From the Chicago Tribune:
A new analysis from the Federal Reserve Bank of New York gives startling details on the rising levels of student loan debt in the U.S. The report finds that Americans had a total of about $870 billion in student loan debt in the third quarter of 2011.
The report, based on analysis of data on 241 million Americans from credit reporting agency Equifax, adds to a growing list of troubling indicators about the cost of higher education. Here are some startling figures that illustrate the growing specter of student debt:
It's bigger than plastic. Outstanding student loan balance has surpassed the nation's $693 billion credit card balance, according to the report. According to recent data, nearly 80 percent of Americans held credit cards as of 2008, compared to 15 percent of consumers who now hold student debt, according to the Fed report. That contrast illustrates just how small of a pool of Americans holds this large chunk of debt.
But with tougher repayment. According to one calculation, delinquency rates on student loan debt are nearly twice that of other household debt. The New York Fed report estimates that past-due student loan balances equal $85 billion, or around 10 percent of the total national student loan debt burden. More than 1 in 4 of the 37 million student loan borrowers represented in the Equifax data have past-due balances.
Growing debt, stagnant wages. Unlike many goods that people buy with their credit cards, an education doesn't depreciate in value, and can boost lifetime income by hundreds of thousands of dollars. Despite growing debt, some graduates aren't reaping those benefits. From the second to the third quarter of 2011 alone, outstanding student debt grew 2.1 percent. Data suggest that wages are not keeping up with that growing debt. In 2006, new graduates left school with an average of $19,646 in debt, according to the Project on Student Debt, an initiative of the Institute for College Access and Success. In 2010, that figure was up 29 percent to $25,250. Meanwhile, in 2010, median weekly earnings for college graduates 25 and older were at $1,144, up only 10 percent over 2006, according to the Labor Department.
It's not just a Generation Y problem. According to the New York Fed's report, 5.3 percent of the 37 million borrowers are age 60 and over, and another 11.8 percent are 50 to 59. This doesn't necessarily mean that boomers are going back to school (or still paying off their loans from the 1970s). Rather, it may be one sign that parents are increasingly taking out loans to pay for their kids' educations. According to a February report from the National Association of Consumer Bankruptcy Attorneys, 17 percent of parents whose children graduated in 2010 took out loans, up from 5.6 percent in 1992-93.
http://www.chicagotribune.com/classified/realestate/foreclosure/sc-cons-0308-money-consumer-watch-20120308,0,516758.story
Given that the New York Fed was compelled to do a study of the student loan boondoggle it is apparent that the policy makers are beginning to worry about this. As we all are well aware the student loan crisis is going to be a major fucking problem. This country is so levered up to its eyeballs in debt I fear the consequences will make Greece's problems seem like a walk in the park. Today we got the lovely headline that February 2012 had the highest deficit in US history. So much for the recovery.
From the Washington Times:
The federal government recorded its worst monthly deficit in history in February, according to a preliminary report Wednesday from the Congressional Budget Office that said the deficit in fiscal year 2012 is already more than half a trillion dollars.
The CBO’s figures show that despite repeated efforts to trim spending, the government has borrowed 42 cents of every dollar it spent during the first five months of this fiscal year. The nonpartisan agency projected the government will run a deficit of $229 billion in February, the highest monthly figure ever.
http://www.washingtontimes.com/news/2012/mar/8/govt-sets-record-deficit-february/
As I have stated from when I first started blogging 2 years ago, my outlook on the US economy is extremely dark. Since then, what has transpired has only solidified my view. How is this generation going to spend, invest and do all the other things that the generations before did with this huge debt burden? Guess what, many of us won't. Because our policy makers have decided to make student loans nondischargeable in bankruptcy, many will toil away to pay off this odious debt. So Uncle Scam makes his points on the interest while the principal was front loaded to faculty, book publishers, laptop producers and landlords (many student loan borrowers use the money to pay rent as well).
What an excellent way to run a country, by throwing the latest batch of earners into heavy debt. I pray that you all find jobs in this difficult time. I've been employed at a decent job now for 15 months but I worry as the field is far from stable. I'll call defense counsel on a case that I've been working on for some time and before you know it "Mr. Y is no longer with the firm." Fuck that creeps me out.
Being from Greece I have spoken to many people back home and they tell me the situation is terrible. Many of them feel that they have no hope and are searching abroad for opportunity. The reality is, almost none of these people are in debt. When I tell my cousins that I know many people that owe more than 200k in student loans with no jobs they don't believe me. It truly is a joke what we have going on in America, the freest country in the world. Not. Welcome your new overlords. America is going the way of feudalism much quicker than I ever expected. Even that punk bitch Romney told some college student "not to expect bankruptcy" options. To hell with you, Mitt. Tell your boy Trump that's filed bk three times that he has to have his salary clawed back to pay his creditors. Oh, wait. In this new fascist America different rules apply to different people.
At least awareness is growing about this student loan timebomb. After all, how do underwater home owners ever expect to dump their overpriced homes if we debt slaves can't ever qualify??? Obviously we won't be buying any homes any time soon so enjoy watching what little equity you have vanish the same way customer accounts vanished at MF Global after it's largely ignored implosion.
Peace
Subprime JD: A blog dedicated to exposing the law school and higher education scam.
Showing posts with label debt. Show all posts
Showing posts with label debt. Show all posts
Thursday, March 8, 2012
Wednesday, December 21, 2011
Worse Than 2008
From Chris Martenson:
Worse Than 2008
There are clear signs of a liquidity crunch in the asset markets right now, and the question I keep hearing is, Is this 2008 all over again?
No, it’s worse. Much worse.
In 2008 there was a lot more faith and optimism upon which to draw. But both have been squandered to significant degrees by feckless regulators and authorities who failed to properly address any of the root causes of the first crisis even as they slathered layer after layer of thin-air money over many of the symptoms.
Anyone who has paid attention knows that those "magic potions" proved to be anything but. Not only are the root causes still with us (too much debt, vast regional financial imbalances, and high energy prices), but they have actually grown worse the entire time.
As always, we have no idea exactly what is going to happen and when, but we can track the various stresses and strains, noting that more and wider fingers of instability increase the risk of a major event. Heading into 2012, there's enough data to warrant maintaining an extremely cautious stance regarding holding onto one's wealth and increasing one's preparations towards resilience.
Here’s the evidence:
* Oil prices higher now than in 2009
* Derivatives up more than $100 trillion since 2009
* Government debts exploding
* Weak GDP growth
* Europe in trouble
* Small investors leaving the market
* China hitting a wall
One of the most important things we need to track is simply untrackable, and that is market perception. When faith in a faith-based money system vanishes, the game is pretty much over.
If you have been reading my work (or anyone else's) with a decent macro view, you likely lost your faith in the system a while ago and marvel that it can continue along for another moment, let alone all the years it has been creaking towards its eventual date with reality. But along it creaks, day after day, week after week, and month after month, threatening to wear down the observant and vigilant before finally letting go.
2012 promises to be an interesting year, with more than $10 trillion in funding and rollover financing required to keep the developed world floating along. But where will that funding come from? The lesson from defunct economies is “not internally!” And if China’s recent slowdowns and projections of an even more lackluster 2012 come true, then we might also scratch a few external sources off the list as well.
Oil Prices
As Gregor recently penned so eloquently for us, high oil prices are like sand in the gearbox of the economy -- they represent the most serious form of friction there is. Rather astutely, Jim Puplava has called oil prices 'the new Fed Funds rate,' meaning that the traditional role of the Federal Reserve in regulating the economy via the price of money has been usurped by oil.
As oil prices go up, the economy slows down, and vice versa.
The simple fact is that oil prices remain quite elevated by historical standards, and since the correction in 2008, they have been ratcheting steadily higher each year. They are now at their highest average rate in three years. In round dollar terms, oil is $30/bbl higher than in 2009 and $10/bbl than in 2010.
http://www.zerohedge.com/news/guest-post-worse-2008
Subprime: hey guys. Haven't posted in some time been super busy. This article must be read in its entirety in order to understand the headwinds facing the global economy in 2012. I hope Martenson is wrong on this one but FACTS are FACTS.
Worse Than 2008
There are clear signs of a liquidity crunch in the asset markets right now, and the question I keep hearing is, Is this 2008 all over again?
No, it’s worse. Much worse.
In 2008 there was a lot more faith and optimism upon which to draw. But both have been squandered to significant degrees by feckless regulators and authorities who failed to properly address any of the root causes of the first crisis even as they slathered layer after layer of thin-air money over many of the symptoms.
Anyone who has paid attention knows that those "magic potions" proved to be anything but. Not only are the root causes still with us (too much debt, vast regional financial imbalances, and high energy prices), but they have actually grown worse the entire time.
As always, we have no idea exactly what is going to happen and when, but we can track the various stresses and strains, noting that more and wider fingers of instability increase the risk of a major event. Heading into 2012, there's enough data to warrant maintaining an extremely cautious stance regarding holding onto one's wealth and increasing one's preparations towards resilience.
Here’s the evidence:
* Oil prices higher now than in 2009
* Derivatives up more than $100 trillion since 2009
* Government debts exploding
* Weak GDP growth
* Europe in trouble
* Small investors leaving the market
* China hitting a wall
One of the most important things we need to track is simply untrackable, and that is market perception. When faith in a faith-based money system vanishes, the game is pretty much over.
If you have been reading my work (or anyone else's) with a decent macro view, you likely lost your faith in the system a while ago and marvel that it can continue along for another moment, let alone all the years it has been creaking towards its eventual date with reality. But along it creaks, day after day, week after week, and month after month, threatening to wear down the observant and vigilant before finally letting go.
2012 promises to be an interesting year, with more than $10 trillion in funding and rollover financing required to keep the developed world floating along. But where will that funding come from? The lesson from defunct economies is “not internally!” And if China’s recent slowdowns and projections of an even more lackluster 2012 come true, then we might also scratch a few external sources off the list as well.
Oil Prices
As Gregor recently penned so eloquently for us, high oil prices are like sand in the gearbox of the economy -- they represent the most serious form of friction there is. Rather astutely, Jim Puplava has called oil prices 'the new Fed Funds rate,' meaning that the traditional role of the Federal Reserve in regulating the economy via the price of money has been usurped by oil.
As oil prices go up, the economy slows down, and vice versa.
The simple fact is that oil prices remain quite elevated by historical standards, and since the correction in 2008, they have been ratcheting steadily higher each year. They are now at their highest average rate in three years. In round dollar terms, oil is $30/bbl higher than in 2009 and $10/bbl than in 2010.
http://www.zerohedge.com/news/guest-post-worse-2008
Subprime: hey guys. Haven't posted in some time been super busy. This article must be read in its entirety in order to understand the headwinds facing the global economy in 2012. I hope Martenson is wrong on this one but FACTS are FACTS.
Tuesday, November 8, 2011
World Oil Production Finishes Six Years of No Growth
From the article:
We are entering what may be the longest stretch of no growth in world oil production since the early 1980s. But the reasons for that lack of growth differ in ways that ought to make us all uncomfortable.
Starting in 1980, production slumped because for the first time in history people needed less oil. After the huge oil price increases in the 1970s, cars suddenly got smaller. People became more careful about combining trips to save gas. A lot of people switched their home heating to natural gas which was considerably cheaper than heating oil. And, in the United States the Congress severely restricted the use of oil for new electric power generating plants. Those using oil began to switch to cheaper natural gas and coal. The whole globe went on an energy efficiency binge.
Beyond this, the world went through two recessions, one in 1980 and the second in 1981-82 which turned out to be the worst since World War II (until the current one). That curbed oil demand as economic activity sank. All the while, large oil discoveries in Alaska and the North Sea and furious drilling elsewhere produced a glut of capacity that sent prices from a high near $40 a barrel in early 1981 to about $16 a barrel six years later. As it turned out, all of these factors combined to keep world oil production below its 1980 peak until 1988.
Fast forward to 2005 when conventional oil supplies stopped growing and then fluctuated between 73 million and 74 million barrels per day on an annual basis through 2010. (Production averaged 73.8 million barrels per day this year from January through July, the last month for which data is available.) The chain of events following the 2005 peak are both different and worrisome. Following the cessation in growth of conventional oil supplies, the world economy continued to grow until the end of 2007 when it slipped into recession. Prices peaked in July 2008 at around $147 a barrel.
But then they plunged to around $35 a barrel in December 2008 as the world sank into an economic slump worse than anything since The Great Depression. With it oil demand and production slumped as well. Then the price did something that few people expected. It bounced back even as overall global economic recovery remained sluggish. Rapid recovery in the Far East, however, created robust demand for oil even as North American and European countries remained locked into an unusually tepid rebound. As a result, last spring prices for Brent crude vaulted above $125.
Read more:
http://scitizen.com/future-energies/time-to-worry-world-oil-production-finishes-six-years-of-no-growth_a-14-3714.html
Subprime:
Been a while since I lasted posted. Very busy and lots of crazy shit going on in my personal life (those on JDU) know what I'm talking about LOL. Wanted to add that the debate taking place around the world right now is GROWTH! How the fuck are these economies going to grow out of their debt problem. Watch the business new channels and they talk about "Greece, Italy and the US and how they will GROW out of their debt problem." The reality is with energy prices skyrocketing relative to a decade ago, the energy input has messed the equation. Simply put, a higher percentage of GDP must be allocated to the energy portion, something that was minuscule in the recent past. Now Italy teeters on the verge of a bond market implosion as the spread between Italian and German 10 year bonds surged to nearly 500 basis points (or 5%). Those are huge numbers.
Just yesterday the Italian 10 year hit an astounding 6.66% yield. The monkeys on wall street say that 7% is the point of no return, the event horizon if you will. I expect the powers that be to throw the kitchen sink at Italy's debt problem, such as the ECB, the Bank of Japan, the Federal Reserve and even the Chinese central bank to place bid after bid on Italian paper to prevent an all out holocaust on the financial markets. While little Greece was a problem, Italy has a monster $2.2 trillion debt market, one that can easily threaten the entire ponzi. TPTB will fight reality tooth and nail, but they will lose in the end as all sovereigns blow up.
With brent crude trading over $114 DESPITE the sluggish economy in the US and EU which constitute over 50% of global GDP, it is obvious that oil supply concerns dominate the energy markets. Throw in the potential of a Israeli-Iran conflict and all bets are off. This is probably the biggest reason why no action has taken place as the rulers know that $180 brent will sink every economy back into depression.
In conclusion, higher energy costs will act as quicksand to these sluggish economies that need higher growth to get out of their debt funk. Assuming growth returns, I can only imagine where brent will be trading at then. Until a new energy source comes into the picture, we will be sandwiched into this shit economy.
We are entering what may be the longest stretch of no growth in world oil production since the early 1980s. But the reasons for that lack of growth differ in ways that ought to make us all uncomfortable.
Starting in 1980, production slumped because for the first time in history people needed less oil. After the huge oil price increases in the 1970s, cars suddenly got smaller. People became more careful about combining trips to save gas. A lot of people switched their home heating to natural gas which was considerably cheaper than heating oil. And, in the United States the Congress severely restricted the use of oil for new electric power generating plants. Those using oil began to switch to cheaper natural gas and coal. The whole globe went on an energy efficiency binge.
Beyond this, the world went through two recessions, one in 1980 and the second in 1981-82 which turned out to be the worst since World War II (until the current one). That curbed oil demand as economic activity sank. All the while, large oil discoveries in Alaska and the North Sea and furious drilling elsewhere produced a glut of capacity that sent prices from a high near $40 a barrel in early 1981 to about $16 a barrel six years later. As it turned out, all of these factors combined to keep world oil production below its 1980 peak until 1988.
Fast forward to 2005 when conventional oil supplies stopped growing and then fluctuated between 73 million and 74 million barrels per day on an annual basis through 2010. (Production averaged 73.8 million barrels per day this year from January through July, the last month for which data is available.) The chain of events following the 2005 peak are both different and worrisome. Following the cessation in growth of conventional oil supplies, the world economy continued to grow until the end of 2007 when it slipped into recession. Prices peaked in July 2008 at around $147 a barrel.
But then they plunged to around $35 a barrel in December 2008 as the world sank into an economic slump worse than anything since The Great Depression. With it oil demand and production slumped as well. Then the price did something that few people expected. It bounced back even as overall global economic recovery remained sluggish. Rapid recovery in the Far East, however, created robust demand for oil even as North American and European countries remained locked into an unusually tepid rebound. As a result, last spring prices for Brent crude vaulted above $125.
Read more:
http://scitizen.com/future-energies/time-to-worry-world-oil-production-finishes-six-years-of-no-growth_a-14-3714.html
Subprime:
Been a while since I lasted posted. Very busy and lots of crazy shit going on in my personal life (those on JDU) know what I'm talking about LOL. Wanted to add that the debate taking place around the world right now is GROWTH! How the fuck are these economies going to grow out of their debt problem. Watch the business new channels and they talk about "Greece, Italy and the US and how they will GROW out of their debt problem." The reality is with energy prices skyrocketing relative to a decade ago, the energy input has messed the equation. Simply put, a higher percentage of GDP must be allocated to the energy portion, something that was minuscule in the recent past. Now Italy teeters on the verge of a bond market implosion as the spread between Italian and German 10 year bonds surged to nearly 500 basis points (or 5%). Those are huge numbers.
Just yesterday the Italian 10 year hit an astounding 6.66% yield. The monkeys on wall street say that 7% is the point of no return, the event horizon if you will. I expect the powers that be to throw the kitchen sink at Italy's debt problem, such as the ECB, the Bank of Japan, the Federal Reserve and even the Chinese central bank to place bid after bid on Italian paper to prevent an all out holocaust on the financial markets. While little Greece was a problem, Italy has a monster $2.2 trillion debt market, one that can easily threaten the entire ponzi. TPTB will fight reality tooth and nail, but they will lose in the end as all sovereigns blow up.
With brent crude trading over $114 DESPITE the sluggish economy in the US and EU which constitute over 50% of global GDP, it is obvious that oil supply concerns dominate the energy markets. Throw in the potential of a Israeli-Iran conflict and all bets are off. This is probably the biggest reason why no action has taken place as the rulers know that $180 brent will sink every economy back into depression.
In conclusion, higher energy costs will act as quicksand to these sluggish economies that need higher growth to get out of their debt funk. Assuming growth returns, I can only imagine where brent will be trading at then. Until a new energy source comes into the picture, we will be sandwiched into this shit economy.
Thursday, August 4, 2011
The Ponzi Bleeds
Heavy selling taking place worldwide as Eurozone bond spreads blowout. Dow was down as much as 357 points before retracing. One by one countries around the world will sink as a result of their unbearable debt loads. And to think that the Department of Education refuses to give relief to heavily indebted student loan borrowers with terrible job prospects.
Absent more monetary magic stimulus expect all stock markets to crumble under the weight of trillions in debt. Of course the central planners will continue to shower the world will digital fiat in order to postpone the true day of reckoning which will further push silver and gold to the moon. Eventually the current monetary system will fail and will either lead to a fragmented world where globalization retraces or a monster global currency will be born.
Here is a good take on the latest market action from Business Insider:
Well, it's deja vu all over again.
For anyone who followed the market crashes of 2000-2002 and 2007-2009--especially the crash of 2007-2009--the 512-point drop in the Dow feels awfully familiar.
And as those market crashes reminded us, the downdrafts can last a lot longer and be a lot more severe than most people initially think.
(They can also reverse themselves quickly and unexpectedly, and maybe that's what will happen this time. We can always pray.)
But there are also several very important differences between this market crash and the ones a few years ago:
* The Fed has fired most of its bullets (interest rates are already at zero)
* Our budget deficit is already out of control, and Congress has had it with "stimulus"
* The public has had it with bailouts
That means the government's ability to do anything about this market crash is severely limited.
Yes, we'll almost certainly have a "QE3." And maybe that will prop things up a bit. But it won't fix the fundamental problems clogging the economy, just as QE1 and QE2 didn't permanently fix anything. (The only thing that will fix our economy is debt-reduction, discipline, and time.)
To get a good sense of how hamstrung the government is, you need only look as far back as last week, when Congress was so paralyzed that it almost put the country into default rather than raise the debt ceiling.
And you also need only note that, when the 2000 crash began, the US federal budget was running a surplus, and when the 2007 crash began, the deficit was only $200 billion. Now, the deficit's about $1.4 trillion.
http://www.businessinsider.com/heres-the-problem-with-this-market-crash-2011-8#comment-4e3b52d369bedd8835000035
Personally, whether or not the market plunges or rips higher tomorrow is of no real concern. The significance of the recent action is the effect on confidence of the big players (governments and corporations) and whether or not the Eurozone will descend into a full blown banking crisis. If a financial crisis erupts out of Europe (very likely) then all bets are off for the fall and next year. Poor Obama couldn't even enjoy his birthday today as the blackberry screen showed blood red across all sectors.
I'm curious to see how the Eurocrats will try to put humpty dumpty back together again. It took us from September 2008 to March 2009 to stabilize the banking system and the USA is the biggest baddest country in the world. The Eurozone is comprised of 17 different nations with no central taxing authority and a central bank that has limited powers with the Germans commanding great influence (the same Germans that are horrified at the specter of hyperinflation).
The poor boomers and their 401k's. Too bad stocks are at 1997 levels and when adjusted for inflation are at 1980's levels. One good thing about the recent plunge is the crash in the price of crude oil as it closed at $85.50. At these prices this translates into a 30 cent discount at the pump. Wow some bones for us proles! Personally I'd rather see the S& at 400 and crude at 30.
Absent more monetary magic stimulus expect all stock markets to crumble under the weight of trillions in debt. Of course the central planners will continue to shower the world will digital fiat in order to postpone the true day of reckoning which will further push silver and gold to the moon. Eventually the current monetary system will fail and will either lead to a fragmented world where globalization retraces or a monster global currency will be born.
Here is a good take on the latest market action from Business Insider:
Well, it's deja vu all over again.
For anyone who followed the market crashes of 2000-2002 and 2007-2009--especially the crash of 2007-2009--the 512-point drop in the Dow feels awfully familiar.
And as those market crashes reminded us, the downdrafts can last a lot longer and be a lot more severe than most people initially think.
(They can also reverse themselves quickly and unexpectedly, and maybe that's what will happen this time. We can always pray.)
But there are also several very important differences between this market crash and the ones a few years ago:
* The Fed has fired most of its bullets (interest rates are already at zero)
* Our budget deficit is already out of control, and Congress has had it with "stimulus"
* The public has had it with bailouts
That means the government's ability to do anything about this market crash is severely limited.
Yes, we'll almost certainly have a "QE3." And maybe that will prop things up a bit. But it won't fix the fundamental problems clogging the economy, just as QE1 and QE2 didn't permanently fix anything. (The only thing that will fix our economy is debt-reduction, discipline, and time.)
To get a good sense of how hamstrung the government is, you need only look as far back as last week, when Congress was so paralyzed that it almost put the country into default rather than raise the debt ceiling.
And you also need only note that, when the 2000 crash began, the US federal budget was running a surplus, and when the 2007 crash began, the deficit was only $200 billion. Now, the deficit's about $1.4 trillion.
http://www.businessinsider.com/heres-the-problem-with-this-market-crash-2011-8#comment-4e3b52d369bedd8835000035
Personally, whether or not the market plunges or rips higher tomorrow is of no real concern. The significance of the recent action is the effect on confidence of the big players (governments and corporations) and whether or not the Eurozone will descend into a full blown banking crisis. If a financial crisis erupts out of Europe (very likely) then all bets are off for the fall and next year. Poor Obama couldn't even enjoy his birthday today as the blackberry screen showed blood red across all sectors.
I'm curious to see how the Eurocrats will try to put humpty dumpty back together again. It took us from September 2008 to March 2009 to stabilize the banking system and the USA is the biggest baddest country in the world. The Eurozone is comprised of 17 different nations with no central taxing authority and a central bank that has limited powers with the Germans commanding great influence (the same Germans that are horrified at the specter of hyperinflation).
The poor boomers and their 401k's. Too bad stocks are at 1997 levels and when adjusted for inflation are at 1980's levels. One good thing about the recent plunge is the crash in the price of crude oil as it closed at $85.50. At these prices this translates into a 30 cent discount at the pump. Wow some bones for us proles! Personally I'd rather see the S& at 400 and crude at 30.
Saturday, July 9, 2011
The Humbling of America
I’ve been watching Fox News and CNN and have read the mainstream online news media for a good decade. Even back in the high school years I would watch these channels as I was always interested in politics, especially foreign affairs. As the economy began to weaken I shifted my focus from politics to economics and markets. There a new love affair began as I learned how to trade and became somewhat successful at it. What I’ve noticed, especially from a first generation Greek perspective, is the humbling on the presentation and image of America. The Bush years were especially bad with the pundits pounding their chests and bragging how the military was beating the crap out of lightly armed insurgents in Iraq and Afghanistan. Some classic statements from the Bush Administration concerning the occupation of Iraq such as “bring it on” or “dead enders, losers, regime elements.” Then there was Cheney with his “deficits don’t matter” statement, one which will remain in infamy as the country begins to falter under its incredible deficits.
Growing up in Southern California I lived firsthand through the housing mania. And let me tell you that those who were infected with the mania truly went mad. I saw numerous people leave decent respectable careers to become real estate brokers and get into the “loan” business. I saw these people upgrading from Honda Accords to S Class Mercedes Benz. Oh the arrogance that was floating in the air. Watching the Ford Expeditions cruise down the street with the 25 inch rims and the TV’s behind each head rest, with the $2,000.00 sound system blasting. One of my good friends began his career selling car stereo products such as amps and subwoofers, and let me tell you that business was booming. Of course, most of the purchases were made on credit. I wonder how many of these cars were repossessed by the banks.
Our beloved housing industry has crashed and has nowhere to go but down as prices in many areas are still in bubble territory. For a detailed look at Culver City, check out this excellent article from Dr. Housing Bubble:
This is a perfect example of a city in a major bubble. Take a look at the sales history for the home that is selling:
The place sold for $370,000 back in 2001. Keep in mind that over this decade household incomes have gone stagnant. So what justification is there for this home appreciating nearly $600,000 in 10 years?
http://www.doctorhousingbubble.com/american-dream-only-a-dream-for-many-rent-versus-buying-a-home-analysis-in-culver-city-no-talk-of-household-incomes/
I fully expect housing values to retrace back to 1997 to 1999 levels as incomes are flat and in real terms have probably fallen. Throw in $4 gasoline and a shitty job market and there is no reason why housing values can’t fall to these levels.
America was also humbled when two out of three of its largest auto manufacturers went bankrupt in 2009. General Motors, the oldest and largest auto maker in the country was forced to file for chapter 11 bankruptcy and absent a taxpayer bailout would have gone into chapter 7 liquidation. Surely you all know the saying, “as goes GM so goes the country.” For the time being auto sales languish at 11 million units annualized whereas pre-crisis levels had sales close to 17 million units annualized. A good 33% reduction in auto sales nationwide partially explains why things are so damn difficult.
The next portion of America that will be humbled is its vaulted education system. A growing number of mainstream articles are pointing out whether college is worth six figures in tuition, fees, books and housing costs. Awareness of the Law School Scam grows by the week and other graduate programs continue to be exposed as complex frauds designed to enrich the education industrial complex at the expense of naïve borrowers. Imagine that, highly esteemed American “law schools” now being referred to as third tier toilets. In the next few years, expect to see many educational institutions to be humbled and shamed as law suits fly and the public finally begins to scorn the idea of sending their kids to these overpriced diploma mills. Whereas before it was practically sacrosanct that an education was a path to success, now it is slowly being discovered as just one of many frauds taking place in the country.
Finally we turn to the most pressing issue facing the country: the debt crisis. I listen to the pundits utter the words “debt crisis” and “America” in the same sentence with awe. The same pundits that spoke of America as the greatest and most powerful country in the history of the world just a few years ago are now comparing us with bankrupt deadbeat Greece on a regular basis. Just right now I heard some Republican governor say that “we will have our Greek moment in a few years.” Obviously the national discussion has turned to the debt crisis because the debt ceiling has remained stuck at $14.3 trillion and if it isn’t raised by August 2nd Mr. Geithner won’t have enough money to pay the bills and will lead to a default event.
Wall Street sits back and laughs at this “non event” as they see this as Kabuki Theater and politics as usual with the parties trying to gain political points with this game of chicken. While I mostly agree with Wall Street’s assessment of the standoff, there is a bigger story coming out of this debate, the story being that the country is rapidly becoming insolvent. I fully expect the ceiling to be raised whether it happens next week or in early August. But what we should take home from this standoff is the recognition that many beliefs that we held in the past will not hold true in the future. For example, the discussion of Medicare and Social Security cuts being on the table were unthinkable just a few years ago. The $14.3 trillion debt level was a stickler to move as most other debt ceiling raises happened with ease in the past. Poor Timmy G was forced to raid federal retirement accounts just to keep the ponzi going. If this debt ceiling debate was so fierce and deadlocked, just imagine how much more difficult the next one will be. Assuming Congress raises the ceiling to $16.5 trillion, we will reach that level by the end of 2012. What a joke. More importantly, what happens then? How fierce will the debate be then as our debt will be larger than the economy? Also, interest rates, which have remained at 60 year lows, are always at risk of jumping higher. Even a normalization of interest rates would wipe out the “$4 trillion in cuts over the next decade” that Congress is debating now.
For shits and giggles, here is President Obama’s budget forecast. This is pure comedy.
2011 2012 2013 2014 2015 2016
Receipts 2.174 2.627 3.003 3.333 3.583 3.819
Outlays 3.819 3.729 3.771 3.977 4.190 4.468
Deficit 1.645 1.101 768 645 607 649
GDP 15.080 15.813 16.752 17.782 18.804 19.791
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/tables.pdf
The above numbers indicate trillions. Per the White House, tax revenues are going to jump $453 billion next year and $829 billion from fiscal 2011 to 2013. Keep dreaming guys. The GDP numbers are even more comical as they project near $1 trillion dollar increases in economic growth in the years to come. Too bad that the last two months of job “increases” of 25k for May and 18k for June do not portend well for federal tax revenues. Bottom line, I fully expect this “forecast” to miss terribly to the downside with trillion dollar deficits to come year after year. Eventually, the national discussion will turn to austerity which will equate to hardship for millions of boomer Americans that failed to save throughout the duration of their peak earning years. For those of us in our 20’s and even 30’s, at least we will be given a grave demonstration of what happens when there is a failure to save. Take home message: save save save!
America threw itself a debt binged party over the last 20 years. As international competition increased and signs of economic weakness appeared, we covered up the cuts with the band-aid of debt. Now we have reached the point where debt no longer does its magic by creating wealth. This phenomenon is known as debt saturation. In addition, we have a wildly corrupt ruling class whereby a disproportionate percentage of income flows to the top 1% while many at the bottom languish.
I am beginning to see some positive signs out of all of this mess as Americans war tolerance has plummeted. Troop levels in Iraq remain at 50,000 and their departure is coming sooner rather than later. In addition, the public has completely soured on the war in Afghanistan and even Obama has gotten the message as troop withdrawals will begin in September. Woohoo! Also, it appears that the Greek situation has scared the crap out of many of our leaders as the reference continues to come up on a regular basis. Apparently, watching the police battle protesters with tear gas and rocks has given them the willies. And it should because a bankrupt country will have many angry citizens to deal with. Just yesterday while speaking with opposing counsel I told him that eventually there will be cuts to Social Security and Medicare as the math simply doesn’t support the expenditures. His eyes literally lit up in rage as he yelled ‘that’s so fucking unfair, it’s wrong, we paid into it!” And mind you this is a relatively wealthy partner of a small defense firm. If this guy got pissed imagine how angry all the poor saps that will be depending on Social Security as the primary source of income. As many of you know the excess revenues of Social Security taxes were spent leaving SS beneficiaries owning “nonmarketable” treasuries. This is what happens when government “saves” for its own people.
On balance, however we are still fortunate to live in a first world country as there are many places in the world that suck to live in. Whether it’s Pakistan, Indonesia, India, Egypt, Mexico, Iran, most of Africa, or many of the South American basket cases, there are just so many places that are truly fucked up. As difficult as things are and as difficult as things will become, at least we don’t have to worry about Malaria or Cholera outbreaks or even militias gunning people down in the streets. Look how quickly Libya and Syria descended into widespread violence. Basically, we still have many things to be thankful for as we were fortunate enough to be born into a first world country.
In the end, perhaps America needed a good humbling as our arrogance lead to our current predicament. Although it is probably temporary due to the debt ceiling debate, it feels good to hear the pundits and politicians actually discussing things of real importance as opposed to the culture wars which generally dominate the headline news stations. As our nation’s descent into fiscal hell continues in the next few years, it will be interesting to see if our leaders learn from the pain that is taking place from our European buddies across the pond.
Until next time.
Growing up in Southern California I lived firsthand through the housing mania. And let me tell you that those who were infected with the mania truly went mad. I saw numerous people leave decent respectable careers to become real estate brokers and get into the “loan” business. I saw these people upgrading from Honda Accords to S Class Mercedes Benz. Oh the arrogance that was floating in the air. Watching the Ford Expeditions cruise down the street with the 25 inch rims and the TV’s behind each head rest, with the $2,000.00 sound system blasting. One of my good friends began his career selling car stereo products such as amps and subwoofers, and let me tell you that business was booming. Of course, most of the purchases were made on credit. I wonder how many of these cars were repossessed by the banks.
Our beloved housing industry has crashed and has nowhere to go but down as prices in many areas are still in bubble territory. For a detailed look at Culver City, check out this excellent article from Dr. Housing Bubble:
This is a perfect example of a city in a major bubble. Take a look at the sales history for the home that is selling:
The place sold for $370,000 back in 2001. Keep in mind that over this decade household incomes have gone stagnant. So what justification is there for this home appreciating nearly $600,000 in 10 years?
http://www.doctorhousingbubble.com/american-dream-only-a-dream-for-many-rent-versus-buying-a-home-analysis-in-culver-city-no-talk-of-household-incomes/
I fully expect housing values to retrace back to 1997 to 1999 levels as incomes are flat and in real terms have probably fallen. Throw in $4 gasoline and a shitty job market and there is no reason why housing values can’t fall to these levels.
America was also humbled when two out of three of its largest auto manufacturers went bankrupt in 2009. General Motors, the oldest and largest auto maker in the country was forced to file for chapter 11 bankruptcy and absent a taxpayer bailout would have gone into chapter 7 liquidation. Surely you all know the saying, “as goes GM so goes the country.” For the time being auto sales languish at 11 million units annualized whereas pre-crisis levels had sales close to 17 million units annualized. A good 33% reduction in auto sales nationwide partially explains why things are so damn difficult.
The next portion of America that will be humbled is its vaulted education system. A growing number of mainstream articles are pointing out whether college is worth six figures in tuition, fees, books and housing costs. Awareness of the Law School Scam grows by the week and other graduate programs continue to be exposed as complex frauds designed to enrich the education industrial complex at the expense of naïve borrowers. Imagine that, highly esteemed American “law schools” now being referred to as third tier toilets. In the next few years, expect to see many educational institutions to be humbled and shamed as law suits fly and the public finally begins to scorn the idea of sending their kids to these overpriced diploma mills. Whereas before it was practically sacrosanct that an education was a path to success, now it is slowly being discovered as just one of many frauds taking place in the country.
Finally we turn to the most pressing issue facing the country: the debt crisis. I listen to the pundits utter the words “debt crisis” and “America” in the same sentence with awe. The same pundits that spoke of America as the greatest and most powerful country in the history of the world just a few years ago are now comparing us with bankrupt deadbeat Greece on a regular basis. Just right now I heard some Republican governor say that “we will have our Greek moment in a few years.” Obviously the national discussion has turned to the debt crisis because the debt ceiling has remained stuck at $14.3 trillion and if it isn’t raised by August 2nd Mr. Geithner won’t have enough money to pay the bills and will lead to a default event.
Wall Street sits back and laughs at this “non event” as they see this as Kabuki Theater and politics as usual with the parties trying to gain political points with this game of chicken. While I mostly agree with Wall Street’s assessment of the standoff, there is a bigger story coming out of this debate, the story being that the country is rapidly becoming insolvent. I fully expect the ceiling to be raised whether it happens next week or in early August. But what we should take home from this standoff is the recognition that many beliefs that we held in the past will not hold true in the future. For example, the discussion of Medicare and Social Security cuts being on the table were unthinkable just a few years ago. The $14.3 trillion debt level was a stickler to move as most other debt ceiling raises happened with ease in the past. Poor Timmy G was forced to raid federal retirement accounts just to keep the ponzi going. If this debt ceiling debate was so fierce and deadlocked, just imagine how much more difficult the next one will be. Assuming Congress raises the ceiling to $16.5 trillion, we will reach that level by the end of 2012. What a joke. More importantly, what happens then? How fierce will the debate be then as our debt will be larger than the economy? Also, interest rates, which have remained at 60 year lows, are always at risk of jumping higher. Even a normalization of interest rates would wipe out the “$4 trillion in cuts over the next decade” that Congress is debating now.
For shits and giggles, here is President Obama’s budget forecast. This is pure comedy.
2011 2012 2013 2014 2015 2016
Receipts 2.174 2.627 3.003 3.333 3.583 3.819
Outlays 3.819 3.729 3.771 3.977 4.190 4.468
Deficit 1.645 1.101 768 645 607 649
GDP 15.080 15.813 16.752 17.782 18.804 19.791
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/tables.pdf
The above numbers indicate trillions. Per the White House, tax revenues are going to jump $453 billion next year and $829 billion from fiscal 2011 to 2013. Keep dreaming guys. The GDP numbers are even more comical as they project near $1 trillion dollar increases in economic growth in the years to come. Too bad that the last two months of job “increases” of 25k for May and 18k for June do not portend well for federal tax revenues. Bottom line, I fully expect this “forecast” to miss terribly to the downside with trillion dollar deficits to come year after year. Eventually, the national discussion will turn to austerity which will equate to hardship for millions of boomer Americans that failed to save throughout the duration of their peak earning years. For those of us in our 20’s and even 30’s, at least we will be given a grave demonstration of what happens when there is a failure to save. Take home message: save save save!
America threw itself a debt binged party over the last 20 years. As international competition increased and signs of economic weakness appeared, we covered up the cuts with the band-aid of debt. Now we have reached the point where debt no longer does its magic by creating wealth. This phenomenon is known as debt saturation. In addition, we have a wildly corrupt ruling class whereby a disproportionate percentage of income flows to the top 1% while many at the bottom languish.
I am beginning to see some positive signs out of all of this mess as Americans war tolerance has plummeted. Troop levels in Iraq remain at 50,000 and their departure is coming sooner rather than later. In addition, the public has completely soured on the war in Afghanistan and even Obama has gotten the message as troop withdrawals will begin in September. Woohoo! Also, it appears that the Greek situation has scared the crap out of many of our leaders as the reference continues to come up on a regular basis. Apparently, watching the police battle protesters with tear gas and rocks has given them the willies. And it should because a bankrupt country will have many angry citizens to deal with. Just yesterday while speaking with opposing counsel I told him that eventually there will be cuts to Social Security and Medicare as the math simply doesn’t support the expenditures. His eyes literally lit up in rage as he yelled ‘that’s so fucking unfair, it’s wrong, we paid into it!” And mind you this is a relatively wealthy partner of a small defense firm. If this guy got pissed imagine how angry all the poor saps that will be depending on Social Security as the primary source of income. As many of you know the excess revenues of Social Security taxes were spent leaving SS beneficiaries owning “nonmarketable” treasuries. This is what happens when government “saves” for its own people.
On balance, however we are still fortunate to live in a first world country as there are many places in the world that suck to live in. Whether it’s Pakistan, Indonesia, India, Egypt, Mexico, Iran, most of Africa, or many of the South American basket cases, there are just so many places that are truly fucked up. As difficult as things are and as difficult as things will become, at least we don’t have to worry about Malaria or Cholera outbreaks or even militias gunning people down in the streets. Look how quickly Libya and Syria descended into widespread violence. Basically, we still have many things to be thankful for as we were fortunate enough to be born into a first world country.
In the end, perhaps America needed a good humbling as our arrogance lead to our current predicament. Although it is probably temporary due to the debt ceiling debate, it feels good to hear the pundits and politicians actually discussing things of real importance as opposed to the culture wars which generally dominate the headline news stations. As our nation’s descent into fiscal hell continues in the next few years, it will be interesting to see if our leaders learn from the pain that is taking place from our European buddies across the pond.
Until next time.
Wednesday, June 1, 2011
Poor Economic Data Shakes Wall Street
Observe these quotes from a wall street trader:
"The U.S. economy is hitting the brakes at exactly the wrong time for the Federal Reserve," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.
"With the expected end of QE2 within reach, the U.S. economy is in a situation where its only form of life support is about to be ripped away from it."
The US economy is hitting the brakes at exactly the wrong time? So when will it ever be the "right time" for the Federal Reserve to stop providing life support? Here is a basic answer: so long as the US economy is structurally flawed there will never be a time for the fed to begin it's exit. Think about what's going on for a moment. The fed has short term rates at zero. The second round of quantitative easing amounting to $600 billion is coming to an end within 4 weeks. $600 billion worth of liquidity has been added to the economy in the past 6 months and STILL the economy begins to stall. Back in the days when the economy would hit a "soft patch" the fed would lower rates which would in turn lower borrowing costs, thereby stimulating the economy. We have had rates to the floor since the end of 2008 leaving the fed with no other tools but asset purchases with thin air money. But now even asset purchases aren't enough. A federal deficit of $1.5 trillion isn't enough. What the hell is it going to take to get this bastard of an economy to get back on track? My answer: debt liquidation. Let the damn cards fall where they may. This 15 jar juggling operation has left the powers that be with no room for error. With GDP being downgraded to 1.8% for the first quarter while over 3% was forecasted by the CBO, watch what happens to the deficit projections. Of course they will be upgraded (how fucking shocking) and more debt will have to be issued just to pay off existing debt.
More from the article:
They also fear the unknown. No matter how much confidence they publicly express about their ability to withdraw the unprecedented monetary stimulus provided during the crisis, many have expressed trepidation about the size of the central bank's balance sheet, now a record $2.76 trillion.
There is a pervasive sense that the more policymakers do the less they achieve — and the trickier an eventual exit becomes.
http://www.cnbc.com/id/43244609
It was a matter of time until the price increases in energy and gas would sink the current half assed "recovery." The latest ISM and PMI data prove that contraction is imminent. ADP reported job growth was only 35,000 for the month of May while wall street was expecting 175,000 plus in new jobs. Oops. Epic fail on job forecasting. Better luck next month.
The point here is not to believe all the propaganda being proclaimed that the US is back on it's feet and that the issues are cyclical. This country has structural problems and until these structural problems are properly addressed the imbalances will continue to grow until a tipping point is reached. The imbalances are the federal debt, financial and corporate debt, trade deficits and federal deficits. In addition, rampant outsourcing of labor is bleeding the country dry of desperately needed incomes for households. Paul Craig Roberts wrote a brilliant article on outsourcing entitled, How Offshoring Has Destroyed the Economy. Here is a great excerpt:
As a graduate student in economics, I was fortunate to study with a number of professors who had or were subsequently awarded Nobel Prizes. Among these creative people there are two economists whom I did not study under, but whose work I have read, and whose work is of great importance to our economic prospects. The two most important economists of our time, who, without any doubt, deserve the Nobel Prize are Ralph Gomory and Herman Daly.
Ralph Gomory’s book, “Global Trade and Conflicting National Interests,” coauthored with William J. Baumol, a past president of the American Economics Association, is the most important work in trade theory ever produced. This book, and subsequent papers by Gomory, prove beyond all doubt that the free trade theory set out by David Ricardo at the beginning of the 19th century is merely a special case, not a general theory.
Economists learn in their graduate courses that free trade is an unchallengeable doctrine and that only ignorant protectionists dispute the theory. This mindset was sufficient for Gomory’s book to be largely ignored, even though Paul Samuelson, the dean of American economics, acknowledged the critical point that there are situations in which free trade is not mutually beneficial.
The other deserving recipient of the Nobel prize is Herman Daly. On the trade issue, Daly’s point is different from and less revolutionary than Gomory’s. Daly makes the same point that I make, which is that the classic theory of free trade is based on comparative advantage, not on absolute advantage, and that offshoring is based on absolute advantage. Thus, offshoring is not free trade.
Daly’s revolutionary contribution to economics comes from his realization that the production function that is the basis of economic science is wrong.
This production function is known as the Solow-Stiglitz production function. This production function assumes that man-made capital is a substitute for nature’s capital. It follows from this assumption that whatever humans do to use up and destroy the natural environment can be overcome by the resourcefulness of science and technology.
Daly shows that this reasoning is incorrect. If the Gulf of Mexico is destroyed by fertilizer run-offs from agri-business and by oil spills, only nature can correct the problem after many years measured in decades or centuries. In the meantime, humans are without the resource.
Daly’s argument is brilliant in its simplicity. In former times, nature’s capital was enormous, and man’s reproducible capital was small. For example, fish in the oceans were plentiful, but fishing boats were not. Today fishing boats are in excess supply, but ocean fishing stocks are depleted. Thus, the limiting factor is not man-made capital, but nature’s capital. Daly stresses that by leaving ecological and social costs out of the computation of GDP, economists do not have a reliable measure of the effect of economic activity on human welfare.
http://www.counterpunch.org/roberts05312011.html
I hope that you all read the above article as it exposes the lie that outsourcing and offshoring are good for the US economy. Until we plug these losses and kick the oligarchs out of Washington and Wall Street, this country will end up like a nicer version of Mexico.
For the time being, expect the economy to stall as the Fed pauses on it's money printing operations. Some savvy experts are calling for the Fed to return to it's easing operations by late Fall 2011. Let's see how the markets hold up without the juice.
"The U.S. economy is hitting the brakes at exactly the wrong time for the Federal Reserve," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.
"With the expected end of QE2 within reach, the U.S. economy is in a situation where its only form of life support is about to be ripped away from it."
The US economy is hitting the brakes at exactly the wrong time? So when will it ever be the "right time" for the Federal Reserve to stop providing life support? Here is a basic answer: so long as the US economy is structurally flawed there will never be a time for the fed to begin it's exit. Think about what's going on for a moment. The fed has short term rates at zero. The second round of quantitative easing amounting to $600 billion is coming to an end within 4 weeks. $600 billion worth of liquidity has been added to the economy in the past 6 months and STILL the economy begins to stall. Back in the days when the economy would hit a "soft patch" the fed would lower rates which would in turn lower borrowing costs, thereby stimulating the economy. We have had rates to the floor since the end of 2008 leaving the fed with no other tools but asset purchases with thin air money. But now even asset purchases aren't enough. A federal deficit of $1.5 trillion isn't enough. What the hell is it going to take to get this bastard of an economy to get back on track? My answer: debt liquidation. Let the damn cards fall where they may. This 15 jar juggling operation has left the powers that be with no room for error. With GDP being downgraded to 1.8% for the first quarter while over 3% was forecasted by the CBO, watch what happens to the deficit projections. Of course they will be upgraded (how fucking shocking) and more debt will have to be issued just to pay off existing debt.
More from the article:
They also fear the unknown. No matter how much confidence they publicly express about their ability to withdraw the unprecedented monetary stimulus provided during the crisis, many have expressed trepidation about the size of the central bank's balance sheet, now a record $2.76 trillion.
There is a pervasive sense that the more policymakers do the less they achieve — and the trickier an eventual exit becomes.
http://www.cnbc.com/id/43244609
It was a matter of time until the price increases in energy and gas would sink the current half assed "recovery." The latest ISM and PMI data prove that contraction is imminent. ADP reported job growth was only 35,000 for the month of May while wall street was expecting 175,000 plus in new jobs. Oops. Epic fail on job forecasting. Better luck next month.
The point here is not to believe all the propaganda being proclaimed that the US is back on it's feet and that the issues are cyclical. This country has structural problems and until these structural problems are properly addressed the imbalances will continue to grow until a tipping point is reached. The imbalances are the federal debt, financial and corporate debt, trade deficits and federal deficits. In addition, rampant outsourcing of labor is bleeding the country dry of desperately needed incomes for households. Paul Craig Roberts wrote a brilliant article on outsourcing entitled, How Offshoring Has Destroyed the Economy. Here is a great excerpt:
As a graduate student in economics, I was fortunate to study with a number of professors who had or were subsequently awarded Nobel Prizes. Among these creative people there are two economists whom I did not study under, but whose work I have read, and whose work is of great importance to our economic prospects. The two most important economists of our time, who, without any doubt, deserve the Nobel Prize are Ralph Gomory and Herman Daly.
Ralph Gomory’s book, “Global Trade and Conflicting National Interests,” coauthored with William J. Baumol, a past president of the American Economics Association, is the most important work in trade theory ever produced. This book, and subsequent papers by Gomory, prove beyond all doubt that the free trade theory set out by David Ricardo at the beginning of the 19th century is merely a special case, not a general theory.
Economists learn in their graduate courses that free trade is an unchallengeable doctrine and that only ignorant protectionists dispute the theory. This mindset was sufficient for Gomory’s book to be largely ignored, even though Paul Samuelson, the dean of American economics, acknowledged the critical point that there are situations in which free trade is not mutually beneficial.
The other deserving recipient of the Nobel prize is Herman Daly. On the trade issue, Daly’s point is different from and less revolutionary than Gomory’s. Daly makes the same point that I make, which is that the classic theory of free trade is based on comparative advantage, not on absolute advantage, and that offshoring is based on absolute advantage. Thus, offshoring is not free trade.
Daly’s revolutionary contribution to economics comes from his realization that the production function that is the basis of economic science is wrong.
This production function is known as the Solow-Stiglitz production function. This production function assumes that man-made capital is a substitute for nature’s capital. It follows from this assumption that whatever humans do to use up and destroy the natural environment can be overcome by the resourcefulness of science and technology.
Daly shows that this reasoning is incorrect. If the Gulf of Mexico is destroyed by fertilizer run-offs from agri-business and by oil spills, only nature can correct the problem after many years measured in decades or centuries. In the meantime, humans are without the resource.
Daly’s argument is brilliant in its simplicity. In former times, nature’s capital was enormous, and man’s reproducible capital was small. For example, fish in the oceans were plentiful, but fishing boats were not. Today fishing boats are in excess supply, but ocean fishing stocks are depleted. Thus, the limiting factor is not man-made capital, but nature’s capital. Daly stresses that by leaving ecological and social costs out of the computation of GDP, economists do not have a reliable measure of the effect of economic activity on human welfare.
http://www.counterpunch.org/roberts05312011.html
I hope that you all read the above article as it exposes the lie that outsourcing and offshoring are good for the US economy. Until we plug these losses and kick the oligarchs out of Washington and Wall Street, this country will end up like a nicer version of Mexico.
For the time being, expect the economy to stall as the Fed pauses on it's money printing operations. Some savvy experts are calling for the Fed to return to it's easing operations by late Fall 2011. Let's see how the markets hold up without the juice.
Saturday, May 14, 2011
A detailed look at the Federal Debt and the debt ceiling debate
Total outstanding US Federal debt stands at $14.3 trillion. The $14.3 trillion is broken down into two compartments: debt held by the public and intragovernmental holdings. Debt held by the public stands at $9.66 trillion while the intragovernmental holdings is at $4.64 trillion. Debt held by the public is comprised of treasury securities, or bonds, that can be purchased by investors, foreign governments, central banks, you and me.
Intragovernmental holdings refers to revenues that the federal government borrows from social security, medicare, and other government funds. These funds are issued a special nonmarketable "treasury" security. For example, the federal government has borrowed over $2.4 trillion from Social Security, $800 billion from the Civil Service Retirement and Disability Fund, $335 billion from the Defense Retirement Fund, and the remainder from many other government retirement funds. The total amounts to $4.64 trillion. In addition, most recently social security which used to be a source of funding for government operations has now turned into an expenditure. Put simply, whereas before social security revenues exceeded expenditures, thereby allowing the government to spend the excess, now social security expenditures EXCEED revenues. The burden now falls on the treasury market to make up for the shortfall.
Debt held by the public
This portion of the federal debt comprises the vast majority of the $14.3 trillion. This $9.66 trillion is the amount that is owed to persons and entities that have lent the federal government money. It is also this amount that determines the interest rates that treasury securities yield on the open credit market. The biggest holders of treasury securities are as follows:
Federal Reserve: $1.45 trillion
China: $1.1 trillion
Japan: $890 billion
UK: $295 billion
Oil exporters: $218 billion
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
As you can see the Federal Reserve, China and Japan hold the bulk of US treasury security debt. Interesting how the Fed is now the biggest holder of the debt. By adding up the $4.6 trillion in intragov holdings with the Fed holdings, over $6 trillion of this debt is "owed to ourselves" lol. Wow I wish I could owe money to myself, that way when I go to dinner tonight I can write a check "on myself" and pay "myself" back later. This concept has been proven to end in catastrophe and will again end up in catastrophe, but that discussion is for a later time.
So now we have the debt ceiling debate which is going on longer than I initally thought it would. The last two debt ceiling raises where a non issue and many on the street assumed the situation would be the same for this raising. However, this week we have officially gone past the debt ceiling and the treasury can no longer borrow any amount that would breach this ceiling. Of course there are maturities of treasuries which lower the outstanding public debt but by and large with the fed gov now blowing through a $1.5 trillion deficit, time is running short.
Here is a detailed look at the debt held by the public:
Bills mature in less than 1 year
Notes mature in 1-10 years
Bonds mature from 10-30 years
$9.6 trillion in debt held by the public
$1.6 trillion in bills
$5.8 trillion in notes
$931 billion in bonds
remainder is TIPS and other.
http://www.treasurydirect.gov/govt/reports/pd/mspd/2011/opdm042011.pdf
The US has become an Option Arm nation with $1.6 trillion in bills due within the next 12 months! The reasoning for borrowing so much money with short term duration is that the interest rates are incredibly low. Check out the yields on treasury securities:
3 month: .02%
6 month .07%
12 month .16%
2 year .53%
3 year .94%
5 year 1.83%
10 year 3.17%
30 year 4.31%
http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
.02% for 3 month paper! Wow! Fucking A could you imagine if you could borrow money at .02% for 3 months? How about .16% for an entire year? Here is how it works: Say the government issues $30 billion worth of 1 year treasury bills. After the 1 year term is up the treasury must pay the holder the $30 billion back PLUS the .16% interest. .16 of 30 billion is a paltry $48 million. Hence why the government is borrowing short term. Interest expense as a percentage of government expenditures is at a long time low.
The problem with having too much of your debt in short term paper is the risk of a rise in interest rates. Right now the 10 year is yielding a paltry 3.17%, whereas in the inflationary 80's it was over 10%. Even in the easy breezy 90's the 10 year ranged in the 7 to 8% range. The bottom line is that over the next few years it's very likely that we will see a jump in longer term rates. With higher rates comes higher expenditures as a percentage of federal revenues which will put a further crimp on the current fiscal crisis.
As I posted above, treasury notes outstanding are at $5.8 trillion, which have durations from 1 yr to 10 yr. Of the $5.8 trillion in notes, $1.09 trillion is due by April 30, 2012. 1.6 trillion in bills plus 1.09 trillion in notes due within a year equals $2.69 trillion DUE THIS YEAR. Of course this doesnt include interest expense which is estimated to fall somewhere in the $200 billion range so we are getting close to a round $3 trillion in maturity AND interest expense just for the next 12 months. What are federal revenues projected for fiscal 2011? $2.22 trillion. And projected expenditures? Close to $3.8 trillion. Here are the numbers again in line item display:
$1.6 trillion in bills due
$1.09 trillion notes due within 12 months
$200 billion in estimated interest expense
$2.22 trillion 2011 federal revenues (taxes)
$3.8 trillion 2011 federal expenditures
$1.5 trillion expected deficit
So how does the Treasury manage to issue AND pay all this short term debt? Very simply by rollowing over short term paper. Here is an example: Treasury issues 10 billion in paper due in 3 months. One month before the 10 billion is due it borrows from the same entity or other entity another 11 billion. It uses the new 11 billion in new borrowing to pay back the original 10 billion, leaving the remaining 1 billion for expenditures. This is just a basic demonstration but the point is to explain the "rolling over" phenomenon. Estimates state that total GROSS Treasury borrowing exceeds $10 trillion per year. What a way to run the finances of the world's biggest economy.
So now Timmy Geithner is faced with a monster game of chicken coming out of Congress regarding the debt ceiling. He again wrote a letter warning of "catastrophe" if Congress fails to raise the debt ceiling RIGHT THIS SECOND!
http://www.zerohedge.com/article/tim-geithner-responds-druckenmiller-more-fearmongering-and-assured-destruction
In the event that Congress fails to raise the debt ceiling, the Treasury would have to use tax revenues to pay out the coming bills and notes securities, leaving no remaining money for government operations such as social security, medicare, defense, ebt, and the rest of the budget. As I have demonstrated, the amount due this year is greater than all of the projected revenues. The Treasury can borrow as it pays existing maturities but only for so long.
Of course, I expect Congress to relent and raise the debt ceiling from the current $14.3 trillion to $16.5 trillion. But in 18 months or so we will be right back to where we are today, in "dire" need to raise the ceiling to $18 or $19 trillion. How about some basic common sense: if the country can't bear to NOT raise the ceiling with a $14.3 trillion debt, how the fuck will it deal with a monster $16.5 trillion? How about $18 trillion? Where does this end? Opponents say that the economy will be stronger and thus in a better position to deal with the outstanding debt. On the contrary, these numbers scream dollar destruction to me. This double down mentality is absurd, reckless and disastrous for the country. I personally believe that this is the last chance for the country to turn around and get a real handle on the debt crisis. Once we cross this line I fear there will be no turning back, leading to the complete and utter destruction of the US currency. Watch how the federal reserve continues to gobble up more treasuries with the magic of it's printing press. Indeed, the printing press has become our lender of ONLY resort.
As I have explained numerous times on this blog, money is lent into existence. With no borrowing from others the money supply falls. In addition, as money is lent into creation, it must also be repaid, with interest. With households full of debt and shot of credit, the last borrower is the federal government. This is one of the major reasons why the deficit is so huge, as new credit money must be created in order to avoid a horrific implosion of the system. Observe this chart produced by Dr. Martenson:
Per Martenson:
There's a lot going on in this deceptively simple chart so let's take it one step at a time. First, "Total Credit Market Debt" covers everything - financial sector debt, government debt (fed, state, local), household debt, and corporate debt - and is represented by the bold red line (data from the Federal Reserve).
Next, if we start in January 1970 and ask the question, "How long before that debt doubled and then doubled again?" we find that debt has doubled five times in four decades (blue triangles).
Then if we perform an exponential curve fit (blue line), we find a nearly perfect fit with an R2 of 0.99 when we round up. That means that debt has been growing in a nearly perfect exponential fashion through the 1970's, the 1980's, the 1990's and the 2000's. In order for the 2010 decade to mirror, match, or in any way resemble the prior four decades, credit market debt will need to double again from $52 trillion to $104 trillion.
Finally, note that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008 -- and it has not yet even remotely begun to return to its former trajectory.
This explains everything.
It explains why Bernanke's $2 trillion has not created a spectacular party in anything other than a few select areas (banking, corporate profits) which were positioned to directly benefit from the money. It explains why things don't feel right, or the same, and why most people are still feeling quite queasy about the state of the economy. It explains why the massive disconnect between government pensions and promises, all developed and doled out during the prior four decades, cannot be met by current budget realities.
Our entire system of money, and by extension our sense of entitlement and expectations of future growth, were formed in response to and are utterly dependent on exponential credit growth. Of course, as you know, money is loaned into existence and is therefore really just the other side of the credit coin. This is why Bernanke can print a few trillion and not really accomplish all that much. It's because the main engine of growth is expecting, requiring, and otherwise dependent on credit doubling over the next decade.
To put that into perspective, a doubling will take us from $52 to $104 trillion, requiring close to $5 trillion in new credit creation during each year of that decade. Nearly three years have passed without any appreciable increase in total credit market debt, which puts us roughly $15 trillion behind the curve.
What will happen when credit cannot grow exponentially? We already have our answer, because that's been the reality for the past three years. Debts cannot be serviced, the weaker and more highly leveraged participants get clobbered first (Lehman, Greece, Las Vegas, housing, etc.), and the dominoes topple from the outside in towards the center. Money is piled on, but traction is weak. What begins as a temporary program of providing liquidity becomes a permanent program of printing money, which the system becomes dependent on in order to even function.
http://www.chrismartenson.com/blog/why-growth-dead/57764
Hence why the monetarists are pumping as much as they are. Based on their models and theory, CREDIT MUST GROW! I'm no PHD but common sense tells me that there is something inherently wrong with a money system that depends on perpetual growth in a world that cannot grow forever. Throw in the corruption, fraud, global wage arbitrage, and higher energy prices and it becomes apparent why credit growth has stalled. In fact it began stalling in the 90's, hence the reason for the dot com and housing bubbles. We needed to grow grow grow.
So these are the numbers that I look at, the numbers that frame my forecast and sentiment for the future. It is incredible how rapidly our fiscal situation has deteriorated in the past 4 years. The fact that we call the "Treasury" department as such is a insult to the word "treasure" which implies something of great value. My solution calls for a serious reduction in federal spending, with everything on the table. Military spending would be the first to go, followed by a tax increase on the wall street machine. Banks would have to adhere to real accounting standards, causing the large TBTF zombines to collapse under their own weight. Surely we can implement some type of controlled demolition of these monoliths. Home prices would revert back to 1994 levels which would be the best thing as mortgage expense would fall to low levels, thereby freeing up desperately needed capital for other underserved areas of the economy. Right now my dad is paying 12k per month for his house (he levered the fuck out of it during the boom). When he eventually goes into default and rents a nice home for $3500 a month, that leaves at least $8500 per month to go into the rest of the economy and not some TBTF zombie. My dad loses his home and the bank implements a write down on it's books. My dad gambled with equity and lost as the bank gambled in extending him too much credit and also lost. The winners are the new home buyers who will spend 800k to buy the house and the rest of the economy as my dad can then blow the remaining $8500 on investments, vacations, whatever the hell he chooses. By and large, foreclosures as painful as they are in the beginning, are actually very beneficial for the economy. It's just that the banksters don't want you to believe or understand this concept.
We can get out of this hole but it would require sacrifice from the entire country. America has basically become a credit junkie, where a cessation of borrowing would lead to terrible withdrawal effects (deflationary depression for a few years) but would save the patient. The other option is increased dosage of credit to the point where the patient dies (hyperinflation). Again these are the numbers, with no political bias behind them.
On a final note, the most important thing we can do right now is prepare prepare prepare! Work any job you can, save as much as you can. If you can squat with family and friends then do it. That's all for now.
PS: I drank 3 cups of coffee before writing this lol. This paper was written in order for you all to better understand the predicament facing the country. My gain and satisfaction is in you obtaining knowledge and an understanding of how the ponzi works.
Intragovernmental holdings refers to revenues that the federal government borrows from social security, medicare, and other government funds. These funds are issued a special nonmarketable "treasury" security. For example, the federal government has borrowed over $2.4 trillion from Social Security, $800 billion from the Civil Service Retirement and Disability Fund, $335 billion from the Defense Retirement Fund, and the remainder from many other government retirement funds. The total amounts to $4.64 trillion. In addition, most recently social security which used to be a source of funding for government operations has now turned into an expenditure. Put simply, whereas before social security revenues exceeded expenditures, thereby allowing the government to spend the excess, now social security expenditures EXCEED revenues. The burden now falls on the treasury market to make up for the shortfall.
Debt held by the public
This portion of the federal debt comprises the vast majority of the $14.3 trillion. This $9.66 trillion is the amount that is owed to persons and entities that have lent the federal government money. It is also this amount that determines the interest rates that treasury securities yield on the open credit market. The biggest holders of treasury securities are as follows:
Federal Reserve: $1.45 trillion
China: $1.1 trillion
Japan: $890 billion
UK: $295 billion
Oil exporters: $218 billion
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
As you can see the Federal Reserve, China and Japan hold the bulk of US treasury security debt. Interesting how the Fed is now the biggest holder of the debt. By adding up the $4.6 trillion in intragov holdings with the Fed holdings, over $6 trillion of this debt is "owed to ourselves" lol. Wow I wish I could owe money to myself, that way when I go to dinner tonight I can write a check "on myself" and pay "myself" back later. This concept has been proven to end in catastrophe and will again end up in catastrophe, but that discussion is for a later time.
So now we have the debt ceiling debate which is going on longer than I initally thought it would. The last two debt ceiling raises where a non issue and many on the street assumed the situation would be the same for this raising. However, this week we have officially gone past the debt ceiling and the treasury can no longer borrow any amount that would breach this ceiling. Of course there are maturities of treasuries which lower the outstanding public debt but by and large with the fed gov now blowing through a $1.5 trillion deficit, time is running short.
Here is a detailed look at the debt held by the public:
Bills mature in less than 1 year
Notes mature in 1-10 years
Bonds mature from 10-30 years
$9.6 trillion in debt held by the public
$1.6 trillion in bills
$5.8 trillion in notes
$931 billion in bonds
remainder is TIPS and other.
http://www.treasurydirect.gov/govt/reports/pd/mspd/2011/opdm042011.pdf
The US has become an Option Arm nation with $1.6 trillion in bills due within the next 12 months! The reasoning for borrowing so much money with short term duration is that the interest rates are incredibly low. Check out the yields on treasury securities:
3 month: .02%
6 month .07%
12 month .16%
2 year .53%
3 year .94%
5 year 1.83%
10 year 3.17%
30 year 4.31%
http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
.02% for 3 month paper! Wow! Fucking A could you imagine if you could borrow money at .02% for 3 months? How about .16% for an entire year? Here is how it works: Say the government issues $30 billion worth of 1 year treasury bills. After the 1 year term is up the treasury must pay the holder the $30 billion back PLUS the .16% interest. .16 of 30 billion is a paltry $48 million. Hence why the government is borrowing short term. Interest expense as a percentage of government expenditures is at a long time low.
The problem with having too much of your debt in short term paper is the risk of a rise in interest rates. Right now the 10 year is yielding a paltry 3.17%, whereas in the inflationary 80's it was over 10%. Even in the easy breezy 90's the 10 year ranged in the 7 to 8% range. The bottom line is that over the next few years it's very likely that we will see a jump in longer term rates. With higher rates comes higher expenditures as a percentage of federal revenues which will put a further crimp on the current fiscal crisis.
As I posted above, treasury notes outstanding are at $5.8 trillion, which have durations from 1 yr to 10 yr. Of the $5.8 trillion in notes, $1.09 trillion is due by April 30, 2012. 1.6 trillion in bills plus 1.09 trillion in notes due within a year equals $2.69 trillion DUE THIS YEAR. Of course this doesnt include interest expense which is estimated to fall somewhere in the $200 billion range so we are getting close to a round $3 trillion in maturity AND interest expense just for the next 12 months. What are federal revenues projected for fiscal 2011? $2.22 trillion. And projected expenditures? Close to $3.8 trillion. Here are the numbers again in line item display:
$1.6 trillion in bills due
$1.09 trillion notes due within 12 months
$200 billion in estimated interest expense
$2.22 trillion 2011 federal revenues (taxes)
$3.8 trillion 2011 federal expenditures
$1.5 trillion expected deficit
So how does the Treasury manage to issue AND pay all this short term debt? Very simply by rollowing over short term paper. Here is an example: Treasury issues 10 billion in paper due in 3 months. One month before the 10 billion is due it borrows from the same entity or other entity another 11 billion. It uses the new 11 billion in new borrowing to pay back the original 10 billion, leaving the remaining 1 billion for expenditures. This is just a basic demonstration but the point is to explain the "rolling over" phenomenon. Estimates state that total GROSS Treasury borrowing exceeds $10 trillion per year. What a way to run the finances of the world's biggest economy.
So now Timmy Geithner is faced with a monster game of chicken coming out of Congress regarding the debt ceiling. He again wrote a letter warning of "catastrophe" if Congress fails to raise the debt ceiling RIGHT THIS SECOND!
http://www.zerohedge.com/article/tim-geithner-responds-druckenmiller-more-fearmongering-and-assured-destruction
In the event that Congress fails to raise the debt ceiling, the Treasury would have to use tax revenues to pay out the coming bills and notes securities, leaving no remaining money for government operations such as social security, medicare, defense, ebt, and the rest of the budget. As I have demonstrated, the amount due this year is greater than all of the projected revenues. The Treasury can borrow as it pays existing maturities but only for so long.
Of course, I expect Congress to relent and raise the debt ceiling from the current $14.3 trillion to $16.5 trillion. But in 18 months or so we will be right back to where we are today, in "dire" need to raise the ceiling to $18 or $19 trillion. How about some basic common sense: if the country can't bear to NOT raise the ceiling with a $14.3 trillion debt, how the fuck will it deal with a monster $16.5 trillion? How about $18 trillion? Where does this end? Opponents say that the economy will be stronger and thus in a better position to deal with the outstanding debt. On the contrary, these numbers scream dollar destruction to me. This double down mentality is absurd, reckless and disastrous for the country. I personally believe that this is the last chance for the country to turn around and get a real handle on the debt crisis. Once we cross this line I fear there will be no turning back, leading to the complete and utter destruction of the US currency. Watch how the federal reserve continues to gobble up more treasuries with the magic of it's printing press. Indeed, the printing press has become our lender of ONLY resort.
As I have explained numerous times on this blog, money is lent into existence. With no borrowing from others the money supply falls. In addition, as money is lent into creation, it must also be repaid, with interest. With households full of debt and shot of credit, the last borrower is the federal government. This is one of the major reasons why the deficit is so huge, as new credit money must be created in order to avoid a horrific implosion of the system. Observe this chart produced by Dr. Martenson:
Per Martenson:
There's a lot going on in this deceptively simple chart so let's take it one step at a time. First, "Total Credit Market Debt" covers everything - financial sector debt, government debt (fed, state, local), household debt, and corporate debt - and is represented by the bold red line (data from the Federal Reserve).
Next, if we start in January 1970 and ask the question, "How long before that debt doubled and then doubled again?" we find that debt has doubled five times in four decades (blue triangles).
Then if we perform an exponential curve fit (blue line), we find a nearly perfect fit with an R2 of 0.99 when we round up. That means that debt has been growing in a nearly perfect exponential fashion through the 1970's, the 1980's, the 1990's and the 2000's. In order for the 2010 decade to mirror, match, or in any way resemble the prior four decades, credit market debt will need to double again from $52 trillion to $104 trillion.
Finally, note that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008 -- and it has not yet even remotely begun to return to its former trajectory.
This explains everything.
It explains why Bernanke's $2 trillion has not created a spectacular party in anything other than a few select areas (banking, corporate profits) which were positioned to directly benefit from the money. It explains why things don't feel right, or the same, and why most people are still feeling quite queasy about the state of the economy. It explains why the massive disconnect between government pensions and promises, all developed and doled out during the prior four decades, cannot be met by current budget realities.
Our entire system of money, and by extension our sense of entitlement and expectations of future growth, were formed in response to and are utterly dependent on exponential credit growth. Of course, as you know, money is loaned into existence and is therefore really just the other side of the credit coin. This is why Bernanke can print a few trillion and not really accomplish all that much. It's because the main engine of growth is expecting, requiring, and otherwise dependent on credit doubling over the next decade.
To put that into perspective, a doubling will take us from $52 to $104 trillion, requiring close to $5 trillion in new credit creation during each year of that decade. Nearly three years have passed without any appreciable increase in total credit market debt, which puts us roughly $15 trillion behind the curve.
What will happen when credit cannot grow exponentially? We already have our answer, because that's been the reality for the past three years. Debts cannot be serviced, the weaker and more highly leveraged participants get clobbered first (Lehman, Greece, Las Vegas, housing, etc.), and the dominoes topple from the outside in towards the center. Money is piled on, but traction is weak. What begins as a temporary program of providing liquidity becomes a permanent program of printing money, which the system becomes dependent on in order to even function.
http://www.chrismartenson.com/blog/why-growth-dead/57764
Hence why the monetarists are pumping as much as they are. Based on their models and theory, CREDIT MUST GROW! I'm no PHD but common sense tells me that there is something inherently wrong with a money system that depends on perpetual growth in a world that cannot grow forever. Throw in the corruption, fraud, global wage arbitrage, and higher energy prices and it becomes apparent why credit growth has stalled. In fact it began stalling in the 90's, hence the reason for the dot com and housing bubbles. We needed to grow grow grow.
So these are the numbers that I look at, the numbers that frame my forecast and sentiment for the future. It is incredible how rapidly our fiscal situation has deteriorated in the past 4 years. The fact that we call the "Treasury" department as such is a insult to the word "treasure" which implies something of great value. My solution calls for a serious reduction in federal spending, with everything on the table. Military spending would be the first to go, followed by a tax increase on the wall street machine. Banks would have to adhere to real accounting standards, causing the large TBTF zombines to collapse under their own weight. Surely we can implement some type of controlled demolition of these monoliths. Home prices would revert back to 1994 levels which would be the best thing as mortgage expense would fall to low levels, thereby freeing up desperately needed capital for other underserved areas of the economy. Right now my dad is paying 12k per month for his house (he levered the fuck out of it during the boom). When he eventually goes into default and rents a nice home for $3500 a month, that leaves at least $8500 per month to go into the rest of the economy and not some TBTF zombie. My dad loses his home and the bank implements a write down on it's books. My dad gambled with equity and lost as the bank gambled in extending him too much credit and also lost. The winners are the new home buyers who will spend 800k to buy the house and the rest of the economy as my dad can then blow the remaining $8500 on investments, vacations, whatever the hell he chooses. By and large, foreclosures as painful as they are in the beginning, are actually very beneficial for the economy. It's just that the banksters don't want you to believe or understand this concept.
We can get out of this hole but it would require sacrifice from the entire country. America has basically become a credit junkie, where a cessation of borrowing would lead to terrible withdrawal effects (deflationary depression for a few years) but would save the patient. The other option is increased dosage of credit to the point where the patient dies (hyperinflation). Again these are the numbers, with no political bias behind them.
On a final note, the most important thing we can do right now is prepare prepare prepare! Work any job you can, save as much as you can. If you can squat with family and friends then do it. That's all for now.
PS: I drank 3 cups of coffee before writing this lol. This paper was written in order for you all to better understand the predicament facing the country. My gain and satisfaction is in you obtaining knowledge and an understanding of how the ponzi works.
Sunday, May 8, 2011
A flood of graduates
From the Department of Education's 2010 digest:
During the 2010–11 academic year, postsecondary degrees are projected to number 818,000 associate’s degrees; 1,696,000 bachelor’s degrees; 687,000 master’s degrees; 100,700 first-professional degrees; and 71,700 doctor’s degrees (table 279). Between 1998–99 and 2008–09 (the last year of actual data), the number of degrees conferred rose at all levels. The number of associate’s degrees was 41 percent higher in 2008–09 than in 1998–99, the number of bachelor’s degrees was 33 percent higher, the number of master’s degrees was 49 percent higher, the number of first-professional degrees was 17 percent higher, and the number of doctor’s degrees was 54 percent higher.
http://nces.ed.gov/programs/digest/d10/
Let's run those numbers again:
1.69 million BA's
687k master's
100k professional degrees
2.4 million BA's, MA's and professional degrees will be hitting the streets this month. Of course some BA's will chose to continue their education but from these states the ratio of BA to MA is nearly 3 to 1. So we can safely assume that up to 2.,2.2 million graduates will be hitting the job market this summer. Divide 2.2 million by 12 (months) and that equates to 183,000 jobs per month that the econony needs to create just to place this year's graduates.
And what about high school graduates?
Again from the Dept of Taking Young People's Money:
About 3,252,000 high school students are expected to graduate during the 2010–11 school year (table 110), including about 2,937,000 public school graduates and 315,000 private school graduates.
Of the 3.25 million high school grads at least 52% of them will go to college (using the college graduate numbers). Of course not all college students graduate so lets be safe and bump the percentage up to 65%. 65% of 3.252 million is 2.113 million, the remainder being 1.113 million. This gives us roughly 1.13 million high school grads that will not go to college. So in addition to the graduate numbers we have 1.13 million high school grads divided by 12 (months) equals 94,166 jobs per monthly basis to include the high school grads in the workforce. Ad 94k (high school grads) by 183k (college grads) and the country needs to add 277,000 jobs per month just to keep high school and college grads from being unemployed.
So my back of the napkin numbers show that the country needs to add 277k just to include the new entrants into the work force. Let's not forget the 10 million plus that were laid off or lost their business from the credit implosion.
Now let's take a look at the latest job date from the BLS:
57,000 jobs in retail trade
46,000 jobs in leisure
49,000 jobs in education and health care (bubble jobs soon to pop)
51,000 jobs in professional and business services
These four sectors made up the vast majority of the job growth for a grand total of 203,000 jobs. 50% are either low paying retail/leisure jobs while even the "professional" business services can include jobs for a wall street analyst to a shitlaw lawyer making 25k a year part time. Keep a close watch on the education and health care sector as both of them are overheated waiting for a pop, especially education.
Finally we have the birth/death adjustment, which is the government's guess as to how many jobs were created or destroyed from small businesses. The latest pie in the sky number was 175,000.
So how many "real" jobs did the economy generate last month? No one can truly know but I suspect its less than 100k. In addition, higher paying government jobs are declining month after month so a state employee that was earning 120k per year who now gets a gig working in retail for $12 per hour takes a big chunk out of his earning power.
In conclusion, the country is seeing a flood of graduates entering the workforce every year, with millions of them being levered up to their eyeballs in student loan debt. It is apparent that the organic economy is not generating enough high paying jobs to not only incorporate high school graduates but also the dangerously indebted "educated class." I expect the slow motion train wreck to continue until something gives, when the pressure of debt default reaches a boiling point. Obviously, this situation will not end well at all.
subprime
During the 2010–11 academic year, postsecondary degrees are projected to number 818,000 associate’s degrees; 1,696,000 bachelor’s degrees; 687,000 master’s degrees; 100,700 first-professional degrees; and 71,700 doctor’s degrees (table 279). Between 1998–99 and 2008–09 (the last year of actual data), the number of degrees conferred rose at all levels. The number of associate’s degrees was 41 percent higher in 2008–09 than in 1998–99, the number of bachelor’s degrees was 33 percent higher, the number of master’s degrees was 49 percent higher, the number of first-professional degrees was 17 percent higher, and the number of doctor’s degrees was 54 percent higher.
http://nces.ed.gov/programs/digest/d10/
Let's run those numbers again:
1.69 million BA's
687k master's
100k professional degrees
2.4 million BA's, MA's and professional degrees will be hitting the streets this month. Of course some BA's will chose to continue their education but from these states the ratio of BA to MA is nearly 3 to 1. So we can safely assume that up to 2.,2.2 million graduates will be hitting the job market this summer. Divide 2.2 million by 12 (months) and that equates to 183,000 jobs per month that the econony needs to create just to place this year's graduates.
And what about high school graduates?
Again from the Dept of Taking Young People's Money:
About 3,252,000 high school students are expected to graduate during the 2010–11 school year (table 110), including about 2,937,000 public school graduates and 315,000 private school graduates.
Of the 3.25 million high school grads at least 52% of them will go to college (using the college graduate numbers). Of course not all college students graduate so lets be safe and bump the percentage up to 65%. 65% of 3.252 million is 2.113 million, the remainder being 1.113 million. This gives us roughly 1.13 million high school grads that will not go to college. So in addition to the graduate numbers we have 1.13 million high school grads divided by 12 (months) equals 94,166 jobs per monthly basis to include the high school grads in the workforce. Ad 94k (high school grads) by 183k (college grads) and the country needs to add 277,000 jobs per month just to keep high school and college grads from being unemployed.
So my back of the napkin numbers show that the country needs to add 277k just to include the new entrants into the work force. Let's not forget the 10 million plus that were laid off or lost their business from the credit implosion.
Now let's take a look at the latest job date from the BLS:
57,000 jobs in retail trade
46,000 jobs in leisure
49,000 jobs in education and health care (bubble jobs soon to pop)
51,000 jobs in professional and business services
These four sectors made up the vast majority of the job growth for a grand total of 203,000 jobs. 50% are either low paying retail/leisure jobs while even the "professional" business services can include jobs for a wall street analyst to a shitlaw lawyer making 25k a year part time. Keep a close watch on the education and health care sector as both of them are overheated waiting for a pop, especially education.
Finally we have the birth/death adjustment, which is the government's guess as to how many jobs were created or destroyed from small businesses. The latest pie in the sky number was 175,000.
So how many "real" jobs did the economy generate last month? No one can truly know but I suspect its less than 100k. In addition, higher paying government jobs are declining month after month so a state employee that was earning 120k per year who now gets a gig working in retail for $12 per hour takes a big chunk out of his earning power.
In conclusion, the country is seeing a flood of graduates entering the workforce every year, with millions of them being levered up to their eyeballs in student loan debt. It is apparent that the organic economy is not generating enough high paying jobs to not only incorporate high school graduates but also the dangerously indebted "educated class." I expect the slow motion train wreck to continue until something gives, when the pressure of debt default reaches a boiling point. Obviously, this situation will not end well at all.
subprime
Thursday, April 14, 2011
Stark warnings from Richard Fisher and James Baker
"Our duty is most distinctly not to monetize - or even be perceived as monetizing - the debt of fiscally imprudent government. Throughout the history of nations, monetizing the budgetary excesses of governments has proven to be a direct path to economic perdition. Having already peeked inside that door, I feel strongly that we must now shut it, lock it and throw away the key."
Dallas Federal Reserve Governor Richard Fisher, from a speech entitled "Is America's decline exaggerated or inevitable" on April 8, 2011.
http://www.dallasfed.org/news/speeches/fisher/2011/fs110408.cfm
To QE or not to QE is the question. Save the date, because quantative easing part II ends on June 30th of this year. With regards to "having already peeked inside the door" of debt monetization, the door has been wide open with liquidity sloshing around the global financial system like mad. Just look at silver, dropping to $39.50 before violently popping to a new 31 year high of $42.50. These $3 price movements are incredible now, but if profligate government spending continues in the manner that it has, not only will we see $3 daily movements but possibly even $10 intraday moves. Lets hope that will not be the case.
This Sunday on CNN, James Baker was a host on Fareed Zakaria's show. During the interview, he stated in stark terms:
The United States of America, if we didn't have the dollar as the de facto reserve currency of the world we'd be greece.
I mean, we are broke, bankrupt, really bankrupt.
http://www.subchat.com/otchat/read.asp?Id=763281
Wow. Those are some disturbing comments from a former treasury secretary and bigtime government official. The two quotes above come from highly esteemed government officials, not some "cook" blogger or website. Of course the cook bloggers have been warning about national bankruptcy and insolvency for years, but slowly these words are being uttered by those in the high echelons of power. As the fiscal and monetary continues to deteriorate I expect more statements like these to come out. And you can expect me to report them.
Take care
Dallas Federal Reserve Governor Richard Fisher, from a speech entitled "Is America's decline exaggerated or inevitable" on April 8, 2011.
http://www.dallasfed.org/news/speeches/fisher/2011/fs110408.cfm
To QE or not to QE is the question. Save the date, because quantative easing part II ends on June 30th of this year. With regards to "having already peeked inside the door" of debt monetization, the door has been wide open with liquidity sloshing around the global financial system like mad. Just look at silver, dropping to $39.50 before violently popping to a new 31 year high of $42.50. These $3 price movements are incredible now, but if profligate government spending continues in the manner that it has, not only will we see $3 daily movements but possibly even $10 intraday moves. Lets hope that will not be the case.
This Sunday on CNN, James Baker was a host on Fareed Zakaria's show. During the interview, he stated in stark terms:
The United States of America, if we didn't have the dollar as the de facto reserve currency of the world we'd be greece.
I mean, we are broke, bankrupt, really bankrupt.
http://www.subchat.com/otchat/read.asp?Id=763281
Wow. Those are some disturbing comments from a former treasury secretary and bigtime government official. The two quotes above come from highly esteemed government officials, not some "cook" blogger or website. Of course the cook bloggers have been warning about national bankruptcy and insolvency for years, but slowly these words are being uttered by those in the high echelons of power. As the fiscal and monetary continues to deteriorate I expect more statements like these to come out. And you can expect me to report them.
Take care
Tuesday, April 12, 2011
Guest Post: Students, You Are Exploited Debt-Serfs
Students and parents, wake up: your only salvation lies in political engagement and action.
Of all the exploitative systems in the U.S., none is more rapacious than the Education Cartel. Like the proverbial frog that is unaware that it's being boiled because the water temperature rises so gradually, college students and their parents are unable to recall what higher education was like before students were herded into debt-serfdom.
Apologists for the Education Cartel like to blame Corporate America or the banks, but the reality is that the Federal and State governments and the employees of the Cartel are willing partners in the exploitation and fraud. How did we get to the boiling-water point where students are expected to take on $100,000 or more in debt to attend college--even a mediocre one?
Answer: immensely profitable Government-backed loans. If the Central State wasn't partnered with the Education Cartel, today's debt-serfdom would be impossible.
The partnership plays out on multiple levels. The San Francisco Chronicle recently reported that "Liberal" U.S. Representative Nancy Pelosi is fighting vigorously to defend the debt-serf-based empires of for-profit "colleges." Why? because these billion-dollar empires give her hundreds of thousands of dollars in campaign contributions (duh!).
("Conservatives" love for-profit "colleges" for the same reasons, of course.)
There is nothing remotely educational or liberal about an exploitative Cartel that provides no measurable value to its students while graduating 10% of them. As reported in The New Republic, when General Accounting Office (GAO) investigators posing as prospective students applied to 15 major for-profit "colleges," every one made misleading sales pitches.
The largest for-profit, the University of Phoenix, graduates less than 10% of its students within 10 years.
You may not get any useful skills or a meaningful diploma, but you will end up with $100,000 in debt that can never be written off. Loans imply risk: nobody forces a lender to take on the risk of lending money to a borrower. If the borrower ends up being unable to pay his debts and declares bankruptcy, the debt is wiped off the books and the lender loses the money that was at-risk.
Thanks to the Central State's partnership with the Education Cartel, student loans cannot be dismissed even in bankruptcy. This makes them unique in the world of credit and debt.
Banks lobbied the Central State for guaranteed, no-risk student loans, and the Government was pleased to oblige. The Status Quo fully supports colonizing the "home" population of vulnerable students and turning them into debt-serfs that banks can hound til death and beyond; they're much more pliable and less troublesome than foreign populations who might rebel against the Imperial lash. (This is drawn directly from the Survival+ critique.)
The Education Cartel has mastered the art of propaganda. You can read hundreds of media stories on the plight of K-12 education in the U.S., and the only salary numbers you will find are those for entry-level teachers--usually poverty-level wages below $30,000 in low-income states and in the mid-$30,000s in coastal states.
This careful pruning of published salaries naturally creates the impression that teachers everywhere are toiling away selflessly for poverty wages.
But this is not the case for senior teachers in high-wage states. Courtesy of correspondent Anthony T., here is a database of Illinois teachers salaries, compiled from data provided by the Illinois Board of Education (ISBE). Here are a few sample salaries:
Salary: $172,163
Position: High School Teacher
Full/Part Time: Fulltime
Percent Time Employed: 100%
Assignment: Physics (Grades 9-12 Only)
Years Teaching: 30.5
Degree: Master's
Salary: $163,526
Position: High School Teacher
Full/Part Time: Fulltime
Percent Time Employed: 100%
Assignment: Driver Education
Years Teaching: 32
Degree: Master's
For comparison's sake, this is twice the salary of an Associate Professor at one of the top public universities in the world, the University of California.
These high school teachers' salaries are more than triple the median household income in the U.S., which according to the Census Bureau is $49,777 annually.
This is not to suggest that all teachers are pulling in salaries in this range; the point is the Education Industry is extremely selective about which wages, pensions and benefits packages (for teachers and administrators) get publicity.
Apologists for the Education Cartel always compare these salaries with bloated CEO compensation. In other words, $170,000 a year and $120,000 a year pensions (not counting medical benefits) are "cheap" compared to $30 million pay packages.
Missing in this snapshot is the relative scale: there are about 5,000 CEOs of publicly traded companies which can support bloated CEO pay, while there are 22.5 million public sector employees, millions of employees in the Education Cartel and tens of thousands of bureaucrats, senior teachers, etc.
In other words: let's say we just expropriate ALL corporate profits for Central State spending. Corporations skimmed $1.6 trillion last year, record profits, and companies without GE's tax-avoidance Panzer divisions foolishly paid some $350 billion in corporate taxes, leaving $1.25 trillion to be expropriated.
Given the $1.6 trillion Federal deficit and the states' $150 billion deficits, that means taking every dollar of corporate profit would still leave us a $500 billion Government deficit. If we look at government expenses, we find that roughly 80% are personnel-related: salaries, benefits, pension costs, outside consultants, etc. Most of the Federal entitlement and Defense spending is also direct transfers to beneficiaries and employees.
One person's "waste" is another person's $150,000 a year salary and $100,000 pension.
Since the Federal government spends $3.8 trillion and state and local governments spend another $1.5 trillion, then we can estimate that the State (all government) accounts for $5.3 trillion, or 36% of the entire U.S. GDP.
The state of California currently spends $3.3 billion or 3.2% of its annual budget on the University of California system.
In other words, it's not that there's "no money for education"--it's that trillions of dollars are being squandered on other "priorities" like prisons, $1,000 per gallon fuel in Afghanistan, $170,000 a year "defense consultants," pension payments, etc. etc. etc. Public-sector toadie California Governor Jerry Brown is out whipping up support for his "increase taxes or else you all die" campaign by threatening students with higher tuition and fees--as if they haven't already been stripmined for years by skyrocketing fees: Brown warns of soaring UC costs in all-cuts budget.
In other words, if you don't give us more tax money, we're going to nail students--even though the UC system accounts for a meager 3% of the state's bloated expenses.
This is propagandistic thuggery at it's best/worst.
The rest of the article can be read here:
http://www.zerohedge.com/article/guest-post-students-you-are-exploited-debt-serfs
By Charles Hugh Smith from Of Two Minds
Of all the exploitative systems in the U.S., none is more rapacious than the Education Cartel. Like the proverbial frog that is unaware that it's being boiled because the water temperature rises so gradually, college students and their parents are unable to recall what higher education was like before students were herded into debt-serfdom.
Apologists for the Education Cartel like to blame Corporate America or the banks, but the reality is that the Federal and State governments and the employees of the Cartel are willing partners in the exploitation and fraud. How did we get to the boiling-water point where students are expected to take on $100,000 or more in debt to attend college--even a mediocre one?
Answer: immensely profitable Government-backed loans. If the Central State wasn't partnered with the Education Cartel, today's debt-serfdom would be impossible.
The partnership plays out on multiple levels. The San Francisco Chronicle recently reported that "Liberal" U.S. Representative Nancy Pelosi is fighting vigorously to defend the debt-serf-based empires of for-profit "colleges." Why? because these billion-dollar empires give her hundreds of thousands of dollars in campaign contributions (duh!).
("Conservatives" love for-profit "colleges" for the same reasons, of course.)
There is nothing remotely educational or liberal about an exploitative Cartel that provides no measurable value to its students while graduating 10% of them. As reported in The New Republic, when General Accounting Office (GAO) investigators posing as prospective students applied to 15 major for-profit "colleges," every one made misleading sales pitches.
The largest for-profit, the University of Phoenix, graduates less than 10% of its students within 10 years.
You may not get any useful skills or a meaningful diploma, but you will end up with $100,000 in debt that can never be written off. Loans imply risk: nobody forces a lender to take on the risk of lending money to a borrower. If the borrower ends up being unable to pay his debts and declares bankruptcy, the debt is wiped off the books and the lender loses the money that was at-risk.
Thanks to the Central State's partnership with the Education Cartel, student loans cannot be dismissed even in bankruptcy. This makes them unique in the world of credit and debt.
Banks lobbied the Central State for guaranteed, no-risk student loans, and the Government was pleased to oblige. The Status Quo fully supports colonizing the "home" population of vulnerable students and turning them into debt-serfs that banks can hound til death and beyond; they're much more pliable and less troublesome than foreign populations who might rebel against the Imperial lash. (This is drawn directly from the Survival+ critique.)
The Education Cartel has mastered the art of propaganda. You can read hundreds of media stories on the plight of K-12 education in the U.S., and the only salary numbers you will find are those for entry-level teachers--usually poverty-level wages below $30,000 in low-income states and in the mid-$30,000s in coastal states.
This careful pruning of published salaries naturally creates the impression that teachers everywhere are toiling away selflessly for poverty wages.
But this is not the case for senior teachers in high-wage states. Courtesy of correspondent Anthony T., here is a database of Illinois teachers salaries, compiled from data provided by the Illinois Board of Education (ISBE). Here are a few sample salaries:
Salary: $172,163
Position: High School Teacher
Full/Part Time: Fulltime
Percent Time Employed: 100%
Assignment: Physics (Grades 9-12 Only)
Years Teaching: 30.5
Degree: Master's
Salary: $163,526
Position: High School Teacher
Full/Part Time: Fulltime
Percent Time Employed: 100%
Assignment: Driver Education
Years Teaching: 32
Degree: Master's
For comparison's sake, this is twice the salary of an Associate Professor at one of the top public universities in the world, the University of California.
These high school teachers' salaries are more than triple the median household income in the U.S., which according to the Census Bureau is $49,777 annually.
This is not to suggest that all teachers are pulling in salaries in this range; the point is the Education Industry is extremely selective about which wages, pensions and benefits packages (for teachers and administrators) get publicity.
Apologists for the Education Cartel always compare these salaries with bloated CEO compensation. In other words, $170,000 a year and $120,000 a year pensions (not counting medical benefits) are "cheap" compared to $30 million pay packages.
Missing in this snapshot is the relative scale: there are about 5,000 CEOs of publicly traded companies which can support bloated CEO pay, while there are 22.5 million public sector employees, millions of employees in the Education Cartel and tens of thousands of bureaucrats, senior teachers, etc.
In other words: let's say we just expropriate ALL corporate profits for Central State spending. Corporations skimmed $1.6 trillion last year, record profits, and companies without GE's tax-avoidance Panzer divisions foolishly paid some $350 billion in corporate taxes, leaving $1.25 trillion to be expropriated.
Given the $1.6 trillion Federal deficit and the states' $150 billion deficits, that means taking every dollar of corporate profit would still leave us a $500 billion Government deficit. If we look at government expenses, we find that roughly 80% are personnel-related: salaries, benefits, pension costs, outside consultants, etc. Most of the Federal entitlement and Defense spending is also direct transfers to beneficiaries and employees.
One person's "waste" is another person's $150,000 a year salary and $100,000 pension.
Since the Federal government spends $3.8 trillion and state and local governments spend another $1.5 trillion, then we can estimate that the State (all government) accounts for $5.3 trillion, or 36% of the entire U.S. GDP.
The state of California currently spends $3.3 billion or 3.2% of its annual budget on the University of California system.
In other words, it's not that there's "no money for education"--it's that trillions of dollars are being squandered on other "priorities" like prisons, $1,000 per gallon fuel in Afghanistan, $170,000 a year "defense consultants," pension payments, etc. etc. etc. Public-sector toadie California Governor Jerry Brown is out whipping up support for his "increase taxes or else you all die" campaign by threatening students with higher tuition and fees--as if they haven't already been stripmined for years by skyrocketing fees: Brown warns of soaring UC costs in all-cuts budget.
In other words, if you don't give us more tax money, we're going to nail students--even though the UC system accounts for a meager 3% of the state's bloated expenses.
This is propagandistic thuggery at it's best/worst.
The rest of the article can be read here:
http://www.zerohedge.com/article/guest-post-students-you-are-exploited-debt-serfs
By Charles Hugh Smith from Of Two Minds
Saturday, March 26, 2011
The awakening
My awakening began in the summer of 2007 which also happened to be the end of my first year of law school. I was in Australia for 4 weeks spending time with my woman and her family (at the time she was still living in Australia). I remember one afternoon while watching the news I heard the word "subprime crisis" and it immediately caught my attention. I knew what subprime loans were as I lived in Orange County, California where everyone was somehow and in someway involved in the mortgage paper pushing market. I recall seeing a Ronnie Cardiel, a guy I went to high school with, pull up in a super pimped out Mercedez with $10,000.00 rims on it. I was like "how the fuck did you get this car?" and he responded with the classic "I got a mortgage company braah, I'm the CEO." Back then, everyone was a CEO of a fucking mortgage chopshop.
Tons of money was made and I saw many many people get involved in the market. One of my fathers cooks at the restaurant actually purchased a home in Aug of 2006 for the incredible top ticking bubblicious price of $507,000.00!!! His income? $2,100.00 per month. That's how out of control it got in California and it was all around me. So back to the news clip on that cool winter day in Australia (our summer is their winter, duh!) I recall this analyst talk about "mortgage backed securities" and how the "secondary market" would freeze up. Once I heard these terms in conjunction with subprime I raced to the computer and learned what the hell these things were. This was the beginning of my financial awakening.
Think about these key concepts:
(1) All money is LOANED into existence
(2) Debt assumes that the future will be larger than the present
(3) It is debt that forces us to scramble around in the attempt to collect “money” to pay back what we borrowed
(4) We can only find money in this system so long as someone else borrows as money is created when people borrow
(5) When people stop borrowing no money is created thereby causing defaults and threatening to destroy the system as others can no longer repay what they borrowed
(6) Borrowing requires the system to grow forever and forever
(7) the world is finite with limited resources making it impossible to grow forever
(8) peak oil will limit the worlds growth
(9) exponential growth is incompatible with a finite planet
From there I learned about the bond markets, stock markets, commodities, currencies and basic economics. At this point law school became a means to an end as first year grades placed me below the median. What really mattered was my real education that I was learning on my own. Oddly enough I got better grades the less I studied. What the fuck right? The second year of law school consisted of class, clerking for some insane attorney, working at the library and my own "special education." By the summer of 2008 we all know what happened: crude hit $147 a barrel, regional banks started to fail and then bigger banks began to fail and that’s when some banks became to big to fail. By the fall of 2008 all the recklessness, greed and fraud came home to roost with a stock market collapsing from 14,000 points 8,000 points, then to fall to a whopping 6,600. The collapse in the financial markets had finally arrived.
And it only took a little more than a year after the worries first began. At this time I was a third year in law school, law firms were cutting staff like crazy, and job losses totaled up to 700,000 per month. People were losing jobs in real estate, construction, finance, trucking, and in manufacturing. Some of these job losses were necessary (too many real estate brokers) while others were victims of the close to 10% drop in real GDP. The correction was here and was doing its damage. The most important and healthy thing the correction did was push down real estate prices. While most people with skin in the game think this is a crazy statement, the reality is that real estate became too expensive. Too many scarce resources were being diverted towards the service of mortgage debt when it easily could have been directed elsewhere. This correction is taking place right now with millions of Americans that have stopped paying ridiculous mortgage debt in exchange for rent that is a third less of their original note. The true recovery factor in this country is because of all the money that is no longer going towards mortgage debt and is being spent in the economy.
But of course, the authorities, the powers that be, made the story take a different direction. They decided to load the country up on debt, and lots of it to the point where we are now pushing $14.3 trillion. Just imagine that in September of 2008 we were below $10 trillion. The big banks were kept alive and they are back to business as usual, fucking the average joe. I believe a friend of mine may have been a bit late on her Citicard (citi bank) and they increased her interest rate from 8% to 29.99%. And this is the bank we bailed out with taxpayer money?? And yes these banks continue to rob John Q. Public with their prop trading desks and their use of high frequency trading whereby they front run their clients accounts by microseconds, taking pennies away from pension funds one micro second at a time. Some of these banks have record trading quarters from time to time! Wow, such talent! Such a great contribution to the quality of life for the human race. Please. These people are modern day pirates with nice suits on but hearts and souls of black shit.
I talk to many people everywhere I go. Whether in court room, the store when buying smokes, the bar, on the street, at the coffee shop. In 2009 I would tell people “you hear about the job losses last month?” and they would respond with “things will get better.” That in fact was the response I received the majority of the time. Fast forward to 2011 and when I bring up the economy, even though the stock market has roared back and the job losses have been plugged for the time being, people respond with “things are all fucked up.” More and more people are beginning to realize that the employment numbers are goosed or that inflation is cooked to the downside. Most importantly, people are beginning to realize that paper money is essentially worthless. I follow what people say in the comments section of the major media websites such as CNN, CNBC, FOX, MSN, and YAHOO news. Whereas before people were getting into their usual left-right battles about “how it was Clinton’s fault” or “no it was Reagan and Bush’s fault” today I’m seeing a lot more comments to the effect that “both parties are fucked up.” When/if people lose faith in the current system which is rotten to the core, only then can we have a true correction. And not only that, but when people learn that our current system of debt money is basically one big fraud, perhaps we may even see the rejection of this monetary system.
Why even have debt? What purpose does it serve other than to destroy the earth and ourselves at a much quicker rate? The simple reality is that if people didn’t have debt they wouldn’t be in such a scramble to “hustle” in order to pay off this debt. It is debt that comprises the massive hamster wheel that the entire world is running on. Could you imagine a world without debt? Or a massive jubilee announced across the entire world? That would be amazing wouldn’t it?
Just last night I was watching Greek TV and the news were saying how 3 people committed suicide in the last 5 days because of their debt woes. Mind you Greece is a small country so they actually report things like this. Even on American websites and forums I hear graduates talking about wanting to kill themselves because of the huge debt burdens they carry. Even those who are employed but have large student loans are still scrambling, working, hustling like mad, many of them working extra jobs, just to pay down that debt. This imaginary entity, this debt, was created when Bank A (lender) credited Bank B’s (law school’s bank) account with X amount of dollars created from thin air. In turn, borrower student signed a promissory note (with bank A) promising to pay what he borrowed (that was created out of thin air) PLUS interest. What a fucking fabulous system we have created! Banks used to loan out deposits but now loan out AGAINST their deposits, hence the term fractional reserve banking. This fraction reserve banking system, which works so long as the economy continues to grow, basically requires that the economy MUST grow. Every year, every month, the “economy” must grow. We MUST eat more, shit more, drive more, buy more, text more, everything more more more. Because if we don’t grow then the system implodes onto itself into a nightmarish deflationary collapse. So as this system requires the world to grow, it puts us all on the hamster wheel, ensuring that we do what we can to make sure we pay off our debt, but in turn making sure the economy grows.
It basically comes down to this: the entire world economy is based off of a fucking equation. Yes you heard that right, our lives, our well beings, our futures, are based off of an equation. And the equation posits that the world must grow, must consume more, must waste more, more trash, more crap, more stress, more fat. The growth junkies are so captured by this equation that many commentators were seeing the Japanese disaster as a “opportunity” for GROWTH! Please notice and recognize the use of the word “growth” in news articles as it is the basis for everything for the equation.
Our money system requires that the world grows, that eventually we pave the entire planet seven times over, just to satisfy the equation. Nearly everyone lusts after the power of money, yet very few understand or even know what it is. Yet the awakening grows each day as the powers that be expose the secret of what our money truly is, how it is nothing. When Bernanke and the rest of the crooks at the Federal Reserve crank up the printing presses creating trillions in the process, smart people see that there is no true value in something that can be created out of nothing. Look a little deeper, and you will learn how destructive this “nothing” can be. Yes, all money is loaned out of existence. Bernanke creates money as he “loans” it to the federal government in exchange for treasury bonds, or the US taxpayers promise to repay something that was created out of nothing.
Again, think about these key concepts:
(1) All money is LOANED into existence
(2) Debt assumes that the future will be larger than the present
(3) It is debt that forces us to scramble around in the attempt to collect “money” to pay back what we borrowed
(4) We can only find money in this system so long as someone else borrows as money is created when people borrow
(5) When people stop borrowing no money is created thereby causing defaults and threatening to destroy the system as others can no longer repay what they borrowed
(6) Borrowing requires the system to grow forever and forever
(7) the world is finite with limited resources making it impossible to grow forever
(8) peak oil will limit the worlds growth
(9) exponential growth is incompatible with a finite planet
Right now the system is desperate for growth, desperate for new money to be introduced into the system. With businesses strapped and households already overburdened with debt, only the government can borrow to spend into the economy. There is also one more class of persons that can borrow right now, and that is the student borrower. Once confidence in the student loan con disappears, that bubble will burst as well. Don’t get caught in this trap ladies and gentlemen as it is especially vicious. At the present time there is no escape from the clutches of the student loan as it cannot be discharged in bankruptcy. As of now, it MUST be repaid. Therefore, don't let the "equation" get to you because according to the worshipers of the "equation" people NEED to borrow. Uncle Ponzi NEEDS YOU!
In conclusion, it is imperative that people learn about our money system and how flawed it is. We cannot rely on a system that requires perpetual growth as the humanity has its ups and downs. Right now, people are slowly beginning to realize what a con the entire system is. To further your education in this abstract and complicated area, please go to Chrismartenson.com and watch the "crash course" which is a great presentation discussing the "system" in much greater detail. It's free and is probably the most informative presentation I have ever seen. Get on the ball people because we may not have much time left before the real turmoil begins.
That’s all for now
Subprime
Tons of money was made and I saw many many people get involved in the market. One of my fathers cooks at the restaurant actually purchased a home in Aug of 2006 for the incredible top ticking bubblicious price of $507,000.00!!! His income? $2,100.00 per month. That's how out of control it got in California and it was all around me. So back to the news clip on that cool winter day in Australia (our summer is their winter, duh!) I recall this analyst talk about "mortgage backed securities" and how the "secondary market" would freeze up. Once I heard these terms in conjunction with subprime I raced to the computer and learned what the hell these things were. This was the beginning of my financial awakening.
Think about these key concepts:
(1) All money is LOANED into existence
(2) Debt assumes that the future will be larger than the present
(3) It is debt that forces us to scramble around in the attempt to collect “money” to pay back what we borrowed
(4) We can only find money in this system so long as someone else borrows as money is created when people borrow
(5) When people stop borrowing no money is created thereby causing defaults and threatening to destroy the system as others can no longer repay what they borrowed
(6) Borrowing requires the system to grow forever and forever
(7) the world is finite with limited resources making it impossible to grow forever
(8) peak oil will limit the worlds growth
(9) exponential growth is incompatible with a finite planet
From there I learned about the bond markets, stock markets, commodities, currencies and basic economics. At this point law school became a means to an end as first year grades placed me below the median. What really mattered was my real education that I was learning on my own. Oddly enough I got better grades the less I studied. What the fuck right? The second year of law school consisted of class, clerking for some insane attorney, working at the library and my own "special education." By the summer of 2008 we all know what happened: crude hit $147 a barrel, regional banks started to fail and then bigger banks began to fail and that’s when some banks became to big to fail. By the fall of 2008 all the recklessness, greed and fraud came home to roost with a stock market collapsing from 14,000 points 8,000 points, then to fall to a whopping 6,600. The collapse in the financial markets had finally arrived.
And it only took a little more than a year after the worries first began. At this time I was a third year in law school, law firms were cutting staff like crazy, and job losses totaled up to 700,000 per month. People were losing jobs in real estate, construction, finance, trucking, and in manufacturing. Some of these job losses were necessary (too many real estate brokers) while others were victims of the close to 10% drop in real GDP. The correction was here and was doing its damage. The most important and healthy thing the correction did was push down real estate prices. While most people with skin in the game think this is a crazy statement, the reality is that real estate became too expensive. Too many scarce resources were being diverted towards the service of mortgage debt when it easily could have been directed elsewhere. This correction is taking place right now with millions of Americans that have stopped paying ridiculous mortgage debt in exchange for rent that is a third less of their original note. The true recovery factor in this country is because of all the money that is no longer going towards mortgage debt and is being spent in the economy.
But of course, the authorities, the powers that be, made the story take a different direction. They decided to load the country up on debt, and lots of it to the point where we are now pushing $14.3 trillion. Just imagine that in September of 2008 we were below $10 trillion. The big banks were kept alive and they are back to business as usual, fucking the average joe. I believe a friend of mine may have been a bit late on her Citicard (citi bank) and they increased her interest rate from 8% to 29.99%. And this is the bank we bailed out with taxpayer money?? And yes these banks continue to rob John Q. Public with their prop trading desks and their use of high frequency trading whereby they front run their clients accounts by microseconds, taking pennies away from pension funds one micro second at a time. Some of these banks have record trading quarters from time to time! Wow, such talent! Such a great contribution to the quality of life for the human race. Please. These people are modern day pirates with nice suits on but hearts and souls of black shit.
I talk to many people everywhere I go. Whether in court room, the store when buying smokes, the bar, on the street, at the coffee shop. In 2009 I would tell people “you hear about the job losses last month?” and they would respond with “things will get better.” That in fact was the response I received the majority of the time. Fast forward to 2011 and when I bring up the economy, even though the stock market has roared back and the job losses have been plugged for the time being, people respond with “things are all fucked up.” More and more people are beginning to realize that the employment numbers are goosed or that inflation is cooked to the downside. Most importantly, people are beginning to realize that paper money is essentially worthless. I follow what people say in the comments section of the major media websites such as CNN, CNBC, FOX, MSN, and YAHOO news. Whereas before people were getting into their usual left-right battles about “how it was Clinton’s fault” or “no it was Reagan and Bush’s fault” today I’m seeing a lot more comments to the effect that “both parties are fucked up.” When/if people lose faith in the current system which is rotten to the core, only then can we have a true correction. And not only that, but when people learn that our current system of debt money is basically one big fraud, perhaps we may even see the rejection of this monetary system.
Why even have debt? What purpose does it serve other than to destroy the earth and ourselves at a much quicker rate? The simple reality is that if people didn’t have debt they wouldn’t be in such a scramble to “hustle” in order to pay off this debt. It is debt that comprises the massive hamster wheel that the entire world is running on. Could you imagine a world without debt? Or a massive jubilee announced across the entire world? That would be amazing wouldn’t it?
Just last night I was watching Greek TV and the news were saying how 3 people committed suicide in the last 5 days because of their debt woes. Mind you Greece is a small country so they actually report things like this. Even on American websites and forums I hear graduates talking about wanting to kill themselves because of the huge debt burdens they carry. Even those who are employed but have large student loans are still scrambling, working, hustling like mad, many of them working extra jobs, just to pay down that debt. This imaginary entity, this debt, was created when Bank A (lender) credited Bank B’s (law school’s bank) account with X amount of dollars created from thin air. In turn, borrower student signed a promissory note (with bank A) promising to pay what he borrowed (that was created out of thin air) PLUS interest. What a fucking fabulous system we have created! Banks used to loan out deposits but now loan out AGAINST their deposits, hence the term fractional reserve banking. This fraction reserve banking system, which works so long as the economy continues to grow, basically requires that the economy MUST grow. Every year, every month, the “economy” must grow. We MUST eat more, shit more, drive more, buy more, text more, everything more more more. Because if we don’t grow then the system implodes onto itself into a nightmarish deflationary collapse. So as this system requires the world to grow, it puts us all on the hamster wheel, ensuring that we do what we can to make sure we pay off our debt, but in turn making sure the economy grows.
It basically comes down to this: the entire world economy is based off of a fucking equation. Yes you heard that right, our lives, our well beings, our futures, are based off of an equation. And the equation posits that the world must grow, must consume more, must waste more, more trash, more crap, more stress, more fat. The growth junkies are so captured by this equation that many commentators were seeing the Japanese disaster as a “opportunity” for GROWTH! Please notice and recognize the use of the word “growth” in news articles as it is the basis for everything for the equation.
Our money system requires that the world grows, that eventually we pave the entire planet seven times over, just to satisfy the equation. Nearly everyone lusts after the power of money, yet very few understand or even know what it is. Yet the awakening grows each day as the powers that be expose the secret of what our money truly is, how it is nothing. When Bernanke and the rest of the crooks at the Federal Reserve crank up the printing presses creating trillions in the process, smart people see that there is no true value in something that can be created out of nothing. Look a little deeper, and you will learn how destructive this “nothing” can be. Yes, all money is loaned out of existence. Bernanke creates money as he “loans” it to the federal government in exchange for treasury bonds, or the US taxpayers promise to repay something that was created out of nothing.
Again, think about these key concepts:
(1) All money is LOANED into existence
(2) Debt assumes that the future will be larger than the present
(3) It is debt that forces us to scramble around in the attempt to collect “money” to pay back what we borrowed
(4) We can only find money in this system so long as someone else borrows as money is created when people borrow
(5) When people stop borrowing no money is created thereby causing defaults and threatening to destroy the system as others can no longer repay what they borrowed
(6) Borrowing requires the system to grow forever and forever
(7) the world is finite with limited resources making it impossible to grow forever
(8) peak oil will limit the worlds growth
(9) exponential growth is incompatible with a finite planet
Right now the system is desperate for growth, desperate for new money to be introduced into the system. With businesses strapped and households already overburdened with debt, only the government can borrow to spend into the economy. There is also one more class of persons that can borrow right now, and that is the student borrower. Once confidence in the student loan con disappears, that bubble will burst as well. Don’t get caught in this trap ladies and gentlemen as it is especially vicious. At the present time there is no escape from the clutches of the student loan as it cannot be discharged in bankruptcy. As of now, it MUST be repaid. Therefore, don't let the "equation" get to you because according to the worshipers of the "equation" people NEED to borrow. Uncle Ponzi NEEDS YOU!
In conclusion, it is imperative that people learn about our money system and how flawed it is. We cannot rely on a system that requires perpetual growth as the humanity has its ups and downs. Right now, people are slowly beginning to realize what a con the entire system is. To further your education in this abstract and complicated area, please go to Chrismartenson.com and watch the "crash course" which is a great presentation discussing the "system" in much greater detail. It's free and is probably the most informative presentation I have ever seen. Get on the ball people because we may not have much time left before the real turmoil begins.
That’s all for now
Subprime
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