Temp work covers up depth of unemployment
Because of the surge of hiring for the census, April unemployment only rose to 8.9 percent — a much slower increase than had been feared. Figures out today show unemployment now stands at 9.4 percent.
But consider these numbers:
The 9.4 percent May unemployment rate is based on 14.5 million Americans out of work. But that number doesn't include discouraged workers, people who gave up looking for work after four weeks. Add those 792,000 people, and the unemployment rate is 9.8 percent.
The official rate also doesn't include "marginally attached workers," or people who have looked for work in the past year but stopped searching in the past month because of barriers to employment such as child care, poor health or lack of transportation. Add those 1.4 million people, and the unemployment rate would be 10.6 percent.
The official rate also doesn't include "involuntary part-time workers," or the 2.2 million people like Noel who took a part-time job because that's all they could get, plus those whose work hours dropped below the full-time level. Once those 9.1 million workers are added to the unemployment mix, the rate would be 16.4 percent.
All told, nearly 25 million Americans were either unemployed, underemployed or had given up looking for a job in May.
The ranks of involuntary part-timers has increased by 4.9 million in the past year, according to a May study by the Federal Reserve Bank of Cleveland. Many economists now predict unemployment won't peak until 2010. And since employers generally increase the hours of existing workers before hiring new ones, workers could be looking for full-time jobs for some time.
http://www.msnbc.msn.com/id/31127909
1Q credit card delinquency rate jumps 11 percent
http://finance.yahoo.com/news/1Q-credit-card-delinquency-apf-15460637.html
Obama confronts doubts on stimulus, vows faster spending
Results of the stimulus spending are difficult to measure, and so far the promised federal money has been slow in coming. As of May 29, just over 100 days since Obama signed the bill into law, only about 6% of the funds had been spent.
And on the jobs front, an early target was missed: Two of the president's top economic advisors put out a report Jan. 9 predicting that with the stimulus spending, the U.S. unemployment rate this year would not exceed 8%. It now stands at 9.4%. That figure is higher than Christina Romer and Jared Bernstein had said it would be even if the stimulus package had not been adopted."
A lot of this is hokum. All along, [Obama's] job numbers have kept changing according to the political environment," said Peter Morici, a professor of international business at the University of Maryland.
Kevin Hassett, director of economic policy studies at the American Enterprise Institute, a conservative-leaning think tank in Washington, put it even more bluntly: "The actual unemployment rate is worse than their baseline -- suggesting that their stimulus plan was harmful. And yet, despite that, they're asserting it has been successful. That shows an incredible amount of gall."
http://www.latimes.com/news/nationworld/washingtondc/la-na-obama-stimulus9-2009jun09,0,5788007.story
Media Skeptical Of Obama Stimulus Claims
President Obama's comments Monday in support of his economic stimulus package generated largely skeptical coverage from the news media, which cast doubt on the new White House forecasts and cast the President as facing growing political dangers on economic and fiscal issues. The CBS Evening News, which led with the story, was the only network newscast to mention the President's remarks: "It's been nearly four months since...Obama signed that $787 billion stimulus into law," said CBS, and "the economy is continuing to hemorrhage jobs." The AP says that Obama was "scrambling" yesterday to calm Americans unnerved by unemployment rates still persistently rising nearly four months after he signed the biggest economic stimulus in history." The Washington Post says that "the list of spending plans detailed...amounted to little more than a restatement of plans already underway for the coming months, without any explanation of what steps, if any, the White House would take to accelerate the pace of spending." The Wall Street Journal also reports that "the White House offered no new details Monday on how it would speed up spending from the $787 billion stimulus package, and in many ways the administration is limited by the gradual pace set out in the law passed earlier this year."
The AP reports, "For the first time, the administration admitted the economic forecasts it used to sell the stimulus were overly optimistic." Vice President Joe Biden's "top economic adviser," Jared Bernstein, said, "At the time, our forecast seemed reasonable." The Politico notes that "Republicans say the 'save or create' metric for jobs is meaningless, since it's impossible to prove or disprove." The Washington Post reports that the Administration's "push to spin the package was accompanied by a classic...misstatement" by Vice President Biden, who said "that a big chunk of the money was geared toward 'make-work projects.'"
The Los Angeles Times reports that Obama "billed" the stimulus "as an adrenaline jolt," but the economy is "still sputtering." More positive is the report in the New York Times, which describes Obama as a President "now in the position of trying to convince Americans that...his signature legislative achievement thus far...is working, even as the job losses mount." Also positive is the report on AFP, which says "the 10 new projects announced included improvements on 98 airports and over 1,500 highways, federal funding for 135,000 education jobs and maintenance work at 359 military bases and other facilities."
http://www.usnews.com/usnews/politics/bulletin/bulletin_090609.htm
U.S. Third-Quarter Hiring Plans at Record Low, Manpower Says
June 9 (Bloomberg) -- U.S. employers’ hiring plans for the third quarter held at a record low, signaling fired workers will have to wait many more months to find a job, a survey showed.
Manpower Inc., the world’s second-largest provider of temporary workers, said its employment gauge for July through September was minus 2 after adjusting for seasonal variations, matching the second quarter’s reading as the lowest since data began in 1989.
Companies are “treading slowly and watching with guarded optimism, hoping a few quarters of stability will be the precursor to the recovery,” Jonas Prising, president of the Americas for Milwaukee-based Manpower, said in a statement.
The report underscores forecasts that unemployment will keep climbing even as firings subside. The Labor Department reported last week that the U.S. lost 345,000 jobs in May, the fewest in eight months, while the jobless rate surged to the highest level in almost 26 years.
Sixty-seven percent of employers surveyed said they anticipated no change in hiring next quarter, the same as the prior two periods, Manpower said.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aQZ7FJYz4D.I&refer=us
The auction today of $35 billion of three-year notes is the first of three sales by the U.S. Treasury this week.
The market will absorb more Treasury sales of coupon securities this week with $19 billion in 10-year notes on Wednesday and $11 billion in 30-year bonds on Thursday.
The flood of new debt has some investors fretting over the possibility of rising inflation in the longer term as government deficits grow, putting upward pressure on yields of longer maturities.
The Charm Offensive
By Peter Schiff
Last week Team Obama took their dog and pony show on the road. Treasury Secretary Geithner went to China, Fed Chairman Bernanke to Capitol Hill, and the President himself began a Mideast tour in Saudi Arabia. This full-court press is not coincidental, and comes just as the federal government has begun unloading trillions of dollars in new Treasury obligations. The coordinated charm offensive is meant to assure the world-at-large that the United States can repay these obligations without destroying the dollar.
Given the renewed weakness in the dollar and the recent expressions of concern from China, our largest creditor, about the safety of its current holdings, this is no easy sell. Not only must our leaders convince holders of our debt not to sell what they already own, but to back up the truck and buy a whole lot more. The hope is that a dream team consisting of a charismatic politician, a skilled Wall Street banker with longstanding ties to China, and a respected Fed Chairman, can close the deal. However, no matter how slick the sales pitch, no amount of lipstick can dress up this pig.
The most obvious fear the trio must address is that oversized deficits will persist indefinitely. Reading from a carefully scripted rebuttal book, all three proclaim that as soon as the stimulus revives our economy, the government will take all necessary steps to reign in the deficits that result. Bernanke's testimony showcases this rhetorical shift. The Fed Chairman claimed that catastrophe has been averted and that the recession is nearly over. As a result, he advised Congress to now focus on debt management. How he expects them to do that was left unexamined.
Setting aside the fact that the recession is far from over and that the stimulus will actually weaken the economy in the long run, Bernanke's words were less a practical guide to Congress than a bromide for our foreign creditors. Meanwhile, Obama carefully peppers his speeches with calls for Americans to live within their means, to save more and spend less, to produce more and consume less. But nothing in the government's current fiscal or monetary policy will encourage such behavior. In fact, the objective of economic stimulus is to prevent such changes from taking place!
The laughter of Chinese students that greeted Secretary Geithner at Peking University shows how ridiculous this spiel sounds overseas. Actions speak louder than words, and the actions of the current Administration are deafening. Multi-trillion dollar deficits, bailouts, nationalizations, quantitative easing, and grandiose plans for government-provided healthcare, education, and alternative energy, render all their claims of future prudence meaningless. If our leaders will not make tough choices now, why should anyone believe they will do so later when those choices will be even harder to make?
http://www.321gold.com/editorials/schiff/schiff060809.html
The Plummeting Dollar Prosperity Plan
By Michael Pento
It is becoming painfully obvious that the Fed, Treasury, and Administration's disastrous recovery plan hinges on the devaluation of the U.S. dollar. Their specious strategy stems from the belief that a falling currency can re-ignite exports and spark a recovery in manufacturing while putting a floor in U.S. asset prices. But just as the President's initials indicate, the plan stinks of B.O.
If all a country needed to do to achieve manufacturing supremacy and economic dominance was devalue their currency then Georgia and Bosnia would be considered paragons of economic prosperity. That's because a country's economic health, productive output and balance of payments has less to do with the value of the currency and more to do with tax rates, union influence and environmental legislation.
As long as we continue to substitute spurious growth models for genuine growth policies we will continue to lose global power and influence. The only part of the current plan that is sure to work is the cessation of falling asset prices. Unfortunately for us, that will come at the risk of creating intractable inflation and putting our foreign creditors on notice that we will destroy not only the value of their U.S. dollar holdings but the very value of the currency in which they are denominated. Who does Mr. Geithner think he’s kidding? The Chinese have already moved to purchase short dated Treasuries so as to allow them an easy escape. They may also dramatically curtail their purchases. For a country that needs to issue nearly $3.25 trillion dollars of debt this year alone and trillions of dollars for many years to come, that is disastrous for this debt-laden economy.
http://www.321gold.com/editorials/pento/pento060509.html
The Biggest Victim of the Debt Crisis
by Martin D. Weiss, Ph.D.
It’s widely known that America’s federal deficit is out of control.
But so many dire deficit warnings have been issued so often, they now fall mostly on deaf ears. Wall Street pundits roll their eyes. Washington politicians laugh at those who would cry “wolf.”
What they don’t realize is that this time, due to a series of devastating facts they’ve chosen to ignore, the day of reckoning is here:
Fact #1. Sheer size. According to the government’s official estimate, the federal deficit for fiscal year 2009 will be $1.84 trillion, or 13.4 percent of GDP!*
It is the worst deficit in U.S. history.
Fact #2. The actual deficit could be much larger. The administration’s $1.84 trillion deficit forecast presupposes a dramatic turnaround in the economy, which, by definition, is virtually impossible with the government running trillion-dollar deficits!
Fact #3. No end in sight. Since the United States declared its independence nearly 233 years ago, the only time the federal deficit approached or exceeded 10 percent of GDP was during major wars — the Civil War, World War I, and World War II. But in each case, the deficit financing began promptly — and ended promptly — with the war.
Fact #4. Today’s deficits are far worse than those of the Great Depression. America’s first big, multi-year peacetime deficits came in the 1930s. Tax revenues plunged with the sinking economy. And in the years that ensued, government expenditures — mostly for a series of programs to bail out the economy — went through the roof.
But even with a 90 percent collapse in the stock market in 1929-32 and even after three years of double-digit GDP declines that make today’s look mild by comparison, the federal deficit in 1933 was just 3.27 percent of GDP, less than one-fourth of what’s projected for this year.
And subsequently, even when the U.S. government embarked on the most ambitious stimulus and bailout programs of its 150-year history, the biggest single deficit — in 1936 — was 4.76 percent of GDP, only about one-third the size of today’s.
Fact #5. Structural deficits. Our nation’s second encounter with giant peacetime deficits was in the 1980s, but with a big difference: This time, there was no Great Depression. This time, the government’s fiscal woes were mostly structural — deeply ingrained in the bloated size of government and in our society’s dependence on government for much of its sustenance.
And even then, the federal deficit never rose to more than 5.63 percent of GDP, less than HALF its size today.
Fact #6. Massive new commitments. Beyond the $1.84 trillion of red ink projected for 2009 and beyond the trillions more in future obligations, the U.S. government has just assumed responsibility for nearly $14 trillion in new loans, commitments, and guarantees to bail out brokers, banks, insurers, auto makers, and the broader economy.
Why the Federal Reserve Can’t
Stop Treasury Bonds from Falling
I can assure you, it’s not for lack of trying.
In a massive attempt to boost Treasury bond prices launched March 25, the Fed has now bought $145.5 billion in Treasury notes and bonds, the most ever in such a short period of time. But despite all the Fed’s buying, T-bond prices have continued to plunge and interest rates have continued to surge.
Plus, in an even larger effort to support mortgage prices — and to suppress mortgage rates — the Fed has poured a whopping $507 billion into direct purchases of mortgage-backed securities (MBSs). But again, even after spending more than a half trillion dollars to bid them up, mortgage prices have still collapsed and rates have still surged.
In sum, the U.S. Federal Reserve has failed to stop this new phase of the crisis, and one of the key reasons is obvious:
To buy bonds, the Fed must print money. But the more it prints, the more it fans inflation fears and the more it chases away bond investors, who realize they’ll be paid back in cheaper dollars.
Some pundits seem to think the Fed can simply print all the money it wants to finance the massive deficits. But in the real world, it doesn’t work that way.
http://www.moneyandmarkets.com/the-biggest-victim-of-the-debt-crisis-34125
Will a 'Silver Bullet' Finally Kill the Metal Manipulators?
Many commentators have pointed to the rigged Comex markets in New York as the place where the final destruction of the Manipulators will occur. However, with the short positions of the bullion-banks, and their (supposed) “custodial agreements” with the bullion-ETFs being “two sides of the same coin”, then implosion could originate in either component of this fraudulent manipulation.
A bullion-default at the Comex (or “Crimex”, as some like to call it) is a very simple scenario. The Comex is essentially selling its phony, “paper” futures for less than any other bullion market. Thus, at some point, large buyers will simply step into this market and continue relentless, heavy buying until default occurs.
Specifically, there would be a “failure to deliver” of bullion to a buyer (or buyers) - who chose to hold their futures contract until expiry, and thus take “physical” delivery of real bullion. As has been reported by several commentators, apparently such a default nearly occurred just weeks ago (see “Did ECB save Deutsche Bank from Comex gold-default?”).
There has been a great deal of frustration among the “gold bugs” (in particular) that such a final “show-down” has not already taken place. However, perhaps we would all be more patient in this respect if we were to try to put ourselves in the position of such big “players”.
Looking at silver, based on fundamentals, it is totally obvious that silver is headed for a spectacular explosion in its price. At a time of record demand for gold and silver, there are lower inventories of silver (relative to gold and in absolute terms) than at any time in centuries. Simultaneously, the gold/silver price ratio is more unfavorable for silver than at nearly any time in history, currently over 60:1. The long-term price ratio (over thousands of years) is 15:1. Additionally, as “elements” in the Earth's crust, silver is only 17 times as plentiful as gold. Thus, a 60:1 ratio is not remotely sustainable, even over the medium term.
Therefore, armed with the knowledge that investing in silver will yield a huge windfall for all long-term investors, do you (as a large “player” in the silver market) force the inevitable implosion now (and “kill” the proverbial “goose that lays the silver eggs”) - or, do you patiently use the Manipulators game against them: buying as much grossly undervalued silver as you can from these criminals, before their inevitable self-destruction?
http://seekingalpha.com/article/141227-will-a-silver-bullet-finally-kill-the-metal-manipulators
Tuesday, June 9, 2009
Sunday, June 7, 2009
Less is NOT more
I need to get something off my chest. THE LABOR DEPARTMENT'S JOBS NUMBERS ARE A LOAD OF CRAP! Don't believe any of the bullshit the financial news media spins and spews regarding the American employment picture.
With companies in no mood to hire, the unemployment rate is still rising. But the furious pace of layoffs is easing as the recession loosens its hold on the country.
A government report provided some evidence of that Thursday, saying the nation's unemployment rolls fell for the first time in 20 weeks. The Labor Department said the number of people filing for jobless benefits dropped by 15,000 to 6.7 million.
Employers throttled back on layoffs in May and cut the fewest jobs in any month since the financial crisis erupted last fall -- raising the brightest hope yet that an economic recovery will take hold later this year.
Perhaps employers are just running out of people to lay-off. Fewer lay-offs DOES NOT represent jobs growth in any way, shape, or form. How can there even be a suggestion that the "recession is nearing and end" where there has yet to be any signs of JOBS GROWTH.
Less is NOT more.
"Less bad, yes," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said, summarizing the economy. "Good, no."
Economists expect the pace of layoffs to keep tapering off, but they don't think the economy will begin to create jobs steadily until late next year at the earliest.
"This tide is turning," said Richard Yamarone, economist at Argus Research. "We expect this trend of slower job loss to continue throughout the year."
Sounds like continued jobs losses to me, not growth in new jobs.
With no place for the out-of-work to land, the unemployment rate bolted to 9.4 percent from 8.9 percent in April. It was the highest rate since August 1983.
Hundreds of thousands of people, perhaps feeling more confident about their job prospects, streamed back into the labor force last month looking for work. That was a factor in the jobless rate's rise, economists said.
I surmise they counted the "unemployed" differently in 1983, and comparing statistics then, to those now, is much like comparing apples to oranges...but then look who's doing the counting, the US Department of Labor. Government statistics are shrouded in bullshit... Consider the above. If you're out of work, but NOT LOOKING for a job, you are NOT considered unemployed. But, if you are out of work and you are LOOKING for work you are considered unemployed. How convenient.
"Unemployment is up because more people are out looking for work."? You have got to be kidding. How can you be "part of the workforce" if you don't even have a job?
There are some sobering statistics included in the Labor Departments Non-farm Payrolls Report that do not get the media coverage they deserve. They also leave you wondering where these talking heads get the idea that an economic recovery is "just around the corner", or "just up ahead", or my favorite example of financial media bluster: "hope yet that an economic recovery will take hold later this year".
Including laid-off workers who have given up looking for new jobs or have settled for part-time work, the so-called underemployment rate would be 16.4 percent in May, the highest on record dating to 1994.
And the number of people out of work six months or more rose to nearly 4 million in May, a record and triple the total from when the recession began.
To cut costs and perhaps avoid imposing further layoffs, employers trimmed workers' hours in May. The average work week fell to 33.1 hours, the lowest on record dating to 1964.
These statistics hardly look like the foundation of an economic recovery. As a matter of fact, they look terrifying. Toss in this overlooked news item below from Friday, and the "hopes" for any economic recovery developing anytime soon look pretty damn dim.
Borrowing by American consumers dropped by the second-biggest amount on record in April. Consumer credit fell $15.7 billion, or 7.4 percent at an annual rate, to $2.52 trillion, according to a Federal Reserve report released in Washington. Credit decreased by a record $16.6 billion in March, more than previously estimated. Spending by consumers declined for a second consecutive month in April.
Again I ask Bumbling Ben, "Who is going to be doing all the buying that is going to drive this imminent recovery?" The US Consumer accounts for 70% of GDP, and it would appear that he has gone on a buyers strike.
Is there any truth in government? What's this?
"Let me be very clear: A lower job-rate loss is not our goal," Vice President Joe Biden said. "`Less bad' is not how we're going to measure success."
I should hope not Joe. Jumpin' Joe probably got bitch-slapped by the President for that less than CONfident comment. But damn, isn't it refreshing to get a crumb of truth from Washington?
What You Need to Know About the May Jobs Report
"Despite what is a moderating pace of layoffs, there are telling signs that those currently unemployed are having, and will continue to have, increasing difficulty finding work. The mean duration of unemployment rose to 22.5 weeks, while the median duration rose to 14.9 weeks. Moreover, as of May, 52.9 percent of the unemployed are so because they have lost their jobs permanently (see second chart below), the highest figure in the life of the data. This is one sign that the current recession has generated a considerable degree of structural, as opposed to cyclical, unemployment, reflecting the amount of excess capacity that had developed in the economy over recent years. Even as the economy recovers, these displaced workers will likely be unemployed for a prolonged period."
—Richard Moody, chief economist at Forward Capital
"The labor force has now jumped by more than 1 million over just the past two months, with the participation rate (the proportion of the population that is part of the labor force) increasing from 65.5 percent to 65.9 percent. This sort of rise in the participation rate is very unusual at this stage of the economic cycle — usually, an increasing number of individuals become discouraged when employment prospects are bleak and they drop out of the labor force. We suspect that the recent rise in the labor force reflects statistical noise that will be reversed in coming months. .... A pullback in the labor force should help to temper further increase in the unemployment rate. Thus, we still look for a peak unemployment rate of about 10 percent later this year."
—Ted Wieseman and David Greenlaw of Morgan Stanley Research
"While the improvement in the May payroll performance seems to have been at least partly skewed by an overly generous "birth-death adjustment" (which accounted for a full two-thirds of the unadjusted rise in private payrolls in the month), it is nonetheless clear that payroll declines are on a moderating path. However, the reported payroll change for May is considerably smaller than signaled by other labor market indicators, which is probably at least in part due to the birth-death adjustment. ... We continue to believe that we are still some time from stabilization in employment conditions, and even further from sustained growth in payrolls."
— Joshua Shapiro, chief U.S. economist at MFR
http://www.usnews.com/articles/business/careers/2009/06/05/what-you-need-to-know-about-the-may-jobs-report.html
NO, A WHOLE BUNCH OF FOLKS DIDN'T JUST GET JOBS
May is one of those months when the Labor Department adds a boatload of probably non-existence jobs to its count because it wishfully believes new companies are being formed just because it's springtime.
The recession? It doesn't matter to the computers that add these phantom jobs.
This is known as the birth/death model.
But the unemployment rate is a bit more complicated and perplexing. The government calculates the unemployment rate in several ways.
The so-called U-3 figure is the one that makes the newspaper headlines, although there are six different ways that the Labor Department calculates the number of unemployed people as a percentage of the population.
These figures begin with phone calls to just 60,000 of the nation's 105 million households. The US Census Bureau asks the people who answer the phone their employment status.
The results are then scientifically extrapolated for the entire population, seasonally adjusted, nipped and tucked and, voila, delivered to you the first Friday of every month.
The Labor Department swears that the size of the sample is plenty large. And it doesn't think there is a problem with the respondents telling the truth.
But here's my point today: Changes made in 1994 could cause the unemployment rate to actually decline if the economy gets so bad and jobs become so scarce that people become too discouraged to even look for work.
Under the changes made in 1994, a person is considered discouraged if he says he hasn't looked for work in the last four weeks.
If it's been a month since he's looked for a job, the unemployed person falls out of the U-3 category -- and the headlines -- and into something called U-6.
The U-6 unemployment rate is already 15.8 percent, up from 8.9 percent in April 2008. So lots of people are being demoted into this category, which also includes people who say they want full-time work but can only find part-time employment.
Since the US has lost jobs in every month since Dec., 2007, it's easy for people to just give up and fall out of the U-3 category. If they totally give up, the would-be workers could even fall out of the U-6 survey and into statistical oblivion.
http://www.nypost.com/seven/06042009/business/no__a_whole_bunch_of_folks_didnt_just_ge_172449.htm?page=2
As the Dollar Falls Off the Cliff ...
By PAUL CRAIG ROBERTS
Washington’s financial irresponsibility has brought pressure on the dollar and the US bond market. Federal Reserve Chairman Bernanke thought he could push down interest rates on Treasuries by purchasing $300 billion of them. However, the result was to cause a sharp drop in Treasury prices and a rise in interest rates.
As monetization of federal debt goes forward, US interest rates will continue to rise, worsening the problems in the real estate sector. The dollar will continue to lose value, making it harder for the US to finance its budget and trade deficits. Domestic inflation will raise its ugly head despite high unemployment.
The incompetents who manage US economic policy have created a perfect storm.
The Obama-Federal Reserve-Wall Street plan for the US to spend its way out of its problems is coming unglued. The reckless spending is pushing the dollar down and interest rates up.
Every sector of the US economy is in trouble. Former US manufacturing firms have been turned into marketing companies trying to sell their foreign-made goods to domestic consumers who have seen their jobs be moved offshore. Much of what is left of US manufacturing--the auto industry--is in bankruptcy. More decline awaits housing and commercial real estate. The dollar is sliding, and interest rates are rising, despite the Federal Reserve’s attempts to hold interest rates down.
When the Reagan administration cured stagflation, the result was a secular bull-market in US Treasuries that lasted 28 years. That bull market is over. Americans’ living standards are headed down. The American standard of living has been destroyed by wars, by offshoring of jobs, by financial deregulation, by trillion dollar handouts to financial gangsters who have, so far, destroyed half of Americans’ retirement savings, and by the monetization of debt.
The next shoe to drop will be the dollar’s loss of the reserve currency role. Then the US, an import-dependent country, will no longer be able to pay for its imports. Shortages will worsen price inflation and disrupt deliveries.
Life for most Americans will become truly stressful.
http://www.counterpunch.com/roberts06032009.html
An update on gold and inflation
By Paul van Eeden
I have updated the US money supply chart on my website (link) up to the end of May.
It is interesting to note that the average rolling 12-month inflation rate averages 8.25% for the past 15 months. To put that in context, the average inflation rate from 1970 to 1979 was 8.32%. We are, absolutely, in a highly inflationary environment. Deflation is not only unlikely given the structure of the US banking system, but nowhere to be seen in the data either.
Demand destruction has had a severe impact on the prices of many goods and services, but that should not be confused with deflation. Inflation and deflation are monetary phenomena and the recent decline in prices has only lead to confusion and further obfuscation of what is really going on.
Monetary inflation is currently mitigating the price declines we are witnessing, meaning those prices that are declining would have declined much more were it not for the inflation, and will eventually cause prices to start rising again. Our greatest concern should not be with the current falling prices of goods and services, but with the rate at which they will rise in the future vis-à-vis our capital and income. I suspect there are very few people out there whose income and investments are keeping up with the inflation rate, which means their wealth is eroding in real terms.
There Goes The Country
In short, GM was brought to its knees by the abuse of trade union power and management's unwillingness to fight back.
Contrary to general belief, GM is not a huge employer. It directly employs only some 60,000 workers. This is less than one tenth of one percent of the number of Americans presently unemployed. However, its trade union pension fund is being given billions of dollars of citizens' money and a major stake in the restructured company. Favoring GM workers over the millions of America's unemployed is grossly inequitable. The reason, however, is found in the murky world of politics.
The United Auto Workers (UAW), GM's primary union, was a major supporter of President Obama's election campaign. Predictably, this Administration has moved aggressively to subsidize them. Obama has taken the position that GM workers are an 'elite' and entitled to privileges not afforded to other workers. If GM were any other company entering bankruptcy, many workers would have lost their jobs, pensions and health coverage. Not so under the protective blanket of Daddy Government.
In its fight for grotesque entitlements for this small, but heavily Democratic, subset of the workforce, the Administration has run roughshod over those who financed the American auto industry, even labeling some as "unpatriotic" for failing to surrender their contract rights as bondholders. The notion that these stakeholders should "cooperate" to reach an "equitable" solution ignores the free-market cooperation that led to the original, contractual agreements. If I agree to give you half of my steak in return for half of your mashed potatoes when I finish my entrée, and when I go to collect you have eaten 9/10 of your mashed potatoes, can you plead poverty? You ate the potatoes!
Aside from these considerations, the sheer logic of the deal is faulty. Has Obama ever heard of opportunity costs?
Having pursued a path to commercial failure for many decades, it is clear that GM's management and workforce are moribund. However, the government has decided to pump massive amounts of citizens' money into this flaccid firm, without the practical ability to change its operations. Remember, the unions put Mr. Obama in office, and this project is meant to reward them. Will he have the courage to do what a profit-seeking management couldn't, by cutting the fat from this company? Obama now claims that a new "private sector" management team will be installed to make decisions independent of political control. This is farcical.
Economists believe that for each $1 billion spent on infrastructure projects, 35,000 wealth-generating jobs are created in the broader economy. The Administration is set on spending a minimum of $60 billion, and more likely $100 billion, to protect 60,000workers at GM. Spent on much needed infrastructure, these same monies would create between 2.1 and 3.5 million real private sector jobs.
As goes GM, so goes the country.
http://www.321gold.com/editorials/browne/browne060309.html
Geithner Goes Begging in China; What It Means to You …
by Mike Larson, Money and Markets
Well, the Obama administration and members of Congress on both sides of the aisle have been paying a lot of lip service to getting the deficit under control. We’re getting plenty of talk, talk, talk. But policymakers are taking steps that have the exact opposite effect! They’re spending like crazy and borrowing like mad!
The administration itself was just forced to raise its 2009 budget deficit estimate to a staggering $1.84 trillion, up 5 percent from a projection made just two months earlier. The 2010 estimate was jacked up by more than 7 percent to $1.26 trillion.
Geithner told the Chinese that we plan to eventually shrink the deficit to 3 percent of GDP. But that’s a pipe dream. Right now, we’re on track to hit 12.9 percent — by far the worst since the founding of the Republic (excluding an anomalous period during World War II when the war effort was the dominant force in the entire economy).
Getting that under control will require a massive boost in economic growth or a large increase in taxes. To anyone who believes those scenarios are in the cards, all I can say is: I’ve got a bridge to sell you!
Or as Pimco Chief Investment Officer Bill Gross put it in his latest monthly outlook:
“While policymakers, including the President and Treasury Secretary Geithner, assure voters and financial markets alike that such a path is unsustainable and that a return to fiscal conservatism is just around the recovery’s corner, it is hard to comprehend exactly how that more balanced rabbit can be pulled out of Washington’s hat.”
The approach from Geithner, Fed Chairman Ben Bernanke, and others in the political establishment continues to be akin to Alfred E. Neuman’s. You know, the Mad Magazine character whose signature line is “What, me worry?”
They keep telling us to relax. They say the Chinese, the Russians, and everyone else have no alternative to the dollar. They figure they can continue getting away with shafting our creditors, with no consequences.
The broad-based dollar index is down roughly 12 percent in just the past three months. Crude oil has soared as much as 113 percent from its December low. Gold is closing in on $1,000 an ounce, while silver has almost doubled.
http://www.moneyandmarkets.com/geithner-goes-begging-in-china-what-it-means-to-you-2-34113
As we have been anticipating, a bounce in the Dollar has appeared. This of course has forced the anticipated reaction in Gold and Silver. I continue to believe this bounce in the Dollar will be brief, and as stated here before, suspect it will not get much further than 83 on the USD INDEX.
Gold must hold above 942 to keep the current upleg intact. A break of 942 could see Gold revisit the 918 breakout...now support.
Silver is flirting with a breakdow of critical support at 15.25. Support at 14.90 and 14.62 lie below.
The Dollar may sustain a bit of a bid into this coming weekends G8 meeting. There is nothing like the bluster of a bunch of losers like the central bankers of the G8 to prop up the pathetic Dollar...before it's next fall.
Wednesday, June 3, 2009
Gold Stops To Catch Its Breath
The Big Collapse Could Be Very Near
The Federal Reserve appears to be increasingly nervous about the long term bond market. This is serious. How panicked are they? After leaking a story on Friday, they are back at it on Sunday.
The Federal Reserve leaked to CNBC's Steve Liesman on Friday that they weren't targeting long rates. Why such a leak? Probably because the Fed did not want to appear impotent in controlling the long rate. So they put out the word through Liesman that they weren't targetting the long rate. Can you imagine what would happen to the markets if it sensed long rates were beyond the control of the Fed?
The Fed can of course print money to buy up every Treasury bond in existence, but the inflationary ramifications would be Zimbabwe like, and crush the dollar on international currency markets. Are we near the phase where all hell breaks loose? I have never even answered, maybe, to this question before. It's always been, "no." Now it's maybe.
http://www.economicpolicyjournal.com/2009/05/big-collapse-could-be-very-near.html
The Fiat Currency Doomsday Machine
By Rob Parenteau
Our view has been unless the commercial banks start putting some of their $1 trillion in cash holdings into Treasuries (thereby picking up net interest income to rebuild profitability and balance sheets), the Fed will be forced into taking steps that imply a ceiling in Treasury yields is in place. The only other way out we can see is if the US macro news flow relapses and private portfolio preferences shift back to less risky assets, which puts equity indexes at risk of a sell-off.
So from a strategic point of view, we believe equity investors want and need to see stronger economic and earnings results to drive indexes higher, while bond investors need just the opposite to calm Treasury yields down. In addition, through near-zero interest rate policy (ZIRP) and quantitative easing (QE) approaches, the Fed has been trying to push private investors into riskier asset classes while the Treasury’s debt issuance calendar implies they need private investors to prefer owning Treasury bonds, which are generally not the asset of choice in an economic recovery scenario.
In other words, we have contradictory crosscurrents here. If the Fed doesn’t intervene to slow or halt the Treasury yield backup, there is a chance the stabilization in unit home sales will wither away. If the Fed does step up QE operations to halt the Treasury yield rise, professional investors taking the “green toilet paper” view will continue to sell dollars and buy commodities. Down the line that implies higher energy prices for consumers and higher input prices for manufacturers, neither of which we would consider growth supportive developments.
Our concern is the green toilet paper contingent has the Fed in a corner for the moment with a trade that initially could look self-fulfilling, along the lines of the infamous Soros 1992 trade against the British pound and the Bank of England. At the moment, we honestly cannot see an easy resolution unless some Goldilocks growth path (not too hot, not too cold) develops, but we would we need to monitor this one very closely.
To wit, we can envision the following scenario feeding on itself.
You cannot have
· A central bank pursuing near ZIRP and QE, which, after all, are designed to trash cash and force private investors out the risk spectrum into equities, corporate bonds, mortgage bonds, lower rated debt, etc…
· And have the Treasury issuing loads of public debt at the same time from a massive fiscal ease designed to reaccelerate the economy without expecting Treasury yields to increase…
unless the central bank and commercial banks are willing to soak up Treasury issuance with money creation, or unless the Treasury can get away with “underfunding” – that is, direct monetization of the deficit. There is a policy incompatibility problem, in other words, or at least really incoherent expectations management.
And that puts the Fed on the spot. Do they choose to cap Treasury yields by explicitly stepping up QE operations and buying more Treasury bonds in the open market (or possibly more mortgage-backed securities, to thereby decouple mortgage rates from rising Treasury yields)? Or do they just let Treasuries find their own equilibrium, accepting the risk the economy may relapse again as 10-year US Treasury yields sail through 4%?
http://dailyreckoning.com/the-fiat-currency-doomsday-machine/
Gold Panic Inside The Oval Office
I was watching the NBC special called "Inside the White House" last night and was struck by a meeting with Larry Summers and the President.
http://www.msnbc.msn.com/id/30892505/#31073805
It was touted as an "all access" day in the life of the President but at 7:15 minutes into Part 1 Larry Summers and a man who I believe is Austan Goolsbee come into the Oval Office for a call with "the Germans". Summers is obviously on edge and shuts down the cameras when he begins to discuss the problem.
Summers: "Life has changed..ahh..since the briefing…ahh”
Obama: "For the better or for the worse?"
Goolsbee: "Net-net for the better…wouldn’t you say Larry?" (Goolsbee speaks loudly and unconvincingly for the cameras.)
Summers: “(nervous laugh)..there’s elements of both. The Germans...actually we should stop (the cameras) here."
On May 28th, the night before the White House taping, Jim Willie of Goldenjackass.com posted an article called “The Hitman Cometh” where he claimed the Germans are trying to withdraw all their physical gold from US control and several “hit men” have been hired to take down the COMEX and the LME:
"The Germans have demanded that gold bullion held in US custodial accounts be returned to their owners, with physical gold shipped back to Germany ."
I'll bet my last gold Kruggie that the Oval Office phone call was a desperate plea to buy more time before the Germans destroy the physical gold manipulation scheme.
http://news.goldseek.com/GoldSeek/1244050251.php
German chancellor attacks central banks
Unconventional monetary policies being pursued by the world’s main central banks could aggravate rather than ease the economic crisis, Angela Merkel, Germany’s chancellor, suggested on Tuesday.
Her surprisingly strong attack on the US Federal Reserve, the Bank of England and the European Central Bank was remarkable coming from a leader who had so far scrupulously adhered to her country’s tradition of never commenting on monetary policy.
“What other central banks have been doing must be reversed. I am very sceptical about the extent of the Fed’s actions and the way the Bank of England has carved its own little line in Europe,” she told a conference in Berlin.
“Even the European Central Bank has somewhat bowed to international pressure with its purchase of covered bonds.”
She added: “We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in 10 years’ time.”
Ms Merkel’s decision to ignore one of the cardinal rules of German politics – an unwritten ban on commenting on monetary policy out of respect for central bank independence – suggested Berlin is far more concerned about the ECB’s approach than has so far been apparent.
Meanwhile, Berlin is anxious that central banks will struggle to re-absorb the vast amount of liquidity they are pouring into the markets and fears the long-term inflationary potential of hyper-loose monetary policies.
http://www.ft.com/cms/s/0/846fd756-4f90-11de-a692-00144feabdc0.html?nclick_check=1
Tuesday, June 2, 2009
The "Worst" Is Yet To Come
"Everyone wants to live at the expense of the state. They forget that the state wants to live at the expense of everyone."
- Frederic Bastiat
“The long consolidation of the gold price over the last year or so appears to have been completed. At $930 we suddenly saw short-term speculators, driven by the Technical [chart] picture and the buckling of the $, jump in boots an' all. They bought and bought over the last three weeks adding enormously [50 tonnes and more] to the net long-term speculative position in gold and silver on COMEX.
As we approach the four figure barrier [$1,000] we have no doubt that these short-term players will pause again and then the big question has to be asked. "Will gold break up and out to higher levels in a new bull phase, or will it tumble back to $850 as some believe?" Silver will follow gold in a more dramatic way.
Long-term investors have openly been small buyers of late and they are the ones that really have driven these markets. They are more than capable of buying 100 tonnes a month should they believe that the long-term macro-economic and currency scene warrants it. They hold over 1,300 tonnes at present, a quantity that is larger than Switzerland's holdings and are the fifth largest holders of gold after the four largest central bank holdings of gold. If they perceive that the levels of uncertainty and soundness of the monetary system are suspect, then gold will evolve back into a role it has not seen for 35 years but was part of the fabric of life for the previous 6,000 years.
If they believe that a recovery will help us all to 'live happily ever after' then they will hold back and the gold price will drop back to $850 or less.
Gold is like the thermometer in an ailing patient and the question is, "Will a real recovery take place" or "is the sickness incurable?"
Silver is the long-shadow of gold and was expected to outperform gold and has with its rise of 26% in the last month. Gold has reflected the fall in the U.S.$ with its 10% rise. However, silver as the 'poor man's gold' still promises a better run than gold due to the weight of investment it is attracting, in the west through the Silver Trust [SLV] and in India. If that continues and 'official selling' of silver stops there is little to refrain the silver price. However, it will be volatile, very volatile, so it needs to be watched carefully, very carefully.
Which way will they go now? The answer lies in the answer to the question, "have the monetary authorities repaired the monetary system properly?”
- Julian D.W. Phillips, http://www.goldseek.com/email/lt/t_go.php?i=1635&e=MjAwNTg=&l=-http--www.goldforecaster.com/
Dollar continues plunge against euro, pound
NEW YORK (AP) — The dollar continued its plunge to multimonth lows against the euro and the pound Monday as better-than-expected readings on manufacturing, consumer spending and construction spending drove investors to riskier assets.
The economic data suggested the economy's decline is moderating, but did not yet show a rebound. Personal spending was down slightly in April, personal incomes were flat and U.S. manufacturing activity contracted for the 16th straight month in May, although at a slower pace.
Hope of an economic recovery has pushed the dollar down as investors trade it in for foreign equities and bonds. Further, continued worries over U.S. deficits and debt loads added to investors' wariness on the greenback.
Also Monday, General Motors Corp.'s filed for Chapter 11 bankruptcy protection, the fourth-largest in U.S. history. The filing was not shocking, but served as a reminder of the government's heavy involvement in corporate America following last year's market crash and economic tumble.
The stock market shrugged off falling Treasury prices and surging yields, which last week caused investors to worry that interest rates on consumer loans such as mortgages could go higher.
A drop in U.S. oil inventories pushed oil prices to a new high for the year above $68a barrel. Investors are betting that increased demand for goods will jump-start a demand for oil. They also often buy crude as a hedge against a dropping dollar. Gold, another commodity, is also used as a hedge against inflation, and gold prices have risen precipitously in recent weeks, breaking above $978 an ounce in New York on Monday.
http://finance.yahoo.com/news/Wall-Street-jumps-as-economic-rb-15399661.html?sec=topStories&pos=main&asset=&ccode=
The news "story" posted above is but one example of many similar stories posted on the Internet yesterday espousing strong economic data bolstering optimism the worst of the global recession was past. Yeah, right...
Boldly highlighted in red are several examples of "financial media BS" used to spin bad news into a bowl of cherries in a bed of rose petals. "Better-than-expected" [BTE] is the phrase that seems to pop up almost daily in countless financial media "story's" about the economy. It's code word for "hold your nose and swallow this steaming bowl of bull shit". Less bad is not good people, pure and simple.
America's largest company slips into bankruptcy, and Wall Street cheers? Interest rates are rising by leaps and bounds, and Wall Street cheers? Manufacturing CONTINUES TO FALL, and Wall Street Cheers? Consumer spending FALLS, and Wall Street cheers? How is any of this "better-than-expected" bad news representative of economic growth? "Hoping" for growth isn't going to turn the economy around.
GM's bankruptcy only guarantees continued growth in unemployment as the filing ripples through the ENTIRE auto industry. Rising interest rates are toxic relative to economic growth. Rising interest rates combined with continued weakness in manufacturing and consumer spending is nothing but negative for corporate profits. Poor corporate profits means lower tax receipts for the government, and fewer new jobs for the public. Fewer jobs equals even lower tax receipts for the government. Falling tax receipts equals higher deficits for the government. Higher deficits equals more Treasury auctions of debt nobody wants to buy which means even higher interest rates, and even lower corporate profits, and higher unemployment. It's called an economic death spiral. You can thank the US Federal Reserve.
Exploding debt threatens America
John Taylor, Financial Times
“Standard and Poor’s decision to downgrade its outlook for British sovereign debt from ’stable’ to ‘negative’ should be a wake-up call for the US Congress and administration. Let us hope they wake up.
“Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising - and will continue to rise - much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41% of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82% of GDP in 10 years. With no change in policy, it could hit 100% of GDP in just another five years.
“‘A government debt burden of that [100%] level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating,’ as the risk rating agency stated last week.
“I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO to be $1,200 billion. Income tax revenues are expected to be about $2,000 billion that year, so a permanent 60% across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?
“Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100% increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82%. A 100% increase in the price level means about 10% inflation for 10 years. But it would not be that smooth - probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.
“The fact that the Federal Reserve is now buying longer-term Treasuries in an effort to keep Treasury yields low adds credibility to this scary story, because it suggests that the debt will be monetised. That the Fed may have a difficult task reducing its own ballooning balance sheet to prevent inflation increases the risks considerably. And 100% inflation would, of course, mean a 100% depreciation of the dollar. Americans would have to pay $2.80 for a euro; the Japanese could buy a dollar for Y50; and gold would be $2,000 per ounce. This is not a forecast, because policy can change; rather it is an indication of how much systemic risk the government is now creating.
“Why might Washington sleep through this wake-up call? You can already hear the excuses.”
http://www.ft.com/cms/s/0/71520770-4a2c-11de-8e7e-00144feabdc0.html?nclick_check=1
Geithner tells China its dollar assets are safe
Timothy Geithner moved today to reassure the Chinese Government that its huge holdings of dollar assets were safe as he reaffirmed his faith in a strong US currency.
Mr Geithner, in China on his first visit as US Treasury Secretary, sought to allay concerns that Washington’s growing budget deficit would fan inflation which, in turn, would undermine the dollar and US bonds.
“Chinese assets are very safe,” Mr Geithner said, answering a question after his opening address at Peking University this morning.
His answer was greeted with laughter by the students, who question the wisdom of China spending huge amounts of money on US bonds instead of improving domestic living standards.
Mr Geithner reiterated that the Obama Administration would cut its huge fiscal deficits and stood behind the strong dollar.
“We have the deepest and most liquid markets for risk-free assets in the world," he said. "We’re committed to bringing our fiscal deficits down over time to a sustainable level.
“We believe in a strong dollar … and we’re going to make sure that we repair and reform the financial system so that we sustain confidence.”
http://business.timesonline.co.uk/tol/business/economics/article6405027.ece
Yeah, right...and a broken clock is right twice a day. The students reaction to Turbo Tim's Pinocchio imitation tells the whole story. Nobody, outside of the USA, believes a word out of this little rat finks mouth. If the US were so dedicated to their "strong Dollar policy" why is the Fed printing money 24/7 and debasing the currency? Of course we all know by now that the "strong Dollar Policy" is the suppression of the price of Gold. The US may still be commited to that via their "gold cartel" at the CRIMEX, but not likely for much longer...the rest of the World appears ready to put the kibosh on that little scam. Debasing the Dollar hardly seems supportive of suppressing the price of Gold then, does it?
Turbo Tim's last quote says it all, "sustain confidence". Sustaining confidence is job #1 at the Treasury and Fed. And be it by hook or by crook, so be it. Never forget, the first three letters of confidence spell CON. And with the aid of the "U.S." financial media, the talking heads at the Treasury and the Fed have become the World's most prolific con men.
Geithner Says China Has Confidence in U.S. Economy
June 2 (Bloomberg) -- Treasury Secretary Timothy Geithner said China, the biggest holder of U.S. Treasuries, has expressed confidence in the U.S. economy and the Obama administration’s actions to fight the recession.
Chinese officials expressed “justifiable confidence in the strength and resilience and dynamism of the American economy,” Geithner said in an interview with state media in Beijing today. He said there will be enough demand for record sales of U.S. debt.
Yu Yongding, a former central bank adviser who acted as the interviewer for the China Daily newspaper, told Geithner: “I worry about details. We will be watching you very carefully.”
When asked by Yu whether there will be sufficient demand for all the debt the U.S. will be selling this year, Geithner responded “I believe there will be.”
Geithner cited a “very sophisticated understanding” in China of why the U.S. is running up budget deficits in the short-term while also pledging to rein in borrowing over the medium term. He reiterated the U.S. commitment to cut spending and pull back government aid to the financial system once stability returns.
“We have a strong, independent central bank which is committed to keep inflation stable and low over time, we’re committed to a strong dollar, we have the deepest, most liquid Treasury markets in the world and we will do everything that is necessary to try to make sure we’re sustaining confidence in U.S. financial markets, not just in the United States but around the world.”
http://www.bloomberg.com/apps/news?pid=20601103&sid=a.oDb7xVXfHE
If Geithner said the Chinese have confidence in the US Economy you can bet they really told him to "blow it out his ass". Geithner is a master at telling the blathering "U.S." financial media exactly what they want to hear. You can be sure that nothing he stated above is true. The guy has little credibility as most of what he has claimed in the past has been proven to be be pure bullshit once tested by time.
Geithner says global recession losing force
Treasury Secretary Timothy Geithner (pictured left) said Monday that the global recession seemed to be losing force but that it will be critical for the United States and China to institute major economic reforms to put the world on a more sustained footing. Geithner said that a successful transition to a more balanced and stable global economy will require substantial changes to economic policy and financial regulation around the world and especially in the world's largest and third largest economies. ... Geithner had told reporters on his way to Beijing that he wanted to foster the same kind of working relationship with China that the United States has enjoyed for decades with major European economic powers.
- AP
Free-Market Analysis: Secretary Timothy Geithner is over in China proclaiming that things are getting better. But in order for them to get better still, there must be "substantial changes to economic policy and financial regulation around the world." We wonder what he means by this.
To have an American Treasury Secretary travel to China to urge the Chinese government to provide more benefits to its citizens is truly ironic. America's culture used to be based on individualism and self-responsibility. But there is not apparently any sense under this administration that American citizens are endowed with their rights by anything other than the state. The thrust of the Obama administration, such as it is, seems purely economic. Their first and last order of business is to sustain a central banking money monopoly that allows the international financial system to survive. In this case, the administration is willing to stand side-by-side with a communist state in order to reorganize the world's financial engine. There is no sense here that the economic crisis will be solved by individual entrepreneurship (human action) - only by nudging the massive ship of the state toward further monetary expansion.
In our opinion this is a desperate strategy. China is a fairly shaky state and there at least 300-400 million impoverished people who scratch a living off the land and want something more. In fact, they remain disaffected and angry. It is this population that the Chinese leaders fear and are racing to palliate with urban employment. In order to turn its consumerism inward, China will have to rev up its money production even more.
From our point of view, there is a good chance that China's massively leveraged banks will collapse under the strain. Geithner has traveled to China to plead with his new good friends to re-inflate the global bubble. Knowing the way he operates, he has probably even indicated that China's US$1 trillion or so in Treasuries will be stabilized if the US can export successfully to an increasingly successful and widespread middle class. The world's further prosperity depends on the Chinese now - or that is what we are led to believe, reading between the lines of this AP story.
http://www.thedailybell.com/index.asp?fl
Federal Reserve puzzled by yield curve steepening
The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession. But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields. - Reuters
Dominant Social Theme: It is a conundrum, apparently. A puzzle to even the brightest monetary minds ...
Free-Market Analysis: Oh, Mama! Once again top central bankers grapple with the deepest problems of high finance - and admit the struggle is a most difficult one. Are we supposed to empathize? It is all so complicated, apparently. More data is doubtless needed; more analyses should be conducted; more discussions are necessary. In the meantime, the collective head-scratching will continue. Here is how the Reuters article (excerpted above) presents the options:
Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries. Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases. Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities.
So ... apparently, the big fellows at the US Fed and Treasury can't figure out why bond prices are souring. Is it because people feel giddy about the economy and seek more exciting options? Or is it because buyers are frightened that bonds represent a broken economy, given that each American household is now some US$500,000 in debt?
What are these people smoking (besides expensive cigars)? Do American central bankers (and their colleagues) really believe Treasuries are in less demand because people are growing more optimistic? And even if there are those who do believe this, where's the evidence? An onrushing commercial mortgage crisis plus a potential unraveling of literally hundreds of trillions in derivative bets - along with increasing hesitancy among the Chinese and Japanese to buy more American debt - would seem to mitigate against warm feelings any time soon.
http://www.thedailybell.com/bellPage.asp?nid=403&fl=
Ugh! Gas hits $2.50
Drivers already feeling the recession's pain suffer as the average price of a gallon rockets more than 50% since the start of the year.
NEW YORK (CNNMoney.com) -- The price of gas, rising for the 33rd straight day, has reached $2.50 a gallon, motorist group AAA reported Sunday.
The spike of more than 20% in a month is hitting Americans in their wallets and causing concern among some experts.
The jump in one of consumers' staple purchases comes at a fragile time for the economy. Recently some measures of housing, spending and credit have hinted that the most severe parts of the recession may be easing.
At the same time, gas has jumped in price as the American auto industry is on the verge of a dramatic reshaping amid plummeting vehicle sales.
http://money.cnn.com/2009/05/31/news/economy/gas_prices/
I'm certain the financial media will eventually find a way to tell us that rising gas prices are "good for the economy". The effect, doubtless, "better-than-expected"...
- Frederic Bastiat
“The long consolidation of the gold price over the last year or so appears to have been completed. At $930 we suddenly saw short-term speculators, driven by the Technical [chart] picture and the buckling of the $, jump in boots an' all. They bought and bought over the last three weeks adding enormously [50 tonnes and more] to the net long-term speculative position in gold and silver on COMEX.
As we approach the four figure barrier [$1,000] we have no doubt that these short-term players will pause again and then the big question has to be asked. "Will gold break up and out to higher levels in a new bull phase, or will it tumble back to $850 as some believe?" Silver will follow gold in a more dramatic way.
Long-term investors have openly been small buyers of late and they are the ones that really have driven these markets. They are more than capable of buying 100 tonnes a month should they believe that the long-term macro-economic and currency scene warrants it. They hold over 1,300 tonnes at present, a quantity that is larger than Switzerland's holdings and are the fifth largest holders of gold after the four largest central bank holdings of gold. If they perceive that the levels of uncertainty and soundness of the monetary system are suspect, then gold will evolve back into a role it has not seen for 35 years but was part of the fabric of life for the previous 6,000 years.
If they believe that a recovery will help us all to 'live happily ever after' then they will hold back and the gold price will drop back to $850 or less.
Gold is like the thermometer in an ailing patient and the question is, "Will a real recovery take place" or "is the sickness incurable?"
Silver is the long-shadow of gold and was expected to outperform gold and has with its rise of 26% in the last month. Gold has reflected the fall in the U.S.$ with its 10% rise. However, silver as the 'poor man's gold' still promises a better run than gold due to the weight of investment it is attracting, in the west through the Silver Trust [SLV] and in India. If that continues and 'official selling' of silver stops there is little to refrain the silver price. However, it will be volatile, very volatile, so it needs to be watched carefully, very carefully.
Which way will they go now? The answer lies in the answer to the question, "have the monetary authorities repaired the monetary system properly?”
- Julian D.W. Phillips, http://www.goldseek.com/email/lt/t_go.php?i=1635&e=MjAwNTg=&l=-http--www.goldforecaster.com/
Dollar continues plunge against euro, pound
NEW YORK (AP) — The dollar continued its plunge to multimonth lows against the euro and the pound Monday as better-than-expected readings on manufacturing, consumer spending and construction spending drove investors to riskier assets.
The economic data suggested the economy's decline is moderating, but did not yet show a rebound. Personal spending was down slightly in April, personal incomes were flat and U.S. manufacturing activity contracted for the 16th straight month in May, although at a slower pace.
Hope of an economic recovery has pushed the dollar down as investors trade it in for foreign equities and bonds. Further, continued worries over U.S. deficits and debt loads added to investors' wariness on the greenback.
Also Monday, General Motors Corp.'s filed for Chapter 11 bankruptcy protection, the fourth-largest in U.S. history. The filing was not shocking, but served as a reminder of the government's heavy involvement in corporate America following last year's market crash and economic tumble.
The stock market shrugged off falling Treasury prices and surging yields, which last week caused investors to worry that interest rates on consumer loans such as mortgages could go higher.
A drop in U.S. oil inventories pushed oil prices to a new high for the year above $68a barrel. Investors are betting that increased demand for goods will jump-start a demand for oil. They also often buy crude as a hedge against a dropping dollar. Gold, another commodity, is also used as a hedge against inflation, and gold prices have risen precipitously in recent weeks, breaking above $978 an ounce in New York on Monday.
http://finance.yahoo.com/news/Wall-Street-jumps-as-economic-rb-15399661.html?sec=topStories&pos=main&asset=&ccode=
The news "story" posted above is but one example of many similar stories posted on the Internet yesterday espousing strong economic data bolstering optimism the worst of the global recession was past. Yeah, right...
Boldly highlighted in red are several examples of "financial media BS" used to spin bad news into a bowl of cherries in a bed of rose petals. "Better-than-expected" [BTE] is the phrase that seems to pop up almost daily in countless financial media "story's" about the economy. It's code word for "hold your nose and swallow this steaming bowl of bull shit". Less bad is not good people, pure and simple.
America's largest company slips into bankruptcy, and Wall Street cheers? Interest rates are rising by leaps and bounds, and Wall Street cheers? Manufacturing CONTINUES TO FALL, and Wall Street Cheers? Consumer spending FALLS, and Wall Street cheers? How is any of this "better-than-expected" bad news representative of economic growth? "Hoping" for growth isn't going to turn the economy around.
GM's bankruptcy only guarantees continued growth in unemployment as the filing ripples through the ENTIRE auto industry. Rising interest rates are toxic relative to economic growth. Rising interest rates combined with continued weakness in manufacturing and consumer spending is nothing but negative for corporate profits. Poor corporate profits means lower tax receipts for the government, and fewer new jobs for the public. Fewer jobs equals even lower tax receipts for the government. Falling tax receipts equals higher deficits for the government. Higher deficits equals more Treasury auctions of debt nobody wants to buy which means even higher interest rates, and even lower corporate profits, and higher unemployment. It's called an economic death spiral. You can thank the US Federal Reserve.
Exploding debt threatens America
John Taylor, Financial Times
“Standard and Poor’s decision to downgrade its outlook for British sovereign debt from ’stable’ to ‘negative’ should be a wake-up call for the US Congress and administration. Let us hope they wake up.
“Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising - and will continue to rise - much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41% of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82% of GDP in 10 years. With no change in policy, it could hit 100% of GDP in just another five years.
“‘A government debt burden of that [100%] level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating,’ as the risk rating agency stated last week.
“I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO to be $1,200 billion. Income tax revenues are expected to be about $2,000 billion that year, so a permanent 60% across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?
“Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100% increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82%. A 100% increase in the price level means about 10% inflation for 10 years. But it would not be that smooth - probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.
“The fact that the Federal Reserve is now buying longer-term Treasuries in an effort to keep Treasury yields low adds credibility to this scary story, because it suggests that the debt will be monetised. That the Fed may have a difficult task reducing its own ballooning balance sheet to prevent inflation increases the risks considerably. And 100% inflation would, of course, mean a 100% depreciation of the dollar. Americans would have to pay $2.80 for a euro; the Japanese could buy a dollar for Y50; and gold would be $2,000 per ounce. This is not a forecast, because policy can change; rather it is an indication of how much systemic risk the government is now creating.
“Why might Washington sleep through this wake-up call? You can already hear the excuses.”
http://www.ft.com/cms/s/0/71520770-4a2c-11de-8e7e-00144feabdc0.html?nclick_check=1
Geithner tells China its dollar assets are safe
Timothy Geithner moved today to reassure the Chinese Government that its huge holdings of dollar assets were safe as he reaffirmed his faith in a strong US currency.
Mr Geithner, in China on his first visit as US Treasury Secretary, sought to allay concerns that Washington’s growing budget deficit would fan inflation which, in turn, would undermine the dollar and US bonds.
“Chinese assets are very safe,” Mr Geithner said, answering a question after his opening address at Peking University this morning.
His answer was greeted with laughter by the students, who question the wisdom of China spending huge amounts of money on US bonds instead of improving domestic living standards.
Mr Geithner reiterated that the Obama Administration would cut its huge fiscal deficits and stood behind the strong dollar.
“We have the deepest and most liquid markets for risk-free assets in the world," he said. "We’re committed to bringing our fiscal deficits down over time to a sustainable level.
“We believe in a strong dollar … and we’re going to make sure that we repair and reform the financial system so that we sustain confidence.”
http://business.timesonline.co.uk/tol/business/economics/article6405027.ece
Yeah, right...and a broken clock is right twice a day. The students reaction to Turbo Tim's Pinocchio imitation tells the whole story. Nobody, outside of the USA, believes a word out of this little rat finks mouth. If the US were so dedicated to their "strong Dollar policy" why is the Fed printing money 24/7 and debasing the currency? Of course we all know by now that the "strong Dollar Policy" is the suppression of the price of Gold. The US may still be commited to that via their "gold cartel" at the CRIMEX, but not likely for much longer...the rest of the World appears ready to put the kibosh on that little scam. Debasing the Dollar hardly seems supportive of suppressing the price of Gold then, does it?
Turbo Tim's last quote says it all, "sustain confidence". Sustaining confidence is job #1 at the Treasury and Fed. And be it by hook or by crook, so be it. Never forget, the first three letters of confidence spell CON. And with the aid of the "U.S." financial media, the talking heads at the Treasury and the Fed have become the World's most prolific con men.
Geithner Says China Has Confidence in U.S. Economy
June 2 (Bloomberg) -- Treasury Secretary Timothy Geithner said China, the biggest holder of U.S. Treasuries, has expressed confidence in the U.S. economy and the Obama administration’s actions to fight the recession.
Chinese officials expressed “justifiable confidence in the strength and resilience and dynamism of the American economy,” Geithner said in an interview with state media in Beijing today. He said there will be enough demand for record sales of U.S. debt.
Yu Yongding, a former central bank adviser who acted as the interviewer for the China Daily newspaper, told Geithner: “I worry about details. We will be watching you very carefully.”
When asked by Yu whether there will be sufficient demand for all the debt the U.S. will be selling this year, Geithner responded “I believe there will be.”
Geithner cited a “very sophisticated understanding” in China of why the U.S. is running up budget deficits in the short-term while also pledging to rein in borrowing over the medium term. He reiterated the U.S. commitment to cut spending and pull back government aid to the financial system once stability returns.
“We have a strong, independent central bank which is committed to keep inflation stable and low over time, we’re committed to a strong dollar, we have the deepest, most liquid Treasury markets in the world and we will do everything that is necessary to try to make sure we’re sustaining confidence in U.S. financial markets, not just in the United States but around the world.”
http://www.bloomberg.com/apps/news?pid=20601103&sid=a.oDb7xVXfHE
If Geithner said the Chinese have confidence in the US Economy you can bet they really told him to "blow it out his ass". Geithner is a master at telling the blathering "U.S." financial media exactly what they want to hear. You can be sure that nothing he stated above is true. The guy has little credibility as most of what he has claimed in the past has been proven to be be pure bullshit once tested by time.
Geithner says global recession losing force
Treasury Secretary Timothy Geithner (pictured left) said Monday that the global recession seemed to be losing force but that it will be critical for the United States and China to institute major economic reforms to put the world on a more sustained footing. Geithner said that a successful transition to a more balanced and stable global economy will require substantial changes to economic policy and financial regulation around the world and especially in the world's largest and third largest economies. ... Geithner had told reporters on his way to Beijing that he wanted to foster the same kind of working relationship with China that the United States has enjoyed for decades with major European economic powers.
- AP
Free-Market Analysis: Secretary Timothy Geithner is over in China proclaiming that things are getting better. But in order for them to get better still, there must be "substantial changes to economic policy and financial regulation around the world." We wonder what he means by this.
To have an American Treasury Secretary travel to China to urge the Chinese government to provide more benefits to its citizens is truly ironic. America's culture used to be based on individualism and self-responsibility. But there is not apparently any sense under this administration that American citizens are endowed with their rights by anything other than the state. The thrust of the Obama administration, such as it is, seems purely economic. Their first and last order of business is to sustain a central banking money monopoly that allows the international financial system to survive. In this case, the administration is willing to stand side-by-side with a communist state in order to reorganize the world's financial engine. There is no sense here that the economic crisis will be solved by individual entrepreneurship (human action) - only by nudging the massive ship of the state toward further monetary expansion.
In our opinion this is a desperate strategy. China is a fairly shaky state and there at least 300-400 million impoverished people who scratch a living off the land and want something more. In fact, they remain disaffected and angry. It is this population that the Chinese leaders fear and are racing to palliate with urban employment. In order to turn its consumerism inward, China will have to rev up its money production even more.
From our point of view, there is a good chance that China's massively leveraged banks will collapse under the strain. Geithner has traveled to China to plead with his new good friends to re-inflate the global bubble. Knowing the way he operates, he has probably even indicated that China's US$1 trillion or so in Treasuries will be stabilized if the US can export successfully to an increasingly successful and widespread middle class. The world's further prosperity depends on the Chinese now - or that is what we are led to believe, reading between the lines of this AP story.
http://www.thedailybell.com/index.asp?fl
Federal Reserve puzzled by yield curve steepening
The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession. But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields. - Reuters
Dominant Social Theme: It is a conundrum, apparently. A puzzle to even the brightest monetary minds ...
Free-Market Analysis: Oh, Mama! Once again top central bankers grapple with the deepest problems of high finance - and admit the struggle is a most difficult one. Are we supposed to empathize? It is all so complicated, apparently. More data is doubtless needed; more analyses should be conducted; more discussions are necessary. In the meantime, the collective head-scratching will continue. Here is how the Reuters article (excerpted above) presents the options:
Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries. Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases. Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities.
So ... apparently, the big fellows at the US Fed and Treasury can't figure out why bond prices are souring. Is it because people feel giddy about the economy and seek more exciting options? Or is it because buyers are frightened that bonds represent a broken economy, given that each American household is now some US$500,000 in debt?
What are these people smoking (besides expensive cigars)? Do American central bankers (and their colleagues) really believe Treasuries are in less demand because people are growing more optimistic? And even if there are those who do believe this, where's the evidence? An onrushing commercial mortgage crisis plus a potential unraveling of literally hundreds of trillions in derivative bets - along with increasing hesitancy among the Chinese and Japanese to buy more American debt - would seem to mitigate against warm feelings any time soon.
http://www.thedailybell.com/bellPage.asp?nid=403&fl=
Ugh! Gas hits $2.50
Drivers already feeling the recession's pain suffer as the average price of a gallon rockets more than 50% since the start of the year.
NEW YORK (CNNMoney.com) -- The price of gas, rising for the 33rd straight day, has reached $2.50 a gallon, motorist group AAA reported Sunday.
The spike of more than 20% in a month is hitting Americans in their wallets and causing concern among some experts.
The jump in one of consumers' staple purchases comes at a fragile time for the economy. Recently some measures of housing, spending and credit have hinted that the most severe parts of the recession may be easing.
At the same time, gas has jumped in price as the American auto industry is on the verge of a dramatic reshaping amid plummeting vehicle sales.
http://money.cnn.com/2009/05/31/news/economy/gas_prices/
I'm certain the financial media will eventually find a way to tell us that rising gas prices are "good for the economy". The effect, doubtless, "better-than-expected"...
Monday, June 1, 2009
Gold Hits ALL-TIME Monthly High
“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 a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
-Ludwig Von Mises
Bond markets defy Fed as Treasury yields spike
By Ambrose Evans-Pritchard
The US Federal Reserve may soon be forced to launch fresh blitz of quantitative easing whatever the consequences for the US dollar, or risk seeing economic recovery snuffed out by the latest surge in long-term borrowing costs.
Yields on 10-year Treasury bonds have risen relentlessly since March when the Fed first announced its plan to buy $300bn (£188bn) of US government debt directly, a move that briefly forced rates down to nearly 2.5pc, a level thought to be the Fed’s implicit target.
Yields have jumped to 3.69pc – after spiking as high as 3.74pc on Wednesday – pushing up the standard 30-year mortgage loan to 5.08pc and lifting the borrowing cost for corporations.
"The Fed is going to have to consider doubling its purchases of Treasuries," said Ashraf Laidi, from CMC Capital Markets. "We could be nearing the end-game for the US dollar but the Fed has little choice at this point. We’re in a vicious circle where any policy aimed at supporting the US economy must be at the expense of the dollar."
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5402260/Bond-markets-defy-Fed-as-Treasury-yields-spike.html
Fed May Buy More Assets to Bolster Balance Sheet
May 28 (Bloomberg) -- The Federal Reserve may step up asset purchases to prevent its balance sheet from contracting until policy makers are convinced an economic recovery has taken hold, Fed officials and analysts said.
Demand for some of the Fed’s emergency programs has waned as the grip of the credit crunch loosens, with loans to banks shrinking 48 percent since Jan. 1. The main tool to keep the central bank’s holdings from falling from the current $2.08 trillion would be more purchases of Treasuries, said analysts including former Fed Governor Laurence Meyer.
Until now, policy makers’ balance-sheet decisions have been driven by the emergency liquidity needs of banks, bond dealers, money markets and failing financial institutions. U.S. central bankers are now transitioning to a period where economic data and their implications for forecasts will play the key role.
“You wouldn’t want policy to reverse course dramatically or ramp up dramatically unless the outlook changed substantially,” John Weinberg, research director at the Federal Reserve Bank of Richmond, said in an interview. “It really hasn’t yet.”
Fed officials have said their Treasuries buying isn’t designed to target any specific yield levels. Last week’s release of minutes of the April 28-29 Open Market Committee meeting showed some members were open to bigger purchases to spur a more rapid recovery.
http://www.bloomberg.com/apps/news?pid=20601103&sid=a93667VRPio8&refer=us
False Confidence
By: John Browne, Senior Market Strategist, Euro Pacific Capital, Inc.
Last week, it was reported that consumer confidence has seen an unexpected lift. In response, the sluggish stock market saw a manic 196-point rally.
This mania overrode losses from the week's other big news: Great Britain was put on negative credit watch by Standard & Poor's; the U.S. markets tanked on expectations of a similar downgrade domestically; and, Case-Shiller reported an unrelenting slide in home prices. In other words, the economic decline continues.
So, why are consumers so confident? They are being deceived by "free money" into believing in the power of socialism.
Since the start of the crisis, the Fed has held interest rates to an artificially low level, greatly helping borrowers who can obtain credit. Also, the Administration has made it clear that it will not allow a major bank failure, even if accounting rules have to be changed to give the appearance of solvency. Including guarantees, the entitlement-based stimulus packages have sprayed trillions of dollars into the economy, with minimal oversight.
None of these policies aid recovery, nor do they allow resources to be allocated more efficiently. Instead, they prolong economic dislocation, increase the influence of the federal government, and drag America deeper into debt.
It is true that the financial collapse that threatened does appear to have been averted by "officially" hiding and avoiding the problem of toxic assets. But the lesson from Japan, which did the same, is that avoidance is no cure and will only allow the wounds to fester.
http://news.goldseek.com/JohnBrowne/1243490760.php
Rising U.S. bond yields may spark Credit Crisis II
NEW YORK (Reuters) - The global financial crisis may morph into a second, equally virulent phase where borrowing costs rise again, hobbling an embryonic economic recovery, debilitating cash-strapped banks, and punishing investors all over again.
Early warnings signs of this scenario include surging government bond yields, a slumping U.S. dollar, and the fading of the bear market rally in U.S. stocks.
Optimists hope that a fragile two-month rally in world stock markets, a rise in U.S. Treasury yields from record lows during the depths of the crisis in late 2008, and some less scary economic data all signal that a recovery is around the corner.
But gloomy analysts insist that thinking is delusional.
http://www.reuters.com/article/newsOne/idUSTRE54S53620090529
Treasury Bonds: In the Eye of the Storm
by Bryan Rich, Money and Markets
In normal environments — when the global economy is stable, the financial system is stable and advanced economies are growing — higher rates are a recipe for a stronger currency. That means the U.S. dollar would benefit from such an aggressive move in interest rates, as investors seeking higher yields flock to the Treasury market and the U.S. dollar. The climb in interest rates would typically be associated with a central bank that is attempting to cool off inflationary pressures from an expanding economy.
That’s certainly not the case now …
Yes, interest rates are rising. The yield on the 10-year Treasury note leaped from 2.45 percent to 3.75 percent in just 10 weeks. But it’s not growth that’s driving yields on U.S. government debt … it’s inflation fears! Therefore, the dollar has been under pressure.
The U.S. government is adding trillions of dollars in new debt. And according to the IMF, the debt level in the U.S. is expected to surge from 63 percent of GDP in 2007 to nearly 100 percent of GDP by 2010.
The Fed has bought about $500 billion of debt to expand the money supply and force interest rates (particularly mortgage rates) lower, a feat that was going well until last week. Now mortgage rates are back above 5 percent, and billions of dollars worth of work by the Fed has been erased.
Even with manipulated mortgage rates, which went as low as 4.8 percent from 6.5 percent just nine months ago, the number of mortgage delinquencies and foreclosures hit record levels in the latest report. Now prime fixed-rate foreclosures are outpacing subprime.
This inflation scare and climbing interest rate scenario puts increased pressure on an already fragile domestic and global economy and increased pressure on the Fed. Moreover, a continued deterioration in the U.S. housing market is:
-Not good for the U.S. consumer,
-Not good for export-driven global economies,
-Not good for the global financial system.
Rather, it prolongs a problem that is at the core of the financial and economic crisis and exposes financial markets to more risk — just when the general sentiment is getting more optimistic.
All of the economists polled by the National Association for Business Economics predict the recession to end by the first quarter of 2010. It’s this type of optimism that is feeding the risk appetite of investors. And it’s this type of optimism that creates increased vulnerability in financial markets to a negative surprise.
http://www.moneyandmarkets.com/treasuries-in-the-eye-of-the-storm-3-34002
The Second Crash -On the Way and Unstoppable
Doug HornigEditor, BIG GOLD
Now consider that the base cause for all that dislocation was the subprime sector. And how big is that? Not very. Subprime mortgages account for only about 15% of all home loans. Their influence has been way out of proportion to their numbers, because of derivatives. Here's the good news: the subprime meltdown has about run its course. These loans were resetting en masse in 2007 and the first eight months of '08. Now they're pretty much done.
And the bad news? No one in the mainstream media seems to be asking what should be a pretty obvious question: What about loans other than subprime? Truth is, the banks didn't just trick up their subprime loans. ARMs were the order of the day - across the board.
from the beginning of 2007 through September of 2008, subprime loans (the gray bars above) were resetting like crazy. Those are the ones people were walking away from, sending a shockwave from defaults and foreclosures smack into the middle of the economy. Now they're gone.
The ARM market got very quiet between December 2008 and March 2009, hitting a low that won't be seen again until November of 2011. Small wonder a few "green shoots" have poked their heads above ground. But in April, resets began to increase and will reach an intermediate peak in June. After that, they tail off a little, going basically flat for the next ten months.
It's not until May of 2010 that the next wave really hits. From there to October of 2011, the resets will be coming fast and furious. That's 18 months of further turmoil in the housing market, and the beginning is still nearly a year away! (Although the months in between are likely to be no picnic, either.)
While it isn't subprime ARMs that are resetting this time, neither are they prime loans. Those eligible for prime loans wisely tended to stay away from ARMs in the first place, as indicated by the relatively small space they take up on each bar.
No, the next to go are Alt-As (the white bars), Option ARMs (green) and Unsecuritized ARMs (blue). Alt-As are loans to the folks who are a small step up from subprime. Unsecuritized loans are a 50-50 proposition; either the borrowers were good enough that they weren't thrown into the CDS pool, or they were so risky no one would insure them.
Those two are bad enough. But Option ARMs are the real black sheep, loans with choices on how large a payment the borrower will make. The options include interest-only or, worse, a minimum payment that is less than interest-only, leading to "negative amortization" - a loan balance that continually gets bigger, not smaller. Imagine what happens with those when the piper calls.
Once the carnage begins, will it be as bad as the subprime crisis? That's the $64K question. Perhaps not. For one thing, subprime loans were a much larger chunk of the market when they started going south. For another, there's been a lot of refinancing as interest rates dropped; that should help ease the default rate. And the government has massively intervened, with measures designed to prop up those who would otherwise lose their homes.
On the other hand, we're in a severe recession, which wasn't the case when the subprime crisis started. More people will be unable to meet payments. And the housing market has continued to decline, pressuring both marginal homeowners and banks that can't sell foreclosed properties.
But make no mistake about it, the second crash is coming. It can't be prevented, no matter what desperate measures Obama and his hapless financial advisors come up with. All we can hope for is that, with a little luck, it won't be as severe as the first one. But it will last longer. We aren't even in the middle of the woods yet, much less on the way out.
http://www.321gold.com/editorials/casey/casey052909.html
Silver Rises to Best Month Since 1987; Gold at Three-Month High
May 29 (Bloomberg) -- Silver climbed the most in a month in 22 years and gold rose to a three-month high in New York and London as a weaker dollar increased demand for precious metals as an alternative investment.
The U.S. Dollar Index, heading for its sharpest monthly drop this year, fell on speculation that gains in equities and signs of a global economic rebound will spur demand for higher- yielding assets. Precious metals typically move inversely to the U.S. currency. Gold jumped the most for a month since November.
“Extreme dollar weakness is adding to the momentum,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said today in a note. “Ascending oil prices, concerns of inflation and fears of massive U.S. debt have certainly been supporting” both metals, he said.
Commodities were headed for the biggest monthly rally in 34 years, led by energy, as the slumping dollar boosted demand for raw materials as a hedge against inflation. The 19-contract Reuters/Jefferies CRB Index climbed as much as 1.2 percent, extending a rally to the highest since Nov. 11. The index neared a 14 percent rise for the month, the most since July 1974.
http://www.bloomberg.com/apps/news?pid=20601082&sid=aPzaF0Fq4yNA&refer=canada
Crude Oil Caps Biggest Monthly Gain Since 1999 on Dollar Drop
May 29 (Bloomberg) -- Crude oil rose, capping its biggest monthly gain in a decade, as the dollar weakened against the euro, bolstering the appeal of commodities.
Oil climbed above $66 a barrel to a six-month high as the dollar declined beyond $1.41 against the euro for the first time this year, making raw materials such as oil and gold an attractive alternative investment. Prices also gained as U.S., and Asian indicators pointed to a global economic recovery.
“The devaluation of the dollar is leading to the revaluation of energy and commodities in general,” said John Kilduff, senior vice president of energy at MF Global in New York. “This is a monetary-based rally. The market is focused on the future and ignoring the fundamentals of the present day crude-oil supply and demand picture.”
The U.S. currency had its biggest monthly decline against the euro this year. The dollar dropped 1.4 percent to $1.4134 versus the single European currency.
Confidence among U.S. consumers rose this month to the highest level since September. The Reuters/University of Michigan final index of consumer sentiment increased to 68.7, more than forecast, from 65.1 in April.
“This rally is based more on hope than on fact,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington. “The move has been more tied to rising consumer sentiment than market fundamentals.”
Prices are also rising because of declining U.S. inventories. Crude-oil supplies fell 5.41 million barrels to 363.1 million last week, an Energy Department report showed yesterday. It was the biggest decrease since September. The drop left inventories 27 percent greater than the five-year average, up from a 23 percent surplus a week earlier.
U.S. gasoline stockpiles dropped 537,000 barrels to 203.4 million last week, the lowest since December, according to the report.
“The drop in U.S. inventories is evidence that the OPEC production cuts are starting to bite,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “There’s some optimism about the economy, which is driving the oil market. It’s important to keep in mind that demand has shown absolutely no sign of recovery.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=af0H16dCeM_A&refer=home
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