The Next Financial Crisis Will Be Even Worse
by ilene - July 7th, 2011 1:47 am
By Brett Arends
The last financial crisis isn’t over, but we might as well start getting ready for the next one.
Sorry to be gloomy, but there it is.
Why? Here are 10 reasons.
1. We are learning the wrong lessons from the last one. Was the housing bubble really caused by Fannie Mae, Freddie Mac, the Community Reinvestment Act, Barney Frank, Bill Clinton, "liberals" and so on? That’s what a growing army of people now claim. There’s just one problem. If so, then how come there was a gigantic housing bubble in Spain as well? Did Barney Frank cause that, too (and while in the minority in Congress, no less!)? If so, how? And what about the giant housing bubbles in Ireland, the U.K. and Australia? All Barney Frank? And the ones across Eastern Europe, and elsewhere? I’d laugh, but tens of millions are being suckered into this piece of spin, which is being pushed in order to provide cover so the real culprits can get away. And it’s working.
2. No one has been punished. Executives like Dick Fuld at Lehman Brothers and Angelo Mozilo at Countrywide , along with many others, cashed out hundreds of millions of dollars before the ship crashed into the rocks. Predatory lenders and crooked mortgage lenders walked away with millions in ill-gotten gains. But they aren’t in jail. They aren’t even under criminal prosecution. They got away scot-free. As a general rule, the worse you behaved from 2000 to 2008, the better you’ve been treated. And so the next crowd will do it again. Guaranteed.
Read the rest here: The Next Financial Crisis Will Be Even Worse – SmartMoney.com.
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12 Economic Collapse Scenarios That We Could Potentially See In 2011
by ilene - January 20th, 2011 12:56 pm
Courtesy of Michael Snyder at Economic Collapse
What could cause an economic collapse in 2011? Well, unfortunately there are quite a few "nightmare scenarios" that could plunge the entire globe into another massive financial crisis. The United States, Japan and most of the nations in Europe are absolutely drowning in debt. The Federal Reserve continues to play reckless games with the U.S. dollar. The price of oil is skyrocketing and the global price of food just hit a new record high. Food riots are already breaking out all over the world. Meanwhile, the rampant fraud and corruption going on in world financial markets is starting to be exposed and the whole house of cards could come crashing down at any time. Most Americans have no idea that a horrific economic collapse could happen at literally any time. There is no way that all of this debt and all of this financial corruption is sustainable. At some point we are going to reach a moment of "total system failure".
So will it be soon? Let’s hope not. Let’s certainly hope that it does not happen in 2011. Many of us need more time to prepare. Most of our families and friends need more time to prepare. Once this thing implodes there isn’t going to be an opportunity to have a "do over". We simply will not be able to put the toothpaste back into the tube again.
So we had all better be getting prepared for hard times. The following are 12 economic collapse scenarios that we could potentially see in 2011….
#1 U.S. debt could become a massive crisis at any moment. China is saying all of the right things at the moment, but many analysts are openly worried about what could happen if China suddenly decides to start dumping all of the U.S. debt that they have accumulated. Right now about the only thing keeping U.S. government finances going is the ability to borrow gigantic amounts of money at extremely low interest rates. If anything upsets that paradigm, it could potentially have enormous consequences for the entire world financial system.
#2 Speaking of threats to the global financial system, it turns out that "quantitative easing 2" has had the exact opposite effect that Ben Bernanke planned for it to have. Bernanke insisted that the main goal of QE2 was to lower interest rates, but instead all it has done is…
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Telling Signs-of-the-Times: Layaways, Off-Brands, Goodwill Stores, Consignment Sales, Frugality, all Thrive in Middle-Class Suburbia
by ilene - November 9th, 2010 6:51 pm
Telling Signs-of-the-Times: Layaways, Off-Brands, Goodwill Stores, Consignment Sales, Frugality, all Thrive in Middle-Class Suburbia
Courtesy of Mish
Telling Signs-of-the-Times: In grocery stores, "No-Name" sales are up 2% and now represent 22% of total sales. Some full priced stores now offer consignment sections, an unheard of practice a couple years back.
Layaway sales are back in vogue at Toys-R-Us and jewelers alike. Layaways are a depression era phenomenon that all but died with the mass marketing of credit cards.
Old Stigmas Become New Badge of Honor
Frugality is the new "badge of honor" says the Yahoo!Finance report In a tough economy, old stigmas fall away
The Goodwill store in this middle-class New York suburb is buzzing on a recent weekend afternoon. A steady flow of shoppers comb through racks filled with second-hand clothes, shoes, blankets and dishes.
A few years ago, opening a Goodwill store here wouldn’t have made sense. Paramus is one of the biggest ZIP codes in the country for retail sales. Shoppers have their pick of hundreds of respected names like Macy’s and Lord &Taylor along this busy highway strip.
But in the wake of the Great Recession, the stigma attached to certain consumer behavior has fallen away. What some people once thought of as lowbrow, they now accept — even consider a frugal badge of honor.
At the supermarket, shoppers are buying more store-labeled products, like no-name detergents and cereal, and not returning to national brands.
And in a telling trend, Americans are turning to layaway more often when they buy expensive items such as engagement rings and iPads. The wealthy are also using layaway more often, a drastic change from the past.
"The old stigmas are the new realities," says Emanuel Weintraub, a New York-based retail consultant. "Now, people don’t have a problem saying, ‘I can’t afford it.’ It’s a sign of strength."
Two years ago, having second-hand clothes in the same store that sells regular-priced goods might have driven well-heeled shoppers away. Today, the concept works. The new consignment area, called My Secret Closet, has brought in new customers. Shoppers browse both the retail and consignment areas without hesitation.
"We are seeing a permanent change in how people shop, and we have to respond to that," says Tom Patrolia, who has owned the store for 24 years.
The growth in layaway also reflects Americans’ new willingness to set aside
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Drunken Horses and Drunken Horses’ Asses in Academic Wonderland
by ilene - October 13th, 2010 12:12 pm
Drunken Horses and Drunken Horses’ Asses in Academic Wonderland
Courtesy of Mish
The stock market and commodities are rallying once again over the upcoming QE announcement. Every bit of news, no matter how trivial, supportive of what everyone already knows (that QE is coming), gets market participants get more excited every time.
Will the actual announcement of what we all know result in the biggest sell-the-news event since the Fed’s interest rate cut in January of 2001?
While pondering that, please consider Fed Minutes Lend Weight to Stimulus
The minutes of the Sept. 21 meeting of the Federal Open Market Committee indicated that several officials “consider it appropriate to take action soon,” given persistently high unemployment and uncomfortably low inflation.
Now, with unemployment near 10 percent and with inflation well below the Fed’s unofficial goal of nearly 2 percent, the Fed is considering renewed intervention: creating money to buy long-term Treasury debt. That would put additional downward pressure on long-term rates, making credit even cheaper.
Former Fed officials interviewed on Tuesday appeared to be just as divided as the current ones.
“If you lead the horse to water and it won’t drink, just keep adding water and maybe even spike it,” said Robert D. McTeer, who was president of the Federal Reserve Bank of Dallas from 1991 to 2005 and is a well-known inflation “dove,” particularly attuned to the harm of joblessness. “You definitely don’t want to take the water away.”
H. Robert Heller, a Fed governor from 1986 to 1989, had the opposite view, urging the Fed to show restraint.
“I would do nothing,” he said, expressing concern that the Fed might appear to be “monetizing the debt,” or printing money to make it easier for the government to borrow and spend.
“If they start to monetize the federal debt, they will dig themselves a much deeper hole later on,” he said. “That’s what we learned from the 1970s, when the Fed undertook a very expansionary monetary policy. It took a double recession in the early 1980s to wring inflation out of the economy. We don’t want to repeat that.”
William C. Dudley, president of the Federal Reserve Bank of New York, recently raised the possibility that inflation could be allowed to run above the implicit target for some time in the future, to make up for inflation today being lower than desired. That could
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FOMC: No Change, Just Chillin’ Like Penicillin
by ilene - September 21st, 2010 3:32 pm
FOMC: No Change, Just Chillin’ Like Penicillin
Courtesy of Joshua M Brown, The Reformed Broker
In the most surprising move since Rosanne replaced Becky with a different actress and just acted like we should all shut up and watch and not freak out or anything, the FOMC announced today that the Fed Funds target rate would remain at zero.
I know, I’ll give you a moment for the shock to wear off.
Here’s the statement:
Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.
Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.
I don’t have much else to add here. I’m too busy counting up all those interest rate dollars piling up in my money market account.
Source:
Board of Governors of the Federal Reserve
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One Sided Policies
by ilene - September 19th, 2010 1:36 pm
One Sided Policies
Courtesy of Mish
Here is an email from Robert who is wondering about the Fed’s ability to inflate, and the consequences if they try. Robert writes …
Hello Mish,
Something is bothering me.
I thought there would be inflation after the US government and FED’s actions, but there has been no inflation. I was wrong and you were right. I understand why and I also agree with the concepts of "peak credit" and "peak consumption," as far as the West goes at least.
But this seems to mean that the government can sell vast quantities (1 -2 trillion per year) of debt directly to the FED and to other parties with few observable short or intermediate term consequences.
If everyone agrees that the economies of the West will be weak for many years (for a host of reasons) and everyone also agrees that the dollar will be the reserve currency for years to come then:
1) What is the problem with running 1.5 trillion dollar deficits per year as far out as the eye can see? ( I am not being facetious.)
2) What is the problem with using federal-government borrowed money to bail out state and local governments to keep them from near implosion and the likely associated social problems?
If I am missing something, what is it?
Robert
Fed’s Primary Mission Failed
Hello Robert
First off, congratulations for understanding the Fed’s attempt at producing inflation has failed. Many do not see it that way, but it depends on the definition of inflation, and an understanding of what the Fed is really attempting to do.
The Fed’s primary goal is not to get prices to rise (regardless of what they say), but rather to get banks lending, consumers spending, and businesses hiring. The Fed and Congress have failed on all three scores.
One Sided Policies
The Fed did not produce inflation, but there is a huge price to pay to pay for the Fed’s One sided policies.
- The rich get richer and the poor get poorer.
- When the rich make a mistake they get bailed out.
- When the poor make a mistake they get tossed to the dogs.
One needs to look at things not just from the recent "stabilization" of banks, but as an ongoing affair that has killed the middle class. Inflation was running rampant (in terms of credit…
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Myths About “What’s Economically Important”
by ilene - September 18th, 2010 5:51 am
Myths About "What’s Economically Important"
Courtesy of Mish
Day in and day out I hear it from readers who insist that we are not in deflation and will not be in deflation because prices are rising and continue to rise.
Still others tell me it is illogical for a deflationist to like gold.
When I counter with a discussion about credit conditions I tend to get a blank stare or a comment like "I do not care about credit conditions. I own my home. What I care about are rising prices of food and energy."
When I counter with falling asset prices and zero percent interest rates on savings accounts I am likely to get as statement like "Who cares, I rent?", or perhaps "The poor have no assets or savings, all they care about is food prices."
Really?
Such comments come from those who are not thinking clearly about what’s important. Here’s why:
- In a fiat credit-based financial system, when credit is plunging businesses are not hiring. There are currently 14.9 million unemployed who want a job but do not have a job because businesses are not hiring. There are 2.4 million "marginally attached" persons who do not have a job yet want a job, but are not considered unemployed because they stopped looking. There are 8.9 million part-time workers who want a full time job but cannot get one because businesses are not hiring. There are countless millions of college graduates who are underemployed, working at WalMart, delivering pizzas, or attempting to sell trinkets on eBay, because businesses are not hiring. There a still millions more in college hoping for a job upon graduation who will not get one because businesses are not hiring. This is all related to the ongoing credit contraction.
- When credit is plunging so do yields on treasuries and in turn yields on savings accounts. Those on fixed incomes attempting to live off interest income are screwed. Indeed, many are rapidly draining their principal because they collect no interest.
- Those who have a job, pay for those who don’t. Food stamp usage is soaring and now costs over $60 billion dollars a year.
- When credit is plunging, consumers are not shopping, business earnings are under pressure, and wages stagnate or in many cases outright decline. Even those with jobs and no debt have been
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Fed Z1: From Bad To Getting Worse
by ilene - September 18th, 2010 4:38 am
Fed Z1: From Bad To Getting Worse
Courtesy of Karl Denninger at The Market Ticker
There’s a lot of mind-numbing figures and facts in here, but a few things stick out like a sore thumb.
Let’s first start with the graphs, which I have updated.
Hmmm….. there’s a bit of a hook in there at the back end. Where’s that coming from?
Oh, that’s not so good. Business credit is going up again a bit, and of course The Federal Government is pumping new credit like mad – but is no longer simply trying to compensate for de-leveraging, they’re exceeding that.
This is decidedly negative – in fact, it has the potential to lead to an economic death-spiral if the government doesn’t cut this crap out in time.
Some of the other nasties in here are truly stunning. One of them is the ugly on Households – they lost a net $1.5 trillion in one quarter on their net wealth.
The 900lb Gorilla in the room is found in real estate. While we don’t have current numbers on that and won’t (the update is primarily equities) the ugly on the housing side is breathtaking. From a peak in 2005 of $13.1 trillion in equity in residential real estate, that value has now diminished by approximately half to $6.67 trillion!
Yet outstanding household debt has in fact increased from $11.7 trillion to $13.5 trillion today.
Folks, those who claim that we have "de-levered" are lying.
Not only has the consumer not de-levered but business is actually gearing up – putting the lie to any claim that they have "record cash." Well, yes, but they also have record debt, and instead of decreasing leverage levels they’re adding to them.
In short don’t believe the BS about "de-leveraging has occurred and we’re in good shape." We most certainly have not de-levered, we most certainly are not in good shape, and the Federal borrowing is what, for the time being, has prevented reality from sticking it’s head under the corner of the tent.
This cannot and will not continue on an indefinite basis.
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The Low-Interest-Rate Trap
by ilene - August 20th, 2010 12:41 am
The Low-Interest-Rate Trap
Courtesy of John Rubino of Dollar Collapse
Pretend for a second that you recently retired with a decent amount of money in the bank, and all you have to do is generate a paltry 5% to live in comfort for the rest of your days. But lately that’s been easier said than done. Your money market fund yields less than 1%. Your bond funds are around 3% and your bank CDs are are down to half the rate of a couple of years ago. Stocks, meanwhile, are down over the past decade and way too volatile in any event. If you don’t find a way to generate that 5% you’ll have to start eating into capital, which screws up your plan, possibly leaving you with more life than money a decade hence.
Now pretend that you’re running a multi-billion dollar pension fund. You’ve promised the trustees a 7% return and they’ve calibrated contributions and payouts accordingly. But nothing in the investment-grade realm gets you anywhere near 7%. If you come up short, the plan’s recipients won’t get paid in a decade or – the ultimate horror – you’ll have to ask the folks paying in to contribute more, which means you’ll probably be scapegoated out of a job.
In either case, what do you do? Apparently you start buying junk bonds. According to Saturday’s Wall Street Journal, junk issuance is soaring as desperate investors snap up whatever paper promises to get them the yield they’ve come to depend on. Here’s an excerpt:
U.S. companies issued risky “junk” bonds at a record clip this week, taking advantage of keen investor appetite for returns amid declining interest rates and tepid stock markets.
The borrowing binge comes as the Federal Reserve keeps interest rates near zero and yields on U.S. government debt are near record lows. Those low rates have spread across a variety of markets, making it cheaper for companies with low credit ratings to borrow from investors.
Corporate borrowers with less than investment-grade ratings sold $15.4 billion in junk bonds this week, a record total for a single week, according to data provider Dealogic. The month-to-date total, $21.1 billion, is especially high for August, typically a quiet month that has seen an average of just $6.5 billion in issuance over the past decade.
For the year, the volume of U.S.
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John Taylor Calls The Top: “The Rally Is Ending”
by ilene - July 29th, 2010 12:51 pm
John Taylor Calls The Top: "The Rally Is Ending"
Courtesy of Tyler Durden
The Rally Is Ending
July 29, 2010
By John R. Taylor, Jr., Chief Investment Officer
For FX Concepts, this is a big day and a very scary one as well. Because our market view is now very precise, but at odds with the accepted wisdom, we are putting ourselves out on a limb. The euro is going to be hit again and commodity currencies will come under increasing pressure. Our cyclical analysis argues that the currency markets are making a major reversal right now, today, and that this will be at least a medium term reversal in equities and credit as well. Although it is more likely that the equity and credit markets will not begin their major decline until the last week of August, the odds favor an unimpressive month ahead which means that we are at the end of the exciting part of the rally of the past two months. By the end of next month, equities will be headed lower, credit spreads will widen sharply, and government bonds will begin a rally to new all time highs. Our completely technical cyclical work implies that there will be a return to dark times in September and October, with a sharp decline driven by liquidity and solvency issues likely to set the world back on a recessionary course.
Although the cyclical picture gets more uncertain the farther out we go, we believe that there will be a major cyclical low in risk during January and another one, possibly more aggressive in the third quarter of 2011.
Using this cyclical analysis as our base, we can work backward to generate a set of fundamental conditions that would allow a cyclical picture like this to occur. If the S&P 500 is going to challenge its March 2009 lows in the next year, and interest rates are going to drop sharply while credit spreads widen dramatically, what would the US economy have to do and what would the world look like? Clearly the widespread conviction that the 2008 recession is in the rear view mirror and that growth will slowly improve in the years ahead is wrong. All the forecasts of the G-20 governments are completely off base, which means that the politicians are not prepared for another downturn. We wonder what the downturn will…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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