Stop Paying On Your Loans

The unemployment rate is STILL fairly high

2011-05-20T03:58:00.000-07:00

What did I tell you back in 2009? Didn't I say that we could expect a new normal of around 10%? This is because a large part of the economy was being supported by unsustainable levels of debt and now that the debt has dried, we're getting the economy that we so richly deserve.

Expect this to continue as the economy continues to go through a long process of finding equilibrium between wages and costs. Deflation must still occur because wages are not going up.

If you're going to replace a good deal of where you get manufactured goods with a country that has much lower wages, then your standard of living must follow downward towards that of the supplying country--in this case, China.

I may end up teaching English in China next year. I don't know. I'll have to see how things pan out for me here in Saudi Arabia.

Chinese-American Currency?

2010-12-02T15:46:00.000-08:00

I'm beginning to wonder if the best thing that could possibly happen at this point would be a single currency between China and the United States.

In today's world, it's not just your business versus my business. It's your supply chain versus my supply chain.

If it's more efficient to have a common currency with China, then the only question left is do we want to experience the pain over a long period of time or do we want to do it now and get it over with?

Ultimately, a currency is not just a stock of ownership in a particular economy. It is also a reflection of the quality of supply chain mechanisms associated with a particular economy.

Keeping an Eye on Treasury Yields

2010-09-13T13:52:00.000-07:00

Been a long time since I posted.

I'm glad it's still up.

That was too much work to put up and some of my best writing is in this blog.

But anyway, I've concluded that the only way things can get worse is for the treasury yields to rise.

Stop Paying On Your Student Loans!!

2009-09-30T14:03:00.000-07:00

It is time to make student loans dischargeable again.

There are several arguments that can be made for the ability to discharge student debt in a bankruptcy filing, but I believe that the strongest argument has to do with the economy in general. We are looking at an economy in which “full employment,” the rate of unemployment which most economists would consider to be normal, will go from four or five percent to around ten percent. We are looking at an economy in which credit is harder and harder to get. We are looking at minimum wage planet. How am I supposed to pay off $100,000 in student debt with a job that only pays $9 per hour?

The abundant availability of credit has kept this retail-based economy that we call “America” from feeling like a third-world economy has dried up. All that this huge expansion of credit has done is postpone the inevitable and the inevitable is occurring right before our very eyes. It has served as sort of a pillow between the harsh reality of globalization and what was the American Dream. Almost overnight, the purchasing power of the American consumer has been significantly limited and yet the banks continue to act as if we can easily pay on loans that were made before the collapse with the same inflation-adjusted stagnant wages that we’ve had since 1975.

It is time to stop the madness and live within our means. It is time for the former students who are currently paying on their loans to stop making payments. If I do it all by myself, I’ll continue to be in default, but if we all do it, then that’s a revolution.

Some may say, “Well, if you do that, then your credit will be damaged,” to which I say, “Who needs credit?”

Houses can be rented.

A huge investment in public transportation, including high-speed rail, and the designing of walkable communities can significantly reduce the need for the automobile.

All levels of education, from pre-K to PhD should be publicly-financed. And when the government begins to address Obama’s third policy initiative of education, we should all stand up and demand it.

With housing, transportation and education taken care of, what does the consumer need credit for? Do you REALLY need those shiny trinkets and fashionable clothes down at the mall? Then, do what others who are not able to get the credit you have do…save your money for it!

There is currently around $600 billion in outstanding student loans and right now, they have us enslaved by having us pay for something that should be considered a human right…the right to better oneself. But when we act together, that $600 billion becomes our weapon, not theirs.

Stop paying on your student loans until the government changes the bankruptcy laws…even if it means bringing the whole economy down with us.

Reinforcement has arrived!!!

2009-09-14T10:29:00.000-07:00

GO ANN MINCH!!!

Thanks to this woman, for having the guts to get on YouTube and take the Bank of America on!

We don't have to take this. The banks make this money out of thin air. They don't have what they lend. It's time to get that changed. It's time to live within our means.

They're FINALLY getting it!!!

2009-08-28T12:42:00.000-07:00

I think they're finally beginning to see the connection between the employee and the consumer....

WASHINGTON – Household income in the U.S. is essentially stagnant, raising doubts about whether consumers already hurt by job losses can sustain an economic recovery.

A Poor Man's Debit Card

2009-07-31T18:55:00.000-07:00

Recently, I purchased a debit card from Walgreen's with the hope of not having to open a bank account. I wanted something I could put my money on that would be universally-accepted as a means of exchange.

I was amazed at how much it cost to buy a piece of plastic with embossed numbers--about ten dollars. But then I thought, "Well they gotta pay their employees and carry out the system effectively." So I didn't think too much more of that.

Then they want to hit you with a monthy "maintenance" fee. I guess they figure they need to account for all the work that their computers do when they're flashing numbers between one another? But the most unforgiving of these fees is the fee I have to pay EACH AND EVERY TIME I put money on the card. There's no redeeming economic value that is captured with such a fee besides out and out greed.

What I propose is the creation of a "poor man's card." This card would be a store of value, universally-accepted and free of any unnecessary fees. It would be issued by a nonprofit organization that would work in conjunction with government and retail entities, ensuring compliance with all pertinent laws and contracting fee agreements with the major merchants. Smaller businesses would certainly be welcome to join, but in the initial implementation, a goal of securing such contracts with the major merchants would be advisable in terms of marketing the card and getting the consuming public familar with the card.

The banks would not like this because it would take a lot of their low-income customers away, but low-income people have only a need for a store of value and universality.

Keeping my eye on the employment picture

2009-06-08T13:59:00.000-07:00

The reason I haven't been posting is because they've won, or rather they THINK they have.

The bottom line is, "Can you produce enough jobs for the masses to sustain this lie?"

Everyone's thinking that the job losses are slowing. I'm not convinced. No new lending has occurred.

We'll see when next month's jobs report comes out. But we can also get some indication in the weekly report for initial claims for unemployment insurance set to come out this coming Thursday.

And if you think lending is going to save the day, think again

2009-06-03T13:53:00.001-07:00

Check this graph out over at Econbrowser. It really puts to rest any possibility of a substantial increase in lending any time soon.

The Big Picture

2009-06-03T11:42:00.000-07:00

Every once in a while, the powers that be manage to get people to take their eyes off the ball....including people like me. That's when, in my rainy day walk to the library today, I retrace the logical steps I made in the conclusions that I have...outloud...with my lips moving...making the driverbys think I'm crazy.

First, the housing market became saturated. They had finally reached a point where they couldn't sell anymore houses.

When word got out that they couldn't sell any more houses, banks couldn't package any more mortgages to investors.

But by then, investors didn't want the loans because the homebuyers weren't paying on the loans anyway. They were merely paying the interest.

When investors didn't invest, banks cut back on all kinds of credit, not just for homes.

Well, why did we need so much credit in the first place? Wasn't it because of stagnant wages caused by global competition? Wasn't it due to the fact that there was nothing that we could do that couldn't be done by someone else on the planet for cheaper, better and faster?

So, when the credit crunch happened at a time when we were experiencing stagnant wages, what is the only possible result?

Weak demand.

A very substantial portion of the economy was based on debt and when that credit dried up, the current price structure has no basis.

Obama and the Federal Reserve are trying to make up for that difference between wages and reality with stimulus packages and increasing the money supply. True, federal spending would normally have an effect on the economy in terms of inflation, but the banks are hoarding more than the amount that the government is spending. So they cancel each other out and the economy continues to fall towards its real value--real wages minus the credit. The hope is that the federal spending will have a snowball effect on the economy. This may be the hope driving the recent stock market rally.

More currently, however, there appears to be an increase in the price of oil brought on by a weaker dollar, like it did last year. The weaker dollar appears to be as a result of federal deficit spending. But wasn't mighty oil brought down last sumer by ....weak demand? What makes us think that demand has increased? Has there been an increase in wages? No. Has there been any substantial new lending? No. Demand has not changed.

I don't expect the oil rally to go on much longer....even in the face of deficits. The new deficit spending is not the independent variable in all of this. Weak demand isn't the independent variable. The credit crunch isn't the independent variable. What's the problem? Stagnant wages.

Either we sit down with other countries and tell them that they're not going to be able to sell their products in our country unless they have similar wages or we must accept a lower standard of living. That's the bottom line.

ONLY $11.5 Billion?

2009-06-02T15:57:00.000-07:00

WASHINGTON (AP) — Investors on Tuesday showed a bigger appetite for participating in a government program intended to boost the availability of loans to consumers and small businesses at cheaper rates. Investors requested $11.5 billion worth of loans, the Federal Reserve Bank of New York said. That tally was up from $10.6 billion requested last month and the largest amount since the program started in March.

Is this multitrillion dollar economy, $11.5 billion is going to save it?

The Expected Unemployment Numbers

2009-06-01T10:50:00.000-07:00

Bloomberg is expecting a range of 9.1% to 9.4% for the reported rate coming up this Friday.

Euro-Zone Slipping Further Into Deflation

2009-06-01T10:42:00.001-07:00

The Euro zone annual inflation rate in the 16-country region fell to 0% in May from April’s 0.6%, according to Euro-stat. Economists said inflation would turn negative in June,—deflation—further complicating the task of the European Central Bank as it attempts to combat the worst economic downturn for half a century.

Euro-Zone Slipping Further Into Deflation

2009-06-01T10:42:00.000-07:00

Banking Crisis to Last Until 2013?

2009-06-01T10:39:00.000-07:00

NEW YORK (Reuters) - A day after saying big U.S. banks probably needed to raise only one-fourth the capital demanded by the government, Standard & Poor's said the nation's banking crisis has "merely entered a new phase" and might not end before 2013.

Commercial Lending Falls More Than Consumer Lending

2009-06-01T10:33:00.000-07:00

Washington, Jun 01 2009 June 1 - The Treasury Department reported today that total lending among US banks receiving Capital Purchase Program funds fell 0.8% in March, with commercial lending declining more than twice as fast as consumer lending.

Interbank Lending Rate at a New Low

2009-06-01T09:55:00.000-07:00

The cost of three-month dollar loans fell to another record low Monday as stock markets continued to rally around the world amid renewed hopes that the worst of the global recession has passed.

This is EXACTLY How I Feel

2009-05-29T09:14:00.000-07:00

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

2009-05-29T08:33:00.000-07:00

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

2009-05-29T07:33:00.000-07:00

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

2009-05-29T07:30:00.001-07:00

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

2009-05-29T07:27:00.000-07:00

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!

2009-05-29T07:11:00.000-07:00

(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.

PPIP is Less Appealing to the Banks Now

2009-05-28T12:35:00.000-07:00

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.

Case-Shiller Shows a Further Decline in Prices

2009-05-27T15:12:00.000-07:00

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.

Lending Depends on Wages

2009-05-25T08:31:00.000-07:00

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

2009-05-25T08:22:00.000-07:00

More people are losing their homes as job losses mount.

Gold and Oil Continue Their Rally

2009-05-22T13:23:00.000-07:00

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

2009-05-22T13:18:00.000-07:00

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

2009-05-22T13:12:00.000-07:00

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

2009-05-22T12:59:00.000-07:00

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.

The Foxes are Watching the Henhouse

2009-05-20T05:33:00.000-07:00

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?

2009-05-20T05:16:00.000-07:00

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.

Why?

2009-05-19T15:12:00.001-07:00

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

2009-05-19T09:13:00.000-07:00

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. :)

FASB Tightens Off-Balance Sheet Rules Concerning Loans

2009-05-18T12:03:00.001-07:00

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

2009-05-18T11:54:00.000-07:00

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.

Commercial Loans Remain Elusive

2009-05-17T10:35:00.000-07:00

"...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?

At what point?

2009-05-16T07:13:00.000-07:00

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 blog...to get you, the consumer-citizen, to understand that.

No More Triple A?

2009-05-13T13:16:00.000-07:00

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

2009-05-13T10:05:00.000-07:00

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.

Bank of America Scrambles to Find Capital

2009-05-12T15:33:00.000-07:00

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

2009-05-12T11:54:00.000-07:00

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.

China Slips Deeper into Deflation

2009-05-11T05:15:00.000-07:00

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?

2009-05-11T05:11:00.001-07:00

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

Oh well!

Banks Headed for Extinction

2009-05-11T05:06:00.000-07:00

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

2009-05-11T04:58:00.000-07:00

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."

The Total Amount of Option ARMs and Alt-As

2009-05-08T11:39:00.000-07:00

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

2009-05-08T10:06:00.000-07:00

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

Lending Credibility?

2009-05-05T08:12:00.000-07:00

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.

Orders Dwindles At Their Fastest Pace

2009-05-04T16:55:00.000-07:00

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

The End of Profit

2009-05-04T14:41:00.000-07:00

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

2009-05-04T14:37:00.000-07:00

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

2009-05-04T14:30:00.001-07:00

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

2009-05-04T14:26:00.000-07:00

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?

2009-05-04T14:22:00.000-07:00

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

2009-05-04T14:19:00.000-07:00

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.

Democrats Who Voted AGAINST the Foreclosure Bill

2009-05-02T11:32:00.000-07:00

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

2009-05-02T11:22:00.000-07:00

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.

Let's Hear it for the Democrats!

2009-04-30T14:45:00.000-07:00

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

2009-04-30T14:32:00.000-07:00

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

2009-04-29T10:03:00.000-07:00

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

2009-04-29T08:14:00.000-07:00

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

2009-04-29T08:06:00.000-07:00

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

2009-04-27T08:03:00.000-07:00

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

2009-04-27T05:17:00.000-07:00

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

2009-04-26T14:42:00.000-07:00

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

2009-04-26T14:39:00.000-07:00

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

2009-04-26T14:33:00.000-07:00

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

2009-04-25T07:29:00.000-07:00

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

2009-04-24T09:13:00.000-07:00

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

2009-04-23T15:28:00.000-07:00

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

2009-04-23T08:48:00.000-07:00

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

2009-04-23T07:01:00.000-07:00

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

2009-04-22T17:19:00.000-07:00

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

2009-04-22T15:01:00.001-07:00

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

2009-04-22T07:31:00.000-07:00

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

2009-04-21T13:32:00.001-07:00

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!

2009-04-21T12:40:00.001-07:00

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

2009-04-21T11:23:00.000-07:00

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

2009-04-21T10:26:00.000-07:00

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

2009-04-21T09:03:00.001-07:00

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!

2009-04-21T08:37:00.000-07:00

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

2009-04-21T07:47:00.000-07:00

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

2009-04-20T16:06:00.000-07:00

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

2009-04-19T17:55:00.000-07:00

They have carts made specifically for the homeless.

Are you ready for this?

Stagnant Wages and Hoarded Funds

2009-04-19T16:15:00.000-07:00

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

2009-04-19T15:52:00.000-07:00

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

2009-04-19T15:38:00.000-07:00

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

2009-04-19T15:14:00.000-07:00

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

2009-04-18T13:48:00.000-07:00

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

2009-04-18T09:52:00.000-07:00

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

2009-04-17T12:56:00.000-07:00

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

2009-04-17T07:31:00.000-07:00

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

2009-04-16T13:04:00.000-07:00

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

2009-04-15T16:27:00.001-07:00

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

2009-04-15T16:17:00.001-07:00

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

2009-04-15T12:01:00.001-07:00

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"

2009-04-15T09:50:00.000-07:00

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

2009-04-15T09:05:00.000-07:00

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.