Friday, February 5, 2010

The U.S. is in Worse Shape Than Any Other Country

It's awesome the way the Government/Wall Street can blow smoke up our ass and people still believe it.  But let's examine some facts.  First, Obama did NOT include the Government guarantee of Fannie and Freddie in his absurd budget proposal.  BUT, the U.S. is guaranteeing roughly $6 trillion of FNM/FRE mortgage debt. Given current default rates, it's not unreasonable to assume a 10% loss on that paper this year.  That means you add another $600 billion on top of Big O's budget numbers.  There's plenty of other off-budget black holes just like that, although maybe not as large (GMAC, AIG, etc.).

What about the myth that we have a deflationary debt contraction going on?  That would be news to anyone who examines the numbers. Please see this chart:
(click to enlarge)
Someone please wake me up when you can find evidence of overall debt in this country contracting - and  that would be the sum Govt + individual + corporate.  What HAS happened is that Wall Street and CNBC are pimping the story that banking system debt is lower.  And it is.  But it's been transferred to the public sector in the form of outright bailouts and guarantees.  Make no mistake, all of that mortgage paper - $1.25 trillion - being purchased by the Fed is guaranteed to YOU, the taxpayer.

Regarding today's employment number, the BLS statisticians and Orwellian press release experts were working overtime this week to produce an employment number that bears no more resemblence to reality than a Bugs Bunny cartoon.  Here's the only chart you need to see, and it uses "unadjusted" (i.e. semi-unmanipulated) data:
(click on chart to enlarge)

I sourced this chart from and recommend that you read their entire post:  LINK

One more chart that I would like to show that readers may have missed.  It is sourced from  This chart shows the "loss severity rate" of home foreclosures in the tri-state area of NY, NJ and Connecticut (number on the chart is the amount of loss sustained by the mortgage holder, so a .7 loss is a 30% "recovery rate"):
(click to enlarge)

As you can see, the amount of money recovered by banks from foreclosed homes is about 30%. Statistically, it's probably not unreasonable to extrapolate this data to the whole country.  But keep in mind, the banks are not taking the hit on this, as they have largely "marked to market" back up all of the charges they took on toxic mortgage paper and you, the taxpayers, are going to bear those losses because a large portion of those losses have been transferred to the Fed and the Treasury. Rest assured, next year's Obama budget did not contain an expense provision for this.  And no, the recovery rate shown on that chart has not bottomed.  In fact, if Obama lets the homebuyer tax credit expire in April, and as banks start to unload all of the foreclosed homes on their balance sheet in order to raise capital, the whole housing market will experience another painful leg down.

And finally, just a quick note on the situation in Europe. It's stuns me that everyone one in this country is focused on the financial troubles occurring in Greece right now. Greece is about 3% of the total EU GDP. In reality, the bell tolling for California right now is much worse in terms of its potential impact on the global economy. California is about 13% of the U.S. GDP and California is the world's 7th largest economy. And what about the list of other States teetering on bankruptcy: Illinois, Michigan, Pennsylvania, New Jersey, New seems to me that the financial media, Wall Street and the Obama Government is spending a lot of energy keeping Europe front and center in front of everyone when, in reality, we should be looking at ourselves.

The golden truth is that the Fed is going to be forced to embark on a money printing operation that will blow our minds.  It will be interesting to see what kind of smoke screens they put up in order to mask the truth.  At some point this nasty short-squeeze rally in the dollar will rip in reverse and the rest of the world will flee from the dollar the way they are fleeing from the euro right now.  When that happens, gold will finally become the ultimate safe haven investment and those who poo-poo it now will be left chasing a train that leaves the station suddenly, quickly and with a sharp move higher.


  1. The Ministry of Truth is working double overtime to keep this train wreck hidden.

    I am now inclined to believe there is an event about to pop and that is why we are seeing this bloodletting in Gold/Silver.

    The same thing happened prior to the QE announcement after which Gold popped up $80 in one day.

    Joe M.

  2. Agree Joe. Look at the dollar and look at what stocks did after that supposedly great jobs number.

    There's an accident dead ahead and it's just a matter of when and how ugly.

    At some point, as per one of my long-time colleagues, we'll wake up and gold will be up $200 overnight

  3. An excellent corrective to the stinking, steaming, heaping doses of MOPE
    being dispensed by the local propagandists. The U.S. is hardly in an advantageous position when juxtaposed with Europe. In the meantime, I would like to know how gold is doing against The Euro and The Pound, and when will gold start pulverizing all of these turd fiat currencies en masse?

  4. Dave,

    Nice work!

    The US does have an advantage – the dollar reserve status and the global superpower position. Such status allows the US to print money like no other country can.

    I don't mean money printing can last forever. In fact, it is my humble opinion that we are getting closer and closer to the point of bringing down the dollar reserve.

    I agree with you on the next crisis that will shake the dollar reserve status.

    JJ from WSB

  5. Hey JJ. Thanks for the feedback. Agree on the US-dollar advantage, but it's definitely fading. The question is, at what point will the Rubicon be crossed and the rest of the world tells the U.S. to go pound may be closer to that point than any of us realize.