Economic Hell is Coming - You Better Get Ready!

Tens of millions of American families are about to go through economic hell and most of them don’t even realize it…Most Americans realize that things seem “harder” these days, but most of them also have faith that things will eventually get better.  Unfortunately, things aren’t going to get any better.  The number of good jobs continues to decline, the number of Americans losing their homes continues to go up, people are having a much more difficult time paying their bills and our federal government is drowning in debt.  Sadly, this is only just the beginning. [Let me explain.] Words: 1256

So says an article* at http://theeconomiccollapseblog.com which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.  The article goes on to say:

Since the financial collapse of 2008, the Federal Reserve and the U.S. government have taken unprecedented steps to stimulate the economy but, even with all of those efforts, we are still living in an economic wasteland so what is going to happen when the next wave of the economic crisis hits?…

Already, all sorts of bad economic news has been coming out and all kinds of economic indicators are turning south.  The American people are becoming increasingly restless…If most Americans had good jobs, could afford their mortgages and could pay their bills, the economy would not be such a big issue. Unfortunately, times are really tough for American families right now and they are about to get a lot tougher.

1. Jobs

The official unemployment rate just went up to 9.1 percent, but that figure only tells part of the picture. There are some areas of the country where it seems nearly impossible to find a decent job.  Millions of Americans have fallen into depression as they find themselves unable to provide for their families…45.1 percent of all unemployed Americans have been out of work for at least six months [which] is a higher percentage than at any point during the Great Depression. Just two years ago, the number of “long-term unemployed” in the United States was only 2.6 million [but] is up to 6.2 million.

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A look at the chart below [shows that] what we are going through now is really unprecedented. 

1.  The average duration of unemployment in this country is now close to 40 weeks….
2. There were only about 3 million job openings in the United States during the month of April. Normally there should be about 4.5 million job openings…
3. Millions of other Americans that are “underemployed”.  All over the United States you will find hard working Americans that are flipping burgers or working in retail stores because that is all they can get right now.
4. Most temp jobs and most part-time jobs don’t pay enough to be able to provide for a family…

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Sadly, the number of “middle class jobs” is about 10 percent lower than a decade ago.  There are simply less tickets to the “good life” than there used to be.

2. Homes

Without good jobs, the American people cannot afford to buy homes. [Indeed,] without good jobs, the American people cannot even afford the homes that they are in now. U.S. home prices have fallen 33 percent since the peak of the housing bubble – [which] is more than they fell during the Great Depression – and this decline in housing prices has caused a lot of problems.

1. 28 percent of all homes with a mortgage in the United States are in negative equity at this point…
2. Millions of American families can’t afford to sell their homes and if they simply walk away nobody will approve them for new home loans for many years to come. They are literally feel trapped in their homes sticking it out… until they simply can’t pay for them anymore.
3. As the number of good jobs continues to decline, the number of Americans that are losing their homes continues to rise
4. More than a million U.S. families lost their homes to foreclosure in a single year during 2010.

If the economy slows down once again and millions more Americans lose their jobs this problem is going to get a lot worse.

3. Bills

Even if they aren’t losing their homes yet, millions of other Americans families are finding it increasingly difficult to pay the bills. Wages have been very flat over the past few years and yet the cost of most of the basics just seems to keep going up and up…

1.  the cost of food and the cost of energy have risen at an annualized rate of 17 percent over the past six months…
2. 26% of Americans have put off doctor visits because of the economy…
3. 30%  of all U.S. employers will “definitely or probably” quit offering employer-sponsored health coverage once Obamacare is fully implemented in 2014…
4. One out of every six Americans is now enrolled in at least one anti-poverty program run by the federal government… and
5. Today, one out of every four American children is on food stamps…

Our federal government cannot afford to spend money like this forever…The U.S. federal government took on $5.3 trillion in new financial obligations during 2010…[and] now has $61.6 trillion in financial obligations that have not been paid for yet. Who is going to end up paying that bill? Our leaders are not alarmed…[with] Bernanke [maintaining that], “growth seems likely to pick up somewhat in the second half of the year” [but] others are not so sure that everything is going to turn out okay. James Carville, [for one,] warned that we could literally see rioting in the streets if the economic situation does not turn around soon.  Just check out the last part of the video below….

Conclusion

The truth is that America is in decline.  Just like with all of the great empires of the past, our empire is starting to crumble too as put forth by a recent article in the Guardian…

The experience of both Rome and Britain suggests that it is hard to stop the rot once it has set in, so here are the a few of the warning signs of trouble ahead:

1. military overstretch,
2. a widening gulf between rich and poor,
3. a hollowed-out economy,
4. citizens using debt to live beyond their means, and
5. once-effective policies no longer working and
6. high levels of violent crime,
7. epidemic of obesity,
8. addiction to pornography and
9. excessive use of energy

may be telling us something that the US is in an advanced state of cultural decadence.

[America]…has rejected the ancient wisdom that was passed down to us and we have rejected the principles of our founding fathers. We have piled up the biggest mountain of debt in the history of the world and yet somehow we expected that everything would turn out okay. Well, everything is not going to turn out okay. All of this debt is going to come down on us like a ton of bricks and the U.S. economy is going to continue to fall apart.  Millions of American families are going to lose their jobs and their homes.

Economic hell is coming. You better get ready.

*http://theeconomiccollapseblog.com/archives/the-coming-economic-hell-for-american-families

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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Economic

It is the Currency That Breaks, Not the Country’s Economy! 

When a home owner is forced into foreclosure, the case is presented to a judge for approval. Historically, if uncontested, a foreclosure has quickly led to a judgment in favor of the bank – to evict the owner and confiscate the property. However, in the last few years a growing number of homeowners have been contesting the foreclosures and demanding proof of the note – or ownership of the mortgage – and, in many cases, the note can’t be located by the bank. [As such,] the foreclosures are not being approved due to lack of documentation. Words: 719

So says Chris Mack (www.tradeplacer.com) in a recent article* which Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, has reformatted into edited [...] excerpts below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Mack goes on to say:

The issue is so serious that last week, Bank of America halted foreclosures in 23 states due to findings that it doesn’t have the necessary documentation to foreclose on owners and has been foreclosing on homes without proof of the note. JPM Chase and GMAC have also already halted foreclosures in a similar move. In order to successfully foreclose, the banks [have been] hiring legal firms to litigate and re-establish their legal right to collect the value of the mortgage. However, this could be time consuming, costly, and the debt may be shifted from being secured by the property to unsecured by judgment.

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Fraud based on Fraud based on Fraud
Whether you have a mortgage that can be enforced is now in question, and by default so are the derivatives based upon the mortgage. The financial engineering and success of mortgage backed securities (MBSs) was based on the idea that mortgages could be pooled and sold to investors. It is now estimated that between 1/3rd and 2/3rds of all MBSs are not backed by a physical mortgage. Banks are simply unable to tie their products to the underlying mortgages. The result is that pensions, banks and other investors of even “high quality” MBSs may be holding near worthless paper. The derivatives based upon non-backed mortgage securities – based upon quasi-enforceable mortgages – based upon fraudulent, undocumented, or lax-documented standards are theoretical at best. Interestingly, this is represented by U.S. dollar deposits.

The Lawsuits Have Just Begun
Banks will sue homeowners for defaulting, homeowners will sue banks for deception, and investors in the mortgage backed securities will also sue for fraud. Pension holders will in turn sue the investment companies holding the worthless paper. The lawsuits have just begun but there may not be enough lawyers, judges, and courts in the world to ever untangle the chain of fraudulent derivatives based on other fraudulent derivatives. Ambac recently filed a $16.7 billion lawsuit against Bank of America, claiming that 97 percent of its securitized mortgages didn’t conform to lending underwriting guidelines.

The Mortgage Market is Now at Risk
With roughly $14 trillion in mortgages outstanding in the U.S., and more than $8 trillion in mortgage securities, a large amount of capital is now at risk – especially if those MBSs are considered leverageable deposits. The consequence could be a halt in mortgage processing for several months, and shutting of title insurance companies which would effectively close the mortgage market. The most likely outcome will be the complete monetization of the industry.

Conclusion
The lesson is clear; if you don’t own real assets then you don’t really own anything. The stampede into gold and silver will continue as investors seek protection from the largest distribution of wealth in history.

*http://tradeplacer.com/blog/2010/10/05/1286303640000.html (Chris Mack is President of Trade Placer (tradeplacer.com) which brings the “Power of Wallstreet on Mainstreet” to its readers. He can be contacted at info@tradeplacer.com.)

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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Most signs point to a slow and steady recovery, but what if the pessimists are right, again? What if the United States isn’t in the slow-lane to recovery, but rather on the precipice of another decline — a double dip? [If so,] where might this re-recession begin? Words: 988

So say Derek Thompson and Daniel Indiviglio in an article* in this month’s isue of The Atlantic (http://www.theatlantic.com). Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, presents below further edited [..] excerpts from the article for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) The article goes on to say:

[Below] …we have imagined five financial earthquake scenarios, each with a single epicenter – housing, consumers, toxic assets, Europe, and the debt – …listed in order of likelihood.

1. Housing’s Mini-Bubble Pops
Perhaps nothing poses as big a concern to the U.S. economy as its housing market. [Did] …the government’s efforts to stabilize the market through a buyer credit, ultra-low mortgage rates, and mortgage modification programs pan out [or] did it just create another mini-bubble that’s beginning to pop now that the support has been withdrawn?

Here’s the scenario.
a) Weak home sales and continuing foreclosures result in climbing real estate inventory [causing:]
i) new homes [to become] even less attractive which further reduces construction jobs
ii) downward pressure on home prices, which makes it harder for struggling homeowners to sell their home to avoid foreclosure and keeps strategic default rates high, exacerbating the problem.
b) Lower home values encourage Americans to save more and spend less, since their wealth is effectively reduced.
c) The Dow drops and credit markets tighten even further, suffocating private investment just as homeowners bunker down and slash spending.
d) Growth turns negative.

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2. Increased Consumer Savings Break the Economy
You, the American consumer, are reloading savings after a debt-fueled decade [b]ut as any general will tell you, when an entire squad reloads at once, it leaves everybody vulnerable. It’s the same with the economy.

Here’s the scenario.
a) Consumer sentiment continues to fall slowly, and spending turns negative again.
b) Small businesses hold off replenishing their inventories or adding new workers.
c) Wages and hours freeze.
d) Unemployment takes a leap toward 10 percent in October.
e) Congress remains paralyzed, because it’s only weeks away from the mid-terms.
f) The stock market sees business revenue trending flat, joblessness rising and Congress doing nothing, and it sparks a 300-point sell-off.
g) Americans, frightful for their savings, cut back spending even more the next month.
h) Growth turns negative.

3. Toxic Assets Return
[In the previous] bank bailout]…the Treasury intended to purchase the toxic assets from banks which were the source of investors’ uncertainty concerning bank stability but couldn’t figure out a way to do this quickly enough to make it effective. As a result, the banks were largely stuck with these bad assets. We just don’t know how bad – yet.

Here’s the scenario.
a) The residential real estate market’s problems continue. Even once foreclosures begin to decline, we see waves of defaults, as modification program participants re-default at rates of 30% to 50%.
b) Commercial mortgage-backed securities continue to deteriorate, as some businesses struggle with weak consumer demand.
c) Home and commercial real estate values keep declining, and so do the value of the assets that back them.
d) Banks with exposure to these toxic securities see another round of losses, and investors question their stability.
e) The market plummets.
f) Credit freezes.
g) Growth turns negative.

4. Europe Falls Apart
Europe seems to have avoided an all-out collapse of confidence in its ability to pay back its debt [b]ut things can change – and fast.
Here’s the scenario.
a) Slow growth in weak Eurozone states like Greece, Spain, and Italy turns negative and spooks investors, who demand higher returns on government debt.
b) Europe’s bond rates spike.
c) Countries announce further austerity — tax increases and spending cuts — which strangles our biggest export market. d) The EU central bank responds by announcing a plan to write down troubled debt, which dings some Americans banks.
e) In a flight to quality debt, the dollar appreciates. This hurts our exports even more.
f) As the trade deficit gapes open and manufacturing’s good run dead ends, the stock market plummets, taking household wealth down with it.
g) Families looking to restore balance sheets cut back on spending, and the American producer loses the American consumer and the European buyer.
h) Growth turns negative.

5. Debt Finally Catches Up to Us
Interest rates on U.S. debt are low today for one big reason. Investors trust the United States, at least more than they trust other countries. If the people giving us money suddenly have as little faith in America as Americans, that could change – and quickly.

Here’s the scenario.
a) The bond market can strike without warning, as it did in Europe earlier this year. If uncertainty with our political process gets reflected in our interest rate, we’ll have a harder time affording debt, 55% of which has to be rolled over in the next three years.
b) Pension and mutual funds with government debt would be written down, causing Americans to save even more of their paychecks.
c) We’d be left with two bad choices: tax cuts to juice consumption or tax hikes to please our lenders.

At that point, it would be too late to avoid a double dip.

*http://www.theatlantic.com/business/archive/2010/09/5-doomsday-scenarios-for-the-us-economy/62445/

- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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The so-called U.S. news outlets are again talking about a “bottom” in the U.S. housing market – and trying to entice more victims to jump in. However, the reality is that mortgage statistics show that the collapse in the U.S. real estate market will continue to get worse until at least 2011. Words: 492

In further edited excerpts from the original article* Jeff Nielson (www.bullionbullscanada.com) goes on to say:

With more than one in ten U.S. mortgages (of all categories) already in default, the biggest wave of “adjustable-rate mortgage” re-sets does not begin until next year – and then will remain at that peak level for at least one full year.

While the U.S. government and their media-parrots originally tried to deceive people into believing this was a “subprime crisis” the reality is that all categories of U.S. mortgages (including “prime”) are at the highest default rates in history and it is over the next two years that defaults are guaranteed to get really bad, really really bad.

Do not confuse what I’m saying as meaning that the U.S. housing market will “bottom” in 2011. That is NOT what these numbers say at all. What the numbers say is that the U.S. real estate collapse will stop accelerating some time around, or a little before, then.

After that the U.S. market will have to slowly work through the largest inventory of unsold homes in history – ANYWHERE! Currently, there are over 20 million empty homes in the U.S. Many of these homes have been severely vandalized (or even burned to the ground), but these “assets” sit on the balance sheets of U.S. banksters – at valuations far above what they could ever possibly hope to receive.

Millions of these homes will simply have to be bulldozed to the ground, because there will never be enough buyers for all of them.

After the U.S. housing collapse stops accelerating downward, some time around 2011, the collapse will gradually slow down (over a period of several additional years). At that point, after the U.S. economy has lost over $30 TRILLION of “paper wealth”, and at least 30 MILLION jobs, the U.S. housing market will almost certainly remain depressed for several additional years.

Be well advised: buying a U.S. house today, even with prices already down roughly 30%, would still be one of the worst investments in history. Think about that the next time a U.S. propagandist spouts the word “bottom”!

*http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=430:us-mortgage-crisis-to-get-much-worse-in-2010-11&catid=51:commentary&Itemid=99

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It would appear that the U.S. is in an untenable position – between a rock and a hard place – in an inescapable debt trap – where the options are, at best, dire – hyperinflation or a deflationary depression! It would seem that all we can do is ride out the storm in a boat laden with gold. Words: 2283

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below edited excerpts from Jeff Nielson’s (www.BullionBullsCanada.com) original 7000 word speech* at the “World Money Show” in Vancouver for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Nielson goes on to say:

The U.S.’s severe debt problems which are exacerbated by its $70 trillion in unfunded liabilities to fund the social ‘entitlements’ of the mass of baby boomers who will be retiring by the tens of millions in the next few decades and there is NO likelihood of the U.S. government ever reducing those entitlements. Any attempt to do so would cause severe economic disruptions and civil unrest. In fact, there are numerous practical reasons why this will never happen:

1. The looming pension crisis
It is estimated that U.S. pension plans were underfunded by about $3 trillion as of the end of 2008 and even after the recent “rally” in U.S. equity markets that pension deficit still amounts to roughly $2 trillion. Thus, even if the U.S. government could somehow make full pay-outs on the entitlement programs which U.S. seniors will be relying upon, they would still have to raise an additional $2 trillion just to maintain their standard of living not to mention the consumption-level which this consumer economy relies upon for its survival. Why? Because, with over 40% of Americans having less than $10,000 in savings, Americans are more dependent today on these entitlement programs than any other generation of Americans in history.

2. The second coming of another housing bubble
With 75% of the “assets” held by retired and soon-to-be retired Americans consisting of real estate, they will need to dump roughly $2 trillion of real estate onto the U.S. market – the most over-supplied real estate market in history – in order to maintain their standard of living. To preclude such an event, the U.S. government has been desperate to ‘re-inflate’ the U.S. housing bubble – at any cost – to buoy up American ‘real estate’ accounts and bail out the banks holding the mortgages on houses in foreclosure.

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Nevertheless, I believe the U.S.will see a second housing bubble because:
1. the U.S. Federal Reserve has taken the interest rate all the way down to zero – and left it there
2. millions of U.S. properties have either been held off the market by U.S. banks, or are tied-up in U.S. foreclosure proceedings. Both actions have artificially reduced “inventories” of unsold homes by at least 50% putting in place a very temporary “bottom” in prices
3. the U.S. government agencies, which are responsible for all 90% of all new mortgages, have once again lowered their lending standards. In fact, when the government buyers’ “credit” is factored-in, more than half of all U.S. homes purchased in 2009 had zero down-payments.
4. the Federal Reserve has been buying up every U.S. mortgage bond in sight given the record default rates which currently exist in the U.S. In fact, more than 25% of all U.S. mortgage holders have “underwater’ mortgages and 15% of all U.S. mortgages are currently in default and/or foreclosure: an all-time record
5. buying all these “bonds” (with newly-printed dollars) has temporarily kept U.S. mortgage rates several percent lower than they would have been without this hidden and very expensive taxpayer subsidy. This has resulted in the Federal Reserve absorbing more than $2 trillion of “bonds” and securities which – to be polite – are of extremely dubious value and the moment the Fed stops buying-up all these debt-instruments, U.S. mortgage rates will shoot higher.

With all of the aforementioned occurring at a time when millions of “option ARM” mortgages are about to reset and more than 40% of the millions of Americans holding these mortgages have been making minimum payments
it follows that when these mortgages reset, borrowers could see their monthly payments not merely increasing by 40% or 50% per month, but by up to several times their current payments.

These millions of mortgage resets are occurring at the same time that long term unemployment in the U.S. is at its highest level in at least 70 years, and U.S. housing “real” inventories are at their highest levels ever. As such, once this second collapse begins, there will be no means of stabilizing this market because:

1. With interest rates already at 0%, interest rates can literally only go higher
2. U.S. homeowners have less equity in their homes than at any time in history
3. Retiring baby boomers will have to dump $1 to $2 trillion of real estate onto this market just to partially fund their under-funded retirements and much more than that, if entitlement programs should have their benefits slashed.

This will not only undermine the U.S. housing market for many years to come, but any reductions in U.S. entitlement programs will directly make the next collapse of the U.S. housing sector that much more severe – because it would force the sale of much more real estate.

3. The future cost of interest payments and “unfunded liabilities”
The Obama government has already admitted that over the course of this decade more than 50% of every new dollar of debt will be consumed in interest payments on old debt. Those interest payments, alone, will exceed $1 trillion/per year before the end of this decade. Added to this will be roughly $2 trillion per year of “unfunded liabilities”, which will now have to be funded. This means that over the course of this decade, the U.S. government will have to come up with an additional $3 trillion/year – above and beyond all current spending programs. This will roughly double U.S. government spending, and roughly quadruple current deficits.

Even the largest tax increases in history could only fund, at most, about 10% of this spending-gap. This means either cutting trillions per year in government spending, which would be totally impossible, or simply printing-up trillions and trillions of new dollars to pretend to “pay” those bills. This, in turn, guarantees hyperinflation.

4. The on-going political paralysis
The budgetary constraints which I have discussed above have all been of the “economic” variety. However, arguably it is U.S. political constraints which are an even bigger obstacle in beginning to address the massive, triple-problem of U.S. insolvency: debts, deficits, and liabilities.

Decades of “gerrymandering” have transformed roughly 80% of U.S. electoral districts into the permanent holdings of one or the other of the two, U.S. political parties. As such, the candidates of the favored party are essentially guaranteed a seat for life and this eliminates any incentive to produce positive results for their own constituents – other than bringing home the “pork”. As a result, partisan politics has taken precedence over any, and all, other considerations and, regretfully, the #1 rule of partisan politics is to never allow the party in power to accomplish anything (good) of significance.

The one exception to this scenario of total indifference is with respect to the American Association for Retired Persons (AARP) which is not only the largest voting bloc in the U.S., but it is comprised of the only segment of the U.S. electorate which has a constently high “turn-out” in every election. Not surprisingly, their two most important issues are Social Security and Medicare: the two social programs which are 100% certain to bankrupt the U.S. economy. Barring a complete “metamorphosis” of the entire U.S. political system, these “unfunded liabilities” are essentially carved in stone, since they are the only issues where doing something unpopular could threaten the security of the sitting politician and this leaves current and future U.S. government with nothing but terrible options. The questions they must ask themselves are:

1. Do they fully “fund” all these entitlement programs by printing up countless trillions of new dollars (the only possible way to cover those entitlements 100%)?
2. Do they slash entitlements – and lose their own, cushy positions – sucking trillions of dollars out of the economy and result in a debt-implosion which would make the death of the former Soviet Union look like a “picnic”.

If the U.S. does not commit to one course of action or the other, however, the U.S. will likely suffer the worst of both worlds: a “hyperinflationary depression”.

5. The preference for hyperinflation
Hyperinflation is more than just “soaring prices” – it also reflects a crisis of confidence with respect to the currency in question, and the beginning of a death-spiral for that currency.

When a currency starts to rapidly lose value the government is forced to print up vast quantities of new currency to subsidize the depleted wealth of its citizens – so they literally do not starve to death. Then, that excessive money printing leads to an even more rapid rate of devaluation for the currency, and this vicious circle gets more and more severe. In virtually every example in history, such currencies effectively go to zero.

For the reasons previously mentioned, many people will argue that hyperinflation is the inevitable course on which the U.S. is headed. Not only is the Federal Reserve under extreme pressure to continue to print countless trillions of new dollars, but hyperinflation “solves” the twin problems of massive, current debts and completely unpayable entitlement programs. The debts would get “paid”, and the entitlements would be “funded”. That being said, the paper used to do this would have only a minute fraction of its former value because, since hyperinflation causes a currency to move toward zero, all debts and liabilities expressed in that currency also become effectively worthless. Thus, a very strong argument can be made that the U.S. will choose the informal “default” of a hyperinflation, rather than suffer a formal default – and a resultant debt-implosion.

History is clear: the devastation of hyperinflation will destroy the wealth of average Americans to an even greater degree than through suffering the ravages of a deflationary implosion – although the former would preserve the “paper empire” of the Wall Street banks who have been dictating U.S. economic policy. As such, is there really any doubt as to what direction the government, unduly influenced by the country’s financial oligarchy, is going to take?

6. The current deflationary environment
In order to delay inflation from ravaging the U.S. economy, however, the U.S. government is currently playing a very dangerous game. It is essentially starving the entire U.S. economy of capital. Bank-lending is falling at the fastest rate in U.S. history because the banks refuse to lend money to U.S. businesses, despite their promises to do the exact opposite. They prefer to keep most of the bail-out money “on deposit” at the Federal Reserve in what is literally nothing more than a “savings account”. That’s where the Federal Reserve has been “borrowing” the money to buy-up trillions of dollars of worthless U.S. mortgage bonds. The rest of the bankers’ money is then used to “play the markets” with their “proprietary trading”.

7. The lack of a vibrant economy
Those who insist that the “mighty” U.S. economy will “bounce back” as it always has in the past – that the U.S. will “grow” its way out of its huge debt/deficit crisis – Don’t seem to realize, with more than 50% of every new dollar of U.S. debt simply being interest payments on the old debt, that the U.S. economy will not be able to grow much, if at all – let alone at the above-average rate which is required just to produce enough revenues to service all that debt.

The U.S. economy is supposedly growing at more than a 5% rate, which is equivalent to an “economic boom” for any economy other than China’s. However, to borrow an old line: “where’s the beef?” U.S. government revenues (for all three levels of government) are plummeting downward at an accelerating rate, so how can the economy be “booming” if no one is generating any tax receipts for the government? The fact is that, with the U.S. carrying the heaviest debt-load in its history, and an every-larger portion of every dollar consumed just paying interest, the overall U.S. economy would have to be operating at a higher rate of activity than is normal in the past, just to achieve average growth. Can anyone really suggest that the U.S. economy is currently stronger than normal?

A Debt Trap in the Making
With the U.S. economy currently carrying over $60 trillion in total public/private debt just raising U.S. interest rates even 1% would drain an extra $600 billion per year out of the U.S. economy in additional interest payments – an equivalent drop of 5% drop in U.S. GDP – and that would be the case even before factoring in the “multiplier effect” of sucking that much money out of the economy – and every 1% hike would inflict a similar, but compounded, amount of damage on the U.S. economy. Frankly, it is very likely that even a 1% increase in current U.S. interest rates would be enough to send the U.S. economy into an immediate deflationary spiral.

Talk about being between a rock and a hard place – in an inescapable debt trap – where the options are, at best, either a hyperinflation or a deflationary depression! Yes, it would seem that all we can do is ride out the storm in a boat laden with gold.

*http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=11900:debt-denial-and-default&catid=64:presentations&Itemid=141

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It is an old saying that the “road to hell is paved with good intentions”. Well, in recent years, that road has been changed to a super-highway! America was put on that super-highway a few years ago and right now we are traveling at break-neck speed toward the financial abyss. Words: 1132

So says Paul Mladjenovic (http://www.RavingCapitalist.com) in edited excerpts from an article* entitled “Inflationary Depression Forecast Revisited…We are Half-Way There”.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The report’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Mladjenovic goes on to say, in part:

My Forecast
1. Continuing Depression
The trillion-dollar spending policies enacted during the late Bush years and now the Obama years are extraordinarily dangerous. The federal government (and the state & local governments, too) are spending beyond our means as well as theirs. Bankruptcies, foreclosures, business contraction and unemployment are certainly at depression-level. Talk of a recovery is wishful thinking since the effects of still more bad policies are on the horizon.

Right now we have:
a) Unemployment at 17%
(I am not talking about the much reported yet highly inaccurate “official unemployment rate” which is a sham; I am talking about what is called the “U-6” employment rate that the Bureau of Labor Statistics compiles. It is a much less reported yet more accurate measure of unemployment. This statistic includes those counted in the “official unemployment rate” and adds in those that dropped out of the job search; the so-called “discouraged” unemployed. U-6 also includes those that are “under-employed” which means those that want full employment but have had to settle for part-time employment.)

b) Foreclosures at all-time highs

c) Bankruptcies at all-time highs

d) Personal debt still at record levels

e) Government debt at all-time high (and still soaring)

Now, couple the above list with [the fact that]:
a) The tax-cuts enacted in the past decade are set to expire by January 2011
If they do, in fact, expire the effect is a tax increase that would deliver a body-blow to an already weak economy. A tax increase is nothing more than money taken by force by the government from the private economy. Basically that would mean less income and less invest-able capital for the private sector as the government forcibly siphons these resources and redirects it to a bureaucracy that is already the biggest in American history.

b) [There is talk about the possible introduction] of a Value Added Tax (VAT)
A VAT is a dumb during good economic times and quite stupid during bad economic times. Even the name is idiotic since taxes don’t add “value”…it merely increases the price or cost of that particular product or service.

c) [Consideration is being given to the passing of] Cap and Trade legislation
[Such legislation] would raise energy costs greatly since the legislation is nothing more than a huge hidden tax on energy usage. [In fact,] it would do little or nothing for the environment but it would do much harm to our economy.

Summary
If taxes, regulations and other burdens and risks are not decreased immediately and substantially, then this depression will continue.

2. Inflation
Inflation is not an “if” but a “when”. As the federal reserve keeps creating trillions of dollars out of thin air, there will be consequences. Technically, they are indulging in “monetary inflation” but of course most people think of inflation by its symptom which is “price inflation”. Since many observers don’t see price inflation, they assume that deflation is winning the day and will be here for the foreseeable future. This is wrong. Inflation will become evident when two conditions occur:
1. The excessive creation of money (again, this is “monetary inflation”)
2. When this money circulates through the economy (also referred to as “velocity”)

“Human Needs” Commodities
If the government creates trillions of dollars and these dollars do not circulate, then velocity will not occur. Just keep in mind that “velocity” occurs where there is DEMAND. There are many areas where there is simply no substantial demand, such as housing and autos, so money will not flow there in this economic environment. However, money does flow to areas of “human need” – and this is a key reason why I am a long-term bull on commodities in general and “human need” commodities in particular. For example, the price of wheat has gone up 71% during the past 12 months and I think that similar price movements (or higher!) are in store for many [such] essentials.

Store of Value Commodities
I also believe that gold and other precious metals such as silver will continue their bull market. Why? Because, as inflation unfolds among essential commodities, people will need a “store of value” as the world’s major currencies keep on being over-produced. When people start to see that the dollars they hold (or other currency) start to lose value as the government over-produces it, they will then see that having cash is not a “safe harbor”; inflation will erode its value. They will then seek to replace currencies that are “depreciating” or losing value and shifting their resources to that which holds value…gold and silver.

In fact, as people world-wide see the problems with fiat currencies such as the U.S. dollar, euro, etc., and with paper assets such as stocks and bonds, etc., they will migrate into those things that will hold value or appreciate over time. The flight will be from “paper” to “stuff”. “Stuff” like precious metals, food, water and other essentials.

Summary
There will be little or no inflation in those things that people do not need. The corollary to that (and this goes back to my forecast) is this: There will be severe inflation – even hyperinflation – in those things that people do need. We have a huge world population and their needs will be addressed. When you couple this demand with expanding money supplies across the globe, rising prices will be the result. The stage is being set for historic price inflation in those commodities that are “essential”.

Investors need to prepare [for an inflationary depression which is half way here already].

*http://mladjenovic.blogspot.com/2010/08/inflationary-depression-forecast.html (Mladjenovic offers an audio seminar “Cash in on the Commodities Super Bull Market” and also a free financial newsletter at www.RavingCapitalist.com.)

If you think home prices have hit bottom and are now headed back up for good, think again! Round two is about to begin. Words: 552

Lorimer Wilson, editor of www.munKNEE.com, provides below further reformatted and edited excerpts from the TheTrumphet.com original article* for the sake of clarity and brevity to ensure a fast and easy read:

13.5% of All Home “Owners” Are Behind in Their Mortgage Payments
Lender Processing Services reports that mortgage delinquencies have reached record highs – a whopping 10.2 % and the percentage is still growing. Add in homes that are in some stage of foreclosure and the rate for non-current mortgages rises to an astounding 13.5 percent or a total of approximately 8 million homeowners behind on their payments.

Foreclosure Rate Up 51.1% vs. Year Ago
That is not all. In February the total number of foreclosures jumped by 51.1 percent over February 2009 levels—which seems to indicate that banks are finally starting to face the music and starting to repossess homes.

Mike Whitney maintains** that “banks have been withholding supply to keep prices artificially high.” During the banking panic in 2008 and 2009, banks did not want to foreclose on homes because it would have pushed prices lower, and that would have affected the value of banks’ mortgage-backed security bonds—causing the banks more trouble at a time when many big banks were collapsing. The government too wanted to stop foreclosures, for political reasons, so a moratorium on foreclosures was adopted.

That moratorium ended on March 31, and now that the banks are stuffed with reserves (due to the bank bailout program), “there’s no need to continue the charade,” says Whitney. “So the dumping of backlog homes has begun” and the house dumping could turn into a flood.

Bank of America to Increase Foreclosures by 600%!
On March 29, the Irvine Housing Blog reported that Bank of America was set to increase its monthly foreclosures from 7,500 per month to 45,000 per month—a 600 percent increase. At this rate, Bank of America will foreclose on 540,000 homes over the next year. Other banks are set to follow suit.

“It’s a disaster,” says Whitney. It will affect everything from consumer spending to state revenues not to mention a national unemployment rate still above 17.5 percent and 20 million vacant homes currently saturating the housing market.

The American Reality
In the run-up to peak housing in 2007, upward of 40 percent of all job creation, by some estimates, within the U.S. economy was related to the housing market (builders, suppliers, real-estate agents, brokers, bankers, etc.). Those jobs are now gone, and unless housing prices not only stop falling but start rising, the jobs won’t be coming back again but here is the catch.

Before the housing market can sustainably regain its health, and before consumers can start responsibly spending again, housing prices have to be at a point where regular people can afford them. That means housing prices still need to fall.

*http://www.thetrumpet.com/print.php?q=7131.5659.0.0
**http://www.informationclearinghouse.info/article25230.htm

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Foreclosure activity hit a record in the first quarter of 2010, according to realtytrac.com, up 7% from the previous quarter and up 16 % from the first quarter of 2009. 7 million of all mortgages, i.e. 14%, are in some stage of default of which about 1 million are already in the foreclosure pipeline while a pool of 6 million defaulted/delinquent mortgages awaits entry into the pipeline. Words: 384

In further edited excerpts from the original article* Charles Hugh Smith (www.oftwominds.com/blog.html) goes on to say:

Defaulted Mortgages Expected to Increase
While the numbers are imprecise, media reports suggest about one-quarter of all mortgage holders are “underwater,” meaning that their homes are worth less than their mortgages balances, and such negative equity (owing more than the house is worth, hence negative equity) drives foreclosures. As such, if 25% of mortgage holders are underwater, and 14% are delinquent/in default, then we can expect the number of defaulted mortgages to rise as negative-equity homeowners throw in the towel and stop paying their mortgages.

Rising Foreclosures = Falling Home Valuations = Increasing Defaults = Rising Foreclosures
Rising foreclosures pressure home valuations as hundreds of thousands of homes come to market. This decline in valuations increases the negative equity of mortgage holders who are already underwater, and pushes more owners into the negative equity pool where most will eventually capitulate and default on their mortgages. This increases the pool of mortgages in the foreclosure pipeline, insuring more homes will be dumped onto the market in the future, and so on.

Anyone who sees a rising pool of millions of delinquent mortgages as the foundation of a recovery in housing valuations isn’t considering the feedback loop which is now firmly in place. The foreclosure pipeline will be full for years to come precluding any “recovery” in housing valuations as supply will swamp demand.

*http://seekingalpha.com/article/199424-foreclosure-pipeline-is-full-to-bursting?source=email

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I’m not too optimistic about 2010. Below are my prognostications in the areas of the economy, domestic politics, global geopolitics, and the investment markets. Words: 681

In further edited excerpts from the original article* James Quinn (www.seekingalpha.com) goes on to say:

1. Double Dip Recession Will Commence by June of 2010
To date, the Federal Reserve has printed
a) $700 billion wasted on a bank bailout,
b) $787 billion wasted on a stimulus package
c) $3 billion wasted on Cash for Clunkers ($24,000 per vehicle),
d) $28 billion squandered on the $8,500 homebuyer tax credit, and
e) $300 billion of mortgage-backed securities purchased by the Federal Reserve and Treasury and all we’ve received is a 2.2 percent increase in GDP. As the government stimulus winds down in the first half of 2010, the true weakness of the economy will reveal itself.

2. Official Unemployment Rate Will Grow to More Than 11% by Late 2010
With the economy sinking back into recession, the true non-government manipulated figure will approach the Great Depression levels of 25 percent. The side effects from this fact will ripple through the country for years.

3. Foreclosures Will Surge in 2010
A tsunami of Alt-A and Option ARM mortgages will reset in 2010. These two developments will lead to another surge in foreclosures.

4. House Prices Will Fall a Further 10% in 2010

5. Commercial Real Estate Foreclosures Will Reach Record Numbers in 2010

6. Retail Bankruptcies and Store Closings to Increase in 2010

7. Bank Failures Will Reach 500 in 2010
The bulk of these losses will be borne by regional banks. There were 150 bank failures in 2009. The FDIC just announced they would add 1,600 employees in 2010, doubling their work force.

8. The 2010 Deficit Will Increase to Almost $2 Trillion
The Federal Budget for 2010 anticipates a $1.5 trillion deficit. I believe the Obama administration will pull out all the stops to boost the economy before the 2010 elections. This means more spending.

9. Interest rates Will Rise in 2010
The bond market and foreign buyers will choke on this amount of debt. The result will be much higher interest rates. Ten year Treasuries will start the year at 3.8 percent. By year end, rates will exceed 5 percent.

10. The US Dollar Will Fall by 15% to Record Low in 2010

11. Gold Will Surge to $1500/oz. and Silver to $20/oz.
A falling dollar will result in a surge in gold and silver.

12. Oil Prices Will Exceed $100
As world demand increases and peak oil becomes acknowledged, oil prices will exceed $100 a barrel further depressing the U.S. economy.

13. A New ‘Jobs Program’ Stimulus Program Will be Implemented
Obama will announce another stimulus program and call it a “jobs program.” This will cost another $200 billion.

14. Democrats Will Have Huge Losses in the 2010 Congressional Elections
The Democrats will lose 50 seats in the House and 6 seats in the Senate.

15. The Stock Market Will Drop 30% in the First Half of 2010
After the Republicans regain power in Washington DC, the stock market will rally.

16. Isreal, Iran, Iraq, Afghanistan, Pakistan and India Tensions Will Escalate into Additional Hostilities
a) The uprisings in Iran are likely to provoke the current leadership to stir up more trouble in Afghanistan and Iraq.
b) The imposition of sanctions by the U.S. could also provoke Iran to lash out against Israel.
c) I expect Israel to attack Iran’s nuclear facilities before the end of 2010.
d) Iran’s response will be to disrupt the flow of oil through the Strait of Hormuz.
e) This will bring the U.S. Navy into conflict with Iran.
f) Oil prices will soar when this conflict breaks out.
g) The conflict in Afghanistan will worsen.
h) Tensions between Pakistan and India will increase as terrorists again attack within India.

17. Greece, Latvia and Hungary Will Default on Their Debts in 2010
Economically, Eastern Europe will crash with Greece, Latvia, and Hungary defaulting on their debt. This will plunge European banks into deeper losses and cause the next leg down in Europe. These foreign risks have the potential to spiral out of control.

[Now you know why] I’m not too optimistic about 2010. Let’s hope I’m wrong.

*http://seekingalpha.com/article/181126-2010-economic-outlook-the-tipping-point

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.
- Submit a comment. Share your views on the subject with all our readers.
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