Tuesday, November 10, 2009

November 10 2009: The non-reporting netherworld

Dorothea Lange Vines June 1938
"Butter bean vines across the porch. Negro quarter in Memphis, Tennessee."

Ilargi: I’d like to take another look at Sunday's post, The Jobs Doom Loop , which addressed two separate sets of (un-)employment numbers emerging from the US administration.

First, there is the issue of the jobs allegedly saved/created by the $787 billion stimulus plan, which turn out to be highly questionable and in all likelihood wildly exaggerated to make the current White House look good/better. Giving someone a pay raise is not the same as creating a job, guys. And saving jobs that are not threatened doesn't count either.

Second, in what goes way beyond the current White House, but is happily embraced regardless, the reporting of monthly and yearly job losses by the Bureau of Labor Statistics. For October, 192,000 lost jobs were reported, but only after 86,000 were added just about entirely arbitrarily through the moot-in-a-recession birth/death model. If we disregard the birth/death model, October saw 25,000 MORE job losses (a total of 278,000) than September. Still, the media widely reported LESS losses.

Note that the figure of 192,000 lost jobs was arrived at through the Payroll (or Establishment) Survey, while the alternative method reported by the BLS, the Household Survey, indicates that October saw 558,000 newly unemployed. While the Payroll Survey consults more firms than the Household Survey consults households, John Williams insists the latter is a far more scientific method. And it has a much wider range:
"Where the household survey includes farm workers, the self-employed and workers in private homes, the payroll survey does not.".
Yes, I can see how that would keep the numbers comfortably low, completely ignoring the self-employed.

I wanted to bring two additional pieces of information to your attention, and into the equation.

One: a commenter named "Problem Is" at The Automatic Earth, see (The Jobs Doom Loop) had this to say about the infamous birth/death model:

Problem Is said... on NOVEMBER 8, 2009 6:04 PM
Great analysis as always Mr. Ilargi. Every one seems to forget what the BLS announced back on Oct. 2, 2009: The Birth/Death Ratio overestimated 824,000 jobs, mostly in the 1st Quarter 2009. They will be removed in the annual adjustment in February 2010.

From Bloomberg:
U.S. Job Losses May Be Even Larger, Model Breaks Down
About 824,000 more jobs may be subtracted from the payroll count for the 12 months through last March when the figures are officially revised early next year, a Labor Department report showed today. The revision would be the biggest since at least 1991.
From Calculated Risk:
Employment Report: 190K Jobs Lost, 10.2% Unemployment Rate
Note: The total jobs lost does not include the preliminary benchmark payroll revision of minus 824,000 jobs. (This is the preliminary estimate of the annual revision that will be announced early in 2010).
In other words, the 824,000 phantom jobs that don't exist won't be subtracted from the employment numbers and put back on the unemployment numbers where they belong until February 2010. So, let us fix that for the BLS now instead of February 2010:
  • The BLS says there are 15.7 million unemployed by U3 at 10.2% unemployment rate...
  • So simple math tells us 15.7 at 10.2% means the work force being counted is 153.9 million.
  • So we add back the 824,000 unemployed that the BLS shaved off with their imaginary B/D Ratio:
  • We get 15.7 + .824 = 16.5 million unemployed.
  • 16.5 / 153.9 = 10.7% by U3.
  • Based on 153.9 million in the work force as above, by U3, I come up with 10.7% unemployment.

Now that was not so hard, was it Mr. Change?

Now, please note that these 824,000 fake jobs were counted by the BLS in the April 2008-March 2009 time bracket, even though they won’t be discounted till March 2010. In the same vein, the errors in the birth/death model that have been added to this years' job loss numbers so far won’t be known for the next year and a half, till Spring 2011. An average of 68.666 jobs every single month, invented out of thin air, whose only claim to fame is to make stock markets rise and politicians look good, and who won't be part of the real picture until some of them have been serving to polish up that picture for close to two years.

And no, that is not all, and neither is it the worst of the lot. Here’s number two:

In his weekly letter, John Mauldin shines his own light on the unemployment numbers, and quotes researcher and money manager Greg Weldon, who asserts that just about all the numbers we see published greatly underestimate the mess the US jobs market has become:

The Glide Path Option
The headlines said unemployment, as measured by the "establishment survey," was down by 190,000; and even though that was slightly worse than forecast, market bulls were cheered by the fact that the number was not as bad as last month's. It is an improvement that we are not falling as fast. Well, maybe. What I did not see in many of the stories I read was that the number of unemployed actually soared by 558,000, to 15.7 million, as measured by the household survey. The establishment survey polls larger businesses; the household survey actually calls individual households.

Let's look at the real number in the establishment survey. If you don't seasonally adjust the number, the actual change in unemployment for October was 641,000, or about 450,000 more than the seasonally adjusted number. And the Bureau of Labor Statistics added 86,000 jobs that they simply guess were created through the so-called birth-death ratio. Interestingly, the birth-death ratio number is not seasonally adjusted, so it is just added to the unemployment number.

The total (U-6) [un]employment rate is at a record high of 17.5% (this includes those who are part-time for economic reasons). There are now over 10.5 million people who have lost their jobs since the beginning of the downturn.

My favorite slicer and dicer of data, Greg Weldon, offers up an even more horrific number. As I have noted before, if you have not looked for work in the last four weeks, the BLS does not count you as unemployed. Quoting Greg:
"Moreover, when we combine the monthly change in the number of Unemployed, with the number Not in the Labor Force, we might consider the result to be a proxy for the actual 'change' in the underlying labor market situation ... in which case, October's figure of 817,000 represents the fourth LARGEST yet, behind last month's (September's) second largest figure of 1,021,000

... for a two-month combined figure of 1.838 million
, in newly Unemployed, or no longer 'in' the Labor Force ...

... the second LARGEST two-month total EVER posted, barely trailing the December-08/January-09 total 1.955 million.

"Bottom line ... basis this measure AND the 'Total Unemployment Rate,' we could conclude that not only is there NO 'improvement' in the labor market, but moreover, that it continues to DETERIORATE, intently."

So if you have not looked for work in four weeks, the BLS does not count you as unemployed. If you've been listed discouraged for over a year, you're among millions of Americans who don't count either. John Williams at shadowstats.com put it this way: "The Clinton administration dismissed to the non-reporting netherworld about five million discouraged workers who had been so categorized for more than a year." Williams, when including these long-term discouraged, arrives at his SGS Alternate US unemployment percentage of 22.1%. Please note that, already, 35.6% (appr. 5.8 million) of today's unemployed (the ones that ARE counted) fall in the long-term category.

To summarize, the mostly widely quoted official US government employment numbers, the (non-farm) Payroll Survey, routinely ignores to include between 70-80% of unemployed Americans. The less quoted Household Survey fails to count "only" about 50% of the jobless. The rest reside in the netherworld. The reality is that close to 1 million Americans still become unemployed every month a trend that shows no sign of slowing down.

If we take the 153.9 million number for the total workforce, and John Williams' 22.1% for the unemployment rate, we find that 34 million Americans are currently unemployed.

There must be more constructive ways to deal with these very serious issues than just lie about them every chance you get. And America must be able to find more accurate ways of keeping tab. I doubt even the recent elections in Zimbabwe or Afghanistan came up this far off the mark.

Ilargi: The Automatic Earth Fall Fund Drive is on. Please see the top of the left hand column. Your donations (and visits to our advertisers) make this site possible. This is not TV. You are not just a dispassionate observer. Without you, there can be no Automatic Earth.

U.S. Joblessness May Reach 13 Percent, Rosenberg Says
The U.S. unemployment rate may rise to a post-World War II high of 13 percent in the aftermath of the recession, said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto. "This is going to be the mother of all jobless recoveries," Rosenberg, one of the first to forecast the recession in his former position as chief North American economist at Merrill Lynch & Co. in New York, said today in an interview on Bloomberg Radio. "At the beginning of the year, who was calling for unemployment to go up to 10 percent?"

Rosenberg said the recession, the deepest since the Great Depression, "is truly secular in nature" and said the economy is "in a post-bubble credit collapse." A 13 percent unemployment rate would be the highest since monthly records began in January 1948, according to Labor Department data. The previous postwar high was 10.8 percent in December 1982. Yearly records, which began in 1929, show joblessness climbed to almost 25 percent in 1933 during the Great Depression. The rate exceeded 10 percent last month for the first time in more than a quarter century. The Labor Department reported Nov. 6 that unemployment increased to 10.2 percent in October, the highest since 1983, and payrolls dropped by 190,000 workers.

Additionally, the so-called under-employment rate, which includes part-time workers who’d prefer a full-time position, and people who want work and have given up looking, reached 17.5 percent last month, the highest level since records began in 1994. Companies aren’t "cash constrained to hire workers," and instead are being "cautious about economic bellwethers," Rosenberg said. "It just comes down to the economic outlook," he said.

The economy has lost 7.3 million jobs since the recession began in December 2007. Commenting on the third quarter’s surge in worker productivity, Rosenberg said "we are producing more with fewer average hours worked -- how sustained is that is anyone’s guess." Productivity, a measure of worker output per hour, increased at a 9.5 percent annual rate from July to September as labor costs registered a record decline, the Labor Department reported Nov. 5.

The economy in the U.S. could rival Japan’s so-called "lost decade" of the 1990s, Rosenberg said. "This has some prints of Japan in many respects," where growth stagnated for years and prices fell in the aftermath of speculation in real estate and equities, he said. In the U.S., "20 percent of private credit is coming out of the system -- and on a semi-permanent basis," as reflected in the record eight consecutive monthly declines in consumer credit through September, Rosenberg said.

Credit card, auto and other installment debt declined $14.8 billion, or 7.2 percent at an annual rate, to $2.46 trillion, according to Federal Reserve data released Nov. 6. The consecutive declines were the most since records began in 1943. Government stimulus plans, such as the "cash-for- clunkers" auto rebates and tax credits for home buying, are "short-term policies that promote excess spending," Rosenberg said. Growth in the third quarter would have been "barely above zero" without the government stimulus, he said. Spending on education and job training would be a wiser investment, Rosenberg said.

Moreover, the Treasury is "on an unsustainable fiscal path irrespective of where the economy is going," Rosenberg said. The government reported a record budget deficit of $1.42 trillion in the fiscal year that ended Sept. 30. In the third quarter, gross domestic product expanded at a 3.5 percent annual rate after a yearlong contraction, Commerce Department figures showed Oct. 29. Household purchases increased 3.4 percent, the most in two years.

The Glide Path Option
by John Mauldin

The Ugly Unemployment Numbers

The headlines said unemployment, as measured by the "establishment survey," was down by 190,000; and even though that was slightly worse than forecast, market bulls were cheered by the fact that the number was not as bad as last month's. It is an improvement that we are not falling as fast.

Well, maybe. What I did not see in many of the stories I read was that the number of unemployed actually soared by 558,000, to 15.7 million, as measured by the household survey. The establishment survey polls larger businesses; the household survey actually calls individual households.

Let's look at the real number in the establishment survey. If you don't seasonally adjust the number, the actual change in unemployment for October was 641,000, or about 450,000 more than the seasonally adjusted number. And the Bureau of Labor Statistics added 86,000 jobs that they simply guess were created through the so-called birth-death ratio. Interestingly, the birth-death ratio number is not seasonally adjusted, so it is just added to the unemployment number. http://www.bls.gov/web/cesbd.htm

The total (U-6) employment rate is at a record high of 17.5% (this includes those who are part-time for economic reasons). There are now over 10.5 million people who have lost their jobs since the beginning of the downturn.

My favorite slicer and dicer of data, Greg Weldon (www.weldononline.com), offers up an even more horrific number. As I have noted before, if you have not looked for work in the last four weeks, the BLS does not count you as unemployed. Quoting Greg:

"Moreover, when we combine the monthly change in the number of Unemployed, with the number Not in the Labor Force, we might consider the result to be a proxy for the actual 'change' in the underlying labor market situation ... in which case, October's figure of 817,000 represents the fourth LARGEST yet, behind last month's (September's) second largest figure of 1,021,000 ... for a two-month combined figure of 1.838 million, in newly Unemployed, or no longer 'in' the Labor Force ...

"... the second LARGEST two-month total EVER posted, barely trailing the December-08/January-09 total 1.955 million.

"Bottom line ... basis this measure AND the 'Total Unemployment Rate,' we could conclude that not only is there NO 'improvement' in the labor market, but moreover, that it continues to DETERIORATE, intently."

There are plenty more implications in the data, but let's turn to the topic of the day.

The Present Contains All Possible Futures

Like teenagers, we as a US polity have made a number of bad choices over the past decade. We allowed banks to overleverage and, in the case of AIG (and others), sell what were essentially naked call options of credit default swaps, based on their firm balance sheets, far in excess of their net worth; and that put our entire financial system at risk. We gave mortgages to people who could not pay them, and did so in such large amounts that we again brought down the entire world financial system to the point that only with staggering amounts of taxpayer money was it brought back from the brink of Armageddon. We assumed that home prices were not in a bubble but were a permanent fixture of ever-rising value, and we borrowed against our homes to finance what seemed like the perfect lifestyle. We did not regulate the mortgage markets. We ran large and growing government deficits. We did not save enough. We allowed rating agencies to degrade their ratings to a point where they no longer meant anything. The list is much longer, but you get the idea.

Now, we are faced with a continuing crisis and the aftermath of multiple bubbles bursting. We are left with a massive government deficit and growing public debt, record unemployment, and consumers who are desperately trying to repair their balance sheets.

If present trends are left unchecked, we will need to find $15 trillion in the next ten years, just to pay for US government debt, let alone state, county, and city debt. And perhaps some loans for business will be needed? Where can all this money come from? The answer is that it can't be found. Long before we get to 2019 there will be an upheaval in the market, forcing what could be unpleasant changes.

We are left with no good choices, only bad ones. We have created a situation that is going to cause a lot of pain. It is not a question of pain or no pain, it is just when and how we decide (or are forced) to take it. There are no easy paths, but some bad choices are less bad than others. So, let's review some of the choices we can make. (Again, I am being very general here. You can go to the archives for more specifics. This is a summary letter.)

Argentinian Disease

One way to deal with the deficit is to do what Argentina and other countries have done: simply print the money needed to cover the deficits. Of course, that eventually means hyperinflation and the collapse of the currency and all debt. There are writers who think this is an inevitable outcome. How else, they ask, can we deal with the debt? Where is the political willpower?

One large hedge-fund manager in Brazil humorously remarked that Argentina is a binomial country. When faced with two choices (hence binomial) they always made the bad choice. Could it happen here?

Hyperinflation is not an economic event; it is a political choice. I think last Tuesday's election is a sign that the voter population is beginning to pay attention to the need for something more than talk of change. There is growing discomfort with the size of the deficits. Further, the Fed would have to cooperate in order for there to be hyperinflation, and I think there is only a very slight (as in almost zero) chance of that happening. Could Congress change the rules and take over the Fed? Anything's possible, but I seriously doubt there is any appetite in saner Democratic circles for such a thing to happen.

I think the chances of hyperinflation in the US are quite low. It would be the worst of all possible bad choices.

The Austrian Solution

Here I refer to the Austrian school of economic theory, based on the work of Ludwig von Mises and Friedrich Hayek, et al. There are those in the Austrian camp who argue the need to do away with the Fed, return to the gold standard, allow the banks that are now deemed too big to fail to go ahead and fail, along with any businesses that are also mismanaged (such as GM and Chrysler), and leave the high ground to new and more properly run.

In their model, government spending is slashed to the bone, as are (in most cases) taxes. The advantage is that, in theory, you get all your pain at once and then can begin to recover from what would be a very bad and deep recession. The bad news is that you risk getting 30% unemployment and another depression that could take a very long time to climb out of.

Now, let me say that I have GREATLY simplified their argument. If you want to learn more you can go to www.mises.org. It is an excellent web site for all things Austrian. While I am not Austrian, I have spent a lot of time reading the literature and have certain sympathies for this view.

That being said, this also has almost no chance of being implemented. In Congress, only my friend Ron Paul is its advocate. Most Austrian followers are Libertarian by nature, and that is just not a political reality for the coming decade.

The Eastern European Solution

As it turned out, Niall Ferguson (last week I wrote about his brilliant book, The Ascent of Money) was in Dallas last night, and I was graciously invited to hear him. He gave a great speech and signed books, and then we went to a local bar and proceeded to solve the world's problems over Scotch (Niall) and tequila (me), and went farther into the night than we originally intended. He's a very fun and knowledgeable guy.

As we were talking about possible paths, he brought one to mind that I hadn't thought of. He reminded me of the period after the fall of the Berlin Wall, as the nations of Eastern Europe broke from the former Soviet Union. They started with very weak economies and simply overhauled their entire governments and economies in a rather short period of time, though not in lockstep with one another. Privatization, lowered taxes, etc. were the order of the day.

We here in the US are always talking about the need for reform. We need to reform health care or education or energy. In Eastern Europe they did not reform in the sense that we use the word. In many cases they simply started from scratch and built new systems. They had the advantage that there was general agreement that things did not work the way they had been, so there was more room for change.

Today in the US there are large constituencies that resist change. We only get to tinker around the edges, when real structural change is needed. Sadly, we agreed that here there is not much chance of major change. We can't even get the obvious changes needed in the financial regulatory world.

Sidebar: I am outraged at the paltry proposed financial "reforms." Rahm Emanuel said that no crisis should be allowed to go to waste. The Obama administration is wasting this one. How can we allow banks to be too big to fail? Where is the reinstatement of Glass-Steagall? If we are going to allow large banks to exist, then their leverage must be reduced to the point where their failure would not risk the system and require taxpayer dollars. I don't care if that makes them less profitable. They are making those large profits because they have taxpayers implicitly behind them, and I get no dividend payments from them, the last time I checked. Where is Fannie and Freddie reform (and their breakup)? No mention of an exchange for credit default swaps? (And yes, I know that such an exchange would reduce the number of swaps and the profitability of them. That is the point. They are dangerous if allowed to become too big a market.) This bill reads as if bank lobbyists wrote it. Where is the populist outrage? We have let the fox set up the rules for running the hen house. Shame on us all if we allow this to happen.

Japanese Disease

I have written a lot over the past year about the problems facing Japan. Their population is shrinking, as is their work force. They are running massive fiscal deficits and have done so for almost 20 years. Government debt-to-GDP is now up to 178% and projected to rise to over 200% within a few years. They started their "lost decades" with a savings rate of almost 16%, and are now down to 2% as their aging population spends its savings in retirement. They have had no new job creation for 20 years, and nominal GDP is where it was 17 years ago.

As bad as our problems are here in the US, their bubble was far more massive. Values of commercial property fell 87%! Their stock market is still down 70%. They had twice as much bank leverage to GDP as the US. (Think about how bad off we would be if bank lending was twice as large and had even worse defaults and capital shortfalls!)

And yet, they Muddle Through. Productivity has kept their standard of living reasonable. Up until recently their exports were strong. The trading floors of the world are littered with the bodies of traders who have shorted Japanese government debt in the belief that it simply must implode. While I believe that it eventually will, if they stay on the path they are on, Japan is a very clear demonstration that things that don't make sense can go on longer than we think.

Richard Koo (chief economist of Nomura Securities, in Tokyo) argues passionately that Japan had a balance-sheet recession, and that the only way for Japan to fight it was to run massive deficits. Banks were not lending and businesses were not borrowing, as both groups were trying to repair their balance sheets, which were savaged by the bursting of the bubble. It is said that at one time the value of the land on which the Emperor's Palace sits in Tokyo was worth more than all of California. Clearly this was a bubble that puts our housing bubble to shame.

So, I understand the point that there are differences between Japan and the US . But there are also similarities. We too have had a balance sheet recession, although here it was mostly individuals and financial institutions that have had to retrench and repair their balance sheets.

Japan elected to run large deficits and raise taxes. As I wrote in the October 16th letter (http://www.2000wave.com/article.asp?id=mwo101609), "Savings equal Investments:

GDP (Gross Domestic Product) is defined as Consumption (C) plus Investment (I) plus Government Spending (G) plus [Exports (E) minus Imports (I)] or:

GDP = C + I + G + (E-I)

I don't want to go on at length again, but basically, the literature I quoted suggests that government stimulus and deficits have no long-run positive effect on GDP. In fact, the work done by Christina Romer, Obama's chairman of the Council of Economic Advisors, shows that tax cuts have a three-times-greater positive effect on GDP, and tax increases have the same level of negative effect.

In the equation above, if you increase government spending it will have a positive effect in the short run on GDP, but not in the long run. In essence, the increase in "G" must be made up by savings from consumers and businesses and foreigners.

But "G" does not enhance overall productivity. Government spending may be necessary but it is not especially productive. You increase productivity when private businesses invest and create jobs and products. But if government soaks up the investment capital, there is less for private business.

And that is Japanese disease. You run large deficits, sucking the air out of the room, and you raise taxes, taking the money from productive businesses and reducing the ability of consumers to save. Then you go for 20 years with little or no economic or job growth.

This is the path we currently seem to be on. The Japanese experience says that it could last a lot longer than people think before we hit the wall; because if savings rise in the US, and if banks, instead of lending, put that money on deposit with the Fed, as they are now doing (in order to repair their balance sheets), the US could run large deficits for longer than most observers currently believe.

We will need 15-18 million new jobs in the next five years, just to get back to where we were only a few years ago. Without the creation of whole new industries, that is not going to happen. Nearly 20% of Americans are not paying anywhere close to the amount of taxes they paid a few years ago, and at least ten million are now collecting some kind of unemployment benefits or welfare.

Choosing large deficits does not reduce the amount of pain we will experience, it just seemingly reduces it in the short term and creates the potential for a serious economic upheaval when the bond market finally decides to opt for higher rates. This path is a bad choice, but sadly, in reality it is one we could take.

The Glide Path Option

A glide path is the final path followed by an aircraft as it is landing. We need to establish a glide path to sustainable deficits (could we dream of surpluses?). That is because at some point there will be recognition, either proactively or forced upon us by the bond market, that large deficits are unsustainable in the long term.

If Congress and the president decided to lay out a real (and credible) plan to reduce the deficit over time, say 5-6 years, to where it was less than nominal GDP, the bond market would (I think) behave. Reducing deficits by $150 billion a year through a combination of cuts in growth and spending would get us there in five years.

The problem is that there is real pain associated with this option. Remember that equation above. Absent a growing private sector, if you reduce "G" (government spending) you also reduce GDP in the short run. You have to take some pain today in order to do that. But you avoid worse pain down the road: a bubble of massive federal debt that has to be serviced will be very painful when it blows up, as all bubbles do.

The Glide Path Option means that structural unemployment is going to be higher than we like (which is actually the case with all the options). And the large tax increases that come with this option will by their very nature be a drag on growth (and cause a double-dip recession in 2011). We can debate tax increases all we want, but I sadly think we will soon have a VAT tax. There are no good options. I just hope that we cut corporate taxes enough when we do create a VAT, that it will make our corporations more competitive, which will be a boost for jobs.

That's pretty much it. This is not a problem we can grow ourselves out of in the next few years. We have simply dug ourselves into a huge hole. This is not a normal recession. There is not a "V" ending to this recession. We are going to have deal with the pain. It will be the pain of reduced returns on traditional stock market investments, a lower dollar, low returns on bonds, European-like unemployment, lower corporate profits over the long term, and a very slow-growth environment. But if we choose this path, we will get through it in the fullness of time.

And of course, then we will eventually have to deal with the $70 trillion in our off-balance-sheet liabilities in Medicare and Social Security and pensions. Sigh. But that's for another time.

Ilargi: Mortgage broker Michael White is doing a series on property values based on longer timelines. These are the latest two.

Property Values Set to Fall 49% From Bubble Peak to Long-Run Average

Property Values Set to Fall 49% From Bubble Peak to Long-Run Average

Price Trends / WAR OF THE WORLDS (Round # 2): If you use 120 years of data for your time horizon, and assume prices will return to the average, then our residential property bubble will fall 49% from the bubble peak to the long-run average (see above (A) aka "(X) – (Z) / 202" aka "Projected Fall Peak to Trend").

This total projected fall is less than the 60% predicted in my recent post based upon 20 years of data and a trend line drawn with the eye (click here to see that post).

This long-horizon data also shows values falling much less from today to the bottom than was predicted in the time frame of the 20-year data. This chart shows values falling 20% from the current prices to reach the long-term average. The previous estimate showed a 43% fall from current prices to trend. Obviously it is a huge difference.

I will continue to work with all data sets until I have a more complete picture of property values. Please send your suggestions about the best information. We will put it all together. Maybe we will see the future.

What we know today based on the best information is that values will fall a total of between 49% to 60% from the bubble top to the trend. Still ahead is a fall in property values of between 20% to 43%.

Conservative Property Index Predicts We Are Less Than Half Way Through Fall
property price index fhfa 1991 forward by NewObservations.net

The most conservative price data on residential properties predicts that values have fallen from the peak less than half of the way towards their long-term trend.

The total projected fall from Federal Housing Finance Agency (FHFA) data shows a peak-to-trend fall of 27%. Values on this index have fallen 11% from the high. The index predicts prices will fall an additional 18% from their current levels (please see chart above "Figure 2: Monthly House Price Index for USA").

The FHFA prediction of a total fall of 27% is far less than the total fall of between 49% and 60% predicted by Case-Shiller. Click here and here to see recent posts with Case-Shiller data on either 22 years or 118 years of prices.

Based upon the three data sets reviewed, we can estimate a total fall of between 27% to 60% from the bubble top to the long-term trend. After averaging the three indexes, we may estimate a total fall of 45% from the bubble high.

Looking ahead from today, property values will fall a total of between 18% to 44%. The average of the three data sets says we still have 27% to fall from current levels. Please see the chart below which shows the critical numbers for the three data sets and the averages. Click here to see the data in both numbers and charts at "Property Price Index".

property price index summary of indexes by NewObservations.net

Prechter's Predictions

Bob Prechter, President of Elliott Wave International joined Maria Bartiromo at NYSE on Novermber 4. Prechter is out with the second edition of his new book, "Conquer the Crash". He has written fourteen books since 1978. Prechter's publisher included a list of the forecasts he made in the book's first edition when it was released in May 2002. In an eerie surprise, these have all come to past!
  • A rare, simultaneous fall in real estate, stocks and commodities
  • Implosion of collateralized securities
  • Government bailout schemes
  • Fannie Mae's stock collapse
  • Bond-rating services would fail to issue warnings

In a brief pre-interview, Prechter told us that he thinks the markets are now at an interesting juncture. Back in March, Prechter predicted that the Dow would make a run to the 10,000 level and the S&P would hit 1,100. His forecast was fulfilled in October. Now, Prechter is calling for the start of "another wave of the bear market," similar to what we saw in 2008. And another contrarian prediction - Prechter is expecting the dollar to rally from here!

Still, the threat of deflation is one that Prechter is most concerned about and one that he shared with us when he was on Closing Bell back in August. He is recommending investors be positioned to make sure they don't get hurt in the next wave of deflation. Prechter's deflation call for 2010 - simultaneous declines in stocks, commodities and real estate.

The Man Who Predicted the Depression
100 years ago, Ludwig von Mises explained how government-induced credit expansions led to imbalances in the economy.

Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s. We ignore the great Austrian at our peril today. Mises's ideas on business cycles were spelled out in his 1912 tome "Theorie des Geldes und der Umlaufsmittel" ("The Theory of Money and Credit"). Not surprisingly few people noticed, as it was published only in German and wasn't exactly a beach read at that.

Taking his cue from David Hume and David Ricardo, Mises explained how the banking system was endowed with the singular ability to expand credit and with it the money supply, and how this was magnified by government intervention. Left alone, interest rates would adjust such that only the amount of credit would be used as is voluntarily supplied and demanded. But when credit is force-fed beyond that (call it a credit gavage), grotesque things start to happen.

Government-imposed expansion of bank credit distorts our "time preferences," or our desire for saving versus consumption. Government-imposed interest rates artificially below rates demanded by savers leads to increased borrowing and capital investment beyond what savers will provide. This causes temporarily higher employment, wages and consumption.

Ordinarily, any random spikes in credit would be quickly absorbed by the system—the pricing errors corrected, the half-baked investments liquidated, like a supple tree yielding to the wind and then returning. But when the government holds rates artificially low in order to feed ever higher capital investment in otherwise unsound, unsustainable businesses, it creates the conditions for a crash. Everyone looks smart for a while, but eventually the whole monstrosity collapses under its own weight through a credit contraction or, worse, a banking collapse.

The system is dramatically susceptible to errors, both on the policy side and on the entrepreneurial side. Government expansion of credit takes a system otherwise capable of adjustment and resilience and transforms it into one with tremendous cyclical volatility. "Theorie des Geldes" did not become the playbook for policy makers. The 1920s were marked by the brave new era of the Federal Reserve system promoting inflationary credit expansion and with it permanent prosperity. The nerve of this Doubting-Thomas, perma-bear, crazy Kraut!

Sadly, poor Ludwig was very nearly alone in warning of the collapse to come from this credit expansion. In mid-1929, he stubbornly turned down a lucrative job offer from the Viennese bank Kreditanstalt, much to the annoyance of his fiancée, proclaiming "A great crash is coming, and I don't want my name in any way connected with it." We all know what happened next. Pretty much right out of Mises's script, overleveraged banks (including Kreditanstalt) collapsed, businesses collapsed, employment collapsed. The brittle tree snapped. Following Mises's logic, was this a failure of capitalism, or a failure of hubris?

Mises's solution follows logically from his warnings. You can't fix what's broken by breaking it yet again. Stop the credit gavage. Stop inflating. Don't encourage consumption, but rather encourage saving and the repayment of debt. Let all the lame businesses fail—no bailouts. (You see where I'm going with this.) The distortions must be removed or else the precipice from which the system will inevitably fall will simply grow higher and higher.

Mises started getting some much-deserved respect once "Theorie des Geldes" was finally published in English in 1934. It is unfortunate that it required such a disaster for people to take heed of what was the one predictive, scholarly explanation of what was happening. But then, just Mises's bad luck, along came John Maynard Keynes's tome "The General Theory of Employment, Interest and Money" in 1936. Keynes was dapper, fresh and sophisticated. He even wrote in English! And the guy had chutzpah, fearlessly fighting the battle against unemployment by running the currency printing press and draining the government's coffers.

He was the anti-Mises. So what if Keynes had lost his shirt in the stock-market crash. His book was peppered with fancy math (even Greek letters) and that meant rigor, modernity. To add insult to injury, Mises wasn't even refuted by Keynes and his ilk. He was ignored. Fast forward 70-some years, during which we saw Keynesianism's repeated disappointments, the end of the gold standard, persistent inflation with intermittent inflationary recessions and banking crises, culminating in Alan Greenspan's "Great Moderation" and a subsequent catastrophic collapse in housing and banking. Where do we find ourselves? At a point of profound insight gained through economic logic, trial and error, and objective empiricism? Or right back where we started?

With interest rates at zero, monetary engines humming as never before, and a self-proclaimed Keynesian government, we are back again embracing the brave new era of government-sponsored prosperity and debt. And, more than ever, the system is piling uncertainties on top of uncertainties, turning an otherwise resilient economy into a brittle one. How curious it is that the guy who wrote the script depicting our never ending story of government-induced credit expansion, inflation and collapse has remained so persistently forgotten. Must we sit through yet another performance of this tragic tale?

Why Are Banks Holding So Many Excess Reserves?
Reserves (sometimes called bank reserves) are funds held by depository institutions that can be used to meet the institution’s legal reserve requirement. These funds are held either as balances on deposit at the Federal Reserve or as cash in the bank’s vault or ATMs. Reserves that are applied toward an institution’s legal requirement are called required, while any additional reserves are called excess.

Fed paper by Todd Keister and James McAndrews

The quantity of reserves in the U.S. banking system has risen dramatically since September 2008. Some commentators have expressed concern that this pattern indicates that the Federal Reserve’s liquidity facilities have been ineffective in promoting the flow of credit to firms and households. Others have argued that the high level of reserves will be inflationary. We explain, through a series of examples, why banks are currently holding so many reserves. The examples show how the quantity of bank reserves is determined by the size of the Federal Reserve’s policy initiatives and in no way reflects the initiatives’ effects on bank lending. We also argue that a large increase in bank reserves need not be inflationary, because the payment of interest on reserves allows the Federal Reserve to adjust short-term interest rates independently of the level of reserves.

Four Signs that the Recession Continues
Job creation is the key to economic recovery, FHA loan exposures are becoming problematic, the Strategic Default becomes an American Craze, and Wells Fargo plays "kick the can".

Friday morning’s payroll report shows a continued problem with job creation.
Nonfarm Payrolls declined 190,000 with the unemployment rate reaching an historic 10.2%. Most important is that hours worked stayed anemic at just 33.0 hours. The underemployment rate is 17.5%. Former Fed Chief Alan Greenspan has opined that it would take several months of 100,000 plus job growth before the unemployment rate starts to decline.

Initial Jobless Claims came in at 512,000 last week, which was well above the 350,000 threshold that correlates to a Recession. Congress has extended jobless benefits by another twenty weeks, which should keep jobless claims well above 350,000 for an extended period. Productivity levels are extremely high because lower business activities are being accomplished by much fewer workers.

FHA Mortgage Exposures Balloon to problematic levels
Even though the Federal Housing Authority (FHA) has tightened credit standards, many mortgages issued in 2007 and 2008 are turning sour. Defaults on loans guaranteed in 2007 are at 24%, loans in the first half of 2008 about 20% sour. At fault is Congress, who encouraged the FHA to save as many homeowners as possible by refinancing loans that should not have been issued in the first place.

Later this month the FHA will disclose that their level of reserves has fallen below the federally mandated level for the first time in its 75-year history. The FHA doesn't make loans but insures lenders against losses if a borrower defaults on mortgages where the borrower has made a down payment of as little as 3.5%. This guarantee includes half of all home-purchase loans made in the country’s hardest-hit housing markets. This policy has added to the potential burden on taxpayers if home-price declines resume.

In addition, delinquencies on refinance loans have been rising faster than those on new loans for the past three years. It seems like the FHA is attempting to restart a housing bubble by taking on riskier loans beginning in 2007 by guaranteeing loans of borrowers with credit scores of less than 600. Sources say that these types of loans were increased by the FHA to 37% in 2007, up from 30% in 2006.

More Americans are walking away from their homes
The trend is known as Strategic Default, where the homeowner loses their job and stops making mortgage payments because they owe more than the home is worth. Such a strategy destroys one’s credit score, but many can stay in the home until the bank comes knocking at the door. Sources say that there were 588,000 Strategic Defaults in 2008, double the total of 2007. This trend should unfortunately continue as the jobless rate moves higher despite a modest bounce in home prices in recent months.

Strategic Defaults will increase foreclosures and short-circuit the fragile housing recovery, increasing bad loans at banks leading to more writedowns and bank failures. The uncertainty of one’s future makes it an easy choice to suspend mortgage payments when a job is lost. Why dip into savings when the asset you own is worth less than you paid for it. Extreme weak reading of Consumer Confidence indicates that this trend could continue for another one to three years.

If banks were able to be more proactive with mortgage holders and offer modifications including reduced loan principal and perhaps a zero percent mortgage during the time a homeowner is unemployed, the strategic default becomes a mute option. But we know banks are under performance pressures of their own as other types of consumer and real estate loans go sour. It’s a vicious cycle that signals that "The Great Credit Crunch" is nowhere near its end. The Obama Making Homes Affordable program is no help if unpaid mortgages are more than 125% of the home’s market value. Values are being adversely affected by foreclosures and short sales, which pull down appraised values.

Wells Fargo bets House Prices will rise
Wells Fargo holds $107 billion in Alt-A option-adjustable rate mortgages, a loan that allowed borrowers to make smaller monthly payments up front in return for increasing their mortgage balance three to five years from the start of the loan. To avoid defaults and foreclosures, Wells has decided to off-set increased monthly payments by offering effected homeowners interest-only loans to defer amortization of loans for six to ten years. The bank is betting that home prices will stabilize, and that the economy will improve enough for this bet to pay-off. Only a bank "too big to fail" has a balance sheet big enough to make such a bold move. Other "too big to fail" banks Bank of America and JP Morgan inherited similar mortgages with the shot-gun weddings with Countrywide and Washington Mutual, respectively.

Global Nominal Spending History
As someone who believes that stabilizing nominal spending rather than inflation is key to macroeconomic stability, I have taken the liberty in the past to reframe U.S. macroeconomic history according to this perspective. Thus, I renamed (1) the "Great Inflation" that started in the mid-1960s and ended in the early-1980s as the "Great Nominal Spending Spree" and (2) the "Great Moderation" of 25 years or so preceding the current crisis the "Great Moderation in Nominal Spending." I also labeled the late-2008, early 2009 period as the "Great Nominal Spending Crash". Below was the figure I used to summarize this reframing of U.S. macroeconomic history (Click on figure to enlarge):

Recently, I learned the OECD has a quarterly nominal GDP measure (PPP-adjusted basis) aggregated across 25 of its member countries going back to 1960:Q1. The countries are as follows: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. The combined economies of these counties make up over half the world economy and thus, provide some sense of global nominal spending. So in the spirit of reframing global macroeconomic history according to a nominal spending perspective I created the following figure (click on figure to enlarge):

I suspect the similarities between these two figures speak to the size and influence of the U.S. economy. I think it also speaks to the influence of U.S. monetary policy on global liquidity conditions and, thus, it influence on global nominal spending.

Ilargi: The clip below contains Dylan Ratigan’s reaction to a 7 pages long article in the Sunday Times, entitled I'm doing 'God's work'. Meet Mr Goldman Sachs, in which Goldman CEO Lloyd Blankfein shows that in America, religion may well be an excuse for anything, if you play your cards well.

Is Goldman Sachs "doing God's work?"

Wall Street Bonuses Rise as Big 3 May Pay $30 Billion
Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co.’s investment bank, survivors of the worst financial crisis since the Great Depression, are set to pay record bonuses this year. The firms -- the three biggest banks to exit the Troubled Asset Relief Program -- will hand out $29.7 billion in bonuses, according to analysts’ estimates. That’s up 60 percent from last year and more than the previous high of $26.8 billion in 2007.

The money, split among 119,000 employees, equals $250,400 each, almost five times the $50,303 median household income in the U.S. last year, data compiled by Bloomberg show. The three will award more in stock and defer more cash payments under pressure from regulators to tie pay to long-term results, compensation experts said. They may still face public wrath over the size of bonuses after the government injected capital into all the major financial institutions following Lehman Brothers Holdings Inc.’s collapse in September 2008.

"Wall Street is beginning to resemble Clark Gable as Rhett Butler in the film ‘Gone With the Wind’: ‘Quite frankly, my dear, I don’t give a damn,’" Paul Hodgson, a senior research associate on compensation at the Portland, Maine-based Corporate Library, said in an e-mail. "It doesn’t seem as if even political threat, disastrous PR, envy, rising unemployment rates and home repossessions is enough to get any of these people to refuse the bonuses they have ‘earned.’"

Bonuses for employees in fixed income will likely jump the most, 40 percent to 45 percent, while employees in asset management may see no growth in their year-end bonuses, according to a report from Options Group, a New York-based executive search and compensation consultant firm. Average bonuses for employees at financial firms worldwide will rise about 35 percent to 40 percent this year, according to the annual report, which is set to be released this week. They will still remain below 2007 levels after dropping an average of 40 percent to 45 percent last year, the report said.

Managing directors in high-yield credit sales are expected to see some of the largest average increase in bonuses, a 50 percent jump to a range of $1.3 million to $1.7 million. The bonuses of directors in commodity sales units may also climb 50 percent to a range of $650,000 to $850,000, the report said. Managing directors in commodities trading will receive the largest bonuses for that level, an average of $4 million to $6 million each.

Global heads of equities, commodities trading, interest- rate trading and investment banking each will receive total compensation that may reach at least $10 million, most of it coming from bonuses, according to the report. Morgan Stanley is among banks that are offering a larger portion of bonuses in stock and instituting so-called clawback clauses to tie incentive pay to risk, the report said. JPMorgan and UBS AG are also raising base salaries for some employees to reduce the share of bonuses in total pay.

"Wall Street is all about creating wealth, and when banks start making money again, they have to pay their people," said Michael Karp, co-founder of Options Group. "But because there’s so much public scrutiny, people will be very sensitive in terms of putting caps on some of these cash figures, and you’ll see a lot more in stock." Securities firms typically use slightly less than half of their revenue to pay salaries, benefits and bonuses, a percentage that is adjusted throughout the year. In the first nine months, Goldman Sachs, Morgan Stanley, and JPMorgan’s investment bank told their shareholders that they set aside $36.4 billion for compensation, up 27 percent from the same period a year earlier.

The three New York-based firms will likely set aside $49.5 billion for compensation for the full year, according to estimates from David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller in New York. That’s up from $30.9 billion last year and $44.7 billion in 2007. The rise in compensation is led by Goldman Sachs, which had record profit in the second quarter. Its compensation expense is expected to more than double from last year to $21.9 billion, or about $691,000 per employee, according to Trone’s estimates. The expense at JPMorgan’s investment bank is expected to jump 55 percent to $12 billion, about $482,400 for each employee, while Morgan Stanley’s compensation cost will rise 27 percent to $15.6 billion, or $252,000.

Year-end bonuses usually account for about 60 percent of compensation, the Options Group report said. While the total this year is expected to be greater than in 2007, it will come to less per employee than the $256,000 paid out that year by the three firms because of increased staffing. Bank of America in Charlotte, North Carolina, and New York- based Citigroup Inc. don’t break out compensation data for their investment-banking units.

More than a third of Wall Street finance professionals expect their bonuses to increase for 2009, according to a survey by eFinancialCareers.com, a job-search Web site specializing in the financial industry. Of the 1,074 people who responded to an e-mail poll conducted by the company in September, 36 percent said they’re anticipating a bigger annual payout and 11 percent said it will jump by at least half.

Wall Street is behaving like, "We made it through the storm, and now it’s back to doing things that we know how to do in our comfortable environment," said Mark Borges, compensation consultant at Compensia Inc. in Corte Madera, California. "It really runs counter to the things you’re hearing out of the administration, about how things have to change." The Fed said last month it will review the 28 largest banks to ensure that compensation doesn’t create incentives for the kinds of risky investments that brought the global financial system to the edge of collapse, prompting bailouts of firms including Bank of America and Citigroup. It also offered guidelines on making pay more tied to risk management.

Lloyd Blankfein, Jamie Dimon and John Mack, the chief executive officers of Goldman Sachs, JPMorgan and Morgan Stanley, were summoned to the Federal Reserve Bank of New York on Nov. 2 by President William Dudley. They were told they had to follow the new rules, people familiar with the matter said. Blankfein set a Wall Street pay record in 2007 when he was awarded a $67.9 million bonus on top of his $600,000 salary. He went without a bonus last year after the firm reported its first quarterly loss and accepted financial support from the government. Other bank CEOs, including Citigroup’s Vikram Pandit and Morgan Stanley’s Mack, also didn’t take bonuses in 2008.

Kenneth Feinberg, the Obama administration’s special master on pay, ordered pay cuts Oct. 22 averaging 50 percent for top executives at seven taxpayer-rescued companies and will rule on the pay structures of the 26th to 100th highest-paid employees at those firms by the end of the year. Feinberg’s decisions on the second tier could have more influence on other companies than his initial rulings, said Rose Marie Orens, a senior partner at Compensation Advisory Partners LLC in New York.

"Here he gets to see the methodology," said Orens. "If a company says it’s paying from revenue, he can come back and say it would be better if you paid out of profits. He has that kind of latitude." Feinberg’s rulings are "making their way into the hallways of non-financial companies," even if they aren’t likely to influence pay practices at private equity firms or hedge funds, she said. Wall Street firms may have to find other ways to stagger payments. Even shifting compensation to stock from cash might not blunt attacks from politicians and a U.S. public that faces a 10.2 percent unemployment rate, the highest since 1983.

Executives who received stock awards early this year in the midst of the credit crisis are gaining from the rally in bank stocks. The Standard & Poor’s 500 Financials Index has risen 24 percent so far this year and has more than doubled from an almost 17-year low on March 6. Goldman Sachs and Morgan Stanley’s shares have more than doubled this year, while JPMorgan’s have climbed 38 percent.

"The big firms are going to need to be very creative now, because of the populist sentiment," Peter Weinberg, 52, a founder of New York-based Perella Weinberg Partners LP, said last week at the "Capitalism and the Future" forum co- sponsored by Bloomberg LP and the Aspen Institute in New York. "It is very, very intense, it is bitter, and I understand it." Weinberg, who ran Goldman Sachs’s international operations from 1999 to 2005, is a grandson of Sidney Weinberg, the firm’s senior partner from 1930 to 1969.

Credit Suisse decided last year to use leveraged loans and commercial mortgage-backed debt, some of the securities blamed for generating the financial crisis, as part of variable compensation for senior employees. The bank told employees in August that the pool of toxic assets gained 17 percent since January, according to a person familiar with the matter. Weinberg said one possibility would be for large firms to take part of their bonus pool and use the funds to serve a function helpful to the economy, such as a small-business lender. Employees could be paid years later from the profits of the new entity.

"One thing they could do is to take an amount of money that would have been used for compensation and make a commercial investment that ultimately would go to those who would have been compensated," Weinberg said. "You’re not taking away compensation that arguably was due to them, but what you’re doing is you’re adding risk to it." While banks may change the way they structure pay, they probably can’t avoid disclosing the money as compensation, said Steven W. Rabitz, a former compensation lawyer at Goldman Sachs and Lehman Brothers Holdings Inc. who now works as a partner at law firm Stroock & Stroock & Lavan LP in New York.

"One way or another there’s going to be some kind of disclosure," Rabitz said. "The devil is in the details. People are talking about the details, and people are talking about the structures." Goldman Sachs is considering a new charitable program and has been working with Bridgespan Group, a Boston-based philanthropy consulting and recruiting firm, people familiar with the matter said last month. A charitable gift may be announced by the end of the year, when the firm awards bonuses.

Lucas van Praag, a spokesman for Goldman Sachs in New York, declined to comment on the firm’s compensation plans for this year. He said the company ties its pay closely to revenue. "Over the last eight years compensation at Goldman Sachs has been perfectly correlated with net revenue," van Praag said. "The average annual earnings generated per employee over the same period are $221,731, which is 67 percent more than our next most profitable competitor."

A jump in Wall Street bonuses this year may bring relief to Albany and New York City as the state and its biggest metropolis struggle with a combined $14 billion in budget deficits this fiscal year and next. The benefit may be muted since many of the bonuses will be awarded in stock that isn’t taxed immediately. Before the financial meltdown slammed bank earnings last year, Wall Street’s compensation and corporate profits provided 20 percent of New York state tax revenue and 9 percent of the city’s taxes. Bonuses in 2008 fell 44 percent from the prior year, to $18.4 billion, according to New York State Comptroller Thomas DiNapoli.

The reduction cost the state $1 billion in income tax revenue and New York City $275 million, he said. State personal income tax collections in first six months of the current fiscal year declined $4.4 billion, or 21.6 percent, from the same period a year earlier, DiNapoli’s September cash report said. The size of this year’s bonus payments to investment bankers and the public profile of the firms have obscured the struggles occurring in other parts of the finance industry, said Orens, of Compensation Advisory Partners.

More than 337,000 financial jobs have been eliminated worldwide since the middle of 2007, according to data compiled by Bloomberg. Finance industry jobs in New York City have fallen by 41,400 in the two years through August, according to the New York State Department of Labor. "It’s a narrow area, though clearly large in terms of dollars," Orens said. "Asset management is still hurting, the hedge funds are still down, many haven’t met their performance hurdles, and the normal lending functions and real estate are not pretty. It’s not as rosy everywhere else."

Secret £165bn loan keeping Lloyds alive
Lloyds Banking Group is being kept afloat with £165 billion of loans and guarantees from the Bank of England and other central banks around the world, The Sunday Times can reveal. The bank’s reliance on state funding, detailed in a document released last week in connection with a separate £21 billion fundraising, gives the first insight into the huge scale of aid extended to banks during the financial crisis. The document says the bank is still "heavily reliant" on government funding. Lloyds also says it would face a "materially higher refinancing risk" if it was not available.

The scale of Lloyds’ dependency has surprised analysts, but they say it shows just how big a financial timebomb it has become. The support is nearly equal to the £175 billion of UK government borrowing to be raised this year, and almost as big as the Bank of England’s £200 billion quantitative easing programme. The government has extended the money through two funding plans — the Special Liquidity Scheme, which gives loans, and the Credit Guarantee Scheme, under which guarantees are given to allow banks to get commercial loans.

Royal Bank of Scotland is less exposed — it has about £40 billion in state funds. It has cut its dependency on state funding by 69% since the peak of the crisis. Lloyds inherited most of the government loans from HBOS after it agreed to acquire the bank in September 2008. Banking sources have revealed that the Bank of England’s Special Liquidity Scheme was created in April 2008 with the express purpose of helping HBOS. The group was heavily exposed to mortgage lending, which dwarfed its retail deposits. When markets deteriorated and HBOS could not recycle its capital, the Bank stepped in.

The document shows Lloyds drew down further loans early this year. The bank said the loans should be seen in the context of its £1 trillion balance sheet and said all western banks received state help during the crisis. However, analysts say few continue to be helped on this scale. The Bank of England will make record profits this year from fees and interest rates paid by the banks for emergency funding. The Lloyds document also reveals the bank faces a £3.7 billion pension deficit. It is transferring £5 billion of assets to fill the hole.

This weekend the bank faces another potential threat to its fundraising plans. TCI, an activist hedge fund, has begun to orchestrate a potential investor rebellion over a £7.5 billion debt swap deal, part of the bank’s plans. Some investors continue to put pressure on Lloyds’ chief executive Eric Daniels to announce a succession plan as a condition for backing the rights issue. RBS, meanwhile, faces another potential row over staff bonuses.

The bank is offering cash advances to its bankers to by-pass new rules. Cut-price loans are being offered to staff allowing them to instantly release the value of bonuses being paid in shares. The loans would enable them to borrow against up to 25% of the total value of the bonus, at interest rates of 3.75%. The bank claimed the rate represented "commercial terms", even though it is lower than the mortgage rates offered by RBS to customers.

The bank is also continuing its process of disposals, with first-round bids having been tendered for RBS Asset Management, which controls £30 billion of assets. Aberdeen Asset Management, Black Rock, Henderson, Schroders and Neuberger Berman have all tabled offers. Morgan Stanley is advising RBS on the sale, which is estimated to be worth between £250 and £300m.

Credit Default Swaps Sink Jefferson County
The stench that started rising from the sewers of Jefferson County, Ala., earlier this decade has grown all the more foul. Last month former Birmingham Mayor and former County Commission President Larry Langford was convicted for taking kickbacks related to the refinancing of county bonds that were issued to fund reconstruction of the county's antiquated sewer system.

And on Nov. 4, J.P. Morgan Securities agreed to a settlement with the Securities & Exchange Commission regarding the bank's alleged involvement in a "pay-for-play" scheme that helped Morgan secure the rights to some of Jefferson County's sewer bond offerings. While Morgan admitted no wrongdoing, it has agreed to pay the financially strapped county $50 million and drop a $647 million claim for termination fees. Bettye Fine Collins, the current president of the County Commission, which has been weighing whether to declare bankruptcy in the face of the mounting sewer bond debt, declared the J.P. Morgan settlement "significant" in a press release but issued no further comment.

But bankruptcy experts aren't convinced. "It has a nice splash in the media," says Jeffrey Cohen, a partner at Washington law firm Patton Boggs who has served as an adviser to some of Jefferson County's creditors. "But it really has very little effect." The roughly $700 million windfall puts only a minor dent in the more than $3 billion in bond debt the county owes. Jefferson got mired in debt because it relied on complex credit default swaps to protect sewer bond issues against a jump in interest rates. When the economy turned sour last year, the default swaps backfired, and chaos ensued. The state so far has refused to throw the county a lifeline. That leaves just two options: declaring bankruptcy or renegotiating the debt with creditors.

If Jefferson's finances can't be put right, county residents may see things they public services they take for granted—such as road maintenance and water—deteriorate rapidly. In order to avoid cuts in the budget that would affect living standards, Cohen recommends declaring bankruptcy immediately. "The county would be much better off filing bankruptcy, proposing a plan for all of its debts, and providing the investment community with some certainty," says Cohen. "[Further delay] could eat into the [county's ability] to provide services to its citizens, which is why governments exist."

Others aren't so sure bankruptcy is the most prudent decision for the much-maligned county. If it were to file for Chapter 9, Jefferson County might find temporary relief, but its future would be dismal, says municipal bankruptcy attorney Jim Spiotto, since it would face enormous difficulty securing funding to finance new initiatives. "No municipality of any size wants to file Chapter 9 because of the stigma," he says. "You want to work through these so you have continued access to the municipal market. The biggest problem people face after a Chapter 9 is what is life like thereafter."

Bankruptcy or not, municipal bond analysts say Jefferson County will have trouble for several years raising any funds through bond issues. Although experts are quick to note that the bond market is forgiving, and investors tend to have short memories, the magnitude of the debacle in Jefferson won't soon slip the minds of the muni-bond investment community. In order to overcome potential bondholders' leeriness, the county will have to be willing to pay higher interest rates or find other means to fund county initiatives.

"At some point they will be able to get market access back," says Matt Fabian, a managing director at Municipal Market Advisors in Concord, Mass. "But it's just going to be much more expensive for them. Jefferson County is the scariest situation in the market today." Fabian worries that Jefferson County's method of solving its problem could set a precedent for other bond issuers. While investors are prepared to risk default on riskier bonds, such as land speculation district bonds in Florida that default frequently, Jefferson County's sewer bonds are considered to be "safe sector credits" that yield a steady and supposedly worry-free return.

Should Jefferson County declare bankruptcy or make an arrangement where bondholders get cents on the dollar, analysts fret that other municipalities facing similar problems—though likely on a lesser scale—would follow suit and either declare bankruptcy or make arrangements with creditors that would yield skimpy payments. "How Jefferson County got into its situation is unique," says Fabian. "But how it gets out could set an example for other issuers to follow, and that's the fear for investors."

Greenlight Capital founder Einhorn calls for CDS ban
When one of the world’s most renowned hedge fund investors turns 180 degrees on a key financial instrument that has been centre stage throughout the financial crisis, it is worth paying heed. David Einhorn, founder of Greenlight Capital, was one of the earliest and most prescient users of credit default swaps. Now he is calling for these instruments, in effect a form of insurance on individual firms (or governments) that pays out when the institution defaults or restructures, to be banned.

"I think that trying to make safer credit default swaps is like trying to make safer asbestos," he writes in a recent letter to investors, adding that CDSs create "large, correlated and asymmetrical risks" having "scared the authorities into spending hundreds of billions of taxpayer money to prevent speculators who made bad bets from having to pay". CDSs are "anti-social", he goes on, because those who buy credit insurance often have an incentive to see companies fail. Rather than merely hedging their risks, they are actively hoping to profit from the demise of a target company.

This strategy became prevalent in recent years and remains so, as holders of these so-called "basis packages" buy both the debt itself and protection on that debt through CDSs, meaning they receive compensation if the company defaults or restructures. These investors "have an incentive to use their position as bondholders to force bankruptcy, triggering payments on their CDS rather than negotiate out of court restructurings or covenant amendments with their creditors", Mr Einhorn says.

His remarks are particularly interesting as he belonged to the club of hedge fund managers who attracted the wrath of such senior executives as Dick Fuld of Lehman Brothers and John Mack of Morgan Stanley, whose companies were targets of CDS trades. Mr Einhorn is not alone in expressing concerns over CDSs. Similar reservations are being shared by a growing number of responsible players, including prominent bankruptcy lawyers, as credit insurance plays a role in more Chapter 11 filings, such as AbitibiBowater, General Growth Properties and Six Flags.

That said, most measures contemplated today are trying to make CDSs safer, not seeking to eliminate them altogether. For example, among the biggest risks in the CDS market is that a counterparty won’t be able to pay out on a CDS agreement which normally comes into force when the target company files for Chapter 11. That risk can be doubly dangerous with the possibility that the target of the insurance and the counterparty backing the CDS both get downgraded or default.

Such a possibility is more than theoretical, especially after the cautionary tale of AIG, which sold more than $440bn in CDSs with no offsetting positions at all. The Federal Reserve had to step in when the toxic assets that AIG sold protection on were downgraded and AIG, the insurance giant itself, was downgraded and unable to post the collateral it owed to counterparties. Today, a central clearing house is increasingly being embraced "as the best solution to counterparty and liquidity risks", Matthew Leeming, analyst at Barclays Capital, writes in a recent and thoughtful report, adding: "Centralisation of counterparty risk at least places the market in a situation where it can start to measure the risk and adequately capitalise against it."

But growing numbers of market participants, along with the more vocal Mr Einhorn, believe that many of the proposed solutions to the risks posed by the market, such as a centralised clearing house, themselves pose further risks. In his letter, Mr Einhorn disputes the notion that a central clearing house will act as a panacea for the other big problems the market poses including counterparty risk and the risk of contagion or a daisy chain of counterparty failures. "The reform proposal to create a CDS clearing house does nothing more than maintain private profits and socialised risk by moving the counterparty risk from the private sector to a newly created too big to fail entity," he notes.

That’s because it is almost impossible to adequately capitalise against such developments. "There is no way a clearing house could demand enough collateral," he says. "The market can be so big and discontinuous that it is very hard to figure out the correct amount of collateral." His comments will almost certainly spark further debate on how best to capitalise clearing houses to make them virtually failsafe. More drastic measures, such as banning the CDS market outright, however, remain an outside bet.

Here There Be Big Nymbers (Sic)
by Tyler Durden

The earlier discussion of CDS, Einhorn, and the US UST-CDS basis trade, sparked a flurry of queries on the topic of "really big numbers." Therefore, even as ZH staff awaits the most recent data out of the BIS, we present for your numeric (in)comprehension pleasure lots and lots of zeroes. The chart below summarizes the biggest relevant numbers currently out there, appearing as pixels occasionally on every single computer in the financial world.

And what does it say? That the total notional value of all OTC derivative contracts as of the most recent count (sucks to be on the recount committee), was $592,000,000,000,000.00 at the end of 2008. Fear not: this number is actually a reduction from the most recent previous read of $683,700,000,000,000.00 in June of 2008.

Well wait, that thing we said about fear not, ignore that: because the net notional, or the market value of all OTC contracts, i.e. what someone (cough taxpayer cough) would be on the hook for when the Fed's plans go astray, increased by 66.5% over the same period, to $33,900,000,000,000.00. Like we said, big numbers - and this is just OTC. The real number includes regulated exchanges, and to estimate that, double the numbers above.

In totality, the "sidebets" on everything from interest rates, to F/X to corporate default risk, amount to about $1.3-$1.4 quadrillion (that's 15 zeroes before the decimal comma) in terms of uncollateralized liquidity (think inflation buffer): take all those zeroes away and the value of the dollar would go down by 1E10-15: you listening yet American middle class? And the actual exposure, or "money at risk" is roughly $60 trillion: a number which is about the same as the world GDP if one were to remove all the various stimulus programs. Take away Goldman, JP Morgan, and all the other wannabe BSD's, and this is what you end up with: the heart and soul of the Too Big To Fail monster itself. And there is no way on earth to stop that mangled, mutated heartbeat without destroying the very fabric of both our capital markets and societal system. Please give the Federal Reserve a golf clap for this truly amazing accomplishment.

So with everyone and the kitchen sink focused on CDS and the neutron bomb that they undoubtedly must be if even such anointed shamans of CDSology as David Einhorn (one wonders, will David donate the billions of dollars he has made while trading CDS to charity?) say they are evil incarnate, here is the truth about CDS courtesy of the Fed's Fed- the Bank of International Settlements.

The volume of outstanding CDS contracts fell 27.0% to $41.9 trillion against a background of severely strained credit markets and increased multilateral netting of offsetting positions by market participants. This was a continuation of the developments seen in the first half of 2008. Single-name contracts declined by 22.8% to $25.7 trillion while multi-name contracts, a category that includes CDS indices and CDS index tranches, saw a more pronounced decrease of 32.7%, to $16.1 trillion.

Despite the lower outstanding volumes, the gross market value for CDS contracts increased by 78.2% to $5.7 trillion as a result of the credit market turmoil. Gross market values grew 95.6% to $3.7 trillion for single-name contracts and 52.5% to $2.0 trillion for multi-name contracts. [As noted previously, the $5.7 trillion number has since collapsed to under $3 trillion as per most recent DTCC data].

Greater use of multilateral netting during the second half of 2008 also resulted in a change in composition across contract types (Graph 3, left-hand panel). Amounts outstanding of multinamecontracts fell 32.7% to $16.1 trillion, while the 22.8% decline in single-name contracts to $25.7 trillion was somewhat smaller.

The composition across counterparties also changed during the second half of 2008 (Graph 3, centre panel). Although the amount of CDS contracts between reporting dealers declined 24.4%, this was smaller than the 29.8% decrease in outstanding contracts between dealers and other financial institutions and the 47.7% drop in contract volumes between dealers and non-financial institutions.

Developments in gross market values across counterparties reflected the uneven declines in the outstanding volumes for the different market segments (Graph 3, right-hand panel). The market value of contracts between reporting dealers grew by 89.3% to $3.2 trillion, representing 56.2% of the total market value of outstanding CDS contracts. The market value of contracts between reporting dealers and other financial institutions increased by 66.3%, while the market value of contracts between dealers and non-financial institutions was 51.0% higher.

Less than $3 trillion? I mean, how is that even worthy of an FT op-ed? Most people won't even bend over to pick up a $3 trillion bill on the street: sorry - if it doesn't have a quint-, or at least a quadr- in front of the -illion, people frankly don't give a shit, thank you Tim Geithner. Trillion is just so..... pre-Obama.

Yet where it gets moderately interesting is when analyzing Interest Rate derivatives (swaps, options and forwards), not only because the numbers suddenly really perk up, but because of the $420 trillion in notional OTC total, about $200 trillion is held by none other than the usual zombie stooges: Goldman, JPM, BofA, C and WFC. Do you see now why the Fed will kinda, sorta always and forever be forced to bail out this unholy pentagram? The shitstorm as a result of the collapse of one or more of the five major spokes of at least $420 trillion (and as much as $840 trillion) in IR derivs would basically wipe out anyone and everything in its path. No exceptions.

BIS on Interest rate derivatives:

In the second half of 2008 the market for OTC interest rate derivatives declined for the first time, after recording an above average rate of growth in the first half of the year. Notional amounts of these instruments fell to $418.7 trillion at the end of December 2008, 8.6% lower than six months before (Graph 2 and Table 3). Despite the decrease in notional amounts outstanding, declining interest rates resulted in a notable 98.9% increase in the gross market value of interest rate derivatives, to $18.4 trillion. [yes, that is a lot]

The amount outstanding of interest rate swaps decreased 8.0% to $328.1 trillion. Outstanding volumes of US dollar- and yen-denominated interest rate swaps remained virtually unchanged relative to the previous quarter. In contrast, interest rate swap markets denominated in euros (–10.6%), sterling (–24.2%), Australian dollars (–27.8%), Canadian dollars (–16.7%), Swedish kronor (–21.2%) and Swiss francs (–6.9%) all saw declines in the amounts outstanding.

The gross market value for interest rate swaps – the largest market by far – grew 105.7%, from $8.1 trillion to $16.6 trillion. The most significant increase took place in the US dollar swap market, where the gross market value surged 201.2% to $9.3 trillion. [gee, whose favorite Federal Reserve was singlehandedly responsible for this dollar swap love explosion?]

Outstanding volumes of options contracts declined 17.5% to $51.3 trillion. The gross market value of options grew by 51.3% to $1.7 trillion. The amounts outstanding of forward rate agreements (FRAs), the smallest of the interest rate derivative segments, remained stable at $39.3 trillion, while the gross market value of outstanding FRAs grew 74.4% to $153 billion.

Thus net notional exposure in IR land is nearly $20 trillion or almost double the US GDP (or triple if one excludes the impact of Obama funny-money). So why are we reading again how CDS is anti-social? By that logic IR swaps, sloshed around by the JPM-Goldman-BofA trio of Mutually Assured Destructors, is the pinnacle of delusional, schizophrenic, psychotic behavior. Which is not to say that the CDS' destructive impact should be underestimated. On the contrary: CDS, when handled by the current group of greedy, risk seeking idiots, will undoubtedly destroy the world. It is just a matter of time. However, to keep things in perspective, how about we also consider Interest Rate swaps, whose numerical danger is more than 5x that of CDS (again, really big n(y)mbers here). And we haven't even touched on FX, commodity, and equity derivatives.

Which brings us to our point: thank you Mr. Einhorn for finally starting to focus people's attention on one of the many facets of the Fed's uncontrollable liquidity Frankenstein. CDS, while destructive, is merely the appetizer. What will truly annihilate financial markets are all those instruments that are in place only to perpetuate the myth that a 5% interest rate in 30 year Treasurys is somehow exorbitant (based on a quick back of the envelope calc, should prevailing interest rates move higher by 1%, the net IR exposure will rise by $3 trillion... in the wrong direction... at an exponential pace). Yet what better way to keep rates where they are than than to tell China: "Hey guys, you bust one auction, and this spring loaded balloon full of $420 trillion pieces of worthless Washington feces will blow up right in your face (and take us all down with you)." In essence this is an amusing revision of that old fable: the Fed owes the world a few billion here and there: well, Ben, you are out of luck, "You're Fired"; the Fed owes the world $1.4 quadrillion in naked and worthless pieces of paper (whose nudity will become apparent the second someone calls Bernanke's bluff) and the Fed owns the world.

It is, Mr. Einhorn, unfortunately as simple as that. Which is why may we suggest after you are done with your philosphical anti-CDS crusade, that you take a long hard look at this BIS report and consider just who your friends in the business are: something tells us that of the JPM/GS/BofA trio you Prime with at least two of them. If you really want to make a stand against those who are abusing weapons of financial annihilation, maybe you can demonstrate your seriousness by cutting all prime brokerage relationships with Goldman and JP Morgan. Then, and only then, will we, and everyone else, know you are willing to put your money where you mouth is (and where your CDS P&L used to be).

Financial innovation is Wall Street's new 'soul sickness'
by Paul Farrell

Could our headline just as easily read: "Financial innovation: Wall Street's biggest con game?" How about: Rip-off? Joke? Oxymoron? Maybe "Wall Street's big lie?" Or something darker: "Financial innovation: Wall Street's deadliest sin, greatest evil, even soul-sickness?"

In fact, they all fit. Each reveals Wall Street's dark side: Why are they at war to keep financial innovation secret, hidden, without public transparency? And why is Wall Street spending millions on lobbyists to kill financial-regulation reforms? Why? Because Wall Street rakes in tens of billions of dollars annually from their financial innovations, gambling in the shadowy $670 trillion global derivatives market. And Wall Street does not want government, investors or competitors digging into their "financial weapons of mass destruction," as Buffett calls them.

Remember, financial innovation is just a Wall Street code word. Translated it simply means derivatives and other proprietary secrets like the high-frequency trading algorithms used by their quants. Yes, Wall Street wants you to believe that financial innovations also help Main Street, but that's just Wall Street lobbyist propaganda to mislead the public, regulators and legislators. Remember when Washington proposed standardized mortgages as a way to help consumers? Wall Street attacked, spending millions to kill it.

Wall Street has no interest in helping Main Street. Time magazine's Justin Fox, author of "The Myth of the Rational Market," said it best in his "Curious Capitalist" column. Most so-called financial innovations are "just new ways to fleece customers or hide risk, and all major financial crises have been associated with some financial innovation." Even credit-card innovations are used against customers as marketing tools to increase fees. The truth is: Wall Street's greed-driven financial innovations fuel our bubble/meltdown cycles in many ways.

Hard-core Reaganomics is back
Wall Street's obsession with unregulated financial innovation also signals a resurgence of Reaganomics, the conservative ideology that killed Glass-Steagall in 1999, created "too-big-to-fail" banks, and set the stage for the 2008 meltdown. That 60-year-old law protected Main Street by separating low-risk retail banking from high-risk investment banking gambling with high-octane financial innovations.
Former Fed Chairman Paul Volcker and Nobel-Prize-winning economist Joseph Stiglitz warn: We need a new Glass-Steagall to rein in Wall Street. Or prepare for a new meltdown. At a Senate hearing last summer financial-innovation pioneer Richard Bookstaber, author of "A Demon of Our Own Design: Markets, Hedge Funds & the Perils of Financial Innovation," said: "Derivatives are the weapon of choice for gaming the system." They are "vehicles for gambling ... side bets on the market."

Get it? Derivatives put all markets, investors and taxpayers at risk. These "side bets can pose risks that extend beyond the losses to the person making the bet," because they actually "change the behavior of the market." In short, financial innovations only serve the interests of Wall Street's insiders, not the public interest, not Main Street investors, not American taxpayers, and not retail banking customers. Without transparency and regulation reform, a new meltdown is guaranteed.

Unfortunately, Wall Street has no incentive to help the public good. Quite the opposite: They want to get very rich, very fast. And our laws encourage their greed. Bookstaber and other critics warn that Wall Street's goals are clear: Design financial innovations that evade securities laws, avoid taxes, minimize capital requirements, increase leverage, hide speculative risks, maximize short-term profits, and avoid stockholder disclosures. In short, Wall Street is back running the same con game that triggered the 2007-08 meltdown, which is why they've amassed a record bonus pool so fast. They have no conscience.

Historical evolution of a new 'American capitalism' mutation
Yes, Wall Street's behavior has the feel of a socio-pathological disorder and a strong hint of a secret conspiracy to defraud America, a cultural "soul sickness." Now visible: An emerging new mutant American capitalism. In fact, Matt Taibbi's description of Goldman Sachs fits the entire banking industry: a "giant vampire squid wrapped around the face of humanity." Look closely and see clear signs of immoral, even criminal, misconduct fueling Wall Street's obsession with unregulated financial innovation. To fully understand why, you need to see financial innovation in the broader, historical context of the emerging new American capitalism.

1. In the beginning, Adam Smith's 'Wealth of Nations'
"Every individual ... necessarily labours to render the annual revenue of the society as great as he can." But he "neither intends to promote the public interest, nor knows how much he is promoting it. ... he intends only his own gain ... led by an invisible hand to promote an end which was no part of his intention." The public good is collateral damage from the aggregate economic activities of greedy individuals all acting solely in their own narrow selfish interests. That's pure capitalism. Today the equation survives and thrives as the "efficient market hypothesis," where the collective behavior of 95 million irrational investors is assumed to create a totally rational capitalist stock market.

2. Greenspan and Ayn Rand, author of 'The Fountainhead' and 'Atlas Shrugged'
Rand was Greenspan's guru and mentor. For decades they had a profound impact on American capitalism. Rand was dogmatic: "When I say 'capitalism,' I mean a pure, uncontrolled, unregulated laissez-faire capitalism, with a separation of economics, in the same way and for the same reasons as a separation of state and church." Why? "Capitalism is the only system that can make freedom, individuality, and the pursuit of values possible in practice because capitalism demands the best of every man -- his rationality -- and rewards him accordingly. It leaves every man free to choose the work he likes, to specialize in it, to trade his product for the products of others, and to go as far on the road of achievement as his ability and ambition will carry him." Rand captured the conservative spirit of the emerging American capitalism, and through her disciple, both demanded total, unrestricted freedom for Wall Street.

3. Reaganomics and Milton Friedman's 'Capitalism and Freedom'
Reaganomics defined conservatism after 1981, grounded in Nobel Economist Milton Friedman's conviction that "the government solution to a problem is usually as bad as the problem." He hated FDR's New Deal and Keynesian economics, preaching hard-core Adam Smith capitalism. Naomi Klein, author of "Shock Doctrine: The Rise of Disaster Capitalism," summarized Friedman's "three trademark" principles of conservatism: "Privatization, government deregulation and deep cuts in social spending." That ideology gutted Glass-Steagall. And as Thomas Frank put it in "The Wrecking Crew: How Conservatives Rule:" "Innovations in governance" meant take "jobs away from career civil servants and hand them over to the big federal contractors." Reaganomics led to an Iraq war fought by more profit-hungry private mercenary contractors than committed volunteers. Ironically, it created bigger government.

4. New 'mutant' American capitalism must kill financial regulations
American capitalism generally, and Wall Street's mindset specifically, reflects the 234-year history from Adam Smith to Friedman, Reaganomics, Rand and Greenspan. Today however, it is resurfacing in a new disguise: Wall Street's blind obsession to kill all restrictions on financial innovations, whether in the SEC, FDIC, CFTC, or proposed Consumer Financial Protection Agency. Wall Street's cash got Obama elected, got their Trojan horses in his cabinet. Now their millions flow the opposite way, as their lobbyists sabotage Obama's financial-regulation reforms. And no matter who gets elected, Wall Street runs the game.

Wall Street's soul sickness feeds on mutant American capitalism
So tell us: Which headline did you pick? "Financial innovation: Wall Street's biggest con game?" Or maybe: Hoax? Rip-off? Scam? Joke? Oxymoron? Or was it Wall Street's biggest lie? Perhaps "Financial innovation: Wall Street's greatest evil?" Mortal sin? Soul sickness? You think "soul sickness" is too heavy? Not really. Since the Enron scandals, critics have been warning that Wall Street has lost its moral compass. However, in the new mutant American capitalism, Wall Street doesn't need a moral compass. Get it? Ethics and morals are irrelevant in the emerging new American capitalism, the latest mutation of Adam Smith's capitalism.

That means Wall Street's blind "anything goes" obsession with financial innovation is totally consistent with the rules of the new American capitalism. Morals, ethics and the public good are irrelevant in the rules of Wall Street's new mutant American capitalism. Wall Street's only restriction is to obey the 11th commandment: "Thou shalt not get caught." And when you compare the number of indictments from the 2008 meltdown to earlier ones during the Enron-era scandals and the S&L frauds (plus add in the $23.7 trillion debt those same "too-greedy-to-fail" crooks scammed from American taxpayers), you can easily see why Wall Street is clearly living within the rules they created for the new mutant American capitalism.

And that, folks, is why my final headline pick is: "Financial innovation: Wall Street's soul sickness." Why? Because this is a grave moral issue for all Americans, but Wall Street doesn't get it. Unfortunately, neither does Washington. Worse, neither do the American people, but that's what a cultural "soul sickness" does -- it blinds us to moral issues and leaves us wandering, lost, in the fog of Wall Street's self-destructive new mutant American capitalism.

Key oil figures were distorted by US pressure, says whistleblower
Watchdog's estimates of reserves inflated says top official

The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying. The senior official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.

The allegations raise serious questions about the accuracy of the organisation's latest World Energy Outlook on oil demand and supply to be published tomorrow – which is used by the British and many other governments to help guide their wider energy and climate change policies. In particular they question the prediction in the last World Economic Outlook, believed to be repeated again this year, that oil production can be raised from its current level of 83m barrels a day to 105m barrels. External critics have frequently argued that this cannot be substantiated by firm evidence and say the world has already passed its peak in oil production.

Now the "peak oil" theory is gaining support at the heart of the global energy establishment. "The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. "The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this.

"Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources," he added.

A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was "imperative not to anger the Americans" but the fact was that there was not as much oil in the world as had been admitted. "We have [already] entered the 'peak oil' zone. I think that the situation is really bad," he added. The IEA acknowledges the importance of its own figures, boasting on its website: "The IEA governments and industry from all across the globe have come to rely on the World Energy Outlook to provide a consistent basis on which they can formulate policies and design business plans."

The British government, among others, always uses the IEA statistics rather than any of its own to argue that there is little threat to long-term oil supplies. The IEA said tonight that peak oil critics had often wrongly questioned the accuracy of its figures. A spokesman said it was unable to comment ahead of the 2009 report being released tomorrow. John Hemming, the MP who chairs the all-party parliamentary group on peak oil and gas, said the revelations confirmed his suspicions that the IEA underplayed how quickly the world was running out and this had profound implications for British government energy policy.

He said he had also been contacted by some IEA officials unhappy with its lack of independent scepticism over predictions. "Reliance on IEA reports has been used to justify claims that oil and gas supplies will not peak before 2030. It is clear now that this will not be the case and the IEA figures cannot be relied on," said Hemming. "This all gives an importance to the Copenhagen [climate change] talks and an urgent need for the UK to move faster towards a more sustainable [lower carbon] economy if it is to avoid severe economic dislocation," he added.

The IEA was established in 1974 after the oil crisis in an attempt to try to safeguard energy supplies to the west. The World Energy Outlook is produced annually under the control of the IEA's chief economist, Fatih Birol, who has defended the projections from earlier outside attack. Peak oil critics have often questioned the IEA figures. But now IEA sources who have contacted the Guardian say that Birol has increasingly been facing questions about the figures inside the organisation.

Matt Simmons, a respected oil industry expert, has long questioned the decline rates and oil statistics provided by Saudi Arabia on its own fields. He has raised questions about whether peak oil is much closer than many have accepted. A report by the UK Energy Research Council (UKERC) last month said worldwide production of conventionally extracted oil could "peak" and go into terminal decline before 2020 – but that the government was not facing up to the risk. Steve Sorrell, chief author of the report, said forecasts suggesting oil production will not peak before 2030 were "at best optimistic and at worst implausible".

But as far back as 2004 there have been people making similar warnings. Colin Campbell, a former executive with Total of France told a conference: "If the real [oil reserve] figures were to come out there would be panic on the stock markets … in the end that would suit no one."

New York Governor Calls Legislative Session
New York Gov. David Paterson has called a special legislative session for Tuesday that will require him to maneuver through two political storms simultaneously, one involving money and the second concerning gay marriage. The governor has directed lawmakers to address the state's $3.2 billion deficit, a gap that could leave the state unable to pay its bills next month, aides to the governor say. Mr. Paterson, still reeling from disclosures in recent weeks that the White House doesn't want him to run for office next year, faces opposition from lawmakers in his own Democratic party who don't agree with the governor's $1.3 billion proposed cuts to health-care and education programs. At least one senate leader has produced his own plan to address the deficit.

The governor's second big agenda item will be to ask the Democratic-controlled Senate to let gays marry, a bill passed by the Assembly. Several conservative lawmakers have vowed to kill such a request in the past. It could be the last chance for the governor to get the law passed; next year all 212 legislators will face re-election and lawmakers say it is unlikely they will then tackle such an incendiary issue.

The governor took the rare step Monday to address a joint session of the legislature to underscore the dire straits of the state's economy. Mr. Paterson urged the legislators to cut back on spending for the sake of the state. "If we make the tough decisions now we can return to our investments in education and health care for all New Yorkers," he said in an address to the two houses. Fiscal experts say the state is facing hard choices this year and next, when the deficit is expected to balloon to $6.8 billion. With an unemployment rate of 9%, the state has been harmed by a dramatic drop in personal income taxes, $4.4 billion less than last fiscal year. Much of the problem can be blamed on Wall Street's woes.

"We're in a period of extraordinary volatility because New York is so dependent on Wall Street, dependent on variable things like bonuses," said Matt Anderson, a spokesman for the state budget office. In 2007, the last year measured, 20% of state revenue came from financial-sector jobs. The state has also seen a drop in revenue from sales and business taxes, he said. To address the problem, the state has suggested major cuts in health and school spending. In New York City alone, Mr. Paterson has suggested cutting $223 million in school monies and $26 million in general operating aid.

Advocates for schools and health care are vehemently opposed. Some senate Democrats, worried about their political prospects after they held up progress in the legislature for a month this summer while arguing over leadership, are fighting the governor's proposed cuts. A spokeswoman for Mr. Paterson said suggested measures from senate leaders don't fully address the state's dire fiscal problems.

On the issue of gay marriage, Mr. Paterson urged the state's senators to grant what he believes is a civil right to homosexual residents. "They are entitled to the full and equal protection under the law and I ask that you give them this opportunity this week," he said. Democrats hold a slim 32-30 majority, and some members of that party firmly oppose allowing homosexuals to wed. Sen. Ruben Diaz Sr., a Democrat and a Pentecostal minister, opposes gay marriage and predicted that the bill won't come to the floor. "People don't want it," he said, pointing to the failure of similar efforts in California and Maine.

Requests Jump for Jobless-Aid Program
A U.S. program that pays generous benefits to jobless people displaced by global trade has been swamped with applications in recent months, leaving thousands of potential beneficiaries in limbo. About 3,000 applications representing hundreds of thousands of workers have flooded into the government since May, when the Trade Adjustment Assistance Program was expanded. The benefits include unemployment checks, retraining and 80% of the cost of medical insurance for workers whose jobs move overseas or are diminished by foreign competition.

The small staff at the Labor Department overseeing the program is straining to keep up. In six months, the number of applications has outpaced all of 2008, marking a record since the program was introduced in 1962 to protect workers while promoting global trade. Early this year, 50,000 people were getting the benefits, barely 1% of jobless Americans. Now, some 1,500 applications are in the pipeline, representing as many as 150,000 people, based on the average size of applications last year. Not all of these will be approved, although the government has been validating a vast majority.

Howard Rosen, executive director of the Trade Adjustment Assistance Coalition, which helps workers apply for the program, says many employees are running out of unemployment insurance while waiting to find out if they qualify. "By law, they are supposed to make a decision within 45 days," says Mr. Rosen, who has waited five months for an answer on an application for a group of Idaho workers.
The backlog underscores the complications of administering the nation's safety net to help the unemployed. The unemployment rate is 10.2%, the Labor Department announced Friday, just before President Barack Obama signed a measure adding 20 more weeks of federal jobless benefits to people who have been out of work for a long time. But the administration has been struggling to ensure that the benefits reach everybody who needs them.

Under the economic stimulus plan, Trade Adjustment Assistance was expanded. Those who qualified after May 18 get a tax credit covering 80% of medical benefits, up from 65%. Recipients get as many as 2,5 years of unemployment checks, up from two years. Those over 50 years old can recoup as much as $12,000 in "lost" wages from the government, up from $10,000. The program, traditionally reserved largely for manufacturing workers, also was broadened to include white-collar workers.

An April page-one article in The Wall Street Journal highlighted the uneven distribution of Trade Adjustment Assistance. Increased awareness, rising unemployment and sweetened benefits caused a rush of applications from workers, unions and companies. The applications are reviewed by the Labor Department's "certifying officers," who investigate whether jobs were moved overseas or undermined by foreign trade.

Certifying officer Elliott Kushner said in an interview this spring that the department contacts the company in question -- generally with a letter -- once an application has been received to gather information about what caused job losses. The officer then certifies companies that the department believes laid off people due to global trade, opening the door for individuals to apply, or the certification is denied. "Virtually anybody can qualify," Mr. Kushner said.

The agency recently hired 26 more investigators, for a total of 45, to review applications. In addition, it added two new certifying officers for a total of five. In October, the group got 240 applications and made decisions on 344. Among applications in the pipeline is one from workers at Nukote International Inc., a printer-cartridge maker that laid off about 50 people in Rochester, N.Y., before filing for bankruptcy protection in June. Several Nukote workers say they believe their jobs were affected after a plant was opened in Mexico. A company spokesman says that while Nukote has manufacturing operations in Mexico, jobs weren't shifted there and the company's woes were unrelated to foreign trade.

Still, Michael Girvin, who was laid off in May as a project technician after 25 years, is hoping for the benefit. He is paying the entire $500-per-month health-insurance premium for him and his wife, using the $407 weekly unemployment check. "It would make a big difference in my life if the government helped pay for this," Mr. Girvin says.

Sweetened Pot
Under the stimulus plan, the Trade Adjustment Assistance given to workers displaced by foreign trade was enhanced. Here are some of the benefits:
  • Training: As many as 156 weeks of training.
  • Trade Readjustment Allowances: As many as 156 weeks of cash payments for eligible workers enrolled in full-time training.
  • Health Coverage Tax Credit: Pays as much as 80% of health-insurance premiums.
  • Re-employment Trade Adjustment Assistance: A wage subsidy for as many as two years for workers over 50 who are re-employed at a reduced salary.
  • Job Search/Relocation Allowance: Helps pay the costs of a job search/relocation for a new job.

Source: U.S. Department of Labor

Social Security inundated by new disability claims
As the worst recession since the Great Depression appears to be ending, the Social Security Administration grapples with an unprecedented flood of disability applications due to aging baby-boomers and heavy job losses. Pending claims are expected to jump 70 percent this year, said Dan Allsup, spokesman for Illinois-based Allsup Inc., which represents people applying for disability payments.

"The number of people held up at the initial level is just exploding," Allsup said, blaming that giant jump on the ailing economy and what he terms the "silver tsunami" of America's graying population. Mark Lassiter, media officer for the Social Security Administration, confirmed what Allsup described as a ticking time bomb. "We've seen a tremendous spike in our disability applications," Lassiter said, noting that a year ago, 2.6 million claims were forecast and 3 million were filed. "This year we're expecting 3.3 million," he said.

"People reach their most disability-prone years before retirement age," Lassiter said. "And those who never think of themselves as completely disabled -- once they lose a job and think they might qualify, they're going to apply." In October 2006, South Weber resident Gordon Branin was injured while working as a commercial truck driver. Branin, now 62, was delivering cargo in Maryland with his son when another truck backed into him, pinning his body against a loading dock. His pelvis was cracked and two disks in his back ruptured, but the retired military man said he was lucky to be alive. After a week in a Maryland hospital, his son drove him 2,500 miles home.

Amid the fog of pain medications, Branin applied for disability that November. A few months later he was rejected and then sought Allsup's assistance. According to the Social Security Administration's 2008 report, an average 31 percent of people applying were awarded disability at the initial application level between 1998 and 2007. At level two -- reconsideration -- only four percent won approval. And at level three, a hearing before an administrative law judge (ALJ), 13 percent succeeded.

Mickie Douglas, Utah's SSA public affairs specialist, said the agency's Web site, www.socialsecurity.gov contains everything needed to file a claim. "The process is broken down in two parts," Douglas said. "There is information that tells them exactly what we'll ask." Allsup disagrees. "It's a much more complicated and lengthy process than filing taxes," Allsup said. "And that's a primary reason that SSA denies two-thirds of applications due to poor preparation of the forms."

Even so, Allsup Inc. also rejects two-thirds of those who seek its assistance -- but for different reasons, he said. "We work on a contingency basis," Allsup said, 25 percent, up to $6,000, of the back payments awarded to applicants. "So for obvious reasons, we won't accept a fraudulent claim or one that we know won't be awarded." About 98 percent of their accepted clients do ultimately gain government approval, Allsup added.

In July 2007, South Weber's Branin got rejected at level two -- even with Allsup's help -- but chose to continue to level three. "We had to resubmit all the paperwork a third time" -- including updated medical test results, Branin said. Close to 22 months after his accident, Branin was able to walk without a cane, even though he had spent the first year confined to a wheelchair. He still cannot lift more than 25 pounds and his movement is impaired -- bending at the waist causes intense pain, he said. "Social Security was saying I could go back to work during that first year," Branin said.

In February 2008 -- about seven months before his scheduled ALJ hearing -- Branin received word that his disability case was clear-cut and his award had been granted. Branin's first check arrived in April that year. However, his time on hold took its toll. Even with Branin's military retirement and his wife's return to work, they struggled to pay their bills. "From October 2006 to April 2008, we ran up our credit card," Branin said, "to keep the bill collectors at bay."

GM Management 'Reminds One of Socialism'
GM's about-face has angered both Opel workers and European governments. In an interview with SPIEGEL ONLINE, union leader and Opel board member Armin Schild blasts GM for mismanagement and says that the US company is uninterested in saving the Opel brand.

SPIEGEL ONLINE: Mr. Schild, General Motors has decided not to sell Opel after all, preferring to restructure the German automaker itself. What do Opel employees think of the plan?
Armin Schild: GM is going to continue pursuing company policies that have already led to the firm's decline over the last 20 years. Pressure on the employees and on the government, however, will become more intense.

SPIEGEL ONLINE: What do you think GM will demand?
Schild: GM will ask for the same amount of support that the government already promised to Magna. In return, they will come up with a restructuring plan which, at first glance, looks a lot like the one Magna proposed. But closer study reveals that it does not actually contain what you would expect. The existence of the Opel brand has been put in danger. At the very least, it has been intentionally damaged.

SPIEGEL ONLINE: What are the differences between the two plans?
Schild: GM speaks of 10,000 jobs that are to be eliminated. Magna spoke of a similar number. But the Magna plan avoided factory closures and layoffs --  job elimination can also be achieved by way of not replacing workers who retire or leave of their own volition. The GM bosses want to close a number of facilities and turn masses of workers onto the streets. There is a major difference between the abstract elimination of 10,000 jobs and concrete measures to fire 10,000 workers.

SPIEGEL ONLINE: Experts say there are advantages to closing entire factories as opposed to thinning out the entire workforce.
Schild: Magna's strategy foresaw spreading the job losses among all Opel facilities. But that is not the same thing as thinning out the entire workforce. The point was to be able to utilize the existing production capacities. The point was to pursue a new strategy aimed at increasing market share through the introduction of new models, the creation of niche products and entering new markets.

SPIEGEL ONLINE: But GM is also interested in selling cars.
Schild: The last 20 years have shown that GM managers pay more attention to profits than to the number of vehicles sold -- and as such have paid less attention to developing innovative, more competitive products. Everyone could see the results of this strategy at Opel. They never fully took advantage of the know-how of their engineers nor did they use the brand's technological potential. Instead, the focus on saving money ruined the brand -- new models were only introduced once managers were certain that they would produce the maximum amount of profit. But that never really worked and it won't work in the future. Since the bankruptcy, not a single new GM model has been introduced.

SPIEGEL ONLINE: In other words, you think the fault lies with the management of GM?
Schild: The problem has to do with the structures and the fundamental course charted by the bankrupt giant GM. The flow of information from one level of the hierarchy to the next reminds one of socialism, in which successes were claimed even as failure was evident to all.

SPIEGEL ONLINE: Do you think that GM will invest in Opel?
Schild: Take a look at the amount that GM wants to lay on the table. It is around $3 billion, much less than what Magna intended to invest. There are, of course, things that one can do with that much money. But creating a forward-looking strategy, which includes entering new markets, won't be possible -- and it also isn't the intention.

SPIEGEL ONLINE: What does that mean for the Opel brand?
Schild: The Opel brand won't have much of a chance to survive in the coming years, given the intense competition in the automobile industry. The entire sector is facing a global overcapacity of 30 percent. Those who don't energetically defend and solidify their position will lose the race. Opel could very well be fighting its final battle. And it is one that can't be won with the kind of minimal approach currently being planned by GM.

SPIEGEL ONLINE: You seem to give the GM managers no credit at all. Working together with them is sure to be difficult.
Schild: Of course the situation is an emotional one at the moment. Especially when one sees from up close how workers are being strung along and cheated out of their futures. Still, I think it is wrong to pass sweeping judgement against the GM management. Some at GM were surely aware that a cooperation with Magna represented an excellent opportunity. But it's not for nothing that the entire workforce and the governments of a number of European countries are angry with GM.

For brave investors, Zimbabwe could be the ultimate turnaround story
When the Movement for Democratic Change took over Zimbabwe's economy earlier this year, there was not much left to run. Robert Mugabe's Zanu PF regime had carried out the most comprehensive destruction of a productive system seen in modern times short of war. Prices were doubling every 24 hours, a feat matched only by Hungary in 1946. Zimbabwe was surviving on dollar and rand remittances from a diaspora of three million refugees.

Schools and hospitals were shut. Confiscatory exchange policies had caused almost every mine, mill, and factory to close. Capacity use was under 10pc. Violent land invasions had crippled farm exports. Proud Zimbabwe had become the world's top recipient of food aid per capita. White farms were seized, of course, but so were black farms – if owners were thought to harbour MDC sympathies. It is hard to imagine a more poisoned chalice for the long-suffering MDC as it entered into a power-sharing deal with President Mugabe. Yet somehow the economy is coming back from the dead.

"The fundamental change is that we have stopped printing money to cover our deficit," said Tendai Biti, the MDC's finance minister, who shrugs off death threats. The hyperinflation crisis has in a sense solved itself. The Zimbabwe dollar faded away as the army and then everybody else refused to accept it. The US dollar is now the coin of daily life. Prices have been stable for months. "Forget about a local currency," said Mr Biti. Zimbabwe's central bank – an arm of state terror under Zanu PF enforcer Gideon Gono – has lost its cash cow. It is no longer able to skim profits from exchange rate arbitrage. The bank has allegedly been involved in the illicit selling of smuggled diamonds from the Marange field (seized illegally).

Harare's stock exchange is humming again. Volume has increased 20-fold, all now in US dollars. The mobile phone firm Econet – again able to import kit from China – has paid its first dollar dividend. Delta Beverages has installed a new bottling line after a surge in beer demand, a telltale sign of returning prosperity. The MDC has begun to lift exchange controls. It plans to privatise chunks of the economy, embarking on the most radical free market policies seen in Zimbabwe for half a century. "It is extremely investor-friendly," said Elton Mangoma, the economic planning minister.

London-listed metals group Mwana Africa is reopening mines. "We were being paid worthless Zimbabwe dollars for our gold, so there was no point continuing," said Kalaa Mpinga, the company's chief executive. Under new rules, Mwana keeps 100pc of foreign exchange earnings. It began pouring gold at its Freda Rebecca mine last month, just in time take to advantage of record prices at $1,100 an ounce. The MDC pleads with outsiders to keep matters in perspective. "Our problems have never degenerated into armed conflict over the years, as it has in other countries," said Mr Mangoma. Power-sharing spats are just "a quarrel in a marriage," he said. "Commentators want to paint a picture of total chaos, but we are now in our 10th month. Give us another two years and you will be very surprised at what we can do."

Hope or self-deception? While the MDC tries to lure investment by promising to allow 100pc foreign ownership, the Zanu-PF "indigenisation" law on the books still says foreigners must provide all the capital but hand over a majority stake to locals. "These promises mean nothing until the law is actually changed," said a Zimbabwe mining veteran. "I know from hard experience." Mugabe retains the army, police, and the apparatus of repression, which his cadres are still using to terrorise pockets of the country. The repression is surgical, but the message is clear.

One can doubt whether such a lopsided arrangement has any chance of succeeding. Yet power is more evenly balanced than it looks. The West is aligned behind the MDC. The young leaders of South Africa and the Congo are tiring of Mugabe's pretensions. Beijing is less friendly these days. "The Chinese don't want to back the wrong horse," said one diplomat. Mr Mugabe dares not shut parliament altogether, so he is chipping away at the MDC's majority by arresting its MPs on trumped up charges. MDC Treasurer Roy Bennett starts his trial today for alleged terrorism. It is sickening, of course, but what shines through is the deeper resilience of Zimbabwe's civil society.

At 85, Mugabe must at least be tempted to end his rule on a better note, as Fidel Castro is doing in Cuba. He will soon be gone in any case, leaving behind a nation with literacy rates in the mid-90s, the world's biggest platinum belt, and Africa's richest prairie – all at a time when Asia's growth has put a premium on resources. They say that Africa is the leveraged way to play China. If so, Zimbabwe is the leveraged way to play Africa. For brave investors, it is the ultimate rebound story.

How do we fix it?
by Greyzone

How do we fix it? This is a question I hear over and over again. People want to know what regulatory reform to take, what laws to pass, what criminals to prosecute, all in order to "fix" the system. Another variant to this question is "How do we undo the damage done so far?" Each of these questions assumes that the system continues as-is, that is to say, broken, or that the system gets fixed. In posing the question, the biases of the questioner are exposed. I'm not suggesting malicious intent on the part of those asking these questions, but rather culturally imparted ignorance of the alternatives.

Here is wisdom for those who would listen - as far as the system goes, the nation, the culture around you, do nothing! The unspoken alternative that cultural conditioning tries to eradicate from our thinking is collapse. When we say collapse too many ignorant yahoos think Mad Max. Collapse, as defined by Tainter is the unplanned move from a higher level of complexity to a lower level of complexity. Tainter does note that very rarely throughout history there have been a few voluntary moves from higher complexity to lower complexity. But the reality is that most of the time humans will not willingly choose to lower the complexity of their cultures. Thus the most common historical occurrence is collapse.

What does collapse mean in practical terms? For an example of a nearly fully collapsed state, look at Somalia. You can also look at Argentina and several other nations that are partly collapsed. As Tainter notes, when there is a large polity whose vested interest is in maintaining the status quo, the other states in the polity that have not yet experienced collapse will not allow a neighboring state to collapse completely. Yet as the limits of complexity along one path of development are reached, the neighboring states find themselves unable to restore a partially collapsed neighbor to its former glory either. Thus we enter the discussion of catabolic collapse, a stair step process over some period of time where states collapse to slightly lower levels of complexity, stabilize for a period, then repeat, all the way down until they reach a truly stable condition.

So we come back to the question of "How do we fix it?" The answer is that we do not fix it. It's not fixable. There are ecological and resource based reasons that collapse is occurring and will continue to occur globally. This process will press onward until industrial civilization as we know it is gone. The only hope for industrial civilization is a move to even higher levels of complexity but technology is being rude to us and not delivering the promised manna that will save us. Thus the move to a higher level of complexity is unlikely to occur. It's not impossible, of course, but right now it looks highly improbable.

There is something else to take to your friends when they ask the question "How do we fix it?" That something else is to educate them on the willful blindness inherent in that question. It's a bad question. The proper question would be "What are the possible outcomes of the current situation?" When you phrase it like that it's no longer broken-business-as-usual versus fixing the broken system. Suddenly the possibilities broaden and the possibilities include an unlikely move to higher complexity preserving the existing system, continuation of the existing system as-is, and either a planned or unplanned move to lower complexity. It is important to get past the cultural blinders that our society attempts to bolt to the sides of your head. Once you do that, you can begin to think "out of the box" and assess issues in terms that relate to true survival.

Note that I am not arguing that you do nothing. No, I am not arguing that at all. What I am arguing is that you do nothing to try to fix the global system. Let it fall. Your task, the one that the evolution of homo sapiens places squarely on your shoulders, is to take care of yourself and your loved ones as best you can. If you want ideas on how to start, I suggest getting out of debt, acquiring practical skills, and storing food and tools for the future. If you are already at that point and want to think further, try studying the Afghan mud-and-straw qalat or the rammed earth Fujian Tulous. These are communal, defensible, high energy efficiency structures that can act as home, fortress, and workplace. My preference is the Fujian Tulous, but the qalat may be easier to build as society collapses around you. The lone ranch/farm idea will only go so far once we descend down the slopes of collapse. The structures mentioned above have been used for centuries to organize small communities and defend those communities as well.

Good luck! You're going to need it, especially when so many people are asking what you now know is the entirely wrong question.


carpe diem said...


There was a discussion between Roubini and Rodgers regarding gold. Rodgers is convinced it will travel as high as 3000. Roubini says this is poppycock.

How can Rodgers who can often be so right be so wrong?
Roubini has often been right but also has been wrong in the past - so can't trust him.

I ask because I recently cashed out on my gold. Now I'm thinking I should have held on to it a teeny weeny bit longer. Seems suddenly that everybody is rushing to buy gold at the moment.

Any thoughts for S or anybody else.


Ventriloquist said...

"There must be more constructive ways to deal with these very serious issues than just lie about them every chance you get."

But that would require real imagination and creativity.

When the path of least resistance is to simply abdicate responsibility and claim that any real positive action is politically impossible, then following that path takes us to where we are today.

The real horror is where that path goes from here.

jal said...

When a patient is on his death bed, and is wanting re-assurance that everything is going to be alright, do you tell him the bad news or do you mutter reassurances?

The truth is hard to contemplate. It is even harder to live.

Lie ... give the patient hope ... it will not change the outcome.

The buzzards, (black swans), are circling and waiting for the feast.

Stoneleigh said...


When a patient is on his death bed, and is wanting re-assurance that everything is going to be alright, do you tell him the bad news or do you mutter reassurances?

Joe Bageant (tells a moving story about talking to his born-again christian father as his father was dying. The father wanted reassurance that he would see Joe (an atheist) in heaven, and Joe couldn't bring himself to break his father's heart in his last hours.

DJ said...


Thank you for the article on Ludwig von Mises. If that doesn't point to our tragic condition, I don't know what does.

Jim R said...

It's clear that gold (and platinum and silver) are a traditional, and likely future, store of concentrated wealth.

What I&S have been saying is that there is likely to be a rush to the $US as the wheels come off the global economy... resulting in a (dollar-denominated) decline in all sorts of asset prices including BNSF stock, Euros, and gold.

While the "goldbugs" have one answer for this breakdown, it is in fact a gamble. The reasons for this assertion are found in Stoneleigh's excellent essays (for example) in the righthand column at the top.

As to whether the best time to exit a long position in gold is today, or next Wednesday, or in January, only the market knows. And it's not tellin'. Nor will it tell us ahead of time when to exit the $. All we know for sure is that this train wreck is going to happen, because we've overshot so many limits and ignored so many warning signals already.

Ventriloquist said...

carpe diem said:

I ask because I recently cashed out on my gold. Now I'm thinking I should have held on to it a teeny weeny bit longer. Seems suddenly that everybody is rushing to buy gold at the moment.

Any thoughts for S or anybody else.

I would refer you to a quote from Willem Buiter in today's Financial Times:

"So until the risk of serious inflation is removed from the medium-term outlook for the US, the UK and other fiat currencies, gold will be a relatively attractive store of value despite the cost of storing it.

. . .

In a world with multiple fiat moneys, the zero value of money equilibrium lurks for each of the fiat currencies, including gold. Admittedly, as regards gold, so far so good. Gold has positive value. It has had positive value for nigh-on 6000 years. That must make it the longest-lasting bubble in human history.

I don’t want to argue with a 6000-year old bubble. It may well be good for another 6000 years. Its value may go from $1,100 per fine ounce to $1,500 or $5,000 for all I know."


kjm said...

The future can't be determined based on today's circumstances. Look at all the frantic interventions the govt and Fed made to keep an 'inevitable' financial crash from following its natural course.

Calling the future based on present events doesn't take into account reactions by a vast number of people with vested interest and differing agendas. All those reactions skew the future in varying ways.

I mean, we can guess at the general path circumstances will likely take but not the timing of various details. If we could we'd all be rich; just pick someone with a flawless record and mimic their trades. But like you say, Carpe Diem - no one is right all the time.

So reading Roubini or Rogers or anyone is just a way to keep informed and see all the angles. Only those with insider knowledge and those big enough to move the markets actually know. If you really want to seize the day get yourself hired at Goldman Sachs :)

Weaseldog said...

Greyzone makes some good points.

I've been arguing for years, that some problems, don't have solutions.

That catabolic collapse point is comforting. I don't think for now though, that we're past cannibalistic collapse. Catabolic collapse is where you are when you've got nobody left to eat.

Our biggest institutions still have smaller fish to fry. Our various national governments are having a harder time consuming each other, but they are still at it.

For instance, Somalia is still producing oil for the benefit of wealthy international corporations, but getting no benefit from it in their own nation. At some point, global trade in oil will wind down, and we'll be seeing true catabolic collapse.

Until then, the predator / prey relationship still exists.

VK said...

@ Weaseldog

I think you meant Sudan, Somalia doesn't have oil I believe. Somalia is pretty much a failed state but the country has some of the best and cheapest mobile networks in the world.

Check this article out, http://bit.ly/4vIb76

Somalis surprisingly have a large amount of physical dollars here in Kenya, they simply walk into places and offer a stack of dollar bills to buy property etc. Where this money comes from? Probably from piracy as well as remittances from abroad. Since they can't invest in Somalia that money has been coming here.Also even though Somalia is a whack job of a country there are millions of people living there and many farmers here supply them with Khat(Miraa) a twig that is like a drug. It's a really big business.

carpe diem said...

Thanks all for your thoughts. I realize it's one of those questions that ultimately has no answer. The amount I had invested would not dramatically alter anything in my life even if it did go up to 3000 so why I care - I don't really know.
Just making polite conversation.
Have a nice day everybody!!


Phlogiston Água de Beber said...

So, it looks like this thread will be devoted to the topic of prediction. Let us recall the words of the great and prolific philosopher Yogi Berra.

"Making predictions is hard, especially about the future."

That's why I think vague predictions may actually have the most value. Speaking of value, my thoughts regarding those who fret about preserving wealth might be better served devoting their time and energy to learning all there is to know about preserving edibles and sanity. Wealth is slippery under any conditions. My prediction regarding future career opportunities is for significant growth in the fields of piracy, banditry, burglary and thievery. Oh, and let us not forget con artistry.

gylangirl said...

"The reality is that close to 1 million Americans still become unemployed every month a trend that shows no sign of slowing down."

Umm. yeah. i recall reading that prediction somewhere months ago
on the internet i think...


Weaseldog said...

VK, thanks. I stand corrected.

Stoneleigh said...

Carpe Diem,

I ask because I recently cashed out on my gold. Now I'm thinking I should have held on to it a teeny weeny bit longer. Seems suddenly that everybody is rushing to buy gold at the moment.

I think gold is close to topping. When everyone is rushing to buy, it is usually a good time to sell.

VK said...


I don't know how many of you check the facebook/ twitter updates so pardon the repost here. But these pics are quite shocking! This is supposed to be a rising superpower? :(

Ilargi said...

Last week, on Nov. 4, Reuters reported a a $42 billion quarterly profit for bind insurer Ambac on credit derivatives gains. I posted that then. Ambac shares were up 46% that day, its bigger competitor MBIA’s 15%.

Today, Ambac, after suggesting a possible Chapter 11 bankruptcy next year on account of losses on complex securities, was down 33%. MBIA was down 26.6% on a bigger than expected loss.

When I see things like that, I realize a handful of people must be making a killing. Still, when the two were big news last year, it became very clear that their potential demise could drag down many companies that did business with them, so there will be some nerves jittering today. The suspension of mark-to market is an important factor in this. And even with the shadow accounting Ambac threatens to topple...

On its May 18 2007 top, Ambac stock was worth $96.08. Today it went to $0.79.


Greenpa said...

From yesterday: LardBacon:


I've got a fucking PhD. Spend some time in the scientific trenches "

ROTFLMAO!!!!!! Absolutely hilarious!!!

Dude, do YOU know any idiots with PhDs?? Every PhD I've ever talked to DOES.

I hope you realize, that statement is the precise intellectual equivalent of going out and buying a Hummer. It does tell us a lot about you.

Still laughing.

Greenpa said...

carp- "I ask because I recently cashed out on my gold. Now I'm thinking I should have held on to it a teeny weeny bit longer."

Don't do that. :-)

carpe diem said...


Thanks for your input. I do value it!...and I'm rather glad I got out when I did. All of this fretting and fussing and dwelling! It's truly beastly! Sitting on the sidelines in cash.......and working on my permaculture skills. :) makes far more sense.

Somebody sent me the link today to the PBS Frontline Special 'The Warning'. I'm sure everybody on this site has already seen it. I'm a little behind the times. I knew it was bad but yikes - it's far worse then I imagined. We really have been hoodwinked!


Can always count on you for a laugh. By the way -What happened to that hummer you bought last summer?


carpe diem said...

Gold Schmold...

I just read that koalas are facing extinction. Now thats truly something to be sad about.

A quick reality check before bed.

Buona Notte

Anonymous said...


Yes, those photos are so shocking and so sad. They show how our industrial/technological civilization destroys nature and every living thing, including our species. Will Homo sapiens survive?

I wonder what percent of China's pollution is due to the manufacturing of products consumed in the West, especially affluent Europe and North America.

Unknown said...

Not only do we have a good overall view of the origins and underlying fundamentals of the global debt crisis in this blog post, but the author makes reference to "the researchers at Automatic Earth". Glad to see my (small) funding of TAE is paying off with citations. ;)

Ventriloquist said...

Stonleigh said --

I think gold is close to topping. When everyone is rushing to buy, it is usually a good time to sell.


Various estimates regarding possession of (non-jewelery) investment grade physical gold (bullion, coins) by Americans place the figure at between 1% - 2%. Doesn't sound even remotely close to everyone to me.

In fact, as you can see by the prolific "Sell Your Unwanted Gold To Me!" advertisements, many people are divesting themselves of what gold they do have.

Now, when the mania hits, and your barber, shoeshine man, and taxi driver are all recommending that you get some gold coins NOW, that's when it's time to sell.

We've got a loooong way to go before reaching that point.

jal said...

@ rumor

There are a lot of blogs that have figured out the problems and the possible consequences ... none of them suggest GROWTH will be part of normalcy.
So the MSM that are proposing that kind of grown know it to be false.
(Growth from were we left off at the peak.)

There will be a permanent higher unemployment and lower economic activity.

Subsistence living will increase.

Everywhere more people will be worried about getting enough to eat to meet their energy output requirements.

The reset is in process of being established.

Then if that wasn't enough problems ... peak everything will make everything worst.

Although the blogs may get traffic they cannot all get comments like TAE does.


Gravity said...

It is essential to have a clear picture of the situation in order to design and implement effective policy. The increasing disconnect between observable reality and the dominant delusional perspective, as expressed in frequent statistical anomalies, misdirections and impossibilities, will lead to diminished capacity to anticipate and control emerging patterns, which would not be identified or comprehended within the necessary actionable horizon, receding more quickly than measured.

This process of corruptive measurability is a common affliction in collapsing societies, so the lunacy of western econometrics has reached a crippling stage, malreporting and misquotations may have even surpassed communist levels.
This institutionalised compulsive fabrication is ultimately caused by the need for accountable legitimacy in government in conjunction with the need to mimic profitabilty by competitive mismeasurements which, if not acutely countable, are easily provided by a set quotum of healthy unstatistics.

It is possible that some piece of legislation renders the official reporting of sensitive figures a matter of national security, such as in oiled stats, though higher levels of governance would keep double sets of stats containing more realistic figures to prevent misdirected efforts on their part.

VK said...

@ Ahimsa

Indeed the pictures were quite shocking, the earth is parched, the rivers are drying up, bodily defects in babies :( very sad.

On another shocking note,

On average, guns kill or wound 276 people every day in America. Of those shot, about 75 adults and nine children die. http://bit.ly/8LIM3


Erin Winthrope said...

Are we there yet? (near the market top)

I've found it interesting to look at the behavior of the Russell 2000 index. The Russell, which tracks small and mid-sized companies, is generally considered riskier and a bit more volatile than the S&P500 and the NASDAQ. Since the March 2009 lows, the Russell 2000 has marched in lockstep with the S&P500 and NASDAQ - hitting new highs each time those other indexes hit new highs.

Now, the Russell 2000's behavior has diverged significantly from the other indexes. While the DOW has hit new highs, and the S%P500 and NASDAQ are approaching their highs, the Russell 2000 is significantly (6%) below its October high. Furthermore, it turned sharply negative today whereas the other indexes were mostly flat.

I think the Russell is the canary in the coal mine. We'll see.

Erin Winthrope said...

Car Culture / Death Spiral:

VK, your comment about gun deaths made me think about my favorite pet peeve-death statistic, and one more reason our society isn't structured for survival.

Consider the auto casualty statistics in US from 2005:

1) 6.4 million car crashes
2) 2.9 million injuries
3) 42636 deaths

Now, add all the unnecessary chronic diseases caused by the car culture - obesity, cardiovascular disease, type 2 diabetes, depression - all of which could be dramatically alleviated if we got off our arses and walked or road a bike or took public transit.

The zombie public spends days dissecting and discussing and reading about every stupid detail concerning some nut-job who went on a rampage and killed a handful of people. Meanwhile, we ignore the relentless machine that grinds up a life every 10 minutes.

I'd love to put a slow motion camera in a car and show folks frame by frame what happens to the human body when it goes 50 mph to 0 mph in 0.1 seconds - like it does during a head-on collision. Of course, our sick demented zombie culture would probably eat it up rather than be horrified by it. They'd turn it into a feature film and sell popcorn and soda and fill the theaters with blood and guts craving zombie lunatic morons.

Top Hat Cat said...

Here's a sidebar for the dietary trench warfare discussion.

Is a 200kg jellyfish considered meat?

Japanese fishing trawler sunk by giant jellyfish

Unknown said...


Your car comment has highlighted an issue that I'm not quite sure how to solve and I would welcome feedback from all.

I would be interested in moving to a smallish city so that I do not have to use my car all that often; would prefer to have a walking/ bicycling 'lifestyle'--like we'll have the luxury of a 'lifestyle' post peak everything--but I digress.

On the other hand, if I move to a city, I'm wondering how I will be growing food and raising livestock (though that is actually not that likely to happen, I must say-- will likely become a vegetarian before I have to raise my own livestock as I'm way too chicken--no pun intended-- to get involved in the animal slaughtering process). In other words, how's an urban dweller to be as self-sufficient as I'm guessing will be needed? As a probable renter (hoping to shed my mortgage soon!) I don't envision having solar panels or a windmill either.


when the hungry, unemployed and downright ticked off citizenry are up-in-arms--literally-- it seems like living in an urban setting could potentially be quite dangerous.

So, what to do? Where to go?

[Thanks S&I and all of the TAE community for such wonderful posts and comments,not to mention the terrific photos. I love those! I haven't been reading long--mostly just long enough to become appropriately petrified. So, if you've addressed the geography question ad nauseum, mea culpa--I'd still be interested in your thoughts].

Thank you!

M said...

In reading Paul Krugman’s blog I noticed that he cites the research of Barry Eichengreen and Kevin O’Rourke. Boiled down, Krugman concludes from the research that “fiscal expansion is expansionary,” and that ‘he really doesn’t understand why this point has been so hard to get across.’

Ok, so I don’t understand. Something about extracting the initial bounty, to a progressive barrenness, to a final exhaustion seems to be clouding my ability to comprehend.

I suppose the research he cites feels too decontextualized and clinical to me, like a lifted Youruba ceremonial sculpture sitting in a London museum.

But I do understand Hans Hofmann:

“ The more the work progresses, the more it becomes defined or qualified. It increasingly limits itself. Expansion, paradoxically, becomes contraction.”

Perhaps it’s time for a sense of unlimited avarice to start comprehending De Stijl, and Mondrian in particular.

thethirdcoast said...


If I had to pick a small city right now I'd go for Moscow, ID. Very friendly people and the local co-op has tons of deals on local produce and livestock. Many of the restaurants also seem to source ingredients from local producers.

The main drawbacks are the semi-arid climate and the fact that it's downwind from Hanford, WA which is likely to attract several nukes in the event of global thermonuclear war.

scandia said...

Brazil is having a major power outage including the capital, Brazilia. No subway,streetcars,no street lights,no traffic lights...Gov't in the dark without power. Not a metaphor either.Yikes!
Wonder what is going on in the dark?

Ilargi said...

Brazil's Itaipu dam (border Paraguay) has lost its entire hydroelectric output, or 17,000 megawatts. RIo and Sao Paulo are pitch dark, huge traffic chaos, thousands stuck in subways, the works (think ATM machines). We're talking at least 50 million people affected.

AP had a nice detail that stuck with me:

"The blackouts came three days after CBS's "60 Minutes" news program reported that several past Brazilian power outages were caused by hackers. Brazilian officials played down the report."


scandia said...

@M, I like the Hans Hofman quote! True except for the universe which, I'm told, has been in expansion mode since the big bang.
No matter Hofman's words brought to mind a phrase first heard in Scotland, " elegant sufficiency.
It expands my world to see through your artist's eye. I appreciate your comments, your beautiful expression.

Submit your advice said...

dude, not just Brazilia but 9 major states. Apparently a big problem at the Itaipu complex, the biggie. This is affecting sao Paolo, Rio, Rio grande do sul (including Porto Alegre), Minas Gerais, Matto Grosso, a bunch of other places, i.e. most of the major population centres and ALL of the industrial and commercial centres.


I can translate any Portuguese if needed.

Ilargi said...

Power's back on in Rio, says WSJ.

Here's the 60 minutes episode about hackers and essential infrastructure.


Cyndy said...

I have been curious where I live in the unemployment numbers. I don't think I exist at all, but maybe there is a niche for me.

3 years ago my father died. I had to move in with my mother to care for her because she has dementia. I was able to telecommute, however I was still forced out of my job and benefits because I wasn't willing to move back to Michigan with my mother and pay $5000 a month for someone else to care for her while I worked, (making far less than the $5000, I would have been buried in debt by now) I refused to sell her house so Medicaid could kick in.

No income, no health insurance, unemployed, never got an unemployment check nor applied for it, no income for 3 years while saving the system big bucks by not having Medicaid cover her care, yet I seem to not exist. I'm sure I'm not the only one in a situation like this. Are we all invisible?

Zaphod said...

OK all, personal question:

Which is the better option:

A) Uncertain but higher-paying contract datacom work, mix of local and nation-wide. Live with mortgage and a few acres of land. Feast and famine existence, but historically is a good living.

B) Stable job with a very conservatively run, cash-rich company, work-at-home for 2/3 the money of Option A, no growth potential. Some travel to HQ would be needed routinely.

C) Relo to a low-cost but unfamiliar area, 3/4 or 4/5 of Option A money, no travel, advancement potential. Would need to sell-and-buy housing/land. Family does not want to move.

Family guy with a mortgage (declining, but still a ways to go). Lifestyle requires about 1/2 of Option A income, so all would pay the bills, so far.

Fire away with advice, please.

NZSanctuary said...

Paleocon said...
"OK all, personal question:
Which is the better option:"

Personally: whatever gets you out of debt. If that means selling up and moving somewhere and renting there, then that'd be my choice.

john patrick said...

M--on where to live.

Knowing that one person or even a small group is unable to provide for all their needs (let's face it--if you enjoy the universe, you'll have to pack the entire universe) then the emphasis is on being in/near a somewhat sustainable community.

I currently live in San Luis Obispo, CA which is along the coast. The city is is laid back, tolerant, and surrounded by agriculture,--a good portion of it being organic. It's much more efficient for someone who is already setup in farming, and experienced in food production, to handle that part of the community equation rather than have everyone undertake it part-time and do a shit job. And perish from the lessons.

I've gathered information from many blogs, so I apologize for not giving due credit on the specifics, but what sticks out is:

-habitable environment that has an existing agriculture community in place.
-city/town that is not prone to extremes on religion/race/isms.
-I believe someone on TAE mentioned a city/town that was "alive" in 1900.
-Having a useful skill that can be bartered for things you need.
-Being prepared to be a good community member. Have something to share, even if it's storytelling, entertaining, humor (all important).

No amount of intelligence or preparation will grant immunity from the sadness/sorrow coming our way. And, besides... do you really want a firewall in place that blocks both sorrow and joy?

That said, it comes down to being in/near a community of people who intend to share, and not take. There is no end to the sharing we can do with each other. But taking for ones needs has its limitations.

I, too, shake my head in disgust/frustration for what we are going through. And yet, as another poster mentioned, "this is not a problem to be solved." So, it seems all we can do is take the high road. We stay "in the game."

BTW, thank you I&S for this blog. And, the many posters who comment here.

jal said...

@ Paleocon
Blood is thicker that water.

If you move to a community that is composed of "clans" then you will be always the "outsider".
It takes years to be accepted.
An outsider will be treated badly when push comes to shove.

The "clan" effect can be reduced if you bring a "recognized" essential skill, (Doctor), or asset, (Gunsmith tools), which cannot be replaced.


snuffy said...


You sound like a conservative sort of fellow.Better check how the mainstay social theorist of your movement think before stating I made a "blanket statement"

"Conservative thought is typically expressed as a desire to preserve a valued way of life against disruptive and alienating changes.It further characterizes society as a orgasmic whole,knit together with traditions,and institutions by which they are maintained.It regards with deep skepticism any form of change or proposals for improvement of the lot of the masses,and demands a circumspect,and gradual approach to change ,as well as defining a special mission for "the elite",not only as guardians of cultural traditions,and dominate institutions,but as ones chiefly responsible for initiating any change that altered circumstance may seem to require"

...To which I reply BullSh&*t

{I will let you guess which ass hat came up with that little POS]

As far as the "Idea" of a meritocracy being a fantasy the Chinese,[those clever devils]succeeded in putting together such a system over a thousand years ago which lasted much longer than has the united state,and many many other states have existed.

[You can drop a dime here Greenpa,as my last reading of the mandarin exam for the bureaucracy that ruled china fora LONG time is fuzzy

The most stable,decent places to live on the planet now are the socialist states of Norway,Sweden,Denmark the Netherlands etc.They finally figured out a way for ALL their citizens to have a decent existence,with medical care ect.,as well as as much education as they could stand,and the opportunity to grow.

Something we lost in the last 30 years.

We can agree that the supreme court has been rigged to provide legal cover for the corporations and legalized theft,and that the system itself is corrupt.

I lean to greyzones position now,and in the process of preparing for quite a different type of end game than most expect in their retirement.


As Dave pointed out,the Constitution of the United States,was designed for the purpose of keeping the status quo for wealthy land owners of the day,a good point was that black folk were 3/5ths a white soul for the census.

Historical scholars paint a wholly different picture of the negotiations that existed to produce the Constitution, the Bill of rights,and the true,unvarnished thoughts of our Americas forefathers as they crafted the soul of my country.

Lots of heavy,solid reading there. Honestly I wish I had more time to study.I would love to have the collected works of Thomas Paine,who is actually my favorite of that merry crew of revolutionaries[Terrorists to "the empire"at the time][big grin].

The numbers that we were shown the last post /debate should scare hell out anyone paying attention.This is the outlines of the collapse .Energy constraints are what will have to guide any future hope of economic activity.Notice I said activity."Growth"is dead as the housing bubble.[Those housing "twitches and moaning" should have a tie to that "bring out yer dead"video]

Greyzones comment was on the money...



Joseph j7uy5 said...

I think this economy has rendered many persons invisible, in the eyes of the government.

It is striking to me that the photos depicting the effects of pollution in China are even available.

One of the world's great photographers, W. Eugene Smith, took similar photos depicting Minamata Disease, particulaly birth defects caused by methylmercury pollution in Japan. Smith was beaten, and his cameras were destroyed. (Minolta, IIRC, supplied him with new cameras). The world was shocked by Smith's work.

Now, there is barely a ripple... Yet the problem is far worse, more widespread, and unlikely to ever go away. Does anyone care? Have we become so inured to the images that we merely sigh, and then forget?

And what of the famous photos of the area around Chernobyl? Consider how many nuclear reactors there are around the world, and the cost and expertise that will be required to maintain them safely, centuries after the last kilowatt-hour is eked from their cores. Who is going to pay for that?

If you are wondering where to plant your family for the future, I would advise avoiding any place with a nuclear or large chemical installation.

Vern said...

For me TAE is mainly about mental preparedness. We humans seem to be ill-suited to the task of preparing for a distant adverse event that is best described in terms of relative probability. The people here at TAE have narrowed in on the disaster looming in front of the nation - it clearly is financial/economic/political. I read TAE regularly because I want a reading on the current stage of the slide into possible chaos, to form a picture of what that will look like and to see how others are choosing to prepare. Preparation seems to be largely a personal affair - we each have to develop our own survival strategy. It takes time to gel in the mind.

carpe diem said...

Just read that WalMart stores across country to stay open 24 hours on thanksgiving to avoid people being trampled on black friday.

Fancy that.

scandia said...

@Cyndy...As for your place on the list I would put you between a rock and a hard place :)
Of coure I am wondering what you are living on without employment or benefits? Savings? Yours or your mother's?
Even in your position it would be prudent to evaluate your preparedness. Selling Mom's house and using the proceeds to set yourselves up in an affordable, supportive environment might be an option? Is there a capable, homeless person who would jump at the opportunity to share the house with you and Mom in exchange for room and board?
I expect gov't benefits to remain in place for the near term but after that who knows?
You sound like an independent person able to make some plans for surviving this crunch. As Coyote says, think/plan " outside the box".
P.S. I hope you are getting a break from caring for your Mom? Any siblings nearby? I have been assuming that you are single and now living with your Mother?

Ventriloquist said...

Snuffy said:

You sound like a conservative sort of fellow

Well, I cannot determine who it was was that came up with your quoted statement of Conservative beliefs, but that verbiage certainly does not reflect my personal viewpoint. (Well, except maybe for the part which "characterizes society as an orgasmic whole")


My views regarding women's role in society, the moral obligation to support society's defenseless, the right to quality universal healthcare and education, women's rights to choose, the elimination of the corporate persona, the immorality of our wars against the third world, the immorality of our current wealth transfer to the rich, and the complete severance of all ties between church and state . . . (in addition to many other viewpoints) . . . . would not endear me in the least to any conservative I know, who would characterize me as a flaming liberal.

That being said, I am a stout proponant of the right to bear arms, I am a firm believer that the government in all forms has become far too intrusive in our lives, and I certainly believe that the Democrats are no better equipped to manage our nation than the Republicans . . . a couple of viewpoints which I believe all conservatives support.

And I am also not a Libertarian, as I despise most of the BS spouted by Ayn Rand and others of her ilk.

So, if you can come up with an interesting label for me, fire away!

bluebird said...

carpe diem said "Just read that WalMart stores across country to stay open 24 hours on thanksgiving to avoid people being trampled on black friday."

Wouldn't have anything to do with luring people into store to sell them more stuff on Thanksgiving? It's all about profits.

Hombre said...

I went back to the previous post and re-read Greyzone 12:15 PM and I think he(she/?) gave a really good perspective on things.
The need to not, as I often say, box yourself in, to not allow your thinking to get fixated. The universe is not static, it is dynamic and rather unpredictable. Humans are even more so!
These times are unique in history for the factors of population, resource depletion and an evolved corrupt and complex economic/political system.

And yet there are still things to be learned from looking back to history, for sure, in order to prepare--I mean the future isn't here yet, so all we have is our experience to go by!

We're gonns crash at some point. Whether is is a series of glancing fender benders or a head on collision nobody knows. Those who want details, concise answers and timed predictions are doomed to frustration. There is no place to hide. All we can do is fasten our seat belts, and take preparatory measures.
Reading sites like TAE can keep us focused and much more genuinely aware of economic and political developments than one finds on the corporate networks.
Think "the basics", food, shelter, and sustainability. Retain some flexibility.

A stiff reed breaks in the wind.

Bigelow said...

His predictions were so accurate they had to lock him up to prevent him from announcing and spoiling their sure-things.

“The markets will tell us what they are doing if you are willing to listen. In the Dow Jones Industrials, the 10,800 level is critical for year end. If the Dow closes above this level it is warning that the wave of inflation that is on the horizon is in fact coming faster than anyone expects. A year-end closing below 10,800 will not be a sell signal, just a neutral indicator on the immediate timeline for 2010.

Resistance still stands at 11,800 for 2010 and the 11,000 and 10,000 will present pivot points as well. We will see below 8,800 and 8,300 as initial key support with major support starting at the 6,200 level.

Closing support for the Dow will be at the 8,600 and 7,200 levels. A closing below the first will signal a retest of lows for May where as a year-end closing below 7,200 will signal a test of the 5,000 level with the most extreme support at 3,800.

Keep in mind, however, this is a pendulum type movement. The further it goes to support, the greater the energy will be to swing to higher levels in the future. There is no question that the two yearly targets for major crisis are 2011/12 and 2016. The market will tell us very soon how nuts this whole thing is going to get. Those that harp on the same old thing unfolding as 1929, only look at charts and know nothing about how the global economy interacts for back then, we were the creditor nation.”
Objective v Subjective Analysis Martin A. Armstrong

Bigelow said...

NYT Movie Critics' Pick: Collapse (2009)

scrofulous said...

Index Value: 1,103.28
Trade Time: 10:37AM EST
Change: Up 10.27 (0.94%)
Prev Close: 1,093.01
Open: 1,096.04
Day's Range: 1,096.04 - 1,105.37
52wk Range: 666.79 -1,101.36


Bob (Your Uncle) said...

The most stable,decent places to live on the planet now are the socialist states of Norway,Sweden,Denmark the Netherlands etc.They finally figured out a way for ALL their citizens to have a decent existence,with medical care ect.,as well as as much education as they could stand,and the opportunity to grow.

There's a lot to be said for the countries you mentioned. However, you must remember that European countries spend relatively little on defense spending, allowing the USA to supplement or provide defensive resources over the past decades. You may like or dislike the $$ spent on defense and the role the USA military has played/continues to play in these countries, but having another country provide much of your defense for you does allow you other ways to spend your $$'s.

scrofulous said...

Blogger Greenpa said...

carp- "I ask because I recently cashed out on my gold. Now I'm thinking I should have held on to it a teeny weeny bit longer."

Don't do that. :-)

Right Greenpa and the other thing is not to buy oil at $34. ROTFLMAO

jal said...

"... As Dave pointed out,the Constitution of the United States,was designed for the purpose of keeping the status quo for wealthy land owners of the day ..."

Light is starting to shine through the dark crevices created by the propaganda.

The political systems have been created to serve their masters.

Now, in these days of hardship, people are starting to realize that the masters in the US are not the capitalists but the banksters.

Democracy only existed in name.
Democracy only worked in times of plenty.

The population/people are not going to set the terms of the RESET.

Those that can adapt will not perish under the new world order.

Phlogiston Água de Beber said...

If you didn't see last night's episode of The Daily Show, may I recommend you go view it online. At about 9:35 seconds there is an exchange between Jon Stewart and John Oliver that IMHO paints the picture.

el gallinazo said...

In all due respect to Stoneleigh, I think the herd instinct in the equities market rally was played out some time ago, and what we are now seeing is deliberate market manipulation by the former investment banks by buying index futures on days of low volume combined with high frequency trading. Seems to be the same strategy as that which resulted in $140 crude oil. It seems that the markets go down on higher volume days, and shoot up on lower volume days. For more details see:


on Zero Hedge.

In the end, this strategy will eviscerate the equities markets, particularly the Russell 2000 firms, just as similar strategies have eviscerated the USA's manufacturing capabilities.

Ilargi said...

Yeah, that sounds all nice and all, El. G, and there's no doubt manipulation takes place in a myriad of shapes and forms. But the way these claims are shaped by Thornton, Durden and PC is Quixote merrily waving at windmills. Blaming Jamie Dimon is not going anywhere. This is not a financial or a banking crisis. It's purely political. And these guys who focus on trading miss that boat by a mile.

Shamba said...

@Cyndy, I know what it's like to take care of a mom with dementia so my heart goes out to you.

Scandia has some good ideas to consider as you wonder where to go in life next.

Peace to You,

scrofulous said...

It's purely political. And these guys who focus on trading miss that boat by a mile.

Since when is stagflation political, are you thinking of hyperinflation?

el gallinazo said...


I agree with what you are saying, and that ZH focuses on the equities, and to a lesser extent the broader financial markets. And those are not the heart of the crises that we are facing. But there are some short speculators here (myself, DIY and sometimes Bigelow) who are involved with the equities market, hoping to increase their nest egg for deflationary times, and for us, the current market shenanigans have some interest. So the equities markets are quite literally a derivative sideshow of a political crises, but there is a minority here that are personally involved. Also people trapped into 401-k's and union pension funds.

Finally, the suckers rally has become the show piece of the green shoots bullshit, and when it collapses, it will mark a severe blow to the propaganda machine. I agree with you that the real action is political, and statistically in real estate pricing and uncooked unemployment numbers.

Ilargi said...


That's your third comment, and they're not exactly rising in value. The next one better be better, or it'll get lost in that space where such things go to evaporate.

Cyndy said...

Preparedness has been the driving force of all I've done, especially the past 3 years. I am quite lucky compared to what I think most people in this situation are having to deal with.

My father was quite a visionary in his own right, so, though he didn't leave much money, he did leave a good foundation for me to work with. He retired early at age 55 to build with his own hands, a passive solar adobe house. It took him over 6 years to build, mainly by his own sweat, with a few things contracted out, like the septic system and the stucco. It's powered exclusively by electricity, with a woodstove insert for heat. I see his brilliance everyday.
My mother gets a small annuity until she dies, plus a $50 social security check. My partner also moved here and has a job. The bulk of his pay goes to prior debt and for preparations. I had no debt. I saw the writing on the wall early on and I'm no stranger to penny pinching.

My support system as far as caring for my mother is a bit sparse, but workable. It doesn't help that we don't much like each other and that the house is only 1 bdrm, 1 bath (her area of course). She's pretty much forgotten that she doesn't like me and I just pretend that this is just another job I don't like. I consider myself as being part of the unpaid workforce even if I'm not counted.

As far as preparations go, this is the desert, so water was at the top of my list. We have 7 full rainbarrels and two more barrels unfilled for potable water. (to fill at some point TBD) A Berkey. 42 gallons of jugs I try to keep filled with filtered water bought at 'water islands' around town and then filtered through the Berkey. Our water supply already has uranium at unacceptable levels, so this is a fact of life for us right now, and I expect that will get worse.

It's been a steep learning curve to growing food here, but I'm getting there. Learning how to keep chickens safe with a Husky down the street that thinks they are his personal playtoys has been a heartbreaking endeavor, but I have 4 pullets remaining who should start laying in the spring, just in time to start another small, hopefully less traumatized, flock.

Canning, dehydrating, stockpiling staples, growing herbs, veggies and chicken greens, planting fruit and nut trees, soil building, and solar cooking are all skills I've been developing. Carpentry skills are on my list because my dad left tools behind. Herbs and medicinals are also an ongoing process. Community building is much harder when I'm pretty much stuck at home, but I try to keep tabs on what is happening here. Perhaps one day I can share what I've been learning. I think a community kitchen will be vital in the near future.
Most of all I've learned, you build from the foundation you have. If that foundation isn't solid, you scrap it and start over.
Shelter, water, food, warmth. Check.

Ruben said...


That is a funny clip. For Canadian viewers of Jon Stewart, here is a link to the episode.

Top Hat Cat said...

"You may like or dislike the $$ spent on defense and the role the USA military has played/continues to play in these countries, but having another country provide much of your defense for you does allow you other ways to spend your $$'s."

If ever there was a more compelling demonstration of the parasitic nature of the U.S. Corporate/Military War Mongering Defense Welfare Queen Meal Ticket Mind Cult, I haven't heard it.

Why would the U.S. have 'protected' Europe for decades for FREE?

What an insane act for a Titan of Capitalism. Work for free?


For 65+years and never ask for remuneration? There is no free lunch silly Goose.

The curious absence of a bill for Old Europe after all that time speaks volumes about the provider's motivations, not the receiver.

A couple of thoughts.

The U.S. Corporate/Military Cyborg needed to Puff & Pad it's Raison d'être. It's mission. How else to justify $600 toilet seats to the U.S. public. A boogie man was needed and Europe provided the foil to the Bear.

Why charge them? Gosh, what if they refused to pay? How embarrassing.

OMG, there goes the Military BoonDoogle Express out the window.

No, The U.S. tax payers shelled out mega bucks to 'protect' Old Europe" for pure pork pie politcal/budget reasons.

Defense contractors made out like bandits for decades, European politicians also made out like bandits with big U.S. bases bringing in the Gravy and pork to feather their nests.

Why upset that applecart by presenting a bill to the "protected"?

Wolf at the Door said...

@ David,

It sounds like with your world view that you belong to no party other than to the party of rationality and common sense.

Glad to have you as there are not many of us.

Bob (Your Uncle) said...

Back in September a number of people put out their estimate (guess?) of the date for the market top. I think I'm the last remaining prognosticator with my "early November" pick.

With the market moves this week - new highs on low volume and either no news or "bad news" - I have to believe we peak / peaked this week. Unless a holiday shopping miracle can be engineered, the growing negative new is going to overwhelm whomever / whatever is propping up the markets.

Phlogiston Água de Beber said...


Did you mean funny peculiar or funny haha?

I didn't link to it for humour value. The hook for me was the moment of pathos when Stewart and Oliver reach their epiphany. Followed by Oliver's profound analogy to what it's like to lose an empire. If only MSM could allow themselves that.

BTW, thank you for linking in our Canuckistani friends.

Bob (Your Uncle) said...

If ever there was a more compelling demonstration of the parasitic nature of the U.S. Corporate/Military War Mongering Defense Welfare Queen Meal Ticket Mind Cult, I haven't heard it.

TOP - either I'm missing your point or you missed mine.

My point was it's easier for a country to enact and pay for various social programs when they are not carrying large defense budgets. If the USA did not have such a large defense budget, there would have been / would be many more dollars to spend on something else. If Europe had carried large defense budgets, that would have affected it's ability to enact those social programs.

Why the USA spent / spends so much on the military is another topic (and I agree with much of what you wrote concerning that)......

carpe diem said...

Bluebird.....of course its about profits....I hesitate to use the word 'duh' but here goes....DUH!

I was actually directly quoting the news report.



Anonymous said...

Earlier today, Mish posted an essay describing the extreme levels of deficit spending taking place in the respective G20 countries.

This simply enforces my assertion that we have in effect a de facto composite global currency, and that foreign government & CBs are working in concert to radically devalue constituent parts in order to wipe out nominal values of stated liabilities.

If the $USD and respective G20 currencies are all devalued in lock-step, then their relationships as a means of exchange remain intact, with only their usefulness as a store of value becoming suspect.

But, as I have said before, the Chinese and other net savers have already written off their investments. If we had defaulted, they would have still lost their savings, so the net-net is that Western markets remain intact as a viable market for further consumption after a reset point is ultimately reached.

I know this doesn't fit well with Stoneleigh's belief that there exists at present insufficient levels of trust between trading parties, and that there are too many demands placed on subordinating sovereign control to pull off such a caper, but the evidence is starting to look pretty strong that indeed such an event has occurred.

There isn't going to be a crash. All liabilities are going to -0- in relative terms. Net savers are hosed, yet their loans have been uncollectible since at least 2007, so there really isn't any difference.

It doesn't mean we're going to be returning to the good 'ole days of mass consumption - those days are dead and gone. It also doesn't mean we're not going to still be hitting peak everything. All it means is that we're not going to have a financial/credit/liquidity crash.

25% unemployment + huge swaths of (malinvested) vacant property is our future reality. It may not be pretty, but if civilization can wait out another 20 years, the next generation can create another bubble driven by some new fangled fad or craze.

el gallinazo said...

aargh! said...

"Since when is stagflation political, are you thinking of hyperinflation?"

To flesh out Ilargi's comment a bit, assuming your comment was in good faith, stagflation is a contraction of stagnation (which economists use to really describe a mild recession) and inflation. Keynesian theory suggests that this is impossible until it happened under Nixon. Of course, they used the Bureau of Lying Statistics to define inflation.

Today we are in a classical deflationary depression downward spiral, so your comment makes little sense. The BLS is hiding the true degree of the cost of living plunge by not taking real estate prices into account other than a half-assed rental algorithm, and even if it did, the decline in real estate prices is masked by putting much of the loses on the taxpayer bar tab.

And there is a consensus on this blog site to define inflation and deflation in terms of the money and credit supply against goods and services, not price changes of pork bellies and dildos. If you don't agree with that definition, you might as well move on.

el gallinazo said...


"You may like or dislike the $$ spent on defense and the role the USA military has played/continues to play in these countries, but having another country provide much of your defense for you does allow you other ways to spend your $$'s."

I took your comments the same as Top did. It is difficult not to infer from your comments that these expenditures on "defense" were completely necessary, and since deadbeat Old Europe wouldn't pick up their fair share of the tab, then good old Uncle Sam had to do it. However, your second comment shows a certain backing away from this interpretation.

The best realistic appraisal of this entire situation is Chalmers Johnson in his "Sorrow of Empire" trilogy. Whatever your original meaning, I agree 100% with Top's evaluation.

Greenpa said...

NOVEMBER 10, 2009 6:13 PM Gravity said...

"The increasing disconnect between observable reality and the dominant delusional perspective, as expressed in frequent statistical anomalies, misdirections and impossibilities, will lead to diminished capacity to anticipate and control emerging patterns, which would not be identified or comprehended within the necessary actionable horizon, receding more quickly than measured. "

:-) I love it! Sheer obfuscatory poetry! Any academic would swoon.

Greenpa said...

Snuff: "[You can drop a dime here Greenpa,as my last reading of the mandarin exam for the bureaucracy that ruled china fora LONG time is fuzzy)

Well, mine was too, even though I studied Asian History under one of Edwin Reischauer's main proteges. So I cheated and looked it up.

Evidently it was good ol' Han WuDi who started a form of examinations (somewhere 200 BCEish) and one form or another, including versions open to anyone in China, rigorously honest (besides the corrupt versions) went on until almost 700 CE.

And if you read Chinese literature- it made a difference. Another aspect of this system- an exam winner was never placed in a position in his own region- usually moved to a different province, to cut down on the human universal tendency to help your friends and relatives out.

scrofulous said...

Tactical, maybe strategic, but political?

US dollar index This might just come out at 100 days, if so, enter 300 and see the slide from March,and whazzat 20% off bills paid? I don't get that sort of bargain to pay my bills off, quite the reverse.

Here is foreign holders of US debt

Looks like some perverted manage a'tois with two dancing and the third picking up the champagne bill.

Ventriloquist said...

@ Cyndy,

I loved your post. You obviously have the patience and the spine of a saint. Caregiving for a difficult relative, without any monetary compensation, for an extended period of time, certainly qualifies you in that regard. Additionally, the fact that you have managed to also make a major committment to learning/practicing the necessary skills for survival during the coming years is not only commendable, but an example that probably most of us here need to emulate.

I can only wish you the best in your endeavours.

@ Wolf at the Door,

Thank you for your observations. It is very difficult for us to strive for any kind of balance in our worldviews, as there are many, many influential and persuasive entities we are all inundated with daily, that try to skew us toward one of the many extremes out there. It's a struggle that I believe most of the contributors to this board share.

NZSanctuary said...

Josephxxx said...
"onsider how many nuclear reactors there are around the world, and the cost and expertise that will be required to maintain them safely, centuries after the last kilowatt-hour is eked from their cores. Who is going to pay for that?"

That is the eternal argument with pro-nukers. Any potential problem was countered with ideal solutions - fuel extraction from sea water, waste disposal solved, NIMBY ignored, water/cooling dealt with, war sort of ignored, future economic and energy needs supported by the nuclear industry, overpopulation and dissolution of states, etc., all overcome because we can solve anything.

Unfortunately that's not how the real world works, nor how complex systems work. But they prefer the fantasy land of BAU sci-fi edition.

Greenpa said...

hm. re: Chinese examinations-

got curiouser, and looked at multiple sources; surprise! There are multiple viewpoints.

my current info- the examination system actually survived to the end of Imperial China, with fluctuations as to its honesty, but being restored to true functionality from time to time.

And even after- Sun Yat-sen set up an Examinations Yuan as one of 5 branches of government- and it was revived again; and still exists, in Taiwan.

Hombre said...

I. M. Nobody - I enjoyed the clip you linked. Sounds like they had been reading (or listening to) Orlov. Maybe even checked out some doomer blogs.

Or could be they are just alive and have some gray matter!

Isn't it amazing to be experiencing the giant evolving demise of this globalized monster and just riding along, hands tied by the CONTROLLING POWERS, even watching humorous skits of it on the boob screen?! We KNOW... but hang on a minute... we just have some final errands to run.

Maybe it will just roll to a stop (or to a stability), check out Snerfling above--there is to be no crash!

I am not wise enough to predict the speed of our epochal slowdown, but I think it impossible for 6.5b squirrely critters to continue to bash around this china shop of a planet without a lot of broken China (NPI).

Hombre said...

I&S - Remember mr. Anonymous A. Comment? I think we know what the A. stood for! ;-)

Ventriloquist said...

ZH has just posted the Pew report on the fiscal conditions facing the states, and the report is very ugly.

There is nothing the administration hates more than the anti-propaganda truth, especially the kind that discloses the pathetic situation of the economy. Which is why Larry Summers must be positively loathing the most recent report from the Pew Center On The States, entitled "Beyond California: States in Fiscal Peril", which, as the observant among you may surmise, discusses states in fiscal peril. In short, that would be all of them. A snippet: "California’s problems are in a league of their own. But the same pressures that drove it toward fiscal disaster are wreaking havoc in a number of states, with potentially damaging consequences for the entire country."

And while the Fed may hope to bail out the ongoing contraction at the Federal level indefinitely (or until it runs out of toner cartridge), the options facing the various states are much less sanguine.


Now, pay close attention to the last sentence in the above quote. This is not from the Pew Report, but an observation by TD. Which validates what I & S have been saying from some time, which is:

That the center will attempt to vacuum all financial resources at the expense of the periphery.

In other words, the twin black holes of DC and Wall Street will suck in everything from the US citizenry, and the states be damned. The collapse will indeed be local. In most localities.

Anonymous said...

I hope everyone appreciates that the stock market has nothing to do with the economy. To a point, I don't at know which point, but now, on a longer term basis, the worse the US economy is the better it is for asset prices denominated in dollars.

For today anyway equities and many commodities are the preferred store of value. Anything but holding dollars is the idea.

The US Treasury and the dollar will be destroyed and go to zero perhaps, but corporations will live on. That to my mind is the ultimate crime of the Fed and Geither's Treasury and really the totality of our elites. Or at least they will take us down that road trying. They could fail.

The fail is I&S's preferred scenario. I just rate it a possibility. Everyone should as it is a crucial part of preparing yourself. Not just financially or physically but psychologically. You have to accept the world as it is. Well yes at a certain point you might have to take a stand but in this case, how and against what? I don't have a clue. Well I do but won't mention it.

Phlogiston Água de Beber said...


IMHO, comedians appear to have some of the best grey matter on the planet. Jon Stewart is clearly a very intelligent and well informed guy. From this and other performances it is apparent, to me, that John Oliver is an apt student of the less attractive aspects of imperialism.

As Yogi said, "predictions are hard", but you are surely right about the China.

Alfred said...

Husband liquidated our Treasuries today and bought gold ETF (GLD) and Vanguard Total Stock Market Fund (VTSMX). He put the rest in a 1 year high-yield CD at Ally bank (1.98% interest). I don't like this, and I think he should split it 50-50, but he makes the money so what can I do. Husband says government won't let this market deflate. They are choosing inflation rather than closing the banks. Govs always choose inflation when burdened with unpayable debt. German stock market went to the moon due to inflation caused by unpayable WWI debt and reparations.

JP said...


That's a funny coincidence. I did pretty much the exact opposite today (cashed in my gold fund for T-bills). I figured that I had made my money and there was no need to be greedy. I don't know how much higher gold will go, but I sincerely wish you the best.


scrofulous said...

Chereyl, as long as there is uncertainty then gold is just fine, I consider it great long (but possibly less long than thought here)term insurance. Get your husband to look at Jesse's site, he likes gold and, as I understand, expects stagflation as our immediate future but seems quite open to looking at the deflation side of the inf/def question as well. As of 18 October 2009 he was saying Treasuries and some gold. Same immediate solution as for this site it seems. Curious, eh?

BTW Jesse was previously a VP of a fortune five hundred company ... that fact might pull a bit of weight with hubby?

Unknown said...


I agree that I would pick whichever option gets you out of debt fastest. I would also consider renting for awhile while real estate deflates more and then buy something for cash, if possible.

Stoneleigh's 'hallowe'en deflation fright fest interview' convinced me to be as liquid as possible so I'm dumping the mortgage and will rent for awhile until house prices look more reasonable.

Best wishes. It's always hard to make decisions when those choices involve family members.

scrofulous said...

The faster gold rises that faster the Canadian dollar follows it.

This is getting interesting!

Ventriloquist said...

Cheryl said:

"Husband liquidated our Treasuries today and bought gold ETF (GLD) and Vanguard Total Stock Market Fund (VTSMX)."


Cheryl, sounds like Husband has way too much control over your shared family finances. Without your input, of course.

Time for a discussion about the decision-making process here.

Your choice. Go for it.

Chaos said...

@ Cheryl,

I'm so sorry. I think your husband is on the losing end of those trades. It looks like gold is pretty close to topping, and so's the stock market. Buying high and selling low is disastrous, here.

Phlogiston Água de Beber said...


Dear lady, what you are about to read may seem impudent and cold. I assure you it is written in love and best wishes.

As to what you can do, I strongly recommend that you stop fighting with Husband over money. I've never known any good to come of it. The future us uncertain, but one thing it certainly seems it can't be is bright. I don't regard any investment as safe. All my money is in one of the better regarded big banks. I do not kid myself that it couldn't just disappear or lose all it's value.

My advice is to wholeheartedly devote yourself to understanding what it takes to survive poverty. Husband might get lucky and keep you relatively well off, but it is my conviction that most of us will end up impoverished or dead.

Best of luck to you and Husband.

Ventriloquist said...

Here's a question that we all need to consider about this massive flood of money being funneled into the economy . . .

While there are some few who think it is doing some good,

why is it going so bad?

This is a quote from Bill Bonner of The Daily Reckoning:

The big question in most investors' minds is this: how quickly will the feds exit? As long as they keep up their stimulus efforts, investors expect rising prices for everything but the dollar.

Those who think the feds will be able to exit quickly believe growth will come without too much inflation. Those who think the exit will come slowly expect higher rates of inflation.

Well, guess what? The whole premise is false. From top to bottom. From beginning to end. Even the air it breathes is tainted with the smell of fraud and self-delusion.

The theory behind the recovery concept is that government spending and stimulus from the Fed has a "multiplier" effect. That is, the feds spend...the money goes into the economy...and then, the private economy multiplies the spending by growth in consumption and investment of its own. If there were no multiplier effect the whole exercise would be a waste of time, because we know that government spending in itself is a cost to an economy, not a source of real wealth.

Government spending, generally, is a drag on prosperity. The Soviet Union proved that. The question remains however, can extra government spending at critical moments "prime the pump" so that it is multiplied by the private sector?

Answer: no.

Yes, the answer is no.

This insanity of the government flushing trillions of dollars into the economy is just the beginning of the death spiral for our country.

And this insanity will continue until they have destroyed what remains of what economy that we have left.

G*d, it is just so utterly disgusting.


Erin Winthrope said...

old school.

Master of Tintype

gylangirl said...

@ snuffy,


As Dave pointed out,the Constitution of the United States,was designed for the purpose of keeping the status quo for wealthy land owners of the day,a good point was that black folk were 3/5ths a white soul for the census.

Historical scholars paint a wholly different picture of the negotiations that existed to produce the Constitution, the Bill of rights,and the true,unvarnished thoughts of our Americas forefathers as they crafted the soul of my country.

Yes, yes, sausage making is not pretty, and especially so in the the late 1700's.

But unless you can cite a section of the current constitution supporting your argument, I think you may be laboring under a misperception about the US Constitution being a racist capitalist document. While the 18th century authors took racism and capitalism for granted, those things are not what is enshrined in the US Constitution.

The US Constitution limited the [abuse of] powers of federal government, established separation of powers among the 3 branches of federal government, and codified human rights not previously seen under the absolute power monarchies of the times. For the most part, with a couple of corrected incidents, constitutional changes since then have expanded those human rights and further limited government abuse of power.

Our problem lies in the fact that most of these constitutional articles and amendments are ignored/ disobeyed today by US politicians of BOTH parties, who contemptuously treat the document as if it were "just a piece of paper" despite having sworn to uphold the Constitution in their oaths of office. And now the politicians also have stacked the courts to support their unconstitutional acts against the citizenry. They have lately broken nearly ALL the amendments in the bill of rights and have handed over constitutionally mandated legislative and judicial powers to the executive branch.

This widespread political phenomena of disobeying the law of the land is a slap in the face to American citizens, and is an insult which gylangirl deeply resents personally, having sworn to uphold the US Constitution herself in order to obtain that citizenship.


gylangirl said...

I will add that there are amendments that I think should be added to the US Constitution to improve it [Equal Rights Amendment; change electoral college; allow foreign born presidents]. Nevertheless it is still a beautiful document.

scandia said...

@Cyndy, Thank - you for more intimate details of your living. I can imagine your attachment to the work of your " visionary " father. What a wonderful inheritance- a vision and the skills and tools to implement it.
Your comment about community kitchens brought to mind the clay ovens I saw in the streets of some North African towns. I had surmised that each oven was used by a neighbourhood. I've always liked going to the laundromat. Makes sense to share equipment like this and ads a social factor as well. In our overconsumption it became a stigma to use a laundromat. Thank god that's changing.
Back to you, I am so impressed with your can do attitude. Strikes me that you can't quite strike a check beside water. some vulnerability there.
I sigh with relief that you take care of your mother. Her other option had been to surrender economic solvency and her home in exchange for life in an institutional mind set, entirely dependent upon a crumbling state.
Good on ya,girl!

Asmita said...

Uh oh....

WSJ reports that members of senate budget committee are refusing to raise the debt ceiling until Obama starts talking higher taxes and spending cuts.

Federal Agency heads have been directed to prepare 2 budgets for fiscal year starting Oct 1, 2010. One budget is frozen and the other has 5% across the board spending cuts.

Michigan state budget calls for 20% spending cuts on top of 10% cuts in last year's budget.

The horizon is starting to recede...

el gallinazo said...


Would you include Kimberly's WSJ reference in the next post?

scandia said...

@ Ed Gorey...fascinating video of the tintype photographer. His range of abilities gives new meaning to " renaissance man ".
thanks for posting it.

Stoneleigh said...


The faster gold rises that faster the Canadian dollar follows it.

It's not that the Canadian dollar follows gold, but that both (and many other things) are driven by the ebb and flow of liquidity that derives from the ebb and flow of confidence. As the rally continues the general pattern is that stocks rise, commodities rise, gold rises, the Canadian dollar and euro rise and the US dollar falls. Once the rally is over, all the other trends should also reverse.

IMO we are rapidly approaching such a reversal. The balance of risk is such that every top is best interpreted as the end of the rally. Think of it as canoeing down a river that you know has a major waterfall ahead, but you aren't sure exactly where it is. If you hear white-water, taking evasive action would seem to be the best course, even if it turns out to be a relatively small set of rapids.

Bigelow said...

Speaking of "reversals", a cyclic research guy I read insists the S&P will begin it's fall by this coming Wednesday. S&P in the 100-300 range before March 2010! I may just put a little short on on Monday.

Of course if he is wrong I'm going to dump him, wait till Feb-March and start buying Canadian stocks again.

Investors don't care if it is a fake recovery period we are in, as long as they make fake money I guess.

"Damien Hoffman: Jim, you were in the media a few times last week and I want to follow up on a few points you made. You said on Bloomberg that Nouriel Roubini did not do his homework regarding the asset bubbles about which he is now warning. Can you explain what homework he did not do?

Jim: All of it. How can you talk about a bubble when assets such as silver are 70% below their all-time high? Same for coffee, sugar, cotton, natural gas, and many more. I have a problem talking about a bubble when assets are this depressed from their all-time highs.

A bubble is when assets are screaming to new highs everyday, everyone is talking about them, and everyone owns them. Right now, virtually no one owns commodities. So for Mr. Roubini to talk about a bubble in commodities defies comprehension. It proves he does not understand markets.

I am flabbergasted at Mr. Roubini’s comment about bubbles because there is not a single market in the world making all-time highs except Gold, US Government Bonds, Cocoa, and the Sri Lankan stock market. That’s hardly reason to call for a bubble. So, I am most perplexed about this alleged bubble which is out there.

If an asset rises 100% in one year, that’s a great year, but not necessarily a bubble. Look at oil. It’s up huge off the bottom but nowhere near its old highs. Look at Citigroup (C). The stock is up 3 or so times off the bottom."
Interview with Jim Rogers: Commodities Are a Great Place to Be, No Matter What Stockhouse

Hombre said...

Gylangirl - I appreciated your comments above.
This very week I was called to jury duty. I am one who has made many negative comments before about our judicial process, and still of course have some qualms, especially at the national level.
But I was very much impressed with how our whole experience this week went in terms of the rights of the defendant being protected, the extent to which the judge, jurors, and lawyers--everyone involved went, in order to get to the truth and make a fair decision.

I take Snuffy's point about the fact that Jefferson and his peers were slaveholders, landowners, and did not live to the standards of equality we do today.

I also think you made many very important points about the evolution of the constitution and legal system.

Our jury foreperson was a woman. Our jury was multi -racial,
-gender, -age. Like you, it is the rights of the individual and the protections set forth there in the original document and the many amendments since that are important to me.
It is still evolving and may be our best defense in preventing a little dictator from taking advantage of the precarious predicament we find ourselves in.

I also think the electoral college is flawed, and of course the Senate as well (votes: California-2 Rhode Island -2, totally absurd.)

Snuffy was already on my list of favorite commentors. I just added you! ;-)

Gravity said...

A relativity of bubbles would be more logical in this situation, assets that have not declined as much as expected could also be subject to a misalligned curvature of valuation in some way, even beyond the circumference of Roubini's persona bubble, perhaps forming an asset parabola or pocket.

Bigelow said...

“In its third-quarter monetary policy report, the People's Bank of China departed from well-worn language on keeping the yuan "basically stable at a reasonable and balanced level." It hinted instead at a shift from an effective dollar peg that has been in place since the middle of last year.”
China Signals That It May Allow Currency to Rise Against Dollar

Ventriloquist said...

Bigelow said:

I am flabbergasted at Mr. Roubini’s comment about bubbles because there is not a single market in the world making all-time highs except Gold, US Government Bonds, Cocoa, and the Sri Lankan stock market. That’s hardly reason to call for a bubble. So, I am most perplexed about this alleged bubble which is out there.

And gold is at an all-time high only in nominal dollars. Factoring in government CPI, gold would have to be over $2400. to be at an all-time high today. Factoring in REAL inflation (ala John Williams ShadowStats) gold would have to be nearly $6000. today to be at an all-time high.

It really bothers me when people continually make historical price comparisons using nominal dollars, when we have a dollar that has steadily lost 96% of its value over the last 100 years.

That type of comparison makes absolutely no sense at all.

bluebird said...

* Cuba's energy situation termed "critical"

* Some factories, workshops to be closed through December

* Most other economic activities to be reduced

Cuba orders extreme measures to cut energy use

jal said...

We have all heard that with all of the bailout money everyone could have gotten $10’s of thousands of dollars.

Now, here is a different take on that money.

From Karl D.

“But now we are starting to see this show up in the so-called "mainstream media", with the latest being The Wall Street Journal:
It takes similar reasoning to reconcile the elation felt across America every time the stock market rises—“partially replenishing personal investment portfolios and 401(k) retirement plans—with the uneasy feeling that we are being set up for yet another big financial disappointment. We dare to hope that the economy is growing solidly once more, that the Federal Reserve has superior knowledge about providing liquidity, and that the U.S. Treasury knows what it's doing by guaranteeing money market-fund assets.””

The important point is “...partially replenishing personal investment portfolios and 401(k) retirement plans ...”

These were the responsible savers who got taken by their financial advisors. They trusted their financial advisors not to lose all of their savings in gambling and for the pursuit of their own personal gains.
At some point ... the markets will stop climbing and the smart managers will say “thank you” and walk away with their coffers replenished.
They will live to invest their clients’ money in the real economy when it stabilizes at the reset level.
The greedy advisors and the blind advisors will be the scapegoats.

So ... yes ... the money is being given out, Minus commissions and fees, to the savers that have been scammed.

The last thing that the gov. wants is to have these responsible savers turn against them.

jal said...

Cuba orders extreme measures to cut energy use

In documents seen by Reuters, government officials have been warned that the island is facing a "critical" energy shortage that requires the closing of non-essential factories and workshops and the shutting down of air conditioners and refrigerators not needed to preserve food and medicine.

Cuba has cut government spending and slashed imports after being hit hard by the global financial crisis and the cost of recovering from three hurricanes that struck last year.
Why are they not doing the same thing as Cal. and the other 9 states that are running a + 45% deficit.
Ignore the problem and spend ... spend ... spend.


Greenpa said...

David: "It really bothers me when people continually make historical price comparisons using nominal dollars, when we have a dollar that has steadily lost 96% of its value over the last 100 years.

That type of comparison makes absolutely no sense at all."

If you will forgive my slightly facetious and playful response:

Ah, yes, Grasshopper! You are close! Very close- to understanding. You must be careful; do not let this chance for enlightenment slip away.

"This" makes no sense, you say.

And exactly what, in all the ways and transactions of man- does- make sense?

You must meditate on this. Standing on one leg, of course, preferably in the rain. For 5 months.


Once you can truly realize, to the core of your being, that nothing about man is rational (not even science) - you can relax a little, and it's better for your blood pressure.

YD said...

I followed the Armstrong link Bigelow posted, and was wondering if anybody can give some feedback. I am confused a bit by his timing calls, and trying to understand his track record. Any input would be appreciated.

bluebird said...

jal said "Ignore the problem and spend ... spend ... spend."

It seems it has always been that way in America. And those of us who try to warn others to save, plan and prepare, are considered ..........(fill in the blank)

Gravity said...

The sensory organs make sense in a perverted semantic sense. Also, of the soul; that part which is sensible is mortal, but that part which is reasonable is immortal, so the Earth is brutish; Gravity is falsifiably reasonable or rational, they say.

Weaseldog said...

VK, worse than guns, automobiles kill or injure about 8,000 Americans every day.


Greenpa said...

I am SO totally enjoying the constant use of the word "Feisty" in reference to Sarah Palin. I have to wonder how many of the writers know the origin of the word.

Online OED:

"feisty |ˈfīstē|
adjective ( feistier, feistiest) informal
having or showing exuberance and strong determination : a feisty, outspoken, streetwise teenager.
• touchy and aggressive : he got a bit feisty and tried to hit me.
feistily |ˈfīstəlē| adverb
feistiness |ˈfīstēnis| |ˈfaɪstin1s| noun

ORIGIN late 19th cent.: from earlier feist, fist [small dog,] from fisting cur or hound, a derogatory term for a lapdog, from Middle English fist [break wind.] Compare with fizzle ."

Ah, please, let neither Sarah nor writers find out.

Gravity said...

Senses cannot register those things which provide no direct sensory imputs, being expressible only in smelly mathematical constructs which may trigger common sensibilities of disgust, being certifiable, they say.

I was violently ill the other day, fever and much vomiting, thought it might be the flu, but it was probably food-poisoning, lucky me.

Don't be down, y'all. It's not like everyone will certainly die, it's just that most of us will probably perish as perishables past the expiration date.

On that note, that horrid codex alimentarius thing, if at all enforceable, would severely curtail the production, transportation and usage of homegrown foodstuffs by means of restrictive food safety mandates, which could become a bother for self-sufficient types trying to grow their own meals.

Bigelow said...


If short term changes in the cash and credit supply are not too severe you can get away with looking back a few years to reference prices and bubbles to make decisions. Most people’s frames of reference don’t extend back to 1913 when the Federal Reserve began to purposely steal value from the public a little at a time. The purchasing power of even a precious metal based money changes over time depending on the quantities in circulation. Market supply and demand are not fixed conditions either. It is little wonder people retreat to using nominal dollars; I also avoid polynomial equations.

Anonymous said...

Coy Ote @9:35 AM today

Well said!

You're a kind person. :)

Hombre said...

YD - That was my first reading of Armstrong, which I found quite interesting. I would offer my interpretation of what he was saying about timing--highs and lows--but it might well not be a correct one.
So... I do hope one of his regular readers will comment and clarify.

Jal - The Californians will get around to it... making big cuts... they just have a few more errands to run! ;-)

About gold - One thing even an economic neophyte understands is the relative stability (long term) value of gold. $20 was a pretty good weeks wages in 1925. $1000 is a pretty good weeks wages in 2009. Both are about what an ounce of gold is worth. No Elliot waves, nor Nostradamian translations necessary.

Want to gamble? forget gold. Want to put away a few weeks wages, stash a bit of gold (or silver). My take is--do about 5% or so, whether you are well to do or have a modest income level.

Hombre said...

Ahimsa - Thanks. If only I am able to keep getting my regular fix of coffee ;-) Otherwise I can be a real pain in the #$%^&

Gravity - Hope you are feeling OK now.
"...that horrid codex alimentarius thing..."
Home growing and bartering has it's dangers. For water we have the Big Berkey... For food...? Perhaps more time spent cooking, boiling and roasting, etc..

Bigelow said...


Mr. Martin Armstrong created the Economic Confidence model and a frightfully good predictive computer model. At the time the Commodity Futures Trading Commission was destroying Armstrong's Princeton Economics International and Princeton Global Management, Martin D. Weiss of Weiss Research was trying to buy the model. Weiss didn’t get it. Much later Weiss bought the rights to data from the Foundation for the Study of Cycles, an organization at which Armstrong did research. Mr. Armstrong has written his many Newsletters while in prison. The latest one is titled “Gold $5000+”. I can’t explain or use his system, but I wish I was as adept at it as Stonleigh is with her Elliot Waves.

“Perhaps one of the greatest living cycle theorists, Martin Armstrong, former Chairman of Princeton Economics International, has further refined long-term cycles, discovering what he calls the "Economic Confidence Model."

Armstrong's work is widely respected amongst researchers, despite the fact that he is currently incarcerated for matters unrelated to his research work and economic models, which have been widely sought after for use by governments around the world and even the CIA, due to their accuracy.

Armstrong's work has accurately forecasted — often to the day — many of the major moves and shifts in markets, including ...

- The 1980 high in gold
- The stock market crash of 1987
- The 1989 peak in Japan's stock market
- Both the Asian financial crisis and the peak in broad U.S. stock markets in 1998
Plus, he's made several uncannily accurate calls in the currency, commodity, and bond markets.

His "Economic Confidence Model" is a long-term cycle of 309.6 years, comprised of six sub-cycles of 51.6 years each, which can be subdivided into six shorter waves of 8.6 years.”
The Armstrong Cycle of Economic Confidence

Greenpa said...

Rumsfeld/Chaney/Bush are having cows-


Good article, I thought- and I can see both grunts and eggheads coming out feeling positive about it- and that somebody upstairs understands them...

el gallinazo said...

I don't care for Jim Rogers reasoning. He regards bubbles as world records - you have to break the old one to qualify. I think that is a load of bull excrement. If crude hits $135 next week it's not a bubble because it was over $145 last year. Even if it breaks down to $25 the following month, and it turns out the Gollum Sucks put a trillion of our taxpayer money in futures, it's not a bubble because it didn't establish a new world record. What if the new price is on steroids - does it count as a bubble?

Anonymous said...

Interesting info from Zero Hedge: Is The G-7 Going To Prevent Bernanke's "Kill The Dollar" Doctrine?

It's flattened and may be indicating a dollar reversal, which Stoneleigh has predicted.

For those interested, if you plot the S&P since March and the dollar index since March, then lay them on top of one another, they are almost mirror images of one another. In other words, the dollar goes down and the market goes up, or the dollar goes up and the market goes down (like today).

Today we saw a 0.81% increase in the value of the dollar (against just the Euro, for example) and we saw a 1.03% drop in the S&P. Basically a 1% gain by the dollar is a 100 or more point loss by the market. Also note that the market moves exaggerate dollar moves in the opposite direction.

So what will happen if the dollar gains 10%, 20%, or 30%? We'd have a 100, 200, or 300 point crash (at least) in the S&P (and a 1000, 2000, or 3000 point crash in the DOW).

The dollar may be about to gain strength. If it does, you'd best not be in the market.

YD said...


I don't know if you are answered out yet but here is my four bits.

The primary question in my mind is fit into community. If you are intelligent and diligent (and I doubt neither from your posts) then you will find a use in a community that accepts and values you. Usually that would be where you live. I recently had to make similar decision and the lack of fit in the community I had been trying to call home for 7 years tipped the scales to relocating. I have been here 6 months and it is completely different. I am not a "useful tool" (even useful tools can be put away for far too long) as I was in my last locale. Here I seem to be welcomed and gratefully accepted as a resource and an addition to the community. I suspect my experience is the exception and that saying near kin and clan is a better call for most (not coincidentally my new location is also where my kin are, though the clan is far away-but none of my kin have much in the way of community ties to my new locale).

As for jobs, stable and cash rich is mighty attractive in times of uncertainty. But, if your contacts are good, then your expertise will probably still be in demand, but look at your accounts receivables and be honest has business been on the up or the down and for how long? If down, is there any reason that trend would not continue other than it has always fixed itself before? If up, then it might be less of a factor. Also does the work at home from option b allow any space for moonlighting? and is the travel to the home office burdensome?

So where will you fit best?
Where will your income be most dependable?
And finally, can you sell your current home and if not, what would you do?

There is no right answer just the best guess...a which challenge will you choose to emphasize in these interesting times sort of thing.

bluebird said...

Denninger also discussed the dollar and S&P charts.

Denninger dollar and S&P charts

Greenpa said...

"Economic Confidence Model"-

You DO realize, I assume that a "confidence game" is the original of "to con" someone...

Basic rule of rulers- tell 'em you're cheating them right up front- they'll never believe it.

Bigelow said...

@El G.

I have nothing to do with Gollum Sucks or futures markets. I can’t prove taxpayer money is being used by banks to pump commodities exchanges. I can’t disprove it. I can believe it -but not everything all at once.

I didn’t get the sense Rogers was attracted by world’s records. He said silver is way below its high and the point I took was “Same for coffee, sugar, cotton, natural gas, and many more.” Seventy percent off the high isn’t the greatest definition of bubble. How about adjusting silver for inflation? $128 is the number to beat. If the whole derivatives pyramid imploded and silver was still as high as 70% off its high, that’s a bubble.

NZSanctuary said...

Has this been linked?

It's crazy to think what goes into GDP numbers. Empty cities, military budgets, over-priced pharma drug sales - all highly productive stuff!

jal said...

Here is a blog that might interest those who want to know WHO are the market movers? (The lead cows in the herd)


Gurufocus Tracks The Stock Picks Of Gurus
Only a handful of people in this world can qualify as investment Gurus. We have carefully identified a number of investment Gurus based on their long term track record. We track their portfolio, buys, sells and insights in market. To qualify for our Guru Hall of Fame, an investor needs to meet at least three criteria: 1. Long term outstanding performance; 2. Manage more than $1 billion; 3. Low portfolio turnover.
This is all propaganda for these guys so they can relinquish their shares so WE can buy them, thinking that it must be a good trade, since "so and so" owns it...bunch of bull!


Dr J said...


It turns out they are not evil after all. Enough to bring a tear to Bubble's eye.