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December 25, 2011
Issue 179  -  Is It THAT Bad?
This unforgettable image of "Ralphie" wearing his Aunt Clara's "gift" reminds me that sometimes it IS as bad as it looks.  This week I'm reviewing the stats and stories that show there is really no hope of a "soft" landing.  The main reason for this is systemic corruption and protection of the few at the expense of the many.  Dave from Denver is right on:
I wanted to bring to your attention how the SEC goes after small investment advisory firms and then issues grand press releases which announce the fines and punishment doled out to these "criminals." As you are reading thru this, keep in mind that while the SEC and other financial markets regulatory offices, like the CFTC for instance, are looking the other way while big investment firms rape and pillage freely, the big bad SEC is clamping down on small firms that fail to "adopt and implement written compliance policies and procedures." Oh boy, it's okay to embezzle $1.2 billion in customer assets to make margin calls on your firm trading account, but if you don't have your internal written policies handy for the SEC to walk in and look at whenever they want you get in big trouble.
I can guarantee you that this fact has a lot to do with how, and against whom, the Government decides to enforce the laws:
Lobbying outlays by the five biggest spenders in the commercial banking sector increased 12 percent in the first three quarters of 2011 over the same period last year, a McClatchy/Tribune analysis of federal lobbying disclosure records shows.
This is just more evidence that is piling up which points the fact that this country is deteriorating into a large-scale banana republic. I can vividly recall in the 1970's reading countless stories about the way in which Governments and businesess operated in Central and South American "banana republic" countries. If you were wealthy and owned your own politician, you could essentially operate your enterprise with absolutely no regard for the laws or fear of prosecution. All it took was big "donations" to the politicians. How is that any different than what is now happening in this country? Seriously. Why does Jon Corzine get wait a month before he has to appear before Congress to answer questions about MF Global? Why is he not in District Court right NOW answering questions from a judge? He hasn't even issued any public statements? Leads me to wonder if he's hiding in the closet of his good buddy Barack Obama and peeling bananas to feed to the politicians...
This is a cancer that is almost unstoppable.  As the elites exert control over the system, they can get away with more and more.  The prosecutors are OWNED by the crooks.  It's like a bank robber having his son as the county sheriff.  There are no prosecutions and very few go to jail.  Also, a large majority of the public is uninformed about what is actually transpiring. In fact, even business writers often don't fully understand what these different events mean.  Here's an excerpt from GATA describing the issue:

And the media is clueless on what the MF Global situation really means. Here is how (Mayor) Bloomberg/Business Week reported on the matter:

“…MF Global’s failure is contained within a relatively small circle of owners, lenders counterparties and customers. This isn’t to minimize the large and painful losses, but there are no public losses and, so far, little systemic fallout.”

BBW has it wrong on at least three counts.

First, “there are public losses.” Excuse me, editors of  BBW, what drug have you been snorting? No public losses? A financial services firm regulated by the U.S. government dips into the segregated bank accounts of its customers under the nose of Uncle Sam, and you say “no public losses?” These were not people invested in MF Global. They were not MF Global shareholders. They were people who used MF Global as a middleman for trading regulated markets. Further, I say the loss of confidence in a substantial element of this country’s financial system is a public loss. The value of contracts traded onU.S. futures exchanges dwarfs the value of stocks traded on the NYSE. I say that when a farmer from the middle ofIowa loses money he dedicated to lock in next year’s crop, it is a public loss.

Second, there are crimes involved. MF Global stole its customers’ money. We have financial grand larceny. BBM points out that it does not want to minimize the loss while it completely ignores the crime. Great journalism!

Third, “little systemic fallout?” Again, excuse me! When a branch of the U.S. government fails to perform its congressional mandate it is the very definition of systemic failure.

Yeah, that's nice.  Downplaying the crime and governmental failures.  That's about what I expect from our media.   Now is it intentional?  Maybe.  There is no way to know except to watch how many times this type of thing happens.  I happen to think that these writers are so into the system, that they minimize things to make themselves feel better.  Afterall, it couldn't be that bad, could it?  Let's just play ostrich.  Nothing to see here.  Move along.  Of course it IS that bad:

It's Official: US Debt-To-GDP Passes 100%

With precisely one year left for the world and all of its inhabitants, at least according to the Mayans, not to mention on the day of the Winter Solstice, it is only fitting that US debt, net of all settlements for all already completed bond auctions, is now at precisely $15,182,756,264,288.80. Why is this relevant? Because the latest annualized US GDP, according to the BEA, was $15,180,900,000.00. Which means that, as of today, total US debt to GDP is 100.012%. Congratulations America: you are now in the triple digit "debt to GDP" club!

(naturally, this is using purely "on the books" data. If one adds the NPV of all US liabilities, and adjusts GDP for such things as today's housing contraction, then the magical triple digit threshold was breached long, long ago).

And here is the breakdown for the forensically inclined ones:

I. Total debt as of December 20: $15,131,979,264,288,80

II. Net cash settlement of all completed auctions: $50,777,000,000.00
III. Total GDP: $15,180,900,000,000.00
 Total Debt/GDP= $15,182,756,264,288.80/$15,180,900,000,000.00 = 100.012%
This is banana republic stuff here folks.  Once this hits 100%, and there is no reason this will slow down, the danger zone has been clearly entered.  The main problem is a lack of fiscal discipline.  There is no impetus in Washington to change the status quo.  The status quo is record spending each and every year, miniscule cuts, and more programs.  How in the world can that lead to an improved financial position?  If you spent more and more each year, while in deep debt, would your financial status get better?  The difference between a household and a country is the employment variable.  As a family, you could always get an extra job to earn more money.  The government has much less control of their "income."  Their "income" depends almost entirely on employment.  That area of the country's welfare isn't doing so hot:
Jobs Mirage: 315,000 Drop Out Of Workforce, Driving Unemployment Rate To Three-Year Low

Despite a stark drop in the national unemployment rate reported Friday, economists warned it will take decades for the labor market to return to pre-recession employment levels if the economy's achingly slow growth continues.

The U.S. economy added 120,000 jobs in November -- falling short of economists' expectations -- while the unemployment rate dipped from 9.0 to 8.6 percent, the Bureau of Labor Statistics reported Friday morning. But roughly half of the decline in the unemployment rate came from the 315,000 Americans who dropped out of the labor market last month, in part a reflection of the slow pace of the recovery, economists said.

"When unemployment is this high for this long, it's very likely that most of the people dropping out are doing so because they can't find work," said Heidi Shierholz, an economist at the Economic Policy Institute, who has studied the shrinking labor force during the years since the recession began. "There is some movement here, that's true. But it's just so slow."

While November's job gains roughly kept pace with population growth, a more positive glimmer can be found in the upwards revisions of the past two months of employment growth. Job growth for September was revised up to 210,000 from 158,00, and October's gains were up to 100,000 from 80,000.

120,000 may not be 250,000 -- the lowest number most economists look to for a really healthy recovery -- but it's also better than zero, the initial headline number of new positions created in August, when fears of a double-dip recession really began to take hold. In October, the number of new positions created in August was revised upwards to 103,000.

"We've got a modest acceleration and more employment growth then we saw over the summer," said Nigel Gault, Chief US Economist at IHS Global Insight, a firm offering economic and financial analysis, forecasting and market intelligence.

Domestically, Gault said, things haven't turned out as bad as people feared. But the global picture emanating from Greece and China looks darker. "At the moment, the U.S. is doing better than most of the rest of the world. But let's say Europe drops into recession. How far and how long could we outperform them?"

Job gains came in retail, hospitality, health care and business services, with modest gains in temporary work -- which can sometimes be an indicator of future job growth. Manufacturing employment -- once heralded as the shining star of the recovery -- has remained essentially flat since July. Meanwhile, state and local government continued to shed jobs.

The job gains are not coming in primarily high-wage industries, and annual average wage growth is not keeping pace with inflation. Worker in the retail sector -- which had the biggest gains last month -- pull in median hourly wages of .94 an hour, according to the Labor Department, and that sector's growth is one factor that explains the 2 cents dip in average hourly earnings last month. Another key factor is that the weak labor market provides employees little leverage to bargain with their employers over pay, economists said.
Two million Americans have been out of work for 99 weeks or more -- up from 1.5 million last November -- according to the Bureau of Labor Statistics. The percentage of workers who are working part time but still seeking full-time work is also up from a year ago, according to a recent Gallup poll.

And the U.S. economy still needs to regain more than 6 million jobs lost during the recession -- plus some 4.6 million jobs to account for population growth -- to reach pre-recession employment.

This is a growing issue.  Not just because it makes the unemployment rate look better by lowering the denominator, but as people leave the work force, where do you think they are getting sustenance?  That's right, the government dole.  About half of the population receives a check from the government for something.  That isn't sustainable.  This is highly inflationary.  This is easy to check on as the government publishes the numbers for money supply:

H.6 (508)
Table 1                                                                                                     For release at 4:30 p.m. Eastern Time
                                                                                                                                 December 22, 2011
Billions of dollars   
           Date                                         M1(1)                  M2(2)                       M1(1)                  M2(2)
-----------------------------  ------------------------------------------------------------  -------------------------------------------------------
                                                            Seasonally adjusted                             Not seasonally adjusted    
-----------------------------  ------------------------------------------------------------  -------------------------------------------------------
       2009-Dec.                                        1693.5                 8528.8                        1723.7                 8550.5
       2010-Jan.                                        1681.0                 8465.8                        1673.6                 8472.7
            Feb.                                        1703.3                 8533.6                        1685.0                 8517.2
            Mar.                                        1712.0                 8511.7                        1729.5                 8579.5
            Apr.                                        1698.9                 8522.4                        1716.1                 8599.5
            May                                         1704.0                 8561.9                        1708.0                 8580.0
            June                                        1722.8                 8591.1                        1731.8                 8601.4
            July                                        1725.9                 8607.1                        1717.7                 8571.8
            Aug.                                        1746.3                 8652.6                        1738.9                 8601.9
            Sep.                                        1769.2                 8700.3                        1740.1                 8643.2
            Oct.                                        1779.3                 8740.8                        1761.8                 8699.3
            Nov.                                        1817.2                 8778.9                        1823.0                 8766.0
            Dec.                                        1828.3                 8812.2                        1865.3                 8848.9
       2011-Jan.                                        1850.3                 8836.8                        1841.0                 8840.0
            Feb.                                        1871.5                 8898.2                        1853.4                 8879.2
            Mar.                                        1888.2                 8926.3                        1907.1                 8992.1
            Apr.                                        1897.8                 8958.1                        1915.2                 9045.5
            May                                         1929.5                 9009.7                        1933.5                 9020.9
            June                                        1944.9                 9096.9                        1954.0                 9112.4
            July                                        2003.8                 9298.5                        1992.6                 9266.8
            Aug.                                        2107.6                 9531.0                        2097.6                 9465.5
            Sep.                                        2133.8                 9578.2                        2094.2                 9507.2
            Oct.                                        2150.1                 9607.5                        2125.6                 9558.7
            Nov. p                                      2149.1                 9641.9                        2164.3                 9639.8
Percent change at seasonally adjusted annual rates     M1                    M2
  3 Months from Aug. 2011 TO Nov. 2011                    7.9                   4.7
  6 Months from May  2011 TO Nov. 2011                   22.8                  14.0
12 Months from Nov. 2010 TO Nov. 2011                   18.3                   9.8
The last three rows are the most important.  This shows the growth rate of the two money supplies (remember the Federal Reserve stopped publishing the M3 because it was too "expensive") and they are running at very high rates.  WAY higher than the official inflation rate.  Here's another indication of the increasing strain of inflation:
This is growing trend in all products.  What this does is to hide the inflation as you are paying roughly the same, but receiving less in return.  This is helping the government perpetuate its goals of stealth inflation.  This is one example most are probably familiar with:
These packages used to be 2 quarts.  Now, companies are bragging that they are still 1.75 quarts.  And we are all poorer without even realizing it.
One more item and I'll call it a week.  The National Association of Realtors came out with a doozy (thanks to Jim)

Today, the National Association of Realtors (NAR) released a major benchmark revision to their existing home sales data resulting in notable downward revisions to all monthly results from 2007 and beyond.

While the Realtors were quick to point out that the “month to month characterizations of market conditions did not change”, the data certainly did with the trends post-bust now looking much more severe and a fair amount more consistent with what was reported for the new home market.

Of course the NAR suggests that there are a number of factors that contributed to the previously inflated results including growth in MLS coverage, FSBO related distortions and geographic population shifts.

Looking at the chart above (click for full-screen version) that compares the data pre and post-benchmark revisions, you can see that what the NAR is purporting to be the trend now looks substantially weaker and shows that the housing decline was notably more severe than previously reported with seasonally adjusted annualize home sales falling from a peak level of 7.25 million units in 2005 to just over 3.45 million in 2010, a level first seen in the early 1990s.

So let me get this straight.  The NARs OWN numbers were off by over 3 million homes sold and that "doesn't matter."  That seems like something that would matter to me.  But hey, I'm old fashioned that way.  What a bunch of conmen these guys are.  This is borderline fraud in regards to advertising.  Think about it, were some home buyers persuaded to pull the trigger due to these bogus numbers?  Who knows, but this should at least be investigated by the authorities.
Of course this won't happen.  Everyone gets away with everything these days and until that changes, we are destined to continue our fall from the throne of world dominance.
GORO (closed $21.78, up $.04, average price paid $6)
Mexus Gold (closed $.055, down $.013, average price paid, $.22)
AXU (closed $6.67, down $.83, recommended at $7.90)
MBI (closed $12.25, up $.40, recommended at $10.58) 
MBIA continues to plug higher and this story also was released which could be VERY good news:

More Bad News For Bank Of America - Fraud Liability May Jump $9 Billion If New York Judge Sides With MBIA


Bank of America may face billions of dollars more in liability for faulty mortgages if a judge agrees with insurer MBIA that the lender must buy back loans even if the errors didn’t cause a borrower’s default.

If New York Supreme Court Justice Eileen Bransten and judges in similar cases across the country rule that the issue of “causation” doesn’t apply -- meaning it’s enough to show that the loan was improperly made -- it “could significantly impact” Bank of America’s potential costs, the bank said in a regulatory filing this month.

Such court defeats may add as much as $9 billion to what Bank of America owes bond insurers, according to hedge fund Branch Hill Capital, which is betting against its stock and has invested in MBIA. A victory for Armonk, New York-based MBIA may also strengthen claims by mortgage-securities investors that want the Charlotte, North Carolina-based bank to pay more than the $8.5 billion it’s offered them as a settlement.

“You don’t have to wait until you’re in a severe accident before you return the car with bad brakes,” said David Grais, a partner in New York at Grais & Ellsworth LLP who represents investors objecting to the bank’s proposed settlement with Countrywide Financial Corp. mortgage-bond holders.

Now keep in mind that the current market cap of MBIA is only 2.4 billion dollars and you can see that this ruling against Bank of America would be huge.  No guarantees here, but this is looking favorable for MBI
Stocks (Current status, out)
I have no stocks in any of my retirement accounts, mostly cash with some MBI.
Physical Gold (Closed $1607, up $14, average price paid $395)
Physical Silver (Closed $29.13, down $.65, average price paid $5.31)
Well, if you have any propensity to cry during movies or videos I would suggest some tissues before watching this inspirational video and that you give thanks for all that you have.  Have a Merry Christmas!