Saturday, February 13, 2010

The Impossible Math of Debt Backed Money… and why we WILL take an Evolutionary Step Forward!

“The hollow words “deficits don’t matter” echo through my mind. They are spoken in the arrogant tone of supposedly educated people who continue to spread their debt backed manure. Of course they spread this manure knowing that it fertilizes their returns.”



THE PROBLEM:

All money in the United States, except coins, is created as someone’s debt. When our nation spends more than it takes in, a deficit is created and our government “borrows” the money mainly from commercial banks. As the debt builds, so does the interest. As the interest takes up a larger percentage of the budget, real programs get squeezed.

The latest example of the squeeze is Obama’s announcement cancelling future manned space flights. No more advancing the human race in space, it’s too expensive. NASA’s total annual budget? $18 billion. Amount spent on interest on just the current national debt? At the traditional rate of 5% it will total more than $700 Billion in 2010! But guess what? While the Treasury Department reports that “only” $383 billion was spent on interest last year…,



…the real amount of money spent on interest last year alone nearly equals the total amount of money our government takes in!

Please let that sink in.

That’s right, this is no joke! Yes, that chart from the Treasury is completely misleading – as in deceptive. In fact, when all the money spent buying down interest rates is considered, we are actually spending ALL of our nation’s income, or more, just for the privilege of using our own money system!

Consider that by the end of 2010 we will have $14.3 Trillion just in current debt, just at the Federal level. “Deficits don’t matter,” right? Yet we are seeing debt driven events ripple around the globe. And since the end of 2008 through September of 2009, the U.S. Federal Reserve had committed $6.4 Trillion just aimed specifically at programs designed to keep interest rates low! And that is conservative, in fact it can be said that the purpose of nearly all the backstops and bailouts was to keep the cost of debt low! This would include backstops like the one given to the FDIC to prevent bank panic from spreading… is that not in effect buying down interest rates? Of course it is. Total commitments? More than $11 Trillion as of September 2009.

If that’s too much of a stretch for you, let’s be really conservative and only look at the amount of money actually invested by the Federal Reserve during that timeframe to buy down rates, about $1.5 Trillion! The largest section of this money went directly into buying up mortgage paper through the GSEs.

So, we spent $1.5 Trillion, at least, buying down interest rates, the sole purpose of which is to mask the debt load. This is because debt saturation has occurred and at normal interest rates, the debt load cannot be supported by incomes. That is true on all levels.

If you combine the amount the Treasury spent directly on interest in 2009, $383 billion, and add it to the $1.5 Trillion used to keep rates low, then it can and should be said that the Treasury actually spent at least $1.88 Trillion on interest!

How much money did the Federal Government take in? $2.2 Trillion is all. Remember, comparing debt or interest to GDP is a FALSE argument, a Red Herring. Income is the only thing that matters when it comes to carrying debt.

$2.2 Trillion in income, $1.88 Trillion in real interest expense. How are we looking?



This conservative estimate means that we actually only have about $320 billion to spend on everything else that’s not interest related. States going bankrupt? Roads in disrepair? The value of your retirement falling? Jobs hard to find? People going hungry?

According to http://www.federalbudget.com/, this is how Congress currently spends our money. Note that their Treasury Department expenditures exceed $700 Billion in 2010, and that just the top three budget items exceed the total amount of revenue collected by our government. That’s without any mention of the amount spent to keep rates low.



Have you ever been trapped by logic? When this happens to your brain, it will know it. Oh sure, you may try to weasel your way out, but deep inside you will know you’ve been had.

To those who think this can reverse or that it was a one-off expenditure, you simply do not understand the exponential growth that is occurring, nor will you see the parabolic collapse that is coming.

The collapse of debt has already begun in the private sector, but the government is simply picking up that collapse and creating a parabolic growth phase of government spending and government debt. Here it is presented in the Fed’s own charts… What exponential growth? This exponential growth:



That chart spans more than the past century and is experiencing a classic parabolic blow off move that has gone quite vertical. Parabolic moves ALWAYS collapse, it is just a matter of when. When this curve collapses, it is going to be very painful for many people indeed.

Looking at that chart, is there anyway possible to believe the budget forecasts stating that the deficit is going to start coming down soon? What would that mean to the economy if it really happens at this point? Would the economy still be growing or would it be shrinking? Are those light bulbs I see coming on? Pretty illuminating isn’t it?

Okay, now we’ve seen that our outlays (spending) are skyrocketing, let’s take a look at the collapse of current receipts, again our nation’s income, but this time let’s view it in terms of year over year change. Here you will see a historic collapse of tax revenue on the Federal level:



The chart of outlays has moved into a parabolic blow off phase upwards, while at the same time the chart of current receipts has already peaked and is now collapsing downwards. This, of course, is causing deficits to enter a parabolic move of their own – the Fed refers to this deficit as our “national savings.”



The hollow words “deficits don’t matter” echo through my mind. They are spoken in the arrogant tone of supposedly educated people who continue to spread their debt backed manure. Of course they spread this manure knowing that it fertilizes their returns.

The stench of that manure ripens further as many argue that we can simply print money without debt and that will inflate existing debt away. That is a comical notion if you understand that it requires income to service debt and that the rate of debt expansion is far outstripping the rate of income growth.

If that math doesn’t convince you that change is about to come to our monetary system, then nothing will! Remember the housing bubble? “Real estate never goes down,” remember? I was one of the few who was warning about it early on, but now everyone seems to think they saw it coming. Do you see this coming as well? Or, do you believe that it’s possible to “inflate away debt…” even though your money is backed by debt?

YES, absolutely the rules are going to change, that’s exactly what I’m saying. But I’m also saying that the rule changes will not be simply printing money within the same old framework.

The day after the TARP program was announced in November 2008, I wrote a paper called Death by Numbers. In it, I simply added up all the debts on the personal, corporate, and Federal Government levels and demonstrated how the same people are ultimately responsible for all the debt on each level to the tune of $303,053 per man, woman, and child in the United States – more than $1.2 million just for my family of four, and this did not include the debt on the state and local government levels. People were stunned, you cannot argue the numbers, yet nothing has changed. Besides getting worse that is.

Recently I updated the math in an article called Zombie Nation – The Rise of the Mathematical Plague. In it I added the cost of additional debt, not counting the trillions spent bailing out mortgages in the GSEs, and showed that each worker in the United States is now responsible for $704,530 each! This is an impossible math situation as the average wage simply cannot support that much debt, especially when interest is considered.

Now, through demonstrating how much of our income actually goes to interest on our debt, we are demonstrating the same bad math just expressed in another manner. But let’s have some fun and challenge the sanity of those who believe that adding debt will cure a debt problem by asking a couple of pretty easy questions…

“Is it possible to add money to inflate away debt in a system in which money is backed by debt?”

This is what many people are saying will happen, right? Of course the fact is that almost all of our money is backed by debt. Creating more money means creating more debt. The real question becomes how do incomes keep up with the debt creation? Are they? Of course not…

Next question:
“In a system in which money is backed by debt, what happens to the supply of money if you decrease the quantity of debt?”

Of course the supply of money would fall! Do you see the dilemma that is created when you back your money with debt? We can’t pay back our debts without decreasing the supply of debt backed money, and if we do that, then the economy will suffer. But if we continue to pile on debt, then more and more of our money will go to pay interest and our economy will suffer. Those are the choices we are presented with in our current Federal Reserve Debt based system.

Thus we are damned if we do, and damned if we don’t. And it’s not just us who are damned. The entire world is built around the same clearly unsustainable system.

This begs the question, “Why is our system built like that, and to whose benefit was it made that way?”

I think you know the answer to that question – this current system was built around the Federal Reserve Act that was passed in the year 1913, and it took the money power from Congress and moved it to the private banks and bankers.

The very same interests that created this monetary conundrum are telling us “consumers” that we need to spend more to get their credit (debt) flowing again! LAUGH OUT LOUD, that is hilarious! Then they use the money created and the tax dollars that flow to them from us CITIZENS to buy the political and judicial systems! Talk about irony of ironies, the money system doesn’t even belong to them, it belongs to us! We don’t have to pay anyone for the right to use our own monetary exchange system, that notion is simply ludicrous, yet we have all been living under that system our entire lives!

Simply put, our money system was stolen from us. We can either take it back or we can continue to swim in the manure, the choice is ours, not theirs.

The globe is saturated with debt. Adding one dollar of debt now subtracts 15 cents from GDP.



The velocity of debt is zero, the debt saturation point. Adding additional debt will only cause future defaults and falling employment.

This debt saturation is causing default waves that ripple around the globe. Subprime in the U.S., Banks in the U.S., Commercial Real estate, etc. Now the debt bombs are detonating in Dubai, then Greece, in Portugal, Spain, Ireland, and even Japan. The bombs are just waiting to explode in England, Germany, the rest of Europe, and even China. Even if the bombs don’t explode immediately, the debt smolders causing global economies to suffocate. Germany is the latest to report that despite all the efforts to prevent it, their GDP is simply not growing (neither is ours in reality).

Our statistics are not comparable with bygone eras. Debt saturation has caused a phase transition and attempts to cover-up this transition have resulted in huge distortions of the truth. Below is a chart published by SG Cross Asset Research showing their computations of net liabilities to GDP. This includes liabilities that are off balance sheet, and they far exceed the liabilities carried on balance sheet:



Yes, our governments are insolvent. Insolvent being a condition in which you can no longer service current debts. That has already occurred in the United States. That is why we resorted to “Quantitative Easing” and why we use several methods to artificially buy down our interest rates. If we could have continued to borrow more money at normal rates we would have but we didn’t and we can’t as the stress in our debt auctions is now showing time and again.

We can show that insolvency in the math in several different ways. Thus you are a witness to the biggest lie and accounting scandal in the history of mankind. No, that is not an exaggeration, it is a fact, a very sad fact that we are all going to have to face one way or the other and soon.

To all those who point to this (Democrat/ Republicans!) and that (bad assed unions who are ruining our country) and claim the other thing (banks need to lend more, lol) regarding our economy, all I can really say is that your eye is way off the ball. The game of debt backed money with the ever escalating interest going to private individuals is nearing an end… the mathematical outcome of the game was decided before it ever started.

If you view the current situation objectively, you will come to the inescapable conclusion that the rules of the game must change. Who is it that is going to bring those new rules to you? The same people who created the current debt backed system? Have you heard of any solutions that address this root of the problem? Are you waiting to be rescued, or are you hiding in your bunker?

THE SOLUTION:

Yes, printing money without debt is an alternative, but that doesn’t make the current debt go away and it doesn’t bring spending back to match income. The quantities of money required to be printed would be so vast that you would soon find yourself printing trillion dollar bills.

Another solution would be to buckle up, spend FAR less, tax FAR more, and default on current debts. The economy will suffer hugely and for decades as a result, and in the end, with debt backing our money the result would be that eventually the same old cycle would repeat as the next debt bubble builds anew.

The inescapable conclusion is that if you live inside of a debt backed box, our nation and human kind will continue to be held back.

There is only one right answer for the long haul, for the good of our nation and of the world. That answer is to replace the Federal Reserve Act with the provisions of Freedom’s Vision. This will return the money system to Congress and to the People where it belongs. It will cleanse the debts and derivatives to lessen leverage in the economy while restoring balance sheets, not just for our Federal Government, but for States, Banks, Businesses, and Individuals.

Implementing Freedom’s Vision will:
1. Avoid the disaster about to unfold – regardless of how we get there, by inflation or deflation, the math of debt that underlies our currency does not work. This would break that math and preempt the negative events that are going to follow should we fail to take action.

2. End the practice of debt backed money for our Federal Government. Lower taxes and more productivity result.

3. Provide direct and immediate relief for people in debt, accomplished in a way that’s fair to everyone including those who are not in debt and without creating excessive price inflation, deflation or a giant “moral hazard.”

4. Provide direct and immediate compensation for those who are savers and have been damaged by past practice.

5. Provide relief for States, almost all of whom are in deep debt trouble.

6. Cleanse the banks and financial businesses of unserviceable debts and derivatives and would ensure that they stay that way. All banks would survive the transition, immediately benefiting from improvements in our citizen’s balance sheets. The same process would be used to cleanse other financial like businesses.

7. Businesses, both large and small, would immediately benefit from our citizens and the banks improved balance sheets.

8. Unfunded liabilities would immediately get better with zero percent price inflation.

9. Limits on special interests would separate their money from politics lessening the pressure to continually increase the quantity of money. This allows long term decision making. Special interests associated with the banking, oil, defense, food, insurance, and other industries would no longer have their huge pull. Thus politicians would not have to focus on spending our resources on special interests, but instead on the interests of the people. Budget pressures would decrease as a result.

10. States would exercise more control over their own destiny. Lower taxes on the state level, more productivity. Low cost money would become available to repair and upgrade current infrastructure and to build the infrastructure of tomorrow’s commerce.

11. The powers possessed by the central banks would be greatly diminished freeing our country and others from their methods of control via debt, now even issued worldwide by the IMF. Countries would no longer be working to pay central banks interest. Instead they would work to develop their own rule of law. Their productive labors could be used to improve their own infrastructure, to feed and cloth themselves, and to build a future for themselves. In other words, they need to be taught how to fish, not simply given a fish and asked to pay it back forever and ever.

12. No price inflation eroding away future savings. People who take on reasonable debt could once again make progress towards paying it off.

13. Massively supports education, underpinning progress so that we may continue to lead the world in innovation and the production of meaningful technologies.

14. Provides a national mission - focused on creating the energy and infrastructure of the future. REAL and meaningful economic growth would ensue and massive new employment would result.

Many argue that such a plan is not possible or is too difficult to implement. Some feel that collapse must happen first while others do not see the threats at all.

As I look back through history, here is what I see: I see that mankind has been making a steady march towards progress. I see the evolution to the Magna Carta, then to our own Constitution. I see the evolution of economic theory, although painfully slow, it has progressed from rudimentary trade, theories of self-interest, to Adam Smith’s Invisible Hand, to an understanding of supply and demand. I see monetary systems and their progression from sea shells, to wooden sticks, to metal coins, to gold, to paper, to digital.

Now THE major hurdle to overcome is how debt backs our money. We CAN and we WILL overcome this obstacle. It is the next step in the progression, a step that will be taken. To think that we will not progress goes against thousands and thousands of years of history. It will happen because the math of debt is forcing it to happen, it is the only logical conclusion. Nature has a way of pointing in the right direction. When that direction is clear, you know it, it is just, the math supports it and therefore it will last and become the next step forward for humankind.

Yes, “it’s the DEBT, Stupid!” It time to get on with Freedom’s Vision!

Neil Young – Rockin’ in the Free World:


The Impossible Math of Debt Backed Money

February Monetary Trends…

The latest from the St. Louis Fed in monetary trends. I don’t have time to break these charts out for you, but please note the following as you go through this pamphlet:
- Money aggregates
- Small Denomination time deposits
- Money Market Mutual Fund Shares
- Non Financial Commercial Paper, -50%, wow!
- Consumer Credit – still negative.
- CPI rising sharply – I think temporary for now.
- Velocity still in the ditch.
- GDP is still negative on a year over year basis.
- Total bank credit, loans and leases are still very negative.
- Trailing P/E, the only P/E that is not fantasy, is pushing 150 still.

Oh, and to answer their question on the front page, “Are Low Interest Rates Good for Consumers?” The answer is HELL NO! In fact, we have spent nearly $1.5 Trillion dollars in the past year buying down those interest rates to keep them that low, yet the same U.S. citizens whose money is being used to buy down those rates are strong-armed for 30% usurious fees on unsecured debt.

Feb Monetary Trends

Friday, February 12, 2010

Morning Update/ Market Thread 2/12

Good Morning,

Equity futures are lower this morning, falling to the bottom uprising trendline from last Friday’s low. Below is a 60 snapshot of the DOW on the left and 5 minute overnight action of the S&P on the right:



The dollar is considerably higher, bonds are slightly higher, while both oil and gold are down.

Have you noticed that bonds are acting differently? This is what I was forecasting, that during market periods where stocks fall, bonds would rise slightly, but when stocks rise bonds would fall significantly, the end result is that bonds have been ratcheting lower. The longer term bonds are now back to their large neckline, a long term support trendline, and that area must hold or it will be signally much higher rates rate around the corner – deservedly so for a nation that must finance and refinance more than $2.5 Trillion this year. Yesterday’s 20 and 10 year auctions were both very weak. While the Primary Dealers are required to buy our nation’s debt, others are not. What occurred last year is that we stepped in and we used TRILLIONS through quantitative easing and mostly through buying GSE debt to buy down our rate of interest. But that can only go on for so long before you either pile on more debt or outright destroy the value of your money as the quantity spirals out of control.

No, Bernanke and the boys cannot fool mother nature, nor can Greece or anyone else. How ‘bout the German Chancellor, Angela Merkel? She says, “not so fast.” She understands what bailing out Greece means for Germany… it means poisoning her own country. Where does that stop? Spain, Portugal, Ireland? No, the world is awash in debt, entangled in derivatives and these problems are only going to get worse until the root problem of debt backed money is taken care of properly. Did I mention Freedom’s Vision yet?

Retail Sales in the U.S. were reportedly up .5% in January on consensus. The mainstream is flashing hugely bullish headlines over that nonsense, here’s Econoday:
Highlights
Not only were holiday sales front loaded in November but it appears that they were back loaded into January also as consumers apparently spent their cash and gift cards in January. Overall retail sales in January posted a healthy rebound of 0.5 percent after dipping 0.1 percent the month before. The comeback matched the market forecast for a 0.5 percent gain. Also, December was revised up from a 0.3 percent decline. Excluding autos, sales in January were up 0.6 percent, following December's drop of 0.2 percent. Components were mixed with gasoline playing an essentially neutral role. Excluding both autos and gasoline, January sales rebounded 0.6 percent, following a 0.3 percent decrease in December.

The January boost in sales was led by nonstore retailers, general merchandise, and electronics & appliance stores. Weakness was mostly housing related as declines were led by furniture & home furnishings and building materials & garden equipment. Other components in the negative included miscellaneous store retailers and auto dealerships.

Overall retail sales on a year-ago basis in January declined to up 4.7 percent, from up 5.5 percent in the prior month. Excluding motor vehicles, the year-on-year rate slipped to 4.6 percent from 5.1 percent in December.

On average, the last three months of retail sales have been moderately strong. While not at a typical recovery pace, the consumer sector appears to pulling its weight somewhat more than earlier expected. The report is a positive for equities but trader focus is overseas and futures are down.

Let me just say that these numbers are a complete and total bogus measurement of overall retail sales. This measurement suffers from a bias created when businesses go out of business as it measures sales from existing sales only, not capturing the lack of sales from businesses that no longer exist. This is why sales tax data is the only way to correctly measure what is happening to overall retail sales.

Consumer Sentiment comes out at 10 Eastern and the budget deficit at 2 Eastern.

You can see in the SPX 30 minute chart below that a break under about 1,068 gets clear of the uptrend. 1,061 is support:



As I type, the rising trendline from last week is giving way, it should be an interesting day now without the Greece backstop again and the Euro setting new downtrend lows. Looking difficult to me to find a safe place for shelter!

The Rolling Stones – Gimme Shelter:

Thursday, February 11, 2010

Quick Technical Update…

We’re still making higher highs and higher lows in what appears to be a larger level sideways wave movement that is still trapped below 1,080 on the SPX and above 10,000 on the DOW.

Today’s 105 point rise on the Industrials satisfies as the large movement called for by yesterday’s small movement on the McClelland Oscillator.

Below is a 30 minute chart of the SPX. You can see that we broke the channel to the upside. This brings up the question, are we now in a larger degree wave, or is something else at play? Based on the channel break, it would appear so to me, but it’s too soon to tell for sure as we still have only retraced up to the 1,080 overhead resistance level which is close to a 61.8% retrace of the previous wave. The 30 and 60 minute stochastic indicators are both overbought, but the 5 and 10 minute are oversold – this could lead to a little higher first, perhaps a test of the 1,090 pivot, then a pullback? Well find out tomorrow:



The XLF produced an interesting daily chart today with a hammer or hanging-man type of candle today. It came on much lower volume, note the dramatic decrease in volume with the slight rise in price, definitely corrective looking. The XLF has been bouncing off its 200 day moving average, the rest of the indices are not that close yet. The indices all have fresh buy indications on the daily indicators, but are still on sells on the weekly timeframe.



The SPY chart shows the same diminishing volume on the weak advance:



TLT, the 20 year bond fund, has dropped below the bottom Bollinger and is close to testing the prior wave’s lows. Note that it is flirting with the very large Head & Shoulder’s neckline again. TNX, the 10 year Treasury fund is also flirting with its very large inverted neckline. No, we have not forgotten about the $2.5 Trillion+ that needs to be financed this year alone! Many people are expecting bonds to perform as a hide out like they did during wave A, but I’m not so sure and think that there is significant risk here, not just for bond holders, but for the entire economy should capital truly flee from debt. Capital will go where it’s treated best.



Gold ran right up to the top of its pennant. Watch for a break in either direction from this formation, it looks bullish, but you never know:



Keep in mind that the P&F on gold is still showing a $930 price target:



Tomorrow morning will be Retail Sales, then at 10 Eastern Consumer Sentiment, and at 2 Eastern we finally get the delayed budget deficit report, hmmm… just prior to an extended 3 day weekend as Monday is President’s day.

Buffalo Springfield - For What Its Worth:

Dr. Michael Hudson Guns & Butter Interview 2/10…

Dr. Hudson talks about money creation, the Federal Reserve, Greece, and a lot more. He is not, however, telling the complete story about money creation... the government does NOT necessarily make money to lend out to banks as he describes. Banks simply lend money into creation and now securitize it, thus bypassing the entire Fed and Treasury banking systems. His critique of Bernanke is very valid. Dr. Hudson is always a good listen, well worth your time: (ht Bubba)


Guns and Butter - The New Junk Economics: From Democracy to Neoliberal Oligarchy - February 10, 2010 at 1:00pm

Click to listen (or download)

Morning Update/ Market Thread 2/11

Good Morning,

Equity futures are slightly lower just prior to the open as they continue to see-saw just above the 10,000 level on the DOW and just below the 1,070/ 1,080 resistance on the S&P. Below is a 60 minute DOW chart on the left and 5 minute overnight snapshot of the S&P futures on the right:



The dollar is up slightly, bonds are down, oil is up, and gold is up.

I’ve been watching gold and it does appear that it has found support and is now back above $1,080 per ounce. It has created a large pennant that looks bullish to me. McHugh is counting this next up move as wave 5, and wave 5s in commodities are often the longest waves as they often extend. It might be a reasonable trade to buy gold on a break of the flag, however, I should point out that this goes against the primary count in equities. I think it highly unlikely that wave 3 down occurs in equities and wave 5 up occurs in gold at the same time, but you never know! Personally, I’m not going to chase gold here, but I just want to point that formation out as you can see in the chart below. It’s also possible that it spills down and out of that formation in which case, you obviously wouldn’t want to be buying. This is why I don’t try to front run turns and I wait for trendlines to be clearly broken – this one could go either way:



The weekly unemployment figure came in better than expected with a total of 440,000 new claims, a drop from the prior week’s 480,000 figure. Here’s Econoday:

Highlights
The administrative backlog from the New Year holidays was supposed to have already cleared up. But not so fast! The Labor Department attributes a stunning 43,000 drop in initial claims to 440,000 for the Feb. 6 week -- not to economic improvement -- but to the final end of the backlog, a backlog that inflated levels in prior weeks. In only a very partial offset, the prior week was revised 3,000 higher to 483,000. Given the haze of the backlog effect, the four-week average offers the best handle on the data, falling for the first time in four weeks, though only by 1,000 to 468,500 and little changed from mid-December before the backlogs started to build.

The number filing continuing claims continues to come down, falling 79,000 in data for the Jan. 30 week to 4.538 million. The improvement here masks, to a degree, those falling out of the insured workforce where the unemployment rate remains steady at 3.5 percent. In unadjusted data for the Jan. 23 week, those filing emergency claims fell nearly 185,000 to a total of 5.45 million. Those filing for extended benefits rose more than 13,000 to about 236,000.

Financial markets showed very little reaction and no clear direction from today's report with the dollar easing slightly, in what could be a sign of demand for risk, though equities and commodities fell slightly, in what could be a sign of risk aversion. Snow-storms will begin clouding the claims report this time next week, likely producing fewer claims but pointing to another backlog as the unemployed, once the streets are clear, make their way to the claims office.



According to the DOL’s report, the non seasonally adjusted number of people filing Emergency claims, get this, have risen from 1.8 million to 5.4 million from the same week one year ago:
States reported 5,447,592 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending Jan. 23, a decrease of 184,627 from the prior week. There were 1,805,007 claimants in the comparable week in 2009.

Obviously those unemployed are having great difficulty finding work, and there are many who are simply dropping off the rolls. It looks like Emergency benefits are going to be extended for another 3 months.

Turning back to equities, there was another small movement in the McClelland Oscillator yesterday, meaning a large move is coming today or tomorrow.

We are obviously still tracking in wave 2, a sideways affair that has either completed and is about to usher in the beginning of wave 3 down today, or is morphing into a more complex correction. The rising wedge that was being formed has turned into a pattern that is not so clear, so when this occurs, we just need to pay attention to support and resistance levels and wait for a clear break one way or the other. The primary count has not changed, wave 3 of 3 of 1 down should be next at bat. Should it fail to materialize then another count is in progress.

Below is a 30 minute chart of the SPX, you can see that we have been working our way across the channel but there is a clear support line forming. That line is rising which is bearish. This looks to me like we are simply moving sideways preparing for the next fall to the bottom of the channel. This read will be wrong if we break out of the channel to the upside. 1,061 remains the support pivot, a break beneath may mean wave 3 is underway:



The XLF is still moving sideways in its channel. It needs to break down for the market to break substantially lower:



Hey, get on the wrong side of the next move, and you’ll likely be crying 96 tears!

Question Mark & The Mysterians - 96 Tears:

Wednesday, February 10, 2010

Martin Armstrong – The Clash of Two Worlds, The Battle Between Knowledge & Ignorance…

What follows is yet another good lesson in history. The focus this time is on how little we seem to know about economics and why it has played out that way through history. My understanding is that Armstrong is going through a rough spot. There have been riots inside of Ft. Dix and I think he views his treatment at the hands of his own country as a marker of a hopeless situation for both him and our country. I think he could use some uplifting letters, you can find his address below; I would consider a personal favor, thank you.

Martin A. Armstrong
#12518-050
FCI FT. Dix Camp
P.O. Box 2000
Ft. Dix, NJ 08640

Hugh Hendry and Joseph Stiglitz on Greece and DEBT…

Hugh Hendry simply gives a lesson to Joe Stiglitz who proves that he does not understand debt. Hendry suggests that the only way out is through debt default or debt forgiveness. Yes, he is 100% correct, everything else is simply debt shuffling, and yes, that would whack the banks. Just ignore the Spanish Ambassador, he has no clue and a very biased outlook. Stiglitz, however, has no excuse and clearly does not understand debt saturation.

Freedom’s Vision is the right course of action, not only for the United States, but also Greece and most of the world. (ht JB)

New Mexico House Votes Unanimously to Bank Locally…

This is interesting in that New Mexico voted today to move the State’s money to credit unions and community banks. The Huffington Post is taking credit for starting the move your money to small banks movement, something that several blogs suggested before they picked it up. Still, it is noteworthy and is actually a step towards self-determination and is really a partial move towards creating a state chartered bank. They should take this the rest of the way and the state should deposit all their funds in their own state chartered bank, they could then support the other banks via the same methods used by the Bank of North Dakota.

New Mexico House Votes 65-0 To Move State's Money To Credit Unions, Community Banks

New Mexico's House of Representatives voted Monday to pass a bill that allows the state to move $2 billion - $5 billion of state funds to credit unions and small banks.

The municipal funds bill was approved 65-0 (roll call - PDF), and is subject to a vote by New Mexico's Senate. Governor Bill Richardson told the bill's sponsor that he supports the legislation.

Credit Union Times, spoke to one banker who believes that the bill got a boost from Huffington Post's Move Your Money campaign:
The altered view of New Mexico lawmakers in favoring local control of state funds, officials said, follows national mention of the New Mexico effort in the "Move Your Money" campaign of New York pundit Arianna Huffington in her online Huffington Post columns.
"I think Huffington gave this bill a little traction," said Juan Fernandez, vice president of government affairs for the Credit Union Association of New Mexico

Move Your Money is a project started by Arianna and Rob Johnson that aims to spur financial reform at big banks by encouraging account holders to move their money to smaller credit unions and community banks. New Mexico currently keeps $1.4 billion in accounts at Bank of America.

New Mexico State Representatives Brian Egolf (D-Santa Fe) and Timothy Keller (D-Bernalillo) sponsored the bill, HB 66. Rep. Eglof told the Huffington Post in January that the legislation would "direct the New Mexico Department of Finance and Administration to 'give a preference to a community bank to act as the fiscal agent of the general fund operating cash depository account.'"

If they created their own bank, it would have more assets behind it than any other bank and they could fraction their deposit base in support of state projects and in support of other banks. Any such attempt, however, must keep tight controls to the amount of fraction ability they have, thus they would be best off to create the bank within the framework of Freedom’s Vision where State Chartered Banks would replace the functions of the 12 Federal Reserve Banks. The major difference is WHO controls the MONEY, and WHO benefits from any interest generated!

Under Freedom’s Vision, the fractional limits would all be reached at the end of the transition period. Fractional ability is not inflationary in and of itself, it only increases the quantity of money when the amount of fractional ability is raised and it multiplies any new money added to the system. This is why controls such as those used by Freedom’s Vision need to be implemented at the same time. Again, this is a historic opportunity to take down one type of leverage and to replace it with another – the primary difference is who benefits and that there is no build up of debt at the Federal level while the ratio of credit money and real money is brought way down and kept down.

Morning Update/ Market Thread 2/10

Good Morning,

Equities are basically flat overnight, below is a 60 minute chart of the DOW and 5 minute chart of the S&P futures:



The dollar and bonds are up, oil and gold are down.

From the Asia Times we learn that China is telling all in their country to dump U.S. assets except U.S. Treasury bonds.
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.

It is not clear whether China’s motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take–Beijing does not mix investment and strategic policy–and would be hard to substantiate in any event.

Clearly it was timed with our Administration sending arms support to Taiwan. In yet another snub to the U.S., the Chinese instead of allowing the Yuan to revalue have instead chosen to increase wages for workers significantly across the board. This will create more internal demand for their products and less external demand. Clearly, those who do business in China have forgotten that it is still Communist China and that they are going to dictate exactly what transpires. This central planning goes against natural forces and what I would consider to be the natural rule of law. How will these moves impact the U.S.? I think you are likely to see the cost of imports begin to rise and it’s obvious that our free spending days are over in regards to financing endless deficits.

The ripples in Europe are far from over... more like just beginning. Now we're being whipsawed in the markets on rumors of this bail out and that bail out. Same type of stuff that occured all through '08 over here. Bail outs simply shift the risk from one party to another.

Meanwhile the Senate is getting ready to spend another $85 Billion they don’t have on “job creation.” From Bloomberg:
The central feature of the 362-page bill is a payroll tax credit for businesses who hire and retain the unemployed. The measure, crafted by Sen. Charles Schumer, D-N.Y., and Sen. Orrin Hatch, R-Utah, spares businesses from paying Social Security taxes on new hires who had been unemployed for at least 60 days. The proposal is expected to garner bipartisan support.

The legislation would also extend the deadline to file for federal unemployment benefits and the 65% Cobra health insurance subsidy to May 31. They currently expire a month's end.

That’s it! Take the money from the Social Security program! LOL, where do I even begin? All I can do is shake my head and remind people that the further we go into debt, the fewer jobs we will have as the phase transition point of debt saturation has already occurred. Placing more debt into the system now, produces lower GDP and reduces jobs.

Is anyone starting to see a two-faced President? I know, most people have already figured that out. But remember all the harsh rhetoric about the bankers lately while standing in front of teleprompters? Well, when sitting down and just talking about bankers, this is what he says:
Feb. 10 (Bloomberg) -- President Barack Obama said he doesn’t “begrudge” the $17 million bonus awarded to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon or the $9 million issued to Goldman Sachs Group Inc. CEO Lloyd Blankfein, noting that some athletes take home more pay.

The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”

“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”

Hmmm… does that sound anything like what he was saying before? Again, nothing will make sense until they begin to address the true roots of the problem, namely our money that is backed by debts that feed the owners of those businesses while hopelessly indebting the people of this country.

The Trade Deficit for the month of December came in at $40.2 Billion, larger than the $35.7 Billion that was expected. Here’s Econoday:
Highlights
The U.S. trade deficit unexpectedly surged. But at first glance, it is all about higher oil prices and restocking oil inventories. The overall U.S. trade deficit ballooned to $40.2 billion from a revised $36.4 billion gap in November. The December shortfall came in much worse than the market forecast for a $35.7 billion differential. Exports, however, rose 3.3 percent while imports jumped 4.8 percent. The worsening in the trade deficit was largely due to a widening of the petroleum deficit, which came in at $23.5 billion and up sharply from a differential of $19.9 billion the previous month. This was due to both higher prices and increased barrels imported. The nonpetroleum gap actually shrank to $26.9 billion from $27.2 billion in November.

The widening of the trade gap is bad news for the dollar, but overall it is not as bad as at face value. The jump in oil imports likely will reverse next month. And exports are still on an uptrend.

The year over year import and export numbers are finally back above zero, but still at levels that are far from what was occurring back in ’07.

The worthless MBA Purchase Application Index is showing, once again, why it is worthless and needs to be scrapped:
Highlights
Mortgage applications for purchases fell 7.0 percent in the Feb. 5 week extending a string of choppy week-to-week movements. Applications for refinancing rose 1.3 percent. The Mortgage Bankers Association has been warning that refinancing volume is likely to decline as the Federal Reserve winds down its purchases of mortgage-backed securities. Mortgage rates fell in the week with the average 30-year loan down 7 basis points at 4.94 percent.

Only a 7% weekly swing? That’s way calm compared to the +/- 30% swings we’ve seen since they went to only telling us weekly percentage changes… from what we don’t know, but by golly, it’s changing and they have something wild to tell us.

The markets are nearing the top of the downtrend channel in what still appears to be wave 2 of 3 of 1 of C. It appears that wave 2 is creating a rising wedge that is playing out in an a,b,c,d,e manner instead of a more simple a,b,c. If this is correct, we have one more rise to the top of the wedge coming. Below is a 30 minute chart of the SPX where you can see this:



It’s not uncommon for these to overthrow at the end, so do not be suckered if that occurs. 1,080 will offer stiff resistance and there’s a pivot at 1,090. A break of the larger channel may mean something else is occurring and I would not chase any trades outside of the channel, just me. All the other indices are inside that downtrend except for the NDX which is just outside and following it down. A break below the rising wedge probably means that wave 3 of 3 of 1 is underway.

Below is a chart of the NDX showing how it is peaking outside of it’s channel:



The Transports are right up against the top of the channel and need to descend immediately to stay inside. I note that so far they are down this morning:



The XLF is furthest from its channel and is creating what appears to be a bearish pennant. If so, the mast on that pennant is worth about a dollar. Watch the direction of break from that, it will tell you what the next move is doing:



Hey, no crystal ball, just trying to read the tea leaves. When I look at the tea leaves, all I see is debt saturation and wave 3 coming soon to a stock market near you. Just keep in mind that the waves do not forecast the future, they only eliminate certain possibilities. There are still bullish interpretations, I simply give those lower odds...

Styx – Crystal Ball:

Tuesday, February 9, 2010

Morning Update/ Market Thread 2/9

Good Morning,

Equity Futures are higher this morning, below is a 60 minute chart of the DOW on the left and 5 minute chart of S&P on the right:



Both the dollar and bonds are lower, oil and gold are higher. While I’m mentioning gold, the CRB commodity index is sitting right on long term support, the HUI is as well. This is a pretty critical place for commodities, do or die some more. If you’re thinking long commodities, it’s a good place to enter as long as you stop out on a breakdown. Personally, I think a breakdown is pretty high odds as I think we have a wave 3 of 1 on deck and that can easily drag commodities below support.

Not much in the way of data today. The Redbook and Goldman ICSC show their usual nonsense, wholesale trade will be reported at 10 Eastern.

CNN is reporting “A Massive Tax Hike is about to Hit.” They are talking about jumps in unemployment insurance taxes on businesses. It is a large increase, here’s the short version:
NEW YORK (CNNMoney.com) -- Employers are getting hit with a massive tax hike at a time when they can least afford it.

Companies in at least 35 states will have to fork over more in unemployment insurance taxes this year, according to the National Association of State Workforce Agencies.

The median increase will be 27.5%. And employers in places such as Hawaii and Florida could see levies skyrocket more than ten-fold.

Of course many states are way beyond the models for collecting enough taxes to cover costs and thus they have had to borrow from the Treasury. The Treasury Trust Fund is broke, as far as I can tell, yet miraculously the money keeps flowing. I just read last night that they are sliding into the latest bill another 3 month extension of emergency benefits. Of course higher taxes on businesses will only work to drag down employment, a nasty and not virtuous cycle.

Yesterday’s large point move satisfied Friday’s small move in the McClelland Oscillator. It came on lower volume and appeared to be wave b of wave 2 of 3 of 1 for those who follow. That means today’s action is most likely wave c of 2 and may complete wave 2 sometime soon. Next should come a powerful down move if this count is correct.

Below is a 30 minute chart of the SPX. You can see that the top of the channel is now about 1,085 and the 61.8% retrace of this wave is at 1,081. I would not expect wave 2 to rise above that and it is already proving to have a hard time getting back above 1,070. There is also overhead at 1,080. For me, this is the next entry point on the short side. I would like to see prices get close to that upper channel boundary and then use that as a stop:



Below is a 3 month daily of the SPX, you can see how it negated the hammer as being a bottom reversal indicator. I was suspicious of those, they did not come at the right place or time. Again, volume was lighter on the move yesterday and that suggested that indeed it was a middle wave b movement and not a continuation of the main wave down:



Yesterday I noticed that the Oil Point & Figure chart tripped a new bearish target on a breakdown. It closed above, but this is a clue that commodities may not hold support. The target generated is $61 a barrel, that would be about 15% lower than here:



The DEBT problems continue to ripple across Europe. Ireland is the one to watch now. The fallout from problems in Ireland would be much more significant that Greece or Portugal. Spain is another larger country that is definitely having debt issues. The dominos continue to travel and will continue to travel until the debt is cleared and countries stop nationalizing the debts of their financial industries. I am not hearing enough talk about how debt is holding back human progress. I think it’s very significant that the NASA budget is being sacrificed. This is the exact opposite of JFK’s vision, and is a good example of how being saturated with debt slows the progress of mankind. There is a better way, just think of all the money that was spent in the past couple of years bailing out the financial industry, buying down interest rates, and also spent directly on interest to just to use our own money system! Trillions upon Trillions. More money than all the wars combined, more money than all the stimulus ever given. Not exactly an inspiring situation. This is a historic parabolic move in our monetary system that is NOT sustainable and is coming to an end soon. Please go to www.SwarmUSA.com and register for the Swarm today!

Allman Brothers – Jessica:

Monday, February 8, 2010

Hugh Hendry and Nassim Taleb…

I like Nassim and his understanding of risk, but I do not like his method of trying to hedge everything, you will only make the brokers rich in the long run with that approach.

On the other hand, Hugh Hendry understands the fundamentals correctly – “It’s the DEBT, Stupid!”

He is correct in pointing out the amount of leverage is at multi-century highs and that DEBT is the anchor that is now holding back the world. Going to have to get Hugh onto Freedom’s Vision… (ht Michiganjedi)

Charles Biderman and Dean Curnutt – Friday’s Market Comments…

Biderman tracks money flows, insider buying and selling, and he simply cannot tell you where the money is coming from. Of course he knows, he just has to be shy about it or the clowns on CNBC will LABEL him a “conspiracy theorist.” No conspiracy required, the Primary Dealers are exchanging toxic assets to the Feds in exchange for cash. They are using that cash to gamble in the markets. The markets are thus largely controlled by quants and the real market participants are becoming fewer and fewer, turning what used to be our efficient markets first into a casino, and now more closely resembling virtual reality, or something out of the Matrix.

Go ahead and label me whatever you want. I don’t give two rips about CNBS and only am stating fact. Conspiracy? Fact, and the officials within our government are absolutely encouraging it. The more people who recognize these facts, the less confidence there will be in the markets. (Hat tip RRH…)


Morning Update/ Market Thread 2/8

Good Morning,

Equity futures are roughly flat this morning, very unusual for what has become Manic Monday. Below is a 60 minute chart of the DOW futures on the left and 5 minute S&P on the right:



The dollar and bonds are pretty close to level also, oil is down just a little and gold is about flat.

There are no economic reports out today and it will be a light week in that regard with International Trade, Retail Sales, Weekly Jobless claims, and Consumer Sentiment being as big as it gets and all later in the week.

Friday’s bounce off the bottom channel boundary looked to me like an attempt to front-run Manic Monday. The down-up action did produce a small movement on the McClelland Oscillator meaning that we should see a large move either today or tomorrow, direction unknown by that indicator.

Below is a 30 minute trading hours only chart of the SPX. You can see that the top of the channel today is just under 1,090. Prices will first have to get through 1,080 again to get that far. I think the count is pretty clear at this point, you can see wave 1 down, which was very large, a wave 2 bounce, the start of wave 3 down, and now we are bouncing in wave 2 of 3 of 1. This down channel is very large, and wave 1 of 3 was also very large. Wave 3 of 3 of 1 should follow this wave 2 movement and at a minimum, it should be as long as wave 1 and likely up to 1.61 times as long. Most of the short term oscillators are in the middle range except that the very short time frames are overbought:



SPX 1,061 is a pivot point, we fell below it on Friday, but closed back above it producing a hammer with a long wick. Something funny looking about Friday’s candle and reversal, that is normally something you see at a pretty major bottom, but this one came at the wrong place and time. It will be interesting to see what follows, again, my best guess is that we run higher a little more and then wave 3 strikes.

Below is a daily chart of the DOW. Here you can see a long stemmed candle and how it bounced off the bottom Bollinger. The daily stochastics are oversold, but the weekly has plenty of room to go and the monthly is rolling over from overbought. Volume was pretty high on Friday, most of it was down internally until the manic Monday ramp at the end of the day:



I think the 30 minute chart of the VIX is very telling, it is where counting the waves is easiest. Just look at 1 up, 2 down, 3 up, with the beginning of 2 of 3. Keep in mind that the volatility gauge moves opposite direction of the stock indices:



Here's the parabolic chart of the week, Federal Outlays. Take a look at the timeframe of this chart and look at how classic that structure is:



This chart is in a parabolic blow-off phase, moving literally straight up. Math and nature simply do not allow such moves to continue for long. When they end, they tend to end suddenly, but predicting where the move will end is indeed difficult. Notice what happened to the NASA budget? Only 4 shuttle flights left, manned exploration of space not progressing.

This is what backing your money with debt does to you. Eventually you saturate yourself and can only use new money to make payments on prior debt. Who is it that benefits? Oh yeah, Jamie Dimon just took a $16 million payment home for marking his worthless trash to a fantasy model and for collecting massively off the American taxpayers through interest and fees trading the "debts" of what is supposed to be the American people's money system. That chart is going to roll over, mark my words. When it does, our economy and monetary system are going to be standing naked, a very indecorous sight indeed.

The math is just ugly, and no, the Administration’s budget forecasts will not pan out. We will run more than a $2 Trillion dollar deficit this year and we will take in only slightly more than that in total. This is like someone who earns $100,000 a year spending ALL their income, PLUS charging $100,000 a year on credit cards. Can you imagine? How long do you think that will last? We don’t have long, we have got to build the Swarms. Please register (or re-register) and please get your friends, family, and anyone you can to register too, you can go to SwarmUSA.com by clicking the banner at the top of the site – thank you!

These waves are traveling quickly and they are large. Do not be surprised when Manic Monday, which has been a Pavlovian set up for months now, turns into something entirely different for the bulls. Yes, I have the Bangles tune, “Manic Monday” going through my head, but I just wouldn’t do that to you, lol, so here’s something better:

Bon Jovi & Bob Geldof - I don't like Mondays

Sunday, February 7, 2010

Uncle Jay Explains the News...

It's time once again, Boys & Girls for Uncle Jay to explain the news...

Catherine Austin Fits with Max Keiser…

Max goes a little bit over the edge, but Catherine is pretty lucid as she always is… (ht FreetheMoney)

Catherine Austin Fits with Max Keiser – Part I:


Catherine Austin Fits with Max Keiser – Part II:

G-7 Agrees to Fiscal Suicide – Don’t know Math, History, or Debt Saturation…

The G-7 is meeting in Canada and are still working to keep that credit (debt) flowing. Evidently it’s not enough to watch banks or small nations fail, they evidently want to ensure that large nations do too.
G-7 Vows to Keep Economic Stimulus Even as Budget Deficits Grow

By Simon Kennedy and Simone Meier

Feb. 7 (Bloomberg) -- Group of Seven finance ministers pledged to press ahead with economic stimulus measures even as investors intensify their focus on mounting budget deficits.

“We need to continue to deliver the stimulus to which we are mutually committed and begin looking at exit strategies to move to a more sustainable fiscal track,” Canadian Finance Minister Jim Flaherty told reporters yesterday after chairing a meeting of counterparts and central bankers from the G-7 in Iqaluit, Canada.

Governments face a growing dilemma as they seek to fortify recoveries from last year’s recession at a time when rising sovereign debt burdens are being punished by investors and threaten to hobble future expansion. The MSCI World Index of stocks fell to its lowest since October this week amid concern Greece and some other European nations may default.

“They are running a gauntlet, hemmed in between debt crisis on the one side and a double-dip recession on the other,” said T.J. Marta, chief market strategist at Marta On The Markets LLC, a financial-research firm in Scotch Plains, New Jersey.

Greece
Greece is struggling to persuade financial markets it can restrain the European Union’s largest budget shortfall without outside assistance, while borrowing costs are also rising for Portugal and Spain. Credit-default swaps on the debt of all three countries rose to record highs this week.

European finance ministers said they will help ensure Greece tackles its deficit and European Central Bank President Jean-Claude Trichet said the bank is “confident” the country will cut its gap below the EU’s limit of 3 percent of gross domestic product in 2012 from 12.7 percent. U.S. Treasury Secretary Timothy F. Geithner said European officials had committed to handle Greece “with great care.”

“The message was clearly that the European members of the Group of Seven have confirmed the substance and significance of the plan put together by Greece,” French Finance Minister Christine Lagarde said. “The European members of the G-7 will make sure it is managed.”

‘Dress Rehearsal’
Deutsche Bank AG is warning that the increase in the cost of insuring against debt defaults by peripheral European nations may be a “dress rehearsal” for the U.S. and U.K., whose own budgets deteriorated during the financial crisis and recession.

The G-7 officials, who oversee about half of the world economy, are betting that spending now will generate enough economic growth to help erode their fiscal imbalances and make it easier for them to pull back later.

“The position for most countries is to support the economies now and get the budget deficit down as the economy recovers,” U.K. Chancellor of the Exchequer Alistair Darling said in an interview in Iqaluit.
With the International Monetary Fund calculating debt in advanced Group of 20 economies reaching 118 percent of GDP in 2014, up from about 80 percent before the crisis, some nations attracting the ire of investors and credit rating companies.

Standard & Poor’s last month cut the outlook for its sovereign credit rating of Japan, whose debt burden is the biggest in the industrialized world and nearing twice the size of its economy. Moody’s Investors Service Inc. said on Feb. 2 that the U.S.’s Aaa bond rating will come under pressure unless additional measures are taken to reduce deficits.

Must Avoid
Nassim Nicholas Taleb, author of “The Black Swan” and a principal at Universal Investments LP in Santa Monica, California, said Feb. 4 that “every single human being” should bet U.S. Treasury bonds will decline, while Pacific Investment Management Co. calls U.K. government bonds “a must to avoid.”
Acknowledging the risks, a document drawn up by Canadian officials for discussion said G-7 members should set “clear, credible and consistent” plans to strengthen their budgets.

Delay in doing so would lead markets to “begin to question our commitment to sound medium-term policy frameworks, with the result that interest rates would rise,” said the report obtained by Bloomberg News. “This would further complicate the challenge of re-normalizing monetary policy and introduce another source of uncertainty.”

The G-7 officials met 195 miles south of the Arctic Circle in a former whaling and fur-trading outpost that is now the capital of Canada’s northernmost territory, Nunavut.

Banking Regulation
Amid signs that their united push to toughen regulation of global banks is splintering, officials pledged to keep cooperating on forcing financial companies to raise the quality and quantity of capital they hold. That still allows them room to pursue individual policies such as U.S. President Barack Obama’s proposal to limit the size and proprietary risk-taking of large banks, they said.

“While we all want to have as consistent a basis as we can, there will be some specificities that will be relating to each and every country,” Lagarde said.

The ministers moved closer to ensuring banks pay more of the cost of financial turmoil after the recent crisis saddled taxpayers with trillions of dollars in liabilities as governments rescued banks from Citigroup Inc. to Royal Bank of Scotland Group Plc. One proposal winning support is a levy on the banks, a U.K. official said on condition he not be named.

Policy makers will await an International Monetary Fund report in April before making a decision and any plan must be introduced worldwide to be a success, the official said.

“We agreed to work together to make sure financial institutions bear the costs of their contribution to those crises,” Flaherty said.

Haiti
The G-7 also agreed on the need to cancel Haiti’s debt, including the money it owes multilateral lending institutions, to help the country recover from last month’s earthquake, which killed more than 150,000 people. “Haiti’s tragedy must not be a burden that will weigh on the country’s recovery,” Flaherty said.

The Canadian finance minister said currencies were discussed at the talks and that the group maintained its view that excess volatility in exchange rates can hurt economies and markets. Geithner reiterated the U.S. supports a “strong dollar.”

Major economies with inflexible currencies must consider strengthening them if the global economy is to be weaned off its dependence on U.S. spending and Asian savings, according to a report prepared for the meeting by Flaherty’s department.

Amazing, isn’t it, that they can just wave a wand and make Haiti’s debts disappear? How do you think that’s done? I’ll just let you ponder that one, but while you’re pondering, be sure to ask yourself how Haiti got indebted in the first place and look at how much it got them. Then consider how the process of issuing debt backed money right here at home is holding back the potential of our own economy.

Swarm Notice – Software malfunction causes loss of registrant information

My apologies, but for the past couple of days AZ and I have been trying to fix an important site function in the SwarmUSA.com software and were not making progress on the site because of it. Last night we performed a system restore back to the time the code began malfunctioning. That did repair the code, unfortunately it also wiped away everything done on the site since February 3rd. Part of what it wiped away was all the registrant information since that time.

This means that you may need to re-register for the site. Also, information posted in The Hive since that time was also lost.

We took this action now knowing that it will be better to do it sooner than later. Again, we apologize for the inconvenience and appreciate everyone’s support and patience as we get familiar with the new software and site. Thank you!