Kindergarten Double Dip Economics

July 29, 2010

Double Dip used to pertain to ice cream cones, but now to dreaded return to economic recession. Green Shoots used to refer to gardening projects, then to deceptive economic viewpoints. My favorite is the second half recovery mantra, indicative of totally clueless. This year's promised recovery in the second half of the year will feature a return to recession instead, thus stripping mainstream economists of any remaining credibility. The endless links in the chain are impressive by the clueless cast of economists that occupy the US landscape. The chain of ignominy includes gaping blind spots, blatantly wrong forecasts, minimized ignitions that spread crisis, misguided focus on goofy indicators, outright removal of important indicators, sloppy deception of monetization efforts, clumsy justification of Wall Street welfare, backwards perception of Too Big To Fail banks, and lying before the USCongress. The nation is dominated by the misguided who profess any benefits at all from 'Hand to Mouth' approaches like tax rebates, purchase credits, jobless insurance extensions, and helicopter drops. Their worst investments are their biggest investments, like Fannie Mae and AIG nationalizations travesties. Harken back only to last winter, when economists were talking about a second half recovery, running all the red lights and stop signs. Then they shifted the misdirection to claims of a jobless recovery, which should evoke laughter from its impossibility. The economic counsel has forgotten what capital formation means, while they prepare for their next tourniquet to be applied to hemorrhages. They label tourniquets the basis of recovery, while the patient continues to lie flat in Intensive Care. The objective of current monetary policy and banking policy is not recovery, but instead very clearly to retain power.

DUMBEST GUYS IN THE ROOM

Pay homage to the dumbest guys in the room. Tip the hat to morons at the helm. Genuflect to the high priests of failure. The cast of economists in charge, if truth be known, includes Robert Rubin in the background as Wizard of Oz. He pulls the strings with his puppets Tim Geithner from the Treasury Secy post and Larry Summers from the White House Council of Economic Advisors. Neither puppet has anything remotely resembling a successful banking or economist resumé. Rubin himself presided over the massive drain of the national gold treasure, making easy its lease for 1% fees to Wall Street cronies, thus spawning a Stolen Decade of Prosperity. Bring in USFed Chairman Ben Bernanke who has no business experience, a few lightweight regional Fed Presidents, and you have the dumbest guys in the room. They might as well read tea leaves, tarot cards, chicken bones, and animal entrails. If they had any skill whatsoever, they would notice the nasty economic signals delivered by basic data. Take some examples. Examine federal income tax withholdings from payrolls, state sales tax receipts, trucker miles logged, total volume of electricity usage, and food stamps. They all scream recession for the USEconomy. But those experts would call them lagging indicators. Merely pointing to stimulus funds, state budget plugs, liquidity programs, mortgage redemptions, and expanded central bank balance sheets totally miss the mark on effective economic craft. Their blindness to the economic distress is only exceeded by their disdain and contempt for the public.

GOLDEN CHAMPAGNE FOR THE QE2 LAUNCH

Before launching into graphic exercises, bear in mind that for 18 months, the United States has operated with a near 0% official interest rate. As forecasted a full year ago, the 0% rate has become a permanent fixture, since this is NOT a normal credit cycle. My open disrespect and criticism has been directed at the short-sighted gnome occupying the USFed Chairman post, who babbled moronically about an Exit Strategy a few months ago.My rebuttal claimed that no such exit from the current 0% strategy is available to the Bernanke, and more grand monetizations were to be come. Now we see no exit strategy door is offered, rather a stuck condition as the USFed has painted itself in the corner. A close inspection of the trap door under which Ben sits has staircase attached, to the Third World where a push cart of hyper-inflation awaits.

Talk has returned of a renewed Quantitative Easing cycle. The monetization engines in full usage would be put on stage in full view. The Bernanke track record is nearly perfect, nothing correct on forecasts, no effective outcomes, steady focus on silly measures, and deceptions given to USCongress. The benefit and cover to the financial syndicate on Wall Street is the only priority of monetary policy makers. The USFed and USCongress are are stuck, forced to curtail an explosion of money for political reasons. Unfortunately for the USEconomy, the recession that will turn from the steady decline into a galloping decline at a time when the USFed cannot lower interest rates. The USFed is out of tools except massive monetary inflation. Imagine, 18 months of 0% has done nothing to jumpstart the growth of the nation. The USGovt is saddled with annual $1.5 trillion deficits, that do not cause much alarm anymore. Nothing has been done in financial reform, bank asset liquidation, financial audit of the major banks (including the central bank), business regulation streamline, tax relief, end of endless war, reduction of lobby influence, Goldman Sachs stranglehold of the USDept Treasury, or anything else that carries significance. During this next downturn, the policy failure will be more obvious, the failed central bank franchise system will be more obvious, and the ruined currency system will be more obvious. The absence of policy options will be more apparent to all. Only dispensing printed money will be offered in response, the dreaded hyper-inflation card. If truth be known, it has already begun to be used. The failure of 0% to produce a revival is indirect proof that easy money was the cause of the banking collapse and credit crisis, and therefore cannot serve as the main tool toward remedy.

David Rosenberg is one of several rare economists with adept skill and razor sharp focus who is not fooled by the mainstream pretext. He recently wrote, "You also know it is a depression when a year into a statistical recovery, the central bank is still openly contemplating ways to stimulate growth. The Fed was supposed to have already started the process of shrinking its pregnant balance sheet four months ago, and is now instead thinking of restarting Quantitative Easing." He is too much a gentleman to call Bernanke inept. When QE2 is launched, the confidence in the Bernanke Fed will hit rock bottom. The pain will be delivered to the USDollar and USTreasury Bonds, which by then will only have buyers from the Printing Pre$$ output. Even Bill Gross of PIMCO shows doubt that the current course will avert a Double Dip recession.

Jim Grant joins the chorus of the enlightened within the financial industry, as he expects another powerful round of monetary easing. He is confident of QE2 right around the corner in a second launch. Ambrose Evans-Pritchard seconds the opinion. They see how the temporary lull in extreme monetary inflation tied to the economic stall leave the USFed only one choice, more Quantitative Easing (nice name for hyper-inflation). The first round involved $2.5 trillion. Ambrose Evans-Pritchard expects the next round to be coordinated $5 trillion global initiative. Vast monetization of debt and sustained stimulus & rescue with phony electronic money backed by debt are the only options left to central bankers, fast out of tools, naked on stage. When money is again openly printed with utter abandon, under official blessing, that is bad for the monetary system, due to a flood of money supply. USEconomic decline will worsen from the assault on legitimate capital. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold. The next QE2 round will send the Gold price to $2000 amidst a totally new darkened atmosphere of broad systemic failure.

FALLING MONEY SUPPLY PARADOX

The money supply continues to careen downhill fast. Its growth has plunged to a pace last seen in the 1930 decade. The broad money supply has remained elevated greatly, as the USFed still holds huge bank reserves used lately to maintain some USTreasury demand. Despite mammoth monetary inflation and outsized banker sustenance programs, the money supply decays at the Main Street level. The fiscal and monetary experiments have failed before our eyes. The first Quantitative Easing initiative failed to turn the tide; so they will do another. The Adjusted Monetary Base rose from $880 billion in summer 2008 to a peak $2200 billion at the end of 2009, then down to a little over $2000 billion through June 2nd, according to the St Louis Fed. The aggregate stock of money declined from $14.2 trillion to $13.9 trillion in the three months ending April, making an annual 9.6% rate of contraction. Such a negative signal almost always means economic recession, a signal ignored by economists. The broad measure in the M3 money supply is contracting at an accelerating rate within the USEconomy, despite near 0% interest rates and the biggest monetary profligacy and fiscal extravaganza in modern history. Such a development stands as a gigantic aberration, which economists do not even bother to try to explain.

The Shadow Govt Statistics folks do a sterling job, including upkeep for the M3 statistic that the USGovt discontinued in 2006. Notice the M3 in the chart (in thick blue), an index in a plummet. Money is not moving within the USEconomy with gusto. Businesses are not expanding. Workers are not spending with confidence. Construction is heading toward a standstill. Credit is not being extended, as banks distrust borrowers almost as much as fellow banks who are trying vigorously to dump toxic bonds of all stripes. When the M3 goes down, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

WEEKLY LEADING INDICATORS

The ECRI and the Conference Board (slightly more prestigious) each run their leading economic indicators. Below is the Weekly Leading Indicator by the ECRI, not in decline but something much worse. The plunge of the WLI means that various measures are looking bad that relate to future increased job growth from increased business investment and increased economic activity. The current WLI is in an alarming decline since May 2010. It stands at a lower level than the autumn months of 2007, when the USFed and the majority of US-based economists missed signals for the last recession. They were very busy back then denying the powerful impact of the mortgage crisis. It was not limited to subprime mortgages, but rather, as the Jackass warned, it turned global in an absolute bond crisis that affected all types of bonds, from sovereign to commercial to junk to municipal. When the Leading Indicators drop, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

NEXT LEG DOWN IN HOUSING DECLINE

The end to the home buyer tax credit has resulted in a sudden collapse of pending sales. The USCongress threw a hollow bone to the market, with minimal and temporary impact. Price always obeys the Supply & Demand dynamics, eventually. Home prices will fall again, despite the deceptive message of stability achieved. Stability is not a function of time or money discharged. The National Assn of Realtors reported in June that its seasonally adjusted index of sales agreements for existing homes dropped a whopping 30% in May from April, falling to 77.6 from 110.9. The May mark was the lowest dating back to 2001, an indisputable signal of resumption to the housing sector bear market. Home loan refinance demand also fell hard despite near record low mortgage rates under 5%. The USEconomy growth from 2002 to 2006 was built upon the housing bubble and mortgage fraud expansion. My forecast in 2007 and 2008 called for near total destruction of the US banking system, an endless housing bear market, and grotesque homeowner foreclosures amidst rampant insolvency, all of which occurred. Next comes another economic recession downleg. When the home sales crash, that is bad. It results in lower housing prices, like night follows day. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

Bear in mind that in 2001 and 2002, the clueless cast of economists were all abuzz over the benefits of the Low-Cost Solution from dispatching the US industrial base to China, an historical relocation. The Jackass was not fooled, but rather regarded the move as a 5-year warning of US systemic collapse. Economists missed that signal completely, a simple signal in my view. US-based income was replaced by income derived off the housing & mortgage bubbles. Later, the income was replaced by pure debt, which is failing. My forecast at the time was for economic plague and bank system ruin, as soon as the housing market bubble turned course toward a bust. From 2003 to 2006, the Greenspan Fed along with a parade of deviant economists gave blessing to the USEconomic expansion. However, it was built upon the shifting sands of a housing bubble. Dr Housing Bubble puts it well, claiming a real estate Frankenstein was created with a mind focused on the perverse notion that it actually constitutes the economy. The pending home sales are in a plummet. They foretell of falling home prices. The mountains of unsold bank repossessions from foreclosures, properties held in bank inventory, assure a continued home price decline. Low mortgage rates under 5% are doing nothing to revive the housing market. The entire real estate market is broken, without recognition. The appraisal process has entered the picture, laden with foreclosures and short sales (price below seller home equity). Appraisals are the bridge that act like a noose around the neck, attached to a two-ton brick. The appraisal process has halted thousands of sales in the pipeline. The housing decline is set for a powerful resumption, rendering additional damage to the USEconomy which depends so tragically upon it, rather than industry. The decline merely took a pause, aided by a tax credit. When the home price decline resumes, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

GLUT IN BANK OWNED PROPERTY INVENTORY

The monitor RealtyTrac reported last month over 300,000 foreclosures for the 15th straight month. The May total foreclosure filings rose to 322,920 which is 1% above May 2009. The bank owned property tally meanwhile is skyrocketing. Banks are reluctant to dump inventory on the already bloated housing market, but they are giving up. The Real Estate Owned (REO) inventory hit a record for May and April, with 93,777 properties repossessed by bank and mortgage firm lenders, an increase of 44% from May 2009. All 50 states posted annual increases in REO activity. In no way whatsoever will housing prices rise in such an environment of overburden in bank owned property held on the balance sheets. The REO bulge is the #1 current factor that eliminates any chance of a housing price recovery. The actual reason why bank lending is so reduced and restricted is that most banks are either insolvent or carrying a huge burden of non-performing loans and impaired bonds. When the bank owned property inventory rises, that is bad. Zombie banks are bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

LOUSY COMMERCIAL FOREFRONT

Commercial property defaults are dreadful and growing exponentially. Witness the crucial sector sheltered from the news for two years. The Hat Trick Letter has consistently warned about the hammer hitting for that entire period of time. Commercial loan portfolios have not been written down for losses yet, even though the property values have plummeted. Rollover refinance loans in the commercial sector are next to impossible anymore. So the banks extend terms and turn into darker zombies that approve fewer loans. Commercial real estate (CRE) is the next tragic chapter in the bursting bubble. Its prices have already fallen by 42%. At peak just three years ago, commercial RE values in the US reached $6.0 to $6.5 trillion. The banks are crippled. Parallel to zombie homeowners with negative equity, are commercial fields creating zombie businesses. The Extend & Pretend actually harms the banks in the future, since the loss would be less if suffered today, but becomes bigger tomorrow. Almost no political will exists to bail out the enormous commercial market. Wall Street does not own their debt. Bank failures, mostly small and regional, have increasingly been tied in recent months to commercial portfolio exposure, as much as residential. Politics enter from a negligence standpoint, as a deep unwillingness pervades the system not to save the consumption craze. When the commercial mortgage delinquencies rise, that is bad. When a bank carries impaired loans and cannot lend, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

JOBLESS CLAIMS, THE FESTERING WOUND

The end to emergency unemployment coverage acts as salt on the wounds, although it seems the merciful EUC extensions are to be improved. An uptrend in jobless claims is in the making. Jobless claims stubbornly maintain above the 450k weekly level, showing no improvement, soon to rise. Last week showed 457k new claims. The weekly jobless claims provide ample evidence of economist ineptitude in their craft, and a vapid forecast for a second half recovery. Persistent unemployment serves as powerful evidence of no USEconomic recovery. In the balance lies the insured basic income at risk of the loss by $5 billion per month, a pressure to continue the 99-week extension. People are declaring bankruptcy at record numbers still, as their situations are aggravated by home foreclosure. The July Hat Trick Letter shows many details on the labor front and household front. When the people remain out of work, that is bad. When they file for bankruptcy, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

THE M.E.R.S. OPEN DOOR TO CIVIL DISOBEDIENCE

The mortgage fraud industry suffered another major legal blow. The Mortgage Electronic Registration Systems (MERS) is an overly clever property title database. MERS was again was permitted zero legal standing, this time by California courts. Homeowners can often flaunt the banks and not pay, without risk of being expelled from their homes. The public is pulling off strategic defaults more often, and simply defying banks on an increasing basis. The potential for successful civil disobedience, Henry David Thoreau style, has never been more ripe. Already 250 thousand Bank of America mortgage holders in the United States are not paying anything in monthly payments. The US Bankruptcy Court for the Eastern District of California has ruled that MERS cannot transfer a note (home loan mortgage) for want of ownership. MERS has proven to be the point of extreme legal vulnerability for the Wall Street bond purveyors. It was originally designed to track the property titles, put them in a national database, and facilitate the brisk sales between parties of mortgage bonds tied to those titles that constitute the income stream from monthly loan payments. The courts have ruled consistently that MERS has no legal standing and cannot serve as the lever that removes a person from the home via foreclosure. Again MERS holds the titles, but MERS has no legal standing to transfer the home loans in the foreclosure process. The importance of the string of negative court decisions (State Supreme Courts) is significant in permitting home mortgage owners to defy the banks, not make the monthly payments, and remain in their homes without fear of foreclosure and removal. Details of the case can be found in the July Hat Trick Letter report. When people stop making mortgage payments, that is bad. Banks retaliate, and that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

 

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Jim Willie

Jim Willie

Jim Willie CB, also known as the “Golden Jackass”, is an insightful and forward-thinking writer and analyst of today's events, the economy and markets. In 2004 he launched the popular website http://www.goldenjackass.com that offers his articles of original “out of the box” thinking as well as content from top analysts and authors. He also has a popular and affordable subscription-based newsletter service, The Hat Trick Letter, which you can learn more about here.  

Jim Willie Background

Jim Willie has experience in three fields of statistical practice during 23 industry years after earning a Statistics PhD at Carnegie Mellon University. The career began at Digital Equipment Corp in Metro Boston, where two positions involved quality control procedures used worldwide and marketing research for the computer industry. An engineering spec was authored, and my group worked through a transition with UNIX. The next post was at Staples HQ in Metro Boston, where work focused on forecasting and sales analysis for their retail business amidst tremendous growth.

Jim's career continues to make waves in the financial editorial world, free from the limitations of economic credentials.

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10 karat gold is 41.7% pure gold.