This is it

We have just reached the point where we have reached the edge of the cliff, two wheels are off the edge, and we're facing the rocks at the bottom. consider these facts from the last two weeks:

• The ECRI Index, the most accurate means of predicting a recession, just suddenly collapsed down to minus 5.7, signalling a further drop into recession within three months.
• The "Baltic Dry Index," second best leading indicator just dropped off a cliff.
• Consumer confidence, highly correlated with future spending, and therefore the health of the economy, just clunked sharply downward.
• The housing market just "shocked" experts with its plunge.
• The employment market is worse than anyone predicted and clearly slowing more.
• The European Central Bank just had its first failed auction today, a major piece of the final collapse I have been predicting. (The US had its failed auction Feb. 12th, which supposedly could "never happen.")
• Liquidity in Europe has dried up. Banks are afraid to even lend to each other.
• Credit default swaps on European debt, including banks and countries, are higher than they were before the European "Shock and Awe" trillion dollar bailout.
• The US stock market has plunged 2,700 points in recent weeks, 400 points in the last two days alone.
• Deeper recession in Europe is considered to be "nearly certain" by experts.
• China's growth prospects have been revised downward, as have all of Asia.
• Even Obama's bootlicker, economist Paul Krugman, who is always normally cheerleading about the economy, says we have started into a Third Depression.
• Bankruptcies, Foreclosures, and Defaults are skyrocketing.

The big question is whether there will be a slow downward slide first, or a very sudden lurch off the cliff.

Bravo

Full article. The following is a great excerpt from a consultant whose work I unfortunately don't know.

"Government Spending Is a Parasite on the Private Economy

The key fallacy embedded in Keynesian economics and the GNP equation is the idea that government spending adds to an economy's health. In reality, the opposite is true: government spending subtracts from an economy's health. The real economy is the private economy — there is no other. Government spending must come out of the private economy.

In olden days, no one would have accepted the argument that the king could help his nation's economy by increasing his spending. The king's spending was funded by taxes from the people. It is the same today, notwithstanding the eyewash of central bank manipulations of its manufactured paper money.

All government spending is parasitical. The less government we have the better off we are. No one would claim that an increase in crime (thus making more police necessary) or an increase in international tensions (making a larger military necessary) would be good for an economy. We are all better off when people are honest and other nations are friendly so that we do not need to provide resources for more police and a larger army. We would much prefer that our sons and daughters produce goods and services that improve the quality of our lives rather than standing sentry on America's frontiers at our expense.

Government programs that do not provide essential security services are especially illogical. For example, paying people not to work, which is the consequence of unemployment insurance, must come out of funds that would have otherwise employed people. Indeed, all government welfare programs are funded by the private sector and do not, as the Keynesian equation might imply, add to the nation's wealth. The funds for these programs come out of the private economy and further stifle its ability to increase the nation's wealth by reducing capital formation.

Can We Get Ahead by Picking Each Other's Pockets?

Caring people often feel it is necessary to lobby the government for more funds for charity — even if taking from some at gunpoint to give to others is morally questionable — but they cannot and should not claim that providing such funds is anything but harmful for any economy. Once the government gets the power to tax for the purpose of alleviating poverty, there is no logical stopping point. The people will demand further expansion of these programs, not because they believe them to be worthwhile, but because they feel victimized and want some of their money back in the form of benefits.

The common man may not know the term "tragedy of the commons", but he knows it when he sees it. As the scramble for public resources ensues, however, another economic phenomenon kicks in: the fallacy of composition, which states that what benefits one segment of the economy at the expense of everything else cannot possibly prove beneficial for the economy as a whole. Put simply, we cannot all subsidize each other and come out ahead. While most want to be subsidized by others without having to pay anything in return, special interests from all sides ensure that the looting becomes universal.

Keynesianism institutionalizes the tragedy of the commons and believes that the fallacy of composition does not apply. It ignores the fact that government spending must come either from tax dollars or from the printing presses, both of which harm the common man. Instead, Keynesianism promises that we can all pick one another's pockets — and all get rich doing it!

The only solution is to declare Keynesianism as dead as its author, end all parasitical government spending, and free the economy from the tyranny of bureaucrats armed with restrictive regulations. The latter is crucial, for to end welfare spending without freeing man from the straightjacket of the regulatory state would be to free him to starve.

In a free market economy, where each man is free to cooperate with all other men on mutually agreeable terms without harming others, prosperity and peace will prevail. It is the sure road to our economic salvation. Cuts in government spending are not "austerity programs," as the mainstream media so often states, but rather are acts of economic liberation."

Faith healers

This is the perfect chart to introduce this post about my previous post from Krugman, bootlicker-in-chief to Obama regarding the economy. In case you aren't familiar with his work, he has a column in the New York Times called "The Conscience of a Liberal" (Seriously! Yeah, I didn't know liberals were also allowed to have consciences either. Paul (Krugman)? If you're reading this, I should let you in on the secret that have strong feelings that everyone else should be forced to do whatever you feel would be nice is called fascism, not conscience.)

So, let me get you up to speed on Krugman in case you have missed his work. Everything he has written so far boils down to, "Everything Obama does is right and smart, no matter how bad the results are. Oh, and no matter what happens, keep borrowing and spending money." That's pretty much it.

Anyway, he's on target that we have started the sharper slide into the third depression, the biggest one. The reason he gives is silly. He says it's because nobody has spent enough money to solve this problem of not enough money and too much debt. Keynesian's like Krugman remind me of old'fashioned faith healers. Their pitch was that the faith healer should get paid either way. If you were healed, then you're welcome. If you weren't, shame on you for not having enough faith. That's these guys to a tee. When Keynesian stuff doesn't work they say you just did it wrong and it's your fault, because it should always work no matter how many times it has failed (a lot). shame on you for doing it wrong.

And the chart above? It shows that we are far beyond the point where blowing more Chinese money would help anything. It goes down the rat hole and sucks down more money in waste, fraud, interest, etc. with it.

Krugman gets the general idea for once

Here's what thi idiot had to say today in the New York Times (official organ of big government):

The Third Depression

By PAUL KRUGMAN

Published: June 27, 2010

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Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Fred R. Conrad/The New York Times

Paul Krugman

Go to Columnist Page »

Blog: The Conscience of a Liberal

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Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.s

Econ Gangs of New York

Shamelessly copied from The Reformed Broker. FYI, I read articles from all the groups every day (before writing this blog), even the ridiculous Keynesians.

Econ Gangs of New York

• Joshua M Brown
• June 24th, 2010

The factions that are shaping the economic dialog these days are becoming every bit as colorful and distinct as the proto-gangs that once ruled New York's notorious Five Points area. Their leaders, every bit as bellicose and recognizable.

Here's a quick idea of who's who so you can keep up with the discussion:

The Austerians - These are newly-minted deficit hawks, many of whom voted for tax cuts and massive spending bills under the Bush administration without so much as a peep. Dubbed 'Austerians' by blogger Mark Thoma (Economist's View), this gang has found a sudden (upcoming election-related) pang of concern over deficits and our ability to finance them. Critics say the Austerians' premature tightness will send the economy off a cliff, a la the 1930's. Their rival gang is the New Jack Keynesians.

The New Jack Keynesians - Politically they tend to be from the left and it's been said that they've never met an expenditure they didn't like - unless it was for tax cuts to business owners or something that might actually lead to non-government hiring. The gang's leader is Nobel Prize-winning economistPaul Krugman, they can often be found at their stronghold (Krugman's soapbox column in the New York Times) chanting 'Spend, Baby, Spend' or 'Deficits Don't Matter'.

The V-Shapers - A wild-eyed mob of rabble rousers, the V-Shapers may scatter after a particularly messy economic report, but will reappear anytime the S&P 500 closes in the green. The gang is led by Liz Ann Sonders (Charles Schwab) with Larry Kudlow (CNBC) assuming Sergeant-at-Arms duties during most turf wars. V-Shapers are most powerful during corporate earnings season as manipulated bottom-line profit reports against easy comps are their weapon of choice these days.

The Double Dippers - The nomenclature "Double Dipper" can be a bit misleading as many gang members never agreed that the single dip was actually over. Rather, they've insistently maintained that minus the effects of quantitative easing, fiscal stimulus and theater-of-the-absurd monetary policy, there never really was a recovery. Michael Pento (Greenfaucet) throws on the leathers and leads this pack, flanked by David Rosenberg (Gluskin Sheff) and Meredith Whitney (eponymous firm). It should be remarked that this gang is growing faster than the others as of this guide's creation.

The 1 Percenters - This syndicate is united around the belief that the Federal Reserve should immediately raise interest rates to 1 percent from their current level, Eternal Zero. This move, they argue, will demonstrate confidence, pull hesitant home buyers off the sidelines and jolt the banks off of their government debt-spread binge and back to consumer lending. The ringleader here is Kansas City Federal Reserve honcho Thomas Hoenig.

The Inflationsitas - Gang leader Dr. Allan Meltzer (Carnegie Mellon) sees the potential for inflation everywhere he looks. Disregarding the actual data, which shows that we are in fact caught in the throes of a deflationary death spiral in many categories, the Inflationistas have instead decided to "look through the valley" to some point in the future in which the dreaded "printing presses" will cause a severe spike in costs. Meltzer is backed up by the likes of Marc Faber (Gloom, Boom & Doom Report) and virtually every prominent hedge fund manager in the world.

The New Normalers - The mantra that we are in a low growth, high tax, heavily regulated investment world originated with gang leader Bill Gross (Pimco) and his second-in-command Mohamed El-Erian. Many a newsletter writer has flocked to the New Normal standard, most notably John Mauldin (Thoughts From The Frontline). The New Normalers can typically be found casting a wary eye on the European debt turmoil or hard at work at the keyboard, prolifically pecking out multi-thousand word epistles on how things will never be the same again. And they're probably right.

The Nihlists - Believe in nothing, man. The core belief here is that nothing can be believed in, not government, not capitalism, not paper money, not brick-and-mortar. There is a hopelessness in this crew's rhetoric that is so potent that it frightens off even the Double Dippers when their paths cross. Spiritual and intellectual leadership comes from Dow Theorist Richard Russell, who pens such heartwarming chestnuts as "Sell everything you own except your gold" and "Go kiss your relatives goodbye for the last time". Splinter factions within this group worship gold, guns and potable drinking water, they've been stockpiling for nearly 4 years now.

***

These are the Econ Gangs one must watch out for here as we head into the unknown. The melee has been joined in the media and in the markets, but we're far from declaring any winners just yet

Intervention is the problem

Look at this. Isn't it extraordinary that a full 20% of the population is still brave enough to call themselves liberal? We'll see if it's even 2% six months from now, when the full devastation of their policies becomes more widely known. On the chart above they include liberalism among the ideologies. Hilarious. Correct me if I'm wrong. Vague feelings that the government needs to be much bigger, America is evil, and all people need to be forced to do what my feelings dictate doesn't make an ideology. Really, one of the funniest things is to see liberals try to transmogrify all their little feelings into rational thought in order to try to debate.

On this day when our benevolent government has foisted on us some more onerous, pointless, destructive, idiotic, and power-grabbing financial regulation that has nothing to do with the problem they said they were solving, it is a good day for this quote from Thorstein Polleit:

"In his book Interventionism, Mises explained that market interventions would not create a lasting system of economic organization. He wrote,

If governments do not give them up and return to the unhampered market economy, if they stubbornly persist in the attempt to compensate by further interventions for the shortcomings of earlier interventions, they will find eventually that they have adopted socialism.[2]

Interventionism in the field of monetary affairs — most notably by governments controlling money production — has caused damage on the grandest scale."

This really is the story of our day. Governments setting fires, setting more fires to put out those fires, and setting even more fires to put out those fires until everything is burned down. Brilliant.

Why the stimulus failed

Full article from the Heritage Foundation

Morning Bell: Why Obama’s Stimulus Failed

Posted June 7th, 2010 at 9:31am in Enterprise and Free Markets 52 Print This Post

Last Friday’s Department of Labor jobs report, which showed private sector job creation fell by 190,000 between April and May of this year, jolted markets worldwide including the Dow Jones Industrial Average, which fell 3.2% Friday to its lowest level since early February. In total the U.S. economy has now lost a net of 2.2 million jobs since President Barack Obama signed his stimulus bill, and his administration is now 7.2 million jobs short of what he promised his $862 billion stimulus would help create by 2010. This morning on MSNBC, former Rep. Joe Scarborough (R-FL) pressed prominent Keynesian economist and director of the Earth Institute at Columbia University Jeffrey Sachs on whether it was too early to declare President Obama’s stimulus a failure. Scarborough had to ask the question twice, but Sachs finally relented: “It did fail.”

For objective observers the failure of President Obama’s $862 billion stimulus has become increasingly difficult to deny. But not for the White House. Last week, Vice President Joe Biden told Charlie Rose on PBS that the stimulus was “an absolute success.” Betraying a common perception about unemployment, Biden told Rose: “[W]e lost 8 million brand new jobs … since … 8 million brand new jobs since we hit the skids. On top of the 6% that were already unemployed. It took us several years to get there, it is going to take several years to get back to that number.” That is not quite true. In fact, the American economy has shed 55.4 million jobs since the recession began in the First Quarter of 2008. But at the same time the economy has only added 46.5 million jobs. Putting the two together produces the net approximate 8 million jobs lost that Biden referenced.

But isn’t net jobs all that really matters? Why should anyone care exactly how many jobs were lost and created since all that really matters is the net number of Americans who are no longer employed? Here’s why: despitean unemployment high of just 6.4%, more jobs were lost in the first seven quarters of the 2001 recession than were lost in the first seven quarters of this recession. How is that possible? How could job losses have been worse in 2001 but unemployment so much higher now? Weak job creation. The latest Bureau of Labor and Statistics data show that employers have created 8.6 million fewer new jobs this time around than they did almost a decade ago. Heritage Senior Labor Policy Analyst James Sherk estimates that lower job creation accounts for 65 percent of the recession’s decreased employment.

Our nation’s unemployment rate is hovering near 10% not because of record job losses, as Biden suggests, but because of record job non-creation. Private sector employers have gone on strike. Contrary to what the President’s economic wizards and New York Times columnists believe, massive government deficit spending does not stimulate job creation. President Obama does not have a secret vault of money he can just throw at the American people. The resources the government spends come from the economy. When the government increases spending, it crowds out the resources that business owners could have invested in their enterprises. Private investment falls sharply when government spending rises. According to Sherk, annual private fixed nonresidential investment has fallen by $327 billion since the recession started— a 19 percent drop. Less private investment means less hiring.

And then there is the rest of the Obama agenda that has created, and is creating, significant economic uncertainty: Obamacare, EPA carbon regulations, financial regulations and impending tax hikes. Renouncing these policies, and canceling the rest of the stimulus, would do more to spur private sector job creation than anything this White House has done so far.

(Why would anyone expand their business with dozens of new middle class and small business taxes about to take effect, hundreds of new regulations, scores of new restrictions, and mountains of uncertainty???

"It absolutely will happen here..."

Bogle: Serial Borrowing May Turn US Into Next Greece

Wednesday, 23 Jun 2010 12:57 PM

Article Font Size

By: Ellen Chang

"The United States could face a similar dismal fate like Europe if the debt load continues to rise, said Vanguard founder John Bogle.

While America’s economy is improving, there are already signs of weakness, he told TheStreet.com.

“We have a very good recovery so far, but I see signs of slippage," he said. "I'm not sure that I believe we will have a double dip, another drop, but I don't see this recovery getting any stronger than it is now,” Bogle said.

(This must be a joke to lighten the mood. I defy anyone anywhere to show me tangible proof of a recovery that exists outside of Obama's brain.)

If the United Stated fails to reign in its debt, it could easily become another Spain or Greece, he said.

“It will absolutely happen here, unless we have the courage and perspective and wisdom to start to fix the mess we're in. In other words, we don't have a hopeless situation. We have a situation that is only hopeless if we refuse to deal with it,” Bogle said..."

Full article

Right on cue

New-home sales plunge 33 pct with tax credits gone

New-home sales drop to lowest level on record in May after federal homebuyer tax credits end

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• Companies:

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In this photo taken June 2, 2010, a for sale sign is posted in a lot next to a new home under construction in Cincinnati. Sales of new homes collapsed last month, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer get government incentives. (AP Photo/Al Behrman)

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Alan Zibel, AP Real Estate Writer, On Wednesday June 23, 2010, 10:37 am EDT

WASHINGTON (AP) -- Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.

The bleak report from the Commerce Department is the first sign of how the end of federal tax credits could weigh on the nation's housing market.

The credits expired April 30. That's when a new-home buyer would have had to sign a contract to qualify.

"We fear that the appetite to buy a home has disappeared alongside the tax credit," Paul Dales, U.S. economist with Capital Economics," wrote in a note. "After all, unemployment remains high, job security is low and credit conditions are tight."

New-home sales in May fell from April to a seasonally adjusted annual sales pace of 300,000, the government said Wednesday. That was the slowest sales pace on records dating back to 1963. And it's the largest monthly drop on record. Sales have now sunk 78 percent from their peak in July 2005.

Analysts were startled by the depth of the sales drop.

"We all knew there would be a housing hangover from the expiration of the tax credit," wrote Mike Larson, real estate and interest rate analyst at Weiss Research. "But this decline takes your breath away."

Economists surveyed by Thomson Reuters had expected a May sales pace of 410,000. April's sales pace was revised downward to 446,000.

The government offered an $8,000 credit for first-time buyers. Current homeowners who buy and move into another property could receive up to $6,500.

New-home sales fell nationwide from April's levels. They dropped 53 percent from a month earlier in the West and 33 percent in the Northeast. Sales in the South dropped 25 percent. The Midwest posted a 24 percent decline.

Builders have sharply scaled back construction in the face of a severe housing market bust. The number of new homes up for sale in March fell 0.5 percent to 213,000, the lowest level in nearly 40 years. But due to the sluggish sales pace in May, it would still take 8.5 months to exhaust that supply, above a healthy level of about six months.

The median sales price in May was $200,900. That was down 9.6 percent from a year earlier and down 1 percent from April.

New-homes sales made up about 7 percent of the housing market last year. That's down from about 15 percent before the bust.

The drop in new-home sales means fewer jobs in the construction industry, which normally powers economic recoveries but has remained lackluster this time.

Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The impact is felt across multiple industries, from makers of faucets and dishwashers to lumber yards.