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Uncle Bill
04-11-2010, 04:33 PM
...the thread of "Only half the people pay taxes", but didn't. Rather than having to wade through the bloviations of Yardley & Co., here's someone I prefer to trust when quoting numbers, although he's not a photographer, so keep that in mind.:rolleyes: (Especially the part about last months figures concerning 'NEW' jobs.)

UB

The Daily Reckoning Presents

A Space Oddityhttp://www.agorafinancial.com/temp/DR/email/template/BillBonner.jpgBill Bonner

Since 1946, at least in the US, the skies got a little bluer every day. Consumer spending increased nearly every year. At first, consumers spent what they earned. And then came the wonder years...when they spent more and more money they hadn't earned yet.

Then, in the 20 years leading up to 2007, incomes scarcely rose. But standards of living went up anyway. How was it possible? Easy. Instead of saving 8% of their incomes, as they had for the previous 5 decades, they spent the money. The savings rate fell to near zero. Debt increased. Of course, you can only take a thing like that so far. In this case, the end of the credit expansion came three years ago. All of a sudden consumers were faced with a grim prospect. They could no longer spend money they didn't have. Now they had to NOT spend money they DID have. It was pay back time...time to return the money they had borrowed during those carefree years.

Settling up was so alarming and so disagreeable that the feds swung into action to prevent it. First came the monetary stimulus - with the Federal Reserve's key rate reduced to zero...and the Fed empowered to buy $1.7 trillion worth of toxic loans from shaky lenders. Second, the federal government itself greatly increased its spending - adding $4.11 billion of deficit spending every single day since September 2007.

And now, US Treasury Secretary Larry Summers says the recovery has reached "escape velocity." Whether or not he correctly judges the speed of the economy, we don't know. But we're sure he's wrong about gravity.

According to the official stopwatch, 163,000 people found jobs in America last month. Forty-eight thousand of them were jobs with the US census bureau. Those jobs are temporary and useless. If you could create wealth by having people count one another, perhaps we could create even more wealth by having them count the stars in the heavens or the grains of sand on Malibu beach. Take off the counters and that leaves 114,000. Now take off the statistical adjustment for births/deaths, and the statistical adjustments for bad weather, and the statistical legerdemain that disappears people who are too discouraged to continue to look for work, and you have a negative number. The economy actually lost jobs in March. According to John Williams, who keeps track of the figures, joblessness rose in March to 21.7% - just a tad lower than the worst figure from the Great Depression.

Now, we turn to savings rates. Some analysts say savings are on the rise - showing consumers' 'pent up' buying power for the future. Other analysts note a recent downturn in the savings rate. That, they say, shows consumers' willingness to spend now. Both are wrong.

It will be a cold day in Hell when Americans are not willing to spend. What is at issue is not the spirit but the flesh. The Baby Boomers were flying high during the wonder years. They looked forward to higher house prices and rising stock prices. But now, after having suffered an $11 trillion loss in stocks and real estate, what can they do? Gravity is pulling them back down to earth. Like it or not, they have retirement to think about. That's why they have not participated in this stock market rally; inflows into mutual funds are running at only a quarter of their '90s rate. The boomers know they can't trust their retirement to the stock market. They've got to spend less.

Nor does a rising savings rate mean what analysts think it means. Savings are not simply 'pent up' spending for the future, not following a 63-year-old credit expansion; the money was spent years ago. Bankruptcy filings hit a record in March - at 6,900 per day. This debt elimination is registered as an increase in "savings." But it's not the kind of savings that you can spend at the liquor store.

Meanwhile, Alan Greenspan says rising bond yields are "the canary in the coal mine." This week, the canary was still alive...but wheezing...with yields on the 10-year note over 4%. Why? Probably, it is because the Fed is no longer, indirectly, buying US Treasury debt. Until last week, the Fed bought the banks' bad mortgage-backed securities. The banks returned the favor. Rather than lend to the private sector, they bought US notes and bonds.

In the private sector, bank credit is still contracting, with commercial and industrial loans falling at a 17% rate over the last 3 months. Revolving credit - auto loans and credit cards mostly - is down for the first time ever. The money supply is contracting too. M2 is declining at a 0.2% rate and MZM going down at a 5.4% speed. Consumer prices are still dropping in the US. In Europe, too, inflation is at record low levels - 1.5% annually. And Goldman Sachs economists predict further drops in the CPI - to 0.3% in the US and 0.2% in Europe.

Escape velocity? Looks more like stall speed to us.

Bill Bonner
for The Daily Reckoning

Uncle Bill
04-11-2010, 05:24 PM
Here's a little additional info from Mr. Bonner, concerning today's monetary recovery, given so much 'good' news in the liberal press recently.

I realize some of this, or all of it, is hard for many of you to fathom, and you don't have to. No one said RTF is required reading. This is only presented as "equal time" to offset Time and Newsweek mags, and the AP that writes all the gospel in the daily rags of liberal bent.

UB

From The Daily Reckoning

Bill Bonner

Friday, April 9, 2010

Poor ol' Alan...

We almost felt sorry for him...

"Maestro mauled..." said the headline in The Financial Times. We wanted to maul him many times. But now that others were doing it...it made us feel sympathetic to the old scalawag.

Didn't the Alan Greenspan Fed's failure to curb subprime lending deserve to go into the 'oops' category, demanded chief tormentor Phil Angelides.

Mr. Greenspan defended his legacy. He was right 70% of the time, he said. The other 30% of the time he was wrong.

Hey, that's not bad. Pity it's not true. Greenspan was wrong 90% of the time - at least.

He thought those fancy derivatives actually spread the risk of failure...and made the system more stable.

He thought those subprime loans helped people of modest incomes realize the goal of home ownership.

He saw no risk in keeping the key rate at an 'emergency' low level...years after the emergency had passed.

But he hit one of those magic moments last week...when he was finally right about something. He declared that the yield on the 10-year note was "the canary in the coal mine." This week, the canary wobbled...but stayed on his feet. He's still standing...but looking a little peaked.

While the former Fed chief was in the spotlight at The Financial Times yesterday, the present Fed chief was front-page news over at The Washington Post. Alan Greenspan is a scoundrel, no doubt about that. But he was, in some ways, a better Fed chief than Bernanke.

The trouble with Bernanke is that he doesn't know his limitations. He actually believes the Fed can look at the possible outcomes going forward and improve them before they come out.

"Fed chief sounds a deficit warning," is the headline. He said Americans faced a "difficult choice." It's between higher taxes and fewer entitlement services, he said.

This doesn't seem like a difficult choice to us. We'd gladly accept fewer "services" from the feds if they'd lay off on the taxes. But that's because we're in the half of the US households that actually pays taxes.

No kidding; the report was in yesterday's news:

"Almost one half of US households pay no federal income tax."

So, welcome to the beginning of the end. If half the citizens get bread and circuses without paying for them, you can bet that the whole shebang is headed for destruction. The math doesn't work. Half the people have no interest in curbing taxes or spending. Obviously, those people would prefer to raise taxes - on us - rather than give up their free pills and retirement benefits. Even among the half that does pay taxes, most pay very little - less than they get back in 'services.'

Meanwhile, the 'rich' get socked hard. According to the reports we're seeing on scurrilous blogs and from our usually unreliable sources, the tax burden on the rich is set to rise over 60% of income - thanks to the health care charges they will have to bear.

By the way...the whole thing is a fraud. The services, that is...

Here's how it works. In 2007, the private sector finally blew itself up - thanks largely to all that debt offered by Wall Street and encouraged by the Alan Greenspan/Ben Bernanke Fed.

So then...in comes the Fed again...and the US government...wearing white hats and pretending to save the situation. How? By bringing more of the economy under their control!

As far as we can tell, the last successful government program was WWII. And that was only successful because the competitors' programs were also run by government. But that doesn't stop them...

Marvin S
04-11-2010, 10:07 PM
There is a similar article by Mark Steyn on the last page of the National Review, 3-22-10. He says we need to stop spending what we don't have, & I would agree.

My only hangup with Mr Bonner, while I believe him to be right on, is that he's preaching to the choir. I would like to see him offer something more concrete. But then I see none of the so called prophets offering much in the way of constructive advice.

But as the market flirted with a 11K Dow, I thought it time to size things up & see what sitting on the sidelines would do for one rather than participating. As of Friday 4-09-2010 relative to the 1st Friday in March 2009:

The Dow is up 66%
The S & P is up 75%
The Nasdaq is up 90%
I don't know what AU's %age gain has been in this time frame -
GDX is about 90% & would be up 200% had it been bought in 10-08
Our portfolio has a greater gain than any of the above except for the potential 200% buying GDX in 10-08. I'll talk AU with you at a later date.

The Moral of this story is you have to participate, understanding that you are not making the rules just hoping to benefit from what's on the table. I don't think anyone would debate that there was some wild spending taking place. Hopefully the cure will not be worse than the disease. Actually we had a similar spree with the S & L's back in the 80's, so little was learned from that lesson.

Maybe the IHOP kid can offer something, or the great biovator - as he posted the other day he knows somethings about economics, just not up to someone with a PHD, funny thing is I know a guy who used to run dogs that has a PHD in Econ :) :) so he's not doing himself a favor on the comparison chart. Or if the Doc can break away from emptying bedpans maybe he could add a little insight on what us Seniors can expect from Dear Leader in the future.

Contrary to what some of the self proclaimed Oracles on this forum preach, the really smart guys believe it will be a jobless recovery. We can only hope they are wrong or the country is in deep osi. But the huge problem is: many people do not know how to work, they offer minimal skills to a prospective employer. Why would anyone want to hire if they can get a machine to do the job &/or contract the work which reduces the headache of employing a marginal employee?

Have a good day, UB :cool:

Uncle Bill
04-12-2010, 11:08 AM
There is a similar article by Mark Steyn on the last page of the National Review, 3-22-10. He says we need to stop spending what we don't have, & I would agree.

My only hangup with Mr Bonner, while I believe him to be right on, is that he's preaching to the choir. I would like to see him offer something more concrete. But then I see none of the so called prophets offering much in the way of constructive advice.


Have a good day, UB :cool:




Bonner and his DR comrades DO have 'constructive advice', Marvin. I choose to delete that portion of their article, so I'm not accused of promoting a product.

I think Mark Steyn's comments were meant for the government, not necessarily the public, although the majority of the public have gone on a binge they couldn't afford also.

While I'm not 'in' this market, primarily because I don't wish to keep track of the stop-losses I'd need to sleep at night, I certainly haven't encouraged folks to "stay on the sidelines" if that's not what they want to do. All I've ever stated is to keep track of what you are doing "daily", and get to a point where you are 'playing' with their money...in other words PYA, and don't let them suddenly pull the rug from under you.

Good luck, Marvin.

UB