March 21, 2009
By Peggy Schlichter
In the beginning your gut told you that something has been going wrong for a long time. You could not really explain it to yourself let alone anyone else. You just started noticing disjointed things you heard and saw in the news as “what the heck” moments. They were usually short quick stories that made you wonder what the heck are they thinking.
Most of what you see these days are smokescreens to the real economic problems. This whole hurrah about bonus payments to execs at bailed out companies is a perfect example. If they keep you mad about a fence post on fire you won’t notice the field is burning.
This whole scenario of whistle stop news stories is exactly that. A smoke screen to keep you ignorant to what these giant “to big to fail” corporations and our elected officials are doing to the country.
Our politicians are bought and paid for by the big corporations. We all knew it on some level. Yet we keep reelecting them anyway hoping for a different outcome. The majority of this country climbed on the Obama Band Wagon because he was going to bring change. No one stopped to ask if the change he was bringing was the right change or not. Just any change was okay as long as it did not affect the weekend plans. No one stopped and thought about what the country really needed or even why it was needed. They just wanted change.
Well baby, you got what you voted for. He changed the names and thought up a few more. But that is the extent of the change you will see. Everything else is tripping down the road of economic doom. The bailouts continue at an increasing rate with no end in sight.
One has to ask how this all came about in the first place. Most news stories throw a couple dozen acronyms at you and say it is so confusing that not even the best investment wizards in the country can understand it. This is not true at all. That is just what you were suppose to hear so that you would stay dumb and not pitch a fit.
It is past time and you really need to know how all this has come about. What set the stage and how it was arranged.
This is one of the best explanations in everyday words that is easy to understand about the whole bailout mess. The source of the article is Rolling Stone Magazine of all places. Be advised that they have a irreverent look on the situation and use language that is not for the youngsters. Teens and adults will understand the anatomy and bodily function euphemisms used to make a point.
Enjoy “The Big Takeover”.
February 13, 2009
By Peggy Schlichter
Without driving my blood pressure up through the roof writing about the so called stimulus bill being forced down our throats at least she makes a poignant point without all the cuss words I am unable to edit out of what I started.
It is so wrong on so many levels that it makes my ears bleed just reading it.
It has no chance of stimulating the economy in any meaningful way let alone anytime soon.
It is pure spending, bigger government, giant step forward into socialism and worst of all there is no hope for it to stem any of the problems the nation faces.
Thank You Maxine…..you made my day!!!!
November 2, 2008
By Peggy Schlichter
In an earlier post several of us were discussing the different candidates and what their platforms were bringing to the table. As a part of that discussion we got around to the subject of how to distinguish the truth from the fallacy of what the candidates actually knew about economics as evidenced by their platforms. My contention being that neither one was capable of providing the type of leadership needed to avoid further destruction of the economy. I further contended that unless you understand the true workings of a unimpeded free market you would be basing your vote on a pile of misconceptions and feel good economics.
As a part of that discussion we were talking about understanding the bailout and its implications. Considering that the national deficit grew $500 billion dollars last month as a result of the bailout congress passed it is really worth your while to take a look at the base causes that have affected your life from the first penny you earned.
I recommended that if you were interested in the subject to request Economics In One Easy Lesson” from the library. While reading another article last night I ran across a link to the book on-line.
If you chose to read it you will look at the world in a thoroughly different way and realize that voting for either Obama or McCain is the wasted vote.
I will be voting for neither one in this election simply because I would not be able to look myself in the mirror the next morning nor convince myself that they bring anything of value to the table. All you have to do is look at the ballot and see that there is a different choice available.
You will notice right off that it is not a new book. It was written in 1946 and updated in 1961 and 1978. Do not discount it because of its age. It is not fancy, has no pictures or graphs. It is broken down into short chapters that follow logically and give examples that are easy to translated into current day scenarios.
If you wish to understand what is happening today this book is for you.
Economics In One Easy Lesson By Henry Hazlitt
October 6, 2008
By Peggy Schlichter
If you thought that the bailout is a good thing it is time to reevaluate your notion. Today Treasury Secretary Paulson designated a former Goldman Sachs executive Neel Kashkari to head the new Office of Financial Stability. Mr. Kashkari is one of the many Goldman Sachs executives Mr. Paulson has filled the Staff of the Treasury with since taking office.
This says a lot about the way things are going to progress over the next couple of years. Neither Messieurs Paulson or Kashkari have any understanding of bank regulation, they made their money doing the very same things that got the financial system into the mess they are in.
One has no option but to distrust the credibility of any action these gentlemen take when it comes to the best interest of the people they are sworn to serve. Not one piece of the legislation passed is in the nation’s best interest. The only time a homeowner will see a possibility of relief is after a delinquent mortgage is sold to the government. There is absolutely no provision in the bill that requires the mortgage holder to make any attempt to salvage a loan from foreclosure prior to selling it to the government. The lack of any such measure will focus the mortgage lenders on sifting through the marginal loans and offering them up to the government to unload them from their balance sheets.
The other glaringly bad proposition in the bailout bill is the provision is section 101 that effectively allows the Treasury to designate any financial institution as a Financial Agent of the Federal Government.
“Designating financial institutions as financial agents of the Federal Government, and such institutions shall perform all such reasonable duties related to this Act as financial agents of the Federal Government as may be required.”
This is so open ended that it allows any nation’s financial institutions holding derivative investments who are not performing to be designated as agents of the Federal Government.
One has to ask just how long it will take China and Japan to start foreclosure on mortgages it holds in these derivatives.
The China Development Bank is the second largest bank in Asia and the largest holder of US mortgage debt instruments and has been told that they will get this designation.
To make matters worse on October 1st Mr. Paulson notified China that 800 Billion AMERO’S were being shipped to China in exchange for $400 Billion worth of the estimated $2.5 Trillion debt they currently hold.
Now one has to ask how can this be acceptable to the Chinese when the AMERO is not even a legal currency. They had to have some kind of assurance from the government that it will have worth in the near future.
My bet is that once the recession starts to deepen in the not to distant future NAFTA will raise its ugly head again and be used in the next scare tactic to save us from a worthless dollar. The dollar against the yen has lost 4% of its value recently but has been gaining against the euro over the last several months because the European countries financial institutions are in the same sad sorry state and they started their bailouts over the weekend.
My next bet is that the Federal Reserve will lower interest rates again this month. Doing again the exact same thing that started the problem in the first place. The only people that will help is the financial institutions swapping money back and forth.
One now has to ask themselves several questions.
Why is this information not being covered in the US news? Almost all of the information I put together here came from news agencies outside of the US. Mostly from Europe.
Why should any elected official up for election in November receive a single vote if they voted yes on this bailout package? That includes Messieurs McCain and Obama.
Why have neither of the presidential candidates spoken out about what is happening now if they do not plan to carry on down the same path?
Why have none of the financial institutions who created this mess been brought under investigation for fraud against their investors?
Why has Congress not removed Treasury Secretary Paulson from office for his apparent display of conflict of interest in handling this matter?
My hope for this post is that you really start thinking about what is going on around you today. All is not lost. There is still room for hope if the Congress can be swayed from their current path. It will take a concentrated effort from every person to contact their representatives to repeal the bailout resolution as soon as possible. Representative King is a good place to start. Be proactive. Know who owns your mortgage. Where you make the payment to is not necessarily who owns your mortgage. If you are under threat of a foreclosure get a lawyer and demand that the activity who filed for the foreclosure actually shows proof that they own the mortgage. Many do not and cannot present the proof because mortgages have been repackaged and sold into so many different derivatives that they are untraceable. If you are in trouble with your mortgage do not hesitate to contact the mortgage holder and see if a new deal can be worked out. If you have a 401k through your employer it is best to have a outside non-partisan evaluation done at the soonest opportunity. If you have a independently established 401k have it evaluated for what you can afford to lose versus what it will cost to close it out. There is a breaking point that is essential to find if you are planing to retire in the next 3 to 5 years so that the money can be moved to a safer investment. The cost of oil is dropping so that will take a little pressure off. Be prepared to see the DJIA drop to as low as 6000. The NASDAQ to under 1500. Watch the video called Money As Debt and understand what caused this situation in the first place.
September 22, 2008
By Peggy Schlichter
After emailing Iowa’s Senators and District 5 Representative this morning about the farce they are trying to perpetrate on the american people I realized that they are so caught up in the fight to be hero’s that they have completely missed the point. Just to many people have no idea about how economics are suppose to work. Just to many people have no idea what government is suppose to be for. Every taking head on the tv rattles on and on about how badly the world will suffer if the government does not bailout the financial system.
Well frankly I say let them suffer for their own mistakes. After all, they made them. Not the poor schmo who was lead down the garden path to destruction. If the government really wanted to help people they would demand that every predatory loan be refinanced to a 30 or 40 year fixed rate allowing homeowners the chance of keeping their homes before handing out the first penny of help. Then they should make it illegal for the financial community including the Federal Reserve to play russian roulette with interest rates. Let the market set the rate…..period. It would be a difficult messy affair but in terms of time and damage to the country it would be far less in the long run than the path they are persuing.
Of course this will not happen. The government is locked into saving the day without realizing that they are going to extend the destruction on much longer than need be. It will put the nail in the coffin of the dollar as the world’s reserve currency. It will trigger staggering inflation and wipe out the middle class. It will leave a staggering bill for generations to come.
July 7, 2008
By Peggy Schlichter
If you remember I did a post on the bank cash reserve problems and the problems the large insurers were having in maintaining their ability to maintain solvency as more and more claims were made against their policies. I also did a post on the government’s plan to decrease the cash reserves required for Freddie and Fanny.
Here is a quick look at the latest bank cash reserve status. Remember (3) is the cash shortfall amount in millions and term auction credit is the number of times and amount of short term money loaned by the Federal Reserve.
June 5, 2008
By Peggy Schlichter
I know that most people could care less about economics unless it smacks them in the face but the smacking is starting to happen. Just go to the grocery store, pharmacy or gas station and the checkout shock is becoming more and more apparent.
This realization is or should be a wake up call to anyone who lets life slide by without paying attention to the economics of our way of life. You work hard, pay into your 401k’s, put money in savings, maybe dabble in the stock market or just try to get by feeding and clothing your family. But, the economics of our system of finance is a very large giant that never gets attention until we are forced by realities to pay attention.
As everyone probably knows by now I read. I read a lot. I read about just about anything that catches my attention at any given time. I research topics to find a better understanding of how they affect my life or how they will affect it in the future. That is just me.
One area I have been reading about for the last 8 or 9 years is economics and how they apply to what I see happening around me every day. Now I see more and more how the economics of today is going to wreck havoc on the U. S. for many years to come. I do not see a front running political candidate who has the smarts or wisdom lead this country during the coming economic times. Nor do I see that there are many people who will know what hit them until it is to late.
The conventional wisdom for investing is to buy and hold to let the investment appreciate in value. That holds true for an economy that is based on a “value added” scenario. Sure the investment will go up and down but overall over time it trends upward. That is the bull charging forward. But there are times when the bear comes lumbering down the mountain tearing up everything in sight. Our older generation will remember the depression they were born into. Many of the younger generation have no idea what a depression means. Worse yet very few understand inflation and deflation. Inflation is insidious because it has only one true effect. It robs people of their wealth. What you saved or earned is worth less and less. Deflation is the term used to describe how the inflation unwinds.
Which brings to mind the old adage of what goes up must come down. While that was intended to help teach gravity it also reflects economics as different stages play out. Since we are social people who tend to follow the prevalent societal trends we become focused on how we are used to things being and continue on. When something happens to disrupt that trend we usually react with surprise and most times anger because we were not expecting it. Our expectations get violated and feelings of fear and anger take over. That is just human nature.
After watching for some time now what is going on in the financial world I am more convinced than ever that there is an ugly picture waiting to be painted over the next many years. In the developing or third world countries the early stages of upheaval have begun. Their economies have narrower capital margins so even small fluctuations in prices can be catastrophic.
So what happens in a nation like ours when inflation is allowed to grow?
In order to understand you need to know how inflation happens. You also need to understand how deflation works. You also have to understand the difference in the basis for the causes of inflation. There is good inflation and there is bad inflation. The problem is that we are staring at bad inflation.
Here is the most succinct and short explanation that shows that relationship. It provides a look at the fundamental cause and effect of the inflation we see now and where and why it is going in that direction. It explains deflation as it relates to the economics of the times.
February 27, 2008
This is an update to the previous post.
By Peggy Schlichter
As I pointed out in the last post the US Government was thinking about lifting the mortgage loan limits for Fannie Mae and Freddie Mac. They announced today that is in fact going to happen effective Saturday. Even after Fannie Mae reported a $3.6 B loss in the 4th quarter of 2007 on their own mortgage loan defaults.
To make matters worse they have now opened the door to easing the requirement to keep the cash reserves at a government mandated 30% above the minimum legal requirement. While they have not eased the requirement yet the initial stage is being set to gradually decrease the requirement.
To the uninformed person this sounds like a good deal for the country…..Until you realize that by transferring the debt from the private sector lenders to the Government. The US Taxpayer is then liable for any losses incurred by these new loans.
Considering that Fannie Mae is already in the red and completely erased the $604 M profit from a year ago you have to wonder why the Democrats are so intent on pushing for these changes. While they might save some of the mortgages from default they are setting everyone else up for the liability to repay the substantial losses through higher taxes. With the current cash reserve requirement set at 10% of outstanding loan value plus the 30% government mandated additional cash reserve that still leaves 60% unsecured. Gradually reducing the cash reserve requirement will only make matters worse.
Now take into account that AmBac, MBIA and UBS, the 3 largest insurance companies that secure the banking industry, are already in financial trouble just trying to cover the current losses. They are already going begging to China and the Middle East for cash to stave off bankruptcy.
The biggest question I have to ask myself is: Who gains from these changes in Government Policies? I can guarantee you that it is not the government nor the taxpayer.
It is the banks and lending institutions who are quietly lobbying congress for the changes. This is a stealthy, sneaky way to shift the burden of their bad business practices onto the backs of the taxpayer. And hey..who can blame them. I mean it worked really well for them during the 1980’s and the Savings and Loan Bailout.
Who ended up paying the price then? The taxpayer, of course.
It is a day later and Freddie Mac reports a $2.5 B loss for the 4th quarter. Do you feel the breeze from all the smoke being blown up your skirt? Read the next to the last paragraph of the article making light of the loss because of the large cash cushion they are required to maintain. Then remember from paragraph two above that the stage is being set to gradually decrease the requirement of cash reserves.
Remember also that the lending limits cap is gone on Saturday for Freddie Mac also.
The same question applies. Who really gains from these changes?
February 20, 2008
Or…The Fix Is In Against The US Taxpayer
By Peggy Schlichter
I know I have said this before but I will say it again. The country does not have the money to pay for this rebate. Not only do we not have the money to make the rebates with, they have tacked on another measure that was barely publicized in the main stream media.
This other measure is to raise the mortage loan limits of Freddie Mae, Fanny Mac and Federal Housing Administration Insurance too.
Why is this important? Raising those mortage loan limits is the first step in transferring bad mortgage debt to the government. Once that is accomplished the door is open for a Federal bailout.
If you click no other link I put on this blog this is the one to read and think about during the rest of this election year. Then think about how economically astute you believe your choice for president really is. Then pay attention to how they speak about this during the rest of the campaign.
February 16, 2008
By Peggy Schlichter
This thread started under the “I Was A Bad Girl” post when it morphed to talking about the candidates and their suitability for doing what is right for the Country. If you missed it or wish to refresh your memory go there first.
One of the biggest problems I see into the near future that will have the most devastating effect on our daily lives is the growing solvency problem that the banks are having. Do not get me wrong here because not all banks are having problems. Nor should anyone take this as a reason to panic. What it should do is give you a reason to be informed and aware of the road that lays ahead.
The Federal Reserve is continuing their $30 Billion short term cash auctions every two weeks of new, 29 day, loan money into the banking system to help stem what they call a “Cash Liquidity” problem within the financial markets. The problem is that doing so will not solve the problem.
Any one who has been in debt knows that you cannot solve money problems by throwing more debt at it. It is like you have one big credit card bill and you use another credit card to make the payment. Then your car breaks down and you use the second credit card to pay for that. Next thing you know something else happens and you need money to pay for that. Now you have two big credit card payments and the only way to make the payments is to use the next credit card that you were saving for emergencies. And so on, the cycle continues until the only way out is bankruptcy. It happens, we all know of someone it has happened to. Now just think about it on a much larger scale.
The problem, as I see it, is that the Federal Reserve is continuing on this path based on either the wrong identification of what the problem really is or they just have so much arrogance as evidenced by Mr. Bernecke’s dismissing all the economic realities when addressing Congress or they are just trying to hide the facts about the true state of the economy. Personnally, I believe it is the last two.
You cannot convince me that the Federal Reserve is unaware of the difference between “Liquidity” and “Solvency”. Because there are some very big solvency problems looming in the not to distant future. Citibank is in such a problem with their cash reserves that they have lowered their cash withdrawal limits at their ATM machines without notifying their customers. They have limited to $10 K a day all wire transfers, including business accounts. Other banks are following suit as they are closing in on breaking the mandatory limits set for cash reserves. All lending companies are having the same problems caused by the high numbers of mortgage loan defaults. There is no way that any thinking person can reason that the situation is a “liquidity” problem. It is not. It is one of “Solvency”.
The harrowing factor to all this new “liquidity” (money) being pumped into the market is that it will continue to drive inflation higher. Not just a little bit over a long period of time but quite dramatically in a relatively short time. Inflation comes directly from an increase in the money supply and nothing else. Whenever the money supply is increased and put into circulation the effect of inflation is cumulative. That means that the first entity that borrows it pays a interest percentage (Banks or lending institutions) . Then the next entity borrows it from the banks (other banks, lending institutions and businesses) at a higher interest percentage. Then the next entity borrows either from other banks and lending institutions at a higher interest percentage and use it either expand, pay down debts with higher interest rates or use it to cancel future debts by paying for layoffs, buyouts or re-locations. Each level of borrowing raises the interest rate for repayment of the debt and all those accumulative increases are passed to the customer in the price of the goods or services purchased. That is why you are seeing the prices jump so dramatically at the grocery store. When biscuits and butter jump 60% overnight it is a sure sign that all this new money is already working its way through the economy at a rather fast rate.
Why do I use the example of grocery prices? The short answer is that the grocery industry runs on the smallest profit margins of any industry. Grocery profit margins are razor thin and usually vary in the 0.88% to 1.36% range annually. They are usually the first sector hit by inflation. That makes them the bell-weather for gauging real inflation. Do not be mislead by thinking that the high cost of transportation fuels are the reason. Fuel costs are included in the price for every shipment and have been high for so many years that when spread over the volumn of groceries its effects are nominal. The real tell is when any grocery item jumps in price the increase is almost exclusively directly from inflation. While weather may play some role in increased costs they are usually short lived and never effect all sectors of groceries.
The Federal Reserve started their money auctions in January and have held 3 for a total of $90 B. with a fourth scheduled at the end of this month. Directly after the first auction grocery prices started going up. The longer the auctions continue the higher inflation will rise eventually spreading through the entire economy.
Having said all this we are now back to the point of banks and their ability to maintain cash reserves. The latest Federal Reserve statistics of the status of cash reserves paints a daunting picture. Looking at the non-borrowed (3) column for the dates starting in January 08 you will see a dramatic shortfall in cash reserves. Just prior to the end of last year the preliminary numbers showed a negative balance for banks required cash reserves. Based on these numbers the Federal Reserved decided to begin releasing new money in the form of the auctions I wrote about above. Even with the auctioning of $90 B in new money banks overall are still at a minus $18 Billion in cash reserves as of the 13th of February 08. This tells me that $90 B could not stop the decline is bank cash reserves and that the shortfall continued to increase by an additional $9.3 B leaving a total shortfall of cash reserves at $18 B.
For the Federal Reserve to continue on this course is ludicrous. The longer they keep this up the greater the effects of continuing, increased inflation will spread through the economy.