by Terry Easton (more by this author)
January 16, 2009
Human Events
Federal Reserve Chairman Ben Bernanke flew into London to meet with Governor Mervyn King, his counterpart at the Bank of England, and Prime Minister Gordon Brown at #10 Downing Street on Tuesday. He then went on to deliver the annual Joseph Charles Stamp Memorial Lecture entitled “The Crisis and the Policy Response” to our current global financial system meltdown. Human Events was there to cover the event -- and to quiz Dr. Bernanke in the Q&A session on his Keynesian approach to the systemic money problem. The world’s media covered the event live, including the BBC, CNBC, Fox News, CNN, and Bloomberg. For a clip of our Q&A, see: CNBC Video.OK. So here’s the problem. Keynesian solutions just don’t work. Throwing money from helicopters (or more likely C-17’s today) might just pull us out of the Great Depression II, but as we stretch the rubber band, eventually the block of deadweight banking system credit will finally spring to life and violently overshoot way before future Fed and Treasury Secretaries can reel in the excess money. The result? Massive inflation from 2010 onwards. 25-30% would not be surprising through the teens. Yikes! (That’s a techno-speak economist term for holy s***, it’s that bad…)So if you think gold is high at $850 today, wait until it reaches $3,000 a troy ounce. Ditto commodities (especially agriculture). Jim Rogers has been warning about this probability for the past year. He’s been riding the commodity prices all the way down in the process -- and he’s still positive about their future. I, for one, wouldn’t easily bet against the co-founder (along with George Soros) of the Quantum Fund.At the London School of Economics, former home (1931-1950) of Austrian-school founder and Nobel Prize winner Fredrich von Hayek, Dr. Bernanke went on to point out all the Keynesian goodies he has in his “toolkit” which the Fed is using to overcome the crisis.Chairman Bernanke acknowledges that the bottom line problem -- which began with the funny-money mortgages politically made to underqualified borrowers -- has seqway’d into a full-blown global loss of trust by just about everyone, consumers and bankers alike, in the present financial system. Or, in FedSpeak: “Rising credit risks and intense risk aversion have pushed credit spreads to unprecedented levels…Heightened systemic risks, falling asset values and tightening credit have in turn taken a heavy toll on business and consumer confidence and participated a sharp slowing in global economic activity. The damage, in terms of lost output, lost jobs, and lost wealth, is already substantial”.Of course, the unspoken statement is that the reason that the people don’t trust the present fractional banking system -- and are hording their precious cash -- is that the entire system is a house of cards, or more like the game of chairs where the last person standing when the music stops doesn’t have a chair to sit on. And nobody wants to be that last person standing when the music stops.Bernanke goes on to observe, chillingly: “the global economy will recover, but the timing and strength of the recovery are highly uncertain”. That’s telling it like it is.The Fed’s toolkit -- which has been newly invented over the past 18 months -- has three groups. They “all make use of the asset side of the Federal Reserve’s balance sheet”. This means, they consist of creating more money out of thin air.“The first set of tools, which are closely tied to the central bank’s traditional role as the lender of last resort, involve the provision of short-term liquidity”. It’s important to note that the reason the central bank is known as the “lender of last resort” is that when it collapses, the entire edifice falls and a new system must be built to replace the old. In these cases, the political system often falls as well. Whether a free-market-oriented democracy or a socialist-oriented totalitarian system springs up to replace the former ruin depends on the people -- both the average citizen and the elite.The question is, what kind of new system will arise from the Federal Reserve ashes? Another Keynesian Ponzi-scheme or a solid hard-money-based Austrian-school bank? The reason, of course, that Austrians like gold is it can’t easily be counterfeited by the government. It’s quite a “barbaric metal”. In the people’s hands, it can’t easily be controlled by the bureaucrats. Darn.It may just be possible, however, that Bernanke and colleagues can begin to move the Federal Reserve away from a fiat-based money system. You don’t really think there’s money in the banks to cover all your deposits, do you? And what do you mean by money, anyway: “legal tender IOU notes”? Bernanke knows this all too well. And if he can get us through this Keynesian-induced hell with just one more dose of Keynesian money printing, then maybe he’ll have the time somewhere in the future to move the system back to a gold-standard dollar. Hmmm…The tools in the first set are: 1) cutting fed funds and “discount window” interest rates, 2) increasing the length of the overnight “discount window” from 24 hours to 90 days, 3) the new “Term Auction Facility” which lends more money to the banks for “good” assets, 4) the new “Term Securities Lending Facility” which allows certain stock brokers to borrow money from the Fed for “less-liquid collateral”, and 5) the “Primary Dealer Credit Facility”, yet another bail-out loan facility for otherwise bankrupt stock brokers.In addition to the above “short term” loan programs to US banks and stock brokers, the Fed has printed up more US dollars to convert into foreign currency using “bilateral currency swap agreements with 14 foreign central banks”. Why? Because the world has run out of dollars to spend in paying its bills! No problem, we’ll print up some more dollars for you too. Happy to oblige!The second set of policy tools “involve the provision of liquidity directly to borrowers and investors in key credit markets”. They are: 1) money printed up to purchase commercial paper, 2) money printed up to purchase money-market funds, and 3) a Fed-Treasury joint money printing program to buy up AAA-rated student loans, auto loans, credit card loans, and SBA loans. Finally, the third set of new “policy tools” includes creating more money to buy up longer-term securities including $600 billion in Government-Sponsored Enterprises (GSE’s like Freddie Mac and Fannie Mae) and GSE-backed securities. The home mortgage market “dropped significantly on the announcement of this program”. The message: don’t bet against the Fed’s ability to print mountains of dollars -- at least in the short term. The result of all this newly-created money is that the Fed’s own balance sheet -- which took 90 years to reach the first $800 billion -- is now well on the way to $3 trillion, and that’s all money created out of thin air. Consequently over the next 6 months, look for the Fed to bail out ever more failing financial institutions -- starting with another multi-billion-dollar kick to the near-bankrupt Bank of America. This second round of funny money will be followed by a third and perhaps more, until we’ll all be swimming in a sea of dollar bills. As the recession bites deeper, the velocity of money -- how fast we spend it -- slows precipitously, and huge doses of more raw money are perceived by the money controllers as the only way to pull us out of this government-created mess. What else can they do? The Austrian economist Murray Rothbard revealed the simple answer in his History of Money and Banking. Politicians everywhere need to read it immediately.Professor Bernanke is a genuinely likeable person with a good sense of humor and a deep knowledge of how the financial world really works. He was warmly received by the LSE students and faculty in London. Unfortunately, he is also the head of the biggest fiat-banking scheme ever devised by mankind. And he knows it. (Thank you John Pierpont Morgan for your Jekyll Island creation.)The tell is that his voice waivers when he is saying something that he hopes will come true but is unsure of. Listen to his speeches yourself and you’ll hear what I mean immediately. It’s the giveaway of a basically honest and decent man. Bernanke still needs to fully master the “FedSpeak” of his predecessor, Alan Greenspan. Alan could easily tell the House Banking Committee about how the Fed was fully in control - and there was nothing to worry about. And they believed it. Yet he was a protégé of Ayn Rand and the author of a marvellous essay on the need for gold-backed central banking in his youth. Years before he too became the head of the Fed.I truly hope that Chairman Bernanke can pull it all off just one more time. Like a junky hooked on ever-increasing doses of the good stuff, I need just a little more money, please. The withdrawal is too painful and I don’t want to hurt that much. I promise to go straight and reform in the future. Trust me. In fact, trust all of us. We’re all in this together.
Mr. Easton teaches University economics and is passionate about technology and entrepreneurship. He is rosy about the long-term future: �The glass isn�t half full, it�s overflowing!�
Friday, August 21, 2009
US Economy's Future is Controlled by 3 Companies, and They’re Not Goldman Sachs, JP Morgan or CitiCorp
by Terry Easton
Human Events
June 12, 2009
If the United States were Japan back in the 1998, its credit rating would too have been downgraded by now from its AAA credit risk to AA+ or lower. Indeed, the once-stellar credit ratings of European countries Ireland, Italy, and Spain have already been shown the axe. Spain’s unemployment is now edging upward towards 20%. Ireland’s recent loss of its coveted ‘Triple-A’ status has touched off a financial crisis which is rapidly deteriorating into a political crisis. As a result, the center-left party will probably be swept away and replaced with a pro-business center-right party when the voters next get their chance. As the say in Europe, “we like to vote in the socialists when we’re feeling fat and full of cash, but when times get tough economically, we like to replace them with the ‘grown ups’ who won’t run our country into the ground fiscally”.The UK is also teetering on the brink of losing its cherished AAA status. And with it will go the pound (down) and unemployment (up).How does the credit worthiness of a country affect its fiscal health? And why should the politicians and bureaucrats in the White House, the Treasury and the Fed be quaking in their boots right now?Simple. If a country, like the US, should lose its pristine credit rating, it will instantly lose the ability to sell its bonds to many potential buyers. And, God knows, with all the monster deficits being wrung up by the White House these days, the US government needs all the newly minted Treasury Bills – in the tens of billions of dollars - to be safely sold, without fail, week after week. The fate of the US government hangs in the balance by the analysts at the three global credit rating agencies who daily measure the financial health of 125 countries. They’re akin to the 3 personal credit bureaus whose “Fico scores” compiled by the Fair Isaacs company determine whether you can get a credit card or car loan or even a decent home mortgage. With a really good Fico score, like 800 or above, you’ll be offered the lowest loan interest rates. As you score drops down to the 700’s and 600’s, your credit risk goes up, and borrowers begin to disappear. Those that remain will charge higher interest to make the same loan. Your risk of defaulting on the loan jumps. Drop below 600, and you probably can’t get a loan from anyone except, perhaps, the local loan shark – at 10% interest – per month.Unfortunately, many major buyers of bonds -- government or corporate, US or overseas – have restrictions on what they can legally buy. US Treasury bonds are often owned by central banks of other countries -- like China -- and retirement programs, mutual funds and pension funds. Many are only allowed to own only ultra-safe ‘Triple-A’ rated ‘paper’. Lose that rating, and the next day, the market will see hundreds of billions of dollars of US government Treasury bonds dumped as ‘secondary sales’ -- perhaps at fire sale prices.. When such an oversupply of sellers dumps T-bills, their price will fall smartly, and the Treasury bond interest rates will skyrocket, as many of the potential buyers are forced to sell too. So the cost of borrowing money both short and long term will spike up. Then, almost immediately afterwards, the interest rates on credit cards, corporate borrowing, and most importantly, home mortgages will shoot up as well. The rating agencies are terrified to tell the truth. Because the US is the principal money center on the planet, and because the US dollar is the world’s reserve currency, such a lowering of the US AAA rating -- which it has maintained for over a century -- will ripple through the global economy as bond and stock markets recoils in shock and follow the US downward. Credit rating agency fees will soon follow. They have not yet downgraded the UK pound-based ‘Gilts’ (government bonds). These are on the ropes as the UK has been faithfully following in the US footsteps by taking over its banks, printing up funny money to pay the bills, and running massive government deficits to add its own ‘stimulus’ package to the economy. Naturally, the UK’s unemployment rate is shooting upwards as well.The UK’s Labour (socialist) government is teetering on collapse with the lowest voter rating in over 100 years. The fall of their government, due to the fiscal incompetence of Prime Minister Gordon Brown, the former “wunderkind” Chancellor (their equivalent to the Treasury Secretary) and his decade long spend-and-spend policy, is predicted to occur this autumn, if not sooner. When that happens, the dam will likely break, and the UK will be stripped of its AAA rating. The pressure will immediately shift to the US as overseas money -- now funding 50% of government bond sales -- begins to flee. Interest rates will go up as the Treasury must continue to conduct ever-bigger weekly bond sales to fewer and fewer buyers. Eventually, the other show will drop, and the US will lose its Triple-A rating as well.This is uncharted territory. Over the past few decades. countries like Mexico, Argentina, and Zimbabwe have seen their ratings plummet – along with their standard of living. Unemployment figures have recently reached 25% or more in other developed countries. But not yet in the US.Faced with the problem of declining bond sales and raising interest rates killing the economic recovery, and unable to turn to the Chinese or Japanese to bail out the government, the only course of action left will be for the Federal Reserve to “re-liquify” the market. That is, the Fed will simply ‘print up’ more money to use to buy the non-selling Treasury bills itself. And when this new money hits the marketplace, the amount of overall money in circulation will quickly increase. The dictionary defines “inflation” as simply an increase in the money supply. When you increase the total amount of money -- but not correspondingly increase any more goods or services being produced -- the cost of everything you buy denominated in the unit of money (in this case, the dollar) will go up. It takes more of the pieces of paper called ‘dollars’ to buy the same goods and services.Real wealth and hard-assets such as commodities (food, metals, gold) will go up in dollar terms. Other stronger currencies will go up too. Fixed-interest-rate loans (like 30-year fixed mortgages) will be a disaster for the lender and a magical liability for the borrower, who will be able to repay the loans years later in dollars that will be worth far less, if not worthless. Those lenders will be forced out of business by rising costs, reducing the supply of consumer and business credit even more.This negative-reinforcing downward spiral, once started, cannot be easily stopped short of a massive depression. Interest rates could shoot up to 30-50% per year. In the worst-case scenario, hyperinflation, or monthly inflation above 50%, could occur. Such an event nearly always ends with a war or internal revolution. The above scenario is what the strategic planners at the White House, the Treasury and the Federal Reserve desperately fear. And we are now likely on the knife edge, as Gerald Celente of Trends Research Institute has recently predicted.I too, see this as an exceptional time. Fortunately, the White House is quite good at twisting both the arms of powerful people on Wall Street and Main Street. They’ve fired the Chairmen of General Motors and Chrysler and AIG. They’ve forced major solvent banks like Wells Fargo to take the so-called ‘Tarp’ bailout money even when they didn’t need to and didn’t want to. They’ve taken over 80% of all home mortgages with the nationalization of FreddyMac and FannieMae. And they’ve gotten gentle press treatment from those “main stream media” outlets (with the exception of CNBC’s Rick Santelli). I expect that the 3 New York-based bond rating agencies will go along with the US government and maintain the charade of its AAA rating for as long as possible, hoping that a miracle occurs and the fabled “green shoots” quickly grow into a sustained recovery, rather than a man-eating plant. But I’m not optimistic, and I invite any reader to argue against my position. While I am hopeful in the future of humankind and the wonders that the free market and science can bring over the long term, in the short term I fear that the light I see at the end of this tunnel is, in fact, an oncoming train.
Mr. Easton teaches University economics and is passionate about technology and entrepreneurship. He is rosy about the long-term future: �The glass isn�t half full, it�s overflowing!�
Human Events
June 12, 2009
If the United States were Japan back in the 1998, its credit rating would too have been downgraded by now from its AAA credit risk to AA+ or lower. Indeed, the once-stellar credit ratings of European countries Ireland, Italy, and Spain have already been shown the axe. Spain’s unemployment is now edging upward towards 20%. Ireland’s recent loss of its coveted ‘Triple-A’ status has touched off a financial crisis which is rapidly deteriorating into a political crisis. As a result, the center-left party will probably be swept away and replaced with a pro-business center-right party when the voters next get their chance. As the say in Europe, “we like to vote in the socialists when we’re feeling fat and full of cash, but when times get tough economically, we like to replace them with the ‘grown ups’ who won’t run our country into the ground fiscally”.The UK is also teetering on the brink of losing its cherished AAA status. And with it will go the pound (down) and unemployment (up).How does the credit worthiness of a country affect its fiscal health? And why should the politicians and bureaucrats in the White House, the Treasury and the Fed be quaking in their boots right now?Simple. If a country, like the US, should lose its pristine credit rating, it will instantly lose the ability to sell its bonds to many potential buyers. And, God knows, with all the monster deficits being wrung up by the White House these days, the US government needs all the newly minted Treasury Bills – in the tens of billions of dollars - to be safely sold, without fail, week after week. The fate of the US government hangs in the balance by the analysts at the three global credit rating agencies who daily measure the financial health of 125 countries. They’re akin to the 3 personal credit bureaus whose “Fico scores” compiled by the Fair Isaacs company determine whether you can get a credit card or car loan or even a decent home mortgage. With a really good Fico score, like 800 or above, you’ll be offered the lowest loan interest rates. As you score drops down to the 700’s and 600’s, your credit risk goes up, and borrowers begin to disappear. Those that remain will charge higher interest to make the same loan. Your risk of defaulting on the loan jumps. Drop below 600, and you probably can’t get a loan from anyone except, perhaps, the local loan shark – at 10% interest – per month.Unfortunately, many major buyers of bonds -- government or corporate, US or overseas – have restrictions on what they can legally buy. US Treasury bonds are often owned by central banks of other countries -- like China -- and retirement programs, mutual funds and pension funds. Many are only allowed to own only ultra-safe ‘Triple-A’ rated ‘paper’. Lose that rating, and the next day, the market will see hundreds of billions of dollars of US government Treasury bonds dumped as ‘secondary sales’ -- perhaps at fire sale prices.. When such an oversupply of sellers dumps T-bills, their price will fall smartly, and the Treasury bond interest rates will skyrocket, as many of the potential buyers are forced to sell too. So the cost of borrowing money both short and long term will spike up. Then, almost immediately afterwards, the interest rates on credit cards, corporate borrowing, and most importantly, home mortgages will shoot up as well. The rating agencies are terrified to tell the truth. Because the US is the principal money center on the planet, and because the US dollar is the world’s reserve currency, such a lowering of the US AAA rating -- which it has maintained for over a century -- will ripple through the global economy as bond and stock markets recoils in shock and follow the US downward. Credit rating agency fees will soon follow. They have not yet downgraded the UK pound-based ‘Gilts’ (government bonds). These are on the ropes as the UK has been faithfully following in the US footsteps by taking over its banks, printing up funny money to pay the bills, and running massive government deficits to add its own ‘stimulus’ package to the economy. Naturally, the UK’s unemployment rate is shooting upwards as well.The UK’s Labour (socialist) government is teetering on collapse with the lowest voter rating in over 100 years. The fall of their government, due to the fiscal incompetence of Prime Minister Gordon Brown, the former “wunderkind” Chancellor (their equivalent to the Treasury Secretary) and his decade long spend-and-spend policy, is predicted to occur this autumn, if not sooner. When that happens, the dam will likely break, and the UK will be stripped of its AAA rating. The pressure will immediately shift to the US as overseas money -- now funding 50% of government bond sales -- begins to flee. Interest rates will go up as the Treasury must continue to conduct ever-bigger weekly bond sales to fewer and fewer buyers. Eventually, the other show will drop, and the US will lose its Triple-A rating as well.This is uncharted territory. Over the past few decades. countries like Mexico, Argentina, and Zimbabwe have seen their ratings plummet – along with their standard of living. Unemployment figures have recently reached 25% or more in other developed countries. But not yet in the US.Faced with the problem of declining bond sales and raising interest rates killing the economic recovery, and unable to turn to the Chinese or Japanese to bail out the government, the only course of action left will be for the Federal Reserve to “re-liquify” the market. That is, the Fed will simply ‘print up’ more money to use to buy the non-selling Treasury bills itself. And when this new money hits the marketplace, the amount of overall money in circulation will quickly increase. The dictionary defines “inflation” as simply an increase in the money supply. When you increase the total amount of money -- but not correspondingly increase any more goods or services being produced -- the cost of everything you buy denominated in the unit of money (in this case, the dollar) will go up. It takes more of the pieces of paper called ‘dollars’ to buy the same goods and services.Real wealth and hard-assets such as commodities (food, metals, gold) will go up in dollar terms. Other stronger currencies will go up too. Fixed-interest-rate loans (like 30-year fixed mortgages) will be a disaster for the lender and a magical liability for the borrower, who will be able to repay the loans years later in dollars that will be worth far less, if not worthless. Those lenders will be forced out of business by rising costs, reducing the supply of consumer and business credit even more.This negative-reinforcing downward spiral, once started, cannot be easily stopped short of a massive depression. Interest rates could shoot up to 30-50% per year. In the worst-case scenario, hyperinflation, or monthly inflation above 50%, could occur. Such an event nearly always ends with a war or internal revolution. The above scenario is what the strategic planners at the White House, the Treasury and the Federal Reserve desperately fear. And we are now likely on the knife edge, as Gerald Celente of Trends Research Institute has recently predicted.I too, see this as an exceptional time. Fortunately, the White House is quite good at twisting both the arms of powerful people on Wall Street and Main Street. They’ve fired the Chairmen of General Motors and Chrysler and AIG. They’ve forced major solvent banks like Wells Fargo to take the so-called ‘Tarp’ bailout money even when they didn’t need to and didn’t want to. They’ve taken over 80% of all home mortgages with the nationalization of FreddyMac and FannieMae. And they’ve gotten gentle press treatment from those “main stream media” outlets (with the exception of CNBC’s Rick Santelli). I expect that the 3 New York-based bond rating agencies will go along with the US government and maintain the charade of its AAA rating for as long as possible, hoping that a miracle occurs and the fabled “green shoots” quickly grow into a sustained recovery, rather than a man-eating plant. But I’m not optimistic, and I invite any reader to argue against my position. While I am hopeful in the future of humankind and the wonders that the free market and science can bring over the long term, in the short term I fear that the light I see at the end of this tunnel is, in fact, an oncoming train.
Mr. Easton teaches University economics and is passionate about technology and entrepreneurship. He is rosy about the long-term future: �The glass isn�t half full, it�s overflowing!�
Exclusive Interview with Future Prediction Expert Gerald Celente
by Terry Easton
Human Events
June 5, 2009
It’s the end of the world as the Greater Depression hits after 2010’s failed “W-recovery”Human Events had the opportunity to interview forecaster extraordinaire Gerald Celente, President of Trends Research Institute, several days ago -- and the future he predicts looks bleak indeed. In fact, as Mr. Celente sees it, the Great Depression will seem like a mild recession as what waits for us in 2011 hits with the force of a Katrina financial hurricane.In case you’re wondering who Mr. Celente is (if this is still possible), he’s appeared -- along with his predictions -- on Oprah, CNBC, Reuters, NBC, PBS, BBC, the Glenn Beck Show -- the list goes on an on. His Trends Report has been successfully predicting the major future trends impacting our lives for 3 decades, including calling the dot com crash back in the 1990's.Mr. Celente's forecast on our impending future is based on his study of history. He says we are bent on destroying our currency, bankrupting our government, and unleashing a violent citizen-against-citizen eruption as the economy collapses into chaos and martial law fascism. Quite a claim. And God help us if he is right -- again.“We’re sounding the alarm about the ongoing downward economic cycle”, Gerald told Human Events. “In 2002, we predicted that the collapse of the American empire would fall like the World Trade Center in a thunderous crash -- in slow motion before our eyes. And now it’s happening.”Mr. Celente follows over 300 trends: family, crime, war, education, consumer & business patterns which TRI synthesizes to predict the future.“The US is becoming a shadow of what it used to be. Take education for example. The OECD group of developed countries ranks quality of life, education, health care of its member nations. The US is now falling down the table as one piece of data after another shows America is in decline. We’re no longer Win, Place or Show in quality of life, education, longevity… all the essentials where we used to be #1. And our economic underpinnings are failing.”Mr. Celente puts part of the blame squarely on the federal government, and especially FED Chairman Bernanke and Treasury Secretary Geithner, and warns us not to believe a word they say “They’re the same people who didn't see it coming - are now telling us the worst is over, that ‘green shoots are spouting upwards’. But they were wrong before. They’re wrong on this too”.“When you pump out tons of money manure into this system based on nothing – printing press paper, it’s like giving a patient with a chronic disease a pain killer -- it won’t cure the patient.”“But let’s go beyond the economics. Our whole Constitution has been abrogated. The president simply writes an Executive Order to do whatever he wants. Nationalize the banks, take over the insurance industry, automobile industry, health care industry…None of it is constitutional.”When did the problem begin?“After Dwight Eisenhower -- our last great president -- the Allied Supreme Commander in WWII – who warned us of the dangers of the military-industrial complex. We've become completely corrupted.”“We became enmeshed in foreign entanglements. We forgot the lesson of England - and how their global imperial overreach destroyed their empire.” Of course, the average American doesn’t think that we’re an empire. We’re not like the classical empires of old - raping, pillaging and stealing the wealth of invaded peoples. What does Mr. Celente have to say about this?“What we’re doing is squandering our wealth, our resources, the genius of our scientists and the future of our children. We’re over-consuming in every way -- but under consuming our education and focusing on the quantity, not the quality, of what we’ve built. So much of today’s culture is counter-productive to what American built it’s foundation on -- a high-quality producing nation building things, not pushing paper. "And we’ve become not only a consumer society but a low-quality consumer, as well as the most obese society in the world, eating low-quality high-carb, high-fat processed foods.” “We’re now focused on the lowest cost, the lowest common denominator. Not the best and highest quality. We advertise buying cheapest as the most important thing.”Mr. Celente argues that we’ve socially destroyed our productivity and have abandoned it to other countries.“And we have fallen into a moral vacuum. Look at how people used to dress. Smartly. Not like the cheap hoods of today. Fashion now copies the lowest common denominator. Our children wear clothes without belts, and shoes without shoelaces, to copy the styles of the violent criminals -- who have these items removed by the police in prison so they can’t be used as weapons. That’s become the fashion statement of today’s youth. Like rap music from the ghetto. We’ve become an underdeveloped nation.”Mr. Celente observes that "people used to think of America as that shining beacon on the hill with 'liberty and justice for all…' ." So what happened?"Morality is missing from our American public consciousness. Start with Wall Street. It’s run by a criminal gang. The only question is ‘how much can you make, how much can you steal?’ At the bottom, the welfare recipient says ‘how much can I take?’ And the government is in on the take."“Morality is absolutely the issue. We had a government where we were taught all our lives that we are a free enterprise system -- so we depend on our own strength, our entrepreneurial ideas. The world used to look to us for our innovative spirit.”“This is being destroyed before our eyes. And our government has become more interventionist than any of the old empires could imagine.”"Our society is now based on consumption -- 70% of the GDP. This is more than we produce. So to pay our bills, we use funny money invented in 1913 with the creation of the Federal Reserve and the fiat dollar based on credit (debt) -- the fractional reserve system. In 1930's you bought what you could afford. You saved up to buy your home. The easy credit of the 90's has destroyed the country. Now you borrow what you can’t afford - and the nation’s done the same."Mr. Celente predicts the use of printing press money will cause the "greater depression". "I predict continuing deflation of real estate, followed by extreme currency inflation -- ultimately becoming worthless. This is why gold is the only honest money -- the government can't counterfeit it. Look for it to top at least $2000 an ounce""Our unemployment numbers are also bogus. For example, the construction industry is really above 20% , and the government is creating low-level jobs, not real jobs. The US total real unemployment is more like 16%. Before the crisis is over, it will reach 25% - great depression numbers.""When people have lost everything they have nothing to lose. Violence and crime will explode. Look at the OECD figures. The number of people not graduating from high school is exploding -- they're wacked out on drugs. New York City will look like Mexico City in a few years. The collapse of morality from top down -- and especially in the government -- makes it inevitable.""What can we expect in the coming future", we asked."Washington has declared 'Economic Martial Law'. Wall Street is putting Main Street out of business. The key to watch is Christmas sales. They’ll fail. Christmas will be when reality sets in.""Another trend we wrote about over 2 years ago was the tax revolt. What’s happened? Tax revenues have collapsed by 33%. And the wealthy people are leaving.""We predict state secessionist movements will rival the breakup of the Soviet Union.""The only way we can ever recover is to return to individual community, personal responsibility, local government. Next, average will disappear, Quality will return. Look at GM. Junk cars financed by junk bonds. Now owned by a junk government. As a consumer, don’t consume quantity -- consume quality.""How will it all end?", we queried. Will the dollar survive?"The dot com bubble should have burst and gone away in a short sharp recession. But the boys at the Fed re-inflated the economy by lowering interest rates to a 46 year low -- and in turn created the real estate bubble -- much bigger than the dot com bubble. ""Now they’re creating the bailout bubble -- which will ultimately dwarf the real estate bubble. It will cause the implosion of the global economy world wide -- which will not be able to be repaired by creating yet another bubble. Every time the government fails, it tells a bigger lie and then a still bigger lie.""These previous bubbles were not allowed to pop -- but they didn’t destroy the infrastructure of the country. This bailout bubble will.""But this bubble will be the last one. After the final blowout of the bailout bubble, we are concerned that the government will take the nation into war. This is a historical precedent that’s been done over and over again.""So, it’s not that the dollar that will survive. We may not even survive. Look at the German mess after WWI. It gave rise to Fascism and WWII. The next war will be fought with weapons of mass destruction."American 'Liberal Fascism' ? Is it possible? Jonah Goldberg's bestseller raised the alarm two years ago.
Mr. Easton teaches University economics and is passionate about technology and entrepreneurship. He is rosy about the long-term future: �The glass isn�t half full, it�s overflowing!�
Human Events
June 5, 2009
It’s the end of the world as the Greater Depression hits after 2010’s failed “W-recovery”Human Events had the opportunity to interview forecaster extraordinaire Gerald Celente, President of Trends Research Institute, several days ago -- and the future he predicts looks bleak indeed. In fact, as Mr. Celente sees it, the Great Depression will seem like a mild recession as what waits for us in 2011 hits with the force of a Katrina financial hurricane.In case you’re wondering who Mr. Celente is (if this is still possible), he’s appeared -- along with his predictions -- on Oprah, CNBC, Reuters, NBC, PBS, BBC, the Glenn Beck Show -- the list goes on an on. His Trends Report has been successfully predicting the major future trends impacting our lives for 3 decades, including calling the dot com crash back in the 1990's.Mr. Celente's forecast on our impending future is based on his study of history. He says we are bent on destroying our currency, bankrupting our government, and unleashing a violent citizen-against-citizen eruption as the economy collapses into chaos and martial law fascism. Quite a claim. And God help us if he is right -- again.“We’re sounding the alarm about the ongoing downward economic cycle”, Gerald told Human Events. “In 2002, we predicted that the collapse of the American empire would fall like the World Trade Center in a thunderous crash -- in slow motion before our eyes. And now it’s happening.”Mr. Celente follows over 300 trends: family, crime, war, education, consumer & business patterns which TRI synthesizes to predict the future.“The US is becoming a shadow of what it used to be. Take education for example. The OECD group of developed countries ranks quality of life, education, health care of its member nations. The US is now falling down the table as one piece of data after another shows America is in decline. We’re no longer Win, Place or Show in quality of life, education, longevity… all the essentials where we used to be #1. And our economic underpinnings are failing.”Mr. Celente puts part of the blame squarely on the federal government, and especially FED Chairman Bernanke and Treasury Secretary Geithner, and warns us not to believe a word they say “They’re the same people who didn't see it coming - are now telling us the worst is over, that ‘green shoots are spouting upwards’. But they were wrong before. They’re wrong on this too”.“When you pump out tons of money manure into this system based on nothing – printing press paper, it’s like giving a patient with a chronic disease a pain killer -- it won’t cure the patient.”“But let’s go beyond the economics. Our whole Constitution has been abrogated. The president simply writes an Executive Order to do whatever he wants. Nationalize the banks, take over the insurance industry, automobile industry, health care industry…None of it is constitutional.”When did the problem begin?“After Dwight Eisenhower -- our last great president -- the Allied Supreme Commander in WWII – who warned us of the dangers of the military-industrial complex. We've become completely corrupted.”“We became enmeshed in foreign entanglements. We forgot the lesson of England - and how their global imperial overreach destroyed their empire.” Of course, the average American doesn’t think that we’re an empire. We’re not like the classical empires of old - raping, pillaging and stealing the wealth of invaded peoples. What does Mr. Celente have to say about this?“What we’re doing is squandering our wealth, our resources, the genius of our scientists and the future of our children. We’re over-consuming in every way -- but under consuming our education and focusing on the quantity, not the quality, of what we’ve built. So much of today’s culture is counter-productive to what American built it’s foundation on -- a high-quality producing nation building things, not pushing paper. "And we’ve become not only a consumer society but a low-quality consumer, as well as the most obese society in the world, eating low-quality high-carb, high-fat processed foods.” “We’re now focused on the lowest cost, the lowest common denominator. Not the best and highest quality. We advertise buying cheapest as the most important thing.”Mr. Celente argues that we’ve socially destroyed our productivity and have abandoned it to other countries.“And we have fallen into a moral vacuum. Look at how people used to dress. Smartly. Not like the cheap hoods of today. Fashion now copies the lowest common denominator. Our children wear clothes without belts, and shoes without shoelaces, to copy the styles of the violent criminals -- who have these items removed by the police in prison so they can’t be used as weapons. That’s become the fashion statement of today’s youth. Like rap music from the ghetto. We’ve become an underdeveloped nation.”Mr. Celente observes that "people used to think of America as that shining beacon on the hill with 'liberty and justice for all…' ." So what happened?"Morality is missing from our American public consciousness. Start with Wall Street. It’s run by a criminal gang. The only question is ‘how much can you make, how much can you steal?’ At the bottom, the welfare recipient says ‘how much can I take?’ And the government is in on the take."“Morality is absolutely the issue. We had a government where we were taught all our lives that we are a free enterprise system -- so we depend on our own strength, our entrepreneurial ideas. The world used to look to us for our innovative spirit.”“This is being destroyed before our eyes. And our government has become more interventionist than any of the old empires could imagine.”"Our society is now based on consumption -- 70% of the GDP. This is more than we produce. So to pay our bills, we use funny money invented in 1913 with the creation of the Federal Reserve and the fiat dollar based on credit (debt) -- the fractional reserve system. In 1930's you bought what you could afford. You saved up to buy your home. The easy credit of the 90's has destroyed the country. Now you borrow what you can’t afford - and the nation’s done the same."Mr. Celente predicts the use of printing press money will cause the "greater depression". "I predict continuing deflation of real estate, followed by extreme currency inflation -- ultimately becoming worthless. This is why gold is the only honest money -- the government can't counterfeit it. Look for it to top at least $2000 an ounce""Our unemployment numbers are also bogus. For example, the construction industry is really above 20% , and the government is creating low-level jobs, not real jobs. The US total real unemployment is more like 16%. Before the crisis is over, it will reach 25% - great depression numbers.""When people have lost everything they have nothing to lose. Violence and crime will explode. Look at the OECD figures. The number of people not graduating from high school is exploding -- they're wacked out on drugs. New York City will look like Mexico City in a few years. The collapse of morality from top down -- and especially in the government -- makes it inevitable.""What can we expect in the coming future", we asked."Washington has declared 'Economic Martial Law'. Wall Street is putting Main Street out of business. The key to watch is Christmas sales. They’ll fail. Christmas will be when reality sets in.""Another trend we wrote about over 2 years ago was the tax revolt. What’s happened? Tax revenues have collapsed by 33%. And the wealthy people are leaving.""We predict state secessionist movements will rival the breakup of the Soviet Union.""The only way we can ever recover is to return to individual community, personal responsibility, local government. Next, average will disappear, Quality will return. Look at GM. Junk cars financed by junk bonds. Now owned by a junk government. As a consumer, don’t consume quantity -- consume quality.""How will it all end?", we queried. Will the dollar survive?"The dot com bubble should have burst and gone away in a short sharp recession. But the boys at the Fed re-inflated the economy by lowering interest rates to a 46 year low -- and in turn created the real estate bubble -- much bigger than the dot com bubble. ""Now they’re creating the bailout bubble -- which will ultimately dwarf the real estate bubble. It will cause the implosion of the global economy world wide -- which will not be able to be repaired by creating yet another bubble. Every time the government fails, it tells a bigger lie and then a still bigger lie.""These previous bubbles were not allowed to pop -- but they didn’t destroy the infrastructure of the country. This bailout bubble will.""But this bubble will be the last one. After the final blowout of the bailout bubble, we are concerned that the government will take the nation into war. This is a historical precedent that’s been done over and over again.""So, it’s not that the dollar that will survive. We may not even survive. Look at the German mess after WWI. It gave rise to Fascism and WWII. The next war will be fought with weapons of mass destruction."American 'Liberal Fascism' ? Is it possible? Jonah Goldberg's bestseller raised the alarm two years ago.
Mr. Easton teaches University economics and is passionate about technology and entrepreneurship. He is rosy about the long-term future: �The glass isn�t half full, it�s overflowing!�
Bernanke says US economy on cusp of recovery
Bernanke: US economy on verge of recovery and worst of crisis is over, but challenges remain
By Jeannine Aversa, AP Economics Writer
On Friday August 21, 2009
JACKSON, Wyo. (AP) -- Federal Reserve Chairman Ben Bernanke declared Friday that the U.S. economy is on the verge of a long-awaited recovery after enduring a brutal recession and the worst financial crisis since the Great Depression. Economic activity in both the U.S. and around the world appears to be "leveling out," and "the prospects for a return to growth in the near term appear good," Bernanke said in a speech at an annual Fed conference in Jackson Hole, Wyo.
The upbeat assessment was consistent with the Fed's observations earlier this month. The central bank has taken small steps toward pulling back some emergency programs to revive the economy. Still, Bernanke stressed Friday that despite much progress in stabilizing financial markets and trying to bust through credit clogs, consumers and businesses are still having trouble getting loans. The situation is not back to normal, he said. Restoring the free flow of credit is a critical component to a lasting recovery. "Although we have avoided the worst, difficult challenges still lie ahead," Bernanke told the gathering. "We must work together to build on the gains already made to secure a sustained economic recovery."
Strains in financial markets worldwide persist. Financial institutions face "significant additional losses" on soured investments and many businesses and households are experiencing "considerable difficulty" in getting loans, he said. The Fed chief's remarks come two years after the financial crisis broke out and nearly one year after it had deepened to the point of sending the nation into a near meltdown. The bulk of Bernanke's speech was a chronicle of the extraordinary events of the past year. Financial markets took a turn for the worst starting last September and into October, nearly shutting down the flow of credit. The crisis felled storied Wall Street firms and forced the government to take over mortgage giants Fannie Mae and Freddie Mac, as well as insurance titan American International Group Inc. Despite efforts to save it, Lehman Brothers failed. It filed for bankruptcy on Sept. 15, the largest in corporate history, which roiled markets worldwide. To prop up shaky banks, the government created a $700 billion bailout fund, a program that proved wildly unpopular with an American public suffering fallout from the recession. The Fed swooped in with unprecedented emergency lending programs to fight the crisis. It eventually slashed a key bank lending rate to a record low near zero. And Congress enacted programs to stimulate the economy, the most recent coming in February with President Barack Obama's $787 billion package of tax cuts and increased government spending. "Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major firms would have failed and the entire global financial system would have been at serious risk," Bernanke said. In recounting actions by the Fed and the government to battle the crisis, Bernanke didn't acknowledge any missteps by the central bank and other regulators. Critics have argued that the Wall Street bailouts in particular sent a message that companies that take reckless gambles will be rescued by the government. There's also the concern that the rescues put taxpayer's dollars at risk.
The public and lawmakers on Capitol Hill were incensed by the repeated taxpayer bailouts of AIG, totaling more than $180 billion, and outraged after the company paid hefty bonuses to employees who worked in the very division that brought down the firm. The $700 billion taxpayer-funded bailout program used to prop up banks, AIG, General Motors, Chrysler and other companies also drew criticism from the public and politicians. But unlike in the 1930s, Washington policymakers this time acted aggressively and quickly to contain the crisis, said Bernanke, a scholar of the Great Depression. "As severe as the economic impact has been, however, the outcome could have been decidedly worse," he said. Global cooperation in battling the crisis was crucial, with central banks slashing interest rates and the U.S. and other governments delivering fiscal stimulus, he noted. "The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge," the Fed chief observed.
Sponsored by the Federal Reserve Bank of Kansas City, the conference draws a virtual who's who of the financial world -- Bernanke's counterparts in other countries, academics and economists. This year's forum focused on lessons learned from the crisis and how they can be applied to prevent a repeat of the debacles.
To that end, Bernanke again called a rewrite of the U.S. financial rule book -- something Congress is currently involved in. He again pressed for stricter oversight of companies -- like AIG -- whose failure would endanger the entire financial system and the broader economy. Obama would tap the Fed for that job, something many lawmakers in Congress don't like.
Bernanke also said the U.S. needs a process to wind down big, globally interconnected companies, much like the Federal Deposit Insurance Corp. does for failing banks. "Looking forward, we must urgently address structural weaknesses in the financial system, in particular in the regulatory framework, to ensure that the enormous costs of the past two years will not be borne again," he said.
By Jeannine Aversa, AP Economics Writer
On Friday August 21, 2009
JACKSON, Wyo. (AP) -- Federal Reserve Chairman Ben Bernanke declared Friday that the U.S. economy is on the verge of a long-awaited recovery after enduring a brutal recession and the worst financial crisis since the Great Depression. Economic activity in both the U.S. and around the world appears to be "leveling out," and "the prospects for a return to growth in the near term appear good," Bernanke said in a speech at an annual Fed conference in Jackson Hole, Wyo.
The upbeat assessment was consistent with the Fed's observations earlier this month. The central bank has taken small steps toward pulling back some emergency programs to revive the economy. Still, Bernanke stressed Friday that despite much progress in stabilizing financial markets and trying to bust through credit clogs, consumers and businesses are still having trouble getting loans. The situation is not back to normal, he said. Restoring the free flow of credit is a critical component to a lasting recovery. "Although we have avoided the worst, difficult challenges still lie ahead," Bernanke told the gathering. "We must work together to build on the gains already made to secure a sustained economic recovery."
Strains in financial markets worldwide persist. Financial institutions face "significant additional losses" on soured investments and many businesses and households are experiencing "considerable difficulty" in getting loans, he said. The Fed chief's remarks come two years after the financial crisis broke out and nearly one year after it had deepened to the point of sending the nation into a near meltdown. The bulk of Bernanke's speech was a chronicle of the extraordinary events of the past year. Financial markets took a turn for the worst starting last September and into October, nearly shutting down the flow of credit. The crisis felled storied Wall Street firms and forced the government to take over mortgage giants Fannie Mae and Freddie Mac, as well as insurance titan American International Group Inc. Despite efforts to save it, Lehman Brothers failed. It filed for bankruptcy on Sept. 15, the largest in corporate history, which roiled markets worldwide. To prop up shaky banks, the government created a $700 billion bailout fund, a program that proved wildly unpopular with an American public suffering fallout from the recession. The Fed swooped in with unprecedented emergency lending programs to fight the crisis. It eventually slashed a key bank lending rate to a record low near zero. And Congress enacted programs to stimulate the economy, the most recent coming in February with President Barack Obama's $787 billion package of tax cuts and increased government spending. "Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major firms would have failed and the entire global financial system would have been at serious risk," Bernanke said. In recounting actions by the Fed and the government to battle the crisis, Bernanke didn't acknowledge any missteps by the central bank and other regulators. Critics have argued that the Wall Street bailouts in particular sent a message that companies that take reckless gambles will be rescued by the government. There's also the concern that the rescues put taxpayer's dollars at risk.
The public and lawmakers on Capitol Hill were incensed by the repeated taxpayer bailouts of AIG, totaling more than $180 billion, and outraged after the company paid hefty bonuses to employees who worked in the very division that brought down the firm. The $700 billion taxpayer-funded bailout program used to prop up banks, AIG, General Motors, Chrysler and other companies also drew criticism from the public and politicians. But unlike in the 1930s, Washington policymakers this time acted aggressively and quickly to contain the crisis, said Bernanke, a scholar of the Great Depression. "As severe as the economic impact has been, however, the outcome could have been decidedly worse," he said. Global cooperation in battling the crisis was crucial, with central banks slashing interest rates and the U.S. and other governments delivering fiscal stimulus, he noted. "The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge," the Fed chief observed.
Sponsored by the Federal Reserve Bank of Kansas City, the conference draws a virtual who's who of the financial world -- Bernanke's counterparts in other countries, academics and economists. This year's forum focused on lessons learned from the crisis and how they can be applied to prevent a repeat of the debacles.
To that end, Bernanke again called a rewrite of the U.S. financial rule book -- something Congress is currently involved in. He again pressed for stricter oversight of companies -- like AIG -- whose failure would endanger the entire financial system and the broader economy. Obama would tap the Fed for that job, something many lawmakers in Congress don't like.
Bernanke also said the U.S. needs a process to wind down big, globally interconnected companies, much like the Federal Deposit Insurance Corp. does for failing banks. "Looking forward, we must urgently address structural weaknesses in the financial system, in particular in the regulatory framework, to ensure that the enormous costs of the past two years will not be borne again," he said.
Thursday, August 13, 2009
Federal deficit higher in July, $1.27T this year
Record federal deficit climbs higher, $180.7 billion in July, $1.27 trillion so far this year
By Martin Crutsinger, AP Economics Writer
On Wednesday August 12, 2009, 3:07 pm EDT
WASHINGTON (AP) -- The federal deficit climbed higher into record territory in July, hitting $1.27 trillion with two months remaining in the budget year. The Treasury Department said Wednesday that the July deficit totaled $180.7 billion, slightly more than the $177.5 billion economists had expected. The Obama administration is projecting that when the current budget year ends on Sept. 30, the imbalance will total $1.84 trillion, more than four times last year's record-high. The soaring deficits have raised worries among foreign owners of U.S. Treasury securities including the Chinese, the largest holder of such debt. Massive amounts of government spending to combat the recession and stabilize the U.S. financial system have pushed the deficit higher. The cost of wars in Iraq and Afghanistan, along with depleted government tax revenues, also are major factors. The July deficit reflected government spending of $332.2 billion, a record amount for any month and up from outlays of $263.3 billion in July 2008. Of that increase, about $25 billion reflected the fact that Aug. 1 was a Saturday this year, requiring many government benefit checks to be sent out earlier and counted as spending in July. Government receipts totaled $151.5 billion, down 5.6 percent from a year ago. It marked the 15th consecutive month that government receipts have been lower than the same month in the prior year, illustrating how deep the recession has cut into tax receipts. Through the first 10 months of the budget year, receipts total $1.74 trillion, down 16.9 percent from the same period in 2008. Outlays totaled $3 trillion over the past 10 months, up 21.1 percent from the same period in 2008. The resulting deficit of $1.27 trillion compares to an imbalance of $388.6 billion during the year-ago period. The deficit for all of 2008 was $454.8 billion, the current record holder in dollar terms. President Barack Obama's economic team sought to reassure the Chinese during high-level talks last month that the administration is committed to reducing the deficits once the current economic and financial crises have been resolved. So far, interest rates have remained low as the Federal Reserve has kept the federal funds rate, a key short-term interest rate at a record low near zero in an effort to jump-start the economy. At the end of a two-day meeting Wednesday, Fed officials repeated their view that the weak economy was likely to "to warrant exceptionally low levels of the federal funds rate for an extended period." The concern, however, is that rates could begin rising despite the Fed's efforts if foreigners suddenly lose confidence in the government's ability to manage its debt burden. In bond markets, prices fell Wednesday after a fairly weak auction of $23 billion in 10-year Treasury notes. The Treasury Department is auctioning a record $75 billion in debt this week. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.75 percent from 3.70 percent ahead of the auction results and 3.67 percent late Tuesday. Bond prices jumped Tuesday as stocks fell. Investors will track demand because a drop in buyers could force the government to increase its payout. The resulting rise in rates would raise borrowing costs for the government as well as consumers and businesses, and could end up slowing the economy. The total public debt now stands at $11.6 trillion. Interest payments on the debt cost $452 billion last year, the largest federal spending category after Medicare-Medicaid, Social Security and defense.
By Martin Crutsinger, AP Economics Writer
On Wednesday August 12, 2009, 3:07 pm EDT
WASHINGTON (AP) -- The federal deficit climbed higher into record territory in July, hitting $1.27 trillion with two months remaining in the budget year. The Treasury Department said Wednesday that the July deficit totaled $180.7 billion, slightly more than the $177.5 billion economists had expected. The Obama administration is projecting that when the current budget year ends on Sept. 30, the imbalance will total $1.84 trillion, more than four times last year's record-high. The soaring deficits have raised worries among foreign owners of U.S. Treasury securities including the Chinese, the largest holder of such debt. Massive amounts of government spending to combat the recession and stabilize the U.S. financial system have pushed the deficit higher. The cost of wars in Iraq and Afghanistan, along with depleted government tax revenues, also are major factors. The July deficit reflected government spending of $332.2 billion, a record amount for any month and up from outlays of $263.3 billion in July 2008. Of that increase, about $25 billion reflected the fact that Aug. 1 was a Saturday this year, requiring many government benefit checks to be sent out earlier and counted as spending in July. Government receipts totaled $151.5 billion, down 5.6 percent from a year ago. It marked the 15th consecutive month that government receipts have been lower than the same month in the prior year, illustrating how deep the recession has cut into tax receipts. Through the first 10 months of the budget year, receipts total $1.74 trillion, down 16.9 percent from the same period in 2008. Outlays totaled $3 trillion over the past 10 months, up 21.1 percent from the same period in 2008. The resulting deficit of $1.27 trillion compares to an imbalance of $388.6 billion during the year-ago period. The deficit for all of 2008 was $454.8 billion, the current record holder in dollar terms. President Barack Obama's economic team sought to reassure the Chinese during high-level talks last month that the administration is committed to reducing the deficits once the current economic and financial crises have been resolved. So far, interest rates have remained low as the Federal Reserve has kept the federal funds rate, a key short-term interest rate at a record low near zero in an effort to jump-start the economy. At the end of a two-day meeting Wednesday, Fed officials repeated their view that the weak economy was likely to "to warrant exceptionally low levels of the federal funds rate for an extended period." The concern, however, is that rates could begin rising despite the Fed's efforts if foreigners suddenly lose confidence in the government's ability to manage its debt burden. In bond markets, prices fell Wednesday after a fairly weak auction of $23 billion in 10-year Treasury notes. The Treasury Department is auctioning a record $75 billion in debt this week. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.75 percent from 3.70 percent ahead of the auction results and 3.67 percent late Tuesday. Bond prices jumped Tuesday as stocks fell. Investors will track demand because a drop in buyers could force the government to increase its payout. The resulting rise in rates would raise borrowing costs for the government as well as consumers and businesses, and could end up slowing the economy. The total public debt now stands at $11.6 trillion. Interest payments on the debt cost $452 billion last year, the largest federal spending category after Medicare-Medicaid, Social Security and defense.
Home foreclosure rates continue to rise
WASHINGTON – The number of U.S. households on the verge of losing their homes rose 7 percent from June to July, as the escalating foreclosure crisis continued to outpace government efforts to limit the damage. Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice, such as a notice of default or trustee's sale. That's the highest monthly level since the foreclosure-listing firm began publishing the data more than four years ago. Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier. Nevada had the nation's highest foreclosure rate for the 31st-straight month, followed by California, Arizona, Florida and Utah. Rounding out the top 10 were Idaho, Georgia, Illinois, Colorado and Oregon. Among cities, Las Vegas had the highest rate, followed by the California cities of Stockton and Modesto. While there have been numerous recent signs that the ailing U.S. housing market is finally stabilizing after three years of plunging prices, foreclosures remain a big concern. Foreclosures are typically sold at a deep discount, hurting neighbors' home values. The mortgage industry has been slow to adapt to the surge in foreclosures. Many lenders have needed government prodding to get up to speed with the Obama administration's plan to stem foreclosures. The Treasury Department said last week that banks have extended only 400,000 offers to 2.7 million eligible borrowers who are more than two months behind on their payments. More than 235,000, or 9 percent, those borrowers have enrolled in three-month trials in which their monthly payments are reduced. "The volume of loans that are in distress simply overwhelms" those efforts, said Rick Sharga, RealtyTrac's senior vice president for marketing.
Wednesday, July 22, 2009
Fiscal ruin of the Western world beckons
For a glimpse of what awaits Britain, Europe, and America as budget deficits spiral to war-time levels, look at what is happening to the Irish welfare state.
By Ambrose Evans-Pritchard
Events have already forced Premier Brian Cowen to carry out the harshest assault yet seen on the public services of a modern Western state. He has passed two emergency budgets to stop the deficit soaring to 15pc of GDP. They have not been enough. The expert An Bord Snip report said last week that Dublin must cut deeper, or risk a disastrous debt compound trap. A further 17,000 state jobs must go (equal to 1.25m in the US), though unemployment is already 12pc and heading for 16pc next year. Education must be cut 8pc. Scores of rural schools must close, and 6,900 teachers must go. "The attacks outlined in this report would represent an education disaster and light a short fuse on a social timebomb", said the Teachers Union of Ireland. Nobody is spared. Social welfare payments must be cut 5pc, child benefit by 20pc. The Garda (police), already smarting from a 7pc pay cut, may have to buy their own uniforms. Hospital visits could cost £107 a day, etc, etc. "Something has to give," said Professor Colm McCarthy, the report's author. "We're borrowing €400m (£345m) a week at a penalty interest." No doubt Ireland has been the victim of a savagely tight monetary policy - given its specific needs. But the deeper truth is that Britain, Spain, France, Germany, Italy, the US, and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly. The West cannot support its gold-plated state structures from an aging workforce and depleted tax base. As the International Monetary Fund made clear last week, Britain is lucky that markets have not yet imposed a "penalty interest" on British Gilts, given the trajectory of UK national debt – now vaulting towards 100pc of GDP – and the scandalous refusal of this Government to map out any path back to solvency.
"The UK has been getting the benefit of the doubt, both in the Government bond market and also the foreign exchange market. This benefit of the doubt is not going to last forever," said the Fund. France and Italy have been less abject, but they began with higher borrowing needs. Italy's debt is expected to reach the danger level of 120pc next year, according to leaked Treasury documents. France's debt will near 90pc next year if President Nicolas Sarkozy goes ahead with his "Grand Emprunt", a fiscal blitz masquerading as investment. There was a case for an emergency boost last winter to cushion the blow as global industry crashed. That moment has passed. While I agree with Nomura's Richard Koo that the US, Britain, and Europe risk a deflationary slump along the lines of Japan's Lost Decade (two decades really), I am ever more wary of his calls for Keynesian spending a l'outrance. Such policies have crippled Japan. A string of make-work stimulus plans - famously building bridges to nowhere in Hokkaido - has ensured that the day of reckoning will be worse, when it comes. The IMF says Japan's gross public debt will reach 240pc of GDP by 2014 - beyond the point of recovery for a nation with a contracting workforce. Sooner or later, Japan's bond market will blow up. Error One was to permit a bubble in the 1980s. Error Two was to wait a decade before opting for monetary "shock and awe" through quantitative easing. The US Federal Reserve has moved faster but already seems to think the job is done. "Quantitative tightening" has begun. Its balance sheet has contracted by almost $200bn (£122bn) from the peak. The M2 money supply has stagnated since January.
The Fed is talking of "exit strategies".
Is this a replay of mid-2008 when the Fed lost its nerve, bristling over criticism that it had cut rates too low (then 2pc)? Remember what happened. Fed hawks in Dallas, St Louis, and Atlanta talked of rate rises. That had consequences. Markets tightened in anticipation, and arguably triggered the collapse of Lehman Brothers, AIG, Fannie and Freddie that Autumn.
The Fed's doctrine – New Keynesian Synthesis – has let it down time and again in this long saga, and there is scant evidence that Fed officials recognise the fact. As for the European Central Bank, it has let private loan growth contract this summer. The imperative for the debt-bloated West is to cut spending systematically for year after year, off-setting the deflationary effect with monetary stimulus. This is the only mix that can save us. My awful fear is that we will do exactly the opposite, incubating yet another crisis this autumn, to which we will respond with yet further spending. This is the road to ruin.
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