Ironic “Scariest Chart Ever” Redux – America Will Surpass 100% Debt To GDP On Halloween

Earlier today we presented Bloomberg’s Chart of the Day which represented the GDP and Debt per capita on a historical and projected basis, and we hysterically, and tongue-in-cheekly, dubbed it “the scariest chart ever” because it confirmed that at some point, very soon, US Debt will surpass GDP and never look back. We decided to dig into the actual numbers (cancelling out the per capital denominator as it is the same on both sides of the equation) and came to a very disturbing revelation: as of today, total US Debt, is $14.942 trillion (source), obviously an all time high. Q2 GDP as was reported by the BEA three weeks ago, was $15.012 trillion in current dollars. In other words, the spread between total GDP and total debt has now collapsed to an all time low $70 billion. Incidentally, this number was $1.8 trillion at the beginning of 2010. Then we decided to take a quick look at the upcoming bond issuance and find that tomorrow the Treasury will announce approximately $99 billion in 2, 5 and 7 Year bonds to be auctioned off October 25 through 27… With a very appropriate settlement date: October 31, elsewhere known as Halloween. Yes, ladies and gentlemen: All Hallows E’en will be doubly scary this year: for the first time since World War II, US debt will officially surpass GDP on Halloween 2011.

Submitted by Tyler Durden

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Why You Should Own Physical Gold

Will our National Debt be trillions higher than today in a few years? If you think the answer is yes, than buying physical gold today is a good idea. It’s that simple. Just look at the chart.

“Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium.”

Murray M. Rothbard


The above chart shows a very clear correlation between the US Federal debt and the price of gold. If the current trend continues the US debt would reach $23 trillion in 2015 and if the correlation remains the same the indicated gold price would be $2,600 per ounce.

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International Forecaster – Gold, Silver, Economy + More

US MARKETS –

It could then be that this is the top of the stock market, which is fundamentally very overpriced. The latest rallies are the result of statements by French President Sarkozy and German chancellor Mrs. Merkel that a financial solution is at hand for Europe. This announcement named the end of the month as the date for release of this information. Thus far there has been no further comment. This was the justification for a very strong rally. In the wings there are large short and put positions, which tell us that there is a body of speculators that believe the fundaments are not in place, nor was the recent rally justified. In relation to Europe we see two possibilities; countries bailing out their own financial sectors and the use of leverage to extend bailout funds into trillions of dollars to assist the six insolvent nations. Some nations currently prohibit the use of leverage. Needless to say, rules do not impede adventurous politicians in the control of elitist interests such as the banking community. We will have to wait for this new formula, but in the meantime its results have already been discounted, or military action increases in the Middle East, perhaps in connection with Iran?

Debt problems are endemic worldwide. We all know of the problems in the US, UK and Europe, but they extend all over the world. We are in a major financial crisis, which is as bad and will be as damaging as the credit crisis of three years ago. In fact we never exited that crisis. Debt is the problem and creating more debt does not solve the problem. We have written often about debt and currency problems and as yet nothing is being done to solve these problems. It is as if these powers wanted a collapse. How long can the US dollar continue to take this thrashing? Unfortunately it is not only the dollar. Over the past 1-1/2 years nine major currencies have fallen on average more than 20% vs. gold and silver. Thus many countries and their financial institutions are going to be in serious trouble. The dollar and the euro are both overvalued and even after a 15% devaluation the Swiss franc is undervalued. It is not only going to be currencies, but everything financial that is going to be affected. That includes bonds, stocks, savings accounts, CD’s; cash value life and annuity policies. The only things that will benefit will be gold and silver related assets. For all intents and purposes in the US, the FDIC has no funds and has to have them allocated in the form of debt by the government. More debt means more inflation and higher precious metal prices. The global financial community has to be terrified because their whole world is coming unraveled around them.

It is quite evident that Greece can never repay its debt no matter how much bailout funds they receive and we stated as much two years ago. The other five sovereigns in trouble are almost as bad off. We do not know as yet what the magic elixir Sarkozy and Merkel are talking about, but it is evident Germany cannot engage in leveraging the 50% of funds that they are committed for the EFSF. Otherwise it would be a change in the constitution and a referendum, which doesn‘t have a ghost of a chance of passing. As we have said before it has come down to every man for himself. All they can do is ring fence their own countries making sure that their financial institutions survive. All of this takes money. Money that has to be created and this is inflationary. Even if our projection of $4 to $6 trillion was met massive inflation would ensue and worse yet control that would leave sovereign hands and pass to the EFSF and the ECB. Issuing EU bonds is not the answer either although we do not think they’d be approved.

There is no question factors dictate a lower US stock market. Those are not just fundaments, but they also include the fallout from Occupy Wall Street and the Occupy the Fed movements. These three factors alone whose effectiveness are spreading worldwide could put great pressure on US and other markets. Over last weekend Rome exploded into demonstrations and violence by the public. This while in Paris the G-20’s recommending increasing the size of the EFSF. The question is where does the money come from? American money market funds and others are in the process of pulling out some $350 billion from banks and sovereign debt in Europe due to the shifting situation in Europe and the euro zone governments to keep banks in dollar cash. Again, that shows how connectivity has reversed itself and has become a major problem. Unless bailed out, several banks in trouble can bring down the whole system. One thing lower stock markets would do is bring a cry from the US, UK and European public for more liquidity. If not chaos could be just around the corner. The talk by central banks and governments and Wall Street and the City of London heard just a few weeks ago has turned into cries of desperation. The leverage needed in Europe can only come from the Fed and the Fed shall supply it – leaving possible cost to the American taxpayer. As long as Europe’s problems continue the dollar will receive cover and strength versus other currencies, some of which have fallen 15% over the past couple of months. All currencies will continue to fall versus gold and silver. Another factor to consider is what if real interest rates rise, what happens then? Higher debt servicing costs and lower stock markets.

The world economy is slowing down again in spite of massive injection of money and credit. At the same time the world is drowning in debt, much of which is unpayable. Governments enmeshed in the same problem have only one recourse and that is to print more money. The changes long-term consumers do not notice is that their savings and pensions are being stolen by government to balance their losses. This ongoing process of inflation will eventually lead to hyperinflation. Just as economies and the middle class were destroyed in Weimar, Germany between 1921 and 1923 and more recently in Zimbabwe, the same will happen in the US, UK and Europe if they keep doing what they are doing.

As the Fed engages in operation twist foreign central banks have sold about $76 billion in US Treasuries over the past couple of months, the most in over four years. Over that period bond mutual funds have increased holdings by 45% and the Fed has added $650 billion to its balance sheet. This can in part be explained by foreign central banks selling dollars since June to shore up their currencies that had weakened by 4% to 15%, the result of a stronger dollar caused in general by a weakening euro. Many believe that the slack will be picked by banks, pension funds and insurance companies that have been withdrawing from European debt markets due to the uncertainty of the euro and the financial problems yet unsolved in Europe.

November 3rd is the due date for a EU solution to Europe’s financial crisis. Thus far no workable solutions have been offered, so we will have to wait 16 days for their decision. In the meantime there is a European Summit on October 23rd and perhaps some solution can be found.

Foreigners are holding $4.48 trillion of Treasuries, a reflection of foreign accumulation at a compound annual rate of 17% since 2001.

The USDX rose 6.3% in September, the most in three years, but it has been receding during October due to the euros changes due to future perceptions.

The world economic community still believes U3, a 9.1% in September unemployment was reflective of the US economy, while real unemployment continues to hover at 22.6%. As we predicted the economy slowed in the first half of the year as stimulus 2 waned, and the final six months will be no better. If QE 3 and stimulus are not added next year the economy will be gruesome. Economic growth for 2011 should be 1.3%. Without QE 3 and stimulus it would have been minus 1% to 2%. The $447 billion jobs bill was rejected, so what happens next? Probably a scramble by the House for further stimulus funds early next year after a Christmas that proves to be lackluster. Those plus sales figures mean little unless you add in 13% inflation from the real economy. We’ve heard lots about a perceived improved employment of 1.9 million jobs lost from the rejected jobs bill. How could that be as jobs stream out of the country? The House and Senate just passed further legislation in a trade deal with South Korea, 3.2% unemployment, and in Colombia and Panama. That will cost the US millions more lost jobs. This is what happens when you have a bought and paid for Congress.

At the end of 2010 the Fed held 17% of Treasury debt, up from 11% at the end of 2010. We can understand why the Fed would buy Treasuries, but other buyers face guaranteed losses in purchasing power. That is about an 11% loss. Is safety really worth such losses, and perceived safety at that? In spite of the slowing economy customer’s deposits at banks have reached a record $1.61 trillion. Irrespective of the wisdom involved part of those funds are going into Treasuries.

Looking at Europe we see no viable legal solutions. Banks will be ring fenced, nationalized, as they near, or they go into default. That means governments assume the bad debt so their citizens can pay for the losses caused by the banks. This means Greece will default sooner or latter and the other five insolvent nations will demand more bond purchases and lower interest rates. If that is not forthcoming then they will fail as well. Whether these countries and their banks fail more and more money and credit will be created. We just saw the Bank of England and the ECB do this last week. These central banks are following the Fed formula to a T, which means there will be more inflation in the future. This is the result of a US dollar cash shortage at key French banks and the demise of the French-Belgium bank Dexia, which has now been split into a good bank and a bad bank. Now that Mr. Trichet is gone we believe there is an excellent possibility that the ECB will cut interest rates, as troubles abound and the European economy slows. In the meantime monetization is the order of the day and inflation flourishes. Once Greece fails this monetary expansion will be long forgotten, as much more fuel is added to the fire to offset Greek bad debt and the specter of five other major sovereign failures. Money and credit has to be available from solvent governments to keep their domestic banks functioning, that is why ring fencing has already begun. The leadership in Europe knows what we know regarding what is on the way. They have even taken   the precaution in France and Germany of printing French francs and Deutschemarks. Giant debt monetization is on the way and can’t be avoided along with an ECB interest rate cut, now that Trichet is on his way out.

The result of these policies is a major effort to keep gold and silver contained in their present ranges by central banks, particularly the        US Treasury. All of the hedge funds know this, because many of them are acting for the Treasury. The intent is to characterize gold as a non-performer and an unworthy investment vehicle. Debasement is on the way and gold and silver have to be shown in the worst possible light. It will be temporary but painful, but it is part of the game. Once the investors worldwide see what is going on you can expect gold and silver to break out to new highs. Versus gold and silver currencies will again fall as they have for the past 11-1/2 years. Currencies will not be a place to be. Again, once this current phase of government manipulation of gold and silver prices is over, you can expect a very sharp upward movement. Thus those of you who want to join in for the ride should do so soon at these manipulated lower prices. Operation twist is only going to work in the sense that the Fed will buy sellers paper in order to assist sellers and lower rates if possible on 30-year mortgages. If we had a government run properly we would not have something as anti-market and fascistic as the “President’s Working Group on Financial Markets.” The end of this Executive Order is most pertinent. Once gone we can again have free markets.

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The Silver Bull Market of 2012

No sense in mincing words tonight. The CFTC has finally acted and silver is headed significantly higher. Maybe not tomorrow but soon. Very soon.

Position limits in silver will soon be enforced. Yes, there will be delays. Yes, there may even be legal challenges brought by The Cartel. However, there is a very high likelihood that, on a beautiful day in 2012, JPM et al will finally cede control of the silver market back to legitimate investors, speculators, producers and hedgers. When this happens, silver will finally be freed of its EE-supplied shackles and price will move dramatically higher.

But first, get ready for some craziness. Beginning tomorrow, all bets are off. As of the last Tuesday’s CoT survey, the commercial short position in silver was still over 58,000 contracts. Though this is down from a peak of about 90,000 contracts back in April, there’s still a long way to go before JPM is compliant with the new limits. At 58,000, the speculation is that the short position of JPM is still between 15,000 and 20,000 contracts. Clearly, they have a lot of work to do to bring themselves into compliance.

As you know, if they go off blindly covering short positions, they’ll drive price higher and higher and thereby create for themselves steeper and steeper losses. They are going to want to continue to inspire more selling, similar to what we’ve seen over the past three weeks, in order to cover at lower prices, instead. The question is: Can they pull this off?

With the limits soon going into effect, no institution is going to want to significantly add to short positions. Therefore, the only selling pressure that can drive silver lower from here will have to come from discouraged spec longs. But here’s the rub: Spec longs peaked in early April near 50,000 contracts. In the subsequent decline from $48 to today’s $32, we’ve lost over half of that spec long position. The latest CoT spec long total was just 23,571. How many more specs can be chased from silver to drive price substantially lower from here? 2,000? 5,000?. It’s hard to say but this much I do know…get ready for more, even crazier volatility.

Why? There is really no other option. JPM et al need to force silver lower in the days and weeks ahead otherwise they will be faced with covering thousands of contracts at very steep losses. They must drive price lower just as they did three weeks ago. But with open interest and spec long positions so low, how can they get people to sell? The answer: Let the CME do the dirty work!

Remember, the CME allegedly raises margins only in response to volatility. IF The Cartel can create enough volatility, the CME will be forced to act. ​And, as we saw in April, margin hikes when combined with steep selloffs can create the conditions necessary to force spec longs out of the market. So, the formula from here is simple:

1) Violently manipulate silver to create unprecedented volatility.

2) Have the CME raise margins again in response to this volatility.

3) Use dips in price to hurriedly cover short positions.

4) If Cartel buying spikes price back up, this added volatility may inspire additional margin hikes.

Eventually, two things will have been accomplished:

1) JPM will have extricated themselves from the short position and brought themselves into compliance with the position limits mandated today.

2) To help avoid a subsequent run on the CME-owned Comex, margins will have been increased so significantly during the process that Comex leverage will have dropped down to 3:1 or so. This, for all intents and purposes, will make The Comex a physical-only exchange. Making The Comex physical-only will preserve the viability of the exchange and limit the future liability of the CME Group.

Look, I could be wrong. What the hell do I know? I’m just a Turd. But I’ve thought about this all day and this is the most plausible, short-covering scenario I can envision. So, what does this mean for you, my dear reader?

1) Please do not get caught up in the emotion and the disinformation of the next 3-6 months. The wild swings in price and the inevitable dips will shake you to your core. You must have faith and confidence that you are right and that you will prevail in the end. If it took a 33% drop in price to shake 50% out of the spec long position, how low must price go to get another 25-50% decline in the spec long position? $24? $22? Don’t be surprised if it happens.

2) Therefore, now is the time to set up a disciplined, regular physical purchase plan. You should consider buying some physical silver every week or two, regardless of price, until the limits are finally enacted.

3) Though silver will likely become a physical, spot-priced market, you can rightly expect significant price increases in 2012. Unencumbered by EE suppression, price will finally begin to reflect true value. Does this mean that the gold:silver ratio will finally revert to 16 or 12 to 1? Probably. How soon? Too many variables to hazard a guess but the day is definitely coming.

Rejoice and be happy, my friends, for today we have won a great victory in the battle against The Evil Empire. Though the war is not yet won, the end is in sight. Keep the faith and be diligent. Steel yourself for the tremendous volatility that is coming. Use it to your advantage by buying dips and taking delivery.

Sic semper tyrannis!  TF

Source: www.tfmetalsreport.com

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Poverty In America: A Special Report

America is getting poorer.  The U.S. government has just released a bunch of new statistics about poverty in America, and once again this year the news is not good.  According to a special report from the U.S. Census Bureau, 46.2 million Americans are now living in poverty.  The number of those living in poverty in America has grown by 2.6 million in just the last 12 months, and that is the largest increase that we have ever seen since the U.S. government began calculating poverty figures back in 1959.  Not only that, median household income has also fallen once again.  In case you are keeping track, that makes three years in a row.  According to the U.S. Census Bureau, median household income in the United States dropped 2.3% in 2010 after accounting for inflation.  Overall, median household income in the United States has declined by a total of 6.8% once you account for inflation since December 2007.  So should we be excited that our incomes are going down and that a record number of Americans slipped into poverty last year?  Should we be thrilled that the economic pie is shrinking and that our debt levels are exploding?  All of those that claimed that the U.S. economy was recovering and that everything was going to be just fine have some explaining to do.

Back in the year 2000, 11.3% of all Americans were living in poverty.  Today, 15.1% of all Americans are living in poverty.  The last time the poverty level was this high was back in 1993.

However, it is important to keep in mind that the government definition of poverty rises based on the rate of inflation.  If inflation was still calculated the way that it was 30 or 40 years ago, the poverty line would be much, much higher and millions more Americans would be considered to be living in poverty.

So why is poverty in America exploding?  Who is getting hurt the most?  How is America being changed by this?  What is the future going to look like if we remain on the current path?

Let’s take a closer look at poverty in America….

The Shrinking Number Of Jobs

Unemployment is rampant and the number of good jobs continues to shrink.  Once upon a time in America, if you really wanted a job you could go out and get one.  Today, competition for even the lowest paying jobs has become absolutely brutal.  There simply are not enough chairs at the “economic table”, and not being able to get a good job is pushing large numbers of Americans into poverty…..

*There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million people to the population since then.

*Back in 1969, 95 percent of all men between the ages of 25 and 54 had a job.  In July, only 81.2 percent of men in that age group had a job.

*If you gathered together all of the unemployed people in the United States, they would constitute the 68th largest country in the world.

*According to John Williams of shadowstats.com, if you factored in all of the short-term discouraged workers, all of the long-term discouraged workers and all of those working part-time because they cannot find full-time employment, the real unemployment rate right now would be approximately 23 percent.

*If you have been unemployed for at least one year, there is a 91 percent chance that you will not find a new job within the next month.

The Working Poor

The number of low income jobs is rising while the number of high income jobs is falling.  This has created a situation where the number of “the working poor” in America is absolutely skyrocketing.  Millions of Americans are working as hard as they can and yet they still cannot afford to lead a middle class lifestyle.

*Since the year 2000, we have lost approximately 10% of our middle class jobs.  In the year 2000 there were about 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs.

*Back in 1980, less than 30% of all jobs in the United States were low income jobs.  Today, more than 40% of all jobs in the United States are low income jobs.

*Between 1969 and 2009, the median wages earned by American men between the ages of 30 and 50 dropped by 27 percent after you account for inflation.

*According to a report released in February from the National Employment Law Project, higher wage industries are accounting for 40 percent of the job losses in America but only 14 percent of the job growth.  Lower wage industries are accounting for just 23 percent of the job losses but 49 percent of the job growth.

*Half of all American workers now earn $505 or less per week.

*Last year, 19.7% of all U.S. working adults had jobs that would not have been enough to push a family of four over the poverty line even if they had worked full-time hours for the entire year.

*The number of Americans that are going to food pantries and soup kitchens has increased by 46% since 2006.

Unprecedented Dependence On The Government

Because they cannot get good jobs that will enable them to support themselves and their families, millions of Americans that used to be hard working contributors to society are now dependent on government handouts.  Nearly every single measure of government dependence is at a record high, and there are no signs that things are going to turn around any time soon.

*One out of every six Americans is now enrolled in at least one government anti-poverty program.

*Nearly 10 million Americans now receive unemployment benefits.  That number is almost four times larger than it was back in 2007.

*More than 45 million Americans are now on food stamps.  The number of Americans on food stamps has increased 74% since 2007.

*Approximately one-third of the entire population of Alabama is now on food stamps.

*More than 50 million Americans are now on Medicaid.

*Back in 1965, only one out of every 50 Americans was on Medicaid.  Today, approximately one out of every 6 Americans is on Medicaid.

*In 1980, just 11.7% of all personal income came from government transfer payments.  Today, 18.4% of all personal income comes from government transfer payments.

The Suffocating Cost Of Health Care

Millions of American families are being financially crippled by health care costs.  The U.S. health care system is deeply, deeply broken and Obamacare is going to make things even worse.  Health care is one of the top reasons why American families get pushed into poverty.  Most of us are just one major illness or disease from becoming financially wrecked.  Just ask anyone that has gone through it.  The health insurance companies do not care about you and they will try to wiggle out of their obligations at the time when you need them the most.  If you talk to people that have been through bankruptcy, most of them will tell you that medical bills were at least partially responsible.

*In America today, there are 49.9 million Americans that do not have any health insurance.  One single medical bill could easily wipe out the finances of most of those people.

*Only 56 percent of Americans are currently covered by employer-provided health insurance.

*According to a report published in The American Journal of Medicine, medical bills are a major factor in more than 60 percent of the personal bankruptcies in the United States.  Of those bankruptcies that were caused by medical bills, approximately 75 percent of them involved individuals that actually did have health insurance.

*According to the Bureau of Economic Analysis, health care costs accounted for just 9.5% of all personal consumption back in 1980.  Today they account for approximately 16.3%.

More Children Living In Poverty

The United States has a child poverty rate that is more than twice as high as many European nations.  We like to think that we have “the greatest economy on earth”, but the reality is that we have one of the highest child poverty rates and it increased once again last year.

*The poverty rate for children living in the United States increased to 22% in 2010.  That means that tonight more than one out of every five U.S. children is living in poverty.

*The poverty rate for U.S. adults is only 13.7%.

*Households that are led by a single mother have a 31.6% poverty rate.

*Today, one out of every four American children is on food stamps.

*It is being projected that approximately 50 percent of all U.S. children will be on food stamps at some point in their lives before they reach the age of 18.

*There are 314 counties in the United States where at least 30% of the children are facing food insecurity.

*More than 20 million U.S. children rely on school meal programs to keep from going hungry.

*It is estimated that up to half a million children may currently be homeless in the United States.

The Plight Of The Elderly

The elderly are also falling into poverty in staggering numbers.  They may not be out protesting in the streets, but that does not mean that they are not deeply, deeply suffering.

*One out of every six elderly Americans now lives below the federal poverty line.

*Between 1991 and 2007 the number of Americans between the ages of 65 and 74 that filed for bankruptcy rose by a staggering 178 percent.

*The Baby Boomers have only just begun to retire, and already our social programs for seniors are starting to fall apart.  In 1950, each retiree’s Social Security benefit was paid for by 16 U.S. workers.  According to new data from the U.S. Bureau of Labor Statistics, there are now only 1.75 full-time private sector workers for each person that is receiving Social Security benefits in the United States.

Squeezed By Inflation

Rising inflation is squeezing the budgets of average American families like never before.  Federal Reserve Chairman Ben Bernanke claims that inflation is still low, but either he is delusional or he has not been to a supermarket lately.

Personally, I do a lot of grocery shopping at a number of different stores, and without a doubt prices are absolutely soaring.  Many of the new “sale prices” are exactly what the old “regular prices” were just a few weeks ago.

Some companies have tried to hide these price increases by shrinking package sizes.  But there is no hiding the pain on the old wallet once you fill up your cart with what you need to feed your family.

*Over the past year, the global price of food has risen by 37 percent and this has pushed approximately 44 million more people around the world into poverty.

*U.S. consumers will spend approximately $491 billion on gas this year.  That is going to be a brand new all-time record.

*Right now, the average price of a gallon of gasoline in the United States is $3.649.  That is 94 cents higher than 12 months earlier and it is a brand new record for this time of the year.

A Smaller Share Of The Pie

The size of the “economic pie” in America is shrinking, and the share of the pie for those that are poor is shrinking a lot faster than the share of the pie for those that are wealthy.

*According to the Washington Post, the average yearly income of the bottom 90 percent of all U.S. income earners is now just $31,244.

*When you look at the ratio of employee compensation to GDP, it is now the lowest that is has been in about 50 years.

*At this point, the poorest 50% of all Americans now control just 2.5% of all of the wealth in this country.

*Big corporations are even recognizing the change that is happening to America. Just consider the following example from a recent article in the Huffington Post….

Manufacturers like Procter & Gamble, the household-goods giant responsible for everything from Charmin and Old Spice to Tide, are concentrating their efforts on luxury and bargain items, putting less emphasis on products aimed at the middle class, the Wall Street Journal reports.

Conclusion

America is fundamentally changing.  We were a nation that had the largest middle class in the history of the globe, but now we are becoming a nation that is deeply divided between the haves and the have nots.

Perhaps you are still doing fine.  But don’t think that economic disaster cannot strike you.  Every single day, thousands more Americans will lose their jobs or will discover a major health problem.  Every single day, thousands more Americans will lose their homes or will be forced to take a pay cut.

If you still have a warm, comfortable home to sleep in, you should be thankful.  Poverty is a very sneaky enemy and it can strike at any time.  If you are not careful, you might be the next American to end up sleeping in your car or living in a tent city.

It is easy to disregard a couple of statistics, but can you really ignore the vast amount of evidence presented above?

It is undeniable that America is getting poorer.  Poverty is spreading and hopelessness and despair are rising.  There is a reason why the economy is the number one political issue right now.  Millions upon millions of Americans are in deep pain and they want some solutions.

Unfortunately, it appears quite unlikely that either major political party is going to offer any real solutions any time soon.  So things are going to keep getting worse and worse and worse.

Should we just keep doing the same things that we have been doing over and over and over and yet keep expecting different results?

What we are doing right now is not working.  We are in the midst of a long-term economic decline.  Both major political parties have been fundamentally wrong about the economy.  It is time to admit that.

If we continue on this path, poverty in America is going to continue to get a lot worse.  Millions of families will be torn apart and millions of lives will be destroyed.

America please wake up.

Time is running out.

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Jefferies Describes The Endgame: Europe Is Finished

The most scathing report describing in exquisite detail the coming financial apocalypse in Europe comes not from some fringe blogger or soundbite striving politician, but from perpetual bulge bracket wannabe, Jefferies and specifically its chief market strategist David Zervos. “The bottom line is that it looks like a Lehman like event is about to be unleashed on Europe WITHOUT an effective TARP like structure fully in place. Now maybe, just maybe, they can do what the US did and build one on the fly – wiping out a few institutions and then using an expanded EFSF/Eurobond structure to prevent systemic collapse. But politically that is increasingly feeling like a long shot. Rather it looks like we will get 17 TARPs – one for each country. That is going to require a US style socialization of each banking system – with many WAMUs, Wachovias, AIGs and IndyMacs along the way. The road map for Europe is still 2008 in the US, with the end game a country by country socialization of their commercial banks. The fact is that the Germans are NOT going to pay for pan European structure to recap French and Italian banks – even though it is probably a more cost effective solution for both the German banks and taxpayers….Expect a massive policy response in Europe and a move towards financial market nationlaization that will make the US experience look like a walk in the park. ” Must read for anyone who wants a glimpse of the endgame. Oh, good luck China. You’ll need it.

Full Report:

In most ways the excess borrowing by, and lending to, European sovereign nations was no different than it was to US sub prime households. In both cases loans were made to folks that never had the means to pay them back. And these loans were made in the first place because regulatory arbitrage allowed stealth leverage of the lending on the balance sheets of financial institutions for many years. This levered lending generated short term spikes in both bank profits and most importantly executive compensation – however, the days of excess spread collection and big commercial bank bonuses are now long gone. We are only left with the long term social costs associated with this malevolent behavior. While there are obvious similarities in the two debtors, there is one VERY important difference – that is concentration. What do I mean by that? Well specifically, there are only a handful of insolvent sovereign European borrowers, while there are millions of bankrupt subprime households. This has been THE key factor in understanding how the differing policy responses to the two debt crisis have evolved.

In the case of US mortgage borrowers, there was no easy way to construct a government bailout for millions of individual households – there was too much dispersion and heterogeneity. Instead the defaults ran quickly through the system in 2008 – forcing insolvency, deleveraging and eventually a systemic shutdown of the financial system. As the regulators FINALLY woke up to the gravity of the situation in October, they reacted with a wholesale socialization of the commercial banking system – TLGP wrapped bank debt and TARP injected equity capital. From then on it has been a long hard road to recovery, and the scars from this excessive lending are still firmly entrenched in both household and banking sector balance sheets. Even three years later, we are trying to construct some form of household debt service burden relief (ie refi.gov) in order to find a way to put the economy on a sustainable track to recovery. And of course Dodd-Frank and the FHFA are trying to make sure the money center commercial banks both pay for their past sins and are never allowed to sin this way again! More on that below, but first let’s contrast this with the European debt crisis evolution.

In Europe, the subprime borrowers were sovereign nations. As the markets came to grips with this reality, countries were continuously shut out from the private sector capital markets. The regulators and politicians of course never fully understood the gravity of the situation and continuously fought market repricing through liquidity adds and then piecemeal bailouts. In many ways the US regulators dragged their feet as well, but they were forced into “getting it” when the uncontrolled default ripped the banks apart. Thus far the Europeans have been able to stave off default because there were only 3 borrowers to prop up – Portugal, Ireland and Greece. The Europeans were able to do something the Americans were not – that is “buy time” for their banking system. And why could they do this – because of the concentrated nature of the lending. In Europe, there were only 3 large subprime borrowers (at least so far), so it was easy to front them their unsustainable payments – for a while. But time is running out. Of couse, the lenders (ie the banks) have always been dead men walking!

At the moment, the European policy makers – after much market prodding – have finally come to grips with the gravity of their situation. And having seen the US bailout movie, they know all too well what happens when a default of this caliber rips through the financial system. The reason the EFSF was created in the first place was so that there could be some form of a European TARP when the piper finally had to be paid and the defaults were let loose. Certainly many had hoped the EFSF could be set up as a US style TARPing mechanism (like our friend Chrissy Lagarde suggests). The problem of course is that there are 17 Nancy Pelosis and 17 Hank Paulsons in the negotiation process. And while the Germans are likely to approve an expanded TARP like structure on 29-Sep, it increasingly looks like it may be too little too late. The departure of Stark, the German court ruling on future bailouts/Eurobonds, the statements by the German economy minister and the latest German political polls all suggest that Germany is NOT interested a full scale TARPing and TLPGing process across Europe. They somehow think they will be better off with each country going at it alone.

The bottom line is that it looks like a Lehman like event is about to be unleashed on Europe WITHOUT an effective TARP like structure fully in place. Now maybe, just maybe, they can do what the US did and build one on the fly – wiping out a few institutions and then using an expanded EFSF/Eurobond structure to prevent systemic collapse. But politically that is increasingly feeling like a long shot. Rather it looks like we will get 17 TARPs – one for each country. That is going to require a US style socialization of each banking system – with many WAMUs, Wachovias, AIGs and IndyMacs along the way. The road map for Europe is still 2008 in the US, with the end game a country by country socialization of their commercial banks. The fact is that the Germans are NOT going to pay for pan European structure to recap French and Italian banks – even though it is probably a more cost effective solution for both the German banks and taxpayers.

Where the losses WILL occur is at the ECB, where the Germans are on the hook for the largest percentage of the damage. And these will not just be SMP losses and portfolio losses. It will also be repo losses associated with failed NON-GERMAN banks. Of course in the PIG nations, the ability to create a TARP is a non-starter – they cannot raise any euro funding. The most likely scenario for these countries is full bank nationalization followed by exit and currency reintroduction. Bring on the Drachma TARP!! The losses to the remaining union members from repo and sovereign debt write downs at the ECB will be massive (this is likely the primary reason why Stark left). It will require significant increases in public sector debt and tax collection for remaining members. And for the Germans this will probably be a more costly path. Nonetheless, politics are the driver not economics. There is a reason why German CDS is 90bps and USA CDS is 50bps – Bunds are not a safe haven in this world – and there is no place in Europe that will be immune from this dislocation. Expect a massive policy response in Europe and a move towards financial market nationlaization that will make the US experience look like a walk in the park. Picking winners and losers will be VERY HARD but let’s look at a few weak spots –SocGen 12b in market cap (-70% this year) with assets of 1.13 trillion BNP 31b in market cap (-55% this year) with assets of 2 trillion Unicredito 13b in market cap (-70% this year) with assets of 1 trillion Intesa 14b in market cap (-70% this year) with assets of 700b Compare this with the USA where we have – JPM 125b in market cap with assets of 2.1 trillion BAC 70b in market cap with assets of 2.2 trillion

Importantly, France GDP is only 2 trillion and in bank balance sheets are some 400% of that number. The banks are dead men walking with massive leverage to both home country income as well as assets. The governments are about to take charge and Europe as a whole is about to embark on a sloppy financial market socialization process that has been held back for nearly 2 years by 3 bailouts. The weak links will not be able to raise enough Euros/wipe out enough private sector equity to get this done, so there will be EMU members that need to exit and use a reintroduced currency for this process. We put a Greek drachma on the front cover of our Global Fixed Income Monthly 20 months ago for a reason.

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Analysis: Record prices spawn new wave of China gold bugs

By Fayen Wong

An employee adjusts a gold necklace on a displaying model near glass cases containing gold figurines at a gold shop in Wuhan, Hubei province August 25, 2011. Credit: Reuters/Stringer

(Reuters) – Record gold prices, rather than denting China’s enthusiasm for bullion, have emboldened investors to plough more money into gold bars and riskier bullion-based derivatives.

August is traditionally a slow month for Chinese jewelers, but many shops in Shanghai visited by Reuters reported surprisingly solid gold sales over the last few weeks, with shoppers unfazed by gold’s stellar price gains over the past few months.

“The surge in prices has sparked another gold-buying craze. The 50 gram and 100 gram gold bars were selling like hot cakes,” said Ms. Liu, a store manager at Shanghai’s major jeweler Lao Feng Xiang Co Ltd (600612.SS), who said gold sales this month were up at least 30 percent from a year ago.

The attitude of Chinese consumers — expected to soon overtake Indians as the world’s top buyers of gold — will be an important influence on longer-term trends.

Demand from the world’s most populous country, which is adding hundreds of thousands of people to the ranks of affluent and middle-income consumers every year, implies that the long-term price floor for gold is set for a steady increase.

BUYING ON DIPS

That demand may also help smooth out temporary drops in prices.

Spot gold has come off its record highs of over $1,900 an ounce hit last week, falling back to around $1,820 an ounce, but such dips appear only to embolden consumers.

“Many Chinese investors and consumers see price corrections as buying opportunities. The view that gold is an enduring store of value is firmly rooted in Chinese cultural traditions,” said Hou Xingqiang, a gold analyst at Jinrui Futures.

“Gold’s rally over the past two years and the debt worries in the West have only strengthened Chinese investors’ belief that they need to own the metal as an investment asset.”

There is no shortage of bulls on Wall Street forecasting even higher gold prices, with J.P Morgan predicting at least $2,500 an ounce by the end of the year.

Amid the gold frenzy, China’s banks and brokerages have been quick to offer paper gold investments to cash in on the trend.

Trade sources at the Bank of China and Industrial and Commercial Bank of China say demand for their gold-linked savings products has soared, while a growing army of retail investors are also eager to dive into the paper gold market.

Expectations that gold will extend its bull run have also encouraged investors into the country’s nascent gold derivatives markets, such as the forward and futures contracts on the Shanghai Gold Exchange (SGE) and Shanghai Futures Exchange.

Volumes for SGE’s most popular gold forward contract hit a record high of 350,670 grams in August — double the volume in July.

“More investors are moving into paper gold because of the lower capital costs. The prospect of making big and quick bucks by betting on gold’s ascent is beginning to look like a fairly easy way to make money,” said He Wei, a gold analyst at Nanhua Futures.

RISKY BETS

That could create other risks down the road, however, which authorities are trying to fend off.

Investors buying gold swaps and forwards generally do so on margin, putting up only a part of the money themselves — potentially setting themselves up for much bigger losses should the market turn sour.

Alarmed by the surge and worried that the giddying climb in prices was encouraging excessive risk-taking, the SGE raised margin requirements twice this month to 12 percent.

The explosive interest in gold investments has also led investors to move to less mainstream derivative products offered by over-the-counter exchanges that have sprung up in recent years, bringing about new risks given the lower margin requirements.

The Tianjin Precious Metals Exchange, established in 2010, has seen a leap in demand for its swap contracts.

“The capital outlay for swap contracts is even lower and it’s becoming a popular investment instrument,” said Han Qingsheng, a trading manager at Gold Day, a brokerage for the Tianjin Precious Metals Exchange.

While the government is taking a somewhat cautious approach, people’s thirst for new investment products will no doubt accelerate China’s opening up of the gold sector — a move long awaited by foreign banks.

In a sign that more changes are afoot, the China Banking Regulatory Commission has already granted membership to two foreign banks to trade gold futures on the Shanghai Futures Exchange.

Industry watchers said changes on the horizon include night trading for the SHFE’s gold contracts and expanding the list of domestic banks allowed to import gold — a big step toward a full liberalization of the sector.

“As physical demand increases, the government will need to increase the supply avenues and some foreign banks have an advantage because of links to overseas mints or foreign trades,” said a senior executive at foreign bank.

“This would be the next step we’re all waiting for.”

(Editing by Jason Subler and Michael Urquhart for reuters.com)

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