MF Global

MF Global declared bankruptcy this week.  Most of you haven’t ever heard of MF Global, but they will be the 8^th largest bankruptcy in US history.

MF Global was headed by Jon Corzine.  Corzine was the former governor of New Jersey from 2006 to 2010.  Corzine is also a former CEO of Goldman Sachs.  Currently in addition to running MF Global, he is serving as President Obama’s front man for his Wall Street Financing Campaign.

MF Global was handpicked by President Obama to be an elite primary dealer that would serve as a trading counterparty of the New York Fed in its implementation of monetary policy. Primary dealers are supposed to be heavily regulated and monitored, as they are required to participate in Treasury auctions. As of October 31, there were 21 primary dealer members including the likes of behemoths that include JP Morgan, Citigroup, Goldman Sachs, and Morgan Stanley.

And yet, somehow despite all of this regulation, it was discovered that $700 million of customer money was “missing”.  It is suspected that customer money was diverted to support the trading arm of MF Global.

So in summary, we have one of the 21 elite primary dealers, headed by a former democrat governor who once ran one of the largest and most despised firms in America and who is now serving as President Obama’s Wall Street financing campaign chairman, running a firm that lost $700 million in customer funds causing the 8^th largest bankruptcy in US history.   And we are being asked to believe that there were no politics involved in making MF Global a primary dealer and that somehow the regulators at the SEC, the CFTC, the CME Group, and the New York Federal Reserve missed it?  And that President Obama in no way had any influence over the decision making process.

Our system stinks.  It appears to not only allow but to encourage outright looting.  There are no regulations being enforced and no one is going to jail.  It appears to me the bankers are robbing us blind and nothing is being done about it.  The government appears to not only be looking the other way, but to be in on it.

And now we have a primary dealer that the government charges with making an orderly market in Treasuries appearing to have commingled around $700 million in customer funds with their own trading book.  And nobody in the government gives a hoot!

More Bank of America News

Everyone knows that Bank of America is in serious financial trouble.  They continue to look for ways to keep themselves solvent.  There latest is a real doozy.  They have announced they are selling some of their derivative investments from their Merrill Lynch subsidiary over to Bank of America.  And of course they transferred the ones most likely to default.

This means if they default on these investments, that they will now be covered by FDIC.  The US Treasury, through taxpayer dollars, guarantees the FDIC.  There are no guarantees for investors through Merrill Lynch, which is officially not a bank.

There are banking rules in place to prevent this that were designed to protect the FDIC insurance fund.  Any marginally competent regulator would immediately deny this.

However, the Federal Reserve has said they support the move.  This of course proves more of the dishonesty and corruptness of the Federal Reserve.  They are definitely not here for the public or for the American people.  They exist solely to protect the banks.

Although the FDIC has complained, once the move received the blessing of the Federal Reserve, it was a done deal. I’m certain that Bank of America and the Federal Reserve will get away with once again transferring bank losses to the taxpayers.

Although Occupy Wall Street is bringing some attention to the corruptness of the banks, items like this continue to occur right in our faces.  The only real way to solve this is to vote for a candidate that is willing to do away with the Federal Reserve.

Yea Europe!

So it was announced over the weekend that France and Germany agreed on a plan to “recapitalize” their banks, opening the way for another bailout of Greece.  “Recapitalize” is another word for bailout, which consists of printing money to give to the banks to keep them from going under.  Didn’t Europe already bailout Greece earlier this year?  And yet here we are again.

And I think you can count on that continuing.  If you don’t fix the underlying problem, then the problem will just keep coming up again and again.  This agreement doesn’t fix anything.  It just buys them more time.  The stock market is headed up today on this news.  But I wouldn’t get back in the stock market until they actually begin to address the underlying problem.

They didn’t stop the bleeding.  All they did was put a band-aid on the wound.

Which brings me to my next issue.  The financial media is reporting this as a great thing – Greece and the European banks are now okay.  I would suggest you quit reading the main stream media.  These guys don’t report correctly.  The news you need doesn’t get printed and the news that does get printed is usually heavily slanted toward the viewpoint they wish you to have.  I’m getting my news mainly off the internet now where I feel much more confident in getting the true news.

And lastly, did you read the bit about the Bank of Japan printing up more yen for the Japanese.  I’m not sure how much, but the word quadrillion comes to mind.  Japan has been doing this for year to no avail – their economy continues to sputter like it has since 1988.  You probably didn’t see the news because of the timing of the news release.  It was announced on the same day Steve Jobs died.  Why?  Japan doesn’t want anyone to know.  This is highly inflationary action.

Let's Save Europe

Imagine for just a moment that there is a privately owned organization in the United States that controls the entire money supply and therefore economy of this country.  They can create U.S. dollars out of thin air whenever it wants.  Imagine this organization is never elected by the American people and is never accountable to anyone – not to the president or to Congress.  Imagine that this organization can operate in complete secrecy and can make loans to banks, foreign governments, and even close friends without anyone being able to do anything about it.

Well imagine no longer.  This organization is called the Federal Reserve.  While most people think this organization exists for the benefit of the country, they don’t.  They exist for the benefit of the banks.  They are entirely unauditable and can do whatever they want whenever they want.  They answer to no one.

And now they have decided to bail out Europe.  They are going to loan huge piles of money to commercial banks in Europe.  Did I mention that 57% of the shares of the Federal Reserve are reportedly owned by the Rothschild banking family of Europe?

If you don’t like this – tough.  There is nothing you can do about it.  Neither can President Obama.  Neither can congress.  Neither can the Supreme Court.  The Federal Reserve can do whatever it wants to and they simply don’t care whether you like it or not.

Of course the billions and probably trillions of dollars that will be lent are going to be printed.  We’ll never know how much, because they don’t have to tell us.  This means inflation and higher prices for you.  After all, this has to be paid by somebody and the Fed has decided you are going to be the one.

The only thing we can do, is to eliminate the Federal Reserve.  If you haven’t read Ron Paul’s book, End the Fed, I encourage you to do so.

There are a number of conspiracy theories regarding the Federal Reserve.  When America was first established, the Rothschild’s pushed hard for a central bank.  One was established under George Washington with a 20 year charter.  John Quincy Adams refused to renew the charter 20 years later, thus ending the First Bank of America.  The Rothschild’s were terribly upset and the conspiracy theory is that they pushed Britain into starting the War of 1812 in an effort to put America into debt.

After the war, and with huge war debts, a second central bank was established called the Second Bank of America.  Also with a 20 year charter.  Andrew Jackson made it his personal mission to “kill the bank” as he called it.  And he finally ended the central bank after surviving an assassination attempt he claimed was planned by the Rothschild’s.

It wasn’t until 1913 that the Rothschild family succeeded in creating the current Federal Reserve and thus taking over the United States economy.

John Kennedy attempted to circumvent the Federal Reserve when he signed, by executive order, a law to have the U.S. Treasury print the dollar instead of the Federal Reserve.  He was assassinated shortly thereafter and the executive order died unimplemented.

The Federal Reserve has systematically been stealing money from the American people ever since 1913 by creating boom and bust cycles of inflation and then deflation.  I’m not going to go into how they do this, but trust me that they do it.  Read Ron Paul’s book, End the Fed, for details.

And now the Fed is going to save Europe.  And you get to pay for it.  If you haven’t prepared for inflation, you should begin to do so.

America: A Country Ruled by Bankers

 I know.  You thought the people ruled this country.  After all we can vote out our politicians and replace them with others.  How naïve you are.

If you control the money supply, you control the power to run the country.  And the banks control the money supply.  The people gave up that power back in 1913 when the Federal Reserve was created. 

The Federal Reserve is not a government agency.  It is not owned by the U.S. government.  It is owned by the member banks of the Federal Reserve.  These banks are either corporately owned (some by international or foreign corporations) or are privately owned (again some by international or foreign individuals).

The Federal Reserve, by law, operates independently of the U.S. Government.  In fact, as of this point, the government is not even allowed to audit the Fed to determine exactly what they are doing.  The Fed controls all of the gold in Fort Knox – and no one knows how much is actually there any more.  The Fed controls the printing press and has the authority to print up more money at any time they see fit.  They have unlimited power of the money supply of the United States.  And they conduct their affairs in secret.

Anytime they wish to steal money from the citizens and hand it to the banks to be distributed as they see fit (in other words, outrageous bonuses to the top executives) they do so.  They have several tools to do this such as creating inflation, creating boom and bust cycles, and printing money and handing it out to the banks.

They keep their member banks from failing by more bailouts.  All the while these banks continue to steal money from the American public.

Goldman Sachs, one of the six “too big to fail banks” (the others being Citigroup, Bank of America, Wells Fargo, JP Morgan, and Morgan Stanley) recently got fined for selling investments to the public while at the same time betting those investments would go bad.  They made trillions of dollars selling these investments and yet their fine was a very paltry number in the millions.

Now it seems Goldman Sachs is at it again.  On one hand, they are telling their customers everything is going to be fine in our economy.  On the other hand, the Wall Street Journal recently got hold of a secret report intended for Goldman Sachs largest clients where they advise that the economy is fixing to collapse.

They never learn.  But there is no reason for them to.  They keep getting away with it.  After all, Goldman Sachs was President Obama’s second largest campaign contributor.  I’m sure he’ll do nothing to them in spite of his rhetoric.  Plus his cabinet as well as government regulatory authorities (such as the SEC and the CFTC) are littered with ex-Goldman Sachs executives.

Sadly, the power of the “too big to fail” banks continues to grow.  At this point, the “big six” possess assets equivalent to approximately 60 percent of America’s gross national product.

We have a financial system that is deeply, deeply corrupt.  And this corruption is a major reason why things are falling apart.

America’s only hope, even after the crash, is to elect someone that will do away with the Federal Reserve and allow the “too big to fail” banks to fail.

 

Hanging the Taxpayer Again

Bank of America is practically bankrupt.  Back in 2008, during the subprime crisis, Bank of America was strong-armed in to buying the mortgage behemoth, Countrywide.  Now with foreclosures picking up at a rapid pace, Bank of America was getting killed in their mortgage losses.  To the point they are almost bankrupt.

Rumors were floating this week that JP Morgan would be buying Bank of America.  I couldn’t see it though.  Who would want to buy any bank that has the number of foreclosures awaiting them that Bank of America has?  Well it turns out I was right.

In a very under-reported news item, it was announced that Bank of America, in addition to receiving $5 billion from Warren Buffet, had sold their “real estate division” to Fannie Mae.  Now all of these foreclosures are going to be transferred to Fannie Mae.

Of course, Fannie Mae is the quasi-government entity that was used to finance so many of the mortgages in America.  As a result, the federal government has been having to provide Fannie Mae with 100’s of billions of dollars every month in order to keep them out of bankruptcy themselves.  This is, of course, paid for with taxpayers’ dollars.

So in effect, the taxpayer has again bailed out a bank that is considered “too big to fail.”  We are on the hook again for all of the foreclosures that Bank of America, through Countrywide, have.  They made the bad loans, but it’s the taxpayer, not the bank, that is going to pay for them.

And they did this so sneakily that few people are apparently aware of it, thus avoiding the outrage that is associated with bailing out the big banks.

Welcome to America!

How to bail out the states

I just saw an article where California was able to secure $5.4 billion in loans from 8 different banks, led by Goldman Sachs.

Why is this important?  California is out of money.  And yet they refuse to cut their spending.  So the only way they can continue to spend this kind of money is to borrow it since the states do not have their own printing press.

But this money that is being loaned to California is money that was given to the banks as part of the Federal Reserve’s money printing program.  Since California will probably never pay this loan back, the Federal Reserve has in effect printed money for the State of California.

I was wondering how the federal government was going to bail out the states that have overspent.  And this appears to be how they are going to do it.  And they did it in such a way that the vast majority of the people will never figure out that it was a bailout.

The First Domino

It seems to me a lot of Americans aren’t taking the Greek situation seriously.  After all, it is another country, half way across the world, how can it actually affect us.

What people don’t realize is that the banking system is a global banking system.  All of the banks around the world are tied together.  Who do you think owns all of this Greek debt?

Unfortunately U.S. banks own a large percentage of it.  European banks own a lot as well.  And even China has a pretty large stake in it.  If Greek fails, that is likely to cause banks throughout Europe, the U.S. and Asia to fail as well.

First Greek fails to pay back a European bank.  That causes that bank to be unable to make their payments to a U.S. bank.  That causes the U.S. bank to be unable to make their payment to China.  And so on.

It is lined up like dominos and once the first one falls, the others will be right behind it.  If Greece goes under, the entire global financial system will be right behind it.  This is why so many countries are fighting so hard to keep Greece afloat.

And it is something Americans should take very seriously.

However, as we have already seen, bailing out Greece doesn’t work.  They were already bailed out once, and here they are now needing more money again.  All they can hope to do is give Greece enough money that they can keep them afloat for a little while and hope that a miracle will occur somewhere.

That miracle is that one of these countries is going to have to cut their spending so dramatically that they can actually begin to pay down some of their debt.  It doesn’t appear that is going to happen, either in Europe or the United States.

It’s just a question of time before somebody defaults and the dominos begin to fall.

Richard Fisher's Speech

Yesterday, the Round Rock Chamber of Commerce hosted their monthly meeting by having Richard Fisher, the President of the Dallas Federal Reserve Bank and a member of the Federal Open Market Committee (which sets Fed monetary policy) as a speaker.  I was in attendance.

In his speech, Mr. Fisher said that the economy is on the path to recovery and he would not be surprised if GDP (Growth Domestic Product, which measures the U.S. economic productivity) growth was as high as 4% in the last half of the year.

Personally I don’t see this.  Mr. Fisher admitted that the Fed had provided plenty of liquidity to the system.  That banks had plenty of money to loan out, but loans weren’t occurring due to too many unknowns for businesses.  But as some of these things settled down, then economic activity should pick up.  He admitted that our economic activity is 70% consumption, so basically he is saying consumption should pick up.

If consumption picks up, then business will want to hire more.  Thus reducing unemployment and causing both consumers and businesses to want to borrow more.

Again I don’t see this.  What I see is that baby boomers are getting older and more and more are reaching retirement age.  When people retire, they spend less.  Also the financial crisis has caused many people to realize they need to get their own finances in order.  As a whole, the country is paying down its credit card and automobile debts and spending less.

Plus a whole lot of people are removed from the credit system due to foreclosures or personal bankruptcies or just due to increased lending standards.

I simply don’t see consumption going up, therefore I don’t see any increase in lending or any increase economic productivity occurring.  My prediction is that GDP will be lower the next 6 months.  This prediction, of course, is based on the Federal Reserve not printing more money and artificially inflating all of our numbers including GDP numbers.  Unfortunately I have to present that caveat because I think that is what is most likely to occur.

Anyway his speech left me wondering.  Can the Fed not analyze the same way I do?  Do they lack the same information that I have?  Or do they have some other agenda that would cause them to misrepresent this information?

Richard Fisher is a very intelligent man.  He went to Harvard and to Stanford.  I’m sure he can analyze data as well as me.  It’s hard to believe they don’t have the information as I’m not privy to near the information they have access to.  Nor do I have the research manpower that they have.

Therefore I can only conclude that they know what is the truth, but have some other agenda.

Of course, they will just tell you that I can’t analyze data accurately.  And that I simply don’t understand.

We shall see.

Wake Up America!

Several decades ago, a man's word was his bond. Once a man said he would do something, he did it.  Million-dollar deals were done on the basis of a handshake.  And you could count on it.

If someone said, "The check is in the mail," it was actually in the mail. And when a couple promised before God, friends, and family, "Until death do us part…" it truly meant "until death do us part."

Words and promises meant something back then. And you were taught at an early age how important it was to be a man of your word.  There was a social stigma to going back on your word… to not meeting a deadline… to not sticking to a commitment.

But then, maybe four decades ago… the philosophy shifted.

We started giving people a pass if they came close to their promise.  "I’ll deliver it on Friday was taken to mean Friday or Saturday were okay. 

Society gave everyone an "out." You could make a promise but be excused from your commitment so long as you gave it your best shot.

A man's word was no longer his bond. It was his best quote. And as long as he came close to fulfilling it, it wasn't a problem. Society said, "We really didn't expect you to deliver it by Tuesday. But as long as you get it to us by the weekend, there's no problem."

Divorce? "Until death do us part" became “until I realize I would be happier without you.”  This idea was even promoted by Dear Abby, the advice columnist. 

Then, maybe 20 years ago or so, society eliminated all obligations… as long as we heard what we wanted to hear. It didn't matter if we knew the person was lying to our face.

"I did not have sex with that woman, Ms. Lewinski."

"No, I have never knowingly taken steroids."

"The United States is committed to a strong dollar policy."

We knew we were being lied to, but it didn't matter. It didn't really affect any of us anyway. So what was the harm?

Now we've shifted to the final stage. Let's call it the "realization" philosophy…

In this stage, everyone knows the promises made are baloney. Everyone knows they're being lied to. Everyone knows they're standing on the edge of the abyss. And everyone knows there will be serious consequences. But… nobody knows yet what they're supposed to do.

Look across the Atlantic and see the Greek citizens protesting. They were promised retirement at the age of 50 with a full pension paying 100% of their salary.

The realization is… that isn't going to happen.

Look at the Italian farmer who worked his land for decades and was promised top dollar for the crops he produced. That's not going to happen either.

Look at the firefighters in Vacaville, California. The city and the state are virtually bankrupt. So any promises made for pensions, medical care, and housing supplements are all but null and void.

I hate to be the bearer of bad news, but this is the state of our nation. Promises made will not be kept. They can’t be.  There's no money to pay for them all.

How many other things most people didn't think would ever happen in America have happened recently? What about the collapse of our investment banks, the bankruptcy of General Motors, the liquidation of Fannie Mae and Freddie Mac, the failure of AIG, hundreds of banks being seized, millions of homes in foreclosure, or real unemployment rates close to 20%? We could go on…

Wake up America!  It not only can happen to us, it is going to!  We’ve been lied to and promises are not going to be kept.

The question is, what are we going to do about it?

The Next Great Theft

Taxation is a form of legalized theft.  After all, the government is taking from the rich and then redistributing that money to the poor.

Today, over 45% of American households receive some form of direct government payments.  And nearly 50% pay no federal taxes whatsoever.  This is a record number of people who neither paid federal income taxes in 2010 nor were claimed as a dependent by another taxpayer.

What it comes down to is a small number of Americans that are paying for the well-being of a majority. While half of the population may pay something in taxes, only the top 10% – people earning more than $113,000 – pay a substantive amount. These few citizens pay 70% of all the income taxes collected.

President Obama can talk all he wants about the rich needing to pay more, but the truth is they can’t afford to pay much more because they are already paying too much.  The people receiving the benefits are the ones that have to start giving something up, and yet no one wants to give up their piece of the pie.

I guarantee when spending cuts begin to occur and it affects your lifestyle, then you will complain about the cuts in that area.  And I could easily be talking about social security.

So the government must come up with a new way to steal your money if they can’t tax you directly.  This is what they are doing.

The Federal Reserve has made it nearly impossible to live off your savings. Thanks to the Fed's manipulation of interest rates, anyone who chooses to simply save money is going to lose a lot of value.

The latest inflation numbers show wholesale inflation having risen 6.8% over last year.  Savings accounts are paying less than 1%. So if you had $1 million in the bank, you lost roughly $50,000 in value last year. You'll go broke fast if you can't earn at least as much as inflation on your savings.

This forces the CD purchaser to take additional chances with their savings in order to earn enough to offset the impact of higher inflation and higher taxes.  Most investors can’t manage risk well enough to want to take chances with their money.

So the government will continue to steal $50,000 a year from a $1,000,000 account.  You won’t notice it, because the $1,000,000 will remain the same.  It’s just that the $1,000,000 will not buy as much as it used to.  And that is how the government steals your money.

By increasing inflation, they can take money from the savers and continue to give it to the non-savers – the spenders.

Yes, we have a government that rewards financial irresponsibility and punishes financial responsibility.

And it looks like it is only going to get worse.  The government, of course, controls this by manipulating the inflation statistics.  They’re trying to convince you there is no inflation, but you know there is.

Inflation is called “the hidden tax.”  As opposed to a direct tax.  And they implement this every time they need more money and don’t feel they can raise taxes enough directly.  And taxing only the wealthy will not come remotely close to being enough – regardless of the amount they increase it.

They’ve been doing it for a while now, but I predict it is fixing to get worse.  If they don’t dramatically reduce the budget, they will have no choice.  Watch for it.

America is Essentially Bankrupt

America is essentially bankrupt.  While my numbers aren’t accurate they are close enough to explain why this is so in a clear manner.

America brings in about $500 billion a year in tax revenue.  They are spending about $1.5 trillion a year.  This means they have been running a deficit of $1 trillion a year.

Our current official debt is around $14 trillion.  Our unofficial debt is debt America is not contractually obligated to pay and includes such items as Social Security, Medicare, Medicaid, Fannie Mae, and Freddie Mac.  When we add in our unofficial debt, the debt skyrockets to $70 trillion to $120 trillion, depending on whose calculations you wish to use.

If we tripled taxes we could at least balance our budget and quit adding to our deficit.  Obviously raising taxes is not going to be the solution.  Cutting spending is the only way to solve this dilemma.

But we have to cut a lot.  Look at the numbers.  Even if we raised taxes by 50% and raised our revenues to $750 billion, we would still have to cut the budget by half in order to balance it.  Of course if we raised taxes by 50% this would cripple the economy and we wouldn’t collect $750 billion dollars anyway due to people earning less money.

Also even if we follow this route, what happens if interest rates rise?  Currently about 40% of out budget expenses are to pay interest on our debt.  Yet our rate is only 0.65% on all of our debt as we have been moving from long-term Treasury bills to shorter term ones where the Fed has set the rate at close to 0%.  If rates only rise ½ of 1 percent, we would be looking at another $450 billion dollars of expenses which would then be added to our debt.

No, the numbers are clear.  The only way to solve this crisis is to cut spending and to cut it drastically.  Therefore I don’t even want to get involved in the argument as to whether the rich in this country should pay more taxes or not.  It’s meaningless.

We need to cut our budget by 75% so that we can spend $125 billion a year or so in paying down our debt.  Defense spending represents the major portion of our budget and we can’t continue to ignore that as an uncuttable expense.  Even if we cut defense spending by two thirds, we would still spend more on defense than any other country in the world.  If we have to cut 75%, no program can be off limits.

On top of that, we need to address Social Security and Medicare.  Fannie Mae and Freddie Mac, the government mortgage arms, should be closed and eliminated.  Medicaid is going to need a serious overhaul if not a flat elimination.

It isn’t that these programs aren’t good.  It’s that we can’t afford them.

I understand the issue of spending cuts attacking the poor and the elderly.  After all they are the ones receiving most government benefits.  But they are going to lose out either way.  If America goes bankrupt, those payments will stop any way.  Wouldn’t it be better to have an orderly decline as opposed to a chaotic one?  And at least preserve the integrity of the United States as a country that pays their bills?

Does America have a chance to solve these problems?  I would say no.  Just from reading and talking to people, I would say the vast majority of Americans do not have a clue as to how bad our economic situation is.  Therefore they have been unwilling to support the drastic spending cuts that are needed.

Apparently our politicians are not even aware of it.  The cuts proposed by President Obama are not near deep enough to ward off this crisis.  President Obama has proposed spending cuts of $4 trillion over 12 years.  That is only $300 billion a year.  So our spending gets reduced to $1.2 trillion while we continue to take in only $500 billion.  Not enough!

The cuts proposed by the Republicans are better, but also not deep enough.  They have proposed $6 trillion over 10 years.  Or $600 billion a year.  This would lower our spending to $900 billion while we are only taking in $500 billion.  Not enough!

Seriously, we need to cut 75% of our spending.

Wake up America!  We’re in trouble.

The Budget Arguement

The budget argument in our federal government continues.  I get a kick out of the amount being argued over.  The Republicans proposed a $60 billion budget reduction.  It was voted down and the Democrats countered with a $10 billion budget reduction.  At stake is the shutdown of the federal government.  If a budget isn’t passed soon, the federal government will have to be shut down and certain employees will be sent home without pay. 

The Democrats are banking on the Republicans being held responsible for the shutdown and thus being voted out in 2012.  This occurred once before in the mid 90s and the Republicans took the heat for it. The Democrats are banking on this happening again.

I still laugh at the situation.  If the budget is passed, it is going to raise our debt ceiling by another $1 trillion.  So we are arguing over $60 billion in order to raise our debt by $1 trillion.  The $60 billion isn’t near enough either so why even argue over an amount that will have no impact on our economy.  There will be no winners or losers in this argument as the amount being argued over will have no impact on us.

The real losers in this argument will be the American people, but they don’t really seem to care that much either. Wake me up when the government is considering trillions in reductions.  And it needs to be with an s after the word trillion.  One trillion isn’t near enough either.

I watch with amazement and amusement as the arguments at both the federal and state levels continue at where to cut spending.  People are fighting hard to keep their share of the pie.  If we are having this much problem cutting spending where we are required to, how can we expect the federal government to cut spending when they can continue to finance our debt.

The problems we have are multiple.  Our debt is such that the government does not take in enough tax
dollars to simply pay the interest on our debt.  And this is with very, very low interest rates.  What happens if interest rates go up?

Already no one is willing to lend us the money.  The Federal Reserve has become the largest
purchaser of Treasury Bills now, because no one else wants to lend us money.  The Federal Reserve gets the money through the counterfeit operation (printing money).  Without that option we would already be broke.

America has a deficit of $14 trillion.  They have other debts that aren’t considered legal debts because we aren’t contractually obligated to pay for them.  This includes Social Security, Medicare, Medicaid, Fannie Mae, and Freddie Mac. Adding these obligations in brings us another $70 trillion to $120
trillion we owe depending on whose figures you want to use.

We don’t bring in enough tax dollars to pay the interest on the $14 trillion.  How are we going to
pay the other $70 trillion in obligations?  What if we doubled our taxes?

Well first of all, we would probably have a whole lot of rich people leave the country.  They
simply aren’t going to foot the bill for every one else.  While doubling our taxes would give us enough
to pay our interest payments, it wouldn’t eliminate our deficit nor pay any of our off the book obligations.  Any significant increase in interest rates would still leave us with the same
problem.

If we aren’t willing to reduce our expenditures, and it doesn’t appear that we are, then the only solution is to continue to counterfeit money and try and inflate our way out of this.  However, it is going to take a lot of inflation to accomplish this.  Be prepared.

The only other solution is to cut spending - drastically.  As a country, it doesn’t appear we have the backbone to do that.

And The Children Shall Lead Us

Okay, maybe not the children, but at least the young adults.  Look what is happening in Egypt right now.  It is primarily the young people leading that revolt.  They are tired of the lack of jobs, the lack of decent wages, the high inflation, etc. that the current regime has handed them.  The Tunisian revolt was also led by young people.  And so it will be in the United States as well.

We have mortgaged our children's future.  We have left them a pile of debt so large that there is no hope of ever paying it off.  And we are still asking them to pay for our social security retirment and our medicare.

How do we expect our young adults, given their total number, to pay for all of the baby boomers that are retiring.  It isn't possible and once these young people realize that we have just kicked our debt can down the road to them, I expect them to finally begin protesting.  It's just a question of time.

The Secret Bailout

Everybody remembers the Federal Reserve's bailout of the banks.  The Federal Reserve did that by printing over $1.5 trillion dollars to give to the banks.  And then Congress and the President got involved by creating TARP loans to save the banks as well as other non-bank companies.  But most people think that is over.  But it is not.  It is still going on and taxpayers are getting stuck with the bill.  How?

Through Fannie Mae and Freddie Mac.  These two quasi-government agencies were created to help make cheap mortgage loans so that more people could enjoy the American dream of home ownership.  The government is not contractually obligated to cover the debts of these two organizations, therefore their debt does not count as part of the U.S. official debt number.  Rather this is off the books debt.  However, the government has continued to support Fannie Mae and Freddie Mac by covering their deficits each and every month.  And its the taxpayers that are footing this bill.

Every month Fannie Mae and Freddie Mac are purchasing mortgages from the big Wall Street banks.  They are paying full price for mortgages that were previously priced at zero (because no one else wants to buy them).  This keeps the banks from losing money on these mortgages.  The banks aren't lending this extra money, but instead are putting it to work in the stock market. The stock market continues to go up as a result.  Fannie and Freddie are left with a bunch of worthless mortgages which they promptly write off and then ask the federal government to cover their losses.

Since the Federal Reserve is under so much heat right now for printing so much money, this is a way to keep this off of  there books.  Since Fannie and Freddie are only quasi-government agencies, their debt isn't official for the U.S.  And yet every single month the U.S. Treasury sends them money to cover their losses.  Money they are getting from U.S. taxpayers.

Nobody knows the real number but it is estimated to be anywhere from $500 billion to $3 trillion.

While the public was appropriately outraged at the TARP bailouts, no one knows or cares about what Fannie and Freddie are doing.  It is the perfect backdoor bailout.

Praise for Obama

Yesterday, the Wall Street Journal had an article about how President Obama had met with business leaders and had since issued a mandate to his staff that they develop a bill that would in effect reduce government regulations on businesses.

Finally someone is talking about something that will actually help this economy.  America has been reducing its manufacturing base since the mid 90s when Wal-Mart was first allowed to use Chinese manufacturers for their products.  As a result of Wal-Mart's cheaper prices, the rest of America followed suit and we have since exported most of our manufacturing jobs to Asia.  In 2000, manufacturing represented 28% of our Gross Domestic Product.  In 2010, it only represented 12%.  While we are still the largest manufacturing country in the world, you can see that we have reduced our manufacturing considerably.

And manufacturing is the primary job creation tool we have.  Even our past unemployment reports that have been coming in somewhat positive, are not showing an increase in manufacturing jobs.  Instead most of the jobs created were in the food service industry.  These aren't the high quality jobs we are looking for and mostly represents a very large underemployment sector.  People who can't find the jobs they need end up waiting on tables instead.  Yes, they are employed but not in the right place.

If we were to include underemployment in our statistics, the unemployment rate would be more like 17% (according to John Williams, the economist at Shadowstats.com).

America can no longer be the world's consumer.  We've run out of money and are quickly running out of credit.  Plus America is getting older.  The next wave of baby boomers has reached retirement age and will be retiring soon.  Retirees very simply spend less money.  While our kids are getting older, there aren't as many of them as there are of baby boomers that will retire.  America simply does not have the money to spend.

That means for America to get back on its feet, it must sell its goods to someone else besides Americans.  Unfortunately, we don't manufacture as much anymore, as it has mostly been sent overseas.  If we can bring manufacturing back to America, we can make products here, and then sell them overseas to those countries that have the money (China, Asia, etc.).  This will create actual jobs.

Nothing else we can do will create jobs.  The government can print money all they want (and call it stimulating the economy) and distribute it to people to spend, but all that will do is cause prices to be higher.  It won't create jobs in spite of what they think.

It appears they may have figured this out.  President Obama wanted to know why businesses weren't hiring in spite of good earnings.  So he invited some business leaders to the White House.  They explained it to him.  Low wages aren't the only advantage China and Asia have on us.  They also have low taxes and low regulations.  The regulations in America are what is killing American industry.  Back in September the Intel CEO, made a public comment about how he could build their new plant in Asia for $1 billion less than he could in the United States.  And he blamed it all on regulations.

So President Obama appears to have finally listened.  We'll see if he actually follows through.  His mandate was to find a balance between safety and environment regulations without cutting off business development.  That is much easier said than done.  There will have to be sacrifices in both safety and the environment for
this to succeed.  I'm doubtful, but I'm at least happy that they are talking about the right solution to our unemployment problem.

I have been very critical of President Obama in the past (he isn't alone and I certainly haven't limited my criticism to Democrats) so when he does actually do something right, I want to praise him for it.
This is the first step in the right direction. It may be too little too late, but at least we now have some hope.  Let's see if they can actually take the second step, which requires action, or is this just going to be another political talkspeak?

No Inflation

The Consumer Price Index (CPI) was released this morning showing that America is not experiencing much inflation.  Ben Bernanke, the Federal Reserve Chairman, was on 60 Minutes a couple of weeks ago, touting why it was okay for the Federal Reserve to print more money.  He said America was not increasing the money supply and therefore was not creating inflation by doing so.

He is only partially right in that statement.

He isn’t creating inflation in America because we are going through a deflationary time as we watch house prices fall and credit reduced.  However, not all countries are in the same boat.  By printing money, he is increasing the supply of dollars available in the world.  And remember, the U.S. Dollar is the world’s reserve currency.

What does that mean?  It means that all international trade is done in terms of dollars.  If Mexico wants to buy oil from Iran, that oil is priced in dollar terms, not pesos, and Mexico must give Iran dollars for the transaction.  This means Mexico must have dollars on hand in order to do this.  And it means that Iran will be taking in dollars from Mexico.

So increasing the number of dollars in play by printing up new ones, the rest of the world is going to start experiencing inflation.  And already we are seeing evidence of this occurring.  China raised interest rates on Christmas day in order to fight inflation in their country.  Other countries in Europe and South America have followed suit.  The entire world has inflation, except for the United States.

(Of course the United States has inflation too, we just don’t measure it the way we used to in order to keep the inflation rate low and give the Fed the flexibility it needs to keep printing money.  But that is an entirely different subject which I will discuss at another time.)

Inflation is also evidenced in commodity prices.  Food commodities were among the highest hit.  Items like sugar, soybeans, coffee, wheat, etc. all went up considerably (anywhere from 40% to 80% price increases) in 2010.  Higher food prices (while eliminated from the CPI measurement) are substantially higher, but particularly higher in emerging market countries.  And when people can’t afford to eat, they start fighting back.

Where is this fight going?  As they complain to their political leaders the leaders are realizing the inflation problem they have is a direct result of the Federal Reserve increasing the dollars in existent by printing up more.  This had led to discussions that perhaps the U.S. Dollar should not be the world’s reserve currency.  China and Russia recently completed an agreement to trade with each other using their currencies and avoiding the U.S. Dollar.  This is probably just the beginning of a trend.

What happens if the world decides to quit using the dollar as the world’s reserve currency?  These other countries would then have a bunch of dollars on hand that they won’t need anymore.  They would come back to the United States which at that time would create severe inflation in the United States as we would have way too many dollars available in this country.  The result would probably be hyperinflation.

So in conclusion, the Federal Reserve needs to be helping fight inflation on the European, Asian, and South American fronts.  They can’t simply ignore this or use different calculations to try and fool the foreign public into thinking there is no inflation.  In short, the Federal Reserve should just quit printing money.

Will this happen?  Ben Bernanke, on 60 Minutes, was trying to sell the second quantitative easing (printing of $600 billion dollars) to the American public.  At that time, he admitted that a third and perhaps even a fourth quantitative easing may be needed.  (The first quantitative easing was the bailout of the banks in 2008 to the tune of over $1.5 trillion dollars.)  He did not sound like a man who understands the repercussions of continuing to print money.

He got his nickname, “Helicopter Ben” because he once made a speech that the way the U.S. could solve deflationary issues was to simply dump dollars on the American public by throwing them from a helicopter.  Hopefully the tea party movement can get him to change his attitude on this.

It's All About The Debt

It’s all about the debt.

I keep hearing that the road we are on is unsustainable.  Yet this word does not seem to resonate with most people.  What unsustainable means is that we can’t keep doing what we are doing without it eventually breaking or going bankrupt.  And yet the majority of Americans appear to continue to think that we can.

I just saw a poll in the Austin American Statesman where they were asking voters where in the budget the state should cut.  The two biggest areas of the state’s spending were in education and health care.  And yet, that is the area the vast majority of those polled indicated cuts should not be made.

It isn’t that these programs aren’t important.  They are.  It isn’t that these programs aren’t good.  They are.  Whether they are effective are not is debatable but that isn’t the issue either.  The issue is that we can’t afford them.

Who doesn’t want small classroom size?  Currently Texas mandates an elementary class of only 22 students per every teacher.  I think that is great.  But at what expense?  When I went to school, I never had a class size that small.  And I think that I turned out pretty well educated.

At what point do you stop?  If 22 students per class size is good, then 20 is even better.  Better still is 18.  But does it really help?  And is it worth the expense?  I don’t think so but that isn’t really the point.  The point is that unless we want to have our taxes raised again, then a larger class size is just going to have to occur.

And if we allow our taxes to go up, I again ask, at what point do we stop?  You just can’t tax people forever before they decide to move to a state (or a country) that allows them to keep more of what they make or have made.

I think people, in general, are pretty much fed up with the amount of taxes we pay.  They don’t think they are getting their money’s worth and they pretty much don’t want to pay more, regardless of the services they may have to give up.  That’s why Texas keeps electing Republicans in office.  The Republicans continue to pledge not to raise taxes (although they did it anyway when they passed the Franchise Margins tax on businesses).    However, they aren’t doing much to cut spending.  And that is where our politicians really need to step it up.

However, I don’t see our politicians really stepping up, until we, as a people, actually tell them to.  If this Statesman poll was any indication, we simply aren’t ready to do that yet.  I guess we still need a little more economic pain before we are.

I got a kick out of Greece when the government reached the point of not being able to pay its bills.  The Greek government decided to cut spending, which was quickly followed by riots and protests from the public citizens.  So then the Greek government decided to raise taxes.  This too, was followed by more riots and protests.  The public simply doesn’t understand the reality of finance.  You can’t spend more than you make forever, because eventually no one will loan you any more money.

The United States is in the same boat.  Yes it is a larger boat.  Our solution is to counterfeit our currency by printing more money.  Greece couldn’t do that since they don’t control the Euro printing press.  Eventually the Eurozone bailed out Greece by printing them some Euros they could use to pay their bills.  However, it came with stipulations that Greece would get its spending under control.

But the United States can’t counterfeit its money forever.  Because sooner or later, other countries will refuse to accept our counterfeit money if we do.  So we still have some time to get our spending under control, but I’m simply not seeing the U.S. citizen accepting that as the reality.  This poll was simply another indication of America not wanting to spend within our limits.  And until that attitude changes, we are headed on the path to bankruptcy.