FED UP USA - Updates

FedUpUSA is your one-stop source for all the latest news regarding the global financial crisis.  We are committed to bringing you the truth about what is really happening, as opposed to the fodder that is shown in the mainstream media.  We believe the root of the problem is corruption in our financial industry and in our government.  It is our goal to expose and reveal the corruption as well as to educate the public about our economic and financial systems so they can fight back.   Employment Report 10/05/12: A Look Beyond The Headline October 5th, 2012 | Author: FedUpUSA Editor   Look what we have here! The unemployment rate decreased to 7.8 percent in September, and total nonfarm payroll employment rose by 114,000, the U.S. Bureau of Labor Statistics reported today. Employment increased in health care and in transportation and warehousing but changed little in most other major industries. This is rather amusing; +114,000 is fewer than the working-age population growth in the household survey (206,000) and yet unemployment decreased. Huh? The household survey’s unadjusted numbers, however, show some rather interesting figures, none of which make sense.  “Not in labor force” increased by 386,000 while “employed” increased by 775,000 a net change off “unemployed and looking” of well north of a million people! But — giving up is not the same thing as finding a job. Overall we’re adding jobs, but not enough to cover the additions to the workforce.  And while the unemployment rate decreased a big part of it came from those who gave up, which is a false number, but heh, who’s counting, right? This figure keeps going up in a stairstep fashion and simply isn’t good.  Not-in-labor-force has to come down if we’re going to see real job progress — that’s all there is to it. This is what employment looks like ex-work force changes.  And again, while this report isn’t a disaster, the fact remains that ex-population changes it remains negative — although not ridiculously so.  Nonetheless and in spite of the ridiculous levels of “stimulus” we’re not obtaining actual job market improvement. A nice little blip upward in this last chart is evident, but does it matter?  Nope.  We’re still scraping along the bottom. One disturbing thing that has shown up in the data is the skew between education and employment.  For those who are contemplating how far to go with their education this is not what you want to see at all. The lesson in here?  Be educated but don’t be too educated. My suspicion is that the deterioration here is related to the “requirements” for salary that come with the ridiculous amount of debt kids are being asked to take on. Another interesting factoid is found in the unemployment duration distribution — it improved on an annualized basis but the shift in the last month is not good at all, with nearly three weeks of duration being added in just the last month to average duration, which strongly implies that those who went to work this month were all recent lay-offs and not those who have been unemployed.  This, incidentally, argues directly against Bernanke’s assertion that the unemployment problem has not become structural. One final note — workweek and hourly earnings were down for the transportation sector, which was an outlier. Hmmmmm…. THE AMAZING, ADMIRABLE PEOPLE OF ICELAND DESERVE A MONUMENTAL TICKER TAPE PARADE!!! How Iceland Defeated the Anglo-American Bankster Mafia October 4th, 2012 | Author: FedUpUSA Editor As retold by the President of Iceland, Ólafur Ragnar Grímursson. Chris Whalen On JPM And Fraudclosure (IMPORTANT!) October 4th, 2012 | Author: FedUpUSA Editor   Heh heh heh…. What is really interesting is that the legal complaint filed by Schneiderman talks about sloppy procedures for loan selection, but still does not get to the real fun, namely multiple pledges of loans for different RMBS. And you can be sure that Schneiderman does not really want to go that far because it might force him to ask the same question about the other, far larger issuers of RMBS. Remember, the whole point of the Robo-signing settlement is not consumer protection, but rather fraud. The key question: Who’s got the note? If you don’t have to deliver the note into an RMBS trust, then the door is wide open for securities fraud. What’s being talked about here is the NY lawsuit against JPM (really Bear Stearns, but now JPM since they bought it) for securities fraud. I have long maintained (since this crap begain to become public in 2007 and 2008) that the 900lb Gorilla in the room was going to come about when someone managed to bring the following argument before a Judge in a foreclosure action: Your Honor, defendant moves that the plaintiff be required to show a full and complete accounting of all activity of the subject claimed note, including but not limited to: ·           Where the actual funds came from to fund the loan he entered into, and whether they ever actually existed or were fabricated out of thin air.  The chain of custody of the note he signed, including the consideration paid for its negotiation each time it was negotiated, and that it was pledged and negotiated exactly once into one trust, and that this occurred in a lawful manner on or prior to the closing date of said trust.  All financial events at a line-item level of detail, identifying each payee and payor along with each event from the date of origination to the averred default being sued under, including not only payments made and alleged payments missed along with penalties and interest but alsoany and all swaps collected upon or other transactions that acted as insurance or in any other way mitigated the plaintiff’s or any other party at interest’s damages. The intent here is quite simple — not only is there a judicial interest in guaranteeing that the person who is standing before the judge is really the assignee of the note (or his lawful agent) and there is only one of them out there (who is the one standing before the bar) in addition you can only collect on a loss via lawsuit or other payment once! If you get into a car accident and your auto insurance pays your $20,000 in damage you cannot then sue the person who hit you, as you were made whole and you can only collect once.  In point of fact the insurance company will almost-certainly force you to sign over your right to sue to them before they pay you,but if they don’t you still can’t sue the person who hit you as you have no economic harm as you were already paid! Recovery by lawsuit, including foreclosure, requires economic harm.  If there was no economic harm there is no foul and your judgment, which you may well be entitled to, is for $0.00.  Further, if the person who actually suffered the harm isn’t the one in court he can’t recover anything because the wrong person is suing and only a real party at interest with economic harm can sue. So if the bondholder was made whole via a credit default swap or any other act, including rescission, his claim on you is extinguished.  The person who sold him the swap may have a legal claim via lawsuit or the person who was forced to buy back the bogus loan may have a right of recovery but he cannot foreclose unless he obtained possession of the defaulted instrument through that process of payment and if he does then he had better be the person standing in the courtroom before the judge. This is really basic stuff here folks — you don’t get sue because you’re “butt-hurt” by someone’s acts; you can only sue to recover actual economic injury,whether your requested remedy is foreclosure or simple money damages. Chris is onto this but this rabbit hole goes a lot further than many people think it does. If — and this is a big if — we can get just one honest judge to hear these arguments and force that accounting to take place in his courtroom then the game is up. Chris Whalen On QE3: “The Core Problem Is Fraud” October 4th, 2012 | Author: FedUpUSA Editor “A hedge fund on the floor of our offices in New York actually started dancing around like little children shouting ‘QE3′ after the Bernanke press conference.” — This is a must read. Guest post submitted by Chris Whalen. QE3, Deflation And The Fed’s Money Illusion The announcement last week by the Federal Open Market Committee that the central bank would initiate additional, open-ended purchases of residential mortgage backed securities (RMBS) was more than a little sad.   Let us count the ways. The first reason for sadness was the idea that people here in New York and elsewhere in the global financial community were actually surprised by the Fed’s move.  The FOMC is fighting deflation.  Credit continues to contract globally as much of the western world goes on a pure cash budget.  So while I would like to see the Fed raise short term rates, the fact is that the central bank has little choice but to support the markets.  But buying RMBS will neither help housing nor reverse the current deflationary spiral on which we all ride. The second reason to be circumspect is the fact that the Fed’s leaders continue to pretend that driving down yields in the RMBS markets will have any impact on the housing sector or the economy.  The two thirds of the mortgage market that cannot refinance their homes will be unaffected by QE3.  In fact, the latest Fed purchases are a gift to Fannie Mae and Freddie Mac, the TBTF banks and the hedge fund community.  A fund on the floor of our offices in New York actually started dancing around like little children shouting “QE3” after the Bernanke press conference. The link below shows a great chart from Credit Suisse of par RMBS vs 10 year constant maturity swap or “CMS.”  Just how much lower does the Fed expect RMBS yields to go? http://www.rcwhalen.com/pdf/qe3.pdf “The entire move in MBS prices will go into profit margins,” one mortgage market veteran told the Berlin-New York-Los Angeles mortgage study group last week.  “FHFA has made sure that the mortgage market has oligopoly pricing and zero competition for the existing servicers.  QE3 is risk free profits for the unworthy.  And we wasted 40 years and Trillions of dollars fighting the USSR over the need for a free enterprise system?” Unfortunately, since two thirds of the mortgage market cannot be refinanced, the effect of the Fed’s largesse will indeed go straight to the GSEs and Wall Street zombie banks.  This is the key, historical error being committed by Bernanke and the rest of the FOMC.  Instead of looking for ways to stoke consumer demand by restoring income and consumer demand, the Fed is simply feeding subsidies to Wall Street.  Since the Fed does not think that savers like grandparents and corporations spend money, the error is magnified several orders of magnitude. The basic problem with the people on the FOMC today is that they are all Obama appointees who are by and large neo-Keynesian socialists in terms of economic outlook.  By spending all of their time trying to prevent the 50% drop in GDP which occurred in the 1930s, the Fed forgets or never knew that this catastrophe was the result of the disappearance of private sector capital – not a lack of government spending.  And why did this happen?  One word: Fraud.  Bill Black has been talking about fraud for years,  So does Fred Feldkamp, the father of the good sale in RMBS.  And so have we at IRA and many others. The third sadness is that people still don’t understand that fraud is the core problem in the market economies.  Until you deal with fraud and start to restructure the trillions of dollars in bad assets now choking the US economy, no amount of Fed ease will reverse the contraction in credit.  This is not so much a monetary problem as much as a political issue. Just as during the 1920s and 1930s it took years for our leaders to understand that securities fraud was the core issue menacing the US economy, today the same process of discovery and revelation grinds slowly forward.  Fear causes investors to withdraw from markets and save cash.  But because Chairman Bernanke and the Fed refuse to attack the source of the fraud – namely Bank of America and the other zombie banks – the US economy is destined for years of stagnation and eventual hyperinflation. Economists at the Fed think that the rising propensity to save is a function of interest rates, but no amount of financial repression is going to convince investors to take first loss on a private label RMBS until they trust the representations of the issuer.  Trust me on this since I am in the bank channel right now marketing a non-conforming RMBS offering. Just as the grey market banking sector collapsed from the peak of $25 billion starting in 2007, the confidence of the great market economies is collapsing under the weight of socialist economic prescriptions and cowardly advice coming from the legions of economists who work for large banks.  Most economists have figured out that the old linkages between savings, consumption and debt have broken asunder.  Yet none of these captive seers dares to suggest that the banks themselves need to be restructured. Jeff Zervos of Jeffries is one of the key Fed cheerleaders.  He writes in a research comment: “The bottom line is that the Fed is printing money, debasing the currency and devaluing debt. The policy is redistributive, regressive and reflationary.  It’s a nasty business for sure, and the truth must be obfuscated from the public.  But if we want to avoid a second great depression, it is the right thing to do. Good luck trading.” Good luck indeed.  So long as the Fed refuses to become an advocate for restructuring and merely keeps interest rates low, there will be no progress on the economy or jobs because aggregate credit continues to contract.  The Fed’s actions are not really growing the money supply much less credit, it is merely trying to slow the decline.  Whether we talk about the run-off of the private label mortgage market or the wasting effect of low rates on savers, the US economy is being put into a no leverage, pure cash model by the happy Keynesians who run the Fed. The fourth sadness is that mainstream economists from Zervos to Bernanke to Richard Koo at Nomura refuse to even talk about rebuilding private sector wealth creation.  In a brilliant luncheon talk last week at the Bank Credit Analyst investment conference, Koo accurately described the breakdown in the relationships between major economic aggregates.  He also illustrated nicely the jump in savings in Japan and the other major industrial nations following market shocks. But Koo, like most of our former colleagues at the Fed, thinks that only increased debt and public sector spending are the answer to the deflation threat.  But the key lesson of the Great Depression was that government must avoid actions and policies that cause private sector investors to flee the markets.  This is precisely the result we now see from the Fed’s actions. Now you might argue that the Fed is merely following the advice of Irving Fisher, the great US economist, who wrote in 1933 that vigorous monetary policy is needed in the face of debt deflation.  One must wonder, though, if Fisher would not scold all of us today for failing to attack fraud and restructuring at the same time.  Like most Keynesians, Fisher believed that government could manipulate income and investment via monetary policy. Yet even Fisher was guilty of embracing the same fallacy or “money illusion” that government can print money without affecting negatively consumer behavior.  As Ludwig Von Mises wrote in the new preface to his classic book, The Theory of Money and Credit: http://mises.org/books/Theory_Money_Credit/Contents.aspx “There is need to realize the fact that the present state of the world and especially the present state of monetary affairs are the necessary consequences of the application of the doctrines that have got hold of the minds of our contemporaries. The great inflations of our age are not acts of God. They are man-made or, to say it bluntly, government-made. They are the off-shoots of doctrines that ascribe to governments the magic power of creating wealth out of nothing and of making people happy by raising the ‘national income’.” Could it be that the monetary actions of the Fed and other monetary authorities around the world are scaring investors, eroding confidence in private markets and worsening deflation? Most economists never consider that FDR’s anti-business rhetoric and policies helped to drive private capital formation to zero in the 1930s.  Likewise today, the Fed’s reckless and arguably illegal actions in terms of monetary policy are terrifying investors and members of the public around the world.  But all that Jeff Zervos, Richard Koo and their Keynesian/socialist pals that the Fed have to say is “good luck.” We need to take a new direction if the economic catastrophe predicted by luminaries like Paul Krugman does not come to pass.  The core principles are two: fight the fraud and restructure bad assets.  If we hold responsible those who have committed fraud against investors and at the same time move quickly to restructure and break up banks such as Bank America, we can restore public confidence in markets and reverse the deflation which is even now gaining momentum in the US economy.  Contrary to the assertions of Zervos and others, there is no need to hide government policy from the public view. Restructuring is the necessary condition for credit expansion and job growth.  Without private sector credit growth there can be no jobs. Without justice for investors, pension funds and banks defrauded to the tune of hundreds of billions of dollars, there can be no investor confidence to support private finance.  And unless the Fed and other regulators in Washington break the cartel in the US housing sector led by Fannie Mae, Freddie Mac and the top four banks, there will be no meaningful economic recovery in the US for years. Instead we will face hyperinflation and social upheaval, both care of the well-intentioned economists on the FOMC. Mouth-Breathing “Journalism” Continues On Budget October 3rd, 2012 | Author: FedUpUSA Editor Will we ever cut this crap out? The first presidential debate is Wednesday night. Why mess around? The rich world, of which the U.S. is a part, has been engaged in a monetary Hail Mary that could end very badly. European leaders are accused of being in denial. But denial is not the problem. Their crisis is unresolved because no resolution exists that the democratic politics of the individual countries will sustain. In the U.S., a Rubicon has just been crossed in this regard. The Federal Reserve appears to be giving up on the politicians and trying to heal America’s debt wounds the best it can by itself, with a (modest, it hopes) dose of inflation. Well, ok.  The reason I read the rest of this piece, incidentally, was those first three paragraphs.  The author appeared to “get it” — the problems in Europe aren’t due to inability to solve them, but lack of political will to (1) tell the truth and (2) put in front of the voters that the choices are either collapse or reform — now. Then you let them choose.  You don’t BS people, you don’t lie, you don’t claim you can find a “balanced” way to deal with the issue, you tell the truth.  You lay forward the numbers, you defend them, and you shut up about everything else and demand that anyone who comes forward and calls you a goof (or worse) present their evidence in facts and figures or you simply repeat your point and refuse to engage on any other set of terms. This is what Perot did and it works. Such fabulizing aside, there is no political market in America today for austerity, which Mr. Romney isn’t selling. We face a fiscal cliff precisely because the natural meeting point of Democrats and Republicans last time was no spending cuts and no tax hikes. No, we face a fiscal cliff because we spent 30 years lying to people. This is the only difference between the U.S. and Spain. Talk about austerity: Imagine if Mr. Obama had to come up with $1 trillion in spending cuts and tax hikes overnight because the Fed and Red China stopped buying our bonds. But the global Hail Mary will end badly if the aging, indebted welfare societies of the rich world, including the U.S., don’t get growing soon. Let’s hope, between contraception policy and Mr. Romney’s tax returns, the candidates find a moment to convey to voters what this election is really about. Ah, here we go.  The big lie embedded in the article’s premise. And The Journal knows better, which makes this particularly inexcusable. Look at that chart.  That may not be quite as easy to understand, so let’s put it in better terms understanding something that is very basic about debt — nobody takes it on without immediately spending it, which means that each dollar of debt will result in one dollar of GDP. We therefore must subtract each dollar of debt from alleged expansion of GDP to determine what the actual growth rate in the economy (that is, from organic expansion of demand) is. So let’s look at what that is on a quarterly basis: What growth?  There hasn’t been any on an organic basis for 30 years! This is the scam folks, and until we cut this crap out and start talking about it, and what we’re going to do about it, there is no resolution — or forward economic progress in real terms — that is possible. The Black Financial and Fraud Report October 3rd, 2012 | Author: FedUpUSA Editor Top Justice official tells Wall Street how to avoid prosecution. If You Prop Up an Artificial Economy Long Enough, Does It Become Real? October 2nd, 2012 | Author: FedUpUSA Editor   Does carefully nurturing a facade of health actually lead to health? No; all it does is perpetuate a destructive illusion. The policy of the Status Quo since 2008 boils down to this assumption: if we prop up an artificial economy long enough, it will magically become real. This is an extraordinary assumption: that the process of artifice will result in artifice becoming real. This is the equivalent of a dysfunctional family presenting an artificial facade of happiness to the external world and expecting that fraud to conjure up real happiness. We all know it doesn’t work that way; rather, the dysfunctional family that expends its resources supporting a phony facade is living a lie that only increases its instability. The U.S. economy is artificial in three important ways: 1. The Federal Reserve has distorted the market for borrowing capital by reducing interest rates to zero. Those holding capital (savings) receive essentially zero interest income while favored borrowers (banks and large corporations) can pursue marginal-return speculations for free (when measured in real terms), creating systemic moral hazard of the most pernicious sort. 2. The Federal Reserve’s monetizing of Federal borrowing via the purchase of Treasury bonds has given the government a “free” hand to spend $1.3 trillion more than it collects in tax revenues, feeding inflation (The Source of High Inflation: Government Spending) and the moral hazard created by having essentially free money to dispense to cronies and to buy voter complicity. In a real market economy, the cost of Federal borrowing would rise as bondholders would demand a premium for taking on the risk that interest rates would eventually rise under the relentless accumulation of stupendous debt. That mechanism has been frozen by the Fed’s monetiziation of Federal borrowing. 3. The housing market has essentially been socialized, with the taxpayers now funding the entire mortgage market (98% of mortgages are backed by Federal agencies) and endless subsidies of marginal buyers (3% down payment loans, etc.) The Federal Reserve has committed itself to taking trillions of dollars of impaired or dodgy mortgages off the balance sheets of banks and burying them in its own opaque balance sheet, while also maintaining near-zero interest rates (when adjusted for inflation) to incentivize refinancing and home buying–both of which generate billions of dollars in fat fees for banks. All this artifice has created an artificial economy on multiple levels. The entire bond market is artificial, the entire stock market is artificial, and the entire housing market is artificial. One of the more striking quotes I’ve read recently was buried in a report chronicling the effects of the housing bust on Nevada. The quote was by a woman who had stopped paying her mortgage three years ago and had been living rent/mortgage-free in the house courtesy of the bank, which had declined to even begin the foreclosure process. Harris, 38, stopped paying her mortgage three years ago after her accounting business lost its biggest client and her home’s value plummeted 52 percent. Some neighbors are also delinquent on their mortgages. “There are so many people like me who aren’t paying their mortgage so they can buy groceries and gas,” said Harris, who was rejected for loan modification programs. “It’s creating this whole false economy.” This is an astonishing statement on several levels. That people can only afford to keep afloat if their housing is free reflects an extreme of financial fragility. That the banks are willing to pay property taxes and receive zero income for 3+ years reflects the banks’ dedication to restricting the inventory of unsold homes so prices will be forced higher as supply drops below demand. This strategy, no doubt orchestrated with quasi-official approval, has already paid handsome dividends, as beaten-down markets such as Phoenix have seen sharp increases in home values this year as the number of foreclosed homes entering the market has dwindled. This artificial restriction of inventory by lenders has been well-documented; not only are there millions of homes in the foreclosure pipeline that are not being moved onto the marketplace, there are at least (by some estimates) another 4 million in-default homes that are being held out of the pipeline entirely; this is the “shadow inventory,” the inventory that is not even recognized as being in default despite 3+ years of non-payment. This is a risky game the banks are playing, as this visibly artificial restriction of inventory undermines the belief that this recent surge in home valuations is legitimate, i.e. a balancing of actual supply and demand. Sqeezing inventory does not magically enlarge the pool of qualified home buyers; it “games the system” so those buyers are paying more for the homes that they would otherwise be worth if the market weren’t being manipulated. This helps banks by raising the prices they’re getting for the few foreclosed properties that reach the market, but it certainly doesn’t help buyers. This strategy is betting that the gains reaped by selling REOs (“real estate owned,” i.e. houses the banks own) at higher prices more than offset the losses generated by paying the costs of non-performing loans–property taxes, for example–and the decline in income as homeowners stop making mortage payments. The real estate industry and the banks are hoping that the increase in housing prices caused by the restriction of inventory will spark a new rush into real estate as people start believing “the bottom is in.” But this is based on the expectation that there is pool of potential buyers who are only waiting for the bottom to be identified to jump in and buy a house. The irony is that restricting inventory keeps prices high, limiting the number of people who qualify for large mortages. Given that incomes of the lower 95% of households have been declining for four years, the foundation of borrowing is crumbling. The Fed has attempted to increase leverage by lowering mortgage rates to 3.5%, barely above official inflation, while relieving banks of impaired mortgages by buying $1 trillion of mortgage-backed securities in 2009-10 and now another $500 billion over the next year. The idea here is that maintaining an artificial market and reality will somehow magically transform a broken system into a self-healing one.Stated in this transparent fashion, the absurdity of the Status Quo’s primary policy is clearly revealed. Dysfunctional families, enterprises, markets and governing Elites all share this same dilemma: you cannot fix an unhealthy, dysfunctional system by hiding reality behind an artificial reality facade. All you’re doing is increasing the instability of the system, which is not allowed to self-correct. The U.S. economy is riddled with artifice: millions of people who recently generated income from their labor have gamed the system and are now “disabled for life.” Millions more are living in a bank-enabled fantasy of free housing. Millions more are living off borrowed money: student loans, money the government has borrowed and dispensed as transfer payments, etc. Assets are artificially propped up lest a banking sector with insufficient collateral be revealed as structurally insolvent. One definition of dysfunction is an internal conflict that cannot be resolved.That is our Status Quo: its strategy to fix its dysfunction and instability is to create an artificial economy based on smoke-and-mirrors data, ginned up balance sheets and a facade of “normalcy” that is anything but normal or healthy. How can such an artificial economy become healthy when its self-correcting features and transparency have both been overriden by artifice? It’s not difficult to predict an eventual spike of instability in such a system; the only difficulty is predicting the date of the instability. Hiding a broken, dysfunctional economy behind a facade of artifice and illusion can’t fix what’s broken, it only adds to the system’s systemic instability as resources that could have gone to actually fix things are squandered on propping up phony facades of “growth” and “health.” Charles Hugh Smith – Of Two Minds Bernanke You Ignorant Slut October 2nd, 2012 | Author: FedUpUSA Editor   This afternoon Bernanke strode to the lectern and delivered a speech including this ditty: But today I want to focus on a role that is particularly identified with the Federal Reserve–the making of monetary policy. The goals of monetary policy–maximum employment and price stability–are given to us by the Congress. Notice those bolded words – price stability. These goals mean, basically, that we would like to see as many Americans as possible who want jobs to have jobs, and that we aim to keep the rate of increase in consumer prices low and stable. There is the lie; you just witnessed Ben Bernanke take words from a Statute – an actual law – and lie through his teeth about what they say. This is the actual language in The Federal Reserve Act: The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. STABLE means unchanging.  It does not mean “the rate of increase in consumer prices (is) low and stable” – it means the target rate of change in consumer prices is zero. This is the “Grand Lie” told by Bernanke, by Greenspan and by those who came before them.  It is an active and intentional act of law-breaking by every single member of the FOMC and has been serially since 1913! Congress could change the law.  It could specify that inflation should be “low and stable.”  But Congress said no such thing.  Congress mandated stable prices, not “slowly-increasing” prices. And let’s not kid ourselves as to the actual impact of such a policy.  The so-called “2%” inflation rate that is allegedly “low and stable” sounds like it’s a pretty harmless thing.  After all, how can 2% hurt you? Well, over 100 years, what does 2% inflation turn a $100 item into?  If you said $100 + ($2 (2% of $100) * 100), or $300, you’re wrong.  Because an inflation rate is an exponential function that item will cost $710.26 100 years down the road. In point of fact, however, the actual inflation rate has been approximately 3%, not 2%.  That doesn’t sound like such a bad “miss”, does it? Well that same $100 item under a 3% inflation rate costs $1,865.89 100 years hence. Do you still think this theft of saved funds is “no big deal” when in fact all you’re left with of that $100 100 years hence in terms of purchasing power is about $5.36? I believe that the original Coinage Act’s provisions (passed in 1792), which proscribed death for intentional debasement of the currency, is the correct sanction for such treachery. But despite the fact that there is currently no penalty clause of any sort in The Federal Reserve Act does not change the essential character of what Ben Bernanke and the FOMC are doing. They are intentionally violating the law. Now let’s talk about the other essential claim that Bernanke made today: In normal circumstances, the Federal Reserve implements monetary policy through its influence on short-term interest rates, which in turn affect other interest rates and asset prices.1 Generally, if economic weakness is the primary concern, the Fed acts to reduce interest rates, which supports the economy by inducing businesses to invest more in new capital goods and by leading households to spend more on houses, autos, and other goods and services. Likewise, if the economy is overheating, the Fed can raise interest rates to help cool total demand and constrain inflationary pressures. How does lowering interest rates “lead households to spend more on houses, autos and other goods and services”? Lowering interest rates doesn’t make your wages go up, so you can’t spend more from your earned income. No, it leads you to spend more by borrowing more money. But borrowing to consume is in general foolish. To begin with the more money you have chasing goods and services the more they cost!  This is economics 101, and applies to everything.  Take a look at college costs over the last 30 years if you don’t believe me and explain how Calculus has changed in that 30 years, and why it should cost five times (in inflation-adjusted dollars) as much to learn it today in college as it did in 1982.  There is only one reason this happened — too many dollars chasing too few goods and services. As a result borrowing to consume is self-defeating as you wind up driving the price higher, which then leaves you in a position where you have to borrow even more! That would be bad enough if it was the only thing that screws you when you engage in this behavior. But it’s not. In fact, there are two other problems which are at least as serious and combined are much more-so. The first is that when you buy a good or service today instead of tomorrow you inherently overpay for it compared to tomorrow’s price.  This is due to the fact that human ingenuity continually improves productivity.  Consider the lowly handheld calculator.  If you want one today they’re $3 at WalMart.  How much did they cost 30 or 40 years ago? This is admittedly an extreme example, but far-less extreme examples abound.  A DVD player was $500 just a few years ago.  A couple of years later they were $100.  Now they can be had if you shop carefully for under $50.  Your desire to have it “right now” meant you paid more and got less.  This is perfectly fine provided you can afford to pay for the item with your current economic surplus (savings or current wages) but if you borrowed to own it then you overpaid twice — once because you drove up the price by chasing the goods and then again because you failed to take advantage of waiting for productivity improvements to lower the cost — and thus price. Most people do understand this cost and accept it in the name of vanity, keeping up with the Joneses or whatever.  But it is the other cost — that is, interest — that is truly insidious. See, when a loan is made even if the law is followed (and it is not) and actual capital is lent out that was previously acquired (and it is not) the interest that you are going to have to pay in the future does not exist in the economy. Get this straight folks – it doesn’t exist. Now you can look at this situation in isolation — as “just you” — and shrug. And you might get away with that. For a while. But 2008 showed us what happens when too many people shrug for too long.  When too many people borrow to spend now rather than spend what they can afford with current production and save some percentage of their income back to form capital eventually you hit the wall because the interest that was never created to pay the debts doesn’t exist, and eventually someone raises their hand and says “this is a Ponzi scheme — credit must expand exponentially for everyone to be able to pay, which means it won’t — and can’t — go on forever.  I quit — give me my money NOW!” The music stops and there are not enough chairs. What government and The Fed have done since is not a solution.  It was and is a scam. It is an attempt to sell you on the premise that the bad debts that were taken on and left people without chairs can continue to exist and be serviced by the government running huge budget deficits. This is a lie and it is trivially provable that it is a lie. If the economy has 10,000 units of production and 10,000 units of credit and currency in it, and the government emits another 1,000 units of credit and currency nothing has changed other than the fact that each unit of production now requires more credit or currency to buy than it did before! This is exactly identical mathematically to the government increasing taxes by the precise same amount without telling you it has done so!  In fact, the government can and has lied to you and told you it has and is cutting taxes while in fact it has raised them! But what happens when you raise taxes in this fashion?  The cost of employing people goes up and the number of employed people goes down. And what has happened? Exactly that. Now how do you increase government funding and thus maintain the deficit spending if you can’t put people back to work? You can’t. The premise that Bernanke, Bush and Obama all operated on is that by spending in deficit they could con you into restarting the exponential borrowing charade.  Four years on we now know this strategy has failed; there are simply not enough qualified and willing borrowers in the economy to take on yet another exponential load of debt ($54 trillion, approximately, this time around) to run another “cycle” of this Ponzi scheme. But if we keep this charade up for too long, since we have now centered the gross increase in borrowings in the Federal Government, and hit that wall, the government collapses. That is what we now face, and the only question is how far we are away from disintegration of our society, government, economy and mass unemployment. Bernanke said much else in his speech today, but these are the only two items that matter.  The rest was nothing more than arm-waving, and I’m quite sure he hopes you didn’t catch his dissembling right up front — if anyone did, it certainly wasn’t evident in the questions that were asked. Wake up America. Tickerguy on the Hidden GDP Tax and Losing the Deficit Debate October 2nd, 2012 | Author: FedUpUSA Editor Can any amount of rhetoric fill the gaps in their deficit plans, and where is the country headed without sound math, let alone sound MONEY! And what about the hidden GDP tax? We’ll hear from blogger, author and radio host Karl Denninger of the Market Ticker, for his take. How Much More Evidence Do You Need? October 1st, 2012 | Author: Randy You cannot ”ease” your way out of a debt mess. The unemployment rate in the euro area reached the highest on record as the festering debt crisis pushed the economy toward a recession, prompting companies to cut jobs. Unemployment in the economy of the 17 nations using the euro was 11.4 percent in August, the same as in June and July after those months’ figures were revised higher, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995 and in line with median of 30 economists’ forecasts in a Bloomberg News survey. Nobody is going to hire or expand their business until and unless they see evidence of organic demand.  And when you have driven demand higher through artificial means, you are then stuck; organic demand is never able to catch up as you’ve managed to do something really stupid in the use of a geometric series as part and parcel of your alleged demand curve. Over time this drives the required additional new debt levels ever-higher; we reached $7 of new debt in one quarter for every $1 of GDP acceleration (in 2007) and subsequently collapsed. Think about this for a moment, because nobody borrows without intent to immediately spend.  This means that each borrowed dollar had to go into the economy.  The implication of that fact is that the economy was in a ridiculously deep recession — it was literally losing $6 of every $7 borrowed – at that time. That is, the economy was in fact contracting at a rate of approximately 6% (annualized) in 2007, and had been declining at over a 5% rate from the end of 2006 forward! Now the worse news — we’re still cheating and now are finding that real personal incomes, in monetary terms, are sliding at a nearly 4% rate which has been accelerating again into negative territory after reaching “parity” in the first quarter of 2011. This outcome is caused by the expansion of debt without expansion of incomes in a ratable form.  The impact on the economy is inescapable; we can play games for a while and pretend, but we cannot change the laws of mathematics. Governments cannot run deficits as they are exactly identical in form and fashion in mathematical terms to raising taxes by the exact same amount of the deficit spending undertaken.  The premise that one can do this and thereby “support the economy” is false; government could in fact spend accumulated surplus but there is no accumulated surplus that has been socked back.  Rather, government has gone between spending more than it takes in and spending even more than it takes in with the latter undertaken for the explicit purpose of propping up bad investments and preventing the consequences of those bad investments from being recognized. It isn’t going to work folks, because it can’t.