Tag Archives: recession

Why You Should Care About the CBO Report – Really This Time

The non-partisan Congressional Budget Office (CBO) produced the most-recent version of it’s periodic report on the state of the nation’s economy.  The report was as dreadful as expected: debt rising and tax receipts going down, but you knew that already.  What’s different is how they are either lying to candy coat how bad things are going to get, or they are simply telling us that our personal situations .. are about to get much, much worse.

As a numbers geek, I read these things.. the whole thing to find those things that really mean something.  The report starts out sounding kind of rosy.

The Congressional Budget Office (CBO) estimates that the federal budget deficit for 2010 will exceed $1.3 trillion—$71 billion below last year’s total and $27 billion lower than the amount that CBO projected in March 2010, when it issued its previous estimate.

Great, so the deficit isn’t as bad as the CBO thought it might be a few months ago, but still terrible.  We hear this stuff on the evening news, in the car, in the paper .. to the point that we’ve become numb to it.  That’s why they bury this little nugget “below the fold” or in other words, late in the article after you’ve already tuned out (emphasis mine).

In CBO’s baseline, total revenues climb sharply in the next few years, from 14.6 percent of GDP in 2010 to 17.5 percent in 2011 and 18.7 percent in 2012. That increase is attributable in part to the scheduled expiration of tax provisions originally enacted in 2001, 2003, and 2009 (including temporary relief from the AMT, which expired at the end of December 2009) and in part to the anticipated economic recovery.

The parenthetical mention of the expiration of AMT relief is almost a confused negative , kind of like “jobs created or saved”.  It took me several reads and some prodding from a CDN staff member to focus on the intent of this paragraph: this economic outlook is based on the assumption that ALL of the Bush Tax Cuts will expire (not just the ones for the top 1%) and that tens of millions of Americans will no longer be given “relief” from the AMT provision of tax law – that could mean YOU!

In the past, most of us have not made enough to have been affected by AMT, or, the alternative minimum tax.

The original idea behind this tax was to prevent people with very high incomes from using special tax benefits to pay little or no tax. The AMT has increased its reach, however, and now applies to some people who don’t have very high income or who don’t claim lots of special tax benefits. Proposals to repeal or reform the AMT have languished in Congress for years, but effective action does not appear to be on the horizon. Until Congress acts, almost anyone is a potential target for this tax.

The reason that most of us have not paid attention to this tax on the wealthy is that it does not impact middle-class America (thanks to interventions from our beloved Congress) as this Tax Policy Center Post makes clear.

It has become a regular stop on Washington’s fiscal merry-go-round: Congress patches the Alternative Minimum Tax for a year or two, but leaves future fixes for mañana. For instance, the Senate Budget Committee’s new fiscal blueprint makes room to fix the AMT for one year only and assumes money will be found from somewhere to pay for future patches.

Alternative Minimum Tax

From TaxPolicyCenter.org

The good news – even folks like you and me are now considered wealthy.  AMT was never indexed for inflation or anything else so over time, more median-income families will be pulled into what is quickly becoming the middle-class tax.  This graph illustrates how, with the CBO’s proposed expiration of the AMT relief, an alarming number of Americans will find themselves subject to the supposed wealth tax.

The good news is we’re wealthy – the bad news.. Obama is promising to raise taxes on, that’s right,  the wealthy.  You and I, and everyone that works and struggles to make ends meet .. is going to meet head-on with an ugly tax bill in years to come.  Here’s a situation illustrated by MSN.com that you or I could easily find ourselves in the middle of.

Marile Robinson, 52, had just bought her dream home a few years ago when her accountant gave her a nasty shock: She owed an unexpected $290,000 in taxes.

Robinson, who earns $75,000 a year as a human resources director at Intel, had no choice but to sell the house and take out a loan to pay off the tax bill. Im starting from scratch, and Im in my 50s, Robinson said. Her monthly take-home pay is equivalent to the monthly interest on her loan.

It turns out that Robinson, like more and more middle-income folks each year, got slapped with the alternative minimum tax, a tax system thats separate from the regular income tax and comes with its own rates and rules. By 2010, the Internal Revenue Service estimates, more than 35 million taxpayers will be subject to the tax.

That’s a single person making $75,000 .. the same applies to a family.

The news gets no better if you continue to read between the lines of the CBO report.

Revenues will also be boosted by provisions of the recently enacted health care legislation (the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010), which are estimated to increase receipts by growing amounts over the next few years

Ah, so Health Care reform was more about collecting taxes than doing much else – not much of an aha moment actually.  Unfortunately, those revenues.. come from medical equipment manufacturers and pharmaceutical companies.. you know.. employers.  At best, this adds to the causes of stagflation where prices need to go up to pass on the costs of government greed, but can’t because of deflationary pressures (no one can afford more expensive drugs, or insurance companies force lower price compensation due to government regulation).

Stagflation.. scary.. that’s what we had during Carter’s catastrophe of a Presidency.  Oddly enough .. Paul Volcker was leading the economic direction then too..

The CBO report does discuss inflation, or the lack thereof.

Inflation in the prices of consumer goods and services (calculated using the price index for personal consumption expenditures, or PCE) is projected to be about 1 percent in 2010 and 2011, when measured on a fourth-quarter-to-fourth-quarter basis. Core inflation, which excludes the prices of food and energy, is also projected to be about 1 percent this year and next. CBO projects that inflation will pick up moderately thereafter but remain below 2.0 percent from 2012 through 2014.

While the report somehow makes the possible 1% price growth a positive thing, we all know that with the aforementioned fallacies in-mind that’s not even a reasonable assumption.  Deflation is going to be the order of the day for the foreseeable future.  The CBO is able to ignore the possibility by simply pretending that Congress will act a certain way (kill 100% of Bush tax cuts and expose 30 Million middle-class Americans to AMT AND assume economic recovery.. yeah that’s happened).  Perhaps Congress will do those things, but if they do .. consumers, who make up 70% of GDP will be left with much less to spend- deflation is all that can result.

If Congress acts in the way that the CBO presumes, middle-class families will have to cough up an additional $500 Billion over ten years.  The only way the CBO sees to balance the budget is to raise taxes, odd how a non-partisan Government agency is no more frugal than the partisan ones.The flip side is what if they don’t?

If Congress does what they’ve done for years, the budget deficit and the national debt will increase to alarming levels (ok ok , even more alarming levels).  This report demonstrates that they are counting on the expiration of all of the Bush tax cuts, no fix for AMT, light inflation, and a perceivable recovery.  It is very realistic to assume that the Bush tax cuts will be extended for all but the top 1 or 2% of earners, that the AMT fix will be put back in, the we might see severe deflation and that the recovery won’t be this year.  The debt picture gets downright dark if the fairy-tales in the economic report don’t come true.

I will be as financially distressed as many of you by the actions Congress will take to match this outlook.  It’s coming, it’s nasty and it’s real.  This CBO report is about you, to you, and affects .. you.

I pray November comes fast enough: “Silence has gotten us nowhere so it’s once again time for our collective voice to make a simple yet powerful demand .. Don’t Tread on Me” –Glenn Beck

Welcome to the New Deal. Same as.. The New Deal

You read about The New Deal (circa 1933 – 1938) in high school, but did you ever think you would get to live through it? They say that those who do not learn from history… you know the rest. In a nutshell, we are the doomed in this case.  Just how closely is Obama and his band of merry morons resurrecting The New Deal? Let’s refresh ourselves on FDR’s version first:

FDR’s New Deal was a response to the economic downturn of the Great Depression. The stated purpose of the over one hundred new agencies created during this period was the “3 Rs”: relief, recovery and reform. (Sounding familiar yet?) . With the creation of The New Deal came a change to the country’s leadership and lawmakers, too: a Democratic majority and Democratically held White House.  This is getting a little eerie. Probably just coincidence. Let us move on.

The initial phase of FDR’s New Deal dealt with large portions of the GDP, the money makers at the time: banks, railroads, farming and industry.  These large entities were all struggling to get out from under the Depression and demanding aid.  The second phase was enacted to promote labor unions, create Social Security, and regulate agricultural trade and work practices (including fair working conditions, wages and hours regulations).

This massive endeavor led to an expansive increase in the size of the government, and an unprecedented increase in cost of running the country.  To put this in perspective, realize that the First Hundred Days mark for measuring a President’s advancement of his agenda came about because of what FDR managed in HIS first hundred days in office.  Congress granted FDR’s EVERY request in those first 100 days of lawmaking.

FDR’s New Deal was met with opposition from Republicans. It was either vehemently opposed, or pieces accepted with promises to make it efficient. The opposition continued between 1933 and 1938, with little to show, since Democrats controlled both the White House and Congress.  The opposition consisted mainly of what is known as the “Old Right” – made up of politicians, intellectuals, writers, and newspaper editors of various philosophical persuasions including classical liberals, and conservatives, both Democrats and Republicans. (Anyone for Tea?)

Though the initial phase of The New Deal showed sound economic growth, an economic downturn in 1937- 1938, coupled with the failure of many of its programs caused many to question just how effective the measure was overall. In 1939, Gallup asked ‘Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?’. The reply, by a two to one margin was “Yes”. Unemployment was back down to dangerous levels and America was in debt to the extent that she had never been before.

Among the opposition to the New Deal were charges of Communism, Fascism, and Utopianism along with “a missed opportunity to do away with Capitalism”.  FDR’s New Deal had its fingers in pies ranging from banking, healthcare, housing development and ownwership,agriculture, unions, welfare, alcohol, art, music and redistribution of wealth via severely progressive taxes and levies. In the end, FDR’s New Deal shaped a new political ideal – Progressive Liberalism – that went on to help shape the next experiment in social reform: The New Left of the 1960’s.

Move ahead to 2008 and the election of Barack Obama, or better yet.. go back to the beginning and read from there. I don’t see the point in re-hashing it in writing, since we have reached the second phase of Obama’s Not So New Deal.

Warning Signs of an Economic Collapse

The National Debt Clock is shown Monday, Feb. 1, 2010 in New York. President Barack Obama sent Congress a $3.83 trillion budget on Monday that would pour more money into the fight against high unemployment, boost taxes on the wealthy and freeze spending for a wide swath of government programs. The deficit for this year would surge to a record-breaking $1.56 trillion. The Debt Clock is a privately funded estimate of the national debt. (AP Photo/Mark Lennihan)

Obama has previouly stated the he has pulled the economy back from the brink. This is far from truth and quite the opposite. Obama’s economic policies are instead pushing us off the economic cliff. The 13 trillion dollar National Debt is just one of a number of unprecedented warning signs pointing toward an economic collapse. The National Debt is very important, but not the most important on it’s own. There are several other factors that you need to be aware of as well, and here are a few.

First a list from The Economic Collapse Blog: “The U.S. Economic Collapse Top 20 Countdown” June 2010

Gallup’s measure of underemployment hit 20.0% on March 15th.  That was up from 19.7% two weeks earlier and 19.5% at the start of the year.

According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March.  This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report back in January 2005.

According to the Bureau of Labor Statistics, in March the national rate of unemployment in the United States was 9.7%, but for Americans younger than 25 it was well above 18 percent.

The FDIC’s list of problem banks recently hit a 17-year high.

During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.

The U.S. Congress recently approved an increase in the debt cap of the U.S. government to over 14 trillion dollars

The FDIC is backing 8,000 banks that have a total of $13 trillion in assets with a deposit insurance fund that is basically flat broke.  In fact, the FDIC’s deposit insurance fund now has negative 20.7 billion dollars in it, which actually represents a slight improvement from the end of 2009.

The U.S. national debt soared from the $12 trillion mark to the $13 trillion mark in a frighteningly short period of time.

It is being reported that a massive network of big banks and financial institutions have been involved in blatant bid-rigging fraud that cost taxpayers across the U.S. billions of dollars.  The U.S. Justice Department is charging that financial advisers to municipalities colluded with Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers, Wachovia and 11 other banks in a conspiracy to rig bids on municipal financial instruments.

The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January-March time period.  That was a record high and up from 9.1 percent a year ago.

The official U.S. unemployment number is 9.9%, although the truth is that many economists consider the true unemployment rate to be much, much higher than that.

The biggest banks in the U.S. cut their collective small business lending balance by another $1 billion in November.  That drop was the seventh monthly decline in a row.

The six biggest banks in the United States now possess assets equivalent to 60 percent of America’s gross national product.

The total number of banks that have been shut down this year in the United States to a total of 78.

According to a study published by Texas A&M University Press, the four biggest industries in the Gulf of Mexico region are oil, tourism, fishing and shipping.  Together, those four industries account for approximately $234 billion in economic activity each year.  Now those four industries have been absolutely decimated by the Gulf of Mexico oil spill and will probably not fully recover for years, if not decades.

Decent three bedroom homes in the city of Detroit can be bought for $10,000, but no one wants to buy them.

A massive “second wave” of adjustable rate mortgages is scheduled to reset over the next two to three years.  If this second wave is anything like the first wave, the U.S. housing market is about to be absolutely crushed.

The bottom 40 percent of all income earners in the United States now collectively own less than 1 percent of the nation’s wealth.

Here is another  list compilation posted on July 20, 2010 by TheTruthWins.com titled “40 Bizarre statistics that reveal the horrifying truth about the US Economy”

A recent Pew Research survey found that 55 percent of the U.S. labor force has experienced either unemployment, a pay decrease, a reduction in hours or an involuntary move to part-time work since the recession began.

There are 9.2 million Americans that are unemployed but that are not receiving an unemployment insurance check.

In America today, the average time needed to find a job has risen to a record 35.2 weeks.

According to one analysis, the United States has lost 10.5 million jobs since 2007.

China’s trade surplus (much of it with the United States) climbed 140 percent in June compared to a year earlier.

Banks repossessed 269,962 U.S. homes during the second quarter of 2010, which was a new all-time record.

Banks repossessed an average of 4,000 South Florida properties a month in the first half of 2010, up 83 percent from the first half of 2009.

The Mortgage Bankers Association recently announced that demand for loans to purchase U.S. homes has sunk to a 13-year low.

Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.

According to a new poll, six of 10 non-retirees believe that Social Security won’t be able to pay them benefits when they stop working.

Retail sales in the U.S. fell in June for a second month in a row.

Vacancies and lease rates at U.S. shopping centers continued to get worse during the second quarter of 2010.

Consumer credit in the United States has contracted during 15 of the past 16 months.

During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.

Things are now so bad in California that in the region around the state capital, Sacramento, there is now one closed business for every six that are still open.

The state of Illinois now ranks eighth in the world in possible bond-holder default.  The state of California is ninth.

More than 25 percent of Americans now have a credit score below 599, which means that they are a very bad credit risk.

According to a U.S. Treasury Department report to Congress, the U.S. national debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015.

Most of the circumstances in these lists have only gotten worse since being posted.

Bank failures this year have hit 109 via FDIC‘s Failed Bank List

According to EconomicPolicyJournal.com in May 2010  32 States were so bankrupt that they had “Borrowed from the Federal Government to make unemployment payments”

MSNBC reports that “The average rate for 30-year fixed loans fell this week to 4.42 percent”

The Congresional Budget Office (CBO) released a very bleak Report on “The Budget and Economic Outlook.” The report is hiding some facts and our editor and fellow blogger Rich Mitchell takes it apart here.

Today’s Department of Labor Report on unemployment benefits showed the number filing for initial claims jumped 12,000  to 500,000.

A Department of Treasury Report shows that in May China got rid of $33 billion worth of US Treasuries. As well as the Oil Exporters & Japan dropping $8.8 billion. This brings China’s total amount of US Treasuries to it’s lowest level since June 2009.

We also have to take note of the actions of George Soros, the Communist billionaire that is known as The man whomade a billion dollars by ” breaking the Bank of England” and has strong ties to Obama.

George Soros dropped almost 50%  of his American holdings and Gold is his primary investment. From Gateway Pundi (August 18th, 2010)t:

Far Left billionaire, democratic donor and Obama supporter, George Soros is bailing out of the US stock market. The value of billionaire investor George Soros’s hedge fund dropped by 42% to $5.1 billion at the end of the second quarter.
Economic Policy Journal reported, via Free Republic:

Billionaire trader and political manipulator,George Soros, is clearly not optimistic. The latest SEC filings are out on the Soros hedge fund, Soros Fund Management.

Between the end of March and the end of June, Soros lowered his stock investments from $8.8 billion to $5.1 billion in the fund, Soros Fund Management.

He sold most of his positions (over 95%) in Wal-Mart, J.P. Morgan Chase and Pfizer.

His biggest position at the end of June was in the gold ETF which accounted for 13% of his equity portfolio at $638 million.

This means that George Soros does not have confidence in the US stock market and instead is buying gold to hedge inflation. In my opinion he is preparing for the economic collapse of the US economy, but not all currency and the gold holdings can be used to buy any surviving currency, or a new global currency.

A bigger warning sign that the market is near collapse is the “Hindenburg Omen” which has preceded previous stock market crashes and been recently observed. The Hindenburg Omen is a collection of statistics, that if observed twice within 32 days have always predicted disaster within the Stock Market.

Heres a video explaining the Hindenburg Omen posted in October of 2007

More on the Hindenburg Omen From MoneyNews.com:

Named after the zeppelin disaster that took place over Lakehurst, N.J., in 1937, the pattern is a “rare but potent” sell signal, said Jay Shartsis, director of option trading at R.F. Lafferty & Co.

For this to be activated, it requires at least 2.2 percent of the market to reach new 52-week highs and 52-week lows on the New York Stock Exchange on the same day, which happened Thursday, suggesting a lack of conviction among investors.

However, it also needs to happen in a rising market, based on certain indicators, including a 10-week moving average of the NYSE Composite, which has to be rising.

Shartsis said the indicator “speaks for itself,” noting that when confirmed by a second occurrence within 36 days, “every crash (since 1985) was preceded by such a signal.”

Other strategists said they hadn’t heard of the indicator, which has been discussed on financial blogs during Friday’s trading.

And from Zero Hedge:

Today we got our first Hindenburg Omen confirmation. The number of new highs was 136, and new lows was at 69 (per the traditional WSJ source). Granted this particular criteria set was a little weak as the 69 is precisely on the borderline for confirmation (the 2.2%), and the new highs number was not more than double the new lows (although it was close). Less gating were the McClellan oscillator which was negative at -83.6, and the 10 week MVA, which rose, which were the two remaining conditions. The first omen was spotted on August 12 – a week later the H.O has been confirmed. The more confirmations, the scarier it gets from a technical perspective, not to mention the conversion into a self-fulfilling prophecy (like every other technical indicator).

Even though, on June 3rd 2009, Ben Bernanke stated to Congress that the Federal Reserve had no plans to monetize the debt, the Federal Reserve has begun to do just that. The Monetization of the debt is the scariest factor pointing to economic collapse and I cannot stress enough how terrible the outcome of this can be.  Even left-wing Huffington Post was taken aback by this move from the Federal Reserve in this post “Federal Reserve Begins Massive Monetization of US Government Debt” (Emphasis mine)

In a step that will be one of the markers on the road to economic and financial catastrophe, the Federal Open Market Committee (otherwise known as the FOMC) of the Federal Reserve, made a bombshell policy decision on August 10, 2010, one fraught with dangerous long-term consequences for the American and global economy.

In a policy being dubbed QE2, the Federal Reserve’s FOMC conceded that the so-called U.S. economic recovery has “slowed,” and required more stimulus from the Fed. However, with federal funds interest rates now effectively at zero, the only aspect of monetary policy left is money printing. Thus, the Federal Reserve, in effect, will use its printing press to buy long-term U.S. government debt.

Of course, that is not how the FOMC is positioning this major escalation in quantitative easing by the Federal Reserve. In the dry, obtuse language that the obscurantists of the Federal Reserve love to engage in, the committee’s official statement said:

“To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.”

In its first bout of heavy quantitative easing, in the wake of the implosion of the major Wall Street investment banks in the fall of 2008, Ben Bernanke, utilizing his printing press, purchased $1.25 trillion in mortgage-backed securities, and an additional $200 billion in debts owed by so-called government-sponsored enterprises, primarily Freddie Mac and Fannie Mae.

This massive explosion in the Fed’s balance sheet has thus far failed to stimulate economic activity and retard a persistent deflationary recession. All that Bernanke has accomplished has been to create a new asset bubble, this time on Wall Street, with equities exploding in price far beyond their post-crisis lows.

Beyond the Dow Jones index, however, the impact of Bernanke’s balance sheet expansion has been impotent in the face of economic realities, particularly a collapsing labor market and the contraction in consumer demand. The erosion in the M3 money supply, a statistic the Federal Reserve no longer publicly discloses, attests to the failure of its policies.

Now that the Federal Reserve admits, though in its typically obscure linguistic constructs, that a double-dip recession is becoming increasingly likely, Bernanke is going to enter a buying binge of long-term U.S. Treasuries. The hope is that this will stabilize financial markets, and somehow force liquidity into the economy. That, at least is the hope. Given Ben Bernanke’s track record, I would not bank on hope in the infallible judgement of the Federal Reserve and its FOMC.

What is likely to result from the QE2 phase of the Federal Reserve’s disastrous policymaking? In time, sovereign wealth funds will recognize Bernanke’s maneuver for what it is: monetization of the U.S. national debt. When that happens, Treasury auctions will begin to fail, and yields will advance.

This will all put added pressure on the Fed to print even more dollars, and monetize an increasing proportion of the federal government’s debt. This will unquestionably inject liquidity into the U.S. economy. But this Federal Reserve monetary injection will be as beneficial as money printing was in Weimar Germany in the early 1920s, or Zimbabwe more recently.

In deciding on a process that will lead to an ever-growing proportion of the U.S. national debt and yearly budget deficits being monetized by its printing press, the Federal Reserve, under the leadership of itschairman, Ben Bernanke, has taken a fateful step towards irredeemable economic and financial ruin, ultimately convulsing America with a savage, hyperinflationary depression. And, as history teaches us, severe economic depressions bring along other unanticipated consequences, often leading to political and social turmoil and even global war.

The Huffington Post is telling you that this move will destroy our economy in eventual Hyper-Inflation. Again, this is left-wing Obama loving Huffington Post. Monetizing the debt can dire circumstances in the best of times and is outright apocalyptic in the worst. Add all these factors together and our economy is on the road to ruin. We have a president who has no intention of ever stopping or slowing down the spending in accordance with the Cloward-Piven Strategy. The Stock Market is predicted to fold around October by the Hindenburg Omen. Foreign Nations instead of buying our Debt are beginning to sell it off. When they no longer buy our debt, our Credit Rating will be downgraded and the Federal Government will default. The Fed will continue printing money anyway and we will see hyper-inflation like the Weimar Republic and Zimbabwe. Hope for the best but prepare for the worst is the only recommendation I can give.

See Today’s other Conservative Daily News articles for more perspective on the economy:

Welcome to the New Deal. Same as.. The New Deal by Michelle Ray (@GaltsGirl)

Why You Should Care About the CBO Report – Really This Time by Rich Mitchell (@CDNNow)

The U.S. Economic News You May Not Have Seen

Much of the last few weeks has concentrated on the difficulties that the over-entitled European economies are now facing.  News reports, like this one at TheHill.com have been careful to also point to Tim Geithner’s comments that, “The U.S. will not be harmed economically by the debt crisis in Europe”.  Mr. Geithner also repeated the Administration mantra that our economy, “is getting stronger. We’re seeing a lot of strength, improvement and confidence.”  But how true is that?

Bloomberg.com and Yahoo.com reported that consumers are returning to Galt-like spending habits.  The Bloomberg article demonstrates the change in American fiscal discipline by examining the change in the ratio of income to spending:

Incomes rose 0.4 percent in April for a second month, matching the survey median. Wages and salaries rose 0.4 percent last month after climbing 0.3 percent in March.

The savings rate climbed to 3.6 percent last month, the highest level since January, from 3.1 percent in March as incomes increased and purchases cooled.

That means while incomes increased by .4%, none of it went back into the economy – in fact, an extra .1% came out and went into savings.  The Yahoo post just puts it plainly by saying, “Consumers don’t appear confident enough in the economy to open their wallets more freely.”  This is particularly troubling in a fractional reserve system such as that in the U.S.  If no one is borrowing or buying, no additional liquidity can be created.  Proof that these are tied lies in the fact that the M3 money supply, the broadest metric of the amount of money in the economy, is at it’s lowest since the great depression.

It’s not just consumer confidence that’s heading south.  The head of one of Scotland’s biggest fund companies puts the risk of a global bear market at 40%, up from 30% last month.  Markets also demonstrated their lack of confidence as American stocks, Oil, the Euro and the Dow had the worst may since 1940.

There has been trillions in stimulus spending in many forms.  Bail-outs have been given to anyone the government thought needed it.  Every manner of federal intervention in the economy has occurred – so why is this bad news showing up?  “It’s the economy stupid.”

Corporations sold the smallest amount of bonds in ten years in May due to increasing yields (the interest rate on the bonds).  Investors are seeking safety in government bonds which is making credit harder for companies to secure.  This is the credit crunch that Mr. Geithner has been throwing printed money at for more than a year.  It’s still here, is stifling investment and risk-taking – both of which are necessary for job growth (really, it’s not the government that does it).

Politico.com’s Michael Steele sums the problem up for us in this article:

Americans deserve leaders who understand what makes the economy tick. America has always been the place of big dreams and bold moves, where the risk-taking at the root of entrepreneurial growth stands the best possible chance.

That requires an environment where the stock and commodities markets are stable; where the financial sector is strong, allowing for the free flow of affordable credit; where taxes are low and structured to encourage profit and investment, and where regulation is predictable, minimally intrusive and easy to understand.

In other words, the conditions required to grow jobs are exactly the opposite of what entrepreneurs face today under Obama’s radical, anti-growth agenda.

The government cannot impose its will on a free-market economy.  Doing so simply pushes a large bubble into another part of the economy where it is fed by printed money, built even higher so that it can assert it’s now even more negative burst on a larger segment of the economy.  Let the bubble burst, let the crashes happen, let the bad banks and companies fail.  It will hurt, but it will establish equilibrium in the economy for another cycle.  Without letting it happen, we are simply building the mess up to a point that will not just be painful, but may be highly destructive.

Good News on the Economy Questionable

Reading through headlines like “Online ad revenue up 2.6 pct in 4Q to $6.3 bln”, would point to some type of revenue-driven recovery.  With the huge number of recent print media failures and the terrible ratings results for the evening news outlets, why is only 2.6% considered good?  It should not be.

2.6% is somewhat indicative of inflation.  With the decline in ratings of NBS nightly news, ABC, and CBS, we should see much higher gains in online media revenues.  Consider the slow death of print media and one is left wondering, where did all that money go?

In reality, this is just another attempt to build economic “confidence”.  Basically, it’s the government’s attempt to create a recovery where none exists.

We have a fractional reserve system, and if Americans continue dropping debt (de-leveraging) at the rate they did last month, the false recovery we have been led to believe exists.. will disolve in a pool of deflation.  Which is exactly why we see interest rates risiing (.24 in the last 2 weeks) and 10 year bond yields going through the roof.

So the question remains.. are we recovering, or is the government lying to us in the hopes that we might create a recovery for them?  My sincere hope is that the economy is truly recovering, my analysis is leading me to believe that being debt-free is the only way to deal with what is coming.

Businesses Stop Hiring Due to Health Care Reform

The new health care reform bill is having an effect: termination of full-time employees.  Small businesses cannot afford the mandate that hits once they have 31 employees and have at least one that gets their insurance through the government exchange – $2,000 per full-time employee .

Business owners will instead refuse to grow their businesses past 30 employees or will use contract labor instead of full-hires.  If a business takes on the 31st employee, their costs will either go up $180,000-$300,000 (if they buy insurance for everyone) or $60,000 if they just pay the $2000 penalty.  Obviously, no businessperson is going to see the value in hiring one or two more people at a minimum cost of $60,000 on top of the cost of the labor itself.  Not one.

Health care is not a right.  It is not something an employer must provide in order to hire someone.  The only thing an employer must do is pay someone a market-based wage for their work.  Health care is cost-of-living just like electricity or cable.  Americans do not have the right to electricity, in fact, many of us have gone without in lean times.  The government does not mandate that citizens have electricity and there is no expectation that employers will pay for us to have electricity.

Even big business is feeling the pain of Obama’s domestic agenda.  Catepillar has recently stated that the health care reform will cost it at least $100 Million in the first year alone.  With costs like that, a business has no choice but to cut back.

Employer-provided health care exists as a benefit.  Repeating that – a benefit.  If the Federal government wants to attempt to force individuals to buy health care, go for it and perhaps a constitutional challenge will right that ill.  Forcing someone to buy insurance for someone else under penalty of law.. what country is this?

Employees must only expect fair employment for a  market-based wage.  Expecting any more will most-certainly get them less.

Massachusetts Says Stimulus Money Created “Almost Nothing”

Government-created economic stimulus is unsustainable and does not create or save anything.  It simply delays the inevitable.   The ARRA (American Restitution and Redistribution Act) has done nothing to improve the actual economy, and The Globe finds more evidence:

One of the largest reported jobs figures comes from Bridgewater State College, which is listed as using $77,181 in stimulus money for 160 full-time work-study jobs for students. But Bridgewater State spokesman Bryan Baldwin said the college made a mistake and the actual number of new jobs was “almost nothing.’’ Bridgewater has submitted a correction, but it is not yet reflected in the report.

The globe goes on to help us understand that in some ways, the stimulus spending has simply been replacing money the government already spent.  The obvious ploy, to get those institutions to reply on the strong-armed ARRA survey that their jobs had been saved or created:

In other cases, federal money that recipients already receive annually – subsidies for affordable housing, for example – was reclassified this year as stimulus spending, and the existing jobs already supported by those programs were credited to stimulus spending. Some of these recipients said they did not even know the money they were getting was classified as stimulus funds until September, when federal officials told them they had to file reports.

It would also appear that the government paperwork is confusing (surprise – seen the IRS B.S.?).  Some recipients say that they never asked for the money and certainly not the administrative overhead – then again, administrative overhead is how the government creates most jobs:

“There were no jobs created. It was just shuffling around of the funds,’’ said Susan Kelly, director of property management for Boston Land Co., which reported retaining 26 jobs with $2.7 million in rental subsidies for its affordable housing developments in Waltham. “It’s hard to figure out if you did the paperwork right. We never asked for this.’’

It’s been widely-reported that the stimulus package has failed to do much more than give Obama another opportunity to practice his gift of gab.  Unemployment has continued to grow, the dollar is shrinking, gas prices are approaching $3.00 again (and have crossed it in some areas).   As the news reports float in, more may realize that speeches were not enough and the stimulus was a wasted of almost $800 billion.

Is Obama Pursuing a Weak Dollar Policy?

Paul Volcker - Obama's Chief Economic Advisor

Paul Volcker - Obama's Chief Economic Advisor

Within a few days of Obama entering the White House, Tim Geithner stated that a strong dollar is in the best interest of our economy.  The actions taken to date and some historical analysis of Obama’s chief economic advisor, Paul Volcker, would point at a policy of continued weakening of the U.S. currency.  If the dollar continues it’s slide just an additional 5% it will be at be at an all-time low.

Today, the Wall Street Journal published an article stating that, “Pacific Rim government leaders will tell U.S. President Barack Obama about global concerns over the falling dollar and burgeoning U.S. debt at a summit this week..”.  Their concerns are well founded and can be grouped together with those of the Chinese, European Union, Brazil and Canada.

One indicator of the Administration’s desire for an even-weaker dollar is it’s push to have China stop managing it’s currency and allow it to float.  If that happens, the only possibility is a stronger yuan, and therefor a weaker dollar.  Furthermore, on October 31st of this year, Obama said that the U.S. economy should be based even more on exports.  In order for that to occur, our currency needs to greatly weaken against those of countries we have a large trade imbalance with.. like China.

A weak dollar isn’t all bad news as long as the decline is controlled, slow, and has a desired end-point.  When the dollar weakens, international exports from America become less-expensive for others to buy.  This increases foreign demand for American products.  This only works when the American products don’t require components from other countries as those items are imports and will cost much more under a weakened U.S. currency.

One implication of a weak dollar is inflation.  As the dollar weakens, so does it’s purchasing power.  Imports become more expensive which will relieve downward-pressure on domestic products allowing those items to increase in price as well.  The dollar is also how all trades in oil are transacted.  As the dollar weakens, crude gets more expensive.  Considering that petroleum is an input into so much of our economy (fuel for trains, trucks, planes, ingredient in plastics, rubber, etc), it hits Americans both directly in the gas tank and indirectly in stores, restaurants and vacation spots.

Carter era gas lines

Carter era gas lines

The last sustained depreciation of the dollar was during 1977 and 1978.  There are some striking resemblances to that bleak period in U.S. economic history to today.  We have a liberal Administration, we have hostages in Iran (I’m fairly certain that is not linked to the weak dollar), and Paul Volcker is back.  During the late 70’s Volcker was the Federal Reserve chairman and directly orchestrated the dollar’s collapse – on purpose.  Gas, groceries, imports and just about everything else got insanely expensive as double-digit inflation hit the pocketbooks of U.S. citizens.

We’ve seen a too-weak dollar before and it wasn’t pretty.  Now we have some of the same people, trying the same thing, again.

Economy Nearing Carter-Era Catastrophe – Volcker Present Again

Jobless RecoveryInterpreting the latest unemployment report could make one’s head spin, but there is valuable information in it other than the tragic 10.2% unemployment rate and the fact that the economy has shed an additional 190,000 jobs in the last month.  Yahoo news points at a separate survey that shows 558,000 more people were unemployed in October than September.  This discrepancy is due to the fact that once someone gives up looking for a job or runs out of benefits, they are not longer technically “unemployed”.

Paul Volcker, the President’s chief economic adviser, and others are pointing to the idea that perhaps this is a jobless recovery.  To be a jobless recovery – first, one would expect a recovery.  If the economy were recovering, credit wouldn’t be shrinking, banks would be mending, and consumers would be spending.  In direct contradiction to a jobless recovery:

5 banks failed this week, 121 for this year alone:

United Commercial Bank, San Francisco, CA
Gateway Bank of St. Louis, St. Louis, MO
Prosperan Bank, Oakdale, MN
Home Federal Savings Bank, Detroit, MI
United Security Bank, Sparta, GA

Consumer spending dropped by the largest amount in nine months:
Consumer Spending Falls In September, Biggest Drop In Nine Months

Consumer confidence drops in October:
Consumer Confidence Survey

Real incomes flat and spending drops relative to inflation:

Income Flat, Spending Falls as Consumers Stay Wary

The sources vary, but are consistent.  We are not experiencing a jobless recovery, we are heading into a jobless stagnation.  This is exactly where we were during the Carter years, we are following the same actions under some of the same people, and are expecting a different result.

Many credit Volcker’s fed for ending inflation during the Reagan era by invoking a recession to reign-in out-of-control inflation.  The problem being, we don’t have any inflation.  With real-incomes dropping, consumption dissipating and credit drying-up, there is not way for producers to raise prices and expect anyone to buy much of anything.  So is the recent push of massive government spending an attempt to re-ignite inflation so that Bernanke and Volcker can work together to end it and save us all?

Carter era gas lines

Carter era gas lines

During the early 80’s, Volcker created a recession on purpose by tightening monetary policy.  His Keynesian theory then was that it was more important to reign-in inflation than save jobs.  This measure was actually needed only because of  failed Keynesian thought that continuing inflation was good for the economy.  Using monetarist policies, he corrected what Keynesian thought had brought about.

The problem now is that we don’t have job growth and we don’t have inflation.  The massive amounts of cash being poured into the economy by the Fed are not inducing price increases, it’s just watering down the money supply.  Money is being dumped into the stock market at alarming rates, mainly because there’s nowhere else for it to go.  Buying bonds is self-defeating considering the Treasury rates, investing in business at this time is suicidal.. Bernanke is using failed tactics probably at the behest of Obama’s chief adviser on the economy.  Monetary deflation with no corresponding economic inflation.

This looks like an orchestrated attempt to cause inflation so that we can do the same things that we did before.  Dump trillions into the economy and eventually producers will raise prices… well..  what if they don’t?   What if we just end up with a dept to income ratios (debt-to-GDP) rate of 70%+ (we’re at 66% by the way)?  We could easily end up spending everything that comes into this country to just service debt.  The Japanese have lost a decade of growth to thinking like this.

It’s time to cut spending, quit dumping money into the economy, let the pain correct the bubble that exists and move forward.  The Fed created the near hyper-inflationary mess that cost Carter his Presidency, made a mess during Bush’s stay, and is trying to put us in a place where they have any clue of what to do.  I am fairly certain that they don’t know how to get us to that place or a healthy economy.

While Obama is busy blaming bush, he has kept on the one person probably the most-responsible for the mess we have – Bernanke.  The President has also brought Carter’s Volcker back into the mix and Barack is egging them both on.  One can hope this is more due to nativity than purpose.

China Seeing Record Inflation After Too Much Stimulus – Familiar?

A Bloomberg.com article stated that even a government-run economy can go awry when it pumps too much liquidity into the market under the guise of “stimulus”.

“China’s banking regulator plans to review debt levels at some real-estate developers on concern the companies’ borrowings are fueling excessive gains in property prices..”

More the concern is what happens when that stimulus is removed.  The U.S. economy faces the exact same threats.

The Economy Stinks and the GDP Doesn’t Have a Clue

We all gain an understanding of gross income vs. net income when it comes to tax time and many of us forget the relationship shortly after.  What do these two terms have to do with our economy?

The U.S. G.D.P. (Gross Domestic Product) is an indicator of the total of goods produced with no regard to the cost of producing those goods.  Gross simply indicates the positives with total disregard of the negatives.  Your gross income simply states what you brought in without taking into account any costs against that income (deductions).  The resultant is net income.

This becomes important in looking at how our Gross Domestic Product rose.  It did not do so on the basis of productivity or demand alone.  GDP rose because the government gave it no other choice.  Even the White House has not argued against the fact that cash-for-clunkers and the stimulus package are totally responsible for the current positive GDP.

That means that 100% of the GDP increase came by taking money away from the economy (the private sector).  We also have a measure called Net Domestic Product which would more accurately measure the strength of the true economy, but no one is talking about that number.  In fact, I can’t seem to find it on the Bureau of Economic Analysis website or much of anywhere else.

Imagine that you brought in $60,000 gross income in 2009, but you spent $60,000 to get it.  Obviously, you wouldn’t have gotten to keep anything and your net income would show that.  You would have had a net income of $0.  That’s where we really are in Q3.  A GDP that was totally brought about by spending our own money.  That’s a net of zero, zilch, nada, nothing.

The concern isn’t just the absolutely misleading indicator that GDP can be when the costs of that product are not quantified.  It’s what happens when the input to that product are removed.  For our economy, that’s the already over cash-for-clunkers, the recently-ended first-time home buyers tax credit and the White House admitting that the stimulus probably won’t provide much more than it already has.  When all of that taxpayer funded productivity is gone… we have a mess in the form of a double-dip recession or W-shaped recovery.  These are typically slaughters for all those that believed that the economy was improving instead of understanding that the government was just making it appear as though it was improving.  Many people leverage themselves (new car loans, credit card debt, etc) or invest a large portion of their nest egg thinking that things can only get better.. only they don’t.

The government tells us that GDP made its largest gains in a long time, but then we look at the fact that consumer spending took the largest drop in more than 9 months and that real incomes (our paychecks) haven’t gone up at all during the Obama reign).  70% of our economy is directly tied to consumer spending and our money.  It’s obvious where the increase in productivity came from and it had nothing to do with a basic improvement in the American economy.

Business understands this and is continuing to lay-off or hold-steady on employment and investment.  Professional investors understand this and are trying to get out while maintaining some profit (lately it just looks like they’re getting out).  Some Americans understand what’s going on and are deleveraging (paying off credit cards, loans, and real-estate) at an historic pace.  When we look at the fact that 9 banks failed this past Friday, it would be hard to see a picture as-rosey as Obama would have us believe.

The Economy is Not Getting Better.. Yet

Much of the media has been declaring an end to the recession.  I have been on the sidelines for months now and a few talking heads were not going to get me to throw my assets at a loser market.

I have done my best not to sound like Chicken Little, but there was absolutely no way I could in good conscience influence my readers into putting their assets into this bubble after the bubble.  The government needs you leveraged, consuming and cash-strapped.  This is not the time to be any of those.  Despite the GDP rise, which is quickly-becoming a false indicator, we are not recovering.  The government can’t even figure out why the GDP rose, but both of their explanations point to government liquidity in the market, not economic recovery.  My recommendations?  Put away some cash, get out of debt, invest, by cool stuff.  In that order.

I am not hedged against gold, a short on the market or in any other way trying to influence you so that I can make a buck.  I am conveying my current position.  My positions in the market during this whole fiasco have allowed me to increase my retirement account by11%, make money on a few equities, and overall protect my family’s assets.  Why?  Because I did not believe the Bush crew, I do not believe the Obama team, and I never believe the media.  I do my own research, look for true indicators, not just the cool meter that CNBC flashes or that Bernanke points at.

If I am wrong, I’ll admit it (my promise is that if Q4’09 and Q1’10 show growth over last year… I’ll write an article entitled, “I was wrong”), but so far… hasn’t happened.  I am struggling to figure out if we will go inflationary or deflationary because our government can’t make a decision and is making some of the most dramatic and ill-advised moves in history.  That is the same reason that business will cease to spend money.  A wise investor will not put money into a market if they cannot understand the principles upon which the market it based.  Our leadership wants to disassemble capitalism “brick-by-brick”, redistribute wealth, control the media, etc.  These uncertainties prevent me from doing any real investing.

In September we see that consumer spending dropped off dramatically.  Why?   Because the government wasn’t buying cars and houses for people anymore.  It proves that the economy isn’t recovering, only that the government was propping it up.  Even the administration admits that the growth in GDP was due to cash-for-clunkers and the stimulus bill.  That means that the American economy didn’t do anything.  It also means that the government’s artificial propping-up of the auto and housing industries will just cause a secondary crash in both.

I do not intend to cry, “the sky is falling”, but if that’s what it takes to prevent you from losing your nest egg, house, or livelihood, then so-be-it.  Call me Mr. Little if you must, but save, de-leverage, invest… then buy cool stuff.

Mortgage Bubble Started Crisis, Isn’t Getting Better

Last year the economy crashed.  Now, the stimulus has stimulated, the Federal Reserve has eased, Geihtner has.. well done whatever he does, and Obama has spoken (certainly that should have fixed everything).  So how did we hit 9.8% unemployment since the stimulus was an emergency action that would keep unemployment from going over 8%, pumping massive amounts of liquidity into the economy should have loosened credit, little Timmy G. and Obama bought GM, AIG and Chrysler and they helped everyone buy a new car that wanted one?  It must be that G.W. Bush must still be affecting the economy from his ranch in Texas…

Today, the Mortgage Bankers Association published it’s index of applications.  The measure of home mortgage applications dropped 14% last week.  When broken-down, the measurement of refinancing applications decreased 17% and new home purchases declined 7.6%.  When combined with  yesterday’s less-than-stellar housing starts report, it’s apparent that between TARP, ARRA (stimulus), the Fed, government buyouts, the first-time buyers credit, and a truck-load of printed money.. the housing crisis is still glaring us in the face.

The trouble isn’t that the government isn’t doing enough – thankfully.  The trouble is that due to too much federal meddling, we never let the bubble fully burst.  Economies go through boom-and-bust cycles.  Even socialist countries deal with economic cycles that go up and down.  By propping up a bursting housing market we end up with artificially high housing prices and no one that can afford them.  Mortgage rates can’t get any lower and demand still isn’t there.  If you have too many goods (houses) being chased by too few dollars… that’s deflationary to that market.   Our dollar is weakening due to the government’s reckless printing.

A Yahoo! Finance article states that economists expect home sales prices to decline more than 11% by June of 2010.  That’s fairly rapid and could trigger the second half of a double-dip recession when combined with the commercial loan crisis about to hit the financial industry.

So now those few dollars chasing mortgages aren’t worth as much (notice your gas prices the last seven days or so – welcome to inflation).  The Fed has kept rates near zero so now they can only go up – and they are.  All this means those houses have got to get cheaper to get sold.  Meaning destroyed wealth for millions of Americans as their house values plummet.  The housing bubble will certainly bust and the more the government props it up, the worse that crash will be.

Foreign Impact on Dollar: A Love-Hate Relationship

In the past few weeks several news stories purporting foreign actions against and for the dollar.  Which is it?

There have been stories that say that China and Russia have been looking to remove the dollar as the predominate reserve currency for the world.  They had to know that such uncertainty would cause mass-selling of the greenback.  Then on Thursday we see that central Asian banks (and Russia) are buying up Dollars in huge quantities.  Of course that will buoy the dollar in these troubling times, but why badmouth the U.S. currency, then prop it up?

They have economies too.  If the dollar gets too weak while it is still the currency for purchasing oil and other commodities, it starts to cost much more to purchase those things.  Many Asian countries are also mass-exporters so a weak dollar means that the largest consumer nation in the world cannot afford their products.  In order to keep their own currencies from getting too strong, they divest in their nations money and put it into the dollar.

In the last week, it has been reported that Russia bought as much as $4 billion U.S. dollars in effort to pull the dollar of it’s lowest point in over a year.  Why would someone so interested in seeing the Dollar replaced by another global currency by floating it?  Timing is everything.

Russia, China, and the middle-eastern OPEC nations would love nothing more than to see the U.S. currency replaced as the global standard.  That doesn’t happen overnight and if they aren’t careful, their economies will be crushed during this coup-de-currency.  They are using backroom maneuvers to position the IMF’s (international monetary fund) global currency, the SDR as the world’s new reserve currency and the OPEC is considering using the SDR for oil purchases.  There is no way to do that quietly so the world has to prop up the failing dollar while the change takes place.  Make no mistake, the change will happen.

The real risk is what happens when the double-dip recession takes hold.  All of these nations are dumping billions into the American dollar and if it continues downward, those other countries lose significant wealth.  There will not only be no American economy to buy their goods, as their currencies strengthen, no one will be able to afford their goods.

It is obvious that a serious push to support the U.S. currency is occurring.  If the dollar continues downward, the second portion of our double-dip recession could be  blood-bath.

Rebuilding a House of Cards

Many of us have done it.  We’ve gathered a few decks of cards, built it up as high as we could, then watched it fall to the ground.  Of course, we would then re-build just a little higher only to have it also collapse due to its unsupportable architecture.  The only difference being that the second, larger card house, made for a much larger mess when it collapsed.

In 2009, the government is rebuilding the poorly-supported house-of-cards that caused the current recession, and of course, building it bigger.

By over-extending loans to those that could not afford them at housing prices that were unrealistic, the government put the entire economy at-risk.  In order to even come close to servicing the risky loans the government regulators forced upon bank, they had to re-package them into complicated mortgage-backed securities.

These risky loans actually only achieved one thing – creating a bubble in the housing market.  The prices of houses became artificially inflated due to unsupportable demand.  When all those loans defaulted, the financial institutions that held the notes also collapsed.  Then, a correction started to occur.  A naturally-occurring oscillation in the market, but the government could not let that happen.  Bring on… bubble part 2: going for broke.

In a post on Hot Air we see that in August, we watched as sales of existing homes drop by 2.7%.  Experts were expecting an increase.  Due to the fact that 30% of all home sales this year were by first-time home buyers, the National Association of Realtors has begun a campaign designed to influence congress to put more taxpayer subsidies into the housing market.  They correctly believe that once the $8,000-$15,000 tax credit disappears, so will the buyers.  But by stopping it, they are only delaying and magnifying the inevitable – the true correction of the market.  Those subsidies basically inflate the market by the value of the subsidy.  When the subsidy goes, those houses suddenly correct to their actual value – the government creates another wave of people who will be upside-down in their mortgages.

We can already see what happens when the government issues its short-term subsidy/stimulus programs.  Cash for clunkers artificially increased durable goods manufacturing in July.  August tells an entirely different story.  The manufacturing sector is no correcting longer and deeper than it might have if the government had just stayed out.  The 2.4% reduction in durable goods orders is right after the 4.8% increase due to the governments car program.

The FDIC is already holding dangerously small reserves and is considering borrowing from taxpayers to survive the bank bailouts that are already occurring.  The new round of defaults that are incoming will force that action.  More liquidity will be needed in the economy, more money will get “created”, and inflation will result.

In short, we have more vulnerable home owners with upside-down mortgages, a declining manufacturing sector, rising unemployment, an FDIC teetering on the brink, and the knowledge that at some point the subsidies must end or hyper-inflation will take hold.

If we put all of this together, it’s easy to see that we are rebuilding the same house of cards that got us here.  This time we’ve decided to build it higher, in the middle of a storm, with flimsy cards.  Prepare to pick-up the mess.

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