Critical - Ron Paul's State of the Republic Address

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Bears Return!

The bears are back in session as the Dow hemorrhages massively. Let's recap - S&P down Dow down 2.1 % for the day and a massive 5.6% from it's high this week.

Last June I posted the following -

This is not a recession, it is a depression. And a massive one at that. We are not at the bottom, we are on gaining momentum for the next plunge down. If you thought the last drop was bad, this one is going to strike fear into the hearts of men everywhere. The Dow will push through the last market low of 7,392.27, then 6000 and after that 3000.

Things are NOT going to get better, they are going to get significantly worse overall. It may be true that we might see some small respites here and there as investors hope for a resurgence in the market but overall we are in for one serious ride.

The next level of support is in the 10,000 - 10,100 range which should offer a brief rally for psychological reasons. But there are no hard numbers to justify this level of the Dow. Expect to see more resistance around 9,800, 9,500 and 9,100 as it gives up these ill gotten gains.
The market is broke, everyone is just now realizing this. Got gold?

Scott Brown Wins a Senate Seat, Another Big Government Face

According to On the Issues:
Positives include -

• No new regulation of the financial markets. (Jan 2010)
• 15 percent across the board tax cut. (Jan 2010)
• Permanently eliminate the estate tax. (Jan 2010)
• Voted NO on municipal meals tax, in addition to state tax. (Jun 2003)
• Voted NO on raising income tax to 5.95% to offset deficit. (Apr 2003)
• Supported $200K reduction to blind job program. (Jul 2003)
• Opposed $900K for disability & mentoring aid. (Jul 2003)
• Voted NO on earmark for women's substance abuse program. (Feb 2004)
• Opposed federal school breakfast supplement. (Jul 2003)
• Voted NO on 3-year moratorium on charter schools. (May 2003)
• Vouchers for public, private, or religious schools. (Nov 2002) - As long as the Feds stay out.
• Opposes cap-and-trade system, but renewables OK. (Jan 2010)
• Campaign disclosure but no donation limits. (Nov 2002)
• Voted NO on Constitutional call for universal health care. (Jul 2004)

Here are some issues I view a problematic

• MA already has health bill; don't impose new federal bill. (Nov 2009)
• Ensure access to basic health care, including state funding. (Nov 2002)
• Supports enhanced interrogation techniques. (Jan 2010)
• No constitutional rights for enemy combatants. (Jan 2010)
• Culture of patriotism; vigorous homeland defense. (Sep 2009)
• Supports 30,000 more troops in Afghanistan. (Jan 2010)
• Terrorists are not gone from Afghanistan. (Jan 2010)
• Finish the job in Afghanistan: keep Taliban and al-Qaeda out. (Nov 2009
• Concealed carry ok; but licenses & background checks ok too. (Nov 2002)
• Promote increased use of alternative fuel technology. (Nov 2002)
• Voted YES on defining marriage as one man and one woman. (Feb 2004) - This is not a Federal issue.
• No cap on bankers' salaries. (Sep 2009) (For those who take at others expense, you have to pay the piper)
• Abortions should always be legally available. (Nov 2002)
• Support legalized abortion, but not partial-birth abortion. (Jan 2010)

In a victory speech, Brown said the seat belongs to no one but the state's voters.

"This is the people's seat," Brown said to a cheering crowd.

Yes, yes it is Mr. Brown. And you would do well to remember that fact in the future.

The Real Effect

Fool me once, shame on you.

In 1994, Republicans surged into power with the Contract With America amid promises of shrinking the size of government, promoting lower taxes, greater entrepreneurial activity, tort reform and welfare reform. While one can quibble that this was achieved to a degree, the overall net effect during this time was the exact opposite. Government largess grew exponentially, myriads of wars were started, Federal departments were created and liberty was slashed to a nub. Towards the end of 2008, all that remained were entitled carcasses of what was in effect "dead" politicians.

Just like the ring of power, Republicans seized the power and then the power seized them. This is why we the Democrats were able to route the Republicans in 2008 amid "Hope and Change".

Now in 2010 we have individuals that are at best, moderates, clothing themselves in liberty dress in an attempt to garner votes. And we think this is going to change anything? Hardly.
The new Tea Party, 9/12, Turner, Hannity, Limbaugh, Petraeus, Palin, Beck, O'Reilly and Brown; these individuals are all Benedict Arnolds to the cause of liberty and will sell you down the river if the right situation arises.

Webster Griffin Tarpley opines -

...Massachusetts voters settled for second best in the form of cultural populism as represented by the Republican Scott Brown, whose main claim to fame was that he drove a truck with 200,000 miles on it. That is the demagogic essence of cultural populism, the only kind of populism of which Republicans and reactionaries in general are capable.
The boiling rage of the American electorate is directed against the two-party consensus which has made possible the transfer of between $25 and $30 trillion of US government money — Treasury, Federal Reserve, Federal Deposit Insurance Corporation, etc. — in the form of the TARP or bailout, while the official rate of unemployment and underemployment approaches 18%.

Brown is a show pony and more precisely he's what the people think they want, not what they need. The Republicans will not relinquish the ring of power, they will embrace it and lose their integrity in the process.

Fool me twice, shame on me.


UPDATE - Well, that didn't take long.

Ron Paul "WE NEED TO TAKE OUT THE CIA"

Ron Paul: Use Geithner to Impeach Obama

December deficit nearly doubles

By Blake Ellis, contributing writerJanuary 13, 2010: 2:33 PM ET

NEW YORK (CNNMoney.com) -- The U.S. government posted a deficit of $91.9 billion in December, nearly double the shortfall of a year earlier and marking the government's 15th straight month in the red, the Treasury Department reported Wednesday.

The shortfall brings the total deficit for the first quarter of fiscal year 2010 to $388.5 billion, up from $332 billion during the same period last year.

It was the second consecutive December the government spent more than it took in. In December 2008, the deficit was $51.8 billion.

While December's deficit was less than the $120.3 billion in November, that's no reason to celebrate. The government typically rings up a surplus in December as year-end bonuses boost high individual withholding and as companies make quarterly income tax payments.

The deficit remained high in the first three months of the fiscal year because while spending was down by $3.6 billion from the same period last year, tax revenue fell even more, dropping by $59.7 billion as individual income and payroll taxes declined.

Interest paid on the debt in December was $104.6 billion -- 34% of federal outlays for the month.

"No surprises, the government obviously continues to run a very large deficit," said Gus Faucher, director of macro economics at Moody's Economy.com. "But that's necessary as a response to the recession and the financial crisis."

The Treasury estimates the annual deficit will climb to $1.502 trillion for the full fiscal year 2010, up from $1.42 trillion in 2009.

Debt ceiling: For the long term, many economists are less concerned about monthly and annual deficits, focusing instead on the enormous accumulation of national debt and its rapid upward trend.

"We want to have a big deficit now because that's helping to stimulate the economy, said Faucher. "The concern is about the longer run."

That's especially true after Congress raised the debt ceiling again. The new limit for the amount of debt the Treasury is allowed to have, passed in the last days of 2009, was set at $12.394 trillion, up $290 billion from the previous level of $12.104 trillion. Depending on the state of the economy, this should provide the government relief until mid-February.

As of Monday, the country's total public debt was $12.285 trillion, $109 billion below the debt limit.

Maine may seize cottages to cover Medicaid

AUGUSTA — Maine's budget proposal would allow jointly owned camps or summer cottages to be seized to help reimburse the state for Medicaid expenses.

Many Maine families have owned and maintained camps or summer cottages through joint tenancy deeds, which permit them to keep the property within their families.

But as Maine Public Radio reports, the state would get the power to seize those properties in some cases. Health and Human Services Commissioner Brenda Harvey says the change would allow the state to be reimbursed for its costs if one of the property owners uses Medicaid funding to pay for long-term care.

Under present law, those properties can't count as an asset toward their expenses.

HOT: S & P Downgrades California

S&P has downgraded State of California debt to A- from A.

This will make raising money for the state significantly more expensive, and is likely to force some funds that can only hold A paper or better to sell California debt.

US Defaulting on Chinese Debt?

US to Lose It's AAA Rating?

Because I have called and you refused,
I have stretched out my hand and no one regarded,
Because you disdained all my counsel,
And would have none of my rebuke,
I also will laugh at your calamity;
I will mock when your terror comes,
When your terror comes like a storm,
And your destruction comes like a whirlwind,
When distress and anguish come upon you.
“ Then they will call on me, but I will not answer;
They will seek me diligently, but they will not find me.
Because they hated knowledge
And did not choose the fear of the LORD,

Proverbs 1:24-29

From the Telegraph -

Fitch Ratings has issued the starkest warning to date that the US will lose its AAA credit rating unless acts to bring the budget deficit under control, citing a spiral in debt service costs and dependence on foreign lenders.
Fitch expects the combined state and federal debt to reach 94pc of GDP next year, up from 57pc at the end of 2007. Federal interest costs will reach 13pc of revenues, meaning that an eighth of all taxes will go to service debt. Most fiscal experts view this level as dangerously close to the point of no return for debt dynamics.

Ever wonder how things got to this point? From Bloomberg -

“Dec. 16 (Bloomberg) — Goldman Sachs Group Inc., which got $10 billion and debt guarantees from the U.S. government in October, expects to pay $14 million in taxes worldwide for 2008 compared with $6 billion in 2007.

The company’s effective income tax rate dropped to 1 percent from 34.1 percent, New York-based Goldman Sachs said today in a statement. The firm reported a $2.3 billion profit for the year after paying $10.9 billion in employee compensation and benefits.

Goldman Sachs, which today reported its first quarterly loss since going public in 1999, lowered its rate with more tax credits as a percentage of earnings and because of “changes in geographic earnings mix,” the company said.

The rate decline looks “a little extreme,” said Robert Willens, president and chief executive officer of tax and accounting advisory firm Robert Willens LLC.”

Now compare this with Ed Brown's reported tax dodging sentence of 37 years and ask yourself who the real criminals are?

401Ks Targeted?

Wha, wha, whaaaaa? From Bloomberg -

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.

Senator Herb Kohl, chairman of the Senate Special Committee on Aging, proposed legislation on Dec. 16 to require fund companies to do more to ensure 401(k) options are appropriate for workers. The Wisconsin Democrat cited reports that target- date funds designed for people retiring in 2010 invested in high-yield, high-risk corporate bonds.

The Real Effect
No, way! Who could have seen that coming?!? -

The long and short is they are bleeding the real assets out of the United States and passing them into foreign control. Make no mistake, they will bleed this country dry. Savings, checkings, 401K, gold, assets, they want it all and will not stop until they get it.

Israeli warplanes violate Lebanese airspace, fire at areas near borders

Military and Security 1/7/2010 6:25:00 PM

BEIRUT, Jan 7 (KUNA) - Israeli military aircraft flew over Lebanese airspace and fired at areas near the southern borders between Israel and Lebanon, a Lebanese security source said on Thursday.
The aircraft flew for more than an hour over the northern part of the occupied Syrian Golan Heights, Shebaa Farms, and south of Mount Hermon, sources said, adding that two other planes flew over Bint Jbeil village and circled over more than one town.
On the other hand, the Lebanese army and the United Nations Interim Force in Southern Lebanon (UNIFIL) implemented joint patrols on the Lebanese borders along the Blue Line from the farms and Naqoura for five days in response to the Israeli actions. (end) ok.hs KUNA 071825 Jan 10NNNN

Economic Redux

Zero Hedge brings up that the US was close to a technical default -

On December 24, the Senate passed a vote by a razor thin margin (with not a vote to spare) to raise the Federal debt ceiling from $12,104 billion to $12,394 billion. The actual debt ceiling increase took effect on December 28. And as the chart below shows, the Treasury’s cash flow projections were spot on: 3 days later, and the debt subject to limit surged to $12,254, a jump of over $200 billion in 2 days, and a whopping $150 billion over the old debt ceiling.

Three days is all the buffer the administration’s reckless spending spree has afforded this country to avoid bankruptcy. Had one more Democratic vote dissented from the stopgap measure, the US would now be in technical default.

From the Wall Street Journal, bankruptcies rage -

Overall, personal bankruptcy filings hit 1.41 million last year, up 32% from 2008, according to the National Bankruptcy Research Center ...

American Thinker reports the following -

There are only three possibilities with respect to meeting 2010 funding needs:

* The Fed continues its QE beyond their planned cessation in March 2010.
* The Fed raises interest rates to levels that would attract the capital necessary to fund government operations via conventional credit markets.
* No Fed action is taken. That would cause the government to default on some of its obligations.

Treasuries are sliding -

Treasuries were the worst performing sovereign debt market in 2009 as the U.S. sold $2.1 trillion of notes and bonds to fund extraordinary efforts to bolster the economy and financial markets. Investors in U.S. debt lost 3.5 percent on average through Dec. 30, according to Bank of America Merrill Lynch indexes, the biggest annual slide since at least 1978.

States can't squeeze blood from a rock -

New US census data show that state and local government tax revenue continued their year-long plunge in the third quarter, falling by 7 percent from the same period last year. In response, governments are cutting spending on social programs, infrastructure and education, and are laying off or cutting the wages of government workers.

From the San Francisco Chronicle:

California's political leaders, who are facing the daunting challenge of closing an estimated $20.7 billion budget deficit this year, are looking to Washington for help. Just don't call it a bailout.
Senate President Pro Tem Darrell Steinberg, D-Sacramento, said he plans to head to the nation's capital "early and often" seeking federal assistance. Gov. Arnold Schwarzenegger already has put the federal government on notice that he wants billions he says the state is owed.
Steinberg said he wants a "dynamic partnership" between the federal government and the states, led by California, to spend money for infrastructure.
"No one is looking for a bailout. We're looking for an investment," he said, adding that the state needs to "fight" for more money.
"It's in the national interest because California is an economic engine, and if we continue to be bogged down in deficits that are largely the result of the recession, then the country is going to have a hard time recovering," he said.
California already has received just over $8 billion in federal stimulus dollars that helped the state close the budget deficit last year. On Friday, Schwarzenegger will release his initial budget proposal for the next fiscal year, and the Legislative Analyst's Office already has called on state leaders to "aggressively seek new federal assistance" to help close the projected deficit.

The Real Effect

Several things merit mention.

1. Notice the "to big to fail" mentality?
2. They already spent $8 billion in stimulus.
3. They are now looking at $21 billion gap?

Alright, let's do the math $21 billion is biiiiiiiger than $8 billion so the problem is getting...(better, better, better!)...
WORSE!

States are addicted to spending (Sugar, sugar, SUGAR!!!), citizens are addicted to handouts, corporations are addicted to bailouts.

How can we, as a nation (I say it even though I despise collectivist thinking) begin to compete when we embrace a national policy of "Non-responsibility". Did the past communist failures of the 20th century, which arguably claimed more live than the bulk of any other tragedy, not matter to anyone? Have we learned nothing? Have our forefathers died in absolute vain?!?

Yet it is these same individuals who will quickly foist the American flag upon the petard of their ignorance and claim that if we fail to act, we are sentencing the Republic to certain demise.

No sir, you ensured that death by your reckless actions years ago.

What's new in the British police state?

From I have a title for this. -

We last checked in with the British police state about two months ago. Let’s see what’s new.

British bus passengers could soon be forced to use electronic tags to get onto buses. This fits in with the British government's move away from paper checks and toward an electronic system to be implemented by 2018. The best part of an electronic bus pass is that it will surely help prevent bus-based terrorism.

Britain is also making sure its schools are safe. Four-year-olds are being monitored for “radicalization,” and five-year-olds are being taught sexual education. After all, there is nothing worse than a sexually naive five-year-old who is also a terrorist.

British school teachers have also been given the authority to frisk school children and search their school bags for drugs without consent, because we know how seriously Britain takes drug enforcement.

British schools have not only been protecting students against drugs, but they've also been protecting them against obesity. Students in Greater Manchester have been forced to walk to school rather than getting dropped off by their parents to help keep the students in shape. ...Better hustle up, fatties, or we'll take you away from your mothers! Just kidding, of course.

Britain isn’t only making sure its schools are safe. It’s making sure everywhere else is safe as well.

A few months ago, Britain started to put CCTV cameras into the homes of 20,000 "problem families" to make sure that the families raise their children correctly. This is good for keeping people safe indoors, but what about outdoors?

Well, luckily, the government has been going into the homes of willing citizens and placing CCTV's inside to be trained on the street to keep a watch for "anti-social behaviour."

What about inside private establishments? Can we make them as safe as our homes? Well, luckily, now a pub can be closed down if it doesn't have "sufficient" CCTV coverage. ...And I was afraid I might actually be alone!

Also, if you are ever lonely, don't worry, because new CCTV cameras have been outfitted with speakers, so they can talk to you. ...I want them to tell me how pretty I am!

The best thing about these CCTV cameras is that they're cost-effective. In fact, the top-earning CCTV speeding camera takes in over £420 thousand in fines a year. No wonder people love them so much.

Of course, CCTV isn't Britain's only tool against crime, pre-crime, and legal drinking. Britain is also still capable of that "personal touch." That is why they've given 20,000 town hall bureaucrats the power to enter homes without a warrant.

Reasons these bureaucrats can enter include: checking to make sure a house has an "eco-friendly" refrigerator, making sure a hedge is not too high, and making sure no 'unregulated hypnotism' is taking place. ...Regulated hypnotism, of course, is fine.

Cyberspace also got safer when Britain enlisted telecoms to help them spy on every phone call, email and web search British citizens make. This makes people safer because naturally now the government knows what they're doing.

The information gathered will be available to such important agencies as: local councils, the Financial Services Authority, the ambulance service, fire authorities and even prison governors. ...Finally, ambulance drivers will know what our Google searches have been even if we're unconscious!

The best news for the police state, however, has been that the criminal code has expanded. Since 1997, 3,000 criminal offenses have been created, 1,472 of which are imprisonable. The number of people over 50 entering the criminal justice system has also risen by almost 50% in eight years.

Not only has the criminal code expanded, but the people who have arrest powers has also expanded. In Norwich, mall cops can now arrest people. ...Sorry, Grandpa, but now it looks like you really are going to have to get out of the massage chair.

Despite all these victories, the police state did suffer one setback during the last two months. Britain was collecting the names, dates of birth and passport details of every passenger entering into and exiting from the country well before they got to the airport, just like any good police state would. But then the EU, which after the ratification of the Treaty of Lisbon has authority to overrule member nations' criminal laws, disallowed it.

This truly is a monumental loss. Britain's tyrannical has been overridden by an even greater tyrannical authority. Why is it always thus to tyrants?

Don't worry, Britain. As long as you exist as an independent country, however long that may be, we here in America will always have our eyes on you.

After all, we want to keep you safe.

Britain Takes a Round to the Chest

From the Express -

US-based investment group Pimco, one of the world’s leading bond houses, said it will sell its UK government gilts this year. It will be a hammer blow to the Treasury’s attempt to raise up to £200billion of government borrowing amid the deficit crisis.
Experts fear the debt will damage Britain’s international credit rating, leading to concerns that investors will simply not be ­prepared to risk putting money into shoring up the government.
It could mean the country effectively going bankrupt, with the Government being forced to plead for aid from the International Monetary Fund.

The Real Effect
No way! Who would have seen that coming?

...with the upcoming housing market slowdown, the decline in personal savings, increase in household credit debt and many other economic factors and Houston, we have a major problem brewing.

and

European Union -They will be hit by this economic downswing, but where the US will be ravaged by this downturn, the EU will "weather the storm" precisely because they are the EU.

Iceland Also In Trouble - Beginings of Second European Crash?

Iceland foreshadows what's to come for the rest of the world -

Iceland was plunged back into crisis after its president refused to sign a bill promising to repay more than €3.8bn (£3.4bn) to Britain and the Netherlands after the collapse of the country's Icesave bank in 2008.
Olafur Grimsson said he would force a referendum on the deeply unpopular legislation, causing a schism within the Icelandic government, with prime minister Johanna Sigurdardottir maintaining that the money would be repaid.
The escalating row threatens to further destablise the Icelandic economy, which went into meltdown after the failure of its three big banks, cutting off further aid from the International Monetary Fund and jeopardising efforts to join the European Union. The credit rating agency Fitch immediately downgraded Iceland, describing the latest political row as a "significant setback".

Greece In Economic Trouble

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.