Middle Class Debt and Economic Outrage, Solutions, and The Financial Markets
Politics / Credit Crisis 2009 Dec 11, 2009 - 12:29 PM GMTBy: DeepCaster_LLC
“We don’t need The Fed, The Fed is making our lives miserable…”
“Audit The Fed, then Abolish It” Jim Rogers, Fame Investor, Tech Ticker 12/10/09
"What's so frustrating is you have an administration that is arguing such a populist (ideology) and not appreciating all the unintended consequences that the consumer and small businesses have far less credit," Whitney said.
"You're going to get a situation where you revert from a consumer standpoint, where those that had bank accounts for the first time, credit cards for the first time, homes for the first time get kicked out of the system and then fall prey to real predatory lenders."
Consumers account for 70 percent of the economy, and they’re in trouble, Whitney says.
"I have 100 percent conviction that the consumer is not getting any better.”
Meredith Whitney: “U.S. Out of Ways to Boost Economy” Dan Weil, Newsmax.com, December 8, 2009
For sure, Small Business and the Middle Class consumer have been helped very little, if at all, by the Bailouts and Stimuli.
And neither have the small and medium sized U.S. Banks, over a hundred of which have gone out of business this year. Only the Mega-Banks are still fat(er) and happy.
But Small Businesses, the main Jobs Creators, generally cannot get credit on reasonable terms.
And consumers, 70% of the U.S. Economy, can neither get credit on reasonable terms, nor get job security. Indeed, Real Unemployment (as distinguished from the gimmicked Official figures) is near record highs, at about 21% (see below).
Yet small businesses and consumers face certain Economic and Financial Realities which are increasingly burdensome, and thus are generating increasing Outrage.
This Middle Class Outrage will likely generate an Upheaval of Social Change, Chaos in the Markets, and Profit Opportunities for the Savvy, as we shall describe.
Consider first:
“Never before has the United States had so many citizens with so little means, little to no income, and heavy debt. Debt and costs of living have now shackled US citizens just as it has shackled people throughout the world. The economic hit men have now hit the US as well and millions of US citizens are now effectively sentenced to a slow death. Economic Imperial blowback has hit the mainland… “The inequality of wealth in the United States is soaring to an unprecedented level…the gap between the top 1% and the remaining 99% of the US population has grown to a record high…
“As the stock market went over the 10,000 mark and just surged to a 13-month high, the three big banks that took taxpayer money and benefited the most from the govt bailout have just set a new global economic record by issuing $30 billion in annual bonuses this year, “up 60 percent from last year.” Bloomberg reported: ‘Goldman Sachs, the most profitable securities firm in Wall Street history, had a record profit in the first nine months of this year and set aside $16.7 billion for compensation expenses.’…
“The profits of the economic elite are now underwritten by taxpayers with $23.7 trillion worth of national wealth. As the looting is occurring at the top, the US middle class is just beginning to collapse…
“Workers between the ages of 55 to 60, who have worked for 20 to 29 years, have lost an average of 25% off their 401k…
“Home foreclosure filings hit a record high in the third quarter (of 2009)… They were the worst three months of all time…3.4 million homes are expected to enter foreclosure by year’s end, with some experts estimating that next year will be even worse…
“25 million people are unemployed or underemployed. Job seekers now outnumber openings six to one, the worst ratio since the govt began tracking. As this ratio continues to grow, it will lead to a further reduction in wages…
“As the few elite banks thrive, there have been 123 US bank failures thus far this year…
“As bankruptcies surge across the board, 10 US states are on the verge of bankruptcy…
“This is occurring at a time when the federal budget deficit for the fiscal year that just ended was $1.4 trillion…In total, US public debt topped $12 trillion for the first time in history…
“Although the govt’s official figure tries to low-ball the number, 47.4 million US citizens live in poverty, and the US poverty rate is the highest in the industrialized world…
“One out of every two children in the United States of America will need to use a food stamp… to EAT!...
“In 2008, according to the Census Bureau, the number of US citizens without health care grew to a record 46.3 million…
The demand for guns and ammunition has hit a record high and the gun industry cannot produce enough bullets to keep up with orders. Americans are arming themselves to the teeth…
“In the past year, 100 new armed militia groups have been formed, as militia members have doubled in numbers…
…Millions upon millions of Americans are poor, broke, struggling, starving, desperate… and armed. We are sitting on a powder keg!”
“The economic elite have launched an attack on the US public and society is unraveling at an increased rate.” David DeGraw, AmpedStatus.com, November 21, 2009
“Obama recently approved a 2% salary increase for all federal employees effective January 1, 2010. Members of the executive, legislative and judicial branch are due for an automatic pay increase in January as well. All this on the backs of seniors who will not incur any COLA increases for several years.
For the first time in history, the Congress will not allow an increase in the social security COLA (cost of living adjustment).
In fact, The Henry J. Kaiser Family Foundation predicts there may not be any COLA for the next three years.
However, the per person monthly Medicare insurance premium will be increased from the 2009 premium of $96.40 to $104.20 in 2010 and to $ 120.20 for the year 2011.
Send this to all seniors that you know. Remind them to not vote for the incumbent senators who supported this measure.”
-- An Outraged Senior
Moreover, Auto loan defaults, and commercial loan delinquencies are rising, and mortgage delinquencies have hit an all-time high.
Actually, in some respects the situation is worse than the aforementioned items indicate.
Consider, the following Real Numbers from Shadowstats.com which calculates the Real Numbers the way they were calculated in the 1980’s and 1990’s before Official Data Manipulation began in earnest.
Official Numbers vs. Real Numbers
Annual Consumer Price Inflation reported November 18, 2009 -0.18% 7.13% (annualized November Rate)
U.S. Unemployment reported December 4, 2009 10% 21.8%
U.S. GDP Annual Growth/Decline reported November 24, 2009 -2.51% -5.71%
Moreover, the Evidence is overwhelming not only that the private for-profit Fed’s loose Monetary and Credit policies of recent years are The Primary Cause of the Financial and Economic Malaise but also that The Fed leads a Cartel* of Mega Bankers and their Allies in regular overt and covert Market Manipulations.
*We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2008 Letter containing a summary overview of Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” and Deepcaster’s July, 2009 Letter entitled "A Strategy For Profiting From The Cartel’s Dark Interventions & Evolving Techniques - II" in the “Latest Letter” Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.”
Indeed, between June 2008, and November, 2008 when Investors around the world were losing Trillions in the Equities Market Crash of the Fall, 2008, the gross Market Value of the Mega-Financial Institutions OTC Derivatives increased by Nearly $12 Trillion. (Moreover, there is evidence that certain of the beneficiaries of these gains are shareholders of the private for-profit Fed.)
For more details see the Central Bankers Bank (the Bank for International Settlements) report at www.big.org, path: Statistics>Derivatives>Table 19. And see Deepcaster’s article “Opportunities & Threats in Derivatives Shocker” (05/29/2009) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.
But there is a Solution to the problems of the U.S. Middle Class and to Investors around the world who have been victims of Cartel policies. Consider…
We are in an Apparent Deflationary Environment (e.g. energy prices have dropped dramatically and the Equities Markets and other “Assets” have lost Trillions in Value). But this Apparent Deflationary Environment masks an underlying Hyperinflationary Reality - - the Trillions in Fiat Currencies which are being printed (plus trillions more in borrowings) in a futile (in the long term) Attempt to stimulate the Economy are greater than the Trillions lost in Equities Markets Takedowns and other Asset Devaluations. (This explains why Shadowstats still shows real CPI to be over 7%) Thus, The Basic Long Term Trend is Hyperinflationary Economic Decline - - the worst of both Worlds. We expect $20 hamburgers in three to four years.
Indeed, astute analysts Peter Brimelow and Ed Rubenstein agree that inflation will likely “win out in the end.”
They rightly base their conclusion regarding the declining purchasing power of the U.S. Dollar on:
“…this 20th-century experience, the value of the dollar has fallen precipitously, to a recent 6 cents. By an astonishing coincidence, the decisive move began about the same time as the Federal Reserve did.” “Will Inflation Emerge Victorious? Commentary: Deflation not impossible, but history says it won’t win.” Peter Brimelow & Edwin S. Rubenstein, February 26, 2009
For a fuller discussion of why Hyperinflation will likely win out in the end see Deepcaster’s “Profit Opportunities from Econo-Reality Therapy” in the “Articles by Deepcaster” Cache at www.deepcaster.com
And though Brimelow and Rubenstein do not explicitly make a causal connection when they show that inflation began “when the Federal Reserve did”, Deepcaster does.
The private for-profit U.S. Federal Reserve is the Main Culprit behind our current crises.
See our January 2008 letter “Market Intervention, Date Manipulations, Increasing Risks, the Cartel End Game & Latest Forecast” in “Latest Letters” Cache and our July 3, 2008 “Profit from Fed-Catalyzed Crisis” in the “Articles by Deepcaster” Cache at www.deepcaster.com.
There is, however, a Solution to several crises, which would genuinely be stimulative, coupled with other measures. That Solution, which also provides investor opportunities for profit, is a follows:
The Solution and Opportunities
Practicality dictates that we outline only the key necessary conditions for this Solution. Of course these need to be fleshed out to provide a complete and workable proposal. While in normal times we would not approve of certain components of the following plan, they are forced upon us by the destructive Policies of The private-for-profit Fed. When one is in a deep hole into which one has been pushed, one must temporarily cast aside one’s ground-level ideology and exit as best one can. [The maxim, “when you’re in a hole, quit digging,” is regretfully and temporarily set aside.]
A Genuine Stimulus Plan: Unique Targeted Tax Rebate & Payroll Tax Reduction
The Initial and Ongoing Catalyst of the current Financial and Economic Crisis, credit freeze-up, and toxic waste creation, is the ongoing and increasing numbers of delinquencies and defaults on mortgages and other credit obligations by mortgage holders and other borrowers. We have not even seen the end of the beginning of this mortgage crisis.
It is clear that The private-for-profit Fed instigated this crisis by its easy credit and massive monetary inflation policies in recent years.
Indeed there is considerable evidence that this policy and subsequent Market Crash were intentionally created by The Fed-led Cartel to increase their power and wealth. See “Surmounting The Cartel’s ‘End Game’ Juggernaut” (9/25/09) and “Coping with The Superpower Cartel Threat” (1/30/09) in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com. But as investors, taxpayers and citizens we must cope with the consequences. We reiterate that there is one fundamental problem, which must be solved, or no long-term Solution is possible. The financial system and economic crises will not and can not be solved until the 70% of the US economy which is represented by the typically Middle Class U.S. taxpayer/consumer and small business, which are the main job generators, are in a healthier financial condition and is thus able to service their debt and pay their taxes while simultaneously resuming some reasonable level of saving and spending.
Until the Main Street Middle Class and Small Business Sectors return to a healthy state, there will be increasing foreclosures, bankruptcies, and delinquencies, which will in turn continue to create ever more toxic waste for lenders, with ensuing counterparty failures continuing to ripple through the system.
Moreover, the ongoing counterparty failures will magnify the continuing defaults on increasing numbers of those $604 trillion in dark OTC Derivatives The Bank for International Settlements (The Central Bankers’ Bank) reports as outstanding as of June, 2009. (per www.bis.org; Path: Statistics>Derivatives>Table 19ff.)
No number of bailouts, “at the top,” of major banks or other Fed-favored institutions will solve this problem. A lasting solution requires genuine and substantial assistance at the ground level for the typical Middle Class (e.g. on a home mortgage) and Small Business obligor. The recent Obama Stimulus Bill and other policies do NOT adequately provide such assistance, as demonstrated above.
Thus Deepcaster reiterates that the Stimulus Bill and Bailouts etc. likely will not work in the long-term (except perhaps insofar as they continue to enrich private financial institutions favored by The Fed, likely including owners of The private-for-profit Fed). We earlier said so, along with others, including Robert McHugh of McHugh’s Daily Briefing. McHugh states the primary cause of the Bailouts’ failure succinctly and, to his credit, articulates The Core Necessary Condition for a Solution:
“…The reason is that it fails to address the source of the problem, the consumer’s lack of income due to asset depreciation, job loss, declining investment yields, rising real estate taxes, and a rising cost of living. Buying today’s bad assets fails to prevent tomorrow’s bad assets from showing up as a new batch of consumers fail to make loan payments, giving birth to the next round of fresh toxic assets, sure as death and Obama raising taxes on the “rich.”
The solution is simple: Rebate the past 5 to 10 years of [household] income taxes, up to $10 trillion worth, requiring half the rebate to pay off the debt. If households don’t have debt, they get to keep all the rebate. This will metamorphose current and future bad assets (loans and loan securities) into good assets. This gets the household back on their feet, heals both household and corporate balance sheets, and jump starts the economy with a boom that could last decades. Sure, the Dollar would take a hit, maybe a 50 percent hit, but debts will be eliminated, a depression will be averted, and everyone gets a fresh start….”
McHugh’s core proposal is not only excellent; it is necessary. Since If the basis of 70% of US GDP (the taxpaying, consuming but increasingly stressed U.S. Middle Class) is increasingly financially unhealthy, no enduring economic or financial system recovery is possible.
We would add that it is essential to include small business in the rebate program and to reduce their payroll taxes. This could be funded through a 50% tax on Mega-Bankers Bonuses (made possible by taxpayer funded bailouts, after all) and Clawbacks of some of the $12 Trillion in gains (see his citation above) enjoyed by the Mega-Financial Institutions during the Fall, 2008 Market Crash.
Though this is an excellent core proposal it needs elaboration. For example, only individual and small business taxpayers should be eligible, and only those who are out-of-pocket on taxes. That is, this proposal is not intended as a transfer payment to those who receive negative income tax credits. Any checks received from the government over the period would be deducted from the amount of the tax rebate. As well, a temporary suspension of the payroll tax could be enacted as a complement to a less generous tax rebate.
The plan also needs refinements and conditions. For example, even a massive Tax Rebate would not be sufficient to bring some of the weakest borrowers and the most egregious loans current. These should be allowed to go into default and foreclosure because they will have been the most marginal loans in any event and the lenders deserve to be stuck with the losses on these loans, which they never should have made.
In sum, neither the continuing taxpayer-funded bailouts of mega-Financial Institutions “at the top” nor the buttressing of the Social Safety Net for the poor will work to change the dismal Fundamentals, unfreeze credit, etc.
Indeed, to help at all they should be coupled with “required loan quotas” “CRAM-THROUGHS”, in other words for lenders. The Obama Administration’s Rule should be if you don’t lend (i.e. pass through your U.S. Taxpayer provided aid) to businesses and consumers, and you took TARP (or other) money, you must lend out 90% say of the TARP (or other) money provided by Taxpayers. But that has not happened. Thus, the foregoing Solution is proposed.
As well, other changes are needed to effect a lasting Economic Recovery. For example - - Enact a Fair Trade Policy for Industry and Job Protection Immediately as well as a Zero-Net-Immigration Moratorium.
The United States has foolishly been led (by Democratic & Republican Administrations alike, in concert with The Fed) down the Globalist (as opposed to Internationalist) path, which has resulted in the destruction of American manufacturing and American jobs via so-called “free trade” agreements like NAFTA and CAFTA. Unfortunately, this Job and Manufacturing Sector Jobs destruction has only just begun.
Appeal to the nineteenth century Ricardo’s Theory of Trade is usually spurious because modern interpreters confuse “Relative” advantage with “Absolute” advantage. Absolute advantage envisions moving capital across national borders in order to benefit from lower wages in second country. Ricardo espoused free trade only to the extent that it maximized relative advantage. He never considered that British capital might be moved to, say, Burma, in order to manufacture goods more cheaply than these same goods could be manufactured in Great Britain.
Today’s “free trade” agreements entail moving capital across national borders and, thus, inevitably impoverishing the domestic manufacturing base. Some decades ago, it was estimated that a $150,000 investment was needed to create one well-paying job in the United States. The Middle Class suffers when jobs are created offshore rather than in the United States. Capital should be encouraged (via tax and trade policies such as tariffs) to stay mostly at home.
Not even Tax Rebates can save the U.S. economy or the World’s Reserve Currency (the U.S. Dollar) without a durable strengthening of the U.S. manufacturing and broader business base.
Neither can the United States, nor for that matter most of the rest of advanced economies of the world, compete with the wage rates paid in Vietnam, for example. In the long run this fact represents doom for the advanced industrial economies unless the U.S. and other advanced economies enact multiple bilateral agreements with tariffs that require an approximate balance of imports and exports with each trading partner. That “Fair Trade” approach would generate sufficient competition to keep domestic industries on their toes, but create sufficient protection so that domestic industries of all major advanced countries and their employees could prosper, and so at the same time emerging economies would benefit from a continuation of Fair Trade not “Free” Trade, which is often nothing more than welfare for giant globalist businesses.
Of course, a necessary condition for success of this particular policy would also be to dramatically reduce mass immigration into advanced industrial countries like the United States via a multiyear zero-net-immigration moratorium. Mass legal (125,000 per month) and illegal immigration results in importing poverty, depressing wages, losing jobs, and in a net increase in costs usually born by local and State taxpayers while a few employers get the benefits of paying low wages to (mainly) low-skilled workers.
Even the Understated Official Government Study shows 21 million Americans are unemployed or underemployed. The non-profit organization Carrying Capacity Network (www.carryingcapacity.org) pushes a zero net immigration moratorium.
Consequently the taxpayers at large (including other employers!) pay far more net in taxes to support health care, education, infrastructure and other needs of the (mainly) low-skilled immigrants and their families than these immigrants (mainly low-skilled) pay in taxes. (The U.S. population, for example, is increased by about 2 million legal, and 2 million illegal, immigrants and their offspring annually.) The result of a moratorium would be relief of other burdens as well, such as on the retirement system. The average age of immigrants entering the United States is four years greater than that of the average native born as a Center for Immigration Studies study demonstrated. As demonstrated above Stimulus jobs should be limited to Natural Born and long-term resident immigrants only.
Remove The Fundamental Cause of Our Systemic Crisis - - The Private For-Profit U.S. Federal Reserve - - The U.S. Treasury Should Serve as Our National Bank Instead
The Root of the Problem is both deeper and broader than just Taxpayer-funded (i.e. Debt Funded) Bailouts. The root of The Problem is the structure, functioning, and very existence of that very entity which in large measure created and catalyzed the Financial Systemic Crises to begin with - - the private, for-profit U.S. Federal Reserve.
Just as The Crisis began with The Federal Reserve’s easy-credit and Massive Monetary increase policies and the malinvestment these enabled, the key to its solution is relatively simple. Consider first Jim Rogers on the March, 2008 Bear Stearns Bailout:
“If the system is so fragile that the collapse of the fifth-largest investment bank in America could bring the whole thing down, what's going to happen in a few years when the No. 2 or No. 1 banks go bad...What's Bernanke going to do, get in his helicopter and fly around the country repossessing cars and houses? This is insane."
Jim Rogers, June 25, 2008, Moneynews.com
Thus, Jim Rogers helps make a compelling case that those “insane” Fed policies (easy credit and massive monetary inflation) of the past few years have brought the Financial System to the Brink of Meltdown. Were that NOT the case, the Fed would not have seen it necessary to intervene to resolve the Bear Stearns (and Fannie Mae, Freddie Mac, and AIG etc…) crises. Bear Stearns was only the fifth largest investment bank in the United States.
Deepcaster, former Presidential Candidate Representative Ron Paul (R – TX), and Jim Rogers all recommend the same Solution to The Crises catalyzed by the private, for-profit, U.S. Federal Reserve: Audit The Fed and then Abolish it. The nonprofits Campaign for Liberty and Carrying Capacity Network both advocate Auditing and Abolishing The Fed.
Indeed, a few months before he was killed, President John F. Kennedy signed Executive Order 11110 which would have de facto abolished the Federal Reserve by gradually replacing Federal Reserve Notes (today’s Fiat U.S. Dollar) with U.S. Treasury Notes. Executive Order 11110 has never been revoked.
The currency-creation function of the private for-profit Fed should be replaced by the U.S. Treasury operating as a de facto U.S. National Bank as authorized by the U.S. Constitution. The Treasury could then Re-link the U.S. Dollar to Gold and Silver as constitutionally authorized. This could prospectively avoid the massive Fed-catalyzed monetary and credit excesses which are The Fundamental Cause of our current Financial Crises. Indeed, it could even save the U.S. Dollar. It would certainly halt the U.S. Taxpayers having to pay “interest’ on money The Fed prints for free out of this account. It would also prevent the destruction of the U.S. Dollar.
Interest rate manipulation (see BIS Table 19 regarding OTC Interest Rate Contracts), which The Fed has apparently been conducting (likely resulting in their shareholders Great Private Profit!) for decades, should not ever be a government function because it undermines the pillars of a free market.
Fed abolition is necessary because Fed policies perennially risk Systemic Collapse while facilitating massive profits for favored Globalist Mega-Financial Institutions. For more details on a workable Solution see “The Financial Crisis Solution” in the “Articles by Deepcaster” Cache at www.deepcaster.com.
Opportunities & Conclusion - - The Silver Lining
Even given the Foregoing, there is a Silver Lining to the ongoing Stimulus Plan and Bailouts of which investors and traders should be able to take advantage. The Stimulus Plan has already created an increasing need for taxpayer borrowings from the private for-profit U.S. Federal Reserve. Given that the U.S. Budget Deficit is around $12 Trillion already (and downstream unfunded liabilities are at least $60 Trillion), this tremendous injection of liquidity into the economy makes hundreds of billions of dollars available for purchase of equities. Key Sectors of the Equities Markets have and will continue to (temporarily) benefit from the “Sugar High” created by this liquidity. While in the long term post-March, 2009 rally is probably not sustainable, it should nonetheless be a way to recoup losses especially in certain Sectors. Deepcaster has identified those high-potential Sectors in his recent Alerts.
Of course, Gold and Silver are the ultimate Safe Haven refuge in times such as these, and were it not for Cartel* intervention, the prices of Gold and Silver would be much much higher. Indeed, monitoring The Interventionals allowed Deepcaster to correctly Forecast the recent (and ongoing!) Takedown in Gold, Silver and Crude Oil Prices.
Deepcaster has designed a Strategy for profiting from Cartel intervention and building a core position of Gold and Silver at the same time. We invite you to consider The Strategy laid out in our “Defeating the Cartel…with Profit” article of March, 2008 in the “Articles by Deepcaster” Cache for further discussion of the Strategy.
While there is a Silver Lining to the Stimulus Plan, overall and for the long run, it will, unfortunately, be a failure with which we Realists expect to be (profitably) coping for a long time.
Best Regards,
By DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation Wealth Enhancement
© 2009 Copyright DeepCaster LLC - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
DEEPCASTER LLC Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
