FHA uses Obama's home-buying $8k tax credit to push DAP money-laundering scheme to resume risky, lax lending that leads to higher rates of default and foreclosure.
The FHA previously complained that Downpayment Assistance Programs (DAP) circumvented downpayment requirements (often surreptitiously seller-financed through a shell non-profit organization), so the borrower had no skin in the game and was more likely to default.
Now, the FHA is evading its own downpayment requirements to keep the housing/credit bubble going at all costs.
I warned about FHA's risky lending in June 2007:
Congress Christens FHA Our New National Casino
Government's New Housing Math: Seller Pays the Buyer
The American Recovery and Reinvestment Act of 2009 will PREVENT recovery because it DISCOURAGES investment (downpayment on asset) . . .
. . . not to mention that non-rented, owner-occupied residential housing is not a productive investment in the economic sense, it is consumption.
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Desperate retailers push easy credit in face of higher inventory/supply and lower demand.
General Motors (GM) announces plans to close 40% of GM dealerships (2,600 by the end of 2010). ("GM Cuts Worry Minority-Owned ealers," Sarah Hulett for Michigan Radio, NPR, 5/13/09)
Michael Johnson's Chevrolet dealership cut staff in half (50%).
Michael Johnson's Chevrolet dealership has an 8-month backlog of vehicle inventory (part of a global supply glut of automobiles warehoused in lots and ports).
Easy credit means car buyers are underwater the second they drive off the lot.
The Chevy dealership was accepting a $1k downpayment on a new $24k Chevy Trailblazer, which is less than 5% downpayment, but a brand new car loses 20% of value the moment you drive it off the lot, leaving the buyer immediately underwater (owing more than the asset is worth, a condition associated with high default and repossession/foreclosure rates).
Continued insufficient, zero, or even negative downpayments shows that the so-called "credit crunch" actually perpetuates risky, lax lending and set the highest US consumer-credit level in history.
Wednesday, May 13, 2009
FHA Pushes Subprime-Style Risky Lending, Car Loans Continue Easy Credit, Producing Underwater Borrowers
Exporting the Unemployed, Debt: Japan and USA, China Cancels US Credit Card
Japan's newest export is unemployed people.
Japan is paying its unemployed to leave the country and never return, offering Y300,000 per unemployed person and Y200,000 per dependent (roughly $3K and $2k). The government is targeting immigrants such as Latin Americans of ethnic Japanese descent, including over 300,000 Brazilians, who had migrated to Japan during a tighter labor market in Japan.
United States exports its unemployed.
Mexicans who entered the United States for work (housing bubble, construction boom) are returning to Mexico because of the U.S. recession, a reversal which reduces real unemployment in the USA but also further reduces demand for housing, house prices, and other consumer consumption (it also adds to the Mexican powder keg's list of woes: lower remittance income from abroad, lower demand for maquiladora output, higher unemployment, lower oil prices/revenue, depleted oil reserves, drug wars, H1N1 "swine flu," etc).
Notice in the illegal-immigrant case how the free market auto-regulates the supply of labor (self-regulating).
Obama plans to export (exile) civilian labor to Afghanistan (the LBJ Vietnam War solution to unemployment).
United States' greatest export is debt (and inflation).
The USA fueled its consumer binge by replacing export of industrial manufactured goods with export of its dollars and debt (causing inflation in other countries)--the export visible in the current accounts deficits of double the "sustainable" level (near 6% instead of the still dubious but popularly cited 3%).
"The U.S. Current Account Deficit and the Expected Share of World Output" (Charles Engel, University of Wisconsin, NBER, John H. Rogers, Board of Governors of the Federal Reserve System, Number 856, March 2006)
China "cancelled America's credit card." (Congressman Mark Kirk (R-IL), House Appropriations Committee)
Obama's record deficits plan to fund his spending binge with a greater export of debt but foreigners have started to balk, first by foreigners net-selling Mortgage-Backed Securities (MBS) as embodied in Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, and now by foreigners net-selling Treasuries as Obama, Pelosi, Bernanke etc. try to guarantee everything under the Sun from toxic Mortgage-Backed Securities (MBS) to Chryler warranties to Joe Sixpack's delinquent credit-card balance under the fancy label of Asset-Backed Securities (ABS).
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Update: China is bypassing the dollar with countries such as Argentina and Brazil: "Brazil and China eye plan to axe dollar" (hat tip: RockyR).
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Foreigners are beginning to learn that the US government scammed foreign investors with toxic assets.
What happens when the debt conveyer belt stops and the USA loses its greatest export, unsustainable debt?
Monday, May 4, 2009
Obama and Bernanke Enforce Dystopian Farce
"Political Cartoons" Below
Do you have your 27B-stroke-6?
TARPistanian President Obama, Federal Reserve Chairman Ben Bernanke, and the rest of the Rube Goldberg crew seem to be enforcing Terry Gilliam's 1985 dystopian farce, Brazil, with its Central Services government (dis)functionary repairmen, Spoor and Dowser.
"So we can differ on some of the particulars, but . . . doing nothing, that's not an option from my perspective."--Barack Obama, 2/9/09 press conference
Ben "Spoor" Bernanke: "Economies don't fix THEMSELVES!"Barack "Dowser" Obama: "Don'tfixthemselvessir!"
"[G]et the credit markets flowing again, because that's the lifeblood of the economy."--Barack Obama, 2/9/09 press conference
Ben "Spoor" Bernanke: "This is an H2206, authorizing the compulsory, temporary, requistioning of this economy . . . for unnecessary repairs."Barack "Dowser" Obama: "Repairs!"
Why the "repairs" are unnecessary:
Credit was and is too cheap.
It's not a credit supply crunch.
Credit levels hit record high.
Government "doing something" is what caused the mess.
The "reforms" perpetuate the problems.
The "solutions" prevent the solution.
Friday, May 1, 2009
Obama Ruined Budget for Obama: Inherited Deficit, Economic Crisis from Himself
President Obama inherited massive deficits from . . . Senator Obama.
"First of all, when I hear that from folks who presided over a doubling of the national debt, then I just want them to not engage in some revisionist history. I inherited the deficit that we have right now, and the economic crisis that we have right now." (Barack Obama, 2/9/09 press conference)When Obama blamed the other guy, the media apparently chose not to notice that the other guy was also Obama.
Congress controls the purse strings.
Senator Obama voted for spending:
- $700 Billion Wall Street bailout 2008 (HR1424)
- $16 TRILLION 2008-2013 (S CON RES 70)
Majorities voting FOR deficit-deepening bailout:
- 81% Senate Democrats (including Obama's "Yes, we can!")
- 73% House Democrats
- 69% Senate Republicans
- 54% House Republicans
Obama forgot to tell us that the Newt Gingrich-started budget surpluses disappeared when Obama's Democratic party took control of the Senate in 2001.
Obama forgot to tell us that (as a percent of GDP):
- Deficits increased after Democrats took the Senate in 2001.
- Deficits decreased after Republicans took the Senate in 2003.
- Deficits exploded after Democrats took both the Senate and House in 2007.
Obama the president must be awfully upset at his evil twin Obama the senator who allowed the then biggest deficit in U.S. history.
When not doing the seemingly impossible of making Comrade Bush look frugal in comparison, Obama made the following comments in a 2/9/09 press conference which show that, years into the economic problems, he remains clueless and 180-degrees backwards:
"We stand to lose about $1 trillion worth of demand this year and another trillion next year."No, we stand to SAVE $1 Trillion per year by not buying things we do not need (that is what lower demand means)--but Obama apparently hates savers.
"And what that means is you've got this gaping hole in the economy."No, we have a gargantuan, excess bubble that has deflated only slightly and still needs to be lanced like a fetid boil--but Obama cannot tell the difference between a bubble and a hole in the ground.
"The auditorium is completely broken down; they can't use it. So why wouldn't we want to build state-of-the-art schools . . . ?"Because we do not have the money (that is what deficit means), we are already $11 Trillion in debt, and America does not need yet another Roman colosseum (school auditorium).
"I don't think it's accurate to say that consumer spending got us into this mess. What got us into this mess initially were banks taking exorbitant, wild risks with other people's monies based on shaky assets. And because of the enormous leverage . . . That led to a contraction of credit, which in turn meant businesses couldn't make payroll or make inventories, which meant that everybody became uncertain about the future of the economy, so people started making decisions accordingly -- reducing investment, initiated layoffs -- which in turn made things worse. . . . Our immediate job is to stop the downward spiral, and that means putting money into consumers' pockets, it means loosening up credit."No, loose credit is the problem (not the solution)--and the risky, shaky assets WERE the consumer spending (such as going into debt for RVs--RECREATIONAL vehicles) and unviable businesses (such as oversaturation of gourmet coffee shops that only cannibalize each other)--so we need to LET Joe and Jane unwind their unsustainable debt spending to make things better (spiral down, not lever up again) --but Obama is blocking Joe's and Jane's solutions and perpetuating the plague of loose credit that started the mess.
"We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough, and as a consequence they suffered what was called the "lost decade" where essentially for the entire '90s they did not see any significant economic growth."No, they did not see economic growth BECAUSE the Japanese government acted TOO boldy in bailouts and stimulus, which trapped resources in zombie companies, wasted resources in malinvestments, and consumed the very resources needed for recovery (crowding out), thereby bleeding and starving the productive private sector--and PREVENTING the recovery.
Obama's "normalizing the credit markets" is trying to normalize an unsustainable bubble. Who knows how many great discoveries or medical cures we already lost because the government is monopolizing the economy for political purposes?
Tuesday, April 28, 2009
Inflation or Deflation? Money Supply, Credit Supply
Measure Money and Credit
NOT Prices, Wealth, Assets, Velocity, Transparency
People debating inflation/deflation often take the Austrian economics' definition:
Inflation = Increased supply of money and credit (combined)
Deflation = Decreased supply of money and credit (combined)
Therefore, the following are NOT inflation/deflation:
- Prices: Many deflationists rightly state that price increases are not inflation (such as when gas prices were rising during the current recession). As Milton Friedman and Anna Schwartz wrote, "Inflation is always and everywhere a monetary phenomenon." In contrast, prices can be a lagging-indicator effect of inflation/deflation (monetary phenomenon) or an effect of supply and demand (production phenomenon). The Federal Reserve confuses people by using prices (CPI, PCEPI) as an inflation measure. Actually, prices can rise even during deflation if supply (relative to demand) drops faster than money/credit supply drops (a common definition of "real" (relative) "inflation" (actually, general prices increases) as "too much money chasing too few goods" explains prices by combining the monetary effect with the production effect, money relative to production, but we will stick with inflation/deflation as absolute money/credit supply for clarity). If rising gas prices are not inflation, falling gas prices are not deflation. We saw years of inflation with falling prices in electronics. Beware when people cite falling prices such as gas, wages, and assets (not money/credit supply).
- "Wealth Destruction" ("Asset Deflation"): These terms often misleadingly refer not to actual wealth destruction (your quart of milk spoils), nor to money destruction (burn a dollar bill), nor to credit destruction (pay off your credit card), but to price declines, which we already know are not deflation (see the previous paragraph). First, asset destruction (house burns down) is different from asset price declines (house assessed value declines but is still the same house providing the same housing shelter). Price decline from peak is different from price decline from purchase price (house or 401k goes up 2 pennies and then down 1 penny--despite the "asset deflation," you did not lose a penny, you gained a penny). Prices can decline without practical wealth destruction when dealing with unreal, unrealized "paper" profits/losses. Second, money does not equal asset value even in "normal" markets when house prices do not decline. Someone with a 5% 30-year fixed-rate mortgage (FRM) will pay almost $600k for a $300k house after interest ($280k interest). Third, asset prices can plummet without decreasing the money/credit supply by a single penny. If someone buys a house for $300k, sells it to you for $600k, and then overnight the value drops back to $300k, the $600k is still in the economy (you gave the $600k to the seller, plus you still have $1.16 Million debt payments to give to the bank ($600k + $560k interest @ 5% 30yr FRM) if you used a no-money-down mortgage). That case is wealth transfer, not wealth destruction. Asset price fell (50%), Loan To Value (LTV) ratio rose (from 100% to 200%), and money/credit supply remained unchanged. Assets are not money. Assets are not credit. If you prefer, not all assets are money/credit. Beware when people cite falling asset values (not money/credit supply).
- Velocity: Velocity, the turnover rate or frequency at which people exchange money, is an effect of economic activity, not the cause of it as central planners like to say (people need a productive reason to exchange money and increased velocity is a consequence--but politicians prefer higher velocity even for unproductive make-work because they profit from churning even wealth-destroying transactions). Do not confuse the number (supply) of an item with the number of people using that item. If your street of 10 people shares 1 lawnmower, together you have 1 lawnmower, not 10 lawnmowers (1 "high-velocity" lawnmower that travels a lot, instead of 10 low-velocity lawnmowers that each stay in 1 yard). Velocity is the speed of the money/credit supply. Velocity is not the money/credit supply. Velocity is not money. Velocity is not credit. Beware when people cite the speed of money (not the supply of money). Beware when people cite the number of dollar transactions (not the number of dollars). Beware when people cite decreased velocity (not money/credit supply).
- Hypothetical Transparency (Mark-to-Market Price Discovery): "If credit were marked to market (write-down bad loans), we would have deflation" is not a factual statement, it is a conditional statement (what if). "If pigs had wings, they could fly. Therefore, pigs can fly." That conclusion is wrong because the prerequisite condition does not exist. Pigs do not have wings. Credit is not marked to market. The whole point of government interventions to date has been to prevent accurate mark-to-market of credit and assets (prevent price discovery and transparency). Beware when people cite what-ifs (not actual money/credit supply).
You can see that these variables are distinct in the modified Quantity Theory of Money formula:
MV=PY
M=Money
V=Velocity
P=Prices
Y=Income (Keynesians replaced T=Transactions with Y)
If you want to know the money/credit supply, measure the money/credit supply.
Measure actual money/credit supply and the jury is still out on the inflation/deflation debate:
- Congress: Spend, spend, spend. Your 2008 Chinese Payday Loan (Bush stimulus package) stuffed everyone's mailboxes with $168 Billion in cash, which is about an extra 1% GDP, an extra 3% of M Prime, or an extra 10% of M1--and remember the fractional-reserve multiplier on the $168B. Many politicians last year called for another stimulus program (another 1% of GDP and 10% of M1? Cumulative +2% of GDP and +20% of M1?), in addition to the federal spending increase for FYE 2009 (early estimated at 7% more than 2008, about an extra 1.5% of GDP). Economist Joseph Stiglitz wants Congress to flood state and local governments with cash to de facto void your state constitutions (balanced-budget requirements). The Congressional Budget Office (CBO) estimated that the Federal budget deficit will be 4% or more per year for 10 years, which is cumulatively extra money/credit/debt of 40% of GDP (that does not count all the compounded interest that you will owe on an extra 40% of US GDP).
- Federal Reserve: Print, print, print. Federal Reserve Chairman Ben Bernanke began his Zimbabwe Plan for America with drastic slashes to the Fed fund's target interest rate and eased his RATE of monetary stimulus only when Congress began its fiscal stimulus in early 2008 (which is partly why Bernanke should resign and we should abolish the Fed). He added a Byzantine maze of experimental, arguably illegal, alphabet-soup programs (TAF, TSLF, PDCF, etc.) to stimulate beyond the scope of traditional Fed funds. He continued to cut the Fed's target interest rate to 0% (turning the long-standing ZIRP jokes into reality, ie turning America into a joke) to add to the fiscal stimuli's fuel. He announced limitless liquidity and quantitative easing. Do not assume that 0% is a floor--Bernanke was hired to innovate, Obama loves conducting hastily and poorly designed "bold" experiments on you, and they might become desperate enough to rig a negative, nominal interest rate (PS: After all, a retail bank's monthly fees in excess of interest paid and a central bank's inflation is each a de facto negative interest rate but people accept it) (update links: Fed claims economy needs negative 5% interest rate, Fail penalty creates negative interest rate in Treasury repurchase agreements (repos), Japan considers negative 4% interest rate by taxing cash, Sweden's central bank Riksbanken cut its repo rate to negative 0.25% (hat tip: bANK fAILURE (sic)).
- Banks: Lend, lend, lend. Consumers: Borrow, borrow, borrow. Has the credit supply decreased significantly, or at all? A decrease in the rate of growth of credit (slower credit growth but still credit growth) is different from a decrease in credit (negative number reducing the total credit supply). Total outstanding credit can increase even while new lending decreases if loan repayments diminish even more (during a recession with job loss and lower income, people might switch to minimum payments or even increase debt). Total outstanding US consumer credit hit a record high in 2008 (9/08) and the latest figures (2/09) show US consumer credit is less than 1% from the highest point in history set during the so-called "credit crunch" (9/08), higher than any month before the so-called "credit crisis" began in August 2007, and higher than any month during the massive credit boom (see graphs and tables, updated).
Saturday, December 13, 2008
Madoff Case Proves Danger of Trusting Government
Bernard L. Madoff's Ponzi Scheme Loses $50 Billion of Investors Money
. . . And Illustrates How Government Regulation Creates/Enables Financial Fraud
Ambulance-chasers who exploit this financial-fraud train-wreck for a power-grab to increase the government regulatory burden fail to understand history and human nature.
Ivar Kreuger "The Match King" created a post-WWI, massive, international Ponzi scheme including mortgage/asset-backed securities that finally imploded during the Great Depression. (hat tip: Energyecon)
- Regulators created the Securities Act of 1933, the Securities Exchange Act of 1934, and the Section 4 Securities and Exchange Commission (SEC) as more "never again" empty promises that were supposed to prevent another Kreuger but failed to prevent Enron, Madoff, etc.
- Regulators created the 1934 SEC and Glass-Steagall Act of 1933 to prevent more financial fraud/collapses but failed to prevent Madoff even during the red flags (or whistleblower Harry Markopolos' complaints dropped in the SEC's lap) in 1992 and 1999 (before the alleged deregulations of pro-regulation George W. Bush (pro-SOX, pro-TARP)).
- Regulators created the post-Enron Sarbanes-Oxley Act of 2002 (SarbOx or SOX) as another "never again" empty promise that failed to prevent Madoff or any of the housing/financial-bubble fraud or the current global financial crisis.
- Regulators not only failed to stop Madoff but instead the SEC lavished him with a special privilege named after him, the "Madoff Exception" (hat tip: Trader Walt):
Madoff Exception mentioned in: "Regulation SHO, Rule 202T – Temporary Rule related to Establishment of a Pilot Program"
"The SEC’s Short Sale Rule (Exchange Act Rule 10a-1) states that a listed security must be sold short at a plus tick price or at a zero-plus tick with two exceptions (the equalizing exemption (Exchange Act Rule 10a-1(e)(5)) and the Madoff exception). Rule 2O2T is a temporary rule that creates procedures for the Commission to establish a Pilot Program to analyze the necessity and effectiveness of current tick test restrictions. The Pilot Program established will exclude designated securities from the requirements of the tick test (or any other SRO-specific price test) from May 2, 2005 until April 28, 2006." (CHICAGO STOCK EXCHANGE, INC. MARKET REGULATION DEPARTMENT INFORMATION MEMORANDUM, MR-05-6, 4/27/05)
Madoff paid political contributions to officials including (home of Wall Street) New York Senators Chuck Schumer and Hillary Clinton.
"SEC Official Married into Madoff Family"
"Madoff boasted of his 'very close' relationship with a SEC regulator, chuckling as he said, 'in fact, my niece even married one.'" Former SEC assistant director of the Office of Compliance Inspections and Examinations Eric Swanson married Madoff's compliance lawyer, niece Shana Madoff.
The SEC then insulted the American public by, after the SEC shepherded the fraud's "stunning . . . duration" through 2 decades of inaction or rewarding Madoff, boasting that it was moving "quickly and decisively":
"Our complaint alleges a stunning fraud -- both in terms of scope and duration," said Scott Friestad, the SEC's deputy enforcer. "We are moving quickly and decisively to stop the scheme and protect the remaining assets for investors." ("BernardWhy Government Regulations Fail To Do What They Promise:
Madoff arrested over alleged $50 billion fraud," Edith Honan and Dan Wilchins, Reuters, 12/12/08)
When the Insider Trader IS the Government Regulator: HUD/Feds Knew Subprime Mortgage Danger 1 1/2 Years Ago [2005/2006].
Federal Reserve Blind to Housing Bubble: BLS OER V. Case Shiller HPI.
Did Government Create Mortgage Securities Mess? Is It about To Repeat Its Mistake?
SEC NRSRO Causes Asset Mispricing?
New Deal, Sarbanes Oxley (SOX), Homeland Security, Resolution Trust Corps (RTC) Recidivism: Financial Regulation Stupidity Roundup.
FDIC Fails. WaMu Bank Refuses to Cash Federal Check.
Abolish the Federal Reserve Central Bank: Declararation of Financial Independence.
Detroit Big 3 Bailout Misses Supply-Demand Big Picture
Rescue Chrysler/GM = Kill Ford
Auto Dealerships Offering Buy-One-Car-Get-A-Second-Car-Free Expose Bailout's Folly
The people crying that the automobile industry is X-million jobs or X-percent of the economy should have bought a controlling interest in GM a decade ago and reformed it, instead of trying to rob the public today.
The odds that every single job would evaporate are remote.
There are 2 basic possibilities:
1. If bankruptcies collapsed production below demand, other companies would hire new employees or contract new parts suppliers to pick up the slack. Jobs could shift to a remaining US legacy company (Ford?-which said it does not need the bailout), or Toyota (in America), or new electric vehicle (EV) startup companies such as Tesla Motors, or new industries not anticipated by the Luddites.
2. If current capacity/supply/production is higher than demand, then a reduction in production is welcome and a reduction in producers is understandable (actually, even with higher production, it is better to make more things with less labor—have you noticed that 98% of Americans are not farmers (not in an agricultural job of the labor force)?). Treating the current automaker size or number as a static, sacred, magic number is ridiculous. People allege that autos and “related” companies take-up 1/7 of the economy—but trying to freeze that number in a dynamic economy can damage you and the whole country if the proper, wealth-maximizing proportion is only 1/21 of the economy (1/3 of the current size).
Weeks of public debate overlook the main point:
GM exists to provide cars to consumers, not jobs/health-care/pensions to employees.
If we have an automobile oversupply (do not need new cars):
- Making more unwanted cars is a waste of resources, including unnecessary pollution and oil depletion for the workers to drive to work to waste resources.
- Any car sale that the government guarantees for Chrysler or GM probably steals that car sale from Ford.
- Any Chrysler or GM job the government saves probably takes a job away from a Ford worker.
- Japanese car makers’ sales slid about as much as US car makers’ sales did (which might indicate comparable car value, but the Japanese companies apparently put themselves in better financial shape in the good times to ride-out the bad times). 6 companies at 2/3 capacity equals 4 companies at full capacity and 2 companies obsolete.
- Automobile backlogs already are piling up in ports (note the probable typo "spurn" at the end).
- US and European auto dealers already are offering buy-one-get-one-free offers on automobiles.
We already have an oversupply. Why build more? Why bailout Chrysler/GM by killing Ford?
If Detroit had a solid plan to make and sell good cars at a good price, it would attract private investors (dismiss the "only government can do it" ploy and look at the dollar amount of money on the sidelines that pumps even a +1% stock-market rally).
Imagine if Detroit’s auto executives and the United Auto Workers (UAW) union spent as much time trying to build good cars as they spend trying to break into your bank account for a bailout.
Thursday, December 11, 2008
Big Lie of "Credit Crunch"
Market Says We Need LESS Credit but Government Continues Its Force-Feeding to Cram Debt Down Your Throat
The Wall Steet Journal's 12/11/08 "Freight Haulers Slam on the Brakes --Expecting the Weakest Year in Three Decades, Truck, Rail and Ocean Shipping Firms Are Cutting Back" (hat tip: CR):
Less VOLUME is less DEMAND.“In a normal year, Gordon Trucking Inc. might replace 20% of its fleet of 1,500 big rigs with new trucks. But given the bleak outlook for the freight business, the Pacific, Wash., hauler doesn't intend to buy a single new truck next year.”
“’We're settling in for nuclear winter in the first half of 2009,’ says Steve Gordon, operating chief for the company, which hauls everything from paper products to electronics.”
"Some industry executives and analysts predict that 2009 could be the worst year for freight-transportation volume in three decades or more." (emphasis added)
- The companies do not NEED more trucks.
- The companies do not NEED more credit to buy trucks.
Business-investment increases typically signal economic recovery but the current investment reduction is healthy because demand for trucks is less.
- The problem of business overinvestment (overcapacity) is solved by less investment.
- The problem of overconsumption is solved by less consumption.
American consumers apparently do not need to replace their 30" TVs with 35" TVs after all.
Government/media propaganda about “lack” of credit is false.We need LESS credit SUPPLY because we have LESS credit DEMAND--as in truck companies needing less credit because they need fewer trucks because they have less freight to move.
This is not rocket science.
We DO need transparency and price discovery, which is the exact solution that the government bailouts are designed to prevent.
Saturday, December 6, 2008
Obama=Bush: Infrastructure Alternative-Energy Bubble Economics
Obama Essentially Pledges To Be Bush’s 3rd Term and Perpetuate Bushonomics "Guns & Butter" Bubble Economy
Barack “Bubbles” Obama follows his bellicose, chest-thumping "We will kill bin Laden. We will crush Al Qaeda" announcements to escalate the “Global War on Terror” and order his own troop surge in Afghanistan and raise a massive "civilian national security force that’s just as powerful, just as strong, just as well-funded [as the military]" with a hundreds-of-billions-of-dollars deficit-spending “infrastructure” stimulus to perpetuate the ponzi bubble economy at all costs and bury you in hyper-debt.
Old Wine in New Bubble:
Obama Incubates a New Host for the Ponzi Parasite
Do you believe “it’s different this time” as long as we say “infrastructure” and “alternative energy”?
- We just finished the largest infrastructure-building bubble in history. It was called the housing bubble. It was government policy. It caused the current global financial crisis. It indicates that the government is horrible at picking worthy infrastructure projects (leading to impoverishing malinvestment). Obama wants to do it all over again like it is a Disney ride.
- We just finished a PUBLIC/GOVERNMENT infrastructure-building bubble fueled by the housing/finance bubbles, as state/local coffers overflowed with property/income/sale taxes.
- Governments just finished proving the waste of public infrastructure programs. The always pork-ridden federal transportation bills reached new infamy with the Ketchikan Alaska "Bridge to Nowhere." The state of Minnesota raked in $13 Billion in surpluses 1997-2001 (during the dot.com bubble) and another windfall during the housing bubble, including a $294 Million surplus in the end-of-session 2007, the same year that 13 people died when the 35W St. Anthony Falls Bridge collapsed (8/1/07) after the cash-flush state government ignored “clear warning signs -- such as corroded, buckling gusset plates.” The federal and Louisiana state governments similarly botched New Orleans levee infrastructure with catastrophic and deadly results during the 2005 Hurricane Katrina. People died while governments spent their bubble revenue on “infrastructure” projects similar to more teachers' lounges (will they soon add granite countertops and stainless-steel appliances?), high-school "senior balconies," swimming pools, Maryland Department of Natural Resources (DNR) Project Open Space (POS) for “conservation areas” or Portland Oregon Bureau of Parks and Recreation’s $250,000 study for a 4-mile scenic bike path (the quarter-million dollars does not build anything, it just “studies”).
- Obama’s alternative-energy Green Bubble (the Grubble?) is a Trojan Horse to misrepresent more consumption as conservation (saying the US government "pays the highest energy bill in the world" and then demanding yet more spending on government buildings--"greenwashing" spending--instead of downsizing) (Update: Obama gives lip service to fuel-efficient vehicles but then uses his first major press conference as president to push gas-guzzling 5mpg RVs) and a recipe for malinvestment (subsidizing inefficient but politically-correct boondoggles) and pork-barrel spending for politically-connected, insider, special interests. Venture capitalist Bob Metcalfe embraces the dot.com bubble as a business model and recycles erstwhile dot.commers into the new Green Bubble, “there is a bubble. And it’s great.”
- Obama’s final attempt to assure the public that his policies will remain unsullied by reason is his “use it or lose it” criterion to force ill-considered spending decisions. Crash-spending programs cause massive waste, such as 1980s Defense Secretary Caspar “Cap” “the Ladle” Weinberger’s profligacy, the infamous $436 hammer and $640 toilet seat, and the post-9/11 security bubble including Newark NJ buying air-conditioned garbage trucks with Homeland Security money.
- Obama might be giving away your tax dollars to support drug-trafficking, prostitution, and human trafficking because of mob/mafia ties to construction. "Organized crime controls 75 percent of the construction industry in New York City through its control over the concrete industry and construction unions, an admitted mob captain told Senators [in 1988]." "New York Public Works Projects Saddled with ‘Mob Tax’." FBI investigations implicate the Gambino crime family in a 21st Century I-95 interstate highway construction project.
- Expect all the housing-bubble excesses (waste, fraud, cronyism, etc.) to continue, since Obama's "let's take this party back to my place" announcement merely shifts the bubble from residential infrastructure (housing) to non-residential infrastructure (schools, roads, or anything allegedly "civic").
Bubbles Obama seems intent on copying FDR’s folly of wasting scarce resources on parks and wall murals while people starved.
The New Deal failed to end the Great Depression.
The Greaty Society failed to end poverty.
Entombing Japan in concrete failed to end Japan's 1990s "lost decade" (more like 2 lost decades now).
Why would anyone believe today's Keynesian stimulus-addicts who promise, "but this time it's different"?
Obama's concrete will build America's mausoleum.
- The solution to a debt crisis is NOT a spending spree.
- The solution to a debt problem is NOT more debt.
- The solution to a bubble is NOT another bubble.
Monday, November 24, 2008
Consumer Credit Hits Record HIGH, Belying “Credit Crunch”
The “Credit Crunch” that Wasn’t
US total consumer credit hits record HIGH after a year of the so-called “credit crunch,” according to the Federal Reserve’s latest provisional figures released November 7, 2008.
The graph shows that 3rd-quarter 2008 total US consumer credit grew 3.7% above 3rd-quarter 2007, when the “credit crisis” began.
Not only did consumer credit not shrink, it grew.
September 2008 consumer credit is higher than the same month of any year prior, higher than the housing-bubble peak.
Index of US total consumer credit, growth year-over-year (YoY), September-September:
1998 = 1.00
1999 = 1.08
2000 = 1.19
2001 = 1.30
2002 = 1.40
2003 = 1.47
2004 = 1.54
2005 = 1.62
2006 = 1.69
2007 = 1.79
2008 = 1.85
Consumer credit expanded to 4 TIMES the Fed’s claimed 2% per year target for core inflation, which, after 10 years, would be a 2008 index of only 1.22.
A 2% growth rate will not double the initial amount until 36 years yet consumer credit nearly doubled in 10 years and continued its nearly relentless expansion during a year of what was supposed to be the worst credit crunch in memory.
- “Current” (2008Q3p) consumer credit would have to crash 12-13% simply to return to the 2005 level near the housing-bubble peak.
- “Current” (2008Q3p) consumer credit could crash almost 1/4 (24%) and still be higher than the 2002 level during Greenspan’s slide toward 1% Fed funds benchmark interest rate (dropped 50 basis points (bp) from 1.75% to 1.25% on 11/6/02).
- “Current” (2008Q3p) consumer credit would have to crash over 1/3 (34%) simply to reach the 10-year trend line for 2% annual growth from 1998 (22% higher than 1998--and we already were awash in credit in 1998).
Update
Latest figures show total outstanding US consumer credit of $2.564T (2/09) at less than 1% from the highest point in history set at $2.583T (9/08) during the so-called "credit crunch," higher than any month before the so-called "credit crisis" began at $2.481T (8/07), and higher than any month during the massive credit boom.
8/07 "Credit Crunch" allegedly begins
2/09 Total outstanding US consumer credit is 3.3% higher than 8/07
Lending Keeps Growing, Growing, Growing
Total credit of all commercial banks (TOTBKCR), percent growth, Year over Year (YoY), remains well above 0 at about 2.5% growth (similar to the 1990s and 2001 recessions):
Total credit of all commercial banks (TOTBKCR), absolute levels show recent volatility but so far remain well above the pre-"Credit Crunch" levels of the massive global credit bubble:
Fed TOTBKCREven if consumer or bank credit does decline, does it decline by more than government debt increased or by more than money increased?
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The notion that we lack credit now is madness.
I explained over a year ago that we have no credit-supply crunch, but we do have a number of other crunches that policymakers ignore or misread.
The government continues its misguided bailouts and hyper-debt policies.
What This Means for Inflation Vs. Deflation
