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Party At Your Own Financial Risk

New year picBy Greg Hunter’s   

Everybody on Wall Street is breaking out the balloons and party hats and celebrating the end of the recession.  Even Larry Summers, the top economist in the Obama Administration, says “Everybody says the recession is over.”  Really? “Everybody” says it’s overI’ll bet you the more than 15 million out of work Americans won’t say the recession is over.   Sure, we did have an upturn in the economy, but it took trillions of dollars we do not have to do that.  We paid people to buy cars and houses.  The Congress passed and injected the biggest economic stimulus into the economy in history.  (more…)

Uncle Sam Plays Santa Claus

santaBy Greg Hunter’s

The government has made some pretty big financial announcements during the Christmas holiday season.  So-called Pay Czar, Kenneth Feinberg, decided to boost the pay of an unnamed AIG executive by $4.3 million.  Was Feinberg just playing Santa or taking strategic action to get the least attention possible while the media was busy with Christmas and snow storms?   (more…)

Is Health Care Really America’s Top Priority?

By Greg Hunter’s  

In September, I wrote a post called “Prediction: Obama Wins Health Care, Loses Economy.”  It appears the Senate has the votes for passage of its version of health care legislation; so the prediction is halfway complete.  I am not going to argue whether or not health care reform is a good idea.  Do we need to take care of sick people?  The answer is a resounding yes!  My problem is putting health care before the biggest crisis facing America, and that is unemployment.  (more…)

False Positive Signals For The Economy

By Greg Hunter’s   

According to economist John Williams at Shadow Government Statistics (SGS), we are getting “… false positive signals…” for monthly numbers such as retail sales and unemployment.  So, a recovery looks like it is taking place when a deeper analysis into the government numbers shows it is not.  Williams says in his latest report, “Generally, the economy continues to sink or bottom-bounce; no recovery is in place.”    A perfect example of a false positive is the seasonally-adjusted retail sales data from last year compared to now.  In November 2008, we were in the middle of a financial meltdown.  When you simply compare this November to last November, it looks like there are improving sales.  But if you compare November 2009 to normal years when we were not in a meltdown, such as 2006 and 2007, then retail sales have fallen slightly.   (more…)

Gold or Dollar, Up or Down

dollar goldBy Greg Hunter’s   

Alex,a friend of mine, sent me an email with just one sentence.  It said, “Did you read this?”   It was an article published this week by NYU Economics Professor Nouriel Roubini titled, “Roubini: Here’s Five Reasons The “Barbarous Relic” Gold Is Going To Tank.”  Alex and I like and respect Roubini because he was one of the few economists to call the coming financial crisis well before the meltdown.  Alex knew I would be taken aback, like he was, at the bearish call on gold.  (more…)

“Pay Czar” Idea is a Crock!

2By Greg Hunter’s

Kenneth Feinberg was appointed by the Obama Administration as a so-called “Pay Czar” after public outrage over big compensation packages at firms that were bailed out by the government.  Feinberg has been on the job as pay cop for a little over 6 months.  He is attempting to cut the salaries of top executives by limiting the cash portion of pay to just $500,000.  The rest of the compensation can be in stock but must be held for 3 years before cashing it in according to Feinberg’s new rules.  Also, fringe benefits such as using the private jet are capped at $25,000.  What happens after that?  Will executives be forced to spend some of their half million dollar salaries to fly first class?    (more…)

George Will Is Wrong On The Fed

imagesBy Greg Hunter’s

This week nationally syndicated columnist George Will wrote a piece called “Playing Politics with the Fed.”  Mr. Will is squarely against Congressional legislation called the Federal Reserve Transparency Act of 2009.  This bill will force the Federal Reserve to open its books for an audit.   The bill, also known as “Audit the Fed,” has 317 co-sponsors in the House of Representatives alone, a more than two-thirds majority.  There are 137 Democrats and 180 Republicans backing an audit, so it is very serious bi-partisan legislation.  (more…)

Can Obama Really Be “Fiscally Prudent”

President+Obama+Delivers+Speech+Economy+Brookings+YDrRRcbEbralBy Greg Hunter’s

President Obama’s “Jobs” speech this week hinted, once again, that he is well aware the U.S. Government has a ballooning deficit problem.  In remarks made to the Brookings Institute, the President said, There are those who claim we have to choose between paying down our deficits on the one hand, and investing in job creation and economic growth on the other. But this is a false choice. (more…)

How Do I Protect My Assets?

Christman DebtBy Greg Hunter’s

The FDIC just shut down another 6 banks last Friday.  There is no end in sight for the bank failures coming.  To make matters worse, the FDIC is way more than $8 billion in the hole as far as insurance funds to close insolvent banks.  That is pretty scary if you ask me.  Many people have been asking how they should protect themselves?     (more…)

Ben Bernanke’s Hyperinflation And Economic Collapse

Weimar GermanyBy Greg Hunter’s 

Yesterday, Federal Reserve Chief Ben Bernanke was in front of the Senate Banking Committee trying to hold on to his job.  Some Senators were complimentary on Bernanke’s job.  Republican Senator Judd Gregg from New Hampshire gave the Fed Chairman a warm welcome.  Judd said, “If you hadn’t been there, and hadn’t been willing to take extraordinary action last fall, last winter, and even early spring … it’s very likely we would be experiencing a depression…”   I look at Bernanke’s performance during the financial crisis the same way I would look at a drunken bus driver who crashes and then stumbles around pulling a few children out of the wreckage.  In my eyes, Bernanke is hardly a hero.  (more…)

Afghanistan, Add It To The Tab

obama west pointBy Greg Hunter’s

I watched the President last night address the nation on why he needed to send 30 thousand more troops to Afghanistan.  He said it would cost an additional $30 billion for this escalation.  That works out to 1 million bucks per soldier.  There are 68 thousand troops already there.  That means there will be 98 thousand troops on the ground in Afghanistan in 2010.  Using the President’s math, 98 thousand troops will cost $98 billion dollars a year!

I do not envy the President.  Sending people to battle is not easy.  I think the President has genuine concerns about the destabilization of Afghanistan.  It’s a place Mr. Obama called the “epicenter of the violent extremism practiced by Al Qaeda.”  Afghanistan is also the home of the Taliban, and they too are trying to overthrow the government.  I think the President’s big fear is across the border in Pakistan.  If Pakistani nukes fall into the hands of terrorists, America would certainly be a top target.  In September, I named Pakistan as one of “The 2 Biggest Geopolitical Wild Cards in the World.”     

I am not here to make a case for or against the President’s actions.  No one is questioning there is a real problem for America in that part of the world.  What I would like to know is why there is no debate on how the U.S. is going to pay for this?  Afghanistan will become a $98 billion per year expenditure!   I have said in the past, the only people suffering in these wars are soldiers and their families.  If this is vitally important to U.S. security and interests, then why are we not asking Americans to pay for this?  CNN reported that Speaker of the House, Nancy Pelosi, soundly dismissed any talk of a war tax to pay for the Afghanistan operation.  So I ask, how are we going to pay for this?

The answer is simple.  I say, “Add it to the tab!”  We will take care of this by adding to the debt ceiling and printing more money.  You think I am kidding?  Back in September of this year, the President asked Congress to raise the debt ceiling to $13 trillion dollars from $12.1 trillion.  Presto! New money, just like that!!  (Click here for the complete story)   

People are living a dream if they think this will not cost them because the tab from all the bailouts of Fannie, Freddie, GM, Chrysler, AIG, the banks, stimulus packages and so on is getting pretty heavy.  Expert investor Porter Stansberry summed it up in an article last week titled “The Bankruptcy of the United States is Now Certain.”  His opening paragraph was a real eye opener.  Stansberry wrote, It’s one of those numbers that’s so unbelievable you have to actually think about it for a while… Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that’s not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That’s an amount equal to nearly 30% of our entire GDP. And we’re the world’s biggest economy. Where will the money come from?”  (Click here for the complete post)   

Yes, where will the money come from?  That’s $3.5 trillion ($3,500 billion) to finance in a single year!  That means the government will have to borrow (or print) $67 billion each and every week!  That’s $268 billion a month!  The entire budget deficit in the last year of the Bush Administration was only $482 billion!   It looks like we will just keep on “adding it to the tab”… until we can’t.  Vice President Cheney once said, “Deficits don’t matter.”  He’s right!  Deficits do not matter, right up to the moment they cannot be financed any more, and then all hell breaks loose!

Lessons From A Dubai Default

MI-AU028_DUBAI_D_20081215181700By Greg Hunter’s

Last week, just before the Thanksgiving holiday, Dubai World asked creditors if it could suspend payments on nearly $60 billion in debt.  Experts call this a “technical default” by Dubai itself because it owns Dubai World which is a state run investment company.

Imagine calling your banker and telling him that you are not going to make your mortgage payment for at least 6 months; that would also be considered a technical default.  The folks defaulting on their debt are famous for building the man-made palm tree shaped island in the Persian Gulf.  Ya think maybe they over did it?

Now, according to Reuters, there may be some sort of bailout by the U.A.E central bank.  “The United Arab Emirates‘ central bank set up an emergency facility on Sunday to support bank liquidity in the first policy response to Dubai‘s debt woes that threatened to paralyze lending and derail economic recovery.”  (Click here for the complete Reuters story.)     

Problem solved, right?  Not by a long shot, according to banking analyst Dick Bove.  The problem is the financial system is murky.   You have things like derivatives, credit default swaps and off balance sheet accounting that make it hard for banks to tell how   much they might lose on bad Dubai debt.  Bove said in an online CNN story, “There could be huge indirect exposure,” he said. “One has to assume that U.S. banks will be hurt.”  (Click here for the complete CNN story.)

It is not just American banks that might take a hit, but also some European Banks will probably be forced to take some big losses.  We won’t know how the Dubai financial crisis will work out for weeks or maybe months.  Dubai has $12 billion in debt coming due before the end of 2009 and plenty more debt due in 2010.

So where are the lessons here concerning the Dubai debt default?  Two things come to mind.  If you thought that the financial crisis was ending, then Dubai is a reminder that the crisis is growing not shrinking.  I wrote about the U.S banking troubles last week in a post called the “FDIC Is Way Beyond Broke.”   This new Dubai default could not come at a more inopportune time, especially for U.S. banks.

Also, this is a worldwide banking crisis that will require a worldwide solution. That solution seems to be the same on every continent.  Dubai will likely print money and let nothing collapse just like everyone else.  By the way, The U.S. Mint suspended the sales of Gold and Silver Eagle coins on the same day Dubai announced its “technical default.”  That probably is a coincidence but, then again, if you have a banking crisis, do you want people taking money out of the system and buying precious metals?

The Dubai crisis is a sign that the global financial meltdown that began in 2007 is just picking up steam, and it will get a whole lot worse before it gets better.

The FDIC Is Way Beyond Broke

 By Greg Hunter’s

The Federal Deposit Insurance Corporation announced this week that the insurance fund that covers more than $4.5 trillion in deposits was not only depleted but has a negative balance of $8.2 billion according to the Wall Street Journal.   The FDIC is now an insurance fund with no money of its own.  The FDIC says it still has $23.3 billion to cover failing banks.  It also has a $500 billion line of credit at the U.S. Treasury.  FDIC Chairman Sheila Bair said in early September, “…We can tap up to $500 billion in a line of credit if we needed to, I can’t imagine that would ever be necessary…”  Well, now it may be necessary because The FDIC said this week that 552 financial institutions were on the government’s problem list at the end of September.  That’s 137 more “problem” banks added to the list in just three months.  These banks have combined assets of $345.9 billion.  The “problem list” will surely get longer as we go into 2010!  Some experts say the real “problem list” of bad banks is more than 1000.  Chairman Bair surely knew she would have to use the $500 billion line of credit when she asked for it from Congress.  While we’re on the topic of bank losses, the head if the IMF, Dominique Strauss-Kahn, said this week, “It’s possible that 50 percent are still hidden in their balance sheets…”  We don’t even really know how bad this will get, but it will get very bad!   I wrote about the grim banking trouble facing America in a September post called “The Banks Are (Still) In Trouble.”    

It is not just a raw numbers game because just a few big banks with lots of bad debt can also create big headaches for the FDIC.  For example, Wells Fargo has some real debt issues it is dealing with regarding credit cards and commercial real estate.  It also has billions in Payment Option ARMs.  These loans typically add to the principal of the mortgage because that is what homeowners pick as a payment.  With a collapsing residential real estate market, this spells even more trouble for the bank.  Wells Fargo’s problems are so bad the respected banking analyst Dick Bove said in September that Wells Fargo is a “volcano, with numbers of tremors, that is possibly about to blow.”  If Wells ends up needing a bailout, it will cost tens of billions of dollars and that is just one bank.  

Recently, the FDIC announced that it will require banks to prepay three years worth of government insurance fees, now!  The government hopes that will bring in $45 billion by the end of this year to help more failed banks.  Can you imagine walking into your state DMV to renew your license plate and the clerk behind the counter says, “Mr. Smith, we need to collect license fees up front for the next three years because we are broke and need the money.”  How about if your car insurance company told you that you need to pay the next three years of premiums because the insurance funds were depleted and  the company needs your money now to stay solvent.  What is going to happen in a year when the FDIC runs out of money again?  Will it then collect money through 2015?  This should make everyone with a bank account feel uneasy.  Will my mattress be better than my bank?

All this is going on under the backdrop of $32 billion in bank bonuses.  Well, that is at least what our brilliant banking executives raked in last year.  Yes, the same people that caused the financial meltdown and got $175 billion in taxpayer funds paid themselves $32 billion in bonuses last year.  I would like to point out the $175 billion does not include the bailout money given to the banks by the Federal Reserve in secret!  In many cases, some of the biggest banks paid more in bonuses than they made in profits!  For example, according to New York State Attorney Andrew Cuomo, in 2008:  Morgan Stanley earned $1.7 billion and doled out $4.475 billion in bonuses; Goldman Sachs earned $2.3 billion and paid out $4.8 billion in bonuses; JP Morgan Chase took in $5.6 billion and gave $8.69 billion in bonus bucks.  The average salary, bonus and benefits for top bank executives in 2008 were $2.6 million.  I do not expect 2009 to be any different.

Today I wonder if a half trillion dollars will be enough to get the country through the waves of bank failures coming from the residential and commercial real estate meltdown.  Make no mistake, we are nowhere near a bottom.  In my August post called “Real Estate at A Bottom…NOT!” I said this,“A Deutsche Bank report claims that 25 million homeowners will probably owe more than their mortgage is worth by 2011.  That will be nearly half  of all homeowners in the U.S.  The bank estimates 26 percent of homes are currently underwater.”  You should check out the chart in this post that shows just how big the wave of residential real estate will get when ARMs reset!  If you add up all the trillions of dollars in sour debt in residential and commercial real estate, you have all the ingredients for a banking calamity.  I do not know when it will happen, but I predict before it’s all over we will have a “bank holiday.”  That’s when the government closes all the banks and then takes some sort of extreme action to try and right the ship.  For me, that’s just the way the math works out.  By the way, gold hit yet another all time high this week.  Do you think some people are buying gold as insurance for defense against a possible banking meltdown?   

Regardless, I’ll bet while shoppers are blissfully gobbling up bargains on “Black Friday,” the FDIC will celebrate what I call “Red Friday” because, once again, it will be quietly closing down some more insolvent banks.

“Mischief” and Fed Secrecy

By Greg Hunter’s  

A very important hurdle was cleared last week for the folks who want to end the Federal Reserve’s privilege of secrecy.   By a bipartisan vote of 46-26, the House Finance Committee approved an amendment to audit the Fed.  This did not get passed without a fight from the Fed and its backers.  Democrat Mel Watt offered up a watered down amendment which was not voted on.  Even Chairman Barney Frank, who had previously been a supporter,  made a surprise turnaround and voted “no” on the amendment.

Here is Congressman Grayson speaking to his fellow House members on why only the Paul-Grayson Amendment should be passed.  Listen closely as Grayson talks about the half trillion dollars that was given to foreign banks and more than 200 billion of toxic assets removed from Citibank.  These bailouts and many more were done by the Fed which is fighting to keep all its actions secret.

This is just one big battle in a long war.  A majority of Senators will have to get behind a bill that will force an audit of the Fed.  Finally, the President will have to sign the legislation.  Will Obama veto it?  Keep in mind, Goldman Sachs is a big campaign contributor and a big beneficiary of Fed largeness.

There are many high profile opponents to a Fed audit.  Warren Buffet is against a Fed audit because he thinks it will hurt its independence.  Buffet recently said,  “…there is nothing more important in the economic future of the country than to have an independent Fed.”  Buffet went on to say, “…curbing the independence of the Fed could lead to a lot of mischief.”  (Complete Video Below)    

Buffet has profited from an “independent Fed,” and that may be the reason he doesn’t want the wall of secrecy around it torn down by legislation.  Take for example Goldman Sachs, this is a company Buffet has heavily invested in.  Goldman got a 13 billion dollar payout from the Fed through the AIG bailout.  The Fed will not explain why it gave such good treatment to the former investment bank.

In all, Buffet has at least $26 billion invested in 9 banks that could be getting secret bailouts from the Fed.  Two of his investments, Bank of America and Wells Fargo,  have already gotten $70 billion in TARP money alone.  Another Buffett bank bailout is something a Fed audit would surely reveal.  If billionaire investor Warren Buffet got bailed out by the Fed, would that be “mischief” or just good business?

All the while this loud battle over the Federal Reserves secret money policies is going on, the mainstream media is silent.  Please show me where this story is getting mentioned on nightly news broadcasts or is being printed on the front page of major publications.  I can’t see where the mainstream media is even mentioning this most important issue.  Instead, it is filling the airwaves and newspapers with superficial garbage like Oprah Winfrey quitting her show two years from now!  Oprah might be interested in the Fed story because she has a couple billion Federal Reserve Notes that are being devalued everyday by the secret actions of the central bank.

The “Fix” Is In!

 By Greg Hunter’s   It appears the “fix” is in as far as the road plan for the U.S. dollar and economy.  The government and the Fed appear to have chosen a path of inflation for America and the world.    This is not an official announced plan but it might as well be.   Just look at what Fed Chief Ben Bernanke and his number two Fed Vice Chairman Donald Kohn have been saying this week.  Both Kohn and Bernanke say, “…it is not obvious there are any large misalignments in asset prices today.” In other words, neither of these guys sees another asset bubble and that is telegraphing a very easy monetary policy to Wall Street.   We have zero percent interest rates and lots of money printing.  According to the Fed, this policy will continue because the bad economy is “… likely to warrant exceptionally low levels of the federal funds rate for an extended period.” This policy effectively gives the banks money for nothing.   And get this, Wednesday St. Louis  Fed President James Bullard suggested that interest rates could be on hold until 2012!   I wrote a post earlier about zero interest rates  called “The Government Approved Carry Trade and Free Money.” I think the Fed also sees big problems coming down the pipe in the credit markets.  New York Fed President William Dudley offered a “backstop” recently weekend to solvent companies to fend off another panic in case of another financial meltdown.  Did Dudley offered this up out of the blue or is it part of the Fed game plan?  I talked all about this in my post “Is the Fed Signaling More Trouble Ahead?” The banks are not really making money in their core lending business these days.  I am sure you have seen one story after another about how tight credit is for just about everyone.  The banks have to make money some way, so they are operating more like government sanction hedge funds.  They are making money by speculation and trading in the markets.  The banking industry has once again become one big casino.  I think the Fed knows the banks are going to need all the money they can get to fight off the next tsunami of failed debt getting ready to crash ashore in the coming months. Maybe that’s why Shadow Government Statistics announced today that “Formal Deflation Has Run Its Course.” Which is another way of saying get ready for higher prices because the dollar is being sacrificed so the banks can build cash.  This will make things like gold, oil and many other commodities go up in price relative to a declining dollar.   I think when things go up in price because the currency is devalued it is called inflation.  For the little guy, this new inflation will be painful. Also, keep your eye on gold because hedge fund manager John Paulson sure is.  You might remember Mr. Paulson for making 3.7 billion dollars betting on the real estate collapse a few years back.  You might also remember Paulson made this play when Fed Chief Bernanke was saying that the sub-prime market meltdown would be “contained.” Some containment, the whole market hit the tank and some say there is more pain to come.  Now Paulson wants to start a gold fund of his own with 250 million bucks.  Do you think Paulson sees more upside in gold from here?  I wouldn’t bet against him.   By the way, gold hit yet another all time high yesterday. What the Fed is doing is very, very dicey.  To my knowledge, this kind of monetary policy has never been tried before here in the United States.  I think the Fed is desperate and is taking drastic measures because it knows the coming financial situation is dire.  There is no telling how this will end up, but I’ll bet at the very least most people will be ripped-off of their hard earned buying power.