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Economic Reality Crushing The American Dream

February 23, 2009 by 1 Comment

Reality Becoming Impossible To Ignore

There still appears to be a serene sense of calm by the American public.  They hope that the government will be able to solve our economic crisis in short order and restore to us the American dream of nonstop prosperity.

For those who have lost their jobs, the American dream is over.   For those who have seen their equity and real estate wealth disappear, there is growing uncertainty that asset values will recover any time soon.  Those who have ignored or denied reality will lose the most since they are the least prepared to deal with the extended economic nightmare we are facing.

Can the world’s governments put Humpty Dumpty back together again?  For further consideration of where we are and where we might be headed, the following links are well worth the read.

False Hope To Reality

It appears as though we are on the cusp of the next (of several) phases in this global economic crisis. The phase we just went through lasted roughly from August of 2008 through the first of this month.  This phase included identifying our problems, getting through the smoke and mirrors, initial false promises of recovery, and the beginning of finger pointing among the nations. It was a phase where the crisis was centered on the banking system and the financial economy. It was a phase where the majority (but not all) of the problems that we are facing was revealed.

It is time now for the next phase. This is the phase where the people of this country and of the entire world begin to awaken to the reality of our present situation, and that reality begins to find its way into world markets. This is the phase where the depth and breadth of the problems we face will be revealed. With this revelation, any remaining hopes of a quick recovery will be dashed on the rocks of reality, and people will begin to actually deal with the crisis. It is a phase where the crisis deepens, not just in the financial economy and the banking system, but in the real economy and in the very life blood of all economic activity – the currency markets.

It is during this phase where the character of the nation will begin to be tested.

Increasingly I am becoming aware of a growing group of people who are ready and willing to stand for the principles given to us by our Founding Fathers. These include our national sovereignty, the rights of the states, limited federal government, sound money, the ability of people to express their faith openly, and the very idea of freedom and liberty for “we the people.”  We are entering a time period where the DNA will be set for how this battle will be fought as new leaders arise within this group.  And how it is fought will be the determining factor of whether or not it will be successful. This is the history we are poised to begin making in the months ahead.

Debt Addiction Depression Destruction

America is so hopelessly addicted to credit that unlike the family that understands its addiction to heroin has destroyed everything they once had, Americans don’t even yet understand they are addicted.

Americans today view the on-going credit contraction much as heroin addicts view the disappearance of heroin—with anxiety, dread and fear. Americans are so addicted to the flow of credit from the Federal Reserve that they no longer believe they can live without it.

The unnatural availability of credit causes an unnatural expansion of economic activity. This “economic expansion” is later followed by an “economic contraction” wherein the debts introduced by the unnatural availability of credit cannot be repaid. The business cycle is as unnatural as the monetary system upon which it is based.

While it is now too late to undo what has been done, it is not too late to prepare for what is about to happen, a financial collapse that will exceed even the suffering caused by the Great Depression. History is now moving quickly and the end of this epoch is near.

Although the economic collapse is now in motion, there is still time to preserve what savings you still have. This is the end of a three hundred year system of credit and debt based on the debasement of money, a system now in its final stages. As the crisis moves forward, the time left in which to act will disappear. Soon, it will be too late to do so.

Today, two years later, although the collapse has started it has only just begun and cannot be stopped until it has fully run its course; and when it has done so, the global economic, social and political landscape will be dramatically altered. Wall Street was first, Main Street is next and, soon, everyone’s street will be affected.

The Long and the Short Of It

Several years ago – I don’t remember the date – I read an interesting comment: “The great boom that the world is enjoying, is in effect an enormous shorting of cash and going long on debt. Eventually, there will be a short squeeze on cash which will have to be covered by going long on cash and shorting debt.”

Deflation and Depression are actually a manifestation of a massive short squeeze on cash in an attempt to reduce a gross and unsustainable long position on debt.

The Deflation and Depression will continue until the long position on debt is reduced. The long position on debt in the world is so massive, that it will only be reduced by equally massive defaults.

Delaying the inevitable will only drag out the agony of Deflation and Depression for many years. Bringing all the massive liabilities of the banking system onto the Treasury’s indebtedness – while the corresponding assets are worth far, far less than these liabilities – will solve nothing.

Debt must be reduced by defaults and bankruptcies. There is no other solution!

There’s Only One Cure For A Depression

In contrast with a depression, a recession is relatively easy to bring to an end. The genesis of a recession is caused by excessive credit creation on the part of banks and the Fed.

However, the only cure for a depression is time. Not the abrogation of the free market. The seeds of a depression are sown when an extreme over supply of money and credit is allowed to continue for a protracted period of time.  When this phenomenon occurs, it produces a pernicious level of debt to pervade throughout the economy. All sectors of the economy become overleveraged and the need to reduce debt becomes paramount. The economy then experiences a severe contraction in GDP. In a depression, the pull back in borrowing is not caused by interest rate increases from the Fed but an inability of the economy to take on further debt. A depression can last for many years as consumers, banks and the government goes through the painfully long and arduous process of deleveraging.

Unfortunately, the kneejerk response on the part of the government and central bank is to stimulate the economy by spending money and reducing interest rates. That is the very same strategy used to combat a recession. However, their response fails to produce the desired result because it ignores the root cause of the problem—debt levels that have become unsustainable. It is not lower interest rates on borrowed money that the consumer seeks, it is less debt. If fact, all attempts by the government to mollify the depression tend to exacerbate the situation by force feeding more debt when it is least capable of being serviced.

What does history say about the effectiveness of government intervention? In Japan, the Nikkei Dow hit a high of 39,957.44 on December 29th 1989. Then it’s epic real estate and equity bubble burst. The composite average is trading below 7,600 today. Even after two decades of trying to turn their market around, their government’s barrage of stimulus plans and a near zero percent interest rate policy has done little to ameliorate the malaise.

A similar result was experienced by both Herbert Hoover and Franklin Delano Roosevelt after they deployed a plethora of government interventions to combat the Great Depression. After four years of Hoover’s wealth distribution and trade wars, and five years into the New Deal, they both failed to bring the economy out of the depression. Unemployment reached 20% in the years 1937-1938 and the percent change in GDP dropped 18.2%. It wasn’t until we fought and won WWll that the economy began to enjoy a sustainable recover.

Unfortunately, we see the same playbook being deployed today as was used under the Hoover/Roosevelt regime. President Obama is following George W. Bush with the signing last week of his own stimulus plan that totals $787 billion. And of course, this is probably the first in a series of spending plans that are intended to help bring the economy back on track.

The reason all the government’s efforts fail to solve the problem is clear. Time is needed to allow asset values to retreat back to historically normal levels that can be supported by the free market. And time is necessary for debt levels to be attenuated to a level where the can be serviced without having the Fed artificially forcing interest rates down. Any and all attempts to prevent deleveraging and to prop up asset prices will cause years to be added to the healing process. Additionally, all government efforts to “help” end up becoming a huge misallocation of resources as they take capital from the private sector and redistribute it in the most inefficient manner. What’s worse is that the increased government spending adds yet more public sector debt to an economy already reeling from a mountain of liabilities.

This buildup in debt levels was unprecedented in history, thanks to a Real Estate bubble that was used to bail out an equity bubble. It would stand to reason that if the government continues to try to manufacture a recovery, it could take more than a decade to return to prosperity. The question is, do we have the patience to let the free market function and endure several years of hardship, but then emerge as a much stronger country. Or will the compulsion to intervene just propel us yet deeper into the abyss.

Filed Under: Deleveraging, Economy, Government spending, Interest Rates, Japan Tagged With: , ,

California & Congress Implement Discredited Depression Era Policies

February 17, 2009 by Leave a Comment

Irony Everywhere

Supposedly we learned certain lessons from the depression of the 1930’s.  Experts agree that two of the worst policy decisions during the depression were to raise taxes and erect trade barriers.

Knowing that something is wrong and still doing it are two entirely different matters.

Congress Wants a Trade War

As the world-wide recession deepens, protectionist sentiments are rising. The House of Representatives’ version of the economic stimulus bill contains a provision that only American-made steel and other products be used for the infrastructure projects. Wrapped in the cloak of “Buy American” patriotism, the Senate version of the bill contains even stronger anti-free-trade provisions.

This Buy American momentum is bad economics, and by threatening to destabilize trade and capital flows, it risks turning a global recession into a 1930s-style depression. Asked about Buy American on Tuesday, President Barack Obama told Fox News that “we can’t send a protectionist message.” He said on ABC News that he doesn’t want anything in the stimulus bill that is “going to trigger a trade war.” He’s right.

Hostility has been no less evident in Europe and China. The European Union has said that it will not stand by idly if the U.S. violates its trade agreements and its obligations to the World Trade Organization. The risks of retaliation and a trade war are very real.

In 1930, just as the world economy was sinking as it is today, the U.S. Congress passed the Smoot-Hawley Tariff Act, which essentially shut off imports into the U.S. Our trading partners retaliated, and world trade plummeted. Most economic historians now conclude that the tariff contributed importantly to the severity of the world-wide Great Depression.

Later, as one of his last acts, President Herbert Hoover made the situation even worse by signing a “Buy America Act” requiring all federal government projects to use American materials. (That act is still on the books although it was weakened during the 1980s.) We must avoid repeating the disastrous mistakes of the past.

This is beyond idiocy and provides further proof that whatever action the government takes to “help” us is certain to hurt us.  The president does not want a trade war and he probably knows that trade wars are a bad thing.   Talk is cheap Mr. Obama – show some leadership and DO the right thing; politics as usual will not help us in this crisis.  If there was any intellectual honesty in Washington, a “buy American” provision would have never been added to the stimulus bill.  Political gamesmanship may have won someone a few votes; the economic cost to the Nation could be incalculable.

California to Close Budget Gap (With New Taxes)

Democrat Darrell Steinberg, the state Senate leader, expressed confidence that another Republican senator would join the two who have committed to vote with the Democratic majority in approving a budget that would raise taxes and cut spending.

In addition to the revenue increases, it proposed cutting $15 billion in spending, including $8.6 billion from education and $1.4 billion from payroll costs, to be achieved in part by furloughing 200,000 state workers at least one day a month. The plan also called for $11 billion in borrowing and $700 million in tax breaks for large corporations.

The impasse has revolved around a bill, out of the nearly 30 in the budget proposal, that would generate $14 billion in revenue by temporarily raising the sales tax by one percentage point, increasing the gasoline tax by 12 cents a gallon, and adding a surcharge of up to 5% on income taxes, among other steps.

Despite an unemployment rate approaching 10% California raises taxes and thus implements the same failed tax policies of the 1930’s.   Considering the further impact of job cuts, pay freezes and pay cuts it is no surprise that many people can barely make ends meet.   Washington’s response is a $10 a week tax cut stimulus!  Bizzaro World economics in action here.

California has to take the worst action possible at the worst possible time because they have no options left.   The one positive in the budget bill is that spending cuts covered part of the deficit rather than higher tax increases.  Despite California’s dance on the edge of bankruptcy, few people realize the full impact that deleveraging will have on California and the nation.  It will takes years of reduced spending, higher taxes and plain old fashioned frugality to restore the sound financial footing that is necessary to launch real economic growth.   Politicians promising a quick turnaround based on social spending stimulus programs are apt to shortly discover the ugly side of impatient constituents.

Filed Under: California, Deleveraging, Economy Tagged With: ,

Nikkei – Black Hole Or Buying Opportunity?

February 17, 2009 by 1 Comment

Has Japan Been Pulled Into A Black Hole?

According to Einstein’s theory of general relativity, a black hole is a region of space in which the gravitational field is so powerful that nothing, including electromagnetic radiation can escape its pull after having fallen past its event horizon.   Recent accounts of Japan’s economic woes are beginning to sound like a black hole event.

Japan’s Economy Goes From Best To Worst On Export Slump

Feb. 17 (Bloomberg) Gross domestic product shrank an annualized 12.7 percent last quarter, the Cabinet Office said yesterday. The contraction was the most severe since the 1974 oil crisis and twice as bad as those in Europe or the U.S.

The credit crisis that crippled the U.S. financial system may have also knocked out the props that supported Japanese growth between 2002 and 2007: a U.S. consumer-spending bubble and a cheap yen. The speed of the deterioration has taken companies by surprise.

Since then, industrial production plunged at the steepest pace in 55 years in the fourth quarter, and unemployment rose at the fastest rate in 41 years in December. Panasonic Corp., Pioneer Corp., Nissan Motor Co. and NEC Corp. announced a combined 65,000 job cuts in the past month.

‘Devastating Effects’

The end of easy credit in the U.S. will lead to a “quantum downward shift” in consumer spending in the world’s largest economy that may have long-term and devastating effects on economies that have relied on it, according to Allen Sinai, chief global economist at Decision Economics Inc. in New York.

Worst Isn’t Over For Japan

TOKYO — Japan’s economy contracted at its fastest pace in nearly 35 years during the final quarter of 2008 — and is likely to underperform other major nations early this year as demand for its goods collapses.

Japan’s gross domestic product shrank by 3.3%, or an annualized pace of 12.7% during the quarter, the government said Monday, a steeper decline than contractions of 3.8% reported for the U.S. and 5.9% in the euro zone for the same period. The world’s second-largest economy was slowed by a staggering 14% decline in exports and diminished capital spending by companies.

Japan’s economy is facing “without a doubt, the worst crisis since World War II,” said Economy Minister Kaoru Yosano.

Economic data already signal more deterioration. Industrial output is expected to drop by around 20% during the first quarter, a government survey says. After tumbling by a record 35% in December, exports sank 46% from a year earlier during the first 20 days of January.

Japan doesn’t have much room for further fiscal stimulus. It has the most debt in the world, coming to 157.5% of annual GDP in the fiscal year starting in April.

Japan Heads For Worst Postwar Slump

Jan. 30 (Bloomberg) — Japan headed for its worst postwar recession as factory output slumped an unprecedented 9.6 percent in December, unemployment surged and households cut spending.

“Japan’s economy is falling off a cliff,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “There’s really nothing out there to drive growth.”

The International Monetary Fund said this week that Japan’s gross domestic product will shrink 2.6 percent this year, the bleakest projection for any Group of Seven economy except the U.K. That contraction would be Japan’s worst since World War II.

“We’re in a very grave situation,” Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo today. “Japan is being hit by this wave of weakening global demand.”

Japan’s Economy – No End in Sight?

Turning to the immediate news in off the wire the situation in Japan apparently went from bad to worse and then onto horrendous in Q4 2008. The latest data points from December are thus quite staggering as will also be detailed below.

Add to this that the debt to GDP ratio is already running at alarmingly high levels, Japan finds itself in a situation where, despite policy makers’ best intentions, the room to manoeuvre is very small. Or as Edward succinctly puts it;

This is the real core of the problem that Japan faces in 2009, that previous fiscal policy did not attack the growing fiscal deficit in the good times, so there is little room to manoeuvre in the bad ones. Which is why the Japan economic outlook in 2009 is grim, grim and nothing but grim.

On the fiscal front the steps are also fundamentally sound I think, but once again Japan is constrained on the debt side and especially of the fact that before a single penny can be spent on the crisis at hand the fiscal authorities need to issue a handsome portion of paper just to cover the primary budget deficit. In terms of the immediate outlook for Japan it is consequently dire.

Do The Japanese Read The News Reports?

Reports on the recent economic news from Japan cited above have included the following words or phrases: “most severe, plunged at the steepest pace, quantum downward shift, devastating effects, collapses, staggering, worst crisis, deterioration, worst postwar recession, unprecedented, falling off a cliff, bleakest, very grave situation, horrendous, staggering, alarmingly, grim, grim and nothing but grim, dire.”

The Japanese readers of these news reports might consider a rendezvous with a black hole as a better option than facing the future.  Is this really a time of desperation or is it the point at which the news can’t get worse, so it has to get better?   Acquaintances of mine who have recently been to Japan report that trains still work, planes still fly, people still go about their business, the streets are crowded and Japan Inc is open for business.  To evaluate the situation further, let’s examine how the horrific economic news has impacted the Nikkei 225.

NIKKEI 225 Ignores Horrific Economic Stats

If we look at the price action of the Nikkei 225 there appears to be a glaring disconnect from the current litany of bad news.  The Nikkei appears to have already discounted today’s bad news last year when the average fell 47% from its June 2008 high of 14490 to the October low of around 6868.   To date, the Nikkei refuses to pierce the October lows and now stands at 7670, almost 12% higher than the October 2008 low.   I am not a chart technician, but this type of price/news divergence is usually a positive sign.  If the Nikkei can stay above last year’s lows, perhaps investors have already discounted the worst.  Conversely, should the Nikkei start posting new sub 7,000 lows, it might be “lights out”.  Time will tell.

Long Term Factors To Consider:

-the Nikkei is already off 80% from its December 1989 high and has perhaps discounted the worst that can happen.

-a multi year double bottom may be forming at current price levels.

-the most fundamentally bullish factor may be that the Japanese government has reached the limits on its borrowing capacity, thus precluding the continuation of costly and ineffective stimulus plans (see Japan’s failed strategy). With the government no longer able to subsidize failed enterprises, free market forces can now accomplish the restructuring necessary to rebuild Japan’s economy.

-logical minds have made a persuasive case that the United States is now following the same failed policies that did not work in Japan for the past 20 years.   If this is the case, the United States needs two decades, deficit spending of $30 trillion and a Dow Jones at 2800 to achieve the same economic status that Japan has today.

Filed Under: Economy, Government spending, Japan, Stimulus Plan Tagged With: , , ,

Government Bond Buyers Demand Higher Yields

February 16, 2009 by 1 Comment

Massive Government Borrowing Raises Repayment Doubts

As governments worldwide attempt to sell massive amounts of debt, investors are beginning to question whether they are being properly compensated for default risk.  The assumption that government debt is risk free is being re-evaluated as debt service payments increase to an untenable percentage of government revenues.   Bond purchasers are further unnerved by the fact that there appears to be no end in sight to  mounting government deficits as nearly every sector of the global economy demands loans and cash bailouts.  Meanwhile, the collapse in corporate profits and massive job layoffs guarantees drastically lower government revenues at the same time that borrowing needs are escalating.

Recent events indicate that the capital markets may be unable or unwilling to fund unlimited government debt sales.

Threat To Government Debt

As countries compete for trillions of dollars of funding, markets are questioning long-held assumptions about the risk-free status of government bonds, and whether their ratings can weather the storm. Moody’s has waded into the debate by dividing its 18 triple-A countries into three categories.

At the top are 14 “resistant” triple-As, whose ratings aren’t being tested by the crisis, including Germany, France and Canada. The U.S. and the U.K. rank second as “resilient” triple-As. They face shocks to their economic model and very large contingent liabilities, but Moody’s thinks they can adjust.

Spain and Ireland, meanwhile, are “vulnerable,” based on their lack of ability to rebound. Ireland’s rating already has a negative outlook. Standard & Poor’s has downgraded Spain.

All of the sovereigns face mounting debt-to-GDP ratios, as debt issuance balloons and economic output declines.

Under Moody’s stress scenario, involving a further growth shock and permanently higher interest rates, interest payments for the U.S., U.K. and Ireland as a share of general government revenues would rise above 10% by the end of 2011 from 6.1%, 5.3% and 2.8%, respectively, at the end of 2007. Spain’s indicator would rise to over 5% from 3.9%.

The 10% barrier is crucial, as above this level debt service costs start to limit governments’ options. Double-A-rated Italy’s indicator was 10.7% at the end of 2007. Rome has admitted it can only respond in a limited way to the crisis because of its debt burden.

Japanese Bonds Fall With Rising Debt Sales

Feb. 16 (Bloomberg) — Japan’s 10-year bonds fell the most in a week on concern the government will spend more to revive an economy that shrank last quarter by the most since 1974.

Ten-year yields climbed from near a two-week low after the Cabinet Office said today the economy contracted at an annual 12.7 percent pace last quarter. Japan may expand its stimulus plans by 30 trillion yen ($323 billion)

Australian bonds also fell today as Prime Minister Kevin Rudd’s government steps up debt sales to finance economic packages. Australia’s government is selling as much as A$24 billion ($15.6 billion) of bonds by June 30 as it increases spending to avoid the nation’s first recession in 17 years.

Korean Auction

The South Korean government’s auction today of 10-year bonds failed to attracted sufficient demand for a second consecutive month. The government raised 584 billion won ($409 million) at the sale today, less than the 800 billion won it was seeking.

Japan’s debt burden is the largest among G-7 nations relative to GDP, according to data compiled by Bloomberg. Italy’s debt is equal to 117 percent of GDP, while the other five countries are below 70 percent, the data show.

Obama’s Promises Of Open Ended US Borrowing Deters Buyers

The Wall Street Journal notes that:

Prices of government bonds started to fall Friday, ahead of the vote by the House of Representatives that approved the $789.5 billion stimulus package. This decline could be the beginning of the capitulation the market has been bracing for since the administration of President Barack Obama took over, with promises of a recession-era boom in government spending.

No sooner had lawmakers reached a compromise on this spending program than yet another began to take shape, this time to help homeowners avoid default on their mortgages. Though the dimensions of this package are unclear — details are expected Wednesday — the bottom line is unequivocal. Each new rescue plan signals an expansion of government borrowing and more bonds flooding the market, which absorbed a record $67 billion last week.

As we can see from the chart of the TLT, a proxy for the government long bond, the bond market has been selling off dramatically for weeks as the size of the stimulus package became clear.  Major foreign buyers of our debt, such as China, are bluntly questioning our ability to repay.  It is obvious to logical minds that there are constraints and consequences to a government’s determination to borrow money beyond its capacity to service the debt.   South Korea and Germany have already had failed bond auctions, with insufficient investor demand to buy all the debt offered.  Italy is so indebted already, it has given up trying to sell additional debt.  Rational investors do not lend money to borrowers judged incapable of servicing and repaying debt.

Courtesy StockCharts.com

US interest rates will continue to rise as Congress talks of further huge government borrowings.  Higher borrowing costs will severely strain government budgets.  The banking industry, corporate America and John Q Public all are demanding funding, bailouts and tax breaks.   Congress’s promises to bailout everyone and to “spend us into prosperity” with borrowed money will lead to financial disaster.  The out of control borrowing and spending will eventually result in the need for a bailout of the United States.  At that point, the issue of default by the United States will no longer constitute an academic discussion – it will be real and the cost will be unimaginable.   Hopefully, the ruling elite will not bring us to this final stage of national ruin.

Filed Under: Bailout, Economy, Government spending, Sovereign Default, Stimulus Plan Tagged With: , , , ,

Notable Links

February 11, 2009 by Leave a Comment

Living Beyond Yours Means – California’s Economy Gets Worse

California’s Pain Is Only Beginning

BIG SUR, Calif. — As Sacramento squabbles over the state’s $42 billion deficit, Californians are getting a bitter taste of what’s to come after the steep budget cuts that are inevitable when legislators and Gov. Arnold Schwarzenegger finally hammer out a deal.

Some world-famous parks like Pfeiffer Big Sur State Park may not open this year. After-school programs in low-income areas are being scuttled, putting high-risk teens on the street just as police forces are being cut. Schools are closing classrooms, and some highway projects have ground to a halt. The state may not be able to monitor some sex offenders as required under law.

Other states face budget cuts too, but California’s budget mess stands out for its size. Its deficit is projected at $42 billion by mid-2010. Since Gov. Schwarzenegger declared a fiscal emergency 14 weeks ago, he and lawmakers have been deadlocked over how to close the gap. Democrats want tax increases and moderate spending cuts; Republicans seek deep cuts and no tax increases; the governor wants a combination.

The governor’s office warned Tuesday that if no budget deal is reached by Friday, the state would send layoff warnings to 20,000 workers. Gov. Schwarzenegger also said he intends to cut 10,000 jobs through layoffs and attrition to save $750 million over 17 months.

If it’s true that California sets the trend for the nation, we can all expect more economic pain.  California has discovered the limits of the theory that a government can borrow and spend its way to prosperity.  It will be interesting to see what outcome the state arrives at with its budget process.  Raising taxes would be self defeating and borrowing more would be total lunacy.  The last option result of cutting spending is already being deployed and will likely continue, putting a further drag on the state’s economy.  The era of reduced expectations is slowly dawning on California.

China Becomes Nervous Over US Debt Holdings

China Needs US Guarantee for Treasuries

Feb. 11 (Bloomberg) — China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.

The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,”  He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.

Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves.

“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”

“The biggest concern for China to continue buying U.S. Treasuries is that if Obama’s stimulus doesn’t work out as expected, the Fed may have to print money to cover the deficit,” said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., partly owned by Morgan Stanley. “That will cause a dollar slump and the U.S. government debt will lose its allure for being a safe haven for international investors.”

The Chinese are correct to worry about the value of their US Treasury holdings.  It is becoming more obvious by the hour that the huge spending proposals coming out of Washington guarantee that the Fed will be printing money.  The Chinese may currently not be able or willing to liquidate their holdings in Treasuries.  The one certainty here is that the Chinese appetite for additional US debt securities will greatly diminish going forward.

Real Estate Long Way From Bottoming

The Reality Behind Real Estate

by Michael Pento, Delta Global Advisors, Inc. | February 10, 2009

Much has been written lately about the beginnings of a recovery in the real estate market. Just last week housing bugs (investment “bugs” are not exclusive to those who only love gold) were cheering the latest data point which they claimed as evidence the market is making a comeback.

So with all this good news out there, why am I still projecting a continuation of falling home prices? Inventories, especially the key reading of vacant homes for sale. The reason the number of vacant homes for sale is more salient than those that are occupied is that a home sitting vacant is much more likely to stay on the market until it is sold, regardless of price (as opposed to occupied homes, with owners who might simply pull the listing if they don’t like the price). Because the owners of so many unoccupied homes are banks, they are especially motivated to hit the bid on a property.

The reason there is an intractable level of homes for sale clearly stems from the faltering economy, which is causing massive layoffs and skyrocketing unemployment. The rate is currently 7.6%, a 17-year high. This compels homeowners (many of whom owe more on their home than it is worth) to walk away from their properties. After all, how much motivation do home owners need to abort if they are already upside down on the home and now find themselves without a job?

Home prices and mortgages rates may have to fall well below historical levels in order to clear away the massive buildup in inventories, and it’s a condition which may need to exist for a protracted period of time before home price stability can occur.

Healing takes time, but that is not part of our new administration’s plan to fix the real estate market. Instead, like his predecessor George W. Bush, the Obama team feels it is better to artificially prop up home prices at an unsustainable level rather than have them retreat to a price that can be supported by the free market. But then again, isn’t this just more evidence that the idea of free market capitalism is being trampled—by both parties.

The Government will waste huge amounts of resources trying to fight free market forces and fail in the end.  Attempts to establish artificial market prices has never worked and it will not work now.

PIMCO Demands That Fed Print Money

PIMCO Says World Faces Second Wave of Economic Crisis

Feb. 11 (Bloomberg) — Pacific Investment Management Co., which runs the world’s biggest bond fund, said the global economy faces a “second wave” of turmoil unless governments adopt larger spending plans.

“The economic setback is still in its early stages,” Koyo Ozeki, head of Asia-Pacific credit research at Pimco’s Tokyo office, wrote in a report on the firm’s Web site. “Any further decline in housing prices could accelerate the downturn, intensifying the pernicious feedback loop and possibly leading to a second wave in the financial crisis in the next six to 12 months.”

Bill Gross, Pimco’s co-chief investment officer, said on Feb. 5 the Federal Reserve will have to buy Treasuries to curb yields as debt sales increase.

“To overcome that second wave, governments worldwide would have to spend vast quantities,” Ozeki wrote. “The resulting erosion in their finances would increase the risk of dangerous side effects.”

It sounds like the largest bond fund in the world is getting so nervous about their bond holdings that Bill Gross is calling on the Fed to print money via the purchase of Treasuries.   We are reaching a very dangerous point in the nation’s finances when there seems to a consensus that printing money is the only solution to our economic woes.  The free market solution of restructuring and bankruptcies is being avoided at all costs.  Expect a long drawn out economic nightmare.

What is the end result of printing money?   See The Zimbabwean Dollar – The Point of No Return – this may be our future.

Japan’s GDP Down 50% In One Year?

Titanic Sails Again to Sink Deck-Chair Economy

Feb. 11 (Bloomberg) — NEC Corp. started a trend that will forever change Japan.

The nation’s largest personal-computer maker on Jan. 30 said it will fire more than 20,000 employees. That announcement would have been shocking enough had it not opened the floodgates. Since then, Panasonic Corp. said it will cut 15,000 jobs. Nissan Motor Co. is cutting 20,000.

Even during the darkest days of the 1990s — deflation, bank failures, public bailouts — companies avoided mass layoffs. NEC’s precedent seems to have made it fashionable to do just that. What’s next? Sony Corp. firing 50,000 people in Tokyo?

The psychological blow to Japan’s already skeptical consumers is sure to deepen the recession at a speed few thought remotely possible just two months ago.

“Japan’s recent economic decline is faster than that of the U.S., which has been experiencing the worst financial crisis in a century,” Kazuo Momma, head of research and statistics at the Bank of Japan, said in Tokyo on Feb. 9.

Momma said the world’s second-largest economy may have shrunk at an “unimaginable” speed last quarter. Gross domestic product fell at an annual 11.7 percent pace in the fourth quarter of 2008, according to the median estimate of 23 economists surveyed by Bloomberg News. That would be the steepest decline since 1974.

At this rate, Japan’s GDP gets cut in half in about a year.  The social and economic devastation we are experiencing will test governments worldwide.  Based on the governmental “solutions” we have seen so far, I would not be optimistic.   See the next link for what our future may look like.

Is There A Possibility For Optimism?

Boomers – Your Crisis Has Arrived

by James Quinn
February 10, 2009

“There is a mysterious cycle in human events. To some generations, much is given. Of other generations, much is expected. This Generation has a rendezvous with destiny.” Franklin Roosevelt – 1936

President Roosevelt was correct. The generation he was speaking to was already dealing with the worst financial crisis in the history of the United States, the Great Depression. By 1945, over 400,000 of this generation had lost their lives. Another 600,000 men were wounded. Much was expected and much was sacrificed. Every generation has a rendezvous with destiny. The generation that won World War II passed the ultimate test and proceeded to produce the next generation, the Baby Boom Generation. Their rendezvous with destiny is underway. Will it be a rendezvous with history that results in World War III, the collapse of the Great American Republic, dictatorship, or a return to the original Constitutional principles upon which this country was founded?

Based on the foolish actions of most politicians in Washington over the last thirty years, I fear for the future of our country. I don’t think the politicians in Washington comprehend the state of affairs. I sense the mood of the country turning. Fear, anger and disillusionment are the prevalent themes. Change is coming, but it is not the change that Barack Obama campaigned for. It will be forced upon us by circumstances beyond any one person’s control. While we are hurtling towards our summit with destiny, Congress continues its path of pork barrel spending, short term solutions, party politics, and condemning our children and grandchildren to a lower standard of living. The “leaders” of this country are using the tried and true method of using fear to ram through their $900 billion tax on future generations. President Bush used the same fear tactics to launch his invasion of Iraq. I see a similar success story with the coming stimulus package. Maybe the coming crisis will ultimately lead to Great Leaders rising to the occasion.

Another insightful writing by James Quinn with some very profound thoughts – well worth reading the full text.

When Does Gold Break Out To The Upside?

Investors Bet Gold To Reach $1,000

Feb. 10 (Bloomberg) — Gold speculators have increased their bets this year by 24 percent that prices will reach $1,000 an ounce by April.

Open interest in options that allow the holder to buy gold at $1,000 by April surged to 9,934 contracts as of Feb. 6 from 8,005 at the start of the year on the New York Mercantile Exchange’s Comex division. Mounting financial turmoil is boosting demand for the precious metal as a haven. Since Jan. 15, the price of the option has almost doubled, outpacing the 12 percent gain in gold futures.

Gold has gained for eight straight years and soared to a record $1,033.90 an ounce in March as mounting bank losses and a declining dollar increased demand for the metal as a store of value. Financial turmoil may push the price above that record to $2,000 as traders buy the metal as a haven, said Eric Sprott, the Canadian money manager who last year predicted banking stocks would collapse.

“The focal point is $1,000,” said Philip Gotthelf, the president of Equidex, who correctly predicted in October crude oil would fall below $40 a barrel. Gold above $1,000 is a “warning signal to central banks that people have already lost faith in currencies,” Gotthelf said.

My only question is why gold is not already selling at $5,000.  Once the $1,000 barrier is decisively breached, expect a massive gold rally with up moves of hundreds of dollars a day.  Gold is a thin market and the price will move accordingly.



Filed Under: Economy, Federal Reserve, Housing, Layoffs, Notable Links, Stimulus Plan Tagged With: , , , , ,

Is The Economic Panic Justified?

February 10, 2009 by Leave a Comment

Act In Haste, you know the rest…

How many of us have had a make a fast decision when panicked or stressed?   How many times have we heard, “I wish I had thought things out a little more before acting”?

Are we now about to make a poor and panicked decision as a nation?  I am extremely dubious of anyone who tells me that I must act on an imminent catastrophe and that I must do it quick, no questions asked, no thinking allowed.   I chose not to live with the consequences of such an ill conceived process.

We can agree that the economy is contracting.  The value question is what, if anything, should we do about it?    The corrective forces of a free market economy are not pleasant but they are necessary. The creative destruction of a recession wrings out the excesses that caused the bust and lays the groundwork for future sustained growth.    Poorly run and unprofitable companies die.   Capital is redirected to new healthy enterprises rather than being used to subsidize zombie operations.   Attempts to stop these self correcting economic mechanisms of capitalism are self defeating.

Two articles worth the read that consider these points are linked below.

Overact, Overthink

The Obama Administration is overthinking the current recession because, in a panic, its economic team sees no light at the end of the recessionary tunnel. This is despite the fact automatic stabilizers such as falling energy prices, falling home prices, falling interest rates, and diminished wage pressures are already beginning to reinvigorate the economy. Accordingly, the Journal’s editorial is correct that the Obama fiscal stimulus package is way overdone. The only fiscal stimuli that should be considered are ones that can get right into the pipeline through the rest of 2009 and ones that stabilize the housing market.

This observation leads naturally to the concern that the Obama administration is likewise overreacting to the credit crisis. This crisis does not require massive loan guarantees, big bad banks, or, the deity help us all, nationalization. Instead, the crisis really requires only one solution: Reducing the rate of home foreclosures. Most of the toxic assets on bank balance sheets represent mortgages gone — or going — bad. Focusing singularly on stability in the housing market would go a long way towards restoring these balance sheets and opening back up the credit spigot urgently needed by American business.

Accordingly, it will be exceedingly interesting as to how the bond market reacts first to the fiscal stimulus and then to the Big Bang solution to the credit crisis scheduled to come out this week from the Obama administration. At the long bond dives in price and goes up in yields, that’s a big bet that the Big Bang will be highly inflationary.

The End of Wealth Creation

The Roman Empire

The rise and fall of the Roman Empire is a classic example of Return On Investment (ROI). Rome essentially funded conquest through pillage, bringing rich treasures of gold and silver back to Rome. During the early years of the Empire, the ROI on conquest was very good and Rome prospered. It had plenty of coin to fund its Legions. As the years went by, however, it became more difficult to find lands worth conquering and the travel costs to send a Legion to remote lands increased. The ROI of conquest began to falter, and Roman Emperors finally concluded additional conquests were not worth the cost. Years of wealth creation came to an end. The Roman Empire shifted its attention to wealth preservation.

The Deterioration Of GDP

The American economy has an embedded structural problem. Our economic focus has shifted to the preservation of wealth. This is not a prediction of the future. It is already happening. The following chart shows the annual change in Current Dollar Gross Domestic Product (GDP) from 1968 – 2008. Note that current dollar GDP seldom exceeds 2% after Q2 of 1984. For the last 20 years, the average has been just over 1.2%.

This is why I am furious at the intellectually challenged thinking that has gone into the proposed “stimulus” bill. It does much to transfer wealth. It does a woefully inadequate job of providing the opportunity to create substantial new wealth.

Our government is currently trying to artificially elevate American Real Estate values and sustain economic activity by spending several trillion $$ of taxpayer money on “bail-outs” and “stimulus” packages. Although money flow will surge for a time, these efforts will ultimately fail because they do not address the fundamental underlying problem – we have slipped into preservation mode. If we want these programs to be successful, they have to either create wealth, or facilitate the creation of wealth. (Reference 2)

Filed Under: Economy, Stimulus Plan Tagged With: ,

Job Cuts And Pay Freezes – The Downward Spiral Continues

February 6, 2009 by Leave a Comment

Companies by the thousands are announcing large layoffs to their labor forces and, in addition, cutting or freezing the pay of those who remain employed.

AT&T Freezes Salaries of 120,000 Management Workers

NEW YORK (Reuters) — AT&T Inc Chief Executive Randall Stephenson will forgo his 2008 bonus payment, and the company will freeze the salaries of 120,000 managerial employees this year, as the telecommunications company prepares for a grim year.

Stephenson’s decision, which he sent to employees in a memo on Friday, comes after the largest U.S. phone company said in December that it would cut 12,000 jobs, or 4% of its workforce.

As bad as the job cuts are, freezing and/or reducing pay for those still employed carries even more significance.   The last time large numbers of companies reduced workers’ pay  was during the depression of the 1930’s.

What type of demand destruction for their products or services are these companies forecasting that is forcing them to freeze or reduce pay?

US businesses are cutting costs drastically to survive as demand for their products evaporate.  The chilling irony is that lower incomes will further reduce demand, thereby creating a self perpetuating downward spiral. The United States and the global economy are in a vicious de leveraging that will take years to resolve.   Even a well conceived stimulus spending plan will do little to reverse the major trends working against economic growth.   Those forecasting a quick economic turnaround are likely to be disappointed.

Filed Under: Economy, Jobs, Layoffs Tagged With: , ,

Opposition To Stimulus Plan Grows

February 5, 2009 by Leave a Comment

As Americans learned more about the stimulus package that proposes to put us $1 trillion deeper into debt, logical minds are beginning to question the wisdom of the plan.  Public approval for the stimulus plan is at 38% and dropping.

Reasons for opposition to the plan

-Workers receive only a small tax cut

-The decline in home values, the insolvent banking industry and foreclosures are not addressed

– The majority of the money is to be spent on special interest group programs

-Little of the spending has a direct connection to job creation

Home values, the banks and foreclosures are to be addressed separately by Congress at a later date.  My question is, how many trillion dollar plans can the country afford?  Excessive debt and leverage is in large part responsible for the financial crisis.  The cure cannot be the same as the disease.

As a nation, we need to do something – here’s what people are saying.

Thoughts From Around the Web

Obama Losing Stimulus Message War

At this crucial juncture in the push to pass an economic recovery package, President Barack Obama finds himself in the most unlikely of places: He is losing the message war.

Despite Obama’s sky-high personal approval ratings, polls show support has declined for his stimulus bill since Republicans and their conservative talk-radio allies began railing against what they labeled as pork barrel spending within it.

The New York Times

The most serious charge against the stimulus package is that it does not pack enough punch. Two different camps have been making this argument over the last few weeks. Publicly, the Obama administration hasn’t really answered either one.

And Obama aides say they are open to adding some tax cuts that specifically encourage spending. They looked into the possibility of sending debit cards to all 150 million American households, but decided it was not yet logistically feasible. Instead, the final package may include some smaller programs, like a home-buying subsidy the Senate began discussing on Tuesday.

But targeted tax cuts — in effect, a bribe for households to spend more money — bring their own problems, officials say. One of the economy’s big weak spots right now is consumer indebtedness. Additional spending will help the economy this year, but it could also lead to more credit card and mortgage defaults — which would undermine the Treasury Department’s efforts to revive the financial system.

Third, as Mr. Summers said, “Fiscal measures are only one prong — one component — of our overall approach.” The response also “includes financial rescue, support for housing and global economic cooperation,” he said.

Obama’s First Fumble

The Wall Street Journal edit page reckoned it out at about 12 percent stimulus.  What about the other 88 percent?  It was mostly the usual liberal special-interest spending, 40 years of pent-up pet projects.  Things looked so bad that the Journal’s other edit page, the liberal news side, decided to put out a calming analysis piece.  Obama aides “say this is a baseball game in its early innings, or a football game at halftime,” Gerald F. Seib assured us.

You’d think the Democrats would do a better job of camouflaging their real agenda, given the effort they have put, starting with the 2006 mid-term elections, into wooing the middle class.  According to pollster Alex Lundry, “middle class” is the number one positive thing that people associate with Democrats.  But the stimulus bill proves that it’s not about the middle class.  It’s about the Democratic patronage state.  Always was, always will be.

The Burden Of Proof

There are a lot of people in my comments saying, apparently in all earnesty, “I really think the burden of proof is on the wackos who don’t want the stimulus.”

I am frankly flabbergasted.  The proponents of the stimulus are proposing to spend nearly a trillion dollars.  That’s about $3,000 for every man, woman, and child in the United States.  Do you have $3,000 lying around that could just be spent on any old thing without you really caring?  You may call me crazy, but in the McArdle household, we view $3,000 as quite a tidy sum, the kind of money we want to make sure is wisely spent.

At least with the tax cuts, there’s little risk that the money will, from the taxpayer’s standpoint, be wasted.  It may not create much in the way of stimulus, but it’s essentially a neutral act–give them money now, take it later.  Cash transfers, too, offer relatively few of those frictions; there’s some deadweight loss, but whatever those on unemployment or welfare buy, they presumably valued more highly than alternative uses for the money.  Government spending, on the other hand, comes with no guarantee that whatever it buys will be worth as much to the polity as the alternative uses for the money.  Hell, badly done government projects can actively destroy value–go up to Buffalo and look at the empty, useless subway that killed Main Street, for example.

Given that, it seems to me that the burden of proof ought naturally to be on the stimulus proponents to satisfy the public that their highly theoretical models are basically sound, especially for the parts of the bill that aren’t tax cuts or transfer payments.  Let’s recall that the evidence for this kind of stimulus working in this kind of situation basically rests on a single instance (World War II)–the other two times it was tried (Japan in the 1990s and America in the 1930s) the economy basically rolled along in the doldrums for the rest of the decade.

Stimulus Package Should Address The Housing Problem

As the economic stimulus package moves to the Senate, the drumbeat is growing louder for new provisions that directly address the housing crisis.

Key senators from both parties said they will push for measures intended to spur sales and help homeowners at risk of foreclosure.

Advocacy in the Senate for more housing measures in the stimulus bill comes while President Obama is expected to release a comprehensive plan to fix the financial system within the next two weeks.

Obama has been promising for the past month that he would soon propose a foreclosure prevention program, and many believe that could be part of a plan he announces in the coming week. Indeed, he said Saturday that his plan will include a proposal to lower mortgage costs.

Each Taxpayer Could Get $9718 From The Stimulus Money

Question: “If we just gave all the bailout money to taxpayers, how much would we each get? I’ve seen $25,000, $300,000, $1 million – what’s the real answer?” — Miranda Marquit, Logan, Utah

Answer: $9,718.49

To arrive at that figure, CNNMoney.com took the total of the bank bailout, $700 billion, and added that to the proposed stimulus spending in the House of Representatives bill, $819 billion. That totals $1.519 trillion.

We then divide that number by 156.3 million, which was the total number of U.S. filers in 2008.

So: $1.519 trillion divided by 156.3 million equals $9,718.49 per U.S. taxpayer.

Economist’s View

There were really only two glimmers of hope that the US could avoid a Japan-like multi-year stagnation. One was the offsetting effect of a strong global economy. Of course, we all know how that story ended. Poorly. The other was my certainty that US policymakers like NEC head Lawrence Summers and Treasury Secretary Timothy Geithner had studied the Japanese crisis up and down and realized that you needed to meet a banking crisis head-on, not with halfway measures that left the system crippled.

But today, reading CNBC’s coverage of the plan, it becomes painfully clear that we are headed full speed on a policy bullet train designed to repeat Japan’s errors.

The financial crisis has been so mismanaged that the public will not support package with a high price tag, a price tag that could climb into the trillions. And there is no way to even bring the issue to the public unless taxpayers effectively buy troubled banks, which can only be justified after first wiping out shareholders and bondholders. Then the

The “New Math” of Stimulus

First you have our darling President Obama, who believes that his Porkulus will somehow create or save 3 million jobs. Did he pull that number out of his supreme ass? Nah. He’s using the most Bizarro math of all, the multiplier effect touted by our homie and economic slumlord John Maynard Keynes:

The multiplier theory, made famous by John Maynard Keynes in his 1936 book General Theory of Employment, Interest and Money, basically says that each dollar of government spending “injected” into the economy will create a larger increase in national output.

Indeed, it seems like multiplier madness is sweeping the nation, with Keynesian economic theory dominating political and mainstream economic thought once again.

With so many experts placing so much at stake on the basis of this theory, the multiplier must be a sound foundation for public policy, right?

Not exactly.

As economic journalist Henry Hazlitt stated in his 1959 book, The Failure of the ‘New Economics’, “There are, in fact, so many things wrong with the multiplier concept that it is hard to know where to begin in dealing with them.”

Enough With The Stimulus

You better love me forever for reading through 161 pages of absolute bullshit just so you can read what is actually ON this stimulus bill without having to read through 161 pages of absolute bullshit.

The anatomy of OMGObama’s stimulus (that word never gets old): Pages 1 – 50:

Pro & Con

President Obama: “A failure to act and to act now will turn crisis into catastrophe and guarantee a longer recession.”

Senator Graham (R) South Carolina: “Scaring people is not leadership”.

Filed Under: Bailout, Economy, Stimulus Plan Tagged With: ,

“Financial Catastrophe” – Part II

February 5, 2009 by 2 Comments

President Predicting Catastrophe

President Obama declared today that “A failure to act and to act now will turn crisis into catastrophe and guarantee a longer recession.”

Alan Blinder, a former vice chairman of the Federal Reserve, echoed the President by proclaiming “It would be an act of extreme stupidity not to enact a big stimulus”.  Mr Blinder did not expound on the logic of his remark.  Presumably, if you were too stupid not to vote for spending one trillion dollars, then you would be too stupid to understand his rationale.

A short 6 months ago President Bush, Chairman Bernanke and Treasury’s Paulson were predicting a financial meltdown if the $700 billion TARP bill did not pass.   The $700 billion was approved and the money passed out to banks and other assorted supplicants.  How wisely was the $700 billion spent?   All we do know is that the bankers managed to pay themselves huge bonuses, the money is gone and we now face financial Armageddon (again) if we do no spend another massive amount of borrowed money.   All we really know about the new, almost $1 trillion dollar “stimulus package”, is that it must be passed immediately, no questions asked.   Maybe more questions should have been asked the first time, when $700 billion was supposed to have solved the financial crisis.

Bernanke Proclaims Financial Crisis Resolved: October 2008

In October 2008, after passage of the $700 billion TARP bill, Chairman Bernanke spoke at the Economic Club of New York.

“The problems now evident in the markets and in the economy are large and complex, but, in my judgment, our government now has the tools it needs to confront and solve them.

Generally, during past crises, broad-based government engagement came late, usually at a point at which most financial institutions were insolvent or nearly so. Waiting too long to respond has usually led to much greater direct costs of the intervention itself and, more importantly, magnified the painful effects of financial turmoil on households and businesses. That is not the situation we face today. Fortunately, the Congress and the Administration have acted at a time when the great majority of financial institutions, though stressed by highly volatile and difficult market conditions, remain strong and capable of fulfilling their critical function of providing new credit for our economy. This prompt and decisive action by our political leaders will allow us to restore more normal market functioning much more quickly and at lower ultimate cost than would otherwise have been the case.

Reading the Chairman’s comments today, we know that his assessment of the situation was wrong. TARP 2008 did not resolve anything nor will the stimulus package of 2009.

Did the original $700 billion “save” our country from a “catastrophe”?.  In hindsight, much of the money spent was wasted on zombie banks that should have been shut down.  The executives running Bank of America, Citibank, JP Morgan and Wells Fargo, etc. still have their high paying jobs, while many others are unemployed.

What Does The Stimulus Spending Accomplish?

If we are facing a financial catastrophe, why is so little of the spending being directed  towards solving the root of the problem –  insolvent banks and the decline in home values?  Some of the spending goes towards minimalistic tax breaks – up to $500 per individual or $1,000 per couple.  Is an extra $10 or $20 a week going to make a real difference to most people?  The vast majority of the spending goes for expanded funding of various social programs and special interest groups.  The money will be disbursed through Government agencies that will need a much larger bureaucratic staff to administer spending and regulation.  This will accomplish nothing for the real economy and we are still left with insolvent banks and foreclosed homeowners.   Maybe after passing the bill, someone should say “mission accomplished”.

End Result

The one certainty is that this will not be the last trillion asked for.  The banking industry will need many more trillions of dollars to become solvent.  Fortune Magazine estimates the ultimate banking bailout cost at $4 trillion, maybe more.  Yet there is still no overall coherent plan for resolving this crisis.  Watching the elite ruling class operate in Washington reminds me of Groundhog Day.   Washington keeps doing the same thing over and over again, expecting a different result – isn’t that the definition of insanity?

Filed Under: Bailout, Banking Industry, Economy, Federal Reserve, Stimulus Plan Tagged With: ,