Friday, December 20, 2013

WARNING: Americans Are Re-leveraging, To Pay For Food, Education, Medical Bills, And Taxes While Home Sales Tumble, Jobless Claims At Near Nine-month High, Interest Rates Skyrocket

The Federal Reserve’s latest quarterly Flow of Funds report revealed the first increase in U.S. household debt since before the financial crisis in the third quarter of 2013.
In short, Americans have stopped paying down debt, and releveraging has officially begun.
Re-leveraging has begun. Yes, after 1/2 – 1 decade of crummy raises, job loss, increased prices for everything, add in a health scare, yeah dummy, Americans are re-leveraging, to pay for food, education, medical bills, and yes, taxes. There’s probably a percentage of new car purchases simply due to the fact the 15 year old civic they were nursing along finally gave up the ghost and they had to buy something, so yeah, there’s a bright spot.
More Americans Rely on Credit Cards for Basics Like Food and Gas
Americans are increasingly dependent on credit cards just to put food on the table and keep the lights on, a new study shows. Although we’re doing a better job overall paying our bills on time these days, many people are relying on more easily attainable credit just to keep their heads above water. With no home equity left to tap, skimpier health insurance coverage and jobless benefits for the long-term unemployed vanishing, even middle class Americans are once again at risk of tumbling down the rabbit hole of debt.
According to “The Plastic Safety Net,” a survey conducted by nonprofit group Demos, 40% of low- and moderate-income families rely on credit cards for what the group categorizes as basic needs: rent or mortgage payments, groceries, utilities, or insurance. Among households with annual incomes of less than $50,000, this increases to 45%.
That 40% is several percentage points higher than Demos found when it conducted this survey prior to the recession in 2005, when roughly a third of respondents reported relying on credit for everyday expenses. Back then credit was a substitute for an emergency savings fund; people dipped into it when unforeseen circumstances arose. Today, those emergency measures have become everyday survival tools.
The “Real” America: Near Record 20% Struggle To Afford Food, Highest Since Crisis Began
More Americans are struggling to afford food — nearly as many as did during the recent recession. The 20.0% who reported in August that they have, at times, lacked enough money to buy the food that they or their families needed during the past year, is up from 17.7% in June, and is the highest percentage recorded since October 2011. The percentage who struggle to afford food now is close to the peak of 20.4% measured in November 2008, as the global economic crisis unfolded.
Home sales tumble, jobless claims at near nine-month high 
(Reuters) – U.S. home resales hit a near one-year low in November and new filings for unemployment benefits unexpectedly rose last week, putting a wrinkle in an otherwise brightening economic picture.
The reports on Thursday came a day after the Federal Reserve gave the economy a vote of confidence by announcing that it would reduce its monthly $85 billion bond buying program by $10 billion starting in January.
“Things have not changed. It’s still a marginally rosier outlook in the short-term,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York.
Fed hangover: Is the taper-triggered rally over?
Stocks rallied after the Federal Reserve finally pulled the trigger and announced plans to start tapering. But a day later, the bloom is off the rose and the major indexes have been down most of the day — and, I think, rightly so.
Why? Because the market isn’t convinced that the economy is ready to go it alone.
As the news unfolded, the Fed made it very clear that the taper was a “mini amount” and that interest rates would remain low for longer than expected. Essentially, they said: “We are not going away just yet.”
$2,472,542,000,000: Record Taxation Through August; Deficit Still $755B
( – The federal government raked in a record of approximately $2,472,542,000,000 in tax revenues through the first eleven months of fiscal 2013, which ran from Oct. 1, 2012 through the end of August, according to the Monthly Treasury Statement for August.
That is up about $285 billion from the approximately $2,187,527,000,000 in taxes the government took in through August of fiscal 2012.
Despite these record tax revenues, the federal government still accumulated a $755 billion deficit in the first eleven months of fiscal 2013. Total federal spending through the first eleven months of the fiscal year was $3.228 trillion.
The Taper Is On – 8 Ways That This Is Going To Affect You And Your Family
1. Interest Rates Are Going To Go Up
Following the announcement on Wednesday, the yield on 10 year U.S. Treasuries went up to 2.89% and even CNBC admitted that the taper is a “bad omen for bonds“.  Thousands of other interest rates in our economy are directly affected by the 10 year rate, and so if that number climbs above 3 percent and stays there, that is going to be a sign that a significant slowdown of economic activity is ahead.
2. Home Sales Are Likely Going To Go Down
Mortgage rates are heavily influenced by the yield on 10 year U.S. Treasuries.  Because the yield on 10 year U.S. Treasuries is now substantially higher than it was earlier this year, mortgage rates have also gone up.  That is one of the reasons why the number of mortgage applications just hit a new 13 year low.  And now if rates go even higher that is going to tighten things up even more.  If your job is related to the housing industry in any way, you should be extremely concerned about what is coming in 2014.
3. Your Stocks Are Going To Go Down
Yes, I know that stocks skyrocketed today.  The Dow closed at a new all-time record high, and I can’t really provide any rational explanation for why that happened.  When the announcement was originally made, stocks initially sold off.  But then they rebounded in a huge way and the Dow ended up close to 300 points.
A few months ago, when Fed Chairman Ben Bernanke just hinted that a taper might be coming soon, stocks fell like a rock.  I have a feeling that the Fed orchestrated things this time around to make sure that the stock market would have a positive reaction to their news.  But of course I absolutely cannot prove this at all.  I hope someday we learn the truth about what actually happened on Wednesday afternoon.  I have a feeling that there was some direct intervention in the markets shortly after the announcement was made and then the momentum algorithms took over from there.
In any event, what we do know is that when QE1 ended stocks fell dramatically and the same thing happened when QE2 ended.  If you doubt this, just check out this chart.
Of course QE3 is not being ended, but this tapering sends a signal to investors that the days of “easy money” are over and that we have reached the peak of the market.
And if you are at the peak of the market, what is the logical thing to do?
Sell, sell, sell.
But in order to sell, you are going to need to have buyers.
And who is going to want to buy stocks when there is no upside left?
4. The Money In Your Bank Account Is Constantly Being Devalued
When a new dollar is created, the value of each existing dollar that you hold goes down.  And thanks to the Federal Reserve, the pace of money creation in this country has gone exponential in recent years.  Just check out what has been happening to M1.  It has nearly doubled since the financial crisis of 2008…
M1 Money Supply 2013
The Federal Reserve has been behaving like the Weimar Republic, and this tapering does not change that very much.  Even with this tapering, the Fed is still going to be creating money out of thin air at an absolutely insane rate.
And for those that insist that what the Federal Reserve is doing is “working”, it is important to remember that the crazy money printing that the Weimar Republic did worked for them for a little while too before ending in complete and utter disaster.
5. Quantitative Easing Has Been Causing The Cost Of Living To Rise
The Federal Reserve insists that we are in a time of “low inflation”, but anyone that goes to the grocery store or that pays bills on a regular basis knows what a lie that is.  The truth is that if the inflation rate was still calculated the same way that it was back when Jimmy Carter was president, the official rate of inflation would be somewhere between 8 and 10 percent today.
Most of the new money created by quantitative easing has ended up in the hands of the very wealthy, and it is in the things that the very wealthy buy that we are seeing the most inflation.  As one CNBC article recently stated, we are seeing absolutely rampant inflation in “stocks and bonds and art and Ferraris and farmland“.
6. Quantitative Easing Did Not Reduce Unemployment And Tapering Won’t Either
The Federal Reserve actually first began engaging in quantitative easing back in late 2008.  As you can see from the chart below, the percentage of Americans that are actually working is lower today than it was back then…
Employment-Population Ratio 2013
The mainstream media continues to insist that quantitative easing was all about “stimulating the economy” and that it is now okay to cut back on quantitative easing because “unemployment has gone down”.  Hopefully you can see that what the mainstream media has been telling you has been a massive lie.  According to the government’s own numbers, the percentage of Americans with a job has stayed at a remarkably depressed level since the end of 2010.  Anyone that tries to tell you that we have had an “employment recovery” is either very ignorant or is flat out lying to you.
7. The Rest Of The World Is Going To Continue To Lose Faith In Our Financial System
Everyone else around the world has been watching the Federal Reserve recklessly create hundreds of billions of dollars out of thin air and use it to monetize staggering amounts of government debt.  They have been warning us to stop doing this, but the Fed has been slow to listen.
The greatest damage that quantitative easing has been causing to our economy does not involve the short-term effects that most people focus on.  Rather, the greatest damage that quantitative easing has been causing to our economy is the fact that it is destroying worldwide faith in the U.S. dollar and in U.S. debt.
Right now, far more U.S. dollars are used outside the country than inside the country.  The rest of the world uses U.S. dollars to trade with one another, and major exporting nations stockpile massive amounts of our dollars and our debt.
We desperately need the rest of the world to keep playing our game, because we have become very dependent on getting super cheap exports from them and we have become very dependent on them lending us trillions of our own dollars back to us.
If the rest of the world decides to move away from the U.S. dollar and U.S. debt because of the incredibly reckless behavior of the Federal Reserve, we are going to be in a massive amount of trouble.  Our current economic prosperity greatly depends upon everyone else using our dollars as the reserve currency of the world and lending trillions of dollars back to us at ultra-low interest rates.
And there are signs that this is already starting to happen.  In fact, China recently announced that they are going to quit stockpiling more U.S. dollars.  This is one of the reasons why the Fed felt forced to do something on Wednesday.
But what the Fed did was not nearly enough.  It is still going to be creating $75 billion out of thin air every single month, and the rest of the world is going to continue to lose more faith in our system the longer this continues.
8. The Economy As A Whole Is Going To Continue To Get Even Worse
Despite more than four years of unprecedented money printing by the Federal Reserve, the overall U.S. economy has continued to decline.  If you doubt this, please see my previous article entitled “37 Reasons Why ‘The Economic Recovery Of 2013′ Is A Giant Lie“.
And no matter what the Fed does now, our decline will continue.  The tragic downfall of small cities such as Salisbury, North Carolina are perfect examples of what is happening to our country as a whole…
During the three-year period ending in 2009, Salisbury’s poverty rate of 16% was about 3% higher than the national rate. In the following three-year period between 2010 and 2012, the city’s poverty rate was approaching 30%. Salisbury has traditionally relied heavily on the manufacturing sector, particularly textiles and fabrics. In recent decades, however, manufacturing activity has declined significantly and continues to do so. Between 2010 and 2012, manufacturing jobs in Salisbury — as a percent of the workforce — shrank from 15.5% to 8.3%.

Will Cost Consumers Another $100-$500 a Year

Get ready for another hidden Obamacare tax…
Stephen Moore, economist and Wall Street Journal contributor, discussed the hidden Obamacare tax that will take effect in two weeks.The hidden Obamacare tax will cost consumers $100-$500 a year and will take effect on January 1, 2014.

Schwarzman Added, “When You Have An Economy That Grows At 2.5 Percent, 2.75 Percent, And A Stock Market That Goes Up 27 Percent, Seems Somewhat Disconnected.”

There’s a disconnect between modest economic growth and the roaring stock market, Blackstone Group Chairman and CEO Stephen Schwarzman told CNBC on Thursday.“The economy is improving pretty modestly. I think there’s a lot of bullishness that feeds on itself,” he said in a “Squawk Box” interview. “The real world is moving ahead. But it’s not barreling ahead.”Schwarzman added, “When you have an economy that grows at 2.5 percent, 2.75 percent, and a stock market that goes up 27 percent, seems somewhat disconnected.”He won’t predict whether a correction in stocks is coming but did say that “it seems a low probability that markets continue going up at 27 percent.”

Do We Even Need a Banking Sector? Not Any More

An automated banking utility has no need for parasitic bankers or politicos or indeed, a central bank.
Do we need a banking sector dominated by politically untouchable “Too Big to Fail” (TBTF) banks? Thanks to fast-advancing technology, the answer is a resounding no.Not only do we not need a banking sector, we would be immensely better off were the banking sector to wither and vanish from the face of the Earth, along with its parasitic class of political enablers, toadies and Federal Reserve apparatchiks.
The key to understanding why big banks have outlived their purpose is to grasp the implications of computing power, self-organizing networks and crowdsourcing. Banks came into existence to manage the accumulation of capital (savings) and distribute the capital to borrowers in a prudent manner that minimized risk and still yielded a return for savers and the bank’s investors/owners.
Back in the pre-computer era, the record-keeping and risk management processes of these two core functions required a complex bureaucracy and a concentration of accounting skills and lending experience. The costs of operating this record-keeping and risk management bureaucracy was high, and these costs justified the bank’s fees and interest rate spread. In an idealized scenario, a bank might pay depositors 3% annual yield on their savings and charge borrowers 5%. The 2% spread was the bank’s to keep for performing the accounting, collection and risk management functions.
Today, computers running scripts/programs can perform these functions with minimal human oversight and at very low cost. The tracking and recording of millions of transactions and accounts no longer requires thousands of clerks and a large institutional bureaucracy; a relative handful of software engineers are all that’s needed to maintain these services, which are in effect a low-cost utility.
Risk management and lending are also computerized; the human interface of a banker is a bow to tradition, not necessity. Crowdsourced funding is entirely computerized: those with money/capital choose to join a pool of lenders who accept the risk of lending to an individual, household, project or enterprise for a specified return.
This process of aligning excess capital (savings) with borrowers is already automated. Is there a role for regulation? Absolutely: such a system requires transparency that can be trusted. Those who violate this trust with cooked-books, lies, misinformation, etc. must suffer negative, long-lasting consequences, starting with being banned from the system.
It is an abiding irony that the present banking system’s secret portfolios and processes (shadow banking, derivatives designed to fail and trigger profitable defaults, etc.) are considered core competitive advantages: in other words, eliminating transparency generates the highest-return bank profits.
And let’s not overlook the political consequences of these immense profits: a political and regulatory order that is easily captured to serve the interests of big banks. The number one agenda item is of course to arrange Central State protection of the most profitable (i.e. the least transparent) parts of the banking sector’s operations.
This lack of transparency distorts the financial market, rendering it systemically vulnerable to malinvestments and risky speculations and the financial crashes that result from these systemic distortions.
The other top agenda item for bank lobbyists is to arrange Central State/Federal Reserve subsidies of bank profits. These subsidies are also known as financial repression, as the Central State/Bank rigs interest rates and regulations to favor bank profits at the expense of both savers and borrowers.
Thanks to the Federal Reserve’s Zero Interest Rate Policy (ZIRP), savers have been robbed of hundreds of billions of dollars in income–money that has been effectively transferred to the banks by the State. This is why I call our system State-Cartel capitalism, as the State and cartels rule in a mutually beneficial marriage at the expense of the real economy, the citizenry and especially what’s left of the dwindling middle class.
Since the core functions of banks can now be performed by cheap processors and software, we can get rid of the entire parasitic banking sector, once and for all. But what about investment banking? That too can be automated. What about wealth management? In a world where index funds beat 96% of money managers over a long time-frame, that too can be automated.
But what about the tens of millions of dollars in campaign contributions politicos skim from the bankers? Now we finally reach the real reason why the parasitic banking sector is allowed to exist, even though it has outlived its purpose and value: the political class of parasites benefits immensely from the banking sector’s giant state-rigged skimming machine.
An automated banking utility has no need for parasitic bankers or politicos or indeed, a central bank. The only legitimate regulatory function of the state is to enforce transparency; beyond that, its actions are all subsidies of one sort or another of politically powerful constituencies at the expense of the real economy’s productive people, communities and enterprises.

Is the U.S. Government Changing the Amount In People’s Financial Accounts and Manipulating Financial Systems with Its Offensive Cyber Capabilities?

Official White House Spying Panel Implies that It Might Be …

Hidden in the report which the White House panel on NSA released today is a stunning implication:  that the U.S. government has been using its massive offensive cyber capabilities to change the amounts held in financial accounts and otherwise manipulating financial systems.
Specifically, the panel’s report states (page 221):
(1) Governments should not use surveillance to steal industry secrets to advantage their domestic industry;
(2) Governments should not use their offensive cyber capabilities to change the amounts held in financial accounts or otherwise manipulate the financial systems ….
The government certainly massively manipulates the economy and financial system.
There are already numerous examples of offensive cyber actions by the NSA:
As spying expert Trevor Timm from the Electronic Frontier Foundation Tweeted  (and Glenn Greenwald – who has seen the Snowden documents – re-tweeted):
Does this NSA report recommendation imply that NSA is conducting offensive cyber attacks against financial systems?
Remember, the NSA is tapping into and spying on the biggest financial payments systems such as VISA and Swift.
Top financial experts say that the NSA and other intelligence agencies are using information gained from spying to profit from this inside information. And the NSA wants to ramp up its spying on Wall Street … to “protect” it.
Whose money, exactly, is the NSA “protecting” … and how are they protecting it?
What about the money of people that the U.S. government considers undesirables?

Bernanke Rocks the Markets with Tiny Taper



Fed Announces Taper to Begin in January

The December FOMC meeting policy announcement has been issued: The Fed has decided to slightly scale back its gargantuan monthly bond-purchases by $10 billion per month. According to the policy announcement: The housing sector remains a problem; Inflation is still too low for the Fed’s taste as the Fed’s inflation target remains 2%, and anything below that number ”could pose risks to economic performance.” For the Fed, everything hinges upon an improved labor market outlook. Bernanke added that current political gridlock over America’s most pressing economic issues is “restraining” economic growth. (Fiscal policy vs. monetary policy ‘unbalanced.’) So what is Bernanke’s solution? It is what it always was: “appropriate policy accommodation.” (Translation: Perpetual easy money policies.)

Bernanke’s Speech in 90 Seconds

  • Fed’s “Non-Tightening Taper” Slams Gold Prices. Gold drops below $1,200 for first time since June.
  • Another leaked FOMC release? Gold, stocks moved dramatically a full 50 seconds before the FOMC statement was officially released.
  • Jerry Robinson on the Fed Taper: “Yesterday’s taper by the Fed took me by surprise. However, if you read the full policy statement closely, you will discover that this taper is utterly meaningless, which partially explains why stocks roared higher immediately after the announcement.”


Mainstream Economists Finally Admit that Runaway Inequality Is Hurting the Economy

But Bad Government Policies Are Making Inequality Worse By the Day

AP reported Tuesday:
The growing gap between the richest Americans and everyone else isn’t bad just for individuals.
It’s hurting the U.S. economy.
“What you want is a broader spending base,” says Scott Brown, chief economist at Raymond James, a financial advisory firm. “You want more people spending money.”
“The broader the improvement, the more likely it will be sustained,” said Michael Niemira, chief economist at the International Council of Shopping Centers.
Economists appear to be increasingly concerned about the effects of inequality on growth. Brown, the Raymond James economist, says that marks a shift from a few years ago, when many analysts were divided over whether pay inequality was worsening.
Now, he says, “there’s not much denial of that … and you’re starting to see some research saying, yes, it does slow the economy.”
As one example, Paul Krugman used to doubt that inequality harmed the economy.  As the Washington Post’s Ezra Klein wrote in 2010:
Krugman says that he used to dismiss talk that inequality contributed to crises, but then we reached Great Depression-era levels of inequality in 2007 and promptly had a crisis, so now he takes it a bit more seriously.
Krugman writes this week in the New York Times:
The discussion has shifted enough to produce a backlash from pundits arguing that inequality isn’t that big a deal.
They’re wrong.
The best argument for putting inequality on the back burner is the depressed state of the economy. Isn’t it more important to restore economic growth than to worry about how the gains from growth are distributed?
Well, no. First of all, even if you look only at the direct impact of rising inequality on middle-class Americans, it is indeed a very big deal. Beyond that, inequality probably played an important role in creating our economic mess, and has played a crucial role in our failure to clean it up.
Start with the numbers. On average, Americans remain a lot poorer today than they were before the economic crisis. For the bottom 90 percent of families, this impoverishment reflects both a shrinking economic pie and a declining share of that pie. Which mattered more? The answer, amazingly, is that they’re more or less comparable — that is, inequality is rising so fast that over the past six years it has been as big a drag on ordinary American incomes as poor economic performance, even though those years include the worst economic slump since the 1930s.
And if you take a longer perspective, rising inequality becomes by far the most important single factor behind lagging middle-class incomes.
Beyond that, when you try to understand both the Great Recession and the not-so-great recovery that followed, the economic and above all political impacts of inequality loom large.
Inequality is linked to both the economic crisis and the weakness of the recovery that followed.
Indeed – as we noted in September – a who’s-who of prominent economists in government and academia have now said that runaway inequality harms economic growth, including:
  • Former U.S. Secretary of Labor and UC Berkeley professor Robert Reich
  • Global economy and development division director at Brookings and former economy minister for Turkey, Kemal Dervi
  • Societe Generale investment strategist and former economist for the Bank of England, Albert Edwards
  • Deputy Division Chief of the Modeling Unit in the Research Department of the IMF, Michael Kumhof
  • Former executive director of the Joint Economic Committee of Congress, senior policy analyst in the White House Office of Policy Development, and deputy assistant secretary for economic policy at the Treasury Department,  Bruce Bartlett
Even the father of free market economics – Adam Smith – didn’t believe that inequality should be a taboo subject.
Numerous investors and entrepreneurs agree that runaway inequality hurts the economy, including:
Bad government policy – which favors the fatcats at the expense of the average American – is largely responsible for our runaway inequality.
And yet the powers-that-be in Washington and Wall Street are accelerating the redistribution of wealthfrom the lower, middle and more modest members of the upper classes to the super-elite.