Recovery, " A Cruel Hoax"

Thursday, November 19, 2009 certain treasury bills traded at a premium to discount, meaning the interest rate was negative on them. This isn't a sign of an improving economy, but instead a total lack of demand for cash to make economic transactions and an extreme aversion to risk in the market place. All the same, the game of running commodity prices along with rallying stock markets defy the picture shown in the treasury markets. Add to the fact that t-bills are some of the most shorted assets in the world can only mean the other side of the trade is massive.

I watch repeatedly as stories of massive budget shortfalls in tax revenues in states and localities which reflect roughly 10% declines are fronted by stories that the economy grew by 3.5% in the third quarter. Which one is it, as retail sales and economic activity show up in tax revenues as fast as they show up in economic growth. Asian reports, one of the most recent being China great 10% while its exports dropped in the 15% range don't wash. Retail sales are up while sales tax receipts are down. Also, there is a massive reduction and payoff of consumer credit going on at this time, which implies that the retail sales figures are a hoax. Job losses are 500,000 a week while there are 6 people looking for every potential job available. In the past, there were twice as many job vacancies and close to 200,000 fewer layoffs weekly which implies to me that the story that the economy is only losing about 180,000 jobs a month is a boldfaced lie.

Mish Shedlock posts charts from time to time which show that prior to the 1991 recession, unemployment rallied with the end of a recession, while afterwards unemployment kept increasing. What this means is they understate unemployment when the recession is occuring and then overstate growth when it comes to an end. Clearly we have recoveries that are nothing more than downsizing procedures to add to corporate profits while employment suffers. Also, there is some kind of statistics that are twisted to show a recovery is occuring when one hasn't started.

Currently talk is turning to the double dip idea. From what I can gather, there hasn't been a recovery, else after nearly 2 years job losses wouldn't still be exceeding any seen for the first year of the recession. Instead, employers would be holding onto workers if new orders were rolling in. It costs money to lay off and rehire workers, so why get rid of them a mere few weeks or months before you need more help?

News about this recession has been cooked from the start. It was a year old before they declared it and proponents of a healthy economy kept preaching we might miss a recession all the way to the point that we had an almost total collapse of the economy. Then, out of the blue in late 2008, recession was reported to have started in December 2007. The bulls then proposed that recessions only last x months and this one was already over. Next we had the Obama stimulus which was designed to stop unemployment at 8%, as recovery was already in sight. 8% became road kill for the stimulus and the bank stress test. All of this is forgotten as the banks are now in a pile of rubble while people wonder why they aren't lending and why they are paying huge bonuses. in the meantime, Obama is claiming all the jobs he saved (for $700 billion one could have hired a new US army along with a new arms business and $700 billion was enough to pay 14 million people $50,000 a year)

More than anything, I am amazed and stunned at the dishonesty and blatant crookedness of the American system. There aren't any dictatorships on earth as dishonest as what we have going here today. Reports come out of strange options trades on Bear Stearns prior to failure on deep out of the money puts with 9 days left to expiration that netted $270 million and the SEC says they have no clue. The SEC can find a transaction that size easier in an 8 hour day than the average person with 20/20 vision can find the moon in the sky once a year in the high desert. So can the Fed as transactions that size aren't that easy to miss. Next we have former Goldman CEO's at the Fed front running news about AIG (the NY Fed, which he was a part of) making Goldman whole in the default swaps, making the trades nearly 6 months ahead of the release of the news. These aren't mailroom employees getting a tip, but rich pigs that can't get enough and have probably never made over a few thousand honest dollars in their lives. It is like the ship is going down, so lets loot the safe and get the first lifeboat.

I don't believe the economy is doing as well as they state, neither do I believe we will have a double dip recovery because I don't buy what has happened as a recovery. Double dip implies that what they did worked or we went back down because we quit doing what they were doing. It is a lie that is meant to allow for more theft and a transfer of liabilities from the few to the many. In the meantime, we have Goldman and the hedge funds throwing stock back and forth between themselves hoping to excite the poor idiots that have been busted by them already. We will get the bill for Goldman and the hedges or they will totally collapse.

Executive Powers, it is all in the hands of the President. Keep your eyes open

I wrote this May 26, 2004

http://www.depression2.tv/nwo/archives/000039.html

I'm sorry to say, but this mess is a lot older than the current administration. The bubble popped in 2000 and we should be not in a recession, but a full blown depression. I too think they should get the power out of DC, but this wasn't arranged in the 1960's, 1970's, 1980's, 1990's or in Y2K. It was created to start by giving popular election of the Senate in 1913 and moving the representation of the states from the legislature in most cases to the multinational corporate world. There was also the passage of an income tax, which wasn't a direct tax as levied, but an excise tax to be passed on as a cost of doing business. There was so much done under the eyes of Woodrow Wilson and his crony, Colonel Mandel House, a new world order communist that just slipped by us. The Federal Reserve was one of the planks of the communist manifesto and one of the organizations that few of our founding fathers favored. It transferred all money power from the people to a few.

One of the things that happened in the Wilson administration was we went to War in Europe. Our history books blame the Lucitania incident, but that occurred in 1915 and Wilson was re-elected on a platform of, he kept us out of war. Back in that day and time, the inaugeration of the President was the first week in March, not in January as we have it today. By March 1917, we were of course in war. With war came the passage of war power acts, which allowed the executive to prosecute the war. Among these powers was a law called the trading with the enemy act, the act of October 6, 1917.

Going forward, in 1933, the Federal Reserve bank was bankrupt and so were most of the other banks. The currency was not any good. Coming to the rescue was Franklin Roosevelt and his moral equivalent of war. What was this moral equivalent of war? Well, it was the repeal of traditional constitutional limitations on government under the concept of emergency and it is codified in 12USC95a and together with 12USC95b, made the President, the Secretary of the Treasury and others with delegated power dictators. Roosevelt replaced the liabilities of the Federal Reserve with liabilities to the Federal Reserve. Instead of the Federal Reserve owing us, we owed it and the only remedy was to try to borrow ourselves to prosperity.

You can also find this 12USC95a codified in 50USC5b. If you don't know what 50USC5b is, go check and you will find out. Senate report 93-547 was put out after the Vietnam war and it discusses this law broadly.

What happened under this law? Well, you have all heard of War on Poverty, War on Drugs, War on Crime, etc. In times of war, there is no constitution or private property. You might have heard of the Schecter poultry case where the New Deal was overturned. It basically said that a tax was for the legitimate support of government and what was being practiced was socialism, in direct violation of the 5th amendment of the constitution. See, there is no just compensation for taking of property and when one group is fed the property of another group by the government, that is taking and not tax. Like it or not, we have been deluded in thinking we live in a government set up in 1787 by our founding fathers.

Roosevelt and then Truman took this mess one step farther. At the end of world war II, the United States was made the banking system for the world. One of the reasons our trade deficit runs so high is we are the only country in the world that can create good and unlimited credit. Money when needed takes the path of least resistance. There are always rumors that such and such a country is going to quit buying our bonds, but the truth is that Japan and Europe went broke fighting wars decades and in some cases close to a hundred years ago. The Federal Reserve was created for no other reason but to allow for the continued modern fighting of more wars.

To wit: Much was made of the recent massive buying of treasuries by the Japanese with dollars bought with yen. Japan has tried to interest rate themselves out of their bankruptcy, social spend their way out of their bankruptcy, but the only way they could produce money for their system with any validity was to use American credit in the form of banknotes.

The 1990's and the Clinton administration was an economic nightmare. I can't say much about the administration since or the ones before either, but Robert Rubin with the assistance of Greenie created and perpetuated a bubble. Did anyone notice the Congress voting money to bail out Mexico in 1994 or 1995? No, Rubin acted on his own, a few months after he and his former employer, Goldman Sachs took all the money out of Mexico to help finance this bubble. The United States leveraged the credit out of Asia, then the IMF came in and replaced it.

What we really need is a cleanout, but that isn't politically feasible. We are in a time of permanent financial overhang and the times are going to get rough. Had Roosevelt left the situation alone and people taken their losses in the 1930's, we would be a prosperous country today, but the fib is that he saved the country. Instead he put us under the same system as Adolph Hitler set up within weeks of the same event, corporate socialism, better known as fascism. Like a frog in a cold pot of water put on the stove, we have been boiled and never knew it was happening.

Why do you think every socialist in the United States walked up to the stand in DC when a man was nominated to the Supreme Court by the name of Robert Bork, who favored something called original intent? I think people on that side of the aisle didn't want to be reminded of the law. They would rather deal with these illegalities like some right to privacy that only applies to right to privacy from other private citizens, not the government itself. Who cares about right to privacy when we are having our capacity to act as living humans taken from us by some system that now can tell us when to jump, when and where to empty our pockets, look in our bank accounts over some assinine international war or some war on drugs. Someone mentioned buying land, well Roosevelt nationalized farming in 1933 and now there aren't any farmers left, only corporations who run on huge central planned agriculture programs and subsidies.

You don't have to take my word for it. Plug in a search for war and emergency powers and look for a guy named Eugene Schroeder. Schroeder published a book called "Constitution, Fact or Fiction". Do your best to find Senate Report 93-547, as it has some very interesting statements in it. You will probably have to go to a Federal Repository. We aren't a constitutional republic any more, but an excutive branch bureaucracy that enforces and carries out powers given it by Congress and never gives the power back. In the meantime states are now sucking on the central planning tit and jump when the Feds say, do so or lose your Federal Funds.

Its still debt

The inflationists are missing the boat. In fact, those in mortgage lending mess are right on the money, not making loans. The only outfits making loans are the ones controlled by the government. That won't last for long as debt is going to continue to pile up as trash on the curve. The inflation worm turned a long time ago and the money machine was destroyed with the housing bubble. Inflation to maximum potential has occurred.

Right now the Fed is buying mortgages and to some extent treasuries. The act is being called printing money, but at this time I see it as changing who holds the debt. The money was already printed by the banking system, spent bullets. The problem we face is debt not inflation. Now the Fed owes for what someone else owes, to someone who isn't even involved. The link is debt and liquidity,not printing money. The liabilities have to be solved. There isn't any running off the roll of toilet paper, only another note for another note.

We have had a bad stock market for 10 years now. IN fact, if you go back to 1968 when the SPX first crossed 100, the dividend yield was right on 3%. If the SPX was priced to yield 3% right now, it would be priced at 732, according to SPX data. The Shiller data from June 68 showed a price of 100.5 and the CPI divisor to August 2009 was 6.22, meaning to keep up with inflation the SPX would need a price of 625. This means that if you were constantly invested in the SPX for the past 41 years, you would have beaten inflation by 17% total, less than 1/2% per year. BBB bonds did better than that. In deflation, the market is going to fare even worse, as the relative volume of business is going to fall. Back to the 1929 peak, the SPX would adjust out to 395, still less than a double over 80 years, evidence the real return on stocks over an entire cycle is less than 1% over risk free.

Knowing the SPX has the potential to fall 80% or more, I can see that people are about to get tight. Those that don't eat at home are going to be looked at as spendthrifts. Debt is going to get tighter and tigher. There is almost no way we don't deflate and this depression will be longer and harder to exit than the last one.

New loans will never come back

There are a lot of green shoots, but they don't make a meal for a small horse. It will never get out to people why this depression is happening because those in charge don't want a nation of people to catch on as those in bondage in Egypt did 3000 plus years ago. There will be all kinds of explanations like Black Swans and the last administration or subprime lending, but there will never be allowed to slip the deadly nature of credit and debt in general.

We are in a mess. The entire survival of modern civilization may rest on the solution to the current financial/debt system. It would be easy enough to get rid of the debt, but few understand the power that amassed debt considered money gives an economy when it is nearing peak. The massive amounts of performing debt represents capital, retirement, savings and money all at the same time. Problem is, it is also a cancer to the economic well being once it becomes excessive.

One of the paradoxes in this economy is that savings is debt. Debt is savings, debt is money and it is the basis of rasing more debt, more money and creating more savings. But, as more is generally better, more against something relatively fixed like the size of the economy eventually becomes overwhelming. To say that they can pile debt to the moon is only true to the extent that the expectations of it being serviced or repaid.

There is more to the debt than meets the eye. The dollar is debt. It is the debt that the Euro is largely based on. It is the backbone of the Chinese financial system. If another currency was to step forward and take the place of the dollar, it would imply that the country of origin had created enough debt to sustain that much debt outside the country. Most countries don't have private property rights or enough property to float enough currency to support the credit systems of the world. It would be nice to have something like the Swiss franc as a reserve, but it would only be a few weeks that Switzerland would be drained of money and a few years of borrowing it that it would be broke. The Euro would work, but the internal and external debt of Europe is massive. The yen might work, but the asset base of Japan has been eroded by deflation and to utilize the yen would drain what was left.

What is about to transpire is the no mathematical solution problem. This past week the former risk evaluator of FNMA from the 1980's came out with a loss projection for the FHA. With it were studies that raised the question of why defaults and foreclosures on mortgages were going up during the 1990's despite a good economy. It is pretty clear with some lookback that the general level of debt in the economy was making it more and more difficult to service existing debt. Once asset inflation stopped, the game was up.

Now governments around the world are trying to stimulate borrowing and lending to get the economies going and I don't believe it is going to work. Instead, we are going to find that all new debt is going bad in with the pile of the other bad debt. The maximum debt capacity of the economy has been reached and all new debt is merely adding to the losses.

Stock market bulls think the Fed has solved this and all we need is for banks to start lending money again. Of course, the nature of the stock market is all involved have stock for sale, meaning they are really only promoting what they have,like Kroger promotes groceries. The difference being that you have to come in and buy groceries from somewhere. You don't have to buy anything financial with your money if you don't want to.

The implications of what I write are dire for stocks, which are priced at levels where only more leverage can ever make the prices go up. Corporations may have a lot of cash, but they also have record levels of debt and any that get more debt are raising their odds of going broke. I am convinced that US corporations drew their credit lines last year as the crisis approached so they would be certain to have money. Though this action may have helped many avoid bankruptcy, it may have also ensured others they were going broke. GE could very well be one of them, with the government getting the bill for the insolvency.

The level of debt has to decrease and it cannot decrease without also decreasing the pool of savings and the money supply. The Fed is attempting to keep cash in accounts by buying debt, but I suspect they are going to run in place at best. Savings has increased, but I believe this is more a matter of consolidating ownership of cash balances in the hands of fewer people and the paying down of existing debt. We will see if I am correct soon.

Going forward I sense that bankers are going to realize as well that any new debt they issue is merely going bad with the rest. As the system deflates worldwide, which it will, prices of everything will collapse as those selling literally everything will need cash to attempt to service debt. That is how liquidations occur.

At this time, the banking system is choosing to speculate rather than make loans. This is in part providing liquidity for assets, but it has it dangers. Putting out cash for assets is just as deadly as lending cash. Once it becomes clear that the bigger fools are already in the game, banks and brokers who have been throwing stock between themselves to inflate prices are going to find they are the bigger fools. We are headed for a liquidation as we saw between spring 1930 and summer 1932. I am betting the SPX goes to under 400 for certain and the Dow under 4000, taking out the entire post 1995 bubble. Tens of millions are going bankrupt and the financial bubble in Asia is going to implode along with ours. The housing market decline is going to resume, as all in the making of mortgages are going broke and the government is going to have to adapt to survive itself.

Why the Smart Money Missed the rally

There are plenty of falling knife catchers who pretend to be Einsteins now that the market has rallied to where it was after it had declined for a year straight. What those that missed this rally may forget, if they are now anointing these gurus as geniuses is that these same knife catchers were buying at the peak, buying in January 2008, buying in May 2008 and buying in August and September 2008, buying on October 14, 2008 and buying on election day 2008. I might also add that the first trading day of 2009, the Dow traded in excess of 9000 and the bulls were piling in and repeating the same mantra to the poor idiots that had listened to the Jim Cramers all the way down, stay the course.

For one thing, for many to have gotten into the market on the bottom, the volume of the trade would have had to have been well in excess of the clearing capacity of the exchanges. Instead, we have seen repeated massive volume in issues like FRE, FNM, AIG, C and GM, mostly defunct or near defunct on government life support entities. So the trading hasn't even been in these near healthy side of the market. Instead what we have seen is bears being forced out by nonsense moves more likely induced by Goldman Sachs trading computers, designed to unload acquired stock on the way up. In the meantime, Ben Bernanke created a new hallucination, green shoots for the bulls to munch on while they were being fattened for slaughter. Green shoots are things like statistical bounces in indexes. Reductions of unemployment claims to levels higher than any prior to December 2008. The suspension of mark to market allowed zombie banks to pretend they were solvent. Nonsense being sold as improvement?

The reason the smart money missed this rally is there isn't going to be a picking the bottom in this market. A point where dividends on the SPX are around 3% will never be a bottom in a deep bear market,nor a reason to hold stocks for the long run. At 2%, they are a game for fools to buy into. Where is the bottom supposed to be? Logically where there might be a chance for a 6% real rate of return. A 5% dividend would have been near SPX 400, not 666. In any case, the buy if someone was bottom fishing was in the bonds of these companies, not the stocks. This was the real claims on the assets of the companies in event of bankruptcy and the guaranteed returns were very much higher than the stocks.

So now we are sitting on the edge as the bulls proclaim victory while nothing in the private side of the economy is even operational. Trade wars and devaluations are in process around the world and several countries are on the edge of default. Foreclosure rates continue to go up, commercial properties are collapsing in value and many are headed for default and nothing in the banking system has been addressed. Bulls are now trying to entice others to come in and push up the value of their portfolios while the Wall Streeters are selling out with massive gains.

In late 2003 I put together the basis of a book I was going to call "So you think it is safe to get back in the water"? The SPX was roughly 1000 at the time and the Dow was about 10K. Just about 6 years later we are about the same price, meaning dividends have been the net result of holding the general market. Risk free treasuries would have paid the same return and 10 year treasuries about double the return of the market. Not a lot of people accumulated stock under the 900 level in 2002 or 2003, most having held on, the profit going to Goldman and others on Wall Street.

So we are getting the same bubble mania story we got last time. This time though we are looking at a zero Fed funds rate, clear evidence the world has reached an unsustainable level of debt, that even if growth returned the supplies of resources are insufficient for a long growth spurt and that the balance sheet of governments around the world have been irrepairably impaired. Add to that a series of job losses that haven't found a bottom or even showing signs a bottom is in the works and the real prospects for growth in equities is near zero.

Anyone paying attention to history knows there isn't a safe place to buy and hold stocks in this climate. Nor has there ever been a long term gain situation in holding the indexes at these prices. The limits of a bubble is how big it can get before it pops. Also, the real money generator of the economy, housing and real estate is not in a position to generate additional credit that drove the markets and consumer spending in the past. Holding equities is for people who don't know better.

What is creating deflation

I just listened to Mish Shedlock and another guy debate inflation/deflation on Jim Pulovas website. Mish and I have a lot of the same ideas about deflation, but I do believe there is more to the story than either of us knows. As I listened to this moron, who probably has more degrees and been overpaid more dollars than Bernanke could print, I realized there is a world of ignorance. Asset inflation is inflation and asset deflation is deflation. Both are end game results of inflation.

As most people that come to this site understand, I am in the minority, a deflationist. As I have pondered this idea, my sense of how it gets started and what happens grows. Deflation is always preceeded by a massive inflation of debt. There really can't be any printing of money as anything but debt or the value of money collapses in a short period of time. Thus the supply of debt itself is a prime determinant of money. But, it is also only the new supply of debt that can actually inflate, as the rest of the debt is actually a deflationary phenomenon. This is a hard idea to grasp, but technically the money that has already been created is followed by the urgency of the debtor to get it back to pay it back and not to spend it again. Along with this urgency is the interest due everyone, which is money in excess of what was created in the credit system. Thus someone is generally in default and someone isn't going to get paid. As long as the system continues to inflate at a reasonable rate and debt can be liquidated on a broad scale, it continues.

Something happens in the long credit cycle that few understand, especially those educated guys like Mish debated who say it has never happened before. that something has happened over and over again throughout history. John Law used paper money to inflate. The Bank of England used paper money to inflate with its value based on gold backing, but not based on gold 100%. Banking has never been based on having money to pay depositors, which is the missing link in most people's arguments today about inflation. I hope to describe the credit crisis and how this need to deliver liquid funds between banks themselves is the primary funding problem.


Well, by default the US dollar became the world reserve currency. In some fashion it is paper gold. Plus it is something that is created by banks alone, as it is bank paper and not government paper. The Fed is a bank as well, meaning it needs to possess good assets in place of its paper, which is what the dollar is, Federal reserve bank paper.

Lost on the side of inflation is the absolute need to liquidate in this game. Not only are assets outside of banks needing to be liquidated, but those inside banks as well. I doubt many are understanding that the Fed is merely liquidating assets or loans that have already been made so banks can have some liquidity between each other. In any case, the Fed is buying what amounts to real property in the sense that whomever sold it to them no longer has it.

The point is that what is being liquidated is needed to pay debt, not to reload and spend more. Thus the government borrows money and issues debt and the money is put into accounts and the bonds bought with the funds from the Fed, who in turn buys them back from the banks so they can cover the checks coming in from other banks. Banks don't lend this money because they owe it and they realize it won't be that easy to get back in this climate.

The real reason we deflate is the boom and inflation of the recent past. Not only were prices pushed up with inflation, so was capacity. The capacity remains, but those that were the big spenders are left with deflated credit lines and sizable debts. In many countries, there were housing bubbles which drove demand. Now these bubbles are deflating with little to stop the deflation, as with most capacity, the capacity of housing has been significantly overbuilt. Housing is not only a sizable source of employment in most times, but also has provided a sizable amount of credit to the system in the form of collateral. As the problem is currently compounding itself, there will be a net shrinkage of everything relating to housing, most importantly the capital position of those that have financed it.

In the end, the most important determinant of deflation is the fact that so many things were looked at as money, whether it be the balance of ones brokerage account, the bonds that are no longer solvent owned by many or the equity in ones house. Also, the widespread supply of credit allowed those with collateral to feel as if they possessed money whether they had need for the cash at the time or not.

What vew understand is that the Fed rarely ever puts money in the system it doesn't need. I believe it is trying to expand lending, which is the only determinant of what is referred to as the velocity of money. I don't buy the idea that money just slows down, but instead lending slows down. Most lending is done to immediately go out and buy something, which means that money immediately changes hands. Lending creates pressure on the system. Buying instruments that represent lending that has already taken place does little or nothing. Banks don't have money in the sense they could pay off their depositors, so what is being put out amounts to zero.

All said, we are in a system of insolvency and insolvent systems are no longer creditworthy. An insolvent borrower could more readily borrow money than an insolvent lender can make a loan. The entire system is insolvent and the asset values that backed it are falling. The just pretend method that the current authorities have adopted is not going to make an insolvent outfit solvent. It might allow them to fudge their earnings or losses, but it won't make dead men walk, which is what the real desire is. Zombie banks won't make many real loans. Without money available directly for what the private sector individuals desire, deflation will be the norm.

When does it all collapse

The United States has gone to pot. Most people my age don't realize the US has gone to pot. Recently I was at a school reunion, being my 35th year out of high school. One of the guys I played golf with was a local business man. Another was a guy that is a wheeler dealer who made a lot of money out of real estate in Florida. The wheeler dealer agreed with me, though he was a liberal. His brother is more down my line and spoke to me about this mess that is brewing in the US. The business guy, who is buying more stores in a currently growing area of the Metroplex refused to believe the government wasn't going to fix this stuff.

There are only 2 type people that believe we are going to get out of this mess by spending and lending more money, morons and those that haven't studied it. Most of the experts we hear on television and are pushed forward by the Nobel Prize in economics committee propose that we spend even more, which means they are either paid liars or miseducated. Being the central bankers of the world have dictated economic education for the past 100 years, it isn't surprising that many could be miseducated in finance, economics and money in general.

Worst yet is that economics in general is nothing more than an extention of politics. The constitution of the United States set the political tone, but the Constitution no longer prevails. I have seen copies where the preamble of the Constitution had a word changed from ensure domestic to insure. One mean to help bring about and the other means to sell insurance. That is what socialism is and the economics of the day are structured to bring about the end of the original intent of the document with its guarantees of private property and limits on government in favor of a rule of necessity and constant war and bankruptcy.

Thus it is the political persuasion of intelligencia that dictates the mainstream and not fact. Because I tended toward the conservative side of politics, I happen to be able to see what has occurred that has precipitated this crisis. This leaning along with a degree in finance which led me to a sound conclusion that assets were massively overvalued clued me into the idea that something was amiss.

Austrian economics is a free market economics. The counter economics of Keynes and the Chicago school are government and banking manipulation economics and when problems like this arise, they blame the free market and the lack of regulation. This is a failure of the capacity to see that it wasn't the market, but the presense of government and quasi government organizations like the Federal Reserve, state chartered fractional reserve banking and international banking organizations that actually provided the platform for this disaster. Thus, the solution is to give over more power to these organizations that pushed the world to the brink of collapse to push us closer to the edge. The fix is the problem.

Hopefully the American population has had enough and the stomach to go through the long term solution. But, we have a problem in that the culprits of the creation of this mess are those that hold the power in US government, along with the bulk of the media. Instead of free markets, most banks of size are socialist organizations, the Federal Reserve being an idea of Marx and J.P. Morgan. Though Morgan was a capitalist, his idea of the Federal Reserve was straight from Marx. Also, Morgan was engaged in fractional reserve banking, which was the source of the problems faced in 1907 and in the 1890's.

Fatal mistakes were made by the Federal Reserve and government sponsored enterprises like Fannie Mae, Sallie Mae and Freddie Mac. The result was a John Law type fiasco that destroyed Ameican production in favor of American credit and set the country up in a debt bubble that has no solution other than painful deflation. But, being those that have bankrupted the system and themselves in the process hold titles of nobility and the governmental power itself hostage, there is no solution presented other than to bail them out. Being there isn't enough money in the world to reflate a debt bubble, more debt to create more money is going to lead to economic and financial collapse of those entities that attempt such solution.

Currently I am watching the Japan solution applied to the United States. For several years I heard these Wall Street types point fingers at Japan knowing they were going to not have any other solution than what Japan was using. The US banks are just as entrenched in the political power structure as the Japanese banks and Federal Reserve money created off US government debt does nothing more than bankrupt the country while sliding down the black hole of compound deflation. The system is bankrupt from the top down.

Being the system is bankrupt from the top down, the unwinding is going to eventually occur from the top down. This means the government itself is going to suffer a debt crisis. I don't know when this is coming, but I do believe that the US treasury market is going to be the next step down the road of collapse and to save itself, the government is going to have to abandon the saving of the too big to fail system. With this, the entire world will fall into a depression of epic proportions.

It is hard to envision saving this mess without at least a semi socialist solution. What I would propose is a plan to reorganize the debt system while putting together a plan to feed and house the population on a temporary basis. The Fed should be abolished and fractional reserve banking outlawed and replaced with a dual system. If the government has a position in the economy, it might be to serve as the holder of the bank deposits, while all lending at interest is done out of a pure capital at risk with no fractional reserve leverage allowed. The fact is that there isn't any such thing as supportable compound interest money, which is what fractional reserve banking eventually leads to and there isn't a such thing as a government guarantee of deposits.

The savings paradox.

Michael Pettis has some interesting stuff in his site this week about savings rates, trade and deflation. I am in the early stages of the article, but it occurs to me that I need to write something here on the subject rather than lose it in his comments section. I believe the entire game to be a credit phenonmenon, including the idea of savings, which is nothing more than debt recycled from one account to another and has absolutely nothing to do with substance. i believe in the case of international trade, it actually relates to the credit excess in one country to the detriment of another. I also believe that due to the inconvertiblilty of currencies like the Chinese that savings is done by the central bank and thus there is a curtain drawn between trade and the Chinese currency. Thus all dollars drawn in for investment and trade are impounded to the extent that they aren't needed to buy minerals or other raw materials. The domestic economy has its own market separate from the international accounts. In this matter, a domestic economy could have no debt at all or piles of it, backed on the other side of the equation by savings.

Michael brings up the idea of the Obama administration encouraging savings, which is bordering on absurd. The entire Obama plan is no different than the Bush plan except more obscene on the consumption side. The only consumption he seems to not care for is energy and seems to be leaning toward endowing corporate USA and Wall Street the right to consume energy at the expense of the common every day man. This protest will be for another posting, as it is one of the greatest fascist programs of all time.

Back to savings. If someone can tell me how savings in this world economy can correspond to something besides debt, I would like to learn. This idea is kind of like the money going into the stock market, when anyone with a brain can figure out that money only changes accounts from idiots to smart people. Even if I take $100 and stick it in a matress, it is nothing more than the representation of something owed by the Federal reserve and that something is actually a paradox as it is generally a note in the amount of what I have plus interest due and represents a mathematically impossible equation other than someone taking a haircut. Investing in stocks is nothing more than an exchange of assets and has nothing to do with savings, a real pitfall for those that fool with that market and have no financial training other than what their brokerage companies can give. Speculation is no exchange or investing at all, but instead informed gambling at best.

In any case, housing in China costs about the same as in the US, yet according to what I have read by Andy Xie in Caijing, Chinese incomes are about 1/7th US. I am guessing that the Chinese consumption of housing is roughly 40% of US so the relative cost of housing is about 280% US. They aren't buying this out of their pockets, but are being financed in some fashion. My best guess is the same debt segregation of lending to the industrial so the flow can support the real estate markets that was probably part of the Japan bubble. In some fashion it is all debt.

Depressions last because there is no plan on how to give the haircut on debt and redistribute economic power. As long as there isn't a depression on the horizon it appears that all are left to fend for themselves, but once a crisis is threatened it is unheard of that the owners of Citicorp, Goldman Sachs, Bank of America, UBS, etc. should be replaced and the underlying equity be wiped out and replaced out of the current stock of money. I know the pain that pensioners would go through, but careful examination will reveal that much of this side of the equation has already been looted by Wall Street academic and actuarial formulas that just aren't true over the long term of economic cycles.

There is only one way the Japanese economy fell into the hole it fell into and that was an excess of debt. We heard for years that the Japanese savings rate was 20% to 25% of GDP. Well, what did that mean but the debt rate was also increasing at an amazing rate. Back in the 1980's, I recall the trade deficit with Japan was in the $100 billion range. I don't know about the rest of the world because Japan had to import all its raw materials or at least a very high percentage, but lets say they were even with the rest of the world. In this event, if their GDP was $1.5 trillion, then they were saving about $300 billion, $200 billion domestically. This implies that their debt level against their economy was increasing about 13% annually and their debt level was doubling less than every 6 years against GDP.

The US/China situation is also figured backwards. The situation wasn't fueled by a high China savings rate, but by a run away credit phenonomenon in the US that originated out of the activities of Government sponsored enterprises, namely FNMA, FHLMC and Sallie Mae. Collateralized were home equity and the future value of labor. It was only natural that this excess flowed beyond the US borders given the desperation with which developing countries needed developed world currencies. But, it wasn't the lending back of the money which made this bubble possible. It was only natural that the money was either used to acquire property, minerals or debt from the nation of origin. Had the US government not run deficits, had the GSE's and Wall Street finance not loosened lending standards, the lending back of money would have mattered very little and the trade would have never happened.

If I saved $1000 and loaned it to company A, of course company A would owe me back my savings plus the rent on the money commonly called interest. If Company A then wrote a check to B for $1000 and B saved the money by lending it to Company C, then the same process would occur. There would be $1000 in money in the system and $2000 in savings and debt. If A or C spent that money and cannot get it back, the debt cannot be collected and the savings really doesn't exist. Only the $1000 exists.

Once the gold standard was done away with, money was replaced with debt. The cash in my pocket is backed by the debt on reserve at the Fed, which is payable only in the notes I possess in my pocket along with the other notes in circulation. Interest is due on these notes, so the Fed is always pulling money out of the economy independent of the other activities they employ to keep the system inflated. In any case, this would be the only money that we have independent of the Fed and the sovereign debt. The money created by banking takes on a property sort of like the example in the prior paragraph, in that most of the assets backing the money at any given time are uncollectable. The difference between the bank money and the savings example is that the bank has created the money without any prior savings, instead acting as surety or guarantor of the credit they have extended. When it becomes apparent that the bank can no longer act as surety, the system no longer trusts them and they become like Citicorp and if they are large enough, they create a credit crunch all by themselves. Banks wouldn't lend to each other meant banks wouldn't lend to Citicorp, who had an amazing interbank liability that couldn't be paid. The black hole is still present, it has merely moved from Citicorp to the government which will at some point have no other alternative than to tax the economy and relocate the black hole where it has been all the time, the banking system.

Savings, debt and collateral all serve to create each other. Only in this manner can the Japanese situation be explained. The Japanese answer to the problem was more debt, which in general would be inflationary, but in this case or in the case of maximum payable principal and interest is deflationary. This is what a depression really is, maximum payable principal and interest and the longer the effort to support the money supply goes on, the worse it gets. Irving Fisher was wrong, though his thesis of swelling dollars over the short term was correct. He forgot that the dollars spent a lot of years shrinking. When the result of several business cycles and government solutions to recessions piles up to debt in the amount of several times GDP, then too much has been borrowed out of the future to go on and continue to consider the debt legitimate and the money real in any sense. Like all psychological pain, it is created and made worse by the continued avoidance. No one wants to lose their status quo except the debtors.

What green shoots?

The surface news seems to propel the stock market daily while the economy is propped from all angles. But, the news is bullish only if you consider pyric victories positive. Seems the oil markets take every report that is less bad than the prior to mean the surplus that is spilling out into the streets will soon disappear and boost prices ever higher. Some say this is a weak dollar, but the markets haven't been cleared for some time, regardless. The same is occurring in the copper markets, a product that is clearly cornered and stockpiled in massive quantities in China. Much is riding on these two commodities alone, most likely including the future profits of Goldman Sachs and many hedge funds. Should these markets crater, it is quite possible that the too big to fail that are involved, along with the independent producers of oil and the mining companies around the world would need a bailout.

The recent improvement in unemployment claims is being spun as a sign the recession is over, while in fact a recession that supposedly began in December 2007 showed no losses of employment of this size prior to 2009. Thus the economy is still declining at a pace that exceeds any during the first year of the recession, yet the recession is over? Nothing I have seen can be farther from the truth.

I believe the news is being made up as we go along. I recently read Murray Rothbards chapter in the book A New History of Leviathan that the Fed expanded holdings by a factor of 6 between 1929 and 1932 and the inflation did no good. We are told this didn't occur in the modern press as Bernanke does the same thing today. The budget of the US expanded 40% while the receipts of the government collapsed by 50%, making the gap between receipts and expenditures 60%. Still no inflation of prices and no recovery. Nothing could be more similar than the response between 1929 and 1932 and today than what Rothbard wrote here.

The solution in the US is to create an even bigger consumer debt bubble, while the banking industry is under pressure to preserve capital. I recently had my credit lines cut, though I had maintained a perfect record and paid all balances in full. Thank God I don't need the credit at this time. What are they doing for people that are really cashed out?

Then we have the home sales. Home sales never left the bubble stage from what I can deduce from past sales figures I have seen. The speculators have never left the market while the government is recreating a new subprime market with government subsidies and guarantees. In the meantime, the economy collapses while all this is going on. The recent rising new home construction figures were below anything prior to this recession for the past 50 years, yet you would think the financial side of the mortgage market was fixed and new homes were selling like hotcakes with legitimate lending. Nothing could be farther from the truth nor can what is being done at this time be sustained without government props. There is no private housing market in the US today, nor is one likely to appear any time soon.

In the meantime, mid sized banks in the growth areas of the country are now beginning to collapse. Colonial Bank of Montgomery, Alabama, an entity I had done business with in the past is open only because the regulators need the money to close it. The same is evidently true of Guaranty Bank, a former division of Temple Inland, another entity my family dealt with in the 1990's. There is another I am not familiar with, a bank that starts with C, I believe in Florida. I believe much of this is prime mortgage related lending along with failed housing projects. My dealing with Colonial was in the conforming mortgage market. These 3 failures alone will wipe out the FDIC.

The problems with the FDIC are why they had to construct the TARP fund. I believe Citi alone is a $400 billion hole and it is a lot easier to hope than to pay. This wasn't the first time Citi was broke. Much of what was missing has been covered up by government guaranteed financing for companies from Goldman Sachs to General Electric and everything inbetween.

Those playing in the mortgage business need to take a haircut and they can't. From what I understand, most of the foreclosed properties are being withheld from the market for 2 purposes. One to keep the weak market from being glutted and the other to keep the effects of the suspension of mark to market intact. Should the properties be sold, the losses would have to be recognized and there would be more banks to bail out, not to mention other financial entities. Those hoping for massive gains from holding housing in the next few years are going to be disappointed. In fact, I wouldn't be surprised to see a rent war break out if the highly likely weak recovery transpires. So much of the next economic wave depends on a resumption of real estate construction and I find it highly unlikely for anything near the bubble trend to ever return, nor anything close to the old peaks prior to the bubble. The same holds true for the commercial side of the game as well, as I expect retail real estate to be a disaster along with much of the other commercial property as well. I have attempted to last through a real estate bust and witnessed an entire metropolitan area of real estate related investment and construction businesses go broke. In the 1980's, the 2 largest home builders in the US, both based in Houston, imploded. Despite the size of this bust, I have yet to hear of a large builder going bust. My guess is that either the bubble was so big that even at reduced prices there was profit in the inventory or they are being carried as well under the label,too big for their creditors to let fail. Nothing here measures up to me. The bust will take longer to work out than even the least optimistic of analysts because the bubble was so much larger than prior bubbles and the market is growing so much slower than it was in 1980 or 1990.

All of these problems in the real estate market not only threaten the solvency of the financial system, but they do something few understand at this time, deprive the system of future loan collateral. This is going to be the real impact of this bubble going forward, the inability to tap home equity by the masses for a long time to come for things like retirement income, consumer spending, stock market investment and debt retirement along with all other major forms of spending. Also gone is a major portion of the move up housing market. We have only seen the tip of the iceberg here.

There is much more to the housing market that is beyond fix. For one, the market is saturated. Second, high interest rates penned up demand in the 1980's and much inflation wasn't passed on. As rates fell, FNMA developed more and more programs of qualification and the securitization of the mortgage market, demand erupted for housing against a fixed supply. As time passed, housing wasn't built for occupation, but for speculation. When I entered the real estate business in the late 1970's, much the same thing was going on, except Volker and inflation caught up with the cashflow market and put a damper on the bubble market. Underlying demand from the boomer generation was such that a collapse in the price of housing didn't transpire then. What did go on was people were paying extra over and above rents to get ahead of inflation as home owners or reap appreciation as speculative investors. The investor games didn't go on for long unless the borrowers were real pros with pockets deep enough to stay in the game.

What followed this bubble up is no longer present. There isn't a pent up demand from excessively high interest rates or a fast growing home buying age public. Thus there is an owner occupied percentage in the US that is likely higher than can be sustained along with interest rates that can only go up from here, unless there is no recovery. Then prices of homes will continue to sink.

The last green shoot comes from China. The Chinese recovery is more a flood of money pushed into the streets along with doctored statistics. I have read some things about the Chinese real estate market, which has to be 4 or 5 times the size of the normal US market, but only for a temporary period of time. The real business in China is building, not manufacturing and I am reading of entire cities of empty buildings. Thus, once this surplus is exposed, once the speculative bubble bursts and once the truth about the Chinese economy comes to the surface, the whole game washes out. It appears that the Chinese housing game has about 5 to 10 years left then the dance stops. I don't mean it slows down, but just flat stops. They have enough housing under construction right now for about 70 million people and enough capacity to build about 50 million worth of housing annually. There are only about 300 million people left to move from the rural areas, thus 6 years minus what is already sitting around vacant and the game is done. I don't even bring up the fact that the Chinese population is set to start expiring at a massive rate in a few years as the 1 child policy begins to take its toll. This is not good news for the mining industry and for those that believe in peak oil as already being reached. It is good news for the rest of us, save the fact that the economic impact on the world is going to be great.

So you have it. Green shoots is one of the biggest fairy tales in economic history. I think we had a muddle through economy a few years ago. This time, we are likely to see a just lay there economy. The effect of this on economic growth and corporate profits is going to be devastating. Stocks and retirement funds are going to shrink to next to nothing and life as we know it is going to change. It would be very beneficial to all if I am wrong here, but I don't believe that is going to be the case. I look for the Dow to possibly touch 10,000, maybe even a little higher, then the bear to come out again, stronger than he was the first time. The government will forget about saving the banks this time and start working to save itself.

Housing data is misleading

This is a copy of something I wrote on Calculated Risks page. I thought it at least covered an area that was too important to lose in a comment post, so I have put it here for save keeping. Those who don't go to Calculated Risks page, you are missing some of the most important information about the economy and the housing bubble. I am going to add a little more to the bottom of the page because I didn't finish my thought.

Risk, you have a great page and I have used it for at least 2 years for reference of data you have accumulated. I have been around housing in some capacity most of my working life, having been both a Realtor and a mortgage broker. I have also been though a housing bust, the 1980's Texas bust being one of the worst seen in the USA for a long time prior to the current mess. In any case, your data doesn't support what the recent data is showing.

The big deal is that home sales really never exceeded 4 million prior to this bubble on an existing basis. I do know from your data and other data I have mined from the government that new home sales were at a record of 819K until somewhere around 1997 from which we didn't see sales that low again until 2008. I believe your chart on the story above says more than you are mining out of it. I will elaborate after I mention the obvious.

You are using a ratio of existing sales to new sales to I believe net out distressed sales. The last time housing really went bust was the early 1980's interest rate shock. It is also the only time new home sales were at a bottom compared to this recent action, dropping to 401K. Existing home sales in that recession/ bust were well below 3 million. You might note that existing home sales have remained above the prior record, despite the worst economy in a long time. This doesn't support the idea that home prices or building are falling because of a bust, but because of a collapse in market fundementals. There has been speculation all the way down. The population argument doesn't hold water because the real game is how many new households are needing houses and the boom generation was providing as many as ever. Thus the 4 million/800K of 1978 was a peak. There was also a speculative bubble going on in 78 to support such a sales figure. The bust that followed dropped sales to 50% on both accounts. Thus our totals here should be more in the 3.5 million range, not the over 5 million range we have seen as a bottom.

The other matter is the new home sales figures and how they stayed so high for so long during the 1997 to 2007 period. Your chart "comparing peaks and troughs for starts, new home sales and residential investment shows the truth. Though you can say a bottom might be in because new home sales are bouncing, remember that not all markets were glutted. They were building roughy 50K in units here in the DFW area before 2007 and scaled back early. I think DFW could probably consume 25,000 units this year, which would maybe by itself make up the change in construction last month. Other areas aren't coming back.

If you look at that chart, don't only look at the peak, but look at the duration of the climb and the size of the top. A big top means a big bottom and we are going to see something that is totally unexpected. Remember, prior overconstruction was always corrected every few years and only the 1972 era and 1978 era peaks lasted over a very short period of time, 2 and 3 years respectively and followed by plunges. it was the plunge that created the following peak and the 2 peaks played themselves out in the 1980's where we only saw a more moderate peak.

This is evidence that the supply of housing is so large that it will take years to work off the excess. Also, the high existing home sales figures tell me the speculators haven't quit speculating. I don't care to listen to NAR statistics as they have been lying for years and using bubble statistics to hide the fact that the bubble hasn't left. This is the true nature of the problem as I see it.

Thus we are going to see one of two things happen. Either we are going to see a rebound and another speculative bubble (the government has an interest in encouraging and recreating a bubble and would do nothing to stop it, including making FHA a subprime financing outfit) or we are going to see this rebound fizzle to lower prices and lower sales. We spent 5 years above the 5% GDP point in housing, which equated to all the time in the 30 plus years prior. We also spent 11 years in record annual sales territory, peaks that had only lasted 2 years prior. Thus, we are looking at a lot of years of surplus housing construction to wipe out.

If this does become a new bubble, I expect it to either bankrupt the US government or force them to drop FNM and FRE and let the market take the losses. If it doesn't, it will force the knife catchers to liquidate or join the groups of foreclosed. In any case, the economy won't be the way it was for a long time.

The Water Gets Muddier

The bulls have been running now for over 3 months. The best question is, running where? Bernanke speaks of green shoots, but the unemployment claims continue to exceed 600,000 a week, a number that is roughly 1/2 of 1% of the US labor force. If 2% of the US labor force is losing their job on a monthly basis, then the idea that consumer spending is holding up is a long shot, despite the numbers. Also failing to support this idea is the fact that Japanese and Chinese exports are down between 20% and 40%. Being these 2 countries are the source of much of the US consumer goods, it would stand to reason that US consumer spending is down significantly. The same is true of an Asian economic rebound.

The story is the great rally in stocks around the world. The truth is the US market, save the speculative Nasdaq, is either flat or down for the year. The Chinese market, which began to rally earlier is not even to the 50% point, down from the top more severely than the US market. Commodities have rallied, but again this is an inflation play of massive speculation and not due to real supply and demand problems. In fact, oil is piling up in surplus around the world, being hoarded in tankers and OPEC is holding down production to boot. I believe any short term US demand rebound is due mainly to filling gas tanks to avoid the run up in prices. All the while Goldman Sachs promises record bonuses. Wonder who is behind the movement in price and who is going to be the next bailout by the government due to systematic risk?

I don't believe many understand where we are in the economic cycle. We are at a history changing juncture. The phenomenon of fractional reserve banking creates 2 problems, an imbalance of have money and have not monies and a mathematical problem of uncollectable capital. By that, I mean the money to make up the capital reserves on the balance sheets does not exist. This is why we have losses as far as the eye can see in the financial markets and why I don't believe the bailouts are over. They are over only because they might not be politically feasible. It is also why I believe Goldman will be the next systematic event, in that they won't have anyone to pass the bag to this time. For whatever reason and I suspect fraud, AIG took it last time. Their customers can only be fleeced so many times before they cease to be customers.

Much is made of the purchase of bonds and mortgage backs by the Fed and how this is printing money. It is no more printing money than using your Visa. Plus, where is all the money the Fed has printed in the past? My contention is it no longer exists in the banking system, which has been barren for years of socalled reserves, but instead has been withdrawn and put in hiding in third world countries for years. In the meantime the banks have been without money to pay each other and thus we have the credit crunch that won't let up. The banking system is giving up its best assets in this series of transactions while getting assets in return that don't pay any interest. Money don't exist in banks only in bank accounts.

There are a few things different between this time and the 1970's. One is we are not following up the collapse of Bretton Woods with 30 years of currency adjustments in a mere 5 years or so. Second, we are at the end of a worldwide spending spree, something that was just beginning in the 1970's. The oldest boomers in 1970 were not even 25 while the youngest were still in grade school. That generation created a wave whereever it progressed and it was progressing to adulthood in the 1970's wher it was going to need cars, furniture, homes, capital goods for jobs and social services. It didn't hurt that the world bank had loaned hundreds of billions for emerging markets to spend as well. Remember the financial crisis then was the banks going broke on loans to these countries going into default.

Today we have an overpaid generation X and a busted boomer generation. The boomers are now in panic and not about to continue to spend as they had in the past. The generation Xers are about to see their gravytrains derailed and their credit cards maxed out. Where is the demand to push prices higher going to come from? I highly doubt it will be China, where the socalled savings rate has very little to do with the population and a lot to do with the confiscatory corporate and financial system. Absent demand, the capital goods business in China goes into a shell.

There is a lot of mud in the water. All I write is as speculative as what we are seeing in the stock market. Until people as a whole start getting free money or new, financially irresponsible people begin to get more credit cards than the other financially irresponsible people are losing I find it hard to see where the money makes the cycle. The speculator needs someone to take the bag from him whether he is dealing in stocks, commodities or manufacturing inventory. In the meantime, 600,000 people a week are applying for unemployment in the US, exports that create jobs and income are remaining depressed overseas and massive bets are being placed against the trend on green shoots.

The whole group of numbers are nonsense

Unemployment claims less than predicted? How many people on Friday decided to go do something else other than file unemployment? 1% of 630,000 is 6300, which is about where the number came in. They spin this like the figures peaked at 900,000, but from what I can remember the 650,000 range was pretty much the peak, so week after week we are having claims come in within 5% of the peak, with the better numbers I have seen come in on weeks surrounding hollidays. This next week will contain Memorial Day. I don't know how many of you have been to an unemployment office, but you have to be unemployed to have the time to go. I don't believe they are geared to process 5 days of business in 4 days.

The other news was the durable goods orders, up 1.9%. The decline in March was more than doubled to 2.1% from what I can't find without looking. Point here is that the increase was created in part off a decline that was over 1% more than stated for last month. Expectations were up .5%.

This whole matter, not just these figures, but the expectations for autos and other stuff is some of the biggest bullcrap I have seen in years. I saw yesterday where SPX earnings were actually worse than expected coming into the quarter, but the news has been about so many companies that have beaten expectations. They missed in the fall. Point is that Wall Street was trying to sell no recession in the fall, then the board that calls recessions said it started in December 2007, meaning in Wall Street statistical terms, they missed it. So since then they have been trying to sell recovery because statistically, the recession had been going on so long. But, up until it was called, Wall Street was trying to sell us on the idea we were going to miss it. Which end of this donkey does the truth come out of. It appears both ends are the rear.

My point is that I think Wall Street was right up to September, that indications were we could miss the recession. Of course, us bears would have no part of that idea because most of us were banking on this financial mess, though few of us had a clue how it was going to play out, being none of us had ever seen it. What we are looking at started September 7, not December 2007 or with the subprime crisis. This is when the unemployment claims went to the 600K mark and have stayed there. It is when the price of commodities collapsed. It is when the Treasury started crying. It is when the real depression started.

Bulls mine these figures because they have this golden fleece called consumer spending. They can't really figure out the difference between green shoots and green puke. The rest of us are at the mercy of Goldman Sachs officials appointed to government positions, where numbers can be spun. My feeling is the consumer isn't only not coming back, if that is what we are waiting for, then we might need to spot Santa Claus for evidence.

The bulls are trying to use an old horse to pull a large plow. I am reading Rothbards book, "The Mystery of Banking" and from what I can gather, their capacity to steal with credit has dried up to the point that they get the bill back now. Of course, everyone has to die except the big NY and London financial institutions, so they have the government give the bill to us, in order that they try the game again.

Love the rally then sell it

There is a recovery going on. It is a recovery like life support is a recovery for a stroke. This is a NY banker manufactured story recovery, started by our commander in chief Ben Bernanke and carried forward by our emperor, Barach Obama. I am wondering what modern economic statistics are about? I am also wondering how many years they think we can put it on the account we can't pay in ever increasing amounts and actually call it a recovery? It is kind of like pumping blood in faster than it leaks out is called getting well.

The latest story is pending home sales have gone up. What is a pending sale? I spent a few years in real estate and I recall a pending sale is one that is under contract, but hasn't closed. From what I have been told by a sister that is a mortgage broker is that the staffs at the mortgage wholesales like Well Fargo, Chase, Citi and others have been cut so much that underwriting times are weeks now instead of hours as they were. This means there isn't any buying a home today and getting it closed in 3 days, which is Friday, but instead maybe 2 or 3 weeks. There is a mile of difference between preapproval of a mortgage and a closable loan package, which is necessary to have a closing. Thus saying there are more pending sales now is like saying there is more water because the river has been dammed. There is no more water coming down the river until is starts spilling over the spillway. In this sense, if you don't follow me, it is quite likely pending sales would go up if another week is added to the typical transaction.

There are other things that make a recovery in housing a lie. For one, barebottom sales in foreclosure aren't normal sales in a market. They could very well be the area that marks the market price of housing when all is said and done. Also, 4.5 million sales on an annual pace is hardly a housing bust, but instead a pre-bubble record. Thus we have seen a market go bust while rampant speculation has continued. There is more. The Fed and the government have manufactured a mortgage rate that is probably 1.5% below that the market would normally settle at. Also, there is the recent massive tax credit given first time homebuyers. Credit, under historical terms, isn't tight. It is probably still easier than it was in the 1980's here.

Next, we get into autos. I would guess that if autos get back to a 12 million to 14 million level, this is going to be called a boom. Thus a bust level of auto sales is a boom while a boom level of housing sales is a bust. How many thousands of dollars of US subsidy are we going to see per unit in the auto industry in order that Obama keep one of his pets, the UAW, in business? You can bet it will be enough that to pull the plug on this operation is going to be a big blow.

Then we have the banks. Has there ever been a bigger smokescreen in history? The US economy will be irrepairably ruined when this fiasco is done. Charlie Munger of Berkshire Hathaway fame has called for the end of credit default swaps. I wonder how we ever begin to float enough credit to keep the world afloat without the risk sharing added with default swaps, which are really nothing more than insurance, like PMI insurance or bond insurance for municipals. Who is to say that the depression didn't start in 2000 because of these instruments?

There is much more about the banks. For one, all the money the tax payers have given the banks is now owed back to the banks. Capital equals bonds and t-bills. It will never be extinguished. There is more, as they have done away with mark to market accounting. Plus it is plain to all that pay any attention that the big NY banks and Wall Street firms openly flaunt the capacity to manipulate the markets. Look at GE, a near bank riding a AA rating while being carried on lifesupport by the Fed? The whole thing is a farce and the ones that know it the best are the banks, who want nothing to do with other banks paper.

This is a different recession or depression or whatever one likes to call it. The game collapsed on its own. Few realize the long side speculation that has gone on all the way down. Sales of existing homes have never fallen below what were previous records. The price of oil is driven up with every rumor there might be a recovery, even though supplies are near 20 year records and growing. Copper is beyond $2 a pound, likely driven to that level by Chinese hoarding in light of the mechanizations of the Fed and the US government deficits. We are not looking at a demand shut down collapse, but an oversupply collapse where much of the oversupply is still subject to speculation.

There is not a lot being done for the reduction of debt. The US government has instead guaranteed the repayment of trillions of dollars that otherwise would be in default in markets that would be otherwise totally insolvent. Exports in Asia have collapsed, yet we are told every day how good these economies which depend on exports to run are doing and how they will lead the recovery. They aren't leading much of anything and if the US government didn't have the power it still possesses, I highly doubt they would be functioning. This is a collapse of the capacity to service debt along with a misalignment of assets and liabilities in the area of financial intermediation. Bank loans need bank credit to be paid and the credit represented by deposits rests in the hand of those that don't owe. At the same time, fed policy literally forces some to speculate to earn anything on their savings.

There are 2 avenues that we face. One is a slight recovery followed by the second dip of a recession. I think this is a manner of lying that we had a recovery, aka 1980, when the perception we were falling into a recession was interupted by some cloudy statistics. I don't buy the idea that 1980 was a double dip recession, but instead an easing of a Fed induced slowdown for political purposes. This wasn't a Fed induced slowdown as was 1980. This was a collapse.

The great secret is there aren't any Asian miracles. There are only excessive US credit expansions that Asian use to expand their own economies. US credit expansions have been inflation of home prices along with equity extraction for the past 40 years. The equity extractions are a done deal and there really isn't anything to drive demand in the US now with much of the excess equity gone. Absent a new equity driven recovery, we are to languish, much as the Japanese did once their real estate bubble burst.

There is one difference between the US and Japan. Japan had a huge export economy that was kept afloat for a long time out of the credit expansion in the US. Once that credit expansion ceased, exports in Japan collapsed close to 50%. The same happened in Germany, another country that had a rough 1990's. Countries have not been able to print credit for long and survive, which is about what surplus government spending amounts to. There are plenty of theories, but there is only one truth and the truth is the world is in for a long period of credit liquidation.

In the meantime, if you own stock, enjoy the rally. It could end tomorrow or it could go to 10,000 and above 1000 on the Dow and SPX. I believe in the end it will be compared to the rally that followed the 1929 crash. Many were looking for a crash, but I don't know what you call a move from roughly 11,000 to 8,000 in a matter of day if it is not a crash?

Not Capitulation, DEFLATION

It is not the bottom Fred. There isn't any capitulation because there isn't any money. It doesn't occur to you guys that there isn't any money on the sidelines. At least not the expanding amount of money that is needed to inflate asset bubbles. We ripped a hole in the last bottom today. The problem is that the players are all in and those that stayed in are now watching their surplus retirement go away. I tried to talk some guys into selling out when it rebounded in October, telling them it was going to be their last chance. Look at the history of depression markets and deflation markets. [b]THE HALFWAY POINT BECOMES THE TOP FOR AROUND 20 YEARS[b]. Take a look if you don't believe me. 1937, the Dow made the 50% point then it sunk back into the abyss. You have to remember that FDR had the mechanism at his disposal of devaluing gold by decree then and the changing of the money. We are beyond the last change unless you want to consider wholesale printing without the acquisition of assets, which would totally deflate the system through the abandonment of the dollar around the world. Once money becomes worth less than the ink on some of the bills, it ceases to be a money supply. You can't defeat deflation in this manner, only destroy what is left of the economy. But, back to the market. We didn't get back to the 1/2 way point until the 1950's after that. If you look at Japan, it is now at a new low. It hit the 1/2 way point a couple of times in the mid and late 1990's. The second time actually caused a Super Cycle Bear like Robert Prechter to consider the Japan bear over while the US bear was beginning. At least that is what I recall reading. In any case, we are at a low after 19 years and it is 1/3 the 1/2 way point almost. You are looking at the top here.

It doesn't occur to anyone in bull land that the entire market of the past 20 years was one inflationary fiasco, built on an almost impossible level of debt, created in a time when the banking system was based totally on debt and the reserve currency of the world had created such a money supply that the entire world could participate. This game was up in 2000. In 2000, the US stock market hit a valuation of roughly 200% of GDP. Never had a US market reached over 80% of GDP. The US market was almost priced high enough to encompass what the entire world market should have been worth. But, we had bubbles in China and Europe as well. The housing bubble was the only thing that put the extra 7 years on that boom. As much as some people would like to blame the 2000's housing bubble, it saved us from collapse then. In fact, it was the actions of FNM and FRE in the 1990's that created the entire game, issuing high powered money in sums never imagined before. Go back and check if you don't believe me because I have been reading about this game for 9 years now and nothing about this is a surprise to me. FNM and FRE created this mess and you see the politicians all the time try to sweep this away. The US government is 20% of GDP and we had a stock market increase a full 100% against GDP in the 1990's. This meant the US government took in an entire years extra income out of the bubble. That is why it appeared we were going to have surpluses as far as the eye could see, because they projected the trend to continue and trends like this can't continue.

The problem is debt and the only solution is more debt. The reason Japan hasn't ever recovered is because their government debt merely replaced their private debt and the assets deflated all the same, meaning the private side can't inflate on its assets. We are about to see what a real depression is like in Japan as there is now a deflated US bubble as well. There is a lot of play on a China rebound now. There are a lot of Chinese assets that need to be liquidated so they need to interest a few fools into buying some of them. It really doesn't matter that maybe they only unload an excess $50 to $100 billion. That amount of money beats zero and is as much as any corporation in the world is going to earn over the next 5 years, unlike the previous 5. Remember, Citi was the most profitable company in the world in the early part of this decade.

The measurement for this decline is sub 5000 this time. It won't be the last, as this is going to be an extended wave that goes on another year and a half. We are only 16 months into something I believe is going to last around 34 months. And, the more debt they create trying to stop this, the longer this mess is going to last. It is clear that we are going back to gold and silver because people are going to have to find anything they can to exchange between themselves and the paper money is going to consume itself.

The best thing that could happen would be that the government help those that go bust to the point they lose their entire support to survive and liquidate the entire mess. Cash exchanged for assets to liquidate debt no longer exists and the loss is then taken. Not only is the money supply too large as it presents an unextinguishable liability as long as they try to preserve it, standing in the way prevents the wiping out of the bad debt which prevents the economy from beginning anew.

My point is this is an unwiding of what created the bull in the first place. This isn't a lack of confidence, but a mathematical equation reversing itself out of natural limitations. As such, we have a downtrend that will continue. There hasn't been a steady downtrend like this since 1930-1932, which should tell you something. It takes effective credit expansion to push markets upward and we are in the midst of a contraction that no one can do much about. The system is a black hole and it is going to consume every extra dime thrown into it.

A Trail of Coins in the Fusebox

I wrote this as a comment in response to an article about the market on the Washington Post website. There was a lot of finger pointing at Bush and Obama, so I thought I would put in my 2 cents.

I see a lot of discussion here from a lot of people who are clueless as to what is going on. The US economy has been in a bubble since at least 1994. I would have to point to Volker for keeping rates too high, requiring excessive credit creation to keep the economy from collapsing in the 1980's and creating too much cash in depositors accounts. But, then again, maybe it was Nixon in the 1970's and Johnson in the 1960's. Or Bush in the late 80's, clinton in the 1990's along with Robert GS, citi Rubin and the balancing act of Bush in the 2000's. The 1929 and 1966 markets peaked at around 80% of GDP. The 2000 US stock market peaked at 200% of GDP, a bubble more than 2 times larger than any in US history. It took a lot of Greenspan to patch that bubble and blow a new on in US real estate. Bubbles aren't any fun when you are a politician, as millions lose money when they break, after going through the euphoria of thinking they are going to be rich.

What causes bubble? An imbalance of debtors and creditors and a system that feeds the imbalance until it collapses. Banks create almost all the stuff we call money in this world and they create it by lending it out of thin air. There isn't any real money in banks, only balance sheet debits and credits for which they can get some currency and coins from the treasury or the Fed. Once the debits become impaired, the credits cannot be satisfied and the capital position of banking deteriorates. It is a flaw in the system of banking that bites the economy every 60 to 80 years and politicians take credit and blame for the actions created out of credit expansions and collapses. This is not a Republican or Democratic problem, but a part of nature as old as the invention of money. You can read about it in the book of Genesis and the laws of Moses.

There seems to be a delusion that Bush caused this mess. It was a problem in 2000 and it was probably a brewing problem in 1992 as there was so much new spending power unleashed once the Volker rates of the 1980's were finally lowered to avoid collapse. Robert Rubin too actions to keep a boom going that probably should have been allowed to cool. I recall Greenspan being asked about the stock market in 1998 by a Congressman and his response was things like this usually end badly. There was not a peep out of the press about what he said and the market mavens spun his words to mean something good and the market roared on.

America thinks there is a free lunch. FDR and HST set up a system at the end of WW II called Bretton Woods. In this system the dollar was made the reserve currency, the medium of exchange. Without this arrangement, the US would have collapsed in the 1970's, but other countries were already stuck with the dollars. There was no means of enforcing the balancing of trade, thus what we spent was immediately loaned back to the US system. The result was double money around the world, collateral for foreign money systems and loans to continue US spending. The FNMA and FHLMC systems were securitized and the energized by the US Congress to loan to every risk out there. Do some searches on the net to see the Democratic Party Congressmen shooting down every effort to rein in this excessive lending. I have been reading about the moral hazard posed by FNMA and FHLMC since 2000. Some people believe that if something doesn't fall apart immediately when it is pointed out, that the guy that points it out is crazy, but the ball for this mess has been rolling for a long time and the world has been financed out of US home equity. The inflation of home equity is a done deal in the US. The lending capacity of the American banks is broken and the rest of the world has immediately followed, as it too is addicted to US debt. Obama is going to fail just like Bush appeared to fail. Minskey said the Great Depression was caused by too many coins in the fuse box and starting with Robert Rubin and going forward to Obama and Geithner, we are seeing more put in every day. The wiring is burned up and the economy is going to burn down for awhile. The banks are all broke save a few small ones and as much as it is a short term solution, lending more money is going to make the longer term worse.

When is it going to sink in again?

This was posted on a website. The date was May 8, 2008. http://contrarianadvisor.blogspot.com/2008_05_01_archive.html


That we are in a real mess? I think we are about to see a real crisis, the quasi public banks like the Fed, FHLB and the GSE's going into crisis. If you read the agreements behind this auction stuff, the Fed has the right to require repurchase or to sell the stuff any time they get ready. Since the books only have to balanced overnight, this stuff is actually repoed daily. What happens if the bank that has the stuff can't perform and the Fed is suddenly stuck with some illiquid stuff? Well, I would venture the taxpayer gets the bill until the Fed earns enough money to pay back the government. The government, probably in return for the New Deal owns 100% of the profits of the Fed, save the preferred stock dividend. The Federal Home Loan banks are somewhat different and I don't know how they work. It seems though that they might be somewhat like FNMA and FHLMC, except I don't exactly know how. I do know I read recently the one in Chicago and the one in Dallas were discussing a merger, which tells me they aren't exactly public entities any more. I am wondering what happens to the bank that has propped up CFC? I don't think CFC is going away as a problem and it will be bigger than Bear. There are significant problems that have nothing but a band-aid on them. The auction loans are one of them, as they are nothing more than a method of keeping insolvents solvent until hope and time bail them out. They are clearly hoping that bad paper can in fact rise from the grave and walk on water, across the Pacific to some sucker fund in China. Surely the world isn't so stupid as to make more deals for Wall Street junk? One thing that I keep bringing up that they keep bringing someone to the table on CNBC is that credit problems like these cause economic problems and I am not talking about cyclical recessions. FNM needs another $6 billion. How much is Merrill going to need the next go around? When is Goldman going to come clean with the losses out of their $60 billion in level 3 assets? When is Wells Fargo going to come clean with its mortgage losses, as it is next to impossible for me to believe that everyone in that business made across the board bad loans except them? We are just seeing the tip of the iceberg on the prime mortgage front of losses from mortgages. Truth is the good stuff was junk and the junk was basically akin to making loans to heroin junkies. There is a supply problem in housing. Nothing is going to make this go away except a hell of a lot of well to do population. Wetbacks from Mexico aren't going to float the housing market at todays prices or even prices 50% of todays prices. It is clear the consumer credit game isn't going to be the same and corporate profits are fueled with consumer bucks. Consumer spending isn't 70% of the economy, it is all the economy either directly or indirectly. Same for the rest of the world. 5% of the US economy is somewhere around $600 billion depending on whose figures you believe. This is about what is going to be missing out of home equity extraction due to refinance or sale the next few years. It is the entire trade deficit, something that has fed the rest of the world with money to create a boom. But, that money is now owed, not free to circulate and there has to be some new real credit. Credit that was being created by virtue of a myriad of derivatives that no longer can be marketed. These CDO losses I can assure you will be more than subprime mortgages by the time they are done.The boom was perpetuated by subprime financing. The other side of this game is the long term investment projects are in full swing, but at some point it is going to be clear that the money was loaned at too low a rate, according to Mises, and the game is going to fall apart. The game is being played in China, but it is being financed by American consumer credit. It won't be long before they suddenly realize they don't have money to finish what they started and the minerals game comes back to earth. They aren't breaking their necks to keep the American financials afloat because they like losing money, but because they need the fresh money created in the US. There are some statistics that tell us the game is coming back. I don't think the consumer balance sheet and some of the more speculative ventures are going to work. I don't think gasoline is the drag it is said to be, but more the idea that the consumer is out of credit and it is going to be that much more difficult to balance the trade balance. Ditto China and Asia, which could be sending more money to the US in trade, but having to send it to OPEC instead. One thing I read a long time ago was that 80% of GDP was the real valuation line for the entire stock market capitalization and we are still way above that, probably in the 140% range. 3% was the dividend rate that capped markets for the past century, but not now. It is clear that only financial bubbles prop markets at these rates. The bulls like to spout a lot of statistics, but few of them are true. The SPX reached it old top solely because stock buybacks reduce the divisor, while dividends don't. Had they back adjusted for the roughly $200 billion to $300 billion shortfall in dividends for the past 10 years, it would have clearly shrunk. Stock buybacks do little for the holder of stock other than increase his proportion of ownership only so far as the stock remains out of the market. It is what used to be called for tax purposes, a partial liquidation. The Dow is up only by virtue of some by chance almost perfect portfolio management. If we reversed the Dow splits and then allowed for the portfolio changes, we would have a hard time having a real new high in the Dow from 2000. There was 60 points of losses saved in the split of GE alone, not to mention another 100 roughly out of the split of INTC. Prior to the last inclusion of new companies, I think BAC and Chevron (CVT?) were put in place of MO and HON, just to make the index match the split adjusted points of 1/14/00, it took 12,610 to reach a real new high. Had they left these lost points in the index, the Dow would be even another 1000 points lower. Quite interesting, MO put about 500 points on the Dow, then they threw it out before it could be bashed apart. The Nasdaq also shows the bear never really ended, only making 50% of its prior high while the big cap NDX, never got close to 50% of its old high.I think this is a speculators market, which means that not one thing I have written means a damn thing, not even the news going forward. What it does mean is that buy and hold to make money in stocks is dead. There is no doubt until the true valuations are back in stocks in the market in general, holding for long term real gains is not going to work for a good while and faces a highly risky near future. No one with a brain would hold any portfolio of stocks, unless they knew how to rotate around losses.

One of the oldest posts I can find of mine

This is one of my oldest posts I have been able to locate. I believe it was January or February 2001 I started writing online. It was posted on this site:

AUTHOR:
mannfm11
DATE:
2/24/01 5:54:40 AM
STATS:
214 reads 1 reply

My friend, you like most Americans seem to be ignorant of how credit works. Inflation is something that cannot be measured by prices because it happens outside of prices, upon the extention of credit. What price will clear the shelves is always the important price and it generally collapses over time because people run out of credit. Hyper inflation is generally created in a system where there in noncollateralized debt being extended. Eventually the amount of debt against collateral becomes sufficient to begin to consume money rather than produce it. At that time, there either has to be more assets to mortgage and get more money or the ability to service the debt begins to decline, thus impairing the loan against the
property. If a lender begins to sustain losses, they lose the ability make more loans and become financially impaired. If you read closely what Doug Noland prints, you will see that fine line between
inflation and deflation.

The inflation we suffered in the 1970's was as much or more a result of debasing the American dollar than merely printing too much money. A shift in demographics also contributed to a lot of shortages as did spiraling regulation. Plus, the very reason for the debasement of our money was the Great Society, where a tax spiral was created and a lot of the debt was monetized.

There are two things at work right now and not many people understand them. One is what Noland talks about and that is the creation of deposits outside of banks. The problem with this system is there is little control on how far they can spiral these deposits, as long as someone can find the collateral to borrow against and there is paper to support the deposits on the other side of the equation. This system would
work fine, but there are now increasing chances the quality of the paper behind these money market assets will go bad and if they do, there will be a run started on these funds. All the money in this country is in the banks and these money market funds have to draw on this money in some way or another. So
they are supporting a tremendous amount of close to cash deposits with really no money. Have a run on these funds and the value of the paper implodes on itself. Its kind of like the Mississippi bubble where the Mississippi stock collapsed when John Law offered warrants to buy the same stock. The system becomes a vacuum, short term rates go to the moon and the capital base of FNMA implodes on itself. You take
FNMA out of the mortgage market and there is not a mortgage market. Try to borrow funds or sell your house without a FNMA or any system where there is a low down payment necessary. This knocks over every domino and the life savings of the entire country goes up in smoke.

You may think this isn't possible, but it is becoming more probable every day. The problems in Japan revolved around real estate and excessive lending on it. I was in the mortgage business in the 1980's and we would kick what they call a good borrower today out in the streets. The quality of loans today are crap. Despite the higher quality of lending in the 1980's, the market still imploded here. Virtually all equity in homes sold at full financing after 1979 was gone and there were close to 100,000 foreclosures here. It won't take much of an economic slowdown to wipe out almost all the equity in homes in the United States due to this excessive lending. That is why Noland calls it a moral hazard and a problem in the future. The
collateral value will collapse when the financing dries up and the equity, what enables people to move in the first place, is gone.

Then there are the banks. This outside the bank financing has diminished the quality of bank loans. If the banks have their capital impaired in a slowdown, which is likely, they don't make new loans. When money is paid back to a bank, it ceases to exist in anyones account, not even the banks. M-1, which is hardly sufficient to support what is going on now without repeated crisis around the world could potential
and probably will implode as this asset deflation continues. Robert Prechter said it best when he stated we were a credit based society and that the extention of credit was based entirely on the good faith of the parties. The faith of the lender the loan was good and the faith of the borrower that they could pay it back. If you have so little knowledge to think the money market assets in these accounts and the
payments made against loans behind this commercial paper will be made in event of a collapse in M-l then you need to do some studying. People start pulling in their horns when times start getting tight. They sell off assets and pay off debt, thus constricting the money supply. Then a lot of the other debt becomes unservicable and the system implodes. It's part of a bubble deflation.

I heard in Thailand a plane was bought with a Krugerand as was an almost new BMW. Now is that inflation or deflation? You want to sell something of value in a declining market and you will wonder what happened to inflation. The point is, all this paper piled up on top of the banking system is going to implode. People can move their money to the safety of banks, but banks have got to purchase this paper
to give them the money so they can get it out of these accounts and put it in the bank. Banks won't be up to buying these assets in a liquidity squeeze unless they can get favorable terms and borrow from the fed at rates that make the paper worth the risk. The rates the Fed charges are useless if the banks don't make
loans and borrow the funds, collateralized of course, from the Fed. People seem to be under the assumption the Fed just throws out money on the street. If lending and borrowing dry up, the discount rate used by the Fed doesn't matter.

Real estate price in Japan are now 10 cents on the dollar and I have heard estimates they still have another 90% drop in front of them. Their central bank has had rates almost free, yet it hasn't picked up the economy much. Remember, this country thought times were bad when their unemployment rate went up to 4%. Their problem is their asset bubble burst and they cannot get collateral to create more money.
They just flat ran out of collateral in the 1980's. It takes money to provide liquidity to the markets. We are going to find this out quick as this declining stock market starts to suck hard cash out of circulation.

The asset bubble bursts all the way down when it bursts. Most people in the US don't have enough money to live 2 months without a job and they will surely use what credit resources they have left. There will be people with maxed out credit cards and others paying them off monthly and all that will be left in these money market funds are debts with no mathamatical solution. Try to draw your money out of a
nonperforming money market fund and see how far you get. There is sure to be a run on these uninsured accounts and there will be no market to liquidate several trillion dollars in short term assets in these funds. So, when the credit system in a credit based society collapses, there are no spendable funds in widespread circulation, thus no money to buy goods and services and a massive deflation. The wholesystem is built on a flimsy house of cards and a small breeze can now topple it. The inflation you are speaking of is in the past and we may have more in the future, but Greenspan can only fight one tiger at a time and he knows the deflation tiger will win this battle, even if the inflation tiger appears to be winning
right now. He takes an eye off the deflationary threat for one minute and we are dead ducks. But, I don't believe anything less than the government creating money off treasury debt is going to stop this beast. No credit, no money, no sale.