March 23, 2012
By Michael Pento
Please don’t believe the hype that the American economy is healing. While it is true that some data is showing improvement, the true fundamentals of the economy continue to erode.
America’s trade deficit hit $52.6 billion in January. That’s the highest level since October of 2008 and is clear evidence that we have fully reverted back to our under production, under saving and overconsumption habits with alacrity.
The nation’s debt has now eclipsed 100% of our GDP, after 13 straight quarters of paying down debt households have now started to releverage their balance sheets and total non-financial debt is at a record 250% of GDP. The sad truth is that the U.S. economy is more addicted to debt than at any other time in history.
But most importantly, please don’t believe the lie that the Fed’s money printing is laying fallow at the central bank and that inflation isn’t harming the American middle class and the economy. Consumer prices rose 0.4% in the month of February alone and year over year increases in food and gas prices are 5% and 12% respectively. Money supply growth is up 10% in the past 12 months and banks are now buying U.S. Treasuries with reckless abandon.
Commercial banks have purchased $78.2 billion in Treasury and Agency debt in January and February of 2012. That’s already more than the entire amount of purchases made in all of 2011 and is on track to add nearly ½ trillion dollars of government debt to commercial banks’ balance sheets. The Fed buys these Treasuries from banks and that enables them to buy more debt from the government. Using that process, the Fed is able to monetize both existing and newly issued Treasury debt. Since the government gets the money first and distributes it into the economy, the money supply increases without any direct benefit of capital goods creation.
February 27, 2012
By Rowena Mason
In a stark warning ahead of next month’s Budget, the Chancellor said there was little the Coalition could do to stimulate the economy.
Mr Osborne made it clear that due to the parlous state of the public finances the best hope for economic growth was to encourage businesses to flourish and hire more workers.
“The British Government has run out of money because all the money was spent in the good years,” the Chancellor said. “The money and the investment and the jobs need to come from the private sector.”
Mr Osborne’s bleak assessment echoes that of Liam Byrne, the former chief secretary to the Treasury, who bluntly joked that Labour had left Britain broke when he exited the Government in 2010.
He left David Laws, his successor, a one-line note saying: “Dear Chief Secretary, I’m afraid to tell you there’s no money left”.
Mr Osborne is under severe pressure to boost growth, amid signs the economy is slipping back into a recession.
The Institute of Fiscal Studies has urged him to consider emergency tax cuts in the Budget to reduce the risk of a prolonged economic slump.
But the Chancellor yesterday said he would stand firm on his effort to balance the books by refusing to borrow money. “Any tax cut would have to be paid for,” Mr Osborne told Sky News. “In other words there would have to be a tax rise somewhere else or a spending reduction.
“In other words what we are not going to do in this Budget is borrow more money to either increase spending or cut taxes.”
The strongest suggestion of help for squeezed family budgets came from the Chancellor’s claim that he was “very seriously and carefully” considering plans to help lower earners by raising the personal allowance for income tax, a proposal that has been championed by Nick Clegg, the Deputy Prime Minister.
But he implied there would be no more help for motorists struggling with record petrol prices this spring. “I have taken action already this year to avoid increases in fuel duty which were planned by the last Labour government,” he said.
The Chancellor’s tough words were echoed by Liberal Democrat Jeremy Browne, the foreign minister, who warned that Britain faced “accelerated decline” without measures to tackle its debt and increase competitiveness.
In an article published today in The Daily Telegraph, he writes that Britain’s market share in the world used to be “dominant” but was now “in freefall” compared with the soaring economies of Asia and South America. “This situation has been becoming more acute for years,” he adds. “It is now staring us in the face. So we need to take action.”
February 17, 2012
By Tyler Durden
There are those who have been waiting to buy undilutable precious metals in response to a headline announcement from the Fed that it is starting to buy up hundreds of billions of Treasurys or MBS. This is understandable – after all that is precisely the trigger that the headline scanning robots which account for 90% of market action in the past year are programmed to do. And the worst thing that one can do is put on the right trade at the wrong time. Yet it may come as a surprise to some, that while the world was waiting, and waiting, and waiting, for Bernanke to hit the Print button, virtually every other central bank was quietly unleashing it own mini tsunami of liquidity. In fact, as Morgan Stanley puts it, “the Great Monetary Easing Part 2 is in full swing.” But wait, there’s more: in an Austrian world, where fundamentals don’t matter and only how much additional nominal fiat is created is relevant, it is sheer idiocy to assume that the printers will stop here… or anywhere for that matter. They simply can’t, now that the marginal utility of every dollars is sub 1.00 relative to GDP creation. This means that by the time the Global Weimar is in full swing, we will see much, much more easing. Sure enough, MS anticipates an unprecedented additional round of easing in the months ahead. So for those waiting to buy gold et al at the same time as DE Shaw’s correlation quants do, the time will be long gone. Because slowly everyone is realizing that it is not the Fed that is the marginal creator of fake money. It is everyone.
February 13, 2012
By Michael Pento
They always tell you no one rings a bell when a market top or bottom is reached. But a bell is now ringing for the end of the thirty-year bull market in U.S. debt. And ironically, the bell ringer is our very own U.S. Treasury!
The U.S. Treasury Borrowing Advisory Committee, which brings together dealers and Treasury officials, met last week in a closed meeting at the Hays Adams Hotel. The committee members unanimously agreed that the Treasury should start permitting negative interest rate bids for T-bills. In other words, newly issued T-bills from the Treasury would offer investors a guaranteed negative return if held to maturity. The mania behind the U.S. debt market has reached such incredible proportions that investors are now willing to lend money to the government at a loss; right from the start of their investment. This is a clear signal that the bond market can’t get any more overcrowded and can’t get any more overpriced.
Of course, many in the MSM contend there is justification for today’s ridiculously low bond yields and that a bubble in U.S. debt is impossible. But those are some of the same individuals who claimed back in 2006 that home prices could never decline on a national level and any talk of a bubble in real estate was nonsense. These are also the same people who assured investors in the year 2000 that prices of internet stocks were fairly priced because they should be valued based upon the number of eyeballs that viewed a webpage.
But we can easily see the future of U.S. Treasuries from viewing what is occurring in Portugal and Greece today. Portugal and Greece were able to borrow tremendous amounts of money because they converted their domestic currencies to the Euro and therefore, had the German balance sheet behind them. If these two countries had to borrow in Escudo’s and Drachma’s instead, yields would have increased much earlier, forcing a reconciliation of the debt years before a major crisis occurred. Therefore, their current debt to GDP ratios would be much more manageable. But now their bond bubbles have burst. The yield on the Portuguese 10 year was 5% a year and a half ago; today it is 15%. Greek 10 year bonds yielded 5% two and a half years ago; today they are 34%! The bottom line is that these counties were able to borrow more money than their economy was able to sustain because their interest rates were kept artificially low.
January 26, 2012
A government watchdog says U.S. taxpayers are still owed $132.9 billion that companies haven’t repaid from the financial bailout, and some of that will never be recovered.
The bailout launched at the height of the financial crisis in September 2008 will continue to exist for years, says a report issued Thursday by Christy Romero, the acting special inspector general for the $700 billion bailout. Some bailout programs, such as the effort to help homeowners avoid foreclosure by reducing mortgage payments, will last as late as 2017, costing the government an additional $51 billion or so.
The gyrating stock market has slowed the Treasury Department’s efforts to sell off its stakes in 458 bailed-out companies, the report says. They include insurer American International Group Inc. (AIG), General Motors Co. (GM) and Ally Financial Inc.
If Treasury plans to sell its stock in the three companies at or above the price where taxpayers would break even on their investment – $28.73 a share for AIG, $53.98 for GM – it may take a long time for the market to rebound to that level, the report says. AIG’s shares closed Wednesday at $25.31, while GM ended at $24.92. Ally isn’t publicly traded.
It will also be challenging for the government to get out of the 458 companies as the market remains volatile and banks struggle keep afloat in the tough economy, it says.
Congress authorized $700 billion for the bailout of financial companies and automakers, and $413.4 billion was paid out. So far the government has recovered about $318 billion. The bailout is called the Troubled Asset Relief Program, or TARP.
“TARP is not over,” Romero said in a statement. She said her office will maintain its commitment to protect taxpayers for the duration of the program.
Treasury spokesman Matt Anderson said the department “has made substantial progress winding down TARP and has already recovered more than 77 percent of the funds disbursed for the program, through repayments and other income.”
“We’ll continue to balance the important goals of exiting our investments as soon as practicable and maximizing value for taxpayers,” Anderson said.
January 26, 2012
By Joseph J. Thorndike
So what did we learn from Mitt Romney’s tax returns? On one level, not much. The guy makes a lot of money. Big deal. He shows no wage or salary income; instead, he lives off his investment income. Again, big deal.
All in all, the Romney returns — all 500-plus pages of them — are a predictable yawn, at least for anyone seeking scandal and salacious detail.
Still, their release is important. On one level, it provides a measure of reassurance that the candidate is playing the tax game straight, if perhaps a bit aggressively.
But the real value of Romney’s disclosure is educational. Tax returns of the rich and famous have a way of highlighting important policy issues that often get ignored in public debate.
In the 1930s, for instance, President Franklin D. Roosevelt leaked the names of well-heeled tax avoiders, as well as details from their tax returns, hoping it would grease the skids for progressive tax reform. The gambit worked.
Rich, Gingrich and crazy rich
And in 1969, when the Treasury Department disclosed that 155 high-income households had paid no income taxes, the resulting uproar started the nation on its long and unhappy journey to the modern alternative minimum tax. And that was without specific details about the identities of those taxpayers.
January 25, 2012
By David Redick
The US economy continues to decline, despite the government bailouts and stimulus programs since 2008. The problem is that these measures only prop-up a system of fake money and crony-capitalism that was doomed from its start, and must be replaced.
Key events which started this decline were creation of the Federal Reserve System (Fed) in 1913, FDR’s ‘big government’ projects and confiscation of private gold starting in 1933, and Nixon’s termination of the right to redeem dollars for gold in 1971.
Both gold events were prompted by people and nations redeeming their paper dollars for gold when they feared (correctly) that the USA gold supply was getting low. Spending and debt have soared ever since because there is no limit imposed by gold redemption. This essay offers the monetary gold standard as the key solution, in parallel with reduced spending, and the end of Empire-USA and its wars for oil and control.
I have previously written (here) about the benefits of converting the USA to a free-market ‘gold as money’ monetary system. The primary cause of the ongoing economic decline of the US and Europe is fake money, which has been created out of thin air to fund excessive spending and debt. The desperate ‘patches’ and ‘bailouts’ used by the Fed have not solved the problem. The Eurozone suffers from the same problem, and the economies are dangerously ‘linked’ via the banks, and IMF. The bureaucrats are now considering a ‘world currency’ such as the IMF ‘Special Drawing Rights’ (SDR) to end the crash and keep their jobs. Sound money by a gold standard would be a far better solution!
The numbers are huge! On Jan. 22, 2012, TheDailyBell.com wrote:
We’ve estimated central banks – especially the US Fed – have probably backstopped the world’s financial system with funds in excess of US$50 trillion by now. That doesn’t sound like just a modest crisis to us. It wasn’t a real-estate crisis, either, but a crisis of central banking fiat money. It was ultimately a crisis of the dollar reserve system.
Our current system of fiat money (‘face value’ declared by government; with no intrinsic value) is operated by the unconstitutional Federal Reserve System (the Fed) to finance excessive government spending, wars, and bailouts to friends, while imposing loss of the dollar’s value (down 98% since the Fed started in 1913) on the people.
The free-market gold standard means gold is money, not just partial ‘backing’ for paper ‘money’. Gold is all or part of coins (a disc in the center), and paper notes (which would replace our Fed Notes) are redeemable for gold on demand. The requirement for gold redeemability of paper notes limits a mint’s (government or private) ability to create new money out of thin air. This would include competing coins and paper notes offered by private mints and the US Treasury. The Fed would be abolished. This money would only be marked by the weight and purity of gold it contains or represents, with no ‘names’ such as ‘dollar’. Prices would be in weight of gold (milligrams, etc.). History shows us this system always results in stable value of the money, and more peace (wars are expensive) and prosperity. Another lesson of history is that governments almost always ‘take over’ the monetary system and reduce or suspend redeemability so they can create money as needed.
December 19, 2011
Real Clear Markets
By Bill Frezza
President Obama, progressive politicians, Occupy protestors, and leftist intellectuals are having a field day attacking what they call the failures and excesses of capitalism. They declare wealth to be prima facie evidence of perfidy, making no distinction as to how it was obtained. They preach equality, not just in opportunity but in economic outcome. In their eyes, all members of the 1% are already guilty, so economic justice demands that the rich be heavily taxed, not just to lift others up, but to bring them down.
Some defenders of capitalism draw a sharp distinction between those who obtained their wealth through government favors and those who created their wealth by satisfying willing customers through free exchange. The former are called Crony Capitalists. The latter, interestingly enough, don’t have a name. Let’s call them Market Capitalists.
If defenders of capitalism hope to win over fair-minded fellow citizens who are honestly upset and confused, we need to define these terms and answer some basic questions. In what ways are Crony Capitalists and Market Capitalists the same and in what ways are they different? What makes the former immoral and the latter virtuous? Why are Crony Capitalists a threat to democracy and prosperity while Market Capitalists are essential to both? How is it that ever larger numbers of Market Capitalists are being corrupted, turning into Crony Capitalists? And what can we do to reverse that trend?
All capitalism is driven by greed – the desire to not only achieve economic security, but to amass pools of capital beyond one’s basic needs. This capital can fuel the kind of conspicuous consumption that offends egalitarians. But it also finances investments in new products and businesses, without which the economy cannot grow. More on that later.
What makes Crony Capitalists different is their willingness to use the coercive powers of government to gain an advantage they could not earn in the market. This can come in the form of regulations that favor them while hindering competitors, laws that restrict entry into their markets, and government-sponsored cartels that fix prices, grant monopolies, or both.
Crony Capitalists are also more than happy to help themselves to money from the public treasury. This can come from wasteful or unnecessary spending programs that turn government into a captive customer, subsidies that flow directly into their coffers, or mandates that force consumers to buy their products.
October 31, 2011
The Washington Post
By Lori Montgomery
Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went “cash negative.”
For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.
Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.
But while talk about fixing the nation’s finances has grown more urgent, fixing Social Security has largely vanished from the conversation.
Lawmakers in both parties are ducking the issue, wary of agitating older voters and their advocates in Washington, who have long targeted politicians who try to tamper with federal retirement benefits. Democrats lost control of the House last year in part because seniors abandoned them in protest over Medicare cuts in Obama’s much-contested health-care act, and no one in Washington has forgotten that lesson.
August 5th, 2011
Fears about the global economy led to the biggest panic in financial markets since the 2008 financial crisis. The Dow plunged nearly 513 points Thursday, its biggest point decline since Oct. 22, 2008. Only three of the 500 stocks in the Standard & Poor’s 500 index had gains. Oil fell by 6 percent. The yield on the two-year Treasury note hit a record low as investors sought out relatively stable investments.
All three major stock indexes are down 10 percent or more from their previous highs, a drop-off that is considered to be a market correction. A drop of 20 percent or more signifies the start of a bear market, an extended period of stock declines.
Investors are increasingly concerned about the possibility of another recession in the U.S. and a debt crisis in Europe.
“We are continuing to be bombarded by worries about the global economy,” said Bill Stone, chief investment strategist at PNC Financial.
The Vix, a measure of investor fear, shot up 36 percent. It is up 92.6 percent for the quarter, which began July 1.
The Dow Jones industrial average was down 512.61 points, or 4.3 percent, to 11,11,383.61. Thursday’s losses turned the blue-chip stock index negative for the year.
The S&P 500 – the benchmark for most mutual funds – lost 60.20, or 4.8 percent, to 1,200.14. It is now down 12 percent from its recent high of 1,363 reached on April 29. The Nasdaq composite shed 136.68, or 5.1 percent, to 2,556.39.
Oil dipped to $87 a barrel on worries demand will fall because of the slowing economy. It had traded over $100 as recently as June 9.
Nearly 20 stocks fell for every one that rose on the New York Stock Exchange.
European stocks also fell broadly because of concerns that Italy or Spain may need help from the European Union. The benchmark stock indexes in Italy, Germany and England each fell 3 percent.
Stock trading has been volatile this week because of concerns that the U.S. economy is weakening. Manufacturing, consumer spending and hiring by private companies are below levels that are consistent with a healthy economy. Those reports have called into question estimates from economists, including Federal Reserve Chairman Ben Bernanke, that the economy will grow more quickly in the second half of the year.
Money poured into investments that are seen as relatively safe when markets are turbulent. The yield on the 10-year Treasury note fell to 2.42 percent, its lowest level of the year. The yield on the 2-year Treasury note hit a record low of 0.26 percent. Bond yields fall when demand for them increases.
Mark Luschini, chief investment strategist for Janney Montgomery Scott, an investment firm in Philadelphia, said some clients are moving to cash “as a parking lot to sort things out.”
“With the scars of 2008 still fresh, some clients don’t want to miss the chance to pre-empt further damage should it come,” Luschini said.
Large investors have moved so much money into cash accounts at Bank of New York that on Thursday the bank said it would begin charging some clients a 0.13 percent fee to hold their cash.
“In the past month, we have seen a growing level of deposits on our balance sheet from clients seeking a safe-haven in light of the global interest rate and credit environment,” the bank said in a statement to The Associated Press. Bank of New York clients include pension funds and large investment houses.
“Investors are deciding that now is the time to take risk off the table,” said Brian Gendreau, market strategist for Cetera Financial Group. Gendreau said that some investors are now wondering whether stocks will have a prolonged slump similar to the aftermath of the Great Depression.
Technical trading, a term used to signify buying or selling based on the S&P 500′s prior highs and lows, also helped push stocks downward. The S&P 500 fell below 1,222, a so-called support level, early in the day. That signified to some traders that the stock market would continue to slide.
“Traders are respecting the technical levels even if they’re not technicians,” said Quincy Krosby, market strategist at Prudential Financial. “Even if you’re what we call a conviction buyer, you have to respect those levels.”
Companies that outperform when the global economy expands fell the most. Alcoa fell the most, with a 9 percent drop. Bank of America and Caterpillar were down 7 percent. Boeing ended down 6 percent.
Some traders are selling ahead of Friday’s employment report, which is expected to show that unemployment remained at 9.2 percent last month. A rise in the unemployment number would likely push stocks lower again.
The U.S. government said before the market opened that the number of people who applied for unemployment benefits for the first time was only slightly lower last week to 400,000. That’s still above the 375,000 level that economist say indicates a healthy job market. It was the latest indication of weakness in the U.S. economy.
All 10 industry groups in the S&P index fell. Energy, materials and industrial companies each lost 5 percent or more.
The sell-off comes at a time when corporate profits are growing. The forward price to earnings ratio of the S&P 500 has fallen to about 12, well below its long-term average of 16. That means that investors who buy now are paying less for each dollar in profits.
Based on what an investor now pays for corporate profits, stocks are now trading at their lowest levels in 20 years, said Tim Courtney, chief investment officer of Burns Advisory Group in Oklahoma City.
Few companies were spared in the sell-off. Just 3 of the 500 stocks in the S&P 500 moved higher. General Motors Co. fell 4 percent despite beating analyst’s earnings estimates.
The stock market as a whole had its biggest fall since the start of the current bull market in March 2009. The drop in the S&P was the largest since a 45-point decline on January 20, 2009. The Dow is down 1.7 percent for the year. The S&P 500 is down 4.6 percent. And the Nasdaq is down 3.6 percent. The Russell 2000, an index made up of small companies, has fared the worst. It was down 5.6 percent Thursday and is down 7.3 percent for the year.