This is big news (not saying good, just big)Goldman mulls big equity offering: reportInvestment bank may use the money to repay government investmenthttp://www.marketwatch.com/news/story/goldman-mulls-multibillion-dollar-equity-offering/story.aspx?guid={D2743591-A843-4934-880C-E6D5B970D232}&dist=msr_1

Check this out… PBS interview (Moyer) of the regulator who handled the savings and loan crisis, explaining the rip off of the American people by the banks, mortgage brokers, government, etc…. unbelievable and incredibly depressing..http://www.pbs.org/moyers/journal/04032009/transcript1.html. Dr. Roubini, you are one of the very few economists who are speaking the truth.. The press is amazingly willing to avoid it at all costs… I have been following you for several years now… Please keep it up… there are many honest americans who are relying on you to try to avoid the wall street and government swindlers… you are almost all we have… thank you!!! BTW, Cramer is a buffoon…

Maybe something like this will happen to GS:SMFG fails to trade after stock-issue plan spooks investorshttp://www.marketwatch.com/news/story/smfg-fails-trade-after-stock-issue/story.aspx?guid=%7BCA52CB7C%2DF9A7%2D405C%2DB2EA%2D7718DFDEA442%7D&dist=morenews_ts

Tornados have a strange way of bringing things into perspective. It is a good day to be alive. Best to all.

It will be interesting to see. I’m putting my money on Nouriel and Comstock’s view above. The market P/E is too high, and I believe earnings will surprise on the downside.

This post recommended by Gloomy explains why Obama does not say, Save; he says, Buy. The entire US economy rests on a Ponzi Debt Scheme. And as buying on debt decreases, unemployment increases, simultaneously. To counter the collapse in buying, the government is pump priming, but debt accumulation is swamping the government’s stimulus and unemployment is exploding. To make the situation worse, courtesy of the globalization of production, the USA no longer has productive capacity to employ those thrown into “unemployment via this debt-ridden collapse.” (As Gloomy said, “You can skim over the Aussie stuff, if not interested to get to the U.S. situation.”) Here is why monetary stimulus isn’t working and “the economy will tank and unemployment will explode.”__________“Who’d a thought it? Unemployment leaps 0.5% (Australia) in a month” by Steve Keen in DebtwatchApril 9, 2009 — …As usual the latest set of data from the ABS on the economy was “unexpectedly worse…”That was right in line with what I was expecting from a non-orthodox “Hyman Minsky” point of view. As I have argued in numerous blogs, aggregate demand is the sum of GDP plus the change in debt. Now that our economy is utterly debt-dependent, the debt-financed asset-price bubbles have burst, and debt de-leveraging has begun in earnest, the economy will tank and unemployment will explode as debt-financed spending evaporates.The key chart I’ve published… shows the correlation between the contribution the change in private debt makes to aggregate demand and the unemployment rate…As the economy has become more and more debt-dependent–as the ratio of Debt to GDP has risen–this correlation has gone from being trivial to explaining 95% of the level of unemployment.For those who believe that “Australia is different”… for the USA…[t]he only difference is one of time: they began their decline in this Depression about a year before we did. But we are rapidly catching up.The dramatic deterioration in the economy comes as a surprise to conventional “neoclassical” economists because they exclude debt (and money) from their model of how the economy works. This failed model of the operations of a market economy is why they are incapable of explaining the economy’s behaviour today.With the debt contribution to demand now plummeting, unemployment will rise to levels that are unprecedented in the post WWII period–and they may even rival the Great Depression.Attempts to inflate our way out of this via either government spending or quantitative easing will also fail.The sheer scale of private debt de-leveraging swamps the government’s pump priming, while there is so much debt relative to government created money that the latter will have to be increased by astronomical amounts–and given to those in debt, rather than to the banks–to counter the collapse in demand caused by private deleveraging…Even the slowdown in debt accumulation [in Australis] will swamp the government’s stimulus. In 2007-08, the last year of our debt bubble, private debt rose by $259 billion–adding 20% to aggregate demand. The fall of this to zero–a simple stabilisation of private debt–will remove 20% of demand from the economy. This is what is causing unemployment to explode now.On the monetary front, Bernanke has literally doubled government-created money in the USA in a matter of months, but even so the ratio of private debt to this is close to 30 to 1. He’d need to create twenty times as much (and give it to the debtors to cancel their debts, rather than to the banks in a futile attempt to maintain their facade of solvency) before there would be any chance of a monetary stimulus working. I simply can’t see him trying it.Even if he did (and our local RBA followed suit), and even if governments maintained the scale of fiscal stimulus they are now imparting, there would still be the reality (for the USA, the UK and Australia, and some European nations) that, courtesy of the globalisation of production, they no longer have the productive capacity to employ those who are going to be thrown into unemployment via this debt-driven collapse.The problems caused by the neoclassical economic philosophy of the last 40 years were papered over by debt. To steal a phrase from Warren Buffett, now that debt is collapsing–and debt-finance can no longer be used to purchase cheap Asian goods–the nakedness of that philosophy will be exposed by the outgoing tide…http://www.debtdeflation.com/blogs/2009/04/09/whod-a-thought-it-unemployment-leaps-05-in-a-month/ (WITH CHARTS)____________That’s why the Fed’s pump priming is a failed attempt to keep the Ponzi going. That’s why Obama’s pump priming to stimulate consumption will fail: here’s a small peek at Stimulus 2009 from Wikipedia:.Tax relief for individualsTotal: $237 billion· $116 billion: New payroll tax credit of $400 per worker and $800 per couple in 2009 and 2010. Phaseout begins at $75,000 for individuals and $150,000 for joint filers. [30]· $70 billion: Alternative minimum tax: a one year increase in AMT floor to $70,950 for joint filers for 2009.[30]· $15 billion: Expansion of child tax credit: A $1,000 credit to more families (even those that do not make enough money to pay income taxes).· $14 billion: Expanded college credit to provide a $2,500 expanded tax credit for college tuition and related expenses for 2009 and 2010. The credit is phased out for couples making more than $160,000.· $6.6 billion: Homebuyer credit: $8,000 refundable credit for all homes bought between 1/1/2009 and 12/1/2009 and repayment provision repealed for homes purchased in 2009 and held more than three years. This only applies to first-time homebuyers.[31]· $4.7 billion: Excluding from taxation the first $2,400 a person receives in unemployment compensation benefits in 2009.· $4.7 billion: Expanded earned income tax credit to increase the earned income tax credit — which provides money to low income workers — for families with at least three children.· $4.3 billion: Home energy credit to provide an expanded credit to homeowners who make their homes more energy-efficient in 2009 and 2010. Homeowners could recoup 30 percent of the cost up to $1,500 of numerous projects, such as installing energy-efficient windows, doors, furnaces and air conditioners.· $1.7 billion: for deduction of sales tax from car purchases, not interest payments phased out for incomes above $250,000.For the full view, ie. Tax Relief for Companies such as the $15 billion allowing companies to use current losses to offset profits made in the previous five years, instead of two, making them eligible for tax refunds, see Wikipedia:http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009

Rick Ackerman of Rick’s Picks shows the same respect for this vicious bear as Roubini.. Today iTulip posts Rick’s “plain old horse sense…” when confronted with a bear…Why Only Fools Think the Bottom Is InFrom EJ’s good buddy Rick Ackerman.The back-of-the-napkin numbers sketched out below are the handiwork of our good friend Doug B., a stockbroker who not only helped his clients dodge the bullet of recession/depression, but who also brought them some tidy returns on their portfolios last year. Doug got his clients out of stocks and heavily into Treasurys before the latter took off in 2008, and he has since redeployed the proceeds aggressively in municipal bonds. During our lunch together on Wednesday, he presented a very persuasive case as to why only an imbecile or someone enthralled by Larry Kudlow could possibly think the stock market has seen its ultimate lows. The fatal problem for that kind of optimism, he says, is, in a word, capitulation — or rather, the absence of capitulation in a bear market that so far has been marked by more or less orderly declines the whole way down. Indeed, we should ask: How could the stock market have hit bottom if everyone who was on board at the top is still on board?And everyone is on board, for sure, if you parse some of the key numbers circled in red on Doug’s tablecloth pastiche (which, incidentally, he drew and labeled upside down). The first number notes that in January 2008, when the S&Ps were in the early stages of what was to become a devastating collapse, domestic equity mutual funds were worth about $6.5 trillion. Lo, a little more than a year later, in February 2009, we see that the value of these funds had fallen by about 48%, to $3.4 trillion. But guess what: Over that time, net redemptions totaled only 2%, or about $100 billion! What that means, explicitly, is that mutual fund investors have stuck with this bear market throughout the decline.So, do we infer that guys like Kudlow, Suze Orman and CNBC’s talking heads actually believe this bear market will somehow be different from all others before it, with no exhaustion selling to carve out a durable low?We do not merely doubt this, we view such an outcome as very nearly impossible. This bear market will end, like every other bear market in history, with a wholesale dumping of stocks at prices that will make current values seem exorbitant in comparison.http://www.itulip.com/forums/forumdisplay.php?f=5

I have news. We are all carrying a monkey on our back. In fact, America is carrying a gorilla on its back. It’s the $13 trillion dollars that has been spent by the Gov’t to bail out this crisis. We are going to pay very dearly for this debacle over the long term.Obama may be hopeful today, but I have a feeling that when he looks back over his presidency (a long time in the future) he will deeply regret the money thrown at the Wall Street banks. His two biggest mistakes in office were both made within 3 months of taking the helm.PeteCA

Nationalization (i.e. taking over the investment firms, shadow banking system, and bank holding companies) is far, far more difficult than you realize. These places are NOT insured by FDIC. If they were to go into Chapter 11 or Chapter 13 the world would have another ‘September moment’; where the entire world financial system nearly collapsed due to the demise of Lehman Brothers. I am NOT defending the thieves who have stolen much of America’s near future, I am only pointing out that these institutions, as currently comprised, are, in fact, too big to fail.The next logical move by our government (which is unlikely to happen, since our government is rarely logical) would be to trust-bust these institutions. As far as I can tell, not a single mega-corporation of the financial industry got their w/o a merger or acquisition. Thus, it is time to break them back up. We MUST eliminate the presence of global corporations that are too big to fail (with the exception of those that grow themselves there–we should not place a limit on individual ingenuity. We have an obligation to place a limit on the merging of individual ingenuity, i.e. mergers of corporations creating near monopolies or institutions that are too big to fail).

We should point out, the rapid rise off the market lows was due to large amounts of short covering. Not due to huge new buy-ins for the market. Shorts covered not because “they were wrong”, but because it was a good time to take profits after the big market descent prior to the lows. They made a LOT of money by reacting to the bear market when it got started. They also stand to make a lot more money when this bear market rally subsides again.PeteCA

This chart really drives home the point the “capitulation” really hasn’t played out….it’s the net of stock mutual fund inflows and outflows over 50 years.http://www.comstockfunds.com/files/NLPP00000/387.pdf

Nonsense to think Kass had skill to call a bottom; his call was based upon an oversold & negative sentiment market.Today we have the opposite, an overbought & extended positive sentiment; Kass has acknowledge this technical condition and stated the market will correct as a result.Point being: anyone/everyone has this information.

Yup!Chart of the DayAlcoa officially kicked off earnings season Tuesday after the close. Alcoa reported a loss of $497 million in the first quarter. For some perspective into the current earnings environment, today’s chart compares S&P 500 earnings performance during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1936-2006 (dashed blue line). As today’s chart illustrates, the current decline in earnings is several orders of magnitude greater than the average decline during a recession. The current decline is also more severe than what was the most severe earnings decline on record – the decline that began in 2001 (gold dashed line). (emphasis added)Mark

I have to wonder why Roubini isn’t continuing to use the “pushing on a string” phrase.It IS THE question: what will make consumers consume? As natural resources diminish the costs can only increase (to reflect true scarcity); and it’s natural resources that tend to produce the greatest margins (such as oil).We’re also losing economies of scale, in which case this cannot be a linear descent.Mark

I wonder when the market will have had enough BS from these bankers and starts selling again??

It looks like there’s been a LONG downward trend since 1984.Mark

That’s the reason why debt is accelerating faster than GDP. And as resources will become scarcer, we will continue to deplete them in an accelerated manner, accumulating debt in an accelerated manner : it’s all about parking “externalities” out of the system, for the elites in charge, as long as they don’t have the responsibility to solve the problem, it’s fine.The model of growth on which the US economy has been based for the last 30 years is a complete farce : grow GDP at 3.5% per annum, and debt (public+private) at 10% per annum ! GDP doubles every 20 years, debt every 7 years : we’re now at 350% debt/GDP, we’ll be at 22000% at the end of this century, whoever thinks this can continue for the rest of the 21st century, in a world of finite resources, is completely mad.But our elites know nothing else. So they want to continue the same model of human development until it’s too late : it’s what they call “unleashing the human potential”.

Cramer was bullish on Bear Stearns at $60.00.We all know how that worked out!

Cramer market manipulation video (removed from many sites but still available here)http://www.thestreet.com/_tscnav/video/marketupdates/index.html?clipId=1373_10329438&channel=Cramer+On+Demand&puc=&ts=1174686551750&bt=NS&bp=WIN&bst=FF&biec=true&format=flash&bitrate=300

Matt, I know it says to reply to your comment… but I don’t know what to say…..

http://suddendebt.blogspot.com/search?q=.Monday, March 16, 2009CDS As Money In The ShadowsAs of today I have changed the masthead of the blog to reflect my growing interest in monetary economics which, quite obviously to me, is at the very heart of the current financial crisis. There are certainly other critical influences shaping events (climate change, resource depletion and geopolitical tensions are foremost) but money clearly matters the most, day-to-day.In fact, one could argue that every human activity ends up being factored into and reflected as money flows. If energy flow is the real (i.e. physical) manifestation of human activity, then money flow is its metaphysical – one could even say philosophical – equivalent. The funny thing about money is that, though it is ”unreal”, even kids have a feel for it in daily transactions, whereas the “real” energy is completely nebulous in peoples’ minds.And yet, as befits any philosophic entity, few have a clue about what truly constitutes money – and this includes many so-called professionals. Most just think of money as currency in circulation: dollars, euros, yen and rubles in their pockets or in banks’ vaults. Some take a further step and include deposits in banks, properly understanding them to be mere book entries. But it is very few who make the mental leap required to properly view debt as money – indeed, the very idea is antithetical to “common sense”.And yet, that’s exactly what our current, fiat-issue money is. The acceptance of new debits (debt) by those willing to assume them creates equivalent new credits (money) and presto, new money is created out of, literally, faith. To paraphrase a familiar text:Credo est fides omnipoténtem, factórem cæli et terræ, visibílium ómnium et invisibílium.Credit is omnipotent faith, maker of heaven and earth, of all things visible and invisible.I am sure that longtime readers of this blog are already familiar with all this stuff, Christian Credo in Latin and all. So I wrote the above as mere preamble to today’s “out-of-the-box post”.Onwards, then..The idea hit me as I was thinking more and more about CDS (credit default swaps) and their role in today’s mess. I was quite surprised by Mr. Bernanke’s repeated comments on how “angry” he was at AIG and their ruinous exposure to the CDS market. Now, a Fed chairman – the person most responsible for controlling our money – doesn’t get “angry” in public, unless he has a very, very good reason and/or a serious point to make. To continue in the same vein as above, it’s a bit like the Pope publicly denouncing one of his most important cardinals.Why?Because AIG and all other major CDS players did something very unorthodox, heretical even. They assumed monetary powers above and beyond those of a mere financial acolyte: they created money without having to submit to the prior omnipotent authority of the Fed.I have previously discussed CDSs acting as phantom equity equivalents. But can they also be viewed as phantom money – indeed, very high-powered money? Yes, they can – and that’s a key element to what has become known as “the shadow banking system”.The issuance of CDSs created obligations to pay pre-determined sums every year for, typically, five years – i.e. debts. They were created out of thin air and required no reserving at the Fed or anywhere else. There was no taxation, wage income, rents, mine output, oil wells or anything else tangible backing those debts. So what backed them? Faith, pure and simple. That’s as close as we have ever come to creating the absolute faith-based financial instrument. The Dutch, those early tulip-bubblers, knew a thing or two about such instruments: windhandel they called it, or trading in wind.A CDS Party Carried In The WindFlora’s Wagon of Fools by Hendrik Pot (c. 1637)There are several important observations and corollaries that can be drawn from viewing CDSs as uncontrolled money creation (see chart below). I will leave them to readers by posing this question: as CDS amounts outstanding now crash down through a combination of expiration, forced migration to regulated exchanges and negotiated settlement, what is the effect on money supply, the prospect for inflation/deflation and asset prices?.Posted by Hellasious at Monday, March 16, 2009..comment…so debt is money, and any one on the “inside” can create it out of wind. digital counterfeiting.no?

This may or may not end up winning some journalistic award, but it’s an extremely important article that looks at the poster-child of the financial disaster- Iceland.Wall Street on the Tundra[Excerpt:]—When Neil Armstrong took his small step from Apollo 11 and looked around, he probably thought, Wow, sort of like Iceland—even though the moon was nothing like Iceland. But then, he was a tourist, and a tourist can’t help but have a distorted opinion of a place: he meets unrepresentative people, has unrepresentative experiences, and runs around imposing upon the place the fantastic mental pictures he had in his head when he got there. When Iceland became a tourist in global high finance it had the same problem as Neil Armstrong. Icelanders are among the most inbred human beings on earth—geneticists often use them for research. They inhabited their remote island for 1,100 years without so much as dabbling in leveraged buyouts, hostile takeovers, derivatives trading, or even small-scale financial fraud. When, in 2003, they sat down at the same table with Goldman Sachs and Morgan Stanley, they had only the roughest idea of what an investment banker did and how he behaved—most of it gleaned from young Icelanders’ experiences at various American business schools. And so what they did with money probably says as much about the American soul, circa 2003, as it does about Icelanders. They understood instantly, for instance, that finance had less to do with productive enterprise than trading bits of paper among themselves. And when they lent money they didn’t simply facilitate enterprise but bankrolled friends and family, so that they might buy and own things, like real investment bankers: Beverly Hills condos, British soccer teams and department stores, Danish airlines and media companies, Norwegian banks, Indian power plants.That was the biggest American financial lesson the Icelanders took to heart: the importance of buying as many assets as possible with borrowed money, as asset prices only rose. By 2007, Icelanders owned roughly 50 times more foreign assets than they had in 2002. They bought private jets and third homes in London and Copenhagen. They paid vast sums of money for services no one in Iceland had theretofore ever imagined wanting. “A guy had a birthday party, and he flew in Elton John for a million dollars to sing two songs,” the head of the Left-Green Movement, Steingrimur Sigfusson, tells me with fresh incredulity. “And apparently not very well.” They bought stakes in businesses they knew nothing about and told the people running them what to do—just like real American investment bankers! For instance, an investment company called FL Group—a major shareholder in Glitnir bank—bought an 8.25 percent stake in American Airlines’ parent corporation. No one inside FL Group had ever actually run an airline; no one in FL Group even had meaningful work experience at an airline. That didn’t stop FL Group from telling American Airlines how to run an airline. “After taking a close look at the company over an extended period of time,” FL Group C.E.O. Hannes Smarason, graduate of M.I.T.’s Sloan School, got himself quoted saying, in his press release, not long after he bought his shares, “our suggestions include monetizing assets … that can be used to reduce debt or return capital to shareholders.”Nor were the Icelanders particularly choosy about what they bought. I spoke with a hedge fund in New York that, in late 2006, spotted what it took to be an easy mark: a weak Scandinavian bank getting weaker. It established a short position, and then, out of nowhere, came Kaupthing to take a 10 percent stake in this soon-to-be defunct enterprise—driving up the share price to absurd levels. I spoke to another hedge fund in London so perplexed by the many bad LBOs Icelandic banks were financing that it hired private investigators to figure out what was going on in the Icelandic financial system. The investigators produced a chart detailing a byzantine web of interlinked entities that boiled down to this: A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets—the banks, soccer teams, etc. Since the entire world’s assets were rising—thanks in part to people like these Icelandic lunatics paying crazy prices for them—they appeared to be making money. Yet another hedge-fund manager explained Icelandic banking to me this way: You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets. “They created fake capital by trading assets amongst themselves at inflated values,” says a London hedge-fund manager. “This was how the banks and investment companies grew and grew. But they were lightweights in the international markets.”—Mark

Take a look at the Chart of the Day link that I posted down below (a couple of entries).Mark

m,freakin’ amazing. in broad daylightand nobody saw anything. some thingsare just too common and obvious to beappreciated, both the good and the badi guess.

Another good article. This one is useful to toss at the Pollyannas who are seemingly becoming more boisterous here.Make room for doom and gloomMark

More Quickly Than It Began, The Banking Crisis Is Over

…But, the great banking crisis of 2008 is over. It began last September 15 when Lehman Brothers filed for bankruptcy and bottomed when Citigroup (C) traded below $1 last month. Most analysts believe that mortgage-backed securities which included packages of subprime home loans failed when mortgage default rates went up and housing prices raced down. That is only partially true. Banks made a tremendous series of ill-advised loans to private equity firms, hedge funds, commercial real estate holders, and the average man with a credit card balance which he cannot pay. (See pictures of the top 10 scared traders.)…It is equally safe to say that the large American banks are works in progress which are, in most ways, still dilapidated. Treasury Department analysts may not have the IQs of the PhDs who created mortgage-backed securities, but they did not do their detective work blindly when they insisted that bank balance sheets and loan portfolios needed close examination….The banking crisis may be over, but what is left is a reclamation job that will probably take years to complete, will still have a taxpayer price tag of over $1 trillion, and will leave America’s largest financial firms as institutions of modest power and a regulated scope which will prevent them from looking anything like what they did two years ago.

hey is for horses

I hope you didn’t suffer too badly….

This article belongs to the top 10 list of the most pathetic articles of this month.TIME does publish some really thick nonsense !

Here’s how the problem got started for Iceland:”When, in 2003, they sat down at the same table with Goldman Sachs and Morgan Stanley, they had only the roughest idea of what an investment banker did and how he behaved—most of it gleaned from young Icelanders’ experiences at various American business schools.”The way I see it, it’s a Goldman Sachs/Morgan Stanley initiated problem. These names are held in high esteem. They are something of a gold standard. You as an investor seeking advice and guidance from these entities should be able to trust that advice and guidance. You should, yes really, you should. It was the fiduciary duty of Goldman Sachs and Morgan Stanley to place the interests of their client before their own. It was the fiduciary duty of Goldman Sachs and Morgan Stanley to provide appropriate advice and counsel to their client. That’s not to completely absolve the actions of the reckless Icelandic financiers. But one has to wonder whether this problem could have been nipped in the bud had Goldman and Morgan provided appropriate and wise counsel. If I were in this business and I had a client acting this way I would do whatever I could to put the brakes on, even to the point of disassociating from the client.

@ above, mark & pjb.personal road trip / obligation imminent. thanks for the linksin advance. and i have never seen the language functionso well, at such a level. what you do is magical, really.mike.

George Soros says that the “financial markets have collapsed”-many, if not most, need the illusions and delusionsthe rest of the world, toothe unpleasant truths shock the systemand we try to avoid themhowever, in order to invest, it is necessary to absorb themand move on

DO NOT BE FOOLEDThis Disaster will continue… all the unemployed people will not be paying any taxes… and at U6 of 20% and going to U6 27-32% in the next 18 months the Fed and states and local Gov’ts will be down big time on their income/collections/receipts and not one entity is factoring these dramatic drops. Take it further to corporate income and taxes paid and problem gets even bigger. And of course those making any profits, like the Banks, will figure out ways to not pay their fair share of taxes. So essentially our economy will turn in to one that can’t pay its debt, bills, interest, and all because there are no jobs and we are not re-inventing ourselves or producing/making anything anymore. We are in the third inning of this disaster/collapse. Real pain has yet to come…Fed and state governments are bankrupt, they just won’t admit it… and so are the Banks… We inject about 1 trillion every month somewhere just to keep things going and hoping to fight another day. As I have said there will 1-2 months of where things look like they are better as it seems now, but the real data suggests otherwise. Each time the hammer hits harder on the head when real data finally surfaces…. Be prepared and do not be fooled by this latest stock market burp… The only ones making money during this upturn are the ones that don’t need it…. 99.9% of all Americans are not making one penny on this latest market upswing… all they are doing are squeezing every last cent out of us.

It is appropiate to post this Michael Hudson piece on the Iceland situation. It seems that their mortgages are indexed to inflation and will become a permanent albatross around the population’s neck. The historical context and the exponential or geometric nature of debt as opposed to arithmetic economic growth is explored in this article. It may be of interest for us to do the math and realize that the changes in the last 25 years have institutionalized a financial control over sovereignty that is being finalized with the prominence of debt in this global crisis. The issuance of debt perpetuates the power of the creditor. At some point all sovereignty will be relinquished to the Financial Interests under some kind of an elaborate GlobalFinancial set of Institutions. The Institutions will be presented as benign. just as the Bretton Woods began, however they will morph into raw power. The most powerfultechnology invented was convincing sovereigns to put the power of the state behind banking which is an interest yielding ponzi scheme that eventually controls any society.http://www.globalresearch.ca/index.php?context=va&aid=13055

It is only a matter of time before an internet gatekeeper system is devised to take our power to interact and think things out together. We either become active participants indemocracy or we will not recognize the future. Do you think the powers that be do not realize that our cummulative contributions are a threat to their monopoly of the Zombified Population’s information sources. Today is that day where you can make your presence known to others physically in demonstrations of a “new way foward” around the country.

China Turns a Corner as Spending Takes Holdhttp://online.wsj.com/article/SB123934751932407099.htmlbut according to Setser”Call me crazy, but judging from the trade data alone, I would say China experienced a recession in q4 2008 and q1 2009. “http://blogs.cfr.org/setser/2009/04/10/big-changes-but-not-much-adjustment-chinas-march-trade-data/

agree! keep posting-you’re on a roll!

enlightening comments! In a far less elegant way, but perhaps one that the “average Joe” might understand: “when man finally realizes that the tail should not be wagging the dog, maybe the dog will stop returning to it’s own vomit”!

MM CA: I’m onboard with you. The state governments are directly in the crosshairs – with this tremendous shortfall in tax income that is developing. Further big cutbacks for the states who are overspent is pretty much guaranteed. That certainly includes our own state (California).By the way, did you hear the latest advertising on the radio here for the votes on new propositions that are coming in a few weeks? It just doesn’t sound like anyone “gets it”. There is no economic recovery destined for California any time soon, and it’s ridiculous for people to imagine they can plan to roll back the state cuts on the school system.PeteCA

The internet!“What hath God wrought?” First Telegraphic Message, May 24, 1844. Samuel F. B. Morse Papers, 1793-1919“When people talk of the freedom of writing, speaking or thinking I cannot choose but laugh. No such thing ever existed. No such thing now exists; but I hope it will exist. But it must be hundreds of years after you and I shall write and speak no more.” John Adams: To Jefferson, July 15, 1818Yet, they speak again.Man has met the challenge to regain his freedom of speech. May it not be too late to regain his freedom.

MELTDOWN…………………!the dots connect!Michael Hudson – Economic Meltdown: The “Dollar Glut” is What Finances America’s Global Military Build-upQuote:I am traveling in Europe for three weeks to discuss the global financial crisis with government officials, politicians and labor leaders. What is most remarkable is how differently the financial problem is perceived over here. It’s like being in another economic universe, not just another continent.The U.S. media are silent about the most important topic policy makers are discussing here (and I suspect in Asia too): how to protect their countries from three inter-related dynamics: (1) the surplus dollars pouring into the rest of the world for yet further financial speculation and corporate takeovers; (2) the fact that central banks are obliged to recycle these dollar inflows to buy U.S. Treasury bonds to finance the federal U.S. budget deficit; and most important (but most suppressed in the U.S. media, (3) the military character of the U.S. payments deficit and the domestic federal budget deficit.Strange as it may seem * and irrational as it would be in a more logical system of world diplomacy * the “dollar glut” is what finances America’s global military build-up. It forces foreign central banks to bear the costs of America’s expanding military empire * effective “taxation without representation.” Keeping international reserves in “dollars” means recycling their dollar inflows to buy U.S. Treasury bills * U.S. government debt issued largely to finance the military.To date, countries have been as powerless to defend themselves against the fact that this compulsory financing of U.S. military spending is built into the global financial system. Neoliberal economists applaud this as “equilibrium,” as if it is part of economic nature and “free markets” rather than bare-knuckle diplomacy wielded with increasing aggressiveness by U.S. officials. The mass media chime in, pretending that recycling the dollar glut to finance U.S. military spending is “showing their faith in U.S. economic strength” by sending “their” dollars here to “invest.” It is as if a choice is involved, not financial and diplomatic compulsion to choose merely between “Yes” (from China, reluctantly), “Yes, please” (from Japan and the European Union) and “Yes, thank you” (Britain, Georgia and Australia).It is not “foreign faith in the U.S. economy” that leads foreigners to “put their money here.” This is a silly anthropomorphic picture of a more sinister dynamic. The “foreigners” in question are not consumers buying U.S. exports, nor are they private-sector “investors” buying U.S. stocks and bonds. The largest and most important foreign entities putting “their money” here are central banks, and it is not “their money” at all. They are sending back the dollars that foreign exporters and other recipients turn over to their central banks for domestic currency.When the U.S. payments deficit pumps dollars into foreign economies, these banks are being given little option except to buy U.S. Treasury bills and bonds * which the Treasury spends on financing an enormous, hostile military build-up to encircle the major dollar-recyclers * China, Japan and Arab OPEC oil producers. Yet these governments are forced to recycle dollar inflows in a way that funds U.S. military policies in which they have no say in formulating, and which threaten them more and more belligerently. That is why China and Russia took the lead in forming the Shanghai Cooperation Organization (SCO) a few years ago…Here’s the problem: The Coca Cola company recently tried to buy China’s largest fruit-juice producer and distributor. China already holds nearly $2 trillion in U.S. securities * way more than it needs or can use, inasmuch as the United States Government refuses to let it buy meaningful U.S. companies. If the U.S. buyout would have been permitted to go through, this would have confronted China with a dilemma: Choice #1 would be to let the sale go through and accept payment in dollars, reinvesting them in what the U.S. Treasury tells it to do *U.S. Treasury bonds yielding about 1%. China would take a capital loss on these when U.S. interest rates rise or when the dollar declines as the United States alone is pursuing expansionary Keynesian policies in an attempt to enable the U.S. economy to carry its debt overhead.Choice #2 is not to recycle the dollar inflows. This would lead the renminbi to rise against the dollar, thereby eroding China’s export competitiveness in world markets. So China chose a third way, which brought U.S. protests. It turned the sale of its tangible company for merely “paper” U.S. dollars * which went with the “choice” to fund further U.S. military encirclement of the S.C.O. The only people who seem not to be drawing this connection are the American mass media, and hence public. I can assure you from personal experience, it is being drawn here in Europe. (Here’s a good diplomatic question to discuss: Which will be the first European country besides Russia to join the S.C.O.?)http://www.itulip.com/forums/showthread.php?t=9073

And none dare call it CONSPIRACY.

A Tale Of Two DepressionsI just came across this article by Eichengreen and O’Rourk comparing the current downturn with the 1929 Depression. This is a worthwhile read because the approach is based on academic study …A Tale Of 2 DepressionsMaybe someone posted this link before, but I don’t recall seeing it on this blog.Moral of the story … the current global economic downturn is potentially worse than the last great depression, and global trade is disintegrating faster than in 1929.Now look at it this way. Suppose you were a Baby Boomer, you’ve already taken significant losses on your retirement money, and now you read this article. Just how eager would you be to jump back into the market – until you see if all the trends plotted here actually reverse? So who’s going to be around to dump money into the current supposed “market turnaround”?PetecA

By the way … regardless of how US authorities put a spin on the current situation – they must be aware of the real facts. They must have a “worst-case” analysis of the current economic scenario, and that would certainly point to a possible serious global depression. The Government never does just one analysis – they always look at possible outcomes. So don’t believe too much of what you read in the media – it only goes to show how much disinformation is being continuously fed to the financial blurbs.PeteCA

News: “BEIJING (AFP) – Measures taken by China to combat the global economic crisis are beginning to show results, state media Saturday quoted Premier Wen Jiabao as saying, ahead of first quarter results due next week. The economic indicators for the first quarter will be published next week but I can tell you that the measures we have taken are beginning to show their first results,” Wen said at a meeting with the Chinese community in Thailand, according to the China News Agency. In a video recording of Wen’s address, released on the website of Hong Kong’s Phoenix TV, Wen said that investment flows and demand had increased. He did not give precise figures. The difficult situation that some sectors and businesses were in is beginning to change… credits and loans are increasing rapidly,” he added. The economic situation is starting to change in a positive way, the situation is better than we had expected.”Special note to Premier Jiabao and the Chinese central bank. Recovery of your market is NOT due to the stimulus programs you announced. They would take much longer to have an effect. Early recovery is happening because the global market is anticipating some recovery in China’s situation. You are seeing global money flowing back into China because investors see some hope.Moral of the Story: China needs to go back to progressively loosening its peg on the US dollar. Slowly, but perceptibly. The worst thing you could do – is to make any more comments on a possible devaluation of the renminbi (yuan). If you want to see all this new economic hope vanish in a heartbeat, just consider devaluing your currency.PeteCA

Panetta rejects discipline for interrogatorsApril 10, 2009 (The Washington Times) — CIA Director Leon E. Panetta said Thursday that agency officers who conducted harsh interrogations under the previous administration should not be investigated or punished.Mr. Panetta, in a statement to employees, said he had sent a letter to Congress explaining the CIA’s current policy prohibiting so-called enhanced interrogation of terrorist suspects. He confirmed that the agency was abiding by President Obama’s order to shut down “black sites” — facilities abroad where suspects were detained and, according to some accounts tortured, under the Bush administration.http://washingtontimes.com/news/2009/apr/10/panetta-rejects-discipline-for-interrogators/__________________________As someone said, “How interesting. When Bush is president it’s called torture, when Obama is president it’s called enhanced interrogation techniques.”

Speaking of questions:”Will the government defend its citizens from financial predators, or turn the economy over to them? That is the question.”http://www.globalresearch.ca/index.php?context=va&aid=13055Ho hum

should read “*they* can always. . . “

TIME magazine headline:More Quickly Than It Began, The Banking Crisis Is OverFriday, Apr. 10, 2009http://www.time.com/time/business/article/0,8599,1890560,00.html

Now THAT is HILLARIOUS! God, you’ve gotta love the folks at Time…SWK

I think you are on the right track though I am not sure it’s because they are losing money – ZH is arguing that they are simply deleveraging thereby removing liquidity from the market.”the equity market has reached a point where the transactions on the margin are all that matter as the core volume/liquidity providers slowly disappear one by one through ongoing deleveraging.”The current massive campaign by the administration and the meida to engender investor confidence is staggering – but if ZH is correct it is on a foundation of sand – for the POTUS to be talking the markets higher along with his surrogates is a brave/risky strategy – and perhaps the only arrow left in the quiver.One final point is concerns I have heard expressed in the past on the highly leveraged ETFs and a potential implosion: ZH states”So what happens in a world where the very core of the capital markets system is gradually deleveraging to a point where maintaining a liquid and orderly market becomes impossible: large swings on low volume, massive bid-offer spreads, huge trading costs, inability to clear and numerous failed trades. When the quant deleveraging finally catches up with the market, the consequences will likely be unprecedented, with dramatic dislocations leading the market both higher and lower on record volatility. Furthermore, high convexity names such as double and triple negative ETFs, which are massively disbalanced with regard to underlying values after recent trading patterns, will see shifts which will make the November SRS jump to $250 seem like child’s play.

I commented above in the ZeroHedge article I posted that the administration and media have pulled out all the stops to talk this market higher – could it be that there are no other arrows left in their quiver? It is very suspicious that we have Wells Fargo pre-announcing and then Goldman talking of raising equity etc. etc. far to orchestrated -

El-Erian commented on the second derivative (“we are fast approaching an upturn in U.S. economic growth when the pace of recession will begin to slow” said Lakshman Achuthan”) in an interview last week suggesting that if you have just fallen off a cliff it is perhaps less relevant.

Up and Down Wall Street SATURDAY, APRIL 11, 2009MORE MELTDOWN by ALAN ABELSONQuoteBesides the pleasure of finding a CEO (CARL BASS ) with a sense of humor and, equally important, one who doesn’t suffer foolish questions gladly, the exchange struck us as symptomatic of the insatiable yearning of Wall Street, in general, and sell-side analysts, in particular, to uncover some sliver of bullishness beneath the dismal surface of the unvarnished truth.That touching tendency to mistake dross for gold has been much in evidence in this spirited stock-market rally, five weeks running and still kicking. And it has by no means been restricted to analysts; it has infected market strategists and portfolio managers, to say nothing of economists (which is about all one can say about them without resorting to invective).Even the most unfavorable news, from the relentless shrinkage in corporate earnings to the inexorable rise in unemployment, is all too often blithely shrugged off with the observation that “it wasn’t as bad as expected,” while neglecting to identify by whom. Nor does it seem even passing strange to the growing ranks of wishful bulls that banks that went begging to Uncle Sam for bailouts and were rewarded with billions have magically discovered, come the earnings reporting season, that, by gum, they’re suddenly remarkably solvent (or should we say, seemingly solvent; just disregard several trillion dollars’ worth of ugly stuff on their collective balance sheet, please).We realize, of course, that Washington is on the case. And we feel for the poor, anonymous soul charged with the task of almost daily sending aloft still another trial balloon to rescue the banks. But we suppose she or he does gain a measure of satisfaction from the fact that even if the balloon goes nowhere but poof, more often than not it provides a fresh fillip to the markets.Indeed, if anything, this whirlwind activity by the administration’s economic team, this profusion of blueprints for recovery, so many of which are rapidly discarded or revised or embroidered, by all rights should be giving widows and orphans the jitters rather than prompting them to take the plunge. For it smacks of confusion or panic or both.Believe us, we’re impressed by the vigor of the rally and it’s gone much further and faster than we expected. And we think those hearty types agile enough to have played the big bounce deserve a big pat on the back. That doesn’t mean, though, that we think it’s for real or sustainable.What would cause us to change our minds is some credible evidence that the dark forces that wrought this dreadful recession are starting to dissipate. Instead, it pains us to relate, we see rough going in the months ahead. And that suggests to these rheumy eyes a disappointed market resuming its skittish ways.http://messages.finance.yahoo.com/Stocks_(A_to_&mid=50161&tof=11&off=BACK

the ZeroHedge (Tyler Durden) article was also published on RGE – he makes this comment in response to another comment”the implication in the article is not directionally lower: “dramatic dislocations leading the market both higher and lower on record volatility.” I emphasize the upcoming vol, meaning we could easily see irrational spikes in either direction. “http://www.rgemonitor.com/globalmacro-monitor/256367/#163655

Chinese Bank Lending Surges in Sign Stimulus Is Driving Rebound in GrowthApril 11 (Bloomberg) — China’s new lending surged more than sixfold from a year earlier to a record 1.89 trillion yuan ($277 billion) in March, adding to signs that growth in the world’s third-biggest economy is gathering pace.http://www.bloomberg.com/apps/news?pid=20601087&sid=aLyeIFnC8X1U&refer=home____________________and this from Pettis:Is Governor Zhou a closet Bernanke-ite?”That means that for the first three months of the year we have had loan increases of RMB1.6 trillion, RMB 1.1 trillion, and RMB 1.9 trillion. This amounts to RMB 4.6 trillion for the first quarter of 2009, compared to RMB 4.5 trillion for all of 2008. Notice to my students: learn more about how to resolve and restructure bad loans. This will be a great career option for you over the next few years.”http://mpettis.com/2009/04/is-governor-zhou-a-closet-bernanke-ite/

It doesn’t take much to convince everyone the worst is over, and to suddenly trust the bankers.

“The only people who seem not to be drawing this connection are the American mass media, and hence public.”All else aside, I firmly believe that neither the American mass media nor the average US citizen have the bandwidth or inclination to comprehend -much less articulate- these facts.

Censorship, plain and simple. My dad mentioned to me the other day that the Democrats learned to control the media decades ago, and it’s unfortunate that I (we) can’t rely on American-owned media outlets for the truth. This isn’t necessarily a slam against the Democratic party, just an observation that the media is being controlled. Welcome to Russia.

Foreign Minister Wants US Nukes out of Germany

in support of Point B from antiwar.com:Trojan Horse | How Israeli Backdoor Technology Penetrated the US Government’s Telecom System and Compromised National Securityby Christopher Ketcham September 26, 2008Since the late 1990s, federal agents have reported systemic communications security breaches at the Department of Justice, FBI, DEA, the State Department, and the White House. Several of the alleged breaches, these agents say, can be traced to two hi-tech communications companies, Verint Inc. (formerly Comverse Infosys), and Amdocs Ltd., that respectively provide major wiretap and phone billing/record-keeping software contracts for the US government. Together, Verint and Amdocs form part of the backbone of the government’s domestic intelligence surveillance technology. Both companies are based in Israel – having arisen to prominence from that country’s cornering of the information technology market – and are heavily funded by the Israeli government, with connections to the Israeli military and Israeli intelligence (both companies have a long history of board memberships dominated by current and former Israeli military and intelligence officers). Verint is considered the world leader in “electronic interception” and hence an ideal private sector candidate for wiretap outsourcing. Amdocs is the world’s largest billing service for telecommunications, with some $2.8 billion in revenues in 2007, offices worldwide, and clients that include the top 25 phone companies in the United States that together handle 90 percent of all call traffic among US residents. The companies’ operations, sources suggest, have been infiltrated by freelance spies exploiting encrypted trapdoors in Verint/Amdocs technology and gathering data on Americans for transfer to Israeli intelligence and other willing customers (particularly organized crime). “The fact of the vulnerability of our telecom backbone is indisputable,” says a high level US intelligence officer who has monitored the fears among federal agents. “How it came to pass, why nothing has been done, who has done what – these are the incendiary questions.” If the allegations are true, the electronic communications gathered up by the NSA and other US intelligence agencies might be falling into the hands of a foreign government. Reviewing the available evidence, Robert David Steele, a former CIA case officer and today one of the foremost international proponents for “public intelligence in the public interest,” tells me that “Israeli penetration of the entire US telecommunications system means that NSA’s warrantless wiretapping actually means Israeli warrantless wiretapping…”http://www.antiwar.com/orig/ketcham.php?articleid=13506Also…ECHELON has been claimed as “the largest electronic spy network in history”. In essence it is an information sharing mechanism that involves the United States, the United Kingdom, Canada, Australia, and New Zealand. It encompasses telecommunications, in particular satellite and microwave traffic. Critics have characterised it as surveilling up to 3 billion communications per day, including personal, business and government voice calls, faxes, email, SMS telephone calls, faxes and other data transfers. Many of those communications take place outside the borders of the ECHELON states; some involve governments and nationals of friendly states.Information is electronically sifted, using different categories (such as the recipient or keywords), with some messages undergoing detailed analysis. It is likely that some commercially-sensitive information is forwarded from national security agencies to policymakers and to contacts in leading corporations, for example to assist in trade negotiations.As the following page notes, the effectiveness of ECHELON is unknown: there are few benchmarks for determining its effectiveness or comparing costs. As an essentially secret activity it has proved resistant to scrutiny by legislatures. It is likely to increase in scope and pervasiveness as policymakers rely on ICT as a silver bullet to solve intractable political and military problems.http://www.caslon.com.au/echelonnote.htmhttp://www.newsfollowup.com/dom_spy_agncy.htm#Echelonetc…

I wonder if these loss estimates include current and future rent losses on properties that are now unrentable, and much of this property is mortgaged to the hilt.

For another good read from DollarCollaps.com, the “Best Quotes of March 2009″.Ty Andros, TedbitsCliff Droke, Financial SenseTom Engelhardt, American Empire ProjectMarc Faber, Gloom, Boom & Doom ReportDavid Galland, Casey ResearchOliver Garret, Casey ResearchPeter Grandich, The Grandich LetterEric Janszen, iTulipSimon Johnson, Atlantic MonthlyGreg McCoach, Mining SpeculatorDoug Noland, Prudent BearSascha Opel, Orsus Consult GmbHCongressman Ron PaulMichael S. Rozeff, LewRockwell.comPeter Schiff, Euro Pacific CapitalJames Quinn, Burning PlatformMike Taibbi, Rolling StoneAxel Weber, European Central Bankhttp://www.dollarcollapse.com/iNP/view.asp?ID=93Side note: Real Estate Sales in San Diego are up significantly. Question is, how high will unemployment go, and when will interest rates rise?hlowe

As for rental properties held by individuals, whose tenants have moved on and with no prospects in sight, I’d say it doesn’t until the property goes into the foreclosure pile. Let us say that no one in government statistics, except the IRS, is interested in landlord losses or how much savers have lost to inflation on their CDs that are “earning” less than the inflated price of chicken feed. In Bernanke banker vernacular, “save” is a four-letter word. Perhaps “rent” is too. As for “buy”….

McLaughlin should learn some common sense! On this planet, how can a debtor (USA) point his finger on his biggest creditors(China and Japan) telling them what to do? Does McLaughlin wish the Chinese and Japanese to dump all their US treasury and to cash out in dollar such that the Chinese and Japanese have the money to spend in McLaughlin’s fashion!Why doesn’t McLaughlin go back to University to take economics 101?

The cited article makes no differentiation between saver/exporter and spender/importer economies,with the irony being that the saver/exporter economies are more negatively leveraged to the shrinkage in trade than the spender/importers. As Japan’s , China’s and Germany’s exports collapse, less American workers are laid off than would have been the case had America run a balanced trade account, which it did not. So as American consumers increase their savings, because of the imbalance in trade, an inordinate amount of exporter nation employees are made redundant.

No, you guys need to back and take course in macroeconomics: McLaughlin IS RIGHT. The saver/exporter nations stupidly overleveraged their economies to foreign, rather than domestic consumption, so when American consumers reversed course, stopped spending and started saving, the exporters lost big, because they had relativley little domestic demand to take up the slack.Go to the back of the class.

PeteCA,you need to differentiate between “spent” and “swapped”. Money Fed has “spent” on commercial paper is actually an asset swap, not an expenditure..

I am reading it now…

For those who like metaphors ( I guess I am guilty because as a non-economist I can’t offer a more objective comment) Hellasious’ comparison to mining is a good one. http://suddendebt.blogspot.com/

On the economy, nothing new in this front either. He continues to see the current recession as being deeper and longer (at least one more year) than most forecasters. He also doesn’t care about Ben and his helicopters; he sees chronic deflation settling in, and continued bursting of the housing and commodity bubbles, which implies a continued bear market in stocks.While I do agree with his long term view; short/medium term, Shilling views are most definitely not what market participants are seeing. As I have said many times before, Diz super smart guys are always way too early. Shilling started forecasting the current recession back in 2004:-)

the latest from RitholtzBear Market Rally ?http://www.ritholtz.com/blog/2009/04/bear-market-rally-4/

Good morning everyone. For those interested, I have a new post up at The Light Of Day:http://medic-thelightofday.blogspot.com/2009/04/adaptation.htmlNow – off to work before I am late.

Agree. Think about the political consequences of a real capitulation in 2010-2011. Obama may be a one-term president. Dems could be outnumbered in Congress and the pendulum may swing back to the right without really having gone to the left.

Why worry about falling tax receipts when you can sell treasury bonds to Ben Bernanke? We can all stop paying taxes. Obama will repeal the laws of economics and Ben will send the helicopters. Heaven will descend on Earth and Larry Kudlow will declare the end of all recessions. Dow will be 360,000 and America will once again prove that it is the land of the unlimited opportunities.

@ Guest on 2009-04-11 09:13:44Thanks for posting the link above to the extremely comprehensive and informative article (worthy of re-citing here) for those who might have missed it or assumed it was only about Iceland.The Financial War Against Iceland Being defeated by debt is as deadly as outright military warfare, by Prof Michael Hudson, Global Research, April 5, 2009

More from ZeroHedge on Quants and market anomalies that could portend an interesting and extremely volatile time for the markets in the coming days.First article The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans (link was posted above – here it is again http://zerohedge.blogspot.com/2009/04/incredibly-shrinking-market-liquidity.html)current articleQuantology Revisited: The Negative Convexity Implications Of Delta-Hedging”But a simplified attempt: we have crossed into territory where the negative convexity consequences of delta hedging will keep on pushing the market in a straight line in whatever direction it is moving until we see a violent reversal and the delta hedge breaks due to lack of vol to “feed it”, which will be, in the parlance of our times, the market’s epic fail.”http://zerohedge.blogspot.com/2009/04/quantology-revisited-negative-convexity.html

Remember how we didn’t have to worry about Social Security now because payments from the program wouldn’t exceed revenue for another decade or more? Well, the CBO has revised its estimates. It’s still projecting a tiny surplus for next year–tiny–but Chris Martenson thinks those estimates will quickly be revised down:[I]t was only last year that I was writing about the impeding fiscal calamity that was awaiting us all in 2017 when the outlays for Social Security were slated to exactly match receipts. Now that date could be as early as 2010, apparently.In the chart above (source), I want you to note the extreme deterioration in surplus funds between the 2008 and 2009 forecasts. Can you spot the trend?Here’s a prediction – these too will be revised to the worse in about 6 months. I base this prediction on my belief that more people will opt for retirement than are currently projected and that entitlement program tax receipts will be below current projections. Also, nearly every prediction by the CBO has been revised to the worse over the past year so I am “riding the trend” with this prediction.In the projections for the table above, the CBO has assumed no cost of living adjustments (COLAs) in 2010, 2011, or 2012 and a return to economic growth next year. If either of those assumptions proves wrong, the table above gets smoked to the downside. I give that a better than 90% chance of happening.This, of course, will have implications far beyond the Social Security system.The Social Security “trust fund,” you’ll recall, isn’t a trust fund at all. It’s just another source of annual government financing and a future liability. Today’s receipts are used to pay current payments to retirees and, in the case of a surplus, whatever else the government is spending money on. As the Social Security surplus shrinks, therefore, the government loses a source of funding. If it wants to keep spending at its planned rate, it therefore has to borrow the difference.When Social Security goes into deficit, meanwhile, the government will have to borrow even more money to pay current SS recipients. Chris Martenson:From a budget-busting perspective, last year where the US government had a $73 billion Social Security surplus to spend, this year it will be a paltry $16 billion and next year it will be a number indistinguishable from zero. It is hard to overstate the importance of this shift.This means several things. Instead of $703 billion coming in over the next 10 years, the current (overly optimistic) projection calls for only $83 billion. This means at least another $620 billion in fresh borrowing will have to occur.More importantly, this means that the United States eventual date with bankruptcy has been moved forward by about 8 years or so. It also means that instead of being some future problem, a few administrations down the road, it is a near certainty that the current administration will have to confront some very difficult funding decisions that will be forced by the inability to borrow enough to pay for everything.http://www.businessinsider.com/henry-blodget-the-social-security-bomb-2009-4

Lord help us, the right wing are such corrupt, evil and hideous corporate and banking lobby stooges that we will all get really and royally shafted. However this is exactly the outcome being predicted by the Elliot’s and the Socio-economicists, so I’m sad to say I think you’re right. Fascism here we come.

Obama Bank Fix “Worse Than A Lie” — Former Regulator BlackApril 12″We continue to believe the Obama administration’s approach to the banking crisis has been warped by its personal relationships with Wall Street.” …http://www.businessinsider.com/henry-blodget-g-2009-4and this from BloombergObama Stakes His Fortunes on Failed Banksters: Jonathan WeilApril 9 (Bloomberg) — Now that we have a rough idea how President Barack Obama and his lieutenants plan to prop up insolvent financial institutions using taxpayers’ money, we’re left with a more difficult question: Why?Why doesn’t the Obama administration force insolvent banks and insurance companies to come clean about their losses first? It’s the “why” that’s so vexing. The who, what, when, and how are mere details, by comparison. …http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNMQDysdnKRcand this from the Boston GlobeBy Elizabeth WarrenApril 12, 2009Keeping tabs on the bailout”Until last year, Harvard Law School professor Elizabeth Warren was perhaps best known for her writing on bankruptcy and consumer finance. But last fall, she was appointed chair of a newly created Congressional Oversight Panel, which is charged with keeping tabs on the $700 billion bailout of the financial sector – an effort formally known as the Troubled Assets Relief Program. Warren was recently interviewed by Globe deputy editorial page editor Dante Ramos, who prepared the following edited excerpts”…http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2009/04/12/keeping_tabs_on_the_bailout/

Will overly optimistic Goldilocks be shot down once again? It would appear that Goldilocks, once again, are being too optimistic. I would have to do the research to see it this point is valid but I have no time now. My sense is the positive momentum will carry longer than most bears think, but we may be “back to square one” sooner than Dough Kass thinks. Keep your eyes open!

Follow-Up: News, April 11′th, Bloomberg …”China’s new lending surged more than sixfold from a year earlier to a record 1.89 trillion yuan ($277 billion) in March, adding to signs that growth in the world’s third-biggest economy is gathering pace. M2, the broadest measure of money supply, grew 25.5 percent, the central bank said on its Web site today. That’s the fastest since Bloomberg began compiling data in 1998 and more than the 21.5 percent median estimate in a survey of 12 economists. “This is going to translate into a serious new round of inflation for Chinese consumers.PeteCA

Chris: So to extend your point. A major part of the battle between the USA and China boils down to who winds up with higher levels of unemployment out of this. Tye challenge to the USA is to regain productivity – but how given that we are now forced to deleverage. Leveraged trades were a response to low savings rates. The challenge to China is to re-tool and re-shape to find a new consumer base for exports. But how, when the whole global economy is in a major downturn?PetecA

Priceless!

“Anyone who is doing anything sensible right now is either losing money or is out of the market entirely.” These are the words of a quant trader, who is seeing something scary in the capital markets. Scary enough to merit a warning that we could be on the verge of another October 87, August 2007, or January 2008.Let’s back up. I recently posted a chart which tracks equity market neutral strategies: in essence a cross section of quant funds for which there is public performance tracking. The chart is presented below (click to enlarge).There is not much publicly available data to follow what goes on in the mystery shrouded quant world. However, another chart that tracks the market neutral performance is the Highbridge Statistical Market Neutral Fund (HSKAX), presented below (click to enlarge). As one can see, we have crossed into major statistically deviant territory, likely approaching a level that is 6 standard deviation away from the recent norms.What do these charts tell us? In essence, that there is a high likelihood of substantial market dislocations based on previous comparable situations. More on this in a second.Why quant funds? Or rather, what is so special about quant funds? The proper way to approach the question is to think of the market as an ecosystem of liquidity providers, who, based on the frequency of their trades, generate a cushioning to the open market trading mechanism. It is a fact that the vast majority of transactions in the market are not customer driven buy/sell orders, but are in fact high frequency, small block trades that constantly cross between a select few of these same quant funds and program traders.This is a market in which the big players are Renaissance Technologies Medallion, Goldman Sachs (GS) and GETCO. Whereas the first two are household names, the last is an entity known primarily to quant market participants. Curiously, the Philosophy section in GETCO’s website exactly captures the critical role that quant funds play in an “efficient” market.What’s good for the market is good for GETCOGETCO’s strategy is to align our business plan with what is best for the marketplace. We earn our revenues by providing enhanced liquidity and efficiency to electronic financial markets, which in turn results in lower costs for market participants (e.g. mutual funds, pension funds, and individual investors).In addition to actively trading, we partner with many exchanges and their regulators to increase transparency throughout the industry and to create more efficient means for the transference of financial risk.A good example to visualize the dynamic of this liquidity “ecosystem” is presented below (click to enlarge):In order to maintain market efficiency, the ecosystem has to be balanced: liquidity disruptions at any one level could and will lead to unexpected market aberrations, such as exorbitant bid/ask margins, inability to unwind large block positions, and last but not least, explosive volatility: in essence a recreation of the market conditions approximating the days of August 2007, the days post the Lehman collapse, the first November market low, the irrational exuberance of the post New Year rally, and the 666 market lows.The above tracking charts indicate that something is very off with the “slow”, “moderate” and “fast” liquidity providers, indicating that liquidity deleveraging is approaching (if not already is at) critical levels, as the vast majority of quants are either sitting on the sidelines, or are merely playing hot potato with each other (more on this also in a second). What this means is that marginal market participants, such as mutual and pension funds, and retail investors who are really just beneficiaries of the liquidity efficiency provided them by the higher-ups in the liquidity chain, are about to get a very rude awakening.Also, it needs to be pointed out that the very top tier of the ecosystem is shrouded in secrecy: conclusions about its state can only be implied based on observable metrics from the HSKAX and HFRXEMN. It is safe to say that any conclusion drawn based upon observing these two indices are likely not too far off the mark.Skeptics at this point will claim that it is impossible that quant and program trading has such as vast share of trading. The facts, however, indicate that not only is program trading a material component of daily volumes, it is in fact growing at an alarming pace. The following most recent weekly data from the New York Stock Exchange puts things into perspective (click to enlarge):According to the NYSE, last week, program trading was 8% higher than the 52 week average, which on almost 4 billion shares is a material increase. It is probably safe to say that the 1 billion in program trades last week does not account for significant additional low- to high-frequency trades originated at non NYSE members, implying the real number for the overall market is likely even higher. Some more program trading statistics:principal trading is running 21% above 52 week average, agency trading is 11% below average, while NYSE weekly volume is running about 9% below 52 wk average.A very interesting data point, also provided by the NYSE, implicates none other than administration darling Goldman Sachs in yet another potentially troubling development. The chart below (click to enlarge) demonstrates the program trading broken down by the top 15 most active NYSE member firms. I bring your attention to the total, principal, customer facilitation and agency columns.Key to note here is that Goldman’s program trading principal to agency+customer facilitation ratio is a staggering 5x, which is multiples higher than both the second most active program trader and the average ratio of the NYSE, both at or below 1x.The implication is that Goldman Sachs, due to its preeminent position not only as one of the world’s largest broker/dealers (pardon, Bank Holding Companies), but also as being on the top of the high-frequency trading/liquidity provision “food chain”, trades much more often for its own (principal) benefit, likely in tandem with the other top dogs on the list: RenTec, Highbridge (JP Morgan (JPM)), and GETCO. In this light, the program trading spike over the past week could be perceived as much more sinister. For conspiracy lovers, long searching for any circumstantial evidence to catch the mysterious “plunge protection team” in action, you should look no further than this.Following on the circumstantial evidence track, as Zero Hedge pointed out previously, over the past month, the Volume Weighted Average Price of the SPY index indicates that the bulk of the upswing has been done through low volume buying on the margin and from overnight gaps in afterhours market trading.The VWAP of the SPY through yesterday indicated that the real price of the S&P 500 would be roughly 60 points lower, or about 782, if the low volume marginal transactions had been netted out. And yet the market keeps on rising. This is an additional data point demonstrating that the equity market has reached a point where the transactions on the margin are all that matter as the core volume/liquidity providers slowly disappear one by one through ongoing deleveraging.Unfortunately for them, this is not a sustainable condition.As more and more quants focus on trading exclusively with themselves, and the slow and vanilla money piggy backs to low-vol market swings, the aberrations become self-fulfilling. What retail investors fail to acknowledge is that the quants close out a majority of their ultra-short term positions at the end of each trading day, meaning that the vanilla money is stuck as a hot potato bagholder to what can only be classified as an unprecedented ponzi scheme. As the overall market volume is substantially lower now than it has been in the recent past, this strategy has in fact been working and will likely continue to do so… until it fails and we witness a repeat of the August 2007 quant failure events… at which point the market, just like Madoff, will become the emperor revealing its utter lack of clothing.So what happens in a world where the very core of the capital markets system is gradually deleveraging to a point where maintaining a liquid and orderly market becomes impossible: large swings on low volume, massive bid-offer spreads, huge trading costs, inability to clear and numerous failed trades. When the quant deleveraging finally catches up with the market, the consequences will likely be unprecedented, with dramatic dislocations leading the market both higher and lower on record volatility. Furthermore, high convexity names such as double and triple negative ETFs, which are massively disbalanced with regard to underlying values after recent trading patterns, will see shifts which will make the November SRS jump to $250 seem like child’s play.For readers curious about just how relevant liquidity is in the current market, I recommend another recent post that discusses DE Shaw’s opinion on the infamous basis trade, in which their conclusion was that establishing a basis trade, which is effectively the equivalent of selling a put option on market liquidity, ended up in massive financial carnage as the market rolled from one side of the trade to another. Is it possible that what the basis trade was for credit markets (most notably Citadel, Merrill and Boaz Weinstein), so the quant unwind will be to equity markets?So when will all this occur? The quant trader I spoke to would not commit himself to any specific time frame but noted that a date as early as next Monday could be a veritable D-day. His advice on a list of possible harbingers: continued deleveraging in quant funds as per the charts noted above, significant pre-market volatility swings as quants rebalance their end of day positions, increasing principal program trading by Goldman Sachs on decreasing relative overall trading volumes, ongoing index VWAP dislocations.One thing is for certain: the longer the divergence between real volume trading/liquidity and absolute market changes persists, the more memorable the ensuing market liquidity event will be. At the end of the day, despite the pronouncements by the administration and more and more sell-side analysts that the market is merely chasing the rebound in fundamentals in what has all of a sudden become a V-shaped recovery, the “rally” could simply be explained by technical factor driven capital-liquidity aberrations, which will continue at most for mere weeks if not days.

Joe: Really interesting post. Much appreciated. Although you’re looking at quant funds here, I could interpret this data a little differently.Think about all those derivative trades. Offsetting, no? Or at least they are supposed to be. But offset how, exactly? Well sometimes, interest rates are simply offset against each other (i.e. interest rate deriv’s). But at other times, offsets on certain derivatives are not based on pairs of assets, but rather certain assets that are expected to trade in tandem. For example, you might expect equity markets to change up or down, traded against the euro/yen pair. And so offset on this basis.So the point is that if the old relationships are going out the door on a six-sigma divergence, then all those offsets of derivatives are … well not exactly offsetting. Bummer – at least if you’re a big bank hoping to make a lot of money off derivatives.PeteCA

I’ve been waiting for this story, betting that a record number of taxpayers will opt to pay ‘08 taxes owed and/or ’09 1st Q tax estimates by credit card.And here it is, the story that implies that’s going to happed, in today’s San Jose Mercury’s Sunday Business section:Can’t payyour tax bill?All is not lost(It’s best to be proactive when dealing with the IRS)NEW YORK (AP) – The clock is ticking down to April 15 and it’s time to pay the tax man.But if your 1040 form says you owe more than you have in your bank account, what should you do?“Don’t bury your head in the sand and hope it goes away,” warned Chas Roy-Chowdhury, head of taxation for the Association of Chartered Certified Accounts.If you owe taxes and you don’t pay, the Internal Revenue Service can eventually go after your bank account, your paycheck or other assets. But cash-strapped taxpayers have options that won’t result in a padlock on your front door. The key is not waiting for the IRS to act first.(the article proceeds to discuss three points: GO AHEAD AND FILE; CREATE A PLAN; OFFER TO COMPROMISE.)As for the latter, the article ends: “The offer in compromise process can be complicated and tedious,” he said. So it’s best to have a professional guide you through it if you reach this point.”No taxpayer bailouts, friends! Lest ye forget, ye are the bailers, not the bailees.

via DrudgeTREASURY TELLS GM TO PREP FOR POSSIBLE BANKRUPTCY.

pb,i would say a.) true. b.) false. c.) false. d.) question. ” how many babies does it taketo screw in a light bulb?” answer.. “what is a light bulb?” ie. the trend of the economy isnot predicated on a failed “rocket launch” or the calculus of a tossed ball.e.) what has this got to do with the crazy, stunting and vexing notion of an expanding universe?f.) was i close? and how do you explain the “red shift” being reported in relation to recentobservations of allegedly receding retirement portfolios?

Dude – you forgot to mention that you lifted this post from Tyler Durden at zerohedge and that the comments following Tyler’s post are well worth a visit to that blog.

For those back late from the Easter holidays, take a tip and the time to read NR’s current and very powerful summation of this ongoing financial crisis and economic downturn—it’s one of the year’s best analyses, IMO, of where we are and it checks somewhat growing investor irrational exuberant euphoria with its sobriety. (It pays to be sober while investing.) It’s very telling as to where the bodies are buried, and for those bodies still breathing issues a critical diagnosis of their health, looks at who’s on life support and gives a prognosis and duration of cure.And, as the Professor points out, it is a prelude to forthcoming detailed answers to the questions it asks.

Taxpayer money is what the Wa-Wa (Wall Street-Washington) connection counts on to resolve the banking crisis. They won’t be friendly with those who aren’t co-operative.

Having a big health saving accounts and having Wells Fargo survive is not going to help you more.If the loss/disaster are prevented to be happening in the banks, they will reappear somewhere else such as rapid health inflation or simply almost total lack of available health care (high waiting time – in months).That’s what has happened in other countries.There is NO miracles in life.

Mon cher “weta”,my faith in America was instantly restored by the successful headshots to the pirates by our great commando services. I just find it somewhat historically ironical that a nation that deliberately chose to firebomb enemy civilians in WW II is now wringing its hands over waterboarding a handful of jihadists – get real – rewind the Dresden tape and we’ll talk.You are also off base on Japan — they had no idea we shot our wad on first two bombs and had several million battle hardened troops stationed on the mainland poised to fight to the last man — I’m surprised you’re not aware of the commonly available estimate of one million American casualties upon landing??Pearl Harbor was a wake up call to a selfindulgent citizenry who were attending, among other things, SRO pro-Nazi rallies hosted by Lindberg at Madison Square Garden as late as{YOU FILL IN YEAR}.As for Executive Order 11110, you’ll have to fill me in on that, but, be warned, I’m thoroughly convinced Ruby shot Oswald out of sympathy for Jackie — I also believe in Santa Claus……….

Yeah, FOX “News” … damn Democrats!MarkBTW – I thought we’d pretty much stomped out the distracting Party-blame game. Apparently not… It’s the rich Michelle, it’s NOT about political parties

I’d like to know who was responsible for selecting this cover (and title). They need to be run out of town along with this filthy trio!Mark

And it’s confirmed.New York Times: “I.M.F. Puts Bank Losses From Global Financial Crisis at $4.1 Trillion “http://www.nytimes.com/2009/04/22/business/global/22fund.html?_r=1&ref=globalWASHINGTON — As finance ministers gather here this weekend for meetings of the International Monetary Fund and the World Bank, they will focus on two eye-popping numbers: $4.1 trillion, the fund’s latest projected losses from the global economic crisis, and $1.1 trillion to help fix it.Skip to next paragraphThe huge numbers illustrate the depth of the worldwide economic upheaval and the challenge facing those institutions, which are increasingly at the heart of efforts to contain the damage.In a report released Tuesday, the I.M.F. estimated that banks and other financial institutions faced aggregate losses of $4.05 trillion in the value of their holdings as a result of the crisis.Of that amount, $2.7 trillion is from loans and assets originating in the United States, the fund said. That estimate is up from $2.2 trillion in the fund’s interim report in January, and $1.4 trillion last October.The fund said that it spotted the first glimmers of stabilization in the global financial system, but that “continued decisive and effective action” by governments, banks and institutions like the I.M.F. would be needed to prevent the system from going into a downward spiral.At a meeting of industrial and developing countries in London this month, President Obama and other leaders pledged $1.1 trillion more for the fund and, to a lesser extent, the World Bank.Now, the I.M.F. must figure out how to turn those pledges into hard cash — no easy task, insiders and outside experts say — and how to marshal the money to steady teetering economies including those of Iceland and Pakistan.“We’d be deluding ourselves if we think it is going to solve the crisis,” said Desmond Lachman, an expert on the fund at the American Enterprise Institute in Washington. He was speaking at a conference organized by the institute titled “Can the I.M.F. Really Save the World?”The answer, most participants agreed, was no, but its vastly increased resources have turned the fund into a crucial player.“Anytime you raise expectations, it’s important that you deliver,” said Robert B. Zoellick, the president of the World Bank. “Part of this week’s meetings will be about how you deliver.”Analysts said the $1.1 trillion sum assumed huge contributions by the United States, China and other countries, which may or may not come through. It also counts some contributions more than once, and it counts some in the form of a synthetic I.M.F. currency that is not hard cash.Using funds on hand, the World Bank said it would triple its investments in social safety-net programs to $12 billion over the next two years. The goal, Mr. Zoellick said, is to protect the most vulnerable people in developing countries from facing poverty, hunger or disease because of the crisis. “It’s vital that we make this more than a discussion of high finance,” he told reporters on Tuesday.The reality is that the Washington meetings will be dominated by talk about the escalating losses weighing on the world’s leading banks, insurance companies and pension funds. The fund’s report said the recession was magnifying the impact of the credit squeeze on them.“Shrinking economic activity has put further pressure on banks’ balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging fresh lending,” the fund said in its report, released twice a year, which has become a barometer of the severity of the crisis.As banks struggle to cleanse their balance sheets, the fund said, capital flows to emerging-market economies have plummeted, throwing Eastern Europe into crisis. That threatens to spill over to Western Europe, because its banks are major lenders to Hungary, Estonia and other countries.Among European countries, the fund has already agreed to more than $55 billion in loans to Hungary, Serbia, Romania, Iceland, Ukraine, Belarus and Latvia. More may yet need to be bailed out.On Tuesday, Colombia became the second Latin American country to seek aid, requesting $10.4 billion. Last Friday, the fund approved a $47 billion line of credit for Mexico, making it the first country to qualify for a loan from a program that extends credit to emerging economies that are considered well managed. Poland also said this week that it would seek a $20.5 billion credit line under that program.With so many loans flowing out the door, experts said, the fund would run out of money without the infusion.“They really need to nail down this financing, especially from emerging markets,” said Eswar S. Prasad, a professor of trade policy at Cornell University and a former head of the China division at the I.M.F.In a twist that leaves some experts shaking their heads, the fund needs money from cash-rich developing countries, like China and India, to help more developed but strapped countries, like those in Eastern Europe.Western Europe looms as the next front in the crisis, according to the fund’s report. It estimates that financial institutions will have to write down $1.19 trillion in loans and securities originating there. And they have gotten off to a much slower start than their American counterparts.In the United States banks reported $510 billion in write-downs by the end of 2008, and they face an additional $550 billion in 2009 and 2010, the fund said. In the countries of the euro zone, banks reported just $154 billion in write-downs by the end of last year and still face $750 billion in projected write-downs, the fund said.David Jolly contributed reporting from Paris.

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