Ron Paul
Forbes
October 31, 2009

The large-scale government intervention in the economy is going to end badly.

Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.

I am  reminded of the outlook in 1930, when the experts were  certain that the worst of the Depression was over and that recovery was just around the corner.

A false recovery is under way. I am reminded of the outlook in 1930, when the experts were certain that the worst of the Depression was over and that recovery was just around the corner. The economy and stock market seemed to be recovering, and there was optimism that the recession, like many of those before it, would be over in a year or less. Instead, the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954. I fear that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.

Anytime the central bank intervenes to pump trillions of dollars into the financial system, a    bubble is created that must eventually deflate. We have seen the results of Alan Greenspan’s excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.

This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble’s collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve’s balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?

What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.

Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury’s program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person’s pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.

The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar’s purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.

Ron Paul is a Republican congressman from Texas.

Roubini: Global Markets Could Soon Crash

Dan Weil
Newsmax
October 31, 2009

The global markets are at risk of crashing when the dollar rebounds, says economist Nouriel Roubini.

Roubini, a professor at NYU, is credited with long predicting the financial collapse of 2007 and 2008.

“In the short run what’s happening is there’s a wall of liquidity, not just in the U.S., but around the world, that is chasing assets,” he told CNBC.

“It’s equities, it’s commodities, it’s credit, it’s gold, it’s emerging market asset classes.”

And what does that amount to? “Now we are in the mother of all carry trades,” Roubini says.

Read entire article

By Mike Whitney

September 03, 2009 “Information Clearing House” — -The U.S. economy is at the beginning of a protracted period of adjustment. The sharp decline in business activity, which began in the summer of 2007, has moderated slightly, but there are few indications that growth will return to pre-crisis levels. Stocks have performed well in the last six months, beating most analysts expectations, but weakness in the underlying economy will continue to crimp demand reducing any chance of a strong rebound. Bankruptcies, delinquencies and defaults are all on the rise, which is pushing down asset prices and increasing unemployment. As joblessness soars, debts pile up, consumer spending slows, and businesses are forced to cut back even further. This is the deflationary spiral Fed chairman Ben Bernanke was hoping to avoid. Surging equities and an impressive “green shoots” public relations campaign have helped to improve consumer confidence, but the hard data conflicts with the optimistic narrative reiterated in the financial media. For the millions of Americans who don’t qualify for government bailouts, things have never been worse.

Kevin Harrington, managing director at Clarium Capital Management LLC, summed up the present economic situation in an interview with Bloomberg News: “If we have a recovery at all, it isn’t sustainable. This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”

Reflecting on the Fed’s unwillingness to force banks to report their losses on hard-to-value illiquid assets, Harrington added, “We haven’t fixed the problem. We’ve just slowed down the official recognition of it.”

In the two years since the crisis began, neither the Fed nor policymakers at the Treasury have taken steps to remove toxic assets from banks balance sheets. The main arteries for credit still remain clogged despite the fact that the Bernanke has added nearly $900 billion in excess reserves to the banking system. Consumers continue to reduce their borrowing despite historically low interest rates and the banks are still hoarding capital to pay off losses from non performing loans and bad assets. Changes in the Financial Accounting Standards Board (FASB) rules for mark-to-market accounting of assets have made it easier for underwater banks to hide their red ink, but, eventually, the losses have to be reported. The wave of banks failures is just now beginning to accelerate. It should persist into 2011. The system is gravely under-capitalized and at risk. Christopher Whalen does an great job of summarizing the condition of the banking system in a recent post at The Institutional Risk Analyst:

“The results of our Q2 2009 stress test of the US banking industry are pretty grim. Despite all of the talk and expenditure in Washington, the US banking industry is still sinking steadily and neither the Obama Administration nor the Federal Reserve seem to have any more bullets to fire at the deflation monster. With the dollar seemingly set for a rebound and the equity and debt markets looking exhausted, one veteran manager told The IRA that the finish of 2009 seems more problematic than is usual and customary for the end of year.

Plain fact is that the Fed and Treasury spent all the available liquidity propping up Wall Street’s toxic asset waste pile and the banks that created it, so now Main Street employers and private investors, and the relatively smaller banks that support them both, must go begging for capital and liquidity in a market where government is the only player left. The notion that the Fed can even contemplate reversing the massive bailout for the OTC markets, this to restore normalcy to the monetary models that supposedly inform the central bank’s deliberations, is ridiculous in view of the capital shortfall in the banking sector and the private sector economy more generally.” (2ndQ 2009 Bank Stress Test Results: The Zombie Dance Party Rocks On” Christopher Whalen, The Institutional Risk Analyst)

It’s not just the banking system that’s in trouble either. The stock market is beginning to teeter, as well. Bernanke’s quantitative easing (QE) program has provided enough liquidity to push equities higher, but he’s also created another bubble that’s showing signs of instability. According to Charles Biderman, CEO of TrimTabs Investment Research, the Fed’s bear market rally has run out of gas and company insiders are headed for the exits as fast as they can.In a Bloomberg interview Biderman said:

“Insider selling is 30 times insider buying, while corporate stock buybacks are non-existent. Companies are saying they don’t want to touch their own stocks.”…”When companies are heavy sellers (of their own stocks) and retail customers are borrowing to buy stocks; that’s always been a sign of a market top.”

The best-informed market participants believe that the 6-month rally is beginning to fizzle out. The consensus is that stocks are grossly overpriced and the fundamentals are weak. Bernanke’s strategy has improved the equity position of many of the larger financial institutions but, unfortunately, there’s been no spillover into the real economy. Money is not getting to the people who need it most and who can use it to get the economy moving again.

The economy cannot recover without a strong consumer. But consumers and households have suffered massive losses and are deeply in debt. Credit lines have been reduced and, for many, the only source of revenue is the weekly paycheck. That means everything must fall within the family budget. The rebuilding of balance sheets will be an ongoing struggle as households try to lower their debt-load through additional cuts to spending. But if wages continue to stagnate and credit dries up, the economy will slip into a semi-permanent state of recession. Washington policymakers–steeped in 30 years of supply side “trickle down” ideology–are not prepared to make the changes required to put the economy on a sound footing. They see the drop in consumption as a temporary blip that can be fixed with low interest rates and fiscal stimulus. They think the economy has just hit a “rough patch” between periods of expansion. But a number of recent surveys indicate that they are mistaken, and that “This time it IS different”. Working people have hit-the-wall. Consumers will not be able to lead the way out of the slump.

According to a recent Gallup Poll:

“Baby boomers’ self-reported average daily spending of $64 in 2009 is down sharply from an average of $98 in 2008. But baby boomers — the largest generational group of Americans — are not alone in pulling back on their consumption, as all generations show significant declines from last year. Generation X has reported the greatest spending on average in both years, and is averaging $71 per day so far in 2009, down from $110 in 2008….

Gallup finds significant declines among all generations in average reported daily spending in 2009 compared to 2008. Given that consumer spending is the primary engine of the U.S. economy, it’s not clear how much the economy can grow unless spending increases from its current low levels. But spending may not necessarily be the best course of action for baby boomers as they approach retirement age and prepare to rely on Social Security and their retirement savings as primary sources of income. Indeed, the two generations consisting largely of retirement-age Americans consistently show the lowest levels of reported spending. (“BBoomers’ Spending, Like Other Generations’, Down Sharply)

By Mike Whitney

August 10, 2009 “Information Clearing House“

Credit is not flowing. In fact, credit is contracting. That means things aren’t getting better; they’re getting worse. When credit contracts in a consumer-driven economy, bad things happen. Business investment drops, unemployment soars, earnings plunge, and GDP shrinks. The Fed has spent more than a trillion dollars trying to get consumers to start borrowing again, but without success. The country’s credit engines are grinding to a halt.

A false dawn for the dollar
July 4th, 2009 – Russia Today

The US administration has been saying it sees the first green shoots of economic recovery. However consumer spending remains low in America, and some experts argue the signs are misleading.

What can you get for a dollar? Not much these days.

Its value dropped considerably at the end of June – and this is despite the Obama administration announcing signs of an economic rebound.

Experts think these are false claims of hope. They see a gloomy future for the dollar and say the $787 billion stimulus package passed earlier this year is only making things worse.

“The green shoots that they think they see don’t reflect any genuine economic growth. They reflect the initial reaction to the stimulus. If you shoot someone up with heroin, you’re gonna get a reaction before there is a withdrawal,” says economic expert Peter Schiff.

And as job losses continue in the US and Americans have less money to spend, their problems become everyone’s problems.

“America consumes 25 per cent of the world’s energy. It takes $3 trillion of the world’s exports every year. If America doesn’t consume, the global markets will slow down dramatically,” believes trend expert Gerald Celente.

Faith in the dollar as a global reserve currency is long gone.

“I think the dollar’s days as a reserve currency are over,” Peter Schiff says.

This becomes obvious when China, the biggest foreign holder of the currency, wants out. They’ve even asked for the topic to be discussed at the upcoming G8 financial summit.

Economists are predicting the death of the dollar. But the US has been printing more and more of them to keep its sick economy afloat.

Gerald Celente

Infowars

June 30, 2009

Empire America is on the verge of collapse. Its social, economic and political systems are failed and failing, observes Trends Research Institute Director, Gerald Celente, in the Summer Trends Journal.

“The measures taken by successive governments to save the politically corrupt, morally bankrupt, physically decrepit giant from collapse have served to only hasten its demise. While the decline has been decades in the making, the acceleration of ruinous policies under the current Administration is leading the United States — and much of the world — to the point of no return,” says Celente.

The “green shoots” sighted by Field Marshall Bernanke this past Spring were a mirage. The 2010 economic “recovery” predicted by the same experts, authorities and financial boy scouts and cheerleaders who didn’t see the economic crisis coming is pure delusion.

By 2012, even those in denial and still clinging to hope will be forced to face the truth. It will be called “Obamageddon” in America. The rest of the world will call it “The Greatest Depression.”

We provide the hard data and indisputable facts that support our forecast for an unsettling future. There will be opportunities to seize and measures to take to withstand, and even profit in the increasingly turbulent times.

Laura Martin
Media Relations

The Trends Research Institute

lmartin@trendsresearch.com

www.trendsresearch.com

So is the economy in recovery mode? Are we seeing “green shoots” or are we just sliding towards the cliff?

Extract from RawStory.com: Obama warns of worse economy to come

President Barack Obama painted a bleak picture Tuesday of the economy, warning unemployment will get worse, and vowed to act on climate change and health care as long-term solutions.

In a wide-ranging White House news conference, Obama also said he had no plans for a fresh stimulus package, hoping to give time to see the impact of the 787-billion-dollar economic plan approved shortly after he took office.

“We’re still not at actual recovery yet. So I anticipate that this is going to be a difficult, difficult year,” Obama said.

“I think it’s pretty clear now that unemployment will end up going over 10 percent,” he said, explaining it would take time for an economic recovery to translate into job growth.

The jobless rate in the world’s largest economy surged to 9.4 percent in May, with the figure shooting to a record high 11.5 percent in the most populous state of California.

“What’s incredible to me is how resilient the American people have been and how they are still more optimistic than the facts alone would justify,” said Obama, who has largely held onto his high popularity ratings.

With all this contradiction, how can anybody get a clear true picture?