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The Fed Distorts The Economy With Inflation

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Bob Chapman
International Forecaster
March 6, 2011

The Federal Reserve tells us we need inflation to overcome the overhang created by debt and its inflationary aspects. The inflation does not create jobs – it just distorts prices upward. We are told by the head of the Fed, Mr. Bernanke, that he can end inflation when he thinks it is necessary. That is not true, because if inflation ends deflation takes command and the economy collapses. There is no finely honed instrument for turning these two opposite effects on and off; thus, inflationary instruments have to be blunt and overused. That means more often than not that inflation is over implemented. This is the opposite of the Fed’s mandate of promoting price stability, full employment and in fact is used to prop up the banking system. Over the past three plus years the Fed has been attempting to assist the banks in getting rid of bad assets and these efforts may last for another fifty years. These banks hold more bad assets then they have ever held before. These problem assets are the result of excessive lending and speculation between 2003 and 2008, and low interest rates that lasted far too long. The quality and existence were recognized in the credit crisis that began in 2007. Most of these impaired assets are still on bank books, but the Bank of International Settlements, the FASB, the accounting agency and the government say it’s perfectly fine to keep two sets of books. If you did that in your business you’d end up in jail, but it is perfectly fine for the financial sector and transnational banks to do so. That is what QE1 was all about – bailing out the financial sector and other elitist corporations. These bad assets, that haven’t been sold to the Fed, are frozen on the balance sheets of these institutions, perhaps in perpetuity.

Fed created inflation raises the real value of assets artificially, so that these bad assets appear to be appreciating when in fact they are not. Toxic securities that are being held by banks, brokerage houses and others, that were worth $0.30 on the dollar, are now worth even less. All the inflation in the world won’t change the value of these assets. It may help interim earnings, but it won’t help in the long run. These policies won’t work long term. The interest on debt now and in the immediate future will be greater than revenues generated. At the same time $900 billion is a nonsense figure. When all is said and done the figure will be almost double that at $1.7 billion. QE1 will provide for 14% real inflation in 2011 and QE2 will provide 25% to 30% inflation in 2012. QE3 will give us hyperinflation. Monetization will be king.

The die has been cast and it is disturbing to see Mr. Bernanke lying to Congress. What will he tell them when he has to admit he created $1.7 trillion, which has been monetized into inflation and that he still holds official interest rates at just above zero, but real rates on the 10-year T-note went to 4-1/4 then 5-1/4? The American public is going to be stunned.

Again, the Fed and the US banking system are in a box and they cannot get out. If they were to officially raise interest rates it would lead to financial collapse. If they do not want to raise rates they could curtail QE2 and as a result the economy would collapse, just like Japan did so in 1992 and they have been in depression ever since. Either choice would send unemployment to a U6 level of 37.6% matching that of 1933. Worse yet, if the Fed’s commitments were marked to market you would find the Fed to be insolvent, a condition that has existed for some time. It is not surprising that the Fed and its banker owners don’t want the Fed audited and investigated. Any sale of bonds by the Fed would drive bonds lower and yields higher putting downward pressure on the economy. Much of what the Fed is holding is MBS and CDO’s from QE1, when they bailed out lenders and select transnational conglomerates and insurance companies.

Such actions would render the Fed officially insolvent, which in fact they are already. Just to show you how terse the situation is their capital is about $60 billion and they have about $3 trillion on the balance sheet. Now you can understand why real interest rates have to be held low. The stock and bond markets have to be held up artificially so that the Fed’s balance sheet won’t collapse. What many do not understand is that almost all of what is on the Fed balance sheet has been created out of thin air and monetized. Part of that hot money and credit has offset the deflationary undertow; part is exported in dollar foreign balances and the rest of the inflation pass into the economy. This is the beginning of out of control inflation and the Fed is well aware of it. They quite frankly are not concerned that people lose their life savings. They only care about saving the financial sector, which owns the Fed, the government and transnational conglomerates.

Inflation will not stimulate the economy. It will hinder it and not create jobs, which is already evident. It is all lies, smoke and mirrors and psywar.

QE1 and QE2 have spread across the world exporting part of US inflation. This inflation gets stronger daily enveloping the financial world. Food prices have gone ballistic and in countries where food makes up 75% of income the result has been the overthrow of one government after another. Even the price of your clothes is going to triple. The cause of these problems lies with central banks and banks that control them in Europe and the US. It is just one giant fraud like too big to fail. There will be no recovery only continual efforts to sustain the criminal enterprise.

As inflation climbs, unemployment will grow and wages will remain stagnant so that the anointed can continue to accumulate wealth. The beneficiaries will as usual be the elitist connected corporations, all those crooks who do not go to jail. Soon profits for smaller and medium sized companies will diminish as they are forced to absorb part of price inflation. Needless to say, there will be no hiring.

People worldwide see the dilemma of the US, UK and Europe and that in part is why you are seeing turmoil that has had its beginnings in North Africa and the Middle East, not that the US, UK and Europe were involved in the uprisings, but the catalyst had been in place as well. The reason for change is higher food prices. The world public is tired of tyrants and governments that refuse to answer the needs of the people. Again, part of the reason for change is the discovery that these dictators and those who control governments have to be dispensed with. You might say, as Saudi Arabia goes, so goes the Middle East and North Africa. If the so-called monarchy falls in Saudi Arabia the entire region is up for grabs. That would spell the end of the petro dollar, which would signal the demise of the dollar. That is something to be aware of and to contemplate.

As you know, historically when you have bad episodes such as those we are seeing in North Africa and the Middle East that the dollar has rallied strongly. Not this time. The dollar is falling not only against the six major currencies, but also versus gold and silver. We could be headed toward a test of 71.18 soon on the USDX. That makes US imports more expensive and exports cheaper, which would cause a balance of payments surplus. The downward dollar pressure would continue though, because the $1.6 trillion deficits would continue. We believe as history is evaluated Ben Bernanke as well as Alan Greenspan will be found to be totally incompetent. Today we have price and monetary inflation that are terrible. Eventually as the economy and coming hyperinflation becomes manifest we will then see a fall we have all been anticipating for years into deflationary depression.

After three attempts to rally past 82 the dollar in the USDX has faltered again, this time to 76.48. There is technical support at 76 and fundamental support at 74 and 71.18. Current weakness is systemic, but it is being aided by QE2 and stimulus 2.

As inflation climbs, unemployment will grow and wages will remain stagnant so that the anointed can continue to accumulate wealth.

Finally players are realizing that real inflation is more than 7%, headed for 14% this year, as a result of QE1 and stimulus 1. Next year the result of QE2 and stimulus 2 will start to drive up inflation. At the same time wages and salaries are under intense pressure, especially by major corporations. Next year we will see inflation in excess of 20% and in 2012 and 2013 we will see the inflation caused by QE3 and stimulus 3. That should take us over 30% inflation and into hyperinflation. What else can be expected with QE and stimulus spending of $2.5 trillion a year? You are going to find your government, the Fed and Mr. Bernanke along with Wall Street have been wrong about just about everything. That means that August could bring a debt downgrade for the credit of the US. That would bring further pressure on the dollar downward and pressure to the upside on interest rates. These events will expedite the need for a major meeting among countries, similar to the Smithsonian meetings in the early 1970s, the Plaza Accord of 1985 and the Louvre Accord of 1987, where currencies are devalued and revalued versus one another and some form of multilateral debt default. They would bring about a recharged dollar with 25% gold banking, or a combination of currencies in an index, also backed by gold. It is coming, but probably not this year. During this coming period unemployment will lie stagnant and the US will begin to experience 3rd world poverty. Were it not for food stamps and extended unemployment benefits and other forms of government aid the US would look like it looked in the 1930s. At the same time $100.00 oil along with food price inflation signals a loss in consumer buying power of $200 billion and $120 oil will signal more than a $400 billion loss in purchasing power. That means GDP would fall ½% to 1-1/2%.

The above means that any future currency will have to be backed by gold or silver or both, whether the elitists like it or not. Multilateral acceptance is extraordinarily important, because such backing and discipline is the only element that can save the financial system and the elitists know that. On the other hand such backing puts a governor on their wealth accumulation, power and dream of world government.

The euro could have worked had it been structured properly and the SDR is hopeless. The yuan simply isn’t seasoned enough and China has a host of problems, which are seldom discussed. Thus, it is either a reformulated dollar or an index of gold and or silver backed currencies. Anything less simply won’t work never mind be accepted. The world has seen again that unbacked currencies and corporatist fascist economic policies do not work. They lead to the subjugation of the people and destroy the quality of life for everyone except the wealthy, connected, elitists, who live well while the remainder of the world lives in poverty. The ongoing effect to bring about world government will again fail and mankind will again emerge from the economic, financial and even perhaps the rubble of WWIII. Desperate people do desperate things; so do not be surprised if another war is deliberately started like so many wars throughout mankind. Sound money is the only answer and really the only alternative is a reformulated dollar backed 25% by gold at a much higher price. An index of currencies or 4 or 6 regional currencies won’t work well either. A gold standard guarantees stability, enforcement of law and the unbridled excesses of Wall Street and banking. We need Glass-Steagall back and we need jail time for the crooks running Wall Street and banking.

The Fed Distorts The Economy With Inflation aj150709banner1

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The number of planned layoffs at U.S. firms rose in February to its highest level in 11 months as government and non-profit employers let workers go, a report showed on Wednesday.

We need Glass-Steagall back and we need jail time for the crooks running Wall Street and banking.

Employers announced 50,702 planned job cuts last month, the highest level since March 2010 and a jump of 32 percent from January’s 38,519, according to the report from consultants Challenger, Gray & Christmas, Inc. Layoffs were 20 percent higher than the 42,090 announced in February of last year, marking the first year-over-year increase since May 2009.

Even so, the report said the pace of job cutting remains relatively subdued. Job cuts for January and February stand at 89,211, well below the 113,572 job cuts that were announced in the first two months of 2010.

  • A d v e r t i s e m e n t

“It is too soon to say whether the increases in January and now February represent a trend,” John Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement.

Challenger said worries over rising gas prices could impact staffing decisions over the next six months.

“At the very least, rising energy costs could force employers to postpone hiring plans. At worse, increased costs could kill the fragile recovery and spur another round of layoffs,” Challenger said.

The government and non-profit sector led layoffs with 16,380 job cuts, up 154 percent from January. Retail followed with a 44 percent increase in planned cuts to 8,360.

The data comes ahead of Friday’s key non-farm payrolls report from the government, which is expected to show the economy added 185,000 jobs in February after only a small gain in January.

Companies in the U.S. added more workers in February than forecast, indicating the labor market may be strengthening, data from a private report based on payrolls showed today.

Employment increased by 217,000 last month after a revised 189,000 gain in January, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 180,000 gain last month.

Bigger, sustained payroll gains would underscore Federal Reserve Chairman Ben S. Bernanke’s testimony to Congress yesterday that there are “grounds for optimism” about the labor market in coming months. Companies added 200,000 jobs in February, while unemployment rose to 9.1 percent, economists project a Labor Department report to show in two days.

“Employment rose moderately in February, lifted by slowly improving economic fundamentals and a rebound after January’s severe weather,” Steven Wood, president of Insight Economics in Danville, California, said before the report. “Over the past year, declines in private sector employment have given way to moderate job creation.”

Estimates in the Bloomberg survey of 34 economists ranged from increases of 90,000 to 210,000.

Stock-index futures fell as crude oil prices increased. The March contract on the Standard & Poor’s 500 Index declined 0.3 percent to 1,297.8 at 8:28 a.m. in New York. Oil for April delivery gained $1.39, to $101.02 a barrel in electronic trading on the New York Mercantile Exchange.

Labor Department Figures

Over the previous six reports, ADP’s initial figures were closest to the Labor Department’s first estimate of private payrolls in November, when it overstated the gain in jobs by 43,000. The estimate was least accurate a month later, when it overestimated the employment gain by 184,000.

The Labor Department said payrolls in January rose by 36,000 workers, the fewest in four months and depressed by snowstorms that swept through parts of the nation during the week covered by the government’s employer survey. ADP figures, which measure the number of people on payroll processing rolls regardless of whether they could show up for work, initially showed companies added 187,000 workers during the month.

Today’s ADP report showed an increase of 15,000 workers in goods-producing industries, which includes manufacturers and construction companies. Employment at factories rose by 20,000 jobs.

Service providers added 202,000 workers, ADP said.

Size of Companies

Companies employing more than 499 workers expanded their workforces by 13,000 jobs. Medium-sized businesses, with 50 to 499 employees, created 104,000 jobs and small companies increased payrolls by 100,000, ADP said.

Intel Corp. and Home Depot Inc. were among U.S. companies last month that announced plans to boost payrolls. A report yesterday showed U.S. manufacturing grew in February at the fastest pace in almost seven years, driven by gains in orders, employment and exports that signal factories will continue to propel the expansion.

“Overall, when we look at the job market we do believe that it is on track to improve,” Don Johnson, vice president of U.S. sales for General Motors Co., said on a teleconference yesterday. “February was quite simply another great month for General Motors.”

GM said vehicle deliveries last month increased 46 percent from February 2010.

Limited Hiring

Some businesses are concerned about limited hiring, even after gross domestic product increased in 2010 by the most in five years.

“The numbers coming out of the U.S. for GDP and industrial production are pretty solid, but we have an issue with regard to employment,” James Meil, chief economist at Eaton Corp. said on a Feb. 25 teleconference. The Cleveland-based maker of pumps used in forklifts raised its full-year forecast amid higher hydraulics sales.

The labor market “has improved only slowly” and it may take “several years” for the unemployment rate to reach a “more normal level, Bernanke said yesterday during testimony before the Senate Banking Committee.

Still, “we do see some grounds for optimism about the job market over the next few quarters, including notable declines in the unemployment rate in December and January, a drop in new claims for unemployment insurance, and an improvement in firms’ hiring plans,” Bernanke said.

Employers in the U.S. announced more job cuts in February than in the same month last year, led by a surge at government agencies.

Planned firings increased 20 percent to 50,702 last month from February 2010, the first year-over-year gain since May 2009, according to a report today from Chicago-based Challenger, Gray & Christmas Inc. Announcements at federal, state and local government offices almost tripled from last year.

“More job cuts at the federal level are expected in the months ahead as pressure mounts to cut costs and rein in the soaring national debt,” John A. Challenger, the outplacement company’s chief executive officer, said in a statement.

Dismissals of government workers may contribute to a slowdown in consumer spending, which accounts for 70 percent of the economy. Combined with the highest gasoline prices in two years, the threat of a pause in purchases may already be causing retailers, which had the second-biggest number of announcements last month, to pare payrolls, said Challenger.

“If gasoline tops $4 per gallon in the coming weeks, consumers may be forced to make significant changes to their spending habits,” said Challenger. “At this stage of the recovery, that could be an extremely damaging setback.”

Compared with last month, which saw the fewest firings for any January since record-keeping began in 1993, job-cut announcements climbed 32 percent. Because the figures aren’t adjusted for seasonal effects, economists prefer to focus on year-over-year changes rather than monthly numbers.

Government Firings

Government and non-profit agencies led the February job cuts with 16,380 announced reductions, according to Challenger. Retail firms had 8,360.

Michigan led all states with 6,381 announced job cuts, followed by the District of Columbia, with 5,946.

Today’s report also showed that employers announced plans in February to hire 72,581 workers, up from 29,492 the prior month. The surge reflects Home Depot Inc.’s announcement that it planned to add 60,000 temporary workers, Challenger said.

While touring an Intel Corp. semiconductor manufacturing facility in Hillsboro, Oregon, last month, President Barack Obama said the U.S. must foster a business climate that encourages job creation and assures companies can draw on an educated workforce.

“In a world that is more competitive than ever before, it’s our job to make sure that America is the best place on earth to do business,” Obama said Feb. 18 at the factory.

Hiring Plans

Intel, the world’s largest chipmaker, announced plans during Obama’s visit to build a $5 billion microprocessor plant in Arizona and hire 4,000 employees in the U.S. this year.

Employers hired 193,000 workers in February, and the unemployment rate rose to 9.1 percent, according to the median estimate of economists in a Bloomberg News survey ahead of a March 4 employment report from the Labor Department.

Challenger’s data do not always correlate with figures on payrolls or first-time jobless claims as reported by the government. Many job cuts are carried out through attrition or early retirement. Some employees whose jobs are eliminated find work elsewhere in their companies and many announced staff reductions never take place because business improves. The totals also include foreign affiliates.

A large and growing number of securities transactions that fail to settle indicates a possible lapse in regulatory oversight and poses a potential liquidity risk that can lead to a future systemic crisis, according to a new report issued today by the Ewing Marion Kauffman Foundation. The report urges a tough regulatory crackdown, including substantial financial penalties for settlement fails.

According to the report, every fail introduces a cumulative and potentially compounding liquidity risk into the orderly process of settling the $7.5 trillion of security transactions completed each day. It goes on to say that the failures are at least partly attributable to gaming of the system by traders who use delay to generate additional profit.  “There is a lopsided risk-reward dynamic embedded in the structure of current fails regulations. Capital markets firms can increase profits while laying off the risk associated with these profits to investors, the Treasury, and ultimately the taxpayers,” the report observes.

Harold Bradley, Kauffman’s chief investment officer, and Robert Litan, Kauffman’s vice president of research and policy, co-authored the paper with Robert A. Fawls and Fred E. Sommers, partners at Basis Point Group, a leading financial markets research firm based in Massachusetts.

“Settlement failures are a canary in the coal mine of the financial markets,” Bradley warns. “If we write a check without money in the bank, we end up in jail. When securities transactions don’t settle, the same thing happens on a larger scale. Too many settlement fails can put the financial system on edge.”

The report points to an uptrend in settlement failures for Mortgage-backed Securities (MBS) and Exchange Traded Funds as particularly troublesome. It says MBS fails averaged $115 billion per day in 2010, an increase of more than tenfold since 2008.

“Failures now are at a level that presents significant systemic risk to all investors in the event of another market shock,” Fawls said. “Though the Fed has the detailed fails data for each primary dealer, we could find no indication that it is using available tools to mitigate this risk to U.S. capital markets.”

Basis Point Group estimates that settlement failures and other accounting recognition delays impose hidden costs to asset owners of about 27 basis points every day or about $300 billion in assets that cannot be reinvested. At that level, and assuming a conservative annual interest rate of 3 percent, settlement failures cost underfunded pension funds and other institutional investors at least $9 billion a year in lost earnings.

“These preventable losses are particularly intolerable at a time when both public and private pension funds are asking employees to accept benefit cuts, increase their own contributions, or both,” Litan said. “Regulators can fix this. Every day of delay raises the risk to the financial system as a whole and to every investor, large or small.”

The paper notes that the Federal Reserve and the Securities and Exchange Commission have previously and successfully intervened to reduce fails in the market for U.S. Treasury paper and in the equities market. It says they should take similar action now in the broader securities market.

“The regulatory establishment must gain control over Wall Street’s hyperkinetic trading interests and stiffly fine traders who do not meet their contractual and legal obligations to settle trades on time,” Sommers said.

Lehman Brothers Holdings Inc.’s Australian unit failed to advise of the risks ofCollateralized Debt Obligations and ignored policies that required municipalities to invest conservatively, a lawyer for towns and councils seeking to recoup investment losses said.

The town officials “had little or no knowledge of the complex structured investments,” Tony Meagher, a lawyer representing the towns, told Federal Court Judge Steven Rares in Sydney today at the start of the trial.

Wingecarribee Shire Council, the City of Swan and Parkes Shire Council claim they were sold improper investments as Lehman pushed synthetic collateralized debt obligations, or SCDOs, to collect fees and commissions that were greater than it would have earned from selling term deposits. The towns, which represent Australian municipalities that bought SCDOs from Lehman from March 2003 to May 2008 and lost money, seek refunds for the cost of the investments.

Depicting moment-to-moment detail, the Securities and Exchange Commission yesterday laid out civil fraud charges linking a former Goldman Sachs board member to the biggest hedge fund insider trading case ever.

It’s a portrait of corporate board meetings leading to secret phone calls, to stock trading orders, and finally to huge illicit profits made within hours.

The SEC charged Rajat Gupta, who has also served on the boards of Proctor & Gamble and the parent company for American Airlines. Gupta was a guest at President Obama’s first state dinner. But at the height of the financial crisis, Gupta passed along privileged financial information that helped enrich the target of the government’s sweeping probe, the SEC alleges.

A pivotal moment came on Sept. 23, 2008. Gupta listened via teleconference as the Goldman Sachs board approved an offer from Warren Buffett’s Berkshire Hathaway to invest $5 billion in the banking giant.

Seven minutes before the stock markets closed, Gupta hung up the call. He dialed Raj Rajaratnam. The two men spoke briefly. Within a minute, Rajaratnam directed his hedge fund, Galleon Group, to buy 175,000 shares of Goldman stock. The next day, he would sell them. His profit: nearly $1 million.

Those and other allegations are at the core of charges suggestive of a financial thriller. The SEC spells out how it says Gupta gave Rajaratnam financial details about Goldman and P&G that had not been made public. Those leaks enriched Rajaratnam’s funds by nearly $18 million, officials say.

Rajaratnam is at the center of the government’s broad insider trading investigation. His hedge fund delivered profits exceeding $50 million, thanks to inside information about public companies’ earnings and plans for mergers and acquisitions, prosecutors say. Now, Gupta, 62, is being charged in that broadening probe.

Gupta’s attorney, Gary Naftalis, called the allegations “totally baseless.’’ The SEC has not accused Gupta of trading stocks illegally or sharing profits with Rajaratnam, Naftalis said. And Gupta actually lost $10 million in one of Rajaratnam’s funds at the same time that he allegedly passed on the information, Naftalis said.

Goldman, which was not accused of any wrongdoing, declined to comment on the charges.

The case against Gupta will be heard by an administrative law judge at the SEC. That proceeding will determine whether Gupta should pay restitution and civil fines and whether he should be barred from serving on a public company, the SEC said.

Gupta, 62, left Goldman’s board in May. Yesterday, after the charges were disclosed, he stepped down from P&G’s board.

HSBC Bank USA and HSBC Finance Corp. have stopped all home foreclosures until further notice and may face unspecified regulatory actions or fines, after regulators found “certain deficiencies” in servicing and foreclosure procedures, HSBC said in government filings Monday.

The disclosure by HSBC, buried deep within its annual financial report to the Securities and Exchange Commission, marks the first time HSBC has admitted to a foreclosure moratorium in the wake of a legal and paperwork crisis that swept the industry.

That’s a dramatic reversal from its stance just a few months ago, when it said publicly that it would not suspend home seizures because it didn’t feel its procedures were compromised by so-called “robo-signers” and faulty court affidavits.

“Robo-signing” refers to bank or law firm employees signing off on foreclosures without actually being familiar with the cases or reading paperwork.

In the SEC document, known as a 10-K, HSBC said it has “suspended foreclosures until such time as we have substantially addressed the noted deficiencies in our processes.” That suspension took effect in December, said spokesman Neil Brazil.

The company said it is also “reviewing foreclosures where judgement has not yet been entered and will correct deficient documentation and refile affidavits where necessary.”

Additionally, the bank said it expects regulators to impose a “consent order” shortly that would mandate certain steps to fix the problems. And it said it couldn’t rule out further government actions, including fines or “civil money penalties.”

About 38.5 percent of HSBC Bank USA’s $17.5 billion mortgage portfolio is in New York State. Currently, the bank has about $1.43 billion in delinquent mortgages, including $150 million in interest-only loans and $454 million in adjustable-rate mortgages.

It has $159 million in foreclosed properties, and Brazil said the average delinquency at foreclosure is 400 days. “We’ve never foreclosed on anyone that isn’t seriously delinquent,” he said.

The Virginia-based subsidiary of London banking giant HSBC Holdings Plc now joins rivals such as Citigroup, Bank of America Corp., and Wells Fargo & Co. in facing an imminent crackdown by regulators for improper mortgage servicing and foreclosures, although it is a smaller player than those three.

Brazil said the bank would be changing its affidavit and notarization procedures, tightening oversight of outside law firms, reviewing how it uses the Mortgage Electronic Registration Systems and developing “enhanced foreclosure governance” policies and steps.

He did not elaborate but said the bank still insists that it has “no robo-signing issues.”

“This was a decision we took in response to a number of internal and external reviews,” Brazil said. “Foreclosures are suspended for the time being while we implement some changes to our procedures, and then when we are sure that the correct procedures are in place, we’ll be resuming foreclosures. We expect that to be soon.”

For now, “customers may remain in their homes,” and “we will not be moving forward with foreclosures until this review is complete,” he said.

Major banks and third-party foreclosure law firms, including Amherst-based Steven J. Baum P. C., have been under fire for months, after disclosures by some companies in late summer that they may not have followed all the foreclosure rules.

Some lenders have admitted that employees filed false paperwork with courts, attesting to facts they didn’t personally know because the companies were swamped with work and under pressure to move quickly to process the foreclosures. Critics have also accused some loan servicers and lawyers of falsifying other documents submitted to courts in order to ensure a paper trail of ownership to mortgages.

In response, major lenders suspended foreclosures for weeks or months while they reviewed their procedures and evaluated all or many specific cases. But the companies have insisted that the facts of each situation that the borrower defaulted on a loan are not in doubt, so most have restarted home seizures, after fixing the problems and refiling paperwork.

Still, multiple state attorneys general and federal agencies, as well as congressional committees, are investigating industry-wide procedures and a host of companies. And they’re under tremendous public pressure to take action against them.

Bill Gross’s monthly letter:

A successful handoff from public to private credit creation has yet to be accomplished, and it is that handoff that ultimately will determine the outlook for real growth and stability.

Because quantitative easing has affected all risk spreads, the withdrawal of nearly $1.5 trillion in annualized check writing may have dramatic consequences.

Who will buy Treasuries when the Fed doesn’t? The question really is at what yield, and what are the price repercussions if the adjustments are significant.

What I would point out is that Treasury yields are perhaps 150 basis points or 1½% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%.

Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market handoff and stability in currency and financial markets.

http://www.pimco.com/Pages/Two-Bits-Four-Bits-Six-Bits-a-Dollar.aspx

World food prices rose 2.2% in February from the previous month (a 26.4% annulaized rate) to a record peak, according to the The Food and Agriculture Organization of the United Nations.

It is the eighth consecutive rise in the FAO food price index.

The index stood at 236 last month, the highest record in real and nominal terms since the agency started monitoring prices in 1990.

Bottom line: The money printing being done by central banks across the global is about to have its impact. There is no question that some of the food price increase can be attributed to non-monetary supply and demand factors, but price inflation caused by money printing always rears its ugly head at the weakest point. This time around it is with food prices. But the increases will go way beyond food, and the soaring stock market prices are proof plenty that a lot of this has to do with money printing pushing prices higher.

An Ohio Senate committee passed a bill to limit collective-bargaining rights for public employees that has sparked protests at the Statehouse in Columbus. The move allows the full Senate to vote on the measure.

The 12-member Insurance, Commerce and Labor Committee passed the bill 7-5 today, with all four Democrats and one Republican voting against it.

Republican Senator Bill Seitz, who opposed the bill, was replaced on the committee by Republican Senator Cliff Hite, who voted for it. The Senate, controlled by Republicans, may vote on the bill as soon as today, said Senator Kevin Bacon, the committee chairman. Republicans said the bill will give state and local governments the tools they need to manage budget cuts.

A consulting firm founded by economist Nouriel Roubini said there could be close to $100 billions of municipal-bond defaults over the next five years as state and local government-debt problems damp the U.S. economic recovery.

That figure would by most estimates represent a significant increase over defaults in recent history, but it doesn’t appear to be as dire as a prediction last year by analyst Meredith Whitney. On February 23, Rasmussen reported that 67% of Americans strongly believe the United States should stay out of Libya and the Middle East.

End of Dollar as Reserve ‘Disastrous’ Billionaire real-estate magnate Sam Zell warns that Americans should brace for a “disastrous” 25 percent decline in the standard of living if the U.S. dollar’s reign as the global reserve currency ever ends.

“Frankly, I think we’re at a tipping point. What’s my biggest single financial concern is the loss of the dollar as the reserve currency,” he told CNBC in an interview. “I can’t imagine anything being more disastrous to our country than if the dollar lost its reserve-currency status.”

Gallup Finds U.S. Unemployment Hitting 10.3% in February, Underemployment surged to 19.9% in February from 18.9% at the end of January.

The U.S. unemployment rate is now essentially the same as the 10.4% at the end of February 2010.

Fewer U.S. states in February hit the mark on forecasting receipts from withholding taxes compared to January, a sign that a recent rebound in revenues may be slowing down, an economic newsletter said on Thursday.

Withheld taxes, which an employer takes from an employee’s paycheck and pays directly to the government, are a good barometer of revenue levels.

“Around the country results were mixed,” said the Liscio Report, which takes monthly surveys of states’ tax receipts.

Emboldened US consumers returned to shopping malls in February, shrugging off harsh winter weather and demonstrating a renewed willingness to spend.

Sales at big US retailers were stronger than analysts expected, with department stores leading the way and robust demand at merchants such as Saks, Macy’s and JC Penney. The 4.2 per cent rise comparable store sales surpassed the 3.6 per cent advance that was projected.

For those playing along at home, the goofy BLS Birth/Death Model crafted 97k jobs in February 2010.

For the past year, the risible B/D model has created more jobs each month than the previous year, even though the BLS last month had to revise job growth sharply lower for the past year.

Initial jobless claims unexpectedly declined last week to the lowest level since May 2008, pointing to a strengthening labor market.

Applications for unemployment benefits decreased by 20,000 to 368,000 in the week ended Feb. 26, Labor Department figures showed today. Economists forecast claims would climb to 395,000, according to the median estimate in a Bloomberg News survey. The total number of people receiving unemployment insurance fell to the lowest level since October 2008.

Service industries expanded more than forecast in February, showing the U.S. expansion has broadened beyond manufacturing.

The Institute for Supply Management’s index of non- manufacturing businesses increased to 59.7, the highest level since August 2005, from 59.4 in January. Economists forecast the gauge would fall to 59.3, according to the median estimate in a Bloomberg News survey. A reading above 50 signals expansion.

This article was posted: Sunday, March 6, 2011 at 8:00 am





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