The Market Ticker

Let's put this to rest right here and now.

"Hyperinflation", or even "Serious Inflation" (similar to what we had in the 1970s) is impossible without a means to transmit the rise in prices into wages.

In today's United States that simply cannot happen for two reasons:

• The union representation of workers has been eviscerated due to their own idiocy over the previous thirty years.  In effect, they have no power to impact economic or labor policy - no matter what Gettlefinger thinks.
• Outsourcing of work to China, India, Mexico and other nations makes wage demands impossible for American workers to enforce.  Such demands simply result in the loss of the job to overseas workers.

As a consequence a hyper-inflationary or even seriously-inflationary spiral is impossible to sustain.

Think about your associates, people who you know in the middle class.

Now consider that a 10% inflation rate (moderately bad "serious inflation" ala 1970s) goes on for four years.

This raises the cost of living for everyone by 46%.

How many people who you know are saving 46% of their income?  How many will survive a 46% increase in their cost of living?

Such an outcome will result in half or more of America becoming immediately homeless, hungry, and as a consequence out of work.  It will as a consequence crash GDP by 50% or more immediately which in turn will crash income tax receipts by a like amount at both state and federal levels.

This will in turn crash prices, but at that point it's too late as now the price crash in turn destroys what remains of the business community and further crashes tax receipts, while at the same time foreign bond investors throw up their hands and say "screw you!", cutting off all foreign capital inflows to the government.

Down that road lies immediate insurrection - that is, the violent overthrow of the government.  You are delusional if you think the military could stop such a thing - 150 million Americans, maybe even 200 million of the 300 million in our population?  Not a prayer in hell, even if all the Americans had was pitchforks, torches and a gallon of gasoline, and they don't - they have firearms, and lots of them.  Even the Chinese, who are (by demonstrated act) willing to roll tanks over their own people would have no chance against 100 million of their citizens if hunger ever trumps fear.

This didn't happen in the 1970s because we had vastly more union work representation and they were able to force wages to keep pace for the average working man.  While the pinch was bad (I grew up in it and remember it vividly) society never degenerated because the self-reinforcing crash of production, jobs and tax income never happened, and as a consequence the sort of mass-unemployment, disenfranchisement and loss of essential human needs did not come about.

Today the average working man works for WalMart or some other non-union shop and has no wage pricing power; ergo, there is absolutely no way to prevent the implosion from initiating.

The government must not engage in any sort of policy that could lead to this outcome.  Absolute protection at the top levels of government must be put in place to prevent it, because if this occurs then everything - absolutely everything - that we know and love about America disappears.

This is where the Peter Schiffs and McHughs are wrong in their hyperinflation thesis and their "defensive" measures to try to do something about it (or worse, McHugh's belief that not only is this inevitable but that the government should intentionally cause it through something like a "money drop" to households.)

They are wrong because if this outcome occurs there will be no United States of America, your gold will be confiscated and/or rendered worthless by executive fiat, and at approximately the same time an angry marauding mob consisting of half the population of the country will literally loot and burn everything to the ground.

Vengence inevitably follows when justice is denied for a long enough or in an egregious enough fashion.  We have seen this with Rodney King and now with the apparent BART assasination of a suspect in Oakland, and that was one man who was abused at the hands of government.  Make the abuse half the population and there is a zero chance that civil and political order is maintained.

Pray that our nation's leaders aren't stupid enough to set in motion such a course of action either by accident or under the foolish belief that they can "keep the outcome under control".

Time is running out to demand and obtain justice folks.  America's clock is literally ticking towards zero.

I'm gonna keep yelling until I see "crooks-n-cuffs."

The number of voices rising in chorus is getting louder.  Janet Tavakoli, President of Tavakoli Structured Finance, wrote the following:

The premise of this week’s Fortune cover story, “Sending Wall Street to Jail,” (January 19, 2009) is not only incorrect, it lacks Common Sense. The article seems unable to muster outrage. In the words of Thomas Paine: “a long habit of not thinking a thing WRONG, gives it a superficial appearance of being RIGHT.” Fortune talks about the difficulty of proving criminal intent when the SEC, Fed chairman and others thought (or more to the point, studiously avoided rational thought) things had gotten as bad as they could get. Since when are the popular delusions of those outside one’s firm a defense for willfully failing to mark your positions to market and material accounting weaknesses if not misstatements?

Precisely.

Now, if we have experts in this field pointing this out, and we at the same time have the mathematical certainty of Ponzi Finance, that is, the law of exponents involved, where are the police?

This isn't "an error", it is an intentional act.

It doesn't end with CDOs, RMBSs and CDO-Squareds and Cubeds either.  It even extends to the Treasury and our government generally who seem to think that they can print up as much debt as they'd like and become engaged in a Faustian Bargain with China, among others.  Bloomberg has an intrepid columnist who penned the following on Friday:

"The U.S. is, after all, acting at the expense of its best customer. Just as shareholders abhor companies diluting their stock with new offerings, China’s debt managers can’t be happy with the Treasury’s plans.

Along with its Faustian bargain, one wonders if China risks a Madoffian one, too.

No, the Treasury isn’t engaged in a massive fraud of the kind allegedly perpetrated by financier Bernard Madoff. Yet the U.S.’s $5.3 trillion government debt arena is looking more like a Ponzi scheme than a market."

It isn't engaged in massive fraud?

Let's recap.

In 2000, our national debt stood at about $5.3 trillion dollars.  In 2008 at the end of the year it stood at more than $11 trillion dollars.  That's a doubling in eight years, with more than 16% growth in the last twelve months.

We are told repeatedly by The Executive of our government (which happens to include Treasury) that the 2003-2007 period was a "boom time."  If it was such a boom, and not an outright fraud, how is it that we expanded GDP from $10 trillion to $14 trillion during that time but managed to grow public and private dabt at a rate more than double that of GDP? 

Did this growth in debt go into financing production increases that self-liquidated as the production occurred and was sold?  Of course not!  If it had, we wouldn't be in debt up to our eyeballs, we'd have less debt in our society today than we did in 2003.  But that's not what happened.

No, we went into debt to consume and speculate, not produce.  And while speculation can, at times, be a winning bet, the fact of the matter is that history says clearly that this time it was a losing proposition and further, Treasury is well-aware of this.

The mainstream press is starting to pick up on it - heh, better late than never.

"President Bush has presided over the weakest eight-year span for the U.S. economy in decades, according to an analysis of key data, and economists across the ideological spectrum increasingly view his two terms as a time of little progress on the nation's thorniest fiscal challenges."

....

"For a group that claims it wants to be judged by history, there is no evidence on the economic policy front that that was the view," Holtz-Eakin said. "It was all Band-Aids."

....

"It's sad to say, but we really went nowhere for almost ten years, after you extract the boost provided by the housing and mortgage boom," said Mark Zandi, chief economist of Moody's Economy.com, and an informal adviser to McCain's campaign. "It's almost a lost economic decade."

No, really?  My God, you mean the math is never wrong?  The so-called "expansion" wasn't really an expansion at all, but rather was an orgy of debt?

Were the statements of Henry Paulson and Ben Bernanke back in 2006, 2007 and 2008 truthful but wrong, or were they in fact fully aware of the Ponzi nature of our financial system and thus made with knowledge of their falsity?  Didn't Treasury and The Fed have access to all the data, including borrowings and tax receipts during these years?  Why indeed they did.

Which statements am I talking about?

I chronicled them in a letter I sent to Congress, President Bush, and both then-Presidential Candidates on July 22nd of 2008.

Here's the list again:

Mr. Paulson said in a speech March 13th, 2007: "The fallout in subprime mortgages is going to be painful to some lenders, but it is largely contained."

Chairman Bernanke before the Congressional Joint Economic Committee on March 28th 2007, just a few days later: "Although the turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear. The ongoing tightening of lending standards, although an appropriate market response, will reduce somewhat the effective demand for housing, and foreclosed properties will add to the inventories of unsold homes. At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency."

Chairman Bernanke at the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition, May 17th, 2007: "We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."

Chairman Ben S. Bernanke speech to the 2007 International Monetary Conference, Cape Town, South Africa, June 5th: "The troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system."

Mr. Paulson on Bloomberg, July 26th, 2007, just days before two Bear Stearns Hedge Funds imploded: "I don't think it [the subprime mess] poses any threat to the overall economy."

Mr. Paulson's Press Roundtable in Beijing, August 2nd, 2007, likewise, just days before the hedge fund explosion and Ben Bernanke’s unprecedented “emergency” discount rate action:  "I also said I thought in an economy as diverse and healthy as this that losses may occur in a number of institutions, but that overall this is contained and we have a healthy economy."

Chairman Bernanke to Committee on Banking, Housing, and Urban Affairs, U.S. Senate, April 3rd, 2008: "Clearly, the U.S. economy is going through a very difficult period. But among the great strengths of our economy is its ability to adapt and to respond to diverse challenges. Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year."

Exponents, my friends, exponents.

Back in April of 2008 I sent a PDF via fax to every member of the House and Senate, entitled "Our Mortgage Mess".  It laid out in tabular form the precise devil that the idea of relying on housing appreciation would lead you to meet, without forcing anyone to actually understand exponents themselves, and showed how over 30 years a "projection" of 7% home price appreciation and 3.5% income growth (roughly correlated with GDP) led a home that sold at three times income to be nearly eight times income thirty years later.

Of course at eight times income the home can't be purchased using anything other than Ponzi-style finance which is guaranteed to fail and bankrupt the borrower.

The silence on this point has been deafening, and yes, all 535 members of Congress received that fax.  Go read it yourself - its damning.

Now we have faux outrage expressed by Carl Levin who wants to subpoena Treasury over the TARP funds disbursed to Citibank.  Cry me a river Mr. Levin.  Did I see you rise to stop that bill, even though it granted effective plenary authority to Paulson?  Oh hell no. 

Anyone with more than two firing neurons knows that you do due diligence and insert whatever accountability and restrictive covenants into the bill before you pass it, not after.  "Trust me" with $350 or $700 billion of taxpayer money?  Surely you jest!

Even worse, Senator Levin is one of those who crows about his part in investigating ENRON, up to until then one of the largest Ponzi Finance deals uncovered, yet he refuses to take responsibility for the Ponzi finance in the housing market that The Senate, The House, and Treasury enabled through the 2000 decade and continues to up until this VERY DAY as the Senate has utterly refused to pay any attention to the mathematical facts surrounding the mess we find ourselves in, the two decades of Ponzi financial structures in both government and private business, and the housing mess that was created and enabled by Alan Greenspan and Treasury, along with Chairman Bernanke, Fannie, Freddie, and others both inside and beyond government's walls.  Yes, Mr. Levin, you got a copy of my White Paper in April of 2008 too, along with thousands of petition signatures.  Did you fail High School Math Mr. Levin or is your claimed outrage yet more fraud?

Now President-Elect Obama says we may need to have "shared sacrifice" from all Americans:

“Whether it’s retail sales, manufacturing, all of the indicators show that we are in the worst recession since the Great Depression,” Obama said on ABC. The result is that all Americans will feel the effects of efforts to put the economy back on track, he said.

“Everybody’s going to have to have some skin in the game,” he said.

I'm all for it, as soon as and not until every single person and corporation who had a hand in the fraudulent creation and promulgation of this Ponzi Finance game is forced to disgorge their ill-gotten gains, those who committed frauds and felonies are locked up, and the firms that engaged in the systematic defrauding of both American and foreign investors are stripped of their corporate charters and disbanded.

That's right - I want to see all of the fraudsters, thieves and liars locked up.  Every one of them, with the list being long and distinguished.

This includes the executives of the banks, ratings agencies and others who sold, securitized and packaged up debt with fraudulently-inflated ratings, hid discovered deficiencies in the models for years, invented data not presented to them and otherwise fraudulently understated risk so as to provide an unearned rating and screw the investor in those securities - so-called "AAA" securities that are now worth less than twenty cents on the dollar.

It includes the members of Congress who willingly and knowingly got cut-rate mortgages worth tens of thousands of dollars in discounts while supposedly "overseeing" these firms and the financial system, intentionally overlooking the massive fraud and abuse in our lending system.

It includes the trade groups in various businesses who published works making claims that, upon reasonable mathematical extension, were impossible to sustain, without disclosing these facts to those who relied on and invested based upon their "projections" - and now have seen 10, 20, 30, 40 even 50% or more of their "investment" vanish into thin air while the "pushers" of these securities have kept their ill-gotten gains and fees.

It includes those who lied about their income, assets, debts, or any combination thereof when applying for credit, whether it be a mortgage, credit card, car loan or otherwise.

It includes those firms who were selling securities they bundled up themselves in one group within the firm, while shorting the same securities in another group, failing to disclose the fact that their own internal analysis said those securities were not worth what was being charged.

It includes those government agencies who were warned repeatedly of these frauds, including but not limited to the SEC, and yet they willingly and intentionally turned a blind eye to the greatest theft ever perpetrated upon a people in the history of the planet.

And finally, it includes all of those firms and funds who have intentionally overstated the value of their claimed "assets", refusing to mark their position to market on purpose, along with the auditing firms that have knowingly permitted this deception to continue.

I left the Internet Business, selling my firm, in no small part because I saw the outrageous and knowingly-false claims being made by firms both small and huge alike - claims that I along with literally thousands of others knew were false, and yet when a stink was made about these matters in public or to people in the regulatory and government circles nothing was done.  It became increasingly clear that the honest businessman who refused to use excessive leverage backed by false claims was at a severe competitive disadvantage yet he was also at high risk of being within the blast radius when the inevitable explosion occurred.  In short, the risk of continued participation in that market rose to beyond the level of reward.

Instead of flushing that fraud from the system in 2000 a token number of people went to prison when the list of felony prosecutions should have been in the tens of thousands, and the government made the decision to enable the fraudsters, many of whom were Wall Street "names", to do it AGAIN, this time in all manner of credit including housing.

Absolutely none of this was an accident Mr. President-Elect, and I, for one, am not going to let you or anyone else claim otherwise without point-by-point rebuttal, backed by the only immutable science there is - the math.

If you want us, Mr. President-Elect, to "sacrifice", then you need to show us all, as Americans, that the previous two decades of fraud and theft are over, and that these acts, all of which almost certainly reach and cross the threshold of criminality, will not go unpunished.

If - and only if - you do that, I will agree that we as Americans need to reach deep down and share the sacrifices necessary to right our nation's economy.

But until you do, I will write in ardent dissent and resistance to any plan that simply ratifies and codifies the two decades of fraud and lies that have pervaded Wall Street, K Street, the corner of Independence and Constitution Avenues along with the offices in the building next to the White House on Pennsylvania Avenue.

It is only when we have a clean government and financial system that you can you come to the American People who have been prudent and ask for them to sacrifice.

Until then, I am forced to concur with the sentiments expressed here - sentiments that are increasingly rising to the surface of American consciousness.

You're running out of time Mr. President-Elect, the groundswell of voices is rising against the fraud and theft both on Wall Street and in DC and there is exactly ONE thing I want to hear in your Inauguration Speech.  I know I'm dreaming, but here it is - feel free to use it verbatim:

"America has labored for more than twenty years under the belief that we can push paper around, lie, cheat and steal our way to prosperity.  The truth of this matter has now come home to rest in every American's home value and retirement account, and is responsible for most of the current job losses.

To those who have lied, cheated and stolen in our capitalist system, forcing bad debt to be "covered" by the American Taxpayer so that the financial system did not implode last fall, I stand here today to tell you that you're not going to get away with it.  I am hereby directing the FBI, along with the Secret Service to investigate and prosecute all instances of fraud within our financial system, whether they be companies abusively shorting securities they are selling to investors, home buyers lying about their incomes, CEOs making false claims about their firm's financial status on cable TV or ratings agencies being effectively bought off to give inflated ratings on securities. 

For more than a decade there has not been a cop on the beat, but this changes today.  To those who have been defrauded and lost their life savings, we may not be able to get your money back even though we will try, but we most certainly can prosecute and jail those who robbed you, and who robbed America.

To those who have had their faith in Wall Street and our Capital Markets damaged or destroyed, we will restore your faith by holding to account each and every one of the person and corporations who committed these acts.  We will not slap people with meaningless fines; where corporate misconduct is involved the firms responsible will lose their corporate charters and be dissolved, while those individuals, directors and officers involved will be investigated, indicted where appropriate, tried by a jury comprised of Americans, and if convicted imprisoned for the maximum term allowed by law.  We will use our Racketeering Statutes to seize the assets of those convicted and, to the extent possible, make those who were defrauded whole and relieve the burden of the taxpayer.

America will no longer permit or practice Ponzi Finance, and those who attempt it will face justice rather than enjoying multi-million dollar yachts and penthouses.

Never again will anyone on Wall Street or Main Street, nor in Congress, believe they can buy influence or cheat American and foreign investors without consequence.  The cop has left the donut shop, and is on the beat."