Let's Hear it for the Democrats!

WASHINGTON (AP) -- The Democratic-controlled Senate on Thursday defeated a plan to spare hundreds of thousands of homeowners from foreclosure through bankruptcy, a bill President Barack Obama embraced but did little to see it through.

So much for a Democratic-controlled Senate....

Deflation Remains a Threat

WASHINGTON (AP) -- Americans spent less than expected in March, pulling back after a burst of buying in the first two months of the year. The reversal was tied to a larger-than-anticipated decline in income and is a stark reminder of a fragile economy trying to rise out of a deep recession.

Devil of deflation may snuff out gold

Enough Rope To Hang Themselves

Obama could be giving the banks enough rope to hang themselves. That's the conclusion of blogger Charles Hugh Smith. He is able to put into words my exact sentiments concerning the banks:

If you set out to completely discredit the bankers and eviscerate their power, you'd proceed exactly as Obama has done, enabling it to reach its reducto ad absurdum conclusion of fat bonuses and tax-funded bailouts in the trillions of dollars, at which point the public will rise up in fury, doing the work which was impossible for you, a new "liberal" president.

Six Banks Have Failed the Stress Test

April 29 (Bloomberg) -- At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests, people briefed on the matter said.

This goes along with what Mr. Engdahl said in Rense about a month ago. Mr. Engdahl gave the names of five banks that were in the most trouble. These banks included:

JP Morgan Chase, Bank of America, Citibank, Goldman Sachs and Wells Fargo

GDP in Second Straight Quarter of Decline

Real gross domestic product -- the output of goods and
services produced by labor and property located in the
United States -- decreased at an annual rate of 6.1 percent
in the first quarter of 2009, (that is, from the fourth quarter
to the first quarter), according to advance estimates
released by the Bureau of Economic Analysis.  In the fourth
quarter, real GDP decreased 6.3 percent.

Geithner and his Ties with Industry

Today's New York Times has an article about how Geithner's ties to industry while being head of the New York Fed may have been too close for objectivity.

In my opinion, Geithner was not the problem. The fact that the Federal Reserve System is really a collection of privately-held banks is the problem.

Financial Crisis Becoming a Calamity for Developing Nations

WASHINGTON (AP) -- The global financial crisis could become "a human and development calamity" for many poor countries, the World Bank said, urging donor nations to speed delivery of money they have pledged and consider giving more. Developing countries, its main constituency, face "especially serious consequences with the crisis driving more than 50 million people into extreme poverty, particularly women and children," the bank said Sunday.

But that doesn't seem to concern the folks on Wall Street, who don't even budge at a steep rise in the unemployment rate. The only thing those bastards respond to are sales and earnings reports.

Inflation Close to Zero in the United States

CAMBRIDGE -- The rate of inflation is now close to zero in the United States and several other major countries. The Economist recently reported that economists it had surveyed predict that consumer prices in the US and Japan will actually fall for 2009 as a whole, while inflation in the euro zone will be only 0.6 percent. South Korea, Taiwan, and Thailand will also see declines in consumer price levels.

Companies to Report First Quarter Earnings

Investors whose burst of optimism sent stocks higher Friday will see if their bets — which came in part on some stronger-than-expected earnings reports — were well-founded. Hundreds of companies will be reporting their first-quarter results and their outlooks for the coming months.

This should be interesting.

Brazil's Finance Minister Issues Warning

Brazil's finance minister said that "if the United States and other countries that have banks with toxic assets do not clean up their financial system, this crisis will last for a long time."

Chinese Lending to Slow

Lending is expected to slow in China for the rest of this year.

In the first quarter of this year, the country's new loans hit a record high of RMB 4.58 trillion, up 29.8% year on year, the highest since 1994.

In a related story, Chinese shares were down in trading on Friday on fears that the lending growth might not be sustained.

Why the "Stress Tests" are Bunk

Michael Brush gives his explanation as to why the stress tests are useless, but I happen to feel that anything short of full disclosure will always be perceived as holding back something. Just publish all of the results and let the chips fall where they may. I can't believe the government is overtly trying to manage to release of this information, shortly after encouraging accountants to be more forthcoming in their approaches.

Bank Lending Keeps Dropping

Even after banks have been given the help that they were given, they STILL don't want to lend.

According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program.

Income Versus Expenditures - An Analysis

In my quest to answer the preceding question, I went to the BLS website and found some interesting data on consumer income versus expenditures. I copied the most important data (number of consumer units within an income range, income after taxes and total expenditures) into Excel. I came up with the following (click on image for enlargement):


I noticed that the negative post-expenditure number didn't stop until consumers hit the $40,000 income range. This meant that a total of 52,635,000 households, or 43.8%, were spending more than they were taking in.

Are we supposed to believe that ALL of the people who make less than $40,000 are irresponsible?

The Distance

First, they responded to consumer demand for lower prices by cutting labor costs. They cut labor costs by going to low-wage developing countries. Those producers that chose to stay slashed their labor costs to the barest minimum. While manufacturing was only part of the economy, the cost reductions produced a domino effect because once a factory's employees were out of a job, those employees couldn't pay their house payments, electric bills, food, etc. This phenomenon reverberated throughout the economy many times over. Soon, other manufacturers and cottage industries followed, pulling wages down even further. The consumer wanted lower prices because...their wages were falling. And down the spiral we went. Since 1975, inflation-adjusted wages have remained relatively stagnant. The distance between wages and prices began to widen.

To make up for weak wages, the powers that be had to do something. First, in the recession of 81-82, Reagan and his successor, Bush 41, saw the distance, cut taxes and started the deregulation trend that continued until recently. This helped to bridge the distance to some degree, but only temporarily. Clinton didn't help when he repealed Glass-Steagall. Then, Greenspan, after seeing that the distance had, once again, revealed itself when the dot-com bubble burst, came up with another bubble, the housing bubble. We all know what happened there. Instead of addressing the distance between wages and prices, the powers that be insisted that the rest of the world would catch up to the Americans before we would have to take a cut in our standard of living. This didn't happen because the consumer continued to demand lower prices. The powers that be have now ran out of bubbles to bridge the distance. They must now either raise wages or let deflation cut costs to the point that they are more in line with wages.

The banks are not going to lend like they use to because they don't have anyone to sell that debt to. Lending, if it happens at all, will finally be based on one's ability to pay it back. Deflation must cut costs to the point that the banks feel like the consumer can pay back whatever loans they give.

So this reduces this entire issue to one thing and one thing only. How much of a distance is there between wages and prices? How long will we have to wait until prices are more in line with wages?

Banks Fighting Tooth and Nail Against Credit Card Legislation

The banks have made it difficult for Congressional Democrats and the White House to give stretched homeowners a stronger hand in negotiating lower monthly payments on mortgages and to prevent credit card companies from imposing higher fees and interest rates.

This is why we need to get together and say all at once, "We're not paying anymore!"

If the government can't get it done, then we WILL!!

This is What I'm Talking About

Bank of America made a profit from the "gains booked when the market value of its own debt deteriorates." But if I call them up and asked them to reduce the value of its customer debt due to its fall in market value, they can't do that.

Global Economy to Slow This Year

Not only is the world's economy expected to shrink at a rate of 1.3% this year, but the American economy is expected to shrink by an even greater rate of 2.8%.

Perhaps the reason that the world's economy is shrinking is because the American economy is shrinking? Perhaps the American Empire has been the world's arrogant economic centerpiece for long enough? Perhaps this is just the beginning of a long-awaited economic equalization among the nations? Perhaps we're headed for a global standard of living?

A Speculative Attack on US Banks

There is a run taking place in the credit markets. Traders are betting that the banks will default.

Simon Johnson, from Baseline Scenario:

“The view being taken by people who trade credit in the United States is that we’re definitely not out of the woods. And I would say, in fact, there’s something of a run taking place in the credit market. Not a traditional bank run, but a speculative attack on some of the biggest financial players ….”

The way Geithner managed the perceptions of Wall Street today was certainly masterful, but this is not about perception or confidence. This is about solvency.

"Too Big To Fail" is FINALLY Being Challenged!

The old assumption that sometimes an entity is simply "too big to fail" is finally being challenged at the hearing today in the congressional hearings today.

The Response I left for Dana at Investoralist

There is an element to this discussion that is not present in the above post and that has to do with economic solvency. There’s been a lot of talk about how the BANKS could very well eventually prove to be insolvent, but that’s not the kind of solvency I’m referring to here. That’s financial solvency. I’m talking about economic solvency.

We all know that deregulation certainly contributed to the current mess, but it wasn’t the only variable. And we know that banks made loans in the face of stagnant wages, but that’s not the deeper variable of economic solvency I’m referring to here.

Financial solvency has to do with the immediate and measurable cash flows needed for an entity to meet currently maturing obligations. Economic solvency, on the other hand, is referring to the deep structural mechanisms in an economy which help to facilitate an efficient transfer of wealth from wages to prices and from prices to wages without the significant introduction of time-bearing instruments or worker exploitation.

Returning to the way things used to be is out of the question. It’s out of the question not just because regulation needs to be implemented. It’s out of the question not just because wages should be able to afford the new lending. But it’s out of the question because the old system is economically insolvent. It’s out of the question because the wages that we have today are not just stagnant and have been so since 1975, but they are also inextricably tied to the global marketplace and the consumer desire for the cheapest price. THAT is why we must learn austerity. THAT is why this is truly, as Don Henley sings, the end of the innocence. The American standard of living, barring any groundswell for protectionism, must conform to the rest of the world.

Add Britain to the List of Deflated Economies

Spain, Ireland, Switzerland, Japan and now the UK. These are the countries that now have deflation. So why should the United States be any different?

Thanks to Edward Harrison over at Credit Writedowns

WSJ Article About Why the "Panacea" Will Not Work

Three reasons why Fed lending is not the panacea:

• (1) Fed lending can’t solve “the fundamental problem — the shortage of capital in the banking system.” He added that “until the banking system is viewed as being sufficiently well-capitalized and is able to expand its lending activity significantly” the economy will suffer.
• (2) Legal limits require the Fed to lend only when the would-be borrower offers sufficient collateral; it can’t lend unsecured or provide guarantees. (The Treasury can, however.)
• (3) Initiatives such as TALF (Term Asset-Backed Securities Loan Facility) are off to a slow start because of “the reluctance of investors to participate” in part because of “worries about what participation might lead to” given the political environment. Dudley pronounced these worries “misplaced.”

In response to the first reason, “capitalized” banks require that workers receive more than 1975 wages.

Either increase wages or endure deflation until prices are more in line with wages. And forget about inflation. It’s only inflation if the banks actually LEND that money that has been lended to them by the Federal Reserve. Until then, it’s called “hoarding” and weak wages will eventually pull prices down. Ever since Reagan we’ve tried to come up with temporary fixes for each recession or economic challenge that came about due to that imbalance between wages and prices, with the last one being Greenspan’s housing bubble. We simply MUST get wages in line with prices.

They Still Don't Get It!

Here's a quote from an article that reflects the disconnect between real wages and credit:

“There is a real risk that governments will be reluctant to allocate enough resources to solve the problem,” the report warned. “Moreover, uncertainty about political reactions may undermine the likelihood that the private sector will constructively engage in finding orderly solutions to financial stress.”

Our Man at SIGTARP

Neil Barofsky, the man in charge of SIGTARP, the entity responsible for the $700 billion in TARP funds tells us that Treasury's explanation for why some information is being withheld is unfounded.

Loans into Stock

The Treasury Department seems to be seriously considering converting loans already made into stock.

There's already hissing from the conservatives about nationalization, but this could only be temporary nationalization like was done in Sweden.

But even after nationalization and they resell all of the assets back into private hands, I wouldn't mind seeing one bank remain nationalized to keep the private banks competing with a bank that charges little or no interest and no exorbitant fees. This would be a "citizen's dividend."

As long as the banks have someone that will compete against them, there shouldn't be any problems.

Homeless Carts

They have carts made specifically for the homeless.

Are you ready for this?

Stagnant Wages and Hoarded Funds

So, let me see if I can combine Mish's explanation of hoarded funds with my explanation of stagnant wages when it comes to what will be the cause of this coming deflation.

Mish is saying that there can be no inflation caused by the mere capitalizing of the banks and that it can only be caused by the lending of those funds. I'm saying that stagnant wages and the rising cost of living is setting us up for an inevitable correction with prices and that prices must come down.

But new lending is only going to postpone the day of reckoning. So Mish is not even saying that new lending is inevitably good or bad for the economy. He's just saying that even if they were hoping to keep deflation in check, they're going to have to get new lending going on and that's simply not going to occur as long as lenders feel that people are not going to be able to pay the new loans back.

I, on the other hand, am looking at the longer term issues of economic sustainability and that lending, stimulus packages, tax cuts or whatever else you want to put between stagnant wages and the rising cost of living is not a long term solution. We simply must endure deflation until inflation-adjusted prices are more in line with 1975 wages.

America Could Be Exporting Deflation Soon

DUBAI, April 19 (Reuters) - Gulf Arab states, most of which peg their currencies to the U.S. dollar, risk deflation if consumer prices fall in the United States and other Western economies, Deutsche Bank's regional CEO said on Sunday. "The transmission mechanism is clear. If there is deflation abroad it will be transmitted through the exchange rate, through the interest rates," Henry Azzam said on the sidelines of a banking conference.

Geithner Sees No New Bank Crisis

Treasury Secretary Geithner says that he sees no new banking crisis.

We'll see what he's saying after Bloomberg wins his lawsuit to get the specifics about the $2 trillion in loans.

Bank Closings

There have been more American bank closings in less than the first four months of this year than there was in all of 2008. There have been 25 closings so far.

This is falling more and more in line with the pattern of a deflating economy, according to Mish.

Mish Lays Out a Convincing Case for Deflation

Michael Shedlock, (aka "Mish") lays out the most convincing case I've seen yet for deflation. His argument is, if I may summarize his perspective on the matter is that as long as banks aren't lending, there can be no inflation no matter how much "money" the Federal Reserve pumps into the banks simply because it takes money SPENT, not money hoarded, in order to create inflation.

Stiglitz says Lobbyists will Doom Effort from the Start

April 17 (Bloomberg) -- The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.

See, this is exactly the reason I wish McCain would have won. Instead of waiting until the problem gets so big that there's no other choice in the matter, we take our revolution out of the oven a little bit too early, and the lobbyists take advantage of a weakness in the urgency. We've been given a chance to prove to the world that we don't need a catastrophe before we act and we blow it by letting lobbyists shape the very legislation that will help us.

Fuzzy Math from the Big Banks

Wells Fargo and JPMorgan Chase boast big profits for the quarters before the changing of the accounting rules, but credit costs (the costs of writing off bad debt and providing for loan loss reserves) continue to dampen hopes of profitability for the banks.

Bloomberg Challenges the Secrecy of the Fed

April 16 (Bloomberg) -- U.S. taxpayers need to know the risks behind the Federal Reserve’s $2 trillion in lending to financial institutions because the public is now an “involuntary investor” in the nation’s banks, according to a court filing by Bloomberg LP.

I'm wondering if the court will see the taxpayer as an "involuntary investor" because the taxpayer should also be the voter and they did, in fact, vote for someone who proposed a certain set of proposals, even though the Fed is really an independent entity. However, even if the court does see the taxpayer as a "voluntary investor," shouldn't a voluntary investor have that kind of information anyway? Bloomberg could get it either way. That would be sweet.

Home Starts Down 10.8% in March

Right there in the video list is a report by 60 Minutes last year that tells us that the rise in foreclosures won't stop until around the end of 2011. So if foreclosures are not going to stop until around 2011, what makes us think that housing starts are going to somehow magically increase?

What about all those Alt-A and Option ARM mortgages that have yet to default and foreclose? Mr. Mortgage said not too long ago that California is about to explode with foreclosures.

TARP Banks Offering Less Credit

WASHINGTON—The largest bank recipients of U.S. government aid are offering less credit to businesses and consumers, the Treasury Department said Wednesday, reflecting and exacerbating the current tenuous economic environment.

Why doesn't that surprise me?

Rep. Grayson on the Results of the Accounting Change

Huffington Post does an article on the results of the recent accounting rule change by the FASB concerning "mark to market."

Since this accounting change, we've seen two major institutions prettying up their financial statements. Wells Fargo recorded record profits, and its stock jumped more than 20% in one day on the news. Goldman Sachs also reported tremendous earnings, surprising in these difficult times, and sold $5 billion of stock in the secondary market immediately afterwards.

Jesse Jackson Takes On Student Loans

Huffington Post puts out a piece on Jesse Jackson getting involved with student loans.

"Student debt has risen for simple reasons: education costs have skyrocketed -- up 35 percent in the last five years -- while wages have stayed flat. More students now put tuition directly on their credit cards."

But this is same story for all kinds of credit. Americans try to make up for flat wages with credit. This consumption model is completely unsustainable.

In a related story, graduates in traditionally low-paying fields are being offered jobs in public service in exchange for student loan forgiveness. I wish they could come up with something like that for me. But I have a "traditionally high-paying" field (accounting). So I should be able to get a job just like that, huh? Not if you don't have enough experience.

That Filthy Lie Called "The American Dream"

Obama says he wants "a simpler tax code that rewards work and the pursuit of the American dream."

Didn't we get into this mess because we wanted "the American Dream?"

One of the saddest parts about this standard of living adjustment that we're going through is that it's happening at just about the time that minorities are finally getting "what the white people have." Never mind the fact that the lifestyle that the American consumer lived is clearly unsustainable. All minorities know is that they have been cheated and they want "what the white people have." There's not enough gum to go around for all of the students in this class and so we have to spit the gum out.

Forget the "American Dream." Everyone who works hard and plays by the rules are not always going to get "what the white people have," not even white people like me. It's a lie. The "American Dream" is a filthy lie, Obama. So while it may sound good in your speeches, it's also a very classist phrase and unless you can absolutely guarantee that if I go to college, get a good-paying job, work hard, save and play by the rules, that I'll have the "American Dream," I wish that you would stop using it. It's a slap in the face to those who HAVE worked hard and played by the rules and still have not succeeded. It's an insult to our intelligence because we know that it's just not possible. It's a classist lie like "manifest destiny" that needs to be placed in the dustbin of history.

Japan's Wholesale Prices Falling

Japan could very well have seen the light...

"The reason why domestic demand isn't growing is because disposable income has not risen," Tsuyoshi Takagi, president of the Japanese Trade Union Confederation, said yesterday.

White House to Reveal "Stress Test" Results

Knowing that revealing too much could send investors reeling, the White House has said that it will reveal sensitive data in an effort to shore up confidence in the nation's banking system.

To begin with, the only way that such confidence could even conceivably be attained would be to let the chips fall where they may and reveal ALL of the results. If we want to ensure that something remains uncertain about a bank, we would continue to hide the data. Isn't it uncertainty that the markets are battling anyway?

Also, it is not "confidence" that we want. It's revenue.

Give us good-paying jobs with paychecks that we can put into those banks and you'll have all the confidence you deserve.

Cost of Credit Cutting Into Profits

Shares of Raymond James Financial fell as the firm said that it would need to triple the reserves set aside for losses on loans. The cost of credit is destroying any profitability that may result from it.

Usury shouldn't be a profitable venture.

The government should give us a citizen's bank from which American citizens could get interest-free lending and the Federal Reserve should be nationalized.

Consumer Prices Fell Another 0.1%

The unadjusted 12 month average has also declined by 0.4%.

Deflation will destroy the American standard of living as we know it.

This deflation will be driven by global competition and our free trade policy.

Americans will soon know what it's like to live in a developing country and I'm glad, to tell you the truth. We will finally begin to rely more on each other instead of trying to live independent lives. Our desire for independence has cost us dearly and now we must learn to live interdependently instead of independently.

Bring the whole thing down and start from scratch.

Words To Live By

If Obama doesn't get tough with the banks, deflation will.

My Response To Obama's Georgetown Speech

He still insists that we need to "get lending going again" and in the same speech says that we need to stay away from protectionism. We either need to stop using credit as an extension of our income or we need to protect our income. We simply cannot sustain the current standard of living on wages that are being forged from out of global competition. We must live within our means.

This speech seemed to have the same structure as the one he gave before Congress. First, say that we need to get lending started again and then talk about what kind of investments we need to make in order to build a better future for America. It's as if one of his ears is being told that we must do whatever it takes to keep the banking system, or the devil, and the other ear is being told that we must invest in our health, education and energy infrastructures, or the angel.

Maybe he knows that the banking system is about to collapse anyway and instead of fighting Bernanke and Geithner, he instead just gives into them, letting them see for themselves just how wrong they are. If he chose to fight with them, that would have kept alive the possibility that they were right that much longer. So I will cut him a little slack on that.

Modifying Loans May Not Stem The Tide of Foreclosure

Do you think they're FINALLY starting to see the light?

NEW YORK (Reuters) – Unemployment is a bigger reason for missed mortgage payments than high interest rates, according to a study from the Boston Federal Reserve that raises questions about President Barack Obama's plan to stem foreclosures by modifying loans.

Could it be that one's ability to PAY on the mortgages might have something to do with a rise in foreclosures? Perhaps the good folks down at the Boston Federal Reserve may wish to broaden the scope of their observations to include not only unemployment but also underemployment and low wages? That may help them to further comprehend the deeper issues of economic insolvency facing the world.

Further Signs of Deflation

Not only did retail sales fall in March, but wholesale prices fell as well:

"Meanwhile, the Labor Department reported that wholesale prices plunged 1.2 percent in March as the cost of gasoline, other energy products and food fell sharply."

Business inventories also fell for a sixth straight month, making it the longest stretch of declining inventories in seven years.

Obama Likes To Get Cozy With Vipers

Here's an interesting perspective that I haven't thought about. Maybe after the banks did that, Obama will be more willing to draw the line with these "vipers?" (Andrew Jackson's description, not mine.):

WASHINGTON, April 13 (UPI) -- Tucked away inside the small print of the latest Federal Reserve report on its balance sheet is a jaw-dropping nugget of information. A year ago, American banks had $1.8 billion on deposit with the Fed above and beyond the regulatory requirements. This month, these excess deposits have soared to $771.2 billion. This is not just massive evidence of hoarding of funds by the banks. It also means that the banks are undermining the Obama administration's attempts to stimulate the economy. Just as President Obama pumps $787 billion of deficit spending into the economy, the banks take $771 billion out of it and sock it away in the Fed's vaults.

China At Risk Amid Surge In Lending

What does it take for people to realize that if there's not enough money coming in to pay for loans with interest, then loans shouldn't be made?

"China faces a surge of bad loans and speculative bubbles as the country’s banks open lending and flood the market with record levels of money supply, economists are warning."

Is This What We Get For Helping Them?

"Since TARP started in October, banks helped by it have raised charges on a range of routine transactions, hiked rates on credit cards and continued making loans criticized as predatory by consumer advocates, the Journal said."

I hope Obama draws a line with the banks like he did with the auto industry and I hope he does so SOON!

The Case for Deflation -- An Editorial

Demand is made up of two components, consumer willingness to buy and consumer ability to buy. Willingness to buy is mostly a microeconomic variable, as each consumer has different tastes and needs. But ability to buy can be studied at the macroeconomic level.

Ability to buy means wages and credit. American inflation-adjusted wages have remained stagnant since 1975. This huge bubble of credit has hit the iceberg and it's only a matter of time before the realization sinks into the mass consciousness that this ship is going down.

The best measureable product of this expansion is found in the CPI. CPI has been steady or rising for a long time--that is, until around October of 2008, when the CPI started a rapid descent, only to recover in January and February of this year. I predict that we'll see more declines soon and over the next year or two. It is to be expected when one arm of the consumer's ability to buy has been stagnant for over 30 years and the other arm is paralyzed.

If buying power is limited, purchases slow. If purchases slow, businesses need to lower prices in order to clear their inventories.

While Obama's intentions are good, unless such massive government spending is going to be a PERMANENT fixture in the economy, more stimulus packages are not sustainable. Granting more credit to the consumer is not a sustainable option either because credit shoud not be an extension of income but rather used only in times of emergency.

To put it bluntly, unless wages go up soon, the only way to get out of this mess is to deflate prices until they reach 1975 levels.

Deflation Continues To Raise Its Ugly Head

US wholesale inventories, a measure of lag in demand relative to expectations, fell for the sixth month running in February as companies continued to slash stocks amid weak demand.

This is what I'm talking about. It's not that people don't want to buy. The willingness to buy hasn't changed. It's the ABILITY to buy, whether it be through wages or credit, that has been damaged here. Households based on 1975 wages require more and more credit to make up for less and less buying power as costs rise. These costs would not have continued to rise if this credit wasn't being introduced into the economy in the first place.

We will continue to see costs melt down until they reach...what else...1975 levels! Why is that so hard to believe?

Excitement Over WF's Unexpected Profit May Be Premature

The excitement over Well Fargo's surprise $3 billion profit from unexpected performance of their recently purchased Wachovia may be a bit premature.

Get over the excitement about Wells Fargo & Co.'s (WFC) strong expected earnings: It's still too early to say the banks have recovered. First-quarter earnings might give big banks a reason to exhale if only because earnings from capital markets and mortgage lending improved. But analysts remain carefully optimistic at best.

Sallie Mae Resists Obama's Student Loan Reforms

The Obama administration says it will save tens of billions of dollars by taking over the student loan industry. Lenders have resisted the proposal by saying students should have a choice between government loans and those provided by the private sector. But now, lenders are fighting back against that plan with a new argument — that it would kill jobs.

If student loans were forgiven and the government fully funded all levels of education from pre-K to PhD, there would be an even bigger boom to the economy because we wouldn't be expending so many economic resources on just paying for tuition and books.

The Swiss, the Irish and Japanese...are we next?

This is only the beginning. I can't wait till the American Empire finally dies. Then, we'll finally be just like any other country (if we still manage to stay together as one country).

Prepare for a deflationary spiral from hell.

The Fed is Telling Banks to be Quiet About the "Stress Tests"

The Federal Reserve is instructing banks to remain quiet about the results of "stress tests."

"The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month."

It's as if they REALLY and TRULY believe that this is about perception.

Nationalize the Federal Reserve!

Huffington caught on to what the Fed is up to a long time ago:

"Now, however, the Fed will be able to take the foreign currency it acquires in these swaps, and rather than hold it on its balance sheet, pass it on to U.S. banks, according to minutes from the Federal Open Market Committee's March meeting. These U.S. banks can then use that foreign currency to cover their foreign debts."

Obama really needs to either heavily regulate the Fed or, even better, NATIONALIZE the Fed.

Mr. Mortgage Says that California Foreclosures Are About to Soar

The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium — this wave is so big I would not put it past them trying it.

This can only be expected as unemployment continues to rise. What is so God-awful about letting these people stay in these houses? It's not like the banks are going to sell them to anyone. Banks are so pig-headed and arrogant.

A Sign of Things To Come?

Ireland is experiencing its worst case of deflation since the 1930's.

Didn't Ireland go on a big housing boom too before its current predicament?

Obama Just Doesn't Get It!

Reporting from Washington -- "President Obama, meeting with homeowners at the White House, said the government's efforts to drive down interest rates had fueled a surge in refinancing -- putting money into many homeowners' pockets during the current economic crisis."

It's not that we can't get enough lending, it's that we've gotten TOO MUCH already and we need to begin living within our means.

I think Obama means well and everything but I think consumers will try to make good on their payments, but they won't be able to make the payments because everything else is too expensive for the wages that people receive. If people didn't need to eat, drive a car, have health care, etc., then this would work, but what part of "inflation-adjusted stagnant wages since 1975" does Obama not understand here?

Deflation must come in order to increase the buying power of the consumer--unless Obama is going to convince industry to raise wages, which I doubt very seriously.

Those Damn Overdraft Fees!

Thanks go to the Columbia Journalism Review for the link to a study by Felix in overdraft fees in relation to how much consumers actually overdrawn:

"The typical overdraft fee these days is in the $35 range. And how much is borrowed when people get an overdraft? The thing is that most of the time the overdraft is inadvertent — which means that the account drops only a tiny bit below zero. In the case of debit-card transactions, the average overdraft is only $17."

$35 is way too much! Why not just charge us exactly the amount that we went over anyway? I mean, it's not like the banks actually HAVE the money sitting in their vaults.

Not Over Yet By a Long Shot

NEW YORK (Reuters) – "U.S. banks' first-quarter results will show that losses from credit cards and commercial and real estate loans have not yet peaked, and perhaps dash hopes that the worst of the banking crisis has passed."

More bad news on comsumer debt still on the way.

Soros Says That Americans Were Living in a Fool's Paradise

Billionaire George Soros says that the financial system was based on false promises and that we need to rebuild the markets on sounder grounds.

Chinese Lending Up At Record Levels

"Chinese banks extended a record 1.87 trillion yuan in new loans in March, anticipating a possible economic recovery, a source said."

The key word here is "anticipating." Maybe they figure they haven't got anything to lose.

My Prediction

So what does an economy look like when a good deal of the individual participants in that economy have had their purchasing power reduced?

Falling sales.

Rising unemployment.

Falling tax revenues.

Rising bankruptcies and defaults.

Deflation. That's what I'm talking about.

We cannot be talking about "getting the credit markets moving" as long as we have stagnant or falling wages. Bottom line.

So why even try? Why throw your money away? That's like putting your diamonds on the Titanic ten minutes after it hit the iceberg.

Stop paying on your loans!

Why Aren't The Banks Lending?

But when you get down to it, the banks are only doing exactly what the psychological premises of self-interest predicts they would do. If you had money, would you lend it in this environment? Sure we can talk about how they should have realized that people couldn't pay on the loans that they made, and we can talk about how the banks should have realized that a good deal of the loan payments were being made from other loans, but what good would that discussion do? The real question is what does our economy look like if there were no lending? I submit to you that we are just beginning to see that kind of economy. No longer will our economy be propped-up by debt. We will finally get the economy that we deserve. And if we want to keep the banking industry alive as government-funded zombies, then deflation will do the dirty work.

RBI of India Says No Room to Lower Rates

"The cost of deposits is still high. This will have to come down first. Then only will the lending rates ease," Narayanasami, who also heads Bank of India, said. He, however, added that the banks now have sufficient liquidity "as the RBI has slashed its key rates".

The banks want to reduce the amount that they pay you for saving before they reduce the amount that they get paid for lending. This is another reason that we need to have just one nationalized bank, where as a citizen dividend, no interest would be charged for lending and interest paid on deposits would be directly tied to the growth of the economy. THEN, let's see them whine about the cost of deposits! They couldn't compete with a bank that didn't charge interest on loans.

But we don't need more lending anyway. We need jobs. We need income. And if our jobs don't pay enough for us to live on, then deflation is the only way out.

Americans getting off the credit!

NEW YORK (CNNMoney.com) -- "Consumer credit fell in February, led by a sharp decline in credit card usage, a government report said Tuesday, as the ailing economy and widespread unemployment curbed spending."

Consumer debt fell to $2.564 trillion. Revolving credit, which includes credit card debt. fell to $955.7 billion.

Keep it up! We'll have a normal economy before we know it!

Soros Says Banks Are "Basically Insolvent"

George Soros tells Reuters that the banking system is 'basically insolvent."

It is important that we understand the difference between liquidity and solvency in order to comprehend the full value of what Mr. Soros is talking about here.

Let's use the noble Investopedia for both definitions

Liquidity is "the degree to which an asset or security can be bought or sold in the market without affecting the asset's price."

Solvency is "the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term expansion and growth."

So when Krugman says that this is not a crisis of liquidity, but instead a crisis of solvency, what is he referring to here? Liquidity is about being able to sell your assets (mortgage notes). Solvency is about maintaining a steady flow of income (homeowners paying on their mortgages). Why aren't the banks able to get homeowners to pay on their mortgages? Wouldn't have anything to do with the fact that that they didn't have WAGES enough to pay, would it?

When Soros says that the banks are "basically insolvent," he's simply saying that the revenue stream has dried up.

Where's the revenue?

Banks Won't Pass On Benefits From The Rate Cuts

In Australia:

"Consumers and businesses are likely to see little of the 0.25per cent interest rate cut ordered by the Reserve Bank yesterday as banks protest they cannot afford to pass on the benefit."

Oh come on, guys! It wouldn't have anything to do with wages, would it? Could it be that you know that wages are too low to even pay back the loans? Could it be that you would be forced to admit that this "globalization" idea you supported doesn't work? Wouldn't have anything to do with that, would it?

Credit Card Rates Highest For Two Years Despite Rate Cuts

So even after rate cuts have been made, lending in all forms, including credit cards, remains tight in the United Kingdom:

"Credit card rates have reached their highest level since the credit crisis began despite interest rates falling to a historic 315-year low, figures show."

Interbank Lending Rate Falls... again

LIBOR, or the rate that banks charge one another for three month loans, fell once again. Additionally, RBI now wants banks to cut rates even more. Going by regular economic textbooks, there should be no reason as to why lending should not be going on, but this is not a regular economic situation. Something a little deeper, perhaps?

"Interbank lending rates affect the wider economy by determining the costs of loans to households and businesses. They had spiked higher since the start of the financial crisis, and have only been falling gradually as governments and central banks around the world announced a raft of measures to stimulate the global economy and financial sector."

Credit and Interdependence - An Editorial

This is not a recession or a depression. This is a long-term standard of living correction. For a long time, our true economy has been hidden from view by an unprecedented expansion of credit and now that the credit markets have frozen up, we’re left with exactly the economy that our wages say we deserve. Contrary to what Obama and his economic advisers say, we don’t need to “get the credit markets moving again.” We need to live within our means.

We might ask, “Well, how do you expect people to buy homes without credit?” But does a pile of wood, glass and concrete really cost $250,000? Also, should land values be determined by speculation? Does anyone really “own” land? If you didn’t pay your property taxes, to whom does ownership of the land revert back to? Do a man and his wife really need a large mansion while others sleep in a cardboard box? At what point does land usage and space economics play into our design of communities and towns? We really need to consider and reconsider some of the ideas of Henry George now more than ever.

“What about a car?” But do I really need a car? Why should we be living and working so far apart from one another? Why can’t we build communities in such a manner that everything we need is provided for within a mile? Why can’t we have groceries brought to us? Why can’t we bring the mountain to Mohammed? The automobile is a tax on the economy. For even after we were to develop a car that runs on saltwater, we still need to solve the problem of traffic congestion.

“What about a college education?” Public education should be fully funded, from pre-K to PhD. If someone wants to get a PhD, then they should be able to do so and money should not be an issue. If people still want a private education, then they should use their own money, with not one dime of taxpayer money being given to the private institutions.

“What about appliances?” Have you ever heard of this concept called “saving your money?” There’s even people who are willing to pay you interest just for the privilege of putting your money in their vault. Also, with the internet, there should be ways to develop community-based websites that help to connect people who have a need with people who can help them fulfill that need—like a community skill and resource inventory from which members of that community can draw upon.

Do we see a pattern emerging here? For every thing that one could use as an excuse to keep the credit markets moving, there’s an “outside of the box” alternative that can get what the consumer needed just as well.

Now you may be thinking, “Some of these alternatives are just too unrealistic. You can’t possibly expect such a radical change in our standard of living, can you?” All I can say in response to that is that if you don’t do this VOLUNTARILY, the economy will force you to do it INVOLUNTARILY. But, of course, you won’t believe me until you’re pushed into a corner that leaves you with no other choice. That’s human nature.

“But what magical force will force us into that corner?” You. You will be the source of your own predicament. Assuming that the country keeps its trade policies the same as they are today, the stagnancy in wages will continue. We used to have the wages we did not because there’s something inherently unique about manufacturing jobs that they warrant higher wages, but rather because of the efforts that organized labor have made in getting the wages that American manufacturing jobs have enjoyed. I dispute the notion that simply making something somehow adds value to the economy. It’s the good wages labor unions have fought long and hard for, that add value to the economy, not the mere fact that an entity is making something. Conceivably, if labor unions had worked as hard for restaurant and gas station employees, then we’d be talking about how important restaurant and gas station jobs are to the economy. We’d be saying that “serving customers inherently adds value to the economy.” But realistically, restaurant and gas station employees are easily replaceable—that is, it’s not skill-intensive enough to present any considerable degree of long-term job security.

When YOU, the consumer, always look for the cheapest deal, you also force economic entities to follow their competition, meaning the outsourcing of good-paying jobs. As long as you look for the cheapest deal, then you are eventually cutting into your own buying power.

It is this buying power that is the point of focus here. If you have lower wages, then in order to keep the same standard of living, you have to use credit. But now, the credit markets have frozen and I have a feeling that even if all bad debt were erased from the balance sheets of all lending institutions overnight and trillions were available for lending, the lending of yesterday would still never return simply because the banks realize what you now realize—that wages are the lifeblood of any economy, not credit.

We will simply have to redefine what “economy” means. This “modern” globalized economy is separating us from our true interdependent nature as human animals. We need to get in tune with that essence and structure society accordingly.

Currency Swapping Arrangement Announced by the Federal Reserve

"The arrangement would enable the Fed to then lend, if needed, to US financial institutions in the currencies offered by the four central banks a total amount equivalent to nearly 290 billion dollars, the Fed said in a statement."

I guess they think they can bounce around from currency to currency, whichever presents the best deal at a particular time. Additionally, Obama seemed to indicate to China that it was perfectly fine if they want to get their investment out of dollars and into a basket of currencies.

391% for a Payday Loan?

"A House subcommittee wants to legalize payday loans with interest rates of up to 391%. Lobbyists from the payday industry bought Congress' support by showering influential members, including Chairman Luiz Gutierrez, with campaign cash. The Congressman is now playing good cop, bad cop with the payday industry, which is pretending to oppose his generous gift of a bill."

The article is here.

Mayo Says Loan Losses Could Exceed Depression-Era Levels

Accoring to Mike Mayo, a prominent banking analyst, the loan losses as a percentage of total loans outstanding will be at around 3.5% by the end of 2010. At the peak of the Great Depression, the percentage was 3.4%.

Deflation Igniting Competitive Currency Devaluation

Ambrose Evans-Pritchard of the Telegraph is suggesting that the next step in the global financial crisis is upon us. Deflation is feeding into the desire upon the part of the national banks of the world to intentionally devalue their currencies. But the weak demand is being caused by cheap, stagnant and falling wages.

Demand is made up of two things...purchasing power and desire to buy the product or service. Desire to buy is still there. Purchasing power is where the problem is at. The credit markets have frozen up. The reason that people used credit to begin with was due to the fact that wages were too low. So the real independent variable in all of this is globalization.

This is why I'm urging people to stop paying on their loans. As long as they keep paying on the loans, the longer they keep the lie going and the longer that wages remain out of sync with costs. The economic expansion has been fueled by a credit expansion that cannot be sustained. We need to pull ourselves away from it. This is the only way we can stop the madness.

Estimated U.S. Taxpayer Cost For Bailout Jumps

This happens every time the government underwrites an industry without actually nationalizing it... They always come back for more or they underestimated the actual cost.

"U.S. congressional budget analysts have raised their estimate of the net cost to taxpayers for the government's financial rescue program to $356 billion, an increase of $167 billion from earlier estimates. The Congressional Budget Office had originally projected the $700 billion Troubled Asset Relief Program would cost taxpayers $189 billion. The additional cost, which applies to TARP spending for fiscal years 2009 and 2010, was included in the CBO's March projection of a $1.8 trillion deficit for fiscal 2009, which ends September 30."

Banks Owe More Than Consumers

According to this article and the accompanying charts, banks owe more than consumers as a percentage of GDP.

"The banks that made the loans proved to be much more willing to borrow than their customers, whether corporate or consumer. And that debt has not begun to recede, despite Wall Street bankruptcies and widespread efforts by financial firms to reduce their own debts."

And if you look at the chart provided on that page, you'll see how the bank debt has risen exponentially.

Bankruptcies on the rise!

NEW YORK TIMES - "An average of 5,945 bankruptcy petitions were filed each day in March, up 9 percent from February and up 38 percent compared with a year earlier, according to Mike Bickford, president of Automated Access to Court Electronic Records, a bankruptcy data and management company. In all, 130,793 people filed for bankruptcy in March."

Keep those bankruptcies coming! They'll get the point eventually.

Imagine what the number would be if student loans were allowed on filings.

A Loss of $50 Trillion in 2008

Here's a well-written article on the recent devaluation in world-wide wealth during 2008.

"The value of global financial assets including stocks, bonds and currencies probably fell by more than $50 trillion in 2008, equivalent to a year of world gross domestic product, according to an Asian Development Bank report issued last month."

Do you see what I'm saying when I say that this is not a recession in the traditional sense? This is merely a correction for living beyond our means. This has been a debt-based economy. I'd be willing to bet $50 trillion dollars that the $50 trillion was based on debt.

Real Estate Economics

NEW YORK— "Robert Knakal, chairman of real estate brokerage firm Massey Knakal, pinpointed Sep. 15, 2008 as the day the U.S. financial system went sour."

These guys just don't get it. They blow up the market and then when it goes back down, they turn around and ask for more lending. Don't they see the unsustainableness of a real estate-based economy? They really need to read some Henry George.

Jobless Rate Increases to 8.5%

The economy lost 663,000 jobs in March.

The jobless rate went from 8.1% to 8.5%.

The uniqueness of this downturn is found in the fact that the jobless numbers accelerate from month to month.

If the part-timers and discouraged seekers are totaled into the figure, it would be around 15.6%.

If you want to look at what the current unemployment rate looks like from a historical perspective, go here.

Loan Modifications Rising

Washington (AP) - "Among loan modifications made in the October-December quarter, about 37 percent resulted in a drop in payments of more than 10 percent, compared with about one-fourth in the first nine months of the year. Regulators saw that growth as a positive sign."

They make this money up out of thin air and then they get particular about lowering payments?

Delinquencies are up!

Bloomberg - "Delinquencies increased to 3.03 percent of accounts in the period from 2.63 percent in the third quarter, the Washington- based group said today in a statement. A composite index of eight types of consumer loans, including auto and property improvement, rose 11 percent to a record 3.22 percent, the highest since the ABA [American Bankers Association] began collecting the data in October 1974."

Keep throwing those bills in file 13! We CAN have a much better society than what the banks have provided. We need to come out of our Platonian caves and build a better world that is not based on war and greed, but education and science.