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


* Miscellaneous Morsels
* USFed & QE Disaster
* USTreasury Bubble Recognition
* Big USBanks in Retreat
* Housing Floor Soon to Drop Out
* Economy Suffers a Cost Shock


HAT TRICK LETTER
Issue #84
Jim Willie CB, 
“the Golden Jackass”
13 March 2011

"It is unbelievable. Goldman Sachs, no one has any criminal convictions. The whole new regulatory reform is a joke. The whole government is a Ponzi scheme." ~ Bernie Madoff

"A friend of mine on Capitol Hill, among others there, tells me there is no solution whatsoever [for the USGovt budget] until there is a MAJOR crisis." ~ Martin Armstrong (recently released from prison after phony trumped charges)

"If the USGovt does not rein in its spending, our foreign creditors will lose confidence in us. Spending cuts will be forced upon us. The American standard of living is doomed to fall. If the USGovt does rein in its spending, entitlements, transfer payments, and social programs will be curtailed. The American standard of living is doomed to fall." ~ Bill Gross (PIMCO)

"By the time this last blunder [of Quantitative Easing] works its way through the system, it will not just be the world's tinpot tyrants and biddable client kings who will pay the price for the Fed's reprehensible policy of 'apres moi le deluge', but it will be the ordinary man and woman who will have occasion to rue a program so replete with intellectual arrogance, power worship, and a wilful blindness to its awful unintended consequences that only a Krugman could approve of it." ~ Sean Corrigan (of Diapason Securities)

EDITOR NOTE: The massive earthquake in Japan was almost certainly caused by powerful solar flares, explosive corona events that took place early last week. The corona mass ejection (CME) required three days to reach the earth, which was shaken by the extreme force. See the brief NASA article (CLICK HERE). Astro physicist Piers Corbyn gave numerous warnings about the threat of impact to the earth in the last year from unusual solar activity and related anomalies. Scientists from numerous countries have been following the activity, working together, in broad recognition of the risk. Some of the comments by Corbyn: "The massive Japan earthquake and tsunami were triggered by massive events on the sun and there are more to come in the next two years. The earthquake was preceded by an X-class solar flare and a significant hit of the earth by a Coronal Mass Ejection, reported by NASA. We warned after the New Zealand Earthquake on 21 Feb that the solar-lunar scene is set for more earthquakes for the next two years. Many of these earthquake events, as well as weather events, will be very extreme." He has made warnings that the weather and earthquake events have nothing to do with CO2 or so called man-made climate change in any way whatsoever. He hold such claims in contempt for their diversion and falsity. The true disruptive source is the sun.

MISCELLANEOUS MORSELS

◄$$$ THIEVES ARE DRILLING HOLES INTO CAR GASOLINE TANKS. CALIFORNIA GASOLINE PRICES BREAK ABOVE $4 PER GALLON. THE NATIONWIDE GASOLINE PRICE SURGE IS DELIVERING A NASTY PINCH IN THE FORM OF A TAX. THE DIESEL PRICE RISE IS HIGHER THAN THE POPULAR REGULAR GRADE PRICE RISE, WHICH ITSELF IS VERY STRONG. THE PRICE IS DIRECTLY RELATED TO TWO MAJOR FACTORS, THE WEAK USDOLLAR FROM QE2 AND THE ARAB WORLD DISRUPTIONS AND GROWING CHAOS. $$$

Thieves are bypassing the gas cap and are drilling into the gas tank of cars. Damage is asymmetric, meaning the repair costs are a multiple of the value in stolen gasoline. Police in South Carolina have dealt with a new type of larceny, thieves who pilfer gasoline from parked cars directly from the gas tank. Five incidents have been reported in the Fort Mill environs, all at night. In one case, a Ford F-150 truck required $1400 in repairs after the theft of a mere $45 in gasoline. The people are resorting to extreme measures to combat the fast rising gasoline price. A Dodge Ram 2500 truck required $950 in repairs. A Honda Civic was also targeted, with a $1000 repair. The larceny involves a slight risk of fire or explosion from the sparks from drilling into the tank itself. Welcome to the world of Mad Max!

The states of California on the west coast and Connecticut on the east coast lead the nation in gasoline tax, contributing to their high prices. Nationwide, the fast rising gasoline price rise has been stunning, fully forecasted by the Jackass, an obvious call. Last month, the gasoline price rose to register a 17.4% annual gain. This month it accelerated to a 27.7% annual rise for regular unleaded gasoline, moving from $2.783 to $3.554 per gallon in the last year. Price increases are rapid in the young 2011 calendar year. The premium high test grade has registered a 24.7% annual gain, moving from $3.061 to $3.816 per gallon in the last year. The trucking industry and product shipping costs depend more heavily upon diesel costs, which have truly skryocketed. The diesel cost has registered a stunning 34.4% annual gain, moving from $2.919 to $3.922 per gallon in the last year. The effect overall is a huge tax increase for households and industry that ships products to business centers, whether of commercial or retail type. See the Fuel Gauge Report update (CLICK HERE).

◄$$$ FOOD PRICES HAVE REACTED TO USFED MONETIZATION RECKLESSNESS, AMIDST DENIALS BY AN INCOMPETENT BERNANKE AT THE USFED. HE MAINTAINS THAT GROWTH CAUSES PRICE INFLATION, NOT MONETARY GROWTH, AN IGNORANT HERETICAL NOTION HELD BY THE USFED FOR MANY YEARS. PAINFUL EFFECTS ARE RIPPLING ACROSS THE ENTIRE USECONOMY, BUT ATTENTION CENTERS UPON FOOD & ENERGY. RISING FOOD PRICES OFTEN CAUSE SOCIAL DISORDER AND TURMOIL. $$$

At a recent hearing on Capitol Hill, USFed Chairman Bernanke demonstrated his usual lack of understanding on price inflation and its root causes, or played the fool well. As Secretary of Inflation, it is his job to deflect attention from his main duty, managing monetary inflation, warding off its cancerous effects, and denying responsibility for economic damage. He promoted again the belief that GDP growth causes inflation, a commonly stated heretical notion. The true basis for economic growth is increased production, which adds both to the supply of goods & services in the economy in a balanced offsetting manner. True economic growth is not inflationary. To the contrary, price inflation is driven by fast growing USGovt deficits, outrageous federal banker welfare in bond redemptions, reckless credit growth by both consumers and especially Wall Street banks, whose wild speculation contributes to bloated broken bank balance sheets. At the core of the problem is the ruined gigantic USFed balance sheet, probably well over $1 trillion negative. It spills into the USEconomy despite the best efforts to contain it. In 2009, the bizarre phenomenon was the major US banks holding excess reserves at the USFed, in order to prevent overflow into the USEconomy. They were actually Loan Loss Reserves, if actual accounting facts were told, since they shifted location.

In recent months as Quantitative Easing redeems USTBonds and USAgency Mortgage Bonds taken onto the USFed balance sheet, the spillover cannot be stopped. Worse, the world has reacted to the QE2 monetary inflation and debt monetization parade that undermines the USDollar integrity and the USFed credibility to the extreme. Hence, the global reserves held in foreign accounts have been in full bore diversification away from the USDollar, something the USFed chooses not to discuss, even to ignore, as they disavow responsibility for a global rise in commodity prices, led noticeably by food & energy. The flight out of the USDollar continues during a crisis period, a new phenomenon, largely because the US is the site of the crisis antagonism. If the USFed reacts by ending Quantitative Easing and raising short-term rates, major implications will be forthcoming. The US stock market would nosedive. The US housing prices would accelerate their decline. The USGovt borrowing costs would soar. And it is my forecast, that unlike the usual times when a higher Fed Funds Rate enables a stronger USDollar, this time such an end to QE and the ZIRP (zero interest rate policy) would spark a US$ deeper decline than when QE & ZIRP are in force.

The rising CPI has given ammunition to the chorus of USFed critics heard in the USCongress. When queried about the building pressure on consumer prices, Bernanke calmly replied that this trend could be easily halted by reversing his policies. He is terrified at the prospect of monetary tightening, since it would unravel the entire US financial system. He is an academic with his head in the sand, his denials at the ready, cursed by a poor comprehension of economics, never having held a private post in industry or run a business. He was selected to serve, after his wondrous revision of Great Depression banking history, a fiction. When asked about the impact of QE2 on global food prices, Bernanke responded that the destabilizing spikes are due to weather and rapid growth in demand for grains in emerging markets. What absurdity, a lame excuse! Again he plays the growth card to explain price rises, blind or ignorant not to look at the USFed monetary policy. As an admirer of Milton Friedman, he has conveniently forgotten that "INFLATION IS ALWAYS AND EVERYWHERE A MONETARY PHENOMENON" and not a weather phenomenon. He is just being obedient to the financial syndicate, a job requirement. Despite all the experiences of recent years (including the early 2008 experience in oil and grains), Bernanke remains oblivious to the consequences of debasing the USDollar reserve currency. In his view, the world does not conform to his cockeyed macro economic models.

Bernanke indeed possesses the intellectual capacity to understand the negative consequences of the radical policies pursued by the USFed, which turns more desperate by the month. He simply chooses to ignore their impact or to rationalize them away. His intention, fully stated, has been to prevent price deflation hitting the USEconomy, but he really meant the US stock market, the US housing market, and the USGovt bond market (USTBonds and USAgency Mortgage Bonds). He overlooked or hoped for a minimal negative reaction to the corresponding QE effect seen in rising commodity prices generally of direct correlation. The typical trigger is the crude oil price, always quick to rise from US$ debasement, since so liquid and popular. By pushing on the monetary accelerator last autumn, Bernanke has badly undermined USFed credibility and prestige. The pain is felt in the USDollar, fast losing its safe haven status and ultimate security role. Many Americans do not accept the lost status and role, clinging to the past. The lost prestige and elite currency rollback means a difficult painful slide into the Third World for the nation. With QE2, the USFed has succeeded in propping up the USTreasury Bond asset bubble, and lifting the US stock market. No direct transmission mechanism exists from the USFed balance sheet to the stock market, but the Working Group for Financial Markets operates with offices at the USDept Treasury, JPMorgan, and Goldman Sachs in obvious liaison manner. The widespread but badly misplaced faith in the omniscience and expertise of the USFed will soon fade. The so-called Greenspan Put was real, a strong positive factor for the stock market. Its handoff has become a weakly formulated Bernanke Put from position lineage, one that breaks down from a poor connection to Princeton University where Professor Bernanke was never an pedigree elite player. He was a selected bagman.

Winners and losers will stack up from soaring food prices. The profits of agricultural equipment and fertilizer companies have been rising strong. The valuations of John Deere and Caterpillar have each tripled since Chairmen Bernanke launched the first QE program in March 2009. Fertilizer company stocks like Potash and Mosaic have also done well. But these firms are on the beneficial side of rising food prices. By contrast, food producers and processors of all types are struggling to accommodate soaring food costs into their business models. Their stock prices clearly show the strain. Kraft Foods, Pilgrims Pride, Tyson Foods, Sanderson Farms, Kellogg, General Mills, and Safeway have all displayed highly visible poor stock market performances during the last several months. Numerous companies are facing serious fundamental stresses from rising food prices. Next comes a transfer of all that cost strain to the entire USEconomy beyond the food sector, where an entire array of commodity prices have risen sharply and with deep impact. See the Daily Reckoning article (CLICK HERE) which contains some shoddy analysis but many good points.

◄$$$ SANTELLI PROVIDED A REALITY CHECK ON A "MEET THE PRESS" SHOW. THE TOPIC OF THE USGOVT BUDGET DEFICIT HAS BECOME A CENTRAL TOPIC. THE PROMISED DEFICIT REDUCTION HAS TURNED INTO A SPIRALING ACCELERATION IN THE DEFICIT. THE USGOVT DEBT WILL EXCEED 100% OF G.D.P. VERY SOON, RAISING ALARMS. SEVERAL SECTORS WILL BE FORCED TO TAKE BUDGET CUTS, BUT NOT THE PROFITABLE WAR SPENDING. PRESSURE ON THE USTREASURYS IS ACUTE. MY FORECAST IS FOR A USTREASURY BOND DEFAULT OF USGOVT DEBT, ALL IN TIME, IN A RELENTLESS MARCH. $$$

A special Meet The Press mini-conference took place in mid-February of importance. It featured some US Senators but nobody of importance except the CBOT floor reporter Rick Santelli. He made numerous comments but kept some restraint. The central topic was reining in USGovt spending, a challenge that will see almost no success for a few years. He noted the critical situation in Illinois concerning the municipal bonds. A forced austerity plan is the alternative, growing more likely. Various Wisconsin politicans have received death threats over the potential loss of entitlement benefits to state workers. Santelli compared the federal debt condition as equivalent to a major internal attack on the nation, very true.

Santelli said, "I think this is an issue that needs to be put out into the air and see. Many, many other states might not have the same balance sheet as Wisconsin. Ultimately, collective bargaining, even from a federal level, these are big issues. These costs need to be put under control. If the country is ever attacked like it was in 9/11, we all respond with a sense of urgency. What is going on with balance sheets throughout the country is the same type of attack. Senator Durbin is from my state [of Illinois with] $3.7 billion muni issuance that they need to bring to the market. They have not paid vendors. It has come to the crossroads where if we do not start to make the changes that the governor and the congressmen know are going to take time, we will have austerity forced on us. That type of austerity is going to be much messier. There really is not much opportunity for debate here. We do need action." Forced austerity could include an adverse global response to USTreasurys. Tragically, nobody seems to have any idea what to do toward a solution. The consensus solution is senseless and conducted by automatons. Big banks order more aid for themselves, economists call for more stimulus, the people demand more handouts, and bankers direct more hyper-inflation from the monetary press. None of these actions is remedial in any sense. Nothing is being fixed. The USGovt deficits grow worse. The USEconomy slides backwards. Profits shrink. Spending declines. Jobs are cut. Households go broke.

The track record of presidential pronouncements on the USGovt debt are ludicrous and comical, since so badly off the mark. In February 2001, George Bush the Younger said, "The government  will retire nearly $1 trillion in debt over the next four years." Instead, US debt zoomed cumulatively from $5.7 trillion to $7.7 trillion, no small error. In the same budget proposal and forecast analysis, more like propaganda and reckless marketing, Bush predicted a $5.6 trillion surplus over the next ten years, which would wipe out all of America's debt by 2011. The Jackass laughed hard back then, almost falling off the chair. Incredibly stupid stuff from a man with a 90 IQ, near imbecile level, equal to John McCain. The current pack sporting blue jackets has greater innate intellect but they pursue equally devious agendas. The latest debt figure stands at $14.1 trillion in budget reports. So the presidents have no idea what they talk about, or else make patently false statements to the nation, as internal syndicate agendas are pursued. Meanwhile, the debt ratios are looking horrible, the US looking much like Southern European nations that attract so much harsh criticism. The total US debt to GDP will climb over 100% in under six months, a trigger mark that will cause alarm and invoke enormous critical attention. Unlike the kindergarten crayon display put forth by Bush and his fantasy projections, Obama has laid out projections for the period between 2012 and 2021 that contain a surprising streak of reality. No single budget surplus is featured. Instead, a cumulative deficit over the next ten years is estimated at an added $7.2 trillion, which should take the national debt past $20 trillion. The current projected annual deficit for FY2011 ending in September is $1.65 trillion. The projected economic size over the next ten years is entered as an expansion from $15.1 trillion to $24.6 trillion. My confident expectation is that most of that rise will come from price inflation, not economic growth. It will be called growth obviously.

One easy indicator of good sense in the budget equation is the US Defense budget. It remains sacred ground, and the endless wars are crippling to the nation while highly profitable to the syndicate. The narcotics vertically integrated business in Afghanistan, and its network of clearinghouses in Iraq, money laundering in Wall Street, are critical for the syndicate, which enjoys the USGovt cover for many costs under the guise of a war on terrorism. The real terrorists are the bankers that pulled off the coup d'etat almost ten years ago and ripped the Constitution to shreds. The bloated Pentagon budget is to be a staggering $670 billion. In defense of its budget, Secretary of Defense Gates (former CIA head) claimed that any cut of more than $9 billion would cripple the nation's capacity to defend itself. Numerous sectors will suffer spending cuts, from education to welfare and countless other areas like Medicare, but not war. The nightmare is moving to a deeper level of consciousness. The nation is falling into insolvency, and the fabric of the economy is dissolving. See the Zero Hedge article (CLICK HERE). The syndicate demands and seizes greater control, despite being a principal cause for the ruin. A strong bank lobby will do that, combined with a chokehold control of the USDept Treasury. A tidbit on the motive to impoverish. A friend from a NorthEast state has a wife who just landed a new job, a rare feat. Being somewhat in need to avoid income loss after a job layoff, she took a position that included a salary cut. When she inquired why the strange $49,998 annual salary, she learned that the ObamaCare health care provisions require a salary to be under $50k, or else the employer must make up the difference in benefit costs. The Obama Admin is legislating poverty indirectly.

◄$$$ STATE PENSION FUNDS ARE GROSSLY UNDERFUNDED. IN FACT, 80% HAVE INADEQUATE FUNDS TO MEET THEIR OBLIGATIONS AND PROMISES. THE BENEFITS WILL CERTAINLY BE REDUCED, OR ELSE MANY FUNDS WILL SHUT DOWN IN FAILURE, BUSTED AND DEPLETED. THE WORST CONDITION WAS PUBLIC AND UNION FUNDS, THE BEST BEING CORPORATE FUNDS. $$$

Cogent Research published a report claiming that 80% of US pensions are underfunded. Only one in five US-based pension plan has enough assets to meet obligations in the legal social contract. The chronic problem is a combination of asset losses and overly optimistic projections of investment returns. The possible outcomes are big benefit cuts to pensions going broke, possibly taxpayer bailouts, or even abandonments. About 54% of public pensions say their current funding status is below 80% of obligation needs, and 16% of the pensions are below 60% of needs. The worst condition was detected in the largest pensions, especially among union and government worker pension plans. Author Christy White called the report sobering, and cited "Half of all public pensions are substantially underfunded, which means these institutions face several extremely difficult choices." By contrast, corporate pensions are in much better shape comparatively, after having made difficult decisions to avoid becoming underfunded under shareholder pressures. Among corporate pensions, more than a quarter are funded at 95% of needs, and more than half are funded between 80% and 94% of needs. Remarkably, none reported a funding status below 60% of needs. Some element of self-assessment was involved, as corporate officers contributed to the estimation process. Cogent analyst John Meunier believes the underfunding may be worse than the study depicted. He said, "Underlying current funding status estimates are performance projections that for many institutions may be overly optimistic. Course corrections will be painful to say the least, and the kind of leadership and shared sacrifice required to make the necessary changes to pensions are in short supply." The report was based upon a survey among a national sample of 590 institutions, each in possession of a minimum $20 million in assets. See the Index Universe article (CLICK HERE).

◄$$$ BOEING WON A LARGE USAIR FORCE CONTRACT FOR AIRBORNE FUEL TANKERS. CONSIDER IT TO BE THE FIRST INSTALLMENT IN A BAILOUT, FOLLOWED BY NATIONALIZATION. BIAS WAS OBVIOUS BUT WELL CONCEALED. THE USGOVT DEPENDENCE IS SURE TO GROW. $$$

Boeing has served as the sole supplier of aerial refueling tankers to the USAir Force since 1948. In late February, Boeing won over European Aeronautic Defence & Space (EADS, aka Airbus) for a $35 billion program to build 179 new tankers. Boeing and EADS were evaluated on how well their respective aircraft met 372 mandatory war fighting requirements that took account of basic price as well as total lifecycle cost, including fuel efficiency, combat mission refueling effectiveness, and military construction expenses. The EADS Airbus unit has recently prevailed over Boeing in bids to supply the United Kingdom and Australia with refueling planes. It also won aircraft bidding battles in Saudi Arabia and the United Arab Emirates, while Boeing was selected in Japan and Italy. Losing a contract to the USMilitary would have been the ultimate insult and a tombstone epitaph. The first attempt by Boeing at the contract was derailed in 2004 by a scandal involving former top Air Force procurement official Darleen Druyun and then Boeing Chief Financial Officer Michael Sears. Regarding the Boeing win with the USMilitary, Deputy Defense Secretary William Lynn said, "We structured a competition that was fair, based on a variety of factors, including price and war fighting capabilities, and Boeing was the clear winner of that process. It does not provide grounds for protest." Sounds convincing. Basic 767-model aircraft will be converted into tankers at the Wichita Kansas plant. The first stage contract of a three part program spanning decades to replace its tanker fleet is valued at $3.5 billion. The entire program is set to produce 13 production lots through 2027. The Pratt & Whitney unit of United Technologies will make the engines. In all, 50 thousand jobs will be supported by the program in the United States. See the Bloombrerg article (CLICK HERE).

Former Boeing aeronautical engineer and Hat Trick Letter subscriber BobO pitched in with a comment. He wrote, "Third time is a charm! This is America's idea of fair & square. I am familiar with Boeing's record on the old KC-135 Tanker. They never missed an opportunity to screw the taxpayer, and deliver subpar hardware. Based on that performance, they should never been allowed to bid on the replacement. Boeing won the first contract. But then it was revealed that they had bribed the head USAF project manager, being given unfair advantage. Boeing still was not disqualified, then was allowed to bid again. But EADS won. By then, the US was in the recession, a convenient excuse. Also, Congress was incensed that it was awarded to EADS, taking away US jobs! The fact that EADS would actually employ more US workers than Boeing for some reason did not seem to matter. There was absolutely no good reason. But Congress mandated that Boeing be given yet a third chance. And would you believe it? The hometown favorite won! I am willing to bet that we do not go for a tie-breaker. Remember, when I recently predicted that the government would have no choice but to bail out Boeing eventually? Just consider this the first installment."

USFED & QE DISASTER

◄$$$ BERNANKE WAS ON THE DEFENSIVE AT THE G-20 MEETING IN PARIS, A FOOL ON STAGE FOR THE WORLD TO OBSERVE, CRITICIZE, AND MOCK. HIS PURPOSE WAS NOT TO CONVINCE ANYONE, BUT RATHER TO DEFEND THE USFED AND ITS DESTRUCTIVE PATH, AND TO BRUSH ASIDE OPPONENTS. HE PROVIDED A FRONT WITH PLAUSIBLE DENIABILITY, LIKE ANY CRIMINAL GROUP WOULD. ATTEMPTS TO SALVAGE PRESTIGE FELL SHORT. $$$

USFed Chairman Bernanke defended the highly controversial and extremely destructive QE2 program on the global stage at the late February G-20 Meeting. He actually stated that the USFed is not the cause of destabilizing capital flows. He selected a ruse theme as a stick, since powerful monetary inflation is the root problem in effect. If anything, capital flows to the US financial sector have slowed, as creditors have stepped back in horror. The USFed has been stung by criticism about the negative spillover effects on the global economy of the $600 billion bond purchase program known as Quantitative Easing II. What a gentle euphemism for hyper monetary inflation! The strong defense of the policy before central bankers and finance ministers gathered in Paris was the latest response in a high stakes financial war between the United States and China. The USGovt wanted the Chinese to permit its Yuan currency to strengthen. In response, China charged that the USGovt deficits are the cause of global instability. They are both correct, but the US is the greater offender by far, since the Chinese industrial rise was accomplished with direct and pursposeful US aid via direct investment. At the G-20 summit in South Korea in November, the US made no progress on its agenda to build a consensus with other countries on pressuring China. Out of the gate, the US was again rebuffed, as the US desire for the imbalance metric was halted. The US deficits were included by decision in the metric, as was the Chinese trade surplus. Neither side budged, until they both caved in.

Critics charged that the added liquidity from the USFed was finding its way into emerging markets, creating inflation and running risk of asset bubbles. Some officials even openly mentioned currency wars. Bernanke, filled with denial or ignorance, said "Emerging market economies have a strong interest in a continued economic recovery in the advanced countries, which accommodative monetary policies in the advanced economies are designed to promote. [Capital flows] were not out of line with longer-term trends. The maintenance of undervalued currencies by some countries has contributed to a pattern of global spending that is unbalanced and unsustainable." He stressed how emerging economies have tools to prevent overheating from such credit flows. Sure, they can undermine their financial systems with matching destructive monetary growth, or they can keep interest rates low and encourage asset bubbles, or they can erect barriers from the US cancer. No tool usage would be constructive. Bernanke's hypocrisy was evident, and rendered further harm to the already damaged credibility of the USFed. The US prestige is doing a total vanishing act.

Bernanke urged his G-20 colleagues to work together to strengthen the rules of the game, and to pursue a more balanced international system. At the same time, it is the USFed whose QE2 program is flooding the system with phony money and causing a harsh reaction from creditors. Thus the hypocrisy. It was the US that encouraged China via Most Favored Nation status to build up its industry as low cost solution. It has been constant heavy war spending for six decades that produced sufficient price inflation in the USEconomy to lift wages in the nation beyond competitive, as the globalization movement took root. Bernanke again returned to the hackneyed global savings glut that went to Asia and returned to the US, an unmanageable flow. Yet its magnitude is the direct responsibility of reckless US monetary and economic policy, tied around the war emphasis. What is happening is the end of the US financial instruments being perceived as a safe haven anymore. The USFed has torpedoed the safe haven vessel. Despite continued AAA-rated USTreasury Bond securities, foreign creditors are stepping aside. He again deflected blame for the global financial crisis, with a sprinkle of internal US blame, in reference to a report he co-authored. He said, "To be clear, these findings are not to be read as assigning responsibility for the breakdown in US financial intermediation to factors outside the United States. Instead, in analogy to the Asian crisis, the primary cause of the breakdown was the poor performance of the financial system and financial regulation in the country receiving the capital inflows, not the inflows themselves." Too little, too late, in salvaging integrity or credibility. See the Market Watch article (CLICK HERE).

◄$$$ THE GLOBAL SOVEREIGN DEBT TSUNAMI CONTINUES. ON THE APPROACH PATH IS A STAGGERING $5 TRILLION IN FUNDING NEEDS OVER THE NEXT THREE YEARS. THE WESTERN NATIONS HAVE CONSTRUCTED A MACHINE GOING IN REVERSE, CROWDING OUT INVESTMENT, BOUND TO SINKING ASSETS, AFTER SENDING MUCH OF INDUSTRY TO CHINA. THE QUANTITATIVE EASING WITH MONETARY HYPER-INFLATION WILL SOON BE SEEN AS A WESTERN ISSUE, AS EUROPE OPENS THE ARTERIES TO CANCER. THE WESTERN NATIONS FOLLOWED THE USFED DOWN THE 0% PATH TO RUIN, AND CONTINUE THE DESTRUCTION BY FOLLOWING THE USFED WITH MONETARY INFLATION. $$$

While European nations might criticize the United States for its profligate deficits and powerful monetary inflation and reckless management and protected fraud, the Europeans must find a way to fund their own huge amount of debt in the next three years. A total of $5 trillion in US and European funding needs must be dealt with in the near term. The global monetization tsunami is only just beginning. In the end, like with the Euro-TARP Fund in 2009, the Europeans will turn to USFed-led monetary inflation in high gear in order to manage their own funding needs. In mid-2009, the Europeans took advantage of a Dollar Swap Facility created by the USFed, strewn with fresh phony USDollars, from which to borrow at near 0%. Observe with shock the chart showing European bonds maturiting over the next three years. It is obvious that while the US needs ongoing QE to monetize $trillions in USGovt debt issuance in the absence of foreign creditors. Europe is in similar dire predicament. Among the EuroZone banks, $2.4 trillion is required in funding requirements until 2014. The source of funding has not been identified, but like in 2009, expect another Euro-QE in the form of another huge Dollar Swap Facility. Precedent is set. The Western central banks are deeply committed to a path of self-funded Ponzi schemes. The signature is American, but the abuse is fully Western. The European Stability Fund will prove to be woefully inadequate. The QE will soon be recognized as not just Made in America. See the Zero Hedge article (CLICK HERE). It is painfully clear and obvious that all fiat paper currencies are dead in the water, weighed down to a ton of cement blocks each, sinking as sure as night follows day.

◄$$$ BERNANKE AND THE QE PROGRAMS ARE CAUGHT IN A NEGATIVE FEEDBACK LOOP. THE NEXT QE ROUND IS GUARANTEED BY THE FAILURE OF THE PREVIOUS PROGRAM. THE GREATEST HIDDEN DAMAGE IS PSYCHOLOGICAL, WHERE THE USDOLLAR AND ITS ERSTWHILE TRUSTED USTREASURY BOND ARE NO LONGER VIEWED AS THE SAFE HAVEN. CAPITAL DESTRUCTION IS THE MAIN BYPRODUCT OF MONETARY INFLATION. IN THE WAKE OF EACH QE ROUND ARE DISCOURAGED CREDITORS WHO TURN AWAY IN DISGUST. THE WEAKENING USECONOMY PRODUCES GREATER USGOVT DEFICITS, WHICH AMPLIFY THE NEED FOR USFED MONETIZATION OF DEBTS. PREPARE FOR QE TO INFINITY, ENDLESS HYPER-INFLATION, A PROCESS THAT CANNOT BE STOPPED. THE OFFICIAL POLICY WILL SOON BE COMPLETELY HIDDEN. $$$

The nation is on the wrong course in monetary expansion to cover the escalating debt, and is deeply committed to continue the devastating damage. The banking and political leaders struggle to produce jobs without a clue of what capital is, instead seeking to put cash in consumer hands. They should pursue business formation, with capital investment, aided by USGovt incentives, and lead the consumer spending process with job creation and income production. Each Quantitative Easing round guarantees the next round, since damage is done, conditions worsen, nothing is remedied, and the funding needs intensify. Price inflation is quickly turning into hyper-inflation without proper recognition while foreign creditors quietly abandon the USTreasury Bond as a financial instrument, and work to substitute the USDollar in global trade settlement. Witness the United States marching, even plunging, headlong into the Third World. A vicious cycle has begun that cannot be stopped until chaos from rising costs interrupts the USEconomy, until the debt management turns openly Weimar, until the USTreasurys suffer a default event of some kind. The Jackass forecast last year was for greater deficits due to the ravages of capital destruction and cost inflation, which both arrived with billboard attachments. The dependence therefore upon the USFed for its Printing Pre$$ buyer of USTreasury Bonds will increase with each QE round, assuring the next round.

Many are the STEPS IN THE VICIOUS CYCLE that guarantees the current QE round will lead to the next round in an unstoppable process that becomes a fixed hidden policy. The deterioration enables easy justification for the next QE round, including the all important political side. The USFed is left more isolated to purchase its own brethren's toxic paper securities. In fact, soon, maybe by midsummer, the QE will be engrained as policy, not named as such, and be conducted in HIDDEN manner for national security reasons. They will lie and declare QE as completed, a finished successful project. The USGovt and USFed will fear a run on the USDollar and a USTBond default, but their hidden actions will assure the run and the default. The USFed must continue with QE3, the only remaining details are the securities that join the USTreasurys. My bet is state and municipal bonds, along with a bigger swath of mortgage bonds that would otherwise be put back to the already insolvent Big US Banks. Here are the important factors that work within the vicious cycle and assure QE TO INFINITY and ruin.

Capital destruction from monetary inflation, as the price of capital is declared zero and flees from the USEconomy. Witness major elements of industry long gone, lacking a critical mass to support the nation with legitimate income. Absent profitability shuts down businesses, thus dissolving capital. Businesses cannot justify any expansion, given the rising cost structure and the lost home equity that customers grew dependent upon. The capital is grossly mispriced, a paradoxical factor that kills capital and makes impossible capital formation. Investing funds feed speculation. The 0% rate slows the USEconomy tremendously by removing a proper return on honest savings, a discouragement.

Debt monetization has driven off foreign creditors, leaving the USFed isolated as buyer. The heavily increased monetary supply maintains the USTreasury Bond asset bubble, recognized by foreign creditors. Intense leverage power of Interest Rate Swaps maintains the USTBond bubble but with great inherent instability. The USGovt deficits will perpetuate in high volume, creating an overwhelming USTreasury supply of securities and making the creditors retreat in disgust. The more the USFed buys its own USTBond, the more the securities lose their security, the more the foreign creditors refuse to participate in the next auction, the more the integrity of the US$ and USTBond is shredded and lost.

The entire world is revolting against the USDollar to seek an alternative, to establish bilateral trade mechanisms, and to bypass the current system. The list of bilateral accords between nations is growing. The consequence is a new trend to diversify out of the USTreasurys with existing reserves, and to avoid accumulation in the future for satisfaction of trade settlement in global commerce. Less US$-based trade means less need for foreign banking foundations to be built of USTBonds. Money is fleeing US$-denominated sovereign debt. As the bilateral links build, eventually enough fabric will be woven to support a new global currency, or a new global system.

Inflation effects have crossed from the monetary side to the cost structure, a direct response to the monetary inflation. All major economies are suffering the cost shock, a very heavy price paid for banker welfare without a pursued remedy. Leaders strive to cut off the process of wage increases to workers, a policy to bankrupt the Middle Class. The cost squeeze is deeply felt by both businesses and households, businesses that cannot hold their workers as profits erode badly, and households that cannot maintain their spending patterns. Tax revenues from wages and corporate profits and capital gains are quickly vanishing. The impact on the worsening recession at the macro level, and the shrinking of both businesses and households, translates to larger USGovt deficits.

Movement of funds out of USTreasurys and into commodities generally, a process that creates a buyer vacuum for the new debt and raises the cost structure. Money chases the next asset bubble, namely commodities. Money is fleeing USTBonds subjected to direct monetization, the typical response to the inflation scourge. The shift to financial commodities in Gold & Silver has been even greater than for crude oil, the traditional hedge. The energy cost impact is enormous, in food production, in industrial feedstock, in fuel costs, resulting in an energy tax. Instead of justified higher borrowing costs, the USEconomy suffers a sweeping rise in costs most noticeable in food & gasoline like a significant tax increase. Movement from USTreasurys to the USEconomy is not happening during this death spiral, as it normally does. Instead, it goes to the entire commodity arena in reaction to a crippled deadly USDollar, put on notice by the direct inflation policy. The trend is highly destructive.

◄$$$ INTERNAL DISSENSION WITHIN THE USFED HAS BEGUN TO SHOW, AS HOENIG CALLED FOR AN END TO THE EXTREME ACCOMMODATION. NOTHING CAN STOP THE MOMENTUM OF TOXIC MONEY FROM THE WEIMAR VAT. THE USFED HAS CREATED A POTENTIAL VACUUM ON DEMAND. THEY MUST CONTINUE THE QUANTITATIVE EASING PROGRAMS, SINCE NO BUYERS OF USTBONDS EXIST. THE USFED IS BEING ISOLATED AT THE SOLE USTBOND BUYER. CREDIBILITY AND PRESTIGE ARE THE VICTIMS. $$$

Kansas City Fed President Thomas Hoenig gave warning in late February that it is time to take away the punch bowl, a symbol for easy free money. Low cost money has traditionally been a temporary tool, but gradually it has become a permanent tool and fixture, a blemish of destruction and an emblem of lost credibility. Hoenig warned that persistent USGovt fiscal deficits would hurt the economy and pressure the USFed to loosen monetary policy. He tried to serve as a voice of reason in a land of lunacy. He said, "When you have debts and deficits that run very rapidly over time, real interest rates do rise. And when they do, it has the effect of slowing down investments, slowing down the economy. And what happens? Inevitably you turn to the central bank. I really want to take away the punch bowl before the room gets drunk because I think this punch bowl is a little bit spiked." What an under-statement! The food & energy cost increase acts as a substitute interest rate rise, not mentioned or noted by him. Hoenig made a call to action that cannot be honored. He urged the USGovt to address its fiscal issues now, without ignoring entitlement issues. That is not possible, since the recession has laid waste to tax revenues and capital gains. He implored policymakers to start preparing the market for a lifting of interest rates to 1% in order to avoid future inflation problems. That is not possible, especially given the higher borrowing costs that would result. He must not realize that the USGovt fiscal condition is beyond repair. That perception will gain acceptance as future months pass. He has been a steady voice of dissent against the USFed's extremely accommodative monetary policy for two years. See the Global Perspectives article (CLICK HERE). Imagine a man yelling at a truck driver to hit the brakes and steady the course as the truck has headed over the cliff and already heads downward.

Charles Biderman is an expert in flow of funds. His comments illuminate the financial market rigging with respect to stocks. On Christmas Eve, with a scant CNBC audience, Biderman said, "Individuals have been selling [stocks]. Companies are net selling. Insider selling and new [stock] offerings are swamping any buyback and any cash Merger & Acquisition activity since QE2 was announced. Pension funds and hedge funds do not really have that much cash to invest. So what nobody's asking is what happens when QE2 stops. If the only buyer is the Fed, and the Fed stops buying, I do not know what is going to happen. When I was on your show a year ago, I was saying the same thing. We cannot figure out who is doing the buying. It has to be the government, and people said I was nuts. Now the government is admitting it is rigging the market." Fast forward to today, with a cornucopeia of interventions centered upon QE2 and stock propping and gold suppression as the USDollar falls and commodity prices rise. They toy openly with crude oil interventions with the Strategic Petroleum Reserve. Last week, CNBC brought Biderman on again, looking for an update. Nothing positive was forthcoming from him. He said, "In December of 2009, I received a lot of ridicule for saying that the Fed is rigging the market, which everybody is well aware. They probably will end Quantitative Easing for a while. We think there is going to be a QE3 and QE4, or until the market says NO MAS. We are not going to believe this game the Fed is playing. The Fed is printing over $100 billion per month to buy other assets and pay bills, and economic growth is picking up at a $200 billion annual rate. This is very inefficient method of boosting the economy. But then how do we repay these $trillions that have been created out of thin air in the future?" See the Zero Hedge article (CLICK HERE). In Spanish, 'no mas' means no more.

Do not count on foreign creditors to be USTBond buyers if the USDollar is devaluated, since they are being burned without consultation. Such action would carry extreme consequences. A burned creditor with current holdings having lost value is not quick to purchase additional USTBonds. Not in this world, not in this environment, not from the pack of American criminals in power, not with such deep fraud gone without prosecution, not with the huge damage done to the US$ global reserve currency, not with the great undermine of USFed credibility, not with the absent prospect of fiscal balance (endless federal deficits). A tremendous deterioration is underway, caused by the growing realization that governments cannot repay their debts, or worse, that their debts are rising out of control. Atop the sovereign debt lies the entire global monetary system, in the process of crumbling. Thus the rush to buy Gold & Silver, along with a raft of important commodities like crude oil.

◄$$$ BERNANKE SIGNALED A LIKELY QE3 PROGRAM. SINCE THE PREVIOUS PROGRAMS HAVE FLOPPED BADLY, HE IS READY TO CALL FOR MORE OF WHAT HAS FAILED TO SUCCEED, THE ENTRENCHED CUSTOM. HE IS BACKING INTO THE CORNER TO PRESS THE QE3 BUTTON ON THE WALL WITH HIS HIND END, WHERE THE BRAINS RESIDE. WITNESS A FAILED CENTRAL BANK. $$$

USFed Chairman Bernanke warned of more Quantitative Easing as likely. He is preparing the political groundwork, which must include lies, deceptions, and false promises, laced with more incompetent if not heretical analysis. Warning that he does not want to see the USEconomy relapse into a recession, Bernanke did not rule out expanding the central bank's asset purchases aimed at stimulating the economy. That is proper lingo for using fresh Printing Pre$$ money to cover gaping USGovt debts. At a House Funeral (err, Financial) Services Committee meeting, he advised that a QE3 round could occur. He said, "What we would like to see is a sustainable recovery. We do not want to see the economy falling back into a double dip or to a stall-out." He kept to the script that the USFed remains on course to complete $600 billion of USTreasury purchases through June under the current QE2 round. The second round of bond buying follows a $1.7 trillion first round in 2009 of purchases of a toxic mix of USTreasurys and mortgage backed securities. A slow storm of Congressional protest has surged, founded in the concern over the inflation risk. Bernanke did some dancing, as he made indirect pansy comments. A third round of purchases "has to be a decision" of the Federal Open Market Committee, and "it depends again on our mandate" for stable prices and maximum employment, when responding to QE2 critics. He said, "We are looking very closely at inflation both in terms of too low and too high. I want to be sure that you understand that I am very attentive to inflation and potential risks for inflation. That will certainly be a major consideration as we look to determine how to manage this policy." The USFed is proving that inflation cannot be managed at all.

Be sure to know Ben is a lousy economic analyst with a perfect past track record of wrong calls. He continues to maintain wrong footed notions. He believes the USFed policy of keeping its benchmark rate near 0% for an extended period provides support for the USEconomy. He is blockheaded, blind, stupid, and unteachable, much like many professors from the Economics field. He deflected some blame when he concluded, "The economy's recovery is not firmly established. We think monetary policy needs to be supportive. Downside risks to the recovery have receded, and the risk of deflation has become negligible. QE2 has given us some opportunity to act on our debt and deficit, and we have not taken advantage of that. Any criticism directed at the chairman, you need to also sort of point that finger back at yourselves." Bernanke indirectly forced blame on the USCongress in unison. The stimulus is all price inflation though. He correctly assessed that the labor market would require several years before a normal jobless level can be achieved. In saying so, he admitted to failed monetary and economic policy curiously. In the meeting, the inept were arguing with the corrupt, but one cannot be sure who is which. Congressional ordered budget cuts could lead to 200,000 fewer jobs over the next couple of years. Contrast that estimate to the prediction of Mark Zandi from Moodys Analytics, who forecasts the budget reductions would mean 700,000 fewer jobs by the end of 2012. A poison pill is being swallowed.

In my view, observers can see a policy of damn the torpedoes, full speed ahead. That is the USFed attitude toward QE. My forecast is for an eventual QE7 and QE8, if not a QE13. At some future point, QE will not have program names since they will have become engrained within policy. They will be nails in the USEconomy coffin, each QE having destroyed significant capital, the ugly truth. The USFed will continue this game because no USTreasury Bond buyers exist, the ugly truth. The USFed will continue because no reduction in USGovt deficits is remotely likely, the ugly truth. Big debates stir over budget cuts amounting to one week of equivalent deficits, virtually meaningless. The USFed will continue because even rampaging price inflation will not improve the USGovt fiscal balance, the ugly truth. Few in the mainstream consider these deadly notions. QE must continue as long as the integrity of USTreasurys is dealt staggering blows by QE itself in a vicious cycle, as foreign creditors flee, the reality. QE must continue as long as property prices are falling, as huge backlogs of homes ready for foreclosure, the reality. QE must continue as long as the USFed is stuck in the 0% policy corner (ZIRP), since no stimulus is felt, the reality. QE must continue as long as the USDollar descends into the abyss inexorably and with a slow painful pace, the reality.

◄$$$ BERNANKE BLINDNESS HAS BEEN REVEALED. HE CANNOT DETECT THE STRONG SCENT OF PRICE INFLATION, NOR CAN HE OBSERVE THE EXTREME THREAT TO THE USECONOMY FROM A COST SQUEEZE. BERNANKE REMAINS FULLY DELUSIONAL IN PERCEPTIONS, OR AT LEAST IN EXPLANATIONS OF THE USECONOMY. THE GADFLY GONZALO LIRA CHARGES THAT A SUSTAINED UNEMPLOYMENT LEVEL IS PROOF OF THE QE2 FAILURE. LIRA WARNS OF HYPER-INFLATION AT THE DOORSTEP. $$$

Bernanke has made public statements to the effect that rising crude oil prices do not threaten the USEconomy. Fast rising energy costs generally are equivalent to a massive tax hike in the face of a tough economic recession, an obvious threat to any competent economist. That excludes Chairman Bernanke. He believes the surge in oil prices is unlikely to hurt the USEconomy unless it is sustained. They have already been sustained, with crude oil over $80 per barrel for five months. He admits that higher energy prices could lead to higher price inflation, but only a modest temporary amount at most. He is playing with words, dodging a reality vividly clear to even the common uneducated man. He repeated his empty clarion security call that the central bank is ready to respond to the surge in global commodity prices when necessary. It has happened and the USFed has done nothing except to deny the acute effects to date. He pointed to the low USTreasury yields as offering assurance on inflation expectations, his usual card from the stupidity chamber. He also pointed to the TIPS, inflation adjusted bonds, the very same securities that the USDept Treasury has ordered monetization support for. That means they are badly skewed.

Recall past assurances by Bernanke concerning the subprime mortgage problem being contained, and his assurance that an Exit Strategy from 0% was around the corner in 2009, and his assurance that the housing market recovery was in progress, and his assurance of no price inflation spillover. He continues to overlook a major obstacle, the quintessential stumbling block that impedes any recovery. The housing market refuses to clear and stabilize because the banks under his supervision have not been forced to account properly for the bad loans on their books, or face liquidation. As a consequence, the market clearing prices have not been achieved, nor permitted actually, since such housing prices would be 20% to 30% lower. That would cause even more horrendous damage to bank balance sheets, the banks veritiable Zombies already. Meanwhile, home inventory accumulates off the official data scoreboard within the bank balance sheets. Bernanke is a bumbling boob, a rambling fool, an utter idiot, a bank syndicate talking head, a designed bagholder, the fall guy. Expect great criticism and derision to build.

Self-styled and highly outspoken Gonzalo Lira pitched in with a basic assessment that is difficult to challenge. He called the QE2 program a failure. He wrote, "Between the lines, the Fed thinks the recovery is anemic at best, illusory at worst. A central bank confident in an economic recovery would not be so concerned about how the withdrawal of its monetization program would affect interest rates. The end of QE2, still more than three months away, would be handled with more equanimity by a confident central bank. So! What does this mean? It means the Fed is as nervous as a virgin on her wedding day, because it realizes that QE2 has been a failure. Ben Bernanke paid $600 billion for a 1% drop in unemployment in the United States, and a big inflation spike in the rest of the world. Sounds to me like a horrible bargain, a bargain whose full inflationary price we have yet to discover, but which I think we soon will." A basic point that worry over USTBond demand means continued QE means. See the Lira article (CLICK HERE).

Lira made direct comments about hyper-inflation and its arrival. He wrote, "The United States has enjoyed monetary stability for the last eighty years, a stability that has been the cornerstone of American prosperity. That stability is set to end. Most American consumers and investors do not know it yet, but they are about to experience a profound, disruptive macro-economic crisis, a hyper-inflationary event. Current fiscal policy by the US Federal government, and the easy money policies of the Federal Reserve, guarantee such a hyper-inflationary event will occur in America, and occur sooner, rather than later. When this hyper-inflationary event happens, the entire landscape of price discovery and personal investments will shift, radically. Those who fully understand this radical shift, those who are fully prepared for this hyper-inflationary event beforehand, will be able to not just survive these changes, but thrive." He refers indirectly to Gold & Silver investments.

◄$$$ ABSURD PERCEPTIONS BY MONETARY POLICY AND THE USBANKERS ARE INTENDED TO DECEIVE THE PUBLIC. THE PRACTICE OF DECEPTION TRACES BACK 30 YEARS, EVER SINCE ASSET BUBBLES WERE BLESSED AS BENEFICIAL. HOME APPRECIATION CAPTURED THE PUBLIC IMAGINATION AND ACCEPTANCE. JUST LIKE A CANCER, THE END GAME IS ECONOMIC DEATH. IN THE CASE OF THE UNITED STATES, SEEN ARE AN INSOLVENT BANKING SYSTEM, MATCHED BY INSOLVENT HOUSEHOLDS, ALL COMPOUNDED BY AN INSOLVENT USGOVT. THE KEY HOLDING THE ELITE IN POWER IS THE PRICE INFLATION DISTORTIONS IN THE THOUGHT PROCESS, ITS PROMOTION AND RISKS. PANDORA'S BOX HAS BEEN OPENED TWICE. THE OUTCOME WILL BE HYPER-INFLATION TO BE SEEN IN TIME. THE UNITED STATES EXPORTS INFLATION JUST LIKE IT EXPORTED DEFLATION IN THE PAST. $$$

The deceptions are clever and pernicious, even as thorough and constant. The US press networks are complicitous in shutting down the bright light of information. The centers for the deceptions and false teachings are the USFed, Wall Street, the USGovt, and the attendant press networks. Even the universities are guilty of false teaching, linked through funding to academic chairs and the major think tanks in research. The end result of the entire orchestrated era comes in the form of national insolvency and imminent debt default, which has produced great poverty, even lost sovereignty. The American dream is fast turning into an endless nightmare of fascism and tyrrany. The high priest has shifted from Alan Greenspan to Ben Bernanke, surely a step down in credibility and ability to obfuscate effectively. The biggest historical deceptions have been directed at price inflation, taught to be beneficial in small amounts. So must hydrochloric acid in small amounts. Within that deception, the public has been conditioned to embrace and to exploit the inflation by owning a home. They were taken over the cliff in the latest housing asset bubble, with several million Americans losing their homes to the big US banks and Fannie Mae, in a climax event. Consider some good examples of lies.

Hard defensible statistics have been replaced by many soft statistics. The Institute of Supply Mgmt issued its monthly Purchasing Managers Index. The press claimed the ISM report showed unexpected strength, but much of that lift was from rising prices that were not adjusted for inflation. My forecast has called for inflation to be called growth. Also the metrics are loaded with subjective terms, resulting in fuzzy measures. Details by sector paint a wretched worrisome picture. A transportation firm mentioned, "A continued weak dollar is increasing the cost of components purchased overseas. It is going to force us to increase our selling prices to our customers." A chemical products firm mentioned, "We continue to see significant inflation across nearly every type of chemical raw material we purchase." A fabricated metal products firm mentioned positively, "Our plants are working 24/7 [around the clock] to meet production demands." A non-metallic mineral products firm mentioned, "Prices continue to rise, while business limps along at last year's pace." A plastics and rubber firm mentioned, "Overall demand is off 10 percent." The carmaker wards of the US state, General Motors and Chrysler, are pumping out cars mostly sold to dealers that sit unsold on dealer lots. It is called channel stuffing. Other large fleet lease deals involve USGovt subsidies that will soon phase out. The theme and tone are not positive.

The US public has a great amount of personal pension funds tied in stock mutual funds. The psychological conditioning has been consistent that owning stocks has been a wonderful inflation hedge, along with home ownership. Stocks are touted as great assets for the long haul. The US public has been told all during the last decade that gold is high risk, produces no yield like a bond, is vulnerable to strong downward price declines, and has been in a bubble in recent months. However, the last decade has been more like a slow motion death march for all financial paper assets of US$ denomination, except USTreasurys. The bonds are the last pillar to fall, the final bubble within the establishment. Compare the track record of the Down Jones Industrial Average to the Gold price, which has outperformed stocks by a 4.7 to 1 margin since year 2000. As precious metals investors, we should paradoxically hope that respect comes very late. The climb in the Gold price goes hand in hand with the LACK of respect it is given, since public support when universal is a final bell gong.

A farce of a rationalization came from the diminutive Treasury Secy Geithner. He claimed that the nation cannot reform the housing market and correct the financial fraud too quickly because it will hurt the recovery in housing. No recovery is visible. And let us not forget that big US bank liquidation, even though laced with fraud, would harm businesses and households from credit constriction. What Geithner implicitly has said is that financial fraud is acceptable, provided it supports the housing valuations. Consider that USFed Chairman, the otherwise Secy of Inflation, has pontificated on the low risk of inflation, even its fleeting arrival. The august syndicate marbled offices are already setting up for QE3, even though the nation has felt the initial firestorm of price inflation. The next round will aid the housing market with mortgage bond purchases, more debt monetization.

In the next several months, the cusp of hyper-inflation will eventually hit the system, taking many people by surprise. It will cut a wide path of destruction, reducing the middle class net worth unless they are invested in precious metals or energy. Ben Davies of Hinde Capital has been a steady critic of the USFed and its blind guidance and reckless stewardship. He said, "By June, the US will have monetized 100% of all of the debt issuance. This will lead to continued debasement of the US dollar. Fed Chairman Bernanke refers to commodity strength as a derivative of emerging market demand. This is the same man that suggested a savings glut from emerging markets was exporting deflation to the rest of the world a few years ago." Davies between the lines is calling Bernanke incompetent, unreliable, and deceptive. He stressed how the US exported deflation and now exports inflation. Expect QE3 to occur, with further wreckage to capital, income, and wealth. Some regional Fed captains on the sinking vessel have made comments alluding to its possibility, as has the high priest Bernanke. In fact, expect a string of QE programs, since the damage and failure of each assures the arrival of the next. If it reminds the observer of a drunk moving from one bottle of liquor to the next, then the correct analogy is perceived. The Quantitative Easing programs opened Pandora's Box, which invite and deliver hyper-inflation. The passage of time assures its guaranteed arrival in a predictable pathogenesis. See the Truth in Gold article (CLICK HERE).

USTREASURY BUBBLE RECOGNITION

◄$$$ THE USGOVT FEBRUARY DEFICIT WAS A HUGE GAPING $223 BILLION, CLOSE TO A RECORD AND PROOF OF NO RECOVERY WHATSOEVER. BLOATED FISCAL DEFICITS RACK UP EACH MONTH. ITS SIZE BRINGS CREDENCE TO THE EVENTUAL USTREASURY BOND DEFAULT FROM DISPATCH TO THE ELECTRONIC PRESS AND BASIC EXTENDED STRESS. THE EFFECT OF ONGOING OUTSIZED DEFICITS MAKE OBVIOUS THE NEXT QE3 ROUND. WITNESS THE FAILURE OF THE SYSTEM ON MANY FRONTS. $$$

The USGovt set an individual monthly deficit record. Recall the klaptrap nonsense about the deficit coming down to $500 billion, comments and empty forecasts made in early 2009. They feared the USTreasury Bond complex might suffer from imploded integrity and outsized bond supply hitting the market. My Jackass forecast was for $1.5 trillion annual deficits for as far as the eye can see. We are seeing that exactly, as the USGovt posted its largest monthly deficit in history. The February shortfall of $223 billion shortfall should ratchet up the volume on the budget battle in the USCongress with the White House. They have no clue how to grow revenue, only spending, and less ability to cut spending. Huge fights on the floor come over minor budget cuts, with the defense military budget largely intact. The latest figure, offered by the Congressional Budget Office, overwhelms the most elevated of forecasted deficits. A March 18th deadline looms, at which time the current stopgap funding bill expires. The USGovt debt limit must be raised, and will be raised. But the uncertain point is the damage rendered during the battle in full view before the world of creditors, sure to result in some compromise. The bankrupt USGovt is making very bad publicity, as partisan politics wrestle in futility, accomplishing nothing. See the Washington Times article (CLICK HERE). The USGovt is stuck with the current 0% rate and QE monetization programs, as the political chambers suffer from a vacuum, half the Congress compromised from bribery. No other path exists except monetary inflation, as the Jackass has emphasized for three years. The USFed had been trapped into lowering interest rates in 2007 and 2008, Europe too. The USFed remains trapped in its current low rate and heavy inflation policy, since any change of course would invite a rapid destruction much like Greece or Ireland.

Combine the staggering February single month deficit with the roughly $250 billion in collective budget shortfalls for the 50 US states, and the urgency of QE3 is plainly obvious. The USGovt deficit is moving in the wrong direction, even worse than the Jackass expected. The deterioration is rapid. Revenues for FY2011 are around $2.1 trillion but expenditures are $3.7 trillion dollars. Fingers pointed to foreign nations for US imbalances, insolvency, bankruptcy, absent industry, and imminent failure are misdirected. Look instead to economic heresy bound in Keynesian ideology. Look to Wall Street promotion of the latest asset bubble to exploit. Look to globalization which exposed the uncompetitive high US wages. Look to war economy emphasis since the 1960 decade, and its associated extreme unproductive costs, that caused most price inflation in the first place. Lastly, look to high volume financial fraud in Fannie Mae, JPMorgan, Goldman Sachs, and the Pentagon where multi-$trillions are missing. To be sure, the chance of QE3 not happening are zero, zilch, nada. The next hopless QE program will be packaged as additional stimulus to aid the USEconomy and US housing market, even aid the US states. The reality is that the USGovt debts have spiraled out of control at a time when foreign creditors have at a critical level abandoned the USTreasury Bonds. The situation has been cyclically worsened by the Quantitative Easing programs put in place, whose damage urgently requires the next round. Witness a failure of the Keynesian model (US aberrant version), the fiat currency system, the central bank franchise system, and a war economy, rolled into one, displayed on a global stage.

◄$$$ THE USTREASURY ISSUANCE IS GREATLY OUTPACING THE USGOVT DEFICITS, DUE TO MATURING DEBT ROLLOVER. SO THE USFED MONETIZATION CHALLENGES ARE $800 BILLION GREATER ANNUALLY THAN MERELY NEW FEDERAL DEBT. THE QE2 CONTINUATION, IF NOT QE3, IS URGED. $$$

In ordinary times, many are the USTreasury bidders at auctions, from direct bidders like domestic funds and banking institutions, primary dealers, and foreign investors. A small fraction of USTreasurys are held to maturity when investors receive cash, but the funds paid come from yet new borrowing. The total of all new USTreasurys to be issued in fiscal year 2011 has been estimated to be $2.25 trillion in net debt, which is more than $800 billion more than the USGovt budget deficit. The additional difference owes to debt rollover from maturing securities. As a consequence of QE2, overall systemic liquidity has increased in oceans of newly created money. A circular pattern is evident. USGovt debt is being monetized by the USFed through transactions intermediated by the Primary Dealers and other parties, who are handed funds derived from QE2. The end result, QE2 represents an increased but artificial demand for USTreasurys which funds between 80% and 100% the USGovt deficit spending, thus filling the void of absent foreign creditors who are aghast at the hyper-inflation and direct threat to the USDollar. They are suffering an unwanted debt writedown, a loss in reserves. See the excellent chart that shows the debt issuance (in red) vastly outpacing even the enormous federal deficits (in blue), whose difference is shown (in black broken line).

◄$$$ BILL GROSS HAS RECOGNIZED THE ROAD TO PERDITION IN UNCHECKED USGOVT DEFICITS AND UNBRIDLED USFED MONETIZATION OF DEBT. GROSS HAS BECOME THE NEW BOND BEAR. IN PLAIN TERMS, HE CALLED THE USTBOND FOUNDATION ARTIFICIAL. HE EXPECTS A HIGHER LONG-TERM BOND YIELD IN ORDER TO ATTRACT CREDITORS. HIS PIMCO FUND HAS ABANDONED THE USTBOND AT THIS POINT, AND IS RAISING CASH LEVELS. $$$

Very aware of the predicament is Bill Gross of PIMCO, the new gadfly who speaks regularly in mild rebellious tones. Gross wonders aloud who would purchase the USTreasurys when the USFed stops, and thereby withdraws from its heavy bond market support. He openly admits not to know the answer, meaning nobody of legitimate status. In the official data, fully 70% of the USTreasury Bond issuance since the beginning of QE2 has been purchased by the USFed, the rest taken by the reliable creditors in China, Japan, and the Persian Gulf. The USFed finds itself having eased into a QE corner where no exit enables escape or change, exactly like the 0% policy corner. Gross assures that PIMCO might be a buyer in the near future, but he hints of adjustments which could be nasty and severe. He implies a rising bond yield in order to attract buyers. Gross said, "Someone will buy [USTreasurys], and we at PIMCO may even be among them. The question really is at what yield and what are the price repercussions if the adjustments are significant. What I would point out is that Treasury yields are perhaps 150 basis points or 1.5% too low, when viewed on a historical context and when compared with expected nominal GDP growth of 5%. Bond yields and stock prices are resting on an artificial foundation of QE2 credit that may or may not lead to a successful private market handoff and stability in currency and financial markets." He is realistic about the absent handoff from Printing Pre$$ to private demand, but delusional about 5% baseline economic growth. HHeHe spoke in plain terms about PIMCO no longer to show patience in this ruinous bond market. Clearly, PIMCO has issued a Sell rating on everything US$-denominated in the sovereign bond market. See the Zero Hedge article (CLICK HERE).

PIMCO head Bill Gross is a man of his word, even if he has enjoyed insider information from the USDept Treasury on his fund's bond management. The flagship PIMCO Total Return Fund is the world's largest bond fund. In the month of January, its USTreasury Bond holdings went to zero. In its stead, the fund's cash level rose a whopping $42.6 billion, the most cash the fund has ever held. Note the plunge in the PIMCO fund USTreasury holdings in the chart below (blue line), offset by the surge in cash (dotted pink line). The USTBond holdings are the lowest since January 2009, before the time of the announced QE1 to monetize USGovt debt securities. The more curious development is the continued slow reduction in mortgage bonds, which peaked in June 2010 at $147.4 billion. Some analysts believe this means Gross expects no QE3 to occur. To the contrary, in my view he is being cautious. Any QE3 inclusion of mortgage backed securities might benefit the big US banks who are at high risk of hundreds of $billions in bond putbacks ordered by the courts for basic fraud. What these analysis might miss is that the mortgage inclusion might not lift mortgage bond principal values, since their QE3 spotlighted bailout will bring renewed emphasis of their broken condition, thus forcing a decline in value. Some directional changes might be upcoming for both USTBonds and mortgage bonds, each likely to lose value at the QE vicious cycle wrecks havoc and doles out destruction. See the Zero Hedge article (CLICK HERE).

A quote from Brian Rogers at Fator Securities, a former PIMCO fund manager. He said, "Having worked at PIMCO for 4.5 years, I can tell you that this kind of a major allocation decision was not reached overnight, nor was it reached without considerable debate by every senior member of the firm. In other words, the decision to lower total US Treasuries to 0% was discussed by senior portfolio managers, senior account managers, and many prominent outside consultants for days and perhaps even weeks before it was finally implemented. They never do anything over there without vigorous debate and discussion. By this move, PIMCO is clearly indicating, almost by putting their reputation on the line (because imagine the under-performance they face if they are wrong) that bond yields in the US will be rising soon, US Treasury prices falling, and liquidity drying up to some degree." Maybe for a short while, until QE3 is announced and USFed purchases of USTreasury Bonds resumes in earnest, complete with deeply tarnished prestige. The USFed and USDept Treasury might permit long-term bond  yields to rise a small amount in order to win consensus support for QE3 itself from the USCongress and the American public. After all, which is worse, price inflation or higher debt costs? Regardless, they will suffer both.

◄$$$ VON GREYERZ HAS GIVEN WARNING OF A HYPER-INFLATION EVENT. THE MAJOR NATIONS CANNOT REMEDY THEIR SITUATIONS, AS THE IMBALANCE IN FUNDAMENTALS IS TOO GREAT. ECONOMIES LACK CRITICAL MASS AND HEALTH. EVEN NEARLY UNLIMITED AMOUNTS OF PAPER MONEY ARE FAILING TO ACHIEVE STABILITY. THE ECONOMIES ARE NOT IN A POSITION TO PROVIDE THE NECESSITIES AT AN AFFORDABLE PRICE. A BREAKDOWN COMES. PREPARE FOR CHAOS BROUGHT BY INEVITABLE COLLAPSE, EITHER DIRECTLY VIA CREDIT WITHDRAWN OR INDIRECTLY VIA THE WEIGHT OF DEBT. $$$

Egon von Greyerz has issued warning of a hyper-inflationary deluge as imminent. He describes it along the Von Mises ultimate pathway to ruin. It is on course and inevitable. Regard the denials are proof of imminent arrival, or else why mention it! Von Greyerz describes castles in the air built with paper money and deceitful economic data used as glue. The financial markets are being flooded with unlimited amounts of printed money. As banking and political leaders cling to power, they forego prudent stewardship for the good of the country. An economic and social disaster is imminent for the US and a major part of the world. He warns of a deluge of unprecedented magnitude as both inevitable and imminent, replete with great trauma. It will greatly affect the economic, financial, social, political, and geopolitical aspects. Life will be altered for coming generations laced with social, financial, and moral decadence reminiscent of Hitler and Caligula with Satanic whores in their court, in my view. A breakdown is increasingly evident in societies, with a breakdown in families, a rise in crime, and impunity for high crimes by leaders. Most of the prosperity that has been achieved in the last 40 years is based on printed money and debt, thus false and unsustainable. A major part of the Western world has improved their living standard by an elaborate charade of swapped paper for services and imported products. That privilege will soon end.

The current system cannot last much longer. It is breaking apart at the seams. Most nations are running unusually large deficits certain to increase dramatically in the next few years, to the point of ultimate assured breakdown. The banking system is insolvent, held firm by false valuations of toxic debt and a network of shadowy derivatives. Fiscal balance sheets are beyond hope of remedy. In 2010, the USGovt spent 60% more than its revenues. In order to balance the budget, individual and corporate income taxes would have to double, or else the USEconomy would have to double in size. Neither prospect is remotely likely. The United States is hurtling toward a debt default, my forecast made in clear firm tone in September 2008. That is when the US banking system died, never to be revived, since no liquidations of big US banks are permitted by the power merchants that hijacked the USGovt. Liquidations would be tantamount to abdication of power of money and policy, never to happen. Prepare for the chaos of food shortages, even famine. Prepare for rampant unemployment with scant hope of jobs. Prepare for social unrest as the people grow frustrated beyond limits. Ludwig von Mises clearly understood that the deluge is inevitable. He wrote, "There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." Not much of a choice! He referred to the fraudulent paper currency system, whose value is declared by fiat, but whose fate is determined by nature. See the Zero Hedge article (CLICK HERE).

BIG USBANKS IN RETREAT

◄$$$ H.S.B.C. HAS HALTED ALL HOME FORECLOSURES. RECALL THAT THEY ARE A PRINCIPAL MEMBER OF THE M.E.R.S. TITLE DATABASE SYSTEM. A GRAND LEVER HAS BEEN SLAMMED HARD THAT LEAVES A COLOSSAL CHANNEL WIDE OPEN FOR MORTGAGE LOSSES. THIS IS A BLACK HOLE IN DIRE NEED OF USGOVT BAILOUT. $$$

HSBC has suspended all home foreclosures, as corporate policy, effective two weeks ago. They did not act responsibly and make a public announcement, but instead were intent on hiding the policy. It was declared in their annual SEC financial report filed. The event did not make the US financial news, apparently not important. Best not to emphasize the syndicate heavily exposed to future losses. The Main Stream Media is dutiful as usual. The suspension of all home foreclosures by a global bank is surely newsworthy. The official story has some nettlesome aspects. HSBC Bank USA and HSBC Finance Corp have halted all home foreclosures until further notice. The bank might face unspecified regulatory actions or fines, after regulators found certain deficiencies in servicing and foreclosure procedures. The disclosure is buried deep within its annual financial report to the Securities & Exchange Commission. It is their first foreclosure moratorium in the back end of legal contract fraud that swept the industry. See the Buffalo News article (CLICK HERE). Look for the next USFed monetization program, a fresh QE3 to be centered upon USTBonds, Municipal Bonds, and Mortgage Bonds of private label like HSBC, Bank of America, JPMorgan, Citigroup, namely the criminal Wall Street banks and brethren. The need is too great. The potential damage is too great. The banker influence is too great. The control of policy is too great.

◄$$$ WELLS FARGO FACES POSSIBLE PENALTIES FOR IMPROPER HOME FORECLOSURES. THE LITIGATION CASES ARE STACKING UP, AS ARE THE POTENTIAL LOSSES. $$$

Wells Fargo admitted to being investigated by several USGovt agencies for its foreclosure practices. Some enforcement actions are expected. Again in SEC filings, the bank disclosed investigations into bank violations of fair lending laws and of proper procedures in foreclosure affidavits. Actions could include heavy fines and civil penalties. In addition, the bank faces challenges in seven class action lawsuits and several individual borrower lawsuits. Wells Fargo said in the filing, "Specifically, plaintiffs allege that Wells Fargo signers did not have personal knowledge of the facts alleged in the documents and did not verify the information in the documents ultimately filed with courts to foreclose." This is Robo-Signer activity, basic contract fraud. The plaintiffs seek awards ranging from mortgage cancellation to monetary damages. The bank disclosed the risk of up to $1.2 billion in losses from the current litigation in  progress. See the Yahoo Finance article (CLICK HERE).

◄$$$ A FEDERAL COURT APPROVED A $624 MILLION PAYOUT TO COUNTRYWIDE INVESTORS IN A NEW YORK PENSION FUND. THE LOSS FALLS ON THE ACQUIRING BANK OF AMERICA. A HIGHLY IMPORTANT LEGAL PRECEDENT CASE HAS BEEN ESTABLISHED, SURE TO BE IMITATED. $$$

In late February, Federal US District Judge Mariana Pfaelzer in Los Angeles made a landmark decision. Plaintiffs won a $624 million settlement in a lawsuit brought by several New York public pension funds against Countrywide Financial. The fallen wreck financial firm is the burden of Bank of America since the acquisition in 2008 was forced upon it by the Wall Street masters. The settlement also demands that KPMG, the Countrywide accounting firm, to pay $24 million of the total for complicity in the fraud. The plaintiff was the New York State Common Retirement Fund and five New York public pension funds. They claimed Countrywide concealed the high risk routinely undertaken in its home loan business during the housing market boom years. Following the boom is the current enduring bust. The actual divvy of the award is not clear among those filing lawsuit for investment losses. New York officials have called the settlement one of the largest securities fraud settlements in US history. There will be more larger settlements in the future. New York state comptroller Thomas DiNapoli said, "This settlement vindicates investors who were deceived by Countrywide's involvement in subprime mortgage lending." However, the settlement was inadequate for some Countrywide investors, who plan further legal action to achieve more complete restitution. Some 33 large institutional investors that held shares in Countrywide decided to opt out of the settlement and pursue claims separately. Blair Nicholas is an attorney representing 16 of the institutional investors, including the California Public Employees Retirement System (CALPERS), BlackRock, American Century, and TRowe Price. He said, "My clients, if they cannot resolve their claims with Countrywide directly, then they are fully committed to try the case before a jury and maximize the recovery of our damages." More trials, more adverse publicity, more and bigger awards, more contagion, a vicious cycle. A provision was put in the award fund, where $22.5 million of the settlement was set aside for two years toward future claims by investors who opted out of the deal. See the Yahoo Finance article (CLICK HERE). Two years from now, this award settlement will be matched by 15 to 20 other similar settlements.

◄$$$ THE M.E.R.S. REGISTRY OF TITLES STILL HAS NO LEGAL STANDING. THE DATABASE SERVED ITS PURPOSE FOR MASSIVE BOND FRAUD, BUT NEXT COMES ITS TOTAL DISCREDIT NATIONALLY ON A LEGAL BASIS. ANOTHER COURT RULING AGAINST THE SYNDICATE, THIS BY A NEW YORK BANKRUPTCY JUDGE. THE DOOR IS WIDE OPEN FOR THOUSANDS OF MORTGAGE BONDS TO BE UNRAVELED, THE LOSSES PUT BACK TO THE ORIGINAL BANKS THAT PACKAGED THEM ILLEGALLY AND SOLD THEM WITH PROFOUND FRAUD. $$$

US Bankruptcy Judge Robert Grossman of New York ruled on February 10th that the MERS title database, widely used to maintain the lists of titles, lacks legal standing and has no rights to transfer mortgages. The MERS Corp owns and manages an electronic registration system that contains about half of all US home mortgages. Even though under contract by the big banks, the shell syndicate firm has no right to transfer the mortgages. In a decision known by the judge to have a significant impact, Grossman wrote that the membership rules of the firm's Mortgage Electronic Registration Systems (MERS) fail to empower it as a legal agent of the banks that own the mortgages. A great storm comes, in fact already begun in gathering storm. In order to avert it, the USCongress must pass an ex-post facto law that legalized bond fraud. That battle would be worth buying a ticket for ringside. The MERS title database has been determined to be a illegal. Look for the MERS Commercial authority to be eliminated. The implication is great, as the judge was aware. It means that the entire US mortgage market, both residential and commercial, is a grandiose illegal enterprise, built on fraudulent foundations, involving hundreds of $billions. Next will come challenges for every single MERS mediated transaction to be unwound. The ugly reality is that the banking lobby will be very busy scurrying around, in attempts to purchase Appelate Judges. Cases will be appealed to the Supreme Court possibly. This issue is a nation killer, plain and simple. Since bankers reign, expect the bankers to corrupt the process to the extreme.


Judge Grossman wrote, "The MERS theory that it can act as a common agent for undisclosed principals is not supported by the law. MERS did not have authority, as nominee or agent, to assign the mortgage, absent a showing that it was given specific written directions by its principal. MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. The court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law. An adverse ruling regarding the MERS authority to assign mortgages or act on behalf of its members and lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States. It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices. Without more, this court finds that the MERS nominee status and the rights bestowed upon MERS within the mortgage itself, are insufficient to empower MERS to effectuate a valid assignment of mortgage. The MERS position that it can be both the mortgagee and an agent of the mortgagee is absurd, at best." This is a damning slamming blow to the big US banks, guilty of fraud!! The ruling opens the door to broad lawsuits for investment bond loss and rest. Watch for action by the USCongress soon since chaos looms. See the Zero Hedge article (CLICK HERE).

◄$$$ BANK OF AMERICA HAS DIVIDED ITS MORTGAGE BUSINESS INTO TWO GROUPS, THE GOOD BANK AND THE BAD BANK. THEY ARE PREPARING FOR A MAJOR CHALLENGE IN A FIRESTORM OF RED INK LOSSES. THEY MUST ANTICIPATE COURT DECISIONS TO FORCE MORTGAGE BOND PUTBACKS. WATCH FOR HACKER DISCLOSURES DIRECTED AGAINST THE BANK. $$$

Bank of America is busy segregating half its 13.9 million mortgages into a Bad Bank comprised of its riskiest and worst performing legacy loans. Terry Laughlin runs the new unit, promoted to manage the costs of unresolved disputes stemming from the forced acquisition of Countrywide Financial. Laughlin is also responsible for overseeing foreclosure processes as well as negotiations with investor groups that are demanding the bank buy back faulty loans. He said, "We are creating a classic good bank, bad bank structure. We are going to get after this. We are going to do it the right way. We are going to put it to bed in the next 36 months. Many of the assets that are coming over into the legacy asset servicing portfolio are delinquent or are expected to go delinquent over the next three years. As borrowers default, we will evaluate them for a loan modification." He sounds like a motivated delusional moron. The legacy portfolio (Bad Bank) will hold 6.7 million loans with outstanding principal balance of about $1 trillion. The portfolio will include loans that are currently 60 or more days delinquent as well as riskier subprime loans no longer made, such as Alt-A, Interest Only ARMs, and Option adjustable rate mortgages. A complete split is planned by March 31st, then comes liquidation over time. Here is the main argued issue. Of the 13.9 million loans Bank of America services, about 3.5 million are held by the company on its balance sheet. The rest are owned by investors, meaning 10.4 home loans where bond owners seek court action on fraudulent mortgage bonds. Many of the toxic loans were originated by Countrywide and their own lending offices. That differs from practices at JPMorgan Chase and Wells Fargo, whose legacy books include only loans acquired through acquisitions of Washington Mutual and Wachovia.

Bank of America expects material fines from diverse government probes into irregularities in foreclosure processes, including contract fraud. State & federal law enforcement agencies are pushing lenders to reduce outstanding loan balances as part of a proposed settlement they hope to reach with banks over their mortgage servicing and foreclosure practices. Laughlin will represent Bank of America in negotiations. The big stick fought over is mortgage putbacks. A bondholder group including Pacific Investment Management Co (PIMCO) has doubled the number of mortgage deals on which it is challenging the bank. Bank of America set aside about $3 billion late last year to settle certain demands from mortgage buyers Fannie Mae & Freddie Mac. The bank said other claims on so-called private label mortgages could cost an additional $7 billion to $10 billion. See the Bloomberg article (CLICK HERE). Watch for exposures from document hacking and related revelations. Julian Assange at WikiLeaks and a hacker named Collective Anonymous are promising to share serious dirty deeds by Bank of America.

◄$$$ THE OBAMA ADMIN WANTS TO REDUCE MILLIONS OF HOME LOAN BALANCES BY A TRIFLE, USING THE MORTGAGE FRAUD SETTLEMENT FUND OF $20 BILLION. THE BIG USBANKS WANT A LIMIT TO THEIR POTENTIAL LIABILITY, WHICH COULD REACH AT LEAST $1 TRILLION IN MORTGAGE PUTBACKS. $$$

With an air of socialism, but a streak of syndicate corruption, the Obama Admin has proposed a two-sided settlement with the 14 big mortgage servicers. The case stems from improper home foreclosures, the rampant robotic signature procedures to alter mortgage contracts used against homeowners who fell badly behind on their home loans. The proposal pursues a settlement over the mortgage calamity that could force the nation's largest banks to cover the cost in home loan principal reductions worth $billions. Terms of the deal on the table would have mortgage servicers reduce the loan balances of troubled borrowers who owe more than their homes are worth, those with negative equity, underwater or upside down as they say. Some state attorneys general and federal agencies are pushing for banks to pay more than $20 billion in civil fines which could fund such loan modifications. They arrived at the figure as 1% of outstanding loan volume in question. In the unfolding proposal, banks would reduce second lien mortgages when first mortgages are modified, a key stumbling block in the industry. The naivete of the USGovt is revealed by a provision for banks to bear the cost of all writedowns rather than passing them on to other investors. In three months, as part of the free market capitalist charade, the bank could offer a secondary stock deal or float more corporate bonds. What silliness!

The targeted mortgage servicers are those which mishandled foreclosure procedures the most. Direct losses are desired for them to eat, by writing down loans that they serviced and abused. Included in the proposed bonanza are mortgage finance giants Fannie Mae & Freddie Mac, as well as investors in loans that were securitized by Wall Street firms. The nation has put forth a farce solution, which would let the fraud strewn banks off the hook for a mere $20 billion. My rough estimate is for something on the order of $1 trillion instead, a figure that would include both illegal home foreclosures and mortgage bond issuance in reckless violation of fiduciary responsibility, disclosure, and underwriting. Watch for a bank forgiveness clause for past fraud, a giant reprieve granted to the banks after a full decade of fraudulent mortgage activity. They remain grossly undercapitalized, leaving them still at great risk for another liquidity run, a removal of reserve deposits. A situation is being set up for another multi-$trillion USGovt bailout. Consider what $20 billion buys. Imagine the shallow solution of 10 million home loans currently underwater receiving an average reduction of $2000 each, or 5 million home loans reduced by $4000 each. This is a drop in the bucket, as 22% of homes are saddled with negative equity and the average negative balance is probably between $40k and $80k. Maybe 10 million homes fit the criterion, which at $50k in rescue would total $500 billion. See the Zero Hedge article (CLICK HERE) or the Naked Capitalism article (CLICK HERE). Critics call the entire deal a Get Out of Jail Card. The courts might supercede any deal struck, since most states have over-riding statutes that prevail in legal matters regarding property and home loans. This state sovereignty feature might break the syndicate banks.

◄$$$ HOENIG URGES A RESTRUCTURE OF THE BIG USBANKS BEFORE THEY CAUSE A SYSTEMIC FAILURE. HE BELIEVES THEY SHOULD BE BROKEN UP INTO SMALLER FINANCIAL ENTITIES. THE PROJECT WOULD BE EXHAUSTIVE, SINCE THE NON-ESSENTIAL ANCILLARY FUNCTIONS MUST FIRST BE IDENTIFIED AND ISOLATED. THIS IDEALIST BANKER IS ON THE RIGHT TRACK, BUT THE PARALLEL TRACK RUN BY THE FINANCIAL CRIME SYNDICATE IS IN FULL POWER AND CONTROL. $$$

The Too Big To Fail premise, principle, mantra, song, battle cry, and fraudulent plan is to be challenged eventually, but probably too late to prevent a catastrophe. The principle enables the fraud-ridden big US banks to continue to operate, to continue to receive USGovt grand aid handouts, and to continue to perpetrate staggering bond fraud and even counterfeit. Their liquidation is avoided, to save the union, but such avoidance ruins the union. The continued existence of the big US banks in their present form assures the destruction of the USEconomy and the total implosion of the US financial structure. This is a stern all encompassing statement. In my view, it is entirely defensible, even obvious. An insolvent banking system guilty of profound bond fraud cannot serve the USEconomy any more than any organized crime family can run a local economy. The current sitting financial crime syndicate can be described in many ways with many details, but the threats delivered to the Jackass were specific in 2005 and 2006. It will not be described in great detail, and implications will not be discusses. Figure it out for yourself. One hint though, as the Nazis from World War II were never killed off. Many merged with the powerful banker echelons during the war with motive of pillage. They took up residence in the United States, and never left England. They rose to power in the big investment banks and the intelligence community. Enough!!

Kansas City Fed President Thomas Hoenig urged US regulators to avoid another financial crisis by breaking up large financial institutions that pose a threat to the capitalistic system of the nation. He must surely realize that the current financial crisis never ended, and indeed threatens today the nation's capitalist system. He had better be careful, or else he might suffer a very sudden fatal heart attack (with help). Murder is a common defensive tool used by the syndicate, with dozens of past recent precedents. He said, "I am convinced that the existence of too-big-to-fail financial institutions poses the greatest risk to the US economy. They must be broken up. We must not allow organizations operating under the safety net to pursue high risk activities, and we cannot let large organizations put our financial system at risk. In my view, it is even worse than before the crisis. Protected institutions must be limited in their risk activities, because there is no end to their appetite for risk and no perceived end to the public purse that protects them. We must expand the Volcker Rule and carve out business lines that are not essential to the basic business of commercial banking or consistent with public safety nets, and then require that these lines be spun off into separate firms. In a competitive marketplace, where just a few basis points make a difference, these funding advantages are huge and represent a highly distorting influence within financial markets. The substantial incentives that large organizations have to take on more risk, with the government expected to pick up the losses should they incur, unfailingly lead to undue risks throughout the balance sheet." He describes the dismantlement of the Fascist Business Model generally and the Syndicate banks specifically, a highly dangerous position to make publicly. He must be aware that the shadow banking system cannot be separated any more than a deeply rooted cancer laced among several human organs can be excised. The sheer attempt to identify, isolate, and separate the various functions would invite violent reprisals, since so much money is involved.

Hoenig has stood out as the lone dissenter during every USFed meeting in 2010. He argued vigorously against provisions in the Financial Regulatory Bill, a sham overhaul last year that actually empowers banks even more, but limits their private trading activity as a token gesture. Hoenig believes the new financial regulations will not prevent the largest banks from continuing to take excessive risks and increasing market share. He implies the shadow banking system with its myriad spaghetti network of credit derivatives put the national financial system at great risk. The Dodd-Frank Act, the formal name of the new regulatory legislation, created a resolution authority to unwind the largest financial institutions. It also created the Volcker Rule, whose adoption aims at reducing the odds that banks will make risky investments and put their federally insured deposits at risk. However, that authority to unwind risky banks enables the syndicate to target their enemies, to target oppositional hedge funds, and to target any firm that positions itself in a manner to expose their extreme crimes. See the Money News article (CLICK HERE). Also, see a great rant with substance by Sean Corrigan against the banksters and their cozy policy on Zero Hedge (CLICK HERE).

◄$$$ THE USGOVT OWNS 360 THOUSAND FORECLOSED HOMES, A 50% RISE IN ONE YEAR. PARTS OF URBAN CENTERS ARE GRADUALLY TURNING INTO THIRD WORLD ENCLAVES. THE DAMAGE IS ASYMMETRIC. VANDALS AND THIEVES MAKE THE PROBLEM WORSE. MOMENTUM IS STRONG TOWARD A NEW CHAPTER OF URBAN BLIGHT. $$$

Through the infamous and highly corrupted USGovt sponsored mortgage lenders led by Fannie Mae & Freddie Mac, the USGovt owned 360,000 foreclosed homes by the end of 2010. That  marks an astonishing 47% rise from the year before, according to Housing Wire. Expect the federal inventory to increase substantially even though the clownish Bernanke assures a housing recovery is underway. Another 600,000 mortgages guaranteed by the Federal Housing Authority are anticipated to go into foreclosure, according to the research consulting firm Capital Economics. In total, mortgage lenders have between 1.3 million and 5.3 million properties on their books, the vast majority sitting vacant. Bank executives mull decisions whether to dump the homes or to wait for the housing market to improve. Increasingly they are dumping with heavy discounts. Consider one urban market for a spotlight, Chicago Illinois, a war zone, a city in decay.

Bryan Esenberg's job is to tend the wreckage of the Chicago housing boom. He works for a local non-profit firm that works to prevent abandoned buildings caught in the foreclosure process from falling apart while mortgage companies, lenders, owners, and investors argue over responsibility for maintenance and its costs. Many are the horrendous stories, like caved in walls, sewage in basements, squatters onboard, burnouts, abandonments before bank notices, and more. As of 2010, Chicago hosted 15,000 vacant buildings in Chicago. Of that total, 85% were caught within the foreclosure process. Many US cities face similar challenges with the urban blight and prospect of foreclosure ghost towns, in the charred ruins of the foreclosure crisis and  housing bust. In 2006 and 2007, when the Chicago housing market breakdown began, the number of vacant and derelict properties swelled from an estimated 60 to 300, according to the Chicago Dept of Housing & Economic Development. The city's vacant abandoned properties has skyrocketed to 15 thousand. Esenberg described some areas to be war zones, as entire blocks have been abandoned. Some houses have lost so much value that even lenders have walked away. Bankers in such cases decided that foreclosure proceedings and preparation for liquidated sale would cost more than the potential resale value of the house after broker and legal fees. Those properties are then left in ownership limbo, where nobody wants them or their maintenace cost. Most conventional mortgages do not cover the purchase of heavily damaged homes that need extensive renovation. The Chicago program called Neighborhood Housing Services marks one of a few attempts nationally to save such houses before the bulldozer. Complexity remains.

As a direct result of complaints and building code violations, Chicago demands that principal parties to the properties, from the mortgage holder to the lender to the title database MERS, determine who is responsible for the current condition and required maintenace. Upon refusal or lack of response, Illinois law allows local courts to appoint a receiver like Esenberg, to protect the property or to limit the damage. Originally, the program was in place before the foreclosure crisis, designed with a larger goal to cut gang and drug activity, compelling landlords to take care of rundown buildings. Supported by a $2 million federal grant, Chicago can process a small fraction of the city's vacant properties. Since the inception of the program, 784 units have been boarded up or rehabilitated. Nothing can be done about the properties with more extensive damage, like where thieves strip copper pipes and wiring, kitchen cabinets, bathroom devices, furnace elements, hot water heaters, light fixtures, and more. The phenomenon worthy of note is the asymmetric damage. Esenberg said, "They steal $50 worth of copper, but it comes out to be $20,000 worth of damage." The costs are high, $2000 to board up a house, up to $7000 to stop an abandoned property falling further into dereliction, not to mention cleanup costs to distract squatters. One device used by this lone soldier is liens. To pay for the repairs, he places a lien on the building that must be paid off before any other claims on the property. Many of the houses have fallen rapidly into dilapidation. So the slapped lein induces many lenders to hand over the deed rather than to pay for the repairs. Those houses are renovated to a minimal livable standard and sold to vetted owner occupied owners or affordable home developers through Neighborhood Housing Services. It is hard to stop the cycle of neglect that is the new chapter of urban blight. See the Huffington Post article (CLICK HERE).

◄$$$ JPMORGAN REAPS IN STRONG REVENUES AND PROFITS FROM ITS FOOD STAMP DEBIT CARDS. WORSE, THEIR CUSTOMER SERVICE IS LOCATED IN INDIA FOR SEVERAL STATES. THE BANK IS A CAPITALIST PREDATOR OF GREAT SOPHISTICATION. $$$

A record 44.08 million US citizens receive and use food stamps, almost 14% of the US national population, soon to be 1 in 7 citizens. The increase is 13.1% in twelve months and 1.1% in one month. No longer are coupons used, but debt cards instead, the modern tool, the sophisticated mechanism. Enter JPMorgan whose business unit that makes food stamp debit cards made $5.47 billion in net revenue in 2010, including a 2% gain in 4Q2010. The big banks do have an interest in those struggling in poverty. Debit cards for food stamps is actually part of a profitable business for big bank JPMorgan. Imagine the ripe potential for creating cards for dead people, or for people who exit the program, by the bank notorious for fraud. Following a Congressional mandate in 1996, states started moving toward electronic delivery of food stamp benefits, called Electronic Benefit Transfer. The funds behind food stamps come from the USGovt, but the technology to access it lies in private hands. Out with the old fashioned and in with the paper & plastic. JPMorgan provides food stamp debit cards in 26 states and the District of Columbia. It also provides child support debit cards in 15 states and unemployment insurance cards in seven states.

Christopher Paton is head of the business unit involved at JPMorgan, the largest processor of food stamps in the United States. He said, "They act and feel very much like a debit card. A lot of stores increasingly take food stamps. Volumes have gone through the roof in the last couple of years. This business is a very important business to JPMorgan in terms of its size and scale." Paton prefers to stress the useful social function performed by the big bank, aside from profit. They do not hope for job cuts and wider poverty, of course. But they do make a market off of misery and misfortune. The corporate interest of this business unit is well aligned with further economic ruin for American workers. The USGovt outsourced its card creation and usage to JPMorgan, but the bank turned around and outsourced the customer service end to India. Any food stamp user who has a problem or a question often must deal with someone living outside the US to receive assistance. West Virginia has demanded all call centers be domestically run. After Rhode Island learned of Indian handling of its call center, it made provisions to handle them in the ocean state. Tennessee does not care. The 488,000 households in Tennessee have their service calls sent to JPMorgan call centers in India. JPMorgan has become the ultimate capitalist, indeed a predator. See the New Deal20 article (CLICK HERE) and the ABC News article (CLICK HERE).

HOUSING FLOOR SOON TO DROP OUT

◄$$$ THE DOUBLE DIP IN THE HOUSING PRICE DECLINE HAS RETRACED BACK TO 2003 LEVELS. THE NATIONWIDE DECLINE HAS RESUMED IN FULL FORCE, EXACTLY AS FORECASTED. THE NEXT STEP WILL TAKE PRICES LOWER AND CAUSE WIDESPREAD ALARM, THEN A CALL FOR URGENT ACTION. $$$

US housing valuations have fallen all the way to the original housing crash, all the way back to 2003 levels. They have reached a critical juncture, showing a triple bottom at critical support on a national level. Further decline, an obvious forecast the Jackass will commit to, will cause great alarm and public protest for the USGovt and Wall Street to address it. The requirement is liquidation of the big sacred US banks, something never to be permitted or done, since such a massive step would mean the abdication of power by the very banks that control the USGovt. Therefore, the nation will inexorably fall into the abyss, on a path thoroughly established. The swollen overhead of unsold homes, the loaded channels of home foreclosures, and the vast hidden bank inventory of unsold homes assure that prices will fall another 15% to 20%.

 

My longstanding forecast is for US home prices to fall to 20% below construction costs, possibly lower. Some areas have approached those dungeon levels. The RPX Composite Index measures home values in 25 major cities. It has fallen to the lowest level in eight years, confirming the full stride of a complete return to the point of the past bounce in June 2009 and June 2010. From peak to trough, they measure home values as down 34% in aggregate with more losses to come in the national calamity and shattered American homeowner dream. In a cross-check, CoreLogic measures a housing price decline of 2.5% in January, to make six straight declines. Their index stands 1.6% below the previous low set in March 2009, reaching a new post-bubble low level. It is down 5.7% over the last year, and off 32.8% from the peak. Look for continued lower lows over the next few months. The total US housing stock has fallen by $6.3 trillion in value since the peak. The descent into negative equity hell continues, as 11.1 million (=23.1%) homes have loan balances greater than home value at end 4Q2010, compared to 10.8 million (=22.5%) at end 3Q2010. See the Business Index article (CLICK HERE).

◄$$$ THE USHOUSING MARKET IS DUE TO DECLINE FURTHER, AS THE MARKET WORSENS IN SEARCH OF AN ELUSIVE EQUILIBRIUM. THE BLOAT OF BOTH STANDING INVENTORY AND PENDING INVENTORY IS GIGANTIC. THE BANK LEVERAGE IS NO LOWER THAN THREE YEARS AGO, THE BANKS HAVE FIXATED ON RETURN ON EQUITY INSTEAD OF PRUDENT LENDING WITH RESPECT TO LEVERAGE. THE INVENTORY RATIO HAS TURNED WORSE OVER THE COURSE OF 2010. LOWER PRICES LIE AHEAD, IF CONCEIVABLE, SINCE THE HANGOVER REMAINS FIRM. $$$

The US banking system is not in a position to provide adequate credit to the USEconomy, let alone the housing sector. A firm price foundation for recovery requires at the least a banking system that is solvent and prudently manages leveraged risk. In the current situation, the banks manage via Return on Equity, and therefore expose themselves to big risk. Nothing has changed in over three years since the financial crisis initially struck. The banking system is stuck in the Intensive Care ward, operating off 0% rates (like an intravenous drip) and stimulated by extreme QE (like nitroglycerine to the heart). Credit to Mike Whitney for the excellent metaphors. The only difference between the current setup and that of 2008 is the financial system no longer suffering from liquidity seizures, thanks to the Quantitative Easing at the USFed and its generous Dollar Swap Facility devised for Europe. Across the pond, they created their own Stability Fund. So bond market freezes are not common anymore, as a different scourge has replace it in monetary inflation. In these three years, the banks learned nothing, having rebuilt the same exact system that blew up previously. Bankers fiercely resist the usage of more equity capital and less debt in funding loans, even though doing so would reduce their dangerous degree of leverage. They are fixated on return on equity (ROE) which directly contributes to their devotion to leverage. Worse, big banks prefer investments in securities over lending, since securities with high credit ratings require less capital. They remain casinos, buttressed by credit derivatives in the shadows. The incentives remain strong for the banks to maximize borrowing and put the system at greater risk, and conversely that banks cannot be as profitable by issuing loans to small businesses and homeowners. Unchanged structurally, the banking system is just as unstable as before, vulnerable to another meltdown.

Bankers swayed the USCongress to include loopholes that allowed a significant slice of mortgage loans to escape the requirement that banks retain at least 5% of the risk in loan portfolios. Even with the new Financial Regulatory Dodd-Frank Bill, lending institutions continue to have little skin in the game. They are looking for risk free lending, with Fannie Mae or the USGovt bearing the ultimate risk in a backstop. They are doing identity shifts much like Goldman Sachs. In November, Barclays quietly changed their legal UK bank classification of the main subsidiary in the United States, so that the unit would no longer be subject to federal bank capital requirements. Several other banks based outside the US are considering similar moves. The Dodd-Frank provision is evaded easily, as they choose not to have capital trapped in subsidiaries.

The banking system solvency condition has not improved or changed much at all. The true condition of the bank balance sheets is still hidden from public view, even after lower housing prices and another two million foreclosures in 2011. Higher bank stock valuations have distracted the regulators and analysts from the fact they continue to hold scads of the same toxic assets that plagued the bond markets before. Reams of mortgage-backed securities, collateralized debt obligations, and other risky instruments still sit on the bank books. Their potential impact concerns only a minority of accounting and banking observers. In fact, the top 10 US-owned banks had $13.8 billion in Unrealized Losses stuck sitting over a year in their investment portfolios as of September 30th, according to a Wall Street Journal analysis. Such losses are routinely not counted against earnings as long as the banks believe the investments will later rebound, a decision made in-house with pure bias. If those losses were properly taken against earnings, their pretax income for the first nine months of 2010 would be reduced by 21%, according to the WSJournal analysis.

Accounting rules distort the system enormously, permitting insolvent firms to continue operations, still letting them estimate their own asset values. But they do not lend much and make other excuses for not doing so, like bellyaching about too many unqualified borrowers. Lastly, the big banks continue to hide millions of REO homes off the market on their balance sheets as dead assets, better described as rotting fetid assets. The toxic assets, the non performing loans, the gigantic leverage tied to derivatives, these all lace the toxic paper to bank foundations. The shadow housing inventory has received adequate press coverage, and looms over the housing market like the Sword of Damocles. It is the main reason for another 20% home price decline, well below construction costs. The vast pile of foreclosed homes held by banks is not diminishing, a very troubling sign. It is growing!! This shadow inventory will continue to be a dead weight clogging bank resources while preventing home prices from recovering. At best, prices will bounce along the bottom for a couple years, if the bank leaders are lucky. They are not likely to enjoy much luck, since the USEconomy is suffering not only from job insecurity but price inflation too.

Mike Whitney made a calculation in April 2010, of all the foreclosed homes sitting in bank inventory, plus the shadow inventory of homes in the foreclosure process, plus homes for which owners had missed at least two mortgage payments. At that time, the current rate of sales led to an inventory/sales ratio of 103 months to clear the supply. Conditions have gone worse in six months. Banks managed to pare down the shadow inventory, but mainly by taking possession of foreclosed homes. As of September, they owned nearly 994,000 foreclosed homes, up 21% from a year earlier. The shadow inventory stood at 5.2 million homes, down 7% from a year earlier. The bottom line in inventory/sales ratio has risen to 107 months of supply in the five months. The data is not entirely consistent from sources, as RealtyTrac, LPS Applied Analytics, and Core Logic each contribute. Expect a few more years of extreme lending indigestion and inventory hangover, since the mountain of foreclosed homes casts a long shadow. See the excellent article entitled "US Housing Market, More Trouble in Squanderville" by Mike Whitney (CLICK HERE).

◄$$$ THE BANK INVENTORY OF HOMES IS OVER ONE MILLION UNITS ACTING AS HIDDEN SUPPLY, A MASSIVE OVERHANG. THIS INVENTORY HELD ON BALANCE SHEETS HAS A MUCH LOWER TRUE VALUE THAN STATED ON THEIR BOOKS. A TURNING POINT WAS PASSED IN LATE 2009, WHEN NON-PERFORMING HOME ASSETS EXCEEDED THE ANNUAL HOME SALES. DOWNWARD PRESSURE IS EXTREME ON PRICE. $$$

The volume of entombed bank owned homes (REO) under private label and the GSEs (Fannie Mae, Freddie Mac, FHA) has grown significantly, up 71% from 4Q2009 to 4Q2010. It bloats of almost 600k homes in select banks and almost 300k homes in GSE, close to one million homes. This is shocking, a bulging pending inventory! That total does not include the numerous smaller banks. Yet this is only a subset of the total REO inventory. Add in private label securities and bank portfolios to better capture the bloated volume on the shadow inventory. Private Label Selected banks and financial firms have an REO inventory slightly below the levels in 2008, when prices were falling quickly. Conclude the value of REO assets to be 30% to 50% lower than their book value on the bank balance sheets. The various lenders have not written down much of anything for official losses. They are much more insolvent than even good banks analysts believe. They slowly dispose of some REO homes, but generally are still accumulating them. The picture suggests strong downward house price pressure. By contrast, the REO inventory for the Govt Sponsored Enterprises (the F's) has increased sharply over the last year, from 172,368 at the end of 2009 to a record 295,307 at the end of 2010. Expect further future increases. See the Calculated Risk article (CLICK HERE).

 

The housing sales volume has served as a strong indicator in the price decline since 2007, when the housing bubble burst. Shadow inventory remains a gigantic factor, not yet received proper attention in the press or political arena. Toxic assets rack up more activity than healthy assets, in terms of unit volume. The turning point was registered in 3Q2009, when the home sales series fell below the total homes in foreclosure or in seriously delinquency. The situation is frightening, especially since the USEconomic expansion from 2003 to 2008 was built on the shifting sands of a housing bubble. It has not dissipated. At this point, the nation is actually digging a deeper hole, even as the deceptive media portrays signs of a recovery in pure propaganda. See the Reggie Middleton excellent article and review with several other linked articles (CLICK HERE). He produced the following disturbing illuminating chart.

◄$$$ DISTRESSED HOMES ACCOUNTED FOR NEARLY HALF OF JANUARY SALES. BEHOLD A RUINED MARKET, AS LIQUIDATIONS AND BANK SALES COMPRISE MOST OF THIS MARKET. WRECKAGE FINDS ITS WAY TO THE AUCTION BLOCK, WHERE PRICE IS CERTAIN TO FALL SIGNIFICANTLY MORE. ENORMOUS PRESSURES EXERT DOWNWARD PRESSURE, AND CONTINUE TO BUILD. $$$

They call them REO properties, since they are Real Estate Owned by banks. They call them short sales, since the seller comes up short on the closing, and must produce cash in order to exit from under the sale. Both REO sales and short sales climbed from 47.2% of total transactions in December to 49.6% in January at the national level. In the large important state of California, the study done by Campbell Surveys determined that distressed property transactions account for 66% of the market. In Florida, distressed property sales compose 63% of the market. The worst location for distressed sales is clearly Arizona and Nevada, whose combined transactions have a staggering 72% of home sales coming from deep distress situations. The housing market is wrecked, charred ruins from a busted bubble. It can no longer find a phony prop from the tax credit handed to first-time homebuyers. In the vacuum filled environm ent after its sham, the distressed properties are taking center stage. The result is a powerful downward force on home prices, as pressure continues to build. A portion of REO homes is damaged, not ready for the market, which perversely prevents some downward pressure. The same Campbell study found that the time sitting on the market before sale for REO homes has risen noticeably. Also they found that the average number of offers bid on homes has decreased. Their market data reveals that average prices for damaged REO have declined by 16% while average prices for move-in ready REO have declined 20%. This factoid comes from HousingPulse, whose survey polls include over 3000 real estate agents nationwide each month. See the DSNews article (CLICK HERE).

◄$$$ A FALSE GLIMMER OF LIGHT IS GIVEN BY A BIG REDUCTION IN THE FORECLOSURE ACTIVITY, BUT ONLY TO THE IGNORANT. THE LIGHT IS FROM A LOCOMOTIVE TRAIN IN THE TUNNEL. BANKS HAVE BEEN FORCED TO SUSPEND THEIR ACTIONS SINCE DEEMED ILLEGAL IN TOO MANY CASES. THE COURT RULINGS HAVE ERECTED OBSTRUCTIONS TO HOME SEIZURES. THE BIG USBANKS ARE NOT PREPARED FOR THE SETTLEMENTS AND AWARDS TO REMEDY MASSIVE FRAUD. $$$

In an update, RealtyTrac reveals total foreclosure activity dropped in November after the first whiff of fraudclosure was made evident. The name Robo-Signers came into our lexicon from high volume contract fraud. Defiant homeowners have not curtailed their rebellious response to the big banks. But banks have seen fit to severely slow their foreclosure activity. The home foreclosures declined by a whopping 14% in a single month, and 27% year over year. CEO James Saccacio wrote, "Foreclosure activity dropped to a 36-month low in February, as allegations of improper foreclosure processing continued to dog the mortgage servicing industry and disrupt court dockets. While a small part of February's decrease can be attributed to it being a short month and bad weather, the bottom line is that the industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures. We expect to see the numbers bounce back, but that will likely take several months. And monthly volume may never return to its peak in March 2010 of more than 367,000 properties receiving foreclosure filings." Banks are literally choking on home inventory and homes stuck in the foreclosure process, in a corrosive mixture of toxic acids bound in extreme constipation.

Data supports the conclusion that banks are actively halting the foreclosure process in states where the courts protect the homeowners. That includes California. Prepare for a housing market shock, like a sudden price decline. The banks are on the verge of suffering severe additional losses, from the tens of $millions in legal defense before the courts. They have woefully little in Loan Loss Reserves to handle what comes, a point made frequently in the Hat Trick Letter. Much of the LLReserves are tied up at the USFed, and might be called home. That would render the central bank suddenly exposed to greater insolvency. A litigation tsunami is coming, especially given that MERS title database entity has lost its legal standing. Its entire business model role has been fractured and stripped away. At risk for banks is several million home mortgages potentially being declared null and void, unless the USCongress can pass a bank fraud forgiveness bill, which is not beyond their scope. Some progress has come in the highly charged mortgage bond putback settlement cases, but that nightmare is just beginning. Demands from the banks are to come like a gigantic firestorm, far beyond their ability to satisfy. They are scrambling to repay as much as possible in futile attempts to make sweeping agreements. Much more comes in court challenges. See the Zero Hedge article (CLICK HERE).

USECONOMY SUFFERS A COST SHOCK

◄$$$ A GALLUP POLL REPORTED UNDER-EMPLOYMENT AT 20%, WHICH CONFIRMS THE SHADOW GOVT STATISTICS INDEX. THE USECONOMY IS STUCK IN A STEALTH DEPRESSION (CALLED SLOW RECOVERY). THE LABOR MARKET IS TIED TOGETHER WITH THE ENERGY TAX INFLICTED UPON THE ENTIRE USECONOMY WITH DIRE EFFECTS. WITNESS THE INITIAL LABOR MARKET IMPACT FROM THE WEAK USDOLLAR AND COST SHOCK FROM RISING COMMODITIES. $$$

A recent Gallup Poll, always of solid integrity, reported that under-employment surged to almost 20% in February, precisely when the gasoline price rise shock hit. A crosscheck from Gallup has big value. They conducted a real time survey of actual people, free from the usual propaganda bias, whose message was dire. They measured unemployment without seasonal adjustment at 10.3% in February, up from 9.8% at the end of January. They measured under-employment, an amalgam of part-time workers wanting full-time work and the pure unemployed, to be 19.9% in February, versus the 19.7% level exactly one year ago. The bulk of the jump was due to a nasty 0.5% newly unemployed. The deceptive USGovt statistics machine resorts to constant convenient seasonal adjustments that no longer serve any seasonal meaning. They are political adjustments. The labor market deterioration runs side by side with surging gasoline prices, fuel cost shock to companies, and budget cuts by states to explain the recent plunge Gallup recorded in consumer confidence. My Jackass forecast two and three months ago was for a notable rise in unemployment as a result of the falling USDollar, rising energy prices, rising food prices, and the general cost shock resulting from the staggering USFed monetary expansion. It has arrived.

◄$$$ STATE & LOCAL GOVT BUDGET CUTS ARE SLOWING THE USECONOMY AND LEADING TO JOB CUTS. ASIDE FROM PENSION CONTINUATION BATTLES, THE BUDGET SHORTFALLS HAVE LED TO SOME PERSISTENT CUTS IN SPENDING THAT HAVE AFFECTED A WIDE ARRAY OF WORKERS AND PROJECTS. THE TREND WILL INTENSIFY AND FURTHER PRESSURE THE USECONOMY DOWNWARD INTO A DEEPER RECESSION. $$$

The heavy lifting within the national economy is done by small business. Other hidden significant lifting is done by state & local governments increasingly in the last two decades. Deep spending cuts by state and local governments pose a growing threat to the USEconomy that is already grappling with high unemployment, depressed home prices, and the surging cost structure generally (led by food & gasoline). State capitols and city halls are slashing jobs and programs, as deficits rise alarmingly without prospect of budget balance. The movement makes for a huge dampening effect on the USEconomy, with no surprise. The recent reduction in the official national GDP growth estimates was blamed by USGovt reporting agencies in part on larger than expected cuts by state & local governments. At risk is managed cost of roadwork, construction projects, schools, nursing homes, health insurance subsidies, prisons, programs for elderly and disabled, Medicare, and parks. Joel Naroff of Naroff Economic Advisors said, "The massive financial problems at the state and local levels have and will continue to restrain growth." Mark Muro at the Brookings Institution said, "We suspect that these cutbacks are going to deepen over the next couple of quarters. It is likely we are only beginning to see the state and local drag."

State & local governments account for 91% of all government spending on primary education, according to the Brookings Institution. They provide 71% of higher education spending. States account for more than 70% of spending on roads, bridges, and infrastructure. As a group, these governments cut spending by 2.4% at the end of 2010. Consensus economist forecasts call for budgets slashed by 2.5% more this year. That would make the biggest reduction since 1943. The spending cutbacks will exert an even bigger economic drag than last year. Budget pressures will force an average of 20,000 more job cuts each month for the rest of this year, estimates Jon Shure of the Center on Budget & Policy Priorities. Political local leaders lead the charge from campaign pledges to shrink government toward closing budget gaps but with little success.

Many states like New York and California push for cuts to social programs and concessions from unions. In the news suddenly is Wisconsin, whose projected state $3.6 billion deficit has caused a call for urgent action. Newly elected Governor Walker wants to strip state workers of collective bargaining rights, which is fast becoming a reality. A hidden effect has struck in USGovt spending cuts for state aid, having a direct effect on states & municipalities. They depend on funds from the federal till for schools, police, and job training. The end of official USGovt stimulus programs has widened state deficits. One clear victim in the budget battles at the state level will be pension contributers. Public employees will pitch in more or lose the pensions altogether. State & local budget experts fear the cutbacks will intensify this year. States are struggling to close budget gaps of about $125 billion for the upcoming budget year, according to the Center on Budget & Policy Priorities. Despite being smaller than in the past two years, the gap is insurmountable and without potential remedy. The most faint voice comes from the poor and elderly. In Pennsylvania, Arizona, New York, and California, the marginal elements of society will suffer reduced Medicare coverage. See the Yahoo Finance article (CLICK HERE).

◄$$$ USGOVT TAX RECEIPT REVENUE IS AN EXCELLENT INDICATOR OF THE LABOR MARKET. IT MIGHT BE FALTERING AGAIN AFTER THE WEAK FRAGILE LIFT IN 2010. THE ECONOMIC STIMULUS IS OVER. THE HOME BUYER TAX CREDIT IS OVER. THE CLUNKER CAR PROGRAM IS OVER. AFTER STUPID SOLUTIONS, NEXT COMES THE RESUMED DECLINE. $$$

The Shadow Govt Statistics folks do superb work. One statistic that reveals the ongoing USEconomic recession is tax receipts from payrolls, free from distortion. The lift seen in year 2010 was temporary and required massive input from the federal stimulus program and home buyer tax credit, not to mention the General Motors clunker car program tail effect. The Shadow Team has introduced a new regular analysis of the very meaningful federal receipts of payroll withholding taxes. They occasionally hit the analyst displayed works, but they are not widely tracked as a statistic. It is hard to doctor since so plain and simple. The data arrives without fail to the USDept Treasury, and cover all employers, being mandatory. Only one complexity is worth mention, the non-linear function of taxes versus wages, owing to the graduated income tax scales. Given that most people remain within or very near the same tax bracket over time, the complexity is not an internal flaw. SGS calculates tax payments over a four week period, enabling an annual comparison. Formal recessions are marked by the shaded areas. The tax data is driven by employment, earnings, and tax laws. The regularly occurring outlier dots correspond to tax paid on yearend bonuses. Shown in the graph below are the year-to-year change in payroll-tax deposits at the USDept Treasury. Notice the latest data showing a sudden sharp drop in the past few weeks, possibly indicating a trend change. Given the extreme disturbance from higher costs for food and fuel, workers at the margin might be in the process of being cut by stressed businesses. Last Thursday, the Jackass received a phone call from a friend in Pennsylvania, a private carpentry and masonry professional. He complained that due to the high gasoline costs, his older truck could not justify the purchase of gasoline anymore. He has cut back in work and even refused a project, since not profitable. Such an effect must be common across the nation at the margin. Although data can be volatile, something appears to be rotting suddenly. Thanks to the John Williams team again.

◄$$$ US-GDP WAS REVISED DOWN TO 2.8% FROM 3.2% IN 4Q2010. USGOVT SPENDING HAS TRICKLED DOWN TO DELIVER A HARMFUL EFFECT. THE HIGHER JANUARY TRADE DEFICIT CAME WITH HIGHER CRUDE OIL COSTS. NO LONGER A SIGNAL OF REVIVED CONSUMERS, THIS TIME HIGHER IMPORTS TRANSLATE TO A MASSIVE COST RISE AND CORRESPONDING SQUEEZE. $$$

Once more, the US Gross Domestic Product was revised downward. Optimistic bias is their routine method put to official statistics. The 4Q2010 GDP was revised down to 2.8% from 3.2% in a fictional accounting. In truth, the USEconomy is in a 2.0% to 2.5% recession, when reality is considered and distortion adjustments are avoided. See the chart below. The message is that USGovt elements contracted more sharply and consumer spending was less robust, bringing about a reduction in the original estimate. Supposedly, the GDP growth in 3Q2010 was 2.8%, a lame crawl being the official word. The USFed maintains a story over the pace of growth as too slow to pull down the official 9.0% unemployment rate, which is around 19% in the world of reality. The data supports the continuation of QE2 by the USFed, a $600 billion USTBond purchase program to supposedly stimulate demand by lowering interest rates. It slows the system instead. USGovt spending declined by 1.5% rather than 0.6%, due to weak state & local government outlays. Policy slows the system from budget cuts, the very same poison pill swallowed across Southern Europe and Ireland. From the private sector, consumer spending grew at a 4.1% pace in the final three months of 2010 instead of 4.4% as first estimated. Surging food & energy costs are sure to increase the total consumer spending, but at the same time reduce the volume of purchases. Enter new deceptions with improper inflation adjustments. The USEconomy will suffer massively from the higher cost structure, and slow much more. Exports were revised higher, but the upward revision to imports was even greater. Trade added 3.35% to GDP growth instead of 3.44% originally. The report confirmed price inflation picking up speed. The personal consumption expenditures (PCE) index rose at an unrevised 1.8% rate in the fourth quarter, a sizeable gain from 0.8% in the third quarter. See the Huffington Post article (CLICK HERE).

The USGovt overall spending represents a $1.5 trillion component, worth about 10% of US GDP and 3% of global GDP. One is hard pressed to conclude an expected halt to QE2 without either the USEconomy galloping backward into recession, or the USGovt becoming insolvent in a public spectacle of USTreasury auction failures. The paradoxical factor of trade deficit muddies the water. The US experienced a trade deficit of $46.3 billion in January goods & services, up from a revised $40.3 billion in December. The January exports were $167.7 billion, a 2.7% rise. The January imports were $214.1 billion, up 5.2%, largely due to higher crude oil costs. In past years, higher imports would signal a reviving consumer sector, although long-term destruction since not based in business investment. In this case, higher imports mean a massive cost squeeze that will cripple the business sector and households. See the excellent clear Shadow Govt Statistics graph of GDP for the USEconomy, contrasting reality with official fiction.

◄$$$ WARREN BUFFET OPENLY DISPUTES THE BERNANKE VIEWPOINT ABOUT PRICE INFLATION. HE SEES EXTREME RISK ALSO TO THE USGOVT FISCAL DEFICITS AS WELL AS FUTURE OBLIGATIONS. $$$

Warren Buffet has sounded an inflation warning. On an CNBC interview, he said "paper money is not a good bet" simply, a curse of a statement to the paper charade markets. He could have cited worse, like the entire global monetary system is crumbling, and therefore hyper-inflation is fast arriving. Buffet warned that price inflation is a looming threat, a serious consequence to the USFed monetizing of the USGovt massive budget deficits. He understands the connection, which Bernanke denies. Legendary investor Warren Buffet disagreed with the Chairman. Buffet repeatedly noted his concerns for price inflation risks, the dreadful fiscal position of the USGovt, and the mounting liabilities facing the nation. Observe reality versus propaganda. Buffet might be a financial syndicate patron inducted by Hank Greenberg, but he speaks the truth often, to the embarrassment of the elite.

Comments from USFed Chairman Bernanke provided a boost in inflation expectations in the real world, apart from the USTreasury and TIPS controlled arena. In his semi-annual Humphrey Hawkins testimony to the USCongress, Bernanke provided no indication that the USFed was planning to implement tighter monetary policies in the near future. QE to infinity is the unspoken message. The dovish talk will provide constant harsh pressure on the USDollar, and a relentless lift to commodity prices generally. Bernanke admitted the extraordinary challenge to the labor market, for which even a moderate rate of economic growth would require several years before returning to a more normal level. He acknowledged the housing market as still exceptionally weak. Ben cited his usual stupid list of tame inflation expectations, ignoring openly the strong QE bid on USTreasurys that keeps bond yields low. It is a market reacting to extreme intervention and therefore contains zero economic indicator value. What a fool!! Bernanke comprehends important lethargic economic factors as persisting for several years more. Thus, the accomodative US Fed monetary policy will remain a solid fixture for the foreseeable future, a Jackass forecast over the last 12 to 18 months. The Good Chairman, blind to the wreckage whose damage he amplifies, but dutiful to his elite bank masters, continues to make no mention of either the risks posed from accelerating price inflation or the negative real interest rates, which rob savers of income from a return on bond investments. The negative real rate is the propellant fuel behind Gold & Silver bull market runs. See the Gold Alert article (CLICK HERE).

◄$$$ THE USECONOMIC SQUEEZE HAS BEGUN TO GAIN ATTENTION. FIRST FOOD AND INDUSTRIAL METALS, AND NOW ENERGY. THE COST PUSH WILL GROW INTO A FIRESTORM OF STAGGERING IMPACT. IT WILL SEND THE USECONOMY INTO A MUCH DEEPER RECESSION. $$$.

Dan Norcini is a commodity analyst of high calibre. He has teamed with self-styled gold advocate Jim Sinclair for several years. Norcini offered a perspective on rising energy costs and their impact with respect to price inflation. He wrote, "While commodity prices continue their surge higher, this time led by the energy sector, which has been the laggard of the sector, one would think that the specter of inflation would be resulting in a wholesale regurgitation of bonds in particular at the rate at which the Federal government is cranking them out. So far that has not been the case, as the current mentality in the bond pit is more short-sighted and is looking at the spike in crude oil prices and the rest of the liquid energies as a type of tax on the entire economy, one sure to slow down economic growth. I think this is absolutely correct for the short term. Higher energy costs will impact everyone, regardless of whether individuals or business owners. Profits will suffer unless this cost increase can be passed on to end users and consumers. If businesses are fearful of passing the costs on out of concern with maintaining their customer base, how can they increase hiring if their profits are not growing? The answer is self-evident. They cannot. No hiring, fewer jobs, slower growth. This is what the bonds are currently thinking. One has to wonder however if at some point they must pass on the increase in costs in order to remain viable. Whether it becomes another fuel surcharge or whatever, if crude oil prices do not retreat, it will certainly occur. Then we get the inevitable cost push inflation that so many of us fear is coming." Norcini might give the bond market too much credit for legitimacy. JPMorgan controls the long maturity USTBonds with Interest Rate Swap contracts, so as to prevent the 10-year and 30-year bond yields from being in the 10% range where they belong, given the current price inflation rate is around 8% and rising. Norcini is aware but does not mention the bond yield suppression. He refers to bond yield movement factors.

◄$$$ THE UNITED STATES IS ACCELERATING TOWARD A WELFARE STATE, AS HANDOUTS AND THE DOLE ACCOUNT FOR ONE THIRD OF NATIONAL WAGES. THE TREND IS WORSENING. THE TREND IS ALARMING AND ACCELERATING. $$$

Government payouts currently make up 35% of wages and salaries, up from 21% in 2000 and 10% in 1960. The USEconomy has become alarmingly dependent on government. When factoring in Social Security, Medicare, and jobless benefits, the total of USGovt handouts and the dole combine to make over one third of income for the entire US population, a record amount that screams of a social welfare state. That is a two thirds increase in one decade. Madeline Schnapp is director of Macroeconomic Research at TrimTabs. The economist gave the country two choices in seemingly unreachable scenarios. She wrote, "Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits. Either wages and salaries would have to increase $2.3 trillion (or 35%) to $8.8 trillion, or social welfare benefits would have to decline $500 billion (or 23%) to $1.7 trillion." Expect very little in progress or resolution from the clueless corrupted compromised USCongress, as they cannot pass any measure constructive or decisive. They simply avert a USGovt shutdown and deal with emergency matters from month to month.

Over 75% of Americans in a Wall Street Journal/NBC News poll do not support cuts to Social Security or Medicare as a device to address the yawning budget deficit. The poll numbers are clearly skewed by respondents who directly benefit. A major demographic shift is at work, one the nation has never seen before. In 2011, the first round of Baby Boomers began collecting Medicare benefits, with a ripe 78 million more people following, including the Jackass (age 59 years in May, but he looks 49). The strain on USGovt budgets extends from the ruinous housing bust, the calamitous bond bust, the broken banks, the absent factories, and the endless war costs. One should not take much solace in the fact that the United States compares well versus the state welfare levels of Europe. In the United Kingdom, social welfare benefits make up 44% of wages and salaries, according to Schnapp. See the CNBC article (CLICK HERE). All that remains is for the total police & military in the United States to rise above 20% of the population work force to qualify as police state. That watermark is 30 million people, a high bar.

Thanks to the following for charts StockCharts,  Zero Hedge,  UK Independent,  Wall Street Journal,  Calculated Risk,  Business Week,  Merrill Lynch,  Shadow Govt Statistics.