| MACRO
ANALYSIS REPORT
|  HAT TRICK LETTER Issue #84 “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 MISCELLANEOUS MORSELS ◄$$$ THIEVES ARE DRILLING HOLES
INTO CAR GASOLINE TANKS. Thieves are bypassing the gas cap
and are drilling into the gas tank
of cars. Damage is asymmetric, meaning
the repair costs are a multiple of
the value in stolen gasoline. Police
in The states of
◄$$$ 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 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 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
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
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. $$$ A special Meet The Press mini-conference
took place in mid-February of importance.
It featured some US Senators but nobody
of importance except the CBOT floor
reporter Rick Santelli. He made numerous
comments but kept some restraint.
The central topic was reining in USGovt
spending, a challenge that will see
almost no success for a few years.
He noted the critical situation in
Santelli said, "I think this
is an issue that needs to be put out
into the air and see. Many, many other
states might not have the same balance
sheet as The track record of presidential
pronouncements on the USGovt debt
are ludicrous and comical, since so
badly off the mark. In February 2001,
George Bush the Younger said, "The
government will retire nearly $1
trillion in debt over the next four
years." Instead, One easy indicator of good sense
in the budget equation is the US Defense
budget. It remains sacred ground,
and the endless wars are crippling
to the nation while highly profitable
to the syndicate. The narcotics vertically
integrated business in ◄$$$ 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. $$$ Boeing has served as the sole supplier
of aerial refueling tankers to the
USAir Force since 1948. In late February,
Boeing won over European Aeronautic
Defence & Space (EADS, aka Airbus)
for a $35 billion program to build
179 new tankers. Boeing and EADS
were evaluated on how well their respective
aircraft met 372 mandatory war fighting
requirements that took account of
basic price as well as total lifecycle
cost, including fuel efficiency, combat
mission refueling effectiveness, and
military construction expenses.
The EADS Airbus unit has recently
prevailed over Boeing in bids to supply
the Former Boeing aeronautical engineer
and Hat Trick Letter subscriber BobO
pitched in with a comment. He wrote,
"Third time is a charm! This
is USFED & QE DISASTER ◄$$$ 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. $$$ USFed Chairman Bernanke defended
the highly controversial and extremely
destructive QE2 program on the global
stage at the late February G-20 Meeting.
He actually stated that the USFed
is not the cause of destabilizing
capital flows. He selected a ruse
theme as a stick, since powerful monetary
inflation is the root problem in effect.
If anything, capital flows to the
Critics charged that the added liquidity
from the USFed was finding its way
into emerging markets, creating inflation
and running risk of asset bubbles.
Some officials even openly mentioned
currency wars. Bernanke, filled with
denial or ignorance, said "Emerging
market economies have a strong interest
in a continued economic recovery in
the advanced countries, which accommodative
monetary policies in the advanced
economies are designed to promote.
[Capital flows] were not out of line
with longer-term trends. The maintenance
of undervalued currencies by some
countries has contributed to a pattern
of global spending that is unbalanced
and unsustainable." He stressed
how emerging economies have tools
to prevent overheating from such credit
flows. Sure, they can undermine their
financial systems with matching destructive
monetary growth, or they can keep
interest rates low and encourage asset
bubbles, or they can erect barriers
from the Bernanke urged his G-20 colleagues
to work together to strengthen the
rules of the game, and to pursue a
more balanced international system.
At the same time, it is the USFed
whose QE2 program is flooding the
system with phony money and causing
a harsh reaction from creditors.
Thus the hypocrisy. It was the ◄$$$ 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 While European nations might criticize
the
◄$$$ BERNANKE AND THE QE PROGRAMS
ARE CAUGHT IN A NEGATIVE FEEDBACK
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
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 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 Lira made direct comments about hyper-inflation
and its arrival. He wrote, "The
◄$$$ 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. $$$ The deceptions are clever and pernicious,
even as thorough and constant. The
Hard defensible statistics have been
replaced by many soft statistics.
The The
A farce of a rationalization came from the diminutive Treasury Secy Geithner. He claimed that the nation cannot reform the housing market and correct the financial fraud too quickly because it will hurt the recovery in housing. No recovery is visible. And let us not forget that big US bank liquidation, even though laced with fraud, would harm businesses and households from credit constriction. What Geithner implicitly has said is that financial fraud is acceptable, provided it supports the housing valuations. Consider that USFed Chairman, the otherwise Secy of Inflation, has pontificated on the low risk of inflation, even its fleeting arrival. The august syndicate marbled offices are already setting up for QE3, even though the nation has felt the initial firestorm of price inflation. The next round will aid the housing market with mortgage bond purchases, more debt monetization. In the next several months, the cusp
of hyper-inflation will eventually
hit the system, taking many people
by surprise. It will cut a wide path
of destruction, reducing the middle
class net worth unless they are invested
in precious metals or energy. Ben
Davies of Hinde Capital has been a
steady critic of the USFed and its
blind guidance and reckless stewardship.
He said, "By June, the USTREASURY BUBBLE RECOGNITION ◄$$$ 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. $$$ The USGovt set an individual monthly
deficit record. Recall the klaptrap
nonsense about the deficit coming
down to $500 billion, comments and
empty forecasts made in early 2009.
They feared the USTreasury Bond complex
might suffer from imploded integrity
and outsized bond supply hitting the
market. My Jackass forecast was for
$1.5 trillion annual deficits for
as far as the eye can see. We are
seeing that exactly, as the USGovt
posted its largest monthly deficit
in history. The February shortfall
of $223 billion shortfall should ratchet
up the volume on the budget battle
in the USCongress with the White House.
They have no clue how to grow revenue,
only spending, and less ability to
cut spending. Huge fights on the floor
come over minor budget cuts, with
the defense military budget largely
intact. The latest figure, offered
by the Congressional Budget Office,
overwhelms the most elevated of forecasted
deficits. A March 18th deadline looms,
at which time the current stopgap
funding bill expires. The USGovt
debt limit must be raised, and will
be raised. But the uncertain point
is the damage rendered during the
battle in full view before the world
of creditors, sure to result in some
compromise. The bankrupt USGovt
is making very bad publicity, as partisan
politics wrestle in futility, accomplishing
nothing. See the Washington Times
article (CLICK HERE).
The USGovt is stuck with the current
0% rate and QE monetization programs,
as the political chambers suffer from
a vacuum, half the Congress compromised
from bribery. No other path exists
except monetary inflation, as the
Jackass has emphasized for three years.
The USFed had been trapped into lowering
interest rates in 2007 and 2008, Combine the staggering February single
month deficit with the roughly $250
billion in collective budget shortfalls
for the 50 ◄$$$ 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
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 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. $$$ Egon von Greyerz has issued warning
of a hyper-inflationary deluge as
imminent. He describes it along the
Von Mises ultimate pathway to ruin.
It is on course and inevitable. Regard
the denials are proof of imminent
arrival, or else why mention it! Von
Greyerz describes castles in the air
built with paper money and deceitful
economic data used as glue. The financial
markets are being flooded with unlimited
amounts of printed money. As banking
and political leaders cling to power,
they forego prudent stewardship for
the good of the country. An economic
and social disaster is imminent for
the The current system cannot last much
longer. It is breaking apart at the
seams. Most nations are running
unusually large deficits certain to
increase dramatically in the next
few years, to the point of ultimate
assured breakdown. The banking
system is insolvent, held firm by
false valuations of toxic debt and
a network of shadowy derivatives.
Fiscal balance sheets are beyond hope
of remedy. In 2010, the USGovt spent
60% more than its revenues. In order
to balance the budget, individual
and corporate income taxes would have
to double, or else the USEconomy would
have to double in size. Neither prospect
is remotely likely. The BIG USBANKS IN RETREAT ◄$$$ 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. $$$ HSBC has suspended all home foreclosures,
as corporate policy, effective two
weeks ago. They did not act responsibly
and make a public announcement, but
instead were intent on hiding the
policy. It was declared in their annual
SEC financial report filed. The event
did not make the ◄$$$ WELLS 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). ◄$$$ A FEDERAL COURT APPROVED
A $624 MILLION PAYOUT TO COUNTRYWIDE
INVESTORS IN A In late February, Federal US District
Judge Mariana Pfaelzer in ◄$$$ 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. $$$ US Bankruptcy Judge Robert Grossman
of New York ruled on February 10th
that the MERS title database, widely
used to maintain the lists of titles,
lacks legal standing and has no rights
to transfer mortgages. The MERS
Corp owns and manages an electronic
registration system that contains
about half of all
◄$$$ BANK OF 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 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,
Bryan Esenberg's job is to tend the
wreckage of the As a direct result of complaints
and building code violations, ◄$$$ JPMORGAN REAPS IN STRONG
REVENUES AND PROFITS FROM ITS FOOD
STAMP DEBIT CARDS. WORSE, THEIR CUSTOMER
SERVICE IS LOCATED IN A record 44.08 million Christopher Paton is head of the
business unit involved at JPMorgan,
the largest processor of food stamps
in the HOUSING FLOOR SOON TO DROP OUT ◄$$$ 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. $$$ US housing valuations have fallen
all the way to the original housing
crash, all the way back to 2003 levels.
They have reached a critical juncture,
showing a triple bottom at critical
support on a national level. Further
decline, an obvious forecast the Jackass
will commit to, will cause great alarm
and public protest for the USGovt
and Wall Street to address it. The
requirement is liquidation of the
big sacred
My longstanding forecast is for ◄$$$ 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 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 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 " ◄$$$ 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. $$$ They call them REO properties, since
they are Real Estate Owned by banks.
They call them short sales, since
the seller comes up short on the closing,
and must produce cash in order to
exit from under the sale. Both
REO sales and short sales climbed
from 47.2% of total transactions in
December to 49.6% in January at the
national level. In the large important
state of ◄$$$ 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. $$$ In an update, RealtyTrac reveals total foreclosure activity dropped in November after the first whiff of fraudclosure was made evident. The name Robo-Signers came into our lexicon from high volume contract fraud. Defiant homeowners have not curtailed their rebellious response to the big banks. But banks have seen fit to severely slow their foreclosure activity. The home foreclosures declined by a whopping 14% in a single month, and 27% year over year. CEO James Saccacio wrote, "Foreclosure activity dropped to a 36-month low in February, as allegations of improper foreclosure processing continued to dog the mortgage servicing industry and disrupt court dockets. While a small part of February's decrease can be attributed to it being a short month and bad weather, the bottom line is that the industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures. We expect to see the numbers bounce back, but that will likely take several months. And monthly volume may never return to its peak in March 2010 of more than 367,000 properties receiving foreclosure filings." Banks are literally choking on home inventory and homes stuck in the foreclosure process, in a corrosive mixture of toxic acids bound in extreme constipation. Data supports the conclusion that
banks are actively halting the foreclosure
process in states where the courts
protect the homeowners. That includes
USECONOMY SUFFERS A COST SHOCK ◄$$$ A A recent
◄$$$ STATE & LOCAL GOVT BUDGET CUTS ARE SLOWING THE USECONOMY AND LEADING TO JOB CUTS. ASIDE FROM PENSION CONTINUATION BATTLES, THE BUDGET SHORTFALLS HAVE LED TO SOME PERSISTENT CUTS IN SPENDING THAT HAVE AFFECTED A WIDE ARRAY OF WORKERS AND PROJECTS. THE TREND WILL INTENSIFY AND FURTHER PRESSURE THE USECONOMY DOWNWARD INTO A DEEPER RECESSION. $$$ 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 ◄$$$ USGOVT TAX RECEIPT REVENUE IS AN EXCELLENT INDICATOR OF THE LABOR MARKET. IT MIGHT BE FALTERING AGAIN AFTER THE WEAK FRAGILE LIFT IN 2010. THE ECONOMIC STIMULUS IS OVER. THE HOME BUYER TAX CREDIT IS OVER. THE CLUNKER CAR PROGRAM IS OVER. AFTER STUPID SOLUTIONS, NEXT COMES THE RESUMED DECLINE. $$$ 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
◄$$$ US-GDP WAS REVISED DOWN TO 2.8% FROM 3.2% IN 4Q2010. USGOVT SPENDING HAS TRICKLED DOWN TO DELIVER A HARMFUL EFFECT. THE HIGHER JANUARY TRADE DEFICIT CAME WITH HIGHER CRUDE OIL COSTS. NO LONGER A SIGNAL OF REVIVED CONSUMERS, THIS TIME HIGHER IMPORTS TRANSLATE TO A MASSIVE COST RISE AND CORRESPONDING SQUEEZE. $$$ 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
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 ◄$$$ WARREN BUFFET OPENLY DISPUTES THE BERNANKE VIEWPOINT ABOUT PRICE INFLATION. HE SEES EXTREME RISK ALSO TO THE USGOVT FISCAL DEFICITS AS WELL AS FUTURE OBLIGATIONS. $$$ 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 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 Thanks to the following for charts StockCharts, Zero Hedge, UK Independent, Wall Street Journal, Calculated Risk, Business Week, Merrill Lynch, Shadow Govt Statistics.
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