Thursday, June 25, 2009

We've got a ways to go to get back to even. We'll see you at S&P 500 at 500 or lower. Debt deflation is a bear. Deflation is a result of 30 years of inflation.

Sunday, June 21, 2009

Banking Nonsense

Many policy solutions to financial problems don't make sense. I'd like to discuss a few that have circulated the financial media recently. Most of the criticisms come from the government and the banksters.

First, explain to me how we are going to solve our current crisis of too much credit by getting more lending to people who can not pay their current obligations? Many people who have loans and credit cards from Citibank and Bank of America aren't able to make their payments. Maybe government and banking officials should go to credit counseling. Most people would love to be like the government and run up credit cards and have the taxpayer or China pay for the frivolous spending. Solutions to this problem would be to cut government spending across the board by 25%. This would include payments to retirees and Medicare.

Second, why would you give the Federal Reserve more power when they have created the problem we are currently in. Rewarding failure in the United States is something we should embrace? The FED is the problem and not the solution.

Third, Obama's administration came out with a loan foregiveness program. If you have your mortgage reworked and have mortgage principal forgiveness. Then, the loan becomes a recourse loan where the bank can come back at you for future consideration. Currently the mortgages are non recourse where you can walk away and the bank eats a shit sandwich. I'm not saying this is right. It's actually very wrong and immoral. Remember though, this would have never become a problem if banks would have required a down payment, proof of income, and used conventional loans to finance the real estate.

Fourth, how is too big to fail a good idea. If you have too big to fail then you must have too small to save which is where the American taxpayer foots the bill. Our country is getting too big to save. Who's going to bailout the United States. Looks like the United States will be defaulting on debt to the Chinese.

Thursday, June 18, 2009

Woods on Mises and Economic History

Morning Readings 6/18/2009

Wednesday, June 17, 2009

Confidence Quotes from The Conmen

Posted by Tyler Durden Zerohedge
Austrian Filter has taken the time to put together all the relevant quotes over the past 2 years that demonstrate how profoundly Bernanke and Paulson have been misrepresenting (or simply misunderstanding) just how extensive the crisis we are in, is. One can only imagine why anyone would ever believe anything Ben Bernanke (or any other vapid disseminator of groundless optimism) has to say anymore, after two years of outright hyperbole and unfounded green shootery.

February 28, 2007 - Dow Jones @ 12,268

March 13th, 2007 – Henry Paulson: “the fallout in subprime mortgages is "going to be painful to some lenders, but it is largely contained."

March 28th, 2007 – Ben Bernanke: "At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,"

March 30, 2007 - Dow Jones @ 12,354

April 20th, 2007 – Paulson: "I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained." , "All the signs I look at" show "the housing market is at or near the bottom,"

April 30, 2007 - Dow Jones @ 13,063

May 17th, 2007 – Bernanke: “While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S.”

May 31, 2007 - Dow Jones @ 13,627

June 20th, 2007 – Bernanke: (the subprime fallout) ``will not affect the economy overall.''

July 12th, 2007 – Paulson: "This is far and away the strongest global economy I've seen in my business lifetime."

August 1st, 2007 – Paulson: "I see the underlying economy as being very healthy,"

October 15th, 2007 – Bernanke: "It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions."

December 31, 2007 - Dow Jones @ 13,265

January 31, 2008 - Dow Jones @ 12,650

February 14th, 2008 – Paulson: (the economy) "is fundamentally strong, diverse and resilient."

February 28th, 2008 – Paulson: "I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street."

February 29th, 2008 – Bernanke: "I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system."

March 16th, 2008 – Paulson: "We've got strong financial institutions . . . Our markets are the envy of the world. They're resilient, they're...innovative, they're flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong."

March 18th, 2008 - Bear Stearns Bailout Announced

May 7, 2008 – Paulson: 'The worst is likely to be behind us,”

May 16th, 2008 – Paulson: "In my judgment, we are closer to the end of the market turmoil than the beginning," he said.

May 30, 2008 - Dow Jones @ 12,638

June 9th, 2008 – Bernanke: Despite a recent spike in the nation's unemployment rate, the danger that the economy has fallen into a "substantial downturn" appears to have waned,

July 16th, 2008 – Bernanke: (Freddie and Fannie) “…will make it through the storm”, "… in no danger of failing.","…adequately capitalized"

July 20th, 2008 – Paulson: "it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."

July 31, 2008 - Dow Jones @ 11,378

August 10th, 2008 – Paulson: ``We have no plans to insert money into either of those two institutions.” (Fannie Mae and Freddie Mac)

September 8th, 2008 - Fannie and Freddie nationalized. The taxpayer is on the hook for an estimated 1 - 1.5 trillion dollars. Over 5 trillion is added to the nation’s balance sheet.

September 16th, 2008 - $85 Billion AIG Bailout “Loan”

September 19th, 2008 - $700 Billion Bailout Plan Announced

September 19th, 2008 – Paulson: "We're talking hundreds of billions of dollars - this needs to be big enough to make a real difference and get at the heart of the problem," he said. "This is the way we stabilize the system."

September 19th, 2008 - Bernanke: "most severe financial crisis" in the post-World War II era. Investment banks are seeing "tremendous runs on their cash," Bernanke said. "Without action, they will fail soon."

September 21st, 2008 – Paulson: "The credit markets are still very fragile right now and frozen", "We need to deal with this and deal with it quickly.", "The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing."

September 23rd, 2008 – Paulson: "We must [enact a program quickly] in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families' financial well-being, the viability of businesses, both small and large, and the very health of our economy,"

September 23rd, 2008 – Bernanke: "My interest is solely for the strength and recovery of the U.S. economy,"

October 31, 2008 - Dow Jones @ 9,337

March 31, 2009 - Dow Jones @ 7,609

"Where's our Money"

Thursday, June 11, 2009

This Should Put Everyone at Ease

I wonder if the experts really know what they are doing. We should let the markets work and have good but limited regulation. Too much leverage is bad!! Dughh

Wednesday, June 10, 2009

If FED had a Stress Test it Would FAIL!

Jim Grant of Grant's interest rate observer said the FED would fail if audited. WTF. I don't believe everything I hear but the FED is basically Citibank.

Tuesday, June 9, 2009

FED needs to Go Bye Bye

Straight out of the Twilight Zone Fed Intends to Hire Lobbyist in Campaign to Buttress Its Image.

The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power over the U.S. financial system, people familiar with the matter said.

Linda Robertson currently handles government, community and public affairs at Johns Hopkins University in Baltimore, and headed the Washington lobbying office of Enron Corp., the energy trading company that collapsed in 2002 after an accounting scandal. She was also an adviser to all three of the Clinton administration’s Treasury secretaries.

“Some members of Congress think there are votes in attacking the Fed” after it “unnecessarily and unwisely entangled monetary policy with fiscal policy,” said former St. Louis Fed President William Poole. “The Fed is going to have a tricky time of unwinding what has been done” and will need to “keep in touch with members of Congress more thoroughly,” said Poole, now senior fellow with the Cato Institute in Washington.

“People have been asking whether the Fed is capable of getting its job done right,” said Lynn Turner, a former chief accountant at the Securities and Exchange Commission. “Hiring a former lobbyist from Enron will surely make one wonder.”

In addition, the central bank has been become a target to some members of Congress who’ve posted online videos of their interrogations of Fed officials during public hearings.

One YouTube clip, of Florida Democratic Representative Alan Grayson’s grilling of Inspector General Elizabeth Coleman, has garnered almost 500,000 views in about a month.
Twilight Zone Lobbying

The fact that the Fed's image needed restoring is bad enough, but hiring an Enron lobbyist and expecting it to improve one's image is straight out of the Twilight Zone.

And what's with those CBS 60 Minutes escapades with Bernanke? It is sickening to see 60 Minutes presenting Fed propaganda as news. If 60 minutes wants news, here is news:

Is Anyone Minding the Store at the Federal Reserve?

If 60 Minutes wants more news it should report on HR1207.

Ron Paul: Audit the Fed, Then End It! 5/18/09

Support HR1207!

Please contact your legislative representatives today!

Here's how: Speak Out - Audit the Fed, Then End It!

8 Step Program To Improve The Fed's Image

Before a drug addict or alcoholic can be helped, the first step is to admit there is a problem. With that in mind, I propose the following 8 step image improvement program.

1) Bernanke needs to admit the Fed and fractional reserve lending are the root causes of our economic crisis.

The Fed under Greenspan and now Bernanke have blown bubble after bubble with each bubble increasing risk. Bernanke needs to admit he does not have a clue where interest rates should be or why.

Certainly any economist who could not spot this housing bubble a mile away is in academic wonderland and unfit to be setting interest rates.

As recently as 18 months ago the Bernanke said this was contained to subprime and would not spill over into the broader markets. Three months ago Bernanke predicted the unemployment rate would be 8.4% for 2009. Is that hopeless or what? Please see Optimistic Unemployment and Housing Forecasts Looking Downright Silly.

It's important to note that not a single member on the Fed got this bubble correct. The problem is not just Bernanke.

2) Admit FDIC is part or the problem.

The problem with FDIC is easy to describe: it continually puts off small problem until there is a massive systemic collapse. Banks like Bank United or any of the 63 banks that failed since 2008 had some things in common: high leverage, high risk, and bets on real estate that went sour.

To attract deposits, these banks offered above market rates on CDs and other FDIC guaranteed deposits. Were it not for FDIC no one in their right mind would have banked at most of those failed institutions. Yet those banks were able to continually raise cash because of government guarantees.

Had those guarantees not been in place, many of these banks would have blown up sooner or they would not have attracted so much capital in the first place. FDIC penalizes banks that lend responsibly because their CD rates are lower.

FDIC appeared successful for years but those appearances were deceiving. Instead of having small random bank failures spread out over years, FDIC guarantees one big banking mess like we are facing now.

It's time to abolish FDIC, except perhaps on checking accounts which are payable on demand deposits that should not be lent out at all.

3) Conduct a complete audit of the Fed.

No one knows what is on the Fed's balance sheet, what it is worth, who loans were made to or why. Is it any wonder the Fed needs to improve its image? Bernanke preached transparency but he is a big liar. There is no transparency and that is why we need an audit.

4) Devise a plan to phase out FDIC.

It might cause a huge problem to phase out FDIC, but it sure can be done over time. Let's start working on the plan now.

5) Devise a plan to phase out Fractional Reserve Lending

The way to start is to require 100% reserves on checking accounts (demand deposits that are supposed to be available on demand). People think money is in their checking accounts. It simply isn't there. It should be and it's fraud that it's not.

Greenspan allowed sweeps in 1994 and unbeknown to bank customers, their checking deposits are swept out nightly into savings accounts. Savings accounts have no reserve requirements at all. It is time to end this nonsense. However, this proposal would likely have to be phased in.

6) Sell the Fed's assets.

Selling the Fed's assets will have to be done over time, but it can easily be accomplished in 3-5 years.

7) Let the free market set interest rates.

This is actually easier than it seems and we can start now. All the Fed has to do is step away and let the market set rates. The Fed has no idea what price orange juice should be, what the price copper should be, or how much a loaf of bread should cost. Nor does the Fed have any clue how to set interest rates. The housing bubble is proof enough.

Some say the Fed just follows the market. If that is the case, why do we need a Fed?

The reality is the Fed does not really follow the market, rather it creates massive feedback loops distorting the market. If you have not yet done so, please read the Fed Uncertainty Principle where I outline the process.

8) Carry out the plan to eliminate the Fed, Fractional Reserve Lending, and the FDIC.

Once that is accomplished the Fed will no longer have an image problem and the citizens of the US will no longer have a problem with the Fed blowing serial bubbles or robbing the middle class with its inflationary policies.

Mike "Mish" Shedlock

Monday, June 8, 2009

Sunday, June 7, 2009

Healthcare in Other Countries

“According to the Economist the total US spend on healthcare is 15.4% of GDP including both state and private . With that it gets 2.6 doctors per 1,000 people, 3.3 hospital beds and its people live to an average age of 78.2

“UK - spends 8.1% of GDP, gets 2.3 doctors, 4.2 hospital beds and live to an average age of 79.4. So for roughly half the cost their citizens overall get about the same benefit in terms of longevity of life.

“Canada - spends 9.8% of GDP on healthcare, gets 2.1 doctors, 3.6 hospital beds and live until they are 80.6 yrs

“Now if we look at the more social model in Europe the results become even more surprising:

“France - spends 10.5%, 3.4 docs, 7.5 beds and live until they are 80.6

“Spain - spends 8.1% , 3.3 docs , 3.8 beds and live until they are 81

“As a whole Europe spends 9.6% of GDP on healthcare, has 3.9 doctors per 1,000 people, 6.6 hospital beds and live until they are 81.15 years old.

The point is we have some room to cut costs in the US. I have a feeling the costs will be cut mostly on wages. I think you will see some improvements accross the board.

Saturday, June 6, 2009

Current Unemployment

The broadest measure is almost 21%. U-6 17%, U3 9.5%

Grill him Mary

Sweeden punishes A$$ Wrangling Bankers, We give them Bonuses

From Business Wire
"If the banks approach us with large credit losses after making a lot of money on lending, their shareholders will have to pay the consequences," Anders Borg said in an interview, Reuters reports. "We will be very clear with banks which are not solvent and cannot live up to what the law stipulates, that they can count on (government) funding to be in the form of state ownership."

Swedish banks fear mounting loan losses as the economy in the Baltic States, where Swedish banks are the largest lenders, are heading for breakdown. This puts the Swedish economy at considerable risk, Sweden's Finance Minister Anders Borg said to Swedish state television, SVT.

Monday, June 1, 2009

The Great Bear Market 2007-present

Chart from

The great bear market of 2007 to present saw the market drop 57% from 1565
to 666. We've rallied almost 40% off the lows but the we're far from a new high. The S&P 500 closed around 930 and would need to rally another 70% to make a new high.

Bear Market 2000-2002

Chart from

The bear market that ended the tech bubble in March 2000 dropped from 1527 to 776 in October 2002. The market dropped over 49%. This is the high of the stock market in real terms. We hit a new high in October 2007 but this doesn't factor in inflation.