Euromoney, Myomoney, We Have No Money

From the Eurozone, which they may start calling "The Twilight Zone," Hamish McRae from The Independent in London, writes:

There will be sovereign defaults in the eurozone, with a default by Greece now inevitable. Ultimately the thing that underpins any country's debts is its ability to raise enough tax to service and eventually repay them. Greece cannot hope to do that. Ireland will be pushed to do so but probably can. I would, however, worry about the long-term credit-worthiness of Portugal, Spain and Italy.

Hamish McRae is the principal economic commentator for The Independent newspaper, but he is also a visiting professor at Lancaster University and a council member of the Royal Economic Society (notice how there's no relation to Harvard University or Goldman Sachs).

McRae has been a financial and business editor for major national newspapers, and has won several awards for his journalistic work. His most recent award was Business and Finance Journalist of the Year in the 2006 British Press Awards.

I just mentioned McRae's biography to let you know this is a very credible source who just said that GREECE WILL GO INTO DEFAULT. That's not in question. Ireland will likely need to take a bailout and, if they do not, will have a problem increasing corporate taxes meaning multi-national corporations will exit and destroy their economy anyway. Portugal, Spain and Italy are all in trouble.

Some analysts say this is nothing new, but that's only because European financial ministers and U.S. leaders realize that everyone is more interested in Bristol Palin going to the finals in "Dancing with the Stars" than anything that has to do with a global economic crisis. For starters, they can understand a person who can't dance can go to the finals, whereas they can't understand that there are other countries in this world other than the U.S.

However, in today's global economy, we are all tied to together and a default in Greece for the U.S. may be analogous to a hangover the next morning. Some brain cells are dead, but we can still function. Only, a European contagion, which is likely to happen if one country goes into default and other PIIGS follow, becomes like a minor stroke. Even though part of the brain no longer functions because of all the dead brain cells, we can still go about our everyday lives with some medication.

The next and final step in a European contagion--London, France, Germany--once those countries have no backstop other than the United States, it's a major stroke and the U.S. cannot function. Finally, with all the Quantitative Easing and spending, we find no money left in our pockets to bail out the Eurozone. The U.S. either goes into default or raises yield on bonds to pay back creditors. Either scenario is bad--like a coma after a major stroke is bad. Like turning off the machines because the patient will have no brain function is bad. At best, interest rates go sky high, few people decide to buy homes, everybody saves money and we move into a recession at least as bad as this one if not worse.

That's how important the Eurozone is to the global financial equation. Let's get something straight--the Fed prints money by purchasing bonds and mortgages, not from the Treasury department but from Goldman Sachs. That money makes Goldman Sachs a profit because they and other banks can purchase mortgages and a lower price and sell them to the Fed at a higher price because THE FED IS BAILING OUT THE BANKS. It's not just TARP. If I could have a penny for every time I've heard "the banks paid back their TARP money," I'd be Goldman Sachs. No, not every bank has paid back TARP but, yes, most have.

Have banks paid back the Temporary Guarantee Liquidity Program that gives them free money? Will the Fed/U.S. ever have those mortgages they bought worth the same amount they paid for them. Probably not unless foreclosed assets can be worth the ridiculously overpriced amount they were worth from 2005 to 2007. Nevertheless, the Fed prints $600 billion after $1.25 trillion to help generate employment; low interest rates to spur the housing market; credit for creditworthy individuals to spend money and other economic events that are not happening.

My guess is that Quantitative Easing II developed when the Fed realized they would need about $600 billion channeled to Goldman Sachs to give to the IMF to bail out Ireland and the rest of the European countries that need bailing. It's in this manner that the Fed channels money to Goldman Sachs and other investment banks to push up stock prices; propel securities markets like the Commercial Mortgage-Backed Securities market and continue to help large banks hold enough capital reserves for all the crappy loans they have.

But, how long can one throw money at a problem and expect it to go away? And, how long can we live in a nation of "Haves" and "Have-Nots" before we funnel the money to create an equitable society based on a normally functioning economic process--not one based on financial engineering from the many graduates of Harvard Business School.

How long will the people of the world be able to cope with a system that calls for long-term unemployment and sluggish economic growth before the next panic sends the stock market plunging towards a proper price/earnings ratio.

The excuse for Ireland to take the bailout was that they may do it to curb panic in the market. Really? You're that confident in the fiscal soundness of your country, but you'll take the bailout just so the markets don't panic. Believe me. They have a reason to panic, and that excuse for taking a bailout is one of the main reasons for their panic.

It's time to come clean. It's not just about insolvency of U.S. banks or Irish banks or state governments or some European countries. This is global insolvency and the more money printed, the less valuable it becomes for all of us.
Only

Throw Money from the (Gravy) Train: An 11-Year History of the Washington Redskins

So, here I am watching Bloomberg Television today and they're talking about how the Washington Redskins were destroyed by the Philadelphia Eagles 59-21 at home on Monday Night Football after Donovan McNabb signed a $78 million, $40 million guaranteed. That makes it a business story and earns its way onto FIN TRUTH.

What I did not find out until later, from Lindsay Czarniak of local news WRC-TV4, is that the Redskins can release McNabb at the end of the season at a cost of $3.75 million. Brandon Lloyd, who did nothing for the Redskins but catch 8 passes in 2 years for $8 million and maybe one touchdown....earned $4 million a year for 4 catches (on average). So, signing McNabb to $3.75 million, a contract already on the table, and "putting to bed" the controversial benching in Detroit, was another great way of throwing money at a problem. Right? Wrong.

As usual, Snyder's idea was the typical businessman solution. Only, football is a game and throwing money at a problem will not solve the actual problem, which is that the Redskins no longer want Donovan McNabb and McNabb probably doesn't want to play for the Redskins after this season. This leaves the Redskins with no decent quarterback prospects for next season. They are basically in the dark on the quarterback position...except for this year. It's definitely Donovan this year.

So, what happened? Well, some coach--Kyle or Mike Shanahan, or both--decided to bench TEAM LEADER and a very good two-minute drill quarterback with 2 minutes left in Detroit and the Redskins down by 6 points. Everybody thinks it's stupid and those who are not sure realize it is when backup Rex Grossman fumbles the ball and it's returned by the Detroit Lions for a touchdown to lose the game. The Redskins might have lost anyway, but it would not have been because of a stupid, emotional decision.

Before, the locker room was not divided at all. Now it's clear the coaching staff was arrogant and/or egotistical in taking out McNabb and humiliating him--the TEAM LEADER. So, it's still not really divided. Right? Wrong.

Bring in Albert Haynesworth, the antagonist who is not a leader but a troublemaker. Sure, everyone was behind Donovan but, now that the coaches acted like the jerks Haynesworth accused them of being, Haynesworth might have some players wondering...players like DeAngelo Hall for starters. "Hey, maybe Albert's right...maybe these guys are just jerks. Look how they treated Donovan." So, during the Bye week, players start wondering if the coaches can be trusted--Is Donovan going to stay with the Redskins beyond this year? If not, what does that mean about next year? Do I have to play for this coach next year? Who will be the quarterback? Some players may stick with the coaches...like Chris Cooley. Others might be in the Haynesworth camp. Then, there's the Donovan camp--he's still the team leader, right?

The point is, there's a game coming up against the Philadelphia Eagles. They just beat the Indianapolis Colts in an authoritative fashion. This is a division game and the Eagles are playing for first place. The Redskins, however, are playing for a second place tie, one game behind first place, a 3-0 division record and a huge step toward a playoff birth--at home on Monday Night Football. They're all competitors; they know what's at stake.

Enter Redskins owner Daniel Snyder, marketing "guru" who has never played a down of real football in his life but whose philosophy, again, is to throw money at a problem to fix it. What Snyder doesn't really understand, because he's a sports fan and not a wise man, is that Winning the Game cures the problem.

If Snyder wants to throw money at Donovan McNabb, take him and his wife out to an elaborate dinner and some ridiculously overpriced steak house; talk about what's going on one-on-one; and, if Donovan wants to leave at the end of the year, that's okay, too. Just let him know he's appreciated and respected as a player and a person.

But, that's not the way Snyder does it. For the past 11 years, Daniel Snyder has thrown money at a problem, just certain he knows the answer. As Michael Wilbon wrote Tuesday in the Washington Post, names like Deion Sanders, Adam Archuleta, Dana Stubblefield (actuall, I think he was before Snyder's time), Bruce Smith (who could barely make a sack before he earned the overall sack record), Brandon Lloyd (now the top NFL receiver with Denver), Antwaan Randle-El, Albert "malcontent" Haynesworth, Jeff George (who pissed off future Super Bowl quarterback Brad Johnson) and the list goes on with Mark Brunell, etc., etc.

Will guys like Snyder ever learn that these athletes who are worth their weight don't care about money--they care about championships. They have plenty of money. Those who don't care about championships but care about money come to the Redskins.

Take, for example, LeBron James. Cleveland Cavaliers owner Daniel Gilbert, who made a fortune with Quicken Loans, wanted to become an NBA owner and bring the Cleveland Cavaliers to a championship. He got LeBron James and, in the NBA, that can just about do it. Only, even LeBron still needed one or two players more to complete the goal. So, when his contract was up and Gilbert threw all the money in the world at LeBron, he chose the Miami Heat. Why? Because he knew he could win a championship with the Miami Heat. Why do you think everyone wants to play for Phil Jackson, Kobe Bryant and the Los Angeles Lakers? Then, the question is: Is this player good enough to play for us? Not, how much can we give this guy to play for us.

LeBron James chose a potential NBA Championship ring over money, and that's the right choice. That's the noble choice. It showed character. What does Gilbert do? He tries to disgrace James by saying James turned against the city of Cleveland. Gilbert, of course, was acting like a spoiled loser, showed no character at all and just could not understand that throwing money at LeBron could not actually keep him in Cleveland.

Gilbert and Snyder are cut from the same cloth. Money will get them anything they want...until it doesn't. And, how do they react?

Well, back to the McNabb soap opera. After two weeks of waiting to see how Donovan and the Washington Redskins respond following the McNabb benching, the Redskins announce--unexpectedly--that Donovan McNabb has extended his contract for 5 years, $78 million, really $40 million, blah, blah, blah...and we walk into the stadium under the assumption that this contract means he's our quarterback ("we" meaning the fans).

Only, the team shows up as if they just don't want to be there. The first quarter, this fired up Philadelphia team walks onto the field and pounds another team that gave almost no effort, no fight, no physical football that we saw in first eight games. This was a team that did not feel like playing on Monday Night Football against a division opponent. Would they have been ready to play without this huge contract announcement? Perhaps.

But one thing we must now assume is that the players knew the entire contract announcement was all bullshit. They mush have known that all this means is that McNabb will play in Washington for at least the remainder of this season. That's it. For all we know, Snyder and McNabb agreed to this in an effort to put everything behind them. So now, the team must wonder--Is this the last season here for Donovan? Is Albert right about this organization? Is this the same old crap we've seen here for 11 years? Am I just playing for lousy organization with a horrible owner who tries to buy players and market it for his own "sport" rather than focusing solely on winning championships? And, all this time, a game is about to start against an extremely talented and physical division opponent.

The Redskins were not ready. The team gave a lackluster effort. The season looks over.

And, all this, because Snyder just can't help but interfere in the only way he knows how to interfere--money and marketing. Only, the fans want a championship; the players want a championship--except for Haynesworth who wants off of this team and the same is probably true of TEAM LEADER Donovan McNabb.

So, the season is probably over. As I said before, WINNING is what cures team chemistry problems in the NFL and not money. In fact, money causes team chemistry problems if it does anything at all. Ever see New England overpay players based on getting benched or in the hopes they will perform.

If the Redskins beat Tennessee this weekend, then perhaps all is not lost for the season. If they lose a close one, at least they have a shot. However, another blowout loss and this team has stopped playing for Mike Shanahan and, as usual, for marketing "guru" Dan Snyder.

Tight Credit Blocks Holiday Season Kick Off

Yesterday’s unemployment figures reflect today’s consumer sentiment and tomorrow's announcement will not likely help matters.

The monthly RBC Consumer Outlook Index showed 46 percent of Americans plan to spend less this year than last year on holiday shopping, while 8 percent plan to spend nothing at all. What does this mean for retailers and retail property?

Half of families with children at home plan to spend less, with an additional 6 percent of these families planning to spend nothing at all, RBC reported. Meanwhile, 7 percent of Americans and 9 percent of families with children expect to spend more this holiday season.

Before this week’s midterm elections, consumers who believe the country is headed in the right direction slipped to 35 percent, down from 37 percent in October, and the number who believe the country is on the wrong track edged up two points, to 65 percent.

Nearly 70 percent of Americans think the U.S. economy and their own financial situation will stay the same or worsen over the coming year, RBC reported

"Even in the face of soft consumer confidence, spending accelerated in the third quarter. This disconnect will have to be resolved, and the first real test is upon us with the beginning of the holiday shopping season," said Marc Harris, co-head of global research at RBC Capital Markets. "If it turns out that the spending last quarter was simply the result of pent-up demand and consumers are returning to frugality just in time for the holidays, this will not come as good news for retailers."

Let’s face it, millions of Americans don’t have a job and millions more only have part-time work. There were not many raises or bonuses this year except on Wall Street (see the 7 percent/9 percent of consumers who plan to spend more).

The holiday season, primarily Christmas and Hanukkah, reflects the most important time of year for retailers. It represents nearly 75 percent of all revenue during the year. Without that revenue—and unemployment stagnant for the next 18 to 36 months—retailers will have greater difficulty holding up from 2011 to 2014, much less have any hopes of paying their leases.

The good news, if you want to call it that, is that Fed “fun” money can cycle through the stock market, boost values and make it look like these companies are actually worth something. A higher stock for Radio Shack means it might be able to cash some money out and pay the rent for another year.

Now, just imagine you’re the Fed buying $600 billion in bonds, you spend $1.25 trillion to purchase Fannie/Freddie mortgage-backed securities and overall debt is in the double-digit trillions of dollars. That’s like someone who earns $50,000 a year in debt for $1 million. And, don't forget the ongoing Temporary Guarantee Liquidity Program.

How, exactly, do you pay that back in your lifetime without going bankrupt—or at least in default? And, what happens to the creditors that lent the money and get nothing in return? This is the future we face as a globally connected financial system.

But this is only one part—consumer spending in the United States and its impact on retail. Let’s not forget consumer spending and how it affects industrial properties, warehouses, shipments and storage. What happens to UPS, Fedex and the postal system?

Meanwhile, consumers spend on the necessities—food, shelter (mortgage or rent) and clothing. For that reason, Walmart, Target and Kohl’s remain best bets for retail. Also, since nobody can live without a cell phone in this world or a television for that matter, the Best Buy will always survive at a certain level. I would also give Macy’s a pass.

But, say goodbye to specialty retailers in any city other than Washington, D.C.; New York City and, perhaps, Chicago, Los Angeles and Dallas.

Gateway cities survive, but insolvency continues to spread throughout regions of the country where consumers plan to rein in spending.

Robert Michaels

Legacy Pursuits

In his first stint as the Washington Redskins head coach, Joe Gibbs never settled for anything less than excellence--or, in other words, a Super Bowl title. Anything less, was unsatisfactory.

The goal of winning a Super Bowl is a noble one--for a city, for its people and for a future Hall of Fame coach. Hence, a legacy for a Hall of Fame head football coach.

His next goal was to form a championship NASCAR racing team and, again, he succeeded. Again, a legacy in the racing world.

When Gibbs returned to the Washington Redskins as a Hall of Fame coach, however, his goal was to help his son become an NFL coach and to improve the Washington Redskins and bring them back to the glory years. Meanwhile, he was earning $5 million per year above his NASCAR royalties.

Actually, I'm not exactly sure why Joe Gibbs returned to the NFL but, after hiring Al Saunders as offensive coordinator in 2006, I'm not sure his goal was about winning a Super Bowl anymore.

That said, Washington Redskins fans will always remember the great Super Bowl teams during the first Gibbs era--his true legacy to Washington, D.C. and its fanbase.

These types of individuals, men and women who cannot be satisfied with themselves unless they achieve their ultimate goal to better others as well as themselves--to me--are a dying breed. Unless, of course, the goal is simply money, power and fame.

Take, for example, Angelo Mozilo, former CEO of Countrywide. This man is the "poster child" for a subprime crisis that sent the United States spiraling into another Great Depression (yes, I said Great Depression) and cost millions of people their jobs. Countrywide's origination practices were far from ethical and, we are learning each day about securitzation practices that also involved the investment banking side of the business.

Mozilo, just recently, settled with the Securities and Exchange Commission for $67.5 million. That's million, not billion--as in $800 billion in TARP. And, it's not trillion either. As in, this country is $3 trillion in debt for the past two years.

For Mozilo, who took a small mortgage company and built it into an empire, $67.5 million is equivalent to you and me buying a computer...maybe a nice MAC computer. Sure, it makes a dent but it's not like we're going bankrupt over it. But, this man should be going to jail--or at least to trial--and he is simply going to pay a fine.

Mozilo's very large company is allowed to destroy economic prosperity in this country and he pays out a very small ratio of money compared to the billions of dollars he has in the bank. Meanwhile, if a "middle-class" individual passes a school bus while rushing to work--and it just stopped and started blinking its lights--and a policeman believes the car passed it while the lights were on, it would cost that driver more than $500. For Mozilo, $500 is nothing but for a person of modest wealth, it could be everything.

Of course, Mozilo wouldn't even be driving a car. It would be his limousine driver passing the bus on Mozilo's orders to do so. And, would a policeman risk his or her job to stop Angelo Mozilo's car? Mozilo, who knows Congressmen and lobbyists and high-ranking officials at the SEC. This is a very important man and one might lose his or her job for giving this man a simple traffic ticket.

Now, I've spoken with Mozilo in the past and, to his defense, he has given quite a bit of money to charities--which we can all write off on our taxes--and sat on the board for a number of non-profit foundations. He comes from an immigrant family that pulled itself up from the bootstraps and with a "fire in his belly," he created a small company into a conglomerate. Some would call that the "American Dream." Some would call buying a house an "American Dream."

At one point, before the subprime crisis, Mozilo wanted to retire and, in hindsight, probably should have. But, he stayed on as Countrywide's CEO. The company peaked and then plummeted to an eventual acquisition by Bank of America. Those undervalued assets continue to sit on Bank of America's balance sheet--just one of the reasons that the bank is insolvent.

Had Mozilo retired, his legacy might have been clean. With this $67.5 million settlement, his name will simply ride off into the sunset, along with his billions of dollars, and only history will be able to determine his legacy--just as history will determine Bernie Madoff's legacy.

But at least he reached his goals. At least, he made the money and had the power he always wanted to achieve. At least those charities will now have more money to help others--and that's a good thing.

But, at what cost?

Are money and power noble goals? Should they give us that unsatisfactory feeling Coach Joe Gibbs had in the 1980s and early 1990s if he didn't win a Super Bowl? Should they give us a "fire in the belly" to go out and achieve? There is a cost for those goals and, if we cannot morally and ethically administer that cost as a society, then are they really noble goals?

I once asked Angelo Mozilo about financial literacy being taught in the high schools rather than in colleges, as he once suggested. His answer to me was that "they would all probably skip the classes." He said it jokingly and yet, he wasn't joking. His power and money made the case.

Similarly, I asked Franklin Raines, then CEO of Fannie Mae, the same question nearly 10 years ago. He replied, "We're working on it." Yes, that and his huge bonuses and helping to cause another economic collapse.

Mozilo, with the SEC, made his case with power and money. He paid a price for his crime--$67.5 million--and we all now must sit back and watch as only history will create his legacy. And what of Frank Raines' legacy, for that matter? Have we heard much from him lately? Does he currently have a six or seven-figure job lobbying on Capitol Hill?

Which brings me to my next question: What will America's legacy be for our justice system? That we can buy and sell justice? That it is not blind justice but greedy justice? And, if that's the case, where's the justice for the men and women without money? What will their legacy be?

What will America's legacy be?

The financial truth in this society today--high unemployment, higher savings rates, higher prices on food and energy--is that goals cannot be about money and power because we have seen the ultimate results of those goals. We've seen these goals perverted in the 20th and 21st century into economic collapses; wars and genocides.

We have also seen noble goals turn into positive truths, like a team perfecting an individual craft to better itself and the people who cheer for it (just think of how it helped the city of New Orleans in February); like building and manufacturing to create more jobs and enhance a culture; and like education to exchange ideas so that people can live in a society conducive to the common good.

What will your legacy be? What are your goals? Are they to earn more money, more power? Are they to achieve fame for fame itself? Most important, are these goals to better yourself and others. Because, if only for yourself, your goals need not factor into America's legacy.

Robert Michaels

Fed, Wall Street Spinning Wheels

Before we begin this weekend and step aside from overinflated markets and weak economic reports, let's all feel the momentum of a stagnant economy.

By now, we have 16.7 percent of the people who cannot find full-time work and companies with more than enough cash to hire them. But, they don't because they look at their balance sheets and say, "I can't hire anyone right now." But why?

Because companies don't have enough income coming in and they don't know when or how demand will improve. In other words, who is really spending money on any luxury items?

As unemployed workers fall off the extended benefit rolls, they have little money to spend at all; people on unemployment can only afford the necessities--clothes, food (mostly from Walmart or Target) and shelter (in the form of a high mortgage payment or an increasing rent payment).

Now, we get to the full-time employed people whose wages remain relatively stagnant to commodity prices--and that's a conservative estimate. With families, these people are trying to pay down debt. Without families, they are likely saving money with hopes of retiring someday.

These are the basic middle-class people whose spending behavior is unlikely to prop up any economy much less provide 70 percent of gross domestic product.

Then, there's the 1 percent to 2 percent of the population that is not only employed but has disposable income, no debt, a paid-off mortgage, plenty of income and the ability to buy high-priced items whenever they want to do it. They can spend all they want and contribute massive amounts of money to the economy.

The only problem is: they represent 1 percent to 2 percent of the entire U.S. population. That makes them unlikely to also represent 70 percent of GDP.

So, that's why employers have plenty of cash and are not hiring anyone. They still have productivity and less people. There's one other thing...

As for that measure of wealth we call a stock market, the Federal Reserve is printing money, giving it to "primary dealers"--a.ka. Goldman Sachs, Deutsche Bank, Morgan Stanley, JP Morgan Chase, etc. to throw into the New York Stock Market Exchange so that companies can cash-out stock and have more money. So, why hire when there is no demand and plenty of money?

This is another reason companies are sitting on plenty of cash and that 1 percent to 2 percent remain the wealthiest people in the U.S. They're also the ones who pay our Federal Government to make important decisions--like laws that we live by.

And, it's not just the U.S. All these countries are floating out funds, taking on debt, as they cross their fingers in hopes that the so-called consumer will spend whatever they have left without any thought toward future savings or paying down debt.

Meanwhile, that 10,800+ number looks awfully good for our future--until it drops. As they say, what goes up, must go down. It's gravity. It's science.

So, while you're enjoying the weekend, drinking a beer, watching football or just taking a stroll on a Sunday afternoon, try not to be discouraged by the fact that we have absolutely no control over how the Federal Government and lawmakers spend our tax dollars--Republicans and Democrats are in on the game, of course--and how Wall Street spins its wheel of fortune using our future savings rather than showing us gradual gains from solid fundamentals.

What goes up will come down and go back up again...As Blood, Sweat and Tears once sang, "Spinning wheels--got to go round."

But we don't have to like it.

In Truth, There is No Beauty

A couple of blog posts--today in Zero Hedge and Saturday's Automatic Earth--help to confirm some truths that otherwise might be called "conspiracy theories" or "doom-and-gloom" thought.

In Zero Hedge, Cazenove Strategist Discusses PPT And POMO Interventions To Keep Markets Ramping Higher, the credible technical strategist Robin Griffiths from the credible firm, Cazenove Capital Management in the United Kingdom, on credible CNBC, European edition, explains Permanent Open Market Operations and the Plunge Protection Team, both entities that provide money to banks to pump up the stock market via the Fed.

Fact is, the market is heading to a ridiculous and artificial 11,000 number, which it cannot sustain. Griffiths believes it will not get up to its April high, but it is sure to come down.

Automatic Earth furthers the charade when it considers company profits jacked up by "fuzzy accounting" practices in What You Know for Sure That Just Ain't So. The blog post delves into housing and unemployment and how statisical methodologies cover the numbers for politicians seeking reelection.

Understandably, every office wants statistics to look good for them, so the system never changes. Interestingly enough, voters don't want to hear the bad news either, according to the post. It's excellent reading, which supports the previous FIN TRUTH post that refers to a Stock Market Scam and a country that still suffers from a recession despite NBER's proclamation that it ended June 2009. If that's the case, get ready for the double dip.

Just remember how the U.S. government "fixed" our problems in October 1998. As the stock market continued falling, they announced the Troubled Asset Relief Program, TARP, to provide $800 billion to banks. After Congress voted against it, the market tanked. Enough special interests convinced a few extra members of Congress to vote for it.

The market held steady after falling about 7,000 or more points from its peak. Then, instead of falling off a cliff, the country slid off one with millions of lost jobs. Companies reorganized their balance sheets, keeping productivity high with fewer people.

Also, when it appeared banks were on the verge of collapse in the Spring of 2009, after the stock market hit a new low in March, banks did not have to count 100 percent of their loans as losses...even though residential and commercial real estate loans were all underwater. That would have caused the stock market to fall again, but the Federal Government manipulated the rules by pressuring the Financial Accounting Standards Board to change the accounting rules when it came to mark-to-market accounting.

It became mark-to-model accounting and then all bets were off. The market came back, investments improved and, therefore, balance sheets for many companies that invest improved as well.

Also, 401K plans improved for people holding stocks and bonds. The bond market yields have dropped to ridiculously low levels. More important for politicians, the people holding retirement funds based on the stock market are happy--for now.

But banks still cannot lend. They are holding undervalued real estate loans on their books because they are "extending" them for the borrowers and "pretending" the value will return on those residential and commercial properties. Based on today's values, these banks are insolvent.

Because of these undervalued loans, banks are holding more money in capital reserves. They are not lending it out. The companies who need the money cannot get it and the ones who don't need and can get money don't want it. See Community Banker Chimes In Regarding Small Business Lending from Mish's Global Trends Analysis for more about that.

So, we remain a stagnant economy with high unemployment--16.7 percent based on total unemployed--plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force. The number announced is 9.6 percent. Also, don't forget that many people have left the labor force, meaning that number gets higher when they return. During the Great Depression, unemployment was 25 percent of the American public and the stock market did improve based on optimism.

Now, we have false optimism because trillions of dollars mask insolvent banks, corporations that can only make a profit with skeleton crews, consumer spending declines and a society turning into the haves who can manipulate the system to work less, the haves who work more and the have-nots without jobs and few if any prospects. It is a bifurcated society that widens each day.

And, don't forget that since unemployment soared in 2008-2009, we have had two years of high school and college graduates that came out into the "real world"--many with debt from student loans--to a country in recession with few companies willing to hire inexperienced workers.

With unemployment likely to remain high for several years, and people with jobs likely to save money as they watch "extend and pretend" push economic uncertainty further into the decade (think Japan's lost decade), consumer spending will likely not account for 70 percent of gross domestic product. That means more product, less manufacturing and all those numbers that technically determine a recession, will determine it once again.

The question, again, is how long the inevitable truth takes to reveal itself--one year, five years, ten years or longer? It will depend on how long European countries can pretend that they have money without falling more in debt; it will depend on how long the U.S. can pretend residential and commercial real estate values will return to levels once held from 2005 to 2007--30 percent to 40 percent higher than current values--without falling any more in value; and it will depend on how long the U.S. can pretend that unemployment levels will lower to anywhere near record levels of 4.8 percent back in February 2008 without unemployment, in fact, rising anymore.

And, when we cannot pretend any longer, then the truth will rear its ugly head and we confront unemployment and the economy in a realistic manner.

Robert Michaels

Summers' Last Hurrah Before the Fall

"You know Harvard makes mistakes, too. Kissinger taught there."
--Woody Allen as Alvy Singer in Annie Hall.

Larry Summers is gone--back to Harvard University and/or Wall Street where he belongs. Good riddance. One more to go, but Treasury Secretary Timothy Geithner won't be gone until the whole thing has just about collapsed. Then we get rid of the Wall Street goons in favor of Elizabeth Warren, Paul Volcker and all the other economic politicos who favor middle-class America--if it survives.

However, it all may too little too late for a stock market that is just itching to crash.

Kenneth Denninger from The Market Ticker sums it up best in Anatomy of a Fed-Induced Bubble (Micro/Macro Level, NFLX).

As I write this entry, the Dow Jones is at a whopping 10,843 at 2:20 p.m. I'm not a stockbroker, or even close. I do know that housing market activity looks like a snail in reverse as people wait for an inevitable decline in home prices in most United States markets. Even though interest rates are at their lowest EVER, home sales declined during the summers, purchase applications recently fell and now we enter the slow time in the market.

Meanwhile, foreclosures will start to increase (after Ally Bank/GMAC--and others--rid themselves of illicit affidavits to foreclose on properties). Banks will eventually need to foreclose on squatters (people living in their homes without making a payment) and try to help those unemployed millions keep their homes as well, which they never will if the banks want their mortgages paid.

If the mortgages are not paid, then banks holding them in portfolio lose that money. If the loans are securitized, then bondholders lose their money. Either way, if there is no "extend and pretend" on these loans, somebody loses money.

Then, there's consumer spending. Here's another post from Denninger, Even A Blind Squirrel Finds A Nut (Reich), from The Market Ticker on consumer spending--or the unlikelihood it's going to get anywhere near 70 percent of Gross Domestic Product.

Now, this is all under the assumption that a European contagion doesn't take place and interest rates don't rise and a bond bubble doesn't pop in the process.

So, enjoy the market as we shoot for 11,000--just like the halcyon days of the Internet bubble. Maybe we'll get to 14,000 like the euphoric days of the housing bubble when everyone was "wealthy." Wouldn't that be great??

Yes, this is the last hurrah. As Lou Mannheim, Hal Holbrook's character in the 1987 film Wall Street said, "Enjoy it while it lasts, because it never does."

European Contagion, Consumer Spending and the Stock Market Scam

What lies behind our columned monuments?

Look at The Parthenon in Athens, Greece.

Behind that ancient Greek building lies a bankrupt country.

The threat of European debt default is one major factor that will lead to a major stock market crash in the United States. Stocks started to plummet this summer around fears of European contagion from default of Greek debt.

When asked if Greece is insolvent, as Nouriel Roubini claims, Greek Prime Minister George Papandreou told Bloomberg News that Greece is not going to default.

“We know where we were, we know where we are, and we know what we are going to do—and we are doing it,” Papandreou said.

When pressed with the question of Greece being insolvent, he added, “We are not going to default, and we have done everything we have done—not only us, not only Greece, but the European Union itself and the IMF [International Monetary Fund], of course, have basically given us a vote of confidence and we, ourselves, are following the targets. We are doing it, in fact, not to default. If we were going to default it would have happened, we would have decided that many months ago. We decided not to do that for a number of reasons. We think it would be wrong for the Greek economy, it would be wrong for the European economy, it would make things worse in the end. That is why we are taking the pain to make these structural reforms and we are on target.”

So, that means Greece is insolvent since he never said it wasn't. Here's more from ZeroHedge.com on Papandreou's comments that Greece is undervalued and their bonds will not currently be coming to market.

But, the European situation further weakens as layoffs continue.

BBC reported that defense company BAE Systems revealed plans to cut nearly 1,000 jobs at sites across the United Kingdom. Also this month, the Wall Street Journal reported Royal Bank of Scotland Group PLC will cut 3,500 positions in its back-office operations across the U.K., as it continues to shrink its businesses.

CNBC reported today that the UK's tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, and the government would “deduct what it deems as the appropriate tax and pay the employees by bank transfer.”

So, I guess for consumers in the U.K., they won't be spending much money either.

Just for an added dimension, in Amsterdam, Dutch express and postal company TNT NV said it expects up to 4,500 “forced redundancies” at its troubled mail unit, meaning 4,500 layoffs.

Look at monuments in the nation's capital that resemble Greek architecture. They hide another bankrupt country behind banks holding undervalued assets. The U.S. has more debt than Greece, but more stature as well.

With 125 bank failures this year, there are still nearly 770 problem banks on the FDIC watchlist—holding residential and commercial mortgages and construction and land loans that may never be paid. The FDIC is basically insolvent and/or bankrupt.

With billions to trillions in undervalued assets, not to mention unpaid derivatives, major U.S. banks hold capital reserves without the ability to lend—meaning no credit for businesses that need it.

The second phase of the stock market crash involves a paradigm shift in consumer spending.

Since consumer spending reflects 70 percent of gross domestic product, less consumer spending means lower levels in GDP and, likely, a double-dip recession. Roubini gives it a 40 percent chance. One economist in a high government position said it was a 25 percent chance. A double-dip recession, basically, goes down in history as Great Depression II.

Overleveraged consumers, people with too much debt, reflect one reason why consumers will not be spending money anytime soon. Unemployment, at U-3 9.6 percent/16.7 percent under U-6, is another reason.

A Wall Street Journal analysis of data from the Fed and the Federal Deposit Insurance Corp. suggests that “over the two years ending June 2010, banks and other lenders charged off a total of about $588 billion in mortgage and consumer loans. That means consumers managed to shave off only $22 billion in debt through...belt-tightening.”

Meanwhile, overleveraged states try to balance their budgets. As a result, more state and local government employees face potential layoffs. In Austin, Texas, for example, an American-Statesman analysis of agency budget requests showed $21 billion in red ink, and 9,800 jobs that state agencies offered up for elimination as legislators prepare to trim that money from the 2012-13 state budget.

Still, despite these facts, the stock market increases.

Looked at the columned buildings on Wall Street. The Dow Jones Industrial Average rose 145 points to 10,753 today while the 10-year bond yield declines and oil and gold increase. It looks like money is going everywhere—into equities and conservative investments—but trading remains “light.”

Perhaps the fact that the National Bureau of Economic Research reported today that the recession officially ended in June 2009 influenced investors. NBER also said economic conditions are not favorable. Some analysts believe we are not only in a depression but never left the recession.

As Harry Truman once said, “It's a recession when your neighbor loses his job; it's a depression when you lose your own.”

Still, the stock market keeps moving up.

There is a reason, albeit conspiratorial, as to why the stock market is able to show such productive gains among such moderate growth at best.

In an August 2009 article, the writer, Chris Martenson, presents an investigative report, The Fed Buys Last Week's Treasury Notes, as to why the market remains up.

“In concert with the claims I made in the prior Martenson Insider post, The Fed bought $7 billion in Treasuries today and even more yesterday. This is at the upper end of their recent range of already exceptional purchasing activity...If things are so rosy that every single dip is being bought in the stock market with a vengeance, I wonder why these printing operations are really necessary?

"This $14 billion plus buying activity by the Fed represents fresh money created out of this air that was exchanged for the sovereign debt of the US. However, since the Fed has, for all practical purposes, never undone its permanent operations (hey, that's why they are called "POMOs") we can consider these additions of money as good as permanent themselves.”

Martenson calls the following Permanent OMOs: “The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system. Such transactions are arranged on a routine basis to offset other changes in the Federal Reserve’s balance sheet in conjunction with efforts to maintain conditions in the market for reserves consistent with the federal funds target rate set by the Federal Open Market Committee.”

According to today's ZeroHedge.com, Fed Injects Record $5 Billion Into Stock Market With Today's POMO, Tyler Durden said “Today's POMO is over, and the result is a whopper: Brian Sack has just injected a record for QE Lite $5.2 billion in stock, in order to complete all the elements of today's orchestrated Obama Town Hall meeting [on CNBC], during which the president is now fully expected to announce that he not only managed to end the recession singlehandedly (what an opportune time for the NBER to announce its results), but that stocks are now ripping every single time he appears on TV (same goes for gold, oil, and pretty much everything else).”

Brian Sack, by the way, is executive vice president of the Markets Group at the Federal Reserve Bank of New York. He is also the Manager of the System Open Market Account for the Federal Open Market Committee. The Markets Group oversees domestic open market and foreign exchange trading operations and the provisions of account services to foreign central banks.

“$5 billion today, add another $6 billion on Wednesday and Friday, lever up 30 times and you have some $300 billion in free buying given to the Primary Dealers so they can ramp the S&P to 1,150 by the end of the month. Job well done Mr. President. Too bad nobody but Wall Street and a few HFT [high-frequency trader] prop desks care about the stock market any more,” Durden said.

Many optimistic analysts, such as Richard Berner, chief economist at JP Morgan, said a “big shock” would be a problem for an expected “moderate recovery.” However, he does not expect a double-dip recession because of lower rates and a strong refinance market combined with a strong global economy.

What exactly is this economist looking at?

I'm not sure people can save their homes through refinance if credit remains tight--lenders will not take a hit in the spread of a new mortgage; I'm sure those consumers who did refinance would not be able to spend much on anything but their mortgage; and, I don't see how other areas of the globe, like Europe, are coming back if U.S. consumers decide to stop spending--which they have.

But who cares...right? A stock market over 10,000 tranquilizes all of public opinion's anxieties.

Robert Michaels

Summer Recovery Had Me a Blast

Previously, on last season's FIN TRUTH, the country was optimistic entering June when Treasury Secretary Timothy Geithner proclaimed “The Summer of Recovery.”

Happy Days are here again, the skies above are clear again, let us sing a song of cheer again, Happy Days are here again....

The discussion in the Treasury went something like this in June:

Tim “the Fonz” Geithner: This is the 'Summer of Recovery,' Ben. Dig it?

Fed Chair Ben “Richie” Bernanke: The economy is unusually uncertain, Tim. Why do you think it will recover this summer.

“Fonz” Geithner: Because I'm the Treasury Secretary....aaaayyyy (thumbs up).

However, with August unemployment at 9.6 percent, and the U-6 number (Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the of the civilian labor force plus all persons marginally attached to the labor force) at 16.7 percent, we remained far from recovery.

Back at the Department of Treasury:

Fed Chair Ben Bernanke: Tim, I thought you said this was going to be 'The Summer of Recovery.”

Geithner: Well, uh, I was wrrrr....I was wrrrrr....I just wasn't quite right.

Yes, Tim “the Fonz” Geithner spoke out of turn...as did Biden. CBS News in June reported that Biden later said "there's no possibility to restore 8 million jobs lost in the Great Recession.”

What do these guys think? Do they think they live in some television sitcom where whatever they say is true? That they can snap their fingers and the economy recovers...or hot-looking girls come running?

Fast forward to today:

In today's New York Times, Motoko Rich's For the Unemployed Over 50, Fears of Never Working Again, said: “Of the 14.9 million unemployed, more than 2.2 million are 55 or older. Nearly half of them have been unemployed six months or longer, according to the Labor Department. The unemployment rate in the group — 7.3 percent — is at a record, more than double what it was at the beginning of the latest recession.

“After other recent downturns, older people who lost jobs fretted about how long it would take to return to the work force and worried that they might never recover their former incomes. But today, because it will take years to absorb the giant pool of unemployed at the economy’s recent pace, many of these older people may simply age out of the labor force before their luck changes.”

And we continue to see signs of the bifurcated society—the haves and have-nots.

Bloomberg today reported Census Bureau statistics today that show most people earn more than 2.5 percent LESS than 12 YEARS ago. Median income in the United States is $1,323 lower than in 1998. For the bottom 10 percent of workers, median incomes are down 5.2 percent and for the bottom 20 percent, they are down 3.4 percent.

Meanwhile, the top 5 percent of workers make 3.6 percent more than in 1998. They make 11.4 times more than the poorest 10 percent, compared to 10.4 times more than the poorest 10 percent in 1998.

The poverty rate also rose to a 15-year high to 14.9 percent—now classified as poor.

And, Washington, D.C., Congress, is busted—a polarized, uncompromising body of politicians that can only agree on watered down legislation because they listen to their wallet with money from special interest groups and large corporations.

“We've seen it from the oval office to the Mayor's office, politicians are deeply unpopular these days and this new data from the Census Bureau and the Fed suggests the reason why. Even though the vast majority are working, the numbers show it is getting them nowhere. The American Dream of working hard and improving your lot is fading, and that shows in the new Census figures,” said Mike McKee, economics editor at Bloomberg.

McKee added that household wealth dropped 2.8 percent in the second quarter as home prices started to stabilize because the stock market tanked by $940.4 billion.

The fact is, Siemens recently announced 4,200 jobs lost by cutting its Siemens IT Solutions subsidiary, including 2,000 jobs lost in Germany.

Is Europe really not in fear of default? Nice stress tests for European banks since they did not count sovereign debt--still no explanation for that.

Then, there's Fedex, which announced earlier this month that profits doubled, and it was such positive news that they also announced 1,700 layoffs to reduce its trucking operations to save money.

But, there is good news. The Dow Jones Industrial Average is up this morning after three straight weeks of increases as CNBC says all is well. The Dow is at 10,635 this morning on Wall Street—Money Never Sleeps, opening this Friday at theaters near you.

And now, the season premiere of FIN TRUTH.

Robert Michaels

The Unemployment Charade

Let me get this straight: The U.S. loses census job hires to layoffs, unemployment increases but the percentages decrease because people are "leaving the labor force."

"Hi, I'm Bill. I'm leaving the labor force so I'm not actually unemployed. I've just decided not to work. Therefore, I'll continue to spend as if I am employed."

Not likely.

People who "leave the labor force" and "don't work" will not be "spending money" they don't have. Ergo, 9.5 percent unemployment is a sham and the U-6 is also a 16.5 percent sham. At this point, forget about certainty because there is none.

One thing we can be certain about at this point is our senses, including common sense. While visiting carpet and furniture stores in the Washington, D.C. area during June, I noticed a sparse crowd in the stores. In fact, at one furniture store, it seemed like only my wife and I were buying anything. That tells me that nobody is doing home improvement anytime soon.

It also tells me to look for further layoffs at home-related retail stores by the time summer is over. Of course, many of these jobs are commission-based as well.

But, the situation is much worse than that because many unemployed persons will not have jobs to return to, and new unemployed persons ARE entering the labor force. A CNN article, 7.9 Million Jobs Lost--Many Forever, explains it rather well. At the end, Scot Melland, CEO of Dice Holdings, a provider of specialized career web sites, said, "Many of the jobs we lost are never coming back."

We constantly hear that the economic engine in the U.S. is consumer spending. That's common sense. Consumers spend, businesses earn money and pay their employees. Now, let's take out the first part of the equation--add some debt burden to it--and what do we have? Businesses don't earn money, layoff more people and spending declines more.

Nouriel Roubini once told Bill Maher that he's not "doom-and-gloom." He's a realist. And, any realist can see manipulated numbers like 9.5 percent unemployment and 16.5 percent in the U-6 (part-timers who want full-time jobs and people who are frustrated and have given up looking for jobs) does not help. But, this term "left the labor force" is just ridiculous.

In Washington, D.C. and surrounding areas, times are not as bad because we have the Federal Government, government contractors, special interest groups and the people working there help the local economy generate some revenue. But, even D.C. is hurting somewhat and these groups have taken their hits in the past couple of years.

Beyond D.C., small, mid-size and regional banks continue to close on Friday afternoons as the FDIC tries to pretend it's still solvent. They're not even half way through yet, so don't expect alot of small, start-up businesses to begin hiring without access to credit. The Small Business Administration can only do so much. Bad construction and commercial real estate debt has alot to do with many of these bank failures. Banks are "kicking the can" down the road rather than taking those lumps right now.

As for the large banks, don't expect them to lend to small businesses either unless they have stellar credit. The large banks still haven't deleveraged from all the bad residential real estate debt and continue to face more bad debt in the future.

We'll likely see stronger companies gobble up weaker ones and more bankruptcies (don't even ask me how "Blockbuster" hasn't filed for bankruptcy yet). The American Bankruptcy Institute reported a 14 percent increase in bankruptcy filings during the first half of 2010, CNN's Bankruptcy Filings on the Rise article said.

Uncertainty not only weakens consumer confidence but Wall Street confidence as well, and my prediction of another crash in the next 12 to 15 months looks pretty good. Remember that many companies earned their profits from laying people off. How will they earn their profits this time around? Granted, banks no longer have to do mark-to-market accounting of their assets, helping them to survive.

And, remember, European contagion continues as Moody's says it may downgrade Spain's sovereign debt ratings. That means that Spain's government, like Greece, is broke. As other governments stop spending (because they only had printed money to spend), the contagion will likely filter to France, Germany and England until it moves across the pond to the U.S.

Sorry for this negative outlook on the eve of a July 4th celebration. The U.S. will falter, but it will eventually recover as well down the road. That's the optimistic part. There will be a recovery someday down the road. However, without proper deleveraging, it just will not be for about another decade.

Like Roubini, I'm not doom-and-gloom. I'm just a realist.

Robert Michaels

Answer to 'Situation of the Week'

A friend of mine, Mike Murray, has a 'Situation of the Week' series going on in Facebook, but his answer was too long for the page, so I agreed to let him give his "common sense" answer to how President Obama might proceed in cleaning up the oil in the gulf bay (that's the SOTW).

Here is an explanation of SOTW and his answer.

During a chat on Facebook, BR said to Mike:
"You should post a situation of the week, and people can post common sense ideas regarding the situation. Ready, GO!"

Mike said, "Very good. Here's the first SITUATION OF THE WEEK. A huge hole erupts at the bottom of the Gulf of Mexico causing oil to flow out into the entire gulf. How do you plug up the hole and keep the least amount of oil from spilling out? I have my answer....and it's COMMON SENSE."

Here's Mike's answer:

It seems as if this industry problem was first BP's problem--that did not succeed. So, the Federal Government took over, and they can't solve the problem.

However, this is a national crisis and an oil industry problem. Therefore, the President needs to gather ALL heads of the big oil companies and get their brains together to figure this out. That includes Exxon-Mobil (with the whole Valdez problem, they must have some insight on how to fix a problem like this); Conoco Phillips; Shell; and even the company that provides oil to Citgo.

They should all solve this problem together and the one that does solve the problem gets the credit, rewarded by investors who gain confidence in that organization. (They'll all take the credit, of course).

I'm not sure if this tact has been taken but, if not, now's the time to do it as oil continues to spread throughout the Gulf--likely for the next few months. That's my "common sense" answer, and clean up of this mess should be placed on the heads of all oil companies, not just BP, which should be done anyway.

Michael Murray

P.S. I'd also like to thank all the people who wrote their common sense solutions and to Beth Riley for coming up with the idea of SITUATION OF THE WEEK.

Mike's next SOTW will be posted on his Facebook page on Monday. I hope everyone tries to help him fix some of the more complex problems in this world with common sense solutions.

Animal House Response

I had an offline discussion yesterday evening with dgatorfan2579, who commented on my recent posting Will the Real Animal House Please Stand Up? I was rethinking some of things I wrote in the post, but the offline discussion helped clarify points further.

Because I had to revise it, here is the commenter's post and my response to the comments:

dgatorfan2579 said...

I suppose we all discard our personal effects and could go sit by a Theroux-esque pond; would that would be the modern equivalent of "free thinking".

Albert Brooks tried to do it in "Lost in America" but failed, but I never really figured out if he was happy that he failed to achieve the freedom for which he searched.

If you ask me, there are still free thinkers out there, and most of them just think of new ways to manipuate the "debt thinkers" as you call them.

The problem is, as I see it, I don't really have a problem with it. Maybe that's the problem! Or maybe not.

That thinking just cost me $257.89. Oh bother.


dgatorfan2579,

Your comments are well put but were even better put offline for two reasons:

First, you didn't misspell Thoreau. Here is a dime to call your mother, tell her you have no chance of being a Spelling Bee champion. I'm paraphrasing from The Paper Chase of course.

Second, you would have said "brother" instead of "bother."

But I'm not here to bury you but to praise you. Before you think you're Julius Caeser or something, I did think about this entry...or, should I say, rethink this entry.

Here's the paragraph I had the biggest problem with:

"Slaves to debt are not free thinkers. They're idiots who make decisions based on selfish reasons and not on logic ideals for the good of the country. It's not that Obama has bad ideals because he doesn't. But he has to work with groups of people who can't think for themselves and we, frustrated Americans, get to vote for the next loser to make stupid decisions to water down laws that the public wants and feed the banking system for its own wealth and gain."

I think my connection from "free thinker" to "debt slaves" was mistaken and "when I'm wrong I say I'm wrong." (That was Jerry Orbach, the father in Dirty Dancing.)

Free thinkers can be debt slaves, but unless an individual lives within his or her means, they do compromise their status in society. Therefore, we must hold back our free speech lest we get fired or get no money for schooling.

In our offline discussion, you said a student in debt is more of a free thinker because they need to be more mature about their college education, even if that means saying the professor is right when they know he or she is wrong. That was an excellent point which I had to rethink and revise. You're absolutely correct.

Also, many people are not in debt and still want to keep their jobs without the risk of entrepreneurial intent.

Absolutely. I'm one of those people and this blog is perfect for me to relay free speech, as it is for millions of anonymous people. But don't think for a second I'm the same person (or anyone is the same person offline from online). Granted, it depends who I speak with.

Also, I am a slave to debt--only one debt right now--my mortgage. If it was not for that, the thought of becoming an entrepreneur (or, in laymen's terms, a freelancer) would be much more appealing. Does that keep me from free thinking. No sir, it does not. However, it does bar me from certain righteous actions that I might take in the real world.

However, we all need to live somewhere and even rent is a form of debt. A house is, indeed, an investment and once paid off, then we can conceivably have no debt at all (other than health, auto and property insurance, taxes, electricity bills, gas bills, etc.). We can also retain a high credit rating which can be much-needed in this society.

You see, in the real world, young baby boomers protested because they had nothing to lose. In this world, young people are texting, emailing and writing in blogs. And, they have alot to lose.

Which method is more effective?

This method of online email cost you $257.89, probably because you were playing online poker and missed a hand.

Granted, the cost for a trip to Washington, D.C. for a good old-fashioned one million person march and protest may cost more, but the reward might also provide greater internal satisfaction.

RM

P.S.

dgatorfan2579,

Thank you for the comment and the call. Any chance to learn something new or clarify a point is always welcome.

RM

The Birth/Death Model Just Makes It Worse

I think it's interesting that the Dow is not below 10,000 by now. Please reference PPT conspiratorial talk as to the market "holding steady." If this is not below 10,000 during a selloff by the end of the day, this thing is fixed.

The market, in a normal world, would be plummeting. But, I'm onto something else right now. Look at Mish's Global Economic Trend Economic Analysis. He's the one who originally tipped me off to how the Birth/Death model (for companies) is just screwed up. It shows 215,000 jobs were added by more companies. Hah! With Census jobs bringing down real job growth, the birth/death model shows NO JOB GROWTH, but job losses.

Hidden beneath the surface the BLS Black Box - Birth Death Model added 215,000 jobs.

However, as I have pointed out many times before, the Birth/Death numbers cannot be subtracted straight up to get a raw number. It contributed to this month's employment total for sure, but the BLS will not disclose by how much.

In addition to census hiring, temporary help services employment added 31,000 jobs. temporary help services employment has risen by 362,000 since September 2009.

On the whole, this was a very weak jobs report especially with all the hype coming from various administration officials and economic cheerleaders.

Both the birth/death numbers and temporary help jobs are problematic.

The drop in the unemployment rate will all be taken back by August when the census workers are let go.

This is horrible news for the economy because it means Congress needs to do something "stimulus-wise" for job growth. The problem is...they can't. We just don't have the Federal Government to back us anymore.

That said, we may very well be able to print up more money but, in the long run--no--this is not the right direction.

Sorry...I'm a big Obama fan, but we are not going in the right direction.

Robert Michaels

Census Workers Lift Numbers, Not Confidence

This post--Employment-Population Ratio, Part-Time Workers, Unemployed Over 26 Weeks--is from Calculated Risk.

According to the BLS, there are a record 6.763 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 4.38% of the civilian workforce. (note: records started in 1948). It does appear the increases are slowing ...

Although the headline number of 431,000 payroll jobs was large, this was only 20,000 after adjusting for the 411,000 Census 2010 temporary hires. The underlying details were mixed. The positives: the unemployment rated decreased to 9.7%, the number of part time workers (for economic reasons) decreased helping to push down U-6 to 16.6% (from 17.1%), hourly wages increased (slightly), as did the average hours worked.

Negatives include the employment-population rate declining, the few payroll jobs ex-Census, and a record number of workers unemployed for more than 26 weeks. The number of long term unemployed is one of the key stories of this recession, especially since many of them are now losing their unemployment benefits.

As mentioned in my previous blog, the markets are watching this closely and, with more fears on European contagion, the market dropped nearly 200 points and then bounced back up about 20 to 30 points. President Obama had a speech prepared this morning to talk about how employment is picking up, but the truth is that job growth would have been negligible without Census workers.

I'll stick with my 9-12 month prediction for a crash because it will still take time for a gradual decline in the market until it just drops from the trillions of dollars in debt.

As for the unemployment numbers, not a surprise with the Census workers.

As for real estate, a Bloomberg story right now shows 8700 condos on the markets that may be turned into rentals. That could pressure prices downward, creating more losses on these loans. More losses, more balance-sheet writedowns by banks and tighter credit.

As small businesses and consumers that need credit cannot get, and large businesses and affluent Americans that do not need credit don't want it, we are no different than we were before this unemployment report came out. What's the one difference? Some people earned temporary work as Census workers.

Market Watches Employment Numbers--Closely

We are reaching the tipping point, folks, on if this "economic recovery" has any legs.

I forecast a stock market crash in 12 to 18 months about three months ago. That means we are nine to 15 months away from paydirt.

This morning, economists expect an increase of nearly 540,000 jobs in May, according to MarketWatch.com. If you read daily clippings from Daily Job Cuts.com, I'm not sure how that is possible. Add on facts that unemployed persons have been out of work for the longest period of time in 70 years, the Wall Street Journal reported, and--anecdotally--a Yale student graduate I know, who graduated cum laude, cannot find a full-time job in their line of work, and there's a real problem out there. A manager at DirectTV who I know was recently laid off.

That said, another website forecasts job gains could reach 730,000-plus. That's just insane.

But, the stock market--and markets around the world--will watch this number closely. Factor in that this report will show Census Bureau hires, but also look at the U-6 number, which has been on a steady rise. The U-6 number, now at 17 percent, includes people working part-time looking for full-time work (like the Yale, cum laude graduate I mentioned). If that number grows higher, this "economic recovery" is no recovery but more smoke-and-mirrors. Then we can watch the stupidity (or manipulation) of the markets.

One thing a strong increase will do--it will strengthen my prediction for a crash 12 to 15 months away. Why? Because if people see unemployment declining, confidence grows and we move into the summer months ready for vacation spending, a little housing activity and, of course, "Happy Days are Here Again" mentality.

Then, we're about nine to 12 months away from European contagion eventually making its way to the U.S. A Fed that will still not see sustained consumer spending just because it cannot sustain itself with the current unemployment figures (summer vacations have already been paid for--mostly) and how much over $13 trillion can the national debt sustain? Also, come Fall, the same problems exist in the housing market, in commercial real estate and people will have to pay off any debt mustered from summer trips.

As the Fed continues to kick the can down the road, expect more foreclosures and vacancies that will require vacancies. So, if we think people started working again in May, good for US. The question is, after Census Bureau hires lose their jobs, what will numbers look then? And who will back us up when these people find trouble paying their debts?

So, the question really becomes, will the market drop today on disturbing unemployment figures or do we continue to "kick the can" on this thing so far that my forecast comes true.

Robert Michaels

Letter to a Friend

Here's a letter I sent to my friend and mentor after he wrote a "rant" about how people expect not to be working or paying their debt in this society. To paraphrase, he said that in his travels, people would give him a blank stare as to the "age-old idea" of working to pay down debt and a mortgage on a house.

I said that with the role models we have today in business and politics--as well as entertainment venues--why should we possibly feel any differently? Why should the unemployed feel less entitled than the CEO paid millions because he is part of the "club." Why should a squeezed-out middle class not feel entitled? I don't personally believe this, but here is my response. Please feel free to comment:

XXX,

Great rant, but what do you expect with a Federal Government bought and sold by corporate America, hence, Wall Street.

The public sees not only executives in private business get WAY MORE money right now than the people who produce (i.e. middle class) but a Fed that not only dipped its toes into the "Moral Hazard" pool but drenched itself in it. Those FED executives also have WAY MORE money than any bright thinkers beneath them in a self-substantiated hierarchy.

I just heard that some "higher-ups" brought down the quality of security analysis in favor of quantity. Therefore, the Federal Government risks the American people's security for its own prosperity. The Federal Government risks the economy by not repealing Glass-Steagall so that it can earn more for themselves.

Geniuses!

Those executives in the Fed also get WAY MORE income than their staff.

Let's not fool ourselves as to why you're seeing those blank stares out there:

1. Yale graduates are not finding jobs with the steep competition out there;
2. DirectTV managers are getting laid off (two anectdotal accounts from different sides of the education spectrum);
3. State and local budget cuts mean more layoffs and a deteriorating education system;
4. Nobody sees this because we're all staring at blackberries or iPhones and texting people (I don't, by the way);
5. An extend/pretend system and market manipulations that attempt to keep big banks, Wall Street and bankers from failing.

Who's really getting a free-ride from the government? Therefore, how can you blame these people for wanting their share of the Socialist pie? They earn less than the saved bank executives we see everyday--all part of the CEO club that won't likely to go hungry.

Sorry if I'm on a soapbox, but I see friends who won't get credit because banks won't lend unless they're top of the line; I see hard-working people now out of work; I see people who are working completely overworked because of fewer resources and smaller margins; and, I see CEOs and/or executives inside and outside of the Federal Government getting WAY MORE than they're worth.

Believe me, it's worse now than ever before and it's this widening income/credit gap that will do more to ruin this country than the people who won't pay their bills. They're screwed already. Blame the Treasury Secretary who feels entitled enough not to pay his taxes and then becomes...what...TREASURY SECRETARY!

Sorry...I had to rant myself.

Will the Real Animal House Please Stand Up?

In Mish's Global Economic Trend Analysis, Subprime Goes to College; Students Buried in Debt; Who is to Blame? requires another look from the socioeconomic perspective.

College's once spoiled rich-kids--the ones whose parents pay the entire way while the kids think for themselves and study, party or drop-out, drop-in and/or graduate--has quickly become a thing of the past. I'll be the first to say that although I did graduate from college, I did so as a spoiled rich kid who never had to worry about paying for college.

In full disclosure, I went to college, partied too much, left school in an unfocused "daze of glory" and then returned, wiser-for-the-wear to much more focused behavior, hours in the library reading, better grades and then graduation.

Well, the "Animal House" experience is a thing of the past, and now that colleges know this--as Howard Beale said in "Network"--who's to say what shit they're going to peddle for truth in these "higher" educational institutions.

The whole point of a liberal arts education is to learn how to think for yourself. Sure, a person my age--in his mid-forties--can say to himself (or herself as the case was with someone in a past class) that this is what the professor wants to see so here it is and I'll take my A, thank you.

Is that free thinking? Yes. Because she and some others have the wisdom to see behind the bullshit, learn and get the damn degree for more pay--or, today, just to have a job.

What about the kids who now need to think like professors--sometimes intelligent and nurturing of free thinkers and sometimes egomaniacal failures who posture themselves as experts but never had a real job in their lives (just look at Larry Summers).

The latter knows they can manipulate the system and student minds because the same kids have been under constant pressure to succeed all their lives, and they can't stop now that they're near the finish line with $100,000 of pressure debt on the line.

In a lifetime of A or B-grade necessity, rittalin medication, and no time to lie down and think, thinking for yourself rather than the system gets lost somewhere between Sarah Palin and Elizabeth Warren.

For that reason, we find decisions made that have no logic behind them; we find the egomaniacal "masters of the universe" creating sovereign debt defaults while the U.S. public paying the bill says, "What can we do? I need a job to pay off all the debt I've accumulated or everything I've worked for all my life is worth bupkus."

Come on. This is why our kids don't feel good about themselves...because unless they're part of the chosen few to run this country, they are powerless to any possible change. They can vote for the compromiser every November forced to make decisions based on the campaign contributions given to them.

Slaves to debt are not free thinkers. They're idiots who make decisions based on selfish reasons and not on logic ideals for the good of the country. It's not that Obama has bad ideals because he doesn't. But he has to work with groups of people who can't think for themselves and we, frustrated Americans, get to vote for the next loser to make stupid decisions to water down laws that the public wants and feed the banking system for its own wealth and gain.

It is almost a self-fulfilling prophecy that this system will stop. How--we do not know--but we all may be a little wiser for the wear.

One way to look at free thinking wrapped around personal behavior? Take a look at investors. The Tokyo Exchange yesterday went straight up after its Prime Minister left office--stayed that way for much of the day--and dropped to the same number it started at. Why are investors free thinkers? They have money and they don't want to lose it.

As the European contagion continues its spread--now stopped at Spain with France first in line outside of the PIIGS countries--look for very scared investors to run for Treasuries.

While this may be good for the 10-year Treasury Yields, don't be so sure that mortgage rates will decline as favorably as they should because spreads can widen--the same crap that happened about two weeks ago. Spreads widen, yields fall, rates stay about where they are.

What? Give the public any kind of break to refinance their home other than "moral hazards?" Can't do that. Now, the question is, are our professors Elizabeth Warren's out there or are they Larry Summer's type. Will college students even know the difference? Will they care?

In this society, thinking for yourself risks madness, so not many do. But that was one advantage the baby boomers had when they protested during the Civil Rights marches and the Vietnam War marches. The feminist protests and the gay rights parades.

Baby boomers were free thinkers until they had to earn a living and became material in the 1980's with families and, of course, debt slaves. For that reason, they know truth, they did not want to acknowledge it and now many are frustrated with a volatile market, increasing levels of unemployment and overtaxed from limited resources.

So, what are you going to do about it? Oh, right, make the future generation pay for it. That's okay, because they won't protest. They can't. Too busy texting messages to friends while working off their student debt. And what are they actually thinking about? Their future?

Way to go boomers! Toga, toga!

A Volatile Summer Ahead

Last summer, people like myself knew it was time to turn off the Dow Jones Industrial Average and other stock averages for a few months, enjoy June, July and August, and see what happens in the Fall. This year is different.

Unlike last summer, for example, the European contagion will keep things interesting for the next few months. Last summer, mark-to-model accounting showed us banks would stabilize as their numbers came back better than anyone expected and, if the rules weren't changed in the middle of the game, they would have been much worse.

On this Tuesday morning, June 1, we come off a Friday when Fitch downgraded Spain's sovereign debt rating with a report that France could be next.

See Mish's Global Economic Trend Analysis and the recent posting on France saying its AAA is at a threat, "France Worries about AAA Rating...French Finance Minister Says 'Keeping AAA Rating a Stretch'"

Add on a poor performance last night in Hong Kong's market and a drop in the European market, and today will likely start off low in the market.

That said, we should realize that an entire weekend went by for the market to prepare for all of these events, including commentary that BP's oil mess won't stop until--possibly--August. So much for deep-water drilling in the next, oh, decade.

Some sources are telling me about war with China if we can't pay our debt. I'm not that pessimistic...and I really hope I'm right. But I still believe that the sudden 1,000 point drop in the market last month was Asia at a momentary crisis point and the Plunge-Protection-Team running in to fix the damage.

The PPT is a conspiratorial government body that many believe manipulate the stock markets. George Stephanopoulous admitted to a PPT in a New York Post article and said in 2000:

"Well, what I just want to talk about for a few minutes is the various efforts that are going on in public and behind the scenes by the Fed and other government officials to guard against a free-fall in the markets. You reported just a while ago that the Fed has lowered the overnight interest rates, will put about $80 billion into the market. In addition, the SEC, the Securities and Exchange Commission, has relaxed the rules for companies on whether or not they can buy back their stock in case they start to fall.

"And dozens of companies, including big companies like Intel and Cisco have announced that they would buy back their stock if necessary. Third, there will be some trading curbs in effect today. If the market drops by about 1,100 points, they will probably suspend trading for a while. And perhaps most important, there’s been--the Fed in 1989 created what is called a plunge protection team, which is the Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges, and there – they have been meeting informally so far, and they have kind of an informal agreement among major banks to come in and start to buy stock if there appears to be a problem."- George Stephanopoulous, 9/17/00).

From a New York Post article, this post was added to a current blog site "Degrees of Freedom."

In any case, the contagion is spreading and even if the market were to bounce back today, I forecast a losing week. May, in fact, was the worst month for Dow Jones in the past 70 years, and the pattern is now beginning to form toward a downward crash, much like 1932 following the 1929 crash (see my last blog entry, "Dow Nadir Will Fall Below 2000").

Watch the markets this week and pay special attention to that U-6 unemployment number because, if that number increases, nothing's in recovery.

Until then, just a reminder, I'm not an investment advisor (but I play one on T.V.) I couldn't resist that line.

Dow Nadir Will Fall Below 2,000

In a blog where I do not get paid for my opinions and have no risk in being wrong about the future, I will make a bold prediction based on current and past events.

First, look at the link below to see how the first Great Depression (we're in the second one now) showed how the 1929 crash led to a 60 percent increase in an optimistic recovery and then seriously crashed again by nearly 80 percent in 1932.

http://www.marketoracle.co.uk/images/1929-stock-market-crash-dow-chart-image005.png

The link shows the reason for the first crash, the reason for passing Glass-Steagall. This, also, was the reason fro Great Depression II--the current Great Depression hidden by food stamps, food banks, unemployment insurance, social security, medicare, medicaid, etc.

The second crash is based on sovereign debt default in Europe, one of the reasons a small party like Adolph Hitler's Nazi party was able to rise to power in Germany in the early 1930s.

Not to be a "gloom and doomer" but the same sovereign wealth default contagion is spreading, with Spain's ratings recently cut by Fitch. Look for another hit on the stock market this week. In the end, my prediction is another crash at nearly 80 percent of the peak. That would put the Dow below 2,000 at its lowest point. Many suggest below 6,000 and that might be optimistic.

However, don't expect this to happen anytime soon. As you see in the chart from Great Depression I, the decline is gradual. The question will be how this society and others react to the stock market decline. Can you say "Tea Party"? Knew you could. Let's hope more sensible heads prevail.

Remember folks, it's only money and those wide-screen TVs, blue-ray players and high-def DVD collections should keep us happy during a tumultuous economic decade. Also, alot of people went to the movies during the Great Depression I to alleviate their spirits.

I leave this blog post with a quote from Hal Holbrook's character in the movie WALL STREET (look for Wall Street 2 in theaters this fall).

"Man falls into an abyss--sees nothing staring back at him. That's when man finds his true character and it keeps him from falling into the abyss."--Lou Mannheim in Wall Street.

That goes for men and women.

Until next time....this is Robert Michaels.

The Contagion Effect

We've seen this before. A group that thought a crisis in one sector would never have an impact on their sector. But a crisis in one place can seep to another. It's called "contagion," and we are seeing it today in Greece, spreading to Portugal, Ireland, Italy and, of course, Spain.

Wall Street jeered when it looked like Greece would fall into default and knocked out of the Eurozone in the middle of civil unrest. Then, Wall Street cheered when the Eurozone agreed with the IMF to provide $1 trillion to bail them out. Wall Street likes bail outs...doesn't it?

The market dropped precipitously in October 2008 when it looked like the government was not going to bail out the big banks. Then, it picked up when it saw $700 billion in taxpayer money going to the big banks.

The moral of this story (in George H.W. speak): bail outs--good, no bail outs--bad.

So, the market is doing well again after a sudden drop off last week.

Let me pause now for a moment to discuss that 1,000 point drop, which I believe was Asian money taken out suddenly since the Japan's Nikkei and China's Mizhuo had significant drops the night before. However, was it more than that? I view two possibilities:

One, that a computer glitch messed up Government Sachs' flow of funds from the Fed, which showed what the market would actually look like all things being even. In a moment, it was fixed and back to its usual "smoke and mirrors" market reflection. Or, someone with some ethics tried to show the public what is really going on in a stock market with price and earnings completely out-of-whack. That's one possibility.

Here's the other--a much more terrifying possibility. China had enough of U.S. debt that will never be paid. Japan still remembers how WWII ended. Perhaps at that moment, someone in Asia knew something we didn't know. That a bomb was about to head this way and, at that moment, markets collapsed. Perhaps, there was a very real possibility that an Asian country was going to send a missile/bomb to the U.S. because that country knew they would not receive their loan payments and it was collection time.

True, the latter is a far-fetched scenario, but may become a realistic one in the near future.

Let's get back, however, to the contagion effect.

In Summer 2007, the residential mortgage-backed securities market shut down. Liquidity, for the most part, stopped and made it nearly impossible from potential borrowers to receive home loans. On the commercial real estate side, things were different. Fundamentals were good--rents and values continued to hold up. However, like residential, commercial mortgage-backed securities started to freeze up. Why? Because investors are not stupid. They realized a collapse in residential would eventually move to commercial real estate.

Analysts thought CMBS spreads were out-of-whack because of "headlines." No. Headlines do not affect investors--at least not good investors who do their homework. Just because a headline emphasizes increasing delinquencies does not mean the market is falling apart. Good investors read through the headlines, just like they are doing today when headlines say a "recovery continues."

Now, commercial real estate represents the results from residential real estate's collapse--a contagion effect that spread because of the natural connection between residential real estate and commercial. The connection is: homeowner is house poor, spends less (retail hit), meaning less inventory (industrial hit) meaning less worker necessary for business (office hit), less spending money (hotels hit) and--in the case of many youngsters, moving back home (apartments/condos hit). Without liquidity, commercial construction was hit.

So, why does this have anything to do with Greece? Simple. Greece received $1 trillion from bankrupt European countries and the IMF. Yippeee for Greece. But what about the PIIS leaning further downward from insolvency. When they need to be bailed out, it's France, Germany and the UK to the rescue...with the little funds IMF can use.

European insolvency leads only to one more land mass with any money--the U.S. But, the U.S. is already insolvent. Schools, hospitals and other public facilities are closing down, laying off workers due to state and local budget deficits. The federal government deficit is just plain scary. We're almost in as bad shape as Greece from a debt perspective with one exception--we are the United States of America. We are the standard. We are the most developed country in the world. We don't fall like Iceland or Greece or any of those other countries--right?

Well, truth is, we have no manufacturing force--it's all been outsourced; we have no oil--except the barrels floating in the water right now; we have no other energy outlets like windmill or solar power; and, our people have no energy. So many layoffs depleted resources, making current workers exhausted and burned out.

This needs to turn around--and now. We cannot afford to have a burned-out wasteland country with a few large banks standing tall like Donald Trump towers in Atlantic City. THIS BEHAVIOR MUST CHANGE. It is time for a new philosophy for people and corporations.

Live and function within your means. Begin with ideas and create. Live for the sake of living, not for the sake of the dollar. Do what you enjoy, accept responsibility for decisions and do what this country does best--compete. Try to win within the rules but, if you lose, do it with dignity.

In other words, let's get some pride back in the USA.

Otherwise, there will not be much to be proud of...other than more economic uncertainty and, perhaps, hate-filled riots like the ones we currently see in Greece.

Squeaky Wheels Get Greece

If you've been "vocal" about how bad this "economic recovery" has been, then you get Greece.

People are now getting killed in violent protests that we will soon see here in the United States if something is not done soon.

We have manipulated accounting rules to "extend and pretend" mortgages, alter bank earnings and increase debt and more debt. We have seen a stock market "recovery" to above 11,000 in an unprecedented manner with price/earnings so out-of-whack--believe me--it is not even funny. Yesterday, they dipped by 1,000 in a moment. And, we've seen Government Sachs funneled money to manipulate markets.

Here's just another example from "Zero Hedge" on Congress bought by Wall Street.

http://www.zerohedge.com/article/senate-rejects-brown-kaufman-proposal-break-largest-banks

We've seen Ben Bernanke et al. put $1.25 trillion into Fannie/Freddie MBS...putting the U.S. even more into debt...without any transparency...and still...here we are...two hours before the Labor Department releases an unemployment number that may be staggering...or...did someone find out what it was yesterday? What will it be that bad?

It will still be nearly 17 percent from a U-6 perspective--maybe more like 20 percent. People are hurting, real people are in pain....and we can no longer avoid it.

Greece is the word...and it's spreading to Portugal, Spain, Ireland and Italy. The EU bailout, still not enough for Greece, siphens even more money from stronger European nations, including Germany, France and, of course, the United Kingdom.

And, the U.S. is just like Greece. In Iran, Afghanistan, China--they watch it unfold. An economic World War we are losing. When the smoke clears, we may not like what we see.

Call it "doom and gloom" but "extend and pretend" is and was a mistake. In a deflationary spiral, a proper revaluation needs to occur. It is a correction that includes immediate pain but eventual gain in the end to prosper future generations--not at fault for this fiasco.

Who's to blame for this crisis? Ronald Reagan, George H.W. Bush, Bill Clinton (who said on ABC he should not have listened to Larry Summers), George W. Bush and, yes, Barack Obama who kept Reagan Democrats in his oval office to help "fix" this financial crisis.

Obama can change that right now and begin to deliver on some of his campaign promises.

He needs to get Elizabeth Warren, Paul Volcker, Nouriel Roubini and people who care more for common good than political prestige and a Wall Street party. Wall Street's demise is the U.S. demise, but it doesn't have to be that way.

IF the tipping point has not already occurred, there may be time to stop it.

My economics mentor sent this email to me yesterday:

Robert,

Remember what I mentioned to you about the ‘Crash of 1932’? Should we feel good about being able to say, "I told you so"?

whereas, I replied:

I know. They're "congratulating" me here in the office.

This is Great Depression II, and the optimists from pre-September 2008 are the same ones with mouths hanging open yesterday. What? How can this be happening?

Martin Weiss said trillions and trillions of dollars in debt need to be recovered. Even a fraction of that amount unrecovered means insolvency.

Are you beginning to get the picture that banks are, indeed, insolvent? That the U.S. Government propped them up, saved them, so that an extreme wealth gap persists in this Nation? Money, as they say, is the root of all evils. Just look at the evil manifesting itself from Greece, and its globle tie-in to other countries, including the United States.

And, unlike Great Depression I, this is truly global. Our shrinking world via Internet technology, speed of communication and an our persistent outsourcing has left the U.S. vulnerable for economic disaster of which we have no controls.

However, extreme problems call for extreme solutions. My opinion is that the future will hold and East-West currency and a realignment of economic goals in the best interests of Western democracies. This new currency may help allieve economic tensions and, indeed, revalue assets in the U.S. Fact is, increasing capital reserves on deposit assets--something the U.S. Senate voted 98-0 to do, only keeps credit constrained.

Without credit, there will be no recovery.

It is time, as Steely Dan's "Kid Charlamagne" says, to "cross a diamond with a pearl, turn it on the world and turn the world around." Get along.

And, as for the "squeaky wheels" who get Greece, I will post a few of the best blog sites I have been reading in the past couple of years that absolutely forecast this disaster. That's how I found out about it and educated myself to the problems of this world.

http://globaleconomicanalysis.blogspot.com/

http://market-ticker.denninger.net/

http://www.zerohedge.com/

These bloggers, much smarter than I, are also educators if you motivate yourself to learn the financial truths.

And then we, the American people, can all begin to understand Greece and the potential that the U.S. has of looking just like it down the road.

Stay tuned.