World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.
A Long and interesting piece on Martin Armstrong… Paumgarten was the first from the media to be allowed to interview Armstrong in quite some time. He interviewed me for this article and used some of my terminology, but did not quote me or this blog. He makes oblique reference to how Martin gets the documents out into public, but was never given the answer he was looking for and so talks about Zero Hedge instead of the only site on the web to publish every work he produces. C'est la vie, it’s still a comprehensive and interesting read, especially for those who do not know the history behind Martin Armstrong and his work.
Here Martin first states no grand conspiracy theory but then goes on to describe in great detail his own dealings with the “club.” While I agree with Martin that many who just can’t understand what’s happening have to put a label on it, like “conspiracy,” I also see that all the manipulations add up and do get out of control. Goldman, while maybe not intentionally setting out to indebt the world, or JPM not setting out to be the world’s largest holder of derivatives have, in fact done so. They now permeate the world with their debt and toxic derivatives. Conspiracy or accidental idiots, the end result is the same.
The bottom line from my perspective is who and when do reasonable men step in to place limits on their activities?
LOL, I love that title, and it’s EXACTLY what I’ve been saying all along. It takes him awhile to get to the actual math, talking first about the legal system again and history leading up to our unworkable math situation. He then goes on to talk about timing, pointing out possible windows for when the true crisis of debt will hit, the years 2011 or 2015 seem to fit his cycle theory.
Don’t miss what he’s saying on the last page… interest rates are destined to rise, that is true.
Armstrong jumps into this key argument, first discussing why deflation occurred during the Great Depression and why this time may be different. Yes, he is falling into the inflationary camp seeing confidence waning in our dollar. He states that during the Great Depression European countries flocked to the dollar as currencies in Europe failed.
Is that not happening today? Latvia is just making headlines as I type?
While I completely agree that our dollar is destined to the dustbin of history, its demise is a matter of timing. I am going to once again point to the shadow banking system and the current unwinding of debt and leverage. That unwinding is NOT over and government efforts have NOT completely stopped the collapse of credit. Like Jim Sinclair, Martin will eventually be right on this call, I just don’t believe that time is now. Still, an interesting read, his history perspective is always educational.
It’s been awhile since I did an article showing the latest revised charts by the St. Louis Fed. So, here is a collection of charts showing the underpinnings of our economy. Please pay attention to the left hand scale of the chart as some are expressed in raw billions while others are expressed in year over year (yoy) percent change.
BANKING & CREDIT:
Return on average equity for banks with assets from $1B to $15B... these are middle sized banks, both the larger and smaller banks charts show the same type of picture. So, where are the real bank profits? The only profits they are actually making is on paper, the result of mark to fantasy accounting because the FASB caved into pressure from Congress who in-turn caved into pressure from the central bankers:
Total net loan charge offs… this is for all loans. Still no greenshoots here, the banks have been reticent to write off bad loans. They are still holding inventory in hopes of price recovery that will never happen and thus the end of charge offs is nowhere near complete as the trajectory of this chart clearly shows:
Of course, the number of loans not performing is skyrocketing and is NOT letting up:
Revolving credit (primarily credit cards) is down significantly in terms of raw dollars… total consumer credit comes out this afternoon:
I’ve gone over what ALLL is before… it’s the Allowance for Loan and Lease Losses. The higher the allowance the better, low is bad… and right now the allowance for losses has never been smaller! This chart is for banks over $20 billion, ALLL is in the gutter meaning that banks do not have the cushion normally required. No surprise, then, that banks are failing. Where are the regulators and what are they doing? Good question:
GOVERNMENT:
Federal Government receipts are down… big time. This is the nation’s INCOME from all sources:
And yet to compensate what does our government do? Well, they believe that economic rules and math does not apply to them or the central banks, it only applies to us sheeple who eventually get taxed or robbed via the crashing value of our money. So, as our income is plummeting, our expenses are skyrocketing thanks to Economic Mass Psychosis:
Of course with income down and expenses up, what does that do to our government’s savings? Oh yeah, that’s what happens…
INTERNATIONAL TRADE:
I like looking at import and export figures as a sign of economic activity as the numbers are not YET susceptible to massaging and manipulation unless you look at anything labeled “REAL.” Real means that it has been adjusted for inflation… what kind of inflation? The trumped up government kind, and those numbers are thus not reliable to reflect reality.
Let’s start with imports… are they looking any better? How about a 30% crash in yoy percent change? Greenshoots, really?
And just to throw in the “real” dollar figure for exports (in “chained” dollars, of course), you will see yet another parabolic curve and subsequent collapse as math and nature dictate that all exponential math collapses in the real world:
And Exports? Below is a chart of exports in raw billions of dollars. Note the classic parabolic shaped curve and subsequent collapse. Is it over?
Here is the same chart expressed in yoy % change. Down more than 20% with still no recovery whatsoever:
Still, note that exports have not fallen as much as imports. That means that our country’s demand is falling more than demand in the rest of the world. It also means that our negative balance of trade is coming in somewhat.
HOUSING:
Oversupplied and overpriced, the housing correction continues but is migrating now to the more expensive homes financed primarily with option ARM loans. Those resets are in the pipeline and we are beginning to see them pick up already. Meanwhile, before a house can be built it must receive a permit. Permits have fallen to levels not seen in modern history and that’s a good thing as adding inventory to an oversupplied situation is not appropriate:
Housing starts are likewise still at historic lows:
The real question to ask in regards to housing is, “Do incomes support current rents?” This ratio is still out of whack, but is getting close in some areas. The problem I have with all of it is that I include the caveat, WITH NORMAL and CONVENTIONAL FINANCING. Can your income support a new house WITH NORMAL AND CONVENTIONAL FINANCING? Is financing normal when the Fed has interest rates artificially set at zero? What happens to affordability and thus prices when interest rates normalize?
EMPLOYMENT:
Joe made a terrific chart showing cumulative job losses since the end of ’07. The blue line represents jobs lost per month and the red line is cumulative. Nearly 8 million jobs lost in less than two years. This pulls massive amounts of personal income out of the economy and also pulls massive tax revenues out as well:
The civilian employment population ratio continues to erode and is on a slope pointing due south:
The number of hours worked in manufacturing continues to plummet:
PERSONAL FINANCIAL HEALTH:
The consumer represents about 70% of the economy, so how are we looking? Personal income is decreasing at nearly a 3% rate:
With unemployment rising and wages down overall, the total amount paid out in compensation is FALLING:
This is reflected in income receipts:
And it’s also reflected in personal consumption spending:
Consumption of both Durable and Nondurable Goods is falling:
Ironically, despite falling overall incomes, personal savings are rising. This is somewhat misleading as consumers who pay off debt are counted as “saving.” We don’t know, for sure, how much is debt repayment and how much is actual savings.
Here’s one clue, however, to the savings puzzle. While “savings” as reported above are climbing, unemployment is skyrocketing. How do unemployed people save? They don’t. And that’s why total GROSS savings are falling despite the increased savings rate. That might help to tell us that most, if not all, of the increased savings rate is actually debt repayment:
CORPORATE HEALTH:
With the stock market rising non-stop since March, surely investors are pricing in increased earning to justify the current 150+ price to earnings ratio, right? We’re about to find out, but earnings to be in historic norms will have to increase a mathematically impossible amount, so don’t look for that P/E ratio to return to historic ranges anytime soon UNLESS the PRICE corrects… hmmm.
Corporate profits have enjoyed the boom times of money creation growing at an exponential rate, resulting in a parabolic mark-derivatives-to-fantasy blow off top and subsequent collapse. Then, to kick off this rally, FASB changed the much more realistic mark-to-market rules back to mark-to-fantasy, and wallah, the financials are back to “profits.” Those profits are not real and they will NEVER be recognized in reality. Meantime, people like Bank of America’s CEO, Ken Lewis, walks off with more than $40 million in personal ill-gotten gains at the expense of Americans who rightly own the central banking function from which he manipulated and stole.
One reason to own stocks is to share in the profits of the company. Those profits are paid out in the form of dividends. Dividends, however, have plunged to follow alongside of plunging profits and are down 20% year over year!
Corporate profits are down, and so too is proprietor’s income:
Sales are down as indicated by final sales of domestic products:
And sales to DOMESTIC purchasers is down even more, once again showing that demand from within the U.S. is down more than demand in the rest of the world:
Of course inventories have been plummeting to correct for weak sales. Many believe that inventories were adjusted too far downwards and that rebuilding those inventories will lead to an increase in manufacturing. And, in fact, the manufacturing ISM just recently turned positive for the first time since this crisis began. Does that mean that it’s going to stay positive? We’ll have to watch inventories in conjunction with manufacturing and imports/exports, no sign yet of an inventory recovery:
Those are all recently revised charts that caught my attention, there are literally thousands at the St. Louis Fed’s website. It’s very difficult to put together an argument that the ECONOMY is recovering from my perspective. It’s also difficult to put together an inflation argument except for the money aggregates. Money aggregates do not capture what is happening to the shadow banking world of derivatives and leverage. It’s still my contention that deflation is occurring now despite the best efforts of governments to continue never-ending fantasy growth via inflation. The only thing they will be successful at in their efforts is to devalue the dollar and to destroy confidence in our entire monetary system and system of governance that has truly become a system of the corporation for the corporation.
The stock market IS NOT an indicator of anything other than the big players manipulations in the current condition. Those who claim economic recovery are looking at the markets and not at the real economy. The real economy will eventually catch up to the purveyors of paper engineering, and when it does…
Here is an interesting interview with Jim Sinclair. As you listen, keep in mind that he is very focused on gold. In general his observations are good, but when it comes to inflation and deflation he is saying that they are both occurring at the same time and that hyperinflation is coming as confidence in the dollar is lost.
By definition, it is impossible for inflation and deflation to occur simultaneously. The total money supply is made up of both real dollars and credit dollars. The shadow banking system distorts and makes knowing the total amount difficult if not impossible. So, he sees the destruction of credit and the money pumping by government, but one of those forces is larger than the other, the odds of them being perfectly balanced are very slim. Jim’s been wrong about inflation… DEFLATION is what is occurring and will continue to occur until the amount of money creation exceeds that being destroyed. Has that occurred? NO, total credit is contracting and total leverage is still decreasing, that is what is happening right now.
He is one of the few to get the relationship of freedom and security correct. He is right that as a whole we have become sheeple seeking security.
In the future, inflation and even hyper-inflation is certainly possible and maybe even probable, but timing is always very important. It's funny because as the market goes up believers in inflation say, "see, I'm right!" And when the market goes down believers in deflation get to say the same. The truth is that the markets do not move in a straight line... we had 30 plus years of never ending inflation and increasing leverage and now deflation is attempting to cleanse the misallocations but is being fought by our government. Their fight against taking the medicine of deflation is going to kill our economy and quite possibly our government, on that Jim is certainly correct... (ht Martin)
Equity futures are flat to down slightly this morning after being up most of the evening:
The dollar is up, oil and gold are flat, and bonds are higher.
It’s a very light week for economic releases, this morning mortgage applications where released and it just irks me to no end that they now only report weekly percentage changes – worthless, but it is what they’ve made it, so here’s Econoday’s spin:
Highlights Homeowners are rushing to lock in rock-bottom loan rates. Mortgage applications jumped sharply in the Oct. 2 week, up 13.2 percent for purchases and up 18.2 percent for refinancing. The average rate for 30-year mortgages fell for a third straight week, down 5 basis points to 4.89 percent. The bulk of demand is centered in refinancing which is making up two thirds of all applications. Refinancing will help make household debt manageable and help limit foreclosures. Heavy refinancing is also a factor behind the steep contraction underway in consumer credit, a report that excludes debt secured by real estate. Consumer credit data will be posted at 3:00 p.m. ET.
Thirteen to twenty percent swings from one week to the next? Riiiiight. That’s almost believable and meaningful – not! This type of reporting is designed to obscure, plain and simple.
As they said, consumer credit comes out at 3 Eastern, the same time that Alcoa kicks of the 3rd quarter earnings season. Current price to earnings are at all time historic highs, meaning that vastly improved earnings are priced into the market. At some point people will remember what historic means and how historic norms became that way. For now, however, the historic disconnect continues.
Yesterday’s rise seems to confirm that the final wave up of B up has begun. It can take awhile to play out, McHugh’s next turn date isn’t until November 4th, and that coincides with a Bradley turn date on November the 9th. Still a month away, it is possible that it takes that long to complete, but again, the 5th wave can be very unpredictable as they can truncate or extend.
At yesterday’s close, the 60 minute stochastic was overbought as was the 10 minute. The 30 minute is nearly overbought so there should be at least a pause or a pullback somewhere in here soon. The daily stochastics are close to issuing a new buy signal. 1,061 is still the overhead pivot with support at 1,041 and then 1,018.
We’re still inside of the rising wedges, playing pinball between pivot points for now. Earnings will likely provide a direction from here. Of course we know that the financials are going to trump up their own earnings by marking their toxic waste to unrealistic extremes, thus granting themselves greater and greater bonuses for the job well manipulated and politicians well paid off. Meanwhile the real economy suffers while these otherwise bankrupt institutions play games with everybody’s futures. And there’s the Fed and Treasury with yet another $100 billion plus in auctions to feed it all, complicit in every way.
I have posted this video several times and am posting it again for those who viewed the one this morning and have more interest in his thinking. I have viewed these videos many times and get more from them each time I listen. His perspective and insight is stunning and his ability to verbalize is terrific…
Anyone who understands what he is saying will understand what is happening to America and to our economy. Video was taped in the year 2003.
Downplaying these events as simple logistics is a mistake. The big picture is that these types of changes are significant in displaying power and influence. The underlying currents will effect change...
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading
By Robert Fisk
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."
This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.
The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.
Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.
China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.
Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.
Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.
The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."
Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.
The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.
"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."
Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.
The dollar is down sharply for obvious reasons plus Australlia RAISED interest rates by .25%. Bonds are down, oil is up, and gold is up sharply, reaching $1,038 an ounce.
Indeed, McHugh believes that we have begun the final leg up, wave 5 up (actually labeled ‘E’ because it’s against the primary direction - down) of c up of B up. Yes, he had earlier thought that we had begun this wave, but now concludes that was a part of wave 4…
Yesterday we learned that the White House is going to keep flooding stimulus into the system via lengthening unemployment benefits, lengthening first time homebuyer credits, transportation spending, etc., BUT, not to worry because it doesn’t really amount to a “second stimulus.” Ha, ha, you have to love the jokers (spin masters) who are both high on drugs while at the same time pushing drugs onto American addicts. The end result of this system (withdrawal) will be very painful indeed.
Bloomberg is talking up third quarter profits, saying that JPM and Goldman profits are going to be breathing life back into the system! What a joke! Two of the world’s most leveraged and toxic filled institutions in the history of the planet, who are now marking their “assets” to fantasy get to lead us – again – into recovery? RIIIIGHT… in the same exact manner that Enron did, only this time the government and media are complicit.
And then there’s this… it is the exact thing that Chalmers Johnson warned about, and yet it may be even more sinister in where it is all leading. I have been saying for quite some time that our monetary system is going to change, we are seeing the throws of that now:
Oct. 6 (Bloomberg) -- The dollar fell the most in two weeks against the euro after the Independent newspaper said Arab states may switch to a basket of assets including the euro, yen and gold for oil trading.
The dollar declined against 15 of its 16 most-traded counterparts as Asian stocks rallied and the Independent reported Persian Gulf states along with Japan and China are discussing dropping the greenback for oil trades, citing unnamed sources. The yen rose after Japan’s finance minister said he told Group of Seven leaders that weak-currency policies were undesirable. Australia’s dollar surged after the nation’s central bank unexpectedly raised benchmark interest rates.
“Eventually there will be a move to non-dollar commodity contracts, and it may be the next big risk for the dollar,” said Ben Simpfendorfer, chief China economist for Royal Bank of Scotland Group Plc in Hong Kong. “At the same time, I don’t want to overplay the importance of the story. There’s no credible sources there.”
The dollar dropped 0.6 percent to $1.4738 per euro at 7:28 a.m. in London, the biggest decline since Sept. 22, from $1.4648 in New York yesterday. The U.S. currency also fell 0.6 percent to 89.01 yen, the most since Sept. 25, from 89.53 yen. The 16- nation euro was little changed at 131.06 yen.
Oil-producing nations are seeking to move to a basket of assets, including the yen, yuan, euro and gold to settle transactions, the U.K.-based Independent said, citing Middle Eastern and Chinese banking officials it didn’t name.
‘Undermining the Dollar’
Meetings to discuss the transition have already been held by finance ministers and central bank governors from Russia, China, Japan and Brazil, the newspaper reported.
“The very fact that such an idea is being entertained is undermining the dollar,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong.
Denominating in a basket of currencies would be a “recipe for confusion” among the oil-producing Gulf Cooperation Council and its customers, said John Vautrain, senior vice president at oil industry consultants Purvin & Gertz Inc. in Singapore.
“If the GCC did, that would just be very messy,” Vautrain said. “If you do something that makes your buyers unhappy they will reduce your price. And that’s not in anybody’s interest in the GCC.”
The greenback pared losses after Saudi Central Bank Governor Muhammad al-Jasser said his nation hasn’t held talks with other oil producers and consumers on shifting away from the dollar.
Rising Stocks
The euro climbed as Asian stocks rose and before a report forecast to show German factory orders advanced for a sixth month in August. The MSCI Asia Pacific Index of regional shares gained 1.2 percent, weakening demand for safe-haven currencies.
“Evidence suggests the global economy is recovering,” said Greg Gibbs, a Sydney-based currency strategist with Royal Bank of Scotland Group Plc. “Certainly, strong equities enforce that trend.”
The yen gained against the dollar after Japanese Finance Minister Hirohisa Fujii said he told officials from the Group of Seven nations meeting in Istanbul last weekend that governments shouldn’t pursue policies that seek to devalue their currencies.
“I made the point that it’s undesirable for individual nations to take a weak-currency policy,” Fujii said at a news conference in Tokyo today. “Currency devaluation policies back in the 1930s had an adverse impact on the global economy and politics.”
Yen Concerns
Fujii said after taking office last month he didn’t support a weak currency. Last weekend in Istanbul, he said that Japan would “take action” if currencies show excessive moves. The yen has gained 14 percent against the dollar in the past year, hurting earnings for export-dependent Japanese companies.
“The market is interpreting his latest comments as signs the government will let the yen keep rising,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “The yen is benefiting from that.”
Sony Corp. Vice Chairman Ryoji Chubachi said the rising yen may undermine the company’s ability to compete against overseas electronics makers as it faces falling television prices and a weak U.S. economy.
“We don’t have a moment to breathe,” Chubachi said in an interview today at the CEATEC trade fair in Chiba, near Tokyo. “It is a tough environment.”
The Australian dollar jumped 1.1 percent to 88.71 U.S. cents after the country’s central bank became the first among the Group of 20 nation’s to raise benchmark interest rates since the start of the financial crisis…
The market may like a weak dollar now, but the hangover will be tremendous. This is exactly what Chalmers was warning about. All the debt eventually catches up as all debt gets repaid, with interest, in one way or the other! The dollar falling is one of the other ways, and it is going to be much, much more costly!
Light economic releases today, tons more debt auctions, however. Keep at it Geithner and Bernanke, we know exactly where it’s leading…
Neil Barafsky, a special Inspector General of TARP funds, basically says that Paulson lied about the health and condition of the banks prior to getting TARP funds approved by Congress. Gee, who could have known?
Despite these disclosures, Barafsky is far too easy on the criminals running the show in my opinion. Yes, what they did was blatantly illegal, the biggest heist in the history of mankind. No one is willing to call them out on it for fear of losing their Central Banker money lifelines…
Barofsky, reviewing the first big bailouts to 9 firms, concludes that the government was too rosy to the public about the banks' health.
By Jennifer Liberto, CNNMoney.com senior writer
WASHINGTON (CNNMoney.com) -- A government watchdog says federal officials weren't entirely honest with the public about the health of the first 9 financial firms that got federal bailouts, according to a report released Monday.
Bailout special inspector general Neil Barofsky says in an audit that Treasury Department officials painted an overly rosy picture, creating "unrealistic expectations," when they called the first bailout banks "healthy" institutions that would be able to lend more with government help.
"It is not our intent to suggest that government officials should make public their concerns over the financial health of individual institutions, but rather that government officials should be particularly careful, even in a time of crisis, of describing their actions (and the rationales for such actions) in an accurate manner," the report stated.
Treasury appeared to disagree with the assessment of the Special Inspector General of the Troubled Asset Relief Program (SigTARP), saying "people may differ" on the phrasing of the original bailout announcements.
"Any review of the announcements must be considered in light of the unprecedented circumstances in which they were made," wrote TARP chief Herb Allison in response to the SigTARP report.
Separately, the new audit looks into charges that federal officials strong-armed Bank of America (BAC, Fortune 500) into completing its planned purchase of Merrill Lynch, even as BofA worried about mounting losses at Merrill in late 2008. Further, the report looks into whether officials pressured BofA to conceal those losses from its shareholders.
Barofsky gives the major players the benefit of the doubt. He acknowledges that Federal Reserve chairman Ben Bernanke and then-Treasury Secretary Hank Paulson wanted the deal to go through, fearing the potential failure of Merrill Lynch and the "collateral damage to the economy."
But Barofsky "found nothing to indicate Treasury and Federal Reserve officials instructed Bank of America executives to withhold the public disclosure of losses." SigTARP is also involved in a separate criminal investigation, led by the New York Attorney General's Office, into the Bank of America-Merrill Lynch merger. The report doesn't mention that investigation.
Barofsky's office was created by the 2008 law that established the $700 billion federal bailout program. This audit is the fourth completed so far by SigTARP in recent months; the first looked at how banks said they used their bailout dollars.
SigTARP has opened 35 ongoing criminal and civil investigations looking for fraud, with a focus on banks that falsely applied for a bailout and those that used the TARP name in scams.
In the newest audit of the bailouts to the first 9 firms, SigTARP points out that the Federal Reserve had concerns about the financial health of several of these firms and that former Treasury Secretary Hank Paulson was concerned that one would even "outright fail."
The report says that officials' portrayal of the bailout banks as healthy eventually contributed to a loss of credibility in TARP, when the firms did not lend more and when more bailouts were given to Citigroup (C, Fortune 500) and Bank of America.
"Ultimately, the lesson is straightforward: accuracy and transparency will enhance the credibility of Government programs like TARP and restore taxpayer confidence in the policy makers who manage them," the report said. "Inaccurate statements, on the other hand, could have unintended long-term consequences that could damage the trust that the American people have in their government."
Barafsky’s position is one with no teeth and that’s unfortunate but by design.
How 'bout we lock all the SOB's up, abolish the Fed and Treasury and just start over?
It seems that Martin is coming around to the same conclusions as me regarding the sanity, or lack thereof, of those who are running our economy. He highlights three government reports that are simply eye opening…
When our leaders have no awareness of the disastrous consequences of their actions, they can claim ignorance and take no action.
Or when our leaders have no hard evidence as to what might happen in the future, they can at least claim uncertainty.
But when they have full knowledge of an impending disaster… they have proof of its inevitability in ANY scenario… and they so declare in their official reports… but STILL don’t lift a finger to change course… then they have only one remaining claim:
INSANITY!
And, unfortunately, that’s precisely the situation we’re in today: Three recently released government reports now point to fiscal doomsday for America; and one of the reports, issued by the Congressional Budget Office (CBO), says so explicitly:
The CBO paints two future scenarios for the U.S. budget deficit and the national debt. But it plainly declares that fiscal disaster will strike in EITHER scenario. Furthermore…
The CBO states that its fiscal disaster scenarios could cause severe economic declines for decades to come, including hyperinflation and destruction of retirement savings.
The CBO then proceeds to admit that even its worse-case scenario could be understated by a wide margin due to panic in the financial markets or vicious cycles that are beyond control.
Separately, in its Flow of Funds Report for the second quarter, the Federal Reserve provides irrefutable data that we are already beginning to witness the first of these consequences in the United States: an unprecedented cut-off of credit to businesses and consumers.
Meanwhile, the Treasury Department shows that America’s fate remains, as before, in the hands of foreigners, with the U.S. still owing them $7.9 trillion!
And despite all this, neither Congress nor the Obama Administration have proposed a plan or a timetable for averting these doomsday scenarios. Their sole solution is to issue more bonds, borrow more, and print more without restraint.
That is the epitome of insanity.
Yes, the great government bailouts of 2008 and 2009 have bought us some time… but they have promptly proceeded to sell us into bondage.
Yes, they have given us safe passage over tough seas… but only to throw our assets onto the global auction block for the highest bidders.
The one bright spot: Unlike some governments, ours does not conceal the evidence of its folly. Quite the contrary, the proof pours forth from these three government reports in relatively blunt language and unmistakably blatant numbers…
The CBO opens with a chart predicting the most dramatic surge in government debt of all time.
It shows that even in proportion to the larger size of the U.S. economy today, the government debt has ALREADY surpassed the massive debt loads accumulated during World War I and the Great Depression… and will soon surpass even the massive debt load of World War II.
“Large budget deficits,” write the authors of the CBO report, would…
“Reduce national saving,” leading to…
“More borrowing from abroad” and…
“Less domestic investment,” which in turn would…
“Depress income growth in the United States,” and…
“Lenders may become concerned about the financial solvency of the government and…
“Demand higher interest rates to compensate for the increasing riskiness of holding government debt.” Plus…
“Both foreign and domestic lenders may not provide enough funds for the government to meet its obligations.”
The magnitude of the problem cannot be underestimated. The CBO declares on page 15 that:
“The systematic widening of budget shortfalls projected under CBO’s long-term scenarios has never been observed in U.S. history” and…
It will also be larger than the debt accumulations of any other industrialized nation in the post-World War II period, including Belgium and Italy, the two worst cases of all.
But the CBO admits that even these frightening projections may be grossly understated because:
“The analysis omitted the pressures that a rising ratio of debt to GDP would have on real interest rates and economic growth.”
“The growth of debt would lead to a vicious cycle in which the government had to issue ever-larger amounts of debt in order to pay ever-higher interest charges.”
“More government borrowing would drain the nation’s pool of savings, reducing investment” and…
“Capital would probably flee the United States, further reducing investment.”
“The analysis … does not incorporate the financial markets’ reactions to a fiscal crisis and the actions that the government would adopt to resolve such a crisis. Because [our] textbook growth model is not forward-looking, the analysis assumes that people will not anticipate the sustainability issues facing the federal budget; as a result, the model predicts only a gradual change in the economy as federal debt rises.
“In actuality, the economic effects of rapidly growing debt would probably be much more disorderly as investors’ confidence in the nation’s fiscal solvency began to erode. If foreign investors anticipated an economic crisis, they might significantly reduce their purchases of U.S. securities, causing the exchange value of the dollar to plunge, interest rates to climb, and consumer prices to shoot up.(Bolding is mine.)
The Fed’s data on page 12 tells it all: The impact on the U.S. credit markets is not just a future scenario. It’s happening right now.
Yes, the government is getting its money to finance its exploding deficits (for now). But it’s hogging all the available supplies, while American businesses and average consumers are getting shut out or even shoved out.
Specifically …
In the first half of last year, the U.S. Treasury raised funds at the annual pace of $411 billion in the first quarter and $310 billion in the second quarter.
But if you think that was a lot, consider this: THIS year, the Treasury has stepped up its pace of borrowing to annual rates of $1.443 TRILLION in the first quarter and $1.896 TRILLION in the second quarter. That’s 3.5 times and over SIX TIMES MORE than last year’s, respectively.
Meanwhile, the private sector is getting killed…
Last year, banks provided new credit at the annual pace of $472.4 billion in the first quarter and $86.7 billion in the second. This year, they’re not providing ANY new credit — they’re actually LIQUIDATING loans at the rate of $857.2 billion in the first quarter and $931.3 billion in the second. So if you’re running a business, you may want to think twice before asking your bank for more money. Instead, they may decide to TAKE BACK the money they’ve already loaned you!
Ditto for mortgages. Last year, mortgages were being created at the annual clip of $522.5 billion and $124 billion in the first and second quarters, respectively. This year, on a net basis, mortgages haven’t been created at all. Quite the contrary, the Fed reports that, on a net basis, they’ve been liquidated at an annual pace of $39.3 billion in the first quarter and $239.5 billion in the second.
Getting cash out of credit cards and other consumer credit is even tougher. Last year, folks were able to add to their consumer credit at annual rates of $115 billion and $105 billion in the first two quarters. This year, in contrast, they’ve been forced to CUT back on their credit at annual rates of $95.3 billion in the first quarter … and at an even faster pace in the second quarter — $166.8 billion.
Never before in my lifetime have I witnessed a more severe case of crowding out in the credit markets!
And never before has the CBO been so right in its forecasts of fiscal doomsday: One of its dire forecasts was already coming true even before it issued its report.
Each and every month, the Treasury reminds us of the single fact that no one in the Treasury wants to face:
The U.S. is deep in debt to the rest of the world, and on page 48, it provides the evidence: total liabilities to foreigners of $7,898,435 million (nearly $7.9 trillion)!
This isn’t a new record. It was actually slightly more last year. But the fact is NOTHING has been done to reduce our debt to foreigners. Quite the contrary, it is the deliberate policy of our government to pile up more — to sell foreign investors and central banks on the idea that they must continue to lend us money.
The fact that this could potentially put our nation into deeper jeopardy is overlooked. And the dire forecast by the CBO that foreign investors might pull the plug is pooh-poohed.
Good luck and God bless!
Martin
P.S. If you want to see exactly where I get my quotes and data, just click on the page numbers cited above, and you’ll see the relevant pages I’ve extracted from the government reports with the critical informationhighlighted in yellow.
Below are the full CBO and Treasury Flow of Funds reports. The Congressional Budget Office’s report is unusually candid:
The Treasuries’ Flow of Funds Report is tainted, I believe, because the Treasury and Fed are playing games with demand for our own debt by using the Primary Dealers to bid on and to purchase up our own debt. Therefore the relationship and percentage of debt bought by foreigners versus bought by U.S. institutions is NOT reliable in my judgment:
The dollar is down slightly, bonds are up, oil is down, and gold is flat.
No data releases this morning, non-manufacturing ISM is released at 10 Eastern.
Below is a 3 month chart of the SPX. Note the small hammer that was created last Friday, right on the 50dma and just above the bottom Bollinger:
I’m still watching that lower boundary of the rising wedge and McHugh is flip flopping his count to believing that we need one more small wave down and that will be followed by wave 5 of c of B up to finally finish wave B. He does hedge in that he is saying that B could have completed, so he’s also watching prices from here. Today and tomorrow will be important indicators of the count. I’ll have more throughout the day, see you in the comments section…
“Czar Point,” a regular commenter on the Economic Edge, gave two very pointed posts on how he views the numbers inside this morning’s employment report. The numbers are STUNNING, and they are the TRUTH. Math does not lie and cannot be spun… statistics can be, but not simple math. Point simply takes out his calculator and adds them up. You will be shocked…
I'm going to add a little to the employment situation summary. All numbers are raw, not adjusted.
The civilian labor force dropped by a mind-boggling 1.28 million in September from August, with 235 thousand people being added to the workforce. The participation rate plunged .6% to 65.0%.
The employment-population ratio - the TRUE measure of employment in this nation - fell to 58.9%. The actual number of the unemployed rose by 285 thousand, while those not in the labor force jumped by 1.516 million.
And unemployment for those aged 16-19 years old skyrocketed in September to 25.8% from 24.2% in August. For this age group, the emp-pop ratio is just 26.2% with the participation rate falling off the cliff, from 40.7% to 35.3%.
This, by far, is THE WORST employment situation report I have ever read. Bar none. I ran the numbers on how many jobs we have actually lost since December 2007 - the beginning of the recession-cum-depression - and how many jobs we'd have to create each and every month for the next two years just to return to November 2007 levels…
I hope you are sitting down, have a good stiff drink at your side, and no firearms or sharp objects are within reach. And all small children are safely stowed away.
Jobs lost in the past 22 months total 8,039,000, while the non-institutionalized civilian adult population (i.e. those not in prison, or a mental hospital, etc.) has risen by 3,166,000. This brings the ACTUAL jobs lost number to 11,205,000.
Now, dividing 3.166m by 22 months roughly equals 144,000. This is the number of jobs that have to be created every month in order to keep up with the growth in population; taken times 24, this gives us 3,456,000 additional jobs that need to be created to keep up with population growth between now and September 2011.
Added together, this means we need to have 14,661,000 - or an average of 610,000 - jobs added to the economy by the above date to reach par with November 2007.
There you go. The V-shaped recovery and green shoots simultaneously detonated...
BOOM!
There you have it. The truth behind the numbers that your government presents but will not talk about. The “media” will not dig and also will not discuss it – they are both fooling themselves and the general (under/ unemployed) population…
Yves explains why he believes that investors should be favoring bonds over stocks. Please listen to his interview, he clearly explains that there is a disconnect between the signals being given by the bond market and by the stock market. This divergence was present prior to the last decline and it’s present now…
I had used to believe that stocks delivered superior returns compared to bonds.
I looked at the following graph and realized that long term Canadian bonds had delivered twice the returns of Canadian stocks since 1987. It is particularly relevant since the Canadian market had been on a tear the last few years because of commodities.
Most market participants today still expect a positive risk premium for stocks even if extrapolating from recent past events results in confounding this expectation.
I expect bonds to deliver better or equal real returns with fewer risks than stocks going forward. Negative risk premium is the new normal and new behavioral shifts strongly underpin that case.
You create a spread of 4% or better between the Fed fund and the long bonds and in turn that becomes a trading buy signal. We had such a signal and ran with it.
We continued to run with this message digging further and came up with the primary dealers’ net treasury weekly positions graph in relations to bonds. What we found was most unusual. After averaging a net short position of -60 billions on average over many years, the primary dealers had suddenly turned bullish with net long treasury positions. http://www.zerohedge.com/article/guest-post-observations-unusual-bond-deal-behavior
In this next graph, I use TLT as a proxy for long term bonds and TIP as the proxy to represent the Treasury inflation protected bonds. The recent recovery points to TLT showing greater strength and the clear conclusion is one of deflation reasserting itself or the lack of inflation thereof.
In a negative risk premium world you would expect to have bonds outperform stocks for total return and the yellow line here (below) where bonds are compared to the S&P500 is definitely up.
From both charts long bonds are definitely turning up or have put in a good base from which to launch upward.
In reference to behavior, it’s become clear that investors attitude are changing and the new normal is not to invest one’s savings in stocks rather that money is flowing to bonds. Recent data points to exactly this type of behavior and perhaps getting trounced once is enough for a certain legion of investors but not all. As we had seen in 2000 in every drop of stocks, we are slowly loosing participants to join in this exuberant party. Investors who miss out this time are also assured of not feeling any party hangover.
Yves Lamoureux, Investment Advisor, Blackmont Capital Inc.
The opinions contained in this report are those of the author and are not necessarily those of Blackmont Capital Inc.. Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor BCI makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CIFinancial. CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and IIROC.
This is Karl at his best... he is absolutely telling the truth and is passionate about it. It's uncofortable isn't it? That's the reality, and that's why no one wants to listen or to hear it...
Equity futures are down sharply on the employment report:
The Dollar and bonds are up, gold and oil are down.
The headline unemployment rate increased from 9.7% to 9.8% with the consensus expecting -170,000 the number came in at -263,000.
Here’s Econoday trying their best to spin huge losses in a positive light:
Highlights The September jobs report was disappointing-but the consensus may have grown too optimistic. In reality, job losses are not nearly as severe as earlier in the recession and the unemployment rate is drifting up slowly as expected. Nonfarm payroll employment in September fell 263,000, following a revised decline of 201,000 in August and a revised decrease of 304,000 in July. The August drop in payroll employment was worse than the consensus forecast for a 170,000 contraction. August and July revisions were down a net 13,000 (the net declines were worse). Losses were widespread in both goods-producing and service-providing sectors.
Turning to the household survey, the civilian unemployment rate continued its uptrend, rising to 9.8 percent from 9.7 percent in August and compared to the market forecast for 9.8 percent. The latest rate is the highest since 1983.
Wage inflation eased sharply as average hourly earnings in September grew 0.1 percent, following a 0.4 percent gain in August. The consensus had projected a 0.2 percent rise for the latest month. The average workweek slipped to 33.0 hours from 33.1 hours in August, coming in below the market forecast for 33.1 hours.
Today's employment report will set equities back as futures were down notably on the release. Bond yields fell. However, the numbers are hardly dramatically negative. It is too early to write off the recovery given that nearly everyone expected a sluggish and choppy recovery.
Now that we’re done trying to spin it, the real number to watch is the seasonally adjusted U-6 that came in at a staggering 17.0%. That’s the number that is most closely comparable to how unemployment used to be reported like during the Great Depression.
Here’s the “alternate” table, note the non-stop increases in the seasonally adjusted U-6 (click to enlarge):
And here’s the complete report for those who like to dig. If you do, you will find some staggering statistics inside. You’ll note that the government sector has been consistently the only sector adding jobs – remember that government spending subtracts from the real economy, it does not add to it. Also look at the minority and youth figures, very troubling.
Factory orders come out at 10 AM…
The S&P futures landed right on support at 1,010 after breaking down below the 1,018 pivot. There’s very strong support from here to 1,000 and then the next support pivot is at 991.
On the 3 month SPX chart below, you can see that at current levels we have broken the 50 dma and are sitting right on the lower boundary of the rising wedge which is coincident with the bottom Bollinger band:
Be careful right here, it’s very strong support, I’m sure Goldman’s computers will make an attempt from here. The NDX is also sitting right on its bottom boundary the way I have it drawn. Any further decrease in prices below about the 1,010 level will break that rising wedge and will likely signal that wave C down (the big one) has begun. I am not front running this as I know that almost always once a major support area is broken that prices will come back up to test that break from below – patience pays.
Here’s some cheerleading of my own for the most overvalued stock market in history…
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