Mish Admits The Hard Lesson Of Fighting The Fed And Global Central Banking

It's always refreshing to read someone who admits to being wrong. That is a person who is open to the world and learns from it, and that is a person you want to read because you can learn something too.

Here's Mish:

I surely underestimated the effect of global coordinated liquidity move[s] by central bankers virtually everywhere (US, EU, UK, China, Australia, Canada, etc.). The result was we had a 10-year stock market rally in three years. ... [But t]he fact of the matter is Fed tail-chasing policies combined with fractional reserve lending and moral-hazard bailouts have amplified the crest and trough of every boom and bust.

Mish admits he can't predict the next bust which will be a doosie, but he's flat-out asserting we're already in a recession for one key reason: 

Fiscal stimulus from Congress is not coming.

The significance of that must not be ignored, as many of us ignored its opposite back in May 2009 as told by Martin Walker of UPI:

"We're going to get a recovery, because the amount of deficit spending taking place, a corpse would sit up."

Keep your powder dry.

The Central Banking World Is In A Panic

So says Mish, here:

In a 45-Minute Salvo today, the ECB cuts rates to a record low 0.75 percent and reduced the deposit rate to zero. Meanwhile, the People’s Bank of China cut their benchmark borrowing costs (the second time in a month), and the Bank of England raised the size of its asset-purchase program.

Also note the central banks of Australia, the Czech Republic, Kazakhstan, Vietnam and Israel cut rates in June, while the Swiss National Bank is buying euros to defend its franc ceiling.

ECB president Mario Draghi said these events were not global coordinated easing.

I am willing to take him for his word. Thus, it's safe to assume that what has transpired was more akin to global uncoordinated panic.

The ECB, Bank of China, Bank of England and the Swiss National Bank are obviously four of the eight big, heavy-hitters which include the US Federal Reserve, the Bank of Japan, the Bundesbank, and the Banque de France.

Given what is happening in those other four economies, I'd say they'll be joining the panic soon enough.

Will it be before summer vacation ends, or right after?

How about Monday?!

Disappearing Real Estate Wealth Visualized

From the latest z.1 release from the Federal Reserve, real estate has declined from $25 trillion in 2006 to $18.6 trillion in early 2012.

The June 7, 2012, release is here.

The $6.4 trillion amount is almost the same $6 trillion amount noted by Mish via Zero Hedge here as evidence of ongoing deflation, defined as credit marked to market. It is the amount of decline in credit-money circulation.

When housing declines in value as it has, the credit used to secure it disappears with it.

The housing nadir was actually in Q4 2011 at $18.2 trillion, a $6.8 trillion dollar decline overall, or 27 percent from peak. Things have improved a little since then, by $400 billion, which is part of the reason for all the happy talk about real estate.

I remain unconvinced about a housing rebound since valuations remain at the upper limit of historical experience before the bubble. Stabilization of housing values near current levels and then going forward a number of years isn't unreasonable, but there are no guarantees given the absence of a driver for jobs.

Once and present homeowners rubes continue to bear the brunt of the deflation caused by the government/industry skimming operation designed to fleece Americans of their dreams. 

Not just fascism. Rapacious fascism.

Price Of Gold Is Not A Function Of The US Dollar

Gold is nearly $1600 the ounce today with the dollar index near 81, yet in 2004 when the dollar index was at the same level, gold was far cheaper.

So Mish here with charts:

Note that the US dollar index is right where it was over seven years ago. 

The US$ index is at a spot first touched in late 2004. Gold was well under $500 an ounce at that time, so please do not tell me gold is a function of the US dollar.

One of the reasons gold is at $1600 with the US dollar index above 81 is precisely because central banks in general (notably the Fed, the ECB, the Bank of England, and China) have printed nonstop and the Fed and the ECB have initiated all sorts of liquidity and QE measures. In addition, the ECB's balance sheet is more bloated than the balance sheet of the Fed thanks to the LTRO program.

  

The proper conclusion is that gold is a function of mistrust in fiat currencies in general, not just the US dollar. However, nothing moves in a straight line including faith (or lack thereof) in central banks' ability to handle this crisis.

The Oxymoron of the Day

Here's one from the just-when-I-think-I've-seen-it-all department: "upfront addendum."

Umbday in any language.

115 Million Working Age Americans Have No Unemployment Coverage

According to the figures posted by Mish, here. That's roughly 126 million with such coverage.

Why no coverage? Either because these 115 million people have no job, have jobs which do not require the employer to provide such coverage, or are self-employed. With 88 million "not in the labor force," the part-time and self-employed in this category would come to 27 million workers.

Obama keeps boasting that 30 million people without health insurance are going to get it under ObamaCare. By 2020. How are they going to survive until then without jobs to get it? 

Hope. Change. 2012.

Massive Numbers of Americans Go Without Benefit of Unemployment Coverage

Mish has the charts and details here:

"[W]e need to add 17,598,279 to the work force with unemployment benefits coverage just to get back to equivalent coverage of 2001! ...

"[T]he number of people eligible for benefits is actually 911,000 lower than in 2001. ... 

"This does not imply an improving labor market but rather clearly demonstrates the continued deterioration of [the] workforce in the USA and probable pressure on those working to provide even greater amounts of their income to those not working.

"This 52.2% is a very scary number. It says 47.8% of those of working age are either not working or they are self-employed with no benefits."

Mike Shedlock's Political Whopper of the Day: Republicans Hold The Senate

Here's today's political whopper from Mike Shedlock, aka Mish:

"I expect Republicans to hold the Senate, and probably the House regardless of who wins the 2012 presidential sweepstakes."

Excuse me, but to hold the Senate, you have to win it first.

He writes as if he doesn't know that Democrats, not Republicans, currently hold the Senate, and that they stymie every bill coming out of the US House of Representatives, which the Republicans won and currently hold. He complains of gridlock, but doesn't seem to grasp the political reality which is causing it:

"Sadly, a divided do-nothing electorate is the best outcome one can reasonably expect at the moment."

This is an embarrassingly stupid choice of words, unless we the people who elect our representatives and senators are really the do-nothings. Use your dictionary app, Mish.

It's also an especially stupid thing to say since he just said he expects Republicans to have majorities in both House and Senate, in which case a President Obama would be isolated politically, unlike now. Control of the Senate still gives Obama leverage, whereas Republican control of the House since 2010 has taken away his free hand. A politically isolated Obama would represent progress over what we have now, especially if a Republican Congress has enough votes to override his veto.

Mish's ignorance is appalling, and embarrassing. But it's also fairly typical, which is why we have the government we currently have.

The Whopper of the Day is from Mike Shedlock, AKA 'Mish'

He says the middle class STARTS at $100,000 (here):

I am against a VAT completely. And I certainly do not like exempting the first $100,000 [from any taxes whatsover] because the tax burden would then fall only on the middle class.

How crazy is that?

Of just over 150 million wage earners in 2010, 141 million make less than $100,000 a year. How many of them do you think would agree that the remaining 9 million who make in excess of that are in any way, shape or form "middle class"?

SocialSecurity.gov (here) shows on examination that federal taxable earned income divides pretty neatly into a lower, middle and upper class, with each class accounting for about $2 trillion of the total of almost $6 trillion in net compensation in 2010.

Americans in the lower class make up to $45,000 per year and haul in $1.9 trillion. The next tranche up, the middle class, makes up to $100,000 and hauls in $2 trillion. The upper class makes everything in excess of that, in total another $1.9 trillion.

It is a common conceit of the rich that they are middle class. The rich aspire down to it as much as the lower class aspires up to it.

Mish is an ignoramus: "Newspapers are surely dieing a slow death"

Maybe because no one can read, or write, the English language anymore.

Try this on for size from the end of the same blog post:

My site, ZeroHedge, Calculated Risk can all be shut down if a newspaper or other cite thinks we went beyond fair use in quoting an article.

That's a college freshman's tired mistake, or used to be.

If I wrote that the author of the above was a cereal malefactor, would you get it?

Seen here.

"Bear market rallies tend to end on good news."

"What more good news is coming?"

-- Mish, here

Yield on up to 1 Year LIBOR Exceeds 2 Year Treasuries

Mish tells the insane tale here:

Overnight, 3-month, 6-month, and 1-year LIBOR rates exceed yield on 2-year treasuries.

Mish's Whopper of the Week

"Bank closings remain elevated. We have had 106 bank failures so far in 2011."

-- Mike Shedlock, here on Friday

The rate of failure this year so far has fallen to 2 per week from 3 per week last year.

Failures year to date number 64, not 106.

Figures reported here in May put costs of failures to the FDIC's Deposit Insurance Fund through 2010 at $24.18 billion. That estimate is 9 percent more than previously estimated.

Mish thinks this is one among many indicators showing continuing deflation in the economy.

Don't bailouts of this kind get counted as government expenditures accruing to GDP? Counting them as such would make GDP less reliable as an indicator of growth in the economy, but you must admit the number is tiny in a $15 trillion economy, not even 2/10ths of 1 percent.

Why is Gold Climbing?

"[T]here should be no doubt that gold is reacting to competitive currency devaluation schemes of central banks."

-- Mish, here

The Truth About Student Loans

From Mish, here:

Obama brags about safeguarding student loans. That is like bragging about safeguarding the plague.

Student loans have done four things, all of them bad.

Jack up the cost of education

Make students debt slaves for the rest of their lives

Unjustly hand over huge profits to schools like the University of Phoenix at taxpayer expense

Add to the national debt

The best thing to do with student loans would be scrap the program entirely.

America worships at the altar of a secular god, education. The student loans are the sacrifices offered thereon. The professoriate is the priesthood, which grows fat on the first fruits. And the campi are its churches and cathedrals. The Ivies are the Holy See. And the liberalism taught there is the indulgence of its day. It desperately needs a Luther to nail it to the wall. Perhaps he will be called Bankruptcy.

Two Thirds of Decline in Unemployment Due to Falling Participation Rate

So says CalculatedRiskBlog here:

If the participation rate had held steady at 64.5%, then the unemployment rate would have only declined to 9.64%. [Instead, unemployment fell to 9.4 percent.] 

So almost 2/3rds of the decline in the unemployment rate was related to the decline in the participation rate. Some of the decline might be from workers going back to school, but some is probably due to people just giving up.

A large portion of the decline in the participation rate was for people in the 16 to 24 age group. ...

Another group that saw a decline in the participation rate was men in the key 25 to 54 age group. I wonder if these people are just giving up? ... 

The participation rate has fallen sharply from 66% at the start of the recession to 64.3% in December. That is almost 4 million workers who are no longer in the labor force and not counted as unemployed in U-3, although most are included as "discouraged workers" or "Marginally Attached to Labor Force" in U-6. 

A decline in the unemployment rate mostly due to a decline in the participation rate is not good employment news.

Here is Mish's annotated version of the chart from Calculated Risk:

Corporate Cash Really Isn't

Mish has an interesting post which contrasts "corporate cash" with corporate debt. The upshot is the cash is concentrated in just four big financials (Goldman Sachs, JP Morgan Chase, Citigroup and Bank of America), and overall in about 50 companies. But corporates with cash are also in debt up to their eyeballs, so much so that the debt outweighs the cash by a TARP-size bailout amount:

As you can see, the total cash (in green) for the top 50 companies is $3.71 trillion, which sure sounds like a hell of a lot of cash, and it would be were it not for the debt (in red) totaling $4.45 trillion.

Read it all and see the graphic here.

Problem Bank List Update: 829, or 2500?

The latest data on problem banks has been updated by the FDIC, showing an increase from 775 in the first quarter to 829 in the second, according to this story. An unofficial list of the problem banks receives regular updating here.

Compare that with these remarks from an anonymous commercial banker from California offered at Mish's blog here in an on-going series of posts about insufficient loan loss provisions at banks:

In my estimation, if every bank had the collateral of all loans accurately appraised and each loan’s loan grading was finely tuned for an expected loss based on financial performance and collateral values, the number of essentially bankrupt banks in this county would increase by a factor of 4-5 from the current level.

In other words, there is a potential pool of 2000-3000 banks that would be on the FDIC radar's for getting closed.

The health of the industry is not accurately reported by any means.

What continues at the heart of this issue is asset valuations and the accounting rules which govern them. Banks want the most liberal rules they can get, while taxpayers who end up footing the bill for bank malfeasance do not. Elected government officials and unelected bureaucrats in the middle have been and continue to be on the bankers' side, with a few notable exceptions, at a horrible cost to the taxpayers, who rightly feel that they have no voice.

And that's a big part of what all the fuss is about as the midterm elections loom.

GDP for Q2 2010 In Context

"Historically, four quarters following a bottom in GDP, growth is running over a 6% annual rate. Rejoicing over 1.6% because it wasn’t 1.4%, particularly in the context of the most radical bailout, monetary and fiscal stimulus in U.S. history, totally misses the point that we are operating in a totally abnormal and fragile economic environment."

-- David Rosenberg, quoted here

About That Failure of ShoreBank, Chicago, Illinois

Here's what Mish has to say about it after excerpting reports from Bloomberg, The Wall Street Journal and Zero Hedge:

This is what matters: It is crystal clear there were irregularities in attempting to keep this turkey of a bank alive, irregularities in who was allowed to bid, irregularities in selling the assets to failed management, and a suspicious single bid by a consortium of large US financial institutions, including Bank of AmericaCorp., Goldman Sachs Group Inc. and Morgan Stanley.

The FDIC's handling of Shore Bank smells as bad as a pile of dead alewives on a Chicago beach in mid-July.

Read the rest, here.