Look, things in the U.S. are certainly better, even though I am bearish on the economy, but they are just a “less worse” type of better rather than a true recovery or whatever you want to call it. Someone once commented that I would not know a V shaped recovery if it sat on my face, or something to that, as the recession in the early 1980’s saw a lag in initial claims of some 6 months before the recovery in employment happened. Boy, I hope that person is reading this because that comment was made in august or September of last year, almost a full year ago, and initial claims barely broke the 500K mark as we speak, is that the ”V” we are looking for? The fact is in a post credit collapse employment is a leading indicator, I said it a year ago and I am saying it now and the only difference is the unemployment rate is HIGHER today than a year ago.

What changed over the last 12 months?

Nothing. Wait, I take that back, a lot. The U.S. is now $3T more in debt, we performed a “stress test,” which we are telling the ECB to do, more on that in a minute, and the Fed expanded its balance sheet by how much? What did we get for all of that? A 5.2% GDP print based on inventory a rebuild that was probably premature, if we take away the stimulus would firms have rebuilt their inventories so much? I think not. Unemployment is slightly better thanks to temporary jobs and government hiring, not exactly what I would call “robust” at all. The bottom line is all my criticism of the stimulus was right, it failed.

The banks are better you say, right? Are they? If you think that, well, I just don’t know what to tell you. Did the banks get rid of the “toxic assets?” Did they write all their bad debts off? Did real estate values increase? How about commercial real estate, is that sector flying strong again? No. Are banks loaning money again? Sure, if you have a credit score of 850 or better and don’t need the money they will gladly make a loan to you. However, if you need to refinance your home you better hope you qualify for a government program or you are out of luck. The “stress test” was a joke and meant nothing because we are at the outer limits of the stress test, remember, 10% unemployment, etc., etc.? What saved the banks was one thing and one thing only, the repeal of mark-to-market account, period, end of story.

If we brought back mark-to-market accounting today we would have a handful of big institutions left, I guarantee it. Just look at Wells Fargo’s balance sheet with the “Pick-A-Pay Loans” they inherited, worse, they bought, from Wachovia, the LTV’s, except for Texas, God Bless Texas, are all horrible. I am not saying WFC would fail, I am just saying they would have to realize pretty significant losses is all. It is no coincidence that right after, literally right after, the repeal of mark-to-market accounting rules by the FASB, by Congressional pressure I might add, bank earnings went through the roof. What replaced mark-to-market accounting? Mark-to-model accounting, do you know who made that model famous? Enron, need I say more?

Europe

Now, Timmy Geithner is over in Europe telling the Europeans to do a “stress test” to let the world know all is well. Sorry Tim, I do not think this will work since it is technically not the banks in question, but rather the sovereign debt that they are holding. Why not do a stress test on governments instead, maybe that will solve the problem. This is a banking problem, again, that was brought on by huge deficit spending and countries inability to service their debt loads, this is big, huge actually. While this will impact banks it is not really banks that caused it, but politicians who decided to bribe the people with their own money.

It is likely that one of the PIGS, or whatever we are calling them now, will default given the issues they have and the inability of politicians to say no to spending. It is just odd, it always has been, that the people demand all this gravy from the government in the form of give a ways, tax credits or straight cash in some form. Don’t these people realize that they are only getting back their own money? Actually, if governments spent less and had lower debts that means they would have lower overall taxes which means the people would have more money on their own… they would be better off! However, the people insist on being bribed with their own money and politicians are only too happy to oblige.

The point is that this bigger than the banks as we are talking about the solvency of countries now. Bailouts are much more difficult to do for countries and the implications of a default by any country has widespread ripples that most people have no idea can or would occur. Even if Hungary or Greece defaults it is a huge deal and will impact governments and banks all over the world. I have been saying this for months now, Greece is a big deal and all those people saying it is not are, well, disqualified to render their opinions anymore as the markets have spoken and they have sided with me.

Run a stress test, it doesn’t matter because it really doesn’t matter Tim. The problem is with government spending this time and I do not think mark-to-model accounting can fix this problem.

The real problem

The real problem is I do not know where the sovereign debt problems will end, I know it will get worse. I know that more European countries will succumb to this very same issue as most European countries are socialist by their very nature and their debt levels are very high. As the weaker countries fall they will drag the stronger countries down with them, it is just how it works. I made a call that the Euro will fall to 1.18, we are about there. Do I think it will go lower? Yes, to parity in the near future. I think 1.16 is the next level, but the ECB will have to intervene and China has to intervene as a weak Euro is a major problem, it is, another story for another time. The currency will not survive without a mechanism to eject the weak states, period.

After the carnage in Europe is done, I do not have a timetable for that, it could be tomorrow or 10 years from now, but more than likely it will be sooner rather than later, the debt problems will spread, to the U.S. We have $13T in debt and an economy that is not recovering, I am not happy about that, but those are the facts. We are spending $4.9B a day, 3 times the amount George Bush, not exactly the face of fiscal conservatism I might add, was spending. We are in major trouble and what are our politicians doing? Trying to figure out how to get stimulus 3 out the door, that’s what.

I have been saying for months that our debt to GDP level is almost at parity, but it takes the Drudge Report for people to start listening? OK, at least people are listening now. The problem is we have no politicians willing to take the steps to fix out problems. Go ahead, elect the Republicans, look what they did from 2000-2006, they really helped to speed the process up, in my opinion. Of course, out current President and Congress has surely kicked what the Republicans did into hyper drive as they added 30% to our debt load in less than 2 years, that is $3T, an astounding figure. Neither of these parties really want to fix the problems, in my opinion, because they have a vested interest in perpetuating the problems so they can stay in power, it is just how it works.

What this means is we are all in very big trouble. I am not talking about, oh, gee, go buy an ounce of gold and protect yourself from inflation, I am talking about the Weimar Republic, hyperinflation, type of trouble. I see no way out besides inflation and in a big way. As Paul Krugman points out, there is a big difference between Greece and the U.S., we can print our own money. We also know Ben Bernanke has no problem with hitting that print money either. I am also confident that the Fed is, basically, completely incompetent.

If we cannot go to the market to finance our debt, which we have trillions of dollars of that most of it matures in under 10 years, the Fed will monetize it. That is how we will deal with our sovereign debt crisis, we will print our way out of it and it will be the very worst thing we can do. Instead of cutting our government, spending or doing anything else that is logical, because politicians want to get reelected, they will choose to inflate their way out. Will gold protect you? Yes, but so will food and any other useful commodity including toilet paper. It disturbs me to no end that we are where we are and that the President is listening to the likes of Mr. Krugman who thinks deficits don’t matter, they do, and that since we can print money it is OK, printing money is not OK.

In the meantime I am still short the market. We will have a bounce I am sure and I almost took a nice broad long position today, but I passed. While I am sure we will have that bounce I did not think the risk reward was worth it. My target is still 900 on the S&P 500.

What took him so long to figure out that there were problems with this sector? After picking through most of the earnings reports and seeing massive “goodwill” and “intangible” builds along with serious problems with deteriorating credit quality, even with PNC that everyone fawned over last week, take a look at their unaudited nonperforming loans which shows that the credit quality is building, not easing. Just because actual defaults are easing doesn’t mean that loans that are 30 to 89 days late are getting better, which is the case with PNC and most regional’s.

That is the rub right there, next quarter I believe, and this is my opinion, there will be much larger defaults than predicted. I am basing that on what is currently being listed in the 30-89 day late category, which technically is not considered in default, yet. Let us not forget we have the suspension of mark-to-market rules which severely impairs our ability to value assets on these banks balance sheets. We also know, based on the actual earnings, that commercial real estate is in trouble and defaults are rising, rapidly.

Further evidence of this is Capmark’s bankruptcy which happened last night and 550 South Hope Tower was just appraised at half its 2007 value. There is a second shoe to drop and it is dropping now, get out of the way. If you choose not to get out of the way it could get ugly, in my opinion, and there is nothing that can be done about it. It is becoming increasingly more apparent that the TARP revolving door will find its way into smaller regional banks, but that does not mean CRE will be saved. It simply means that smaller banks will now become zombie banks, like we need small Citi’s or BoA’s.

I know the Cramer, who’s book Getting Back to Even must be an I am sorry about his lousy stock picks, and the talking heads on CNBC think CRE is fine, but it is not. Anyone who looks at the defaults in this area or the YoY price declines and knows anything about how these loans work would never even suggest that CRE is fine, it’s plain ridiculous to make that statement. It is an enormous problem and it is growing at an exponential rate that should have the most diehard bull concerned.

What I am trying to say is that Dick Bove, who put a buy on Lehman just before its collapse, keeping in mind that rumors of its impending doom were circulating for months before hand and some trading desks in Asia were rejecting trades from them back in March of 2008, from what I heard, is a little late on the downgrades. This is not new, analysts are always late on upgrades or downgrades, well Meredith Whitney is pretty good I think, but other than that they are more momentum players, in my opinion. It is not that I would do anything based on what Bove says anyhow, but I am sure some people do, why I do not know, but whatever.

At the end of the day, if you take a hard look, with your own two eyes, at the actual earnings I do not think you would be bidding these stocks up. The credit losses are going to be bigger than you think, unless employment comes down immediately, which will not happen. Most loans that fall 60 days late, never are made good, that is a statistical fact, they may hang in there for a quarter or two, but eventually they fully default and that is what I am seeing. Given the amount of games we are seeing I would not be surprised to learn that these institutions are deliberately re-dating payments on many of these loans to keep them from defaulting.

Credit quality is still deteriorating and that is the problem and it will be a continuing problem until unemployment is solved. Even after unemployment is solved credit will continue to be poor for at least a quarter or so if not longer. I did not like this sector before when he liked them and I still don’t like this sector, I don’t care that it went up there is simply too much risk for the reward. Moving forward I think you could do much better elsewhere, especially in a sector that can leverage a weak USD currency and to companies that have exposure to Asia which has much better prospects for growth than the US or Europe. That is just my opinion and one must do their own research and abide by their own risk tolerance.

Capmark filed for bankruptcy tonight, which was not surprising, but it this will create a stir in the markets on Monday. It marks me happy that I am short as hell, but I am sure this is spun as some sort of green shoot, on CNBC at least.

Capmark, created out of the commercial real estate arm of GMAC, was negotiating with its creditors, Citi and JP Morgan, but apparently, that did not go as planned. The move also wipes out private equity stakes from KKR, Goldman Sachs Capital Partners and Five Mile Capital which bought Capmark for $1.5B in cash and $7B in debt. KKR already wrote down their investment in this company.

According to the bankruptcy filing, the group owned 75.4 percent of the company while GMAC, or the General Motors Acceptance Corp, owned 21.3 percent. Employees and directors owned most of the remaining stock. Equity investors are typically wiped out in bankruptcy.

Capmark listed $20.1 billion in assets and $21 billion in liabilities as of June 30, 2009 in the bankruptcy filing, which was made in U.S. Bankruptcy Court in Wilmington, Delaware.

Pretty interesting for a Sunday night and I guess this confirms the rumors about the commercial real estate business being just fine…

Looking through the company’s earnings I see nothing that makes me think the crisis has really ended or that credit is even close to expanding or delinquencies are subsiding. They have a very complex balance sheet so picking it a part is not an easy task and who knows what they have in off balance sheet items, I am sure it is pretty ugly whatever is sitting in La-La land in the Caymans.

Here is what I see, lending is down across the board, except for foreign lending. Total commercial lending is $318,886 vs. $333,484 which is clearly down, but not horrible but not good either. On the consumer side it is not much better as we see $450,784 vs. $458,036 which, again, is down and shows the direction of lending. The number is much better than the YoY number, but that is not surprising. However, are these numbers indicative of the rapid recovery that we keep hearing about on CNBC? Not a chance.

The other side of the credit story is the build is reserves for credit losses which look not so bad in WFC’s case of only an additional $1B. This is on top of billions already and the firm has a total of $24B in total loan loss reserves, not a good side. Remember the Pick-a-pay loan? That is the reverse amortization loan Wachovia screwed people over with? Yeah, they are modifying those like crazy, some 900,000+ and counting, but we know those modifications fail within 90 days so look for more defaults in the near future.

Not only that, but total nonperforming assets for 3Q equaled $23.45B for WFC, and CNBC can’t figure out why the stock down ticked on the earnings. Not only that, but those damn Pick-a-pay loans keep coming up and there was a negative change in the balance on these garbage loans, a negative adjustment in the value of $18B in fact. Of course, this did not impact the earnings of WFC because Congress and the FASB allow the company to lie to you. There is also a section in the report where it shows another $18B in loans that are 90 days late, whether this is the same item or not is unclear, but it is likely that it is. Either way, this confirms that the credit quality of all banks across the country is deteriorating.

Would I own WFC? Not a freaking chance, not even with your money. They have $57B in reverse amortization mortgages on the books that they are working like mad to modify, but we know the modifying these things still fail. Not only is the firm keeping $57B in the loans on the books, but the average LTV is 105% and the actual total carrying value out of that $57B is $37B, unreal. We are also seeing WFC take $6.5B in commercial real estate losses, yup that other shoe that is dropping or that we are told is not dropping, but it is dropping. Now, the PCI or nonaccrual PCI data in the WFC earnings do not impact the earnings, but the negative adjustments show what is to come.

Like I said, the WFC balance sheet is incredibly complex and we do not know what is held off balance sheet. However, what is on there, IMHO, is not pretty and even though much has already been written down, it does not look like it is getting much better. In fact, much of the problem assets seem to be getting worse, from what I can see. Piecing together from what other big and small banks have reported, credit is extremely tight and getting tighter and the quality is deteriorating which means more losses to come.

According to the group’s voodoo economics, or survey data, 80% of their group declares that the economy is growing again. However, I beg to differ since whenever the majority of economists agree on anything they are typically wrong. Case and point, 2002 and several other times all throughout history, not to mention that the vast majority of economists CNBC and the major media outlets parade have this recession confused with the typical inventory recession, which this is not. This is a credit collapse recession, not the typical recession that we have experienced most times all throughout our history.

In fact, the closest example I can draw upon for a correlation to what we are going through is the Great Depression. During other recessionary periods we have not suffered the same symptoms that we have today and anyone who claims we have is simply not looking at the facts. During the 2000-2003 recession did credit collapse along with major banks and investment banks? No. How about in the early 1990’s? Kind of, but that was limited to smaller, much smaller savings and loans and we still did not see the sheer size of institutions fail like we have over the past 2 years. In fact, the credit contraction is astounding if we examine this period to the early 1990’s and nullifies any real comparison.

Other than that period we literally have to go back to the 19030’s for anything close to what have seen in the markets or the banking industry. It was/is that severe and the global impact that profound. It is also vastly different from the consumer prospective because the consumer is so leveraged compared to the 1930’s, now we have credit cards, mortgages of all flavors and consumer debt like we have never seen. Back in the 1930’s consumer debt was limited to the wealthy or upper middle class, mortgages were much different than they are today and HELOC or home equity loans were basically non-existent back then. All of these newer things makes today’s problems actually much worse than the problems of 80 years ago. Not to mention the derivative dangers, according to some experts these products basically guarantees the worlds GDP almost twice over.

How these experts, and I use that term loosely, determine that the recession is over with consumer credit contracting at a record pace, home prices contracting, government stimulus supporting GDP, banks still on the government life support system, the suspension of mark-to-market still hiding major losses and a host of other painfully obvious items indicating there is much more pain to come is beyond me. We know that the market has gone nowhere in real returns when we look at it priced in gold or subtract the dollars losses from the S&P’s return’s, but then again the market is not the economy and should never be confused with the economy.

I think that is the disconnect that economists have as they view the market as the indicator of recovery. If the market is the great forecaster that everyone thinks it is and truly looks 6 to 9 months out then why in 2007 did it hit all-time highs? In fact, stocks are horrible indicators of the economy and history is on my side on this one. See 2002 when the ISM gave a false impression of a recovery and stocks rallied only to hit new lows a few months later, the same thing happened several times throughout history. Before the 87 crash, during the 73-74 decline, in the 1930’s there were spectacular rallies. The Nikkei has had 420,000 total point rallies during the 1990’s, the so-called “lost decade”, some of which we 60% plus rallies. Many of these events were correlated with economic recoveries when, in fact, they were technical events and had nothing to do with economics.

Rising stock markets are not always a measure of economic stability or recovery. In many cases it is simply technical’s or, in our case, HAL9000 buying, since volume is at an all-time low and fund flows suggest it is not the retail investor. This is a traders market and only a fool would buy to own this market. I am not even sure I would rent this market since we had weak volume today and the market could not even hold a 60 point rally with the second string traders in today. The economic data is weak, bank earnings are probably going to be mixed and we know commercial real estate is collapsing, $22B in defaults in August of 09 versus $3B in August of 08 come on that’s a problem.

I may have missed a few points, 60 on the S&P to be exact, but I have done OK this year. Not to mention I bought silver at $9, gold at $880, platinum at $900, and palladium at $225. I don’t do everything right, but I realized I could not fight the liquidity bubble and I do know that this same liquidity bubble will implode eventually taking the US dollar along with it.

This has been our main concern for some time, in the residential market, as Prime and Jumbo loans are getting ready to reset in the coming years. This, of course, is if they have not reset already because once the LTV, loan-to-value, reaches a certain point the interest rate automatically can reset. I am going off of memory, but I believe the LTV is about 120% or so that causes these loans to reset. We are there and then some.

Here is a disturbing figure, 1 in 8 homeowners are either delinquent or entering the foreclosure process in America, according to the Mortgage Bankers Association, MBA for short. That is pretty scary to say the least and with unemployment initial claims increasing over the last few weeks this number may increase. The good news is that sub-prime loans are being foreclosed on at a lesser rate than before, eventually everyone will be out of their homes and this number will go to zero soon.

However, we are talking about prime loans, these are fixed rate conforming loans with 20% down and good credit. This, my friends, is a major problem and one that we knew was coming for some time now. What this means is much more bad news in the coming months as many of these loans are securitized. However, the intervention of the government will more than likely lessen the impact of the growing problem, but it will drive the deficit higher, so much for Obama cutting his $1.8 trillion dollar deficit last night.

Here is what Jay Brinkmann, MBA’s Chief Economist, has to say:

“The rise in prime fixed-rate foreclosures can largely be attributed to unemployment” he said.

The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.24 percent of all loans outstanding as of the end of the second quarter of 2009, up 12 basis points from 9.12 percent the first quarter of 2009, and up 283 basis points from 6.41 percent one year ago, the MBA said in its National Delinquency Survey.

The delinquency rate breaks the record set last quarter. The records are based on MBA data dating back to 1972.

So, nothing to see here, just move along as I am sure the media will spin this, somehow. I suspect they will point out that the sub-prime loans are not defaulting as bad anymore, they can’t go beyond zero, and completely ignore the prime mortgage problem. However, add this to commercial real estate, which is down 36% year-over-year a much further decline than residential real estate collapse, then the problems just keeps growing. Again, unemployment is the problem and until that turns we will continue to see further deterioration of the credit markets.

To illustrate this point, corporate defaults are through the roof this year, which is why I sold my high yield funds last week. According to the Financial Times corporate bond defaults reached 201 this year with $453B of debt. Compare that to last year where we had 126 defaults with a total of $433B and I think you can see the problem. The current default rate on high yield bonds is 8.58% this year, so far, and is expected to climb to 14.53% in 2010 taking out the prior record of 12.54% defaults in 1991 when junk bonds blew up big time.

As you can see, everything is fine, no problems at all. The markets are sure to continue its steepest market rally ever rising 49% since march, outpacing the 1929-1933 44% rally. I guess the new normal of a high unemployment, revenue-less, earnings-less, and growth-less recovery means that the markets can have the greatest percentage gain ever, in only 5 months, and should continue forever. I am kidding of course, this thing looks ugly and makes me question what is really going on.

Of course the story is really being spun as a ‘good thing’ for lenders who are receiving the keys to commercial property, but even the media admits that it is hurting commercial mortgage backed securities, CMBS. Regardless, I believe this to be the beginning of a very bad trend that will be the 2 of the 1-2 punch for banks.

The residential mortgage market was big, but the commercial mortgage market is even bigger which has me concerned. Since the consumer is not coming back anytime soon it is safe to assume that sales will slump and many businesses will fail. As businesses fail the real estate they occupy is vacant with no income coming in and worthless until the bank can unload it. However, given the depth of this downturn there will not be the level of interested buyers available to pick up this slack.

This will lead to defaults on commercial mortgages and banks getting hurt, but since most of these mortgages were securitized as well then the holders of the paper will get crushed. The way that these tranches of CMBS were divvied up it does not take a high rate of delinquencies for the paper to become relatively worthless. If the securities are worthless than banks and other institutions holding them will be forced to take a loss, kind of.

Since the FASB relaxed the mark-to-market rules the full losses do not have to be realized which is, again, postponing the problem to a future date. Even though they do not have to mark the full loss the shear amount of this paper on the books will make many firms incur significant losses, specifically regional banks who are not ‘too big to fail.’ This just increases my reluctance to even look at a Regions or other regionals at this time.

The CNBC.com story said this over the deterioration of the commercial real estate business;

U.S. values in the second quarter declined by 6.9 percent, easing somewhat from the 10.8 percent drop in the first quarter, IPD said.

Declines were sharpest in office properties, down 7.8 percent, with industrial properties — warehouse and distribution centers — falling 7.5 percent and apartment building values off by 5.8 percent. Retail properties, such as shopping centers and malls, recorded the shallowest decline, at 5.1 percent.

Year-to-date office and industrial property led the decline, each down 18.2 percent. Apartment building values fell 16.5 percent. Retail was down 14.1 percent.

This problem is not just in the US it is also in the UK as well, which makes this another global problem. While the story frames this significant decline as ‘less bad’ you have to consider that the 6.9% decline in the second quarter was in addition to the 10.8% decline in the first quarter which is a sharp contraction. To soft peddle this decline is simply irresponsible as this is just one of the many other shoes to drop. Unfortunately this shoe has already dropped, but has not hit the floor yet so we do not know the full extent of the damage this will cause.

This 17% total 2009 decline is much greater than the 2008 commercial real estate decline. This is déjà vu of 2008 with residential real estate, if we want to make a comparison. This should make everyone a little nervous as the economy is, at best, simply leveling out and far from any uptrend contrary to popular belief.

This is a major problem since consumer spending is 70% of GDP and the longer consumers saves, which is good, versus spend the longer the economy may remain in a slump. This combined with reduced credit available is not helping the bulls case. in fact, the spin is that consumer confidence is not indicative of how consumers behave, which is a 180 degree turn from the last positive reading which was proclaimed as “the return of the consumer.”

The index came in at 46.6 versus 49 reported last month and, more important in my opinion, consumer expectations decreased as well. Consumer expectations was reported at 62 versus the last reading of 65.5 which is a pretty substantial drop. What is the reason for this drop in confidence and expectations? Jobs.

The hope of a jobless recovery is an oxymoron at best and a foolish belief unless you do fancy footwork with the economic numbers, which is the norm nowadays. Unemployment is going to rise, we know this, and confidence will remain low as long as those 500K a week numbers continue to pour in. The good news is that the weekly unemployment numbers cannot continually come in at 500k a week, eventually there will be no one left to fire, sorry, layoff or right size.

The spin is unreal and I cannot help to think that perhaps things are better than I think, then I look at the numbers again and statements like this; “Consumers continued to rate current conditions unfavorably in July. Those saying business conditions are “bad” increased to 46.3 percent from 45.3 percent, however, those saying conditions are “good” increased to 9.1 percent from 8.1 percent. (emphasis mine on this ultra low “positive number) Consumers’ assessment of the labor market deteriorated further. Those claiming jobs are “hard to get” increased to 48.1 percent from 44.8 percent (emphasis mine), while those claiming jobs are “plentiful” decreased to 3.6 percent from 4.5 percent. (emphasis mine, who could be saying jobs are plentiful?)

Commercial mortgage backed securities are also off the charts for defaults, up 585% from one year ago to $28.65 billion and the 10th straight month of increases for defaults. Why this is not talked about is beyond me, but I guess it doesn’t fit into the view of the media as part of the recovery we are in. What effect will these defaults have is what many are wondering and my answer is none.

With government backstops on everything there will be no repercussions of defaults, which is crazy. This ultimately means 2 things:

1. We really do not know how bad things are; and
2. How much is this really going to cost th taxpayers? This is why we need to audit the Federal Reserve.

The free markets are anything but free with guarantees on everything and the ban on short selling, through SEC rules and the fact that banks are not lending out securities to short. This is the greatest orchestrated recovery I think the world has ever seen, but the repercussions will be emense.

While equities will do OK, I guess until the top line numbers actually mean something, but the dollar will suffer. like it or not the Fed is printing money and monetizing the debt. All of the money we are borrowing will devalue the dollar and countries will stop buying our debt. I know, every expert says where can they go, the dollar is the most liquid and, laughably, “stable” asset they can buy.

The fact is they can buy the Euro, it is getting deep enough to be realistic in the near future, they can buy commodities, other hard assets and in China’s case more companies. The fact is the dollar is getting risky, in my opinion, simply because of our debt load. I know everyone says inflation is not the problem, and it isn’t know, but what is a problem is devaluation which has the same effect as inflation.

In short, consumers saving their money is good and the pundits should realize this. A society built on debt is dumb and should not ben encouraged, but that is what out government is doing.