Real U.S. Economy News

Stocks Experience Worst Thanksgiving Week Since 1932

The Dow and S&P raked up their worst Thanksgiving week since the Great Depression on a percentage basis. Fridays decline made it seven straight days of losses.

U.S. stocks end lower; Dow loses 4.8% on week

U.S. loses their AAA Credit rating?

Today the U.S. lost their AAA credit rating. Fox Business ask could we lose our AAA just a few months ago: - do these people in Treasury and the Admin know what is going on?

Peter Barnes of Fox Business “Is there a risk that the United States could lose its AAA credit rating? Yes or no?”

Geithner’s response: “No risk of that.”

“No risk?” Barnes asked.

“No risk,” Geithner said.

What Can We Expect from the Debt Crisis?

The most likely conclusions to the political debate over the US debt and it's phony deadline

1. A compromise that looks good for the cameras and does nothing meaningful to cut entitlement spending and other previous government spending.

Ron Paul: "Even under the Boehner plan the spending is going up over a trillion dollars. So all these cuts are fictitious, they’re only cut in the CBO-projected increases. So it’s all a fraud - we know this is all political gamesmanship. This bill has nothing to do with solving the problems."

2. Republicans and Democrats (The Ruling Class) have just negotiated away the future of our children behind closed doors.

3. A downgrade of US debt by major rating agencies.

4. A Continued slide of the dollar, which is probably the stealth policy of this administration and Treasury, this will lower the price of exports and inflate the debt away.  

By the end of the year, the growth rate of quarters 1 and 2 will be revised down to slightly negative. This happened with the growth in 2008 some 18 months later. There is a reason Bernanke of the Fed has had interest rates low for so long. There is a reason Obama's economic team just left and there is a reason the Secretary of Treasury will split as soon as this bad debt deal gets done. When the growth numbers begin to be revised down, Bernanke will pull the trigger on QE3 or some other named money printing program further diluting our currency.

Ron Paul: "August 2nd (The Debt Crisis) is more related to the month of August being off, because there’s nothing magic about August 2nd. It is a bunch of fear mongering going on that the checks won't come to the Social Security beneficiaries. But what they ought to worry about is all of us getting checks in money that has less value; that is the default this country ought to be worried about."

5. More quantitative easing (Money Printing) resulting in inflation.

They are celebrating a debt farce while the economic wheels of the nation are coming off. All administrations have the ability to manipulate the economic numbers. This was evidenced by the fact that the previous recession started 3 quarters earlier than the collapse of 2008-2009. They papered that over with tarp, larger budget spending, stimulus packages and quantitative easing. We probably have started the double dip recession as of now, or never really came out of the previous one, this will be evident by the end of the year. The return of massive layoffs has been hitting the headlines a lot lately. HSBC announced this morning that they will layoff 30,000 workers. BlackBerry phones is cutting 2,000, Research in Motion plans to cut 10.5% of its work force, Cisco Systems is cutting 6,500, Lockheed Martin plans to cut 6,500, and of course Borders is closing all stores laying off thousands. Massive layoffs are always a bit deceiving since this is bad for Main Street, but not necessarily bad for Wall Street as profits often increase as companies cut their workforces, especially in slow times. Source - National Inflation Association. Nationwide housing values have fallen and social services and teachers are partially funded by local real estate taxes. This will be the next round of massive layoffs that will dwarf the one above provided by NIA.

Muni Market Defaults Are Coming

Meredith Whitney is not crying wolf. The analyst famed for correctly calling the implosion of banks and the ensuing credit crisis has been warning about defaults in the $2.9 trillion municipal bond market.

She isn’t the only one. Jamie Dimon, Chief Executive of J.P. Morgan Chase & Co. recently commented that there are significant problems facing munis and technical defaults have already happened. He ought to know. Big banks like his backstop billions of dollars of muni obligations with letters of credit that they may not want to renew.

The immediate, under-the-radar problem for the municipal bond market is that borrowers relied on banks to backstop their credits and lower short term funding costs when the credit crisis shut the door on auction rate preferred financing.

Call it a legacy issue.

While most municipal borrowings are long term, they still have short term obligations that need to be rolled-over. And although their ratings remained intact during the crisis, investors demanded higher interest on their loans to even the strongest borrowers. To keep borrowing costs from exploding, municipal borrowers sought big bank letters of credit as backstop guarantees on the shorter than they wanted variable-rate demand obligations they turned to.

According to Bank of America Merrill Lynch, $109 billion worth of different kinds of credit backstops and guarantees will be expiring in 2011. Thomson Reuters estimates that $53 billion of those guarantees are bank letters of credit.

Of course banks charge a fee for their letters of credit. But while they will likely increase the cost of their backstops significantly, no amount of fee income may be enough if they fear being left holding the bag on obligations that face potential default.

With municipalities and issuers of infrastructure bonds including schools districts, hospitals and sewage and garbage collection authorities facing diminished tax and revenue receipts and inevitable downgrades, the risks they pose to guarantors could shut them out from low interest rate borrowings.

Rising rates on variable-rate demand obligations, that reset periodically, could be the straw that breaks some muni issuers’ backs.

On top of banks’ disdain for increased exposure to the mounting woes of municipal finance authorities, they face new risk retention and capital reserve requirements under last July’s enacted Dodd-Frank banking reform rules.

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The Importance of Growth

CHINA DUMPS DOLLARS

 China has been quietly moving out of the dollar, concerned that U.S. debt will end up debasing the dollar. China cut its holdings of long-term Treasuries by $21.2 billion in June, reducing total Chinese holdings of Treasury debt to $839.7 billion, according to Bloomberg.


China has been diversifying its foreign-exchange reserves away from the dollar, in favor of the euro and gold, since June 2009, when China's holdings of U.S. Treasury debt peaked at around $950 trillion.


"Asian central banks holding some 60 percent of the world's foreign-exchange reserves are turning away from the dollar," Bloomberg noted. "Concerned about weakening U.S. growth and the Treasury's record borrowing, they are switching toward euro assets to safeguard reserves, driving gains in the 16-nation currency."

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Jerome Corsi is the senior managing director of the Financial Services Group at Gilford Securities and WND staff writer and columnist. His latest books are America for Sale: Fighting the New World Order, Surviving a Global Depression, and Preserving USA Sovereignty and The Shroud Codex.

Boomerang kids: 85% of college grads move home

Some are considering the value of a college degree, kids are graduating with massive debt and are unable to find a good. This may be a sign of the times and what is to come. 

 NEW YORK (CNNMoney.com) — Getting a degree used to be a stepping stone to limitless career opportunities. Now it’s more of a hiatus from living under your parents’ roof.

Stubbornly high unemployment — nearly 15% for those ages 20-24 — has made finding a job nearly impossible. And without a job, there’s nowhere for these young adults to go but back to their old bedrooms, curfews and chore charts. Meet the boomerangers.

“This recession has hit young adults particularly hard,” according to Rich Morin, senior editor at the Pew Research Center in DC.

So hard that a whopping 85% of college seniors planned to move back home with their parents after graduation last May, according to a poll by Twentysomething Inc., a marketing and research firm based in Philadelphia. That rate has steadily risen from 67% in 2006.

“It’s peaking at levels we have not seen before,” said David Morrison, managing director and founder of Twentysomething.

Mallory Jaroski, 22 graduated from Penn State University in May but has been living at home with her mother while looking for a job in press relations. “It’s not bad living with my mom, but I feel like a little kid. I have a little bed, a little room,” she says.

Jaroski thought she would stay for summer. But like many others, she’s found her stay becoming significantly longer.

“There’s almost an expectation that kids will move back home, there is no stigma attached,” Morrison said. “The thought now is to move home for 6-12 months but in reality those young adults will be home for a year and a half or longer. Even if they have jobs, they are living at home.”

Jessie Lawyer, 23, graduated in May of last year and moved back home with her parents while she looked for a job. She has since been hired as a writer for The Register Citizen, a daily newspaper in Connecticut, but has yet to move out of her parents’ home.

“I’m trying to save up to move out,” she said. But “the new job is 10 minutes from where I live so it’s convenient.”

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Americans Enjoying Final Days of Artificial Economy

Great article from national Inflation Association

In recent days, Japan has intervened in the foreign currency market to artificially drive down the value of the yen. Japan's actions to weaken the yen have driven it from 83 to 85.73 against the U.S. dollar. Most analysts in the mainstream media are portraying this as Japan's attempt to "head off a deflation spiral". Almost everybody is applauding Japan's move, saying it was needed in order to "shore up its export-driven economy".

The truth is, although Japan claims to be helping Japanese citizens with this move, Japanese citizens are the ones who will actually suffer. Despite Japan's economy entering into recession last year, the Japanese were able to maintain their same standard of living because prices were falling due to their strong currency. Some of the largest Japanese exporters like Toyota and Sony saw their revenues decline last year by 20.8% and 12.9% respectively, but this was only bad for shareholders of these companies. Despite rapidly declining revenues for Japanese exporters, Japan's unemployment rate only reached a peak of 5.6% last year and is now down to 5.2%.

The Japanese should be happy and grateful for how strong their economy is compared to the U.S. economy. When it comes to exporters in Japan, their problem is not the strong yen, but the weak U.S. dollar. If Japanese exporters allow the U.S. dollar to collapse, their revenues will continue to decline substantially, but that is a healthy part of a free market economy. Within a year or two, a strengthening yen would allow the Japanese to spend more on their own goods, and revenues for Toyota and Sony would come back strong.

Japan's efforts to postpone a few Japanese corporations going through a brief but tough readjustment period are helping to artificially prop up the standard of living for Americans one last time. NIA believes that the Japanese better be careful what they wish for. Never before in world history has nearly every developed country been in battle with each other to have the weakest currency. Asian producing countries want their currencies to be the weakest so that they can have the honor of shipping their products to Americans who can't afford them.

Currencies are very fragile, especially when they are fiat and backed by nothing. NIA believes that nearly all countries around the world with fiat currencies are currently making the grave mistake of doing everything in their power to debase them. Even a five year old child, if you asked them if they want the money in their piggy bank to be worth more or less, would have the common sense to say more. The world's politicians either don't have this same common sense or they are being paid off by the management of export giants.

Although China recently made the wise decision to allow the yuan to strengthen, they haven't allowed the yuan to strengthen fast enough. China is now facing a price inflation crisis that will soon spread to the U.S. Consumer prices in China rose by 3.5% in August compared to one year ago, the largest increase in nearly two years. On a month-over-month basis (including seasonal adjustments), consumer prices in China rose by 4.8% in August over July.

Workers at a Honda plant in China recently went on strike over wages and work conditions. The Chinese have had enough of slaving in factories for $30 per week while Americans sit home on their couches, collect $400 per week in unemployment benefits, and consume the goods that the Chinese make. Chinese manufacturers are now being forced to increase the wages they pay to workers and these costs will be passed on to American importers of Chinese goods like Wal-Mart.

Wal-Mart recently eliminated their "rollbacks" on grocery items in the U.S. Grocery prices at Wal-Mart rose by a shocking 5.8% in July from June. In fact, some items in Wal-Mart like a 36-ounce bottle of Windex and a 12-ounce box of Quaker Oats rose in price by 51% and 66% respectively in July over June. Considering that in 29 states, Wal-Mart controls more than half the grocery market, almost all Americans are beginning to feel the effects of massive price inflation.

With 70% of the goods sold in Wal-Mart made in China, NIA believes that Wal-Mart's massive price increases for grocery items will soon spread to all other items sold. It is crystal clear for us to see what is ahead for U.S. prices of consumer goods, yet the mainstream media continues to talk about deflation. Cotton prices have surged 28% during the past two months to their highest level in 15 years. That alone guarantees higher clothing prices, but combined with the wage situation in China, Americans could see an unprecedented surge in clothing prices in the months to come.

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Did the Fed Really Say Inflation Isn’t High Enough?

Better hold on, I have a feeling this is the beginning of some serious inflation. As the dollar continues to decline hard assets and commodities will rise in price.

 Get ready everybody. Things are about to get a lot more expensive. In yesterday’s FOMC statement, for the first time that I know of, the Fed stated that prices aren’t rising fast enough. The actual words were this, “Measures of underlying inflation are currently at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.”

They must be referring to the CPI but we all know that measure has been artificially engineered for decades. That’s why you can’t look to TIPS as an accurate gauge.

Maybe they haven’t checked the prices of commodities recently. Below are the performances since June 1 (a little more than three months ago).
 

• Corn +42%
• Copper +12.6%
• Crude +2%
• Cotton +27%
• Coffee +38%
• Gold +6%
• Silver +14%
• Dollar -8%

So if you think this isn’t going to feed into your daily purchases at the local grocery store, then I have some oceanfront property to sell you in Arizona.

It’s almost unbelievable. But what’s worse? The committee stands ready to provide additional accommodation if needed to support the economic recovery. Translation: We’re going to buy more bonds. It’s no wonder Treasuries rallied post FOMC. Traders are simply front running the Fed.

As usual the true lone hawk Thomas Hoeing dissented. See my recent comments on hawks and doves at the FOMC.

The Chart speaks for itself, without getting political.

Modern Day Bread Lines?

“The paycheck cycle we’ve talked about before remains extreme. It is our responsibility to figure out how to sell in that environment, adjusting pack sizes, large pack at sizes the beginning of the month, small pack sizes at the end of the month. And to figure out how to deal with what is an ever-increasing amount of transactions being paid for with government assistance.

“And you need not go further than one of our stores on midnight at the end of the month. And it’s real interesting to watch, about 11 p.m., customers start to come in and shop, fill their grocery basket with basic items, baby formula, milk, bread, eggs, and continue to shop and mill about the store until midnight, when electronic — government electronic benefits cards get activated and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher.

“And if you really think about it, the only reason somebody gets out in the middle of the night and buys baby formula is that they need it, and they’ve been waiting for it. Otherwise, we are open 24 hours — come at 5 a.m., come at 7 a.m., come at 10 a.m. But if you are there at midnight, you are there for a reason.”

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John Williams - Onset of U.S. Hyperinflation

Eric King

KingWorldNews.com

John Williams: Current projections on the federal budget deficit, U.S. Treasury funding needs, banking industry solvency stress tests, etc. all have been predicated on some form of economic recovery. There is and will be no recovery for the foreseeable future; and the negative implications of that for U.S. funding needs and for systemic stability should act as eventual triggers for massive dumping of the U.S. dollar.


Williams continues:


...The image of tap-dancing on a land mine pretty much describes what the Federal Reserve and the U.S. Government have been doing in order to prevent a systemic collapse in the last couple of years.


Now, as business activity sinks anew, much expanded supportive measures will be needed to maintain short-term systemic stability. Such official actions, however, in combination with global perceptions of limited U.S. fiscal flexibility, likely will trigger massive flight from the U.S. dollar and force the Federal Reserve into heavy monetization of otherwise unwanted U.S. Treasury debt.


When that land mine explodes — probably within the next six-to-nine months, the onset of a U.S. hyperinflation will be in place, with severe economic, social and political consequences that will follow.


...Already the longest and deepest economic contraction of the post-World War II era, the current downturn in the U.S. economy is re-intensifying, with no near-term stability or recovery on the forecast horizon.


...In these circumstances, the financial markets likely will be highly unstable and volatile. Holding assets outside the U.S. also may have some benefits.


Yes indeed the financial markets will be highly unstable and volatile. Let’s not forget, no recovery, more monetization and the threat of systemic collapse.


With the stock market near the end of this long rally, the mainstream media continues with the big lie, stating that we are in a recovery. The sad reality is that the nation is in fact on the brink of another crisis. As these types of cycles progress there is increased flight from paper assets. Get ready for another move higher in the fear index.


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Tough Economy Forcing Record Number of Workers to Crack Their Retirement Nest Eggs

The rough economy is taking its toll and pushing a record number of people to take money out of their retirement plans.

Even better –  it’s your money.