Think the PIGS are in trouble? These 7 U.S. States could be heading for something worse

by Gregor Macdonald
Originally posted February 06, 2010
http://seekingalpha.com

THE INEVITABLE COMING OF THE SOVEREIGN DEBT PANIC finally engulfed Europe this week as the derisively (or perhaps affectionately) named PIGS spilled their slop on the continent. But Portugal, Ireland, Greece, and Spain are hardly worthy of so much attention. In truth, they are little more than the currently favored proxies among the leveraged speculator community (cough) for the larger problem of all sovereign debt. Indeed, the credit default swaps on these smaller European satellite states were not alone this week in making large moves higher. UK sovereign risk rose strongly, and so did US sovereign risk. With a downgrade warning from Moody’s to boot.

Notable among three of the PIGS are their relatively small populations, and small contributions to either world or European GDP. While Spain has a population over 45 million, Portugal and Greece have populations roughly equal to a US state, such as Ohio–at around 10 million. And Ireland? The Emerald Isle has a population similar to Kentucky, at around 4 million. While the PIGS are without question a problem for Europe, whatever problems they present for Brussels are easily matched by the looming headache for Washington that’s coming from large US states such as California, Florida, Illinois, Ohio, and Michigan.

I’ve identified seven large US states by four criteria that are sure to cause trouble for Washington’s political class at least for the next 3 years, through the 2012 elections. These are states with big populations, very high rates of unemployment, and which have already had to borrow big to pay unemployment claims. In addition, as a kind of Gregor.us kicker, I’ve thrown in a fourth criteria to identify those states that are large net importers of energy. Because the step change to higher energy prices played, and continues to play, such a large role in the developed world’s financial crisis it’s instructive to identify those US states that will struggle for years against the rising tide of higher energy costs.

Money creation, easier than you know!

Central banks have it a lot easier than the rest of us. John Kenneth Galbraith famously said, “The process by which banks create money is so simple that the mind is repelled.”

The Biggest Financial Deception of the Decade

by Jeff Clark, The Daily Reckoning
Published originally January 12, 2010

ENRON? BEAR STEARNS? BERNIE MADOFF? They’re all big stories about big losses and have hurt a lot of employees and investors. But none come close to getting my vote for the decade’s most dastardly deception…

First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in US history at that time. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later. And what had we been told by the media? Fortune magazine dubbed Enron “America’s Most Innovative Company” for six consecutive years. Next came WorldCom filing for bankruptcy in 2002, their assets of $103.9 billion dwarfing Enron’s. Tyco, Adelphia, and Peregrine Systems also made headlines for their acts of fraud and mismanagement.

A few years later, Bear Stearns set us all up for the Big Meltdown of 2008. It was B.S. (no, I mean Bear Stearns) that pioneered the asset-backed securities markets, and we all know how that turned out. Later we learned that as losses mounted in 2006 and 2007, the company was actually adding to its exposure of mortgage-backed assets. With net equity of $11.1 billion supporting $395 billion in assets, Bear leveraged itself up to an astonishing 35-to-1.

And during it all, Bear Stearns was recognized as the “Most Admired” securities firm in a survey by Fortune magazine (there’s that Lower Manhattan tabloid darling again). Frequent sightings of company executives on country club fairways assured the public that all was well. And CEO Alan Schwartz told us there was “no liquidity crisis for the firm” and insisted he “had the numbers to back it up.” His company was sold four days later to JPMorgan Chase at $10 per share, a 92% loss from its $133.20 high.

Lehman Brothers, the 158-year-old investment bank, was next and still today holds the title as the largest bankruptcy in US history. Lehman succumbed to 2007’s Word of the Year, “subprime,” and its $600 billion in assets all went poof! In just the first half of 2008, before the meltdown, Lehman’s stock slid 73%.

And what did CEO Dick Fuld tell us in April of that year? “I will hurt the shorts, and that is my goal.” He must have been referring to the attire of his tennis club buddies, because the ones who actually got hurt were numerous other banks, money market funds, institutions, hedge funds, REITs, brokers, private and public trusts, foundations, government agencies, foreign governments, employees, and investors.

Moving on to the largest US government bailout recipient by far, AIG’s troubles spawned my favorite placard of the decade: seen outside their Manhattan offices stood a sign that simply read, “Jump!” Maybe its creator heard what I did from AIG’s financial products head Joseph Cassano: “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.” Oops!

“The New Dark Age”

Below is a prescient excerpt from “The New Dark Age” by Michael Minnicino.

THE PEOPLE OF NORTH AMERICA and Western Europe now accept a level of ugliness in their daily lives which is almost without precedent in the history of Western civilization. Most of us have become so inured, that the death of millions from starvation and disease draws from us no more than a sigh, or a murmur of protest. Our own city streets, home to legions of the homeless, are ruled by Dope, Inc., the largest industry in the world, and on those streets Americans now murder each other at a rate not seen since the Dark Ages.

At the same time, a thousand smaller horrors are so commonplace as to go unnoticed. Our children spend as much time sitting in front of television sets as they do in school, watching with glee, scenes of torture and death which might have shocked an audience in the Roman Coliseum. Music is everywhere, almost unavoidable—but it does not uplift, nor even tranquilize—it claws at the ears, sometimes spitting out an obscenity.

Our plastic arts are ugly, our architecture is ugly, our clothes are ugly. There have certainly been periods in history where mankind has lived through similar kinds of brutishness, but our time is crucially different. Our post-World War II era is the first in history in which these horrors are completely avoidable. Our time is the first to have the technology and resources to feed, house, educate, and humanely employ every person on earth, no matter what the growth of population.

Yet, when shown the ideas and proven technologies that can solve the most horrendous problems, most people retreat into implacable passivity. We have become not only ugly, but impotent.

This decline in society was seen as early as 1992 (and perhaps much earlier) and is documented in an article published by the Schiller Institute.

Staring at the abyss

by Pepe Escobar, from Asia Times Online
Originally posted Feb 5, 2010

TEJAKULA, NORTH BALI – As far as precious little corners of paradise in Southeast Asia go, one could hardly ask for more. An isolated octagonal house with a beautiful garden, owned by a retired couple from California, facing a volcanic rock beach to the north of the tropical island of Bali, with the only locals being fishermen who at night set out on a junkuh – the elegant, wooden predecessor of the catamaran – to scour the calm, warm waters for tuna and barracuda.

The night is mostly pitch black – courtesy of punctual power shortages from the grid in distant Java. The sound is the usual, cacophonous tropical jungle “silence” – deafened by the inevitable daily storm. There’s not much to do except sit at the seaside, pinpoint the kerosene lamps identifying the junkuh, and stare at the Bali sea.

But this being Bali, where everything is a matter of sekala and niskala, soon I saw myself staring at the abyss.

Sekala is the fabulous, fascinating Balinese world of ritual, ceremony, dance, drama and endless daily offerings to the spirit world. But the real action is in niskala – the occult, the magic underlining it all. In Bali definitely what you see is not what you get.

So while staring at the sea I was actually thinking about the late, great Howard Zinn, American historian, author and activist who died on January 27 this year, and his take on this sorry world of non-stop war and infinite injustice; Zinn asked how can we “stay socially engaged”, committed to a struggle for justice and truth, and still keep our sanity and not become resigned or cynical, or turn into a vegetable, or totally burn out.

Did I miss much while staring at the Bali sea? Oh, the usual shop of horrors. The ghost of Osama bin Laden released a new audio hit blasting the US for global warming and inciting everyone to dump the US dollar (the ghost is right on both counts). Pakistani Taliban supremo Hakeemullah Mehsud may or may not have been blasted to bits by a US drone (who cares? His replacement is already in business). US President Barack Obama’s surge duly proceeds as a Kill Bill-style killing spree on both sides of the AfPak border. The Central Intelligence Agency swears al-Qaeda will try another hit inside the US within the next six months. There was a corporate takeover of American democracy (so why not “elect” US politicians by auction, once and for all?) and neo-cons are now rehashing the mantra “Bomb, Bomb Iran” as the only way for Obama to save his presidency.

So the moment I laid my eyes on the Internet, borrowing the satellite dish signal of my neighbor Hans, a Dutch architect who wisely said bye-bye to cranky, fearful, priced-out and reactionary Europe – the Bali sea instantly vanished. It was not only a matter of niskala taking over sekala. It was a matter of being sucked back into the realm of the hungry ghosts – and all that’s left in this case is the abyss, as in the Pentagon’s “long war”.

International Forecaster January 2010 (#8)

by Bob Chapman, The International Forecaster
Originally posted 27 January 2010

The following are some snippets from the most recent issue of the International Forecaster.

PAUL VOLCKER IS BACK AND THINGS ARE about to change in Washington. A split has occurred between the paper forces of Goldman Sachs and JP Morgan Chase. Mr. Volcker represents Morgan interests. Both sides are Illuminists, but the Morgan side is tired of Goldman’s greed and arrogance. Volcker cannot be called old school or anachronistic. He represents sanity in an insane financial world even though he is an integral and powerful part of the elitist structure. He represents a change in gears and approach. The present administration and the Democratic Party has lost its moorings and is in on a path of political suicide. They have tried to get passed impossible legislation that the American people do not want, and they will be abandoning those positions, because they are no longer tenable.

The election of Scott Brown in Massachusetts was a major defeat for all administration programs. As you will see, Mr. Obama and fellow Democrats will start sounding like popular conservatives and populist talk show hosts, as they attempt to win back their center. That is where Paul Volcker fits in. He is back and major changes are about to take place financially and politically.

Goldman Sachs, Citigroup and others in their greed have lost touch with economic and financial reality and they looted the system. Not that JP Morgan Chase was blameless, they did their looting and damage to the system as well, but not in the high handed arrogant way the others did. The recall of Volcker is an attempt to reverse the damage as much as possible. That means the influence of Geithner, Summers, Rubin, et al will be put on the back shelf at least for now, as will be the Goldman influence. It will be slowly and subtly phased out. One of the things we have always believed is that Volcker was never out of touch. He is brilliant, brash, irreverent and successful.

Which trigger will ignite the Great Depression II?

by Paul B. Farrell, MarketWatch.com
Posted originally February 2, 2010

TWENTY ECONOMIC WEAPONS of mass destruction triggering ticking Global Debt Time Bomb:

1. Federal Budget Deficit Bomb: The Bush/Cheney wars pushed America deep into a debt hole. Federal debt limit was just raised almost 100% with Obama’s 2010 budget, to $14.3 trillion vs. $7.8 trillion in 2005. The Congressional Budget Office predicts future deficits around 4% through 2020. Get it? America’s debt at 84% of GDP will soon pass that toxic 90% trigger point.

2. U.S. Foreign Trade Bomb: Monthly deficits actually dropped from $50 billion per month to roughly $35 billion. But the total continues climbing as $400 billion is added each year. Foreigners now own $2.5 trillion of America, with China holding over $1.3 trillion in Treasury debt.

3. Weakening U.S. Dollar as Foreign Reserve Currency Bomb: Fear China and other currencies will replace dollar as main foreign reserves. The dollar’s fallen: The main index measuring dollar strength has gone from 120 at the Clinton-to-Bush handoff to below 80 today.

4. Cheap Money Bomb: Credit Ratings Down, Rates Up. Economists at S&P, Fitch and Moody’s were totally co-conspirators of Fat Cat Bankers, misleading investors before meltdown: Soon, debt up, ratings down, interest rates soar.

5. Global Real Estate Bomb: Dubai Tower, new “world’s tallest building” is empty. BusinessWeek warns that China’s housing collapse could be worse than America’s. Plus the U.S. commercial real estate bubble is now $1.7 trillion, a “ticking time bomb” bloating 25% of bank balance sheets.

6. Peak Oil and the Population Bomb: China and India each need 500 new cities. The United Nations estimates world population exploding 50% from 6 billion to 9 billion by 2050: Three billion more humans demanding more automobiles, exhausting more resources to feed their version of the gas-guzzling “America Dream.”

7. Social Security Bomb: We have no choice; eventually we must either cut benefits or raise taxes. Politicians hate both, so they’ll do nothing. Delays worsen solutions. Without action, by 2035 Social Security and Medicare benefits will eat up the entire federal budget other than defense.

Two Important Messages from the Fear Index

by James Turk

Originally posted Jan 22 2010

THE FEAR INDEX REMAINS WITHIN its decade-long bullish uptrend, so we therefore know as a consequence that gold also remains within an uptrend. But the Fear Index is also giving us another important message. It is that gold remains undervalued.

Gold’s valuation is indispensable information given its exceptional appreciation this decade. In other words, even though gold has risen nine years in a row http://goldmoney.com/commentary-gold-shines-for-the-ninth-consecutive-year.html against the US dollar, it remains relatively cheap.  This conclusion is illustrated with the following chart.

The dashed horizontal line on this chart marks 2.63%, which is the average value of the Fear Index since August 1971. That is the date when President Nixon – with total disregard to the US dollar’s 180-year history – turned the dollar into irredeemable fiat currency, in effect declaring by presidential edict that the monetary requirements of the Constitution were null and void.

The Fear Index is presently 2.05%.  Note that it is lower today than August 1976 when the Fear Index was 2.28% and gold was $104. Therefore, gold at $1106 – its December 31, 2009 price – is even more undervalued than it was at $100 back in 1976. How is that possible?  How can gold be more than 10-times more ‘expensive’ today and still be better value?

Simple. A 2010-dollar is not the same as a 1976-dollar. The dollar’s name has not changed, but the dollar has been terribly debased over the past 34 years. It has lost much of its moneyness – its innate value as money – in two insidious ways.

It has lost purchasing power because of inflation.  Secondly, it also has 0.23% less gold-backing today than it did at the low point of the Fear Index in 1976.  Even though dollars can no longer be redeemed for gold, dollars are still partially backed by gold. The Fear Index measures to what extent gold backs the dollar, assuming of course that the 261.5 million ounces in the US Gold Reserve really exist and have not been loaned out, encumbered or put in play http://www.fgmr.com/us-gold-reserve-now-in-play.html as part of the gold price suppression scheme http://www.gata.org/node/8052 led by the US government.

What is clear from the above chart is that one cannot use the dollar price of gold to determine whether or not gold is good value. The purchasing power of the dollar and the extent of its gold-backing are ever-changing.  So the dollar is not a good measuring stick. It is not a numéraire.

The important conclusion from the above chart is that gold remains relatively cheap. We should therefore continue to accumulate it.
For reference, the formula to compute the Fear Index is:

The value for the Fear Index as of December 31, 2009 is calculated as follows:

Click here to download the historical data for the Fear Index:
http://www.fgmr.com/file/Fear_Index_monthly_data_Dec_1913-Dec_2009.xls

Big, Brazen Lies Sustain Economy

by Rick Ackerman
Posted originally January 4, 2010

WITH THE HELP OF A CREDULOUS NEWS MEDIA, Obama, Bernanke, Geithner et al. have continued to sledgehammer the “green shoots” story.  Actually, it is no longer timid green shoots that supposedly are sprouting up, but a recovery so strongly rooted and powerful that it has sent stocks soaring since March and, more recently, goosed T-bond yields skyward.  Have mere words caused this, jolting the economy from its worst slump since the Great Depression? We very strongly doubt it, much as we doubt that a rising stock market has anything whatsoever to do with the nation’s economic health. If you doubt this, take a good look at the chart below and consider the ebullient mood of America in August 1929.

Still, we don’t fault the spinmeisters for trying so desperately to tell it like it isn’t. As Joseph Goebbels famously said, “If you tell a lie big enough and keep repeating it, people will eventually come to believe it.” The rest of this quote is less often repeated, but it holds dire implications for the economy and perhaps even for the political system if and when Americans realize that it is lies alone that have kept us from crashing. Here’s how the Nazi propagandist finished the thought: “The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie.”  Indeed, how much longer can taxpayers be shielded from the consequences of a federal deficit on its way to $14 trillion or more? And how many believe the whopper that spending yet more trillions in Keynesian fashion – which is to say, flushing it down the toilet – will enable us to grow the economy out of indebtedness?

We know too little about the food we eat

by Rick Ackerman
Posted originally January 29, 2010

IF YOU HAVE NOT YET SEEN the documentary ‘Food, Inc.,” we strongly recommend that you rent it soon. It will not only change the way you eat, but the way you shop for groceries. Without sensationalizing the facts, the film builds a powerful case against agribusiness and its major players, just a few of whom control what we eat. It traces the rise of agribusiness to the explosive growth of fast food restaurants in the 1950s.

McDonald’s, for one, became such a large purchaser of beef that the company almost single-handedly reshaped the meat-packing industry. Because only the very largest suppliers could meet demand from McDonald’s, and because the ground beef itself had to be standardized across the U.S., meat-packing came to be dominated by just a few giant suppliers. They transformed the business into a manufacturing operation, consolidating it so that only fourteen slaughterhouses remain from the many thousands that once served wholesalers and retailers.

At the same time, the corn business was experiencing similar growth and consolidation. America’s farms are now geared toward producing corn so cheaply that we can undersell growers in every other country in the world, no matter how low their wages. Because of this, most cattle in this country no longer graze on grass; rather, they spend their lives in pens, fattened on corn. The sanitation problems that have resulted have only increased despite the growing use of antibiotics by feedlots. As the film documents, E coli outbreaks throughout the U.S. have become increasingly more numerous and lethal, killing children in particular with a vile ferocity that overwhelms the best efforts of doctors to save them.

Monsanto’s Lawyers
Monsanto comes off as a villain for the bullying tactics it has used to control the soybean business. Years ago, its patented soybean held a ten percent share of the market. That has increased to around 90 percent, and the company has unleashed a phalanx of lawyers on the farm belt to extinguish the remaining 10 percent who still dare to plant seeds not engineered by Monsanto. One of the firm’s primary targets is a man who cleans soybean seeds so that they can be stored and planted later. He reportedly has thrown in the towel, unable to meet the legal costs of battling such a powerful and well-financed enemy. His defeat will probably spell the end for all others in the same line of business.

The makers of this film were unable to elicit a single response from any of the companies reported on.  We recommend it in particular because it does not sensationalize its subject. Rather, it musters the facts in a way that will leave you convinced that Americans know dangerously little about the food they eat.