bailout – The Burning Platform

Taxpayers To Lose Billions On Student Loan Refinancing

Submitted by Tyler Durden on 06/10/2015 15:40 -0400

Monday marked the beginning of what could end up being one of the largest taxpayer-funded bailouts in history. On the heels of Corinthian Colleges’ move to shutter its remaining campuses after government investigations tied to deceptive practices forced the school to wind down operations last year, thousands of students have appealed to the Department of Education to have their federal student debt forgiven.

The initial joint petition sent to Secretary of Education Arne Duncan came from dozens of consumer and labor organizations claiming to represent some 80,000 aggrieved students seeking to have their loans discharged on the basis that the government’s move to close the school was the result of Corinthian’s fraudulent practices.

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Initially, the Education Department wasn’t sure how to proceed, but after two weeks of apparent deliberation, the decision was made that students who attended schools run by Corinthian would be eligible to have their federal student debt forgiven, a move that could cost taxpayers some $3.6 billion.

Should the government crackdown on for-profit institutions continue, the taxpayer bill could run into the tens, if not hundreds of billions. For the Education Department, it’s a choice between eradicating fraud and saddling taxpayers with the bill once the schools are closed.

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GOVERNMENT USING SUBPRIME MORTGAGES TO PUMP HOUSING RECOVERY – TAXPAYERS WILL PAY AGAIN

It seems hard to believe, but your government is purposely recreating the mortgage debacle of 2007 and putting you on the hook for the billions in losses coming down the road. In their frantic effort to generate the appearance of economic recovery they are willing to gamble with taxpayer’s money while luring unsuspecting blue collar folks into buying houses they can’t afford. During the previous housing bubble, greedy Wall Street bankers, deceitful mortgage brokers, and corrupt rating agencies colluded to commit the greatest control fraud in the history of mankind. This time it is your government, aided and abetted by the Federal Reserve, that is actively promoting the lending of money to people incapable of paying it back. And again, you the taxpayer will be on the hook when it predictably blows up.

The FHA, created during the first Great Depression, is supposed to be self-sustaining through mortgage insurance premiums charged to homeowners, just like Fannie, Freddie, Medicare, Social Security, and student loan lending were supposed to be self- sustaining through taxes, fees, and interest. This agency was supposed to promote homeownership for lower income Americans, but has been used by politicians as a tool to capture votes, payoff crony capitalist benefactors, and as a Keynesian stimulus tool designed to kindle a fake housing recovery. They entered the fray at the tail end of the last Fed/Wall Street created housing bubble, insuring a huge number of subprime mortgage loans from 2007 through 2009. The taxpayer has already had to bail out this incompetent, politically motivated, joke of an agency to the tune of $1.7 billion in 2014.

Edward J. Pinto, a former Fannie Mae official, estimates that under standard accounting practices the agency is already insolvent to the tune of $25 billion. Mark to fantasy accounting hasn’t just benefitted the criminal Wall Street cabal, but also the bloated pig government housing agencies – Fannie, Freddie and the FHA. The FHA’s share of new loans with mortgage insurance stood at 16.4% in 2005 and currently stands at 44.3%. This is a ridiculously high level considering the percentage of first time home buyers is near all-time lows and low income buyers have lower real median household income than they had in 2005. Distinguished congresswoman Maxine Waters, who once declared: “We do not have a crisis at Freddie Mac, and particularly Fannie Mae, under the outstanding leadership of Frank Raines.”, prior to them imploding and costing taxpayers $187 billion in losses, thinks the FHA is doing a bang up job. Her financial acumen is unquestioned, so you can expect another bailout in the near future.

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On February 7, 2009 Bernanke Admitted What It Was All About

Submitted by Tyler Durden on 03/04/2015 13:44 -0500

Back on February 7, 2009, one month before the Fed unveiled its massive (for its time) first episode of Quantitative Easing, the Federal Reserve was flailing. And, as revealed today by the latest annual batch of Fed transcript releases, precisely one month before the Fed commenced monetizing tens of billions in government debt and MBS, Bernanke held perhaps the longest conference call in the Fed’s history (the transcript alone is 65 pages) in which he revealed that he was working on something entirely different: an “aggregator bank” concept, which would have been essentially a quasi-nationalization of the US banks whereby Fed funds is commingled with the bank’s capital in order to avert public attention from the trillions of bad assets on the bank books.

It is during the discussion of this plan, which mysteriously disappeared from the Fed’s plan of action between February 7 and a month later, when America set off on its path from which 7 years later it is still unable to ween itself (and in fact now everyone else is also pursuing QE), that we learn for a fact precisely what most have suspect if not known for a fact, namely that the resulting “bailout” of the US economy by way of QE was nothing more than a way to keep bank shareholders “thrilled.”

From the February 7 transcript:

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BREAKING BAD (DEBT) – EPISODE ONE

“At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” – Fed chairman, Ben Bernanke, Congressional testimony, March, 2007

“Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich.” – James Grant, Grant’s Interest Rate Observer

The Federal Reserve issued their fourth quarter Report on Household Debt and Credit last week to the sounds of silence in the mainstream media. There were minor press releases issued by the “professional” financial journalists regurgitating the Federal Reserve’s storyline. Actual analysis, connecting the dots, describing how the massive issuance of student loan and auto loan debt has produced a fake economic recovery, and how the accelerating default rates in auto loans and student loans will produce the next subprime debt implosion, were nowhere to be seen on CNBC, Bloomberg, the WSJ, or any other status quo propaganda media outlet. Their job is not to analyze or seek truth. Their job is to keep their government patrons and Wall Street advertisers happy, while keeping the masses sedated, misinformed, and pliable.

Luckily, the government hasn’t gained complete control over the internet yet, so dozens of truth telling blogs have done a phenomenal job zeroing in on the surge in defaults. The data in the report tells a multitude of tales conflicting with the “official story” sold to the public. The austerity storyline, economic recovery storyline, housing recovery storyline, and strong auto market storyline are all revealed to be fraudulent by the data in the report. Total household debt grew by $117 billion in the fourth quarter and $306 billion for the all of 2014. Non-housing debt in the 4^th quarter of 2008, just as the last subprime debt created financial implosion began, was $2.71 trillion. After six years of supposed consumer austerity, total non-housing debt stands at a record $3.15 trillion. This is after hundreds of billions of the $2.71 trillion were written off and foisted upon the backs of taxpayers, by the Wall Street banks and their puppets at the Federal Reserve.

The corporate media talking heads cheer every increase in consumer debt as proof of economic recovery. In reality every increase in consumer debt is just another step towards another far worse economic breakdown. And the reason is simple. Real median household income is still below 1989 levels. The average American family hasn’t seen their income go up in 25 years. What they did see was their chains of debt get unbearably heavy. Non-housing consumer debt (credit card, auto, student loan, other) was $800 billion in 1989.

Continue reading “BREAKING BAD (DEBT) – EPISODE ONE”

BAILOUT NATION

If the economy is growing and corporate profits are at all time highs, why did the cumulative deficit of the PBGC double in the last year? This fake corporation (aka Fannie & Freddie) is bleeding cash to the tune of $62 billion. You are on the hook. Even though Obama and his minions report declining deficits, these numbers are nowhere to be found in the deficit numbers, even though they will need to be bailed out by the Federal government. Imagine the losses when the financial system cracks again.

So the company that bails out defunct pension plans needs a bailout. Of course, as you can see by the truly shocking charts below, the entity bailing them out is also insolvent. Who bails out the entity that bails out the pension bailout entity?

Do you see what a farce this has become?

I think it is time to bailout on this fucked up system.

US Pension Insurer Needs a Bailout

By Pater Tenebrarum

A Growing Shortfall

The Pension Benefit Guaranty Corporation is insuring the pensions of more than 40 million Americans employed in the private sector that have defined benefit pensions. We hadn’t been aware that it has run deficits for 12 years running, but it apparently has – and it is adding up. At the moment, the fund has a cumulative deficit of $62 billion. It has reportedly doubled just over the past year:

“The deficit run up by the federal agency that insures pensions for about 41 million Americans has nearly doubled, to $62 billion. And the agency says that without changes, its program for pension plans covering 10 million of those workers will be insolvent within 10 to 15 years. It was the widest deficit in the 40-year history of the Pension Benefit Guaranty Corp., which has now run shortfalls for 12 straight years. The gap grew wider in recent years because the weak economy triggered more corporate bankruptcies and failed pension plans.

If the trend continues, the agency could need an infusion of taxpayer funds to pay retirees, who are guaranteed their pensions by law. The PBGC said Monday that the increased deficit was due to worsening finances of some multi-employer pension plans, which are pension agreements between labor unions and a group of companies, usually in the same industry. The $62 billion deficit reported for the year ended Sept. 30 compared with $36 billion in the previous fiscal year. Labor Secretary Thomas Perez said fixing the problem is vital to the retirement security of the nation’s middle-class. Agency officials called for Congress to enact legislation submitted by President Barack Obama designed to shore up the program’s finances. The PBGC was created in 1974 as a government insurance program for traditional employer-paid pension plans, which have become much less common in recent decades as most employers turn to retirement accounts such as 401(k)s.

The traditional plans are most prevalent in industries such as auto manufacturing, steel and airlines. If an employer can no longer support its pension plan, the PBGC takes over the assets and liabilities, and pays promised benefits to retirees up to certain limits. The agency didn’t name the multi-employer plans that it expects to run out of money or how many are involved. It said they represent a minority of the total 1,400 or so multi-employer pension plans, which cover about 10 million workers. “Plans covering over 1 million participants are substantially underfunded, and without legislative changes, many of these plans are likely to fail,” PBGC Acting Director Alice Maroni said in a statement. The agency said in its annual report that it has “sufficient liquidity to meet its obligations for a number of years.”

The agency said the deficit in its multi-employer insurance program jumped to $42.4 billion in the budget year that ended on Sept. 30, from $8.3 billion in 2013. By contrast, the deficit in the single-employer program shrank to $19.3 billion from $27.4 billion as the economy strengthened. The PBGC reported that its pension obligations grew by $30.9 billion in fiscal 2014, to $151.5 billion. Assets used to cover those obligations increased by only $4.9 billion, to $89.8 billion. Rep. John Kline, R-Minn., chairman of the House Education and Workforce Committee, called the multi-employer insurance program “a ticking time bomb that will inflict a lot of pain on workers, employers, taxpayers and retirees if Congress fails to act.”

(emphasis added) To summarize: in spite of its $62 billion deficit, the insurance fund will only be insolvent in another 10 to 15 years, ceteris paribus. Although this qualification is not mentioned above, it is an important one. What if the economy suffers another severe downturn, which seems a nigh certain outcome of the many years of bubble blowing by assorted central banks? Even in the muddle through scenario currently assumed to continue, the fund will require a tax payer bailout (this is what “Congress needs to act” means). We wonder how the fund invests its assets, given the rather paltry growth of same (after all, it also receives fees from the companies the pension plans of which it insures).

Conclusion:

We actually come across stories bemoaning the underfunding of pension plans on a regular basis. This is a problem that not only concerns defined benefit plans. Now we learn that the insurer of these pension plans is actually busy going down the drain as well. However, the government, which is supposed to bail the insurer out, has also begun to bleed red ink in its social security fund – and that deficit is going to grow and grow for many years to come.

Social security: from a surplus that was spent, to a deficit that is growing inexorably year after year – click to enlarge.

If one adds the projected medicare deficits to this, things look a lot worse still:

Social security and medicaid deficits combined – click to enlarge.

And now there is yet another hole that needs to be plugged. Charts by: Heritage Foundation, Wikipedia

THE RETAIL DEATH RATTLE

“I was part of that strange race of people aptly described as spending their lives doing things they detest, to make money they don’t want, to buy things they don’t need, to impress people they don’t like.” ― Emile Gauvreau

If ever a chart provided unequivocal proof the economic recovery storyline is a fraud, the one below is the smoking gun. November and December retail sales account for 20% to 40% of annual retail sales for most retailers. The number of visits to retail stores has plummeted by 50% since 2010. Please note this was during a supposed economic recovery. Also note consumer spending accounts for 70% of GDP. Also note credit card debt outstanding is 7% lower than its level in 2010 and 16% below its peak in 2008. Retailers like J.C. Penney, Best Buy, Sears, Radio Shack and Barnes & Noble continue to report appalling sales and profit results, along with listings of store closings. Even the heavyweights like Wal-Mart and Target continue to report negative comp store sales. How can the government and mainstream media be reporting an economic recovery when the industry that accounts for 70% of GDP is in free fall? The answer is that 99% of America has not had an economic recovery. Only Bernanke’s 1% owner class have benefited from his QE/ZIRP induced stock market levitation.

Source: WSJ

The entire economic recovery storyline is a sham built upon easy money funneled by the Fed to the Too Big To Trust Wall Street banks so they can use their HFT supercomputers to drive the stock market higher, buy up the millions of homes they foreclosed upon to artificially drive up home prices, and generate profits through rigging commodity, currency, and bond markets, while reducing loan loss reserves because they are free to value their toxic assets at anything they please – compliments of the spineless nerds at the FASB. GDP has been artificially propped up by the Federal government through the magic of EBT cards, SSDI for the depressed and downtrodden, never ending extensions of unemployment benefits, billions in student loans to University of Phoenix prodigies, and subprime auto loans to deadbeats from the Government Motors financing arm – Ally Financial (85% owned by you the taxpayer). The country is being kept afloat on an ocean of debt and delusional belief in the power of central bankers to steer this ship through a sea of icebergs just below the surface.

The absolute collapse in retail visitor counts is the warning siren that this country is about to collide with the reality Americans have run out of time, money, jobs, and illusions. The most amazingly delusional aspect to the chart above is retailers continued to add 44 million square feet in 2013 to the almost 15 billion existing square feet of retail space in the U.S. That is approximately 47 square feet of retail space for every person in America. Retail CEOs are not the brightest bulbs in the sale bin, as exhibited by the CEO of Target and his gross malfeasance in protecting his customers’ personal financial information. Of course, the 44 million square feet added in 2013 is down 85% from the annual increases from 2000 through 2008. The exponential growth model, built upon a never ending flow of consumer credit and an endless supply of cheap fuel, has reached its limit of growth. The titans of Wall Street and their puppets in Washington D.C. have wrung every drop of faux wealth from the dying middle class. There are nothing left but withering carcasses and bleached bones.

The impact of this retail death spiral will be vast and far reaching. A few factoids will help you understand the coming calamity:

There are approximately 109,500 shopping centers in the United States ranging in size from the small convenience centers to the large super-regional malls.
There are in excess of 1 million retail establishments in the United States occupying 15 billion square feet of space and generating over $4.4 trillion of annual sales. This includes 8,700 department stores, 160,000 clothing & accessory stores, and 8,600 game stores.
U.S. shopping-center retail sales total more than $2.26 trillion, accounting for over half of all retail sales.
The U.S. shopping-center industry directly employed over 12 million people in 2010 and indirectly generated another 5.6 million jobs in support industries. Collectively, the industry accounted for 12.7% of total U.S. employment.
Total retail employment in 2012 totaled 14.9 million, lower than the 15.1 million employed in 2002.
For every 100 individuals directly employed at a U.S. regional shopping center, an additional 20 to 30 jobs are supported in the community due to multiplier effects.

The collapse in foot traffic to the 109,500 shopping centers that crisscross our suburban sprawl paradise of plenty is irreversible. No amount of marketing propaganda, 50% off sales, or hot new iGadgets is going to spur a dramatic turnaround. Quarter after quarter there will be more announcements of store closings. Macys just announced the closing of 5 stores and firing of 2,500 retail workers. JC Penney just announced the closing of 33 stores and firing of 2,000 retail workers. Announcements are imminent from Sears, Radio Shack and a slew of other retailers who are beginning to see the writing on the wall. The vacancy rate will be rising in strip malls, power malls and regional malls, with the largest growing sector being ghost malls. Before long it will appear that SPACE AVAILABLE is the fastest growing retailer in America.

The reason this death spiral cannot be reversed is simply a matter of arithmetic and demographics. While arrogant hubristic retail CEOs of public big box mega-retailers added 2.7 billion retail square feet to our already over saturated market, real median household income flat lined. The advancement in retail spending was attributable solely to the $1.1 trillion increase (68%) in consumer debt and the trillion dollars of home equity extracted from castles in the sky, that later crashed down to earth. Once the Wall Street created fraud collapsed and the waves of delusion subsided, retailers have been revealed to be swimming naked. Their relentless expansion, based on exponential growth, cannibalized itself, new store construction ground to a halt, sales and profits have declined, and the inevitable closing of thousands of stores has begun. With real median household income 8% lower than it was in 2008, the collapse in retail traffic is a rational reaction by the impoverished 99%. Americans are using their credit cards to pay their real estate taxes, income taxes, and monthly utilities, since their income is lower, and their living expenses rise relentlessly, thanks to Bernanke and his Fed created inflation.

The media mouthpieces for the establishment gloss over the fact average gasoline prices in 2013 were the second highest in history. The highest average price was in 2012 and the 3rd highest average price was in 2011. These prices are 150% higher than prices in the early 2000’s. This might not matter to the likes of Jamie Dimon and Jon Corzine, but for a middle class family with two parents working and making 7.5% less than they made in 2000, it has a dramatic impact on discretionary income. The fact oil prices have risen from $25 per barrel in 2003 to $100 per barrel today has not only impacted gas prices, but utility costs, food costs, and the price of any product that needs to be transported to your local Wally World. The outrageous rise in tuition prices has been aided and abetted by the Federal government and their doling out of loans so diploma mills like the University of Phoenix can bilk clueless dupes into thinking they are on their way to an exciting new career, while leaving them jobless in their parents’ basement with a loan payment for life.

The laughable jobs recovery touted by Obama, his sycophantic minions, paid off economist shills, and the discredited corporate legacy media can be viewed appropriately in the following two charts, that reveal the false storyline being peddled to the techno-narcissistic iGadget distracted masses. There are 247 million working age Americans between the ages of 18 and 64. Only 145 million of these people are employed. Of these employed, 19 million are working part-time and 9 million are self- employed. Another 20 million are employed by the government, producing nothing and being sustained by the few remaining producers with their tax dollars. The labor participation rate is the lowest it has been since women entered the workforce in large numbers during the 1980’s. We are back to levels seen during the booming Carter years. Those peddling the drivel about retiring Baby Boomers causing the decline in the labor participation rate are either math challenged or willfully ignorant because they are being paid to be so. Once you turn 65 you are no longer counted in the work force. The percentage of those over 55 in the workforce has risen dramatically to an all-time high, as the Me Generation never saved for retirement or saw their retirement savings obliterated in the Wall Street created 2008 financial implosion.

To understand the absolute idiocy of retail CEOs across the land one must parse the employment data back to 2000. In the year 2000 the working age population of the U.S. was 213 million and 136.9 million of them were working, a record level of 64.4% of the population. There were 70 million working age Americans not in the labor force. Fourteen years later the number of working age Americans is 247 million and only 144.6 million are working. The working age population has risen by 16% and the number of employed has risen by only 5.6%. That’s quite a success story. Of course, even though median household income is 7.5% lower than it was in 2000, the government expects you to believe that 22 million Americans voluntarily left the labor force because they no longer needed a job. While the number of employed grew by 5.6% over fourteen years, the number of people who left the workforce grew by 31.1%. Over this same time frame the mega-retailers that dominate the landscape added almost 3 billion square feet of selling space, a 25% increase. A critical thinking individual might wonder how this could possibly end well for the retail genius CEOs in glistening corporate office towers from coast to coast.

This entire materialistic orgy of consumerism has been sustained solely with debt peddled by the Wall Street banking syndicate. The average American consumer met their Waterloo in 2008. Bernanke’s mission was to save bankers, billionaires and politicians. It was not to save the working middle class. You’ve been sacrificed at the altar of the .1%. The 0% interest rates were for Jamie Dimon and Lloyd Blankfein. Your credit card interest rate remained between 13% and 21%. So, while you struggle to pay bills with your declining real income, the Wall Street bankers are again generating record profits and paying themselves record bonuses. Profits are so good, they can afford to pay tens of billions in fines for their criminal acts, and still be left with billions to divvy up among their non-prosecuted criminal executives.

Bernanke and his financial elite owners have been able to rig the markets to give the appearance of normalcy, but they cannot rig the demographic time bomb that will cause the death and destruction of our illusory retail paradigm. Demographics cannot be manipulated or altered by the government or mass media. The best they can do is ignore or lie about the facts. The life cycle of a human being is utterly predictable, along with their habits across time. Those under 25 years old have very little income, therefore they have very little spending. Once a job is attained and income levels rise, spending rises along with the increased income. As the person enters old age their income declines and spending on stuff declines rapidly. The media may be ignoring the fact that annual expenditures drop by 40% for those over 65 years old from the peak spending years of 45 to 54, but it doesn’t change the fact. They also cannot change the fact that 10,000 Americans will turn 65 every day for the next sixteen years. They also can’t change the fact the average Baby Boomer has less than $50,000 saved for retirement and is up to their grey eye brows in debt.

With over 15% of all 25 to 34 year olds living in their parents’ basement and those under 25 saddled with billions in student loan debt, the traditional increase in income and spending is DOA for the millennial generation. The hardest hit demographic on the job front during the 2008 through 2014 ongoing recession has been the 45 to 54 year olds in their peak earning and spending years. Combine these demographic developments and you’ve got a perfect storm for over-built retailers and their egotistical CEOs.

The media continues to peddle the storyline of on-line sales saving the ancient bricks and mortar retailers. Again, the talking head pundits are willfully ignoring basic math. On-line sales account for 6% of total retail sales. If a dying behemoth like JC Penney announces a 20% decline in same store sales and a 20% increase in on-line sales, their total change is still negative 17.6%. And they are still left with 1,100 decaying stores, 100,000 employees, lease payments, debt payments, maintenance costs, utility costs, inventory costs, and pension costs. Their future is so bright they gotta wear a toe tag.

The decades of mal-investment in retail stores was enabled by Greenspan, Bernanke, and their Federal Reserve brethren. Their easy money policies enabled Americans to live far beyond their true means through credit card debt, auto debt, mortgage debt, and home equity debt. This false illusion of wealth and foolish spending led mega-retailers to ignore facts and spread like locusts across the suburban countryside. The debt fueled orgy has run out of steam. All that is left is the largest mountain of debt in human history, a gutted and debt laden former middle class, and thousands of empty stores in future decaying ghost malls haunting the highways and byways of suburbia.

The implications of this long and winding road to ruin are far reaching. Store closings so far have only been a ripple compared to the tsunami coming to right size the industry for a future of declining spending. Over the next five to ten years, tens of thousands of stores will be shuttered. Companies like JC Penney, Sears and Radio Shack will go bankrupt and become historical footnotes. Considering retail employment is lower today than it was in 2002 before the massive retail expansion, the future will see in excess of 1 million retail workers lose their jobs. Bernanke and the Feds have allowed real estate mall owners to roll over non-performing loans and pretend they are generating enough rental income to cover their loan obligations. As more stores go dark, this little game of extend and pretend will come to an end. Real estate developers will be going belly-up and the banking sector will be taking huge losses again. I’m sure the remaining taxpayers will gladly bailout Wall Street again. The facts are not debatable. They can be ignored by the politicians, Ivy League economists, media talking heads, and the willfully ignorant masses, but they do not cease to exist.

“Facts do not cease to exist because they are ignored.” – Aldous Huxley

THE SUBPRIME FINAL SOLUTION

The MSM did their usual spin job on the consumer credit data released earlier this week. They reported a 5.4% increase in consumer debt outstanding to an ALL-TIME high of $3.051 trillion. In the Orwellian doublethink world we currently inhabit, the consumer taking on more debt is seen as a constructive sign. Consumer debt has grown by 5.8% over the first nine months of 2013, after growing by 6.1% in 2012 and 4.1% in 2011. The storyline being sold by the corporate MSM propaganda machine, serving the establishment, is that consumers’ taking on debt is a sure sign of economic recovery. They must be confident about the future and rolling in dough from their new part-time jobs as Pizza Hut delivery men. Plus, they are now eligible for free healthcare, compliments of Obama, once they can log-on.

Of course, buried at the bottom of the Federal Reserve press release and never mentioned on CNBC or the other dying legacy media outlets is the facts and details behind the all-time high in consumer credit. They count on the high probability the average math challenged American has no clue regarding the distinction between revolving and non-revolving credit or who controls the distribution of such credit. It is fascinating examining the historical data on the Federal Reserve website and realizing how far we’ve fallen as a society in the last 45 years.

http://www.federalreserve.gov/releases/g19/HIST/cc_hist_sa_levels.html

Revolving credit is a fancy term for credit card debt. Imagine our society today without credit cards. That sounds outrageous to the debt addicted populace inhabiting our suburban wasteland and urban badlands. What is truly outrageous is the fact we have allowed ourselves to be duped into $846 billion of revolving credit card debt charging an average interest rate of 13% by Wall Street bankers who have used the American Dream of a better life as the bait to lure a dumbed down easily manipulated populace into believing that material possessions purchased with high interest debt represented advancement rather than servitude. Debt accumulation is seen as a badge of honor. Keeping up with the Joneses is all that matters. Our shallow culture has no notion about the concept of deferred gratification or saving to pay for your wants.

A shocking fact (to historically challenged government educated drones) revealed by the Federal Reserve data is that credit card debt did not exist prior to 1968. How could people live their lives without credit cards? It must have been a nightmare. You mean to tell me when people wanted new clothes, jewelry, a TV, or to eat out at a restaurant, they actually had to save up the cash to do so? What kind of barbaric system would make you live within your means? The Depression era adults had somehow survived for over two decades after WWII without buying cheap foreign crap they didn’t need with money they didn’t have using a piece of plastic with a Wall Street bank logo emblazoned on the front.

1968 marked a turning point for America. LBJ’s welfare/warfare state had begun the downward spiral of a once rational country. We chose guns and butter, with the bill being charged to the national credit card. It was fitting that Wall Street introduced the credit card in 1968.

There were 200 million Americans in 1968 and $2 billion of credit card debt outstanding, or $10 per person.
By 1980 there were 227 million Americans and $54 billion of credit card debt outstanding, or $238 per person.
By 1990 there were 249 million Americans and $230 billion of credit card debt outstanding, or $924 per person.
By 2000 there were 281 million Americans and $650 billion of credit card debt outstanding, $2,313 per person.
By July of 2008 credit card debt outstanding peaked at $1.022 trillion and the population was 304 million, with credit card debt per person topping out at $3,361 per person.

Over the course of 40 years, the population of this country grew by 52%. Credit card debt grew by 51,000%. Credit card debt per person grew by 33,600%. This was a case of credit induced mass hysteria and it continues today. Have the American people benefitted from this enslavement in chains of debt? I’d venture to answer no. Who benefitted? The corporate fascist oligarchy of Wall Street banks, mega-corporations sourcing their crap from Chinese slave labor factories, and politicians in the back pockets of the bankers and corporate CEOs benefitted.

The evil oligarch scum grew too greedy and blew up the worldwide financial system in 2008. Since July 2008 credit card debt has declined by $175 billion, with the majority of the decrease from banks writing off bad debt and passing it along to the American taxpayer through their TARP bailout and 0% money from their puppet Bernanke. It bottomed out at $834 billion in April 2011 and has only grown by a miniscule $13 billion in the last 29 months, and only $1.7 billion in the last twelve months. The muppets have refused to cooperate by running up those credit cards. Not having jobs, paying 40% more for health insurance due to Obamacare, and real inflation exceeding 5% on the things they need to live, have caused some hesitation among the delusional masses. Even a government educated, math challenged, iGadget addicted moron realizes their credit card is the only thing standing between them and living in a cardboard box on a street corner.

Your owners have been forced to implement Plan B. The monster they have created is like a shark. The debt must keep growing or the monster will die. In 2008, the oligarchs were staring into the abyss. Their wealth, power and control were in grave jeopardy. Rather than accept the consequences of their actions like men and allowing the economy to return to normalcy, these weasels have doubled down by accelerating the debt production and dropping it from helicopters to subprime borrowers across the land, like unemployed construction workers named Gus getting a degree in liberal arts from the University of Phoenix while sitting in their basement in boxer shorts. The Federal Reserve Black Hawks are hovering over the inner cities dropping Bennie Bucks on the very same people they put in McMansions with no doc negative amortization subprime mortgages in 2005, so they can occupy Cadillac Escalades for a couple years before defaulting again. The appearance of normalcy is crucial to the evil oligarchs as they attempt to pillage the remaining loot in this country.

Before the credit card was rolled out in 1968, there was non-revolving debt strictly related to auto loans made by banks and credit unions. The Federal government was nowhere to be found in the mix as banks and consumers made economic decisions based upon risk and reward. There were $110 billion of loans outstanding to a population of 200 million, or $550 per person. The Federal government stuck their nose into the free market with the creation of Sallie Mae in the 1970’s. But they were still a miniscule portion of total consumer debt at $115 billion in 2008, or only 11% of total consumer debt outstanding. The chart below from Zero Hedge reveals what has happened since the oligarchs crashed the financial system with their vampire squid blood sucking tentacles syphoning the lifeblood from the American middle class. Non-revolving debt has increased from $1.65 trillion in July 2008 to $2.2 trillion today, solely due to Obama and his minions doling out subprime auto and student loan debt to anyone that can scratch an X on a loan document.

If middle class consumers were unwilling to borrow and spend, the oligarchs were going to use their control over the government to dole out billions to subprime borrowers in a final, ultimately futile, attempt to keep this Ponzi scheme going for a while longer. The subprime game worked wonders in the final phase of the housing bubble. And now the losses will fall solely on the 50% of Americans who actually pay taxes. It wasn’t a mistake the Federal government took complete control of the student loan market in 2009. It isn’t a mistake the only TARP recipient the Feds have not attempted to disengage from happens to be the largest issuer of subprime auto loans in the world – Ally Financial (aka GMAC, Ditech, ResCap).

In 2008 there was $730 billion of student loan debt outstanding, of which the Federal government was responsible for $120 billion. Five short years later there is $1.2 trillion of student loan debt outstanding and the Federal government (aka YOU the taxpayer) is responsible for $716 billion. Using my top notch math skills, I’ve determined that student loan debt has risen by $470 billion, while Federal government issuance of student loan debt has expanded by $600 billion. The rational risk adverse lenders have reduced their exposure to the most subprime borrowers on earth, undergrads at the University of Phoenix and thousands of other “for profit” educational black holes across the country. Only an organization who didn’t care about getting repaid would lend billions to borrowers without a job, hope of a job, or intellectual ability to hold a job. A critical thinking person might wonder why student loan debt would rise by almost $500 billion in 5 years when college enrollment has grown by only 2 million. That comes to $250,000 per additional student.

The Federal government couldn’t possibly have distributed $500 billion to anyone with a pulse as a way to manipulate the national unemployment rate lower, because anyone in school is not considered unemployed. Do you think the $500 billion was spent on tuition and books? Or do you think those “students” used it to buy iGadgets, HDTVs, weed and Twitter stock? With default rates already at all-time highs and accelerating skyward and $146 billion of loans already in default, you don’t need a PhD from the University of Phoenix (where default rates exceed 30%) like Shaq to realize the American taxpayer is going to get it good and hard once again.

My personal observations during my daily trek through the slums of West Philly would befuddle someone who didn’t understand the oligarch scheme to create an artificial auto recovery by distributing auto loans to deadbeats, the SNAP army, and hip hop nitwits. As I maneuver quickly through the West Philly badlands in my four year old paid off compact car praying I don’t get caught in gang crossfire, I see an inordinate number of brand new BMWs, Mercedes, Lexus, Cadillacs, and Jaguars parked in front of $20,000 dilapidated fleapits that tend to collapse during heavy rain storms. The real unemployment rate in these garbage strewn, disintegrating neighborhoods exceeds 50%. The median household income is less than $20,000. Over 40% of the adult population hasn’t graduated high school and 63% of the population lives below the poverty level. These people put the “sub” in subprime. How can anyone in this American version of third world Baghdad afford to drive a $40,000 vehicle? The answer is they can’t. But you the taxpayer, out of the goodness of your heart and without your knowledge, have loaned them the money so they can cruise around West Philly in Jay Z or Kanye style.

Bernanke’s ZIRP creates the environment for mal-investment and reckless lending. With the Federal government owned Ally Financial leading the charge, the miraculous auto sales recovery is nothing but a bad loan driven illusion. With the Federal government pushing subprime loans like a West Philly drug dealer, the Too Big To Trust Wall Street cabal have followed suit providing financing to deadbeats with FICO scores of 500, no job, but a nice smile. When you can borrow from the Fed at 0% and loan money to SNAP nation at 18%, with a Bernanke unspoken promise to bail them out when the inevitable defaults come as a complete shock, this is why you see thousands of luxury automobiles parked in the urban kill zones across America.

Zero Hedge documented the new subprime bubble in a story earlier this week. As auto dealers allow losers with sub-500 FICO scores to drive off their lots with new cars, ZH summarized the next taxpayer bailout:

“No Car, no FICO score, no problem. The NINJAs have once again taken over the subprime asylum.”

Someone with a 500 FICO score has defaulted on multiple debt obligations in the recent past. The issuance of hundreds of billions of subprime debt can give the appearance of economic growth for a short period of time, just like it did from 2004 through 2007. Then it all collapsed in a heap because the debt eventually must be repaid. Cash flow is required to service debt. Maybe the West Philly subprime Mercedes drivers can trade their SNAP cards for cash to make their car loan payments, since they don’t have jobs. Even the captured MSM is being forced to admit the truth.

While surging light-vehicle sales have been one of the bright spots in the U.S. economy, it’s increasingly being fueled by borrowers with imperfect credit. Such car buyers account for more than 27 percent of loans for new vehicles, the highest proportion since Experian Automotive started tracking the data in 2007. That compares with 25 percent last year and 18 percent in 2009, as lenders pulled back during the recession. Issuance of bonds linked to subprime auto loans soared to $17.2 billion this year, more than double the amount sold during the same period in 2010, according to Harris Trifon, a debt analyst at Deutsche Bank AG. The market for such debt, which peaked at about $20 billion in 2005, was dwarfed by the record $1.2 trillion in mortgage bonds sold that year.

When has packaging subprime loans, getting them rated AAA by a trustworthy ratings agency, and selling them to little old ladies and pension funds, ever caused a problem before? With subprime auto loan issuance accounting for 50% of all car loans and an average loan to value ratio of 114.5%, what could possibly go wrong? Think about that for one minute. The government and Wall Street banks are loaning deadbeats $33,000 of your money to buy a $30,000 car, despite the fact the high school dropout borrower doesn’t have a job and has a history of defaulting on their obligations.

Can you really blame the borrowers? For the second time in the last decade the rich folk have generously offered to let them experience the good life, with debt that is never expected to be repaid. The people in West Philly live in rat infested, rundown, leaky shacks waiting for the 1st of the month to get their EBT card recharged. They have nothing, so they have nothing to lose. When the MAN offered to loan them $300,000 in 2005 so they could buy their very own McMansion, what did they have to lose? They got to live in a fancy house for a few years until they were booted out by the bank and left in exactly the same spot they were before the MAN came along. These people don’t even know what a FICO score means.

Now the MAN has knocked on their hovel door again and offered to put them in a brand spanking new Cadillac Escalade with no money down, requiring no proof of employment, and no prospects of repaying the loan. Hallelujah, there is a God!!! They get to tool around West Philly for a year or two impressing their fellow SNAP recipients until the repo man shows up and absconds with their wheels. They will be left right where they were, hoofing it with their $200 Air Jordans. Anyone with an ounce of brains (eliminates Cramer & Bartiromo) can see this will end exactly as all easy money, Federal Reserve propagated, and government sanctioned scams end.

“Perhaps more than any other factor, easing credit has been the key to the U.S. auto recovery,” Adam Jonas, a New York-based analyst with Morgan Stanley, wrote in a note to investors last month. The rise of subprime lending back to record levels, the lengthening of loan terms and increasing credit losses are some of factors that lead Jonas to say there are “serious warning signs” for automaker’s ability to maintain pricing discipline.

In the last year 99% of all consumer debt issued was doled out by government drones, with no interest in getting repaid, to subprime deadbeats, with no interest in repaying. It’s a match made in subprime heaven with your tax dollars. As an Ivy League educated Wall Street banker CEO once said:

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Chuck “Doing the Boogie Woogie” Prince – FORMER CEO of Citicorp – July 2007

You see it is always about liquidity, also known as Bernanke Bucks or QEternity. Without Bernanke and his Federal Reserve sycophants printing $2.8 billion of new money every single day, shoveling it into the grubby hands of his Wall Street bank bosses and a corrupt fetid festering pustule of a government running trillion dollar deficits and showering your money on loafers and welfare queens, this subprime final solution would not be possible. This is an exact replay of the subprime mortgage debacle, except the oligarchs have cut out the middleman. Holding the American people hostage for the $700 billion TARP bailout proved to be messy, with 90% of Americans against the “Save a Corrupt Criminal Banker” scheme. This time, there will not be a vote in Congress when the hundreds of billions in subprime student loans and subprime auto loans go bad and become the responsibility of the few remaining American taxpayers. What’s another few hundred billion among friends when our annual deficits soar past $1 trillion, our national debt approaches $20 trillion, and our unfunded entitlement liabilities exceed $200 trillion?

When the music stopped in 2008, Chuck Prince bopped away with a $40 million severance package and you were left to sweep the confetti off the floors, pick up the empty champagne bottles and caviar plates, scrub the vomitorium, and pay for all the damages that occurred during the sordid subprime orgy of greed, lust, gluttony, envy and sloth. Somehow the distracted, techno-narcissistic, easily duped zombies have been lured into the subprime web of deceit again. We have only ourselves to blame as the corporate fascist oligarchs implement their final solution for the American middle class and our once proud nation – a bullet to the back of the head.

UNFORGIVEN – PART FIVE

“You’d be William Munny out of Missouri, killer of women and children”. – Little Bill Daggett – Unforgiven

“That’s right, I’ve killed women and children, I’ve killed just about everything that walked or crawled at one time or another, and I’m here to kill you Little Bill, for what you did to Ned” – Willam Munny – Unforgiven

Funny thing, killin’ a man. You take away everything he’s got and everything he’s gonna have. – William Munny – Unforgiven

Clint Eastwood’s final western was one of the darkest, most violent, vicious westerns ever made. Much of the film takes place in darkness. The tone of the film is depressing, with a drained wintery look reminiscent of High Plains Drifter. The script had been written in 1976 during our last Awakening, but Eastwood held off making the movie until 1991 when he was old enough to play the lead role. Age, stages of life, and mood are key elements in the movie, as they are in the plot playing out in the world today. Unforgiven is a story of atonement, justice and retribution. The cold forbidding atmosphere reflects a Fourth Turning mood. We’ve entered our hibernal Crisis, with its violent struggles and compulsory sacrifices in an era of maximum danger and ultimately a fight for survival. This decisive test of human strength and fortitude was as predictable as the change in seasons. Strauss and Howe understood the generational dynamics of the country would align to create the mood change which would usher in the third Fourth Turning in American history:

“The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.” – Strauss & Howe – The Fourth Turning

Unforgiven follows the journey of William Munny, a cold blooded vicious bandit in his youth, turned peaceful farmer in his old age. As a widower with two kids and a failing farm, he agrees to kill two cowboys who had disfigured a prostitute in the town of Big Whiskey, in return for a reward of $1,000. In his youth he drank heavily and murdered for fun, now he was killing for money. The town is run with an iron fist by an aging gunfighter, turned sheriff, named Little Bill Daggett, who doesn’t allow guns in his town. Munny and his two companions arrive amidst a driving rain storm in the middle of the night. They proceed to execute the two cowboys, but both of Munny’s companions reveal they don’t have a stomach for killing anymore. After collecting the reward, Munny finds out that his friend Ned was captured, tortured, and murdered by Little Bill Daggett. He takes a drink of whiskey and the tale turns into a story of retribution and atonement. He arrives back in town in the pitch black of night and enters the saloon where Little Bill and his men are gathered. He guns down six men, including Little Bill. As he lies on the floor wounded, Bill laments that he doesn’t deserve to die this way. Munny declares:

“deserves got nothin’ to do with it.”

Bill tells Munny he will “see him in hell”, a sentiment which Munny agrees with. Munny then kills him. There is no rousing ending. No cheers from the audience. The ugliness of violence is portrayed realistically and myths of the Old West are demolished. You are left to meditate about the concepts of age, repute, courage, heroism and the fine line between good and evil.

The themes, atmosphere, violence, brutality and finale of this eulogy to the western genre are a perfect representation of our current dire circumstances. The town of Big Whiskey represents the United States. The sheriff rules with an iron fist over the population, but his cronies can get away with murder. Hypocrisy abounds across the U.S. as politicians use the rule of law to keep the masses controlled while rewarding their corporate and banker cronies with government handouts, tax breaks, and free money. I see Munny, his companions and the prostitutes as symbols of the flawed citizens of the United States. They’ve made mistakes, committed crimes, made poor life choices, but they ultimately tried to make an honest living as upstanding citizens. When the authorities pushed them to the brink with their overbearing regulations, brazen criminal actions and blatant institutional corruption, each constituent reacted differently. Some responded with defiance, most rolled over, some ran away, and Munny responded with viciousness and retribution.

This is how it will play out over the next ten to fifteen years. Cynicism about solutions put forth by corrupt politicians, distrust of government bureaucrats and crooked bankers, and a society wide demoralization, as widespread unemployment and declining living standards for middle class Americans has darkened the landscape like an approaching winter storm. The disillusionment of average Americans is reflected in poll after poll, with only 20% of the population satisfied with the direction of the country versus 70% just prior to 9/11. The mood change in the country since 2005 is palpable. The gap between the Haves and the Have Nots has never been greater and continues to widen. The middle class has floundered for decades, while bankers, politicians and corporate titans have reaped vast riches through peddling debt and gaming a system rigged in their favor.

Recent data from the Pew Foundation finds that Americans are sick of being the world’s policeman. Even conservative Republicans are becoming more isolationist in their views. This was also the case during the 1930’s in the last Fourth Turning. The vast majority of Americans want to keep our noses out of other countries’ affairs because they realize the trillions spent are bankrupting the country.

Even though Americans, by a large majority, favor slashing foreign aid, ending our three foreign wars of aggression, and no longer allowing the super rich and mega-corporations to use the 60,000 page tax code as their means to avoid taxes, our leaders increase war spending, continue to meddle in the affairs of foreign countries, and seek further tax benefits for the super rich and mega-conglomerates. The will of the people is ignored because the government has been bought by the financial and military industrial complex, with funding by the Federal Reserve and the banking cartel that pulls the strings on their puppet – Ben Bernanke.

I’ve previously detailed how the baby boom generation contributed to our financial quandary in Part One – For a Few Dollars More, how the traitorous deeds of the Federal Reserve over the last few decades have ruined the middle class and placed the country on the precipice of disintegration in Part Two – Fistful of Dollars, addressed the nefarious conception of a central bank in Part Three – The Good, the Bad, and the Ugly and revealed how the super rich have used the tax code and their control of politicians to pillage the nation in Part Four – Outlaw Josey Wales. Now I will detail the likely result of years of frivolous consumerism, creation of a debt tsunami, corrupt myopic leadership, crooked bankers, and a angry despondent populace. The lack of preparation by government and individuals ensures this Crisis will be far worse than it had to be. The violent clash between competing forces will be extreme, bloody and result in retribution dished out to the guilty. Ultimately, the country will need to atone for its sins.

Preparation

“Reflect on what happens when a terrible winter blizzard strikes. You hear the weather warning but probably fail to act on it. The sky darkens. Then the storm hits with full fury, and the air is a howling whiteness. One by one, your links to the machine age break down. Electricity flickers out, cutting off the TV. Batteries fade, cutting off the radio. Phones go dead. Roads become impossible, and cars get stuck. Food supplies dwindle. Day to day vestiges of modern civilization – bank machines, mutual funds, mass retailers, computers, satellites, airplanes, governments – all recede into irrelevance. Picture yourself and your loved ones in the midst of a howling blizzard that lasts several years. Think about what you would need, who could help you, and why your fate might matter to anybody other than yourself. That is how to plan for a saecular winter. Don’t think you can escape the Fourth Turning. History warns that a Crisis will reshape the basic social and economic environment that you now take for granted.” – Strauss & Howe – The Fourth Turning

This Fourth Turning was as predictable as the seasons. The American Revolution Crisis ended in 1794. The Civil War Crisis arrived 66 years later in 1860. That abbreviated vicious Crisis ended in 1865. The Depression/World War II Crisis arrived 64 years later in 1929. Our current Crisis arrived in the 2008/2009 time frame, exactly 64 years after the end of the last Crisis. Strauss and Howe wrote their book in 1996. They knew we had about a decade to prepare for the looming winter ahead. We had time to fortify, prepare, save, not waste our seed corn on foreign adventures, and reduce all non-essential spending. Not only did we not do what needed to be done, we did the exact opposite of what needed to be done.

The reason is the country has been run by ideologue linear thinkers. Believers in linear history are constantly blindsided by the fact that history is cyclical and periods of progress are counterbalanced by periods of regression. As neo-con Republicans continue to push their lowering taxes on the rich, Christian fundamentalism, drill drill drill energy plan, bowing down to Wall Street bankers and wars on Muslims, drugs, and immigrant agenda, the mood of the country has shifted away from their falsehoods and fabrications. As ultra-liberal Democrats continue to push their agenda of ever increasing entitlements, ridiculous Keynesian stimulus, disengenuous green energy plans, blind support of corrupt unions, wars to prove they’re as tough as Republicans, pushing for gay marriage and rolling over for Wall Street bankers the people of the country have tired of their lies and deceit.

Our country had a decade to prepare for the coming tempest. All generations should have worked to elevate the moral and cultural standards of the country. Instead the decadence, selfishness, materialism and profligacy of the nation were taken to new heights. The complete lack of self control exercised by the media and the public has allowed government bureaucrats to impose despotic laws and regulations to protect us from ourselves and phantom terrorists. The Federal government needed to cut back its size and scope so that it would be nimble in the face of the Crisis. Politicians needed to prevent further civic decay by speaking bluntly and honestly to the American people about the future challenges, while stressing collective duties over personal rights. We needed a revival of citizenship over individualism, with a focus on future generations who would be left with the fallout of thirty years of debt induced societal degradation. The government should have shifted its budgetary focus away from the non-needy old to the young people of our once great Republic. The future of the country depends on the young, not the old. The preparation scorecard on all these accounts is a miserable failure:

Since 9/11 the American public has willingly allowed the government to strip liberties and freedoms away in the name of safety and security through passage of the Patriot Act, spying on US citizens, and wars of aggression in Iraq, Afghanistan and Libya.
The government wolves control the sheep through the use of fear and misinformation. The War on Terrorism is used at every opportunity to keep the sheep-like populace under control in their holding pens.
The corporate owned mainstream media glorifies wealth, celebrity, and sensationalism while infecting the culture with a vapid mind numbing array of TV shows and spewing toxic levels of filth and porn across the airwaves and internet.
The Federal government cut back its scope by increasing its annual spending to $3.8 trillion in 2011 versus the $1.6 trillion it spent in 1996, a 138% increase in fifteen years. Meanwhile, GDP only increased by 92% over this same time frame.

Our leaders prepared for the tough times ahead by increasing the National Debt from $5.2 trillion to $14.3 trillion in fifteen years, a 175% increase, or almost twice the rate of GDP growth. Rational leaders always triple their debt level when knowing harsh times are coming.
The blunt talk coming from politicians since 1996 included: buy an SUV with 0% financing to defeat terrorism; sure we can pay for your drug costs with Medicare Part D; home prices never fall and everyone deserves a house; free market capitalism always works; cutting taxes on the rich will increase tax revenue; they have weapons of mass destruction; debt doesn’t matter; giving bankers $700 billion will save our economy; spending $800 billion will generate 3.5 million jobs; and QE2 will reduce mortgage rates and jump start the economy.
Our leaders have thrown the Millenial generation under the bus, while promising to never cut Medicare, Medicaid, or Social Security for the 76 million Boomers that make up the largest voting bloc in the country. The collective long-term survival of the country has been cast aside in the name of the selfish desires of the generations in power.

The lack of cultural and civic preparation has been far outdone by the extraordinarily deficient amount of preparation in the economic and military areas. Everyone knows that when you discern tumultuous times are on the horizon, you conserve, save, and marshal your forces for the coming storm. Our leaders needed to level with Americans and tell them the entitlements they were promised could never be honored. Americans needed to ramp up their savings and become more self reliant in preparing for their old age. Federal, state and local governments needed to shift their employees from defined benefit plans to defined contribution plans. Americans needed to pare back their debt and stop over-consuming. The government needed to balance budgets, reform the tax code shifting toward consumption, and reduce entitlement promises. America needed to gird for a possible war whose scale, cost, manpower and casualties would seem impossible in 1996 (every prior Fourth Turning led to all encompassing war). The preparation scorecard for these areas was dreadful:

The most damning data in proving how delusional the government, consumers, businesses and banks has approached the future is the rise in total credit market debt from $18 trillion in 1996 to an all-time high of $52.6 trillion today, or 350% of GDP.

Rather than level with people and explain that entitlement promises could not be fulfilled, a supposedly fiscal conservative Republican President added another $15 trillion unfunded liability to our $100 trillion obligation.

Our current socialist president rammed through a national healthcare bill that will filter 30 million people into the system and will add in excess of $1 trillion of unpaid for costs, further burying the hopes and dreams of our youth under a mountain of un-payable obligations.
Americans, who used to save 10% of their disposable income, were only saving 5.5% in 1996. Rather than prepare for the future by saving more, they put their faith in housing values growing 10% per year for infinity, and let their savings rate drop below 1% by 2005. The current level of 4.9% is not sufficient and is reflected in the fact that two-thirds of all workers have less than $50,000 in total savings.

States have unfunded pension liabilities approaching $3 trillion, with the Federal government carrying a $1 trillion pension liability. Unfunded liabilities are really future tax increases on unborn generations.
The one area that seemed under control in the late 1990s was budget deficits. Budget surpluses in the late 1990s turned into $1.5 trillion annual deficits today and as far as the eye can see. The national debt at 95% of GDP has past the point of no return.
The price for a barrel of oil was $12 in 1998. Rather than take advantage of this Indian summer and creating a plan to transition from depleting oil to other energy sources, our leaders did nothing. The American people bought massive SUVs, minivans and pickups and moved further into the suburban countryside, miles from civilization. The bumpy plateau of peak oil has arrived and oil prices have ranged between $70 and $140 a barrel for the last few years. We will long for these prices in a few short years.

Rather than conserving our military forces and preparing for a future major confrontation we have overextended our limited forces, spent $1.2 trillion on wars of choice, killed 7,300 American soldiers, and wounded another 43,000 soldiers.

The complete lack of preparation, indeed the choice to actively do the opposite of prepare, has insured this Fourth Turning Crisis will be that much more destructive.

“History offers no guarantees. If America plunges into an era of depression or violence which by then has not lifted, we will likely look back on the 1990s as the decade when we valued all the wrong things and made all the wrong choices.” – Strauss & Howe – The Fourth Turning

Retribution

“The refusal of the political class to imposes losses on large bank creditors since the collapse of Lehman Brothers and Washington Mutual in 2008 illustrates the extent to which the financialization of the western industrial economies has turned into a gradual coup d’état by the banks and the global speculators who dominate their client base.” – Chris Whalen

“We’re not moving toward Hitler-type fascism, but we’re moving toward a softer fascism: Loss of civil liberties, corporations running the show, big government in bed with big business. So you have the military-industrial complex, you have the medical-industrial complex, you have the financial industry, you have the communications industry. They go to Washington and spend hundreds of millions of dollars. That’s where the control is. I call that a soft form of fascism — something that’s very dangerous.” – Ron Paul

As the average American continues their epic struggle to stay afloat in these turbulent times it is clear to those with critical thinking skills, like Chris Whalen and Ron Paul, that the game is rigged in favor of those with enormous wealth and power. There is no doubt the levers of government and finance have been seized by a super rich minority of men, willing to use all means necessary to increase their wealth and power at the expense of those they consider lowly expendable peasants. The myth perpetuated by those in control of the system is that everyone in America has ample opportunity to move up the ladder, even as they push the ladders away from the parapet surrounding their castle.

The talking points of the super rich, which are pounded into the brains of slumbering Americans, are they pay all the taxes, create all the jobs, create all the wealth, and drive innovation. The facts say otherwise. The super rich aren’t creators, they are destroyers. The top 0.1% richest Americans didn’t get rich by creating new companies and letting their entrepreneurial talents shine. These 152,000 people, with an average income of $5.6 million per year are overwhelmingly executives at large corporations, banks, law firms, and real estate firms. These people account for 68% of the richest of the rich. Entrepreneurial creators and producers account for less than 10% of the richest Americans. The executives that make up the 68% are masters of creating debt, wealth for themselves by peddling debt to the middle class, and creating jobs in China and India by outsourcing U.S. jobs.

The average income of the 137 million people that sit at the bottom of the income pyramid has declined by 1% since 1970. The people at the top of the pyramid saw their average income rise by 385%. Was this because they worked harder? No. It was because they used their existing wealth to buy politicians and pay lobbyists to write laws, create loopholes, reduce regulations, and alter the tax code in their favor. This was not a conspiracy. It was human nature. Humans are driven by greed and fear. Lusting for power and wealth is a common human frailty. Those who are able to acquire wealth and power through their superior abilities and intellect are usually driven individuals. It is built into their DNA to seek more wealth and power. There are 310 million Americans and based on the chart below, only 1.5 million would be classified as very rich or extremely rich. Many of these people associate in the same circles. This incestuous relationship is what breeds the growing inequality in our country. The game is rigged in favor of these 1.5 million people because they run the corporations, occupy the halls of Congress, peddle the debt products to the bottom 90%, and use their mass media to control the message to the under-educated, over-medicated, gadget distracted masses.

The problem with humans is they always push the envelope too far. The rich and powerful have methodically accumulated more wealth and more power since their glorious coup in 1913 with the creation of the Federal Reserve and the personal income tax. They have used inflation and the tax code to further their agenda. The rate of their pillaging has waxed and waned over the last century as the mood of the country has oscillated during the five turnings between crisis and triumph. The rate of looting has accelerated in the last thirty years as their false message of free market capitalism, lower tax rates for the rich, and the issuance of unparalleled amounts of debt was bought hook line and sinker by the American public. Their plundering of the national wealth reached a sickening crescendo in the last ten years, as their internet bubble was replaced by their housing bubble, which has been replaced by their debt bubble of immense proportions. As the middle class has been impoverished, 30 million people are unemployed or underemployed, senior citizens have been sacrificed at the altar of Wall Street and 45 million people are forced to use food stamps, the top 1% has done fabulously. They continue to rake in a greater proportion of the national income every year. In 2009, in the midst of an epic financial crisis, the number of millionaires in the United States soared by 16% to 7.8 million as despair and hopelessness spread across the land and fearful Americans were railroaded into bailing out the bankers that initiated the crisis and believing the Obama’s Keynesian solutions would actually trickle down to them.

As the game approaches its inevitable termination those in control have become increasingly audacious and frantic in their attempts to embezzle what remains of middle class wealth. The anger and disillusionment grows by the day. The mood of the country darkens like the sky before an approaching blizzard. The intensity and violence during a Fourth Turning hastens as events spiral toward a climax. The extreme actions taken by those in power since September 2008 have set in motion a chain of events that will lead to civil war. The powerful elite in government (Bush, Paulson, Bernanke, Congress) chose to bail out the powerful elite on Wall Street (Blankfein, Dimon, Pandit, Lewis) on the backs of the American middle class. TARP, QE1, QE2, and the $800 billion stimulus package were all created by the ruling elite to benefit the ruling elite, who control the vast amount of financial wealth in the country. Savers and seniors have been thrown under the wheels of a Lamborghini driven by the profligate Wall Street gamblers.

Average Americans feel betrayed by politicians, bankers and corporate America. The Tea party movement is a reflection of that anger. Fourth Turnings always sweep away the old order and replace it with a new order. The old order isn’t ready to be swept away, but their time is coming. The U.S. economic model is unsustainable and is guaranteed to collapse in the near future. Those in power are trying to engineer a controlled collapse, but they will lose control just as they did in 2008. Panic and depression will ensue. Vast amounts of wealth will be destroyed. When the middle class realizes they have been screwed again by Wall Street and K Street, and they no longer have anything left to lose, they will lose it.

The welfare class will only riot if their EBT cards stop working and the monthly welfare direct deposit ceases. It’s the critical thinkers in the middle class that will lead a revolution. There are 250 million guns owned by Americans. With this amount of firepower and millions of Americans with nothing left to lose, those attempting to retain power will be at a distinct disadvantage. I believe armed vigilantes will hunt down those responsible for the destruction of the American economy and invoke their own justice. Their gated communities and penthouse suite doormen will not protect them. No politician, banker, or corporate executive will be safe. Some will escape in their Lear jets to foreign lands, but the rest of the world will be equally chaotic and unsafe for those who committed crimes against humanity. Innocent people will die. Deserve will have nothing to do with it. The very existence of our country will hang in the balance.

Atonement

“The seasons of time offer no guarantees. For modern societies, no less than for all forms of life, transformative change is discontinuous. For what seems an eternity, history goes nowhere – and then it suddenly flings us forward across some vast chaos that defies any mortal effort to plan our way there. The Fourth Turning will try our souls – and the saecular rhythm tells us that much will depend on how we face up to that trial. The saeculum does not reveal whether the story will have a happy ending, but it does tell us how and when our choices will make a difference.” – Strauss & Howe – The Fourth Turning

“Don’t think you can escape the Fourth Turning the way you might today distance yourself from news, national politics, or even taxes you don’t feel like paying. History warns that a Crisis will reshape the basic social and economic environment that you now take for granted. The Fourth Turning necessitates the death and rebirth of the social order. It is the ultimate rite of passage for an entire people, requiring a luminal state of sheer chaos whose nature and duration no one can predict in advance.” – Strauss & Howe – The Fourth Turning

No one can predict the exact events (debt ceiling, Euro collapse, Middle East war) that will propel this Fourth Turning. But, the underlying drivers are clear: public debt, private debt, banker coup, military overreach, corporate fascism, Federal Reserve created inflation, an oil dependent society with depleting oil and rampant corruption across all levels of government. The fingers of instability grow longer as we add $4 billion per day to the national debt. A grain of sand will fall on the wrong part of the sand pile triggering a collapse of our currency. The event is unknown, the timing unclear, but the destination is certain. A dollar collapse will trigger a surge in interest rates, which will be fatal to our debt bloated society. Every previous Fourth Turning involved revolutionary aspects. The American Revolution and Civil War were wars of revolution. The stirrings of revolution were rampant in the early 1930s, with a plot foiled by General Smedley Butler. The New Deal was a response designed to quell discontent among the masses. Enough people are becoming aware of who to blame for the ills in our society that Henry Ford’s prediction is ever closer to being realized:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before morning.”

An uprising against the super rich and their banking cartel partners in crime is in the cards over the next ten years. Our society has degenerated and has been ransacked by sociopaths in suits as Jesse from Jesse’s Café Americain so eloquently states:

“Not all sociopaths wield knives and knotted cords. Some wear suits, and are exceptionally intelligent and articulate, obsessively driven, and are able to use and undermine the law and the rules for their advantage, like weapons. It is never about the win, never about the money. It is about the kill, the expression of their hatred, about elevating themselves with the suffering of others. Bind, torture, kill. Not only with ropes and knives, but also with power and money, and the subversion of law. Lawlessness is their addiction, their will to power.

When societies become lax and complacent, these sociopaths can possess great political power through great amounts of unprincipled money. And over time they become almost anti-human, destroyers of all that is good, all that is life, all that offends their insatiable sickness with its goodness. They twist the public against itself, and turn a broad sweep of society into their killing grounds. This is the undeniable lesson of the last century. There are monsters, and they walk among us.”

Human beings are a flawed species. We are often driven by emotion rather than reason. We are easily convinced of things we want to be convinced about. Those with superior intelligence often take advantage of those with inferior intelligence. We are prone to mass hysteria and believing things that, in retrospect, were utterly ridiculous. We can be swayed by fear and greed in alternating degrees of delusion. History teaches us that this time isn’t different. We’ve experienced depression, war and social upheaval on an epic scale three times since the founding of this country. With only three data points it is tough to discern patterns that would reveal exactly how this Fourth Turning will play out. But it is apparent to me that each Fourth Turning alternates between a mostly external struggle and a mostly internal struggle. The American Revolution was a struggle against an external oppressor – Great Britain. The Civil War was an internal struggle between the industrial North and the agrarian South. The Depression/World War II struggle was mainly against an external threat – Germany, Japan, and Italy.

The Fourth Turnings that centered upon an external threat ended with a glorious High. The Civil War Fourth Turning resolution felt more like defeat, with the country exhausted, bitter and angry. All indications are this Fourth Turning will be mainly an internal struggle between the ruling class of bankers, business elites, and politicians and the downtrodden middle class. The lying, cheating, fraud, theft and other wrongs committed by those in power will need to be atoned for. The generational dynamics in place will drive the reactions of the country moving forward. We have been badly led. A vast swath of the populace has lived beyond their means. The existing system is unsustainable. The Boomer generation does not want to yield on their perceived entitlements. The Millenial generation will be saddled with un-payable debts. Generation X is caught in the middle of this generational struggle. The huge imbalances in our society have built up over decades like flood waters behind a weakening levee. When the levee breaks the existing order will be swept away in the raging torrent that will follow.

The ruling class will be stripped of their unseemly acquired wealth; the Boomer generation will be scorned for their reckless disregard for future generations and stripped of their entitlements; Generation X will resign themselves to a lower standard of living, knowing full well by doing so, their children will not be saddled with crushing levels of debt; Millenials will have borne the burden of the revolution and violence which will be inevitable as the ruling class fights to retain their dominating position in society. Darkness descends upon our land. Storm clouds gather on the horizon. We’ve all played a part in the catastrophe that lies before us. Everyone in our crumbling society will need to atone for its sins, whether they deserve to or not. Will Munney was not an innocent man, but he ultimately atoned for his sins by digging deep into his soul and finding the strength and fortitude to fight the evil establishment. Each generation’s rendezvous with destiny awaits. There are no guarantees. The myth of American Exceptionalism will not protect us from the choices we’ve made. God will not shield us from the consequences of our actions. The American Empire hangs in the balance. As the ghosts of Roman emperors whisper – Glory is fleeting.

“The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.” – Strauss & Howe – The Fourth Turning

“History offers no guarantees. Obviously, things could go horribly wrong – the possibilities ranging from a nuclear exchange to incurable plagues, from terrorist anarchy to high-tech dictatorship. We should not assume that Providence will always exempt our nation from the irreversible tragedies that have overtaken so many others: not just temporary hardship, but debasement and total ruin. Losing in the next Fourth Turning could mean something incomparably worse. It could mean a lasting defeat from which our national innocence – perhaps even our nation – might never recover.” – Strauss & Howe – The Fourth Turning

THE AUTO RECOVERY IS A TAXPAYER FINANCED SCAM

The two stories below tell me all I need to know about the great auto recovery. I bet you didn’t know that GM and the rest of the automakers record their sales when the vehicles are shipped to their dealers. Zero Hedge has been all over the channel stuffing being done by Government Motors for the last two years as they now have 60% more vehicles sitting on dealer lots than two years ago, even though sales are up less than 20%. And now we see that Obama is doing his union bretheren a favor and buying GM cars like they’re going out of style. You the American taxpayer are subsidizing GM, just as you took the $50 billion hit when Obama screwed bondholders using your money.

Lastly, we know for a fact that Ally Financial (aka GMAC) is still 85% owned by you. It is dishing out subprime auto loans like SNAP cards in West Philly. Moody’s is already warning about the coming disastrous losses that will be experienced by YOU the taxpayer when all these crap loans go bad. But that doesn’t matter to Obama. There is an election to be won. The losses to the American taxpayer will come in 2013 and 2014. Don’t expect the MSM to fill you in on the government scam. They are part of the scam, as their ad revenue is dependent on car ads. What a great country.

GM Finds Creative New Ways To “Stuff Channels”, Get Backdoor Taxpayer Bailouts

Submitted by Tyler Durdenon 07/06/2012 12:53 -0400

Zero Hedge readers know that we have long followed channel stuffing trends at GM, whose month-end dealer inventory hit a record (for the post-reorg company which is completely different from the pre-bankruptcy entity) of 713K cars stuck in various dealer “channels” at the end of March 2012, and since then has been stagnant at just about 700K, with the most recent June number coming at 701K, an increase of 6K over May. It would be great to assume that the company has given up on cheap ways to cheat investors and the taxpaying public into believing it is doing better. It would also be wrong. As it turns out, GM has merely turned to more backdoor methods of stuffing channels, and getting money from its biggest shareholders, which still happens to be Joe Sixpack (and “superpriority” labor unions of course) by way of the US Treasury, with 32% of the common stock.

The NLPC explains:

It looks like General Motors will be throwing everything in but the kitchen sink to help fluff its second quarter earnings numbers. Taxpayers continue to help with the cause as President Obama campaigns on the “success” of GM following the manipulated bankruptcy process that cost taxpayers $50 billion and another $45 billion of tax credits gifted to GM to help protect powerful UAW interests. We now learn that government purchases of GM vehicles rose a whopping 79% in June.

As a reminder, this is how GM’s general channel stuffing looked like for all its vehicles:

However there is a rather important data subset here:

According to a Bloomberg report, “GM said inventory of its full-size pickups, which will be refreshed next year, climbed to 238,194 at the end of June, a 135 days supply, up from 116 days at the end of May.” 135 days supply is huge, the accepted norm is a 60 day supply. The trick here is that GM records revenue when vehicles go into dealership inventories, not when actually sold to consumers.

This is how pickup truck channel stuffing looked in the period that the company has released the data, or since December 2011. Not pretty.

And while we all know by now that the tried and true mechanism to channel stuff is a staple when it comes to fooling the buyside as to its business efficacy, the fact that its biggest shareholder has become a key marginal client of GM should make one’s head spin at the Ponziness of the transaction:

The government’s increased spending on GM vehicle purchases presents yet another conflict of interest as Treasury refuses to sell taxpayers’ stake in GM and Obama campaigns on the auto bailouts. It does not appear that any members of Congress (from either party) are questioning the increased spending. Also ignored was the Department of Energy’s gifting of $2.7 million of taxpayer money to GM to reduce energy consumption in its door manufacturing process by 50%. The DOE seems to be one of the main conduits to funnel taxpayer funds to cronies of the Administration. The $2.7 million contribution to GM comes after additional millions of dollars were spent by the DOE on advisory fees paid to legal firms that helped smooth the way for the GM bankruptcy process (as reported here); another move that went unquestioned.

And there is more:

GM claimed that sales increases did not rely on incentive spending, which appeared to remain in check, but one analyst during GM’s sales conference call questioned whether the company’s “stair step” incentive spending was accurately depicted. This incentive spending kicks in after dealerships report final sales figures for the month and may be yet another deceptive way for GM to fudge its numbers. Not mentioned was GM card rewards programs that do not get counted as incentive spending.

Why is GM forced to succumb to such increasingly more deceptive practices? Why simple presidential election politics of course: when a failed company like GM is destined to symbolize the “success” of one’s administration, there aren’t many straws one can latch on to.

The upcoming earnings announcement by GM is, politically, the most important to date. The pressure is on Government Motors to appear financially strong as this may be the last earnings report before November elections and sets the stage for how “successful” GM is. One of GM’s past tricks to help fudge earnings numbers has been to stuff truck inventory channels. Old habits die hard at GM.

The article goes on to quote Kelley Blue Book’s Alec Gutierrez who stated “They’re (GM) likely going to have a relatively high days supply of trucks moving forward and they’re already placing some pretty aggressive cash incentives on the hood. It’s going to eat into their profit margins…”

GM’s earnings announcement comes on August 2nd. The main headwinds will be weak European operations and growing pension liabilities. The headline number for earnings should be viewed skeptically and an eye kept on the share price reaction after the conference call. Expect Government Motors to put a positive spin on its financial health as the stakes are now at their highest. The long-term health of GM remains in question and the true financial picture may not surface until well after voters decide who will be running our country. Eventually we will see just how successful GM really is.

At the end of the day, all of this is noise. If China retaliates in kind to the recen escalation by Obama vis-a-vis alleged Chinese deceptive trade practices, the GM will soon be able to kiss half of its top line, and who knows how much of its margin and bottom line goodbye. Because when half of your sales go to the one country which America’s non-existent (and unionized) manufacturing base loves to hate, the last thing you want is to bite the hand the pays the bills. Yet this is precisely what is going on as the politics of this country become so misguided that in the pursuit of a few extra votes, the administration is willing to sacrifice what little clout and momentum the recently bankrupted automaker may have generated.

In the meantime, looks for channel stuffing and direct government purchases to soar to unseen levels in the weeks and months heading into the presidential election as GM (and its 40% stock price drop since the IPO) will certainly be a key debate point between the Democrats and the GOP.

Moody’s: Hot US subprime auto lending market has parallels to the 1990s

Global Credit Research – 28 Jun 2012

New York, June 28, 2012 — The subprime auto lending market in the US is developing a resemblance to its condition in the early- and mid-1990s, when overheated competition among lenders led to poor underwriting that drove up losses, says Moody’s Investors Service in a new report. As in that earlier period, capital is pouring into the sector and the issuance of subprime auto asset-backed securities (ABS) is booming.

“It is too early to predict whether today’s subprime lending market will deteriorate as it did in the 1990s, but the early similarities between then and now suggest that losses will climb if competition intensifies,” says Moody’s Vice President Peter McNally, author of the report “US Subprime Auto Lending Market Harkens Back to 1990s.”

Over the last two years, because of the sector’s profitability, a large amount of private equity investment has gone into the subprime auto lenders, many of which are relatively small, specialty finance companies, says Moody’s.

Moody’s says the interest of investors from outside the subprime auto market niche and the potential for increased competition carry the risk that losses could increase if a race for profits and market share lowers underwriting standards. The growth in the market can lead to capacity issues, says Moody’s McNally. “When losses rise quickly, inexperienced lenders have trouble servicing a loan portfolio that requires more attention.”

In the 1990s, the number of small lenders boomed, leading to intense competition for loans that in turn led to weak underwriting and high losses on securitized loans. Net losses in subprime auto ABS, according to Moody’s, jumped from under 3% in early 1995 to over 10% in December 1997.

For the past several years subprime auto loan performance has been strong, with the net loss rate currently below 4%. However, the credit quality of pools securitized in 2011 and 2012 indicate that credit has loosened since 2010, says Moody’s.

Issuance of subprime auto ABS is on pace this year to exceed the robust issuance of 2011, which comprised 24 deals, totaling $14.3 billion.

Moody’s notes several differences between today’ s market and the overheated market of the 1990s.

One credit positive for today’s market is that most lenders no longer practice gain on sale accounting, whereby lenders capitalized securitization gains and credited them to equity, which made their balance sheets look stronger than they were.

Another is that the market is not yet overcrowded with new lenders. Moody’s counts 13 active securitizers at the moment, compared with 34 issuers in 1997.

An important credit negative is that transactions are no longer backed by monoline guarantors. These bond insurers absorbed losses on transactions that would have otherwise defaulted in the 1990s and took over transaction servicing from failing lenders.

CAUSE, EFFECT & THE FALLACY OF A RETURN TO NORMALCY

“Thousands upon thousands are yearly brought into a state of real poverty by their great anxiety not to be thought of as poor.” – Robert Mallett

I hear the term de-leveraging relentlessly from the mainstream media. The storyline that the American consumer has been denying themselves and paying down debt is completely 100% false. The proliferation of this Big Lie has been spread by Wall Street and their mouthpieces in the corporate media. The purpose is to convince the ignorant masses they have deprived themselves long enough and deserve to start spending again. The propaganda being spouted by those who depend on Americans to go further into debt is relentless. The “fantastic” automaker recovery is being driven by 0% financing for seven years peddled to subprime (aka deadbeats) borrowers for mammoth SUVs and pickup trucks that get 15 mpg as gas prices surge past $4.00 a gallon. What could possibly go wrong in that scenario? Furniture merchants are offering no interest, no payment deals for four years on their product lines. Of course, the interest rate from your friends at GE Capital reverts retroactively to 29.99% at the end of four years after the average dolt forgot to save enough to pay off the balance. I’m again receiving two to three credit card offers per day in the mail. According to the Wall Street vampire squids that continue to suck the life blood from what’s left of the American economy, this is a return to normalcy.

The definition of normal is: “The usual, average, or typical state or condition”. The fallacy is calling what we’ve had for the last three decades of illusion – Normal. Nothing could be further from the truth. We’ve experienced abnormal psychotic behavior by the citizens of this country, aided and abetted by Wall Street and their sugar daddies at the Federal Reserve. You would have to be mad to believe the debt financed spending frenzy of the last few decades was not abnormal.

The Age of Illusion

“Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.” – Sigmund Freud

In my last article Extend & Pretend Coming to an End, I addressed the commercial real estate debacle coming down the pike. I briefly touched upon the idiocy of retailers who have based their business and expansion plans upon the unsustainable dynamic of an ever expanding level of consumer debt doled out by Wall Street banks. One only has to examine the facts to understand the fallacy of a return to normalcy. We haven’t come close to experiencing normalcy. When retail sales, consumer spending and consumer debt return to a sustainable level of normalcy, the carcasses of thousands of retailers will litter the highways and malls of America. It will be a sight to see. The chart below details the two decade surge in retail sales, with the first ever decline in 2008. Retail sales grew from $2 trillion in 1992 to $4.5 trillion in 2007. The Wall Street created crisis in 2008/2009 resulted in a decline to $4.1 trillion in 2009, but the resilient and still delusional American consumer, with the support of their credit card drug pushers on Wall Street, set a new record in 2011 of $4.7 trillion.

A two decade increase in retail sales of 135% might seem reasonable and normal if wages and household income had grown at an equal or greater rate. But total wages only grew by 125% over this same time frame. Interestingly, the median household income only grew from $30,600 to $49,500, a 62% increase over twenty years. It seems the majority of the benefits accrued to the top 20%, with their aggregate share of the national income exceeding 50% today, versus 47% in 1992 and 43% in the early 1970s. The top 5% are taking home in excess of 21% of the national income versus less than 19% in 1992 and 16% in the early 1970s. It appears the financialization of America, after Nixon closed the gold window and allowed unlimited money printing by the Federal Reserve, has benefitted the few, at the expense of the many. The bottom 80% of households has seen their share of the national income steadily decrease since the early 1970s. There are 119 million households in the United States and 95 million of these households have seen their wages and income stagnate. One might wonder how the 80% were able to fuel a two decade surge in retail sales with such pathetic wage growth.

Your friendly Wall Street banker stepped into the breach and did their part to aid a vast swath of Americans to enslave themselves in debt. As the chart above reveals, the slave owners on Wall Street have been the chief beneficiary of the decades long debt deluge. It seems that charging 18% interest on hundreds of billions in credit card debt can be extremely profitable for the shyster charging the interest. Decades of mailing millions of credit card offers, inundating financially ignorant Americans with propaganda media messages convincing them they needed a bigger house, fancier car, or latest technological gadget and creating complex derivatives that permitted banks to market debt to people guaranteed not to pay them back but not care since they sold the packages of these toxic AAA rated loans to pension funds and little old ladies, has done wonders for earnings per share, stock option awards, executive salaries and bonus pools. It hasn’t done wonders for the net worth of the average American who has been entrapped in the chains of debt, forged link by link over decades of purposeful deception and willful delusion.

The 135% increase in retail sales over two decades may have been slightly enhanced by the 213% increase in consumer credit outstanding. Consumer revolving credit rose from $800 billion to the current level of $2.5 trillion over the last two decades. Those 15 credit cards in our possession were so easy to use that we financed our trips to Dollywood, Sandals, and Euro-Disney, in addition to financing our 72 inch 3D HDTVs, granite countertops, stainless steel appliances, decks, pools, recliners with a built in fridges, home theatre rooms, Coach pocketbooks, Jimmy Cho shoes, Rolex watches, yachts, bigger and better boobs, and of course our smokes and beer. Much has been made about the great de-leveraging by the American consumer. There’s just one inconvenient fact – it hasn’t happened – yet.

Total consumer credit outstanding peaked at $2.58 trillion in July 2008. Today it stands at $2.50 trillion. Revolving credit card debt peaked at $972 billion in September 2008 and subsequently declined to $790 billion by April 2011. It now stands at $801 billion, as living well beyond our means has resumed its appeal. Meanwhile, non-revolving credit for automobiles, boats, student loans, and mobile homes peaked at $1.61 trillion in July 2008 and “crashed” all the way down to $1.58 trillion in May 2010. Once Bennie fired up the printing presses, the government car companies decided to make subprime auto loans again and the Federal government started doling out student loans like a pez dispenser, all was well in the non-revolving consumer loan world. The debt outstanding has soared to $1.7 trillion, a full $90 billion above the pre-crash peak. So, after three and a half years of “austerity” and supposed deleveraging, consumer debt outstanding has fallen by 3%.

The Big Lie of austerity and consumer deleveraging is unquestioned by the talking heads in the mainstream media. They are incapable or unwilling to examine the actual data which substantiates the fact that Americans have NOT deleveraged and have NOT taken austerity to heart. The most basic facts fly in the face of consumers even having the wherewithal to pay down their debt. Median household income has declined from $50,300 in 2008 to $49,400 today. There are 5 million less people employed today than employed in 2008. Total wages in the country have only grown from $6.6 trillion in 2008 to $6.8 trillion today. This increase was concentrated among the .01%, who do not carry credit card debt. They profit from credit card debt. Real disposable personal income has fallen by 5% since the peak in 2008 as Bernanke’s Wall Street bailout zero interest rate policy has caused prices for everything except our houses to surge. The people carrying most of the credit card debt are the least able to pay it off. These are the same people who have swelled the food stamp rolls from 28 million in 2008 to 46.5 million today.

A CNBC bubble headed arrogant bimbo might sarcastically ask, “If the American consumer isn’t deleveraging, than how did revolving credit card debt drop by $182 billion over three years?” Rather than do the minimal research needed to find the answer, they would rather parrot the company/government line. The chart below, compiled from Federal Reserve data, provides the answer. The Wall Street banks have written off $193.3 billion of bad debt since 2008. Now for some basic math, that will probably be over the head of most Wall Street analysts and CNBC parrots. If you start with $972 billion of credit card debt and you write-off $200 billion (assuming another $7 billion in the 4^th Quarter of 2011) and your ending balance is $801 billion, how much debt did the American consumer pay down? It’s a trick question. The American consumer ADDED $29 billion of credit card debt since 2008 to go along with the $90 billion of auto and student loan debt ADDED onto their aching backs. So much for the deleveraging storyline. It’s comforting to convince ourselves we’ve changed, but we haven’t. And the powers that be need you to keep believing, so they can continue to keep you enslaved and under their thumbs.

Consumer Credit Card Debt and Charge-off Data (in Billions):

	Outstanding Revolving Consumer Debt	Outstanding Credit Card Debt	Quarterly Credit Card Charge-Off Rate	Quarterly Credit Card Charge-Off in Dollars
Q3 2011	$793.4	$777.5	5.63%	$10.9
Q2 2011	$787.4	$771.7	5.58%	$10.8
Q1 2011	$779.6	$764.0	6.96%	$13.3
2010	$826.7	$810.2		$75.1
Q4 2010	$825.7	$810.2	7.70%	$15.6
Q3 2010	$806.9	$790.8	8.55%	$16.9
Q2 2010	$817.4	$801.1	10.97%	$22.0
Q1 2010	$828.5	$811.9	10.16%	$20.6
2009	$894.0	$876.1		$83.2
Q4 2009	$894.0	$876.1	10.12%	$22.2
Q3 2009	$893.5	$875.6	10.1%	$22.1
Q2 2009	$905.2	$887.1	9.77%	$21.6
Q1 2009	$923.3	$904.8	7.62%	$17.2
Q4 2008	$989.1	$969.3

(Source: CardHub.com, Federal Reserve)

Loving Our Servitude

“There will be, in the next generation or so, a pharmacological method of making people love their servitude, and producing dictatorship without tears, so to speak, producing a kind of painless concentration camp for entire societies, so that people will in fact have their liberties taken away from them, but will rather enjoy it, because they will be distracted from any desire to rebel by propaganda or brainwashing, or brainwashing enhanced by pharmacological methods. And this seems to be the final revolution.” Aldous Huxley

The American people have come to love their servitude through a combination of self- delusion, corporate mass media propaganda, and an irrational desire to appear successful without making the necessary sacrifices required to become successful. The drug of choice used to corral the masses into their painless concentration camp of debt has been Wall Street peddled financing. Can you think of a better business model than being a Wall Street bank? You hand out 500 million credit cards to 118 million households, even though 60 million of the households make less than $50,000. You then create derivatives where you package billions of subprime credit card debt and convince clueless dupes to buy this toxic debt as if it was AAA credit. When the entire Ponzi scheme implodes, you write-off $200 billion of bad debt and have the American taxpayer pick up the tab by having your Ben puppet at the Federal Reserve seize $450 billion of interest income from senior citizens and re-gift it to you through his zero interest rate policy. You then borrow from the Federal Reserve at 0% and charge an average interest rate of 15% on the $800 billion of credit card debt outstanding, generating $120 billion of interest and charging an additional $22 billion of late fees. Much was made of the closing of credit card accounts after the 2008 financial implosion, but most of the accounts closed were old unused credit lines. Now that the American taxpayer has picked up the tab for the 2008 debacle, the Wall Street banks are again adding new credit card accounts.

With 40% of all credit card users carrying a revolving balance averaging $16,000, they are incurring interest charges of $2,400 per year. Some of the best financial analysts in the blogosphere have been misled by the propaganda spewed by the Wall Street media shills at Bloomberg and CNBC. The following chart, which includes mortgage and home equity debt, gives the false impression households are sensibly deleveraging, as household debt as a percentage of disposable personal income has fallen from 115% in June 2009 to 101% today. As I’ve detailed ad nauseam, $200 billion of the $1.2 trillion of “household deleveraging” was credit card write-offs. The vast majority of the remaining $1 trillion of “deleveraging” could possibly be related to the 5 million completed foreclosures since 2009. Of course, this pales in comparison to the unbelievably foolhardy mortgage equity withdrawal of $3 trillion between 2003 and 2008 by the 1% wannabes. Bloomberg might be a tad disingenuous by excluding the $1 trillion of student loan from their little chart. If student loan debt is included, household debt outstanding surges to $11.5 trillion.

Based on the Bloomberg chart you would assume wrongly that American consumers are using their rising incomes to pay down debt. Besides not actually reducing their debts, the disposable personal income figure provided by the government drones at the BEA includes government transfer payments for Social Security, Medicare, Medicaid, unemployment compensation, food stamps, veterans benefits, and the all- encompassing “other”. Disposable personal income in the 2^nd quarter of 2008 reached $11.2 trillion. It has risen by $500 billion, to $11.7 trillion by the end of 2011. Coincidentally, government social transfers have risen by $400 billion over this same time frame, a 20% increase. Excluding government transfers, disposable personal income has risen by a dreadful 1.1%. For the benefit of the slow witted in the mainstream media, every penny of the social welfare transfers has been borrowed. Only a government bureaucrat could believe that borrowing money from the Chinese, handing it out to unemployed Americans and calling it personal income is proof of deleveraging and austerity.

Household debt as a percentage of wages in 2008 was 185%. Today, after the banks have written off $1.2 trillion of debt, this figure stands at 169%. Meanwhile, total credit market debt in our entire system now stands at an all-time high of $54 trillion, up $3 trillion from 2007. It stands at 360% of GDP. In 1992, total credit market debt of $15.2 trillion equaled 240% of GDP ($6.3 trillion). Was it a sign of a rational balanced economic system that total credit market debt grew by 355% in the last two decades while GDP grew by only 238%? I think it is pretty clear the last two decades have not been normal or built upon a sustainable foundation. In the three decades prior to 1990 household debt as a percentage of disposable personal income stayed in a steady range between 60% and 80%. The current level of 101% is abnormal. In order to achieve a sustainable normal level of 80% will require an additional $2 trillion of debt destruction. No one is prepared for this inevitable end result. The impact of this “real” deleveraging will devastate our consumer dependent society.

The colossal accumulation of debt in the last two decades was the cause and abnormally large retail sales were the effect. The return to normalcy will not be pleasant for consumers, retailers, mall owners, local governments or bankers.

Demographics are a Bitch

In addition to an unsustainable level of debt, the pig in the python (also known as the Baby Boomer generation) will relentlessly impact the future of consumer spending and the approaching mass retail closures. Baby Boomers range in age from 51 to 68 today. The chart below details the retail spending by age bracket. Almost 50% of all retail spending is done by those between 35 years old and 54 years old. This makes total sense as these are the peak earnings years for most people and the period in their lives when they are forming households, raising kids and accumulating stuff. As you enter your twilight years, income declines, medical expenses rise, the kids are gone, and you’ve bought all the stuff you’ll ever need. Spending drops precipitously as you enter your 60’s. The spending wave that began in 1990 and reached its apex in the mid-2000s has crested and is going to crash down on the heads of hubristic retail CEOs that extrapolated unsustainable debt financed spending to infinity into their store expansion plans. The added kicker for retailers is the fact Boomers haven’t saved enough for their retirements, have experienced a twelve year secular bear market with another five or ten years to go, are in debt up to their eyeballs, and have seen the equity in their homes evaporate into thin air in the last seven years. This is not a recipe for a spending up swell.

Demographics cannot be spun by the corporate media or manipulated by BLS government drones. They are factual and unable to be altered. They are also predictable. The four population by age charts below paint a four decade picture of reality that does not bode well for retailers over the coming decade. The population by age data correlates perfectly with the spending spree over the last two decades.

26% of the population in the prime spending years between 35 and 54 years old.
Only 14% of the population over 65 years old indicating reduced spending.

31% of the population in the prime spending years between 35 and 54 years old.
Only 13% of the population over 65 years old indicating reduced spending.

28% of the population in the prime spending years between 35 and 54 years old.
A rising 14% of the population over 65 years old indicating reduced spending.

24% of the population in the prime spending years between 35 and 54 years old.
A rising 17% of the population over 65 years old indicating reduced spending.

The irreversible descent in the percentage of our population in the 35 to 54 year old prime spending age bracket will have and is already having a devastating impact on retail sales. In addition, the young people moving into the 25 to 34 year old bracket are now saddled with $1 trillion of student loan debt and worthless degrees from the University of Phoenix and the other for-profit diploma mills, luring millions with their Federal government easy loan programs. The fact that 40% of all 20 to 24 year olds in the country are not employed and 26% of all 25 to 34 year olds in the country are not working may also play a role in holding back spending, as jobs are somewhat helpful in generating money to buy stuff. Even with Obama as President they will have a tough time getting onto the unemployment rolls without ever having a job. The 55 and over crowd, who have lived above their means for three decades, will be lucky if they have the resources to put Alpo on the table in the coming years. The unholy alliance of debt, demographics and delusion will result in a retail debacle of epic proportions, unseen by retail head honchoes and the linear thinkers in the media and government.

We’re Not in Kansas Anymore Toto

“We tell ourselves we’re in an economic recovery, meaning we expect to return to a prior economic state, namely, a turbo-charged “consumer” economy fueled by easy credit and cheap energy. Fuggeddabowdit. That part of our history is over. We’ve entered a contraction that will seem permanent until we reach an economic re-set point that comports with what the planet can actually provide for us. That re-set point is lower than we would like to imagine. Our reality-based assignment is the intelligent management of contraction. We don’t want this assignment. We’d prefer to think that things are still going in the other direction, the direction of more, more, more. But they’re not. Whether we like it or not, they’re going in the direction of less, less, less. Granted, this is not an easy thing to contend with, but it is the hand that circumstance has dealt us. Nobody else is to blame for it.” – Jim Kunstler

The brilliant retail CEOs who doubled and tripled their store counts in the last twenty years and assumed they were geniuses as sales soared are getting a cold hard dose of reality today. What they don’t see is an abrupt end to their dreams of ever expanding profits and the million dollar bonuses they have gotten used to. I’m pretty sure their little financial models are not telling them they will need to close 20% of their stores over the next five years. They will be clubbed over the head like a baby seal by reality as consumers are compelled to stop consuming. As we’ve seen, just a moderation in spending has resulted in a collapse in store profitability. Retail CEOs have failed to grasp that it wasn’t their brilliance that led to the sales growth, but it was the men behind the curtain at the Federal Reserve. The historic spending spree of the last two decades was simply the result of easy to access debt peddled by Wall Street and propagated by the easy money policies of Alan Greenspan and Ben Bernanke. The chickens came home to roost in 2008, but the Wizard of Debt – Bernanke – has attempted to keep the flying monkeys at bay with his QE1, QE2, Operation Twist, and ZIRP. As the economy goes down for the count again in 2012, he will be revealed as a doddering old fool behind the curtain.

There are 1.1 million retail establishments in the United States, but the top 25 mega-store national chains account for 25% of all the retail sales in the country. The top 100 retailers operate 243,000 stores and account for approximately $1.6 trillion in sales, or 36% of all the retail sales in the country. They are led by the retail behemoth Wal-Mart and they dot the suburban landscape from Maine to Florida and New York to California. These super stores anchor every major mall in America. There are power centers with only these household names jammed in one place (example near my home: Best Buy, Target, Petsmart, Dicks, Barnes & Noble, Staples). These national chains had already wiped out the small town local retailers by the early 2000s as they sourced their goods from China and dramatically underpriced the small guys. The remaining local retailers have been closing up shop in record numbers in the last few years as the ability to obtain financing evaporated and customers disappeared. The national chains have more staying power, but their blind hubris and inability to comprehend the future landscape will be their downfall.

Having worked for one of the top 100 retailers for 14 years, I understand every aspect of how these mega-chains operate. They all approach retailing from a very scientific manner. They have regression models to project sales based upon demographics, drive times, education, average income, and the size of the market. They will build any store that achieves a certain ROI, based on their models. The scientific method works well when you don’t make ridiculous growth assumptions and properly take into account what your competitors are doing and how the economy will realistically perform in the future years. This is where it goes wrong as these retail chains get bigger, start believing their press clippings and begin ignoring the warnings of sober realists within their organizations. When the models show that cannibalization of sales from putting stores too close together will result in a decline in profits, the CEO will tweak the model to show greater same store growth and a larger increase in the available market due to higher economic growth. They assume margins will increase based upon nothing. At the same time, they will ignore the fact their competitor is building a store 2 miles away. Eventually, using foolhardy assumptions and ignoring facts leads to declining sales and profitability.

There is no better example of this than Best Buy. They increased their U.S. store count from 500 in 2002 to 1,300 today. That is a 160% increase in store count. For some perspective, national retail sales grew by 42% over this same time frame. Their strategy wiped out thousands of mom and pop stores and drove their chief competitor – Circuit City – into liquidation. But their hubris caught up to them. There sales per store has plummeted from $36 million per store in 2007 to less than $28 million per store today, a 24% decline in just five years. They have cannibalized themselves and have seen a $6 billion increase in revenue lead to $100 million LESS in profits. It appears the 444 stores they have built since 2007 have a net negative ROI. Top management is now in full scramble mode as they refuse to admit their strategic errors. Instead they cut staff and use upselling gimmicks like service plans, technical support and deferred financing to try and regain profitability. They will not admit they have far too many stores until it is too late. They will follow the advice of an earnings per share driven Wall Street crowd and waste their cash buying back stock. We’ve seen this story before and it ends in tears. I was in a Best Buy last week at 6:00 pm and there were at least 50 employees servicing about 10 customers. Tick Tock.

You would have to be blind to not have noticed the decade long battles between the two biggest drug store chains and the two biggest office supply chains. Walgreens and CVS have been in a death struggle as they have each increased their store counts by 80% to 90% in the last 10 years. Both chains have been able to mask poor existing store growth by opening new stores. They are about to hit the wall. I now have six drug stores within five miles of my house all selling the exact same products. Every Wal-Mart and Target has their own pharmacy. At 2:00 pm on a Sunday afternoon I walked into the Walgreens near my house and there were six employees, a pharmacist and myself in the store. This is a common occurrence in this one year old store. It will not reach its 3rd birthday.

Further along on the downward death spiral are Staples and Office Depot. They both increased their store counts by 50% to 60% in the last decade. Despite adding almost 200 stores since 2007, Staples has managed to reduce their profits. Sales per store have declined by 20% since 2006. Office Depot has succeeded in losing almost $2 billion in the last five years. These fools are actually opening new stores again despite overseeing a 36% decrease in sales per store over the last decade. These stores sell paper clips, paper, pens, and generic crap you can purchase at 100,000 other stores across the land or with a click of you mouse. Their business concept is dying and they don’t know it or refuse to acknowledge it.

Even well run retailers such as Kohl’s and Bed Bath & Beyond have hit the proverbial wall. Remember that total retail sales have only grown by 42% in the last ten years while Kohl’s has increased their store count by 180% and Bed Bath & Beyond has increased their store count by 175%. Despite opening 200 new stores since 2007, Kohl’s profits are virtually flat. Sales per store have deflated by 26% over the last decade as over-cannibalization has worked its magic. Bed Bath & Beyond has managed to keep profits growing as they drove Linens & Things into bankruptcy, but they risk falling into the Best Buy trap as they continue to open new stores. Their sales per store are well below the levels of 2002. Again, there is very little differentiation between these retailers as they all sell cheap crap from Asia, sold at thousands of other stores across the country. With home formation stagnant, where will the growth come from? Answer: It won’t come at all.

The stories above can be repeated over and over when analyzing the other mega-retailers that dominate our consumer crazed society. Same store sales growth is stagnant. The major chains have over cannibalized themselves. Their growth plans were based upon a foundation of ever increasing consumer debt and ever more delusional Americans spending money they don’t have. None of these retailers has factored a contraction in consumer spending into their little models. But that is what is headed their way. They saw the tide go out in 2009 but they’ve ventured back out into the surf looking for some trinkets, not realizing a tsunami is on the way. The great contraction began in 2008 and has been proceeding in fits and starts for the last four years. The increase in retail sales over the last two years has been driven by inflation, not increased demand. The efforts of the Federal Reserve and Wall Street to reignite our consumer society by pushing subprime debt once more will ultimately fail – again. The mega-retailers will be forced to come to the realization they have far too many stores to meet a diminishing demand.

The top 100 mega-retailers operate 243,000 stores. Will our contracting civilization really need or be able to sustain 14,000 McDonalds, 17,000 Taco Bells & KFCs, 24,000 Subways, 9,000 Wendys, 7,000 7-11s, 8,000 Walgreens, 7,000 CVS’, 4,000 Sears & Kmarts, 11,000 Starbucks, 4,000 Wal-Marts, 1,700 Lowes and 1,800 Targets in five years? As our economy contracts and more of our dwindling disposable income is directed towards rising energy and food costs, retailers across the land will shut their doors. Try to picture the impact on this country as these retailers are forced to close 50,000 stores. Where will recent college graduates and broke Baby Boomers work? The most profitable business of the future will be producing Space Available and For Lease signs. Betting on the intelligence of the American consumer has been a losing bet for decades. They will continue to swipe that credit card at the local 7-11 to buy those Funions, jalapeno cheese stuffed pretzels with a side of cheese dipping sauce, cartons of smokes, and 32 ounce Big Gulps of Mountain Dew until the message on the credit card machine comes back DENIED.

There will be crescendo of consequences as these stores are closed down. The rotting hulks of thousands of Sears and Kmarts will slowly decay; blighting the suburban landscape and beckoning criminals and the homeless. Retailers will be forced to lay-off hundreds of thousands of workers. Property taxes paid to local governments will dry up, resulting in worsening budget deficits. Sales taxes paid to state governments will plummet, forcing more government cutbacks and higher taxes. Mall owners and real estate developers will see their rental income dissipate. They will then proceed to default on their loans. Bankers will be stuck with billions in loan losses, at least until they are able to shift them to the American taxpayer – again. No politician, media pundit, Federal Reserve banker, retail CEO, or willfully ignorant mindless consumer wants to admit the truth that the last three decades of debt delusion are coming to a tragic bitter end. The smarmy acolytes of Edward Bernays on Wall Street and in corporate America have successfully used propaganda and misinformation to lure generations of weak minded people into debt servitude. But, at the end of the day, you need cash to service the debt. Mind control doesn’t pay the bills. We will eventually return to normal, just not the normal many had in mind.

“If we understand the mechanism and motives of the group mind, it is now possible to control and regiment the masses according to our will without them knowing it.” – Edward Bernays

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