It's Not the End of the World, but it's the End of the Party - Peter Schiff

BANKING BOYS ARE IN REAL TROUBLE MASSIVE DERIVATIVES CRISIS LOOMS IN GOLD! | Harvey Organ

Bond Market Will MELTDOWN and RESET

Bonds are IOU’s that have been built up.
Bonds are debt packaged up and made pretty.
Many countries are finding themselves at the brink of bankruptcy.
Countries will go bankrupt and will DEFAULT on their loans.
The European viral contagion that I spoke about in The Money GPS will continue to spread and they will default.
Paper investments will be revalued and you’ll be the last one on the list to get any real value back.
 

 

Economists: The U.S. Economy Shrank In Q1, But Better Days Are Just Around The Corner

By Michael Snyder

During the first three months of this year, the U.S. economycontracted at a 1 percent annual rate.  Despite this, mainstream economists flooded the mainstream media with assurances that much better days are just around the corner on Thursday.  In fact, many of them boldly predicted that U.S. GDP would grow at a 3 or 4 percent annual rate in the second quarter.  None of them seem the least bit concernedthat another major recession is rapidly approaching.  Instead, they just blamed the bad number for the first quarter on a “severe winter“, and the financial markets responded to the GDP news quite cheerfully.  In fact, the S&P 500 soared to another brand new record high.  No matter how bad the numbers get, almost everyone in the financial world seems quite optimistic.  But is there actually good reason to have such optimism?

As Zero Hedge has pointed out, if it wasn’t for dramatically increased healthcare spending due to the implementation of Obamacare, U.S. GDP would have actually dropped at a 2 percent annual rate during the first quarter of 2014.

That would have been an absolutely disastrous number.

But within a very short time of the revised U.S. GDP number being released, the mainstream media was inundated with positive stories about the news.

For example, CNN published a story entitled “U.S. economy shrinks, but it’s not a big deal” and CNBC released a survey of nine prominent economists that showed that their consensus forecast for the second quarter of 2014 is GDP growth at a 3.74 percent annual rate.

It just seems like almost everyone wants to forget about what happened during the first quarter and wants to look ahead to a great number for quarter two.

Joseph Lavorgna, the chief U.S. economist at Deutsche Bank, is boldly forecasting a 4 percent growth rate for the second quarter.  So is Jim O’Sullivan.  In fact, it is hard to find any “expert” in the mainstream media that does not expect rip-roaring economic growth this quarter.

For example, just check out these quotes…

-Stuart Hoffman, the chief economist for PNC Bank: “The first quarter was disappointing, but rather than view that as an omen of a recession or the first of a down leg in the economy, I see the seeds of a big bounce back in spring.”

-Paul Ashworth of Capital Economics: “For those worried about a recession, it’s worth remembering that employment increased by nearly 300,000 in April.”

-The Bank of Tokyo’s Chris Rupkey: “2Q growth seen at nearly 4%… Weak 1Q is stone cold dead as an indicator of where the economy is headed.”

-Jan Hatzius of Goldman Sachs: “Because of weaker inventory investment in Q1, we increased our Q2 GDP tracking estimate by two-tenths to 3.9%.”

-Dun & Bradstreet Credibility Corp. CEO Jeffrey Stibel: “Using an alternative model for projecting job growth, we see an entirely different scenario, one in which the U.S. unemployment rate will fall below 5 percent by no later than the middle of next year.”

Hopefully they are right.

Hopefully we are not heading into another recession.

But as I discussed in an article earlier this week, evidence continues to mount that another recession has already begun for much of the country.

And there was another number that was released today that seems to confirm this.  According to CNBC, there was a 6 percent drop in exports in the first quarter of 2014 when compared to the first quarter of 2013…

The U.S. economic reversal was led by a 6 percent drop in exports year over year, until recently hailed as a key driver of the U.S. recovery, and which had risen 9.5 percent in the last three months of 2013.

The slackening of trade has spread to the developing world, where emerging economies are seeing less demand from the U.S., Europe and China for raw materials and other exports.

We saw a similar decline happen in mid-2008 as the U.S. economy plunged into recession.

And Bloomberg’s Consumer Comfort index has fallen to the lowest level that we have seen in six months.  U.S. consumers are increasingly tapped out, and the ongoing “retail apocalypse” is evidence of that fact.

A declining middle class simply cannot support the massive retail infrastructure that America has developed.  As the middle class has fallen to pieces, it was just a matter of time before big trouble started erupting for the retail industry.  This is something that David Stockman recently wrote about…

It does not take much analysis to see that these bell ringers do not represent sustainable prosperity unfolding across the land. For example, around 1990 real median income was $56k per household and now, 25 years later, its just $51k—-meaning that main street living standards have plunged by about 9% during the last quarter century. But what has not dropped is the opportunity for Americans to drop shopping: square footage per capita during the same period more than doubled, rising from 19 square feet per capita at the earlier date to 47 at present.

This complete contradiction—declining real living standards and soaring investment in retail space—did not occur due to some embedded irrational impulse in America to speculate in real estate, or because capitalism has an inherent tendency to go off the deep-end. The fact that in equally “prosperous” Germany today there is only 12 square feet of retail space per capita is an obvious tip-off, and this is not a teutonic aberration. America’s prize-winning number of 47 square feet of retail space per capita is 3-8X higher than anywhere else in the developed world!

Without middle class jobs, you can’t have a middle class.  That is why our employment crisis is at the very heart of our economic problems.  Even using the government’s highly manipulated unemployment figures, there are still quite a few cities out there that have official unemployment ratesin the double digits…

The unemployment rate in Yuma, Ariz., is 23.8%. In El Centro, Calif., it is 21.6%. El Centro sits in an area of California in which unemployment in many metro areas is double the national average. In Merced the figure is 14.3%, in Yuba City the figure is 14.5%, in Hanford it is 13.1% and in Visalia it is 13.4%. In several metros close to these, the figure is above 10%. Most of them are inland from San Francisco and the area just south of it, which also happens to be among the nation’s most drought-plagued regions. This means jobs recovery is highly unlikely.

But of course the truth is that if the government actually used honest numbers, the unemployment rate for the entire nation would be in double digits.

And as I like to remind people, according to the government’s own numbers approximately 20 percent of the families in the entire nation do not have a single member that is employed.

So how is it possible that the “unemployment rate” is just a little above 6 percent?

It is a giant sham.

But that is what they want.

They want us feeling good and thinking that everything is going to be okay.

Unfortunately, they used the same approach back in 2007 and 2008, and we all remember how that turned out.

Governor’s revised budget signals renewed attack on California workers

Dan Conway
California Governor Jerry Brown has recently released his annual May Budget Revision, which will be used as a framework to craft the 2014-2015 fiscal year budget beginning on July 1.
After years of painful cuts, the state has a projected surplus of several billion dollars, however the new budget is nonetheless being seized upon as an opportunity to cut billions more from vitally-needed social programs and further impoverish the working class.
Among the programs due for continued austerity is the In Home Support Services program or IHSS. The program provides stipends to family members and care providers for the elderly and disabled.
As part of the 2013 state budget, state funding for IHSS already decreased by 8 percent, which is scheduled to decrease to 7 percent at the start of the next fiscal year. The May budget revision keeps this cut in place and additionally prohibits IHSS providers from working over 40 hours per week and collecting overtime compensation. This will insure that those recipients requiring more than 40 hours of care per week will be forced to seek out and hire additional providers. It is highly unlikely, however, that they would have the financial means to do so considering the overwhelming majority of IHSS recipients are in extreme financial hardship.

The budget also leaves cuts to SSI or Supplemental Security Income completely unchanged. This will leave SSI grants at $30 per month lower than they were five years ago. Moreover, cost of living adjustments for SSI grants were removed as part of the 2010-2011 budget and will not be restored under the new proposal.
The CalWORKs welfare to work program also will not see previous cuts restored. CalWORKS grants remain at $50 per month lower than pre-recession levels. Cost of living adjustments to that program which were removed as part of previous state budgets will also not be restored.
The budget retains massive cuts to education as well.
Since 2007 and 2008, state-subsidized childcare and preschool have been cut by nearly 40 percent, resulting in 110,000 children losing all subsidized care.
Similarly, cuts to the University of California and California State University system will be maintained, resulting in General Fund spending on a per student basis at a lower level than its been in thirty years. Hundreds of thousands of academically-qualified working class children have been priced out of nominally public universities with tuition and fees tripling at CSU and quadrupling at UC between the 1990-91 academic year and today.
As far as K-12 and community college education, the single largest expenditure from the state’s general fund is through what is known as the Proposition 98 guarantee that mandates a minimum level of spending at those institutions, typically 39 percent of state spending.
Previous years have seen the loss of billions in Proposition 98 funding under Brown. This year, however, the governor proposes to repay the $5.6 billion still owed to schools under the guarantee but only at the expense of ongoing Proposition 98 funding. In fact, the governor’s proposal makes a $742.2 million repayment of lost funding in 2012-2013 and 2013-2014 offset by a decrease of funding for fiscal year 2014-2015. Thus, compared to the previous year’s spending on education would have seemed to have increased where in fact, it represents only one part of an ongoing cut to public education funding.
A large portion of what remains of Proposition 98 funding will be dedicated to the Local Control Funding Formula (LCFF) adopted as part of the 2013-2014 state budget.
The LCFF is an attempt to provide school districts with increased funding while allowing them greater autonomy to circumvent existing state laws and allow for the more rapid firing of teachers and staff. It also serves as a means to pump many lower-performing districts full of money before such schools get converted into charter schools or other private institutions.
According to a May report released by Stanford University’s Policy Analysis for California Education (PACE) center, the LCFF represents a golden opportunity to transform public education funding. According to David Plank, the center’s director, “This is very different from the way California has funded schools in the past.” The report cautions school districts from using such revenue to restore recent budget cuts in place of “supporting long-term strategies for improvement,” which presumably can only take place of the basis of less funding for students and schools.
While the report is not directly linked to the offices of Brown or the state government more generally, it accurately reflects their policy vis-a-vis the funding formula. The report makes quite clear that the real beneficiaries of the formula should under no circumstances be teachers and students already burdened by overcrowded classrooms and antiquated buildings, but handsomely-paid consulting firms and other private enterprises.
To that end, the PACE report calls for the hiring of additional instructional aides, “master teachers” and instructional coaches along with a wide array of new evaluation tools and technologies meant to fully implement the Obama administration’s Common Core Initiative and streamline the teacher dismissal process on the basis of scientifically questionable evaluation methodologies. According to the PACE report, the LCFF will help to “leverage the kinds of long-term institutional changes that are otherwise difficult to bring about in local education systems.”
While the LCFF continues to receive additional funding from the state, funding for traditional public schools is being rapidly cut. Funding for the LCFF is to increase each year incrementally until fully funded in 2020. At the same time, a portion of the governor’s budget also reduces cost of living adjustments, down to 0.85 percent, for non-LCFF programs including special education, child nutrition and American Indian Educational centers.
An additional and significant component of the budget’s attack on teachers are Brown’s proposals to address the state’s “Wall of Debt” or long term state debt, a large portion of which is comprised of unfunded retirement liabilities including teacher pensions.
The governor’s proposal reduces budgetary debt to $14.8 billion by 2014-2015 and would eliminate budgetary debt altogether by the end of 2017-2018. In order to achieve this goal, the governor would not only repay large scale municipal bond holders who have profited handsomely off the state’s financial misfortune, particularly after contrived credit downgrades by the three largest rating agencies meant to force through severe austerity, but by imposing larger costs on teachers and state workers to make up for unfunded retirements.
Under the proposed terms of the May revision, CalSTRs members will see their contributions increase from 8 percent to 10.25 percent of their pay or between about $1500 or $2500 per year based on current teachers’ salaries. Moreover, school district contributions are to increase from 8.25 to 19.1 percent of payroll phased in over the next seven years. Statewide, this amounts to $3.7 billion in additional contributions per year.
This is essentially designed to make payments to CalSTRs so onerous to local districts that they will be forced to let go of personnel, which they will have much greater flexibility to do under the LCFF and other anti-teacher lawsuits and legal actions under way in the state which are meant to remove due process rights for teachers.
While the state is also increasing its own CalSTRs contribution, from 3 percent of payroll in 2013-2014 to 6.3 percent, it is making this increase based on teacher retirements at 1990 levels. In other words, the state is not obligated to pay for any increases in pension rates since 1990 and moreover, the increases at the district and teacher level will be taken from Proposition 98 funding anyway.
Not only does the current budget keep past cuts intact but insures that no significant restitution will occur in future years through the strengthening of the state’s Budget Stabilization Account or Rainy Day Fund which is meant to keep previous cuts intact by sequestering any state revenue increases in the fund to only be drawn upon in years of budgetary deficits.
The governor’s budget adds $1.6 billion to the existing rainy day fund for the coming fiscal year. Additionally, the May revision proposes a popular vote on a constitutional amendment after a two-thirds vote of the state legislature.
The new rainy day fund, if passed by the legislature and voters, would increase the maximum size of the rainy day fund from five to ten percent of general fund revenue. Additionally, it would require half of each year’s deposits to be used for paying down debts and liabilities rather than restoring social program cuts.
Moreover, rainy day funds may only be withdrawn in case of a natural disaster or if spending remains below the highest level of spending during the previous three years adjusted for changes in population and inflation. Essentially, this means that the rainy day is a mechanism through which ongoing austerity can be implemented.
With consummate cynicism, Brown announced his new budget to be “good news for California” at an initial press conference. When asked by a reporter if the public university system will even be able to function after so many cuts and tuition increases, he said, “First you have a desire, and then someone tells you how to turn the desire into a need and then the need gets turned into a law, and then the law gets turned into a lawsuit.”
Republished with permission of WSWS.

U.S. GDP Fell 1 Percent; First Drop In 3 Years

Revising its early numbers for the first quarter of 2014, the Commerce Department says the U.S. economy shrank by 1 percent at an annualized rate. Last month, estimates of the quarter's gross domestic product had shown a small gain of 0.1 percent.
Government analysts blame the slump on "a significant decline in inventory investment," especially among car dealerships. They also say U.S. exports declined along with spending on housing and government programs.
"Economists estimate severe weather could have chopped off as much as 1.5 percentage points from GDP growth," . "The government, however, gave no details on the impact of the weather."
Corporate profits also declined in the quarter, the Bureau of Economic Analysis says, after showing gains in the previous quarter.
"Profits of nonfinancial corporations fell 8.1 percent after rising 1.5 percent," the agency says. "Profits of financial corporations fell 15 percent after rising 1.3 percent."
The new quarterly GDP data came out along with news from the Labor Department that weekly jobless claims fell by 27,000 last week, to 300,000.
"Fewer dismissals may be a sign that companies, already lean from recession-era job cutting, are gearing up for improving demand as the economy shows signs of rebounding from a first-quarter slump," says.

Is It Really Just Temporary..? U.S. Economy Shrinks… GDP ‘Grim’… Pending Home Sales Miss Expectation… Consumer Comfort Plunges To 6-Month Lows

U.S. Economy Shrinks for First Time Since 2011 — Is it really just temporary..?

U.S. economy shrinks…

Less is more for the U.S. economy, which suffered its first contraction since 2011 last quarter.

Gross domestic product fell at a 1 percent annualized rate, worse than the most pessimistic forecast in a Bloomberg survey of economists, revised Commerce Department figures showed today inWashington. The good news: Much of the decline was due to less inventory building that economists say can’t last. As a result, some are boosting second-quarter growth forecasts, with Morgan Stanley projecting a 4.2 percent gain.

http://www.bloomberg.com/news/2014-05-29/u-s-economy-shrank-early-this-year-for-first-time-since-2011.html

GDP ‘grim’…

The U.S. economy contracted in the first quarter for the first time in three years as it buckled under the weight of a severe winter, but there are signs activity has since rebounded.

The Commerce Department on Thursday revised down its growth estimate to show gross domestic product shrinking at a 1.0 annual rate.

http://www.cnbc.com/id/101713801

Excluding Obamacare, US Economy Contracted By 2% In The First Quarter

http://www.zerohedge.com/news/2014-05-29/excluding-obamacare-us-economy-contracted-2-first-quarter

Pending Home Sales Miss Expectation

Pending home sales climbed 0.4% month-over-month in April. This missed expectations for a 1% rise. 

On the year, pending home sales were down 9.4% worse than expectations for an 8.7% fall.

March’s number was revised down to show a 7.5% YoY fall, compared to an initial read of a 7.4% fall.

Read more: http://www.businessinsider.com/april-pending-home-sales-2014-5#ixzz337yitaJg

“Pent-Up” Pending Home Sales Demand Missing; Down 9.4% YoY

7th month in a row of YoY declines…

http://www.zerohedge.com/news/2014-05-29/pent-pending-home-sales-demand-missing-down-94-yoy

Goldman Boosts Q2 GDP Forecast Due To Weaker Than Expected Q1 GDP

http://www.zerohedge.com/news/2014-05-29/goldman-boosts-q2-gdp-forecast-due-weaker-expected-q1-gdp

Consumer Comfort Plunges To 6-Month Lows

Despite record highs in stock markets and talking-heads explaining that a terrible Q1 GDP print is nothing to worry about, Bloomberg’s Consumer Comfort index collapsed to its lowest level in 6 months as ‘Buying Climate’ collapsed and economic expectations plunged from 48 to 42.5 (7-month lows). Those earning over $100k are happy and comfort soared but the comfort of those earning under $40k plunged to new cycle lows. The Fed won’t be happy… need S&P 2,200 for animal spirits to come back again…

http://www.zerohedge.com/news/2014-05-29/consumer-comfort-plunges-6-month-lows

Summer crash of 2011 in 2014?

My reasoning then was simple. The magnitude of outperformance in dividend/bond-like sectors was warning of a deflation pulse to come, which equities utterly ignored prior to the August collapse. More so than that, though, the ratio of Treasurys to the S&P 500 didnot act with the same level of leadership as defensive sectors did.

http://www.marketwatch.com/story/summer-crash-of-2011-in-2014-2014-05-29

Japanese Retail Sales Collapse By Most On Record

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http://www.zerohedge.com/print/489026