Economic Collapse

Cutting the federal deficit is the only way back to a sound economic recovery and job creation. You can’t keep spending money you do not have forever. The fact is that the US is broke. Until the federal deficit is turned back to a surplus the Fed will keep printing money through “quantitative easing” which should more appropriately be called “massive worsening” leading to hyperinflation and the death of the US Dollar. Obama plans to “cut spending” with a total of 250 billion US Dollars over 10 years. Yes, 10 years. Thats 25 billion each year at the same time the official expected federal deficit is 1.35 trillion. Thats 1 350 billion. Obama just announced “savings” of less than 2%. I guess its a start…

India buys 200 tonnes of Gold from the IMF for 6.7 billion US Dollars. Thats more than 7 million ounces and half of the announced IMF gold sale of 400 tonnes. Who will buy the other 200 tonnes? My bet is China. Why are they doing this? They want to get rid of their US Dollars and into hard assets. Gold is the money of kings. Debt is the money of slaves. Just look at the rate of decline in foreign purchases of US debt: Read the rest of this entry »

As expected for a long time now, CIT filed for bankruptcy yesterday. This is huge for small and medium sized businesses in USA as Reuters reports “CIT failure to leave small businesses floundering”:

The company’s long-term prospects are uncertain and the bankruptcy could leave more than one million small and medium-sized businesses looking for another source of funding, lawyers said.

“This could have a devastating effect,” said Jerry Reisman, a partner at law firm Reisman Peirez & Reisman in Garden City, New York, who has been working with many of CIT’s factoring clients.

These clients — about 2,000 small companies — are in a particular bind when it comes to finding alternative financing since CIT is by far the biggest provider of factoring services.

CIT’s factoring business, worth about $42 billion in 2008, is estimated to be at least five times the size of its closest competitor, Wells Fargo & Co (WFC.N), followed by other smaller companies such as GMAC Inc and Rosenthal & Rosenthal. It is not clear if these rivals have enough capacity to take on all of CIT’s existing customers.

Reuters reports:

U.S. authorities seized nine failed banks on Friday, the most in a single day since the financial crisis began and the latest stark sign that substantial parts of the nation’s banking industry are being crippled by bad loans.

The move brought the total number of failed banks in 2009 to 115 — their highest annual level since 1992 — with analysts expecting more to come. Among the lenders seized Friday was Los Angeles-based California National Bank, in what was the fourth-largest U.S. bank failure this year.

The largest institution to fail in the current financial crisis was Washington Mutual, which boasted $307 billion in assets when it was shuttered in September 2008.

U.S. Bancorp on Friday acquired the nine banks that had been held by FBOP Corp, picking up $18.4 billion in assets and $15.4 billion of deposits.

So another 15 billion to handle by the FDIC. They will need more funds very soon. From whom you ask? From you, dear taxpayer! This will be done through Bernankes printing press and you will pay for it through the further debasement of your currency. Trick or treat?

Just a few minutes ago the zFact.com National Debt Clock turned over to 12 trillion USD. As you all know, the total liabilities of the US is much much higher if you take Medicare och Medicaid etc into the picture.

Compare this to the counter on the left hand side on this page.

First to default were the now (in)famous “sub-primes”. Defaulting now are the “primes” and the “alt-A’s”. Next up: “Commercial Real Estate Mortgages”. On top of those: “Mortgage Backed Securities” and other derivatives of all kinds. So many different names for paper debt. Here are some stats from Bloomberg for the third quarter of 2009:

• 937,840 homes received a default or auction notice or were repossessed by banks, a 23% increase from a year earlier
• 1 of every 136 U.S. households received a filing, the highest quarterly rate on record
• A “shadow inventory” of 7 million properties are in the foreclosure process or likely to be seized, up from 1.27 million in 2005
• The pace of prime and so-called alt-A loan defaults is accelerating
• The delinquency rate (failure to pay) for prime loans rose to 6.41% in the second quarter from 6.06 percent
• The share of prime loans in foreclosure increased to 3% from 2.49%

Prime loans are those made to borrowers with the best credit records while alt-A loans are considered riskier because they were often granted without documenting the borrower’s income. “The best” borrowers are now incersingly defaulting as (official) unemployment in the US goes above 10%. Shadowstats.com puts that number at about 21%.

This video post is almost a month old by now, but the content is timeless. Canadian economist professor Michel Chossudovsky is the author of “The Globalization of Poverty” and “America’s ‘War on Terrorism’”. He is also the Director of the Centre for Research on Globalization. In this video he sits down with The Corbett Report to discuss the real meaning of the “bank bailouts”. A very well summarized overview in just under 8 minutes.

Read the rest of this entry »

Dear readers, interesting times to say the least. As stated in one of the most important articles in decades (discussed here on Mellgren.com), the denials from US media and officials are in, like clock-work:
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Paul Tustain, founder & CEO of BullionVault.com just put out this talk in writing. He has been touring Asia talking to investment professionals in Tokyo, Singapore and Hong Kong. It’s a very well written talk and gives you a comprehensive overview of what might be coming our way. Download the 12 page PDF here. He talks about US consumers and what an increase in interest rates would entail for the tax burden:

The cost of a $20 trillion national debt costing 5% per annum in interest rates would
be $1 trillion, or $10,000 per annum in taxes per year for every American family, just to
pay the interest, i.e. before a single government service was delivered. That is the cost of
maintaining a $200,000 per family national debt.
The unavoidable conclusion is that, on-plan, the US cannot react appropriately to a
developing inflation problem. The G20 pronouncement that interest rates would stay
low for the foreseeable future was true. There is no alternative to permanently low
interest rates on these budget figures.

Read the rest of this entry »