Monday, May 12, 2014

Supply or Demand? Peak Oil with Richard Heinberg and James Hamilton

Our lead story: This week Stanford said that it would divest all of its investments in coal-mining companies, becoming the wealthiest US university to pledge divestment from sectors of the fossil fuel industry. Erin gives you her take on the situation.
For our interviews today, we look at peak oil theory with Richard Heinberg and James Hamilton. Heinberg argues that we have reached peak oil supply and that will have major economic consequences for our future prospects of economic growth. Hamilton on the other hand sees this as more of a demand issue. Take a look.
Finally in today’s Big Deal, Edward Harrison and Erin take a look at the return of the subprime auto loan market. Is this another example of perverse incentives in the search for yield? Edward gives you his take.

When $1.2 Trillion In Foreign Bank Funds In The US Dissipate

Wolf Richter
It fits the pattern of gratuitous bank enrichment perfectly, but this time, the big beneficiaries of the Fed are foreign banks. A JPMorgan analysis, cited by the Wall Street Journal, figured that in 2014 the Fed would pay $6.74 billion in interest to the banks that park their excess cash at the Fed – half of that amount, so a cool $3.37 billion, would line the pockets of foreign banks with branches in the US.
This is where part of the liquidity ends up that the Fed has been handing to Wall Street through its bond purchases. Currently, the Fed requires that banks keep a minimum balance of $80.2 billion at the Fed. Banks can keep up to $88.2 billion at the Fed as part of the “penalty-free band.” In theory, as “penalty-free” implies, there’d be a penalty on balances above $88.2 billion.
But the total balance was $2.66 trillion in April, up from $2.62 trillion in March and from $1.83 trillion a year ago. The balances in excess of the “penalty-free band” have reached $2.57 trillion. The highest ever. The penalty on that?
Forget that. The Fed’s raison d’être is to enrich the banks regardless of what the costs to the economy, the rest of society, and savers. So instead of penalizing banks for these excess reserves, it pays the banks 0.25% interest not only on the required balances but also on all other balances. Spread over the year 2014, as JPMorgan estimated, interest payments on these balances would amount to $6.74 billion.
It’s a marvelous system. The banks’ cost of funds, given the heroic efforts the Fed has undertaken to repress interest rates, is near zero. Banks can borrow short-term from their depositors – that’s you and me – and from money-market funds – that’s you and me again – at near zero cost, so maybe 0.10%. Instead of lending it out, banks put that money on deposit at the Fed to earn 0.25%. It’s the laziest no-brainer in banking history. A pure gift from the Fed.
But there’s a kink. Non-US-charted banks with branches in the US benefit even more. The Bank for International Settlements, the umbrella organization for the world’s largest central banks, revealed how these non-US banks were taking advantage of the new FDIC insurance charges on wholesale funding (borrowing from other banks, short-term repos, or funding from affiliates outside the US). They’d figured out that these extra costs didn’t apply to them. They only applied to US-chartered banks.
The wider FDIC charge added 2.5 to 45 basis points to the costs of large and complex US chartered banks’ short-term wholesale funding. The calculation is complex and its result by bank is not disclosed, but the rate for the largest US bank was said to be 8 basis points…. With wholesale rates of 10 basis points or less, the new FDIC charge made bidding for such funds and parking them at the Fed at 25 basis points unattractive for many US-chartered banks but not to the US branches of foreign banks, which pay no FDIC fee.
These “seemingly small regulatory differences” at the FDIC, the report points out, turned the Fed into a special profit center for non-US banks. In this chart from the report, foreign banks’ balances parked at the Fed (blue area in dollars, and red line in percent) started shooting up at the end of 2008, and by mid-2013, reached about 50%. It resulted in “massive changes” in the balance sheets of internationally active banks.
As foreign banks took advantage of the laziest no-brainer in history, the Fed’s money-printing and bond buying regime led to an enormous inflow of money into the US – about $1.3 trillion so far. It’s the risk-free banking version of the hot money. And the $2.6 trillion in excess reserves that economists are expecting to flow into the US economy sooner or later to really stir things up? Half of it is that hot money. It won’t ever flow into the US economy. It won’t fuel the “escape velocity” that has been forecast for five years in a row. It’ll dissipate.
The Fed has an excuse for this banking gravy train: “eliminate effectively the implicit tax that reserve requirements used to impose on depository institutions,” it said. OK, I get it, concerning the “penalty-free” $80.2 billion that banks are required to deposit at the Fed. Fine. Pay them 0.25% on that. I don’t get paid that much on my money at the bank. But what the heck. Let’s not quibble over pocket change, which is what billions have become to the megabanks these days. But what about the annual interest on $2.6 trillion in excess reserves?
Ah, the Fed has an excuse for that too: it’s of course – I mean, how could I possibly not think of this on my own? – “an additional tool for the conduct of monetary policy.” A policy whose goal it is to fan reckless speculation, inflate asset bubbles, enrich the banks and those who run them at the expense of savers, and douse the entire neighborhood, namely Wall Street, with free money.
Under this relentless regime, the labor force participation rate has shriveled to 62.8%. You have to go back to February 1978 to see worse. It’s a terrible indictment of the Fed’s policies that favor capital over labor, Wall Street over savers. New Zealand’s central bank didn’t follow the Fed’s lead in monetary policy. And there, the labor participation rate just set a new record high. Read…. Scorched-Earth Monetary Policy in the US, And What Happened in New Zealand

Jim Willie: BRICS 80 Preparing To Take Down The Dollar

Dr Jim Willie has been talking about the BRICS nations (Brazil, Russia, China, India and South Africa) being joined by other nations to take down the dollar. He says there are now 80 nations in the BRICS alliance who have joined together to end the dollar’s reign as the international reserve currency. China could have taken down the US economy any time it wanted to after it had accumulated more than a trillion dollars in US Treasury bonds. All it had to do was to sell them and buy real assets until the US government collapsed and surrendered.

The Chinese are playing a much more sophisticated game. Their goal is to take down the dollar and the British pound but not to hurt their customers in Africa, Latin America, Australia and elsewhere. He thinks a Northern euro will emerge leaving southern Europe and France far behind. Italy’s future was hurt when they mistakenly decided to send half of their gold to New York. That gold is in Asia along with the bullion from the Netherlands and Germany. Dr Willie agrees with Jim Rickards who says the dollar will be devalued 80%. This will make imported goods 500% more expensive. And it will also enable foreigners to buy food off the shelves of America and Great Britain. Please note that the British pound is being targeted by the BRICS 80 as well.


Companies Are Raising Prices… Good Thing Inflation’s Too Low!

The signs of inflation continue to appear in the economy.
The Fed is ignoring this because the Fed is afraid of deflation… despite food prices, energy prices, healthcare costs, home prices and stocks soaring.
·      FedEx is increasing prices by 42% for some shipments.
·      Commonwealth Edison is raising electricity rates by 38% in June.
·      Chipotle is raising prices for the first time in three years.
·      Netflix is raising prices on new customers.
·      Colgate-Palmolive is raising prices.
These are simply explicit price increases. Many companies have been raising prices via a “stealth” price hike by simply charging the same price for less of a product. The latest example of this is bacon, but companies such as Kellogg’s, Snickers, Tropicana, Bounty, Heinz, and others have been using this tactic for some time.
Against this backdrop, the Fed is openly stating that it wants to create inflation. Put another way, the Fed is not only oblivious to the fact inflation is already appearing in the broader economy, the Fed actually wants to create more inflation!
Small wonder the US Dollar is teasing with breaking multi-year support.
In its quest to fight the brief deflation of 2008-2009, the Fed has unleashed a wave of inflation. These developments take time to unfold. But the signs are already there. The grand theme for 2014 will see prices moving higher.
This concludes this article, swing by for several FREE investment reports including Protect Your Portfolio, The Gold Mountain: how to buy Gold at $273 per ounce.
Best Regards
Phoenix Capital Research

Companies Are Raising Prices… Good Thing Inflation’s Too Low!

The signs of inflation continue to appear in the economy.
The Fed is ignoring this because the Fed is afraid of deflation… despite food prices, energy prices, healthcare costs, home prices and stocks soaring.
·      FedEx is increasing prices by 42% for some shipments.
·      Commonwealth Edison is raising electricity rates by 38% in June.
·      Chipotle is raising prices for the first time in three years.
·      Netflix is raising prices on new customers.
·      Colgate-Palmolive is raising prices.
These are simply explicit price increases. Many companies have been raising prices via a “stealth” price hike by simply charging the same price for less of a product. The latest example of this is bacon, but companies such as Kellogg’s, Snickers, Tropicana, Bounty, Heinz, and others have been using this tactic for some time.
Against this backdrop, the Fed is openly stating that it wants to create inflation. Put another way, the Fed is not only oblivious to the fact inflation is already appearing in the broader economy, the Fed actually wants to create more inflation!
Small wonder the US Dollar is teasing with breaking multi-year support.
In its quest to fight the brief deflation of 2008-2009, the Fed has unleashed a wave of inflation. These developments take time to unfold. But the signs are already there. The grand theme for 2014 will see prices moving higher.
This concludes this article, swing by for several FREE investment reports including Protect Your Portfolio, The Gold Mountain: how to buy Gold at $273 per ounce.
Best Regards
Phoenix Capital Research

Study: 25% of Minnesota vets may be going hungry

One in four recently separated U.S. veterans may not be able to consistently put food on their tables, according to a new report released Wednesday.
The Public Health Nutrition journal study, titled “Food Insecurity & Iraq/Afghanistan Veterans,” surveyed more than 900 young veterans and found 27 percent reported problems with getting enough food for three meals a day. That’s about twice as high as the overall national rate.
Study author Rachel Widome, a University of Minnesota health professor, called the findings “shocking and disheartening.” Investigators launched the study two years ago after tracking reports about financial hardships among young veterans.
“We really had no idea how common it was that Iraq and Afghanistan war veterans were struggling to afford food,” she said. “Given anecdotal accounts, I thought food insecurity might be somewhat of an issue, but really had no idea of the extent.”
About 12 percent of the veterans surveyed were classified as having “very low food security,” marking severe difficulties in reliably getting meals.
The study was conducted with the Minneapolis VA Health Care system and featured only veterans from Minnesota. Authors said the findings indicate serious challenges for younger veterans and their families.
Widome said veterans struggling with food problems also reported struggling with other life stress, including sleep problems, substance abuse and employment difficulties.
“For those of us who work with Iraq and Afghanistan war veterans either in health care or social service settings, it is important to be aware that these veterans may also have another hidden struggle,” she said.
“We need to work on connecting veterans in need with food assistance programs, or even better, assisting them with finding employment that provides a secure livable wage after deployment.”

Anti-Sanctions? Putin Lifts "Limits" And China Agrees To Increase Investment In Russia

Chinese will not be allowed to invest in gold or diamond mining, or hi-tech projects, Russia hopes to lure cash from the world’s second-biggest economy into industries from housing and infrastructure construction to natural resources. Chinese President Xi Jinping and Russian President Vladimir Putin will meet in Shanghai May 20/21 and Chinese officials have already confirmed bilateral cooperation in the areas of investment and finance has made major progress as local currency settlement in two-way trade increases. Forget sanctions, just remove the US from the world trade equation...
As Bloomberg reports, Russian President Vladimir Putin plans to open the door to Chinese money as U.S. and European sanctions over Ukraine threaten to tip the economy into recession, according to two senior government officials.
The move would roll back informal limits on Chinese investment as Russia seeks to stimulate growth, said the officials, who have direct knowledge of talks and asked not to be identified as the information isn’t public. The government wants to lure cash from the world’s second-biggest economy into industries from housing and infrastructure construction to natural resources, they said.
The Chinese won’t be welcome in all areas: Russia plans to set “red lines” around significant gold, platinum-group metals, diamond mining and high-technology projects, the officials said.
Putin’s decision, coming as competition from U.S. and European financing slows, may offer China a good opportunity to gain access to Russia’s economy. Existing resource projects will probably be more appealing than starting from scratch, Moscow-based George Buzhenitsa, Deutsche Bank AG analyst said by phone on May 7.
“Given that China has a shortage of raw materials from iron ore to coal to copper, it may be extremely interested in gaining access to such projects in Russia,” Buzhenitsa said.
And China seems more than willing to step up...
China is ready to join with Russia to increase two-way investment, Chinese Vice Premier Zhang Gaoli said here Thursday.
Their talks were focused on bilateral investment and practical cooperation in the financial area, in preparation for the forthcoming meeting between the two heads of state.
Chinese President Xi Jinping and Russian President Vladimir Putin will meet when Putin attends the Fourth Summit of the Conference on Interaction and Confidence Building Measures in Asia (CICA), on May 20 and 21 in Shanghai.
Zhang said bilateral cooperation in the areas of investment and finance has made major progress. China has increased investment in Russia and become the country's fourth largest source of foreign direct investment.
He said financial cooperation between China and Russia is growing as local currency settlement in two-way trade increases and consultations on a package of currency swaps are on-going.
Zhang expressed the hope that the two sides increase mutual investment via the China-Russia investment fund and carry out the first batch of investment projects as planned.
He said the two sides should increase investment in the forms of greenfield investment, equity investment, bond issuance and mergers and acquisitions.
Zhang asked the Russian side to help Chinese enterprises to invest in special economic zones in the Far East region of Russia.
Who needs sanctions when China is your friend? And it would seem no matter what card the US tries to play, Putin has a trump (for now).

What Are They Thinking?

‘Happy’ Athena CEO: I messed up when I promised net income growth.

In an interview with Bloomberg’s Stephanie Ruhle and Erik Schatzker Athenahealth CEO Jonathan Bush said this morning on “Market Makers,” he “messed up” when he promised net income growth and that he feels the reason Einhorn called out Athenahealth was because he is the ” quintessential value guy. He likes Apple now that Jobs is dead.” Bush said he wants investors who “dream of a health-care cloud.”
Bush also said: “I don’t know what we’re worth. I know we’re worth $1,000 a share at some point in the future.”
Anchor Stephanie Ruhle concluded the interview saying “And here we thought David Einhorn was quirky” to which Bush replied “I am a strange guy, but I’ve found a great thing to do with my life so I’m just happy.”
On promising net income was going to grow:
“I messed up.  If I said net income is going to grow infinitely and then you see this opportunity basically, the big arbitrage for us is suddenly we’ve got – so we’ve lots of doctors.  Half of our doctors work for hospital companies.  Those hospital companies are saying you must push this network in through our hospitals.  We don’t want the cloud to be something that happens outside the hospital and then we’re stuck on Enterprise software inside the hospital.  So we said, look, this is a chance.  They’re asking us to serve them.  Let’s double down on R&D.  We finally got a good enough reputation that we can hire as many developers as we want with our standards not wavering.  Let’s do it.”
On growth targets:
“We believe we need to grow 30 percent a year – or that we can and we should.  To grow more than that, you’ll have a hard time building out the infrastructure and if you grow less than that, you might not be able to build the national network that you’re trying to build, you want to be relevant.  We’ve always said you have to grow the margins of all products to make them scalable and reliable.  It is the natural way of things in a software enabled service, in a network company, which we are.  So our margins have improved in every product, every year.  But when we add new products, those start at low margins and then, as we grow them and remove the work, the scut work that is sort of rotting the walls of health care, the margins go back up again.”
“You have been to the doctor’s office.  I mean, the clipboard is still there and the phones and faxes.  It’s like that movie, “Brazil,” sort of this weird future where the Internet never shows up.  And finally Athena’s got a business model that allows us to bring health care onto a secure sector of the Internet, we call it the health care cloud, in order to eliminate that kind of scut work.”
On David Einhorn saying he like Athenahealth and Bush as CEO:
“In the South, that’s when they like bless your heart.”
On how he defends his valuation:
“I don’t know what we’re worth.  What I do – I know we’re worth $1,000 a share, no problem, at some point in the future.  And it’s up to David and others to decide when by discounting back what they think… I pulled [the valuation] out of my ear.  I mean, the point is — what I know, what David – the only David missed that I can see is that he doesn’t see what a software enabled service is.  So that’s — we are not a BPO company by any stretch.  We are not an Enterprise software company.  We are not even a SAS company.  We’re a company that’s a software enabled service.  We give out our software, Internet native software, to all of our customers for free.  Then we use that software to deliver a series of complicated services that they hate and stink at.  And then, once we’re doing that, we start to realize this extraordinary network effect where the margins go up and up and up as we eliminate paper.”
On why growth rate didn’t increase when he cared less about margins:
“I  can have high gross margins, I just want to put that money into R&D for new products and sales and marketing. That income, what’re you going to do, pay 40 percent taxes to Barack and then stop growing?  We’ve got 3 percent of the doctors; we need them all.  We need at least half of them.  I’m shooting for half of the doctors, not 3.5 percent of doctors. ”
On the Athenahealth network effect:

“So there are today there are 52,000 caregivers — nurse practitioners, doctors, et cetera — who in their office look at a little iPad or a whatever, a laptop, a browser, with Athenanet on it.  They do all the work.  In the background, all of them are connected to one instance of one software, one database.  Every time any of them get a single claim denied, any one guy in North Dakota, the Athena analysts in a room not as sexy but close as this, get to the root cause, build code that night into the network, and then no doctor ever gets that claim denied again.  So the margin associated with following up and appealing and dealing with the insurance company turns into a new level of profit.  Similarly, a doctor wants to send a patient to a laboratory.  Athena will build a connection into that laboratory and then any doctor in the country that ever wants to send a patient who that laboratory is automatically lit up and connected like you’ve added a new cable channel.  That creates a huge revenue — margin arbitrage.  Because what used to be a Athena sending a fax and receiving a fax and typing it in becomes an instantaneous, real-time, all-margin.”
On whether he thinks Einhorn feels he was made promises that shareholders are not getting:
“If you ask me, the guy’s a quintessential value guy.  He likes Apple now that Jobs is dead, right, because all they’re going to do is drive up, drive up, drive up.  He’s not going to be – Steve’s not going to be running around demanding some crazy new space age product with all of their money, right?  He doesn’t even like Amazon.  Look at how Jeff’s pushing more and more and more into not sure we need drones, but maybe I’m wrong.  Maybe the drones are key to the grocery business. So, I’m more in that sort of line of thinking, which is not his.  And those who buy our stocks should not be sort of bottom watching value investors.  They should be people who dream of a health care cloud.”
 On wanting value investors to understand the company:
” I’m looking forward to the cage match between Einhorn and Morgan Stanley, because they’re the ones who are doing the bottom up stock pricing.  David seems to be doing well financially, so maybe there’s reasons.  All I am saying is I know that this health care cloud is a really good idea.”
On Einhorn’s concern about getting inside hospitals:

“So lucky for us, a lot of hospitals, 550 hospitals, are already clients.  We just do the doctors they employ, and they’re saying, hey, finish the job.  Move on through.  We just announced Steward Healthcare, which is a service-backed hospital chain, that’s allowing us to start performing services toward the in-patient side and we’re going to roll out a new service called Enterprise Coordinator that moves through. It’s also worth noting that hospital chains, like Ascension, which is the largest nonprofit Catholic hospital chain in the country, has already chosen us for billing and then said to doctors, hey, you guys — if you want to keep the Enterprise software that you already have for your medical records, you can, we won’t make you leave.  And six out of seven of the ministries have switched to Athena Clinicals even though they just have these new Enterprise software based EMRs.  Enterprise software is not a competitor to Athena; it’s a sort of previous era substitute.  And as the cloud rises up, you throw out your software.”
On whether he sees Athena partnering with Epic:
“Totally.  Run by a great lady and a great guy.  You know, they have to protect business model, which I think is obsolete, but they do a very good job within the context of that business model.  We’ll work with them all over.”
On hospitals having a harder time bringing doctors into the fold unless they are willing to connect with Athena’s software:
“The average hospital today in this buying spree since Obama was elected is up to $180,000 per doc per year loss, subsidizing doctors to use the hospital operations and the hospital systems.  That can’t last forever.  And even if it does last  for the ones they’ve bought, they’re not going to be able to go and buy the other half of the doctors, but they’re going to want patients.  So they’re going to need to connect.”

The Decline of Small Business and the Middle Class

The only way to not just survive but thrive as an entrepreneurial enterprise is to destroy fixed costs and labor overhead.
It is not coincidental that the middle class and small business are both in decline.Entrepreneurial enterprise and small business have long been stepping stones to middle class incomes and generational wealth, i.e. wealth that is passed down to future generations rather than consumed. As the headwinds to entrepreneurial enterprise and small business rise, the pathway to middle class prosperity narrows.
The Washington Post published a study that found U.S. businesses are being destroyed faster than they’re being created. While not exactly a surprise, it was sobering evidence that small enterprise is in structural decline:
The decline of small business also hurts employment. Successful small businesses expand and hire employees. As small businesses close, jobs vanish en masse.
I have addressed this systemic decline many times, for example: The Decline of Self-Employment and Small Business (April 22, 2013)
What are the headwinds to entrepreneurial enterprise and small business? Here are a few key dynamics:
1. Barriers erected by cartels and the government. Cartels prosper by eliminating competition, and the easiest, cheapest way to restrict competition is to influence government to create regulatory barriers that raise the cost to levels no small business can afford. There are dozens of examples of regulations that do little to “protect the public” (the usual rationalization) whose primary intent and effect is to suppress competition.
Sickcare and higher education, to take two egregious examples, are protected from real competition: there is little real transparency in pricing and little accountability for the efficacy of the product (diplomas, wellness).
2. Overcapacity. Supply exceeds demand in almost every nook and cranny of the global economy. There aren’t many high-value opportunities to pursue because every field is already crowded or restricted.
The market ultimately sets the value of any output. You can ask $30 for a lunch plate but the market will determine the value. If your cost is $20 per plate and the market value is $15, you will lose money and go out of business.
3. High cost structure. Many people are calling for small businesses to pay their employees a living wage. I understand the emotional source of this demand: a desire to close the income gap and raise the standard of living of the working poor. But since the market sets the value of any enterprise’s output (good or services), and the business has fixed costs (rent, utilities, business licence fees, taxes, inventory, back-office overhead such as accounting, etc.), a business can only pay wages and labor overhead out of gross profit–what’s left after fixed costs are deducted from revenue.
Fixed costs and labor costs are both skyrocketing. Commercial landlords have inflated expectations of rent, thanks to the Fed-induced real estate bubble: since they overpaid for the building, they need to charge high rents to cover their mortgage payments and property taxes.
As I have explained in previous entries in this series on the middle class, the costs of labor overhead–healthcare insurance, pensions, payroll taxes, worker compensation, etc.–are rising. That leaves less available for wages.
Local governments are responding to their own soaring healthcare and pension costs by raising junk fees and taxes on small business: in many areas, a new small business faces a blizzard of fees for licenses, permits, etc.
The fundamental context of our economy is not conducive to small business or conventional employment: the cost of human labor keeps rising while technology that replaces human labor gets cheaper; fixed costs keep rising while overcapacity and anti-competitive barriers reduce high-value opportunities.
Any enterprise exposed to free-market forces must create value. If businesses can only create low value good and services, i.e. goods and services with thin margins, they can only pay low wages–not just to employees, but to the owners/entrepreneurs.
The only way to not just survive but thrive as an entrepreneurial enterprise is to destroy fixed costs and labor overhead. The food services enterprises that will thrive are those that share the expensive fixed costs of a kitchen. The enterprises that thrive will not own vehicles, they will share vehicles. The enterprises that thrive will not have employees, they will draw upon self-employed people who organize to complete a specific project/task and share the revenue.
The way to destroy fixed costs and labor overhead is to pay no business rent, own no vehicles, have no employees, owe no debt, own your own tools/means of production and nurture human and social capital. This model for small enterprise is overturning all the skimming cartels and bureaucracies: commercial real estate, local government fees and property taxes, etc. etc.
The future of middle class prosperity is entrepreneurial enterprise and joining the class of Mobile Creatives who minimize fixed costs and overhead and maximize productive cross-fertilization of skills, human and social capital and debt-free ownership (or shared access to) the means of production.
I cover all of this in my new book Get a Job, Build a Real Career and Defy a Bewildering Economy, which is in essence a how-to guide on becoming a Mobile Creative as a means of securing middle class prosperity in the emerging economy.

Global debt enters terminal velocity mode: Why central banks have no intention of slowing their public and private debt binge.

Central banks around the world are following one core mission. That mission revolves around expanding debt to goose equity markets and attempting to solve a debt crisis with more debt. Even the more conservative European Central Bank bowed down to easy digital money printing by announcing they too would follow in the footsteps of the Fed and Bank of Japan. Global banking is now fully addicted to non-stop debt. Every dollar of debt is having a smaller impact on what it can do to the real economy. The Fed’s balance sheet is now well over $4.3 trillion and while talks of tapering are made in public, there is no visible action being taken to show this is the intended goal. At the core of the global crisis was an expansion built on too much debt. Banks attacked this issue as one of liquidity but in reality this was a crisis of solvency. Banks never dealt with writing down assets but have decided to use modern day inflation methods to boost banking profits at the expense of working class families. Global debt has now reached a terminal velocity mode and central banks have no choice but to continue to expand their balance sheets.

Central banks follow one mandate
Some people act as if the crisis never happened. US stock markets are at record levels and those with access to wealth continue to get richer. The policies that are creating a massive low wage economy in the US are also part of the other side of the coin expanding debt based bubbles. It is no coincidence that items financed by debt (i.e., college, housing, cars, etc) are seeing inflation many times higher than that of wages. In fact, wages are stagnant. Central banks realize that keeping interest rates low through whatever means necessary is the only endgame for their current charade.
Would you lend someone money if you knew you would never get paid back? Probably not. Yet this is the trajectory being followed by central banks. Take a look at the below illuminating chart and tell me if central banks are operating as if we are in a full recovery:
central bank balance sheets growth
Central banks are taking on policies that appear to indicate a deep and profound recession. The only issue with this is that the US recession ended in 2009. Why continue expanding at such an aggressive pace? The chart above shows continued aggressive expansion of central bank balance sheets. First, many US banks were fully insolvent. That is, they had overplayed their hand and were holding onto assets that were way overvalued. This led to the foreclosure crisis. But a funny thing happened. The US allowed these toxic assets to fall into the Fed’s balance sheet and policy makers allowed mark to market accounting to be suspended. Little by little banks inflated the housing market back up. This dramatically helped banks stay afloat while fully manipulating the market at the public’s expense. Keep in mind millions of people lost their homes yet every large major bank actually has become bigger and salaries of these financiers are back to where they once were. In an incestuous twist, many of those foreclosures are now owned by the new rentier class as they chase yields in every asset class.
The Fed’s balance sheet only continues to grow since they essentially own the US mortgage market:
fed balance sheet
Where is the taper talk being reflected in the chart above? The Fed now has a $4.3 trillion balance sheet. The Fed is operating in full crisis Great Recession mode. Don’t believe any of the hype that the Fed is in control here. Look at the Bank of Japan and you will realize that when you are a debt making hammer, everything looks like nail.
The global markets are controlled by central banks. This is a central bank market rally. It is also, once again, causing global property bubbles from Canada, China, Australia, to the United States (again). The small globally connected elite realize this and that is why you have foreign money buying condos in New York, flats in London, and single family homes in California. They understand what is playing out and are doing their best to purchase real assets before the public starts waking up to this slow inflationary robbery despite what official statistics show. Central banks have no desire to taper. Once you give a market low rates, an addiction takes hold. Similar to low wage capitalism, once people get used to a low price good luck trying to push higher costs. Everything gets driven down for the prosperity of the few. We live in a world of limited assets and central banks dealt with this debt crisis by creating more debt. So it is no surprise that global property bubbles are once again raging.
The fact that tapering talks have been going on for some time with no real reversal (take a look at the Fed balance sheet chart above), you start to realize central banks are in full terminal velocity mode. They only have one hand to play. Convince the public they have all of this under control until it spirals out of control, again. Keep in mind Ben Bernanke thought the housing market issues were confined to the subprime market in 2007, right at the peak of all the global debt madness. All central banks are playing out of the same rule book; keep pushing rates lower for the main purpose of keeping wealth inflated for those that actually have wealth higher by simply going into deeper debt.

Prints Millions, Says ‘Screw You’ to US. - Help me figure out how the FED is different.

Opportunity To Buy Gold Coming: Jim Rogers | Kitco News

Famed commodity investor Jim Rogers is on Kitco News to speak about the Chinese and US economy, gold, and even bitcoin. Rogers has some very interesting thoughts about the yellow metal and where he thinks it may be headed. “Gold is still correcting… I expect there to be another opportunity to buy gold sometime in the next year or two.” He also shares his insights on the US economy and how he is not so confident in the US dollar given the country’s elevated debt levels. “No country in world history has got itself into this kind of situation and got out without a crisis or semi-crisis.” He also shares some insights on bitcoin and what he thinks of the cryptocurrency. Tune in now to watch the latest edition of “On the Spot” with Daniela Cambone. Kitco News, May 8, 2014.
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$474M for 4 failed Obamacare exchanges

Nearly half a billion dollars in federal money has been spent developing four state Obamacare exchanges that are now in shambles — and the final price tag for salvaging them may go sharply higher.
Each of the states — Massachusetts, Oregon, Nevada and Maryland — embraced Obamacare, and each underperformed. All have come under scathing criticism and now face months of uncertainty as they rush to rebuild their systems or transition to the federal exchange.
The federal government is caught between writing still more exorbitant checks to give them a second chance at creating viable exchanges of their own or, for a lesser although not inexpensive sum, adding still more states to The federal system is already serving 36 states, far more than originally anticipated.
As for the contractors involved, which have borne most of the blame for the exchange debacles, a few continue to insist that fixes are possible. Others are braced for possible legal action or waiting to hear if now-tainted contracts will be terminated.
The $474 million spent by these four states includes the cost that officials have publicly detailed to date. It climbs further if states like Minnesota and Hawaii, which have suffered similarly dysfunctional exchanges, are added.

What Is and Is Not Getting Priced into the Gold Market

Hardship Makes a New Home in the Suburbs

MORENO VALLEY, Calif. — The freeway exits around here are dotted with people asking for money, holding cardboard signs to tell their stories. The details vary only slightly and almost invariably include: Laid off. Need food. Young children.
Mary Carmen Acosta often passes the silent beggars as she enters parking lots to sell homemade ice pops, known as paletas, in an effort to make enough money to get food for her family of four. On a good day she can make $100, about double what she spends on ingredients. On a really good day, she pockets $120, the extra money offering some assurance that she will be able to pay the $800 monthly rent for her family’s three-bedroom apartment. Sometimes, usually on mornings too cold to sell icy treats, she imagines what it would be like to stand on an exit ramp herself.
“Everyone here knows they might have to be like that,” said Ms. Acosta, 40, neatly dressed in slacks and a chiffon blouse, as she waited for help from a local charity in this city an hour’s drive east of Los Angeles. Both she and her husband, Sebastian Plancarte, lost their jobs nearly three years ago. “Each time I see them I thank God for what we do have. We used to have a different kind of life, where we had nice things and did nice things. Now we just worry.”
PATCHING TOGETHER A LIVING Mary Carmen Acosta and her husband, Sebastian Plancarte, with their daughter, Camila, outside their apartment in Moreno Valley, Calif. Credit Emily Berl for The New York Times
Five decades after President Lyndon B. Johnson declared a war on poverty, the nation’s poor are more likely to be found in suburbs like this one than in cities or rural areas, and poverty in suburbs is rising faster than in any other setting in the country. By 2011, there were three million more people living in poverty in suburbs than in inner cities, according to a study released last year by the Brookings Institution. As a result, suburbs are grappling with problems that once seemed alien, issues compounded by a shortage of institutions helping the poor and distances that make it difficult for people to get to jobs and social services even if they can find them.
In no place is that more true than California, synonymous with the suburban good life and long a magnet for restless newcomers with big dreams. When taking into account the cost of living, including housing, child care and medical expenses, California has the highest poverty rate in the nation, according to a measure introduced by the Census Bureau in 2011 that considers both government benefits and living costs in different parts of the country. By that measure, roughly nine million people — nearly a quarter of the state’s residents — live in poverty.
Not long ago, the Inland Empire, as the sprawling suburban area east of Los Angeles is known, attracted people hoping to live out that good life. Before the recession, it was booming; housing developments were cropping up all the time, quickly followed by big box stores and strip malls to cater to the new residents.
The region was — and still is — the fastest growing in the state. But the jobs have never really followed the people who come here looking for cheaper housing. The median home value is $325,000 and the median rent is $1,690, according to the real estate database Zillow. That compares with $462,000 and $1,860 in Los Angeles.
For many, those costs are still unaffordable. Unemployment in the region hovers around 10 percent and nearly one-fifth of all residents live in poverty, the highest rate among the largest metropolitan areas in the country. By the official federal measure, nearly one-third of all children here are poor. The number of poor in San Bernardino and Riverside Counties nearly doubled over the last decade.
Many would-be workers lack office skills or more than a basic education, making minimum-wage jobs the norm for them. Many here are immigrants — some living in the United State illegally, making them ineligible for most government benefits. But like Ms. Acosta, many others came here legally decades ago and had a strong foothold in the American economy — a job, a house, cars and regular travel.
Ice pops being made at the family’s home for sale on the street. Credit Emily Berl for The New York Times
“This is where poor people live now, and this is where they are going to live,” said Alan Berube, an author of the Brookings Institution study. “When poverty moved out of the inner cities it didn’t just go next door, it went 30 miles away. But at the time those families might not have been poor — they were just chasing the middle-class dream. Then, boom, that evaporated.”
Prosperity Slips Away
Most mornings Sebastian Plancarte, 39, puts on a freshly laundered, collared polo shirt, carefully tucked in. He gets his daughter, Camila, dressed for kindergarten and makes sure his son, Sebastian, has his homework ready for middle school. They are out the door by 7:30 a.m. and he is home nearly two hours later, back to wander parking lots selling ice pops before the afternoon pickup routine begins. He is happy to be involved in his children’s lives, but this is hardly the kind of fatherhood he once imagined.
For years, the couple thought of themselves as wealthy. They bought a five-bedroom house in a suburb just a few miles east of downtown Los Angeles, where they both worked in the jewelry district — she inspected diamonds and he designed bracelets and rings. Making $16 an hour, plus commissions, they earned as much as $2,000 a week. They traveled to San Diego and Las Vegas, they bought their two children the toys they asked for. Just more than a decade after they had emigrated from Mexico, they believed their hopes had become a reality.
But in 2011, Ms. Acosta was laid off. So was Mr. Plancarte, just a few months later. They soon sold the house for far less than they had paid. They drove east, looking for something they could afford to rent, and landed in Moreno Valley, a city 60 miles inland that has become a common outpost for those priced out of Los Angeles. They live in a sprawling apartment complex designated for low-income families.
The paletas have become a centerpiece of their lives. The couple constantly think about the best prices for ingredients and how many pops are in their small freezer; they take orders by phone to deliver to backyard parties. When their son asks to get hamburgers at the local In-N-Out, they have a standard response: “The mathematics are very simple,” Ms. Acosta said. “If you want to eat there, we need you to sell $25” of the ice pops.
Continue reading the main story
Caught in Poverty
Articles in this series examine American hardship 50 years after the war on poverty.
“The hardest part is the shame,” Mr. Plancarte said, sitting at his kitchen table as his wife and daughter ate mango paletas doused in chamoy, a blood-red sugary hot sauce. “People say to me, ‘Why don’t you find a job over there, or at that factory or that place?’ First of all, they aren’t there, I’ve tried. But even if they have a job, it’s going to be paying me $8 an hour. So I’ll spend no time with my family to make less money than I make now selling these.”
By Ms. Acosta’s calculation, the couple earned about $25,000 last year, nearly all of it in cash. And while it is nearly $2,000 above the official poverty line for a family of four nationally, it is hardly enough to meet their basic needs. By the time they pay for rent, gas, phone, electricity and food, they have spent about $2,000 a month, Ms. Acosta said.
Her husband is still looking for work; in the winter months they relied mostly on whatever she could make selling cosmetics and costume jewelry door to door. Their lives reflect the contradictions of many living on the edge. They have a 2001 Jeep Cherokee, a small flat-screen television and a few remaining pieces of jewelry. They don’t have health insurance or any savings, and they have not bought new clothes for nearly two years.
For the last year, Ms. Acosta spent much of her time at the local Catholic Charities office, taking self-help classes with other women in similar circumstances. She earned $100 a month enrolling women in courses on healthy diets, balancing checkbooks and parenting skills. She keeps a folder thick with certificates she has earned in such classes. A letter from President Obama thanking her for volunteering at her son’s school, calling her a “shining example,” is tucked in a protective plastic sleeve. The few friends she has made here, she said, are the women she has met at Catholic Charities.
“My friends in L.A., the ones who still have money, it’s like they forgot all about us,” she said.
The family’s economic descent has proved most difficult for 12-year-old Sebastian, who remembers Christmas trips to Universal Studios and regular mall excursions. Camila, 5, cannot recall anything different from what she has now. Neither child knows that their Christmas gifts came from charity. They are all contributing to the piggy bank in the kitchen; if they can save enough, Ms. Acosta has promised to take them to Disneyland this year. For now, even going to the beach an hour west would cost too much for gas. The local park is hardly a fun outing — it reminds them of their work selling ice pops most weekends.
Jewelry that the couple sell door to door. Credit Emily Berl for The New York Times
“We have to be really good actors,” Ms. Acosta said. “But after they go to bed, we just sit and worry about how we are going to pay for things we want to give them.”
When his son asked for pizza recently, Mr. Plancarte took a silver bracelet he had given his wife to a pawnshop, where he was offered a fraction of what he thought it was worth. He accepted, too embarrassed to tell his son they could not have pizza. Ms. Acosta recently went back and saw the bracelet priced at $90 — more than twice what her husband had received.
Traveling More to Make Less
Sitting inside Catholic Charities offers a glimpse of the constant need: this family needs extra cash to pay the utility bill; this single mother cannot find child care to allow her to work a graveyard shift; that elderly man who came from Mexico has no way to pay for his medication.
Imelda Santana, whose desk is just a few feet away from the entrance, is often the first stop for requests. Ms. Santana is empathetic — just a couple of years ago she needed help after her husband left her and she lost her job as a loan officer amid the housing crisis. After working as a volunteer for months, Ms. Santana was hired to sift through requests to see which families the organization might assist. Even on the best days, she said, there are more demands than they can handle.
“We have people here who used to make donations now knowing what it is to run out of toilet paper in their house and not have the money to buy more,” she said. “Even if they get food stamps, it does not cover toiletries. There’s just never enough.”
Continue reading the main story

Suburban Poor

Number living in poverty
15 million
Yadira Rodriguez, 35, has traveled hundreds of miles looking for work in this county, which is roughly the size of New Jersey. When her husband stopped earning enough to pay for monthly expenses for their three young children, she took a job in a factory packing boxes to be shipped to retail stores. But the $8-an-hour job was 30 miles north of her Moreno Valley apartment, taking her more than an hour in traffic, twice that if she needed to take the bus.
Since she was classified as a temporary worker, she would leave her home at 4 a.m. only to find out at 6 a.m. that she would not be hired for the day. On days there was work, she would arrive back home 12 hours after she left.
“I could not understand how this was worth the money,” Ms. Rodriguez said. “I would get home and the kids would be tired and cranky and I didn’t have energy for them. How was this going to make my life better?”
After three months, she quit. Her family relies on $800 a month from the state’s temporary cash assistance program to pay for groceries and utilities, and gets occasional help from charities. The landlord has let the family slide on the rent at times, Ms. Rodriguez said.
Like Ms. Rodriguez, many would-be employees see unpredictability as a fact of life. Many social workers see more clients working two part-time minimum wage jobs, juggling schedules to make sure they do not disappoint any boss and hustling to cobble together child care for shifts that can begin or end before dawn. Many are immigrants who speak only basic English after years of living in Latino enclaves, first in Los Angeles, and now here.
“This is the edge of affordability; people came here because they were pushed out to the only place where they could afford,” said John Husing, a local economist who has studied the region for years. “When they came here the primary wage earner could find a job to pay the bills. The problem is that time has passed and we don’t have a lot of jobs that allow that anymore.”
AD HOC AID A clothing giveaway at Victoria Elementary School in San Bernardino, Calif. The school also sponsors a medical clinic. Credit Emily Berl for The New York Times
While many of the state’s coastal areas have begun to see signs of an improved economy, the inland region has continued to struggle. Unemployment and foreclosure rates remain stubbornly high here and there are few signs that the area will boom as it did a decade ago. Housing prices have inched up as wages have stagnated, making it even more difficult for families to stay afloat.
“What we have out here is more need and fewer centers of resources,” said Dom Betro, the executive director of Family Services, a nonprofit group that provides child care and food to needy families in Riverside County. “We have more working poor than anyone can know how to handle. People travel further distances to work for less pay because they have to. Even if there is help — and that’s not always — people who need it can’t get to it.”
Social workers here often point to a 2009 study by the James Irvine Foundation, which showed that the region has far fewer nonprofit groups per capita than the rest of the state, with less money funneled in from local foundations.
“There’s all these new problems but no new philanthropic dollars there to address them,” said Mr. Berube, from the Brookings Institution. “In many places there are these de facto systems in place but not the kind of leadership to really address what’s needed.”
When Larry Ellwell became principal of Victoria Elementary School in San Bernardino a few years ago, he was stunned by the number of families who could not afford necessities like clothes and dental care. When he worked with poor students closer to Los Angeles, he said, they knew where to find aid. But in the Redlands school district, home to a university and well-appointed mansions, there were few free clinics or other outlets for assistance. So he began to offer them — now the school hosts a roving clinic staffed by medical students and a clothing giveaway known as Victoria’s Closet.
“It’s a lot of triage work — who needs something the most and what do they most need,” Mr. Elwell said. “There’s no stigma anymore, because so many people are just trying to scrape by and make it work.”
For Ms. Acosta, scraping by recently took a new turn: She moved to the other side of the desk at Catholic Charities, taking a job as an intake worker. She works about 30 hours a week at $12 an hour, giving people the same kind of help she seeks. Even now, she is not earning enough to stop selling ice pops.
Just a couple of years ago, when the dry cleaner called reminding her to pick up a pair of pants, Ms. Acosta told him to give them to charity. “Now I am one of the people taking giveaways,” she said. “I see people all the time in worse positions than we are in. The kids are healthy, we have a roof. Maybe that’s the best we can hope for.”