In The News Today

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Jim Sinclair’s Commentary

As goes Motors so goes the USA.

GM stock hit by bankruptcy report

US carmaker General Motors has seen its shares fall sharply after a report that the US government wants the firm to start bankruptcy proceedings by 1 June.

The New York Times said the Treasury Department wants a court-led reorganisation, but the firm wants to reorganise without going to court.

Shares in the firm were 16% lower at $1.71 in afternoon trade in New York.

On 30 March, the US government gave GM 60 days to develop a new restructuring plan and gain further state aid.

‘Fast track’

The White House has already given the firm $13.4bn (£9bn) in public money to prevent it from collapsing, but any additional aid requires the firm to meet tougher rules.

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Jim Sinclair’s Commentary

Oh my God, Mark to Market is called a gimmick!

–noun
1. an ingenious or novel device, scheme, or stratagem, esp. one designed to attract attention or increase appeal.
2. a concealed, usually devious aspect or feature of something, as a plan or deal: An offer that good must have a gimmick in it somewhere.
http://dictionary.reference.com/browse/gimmick

Steve: FASB Retreats

Steve Forbes, 04.13.09, 06:00 AM EDT

Investors cheered as the accounting gimmick known as mark-to-market was softened by the Financial Accounting Standards Board.

Investors cheered as the accounting gimmick known as mark-to-market was softened by the Financial Accounting Standards Board. And not a moment too soon, as these rules were destroying our financial system. We can allow ourselves a moment of thanks that common sense prevailed for once. But there is still much work to be done.

Enacted to prevent another Enron, mark-to-market never made sense during our current crisis. It forced banks to write assets down to market prices, even if they hadn’t sold them or even if there was no market. During a deep recession, this proved a disaster. Can you imagine writing down a home you hadn’t sold? It would bankrupt you, the way mark-to-market nearly bankrupted us all.

The reforms, though, should have been more sweeping. Recalcitrant regulators could still mitigate much of the good. To get things really moving, our government now needs to fix our atrocious tax code. Individuals and businesses spend 7.6 billion hours a year filing their taxes, at a cost of $193 billion. It’s immoral to squander so much time and money. Barack Obama could sideline Republicans by instituting a flat tax, but this is likely too progressive for this president.

Another needed action is to tie the dollar back to gold. All these new spending programs will be paid for with inflationary dollars, creating a new risk for down the road. Alexander Hamilton understood that tying the greenback to gold created economic progress and a lawful society. And it did so for almost 200 years. We need vision like that again, or any current rallies could prove short-lived.

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Jim Sinclair’s Commentary

Amateurs or professional. He is right because there is no practical means of draining the unprecedented injection of monetary stimulus.

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923
April 12, 2009

I am an amateur economist. But, one doesn’t need years of schooling to be a better "economist" than Ben Bernanke. One merely needs to take the blinders off and release common sense. A broad background in law, economics and history helps, but it is not absolutely necessary. Economics is the study of human nature as it applies to money. So, it is precisely those who are narrowly educated, like some professional economists who don’t study enough history, take an intensely academic viewpoint on things, and who don’t understand fundamental human nature, who get things wrong. A narrowness of outlook and training may be blinding people like Ben Bernanke from reality, but, if they are operating knowingly and intentionally, as some claim, the situation is even more frightening.

Unfortunately, Ben Bernanke has been wrong on almost all his predictions concerning the course of this crisis. That has been true since the beginning. Where, then, can we obtain the confidence that he knows what he is doing, or, frankly, that he knows more than we do, as he should? Many wrong-headed people seem to believe that we must throw away common sense and listen to him, and the others who think like him, even though we have been consistently correct, over the past 4 years, and he has been consistently wrong. The American people understandably have little confidence in the Washington crowd. Is this surprising in light of the events? What assurance is there that they know how to address this situation, when they first failed to regulate the financial madness, and, then, afterward, were completely wrong on almost all economic projections, one after another?

One must reach the inevitable conclusion that neither Bernanke, nor his comrades, such as Timothy Geithner, actually "know" what they are doing. Instead, that crowd in Washington DC, think that if they throw money around, it will land somewhere, and help things. They are wrong. But, to partly achieve this goal, they have forced changes in accounting standards, legalizing misrepresentation of bank bookkeeping, and removed "mark to market" standards, replacing those standards with a system of "mark to fantasy" that is remarkably similar to that which previously existed and caused this crisis. "Mark to fantasy" accounting, now the order of the day once again, will allow insolvent banks to present the false appearance of big profits this quarter, even as they are really on the brink of failing. The end result will be more economic imbalances, as investors unknowingly misallocate their investment dollars to buy into the fraud.

In truth, there is only one way to save the zombie banks, and it is not through faked-up accounting books. The only way is to inflate their obligations away, while increasing the value of their assets at the expense of the rest of us. That appears to be the plan, if there is any plan. But, if Ben Bernanke and that crowd do know what they are doing, the most nefarious heist against the American people, as well as other innocent folks all over the world, is being planned. The upcoming massive inflation is going to be a stealth tax upon millions of innocent people, all for the benefit of a few still wealthy bank executives, who made huge mistakes, and should be forced to pay for those mistakes themselves. I will give Ben Bernanke and Timothy Geithner the benefit of the doubt and conclude, until presented with more evidence, that they simply don’t know what they are doing.

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Jim Sinclair’s Commentary

Here is a small example of how inflation begins to work itself through an economy as tax revenues start to seriously contract. Watch when tax revenues fall off the cliff.

Cities Turn to Fees to Fill Budget Gaps
By DAVID SEGAL
April 11, 2009

After her sport utility vehicle sideswiped a van in early February, Shirley Kimel was amazed at how quickly a handful of police officers and firefighters in Winter Haven, Fla., showed up. But a real shock came a week later, when a letter arrived from the city billing her $316 for the cost of responding to the accident.

“I remember thinking, ‘What the heck is this?’ ” says Ms. Kimel, 67, an office manager at a furniture store. “I always thought this sort of thing was covered by my taxes.”

It used to be. But last July, Winter Haven became one of a few dozen cities in the country to start charging “accident response fees.” The idea is to shift the expense of tending to and cleaning up crashes directly to at-fault drivers. Either they, or their insurers, are expected to pay.

Such cash-per-crash ordinances tend to infuriate motorists, and they often generate bad press, but a lot of cities are finding them hard to resist. With the economy flailing and budgets strained, state and local governments are being creative about ways to raise money. And the go-to idea is to invent a fee — or simply raise one.

Ohio’s governor has proposed a budget with more than 150 new or increased fees, including a fivefold increase in the cost to renew a livestock license, as well as larger sums to register a car, order a birth certificate or dump trash in a landfill. Other fees take aim at landlords, cigarette sellers and hospitals, to name a few.

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Jim Sinclair’s Commentary

Look at the new news for the West!

West Warned on Nuclear Terrorist Threat From Pakistan
April 12, 2009 by national

The next few months will be crucial in defusing a global terrorist threat that would be even deadlier than the conflicts in Afghanistan and Iraq, a leading Washington counter-terrorism expert warns.

David Kilcullen — a former Australian army lieutenant colonel who helped devise the US troop surge that revitalised the American campaign in Iraq — fears Pakistan is at risk of falling under al-Qaeda control.

If that were to happen, the terrorist group could end up controlling what Dr Kilcullen calls “Talibanistan”. “Pakistan is what keeps me awake at night,” said Dr Kilcullen, who was a specialist adviser for the Bush administration and is now a consultant to the Obama White House.

“Pakistan has 173 million people and 100 nuclear weapons, an army which is bigger than the American army, and the headquarters of al-Qaeda sitting in two-thirds of the country which the Government does not control.”

Compounding that threat, the Pakistani security establishment ignored direction from the elected Government in Islamabad as waves of extremist violence spread across the whole country — not just in the tribal wilds of the Afghan border region.

“We have to face the fact that if Pakistan collapses it will dwarf anything we have seen so far in whatever we’re calling the war on terror now,” Dr Kilcullen told The Age during an interview at his Washington office. Late last month, when US President Barack Obama unveiled his new policy on Afghanistan and Pakistan, he warned that al-Qaeda would fill the vacuum if Afghanistan collapsed, and that the terror group was already rooted in Pakistan, plotting more attacks on the US.

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