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Economic Recovery Remains Elusive

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Bob Chapman
International Forecaster
July 25, 2011

People know higher prices caused by inflation mean they can buy less with their money. What they do not think about is the long-term affect of inflation and how it negatively affects their overall standard of living. Inflation can only be caused by the Federal Reserve by creating money and credit in excess of economic growth. This is what the economy has had to contend with since 2000. That process was begun immediately after the dotcom stock market collapse. That evolved into the real estate bubble and when the second bubble broke the creation of money and credit boomed in order to offset the deflationary result of the real estate collapse. The Fed is still doing the same thing today as they did previously via monetary easing. Of course, that effort is being assisted by zero interest rates. Due to the resultant inflation, created via these policies, the US dollar has come under pressure versus other currencies, but particularly versus gold and silver.

Today we watch the machinations in Congress, which is trying to muster an agreement on the short-term debt extension. Little is said about the long-term debt problem, or about the continuance of money and credit creation and zero interest rates, both of which are inflationary. In this process our President has offered up the previously looted Social Security and Medicare programs. Programs the public has paid for to support them in their final years of life. Those who buy Treasury securities are the biggest losers. Even that 10-year note at 2.92% is losing about 8% of the value of its funds annually. Millions of investors are doing just that. The Fed believes that in order to keep the game in motion interest rates must stay at zero, the impact of excessive creation of money and credit, has to continue and the decimation of peoples savings and dollar purchasing power has to be destroyed in that process. The idea is to let dollar holders take the losses as Congress and the Fed proceed on their merry way destroying our financial structure. Wall Street knows this, but is more than happy to go along with the program and in a slow process investors are switching to gold and silver coins, bullion and shares to offset the loss being foisted upon them.

The next question is one we have entertained many times before. Will government commandeer private pension plans, 401Ks and IRA’s in return for a government guaranteed annuity; will these retirement plans be traded for US Treasuries; or like one bill says, limit the amounts that can be removed and how many times you can remove funds? The only way we know to protect yourselves is to get out of these vehicles, or borrow against them and invest in gold and silver related assets. Those of you who want to cash out and move out of the country had best do so soon. We believe there is a good chance capital controls could be put in place in the US. We previously lived under such currency blocking in the 70s in South Africa and Rhodesia, now Zimbabwe. It is like being in a financial prison. Such restrictions would, of course, be wrapped in anti-terrorism terms, so few will suspect what is being done to Americans. The window of opportunity to leave the US is probably only two years away, or perhaps three years.

Government debt is piling up and the Fed is already buying 80% of this debt, which means other avenues of finance need to be found, to fund government. That is when retirement funds will be confiscated for the greater good and funds will only be able to be sent outside the country with federal government approval. Welcome to our modern police state. You don’t understand currency controls until you have lived under them, as we have. Present Treasury and Agency needs are large, but future bond sales and debt service will be daunting. Remember, unfunded future liabilities or about $105 trillion, a staggering figure. As we go forward all government can do is print more money via the Fed and that means more inflation and the end of what was the American dream.

Recovery has been very elusive. A slight move upward and then trailing off failure. Mr. Bernanke tells us he will use proceeds of the sales of securities to fund Treasury and Agency future purchases, he will roll the paper, so he can continue to fund these markets. Continuing to buy 70% to 80% of these debt securities is a tall order. We do not know when such a policy will end, but it looks like they’d like it to be perpetual. That, of course, is impossible because the economy would move into hyperinflation and the dollar would fall in value.

While this transpires elitists worldwide are lining up getting ready to bid $0.20 to $0.30 on the euro to carve and gobble up Greek assets. Greece passed legislation to participate in the EU, bank and IMF program and now they do not know if the EU members want to bail out Greece or how they are going to do so. This is terrible strategic planning. We produced the figure needed more than a year ago. $4 trillion to bail out the six countries. Now it looks like it will take $4 to $6 trillion. The solvent members doing the lending do not know whether they want to do that, because it could bankrupt them as well. The Dutch, Finnish and German people certainly do not want a bailout. The idea is to buy the airline, airports, electric, gas, water, transportation, highways, banks, islands, seaports and state-owned companies. The Greek people stand dumbfounded as the President, a Communist-Illuminist, gives government assets away to his elitist friends.

The German government has heat coming from both sides, the banks and the people. If there is default the other five countries will default. That means the banks are insolvent. Germans do not care. The banks can fend for themselves. The Germans want to put this ten-year experiment behind them and take their losses. If bailout and asset sales are pursued will that bring on revolution. No one can say for sure, but probably. The easy way out for the people is a military coup and that may be the way to exit.

Swapping out the debt into 30-year bonds could work, but could the outrageous interest be paid? How can it be with falling revenues and austerity? Few countries can pay back interest and debt when it is over 150% of GDP. Resetting the bonds is a waste of time and a subterfuge to again buy time. There is no easy way out of this mess.

The US continues to export some of its inflation and that has caused some nations to raise interest rates to combat this unwanted plague. QE 1 and 2 and stimulus 1 and 2 will have over 2-1/2 years will have injected well over $3.4 trillion into the economy.

Those who have left world stock and bond markets have gravitated into commodities and gold and silver. These purchases of oil, cotton and food stuffs have in part caused their prices to move higher with resultant inflation worldwide. There is little to think that these problems are going to stop anytime soon. The release of 60 million barrels of oil this month has done little to subdue oil prices.

Interest rates at zero percent increase profits for large corporations, because they are the anointed that can get loans and such a policy increases inflation as well. This policy has been responsible for higher stock markets and to some extent higher bond markets. Again, the wealthy were the major recipients of this largess. The Fed is ever mindful of deflation, which is not presently a problem due to 10.6% inflation. Their problem is holding the economy together and that means more and more money and credit. After the $300 billion rollover is completed in August, QE3 will have to begin in September. The affect of this policy is that commodities will more higher, gold will test $2,000 and silver $60 to $70. The Fed’s game of monetization is proving costly as inflation strangles Americans. This phenomenon has spread worldwide in varying degrees. Worldwide that promotes a move into gold and silver.

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Over in Europe bond yields generally are climbing especially in the six countries having financial problems. Greek two-year notes are yielding 35%. The $2 trillion bond market for these countries’ securities climbs higher and higher, which means the service cost of present and future debt will kill any recovery before it begins. The fault in all this has been very imprudent bank lending and the fervent desire to keep the euro, euro zone and EU from collapsing. Unfortunately, you cannot have both. The almost 1-1/2 years of hesitancy has cost all of Europe dearly. They should have abandoned their dream of a one-world currency and government when these problems began. In fact, the only country that should have been admitted to the euro zone was Spain. But no, they had to have world government. The result has been the solvent countries have to pay all the bills and the experiment was a failure.

In America what should have been done in 1990-1992 and 2000 to 2002 was to purge the system. That wasn’t done because looting the system and the move to world government were more important. As a result of European, British and American problems gold and silver, which were and still are way under priced, were boasted upward. Here we are 1-1/2 years later and not only have Greek problems not been solved, but five other counties are in the same predicament. Nothing has been done because the real solutions do not fit the one-world criteria. These Illuminists do not get it, the game is over and you lost. It is just a matter of time before your whole financial edifice collapses. That resistancy has turned Greece into a pied piper. The signs of failure are all spelled out in bond yields, like tealeaves. The conclusion for all six countries is eventually default and it cannot turn out any other way. The sovereign lenders now realize that. Any attempt to guarantee bonds by the EU to bail out their bonds simply won’t work. It might buy them a year or two, but their inability to service debt will become manifest. Today there is a crisis and if these nations do not default now, they will default later.

Greece’s debt is about $500 billion, but Italy’s is $2.5 trillion. As we said 1-1/2 years ago $4 trillion will be needed to bail out these countries and it cannot be forthcoming because it will destroy the solvent lender nations as well. Of course, the bankers, who control all the EU governments, want the countries to pick up the bill for the entire fiasco. The BIS, the Bank for International Settlements, the bankers’ bank, is demanding that these banks come up with more than $100 billion to cover trading losses and bond losses connected to the six insolvent countries. We certainly wouldn’t have any money in European banks. Why, because they are doomed? That is why the Swiss franc, gold and silver are moving higher. If you believe those bank stress tests you probably believe in the tooth fairy as well. Only eight banks out of 90 failed. What do they think we are, stupid? Interestingly no possible default was figured into the mix. These tests were like the same dog and pony shows we saw 11 years ago when these countries qualified for membership by producing bogus books with the help of Goldman Sachs, JP Morgan Chase and Citigroup. We have a long memory something that inconveniences the elitists. Rates are rising and there is little the bankers and politicians can do about it.

In Spain the banks are offside $800 billion. Official unemployment is 21.3% and joblessness for those 18 to 35 is 43.5%. Can you imagine what the real numbers are? Spanish interest rates are rising and we could see the entire banking sector taken over by the government. That is what Francisco Franco would have done. The entire banking system just like in the other five problem countries, have been cooking the books. The next demand by all these banks will be to let the public pay the debt; they owe it to themselves.

Congress has done irreparable harm to themselves, which will make reelection very difficult for many of them. All the subterfuge, acting and smoke and mirrors that has accompanied the debt extension discussions is going to lead to serious future problems.

$500 billion is going to be saved by magic. The CPI is going to have a new configuration, one that will take it even further from reality. This gang of 6 have to be complete morons. The cuts would have six months deadlines. The Senate once was an August body, now consists mostly of flimflammers. The President says he really likes the plan. He would say that because it is a total abdication of responsibility. Just plain irresponsible. The approach is further distorting the CPI’s expansion of the long used substitution. It works like this. You go to buy steaks at $4.00 a pound, and that is too expensive for your inflation racked budget, so you buy chopped beef for $2.00 a pound. That supposedly represents a $2.00 per pound savings, which is used to lower the CPI. This is how the gang of 6 intends to save $500 billion. That kind of thinking is simply criminal.

Tax loopholes will be closed, Social Security and Medicare will be capped in the midst of roaring inflation and tax brackets will be adjusted to increase the tax bite. This exercise is called Cut, Cap and Balance. HR 2560 only perpetuates the status quo. The sad fact is there is no balance in this idea. There is no real attempt to cut anything, except Social Security and Medicare, so the military, industrial complex can continue to reap profits ad kill off our young in undeclared no-win wars, only designed to plunder countries. Of course, the excuse for this is the global war on terror, which has never and does not exist. Wars are to be endless and perpetual in the search of peace.

There is no attempt to limit spending and taxes. Spending needs to be cut dft#5 drastically, but that won’t happen. We could cut spending by 1/3rd over five years, but politicians won’t do that because their campaign contributions will stop and they will have to return to collecting garbage. We need a balanced budget amendment, but we won’t get one. Thus, we can look forward to business as usual in Washington. The theme is delay the inevitable.

Does Europe have a deal on Greece? We are not quite sure because of the needed approvals and the lack of details.

European financial institutions via bond exchanges and buy backs will commit $715 billion and it will cut the debt load.

The aid package will, if approved, be $157 billion and those financial institutions that own Greek bonds would contribute $72 billion through 2014. That means the banks are only exposed for 21% of their assets in Greek bonds.

There is still the giant threat that Greece cannot cut its debt of 143% of GDP and will endure perhaps 25 to 50 years of depression. Considering these terms Greece could blow sky-high.

The drive by the EU could falter due to the same EU disagreements that stopped similar efforts in the past. Bond purchases by the European Financial Stability Facility, which is the EU’s rescue fund, will need a mutual agreement of member states. As we have said for a long time, if six countries get in trouble the bill will come to $4 to $6 trillion. What is interesting is the politician’s said the Greek package won’t be replicated.

This European Monetary Fund says banks will reduce Greek debt by $20 billion by exchanging bonds and potentially much more, through a buyback program still to be outlined by governments. The bonds that banks and others will exchange will be fully collateralized by AAA-rated zero-coupon securities with a 30-year maturity, as well as 15-year bonds. Governments will guarantee any defaulted Greek debt offered as collateral during money market operations.

As we write Oslo has been the object of a deadly blast and a human massacre on an island nearly.

Sales of previously owned U.S. homes unexpectedly declined in June to a seven-month low as the industry struggled to overcome rising unemployment and foreclosures.

Purchases dropped 0.8 percent to a 4.77 million pace, data from the National Association of Realtors showed today in Washington. The median projection in a Bloomberg News survey called for a gain to 4.9 million. Inventories increased, more contracts were canceled and 30 percent of transactions last month were of distressed dwellings, the figures showed.

Applications for home mortgages surged last week, racking up the biggest increase in four months on a flood of refinancing demand as interest rates remained low, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, spiked up 15.5 percent in the week ended July 15. It was the largest increase since early March.

“Ongoing turmoil in the financial markets primarily due to the sovereign debt crisis in Europe has brought mortgage rates back to their lowest levels of the year,” Michael Fratantoni, MBA’s vice president of research and economics, said in a statement. “Refinance applications have surged in response.”

The MBA’s seasonally adjusted index of refinancing applications soared 23.1 percent, but the gauge of loan requests for home purchases dipped 0.1 percent.

The refinance share of mortgage activity rose to 70.1 percent of total applications from 65.6 percent the week before.

Fixed 30-year mortgage rates averaged 4.54 percent, easing from 4.55 percent.

 

More than 450,000 borrowers who were charged excessive fees by Countrywide Home Loans when they fell behind on their mortgages will finally begin receiving the $108 million the company agreed to pay in a settlement struck with the Federal Trade Commission in June 2010, the agency said yesterday. The number of consumers recovering money in the settlement is the biggest in FTC history and wound up being double what the commission had estimated.

“It is astonishing that one single company could be responsible for overcharging more than 450,000 homeowners, which is more than 1 percent of all the mortgages in the United States,’’ Jon Leibowitz, chairman of the trade commission, said. Countrywide’s “was a business model based on deceit and corruption, and the harm they caused to American consumers is absolutely massive and extraordinary.’’

The excessive fees and improper charges were levied on borrowers whose loans were serviced by Countrywide. Most of those receiving money under the settlement – almost 350,000 customers – were routinely charged excessive amounts by Countrywide for default-related services.

Wells Fargo & Co. has agreed to pay $85 million to settle civil charges that it falsified loan documents and pushed borrowers toward subprime mortgages with higher interest rates during the housing boom.

The Securities and Exchange Commission has rejected a proposal by its own enforcement staff to settle a landmark case in which the agency is trying to force a former chief executive to give up millions of dollars in bonuses and stock profits he received while the company was cooking its books.

The plan to settle for significantly less money than the agency originally sought posed a test question: Was the staff letting the former executive off the hook too easily? Or was the agency being overzealous when it brought the case?

Both sentiments combined to torpedo the deal when commissioners weighed the proposal last week, according to a source close to the matter.

The case involves Maynard Jenkins, former chief executive of CSK Auto, an Arizona auto-parts retailer that had to correct years of financial statements.

In 2009, the agency sued Jenkins, saying he should repay more than $4 million he reaped while the company was “engaged in a pervasive accounting fraud.’’

Jenkins was not personally charged with fraud.

It was the first time the SEC had filed a so-called clawback suit to wrest money from an executive who was not accused of complicity in accounting fraud.

The percentage of U.S. adults who believe it is possible for themselves and their families to achieve the American Dream has dropped to 50 percent, down significantly from the 68 percent who said the same in November 2008.
Faith in the American Dream falls even further when respondents are asked if it’s possible for middle class families to achieve it, from 62 percent in November 2008 to just 44 percent today.

More Americans than forecast filed claims for unemployment benefits last week, reflecting the volatility of applications during the annual auto-plant retooling period.

Applications for jobless benefits increased 10,000 in the week ended July 16 to 418,000, Labor Department figures showed today. Economists forecast 410,000 claims, according to the median estimate in a Bloomberg News survey. The data included about 1,750 additional job cuts due to the Minnesota government shutdown, the agency said.

The index of U.S. leading indicators rose in June, confirming the Federal Reserve’s forecast that the economy will pick up in the second half of the year.

The Conference Board’s gauge of the outlook for the next three to six months climbed 0.3 percent after a 0.8 percent gain in May, the New York-based research group said today. Jobless claims rose more than forecast and consumer confidence stagnated last week, while manufacturing in the Philadelphia area rebounded this month, other reports showed.

U.S. home prices fell 6.3 percent in May from a year earlier as foreclosures weighed down values and purchases slumped.

The decline was led by a 9.9 percent decrease in the region that includes California, the Federal Housing Finance Agency said today in a report from Washington. The second-largest drop was 9.2 percent in the area that includes Nevada and Arizona.

Foreclosures have boosted the supply of available homes and reduced prices because the properties sell at a discount. Low interest rates have done little to stimulate demand for homes as mortgage standards tighten, said Rod Dubitsky, an executive vice president at Pimco Advisory, a unit of Newport Beach, California-based Pacific Investment Management Co., the world’s biggest bond manager.

“Limited mortgage availability and vulnerable consumer health across the income and age spectrum are restraining demand and may continue to do so,” Dubitsky wrote in commentary posted yesterday on Pimco’s website. “We believe the housing market, considered to be a key driver of the economic recovery, will generally remain weak for the foreseeable future.”

Prices rose 0.4 percent from April, the FHFA said. Economists had projected a 0.1 percent increase from the previous month, according to the average of 14 estimates in a Bloomberg survey.

Today’s FHFA report is based on repeat-sales data that compares prices of the same properties over time. The regulatory agency, which measures sales of homes with mortgages backed by Fannie Mae or Freddie Mac, doesn’t provide a specific price.

The median price of a home sold in May, the period covered by the FHFA report, was $169,300, according to the National Association of Realtors.

In June, the median price was $184,300, the Chicago-based trade group said yesterday. Sales of existing U.S. homes fell last month to an annual pace of 4.77 million, the lowest level since November, according to the report.

Companies are laying off employees at a level not seen in nearly a year, hobbling the job market and intensifying fears about the pace of the economic recovery.

Cisco Systems Inc., Lockheed Martin Corp. and troubled bookstore chain Borders Group Inc. are among those that have recently announced hefty cuts, while recent government numbers underscore how companies have shifted toward cutting jobs.

The increase in layoffs is a key reason why the U.S. recorded an average of only 21,500 new jobs over the past two months, far below the level needed to bring down unemployment, which now stands at 9.2%.

Investors in Countrywide Financial Corp. mortgage bonds may be owed three times or more of what they’re being offered in an $8.5 billion settlement with Bank of America Corp. (BAC), a group of Federal Home Loan Banks said.

The home loan banks, which invested more than $8.8 billion in the mortgage-backed securities, are trying to get access to more information about the deal by joining the case and said a reasonable settlement could pay in the range of $22 billion to $27.5 billion or more.

Expert reports used as legal support for the settlement “raise more questions than they answer,” the home loan banks said in a court filing today in New York State Supreme Court, where a judge will consider approving the settlement later this year.

Under the agreement, Bank of America will pay $8.5 billion to resolve claims from investors in 530 residential mortgage securitization trusts. Bank of America acquired Countrywide in 2008. The deal was reached with 22 institutional investors, including BlackRock Inc., and the trustee for the securities, and would apply to other investors in the trusts.

State attorneys general are negotiating to give major banks wide immunity over irregularities in handling foreclosures, even as evidence has emerged that banks are continuing to file questionable documents.

A coalition of all 50 states’ attorneys general has been negotiating settlements with five of the biggest U.S. banks that would include payment of up to $25 billion in penalties and commitments to follow new rules. In exchange, the banks would get immunity from civil lawsuits by the states, as well as similar guarantees by the Justice Department and Department of Housing and Urban Development, which have participated in the talks.

State and federal officials declined to say if any form of immunity from criminal prosecution also is under discussion. The banks involved in the talks are Bank of America, Wells Fargo, CitiGroup, JPMorgan Chase and Ally Financial.

WSJ article goes on to mention 49 charged, 46 convicted or pleaded guilty of insider trading in last 18 months.

Meanwhile, Republicans seek to destroy regulation, defund agencies, eliminate oversight, kill the consumer finance protection agency and let the crooks have their way… did I mention the hedge fund billionaires, involved in utterly useless, uneconomic, market roiling, parasitic, activities pay taxes at a 15% rate, and enjoy, for speculation purposes, ultra low interest rates from fed-owning banks?  This is not a “free market” this is a bankster mafia market…

Danielle Chiesi, a key figure in the government’s broad probe into insider trading on Wall Street, was sentenced to 30 months in prison Wednesday.

Federal prosecutors in Manhattan had alleged the one-time beauty queen used her powerful business contacts, including senior executives at International Business Machines Corp. and Advanced Micro Devices Inc., to obtain inside information. She then shared those tips with her boss and other portfolio managers, including Galleon Group founder Raj Rajaratnam, said prosecutors.

Ms. Chiesi, 45 years old, pleaded guilty in January to three counts of conspiracy to commit securities fraud.

The Senate on Friday rejected a House-passed plan that would raise the U.S. debt ceiling and make deep cuts in government spending. Senators voted 51-46 to kill further consideration of the House bill, which would also require passage of a balanced budget amendment. House Speaker John Boehner and President Barack Obama, meanwhile, are said to be closing in on a separate deal to cut spending and raise the debt limit.

 

Here are the foreclosure filings, which are getting worse not better:

20) Boise , Idaho — 1 in 21 homes in foreclosure

19) Sarasota , Fla. — 1 in 21 homes in foreclosure

18) Lakeland , Fla. — 1 in 21 homes in foreclosure

 

17) Tampa , Fla. — 1 in 20 homes in foreclosure

16) Port St. Lucie , Fla. — 1 in 19 homes in foreclosure

15) Sacramento , Calif. — 1 in 19 homes in foreclosure

14) Naples , Fla. — 1 in 18 homes in foreclosure

13) Deltona , Fla.. — 1 in 17 homes in foreclosure

12) Bakersfield , Calif. — 1 in 17 homes in foreclosure

11) Reno , Nev. — 1 in 16 homes in foreclosure

10) Vallejo , Calif. — 1 in 16 homes in foreclosure

9) Orlando — 1 in 15 homes in foreclosure

8) Merced , Calif. — 1 in 14 homes in foreclosure

7) Stockton , Calif. — 1 in 14 homes in foreclosure

6) Riverside , Calif. — 1 of 14 homes in foreclosure

5) Miami — 1 in 14 homes in foreclosure

4) Phoenix — 1 in 14 homes in foreclosure

3) Modesto , Calif. — 1 in 14 homes in foreclosure

2) Cape Coral , Fla. — 1 in 12 homes in foreclosure

1) Las Vegas — 1 in 9 homes in foreclosure

USA — 1 in 46 homes in foreclosure

 

SHORT NOTES

 

Democrats reacted angrily to reports that the White House is cutting a deal with House Republicans to boost the U.S. debt ceiling and reduce deficits by about $3 trillion over 10 years without immediate revenue increases.

President Barack Obama’s team has told congressional leaders it is pursuing such a deal… congressional leaders were told it would enact spending reductions while calling for a future tax overhaul that could raise $1 trillion in additional revenue.

 

The White House faced a near rebellion from senators who were blindsided by word of a possible deal between President Barack Obama and House Speaker John Boehner, with Democrats worried the president would cave on taxes while Republicans complained about being left in the dark on a potentially historic deficit plan.

Furious Democrats directed their ire squarely at Obama’s budget director, Jack Lew, at a closed-door lunch meeting, while Republicans peppered their leaders with questions about the possibility of being jammed into a multitrillion-dollar bill with virtually no time for review.

 

GE expected to report 13 percent rise in profit. The revenue target implies a 7 percent drop… [Down revenue, up profits cuz GE not only pays not taxes, they get tax credits! The spoils of crony capitalism, my dear Watson!]

 

This article was posted: Monday, July 25, 2011 at 3:39 am





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