Death By 1000 Paper Cuts

If you're intellectually honest with yourself, what's happening in this country right now is truly frightening...people who understand the markets are terrified by what's going on...Now we know why Bernanke is stepping down and running for the safety of his academic ivory tower - it has to be embarrassing for him to stand up in public and say: "look at the stock market - see, everything is fine."

Those comments are from a good, long-time friend of mine from NYC who used to tell me back in 2003 - in response to my prognostication about what's unfolding in this country and why owning gold was imperative - that I was "seeing black helicopters coming."

In fact, he called me up this morning and said "I really hate to think about it, but your scenarios for what could happen in this country are starting to look real.  He also commented that "the system crashed in 2008 and never really recovered except superficially from all of the money printing by the Fed and financial support of the banks by the Government."

Regarding his remark about people who understand the markets and are terrified - that observation comes from the fact that he chats regularly with high level wealth management people at the big banks.

The truth is, any kind of economic recovery is really only being "experienced" by an increasingly smaller part of the population.  Fact:  food stamp usage hits a new record every month - currently 48 million (as of the end of December) were on food stamps - that's  15% of the population and by household, 19% of the households.  Fact:  currently a record 11 million people are now receiving social security disability benefits - 5.9 million added during Obama's 1st term.   Fact, the labor force participation rate (the number of people working + the number of people looking for work divided by the population) is down to a near-record low 63.5% - it was 65.7% when Obama was inaugurated and and has declined nearly every month since then.

How can Bernanke possibly claim the economy is improving given those FACTS?  Now you know why he wants to leave at the end of his current term.  A two-term'er vs. Greenspan, who was a 6-term Fed head.  We all know why, it's just very few are willing to be "intellectually honest with themselves."

The fact is, there's 2.2 trillion reasons the economy superficially appears to be improving and the stock market keeps hitting new record levels.  That's the number of dollars printed and injected into the system since the Fed QE program started in March 2009.  By the end of 2013, that number will be 3.2 trillion.

The housing market?  Really?  Fact:  the Government is financing, using Taxpayer-subsidized money, around 97% of the mortgage market now.  In fact, the Government has recently ramped up its refinancing of underwater mortgages to now include the once-notorious no-documentation mortgages.  This is for mortgages that are already underwater and in danger of defaulting.  Since the FHA stepped in to replace the void left by the FNM/FRE bankruptcy, the FHA's liberal home purchase mortgage programs have gone from 2% of the housing market to close to 20%.  FACT:  the 2008 vintage FHA mortgage delinquency rate is now approaching 30%.

Want more?  FACT:  since the Fed announced the additional mortgage QE - i.e. printing money to buy mortgage paper, the Fed has been purchasing roughly 2/3's of all Government agency-financed mortgages.  Translation:  the Fed is printing money to enable some people to buy homes.  FACT:  currently, based on Census Bureau numbers, there are 18 million vacant homes in this country, of which about 4.5 million are in process of being converted by investment funds into rentals (there goes the rental market) and 4.5 million are considered vacation homes.  That's 9 million vacant homes with no intended purpose.  I'm not making that up, those are Census Bureau numbers.  There goes the low housing inventory story.  Wanna know where a lot of those homes are?  They're sitting on bank balance sheets, foreclosed, being financed by the money printing:  LINK

As my friend said, the economy collapsed in 2008 and never really recovered.  Instead, there's been slow systematic erosion in the general standard of living for an increasing percentage of the population.  Here's one more FACT:  since June 2009, the inflation-adjusted median household income has declined by 7.2%.  That is not the type of statistic we would be looking at if things were really getting better.

The golden truth is that the Fed's money printing program is doing nothing more than delaying the inevitable:  a complete systemic reset/collapse which will likely destroy the standard of living for everyone in this country except the truly wealthy .5% (that's point 5 percent).  And those in the .5% who don't own any gold/silver will be reset into relative poverty.  Death by a 1000 paper cuts (or 3.2 trillion printed dollars).