Diminishment of Sovereignty and More Fed Manipulations Part II
by Bob Chapman The International Forecaster
Fed officials and other solons are complicit. The amount of money the federal government hands out in direct payments to individuals steadily increased over the past four decades, but shot up under Obama, climbing by almost $600 billion a 32% increase in his first three years...
According to the Census Bureau 49% now live in homes where at least one person gets a federal benefit ¼ Social Security, workers comp, unemployment, subsidized housing, and the like. That's up from 44% the year before Obama took office, and way up from 1983, when fewer than a third were government beneficiaries...
This year, more than 46 million (15% of all Americans) will get food stamps. That's 45% higher than when Obama took office, and twice as high as the average for the previous 40 years...
The number of people on Social Security disability has steadily climbed since the 1970s, thanks mainly to easier eligibility rules. But their numbers jumped 10% in Obama's first two years in office, according to the Social Security Administration. That sharp rise was due largely to meager job prospects since the recession ended in 2009...
The government's role in health care has grown over the past decades, with 45% of all health spending now coming from the federal government, up from 32% in 1990...
In just nine years, entitlement spending is on track to eat up 61% of the federal budget, according to the CBO. And unless these programs are cut back, they will soon consume all federal taxes, one CBO budget scenario predicts...
Due to the Fed, several commodities are surging despite universal forecasts of global economic decline.
Cattle prices are at an all-time high due to the lowest herd count in 50 years (due to grain prices last year).
Orange juice hit an all-time high (Looking good, Billy Ray!)...Cash corn is trading at premium in January for the first time since 1975 (due to tight supplies)...Gasoline futures hit an all-time high for January.
As we keep asserting, if the Fed were to implement QE 3.0, the inflation surge could be much worse than the inflation surge that accompanied QE 2.0, which killed economic growth and fomented global revolt.
In Honolulu... there's a four-bedroom home priced at $785,000 that has views of the sun setting over the Pacific Ocean. The beaches of Waikiki are 15 minutes away. Starting this month, the property is available to buyers with a subprime credit score, limited cash reserves and a 3.5% down payment using a loan backed by the Federal Housing Administration. Without the agency, a buyer would need a 20% down payment and an unblemished financial history for a jumbo mortgage... The agency increased the size of mortgages it's willing to insure to as high as $793,750 in Hawaii and $729,750 in the costly real estate markets of states including California, Florida, and Virginia.
Freddie Mac Bets Against American Homeowners.
But the trades, uncovered for the first time in an investigation by ProPublica and NPR, give Freddie a powerful incentive to do the opposite, highlighting a conflict of interest at the heart of the company. In addition to being an instrument of government policy dedicated to making home loans more accessible, Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance.
"We were actually shocked they did this," says Scott Simon...the head of the giant bond fund PIMCO's mortgage-backed securities team..."It seemed so out of line with their mission.The trades put them squarely against the homeowner, he says.
CBO has released a study comparing the wages and benefits of private sector and federal non-military workers. The study uses statistical techniques to make comparisons with adjustments for education level, experience, and other factors.
Here are the overall results:
- - The wages of federal workers are 2 percent higher than similar private-sector workers, on average.
- - The benefits of federal workers are 48 percent higher than similar private-sector workers, on average.
- - The total compensation (wages plus benefits) of federal workers is 16 percent higher than similar private-sector workers, on average...
The percentage of safe assets to total assets in the US economy has been roughly the same since 1952, at about 33 per cent...The stability of demand for safe assets has held during a time in which the assets of the financial sector as a percentage of all assets in the economy have climbed from 25 to 40 per cent, with most of the growth in total assets being financed through debt rather than equity...
Since the relevant topic is how to prevent a run in the shadow banking system, we're primarily talking about debt here specifically, the debt eligible to be used as collateral in repo and short-term secured lending markets...
Gorton and Metrick have previously argued that the panic wasn't caused directly by the revelation that subprime-related ABS values were plummeting; this had already happened earlier than 2007. The problem was that the lack of transparency in repo markets meant that investors had no way of distinguishing between repo borrowers whose collateral was subprime-related and those whose collateral was relatively safer. So they started raising haircuts, from zero in most cases, indiscriminately across all repo counterparties. The run was on and so was the credit crunch...
The core problem is that there is no such thing as a safe asset, as the world has so painfully learned.
"Safe asset" is just a phrase that describes assets perceived to be safe enough. But we can never completely eliminate the possibility that an asset will go from safe enough to not safe enough.
US personal income increased 0.5% in December; but 23% of income growth was due to personal transfer payments. Spending was flat. Savings surged 4% - in December!!! This does not compute!
Illinois' unpaid bills may more than triple to $34.8 billion by 2017 unless lawmakers and Democratic.
Governor Pat Quinn immediately bring Medicaid and pension spending under control, said a research group. The "potentially paralyzing" backlog, projected to reach $9.2 billion when this fiscal year ends June 30, would be fueled by an "unsustainable" increase in Medicaid spending, according to the Civic Federation, which calls itself a nonpartisan government research organization
House Republicans are proposing to spend about $260 billion over the next 4 ½ years on transportation programs, as well as substantially increase the size of trucks permitted on highways, according to a draft bill being introduced this week... [Bribing the constituents with more goodies from borrowed money]
Residential real estate prices fell more than forecast in November, showing distressed properties are hampering improvement in the U.S. housing market.
The S&P/Case-Shiller index of property values in 20 cities declined 3.7 percent from November 2010 after decreasing 3.4 percent in the year ended in October, the group said today in New York. Economists projected a 3.3 percent drop, according to the median estimate in a Bloomberg News survey.
Another wave of foreclosures threatens to keep the pressure on prices and delay recovery in the industry that precipitated the last recession, underscoring the Federal Reserve's view that housing "remains depressed." More stability in real-estate values may be needed to persuade Americans to take advantage of record-low mortgage rates.
"We've seen home prices take a turn for the worse after showing some signs of a bottom, and we do think that there is more downside from here," said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York, who correctly forecast the price decline. "If you get stronger jobs and wage growth, it'll go far in alleviating some of the pipeline foreclosures that have yet to happen.
Consumer confidence unexpectedly dropped in January and a gauge of business activity fell, underscoring forecasts that the U.S. economy will cool after expanding at the fastest pace since the second quarter 2010.
The New York-based Conference Board's confidence index decreased to 61.1, lower than the most pessimistic forecast in a Bloomberg News survey of economists, from a revised 64.8 reading the prior month. The Institute for Supply Management-Chicago Inc. said its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth.
Employers aren't hiring fast enough to drive bigger gains in wages and consumer spending, while higher gasoline prices are cutting into household budgets. Another report today showed home prices fell more than forecast in November, eroding the wealth of families as they seek to rebuild savings.
"This quarter will be a bit slower," said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who had the lowest sentiment estimate. "Consumer confidence appears to have leveled off, as job growth isn't quite as good and gasoline prices have moved back up."
Business activity in the U.S. cooled in January as orders and employment slowed, indicating last quarter's pickup in growth will not be sustained into 2012.
The Institute for Supply Management-Chicago Inc. said today its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth. Economists forecast the gauge would rise to 63, according to the median of 57 estimates in a Bloomberg survey.
Three consecutive readings exceeding 60 are still the strongest since early 2011, signaling manufacturing remains a mainstay of the expansion even as the world's largest economy decelerates. Nonetheless, the risk of a recession in Europe prompted by its debt crisis and slower growth in some emerging markets pose a risk to export growth.
Business activity in the U.S. Midwest grew more slowly than expected in January, according to the Institute for Supply Management-Chicago's index of Midwest business activity.
"January's Chicago PMI reading of 60.2 compares to 62.2 in December and a market consensus of 63.0, but remains quite healthy," said David Sloan, an economist with IFR Economics.
"Firmer data from other surveys appear to be catching up with the Chicago PMI," he added. "Internals were generally somewhat softer with the exception of a rise in delivery times."
Maurice "Hank" Greenberg, the former CEO of American International Group Inc. (AIG), and the company he runs, Starr International Co. (Starr), have sued the U.S. Government for the alleged unconstitutional federal takeover of AIG in 2008, according to Reuters.
The lawsuit seeks $25 billion in damages and alleges violations of the Fifth Amendment, which says private property can't be taken for "public use, without just compensation." Moreover, Starr accuses the U.S. Treasury Department and Federal Reserve Bank of New York of wrongly seizing control of AIG and using it as a vehicle to funnel tens of billions of dollars to AIG's trading partners, and also alleges that the AIG bailout was done as "a vehicle to covertly funnel billions of dollars to other preferred financial institutions including Goldman Sachs."
"The government's actions were ostensibly designed to protect the United States economy and rescue the country's financial system," the complaint asserts.
The complaint adds that, "[a]lthough this might be a laudable goal, as a matter of basic law, the ends could not and did not justify the unlawful means employed. The government is not empowered to trample shareholder and property rights even in the midst of a financial emergency."
The $25 billion estimate reflects what Starr calls the value of the government's stake on January 14, 2011, when it swapped AIG preferred stock for 562.9 million common shares. AIG was once the world's largest insurer by market value.
The federal claims case is Starr International Co. v. United States, No. 11-779(Fed. Cl. filed Nov. 21, 2011). The Federal Reserve case is Starr International Co. v. Federal Reserve Bank of New York, No. 11-8422 (S.D.N.Y. filed Nov. 21, 2011)
JPMorgan Chase & Co. was sued by Germany's largest cooperative lender for allegedly making false and misleading statements in connection with the sale of residential mortgage-backed securities.
DZ Bank AG sued yesterday in New York State Supreme Courtin Manhattan, saying it bought about $85 million of the securities from JPMorgan based on offering materials that misrepresented the underwriting standards used to issue the underlying loans.
"Plaintiff did not know the true facts regarding defendants' misrepresentations and omissions in the offering materials, and justifiably relied on those misrepresentations and omissions," Frankfurt-based DZ Bank said in the complaint. The German lender is seeking $85 million in damages.
Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.
Tasha Pelio, a spokeswoman for New York-based JPMorgan, declined to immediately comment on the lawsuit.
The case is Deutsche Zentral-Genossenschaftsbank AG v. JPMorgan Chase & Co, 650293/2012, New York State Supreme Court(Manhattan).
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