Alfred Woody's Kewl Blog [ 椼森 ]: Feb 5, 2010

Friday, February 5, 2010

A Review of the Benchmark Revision and Seasonal Adjustment for January

Tomorrow, the Bureau of Labor Statistics (BLS) is going to publish its employment situation report for January and it will show job losses exceeding 2 million (and quite possibly over 3 million jobs lost). They (the BLS) are going to gloss over this with their seasonal adjustment, which may not only hide these losses, but show a potential gain in jobs for January. Do not be fooled, the seasonal adjustment is just an internal BLS code for fudging the numbers.
The seasonal adjustment to the employment situation report for the January job numbers has averaged +1.62% over the last five years and is used to offset the holiday firing that typically is associated with January (which the BLS also discounts on the hiring side by large negative seasonal adjustments in November and December). That 1.62% may look small, but remember we are dealing with roughly 130 million employed persons, so that 1.62% is a huge adjustment. Since 1999 the average January lost 2.8 million jobs on an unadjusted basis. The entire point of using seasonal adjustments is to eliminate the well-known effects of seasonality on job creation so we can see what the underlying economy is doing (we also subtract a ton of jobs in May and June every year to account for summer hiring). There is nothing wrong with this adjustment and it is based on years of data.

Now, the number to examine in this report will be the adjustment itself. In both November and December, the BLS used higher than normal negative adjustments (ie they subtracted more jobs than normal), which seemed odd to me since holiday hiring was expected to be down last year and last year the January adjustment was +1.535%, so we need to look for an outlier seasonal adjustment before critiquing the data (ie greater than 1.65 or less than 1.535). Any number in that general range (I used the 1.65 since that was the average without last year included) would seem to be inline with past adjustments for seasonal firing, while a number outside that range would need to be accounted for through additional data collection/reasoning. Do not believe the case that the BLS is "covering up" more job losses through its seasonal adjustment, as it is simply not true.

On to the much publicized benchmark revision that will be included with the January Employment Situation Report (like it always is).

Each year, the Current Employment Statistics (CES) survey employment estimates are benchmarked to comprehensive counts of employment for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file.

What this is intended to do is adjust the survey numbers (remember the jobs numbers come from a survey of employers, which is not combined with the unemployment rate that comes from a separate survey of households) to the actual job counts from filings (ie the revision is essentially the actual margin of error for the establishment survey for the year). This year, the benchmark revision is going to be huge, likely coming in at 824,000 jobs that were lost through March of 2009. AS you can see by the table in this link the revisions have been all over the place (ie both positive and negative), which shows there is no inherent bias in the survey towards one side (the data goes back to 1979).

Just to be very clear, the benchmark revision has nothing at all to due with the unemployment rate. These numbers come from two completely different surveys (the establishment survey interviews employers, and the household survey interviews households). The household survey (to which the benchmark revision is not applicable) gives us the unemployment rate and thus the benchmark revision does not imply at all that the unemployment rate should have been different because of the revised establishment survey numbers. Anyone claiming that the benchmark revision means that the unemployment rate was artificially low last year has no clue what they are talking about.

As for tomorrow's actual jobs number, the consensus is for 0 job gains/losses with a range (from surveyed economists) of (40,000) to +75,000 jobs. Keep in mind that the margin of error for a given month is about 100,000, so the multi-month direction of the report is going to be much more important that the actual number (assuming it falls within +/- 100,000 of 0).

Hopefully this was helpful as an educational piece ahead of tomorrow's important employment situation report.

Bank of America sued over Merrill deal

New York state officials have sued Bank of America and its former top executives, alleging fraud and deception to obtain billions in taxpayer bail-out funds to acquire Merrill Lynch.

Andrew Cuomo, the New York state attorney general, announced the lawsuit against the bank, former chief executive Kenneth Lewis and former chief financial officer Joseph Price.

He claimed the move was for 'duping shareholders and the federal government in order to complete a merger with Merrill Lynch'.

Mr Cuomo accused Bank of America, through its top management, of engaging in a concerted effort to deceive shareholders and American taxpayers.

The news came just after the Securities and Exchange Commission (SEC) announced that Bank of America had agreed to pay $150m to settle complaints over its handling of the Merrill merger.

Bank of America said it was 'disappointed' by the charges, saying they were 'totally without merit'. The bank said the SEC had access to the same evidence as Mr Cuomo and concluded that there was no basis to enter either a charge of fraud or to charge individuals.

According to the lawsuit, 'Bank of America's management intentionally failed to disclose massive losses at Merrill so that shareholders would vote to approve the merger'.

China cancels 80% of Iraq debt

Iraq’s finance ministry said Tuesday China has agreed to cancel 80 percent of the $8.5-billion it is owed by Iraq. The finance ministry added the two countries did $3.8 billion in trade in 2009. The State-owned Chinese oil firm CNPC has clinched some of the biggest deals in the Iraqi oil sector since the US-led invasion.China was the leading member of a successful consortium bidding for the Halfaya field in southern Iraq. In December the Chinese firm signed a deal, along with BP, to ramp up production at Iraq's biggest oil field, Rumaila. Those two deals are in addition to a contract signed in 2008 by CNPC to develop another oil field south of Baghdad, giving the company a major presence among foreign energy firms operating in Iraq. Source

House agrees to $1.9 trillion more debt

WASHINGTON (AP) - The House on Thursday voted to allow the government to go $1.9 trillion deeper in debt - or about $6,000 more for every U.S. resident.

The measure, approved 217-212, would raise the cap on federal borrowing to $14.3 trillion. That's enough to keep Congress from having to vote again before the November elections on an issue that is feeding a sense among voters that the government is spending too much and putting future generations under a mountain of debt to do it.

Already, the accumulated debt amounts to roughly $40,000 per person. And the debt is increasingly held by foreign nations such as China.

Passage of the bill will send it to President Barack Obama, who will sign it to avoid a first-ever, market-rattling default on U.S. obligations.

"I can't think of a more reckless or irresponsible act. Defaulting is not an option," said Rep. Jim McGovern, D-Mass. "If the United States defaults, investors will lose confidence that the U.S. will honor its debts in the future.

Democrats barely passed it through the Senate last week over a unanimous "no" vote from GOP members present.

To help win passage, Democrats are also adopting - in a vote later Thursday afternoon - budget rules designed to curb a spiraling upward annual deficit - projected by Obama to hit a record $1.56 trillion for the budget year ending Sept. 30. The new rules would require future spending increases or tax cuts to be paid for with either cuts to other programs or equivalent tax increases.

If the rules are broken, the White House budget office would force automatic cuts to programs like Medicare, farm subsidies and unemployment insurance. Current rules lack such teeth and have commonly been waived over the past few years at a cost of almost $1 trillion.

Most other benefit programs - including Medicaid, Social Security and food stamps - would be exempt from such cuts, and Republicans said that the rules lack teeth.

"In place of real fiscal discipline, it offers a phony pay-as-you-go rule that is more loopholes and exceptions and does nothing to tackle our government's long-term structural deficit," said Rep. Pete Sessions, R-Texas.

Skeptics say lawmakers also will find ways around the new rules fairly easily. Congress, for example, can declare some spending an "emergency" - a likely scenario for votes later this month to extend jobless benefits for the long-term unemployed.

And, indeed, there already are exceptions to the new rules, such as for extending former President George W. Bush's middle-class tax cuts past their expiration a year from now. That would add $1.4 trillion to the federal debt over the next decade.

But some new White House initiatives, such as doubling the child care tax credit for families earning less than $85,000, also would have to live within the rules, as would continuing subsidies for laid-off workers to buy health insurance - unless lawmakers make another exception.

And the rules also mean that two years from now, lawmakers would have to raise taxes to pay for continuing lower tax rates on large inheritances and to protect millions of middle-class taxpayers from feeling the bite of the alternative minimum tax.

"We will have the will and we will have the discipline," promised House Majority Leader Steny Hoyer, D-Md.

The so-called pay-as-you-go rules have been a mantra with conservative "Blue Dog" Democrats in the House, who insisted they wouldn't vote to raise the debt ceiling without them.

"We don't have a choice," said Rep. John Tanner, D-Tenn. "We are on an unsustainable march toward a fiscal Armageddon."

Obama's budget projects the government's debt doubling to $26 trillion over the next decade. It offers few solutions for seriously closing the gap other than promising to appoint a bipartisan commission to come up with a plan to address the problem.

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The bill is H.J. Res. 45.

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On the Net:

Congress: http://thomas.loc.gov

I Think The Government Is Buying Up The Stock Market, Though I Have No Evidence

TrimTabs CEO Charles Biderman is always interesting and outspoken, and in recent months he's been pushing the idea that the government is directly interfering in the stock market to push prices higher.

Yesterday CNBC caught up with Biderman on the floor of the exchange, and he brought up the topic again, noting that retail wasn't buying, and that companies weren't buying each other. So that, we suppose, leaves the government, though right in the very beginning he says he has "no evidence" for this, and he insists he's not a conspiracy theorist.

Dubai: We Will Go After Netanyahu If Mossad Killed Member Of Hamas

Israeli Army Radio quoted Dubai’s police commissioner Dahi Halfan as saying that he would issue issue a warrant for Israeli Prime Minister Benjamin Netanyahu’s arrest if it turns out that Israeli intelligence was behind last month’s assassination of Mahmoud al-Mabhouh, a Hamas strongman.

“Benjamin Netanyahu, the Israeli prime minister, will be the first to be wanted for justice as he would have been the one who signed the decision to assassinate Mahmoud al Mabhouh in Dubai,” Halfan reportedly said. “We will issue an arrest warrant against him,” he added.

The Dubai police chief also said that the method used to kill al Mabhouh, was a “Mossad method,” but did not elaborate further.

On Wednesday, Dubai’s police chief warned international intelligence agencies from working “behind our back,” saying anyone who did so should be wary of his own back. Halfan added that that threat was also applicable “to any intelligence organization around the world, whether Mossad, Hamas or any other agency.”

The Dubai police chief said that he believed the Hamas leader was in Dubai for business and not for any kind of arms transactions. He added that if Al-Mabhouh would have been interested in meeting Iranian officials in Dubai, as the Israeli media has claimed, he could have done so in either Syria or Iran itself.

The Dubai police commissioner refused to reveal the identity of the suspects linked to the incident, denying that the assassins had entered the country by participating in Minister Uzi Landau’s entourage, when he visited Dubai earlier that month.

10-degree Map Centered at 40°N,125°W

10-degree map showing recent earthquakes

Unemployment – Model Is Broken

Unemployment statistics are flawed.

What have I been saying ever sine the recession began, the Bureau of Labor Statistics use of the "birth/death" model is flawed. To adjust the monthly jobs data by a number which is computed from a ‘model' of how many businesses were created and how many closed up during any given month is simply asking for trouble in maintaining any sense of accuracy.

The main purpose of the birth/death model is an attempt to offset the jobs data by what the BLS believes to be happening in the real world, the only problem is that the model relies on assumptions. And assumptions are worthless in an economic collapse.

When the Government releases Friday's employment report, nearly a million jobs could be erased. The change won't show up in the monthly report. Rather, the expected drop will show up in the government's revised job losses from April 2008 to March 2009, showing the labor market was in much worse shape than we knew at the time.(…)

Blame the birth/death model for the revision. Built on years of research, the model's key assumption is fairly simple: most of the time jobs created at new companies make up for losses at companies that close. In October, Keith Hall, Commissioner of the Bureau of Labor Statistics, said most of the coming revision "appears to be due in part to an increase in the number of business closings," short-circuiting the model's assumption that deaths are offset by births.(…)

The Labor Department says there are flaws in its models and its monthly employment survey but it defends the process, saying the annual employment revisions are small and stable. (…) (Source: Bloomberg)

Small and stable? I don't think a calculation error of 800,000 to 1 million additional job losses is ‘small and stable'.

The birth/death model should be shelved, permanently.

Debt fears rattle market

NEW YORK (CNNMoney.com) -- Fears about the fallout from a growing debt crisis in Europe dragged on Wall Street Thursday, sending the market to its lowest close in three months, with stocks hit across the board.

The Dow Jones industrial average (INDU) tumbled 268 points, or 2.6%, closing at 10,002.26, its lowest point since Nov. 4. The blue-chip briefly dipped below 10,000 late in the day, falling to that level for the first time since early November.

The Dow's decline marked the biggest one-day point loss since March 5 of last year.

The S&P 500 index (SPX) sank 34 points, or 3.1%, closing at the lowest point since Nov. 4. The one-day point loss was the biggest since April 20, 2009.

The Nasdaq composite (COMP) fell 65 points, or 3%, and closed at its lowest point point since Nov. 6. The one-day point loss was the largest since Feb. 10, 2009.

Debt woes propelled the dollar to a more than seven-month high versus the euro, which in turn pummeled dollar-traded commodities such as oil and gold. Treasury prices spiked, lowering yields, in a classic flight-to-safety move.

Meanwhile, the VIX (VIX), Wall Street's fear gauge, spiked almost 21%, suggesting investor nervousness was increasing.

"A surprise rise in weekly jobless claims ahead of tomorrow's non-farm payrolls report in combination with the sovereign debt issue has got people a bit spooked today," said Mikel Keifer, vice president at Jurika Mills & Keifer.

Keifer said concerns about Greece's debt problems have been in play for a while, but now Spain and Portugal are joining the fray.

Reports of labor unrest and political problems in the troubled nations are adding to the nervousness. "The worries are coming more to the forefront as market participants wonder if these countries will be able to refinance the debt," Keifer said.

The stronger dollar sent oil and gold prices lower, and stocks such as Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500) sliding. With energy one of the biggest sectors in the S&P 500, the selloff in the sector dragged on the broader market.

Weaker-than-expected labor market reports on both Wednesday and Thursday also played a role, creating jitters ahead of Friday's January jobs report. Employers are expected to have added 15,000 jobs to their payrolls after cutting 85,000 in the previous month while the unemployment rate is expected to hold steady at 10%.

If the payrolls number varies dramatically, it will likely move the market one way or another. But short of that, markets are likely to remain focused on the debt issues, said Joe Clark, market analyst at Financial Enhancement Group.

"The big issue at hand right now is that these European countries are facing debt crises and no one is sure what kind of impact that may have on the global economy," Clark said.

Commodity prices slip on recovery doubts

Rally loses steam: Stocks rallied in the last 9 months of 2009 as investors dug back in after a brutal start to the year. The S&P 500 gained 65% between the 12-year lows hit on March 9 and year-end.

That advance continued up until around Jan. 19 of this year. But between that Jan. 19 high and the end of January, the S&P 500 lost just short of 7%.

"The market is in a pessimistic mood today, but this is also an extension of the correction we saw in late January," said Matt King, chief investment officer at Bell Investment Advisors. "We saw a 7% decline, but we probably need to see double-digits (in percentage) before the selloff is over."

Stock declines Thursday were broad based, with 29 of 30 Dow stocks falling. The exception was Cisco Systems, which reported strong quarterly results late Thursday.

Jobs: The number of Americans filing new claims for unemployment rose to 480,000 last week from a revised 472,000 the previous week, the Labor Department reported. Economists surveyed by Briefing.com expected 455,000 new claims.

Continuing claims, the number of Americans receiving benefits for a week or more, rose to 4,602,000 from 4,600,000 the previous week. Economists expected 4,581,000.

The report was the lead-in to Friday's big January jobs report from the government.

Beyond the monthly figures, investors will also take a look at the annual revision of U.S. payrolls. The Bureau of Labor Statistics is expected to say that 824,000 more jobs were lost than previously thought during the April 2008 to May 2009 period, indicating the recession was even deeper than had been thought.

Factory orders: December factory orders rose 1% versus forecasts for a rise of 0.5%. Orders rose 1% in the previous month.

Quarterly results: After the close of trading Wednesday, tech leader Cisco Systems (CSCO, Fortune 500) reported better-than-expected quarterly sales and earnings.

Toyota Motor (TM) reported improved earnings in its most recent quarter and also lifted its estimates for the fiscal year ending in March. But the results did not include the impact of the huge recall of millions of vehicles due to gas pedal problems. Toyota estimates that the global recall could cost it as much as $2 billion.

On Thursday, the government announced a formal probe into brake problems in the popular Prius hybrid. (Feds probing Prius brakes)

Tick, tock: Real estate's time bomb

World markets: In overseas trading, Asian markets tumbled and European markets ended lower.

Commodities and the dollar: The dollar gained versus the euro on worries about sovereign debt in Greece, Spain and elsewhere in Europe. The dollar fell versus the Japanese yen.

The dollar's strength against the euro dragged on oil and gold prices and individual stocks.

COMEX gold for April delivery fell $49 to settle at $1,062.40 an ounce.

U.S. light crude oil for March delivery fell $3.84 to settle at $73.14 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.61% from 3.70% late Wednesday. Treasury prices and yields move in opposite directions.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by over ten to one on volume of 1.48 billion shares. On the Nasdaq, decliners topped advancers by more than six to one on volume of 2.84 billion shares.

Your Neighbor is being foreclosed on but you don’t know it. 3 Identical Homes on the Same Street Telling us a Very Different Story Each.....

People love to overpay for homes in California. It seems to be a rite of passage. Even if it meant that someone needed to go into a property with the leverage only available through an Alt-A or option ARM toxic loan. People don’t get that some cities still have a tremendous amount of shadow inventory and that prices will come down unless the economy improves and improves significantly. Yet I understand that statistics don’t drill down into the personal reality of what is happening on the ground. So today, I will show you that all in one block (3 nearly identical homes in size and room) we have shadow inventory, an overpriced home, and a rental reflecting the realities of what homes are really worth.

Today we salute you Cerritos with our Real Home of Genius Award.

The Home for Sale in Cerritos

Cerritos currently has a median home sale price of $610,000. This is simply absurd given that the average household income is $89,000. This is the prime example of a shadow inventory city. Each shadow inventory city has a unique attribute that people think is unique to the area. Pasadena has the idea of the Rose Bowl and the allure of it being close to L.A. and Cerritos has the draw of quality schools. But that in itself does not sustain an area if incomes don’t match up to housing values.

The above home is 1,106 square feet with 3 bedrooms and 1 bath. It has been listed on the MLS for 9 days. The current list price is $549,000 so if you look at the city median price, this seems to be in line with that figure. But again, this is simply another area that is in a deep bubble and will correct in the next year or two. Why?

Because only a few houses down, we have a home that is scheduled for auction and a rental that shows a very different market:

Let us first look at the home that is part of the shadow inventory. The data on the home scheduled for auction is nearly identical with the home that is for sale. It is a 3 bedroom and 1 bath home. It is listed at 1,100 square feet so this area seems to be a suburban box neighborhood where many homes are built nearly the same way. The home for sale was built in 1969 and this foreclosed home was built in 1970. Let us look at what occurred on this property:

This home was bought during the peak of insanity for $630,000 in 2006. This was a 100 percent financing deal. They took out a first mortgage of $503,900 and a second of $125,900. Greenpoint Mortgage by the way was a toxic mortgage superstar. So now after three years the home is scheduled for auction. When the notice of default was filed in October of last year the borrower was already behind by $37,447. The auction was only scheduled a couple of weeks ago. This home is nowhere to be found on the public view. Keep in mind a few houses down the other home above is being sold for $549,000.

You can see the problem already growing. This home if it were to be added to the inventory would add pressure to the price of the other home. Clearly the current borrowers have stopped making their payments. So who really knows where this is at but this is a clear case of shadow inventory.

But let us run the numbers on that $549,000 home if we go with 3.5% down and a wonderful FHA insured loan:

First, you will need a household income of $154,000 (nearly twice the average for the city) to qualify for the loan. Next, your monthly housing payment (PITI) is going to come out to be $3,600. But did you notice that the above rental is going for $2,150? You are paying 40 percent more per month to own the home ($1,450 more per month). This is insanity. It will always be more expensive to own, that is correct. But nothing like this. In other words, this area is in a gigantic bubble. Keep in mind your total housing payment is coming out of your net income. All your wonderful tax subsidies and breaks come at the end of the year when you file your taxes. The rental rate is more reflective of the actual local market because it is subsidy free and what a local area renter is able and willing to pay out of their net income.

Let us now look at the rental:

The rental is identical in size to the other two homes. A 3 bedrooms and 1.75 bath home listed at 1,100 square feet. This is an excellent example of what is going on because we have virtually three identical homes all in the same block but telling us very different stories. You would have to be out of your mind to pay the current price. You would be buying at a peak low in mortgage rates in an area that can clearly only support a rental income of $2,150. Think about that. No investor in their right mind would pay this amount. And rates will go up. Just look what happened to the markets today once people realize a country can’t pay their debt (hello California!). If you bought this home as an investor, you would be negative cash flowing by over $1,000 per month depending on your down payment. That would be a dumb move right off the bat and keep in mind, for investment properties the interest rate is much higher and you have to go in with at least 20 percent down. This is why I believe we are far from a bottom in many markets that are filled with shadow inventory. And let us run those numbers.

Cerritos in our last month of data had 21 homes sell. The MLS has 49 homes listed. Not bad right? After all, that is about 2 months of inventory. But let us run the shadow inventory numbers:

Notice of defaults: 83

Auction Scheduled: 143

Bank owned: 16

242 homes in the shadow inventory versus 49 homes on the MLS. In other words, you would be speculating into a bubble area right now if you decided to buy.

It Is Now Mathematically Impossible To Pay Off The U.S. National Debt

A lot of people are very upset about the rapidly increasing U.S. national debt these days and they are demanding a solution. What they don't realize is that there simply is not a solution under the current U.S. financial system. It is now mathematically impossible for the U.S. government to pay off the U.S. national debt. You see, the truth is that the U.S. government now owes more dollars than actually exist. If the U.S. government went out today and took every single penny from every single American bank, business and taxpayer, they still would not be able to pay off the national debt. And if they did that, obviously American society would stop functioning because nobody would have any money to buy or sell anything.

And the U.S. government would still be massively in debt.

So why doesn't the U.S. government just fire up the printing presses and print a bunch of money to pay off the debt?

Well, for one very simple reason.

That is not the way our system works.

You see, for more dollars to enter the system, the U.S. government has to go into more debt.

The U.S. government does not issue U.S. currency - the Federal Reserve does.

The Federal Reserve is a private bank owned and operated for profit by a very powerful group of elite international bankers.

If you will pull a dollar bill out and take a look at it, you will notice that it says "Federal Reserve Note" at the top.

It belongs to the Federal Reserve.

The U.S. government cannot simply go out and create new money whenever it wants under our current system.

Instead, it must get it from the Federal Reserve.

So, when the U.S. government needs to borrow more money (which happens a lot these days) it goes over to the Federal Reserve and asks them for some more green pieces of paper called Federal Reserve Notes.

The Federal Reserve swaps these green pieces of paper for pink pieces of paper called U.S. Treasury bonds. The Federal Reserve either sells these U.S. Treasury bonds or they keep the bonds for themselves (which happens a lot these days).

So that is how the U.S. government gets more green pieces of paper called "U.S. dollars" to put into circulation. But by doing so, they get themselves into even more debt which they will owe even more interest on.

So every time the U.S. government does this, the national debt gets even bigger and the interest on that debt gets even bigger.

Are you starting to get the picture?

As you read this, the U.S. national debt is approximately 12 trillion dollars, although it is going up so rapidly that it is really hard to pin down an exact figure.

So how much money actually exists in the United States today?

Well, there are several ways to measure this.

The "M0" money supply is the total of all physical bills and currency, plus the money on hand in bank vaults and all of the deposits those banks have at reserve banks. As of mid-2009, the Federal Reserve said that this amount was about 908 billion dollars.

The "M1" money supply includes all of the currency in the "M0" money supply, along with all of the money held in checking accounts and other checkable accounts at banks, as well as all money contained in travelers' checks. According to the Federal Reserve, this totaled approximately 1.7 trillion dollars in December 2009, but not all of this money actually "exists" as we will see in a moment.

The "M2" money supply includes everything in the "M1" money supply plus most other savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000). According to the Federal Reserve, this totaled approximately 8.5 trillion dollars in December 2009, but once again, not all of this money actually "exists" as we will see in a moment.

The "M3" money supply includes everything in the "M2" money supply plus all other CDs (large time deposits and institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements. The Federal Reserve does not keep track of M3 anymore, but according to ShadowStats.com it is currently somewhere in the neighborhood of 14 trillion dollars. But again, not all of this "money" actually "exists" either.

So why doesn't it exist?

It is because our financial system is based on something called fractional reserve banking.

When you go over to your local bank and deposit $100, they do not keep your $100 in the bank. Instead, they keep only a small fraction of your money there at the bank and they lend out the rest to someone else. Then, if that person deposits the money that was just borrowed at the same bank, that bank can loan out most of that money once again. In this way, the amount of "money" quickly gets multiplied. But in reality, only $100 actually exists. The system works because we do not all run down to the bank and demand all of our money at the same time.

According to the New York Federal Reserve Bank, fractional reserve banking can be explained this way....

"If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000)."

So much of the "money" out there today is basically made up out of thin air.

In fact, most banks have no reserve requirements at all on savings deposits, CDs and certain kinds of money market accounts. Primarily, reserve requirements apply only to "transactions deposits" – essentially checking accounts.

The truth is that banks are freer today to dramatically "multiply" the amounts deposited with them than ever before. But all of this "multiplied" money is only on paper - it doesn't actually exist.

The point is that the broadest measures of the money supply (M2 and M3) vastly overstate how much "real money" actually exists in the system.

So if the U.S. government went out today and demanded every single dollar from all banks, businesses and individuals in the United States it would not be able to collect 14 trillion dollars (M3) or even 8.5 trillion dollars (M2) because those amounts are based on fractional reserve banking.

So the bottom line is this....

#1) If all money owned by all American banks, businesses and individuals was gathered up today and sent to the U.S. government, there would not be enough to pay off the U.S. national debt.

#2) The only way to create more money is to go into even more debt which makes the problem even worse.

You see, this is what the whole Federal Reserve System was designed to do. It was designed to slowly drain the massive wealth of the American people and transfer it to the elite international bankers.

It is a game that is designed so that the U.S. government cannot win. As soon as they create more money by borrowing it, the U.S. government owes more than what was created because of interest.

If you owe more money than ever was created you can never pay it back.

That means perpetual debt for as long as the system exists.

It is a system designed to force the U.S. government into ever-increasing amounts of debt because there is no escape.

Of course if we had listened to our very wise founding father Thomas Jefferson, we could have avoided this colossal mess in the first place....

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

But we didn't listen, did we?

We could solve this problem by shutting down the Federal Reserve and restoring the power to issue U.S. currency to the U.S. Congress (which is what the U.S. Constitution calls for). But the politicians in Washington D.C. are not about to do that.

So unless you are willing to fundamentally change the current system, you might as well quit complaining about the U.S. national debt because it is now mathematically impossible to pay it off.

Initial Jobless Claims Rise Unexpectedly; Stock Futures Down, Dollar Up

Speaking of the unemployed, the ranks of those claiming first-time benefits surprisingly rose again last week, to 480,000, the U.S. Department of Labor reported this morning, up from the revised 472,000 prior and ahead of expectations for a decline to 455,000.

The gloomy results have pushed down S&P 500 futures, with the March contract off 10.2 points at 1,086.20. The S&P closed down 6 points at 1,097.28 yesterday. The dollar, meanwhile, is strengthening against the Euro, at $1.3843 versus yesterday’s closing cross of $1.3899.

Grand Theft Taxes - AIG On Top, Taxpayers Left Behind

AIG still owes the U.S. government $124 billion from its record-setting $182 billion bailout. Today it will pay approximately $100 million in bonuses to the financial products division, the same unit that brought AIG to the brink of failure in 2008.

Now, that's management!

Truth is, if you can steal $124 billion from taxpayers and get away with it, then you deserve the hundred million dollar bonus.

Meanwhile, back on main street, robbing a purse followed by shoplifting, and later carrying marijuana can land you in jail for life.

"Last year the President was outraged at the $45 million in bonuses," Brady told Geithner at the hearing. "A year later the $100 million in bonuses now, 'Oops,' The administration's handling of AIG resembles the Keystone Cops. And it'd be funny if it wasn't leaving the taxpayers crying about it."

I wonder how much more of this shit Americans will take before lynch mobs start gathering spontaneously in the streets...

House Faces Tough Vote on $1.9T More Debt

The debt measure set for a House vote Thursday would raise the cap on federal borrowing to $14.3 trillion.

WASHINGTON - Democratic leaders in the House of Representatives are counting on new budget deficit curbs to help smooth the way for a bill allowing the government to go $1.9 trillion deeper into debt over the next year -- or about $6,000 more for every U.S. resident.

The debt measure set for a House vote Thursday would raise the cap on federal borrowing to $14.3 trillion. That's enough to keep Congress from having to vote again before the November elections on an issue that is feeding a sense among voters that the government is spending too much and putting future generations under a mountain of debt to do it.

Already, the accumulated debt amounts to $40,000 per person. And the debt is increasingly held by foreign nations such as China.

Passage of the bill would send it to President Barack Obama, who will sign it to avoid a first-ever, market-rattling default on U.S. obligations. Democrats barely passed it through the Senate last week over an unanimous "no" vote from Republicans members present.

To ease its passage, Democrats attached tougher budget rules designed to curb a spiraling upward annual deficit -- projected by Obama to hit a record $1.56 trillion for the budget year ending Sept. 30. The new rules would require future spending increases or tax cuts to be paid for with either cuts to other programs or equivalent tax increases.

If the rules are broken, the White House budget office would force automatic cuts to programs like health care benefits, farm subsidies and veterans' pensions. Current rules have commonly been waived over the past few years at a cost of almost $1 trillion.

Skeptics say lawmakers also will find ways around the new rules fairly easily. Congress, for example, can declare some spending an "emergency" -- a likely scenario for votes later this month to extend jobless benefits for the long-term unemployed.

In agreement with Obama's budget earlier this week, there is no exception for taxpayers in the two highest tax brackets whose marginal rates are due to rise by 3 percent or 4.6 percent to a pre-Bush maximum 39.6 percent next January.

But some new White House initiatives, such as doubling the child care tax credit for families earning less than $85,000, also would have to live within the rules, as would continuing subsidies for laid off workers to buy health insurance -- unless lawmakers make another exception.

The so-called pay-as-you-go rules have been a mantra with conservative Democrats in the House, who insisted they wouldn't vote to raise the debt ceiling without them.

"We don't have a choice," said Democratic Rep. John Tanner. "We are on an unsustainable march toward a fiscal Armageddon."

Report: Long Island's hungry up 20 percent

HEMPSTEAD, N.Y. — A new study by a national hunger relief organization finds there are an estimated 283,700 Long Islanders — including nearly 110,000 children — who face the risk of going hungry every day.

Feeding America reports that’s a 20 percent increase in those seeking food assistance since its last study in 2006.

The study also found nearly 65,000 people are seeking emergency food assistance in Nassau and Suffolk counties every week.

The study was conducted in cooperation with Island Harvest and Long Island Cares, Inc., the region’s leading anti-hunger agencies.

Local officials blame rising unemployment and other stresses on the economy for the increase.

Slicing Brains DIY

Is Ken Hayworth Building the Instruments for Uploading Brains?

Here at h+ Magazine, we love DIYers and garage entrepreneurs who work in the “NBIC” (nano, bio, info, and cogno) fields. We recently visited Harvard University’s Center for Brain Science where we came across a particularly inspiring example.

In order to understand the brain’s function, neuroscientists must be able to map out its basic neuronal circuits. A neuronal circuit (for example, a thalamocortical circuit) typically spans quite a large volume of brain tissue (tens of cubic millimeters). At the same time, the axonal and dendritic processes comprising such a circuit are so fine and so tortuously interconnected that only electron microscopy of ultrathin (50nm) serial sections can resolve their connectivity. No current techniques can image so large a volume of tissue at such fine resolution. While working as a computer scientist and engineer at the Jet Propulsion Laboratory in Pasadena, Ken Hayworth says that he was inspired by a paper he read by Xerox PARC’s Ralph Merkle on “Large Scale Analysis of Neural Structures.” In 1989, Merkle wrote that we should be able to reverse engineer the human brain in the near future using advanced electron microscopy, and new slicing, staining and computational analysis algorithms.

Hayworth, a cryonicist (he’s signed up with Alcor to be cryopreserved upon his death in the hopes of being repaired and revived by a future technology), immediately saw that understanding the circuitry of the brain was a necessary first step towards mind uploading. His interest in developing new neuroanatomical mapping instruments stems from his frustration with the lack of neuroanatomical knowledge currently available on the circuits and systems of the higher-level visual system in mammals.

So Ken started applying to grad schools and interviewing with neuroscientists about his plans to build a high-throughput brain-slicing machine. Time after time, he was rejected: either because he didn’t have the academic background they were expecting, or because the professors wanted a lab slave and not someone with his own plans. Finally, he was offered admission by a professor at U.S.C. conducting psychophysical research in human vision. Fascinated by the topic, Hayworth accepted, even though it meant putting off his brain-slicing experiments.

After his second year of grad school, Hayworth started working on his brain-slicing idea again. As he began attending neuroscience conferences and telling people about his machine, he faced ridicule (“that can’t be done”) and scorn for focusing on equipment rather than the brain itself. Unperturbed, Ken built a prototype that demonstrated the concept sufficiently well to attract the interest of a Harvard professor interested in high-throughput neural circuit mapping. Together they submitted a proposal to the McKnight Endowment Fund to bring his project to the next level. Much to his surprise, he won a $200,000 grant and with it a chance to work at the Center for Brain Science at Harvard University. There he built the ATLUM (Automatic Tape-collecting Lathe Ultramicrotome), the first machine to demonstrate the fully automatic collection of brain slices thin enough to view in an electron microscope and thus image at nanometer resolution. No one is laughing now. Work on ATLUM2 is reaching nearly $1 million in cost, and Ken is getting requests from neuroscientists worldwide who see the value of obtaining such a machine to build a library of brain slices for examination and scanning using an automated system.

The ATLUM2 Machine

Today only tiny volumes of neuropil (the Free Dictionary: “the complex network of unmyelinated axones, dendrites, and glial branches that form the bulk of the central nervous system’s grey matter and in which nerve cell bodies are embedded”) can be traced at electron microscopy resolution using painstaking manual techniques. Mapping the neuronal network of the nematode worm C. Elegans was a decade-long Herculean task, even though it is less than 0.01mm_³ in volume. Hayworth wants to use his device to cut an entire mouse brain into such thin slices that an electron microscope can scan virtually all of the structures within the tissue. As small as a mouse brain is, at 30nm thickness, that would require approximately 2 million slices! To accomplish this, the mouse brain would be chemically fixed and embedded in plastic. Then, using a special slicing device which Ken is also designing, the plasticized brain would be cut into approximately 400 sub-blocks. Each sub-block would then be loaded into Ken’s ATLUM2 and it would be cut into 5,000 incredibly thin slices. Each slice would be picked up on a long carbon-coated tape for later staining and imaging in a scanning electron microscope (SEM). Because the process is fully automated, volumes as large as tens of cubic millimeters (large enough to span entire multi-region neuronal circuits) can be quickly and reliably reduced to a tape of ultrathin sections.

Ken’s original ATLUM machine has already collected over 1,000 sections of embedded mouse cortex, each 30nm thick and 1mm x 5mm in area. SEM images of these ATLUM-collected sections can attain lateral resolutions of 5nm or better, which is sufficient to image individual synaptic vesicles and to identify and trace all circuit connectivity.

Following collection, the ATLUM tape can be stained with heavy metals (or other markers), and cut into shorter lengths. This allows rows of sections to be attached to large (200mm diameter) imaging plates that can be loaded into a standard SEM for automated random access imaging of any location within any of the hundreds of sections on the plate’s surface. A few dozen of these plates could hold an entire 10mm_³volume representing an incredible 1x10_¹⁶ voxels of raw image data.

Bulk imaging of such a large volume at the highest resolution would take hundreds of years, but having the ultrathin sections laid bare on a set of tissue plates solves this problem. Luckily, a researcher can quickly produce a lower-resolution image set of the entire volume, setting up a unified coordinate system for the sample volume and plates, and then use robotic loading and positioning of plates to zoom in on any part to obtain the highest resolution SEM images. In the near future, multi-beam scanning electron microscopes will shorten the time it takes to scan such samples in high resolution, and efforts similar to the Human Genome Project, whereby hundreds of sequencing machines were used at once, might allow researchers to use hundreds or thousands of electron microscopes simultaneously to map entire brains within days rather than years.

Once Ken’s ATLUM2 is perfected, it will hopefully go into production and copies of the device will find their way into neuroscience labs around the world. At first, these devices will be used to section areas of the brain that are of particular interest to the individual researchers. The circuitry could be used to emulate those brain functions, run experiments emulating a brain section, and possibly even test pharmaceuticals or therapies. In the future, we might understand brain circuitry so well that such devices could be used to scan and “upload” an individual’s mind to any type of substrate (a new body, robot, or artificial environment). This Matrix-like immortality would be the ultimate backup of ourselves.

China Renews Opposition to Iran Sanctions

PARIS — Reflecting a growing catalog of disputes between Washington and Beijing, a senior Chinese official said Thursday that pressure for tighter sanctions against Iran over its nuclear program could block chances of a diplomatic settlement to the dispute.

The official, Foreign Minister Yang Jiechi, was speaking in Paris less than a week after Secretary of State Hillary Rodham Clinton rebuked China over its opposition to stronger measures against Tehran, saying Beijing’s position was shortsighted.

Since then, President Mahmoud Ahmadinejad of Iran has been reported to be reiterating support for a deal under which Iran would allow its low-enriched nuclear fuel to be exported for processing into nuclear fuel rods — prompting some skepticism in Europe and the United States about his motives.

“Iran has to be measured by its actions, not by what it says,” Foreign Minister Guido Westerwelle of Germany said Wednesday.

The issue also arose during a visit to Paris by Mr. Yang, who was quoted on Thursday as telling reporters, “To talk about sanctions at the moment will complicate the situation and might stand in the way of finding a diplomatic solution.”

His remarks, quoted by Reuters, seemed a direct rebuff of efforts by the United States to secure broad international support for tougher penalties against Iran’s Revolutionary Guards, accused by the West of running a covert nuclear arms program. Tehran says the program is for peaceful civilian purposes only.

“China firmly supports the international nuclear nonproliferation regime,” Mr. Yang said. “All countries, Iran included if they obey I.A.E.A. rules, have a right to a peaceful use of nuclear energy.” The I.A.E.A. — the International Atomic Energy Agency — is the United Nations’ nuclear watchdog, based in Vienna.

The differences over Iran coincide with a plethora of other disputes.

In recent days, China has objected to plans by President Obama to meet with the Dalai Lama, the Tibetan spiritual leader, and to American weapons sales to Taiwan. Mrs. Clinton has also criticized China for censoring the Internet and the United States has challenged China on trade and financial issues.

The latest Iranian moves in the nuclear dispute have puzzled some of the Western countries — the United States, Britain, France and Germany — who form a group of countries along with China and Russia seeking to end the standoff.

“I am perplexed and even a little pessimistic,” the French foreign minister, Bernard Kouchner, said on Wednesday, referring to Mr. Ahmadinejad’s reported offer to meet the demand for low-enriched uranium to be exported for processing.

News reports quoted the Iranian leader as saying on Tuesday: “There is really no problem. Some made a fuss for nothing. There is no problem.” But, while Western experts say it would take a year to complete the process, Mr. Ahmadinejad said it would take “four or five months.”

Some Western officials said Mr. Ahmadinejad may be trying to buy time or dilute pressure for tougher penalties imposed by the United Nations. His remarks seemed to contradict earlier Iranian statements rejecting the deal to send low-enriched uranium abroad, and they did not address a dispute over how it should be sent — either in a single batch, as international powers want, or in several, smaller batches, as Iran wishes.

In Vienna the atomic agency said it would not comment on Mr. Ahmadinejad’s offer. Diplomats with knowledge of the situation said Iran had not formally confirmed its position to the agency, apparently preferring to make its views known through public channels such as interviews and statements to the state-run media.

Steven Erlanger and Nadim Audi contributed reporting.

Obama keeps N. Korea off terror sponsor list

Pyongyang did not meet ‘statutory criteria’ to be added to list, report shows

President Barack Obama said Wednesday he had decided not to reinstate nuclear-armed North Korea to a list of countries that the United States considers state sponsors of terrorism.

Secretary of State Hillary Clinton last June had raised the possibility of returning North Korea to the list in reaction to recent nuclear and missile tests. Several Republican senators had been demanding such a move.

Obama made the determination in a letter sent to leaders of the U.S. Congress that accompanied a classified report on the conduct of North Korea between June 26, 2008, and Nov. 16, 2009.

He said the report concludes that North Korea "does not meet the statutory criteria to again be designated as a state sponsor of terrorism."

Obama was continuing a policy begun by his predecessor, George W. Bush, who removed North Korea from the list of countries alleged to be state sponsors of terrorism in October 2008 in an effort to keep a nuclear deal from collapsing.

Obama, who came to office a year ago seeking to increase American diplomacy, has been seeking to coax North Korea back to the bargaining table.

Pyongyang is under growing pressure to end its boycott of international nuclear disarmament talks, where it could win aid for reducing the security threat it poses in economically vital North Asia.

Pentagon appears to impede independent autopsy of Gitmo ’suicide’

The family of a former Gitmo detainee are still waiting years later for answers regarding the events leading up to their son's death. Hope that a second autopsy would provide those answers have been at a standstill as the doctor who performed the autopsy waits for U.S. officials to respond to a request for the return of the deceased's missing throat, a request the Pentagon now appears to be denying was ever made.

Ahmed Ali Al-Salami was one of three inmates at Guantanamo Bay, Cuba's Naval base whose death in 2006 was ruled a suicide by the U.S. military. The suicides, referred to at the time as "an act of asymmetrical warfare" by Rear Adm. Harry Harris, commander of Joint Task Force-Guantanamo have been called into new focus in January of this year.

A report published in Harper's Magazine, and written by constitutional scholar and Contributing Editor of Harper's Scott Horton, includes details provided to Harper's by four members of a US military intelligence unit assigned to Guantanamo Bay. "All four soldiers say they were ordered by their commanding officer not to speak out, and all four soldiers provide evidence that authorities initiated a cover-up within hours of the prisoners’ deaths," reported Horton. It also seems that rather than supplying the deceased's missing throat and other necessary items, the Pentagon is attempting to cast aspersions on Horton's report, 'The Guantanamo "Suicides": A Camp Delta sergeant blows the whistle.'

From a report in Human Events, unnamed sources with the "Obama-run Pentagon and NCIS" issued the following statement:

"An article in Harper's Magazine on-line claiming that the suicides were actually homicides, and the NCIS knowingly participated in a coverup of those killings, is nonsense. NCIS categorically and unequivocally rejects these accusations. The Harper's article incorporates a great deal of supposition, intended to fill in where details are unknown to the author. It contains numerous factual errors."

Horton followed up on Wednesday this week with Rachid Mesli, to counter the seeming Pentagon charges that no request was made for the missing throat. Mesli is the legal director of Alkarama, a Swiss-based group that documents human rights abuses in the Arab world. Al-Salami's family sought his help in arranging a secondary autopsy by an independent team of forensic scientists for their son.

Mesli provides a copy of the letter he sent to the Armed Forces Medical Examiner, Dr. Craig Mallack that requested -- among other items -- "A copy of the report of autopsy carried out by your team and the histological samples as well as the anatomical sample corresponding to the upper airways including the larynx, the hyoid bone and the thyroid cartilage removed in one piece during the autopsy."

While no written response was ever obtained, repeated efforts to reach Dr. Mallack were finally successful, says Mesli. "Dr. Mallak stated that he was not allowed to cooperate with any organization without an explicit authorization from U.S. authorities. Such authorization had not been granted to him, he said. Accordingly, our request for the missing body parts and other documents was made formally and in writing, we know it was received by Dr. Mallak, and Dr. Mallak made clear that he was not being permitted to cooperate with us or the pathologists conducting the second autopsy."

After reading the following passage in the Human Events report, another unnamed source calls into question the fate of Al-Salami's throat. "The parts are not missing. The pathologist removed them for examination and determined they were consistent with hanging. They were kept, as is standard procedure, until the criminal investigation is completed, which happened in 2008," says the author. "I am told authoritatively that the families have not requested the neck organs." This seems to suggest that once the military's criminal investigation into itself was finished, the throat and neck organs were in all probability destroyed.

20 reasons Global Debt Time Bomb explodes soon

Commentary: Which trigger will ignite the Great Depression II?

ARROYO GRANDE, Calif. (MarketWatch) -- Retire? You can fuggetaboutit if the new Global Debt Time Bomb is detonated by any one of 20 made-in-America trigger mechanisms.

Yes, 20. And yes, any one can destroy your retirement because all 20 are inexorably linked, a house-of-cards, a circular firing squad destined to self-destruct, triggering the third great Wall Street meltdown of the 21st century, igniting the Great Depression II that George W. Bush, Ben Bernanke, Henry Paulson and now President Obama have simply delayed with their endless knee-jerk, debt-laden wars, stimulus bonanzas and bailouts.

Wow, what an epic Hollywood blockbuster this will make: You know the drama, can't miss the warnings. The financial press is flooding us with plot lines ... a Forbes cover story focuses on a "Global Debt Bomb: How It Could Wreck Your Life" ... Leaders at the World Economic Forum on Swiss Mt. Davos fear another global meltdown will trigger mass rebellions ... The Economist calls the plot a "Global Asset Bubble," with cheap money fast driving up asset prices.

Plus, Bloomberg BusinessWeek is adding jet fuel to the ticking time-bomb in: "After the Stimulus Binge, a Debt Hangover: Trillions of dollars have been spent keeping the global economy afloat. But now fears about the Great Recession are giving way to worries about something else: The Great Reckoning" when massive debts come due. Then the debt bomb explodes "and the results won't be pretty for investors or elected officials."

Forbes discovered the trigger mechanism in "This Time Is Different: Eight Centuries of Financial Folly," by economists Carmen Reinhart and Kenneth Rogoff: The "90% ratio of government debt to GDP is a tipping point in economic growth." For 800 years "you increase it over and beyond a high threshold, and boom!" Well guess what? "The U.S. government-debt-to-GDP ratio is 84%." Soon, Ka-Booom! Depression. Kiss your retirement goodbye.

Who knows? Forbes? Bloomberg BusinessWeek? The Economist? Davos-World Economic Forum? True, they're all looking at the same plot line for a Hollywood blockbuster about the "Global Debt Time Bomb."

But the financial press navigates in a fog. There's not just one, but many triggers, all linked in a lethal network. We've reported on it for years. Now you tell us: What triggers this firestorm?

Poll: 20 economic weapons of mass destruction triggering ticking Global Debt Time Bomb

1. Federal Budget Deficit Bomb. The Bush/Cheney wars pushed America deep into a debt hole. Federal debt limit was just raised almost 100% with Obama's 2010 budget, to $14.3 trillion vs. $7.8 trillion in 2005. The Congressional Budget Office predicts future deficits around 4% through 2020. Get it? America's debt at 84% of GDP will soon pass that toxic 90% trigger point.

2. U.S. Foreign Trade Bomb. Monthly deficits actually dropped from $50 billion per month to roughly $35 billion. But the total continues climbing as $400 billion is added each year. Foreigners now own $2.5 trillion of America, with China holding over $1.3 trillion in Treasury debt.

3. Weakening U.S. Dollar as Foreign Reserve Currency Bomb. Fear China and other currencies will replace dollar as main foreign reserves. The dollar's fallen: The main index measuring dollar strength has gone from 120 at the Clinton-to-Bush handoff to below 80 today.

4. Cheap Money Bomb: Credit Ratings Down, Rates Up. Economists at S&P, Fitch and Moody's were totally co-conspirators of Fat Cat Bankers, misleading investors before meltdown: Soon, debt up, ratings down, interest rates soar.

5. Global Real Estate Bomb. Dubai Tower, new "world's tallest building" is empty. BusinessWeek warns that China's housing collapse could be worse than America's. Plus the U.S. commercial real estate bubble is now $1.7 trillion, a "ticking time bomb" bloating 25% of bank balance sheets.

6. Peak Oil and the Population Bomb. China and India each need 500 new cities. The United Nations estimates world population exploding 50% from 6 billion to 9 billion by 2050: Three billion more humans demanding more automobiles, exhausting more resources to feed their version of the gas-guzzling "America Dream."

7. Social Security Bomb. We have no choice; eventually we must either cut benefits or raise taxes. Politicians hate both, so they'll do nothing. Delays worsen solutions. Without action, by 2035 Social Security and Medicare benefits will eat up the entire federal budget other than defense.

8. Medicare: A Nuclear Bomb. Going broke faster than Social Security. Prescription drug benefit added an unfunded $8.1 trillion. In 5 years estimates rose from about $35 trillion to over $60 trillion now.

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Investigator: Evidence shows Demjanjuk at Sobibor

Ex-judge Thomas Walther is pictured in a courtroom in Munich, southern Germany, Tuesday, Feb. 2, 2010. Walther is one of the key figures behind the decision to try Demjanjuk, who will be the first non-German alleged Nazi collaborator to stand trial in a German court. Demjanjuk, an 89-year-old former U.S. auto worker, is on trial in Germany facing charges he helped force 27,900 Jews into gas chambers in Sobibor extermination camp in 1943. (AP Photo/Michaela Rehle, pool)

By David Rising

MUNICH—Evidence shows that John Demjanjuk was a guard at the Sobibor death camp in occupied Poland, and everyone who was there was either a victim or a cog in the Nazi machinery of death, a German investigator testified Tuesday.

Thomas Walther, who led the investigation that prompted Germany to prosecute Demjanjuk, told the Munich state court that "the Sobibor death camp was a hermetically sealed area in which only two groups of people had entry" -- Nazi guards and their victims.

"Every member of the first group, with very high probability, took part in the murder of the second group," he testified.

Demjanjuk, 89, a retired Ohio autoworker, is accused of serving as a low-level camp guard and charged as an accessory to 27,900 murders. He rejects the charges, saying he never served at the Sobibor camp or any other Nazi camp.

But Walther cited postwar paperwork in which Demjanjuk noted "Sobibor, Poland" as a place of residence.

Defense attorney Ulrich Busch said Demjanjuk didn't live in the town, but even if he had it wouldn't mean that he had anything to do with the neighboring camp. The paperwork "doesn't matter at all," Busch said. "It doesn't show that he was in the death camp."

Still, other evidence links Demjanjuk to the camp, including an SS identity card with a photo that says he worked at Sobibor, Walther said. The defense has disputed the card's authenticity, however, and a witness statement submitted by Walther raised questions about its validity.

Walther also cited the conclusions drawn in a U.S. appeals court ruling from 2006 when Demjanjuk lost a bid to stop his deportation. It found a previous court had made clear the evidence showed he "served willingly as an armed guard" at Sobibor.

Demjanjuk is being tried in Munich because he lived in the area briefly after the war. He emigrated to the U.S. in 1952 and gained citizenship in 1958.

Demjanjuk claims to be a victim of mistaken identity, saying he was a Red Army conscript from Ukraine who was captured in Crimea in 1942 and held prisoner until joining the Vlasov Army. That force of anti-communist Soviet POWs and others was formed to fight with the Germans against the Soviets in the final months of the war.

Demjanjuk's Vlasov Army commander, Walter Dubovec, told American investigators two decades ago that he knew nothing of Demjanjuk's past before they first met in 1945, according to a document provided by Walther.

Dubovec also said he knew Demjanjuk well and doubted the picture on the SS card is his.

"I am not convinced that this is the same person," Dubovec said, according to testimony read by presiding Judge Ralph Alt in German. "There were thousands of soldiers in the Soviet army with faces like this."

Demjanjuk lay in a bed and showed no reaction throughout the session, a baseball hat pulled down over his face as at previous hearings. On Tuesday, he also wore sunglasses.

The postwar paperwork submitted by Walther included a 1948 application for assistance from a refugee organization, in which Demjanjuk said that from April 1937 to January 1943 he worked as a driver for a company in Sobibor.

A 1950 report from the U.S. Commission for Displaced People also noted that Demjanjuk told them he was an "independent farmer" in Sobibor from 1936 to 1943.

Walther said Demjanjuk has told investigators in the past that he named Sobibor on postwar forms to try and obscure the fact he was Ukrainian. He wanted to avoid deportation to Ukraine, where he would have faced likely prosecution by the Soviets for serving in the Vlasov Army.

Walther said Demjanjuk first said he was given the name "Sobibor" by a consular official, then in another statement told investigators that he had picked it randomly from a map.

The investigator, who has now retired from the special German prosecutors' office responsible for investigating Nazi-era crimes, said the name Sobibor -- a tiny town in eastern Poland -- only shows up on the most detailed maps of the time. He said he had serious doubts that Demjanjuk picked it randomly.

In the 1980s, Demjanjuk stood trial in Israel, accused of being the notoriously brutal guard "Ivan the Terrible" at the Treblinka extermination camp. He was convicted, sentenced to death -- then freed when an Israeli court found that he was a victim of mistaken identity.