging in. I think this is due to a run on physical silver by investors and the dearth of government or central bank stockpiles to sell in the shadows. This is what I mean by the rats being cornered. So far they have failed in decimating the precious metals markets and if they cannot do that in a deflationary scare then they are in huge trouble. Of course they will never stop trying because they are addicted to power and control and will do almost anything to protect their positions. I think a key thing to think about now that we must accept is that they are in a corner, [soon to make] the next move on the chess board." See the Cafe Americain article (CLICK HERE).

The USEconomy suffers from both inflation (rising money supply, rising prices) and deflation (falling asset values, in particular debt securities) in a highly unstable situation masked completely by seemingly tame overall stock indexes, price inflation indexes, and jobless indexes. Many asset groups suffer from very wide bid/ask spreads, as sellers hope for higher prices that do not exist, while buyers wait for prices to fall to where they belong, and banks refuse to lend after risk assessment. Those who find comfort in the financial market indexes, or economic indexes, or LIBOR stability are plain dopey, dumb, and naive who fail to grasp the complexity of the bizarre mixing bowl in chaos. Much more disruption comes to the entire system, since huge sections of the US financial structure need to deleverage and shed worthless assets from the books.

◄$$$ USTREASURY BONDS ARE A LETHAL SAFE HAVEN, A FACT WITH INCREASING RECOGNITION. THE USTBOND IS THE BIGGEST ASSET BUBBLE IN THE WORLD, SINCE THE LAST GREAT BUBBLE IN HOUSING & MORTGAGES. A USTREASURY DEFAULT IS PREDICTED, A POLITE ONE. SUCH FORECASTS ARE CERTAIN TO SPLASH ON FINANCIAL PAGES IN THE NEXT COUPLE YEARS, SINCE THE EVENT IS INEVITABLE. TAKE NOTE OF THE CHINESE DEBT RATING AGENCY, WHICH MADE A SPLASH DOWNGRADING USTREASURY DEBT. $$$

The British economic analyst Niall Ferguson gave a loud public warning placed on a veritable billboard: USTreasurys are the Pearl Harbor of Safe Havens, in his words. The Hat Trick Letter has warned for two years that USTreasurys offer no safety for funds in flight during the credit crisis. The sovereign debt crisis in Europe has not touched the United States, not even a speck. Ferguson concisely captures the risks of a sovereign debt crisis in America. He explains that with the debt load currently carried by the USGovt, the margin of safety is very thin. A slight increase in interest rates would result in an asymmetric increase in interest payments, highlighted in recent HTL reports. Ferguson proposes drastic fiscal reforms to bring the USEconomy back on track, including tax cuts. Most inept economists, the great majority, conclude tax cuts mean tax revenue reductions, when the exact opposite has occurred for decades without their detection. Ferguson assesses that while a reduction of corporate and income tax rates coupled with a simplification of the tax system would undoubtedly spur economic growth, politicians will probably be reluctant to adopt such a solution since it is too obvious and intelligent. Most politician decisions related to the USEconomy have resulted in its bankruptcy and insolvent condition. See the Expected Returns article (CLICK HERE).

Legendary investor Jeff Gundlach believes a USTreasury default is inevitable, as all paths lead to such a grave default. He offered a depressing presentation at a recent Morningstar Investor Conference. The bond guru and founder of Doubleline Capital combines debt apocalypse with negative indicators in the current recession, like the recognized chronic lethal mortgage crisis, to conclude America has only three options: Cut Spending, Print Money with Abandon, or Default on Debt. He beleives the only realistic outcome is Default, although he makes the argument that all three outcomes will likely be present. He said, "Some type of polite [USTreasury Bond] default, at a minimum, will happen." See Jeff Gundlach's Complete Guide To The Inevitable American Debt Default (CLICK HERE). The USGovt will force a default and debt restructure out of expedience, necessity, and power of the gun. Something like a 30% debt forgiveness writedown will be forcibly imposed. After the event, the USDollar will be trashed globally. The timing is uncertain, maybe in the next two years, maybe longer. It depends upon the arrival launch of a competitor global reserve currency fashioned of gold-backing. If & when such a gold-backed reserve currency is launched, then the USTreasury default should occur within 12 to 18 months, maybe sooner.

The Currency Wars saw a big dose of lighter fuel tossed on the fire last week when US sovereign debt suffered a downgrade by China's Dagong Credit Rating Agency. Consider it a trade war escalation. Dagong pushed USTreasurys down from number one in the world, to a distant thirteenth place. The Chinese rating agency in a stroke stripped Western nations of AAA status, since the US debt agencies sit on their corrupted hands. China's leading credit rating agency has stripped the United States, the United Kingdom, Germany, and France of their AAA ratings, accusing Anglo-Saxon rating competitors of ideological bias in favor of the West. The Dagong agency used its first splash into sovereign debt to establish a bold standard of creditworthiness around the world, giving much greater weight to wealth creating capacity and foreign reserves than Fitch, Standard & Poors, or Moodys. It makes perfect sense. See the Cafe Americain article (CLICK HERE) and the UK Telegraph article (CLICK HERE).

BROAD POWERFUL HOUSING DECLINE

◄$$$ END OF HOME BUYER TAX CREDIT HAS RESULTED IN A SUDDEN COLLAPSE OF PENDING SALES. PRICE ALWAYS OBEYS THE SUPPLY & DEMAND DYNAMICS. HOME PRICES WILL FALL AGAIN, DESPITE THE PROPAGANDA OF STABILITY ACHIEVED. STABILITY IS NOT A FUNCTION OF TIME. $$$

The signed contracts to purchase homes fell sharply, loudly, and noticeably in May. The message is clear: the housing recovery is heavily dependent upon USGovt incentives and subsidies. In fact the entire USEconomy is dependent on them. The National Assn of Realtors reported last week that its seasonally adjusted index of sales agreements for existing homes dropped a whopping 30% in May from April, falling to 77.6 from 110.9. The May mark was the lowest dating back to 2001, an indisputable signal of resumption to the housing sector bear market. The index is down 15.9% from May 2009. My forecast in 2007 was for a two year bear market. My forecast in 2008 was for a two year bear market. My forecast in 2009 was for a two year bear market. My forecast in 2010 is still for a two year bear market. Notice the steady forecast, which is much more palatable and acceptable than what the Jackass was unwilling to state back in 2007, since credibility is important. The forecast in my head at the time was: PERMANENT HOUSING BEAR MARKET FOR THE UNITED STATES, SYSTEMIC FAILURE, AND A CLIMAX USTREASURY BOND DEFAULT. The continuing nature of this historically unprecedented housing bear market has been a steady theme. Supply is huge, demand is propped, and prices have much to fall. In fact, since the bear market was interrupted in 2001 and 2002 by Greenspan, what has come is a double bear market with risk of permanent bear market since liquidation is seen not as an OPTION.

The pending sales index is a critical early measurement of sales activity due to the 1-2 month lag between a sales contract and a completed deal. The sharp index decline was broad based, as pending sales declines ranged from 33.3% in the South to 20.9% in the West, where much damage has already been done. Here is the most important part of the story unfolding. USGovt tax credits clearly boosted home sales this spring. First time homebuyers were in line for a credit of 10% of the purchase price up to $8000, while homeowners who bought and moved also could obtain 10% credit up to $6500. The deadline for participation in the tax credit was April 30th for a signed sales contract. While a droop was widely expected upon tax credit expiration, the large decline was seen as surprising, even a minor shock. Dan Greenhaus is chief economic strategist at Miller Tabak. He said, "We are once again struck by the force of the drop. There is simply no other way to spin the recent housing data as anything other than significantly worse than virtually anyone, including the housing bears (a group in which we find ourselves) envisioned." The impact fell on new home sales also, as May saw a 33% decline to the slowest pace in the 47 years of record keeping. The May decline was the largest monthly drop on record. The USCongress threw a hollow bone to the buyers, with minimal impact. They voted to extend the June 30th deadline on completed sales until the end of September. But the provision applies only to those who successfully met the April deadline on signed sales contracts.

The Mortgage Brokers Assn reported that demand last week for loans to purchase US homes slumped to a 13-year low. Home loan refinance demand also fell hard despite near record low mortgage rates under 5%. Mortgage loan requests to buy homes declined 3.1% in the week ended July 9th, even after adjusting for the Independence Day holiday. They stand at the lowest level since December 1996. Pending home sales and mortgage applications go hand in hand.

◄$$$ HOUSING PRICES HAVE BEGUN A POWERFUL SECOND MOVE DOWN IN PRICE. MOMENTUM HAD BEEN SUSPENDED FOR A FEW MONTHS, BUT NOW RESUMES THE DOWNWARD PATH. IMPACT WILL BE ENORMOUS. THE APPRAISAL PROCESS IS KEY TO PUSHING DOWN PRICES, AS IT RESPONDS TO THE FORECLOSED PROPERTIES NEARBY. $$$

Barry Ritholtz from The Big Picture is a founder of investment research firm Fusion IQ. He believes housing prices are still too high. He expects them to tank, in his words, as we are on our way to a second leg down. He states a basic fact, that home prices are still too high. Even after a plunge of more than 30% from the 2007 peak to the 2009 trough, house prices still did not fall to their long-term Fair Value level based upon incomes and rents of the past century.  Over the next year or so, Ritholtz expects prices will fall but then stabilize at a level at least 10% lower. In his view, the primary factor to drive down prices is the unresolved imbalance between Supply & Demand. The glut is too large, given the current level of demand. The affordabilty factor is often trotted out, but it is irrelevant. Many who might be interested in buying houses have lost their jobs or are whittling down huge debt burdens. So demand is lacking. Also, banks are much more stringent in loan approvals. Ritholtz points out an important asterisk to the equation. Normally, after a bubble, prices return to the mean and shoot right through it with powerful momentum. He sees a housing price overshoot again this time. See the Business Insider article (CLICK HERE).

A powerful factor in home price determination is the appraisal process, which is being driven down by the legions of foreclosed properties. John Walsh is president and founder of Total Mortage. He wrote an opinion article for the National Mortgage Professional Magazine that detailed the difficulties many homeowners are having in securing decent appraisal values on their homes. The huge number of foreclosed and distressed properties on the market is having a profound and detrimental effect on the appraisal process. The typical procedure for an appraiser to determine the value of a home is to examine similar comparable homes within one mile of the target property having sold during the last six months. The key problem is that in most cases, too many nearby homes are under distress or are completed as short sales (seller in negative equity). Often, these same homes would sell for a higher price in a more normal market, but the appraisers cannot make a two-tier system, one for unusual circumstance, another for normal mainstream. The sheer magnitude of distressed properties puts downward pressure on appraisal values from the tremendous volume involved and their prevalence. In other cases, a total lack of comparable home price data complicates the process, when extremely low volume of home sales has plagued some areas. Then the appraiser resorts to a variety of methods to extrapolate the value of the property, but again arriving at a low figure. The outcome when appraisals come in low is expectedly disruptive. The Loan/Value Ratio rises, thus forcing the lender to purchase mortgage insurance, or it causes a lender to reject the finance application altogether, killing the deal. See the Total Mortgage article (CLICK HERE).

The bridge between foreclosures and home prices is clearly the appraisal process, which eclipses the low cost of loans. Low mortgage rates seem to matter little anymore, except to incompetent economists who cannot fully grasp the different hostile climate. The 30-year fixed mortgage rate stands at 4.125%, with the fixed 15-year rate at 3.625%, and the Jumbo 30-year rate at 5.47%, while the official FHA rate is 4.00% on the 30-year mortgage. Notice how the cheap loan factor has become irrelevant. Banks are reluctant, even as buyers are crippled.

◄$$$ CANADIAN HOUSING PRICES HAVE NOT COME DOWN LIKE IN THE UNITED STATES, BUT THAT IS CHANGING. SUPPORT FROM COMMODITY STRONGHOLDS AND EVEN OLYMPIC PILLARS CANNOT MAINTAIN PRICES. CANADA HAS SEEN ITS PEAK, AS DEMAND HAS TUMBLED IN KEY AREAS. $$$

The Globe & Mail has reported that home sales in Vancouver and Calgary have dropped sharply. The Real Estate Board of Greater Vancouver reported last week that home sales fell 30.2% in June. Supply is on the rise, as new property listings rose 1.2% from May and 32% from a year earlier. In the next province eastward, the Calgary Real Estate Board reported sales of single family homes fell 16% in June from the previous month and 42% from June of 2009. Calgary also reported that condo sales fell 14% from a month earlier and 40% from a year earlier. In a seeming contradiction, sales of high-end properties over $1 million in value are on the rise, according to the board. Board president Diane Scott summarized, saying "We are seeing continued moderation in Calgary's home sales in the face of higher mortgage rates, increased inventory levels and a decreasing number of first-time home buyers entering the market." The pathogenesis has been established, the decline process beginning with a major slowdown in demand. The Canadian housing aberration, one to match that in the United States, has begun on the long road downward. Its collapse is not assured, since unlike the US, it has significant commodity wealth to serve indirectly as collateral. In Canada, the top on the housing market is set and done, written in stone. The degree of ultimate decline is uncertain. See the Global Economic Analysis article (CLICK HERE).

Mike Shedlock effectively lays out the pathogenesis of decline. Some elements might occur simultaneously, or in a different order, but the great unwind process begins with a notable plummet in volume. Here is the pattern of events in what he calls the Housing Collapse Cascade Pattern:

  • Volume drops precipitously
  • Prices soften a bit
  • Inventory levels rise slowly
  • High-end home prices remain relatively steady for a brief while longer
  • The real estate industry tries to convince everyone it's 'Business as Usual' and homes are affordable because rates are low
  • Bubble denial kicks in with media articles everywhere touting the fundamentals
  • Stubborn sellers hold out for last year's prices as volume continues to shrink
  • Inventory levels reach new highs
  • Builders start offering huge incentives to clear inventory
  • Some sellers finally realize (too late) what is happening
  • Price declines hit the high-end of the market
  • Increasingly desperate sellers get creative with incentives, offering new cars, below market interest rates, trips, etc
  • Gimmicks do not work
  • Price declines escalate sharply at all price levels
  • The Central Bank issues statements that housing is fundamentally sound
  • Prices collapse, inventory skyrockets, and builders holding inventory go bankrupt.

◄$$$ HIGH END VACATION HOME PRICES IN THE UNITED STATES HAVE RESUMED WITH A SHARP DECLINE. THEY SERVE AS A GOOD WINDSOCK INDICATOR OF RESUMED DECLINE, SINCE DISCRETIONARY. $$$

Luxury vacation home sales have faded with the absent USEconomic recovery. After an early 2010 rebound, sales are evaporating like a lakefront fog and beachside mist. People are moving to the sidelines, watching and waiting to see if a Double Dip recession takes root, and thus have stepped back from discretionary property purchases for mountain retreats, beach bungalows, and country spreads. Demand for expensive vacation homes is especially sensitive to economic weakness because it is not driven by a need for shelter. Demand for homes in chic tony resort towns surged in the first three months of 2010, according to local counts. Sales in the Hamptons on Long Island New York more than doubled in 1Q2010 versus a year ago, according to Miller Samuel Inc, a New York property appraiser. In Aspen Colorado, transactions rose a robust 43%, according to Mason Morse Real Estate. In the absence of activity in the Q2, prices have come down across the board while property listings sit idle.

Pent-up demand and skittishness probably explain the first quarter surge. Wealthy buyers had delayed purchases during the financial meltdown that accelerated in 2008, so claims a broker in Osterville Massachusetts from Cape Cod. He cited demand for homes in 2009 priced over $1 million as the lowest in his 28 years of selling seaside properties. He said, "The financial services people we worked with at the beginning of the year were feeling a lot more confident in their futures and in their bonuses than they were in 2009. Now, there is concern about the financial markets and the world economy." The investment bankers and mutual fund managers from Boston and New York must have bitten the stupid bait on the Green Shoots nonsense and now the Jobless Recovery klapptrapp deceptions. Analysts point out how lower rates matter less when qualification standards rule the lending decision process. Another impediment to vacation homes is the 40% down payment many lenders require for jumbo mortgages on second homes. Keith Gumbinger is a VP at HSH Assoc, a mortgage data company in New Jersey. He said, "Vacation homes, especially luxury ones, have always carried more risk for lenders because if you have a catastrophic event like a job loss, the mortgage on your second home is going to be the first bill you do not pay. To get financing, you have to put more skin in the game." Furthermore, wealthy buyers will hesitate to make the larger down payments even when they can, if they are worried about income and job security. The money represents savings rednered unavailable and tied up. After all, it is discretionary spending that reflects feeling confident about the future. See the Bloomberg article (CLICK HERE).

◄$$$ CONDO PRICES IN MANY MARKETS HAVE BEEN CUT IN HALF, LEAVING MANY CONDO OWNERS FROZEN SOLID. THE CONDO NEIGHBOR SALES DETERMINE LOWER PRICES FOR ALL, ESPECIALLY WHEN GROUPS OF UNITS ARE SOLD AT DISCOUNT. A CASCADE OF LOST VALUE IS BEING REALIZED. $$$

Bulk condo condominium sales reveal a strong property price collapse, much worse than decline. Stubborn condo owners are refusing to sell since they do not accept low offered prices, not seen as fair. Such decisions put them eventually into deeper negative equity. The condo market is dealing with harsh reality. Often owner sellers define fair to mean equal to or higher than their original purchase price. Their holdout mentality backfires in this harsh market. Many people are learning the difficult news on value, even without selling. Bulk condominium sales of foreclosed units often clear at 50% discounts to original prices. Auction sales tend to be brutal, as part of foreclosures for individuals, even bankruptcies for condo complex owners. In some cases, the clearing price is below construction cost. Mass sales can help establish a bottom for the market, small comfort for those saddled with losses of equity. Often the bottom may be far lower than many current owners realize. See the Business Insider article (CLICK HERE).

◄$$$ COMMERCIAL PROPERTY DEFAULTS ARE HORRENDOUS AND GROWING EXPONENTIALLY, DRAGGED DOWN BY THE ECONOMIC RECESSION AND NATURAL REJECTION OF THE CONSUMPTION MODEL. WHILE RESIDENTIAL HOMEOWNERS ARE UNDERWATER AND GROWING WORSE. $$$

The residential real estate market is well documented as a disaster, with foreclosures (FC) in cancer mode, banks holding FC inventory, and 25 million Americans occupy homes worth less than their loan balance. The main question hovers like a black cloud, whether commercial real estate will follow the same path. My forecast is obviously yes, since it historically does, the same forces at work, and economic conditions in tatters. The USEconomy growth from 2002 to 2006 was built upon the housing bubble and mortgage fraud expansion. My forecast in 2007 and 2008 called for near total destruction of the US banking system, an endless housing bear market, and grotesque homeowner foreclosures amidst rampant insolvency, all of which occurred. The commercial property market cannot rebound in such an adverse climate. The real estate market has morphed into a weighty beast that is largely sinking the overall economy into quicksand. Combine the commercial real estate market ($3.5 trillion debt) with residential outstanding mortgages ($10.3 trillion debt) to arrive at a figure that approximates the annual GDP of the United States. Next compound the risk with huge unresolved leverage found in the real estate market financial underpinnings.

Many loans are headed to default, yet banks maintain them on the balance sheet without resolution, expecting an eventual convergence with par value. This is fantasy. Dr Housing Bubble puts it well, claiming a real estate Frankenstein was created that has a mind focused on the perverse notion that it actually constitutes the economy. Commercial real estate (CRE) is the next tragic chapter in the bursting bubble, a process well along. Its prices have already fallen by 42%. At peak just three years ago, commercial RE values in the US reached $6.0 to $6.5 trillion. Today, CRE values are down closer to $3 to $3.5 trillion, a figure almost equal to the volume of CRE loans outstanding. The powerful decline has caused a skein of defaults across the land. Any further price decline will mean the CRE sector is underwater insolvent in an aggregate sense.

The exponential rise in delinquency rates is troublesome for political and syndicate reasons. Almost no political will exists to bail out the enormous commercial market. Wall Street does not own their debt, PERIOD. Bank failures have increasingly been tied in recent months to commercial portfolio exposure, as much as residential. Many small and regional banks have sizeable CRE debt, having turned sour. Somehow the public and the politicians see no need to save the shopping mall phenomenon, or the fast food craze, or the Big Box retail trend, or the over-built office park theme. The failure of the CRE sector reflects the perverse USEconomy trend directed at over-consumption. It will not receive bailouts. Banks simply are refusing to approve many loans, including the commercial type. Furthermore, banks using USGovt supplied funds must adhere to stricter lending rules. The commonality with both commercial and residential loans screams of crisis, desperation, and ruin. It is negative equity, which no lender will touch in a refinance. Banks prefer to extend terms of the loans, rather than sending them to default. So the properties rot in place!

Over 20 million mortgages in the US are underwater. Harken back a few years ago, when Deutsche Bank estimated that at the ultimate trough of the housing market, nearly half of all mortgages would be underwater. Bear in mind that not all homes have mortgage obligations attached. The DBank opinion was ridiculed as farfetched. Just 10% more in a US housing price decline would bring about the half-way mark of insolvency. New drowning households are added every month to the disastrous figure, as over 7 million are one payment behind or in foreclosure. See the July 7th segment of Dr Housing Bubble (CLICK HERE).

◄$$$ COMMERCIAL EXTEND & PRETEND DELAYS FURTHER WICKED PRICE DECLINES AND BANK CREDIT ASSET LOSSES. THE PRACTICE ACCOMPLISHES NOTHING, DELAYS THE INEVITABLE, AND PROLONGS THE PROPERTY MARKET DECLINE. $$$

A simple Jackass Axiom: As long as bankers delay the credit asset liquidations, the property market decline will remain firmly in place and stuck. So if bankers never force the cleansing of their impaired assets and distressed portfolios, the housing bear market will continue, even permanently. The commercial real estate (CRE) market has avoided a disaster to date, but its reckoning is assured and guaranteed. The practice is known as Extend & Pretend, where banks pretend the loans will be paid in full at a later date, and thus extend terms so as to avoid a painful termination of the loan in foreclosure. In good times, normal times, the practice is a Win-Win situation after a sector revival. But in the current troubled ruinous times, the practice results in much deeper losses for both the bank and the borrower. Banks are on the hook for extraordinary losses, even eventual bankruptcy. The restructure process has turned out to be a revolving door of denial and ruin that does nothing to halt downward momentum. Today's borrowers are not temporarily strapped, but rather chronically distressed and often facing ruin. Worse, the banks are deeply committed to fraudulent accounting. Often they are dead but standing as zombies. The financial health they claim in quarterly reports come from exercises in a fictional version of their twisted reality.

The value of CRE has fallen 42% from the peak, with no recovery. Meanwhile, the commercial tenants in occupancy (office buildings, hotels, retail outlets, distribution centers, shopping malls, small businesses) have removed over 8 million jobs. Consumers have cut back. Retail activity is reduced. Businesses generally have shed payrolls. Debt burdens are broadly borne. Since the USEconomic is so troubled, demand for commercial real estate seems clearly not to recovery to 2007 levels in the near future. Yet banks extend the loans with grace, or desperation, even fantasy. Restructurings of non-residential loans totaled $23.9 billion at the end of 1Q2010, triple the level a year ago and seven-fold over the level two years ago. Banks hold $176 billion of impaired CRE loans, according to Foresight Analytics. Two thirds of bank held CRE loans scheduled to mature by 2014 are underwater, as in loan greater than value, as in negative equity. In 1Q2010, among the CRE loans held by banks, 9.1% were delinquent, compared with 7% a year ago and a mere 1.5% in 1Q2007, according to Foresight. That is a six-fold rise in three years, and steady march in the last year. A steady degradation is taking place in the commercial arena, exactly as forecasted.

Imagine a large investment firm purchased a $100 million shopping mall in 2007, financed it with $10 million of original equity but $90 million of bank loan funds. The mall fell in value to $58 million. The loan is coming due, but the loan is $32 million more than its value. No bank will refinance in a rollover, NONE! Even with a $20 million down payment, the loan would be $22 million over current value. The flip side is these same investment firms CANNOT sell the property, since they would have to produce the $22 to $32 million in cash at closing. Banks choose not to foreclose, since doing so would first force a painful loss, and second would force EVEN LOWER PRICES from the liquidation process. What often happens is, as a result of the mutual quagmire of distress, the bank extends the repayment date of the loan to 2020, and the borrower continues to make interest payments. On the crippled bank books, the loan is marked as performing, but the bank knows of the balance sheet unrealized loss, and will curtail further lending. Parallel to zombie homeowners with negative equity, are zombie commercial owners with negative equity. These zombie businesses do not hire, do not expand, and struggle to survive when in reality they are dead. The Extend & Pretend actually harms the banks in the future, since the loss would be less if suffered today, bigger tomorrow. The disaster is well in place, the dynamics unshakable, future chapters having been written, with only the scenes played. See the Business Insider article (CLICK HERE).

◄$$$ OFFICE VACANCY SURGED IN THE LAST THREE YEARS, AND HAS NOT RELENTED. RECORD HIGHS ARE SET SEQUENTIALLY. THE 2003 PEAK HAS BEEN BREACHED. $$$

Deterioration of the property market is universal. The US office vacancy rate reached a 17-year high. REIS, the commercial property consultancy, reports the office vacancy rate rose to 17.4% in 2Q2010, up from 17.3% in Q1 and up from 16.0% in 1Q2009. A consistent office vacancy rate hovers above the previous 16.9% recession high. Effective rents, a term used to measure the amount tenants actually pay landlords (apart from non-payments), declined 5.7% from a year earlier and 0.9% from the previous three months, according to REIS. The rate of increases has slowed, small comfort. See the Calculated Risk article (CLICK HERE).

◄$$$ FLORIDA HOME SALES ARE DOMINATED BY FORECLOSURES. THIS DEVELOPMENT IS BEFORE THE GULF OIL VOLCANO SPEWED TARBALLS ONTO THE GORGEOUS FLORIDA BEACHES. NEXT COMES TOXIC RAIN INLAND. $$$

Sales of foreclosed homes in Florida comprised almost 40% of all home purchases in the first part of 2010, a terrifying statistic in the words of one analyst. The end result is deeply discounted prices on distressed properties. It was worse in Miami-Dade County, where foreclosure type sales made up 47% of all homes sales in the first five months of 2010, according to RealtyTrac. In Broward County, 46% of all homes sales involved distressed properties. For contrast, consider that under 1% of Florida home sales in 2005 were of foreclosed properties, RealtyTrac determined. See the Miami Herald article (CLICK HERE). LeBron James forgot to do his economic background check before he signed with the Miami Heat professional basketball team. The Miami economy is in a powerful downward spiral, even before the gigantic Gulf of Mexico oil spew. Cleveland might have air pollution, but Miami might soon have toxic rain. Let's see if the Heat play their games next season in Miami.

◄$$$ THE PROPORTION OF HOME MORTGAGES IN DELINQUENCY IS STAGGERING AND GROWING. THE WORST OFFENDERS ARE FLORIDA AND NEVADA. $$$

Over 12% of all existing US-based home mortgages are delinquent or in foreclosure, a staggering figure that cannot adequate convey the hardship and pain. Lender Processing Services reports that mortgage delinquencies continue to rise substantially. The mortgage delinquency rate in May increased to 9.2% nationally, up from 6.9% in April. Furthermore, the nationwide foreclosure rate for the month of May is 3.2%, a full bore assault. Thus a hefty 12.2% of mortgages are delinquent or in foreclosure. Florida and Nevada continue in their national leadership positions, with 22.4% and 21.8% respectively in the combined tally. Without data, let it be known that the Cure Rate of DQ loans, moving to current status in payment, is declining. The USGovt programs are a sham to capture attention, to claim federal responsive action, but they accomplish nothing. The motive by Wall Steet is NOT to disrupt mortgage bond values, since scrutiny might result in examination of their structures. The average number of times a given home mortgage income stream is claimed in a distinct mortgage bond is over three, according to some expert estimates. When people cannot catch up to mortgage payments, they become second class economic participants going through the motions, often certain of their demise in foreclosure or bankrutpcy. The national database of bank held titles on home loans is a travesty of fraud. See the Total Mortgage article (CLICK HERE).

◄$$$ THE MORTGAGE FRAUD INDUSTRY SUFFERED ANOTHER MAJOR LEGAL BLOW. THE PROPERTY TITLE DATABASE AGAIN WAS GIVEN ZERO LEGAL STANDING, WHICH RENDERS NULL THE RIGHTS TO ASSIGN A TRANSFERRED MORTGAGE. HENCE, HOMEOWNERS CAN FLAUNT THE BANKS AND NOT PAY, WITHOUT RISK OF BEING KICKED OUT OF THEIR HOMES. THE PRESS NETWORKS, SUBSERVIENT TO BIG BANKS, HAD BETTER KEEP VERY QUIET THIS TREND IN LEGAL DECISIONS. THE PUBLIC IS DOING STRATEGIC DEFAULTS, AND SIMPLY DEFYING BANKS ON AN INCREASING BASIS. $$$

The potential for successful civil disobedience has never been more ripe. When smaller states out of the spotlight take action, like Kansas, publicity might circulate, but it does not have the impact like when California or New York make a landmark decision with all its attendant bright lights and exposure. The US Bankruptcy Court for the Eastern District of California has ruled that MERS cannot transfer a note (home loan mortgage) for want of ownership. In the May decision in California, the Bayrock Mortgage Corp and Citibank lost their case, once again MERS being the point of legal vulnerability. MERS is the Mortgage Electronic Registration Systems devised by corrupt Wall Street maestros that is backfiring in their faces. It was originally designed to track the property titles, put them in a national database, and facilitate the brisk sales between parties of mortgage bonds tied to those titles that guarantee the income stream from monthly loan payments. The Wall Street fraud kings and the Fannie Mae sewage managers thought concentrated order could aid their cause, when instead the courts have ruled consistently that MERS has no legal standing and cannot serve as the lever that removes a person from the home via foreclosure. MERS holds the titles, but MERS has no legal standing to transfer the home loans in the foreclosure process. The importance of the string of negative court decisions (State Supreme Courts) is significant in permitting home mortgage owners to defy the banks, not make the monthly payments, and remain in their homes without fear of foreclosure and removal. The main people who are abandoning their homes, either volunatarily or succumbing to pressure, are those people ignorant of the law. Below some key passages are taken directly from the interpretation by attorney Jeff Barnes. See his website for general information on the Foreclosure Defense Nationwide (CLICK HERE). See this crucial story by Barnes that exposes a legal hole that obstructs the banks from foreclosures in many cases (CLICK HERE).

The BK Court ruled specifically: "Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note IS VOID UNDER CALIFORNIA LAW." This conclusion was based upon California law cited in the opinion that the note and the mortgage are inseparable, with the former being essential while the latter is an incident, and that an assignment of the note carries the mortgage with it, "while an assignment of the latter [the mortgage] alone is a nullity." As MERS must own the note in order to assign the incident deed of trust, MERS is legally precluded from assigning the deed of trust for want of ownership of the note, and cannot assign the note in any event as it never owned it.

Barnes continued. This opinion thus serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO against a Trustee Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

Barnes continued. This ruling is more than significant not only for California borrowers, but for borrowers nationwide, as this California court made it a point to cite non-bankruptcy cases as to the lack of authority of MERS in its opinion. Further, this opinion is consistent with the prior rulings of the Idaho and Nevada Bankruptcy courts on the same issue, that being the lack of authority for MERS to transfer the note as it never owned it (and cannot, per MERS own contract which provides that MERS agrees not to assert any rights to mortgage loans or properties mortgaged thereby).

Colleague Craig McC pitched in, after following this case in his home state. He has experience in homebuilding and insurance, familiar with legalese. He wrote, "The mortgage securitization mess just suffered another major blow this week in CA. Any mortgage transferred or assigned via MERS appears to have questionable value since the acquiring party cannot foreclose. Will Citi and others be required to adjust their balance sheets accordingly? Will acquirers of such mortgages sue the originators for fraud?" The door is wide open for national civil disobedience directed against the predatory banks.

BROKEN USECONOMY WITHOUT CRUTCHES

◄$$$ THE NEW BREAD LINE IS FROM JOB FAIRS, WHERE UNEMPLOYED WORKERS MUST BECOME THE BREADWINNER AGAIN, FROM WHICH FAMILIES SURVIVE. CONDITIONS TO OBTAIN JOBS ARE WRETCHED, BOTH IN THE UNITED STATES AND ENGLAND. THE ABLE BODIED MIDDLE AGED AMONG THE POPULATION ARE BEING SHUT OUT. $$$

Beware the new Modern Day Bread Lines. They seek a job, not a meal! The new urban version of bread lines is from job fairs, where unemployed workers seek to become the breadwinner again, a desperate struggle for families to survive and to avoid disenfranchisement. People queue for a job fair in New York in the above photo. The share of the US population at working age with jobs in June fell from 58.7% to 58.5%, a big drop from 63% just three years ago. The USDept Labor cites 79 million men in America between the ages of 25 and 65 years, with nearly 18 million of them (22%) out of work completely. The rate in the 1950 decade was under 10%. With eight million jobs losts, and multitudes dropping out of the workforce from utter discouragement, the pool of workers on the Labor Disabled List ready to quickly re-enter the labor force is at a historical high, the potential competition. That includes those working part-time since they cannot find full-time work. In such an environment, employers can keep wages down, be highly selective, offer minimal fringe benefits, and be patient for the right fit.

Dean Baker is an economist at the Center for Economic & Policy Research. His research suggests a growing number of men, especially in disadvantaged, urban, and minority neighborhoods, have vanished from the statistical rolls altogether. Worse still, US workers, lacking the math & science skills from remedial education systems, find themselves without the requisite skills. Americans mock the Chinese for low wages and long work hours, but Asians generally bring to the table far deeper math & science skills. Jeff Weninger of Harris Private Bank, said "Legions of individuals have been left with stale skills, little prospect of finding meaningful work, and benefits that are being exhausted. By our math the crop of people who are unemployed but not receiving a check amounts to 9.2 million [people]." The USEconomy is caught in the vicious tight pull of a recession. It is not responding to badly applied stimulus. It is trapped from a monetary straitjacket governed by 0% but unavailable credit, a shrill signal of a broken credit market.

LABOR CONDITIONS ARE NO BETTER IN ENGLAND. University graduates face the most intense scramble in a decade to secure a job this summer. A survey of UK employers reveals a shocking statistic, as applicants per job vacancy has surged to nearly 70:1 ratio, this while the available positions is estimated to have fallen by nearly 7%. The class of 2010 has been told to lower expectations, as leading corporations in investment banking, law practice, telecomm, and information systems plan to sharply reduce graduate entry level jobs this year. Competition in the jobs market is more fierce than last year, when the applicants to jobs carried a 48:1 ratio. The Assn of Graduate Recruiters polled over 200 firms such as Cadbury, Marks & Spencer, JPMorgan, and Vodafone and found the number of applications per vacancy had risen to 68.8 this year, the highest figure on record. The key to achieving personal career goals is flexibility, the willingness to accept different job offerings. Unfortunately, the world is already loaded of taxi drivers, restaurant waiters, fast food flippers, and temporary staff. The labor market reflects the human tragedy by vanishing opportunity. See the UK Guardian article (CLICK HERE).

◄$$$ JOBS GROWTH IS PHONY. BUT EVEN THE PHONY STORY IS LOSING ITS MOMENTUM. BY FAR THE OUTCOME OF THIS SUPPOSED RECOVERY IS THE MOST PATHETIC, WEAK, FEEBLE, AND DISTORTED IN HISTORY. WITHOUT USGOVT PROPS AND NUTTY PROGRAMS, NO LIFT WHATSOEVER WOULD HAVE OCCURRED. MY REASONING IS THAT NO RECOVERY WAS PLANNED OR ATTEMPTED, OBVIOUSLY NOT EXECUTED, THEREFORE NOT REALIZED. $$$

They say the USEconomic recovery is losing steam and lacks gusto. My view is it lacks the necessary conviction for recovery, nor any remote semblance of reform or restructure from which to recover. The 'Hand to Mouth" mindset of cash grants to sustain consumer spending is mindless, juvenile, and a failed concept. The 'Consumerism' is a dodo bird unworthy of preserving, a pox on American History. The 'FIRE' Economy built largely upon housing bubble is a gigantic travesty that predictably sent the nation into ruin from every conceivable aspect. The 'War Emphasis' for five decades has twisted the priorities of the nation, focused on destruction instead of production. The 'Exported Industrial Base' theme that started with the Pacific Rim (including Japan) in the 1980 decade and culminated in the Chinese industrial 'Low Cost Solution' in the early 2000 decade was icing on the flat cake. The end result is that the United States has a tiny industrial base, dead banks, too many insolvent households, and tremendous labor market insecurity. At least the nation has endless war and the associated intimidation of nations as a sick asterisk.

The USEconomic recovery has lost significant steam in the last few months. What actually has happened is that the USGovt has pulled most props, like car buying incentives, home buying incentives, even jobless insurance extensions. The nationalizations of dead firms, corrupt to the core, constituted the height of investment in failure and fraud. The recovery stories have been nothing but lies built upon hollow rafts, just like the so-called home loan remodification programs. The Gulf of Mexico tar beaches is the last pox. Employment results are the most visible, still bereft with clumsy deceptions. Jobless claims are the most difficult to doctor and distort. The June Non-Farm Jobs Report came in lousy again, supposedly +83k, but clearly the beneficiary of Census hiring that will vanish quickly. They official story tells of a monthly average of 119k new jobs formed in April, May, and June. However, contrast that nonsensical story with the Birth-Death Model fiction, which produced from the statistics lab +188k, +215k, and +147k jobs from an absurd ARIMA model with zero basis. The B-D Model contributions averaged +183k per month. Scratch all these modeled fabrications to see a net loss of jobs per month. The job losses are much worse than officially declared, while even the graph of the recovery from hemorrhage does not look so good.

This non-existent economic recovery is the worst almost in US history. Again, it bears repeating, that no bank reform, no systemic restructure, no regulatory overhaul, no credit asset liquidation, no removal of credit derivative cancer sores, no substantive home loan aid, no stripped power from the responsible fraud kings on Wall Street, no removal of Goldman Sachs from the USDept Treasury lead post, nothing was executed. These items are the mere start of any road to recovery. Thus the breakdown has proceeded over time without interruption, while the same vacant failed economic counsel is followed. But faith in the bankers has vanished among the helpless public, whose cries at Tea Parties are slowly being accused of fomenting terrorism. Eichmann and Goebbels would be proud. An extraordinary case of national financial constipation and economic consternation has taken root. My claim of gradual deterioration of the USEconomy is becoming more apparent with each passing month. This recession has almost no visible recovery. Its depth is worse than any on record. Its recovery is the slowest on record also. My view is that the nation is enduring a systemic cycle, not a business cycle, not a credit cycle. The financial engineering products show innovation but killed the host. The credit cycle has been totally halted. The central bank franchise system is discredited and an utter failure. The system is need of replacement. Both the European economy and the USEconomy scream that message.

By the way, constant unrelenting talk about a Double Dip recession is the most firm assurance that it is in progress. Otherwise, why bring up the topic? It is much like constant unrelenting talk about whether Uncle Ernie is an alcoholic. The question does not come up unless plenty of evidence surrounds us. The prevalent topic is proof, as a bad stink. Also, note the steady stream of worthless 3.0% GDP growth forecasts for later this year or next year, and forecasts for an economic recovery in the second half of 2010. Both views are worthless. When in doubt, forecast 3% growth. When clueless, forecast a recovery in the second half. A full decade of such complete BullShxx should have taught people this by now. Two bright lights must be monitored of favorable type. Both Cisco Systems (computer networks and telecomm) and Intel (computer chips for processors and memory) announced highly successful quarters, in fact record quarters that shared promising views on enterprise sales. These are two bellwether firms.

◄$$$ JOBLESS CLAIMS STUBBORNLY MAINTAIN ABOVE THE 450K WEEKLY LEVEL, SHOWING NO IMPROVEMENT. THE END TO EMERGENCY UNEMPLOYMENT COVERAGE ACTS AS SALT ON THE WOUNDS. AN UPTREND IN JOBLESS CLAIMS IS IN THE MAKING. $$$

Jobless claims for the week of July 1st were horrible, coming in at 472 thousand. The previous week logged a sizeable 459k claims. Extended benefits and the federally sponsored emergency EUC extensions fell hard by 158k and 217k respectively. One might conclude that the USEconomy has entered a freefall zone with government blessing, if not neglect. The absent insured basic income above will render the monthly loss by $5 billion per month. Annualized the toll will be a cool $60 billion to income and a nearly equal sum to consumption. Declines were seen for continuing claims, down 224k in the June 26th week to 4.413 million for the lowest level since November. Declines instead reflect a pittance of new hiring but mainly the expiration of benefits by federal action. Notice the slight uptrend since January of this year. The cutoff of federal extensions to 99 weeks will put 1.3 million Americans in dire straits, as they lose their jobless benefits. Some economists estimate the impact to the USEconomy from the cold shoulder to be 0.5% shrinkage, ignoring various downstream multiplier effects. Even the official doctored tampered distorted unemployment rate U3 is due to spike by nearly 1% toward the 10.5% level. See the Zero Hedge article (CLICK HERE).

◄$$$ FACTORY ORDERS AND DURABLE GOODS ORDER SLUMP AFTER A SKEIN OF INCREASES, BUT THIS DATA IS DIFFICULT TO READ. $$$

May factory orders fell by 1.4% to snap an eight month streak, an unwelcome surprise. New orders for manufactured goods in May decreased $5.8 billion to $413.2 billion, as per the US Census Bureau release. Excluding the volatile transportation, the decrease was 0.6% in new orders. The murky GDP lift from inventory ramp- ups has hit a plateau. Inventories, down following four consecutive monthly increases, decreased a mere $2.0 billion (0.4%) to $520.4 billion. As Tyler Durden adds, "Little one can add here. This is merely the latest crumb on the path in the search for the full blown Double Dip Depression." See the Zero Hedge article (CLICK HERE).

The more targeted durable goods order deserves mention. The May figure was down 1.1% generally. However, the non-defense ex-transportation figure, commonly regarded as the CAPEX (capital expenditures) for business rose 2.1% in May. The April CAPEX was down 2.4% after a 6.5% rise in March. This series is not steady at all. So the business investment climate appears unclear, if not uncertain. One data point that seems to cast a dark shadow over this sector is the industrial capacity utilization, which has fallen from 70% to 65% in recent months, a level typical of extreme recession.

◄$$$ CONSUMER CREDIT IS DOWN HARD SINCE JANUARY 2008 WHEN A RECESSION WAS RECOGNIZED. EVIDENCE OF RECOVERY IS NOWHERE. THE USECONOMY IS BY FAR THE MOST DEPENDENT UPON CREDIT FLOW IN THE WORLD, THE CORE NATURE OF PONZIS. SUCH DECLINES HAVE NOT BEEN WITNESSED IN OVER 40 YEARS. $$$

◄$$$ CONSUMER BANKRUPTCIES ARE NEARING RECORD LEVELS. THEY CONTINUE TO RISE FROM LAST YEAR. THEY REFLECT THE LABOR MARKET AND FORECLOSURE STORIES. $$$

Consumer bankruptcy filings have reached their highest point since 2005. Through the first six months of 2010, consumer bankruptcy (BK) filings increased to 770,117 which is 14% more than filings made over the same period last year, according to the American Bankruptcy Institute. The pace has slowed a little, but still the growth is notable in trend. On a sequential basis, the June figures show the third straight month of BK decline, hardly a plus. Bankruptcy filings totaled 127 thousand in June, down more than 7% from May. The June 2010 level of BK filings was more than 8% higher than a year ago, according to the National Bankruptcy Research Center. The American Bankruptcy Institute forecasts an additional 1.6 million BK filings by the end of this calendar year. The dominant regions for BK filings were the Southwest and Southeast. Just like with foreclosures, the state of Nevada is a national leader in bankruptcy. Alaska, WashingtonDC, and South Carolina had the lowest BK filing rates, a full 40% below the national average. Tennessee and Alabama also have lower BK filing rates, as they were more observers of the housing bubble. See the Wall Street Journal weblog (CLICK HERE).

◄$$$ STEP ASIDE CALIFORNIA, AS ILLINOIS TAKES THE FRONT STAGE ON THE STATE COLLAPSE SHOWCASE. ILLINOIS IS A WELFARE STATE THAT RECEIVES LITTLE PUBLICITY AS SUCH. $$$

Illinois faces an ugly balance sheet, one that features massive cash shortfalls and overdue payments. Comptroller Daniel Hynes said, "This [$5.01 billion] is what the state owes right now to schools, rehabilitation centers, child care, the state university. It is getting worse every single day. This is not some esoteric budget issue. We are not paying bills for absolutely essential services. That is obscene." For the last few years, California stood out as the showcase for fiscal collapse among states, lunatic spending, and welfare excess. Illinois has pushed to share the center stage. The two states have a trait in common, extreme dysfunctional political bodies that refuse to enact the difficult steps to address shortfalls. Illinois must make spending cuts and force tax hikes, if it is to close a $12 billion deficit, equal to monstrous 50% the state budget. The Land of Lincoln has stopped paying its bills, but cannot stop digging a deeper hole. See the New York Times article (CLICK HERE).

Colleague Craig McC commented from Northern California, saying "We have over 32 states already insolvent, having to borrow from the Federal government to pay unemployment benefits. It is only a matter of months before the states start defaulting on their obligations or the federal government have to bail them out. States are prohibited by law from going bankrupt." Massive state job layoffs from essential services as well as discretionary projects are going to be slashed nationwide, making the labor market even worse, if that is possible. This is a national economic deterioration situation. Chronic throngs of jobless is a Third World characteristic.

◄$$$ MIAMI MUNICIPAL DEBT IS DOWNGRADED, WHILE STATEWIDE FLORIDA HAS NUMEROUS MUNIS UNDER THREAT OF DEFAULT. FLORIDA MUNIS ARE A TOTAL WRECK ZONE. WAIT ANOTHER YEAR FOR THE B.P. OIL MESS TO DELIVER ITS HARMFUL IMPACT TO THE STATE. $$$

Moodys Investors Service has downgraded to A2 rating with negative outlook the sale of $105 million Special Obligation Parking Revenue Bonds, Series 2010A (tax-exempt) and Series 2010B (taxable) from the Marlins Stadium Project, pertaining to Miami Florida. Moodys has downgraded $35 million in Miami ULT Notes to A1 from Aa3, and downgraded $235 million in LT Notes to A3 from A2, posting a negative outlook to boot. This is all before the impact of the Gulf of Mexico oil volcano strikes the economy via the shoreline, with the BP oil caught in the loop current. Miami is stuck in a jam, with reduced reserves and greater budget pressures, while no recovery plan seems viable. The real estate bust has had a colossal impact on South Florida, in fact all of the Sunshine State. Tax revenues are down huge. Bankruptcies and canceled projects litter the landscape. See the Zero Hedge article for a blizzard of details and debt agency finance speak (CLICK HERE).

The Florida Trend reports on the state of affairs for municipal bonds in the Sunshine State. This is an unmitigated indescribable disaster. Imagine how much worse it becomes with the full impact of the British Petroleum contributions to the economy, after hotel reservation cancelations are factored in and coastal tourism ceases. The ruin of finance hidden from view will soon be matched by ruin of beaches in visible fashion. Expect even an unintended impact to Orlando, with no coastline, as the image of Florida generally is trashed. The report stated, "As of May, Florida had 125 districts in default on more than $3 billion in bonds, the single biggest muni bond default wave in at least 30 years," says Richard Lehmann, a Forbes columnist and publisher of Miami Lakes-based Distressed Debt Securities. He says another 70 districts are teetering toward default. Troubled Florida community development districts became such a hot topic that last year he launched a website (www.FloridaCDDReport.com) just to track them. Another firm, Bedford Mass-based Interactive Data, says $2.4 billion, or more than 40%, of the $5.6 billion in dirt bonds it monitors, failed to make interest payments in November or had to draw against reserves to do so. The majority of the bonds were issued from 2004 to 2007 toward projects across all Florida, with a pocket of concentration in the Tampa area, one quarter of them. See the Florida Trend article (CLICK HERE).

◄$$$ THE STATE OF TEXAS IS IN DEEP TROUBLE ALSO. THE LONE STAR STATE IS HARDLY A BASTION OF LIBERALISM AND WELFARE SOCIETY. ITS DISTRESS SHOULD CHANGE THE PERCEPTION OF STATE BUDGET SHORTFALLS AS DIRECT EFFECTS OF ECONOMIC DETERIORATION. $$$

The more liberal states of California, Illinois, and New York can always be blamed for running huge welfare programs and other liberal devotions to free spending. Last year when these and other states burdened by questionable unproductive spending programs ran into big trouble, other states saw themselves as different. California has captured much of the state budget disaster news, with its massive cuts and lunatic legislative rules that obstruct decisions from being made. Take Texas, which commonly is regarded to be chockfull of major deep wells of income sources, like oil & gas, even some new wind farms. The two states share more similar budget deficits nowadays. In Texas, the $18 billion estimated shortfall comprises about 20% of state spending. In California, the $19.1 billion estimated shortfall comprises about 20% of state spending. Some key differences exist, favoring the Lone Star state. Texas has a better credit rating, and it possesses $9 billion in the bank in a reserves fund. It has not had to order any major budget cuts yet either, which will enable some easy fat to be identified. Time will eventually come when Texas makes the news with cuts to some essential services, maybe even to some sacred areas. See the Business Insider article (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.