Bad News Troubles Bulls

April 2, 2008

Elaine Meinel Supkis

Yesterday, I was amused at the childish joy on Wall Street. The bad news is done! Hooray! Only it is not only NOT done, it is barely begun. And so today comes yet another flood of bad news. The hope is, the Fed can feed enough funny money into investors' bank accounts so they can use it to speculate in various markets. Of course, this is impossible. But the Fed will try to do this and I can't blame the investors whooping it up so long as the helicopter dumps dollars on them. But we know that this will do less and less good each cycle and we are deep into the developing depressionary cycle caused by reckless credit use. Using credit more recklessly only will worsen this negative cycle.

Fed Chief Offers Bleak Assessment of Economy

Federal Reserve Chairman Ben S. Bernanke acknowledged today for the first time that the United States may be in a recession, projecting that the economy could shrink during the first half of this year.
*snip*
He did say today that he expects growth to strengthen in the second half of the year and to be solid in 2009, as the impact of the Fed's recent interest rate cuts and the government's fiscal stimulus package ripple through the economy.

Although he dismissed the question of whether there is a recession as an academic exercise, economic analysts said Bernanke's acknowledgment was significant.

"He's being much more candid and upfront about the problems and risks in the economy," said Brian A. Bethune, U.S. economist at the consulting firm Global Insight. "This testimony says that the Fed isn't in denial anymore."

Whoo hoo. I talked about the inevitability of this recession back at the end of 2005. I noted back then that the sole thing keeping our economy afloat was wild spending by homeowners going deep into debt using their homes as ATM machines and of course, our lovely war machine. Back then, it was grinding down $8 billion a month trying to occupy Iraq and Afghanistan. Now, it is grinding down $12 billion a month in these fruitless foul-ups. Military spending continues to rise AND we are in a depressionary spiral. That is pretty tricky! Normally, while wars rage, economies do really well...that is, until either the bills are due, the war ends and there is a depression or there is defeat. Defeat=bad economic times, big time. We had to raise interest rates to over 18% when we lost the Vietnam War. Germany had hyper-inflation after losing WWI. And didn't even have an economy after WWII.

So here we are: no one is destroying our factories with bombs. We are destroying them with world trade. And no one is counterfeiting dollars. The Fed is devaluing those so fast, it isn't worth the bother. Several months ago, we accused Baby Dragon of North Korea of counterfeiting dollars. He basically said, 'What? Why would I do that? Euros are the way to go! Or Loonies!'

So here we are: the Fed admits at last the obvious. Give the man a cigar! Or maybe a lollipop. I will note that Bernanke is playing the idiotic game of pretending all will be well in a trice. Six months, max! Then we will roar ahead. The government just handed out free money to every American. I will get some, for example. This money will be used to boost the economy, they hope. But of course, so far, much of our national spending has been very destructive. It is killing our own manufacturing situation. I look at the news and jobs are vanishing. There is no recovery if people are being laid off faster than they are hired. And if they are paid less and less, they have less income to spend on things. And this is the dynamic at work. Workers are being depressed. And free money will make everyone happy. But it is very, very inflationary.

President Hu: China, U.S. share responsibility for world economy

Chinese President Hu Jintao said here on Wednesday that China and the United States, as important members of the global economic system, had a shared responsibility to safeguard the health, stability and development of the world economy.

Hu made the remarks during a meeting with visiting U.S. Treasury Secretary Henry M. Paulson in the Great Hall of the People.

Hu spoke positively of the recent growth of Sino-American economic and trade cooperation and bilateral relations, noting that the development of these ties served both nations' interests and promoted world peace and prosperity.

"China will join hands with the United States to boost exchanges and communication, expand strategic mutual trust and appropriately handle sensitive issues in an effort to step up bilateral constructive and cooperative relations", Hu told Paulson, according to a press release from the Foreign Ministry after the meeting.

All the noise about Tibet and now this: the US comes to China, begging bowl in hand, to ask for more loans. And the Dragon smiles and hisses and holds our Treasury guy's hand. And gives it a good, hard squeeze. There is talk, wild talk about none of the G7 leaders showing up for the Olympics. This is odd talk to indulge in when the G7 is begging China for help in the present banking collapse. All China has to do is say, 'Oops, we have to divert much of our money into our own backyard!' And that is that! Money doesn't flow back into US banking system accounts. So talk about Darfur or Tibet is tabled. Time to talk business.

Yuan in, dollar out at Cosco Corp

Singapore-listed shipyard Cosco Corp has begun quoting new sales contracts in Chinese yuan to reduce the impact of any further decline in the U.S. dollar, the company's president said Monday.

'We have already started quoting (new contracts) in Chinese renminbi,' Cosco President Ji Hai Sheng told Dow Jones Newswires. 'Some customers may accept it and some may not.'

Cosco now has contracts worth $6.5 billion denominated in U.S. dollars, but labour costs at its Chinese shipyards are paid in yuan. So far this year, the Chinese currency has gained 4.3% against the US dollar, reflecting an annualized rise of 17.4%.

Cosco is also trying to re-negotiate the terms of some past contracts to address the rise in the yuan as well as higher steel and labor prices.

'We are talking to our customers about it,' Ji said.

According to analysts, a 10% increase in steel prices will reduce Cosco's net profit by 4%. Steel, which is generally priced in U.S. dollars, accounts for 20% of input costs for shipbuilding. [01/04/08]

I hear some balls being squeezed with a very big vise. The US is discovering, like Britain before us, we can't pretend to be a world power if we hollow out our economy and destroy ourselves with overspending on military. Britain tried to fix this by demanding all other navies and armies be smaller than theirs. This flew over Germany and Japan like a Hindenburg blimp. Once one major Chinese entity refuses to use dollars as their base, all others will swiftly follow. And this was the Chinese plan. They are not doing this reluctantly, they wanted to do this but waited until it was most appropriate. After the Taiwanese voters chose to back pro-China candidates, China is now relaxed and ready to start shoving the US out of Asia. The US support of insurrectionists in China [the Dalai Lama has been petted by a series of CIA agents since the first day he came to India] is now motivating China to cut us out of Asia a tad faster. If Taiwan was moving away, they would play it quite differently.

A panic-stricken Federal Reserve

By Henry C K Liu

Because the Fed knows that primary dealers are holding $139.7 billion agency securities and $60.2 billion private label securities.

In The Wall Street Examiner, Lee Adler wrote in his article: Bandaid on a Ruptured Jugular:

"Why do prime dealers (PDs) borrow securities from the Fed? To sell them short. The PDs are heavily short Treasuries at all times. They are heavily long all other debt securities simultaneously. The level of securities lending in recent months is unprecedented in all of human history, by an order of magnitude of 10."

Primary dealers hold ONLY $140 billion in US Agency Securities. The Chinese hold what? Half a trillion dollars worth? Again: note where Paulson is: genuflecting before Hu. Bush will go to the Olympics and smile. As will all the European leaders. Also note the WSJ interview: Securities lending is UNPRECEDENTED. And of course, has shot through the roof. So many things are dropping like a rock while others are shooting up like crazy. This is bad. It is a classic sign of a system that is flying apart rapidly. The faster it spins, the worse it gets. We are not entering a happy happy land of stability and prosperity.

We are at sea in a hurricane and there was an earthquake so a tsunami is coming and a volcano blew up so the sky is totally black. Yes. Time to buy stocks! Gold is slowly crawling out of the recent major collapse due to the recognition, all is not well. Oil is over $100 a barrel. Reality still bites at the gas pump. And as I always say, when oil shoots up in cost, our economy collapses and we have inflation. And so it is right now. Many an economist has struggled to try to disprove this obvious fact. But they failed. And so long as high oil prices are here, all energy costs much more. They move up in tandem. And so purchasing power of all other things collapses as people and businesses struggle to pay. Gold isn't inflationary, it simply reflects inflation. If gold goes up, this doesn't force oil up. But oil forces gold up!

Liu:

Stealth nationalization of the financial sector

Adler quotes Steve Randy Waldman of Interfluidity (What Happens 28 Days later?): "Since the Fed cannot retire loans made via TAF and its repo program without adding to those 'elevated pressures', the loans should be considered an equity infusion, because they’ll be repaid at the convenience of the borrower rather than on a schedule agreed with the lender." What Waldman did not say was that the Fed had ventured into a broad nationalization of the prime dealers on Wall Street by being an equity investor.

Does the same argument apply to the new Term Securities Lending Facility (TSLF)? On the face of it, it's harder to view TSLF as an equity infusion, since the Fed is not handing out cash. But to firms holding illiquid securities that the Fed will accept as collateral, the program is equivalent to a not-so-efficient cash infusion, because the Treasuries the Fed lends are liquid and can be converted to cash easily in private markets, according to Waldman.

So, this new facility might well be a form of equity, if the Fed is willing to roll it over indefinitely and require payment only at the convenience of borrowers or when a normal market for them reappears. Waldman thinks what happens after 28 days is pretty clear. The swap will be rolled over and over and over until the mortgage-backed security market stabilizes. This could be a year from now, or perhaps 10. That may sound ridiculous but it is essentially what happened in Japan.

The loans by the Fed are ridiculous. With no repayment schedule, this means they are inflationary. And the greenbacks will do what they always do in wartime: lose value. So what does the Fed do? In the Civil War, the Treasury raised interest rates. But our modern Fed DROPS them! Talk about bizarre. And reckless. And stupid. But then, Bernanke is a genius who understands the Great Depression....HAHAHA. We were not at war back then. He should have studied the birth of the Greenback and the post-Civil War depression. 1873 is much more relevant.

IMF Cuts Global Forecast on Worst Crisis Since 1930s

The International Monetary Fund cut its forecast for global growth this year and said there's a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression.

The world economy will expand 3.7 percent in 2008, the slowest pace since 2002, according to a document obtained by Bloomberg News at a meeting of Southeast Asian deputy finance ministers and central bankers in Da Nang, Vietnam. In January the fund projected growth of 4.1 percent.

Isn't this funny? For years, the IMF hectored third world countries about overspending, importing more than exporting, government misspending on military or graft. And the USA sat there, doing all these things and worse. And unlike tiny countries, our messes will have huge global impacts. So the IMF ignored this, of course. They would lecture Russia and China but fall mute around the US. Now, the whole world is circling the toilet bowl thanks to the US and the IMF notes this but STILL won't hammer the US for being irresponsible and reckless!

World Bank: Rising prices more pressing problem for East Asia than financial turmoil

East Asian nations must act promptly to ease the burden of mounting food and fuel prices on the region's poor, the World Bank said Tuesday. Inflation poses a greater challenge to the region's economies than the current financial turmoil, it said.

In its half-yearly update on the region's outlook, the bank said growth in developing East Asian economies could slip by 1 to 2 percentage points this year to 8.5 percent as the U.S. credit crisis unfolds, damping demand for exports.

East Asia has to order the US to stop wasting oil and stop using food as biofuels. Then everything is fixed. I was at a Ford dealership today. Noted that the passenger cars get an amazing 12 mpg in the city and 20 mpg on the highway. Wow. This is worse than my diesel snow plow truck! That is one ton! I also saw no customers. Auto sales in the US are down 24%. More bad news that was ignored yesterday. So long as the G7 nations make global inflation, demanding all others sop it up or stop it is pure insanity. But then, the World Bank is as odious, evil and disgusting as the International Monetary Fund.

Iceland threatens direct markets intervention

celand is prepared to order direct intervention in the currency and stock markets in an attempt to punish international hedge funds that it claims are attacking its financial system.

Geir Haarde, the country's prime minister, said: "We would like to see these people off our backs and we are considering all the options available." Mr Haarde declined to be specific, saying "a bear trap needs to be a surprise".

Action was needed, he said, because the country's financial system and currency were being unfairly and perhaps illegally weakened by hedge funds "who just want to make a profit by hook or by crook".

Iceland overextended themselves. They drank in too much red ink. They discovered they were sheep led to the slaughter. Now, they want to retreat. But they are surrounded by pirates and three headed hell hounds out for blood and loot. The hedge funds are not profitable. They need money. No IMF or World Bank will stop them. They are protected by the US Treasury. Except in China, of course. So they roam the world, rending and tearing. I feel sorry for Iceland. But they also stuck themselves into this fix themselves. They got greedy and stupid.

Failure rate rockets for buy-out companies

The number of private equity-owned companies falling into receivership rose by almost half last year to 106, its highest level since the end of the last economic slowdown in 2003, according to research to be published on Wednesday.

More than a quarter of the 400 companies disposed of by private equity last year went into bankruptcy, according to the annual survey of buy-out exits by the Centre for Management Buy-out Research at Nottingham University Business School.

The trend is expected to accelerate as the credit squeeze combines with an expected economic slowdown to make life much tougher for companies bought using high levels of debt by private equity during the recent buy-out boom.

More bad news. Shows that I was right yesterday. The economic slowdown is slowing down the fun and games whereby the bankers and investors dumped tons of debt on top of all possible business arrangements. Now, they have to clean it all up. As each business loses money and shrinks in value and size, they are stuck with these nasty buy-out and buy-up debts that won't be repaid. So money continues to vanish even as the Fed and the G7 frantically create it.

Toshiba To Get Y1.4tln In Orders For U.S. Nuclear Plants

TOKYO (Nikkei)--Toshiba Corp. (6502) will construct four nuclear power plants in the U.S. through deals worth a combined 1.4 trillion yen, The Nikkei learned Wednesday.

Japan builds here, we don't build there. This, in a nutshell, is why the world economic system is collapsing. But the US and Japan will continue this. I am betting the super-low Japanese loans are partially behind this deal.

Here is Eliot Spitzer's last interview which he gave the same day he decided to decapitate his career in the Mayflower Hotel:

Predatory Lenders' Partner in Crime

How the Bush Administration Stopped the States From Stepping In to Help Consumers

Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

The US government under the Republicans went hog wild with the idea of 'Buyer Beware.' They didn't want any restrictions, controls or barriers. So we got flooded with poisonous imports. We got flooded with cheesy mortgage schemes. We got flooded with funny money from overseas. And now we are collapsing. Alas, the lessons are not being learned! People don't want more rules, they want more funny money! They want the merry-go-round to wheeze back into action.

India sends warning to Dalai Lama

India's Foreign Minister Pranab Mukherjee has warned the Dalai Lama against any political activity damaging to India's relationship with China.

Mr Mukherjee also stressed that the exiled spiritual leader would continue to be welcome in India.

This is foolish. We have to face reality. Note how Paulson is going to China to beg. China is NOT going to the US to beg. And India today ordered the Dalai Lama to shut up and stop inciting riots. And the priests and nuns have to cool it, too. India made it very clear, they will be expelled if they cause disruptions in trade and commerce with China. India wants China as a friend, not hostile.

Email this post

Culture of Life News Main Page

Comments

[Dutch]

Elaine, explain to me how raising interest rates will help the economy?

[Dutch]

And as far as "sub-prime" mortgages go, isnt some of this(or most)laundered drug money? Like the telecom bubble?

[Dutch]

http://www.irs.gov/compliance/enforcement/article/0,,id=162992,00.html

[Dutch]

162992,00.html

[OC]

I think there was a recent article whereby the Humvee was pitted against Ford T in climbing up a hill to prove 4WD performance.

Ford T beat the Humvee by more than a minute climbing up the hill.

So much for all that money invested to get 'better' performance.

[Anthony]

Budget deficit widens to record $175.6 billion

For the entire year, the White House expects a budget deficit of $410 billion. The CBO expects a deficit of $396 billion.

http://www.marketwatch.com/news/story/economic-report-budget-deficit-widens/story.aspx?guid=%7BB89B022F-9B83-4978-804C-3C4983D1C12F%7D&dist=hplatest

ok so suppose inflation gets out of control.
It hurts small business, raises unemployments, thus increasing gov. non discretionary spending while reducing tax income.

so they need to print even more treasury bills. This while the big banks need to digest 'sub-prime lost'

On top of that due to inflation, energy and commodity price will go up also.

...so everything will spiral out of control.

My question: when will asian and Middle east central banks abandon dollar? sooner or later the entire system can't hold it anymore, even for them right? They have to absorb ever increasing liquidity while dubya is busy bailing out his buddy.

Anybody knows about that asian bellagio group? Are they doing anything?

[calvino]

High interest rates.

1)induce savings and capital investment

2)reduce consumer consumption and imports

3)appreciate the currency

The Antipodes have set high interest rates. However they are being thwarted daily by the convertibility of their currency into the American dollar. If Iceland eliminates the convertibility of the dollar, the hedge fund depredations cease. This may not be as remote as you imagine. Alternatively, resource nationalization can be imposed to thwart the convertibility of Ben and Al's monopoly paper. The rest of the world is not as eager to sell off their resources on the cheap, simply because the Fed knows how to print. Loonie Harper of the North may be the exception, actually giving away Prime West for Helicopter IOU's last year. What an ultramaroon. Not so sure we should seek union with the pink shirted MBA cowboy, Elaine. We already have one of those ourselves.

[Daliwood]

OC, speaking of Ford, did you see that they sold Land Rover and Jag to an Indian company, losing billions in the process?

[Rosco]

Warren Buffett has been the real 'straight talker' on all things derivative and sub-prime.

Alan Greenspan has been the 'Judas Goat"

Wiki: A Judas goat is a trained goat used at a slaughterhouse and in general animal herding. The Judas goat is trained to associate with sheep or cattle, leading them to a specific destination. In stockyards, a Judas goat will lead sheep to slaughter, while its own life is spared.

[Elaine Meinel Supkis]

Alas, most medicines for diseases make you temporarily sicker. For example, cancer treatments are terrible to undergo. Very painful.

Yet they work! So it is with the economy: the fixed don't make one richer instantly. Indeed, this is why fixes are ignored until it is totally out of control and the cancer has eaten away huge hunks of the economy.

But it is the only path out! That, or WAR. But if a war is causing the crash, then ending the war, accepting defeat, is the cure. The refusal to accept the pain of defeat is a problem. This psychological inability to accept reality is a very serious problem.

I lived through and then prospered thanks to Volker's higher interest rates, by the way. This is why I know we can accept the pain SO LONG AS THERE IS A SOCIAL SAFETY NET!!!

[Paul S]

I believe the underlying objective now is the same as it was during the S&L scandal: keep as much 'mud' off the Presidents hands as possible. The Bushies priority #1 is to keep the problem under wraps UNTIL 'Dubaya' is out of office. (What happens after that? Who gives a rats A! That's our dedicated public servants for you.) You see, deep down inside, the Bushies know how bad the mess is. And one more thing, almost as important as the first: THIS IS AN ELECTION YEAR PEOPLE! Do NOT expect any bad news or numbers about how much this scandal will cost the taxpayer. Wait until--like with the S&L scandal--off election years. Mark my words, this is the tactic our wonderful public servants will use. Question of the day. Who in your opinion was/is a worse Treasury Secretary, James Baker III or the current Treasury Secretary, Henry Paulson? If you could,please rate them in two categories: incompetence and corruption.

[Elaine Meinel Supkis]

I hate Baker. Personal reasons the Bushes know perfectly well.

He has LOTS of blood on his hands including everyone who died on 9/11.

[Teddy]

Elaine, a few weeks back, we gave Airbus the huge contract for the refueling planes for our Air Force instead of Boeing and money flows in from Europe with the dollar stabilizing against the Euro. Now we give Toshiba a huge contract to build 4 nuclear plants here and Japanese money flows into the US with the yen going down around 3% pre-announcement against the dollar. Any coincidence? Jobs for money? I guess our leaders prefer lower interest rates and higher stock and bond prices instead of jobs for our people. Do you think that the elites will ultimately peel away the US military industrial complex for their own purposes in the New World Order?

[Dutch]

I lived through and then prospered thanks to Volker's higher interest rates, by the way. This is why I know we can accept the pain SO LONG AS THERE IS A SOCIAL SAFETY NET!!!

But we didnt have the global economy then as opposed to now. Dont get me wrong, I agree with you. But lots of money seems to help the developing nations vis a vie free trade. Run by a monopoly.

[Ed-M]

Teddy: "Do you think that the elites will ultimately peel away the US military industrial complex for their own purposes in the New World Order?"

I want to follow that with another question, Elaine. Will they do it for themselves or as agents for the Arabs, the Russkies and the Chinese? (I think as agents, for IMO they'll be ruined like everyone else!)

[Elaine Supkis]

Yes, the contracts to Europe and Japan are payments to keep them aboard. So the red ink will flow even faster. I will be writing about all this. Called 'The Big, Old Stump In The Road.'