Zombie Economy (Where We’re Headed)

So we are left with the question, what is going to happen? Here is The Real Effect.

Those same old economists that couldn't hit the broadside of a barn (and get PAID to do this) are now coming out with their current predictions.
Enter Paul Krugman -

Yeah, its a reasonably high chance - its less than 50/50 odds - but we have now a recovery that ... is being driven by fiscal stimulus which is going to fade out in the 2nd half of next year, and by inventory bounce ...

Wow 50/50 eh? Sounds real certain of a direction. Say it, 'You don't know.'

Part of the problem is we keep looking for the Armageddon-esqe economic scenario where sappy music is playing as the hero's truck explodes in a stunning tragic death. Except instead of a truck, it's the economy as we wake up one morning and everyone is broke. These sectors have so much depth and things are worked so tight, that it is going to take time for everything to unwind. (Save a game changing event like cities getting nuked.)

Vox Day says the following about the "recovery" -

1. The BLS will report U-3 unemployment to be in excess of 11 percent. The actual number of unemployed workers will be much higher.
2. The BEA will report at least one quarter of negative GDP growth. The GDP figures for Q309 and Q409 will be revised downward. Again.
3. The Federal budget deficit for 2010 will exceed the projected $1.17 trillion.
4. More than 200 banks will be seized by the FDIC. Their deposits will represent more than two percent of all U.S. bank deposits.
5. Commercial bank loans and leases (TOTLL) will fall below $6.3 trillion.
6. All sectors credit market instruments excluding corporate equities and mutual fund shares liability, which is published in the Fed's quarterly Z1 Flow of Funds Accounts, will fall below $52 trillion.
7. The national median existing-home price will not rise four percent from $172,600 to $179,500 as predicted by NAR's lead economist Lawrence Yun. It will fall instead to a level I will attempt to estimate before the next NAR release.

I am going to go out a limb here and state that Vox is being generous here. While I don't believe the Mad Max WTSHTF scenario will play out in 2010 fully, barring a game changing terror attack, at a bare minimum people are going to start noticing this huge white elephant in the middle of the room.

In general, 2010 will be the year that the situational blinders come off and everyone realizes that this is serious business here. Think of it as a game of musical chairs where there are 300 million players and only a million chairs and the leader is reaching for the volume knob and if you lose, you lose everything you own.

As if that isn't fun, 2011 will be much worse.

Unemployment
U3 will hit 11.5 % andcould go as high as 15%, the U6 as high as 30%, but the rates will certainly not go down very far, if they go down at all.

Commodities
According to economists John Williams and Bob Chapman gold is going to explode, perhaps as high as $7,000 and ounce. This temporary dip down is nothing more than a small technical correction.

Food will probably be up 6% and we could possibly hit a scenario where we could physically run out.
Oil is currently at $78.97 and it could go somewhat higher, although I do not believe it will be as volatile as it was in years past. (Unless the Straits of Hormuz gets blocked)

All of this proves that the dollar is crashing and banks are buying up commodities, not that things are more expensive. I caution that any appearances of a so called recovery are nothing more than the twitching of an already deceased corpse. Just because it jumps, doesn't mean it's alive.

Commercial Real Estate Collapse
Is already in progress and gathering steam with the bankruptcy of CIT Group which is tied at the hip with CITI Group. In fact it has already fallen 37 percent in value in the last year and defaults are reaching 16 year highs.

From the Federal Reserve -

Commercial real estate conditions were widely characterized as weak and, in many cases, deteriorating further. Market conditions were reported to have weakened in virtually all Districts, with rising vacancy rates, downward pressure on rents, and little, if any, new development. Expectations for 2010 were also quite low. Boston characterized the commercial real estate outlook as "bleak," Dallas noted that construction was at "historically low levels," and Kansas City described the sector as "distressed."

According to the Orlando Business Journal –

Commercial and multifamily mortgage lending in the U.S. fell 12 percent from the second quarter to the third quarter and is down 54 percent from year ago levels, according to the Mortgage Bankers Association.
The drop includes a year over year decrease in lending for all types of commercial properties. Loans for retail properties are down 62 percent. Loans for office properties are down 56 percent, MBA says. Now given, this is in a highly affected area, however that will spill out into other areas of the economy.

This will vaporize many small regional banks who were unable to participate in the housing market bubble.

Real Estate Collapse
The second wave of the housing market collapse hits (The less risky ARM-A loans continue to default) and banks have yet to start unloading their “shadow inventory” in an attempt to stay solvent. I believe this is already underway as we see-

“residences for sale and vacation homes, rose from 18.4 million a year earlier and 18.7 million in the second quarter, the U.S. Census Bureau said in a report today. The record high was in the first quarter, when 18.95 million homes were vacant.”

To make matters even more intersting, the FHA is making it harder to get a loan on a house -

An initial measure is to reduce the maximum permissible seller concession from its current 6 percent level to 3 percent,

Secondly, to protect the fund from the riskiest borrowers, we will for the time being also raise the minimum FICO score for new FHA borrowers.

Third,we have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan

Irregardless of your position on the issue, this will decrease the pool of available buyers, lowering demand and therefore, prices.

From 360:

Wells Fargo is now talking about converting their option ARM loans into interest only loans:

“NEW YORK (Dow Jones)–Wells Fargo & Co.’s (WFC) strategy for modifying its billions in troubled Pick-A-Pay mortgages looks a lot like a game of kick-the-can-down-the-road.
Wells Fargo, the fourth-largest U.S. bank by assets, holds more than $107 billion in debt tied to option-adjustable rate mortgages, a quintessential loan product from the housing boom that allowed borrowers to make small monthly payments in return for increasing their mortgage balance. Now, many Pick-A-Pay borrowers own homes worth far less than they owe in mortgage debt, even as many of them can afford a full monthly payment that pays down principal.
To solve that conundrum, Wells Fargo is taking a gamble: The bank is issuing thousands of interest-only loans that will defer borrowers’ balances for as long as six to 10 years. Wells Fargo is wagering that an eventual rise in housing prices in the country’s worst-hit regions, along with a rise in consumers’ income, will eventually combine to cover the bank’s billions in underwater Pick-A-Pay debt.

401K Collapse
Banks will start to claim ownership of 401k and pension funds (private and public) and begin "looting" them. (Read as taking your cash and continue to "invest" as they double-double down) and the government moves to “protect” them by seizing them. I would assume they would be placed in a new 'secure conservatorship'.

Annuities Collapse
Annuities will begin to default and the state insurance funds will become a backer of last resort, which will bankrupt many of them.
Many if not most insurance companies will go belly up. This will cause the rates at the surviving institutions to go through the roof.

Municipalities Collapse

As evidenced by New York's MTA -

The Metropolitan Transportation Authority, the nation’s largest transportation agency, is facing a $383 million budget shortfall.
“Because the MTA’s transit system matters so much to New Yorkers, when $400 million is taken from the budget practically overnight you have to make the kinds of changes that have an enormous impact on people,” said MTA Chairman and CEO Jay Walder. “We have a responsibility to assure our customers and taxpayers that every dollar they send to the MTA is used as effectively as possible. We can’t say that today, and that is why we have to fundamentally change the way that we do business.”

FDIC
As companies take these blows, the FDIC will frantically try to raise capitol to cover the losses but will eventually be unable to cover and the first wave of defaults will take place.

Bond Market Collapse
Within the next 2 years, the United States will default on their debt for the first time in their history. This will cause not only domestic, but major international geopolitical issues as well.

Tax Protests
If the institutions don't have to pay their bills, why should I? This could get very ugly.
Receipts will plummet and to cover governments will begin the implementation of new taxes, most notably a VAT AND a National Sales Tax in one name/form or another.

There will begin a reduction and repeal of some Social Programs - most notably Medicare, Social Security and reductions in food stamps.

Dollar Collapse
In June, at the time of what should have been another market collapse, I wrote the following

The US dollar is going to tank (think Iceland)

Note that I made my prediction shortly after the "A" point on the upside.

U.S. Dollar: Is $1.50 versus the Euro. USDX went from $81 to $74.81, To make matters worse, the trend is accelerating. And with the Dollar accounting for 85% of the entire world’s reserve currency, a collapse would be catastrophic.

Kitco has the following to say about the dollar collapse -

Look for the dollar’s final support as a minimum low sometime during the next three years ranging from 40-46.

This will be the pivotal event that if it occurs, will destroy much of the wealth that the people of this nation possesses.

In conclusion, a good question to ask at this point would be ‘Why is all of this happening?’
Well, it’s elementary my dear reader. So whoever ends up with all the wealth can buy the country at a discount of course!

Government Lies (Where We Are - Part 3)

In the previous post, we reviewed how GDP = private consumption + gross investment + government spending + (exports - imports)

We closed by asking how the Gross Domestic Product could be up 3.5%? For starters, it's not, it's 2.2% and it could be revised further downward. For the sake of argument, let's pick the 3.5% number apart.

Stimulus
This from the Congressional Budget Office regarding the impact of the American Recovery and Reinvestment Act-

[The] CBO estimates that in the third quarter of calendar year 2009 ... real (inflation-adjusted) gross domestic product (GDP) was 1.2 percent to 3.2 percent higher, than would have been the case in the absence of ARRA.

If we take this into consideration with our data on GDP - The only reason we're reporting growth is because of the stimulus package.

With the auto sector contributing 1.7 percent that the “Cash for Clunkers” gave us of the 3.5 percent growth (typically about 0.1. or 0.2 percent) we are left with 1.8 percent. Now if we count the cost of the CFC program at an average rebate of $4000, we subsidized to the tune of $24,000 per new stimulated purchase. (Cars that would not have otherwise been bought if not for the rebate.). But will this really help in the long run? These vehicles have debt associated with them. And like the debt before it, it too will need to be repaid.

If I was to give you $5000 to buy a refrigerator and you came back with a loan on said item of course we would have some ‘activity’ and a new fridge, but we’d be broke! Worse yet, we’d be further in debt. How can this possibly be helping? Perhaps it is calling to the Keynesian animal spirits. At the very best we are moving sideways which is hardly an improvement overall.

Our true economic status has been masked by stimulus.

John Williams on Federal spending -

If you eliminated all federal expenditures except for Medicare and Social Security, you'd still be in deficit. You have to slash Social Security and Medicare. But I don't see any political will to rein in the costs the way they have to be reined in. There's just no way it can be contained. The total federal debt and net present value of the unfunded liabilities right now totals about $75 trillion. That's five times the level of GDP.

FDIC
FDIC is running in the red. There's even rumors that they've already tapped the U.S. Treasury to the tune of $80 billion. (Their limit is $500 billion)Think you’re getting any money? Really? If so, perhaps the more relevant question is - do you think it will be worth anything? Can we just keep borrowing? From the Chinese? They’re buying gold not T-Bills. India too.

Deflation/Inflation
As Ambrose Evans-Pritchard notes:

Data from the European Central Bank shows that the M3 broad money supply has contracted over the last six months, confounding expectations that ultra-low interest rates would soon boost monetary growth. Loans to the private sector fell 0.3pc from a year earlier, the first such decline since the data started in 1983. The M3 figures include a wide range of bank accounts...

The picture is even starker in America where M3 has shrunk at an annual rate of 6.5pc over the last three months, a pace of contraction not seen since the 1930s. US bank loans have plummeted since May.

and

“Former European Central Bank chief economist Otmar Issing recently said what current officials aren't addressing: -Nobody can be sure that we have a self-sustaining recovery. The challenges facing the ECB are tremendous. "Money multipliers have collapsed everywhere. What M3 is telling us is that confidence is missing. I don't see any way to stabilise M3 in such circumstances.”

In the face of this situation, the government is left with little choice but to inflate.

State Budgets
State budgets are in big trouble -

The GAO now estimates that, if programs are maintained at current levels, state and local revenues will fall short by an average of 7.6% annually over the coming decade. To close the yawning gaps in their budgets, states are currently relying on stimulus funds and budget cuts. But fewer federal funds will be there to help as the country begins to pay down the huge national debt.

The growing demands on the states are not taken into account by the GAO study, by the way, which only considers the cost of maintaining current service levels. The future scenario for state budgets, then, is likely to be more dire than the GAO predicts.

As stated on the Real Effect on November 24, 2009 -

Of course the Feds will raise the debt ceiling, they're not that dumb. However state and local governments don't have the benefit of an unlimited checkbook. Basic boil down - the consumers are broke, this is breaking the states and the Fed will back some amount of state debt. This is and will lead to a Federal debt bubble. This is the last line of defense and when this bubble breaks, all hell will break loose.

GDP = private consumption (Personal: down + Business: Down) + gross investment (down) + government spending (up) + (exports - imports).

If spending across all sectors is down and governement is spending more money, less efficiently, where does this get us?
Stay tuned for the stunning conclusion.

Business Failure (Where We Are - Part 2)

In our last posting we covered the difficulties facing the personal consumer in the market today and the realities of the current economic crisis. We established that spending is down through wages, capitol and credit and that at present, there is very little positive news. In this post, we shall examine the business side of things and from the onset, there is even worse tidings -

According to John Williams of ShadowStats -

In terms of the GDP, we are about halfway to depression level. If you look at retail sales, industrial production, we are already well into depressionary. If you look at things such as the housing industry, the new orders for durable goods we are in Great Depression territory. If we have hyperinflation, which I see coming not too far down the road, that would be so disruptive to our system that it would result in the cessation of many levels of normal economic commerce, and that would throw us into a great depression, and one worse than was seen in the 1930s.

Small-business bankruptcies rise 81% in California, 44% nation wide.

...the latest data show small-business bankruptcies up 81% in the state for the 12 months ended Sept. 30, compared with the previous year. Filings nationwide were up 44%, according to the credit analysis firm Equifax Inc.

Dennis McGoldrick, a bankruptcy lawyer in Torrance, said his clients are all stuck in similar situations -- capital is hard to come by, customers are tough to attract and debt is piling up.

"We can't keep up," McGoldrick said. "There's more people that want to come in every day than I can see."

Perhaps the graph of office vacancies will help illustrate the point.Wow, we've barely touched the subject and the prognosis already seems grim. But let's try to start this next section with some hope.

Industrial Production
Industrial production is up for now or is it a dead cat bounce? For the moment, we'll assume that things might be improving as orders to U.S. Factories Increased 0.6% in October -

Orders placed with U.S. factories rose in October for the sixth time in the past seven months, propelled by gains in non-durable goods that overshadowed declines in spending on new equipment.

Sounds great, but upon further examination, one comes to the question of 'Is this real increased demand or inflation?'

Demand for non-durables such as petroleum and food, which often reflects changes in prices, rose 1.6 percent, while bookings for durable goods fell 0.6 percent. (Emphasis mine)

Seems like inflation, let's look even closer -

The gain in non-durable demand may reflect prices. Crude oil on the New York Mercantile Exchange averaged $75.82 a barrel in October, up from $69.47 a month earlier. Prices have continued to rise.

It would definitely appear that we have our culprit. But wait, there's more -

Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, decreased 3.4 percent, a bigger decline than the government estimated last week. Shipments of those goods, used to calculate gross domestic product, fell 0.3 percent, also a bigger drop that initially reported.

Talk about cherry picking your talking points. So if we factor in for inflation and look at durable goods, industrial production is down significantly.

How about some more from the Institute for Supply Management -

"The NMI (Non-Manufacturing Index) registered 48.7 percent in November, 1.9 percentage points lower than the 50.6 percent registered in October, indicating contraction in the non-manufacturing sector after two consecutive months of expansion. The Non-Manufacturing Business Activity Index decreased 5.6 percentage points to 49.6 percent, reflecting contraction after three consecutive months of growth. The New Orders Index decreased 0.5 percentage point to 55.1 percent, and the Employment Index increased 0.5 percentage point to 41.6 percent. The Prices Index increased 4.8 percentage points to 57.8 percent in November, indicating an increase in prices paid from October."

Employment activity in the non-manufacturing sector contracted in November for the 22nd time in the last 23 months. ... Three industries reported increased employment, 11 industries reported decreased employment...

Ow.

Investment Banking/Credit
Let's take a closer look at the banks shall we?

Bank charge-offs -- loans written off as uncollectable -- have reached $116 billion year to date, or 2.9 percent of outstanding loans on an annualized basis, Moody's said in a report. By comparison, bank charge-offs were about 2.25 percent in 1932, the third year of the Great Depression, Moody's said.

Well what about business credit?

The Federal Deposit Insurance Corp. reported Tuesday that U.S. bank loans fell by $210.4 billion or 2.8% during the third quarter – the biggest drop since the FDIC started keeping records in 1984.

Loans to businesses fell 6.5%, and real estate loans plummeted 8.1%.

To make matters even more disconcerting, over one hundred banks are on the official trouble list and the unofficial list has grown to a massive 545 banks.

Capitol - Stock Market
Inflated dollars have been buying up the market for this recent bull rally. If you price in inflation, the market has actually been going down.
Now how can the Dow be going up and going down? Well, if the relative value of what you price your index in goes up, so will your index. For instance, if I created the Real Effect banana index to gauge prosperity and then the price of bananas doubles due to a hurricane, my index is not going up, my pricing unit is.

Like a bad zombie film, it just keeps coming back to life. An adrenalin pump of fiat liquidity has been installed in his back and it’s in a bubble that is going to pop.

Housing
From the Federal Reserve in November -

A majority of Districts reported that the lower-priced segment of the housing market has outperformed the high end.
.... Multifamily housing markets deteriorated further in the New York and Chicago Districts. More broadly, a number of eastern Districts reported continued declines in home prices--specifically, Boston, New York, Philadelphia, and Richmond.

But in what could be viewed as good news, existing home sales are up massively.

What's the deal? Is the housing market going down or up?

Down. From Calculated Risk -

The recent increase in the ratio was partially due to the timing of the first time homebuyer tax credit (before the extension) - and partially because the tax credit spurred existing home sales more than new home sales.

In other words, the bottom feeders are out snapping up what is perceived to be a great deal. In what could be argued a "savvy" business move, many investors are snapping up deals from desperate sellers and flipping them to reap profits. Now where have we seen this pattern before? Here is a chart to clear up any confusion.

So to recap - banks aren't loaning, housing is still crashing, industrial production is flatlining. Not good. Let's review our formula:

GDP = private consumption (Personal: down + Business: Down) + gross investment (down) + government spending + (exports - imports).

So just how can our GDP be reported at an increase of 3.5%? Stay tuned for part 2.

The Great Recession, What a Joke (Where We Are – Part 1)

It’s called a d-e-p-r-e-s-s-i-o-n.

Although this does cut against the grain of those who in the words of Paul to the Romans, "Professing to be wise, they became fools", we need to recognize the current economic climate in which we live so as not to join the fools in their endeavors. However, this past foolishness has led to our current predicament and it is these same individuals who presently maintain that we are "on the road to recovery". This is not only short-sighted, it is destructive of personal wealth, happiness and in many instances, life itself. So it is through these means that we arrive at the question - Where do we stand now?

From Vox Day, a man who also saw the current depression coming -

At the end of 2009, conventional economists are claiming that the economic contraction which began in 2008 is over. Most government published statistics show growth and the stock markets have recovered half of their previous losses. While some of the wiser economists are hedging their bets by stating that they expect growth to be "sluggish" with "downside risks," there are no more expectations of market crashes, financial collapse or widespread economic contraction than there were at the beginning of 2008. The question is not one of growth versus contraction, but rather how much the economy will grow. However, the conventional economists are just as wrong to think the contraction is over as they were to believe that it was not on the horizon before.

The United States Gross Domestic Product (GDP) = private consumption + gross investment + government spending + (exports - imports).

This figure will be become important over this series as we will use it to analyze our current economic standing and health. In our review Private Consumption is the first component of GDP and can be viewed as you and I or more specifically, the private sector. Let's look at some facts and figures from the perspective of John Q. Public

Unemployment
One method of examining whether or not private consumption is healthy is to measure unemployment. Why? In order to purchase something, an individual needs to have something that the other party would like to trade for. Generally this would mean that a person would need to be employed in order to have money to trade for goods and services in the economy.

But just how is the employment situation doing? Let's examine the government numbers.

• U3 data - The much trumpeted "official" 10 %.
• U6 data - 17.2%
• U6 data historic as calculated by John Williams is over 22.4%. (This leaves out the birth death ratio of government "guessing".)

So from this we can safely conclude that there is massive unemployment already. While the unemployment rate of increase is slowing slightly it is hardly comforting for those without a job that less people are losing jobs currently. This uptick does not necessarily mean improvement, but only a slowing in the plunge down, especially when viewed in light of the massive amount Federal stimulus, but we'll cover that later.

In November unemployment slowed down even more as temporary workers were added to payrolls. But here is a question - Do these numbers reflect a seasonal increase for the holidays and 4th quarter numbers? In other words are we "adding jobs" because it's Christmas and afterwords these temporarily fortunate individuals will go back to being unemployed? In addition, how many are presently dropping off the unemployment numbers because they're running out of benefits and therefore no longer counted?

Some numbers from Calculated Risk-

According to the BLS, there are a record 5.887 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 3.8% of the civilian workforce. (note: records started in 1948)

And regarding our seasonality -

It appears that businesses are under the impression that this holiday season is going to be better than last year. Note that November hires are outpacing last year.

Retailers only hired 54.2 thousand workers (NSA) net in October. This is essentially the same as in 2008 (59.1 thousand NSA). However retailers hired 321.3 thousand workers in November (NSA), an increase from the 233.7 thousand last year. This suggests retailers are a little more optimistic than last year.

And it doesn't look like it will get any better soon -

At best, it could take until the middle of the decade for the nation to generate enough jobs to drive down the unemployment rate to a normal 5 or 6 per cent and keep it there. At worst, that won't happen until much later - perhaps not until the next decade.

Wages and Purchasing Power
The previous data looks discouraging, but it ignores the millions of individuals that are employed, so let's assume we currently have a job. In today's terms this means wages or in lieu of wages, credit, as many turn to credit cards to make ends meet.

A cursory review of employment data reveals that wages are flat at best and available hours are plunging.

To make matters worse, purchasing power has declined 22% from 2000 to 2009 and of this even less is disposable income. (Meaning available to purchase items other than necessities) With inflation at an annual rate of 7%, there is nothing to suggest that this will be getting better.


Capitol Savings
Perhaps John Q. Public can dip into his savings, 401k, bonds, etc.? Some of that money has to be hitting the market as our consumer is running out of income? With 401k, most have been pummeled down and unbeknown to John Q. Public, fund managers are taking risky and wild gambles in an attempt to make up the difference. When the stock bubble pops, it will place these pensions in jeopardy. We just haven’t gotten there yet.

“Schneider…the privately owned company imposed a pay freeze earlier this year and stopped paying into 401(k) retirement plans.”

Real estate prices are plummeting, median home prices have fallen more than 30% from their 2006 peaks. Remember yesterday when the mantra was 'housing has never gone down, you can't lose!"? Well chew on this little tidbit

More homes were foreclosed in the last 12 months than in an entire decade in the first Great Depression of the 1930’s.

Credit
What some view as an option of last resort, others actually use for daily operating expenses, but how is the final piece of our Private Consumption puzzle fairing?

"Total credit market debt remained essentially flat since the fourth quarter of 2008. Total loans and leases by commercial banks decreased 6.2 percent in 2009, which was six times more than the largest previous decline in 1975."

Consumers are jettisoning credit cards, which is actually a good thing long term, but has negative short term consequences. But this says little of the average debt load that the consumer has been building up until this point.
For many students - $40,000 in educational debt becomes an avoidable noose as they are unable to procure a job in their field as current applicants are able to take the salary with more experience. This is having the effect of creating a whole new wave of revolutionaries disatisfied with the status quo and ripe to be used for rebellion.

Bankruptcies are rising fast as the canary in the coal mine has alerted many that debt can be, in fact, toxic.

So what's the verdict? Is the consumer spending?

The Consumer Confidence Index, released by The Conference Board, sank unexpectedly to 47.7 in October -- its second-lowest reading since May. Forecasters predicted a higher reading of 53.1. A reading above 90 means the economy is on solid footing. Above 100 signals strong growth. The index has seesawed since reaching a historic low of 25.3 in February and climbed to 53.4 in September.

And from the U.K. -

the UK Office of National Statistics reported an unexpected contraction of -0.4% GDP growth in the third quarter. This confounded widespread expectations of 0.2% growth and extends the length of the “recession” to six quarters, which is the longest continuous contraction since the 1950s.

In June, I posted the following -

‘90% of economists believe we are recovering economically’ and ‘we have hit bottom and we will see slight growth in the Q3 and moderate growth in Q4.’ …' Responding to that, I will say the following: They are wrong! Absolutely in no uncertain terms dead wrong.”

Take a good look. This is the true condition of the American consumer as of now. In many instances, a decade of growth, wiped out.

To summarize, the American consumer has less jobs to apply for, to receive a smaller wage, with a dollar that is quickly fading. In addition, his last 10 years of capitol growth has vanished and there are rumblings that the safety nets meant to catch him are failing. Not exactly promising.

In light of all this, it was reported that the GDP of the United States is up 3.5%! But given what we now know about the American consumer, how could this be? Well, to be sure, there is a modicum of spending going on out there but the relevant question is what is it being spent on and by whom?

In part two, we shall review the other side of Private Consumption, business consumption.

They Were Wrong (Where We Were)

Can any impartial and unprejudiced mind doubt the motive? Was it not to compel the people to continue its monopoly and privileges, not on account of the benefits conferred by it, but to escape from the suffering which the [Bank] had the power to inflict?

- Roger Taney to Andrew Jackson regarding manipulation of the nation’s money supply

I am reminded of the tragic fate of the Titanic, in which the rich elite of the time rebuke any attempt to save their sorry hides by invoking the brilliance of the ship’s design and seaworthiness, thereby nullifying any supposed misinformed proclamation of perceived danger.
It was if they were trying to say in their snooty sort of way 'Let’s not be hasty, shall we?'

Fast forward to today and it appears that supreme arrogance is still in good form. Let’s review the grand picture, shall we?

Over the past year we've had a funding crisis, namely the inability to continue the over-leveraged positions that most people and institutions have created. This crisis was invasive and extended to the stock market, government, manufacturing, commodities; you name it and it was affected severely.

But just how did the establishment perceive this situation going in? What was there take on the now obvious "economic crisis" as it was developing? More specifically, how did the Federal Reserve, our designated knights in shining armor, perceive this issue?

Here are some Bernake quotes -
On housing:

July 1, 2005 (responding to a CNBC question about whether there was a housing bubble and whether it could cause a recession): “It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”

May 17, 2007: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

On employment:

July 18, 2007 (a month before the subprime mortgage market began having problems and five months before the recession began): “Employment should continue to expand. … The global economy continues to be strong. … Financial markets have remained supportive of economic growth.”

On the banks:

Feb. 28, 2008: “Among the largest banks, the capital ratios remain good, and I don’t expect any serious problems … among the large, internationally active banks that make up a very substantial part of our banking system.”

July 16, 2008: Chairman Bernanke said that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.”

On business:

February 15, 2007: "Overall economic prospects for households remain good. The labor market is expected to stay healthy. And real incomes should continue to rise. The business sector remains in excellent financial condition."

During the crisis:

May 5, 2009: “Currently, we don’t think [the unemployment rate] will get to 10 percent.” (Five months later, the rate reached 10.2 percent.)

McCain on the economy:

I’m very strong on the economy. I understand it. I have a lot more experience than my opponent. (July 2, 2008, on Good Morning America)

But let me just add, Peter, the fundamentals of America’s economy are strong. (Apr. 17, 2008, interview with Peter Cook)

You know, that there’s been tremendous turmoil in our financial markets and Wall Street and it is — people are frightened by these events. Our economy, I think, still the fundamentals of our economy are strong. (Sept. 15, 2008, from a campaign speech aired on CNN)

... And by the way, I don't believe we're headed into a recession. I believe the fundamentals of this economy are strong, and I believe they will remain strong. This is a rough patch, but I think America's greatness lies ahead of us. - January 10, 2008

Hank Paulson:

“The long-term fundamentals of our economy are strong," but "[w]e believe the economy is going to continue to grow slowly here. This is not an emergency.“ - January 18, 2008

'The worst is likely to be behind us . . . . ” - May 7, 2008

George Bush:

"In the long run, we can be confident that our economy will continue to grow, but in the short run, it is clear that growth has slowed." - March 15, 2008 in his weekly radio address.

Morgan Stanley:

We believe that with our strong capital base and liquidity, we have a strategic advantage to capture the many opportunities arising in the midst of this market turbulence." (February 6, 2008 - CFO Kelleher of Morgan Stanley at the Credit Suisse Group Financial Services Forum) - Morgan Stanley later posted record losses

The Washington Post:

“Anyone who says we’re in a recession, or heading into one —- especially the worst one since the Great Depression —- is making up his own private definition of “recession.” —- commentator Donald Luskin, the day before Lehman Brothers filed for bankruptcy, The Washington Post, Sept. 14

What we have here is a scene out of Monty Python and the Holy Grail in which The Black Knight of government being mortally wounded states that it’s "merely a flesh wound". This attitude reveals the attitude and perhaps the intent of our great leaders. And how does it stack up? It belies common sense and worse yet, it’s not even funny.

LAPD on course to takeover Explorer Program

By Rick Orlov, Staff

With a pledge to develop a program that does not tolerate discrimination, Los Angeles police officials said Tuesday they are on target to take over the Explorer Program on Jan. 1.

New uniforms, patches and other insignia will be unveiled - along with a new name - to make the long-debated transition of the program from the Learning for Life subsidiary of the Boy Scouts of America to the LAPD's control.

"There has been a major push to get this together and we are there," Assistant Chief Earl Paysinger told the Police Commission.

More than 3,000 young people - including the most recent graduating class of 220 members - are part of the program that trains young people to prepare for law enforcement careers.

The Los Angeles Police Department has been working for a year to remove the program from the Boy Scouts because of that organization's policies discriminating on basis of sexual orientation and religion.

Paysinger said one of the biggest issues to deal with was providing insurance for participants, which was resolved with the city agreeing to assume responsibility.

In addition, Paysinger, Saltzman and others have been meeting with various organizations to raise money to support the new group.

Commissioner Alan Skobin said the new program has drawn requests for information from other law enforcement agencies around the country who also are interested in breaking away from the Boy Scouts.

Paysinger said the LAPD operates other youth programs, including the Police Athletic League and a program aimed at children ages 8-13.

Commissioner Robert Saltzman said he attended last week's Explorer graduation, where he met with supervisors in the program.

"What was encouraging is they all support nondiscrimination," Saltzman said. "Their only concern is that the program remains a success. We all want that. I believe this will be not only as good, but better."

Iran Situation Break Down

The situation in Iran gets more interesting.

An oil well is seized -

The Iraqi government Friday demanded the withdrawal of an Iranian "armed group" that it says seized an oil well in southern Iraq on Thursday night.

Iran is denying any takeover took place.

The Iraqi government issued a strong statement deploring the act after Iraqi Prime Minister Nuri al-Maliki headed an emergency meeting of Iraq's National Security Council to discuss the situation.

"The council stressed that such incidents would be considered a violation of the border and violated Iraq's sovereignty and its territories and calls upon Iran to pull out the group from well No. 4 and take down the Iranian flag from the tower of the well immediately," Iraqi government spokesman Ali al-Dabbagh said in the statement.

Gen. David Petraeus tells Bahrain conference calls in Mideast countries to join forces in order to curb Tehran's nuclear ambitions -

The United Arab Emirates, a key US ally in the Persian Gulf, has the capability to overpower Iran's Air Force, US Centcom commander Gen. David Petraeus said last week.
"The Emirati Air Force itself could take out the entire Iranian Air Force, I believe, given that it's got ... somewhere around 70 Block 60 F-16 fighters, which are better than the US F-16 fighters."

Iran Test Fired a Missile -

Islamic republic's Arabic-language satellite television says tested missile has longer range than Shahab, which Iranian officials have said can reach targets 2,000 kilometers away, putting Israel and US bases in Gulf within reach

The Real Effect
All this is in light of Russia delivering a state-of-the-art missile defense system at the end of January that will greatly reduce if not eliminate the effectiveness of an air strike against Iran.

Very interesting.

Panic in Detroit: Unemployment Stands at 50%

Infowars.com

December 17, 2009

AOL’s job site reports the following:

Nearly one out of two workers in Detroit are unemployed, according to a report by The Detroit News. It’s a figure far higher than the government’s official figure, which is still close to a staggering 30 percent.

But the newspaper says that rate doesn’t take everything into account. For every person who is still looking and collecting unemployment, there are scores of others who have had benefits run out, accepted a part-time position, taken early retirement or a job outside of their regular field.

This is higher than the unemployment during the Great Depression. In 1931, the official unemployment rate was 24.9%. It took a world war to bring it down to 4.7%.

Will it take another war to bring the unemployment rate down again?

Anti-Iran Sanctions Punish Civilians, Are an Act of War

Ron Paul
Campaign For Liberty
Thursday, Dec 17th, 2009

Statement of Congressman Ron Paul
United States House of Representatives
Statement Opposing the Iran Refined Petroleum Sanctions Act
December 15, 2009

I rise in strongest opposition to this new round of sanctions on Iran, which is another significant step toward a US war on that country. I find it shocking that legislation this serious and consequential is brought up in such a cavalier manner. Suspending the normal rules of the House to pass legislation is a process generally reserved for “non-controversial” business such as the naming of post offices. Are we to believe that this House takes matters of war and peace as lightly as naming post offices?

This legislation seeks to bar from doing business in the United States any foreign entity that sells refined petroleum to Iran or otherwise enhances Iran’s ability to import refined petroleum such as financing, brokering, underwriting, or providing ships for such. Such sanctions also apply to any entity that provides goods or services that enhance Iran’s ability to maintain or expand its domestic production of refined petroleum. This casts the sanctions net worldwide, with enormous international economic implications.

Recently, the Financial Times reported that, “[i]n recent months, Chinese companies have greatly expanded their presence in Iran’s oil sector. In the coming months, Sinopec, the state-owned Chinese oil company, is scheduled to complete the expansion of the Tabriz and Shazand refineries — adding 3.3 million gallons of gasoline per day.”

Are we to conclude, with this in mind, that China or its major state-owned corporations will be forbidden by this legislation from doing business with the United States? What of our other trading partners who currently do business in Iran’s petroleum sector or insure those who do so? Has anyone seen an estimate of how this sanctions act will affect the US economy if it is actually enforced?

As we have learned with US sanctions on Iraq, and indeed with US sanctions on Cuba and elsewhere, it is citizens rather than governments who suffer most. The purpose of these sanctions is to change the regime in Iran, but past practice has demonstrated time and again that sanctions only strengthen regimes they target and marginalize any opposition. As would be the case were we in the US targeted for regime change by a foreign government, people in Iran will tend to put aside political and other differences to oppose that threatening external force. Thus this legislation will likely serve to strengthen the popularity of the current Iranian government. Any opposition continuing to function in Iran would be seen as operating in concert with the foreign entity seeking to overthrow the regime.

This legislation seeks to bring Iran in line with international demands regarding its nuclear materials enrichment programs, but what is ironic is that Section 2 of HR 2194 itself violates the Nuclear Non Proliferation Treaty (NPT) to which both the United States and Iran are signatories. This section states that “[i]t shall be the policy of the United States… to prevent Iran from achieving the capability to make nuclear weapons, including by supporting international diplomatic efforts to halt Iran’s uranium enrichment program.” Article V of the NPT states clearly that, “[n]othing in this Treaty shall be interpreted as affecting the inalienable right of all the Parties to the Treaty to develop research, production and use of nuclear energy for peaceful purposes without discrimination and in conformity with articles I and II of this Treaty.” As Iran has never been found in violation of the NPT — has never been found to have diverted nuclear materials for non-peaceful purposes — this legislation seeking to deny Iran the right to enrichment even for peaceful purposes itself violates the NPT.

Mr. Speaker, I am concerned that many of my colleagues opposing war on Iran will vote in favor of this legislation, seeing it as a step short of war to bring Iran into line with US demands. I would remind them that sanctions and the blockades that are required to enforce them are themselves acts of war according to international law. I urge my colleagues to reject this saber-rattling but ultimately counterproductive legislation.

“When the people find they can vote themselves money, that will herald the end of the republic.”

Increase Your Carbon Footprint

Excerpts from Butler Shaffer -

Our two-year old granddaughter was at our house recently. She was joyously stomping her feet, in rhythm to some piece that had been performed in her music class. The delight with which she carried out her highly-energized dance reflected a spirit that is particularly evident among small children, an approach that the adults in their lives are often quick to squelch. Our birth certificate announces to the institutional order the arrival of another conscript to be molded into servo-mechanisms programmed to serve “obligations” that are neither of our origins or to our benefit: dancing and other joyous expressions that serve no institutional ends are to be discouraged.

...I am reminded of the many misanthropic humanoids who will beset them with demands to restrain their sense of well-being and to temper their happiness. Unable to find meaning within themselves, such pathetic beings endeavor to compensate for this shortcoming by seeking power over others. They do so by identifying with and becoming agents of institutions, those well-organized entities that are destructive of both individual lives and civilizations. It is on behalf of the interests of such instrumentalities that most of our social pathologies get played out.This campaign to draw children into the vortex of personal and societal destructiveness will initially be undertaken by parents whose best-of-intentions are matched by their own lifelong conditioning in the cult of duty. Soon thereafter, the child will be brought into schools and churches for further inculcation, while the media and, ultimately, the state await with their more persistent and forceful reinforcement.

If there was but one message I would hope readers would draw from my writings it would be an awareness of how we condition our minds to make our lives subservient to institutional interests. With the emergence of the current forces of perpetual war, ubiquitous policing, and state-managed economic dislocation that are combining to bring about the collapse of American civilization, there is no more opportune time in which to examine the mess we have made of ourselves.

Even as the virus of institutionalism continues to spread its deadly influences — dangers to life that far exceed the hyped threats of “swine flu” — a sense of desperation emanates from within the establishment. Even more regulations, more surveillance, more weapons of torture and suppression, and more laws to be enforced by more police, more prisons, and longer sentences are demanded by those who rule from the heights of a failed system. Even with a polychromatic display of “terror alerts,” the specter of bogeyman “terrorists” no longer entertains most Americans. In a nation saturated with fear-objects used for political control, threats of a more far-reaching nature than child abductors, street-gangs, or drug-dealers must be dredged up.

I suspect that Johann Gutenberg’s invention of movable type made possible the second stage of the information revolution that quickly spread its liberating influences to the rest of humanity. The Renaissance, the Reformation, the Scientific Revolution, the Enlightenment, all contributed to that most humanizing period in human history: the Industrial Revolution. Mankind quickly discovered that its well-being was not to be found in obedience to earthly powers commanding them through structured political forms, but in the release of their own creative energies. Industrialism helped us learn how to produce and exchange the economic values that sustain life; we learned how to maximize human well-being; how to produce the surpluses that provided the earliest evidence of this most prolific system: an increasing population.

Such productiveness did not occur without costs. Through this system, we expanded our capacities for converting natural resources into material goods, a process occasioned only by mankind “increasing its carbon footprint” in the world. It is a biological fact that life itself — at least on this planet — is based upon carbon,and its interchange among living beings. Plants produce oxygen that is breathed in by animals, and expelled as carbon dioxide which, in turn, is taken in by plants. Whatever the source of the energy that fuels human action — be it carbon, sunlight, wind, or some untapped element — a consequence will necessarily be that humans will be expelling carbon dioxide.

Unless, of course, Homo Boobus can become convinced that the expenditure of energy — whether in play or the production of goods and services — is somehow a threat to the human species. What better way for those who want nothing more — or less — than a universal control over their fellow beings than to convince them that the essence of life itself (i.e., the vigorous and lively interaction of an organism with its environment) is anti-life. They will be reminded of the basic tenet of their conditioning: that only by submitting oneself to the authority of rulers — who will never moderate their energies on behalf of schemes to extend their power over others — can they enhance their lives by renouncing its very nature. The pursuit of individual preferences for living will come to be regarded as a secular form of original sin, to be dealt with most severely. Even school children will learn that as harmless an activity as running on the playground is to be prohibited, lest the energies that inhere in childhood be allowed to carry over into the stultifying atmosphere of the classroom. Free-spirited dancing will quickly evolve into well-ordered and supervised marching.

Be aware, my grandchildren, you may find yourselves beset by people-pushing gangs of sociopaths who have ambitions over the very ownership of your lives. They will likely cajole and coerce you into minimizing your “carbon footprint” on this planet. But to give in to their importunities is to abandon the creative and joyous nature of life itself. Continue to direct your energies over what is yours to own, and make your footprints as grand and glorious as your imaginations are capable of generating. If I am still fortunate enough to be around in your young adulthood, I may help you to discover the most polite but insistent words with which to tell such misanthropic humanoids to “go to the devil; I have more dancing to do!”