The International Forecaster
October 3, 2009
The G-20 Pittsburgh Summit ended last Friday. Their official statements made for some novel and interesting reading.
We were informed that the group could by working together could manage a transition to a more balanced pattern of global growth. Tending to domestic demand as private savings increase. It is obvious to us this cannot work. We are seeing increased savings and decreased consumption. The IMF as well agrees with these policies. We cannot recall that the IMF has made a correct decision over the past 50 years. The group gushed forth the same platitudes we’ve heard for years. The shared understanding and deepened dialogue that produces no solutions, only more power and wealth for the entrenched elite.
|Cash for Clunkers may have increased borrowing and consumption in the third quarter, but we ask in January what will GDP look like? Will the government falsify the statistics again? Of course, they will.|
We were treated to the never-ending story of rising living standards in emerging markets and developing countries as North American and European economies go into the economic and financial tank. This is to be achieved by balancing current accounts and the support of continued free trade. This would, of course, would be aided by the lack of tariffs and the continued use of slave labor from the third and second worlds as transnational conglomerates get richer by parking their profits in tax havens.
There would be centralized monetary policy and price fixing along with structural reforms to implant more socialistic policies. These policies would end sovereignty, as we have known it.
Needless to say magically members with sustained, significant external deficits will end them and foster savings. We wonder if they ever considered that if everyone saves less buying will be done. There was the call to increase investment, but why would corporations do that in the reality of decreased demand, 67% of capacity utilization and massive idle capacity worldwide, particularly in China. These policies would dramatically affect China whose world exports have already fallen 40%.
If this is the result of this 2-day sideshow it accomplished nothing and little will change. It is just more smoke and mirrors.
The US in a scramble to fight off a deflationary depression is doing just the opposite. Trillion-dollar a year fiscal shortfalls for as far as the eye can see, accompanied by wars upon wars. Government spending accounts for 25% of GDP; the same as we experienced in WWII We have Fannie Mae, Freddie Mac, Ginnie Mae and FHA all bankrupt. Government is not only financing homes, but also companies, cars, Wall Street, banks and insurance companies. Taxpayers own 60% of GM and 80% of AIG, both of which are bound to fail. Under TARP government owns the banking system, most of which is insolvent. They all survive for now with government guarantees. We did not hear these problems being addressed at the G-20 meeting. All we saw was police and military beating innocent people or the use of tear gas, rubber bullets and sound cannons on innocent demonstrators some 20 and 30 blocks away from the downtown meeting area. Your Gestapo goons at work.
Yes, too big to fail is still in vogue, just as it was in the 1930s. The Illuminati still does as it pleases, will continue to do so until we stop them. The past and current solution is taxpayer finance to just keep them in business. This cannot succeed because government is too big, irresponsible and incompetent to succeed in this venture. This is not temporary. It is impossible to unwind. It will continue indefinitely as corporatist fascism until the edifice collapses. The elitists cannot step back and let the economy function on its own. If they do it will collapse. This time they have gone too far. It is going to take the elitists and everyone else down with it. The solution should have been used in 1990, but that didn’t interest the elitists. It will never be safe to do what these people have done. There is no easy way out. No two-year depression. A long drawn out depression is the best that can be expected, although at the rate the shadow government is progressing in the Middle East we could end up in a nuclear war. Zero interest rates cannot work. All they do is foster financial asset speculation. That means failure for many and loans that will never be paid back. Just look at the horrendous numbers in the last issue of corporate loans gone bad. The banks are buried in these nonperforming assets. That means more taxpayer funds to keep the banks solvent. The elitists and our government are running amok. There are no controls. That in part is why the President and House and Senate have plunging approval ratings. Last week’s hearings in the House on HR 1207 were pathetic. Rep. Grayson destroyed the attorney for the Fed. It was legal disembowelment. We had best get HR 1207 and SB 604 or government could be facing all out revolution. 66% of Americans want the Fed audited and investigated. This is an extremely high figure considering what the Fed does is difficult for most people to understand. Our guess is that Americans are tired of seeing their savings dwindle and their wages and buying power fall.
In July, Americans cut outstanding credit by almost $22 billion. This brings us back to the stupidity of the G-20 announcing that savings must increase and at the same time consumption as well. They must think we are dumb. This is the biggest cutback in credit usage in over 66 years. Economists projected a reduction of $4 billion just to show you how wrong they continue to be.
Cash for Clunkers may have increased borrowing and consumption in the third quarter, but we ask in January what will GDP look like? Will the government falsify the statistics again? Of course, they will.
The stock market is up because of massive liquidity injections as corporate insiders sell their shares on a 30 to 1 basis. This is absurd, there is no recovery only a flattering out which will stretch into the next election. After that its just more stimulus and money and credit injections accompanied by hyperinflation. At the height of that inflation 1-1/2 to 2 years from now the dollar will be officially devalued and default will take place. These events will bring much higher gold and silver prices. As long as the dollar depreciates gold will move higher. In order to create a false stimulation of the economy the elitists have sacrificed the value of the dollar and the conclusion will be that they are going to lose control of their suppression of the gold market. From here on out the situation will become desperate for the elitists. They either increase money and credit, which is presently over 20%, the banks start increasing lending, or there is a $2 trillion stimulus. The big five money center banks will need massively more funding otherwise they will fail and take 75% of American depositors with them in a world of little if no insurance. Why do you think corporate America is bailing out of their shares? They have no confidence in the economy. In addition the invasions of Afghanistan and Pakistan will bring an end of the American empire. It is simply no longer affordable.
What is going to happen next is that the 6-month stock rally is about to end. It took everything the Fed could muster to accomplish this. As the market heads lower government, Wall Street and banking will have to contend with irate shareholders and retirees as well as owners of stock, life cash value insurance policies and annuities. This time when the market falls it isn’t coming back. The bottom on the Dow will be 2,600 to 4,200 if we are lucky. This time the financial system is in too deep. There can be no reversal. How can there be if the American taxpayer guarantees 90% of all mortgages, so that the legacy banks, as they are now called, can make ever more money.
Just to give you an idea of what government was up too in the second quarter, corporate debt rose marginally, but at half the level of the first quarter. Federal government debt grew at 8.3%, up from 4.9% in the first quarter. Annualized that is an increase of from 22.6% to 28.2%. Fed holdings of federal securities increased from $20 billion to $559 billion. How is that for monetization? This as mortgage debt contracted by $53 billion. Government and Wall Street say the recession is over, but polls show 86% of Americans disagree.
While all this transpires unemployment payouts worldwide are running out. Spain is on its back along with Ireland and Italy tells us that without a continuation of cash for clunkers there will be a disaster in the country. In the US car sales are expected to fall 40% in September. European sales are expected to fall by one million units in 2010. In the US banks’ lending has fallen 14% in the third quarter. It is like the 1930s all over again. This points out the fallacy of the G-20 of saving and increased consumption simultaneously. There is no mystery. Even though government lies about its statistics we can figure them out and the result is not good. The conclusion is the Fed and other European banks will have to partake in massive additional monetization to stave off a deflationary depression and it has already begun.
During this past week the Dow gave up 1.6%; S&P 2.2%; the Russell 2003, 3.1% and Nasdaq 1.8%. Consumers fell 1.1%; utilities 1.5% cyclicals 4.4%; transports 4.3%; banks 3.3%; broker/dealers 3.4%; high tech 2.8%; semis 1.7%; Internets 1.5% and biotechs 3.1%. Gold bullion fell $16.75, and the HUI fell 6.2%. The dollar index rose 0.4% to 76.74.
Two-year T-bill yields fell 7 bps to 0.87%; the 10-year yields fell 14 bps to 3.32% and the 10-year German bund fell 12 bps to 3.26%.
Freddie Mac’s 30-year fixed rate mortgage rates were unchanged at 5.04%. The 15’s fell 1 bps to 4.46% and 1-year ARMs fell 6 bps to 4.52%. The jumbos fell 1 bps to 6.17%.
Fed credit jumped $44.1 billion. Fed foreign holdings of Treasuries and Agencies increased $11.6 billion to a new record $2.854 trillion. Custody holdings for foreign central banks has risen 18.4% ytd, up $432 billion yoy or 17.9%.
Total money fund assets were unchanged at $3.483 trillion. Assets have declined $350 billion ytd, or 12.4% annualized.
M2, narrow money supply, fell $3.9 billion to $8.303 trillion. It is up 1.9% ytd and 7.6% yoy.
The unemployment rate for young Americans has exploded to 52.2 percent — a post-World War II high, according to the Labor Dept. — meaning millions of Americans are staring at the likelihood that their lifetime earning potential will be diminished and, combined with the predicted slow economic recovery, their transition into productive members of society could be put on hold for an extended period of time.
And worse, without a clear economic recovery plan aimed at creating entry-level jobs, the odds of many of these young adults — aged 16 to 24, excluding students — getting a job and moving out of their parents’ houses are long. Young workers have been among the hardest hit during the current recession — in which a total of 9.5 million jobs have been lost.
“It’s an extremely dire situation in the short run,” said Heidi Shierholz, an economist with the Washington-based Economic Policy Institute. “This group won’t do as well as their parents unless the jobs situation changes.”
Al Angrisani, the former assistant Labor Department secretary under President Reagan, doesn’t see a turnaround in the jobs picture for entry-level workers and places the blame squarely on the Obama administration and the construction of its stimulus bill.
“There is no assistance provided for the development of job growth through small businesses, which create 70 percent of the jobs in the country,” Angrisani said in an interview last week. “All those [unemployed young people] should be getting hired by small businesses.”
There are six million small businesses in the country, those that employ less than 100 people, and a jobs stimulus bill should include tax credits to give incentives to those businesses to hire people, the former Labor official said.
“If each of the businesses hired just one person, we would go a long way in growing ourselves back to where we were before the recession,” Angrisani noted.
During previous recessions, in the early ’80s, early ’90s and after Sept. 11, 2001, unemployment among 16-to-24 year olds never went above 50 percent. Except after 9/11, jobs growth followed within two years.
A much slower recovery is forecast today. Shierholz believes it could take four or five years to ramp up jobs again.
A study from the National Longitudinal Survey of Youth, a government database, said the damage to a new career by a recession can last 15 years. And if young Americans are not working and becoming productive members of society, they are less likely to make major purchases — from cars to homes — thus putting the US economy further behind the eight ball.
Angrisani said he believes that Obama’s economic team, led by Larry Summers, has a blind spot for small business because no senior member of the team — dominated by academics and veterans of big business — has ever started and grown a business.
“The Reagan administration had people who knew of small business,” he said.
“They should carve out $100 billion right now and create something like $5,000 to $6,000 job credits that would drive the hiring of young, idled workers by small business.”
Angrisani said the stimulus money going to extending unemployment benefits is like a narcotic that is keeping the unemployed content — but doing little to get them jobs.
Labor Dept. statistics also show that the number of chronically unemployed — those without a job for 27 weeks or more — has also hit a post-WWII high.
The Army grants the officer’s resignation under “other than honorable conditions.”
First Lt. Ehren Watada, the first commissioned military officer to refuse deployment to Iraq because he believed it was an illegal war, has won his three-year legal battle with the Army.
With little fanfare the Army at Fort Lewis, Wash., accepted the resignation of the 1996 Kalani High School graduate, and he will be discharged the first week in October.
Rather than seek a second court-martial against the artillery officer, the Army will grant Watada a discharge under “other than honorable conditions.” [It took lots of guts to do this.]
Junk bond sales in Asia will register robust growth as investor appetite for riskier debt increases and companies turn attention toward 2010 financing requirements, according to Nomura Holdings Inc. Issuance of junk, or high yield, securities in the region will follow a resurgence in U.S. and European sales, Glenn Schiffman said, ‘High yield in Asia is about to come back strongly,’ Schiffman said. Junk bond sales in the U.S. total $99 billion this year, a 63 percent increase on the same period in 2008.
The Federal Reserve decided to keep pumping $1.25 trillion of new money into the mortgage market to focus on rescuing the U.S. economy as the financial system revives and banks ask for less help. The US has lent, spent or guaranteed $11.6 trillion to bolster banks and fight the longest recession in 70 years, according to data compiled by Bloomberg.
Ford Motor Co. will build a third car factory in China as the nation’s economic growth spurs auto demand, two people familiar with the plans said. Ford plans to add capacity after China Ford-brand car sales jumped 30% in the first eight months.
Five US states that were among the hardest hit by job losses and the construction slump also had declines in household incomes during the first year of the recession. Arizona, California, Florida, Indiana and Michigan all saw median household incomes drop in 2008, the Census Bureau said. Only one state had a decline the previous year.
The global recession is taking its toll on even the priciest shopping streets, where rents have plunged the most in at least 24 years, according to Cushman & Wakefield, Manhattan’s Fifth Avenue ranked as the world’s most expensive retail address for the eighth straight year, even as annual rents dropped 8.1% to $1,700 a square foot.
Manhattan apartment rents dropped an average of at least 8% in the year’s most active leasing season as Wall Street job cuts and the recession rippled through the economy, real estate broker Citi Habitats said.
Puerto Rico’s government announced yesterday that it will lay off more than 16,000 public workers in the US Caribbean territory, adding to an unemployment rate higher than that of any US state.
The government hopes the layoffs will help close a $3.2 billion deficit.
The island is struggling through its third year of recession and a 15 percent unemployment rate. Union leaders announced an island-wide strike in protest on Oct. 15.
The layoffs of 16,970 employees are needed to prevent the government from shutting down and sinking the island’s credit, said Carlos Garcia, president of the Government Development Bank of Puerto Rico.
An interesting observation appeared in the Australian Shooter Magazine this week: If you consider that there has been an average of 160,000 troops in the Iraq theater of operations during the past 22 months, and a total of 2112 deaths, that gives a firearm death rate of 60 per 100,000 soldiers.
The firearm death rate in Washington, DC is 80.6 per 100,000 for the same period. That means you are about 25 percent more likely to be shot and killed in the US capital, which has some of the strictest gun control laws in the US, than you are in Iraq.
Conclusion: “The US should pull out of Washington.”
This article was posted: Saturday, October 3, 2009 at 11:36 am