home prices – Page 5 – The Burning Platform

2011 – THE YEAR OF CATCH-22

I wrote this on January 3. It was my outlook for 2011. Whenever I think I’m too pessimistic about the world, I go back and read old articles. This article is less than 4 months old and the situation has gotten much worse, much faster than I anticipated. The economy has slowed dramatically, even with the payroll tax cut and Ben’s QE2. I now think the 2nd half of 2011 will be outright recession. Again, my own words prove than I’m actually an optimist compared to what really happens. Think about that the next time you get depressed by one of my articles.

As I began to think about what might happen in 2011, the classic Joseph Heller novel Catch 22 kept entering my mind. Am I sane for thinking such a thing, or am I so insane that asking this question proves that I’m too rational to even think such a thing? In the novel, the “Catch 22” is that “anyone who wants to get out of combat duty isn’t really crazy”. Hence, pilots who request a fitness evaluation are sane, and therefore must fly in combat. At the same time, if an evaluation is not requested by the pilot, he will never receive one (i.e. they can never be found “insane”), meaning he must also fly in combat. Therefore, Catch-22 ensures that no pilot can ever be grounded for being insane – even if he were. The absurdity is captured in this passage:

There was only one catch and that was Catch-22, which specified that a concern for one’s own safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane, he had to fly them. If he flew them, he was crazy and didn’t have to; but if he didn’t want to, he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle. “That’s some catch, that Catch-22,” he observed. “It’s the best there is,” Doc Daneeka agreed. – Catch 22 – Joseph Heller

The United States and its leaders are stuck in their own Catch 22. They need the economy to improve in order to generate jobs, but the economy can only improve if people have jobs. They need the economy to recover in order to improve our deficit situation, but if the economy really recovers long term interest rates will increase, further depressing the housing market and increasing the interest expense burden for the US, therefore increasing the deficit. A recovering economy would result in more production and consumption, which would result in more oil consumption driving the price above $100 per barrel, therefore depressing the economy. Americans must save for their retirements as 10,000 Baby Boomers turn 65 every day, but if the savings rate goes back to 10%, the economy will collapse due to lack of consumption. Consumer expenditures account for 71% of GDP and need to revert back to 65% for the US to have a balanced sustainable economy, but a reduction in consumer spending will push the US back into recession, reducing tax revenues and increasing deficits. You can see why Catch 22 is the theme for 2011.

It seems the consensus for 2011 is that the economy will grow 3% to 4%, two million new jobs will be created, corporate profits will rise, and the stock market will rise another 10% to 15%. Sounds pretty good. The problem with this storyline is that it is based on a 2010 that gave the appearance of recovery, but was a hoax propped up by trillions in borrowed funds. On January 1, 2010 the National Debt of the United States rested at $12.3 trillion. On December 31, 2010 the National Debt checked in at $13.9 trillion, an increase of $1.6 trillion.

The Federal Reserve Balance Sheet totaled $2.28 trillion on January 1, 2010. Today, it stands at $2.46 trillion, an increase of $180 billion.

Over this same time frame, the Real GDP of the U.S. has increased approximately $350 billion, and is still below the level reached in the 4th Quarter of 2007. U.S. politicians and Ben Bernanke spent almost $1.8 trillion, or 13% of GDP, in one year to create a miniscule 2.7% increase in GDP. This is reported as a recovery by the mainstream corporate media mouthpieces. On September 18, 2008 the American financial system came within hours of a total meltdown, caused by Wall Street mega-banks and their bought off political cronies in Washington DC. The National Debt on that day stood at $9.7 trillion. The US Government has borrowed $4.2 since that date, a 43% increase in the National Debt in 27 months. The Federal Reserve balance sheet totaled $963 billion in September 2008 and Bernanke has expanded it by $1.5 trillion, a 155% increase in 27 months. Most of the increase was due to the purchase of toxic mortgage backed securities from their Wall Street masters.

Real GDP in the 3rd quarter of 2008 was $13.2 trillion. Real GDP in the 3rd quarter of 2010 was $13.3 trillion.

Think about these facts for one minute. Your leaders have borrowed $5.7 trillion from future unborn generations and have increased GDP by $100 billion. The financial crisis, caused by excessive debt creation by Wall Street and ridiculously low interest rates set by the Federal Reserve, 30 years in the making, erupted in 2008. The response to a crisis caused by too much debt and interest rates manipulated too low was to create an immense amount of additional debt and reduce interest rates to zero. The patient has terminal cancer and the doctors have injected the patient with more cancer cells and a massive dose of morphine. The knowledge about how we achieved the 2010 “recovery” is essential to understanding what could happen in 2011.

Confidence Game

Ben Bernanke, Timothy Geithner, Barack Obama, the Wall Street banks, and the corporate mainstream media are playing a giant confidence game. It is a desperate gamble. The plan has been to convince the population of the US that the economy is in full recovery mode. By convincing the masses that things are recovering, they will begin to spend and buy stocks. If they spend, companies will gain confidence and start hiring workers. More jobs will create increasing confidence, reinforcing the recovery story, and leading to the stock market soaring to new heights. As the market rises, the average Joe will be drawn into the market and it will go higher. Tax revenues will rise as corporate profits, wages and capital gains increase. This will reduce the deficit. This is the plan and it appears to be working so far. But, Catch 22 will kick in during 2011.

Retail sales are up 6.5% over 2009 as consumers have been convinced to whip out one of their 15 credit cards and buy some more iPads, Flat screen TVs, Ugg boots and Tiffany diamond pendants. Consumer non-revolving debt for autos, student loans, boats and mobile homes is at an all-time high as the government run financing arms of GMAC and Sallie Mae have issued loans to anyone that can fog a mirror with their breath. Total consumer credit card debt has been flat for 2010 as banks have written it off as fast as consumers can charge it. The savings rate has begun to fall again as Americans are being convinced to live today and not worry about tomorrow. Of course, the current savings rate of 5.9% would be 2% if the government was not dishing out billions in transfer payments. Wages have declined by $127 billion from the 3rd Quarter of 2008, while government transfer payments for unemployment and other social programs have increased by $441 billion, all borrowed.

Both the government and its citizens are living the old adage:

Everybody wants to get to heaven, but no one wants to practice what is required to get there.

The government politicians and bureaucrats promise to cut unsustainable spending as soon as the economy recovers. The economy has been recovering for the last 6 quarters, according to GDP figures, but there are absolutely no government efforts to cut spending. This is proof that politicians always lie. It will never be the right time to cut spending. Another faux crisis will be used as a reason to continue unfunded spending increases. Having consumer spending account for 70% of GDP is unbalanced and unsustainable. Everyone knows that consumer spending needs to revert back to 65% of GDP and the Savings Rate needs to rise to 8% or higher in order to ensure the long-term fiscal health of the country. Savings and investment are what sustain countries over time. Borrowing and spending is a recipe for failure and bankruptcy. The facts are that consumer expenditures as a percentage of GDP have actually risen since 2007 and Congress and Obama just cut payroll taxes in an effort to encourage Americans to spend even more borrowed money. Catch 22 is alive and well.

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The first half of 2011 is guaranteed to give the appearance of recovery. The lame-duck Congress “compromise” will pump hundreds of billions of borrowed dollars into the economy. The continuation of unemployment benefits for 99 weeks (supposedly to help employment) and the 2% payroll tax cut will goose consumer spending. Ben Bernanke and his QE2 stimulus for poor Wall Street bankers is pumping $75 billion per month ($3 to $4 billion per day) directly into the stock market. Since Ben gave Wall Street the all clear signal in late August, the NASDAQ has soared 25%. Despite the fact that there are 362,000 less Americans employed than were employed in August 2010, the mainstream media will continue to tout the jobs recovery. The goal of all these efforts is to boost confidence and spending. Everything being done by those in power has the seeds of its own destruction built in. The Catch 22 will assert itself in the 2nd half of 2011.

Housing Catch 22

Ben Bernanke, an Ivy League PhD who should understand the concept of standard deviation, missed a 3 standard deviation bubble in housing as ironically pointed out by a recent Dallas Federal Reserve report.

Home prices still need to fall 23%, just to revert to its long-term mean. That is a fact that even Bernanke should be able to grasp (maybe not). Anyone who argues that housing has bottomed and will resume growth either has an agenda (NAR) or is a clueless dope (Bernanke). A new perfect storm is brewing for housing in 2011 and will not subside until late 2012. You may have thought those bad mortgages had been all written off. You would be wrong. There will be in excess of $200 billion of adjustable rate mortgages that reset between 2011 and 2012, with in excess of $125 billion being the dreaded Alt-A mortgages. This is a recipe for millions of new foreclosures.

According to the Dallas Fed, in addition to the 3.9 million homes on the market, there is a shadow inventory of 6 million homes that will be coming on the market due to foreclosure. About 3.6 million housing units, representing 2.7% of the total housing stock, are vacant and being held off the market. These are not occasional-use homes visited by people whose usual residence is elsewhere but units that are vacant year-round. Presumably, many are among the 6 million distressed properties that are listed as at least 60 days delinquent, in foreclosure or foreclosed in banks’ inventories.

The coup de grace for the housing market will be Ben Bernake’s ode to Catch 22. In his November 4 OP-ED piece he had this to say about his $600 billion QE2:

“Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance.” – Housing sage Ben Bernanke

On the day Bernanke wrote these immortal words 30 Year Mortgage rates were 4.2%. Today, two months later, they stand at 5.0%. This should be a real boon to refinancing and the avalanche of mortgage resets coming down the pike. It seems that money printing and a debt financed “recovery” leads to higher long-term interest rates. The more convincing the recovery, the higher interest rates will go. The higher interest rates go, the further the housing market will drop. The further housing prices drop, the number of underwater homeowners will grow to 30%. This will lead to more foreclosures. Approximately 50% of all the assets on banks books are backed by real estate. Billions in bank losses are in the pipeline. Do you see the Catch 22 in Bernanke’s master plan? The Dallas Fed sees it:

This unease highlights the housing market’s fragility and suggests there may be no pain-free path to the eventual righting of the market. No perfect solution to the housing crisis exists. The latest price declines will undoubtedly cause more economic dislocation. As the crisis enters its fifth year, uncertainty is as prevalent as ever and continues to hinder a more robust economic recovery. Given that time has not proven beneficial in rendering pricing clarity, allowing the market to clear may be the path of least distress. – Dallas Fed

Quantitative Easing Catch 22

Ben Bernanke’s quantitative easing (dropping dollars from helicopters) is riddled with Catch-22 implications. Bernanke revealed his plan in his 2002 speech about deflation:

“The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.”

The expectations of most when reading Ben’s words were that his helicopters would drop the dollars across America. What he has done is load up his helicopters with trillions of dollars and circled above Wall Street for two years continuously dropping his load. Bernanke’s quantitative easing, which will triple the Fed’s balance sheet by June of 2011, began in earnest in early 2009. The price for a gallon on gasoline was $1.62. Today, it is $3.05, an 88% increase in two years. Gold was $814 an ounce. Today, it is $1,421 an ounce, a 61% increase in two years. In the last year, the prices for copper, silver, cotton, wheat, corn, coffee and other commodities have risen in price by 30% to 90%.

Quantitative easing has been sold to the public as a way to avoid the terrible ravages of deflation. The fact is there are less jobs, lower wages, lower home prices, zero returns on bank deposits, higher fuel costs, higher food costs, higher real estate taxes, higher medical insurance premiums and huge jaw dropping bonuses for the bankers on Wall Street. Somehow the government has spun this toxic mix into a CPI which has resulted in fixed income senior citizens getting no increases in their pitiful Social Security payments for two years. You can judge where Ben’s Helicopters have dropped the $2 trillion. Quantitative easing has benefited only Wall Street bankers and the 1% wealthiest Americans. The $1.4 trillion of toxic mortgage backed securities on The Fed’s balance sheet are worth less than $700 billion. How will they unload this toxic waste? The Treasuries they have bought drop in value as interest rates rise. Quantitative easing’s Catch 22 is that it can never be unwound without destroying the Fed and the US economy.

The USD dollar index was at 89 in early 2009. Today, it stands at 79, an 11% decline, which is phenomenal considering that Europe has imploded over this same time frame. Bernanke’s master plan is for the USD to fall and ease the burden of our $14 trillion in debt. He just wants it to fall slowly. Foreigners know what he is doing and are stealthily getting out of their USD positions. This explains much of the rise in gold, silver and commodities. The rise in oil to $91 a barrel will not be a top. The Catch-22 of a declining dollar is that prices of all imported goods go up. If the dollar falls another 10%, the price of oil will rise above $120 a barrel and push the economy back into recession. Then there is the little issue of at what level of printing and debasing the currency does the rest of the world lose its remaining confidence in Ben and the USD.

A few other “minor” issues for 2011 include:

The imminent collapse of the European Union as Greece, Ireland, Portugal and Spain are effectively bankrupt. Spain is the size of the other three countries combined and has a 20% unemployment rate. The Germans are losing patience with these spendthrift countries. Debt does matter.
State and local governments were able to put off hard choices for another year, as Washington DC handed out hundreds of billions in pork. California will have a $19 billion budget deficit; Illinois will have a $17 billion budget deficit; New Jersey will have a $10.5 billion budget deficit; New York will have a $9 billion budget deficit. A US Congress filled with Tea Party newcomers will refuse to bailout these spendthrift states. Substantial government employee layoffs are a lock.

There is a growing probability that China will experience a hard landing as their own quantitative easing has resulted in inflation surging to a 28 month high of 5.1%, with food inflation skyrocketing to 11.7%. Poor families spend up to half of their income on food. Rapidly rising prices severely burden poor people and can spark civil unrest if too many of them can’t afford food.
The Tea Party members of Congress are likely to cause as much trouble for Republicans as Democrats. If they decide to make a stand on raising the debt ceiling early in 2011, all hell could break loose in the debt and stock markets.

The government’s confidence game is destined to fail due to Catch-22. Will the consensus forecast of a growing economy, rising corporate profits, 10% to 15% stock market gains, 2 million new jobs, and a housing recovery come true in 2011? No it will not. By mid-year confidence in Ben’s master plan will wane. He is trapped in the paradox of Catch-22. When you start hearing about QE3 you’ll know that the gig is up. If Bernanke is foolish enough to propose QE3 you can expect gold, silver and oil to go parabolic. Enjoy 2011. I don’t think Ben Bernanke will.

“That’s some catch, that Catch-22.” -Yossarian

DOES 2 + 2 = 22?

CoreLogic reported this morning that home prices fell 1.8% in the last month and have now declined for 6 straight months. This means that home prices are falling at an annualized rate of 21%. The post bubble low will be breached next month. Yesterday the MSM was excited by the fact that mortgage delinquencies declined again. The rate had peaked in January 2010 and has been steadily declining.

Now this is the part that requires some thinking. So anyone reading this post that works for CNBC, Seeking Alpha, or any other MSM outlet can go back to your mindless propaganda mode and exit stage left. The hundreds of billions in tax dollars thrown at housing in 2009 and early 2010 for home buyer tax credits and mortgage modification programs temporarily stopped prices from falling. Shockingly, when prices stopped falling, mortage delinquencies started to decline. OK. Got that?

The government’s efforts to prop up the housing market have failed miserably. The hundreds of billions were pissed down the toilet. The prop has been removed and home prices will fall to the level they were always going to fall to. Supply and demand determine price. Prices are now in freefall again. Guess what? In the next few months, mortgage delinquency rates will begin to rise again. Even Larry Kudlow could see this if he knew how to add 2 + 2.

As an added benefit, we are about to enter the huge reset stage for Alt-A fraudulent mortgages. These resets are occurring just as mortgage rates are hitting the highest levels in a year. This will give an added kicker to the foreclosure tsunami on the way.

So, you can listen to your favorite real estate broker who tells you it is the best time to buy, or you can add 2 + 2 and get 4.

According to LPS, 8.83% of mortgages are delinquent (down from 9.02% in November), and another 4.15% are in the foreclosure process (up from 4.08% in November) for a total of 12.98%. It breaks down as:

• 2.56 million loans less than 90 days delinquent.
• 2.12 million loans 90+ days delinquent.
• 2.2 million loans in foreclosure process.

For a total of 6.87 million loans delinquent or in foreclosure.

THE BENNIE WHO STOLE CHRISTMAS (Featured Article)

Ben Bernanke is a highly educated PhD from Princeton who has never worked a day in the real world since he graduated from college in 1975. His entire life has been spent in the ivory tower of academia surrounded by models and theories that work perfectly in the comfort of his office. After building his reputation as an “expert” on the Great Depression by studying it and reaching the wrong conclusions, he came down from his ivory tower in 2002 to join an organization that has systematically destroyed the value of the US currency, thereby undermining the well being of the once vibrant middle class.

He became a member of the Federal Reserve and has served his masters (Wall Street Banks, Mega-corporations, Washington politicians) unswervingly since. When he makes his now regular appearances on 60 Minutes, he tries to give the appearance of being someone concerned about the average American. The facts in the real world completely obliterate the lies he nervously mouths while answering softball questions underhanded to him by corporate media mouthpieces. His quivering lip and nervous ticks reveal his true nature. How could Bernanke blatantly take measures that destroy the lives of millions of Americans? Maybe Dr. Seuss had the answer:

It could be his head wasn’t screwed on just right.
It could be, perhaps, that his shoes were too tight.
But I think that the most likely reason of all,
May have been that his heart was two sizes too small.
Whatever the reason, His heart or his shoes,
He stood there on Christmas Eve, hating the Whos,
Staring down from his cave with a sour, Grinchy frown – Dr Seuss

If the Grinch had been pimping for a small pack of Grinchsters who impoverished the honest people of Whoville, then the Dr. Seuss poem would have perfectly described Ben Bernanke, the Federal Reserve and the banksters that run the show here in the USA. The actions taken by Ben Bernanke, Alan Greenspan and their brethren on the Federal Reserve over the last quarter century have destroyed the middle class and left senior citizens impoverished, while enriching its Wall Street masters. Now he is stealing Christmas from the hard working middle class of this country.

Bernanke’s latest theoretical venture into manipulating the puppet strings of the economy began with his speech at Jackson Hole in August and concluded with his Op-Ed on November 4. His master plan to buy an additional $600 billion of Long-term Treasuries is being implemented on a daily basis. This QE2 follows his previous QE1, which consisted of buying $1.4 trillion of toxic mortgage securities from his masters, the insolvent Wall Street banks. What follows are Ben Bernanke’s own words:

“I believe that additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions.” – Ben Bernanke – August 27, 2010 – Jackson Hole

“Given the Committee’s objectives, there would appear–all else being equal–to be a case for further action. For example, a means of providing additional monetary stimulus, if warranted, would be to expand the Federal Reserve’s holdings of longer-term securities. Empirical evidence suggests that our previous program of securities purchases was successful in bringing down longer-term interest rates and thereby supporting the economic recovery.” – Ben Bernake – October 15, 2010 – Boston Speech

“To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.” – Ben Bernanke Fed Announcement – November 3, 2010

“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.” – Ben Bernanke – November 4, 2010 – Washington Post Op-Ed

Ben and his friends on the Federal Reserve have a PR machine to help sell their lies. Let’s assess whether Ben and his Federal Reserve have helped or hurt the average American.

Throwing Senior Citizens Under the Bus

Then he slunk to the ice box. He took the Whos’ feast, he took the who pudding, he took the roast beast. He cleaned out that ice box as quick as a flash. Why, the Grinch even took their last can of Who hash. – Dr Seuss

There are approximately 40 million senior citizens living in 25 million households in the US. According to the Census Bureau, more than 12 million of these households survive on less than $30,000 of income per year. The median household income in the US is $49,777. A full 70% of all over 65 households make less than the median income. A recent study found that 58% of those between 60 and 84 will at some point fail to have enough liquid assets to allow them to get through unanticipated expenses or declining income.

The vast majority of their income is from Social Security payments. Most senior citizens are rightly risk adverse and dependent upon income from certificates of deposit. During the 1990’s and as recently as 2007, a senior citizen could get a 5% return on a CD. Many of these people depended on this interest income to pay their everyday expenses. Below is a chart that plots the average interest rate for 6 month CDs since 1964. Today the average rate on a 6 month CD is .30%.

Ben Bernanke is to thank for this poverty enhancing rate. He reduced the discount rate to 0% while paying interest on deposits at the Fed. The affect of this policy has been to transfer hundreds of billions to the Wall Street criminal banks from the pockets of senior citizens and other Americans dependent upon interest income to sustain their meager lives. A brainless CNBC anchor can look at this chart and realize that the Federal Reserve caused the housing crisis by driving down rates from 2002 through 2005. Ben Bernanke, who never saw the housing collapse coming and personally had an exploding adjustable rate mortgage, has learned nothing from the prior disaster. He has driven rates down to 0% in order to force people into speculative investments. The Federal Reserve is a perennial bubble blower. This will likely be the final bubble of Bennie’s career.

These recent actions by the Federal Reserve are just the tip of the iceberg. Alan Greenspan, the Federal Reserve and the US Government have systematically screwed senior citizens for decades by purposely understating CPI. The result has been that the cost of living adjustments to Social Security has seriously lagged real inflation. For the 2nd consecutive year senior citizens will get no cost of living increase on their Social Security. The average monthly Social Security payment is $1,074. While seniors struggle to make ends meet, Wall Street banks are handed billions in free money by Ben Bernanke. The chart below details the COLA increases since 1975. Alan Greenspan and his commission began manipulating the CPI in the early 1980s.

Social Security Cost-Of-Living Adjustments

Year COLA

1975	8.0
1976	6.4
1977	5.9
1978	6.5
1979	9.9
1980	14.3
1981	11.2
1982	7.4
1983	3.5
1984	3.5
1985	3.1
1986	1.3
1987	4.2
1988	4.0
1989	4.7

Year COLA

1990	5.4
1991	3.7
1992	3.0
1993	2.6
1994	2.8
1995	2.6
1996	2.9
1997	2.1
1998	1.3
1999	2.5
2000	3.5
2001	2.6
2002	1.4
2003	2.1
2004	2.7

Year COLA

2005	4.1
2006	3.3
2007	2.3
2008	5.8
2009	0.0
2010	0.0

^a The COLA for December 1999 was originally determined as 2.4 percent based on CPIs published by the Bureau of Labor Statistics. Pursuant to Public Law 106-554, however, this COLA is effectively now 2.5 percent.

Since 2000, seniors have seen their monthly payment increase by 27%, or less than 2.5% per year. I challenge anyone to convince me that inflation has been 0% for the last two years. I have calculated my real inflation and it is four times the government reported figure. I suppose government bureaucrats and Federal Reserve Chairmen don’t fill up their gas tanks or go food shopping. John Williams at www.Shadowstats.com calculates the CPI as it was calculated prior to the Greenspan fraud. Based on this true assessment of inflation, prices have increased by 100% since 2000, or 8% per year.

Only an Ivy League academic could examine the following yearly price data and conclude, as Bernanke has, that inflation is well contained:

Unleaded gas up 24%
Heating Oil up 28%
Corn up 50%
Wheat up 48%
Coffee up 56%
Sugar up 27%
Soybeans up 30%
Beef up 26%
Pork up 22%
Cotton up 101%
Copper up 33%
Silver up 72%

I wonder what a can of Who Hash will cost in 2011?

The truth is that senior citizens spend a much higher percentage of their limited income on the basics of housing, transportation, food, and insurance. So, these increases have a much greater impact on seniors than rich bankers and Princeton scholars. The figures for key items over the last decade prove the point that seniors have fallen further due to the inflationary policies of the Federal Reserve.

Category	Expense	Cost in 2000	Cost in 2010	% Increase, 2000 – 2010
Housing	Homeowner’s insurance (annual)	$508.00	$1,059.00	108%
	Real estate tax (annual)	$690.00	$1,223.88	77%
	Heating oil (gallon)	$1.15	$2.88	150%
	Natural gas (per thousand cubic foot)	$6.37	$10.39	63%
	Electricity (per kw hr)	$0.08	$0.12	50%
Transportation	Regular gas (gallon)	$1.26	$2.75	118%
Medical	Medicare Part B premiums (monthly)	$45.50	$110.50	143%
Food	10 lbs. potatoes	$2.98	$4.98	67%
	Eggs (dozen)	$0.93	$1.79	93%
	Ground chuck (lb.)	$1.90	$2.83	49%
	Bread, white loaf	$0.91	$1.36	50%

Helping Housing?

And the one speck of food That he left in the house,
Was a crumb that was even too small for a mouse.
Then He did the same thing To the other Whos’ houses
Leaving crumbs Much too small For the other Whos’ mouses! – Dr. Seuss

Not only was Ben Bernanke complicit in aiding Greenspan in creating the housing bubble by keeping interest rates too low for too long, completely missing a two standard deviation (PhDs love this stuff) price bubble right in front of his eyes, telling Americans that we had a strong housing market, telling Americans that housing price declines would not affect the economy, not regulating or policing the rampant mortgage fraud that was happening under his nose, and aiding and abetting the very criminal banks that created the bubble, but now he has blatantly lied by saying his QE2 $600 billion monetization of our debt is to support the housing market. If you believe this, I have some prime real estate with great views in the mountains of Afghanistan to sell you.

In his October 15 speech, Bernanke assured the world that QE2 would reduce long term interest rates. On November 4, he stated:

“Lower mortgage rates will make housing more affordable and allow more homeowners to refinance.”

On October 7, one week before Bernanke gave the green light to QE2, the 10 Year US Treasury rate was 2.38%. Today it stands at 3.3%, almost 100 basis points higher. I’m guessing this guy isn’t very good picking his weekly football pool. Interest rates have done the exact opposite of what he proclaimed they would do. These rates have surged in the face of an already weakening economy, as unemployment continues to rise and home prices continue to fall. A 100 basis point rise in Treasury bonds piles approximately $120 billion more interest expense per year onto the backs of future generations.

The rate on 30 year fixed mortgages has surged to 5.07% from 4.4% in mid-October. That should do wonders for refinancing and home purchases. Bernanke’s actions have priced millions of people out of the market. He has inflicted more damage on an already teetering housing market and has insured that home prices will plunge by another 20% in the next year.

Despite the trillions of dollars thrown at the housing market by Bernanke and Obama through home buyer tax credits, mortgage modification programs, purchasing toxic mortgages from the criminal banks at 100 cents on the dollar, artificially reducing mortgage rates, and forcing those government run disasters Fannie Mae, Freddie Mac and the FHA to backstop more bad loans, home prices are resuming their downward trajectory to fair value. That value is at least 20% lower. With 22.5% of all properties (10.8 million properties) with a mortgage having negative equity, the housing market was already in dire straits. With the surge in mortgage rates caused by Ben Bernanke’s actions, a rapid plunge in prices can be expected in 2011, resulting in more foreclosures and negative equity swamping millions.

The truth is that Ben Bernanke could care less about the average American homeowner making $48,000 per year. The real purpose of QE2 was to further enrich his masters on Wall Street and the ruling elite who control the wealth in this country.

Wall Street Wealth Bailout

“When the Fed uses QEII to subsidize the largest players on Wall Street, it is disadvantaging the smaller, better run banks, and it is also playing with politics. Priyank Gandhi and Hanno Lustig, in a National Bureau of Economic Research working paper issued in November (No. 16553), suggest that the implicit collective guarantee extended to large U.S. financial institutions reflects an annual subsidy to the largest commercial banks of $4.71 billion per bank, measured in 2005 dollars. But, even more important, the paper notes that subsidies for the “too big to fail” banks shows the Fed’s willingness to support the equity markets, an extraordinary and ultimately political act that requires further hearings by the Congress.” – Chris Whalen

Chris Whalen and a few other brilliant analysts realize the true purpose of Ben Bernanke’s actions. Bernanke even revealed his true intentions in his November 4 Op-Ed:

“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.”

On August 26, the day before Bernanke’s Jackson Hole speech, the S&P 500 was at 1,047. Today, it stands at 1,247, a 19% increase in the face of weakening economic conditions for the middle class worker. The more speculative NASDAQ stood at 2,119 on August 26, and today sits at 2,649, a phenomenal 25% increase as more middle class Americans have lost their jobs. Over this same time frame, according to the BLS, there are 500,000 less Americans employed.

The truth is that Ben Bernanke’s sole reason for implementing QE2 is to enrich the few at the expense of the many. The chart below paints the picture clearer than the lies and misinformation you will get from CNBC and Fox. The top 1% wealthiest Americans own 60.6% of all the stocks in America, with the next 9% wealthiest owning 37.9% of the stocks in America. That leaves a full 1.5% of stocks in the hands of the remaining 90% of Americans. Who is benefitting from QE2?

Part 2 of the table clarifies who Bennie is working for. The 90% of Americans have 42.3% of the liquid deposits, 61.5% of residential investment and 73.4% of the debt in the country. Ben Bernanke’s actions have resulted in liquid deposits paying 0% interest (19 largest banks out of 7,700 banks control 50% of all deposits), residential real estate prices declining, and the cost of carrying debt to rise. Meanwhile, the top 1% convinced the public they needed a tax cut so they could continue to buy gifts like Clive Christian’s $247,000 Imperial Majesty perfume, packaged in a diamond-encrusted Baccarat crystal bottle.

Table 2: Wealth distribution by type of asset, 2007

	Investment Assets
	Top 1 percent	Next 9 percent	Bottom 90 percent
Business equity	62.4%	30.9%	6.7%
Financial securities	60.6%	37.9%	1.5%
Trusts	38.9%	40.5%	20.6%
Stocks and mutual funds	38.3%	42.9%	18.8%
Non-home real estate	28.3%	48.6%	23.1%
TOTAL investment assets	49.7%	38.1%	12.2%

	Housing, Liquid Assets, Pension Assets, and Debt
	Top 1 percent	Next 9 percent	Bottom 90 percent
Deposits	20.2%	37.5%	42.3%
Pension accounts	14.4%	44.8%	40.8%
Life insurance	22.0%	32.9%	45.1%
Principal residence	9.4%	29.2%	61.5%
TOTAL other assets	12.0%	33.8%	54.2%
Debt	5.4%	21.3%	73.4%

From Wolff (2010).

Of course, we all know the rich create all the jobs. Too bad they were created in India and China. No more conclusive evidence of the Federal Reserve destroying the American middle class can be found on the US Census Bureau site. The median household income in the US reached its all-time peak in 1999 at $52,388, in today’s dollars (key data point). Ten years later the median household income is $49,777. The standard of living for the median household in the US has fallen by 5% in the last decade, even using the government manipulated CPI.

The mainstream media will not report this fact. They will report the non-inflation adjusted figures that show a 22% increase in the median household income. They do this because they know that the average American has no clue what the term “inflation adjusted” means. Ben Bernanke, the Federal Reserve, and the ruling oligarchy can only retain their power through the use of inflation, while slowly destroying the currency, impoverishing the masses and enriching them. The website www.mybudget360.com has suggested the proper mission statement for Bennie and the Feds should be:

“To aggregate as much wealth into the banking system while eliminating the American middle class by a slow systematic dilution of their currency and financial well being and standard of living.”


Table H-6. Regions–All Races by Median and Mean Income: 1999 to 2009
(Households as of March of the following year. Income in current and 2009 CPI-U-RS adjusted dollars (28))
Region and year	Number (thousands)	Median income		Mean income
Region and year	Number (thousands)	Current dollars	2009 dollars	Current dollars	2009 dollars

2009	117,538	49,777	49,777	67,976	67,976
2008	117,181	50,303	50,112	68,424	68,164
2007	116,783	50,233	51,965	67,609	69,940
2006	116,011	48,201	51,278	66,570	70,819
2005	114,384	46,326	50,899	63,344	69,597
2004	113,343	44,334	50,343	60,466	68,662
2003	112,000	43,318	50,519	59,067	68,886
2002	111,278	42,409	50,563	57,852	68,976
2001	109,297	42,228	51,161	58,208	70,521
2000	108,209	41,990	52,301	57,135	71,165
1999	106,434	40,696	52,388	54,737	70,462

While real average weekly earnings for the average American are lower today than they were in the early 1970s, you will be happy to know that Wall Street bonuses have recovered nicely from the dip in 2008. Compensation at Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, and Citicorp increased by 31% in 2009. Average compensation rose by 27% to more than $340,000. Bonuses jumped above the $20 billion mark in 2009, but sadly trail the record of $35.5 billion in 2006 just before Wall Street destroyed the financial system of the entire world. According to the NYT, 2010 will be a banner year:

“Wall Street’s five biggest firms have put aside nearly $90 billion for bonuses. Whether it’s for jewelry, high-end clothing or apartments, bonus spending has long fed a post-holiday boom in January and February, especially in Manhattan and expensive suburbs like Greenwich.”

I’m sure this information warms the cockles of your heart.

At the end of Dr. Seuss’ poem, the Grinch repents and brings a happy ending to Whoville:

That the Grinch’s small heart Grew three sizes that day!
And the minute his heart didn’t feel quite so tight,
He whizzed with his load through the bright morning light,
And he brought back the toys! And the food for the feast!
And he, HE HIMSELF! The Grinch carved the roast beast! – Dr. Seuss

Even if Ben Bernanke’s heart was to grow three sizes, he would be discarded by the other Grinchsters (banksters) like piece of Whoville tinsel. The truth of our current situation is better captured by Mick Jagger in his song Sympathy for the Devil:

I’m a man of wealth and taste
I’ve been around for a long, long year
Stole many a man’s soul and faith

But what’s confusing you
Is just the nature of my game

The people running the show in this country will not be bringing joy to Whoville. You need to understand the nature of their game.

SUICIDE IS PAINLESS (Featured Article)

Everyone has watched one of the best TV series of all-time – M*A*S*H. You also know the tune that played during the opening credits as helicopters delivered wounded soldiers to the 4077 Mobile Army Surgical Unit. Most people have never heard the lyrics that go with the music. The song is Suicide is Painless and the lyrics were sung during the M*A*S*H Movie. As I watched the movie a few weeks ago, the lyrics struck home. Our country has been slowly committing suicide for the last 40 years. The movie and TV series were set during the Korean War. It is fitting that military spending is one of the major causes of our suicide as a nation. On an inflation adjusted basis, the US has doubled spending on Defense since 1962. It is on course to rise another 20% in the next four years. Dwight D. Eisenhower warned us about the military industrial complex in 1961:

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”

The fact that the US currently spends 7 times as much on Defense as the next nearest country is proof that the military industrial complex has gained unwarranted influence and a disastrous rise of misplaced power has occurred.

U.S. DEFENSE SPENDING

When you critically analyze why we would need to spend 7 times as much as China on military when there is no country on earth that can challenge us, the answer can only be OIL. Our own military came to the following chilling conclusion in their Joint Operating Environment report, issued earlier this year:

By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD.

A severe energy crunch is inevitable without a massive expansion of production and refining capacity. While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India. At best, it would lead to periods of harsh economic adjustment. To what extent conservation measures, investments in alternative energy production, and efforts to expand petroleum production from tar sands and shale would mitigate such a period of adjustment is difficult to predict. One should not forget that the Great Depression spawned a number of totalitarian regimes that sought economic prosperity for their nations by ruthless conquest.

The U.S. military knows we are on the verge of an oil crisis. There are no new supplies ready to come on line before 2015. The President and his advisors know that an oil crisis is in our immediate future. We have military bases in Saudi Arabia, Iraq, and Kuwait. We have active fighting forces in Afghanistan and Pakistan. We have a naval armada of aircraft carriers in the Persian Gulf. Our forces completely encircle Iran. Is this a coincidence when the countries with the largest oil reserves in the world are noted?

Saudi Arabia – 262 billion barrels
Iran – 133 billion barrels
Iraq – 112 billion barrels
Kuwait – 97 billion barrels

The war on terror is a cover for access to the hundreds of billions of barrels of oil in the Middle East. A 10 million barrel per day shortfall by 2015 would be disastrous for a country that consumes 25% of all the oil in the world. Our hyper-consumer society is like a drug addict, dependent on its oil fix. If we are denied oil for even one day, the withdrawal symptoms would be traumatic and harrowing.

There are 255 million passenger vehicles in the U.S. Our society will collapse within weeks without a sufficient supply of oil. The average American’s only concern about oil is when they get a card in the mail from Jiffy Lube telling them it is time for their 5,000 mile oil change. They stick a hose in their gas tank and fluid pours out, allowing them to motor freely around mall dotted suburbia. Within five years they will be paying over $5 per gallon for this fluid or they will be waiting in lines for three hours to get 10 gallons of that precious fluid. Peak cheap oil has been predictable for decades. The Department of Energy was created 31 years ago. Preparing for peak cheap oil would have required some pain, sacrifice and forethought. But, suicide is painless.

Visions of Things To Be

Through early morning fog I see
visions of the things to be
the pains that are withheld for me
I realize and I can see…

That suicide is painless
It brings on many changes
and I can take or leave it if I please.

Suicide is Painless – M.A.S.H. Movie

As I peer through the fog and attempt to see visions of things to be, I see nothing but pain ahead. Anyone who can look at the following chart and not conclude that there is much pain ahead for this country is either a Goldman Sachs banker, a Federal Reserve Governor, or a bought off politician in Washington DC. It is no coincidence that after Richard Nixon closed the gold window in 1971 and allowed the Federal Reserve to “manage” our economy that total debt outstanding in the US surged from $2 trillion to over $50 trillion. GDP has risen by 1,300% since 1971, while total US debt has risen by 2,600%. Now for the kicker. Real GDP has only gone up by 292% since 1971. This means that 1,000% of the increase in GDP was from Federal Reserve created inflation. Over this same time frame, real wages have declined by 6%, from $318 per week in 1971 to $299 per week today. Inflation has been the American drug of choice to commit suicide over the last 40 years. It is stealthy, seemingly painless, and deadly.

Inflation is the “painless” method through which the Federal Reserve has decided this country will commit suicide. It is like turning on the car in the garage and letting the carbon monoxide slowly put you to sleep. The ruling elite are content that the American public is dumbed down by the government run public schools. They count on the fact that 9 out of 10 Americans do not understand inflation. It is an insidious scheme of robbing the working middle class and funneling it to the Wall Street/K Street ruling class. The Federal Reserve has gotten bolder in the last few years as they realized the public doesn’t understand or care what they do. Bernanke has relished in the mainstream media adulation that he saved the world with his printing press in 2008/2009. Even though critical thinkers know for a fact that it was Federal Reserve policies that created the worldwide financial conflagration in the first place, the corporate mainstream media and the Wall Street beneficiaries have been cheerleaders of Easy Al and Helicopter Ben. These men are traitors. They have purposefully impoverished senior citizens and the working middle class in order to enrich their ruling elite masters on Wall Street and in Washington DC.

Ben Bernanke on Wednesday afternoon will announce Quantitative Easing Part Deux. This is a fancy name for Ben printing $1 trillion out of thin air, buying US Treasuries and/or more toxic mortgage securities and artificially lowering interest rates to convince Americans to spend money they don’t have. Jeremy Grantham, in his recent quarterly letter, issues a scathing indictment of Bernanke’s methods:

“For all of us, unfortunately, there is still a further great disadvantage attached to the Fed Manipulated Prices. When rates are artificially low, income is moved away from savers, or holders of government and other debt, toward borrowers. Today, this means less income for retirees and near-retirees with conservative portfolios, and more profit opportunities for the financial industry; hedge funds can leverage cheaply and banks can borrow from the government and lend out at higher prices or even, perish the thought, pay out higher bonuses. This is the problem: there are more retirees and near retirees now than ever before, and they tend to consume all of their investment income. With artificially low rates, their consumption really drops. The offsetting benefits, mainly shown in dramatically recovered financial profits despite low levels of economic activity, flow to a considerable degree to rich individuals with much lower propensities to consume.”

The ruling elite in Washington DC and Wall Street decided that fraud, misinformation and cooking the books was preferable to the pain of honesty, orderly bankruptcy, and assets valued at their true worth. Ben Bernanke “saved the world” by putting the taxpayer on the hook for $1.5 trillion of toxic mortgage garbage he bought from his masters on Wall Street. John Hussman describes the decision to choose painless suicide over choosing painful medicine to cure our disease:

“Over the short run, two policies have been primarily responsible for successfully kicking the can down the road following the recent financial crisis. The first was the suppression of fair and accurate financial disclosure – specifically FASB suspension of mark-to-market rules – which has allowed financial companies to present balance sheets that are detached from any need to reflect the actual liquidating value of their assets. The second was the de facto grant of the government’s full faith and credit to Fannie Mae and Freddie Mac securities. Now, since standing behind insolvent debt in order to make it whole is strictly an act of fiscal policy, one would think that under the Constitution, it would have been subject to Congressional debate and democratic process. But the Bernanke Fed evidently views democracy as a clumsy extravagance, and so, the Fed accumulated $1.5 trillion in the debt obligations of these insolvent agencies, which effectively forces the public to make those obligations whole, without any actual need for public input on the matter.”

The Only Way to Win is Cheat

The only way to win is cheat
And lay it down before I’m beat
and to another give my seat
for that’s the only painless feat.

That suicide is painless
It brings on many changes
and I can take or leave it if I please.

Suicide is Painless – M.A.S.H. Movie

The Federal Reserve has incessantly created new bubbles every time one of their old bubbles has burst, since the elevation of Alan Greenspan as Fed Chairman in 1987. The bailout of LTCM convinced Wall Street that uncle Al would come to the rescue if their gambles endangered the financial system. Greenspan cheered on the internet revolution and flooded the system for the fake Y2K crisis. When the internet bubble burst in 2000 and the 9/11 attack struck in 2001, Greenspan aided and abetted the greatest bubble in history. He dropped interest rates to historic lows, encouraged the use of adjustable rate mortgages, didn’t enforce bank regulations, and pretended that he couldn’t see the bubble forming. Jeremy Grantham explained the Federal Reserve, Wall Street and K Street conspiracy to avoid the pain of dealing with our long-term structural problems in his latest letter:

“House prices may often not be susceptible to manipulation. Low interest rates may not be enough: they may stimulate hedge fund managers to speculate in stocks, but most ordinary homeowners are not interested in speculating. To stir up enough speculators to move house prices, we needed a series of changes, starting with increasing the percentage of the population that could buy a house. This took ingenuity on two fronts: overstating income and reducing down payment requirements, ideally to nil. This took extremely sloppy loan standards and virtually no data verification. This, in turn, took a warped incentive program that offered great rewards for quantity rather than quality, and a corporation overeager, with aggressive accounting, to book profits immediately. It also needed a much larger, and therefore new, market in which to place these low-grade mortgages. This took ingenious new packages and tranches that made checking the details nearly impossible, even if one wanted to. It took, critically, the Fed Manipulated Prices to drive global rates down. Even more importantly, it needed the global risk premium for everything to hit world record low levels so that suddenly formerly staid European, and even Asian, institutions were reaching for risk to get a few basis points more interest. Such an environment is possible only if there exists an institution with a truly global reach and a commitment to drive asset prices up. In the U.S. Fed, under the Greenspan-Bernanke regime, just such an institution was ready and willing.”

On Wednesday Ben Bernanke will inject more poison into the veins of a once great country. This country, at one time, dealt with its problems in a realistic manner and was willing to sacrifice, cooperate, and make hard choices. QE2 will not help our economy or solve any of our problems.

Is It To Be Or Not To Be?

A brave man once requested me
to answer questions that are key
‘is it to be or not to be’
and I replied ‘oh why ask me?’

‘Cause suicide is painless
it brings on many changes
and I can take or leave it if I please.
…and you can do the same thing if you choose.

Suicide is Painless – M.A.S.H. Movie

The leaders of this country, with the full support of a zombie like disinterested distracted electorate, have chosen to ignore and defer every tough decision regarding energy, spending, entitlements, deficits, and infrastructure. The Federal Reserve has allowed politicians to run the National Debt up to $13.6 Trillion by imposing no limits on the printing of fiat currency backed by nothing but promises. Based on Obama’s 10 year budget projections, adjusted for the real impact of Obamacare and extension of Bush tax cuts, the National Debt will reach $20 trillion in 2015 and $25 trillion by 2019. This is truly a suicide mission. We will never reach these levels because the sweet relief of death will overtake our economic system as the final vestiges of QE2 painlessly bring about the end.

Grantham warns that Bernanke’s actions on Wednesday are a desperate last ditch attempt to fend off the pain of reality. It will fail.

“Thus, our current policy of QE2 is merely the last desperate step of an ineffective plan to stimulate the economy through higher asset prices regardless of any future costs. Continuing QE2 may be an original way of redoing the damage done by the old Smoot-Hawley Tariff hikes of 1930, which helped accelerate a drastic global decline in trade. We may not even need the efforts of some of our dopier Senators to recreate a more traditional tariff war. And all of this stems from the Fed and the failed idea that it can or should interfere with employment levels by interfering with asset prices.”

The only difference between Dr. Bernanke and Dr. Kevorkian is that Kevorkian helped the terminally ill commit suicide. Dr. Bernanke and his colleagues at the Federal Reserve have inflicted suicide on a patient that was healthy and capable of living many more years. The suicide concoction of fiat currency, debt, military empire, and delusion has been painless for those in power, but painful for the working middle class of this country. Dr. Bernanke fancies himself as an expert on the Great Depression. He is destined to be remembered as the man who killed America. Suicide is painless, it brings on many changes.

IS AMERICA ON A BURNING PLATFORM? (Featured Article)

David Walker, the former Comptroller of the United States from 1998 until 2008, has been warning politicians, the media, and the American public for over a decade that we are off course and headed for disaster. In August 2007, before the financial system meltdown of 2008, Mr. Walker declared:

The US government is on a “burning platform” of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon. There are striking similarities between America’s current situation and the factors that brought down Rome, including declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government. The fiscal imbalance meant the US was on a path toward an explosion of debt. With the looming retirement of baby boomers, spiraling healthcare costs, plummeting savings rates and increasing reliance on foreign lenders, we face unprecedented fiscal risks. Current US policy on education, energy, the environment, immigration and Iraq also was on an unsustainable path. Our very prosperity is placing greater demands on our physical infrastructure. Billions of dollars will be needed to modernize everything from highways and airports to water and sewage systems.

Three years have passed since Mr. Walker sounded the alarm and issued his dire warning. The National Debt in August 2007 was $8.9 trillion. Today it stands at $13.6 trillion, a 53% increase in just over 3 years. It took 205 years as a country to accumulate $4.7 trillion of debt. We’ve added $4.7 trillion in the last 38 months. It doesn’t appear that anyone in government heeded Mr. Walker’s warnings.

The perpetually optimistic pundits that occupy the positions of influence on CNBC and the other MSM networks try to paint a rosy picture of the American state of affairs day after day. They urge citizens to spend money they don’t have. They are sure that extending unemployment benefits to 99 weeks will improve the unemployment situation. They declare that Cash for Clunkers and the Home Buyer Tax Credit were successful government programs. They are sure that invading countries in the Middle East will make America safer. Nobel Prize winners in economics declare that the government should undertake another $8 to $10 trillion of money printing because the first $5 trillion wasn’t enough.

The Federal Reserve is pulling out all the stops in attempting to invigorate the American economy. The stock market is surging. Everything is surging. The optimists are crowing that all is well. Deficits don’t matter. We can borrow our way to prosperity. Cutting taxes will not add $4 trillion to the National Debt if not paid for with spending cuts. All is well. So, the question remains. Was David Walker wrong? Are we actually on a perfectly sturdy solid platform? Or, are we on the Deepwater Horizon as it burns and crumbles into the sea? Let’s examine both storylines and decide which is true.

AMERICA ON A STURDY PLATFORM

The National Debt of $13.6 trillion is manageable because interest rates remain at historic low levels.
The addition of $1.6 trillion in debt per year is necessary because government must step in for the lack of spending in the private sector. This will jump start the economy. This is Keynesianism 101.
The debt to GDP ratio of 93% is not dangerous. Japan has a debt to GDP ratio of 200% and they are doing fine. This proves we have plenty of room to grow our debt.
The US dollar is the reserve currency for the entire world. We can systematically devalue the USD, which will reduce our foreign debt burden over time. The foreigners who leant us the money are on the hook and they have no way out.
A depreciating dollar will help our manufacturing industry by making American exports cheaper in foreign markets.
The $700 billion TARP plan saved the American financial system. The American taxpayer will end up making a profit in the long run from this program.
Cash for Clunkers was an astounding success. It increased demand for autos dramatically.
The Homebuyer Tax Credits resulted in a surge in home sales and stabilization of home prices.
The $800 billion Stimulus plan saved America from a 2nd Great Depression. Without it, we would have lost millions of jobs.
Consumer spending accounting for 70% of GDP is sustainable and desirable. If we can just get credit flowing again and encourage consumers that it is safe to use their credit cards to spend, the economy will come roaring back.
This is not the time to save. Nobel Prize winners in economics urge Americans to spend because of the Paradox of Thrift. It may be smart for one person to save more than they spend, but if everyone does it a consumer society will collapse. We can save later is the recommendation.
A QE2 of $8 to $10 trillion would surely increase the animal spirits of the dejected American people. The stock market would soar to 20,000 and everyone would feel rich. Spending would surge. All would be well again.
The Social Security Trust Fund is not broke. The money contributed by Americans over the decades is in a lockbox and the fund will be solvent for decades. A few tweaks and it will be solvent forever.
Medicare has been one of the best government programs ever conceived. It has sustained our senior citizens and delivered high quality care to all at a reasonable cost.
Baby Boomers are rational and realistic. The statistics that show they have not saved enough to sustain them in retirement is overblown. Social Security will suffice. If not, they’ll just work a little longer. No worries.
Obamacare will reduce healthcare costs, improve service, cover more people, and reduce the profits of insurance companies and drug companies.
We have the best educational system in the entire world. People from all over the world want to get into our best Universities. No Child Left Behind has been a huge success.
We are safer today than we were on September 11, 2001. We won the Iraq War and freed the Iraqis from the clutches of a madman. We are fighting them over there so we don’t have to fight them over here. The terrorists are in disarray and retreat.
The $1.1 trillion spent on the Middle East Wars, the trillions spent on the Dept of Homeland Security, and the expansion of government ability to protect its citizens through enhanced surveillance techniques and enhanced interrogation techniques on suspected terrorists has been beneficial to the safety and security of the American people.
A Defense budget of $900 billion per year is essential to our national security. We are surrounded by potential enemies.
It is a net positive for the US to allow illegal immigrants to stay in the country. Who else would we get to work in the fields picking lettuce and cutting our suburban lawns?
Gasoline is only $2.70 a gallon. We are awash in supplies of oil. Peak oil is a myth perpetuated by environmental nuts. We have centuries worth of oil in the Bakken Shale. If we would just open up Alaska to drilling, our troubles would be gone. Drill, Baby, Drill.
Our crumbling infrastructure is actually a fantastic opportunity. A 2nd Stimulus program to upgrade our infrastructure would create millions of high paying jobs.

AMERICA ON A BURNING PLATFORM

The National Debt is $13.6 trillion today. Interest expense for fiscal 2010 totaled $414 billion. Based upon the current spending path and assuming that the Bush tax cuts are extended, the National Debt will exceed $20 trillion by 2015. A reasonable expectation of 5% interest rates would result in annual interest expense of $1 trillion. The entire budgeted outlays of the US government are $3.5 trillion today.
Deficits exceeding $1 trillion per year are baked into the cake for the next decade. Non-Defense discretionary spending totals only $700 billion. Defense spending totals $900 billion. The remaining $1.9 trillion is on automatic pilot for Social Security, Medicare, Medicaid, and other entitlement programs. Politicians declaring they will freeze discretionary spending are treating you like fools. It will solve nothing.
Debt as a percentage of GDP will exceed 125% of GDP by 2015. Rogoff & Reinhart in their book This Time is Different point out the dangers once debt surpasses 90% of GDP: The relationship between government debt and real GDP growth is weak for debt/GDP ratios below 90% of GDP. Above the threshold of 90%, median growth rates fall by 1%, and average growth falls considerably more. The chances of bad things happening to a country increase dramatically after the 90% level is surpassed.
Japan began their 20 years of tears with a debt to GDP ratio of 52% and a National Savings rate of 15%. The Japanese people bought 90% of the debt that the government issued. Today, the debt to GDP ratio is 200% and the National Savings rate is 2%. The US entered this crisis with a debt to GDP ratio of 80% and a National Savings rate of 1%. We depend on foreigners to buy more than 50% of our new debt. We do not control our own destiny.
A depreciating US dollar is already creating inflation in many assets. Gold, silver, oil, and agricultural commodities are increasing in price faster than the stock market. The policy of the US government and Federal Reserve of devaluing the currency is being matched by similar efforts in countries across the globe. The result is a flood of liquidity creating bubbles which will pop. The American middle class will be squeezed harder as their wages stagnate, while their food, energy, and costs at Wal-Mart go higher.
TARP, the purchase of $1.5 trillion of Mortgage Backed Securities by the Federal Reserve, 0% interest rates, and accounting rule changes by the FASB have done nothing but paper over the fact that the biggest financial institutions in the US are insolvent. The assets on their books are worth 50% less than they are reporting. They are zombie banks. Their losses on residential real estate, commercial real estate and consumer credit continue to grow. The only beneficiaries of keeping zombie banks alive are the bankers who are receiving billions in compensation while the middle class dies a slow painful death.
Cash For Clunkers, Home Buyer Tax Credit and energy efficiency credits did nothing but shift demand forward and cost the American taxpayer $25 billion. The estimated cost to the tax payer per incremental home sold was $100,000. Auto sales and home sales plunged as soon as the credits ran out. Home prices are falling and used car prices have soared due to less supply, hurting the poor.
The borrowing of $800 billion from the Chinese to dole out to unions and political hacks all over the country has been a complete disaster. Unemployment has gone up by over 4 million since the stimulus was passed. Government spending has crowded out private spending. The economy hasn’t recovered because it was never allowed to bottom. Why look for a job when the government pays you for two years to watch Oprah in a house where you haven’t made a mortgage payment in 18 months?
Consumers’ spending money they don’t have, saving less than 5% of their disposable income, and putting away nothing for their retirement is unsustainable. The average credit card debt per household is about $15,700. In 1968, consumers’ total credit debt was $8 billion (in current dollars). Now the total exceeds $880 billion. Americans currently owe $917 billion on revolving credit lines and $80 billion of it is past due, according to the latest Federal Reserve statistics.
A scaling back of consumer spending to a sustainable 64% of GDP would reduce consumer spending by $500 billion per year. This would allow Americans to save and invest in the country. This is considered crazy talk in the Keynesian economic circles.
The anticipation of QE2 has already made the dollar drop 10% and gold, silver and oil jump 10%. Ben Bernanke and the Federal Reserve are conducting an experiment on the American people. What they are doing today has never been attempted in human history. It boils down to whether the authorities can cure a disease brought on by too much debt by doubling and tripling the dosage of debt. If this experiment fails, the dollar collapse and possible hyperinflation would lead to anarchy. Ben is confident it might work. Are you?
Social Security and Medicare have an unfunded liability exceeding $100 trillion. There is no money in a lockbox. Congress opened the lockbox and spent the money. Baby boomers are turning 50 years old at a rate of 10,000 per day. There is no possibility that the promises made to Americans by politicians can be honored. No politician of either party will tell the truth to the American public. A massive reduction in benefits or a massive increase in taxes would be required to deliver on this promise.
The 2,000 page Obamacare bill that no one in Congress read was sold to the American people as a cost saving, care enhancing package of goodies. The reality is that it will increase the national debt by hundreds of billions, ration care, drive more doctors into retirement, strangle small business with onerous regulations and enrich the insurance companies and drug companies. The unintended consequences will be devastating.
Total military expenditures for the entire world are $1.9 trillion annually. The US accounts for $900 billion of this expenditure. This is 7 times as much as the next largest spender – China.
The wars of choice in the Middle East since 2001 have cost unborn generations of Americans $1.1 trillion so far, with a final cost likely reaching $3 trillion. Just like Donald Rumsfeld estimated. Over 5,700 Americans have lost their lives and another 39,000 have been wounded. The casualties in the countries that have been invaded number in the hundreds of thousands. Are we better off than we were on September 10, 2001?
Defense spending in 2000 was $359 billion or 3.6% of GDP. Today it is $900 billion or 6.1% of GDP. Every dime of these expenditures is borrowed. Are we safer today?
The Department of Energy was created in 1979 in order to create an energy policy that would reduce our dependence on foreign oil. The United States, which makes up 4% of the world’s population, consumes 25% of the world’s oil on a daily basis. In 1970 we imported 24% of our oil. Today we import 70% of our oil.
Over 50% of our oil imports come from countries whose populations hate the US. Mexico, which accounts for 9% of our current oil supply, will become a net importer by 2015.
The US has not built a new nuclear power plant or oil refinery since 1980.
The existing energy infrastructure is rusting away. 80% to 90% of the system must be rebuilt. The cost of rebuilding the infrastructure will be $50 – $100 trillion. We have no blueprints, few supplies and fewer trained engineers and construction workers.
Peak oil is a fact. World liquid oil production peaked at 86 million barrels per day in 2006. It has not reached that level since, even when prices soared to $145 per barrel. Demand will move relentlessly upward as China and India and the rest of the developing world march forward.
The US Military has concluded in a report put out a few months ago that by 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD. A severe energy crunch is inevitable without a massive expansion of production and refining capacity. While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds.

THE SHIP OF STATE

David Walker was in a ship well ahead of the US Titanic crossing the Atlantic. He saw the dangerous icebergs floating in the ocean. He sent a message to the Captains (Bush, Obama) and Executive Officers (Greenspan, Bernanke, Paulson, Geithner) of the US Titianic that there was danger ahead. They should have reduced speed and doubled the lookouts. Instead they listened to the Managing Director of the cruise line (Wall Street) and increased speed. The US Titanic was unsinkable. When the inevitable collision with the iceberg occurred, those in command chose to disbelieve the possibility that the mighty ship could sink. The nearest ship was four hours away. If the US Titanic had stopped immediately after striking the iceberg, it would have remained afloat until the rescue ship arrived. Instead, the masters of the ship chose to keep going as the compartments below the surface continued to fill with water. Reputation and hubris drove them to take these actions.

Those in command knew that there was only room on the lifeboats for 1,100 people. There were 2,200 people onboard. It is interesting to note that 60% of the First Class (the ruling elite) passengers survived the sinking, while less than 25% of the Third Class (working middle class) and crew survived.

David Walker has presented a case for inter-generational sacrifice. Are today’s generations willing to keep robbing future generations of Americans by being fiscally irresponsible today? Every borrowed dollar spent today is a tax on future generations. Are we selfish enough to leave our children and grandchildren with an un-payable burden so that we can live well today? Don’t the Wall Street bankers and Washington politicians have children and grandchildren? It is immoral and despicable that American leaders and its citizens aren’t willing or able to make the tough choices needed to save the ship of state. Every great empire withered away due to the accumulation of bad decisions. Ask yourself whether this country has made the right choices in the last 30 years. Are we making the right choices today? If you are honest, the answer is NO. We’ve hit the iceberg. The ending is unavoidable.

Sing us a song of the century
That’s louder than bombs and eternity
The era of static and contraband
That’s leading us into the promised land
Tell us a story that’s by candlelight
Waging a war and losing the fight

They’re playing the song of the century
of panic and promise and prosperity
Tell me a story into that goodnight

Sing us a song for me …

Green Day – Song of the Century

THE BASTARD CHILD OF THE MOTHER OF ALL BUBBLES

There is no doubt the home price bubble inflated by Easy Al Greenspan between 2000 and 2006 was the Mother of All Bubbles. Robert Shiller clearly showed that home prices were two standard deviations above expectations. Despite the unequivocal facts that Dr. Shiller put forth, millions of delusional unsuspecting dupes bought houses at the top of the market. These were the greater fools. They actually believed the drivel being spewed forth by the knuckleheaded anchors on CNBC. They actually believed the propaganda being preached by David Lereah from the National Association of Realtors (Always the Best Time to Buy) about home prices never dropping. They actually believed Bennie Bernanke when he said:

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – 7/1/2005

“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” – 2/15/2006

Bennie actually made these statements when the chart below showed home prices at their absolute peak. You should keep this in mind whenever this rocket scientist opens his mouth about anything. And always remember that he is a self proclaimed “expert” on the Great Depression. That should come in handy in the next few years, just like his brilliant analysis of the strong housing market.

Source: Barry Ritholtz

Easy Al Greenspan created the Mother of All Bubbles by keeping interest rates at 1% for a prolonged period of time while encouraging everyone to take out adjustable rate mortgages. His unshakeable faith in the free market policing itself allowed Wall Street criminals, knaves and dirtbags to create fraudulent mortgage products which were then marketed to willing dupes and “retired” internet day traders. Al’s easy money policies and disinterest in enforcing existing banking regulations also birthed the ugly stepsister of the Mother of All Bubbles. Her name is the Consumer Debt Bubble. The chart below is hauntingly similar to the home price chart above. The consumer will be deleveraging for the next ten years. The numbskulls on CNBC and the other mainstream media have been falsely reporting for months that consumers were deleveraging when it was really just debt being written off by banks. Baby Boomers are not prepared for retirement and will be shifting dramatically from consuming to saving. As consumer expenditures decline from 70% of GDP back to 65% of GDP, consumer debt will resemble the home price chart to the downside.

The savings rate has soared all the way to 6% of personal income. This is up dramatically from the delusional boom years of 2004 and 2005 when it bottomed out at 1%. It ain’t even close to being enough to fund the looming retirements of the Baby Boomers. The savings rate averaged 10% from 1959 through 1989. In order for the American economy to revert to a balanced state where savings leads to investment which leads to wage increases, the savings rate will need to be 10% again. With annual personal income of $12.5 trillion, Americans will need to save an additional $500 billion per year. This means $500 billion less spending at the Mall, car dealerships, Home Depot, tanning salons, and strip joints. Don’t count on a consumer led recovery for a long long time.

So here we stand, two years after the worldwide financial system came within a few hours of imploding, and nothing has changed. Wall Street is still calling the shots. The political hacks that supposedly run this country have kneeled down before their insolvent Masters of the Universe. Bennie Bernanke has chosen to save his Wall Street masters and throw grandma under the bus. By keeping interest rates at zero, buying up trillions in toxic mortgages, and printing money as fast as his printing presses can operate, Bennie has birthed the bastard child of the mother of all bubbles. The chart below clearly shows the birth of this bastard. It is a distant cousin of the internet bubble bastard. Despite interest rates at or near all-time lows across the yield curve, money has poured into Treasury bonds. This makes no sense, as interest rates can’t go much lower. A small increase in rates will produce large losses for investors at these rates.

Source: Barry Ritholtz

Only a fool would buy a US Ten Year Treasury bond today yielding 2.55%. Of course, only a fool would buy a 1,300 square foot rancher in Riverside, California for $800,000 with 0% down using an Option ARM in 2005 too. But that doesn’t mean there aren’t millions of fools willing to do so. Each “investment” will have the same result – huge losses. As anyone can see from the chart below, the 10 year Treasury has been in a 30 year bull market. At this point you have to ask yourself one question. Do you feel lucky? Well do you, punk? There are a number of analysts who see rates falling further as the economy sinks into Depression part 2. That may happen, but we all know that Bennie and those in power will do anything to avoid a deflationary spiral. That means looser money and more printing.

The Federal Reserve does not want a 20 year recession like Japan. They will not get it. They’ll get a hyperinflationary collapse instead. Japan entered their 20 years of stagnation with a population that saved 18% of their income and huge trade surpluses. The Japanese government could count on the Japanese population to buy every bond they issued to pay for worthless stimulus projects. The US has entered this Depression with a population that saved 2% of their income and a trade deficit of $500 billion. John Hussman describes the differences between the US and Japan in his recent newsletter:

The impact of massive deficit spending should not be disregarded simply because Japan, with an enormously high savings rate, was able to pull off huge fiscal imbalances without an inflationary event. We may be following many of the same policies that led to stagnation in Japan, but one feature of Japan that we do not share is our savings rate. It is one thing to expand fiscal deficits in an economy with a very elevated private savings rate. In that event, the economy, though weak, has the ability to absorb the new issuance. It is another to expand fiscal deficits in an economy that does not save enough. Certainly, the past couple of years have seen a surge in the U.S. saving rate, which has absorbed new issuance of government liabilities without pressuring their value. But it is wrong to think that the ability to absorb these fiscal deficits is some sort of happy structural feature of the U.S. economy. It is not. It relies on a soaring savings rate, and without it, our heavy deficits will ultimately lead to inflationary events.

The bastard child of the mother of all bubbles likes to live dangerously. The morons in Congress will surely extend all of the Bush tax cuts without restraining spending in any way. That is what they call compromise in the hallowed halls of the Capitol. By 2020 the National Debt would be $30 Trillion under this scenario. Annual interest on the debt would exceed $2 trillion per year. This is a death spiral scenario, but it is the path we are choosing. Again, I ask you, who in their right mind would buy a 10 Year Treasury bond yielding 2.55% when the US will either have a $30 trillion National Debt or will have already collapsed under the weight of that debt?

Foreigners own approximately 30% of our outstanding debt. But, we have been relying on them to purchase almost 40% of our new issuance. We will need to issue $3 trillion of new debt in the next two years. Foreigners can add. They see that we are on a course that isn’t sustainable. They know that the Fed will attempt to monetize our debt and weaken the USD over time. At 2.5% interest rates, foreigners will accumulate massive losses as the USD depreciates. They will not accept these low rates for much longer. It is a confidence game. As they lose confidence in our ability to confront our debt issues, rates will be forced higher.

The pollyannas that seem to proliferate on CNBC and the rest of the mainstream media declare that since interest rates haven’t spiked and our hyper-debt based financial system is still functioning, then there is nothing wrong. They also didn’t see the internet collapse, housing collapse or financial system collapse coming. They never do and never will. China has actually been selling Treasuries for over a year. Japan is still buying, but their far worse debt/demographic crisis will force them to curtail purchases of Treasuries in the coming years. The purchases being made from the UK are really purchases from Middle Eastern countries with their oil money. I wonder what would happen to these purchases if war with Iran breaks out? It seems we have foreign countries increasingly reluctant to buy our debt when we are about to issue trillions of new debt in the next few years and as far as the eye can see.

The only thing that could possibly keep foreigners buying our debt would be higher interest rates. Our economy is so saturated with debt from top to bottom, that an increase in interest rates of only 2% would have a devastating impact on our economy. John Hussman understates the impact of deficits on our economic future:

Continued deficits will have substantial economic consequences once the savings rate fails to increase in an adequate amount to absorb the new issuance, and particularly if foreign central banks do not pick up the slack. We’re not there for now, but it’s important not to assume that the current period of stable and even deflationary price pressures is some sort of structural feature of the economy that will allow us to run deficits indefinitely.

The Krugmans of the world are not worried about our debt. They say pile it on. We are America. We are the most powerful nation in the history of the world. We can obliterate any enemy with the push of a button. Why do we need to worry about some debt? This is the hubris that has led to the downfall of every great Empire. As Rogoff and Reinhart point out in their recent book, this time is not different:

“As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubble and last for a surprisingly long time. But highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked.

“This time may seem different, but all too often a deeper look shows it is not. Encouragingly, history does point to warning signs that policy makers can look at to assess risk – if only they do not become too drunk with their credit bubble – fueled success and say, as their predecessors have for centuries, “This time is different.”

A tipping point is reached when the government debt exceeds 90% of GDP. US government debt is currently at 93% of GDP. One year from now it will exceed 100% of GDP. The bastard child of the mother of all bubbles has jumped out a window on the hundredth floor of a NYC mega bank. As he passes the 50th floor, Paul Krugman asks him how is he doing? He says great, SO FAR. We all know what happens next. SPLAT!!!!

MASS DELUSION – AMERICAN STYLE (Featured Article)

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” – Charles Mackay – Extraordinary Popular Delusions and the Madness of Crowds

The American public thinks they are rugged individualists, who come to conclusions based upon sound reason and a rational thought process. The truth is that the vast majority of Americans act like a herd of cattle or a horde of lemmings. Throughout history there have been many instances of mass delusion. They include the South Sea Company bubble, Mississippi Company bubble, Dutch Tulip bubble, and Salem witch trials. It appears that mass delusion has replaced baseball as the national past-time in America. In the space of the last 15 years the American public have fallen for the three whopper delusions:

Buy stocks for the long run
Homes are always a great investment
Globalization will benefit all Americans

Bill Bonner and Lila Rajiva ponder why people have always acted in a herd like manner in their outstanding book Mobs, Messiahs and Markets:

“Of course, we doubt if many public prescriptions are really intended to solve problems. People certainly believe they are when they propose them. But, like so much of what goes on in a public spectacle, its favorite slogans, too, are delusional – more in the nature of placebos than propositions. People repeat them like Hail Marys because it makes them feel better. Most of our beliefs about the economy – and everything else – are of this nature. They are forms of self medication, superstitious lip service we pay to the powers of the dark, like touching wood….or throwing salt over your shoulder. “Stocks for the long run,” “Globalization is good.” We repeat slogans to ourselves, because everyone else does. It is not so much bad luck we want to avoid as being on our own. Why it is that losing your life savings should be less painful if you have lost it in the company of one million other losers, we don’t know. But mankind is first of all a herd animal and fears nothing more than not being part of the herd.”

Continue reading “MASS DELUSION – AMERICAN STYLE (Featured Article)”

JOHN PAULSON WILL BE WRONG THIS TIME (Featured Article)

We have arrived at critical juncture in the ongoing financial crisis. Have the government actions of the last year successfully spurred the animal spirits of Americans, resulting in a self-sustaining recovery?

The Obama administration and most of the mainstream media would answer yes. GDP has been positive for the last four quarters. Consumer spending has increased in five consecutive months. Corporate profits have been relatively strong. The country has stopped losing jobs. The missing piece has been a housing recovery.

No need to worry. Famous or infamous (depending on your point of view) $15 billion man John Paulson has assured the world that house prices will rise 8% to 10% in 2011. His basis for this forecast is that California prices have rebounded 8% to 10% in the last year, and this recovery will spread to the rest of the nation.

Maybe Paulson has teamed up with his buddies at Goldman Sachs to develop a product that guarantees a housing recovery. I tend to not believe anything that comes out of the mouth of anyone associated with Wall Street, but let’s assess the facts and see if they point to an impressive housing recovery in 2011.

The man who has been right on housing for the last ten years has been Yale Professor Robert Shiller. His analysis of U.S. housing prices from 1890 until present, which he first published in 2005, unequivocally proved that we were in the midst of the greatest housing bubble in history. At the same time, David Lereah, the chief economist (shill) for the National Association of Realtors, was pronouncing it was the best time to buy. He published his masterpiece of market tops, Are You Missing the Real Estate Boom? at the 2005 housing peak. He called a bottom in January 2007, and the NAR has continued to tell Americans it is the best time to buy for the last five years as prices have dropped 36% nationally.

Dr. Shiller continues to be the voice of reason when it comes to the housing market. He is doubtful that the recent “recovery” will continue:

“Recent polls show that economic forecasters are largely bullish about the housing market for the next year or two. But one wonders about the basis for such a positive forecast. Momentum may be on the forecasts’ side. But until there is evidence that the fundamental thinking about housing has shifted in an optimistic direction, we cannot trust that momentum to continue.”

Whom do you believe? The paid mouthpiece for the National Association of Realtors, the Wall Street shill, or an impartial economics professor who has done rigorous analysis using 120 years of housing data?

Continue reading “JOHN PAULSON WILL BE WRONG THIS TIME (Featured Article)”