Thursday, April 15, 2010

If This Is A Recovery, Imagine A Depression

Better days here? Economic rebound gains strength
WASHINGTON (AP) -- Shoppers and businesses are feeling better about the recovery.

That was the encouraging message from a trio of economic reports Wednesday -- and from Federal Reserve Chairman Ben Bernanke, who told lawmakers that the country's modest rebound is sustainable.

Retail spending rose sharply in March. Consumer inflation remained all but invisible. And businesses boosted their stockpiles in anticipation of higher shopper demand.

Bernanke spoke on the same day that the Fed reported the recovery is spreading to most parts of the country. Merchants are enjoying better sales and factories are boosting production, but companies are still wary of ramping up hiring, the Fed reported. But Bernanke also told Congress that the recovery is not strong enough to shrink the unemployment rate much.

Ironically, the only truth in this "story" comes from the mouth of fabled liar Bumbling Ben Bernanke. The "jobless recovery" is one of the tallest tales ever told, and Bernanke knows this. However he promotes it because keeping interest rates low is imperative to sustaining the illusion of an economic recovery. It is also key to containing the mushrooming US Government debt.

Retail sales, as we have discussed on occasion, are a measure of receipts, and not volume of goods sold. Retail sales are "surging" because of the underlying "invisible" inflation. The government hides the inflation by their nefarious activities in the derivatives markets, and their heinous rigging of the CPI Index.

Jobless claims rise for second straight week
WASHINGTON (AP) -- The number of newly laid off people signing up for unemployment benefits rose sharply for the second straight week, suggesting that jobs are still hard to come by even as the economic recovery gains traction.

The Labor Department reported Thursday that first-time requests for jobless benefits rose by 24,000 last week to a seasonally adjusted 484,000, the highest level since late February. Economists had predicted claims would fall.

It marked the second week that claims took an unexpected leap. In the prior week, claims rose by 18,000 to 460,000.

In the layoff report, the four-week moving average of claims, which smooths out weekly volatility, also moved up. They grew by 7,500 to 457,750 last week, the highest since mid-March.

The number of people continuing to draw unemployment benefits moved higher. They rose to 4.64 million, from 4.57 million.

That figure lags the initial claims by one week. It doesn't include millions of people who have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government.

Approximately 5.97 million people were receiving extended benefits in the week ended March 27, the latest data available.

How can an economic recovery even be discussed with the jobs market so clearly underperforming? 70% of the USA's GDP is derived from consumer spending. Who is behind this "surge" in retail spending? According to a report from the Commerce Department's Bureau of Economic Analysis, real personal income for Americans has fallen by 3.2% over the last year. Who has money to spend? The government does! They have the machines that print it.

"This is hardly surprising," Douglas Holtz-Eakin, an economist and former director of the nonpartisan Congressional Budget Office, told The Wall Street Journal. "Under President Obama, only federal spending is going up; jobs, business startups, and incomes are all down. It is proof that the government can't spend its way to prosperity."

Of course, the Oracle of Orwell would have you believe otherwise. When factoring in government "transfers" - which include things like food stamps, Social Security, unemployment insurance, Medicare and assorted other federally-funded employment disincentives - personal income has actually risen under the Oracle's provident use of "new math". From January 2009 through to February 2010, "adjusted" income is up 1.2%.

No, there is no recovery. It is not gaining strength, and better days a falling quickly behind us.

Foreclosure rates surge, biggest jump in 5 years
LOS ANGELES (AP) -- A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report.

RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago. In addition, households facing foreclosure grew 16 percent in the same period and 7 percent from the last three months of 2009.

More homes were taken over by banks and scheduled for a foreclosure sale than in any quarter going back to at least January 2005, when RealtyTrac began reporting the data, the firm said.

"We're right now on pace to see more than 1 million bank repossessions this year," said Rick Sharga, a RealtyTrac senior vice president.

This revelation is hardly surprising. Alternative economists have predicting a surge in foreclosures for months now. This does not bode well for the "signs of a housing bottom" crowd.

Housing Market Sure to Double-Dip: Whitney
The US housing market will face another retreat while mortgage-backed securities and Treasurys are likely to go through a "material" correction, Meredith Whitney, CEO of Meredith Whitney Advisory Group, told CNBC Tuesday.

"The housing market surely will double dip," Whitney told "Worldwide Exchange."

Government programs to support housing have been "murky" and when the modifications caused by them come to an end, a lot of supply may come to the market and that's when the real-estate market is likely to go down, she explained.

Hopes that an improvement in liquidity and continuing investment from China in US assets will prop up mortgage-backed securities (MBS) and Treasurys are exaggerated, Whitney also said.

"The asset classes of MBS and Treasurys are priced for a material correction in my opinion," she said. "The only buyers of agency MBS are the Fed and banks so you see how precarious that market is."

"If the Fed pulls back, that's a really big deal... because there's no substitute buyer."

China trims holdings of US Treasurys by 1.3 pct.
WASHINGTON (AP) -- China trimmed its holdings of U.S. Treasury debt 1.3 percent in February, the fourth consecutive decline. Those reductions are raising concerns that the U.S. government could face higher interest rates to finance its soaring budget deficits.

The Treasury Department said Thursday that China's holdings dropped $11.5 billion to $877.5 billion. That still left China as the largest foreign holder of U.S. Treasury debt. Japan retained the No. 2 spot with $768.5 billion, a drop of 0.4 percent from the January level.

Net foreign purchases of long-term securities, a category that includes both government and corporate debt, totaled $47.1 billion in February. That compared with an increase of $15 billion in January.

Economists say that unless foreign demand for U.S. Treasury debt remains strong, the interest rates that the government has to pay for that debt could rise sharply, making the U.S. deficit picture look even worse.

Rising rates for government debt would also put upward pressure on private debt. That would send borrowing costs up for U.S. businesses and consumers and add another risk to the U.S. economy.

Interest Rates Have Nowhere to Go but Up
Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates.

That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.

The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.

“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.

“Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market,” said Christopher J. Mayer, a professor of finance and economics at Columbia Business School. “It’s a really big risk.”

Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer.

The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.

Another area in which higher rates are likely to affect consumers is credit card use. And last week, the Federal Reserve reported that the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001. That is up from 12.03 percent when rates bottomed in the fourth quarter of 2008 — a jump that amounts to about $200 a year in additional interest payments for the typical American household.;_ylt=AiX_nJFDec2NM6B5ECqLDJO7YWsA;_ylu=X3oDMTE1bWp2bzhmBHBvcwM2BHNlYwN0b3BTdG9yaWVzBHNsawNpbnRlcmVzdHJhdGU-?x=0&sec=topStories&pos=4&asset=&ccode=

In a society where "buy now, pay later" is a way of life, rising interest rates do note bode well for Bumbling Ben Bernanke's prediction of a "sustainable" recovery going forward. As a matter of fact, rising interest rates spell even less hope for jobs growth, and should contain further "surges" in spending by consumers. Rising interest rates guarantee only one thing...hardship.

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
-Human Action, a Treatise on Economics, Ludwig von Mises (Fox & Wilkes, 4th rev. ed., 1963)

A debt crisis solved by issuing MORE debt? It's the American way, and it is bringing the entire planet to it's knees...despite what you may read in the headlines of the propaganda machine.

This is a 6 month chart of the 10-year US Treasury bond: as it moves above 4%, the wheels will begin to come off the false recovery you hear so much about...and the shit will hit the fan.

Euro slides broadly, weighed by Greece concerns
LONDON, April 15 (Reuters) - The euro fell against the dollar and the yen on Thursday as higher costs to insure against a Greek default highlighted persistent concerns about Greece's debt problems and cut demand for risky assets.

"Greek/German spreads are pushing around 400 basis points," said Jeremy Stretch, strategist at Rabobank in London. "Investors may be shy of taking on risk, and so we're seeing selling in euro/dollar."

Five-year Greek credit default swap prices rose to 455 basis points, exceeding a record closing high of 444 basis points hit a week ago, before euro zone members agreed a standby aid package to help Athens service its mounting debt.

The yield spread between Greek and German government bonds also widened to around 406 basis points, with investors demanding a higher premium on Greek debt as they clamour for clarity about how the financial assistance would be implemented.

Gold to hit $1,350 - $1,400 by late Spring - John Embry
Sprott Asset Management's chief investment strategist John Embry says the recent downward trend seen in the gold price has been nothing more than a healthy correction.

"Gold had a 300 dollar plus run in US dollars from July into the early part of December and it has come under heavy pressure subsequently. It certainly has engendered immense bearishness amongst the commentators which is actually good from my perspective. I think the fundamentals are undisturbed and as a result it is setting up for another strong buy."

Asked about the link between gold and the US dollar, especially the recent strengthening of the dollar against the euro, Embry, says, while there is often a very clear link, the problems in the US and, by extension, the US dollar, are everywhere - especially given the huge budget deficit it is sitting with - so "the idea that one should run away from gold and into the US dollar because it is strengthening against the euro and several other currencies to me is actually preposterous.

"The idea that the US dollar is a safe haven today is flat out wrong," he added, "and that is going to be one of the major factors that are going to change the perceptions in the gold market going forward."

China's Economic Growth Surges
China's economy grew at a strong pace in the first quarter of this year, but financial experts warn that the world's third-largest economy may be on the verge of overheating.

China's economic growth rate surged to 11.9 percent for the first quarter of this year. The government also reports that the inflation rate was 2.2 percent, which is lower than the government's target.

The economic expansion this quarter is nearly double that of the same period last year.

The rise is China's GDP is The Story Of The Day if you are a Precious Metals investor. The Dollar should be getting whacked on this news, out overnight, but was "supported" instead by more Greek Debt Fears. This never ending tug-of-war in the Euro because of the Greek debt crisis is the only "story" underpinning the US Dollar.

The strong GDP number out of China supports a revaluation higher for the Chinese currency the US Government is so desperate to "enforce". The US Government is selling the notion that a rising Chinese currency will cure all ills in the US Economy. Nothing could be further from the truth. The day China chooses to revalue their currency higher will be the day the US Dollar can kiss it's sorry ass goodbye. The inflation the Fed claims is "contained" will explode almost overnight as China unloads their surplus Dollars onto an unsuspecting nation of dumbed down free spenders.

Washington Not China Is the Real Currency Manipulator Here
The Obama administration's assertion that China is artificially keeping the yuan undervalued to gain a global competitive advantage isn't just misguided: It actually demonstrates that Washington lacks even a basic understanding of global economics. Given that the same U.S. leaders who have been pushing to hang this manipulator label on China and impose sanctions are the same ones who tried to end the financial crisis by creating a river of debt that will haunt us for years, I can't say that I'm surprised.

As the U.S. argument goes, pegging its currency to the dollar gives China a distinct advantage when it comes to less-expensive manufacturing and a strong export market. The implication is that somehow this is negatively impacting our economy, or - in a variation of the same logic - holding back our recovery. Washington points to the massive trade deficits we regularly run with that country as evidence of China's currency-market wrongdoing.

In reality, China's pegged currency has done two things. First, it's allowed the United States to keep its inflation rate at a much lower (and more-manageable) level than it should have been in view of the $14 trillion in debt that this country has taken on.

And, second, it's allowed China to fuel its own stimulus package while at the same time assuming a meaningful role in the ongoing global recovery.

Let's take a minute to talk about why this is true.

Every new dollar printed diminishes the value of every dollar that's already in existence. This, in turn, effectively causes the prices of goods and services to rise. In this case, by keeping the yuan pegged within a narrow band to the dollar, China ensures that the bulk of our goods and services have not inflated, despite the Treasury Department's turbocharged printing presses.

In essence, Beijing's policies have acted like the relief valve on a pressure cooker: They've kept the U.S. pot from exploding.

Washington also frequently points to Beijing's $2.4 trillion in foreign reserves as additional evidence that China is a manipulator. This, too, represents flawed logic. Trade reserves accumulate whenever a country sells more than it buys with its partners. Therefore, China's huge reserves are not evidence of currency manipulation; instead it's just proof that the rest of the world really wants to buy what China has to sell.

It's easy to feel as if America is getting the shaft here - especially at a time when so many are out of work and with the country struggling to recover from its worst financial crisis since the Great Depression. Washington isn't helping by nurturing this flawed view of reality.

It's time for us to take a sobering look in the mirror.

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