This week, the Federal Deposit Insurance Corporation closed seven banks: Waterford Village Bank (Clarence, NY); Security Bank of Bibb County (Macon, GA); Security Bank of Houston County (Perry, GA); Security Bank of Jones County (Gray, GA); Security Bank of Gwinnett County (Suwanee, GA); Security Bank of North Metro (Woodstock, GA); and Security Bank of Fulton (Alpharetta, GA). Total assets of the closed banks were $2,852,400,000. The cost to the FDIC is estimated at $812,600,000. The percentage of FDIC loss out of total assets is 28.49%.
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $416,001,080,000, with cost-to-FDIC brought to $27,883,000,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.70%, up from 6.55% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $109,001,080,000, and total cost is $27,883,000,000. The percentage of FDIC losses to total assets now stands at 25.58% up from 25.50% as of last report.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Georgia
2. Nevada
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. California
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 38.11%
7. West Virginia - 36.52%
8. Maryland - 35.00%
9. South Dakota - 33.90%
10. Minnesota - 33.01%
Monday, July 27, 2009
Wednesday, July 22, 2009
Economic Stress Report
We've just gathered sufficient data to provide an update on the Economic Stress Report we introduced last month. According to our analysis method, the following States are on our watch list. We present them here in order of highest to lowest severity:
South Dakota
Ohio
Kansas
Arizona
Washington
New York
Maryland
Florida
Alabama
Connecticut
Of those States on our watch list, the following have suffered bank closures - another sign of economic stress - since December 2007:
South Dakota (1 closure)
Kansas (3 closures)
Washington (2 closures)
Maryland (1 closures)
Florida (5 closures)
With this information, we've updated our predictions from our last post:
One: the list has seen some reshuffling since our last post, but the star of the show is still South Dakota. We take this opportunity to do our happy victory dance: the State, as we predicted it would, recently suffered its first bank closure of the 2007 Depression. However, we strongly suspect that many, many more closures are in store for the State. When that will happen is anyone's guess, but we can't think of one good reason why South Dakota won't be seriously hit by both bank closures and general economic distress. Using Florida as the benchmark, South Dakota should have seen around twenty bank closures already.
Two: we still expect that Maryland is going to be hit hard by both unemployment and bank closures. Again using Florida as a benchmark, Maryland should have experienced about five bank closures. Considering the State's mere placement on our analysis, we would be very surprised indeed if at least something bad doesn't happen. The safety net of Government spending can only last so long; when both the Federal and State Governments are finally forced to curtail their spending, Maryland is going down hard and fast.
It seems we might be able to provide updates approximately monthly, but the duration might be longer or shorter, depending on how our data accumulation progresses.
South Dakota
Ohio
Kansas
Arizona
Washington
New York
Maryland
Florida
Alabama
Connecticut
Of those States on our watch list, the following have suffered bank closures - another sign of economic stress - since December 2007:
South Dakota (1 closure)
Kansas (3 closures)
Washington (2 closures)
Maryland (1 closures)
Florida (5 closures)
With this information, we've updated our predictions from our last post:
One: the list has seen some reshuffling since our last post, but the star of the show is still South Dakota. We take this opportunity to do our happy victory dance: the State, as we predicted it would, recently suffered its first bank closure of the 2007 Depression. However, we strongly suspect that many, many more closures are in store for the State. When that will happen is anyone's guess, but we can't think of one good reason why South Dakota won't be seriously hit by both bank closures and general economic distress. Using Florida as the benchmark, South Dakota should have seen around twenty bank closures already.
Two: we still expect that Maryland is going to be hit hard by both unemployment and bank closures. Again using Florida as a benchmark, Maryland should have experienced about five bank closures. Considering the State's mere placement on our analysis, we would be very surprised indeed if at least something bad doesn't happen. The safety net of Government spending can only last so long; when both the Federal and State Governments are finally forced to curtail their spending, Maryland is going down hard and fast.
It seems we might be able to provide updates approximately monthly, but the duration might be longer or shorter, depending on how our data accumulation progresses.
Monday, July 20, 2009
A Change of Plans...
Our summer property maintenance season has begun in earnest, so it's going to be impossible for Mr. Smith and ourselves to maintain a daily posting schedule. Because of this we're temporarily ceasing daily posts, in favour of a looser, "when we get the chance," schedule. We look to resume daily posting at the end of August, and in the meanwhile we will publish sporadically on topics of interest, as well as our usual Reports.
We wish all of you with rental properties a happy repair season!
-TFS
We wish all of you with rental properties a happy repair season!
-TFS
Saturday, July 18, 2009
FDIC Bank Failure Report
This week, the Federal Deposit Insurance Corporation closed three banks: First Piedmont Bank (Winder, GA); BankFirst (Sioux Falls, SD); and Temecula Valley Bank (Temecula, CA). Total assets of the closed banks were $1,890,000,000. The cost to the FDIC is estimated at $511,000,000. The percentage of FDIC loss out of total assets is 27.04%.
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $413,148,680,000, with cost-to-FDIC brought to $27,070,400,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.55%, up from 6.46% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $106,148,680,000, and total cost is $26,679,400,000. The percentage of FDIC losses to total assets now stands at 25.50% up from 25.47% as of last report.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. California
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 38.11%
7. West Virginia - 36.52%
8. Maryland - 35.00%
9. South Dakota - 33.90%
10. Minnesota - 33.01%
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $413,148,680,000, with cost-to-FDIC brought to $27,070,400,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.55%, up from 6.46% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $106,148,680,000, and total cost is $26,679,400,000. The percentage of FDIC losses to total assets now stands at 25.50% up from 25.47% as of last report.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. California
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 38.11%
7. West Virginia - 36.52%
8. Maryland - 35.00%
9. South Dakota - 33.90%
10. Minnesota - 33.01%
Friday, July 17, 2009
Commercial Credit Collapse
Commercial credit is the money businesses borrow to fund their operations on a short term basis. Large corporations use the commercial paper market and bank loans. Smaller companies use loans from banks and finance companies. In the USA, the availability of commercial credit is contracting violently across the board. In our opinion, this portends an acceleration of the Depression, as employers find it more difficult to fund any sort of expansion - or even maintain their operations.
The commercial paper market has shrunk by 28 percent in the last three months according to this Bloomberg report. The entire market has shrunk by over half since its peak two years ago.
Bank lending is also falling. Since the beginning of the year, commercial and industrial loans of commercial banks have fallen by about 7% according to Federal Reserve Bank data.
Finally, lending by finance companies is also collapsing. According to data from the Federal Reserve Bank, business lending by finance companies had fallen about 6% from the beginning of the year to April. This figure will get substantially worse with the imminent demise of CIT, a large finance company.
Taken as a whole, a picture of severe credit contraction emerges. Both lenders and borrowers are losing en masse the capacity to lend or borrow due to deteriorating finances. Even sound borrowers may have little reason to borrow under the current circumstances and would just pay off loans as they come due. In any case, the result will be continued economic contraction.
The commercial paper market has shrunk by 28 percent in the last three months according to this Bloomberg report. The entire market has shrunk by over half since its peak two years ago.
Bank lending is also falling. Since the beginning of the year, commercial and industrial loans of commercial banks have fallen by about 7% according to Federal Reserve Bank data.
Finally, lending by finance companies is also collapsing. According to data from the Federal Reserve Bank, business lending by finance companies had fallen about 6% from the beginning of the year to April. This figure will get substantially worse with the imminent demise of CIT, a large finance company.
Taken as a whole, a picture of severe credit contraction emerges. Both lenders and borrowers are losing en masse the capacity to lend or borrow due to deteriorating finances. Even sound borrowers may have little reason to borrow under the current circumstances and would just pay off loans as they come due. In any case, the result will be continued economic contraction.
Thursday, July 16, 2009
Housing Price Report for July
Our result for the first two months of our North American Housing Price Index is a drop of 1.36%. We've gotten a bit of month-to-month volatility, but hopefully that will smooth out as we go along.
We're noticing more properties coming to market in some locales. It will be telling to see if the market can absorb the supply, or if it will have - as we expect - a depressing effect on prices.
Tune in next month for our update.
We're noticing more properties coming to market in some locales. It will be telling to see if the market can absorb the supply, or if it will have - as we expect - a depressing effect on prices.
Tune in next month for our update.
Wednesday, July 15, 2009
U.S. Monetary Policy Does Not Make a Strong Dollar
U.S. Secretary of Treasury Timothy Geithner recently stated that: "Given the dollar’s role in the international financial system and the significant impact of the U.S. economy on global economic conditions, we fully recognize that the United States has a special responsibility to play... The policies of the United States are designed to lay the conditions for a strong dollar and more stability in the international monetary system."
Say what, Mr. Secretary?
There is a serious disconnect in Mr. Geithner's reasoning in this statement. Although it is true that the U.S. Dollar has been comparatively strong in recent days, we hazard to say that this is probably a temporary state of affairs. As ShadowStats.com shows, the Dollar has experienced a relative peak, but is is, as of July 6th, in a steep decline. Additionally, deflationary trends to the tune of about 2% has apparently developed, rendering every dollar in circulation slightly more powerful as time goes on.
However, we posit the exchange strength of the Dollar is liminal; the currency markets are probably changing their minds about the relative value of the Dollar. More telling, though, is the continuing growth of the M1 Money Supply - physical cash and currency in chequeing accounts. That section of the Money Supply is increasing at a whopping 18% annualised... and shows no sign of slowing.
It is that growth which will, eventually, kill the U.S. Dollar, and destroy the wealth of any holders of Dollar-denominated financial instruments (be they savings bonds or Treasury Bills). The Federal Reserve is desperate to prevent any deflation whatsoever, as deflation makes debts all the more painful to the indebited - think the U.S. Government. So, the Fed is pumping up M1 as fast as the printers can press new currency, in the attempt to stoke inflation and thus lessen the pain for the indebited.
We have faith in the Federal Reserve. They may be bumbling and rather silly, but we believe they'll get this stoking-inflation thing down pat. The question, in our minds, is not if, but when. When will the inflation rate rise to once again destroy purchasing power at a rate the Fed finds agreeable?
When that finally happens, and happen we think it shall, Mr. Geithner's "strong dollar" talk will at last be seen as the hot air it really is. We suspect that many investors in U.S. Government debt will see the handwriting on the wall at some point, but there will be many, many investors who will be horribly damaged by the looming inflation. We also suspect those investors will be none too happy with the United States, nor with Mr. Geithner. Hopefully he has his ranch in Argentina already bought and paid for...
Say what, Mr. Secretary?
There is a serious disconnect in Mr. Geithner's reasoning in this statement. Although it is true that the U.S. Dollar has been comparatively strong in recent days, we hazard to say that this is probably a temporary state of affairs. As ShadowStats.com shows, the Dollar has experienced a relative peak, but is is, as of July 6th, in a steep decline. Additionally, deflationary trends to the tune of about 2% has apparently developed, rendering every dollar in circulation slightly more powerful as time goes on.
However, we posit the exchange strength of the Dollar is liminal; the currency markets are probably changing their minds about the relative value of the Dollar. More telling, though, is the continuing growth of the M1 Money Supply - physical cash and currency in chequeing accounts. That section of the Money Supply is increasing at a whopping 18% annualised... and shows no sign of slowing.
It is that growth which will, eventually, kill the U.S. Dollar, and destroy the wealth of any holders of Dollar-denominated financial instruments (be they savings bonds or Treasury Bills). The Federal Reserve is desperate to prevent any deflation whatsoever, as deflation makes debts all the more painful to the indebited - think the U.S. Government. So, the Fed is pumping up M1 as fast as the printers can press new currency, in the attempt to stoke inflation and thus lessen the pain for the indebited.
We have faith in the Federal Reserve. They may be bumbling and rather silly, but we believe they'll get this stoking-inflation thing down pat. The question, in our minds, is not if, but when. When will the inflation rate rise to once again destroy purchasing power at a rate the Fed finds agreeable?
When that finally happens, and happen we think it shall, Mr. Geithner's "strong dollar" talk will at last be seen as the hot air it really is. We suspect that many investors in U.S. Government debt will see the handwriting on the wall at some point, but there will be many, many investors who will be horribly damaged by the looming inflation. We also suspect those investors will be none too happy with the United States, nor with Mr. Geithner. Hopefully he has his ranch in Argentina already bought and paid for...
Tuesday, July 14, 2009
Mind the Gap
Perhaps a defining characteristic of the present Depression is that it is providing most of the World's people a one-way ticket of 'downward mobility'. Whether or not you join the mass migration will depend on luck, social resilience, and your own choices.
Since the first two conditions are out of your control, we will focus the choosing part. If the collapse is to happen quickly (which appears ever more certain with each, further government-dictated misallocation of resources), then the gap between your lifestyle as it was and as it is to be will be quite shocking.
The most important choice you can make is to commit to adjusting to whatever changes come your way, no matter how disruptive or distressing. Let us illustrate from our own experience: we happen to live in an area with an abundance of wild rabbits. They would make for very easy hunting or trapping. But we find the idea of butchering them most distasteful. We would, however, manage to overcome our squeamishness, if our need for food became urgent enough.
We present an extreme example precisely because you may be faced with an extreme situation: complete loss of income - whether a job, a pension, or otherwise. How will you manage to put food on the table and fuel on the fire if left entirely to your own devices? Can you scrape up some kind of livelihood on your own?
We are not trying to go all 'doomer' on you - we just want you to exercise some creative thinking in contingency planning. The more you expect the system to work for you, the greater the risk you are subject to if things break down.
Since the first two conditions are out of your control, we will focus the choosing part. If the collapse is to happen quickly (which appears ever more certain with each, further government-dictated misallocation of resources), then the gap between your lifestyle as it was and as it is to be will be quite shocking.
The most important choice you can make is to commit to adjusting to whatever changes come your way, no matter how disruptive or distressing. Let us illustrate from our own experience: we happen to live in an area with an abundance of wild rabbits. They would make for very easy hunting or trapping. But we find the idea of butchering them most distasteful. We would, however, manage to overcome our squeamishness, if our need for food became urgent enough.
We present an extreme example precisely because you may be faced with an extreme situation: complete loss of income - whether a job, a pension, or otherwise. How will you manage to put food on the table and fuel on the fire if left entirely to your own devices? Can you scrape up some kind of livelihood on your own?
We are not trying to go all 'doomer' on you - we just want you to exercise some creative thinking in contingency planning. The more you expect the system to work for you, the greater the risk you are subject to if things break down.
Sunday, July 12, 2009
A Modest Proposal to Save California
With the State of California presently pumping out $3 billion in unconstitutional IOUs, we suspect that a more impressive meltdown of the State's government is not too far off. It seems unlikely that any mixture of creative accounting and tax schenanigans will be able to stave off the collapse of the State's tax revenue, nor its downgrading debt rating. Unless Governor Arnold Schwarzenegger manages to both get the California legislature to accept his drastic cuts to the State's outlays - as well as pushing for even deeper and sweeping cuts - California will likely perform a sovereign default, and experience a collapse of the Government's services.
But, as with most things, it really doesn't have to go down like that, and to that end we have an idea: de-State-ify California, and convert it into the District of California. We think the move could go, as Bob Newhart says, something like this:
The Federal Government forces bond holders to swap California's debt for fresh Treasury debt at face-value, or perhaps a token premium. With that move complete, the Federal Government would then dissolve the State Government, and place the political administration of California directly under the authority of Congress. As we understand it, this would convert California into a Territory (which is how the District of Colombia is classified). In order to get the residents of California to feel happy about this move, the Congress could pass a Constitutional amendment allowing territories - like the District of Colombia, and possibly the District of California - to vote in elections of Representatives and the President.
This move would not be without benefits to both parties (i.e. California and the Federal Government): Californians could conceivably see lower taxation, as there would be no parallel State/Federal services, such as welfare... but we would count on that one too much. The Federal Government would be the bigger winner, because California would lose its Senators. That may not seem like such a big deal, but if turning a State into a District is successful, or at least not a total catastrophe, the Federal Government would likely perform the act on several other failing States. With fewer and fewer Senators, an argument could be made for the dissolution of the Senate, and the transfer of the Senate's powers to the Executive or the House of Representatives. Such a move could be dressed up as a 'drastic change to increase efficiency in Government, and reduce public expenditures.'
Be that as it may, if the Federal Government were to take over California directly, it would at least stave off the embarrassment, and potential fallout, from having a State default on its debt. It would also be a shrewd move for the Federal Government, for a somewhat complicated reason. As, in theory, the Federal Government is the representative of its constituent nations (as in a Republic), the credit rating of the Federal Government probably would be affected negatively by a Californian default. Such an effect would have a concurrent negative affect on the Federal Government's spendthrift ways. Ergo, prevent a Californian default at all costs, to protect the Federal budget.
Or... the Federal Government could just fork over a tonne of money to California, since Michigan has already gotten its own, private bailout. We can only remark on how well it seems to have worked.
But, as with most things, it really doesn't have to go down like that, and to that end we have an idea: de-State-ify California, and convert it into the District of California. We think the move could go, as Bob Newhart says, something like this:
The Federal Government forces bond holders to swap California's debt for fresh Treasury debt at face-value, or perhaps a token premium. With that move complete, the Federal Government would then dissolve the State Government, and place the political administration of California directly under the authority of Congress. As we understand it, this would convert California into a Territory (which is how the District of Colombia is classified). In order to get the residents of California to feel happy about this move, the Congress could pass a Constitutional amendment allowing territories - like the District of Colombia, and possibly the District of California - to vote in elections of Representatives and the President.
This move would not be without benefits to both parties (i.e. California and the Federal Government): Californians could conceivably see lower taxation, as there would be no parallel State/Federal services, such as welfare... but we would count on that one too much. The Federal Government would be the bigger winner, because California would lose its Senators. That may not seem like such a big deal, but if turning a State into a District is successful, or at least not a total catastrophe, the Federal Government would likely perform the act on several other failing States. With fewer and fewer Senators, an argument could be made for the dissolution of the Senate, and the transfer of the Senate's powers to the Executive or the House of Representatives. Such a move could be dressed up as a 'drastic change to increase efficiency in Government, and reduce public expenditures.'
Be that as it may, if the Federal Government were to take over California directly, it would at least stave off the embarrassment, and potential fallout, from having a State default on its debt. It would also be a shrewd move for the Federal Government, for a somewhat complicated reason. As, in theory, the Federal Government is the representative of its constituent nations (as in a Republic), the credit rating of the Federal Government probably would be affected negatively by a Californian default. Such an effect would have a concurrent negative affect on the Federal Government's spendthrift ways. Ergo, prevent a Californian default at all costs, to protect the Federal budget.
Or... the Federal Government could just fork over a tonne of money to California, since Michigan has already gotten its own, private bailout. We can only remark on how well it seems to have worked.
Saturday, July 11, 2009
FDIC Bank Failure Report
This week, the Federal Deposit Insurance Corporation closed one, small bank: Bank of Wyoming (Thermopolis, WY). Total assets of the closed bank was $70,000,000. The cost to the FDIC is estimated at $27,000,000. The percentage of FDIC loss out of total assets is 38.57%.
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $411,258,680,000, with cost-to-FDIC brought to $26,559,400,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.46%, up from 6.45% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $104,258,680,000, and total cost is $26,559,400,000. The percentage of FDIC losses to total assets now stands at 25.47%, unchanged from last report.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. Washington
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 38.11%
7. West Virginia - 36.52%
8. Maryland - 35.00%
9. Minnesota - 33.01%
10. Georgia - 32.42%
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $411,258,680,000, with cost-to-FDIC brought to $26,559,400,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.46%, up from 6.45% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $104,258,680,000, and total cost is $26,559,400,000. The percentage of FDIC losses to total assets now stands at 25.47%, unchanged from last report.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. Washington
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 38.11%
7. West Virginia - 36.52%
8. Maryland - 35.00%
9. Minnesota - 33.01%
10. Georgia - 32.42%
Friday, July 10, 2009
July Credit Card Collapse Report
In last month's report, we expected to see rising charge-offs on bank's credit card receivables as more of their shrinking portfolios were dodgy. Sure enough, when the big banks reported their default rates last month, the results were impressive.
Bank of America - the USA's largest bank - reported a 12.5% default rate in May, up from 10.47% in April. This is a 19% increase in one month! The default rate is also perilously close to the interest earned on all credit card balances (according to the Federal Reserve at last report, 13.54% on all credit card accounts with balances nationally). Effectively, credit cards have become a money-losing operation for the Bank of America. We expect, over the coming months, that credit card defaults will destroy all the capital which the Bank of America allocated to its credit card operation - and then some. Other credit card lenders are suffering the same fate.
Speaking of the Federal Reserve, their most recent report on consumer credit shows a continuing and, to us, unsurprising decline in revolving loans. The drop in April was revised substantially upwards (as we predicted), now equivalent to a 28% annual rate of decline. The May preliminary data shows a moderating of the decline - which we consider to be highly suspicious. We expect next month's revisions to actually show an acceleration - as default induced charge-offs increase, and paydowns by still-solvent borrowers continue. Stay tuned...
Bank of America - the USA's largest bank - reported a 12.5% default rate in May, up from 10.47% in April. This is a 19% increase in one month! The default rate is also perilously close to the interest earned on all credit card balances (according to the Federal Reserve at last report, 13.54% on all credit card accounts with balances nationally). Effectively, credit cards have become a money-losing operation for the Bank of America. We expect, over the coming months, that credit card defaults will destroy all the capital which the Bank of America allocated to its credit card operation - and then some. Other credit card lenders are suffering the same fate.
Speaking of the Federal Reserve, their most recent report on consumer credit shows a continuing and, to us, unsurprising decline in revolving loans. The drop in April was revised substantially upwards (as we predicted), now equivalent to a 28% annual rate of decline. The May preliminary data shows a moderating of the decline - which we consider to be highly suspicious. We expect next month's revisions to actually show an acceleration - as default induced charge-offs increase, and paydowns by still-solvent borrowers continue. Stay tuned...
Thursday, July 9, 2009
The Great Fall of China
We have always felt that China's strengths are greatly overstated. It always seemed to us that glowing reviews of the PRC were editing out many inconvenient details about the nature of China, thereby making investment in China - financial or otherwise - seem like a good, though risky, venture. As the leading industrialising power in the world, the PRC garnered quite a bit of clout, especially as its economy grew at a pace which seemed to defy all natural limits. The nation produced more cheap plastic crap than the biggest spendthrifts in the world - Americans - could possibly absorb.
In the past we came up with a short list of reason why we felt China was doomed to collapse somewhere along the line: a severe disproportion of male to female citizens; no strong tradition of common law; and a totalitarian Communist government. These three things, we felt, are any one of them sufficiently problematic to deal a serious blow to the PRC.
And then the 2007 Depression happened, and the game changed completely. Communism is, in practice, a cannibalistic system: it requires constant inputs of new resources - both raw and financial - in order to keep the State-run enterprises from going belly up. This wasn't such a concern in a growing world economy, because there was always more resources to throw at bloated and inefficient industries. But now, the world economy is shrinking thanks to the Depression; the pain of which will be vastly increased by Peak Just-About-Everything.
Other factors are lining up to suggest a serious blow to China. For instance, the World Bank has predicted that Foreign Direct Investment in China is going to drop by 20% this year. Although that will not create a concurrent 20% drop in China's economy, it will help to bring down 'growth' to some degree. If 'growth' is too low, the PRC will not be able to give jobs to its vast population, and they will be very angry about that.
Additionally, we read that vicious riots have broken out in the capital city of Xinjiang, apparently brought on by ethnic tensions. This, we posit, is going to become evermore common in China in the months and years ahead. Simply put, the PRC has ravaged China in the hope of generating those stellar economic growth numbers, and now they will no longer be able to make good on their promises. The one-billion-plus Chinese are not going to be happy, especially as they find the nation's export sector is in shambles.
We also learn that the GDP of China has been overstated by about 40%; it is only a $6 trillion dollar economy. That's a serious bite out of the PRC's ability to keep its population in check via jobs and pay cheques. Even the Indian Defence Review is making noises about China's impending difficulties.
In conclusion, we have to wonder how not only China's own population expects the PRC to make good on its promises of growth and prosperity, but why much of the rest of the world is hoping that China will haul them out of recession. China has, at least by our reading, become a cornerstone to 'recovery,' a cornerstone which we think is both faulty and due to fail in less time than one might think. When China does fall, as we believe it will, all talk of recovery will end, and the world will be forced to realise that the situation in the 2007 Depression is very dire indeed.
In the past we came up with a short list of reason why we felt China was doomed to collapse somewhere along the line: a severe disproportion of male to female citizens; no strong tradition of common law; and a totalitarian Communist government. These three things, we felt, are any one of them sufficiently problematic to deal a serious blow to the PRC.
And then the 2007 Depression happened, and the game changed completely. Communism is, in practice, a cannibalistic system: it requires constant inputs of new resources - both raw and financial - in order to keep the State-run enterprises from going belly up. This wasn't such a concern in a growing world economy, because there was always more resources to throw at bloated and inefficient industries. But now, the world economy is shrinking thanks to the Depression; the pain of which will be vastly increased by Peak Just-About-Everything.
Other factors are lining up to suggest a serious blow to China. For instance, the World Bank has predicted that Foreign Direct Investment in China is going to drop by 20% this year. Although that will not create a concurrent 20% drop in China's economy, it will help to bring down 'growth' to some degree. If 'growth' is too low, the PRC will not be able to give jobs to its vast population, and they will be very angry about that.
Additionally, we read that vicious riots have broken out in the capital city of Xinjiang, apparently brought on by ethnic tensions. This, we posit, is going to become evermore common in China in the months and years ahead. Simply put, the PRC has ravaged China in the hope of generating those stellar economic growth numbers, and now they will no longer be able to make good on their promises. The one-billion-plus Chinese are not going to be happy, especially as they find the nation's export sector is in shambles.
We also learn that the GDP of China has been overstated by about 40%; it is only a $6 trillion dollar economy. That's a serious bite out of the PRC's ability to keep its population in check via jobs and pay cheques. Even the Indian Defence Review is making noises about China's impending difficulties.
In conclusion, we have to wonder how not only China's own population expects the PRC to make good on its promises of growth and prosperity, but why much of the rest of the world is hoping that China will haul them out of recession. China has, at least by our reading, become a cornerstone to 'recovery,' a cornerstone which we think is both faulty and due to fail in less time than one might think. When China does fall, as we believe it will, all talk of recovery will end, and the world will be forced to realise that the situation in the 2007 Depression is very dire indeed.
Tuesday, July 7, 2009
Mass Unemployment + Heavy Debts = Ruin
In the USA, household debt as a percentage of household income is at an all-time high. At the same time, for most households, income is falling - making the debts more onerous. For a significant minority, long-term unemployment or underemployment means income has collapsed and the debt burden is overwhelming - usually resulting in default and bankruptcy.
We have been reading many 'horror stories' about people who had good jobs, but lost them and were unable to replace them, and then drowned in their debts. These people are no longer at the fringes of society, but just another form of 'normal'.
We are beginning to see the human side of this Depression as a series of millions of little catastrophes. Lives that were until recently lived more or less conforming to the typical American Consumer Lifestyle: House, Car, Stuff - complete with mortgage, car loan, and credit card balances. Then income loss leads to wipe out: getting behind on bills, letting them go, and then the repo men take it all away.
It's hard to guess how many will follow this path, but we suspect about half the population. It's going to create a very different America. Luckily for the powers-that-be, most will probably just blame themselves.
We have been reading many 'horror stories' about people who had good jobs, but lost them and were unable to replace them, and then drowned in their debts. These people are no longer at the fringes of society, but just another form of 'normal'.
We are beginning to see the human side of this Depression as a series of millions of little catastrophes. Lives that were until recently lived more or less conforming to the typical American Consumer Lifestyle: House, Car, Stuff - complete with mortgage, car loan, and credit card balances. Then income loss leads to wipe out: getting behind on bills, letting them go, and then the repo men take it all away.
It's hard to guess how many will follow this path, but we suspect about half the population. It's going to create a very different America. Luckily for the powers-that-be, most will probably just blame themselves.
Monday, July 6, 2009
Forming America's Next Political Party
We've been giving the issue of former Alaska Governor Sarah Palin's resignation some thought, although we still wonder exactly what she has planned. Resigning before completing a term is not an unheard of manoeuvre, so such an act by Ms. Palin is not necessarily out of the ordinary. However, she seems to be a canny and clever person; we would be very surprised if she is simply leaving politics behind and returning to a quiet, private life.
On the contrary, this article from the Wall Street Journal gave us pause; "Governor's move highlights GOP divide," as the title says. The Republican Party has a rich and vibrant tradition of falling completely to pieces at various intervals, typically resulting in a name change (or at least a bifurcation of the Party). A collapse and reinvention of the GOP is not outside of the realm of possibility, in our minds.
Now, Ms. Palin's 'highlighting of divides' could just be another interior squabble of the Republican Party, which will resolve itself one way or the other. However, Mr. Gerald Celente, of the Trends Research Institute, has made it clear on numerous occasions that he expects to see a powerful third political party develop in the United States - partly in response to the Depression.
We regard Mr. Celente as a very smart man... he's paid lots of money to be very right, after all. We can think of no reason why a new party couldn't form, except perhaps the disinterest and passivity of the U.S. citizenry. If there were to be a new third party, we frankly don't expect it to bud off of the Democratic Party. A splintering of the Republican Party, on the other hand, is not unlikely, as the Party is under an incredible amount of political strain (e.g. sex scandals of former frontrunners for the 2012 Elections, losing their majority, and their perceived responsibility for the Nation's economic woes).
We ask the question, could Ms. Palin be one of the forces behind the creation of this new party? We wouldn't bet against that. Out of the present Republican Party, she is - in our mind - one of the few with any, shall we say, personality. She had a very striking rise to national attention, and has not really left the national scene entirely, even after the election. We wouldn't expect that her reasons for leaving her post as Governor include 'form new third party,' but we could definitely see her being part of any sort of movement in that direction.
We suggest watching Ms. Palin's actions closely for the next few months. Perhaps we are wrong, and she really does intend to leave politics behind. Whatever the case, though, we posit her moves will be most illuminating.
On the contrary, this article from the Wall Street Journal gave us pause; "Governor's move highlights GOP divide," as the title says. The Republican Party has a rich and vibrant tradition of falling completely to pieces at various intervals, typically resulting in a name change (or at least a bifurcation of the Party). A collapse and reinvention of the GOP is not outside of the realm of possibility, in our minds.
Now, Ms. Palin's 'highlighting of divides' could just be another interior squabble of the Republican Party, which will resolve itself one way or the other. However, Mr. Gerald Celente, of the Trends Research Institute, has made it clear on numerous occasions that he expects to see a powerful third political party develop in the United States - partly in response to the Depression.
We regard Mr. Celente as a very smart man... he's paid lots of money to be very right, after all. We can think of no reason why a new party couldn't form, except perhaps the disinterest and passivity of the U.S. citizenry. If there were to be a new third party, we frankly don't expect it to bud off of the Democratic Party. A splintering of the Republican Party, on the other hand, is not unlikely, as the Party is under an incredible amount of political strain (e.g. sex scandals of former frontrunners for the 2012 Elections, losing their majority, and their perceived responsibility for the Nation's economic woes).
We ask the question, could Ms. Palin be one of the forces behind the creation of this new party? We wouldn't bet against that. Out of the present Republican Party, she is - in our mind - one of the few with any, shall we say, personality. She had a very striking rise to national attention, and has not really left the national scene entirely, even after the election. We wouldn't expect that her reasons for leaving her post as Governor include 'form new third party,' but we could definitely see her being part of any sort of movement in that direction.
We suggest watching Ms. Palin's actions closely for the next few months. Perhaps we are wrong, and she really does intend to leave politics behind. Whatever the case, though, we posit her moves will be most illuminating.
Sunday, July 5, 2009
Imagining a Better Future
Seeing how we are writing here about the Depression - which may last a very long time and turn out to be a dramatic economic collapse - we feel it important to state once again we are confident that the future can actually improve for anyone who is prepared for it.
The most important preparation is to be optimistic in the sense we mean it: making the best out of every situation. At its most trite: when life hands you lemons, make lemonade. Loss can be liberating if you find new fields in which to apply yourself.
Of course it is also important to avoid certain traps that will stifle your ability to survive and prosper in the coming years. The biggest trap is the notion that things will go back the way they were. This even applies to a lot of notions of 'prosperity', 'growth' and so forth. More specifically it applies to notions people have about what is worth investing in: a career, real estate, the stock market. Most of the systems that have worked to make people better off in the past are breaking down, and will not deliver the goods going forward.
So what do you invest in? Try to invest as much as possible in yourself, your skills, your tools, things you have control over which will help you produce income or reduce expenditures. You must take full responsibility for your income, and for living within your means.
The biggest shock the world is facing is that the era of an ever-growing stream of material goods and services is coming to an end, and will become an shrinking stream for quite some time. Happily, your quality of life is not measured by how much stuff you can buy. But you have to focus with ruthless efficiency on managing your income and expenses or you will find yourself a Depression victim.
To have a better future, you must also avoid having a worse future. However, for many with debts, children, or other substantial obligations the future may be unavoidably worse before it gets better. In any case, try to identify your weaknesses with some cold honesty, and shore them up.
The route to prosperity is simple in theory: live within your means (no matter how meagre) and profitably invest the surplus. In practice this can be extremely challenging, but it is achievable.
The most important preparation is to be optimistic in the sense we mean it: making the best out of every situation. At its most trite: when life hands you lemons, make lemonade. Loss can be liberating if you find new fields in which to apply yourself.
Of course it is also important to avoid certain traps that will stifle your ability to survive and prosper in the coming years. The biggest trap is the notion that things will go back the way they were. This even applies to a lot of notions of 'prosperity', 'growth' and so forth. More specifically it applies to notions people have about what is worth investing in: a career, real estate, the stock market. Most of the systems that have worked to make people better off in the past are breaking down, and will not deliver the goods going forward.
So what do you invest in? Try to invest as much as possible in yourself, your skills, your tools, things you have control over which will help you produce income or reduce expenditures. You must take full responsibility for your income, and for living within your means.
The biggest shock the world is facing is that the era of an ever-growing stream of material goods and services is coming to an end, and will become an shrinking stream for quite some time. Happily, your quality of life is not measured by how much stuff you can buy. But you have to focus with ruthless efficiency on managing your income and expenses or you will find yourself a Depression victim.
To have a better future, you must also avoid having a worse future. However, for many with debts, children, or other substantial obligations the future may be unavoidably worse before it gets better. In any case, try to identify your weaknesses with some cold honesty, and shore them up.
The route to prosperity is simple in theory: live within your means (no matter how meagre) and profitably invest the surplus. In practice this can be extremely challenging, but it is achievable.
Saturday, July 4, 2009
Silence Descends
To celebrate the independence, Americans across the U.S. are readying their barbecues and cracking open beers. The radio is probably playing something sufficiently rousing (or perhaps a Michael Jackson tribute), and the siren call of shopping sounds in the distance. This, dear Reader, is the time when we feel most worried: a holiday in the United States may mean shopping orgies for the Citizenry, but it's a chance for the Government to ram through some nasty new piece of legislation when no one is looking.
Perhaps in that vein, Alaska Governor Sarah Palin has unexpectedly resigned her post. She didn't seem to give a reason as to why she left, but the timing seems strange to us. What her abrupt action means is unclear, but we're pretty sure it isn't good. Ms. Palin doesn't seem like the type to simply walk away from politics, so perhaps she's positioning herself to run in the 2012 Presidential election.
In closing, and to set the tone for this July 4th celebration, we read that over 1,000 immigrants took their citizenship oaths yesterday... in Disney World. Welcome to America, newly-minted citizens. Please suspend your disbelief.
Perhaps in that vein, Alaska Governor Sarah Palin has unexpectedly resigned her post. She didn't seem to give a reason as to why she left, but the timing seems strange to us. What her abrupt action means is unclear, but we're pretty sure it isn't good. Ms. Palin doesn't seem like the type to simply walk away from politics, so perhaps she's positioning herself to run in the 2012 Presidential election.
In closing, and to set the tone for this July 4th celebration, we read that over 1,000 immigrants took their citizenship oaths yesterday... in Disney World. Welcome to America, newly-minted citizens. Please suspend your disbelief.
Friday, July 3, 2009
FDIC Bank Fallure Report, Holiday Edition
This week the Federal Deposit Insurance Corporation closed seven banks: Millennium State Bank of Texas (Dallas, TX); Founders Bank (Worth, IL); First National Bank of Danville (Danville, IL); Elizabeth State Bank (Elizabeth, IL); Rock River Bank (Oregon, IL); First State Bank of Winchester (Winchester, IL); and John Warner Bank (Clinton, IL). Total assets of the seven closed banks were $1,485,000,000. The cost to the FDIC is estimated at $314,300,000. The percentage of FDIC loss out of total assets for the seven is 21.16%.
These closures bring the total assets of FDIC-failed banks (since December of 2007) to $411,188,680,000, with cost-to-FDIC brought to $26,532,400,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.45%, up from 6.40% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $104,188,680,000, and total cost is $26,532,400,000. The percentage of FDIC losses to total assets now stands at 25.47%, down from 25.53% as of last report.
According to the FDIC, "The six failed Illinois banks are all controlled by one family and followed a similar business model that created concentrated exposure in each institution. The failure of these banks resulted primarily from losses related to the banks' investment in collateralized debt obligations and other loan losses." This post-mortem commentary from the FDIC on the nature of the banks' investments is unusual. We suspect it may be a veiled warning to State and Federal banking regulators to watch for similar situations.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. Washington
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Florida - 38.11%
6. West Virginia - 36.52%
7. Maryland - 35.00%
8. Minnesota - 33.01%
9. Georgia - 32.42%
10. Washington - 32.39%
These closures bring the total assets of FDIC-failed banks (since December of 2007) to $411,188,680,000, with cost-to-FDIC brought to $26,532,400,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 6.45%, up from 6.40% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $104,188,680,000, and total cost is $26,532,400,000. The percentage of FDIC losses to total assets now stands at 25.47%, down from 25.53% as of last report.
According to the FDIC, "The six failed Illinois banks are all controlled by one family and followed a similar business model that created concentrated exposure in each institution. The failure of these banks resulted primarily from losses related to the banks' investment in collateralized debt obligations and other loan losses." This post-mortem commentary from the FDIC on the nature of the banks' investments is unusual. We suspect it may be a veiled warning to State and Federal banking regulators to watch for similar situations.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Utah
4. Kansas
5. Illinois
6. Minnesota
7. Oregon
8. Missouri
9. Colorado
10. Washington
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Utah - 40.32%
2. New Jersey - 40.13%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Florida - 38.11%
6. West Virginia - 36.52%
7. Maryland - 35.00%
8. Minnesota - 33.01%
9. Georgia - 32.42%
10. Washington - 32.39%
Thursday, July 2, 2009
More Evidence USA Entered Recession in 1999
Some months back we posted evidence that the last 10 years have been a period of recession in the USA, at least for the majority of the population. Today we present more.
In this Clusterstock Chart of the Day, one can see the amount of income that comes from Government Transfer Payments has risen from about 12% of all income to 18% over the last 10 years. This is a 50% increase.
We also offer John Williams' Shadow Government Statistics showing a GDP essentially in recession from 2000 onwards.
As we said before, the US economy is in worse shape than is generally recognised. It would appear the 'recovery' from the last official recession was chimerical. The debt-fueled consumption bubble only set the stage for a stronger crash.
The Clusterstock commentary helpfully points out, "thus the process of household debt becoming government debt takes place." In the debt-bubble, households borrowed money and instead of investing it, spent it as if it were income. Now those debts must be repaid or defaulted upon. In order to prevent a contraction of credit and debt-deflation, the US Government is borrowing enough to keep all debts in the aggregates rising. Among other ways of spending this borrowed money, it is handing out a larger dole - replacing, at least in part, spending money households can no longer borrow from home equity loans and credit cards.
At some point in the future not to distant, we expect the Government's ability to create new credit effectively cut off. At that point the inevitable debt-deflation will come - though we anticipate the debt will not be paid off, but rather destroyed by hyperinflation.
In this Clusterstock Chart of the Day, one can see the amount of income that comes from Government Transfer Payments has risen from about 12% of all income to 18% over the last 10 years. This is a 50% increase.
We also offer John Williams' Shadow Government Statistics showing a GDP essentially in recession from 2000 onwards.
As we said before, the US economy is in worse shape than is generally recognised. It would appear the 'recovery' from the last official recession was chimerical. The debt-fueled consumption bubble only set the stage for a stronger crash.
The Clusterstock commentary helpfully points out, "thus the process of household debt becoming government debt takes place." In the debt-bubble, households borrowed money and instead of investing it, spent it as if it were income. Now those debts must be repaid or defaulted upon. In order to prevent a contraction of credit and debt-deflation, the US Government is borrowing enough to keep all debts in the aggregates rising. Among other ways of spending this borrowed money, it is handing out a larger dole - replacing, at least in part, spending money households can no longer borrow from home equity loans and credit cards.
At some point in the future not to distant, we expect the Government's ability to create new credit effectively cut off. At that point the inevitable debt-deflation will come - though we anticipate the debt will not be paid off, but rather destroyed by hyperinflation.
Wednesday, July 1, 2009
Inflation Coming Soon?
We hold up USA Today as the ultimate sign of what is not, in fact happening. If the rag says to do one thing, we know it's a bad idea; if it says that something is happening, we know it isn't. Which is, as an aside, how we expect to know the bottom of the 2007 Depression is in: USA Today will be screaming that the end is near and everyone is going to die... metaphorically speaking.
That is all a bit arch, of course, but you get the idea. As a for-profit company of popular persuasion, USA Today and other information sources have to amend what they publish in order to maintain mass appeal. The public at large does not want to read or hear especially gloomy news, which is probably why our Depression Gazette will never hit the big time. USA Today, as long as enough people feel it provides the desired style and quality of information, will continue to limp along.
Limping along, however, does not make what the company prints actually accurate. And in that vein, we present this article from USA Today, which spews some very impressive fallacies about the nature of inflation. We recommend reading the article with popcorn, as it is quite a laugh, but we'll take on some of the most egregious errors.
"If inflation does hit, it won't be this year, barring a major jump in oil prices or a drastic change in government philosophy." We wonder how oil prices cause inflation. Additionally, according to ShadowStats.com, the Federal Reserve is printing physical money (i.e. growth in the M1 Money Supply) with abandon. That trend is about as iron-clad a guarantee of inflation, at some point in the future, as one can get. Indeed, the USA Today writer himself writes "The ultimate cause of inflation is an unwarranted increase in the money supply."
"...Unemployment... [is] 9.4% now and widely expected to break above 10% this year."Again according to ShadowStats.com, unemployment is cooking at well over 20% and rising sharply. We personally expect to see 25% unemployment be a reality sometime very soon, if that level has not been hit already. That's not to say that particular non-fact is necessarily the writer's fault, though: it's an artifact of the purposefully inaccurate and under-reporting nature of Government statistics.
The best part, though, was this:
So instead, we would like to take a trip to reality for a moment and provide an example: Zimbabwe. Zimbabwe's economy has not been truly 'humming' since it was a colony of the British Crown (pre-1965). In fact, it has been in negative 'humming' since 2000 (source), and official unemployment in the nation is now a horrifying 94%. Yet this nation is experiencing an inflation rate so high it is effectively meaningless: 231 million percent annualised. It is lunacy - or perhaps misinformation - to say that inflation requires a 'humming economy' to take place. Zimbabwe is chilling proof of the total untruth of such an assertion.
These errors we've expounded upon, plus a few more, are shockingly out of character with the rest of the article, which is fairly sober and accurate. The writer seems to be going out of his way to drive home his fallacious definition of inflation, and we can only wonder why. Whatever the case, though, we take this as a sign for the contrarians: inflation this way comes. And soon.
That is all a bit arch, of course, but you get the idea. As a for-profit company of popular persuasion, USA Today and other information sources have to amend what they publish in order to maintain mass appeal. The public at large does not want to read or hear especially gloomy news, which is probably why our Depression Gazette will never hit the big time. USA Today, as long as enough people feel it provides the desired style and quality of information, will continue to limp along.
Limping along, however, does not make what the company prints actually accurate. And in that vein, we present this article from USA Today, which spews some very impressive fallacies about the nature of inflation. We recommend reading the article with popcorn, as it is quite a laugh, but we'll take on some of the most egregious errors.
"If inflation does hit, it won't be this year, barring a major jump in oil prices or a drastic change in government philosophy." We wonder how oil prices cause inflation. Additionally, according to ShadowStats.com, the Federal Reserve is printing physical money (i.e. growth in the M1 Money Supply) with abandon. That trend is about as iron-clad a guarantee of inflation, at some point in the future, as one can get. Indeed, the USA Today writer himself writes "The ultimate cause of inflation is an unwarranted increase in the money supply."
"...Unemployment... [is] 9.4% now and widely expected to break above 10% this year."Again according to ShadowStats.com, unemployment is cooking at well over 20% and rising sharply. We personally expect to see 25% unemployment be a reality sometime very soon, if that level has not been hit already. That's not to say that particular non-fact is necessarily the writer's fault, though: it's an artifact of the purposefully inaccurate and under-reporting nature of Government statistics.
The best part, though, was this:
If you're worried about inflation rearing its ugly head soon, relax... You don't get inflation in an economy that's as slack as this one... Inflation just isn't going to happen in this economy.Oh, where do we start, dear Reader? How do we assail such a monument to stupidity? To say that inflation cannot happen except in a 'humming economy' is like saying... oh gods, we don't know! Words fail us utterly!
"A lot of the worries about immediate inflation are examples of financial illiteracy," says David Wyss, chief economist for Standard & Poor's. "You won't get inflation until the economy gets back, and that's at least five years out."... To get to inflation... you need a humming economy, and the [U.S.] economy is barely breathing.
So instead, we would like to take a trip to reality for a moment and provide an example: Zimbabwe. Zimbabwe's economy has not been truly 'humming' since it was a colony of the British Crown (pre-1965). In fact, it has been in negative 'humming' since 2000 (source), and official unemployment in the nation is now a horrifying 94%. Yet this nation is experiencing an inflation rate so high it is effectively meaningless: 231 million percent annualised. It is lunacy - or perhaps misinformation - to say that inflation requires a 'humming economy' to take place. Zimbabwe is chilling proof of the total untruth of such an assertion.
These errors we've expounded upon, plus a few more, are shockingly out of character with the rest of the article, which is fairly sober and accurate. The writer seems to be going out of his way to drive home his fallacious definition of inflation, and we can only wonder why. Whatever the case, though, we take this as a sign for the contrarians: inflation this way comes. And soon.
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