Thursday, June 9, 2011

Bernanke's Helicopter Only Delivers Cash To People With Helipads (Video Lowlights From Today's Speech, Transcript)

A second summary clip is inside plus written highlights from Reuters.
Video - Bernanke speech part 2 - June 7, 2011
The failed Fed Chairman is optimistic about 2nd-half growth, as he blames Japan and still-moribund U.S. housing.  He's still in denial.
On challenges facing consumers:
…households are facing some significant headwinds, including increases in food and energy prices, declining home values, continued tightness in some credit markets, and still-high unemployment, all of which have taken a toll on consumer confidence…
On the housing market:
…low home prices and mortgage rates imply that housing is quite affordable by historical standards; yet, with underwriting standards for home mortgages having tightened considerably, many potential homebuyers are unable to qualify for loans. Uncertainties about job prospects and the future course of house prices have also deterred potential buyers….
On the Federal budget:
If the nation is to have a healthy economic future, policymakers urgently need to put the federal government’s finances on a sustainable trajectory. But, on the other hand, a sharp fiscal consolidation focused on the very near term could be self-defeating if it were to undercut the still-fragile recovery.
On Inflation:
…if the prices of energy and other commodities stabilize in ranges near current levels, as futures markets and many forecasters predict, the upward impetus to overall price inflation will wane and the recent increase in inflation will prove transitory. Indeed, the declines in many commodity prices seen over the past few weeks may be an indication that such moderation is occurring….
On wages:
…because of the weak demand for labor, wage increases have not kept pace with productivity gains. Thus the level of unit labor costs in the business sector is lower than it was before the recession. Given the large share of labor costs in the production costs of most firms (typically, a share far larger than that of raw materials costs), subdued unit labor costs should remain a restraining influence on inflation.

Death By Debt

One of the conclusions that I try to coax, lead, and/or nudge people towards is acceptance of the fact that the economy can't be fixed.  By this I mean that the old regime of general economic stability and rising standards of living fueled by excessive credit are a thing of the past.  At least they are for the debt-encrusted developed nations over the short haul -- and, over the long haul, across the entire soon-to-be energy-starved globe.
The sooner we can accept that idea and make other plans the better.  To paraphrase a famous saying, Anything that can't be fixed, won't.
The basis for this view stems from understanding that debt-based money systems operate best when they can grow exponentially forever. Of course, nothing can, which means that even without natural limits, such systems are prone to increasingly chaotic behavior, until the money that undergirds them collapses into utter worthlessness, allowing the cycle to begin anew.
All economic depressions share the same root cause. Too much credit that does not lead to enhanced future cash flows is extended.  In other words, this means lending without regard for the ability of the loan to repay both the principal and interest from enhanced production; money is loaned for consumption, and poor investment decisions are made. Eventually gravity takes over, debts are defaulted upon, no more borrowers can be found, and the system is rather painfully scrubbed clean. It's a very normal and usual process.
When we bring in natural limits, however, (such as is the case for petroleum right now), what emerges is a forcing function that pushes a debt-based, exponential money system over the brink all that much faster and harder.
But for the moment, let's ignore the imminent energy crisis.  On a pure debt, deficit, and liability basis, the US, much of Europe, and Japan are all well past the point of no return.  No matter what policy tweaks, tax and benefit adjustments, or spending cuts are made -- individually or in combination -- nothing really pencils out to anything that remotely resembles a solution that would allow us to return to business as usual.
At the heart of it all, the developed nations blew themselves a gigantic credit bubble, which fed all kinds of grotesque distortions, of which housing is perhaps the most visible poster child.  However, outsized government budgets and promises, overconsumption of nearly everything imaginable, bloated college tuition costs, and rising prices in healthcare utterly disconnected from economics are other symptoms, too. This report will examine the deficits, debts, and liabilities in such a way as to make the case that there's no possibility of a return of generally rising living standards for most of the developed world.  A new era is upon us.  There's always a slight chance , should some transformative technology come along, like another Internet, or perhaps the equivalent of another Industrial Revolution, but no such catalysts are on the horizon, let alone at the ready.
At the end, we will tie this understanding of the debt predicament to the energy situation raised in my prior report to fully develop the conclusion that we can -- and really should -- seriously entertain the premise that there's just no way for all the debts to be paid back.  There are many implications  to this line of thinking, not the least of which is the risk that the debt-based, fiat money system itself is in danger of failing.
Too Little Debt! (or, Your One Chart That Explains Everything)
[Note: this next section is an excerpt from a recent Martenson Blog entry, so if this seems familiar to any site members, it's because you've seen it before.]
If I were to be given just one chart, by which I had to explain everything about why Bernanke's printed efforts have so far failed to actually cure anything and why I am pessimistic that further efforts will fall short, it is this one:
There's a lot going on in this deceptively simple chart so let's take it one step at a time.  First, "Total Credit Market Debt" is everything - financial sector debt, government debt (federal, state, and local), household debt, and corporate debt - and that is the bold red line (data from the Federal Reserve).
Next, if we start in January 1970 and ask the question, "How long before that debt doubled and then doubled again?" we find that debt has doubled five times in four decades (blue triangles). 
Then if we perform an exponential curve fit (blue line) and round up, we find a nearly perfect fit with a R2 of 0.99.  This means that debt has been growing in a nearly perfect exponential fashion through the 1970's, the 1980's, the 1990's and the 2000's.  In order for the 2010 decade to mirror, match, or in any way resemble the prior four decades, credit market debt will need to double again, from $52 trillion to $104 trillion.
Finally, note that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008, and it has not yet even remotely begun to return to its former trajectory.
This explains everything.
It explains why Bernanke's $2 trillion has not created a spectacular party in anything other than a few select areas (banking, corporate profits), which were positioned to directly benefit from the money.  It explains why things don't feel right, or the same, and why most people are still feeling quite queasy about the state of the economy.  It explains why the massive disconnects between government pensions and promises, all developed and doled out during the prior four decades, cannot be met by current budget realities.
Our entire system of money, and by extension our sense of entitlement and expectations of future growth, were formed during and are utterly dependent on exponential credit growth.   Of course, as you know, money is loaned into existence and is therefore really just the other side of the credit coin.  This is why Bernanke can print a few trillion and not really accomplish all that much, because the main engine of growth expects, requires, and is otherwise dependent on credit doubling over the next decade.
To put this into perspective, a doubling will take us from $52 to $104 trillion, requiring close to $5 trillion in new credit creation each year of that decade.  Nearly three years has passed without any appreciable increase in total credit market debt, which puts us roughly $15 trillion behind the curve.
What will happen when credit cannot grow exponentially?  We already have our answers; it's been the reality for the past three years.  Debts cannot be serviced, the weaker and more highly leveraged participants get clobbered first (Lehman, Greece, Las Vegas housing, etc.), and the dominoes topple from the outside in towards the center.  Money is dumped in, but traction is weak.  What begins as a temporary program of providing liquidity becomes a permanent program of printing money needed in order for the system to merely function.
Debt and Europe
The debt situation in Europe is fairly typical of the developed world and mirrors the debt chart of the US seen above.  There's entirely too much debt, and most of the unserviceable amounts are concentrated in certain spots (i.e., PIIGS), while the amounts owed are concentrated in the German, French, and British banks.
This New York Times graphic did an excellent job of summing everything up:
(Source - click to view larger graphic at source)
Here is a slightly less-complicated image that expresses the same dynamic:
If everybody owes everybody else, then kicking the can down the road only works if there's more wealth, more growth, and sufficient economic activity down that road to service the past debts. If any one participant drops the baton in the debt relay race, the absurdity of the situation becomes unavoidable and the cause is lost.
When we hold this view, it is abundantly clear that adding more debt along the way only increases the burdens and is therefore ultimately counterproductive, although it does grant the gift of additional time to avoid facing the truth. 
When all of the most indebted countries are stacked up, we see that all but Russia carry a total indebtedness greater than 100% of GDP and that nine are carrying debt levels higher than any that have ever been repaid historically.
(SourceNote: 260% debt-to-GDP is the all time record for repayment, accomplished by England between 1815 and 1900, but required both massive cuts in spending and an industrial revolution.
Without mincing words, the world does not face a crisis of liquidity, nor a crisis of insufficient debt, but one of entirely too much debt.  That's the entire predicament in three words:  too much debt.
More debt is only going to compound the predicament, yet that is what the world's central banks and political structures are busy manufacturing.  More debt.
Of course, debt is only one component of the story; there are also liabilities to consider.  The above chart merely graphs the legally defined debts involved.  If we bother to add back in the liability components, which are pensions, social security and government medical plans, the predicament is seen to be three to six times larger:
Whereas the prior chart showed all debts incurred by all sectors of each nation, the above chart only displays government debt and liabilities.  For reference, the red bars, above, are the amounts that you read about in the paper when commentators note that the US, for example, still has a debt-to-GDP ratio that is under 100%. It's a comforting tale, but not an accurate description of the situation.
Again, there are no historical examples of any country ever digging itself out from so deep a hole, and yet we find that the entire developed world has bravely pushed itself deep into unknown territory, seemingly without any serious discussions about whether or not this made sense.
Where We Are Now
So here we are, just a few weeks away from the end of the second round of quantitative easing (QE II) , with massive public debts and liabilities having only grown larger instead of shrinking during the Great Recession, everybody in nearly the same boat, and no clear plan for how all the sovereign debts will be funded from current productive cash flows (i.e., existing GDP).
This is why so many commentators, myself included, are convinced that more thin-air money printing is on the way. My thesis, laid out back in early March is that the Fed will stop QE II on schedule and that the financial markets will react exceptionally poorly to this loss of support. Commodities will tank first, then stocks, then bonds; from riskiest and most-leveraged to least.
It is time to face the music; the levels of indebtedness now require permanent support from thin-air money in order to avoid a deflationary collapse. Given this reality, we explore key questions in detail in Part II of this report: Understanding the Endgame:
  • How will the global debt crisis play out?
  • What does a world economy without growth look like?
  • What steps should we, as individuals, need to take in preparation?
  • How can investors safeguard their purchasing power during the coming rout in the finanical markets?

Edward Steves and his Million Dollar Gold Arbitrage: A Lesson in Wealth Preservation

Dees Illustration
Jason Kaspar
Activist Post

During the Civil War, an independent thinker from San Antonio named Edward Steves made a savvy business move that would forever change his fortune and that of his family for generations. He made a bet against a dying currency in favor of the only currency that has never failed.

In Texas, truth and myth are often blurred, as stories of what the human spirit accomplishes are stretched into tall tales for open camp fires and star filled nights. Perhaps the story of Mr. Steves borders on exaggeration. Perhaps not. In either case, the moral offers a profound lesson in wealth preservation and accumulation.

Steves immigrated to the United States in 1849 from Barmen, Elberfeld, Germany. He ventured into the Texas hill country as a farmer with mediocre success as he battled unpredictable weather, threat of local Indians, and rocky soil.  He scraped every penny; and in early 1861, with an entrepreneurial spirit as big as Texas, he spent his entire savings on a newly invented machine – the first mechanical combine to make it to the South Central Texas region. As fate would have it, this machine arrived on the last ship to make it into Galveston, Texas before the Union blockaded the port in July 1861.  After his mechanical contraption arrived in San Antonio, Steves had a monopoly over the local farmers surrounding the area.

The farmers wanted to pay Steves for the use of his mechanical combine in the local currency, Confederate dollars. He refused. He negotiated to take his payment in kind – a percentage of what his combine would process. Steves then bundled up his portion and regularly set off for Mexico, where he would sell it for gold and silver. This occurred for several years until finally the Civil War ended. The Confederacy collapsed along with the monetary system.  Confederate dollars and Confederate bonds became worthless, sending many individuals into financial ruin.

The end of the Gavelston blockade marked the death of his monopoly, but by that time he had amassed a fortune in gold and silver.  With this fortune, he bought Union dollars and effectively bought back into a working economic system.  In 1866 he launched a lumber company that by 1916 had become the largest millwork operation in the Southwest.  It exists today as Steves & Sons, offering more than 300,000 variations of doors throughout the United States.

In today’s world most individuals, including investment professionals, have very little understanding of the history and purpose of precious metals as a monetary asset.  Monetary systems have come and gone for thousands of years, but our lives are so cloistered that the probability of living through two entirely different monetary systems seems highly unlikely. As the Steves story illustrates, even in the United States monetary systems collapse and evolve.

The impetuous drive towards globalism and a “world currency” may impact our monetary system more than even the national debt. Initially, the evolution of a system brings chaos.  People cling to staples . . . land, guns, and food production. As a new system emerges, individuals who have precious metals maintain the capacity to buy back into the new system - buying a home, starting new businesses, regaining the quality of life of the previous system.  After 5,000 years, this continues to remain the ultimate benefit of precious metals. The irony is that a true global currency has always existed in the form of gold and silver.

Unless an investor trades precious metals effectively, which very few can do over a long period of time, precious metals do not generate wealth in a functioning economic system. Gold is a store of wealth not a generator of wealth.  It is much better to own thriving companies that produce a superior return over their cost of capital.  Owning businesses that generate a superior return on invested capital is the way to move up the social status in a functioning capitalist system.  Unfortunately, American capitalism has been compromised and is now sputtering.

Ten years ago I would have argued that the probability of an American monetary collapse over the following decade was zero. The next ten years present far less certainty.  One may disagree whether the probability of a collapse over the next ten years is 2%, 25%, or 60%. But the probability is no longer zero. The criticality of gold and silver as an asset class has reemerged.  The Edward Steves story is an illustrative parable of how to build and preserve wealth when economic systems are in flux.

Jason Kaspar is the Chief Investment Officer for Ark Fund Capital Management, focusing on investment and portfolio management. This article first appeared on Gold Shark.

Obama Presses Europe, Pledges Help for Greek Crisis

President Barack Obama on Tuesday urged European countries and bondholders to prevent a "disastrous" default by Greece and pledged U.S. support to help tackle the country's debt crisis.
President Barack Obama
Getty Images
President Barack Obama

Obama, whose political prospects have suffered from persistently high unemployment and ballooning U.S. debt, has pinpointed the euro zone crisis as one foreign "headwind" hitting the U.S. economy.
After a meeting with German Chancellor Angela Merkel, he stressed the importance of German "leadership" on the issue - a hint that he expects Berlin to help - while expressing sympathy for the political difficulties European Union countries face in helping a struggling member state.
"I'm confident that Germany's leadership, along with other key actors in Europe, will help us arrive at a path for Greece to return to growth, for this debt to become more manageable," Obama said.
"But it's going to require some patience and some time. And we have pledged to cooperate fully in working through these issues, both on a bilateral basis but also through international and financial institutions like the IMF."
A proposal for a second Greek bailout package worth 80 billion to 100 billion euros over three years was taking shape, euro zone sources said.
Merkel, under political pressure at home to avoid being the financial savior for other struggling European countries, said Germany understood its role.
"We've seen that the stability of the euro as a whole will also be influenced if one country is in trouble," she said.
"So we do see clearly our European responsibility and we're shouldering that responsibility, together with the IMF." With U.S. unemployment at 9.1 percent, Obama has blamed outside forces for impeding the economy, including high fuel prices, the earthquake in Japan and the euro zone crisis.
 "America's economic growth depends on a sensible resolution of this issue," he said.
"It would be disastrous for us to see an uncontrolled spiral and default in Europe because that could trigger a whole range of other events."
Reforms, Foreign Policy
Obama said Greece had to make structural reforms and instill greater transparency in its economy.
But his main message was aimed at EU countries - and, by default, wealthy Germany - to step up to help Athens.
"Other countries in the euro zone are going to have to provide them a backstop and support," he said.
"And frankly, people who are holding Greek debt are going to have to make some decisions, working with the European countries in the euro zone, about how that debt is managed." The euro debt problems dominated discussions between Merkel and Obama, who also touched on foreign policy issues such as the wars in Afghanistan and Libya.
Obama welcomed Merkel at a formal ceremony on the White House lawn with firing cannons and military musicians adding to the pomp of an official visit.
Later in the evening Obama and his wife Michelle hosted Merkel and her husband, Joachim Sauer, for a state dinner, where the president awarded her the "Medal of Freedom" - the highest U.S. civilian honor.
Obama noted the event, held open-air in the Rose Garden to take advantage of a warm Washington evening, was the first such state dinner of his presidency for a European leader.
"Tonight we honor Angela Merkel, not for being denied her freedom, or even for obtaining her freedom, but for what she achieved when she gained her freedom," Obama said.
In public the two leaders referred to each other by their first names and joked about looking different from their predecessors.
Obama is the first black U.S. president and Merkel is the first female chancellor of Germany.
Their show of partnership did not mask differences between them - and Libya has been one of those issues in the past.
The United States cautiously endorsed military action in Libya while Germany confounded its NATO partners by refusing to take part.
Obama said he would expect Germany to help once Libyan leader Muammar Gaddafi was gone and recovery work was needed in the North African country.
He thanked Merkel for Germany's stepped-up support in Afghanistan, which he said had freed up other NATO members to be active in Libya.
Merkel, meanwhile, advocated for French Finance Minister Christine Lagarde to take over the top job at the International Monetary Fund, according to a German delegation source.
The United States has stayed publicly neutral in the race for that post, saying it wants the best candidate to win.
Copyright 2011 Thomson Reuters. Click for restrictions.

Citizen Sues Atlanta Fed Based on Allegation that It's Issuing Federal Reserve Notes That It Has No Intention of Redeeming, Which Amounts to Counterfeiting ...

Asks that Atlanta Fed's Charter be Forfeited

Scott Beach sent me this link to his complaint against the Atlanta Fed.
In his complaint, Beach points out that 12 United States Code Section 341 provides that Federal Reserve Banks can be sued, and can that they can:
Forfeit [their] franchise for violation of law.
The complaint alleges that all of the Federal Reserve Banks (including Atlanta) stopped allowing Federal Reserve Notes to be redeemed in the early 2000's and that - because 12 United States Code Section 411 requires the notes to be redeemable - continuing to issue notes without allowing redemption amounts to counterfeiting.
Beach thus asks that the Atlanta Fed's charter be forfeited.
Without commenting on the specifics of the allegations in the suit itself, I can still say with 100% confidence that Thomas Jefferson would have approved.
So would many top financial experts. See this, this, this, this, this, this and this.

The Biggest Bank in France Has Suddenly Cut ATM Card Access to Cash in Half and People are Freaking Out!

I just got off the phone with Pierre Jananovic . . . La Banque Postale has lowered the limits on the amounts of cash customers can withdraw per week by 50%. First of all, for you Americans and Brits, the way France works its banking system – customers are limited to how much they can withdraw per week from their accts no matter what the balance. Now what has happened here is that Gold card members – who could take out 3,000 euros a week – are now limited to 1,500 a week. This was sudden, without warning, and people here in France are freaking out. Pierre tells me that its the first clear sign that liquidity in the European banking system is drying up.

Five Out of Five Pessimists Agree: QE3 Is Coming

Associated Press
Getting that helicopter warmed up
How’d you spend your weekend? Some of the biggest (and most bearish) guns in economic and market prognostication put their heads together at a small confab on Lake Winnipesaukee in New Hampshire this past weekend. In attendance: David Blanchflower, formerly of the Monetary Policy Committee of the Bank of England; Swiss doom-and-gloomer Marc Faber; Fred Hickey, the bearish editor of the High-Tech Strategist newsletter; Morgan Stanley exec Stephen Roach; and economic forecasters David Rosenberg, Nouriel Roubini and Gary Shilling.
Their conclusion: QE3 is gonna happen! Ed Yardeni, who was there, had this little insider snippet for readers of his daily newsletter (emphasis is MarketBeat’s):
The conversations were spirited with lots of debates. The consensus was quite pessimistic about the outlook for the US and global economies.
Everyone seemed to agree that the Fed would most likely leave the federal funds rate at zero for a long time and that a third round of quantitative easing is likely later this year. David Blanchflower, who is a former member of the MPC of the BoE, is in favor of QE-3.0. The rest of us were against it. Most agreed that it would probably boost stock and commodity prices again, though not as much as QE-2.0.
So rev up those engines. As far as these guys are concerned, the Fed chairman is warming up that helicopter as we speak.

A Scandal

Bernanke sees 'loss of momentum' in jobs market

© AFP/Getty Images/File Scott Olson

WASHINGTON (AFP) - After a slew of wretched economic news, Federal Reserve Chairman Ben Bernanke has warned there had been a "loss of momentum" in the already tepid US jobs market.

Two years into a slow and largely jobless recovery, Bernanke predicted employment and growth would eventually pick up, but that a recent soft-patch needed to be carefully monitored and that stimulative policies were still needed.

"Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established," Bernanke told an audience in Atlanta, Georgia.

Reiterating a now all-too-familiar story of a recovery hobbled by a lack of new employment opportunities and a continued housing crisis, he told the audience that "the jobs situation remains far from normal."

Just 1.8 million of the nine million jobs lost in the recession have been recovered, according to official figures, dampening everything from consumer spending to business investment.

On the back of a dismal employment figures for May -- which showed a meager 83,000 posts created by the private sector across the country -- Bernanke expressed concern about the high number of long-term unemployed.

The Fed chairman also pointed to the moribund housing market, as evidence that the Fed's stimulative policies needed to be maintained.

"The depressed state of housing in the United States is a big reason that the current recovery is less vigorous than we would like," he said.

Virtually all segments of the construction industry remain troubled, he said.

Despite low lending rates and affordable house prices, buyers have been scared away from the market by a mixture of tough bank loan rules and uncertainty in the jobs market.

Adding to the litany of woes, Bernanke said that the government was no longer the crutch for the economy that it was during the height of the crisis.

"Fiscally constrained state and local governments continue to cut spending and employment. Moreover, the impetus provided to the growth of final demand by federal fiscal policies continues to wane."

But in his first public comments on the recovery in nearly a month, Bernanke gave no hints that the Fed was ready to extend a controversial $600 billion monetary stimulus package that is due to end this month.

Instead, he said, "accomodative monetary policies are still needed," apparently a reference to record-low interest rates.

Analysts said that stance was not a surprise.

"Even though his comments struck a rather negative tone, clearly voicing his displeasure with the labor market situation, we doubt they pointed to fresh stimulus," said Geoffrey Yu of UBS.

Bernanke added that disruptions associated with the earthquake and tsunami in Japan continued to hamper growth in this quarter, but he expected the impact to wane.

"With the effects of the Japanese disaster on manufacturing output likely to dissipate in coming months, and with some moderation in gasoline prices in prospect, growth seems likely to pick up somewhat in the second half of the year," he said.

© AFP -- Published at Activist Post with license

Dept. of Education breaks down Stockton man's door with SWAT team over student loans

Dees Illustration
Leigh Paynter
ABC News 10

STOCKTON, CA - Kenneth Wright does not have a criminal record and he had no reason to believe a S.W.A.T team would be breaking down his door at 6 a.m. on Tuesday.

"I look out of my window and I see 15 police officers," Wright said.

Wright came downstairs in his boxer shorts as a S.W.A.T team barged through his front door. Wright said an officer grabbed him by the neck and led him outside on his front lawn.

"He had his knee on my back and I had no idea why they were there," Wright said.

According to Wright, officers also woke his three young children ages 3, 7, and 11 and put them in a Stockton police patrol car with him. Officers then searched his house.

As it turned out, the person law enforcement was looking for was not there - Wright's estranged wife.

"They put me in handcuffs in that hot patrol car for six hours, traumatizing my kids," Wright said.

Read Full Article 

Taps for a Community Hospital

CLEVELAND — A railroad bridge separates Huron Hospital, one of the last remaining institutions in the impoverished neighborhood of East Cleveland, from the city’s downtown and its two major hospitals.
David Maxwell for The New York Times
The nurses' station at Huron Hospital's medical intensive care unit, which closed recently as the hospital's losses mounted.
The New York Times

These days, boarded-up houses and empty, overgrown lots surround Huron Hospital, which was built on part of the former estate of John D. Rockefeller, the founder of Standard Oil. Like residents in other areas with declining populations, this neighborhood, largely African-American, has relied on the hospital as a safe haven. Residents worry about crime and the lack of even a grocery store.
Facing mounting financial losses and sharply declining patient admissions, the Cleveland Clinic, which owns Huron and eight other community hospitals, announced on Monday that it would close the 211-bed hospital, opening a much smaller family health center in its place.
The decision by one of the nation’s leading health care systems to close a neighborhood hospital, once a relatively rare event, reflects a stark new reality that is likely to play out across the country at hundreds of other hospitals that can no longer afford empty beds or wings and unused medical services. The federal health care law, which is likely to reduce payments for in-patient care, as well as changing demographics and a lessening dependence on hospitals, are converging into a death knell for longstanding health institutions. While many hospitals will be bought and converted into clinics or other health care centers, a lot are likely to be closed.
“I think we’re going to see a lot of this activity over the next three to five years,” said Chas Roades, chief of research for the Advisory Board Company, a firm that works with hospitals.
Closing a hospital remains an exceedingly difficult proposition, with the potential for a strong reaction from community leaders and politicians, who oppose the move, as well as the threat of local doctors who send their patients to competitors.
The clinic’s announcement was quickly followed by denunciations from community leaders.
“Needless to say, I am very disappointed,” said Representative Marcia L. Fudge, a Democrat, who added that she worried about health systems choosing to rid themselves of hospitals in communities of the greatest need. “Care goes beyond dollars and cents.”
Cleveland officials, who had already been upset by the trauma unit closing, say they were blind-sided and talked of possible legal action, according to a statement by the City of Cleveland.
“It rips the soul out of the community,” said Gary A. Norton Jr., the mayor of East Cleveland. He added that residents would be left without 24-hour emergency care and in-patient services.
Dr. Delos M. Cosgrove, the chief executive of Cleveland Clinic, defended the decision, and insisted that the clinic was not abandoning East Cleveland. Huron had already lost its trauma center, nursing education program and its separate medical intensive care unit, and had “really outgrown its useful life,” he said in an interview.
Aside from maintaining the cutting-edge medical care at the clinic’s main campus, this health system also needs to concentrate services in fewer community hospitals, where they will have the kind of volume and expertise necessary to deliver quality care, he added. “When we took over the hospital, we signed up to look after this community,” he said.
The clinic estimates it will continue to lose as much as $8 million operating the family health center at Huron, which is costing about $25 million to build and is expected to open in October.
At a time when the health sector is one of the few that has steadily added jobs as the rest of the economy continues to struggle, closing any hospital is a significant blow. Huron Hospital is the largest employer in East Cleveland, and the city stands to lose about $700,000 a year in tax revenue, even with the addition of the health center. The clinic says it will offer a job to any current employee and plans to work with officials on finding ways to make up the lost income.
“I think the hard thing for us to appreciate, and we try to, is the sense of abandonment. It’s real,” said Dr. Gus Kious, a family physician who runs Huron and has watched the decline accelerate in the last few years. Admissions for acute care dropped below 7,000 in 2009 from about 8,000 and were projected to fall below 6,000 this year.

Analysis: OPEC could pour oil on troubled politics

 (Reuters) - War in Libya, Qatari support for its rebel army and rivalries between Saudi Arabia and Iran need not scupper OPEC's attempts to forge a new oil output deal in Vienna.

The 50 year-old group has held together through two Gulf wars involving its members and the protracted, bitter Iran-Iraq conflict that claimed the lives of hundreds of thousands. OPEC oil ministers still sat around the same table.

On Wednesday the 12 members of the Organization of the Petroleum Exporting Countries will draw on a tradition of finding common interest in staving off an oil price collapse or cooling an overheated market that can destroy demand for its multi-billion dollar exports.

While Arab world turmoil has complicated the quest for an output deal and could limit the scope of any agreement, analysts say it has also made it important for OPEC to muster a show of unity.

"Regional political issues are much further up the agenda for many countries than an OPEC meeting, but look at the solutions to those issues and they all boil back to the oil price," said Lawrence Eagles of J P Morgan.

With prices around $115 a barrel for Brent, he said there could be an output increase to help meet an expected rise in demand and tightening of supply in the second half of this year, but the question was "how much?."

On their arrival in Vienna, several ministers said very little, which in itself could be significant.
The representative of Iran, holder of the rotating OPEC presidency and the group's second largest producer after Saudi Arabia, made a low-profile entrance through a hotel basement.

He resisted the opportunity for anti-Western rhetoric, telling awaiting reporters through an interpreter that OPEC would make a decision after its meeting had reached a consensus.

The risk rivalries would spill over into the Vienna OPEC meeting mounted when Iran's President Mahmoud Ahmadinejad sacked his oil minister and seized control of his ministry.

But Ahmedinejad later appointed his close political ally Mohammad Aliabadi as caretaker oil minister after parliament and Iran's constitutional watchdog said the president had no right to head the ministry.
Aliabadi, whose last job was head of Iran's Olympic Committee, has scant experience of oil.

Half the other ministers and country representatives who will be sitting with him around the negotiating table in Vienna are also new to the job, including Omran Abukraa, Libya's OPEC delegation head following the defection of top oil official Shokri Ghanem last week.

No-one was expected to represent the Libyan rebels, removing one possible source of tension, although Abukraa could find himself at odds with Qatar, which has helped the rebels to market oil.


In the context of so many new OPEC faces, Saudi Arabian Oil Minister Ali al-Naimi's status as the elder statesman is more established than ever.

"There is only one vote that counts in OPEC and it is Saudi Arabia's," said Sadad al-Husseini, an oil analyst and former top official at oil giant Saudi Aramco.

Whatever OPEC agrees on Wednesday, it remains the case that Saudi Arabia, the guardian of most of the world's spare output capacity, can continue its policy of adjusting supply to meet demand, moderating prices and ensuring future customers for its vast oil reserves.

Already, Saudi Arabia plans to raise its production sharply this month. [ID:nLDE7560QM] That leaves it up to other producers to decide whether to give tacit support by agreeing to an increase from the group as a whole, which would be the first formal rise since 2007 and the first policy change since December 2008 when OPEC decided on a record supply cut.

The easiest option would be to make official leakage of well over one million barrels per day above the targets agreed in 2008 as the oil price crashed below $40 a barrel.

With prices well above $100, even Shi'ite Iran, which has long supported much higher prices than Sunni Saudi Arabia, might be willing to overlook political differences and agree a production change that is only a confirmation of the status quo.

But a formal output increase that officially adds new oil supplies would be a much grander gesture for both politics and oil markets.

National Debt Nightmare Report: $61 Trillion In Unfunded Liabilities, Approaching $600,000 Per Household

Video - Julia Coronado, BNP Paribas, Joel Naroff and Vince Farrell on the US debt nightmare - June 7, 2011
Transcript at CNBC
This morning's story from USA Today that inspired this segment...
The federal government's financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.
The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.
This gap between spending commitments and revenue last year equals more than one-third of the nation's gross domestic product.
Medicare alone took on $1.8 trillion in new liabilities, more than the record deficit prompting heated debate between Congress and the White House over lifting the debt ceiling.
Social Security added $1.4 trillion in obligations, partly reflecting longer life expectancies. Federal and military retirement programs added more to the financial hole, too.
Corporations would be required to count these new liabilities when they are taken on — and report a big loss to shareholders. Unlike businesses, however, Congress postpones recording spending commitments until it writes a check.

We need an unfunded liabilities clock...

BofA Forecloses On Home That Never Had A Mortgage,

Owners Sue And Win Judgement, BofA Doesn't Pay So Couple Forecloses On Bank Of America (Video)

Instead of Bank of America foreclosing on some Florida homeowner, the homeowners had sheriff's deputies foreclose on the bank.  It started five months ago when Bank of America filed foreclosure papers on the home of a couple, who didn't owe a dime on their home.  The couple said they paid cash for the house.
The case went to court and the homeowners were able to prove they didn't owe Bank of America anything on the house.  In fact, it was proven that the couple never even had a mortgage bill to pay.
A Collier County Judge agreed and after the hearing, Bank of America was ordered, by the court to pay the legal fees of the homeowners', Maurenn Nyergers and her husband.
So, how did it end with bank being foreclosed on?  After more than 5 months of the judge's ruling, the bank still hadn't paid the legal fees, and the homeowner's attorney did exactly what the bank tried to do to the homeowners. He seized the bank's assets.
Continue reading...


Taxpayers Dollars Still Bailing Out Insolvent Banks Including Citigroup, JPMorgan, Wells Fargo & Bank Of America

Last week, the ratings agency announced a review of whether these bailout assumptions still apply after passage of the Dodd-Frank financial regulation bill. The Moody's review will be the truest test yet of President Obama's promise that the legislation—derided by Republicans as a bailout bill — can end the "Too Big To Fail" dynamic that has encouraged financial risk taking and given these banks an unfair advantage.
The implicit government guarantee these banks enjoy is a subsidy. The "five notches of uplift from government support assumptions" that Moody's gives to Bank of America translate into real profits for Bank of America. Without a presumed bailout, Bank of America's senior debt would be rated Baa3, just barely on the right side of the "Investment Grade"/"Speculative Grade" boundary. The presumed "government support" raises the bank's debt rating to A2, which is "very low credit risk."
Even Wimpy from "Popeye" would be a "very low credit risk" if you could count on Ben Bernanke and Tim Geithner to pay for his hamburger.
As a result, all the big banks pay lower interest rates than they would pay in a market environment. Put another way: Anyone lending money to big banks (by buying their bonds, for instance), does so on the assumption that if the bank cannot repay the loan, U.S. taxpayers will. It's hardly shocking that experts think our recently bailed-out and very politically connected banks are still too big to fail, but the Moody's report makes it official.
Continue reading...

Our Economic Future: From Best to Worst Case

There is a great deal of uncertainty among investors about what the future of the U.S. economy may look like – so I decided to take a stab at what’s likely to happen over the next 20 years. That’s enough time for a child to grow up and mature, and it’s long enough for major trends to develop and make themselves felt.
I’ll confine myself to areas that are, as the benighted Rumsfeld might have observed, “known unknowns.” I don’t want to deal with possibilities of the deus ex machina sort. So we’ll rule out natural events like a super-volcano eruption, an asteroid strike, a new ice age, global warming, and the like. Although all these things absolutely will occur sometime in the future, the timing is very uncertain – at least from the perspective of one human lifespan. It’s pointless dealing with geological time and astronomical probability here. And, more important, there’s absolutely nothing we can do about such things.
So let’s limit ourselves to the possibilities presented by human action. They’re plenty weird and scary, and unpredictable enough.


People are all ears for predictions, whether from psychics or from “experts,” despite the repeated experience that they’re almost always worthless, often misleading and more than rarely the exact opposite of what happens.
Most often, the predictors go afoul by underrating human ingenuity or extrapolating current trends too far. Let me give you a rundown of the state of things during the last century, at 20-year intervals. If you didn’t know it’s what actually happened, you’d find it hard to believe.
1911— The entire world is at peace. Stability, freedom and prosperity prevail almost everywhere. Almost every country in Europe is ruled by a king or queen. Western civilization has spread to nearly every corner of the world and is received with appreciation. Stunning breakthroughs are being made in science and technology. There’s no sign of a gigantic world war about to come out of nowhere to rip apart the political and cultural map of Europe and bankrupt everybody. Who imagined that a dictatorial communist regime would arise in Russia?
1931— It’s early in a disastrous worldwide depression. Attention is on economic troubles, not on the virtually unthought-of possibility that in less than 10 years a new world war would be under way against Nazism and a resurgent Germany.
1951— Except for Vietnam, all that remains of the colonies the West had established in the 19th century are quiescent. Nobody guessed almost all would either be independent, or on their way, in 10 years. China has joined Russia – and many other countries – as totally collectivist. Who imagined that Germany and Japan, although literally leveled, would be perhaps the best investments of the century? Who guessed that the U.S. was already at its peak relative to the rest of the world?
1971— Communist and overtly socialist countries all over the world seem to be in ascendance, soon to be buoyed further by a decade of rising commodity prices. The U.S. and the West are entering a deep malaise. Little significance is attached to rumblings from the Islamic world.
1991— Communism has collapsed as an ideology, the USSR has disappeared, and China has radically reformed. Islam is increasingly in the news.
2011—The world financial/economic crisis is four years old, but things are still holding together. Islamic terrorism and collapse of old regimes in the Arab world dominate the news. China is viewed as the world’s new powerhouse.


Regrettably, I’m not much of a linguist. But I do pick up interesting semantic trivia. In Spanish they don’t say “in the future,” as we do in English, which implies a definite outcome. Instead they say “en un futuro” – in a future – which implies many possible outcomes. It’s a better way of assessing reality, I think.
Here are three 20-year futures to consider. There are, obviously, many, many more – but I think these encompass the three most realistic broad possibilities.


Realizing what a disaster the complete destruction of their currencies would be, most governments decide to endure the pain of allowing interest rates to rise and limiting increases in the money supply. Poorly run corporations and banks are left to fail. Talk of abolishing the Federal Reserve, and using a commodity for money, becomes serious and widespread.
Shaken, the U.S. ends its profligate ways, in part because it lacks the means to continue, and in part because everyone but collectivist ideologues has actually learned something from the brutal ‘10s and ‘20s.
Amidst massive protests, the government closes much of its counterproductive apparatus, eliminates many taxes, and lets 30% of its employees go. It also, albeit reluctantly, liberalizes its regulation of the economy because it has become impossible to deny that the U.S. has been falling behind in all areas.
Although there is a resurgence of libertarian thought – reminiscent of the Reagan-Thatcher era – simple practicality is mainly responsible for forcing the government’s hand. For one thing, it can’t afford the bureaucracy needed to enforce detailed interference. For another, entrepreneurs are increasingly just doing what they please, partly from necessity and partly from a growing sense of righteousness. Interest rates go to 25%, to compensate for high levels of inflation. That’s high enough to make it worthwhile for people to save, and the capital base starts growing. The stock market has collapsed to its lowest level in living experience (in real terms), but the values available encourage people to become investors. Business is restructured on a sound, debt-free basis, with little speculation.
The U.S. radically cuts its military spending and pulls almost all troops out of their foreign bases and wars. The War on Drugs comes to an end, and the crime rate in both the U.S. and Mexico plummets.
The government solves most of its overhanging financial problems with a seriously devalued – but not hyperinflated – dollar. The Social Security deficit is eliminated by abstaining from benefit increases and by inflating away much of what had been promised before. Most Americans suffer a severe drop in their standard of living, as they’re forced into new patterns of production and consumption. A generation of college students find that their degrees in sociology, political science, economics, English lit, Black studies, gender studies and underwater basket weaving are of no real value.
When it’s all over, the tough times that started in ‘07 prove to have been no more than a cyclical bump in the road, like all the other recessions since WW2, just much bigger.
A rough and memorable ride, but it ends with a return to prosperity.


The world’s governments continue under the delusion that printing massive quantities of paper money will solve problems when, in fact, printing lies at the base of the problems. Most currencies lose most of their value. Some lose it all. This destroys the most productive people in society, the middle class, who produce more than they consume and save the difference… in currency.
And it injures successful corporations that have billions, or even tens of billions, in cash. Few of their managers know what to do with such sums other than to hold currency; at best they’ll buy their own and other companies’ stock. The result is a stock market boom in the midst of a grim depression. But only one person in a hundred will be in a position to benefit from it, because most will be living too close to the edge, and the stock market will be the last thing on their minds. The destruction of capital sets technology back quite a bit in the U.S., Japan and Europe. Chindia increases its relative strength.
The U.S. government, believing it has both the obligation and the ability to “do something,” redoubles its control of the economy. Price controls and capital controls are the order of the day. Petroleum products are rationed. Enforcement of new regulations is assigned to a new agency, the “Economic Recovery Administration,” which resembles the TSA in most regards – except it has many plain-clothes employees, to better ferret out violators.
People think increasingly of politics as the way to get what they want. More and more Americans move abroad – although things are deteriorating in most places in the world. Poor, backwater countries offer the best opportunities because their governments are either weak, or corrupt, enough to allow new economic activity.


War is the worst thing that can happen to an economy, but it’s also the most likely thing at this point. When the going gets tough, the people in charge like to blame somebody else for the problem. That’s compounded by the foolish – but widely accepted – notion that war is good for the economy and that, for instance, it pulled the U.S. out of the last depression.
Like all wars, this one results in a complete stifling of civil and economic freedoms. If my second scenario is unpleasant, this alternative is grim.
The big conflict has already been teed up – the continuation of the Forever War between Islam and the West. I’ll hazard the major situs will be Europe – which has pretty much always been the case for wars in general for the last 2,000 years. Europe will be the worst place to be over the next two decades. And North America will be locked down like a police compound.
China will have serious social turmoil as it is forced to reorient an export-driven economy catering to Europe and the U.S. As in the past, South America will be out of the conflict and in a position to benefit from it. India will also be a net beneficiary, largely uninvolved, and happy to watch their ex-colonial masters rope-a-dope themselves into poverty.
People will always argue who really started it. Was it the Muslims when they poured out of Arabia in the 630s? Or was it the West when it invaded the Near East with the Crusades starting in 1099? Or was it the Muslims when the Turks took Constantinople in 1453 (although only 40 year later the Muslims would lose Grenada, in Spain, as the reconquista was completed) and then moved on to almost conquer Europe before being turned back at Vienna in 1683? Or is it more relevant just to look at recent history, starting at the beginning of the 19th century, when the West conquered and colonized every single Muslim country? Or the very recent past, when Muslims were counter-attacking, using a new military approach popularly called “terrorism”?
My bottom line is that the next twenty years may be dominated by the Forever War that started in the 600s, being resumed in earnest. At least in Europe, it has the prospect of becoming a war of survival, much nastier than either WW1 or WW2.
That resumption is being accelerated by what is going on in the Middle East now. The chances that the upheaval in the Arab world will just peter out and everyone will return to the status quo ante are about zero. It’s a culture-wide affair, much as the revolutions in Eastern Europe were. Or, for that matter, the revolutions against Spain in South America at the beginning of the 19th century.
The Arab revolutions are a good thing, in that they’re getting rid of criminal regimes. Some will be replaced with equally repressive cliques, although manned with different criminals. I suspect a few might be more like the French Revolution of 1789; good riddance to the old regime, but then came Robespierre. And after him Napoleon.
Regardless of how the tumult plays out in any particular country, the erstwhile docile collaborators with Europe and the U.S. are being elbowed aside, and the regimes that replace them are going to accommodate the vast public constituency for hostility toward the West, if only for the sake of internal political advantage.
The war is not going to be fought with conventional armies. First of all because the Islamic world doesn’t have any that would last more than a day or two against a Western army. But also because a Western army is useless against an amorphous mass of millions of people.
So what will the conflict be like? Amorphous and disjointed, chaotic and without fixed fronts. Millions of Muslims are in Europe – Pakistanis in the UK, Turks in Germany, North Africans in France, Indonesians in Holland. Europe’s destructive conquest of the world has come back to bite. These people will approach majority status over the next 20 years, both because they reproduce at several times the rate of the Europeans and because they’re not being absorbed. And because, now, millions and millions more are going to arrive as boat people.
The natives aren’t going to like it, for lots of reasons. And the outcome will likely resemble what always happens when large numbers of unwelcome foreigners invade a territory: violence.
One consequence of the war, and especially of the collapse of the regime in Arabia (in 2031 it’s no longer called Saudi Arabia, because the ruling Saud family – at least the ones who couldn’t get to their jets in time – has been massacred) is a cut-off of oil until the U.S. invades.
I hate to overemphasize oil, but the world still runs on it. When something does happen in Arabia, you can count on a disruption in the shipment of oil. And absolutely count on active U.S. intervention.
A prolonged guerrilla war, similar to those in Iraq, Afghanistan, Libya and other Arab countries will follow. But there won’t be any cover story about ousting a bad guy or bringing democracy to the oppressed. It will be pretty obvious to everybody that, from the West’s point of view, it will start out simply to answer the question: What’s our oil doing under their sand? But from the Muslim’s point of view, it will be a different question: How can we rid ourselves of these aggressive infidels once and for all? Then the West will rephrase their question to: These people want to kill us! How can we stop them once and for all?
You may be thinking that the U.S. can’t lose a war because it has a large and extremely high-tech military. All those expensive toys can be useful from time to time; they can win lots of small battles. But they’re basically useless for winning the next generation of warfare, as useless as cavalry in WW1, battleships in WW2, tanks in Vietnam or nuclear missiles today.
What? Nuclear missiles obsolete? Of course. They’re expensive, clunky, and the enemy can tell exactly where they came from. A plane, or a boat, or a truck – or a FedEx package – is a much neater delivery system. And there will be plenty of nuclear devices to deliver. If they’re within the grasp of tiny countries like Israel and North Korea, they’re within the grasp of anyone.
In fact, the centerpieces of today’s military are well on their way to the scrapheap or to museum displays. There may well be a few aircraft carriers, nuclear missiles, B-2 bombers, F-22 fighters, and the like around in 20 years. But they’ll be oddities reserved for special purposes, like typewriters. Laser, electronic and robotic weapons will have replaced those using gunpowder, and they’ll be readily available to anyone (an accelerant in the collapse of the nation-state). The military’s reliance on centralization and on computer power will prove an Achilles heel; a gang of teenage hackers (not only the best kind, but the most common kind) can devastate a military for pure sport.
Conquest of wealth or territory will be pointless; that’s one thing even the Soviets suspected in the ‘80s, when they still had the power to invade Western Europe. It’s now nothing like in the old days, when a successful war yielded lots of gold, cattle and slaves. This lack of an economic return will obviate one reason for a military. The hollowing-out of nation-states will obviate another; governments will find they just don’t have either the financial means or the popular support for serious military establishments.

The military, as the cutting edge of the nation-state, is in serious decline. Conflict between groups will still exist, of course, but it will be more informal, more the kind of thing that a Mafia or an Al-Qaeda might conduct. The growth of private military contractors, like Blackwater (now Xe), which only need be paid when in use, is indicative.


Sorry I can’t do any better than a best-case scenario that just isn’t very rosy – at least over the near term. And there’s a high likelihood of the worst-case scenario. There will probably be some overlapping elements from all three, if I’m on the right track.
From an economic point of view, I see only two things as being predictable: One, that many people will always produce more than they consume and save the difference; this will create capital, which is critical for not only a higher standard of living, but for the advancement of technology.
Two, that since there are currently more scientists and engineers alive than have lived in all previous history combined, technology will keep advancing; technology is the major force to advance the general standard of living. So that’s essentially why I’m an optimist. Let’s just hope the savers aren’t wiped out, and the scientists don’t do too much government work.
The most sensible plan for the next 20 years is to plan to survive. The days of “He who dies with the most toys wins,” and of two whole generations living way above their means, are over.
20 years isn’t forever. Think of it like a bear market, when the best thing to do is take your chips off the table, grab some books and retire to the beach for a year – except that this is going to be a lot longer and more serious. Nonetheless, I expect my fundamental optimism to get through it undamaged, as should yours.
For one thing, the long-term trend is favorable. Mankind has risen from subsistence and living in caves as little as 12,000 years ago, to reaching for the stars today – and the rate of progress has been accelerating. Why should that stop now?
But, as I mentioned earlier, thinking too far in the future is perhaps pointless. So what should you do now? The essential advice remains the same:
  • Own gold and silver. At Casey Research, we’ve made a lot of money on them – and they’re no longer cheap – but they’re going higher, simply for lack of alternatives. Look at them as you would cash.
  • Produce more than you consume, and save the difference. This is no longer the time for promiscuous, conspicuous consumption.
  • Be alert for speculations. Some markets will collapse (for instance, I wouldn’t want to own a McMansion in the suburbs or a “collectible” car). Other markets will likely turn into manias, benefiting from trillions of new currency units (I suspect mining stocks will be one of them).
  • Diversify your assets (and yourself) politically and geographically. As big a risk as the markets will be, your government is an even bigger one.
And, incidentally, we’re going to be looking carefully at the stock markets in the Arab world. It’s too early to buy. But there’s a time and a price for everything.