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The Unemployment Benefit and Stock Market Stealth Bailout

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Over a 15-month period ending 9/30/09, together the Fed and Treasury borrowings were $2.81 trillion. This has been the greatest creation of financial aggregates in history. This tidal wave of money and credit was accompanied by just above zero interest rates. Then there was the Fed’s trillion-dollar purchase of toxic mortgage securities, which the Fed refuses to tell us what they paid for them and from whom they bought them. Total monetization has been well over $2.3 trillion that we know about. The freeing of toxic mortgages reliquefied balance sheets and markets and allowed mortgage finance to remain low for residential real estate for refinancing, most of which was guaranteed by US taxpayers, by the bankrupts known as Fannie, Freddie, Ginnie and FHA. We might add that our government started the subprime crisis all over again over this past year by handing out marginal mortgages to reduce residential inventory held by banks. Government admits they will probably have 25% foreclosures. We estimate them at more than 50%. When the truth is finally known guarantees are probably in the realm of $700 billion to a trillion dollars. Once government discontinues this very expensive support, prices will again fall and inventory will again rebuild.

The Treasury and the Fed have poured almost $13 trillion into the economy and haven’t made a dent in the problem of bad debt. They just transferred the problem to the taxpayer. In that process the banks and brokerage houses dispensed ever-bigger bonuses as a tribute to their incompetence and failure. The result for the economy recently has been a bogus 2.2% growth rate in GDP for the third quarter. Mind you, the first release was 3.6% and the second one was 2.8%. Does anyone really believe they got it right the third time? This is how government and Wall Street massage the market to keep it from falling. It is like all of their statistics, they are all stamped bogus. That 2.2% was the first supposed growth in a year.

Unemployment numbers are a joke. U3 is said to be 10%, but U6, which is conveniently obscured from view, is 17%. If you strip out the birth/death ratio you get 21.9%.

The result of this tremendous infusion of money and credit has been the survival of banking, Wall Street and insurance, and a fall in household net worth of almost $7 trillion. We’d call that an uneven, unbalanced performance. The culprits have been bailed out and the public has paid for it. The next natural question is what will the Treasury and the Fed do for an encore? The treasury is running a $1.7 trillion deficit, and is the go to source for employment. The Fed says it is going to withdraw liquidity from the system and that they intend to raise interest rates in July or there abouts. If this is the case you had best prepare for a deflationary depression. We do not believe the Fed for one second. Do they really believe this will save the dollar? We do not think so. 

Almost every country in the world has done, in varying degrees, what the US has done and that is create large amounts of money and credit. The result is that all currencies have fallen versus gold, which just happens to be the only real money. As currency deterioration has continued over the past ten years there has been a drift away from financial assets to hard assets, which is a natural response. This is part of the past bubble phenomenon, which will continue to offset inflationary loss and to serve as a flight to quality. The result of the foregoing is that the US dollar has continued to lose value versus other fiat currencies.

We now have worldwide stock markets recovering the 50 to 60 percent they lost in early 2009. In the US we can call it the TARP rally. China has poured $1.8 trillion in stimulus into its economy and has a new stock and real estate bubble with nasty inflation on the way. Chinese citizens are not only buying gold and silver, but now diamonds as well – anything to get out of the dollar and get into something tangible. The Chinese bubbles are in the early process of collapsing. They are going to suffer the same fate as Japan and the US. China will need those $2.3 trillion in foreign reserves to bail itself out. That is sure to put lots of dollars up for sale.

During 2009 we saw an exodus of liquidity from money market funds most of which went into Treasuries. A drop from almost $4 trillion to $3.3 trillion in good part caused by low yields and the abandonment of government guarantees on 9/18/09. Some of those funds went into the market, gold, silver and commodities, but the bulk of it went into Treasuries, which was the motivation for government to drop those guarantees. 

Banks have reduced lending in 2009 by about 18% yoy and we do not expect any changes in 2010. The zero interest rate policy has only benefited banks and other speculators. Part of the TARP funds may have gone on interest bearing deposits, but a good part went into market speculation. The riskiest stocks, bonds, junk bonds and CDOs were the overwhelming choice. Unfortunately bank and brokerage leverage is still 40 times assets. Fortunately, they are not long gold and silver related assets, so we see no fallout in that venue as these crooks are forced to finally de-leverage. Even though insolvent these financial institutions will not be forced to stop using two sets of books. When the Fed falls, they will fall.

The last fallacy is that there is stabilization in the system. We are still in a credit crisis. The Fed and other central banks will stop monetary restriction and stop raising interest rates, when they see a deflation has them by the throat. That doesn’t mean real interest rates won’t rise, they will. Leverage will soon come to a halt as financial entities start losing money again. It will be a very difficult year in 2010, as the excesses of 2009, to save the system unwind.

The probability of 14% inflation in 2010 has already been baked into the cake. The Fed and other central banks are really trying to avoid hyperinflation. The real trouble will come in 2011. If the Fed and other central banks cannot raise interest rates, cannot reign in the liquidity in their economies, and need further stimulus, which we believe will be the case, then inflation will run wild. As a result gold and silver prices will go through the roof.

That leads us to our latest information gleaned through private Fed meetings. They believe the period between July and October is when the financial fireworks will begin. The Fed will act unilaterally for its own survival irrespective of any political implications. In the last quarter of the year we could even see Martial law, which is more likely in the first six months of 2011. If Congress passes any kind of health care, the public will go ballistic and be prime for revolution. Our position is that bank lending will not improve nor will unemployment. If this is accompanied by official devaluation and default everything could break loose. The elitists realizing this will arrange another 9/11-type event with the usual cast of characters and we expect conflict will spread into Pakistan and that Israel will attack Iran enveloping the Middle East in flames. That would send oil prices considerably higher and cause a collapse of world stock markets, with the exception of gold and silver shares. The excuse to impose Martial law would be apparent. The country could go into lockdown. Transportation could be limited, food and gas rationed, banks closed and many other major inconveniences. The current mainline media, Wall Street and governmental propaganda about economic recovery would end, they never having to prove that a recovery ever existed. During the first six months of 2010, Americans and others will continue to live in their world of inreality. These hopeless fools are again being taken down the garden path. The world as we know it is about to change dramatically, so prepare for it.

In the meantime we observe that foreign exchange reserves denominated in US dollars has fallen from 64.5% to 61.8% in the last six months of 2009. This represents huge sales of dollars most of which was in the form of Treasury and Agency bonds. China has for some time been a major seller of Agency paper and a moderate buyer of very short-term T-bills. That has kept China’s dollar denominated portfolio at about $1.8 trillion. In addition as China has publicly stated the world has run out of enough dollars to service public debt. That means more Fed monetization, perhaps on a level of more than $1 trillion a year. That means hyperinflation, because the elitists won’t be ready, as yet, to pull the plug on the economy and plunge into deflationary depression. They have to increase terrorist events and world war on a parallel basis, so that all strike at the same time. This way they can blame the economic financial problems on the enemy who would be responsible for this horrible war. These are all the reasons for having freeze dry and dehydrated foods, a water filter and a method of defending your family as a first line of defense. All other funds should go into gold and silver coins and shares. For 20 years of publication we have been correct 98% of the time, thus, a word to the wise should be sufficient. If you do not follow these instructions your lives will be in peril. The bottom line is the Fed has no choice but to monetize and that means inflation is going to spiral out of control. You have to be prepared.

As this unfolds all currencies will fall versus gold and silver as they have for the past 6-1/2 years. Being long any currency is foolhardy. You should only have enough for three months operating expenses as a family and six months for business. No CD’s, cash value life insurance policies or annuities. Many insurance companies will go under and as a result not pay off. Things are not the way they seem to be. Nothing that emanates from government, Wall Street, banking and corporate America is to be trusted, it is 80% disinformation. That is why we do 30-hours of radio programming a week and publish 100 pages in the IF. We know we are one of just a handful of people in the world trying to bring the truth to the public to save them grief and perhaps their lives.

In the next 1-1/2 years we expect the US to officially devalue and default along with many other countries. There will be emergency meetings, one after another, as governments attempt to cope with, internal debt and a collapsing financial system. Not one government is attempting to solve the problems, only treat the disease. The system has to be purged as soon as possible and as an interm alternative the US dollar has to be abandoned as a world reserve currency, and replaced by the weighted currencies of the G-20, backed by 10 to 15 percent in gold. Later the gold reserve can be increased to 25 to 30 percent. That will put gold prices somewhere north of $10,000 an ounce. We now know that real inflation, since 1980, justifies a price between $6,700 and $7,150, but with hyperinflation on the way, who knows where the top price will be. As you can imagine we are probably two years away from currency controls. That means government permission to move assets in or out of the country. That means if you choose to keep assets in a foreign place you should be prepared to go and live with them, otherwise keep them at home for better or worse. On the other hand government may force you to repatriate assets, whether you like it or not and then dream up a new tax on them or even confiscate them.

Remember, irrespective of what the media, government and Wall Street tells you, we are already in a depression and we have been for almost a year. 21.9% unemployment, that will be 23% after February, denotes a depression and all the lying by these entities is not going to change this. 

 

               Federal Reserve officials are considering a proposal to schedule limited sales of bonds from the central bank’s $2.2 trillion balance sheet as part of a range of tools for withdrawing record monetary stimulus.  

           The Federal Open Market Committee discussed asset sales at its November meeting, with some members in favor and others warning that it would cause “sharp increases” in longer-term interest rates, according to minutes of the meeting released Nov. 24.  A middle route now being studied would allow small amounts of bonds to be unloaded at announced times.  

           “The attitude toward asset sales is changing in terms of more in favor and more open minded, and doing it very gradually,” said former Fed Governor Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington.  Devising a plan for pulling back stimulus “is under way intensively on the Federal Open Market Committee,” he said. [A big question is how much money is the taxpayer losing on these transactions?]

Then on Dec. 14, he went to work as head of new investment initiatives at the Pacific Investment Management Company, or Pimco, the powerful bond investment company based in Newport Beach, Calif., whose top executives have boasted of their access to government officials. Alan Greenspan, a former chairman of the Federal Reserve, is among its consultants.

            But even though Pimco was not a recipient of government aid, Mr. Kashkari’s career move raised eyebrows. Bloggers joked about how — in their view — he had all along been doing the company’s work in Washington.  

           During the crisis, William H. Gross, the founder and co-chief investment officer of Pimco, who is known for his witty letters to investors and his appearances on CNBC, frequently offered advice to the Treasury about how to handle the bailout.  

           At the same time, Pimco’s publicly stated strategy was to invest money in areas that would benefit from  the government’s rescue efforts. The company called this its “shake hands with the government” plan. Outsiders consider Mr. Kashkari’s addition a natural strengthening of Pimco’s ties to government. [Pinco is nothing less than an appendage of government.]

The U.S. Federal Reserve’s balance sheet shrank slightly in the latest week on a small dip in its holdings of agency mortgage-backed securities, Fed data released on Thursday showed The Fed’s balance sheet — a broad gauge of its lending to the financial system — slipped to $2.219 trillion in the week ended December 30 from $2.221 trillion in the prior week. 

           The previous week had marked the highest balance-sheet liabilities total since the first week of 2009, when the financial crisis was still relatively fresh.

Here is a major reason that a depression hasn’t appeared and the public is not in open revolt.   A record 20 million-plus people collected unemployment benefits at some point in 2009, a year that ended with the jobless rate at 10 percent.

           The slow pace of hiring will force Congress and the Obama administration in 2010 to spend as much as $70 billion to extend jobless aid for the long-term unemployed, or else let benefits – which were extended several times in 2009 – expire for millions of people.  

          “Fewer people are getting fired, but nobody is finding a job,” said Dan Greenhaus, chief economic strategist at Miller Tabak.  

          Thursday’s report illustrates the two different trends: first-time jobless claims are falling as layoffs ease, but the total number of people collecting unemployment checks is still rising.  

          More than 10.1 million people collected jobless benefits in the week of Dec. 12, the latest data available. That’s up by about 200,000 compared with the previous week.  

         That figure includes 5.3 million people receiving the 26 weeks of aid customarily provided by the states, and 4.8 million people that have shifted to the extended benefit programs enacted by Congress over the past two years and paid for by the federal government. Unemployment insurance averages about $300 per week.  

         But the extensions are set to expire in February. That could mean as many as 1 million people would run out of unemployment aid in March, according to the National Employment Law Project, a nonprofit group.

          Most pundits and the usual Street shills and their confederates in the media ignored the dire news about so many people on unemployment benefits so they could trumpet the modest decline in jobless claims. 

           Financial and economic history shows that the lower rungs on the chain experience hardship first, like with subprime mortgages.  Then there is an inexorable march up the food chain. 

However, in this crisis, the welfare checks, food stamps and unemployment benefits are still rolling so there has not been as much impact, including political angst from this segment.   

  The people experiencing the biggest impact are the middle and upper middle (merchant) classes.  This will devastate the Treasury.  As entitlement and safety net spending soars, the minority of citizens that pay taxes and foot the bills for the majority of the populace are being squeezed.  So taxes decline. 

  In 2008, and estimated 46.7% of US citizens did NOT pay federal taxes.  Given the sharp increase in unemployment and the destruction of small and media businesses, over 50% of the US probably will pay no federal income taxes in 2009. 

The drain on federal and state finances could force Congress to consider  raising the federal unemployment insurance tax, which is currently 0.8 percent on the first $7,000 of wages, or making other changes. 

Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.  “The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview.

Though pundits and the usual suspects trumpeted the 22k decline in Initial Jobless Claims, they ignored or missed the far more salient fact that EUC (Emergency Unemployment Compensation) surged 191,669 for the week ended Dec.12. In the past three weeks EUC has exploded by almost 300k to about 4.5m. 

And BTW, Initial Jobless Claims NSA (Not Seasonally Adjusted) are 557,155 vs. the adjusted 432,000.  Jobless benefits are paid on the real or NSA claims.  So the SA is useful only for propaganda. 

Holidays make it tricky to seasonally adjust claims, which are volatile in the best of circumstances…The number of workers drawing regular benefits has fallen, from a record 6.9 million in June to just over five million. But instead of finding jobs, most of those people have exhausted regular benefits and joined the rolls of people drawing extended and emergency benefits. 

         That number has swelled from 2.8 million in late June, when regular continuing claims peaked, to 4.7 million in early December. That extra 1.9 million matches the number of people no longer drawing regular benefits. 

        Those people already are counted in unemployment. Another 5.6 million aren’t: That is the number of people who have given up looking for work and no longer drawing benefits and thus aren’t counted in the labor force or in unemployment, which is the jobless percentage of the labor force. 

         When they start looking again, as they typically do in recoveries, they will rejoin the labor force, competing with the roughly 9.9 million people drawing benefits. That alone will raise the unemployment rate again.

          Is The Government Misrepresenting Unemployment By 32%? Because while the DOL indicates there are about 9.5 million total unemployed, for the correlation to return to its near 1.0 trendline the number of unemployed on benefits has to be 14 million. At least this is what the actual cash outlays by the Treasury suggest: the government spent a record $14.7 billion on Unemployment Insurance Benefits as of December 30, a 24% jump sequentially from the $11.8 billion in November. Yet the DOL has disclosed a mere 1.7% increase in those to whom insurance benefits are paid: from 9.4 million to just under 9.6 million. To put the $14.7 billion number in perspective, in December the Federal Government paid a total of $14 billion ($700 million less) in Federal Salaries! A cynic could be temped to say that effectively the number of people employed by the government is double what is disclosed. A yet bigger cynic could claim that America is now the biggest socialist state in the world. Both cynics would not necessarily be wrong. .. 

          And some more perspective: in calendar 2009 the government has paid $140 billion in Unemployment Insurance Benefits. This is yet  another economic stimulus that nobody in the administration discusses, yet which undoubtedly has the biggest impact on the economy, as all those millions unemployed can moderate their pain courtesy of a passable weekly check from the government , which should just about cover the rent and beer. Which is why more than anything, Obama is dead set on extending insurance benefit payments in perpetuity: because if the 10 million official and 14 million unofficial people who are on benefits (not to mention the tens of millions of unemployed unlucky enough to even get their weekly allowance from Uncle Sam) start thinking about their true predicament and their real “employability”, then a landslide loss by this administration at the mid-term elections will actually be an upside surprise to what it can objectively expect.  

www.zerohedge.com/article/government-misrepresenting-unemployment-32

Yet the most recent data indicates that in December, according to the government’s data, the actual outlay came down to $1,536, 21% higher to the total average, and 28% to the narrower average payment of $1,109. Is the government engaged in another, stealth stimulus by gradually padding unemployment insurance benefits? After all the money printer is on, and with banks not lending, what easier way to get the money straight to the (unemployed) population.  

www.zerohedge.com/article/government-dol-misrepresentations-part-2-following-money-or-case-average-unemployment-payche

 


The massive stock-market rally in the past nine months is mostly due to secret government buying of stock-index futures, a respected stock-market analyst said Tuesday. Charles Biderman, chief executive of TrimTabs Investment Research, is the latest and most credible person to charge that the Federal Reserve and the Treasury (in league with top Wall Street firms) is rigging the stock market on a daily basis. In a special report released Tuesday, Biderman said the $6 trillion increase in U.S. stock-market capitalization since March can’t be explained by the usual sources of funds flowing into the market — such as mutual funds, direct retail investment, pension funds, hedge funds or foreign purchases. Read more about Biderman’s theory. The only logical explanation for the extent of the rally, he suggested, is secret buying by a government committee known colloquially as the Plunge Protection Team. It’s like the dark matter that astrophysicists conjecture must be there, even if we can’t detect it. The PPT was established by President Ronald Reagan in 1988 after the 1987 stock crash to coordinate the government’s response to market meltdowns. It consists of the Fed chairman, the Treasury secretary, the head of the Securities and Exchange Commission and the head of the Commodity Futures Trading Commission. Biderman acknowledged that he had no direct evidence that the Fed and other agencies have intervened in the stock market. But he worried about what will happen to the market if the PPT has been buying and suddenly stops.

            It’s hard to believe that the Fed could keep such a conspiracy a secret for 20 years or more. The Fed, of course, is a major player in the fixed-income markets, buying and selling billions in Treasurys, agency bonds and mortgage-backed securities. It’s taken on hundreds of billions in assets from Bear Stearns, American International Group Inc. (NYSE:AIG) and many unnamed banks to which it’s lent money. Presumably, all of those positions are duly reported by the central bank each week.>But the Fed has never said it is buying equities or equity futures. Doing so would likely violate the Federal Reserve’s investment policies, and could violate federal law if not disclosed properly.
         Aside from the legal issues, the PPT would have operational constraints. It’s hard to believe that the Fed could keep such a conspiracy a secret for 20 years or more. An operation big enough to manipulate markets for months on end would be big enough to develop leak
           With so much money at stake, anyone with direct knowledge of the conspiracy (such as a $30,000-a-year administrative aide) would be highly tempted to blow the whistle.
          Yet Biderman’s accusation of PPT market manipulation is another argument in favor of a complete public audit of the Fed’s books. As any casual reader of this site’s community boards knows, there is a widespread belief that the PPT does manipulate stock prices on a daily basis to enrich its pals and screw individual investors.
It would be useful to prove them wrong. And if they are right, the PPT should be put out of business.

 

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