In The News Today

Posted at 6:21 PM (CST) by & filed under In The News.

Dear CIGAs,

The Social Security Fund has been Washington’s piggy bank for everything from pork bellies to war.

Payback time starts in 2014, but what if the pay back is just more IOUs?

Hyperinflation is the only way out for Washington’s inability to pay back the Social Security Fund debt. Hyperinflation is the only way out of most entitlements.

Sounds like a plan to me.

Medicare, Social Security Funds Worsen in Recession
By Alison Fitzgerald

May 12 (Bloomberg) — The financial health of Social Security and Medicare, the two main safety nets for American retirees and the elderly, is declining as the recession cuts payroll-tax contributions just as the baby-boom generation begins to retire.

The Social Security trust fund will run out of assets in 2037, four years sooner than previously forecast, the trustees said today. Spending on Medicare, the health insurance plan for the elderly, will reach a legal limit by 2014, the same year predicted in 2008, the trustees’ report said.

The deteriorating position of the two funds puts pressure on Congress and President Barack Obama to come up with ways to cut costs and boost revenue for both. Obama yesterday said fixing the nation’s health-care system is an “imperative for America’s economic future.”

“After we have passed health-care reform that puts our nation on a path to lower growth in health-care costs and expanded affordable coverage, this president will work to build a bipartisan consensus to ensure the long-term solvency of Social Security,” Treasury Secretary Timothy Geithner said today in a statement.

The trustees’ annual report also estimated that Medicare’s hospital fund will be exhausted by 2017, two years earlier than predicted a year ago.


Jim Sinclair’s Commentary

Should any bondholder insist on their contractual rights in court, the bankruptcy of the motor companies will be a greater catalyst for disaster than Lehman already has been.


Jim Sinclair’s Commentary

It started with housing in California and moved East. Municipal bankruptcy will do the same. Think about all the insured guaranteed municipal bonds in which the guarantee and insurance is not worth the OTC derivative it is written on. This is chapter two of the disaster where the black hole appears. L.A. is kaput.

Mayor Villaraigosa wants council to declare emergency and calls for layoffs
1:36 PM | May 12, 2009

Citing a $529-million budget deficit, Mayor Antonio Villaraigosa urged the City Council on Tuesday to declare a fiscal emergency and called for mandatory work furloughs and layoffs targeting 1,000 city employees.

"The gravity of the fiscal emergency that we face is enormous," Villaraigosa said. "Unless we act with urgency, the city will face a cash flow crisis, raising the prospect of running out of cash between November and February. "

The mayor said the city should commence layoffs of 1,000 city employees beginning July 1 but warned that thousands more could be phased in during the upcoming fiscal year. He said the layoffs would include management as well as regular staff.

Meanwhile, the mayor said he plans to implement the work furlough plan within 30 days. He said he has invited a labor representative to discuss the impact of the plan, which would require up to 26 furlough days for civilian city employees next fiscal year.

He said he would also be working with the City Council and labor officials to develop a buyout program to permanently reduce the city’s civilian workforce.

The mayor said that the city’s budget deficit could exceed $1 billion in fiscal year 2010-2011 if it doesn’t act now.


Fannie and Freddie Will Need Almost $100 Billion in 2010
Posted May 12, 2009 12:42pm EDT by John Carney
From The Business Insider, May 12, 2009:

The Office of Management and Budget released a report yesterday on the budgets and proposed overhauls of Fannie Mae and Freddie Mac that included the possibility of liquidating their assets. But don’t get your hopes up.

The two government run mortgage finance companies have been scandalously costly for tax-payers, costing Americans far more in bailout money than they ever saved in cheaper mortgages. The OMB says that the two companies will need at least $92.2 billion more in fiscal 2010. This is on top of the $78.2 billion in aid they’ve received since they were taken over by the government in September.


Jim Sinclair’s Commentary

Remember the time-honored Middle Eastern battle strategy:

1. Here comes the Surge.
2. All fall down and bury your weapons.
3. Put on street clothes and join the march of 500,000 refugees.
4. After the Surge photos are over, quietly dig up your weapons, bury your street clothes and bleed the big guy to death.

The Pakistan Surge is the best recruiting plan for the Taliban. When will the West learn?

Pakistan’s Swat offensive risks wider backlash
Tue May 12, 2009 1:46pm BST
By Luke Baker – Analysis

LONDON (Reuters) – Pakistan’s heavy-handed offensive against the Taliban in northwest Pakistan is misguided and risks further destabilizing the country, western military and intelligence experts argue.

By throwing up to 15,000 troops and heavy weaponry against an estimated 5,000 Taliban in Swat, a valley northwest of Islamabad, the Pakistan army may make short-term gains, but it increases the likelihood of terror-style attacks on targets in more stable areas of eastern Pakistan in the longer-term.

While the army essentially had no choice but to go on the offensive after the Taliban broke a peace accord and the U.S. administration piled on pressure for action, the broader strategy needs overhauling, the analysts say.

"On this occasion, the Pakistan army has accepted that the breach of the Swat agreement by the Taliban did in fact represent a threat which it couldn’t overlook or fail to respond to," said Nigel Inkster, an expert on transnational threats at London’s International Institute for Strategic Studies and a former director in Britain’s secret intelligence service.

"That said, the techniques that are being deployed go against all accepted best-practice in dealing with a counter-insurgency, particularly the use of heavy fire power.


Jim Sinclair’s Commentary

The US dollar rally may end? The rally ended exactly where Dean Harry Schultz said it would at .8900 USDX.

Mr Rogers makes much too much of IMF gold. Where was he in the 70s? IMF gold will be sucked out of the IMF by other central banks, therein allowing them to get rid of the wilting US dollar.

There is no IMF gold. It is the members of the IMF’s gold. They must agree on all aspects.

IMF gold sales are a huge crock of BS the bears make a big deal of. It sound like a silver long and gold short spread talking its own case. That is my take.

Dollar Rally Will End, Rogers Says; May Short Stocks (Update2)
By Chen Shiyin and Haslinda Amin

May 12 (Bloomberg) — The dollar’s rally is set to end in a “currency crisis,” investor Jim Rogers said, adding that he may bet on a slide in equities after nine weeks of gains.

The advance in the U.S. currency has been driven by investors covering their short sales, Rogers, 66, said in an interview with Bloomberg Television in Singapore. He may consider adding to his holdings of the yen and prefers the euro to the dollar or the pound, the investor added.

“We’re going to have a currency crisis, probably this fall or the fall of 2010,” Rogers said. “It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”

The dollar has climbed against all of the so-called Group of 10 currencies except the yen over the past 12 months, according to data compiled by Bloomberg. The U.S. currency was at $1.3592 per euro today from $1.3582.

Rogers joins “Black Swan” author Nassim Nicholas Taleb in avoiding the U.S. currency. Taleb told a May 7 conference in Singapore he preferred gold and copper to the dollar and the euro as the global economy faces a “big deflation.”


Jim Sinclair’s Commentary

This dollar is so Zombie! Once it looks in a mirror it will be under .82 for starters.

US to borrow 46 cents for every dollar spent
By ANDREW TAYLOR, Associated Press Writer
Monday, May 11, 2009

The government will have to borrow nearly 50 cents for every dollar it spends this year, exploding the record federal deficit past $1.8 trillion under new White House estimates. Budget office figures released Monday would add $89 billion to the 2009 red ink — increasing it to more than four times last year’s all-time high as the government hands out billions more than expected for people who have lost jobs and takes in less tax revenue from people and companies making less money.

The unprecedented deficit figures flow from the deep recession, the Wall Street bailout and the cost of President Barack Obama’s economic stimulus bill — as well as a seemingly embedded structural imbalance between what the government spends and what it takes in.

As the economy performs worse than expected, the deficit for the 2010 budget year beginning in October will worsen by $87 billion to $1.3 trillion, the White House says. The deterioration reflects lower tax revenues and higher costs for bank failures, unemployment benefits and food stamps.

Just a few days ago, Obama touted an administration plan to cut $17 billion in wasteful or duplicative programs from the budget next year. The erosion in the deficit announced Monday is five times the size of those savings.

For the current year, the government would borrow 46 cents for every dollar it takes to run the government under the administration’s plan. In 2010, it would borrow 35 cents for every dollar spent.

"The deficits … are driven in large part by the economic crisis inherited by this administration," budget director Peter Orszag wrote in a blog entry on Monday.


Jim Sinclair’s Commentary

As Banks sell homes on foreclosure, the statistic of home sales increase. Keep this in mind, please.

Falling home prices and increasing home sales is not good news economically. It is stinking news regardless of the upcoming glee of the money bunnies or dancing, horn honking clowns.

This would be classified as a Green Shoot, another silly piece of spin.

Home Prices in U.S. Fall 14% as Banks Sell Foreclosed Houses
By Kathleen M. Howley

May 12 (Bloomberg) — The median U.S. home price dropped 14 percent in the first quarter from a year earlier as banks sold repossessed homes.

Prices fell in 134 of 152 metropolitan areas, the Chicago- based National Association of Realtors said today in a news release. The national median existing home price declined to $169,000 and distressed properties typically sold for 20 percent less than other homes on the market.

Distressed sales are increasing transactions in some markets as speculators and first-time homebuyers buy bank-owned properties. The inventory of previously owned homes on the market dropped to 3.7 million in March from 3.8 million a month earlier, according to NAR data. The number of new homes for sale fell to 311,000, the lowest since January 2002, according to the Commerce Department.

Total existing home sales fell 6.8 percent from a year earlier to a seasonally adjusted annual rate of 4.59 million units, the Realtors group said. Sales were down 3.2 percent from the fourth quarter. The figures include single family homes and condominiums and co-ops.

Seventeen states had sales increases from the fourth quarter and six states were higher than a year ago.


Jim Sinclair’s Commentary

Pure creation of money out of thin air.

Fed buys $3.51 billion in Treasurys
By Deborah Levine
May 11, 2009, 11:05 a.m. EST

NEW YORK (Marketwatch) — The Federal Reserve Bank of New York bought $3.51 billion in Treasurys maturing between 2026 and 2039 on Monday. The buyback is part of the central bank’s program to keep borrowing costs lower and spur economic activity. Dealers offered $10.426 billion to be purchased. Ten-year note yields /quotes/comstock/31*!ust10y (UST10Y 3.17, -0.12, -3.50%) , which move inversely to prices, remained lower by 8 basis points to 3.21%. U.S. debt was supported by the Fed purchases and declining stock markets.