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Posts Tagged ‘Deflation’

The Next Leg Down

Posted by commendatori on May 30, 2009

american consumer death

Collapsing home prices and credit markets continue to put downward pressure on consumer spending, forcing the Federal Reserve to take even more radical action to revive the economy. Last week, Fed chief Ben Bernanke raised the prospect of further monetizing the debt by purchasing more than the $1.75 trillion of Treasuries and mortgage-backed securities (MBS) already committed. The announcement sent shock-waves through the currency markets where skittish traders have joined doomsayers in predicting tough times ahead for the dollar. Foreign central banks have been gobbling up US debt at an impressive pace, adding another $60 billion in the last three weeks alone. That’s more than enough to cover the current account deficit and put the greenback on solid ground for the time-being. But with fiscal deficits ballooning to $3 trillion in the next year alone, dwindling foreign investment won’t be enough to keep the dollar afloat. Bernanke will be forced to either raise interest rates or let the dollar fall hard.

Export-led nations are looking for an edge to revive flagging sales by keeping their currencies undervalued. But the strong dollar is making it harder for Bernanke to engineer a recovery. He’d like nothing more than to see the dollar tumble and reset at a lower rate. That would reduce the debt-load for homeowners and businesses and send consumers racing back to the shopping malls and auto showrooms. Perception management is a big part of stimulating the economy. That’s why the financial media has been air-brushing articles that focus on deflation and shifting the attention to inflation. It’s an effort to kick-start consumer spending by convincing people that their money will be worth less in the future. But deflation is still enemy number one. Rising unemployment, crashing home prices, vanishing equity and tighter credit; these are all signs of entrenched deflation.

Bernanke faces three main challenges to put the economy back on track. He must remove the hundreds of billions in toxic assets from the banks balance sheets, reignite consumer spending to offset the sharp decline in aggregate demand, and fix the wholesale credit-mechanism that provides 40 percent of the credit to the broader economy. Treasury Secretary Timothy Geithner has taken over the distribution of the remaining TARP funds, and created a new program, the Public-Private Investment Partnership (PPIP), for purchasing toxic mortgage-backed assets. The PPIP will provide up to 94 percent “non-recourse” government loans for up to $1 trillion of assets which are worth less than half of their original value at today’s prices. The Treasury’s plan is an attempt to keep asset prices artificially high so that the losses will not be realized until they’ve been shifted onto the taxpayer. Here’s how John Hussman of Hussman Funds summed up Geithner’s PPIP:

“From early reports regarding the toxic assets plan, it appears that the Treasury envisions allowing private investors to bid for toxic mortgage securities, but only to put up about 7% of the purchase price, with the TARP matching that amount – the remainder being “non-recourse” financing from the Fed and FDIC. This essentially implies that the government would grant bidders a put option against 86% of whatever price is bid. This is not only an invitation for rampant moral hazard, as it would allow the financing of largely speculative and inefficiently priced bids with the public bearing the cost of losses, but of much greater concern, it is a likely recipe for the insolvency of the Federal Deposit Insurance Corporation, and represents a major end-run around Congress by unelected bureaucrats.

Make no mistake – we are selling off our future and the future of our children to prevent the bondholders of U.S. financial corporations from taking losses. We are using public funds to protect the bondholders of some of the most mismanaged companies in the history of capitalism, instead of allowing them to take losses that should have been their own. All our policy makers have done to date has been to squander public funds to protect the full interests of corporate bondholders. Even Bear Stearns bondholders can expect to get 100% of their money back, thanks to the generosity of Bernanke, Geithner and other bureaucrats eager to hand out the money of ordinary Americans.” (John Hussman, “The Fed and Treasury – Putting off Hard Choices with Easy Money, and Probable Chaos, hussmanfunds.com) Read the rest of this entry »

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Financial Disaster May Lead to Civil Disorder and Wars, Says Secret Citibank Memo

Posted by commendatori on December 4, 2008

Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity, according to an internal client note from the US bank Citigroup.
By Ambrose Evans-Pri

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.dominoes2

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist.

“The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

“Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes,” he said.

“This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.”

“What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We’re already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore,” he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. “If true, this is a very material change,” he said.

Mr Fitzpatrick said Britain had made a mistake selling off half its gold at the bottom of the market between 1999 to 2002. “People have started to question the value of government debt,” he said.

Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.

Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.

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US: Bailout, Crisis and Upcoming Fascist Takeover

Posted by commendatori on October 27, 2008

Here is a good article – Review of the Economic situation for the week. They write one every Monday.

Signs Economic Commentary for 29 September 2008 — Signs of the Times News

Here are some excerpts, but I do recommend reading the entire article.

“Here is the borrowing that’s happened in 2008 alone, with precious little public debate:

– $29 billion to bail out Bear Stearns.

– $40 billion in the first mortgage-holder bailout.

– $80 billion for an additional year of Iraq war operations. (Another $150-$200 billion in war costs such as future veterans’ disability benefits were incurred but not funded.)

– Up to $85 billion to bail out AIG.

– $153 billion to households for “economic stimulus.”

– $200 billion, and possibly more, to bail out Fannie and Freddie.

– $290 billion in farm subsidies, despite agricultural prices and grains profits being at record highs.

– $700 billion general bailout of securities backed by bad debt. (The International Monetary Fund estimates this figure will rise to at least $1 trillion.)

That comes to $1.6 trillion, explaining the debt-ceiling rise, and does not include roughly $300 billion in essentially interest-free cash issued to banks by the Federal Reserve on an emergency basis, which may or may not be repaid, but which in any case make all existing money somewhat less valuable. Why is the debt aspect of the splurge barely being remarked on by the mainstream media and by politicians? Why are the young not furious? And about that $700 billion about to the shoveled to the Wall Street elite — in 2007, George W. Bush vetoed an increase of $7 billion per year in health care spending for the poor, saying the country couldn’t afford it.”…

…”The Golden Rule when consuming all mass media coverage of economics is, of course, to remember that it is always wrong; either factually or in its timing, or both.

Which means, given the universally bleak tone of last night’s Crunchy TV, that either:

a) the economy is about to boom

b) the situation is even worse than portrayed and we’re facing The Apocalypse

Or, those calling the shots want the economy to crash now. Since all the assets were propped up by optimism, basically, making everyone severely pessimistic will ensure a crash. And, as the blogger, Badtux points out, deflation is to be feared more than inflation by average people. The rich, however, are hurt more by inflation. After a deflationary crash, those with cash can buy up all the assets for pennies on the dollar.”…

…”If you are wondering, I believe the AIG bailout is a very good model for how it has to go down. These institutions get the money — but the government gets ownership of them and can throw out the bad managers and reform their practices so they don’t do this stupid evil s**t again, and then sell off the workable assets and fold the part that’s not workable. Any bailout that’s going to work long-term is going to have to work like that, else this nonsense is just going to happen again. You can’t just throw money at these institutions. You have to take them over and reform them.”…

…”Now, at that point economic activity has *also* fallen, since economic activity needs cash to lubricate it and a lot of cash has been diverted towards futile attempts to pay unpayable debts rather than buying stuff. Figure that the economy is moving 10% of the goods and services that it formerly moved. Furthermore, food was planted and picked at the older, cheaper value of the food. So the stores are full of food, but nobody can afford to buy it because an orange that costs $1 is now only worth 1c but the store can’t sell it to you for 1c and make money because they paid the farmer 50c for it at the beginning of the year (thanks to the futures market). The end result is food riots, crops rotting in the fields, and the real threat of a fascist takeover of the country. Look up Father Coughlan and get back to us — it was only barely that FDR kept Father Coughlan’s cronies from taking over (see: Business Plot) and sending us down the same path that Germany and Italy went down. And that was before twenty-five years of rote recitation of “government is the problem, not the solution” discredited FDR’s brand of liberalism in the minds of most Americans — today, a FDR would not be allowed to be elected (I don’t consider Obama to be an FDR, looking at his policy proposals on his web site they appear to be fairly moderate free-enterprise-oriented proposals, not something shockingly socialist like the CCC program that built much of the infrastructure in Death Valley).

In other words, I don’t expect the U.S. to go down the path of FDR if we have another Great Depression. I expect a Mussolini, probably some general taking charge to “restore confidence and pride in our government”, and the usual stuff that happens when you have a Mussolini in charge. Bad things. Really bad things. You know the drill.”…

…”So the stage is now set for a fascist, Mussolini-style takeover of the U.S. Take a look at the following list of laws passed since 9/11,
courtesy of
George Ure:

1. USA Patriot Act
– A 342 page document presented to Congress one day before voting on it that allows the government access to your bank and email accounts, as well as your medical and phone records with no court order. They can also search your home anytime without a warrant.

2. USA Patriot Act II
– This one allows secret government arrests, the legal authority to seize your American citizenship, and the extraction of your DNA if you are deemed a potential terrorist.

3. Military Commissions Act of 2006
– Ends habeas corpus, the right to an attorney, and the right to court review of one’s detention and arrest. Without this most basic right, all other rights are gone too since anyone can be detained indefinitely. Now anyone may be arrested and incarcerated and nobody would know.

4. NSPD 51
– A directive signed by George W. Bush on May 9, 2007, that allows the President to declare martial law, effectively transforming the U.S. into a dictatorship with no checks and balances from the Legislative or Judicial Branches. Parts of this directive are considered classified and members of Congress have been denied the right to review it.

5. Protect America Act of 2007
– Allows unprecedented domestic wiretapping and surveillance activities with a reduction in FISA court oversight. Probable cause is not needed.

6. John Warner Defense Authorization Act
– Signed by George W. Bush on October 17, 2007, this act allows the President to declare a public emergency and station troops anywhere in America without the consent of the governor or local authorities to “suppress public disorder.”

7. Homegrown Terrorism and Radicalization Act
– Passed overwhelmingly by Congress on
October 23, 2007, is now awaiting a Senate vote. This act will beget a new crackdown on dissent and the Constitutional rights of American citizens. The definitions of “terrorism” and “extremism” are so vague that they could be used to generalize against any group that is working against the policies of the Administration. In this bill, “violent radicalization” criminalizes thought and ideology while “homegrown terrorism” is defined as “the planed use of force to coerce the government.” The term, “force” could encompass political activities such as protests, marches, or any other form of non-violent resistance.

So when you add in:

It starts to get a little scary.”

Scary indeed.

Here is an easier to read link for “Haliburton Confirms Camps Constructed

Another good article:

Mike Whitney: Black Monday?

Some excerpts

“Rep Dennis Kucinich (D-Ohio) gave the best speech of the day railing against the financial industry and defending the interests of working class Americans.

Rep. Dennis Kucinich: “The $700 bailout bill is being driven by fear not fact. This is too much money, in too short of time, going to too few people, while too many questions remain unanswered. Why aren’t we having hearings…Why aren’t we considering any other alternatives other than giving $700 billion to Wall Street?
Why aren’t we passing new laws to stop the speculation which triggered this? Why aren’t we putting up new regulatory structures to protect the investors? Why aren’t we directly helping homeowners with their debt burdens? Why aren’t we helping American families faced with bankruptcy? Isn’t time for fundamental change to our debt-based monetary system so we can free ourselves from the manipulation of the Federal Reserve and the banks? Is this the US Congress or the Board of Directors of Goldman Sachs?”

Bless him.

“There was greater opposition to the Paulson bill than any legislation in the last half century. The groundswell of public outrage has been unprecedented, and yet, Congress, completely insulated from the demands of their constituents, continues to blunder ahead following the same pro-industry script as their ideological twins in the White House. There’s not a dime’s worth of difference between the two parties. Not surprisingly, neither Pelosi nor any of the Democratic leadership has even met with any of the more than 200 leading economists who have stated unequivocally that the bailout will not address the central problems that are wreaking havoc on the financial system. Instead, they have caved in to Bush’s demagoguery and the spurious claims of G-Sax bagman Henry Paulson, a man who has misled the public on every issue related to the subprime/financial fiasco so far.”

Hmmm…I would think that meeting with experts would be the wise thing to do. But, that is just me, I guess. I have had my suspicions about Pelosi for some time. She does not quack like a Democrat…

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