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CIT Bankruptcy Dire for Main Street

By Greg Hunter’s USAWatchdog.com  

It is official, CIT filed for bankruptcy protection Sunday night (11/01/09).  This was not a surprise because the lender had been having financial trouble for months.  The government tried to save CIT with a 2.3 billion dollar bailout last fall.  Now that money will be written off by the taxpayer.    I was listening to CNBC, last week, talk about the prepackaged bankruptcy of CIT.  You would have thought it was some small bank with 1,000 depositors.  The CNBC commentator brought up the term “prepak” referring to a prepackaged Chapter 11 Bankruptcy.   That’s when a company tries to reorganize debt to stay in business.  This is different from Chapter 7 Bankruptcy where a company liquidates assets and goes out of business.   The inference was that “prepaks” happen all the time and that this was expected, so it is OK.  It is not OK!   CIT is the 5th largest bankruptcy in corporate history!   The lender has $71 billion in assets and more than $64 billion in liabilities.   This bankruptcy will be dire for small and medium businesses across America.

Reuters reports, “…But the company’s long-term prospects are uncertain and the bankruptcy could leave more than one million small and medium-sized businesses looking for another source of funding, lawyers said.  “This could have a devastating effect,” said Jerry Reisman, a partner at law firm Reisman Peirez & Reisman in Garden City, New York, who has been working with many of CIT’s factoring clients.  These clients — about 2,000 small companies — are in a particular bind when it comes to finding alternative financing since CIT is by far the biggest provider of factoring services.  In the factoring business, CIT buys accounts receivables from vendors that range from $5 million to $1 billion in size and then works with their customers to ensure payment.”  (Click here for the complete Reuters story)

CIT will have a lot less money to lend.  That means many small and medium business will go bust because financing will dry up.  This is not a sign of things getting better but a signal the economy is taking another turn downward.  The CIT bankruptcy will set off a chain reaction of other failures for businesses that will not be able to keep their doors open without ongoing backing.  Even CIT may or may not survive bankruptcy.

Keep in mind, this happened on a weekend the FDIC took over 9 other banks in one day!   That is a record (so far) for the financial crisis that started in 2007.  This brings the total number of failed banks to 115 this year.  The FDIC expects more failures.  More bank failures means less lending!  It is as simple as that. (more on CIT from Forbes)

Is The American Empire Being Looted?

washington-department-of-the-treasury-washington-d-c-dctb2

By Greg Hunter’s USAWatchdog.com  

It is said at the end of an empire, the Treasury is always looted.  In the case of America, it is the value of the dollar and the credit rating of the United States that is being robbed from the American people.

NYU Professor of Economics, Nouriel Roubini, said in August of last year, Recent economic, financial and geopolitical events suggest that the decline of the American Empire has started. After the collapse of the Soviet Union there was a brief period where the world switched from a bipolar balance of two superpowers to a unipolar world with one economic, financial, geostrategic superpower, or better, hyper power, i.e the United States. But by now three factors suggest that the US has squandered its unipolar moment and that the decline of the American Empire – as the US was in effect a global empire – has started.

No one is backing a truck up to Fort Knox to pilfer America’s gold.  Nor is anyone swiping pallets of hundred dollar bills from the Bureau of Engraving and Printing, at least not yet.  So how is America being looted?

Let’s start with the 787 billion dollar stimulus program that was passed by Congress early this year.  The Bill was supposed to create lots of jobs.  According to President Obama’s Council of Economic Advisors, 600 thousand to 1.1 million jobs are estimated to have been “saved or created.”  When I read that in the paper, I thought “wow that’s all the jobs we got out of all that money?”  

So, I called my tax man Steve to crunch some numbers for me.  Steve is a Certified Public Accountant.  I told Steve, “Let’s give the President’s Advisors the benefit of the doubt and say 1.1 million jobs were “saved or created.”  Divide 787 billion dollars by the 1.1 million so-called jobs and, according to Steve the CPA, it comes out to $715,000 per job “saved or created.”  This is not a mistake.  Steve checked the math.  It came out to 715 thousand dollars per job!   

There is no way on God’s green earth that you can spend that kind of money and get that few jobs without massive fraud, waste and abuse!

Then a day later we find out, according to the Associated Press, that the “stimulus jobs were overstated by thousands.”  The AP report said, “…some jobs credited to the stimulus program were counted two, three, four or even more times.” …  “A child care center in Florida said it saved 129 jobs with the help of the stimulus money.  Instead, it gave pay raises to its existing employees.”   What a boondoggle!

The same is true for the Troubled Asset Relief Program or TARP.  700 billion dollars was appropriated so the banks could buy toxic assets to “free up” lending.  No toxic assets were bought!  What a taxpayer rip-off.  The Treasury handed out the cash to financial institutions and let the bankers spend the money on whatever they wanted.  Surprise, the bankers did spend some of the money on billions in bonuses to reward the very people who caused the economic meltdown in the first place.  No bankers were fired.  They just got big bonuses!  Yes, some banks such as Goldman Sachs and JP Morgan Chase did pay back the TARP money, but so what!  Those banks got huge financial help in other ways.  Check out my post called “The Untouchables: Goldman and Chase” for more on those taxpayer rip-offs.

I don’t know if all the trillions created and spent is just waste, incompetence or downright fraud.  It is probably all of the above.  It really does not matter because, in the end, the outcome will be the same.  The dollar will be diminished and the credit rating of the U.S. will be destroyed.  In the Great Depression, the value of the dollar and the “Full Faith and Credit” of the country were never in question.  I predict, before this financial crisis is over, both will be looted from the American Empire.

 

The Real Numbers From Shadowstats.com

By Greg Hunter’s USAWatchdog.com  

The information below is provided complements of shadowstats.com.  I do not get paid in any way for posting this information.  Shadowstats.com is a paid subscription site and well worth the money.   Here is the link for the full report.  (shadowstats.com)

Shadow Government Statististics  

-Recession Is Not Over
 
- Quarterly GDP Growth Is Not Sustainable, with 92% of Growth in Nonrecurring Factors
 
- Annual GDP Down 2.3% (5.7% SGS)

 

- 4th-Quarter GDP Should Resume Quarter-to-Quarter Decline 

 

 

– Durables Goods Orders at 1997 Level

– Help-Wanted Adverting at New 58-Year Low

Red Alert on a Dollar Collapse

By Greg Hunter’s USAWatchdog.com  

Peter Schiff is a legitimate candidate for the U.S. Senate in Connecticut for the 2010 election.  He runs a big time fund called Euro Pacific Capital.  He has made some big calls that have proven to be correct.  For one, he predicted the current financial meltdown at least 2 years before it happened.  He has written three books on finance and investing.  All are best sellers.  According to him, this downturn is not over by a long shot.  Schiff was out recently with a You Tube video warning about the collapse of the dollar.  That’s right, collapse as in worthless or near worthless.   This is kind of a long rant but well worth the listen.  Schiff is an economist and is no fool.   Please give this a listen, if you have the time, and heed his warning.  And please protect your assets!

(Q)Are Things Getting Better? (A)Yes and No

By Greg Hunter’s USAWatchdog.com  

There is an old saying in the markets, “nothing goes straight up or straight down.”  If the economy has a lot more to fall, as I think it does, then it will not fall straight down.  I think we are on a proverbial plateau in this downturn.   Yesterday, Treasury Secretary Tim Geithner said, “The financial sector story is in a much stronger position than it was but it’s a mixed picture,”  and “The price of credit has come down dramatically.”  The economic picture has improved because of massive amounts of money printing for things such as “Cash for Clunkers” and the “$8,000 home buyers tax credit.”   There has also been hundreds of billions spent buying toxic assets and our own treasuries to suppress interest  rates.  Yes, pump hundreds of billions of dollars into the credit markets and economy and things will look better…for awhile.   John Williams of shadowstats.com says in his latest alert, “Fed Pushes Monetary Base to Record High.”  That certainly makes sense because of what the Fed has been doing.  Williams is not alone in tracking high money growth by the Fed.  Terry Coxon of The Casey Report said, “As of July, the M1 money supply (currency held by the public plus checking deposits) had grown 17.5% in a year’s time. That’s not just unusually rapid, it’s extraordinarily rapid.”

Yes, the economy is appearing to look better.  However, even with all the money creation, it is not great.  Secretary Geithner said as much with his “mixed picture” comment.  Economist John Williams concurs and takes it one step further by saying, “Recession Not Over Despite a Positive GDP Quarter.”  Williams thinks the government will continue to print money at or near record amounts and thinks the downturn has farther to go.  Williams is expecting the economy will not look very good in the 4th quarter.  I think that means brace yourselves for another leg down.

New York University Professor Nouriel Roubini is once again sending up warning flares about a different problem, the Fed’s zero interest rate policy.  We’re talking free money, folks.  You might remember that he was one of the few that predicted the current financial crisis.  For that, he earned the  nickname “Doctor Doom.”  Now you can call him “Doctor Right on the Money.”   Roubini sees the economy a little different than Williams.  In some ways, Roubini sees things more positive and in some ways not so much, as told in the excerpt below.

Reuters reports:  … “Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis….”Roubini said he sees a bubble in emerging-market equities and that gains in some developing-nation currencies are becoming “excessive.”  The rally in oil “is not justified by the fundamentals,” he said.  An asset “bust” may not occur for another year or two as a “wall of liquidity” pushes prices higher …  In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets.  Roubini said the U.S. recession seems to be over, though the economic recovery in advanced nations will be “anemic.”… (The complete Reuters story)

Money printing will make things look better, but will it last?  What will happen if the Fed stops printing?  What will happen if the Fed keeps on printing?  Don’t be fooled by the crooked path the economy is taking.  Stay defensive.   One thing is for sure, when Professor Roubini gets nervous, you should too.

Bernanke’s Trillion-Dollar Decision

By Greg Hunter’s USAWatchdog.com  

A good friend of mine sent me and article from Politico with the headline “Bernanke’s trillion-dollar decision.”   I read the article.  It talks about how Fed Chief Ben Bernanke has to decide whether or not he will continue to support the banking system with 1 trillion dollars in funding that is “propping the system up.”   The writer laments the fact that decision will be Bernanke’s alone and Obama  “will have almost nothing to do with it.”

I wrote my buddy back and told him, ” So what do you think they are going to do?  Let it all collapse?  Not a chance.  Big inflation in gold, silver and energy are coming.”  Let me explain further.  Back in August when President Obama renominated  Ben Bernanke to his post at the Federal Reserve, don’t you think that Obama asked if he would continue to support the economy?  Which means print money.   The result of all the money printing that has occurred, and all that will come, will be inflation.  Nobel Peace Prize winner Milton Friedman said, “inflation is always and everywhere a monetary phenomenon.”

If Bernanke would have hesitated or given the slightest implication he would let the economy fail, Larry Summers would be Fed Chief right now.  The fix is in and Bernanke will continue quantitative easing (printing money) to buy toxic debt or continue buying our own treasuries to suppress interest rates.  This will be done overtly or covertly, but it will be done.  There are the 2010 midterm elections and the Democrats will want to keep control of both houses.  Then there is the 2112 Presidential election and Barack Obama will want two terms just like everybody else who has held that office.   Expect the money printing  party to continue, no matter what!   (Here’s the story from Politico.)

The Untouchables: Goldman and Chase

By Greg Hunter’s USAWatchdog.com  

This week the Federal Reserve hit thousands of banks with wide ranging pay controls.  The so called “Pay Czar” Kenneth Feinberg said that salaries paid to the top earning executives at some of the biggest bailedout companies would be slashed by 50% and capped at 500 grand a year.  The companies taking the cuts are American International Group Inc, Bank of America Corp, Citigroup Inc, General Motors Co, Chrysler, GMAC and Chrysler Financial.  The reason why Feinberg singled out these companies is because, according to him, they received “exceptional federal aid.”  What about the “exceptional federal aid” Goldman Sachs and JP Morgan Chase got?  I think Goldman getting at least 13 billion in the AIG bailout and getting paid 100 cents on the dollar for their exposure to the company was pretty “exceptional!!”  Then there are toxic assets turned over to the Fed.   We may never know how many billions of dollars of bad debt Goldman pawned off on the taxpayer because, according to the Federal Reserve, it is a secret.

Same goes for JP Morgan Chase.  How many billions of dollars of  toxic assets did it turn over to the Fed?  Ditching billions in bad bets at little or no cost to the banks is “exceptional” financial help!  Wouldn’t you agree?   Remember the JP Morgan Chase, Bear Stearns deal?  The Fed gave a total of 55 billion dollars to Chase to take over Bear.  And get this, tax payers were put on the hook for up to 40 billion dollars in liability for the failed bank.  I would call that pretty darn “exceptional” government help.  I love the way one blogger put it, “JP Morgan got the money ($55 billion) and the taxpayers got the risk (up to $40 billion), a ruse called the privatization of profit and socialization of risk.”

Of all the big banks Goldman and Chase have probably gotten the most help by taxpayer largeness.  Both Goldman and Chase would have also been bankrupt if it were not for the many sweet heart deals and government handouts given to them.  Yes these two institutions did repay TARP money but they have been helped out in so many other ways.  In my mind Goldman and Chase executives should have their pay cut in half and capped at 500 thousand dollars a year just like the 7 big companies named above.  But that will never happen because  they are  the untouchables.

Pakistan Fighting is Big Trouble!

By Greg Hunter’s USAWatchdog.com  

Pakistan is in a real struggle for control of the country with the Taliban.  This is an actual war, not the threat of war as we see with Israel and Iran.  I wrote about Pakistan as being one of 2 big problem areas in the world today in “The 2 Biggest Geopolitical Wild Cards in the World” post.  Take a good look at the map on this post and see how close the Taliban stronghold in the northern part of the country is to the capitol which is Islamabad.   If the Taliban is  successful in gaining control of the capitol and the country’s nuclear arsenal, then it will affect you!  For one thing, immediately higher prices for fuel.  Also, If the Taliban gains control or is perceived to be gaining control, then there is no telling what the military response will be from India or the U.S.   So when I read this headline in Reuters today “Pakistan braces for attacks as offensive continues”,  I thought I would pass it along to you.

By Augustine Anthony

ISLAMABAD (Reuters) – Suspected Taliban militants shot and killed a Pakistani army brigadier and his driver in the capital on Thursday as the military continued a major offensive against the insurgents in their strongholds near the Afghan border.  Exposing the country’s frayed nerves, the stock market dipped nearly three percent on false reports that a bomb had been found and shots fired at a courthouse in the capital, Islamabad.  The false alarm came as the country remained on high alert for possible retaliatory strikes by Talibanmilitants while the army attacks their strongholds in South Waziristan.  The offensive is a test of the government’s determination to tackle Islamic fundamentalists, and the campaign is being closely followed by the U.S. and other powers embroiled in Afghanistan.  On Thursday, suspected militants shot and killed Brigadier Moin-ud-din Ahmed, deputy force commander of the United Nations Mission in Sudan(UNMIS), who was on vacation in Islamabad.  “Everyone in the mission is very shocked,” Kouider Zerrouk, UNMIS spokesman told Reuters.  (More from Reuters)

Banking Trouble Gets Worse for Wells

By Greg Hunter’s USAWatchdog.com  

The story below is what I call the canary in the banking coal mine.  Wells Fargo was downgraded today by top banking analyst Dick Bove.  He didn’t downgrade them because they were making too much money.  What the article doesn’t say is  before Wells Fargo bought Wachovia,  Wachovia bought Golden West Financial in 2006.  Golden West was a leader in a little something called a Pay Option ARM.  Golden West had about 120 billion in these loans when Wachovia bought them.   Payment Option Arms are also called “pick a payment” loan because you literally pick what kind of mortgage payment you make to the bank every month.  You know, pay as a 30 year fixed, or 15 year fixed or interest only or negative amortization.  Negative amortization adds to the principal every month.  Guess what most people are choosing to pay?  You guessed it, negative amortization which is the cheapest payment possible.  One analyst called these loans “payment option insanity.”  Most of these loans are now, not profitable.  Plenty of folks default when they realize they will owe more than the home will ever be worth!   Wells Fargo grabbed the headline today, but the other banks are still  in trouble too and weak banking equals a weak economy.  Check out the article below.

Oct. 21 (Bloomberg) — U.S. stocks tumbled in the final hour of trading after analyst Dick Bove downgraded Wells Fargo & Co., erasing an earlier rally spurred by better-than-estimated results at Morgan Stanley and Yahoo! Inc.

Wells Fargo, the largest U.S. home lender this year, slid 5.1 percent after Bove of Rochdale Securities cut the shares to “sell” and said earnings were boosted by mortgage-servicing fees rather than improving business trends. Wal-Mart Stores Inc., the world’s largest retailer, tumbled 2.1 after saying it expects a “tough” holiday shopping season. The Standard & Poor’s 500 Index reversed a 0.9 percent advance as nine of 10 industry groups retreated, led by financials.

“Wells Fargo’s downgrade spooked investors,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages about $2 billion in San Antonio. “Investors are concerned because that’s one of the biggest in the industry and most of the recent news has been positive so far. So that could be an indication of problems ahead for other big names.”  (more from Bloomberg)

Betting on a “Currency Death Spiral”

By Greg Hunter’s USAWatchdog.com  

I have been warning about a currency crisis for weeks.  It appears I am not the only one worried about a big drop in value of the dollar.  David Einhorn of Greenlight Capital is also betting on a”currency death spiral.”  Einhorn is no small player.  He runs a 5 billion dollar fund and has a habit of making big calls.  In July, Einhorn sold 4.2 million shares of a gold ETF to buy physical bullion.  Buying physical gold couldn’t be more bearish and negative.  It is also play against the dollar.  Now, he is warning of more trouble coming for some of the big players in the financial industry.  Einhorn says some big banks like Citi should be broken up so they can not cause systemic risk.  To top it off, his fund is still buying gold!   This is a story you should read and pay attention to so you can understand what is really going on.

By Alistair Barr, MarketWatch

NEW YORK (MarketWatch) — Greenlight Capital is betting on the possibility of a major currency collapse and a surge in interest rates, the hedge-fund firm’s manager David Einhorn said Monday, citing ballooning government deficits in some of the world’s most developed countries.

Einhorn, who warned about Lehman Brothers’ frailty before it collapsed last year, also said financial institutions that are deemed as “too big to fail,” such as Citigroup Inc., should be broken up. 

Reuters
David Einhorn of Greenlight Capital. 

 Greenlight has been buying physical gold this year because Einhorn is concerned that efforts to save the financial system and fuel economic recovery are undermining the value of such currencies as the U.S. dollar.

On Monday, he said Greenlight has added new trades to this investment theme, buying long-dated options on much higher interest rates in Japan and other developed regions — effectively giving the firm the chance to make big profits from a jump in rates. The options, bought from major banks, are tied to interest rates four to five years out, Einhorn noted.

“Japan may already be past the point of no return,” he said during a presentation at the Value Investing Congress in New York.

 ‘Lehman shouldn’t have existed in any size to threaten the financial system.’ 

Japan’s debt is equal to 190% of the country’s gross domestic product and its government deficit will be 10% of GDP this year, according to Einhorn.

Japan has been able to borrow money at roughly 2% a year to finance these deficits, partly because the country has many savers willing to buy low-yielding government bonds. However, some of these savers may begin spending instead as they enter retirement, Einhorn argued.

“When the market refuses to refinance at cheap rates, problems emerge,” he said, adding that this could trigger a “currency death spiral.” (more from MarketWatch)

 

A Illustration of the Recovery

 

17

By Greg Hunter’s USAWatchdog.com  

This week I wrote a post about the announcemment of the recession being over.  Of course my post (Is the Ression over?  Don’t bet on it!)  clearly gave reasons why it is NOT over by a country mile. This story from Reuters on Friday is confirmation we have a long way to go.

By Leah Schnurr

NEW YORK (Reuters) – U.S. stocks fell on Friday after disappointing results from General Electric Co (GE.N) and Bank of America Corp (BAC.N) demonstrated the road to economic recovery will be bumpy.

GE, which sells products from aircraft engines to refrigerators, reported a 20 percent drop in revenue, while Bank of America posted a $1 billion loss as both struggled with still meager business and consumer spending.  

“As you came into the third quarter there was hypersensitivity to the quality of topline growth,” said Michael Feser, president of Zecco Trading in New York.

“Investors are linking that to the economy, trying to determine if these are quality earnings that are being reported and does it spell a solid economic recovery?”

Friday’s results contrasted sharply with those of JPMorgan Chase & Co (JPM.N) and Intel Corp (INTC.O) earlier this week, which breezed past Wall Street forecasts and helped the Dow to close above 10,000 for two straight days.  (more from Reuters)

 

The latest from shadowstats.com

By Greg Hunter’s USAWatchdog.com  

From John Williams at Shadowstats

- September Annual Inflation -1.3% (CPI-U), 6.1% (SGS)
– CPI-U Inflation Spike Due by Year-End
– No Recovery: September Real Retail Sales Continued
Bottom-Bouncing at Low-Level Plateau
– 10 Years of Retail Sales Growth Gone

shadowstats.com is a paid site that is worth the money for access to real numbers!    shadowstats.com   I do not get paid for plugging this site.

Is The Recession Over? Don’t Bet On It!

By Greg Hunter’s USAWatchdog.com  

The headline on Reuters this week read, U.S. recession over, unemployment seen at 10 percent.”  This great news is according to a new survey by the National Association for Business Economics.   Forty-four professional forecasters took part in the assay.  After four straight quarters of declines, 80 percent of them believe the economy was growing again .  I would like to know who the recession is over for because it is not over for main street America.  I would also like to know how the 44 professional forecasters were chosen.  Did the NABE stack the deck?  Are these “professional forecasters” some of the same people who completely missed the financial crisis two years ago and told us everything was just great?

For one thing, the real unemployment rate stands at 21.4 percent not 10 percent.  That is according to John Williams of shadowstats.com who computes the UE rate the way it was done by the Bureau of Labor Statistics pre-1994.  That’s more than one in five working people who are unemployed or underemployed!  Bankruptcies shot past a million in the first nine months of 2009 according to the American Bankruptcy Institute.  What end of recession?

Just last month Bloomberg reported,  “Sept. 23 (Bloomberg) — The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.  The “huge shadow inventory,” reflecting mortgages already being foreclosed upon or now delinquent and likely to be…”

What is the NABE looking at to make such a rosy forecast?  It is not this chart from Credit Suisse that shows the mortgage resets for millions of adjustable rate mortgages.  This chart shows a tsunami of debt that will wash ashore in waves here in America until mid 2012.  There is no doubt mortgage payments resetting higher will cause many more foreclosures than the one million we have had so far this year.

mortagage reset chart

This is my favorite “a picture is worth a thousand words” picture.  I have used this before in a prior post because it says so much about where the real estate market is going.  Look!  The resets don’t stop until 2012.  How can the recession be over?

The FDIC is bracing for another round of bank failures according to Chairman Sheila Bair.   Banks are coming under increasing financial pressure due to an imploding commercial real estate market.  In early September Bair said, “Commercial real estate will be more of a driver of bank failures.”   What! You mean more than the imploding residential real estate market?  (Click here for more from the original post) This is what the end of a recession looks like?

Speaking of commercial real estate…“The other shoe to drop,” according to Daniel Tishman, Chairman and CEO of the Tishman Construction Corporation, is commercial real estate.  Tishman says 3.7 trillion dollars in commercial property will need financing in the next several years.   Financing will be difficult because commercial property values are in a steep, ongoing decline.  (Click here for a great chart about declining Commercial Real Estate)  Where is the end of the recession?  I do not see it and neither does a  close friend in North Carolina who makes his living as a business broker.  He tells me business in his area is definitely “slowing down” not getting better.

Finally, according to John Williams at shadowstats.com, there is still absolutely “no substance to the economic recovery.”  Williams works for very big companies and hedge funds as a consultant.  He also has a subscription based newsletter.  I am not getting paid to plug him.  I just admire his very accurate work.  He has been spot on with his numbers and predictions.  He sees unemployment topping out at 34 percent, computed the way BLS  did it pre-1994.

In his most recent alert, he sees the U.S. is “headed for still weaker growth.”  When I asked Williams about the new survey that says the recession is over, he said, “A  recession does not end until the ecomony begins to recover.  At best it has flattened out in some areas, but those are about to turn lower again, as the clunkers and first-time home buyers programs expire.  Employment still is plunging, and that is a coincident, not a lagging, indicator.”  My bet is Williams will be right again and we have a long way to go.

So as far as I can tell, the recession may be over for some greedy, reckless Wall Street types.  Also, the stock market has seen a more that 50 percent rise since March.  That is positive news, but that is probably a bear market rally.  The recession is not over for the overwhelming majority of Americans.  My advice:  Take some money off the table if you have enjoyed a big run up in your portfolio.  Pay down debt and stay conservative in your investments and purchases.  This is not what the end of a recesion looks like.  I think all indications show it is appearing more like a deepening depression!

Currency Crisis Coming

By Greg Hunter’s USAWatchdog.com  

Everybody is wondering where all of the bailouts and spending are going to take us?  Just a few of the big companies the government has bailed out to keep them from going bankrupt are: General Motors, Chrysler, AIG, Citigroup, Bank of America, Wells Fargo, (all the big banks got some kind of bailout) Fannie Mae and Freddie Mac.  According to Pro Publica, 721 companies have received some sort of financial help from the taxpayer.  If the economy does not improve, many of these companies will require more money to stay afloat.

There were several stimulus programs.  The biggest is the 787 billion dollar spending bill passed by Congress earlier this year.   Also, there was “Cash for Clunkers.”   It was designed to give people with old gas guzzling vehicles up to $4,500 towards a new fuel efficient model.  Remember the $8,000  credit for first time home buyers?  It looks like the government is going to extend the program.  Let’s not forget the trillions of dollars that the Federal Reserve has given away in secret to the big banks.  Congress wants to audit the Fed to find out where the money went and why even foreign banks got a half trillion dollars!  Meanwhile, Congress is talking about giving every newborn $500 to fund a retirement account.  I kid you not! (Click here for the story.)

One respected news source recently claimed we have spent or committed 19 trillion dollars during the financial crisis.  Another government source said the final tab for the financial crisis could come in at 23.7 trillion dollars.  Who knows how much this will cost?  One thing is for sure, the final tab will be big, as in many trillions of dollars.   No country in all of history has ever bailed out itself with this much printed money. We are clearly in uncharted territory.  We have spent more on the financial crisis than all of these financial expenditures below, combined!

Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion    (Click here for the complete story)

There’s an old saying, “When you find yourself in a hole, stop digging.”  But in America, we keep shoveling and piling on the debt.  A perfect example of an agency that keeps on digging is the Federal Housing Administration.  The FHA is involved in its own version of the bailout game by continuing to make loans to people with very shaky credit.  The down payment for its new loans is just 3.5 percent.  A recent New York Times article showed the FHA sinking further into trouble in an effort to keep housing prices from falling.  The Times said, in part, “The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.  Despite the agency’s attempt to outrun its fate by insuring ever-larger amounts of new loans…the current rate is over a billion dollars a day.  7.77 percent of the portfolio is in default, up from 5.6 percent a year ago.
Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.  “I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast.  That’s a policy.”

The FHA, which insures 675 billion in mortgages, will likely need a bailout of it’s own in as little as 24 months according to some experts.  I say the FHA will need help much sooner because the housing market will get worse before it gets better.  I talked about why real estate prices will continue to fall  in an August post called,  “Real Estate at a Bottom…NOT!”

And let’s not forget the two wars we are fighting in Afghanistan and Iraq.  Did your taxes go up to pay for that?  Of course they didn’t!   The only people sacrificing for the war efforts are the men and women of the armed forces and their families!   We are paying for all the bailouts and expenditures by simply printing the money!

The world is noticing what we are doing in our financial house.  Foreign governments are getting nervous about the creation of all these dollars.  There have been calls by many in the international community for a “Super Sovereign Currency.”   This would not replace the dollar but compete with it.

Gold is also in competition with the Buck.  That’s why the yellow metal hit all time highs last week.  Gold is not replacing the dollar but it is competing with it.  In a recent interview, gold expert Jim Sinclair said, “Gold is a competitor to currency.”   Unlike dollars, it is “hard to expand gold” supplies quickly.  Investors are turning to gold as an alternative to the dollar.

The same is true for oil.  Despite some pretty healthy supplies, the price is trading around $70 a barrel.  Everyone in the oil field knows there is a good quantity of oil, and that is why some have repeatedly predicted a steep decline.  A roll back in the oil price has failed to materialize.  The high price of oil, relative to supply, is reflecting the fact there is a huge supply of dollars.  More dollars are printed out of thin air everyday.

So what does this mean to you?  In the end, there is going to be a currency crisis.  I am not talking about a problem for the grandkids but a crisis in the here and now.  I quoted several experts on this issue in a post last month called, “Something Wicked This Way Comes.”   

The bailouts and the spending are going to continue because that, in the short run, that will get politicians re-elected.  In the long run, the massive money printing will ruin the buying power of every dollar you have.  Expect some deflation as we have right now in the real estate market but also expect big inflation.  Yes, deflation and inflation at the same time!   A weaker dollar is coming and there will be no way to avoid the inflation it will bring with it.

Gold Flashing Danger Ahead

By Greg Hunter’s USAWatchdog.com  

For those of you who think the economy is doing well, gold is saying something altogether different.  Today AU hit a brand new high,  the record gold price is a major warning sign of, at the very least, big inflation coming.

…”NEW YORK (MarketWatch) — Gold finished at a new record closing level on Tuesday, after earlier hitting a record intra-day high of $1,045 an ounce, as the dollar slumped on a report suggesting the end of dollar-based oil trading”…(For more on the story click here)