Monday, April 30, 2012

Economy May Be Headed Into Free Fall Again

Many borrowers, particularly since late 2010, thought they were buying at the bottom of a housing market that had already suffered steep declines, but have been caught out by a continued fall in prices in wide swaths of America. - source link below
First things first.  Remember this big dog and pony show Bernanke went on a couple weeks ago to pontificate on how open the Fed is about how it conducts its operations now?  Well it turns out that is just another well-crafted cover-story for the truth.  Those of us who follow and understand the truth know that Bernanke is about as full of shit as they come.

Now comes this:  When Bank of America took over Merrill Lynch, it was largely thought by those who analyzed the numbers - as opposed to gobbling up the garbage spooned out by the Fed, politicians and media - that Merrill Lynch was in trouble similar to Lehman before Lehman collapsed and that the deal was a "shot-gun" marriage brokered by the Fed and smoothed over by the injection of $20 billion in Taxpayer bailout money to Bank of America.  Recall that John Thain, who left Goldman to become the CEO of Merrill Lynch for about 20 seconds before BAC absorbed Merrill.  Thain was given a $15 million signing bonus and spent $1.2 million refurbishing the CEO office. 

It turned out that after the merger was completed, Merrill reported billions in losses that were not disclosed before the shareholder vote on the deal.  Apparently there many phone calls that included then CEO of BAC, Ken Lewis, and Bernanke and Thain.  There's a shareholder lawsuit on this matter and it turns out that the shareholders would like question Bernanke about conversations he had with Lewis prior to the closing of the merger.  The Fed and Bernanke are vigorously fighting this subpoena:  LINK

Quite frankly, I think Taxpayers should be just as interested in this fraud as BAC shareholders. Anyone who still places faith and trust in the Fed, and specifically in Bernanke, is either hopefully naive or hopelessly ignorant.

On to the economy.  Today the personal income and spending report by the Government was released.  It showed a slight increase in personal income.  Per this keen analysis by zerohedge, if you strip out the increase in Government transfer payments (welfare, social security), personal income declined, personal spending declined and the savings rate bumped a slight amount, but is still substantially below the March 2011 savings rate:  LINK

In addition, the Chicago Purchasing Managers Index showed a big plunge in March from its February reading and the headline number is the worst it's been since November 2009.  Also, the Dallas Fed released its manufacturing survey, which plunged into a negative reading, -3.4 from its prior reading of 10.8, dropping to its lowest reading in 7 months.  You can see the action HERE

Finally, I happened to run across an item reported on CNBC's website last Thursday in which Reuters reported a Corelogic survey that showed "(m)ore than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth..."  Here's the LINK.

Not sure how those who are promoting a bottom/recovery going on in the housing market would like to respond to that data.  Corelogic is not an industry-motivated promotional association, so the numbers are likely to be pretty accurate.

To be sure, there are some very select areas around the country that are showing a slight bounce in the overall health of the housing market in those areas.  However, I believe that even in those areas the "bounce" will be ephemeral.

Put everything above into the same context and you have an economy that is starting into a free fall.  Why does it not seem that way? 1) The mainstream media is regurgitating the b.s. that is fed to it by Wall Street and the Government, similar to the way Obama reads from his teleprompter (TOTUS - Teleprompter of the United States);  2) over 50% of all Americans receive some form of Government transfer payment, of which roughly 47 cents on every dollar is borrowed by the Treasury in order to make that payment.  The Taxpayers of this country are providing one massive safety net that is making the true economic conditions seem less severe.  

This can't go on ad infinitum.  At some point the U.S. debt creation machine will hit a wall.  For sure a blow up in Europe in Spain or Italy will fingered as the culprit.  But the Truth is that the United States is in worse condition than any individual European country and the EU collectively.  It is what it is - just better pray that history's guidebook for how these situations end up does not happen this time...


  1. Hard to believe Dave in Denver ends this missive by saying we should pray for a good outcome.

    But that might be the best likelihood for success.

  2. TOTUS -- that hurts!

    Spot-on commentary, as usual, Dave.

    1. Thanks JG - can't take credit for tho - zerohedge coined it. I think it's hilarious AND appropriate

  3. The Action Plan to Reform

    Contextually speaking, I am asking your help in forming and executing solutions to the current crisis. I know I am asking a great deal of you . But I know that you want America to change. I know this because many people would like to have Ron Paul as their representative in government. We need to leverage his work, build upon it, and then go further in scope and application. It will take the actions of many of us to move forward. We must move forward before we see the dim-remaining light of liberty perish before our eyes. Thus;

  4. Psst, psst, hey buddy, wanna good deal on a kilo?

    over here...

  5. (Quinn)

    Dave: I agree with everything you wrote; however, this headline has me feeling that we might be completely wrong here:

    "Bloomberg - April, 9 2012

    Dennis Gartman, an economist and newsletter editor, said he abandoned his bullish view of stocks in March because of the possibility the market will retreat."

    I just don't know if I can side with Gartman on this one. Oh wait, he has probably already changed his mind on this. I didn't realize it was written 21 days ago.... my bad.


  6. Thanks for the post. One minor fact correction, Thain did not leave Goldman to Merril, he left as CEO of New York Stock Exchange to Merril.

    1. ahh forgot about that. thanks for the correction!

  7. So the chronology for Thain is: Goldman (1985-2004) to NYSE (2004-2007) to Merill to BAC to (? present postion) CIT Group.

  8. Renewed Hope that Jon Corzine, President Obama's Top Tier Campaign Bundler, Will Face Criminal Charges

    The Financial Times reported that many industry professionals were resigned to the idea that there would be no criminal charges in the matter of massive misuse of so-called segregated customer funds by MF Global. According to the article, MF Global's Trustee, James Giddens, is trying to sell the story that sloppy bookkeeping in chaotic final hours prior to the firm's bankruptcy was the problem. You see, according to Giddens, it was unintentional. Former MF Global customers are not buying that story. This is the computer age, and any adequate control system can more than keep up. Moreover, MF Global's officers attested that the firm's internal controls were adequate. At the very minimum it seems they should face a Sarbanes-Oxley lawsuit, and it looks as if there's even more to it than that.

    Behavior that Giddens is trying to pass off as sloppy bookkeeping is fraud's identical twin and a serious violation of U.S. rules. Early estimates of $600 million of impermissibly transferred customer money later climbed to $1.2 billion.

  9. The Real Reason Ben Bernanke Resists the Gold Standard

    The fact that the chairman devoted substantial time to the subject suggests that the idea of a new gold standard is gaining traction and that some public rebuttal was required. That’s interesting because for decades mainstream economists of the Bernanke type have disparaged the role of gold. If a new consensus is emerging that gold has some role to play, this is a threat to the beliefs of Bernanke and others such as Paul Krugman who take the view that money-printing capacity is essentially unlimited.

    Bernanke’s public attack on gold comes down to two propositions, both demonstrably false:

    Gold cannot be used as a monetary standard because there’s not enough gold. This is one of the most frequent charges used by gold standard opponents. In fact, the quantity of gold is never an issue; the issue is one of price. There are approximately 31,000 metric tons of gold held by central banks today and another 130,000 metric tons in private hands. It is true that if this gold were valued at the current market price of about $1,650 per ounce, a money supply of equivalent value would be far less than the current money supply. This would be highly deflationary and probably result in a contraction of world trade and gross domestic product. However, the same quantity of gold valued at, say, $10,000 per ounce would support today’s paper money supply at a reasonable ratio of gold-to-paper in line with historic gold standards.

    So, the issue is not the quantity; it’s the price. Central bankers do not want to face up to the fact that they have printed so much paper money that a return to sound money would involve a one-time hyperinflationary spike in all hard asset values and a concomitant destruction of paper wealth. This adjustment will take place eventually—it always does. The issue is whether we will face up to the reality sooner than later in a studied and orderly way or wait for a disorderly and catastrophic day of financial reckoning.