Monday, January 31, 2011

The significance of foreign food revolutions to US hegemony

The Telegraph's Evans-Pritchard reports on food riots in the Middle East and how they are highlighting and bringing to the forefront the underlying political risk that has been in place for a long time.  What he fails to point out that these events are actually the foreign arms of the US empire crumbling. 

It will take more time to fully play out but the writing was on the wall when we abandoned the gold standard in 1971.  The US economic flywheel is now slowing down at an exponential rate even if the slow down has been papered over to keep Americans from learning the truth.  Papering over, however, is superficial and it does not affect the true rate of decay.  All it does is suppress the news so that it can pop up suddenly and dramatically down the road in the form of some type of "economic shock". 

Our control over the world for the past 50 years was completely driven by our economic power and you can indirectly measure the reduction in that economic power by watching as our control over the satellite members of our global empire break free.  The marginal players are, of course, getting hit the first and the worst.  Tunisia's ousted dictator Ben Ali and Egypt's soon to be ousted president  Hosni Mubarak are both commonly recognized to be US-backed puppets.  Their replacements will not be.  You can see evidence of this as Mubarak tries to shuffle deck chairs within his own version of the Titanic.  He swept away the cabinet and put in new talking heads in an attempt to appease the people but they are having none of it.  Those people will not rest until Mubarak is out and someone who represents them (instead of western interests) is in.

As our economy loses power, our ability to set up and maintain puppet governments, etc. will continue to diminish in locked step.  Without US control of other sovereign (puppet) leaders those countries will move away from USD hegemony and eventually replace the USD as the world's reserve currency with something that does not give the USA "exorbitant privilege". 

When that happens we will no longer be able to borrow cheaply to fund the national debt that we have no intention (or means) of ever repaying.  Neither will be able to print trillions from thin air and then export the inflation and the associated revolution.  When that time comes, printing of trillions of new dollars will manifest itself as skyrocketing prices on everything.  The inflation curse will have come home to roost. That's when we will have to deal with our real problems and until that day most Americans will have no clue (and will continue to not want to know) what is going on.  Ignorance may seem like bliss but it will also lead to most people being caught by surprise and unprepared.  People will not get paid their Wimpy Promises (food stamps, medicare, social security, government salaries, health care, etc.) by a government that has no money of its own, diminished ability to borrow cheaply, diminished ability to print money without causing internal inflation and no ability to increase taxation upon impoverished citizens.  Pensions will suffer right along with the stock market, 401ks, annuities, etc.  We will see civil unrest in our cities and it will not be pretty. 

Nobody can put a time line on these events but smart people like Ron Paul have been trying to educate us on the inevitability of them for years at the same time as intelligent but ignorant people ignored his warnings and even ridiculed him for speaking out.  People were not ready for honesty back in 2008.  Americans instead wanted hope and change and fantasy and daydreaming and continued ignorance about economic math, logic and history.  A day of reckoning is coming and we will eventually pay the price for adopting and promoting the dishonest monetary system whose two main drivers of fraud are fiat currency and fractional reserve banking.

Great time to buy stocks or the start of a global melt down?

What a strange world we live in.  On one hand the elite are partying it up in Davos at an economic summit patting themselves on the backs for papering over the biggest credit crash to occur in 200 years.

At the same time, Bernanke's money printing has sparked inflation that has at the very least crippled Ireland, overheated India and China, toppled the government of Tunisia and now Egypt is going down the tubes quickly.  Mish reports that in Egypt:
  • Ports have shut down
  • Gas stations have not gotten deliveries in days and are beginning to run out
  • Food shortages have begun and are causing food prices to soar
  • Business has ground to a halt leaving more people who have already been living hand to mouth without much hope.
  • The stock market is closed
  • Banks are also closed and there is great worry that if the banks open back up that people will scramble to get their money out - a run on the banks.  If that happens what do you think stocks will become worth?
But never mind about all that because some are suggesting that we should all just jump into a market that skyrocketed from the lows mainly due to regulatory forbearance and money printing.

Anyone who thinks the stock market rebound was normal economic activity is deluded, insane or worse.  All of the gains were driven by government intervention, period.  I'm not saying it couldn't go up even more but at some point government intervention is not real economic pressure.  It's all temporary because it's driven by debt, not real money.  People will not continue lending to the US just so that Lloyd Blankfein of Goldman Sachs can give himself another raise and have another chuckle on the rest of us.  If I were that guy I would lie low.  I think he is really pushing his luck these days.

Saturday, January 29, 2011

Is the inflation coming?

For many years I have been discussing what I referred to as a coming "supernova economy" which is characterized first by a deflationary crash which would then be followed by massive inflation.  I've looked at a lot of indicators including mania charts from bubble housing markets, etc. to figure out where we are in the process but to date have not seen real evidence that the deflation phase has worked its way through.  In fact, quite the contrary. Things should be crashing like nobody's business but we are muddling through.  This is the power of the "exorbitant privilege" of controlling the world's reserve currency.   We get to print money from thin air to fight deflation and then to export the associated inflation AND the civil unrest and revolution which results from people overseas having difficulty affording food and other basic necessitates. 

Because of the power wielded by government and the Federal Reserve, this is not a real economy and these are not real markets.  Price discovery of assets is not happening because losses are being papered over thus slowing the liquidation of the underlying assets.  Nobody could expect that the Fed could keep the Ponzi plate spinning this long.  The fact that it has managed to do so only proves that fantasy can go on a lot longer than anyone could think is possible.  Look how long Madoff got away with it and Enron too.  If you have a pile of losses and debt that you can just basically ignore then sure, all new money coming in looks like massive profit.  Let's all party like it's 1999!

The main thing that blindsided deflationists (so far) was that they expected the rule of law to hold.  But laws no longer apply.  Rule of law is dead and now we have rule of man, rule of make it up as you go along, rule of political expediency.  History shows that the ability to change rules on a whim never works out very well for the people so I guess we just have to hope it's different this time. I'm mainly referring to the "regulatory forbearance" associated with mark to market of assets held on the books of the banks and shadow banks.  They are basically being allowed to sequester their losses, sometimes in plain sight and sometimes off balance sheet, and to ignore them.  The interest rates are being held artificially low so they still have no problem servicing the debt even though it is massive. These unprecedented manipulations allow the companies to actually appear healthy instead of being bankrupt like they really are.

Because of this strange new twist it's entirely possible that the bubble economy hasn't even peaked yet (although I'm not betting in that direction yet).   I am now on the lookout for signs of massive inflation setting in which I expected would follow the deflation (which has indeed occurred in many markets -
Detroit for example is in a huge depression!).  The massive inflation has to be credit based - Bernanke's recent doubling of the monetary base is barely keeping up with deflation.  So I am looking for stories that indicate credit is loosening up in an unusual fashion. 

Along those lines, today I found this story which indicates venture capitalists are giving out lots of small bits of money but at really excellent terms.  They are just shot gunning money into the hands of many small garage inventors instead of throwing a lot of money at small number of venture started by Harvard grads.  Investors appear to be figuring out that the college really isn't as important as it cracked up to be and that the main driver of business success is heart and soul and sweat.  In other words, they have figured out that new value comes from labor, especially reasonably priced labor, not from overpriced PhDs strutting around like big men on campus puffing out their credentials and demanding to be referred to as "Doctor".

Still, the key is that they are shot gunning the money which means malinvestment will occur.  The economy is not demanding more stuff, these people are in the process of trying to think up new stuff for the economy to learn to demand in the future.  It might work and then again it might just be an echo of dot bomb where everyone with a business plan was given startup cash.  If the government starts getting involved then one has to consider the real possibility that the next massively inflationary credit bubble might be forming.

Friday, January 28, 2011

Middle East contagion growing

Tunisia, Egypt, and now Yemen...,0,3090706.story

What do they all have in common?  They want their con men leaders to leave and it doesn't seem to matter whether that occurs under their own power or in body bags.  All of this unrest begs the question: why is all of this happening now?  What magical unseen force is driving these actions and what is underpinning the movement?

Bob Prechter is really a leader in helping to explain all of these things.  He teaches that Homo Sapiens is a herding species which tends to move in certain ways as a group or more to the point, as a herd.  The exact form and timing of the movements are in many ways chaotic even though Prechter attempts to model it with some success using the Elliott Wave Theory.  Still, the outcome is far from being deterministic so nobody can really say what will happen and exactly when, but back in 2002 Bob wrote an amazing book entitled "Conquer The Crash: You Can Survive And Prosper In A Deflationary Depression".  It was based on his theories about credit and herding behavior and the like.  Nobody and I mean nobody was pushing the twin combination of herding behavior and a coming bout of credit deflation like Bob was.   A very great deal of what he wrote in that book is playing out right now.  It is certainly a must read if you feel that you are as a deer in headlights today.

To net Prechter's views out in as simple terms as possible, the events of today are caused by the effects of credit deflation on the herd's collective mentality.  Bankers and consumers/businesses increased the money supply by offering credit and assuming debt respectively.  The act of creating new debt increases the money supply.  This has negative social effects which I discuss in significant detail in the "Insights" section of this blog (mainly the transfer of disproportionate wealth from the poor to the rich and powerful).  The herd puts up with this and even actively participates as long as it perceives that it is getting benefit from the deal.  In other words, nobody complains as long as the elitist con game of fractional reserve banking is running smoothly and while most people in society subconsciously believe that they are getting something for nothing. 

But at some point the con begins to collapse (like all cons eventually do).  When it does, the fake, credit-inflation driven prosperity morphs into deflation driven hardship.  Jobs are lost, homes are lost, families are broken and, in extreme cases, people don't even have food or clothing.  All of this happens while people are heavily indebted with no way to repay it and so they default if they can.  In many cases their laws do not provide for bankruptcy and any bad debts become smothering lifetime burdens under the law.  In general, the herd figures out that it has been conned.  The herd no longer believes that the system is more good then bad and the result is civil unrest, governmental overthrow, violence in the streets, and economic collapse.  People with nothing left to lose are not so very different from wild animals - violent and unpredictable.  Survival becomes all that matters and they are not very concerned who gets hurt in their quest for survival.

In any con game - including the global debt Ponzi which is currently in early stages of collapse - the marginal, weaker players are hit first and worst.  But the larger players got large by standing on the shoulders of those in the pyramid below them so at some point the pain becomes widespread up and down the pyramid.  Prechter believes that we are seeing the collapse of a credit bubble the likes of which has not existed since the early 1700s when the South Sea Trading Bubble collapsed. 

When I look around at the amount of fake, credit based "money" flying around in the world economy (AKA "hot money") I can't help but agree that circumstances are ripe for such a collapse.  Look around the world.  Iceland's government and economy kicked things off followed by Greece which is having riots and people are calling for government to step down.  Ireland kicked the can down the road for a couple months by accepting an EU bandaid loan but it will eventually collapse as will Spain, Portugal and Italy.  Japan is headed for a social disaster with their massive debt and declining means to pay even the service on it.   And now we see the Middle East countries toppling like dominos.   Nothing like this has been seen since the Great Depression and if Prechter is right the eventual outcome will be significantly worse.  The mood of the herd has changed from positive to negative and the stampede has begun.  Smart people will figure out how to avoid the stampede and then get out of the way until the herd runs the anger out of itself and is ready to become reasonable again.  That process could take years from this point given just how far we have all let the credit con run.

New property tax for major Chinese cities signals the beginning of the end of the Chinese real estate bubble

Hugh Hendry, Mish Shedlock and many others have been pointing out what a massive construction driven bubble economy China has become.  People in China still believe that housing prices and commercial real estate prices can never go down and so they invest in anything with 4 walls with price as no object.  Even poor people have gotten into the act by pooling their money at the village level and investing in buildings to nowhere.

In layman’s terms what we are seeing is just another massive debt Ponzi.  Here’s how it works:
  • People foolishly give control of their money and credit supply to central banks.  This is the first big mistake.
  • The central banks manipulate the value of money and credit in order to achieve political means.  In other words, they under price credit in order to stimulate the economy so that they can remain in control.
  • Illuminated members of society (AKA crony capitalist friends of government) get first access to the low cost credit and they use it to “invest” in the economy.  They “create jobs” building stuff that really didn’t need to be built.  People flock to invest in these assets and the smart money cashes out of the boom before it turns to bust.  As a result they achieve wealth and power far beyond what they worked to deserve.  It is an age old scam that has been played again and again throughout history.
  • At first it seems like win-win so the people don’t complain about it.  The big, well connected con men make huge money and the little guy gets a paycheck that pays the bills.
  • Unfortunately, each loan that is taken out increases the money supply.  This is inflationary and as a result it drives up the prices of things.  Buildings and houses that used to cost X now cost 10x or 100x or even 1000x.  In Shanghai today a crappy little flat goes for over $9000 per square meter (almost $850 per square foot!!).  Even an hour outside of the city the places are going for nearly $300 per square foot and they are just shells with unfinished interior concrete walls, no plumbing, no kitchen, no appliances. 
  • People who do not want to speculate on housing prices still need places to live and so they are forced to buy into the scam using ridiculous, unpayable leverage.
  • Sooner or later the credit bubble busts for a variety of reasons.  In China it appears that the inflationary forces are bleeding over into food prices causing staple items to increase in price at a scary pace.  Chinese people are not rich and so even small price changes in nondiscretionary items like food have a dramatic impact on their quality of life and even on their ability to consume enough calories to sustain life.  When this happens it threatens to cause social unrest and so governments move to “cool down” the economy.  It demands that banks curtail loans and restrict credit and it makes it more painful for people to speculate on high leverage.
  • Whatever the reason for the credit Ponzi to bust, without cheap and easy credit the houses and buildings cannot be bought because nobody has that much money in cash.  Thus, the housing and commercial real estate value must fall until they reach the point where people can attain credit again to buy them.
  • As prices fall, people become fearful that they will catch the falling knife and so property values end up falling even further than they should have.  Many people end up having to sell during this time for a variety of reasons.  They either default on their debt and take a multi year credit hit IF POSSIBLE or they are required by law to pay on the amount lost on the sale for the rest of their lives.  This effectively turns innocent people into life long debt slaves.
  • If enough people are abused like this they revolt against the system in the sure and certain knowledge that they have lost everything and thus have nothing to lose by rioting and breaking social order in every way.

The evidence of bubbledom in China is astounding.  All you have to do is look around major Chinese cities and see all of the shining new skyscrapers which are completely unoccupied.  Add that to theme parks with no visitors, the largest shopping mall in the world that stands empty and dozens of brand new but nearly empty cities designed to house 1 million or more people each which have sprung up around the country.

China has fallen victim to the same disease shared by every other developed crony capitalism country which is Credit Gone Wild.  Central banks which centrally manage their economies “juice” things in order to spur unneeded investment, so called “malinvestment” by followers of Austrian economy theory.  The debt associated with the credit has the effect of expanding the money supply which drives up the prices of all things.  But the stuff built with all that debt is just too much for society to absorb and so it stands there taking up space because people can’t afford to consume it.

The same thing happened in Japan during the 70s and 80s.  Everyone has heard the story about how the land under the imperial palace was worth more than the entire state of California.  Of course, it was fake wealth created by unsustainable levels of credit and debt.  The credit availability caused so much useless building in Japan that it gave rise to the phrase “building bridges to nowhere”.  At some point all the new credit flooding the market chased up prices on everything to the point that people just couldn’t hold their nose and buy it anymore.  At that point began the great unwind.  You might have heard it referred to as Japan’s lost decade, etc. but now it is more like a couple of lost decades and working on a third lost decade.  The money con men of Japan basically stole their children’s prosperity.

If you think that the housing boom in the US was bad then you better not look too closely at China or you will become petrified with fear.  China has been building so much unneeded construction and infrastructure that it has caused housing bubbles in Australia and Canada!!  Whhaaaat??  Yeah, that’s right.  Australia and Canada are known as commodity exporting nations and China has become their main customer.  They have been rolling in cash hand over fist as China’s elite con men have been borrowing money to create “buildings to nowhere”, the act of which requires the commodity resources exported by Australia and Canada.  In light of this artificial economic boom, property values in these commodity exporters have skyrocketed.  A crappy little flat in Toronto starts at $1 million.  Aussie housing is just as ridiculous if not worse.  But when the Chinese credit bubble rolls over then the flow of credit based money to the commodity exporters will collapse and it will cause a domino collapse of their housing markets.

Whew!  Now that you know all that, consider what factors could have contributed to sky high real estate prices even in light of the fact that no buyers were showing up.  Perhaps the main factor is the carrying cost for the assets.  When credit is fairly priced then people do not build stuff that the economy cannot consume because they will be stuck making huge interest payments.  But interest rates have been manipulated to all time lows so that feedback mechanism is no longer a limitation.  In fact, artificially low interest rates caused the problem in the first place.

Another huge potential carrying cost is real estate taxes.  If you don’t have to pay taxes then you can hold for a long time without getting bled to death.  Until now, Shanghai and other major cities had no real estate taxes.  But now Chinese news services report that Shanghai and Chongqing are instituting a “trial” property tax:

If you read the article the tax is clearly levied at real estate speculators.  Any real estate speculator in these cities with an ounce of sense is now listing his Ponzi Property at 5% below current Ponzi market value.  And if it doesn’t sell in 3 weeks the really smart ones will drop the price another 5%.  And they will continue dropping the price like that until they finally hook a greater fool to take that bubble property off of their hands because before the bust is over these properties will return to their real, economically supportable valuations which will be 20 cents on the dollar.  The Chinese property market is about to roll over and with it will go the economies of Australia and Canada and many places in between.

Epic post by Chris Powell of GATA

GATA is the Gold Anti Trust Action committee.  Its charter is to expose the global activity by central bankers regarding gold price manipulation whose purpose is to convince the unsuspecting public that fiat currency has actual value and to litigate against these activities.  Today’s post by Chris Powell is the summation of many of his past posts.  That makes it a bit long but it also allows you to grasp things in a single reading instead of getting bits and pieces at a time.

Chris’ conclusion is that the gold price suppression scheme is more than just that.  It is in effect a truth suppression scheme which degrades the morality of society.  It is ultimately a battle between good and evil.  Think about it for a second.  Who is getting ahead in this world - good, honest, hard working people or dishonest con men and bankers who add no real value to the economy?  How long will good men sit by and just watch others get ahead by doing the wrong thing?  How can that not have an effect on people’s actions?  It is very difficult to get what you deserve from your hard work when you are competing with con men and liars.  It should be obvious that good men are tempted to do the wrong thing just because others that are doing it seem to be getting away with it. 

Of course the problem with sitting idly by is that the immorality spreads like cancer.  Look around the world where people are fire bombing their police and chasing their governments out of the country with pitch forks.  This is the eventual outcome for us all if don’t actively work to expose and oust the liars and the crooks and to decry their behavior as immoral and socially unacceptable.  Failure to stop them means that good lives will be ruined and quality of life will be diminished for everyone.  Iceland told its creditors to buzz off.  Their sins were small enough in the grand picture that there were no serious repercussions.  Will the US get the same consideration if it has to admit that it is bankrupt and must default on its debts to China and others?  Maybe.  But then again it might turn into world war 3 and this time we will not have the moral high ground as we did in prior world wars.

The global money scam is stealing the morality of our children as they learn from our corrupt examples and it is stealing their opportunity for prosperity.  The global gold suppression scam is about much more than money or the spot price of some metal.  It is an attack on the very soul of our nation and upon the souls of all the nations of the world.

Thursday, January 27, 2011

Japan's sovereign credit rating is downgraded by S+P

Japan credit downgrade:

Warnings for the US:

Japan currently has a debt to GDP ratio of over 200%.  Generally when 3rd world nations hit a debt to GDP of 120-130% the creditors get very nervous.  But Japan was too big to fail and so the credit just kept rolling. 

Every one of these individual debt Ponzi schemes that we see happening globally has its own slant and its own reason why "it's different for us this time".  All off that is just marketing cover for the con job - they are all just different incarnations of Madoff.  Japan's story is that they owe much of the debt to themselves and that somehow makes it OK.  Balderdash!  Japanese people are now beginning to retire in droves.  Since labor is the source of all new value creation in an economy and since old people in retirement don't work but still continue to consume, it's pretty clear that Japan is in deep trouble.  How are these people going to eat and otherwise live when they have retired and the government defaults on their promised payments?  Japanese people seem to believe that its government has deep pools of money someplace with which to make those payments.  Perhaps the retirees believe that young people will support them through increased taxation and massive inflation.  Good luck with that.  The young people of Japan will figure out that the prior generation is stealing from them and they will eventually revolt just as is happening in other places around the world.  It doesn't take too much imagination to see that Japan has become the land of the setting sun.

Wednesday, January 26, 2011

Yesterday Tunisia, today Egypt?

Egyptians are telling their repressive, despotic leaders to get the Hell out or else face hanging in the streets (or whatever the modern equivalent might be in Egypt).  Clearly, Egyptians looked at what happened in Tunisia and said “if they can do it so can we”.  The infectious spread of social mood is a basic tenet of herding theory.

As you can see from the map below where I have scribbled the borders of these 2 nations in red, this is an area of the world where significant government-ending social upheaval could have global implications if it were to bleed north into Greece (where rioting is already happening) or Italy (hotbed of Euro debt crisis) or east where it could affect middle east oil production.
If you watched the video at the above link then you heard the talking head Hillary Clinton, our beloved Secretary of State, chattering away about how Egyptian authorities should allow peaceful demonstrations.  She also suggested that authorities not try to block communications such as social media sites which are being used to organize protesters, etc.  Yes, America, the shining beacon of economic stability and human rights, is again preaching to others to do as we say and not as we do.  We like to preach austerity and good economic practice to others even as we run a global credit Ponzi scheme.  And in light of recent legislation to shut down the Internet in case of “emergency”, Hillary is again exposed to be just another useless mouthpiece for more double standards by US government.  

Why is government so keen to put measures in place to bring down the Internet on command?  Simply because government hacks know that their main control over the people stems from having a few well funded, well organized people at the top controlling a large, disorganized, infighting group of sheeple which make up the herd.  Government knows that the Internet has some amazing qualities that are to be feared by despotic and corrupt ruling elite, especially as their scam begins to become well understood by the masses.  Firstly, the Internet completely erases the barrier to rapid information sharing.  All you have to do now is post the location of the “rally” on a central site somewhere and 50,000 emails will automatically be sent to people telling them when, where, and why to attend.  These emails and tweets go directly to the handheld phones that everyone now has.  The recipients can then decide for themselves whether to attend or not.  What a difference that is from word of mouth organization methods or of organization that requires members to call each other on the phone, etc. 

The second worrisome quality of the Internet is its ability to depersonalize and compartmentalize the message.  It has always been difficult for an individual to speak with authority to large crowds without benefit of some bully pulpit which affords him some status that makes him worth listening to by the herd.  In person, grass roots message dissemination is just too easy to disrupt, too easy for the opposition to create noise and distractions.  It’s too easy to turn into a battle of personalities. It’s too easy to divert off topic.  The herd cannot move in a single direction if there is too much confusion and the elite rulers have been leveraging this fact throughout the history of man. 

However, if the message is given via a web site or by a twitter feed or by an email then it becomes depersonalized and the audience is compartmentalized.  The communication and organization dynamic is no longer one to many but rather one to one, but the one to one is repeated thousands of times in parallel.  The Internet gives grass roots organizers the efficiency of being able to speak to many people at once AND the effectiveness of speaking to people one on one.  That, and that alone is why legislation is being crafted giving government power to shut down the Internet on demand should the need arise. 

They can pitch it as any number of other things but at the end of the day it is just another herd control mechanism being put in place by ever more concerned elite as they watch their credit Ponzi weaken.  The ruling elite are smart enough to look at riots in Iceland, in Greece, in Ireland, in Tunisia, in Egypt and elsewhere as risk factors for similar outcomes that we likely face here in the US.  So far things are great here in the US aside from the occasaional assassination attempt on sitting Senators.  But what happens when we can no longer find suckers to loan us money for nearly zero percent on the short end of the curve where a big part of the debt is clustered?  And what happens when Bernanke’s money printing operations finally come home to roost in the form of massive inflation that threatens the ability of people to maintain reasonable lifestyles?  The riots in other countries are all related to that kind of economic break down.  We are not there yet because we are a bigger economic flywheel than they are but our day is coming.

Thursday, January 13, 2011

Forbes: Banks report interest on non performing loans as if it were earnings

“US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages”

The recovery is clearly a combination of the unholy trinity of regulatory forbearance (AKA ignoring the rules and pretending nothing is wrong), borrowing to stimulate, and printing from thin air to stimulate when we can’t find suckers to loan us money.  Yep, that’s what I call a recovery all right.  So everything is back to normal folks, nothing to see here.  Move along now and above all, have confidence in the safety and soundness of our economic and political system.

The likes of what is passing for an economy has never been seen before.  It is a huge experiment in the art of confidence games.  These banks are reporting phantom interest as if it were really being paid to them when they in fact already know that payments have been cut off and in many cases that someone is selling crack out the back door of the house when they are not ripping the copper wiring and pipes from the walls to sell for $4.20 a lb scrap.  Sooner or later the banks will have to restate earnings or they will have to take a massive impairment charge to make up for this scammery.  Of course they will already have paid themselves bonuses for doing so well and that money will never be clawed back.  Ignoring the problems will not make them go away.  It’s almost as if someone is trying to ensure as bad an eventual outcome as possible.  Nobody can say when or how it will happen but everyone should understand that payment will eventually have to be made by someone.  You can’t just continue to kick this kind of can down the road forever.  When gas hits $6 a gallon a few years from now you will know where the payment came from – right out of the buying power of your pension, 401k, annuity, salary etc.  The con men clearly plan to try to inflate their way out of this mess and nobody seems interested in stopping them.

Tuesday, January 11, 2011

Australian housing market rolling over as number of listings jump 44%

Anyone who knows markets knows that volume changes precede price changes because volume implies supply and price is a function of supply and demand.  The demand for homes is not going to go up just because so many people are now trying to sell.  In fact, this generally leads to a lack of demand because people start to get very picky about what they buy when the selection is so great.  Higher supply in the face of lower demand = lower prices, period.
When you see so many begin to head for the door it is not wise to stand in the way.  The Australian housing market is going to crash and so will the Canadian housing market because the prices for these homes were bid up using credit provided by fractional (fictional) reserve bankers to real estate speculators, not from real money actually earned by people who just wanted shelter.  High levels of credit were ridiculously justified for Aussies and Canadians because these commodity producing nations are benefiting from China's commodity buying spree which itself is just an attempt to get rid of dollars before they become worthless.  It was also driven by China's ridiculous speculative building boom which will also go bust.  
China has been taking increasing steps of late to fend off credit availability in order to halt the growth of its housing bubble and this will eventually result in a collapse of commodity buying from Australia and Canada.  It has to because all the credit speculation has brought forward so much demand. 
When we see the Aussie/Canadian housing markets rolling over it is the market's way of telling us that it believes China is running out of ability to buy their commodities (and thus for Aussies and Canadians to make their ridiculously high house payments).  Once this happens the next logical step is for the Chinese real estate bubble to collapse with a very loud thud.  I believe that this event could turn out to be of major concern for the whole world because, unlike relatively rich Americans, Europeans, Aussies, and Canadians, the Chinese people will not see the collapse as an "unfortunate economic event" like more economically secure people might be able to do.  For many millions of poor Chinese it could easily become a matter of life and death as their wealth collapses and they can't afford food.  Yes, even the poor people of China have been pooling their funds to speculatively invest in housing.  If starvation of the poor becomes a real threat then they will have nothing to lose by storming the halls of government and hanging their leaders in the streets.  To prevent their own demise, the Chinese government may have to take steps to appease the people when civil unrest reaches a critical stage.  Such steps could affect the whole world - like going to war, etc.   It would be very easy to vilify America for everything and a starving population will gladly enlist in the military if it means some daily rice.  I am not predicting this must happen but folks who rule this out have their heads in the sand IMO.
This kind of dynamic is exactly what we have to expect for allowing the scam of fractional reserve banking to exist. 
"I believe that banking institutions are more dangerous to our liberties than standing armies . . . If the American people ever allow private banks to control the issue of their currency [Dave:including the issuance of credit which spends just like currency in the market place], first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
-- Thomas Jefferson -- The Debate Over The Recharter Of The Bank Bill, (1809)

Thursday, January 6, 2011

Fake political correctness definitely taking a back seat

I’ve always said that its easy to be charitable when you are rich and have all of your needs fulfilled.  As the money runs out I expect a lot more people to sound like Mish who is already beyond political correctness and well into early rage.  Bottom line is that there simply won’t be much sympathy for people who got used to getting massively overcompensated relative to their actual contribution to society.

Now, I know some people will take offense to that because we have been socially engineered to think about firefighters and policemen as “heroes”.   The propaganda around that has been ridiculous over the years and I suspect it will come out some day that public unions were behind it with big spending in order to justify spiraling salaries, benefits and ridiculous pensions.  To be fair, firemen and policemen do important jobs in society.  But are they any more important to the proper function of things than any other job?  I really don’t think so. 

For example, in 50 years I have never needed the service of a fireman and I have never called the police to come protect me.  It’s nice to know that they are there but they are more like insurance than some actual daily need.  On the other hand, I have used the output of roofers, steel workers and many other types of low paid workers many times.  To me they are more important than police and firemen. 

Imagine if there were no roofers in the world.  You and your family would have no protection from the rain or the sun or the heat or cold.  Millions of people would die each year from heavy weather without roofers keeping us safe!  It would be very easy to build a lengthy argument as to why roofers are “heroes” and thus deserving of incredible pay and benefits.  But roofers don’t work for the government and thus they have no government employee’s union set up to extort money and benefits from taxpayers (who are complacent and thus to some extent deserve the fleecing we get).  Because of this roofers are paid a modest wage relative to police and firemen.

OK, OK, but firemen and policemen put their lives on the line for us everyday and thus deserve a huge price premium, right?  If you believe this then you are a victim of social engineering and union propaganda because the truth is that roofing (and many other mundane blue collar jobs) are actually more dangerous than being a fireman and garbage collection is more dangerous than being a policeman:

Why do we never hear the full facts?  Because government is gaming us and it is not in their interest to tell us the truth.  The truth is only coming out now because the credit used to fund all of this excess is running out.  It is all part of the healing process even though it is being billed as a crisis.  The laid off, able bodied, young fireman in the first link would do well for himself to stop begging and to go get a roofing or garbage collection job.
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