Posts Categorized: USAWatchdog.com

Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

Last week, the government announced the economy (gross domestic product, GDP) grew at a 2.5% rate.  The mainstream media (MSM) hailed this as some significant turnaround.  Businessweek.com reported, “Buoyed by a resurgent consumer and strong business investment, the economy expanded at an annual rate of 2.5 percent in the July-September quarter, the government said Thursday.  The expansion, the strongest quarterly growth in a year, came as a relief after anemic growth in the first half of the year and weeks of wild stock market shifts.”  (Click here for the complete Businessweek.com story.)  Where did this so-called growth come from?  My bet is most of it came via money printing by the Fed, credit card use and inflation that is mistakenly reported as growth.

Economist John Williams of Shadowstats.com says the 2.5% GDP growth rate story is a sham.  In his latest report, he says the economy is not growing but “sinking anew.”  Williams criticized the government numbers the day they came out last week by saying, “. . .the widely-followed gross domestic product (GDP) nonetheless remains the most-heavily-biased, the most-heavily-guessed-at, the most-heavily politicized and the most-worthless major indicator of domestic business activity.  Today’s numbers out of the Bureau of Economic Analysis are outright nonsense.  Consider that latest numbers showed that the level of inflation-adjusted third-quarter 2011 GDP broke above the pre-recession high of fourth-quarter 2007: a full recovery.  That is absurd.  No other major economic indicator, including payrolls, real (inflation-adjusted) retail sales, industrial production, trade deficit or housing starts is showing that.” (Click here to go to the Shadowstats.com home page.)

There are many other signs the economy is not getting better.  The latest data from both Consumer Sentiment and Consumer Confidence surveys have recently plunged right along with home prices.  Business week.com reported last week, “The New York-based Conference Board’s household sentiment index slumped to 39.8 in October, the lowest level since March 2009 and less than the most pessimistic forecast in a Bloomberg News survey, the group’s data showed today. Property values in 20 cities were little changed in August from the prior month and down 3.8 percent from 2010, according to S&P/Case-Shiller.  “The outlook continues to deteriorate,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York. “It’s not good for confidence when people see their main asset, their homes, decline in value. Our best-case scenario is we’ll muddle through.”  (Click here to read the complete article.)

To top it off, a nationwide survey of bankers last month revealed that most expect home prices will not recover until the year 2020!  CNBC covered the story and said, “The survey conducted by the Professional Risk Managers’ International Association for FICO, found that 49 percent of respondents do not expect housing prices to rise back to 2007 levels for another nine years. Only 21 percent of respondents said they would.  The findings, which authors called “a decidedly pessimistic outlook,” are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011.  In addition, 73 percent of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years. And 46 percent believe mortgage delinquencies will increase over the next six months.” (Click here for the complete CNBC story.)  So, don’t hold your breath for the so-called recovery story becoming reality anytime soon.

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Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

The U.S. stock market surged yesterday on news the European Union (EU) would deploy a two trillion euro rescue fund to help get its sovereign debt crisis under control.  This news was so good even battered Bank of America stock jumped more than 10%.  Crisis averted?  Hold on, not so fast.  Some big French banks are in trouble because they are up to their necks with sovereign debt.  Naturally, President Nicolas Sarkozy wants action now.  Yesterday, the Financial Times (FT.com) reported the French leader said, “. . . an unprecedented financial crisis will lead us to take important, very important decisions in the coming days.”  Raising the sense of urgency, the French president added: “Allowing the destruction of the euro is to take the risk of the destruction of Europe. Those who destroy Europe and the euro will bear responsibility for resurgence of conflict and division on our continent.” (Click here to read the complete FT.com story.) 

Jim Rickards of Tangent Capital says you have to distinguish between the bonds, banks and the euro.  He said recently in an interview on King World News, “The bonds are definitely going to crash and burn.  The bonds are toast. . . . The banks own the bonds, and if the bonds are toast, the banks are toast. . . . But that doesn’t mean the currency is toast.”  (Click here for the complete King World News interview with Mr. Rickards.)  Rickards expects the euro currency will survive, but many banks will not. 

Reggie Middleton of Boombustblog.com says the reason for the coming bank failures is simple—high debt loads.  Middleton says many European banks have 40 to 1 leverage.  He recently explained how dangerous this was by saying, “I take a dollar and I borrow $39, and I go out and buy something with it.  All you need is a 2% move to totally wipe you out—100%.  And we all know a lot of sovereign bonds have moved a whole lot more than 2%.” (Click here to see more of Middleton on the Boombustblog.com.)  Middleton is expecting more European bank runs as the crisis picks up speed.  

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Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

The meeting yesterday in Europe to come up with a plan to stem the sovereign debt crisis turned sour.  Zero was accomplished, except to put even more fear into the world over an impending financial meltdown that will likely be worse than the 2008 mushroom cloud.  The Telegraph UK is reporting, “During two hours of bitter exchanges during a meeting of all 27 EU leaders before a crisis summit of the Eurozone’s 17 members on Wednesday, President Sarkozy fought hard to get the Prime Minister barred from talks that would finalise a 100 billion euros cash injection into banks.  ”We’re sick of you criticising us and telling us what to do. You say you hate the euro, you didn’t want to join and now you want to interfere in our meetings,” the French leader told Mr. Cameron, according to diplomats.”  (Click here to read the complete Telegraph UK article.) It appears members of the EU are having a hard time coming up with a plan which will, no doubt, be some sort of combination of bank failure, steep haircuts in sour sovereign debt, and money printing to pick winners. 

So, what does Europe have to do with global inflation?  I figure if there is no plan soon, things may get out of control.  In this scenario, the ECB may be forced to print euros like crazy.  Meanwhile, the Fed would rev up its printing press at the same time to help fight off another out-of-control systemic failure.  This latest possible money dump falls against a backdrop of accelerating global inflation caused by multiple rounds of currency creation since 2008.

How bad is inflation around the world right now?  In Asia, Bloomberg recently reported, “Singapore’s decision to slow its currency’s advance rather than halt gains shows the dilemma facing Asian nations trying to tame inflation while protecting exporters from faltering economies in Europe and the U.S. . . . Singapore’s inflation will average about 5 percent this year and 2.5 percent to 3.5 percent in 2012, the central bank said yesterday. Consumer prices rose 5.7 percent in August from a year earlier.”  (Click here to read the complete Bloomberg report.)

In the Middle East, Business Intelligence reported last week, “Saudi Arabian inflation accelerated to 5.3% last month, its fastest pace since January . . . the Saudi Press Agency reported today, compared with 4.8% in the previous month. The cost of living index increased 0.9% in September from August, the report said. Annual inflation in January was also 5.3%.” (Click here to real the complete BI-ME.com report.)

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Posted by & filed under USAWatchdog.com.

Greg Hunter’s USAWatchdog.com

Dear CIGAs,

I, and many others, have said when it comes to the economy, nothing has been fixed.  I thought Federal Reserve Chief Ben Bernanke underscored that fact when he spoke yesterday in Washington D.C. for the Joint Economic Committee.  Mr. Bernanke said in prepared remarks, “There have been some positive developments: The functioning of financial markets and the banking system in the United States has improved significantly.”   Of course, there was not a word about the recent credit downgrades for three big U.S. banks.  I also don’t see how the banks are in so much better shape with many of their stock prices tumbling.  Bernanke also admitted, “Nevertheless, it is clear that, overall, the recovery from the crisis has been much less robust than we had hoped.”  (Click here to read the complete text from Bernanke’s prepared remarks.)  Maybe that’s why the Fed recently froze a key interest rate at near 0% for at least the next two years.

Bernanke is still saying that lethargic growth of the economy is due to “temporary factors.”  And, yet, he also told the Congressional Committee the so-called economic recovery “is close to faltering.”  I don’t see how these kinds of back and forth contradictions are not the sign of a Fed Chief with a clear view of the economy, let alone with a plan to fix it.  The fact is the Fed’s lax regulations, easy money policies and massive bailouts are a big part of why the economy is in the shape it is in.  To be fair, it is not all Bernanke’s fault.  First of all, Alan Greenspan was no “maestro.”  The last Fed Chief who could call himself that was Paul Volcker.  He raised interest rates to the moon to kill inflation, and Wall Street hated him for it.  In the years leading up to Mr. Bernanke’s appointment, Greenspan was quick with his own bailouts and never saw a regulation he couldn’t bend or cut.  It was Greenspan that pushed to get rid of Glass-Steagall, and from that point in 1999, it was all downhill.      

Congress was basically taken over by Wall Street years ago, and instead of statesmen, all we have now are mostly bagmen.  Nobody has the spine or political will to do what is necessary to right the ship of state.  Congress cannot agree on anything resembling a financial plan to get America back on track.  Congress is so divided that it has flirted with shutting down the government several times—this year.  Now, the so-called “super committee” is supposed to cut $1.5 trillion from federal deficits by the end of next month.  (By the way, this is not really a cut; it just slows the growth of government spending.)  Yesterday, Bernanke warned Congress about this “crucial objective” by saying, “The federal budget is clearly not on a sustainable path at present. The Joint Select Committee on Deficit Reduction, formed as part of the Budget Control Act, is charged with achieving $1.5 trillion in additional deficit reduction over the next 10 years on top of the spending caps enacted this summer. Accomplishing that goal would be a substantial step; however, more will be needed to achieve fiscal sustainability.” 

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Posted by & filed under USAWatchdog.com.

By Greg hunter’s USAWatchdog.com

Dear CIGAs,

I keep hammering away at the fact the Fed doled out $16 trillion in the wake of the credit crisis of 2008.  This is an enormous sum that is greater than the all goods and services produced in the U.S. in a single year.  Domestic banks and companies got the money, right along with foreign banks and companies.  In effect, the Federal Reserve bailed out the world financial system.  Now, we are right back to square one facing another financial meltdown with European banks and sovereign debt.  If the Fed spent $16 trillion, why in the heck is this problem not fixed and why isn’t the world economy taking off like a rocket?”  The simple answer is it wasn’t enough money. 

The Bank of International Settlements pegs the total world over-the-counter (OTC) derivative exposure at around $600 trillion, but many experts say the real figure is more than twice that amount.  No matter which figure you use, it is a gargantuan sum.  OTC derivatives are an unregulated dark pool of money with no public market.  These are basically debt bets between two entities on things such as credit risk, currencies, interest rates and commodities.  According to the latest report from the Comptroller of the Currency, just four U.S. banks have an eye popping $235 trillion of OTC derivative leverage. (Click here for the complete Comptroller of the Currency report.)  As a nation, U.S. banks have a total OTC derivative exposure of $250 trillion. So, the fact that just four U.S. banks have this much leverage and risk is astounding!  The banks are listed below in order of size and approximate OTC exposure:

1.)     JP MORGAN CHASE BANK NA OH

           $78.1 trillion OTC derivatives

2.)    CITIBANK NATIONAL ASSN

           $56.1 trillion OTC derivatives

3.)    BANK OF AMERICA NA NC

           $53.15 trillion OTC derivatives

4.)    GOLDMAN SACHS BANK USA NY

           $47.7 trillion OTC derivatives

Considering that the total assets of these four banks are a little more than $5 trillion, I see a frightening amount of risk with a total derivative exposure of $235 trillion!  This is nearly 50 to 1 leverage.  On top of that, assets such as real estate or mortgage-backed securities can be held on the books at whatever value the banks think they can sell them for in the future.  I call this government sanctioned accounting fraud, or mark to fantasy accounting.  Who knows what the true value of the banks “assets” really are.

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Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

Just about everywhere you turned yesterday, the mainstream media (MSM) was talking up the good news in the latest Case-Shiller Home Price Index report.  For example, the online version of USA Today had a headline that read “Spring buying boosts home prices, market still sluggish.”  The first line of the story said, “Prices rose 0.9% in July over June, marking the fourth-consecutive month of increases for the Standard & Poor’s Case-Shiller index released Tuesday.”  But, buried in the same story was this little piece of information, “When adjusted for seasonal factors, home prices were essentially flat in July over June, S&P’s data show.  “The housing market is still bottoming and has not turned around,” says David Blitzer, chairman of the index committee at S&P.  July home prices were down 4.1% year over year, according to S&P’s index of 20 leading cities. Minneapolis and Phoenix led the declines, with prices in those areas down about 9% year-over-year.”  (Click here for the complete USA Today article.)

What a spin job!  “Prices were essentially flat,” and “July home prices were down 4.1% year over year.”  Shouldn’t the headline have read something like “Home Prices Decline year over year– Flat for July”?   Why does the MSM try to spin good news out of a rotten situation?  Why do they think it is their duty to make a story look better than reality?  I was in the MSM for most of my career, and I know what its duty should be.  Give it to the viewer or reader straight.  There is not a single inaccuracy in the USA Today story, but the spin and omissions are stupefying.  Would you like an example of what I am talking about?  Sure you would. 

USA Today and many other news outlets such as CNBC and Fox were touting a little talking point from the report that said, “. . . 17 of 20 cities in the Case-Shiller index showed unadjusted increases in July over June. . .”  This would make you think Wow!  We must have a turnaround in real estate going on.  Look at the actual chart from the Case-Shiller report, and focus on the last row of numbers on the right under the heading 1-Year Change (%): 

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Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

I keep hearing the so-called experts say how much better shape the banks are in now than in the last financial meltdown of 2008.  To that, I say horse hooey!  Any expert worth his salt knows that nothing has been fixed in the financial system.  The problems were papered over with fiat currency and the proverbial can kicked down the road—ting ting ting.  You will know things are truly getting better when the banks start valuing the assets on their books at what they can be sold for today, not for what they hope to get for them a couple of decades in the future.

Even with what I call government sanctioned accounting fraud, the banks are still in just as much trouble as they were in 2008, and probably more.  Lost in the cliff dive the markets took last week were the downgrades of three very big U.S. banks.  There was zero talk of downgrades in 2008, and now Moody’s has cut the debt rating of Bank of America, Wells Fargo and Citigroup.   Last week, Reuters reported, “The government is “more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled,” said the rating agency, a unit of Moody’s Corp (MCO.N).  ‘This is crystallizing the fact we’re in a new political reality,’ said Jason Ware, equity analyst with Salt Lake City-based Albion Financial Group.”  (Click here for the complete Reuters story.)

The U.S. downgrades go nicely with the widely reported bank insolvency in Europe.  One big banker there recently said “numerous European banks would not survive” if they had to value their assets at what they could get for them today.  In other words, European banks are also being kept alive with phony accounting.  That was not the case in 2008.  So, now we have insolvent banks AND phony bookkeeping to make them appear solvent.  EU finance ministers are taking criticism from around the globe because they are not printing enough money to bail out their banks.   Yesterday, Reuters reported, “After a weekend of being told by the United States, China and other countries that they must get more aggressive in their crisis response, European officials focused on ways to beef up their existing 440 billion-euro rescue fund.  Deep differences remained over whether the European Central Bank should commit more of its massive resources to shoring up Europe’s banks and help struggling euro zone member countries.”  (Click here for more on this story.)  Please keep in mind, the “440 billion-euro rescue fund” is more than $600 billion, and world powers way want more money printed!

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Posted by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

It doesn’t seem that anyone is worried much about another enormous bailout to stabilize the world financial system that kicked off last week.  According to one top European banker, many of the biggest banks there are insolvent.  The problem is so large that the European Central Bank along with the Bank of Japan, Bank of England, Bank of Switzerland, and the U.S. Federal Reserve will all team up and bailout Europe—again.  The ECB is setting up a $600 billion European bank bailout fund, and according to Treasury Secretary Tim Geithner, $600 billion is not enough for the European share of the bailout!  According to Reuters, “In a 30-minute meeting with euro zone finance ministers on Friday, Geithner pressed for the 440 billion euros (more than $600 billion) European Financial Stability Facility (EFSF) to be scaled up to give greater capacity to combat the bloc’s debt malaise, a senior euro zone official said. . . . Geithner’s presence at the meeting underscored the depth of U.S. alarm but ministers were resistant to Washington telling the 17-country euro zone and its finance chiefs what to do.”  (Click here for the complete Reuters story.)

If more than $600 billion is not enough for the EU’s share of bailout money from four of the biggest central banks in the world, then you have yourself one big insolvency problem.  Once again, the solvency of the entire system is threatened.  This is not just an EU bailout.  The last global meltdown caused the Federal Reserve to create and hand out $16 trillion.  That $16 trillion figure is a solid number.    It came from the Government Accountability Office (GAO) compliments of a little provision Senator Bernie Sanders tagged on to last year’s Wall Street reform bill.  (Click here for the complete report.  This is an outrage!)   So, if the U.S. Federal Reserve doled out $16 trillion the last time, how much will stopping this global meltdown cost?  We will never know because the GAO Fed audit was an OTO (one-time only.)

Nothing has been truly fixed since the last bailout bonanza at the end of 2008.  The banks are still allowed to use phony accounting to appear solvent.  There is no public market for over-the-counter (OTC) derivatives market.  The Bank of International Settlements says the OTC market is around $600 trillion.  (Some say the OTC derivatives market is more than twice that size, yes more than a quadrillion bucks!)  Not a single big banker on the planet has gone to jail for wrecking the global economy, and there is still almost zero transparency at the banks.  How many problems get better when you ignore them?  My guess is that this crisis is, at least, just as bad as the last one.  It will take many more trillions of freshly created dollars to get it under control for a second time.

What’s the downside for printing all this money to try and avoid a meltdown?  Economist John Williams at Shadowstats.com lays it out in his most recent report.  Just last week, he said, “To the extent that euro-area problems threaten to trigger a global or U.S. systemic collapse, the Fed—most likely with other parties—will create, spend, loan, or guarantee whatever money is needed to prevent a collapse.  This has been the case for some time, but the cost to the system is inflation. . . “   Check out trajectory of the government’s most recent “Core” inflation numbers below: 

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