You must remember this period of time

Posted by Ray on June 29, 2010 under Economy | Be the First to Comment

All the talk about the double dip recession is being blamed on not enough stimulus, but that is not true since there is a lot of money being spent right now because of the stimulus. The final spending of the stimulus funds will end this year, right near the elections ironically enough, but it is clear it did not work. We now have Paul Krugman out railing about a deflationary depression because governments are cutting back stimulus efforts. My question to him is, if stimulus is the answer and we are spending it now why are we seeing disinflationary forces? His excuse does not hold water. It is the massive government intervention that is causing the problems, not a lack of stimulus, but too much stimulus.

I am in disbelief how anyone could not have seen these problems coming, the signs were everywhere. Employment was the best indicator, but look at money velocity, what you can piece together at least, and declining credit combined with higher foreclosures, bankruptcies and weak retail sales it is clear as day that at best we stabilized at less bad and at worst we are heading for really tough times. This is not something I wanted to happen I think you would be hard pressed to find anyone wishing pain and suffering on anyone, but the signs were all there. Not to mention the implications of Europe tightening its belt and trying to force China to revalue its currency, talk about insanity, we took it to the next level.

So, Krugman may be right and we may have a deflationary depression, but I am sure it will last for only a little while. Because Bernanke will not stand for a deflationary depression, which is ironic considering Ben is the Great Depression expert and he is creating another one, and he will print our way out settling for an inflationary depression. The unfortunate part is Mr. Krugman has the reasons wrong for the depression we are in and he doesn’t seem to understand that you cannot cure debt problems with more debt, it just doesn’t work. Our debt is so large that is will now be a complete drag on GDP which means lower growth, the new normal anyone? Again, his reasoning is flawed because we just spent $1T, give or take between all the programs, on stimulus and we are not even done spending and he is calling this a deflationary depression because there is no stimulus? Maybe he likes to confuse the less informed or something, but talk about being wrong, wow.

My point is that you need to remember today, what is going on, the money that is being spent, what politicians are saying and blaming because they will, whichever party, will point to right now saying we should have done more or we should have done less. The fact of the matter is we are doing both, stimulus is declining and we are not adding more to it, and keep in mind that the data we are all looking at is still coming from April or May when much more money was being spent. All that data, even further back then April, is also showing significant decline in economic activity when the stimulus was running full speed ahead. To clarify, just because the spending is slowing now don’t blame the negative data on that since the data was generated prior to the slowdown in stimulus spending. Furthermore, employment never recovered or even showed significant improvement given the price tag.

Will the decline of stimulus spending hurt? Yes, a lot, but it needs to stop somewhere. The problem with the stimulus is that it is cruel because it extends the bad periods much longer than they should have lasted by blocking the markets from finding a true bottom. The more you spend, the more it distorts reality and lures people into a false sense of security, but when it stops the real pain begins because those fooled may have to lay more people off and readjust for a post stimulus world. So not only do the long-term unemployed receive the proverbial shaft, but newly hired employees may also receive the same treatment after they thought they caught a break.

Right now you can see what worked and what did not, but in a few months many might not remember. They may point to the 5.6% GDP print and say remember how good things were then? Well, they weren’t that good to the unemployed or those in bankruptcy or losing their homes, but that is how it will e framed and there will be cries for more stimulus. Those cries must be rejected and the only government stimulus that must continue is unemployment insurance. You cannot dump millions of Americans who are not unwilling to find a job it is that no jobs exist for them.

We tend to have very short memories and forget things quickly because of who knows what, I blame TV. You cannot forget what is happening right now because if you do they might talk you into another round of stimulus or God knows what else. We are in trouble, I know this, but we tried Krugman’s way and it failed, let’s give it the “let’s not give it the college try” and see what happens. Besides all of that, we simply cannot afford more spending especially for mediocre results, I am being generous here. While Krugman is grabbing the headlines for using the “D” word, let’s not forget I started using the term depression months ago based on the employment figures, food stamp numbers and the way foreclosures and bankruptcies were growing because I was paying attention and not traveling to my vacation house in the tropics unlike some BY Times economist.

What year is this?

Posted by Ray on April 23, 2010 under Economy, Main | Read the First Comment

Quotes from The Great Depression: A Diary (click to buy). If I left the dates out you might think I am quoting a modern day book, but I am not. Only a fool thinks history does not repeat itself.

“It is also interesting to note that the effort to create credit by having the Federal Reserve Bank buy U.S. bonds in the open market has failed. Huge reservoirs of credit are available but banks won’t make loans because business is too uncertain. It seems to prove that when business starts moving credit will expand automatically but the artificial creation of credit will not expand business.” November 18, 1933

“The U.S. Treasury will face the task in a few weeks of paying out huge amount for bond interest and maturities. Where will the money come from – greenbacks (printing press)?” November 18, 1933

“Industry continues to boom and the entire public seems to be speculating in the stock market. Almost as bad as 1929. Last Friday was a record day of the year with 9 million shares changing hands. The whole recovery has been so spectacular as to almost be unbelievable. Because so much of it is based on inflation theories I have doubted its permanency. The next few months should tell the story. In the meantime lawyers and professional groups have failed so far to share in the boom.” July 3,1933 – sound familiar? The Depression was just getting going and the boom was because of FDR confiscating the gold and adjusting the price, effectively taking U.S. citizens off of the gold standard, but the U.S. still honored international settlements in gold.

“For the 12th consecutive day stocks have been drifting lower. Congress starts an investigation of short selling.” April 13, 1932

“During the boom years it became popular to buy real estate at inflated prices on a shoestring. This was done by encumbering it with a 1st, 2nd and 3rd mortgage. Second mortgage companies were formed to buy 2nd mortgages at a discount of 10% to 25% per year. It has proven to be a bad investment because at each sheriff sale the 2nd is wiped out. Most of these companies have frozen assets and seem to be heading for bankruptcies.” About June 5, 1931

“Magazines and newspapers are full of articles telling people to buy stocks, real estate, etc. at present bargain prices. They say that times are sure to get better and that many fortunes have been built this way. The trouble is that nobody has money.” July 30, 1931 – He further went on to say in 5/16/32; “This advice was premature. Here a year later prices are 1/3 of what they were in 1931.”

The point of this is that we may very well be in one of the peaks and valleys that were fairly common during the 1930’s. If you look at the economic policies of Hoover, which FDR took over and expanded, they are very similar to what we see the present government doing. As it turns out these policies actually extend the problems because banks cannot purge the troubled loans and assets, sound familiar, which created zombie banks. Eventually banks began to get states to pass laws restricting withdrawals, they did this with life insurance loans as well, and that still did not stop banks from failing. Bad mortgage debt is what caused the banks to fail, sound familiar?

The assets of depositors ended up frozen and shareholders were wiped out when a bank closed, they had double liability back then which means shareholders could lose more than they invest in bank stocks if the bank failed, they would get sued basically. Many of these banks did reopen thanks to Hoover’s Reconstruction Finance Corporation, but the savings accounts or passbooks were frozen. These passbooks were used as currency as people would sell them for pennies on the dollar, in hopes the institution would allow withdrawals at full face value. It is interesting to see how this al played out and what the average person was thinking during those times. I have to tell you, this book is all one needs to read about the Depression. I am sure Ben Bernanke learned a lot about the technical’s of the Depression, but unless he read this book he does not know squat.

The real killer, according to Benjamin, was the Smoot-Hawley Act, which placed high tariffs on imports to prevent dumping. Europe had devalued their currency so the tariff was put in place to make sure people bought American. It did not work and made things worse. Does this sound familiar with the rhetoric coming out of Washington about China’s currency value? The interesting thing is that, just like now, all countries were devaluing their currency in order to remain competitive and export in order to improve their own economies, it failed. When every country is devaluing and trying to export, as Benjamin points out, who is left to buy anything?

I will post more quotes from this book, but I urge everyone to read it. The similarity between the 1930’s and today is amazing to say the least. They tried to create inflation and failed, just like Ben is trying, and they tried the NRA, like the stimulus bill but they made the NRA much more strict and imposed higher pay and shorter hours so they had to hire. The NRA put unions in a position of power and several times Benjamin pointed out that labor troubles would come and they did. The current administration also wants more union jobs and activity, I fear that will fail to as unions strike often and are the primary reason the U.S. is not competitive in manufacturing, among other reasons.

History repeats itself and if we forget that basic rule we will always be doomed to repeat it. People who claim this is nothing like the 1930’s are insane. Sure, it is not as severe, maybe it will be if we relapse, but we are showing many of the same symptoms as were present in 1931, 1932 and 1933. Even the market action is somewhat similar. The one difference I foresee in the future is inflation, which only materialized in the 1930’s through price controls and increasing the price of gold, but overall inflation was very tame in the Depression as there was no money velocity, again, sound familiar?

We are slightly more creative in 2010 so I expect money velocity or a full blown currency crisis in the near future. In 1933 we really could not destroy our currency because of the gold standard, we did float the dollar though, but in today’s world we have nothing backing our money so it could really go to zero. It’s scary if you think about it.

Joe, please pass whatever you’re smoking

Posted by Ray on under Politics | Be the First to Comment

I am not a fan of the current administration, I think most people know this by now and no I am not a racist or anti-government, but the action lately has just gone over the top of prudent governance. Joe Biden, at a fund raising event, said that the economy will be adding 500,000 jobs a month in the near future. Joe, whatever you are smoking, please pass it because you are feeling no pain and I could use that for a little while.

The notion that this economy will create 500K jobs a month in the “next few months” is absurd and irresponsible. How in the world will this happen? We are still seeing 450K+ a week in initial claims which shows that employers are still laying people off. The work week is still well below 40 hours, coming in at a little over 33 hours a week, and wages are starting to deflate. If this economy was going to create 500K jobs in the next few months we would not be seeing what we are seeing. I understand this administration is under tremendous pressure to boost employment, but there is a difference between giving people hope and flat out lying, Joe is doing the latter.

I suspect he made this statement because census hiring will kick into high gear for April and with the passage of the health care bill the government will begin hiring for the new agencies being created. However, those jobs are not “real” jobs, yes they pay people and they do work, but they are not private sector jobs which actually create products or services. Government jobs create nothing and are actually a drain on the citizens of the country as the salaries for these positions must be paid for by some type of tax or fee which sucks capital out of the economy.

Clearly Joe was being Joe when he made that statement because, as usual, it was reckless and inaccurate, like most of the things Mr. This is a Big F****** Deal says. I see a trend with this administration that is eerily like that of FDR’s administration, please read The Great Depression: A Diary by Benjamin Roth to see the similarities, which would not stand for criticism of any kind. I get many do not like the Tea Party because there are a few nut jobs in the crowd, as with any crowed, but look at what they are doing to them. They branded them anti-government, racist and dumb which is largely unfounded accusations and I seem to recall liberal rallies which were supported by the Democrats as citizens exercising their right to free speech. However, when the speech is criticizing the Democrats, well, they can’t have that now, can they?

Regardless, let’s take a look at another report about the health care bill. A new report from the Associated Press today says the bill will cost far more than what was projected by the CBO and by the Democrats, are you really surprised by this? The bill will cost $311B between 2010 – 2019 and, which the CBO already admitted, will raise premiums for everyone. However, there is way more cost than most people think about, let’s take a look at some back of the envelope costs.

The bill mandates that everyone has to have coverage or face a fine, but because of this mandate the government will offer generous subsidies up to individuals/couples making $88K a year. Who knows if these subsidies get bigger or smaller in the future, but we will use what we know for sure. The good news is that the poor will get “free” coverage and as your income increases so will the amount you will have to pay. The range of premiums owed is based on a sliding scale and will cost you between, assuming you make less than $88K, 3% – 9.5% of your income.

That is a heavy burden on a family even making $88K a year and for the kind of poor, making, say, $50K a year, you are taking a big chunk of a person’s income which they have no choice but to pay. On $50K a year they will end up paying about $1,500 a year for health insurance, $125/month, that is a lot of money considering the bi-weekly pay is about $1,200 for someone in that income range. This means that money will impact their standard of living perhaps preventing them from even owning a home. At the very least this bill will pull billions out of the economy every year, that is not what we need right now.

If we look at the 32M this bill will insure times the estimated about they will have to pay, the number gets pretty ugly. If we assume the average person will pay $3,500 a year in premiums, who much money will that take out of the economy? The answer, $112,000,000,000, almost 1% of the current GDP. If we look at the average subsidy you will receive, which the government, i.e. other taxpayers, will provide people, how much would that be? The answer, $288,000,000,000 (32M x $9,500 – average subsidy by my calculations based on current insurance premiums on an annual basis). I am not sure how Congress came up with the cost of this bill being only $930B or so, but I do not want whoever crunched those numbers to do my taxes.

The point I am making is that this bill which is being bragged about by the Democrats is not good for business and not good for the middle class. Let’s not forget that the real middle class, couple, will more than likely make more than $88K per year which means no subsidy at all for them. Paying for a $12K or $1,000 a month for a health insurance policy is a lot to ask. Most people do not realize that making $100K in today’s world is not that much money, after taxes, mortgage payments, property taxes, energy costs, kids and so forth.

The worst part is that the GAO has estimated that by 2020 93 cents on every dollar collected by the government through taxes will have to go towards entitlement programs. That means only a small portion will be available to go towards everything else we have, you know, like debt servicing costs. Does anyone think taxes on everyone are not going to go higher? I know, they promised that only the rich will pay higher taxes, news flash, politicians lie, shocking. If we do not have a VAT, value added tax, it will have to come from higher income taxes and, more than likely, we will end up with a VAT AND income taxes which would be horrible. I am not even going to go into the tax base they used to calculate this, but I will say it is absurd.

No one did not want to reform health care we just wanted it done right. I think people would have been for the stimulus if it was done right. The problem is that these programs were not done right and will cost us all dearly in the future. This is not about party lines, the Republicans stink as well, this is about the countries very survival. To put this into perspective, Obama just said I walked into a bad situation with trillion dollar deficits and $8T in national debt. Well, it is Obama’s second year in office and the national debt is now reaching $13T and somewhere along the way we are being told that 2 wrongs make a right, because bush did it first.

This is unsustainable and I mean any annual deficit is now unsustainable. Adding even $500B a year is irresponsible and will have catastrophic consequences let alone adding trillions more to this figure. People say we have to run deficits because we have trade deficits. What they don’t tell you is our trade deficits are not that big and we have enough debt outstanding that would cover our trade deficits for a very, very long time. I believe we are past the point of no return and freezing spending after increasing the budgets of government agencies by 20% is doing nothing to reduce our long-term debt obligations. Just like we are seeing in Greece now, this will all come to ahead very soon and who will bail us out?

In the meantime, if you actually believe we will have 500K a month job growth in the next few months while initial claims come in at 450K per week, pass me whatever you’re smoking.



The Fed lost its appeal!

Posted by Ray on March 19, 2010 under The Federal Reserve | Read the First Comment

Thanks to Bloomberg and Fox we might now find out who borrowed what and what was provided as collateral to the Fed during the crisis we may finally know thanks to a lengthy legal battle. The Fed might continue to fight, but it may not go much further, just show us already as this data is almost 2 years old, I am sure we can handle the truth.

However, you will see that the Fed took some very questionable items as collateral or so we think. Some bankruptcy documents do show that the Fed did take some stocks and other, well, crap for collateral during the height of the financial crisis. What many people do not know is that it is against the rules for the Fed to take credit risk since it is the U.S. governments bank. These documents will either confirm or deny those rumors, but I am betting on the former, if we ever really get to see them.

Could this be the end of the Fed as we know it? I hope so because since the Fed was enacted, in secret in 1913, we have witnessed the dollar lose 97% of its value, a depression in 1920-21, the crash of 1929 leading to the Great Depression (now known to be the Fed’s fault for tightening credit), more boom-bust cycles than any other time in history, the 1970’s (really, need I say more about the 70’s? I think they introduced bell bottoms too, but I cannot prove it), the 1980 near collapse of the U.S. treasury market, the first banking crisis, Long-Term Capital, the dotcom bubble, loose monetary policy for the last 30 years, the housing bubble, the complete meltdown of the financial system, and, for its final act, complicity to destroy the dollar’s value with its current balance sheet.

Really, I cannot think of any reason why we need to reform the Federal Reserve system.

Mort Zuckerman

Posted by Ray on December 15, 2009 under Main | Read the First Comment

Mort Zuckerman was just on Power Lunch, clearly he was the smartest man on the show, but nevertheless his comments regarding the Audit the Fed Bill makes me wonder, is he retarded? He runs newspapers for a living so clearly, well you would think anyhow, he can read, but he obviously has never read the Audit the Fed Bill because he puts up the same paper defense as every other opponent to the bill does. He claims it will take away the ‘independence’ of the Fed and make it a political entity.

Is he serious? The Fed has lobbyists which mean it already is political and when we are talking about auditing what the Fed is taking in for collateral, how they are arriving at interest rate decisions and basically removing the veil of secrecy it is not taking away their independence. Especially since the audits are 6 MONTHS AFTER the fact. I am sorry, 6 months after a decision is made does not mean Congress will have any impact on any decision Uncle Ben makes, period end of story.

Mr. Zuckerman also claims it will weaken the dollar, excuse me? Clearly the man is retarded because the dollar only strengthened last year because we were going to blow up. We were only going to blow up because the Fed screwed up so badly, end of story Mr. Zuckerman. Uncle Ben is going to print the USD out of existence because that is his plan, read my other posts, I know what he is trying to do and believe me he has Obama’s blessing to do it. However, like everything else Uncle Ben has tried to do he will fail and kill the USD.

Finally, Mr. Zuckerman, I guess you did not have history in your remedial classes in school, so let me fill you in on a few events. We had a chaotic system before hand, mostly with bank failures, but even those ‘panics,’ as they were called, were few and far between, i.e. the panic of 1907. The Fed was supposed to end those problems with the banking system, right? Let me answer that for you, yes it was. Well, need I remind you of the little thing called the Great Depression? We had massive bank failures and the Depression itself was caused by the Fed, just like the problems we have now.

In fact, since the Fed was created we have had more serious problems at an ever increasing rate than at any other time in our history, period. If you knew anything, Mr. Zuckerman, you would know that was 100% true. I admit that we need a lender of last resort, but that can easily be accomplished by the Treasury department, but having a simple solution or, more to the point, a public, open solution, is not in the banks best interests. So, Mr. Zuckerman, you clearly are on the side of the elites, not the peoples which is ironic since you peddle your product to the masses. Do us all a favor, stay behind a desk and keep your uninformed opinions to your freaking self you moron.