Roubini sees recession lasting or even double dipping.

Nouriel Roubini a professor at NYU wrote a piece outlining eight points as to why he thinks the projected recovery will take much longer than most anticipate. Newsweek already announced the recession is over, however Nouriel disagrees and in fact points to a developing possibility of a double dip recession and believe me, this is no ice cream treat. “Yeah uhm, I’ll take a double dip recession with some unemployment sprinkles and debt chunks”. Not so much, instead we are looking at a recovery of some kind followed by yet another recession. Fun fact time! During FDR and the expansion of government, America experienced it’s first double dip recession or specifically a recession within a depression. FDR somehow managed to convinced the zombie masses that his predecessor somehow was to blame, but this tactic will not fly in the age of information. Not to dwell on the matter further, but it was FDR’s policies that caused the double drip recession, taxation, regulation, price control and the general malaise of government intervention.

So why should you trust Nouriel Roubini, it’s not like you ever heard of him, what does he know? I probably would not pay attention to him either, except he has an annoying tendency of being right and in fact predicted the 2008 fiasco. Perhaps he is just a perma-cynic, after all, his nickname is Doctor Doom and that’s almost as scary “Mr. Rogers”. Either way, many of us are concerned about the economy and what to possibly expect in the near future, should we buy a house, a car, invest, etc? Consider his points, for they are accurately stated and hard to dispute.

“There are also now two reasons why there is a rising risk of a double-dip W-shaped recession. For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).

But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.”

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Federal Reserve corruption and the United States financial health.

A video has been circulating around the web and is currently available on YouTube. This is an absolute must watch and demonstrates the complete ineptitude of our government officials. In the video you see the inspector general of the federal reserve board being questioned. She is asked a very simple question, that is – can she explain why the federal reserve balance sheet expanded by one trillion dollars and where that money went. In other words, in the past half a year our federal reserve borrowed roughly one TRILLION dollars and the sole agency responsible for auditing this money has absolutely no clue as to where it is.

We are talking about a devastating amount of money that will forever enslave this and further generations with crippling debt. Keep in mind that the entire existence of the federal reserve starting with the creation of this semi-private institution has been questioned for decades now. Due to the work of brilliant men like Milton Friedman and to a lesser extent the admission of blame by current chairman Ben Bernanke we now know that the Great Depression was largely a creation of the federal reserve. More currently, former chairman Greenspan has been blamed and rightfully so for keeping the interest rates too low for too long and thereby potentially instigating the housing collapse. The entire purpose of the federal reserve and it’s creation was to stymie and prevent the inevitable ebb and flow of the business cycle. Various banking panics in the United States prompted the Woodrow Wilson administration to control something that no human has the capacity to understand – a complex free market economy. This intervention by humans into the lifeblood of our economy has now caused unparalleled damage and continues to do so TO THIS DAY!

Please watch this video and pass the information along. Americans must know that our entire existence as a country is being threatened by a few men with noble intentions, ivy league educations and the perception that they simply know better.

Is the 2009 recession over?

At the heels of one of the worst financial and housing meltdowns in the history of this country, rising unemployment and shrinking GDP the sentiment has surprisingly jumped from doom and gloom to mindless optimism.

One does not need to look far to overhear bullish sentiment about the US stock market and little bits of chatter asking hopefully whether this recession is slowing down. Not to be outdone, this irrational exuberance (Greenspan would be proud) goes beyond the local talking heads or financial gurus at the water cooler, our own government hot shots have now proudly announced a reversal in fortune. Both Tim Geithner (tax cheat) and Ben Bernanke (“student” of the Great Depression) have commented on our strong economy and the ability for us to recover.

So what is behind this jolly rhetoric and can we deduce any veritas seemingly from the same people who lead us into this debacle in the first place?

Regarding pundits, talking heads, 99% of the staff of CNBC and other financial channels and other TV personalities – they know nothing. This may sound somewhat condescending and I certainly do not have a degree in economics or financial witchcraft, but as someone who has participated in the market for years I can comfortably state that the people on TV are there for entertainment. There are a handful of individuals on this planet, yes planet, that can successfully time and understand the complex economies of modern countries. Even people like Warren Buffet, arguably the best long term investor of his time got his accounts decimated when he pulled the trigger early on the US equities. If Buffet got it wrong, then Joe S. Pundit knows even less. Their job is to report news after the fact and their attempts at drawing conclusions are laughable at best. One needs to spend a short time watching these people to realize that the conclusions being drawn are infantile and baseless.
Similarly the political elite armed with their ivy league diplomas fair similarly badly in their prognosticating ability and can only infer a small sample of information from key economic data points. However the political elite has a slightly different agenda, then the aforementioned TV rating seeking pundit, the likes of Bernanke is interested in fostering a positive image.

So far we have had housing data, unemployment data, manufacturing numbers and GDP continually demonstrate the systematic breakdown of our economy. However because the rate of change has slowed down, the people responsible for reporting the reality can’t help but place a positive spin on the rate of change and falsely deduce that this suggests the end of our recession. Perhaps it does, but this conclusion is so awfully premature that one must wonder if intellectual dishonesty is at play here. For those with intellectual honesty, the meteoric rise in the stock market over the past two months has clouded any remnants of rational reasoning. *cough* bank stress tests *cough*

So what do our politicians gain by fostering an overly positive imagine of our economy? Simply put, we are broke. We do not have the money to pay for all the goodies that the new administration has promised and we are forced to raise money by selling treasuries. The principal buyer and holder of our debt is China, a peculiar irony to be bailed out by a communist nation, and they must continue to purchase our debt. Why would they? As of now we are still the world power and our economy has the potential to generate output that rivals all of Europe. However as we spiral out of control into a recession/depression/whatever, the Chinese rightfully wonder if purchasing additional debt is prudent! So leave it to our politicians to give the good Communists a propaganda campaign that even they can be jealous of.

After all, what better way to continue spending our way out of our demise then to shift the burden onto someone else? Eventually the gravy train will come to a screeching halt and reality will sink.

Bernanke has vowed to maintain the 10 year yield at 3%, in layman terms this means he is going to ensure that someone continually buys the 10 year treasury note. What does 3% give the United States? First it continues to provide cheap mortgages to people and hopefully incentivize new home purchases and secondly, keeps the Chinese happy and prevents them from unwinding their position. Unfortunately in order to buy our own notes, we need to print some cash and debase our currency. Debasing our currency if done in small doses has the benefit of lowering the dollar and thus shrinking our debt, may not make the Chinese happy, but does not give them many options. Sadly debasing the currency also ushers in inflation and inflation is battled by raising rates, something that Bernanke could do at any time. However raising rates when the economy has not actually improved ushers in an economic concept called stagflation. Stagflation is bad, ask Jimmy Carter.

Is the recession over? Why would it be! Can it get worse? Yes, much worse.
Protect yourself and do not buy into the hype.

The Geithner plan, the good and the bad.

Tim Geithner today was on Meet the Press selling to the public his plan to shore up the toxic assets and alleviate the bank’s balance sheets. Right now the banks are crippled because they aer holding assets whose value nobody truly knows, some rough estimates suggest that the value of these mortgage based securities could be 50-70% lower than their original purchase price. At this point banks do not want to let go of these assets because they are partially hoping that prices will rebound and in part because they are waiting for government intervention. The latter is my speculative guess and their prudence certainly paid off given the Geithner plan.

Tim’s plan involves bringing in private moneys to offer them incentives to purchase these mortgage based securities. In other words, Tim thinks that private investors are going to use their own money to buy up assets whose true worth is impossible to evaluate at the moment. You are probably thinking, why would any private investor put money on the line for such a dubious “investment”. This of course is a great question, because it is entirely impractical to force essentially worthless assets down the throat of anyone, let alone private moneys. So the government will subsidize these purchases! That’s right, for every private dollar there will be a matched public dollar and this will incentivize private funds to pour into this system and shore up the toxic assets. If this works, private investors will walk away with a handsome profit while having half of their risk subsidized. Unfortunately Mr. Geithner was purposely deceitful and vague on Meet the Press, after all he is trying to sell this proposal and being truthful would have significantly impeded his effort.

He alleges that if this fails, private investors will lose all their money. True. However their risk is half of what it should be, because the other half is being put forth on the taxpayers. So while some of these private investors can CHOOSE to invest in this scheme, taxpayers like you and I are forced to put up our future as collateral. So once again, if this system fails then 50% of the private moneys will be gone and the rest will be paid for by our tax dollars. So what happens if this plan succeeds?

If this plan succeeds, then the private investors walk away with a ton of profit given that they only put up half of the required moneys. Taxpayers will get nothing, although I suppose some will claim that we will all benefit if the banks can finally start lending again. Of course that is all hogwash, because banks are lending right now – they are just lending with stringent requirements and not to deadbeats who can’t pay the money bank, just like they should have been doing in the first place.

So ultimately, there is one last question to answer. Perhaps you are interested in investing and think that putting down some money with a 50% government match sounds like a good risk. Where do you go? Answer, nowhere. This plan is not for the public and therefore not for you – these private funds will be chosen at the Treasury’s discretion and I assume it will be big investors on Wall St. Therefore if this plan works the big money/government wins and small money remains neural and if this plan fails, big money loses and small money loses.

What a clever plan Mr. Geithner. Looking out for the small guy eh?