Friday, May 29, 2009

This is EXACTLY How I Feel

This morning, Krugman was talking about the inflation fear-mongering. I agree with him in that if there is going to be ANY inflation, it will only come about as a result of deficit spending at the federal level. But the banks are hoarding more than what Obama is doing in additional spending. So the hoarding negates any inflationary effect that the spending may have had. Where I disagree with Krugman is in his assertion that more government spending is going to "rescue" the American economy. The hoarding door can swing both ways and bank hoarding can also keep any positive effects from occurring. But eventually, unless we plan on making such expenditures a permanent feature of the economy, we simply MUST address the underlying issue...stagnant wages.

Either wages must come up or prices must come down. Conservatives want to give us lending and credit to make up for the difference between wages and prices and "liberals," or what I like to call neo-liberals, want to avoid the wage issue too and give us government spending. Where do they think the tax money comes from to pay for all of this spending? Doesn't it come from.... wages?

But I don't see wages going up any time soon...except maybe for the rich. No, the only thing I see are falling prices. There's no other way out but to deflate this overly-inflated economy. Home prices, car prices, college costs, luxury items at the mall...everything that was being purchased on time before this mess began must come down.

Paul Krugman Expresses My Opinion....somewhat

This Krugman article expresses my opinion very well, especially when it comes to the current fear-mongering over inflation. But instead of addressing the root cause, stagnant wages, he seems to imply that government spending can "rescue" us from flat income. Unless "liberals" plan on making these expenditures permanent, something MUST be done about stagnant wages.

Conservatives push credit in order to make up for stagnant wages and "liberals" push government spending--spending derived from tax money that is taken from, you guessed it...wages.

This is about wages. Period. Either prices have to come down or wages have to go up. Bottom line.

A Little Deeper

People seem convinced that a recovery is going to occur this year. But what is at the bottom of this assumption? The only bit of good news has been the stimulus package and we already know that the banks are hoarding about the same amount of money, so whatever effect that the stimulus could have will be canceled out by the hoarding of the banks.

Then, after the economy continues to weaken, they'll start to come to the realization that the problem is a little deeper than just frozen credit markets.

Gas Prices Rise Even While Demand Remains Weak

TIME - Storage tankers across the globe may be brimming with oil that no one is buying because of the global economic downturn, but the traditional laws of supply and demand don't always apply to oil prices. Drivers have faced rising prices at the gas pump in recent months, as investors and oil-producing countries hoard supplies in anticipation of a global economic recovery later this year.

GDP Falls By 5.7% in the First Quarter

WASHINGTON – The economy sank at a 5.7 percent pace in the first quarter as the brute force of the recession carried over into this year. However, many analysts believe activity isn't shrinking nearly as much now as the downturn flashes signs of letting up.

They're Even Trying To Undo Geithner's Latest Proposals!

(Reuters) - A group of banks and money managers plan to release a letter to the Federal Reserve Bank of New York and other U.S. and overseas regulators to help fend off some rules proposed by the Obama administration that seek to control trading in the derivatives market, the Wall Street Journal reported.

Thursday, May 28, 2009

PPIP is Less Appealing to the Banks Now

But prospective buyers and sellers have expressed reluctance to the FDIC about participating for fear the program's rules will change in a political atmosphere hostile to Wall Street. In addition, some banks that might have sold troubled loans into the program earlier in the year have become less eager as they regained a sense of stability.

This is exactly why I didn't like the idea of giving money to the banks anyway. Not only do they appear to be ungrateful, but they're convinced that the worst is over.

It's only just beginning.

Wednesday, May 27, 2009

Case-Shiller Shows a Further Decline in Prices

The Composite-10 index shows an18.6% decline in prices over the last year, while the Composite-20 registered a 18.7% drop in that time. Both figures reflect numbers using the non seasonally-adjusted data series. Two markets, Denver and Charlotte, saw price upticks from February to March. This is encouraging as no market in the Composite-20 has seen a price uptick in any month since Lehman went bust in late September.

Monday, May 25, 2009

Lending Depends on Wages

LONDON (Reuters) - The Royal Bank of Scotland and Lloyds Banking Group have told the government they may miss lending targets set as a condition for receiving more state support, The Sunday Telegraph reported.

If the wages aren't there to pay for the loans and the loans can't be sold to a third party investment entity, what else can we expect except a reluctance to lend? We'll see a sort of "official" recognition of this reality in America soon. But what the hell is so wrong with admitting this?

No Job, No Home

More people are losing their homes as job losses mount.

Friday, May 22, 2009

Gold and Oil Continue Their Rally

The dollar continues its fall and commodities rise as a result. This may very well be a contradictory economy...on the one hand, we have a weakness in demand and on the other hand, commodity-based inflation driven by the federal debt. But then again, oil came down off of its high of nearly $150 a barrel last summer as a result of the credit crunch and the corresponding drop in consumer purchasing power, so I don't expect whatever inflation may come along to last that long.

Banks Will Still Benefit at Taxpayer's Expense Even After Paying Back Their Loans

May 22 (Bloomberg) -- Banks negotiating to reclaim stock warrants they granted in return for Troubled Asset Relief Program money may shortchange taxpayers by almost $10 billion if Treasury Secretary Timothy Geithner’s first sale sets the pace, data compiled by Bloomberg show.

FDIC is Running Out of Money

May 22 (Bloomberg) -- U.S. banks will pay an emergency fee based on their assets to rebuild the Federal Deposit Insurance Corp.’s reserves, putting a greater burden on large banks to replenish the fund amid the fastest pace of failures since 1994.

Banks Are STILL Not Lending

Bank lending to businesses and home-buyers remains weak and, on one measure, has fizzled out since the pickup in March, the Bank of England warned yesterday. It said that lending to large and small companies was weak, while spreads – the cost of borrowing above base rate – and fees continued to go up.

And as long as banks continue to not lend, demand will continue to fall. We are headed for a deflationary spiral, if we're not already in one. Banks won't lend because they see how truly stagnant our wages are and wages won't go up because consumers want the cheapest product.

We may have some commodity-based inflation due to a weaker dollar driven by government debt, but even mighty oil succumbed to weak demand after last summer.

Wednesday, May 20, 2009

The Foxes are Watching the Henhouse

The very same lenders who had paid huge fines for predatory lending are the ones receiving bailout funds.

Are Banks Really Able to Pay Back the Loans?

Washington, May 17 (DPA) US banks declaring their readiness to pay back government loans would usually be considered a good sign, but the depth of the global financial crisis has left some experts wary that such actions could stall the country's possible turnaround.

Tuesday, May 19, 2009


Why don’t we have income? No job.

Why don’t we have a job? Slowdown in consumer spending.

Why is there a slowdown in consumer spending? Reduction of buying power.

Why is there a reduction in buying power? The credit squeeze.

Why did we need credit anyway? Inflation-adjusted wages have been stagnant since the 1970’s.

Why are wages stagnant? Producers have sought to keep labor costs low, shipping jobs overseas and cutting prices.

Why is there so much pressure on producers to keep costs low? The consumer wants the cheapest product because the consumer is being squeezed by….STAGNANT WAGES!

Well why are wages stagnant? Cost pressures on producers. Why cost pressures? Stagnant wages… And down the spiral we go.

Everyone keeps asking, “Where’s the bottom?” There is no bottom. This is a fundamental restructuring of the economy. People are going to have to rely on one another more. Community is definitely part of the solution. Be thankful we don’t have to live like people in third world nations, where everything is shared.

So Broke We Can't Afford Inflation

I'm on the other end of the inflation versus deflation debate. I'm with Mish who maintains that as long as banks don't do any lending, and hoard all of the newly-created money supply, then it's just like printing a bunch of money and then burying it in your back yard. That is, Mish and I believe that the only way that inflation is going to happen is through the ever-increasing federal deficit, which could be exacerbated by falling tax revenues due to rising unemployment. That would create commodity-based inflation through a weaker dollar made by the requirement of higher interest payments because of the federal debt. Commodity-based inflation plus weak demand could be our future. High prices ON TOP OF unemployment. But as you recall, the weakness in demand is what brought mighty oil down from almost $150 a barrel to what it is now. What makes us think that that weakness in demand has changed? In short, we could be so broke, we can't even afford the inflation that we would normally get. :)

Monday, May 18, 2009

FASB Tightens Off-Balance Sheet Rules Concerning Loans

WASHINGTON (AP) — The board that sets U.S. accounting standards on Monday moved to end companies' use of a device that allowed them to park hundreds of billions of dollars in loans off their balance sheets without capital cushions and has been blamed for helping stoke banks' losses in the housing boom.

Interbank Lending Rates Fall Again

Once again, the interbank lending rates have fallen again and once again, the problem is not the cost of lending...the problem is that banks are afraid that they won't be able to get their money back. Also, banks can't find investors to buy the debt for exactly the same reason banks don't want to lend--stagnant wages.

Sunday, May 17, 2009

Commercial Loans Remain Elusive

"...businesses of all kinds continue to struggle to get bank loans despite the hundreds of billions of taxpayer dollars the government has poured into banks to spur more commercial lending."

Wait a minute...wasn't I reading something about how many business loans were being made?

Saturday, May 16, 2009

At what point?

At what point will people finally stop paying on their debt? The Titanic is sinking. We're headed for a world where a credit rating is irrelevant. Don't people see this? Think of all those things that you think you need credit for--a house, a car, a college education and luxury items at the shopping mall and ask yourself, is there any other way that you can get these items without credit?

A house could easily be replaced by a rented apartment or a mobile home that you could save money for. They could say that people who don't pay their bills on time would find it hard to find an apartment. But as long as I have money coming in from some kind of a job, why should a landlady care if she's looking for any tenants she can get?

What's wrong with moving closer to work, walking, a bicycle or public transportation?

I happen to think that I shouldn't have to pay for a college education. I think that it should be paid for with tax dollars.

And do you REALLY need to buy luxury items at the shopping mall?

So you see....we don't need credit to survive. All of this credit was introduced into the economy as a means to help facilitate globalization. The long credit-fueled consumer binge in the United States has helped to give billions of jobs to third world countries, but it has also perpetuated the stagnant wages that has existed in the American economy since the 1970's. We now have people in Walmart making low wages helping to sell items that are made by people...making low wages. You only get what you give. This is the future.

So stop worrying about the fine china. The Titanic is sinking and it's only a matter of time before the rumors are confirmed.

Stop trying to save your credit record because we're headed for a world where a credit rating is irrelevant. THAT is why I created this get you, the consumer-citizen, to understand that.

Wednesday, May 13, 2009

No More Triple A?

Moody's is threatening to take America's triple A rating away if it doesn't do something soon about its debt.

Retail Sales Down in April

In a further sign of weak demand, retail sales were down by 0.4% in April. Deflation is still lurking over the edge, but if the dollar continues its current trend, fueled by record federal deficits, this could be a contradictory combination of weak demand and commodity-based inflation.

Tuesday, May 12, 2009

Bank of America Scrambles to Find Capital

Bank of America and other big banks sought after the required capital that regulators say is needed to provide for cushion in case of a worsening recession.

Advanta to Shut Down

Some small businesses will see another source of credit dry up soon: Advanta Corp., one of the biggest credit card providers to the small-business market via Advanta Bank, announced late Monday that it would shut down all accounts to future use on June 10.

Monday, May 11, 2009

China Slips Deeper into Deflation

Deflation would really be the best that could happen to the United States economy and maybe for the rest of the world as well. If one needs further evidence of the possibility of deflation, they need not go any further than China.

Maybe China going into deflation isn't really anything to worry about being that China was doing 5 to 6 percent annual growth anyway, but it certainly confirms a trend that will be reinforced when the PPI and CPI come out near the end of this week.

Maybe Banks Shouldn't Have Given Out All Those Credit Cards?

Banks are bracing for the next big card write-offs.

Oh well!

Banks Headed for Extinction

Here is a piece on CNBC daring to ask the question of whether "too big to fail" is morphing into "too big to exist."

China's Lending Slows

The spike in lending by Chinese banks cooled in April, but an official for JP Morgan said that the slowdown in lending is simply "the natural tendency of banks to front-load new loans at the beginning of the year."

Friday, May 8, 2009

The Total Amount of Option ARMs and Alt-As

In this interview with William Black, he tells them that the total amount of foreclosures that will occur will be a lot more than what the government and banks are saying will occur:

The professor and former financial regulator foresees another wave of foreclosures and future bank losses of more than $2.5 trillion vs. the government's $599 billion estimate.

In the 60 Minutes video on the right, Whitney Tilson says about $1 trillion in Alt-As and $500 billion in Option ARMs. If the government "tested" the banks on the assumption of a much lower total amount of Option ARMs and Alt-As than what's actually out there, then how reliable can this stress test be?

Comparing This Recession With Others

Here's an interesting look at this recession compared to others. Thanks to Calculated Risk!

Tuesday, May 5, 2009

Lending Credibility?

May 5 (Bloomberg) -- The Federal Reserve plans to deliver results of stress tests on U.S. banks to executives today that may show about 10 companies need additional capital to weather a deeper recession, people familiar with the matter said.

Monday, May 4, 2009

Orders Dwindles At Their Fastest Pace

Manufacturers are seeing orders and output dwindle at their fastest pace for 20 years, the CBI business group has warned.

The End of Profit

People just don't get it.

No matter what it is that you do, there's always someone who can do it for cheaper, better and faster. The American economy was shielded from this reality for a long time, but not any longer. As a result of this, we've experienced a downward pressure on wages and revenue. This has, in turn, increased the disproportionate use of credit.

What part of this do we not understand?

Japan Edges Back Into Deflation

Tokyo, May 1 - Japna has edged back into deflation, less than two years after it last escaped it, and joblessness is rising at a record rate, adding to the strains for the Japanese economy even as hard-hit manufacturers shows signs of stabilising. Analysts expect deflation to accelerate to a record rate in coming months as the worst global recession in 60 years forces companies to cut prices, on top of sharp falls in commodity prices.

And as long as the banks continue to tighten lending, deflation will remain a very big threat in this country.

US House Looking Into The Causes of the Crisis

In addition to various post offices being renamed (including one in New York for Geraldine Ferraro) and resolutions recognizing Cinco de Mayo and the collegiate men's national champion North Carolina Tar Heels, the U.S. House this week will take up the more serious matters of mortgage reform/anti-predatory lending, a fraud enforcement act and potentially the establishment of a commission looking into the causes of the financial crisis.

TIgher Standards on Residential Lending

Washington, May 4 - A smaller fraction of banks reported having tightened their business lending standards over the past three months, but more domestic banks reported having tightened standards on residential mortgages, a Federal Reserve survey reported today.

Are FHA Loans the New Subprime?

Even as the government tries to clean up after the housing excesses of the past few years, The Wall Street Journal opines (subscription required) that it's also sowing the seeds of a new housing bust with Federal Housing Administration loans.

More Loan Losses Expected By Those Who Should Expect Them

May 4 (Bloomberg) -- Most U.S. banks expect loan delinquencies and losses to increase this year, a Federal Reserve report showed today before this week’s release of stress tests of the nation’s 19 largest lenders.

Saturday, May 2, 2009

Democrats Who Voted AGAINST the Foreclosure Bill

April 30, the Senate shot down a bill that would have given consumers some foreclosure relief. The bill was supported by Obama. The vote was 45 Yays and 51 Nays. We know how the Republicans were going to vote, but Democrats who voted against the bill are not Democrats. Here are their names:

Baucus of Montana
Bennet of Colorado
Byrd of West Virginia
Carper of Delaware
Dorgan of North Dakota
Johnson of South Dakota
Landrieu of Louisiana
Lincoln of Arkansas
Nelson of Nebraska
Pryor of Arkansas
Specter of Pennsylvania
Tester of Montana

Total Student Loans Outstanding

Paying for college is a major expense, and according to the US Department of Education, total outstanding federal student loans is $556 billion. According to the College Board, federal loans account for 77% of all education loans.