Bailouts

Study: Only 3 Out Of 76 Major U.S. Metro Areas Are In Economic Recovery

Surprise, surprise. More evidence is out that points to the economic recovery that’s supposed to be taking place in the United States as being a big joke. Reuters’ Lisa Lambert talked about a new report that was released today by the Washington, D.C.-based think tank the Brookings Institution and wrote on the Yahoo! News website:

The United States has the most major metropolitan economies of all countries – 76 – according to an annual report on the 300 largest metropolitan economies worldwide that Brookings released on Friday…

Three and a half years since the 2007-09 economic recession ended, only three major U.S. metropolitan areas are experiencing an economic recovery, according to the Brookings Institution.

(Editor’s note: Italics added for emphasis)

Those three metro areas are Dallas, Knoxville, and Pittsburgh.

Congratulations you guys.

Only 3 out of 76 major metropolitan economies in the U.S. experiencing an economic recovery?

Pathetic.

Especially when you consider all that stimulus, all those bailouts, all that government intervention, all that new debt heaped on the pile these past couple of years. Lambert added:

“It was still better than last year when the U.S. had no metro recoveries,” Brookings Associate Fellow Emilia Istrate said.

0 recoveries to 3 out of a possible 76? Pardon me for a moment while I head outside to go dance in the streets.

Source:

Lambert, Lisa. “Only three major U.S. cities see economic recovery: study.” Reuters. 30 Nov. 2012. (http://news.yahoo.com/only-three-major-u-cities-see-economic-recovery-050732585.html). 30 Nov. 2012.

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Romney 2, Obama 0

Just got done watching the second in a series of U.S. Presidential debates between former Massachusetts Governor Mitt Romney and the sitting President Barack Obama.

Predictably, the incumbent came out swinging after getting spanked in their first meeting.

However, despite a venue that sounded like it was full of his supporters tonight, Barack Obama fell short.

I give the President credit. It’s obvious he’s worked tremendously hard to get back into the game.

Yet, it’s become all too clear to many on Main Street- painfully in quite a number of cases- that regardless of how it’s spun, Barack Obama’s record in the White House over the past 4 years has been pretty poor.

Something which his challenger, Mitt Romney, seized on and kept hammering home tonight. As the Republican presidential candidate pointed out:

We have a record to look at.

And it’s a handicap I’m sure even Obama’s closest advisers are aware of (in spite of what they tell the public).

I know. “5 million jobs created.” Ever bother to look at what kinds of jobs were created? I have. Lots of low-paying ones.

Throw in where the country’s at with (un)employment, food stamps, poverty, budget deficits, national debt, the list goes on, and the last 4 years have been pretty ugly in retrospect.

Which is probably why President Obama kept talking up other subjects tonight like ObamaCare, the auto industry bailout, Planned Parenthood- things the government can give/provide for you, yet way beyond the scope of what the Founding Fathers ever intended for our republic.

Now, Mitt Romney didn’t bring his “A” game like last time, but his performance was still good enough to win the debate. In addition to the Republican contender pointing out the dismal economic reality of the last 4 years, his arguments made more sense. Especially as it concerned job creation. Consider this. Due to the state of the nation’s labor market these days, I’m guessing many Americans voters will be casting ballots with their pocketbooks in mind come November. The vastly-experienced challenger repeatedly emphasized his intent to create jobs and grow incomes by building-up small businesses and making America more attractive to foreign investment.

President Obama plans on creating more jobs by continuing his same policies and by expanding educational and training opportunities.

More burger flippers?

And education and training is nice and all, but what good is a degree/certificate if no one’s hiring in the first place?

Sounds like the U.S. President might be putting the cart before the horse here.

To many Americans watching the debate, Romney’s repeated emphasis on job creation was probably music to their ears.

One more thing. Barack Obama may have inadvertently shot himself in the foot (no pun intended) when he admitted tonight his desire to re-introduce the assault “weapons” ban that expired a few years back. Anti-gun groups and many in the mainstream media have tried desperately-hard for some time now to try and convince Americans that President Obama wouldn’t push gun “control” if he’s re-elected.

And then he goes on national TV and says he supports a new gun ban.

That’ll go over real well in those “swing states” with lots of firearm enthusiasts.

1994 all over again?

Anyway, it was a feisty debate. Barack Obama looked like a different man (still not as eloquent as with a teleprompter though), but Mitt Romney remained composed and pulled out the victory by repeatedly bringing up the sitting President’s track record in his first term and by emphasizing the Republican plan for creating new jobs, something I think will be key come Election Day.

On to the next, and final, debate…

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Big Banks Warned Of Coming Economic Collapse?

Some of my colleagues are pointing to the following story about big U.S. banks being directed to develop “recovery plans” as these institutions being warned about a soon-to-be-coming economic collapse. Rick Rothacker wrote on the Reuters website on August 10:

U.S. regulators directed five of the country’s biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.

The two-year-old program, which has been largely secret until now, is in addition to the “living wills” the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress.

Note the two years. Rothacker added:

According to documents obtained by Reuters, the Federal Reserve and the U.S. Office of the Comptroller of the Currency first directed five banks – which also include Citigroup Inc., Morgan Stanley and JPMorgan Chase & Co – to come up with these “recovery plans” in May 2010.

They told banks to consider drastic efforts to prevent failure in times of distress, including selling off businesses, finding other funding sources if regular borrowing markets shut them out, and reducing risk. The plans must be feasible to execute within three to six months, and banks were to “make no assumption of extraordinary support from the public sector,” according to the documents.

So, have these large financial institutions been given a heads-up by Washington and the Fed about a rapidly-approaching economic crash?

I don’t know. All of this could just be a drawn-out reaction to the Lehman Brothers fiasco of 2008.

That being said, I do expect more carnage in the financial system as the economic crisis marches on.

Source:

Rothacker, Rick. “Exclusive: U.S. banks told to make plans for preventing collapse.” Reuters. 10 Aug. 2012. (http://www.reuters.com/article/2012/08/10/us-banks-recoveryplans-idUSBRE87905N20120810). 15 Aug. 2012.

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Wednesday, August 15th, 2012 Bailouts, Banking, Federal Reserve, Government, Recovery No Comments

TARP Update: $119 Billion Still Owed, Could Eventually Lose $60 Billion

The Troubled Assets Relief Program, which was widely reviled as a $700 billion bailout for Wall Street titans, is now expected to cost the federal government a mere $25 billion – the equivalent of less than six months of emergency jobless benefits.

Washington Post, November 30, 2010

The government’s bailout of banks may cost U.S. taxpayers nearly two times more than originally estimated, according to the Congressional Budget Office.

The Troubled Asset Released Program, better known as TARP, will cost the federal government $34 billion, the CBO reported on its director’s blog.

-Huffington Post, December 16, 2011

$25 billion. $34 billion. These days, the U.S. government thinks TARP could eventually lose $60 billion. From Ronald Orol on the MarketWatch website early this morning:

Taxpayers are still owed $119 billion in outstanding Troubled Asset Relief Program funds, a watchdog for the government crisis response program said Wednesday in a quarterly report to Congress.

That number is down from $133 billion in TARP funds owed as of January, according to the author of the report, the Office of the Special Inspector General for the TARP. The government expects TARP to lose $60 billion.

The program was set up during the height of the financial crisis of 2008 to stem a growing credit contagion by providing taxpayer-funded capital injections into big and smaller banks.

(Editor’s note: Italics added for emphasis)

Opponents of TARP have argued that the bailout would end up wasting a huge chunk of taxpayer funds. Supporters of the program have responded that the U.S. financial system was in serious danger if these funds weren’t provided.

Source:

Orol, Ronald D. “Taxpayers still on hook for $119 bln in TARP funds.” MarketWatch. 25 Apr. 2012. (http://www.marketwatch.com/story/taxpayers-still-on-hook-for-119-bln-in-tarp-funds-2012-04-25). 25 Apr. 2012.

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Wednesday, April 25th, 2012 Bailouts, Banking, Credit, Government No Comments

Senate Democrats Push Bill Freezing Student Loan Interest Rates, Risk Alienating Small Business

Student loans. Sure- they suck. I had them. I wouldn’t have been able to attend college and graduate school without them (Dad: “You’re on your own once you graduate high school.”). And I finally got done paying them off recently.

These days, student loan debt is getting a lot of media exposure. Even CNBC talked about the problem this morning. Kelly Evans wrote on the CNBC website:

Here’s what we do know about student loan debt: it’s roughly $1 trillion in size, greater than either auto or credit-card debt and second only to mortgage debt in the U.S.

Borrowers in their 30s today owe $28,500, on average. The debt burden has soared just as — and partly because — the recession hit, so younger graduates carrying the highest balances are hit with the double whammy of a weak job market (that still isn’t showing any sign of rapid improvement).

And this all comes as globalization and technological change have upended once-reliable career paths, wiped out many mid-level professional jobs and leave low-paying fields in health, food and beverage services, and retail as among the fastest growing job markets over the next decade.

Oh, and consider that student loan debt remains one of the most difficult types to forgive or discharge in bankruptcy, in part because the federal government (i.e. taxpayers) made or guaranteed 80 percent of all outstanding student loan debt as of last year. And finally, that once loans in deferral or forbearance are excluded, the delinquency rate on student loan debt was an estimated 27 percent as of the third quarter of 2011, according to a study by the New York Fed.

Worried? Americans should be.

(Editor’s note: Italics added for emphasis)

In an economy that’s powered by consumer spending, too much student loan debt cripples consumption by these younger Americans.

And now, for one or reason or another, the calls are growing for a student loan bailout or some kind of relief. And Democrats in the U.S. Senate are responding. Alan Fram of the Associated Press wrote this morning:

Senate Democrats are ready with an election-year bill preventing interest rates from rising for millions of college students with federal loans. Republicans are already balking at the way Democrats would cover its $5.9 billion price tag: boosting payroll taxes on the owners of some privately held firms.

Democrats unveiled their bill late Tuesday, a measure that would prevent today’s 3.4 percent interest rates on subsidized Stafford loans for low- and middle-income students from doubling automatically on July 1. The interest rate freeze, which would help 7.4 million people, would last for a year…

Republicans trained their fire on Democrats’ plan to finance the bill by making it harder for owners of smaller, privately owned companies called S corporations to avoid paying Social Security and Medicare payroll taxes on some of their income.

The proposal would apply to such companies with incomes exceeding $250,000 and whose revenues come mostly from the work of three or fewer owners. The higher payroll taxes would also be required for some law firms, doctors’ practices and other professional services partnerships.

(Editor’s notes: Italics added for emphasis)

According to Fram, Senate Democratic aides said the legislation would pay for itself with around $6 billion in extra Medicare taxes collected from these private companies over the next decade.

I think I understand what the Democrats are trying to accomplish here:

• Continue their election year political strategy of populism
• Re-energize young Americans to support Barack Obama’s re-election bid in November
• Tap into some much-needed funds for Social Security and Medicare
• Actually help these indebted former students

On the flip-side, I anticipate the legislation might not only alienate even more small business owners from the Obama administration and Democratic Party, but- if signed into law- could make them reconsider hiring additional personnel down the road due to these new payroll taxes. With Tax Doomsday already fast-approaching, such a tax hit is bound to fuel even more uncertainty among small business owners going forward.

As small businesses have generated 65 percent of net new jobs over the past 17 years, young Americans might have to get used to those “low-paying fields in health, food and beverage services, and retail” for some time longer.

Sources:

Evans, Kelly. “Student Loans: The Next Bailout?” CNBC. 25 Apr. 2012. (http://www.cnbc.com/id/47171658). 25 Apr. 2012.

Fram, Alan. “Senate Dems ready bill freezing student loan costs.” Associated Press. 25 Apr. 2012. (http://www.google.com/hostednews/ap/article/ALeqM5i9q8K9wbLi6abkUrpA3py8xODJ2A?docId=91f7fd59392946d8b7206a044381f4c3). 25 Apr. 2012.

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Quote For The Week

Recently, money manager Jim Puplava of the Financial Sense Newshour and economist John Williams, Executive Editor at Shadow Government Statistics, discussed the prospects of inflation/deflation for the United States. Williams believes hyperinflation is inevitable by 2014. From the March 20 FSN broadcast:

PUPLAVA: John, why do you think we have not seen hyperinflation up until this point? Is it because we’ve had a deleveraging on the debt side that has been offsetting the effects of monetary and fiscal stimulus?

WILLIAMS: No, it’s pretty much on track with what I’d expected. I haven’t been forecasting hyperinflation every month here that it’s going to happen in the next month. Initially, I thought it would be out at the end of this decade because of the long-term insolvency of the government. The way this financial crisis broke and the way things were handled, has accelerated that- I put it around 2014- and there’s risk that it could break any time once you start to see massive selling pressure on the dollar. All that massive selling pressure on the dollar and all ? from the financial panic and what’s happened the last couple years, which has made things worse. What the Fed has done in the way of creating money here generally has been aimed at propping up the banking system. They talk out of both sides of their mouth. They talk, “Oh, we want to stimulate the economy. Keep inflation contained.” Then they do whatever they have to do to keep the banking system afloat. We’re still in a crisis mode. We have a systemic solvency crisis. All the money the Fed created went into the money supply. You would have had a hyperinflation, but it didn’t. The banks put it into excess reserves on deposit with the Fed. They didn’t have the ability to lend it. But it will happen because the long-term insolvency that we were faced with- now it’s being accelerated by everything that the government’s doing. And I expect it all to come to a head by 2014…

2014. First, Jim Rogers showed concern about the year. Now, John Williams. Who next?

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60 Minutes Segment About Eurozone Crisis, Potential Impact On United States

We’re in a debt crisis. Eurozone countries have way too much debt. We have gorged on debt. We are living beyond out means. And after 10 years of booming economic times- it is now payback time. We are paying back our credit cards, and that will prove very painful and costly…

Well, the U.S. is doing terribly well at the moment. However, clearly if the Eurozone has a really bad time of it this year, which it could well do, then America will not escape unscathed.

-Louise Cooper, Senior Financial Analyst at BGC Partners, talking to Steve Kroft in a recent interview that appeared on the CBS show 60 Minutes this past Sunday. Cooper has been called “The Downturn Diva” by the British press.


“An Imperfect Union: Europe’s debt crisis”
CBS News Video

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Marc Faber Warns ‘Massive Wealth Destruction Coming Down The Line’

CNBC’s Squawk Box talked to “Doctor Doom” Marc Faber yesterday morning, and boy did he ever dish out a case of the Mondays. The Swiss-born investment adviser/fund manager told CNBC viewers:

Well, basically, I think that the whole bailout and those with the money printing will not create long lasting wealth, nor will it create healthy economic growth. And I look at the world, then I see well-to-do people that have done unbelievably well, and I see the middle class and the working class that hasn’t done well. And I think somewhere down the line, we will have a massive wealth destruction that usually happens either through very high inflation, or through social unrest, or through war, or a credit market collapse. Maybe all of it will happen but at different times.

(Editor’s note: Italics added for emphasis)

The publisher of the monthly investment newsletter The Gloom Boom & Doom Report was asked to put a number on this destroyed wealth, and Dr. Faber responded:

Well, I would say that well-to-do people may lose up to 50 percent of their total wealth. They’ll still be well-to-do. Instead of a billion, they’ll have, say $500 million. But I think that there is a massive wealth destruction coming down the line. I’m not saying it will happen tomorrow. But I think looking at the bailouts, and the money printing, they basically have postponed the problems, and actually made them larger in the sense that the government debt has increased dramatically, and somewhere a solution will have to be found for this government debt.

(Editor’s note: Italics added for emphasis)

Faber, who became famous for advising clients to get out of the U.S. stock market one week before the October 1987 crash and for predicting the 2008 global financial crisis (among other calls), gave the following investment advice:

Well, I think, in my report I also pointed out there is one asset class that is relatively depressed, and these are properties in the South of the United States. In Georgia, in Arizona, in Florida- I think there, property values will not collapse much more, and stabilize. And so I think to own some land and some property, not necessarily in the financial centers but in the secondary cities, is a desirable investment relatively speaking. And I think people should own some gold, and I think people should own some equities, because before the collapse will happen with Mr. Bernanke at the Fed, they’re going to print money- and print, and print, and print. And so what you can get is a bad economy, but rising equity prices.

(Editor’s note: Italics added for emphasis)

You can watch the entire segment on the CNBC website here.

(Editor’s notes: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein; info added to “Crash Prophets” page)

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Peter Schiff In Rebuttal Lecture To Fed Chair Ben Bernanke

You may have heard that Federal Reserve Chairman Ben Bernanke has been on the lecture trail lately, giving a series of four public lectures at George Washington University that some think is the U.S. central bank’s latest effort to counter negative public sentiment. Truth be told, I haven’t been really following it, but a cursory glance at some of what the Fed Chair’s been saying is “interesting,” to say the least:

I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could’ve had a much worse outcome in the economy

-March 27 lecture

There’s no consensus on this, but the evidence I’ve seen suggests that monetary policy did not play an important role in raising house prices during the upswing

-March 22 lecture

I think, though, that the gold standard would not be feasible for both practical reasons and policy reasons

-March 20 lecture

While surfing the Los Angeles Times website this morning, I came upon a piece that announced “crash prophet” and Euro Pacific Capital CEO Peter Schiff would be giving a rebuttal to Chairman Bernanke’s lectures later today. From a March 26 press release on the website of Washington, D.C.-based non-profit FreedomWorks:

WHAT: FreedomWorks Foundation and Reason will co-host a special lecture by renowned economist Peter Schiff as he responds to Federal Reserve Chairman Ben Bernanke’s four-part College Lecture Series at George Washington University School of Business.

WHEN: Thursday, March 29, 2012 at 3:00pm ET, lasting approximately one hour.

An opportunity for Q&A and a reception will follow the formal response.

WHERE: Reason’s DC Headquarters, 1747 Connecticut Avenue, NW, Washington, DC 20009.

The event will also be live-streamed from the FreedomWorks Facebook page, www.facebook.com/FreedomWorks.

WHY: While Chairman Bernanke explains to students how the Federal Reserve “saved the economy,” Peter Schiff will outline the ways in which the Federal Reserve contributed to the housing crisis and current economic recession in the first place.

The Federal Reserve bears significant responsibility for every financial crisis over the past century, including the Great Depression, stagflation in the 1970’s and most recently, the 2008 economic meltdown.

A 2011 audit of the Federal Reserve found $16 trillion in secret bailouts to corporations and banks around the world in less than three years. Documents released in the same year revealed foreign banks to be one of the largest recipients of Federal Reserve money during the 2008 economic downturn.

These secret deals, bailouts, and massive expansion of the Federal Reserve’s balance sheet were all overseen by Ben Bernanke, with almost no Congressional oversight.

You can RSVP to watch the streaming video on the FreedomWorks website here.

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Quote For The Week

Not wanting to sound like Gandhi, but at least we didn’t rape everybody and burn the village down.

-Michael Gasior, Wall Street veteran, investment author, and founder and President of AFS Seminars, contrasting today’s Wall Street and its use of bailout funds with that of the 1980s, in episode 822 of The Survival Podcast (aired January 17, 2012)

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Monday, January 30th, 2012 Bailouts, Quote For The Week, Wall Street No Comments
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