Monthly Archives: July 2012

The Great Bailout Debate.

The great bailout debate.

Tim Geithner, claims that bank bailouts were a critical part of getting the economy running again, while Neil Barofsky, says the Obama administration should have spent more time bailing out underwater homeowners who were crushed by the housing bust. Who’s right?

Well, like it or not, the banks had to be bailed out, the same way you’d bail out electrical utilities rather than let everyone go without electricity. They’re just too important to the rest of the economy. They clearly should have been more punitive but frankly, given the speed at which the tide rose back in the closing chapter of the Bush administration, there wasn’t time to structure anything. Morally right or wrong, we needed to spend a ton of money to rescue the banks, and stop the bleeding. Did they do what anyone would do if someone handed over a bag of money? Of course they did.

On the other hand, Mr. Barofsky makes a good point: consumer debt overhang has been hobbling the recovery ever since 2008, and it’s outrageous that so little money was spent rescuing consumers right along with the bankers. Obama should have pushed a lot harder for “cram down” legislation; Fannie and Freddie should have been enlisted to rewrite mortgages; money should have been airlifted into consumer pockets, either to spend or to pay down debt; and schemes should have been set up for homeowners who were too far gone, that allowed them to rent their homes back from the banks that foreclosed on them. In fact, my earlier proposal was and still is, force the banks to re-finance all mortgages at current assessed market values without owner qualification.

So, they are both right, but neither of them can get us out of this mess. The only way we are going to start this thing up again is for the US Government to force banks to open their credit spigots, ignore strategic mortgage defaults, start loaning money to sub-700’s again, and re-write all of the existing mortgages, essentially marking them to market (lovely irony here).

And we need to do this before Europe crashes and burns next year. How? We have leverage. What do the banks want more than anything? Where is their greatest source of potential profit? Investment banking. We make a devil’s bargain. The banks come to the credit and mortgage table, and the Government lets them continue to operate as a single entity, with commercial and investment combined.

We stop talking about Glass-Steagall, and we stop threatening to regulate derivatives. The banks open their checkbooks to small business, and they re-write all of the underwater mortgages. That stops the bleeding in housing, jump-starts the small-ball economy, and boosts consumer confidence.

Short of such a drastic measure, we head into 2013, sailing a doomed ship following a doomed course on a fatal journey into the abyss. 


Liars, Gamblers, and Suckers.

I just finished reading a piece by Goldman Sachs urging investors to charge into the housing market.

Here is what they said back in March of 2012:

Headline reads: The housing recovery will have to wait a little bit longer. Goldman Sachs just pushed back its estimated date of the bottom.

In December 2011 G-Sax published a new house price model for 147 metro areas that pointed to a decline of around 3% from mid-2011 through mid-2012 before stabilizing in the year thereafter. Since publication of the model–which was based on Case-Shiller house price data up to 2011Q2–the decline in house prices has reaccelerated slightly. In today’s (February 29) comment they updated their forecast in light of this and also used the opportunity to make a couple of technical changes to the model.

They now project that house prices will decline by around 3% from 2011Q3 until 2012Q3, and by an additional 1% in the year thereafter. As a result, the expected bottom in house prices is pushed out from end-2012 to mid-2013. Although the house price outlook has weakened very slightly, they go on to say that they believe that the house price bottom remains in sight.

That was in March, after predicting that we would hit the “bottom” in 3Q12. Here is what they said on Monday of this week. Headline: Goldman Sachs predicting ‘strong’ U.S. housing recovery. Construction up, existing home sale supply down.

Article goes on to say that U.S. home builders are an attractive investment as the housing market starts a “strong” recovery that may drive a surge in new-home sales, Goldman Sachs Group Inc. said in a report Monday.

Housing has a “long list of positives,” including rising prices, job growth, supportive government policies and a decline in the so-called shadow inventory of homes, Goldman Sachs analysts Joshua Pollard and Anto Savarirajan wrote in a note to clients. They raised their rating on the homebuilding industry to attractive from neutral.

As a gentle reminder, these are the same people (different suits) who urged investors to buy Collateral Default Obligations and Credit Default Swaps back in 2007. Anything sound familiar here?

For those not punch-drunk on Wall Street’s propaganda, here is what is actually going to happen:

Housing will not hit bottom until somewhere north of 2015. Why? Banks are holding a ton of shadow inventory that they dare not release to the market for fear of creating insane downward pressure on pricing. In addition, there are still tons (millions) of homes crawling their way through the foreclosure process. Are there pockets of good news? Of course. Just like the fact that not everybody lost their asses in the real estate or stock markets since 2008, there are real estate markets like Pebble Beach and San Francisco and Long Island that are still holding prices up. But, the real real estate market is in the crapper and will stay that way or get worse in the coming months.

Until the November U.S. presidential elections of this year, there will be a deceptive calm before the storm, as every major economy plagued with severe fiscal problems continues to kick the can down the road. Come 2013, there will be a convergence of several major negative metrics.

These include the worsening Eurozone debt crisis, leading to the exit of Greece from the monetary union. China will face a hard economic landing, and the United States — its economic growth and job creation performance already anemic — will face a very high probability of a renewed economic recession, particularly in a political environment favoring austerity.

In addition to those economic factors, there is one other element in the turbulent brew that comprises my prediction of a perfect economic storm in 2013: Iran. If the Iranian nuclear issue is not resolved peacefully, which at present seems highly doubtful, there is a high probability of a military conflict occurring in the region, which will add further strains upon the global economy, particularly if oil prices spike to highly elevated levels.

I am not alone in this view. A guy who got it right the last time has the exact same predictions for 2013. Nouriel Roubini, or Dr. Doom, has issued a characteristically gloom-laden warning about likely economic trends for 2013. Unlike the pontificators among the politicians, Wall Street glad-handlers and central bankers, Roubini’s analysis of future economic trends does have the virtue of reasoned logic as opposed to overly-optimistic rhetoric. Nouriel Roubini’s record in predicting future trends impacting the global economy and financial system has been inherently more reliable than the forecasts offered by the U.S. Federal Reserve, as well as by the policymakers in America and Europe.

He emerged in the months prior to the global financial and economic crisis that erupted in the fall of 2008, warning of a deadly convergence of troubling economic and financial dangers.

Roubini’s prediction that the contraction in housing prices in the U.S. housing market would metastasize into a devastating financial hurricane seemed so incomprehensively dire, the pundits and eternal optimists on Wall Street wrote him off. Was it because they insist on driving markets in spite of the realities before them? Do they care, as long as they are betting on the right side of the dice? Don’t forget, those traders who touted CDOs and CDSs were making a killing on insuring against their performance.

Will you listen to Goldman Sachs or Nouriel Roubini?

 

 

 


I’m Hungry. How About You?

You probably haven’t noticed, but the world is on the verge of a horrific global food crisis. The World Bank and the U.N. are not very good at getting anything done, but they are great at record keeping and statistics. Here are a few items that should give you some alarm.

At some point, this crisis will affect you and your family.

Crazy weather and horrifying natural disasters have played havoc with agricultural production in many areas of the globe over the past couple of years. Meanwhile, the price of oil has begun to skyrocket. The entire global economy is predicated on the ability to use massive amounts of inexpensive oil to cheaply produce food and other goods and transport them over vast distances. Without cheap oil the whole game changes. Topsoil is being depleted at a staggering rate and key aquifers all over the world are being drained at an alarming pace. Global food prices are already at an all-time high and they continue to move up aggressively. So what is going to happen to our world when hundreds of millions more people cannot afford to feed themselves? I don’t know, but I bet it will be interesting.

Most Americans are so accustomed to supermarkets that are absolutely packed to the gills with massive amounts of really inexpensive food that they cannot even imagine that life could be any other way. Unfortunately, that era is ending. There are all kinds of indications that we are now entering a time when there will not be nearly enough food for everyone in the world. As competition for food supplies increases, food prices are going to go up. In fact, at some point they are going to go way up.

Let’s look at some of the key reasons why an increasing number of people believe that a massive food crisis is on the horizon. The following are 20 signs that a horrific global food crisis is coming:

#1 According to the World Bank, 44 million people around the globe have been pushed into extreme poverty since last June because of rising food prices.

#2 The world is losing topsoil at an astounding rate. In fact, according to Lester Brown, “one third of the world’s cropland is losing topsoil faster than new soil is forming through natural processes”.

#3 Due to U.S. ethanol subsidies, almost a third of all corn grown in the United States is now used for fuel. This is putting a lot of stress on the price of corn.

#4 Due to a lack of water, some countries in the Middle East find themselves forced to almost totally rely on other nations for basic food staples. For example, it is being projected that there will be no more wheat production in Saudi Arabia by the year 2012.

#5 Water tables all over the globe are being depleted at an alarming rate due to “overpumping”. According to the World Bank, there are 130 million people in China and 175 million people in India that are being fed with grain with water that is being pumped out of aquifers faster than it can be replaced. So what happens once all of that water is gone?

#6 In the United States, the systematic depletion of the Ogallala Aquifer could eventually turn “America’s Breadbasket” back into the “Dust Bowl“.

#7 Diseases such as UG99 wheat rust are wiping out increasingly large segments of the world food supply.

#8 The tsunami and subsequent nuclear crisis in Japan have rendered vast agricultural areas in that nation unusable. In fact, there are many that believe that eventually a significant portion of northern Japan will be considered to be uninhabitable. Not only that, many are now convinced that the Japanese economy, the third largest economy in the world, is likely to totally collapse as a result of all this.

#9 The price of oil may be the biggest factor on this list. The way that we produce our food is very heavily dependent on oil. The way that we transport our food is very heavily dependent on oil. When you have skyrocketing oil prices, our entire food production system becomes much more expensive. If the price of oil continues to stay high, we are going to see much higher food prices and some forms of food production will no longer make economic sense at all.

#10 At some point the world could experience a very serious fertilizer shortage. According to scientists with the Global Phosphorus Research Initiative, the world is not going to have enough phosphorous to meet agricultural demand in just 30 to 40 years.

#11 Food inflation is already devastating many economies around the globe. For example, India is dealing with an annual food inflation rate of 18 percent.

#12 According to the United Nations, the global price of food reached a new all-time high in February.

#13 According to the World Bank, the global price of food has risen 36% over the past 12 months.

#14 The commodity price of wheat has approximately doubled since last summer.

#15 The commodity price of corn has also about doubled since last summer.

#16 The commodity price of soybeans is up about 50% since last June.

#17 The commodity price of orange juice has doubled since 2009.

#18 There are about 3 billion people around the globe that live on the equivalent of 2 dollars a day or less and the world was already on the verge of economic disaster before this year even began.

#19 2011 has already been one of the craziest years since World War 2. Revolutions have swept across the Middle East, the United States has gotten involved in the civil war in Libya, Europe is on the verge of a financial meltdown and the U.S. dollar is dying. None of this is good news for global food production.

#20 There have been persistent rumors of shortages at some of the biggest suppliers of emergency food in the United States. The following is an excerpt from a recent “special alert” posted on Raiders News Network: “Look around you. Read the headlines. See the largest factories of food, potassium iodide, and other emergency product manufacturers literally closing their online stores and putting up signs like those on Mountain House’s Official Website and Thyrosafe’s Factory Webpage that explain, due to overwhelming demand, they are shutting down sales for the time being and hope to reopen someday.

Not good signs.


Euro Leaders Ready For Another Vacation.

Europe is on the brink again. The region’s debt crisis flared today, as fears intensified that Spain would be next in line for a government bailout.

 

A recession is deepening in Spain, the fourth-largest economy that uses the euro currency, and a growing number of its regional governments are seeking financial lifelines to make ends meet. The interest rate on Spanish government bonds soared in a sign of waning market confidence in the country’s ability to pay off its debts.

 The prospect of bailing out Spain is worrisome for Europe because the potential cost far exceeds what’s available in existing emergency funds. Financial markets are also growing uneasy about Italy, another major European economy with large debts and a feeble economy.

Stocks today,  fell sharply across Europe and around the world. The euro slipped just below $1.21 against the dollar, its lowest reading since June 2010. The interest rate on its 10-year bond hit 7.56 percent in the morning, its highest level since Spain joined the euro in 1999.

Spain’s central bank said today that the economy shrank by 0.4 percent during the second quarter, compared with the previous three months. The government predicts the economy won’t return to growth until 2014 as new austerity measures hurt consumers and businesses.

On top of that, Spain is facing new costs as a growing number of regional governments ask federal authorities for assistance. The eastern region of Valencia revealed Friday it would need a bailout from the central Madrid government. Over the weekend, the southern region of Murcia said it may also need help.

Spain has already required an emergency loan package of up to €100 billion ($121 billion) to bail out its banks. But that aid hasn’t quelled markets because the government is ultimately liable to repay the money. It had been hoped that responsibility for repayments would shift from the government to the banks. But that shift is a long way off — a pan-European banking authority would have to be created first and that could be years away.

Yet it is far more than Spain’s struggle that has unnerved markets.

Greece is still struggling with a mountain of debt and international creditors will visit the country tomorrow to check on the country’s attempts to reform its economy. There is concern that officials from the European Commission, European Central Bank and the International Monetary Fund will find that Greece is not living up to the terms of its bailouts and could withhold future funds.

Italy has also been caught up in fears that it may be pushed into asking for aid. Italy’s economy is stagnating and markets are worried that it may soon not be able to maintain its debt burden of €1.9 trillion ($2.32 trillion) — the biggest in the Eurozone after Greece. Interest rates on Italy’s government bonds rose steeply Monday while its stock market dropped 2.76 percent.

The collapse in stock prices in Italy and Spain prompted regulators to introduce temporary bans on short-selling — a practice where traders sell stocks they don’t already own in the hope they can make a profit if the stock falls in price.

Pascal Lamy, director of the World Trade Organization, said after a meeting with French President Francois Holland that the situation in Europe is ‘‘difficult, very difficult, very difficult, very difficult.’’

Ireland, Greece and Portugal have already taken bailout loans after they could no longer afford to borrow on bond markets. Yet those countries are tiny compared to Italy and Spain, the third- and fourth-largest economies in the Eurozone. Analysts say a full bailout for both could strain the other Eurozone countries’ financial resources.

Spain has already received a commitment of up to €100 billion from other Eurozone countries to bail out its banks, which suffered heavy losses from bad real estate loans. Eurozone finance ministers signed off on the aid Friday and said €30 billion would be made available right away. But that incremental step cuts little ice with investors. If Spain’s borrowing rates continue to rise, the government may end up being locked out of international markets and be forced to seek a financial rescue.

 ‘‘Events since Friday have been a clear wake-up call to anyone who thought that the Spanish bank rescue package had bought a calm summer for the euro crisis,’’ analyst Carsten Brzeski said.

The Eurozone’s bailout fund, the European Stability Mechanism, has only €500 billion in lending power, with €100 billion potentially committed to Greece. Italy and Spain together have debt burdens of around €2.5 trillion. And the ESM hasn’t yet been ratified by member states plus Eurozone governments have made it clear they won’t put more money into the pot.

 

That once again pushes the European Central Bank into the frontline against the crisis.

On Saturday, Spain’s Foreign Minister José Manuel García Margallo pleaded for help, saying that only the European Central Bank could halt the panic. But the ECB has shown little willingness to restart its program to purchase the government bonds of financially troubled countries. The central bank has already bought more than €200 billion in bonds since May 2010, with little lasting impact on the crisis.

The central bank has also cut its benchmark interest rates to a record low of 0.75 percent in the hope of kick-starting lending. Yet many economists question how much stimulus this provides as the rates are already very low — and no one wants to borrow anyway.

There has been speculation the ECB could eventually have to follow the Bank of England and the U.S. Federal Reserve and embark on a program of ‘‘quantitative easing’’ — buying up financial assets across the Eurozone to increase the supply of money. That could assist governments by driving down borrowing costs as well.

But so-called QE is fraught with potential legal trouble for the ECB — a European treaty forbids it from helping governments borrow.

In the case of Greece, the country is dependent on foreign bailout loans to pay its bills. A cutoff of aid over its inability to meet the loan conditions would leave it without any source of financing — and could push it to exit the euro so it can print its own money to cover its debts. Really?

 

Germany’s economy minister, Phillip Roesler, said the prospect of Greece leaving the euro was now so familiar it had ‘‘lost its horror’’ and that he was skeptical Athens would meet conditions for continuing rescue money.

The deteriorating situation follows a summit June 28-29 that many hoped would convince markets political leaders were getting a handle on things. The summit agreed on easier access to bailout money and to set up a single banking regulator that could take the burden of bank bailouts off national governments. Yet many of those changes will take months or years to introduce — and there has been no increase in bailout money.

It is an echo of a similar summit in July 2011, when leaders agreed on a second bailout and debt reduction for Greece, only to see borrowing costs spike dramatically as leaders headed off for August vacations.

Stephen Lewis, chief economist at Monument Securites Ltd, said that ‘‘events are following a pattern often repeated in the course of the Eurozone’s troubles, in which the powers-that-be hail progress only to see confidence, almost instantaneously, plumb fresh depths.’’

Must be time for another vacation, I guess.


EU Regulators Focus On Desk Chairs While The Titanic Sinks.

I love it. Europe is quickly falling into the financial crapper of a lifetime, and instead of focusing on ways to revive their economies and develop a central governing body, they are focused on things like this:

 

EU regulators, investigating Google for alleged anti-competitive behavior, want the internet search giant to offer concessions that cover all platforms, including computers, tablets and mobile devices, two people familiar with the issue said on Friday. What concessions?

If Google is not able to provide satisfactory concessions, it will face charges and potentially severe fines, the EU’s competition commissioner, Joaquin Almunia, has said.

Almunia wants remedies for all computing devices that have access to the Internet and provide a search capability, one of the people said. Remedies? For what? Where’s the damages?

Earlier this month, the world’s most popular search engine proposed concessions in a bid to settle an 18-month long investigation fueled by complaints from rivals including Microsoft. Neither Google nor the EU have said what those concessions were. Ahh, yes.

The European Commission is now examining the offer. The EU watchdog has said Google may unfairly favor other Google services over rivals and may have copied material from other websites, such as travel and restaurant reviews without permission. Then sue them.

It is also concerned that Google’s advertising deals may exclude third parties from concluding similar deals with rivals while contractual restrictions on software developers may prevent advertisers from transferring their online campaigns to rival search engines. And, what? Google should be punished for making a good deal with advertisers? These people ARE crazy.

This smells to me like a complete red herring and a way for Europe to extort some sheckles from the Googs to help with their sovereign defaults. Don’t give in, Googs. This one will go away.

 

 


A Small Business Started From Scratch. Surf And Tacos.

 

You can do this.

This guy rounded up the funds to start this thing long before there were Crowdfunding sites springing up everywhere. Here is a simple little idea that evolved to the employment of 16 people working to create taco lunches for people in Rockaway Beach, an urban beach in Queens, New York, aka the Irish Riviera. He makes tacos.

And, only a few months out of the year. The rest of the time? He surfs in IndonesiaAustralia, and Mexico.

Does this sound better than hanging around unemployment lines hoping for one of those stupid jobs they advertised? Of course it does. Figure out what moves you, what you can do and what will make people come to you to get it.

Then, post your project on RocketHub or Indiegogo or Kickstarter and start your own business. In a year or two, you too will be surfing in Mexico, and having a great time doing what you love, when you are “working”.

Here. Watch this:

(I apologize, but WordPress has serious support issues for video, so you will have to watch it on a Pinterest site):

http://pinterest.com/pin/238831586459640111/

And, don’t forget to come back to this blog site when you are done.

 


Housing Bust Is Over! Not So Fast.

The housing experts, Ben Bernanke, the Obama administration, and the Wall Street Journal all want us to believe that the housing market has turned—at last.

 

The next thing out of his mouth will be Quantitative Easing, Round 3.

Headlines like this are in the news this week: “The U.S. finally has moved beyond attention-grabbing predictions from housing “experts” that housing is bottoming. The numbers are now convincing.”

And this: “Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. “We finally saw some rising home prices,” S&P’s David Blitzer said a few weeks ago as he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.”

Housing starts rose 6.9 percent to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate. Which means they were off by 2%. I don’t think this grounds for celebration.

Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later, an important sign of an inflection point. In something of a surprise, the inventory of existing homes for sale has fallen close to the normal level of six months’ worth despite all the foreclosed homes that lenders own. The fraction of homes for sale that are vacant is at its lowest level since 2006. Which means nothing since the 2006 number was normal, and banks have been holding on to property that they have foreclosed in order to not flood the market and drive up inventory.

In other words, these numbers are completely manipulated by the banking industry in an attempt to normalize the markets.

“Even with the overall economy slowing,” Wells Fargo Securities economists said, cautiously, in a note to clients, “the budding recovery in the housing market appears to be gradually gaining momentum.”

Housing is still far from healthy despite the Federal Reserve’s efforts to resuscitate it by helping to push mortgage rates to extraordinary lows: 3.62% for a 30-year loan, according to Freddie Mac‘s latest survey. Single-family housing starts, though up, remain 60% below the 2002 pre-bubble pace. And, by the way, try qualifying for a mortgage these days. Ha!

Americans‘ equity in homes is $2 trillion, or 25%, less than it was in 2002 and half what it was at the peak, in 2006. More than one in every four mortgage borrowers still has a loan bigger than the value of the house, though rising home prices are reducing that fraction very slightly.

Still, the upturn in housing is a milestone, a particularly welcome one amid a distressing dearth of jobs. For some time, housing has been one of the biggest causes of economic weakness. It has now—barely—moved to the plus side. “A little tail wind is a lot better than a headwind,” says economist Chip Case, the “Case” in Case-Shiller.

 

From here on, housing is unlikely to be the leading drag on the U.S. economy. It will instead reflect the strength or weakness of the overall economy: The more jobs, the more confident Americans are about keeping their jobs, the more they are willing to buy houses. “Manufacturing had led growth and construction had lagged,” JPMorgan Chase economists said last week. “Now the roles are reversed: Manufacturing growth has slowed as private construction comes to life.”

Unfortunately, as we see fewer jobs, all of the new construction will result in a huge inventory of new homes and further bloat an already bloated market.

The biggest threat is that large shadow inventory of unsold homes, homes which owners won’t put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders. Another threat is the holdback that the banks have been managing around homes already in foreclosure, so as to not flood the market. They have been trickling onto the market, slowed in part by government efforts to delay foreclosures; a flood could reverse the recent rise in prices. Or the still-dysfunctional mortgage market could get even worse. 

Don’t believe what you read, folks. The housing bust is far from over.

 


Let’s Do This Thing!

Everybody keeps telling me to write something positive and to stop harping on gloom and doom in our future.

I really wish I knew how to do that, because every day I search for some signs, or any sign that there is some hopeful event on the horizon that will create a positive impact on our future, but I can’t find any.

I turn on the TV News and without fail, there are varying degrees of sterilized coverage of some economic event that happened three days earlier that will have far greater impact than the newsies imply and is of far greater complexity than they can possibly understand or communicate.

So, they don’t, and America does what? Goes about their business placated by the blind faith that their leaders will figure out how to prevent the world from ending before it does?  Do they say to themselves, “Hey, how bad could it get? After all, we went through some deep shit in the 30’s and we came out alright.”

Cable news is marginally better because at least they have a longer segment in which to explore the charts, data, directions, patterns, history, etc., but it is still not enough. Then, I have to remind myself every day that people just don’t care. Here is what people care about:

TRENDING NOW (from Yahoo web searches ranked by popularity) on this fine day in July:

01 Mariah Carey

02 Sigourney Weaver

03 Harrison Ford turns 70

04 Michelle Obama threat

05 Chevy buy-back

06 F-22 hypoxia

07 Bonnie and Clyde guns

08 Bankruptcy protection

09 GOP vice-presidential candidates

10 Rheumatoid arthritis

So, it is obviously more important to the American people that Mariah Carey and Sigourney Weaver are celebrating Harrison Ford’s 70th birthday, while Michelle Obama has threatened a Chevy buy-back and some pilots are still experiencing hypoxia when they ride in the cockpit of a jet the military never wanted, and Bonnie and Clyde have hidden their guns and filed for bankruptcy protection because the GOP VP candidates have rheumatoid arthritis.

THIS is what the people care about.

How can that be? I haven’t a clue.

And, if I believe we are truly headed for hell, then why don’t I write about what we can do about it and instead of warning people all the time, point out some things that people can do once they know it.

OK. Here goes: If you have a job, no matter how shitty, keep it and shut-up about how shitty it is. You are blessed. It isn’t like they promised it would be. So, what? If you are still in school, stay there. Slow it down. Take fewer courses. Get Mono. Avoid graduation like the plague. Yes, even if you are at Harvard or Stanford. And, yes, even if you will have an MBA. Particularly if you have an MBA. Stay on your parents’ health care plan as long as you can. If you have a government job, you are even more blessed.

If you are an Airline Pilot, a Doctor or Lawyer, you are just fine. Not making very much money, but fine. Don’t buy anything you don’t need. Don’t buy real estate, yet.

If you are an investment banker, you are also fine. In fact, you are great. There will be tons of money to be made on the craziest gambles you’ve ever seen. Derivatives? Nah, child’s play. China? Gold? Corn? Salmon? Copper? You betcha.

If you are a commercial banker, you are screwed. Too bad.

If you are unemployed, find something that only you can do and offer it for sale. Try Fiverr, or the like. Make something up. “I will sing Happy Birthday in my silly hat for $5”. Really.

Stop looking for work if you haven’t already. It is bad for your soul. If you’ve been out of work for a year, you undoubtedly have erectile dysfunction. You may have already joined many who have considered suicide. Don’t do it.

Get creative. Find others and band together in some common cause. Like tearing down the government. Don’t do it like the Occupy movement did. Actually form a political party and talk to the media. Use simple words. Talk slowly. Even though it makes no sense, talk about the government making jobs. Or, find a bunch of people and start a business that capitalizes on the GREATEST DEPRESSION EVER. Put people in need together with people who have. Make something up. Now is the time. Bend rules. The law will be so busy chasing truly bad guys, it won’t have time to worry about you. And, where would they put you? Jail? Who would look after you? They are all out of work too.

If you are a teacher, you are doomed, but at least 40% of you still have jobs. Try to stay out of site and don’t ever complain.

If you’re in the military, stay in the military. Re-up. For anything.

If you are upside down on your house, walk away and start over somewhere. If you have a ton of debt, declare bankruptcy before they change the law again and make it even harder. If you are lucky enough to be on unemployment or other government welfare programs, revel in it and stay on them. They are NOT entitlements. You paid for them in taxes. They are yours. You have earned them.

If you have a ton of money, you will have fun and be able to make lots more by betting against all fiscal progress and economic recovery. Bet against Greece. Bet against European banks surviving. Bet against the dollar. Bet against every bank stock, and bet on every European sovereign bond default.

Oh, that’s not what you meant, huh?

OK. The truth is we live in the modern world. And, no matter what happens in Washington or in our State Capitols, this is still the modern world (it would be easy to say this is still America, but technology now allows our freedoms to enable behavior around the world, so I call this the modern world). We can do anything we want here. You want to know what to do? Then, page down to the end, and I’ll tell you.

In the meantime, the cracks in the ice are getting bigger.  At this point it is really hard to have much confidence in the global financial system at all.  The lying leaders told us that MF Global was an isolated incident.  Well, the horrific financial scandal over at PFGBest last week is essentially MF Global all over again.  And, either no one was watching or no one was telling. They told us that we would not see a huge wave of municipal bankruptcies in the United States.  Well, three California cities have declared bankruptcy in less than a month, and many more are on their way.  They told us that we could have faith in the integrity of the global financial system.  Well, now we are finding out that global interest rates have been fixed by insiders for years, including our own Treasury leader. 

They told us that Greece was an isolated problem and that none of the larger European nations would experience anything remotely similar.  Well, what is happening in Spain right now looks like an instant replay of exactly what happened in Greece.  So who are we supposed to believe?  Why does it seem like nearly everything that “the authorities” tell us turns out to be a lie?   What else haven’t they been telling us? I think I know.

Look, tens of millions of American families are about to go through economic hell and most of them don’t even realize it. For some weird reason, most Americans don’t spend a whole lot of time thinking about things like “monetary policy” or “economic cycles”.  The vast majority of people just want to be able to get up in the morning, go to work and provide for themselves and their families.  Most Americans realize that things seem “harder” these days, but most of them also have faith that things will eventually get better.  Why? I have no idea.

Unfortunately, things are NOT going to get any better.  The number of good jobs continues to decline, the number of Americans losing their homes continues to go up, people are having a much more difficult time paying their bills and our federal government is drowning in debt.  Sadly, this is only just the beginning of how bad it is going to be.

Since the financial collapse of 2008, the Federal Reserve and the U.S. government have taken unprecedented steps to stimulate the economy.  But even with all of those efforts, we are still living in an economic wasteland.

So what is going to happen when the next wave of the economic crisis hits?

If you look at the economic relapse that’s going on right now, look at last week’s abysmal job numbers, look at the housing numbers, understand that all of this is taking place with record monetary and fiscal stimulus. What happens if we remove those supports? What do you think will happen?

Last month, the Federal Reserve’s quantitative easing program ended (QE2 for those of you still counting).  The U.S. Congress and state legislatures from coast to coast are talking about budget cuts.  The amount of borrowing and spending that has been going on is clearly unsustainable, but will the U.S. economy start shrinking again once the current “financial sugar high” has worn off? QE3? It won’t work. Trust me.

Already, most economic news has been bad and almost all true economic indicators are turning south.  And, finally, the American people are becoming increasingly restless.  One new poll has found that 59 percent of the American people disapprove of Barack Obama’s handling of the economy (which is a new high).  According to another recent poll, 63% of Americans say that they feel “not good” or “bad” about how the U.S. economy is performing. It is not surprising that my buddy, Jimmy Carville is predicting a civil uprising.

The official unemployment rate just went up to 9.1 percent, but that figure only tells part of the picture.

There are some areas of the country where it seems nearly impossible to find a decent job.  Millions of Americans have fallen into depression as they find themselves unable to provide for their families.

According to CBS News, 45.1 percent of all unemployed Americans have been out of work for at least six months.  That is a higher percentage than at any point during the Great Depression. Just two years ago, the number of “long-term unemployed” in the United States was only 2.6 million.  Today, that number is up to 6.2 million.

Can you imagine being out of work for 6 months or more? How would you survive? Do you have enough money in the bank to last 6 months with no income? 89% of Americans don’t. Should I repeat that?

 

So is there any realistic expectation that things will get any better?  Well, there were only about 3 million job openings in the United States during the month of April.  Normally there should be about 4.5 million job openings.  The economy has slowed down once again.  Good jobs are going to become even more rare. Unless we can generate 160,000 new jobs each month, we fail to satisfy new demand. And, that is just NEW demand. It says nothing about existing unemployment. In other words, every new job we fall short of 160,000 is one more added to the unemployment number. So, yes, unemployment is growing. It is not coming down as many in the Obama administration would like to believe.

There are millions of other Americans that are “underemployed”.  All over the United States you will find hard working Americans that are flipping burgers or working in retail stores because that is all they can get right now. Most temp jobs and most part-time jobs don’t pay enough to be able to provide for a family.  And there are not nearly enough full-time jobs for everyone.

Sadly, the number of “middle class jobs” is about 10 percent lower than a decade ago.  There are simply less tickets to the “good life” than there used to be. And without good jobs, the American people cannot afford to buy homes. Without good jobs, the American people cannot even afford the homes that they are in now. And, these jobs are NEVER COMING BACK.

U.S. home prices have fallen 33 percent since the peak of the housing bubble.  That is more than they fell during the Great Depression. 28 percent of all homes with a mortgage in the United States are in negative equity at this point.  There are millions of American families that are now paying on mortgages that are for far more than their homes are worth. Millions of American families literally feel trapped in their homes.  They can’t afford to sell their homes, and they are afraid to simply walk away, because as things stand now, nobody will approve them for new home loans for many years to come.

Many Americans are sticking it out and are staying in their homes until they simply can’t pay for them anymore. As the number of good jobs continues to decline, the number of Americans that are losing their homes continues to rise. For the first time ever, more than a million U.S. families lost their homes to foreclosure in a single year during 2010. As the economy slows down once again and millions more Americans lose their jobs, this problem is going to get a lot worse. WORSE THAN TODAY.

Even if they aren’t losing their homes yet, millions of other Americans families are finding it increasingly difficult to pay the bills. Wages have been very flat over the past few years and yet the cost of most of the basics just seems to keep going up and up. According to Brent Meyer, a senior economic analyst at the Federal Reserve Bank of Cleveland, the cost of food and the cost of energy have risen at an annualized rate of 17 percent over the past six months. Have your wages gone up by 17 percent over the past six months?

As 2009 began, the average price of a gallon of gasoline in the United States was $1.83.  Today it is $3.77. American families are finding that their paychecks are going a lot less farther than they used to, but Ben Bernanke keeps insisting that we have very little inflation in 2011.

Most Americans don’t care much about economic statistics – they just want to be able to do basic things like sit on their porch and have a beer, and take their children to the doctor. According to one recent survey, 26 percent of Americans have put off doctor visits because of the economy. Sadly, soon a lot more American families will not be able to afford to go to the doctor. But, ironically, not because Doctors are earning and charging more, but because Insurance companies are.  Doctor’s wages continue to trend down while Insurance company profits continue to trend up.

As the economic situation has unraveled, an increasing number of people are being forced to turn to the federal government for assistance. One out of every six Americans is now enrolled in at least one anti-poverty program run by the federal government. Some of the hardest hit members of our society have been our children.  Today, one out of every four American children is on food stamps. At the moment, approximately 44 million Americans are on food stamps.

But our federal government cannot afford to spend money like this forever.

According to a recent USA Today analysis, the U.S. federal government took on $5.3 trillion in new financial obligations during 2010.  USA Today says that the U.S. government now has $61.6 trillion in financial obligations that have not been paid for yet. Yes, that is trillion! $61.6 TRILLION.  Who is going to end up paying that bill? I know; you don’t care. And neither do I. What I care about is where my next meal is coming from, and how I am going to afford that next gallon of gas. I suspect you do too.

So with so much bad news and with all economic indicators pointing in the wrong direction, are our leaders alarmed?

According to Federal Reserve Chairman Ben Bernanke, “growth seems likely to pick up somewhat in the second half of the year.” I swear to God, the man is on drugs or has a contract clause that forces him to keep repeating the same mantra, no matter what happens. He, and his buddies in Washington and in your State capitol are part of the same disease. The disease that brings us closer every day to Armageddon.

So, what do we do? I said I would tell you what to do, right?

OK. This may seem silly to some of you, but there is absolutely no reason why we cannot all start a new business that is independent of anyone else and relies only on our own creativity and energy. This is not a plug for Crowdfunding. This is a plug for entrepreneurship.  There are many websites around now that provide the ability to post a project and solicit funds to launch it. Kickstarter, Indiegogo and RocketHub are three American sites joined by several in the UK and elsewhere that facilitate anyone with a dream to test the water in the Crowd for enthusiasm about your project. Here’s an example:

http://www.kickstarter.com/projects/readmatter/matter — Might not be your style? How about this one: http://www.kickstarter.com/projects/1220832022/bloc-socks?ref=popular … or … this one: http://www.rockethub.com/projects/8479-social-action-10-months-in-tel-aviv

The point is that you can, and should … DO SOMETHING! Stop waiting for somebody else to do it for you. Stop looking for a job. Stop feeling sorry for yourself.

Grab some buds, and get a dialogue going around some pet idea that you have had in the back of your mind. Maybe it comes from your frustrations as a single mother, as a cabdriver, as a fireman, a teacher, a bricklayer, whatever. There must be 99 ways to whatever you do better, faster, cooler, bigger or more. You can come up with something that maybe a few hundred other people think is a good idea also.

Then, you can post it on these sites and maybe, just maybe, you will raise enough money to start a little company doing that thing. Maybe it takes off. Maybe it flops. In the meantime, you might raise enough to sustain yourself to get to the second or third idea. You know? The one that really works.

This beats sitting around, feeling sorry for yourself and looking at want-ads, doesn’t it? And, you know that will never work anyway, and all it does is bring you closer to depression. Don’t be that guy. Don’t do the stuff that brings you closer to depression. Start something. It takes zero cash. You can do this.

And, though I realize you really don’t care, it is also the way in which we re-start this country and throw all of the old paradigms about banking and central government out the window. It is up to us now. Let’s do this thing!

 


Chickens Come Home to Roost on the Fiscal Cliff.

Erskine Bowles says that “U.S. policymakers will fail to deal with a sharp fiscal adjustment coming at the end of the year and risk sending the country spiraling into a disastrous recession.” 

Bowles is the former chief of staff to President Bill Clinton, and co-author of the Simpson-Bowles plan, which was the hard-hitting fiscal responsibility recommendations that came out of the National Commission on Fiscal Responsibility and Reform, which President Obama commissioned in February of 2010.

The committee was comprised of an equal number of Democrats and Republicans and their charter was to devise a plan to cut the deficit to 3% from 9% and they did. Congress did what they usually do with responsible thinking, and ignored the recommendations.

At the end of the year, tax breaks, including the Bush-era tax cuts, expire, while automatic spending cuts kick in. The combination of the two occurring at the same time, known as “the fiscal cliff,” could siphon $500 billion out of the economy next year alone and $7 trillion over a decade, according to some estimates.

Congress must act to adjust the timing or scope of the fiscal adjustments, but likely won’t deal with tax and spending issues in an election year, says Bowles, co-chairman, along with Alan K. Simpson, a former Republican senator from Wyoming.

“If I had to tell you the probability, I’d say the chances are 100% that we are going over the fiscal cliff. I hate to say it, but I think that’s probably right,” Bowles tells CNBC. “We worked hard to try to get common sense to overrule politics, and that’s a tough thing in Washington, and we failed.”

Most predict that Congress won’t address the fiscal cliff until next year after elections.

Then, the White House and Congress will likely work quickly to adjust tax hikes and spending cuts though retroactively from Jan. 1. If they don’t work fast, Bowles says, the country will slide back into a recession. He assumes we are not in one now. I guess this is due to the party line in D.C., that says we are in recovery. We have no retroactive remedies left. We are out of cash.

“If they don’t turn around very quickly and fix it shortly thereafter, then I think it could be really a disaster for the country. It’s $7 trillion worth of economic events. It will have an effect of 1.5 percent decline in GDP next year. That’s enough to put us back into a real recession,” Bowles says.

“This is not only the most predictable economic crisis in history, it’s the most avoidable if we just come together and put partisanship aside and pull together.”

Calling deficits “a cancer” Bowles says the country must work to improve its fiscal health.

“If you take last year, 100 percent of the revenue that came into the country, every nickel, every single dollar that came into the country last year, was spent on our mandatory spending and interest on the debt,” Bowles says.

“Mandatory spending is principally Medicare, Medicaid, and Social Security. What that means is every single dollar that we spent last year on these two wars, national defense, homeland security, education, infrastructure, high value-added research, every single dollar was borrowed and half of it was borrowed from foreign countries,” Bowles adds. “That is crazy. It’s a formula for failure in any organization.”

Simpson and Bowles made recommendations to narrow deficits, though President Barack Obama and members of Congress refused to follow up on the proposals.

Now is not the time to blame, Simpson says, as the problem of too much spending is decades old.

“People will often say, How did we get here? It’s easy how we got here. We were told to bring home the bacon for the last 70 years,” Simpson says. “Go get the highway, go get me some money, go raise this, do this and do that and you got re-elected by bringing home the bacon and now the pig is dead.”

I say the fiscal cliff is affecting the economy today, by fueling worries among businesses and increasing their reluctance to hire. “The biggest fear at the moment is that Europe will unravel, but concern that policymakers may let the nation go over the fiscal cliff is mounting,” says Mark Zandi, chief economist of Moody’s Analytics, according to CNN Money. You bet it’s mounting.

Whatever Congress decides to do will be too late, and unlike in 2008, we have no more magic bullets left to make it go down the road. The chickens are coming home to roost.