Word of the Year: Austerity

 The noun was searched so many times on Merriam-Webster’s website, the dictionary decided to make it word of the year. According to John Morse, president and publisher, “austerity” saw more than 250,000 searches on the dictionary’s free online tool and came with more coverage of the engineered debt crisis.
“What we look for… what are the words that have had spikes that strike us very much as an anomaly for their regular behavior,” Morse said. “The word that really qualifies this year for that is ‘austerity,’” Morse told the Associated Press.
The words “pragmatic” and “socialism” were runner-ups.
Austerity is definately on the menu and that is why so many searched the word. It is not merely Greece and Ireland that will feel the pinch, but the United States as well. “Like it or not, what I call stealth austerity is already hitting America. Just look at individual state budgets that are covered in red ink,” writes Greg Hunter.
Look no further than the tidal wave of foreclosures and unemployment figures that grow every month. “This is what stealth austerity looks like.  Pretty soon, it will be uncloaked and brought out into the light of day. When that happens, it will be like the economy taking a nose dive into the deep end of a swimming pool with no water to cushion the plunge,” writes Hunter.
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Austerity is the word of the year. Next year we will get another word.
Let’s hope it is “revolution.”

10 Signs That Confidence In U.S. Treasuries Is Dying And That Financial Armageddon May Be Approaching

 Selling government debt is a gigantic confidence game.  For decades, investors all over the globe have gobbled up massive amounts of U.S. debt at incredibly low interest rates because they believed that it was a certainly that they would be paid back and be able to make a little bit of profit on top of it.  Unfortunately, things have changed.  Confidence is U.S. Treasuries is dying, and if confidence in U.S. government debt completely collapses at some point we could literally be looking at financial Armageddon.  Why is that so?  Well, when the world totally loses faith in U.S. Treasuries, interest rates on U.S. Treasuries will have to keep going up until enough investors are found to buy them.  But much higher interest rates will mean much higher interest on the national debt and thus much higher federal budget deficits.  That will erode confidence in U.S. Treasuries even further.  In the end, a vicious cycle of eroding confidence and higher interest rates could ultimately lead to hyperinflation as the U.S. government and the Federal Reserve flood the system with endless amounts of paper money to try to keep the system solvent.
Faith in U.S. Treasury bonds is absolutely critical if the world financial system is going to continue to operate in a stable manner.  In the post-World War 2 era, U.S. Treasuries have been largely viewed as the absolutely safest investment out there.  So if there comes a point when the market for U.S. Treasuries completely collapses, it is going to cause unprecedented financial chaos.  The worldwide derivatives market, which is already highly unstable, would almost certainly implode.  Credit markets all over the globe would seize up.  Global trade would quickly grind to a standstill.
This isn’t going to happen overnight (hopefully).  Rather, the loss of confidence in U.S. Treasuries is something that is likely to take months or even years to play out.  But once that confidence is gone, it is not something that will be able to be rebuilt easily.
Think of it this way – once you drive a car off a cliff, is it easy to reconstruct it?
Of course not.
Well, that is where we are headed with U.S. Treasuries.
The Federal Reserve is flooding the system with new dollars, Barack Obama and the U.S. Congress seem poised to pass a new tax deal which does not include corresponding spending cuts which will cause U.S. government budget deficits to become even more bloated, and there is a tremendous lack of faith both in U.S. political leaders and in the Federal Reserve at this point.
The rest of the world is losing faith that the U.S. government is going to be able to handle all of the debt that it has accumulated.  We may be approaching a “tipping point” soon.
#1 The financial community is extremely concerned that the tax deal that Barack Obama is pushing is going to dramatically increase U.S. government budget deficits over the next two years.  On Monday, Moody’s warned that if Barack Obama’s tax deal with the Republicans becomes law, it will increase the likelihood that Moody’s could soon be forced to slash the rating of U.S. government debt.
#2 Already there are signs that some bond investors are looking for the exits.  Last week, U.S. Treasuries suffered their largest  two day sell-off since the collapse of Lehman Brothers back in September 2008.
#3 The yield on 10-year Treasury bonds set a six-month high on Monday before pulling back a bit.  Most analysts believe that Treasury yields are going to push significantly higher in coming weeks.
#4 This trend of rising yields has been going on for a while.  In fact, yields on 10-year Treasury bonds have been steadily rising since October 7th.
#5 Even before the recent tax deal was announced there were already troubling signs regarding the growth of U.S. government debt.  The U.S. government budget deficit rose to $150.4 billion in November, which was the largest November budget deficit ever recorded.
#6 It is not just the new tax deal that has investors around the globe spooked.  The truth is that the rest of the globe reacted very negatively to the new round of quantitative easing that the Federal Reserve announced back in November.  The Federal Reserve is flooding the system with liquidity and the rest of the world is not amused.
#7 The American people have less faith in the Federal Reserve and in the financial system than at any other point in recent memory.  For example, a new Bloomberg National Poll has found that a majority of Americans now want the Federal Reserve to either be held more accountable or to be abolished entirely.
#8 Investors all over the globe are starting to wake up and realize that America’s debt problem is unsolvable.  David Bloom, the currency chief at HSBC, raised eyebrows when he recently stated that “if yields are rising because people think America’s fiscal situation is unsustainable, then its Armaggedon.”
#9 There is also a growing feeling among investors that the Federal Reserve simply does not care about the danger of inflation, and this is making bondholders very nervous.  Stephen Lewis of Monument Securities recently put it this way….

“There is a feeling that the Fed doesn’t care about inflation – in fact, wants more of it – and that is certainly not in the interest of bondholders.“

#10 Over the next 12 months, the U.S. government is going to be rolling over trillions of dollars in debt along with all of the new borrowing that it is going to be doing. In fact, the U.S. government is somehow going to have to find a way to finance debt that is equivalent to 27.8 percent of GDP in 2011.
For years our politicians have told us that “deficits don’t matter”, but the truth is that they do matter.  The national debt of the United States is now the biggest debt in the history of the world by far, and yet most Americans do not seem to grasp the absolute financial horror that we are facing as a nation.
In the end, debt is always painful.  It can be a lot of fun to run out and buy a beautiful new house, a couple of brand new cars and to run your credit cards up to the max, but eventually it catches up with you.  Well, the same thing is now happening to us on a national level.
We are getting to the point where eventually we are not even going to be able to service the debt that we have already piled up.  Once that happens we can either declare national bankruptcy or we can try to hyperinflate our way out of trouble.
Meanwhile, the once great U.S. economic machine is dying as well.  The only reason we have been able to survive with all of this debt as long as we have is because of how powerful our economy has been.
But over the past couple of decades, the big global corporations that now dominate our economy have shipped thousands of factories and millions of jobs overseas.
The mighty economic machine which is supposed to provide funds to pay off all of this debt is being dismantled right in front of our eyes.
There was no way in the world that U.S. government debt was going to be sustainable even if our economy remained vibrant and healthy.  The sad truth is that U.S. government debt is approximately 13 times larger than it was just 30 years ago.
But now that the “real economy” is dying a savage death there is simply no hope that this thing is ever going to turn around.  The only thing left to do is to take bets on when the implosion is going to happen.
All of this “great tax cut debate” nonsense going on in Washington D.C. right now is just a bunch of incompetent politicians running around rearranging the deck chairs on the Titanic.  Perhaps these tax cuts will provide enough of a short-term economic boost to get many of them re-elected in 2012.  Meanwhile, our long-term economic problems continue to get a lot worse.
It has become quite obvious that Barack Obama is completely clueless about the economy, and what is even sadder is that the “highly educated” Chairman of the Federal Reserve, Ben Bernanke, seems almost equally as clueless.
Unfortunately, Americans have become so dumbed-down that they don’t even realize that their leaders are incompetent.  In fact, as sad as it is to say, most Americans you will meet on the street probably cannot even tell you what U.S. Treasuries are.
Let us hope and pray that investors around the globe continue to have at least some confidence in U.S. Treasuries for at least a little while longer.  When “financial Armageddon” finally does happen, it isn’t going to be pleasant for any of us.
So enjoy these happy economic times while you still have them, because at some point things are going to get a whole lot worse.

U.S. Home Values Poised to Lose $1.7 Trillion in 2010

 U.S. home values are poised to drop by more than $1.7 trillion this year amid rising foreclosures and the expiration of homebuyer tax credits, said Zillow Inc., a closely held provider of home price data.
This year’s estimated decline, more than the $1.05 trillion drop in 2009, brings the loss since the June 2006 home-price peak to $9 trillion, the Seattle-based company said today in a statement.
“It’s definitely going to continue into 2011,” Stan Humphries, Zillow’s chief economist, said in an interview on Bloomberg Television today. “The back half of 2010 looked horrible and 2011 should look like the mirror image of that.”
The drop in home values pushed more buyers underwater, meaning they owe more on their mortgages than their homes are worth, Zillow said. The percentage of homeowners with mortgages with so-called negative equity reached 23.2 percent in the third quarter, up from 21.8 percent at the end of 2009.
Housing demand has slumped since the start of the year as the government tax credit expired and unemployment hovers near 10 percent. Sales of existing homes in October fell to an annual pace of 4.43 million, compared with 5.98 million a year earlier and an annual average of 5.81 million over the past decade, the National Association of Realtors said Nov. 23. The median price was $170,500, down from $172,000 a year earlier.
Prices are likely to stop falling in the second half of next year and take another three to five years before making strong gains, he said.
“We think appreciation will be after 2014, essentially,” Humphries said.
Tax Credits End
More than $1 trillion of this year’s decline in home values occurred in the second half, Zillow said. Federal tax credits of as much as $8,000 for qualified first-time homebuyers and $6,500 for repeat buyers required a sales contract by April 30.
Only 31 metropolitan areas, or fewer than one-fourth of the 129 tracked by Zillow, had gains in home values this year. They include Boston and San Diego.
Zillow’s findings contrast with reports by the Federal Housing Finance Agency, the S&P/Case-Shiller index and the National Association of Realtors, which show home prices found a floor in early 2009, said Walter Molony, a spokesman for the Realtors group.
“We are projecting essentially no change in values from 2009 and view Zillow’s estimates as completely wrong,” he said in an e-mail.
Weak Demand
U.S. home prices will decline as much as 11 percent by 2012 as weak demand and rising inventory extend the housing slump, Morgan Stanley said in a report yesterday.
Prices will be as much as 36 percent below their 2006 peak before finding a bottom, Morgan Stanley analysts led by Oliver Chang wrote. Sales will stay “depressed” through next year amid tightened lending standards, they said.
As many as 8 million homes are in some stage of default or foreclosure, known as shadow inventory, and may be offered for sale over the next five years, according to Morgan Stanley. The looming supply will combine with tight credit and questions about housing-finance regulation to reduce prices 6 percent to 11 percent from current levels, the analysts said.
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Start A Business? In The United States? Are You Kidding Me?

 Many of you have decided that you are going to attempt to start a business in the United States today.  Many of you are still convinced that this is "the land of opportunity" and that starting a business is fairly easy.  Are you sure about that?  Are you certain that you have considered all of the headaches involved?  Are you sure that you are ready to handle the thousands of regulations that apply to your business and the mountains of paperwork mandated by various levels of government?  Are you prepared to deal with entrenched unions, predatory lawyers and rabid environmentalists?  The truth is that the business environment has never been this toxic in all of U.S. history.  So even if you are able to start a viable business that can compete with the monolithic global corporations that dominate our economy, you still might not be able to make it.  In the end, thousands upon thousands of businesses across America have been doomed to failure by ridiculous regulations, mountains of paperwork, health insurance costs, predatory lawsuits or corrupt government officials.  So do you really think that you can beat the odds?
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Why We're Headed For A Collapse

 Americans want Congress to bring down a federal budget deficit that many believe is “dangerously out of control,” only under two conditions: minimize the pain and make the rich pay.

The public wants Congress to keep its hands off entitlements such as Medicare, Medicaid and Social Security, a Bloomberg National Poll shows. They oppose cuts in most other major domestic programs and defense. They want to maintain subsidies for farmers and tax breaks like the mortgage-interest deduction. And they’re against an increase in the gasoline tax.

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Real Estate Cycles Downward

Housing prices are falling and will continue to decline as cash-strapped homeowners deleverage. A good number of homeowners bought houses that were well beyond their means. Now, with ongoing high unemployment and stagnant wages, they have no prospects of increasing their incomes and keeping up their mortgage payments. Houses were and are over-valued, and there is an extreme surplus. The Federal Reserve appears oblivious to the fact that the real estate cycle has not yet reached bottom.
Homeowners across the United States face similar issues; they bought houses with an extreme amount of leverage, or debt. Many bought houses at the peak of the real estate bubble, when prices were highest, and are still feeling the repercussions of the crash of prices in 2008. Although house prices have risen modestly, more recently they are headed back down. How are you supposed to sell your house when the value of your house is below what you owe in debt? Hundreds of thousands of homeowners have no prospect of selling and are slaves  to their debt, largely thanks to low-interest rates.
As appealing as low interest rates sound, in an economy with over-priced homes they are extremely dangerous. Ridiculously low interest rates, no-down-payment loans and other recently invented loan instruments succeeded in luring unsuspecting buyers into mortgages they could not afford but which generated profits for banks, mortgage brokers and securities brokers. The result: Waves of defaults that triggered the Global Financial Crisis and continue to cripple the economy.
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Poll: Americans Believe China Has Surpassed USA in Economic Strength

 In the global race for jobs and economic prosperity, the United States is No. 2. And it is likely to remain there for some time. That’s the glum conclusion of most Americans surveyed in the latest Allstate/National Journal Heartland Monitor poll. Henry Luce famously labeled the 20th century the “American Century.” This survey suggests that most Americans now doubt that this new century will bear that name.
In the poll, only one in five Americans said that the U.S. economy is the world’s strongest—nearly half picked China instead. Looking forward, Americans are somewhat more optimistic about regaining primacy, but still only about one in three expect the U.S. economy to be the world’s strongest in 20 years. Nearly three-fifths of those surveyed said that increasing competition from lower-paid workers around the world will keep living standards for average Americans from growing as fast as they did in the past. Ruben Owen, a retired Boeing engineer in Seattle who responded to the survey, spoke for many when he said, “We’re still in a reasonably good place … but it’s going to get harder because other places are growing stronger.”



Across a wide range of issues, the poll found the traditional American instinct toward optimism straining against fears that the nation’s economic struggles may extend far beyond the current slowdown. On many fronts, particularly the quality of higher education and scientific research, large majorities of Americans still believe that we lead the world. And most say that the U.S. can remain a manufacturing leader.
But the survey reveals deep anxiety about the impact on the American economy of increased globalization; the decades-long shift in domestic employment from manufacturing toward services; the quality of decisions by government and business leaders; and the economic prospects for younger generations.
Full story here.

Silver Hits $30! Crash JP Morgan: Buy Silver update With Max Keiser

Decision Points

Without the middle class, American democracy might not survive

The Shrinking Middle Class
Most political commentators across the country now agree: the Obama Administration will eventually bow to Republican pressure and preserve the Bush tax cuts for all tax brackets for several years.
In addition to adding to the federal deficit, preserving tax cuts for the wealthy will further threaten the American middle class and the stability of our democratic institutions. Democracy is much more fragile than we generally think, and we seem to be nearing a tipping point for economic inequality.

This may seem counterintuitive. Most Americans have come to take democracy’s robustness for granted. We view the global spread of democracy as both inevitable and desirable. This is a uniquely modern conceit. For most of human history, experts believed that democratic institutions were unstable. Why? Rule of the majority is dangerous in societies where most individuals have everything to gain by engaging in class warfare. Large disparities of wealth in democratic societies empower demagogues. Simply put, political equality makes radical economic inequality difficult to maintain.

One need not be a Marxist to admit that modern liberal democracy only became possible with the rise of social mobility. Members of the emerging middle class were uniquely suited to democratic life.  They were unprepared to accept the risks of political extremism, since they already had enough property to live comfortably.

Furthermore, they aspired to greater success without envying the wealthy. They had enough to fear its loss, but not so much that they were fully satisfied. This meant that they were both politically moderate and politically engaged. Since they were invested in the stability of their society’s economic institutions, they became defenders of property rights and free market exchange.

It should come as no surprise that to this day, tolerance and compromise remain middle class virtues. The middle class thrives on fair, predictable laws, and democracy flourishes when most citizens are self-sufficient. The health of one depends upon the health of the other. Perhaps just as importantly, a secure middle class reliably leads to strong local communities and economic growth. Democracy needs both.

Don’t believe me? Consider the fleeting fortunes of American radicalism. Current Republican attacks on President Obama to the contrary, American socialism flourished in the early 20th century, when the gap between rich and poor was at its widest. Socialist candidates for President garnered between two and six percent of the vote between 1900 and 1932.  After Franklin D. Roosevelt’s election in 1932, their vote total quickly dwindled to just over two thousand total votes in 1956.

Why? FDR’s economic policy paved the way for a more equitable distribution of the fruits of American capitalism. His policies saved American democracy from extremism and led to four decades of growth and stability for the American middle class.

As soon as Ronald Reagan began dismantling federal protections for the middle class, the gap between America’s richest and poorest began to grow again. Each successive administration continued his work, until their work culminated in our current economic troubles. With the weakening and diminishing of the middle class, our economy slowed down and eventually deflated entirely.

Consider: American middle class purchasing power has remained relatively static for nearly four decades, while American GDP has tripled. Consider: While the wealthiest one percent of Americans held less than 20 percent of the national wealth in the mid-1970s, by 2004 this number had grown to approximately 35 percent.  Consider: With limits on campaign spending eroding, the relationship between wealth and outsize political power has never been tighter.

Our democracy depends upon a strong, robust middle class. Now is no time for the nation’s wealthiest to demand extraordinary tax cuts that bankrupt the country. If they refuse to consider the common national good, if they continue to leave the majority of the country behind as they enrich themselves, they may well be ushering in an unprecedented era of political radicalism. While we generally assume that American institutions are impervious to political extremism, we have rarely allowed this degree of economic disparity. If we do nothing to protect and resuscitate the backbone of our democracy — the middle class — we risk losing it entirely.

Market Celebrates Just Announced Record Foodstamp Usage By Closing At 2010 Highs

For those seeking a perfect explanation of what is happening in United Banana States of America right now, then look no further: the just released September Supplemental Nutrition Assistance program data is out and we are happy to report that the number of poor Americans has never been higher – SNAP recipients just hit a fresh all time high of 42.9 million. Naturally, the market celebrates the record number of poor Americans by closing at 2010 highs. No long-winded, somnolent essays, no rants, just observations. These two facts explain everything that is happening in this unrecognizable banana republic. Now that is a five year banana plan you can believe in.
The Shrinking Middle Class: Why America is becoming a Two-Class Society

Jobless Recovery?: 25 Unemployment Statistics That Are Almost Too Depressing To Read

 The Shrinking Middle Class: Why America is becoming a Two-Class Society
Guess what? Unemployment is up again! That's right - even though Wall Street is swimming in cash and the Obama administration is declaring that "the recession is over", the U.S. unemployment rate has gone even higher. So are you enjoying the jobless recovery? The truth is that there should not be any talk of a "recovery" as long as the "official" unemployment rate remains at around 10 percent and the "real" unemployment continues to hover around 17 percent. There are millions and millions of American families that are living every day in deep pain because of the lack of jobs. Meanwhile, there are all of these economic pundits that are declaring that we are just going to have to realize that chronic unemployment is the "new normal" and that if other nations can handle high rates of unemployment then so can we. The most optimistic economists are projecting that we can perhaps get the unemployment rate down to around 8 percent by 2012. On the other hand, there are many economists that are convinced that things are going to get even worse.

If you have never been unemployed, it can be hard to describe how soul-crushing it can be. As the bills pile up and the financial obligations mount, the pressure can be debilitating. Being unemployed for an extended period of time can easily plunge you into depression and grind your self-worth away to almost nothing. After getting rejected dozens of times (or even hundreds of times), many Americans simply give up. There are countless marriages and countless families that are being ripped to shreds by financial pressure even as you read this. When the money is gone and there is no job in sight it can be a really, really empty feeling.

Of course there is a whole lot more to life than money, but it can be difficult to tell that to someone who can barely sleep at night because of the intense pressure to find a job.

The vast majority of Americans have at least one family member or close friend that is looking for work right now. Times are really, really tough and unfortunately the long-term outlook is very bleak. We should have compassion on those who are out of work right now, because soon many of us may join them.

The following are 25 unemployment statistics that are almost too depressing to read....
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Gerald Celente on topic The New Unemployment Figures - Old Fed Lies

The Shrinking Middle Class

America's Downfall - Public Service Layoffs & Cuts

The Shrinking Middle Class: Why America is becoming a Two-Class Society

Warning to All - The American Economy is Not Back - Prepare for the Coming Depression

Decision Points

Economy Needs To Create 235K Jobs A Month To Return To Pre-Depression Levels By End Of Obama Second Term

 Undoing Depression: What Therapy Doesn't Teach You and Medication Can't Give You
When we last ran this number, the economy needed to create 232,400 jobs per month to get to the same unemployment rate as last seen in December 2007, just before the depression started, courtesy of today’s massive disappointment we can now increase the creation requirement to 235,120. As a reminder this is the number of jobs per month that need to be created between December 2010 and November 2016, or the end of Obama’s now improbable second term, for jobs to recover their losses when taking into account the natural growth of the labor force of 90,000 people per month. Also, when ignoring the demographic shift, or just accounting for the absolute number in jobs without accounting for the labor force growth which is so wrong only the BLS looks at that number, the breakeven has been pushed back from June 2013 to July 2013. Economic collapse you can finally believe in. And now, with the BLS’ good graces, the government can promptly pass the jobless benefits extension, which is what this whole doctored data charade is all about.