The Ruthless Truth blog

by Bob Chapman

Global Research, March 14, 2010

The International Forecaster – 2010-03-13

The dramatic and costly undertow of deflation continues unabated, as government via fiscal policy and the Federal Reserve, by creating money and credit out of thin air, proceed to overpower this deflation with massive inflation.

Unbeknownst to most the Fed and the Treasury have been maintaining this program for the past several years, accompanied by most major countries, all of which have taken the path of least resistance rather than address the underlying problems.

The current stage of problems had to be addressed 2-1/2 years ago in what has become known as a credit crisis. This continuing crisis has been accompanied by 22-1/8% current unemployment that has resulted in a perpetual fall in tax revenues and a resultant enlargement of government deficits. We might add that this condition is being experienced by many countries worldwide, which followed America’s leadership into this terrible financial and economic morass. These policies have led to massive sovereign debt policies, a hangover of the policies of 1933 and 1971.

The financial system in America is on the edge of default. A recent poll found that 92% of those surveyed wanted to unseat their current representative or Senator in Washington and only 21% believed that government enjoyed the consent of the governed. It’s very obvious people are not happy with the political, economic and financial situation presently. Eighty percent believe that government is enmeshed in partisan infighting. Not only between parties, but within parties as well. Politicians are very aware of these numbers and are frantic to get reelected. The public has recoiled in disgust. People are demanding that the power of government be curbed. People are sick and tired of paid off corrupt politicians, more than half of whom have been in office for more than ten years.

It is not healthy for a nation to have $3.3 trillion in Treasury bonds held by foreigners. China holds about $900 billion and Japan about $800 billion. We also understand that hedge funds and others also are fronting both countries, so the figures are not really reflective in their total positions. These nations for the most part are rolling their positions, but have not injected new capital into US Treasuries. That is why the Fed had to fund 80% of new Treasury debt last year.

Presently the Fed is fighting and pulling out all stops to halt legislation to audit the Federal Reserve, a private corporation, which has managed our monetary policy since 1913, under the Federal Reserve Act. On Monday the Treasury held a media conference for financial reporters and bloggers in which the Fed was discussed. The meeting had some very strange conditions. Mr. Geithner, Mr. Krueger and Mr. Sperling could be paraphrased but not quoted and what was paraphrased could not be connected to a specific official. Again, the element of secrecy to protect the guilty. One blogger said, “Did they get the ground rules from Al Qaeda?” The meeting was a travesty. How can government officials demand secrecy in public briefings? It is no wonder that 90% of the public and 317 members of Congress want more Treasury transparency and an audit and investigation of the Fed. This is the same gang run by Geithner and Bernanke that are currently running the gold suppression scheme. When you have a criminal cabal involved you have no transparency. That is why the audit of the Fed is so important. Such an exercise would expose exactly what both have been doing in the markets. The Fed and Treasury have lied for years about what they have been up too in behalf of their Illuminist friends. It is not only about the actions of the President’s Working Group on Financial Markets, but the funding of Watergate, Saddam Hussein, who they supposedly conveniently hung, the countries that secretly received loans, how much, who got them and what was the collateral? Were currency swaps with foreign control banks used to strengthen the dollar by the Fed and for those foreign control banks to purchase Treasury and Agency paper? How about all the inside information funneled to Wall Street and banking for almost a century from both the Fed and Treasury? Their lies are legion. They both are manipulating every market in the world 24/7 and the American people want it stopped. We also want an audit of America’s gold and the testing of the gold bars held. There is much we want to know, so we can save our country and our freedom.

Investors continue to chase yields, which is a dumb practice. Interest rates are at 80-year lows and can only stay the same or rise. People are grabbing junk bond yields that will come back to haunt them.

At least for now Greece and euro problems are being shuffled into the background. You can imagine this is not the last of the eurozone problems. The PIIGS will be back one by one to cause never-ending problems until they are forced to leave the eurozone. That will cause a eurozone breakup, probably by the end of next year.

This is the first real threat to the eurozone since its beginning ten years ago, and we think they will find that their rules are so restrictive that weak members will be forced to leave. The monetary policy and interest rates may be singular, but fiscal policy is not. Exchange rates for the euro must fit all members, but rates and methods of growth vary widely. With one currency sovereignty has effectively been lost. Public debt to GDP has to be under 3%, while most are over 3%: Greece is at 10.7%. There is also a public debt limit of 60% of GDP, which all nations in the zone have broken. All precepts have not and cannot be met. There is no effective policy because there is no way to enforce the rules. In addition most have current account deficits and the zone effectively has been carried by Germany from this aspect. The bottom line is a few have growth, the rest do not. As a result there is pressure, due to poor growth in some of the nations, for austerity measures to reduce fiscal deficits at the worst possible time. Greece comes first along with Ireland and the rest will follow.

Just as an example, Spain has a fiscal deficit of 10% of GDP that has to fall to 3% within three years, which is virtually impossible just as it is in Greece. Their current account deficit is 4.5% of GDP. In a recessionary/depressionary world getting into the plus column is a tall order. This dilemma is the result in part of the housing collapse caused by Spanish banks and inattention by the Bank for International Settlements. We see consumption continuing to fall in the face of 20% unemployment, which worsens by the day. The PIIGS and a present total of 19 nations are effectively bankrupt. We do not believe they can survive without devaluation and debt default. That is why we expect that to happen next year.

Historically banks have kept loan loss allowance ratios at $1.33 for every dollar of debt. Today it is 0.58%.

The commercial paper market rose $11.2 billion last week to $1.145 trillion.

The Treasury sold $21 billion in 10-year T-notes. The bid-to-cover was 3.45 to 1, which is average vs. 2.85 to 1. This was the highest since 1995. Indirect bidders, which include foreign central banks, bought 35.1%, compared to an average of 41.7% at the last four re-openings.

Almost 39 million Americans received food stamps in December, the most ever, as the jobless rate hovered near a 26- year high, the government said.

Recipients of the subsidies for food purchases climbed 23 percent from a year earlier and rose 2.1 percent from November, the U. S. Department of Agriculture said Thursday in a statement on its Web site. The number receiving the benefit has set records for 13 straight months.

Food aid climbed as the national unemployment rate reached 10.1 percent in October, the highest since June 1983, and remained at 10 percent through December before easing to 9.7 percent in January.

An average of 40.5 million people will get food stamps each month in the federal fiscal year that began Oct. 1, Agriculture Secretary Tom Vilsack said last week. The figure is projected to rise to 43.3 million in 2011.

Nevada had the biggest increase in the percentage of the population receiving the coupons, up 49 percent from December, USDA figures show. Texas had the most recipients, at 3.31 million, topping California’s 3.11 million.

The U.S. government recorded a budget deficit of $221 billion in February, the Treasury Department reported Wednesday, even as its income posted a big increase for the month.

Income totaled $107.5 billion in February, a 23% increase over last February’s total, and marking the first monthly year-over-year increase since April 2008.

Spending was $328 billion in February, up 17% year over year. That was the largest February total on record, a Treasury official said.

February was the 17th consecutive month that the government recorded a deficit. It was a little less than expected: last week the Congressional Budget Office predicted that the deficit would be $223 billion in February.

Year to date, the deficit is $652 billion, according to the Treasury data.

The Senate approved a $140 billion package of tax breaks and aid to the unemployed Wednesday, the most substantial effort by the chamber to boost the nation’s economy since passing the stimulus bill last year.

Six Republicans joined 56 Democrats to pass the “tax extenders” measure, 62 to 36. The package faces an uncertain future in the House, where Democrats have taken a markedly different approach to the “jobs agenda” than have their Senate colleagues.

Small defense companies, energy firms, and other technology start-ups throughout New England could lose tens of millions of dollars a year because of a decision by House Democrats yesterday to abruptly halt budget earmarks for companies.

The decision follows a House ethics probe into an alleged pay-to-play system in which investigators followed a trail of campaign contributions and linked them to earmarks — a provision added to a bill that directs money to a specific project, in this case, a private company. Although the House Ethics Committee cleared members of specific wrongdoing, House leaders remained sensitive to the appearance of a rampant quid-pro-quo system that has stoked outrage around the country.

The decision, which exempts earmarks for nonprofit groups, could significantly affect Massachusetts because the House delegation has proved adept at the political horse-trading required to obtain funding for private companies.

Can Nancy Pelosi Get the Votes?

The Senate bill’s abortion language is not the House Speaker’s only problem.

http://online.wsj.com/article/SB10001424052748703701004575113292688090292.html#printMode

*****

SEVEN HOUSE members, including Northern Virginia Rep. James P. Moran Jr. (D), collected more than $840,000 in political contributions from employees and clients of a lobbying firm, Paul Magliocchetti and Associates Group (PMA), during a two-year span. In that same period, the lawmakers, strategically situated on the Appropriations defense subcommittee, directed more than $245 million in earmarks to clients of PMA.

If you think those two facts are unrelated, you are qualified to be on the House ethics committee. The panel recently found that “simply because a member sponsors an earmark for an entity that also happens to be a campaign contributor does not, on these two facts alone, support a claim that a member’s actions are being influenced by campaign contributions.”

The ethics committee acknowledged that “there is a widespread perception among corporations and lobbyists that campaign contributions provide enhanced access to members or a greater chance of obtaining earmarks.” Gee, how could anyone have gotten that impression? Maybe because the lawmakers targeted those seeking earmarks for campaign contributions? Sent their key appropriations staffers to fundraisers?

For instance, in 2008, the appropriations director for Rep. Pete Visclosky (D-Ind.) told corporations interested in obtaining earmarks that they needed to submit requests by Feb. 15. On Feb. 27, Mr. Visclosky’s campaign manager sent a letter to companies that had sought his help on defense matters inviting them to a fundraiser on March 12. Mr. Visclosky’s political committees received $35,300 from clients of PMA that month, plus another $12,000 from the lobbying firm and its employees. A week after the fundraiser, which was focused on defense contractors and attended by his chief of staff and appropriations director, Mr. Visclosky requested earmarks for six PMA clients, totaling more than $14 million.

House leaders understand that voters may not be quite as obtuse as the ethics committee seems to assume, and their extreme embarrassment — over this and other scandals — may lead to useful action. The House is right to ban lawmakers from earmarking government funds for for-profit companies. It should go further, and extend the prohibition to nonprofit and educational institutions as well. Some nonprofit institutions spend enormous sums on lobbyists, who dispense campaign donations in hope of obtaining earmarks. More important, the Senate must follow suit, as much as it appears disinclined to do so. A system that aligns campaign cash and earmarks is inherently unseemly, if not outright corrupt, and the Senate is tainted by this setup as well.

We say this fully aware that the Constitution grants Congress the power of the purse and that earmarks are not close to the biggest reason for out-of-control spending. And that lawmakers have taken steps in recent years to reduce the number of earmarks and make the process more open. And that eliminating earmarks would not end every instance in which private interests lobby for — and make campaign contributions in hope of obtaining — particular favors.

It would, however, eliminate the worst such abuse. The House Ethics Manual cautions members “to avoid even the appearance that solicitations of campaign contributions are connected in any way with an action taken or to be taken in an official capacity.” The ethics committee, dismissing that caution and a recommendation by the newly created independent Office of Congressional Ethics to investigate two of the seven representatives, decided there was nothing to worry about in the PMA case. With standards this lax, the only reasonable choice is to end the earmarks that fuel this sleazy process.  [This dramatically shows you why campaign contributions have to end.]

The dramatic and costly undertow of deflation continues unabated, as government via fiscal policy and the Federal Reserve, by creating money and credit out of thin air, proceed to overpower this deflation with massive inflation.

Unbeknownst to most the Fed and the Treasury have been maintaining this program for the past several years, accompanied by most major countries, all of which have taken the path of least resistance rather than address the underlying problems.

The current stage of problems had to be addressed 2-1/2 years ago in what has become known as a credit crisis. This continuing crisis has been accompanied by 22-1/8% current unemployment that has resulted in a perpetual fall in tax revenues and a resultant enlargement of government deficits. We might add that this condition is being experienced by many countries worldwide, which followed America’s leadership into this terrible financial and economic morass. These policies have led to massive sovereign debt policies, a hangover of the policies of 1933 and 1971.

The financial system in America is on the edge of default. A recent poll found that 92% of those surveyed wanted to unseat their current representative or Senator in Washington and only 21% believed that government enjoyed the consent of the governed. It’s very obvious people are not happy with the political, economic and financial situation presently. Eighty percent believe that government is enmeshed in partisan infighting. Not only between parties, but within parties as well. Politicians are very aware of these numbers and are frantic to get reelected. The public has recoiled in disgust. People are demanding that the power of government be curbed. People are sick and tired of paid off corrupt politicians, more than half of whom have been in office for more than ten years.

It is not healthy for a nation to have $3.3 trillion in Treasury bonds held by foreigners. China holds about $900 billion and Japan about $800 billion. We also understand that hedge funds and others also are fronting both countries, so the figures are not really reflective in their total positions. These nations for the most part are rolling their positions, but have not injected new capital into US Treasuries. That is why the Fed had to fund 80% of new Treasury debt last year.

Presently the Fed is fighting and pulling out all stops to halt legislation to audit the Federal Reserve, a private corporation, which has managed our monetary policy since 1913, under the Federal Reserve Act. On Monday the Treasury held a media conference for financial reporters and bloggers in which the Fed was discussed. The meeting had some very strange conditions. Mr. Geithner, Mr. Krueger and Mr. Sperling could be paraphrased but not quoted and what was paraphrased could not be connected to a specific official. Again, the element of secrecy to protect the guilty. One blogger said, “Did they get the ground rules from Al Qaeda?” The meeting was a travesty. How can government officials demand secrecy in public briefings? It is no wonder that 90% of the public and 317 members of Congress want more Treasury transparency and an audit and investigation of the Fed. This is the same gang run by Geithner and Bernanke that are currently running the gold suppression scheme. When you have a criminal cabal involved you have no transparency. That is why the audit of the Fed is so important. Such an exercise would expose exactly what both have been doing in the markets. The Fed and Treasury have lied for years about what they have been up too in behalf of their Illuminist friends. It is not only about the actions of the President’s Working Group on Financial Markets, but the funding of Watergate, Saddam Hussein, who they supposedly conveniently hung, the countries that secretly received loans, how much, who got them and what was the collateral? Were currency swaps with foreign control banks used to strengthen the dollar by the Fed and for those foreign control banks to purchase Treasury and Agency paper? How about all the inside information funneled to Wall Street and banking for almost a century from both the Fed and Treasury? Their lies are legion. They both are manipulating every market in the world 24/7 and the American people want it stopped. We also want an audit of America’s gold and the testing of the gold bars held. There is much we want to know, so we can save our country and our freedom.

Investors continue to chase yields, which is a dumb practice. Interest rates are at 80-year lows and can only stay the same or rise. People are grabbing junk bond yields that will come back to haunt them.

At least for now Greece and euro problems are being shuffled into the background. You can imagine this is not the last of the eurozone problems. The PIIGS will be back one by one to cause never-ending problems until they are forced to leave the eurozone. That will cause a eurozone breakup, probably by the end of next year.

This is the first real threat to the eurozone since its beginning ten years ago, and we think they will find that their rules are so restrictive that weak members will be forced to leave. The monetary policy and interest rates may be singular, but fiscal policy is not. Exchange rates for the euro must fit all members, but rates and methods of growth vary widely. With one currency sovereignty has effectively been lost. Public debt to GDP has to be under 3%, while most are over 3%: Greece is at 10.7%. There is also a public debt limit of 60% of GDP, which all nations in the zone have broken. All precepts have not and cannot be met. There is no effective policy because there is no way to enforce the rules. In addition most have current account deficits and the zone effectively has been carried by Germany from this aspect. The bottom line is a few have growth, the rest do not. As a result there is pressure, due to poor growth in some of the nations, for austerity measures to reduce fiscal deficits at the worst possible time. Greece comes first along with Ireland and the rest will follow.

Just as an example, Spain has a fiscal deficit of 10% of GDP that has to fall to 3% within three years, which is virtually impossible just as it is in Greece. Their current account deficit is 4.5% of GDP. In a recessionary/depressionary world getting into the plus column is a tall order. This dilemma is the result in part of the housing collapse caused by Spanish banks and inattention by the Bank for International Settlements. We see consumption continuing to fall in the face of 20% unemployment, which worsens by the day. The PIIGS and a present total of 19 nations are effectively bankrupt. We do not believe they can survive without devaluation and debt default. That is why we expect that to happen next year.

Historically banks have kept loan loss allowance ratios at $1.33 for every dollar of debt. Today it is 0.58%.

The commercial paper market rose $11.2 billion last week to $1.145 trillion.

The Treasury sold $21 billion in 10-year T-notes. The bid-to-cover was 3.45 to 1, which is average vs. 2.85 to 1. This was the highest since 1995. Indirect bidders, which include foreign central banks, bought 35.1%, compared to an average of 41.7% at the last four re-openings.

Almost 39 million Americans received food stamps in December, the most ever, as the jobless rate hovered near a 26- year high, the government said.

Recipients of the subsidies for food purchases climbed 23 percent from a year earlier and rose 2.1 percent from November, the U. S. Department of Agriculture said Thursday in a statement on its Web site. The number receiving the benefit has set records for 13 straight months.

Food aid climbed as the national unemployment rate reached 10.1 percent in October, the highest since June 1983, and remained at 10 percent through December before easing to 9.7 percent in January.

An average of 40.5 million people will get food stamps each month in the federal fiscal year that began Oct. 1, Agriculture Secretary Tom Vilsack said last week. The figure is projected to rise to 43.3 million in 2011.

Nevada had the biggest increase in the percentage of the population receiving the coupons, up 49 percent from December, USDA figures show. Texas had the most recipients, at 3.31 million, topping California’s 3.11 million.

The U.S. government recorded a budget deficit of $221 billion in February, the Treasury Department reported Wednesday, even as its income posted a big increase for the month.

Income totaled $107.5 billion in February, a 23% increase over last February’s total, and marking the first monthly year-over-year increase since April 2008.

Spending was $328 billion in February, up 17% year over year. That was the largest February total on record, a Treasury official said.

February was the 17th consecutive month that the government recorded a deficit. It was a little less than expected: last week the Congressional Budget Office predicted that the deficit would be $223 billion in February.

Year to date, the deficit is $652 billion, according to the Treasury data.

The Senate approved a $140 billion package of tax breaks and aid to the unemployed Wednesday, the most substantial effort by the chamber to boost the nation’s economy since passing the stimulus bill last year.

Six Republicans joined 56 Democrats to pass the “tax extenders” measure, 62 to 36. The package faces an uncertain future in the House, where Democrats have taken a markedly different approach to the “jobs agenda” than have their Senate colleagues.

Small defense companies, energy firms, and other technology start-ups throughout New England could lose tens of millions of dollars a year because of a decision by House Democrats yesterday to abruptly halt budget earmarks for companies.

The decision follows a House ethics probe into an alleged pay-to-play system in which investigators followed a trail of campaign contributions and linked them to earmarks — a provision added to a bill that directs money to a specific project, in this case, a private company. Although the House Ethics Committee cleared members of specific wrongdoing, House leaders remained sensitive to the appearance of a rampant quid-pro-quo system that has stoked outrage around the country.

The decision, which exempts earmarks for nonprofit groups, could significantly affect Massachusetts because the House delegation has proved adept at the political horse-trading required to obtain funding for private companies.

http://www.manpower.com/investors/releasedetail.cfm?releaseid=450330

Though 73% of firms surveyed said they plan on hiring NO employees and 8% intend to fire employees, Manpower is trying to spin the survey as a sign of an improving employment picture. But under multiple extensions enacted by the federal government in response to the downturn, workers can collect the payments for as long as 99 weeks in states with the highest unemployment rates — the longest period since the program’s inception.

But complaints that extending unemployment payments discourages job-seeking have begun to bubble into the political debate. “If anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work,” Kyl said. “I am sure most of them would like work and probably have tried to seek it, but you can’t argue it is a job enhancer.”

Shopping blues: Top tax 12%. Chicago’s 10.25% highest big-city rate. More Internet tax fights loom. But Vertex Inc., which calculates sales tax for Internet sellers, reports that the average general sales tax rate nationwide reached 8.629% at the end of 2009, the highest since the Berwyn, Pa., company started tracking data in 1982. That was up a nickel on a taxable $100 purchase from a year earlier and up nearly 40 cents for the decade.   http://finance.yahoo.com/taxes/article/109012/us-sales-tax-rates-hit-record-high

The number of Americans filing first-time claims for jobless benefits fell for a second week to a level that indicates companies are nearing the end of payroll reductions as the economy recovers.

First-time jobless applications dropped by 6,000 to 462,000 in the week ended March 6, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance increased, while those getting extended benefits fell.

The labor market in the United States remains fragile with the initial jobless claims declining less than expected and continuing claims increasing against expectations.
From the previous revised data of 468,000. 4-week average was 475,500, 5,000 claims more than previous week average of 470,500.

Continuing claims has been posted as increased of 37,000 in the week of February 27 to 4,558,000 from previous revised data of 4,521,000. Expectations were a decline to 4,500,000

Unemployment tops 20% in eight California counties. The state’s jobless rate of 12.5% in January was its worst on record and fifth-highest in the nation.

For many California areas, unemployment rates moved persistently higher in January, indicating that the national economic recovery hasn’t yet translated into jobs for the Golden State.

New county-by-county figures released by the state Wednesday showed that in eight counties, more than 1 in 5 people were out of work. Moreover, revised numbers for last year show that fewer people were employed than was previously believed.
The state was one of five, along with Florida, Georgia, North Carolina and South Carolina, that reached their highest unemployment rates since the government began keeping track in 1976, according to the Bureau of Labor Statistics. California’s was 12.5% in January, up from 12.3% in December.

“The unemployment rate will be persistently at this high level for at least a few more months,” said Esmael Adibi, an economist at Chapman University in Orange.

The unemployment rate for the Riverside-San Bernardino-Ontario metro area reached 15% in January, its highest since 1990, the earliest year for which the state has comparable data available. Unemployment in Orange County reached 10.1%, up from 9.1% in December.

The state’s revised data for last year showing elevated unemployment indicate that a recovery could take longer than previously predicted.

“The impact on the labor market was much more severe than what we had estimated,” Adibi said. Most counties were still struggling under the burden of joblessness, especially the eight counties where rates were higher than 20%. Merced County, for instance, had an unemployment rate of 21.7% in January, and Imperial County’s rate was 27.3%.

The national unemployment rate in January was 9.7%, and the country experienced a strong 5.75% annualized increase in gross domestic product in last year’s final three months.

“The real mystery now is why we aren’t getting job growth when the GDP has been positive,” said Stephen Levy, director of the Center for Continuing Study of the California Economy.

Budget problems in state and local government are expected to further drag down the state’s recovery, Levy said. Even if they don’t get pink slips, state employees are earning less money because of furloughs and salary reductions, which reduces consumer spending in the state.

The government sector, which includes public education, lost 4,500 jobs from December to January. Nancy Hack lost her job as a gardener with the Los Angeles Department of Recreation and Parks a year ago, and said that finding work has been a challenge at her age, 54.

“I’m like a fish out of water,” she said.

Los Angeles County, with an unemployment rate of 12.5%, was hard hit by declines in the trade, transportation and utilities sector, which shed 21,900 jobs, and professional and business services, which lost 16,300 jobs.

The same sectors were hit in the Inland Empire, losing 7,700 and 3,600 jobs, respectively. Orange County lost 5,700 jobs in trade, transportation and utilities and 3,000 in professional and business services.

San Diego County’s unemployment rate reached 11% in January, up from a revised 10.3% in December. The unemployment rate in Ventura County was 11.6% in January, up from a revised 10.9% in December.

California’s unemployment rate was the fifth-highest in the nation, behind Michigan, Nevada, Rhode Island and South Carolina.

The foreclosure crisis in the U.S. isn’t over, but the pace of growth may finally be slowing down.

RealtyTrac Inc. said Thursday that the number of households facing foreclosure in February grew 6 percent from a year ago, the smallest annual increase in four years. On the state level, foreclosures declined on a monthly and yearly basis in the hard-hit states of Nevada, Arizona and California, but still grew rapidly in Florida.

More than 308,000 U.S. households, or one in every 418 homes, received a foreclosure-related notice, the Irvine, California-based foreclosure listings company reported. That was down more than 2 percent from January

Still, fears remain about the hundreds of thousands of homeowners who are still being evaluated for help under loan modification programs. Many analysts say most of those borrowers will eventually lose their homes, sparking a new round of foreclosures later this year.

“It’s premature to declare victory just yet,” said Rick Sharga, a RealtyTrac senior vice president. He did, however, allow that, “If this is the beginning of a slowdown in growth rates, that would be a good thing.”

Banks repossessed nearly 79,000 homes last month, down 10 percent from January but still up 6 percent from February 2009.

The RealtyTrac report follows an encouraging report last month from the Mortgage Bankers Association. It said the percentage of borrowers who had missed just one payment on their home loans fell to 3.6 percent in the October to December quarter, down from 3.8 percent in the third quarter.

While that was a surprising piece of positive news, foreclosures were still at record high levels. The number of borrowers who have either missed a payment or are in foreclosure was at 15 percent.

A record 2.8 million households were threatened with foreclosure last year, RealtyTrac said, and the number is expected to rise to more than 3 million homes this year.

The foreclosure crisis forced the federal government and several states to come up with plans to prolong the process so delinquent borrowers can try to find help. But those efforts have barely dented the problem. Case in point: The Obama administration’s $75 billion foreclosure prevention program has helped only 116,300 homeowners in the past year.

After a year of trying to enroll homeowners in the Obama administration’s program, housing counselors are feeling deflated.

At many of the 100 mortgage companies charged with running the program, employees still “don’t really know what the guidelines are — or refuse to adhere” to them, said Cheryl Cassell, manager of housing counseling at the National Community Reinvestment Coalition, a community group in Washington.

Foreclosed homes are typically sold at steep discounts, lowering the value of surrounding properties. Cities lose property tax dollars from homes that sit empty and lower property values.

Economic woes, such as unemployment or reduced income, are expected to be the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit, but homeowners with good credit who took out conventional, fixed-rate loans are the fastest growing group of foreclosures.

Among states, Nevada posted the highest foreclosure rate, though foreclosures there were down 7 percent from January and down more than 30 percent from a year earlier. It was followed by Arizona, Florida, California and Michigan.

The metro area with the highest foreclosure rate in February was Las Vegas.

Apartment vacancies in the U.S., which reached a record high of 7.4 percent in 2009, will fall this year as job losses stabilize and fewer new rental homes enter the market, CB Richard Ellis Group Inc. said.

The vacancy rate will decline to 6.8 percent in 2010, the property broker said in a report today. Effective rents, or what tenants pay after concessions, will end the year less than 1 percent down from the fourth quarter of 2009. Rents fell 4.7 percent in the final quarter of last year from a year earlier.

Apartments could fill up quickly as employers start hiring again and Americans in their 20s and early 30s give up sharing housing with roommates and parents, Bryce Blair, chief executive officer of apartment developer AvalonBay Communities Inc., said in an interview last month. Builders will have to ramp up rapidly to meet demand after cutting apartment starts by 58 percent last year.

“We’re seeing some stabilization in fundamentals for apartments as we do in the broader economy,” said CB Richard Ellis Senior Economist Gleb Nechayev, who expects job growth in the third quarter. “This gives us reason to be cautiously optimistic.”

Manhattan, Boston, Washington D.C., Denver, and Seattle are among the markets where rents will rise, Nechayev said.

In Boston, monthly rates will climb 2.8 percent in the fourth quarter of 2010 compared with a year earlier. Rents will increase about 1 percent in Washington and Seattle and 2 percent in Denver, he said.

The trade deficit in the U.S. unexpectedly narrowed in January as imports fell for the first time in five months, indicating demand is cooling following the fastest pace of growth in six years.

The gap shrank 6.6 percent to $37.3 billion from $39.9 billion in December as refineries imported the fewest barrels of crude oil in a decade, Commerce Department figures showed today in Washington. Exports decreased for the first time in nine months, on fewer shipments of aircraft and autos.

“The somewhat disappointing trade data seem likely to prove a brief pause in a generally improving trend,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “Trade flows are notoriously volatile from month- to-month, but declines in both exports and imports are hardly signs of economic vitality.”

After advancing at a 5.9 percent annual pace last quarter, the world’s largest economy may expand at less than half that pace in the first half of 2010, reflecting smaller gains in business investment and exports, according to economists surveyed this month by Bloomberg News. Another report showed fewer Americans filed claims for jobless benefits, pointing to a gradual recovery in the labor market.

The city’s major hospital network, which runs Miami’s only round-the-clock trauma center and is a safety net for the poor and uninsured, is running out of money and could close, a predicament that illustrates the precarious financial state of many hospitals around the country.

The Jackson Health System will have little cash on hand by the end of March if it does not receive a $67 million advance from the county, said Marcos Lapciuc, treasurer of the Public Health Trust, the institution’s governing board.

“We are very close, if not already in, a health care death spiral,” Chief Operating Officer David Small said.

Jackson could run out of cash and shut by May or sooner, Lapciuc said, and the county mayor said officials were preparing to advance the hospital some money.

“Sadly, it’s not all that unique,” Larry S. Gage, president of the National Association of Public Hospitals & Health System, said of financial difficulties like the one Jackson is facing.

US debt grew at the slowest pace on record during the fourth quarter, as households and businesses continued to deleverage, nearly offsetting another huge increase in federal debt, according to the quarterly flow of funds report released Thursday by the Federal Reserve. With businesses cutting their outstanding debt the most since 1991, nonfinancial debts increased at a 1.6% annual rate to $34.7 trillion at the end of the quarter, the smallest increase since the Fed began tracking the data in 1952. Meanwhile, household net wealth increased by $683 billion to $54.2 trillion, a 5.1% annual increase, the Fed said. [What they fail to tell you is that these figures are low because banks were writing off debt against the increase in debt growth.]

US households increased their holdings of Treasury securities to the highest level in at least two years, according to data released by the Federal Reserve on Thursday. Households held $795.2 billion in Treasuries at the end of the fourth quarter of 2009, up from $735.5 billion in the third quarter, as Americans continued to find U.S. debt an attractive investment amid continued uncertainty over the strength of the U.S. economic rebound and sovereign-debt problems abroad. That’s the highest level of holdings in any quarter since at least the beginning of 2008, according to the flow of funds data. The Fed’s household and nonprofit corporations sector include domestic hedge funds. [It is absolute fantasy to believe that American households purchased these securities. This is how the Fed is hiding their purchases of US Treasuries.]

State banking regulators on Thursday evening shut down the troubled LibertyPointe Bank, whose chairman, Shaya Boymelgreen, built more than 2,400 apartments in New York City in the last decade. The failure was the 27th in the nation this year but the first in the city in more than a decade, regulators said.

LibertyPointe, which had one branch in Manhattan and two in Brooklyn, had been struggling under the weight of bad real estate loans for many months. In mid-July, federal regulators ordered the bank to stop lending to developers and to raise cash.

But time ran out for LibertyPointe on Thursday. State regulators seized the bank and turned it over to the Federal Deposit Insurance Corporation, which struck a deal with Valley National Bank. Valley National will assume LibertyPointe’s deposits, which totaled about $210 million, and about one-tenth of its outstanding loans.

Valley National, which is based in Wayne, N.J., agreed to share losses on the rest of LibertyPointe’s loan portfolio with the F.D.I.C., regulators said. The F.D.I.C. estimated that the rescue would cost its insurance fund $24.8 million.

Gerald H. Lipkin, the chairman and chief executive of Valley National, said in a statement that the three branches would reopen Friday morning as part of Valley National’s 201-branch network. LibertyPointe’s depositors will be treated as customers of Valley National. “Our primary focus is to assure customers that their deposits are safe and remain readily accessible to them,” Mr. Lipkin said.

The recession has caused a wave of bank failures across the country, but only one bank failed in New York State in the last five years. The State Banking Department closed Waterford Village Bank, based in Williamsville, near Buffalo, in July. The last failure of a New York City-based bank occurred in December 1999, when regulators closed Golden City Commercial Bank, a small bank that had an office in Flushing, Queens, and one on Lower Broadway in Manhattan.

JPMorgan Chase & Co. and Citigroup Inc. helped cause the collapse of Lehman Brothers Holding Inc. by demanding more collateral and changing guarantee agreements, a bankruptcy examiner said today in a report.

“The demands for collateral by Lehman’s lenders had direct impact on Lehman’s liquidity pool,” said Anton Valukas, the U.S. Trustee-appointed examiner, in a 2,200-page report filed in Manhattan federal court. “Lehman’s available liquidity is central to the question of why Lehman failed.”

Former Lehman Chief Executive Officer Richard Fuld, former Chief Financial Officer Erin Callan, former executive vice president Ian Lowitt and former managing director Christopher O’Meara certified misleading statements, the report said. Fuld was “at least grossly negligent,” the report said. Lehman collapsed in September 2008 with $639 billion in assets, the biggest bankruptcy in U.S. history.

Commenting on Barclays Plc’s purchase of Lehman’s North American brokerage, Valukas said a “limited amount of assets” belonging to Lehman were “improperly transferred to Barclays.”

Kerrie Cohen, a Barclays spokeswoman in New York, and JPMorgan spokesman Brian Marchiony declined to comment. Citigroup spokeswoman Danielle Romero-Apsilos didn’t have an immediate comment. Lowitt, who is now at Barclays, didn’t immediately repond to an e-mail seeking comment. Barclays is Britain’s second-biggest bank. Citigroup is the third biggest U.S. bank, and JPMorgan is second.

Ezra Levy, a former hedge fund trader and former chief financial officer of Boston Provident Partners LP, pleaded guilty to federal charges he stole about $3 million from the Manhattan-based firm.

Levy, who was arrested in November, pleaded guilty to two schemes to defraud Boston Provident.

In federal court yesterday, Levy admitted he transferred $2.45 million from Boston Provident to his own account. He also said he had the fund buy shares of Atlas Energy Inc. and another stock at inflated prices from an account he controlled, generating a $537,000 profit.

“I used the funds to pay my personal expenses,’’ Levy, 32, told US District Judge Kevin Castel.

Boston Provident fired Levy after learning of the scheme.

Levy joined Kramer Spellman LP, which changed its name to Boston Provident in 2004, as an analyst in 2001.

Before that, he worked for Prudential Securities and SG Cowen after starting out as an accountant in a textiles firm.

Under federal sentencing guidelines, Levy, who is free on bail, faces between 63 and 78 months in prison when he is sentenced for securities fraud and wire fraud.

Sales at U.S. retailers unexpectedly climbed in February as shoppers braved blizzards to get to the malls, signaling consumers will contribute more to economic growth.

Purchases increased 0.3 percent, the fourth gain in the past five months, Commerce Department figures showed today in Washington. Figures for the prior two months were revised down, taking some of the shine off of today’s data. Sales excluding autos rose 0.8 percent, exceeding all estimates.

A report last week showing the economy lost fewer jobs than anticipated in February signaled employment is on the verge of accelerating, a development that would spur spending in coming months. Macy’s Inc. was among retailers that beat estimates last month as customers overcame the weather to shop for Valentine’s Day gifts and spring merchandise, a sign the expansion is broadening beyond manufacturing.

“The storms were apparently not quite as disruptive as anticipated,” said Adam York, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, whose forecast for a 0.6 percent gain excluding autos was the highest of those surveyed. “As we start adding jobs in the spring, employees will gain income and hours and retail sales should follow.”  [This numbers are impossible. Washington still doesn’t get it. We know they are fudging the figures]

The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening a new wave of foreclosures that could hit just as the real estate market has begun to stabilize.

About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners. And the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and then, if they can’t obtain mortgage relief, wade through the foreclosure process, which often takes more than a year to complete.

As these foreclosed properties add to the supply of homes for sale, they could undercut housing prices, which have increased modestly through December, according to the most recent figures in the S&P/Case-Shiller home prices index. That rise partly reflected a slowdown in the flow of foreclosed homes onto the market.

The rate at which J.P. Morgan Chase seized properties, for example, peaked in the middle of 2008 and fell steadily last year, according to a February investor report. But the bank expects repossessions to increase this year, nearly doubling to 45,000 by the fourth quarter.

Business inventories were unexpectedly flat in January, while sales rose to their highest level since October 2008, government data showed on Friday.

The Commerce Department said inventories were unchanged after falling by a revised 0.3 percent in December, previously reported as a 0.2 percent drop.

Economists polled by Reuters had expected a 0.2 percent rise in January inventories.

Inventories are a key component of gross domestic product changes over the business cycle and a sharp slowdown in the pace of inventory liquidation handed the economy its fastest growth rate in six years in the fourth quarter.

Business sales rose 0.6 percent to $1.05 trillion in January following a 1.0 percent increase in December. The rise in sales left the inventory-to-sales-ratio, which measures how long it would take to clear shelves at the current sales pace, at 1.25 months’ worth, the lowest since November 2007.

Manufacturers’ inventories rose 0.2 percent in January after falling 0.2 percent the prior month. Inventories at retailers fell 0.1 percent after a 0.2 percent rise in December.

Retail motor vehicle and parts inventories rose 0.5 percent after falling 0.3 percent in December. Excluding autos, retail inventories fell 0.2 percent in January. Inventories at furniture, electronic and appliance stores fell 0.3 percent after a 0.2 percent gain the prior month

BOISE – Idaho may see more budget cuts next year.

At the state of the state address back in January, Governor Otter announced the state faced an 83 million dollar budget shortfall. To pick up the slack, public areas like schools took massive cuts. Now the state is losing even more money.

Idaho has 41 million fewer dollars than Governor Otter projected back in January.
And in an already troubling economic time, that’s not a good sign for public institutions.
“The signs are not good. The fact that we’re down another 15-million dollars in February in income tax is not a good sign,” said Governor Otter. “We’ve spent most all the rainy day funds. There’s no savings like we had last year. We had the opportunity to plug some money back into the system because we had some savings accounts. We’ve spent the savings accounts.”

Confidence among U.S. consumers unexpectedly declined for a second month in March, a sign Americans are discouraged about the labor market.

The Reuters/University of Michigan preliminary consumer sentiment index fell to 72.5 from February’s final reading of 73.6. Economists surveyed by Bloomberg News projected the gauge would increase to 74, according to the median estimate.

Illinois Governor Pat Quinn is the latest Democrat to demand a tax increase, this week proposing to raise the state’s top marginal individual income tax rate to 4% from 3%. He’d better hope this works out better than it has for Maryland.

We reported in May that after passing a millionaire surtax nearly one-third of Maryland’s millionaires had gone missing, thus contributing to a decline in state revenues. The politicians in Annapolis had said they’d collect $106 million by raising its income tax rate on millionaire households to 6.25% from 4.75%. In cities like Baltimore and Bethesda, which apply add-on income taxes, the top tax rate with the surcharge now reaches as high as 9.3%—fifth highest in the nation. Liberals said this was based on incomplete data and that rich Marylanders hadn’t fled the state.

Well, the state comptroller’s office now has the final tax return data for 2008, the first year that the higher tax rates applied. The number of millionaire tax returns fell sharply to 5,529 from 7,898 in 2007, a 30% tumble. The taxes paid by rich filers fell by 22%, and instead of their payments increasing by $106 million, they fell by some $257 million.

Yes, a big part of that decline results from the recession that eroded incomes, especially from capital gains. But there is also little doubt that some rich people moved out or filed their taxes in other states with lower burdens. One-in-eight millionaires who filed a Maryland tax return in 2007 filed no return in 2008. Some died, but the others presumably changed their state of residence. (Hint to the class warfare crowd: A lot of rich people have two homes.)

Federal Reserve Bank of San Francisco President Janet Yellen is President Barack Obama’s pick for vice chairman of the central bank in Washington, two people with knowledge of the selection process said.

The nomination is pending completion of vetting by the Obama administration, one person said. The vice chairman gets a four-year term, subject to Senate approval, and a separate term on the Fed Board of Governors. The people spoke on condition of anonymity because the selection hasn’t yet been announced.

Yellen, 63, would replace Donald Kohn, a 40-year Fed veteran who resigned last week effective June 23. Yellen, who served as President Bill Clinton’s chief economist in the 1990s, said last month that the U.S. economy “still needs the support of extraordinarily low” interest rates. She would gain a permanent vote on monetary policy, instead of having a vote one year out of every three as a regional Fed chief. [She is a well-known inflationist.]

The brazenly bogus unemployment data disseminated to the news media each month by the U.S. Bureau of Labor Statistics appears to have tripped up Colorado. Although the state had reported a loss of 89,375 non-farm jobs in 2009, the actual number appears to have been much larger — 106,300, according to the latest revision.  Colorado attributes the discrepancy to the Bureau’s rosy estimates of the number of businesses that start and fail each year. Until the new numbers came out earlier this week, Colorado’s official line was that it had somehow been spared the worst of Great Recession’s effects on the labor market. Unofficially, however, the picture was never so bright. “I was surprised when they reported the numbers the first time,” Zoltan Mak, a freight-train conductor on furlough since October, told the Denver Post. “I see everybody around me scraping by and having a really hard time. I don’t think we’re any better off than any other state.”

As much could be said of the supposed economic recovery in the U.S. that we keep reading about but which few workers or businesspeople are able to corroborate.  In the Rick’s Picks chat room, for one, out of the many hundreds who log on each day, there has been only a single person who has reported an upswing in business. He lives in the Michigan rust belt, of all places, and that is why his claims have met with skepticism, to put it mildly. But here in Colorado, the notion that recession has been somewhat less severe than elsewhere is flatly contradicted by a blighted retail landscape that seems to be metastasizing with each passing week. Entire strip malls and even some larger malls in the Denver area have imploded, and in our own neighborhood, a Sam’s Club called it quits. At a personal level, nearly everyone we know with a job or a business is working harder than ever just to stay afloat, and virtually everyone who was in real estate has left the field.

JP Morgan Chase & Co. and Citigroup Inc. helped cause the collapse of Lehman Brothers Holding Inc. by demanding more collateral and changing guarantee agreements, a bankruptcy examiner said today in a report.

“The demands for collateral by Lehman’s lenders had direct impact on Lehman’s liquidity pool,” said Anton Valukas, the U.S. Trustee-appointed examiner, in a 2,200-page report filed in Manhattan federal court. “Lehman’s available liquidity is central to the question of why Lehman failed.”

http://www.bloomberg.com/apps/news?pid=20601110&sid=aH2GbcSnGE9

A one-year probe into the collapse of Lehman Brothers found “credible evidence” that top executives, including the former chief Dick Fuld, approved misleading financial statements and used an “accounting gimmick” to flatter results.

The long-awaited report by the court-appointed examiner Anton Valukas also said that there was enough evidence to claim that Ernst & Young, Lehman’s auditors, failed to “question and challenge improper or inadequate disclosures” in the firm’s results.

The 2,200-page report found some evidence that JPMorgan Chase and Citigroup might have contributed to Lehman’s slide into bankruptcy in September 2008 by demanding collateral from the struggling bank in the run-up to its failure.

Mr. Valukas’ report could pave the way for legal action by the Lehman estate, which is charged with recovering as much money as possible for its creditors, and class action lawsuits by investors who bought Lehman’s securities before its collapse.   http://www.ft.com/cms/s/0/2e412d50-2d6e-11df-a262-00144feabdc0.html

There are other bombshells in Lehman bankruptcy report.  Valukas avers that Lehman used accounting gimmicks, specifically Repo 105s, to conceal its true financial condition – leverage and exposure.

Repo 105 transactions were not used for a business purpose, but instead for an accounting purpose: to reduce Lehman’s publicly reported net leverage and net balance sheet.

As set forth more fully below, the Examiner concludes that a fact finder could find that Lehman’s failure to disclose its use of Repo 105 transactions to impact its balance sheet at a time when both the market and senior Lehman management were keenly focused on the reduction of Lehman’s firm‐wide net leverage and balance sheet, and particularly in light of the specific volumes at which Lehman undertook Repo 105 transactions at quarter‐end in fourth quarter 2007, first quarter 2008, and second quarter 2008, materially misrepresented Lehman’s true financial condition.

A trier of fact could find that Lehman’s use of tens of billions of dollars of Repo 105 transactions at quarter‐end in late 2007 and early 2008 rendered the firm’s financial statements and related disclosures materially misleading. http://lehmanreport.jenner.com/VOLUME%203.pdf

We have complained for over a decade and a half that there is blatant manipulation of markets at month end and quarter end to manufacture profits.  The practice is pervasive, if not endemic.  Yet the Fed, Treasury and other regulators allow this repeated abuse, which conceals earnings and financial conditions for many entities. PS – Derivatives’ marking-to-model is the biggest abuse in generating bogus profits.

The big question is: What other banks, hedge funds, financial subsidiaries of major corporations, insurances companies, etc. are engaged in Repo 105 or similar means to conceal their finances.

The Fed expanded its balance sheet $2.321B for the week ended on Wed by buying $2.344B of MBS and $1.5B of agencies.

The nascent US recovery could falter because businesses are still reluctant to invest in new equipment and technology, the head of global delivery and logistics company FedEx has warned.

“Business investment went up somewhat in the fourth quarter but is far below what it ought to be in a cyclical recovery like this,” Fred Smith, chairman and chief executive of FedEx, told the Financial Times…“In my opinion, for consumers to spend you have to get business investment up because that is what creates the jobs,” Mr. Smith said. “I don’t think you will see substantial increases in employment until you see substantial increases in business investment.”

To help encourage businesses to start investing again, Mr. Smith has been urging politicians to change the tax rules on capital expenditures to allow companies to recoup money earlier than in the past.

Illinois is the leader of the pack when it comes to stupidity. They have a $13 billion budget deficit and the moron who is governor, Pat Quinn, says he will only raise taxes 1% for education. He will borrow money and let unpaid bills pile up, a true politician that Illinois surely deserves.

There are an additional 7 million homes eligible for foreclosure that have not been foreclosed on. The banks are hiding them. That is a 3 plus year overhang on the market.

As we reported long ago, but no one would listen, JP Morgan Chase and Citigroup caused the collapse of Lehman Bros. by cutting off their loans. We bet there will be no civil or criminal charges. The Illuminists again devour their own.

On Thursday Citi’s volume accounted for 20% of NYSE volume and AIG was second, with Bank of America third. It is great having some 50% of daily volume in what we consider bankrupt entities.

Bob Chapman is a frequent contributor to Global Research. Global Research Articles by Bob Chapman

http://www.globalresearch.ca/index.php?context=va&aid=18105

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by Ellen Brown

Global Research, February 21, 2010

Web of Debt – 2010-02-17

While bank bailouts fatten Wall Street, states continue to battle the credit crisis. In the search for innovative solutions, some political candidates are proposing that states generate their own credit by setting up their own banks.

State budgets for 2010 face the largest shortfalls on record, totaling $194 billion or 28 percent of state budgets; and 2011 is expected to be worse. Unemployment has already officially hit 10 percent, and many economists expect it to rise higher. Continued high unemployment will keep state income tax receipts at low levels and increase demand for Medicaid and other essential services states provide. The existing alternatives are spending cuts or tax increases, but both will just serve to make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. The result is a reduction in overall demand. Tax increases also remove demand, by reducing the amount of money people have to spend.

Amanda Paulson, writing in The Christian Science Monitor, quotes Arturo Pérez, fiscal analyst with the National Conference of State Legislatures, which released its survey of state budget situations in December:

“Unless you’re North Dakota, you’re probably a state that has had some degree of difficulty or crisis involving finances. It’s the worst situation states have faced in decades, perhaps going as far back as the Great Depression in some states.”

“Unless you’re North Dakota” – a state with a sizeable budget surplus, and the only state that is adding jobs when other states are losing them. A poll reported on February 13 ranked that weather-challenged state first in the country for citizen satisfaction with their standard of living. North Dakota’s affluence has been attributed to oil, but other states with oil are in deep financial trouble. The big drop in oil and natural gas prices propelled Oklahoma into a budget gap that is 18.5% of its general-fund budget. California is also resource-rich, with a $2 trillion economy; yet it has a worse credit rating than Greece. So what is so special about North Dakota? The answer seems to be that it is the only state in the union that owns its own bank. It doesn’t have to rely on a recalcitrant Wall Street for credit. It makes its own.

Candidates Across the Political Spectrum Pick Up on the Public Bank Model

In the quest to find ways to divorce the well-being of their states from the financial sector, a growing number of candidates are picking up on the public bank alternative. Florida, Illinois, Oregon, Massachusetts, Idaho and California all have candidates whose platforms contain this proposed solution to the credit crisis.

A publicly-owned bank has also been proposed on the federal level. Nationalizing the Federal Reserve (which is not actually federal but is owned by a consortium of private banks) was advocated by 2008 Presidential candidates Dennis Kucinich, a Democrat, and Cynthia McKinney, the Green Party candidate. In 2009, Nobel laureate Joseph Stiglitz said the government would have been better off funding a federally-owned bank than doling out trillions of dollars to private investment banks and CEOs who speculated their way into bankruptcy. Speaking at the New York Society for Ethical Culture on March 6, 2009, he said:

“If we had used the $700 billion to create a new financial institution, allowed it to lever 10 to 1, which is very modest compared to the 30 to 1 that we were doing, 10 to 1 would have generated $7 trillion of new lending capacity, far in excess of what our country needs. So the issue here is not about lending. It’s really about saving the bankers. And what we confused was saving the banks versus saving the bankers and their shareholders.”

But nationalizing the Federal Reserve faces powerful opponents in Congress. Meanwhile, on the state level the public bank concept is gaining ground, attracting proponents across the political spectrum, including Democrats, Republicans and Greens. The issue transcends party lines. In North Dakota, a Republican state, the state-owned bank was inaugurated by a political party appropriately called the “Non-Partisan League.”

Oregon: The Bankers’ Bank Model

In Oregon, Bill Bradbury has included a state bank platform in his bid for governor. Bradbury, a Democrat, was formerly secretary of state and has been endorsed by former Vice President Al Gore. His website declares:

“It is time to put Oregonians back to work. It is also time to declare economic sovereignty from the multi-national banks that in large part are responsible for much of our current economic crisis. We can achieve these two goals by creating our own bank.”

The Oregonian, Oregon’s largest newspaper, reported that Bradbury plans to deposit tax revenues in the public-interest bank, keeping Oregon’s money in Oregon. The bank would then lend the money to get the economy going again, targeting small and medium-sized businesses. Interest would be poured back into the state through more loans to start-up businesses, agriculture, and other key sectors. Currently, Oregon deposits hundreds of millions of dollars in tax revenues into large out-of-state banks, siphoning the money off from productive in-state uses. Many of these banks are the very banks needing federal bailouts to keep from failing in 2008, after years of handing out risky mortgage loans. These banks have now grown tight-fisted with Main Street borrowers, making Bradbury’s plan to get money flowing again especially appealing to Oregonian voters.

Bradbury uses the Bank of North Dakota (BND) as his model. Like the BND, the Bank of Oregon would return a dividend to the state based on its earnings, while creating jobs and stimulating the economy through lending. The state bank would not replace private banking institutions but would partner with them, particularly with community banks, providing them with new customers and helping them provide new services. To assure the state bank’s independence from existing financial powers, Bradbury proposes that a board of directors appointed by Oregon’s Senate should govern the bank, while taking advice from an advisory committee of experts.

Idaho: Keeping State Assets in the State

In Idaho, James Stivers, a Republican candidate for the State Senate, has also proposed a state bank to fill state coffers and protect the local economy. In the first indication of a political shift among grassroots Republicans, Stivers swept a closed-ballot preference poll at the GOP District 2 Central Committee meeting in Coeur d’Alene on February 13, winning the non-binding poll 10-0. Stivers declares:

“An important part of sovereignty is the monetary authority. Currently, banks are allowed to multiply many times over the tax receipts deposited in their institutions. This special privilege is partly responsible for the ‘sucking sound’ in our local economies, as regional banks send their assets to central banks that are playing the derivatives markets of the world.

“A state bank would restore this privilege to the people in a public trust and would give us the opportunity to back our deposits with the wealth from our public lands.”

Stivers sees the bank as a way to facilitate small business startups, end the ability of private banks to cream profits from the public treasury, protect key budget items, and stave off excessive influence from the federal government. He suggests the novel approach of expanding the role of Idaho’s Bond Bank authority into a full-fledged state bank. The current banking system, he says, causes inflation, one of the “greatest detriments to a living wage”:

“Inflation is caused by the secret tax of the banking industry in which lenders use the multiplier effect to the benefit of their cronies.  This secret tax takes the form of a decline in the value of the dollar and results in higher prices. Wages never keep up with this process because its very purpose is to extract wealth from the wage earner to support the privileged classes who curry the favor of lenders. A state bank would restore this privilege to the people in a public trust and would give us the opportunity to back our deposits with the wealth from our public lands.”

Illinois: Using a State-owned Bank to Fund Infrastructure

In Illinois, Green Party gubernatorial candidate Rich Whitney has other ideas for a state-owned bank. Illinois is listed by the Pew Center for the States as one of nine states confronting historic budget problems. In a recent response to the governor’s State of the State Address, Whitney said:

“I am the only candidate in this race who proposes to fund public improvements, and promote economic health, without any further tax increases, through the establishment of a state bank, a progressive idea that North Dakota adopted years ago, and that has helped keep that state debt-free even in these troubled economic times. Instead of going into more and more debt, to further enrich private banks, we should be using our tax revenue to further invest in our own State and its people, for the enrichment of our own economy.”

The bank would use tax revenues and pension contributions as the financial base to expand credit where it is most needed. Illinois’ bank would borrow from the Federal Reserve at the same 1 percent rate as commercial banks. Once the budget was balanced, Whitney’s top priorities would be to use the new money to modernize energy infrastructure and promote solar and wind power. To achieve this, property owners of land where wind and solar generators could be located would be lent money through the state bank at a minimal 1 percent interest rate. To secure repayment, Whitney would require utilities to buy power from the solar and wind-based producers at a premium rate. One option would then be to require part of this premium to be paid to the state bank until the loan is returned. This arrangement, says Whitney, would create a win-win situation:

“The bank is paid back. The homeowner, farmer or business investing in solar or wind generation realizes immediate savings on energy costs and in many cases will go from being a net consumer to a net producer of energy. Their greater income will further stimulate the economy. The utilities will have to pay the cost of the premium rate but in the long run will realize the benefits of having a greater, stable, more diversified and decentralized energy grid, ultimately cheaper in the face of rising fossil fuel prices. As economies of scale are realized in wind and solar power generation, the costs will fall, as will the necessary premium rate. And we all benefit from the reduction in greenhouse gas emissions.”

Florida: The Commercial Bank Model

Economist and author Farid Khavari, a Democratic gubernatorial candidate in Florida, proposes a state-owned bank that would lend directly to borrowers. The Bank of North Dakota usually uses a “lead lender” such as a bank, savings and loan company, or credit union rather than doing commercial lending directly. Dr. Khavari maintains that the Bank of the State of Florida could be launched at no cost to taxpayers by using the state’s assets as the reserves for making loans, employing the same fractional reserve lending rules used by private banks today. In this way, he says, the bank could drive an “economic miracle” in Florida, instigating massive job creation, cutting costs in half or more, providing low interest financing to homeowners and businesses, and improving teacher salaries and care for veterans and the elderly, while at the same reducing taxes. He explains:

“The economy is collapsing due to lack of demand. The economy needs money, but the banks are cutting credit, and then sucking all the cash out of the economy by raising interest rates to make sure no one has any cash left at the end of the month. The cost of interest is built into the cost of everything. People already work ten years of their lives just to pay interest in one form or another. The Bank of the State of Florida will end that for Floridians. And this model will work for every state. . . .

“We can pay 6% interest on savings. Using the same fractional reserve rules as all banks, we can create $900 of new money through loans for every $100 in deposits. We can loan that $900 in the form of 2% fixed rate 15-year mortgages, for example, and the state can earn $12 every year for every $100 in deposits. That means Floridians can save tens of billions of dollars per year while the state earns billions making it possible for them.

“State and local government budgets will balance without higher taxes when the BSF cuts interest costs. 6% BSF credit cards will save people billions per month, money that stays in Florida instead of going to the big banks—and the state will make huge profits on that, too.  Saving billions in interest costs will create millions of jobs without subsidies just by keeping those billions circulating in Florida. Eventually the state will earn enough to reduce and eliminate state and local taxes while every Floridian has economic security in a recession-proof Florida.”

The Federal Reserve states on its website that the banking system as a whole leverages $100 in deposits into $900 in loans, but whether a single bank can do it alone has been challenged. Critics say that while banks do create money as loans, they have to replace the deposits when the checks leave the bank in order for the checks to clear. How this all works is a bit complicated and will be the subject of another article, but suffice it to say here in response that if a bank does not have the deposits to cover its outgoing checks, it borrows from the interbank lending market at very low rates, or issues commercial paper or CDs; and the state bank could do the same thing. It would not be fighting with the other banks for old deposits. Loans create new deposits, which can be borrowed back from the pool of “excess deposits” thereby created. Ninety-seven percent of the money supply has been created by commercial banks by turning loans into deposits, but that credit machine has frozen up. A state bank could get it flowing again.

California: Catching the Wave

California leads the nation in the sheer size of its budget gap. It too now has a gubernatorial candidate proposing to alleviate the state’s credit woes with a state-owned bank. Running on the Green Party ticket, Laura Wells is a former financial analyst who received 420,000 votes in her 2002 bid for State Controller, more than any other Green Party candidate has earned in a partisan statewide race. According to her website:

“Rather than drowning in debt and begging Wall Street for loans, California can institute a State Bank that invests in California’s infrastructure, and future generations.”

She stated in a comment, “A state bank for California is part of my platform as a candidate for the Green Party nomination for Governor. I ran for State Controller to ‘Follow the Money.’ Now, we need to Fix the Money. A state bank would keep California’s wealth in the state. Rather than invest in Wall Street (we’ve hit the wall on that one) we can invest in our infrastructure and our future generations.”

Legislative Proposals

It is not just political hopefuls who are exploring the public bank option. Therese Murray currently presides over the Massachusetts State Senate. She has introduced legislation that would study the formation of a state-owned bank with the principal aim of boosting job creation in the state. Massachusetts now faces a 9.4 percent unemployment rate. “It wouldn’t be in competition with our small community banks,” she says. “We’ve got to free up some credit, and mortgage companies and banks have got to do a better job of allowing people to redo their mortgages.”

In Virginia, Congressman Bob Marshall, a Republican, introduced a bill in January to study whether to establish a bank that was owned, run, and controlled by the state. However, the plan was tabled in committee.

On February 16, the front page of the Huffington Post featured an article on the Bank of North Dakota and the precedent it sets for financially-strapped states. Besides political candidates promoting this option, it noted that a Washington State legislator and a Vermont House committee were exploring it.

North Dakota hit the Wall Street wall in 1919, when the Bank of North Dakota was established by the state legislature specifically to free farmers and small businessmen from the clutches of out-of-state bankers. For over 90 years, it has demonstrated the success of the public banking model. Other credit-choked states are finally taking notice and devising their own variations on the theme.

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com, www.ellenbrown.com, and www.public-banking.com.

Ellen Brown is a frequent contributor to Global Research. Global Research Articles by Ellen Brown

http://www.globalresearch.ca/index.php?context=va&aid=17732

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How can there be a recovery with the threat of mounting unemployment?

by Bob Chapman

Global Research, January 24, 2010

The International Forecaster – 2010-01-23

Few professionals are yet willing to admit we have been in a depression for the last year.
You have to understand the position that economists and analysts are in. They work for corporations, insurance, Wall Street, banking and government and if they thought we were in a depression and they publicly announced that all chances for advancement would be lost or they would be squeezed out of the firm or simply fired.
Under such circumstances can you ever expect that you get the truth? We don’t think so. Furthermore the depression we are enveloped in is far from over. The recession encompassed a drop in real GDP in the midst of a credit crisis. The crisis was the result of over-extended credit, prohibitively low interest rates, massive speculation by banks, brokerage houses, insurance companies, and corporations worldwide. It just didn’t happen it was planned that way. We saw that recently in testimony before Congress when CEOs of these financial firms admitted they made a mistake in the process of enriching themselves.
The worst sin was the criminal securitization of mortgages and the deliberately criminal mislabeling of their ratings. Then making matters worse those who sold this toxic garbage to their clients such as Goldman Sachs, JP Morgan Chase and Citigroup were shorting the product that they had just sold to their best clients. What kind of monsters are these people? Unethical doesn’t go far enough. It was criminal. These are the same characters, along with the Fed, and others, who gave us the dotcom boom and collapse and then foisted the real estate boom on our economy. The result has been deflating assets and contracting credit offset by massive lending, money and credit creation by the Fed and monetization, all temporary expedient measures, which in the context of history has led to failure. This has been in process for seven years. This second major abuse of our system in 14 years has presented a terrible dilemma and that is where we are today. Our monetary policy hasn’t worked and won’t work and there has been and presently is little fiscal control in Washington. This is no normal recession; it is a depression.

We have zero funds rates and up until six months ago M3 expansion of more than 17%. The Fed has monetized trillions of dollars of Treasuries, Agencies and toxic waste and now we are told we are in recovery – the worst is over. We wish we could agree, but we can’t. We are reenacting the same mistakes of the past all over again. Unemployment is close to the depression levels of the “Great Depression” and is still expanding albeit more slowly. Money velocity has fallen even after the massive infusion of aggregates. Liquidity is not flowing into the economy it is pouring into Wall Street to aid and abet more speculation, which has sent the Dow from 6600 to 10,700. This game cannot be played indefinitely. Wall Street cannot continue to prosper as the economy remains stagnant, and unemployment climbs higher.

The market is grossly overpriced and the effect of favorable news will begin to wane. It should be noted that insiders are selling into the never-ending rally, and mutual funds have very little money flow coming into the funds. That, of course, is our government at work manipulating the market. Just last week insiders bought $18 million worth of shares and sold $419 million.

This to us is more proof that the stock market is the most overvalued since September 1987, which brought about the market collapse of 10/19/87 and resulted in August 1988 in the Executive Order, “The President’s Working Group on Financial Markets,” which has led to market manipulation and the end of free markets.

That and the bailout of banks, brokerage firms and insurance companies too big to fail, those same entities carrying two sets of books as authorized by the BIS, FASD and the SEC, government purchase of stock in selective Illuminist controlled companies, and government control of the mortgage and real estate markets. This give you corporate fascism at its finest. We see intervention everywhere and that is not free markets.

How can there be a recovery with 22.5% unemployment, and with the additional threat of further unemployment? Who will buy the new housing and the tremendous inventory overhand? What will happen to the commercial inventory building up? Who has money in America to buy cars and trucks? Credits to buy housing for subprime and ALT-A buyers will end up with a 50% failure rate. Cash for clunkers was a colossal failure. Such exercises in futility only buy time, just as stimulus packages, and monetization do the same thing. The elitists behind the scenes know this just as we know this. That means the colossal deficit increase of $1.4 trillion a year will add 10% yearly to the federal debt to GDP ratio that will be over 100% by 2011. The tax liability to service this debt will be overwhelming. Government debt is rising exponentially and if further stimulus is not added the credit crisis will be renewed. This is why the Fed cannot remove further liquidity from the financial system, especially after having taken M3 from 17 to 18% to 6%. Incidentally, England and the ECB have done the same thing, and they still see rising inflation. If further stimulation is not forthcoming, or war, or default comes, we will see inflation reverse and deflation take over and that could last for ten years or more. This deflation, if allowed to take its course, will cause losses of $12 to $15 trillion from the economy and cause unemployment to rise to 40% to 50%. That would also entail cutting extended benefits. That would give us the scenes we saw in the 1930s. The debt we are facing knows no precedent in modern times, and there is no possible way it can be paid.

Bad debt is piling up again in residential and commercial real estate as well as in personal and business debt. This in part is why lenders are not talking about it if they can help it, but they are not lending. Without further lending increases the economy cannot function efficiently because it is so dependent on credit. That means higher unemployment, fewer buyers and a slower economy. If you think foreclosed inventory is bad now wait until the second wave hits and it is going to hit. If you are under water on your mortgage you do not care anymore. You stop paying your mortgage and you live rent-free for a year or more. There is no longer any stigma to walking away or going bankrupt. All the Mickey Mouse games being played by government to keep people in their homes are not going to work. Subprime and ALT-A loans are not the answer. They start going into default in a big way next year as the taxpayer again foots the bill.

The public is catching on. You saw this in Virginia, New Jersey and this week in Massachusetts. The public, a liberal public at that is trying to tell government we have had enough and we want the truth, not more lies. How bad is it? The Tea Party has spoken,, driven by talk radio and the Internet. The moment of truth is upon us. Each passing day brings us closer to facing the music.

Where does the accumulation of debt end? For the two fiscal years ended 9/30/99, the public increased Treasury debt $5 trillion to $7.5 trillion or by 50%. The Fed has purchased 80% of Treasury debt yoy, increasing the monetary base from $850 billion to $2 trillion, which includes Agencies and MBS. Seeking cover on their announcement, they said on Christmas they would supply unlimited funds for three years to Fannie Mae and Freddie Mac. Government liabilities made in behalf of the American taxpayer since the third quarter of 2007 have jumped 61% to $3.62 trillion. It is our opinion that the inflation caused by funding and monetization over the next decade will be very disruptive and expensive to US dollar users as purchasing power falls. That translates into an additional loss in buying power of some 50%.

If liquidity stays at current levels the stock market will fall as it flourishes on increasing liquidity. In addition, higher inflation rates tend to push stocks lower. If we are correct and there is a second credit crisis ahead of us, M3 will rise again and monetization will be pushed into high gear again.

Meredith Whitney, the banking analyst who forecast bank shares would fall in June of 2008, said plans to limit risk-taking at financial companies will probably be approved and may dramatically reduce trading profits.

JP Morgan Chase and Goldman Sachs as a result may have to sell some private-equity business and stop investing in buyouts under a proposal by the President. He wants to prohibit banks from owning or making investments in private-equity and hedge funds.

The banks make their money trading for their own accounts. They won’t have much in the way of earnings if legislation passes, the largest manipulations in history would come to an end.

The President has called for limiting the size and trading activities of financial institutions to prevent risk taking and another financial crisis. He also said there should be no proprietary trading. We are told Goldman Sachs will benefit from the President’s proposal to limit Wall Street risk by forcing deposit-taking banks to unwind trading operations.

Again the commercial paper market fell by $10 billion to $1.092 trillion. Asset-backed commercial paper rose by $3.5 billion to $430.0 billion.

Unsecured issuance fell by $9.9 billion versus rising $12.7 billion in the prior week.

Democrats have completely lost their moorings. They want to allow government to borrow an additional $1.9 trillion to put the national debt at $14.3 trillion. It would need 60 votes to pass.oqHo

Food prices are roaring upward again as the PPI rose 0.2%. That is a 4.4% gain month-on-month.

Housing starts were 575,000 and building permits rose 653,000. Starts fell 4%. How can any sane builder be building when official and bank hidden inventories are well over a year. Groundbreaking fell a record 38.8% to an all-time low of 553,000 units. Single-family starts fell 6.9% in January. New building permits rose 10.9% for all of 2009 permits fell 36.9%. A Florida builder who was going to build 5,000 units declared bankruptcy yesterday.

Americans haven’t been fooled by the Dow’s rise. What they see ahead are more taxes. Economists may see the recession as being over, but the man on the street does not. Roughly 60% of the public believes the recession still has a way to go,

a NBC/Wall Street Journal poll reported last October.

There are sound reasons for this gloom. Consumers have learned a bitter lesson. They understand that increased consumption—private and public—will have to come from income and not borrowing, and income will have to come from employment. Today, mainstream Americans are going on a financial diet amid deteriorating family finances. By 2008, suburbs were home to the largest and fastest-growing poor population in the country.

Between 2000 and 2008, suburbs in the country’s largest metro areas saw their poor population grow by 25 percent—almost five times faster than primary cities and well ahead of the growth seen in smaller metro areas and non-metropolitan communities. As a result, by 2008 large suburbs were home to 1.5 million more poor than their primary cities and housed almost one-third of the nation’s poor overall.

Midwestern cities and suburbs experienced by far the largest poverty rate increases over the decade. In 2008, 91.6 million people—more than 30 percent of the nation’s population—fell below 200 percent of the federal poverty level.

The timing was political: the president spoke on the day that Goldman Sachs announced fourth-quarter earnings of $4.95bn. Those of a more populist nature than Mr. Obama – both on the left and on the right – will say that he comes late to the game

Indeed, the White House and the US Treasury resisted the backlash against bankers earlier in 2009 – they opposed the punitive tax proposed in the House of Representatives. Instead of using the control they enjoyed over the banks through the troubled asset relief program in 2009, the authorities rushed to free banks from the restrictions associated with Tarp.

Mr. Obama may now be ruing this lost opportunity. The public mood has swung against Wall Street – to which Mr. Obama appears too close for comfort. Trillion-dollar bailouts for people on million-dollar salaries have infuriated Americans living in fear of losing their jobs and their homes.

Sheila Bair, one of the chief regulators overseeing Bank of America’s federal rescue, took out two mortgages worth more than $1 million from the banking giant last summer during ongoing negotiations about the bank’s bailout and its repayment.

In the weeks between the closings on her two mortgage loans, Bair met with Bank of America’s chief negotiator in the bailout talks. To avoid conflicts of interest, the Federal Deposit Insurance Corp., which Bair heads, prohibits employees from participating in “any particular matter” involving a bank from which they are seeking a loan. [Is it stupidity or arrogance that induces solons to flaunt law & ethics?]

In the depths of the crisis, the Fed shipped more than $500 billion overseas through arrangements with other central banks, in exchange for their currencies. Such lending is down sharply and officials expect to end the program according to plan on Feb. 1. As of January 13, the Fed held $5.9 billion in dollar "swap" agreements with foreign central banks, down from $63 billion in early September and $583 billion in late December 2008 as the financial crisis was worsening. [This is very important. Without the swaps supporting the dollar in the Forex and buying Treasuries by foreign central banks will recede. The dollar will fall and there will be more monetization.]

The Fed balance sheet for the week ended yesterday declined $39.849B (Expiry has passed!) due to a TAF decline of $37.387B. Only $38.351B remains in TAF.

The Treasury on Thursday announced auctions to sell a total of $166 billion in securities in a range of offerings next week.

Brown’s victory in Massachusetts not only torpedoes Obamacare, it kills ‘cap & trade’, global warming and a host of other socialistic proposals. (You might want to reconsider your holdings of GE, GS and other cap & trade plays.). It also kills further Wall Street bailouts and impairs CEOs that have pandered to President Obama – Yes, this means you Jamie Dimon, Jeff Immeltdown, Buffett and the Google geeks.

The ginormous upset in the People’s Republic of Massachusetts – Tiananmen II – implies that the GOP could capture the House and possibly the Senate in 2010. Now that all but the safest Democratic House seats are in play, reputable GOP candidates will surface and money will pour into GOP coffers.

The same dynamic is likely to occur if the GOP takes one or both houses of government in November. First stocks will rally but then the medicine will be administered and the results will be extremely bitter.

Please keep this in mind as various blowhards spew ‘start of another massive bull market’ rhetoric. The dynamic behind any GOP revolution is limited government and no more bailouts. A new Congress will institute some degree of limited government, which might include handcuffing the Fed.

The Massachusetts unemployment rate surged by nearly a point in December, driving joblessness to its highest level since the 1970s and dealing another setback to a labor market that appeared to be on the mend.

The state unemployment rate leaped to 9.4 percent from 8.7 percent in November, more than reversing two previous months of significant declines, the Executive Office of Labor and Workforce Development reported. It is the highest rate since August 1976, when the state was recovering from the energy crisis recession that began in 1973 after the Arab oil embargo.

Massachusetts employers, meanwhile, slashed another 8,400 jobs, the most since September. Since the recession began in March 2008, the state has shed more than 136,000 jobs, including 66,000 in 2009.

Under plan, NYC Aid Would Be Slashed By $800 Million; New Soda And Cigarette Tax Proposals Already Angering Masses Governor David Paterson said Tuesday that the days of profligate spending in Albany are over and that starting immediately lawmakers must participate in an "age of accountability”… the governor’s new budget has $1 billion in new taxes and nearly $800 million in cuts for New York City.

Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $1.9 trillion to pay its bills, a record increase that would permit the national debt to reach $14.3 trillion.

The unpopular legislation is needed to allow the federal government to issue bonds to fund programs and prevent a first-time default on obligations. It promises to be a challenging debate for Democrats, who, as the party in power, hold the responsibility for passing the legislation.

A 1.2% decline in light truck prices pulled core lower. Consumer prices, an actual cost to consumers unlike an accounting entry like light trucks, increased 0.3%. Food prices jumped 1.6%.

But inflation in the pipeline jumped. Intermediate goods prices (both headline & core) rose 0.5%. Crude prices jumped 1.0% headline and 5.0% core in surging commodity prices.

Columbia University professor Joseph Stiglitz, a Nobel Prize-winning economist, said the U.S. should inject a second round of stimulus spending into the economy to avert a “double-dip” recession.

It will be “2012 or 2013 at the earliest that we will be back to normality,” Stiglitz said in an interview today on Bloomberg Television. “This is a scenario that is putting us a little better but not much better than the Japanese malaise.”

Releasing its first global economic forecasts since June, the World Bank was more upbeat about this year’s outlook, with the rate of recovery expected to reach 2.7% instead of 2%. The contraction in 2009 was also estimated to be more modest than expected, a drop of 2.2% instead of 2.9%.

The 2011 forecast was left unchanged at 3.2%. But the bank painted a more sobering picture for next year and beyond, as credit conditions remain tight and governments start to withdraw extraordinary support measures.

"If the private sector continues to save in order to restore balance sheets, a double-dip recession, characterized by a further slowing of growth in 2011, is entirely possible–especially as the growth impact of fiscal stimulus wanes," the bank said.

Goldman Sachs Group Inc. responded to intense criticism of big Wall Street paychecks by putting less money into its bonus pool, a move that helped it earn a record $4.79 billion fourth-quarter profit.

The big bank said yesterday that it rewarded employees with $16.2 billion in salaries and bonuses for 2009. That’s up 47 percent from the previous year but much lower than many expected. In all, compensation accounted for 36 percent of Goldman’s $45.17 billion in 2009 revenue, the lowest annual ratio since the company went public in 1999. In 2008, Goldman set aside 48 percent of its revenue to pay employees.

The company is also shifting more pay into deferred stock, allowing it to hold off recording compensation costs for years.

The pay restructuring helped the bank easily top analysts’ earnings estimates. Goldman earned $8.20 a share in the last three months of the year, well above the $5.20 a share expected by analysts surveyed by Thomson Reuters.

The $4.79 billion profit was the biggest quarterly gain ever for the New York-based bank. The previous record was $3.16 billion in the fourth quarter of 2007, as the bull market on Wall Street was peaking.

Trading of fixed income, commodities, and currencies buoyed Goldman’s profits for the third straight quarter. The bank also reported higher fees from underwriting stock and debt offerings.

Berkshire Hathaway reinsurer General Re agreed to pay almost $100 million to settle several charges and a lawsuit related to its involvement in accounting frauds by American International Group and Prudential Financial, the Securities and Exchange Commission said Wednesday.

Gen Re agreed to pay $12.2 million to settle SEC charges that it helped AIG (AIG 28.01, +0.05, +0.18%) and Prudential (PRU 53.70, +0.08, +0.15%) manipulate and falsify their financial statements, the regulator said.

News Hub: Has commercial real estate bottomed?

Commercial real estate values fell so sharply that some analysts believe the prices may have stabilized, Christina Lewis reports.

Gen Re will also pay $19.5 million to the U.S. Postal Inspection Service Consumer Fraud Fund as part of a nonprosecution agreement unveiled by the Department of Justice, the SEC said. That was related to a criminal investigation into Gen Re’s transactions with AIG.

Gen Re also agreed to pay $60.5 million to settle a class-action lawsuit on behalf of injured AIG shareholders. Gen Re also forfeited to the government roughly $5 million in fees it got from helping AIG falsify its financial statements, the SEC said.

Berkshire (BRK.A 104,500, +300.00, +0.29%) (BRK.B 3,492, +15.99, +0.46%) bought Gen Re in 1998. The acquisition has been one of Chairman Warren Buffett’s most troubled deals. Read about Gen Re and Berkshire.

The settlements stem from an accounting scandal that erupted at AIG during the previous decade, before the insurance giant almost collapsed and had to be bailed out by the government. The controversy led to the departure of longtime AIG Chief Executive Maurice "Hank" Greenberg.

The SEC alleges that a foreign subsidiary of Gen Re entered into two "sham" reinsurance transactions with AIG in 2000. The contracts allowed AIG to falsely report rising loss reserves and premiums written, the regulator claimed. AIG paid more than $800 million to settle the charges.

Gen Re also arranged a series of "sham" reinsurance contracts with Prudential’s property and casualty division from 1997 to 2002. The deals helped Prudential improperly recognize more than $200 million in revenue in 2000, 2001 and 2002, the SEC said. Prudential was separately charged with securities law violations in 2008, the regulator noted. [As you can see, members of the illuminati never go to jail; they just buy their way out. Warren Buffett and Maurice Greenberg are both crooks. If you or I did what they did we’d be doing 10 years in the slammer. This is a national disgrace that these people can get away with this. It is simply horrifying. Bob]

California is poised to become the first state to set time limits for doctors to see patients, the Department of Managed Health Care said.

Regulations to be announced today require family practitioners in health maintenance organizations to see patients seeking an appointment within 10 business days.

The deadline for specialists is 15 days.

A patient seeking urgent care that does not require prior authorization must see a doctor within 48 hours.

However, doctors can extend the waiting period if they determine it will not harm the patient’s health.

The rules, set to take effect in January 2011, “set reasonable expectations about when care should be provided,’’ said Cindy Ehnes, Department of Managed Health Care director.

The regulations follow years of negotiations among state officials, doctors, hospitals, HMOs, and consumer and health care activists. A 2002 state law mandated more timely access to medical care but didn’t provide specifics.

The rules could be an important change for the 21 million Californians who subscribe to HMO plans, state officials said.

The gap in productivity growth between the United States and Europe widened sharply as US businesses were more aggressive in laying off workers and pushing their remaining employees to be more efficient, according to a business research group. Growth in productivity is the key factor in rising living standards.

In a new report, the Conference Board estimated that productivity – the amount of output per hour of work – rose in the United States by 2.5 percent in 2009 while productivity was falling by 1 percent on average in the euro area, the 16 European nations that use the euro currency.

The Conference Board said in a report to be released today that the gap would narrow in the current year but the United States would still outperform much of the euro area.

The Federal Housing Administration plans to increase the amount of up-front cash paid by all new borrowers and to require higher down payments from those with the poorest credit, according to agency officials.

These policy changes, scheduled to be announced on Wednesday, are part of the agency’s effort to beef up its ailing finances, which have been eroded by rising defaults in its increasingly popular flagship mortgage insurance program. The FHA currently backs about 30 percent of all loans for home purchases and 20 percent of refinanced loans.

Under this plan, the agency would increase the up-front insurance premium that borrowers pay at the closing table from 1.75 percent to 2.25 percent of the loan’s value starting this spring.

While most FHA borrowers can continue to make down payments of as little as 3.5 percent when they take out a loan, those with a credit score of less than 580 will have to make a down payment of at least 10 percent, possibly starting in the early summer.

The agency also plans to propose limits on the amount of money sellers can kick in, including by paying closing costs or giving free upgrades. The agency will reduce seller concessions from 6 percent to 3 percent of the home’s value, in line with the industry norm, this summer.

EVER SINCE his inauguration a year ago, President Obama has tried to motivate Congress with a strong ultimatum: Pass climate-change legislation, or the Environmental Protection Agency (EPA) will use its authority under the Clean Air Act to curb carbon emissions without your input.

Instead of accepting this as a prod toward useful action, Sen. Lisa Murkowski (R-Alaska) apparently wants to disarm the administration. This week she is set to offer a measure, perhaps as an amendment to a bill raising the federal debt ceiling, that would, one way or another, strip the EPA of its power to regulate carbon emissions as pollutants, perhaps for a year, perhaps forever. We aren’t fans of the EPA-only route. The country would be better off if Congress established market-based, economy-wide emissions curbs. But hobbling the agency isn’t the right course, either.

If Congress fails to act, carefully administered EPA regulation of carbon emissions could ensure that America makes some real reductions, if not necessarily in an optimally efficient manner. If Congress passes climate legislation, the EPA’s role, if any, could be tailored to work with a legislated emissions-reduction regime. So removing the EPA’s authority now is at least premature. The correct response to the prospect of large-scale EPA regulation is not to waste lawmakers’ energy in a probably futile attempt to weaken the agency. Instead, the Senate should provide a better alternative.

That effort is already fraught. The best policies — a simple carbon tax or cap-and-trade scheme — aren’t gaining steam. Instead, the House passed a leviathan bill, and the Senate is stalled. Majority Leader Harry M. Reid (D-Nev.) indicated last week that he fears Ms. Murkowski’s measure will diminish chances of producing a bipartisan climate-change bill. Ms. Murkowski would do better by helping end the Senate’s paralysis than by seeking to condemn the rest of government to the same inaction.

The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index rose 2% in the week ended Saturday from the week before on a seasonally adjusted, comparable-store basis.

The increase–the biggest in the past month–came as consumers "headed to discounters to fight the post-holiday blues," ICSC said. The group noted that January is a low-volume month and can be affected by small swings.

"Sales shifted towards discounters during this past week, which helped to lift the week-over-week pace," added ICSC chief economist Michael Niemira.

Last week, ICSC said consumers after the holidays had tended not to purchase items unless they were on sale.

Niemira also reiterated that January industrywide comparable-store sales are likely to be flat to up 1% "as lean inventories and the lack of the consumer’s need to shop will keep sales moderate for the month."

On a year-on-year basis, the reading rose 2.6% last week.

Building permits in the U.S. unexpectedly jumped in December, signaling gains in housing will be sustained into 2010 after winter weather depressed construction at the end of last year.

Applications rose 11 percent to a 653,000 annual rate last month, the most since October 2008, the Commerce Department said today in Washington. Work began on houses at a 557,000 pace, down 4 percent from November.

Wholesale prices in the U.S. rose at a slower pace in December, showing the economy is recovering without the immediate threat of inflation.

The 0.2 percent increase in prices paid to factories, farmers and other producers followed a 1.8 percent jump in November, according to Labor Department data released today in Washington. The gain was more than anticipated and reflected higher food costs. Excluding food and fuel, so-called core prices were unchanged.

Senate Democrats are to seek an increase to the federal government’s borrowing limit by $1.9 trillion lifting the total amount the U.S. government can owe to $14.294 trillion, several congressional aides said Wednesday.

The increase is forecast to support the federal government’s borrowing needs the end of 2010, one Senate Democratic aide said.

The borrowing hike comes fast on the heels of a $290 billion increase to the debt ceiling agreed to by lawmakers at the end of 2009.

This is not a perfect world, and there will be no way out of the current crisis – which has been decades in the making – without even more pain. But best to suffer the pain sharply than to drag it out like the death of a thousand cuts, as will be the case if we remain on the path of perpetual spending we are now on.

Ohio’s unemployment rate has edged up to 10.9 percent for December, from 10.6 percent the month before.

The U.S. government’s move to deepen its ties to mortgage-finance giants Fannie Mae and Freddie Mac by agreeing to absorb unlimited losses for the next three years is igniting a debate over whether it should bring the business operations of the companies onto its books.

A decision on how the government treats Fannie and Freddie could have broader political implications. So far, the White House has resisted calls by Republicans to bring Fannie’s and Freddie’s obligations onto the government’s books, a move that could boost the federal deficit by tens of billions of dollars. At a time when the deficit is already at a postwar high, that could create added urgency for Congress and the administration to address the companies’ future.

The Congressional Budget Office has reiterated its support for bringing the companies onto the federal budget—and onto the government books—which would effectively mean accounting for their operations in the federal budget as if they were federal agencies.

Manufacturing conditions in the Philadelphia Fed area have continued improving in January, although at at a slower pace than in December, according to the latest Business Outlook Survey by the Federal Reserve of Philadelphia.

The Philly Fed current business conditions Index has eased to 15.2 in January from 22.5 in December, somewhat below the 18.2 index forecasted by market analysts.

New orders and business indexes have continued growing although also at a slower pace than in December. New orders Index dipped to 3.2 in January from 6.5 in December, while shipments Index dropped to 11.0 from 15.3 in December.

The Leading Economic Index for the US grew to 1.1% in January from 0.9% in December. This result marks the ninth consecutive month of gains in the index and is ahead of forecasts of a slight decline to 0.7%.

The number of U.S. workers filing new claims for jobless benefits unexpectedly rose last week – an increase a U.S. Labor Department economist said is partly due to an administrative backlog in processing claims.

Total claims lasting more than one week, meanwhile, declined.

Initial claims for jobless benefits rose by 36,000 to 482,000 in the week ended Jan. 16, according to the Labor Department’s weekly report Thursday. The previous week’s level was revised upward to 446,000 from 444,000.

Economists surveyed by Dow Jones Newswires expected a decrease of 4,000 initial claims.

The four-week moving average, which aims to smooth volatility in the data, also increased as well last week. The Labor Department said the four-week moving average increased by 7,000 to 448,250 from the previous week’s revised average of 441,250.

The loan troubles of many U.S. consumers weighed down fourth-quarter results at Bank of America Corp., Wells Fargo & Co. and U.S. Bancorp, but bank executives predicted loan losses are near a peak.

The three banks hold a combined 24% of all U.S. deposits and operate more than 15,000 retail branches, making them important barometers of consumer sentiment and the health of the U.S. banking industry.

The Treasury Department asked bond dealers on Friday what, if any, impact the Federal Reserve’s completion of its mortgage-related security purchases will have on bond markets, and financial markets more broadly. The Fed has said it would buy $1.425 trillion by late March. Before each quarterly debt refunding, the department meets with its primary dealers to discuss supply issues and anything else affecting the markets. The request came in its survey of dealers before that meeting. Estimates on how much mortgage rates may rise after the purchases end, including from the last committee meeting, range as high as one percentage point.

As Goldman Sachs prepared to announce its fourth quarter earnings and employee compensation levels yesterday, the bank had bomb-sniffing dogs and police barricades on hand at its New York City headquarters, the New York Post reports.

The decision to boost security as its offices was apparently driven by growing fervor over the bank’s huge profits and bonuses. Yesterday, the bank announced that it earned $13.4 billion for the year, and set aside $16 billion for employee compensation. Goldman was widely expected to set aside approximately $20 billion for employee pay, but CFO David Viniar suggested yesterday in a call with reporters that the bank wasn’t blind to the "pain and suffering in the world" and "wasn’t deaf to the calls for restraint."

Viniar’s remarks indicate an abrupt change in tone among Goldman Sachs execs. In November, CEO Lloyd Blankfein — who had previously bragged that the bank was doing "God’s work" — said the following at an industry conference:

I often hear references to higher compensation at Goldman. What people fail to mention is that net income generated per head is a multiple of our peer average. The people of Goldman Sachs are among the most productive in the world."

Despite what seems to be a new concern among the firm’s leaders about the PR implications of Goldman’s banner year, the bank’s announcement of the pay packages that individual executives receive will be closely scrutinized. Dealbook spoke to one Goldman insider, who suggested Blankfein’s bonus will be a measuring stick for employees who may see their pay cut. (Blankfein earned $68 million in 2007, but didn’t receive a bonus last year.) Here’s Dealbook:

"It all depends on what Lloyd gets," said one midlevel Goldman employee, referring to Lloyd C. Blankfein, Goldman’s chairman and chief executive. He said Mr. Blankfein’s bonus had become a popular water-cooler topic. "If Lloyd takes home a big bonus, even if it’s all stock, and everyone else receives less, there will be some concern," he said.

Top 100 Banking Companies in Real Estate Loan Holdings

Commercial Real Estate Loans

Total Construction Nonperf. Nonperf./

Assets Total Commercial Multi-family and Land R.E.Loans R.E.Loans

($Mil.) ($Mil.) ($Mil.) ($Mil.) ($Mil.) (Mil.) (%)

1 Wells Fargo,San Francisco 1,228,625.0 132,745.0 87,040.0 9,302.0 36,403.0 10,476.0 7.9

2 Bank of America,Charlotte 2,252,813.6 105,323.5 54,565.9 11,422.3 39,335.3 8,864.8 8.4

3 J.P. Morgan,New York 2,041,009.0 63,402.0 22,730.0 32,216.0 8,456.0 2,490.0 3.9

4 BB&T,Winston-Salem,N.C. 165,329.1 40,401.5 22,489.2 1,929.1 15,983.3 2,299.8 5.7

5 PNC Financial,Pittsburgh 271,449.9 35,485.2 21,697.3 2,952.6 10,835.3 4,869.3 13.7

6 Regions Financial,Birmingham,Ala. 140,169.4 34,117.9 20,486.3 3,745.7 9,886.0 2,945.8 8.6

7 U.S. Bancorp,Minneapolis 265,058.0 32,098.0 20,133.0 2,411.0 9,554.0 2,083.0 6.5

8 MetLife,New York 535,192.2 30,495.7 26,527.5 3,930.0 38.2 216.0 0.7

9 SunTrust Banks,Atlanta 172,814.1 23,860.9 13,863.4 1,251.6 8,745.9 2,053.3 8.6

10 Zions Bancorporation,Salt Lake City 53,425.1 23,296.6 15,165.9 985.3 7,145.4 1,882.9 8.1

11 Citigroup,New York 1,888,599.0 22,467.0 12,516.0 7,603.0 2,348.0 2,464.0 11.0

12 New York Community Bancorp,New York 32,922.0 22,010.0 4,870.0 16,472.9 667.1 427.4 1.9

13 M&T Bank,Buffalo 68,997.5 20,817.2 13,457.3 1,999.5 5,360.4 539.8 2.6

14 BBVA Compass,Birmingham,Ala. 67,792.7 19,524.9 7,946.4 2,630.2 8,948.3 1,565.4 8.0

15 Capital One Financial,McLean,Va. 168,503.9 19,311.3 10,756.2 5,238.5 3,316.6 808.1 4.2

16 TD Banknorth,Cherry Hill,N.J. 138,987.4 18,996.5 14,497.8 1,586.0 2,912.8 590.3 3.1

17 Fifth Third Bancorp,Cincinnati 110,740.4 18,674.9 9,876.2 671.5 8,127.1 2,487.3 13.3

18 Marshall & Ilsley,Milwaukee 58,664.5 18,351.8 9,326.1 2,709.9 6,315.8 1,397.7 7.6

19 Keycorp,Cleveland 96,985.3 16,854.4 9,412.8 1,835.4 5,606.3 1,672.3 9.9

20 Synovus Financial,Herndon,Va. 34,610.5 15,714.2 7,885.7 638.7 7,189.8 1,296.3 8.2

21 Citizens Financial,Providence,R.I. 150,538.2 15,325.5 10,857.7 1,348.9 3,119.0 812.2 5.3

22 Comerica,Detroit 59,752.9 14,818.2 9,825.6 547.9 4,444.6 957.1 6.5

23 Huntington Bancshares,Columbus,Ohio 52,510.9 12,144.2 7,218.4 823.9 4,101.9 1,295.1 10.7

24 BancWest,Honolulu 77,529.5 12,066.4 8,488.0 640.8 2,937.6 921.5 7.6

25 UnionBanCal,Los Angeles 78,153.2 11,188.9 6,347.9 2,159.7 2,681.3 771.3 6.9

26 FBOP Corp.,Oak Park,Ill. 19,577.1 10,726.7 4,783.3 1,677.5 4,265.9 833.2 7.8

27 Popular Inc.,San Juan,P.R. 35,638.0 9,272.0 6,393.0 905.0 1,974.0 1,238.0 13.4

28 HSBC North America,Prospect Heights,Ill. 390,657.8 8,616.5 4,468.6 1,178.4 2,969.5 693.3 8.0

29 RBC Bancorp.,Raleigh,N.C. 29,447.4 8,385.4 4,557.4 815.0 3,013.0 755.6 9.0

30 W Holding,Mayaguez,P.R. 13,489.4 6,311.1 4,958.1 0.0 1,353.0 1,258.7 19.9

31 First Citizens Bancshares,Raleigh,N.C. 18,512.9 6,211.4 5,078.1 75.3 1,058.0 136.1 2.2

32 Barclays Group U.S.,Wilmington,Del. 377,926.4 6,146.7 4,038.1 1,888.6 220.0 1,759.5 28.6

33 Fulton Financial,Lancaster,Pa. 16,526.7 5,799.9 4,099.0 252.2 1,448.7 177.3 3.1

34 East West Bancorp,San Marino,Calif. 12,486.0 5,724.9 3,621.9 1,033.4 1,069.6 168.4 2.9

35 Associated Banc-Corp,Green Bay,Wis. 22,884.6 5,465.6 3,315.0 538.7 1,611.9 514.0 9.4

36 South Financial Group,Greenville,S.C. 12,301.0 5,220.7 3,110.4 258.6 1,851.7 330.9 6.3

37 Sterling Financial,Lancaster,Pa. 11,898.9 5,148.6 2,581.8 594.4 1,972.4 651.0 12.6

38 Harris Financial,Palatine,Ill. 58,879.3 5,122.8 3,457.6 500.3 1,164.9 877.0 17.1

39 UCBH Holdings,San Francisco 10,925.5 4,980.2 2,311.0 1,195.3 1,473.8 950.9 19.1

40 PrivateBancorp,Chicago 12,082.6 4,919.2 2,981.7 701.8 1,235.7 257.9 5.2

41 Cathay General Bancorp,Los Angeles 11,749.8 4,790.5 3,548.4 326.4 915.7 334.9 7.0

42 BancorpSouth,Tupelo,Miss. 13,280.8 4,736.5 2,956.6 246.4 1,533.6 60.4 1.3

43 Wilmington Trust,Wilmington,Del. 11,168.0 4,611.9 2,618.0 79.1 1,914.7 266.5 5.8

44 Harris Bankcorp,Chicago 40,725.5 4,333.5 3,154.4 456.2 723.0 294.0 6.8

45 First Horizon National,Memphis 26,466.7 4,243.5 2,405.0 315.7 1,522.8 624.8 14.7

Bob Chapman is a frequent contributor to Global Research. Global Research Articles by Bob Chapman

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by Bob Chapman

Global Research, December 20, 2009

The International Forecaster

As we look back and this year comes to an end we find two plus years of failure. Even government admits to 1-1/2 years of negative growth – a sorry record after having poured trillions of dollars into the economy. The recent 3rd quarter results supposedly broke that record. If it did it was the result of government stimulus and Fed monetization. If you look back further you will find a stock market that rallied 54% just to reflect the highs of 1999. House prices have decline to 1990s levels as well. Both markets, which were bubbles, next year will fall again. Americans opened their markets to products of Communist China’s slave labor and China became the world’s biggest exporter. Via free trade, globalization, offshoring and outsourcing, transnational conglomerates have stolen America’s destiny and handed it to China. This is what corporatist fascism is all about.
The dollar will soon end its mini-rally and the USDX will test 71.18 in the first quarter as the euro tests $1.62. Interest rates will stay at zero for at least two years, and mega monetization will continue. As you have just seen the Treasury wants TARP funds for Treasury debt and the administration wants the TARP funds to further stimulate the economy. Either way it is very inflationary.
We are told the credit crisis is over and that recovery is underway. We do not believe that. It is projected that as many as 300 more companies will default on debt in 2011. A default rate of 12 to 14 percent. That is up from 1% in 2007 and a long-term average of 4.5%. These are not just small firms, but companies with more than $100 million in assets as well. That doesn’t sound like recovery to us. What is very significant is that the 300-figure is based on recovery. Only 116 companies defaulted between 2004 and 2007. One of the groups hit hard will be commercial real estate. The figures are already bad, but companies and lenders have been buying time by using two sets of books, marking to model and refinancing. All that doesn’t change the big picture and that is with a recovery the situation will be bad, without recovery it will be dreadful.
Corporate America has lots of problems, but the federal government has many more. It has to finance more than $1 trillion a year in borrowings. Interest rates are the lowest ever, but rates will begin to climb next year; 5% real interest rates would add some $600 billion to the debt service. That is more than the combined costs of Iraq and Afghanistan, energy, education and Homeland Security.
The Fed has been backstopping short-term interest rates and holding down long-term rates. They say they will end their $300 billion program to buy up Treasury bonds and will stop buying mortgage securities by the end of next March.
The administration believes it will have to borrow $3.5 trillion over the next three years, plus rolling over short-term debt, or another $1.6 trillion. That is a total of $5.1 trillion. Knowing politicians you can increase that number by at least 50%. The wages of sin have caught up with the government as it attempts to replace short-term bills with 5, 7, 10 and 30-year paper. We do not believe the debt is payable and the consequences are not going to be pretty. All the velocity of monetary circulation is not going to change the final outcome.
At the same time the Fed and Wall Street are trying to cover-up, as they did 2-1/2 years ago what became a credit crisis. Last time they ramped up the stock market and they are attempting to do the same thing again. It is a masking of two underlying problems. They are doing what they did before, pushing up the value of shares, of companies that are on the edge of serious problems. In this process they have virtually nationalized banks and given them the funds to re-leverage in the market and take it again to today’s heights. The market has again become divorced from economic reality. They are again about to find out printing money and taxing is not going to solve the problem. On the way to the printing press and along the path of monetization the government has forgotten that they are in serious financial conditions and in the coming year will not be able to fund their deficit. The revenues are not to be had and foreigners are more and more reluctant to shoulder America’s debt. That means another credit crisis and further monetization of debt. Very simply, the US government is bankrupt. They can either default or lay the burden on future generations. The immediate answer is for government to cut spending on such trivialities, such as Medicaid, Medicare and Social Security. Allow the citizens to live in penury and poverty. These are the people who helped build America into what it is and they are to be cast aside as the Fed rescues its owners, the bankers, who deliberately caused the problem in the first place.
The deficit for fiscal 2010 should be close to $2 trillion, up from $1.4 trillion in 2009. The projection for the next ten years is at least $10 trillion. That means an increase of 150% to be serviced by 60% increase in tax revenue in a world where current receipts are off 30%. Even in better times recently tax revenues only increased by 12% during the biggest real estate and stock booms ever. We are about to find out that the muddle through theory does not work. Just for good measure we will add that unfunded liabilities increased by $9 trillion last year alone. That is ten years of deficits in just one year. Who in their right mine is going to fund and support such profligacy?
Then there is the status of the FDIC. It is $8.2 billion in debt and has already pulled $80 billion additional funds secretly from the Treasury. No one ever told us that FDIC funds were commingled in the general fund, just as Social Security and Medicare have been since their inception. There now is no money set aside for bank failures. The Fed in secret meetings has said the FDIC does not have 552 problem banks, but 2,035 in eminent danger. The cost to bail out these banks would be close to $1 trillion. That would be impossible to fulfill and so we state again, the FDIC will be history by the end of 2010. That will leave $5.120 trillion of deposits and FDIC-guaranteed debt uninsured. The FDIC funds, whatever their number, have been spent on the military, bailouts, other government programs and to pay interest. All three entities have been looted. All that is left is unpayable IOUs. Overall unfunded obligations are: Social Security $15.1 trillion. Medicare $88.9 trillion or a total of $104 trillion. If you add in short-term debt of $114.7 trillion, are you getting the message?
Just to give you an idea of how much debt has been created, the average G-20 budget deficits are 10.2% of GDP, when 3% is normal. Greece, which is on the edge of bankruptcy, will be 12.5% in 2010. Yet, the US is already at 13.5%. Close behind are the UK and Japan at 11.6% and 10.3%. The erosion of confidence and trust will soon manifest itself as lenders stop lending to these nations. This has already happened to the US with the Fed monetizing more than half of Treasury issuance. This is proof the dollar will crash and be devalued, as debt goes into default. Foreign nations are understandably concerned, as the dollar now only makes up 37% of new foreign reserve holdings. That is about a 50% reduction in holdings. As we reported before it is no wonder oil producers have held secret meetings to dump the petro dollar. Wall Street, Washington and central banks worldwide refuse to heed the lessons of the centuries and so have been damned to oblivion.
In more slight of hand the BLS has let us know that their birth/death model has overestimated the unemployment by some 824,000. These errors will be included in their statistics in February, and may be revised. The private sector number is 855,000. Some would like to call the error incompetence, we call it strategic planning by government to mislead the American people. For months the number of employed had been expanding via these phantom figures when they should have been contracting. We cannot access their data so the incorrect figure could be even higher.
What government has been doing is guessing for the past six years how many jobs had been created or lost by small businesses. In reality it was a totally unsound method of creating jobs that didn’t exist.
This miscounting by other methods also distorts the CPI, PPI retail sales, durable goods and, of course, GDP. That means you cannot believe a thing the government says. We have contended this for more than ten years. As an example, how can employment in small businesses be growing when more than 43,000 went under last year? Even if the figures come in late there obviously is never any adjustment. The difference in this case is jobs lost were not 7.2 million, but 8 million. In the second quarter some 16,000 businesses failed, up from about 14,000 quarter-to-quarter, the highest in 16 years. In addition the BLS only looks at unemployment insurance tax records once a year – how convenient. The birth/death model is nothing more than a ruse to present unemployment in a better light. This has been done for the past six years not just over the past two years. Our research shows a bogus set of additions yoy of about 1.7 million.
The fund-less FDIC reports US banks may be making money gambling with leverage using TARP funds, but bank loans fell by $210.4 billion, or 2.8% in the third quarter, the biggest drop since the FDIC started keeping records in 1984. Those same banks booked profits of $2.8 billion reversing a $4.3 billion third quarter loss. Loans to businesses fell 6.5% and those to real estate 8.1%.
Small business cannot borrow and they created 64% of new jobs in the past 15 years says the SBA. We see that figure at 75%.
Non-current loans rose 10% to 5% of all loans to $366.6 billion, the highest rate on record. In the 3rd quarter banks charged off $51 billion in bad loans, the 11th straight quarterly increase, up more than 80% yoy. 66-2/3% of banks set aside $62.5 billion in loss reserves, 22% higher yoy.
124 banks have failed thus far this year, up from 25 in 2008 and we could see more than 2,000 fail in 2010 and 2011.
The FDIC says it has set aside $38.9 billion for losses giving it total reserves of $30.7 billion. They say they have $23.3 billion in cash. They expect to collect another $45 billion by the end of the year when banks are forced to pay $45 billion, or three years of deposit insurance in advance. That would give them $98.3 billion to cover losses. If they really have those funds, which we doubt, they will need them for 2010’s failure onslaught.
It looks like the stock market is finally ready to rollover. It is in a well-defined head and shoulders pattern that began in September. This is what happens when trillions are given to the financial sector and a pittance to the public. This is a control planner’s formula for disaster. The present dollar rally could end at 78 or 80 and then the test of 71.18. Our government rigged this rally using the currency swaps they created out of thin air in March.
If banks do not increase lending by 20% in 2010, a second credit crisis will beset markets. Stocks are way over valued having baked in a strong recovery with the help of TARP funds. This market reminds us of the alcoholic who has to have a drink upon rising and says he is not an alcoholic. All Wall Street knows is profits and they could care less about unemployment. The debasement of our currency means nothing. Speculation wages again with no thought of lower financial profits in the first quarter and a distinct chance of a second credit crisis. Ignored is the government’s manipulative presence in the market, or market fundamentals. Today’s speculation reflects the lack of trust, confidence and lack of fiscal and monetary discipline. The theme is we had better make it while we can, because there may be no tomorrow. As a result the probability of a steep market correction is strong. What we are involved in economically and financially is not a common correction, it is a correction in a bear market and few, even professionals, see this. This happened in the early 1930s and by the end of 1940 we still had not exited depression. We had to arrange a war to extricate ourselves.
Just look around you and you will see contraction as well as higher inflation. New home purchases fell to a 12-year low in November, off 22%, as government expanded the assistance program to include higher-income trade up buyers. Auto sales are fading again as well. Why? Because the markets for big-ticket items are saturated. We still have to face de-leveraging by domestic financial institutions, which few talk about. March values at Dow 6,600 were fair for that time frame. 10,500 is madness even after allowing for a bottom bounce to 8,500. We can assure you 6,600 will be tested again. We see the Dow sweeping into the 6,300 to 6,600 area for a first real test. We cannot tell at this juncture whether it will hold or not.
Few, except for Ron Paul and his fellow sound money adherents, are asking where the trillions of dollars of Fed and government money has been spent, or who got it, and what was the collateral on the loans and how was it priced? The recipients for the most part were the same culprits who caused all the problems in the first place.
In case you have not realized it the US government has to replace $2.5 trillion in debt in 2010, or 35% of their outstanding marketable obligations.
The Chicago Climate Exchange is 10% owned by Goldman’s Hank Paulson and former Treasury Secretary, 10% by Generation Investment Management, owned by Al Gore and 10% by Goldman Sachs. The exchange has been operating for several years.
Generation Investment was founded in 2004 by Al Gore and David Blood of London. GIM’s investment approach is based on the idea that sustainability factors, economic, environmental, and social and governance criteria will drive a company’s returns over the long term.
The focus of GIM is on the key drivers of global change, including climate change and environmental degradation, macroeconomics, poverty and development; water and natural resource scarcity; pandemics and healthcare and demographics, migration and urbanization.
It is our belief that this vehicle could be used in the future for a new carbon currency, as envisioned at Copenhagen by the UN and the World Bank. This is what we think they are shooting for. We know this sounds unusual, but this is where we believe the Illuminists are headed.
In November income taxes withheld fell 10.98% yoy. Individual tax revenues fell 20.36% yoy, with no signs of improvement in sight.
If the US cannot craft a plan in 2010 to get its ballooning debt under control, it will face panic in financial markets. That is why you must be out of US dollar denominated assets. That is all forms of US government, state government debt (municipals), cash value life insurance policies, and annuities and out of the stock market except for gold and silver shares.
Over the next few years’ taxes will rise. Fortunately we believe the UN-World Bank climate taxation is dead for now as is Cap & trade, so the elitists will have to find other methods of taxation. If no changes are made debt will be 60% of GDP by 2018. Taxation will be increased by the Illuminists. More taxation or not the American standard of living is going to decrease dramatically.
The national debt has more than doubled since 2001 due to wild government spending and gross incompetence of those in government. There were political tax cuts and a trillion dollar war to assist in the carnage. This has put national debt at 53% of GDP, up from 41% just a year ago. Some believe that figure could be as high as 85% in 2018 and 200% by 2038.
The government now admits to inflation of 2.4%. We see 7.7%.
The MBA mortgage purchase Application Index fell 0.1% in the week of December 11 for a total market index of 0.3%. This compares to 4% and 8.5%, respectively in the prior week. The refi index was 0.9% versus 11.1% in the prior week. The 30-year fixed rate mortgage rose 3 bps to 4.92% and the 15s were flat at 4.33%.
We are getting change you can believe in. The IRS granted another sweetheart deal to Citigroup – a $38 billion tax break. As George Orwell said in Animal Farm, “Some became more equal than others.” This is nothing more than a gift from taxpayers to bail out a bankrupt bank.
Making the President win a Peace Prize for widening a war was an insult to all Americans and citizens of the world.
Now we are again insulted by the elitist-owned media as Time Magazine crowned Ben Bernanke as person of the year, after he deliberately destroyed the American economy. This is akin to naming cheetah Woods as husband and father of the year.
Bernanke has created the biggest Ponzi scheme in history, so he is to be rewarded. This is a world gone mad.
As a result, the Arab states of the Gulf region have agreed to launch a single currency modeled on the euro, hoping to free themselves from a declining petro dollar.
We told you over and over again this would happen and it has come to pass. This is recognition of a failed world reserve currency. As we predicted the new Dinar will be pegged to a global currency basket and will ultimately float as its own currency. Now China, Russia, India, Venezuela, etc. will follow, spelling the end of the US dollar as the world’s reserve currency. The next change our government will bring you will be that of a banana republic.
Initial claims for state unemployment climbed 7,000 to 480,000 for the week ended 12/12. The 4-week moving average fell 5,250 to 467,500. The number of workers still collecting benefits rose 5,000 to 5.19 million. This was far above expectations of 5.15 million.
Commercial paper fell again, down $59.6 billion to $1.150 trillion.
The Conference Board’s leading indicators rose 0.9% to 104.9 following October’s rise of 0.3%. The coincident index, a measure of current economic conditions, rose 0.2%, but the lagging index fell 0.4%.
The Philadelphia Fed Business Activity Index was 20.4 versus 16.7 in November.
Nomi Prins, former managing director of Goldman Sachs and head of International Analytics Group at Bear Stearns in London, is saying what we have been saying “The giant banks are manipulating their books to make themselves look profitable.” Prins says, this might be worse than the fraud, which occurred at Enron.
David Rosenberg says: “The government has to roll $2.5 trillion of debt in 2010, or 35% of its outstanding obligations.” That means no interest rate hikes, officially anyway. For 2010 he has Japan’s debt to GDP at 227%, Italy 120%, the US and UK at 94%, Germany and France at 83% and Canada at 79%. This also means all currencies will continue to fall versus gold.
The Fed has unnerved liquidity bulls by stating that they would accelerate the termination of credit facilities and remove most of the facilities by February 1, just as we reported earlier. We said they wanted to remove $1.5 trillion from the system, privately as we reported. They will monetize $1.425 trillion of Agencies by 3/31/10. Supposedly no more asset-backed commercial paper, Money Market Fund liquidity facility; the commercial paper facility; the primary dealer credit facility and the term securities lending facilities. It will close swap arrangements by February 1, 2010. That means no further major dollar support and explains why the dollar is manipulated upward prior to the end of support. The term auction facility will be scaled back. By June 30, 2010 the term asset-backed securities loan facility for toxic waste will end. Later in 2010 everything will become unglued again and the second credit crisis should begin.
PIMCO’s Total Return fund went to cash holdings of plus 7 from minus 7, as Treasury holdings fell to 51% from 63%. They cut holdings of mortgage securities to 12%, the lowest since PIMCO started in 2000, from 16%.
The Treasury says the Fed was responsible for Citigroup’s botched attempt to raise funds to pay back its (TARP) federal bailout. Wall Street banks, despite planning to pay sky-high bonuses this year, have yet to turn things around.
Congress voted a $290 billion increase in the debt ceiling, which will last only six weeks.
A $2 trillion increase in the debt ceiling will last 15 months. Next comes the unlimited ceiling. Pretensions will eventually be cast aside. The country is bankrupt.
Then the Senate finance committee voted to reappoint the Chief counterfeiter Ben Bernanke. Wonders never cease. What they should have hired was the monkey from the organ grinder; he couldn’t have done any worse. Shame on the committee.
What has occurred in the US could not have happened by ineptness or chance. It has been done by design. There is no such thing as coincidence.

Banks worldwide will get as many as three years to comply with stricter capital requirements, European and Japanese government officials said.

A transition period for tighter capital rules probably won’t start until 2012 or 2013, according to the officials who declined to be identified because last week’s deliberations by the Basel Committee on Banking Supervision are private. Bank stocks in Asia and Europe rallied.

The delay gives banks longer to repair balance sheets weakened by $1.71 trillion of losses and writedowns during the credit crisis. The Group of 20 Nations agreed in April that banks should be required to hold more and better quality capital to reduce risks to the financial system.

The International Brotherhood of Teamsters is accusing Goldman Sachs Group Inc. of underwriting derivatives trades that would benefit from the bankruptcy of YRC Worldwide Inc., the biggest U.S. trucker by sales.

“The relatively small benefit Goldman would derive for itself in fees or for clients from such a position is unconscionable given the fact that the 50,000 livelihoods could be ruined by a bankruptcy filing,” Teamsters President James Hoffa wrote in a letter dated today to Goldman Sachs Chief Executive Officer Lloyd Blankfein.

It begins happily enough, 30 years ago this month, when a Wall Street trader named Steven A. Cohen married his sweetheart Patricia Finke…Some of those millions, Ms. Cohen claims in her suit, were reaped through insider trading in the 1980s.

The federal government quietly agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal announced this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis.

The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors.

While the Obama administration has said taxpayers are likely to profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits.

The IRS, an arm of the Treasury Department, has changed a number of rules during the financial crisis to reduce the tax burden on financial firms. The rule changed Friday also was altered last fall by the Bush administration to encourage mergers, letting Wells Fargo cut billions of dollars from its tax bill by buying the ailing Wachovia.

"The government is consciously forfeiting future tax revenues. It’s another form of assistance, maybe not as obvious as direct assistance but certainly another form," said Robert Willens, an expert on tax accounting who runs a firm of the same name. "I’ve been doing taxes for almost 40 years, and I’ve never seen anything like this, where the IRS and Treasury acted unilaterally on so many fronts."

Treasury officials said the most recent change was part of a broader decision initially made last year to shelter companies that accepted federal aid under the Troubled Assets Relief Program from the normal consequences of such an investment. Officials also said the ruling benefited taxpayers because it made shares in Citigroup more valuable and asserted that without the ruling, Citigroup could not have repaid the government at this time.

"This rule was designed to stop corporate raiders from using loss corporations to evade taxes, and was never intended to address the unprecedented situation where the government owned shares in banks," Treasury spokeswoman Nayyera Haq said. "And it was certainly not written to prevent the government from selling its shares for a profit."

Congress, concerned that Treasury was rewriting tax laws, passed legislation earlier this year that reversed the ruling that benefited Wells Fargo and restricted the ability of the IRS to make further changes. A Democratic aide to the Senate Finance Committee, which oversees federal tax policy, said the Obama administration had the legal authority to issue the new exception, but Republican aides to the committee said they were reviewing the issue.

A senior Republican staffer also questioned the government’s rationale. "You’re manipulating tax rules so that the market value of the stock is higher than it would be under current law," said the aide, speaking on the condition of anonymity. "It inflates the returns that they’re showing from TARP and that looks good for them."

The administration and some of the nation’s largest banks have hastened to part company in recent weeks. Bank of America, followed by Citigroup and Wells Fargo, agreed to repay federal aid. While the healthiest banks escaped earlier this year, the new round of departures involves banks still facing serious financial problems.

The banks say the strings attached to the bailout, including limits on executive compensation, have restricted their ability to compete and return to health. Executives also have chafed under the stigma of living on the federal dole. President Obama chided bankers at the White House on Monday for not trying hard enough to make small-business loans.

The Obama administration also is eager to wind down a program that has become one of its largest political liabilities. Officials defend the program as necessary and effective, but the president has acknowledged that the bailout is "wildly unpopular" and officials have been at pains to say they do not enjoy helping banks.

Federal regulators initially told Citigroup and other troubled banks that they would be required to hold on to the federal aid for some time as they return to health. But in recent months, the government switched to pushing the companies to repay the money as soon as possible. All nine firms that took federal money last October now have approved plans to pay it back.

This urgency has come despite the lingering concerns of many financial experts about the companies’ health. These analysts said they worry that the firms could face rising losses next year as high unemployment and economic weakness continue to drive great numbers of borrowers into default.

"They are rolling the dice big time," said Christopher Whalen, a financial analyst with Institutional Risk Analytics. "My fear is that the banks will definitely have to raise a lot more capital next year. The question is from whom and on what terms."

The Citigroup repayment deal required significant sacrifices by both sides, underscoring the mutual determination to get it done. Citigroup was required to replace its federal aid with an equal amount of money from private investors, more than any other bank. The government concluded that Citigroup needed the IRS ruling because a reduction in the value of its tax breaks would have eroded its capital, forcing the company to raise more money, officials said.

Federal tax law lets companies reduce taxable income in a good year by the amount of losses in bad years. But the law limits the transfer of those benefits to new ownership as a way of preventing profitable companies from buying losers to avoid taxes. Under the law, the government’s sale of its 34 percent stake in Citigroup, combined with the company’s recent sales of stock to raise money, qualified as a change in ownership.

The IRS notice issued Friday saves Citigroup from the consequences by stipulating that the government’s share sale does not count toward the definition of an ownership change. The company, which pushed for the ruling, did not return calls for comment.

At the end of the third quarter, Citigroup said that the value of its past losses was about $38 billion, allowing it to avoid taxes on its next $38 billion in profits. Under normal IRS rules, a change in control would sharply reduce the amount of profits that Citigroup could shelter from taxes in any given year, making it much more difficult for Citigroup to realize the entire benefit before the tax breaks expired.

The precise value of the IRS ruling depends on Citigroup’s future profitability and other factors, but two accounting experts said it was fair to estimate that Citigroup would save at least several billion dollars as a result.

Treasury acknowledged that the tax break was significant, but a senior official said the benefit was unavoidable. Either the government changed the rules and parted ways with Citigroup or the company kept the government as a shareholder and kept the tax break anyway.

"The choice is whether Treasury sells or doesn’t sell," the official said.

Many major Japanese banks opened bid-only early Wednesday in Tokyo, after a report that new capital adequacy rules may be delayed by at least a decade. The Nikkei business daily said in an unsourced report that the Basel Committee on Banking Supervision has agreed to effectively delay the enforcement of new capital adequacy rules for large banks, opting to create a transition period of at least 10 years. The proposed changes include raising the current 8% minimum capital ratio and focusing on a narrower definition of core capital, the report said.

Builders in November broke ground on more U.S. homes, a sign the recovery in homebuilding may carry through into 2010.

Housing starts rose 8.9 percent to an annual rate of 574,000, the Commerce Department said today in Washington. Building permits, a sign of future construction, climbed to the highest level in a year.

Government tax credits, lower home prices and borrowing costs near record lows may boost sales and construction in coming months. Federal Reserve policy makers today are forecast to reiterate a pledge to keep rates low for “an extended period” to sustain the recovery and lower a jobless rate that economists project will average 10 percent in 2010.

The cost of living in the U.S. accelerated in November from a month earlier, led by higher prices for energy and medical care.

The 0.4 percent increase in the consumer-price index followed a 0.3 percent gain in October, figures from the Labor Department showed today in Washington. Excluding food and energy costs, the so-called core index was unexpectedly unchanged.

The U.S. balance of payments deficit widened sharply in the third quarter to $108 billion from $98 billion in the second quarter, the Commerce Department reported Wednesday.

The increase in the second quarter deficit was due to a larger deficit on goods.

The current account deficit totaled 3.0% of gross domestic product, up from 2.8% in the second quarter, which was the smallest percentage since the first quarter of 1999.

The deficit peaked at 6.5% of GDP in the fourth quarter of 2005.

Global trade is starting to recover from the collapse in the wake of the financial crisis. As a result, further progress on the significant narrowing of the deficit is likely to be harder to achieve.

However, the weaker dollar has boosted U.S. exports. The trade deficit in goods and services unexpectedly narrowed in October.

The current account is the broadest measure of international flows of goods, services and capital in and out of the United States. In essence, the current account measures how much Americans need to borrow from abroad to fund their consumption and investment.

To make more progress, Americans will need to save and invest more and consume less, while Europe, Japan and emerging economies such as China will need to move away from relying on exports to the U.S. to relying on domestic demand to fuel their growth.

Analysts said these changes have to come gradually or there could be sharp shifts in exchange rates.

Although the dollar has rebounded recently, it depreciated 5% in the third quarter on a trade-weighted basis against a group of 7 major currencies, the department said.

U.S.-owned assets abroad rose by $294 billion after a fall of $37.4 billion. Foreign-owned assets in the U.S. increased $332.4 billion in the third quarter after a gain of $14.6 billion in the second quarter.

Foreigners sold $9.2 billion of Treasuries after selling $22.8 billion in the second quarter.

Foreign purchases of other U.S. securities, largely equities and agency bonds, rose to $24.7 billion in the third quarter from $13.9 billion in the second quarter.

Direct investment abroad increased $62.7 billion in the third quarter, following an increase of $47.4 billion in the second.

Unilateral transfers rose to an outflow of $34.4 billion from $33.4 billion in the second quarter.

The U.S. net income surplus increased to $23.7 billion from $16.7 billion in the second quarter.

U.S. investment income on assets owned abroad increased to $139.7 billion from $134.3 billion. Foreign investment income on investments owned in the U.S. fell to $114.2 billion from $115.9 billion.

Net capital account payments were virtually unchanged at $700 million.

The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for October 2009…Net foreign purchases of long-term securities were $20.7 billion.

Net foreign purchases of long-term U.S. securities were $43.4 billion. Of this, net purchases by private foreign investors were $28.8 billion, and net purchases by foreign official institutions were $14.6 billion.

U.S. residents purchased a net $22.7 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $8.3 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $43.9 billion. Foreign holdings of Treasury bills decreased $38.3 billion. http://www.treas.gov/press/releases/tg443.htm

No wonder bonds have been in the toilet for the past month. The US must rollover trillions of dollars of debt and in addition the Treasury must issue over $150B of debt per month to finance a projected $1.8B increase its in debt ceiling – and foreigners, which have been The Buyers for years, are now sellers.

And the Fed must sell debt if it tries to reduce its balance sheet…2010 will be very interesting!

All things for all people, everywhere. Or so says the motto of Harrods, the London department store. Except in jewellery, “all things”until recently did not include gold. But the store, heartened by the current rally in the yellow metal, now sells bullion. “Sales are ahead of our expectations,” says Chris Hall, Harrods’ head of gold, as he shows a collection that ranges from tiny wafers of 5g, costing about $200, to a central bank-style 400 troy ounce bar valued at $480,000 (€329,000, £296,000). “People are buying several at the same time,” he says of a bar costing about $38,500. “Not one is coming back to sell.”

Across the world, other retail investors – encouraged by a weak US dollar, the financial crisis and fears that central banks printing money will lead to a spike in inflation – have done the same, overwhelming mints and gold refineries. Demand for 1oz American Eagles, the world’s most popular bullion coin, has been so strong that the US Mint ran out last month after sales hit a 10-year peak. In the first 11 months of the year it sold about 1.19m oz of Eagles, up almost 75 per cent year-on-year.

Dealers also report unprecedented demand for small gold bars, particularly in centres such as Zurich that handle rich investors.

Although gold coins and small bars account for a smallish portion of the precious metals market, analysts see them as a good indicator of investor appetite. Big investors such as pension funds and hedge funds – including legendary names such as Paul Tudor Jones of Tudor Investment and David Einhorn, founder of Greenlight Capital – have also been enthusiastic. Mr Jones, whose company manages more than $11bn in bonds, equities and commodities, told investors recently that it was time to buy the metal. “I have never been a gold bug,” he wrote, but added: “It is just an asset that, like everything else in life, has its time and place. And now is that time.”

John Paulson, another well-known hedge fund manager, has adopted a similar view, telling investors he was concerned about the dollar. “So I looked for another currency in which to denominate my assets. I feel that gold is the best currency.”

The buying frenzy pushed gold this month to a nominal all-time high of $1,226.10 a troy ounce, up 40 per cent since the start of the year, before shedding about $100. “The level of interest in gold is now higher than at any time of my 25-year career in the precious metals market,” says Jonathan Spall, a director at Barclays Capital in London and author of Investing in Gold: The essential safe haven investment for every portfolio.

So many constituencies are taking refuge in the classic commodity that its price surge is the symbol of the age: a store of anxiety as well as value. And it is not only gold. Silver, platinum and palladium have also seen strong inflows. Sales of American Eagle silver coins, for example, have hit 26moz, the highest in at least 23 years. Investment vehicles backed by physical deposits of platinum and palladium are swelling, bankers say.

To be sure, the latest gains look rather less impressive if adjusted for inflation. In real terms, bullion would need to be well above $2,000 an ounce to match the price achieved in 1980. But the rise over the last 10 years is almost 400 per cent – bringing concerns that the metal may have become subject to unsustainable speculative demand.

“Gold is in a bubble,” maintains Tim Bond, head of asset allocation at Barclays Capital, who says investors should prepare for a correction. Nouriel Roubini, the New York University professor who was among the few to predict the financial crisis, holds a similar view, warning of “significant risks of downward correction”. In a new report entitled, “The new bubble in the barbaric relic that is gold”, he says: “The only scenario where gold should rapidly rise in value is one where fiat [official] currencies are rapidly debased via inflation.” At the moment, however, there are “more deflationary than inflationary forces in the global economy”.

How will gold buyers be able to tell when the top of the market is about to arrive? After all, gold is almost impossible to value beyond the cost of production, which today stands way below the current price. Apart from jewellery and small industrial applications, such as in electronics, gold has no use other than as an investment.

Warren Buffett, the legendary investor who has been a gold agnostic over the years, once said that bullion had “no utility”. He added:

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it.” Mr Buffett’s conclusion: “Anyone watching from Mars would be scratching their head.”

Investors, bankers, analysts and traders have yet to agree on what is gold’s fair value. Conventional methods applied to other commodities, such as crude oil or copper, to reach a valuation fail with gold. One critical piece of data needed to value commodities is inventories – and in the case of gold those are plentiful. The world’s central banks keep in their vaults 29,700 tonnes of gold, enough to meet global demand – as measured by last year’s consumption – for the next seven and a half years. Other analysts rely on arbitrary ratios between gold and oil or the S&P 500 index.

In the past, when gold backed the US dollar, the valuation that mattered was the ratio between bullion and the amount of fiat currency that the US government had printed. The US – the world’s biggest holder – owns more than 8,130 tonnes of gold, while the Federal Reserve’s monetary base is about $1,700bn. “So the price of gold at which the US dollar would be fully gold-backed is currently around $6,300 a troy ounce,” says Dylan Grice, of Société Générale in London.

Another problem with gold is that, apart from its price appreciation, it yields no return. Bonds pay coupons; equities provide dividends.

But in the current environment of extremely low interest rates, says Michael Jansen, European head of commodities research at JPMorgan, “the opportunity cost of holding gold is very low”.

That could change as soon as central banks start raising rates, which will increase the attractiveness of bonds or even cash. “Gold, in normal interest rate circumstances, is a pretty expensive asset to hold,” Mr Jansen adds. It costs money in vault fees and insurance premiums.

Losing out against yield-generating assets is one concern now playing on investors’ minds, bankers say. Then there is the worry about buying at the top of the market. Veteran gold investors remember how short-lived precious metals rallies can be. Take the last big gold spike in 1980. After a surge from $400 to $850 in just five weeks, bullion prices collapsed to trade as low as $300 a year later. Some investors were badly burnt.

The latest surge looks more robust, however: the price of the metal has hovered between $900 and $1,200 an ounce for the past two years. The rally has also been progressive, with prices gaining about $100 each year since 1999, rather than explosive in just a few weeks. Since the early 1980s, fundamental changes in the gold market have taken hold that suggest higher prices might last longer this time, even if they plateau.

On the supply side, two factors reinforce a bullish view. Mine output hit a peak around 2000 and since then has being on a downward trajectory, interrupted only by small blips. On top of that, production is moving from the easy areas – the big four being South Africa, the US, Canada and Australia – into terrain such as Ghana, Uzbekistan and Papua New Guinea.

Another source of supply – sales from central banks – has almost dried up. GFMS, the London-based precious metals consultancy, estimates that over the past 20 years net sales from the official sector, mostly from central banks in Europe, have run at an annual rate of about 400 tonnes – about 11 per cent of total supply. But sales in Europe have slowed to a crawl and Asian banks have started swapping their dollars for gold.

Kamal Naqvi, head of commodity investor sales at Credit Suisse in London, says the market has seen a “sea change” in central banks’ attitude towards gold, “from a dead asset that should be sold because it does not yield, to a diversification tool”.

The shift is important for the gold market on two fronts: the interest from central banks provides psychological support and, more important, caps a source of supply. When bullion prices hit a 23-year low of $250 an ounce in 1999 it followed large gold sales from the Bank of England and other European monetary authorities.

The demand side has also changed from the last big rally after the emergence of bullion-backed exchange traded funds (ETFs). As these vehicles trade in the same way as normal shares, each representing a fraction of gold held in a vault, investors have a trouble- free way to buy the metal.

The emergence of these vehicles, says Philip Klapwijk, head of GFMS, means that “institutional investors have been more important in this rally than in the early 1980s” when pension funds had difficulties investing in gold. In general, the cash poured into gold ETFs is seen as “sticky money” that should prove resilient in a bear market for gold.

The gold ETFs’ growth has been explosive. Take SPDR Gold Shares, the largest in the sector. From almost nothing five years ago, it has ballooned to more than 1,100 tonnes of bullion – ranking above the holdings of central banks such as those of Japan or Switzerland.

The changes in supply and demand, many bankers say, mean that gold prices should remain high for the foreseeable future, although they are split on whether prices will surge further or have reached a plateau. But there is a more important trend for the long-term future of the metal. For the first time in decades, investors are allocating a fraction of their portfolios to gold on a long-term basis.

That marks a return to normality, some argue. For centuries, gold has been central to savers. “The aberration had been the last 20-30 years in which gold moved out of most investors’ portfolios,” says Mr. Spall.

The shift is important for the gold market on two fronts: the interest from central banks provides psychological support and, more important, caps a source of supply. When bullion prices hit a 23-year low of $250 an ounce in 1999 it followed large gold sales from the Bank of England and other European monetary authorities. The demand side has also changed from the last big rally after the emergence of bullion-backed exchange traded funds (ETFs). As these vehicles trade in the same way as normal shares, each representing a fraction of gold held in a vault, investors have a trouble- free way to buy the metal.

The emergence of these vehicles, says Philip Klapwijk, head of GFMS, means that “institutional investors have been more important in this rally than in the early 1980s” when pension funds had difficulties investing in gold. In general, the cash poured into gold ETFs is seen as “sticky money” that should prove resilient in a bear market for gold.

The gold ETFs’ growth has been explosive. Take SPDR Gold Shares, the largest in the sector. From almost nothing five years ago, it has ballooned to more than 1,100 tonnes of bullion – ranking above the holdings of central banks such as those of Japan or Switzerland.

The changes in supply and demand, many bankers say, mean that gold prices should remain high for the foreseeable future, although they are split on whether prices will surge further or have reached a plateau. But there is a more important trend for the long-term future of the metal. For the first time in decades, investors are allocating a fraction of their portfolios to gold on a long-term basis.

That marks a return to normality, some argue. For centuries, gold has been central to savers. “The aberration had been the last 20-30 years in which gold moved out of most investors’ portfolios,” says Mr Spall.

Fannie Mae and Freddie Mac’s federal regulator is renegotiating the companies’ financing plan with the U.S. Treasury Department and may seek an increase to their $400 billion federal lifeline before the end of the year, according to people familiar with the talks.

Most U.S. credit card companies reported charge-offs rose in November after two months of declines in a sign that consumers remain under stress, sending shares down industry-wide.

In a regulatory filing on Tuesday, JPMorgan Chase & Co, the largest U.S. issuer of Visa-brand credit cards, said charge-offs — loans the company does not expect to be repaid — rose to 8.81 percent in November from 8.02 percent in October. It was the largest increase among the biggest credit card issuers, but not the only one.

Capital One Financial Corp said its charge-off rate rose to 9.60 percent from 9.04 percent, and Discover Financial Services said its rate rose to 8.98 percent from 8.54 percent.

Ben Bernanke is widely expected to win Senate approval for a second term as Federal Reserve chairman, but opponents are hoping to use the debate on his nomination to curtail his autonomy at the central bank.

The Senate Banking Committee is poised to clear Mr. Bernanke’s nomination on Thursday, sending it to the full Senate for a vote. Several lawmakers plan to use the proceedings to gain momentum for a bill that aims to subject the Fed’s monetary-policy making to congressional audits.

The measure, crafted by Sen. Bernie Sanders (I., Vt.), mirrors one written by Rep. Ron Paul (R., Texas) that was included in the House’s overhaul of financial-industry regulations passed last week.

Republican Sens. Jim DeMint of South Carolina and David Vitter of Louisiana have vowed to block Mr. Bernanke’s confirmation until the full Senate considers the audit legislation, which has been co-sponsored by about a third of the Senate.

Mr. DeMint said Tuesday that he thinks the measure, which has steadily gained support among lawmakers, would pass if it came to a full Senate vote.

"It would surprise me if very many people would be willing, in public, to vote against the audit," Mr. DeMint said. "Americans don’t trust the Federal Reserve," he said. It has expanded its "mission well beyond anything that was ever discussed."

The top Republican on the Banking Committee, Sen. Richard Shelby of Alabama, declined to disclose whether he will back Mr. Bernanke for another term. But he said he would "absolutely" support the audit provision.

"I’m for an independent Fed on monetary policy," Mr. Shelby said, "but they should have nothing to hide."

Mr. Bernanke has fought the audit bill for months, contending that it would constitute a congressional takeover of monetary policy. Most of the Fed’s other operations, such as bank supervision and consumer protection, are already subject to audits by the Government Accountability Office, an arm of Congress.

Monetary-policy deliberations, such as interest-rate decisions and related actions, have been excluded from audits since 1978 to prevent political interference at the Fed.

Mr. Bernanke was first appointed by former President George W. Bush and was nominated for a second four-year term by President Barack Obama.

In opposing the movement to audit the Fed, Mr. Bernanke has the backing of some senior lawmakers and numerous academic economists.

Sen. Judd Gregg (R., N.H.), among the Fed’s fiercest defenders on Capitol Hill, has vowed to fight the audit legislation. He noted that the measure has not attracted the level of support in the Senate that it has in the House, where two-thirds of lawmakers co-sponsored the provision.

House lawmakers who support broader auditing of the Fed are engaging in "rampant pandering populism," Mr. Gregg said. "I don’t think the Senate is at that point. I think there’s a much more logical and thoughtful approach over here. And people recognize that having Congress involved in monetary policy is a disastrous idea."

But the audit legislation has drawn backers from across the political spectrum, including Mr. Sanders — among the most liberal lawmakers in Washington — and conservatives such as Messrs. Paul and DeMint.

Grassroots activists from the left and the right are lobbying lawmakers intensely to keep the audit provision alive.

On Tuesday, 17 organizations ranging from the liberal consumer group Public Citizen to the conservative activist group FreedomWorks asked Senate Banking Committee members to delay the panel’s vote on the nomination until Mr. Bernanke’s record receives further discussion and the audit legislation gets a stand-alone vote in the full Senate.

"We simply cannot go through the worst financial crisis in generations and rubber stamp the nomination of the chairman who was at the helm when the ship hit the iceberg," they wrote.

In 2006, the Senate confirmed Mr. Bernanke for the Fed job by a voice vote. The last time a nominee for Fed chairman drew substantial opposition was in 1983, when 16 senators voted against giving Paul Volcker a second term after he raised interest rates to double digits to thwart inflation.

Meredith Whitney cut earnings estimates for Goldman Sachs Group Inc. and Morgan Stanley through 2011.

The analyst, who runs Meredith Whitney Advisory Group, now projects Goldman Sachs will earn $19.57 a share in 2009, $19.65 in 2010 and $20.60 in 2011. Those were reduced from $19.95, $21.73 and $24.04, respectively.

Morgan Stanley’s projection for 2010 was cut to $2.60 a share from $2.63, while the 2011 forecast was reduced to $2.75 from $3.28.

Whitney has “neutral” ratings on both stocks.

Citigroup Inc. will suspend foreclosures and evictions for 30 days in a temporary break for about 4,000 borrowers during the holiday season.

The New York-based bank said Thursday the suspension will run from Friday through Jan. 17. It applies only to borrowers whose loans are owned by Citi. Borrowers who make payments to Citi but whose loans are owned by other investors are out of luck.

Chinese central banker Zhu Min said that the dollar is set to weaken further and it will become more difficult for nations to buy U.S. Treasuries.

“When the U.S. has to fund its deficit through the combination of issuing more Treasuries and printing more dollars, it is inevitable that the dollar will continue to weaken,” Deputy Governor Zhu said at a forum in Beijing today.

China, the biggest foreign holder of Treasuries with $798.9 billion of the securities, expressed concern this year at the safety of its dollar assets and central bank Governor Zhou Xiaochuan called for moves toward an alternative global currency. Zhu’s comments, which he said were a personal view, focused on the twin U.S. deficits, fiscal and current account.

The U.S. can’t expect other nations to increase purchases of Treasuries to fund its entire fiscal shortfall, said Zhu, a former vice president of Bank of China Ltd. Efforts by the U.S. to cut its current-account deficit mean other nations accumulate fewer dollars through trade, leaving them with less money to buy Treasuries, he added.

Today in America most citizens don’t even know the difference between a Grand Jury and a Trial Jury. Hardly any know that they have all the authority and duty to form Grand Juries themselves. Are you aware that Judges are not allowed to go anywhere near a Grand Jury? Do you know the Court is not responsible for managing a Grand Jury and neither is the District Attorney? Grand Jury’s which predate the Magna Carta are a mandatory part of the Law dictated by the 5th Amendment to the Constitution for The United States of America.

Judges have no place in Grand Juries nor in Criminal Trials! The Founders knew corruption and they gave us all the tools to live lives of liberty free of unwarranted government intrusion. However, none of those liberties will be enjoyed by a populous who does not even know what the law is and who refuses to stand up with their fellow citizens and be the government that they are. This is a Nation government by we the people not they the government! You form Grand Juries, go out form them and shut down these public servants who have made themselves our sovereigns!

Unemployment decreased in 36 U.S. states in November, with Kentucky and Connecticut posting the biggest declines from a month earlier.

Kentucky’s jobless rate dropped to 10.6 percent from 11.3 percent the previous month, the Labor Department said today in Washington. Unemployment in Connecticut dropped to 8.2 percent last month from 8.8 percent. More states reported reductions in payrolls than increases during November.

Benchmark yields on U.S. municipal bonds reached a 10-week low as sales of long-term maturities in the market this week shrank to less than half the previous week’s tally.

Anne Phillips Ogilby, a bond attorney at one of Boston’s oldest law firms, on Oct. 31 last year relayed an urgent message from Harvard University, her client and alma mater, to the head of a Massachusetts state agency that sells bonds. The oldest and richest academic institution in America needed help getting a loan right away.

As vanishing credit spurred the government-led rescue of dozens of financial institutions, Harvard was so strapped for cash that it asked Massachusetts for fast-track approval to borrow $2.5 billion. Almost $500 million was used within days to exit agreements known as interest-rate swaps that Harvard had entered to finance expansion in Allston, across the Charles River from its main campus in Cambridge, Massachusetts.

The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them. Most of the wrong-way bets were made in 2004, when Lawrence Summers, now President Barack Obama’s economic adviser, led the university. Cranes were recently removed from the construction site of a $1 billion science center that was to be the expansion’s centerpiece, a reminder of Summers’s ambition. The school suspended work on the building last week.

“For nonprofits, this is going to be written up as a case study of what not to do,” said Mark Williams, a finance professor at Boston University, who specializes in risk management and has studied Harvard’s finances. “Harvard throws itself out as a beacon of what to do in higher learning. Clearly, there have been major missteps.”

The U.S. brokerage watchdog is probing how Wall Street firms, including JP Morgan Chase and Citigroup Inc, offer stock research, two people familiar with the probe said on Friday.

The Financial Industry Regulatory Authority, which supervises nearly 4,800 brokerage firms, sent letters to more than 10 firms in early November asking for information related to their unpublished research material, one of the people said.

The same person said FINRA is eyeing the firms’ policies related to their delivery of the unpublished research material. Both sources requested anonymity because the sweep has not been made public.

The news was first reported by the Wall Street Journal, which said Morgan Stanley and Goldman Sachs are also part of FINRA’s inquiry.

FINRA is examining the firms’ meetings where unpublished research opinions were disclosed to non-research employees or clients, one source said.

FINRA has asked firms how many conference calls the firms have had that included more than 15 people, who attended the meetings and whether any scripts were produced, the source said. The same source said FINRA is currently reviewing the firms’ responses.

JPMorgan and Citigroup declined comment. A Morgan Stanley spokeswoman and a Goldman Sachs spokesman also declined comment.

For nearly two months, home buyers with good credit who can make a 20% down payment have enjoyed 30-year mortgage rates below 5%. But as signs of an improving economy increase, the yield on bonds has been edging higher and pulling home-lending rates along as well.

Is the end of the sub-5% era in sight?

Freddie Mac’s widely followed rate survey pegged the average 30-year fixed mortgage at 4.94% for the week ended Thursday, up from 4.81% a week earlier. The survey assumes borrowers pay 0.7% of the loan amount in upfront lender fees and discount points.

The low rates have given homeowners another golden opportunity to lower the interest rates on their mortgages. About three-quarters of all home loans written during the first two weeks of December were refinancings, Freddie Mac economist Frank Nothaft said.

The Freddie Mac survey is just one of the tools consumers can use these days to monitor mortgage trends, with data also published by the trade group Mortgage Bankers Assn. and private outfits such as Bankrate Inc. and HSH Associates.

Another entry in the rate-tracking derby, the nonprofit Fair Mortgage Collaborative, also has plans to publish regular updates on the cost of home loans. It will begin providing information the second week of January, said Jeff Lazerson, a Laguna Niguel mortgage broker involved in the effort.

The group, with backing from the Ford Foundation, "will give average loan rates down to the ZIP Code, and all settlement costs, including third party, down to the state level," Lazerson said. "This very accurate, very complete, real-time and consistent bench-marking has never been done before."

Since July, we have noted and warned that Bernanke has been contracting the Fed balance sheet except during expiration week. Then he expands it sharply. Guess what Ben did this expiry? He pumped in $49.382B on the monetization of $46.918 B of MBS…Six months of identical action is not a coincidence.

Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings. Barnes declined to say when the transfer will occur.

“This isn’t a default or foreclosure situation,” Barnes said. “We are going to give them the properties to get out of the loan obligation.” [This is not a ‘default’ only in the technical sense. We will see more non-defaults defaults in coming months.]

Zero Hedge: What did catch our attention was the following claim made by Goldman spokesman Michael DuVally: “Goldman does not have a position in [YRC], nor are we making markets in the company’s bonds or credit-default swaps.” That we will comment on, because it appears to be an outright lie.

Yesterday, December 16th, at 10:46 am Goldman trader Josh Hershman sent out a Bloomberg run to clients in which Goldman made a market in YRC 5 year CDS as 47-52 (we won’t comment on that bid/ask spread, suffice it to say these kinds of spreads will guarantee Goldman keeps raking in the billions for years to come.) This is a market, and also highlighting that "25MM CASH AND CDS TRADING HERE POST EXTENSION" doesn’t really help your case. DuVally either does not understand what making markets is, or, much worse, is blatantly lying to Bloomberg. Both cases require additional elaboration by Goldman. In either case we suggest Michael go straight to the corner top floor office, with a dunce hat, for a stern reprimand.

http://www.zerohedge.com/article/goldman-spokesman-michael-duvally-lying-goldmans-47-52-market-yrc-cds-would-indicate-so

Gross increased cash in the $199.4 billion Total Return Fund’s to 7 percent of holdings in November from negative 7 percent in October, according to Pimco’s Web site. The fund can have a so-called negative position by using derivatives, futures or by shorting.

The fund cut government-related debt to 51 percent of assets from 63 percent in October.

Crudele: In a box, highlighted in the Dec. 11 release, was this statement: "Special Notice — The advance estimates in this report are the first estimates from a new sample. The new sample for the Advance Monthly Retail Trade Survey is selected about once every two and a half years."

The problem is, you actually have to ask the Commerce Department what that means if you want to know. Government bureaucrats aren’t known for clarity. And nobody I could find bothered to ask.

One news organization, which should be ashamed of itself, proclaimed after seeing the release that "consumer spending was solid in November, suggesting that the economy is on sounder footing than previously thought." Not even close.

Well, here’s the answer. It seems that the Commerce Department surveyed only 2,600 of the same retailers and restaurants in both October and November. The other 2,700 or so were new to the survey and were only asked about business conditions in November.

But this time a lot of the retailers that weren’t questioned in November might have gone out of business because of the economy.

To borrow a tired, old phrase — the Commerce Department was trying to tell us that it was comparing apples in October with oranges in November. And the comparison really didn’t add up to 1.3 percent growth. But there’s more.

That 1.3 percent gain — even if you were to accept it as valid — was seasonally adjusted. That means the Commerce Department’s computers changed a number here and there because of what has come to be expected over the last five Novembers. Without the seasonal adjustment retail sales were absolutely flat from October to November — 0.0 percent. Flat. No change.

http://www.nypost.com/p/news/business/the_footnote_that_killed_nov_retail_tBtZHigWt8JO830wPoZk3J

BN: ‘Shadow Inventory’ of U.S. Homes Climbs, Report Says The number of homes that may be in the pipeline for a sale because of foreclosure and delinquency climbed about 55 percent to 1.7 million at the end of September, according to estimates by First American CoreLogic.

The “shadow inventory” rose from 1.1 million a year earlier. Such properties include those taken over by banks and mortgage companies and those where the loans are at least 90 days delinquent, the Santa Ana, California-based research firm said in a report today. The number of unsold homes listed for sale was 3.8 million in September, down from 4.7 million a year earlier, First American said.

Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.

Payments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, California-based research firm. The rate for mortgages above $1 million was 4.7 percent a year earlier.

As defaults on the biggest mortgages rise, borrowers such as Steve Holzknecht are turning to short sales to exit loans that now are larger than the market value of the house. In such a transaction, the lender agrees to accept less than a 100 percent payoff on a mortgage to expedite the property’s sale.

Bob Chapman is a frequent contributor to Global Research. Global Research Articles by Bob Chapman

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79 percent of the American public is in favor of auditing the Fed, according to a new poll by Rassumussen. Because another 14% are not sure, that leaves only 7% opposed to an audit. And as Rassumussen, the support for auditing the Fed is nonpartisan and very widespread:

Unlike many issues tracked by Rasmussen Reports, there is virtually no partisan disagreement on the issue of auditing the Fed.

Similarly, investors and non-investors are equally supportive of the idea. Generally speaking, there is overwhelming support for such auditing across all demographic categories.

Another poll by Rassumussen shows that only 21 percent of Americans favor confirming Bernanke for another term as Fed chairman.
Rasumussen also points out:

Americans continue to be critical of another key player on the economic front, Treasury Secretary Timothy Geithner. Forty-two percent (42%) of Americans say Geithner has done a poor job handling the credit crisis and federal bailout programs. Twenty percent (20%) rate Geithner’s performance in these areas as good or excellent.

Consumer confidence as measured by the Rasmussen Consumer Index has fallen to a four-month low.

Small Businesses Have Lost Confidence Also

You might assume that – despite the public’s lack of confidence in Bernanke, Geithner and the economy – at least businesses are confident.

However, as Rassumussen notes:

After three months of gains, the Rasmussen Employment Index dropped more than four points in November to its lowest level since July. Just 14% of workers now say their employers are hiring, the lowest total since February.

Economic confidence among America’s small business owners in the Discover (R) Small Business Watch(SM) index plummeted in November, as more owners cited serious concerns about cash flow and saw economic conditions for their own businesses getting worse.

Specifically, Discover reports:

Economic confidence among America’s small business owners plummeted in November, as more owners cited serious concerns about cash flow and saw economic conditions for their own businesses getting worse. The Discover Small Business Watch index fell 12 points in November to 76.5 from 88.5 in October…

• The mood of small business owners generally has soured in November for three straight years, as economic confidence dropped from October to November in 2007 and 2008. The November 2008 index of 67.5 is the low point for the Watch since it started in August 2006.

• 52 percent of owners say they have experienced cash flow issues in the past 90 days, up from 44 percent in October. Forty-one percent of owners say they have not experienced cash flow issues, which is the lowest response in this category since the Watch began. The remaining 6 percent said they weren’t sure.

• 53 percent of small business owners see conditions getting worse in the next six months, up from 43 percent in October; while 19 percent report that conditions are improving, a sharp decline from 29 percent in October; 23 percent see conditions as the same, and 5 percent weren’t sure.

• 62 percent of small business owners rate the economy as poor, an increase from 55 percent in October; 30 percent rate it as fair, and 8 percent say it is good or excellent.

• 53 percent of small business owners think the overall economy is getting worse, up from 44 percent in October but still significantly lower than the 69 percent of owners who felt that way in February 2009, the last time the Watch index was this low. For November; 28 percent say the economy is getting better, down from 35 percent in October; 16 percent see it staying the same, and 3 percent are not sure.

Wall Street might believe that everything is grand, but small businesses are the engines which create job growth in America, and if they are pessimistic, they won’t hire.
The Economy Cannot Recover Until Bernanke and Geithner are replaced
As I have repeatedly written, the economy cannot fundamentally stabilize until trust is restored.

Former Secretary of Labor Robert Reich wrote that Wall Street’s biggest problem right now is the collapse of trust:

The problem is, government bailouts, subsidies, and insurance aren’t really helping Wall Street. The Street’s fundamental problem isn’t lack of capital. It’s lack of trust. And without trust, Wall Street might as well fold up its fancy tents.

A 2005 letter in premier scientific journal Nature reviews the research on trust and economics:

Trust … plays a key role in economic exchange and politics. In the absence of trust among trading partners, market transactions break down. In the absence of trust in a country’s institutions and leaders, political legitimacy breaks down. Much recent evidence indicates that trust contributes to economic, political and social success.

Forbes wrote an article in 2006 entitled "The Economics of Trust". The article summarizes the importance of trust in creating a healthy economy:

Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you’ve persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you’re going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust–now imagine trying to arrange a mortgage.

Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it’s rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest.

"If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia," ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade. That suggests that trust is worth $12.4 trillion dollars a year to the U.S., which, in case you are wondering, is 99.5% of this country’s income. ***

Above all, trust enables people to do business with each other. Doing business is what creates wealth. ***

Economists distinguish between the personal, informal trust that comes from being friendly with your neighbors and the impersonal, institutionalized trust that lets you give your credit card number out over the Internet.

Similarly, market psychologists Richard L. Peterson M.D. and Frank Murtha, Ph.D. wrote in 2008:

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