Is economic recovery for real ?

Fake Recovery: 29% of Americans say 2011 economy in depression – Michael Snyder 
Despite official claims of an improving economy, Michael Snyder writes that more and more Americans hold a contrary view.

Stagflation is coming

Here Comes Stagflation!
 - Sy Harding, Asset Management Research Corp, April 28, 2011. Reported in Forbes 

It’s official. The U.S. economic recovery is stumbling again, as indicated by Thursday’s report that GDP growth plunged to only 1.8% in the 1st quarter (from 3.1% growth in the previous quarter). And spiking oil, food, and other commodity prices have inflation on the rise.

Fed’s dirty little secret

Former official reveals the Fed’s “dirty little secret” – Aaron Task, Daily Ticker

The dollar hit its lowest level since July 2008 Thursday, putting more pressure on savers, people living on a fixed-income and all consumers facing soaring commodity prices, most notably in energy.

Somewhere, Ben Bernanke is probably smiling.

Yes, Bernanke — and Treasury Secretary Tim Geithner — talked tough about the dollar this week but "currency depreciation is always a central bankers dirty little secret," says Vincent Reinhart, a former director of the Fed's Division of Monetary Affairs. "They don't mind some depreciation at time…The trick is to generate some depreciation but not a lot."

Bernanke in denial about economy

Bernanke in denial about economy’s fate, Vincent Reinhart says – Stacy Curtin, Daily Ticker

Gross domestic product slowed to a meager 1.8% for the first quarter of 2011, just as Fed Chairman Ben Bernanke (among others) predicted.

"We have not seen the GDP number yet but we are expecting a relatively weak number for the first quarter, something a little under 2 percent," he said during his first-ever press conference yesterday. (See: Bernanke Speaks! Fed Chair Defends QE2, Says Inflation Not His Fault)

Bernanke plays with economy

10 ways Ben Bernanke is endangering the US economy – Lincoln Ellis, Strategic Financial Group

1. Banks are still insolvent – he tells you they are not.
2. Continued suspension of FASB & other accounting gimmicks have allowed large financial institutions to sit around with loan portfolios that we believe would render 3 or 4 of the big 5 banks insolvent – that’s great for transparency for shareholder, eh?
3. Bernanke is concerned that without the steep yield curve the financial system runs the risk of shutting down.
4. He will keep monetary policy as loose as possible to keep the yield curve & recapitalize the banks.
5. The chairman doesn’t actually care if the banks lend or not, in fact, better if they don’t then he can claim that they need lower rates.
6. The only way banks lend is in yield curve flattens taking away their spread.
7. Passing off the USD weakness question to Tiny Tim was disingenuous and or further evidence of a lack of understanding of how yield differentials effect capital flows.
8. A weak dollar policy – as the one being currently pursued by the Fed is a dangerous game of global chicken and the EMs along with China might take us up on dumping $s.. Then what… we compete with China to manufacture items and create more $5 an hour jobs?
9. The Chairman was complicit in two early bubbles and bursts.
10. The hubris of his ability to control inflation was crushed when he passed it off on real demand coming from EMs, which simply suggests a normalized recovering economy which would mean he should normalize policy…

China won’t be top economy within 5 years

China No.1 in 5 years? Not so soon – Andreas Oppenheimer, Miami Herald
A forecast by the International Monetary Fund (IMF) that China will surpass the U.S. economy in five years — much sooner than previously expected — is creating a big buzz on the Internet. But is it true?

Food prices soar in asia

Soaring food prices a threat across Asia: ADB

MANILA: Soaring global food prices threaten to push tens of millions of Asians into extreme poverty and cut the region’s economic growth this year, the Asian Development Bank warned in a Coupled with skyrocketing oil prices, the spike poses a serious setback for developing Asia after having rebounded rapidly and strongly from the 2008 global economic crisis, said chief ADB economist Rhee Changyong.

“Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia,” Rhee said in a statement.

Domestic food inflation in developing Asian nations hit 10 percent at the start of this year, with double-digit rises in the price of wheat, corn, sugar, edible oils, dairy products and meat, the Manila-based institution said.

If this rate continues, as is likely, 64 million people in developing Asia could be pushed into extreme poverty and economic growth could be reduced by up to 1.5 percentage points this year, the bank warned.

Issues for the Fed

5 tough questions for Ben Bernanke - Richard Band

No central bank has been more reckless 

LONDONDERRY, N.H. (MarketWatch) — The clock is ticking on “Bubbles” Bernanke. Come June 30, his latest quantitative easing program (QE2) is scheduled to end. The big question on everyone’s mind is: what happens after June 30? Will government bond yields explode?

1) How much quantitative easing is enough? 

2) What do gold at $1,500 and oil at $112 say about confidence in the Fed?

3) Are near-zero interest rates are fair to savers and retired folks on fixed incomes? 

4) What would you do if, one of these days, the Chinese placed a $100 billion order to sell their U.S. Treasury bonds? 

5) With so many regional Fed presidents voicing dissent, is the Fed’s renowned “collegial” decision-making process breaking down?  

 

Critics say Fed policies devalue the US Dollar - Doug McKelway

US Debt about to sink economy

Debt Monster Set to Devour U.S. Economy - Eric Margolis, HuffPost
The U.S. National Priorities Project estimates that in 2011, out of one dollar of U.S. federal spending, 27.4% is military; 21.5% health; 13.8% interest on the debt; 10.9% social security; benefits; 3.5% education; and 23% on everything else. The U.S. spends $450 billion annually to finance its ever-growing deficits.

Another crash coming

2008 crash deja vu: we’ll relive it, and soon – Paul Farrell
New bubble is hotter, bigger than last one

Easter

US debt default could destroy economy

Default on debt could be Doomsday scenario for economy - Huffington Post

The US government borrows 42% of each dollar it spends. When the debt ceiling is hit (forecast around 16 May), and the government does not have enough money to pay all its bills - it will have to decide which bills to pay & which to say no to. 

Default on repaying government bonds - either on interest or principal - would affect the credit-worthiness of the US Government & raise its subsequent borrowing costs. Future lenders would demand higher interest rates from US Bonds - costing taxpayers more, & also driving up interest rates across the entire economy. Costlier credit for consumers would dampen demand and crimp the economy.

With the government having to spend more on interest payments, it will have to cut down expenditure on other areas - downsizing or shelving projects altogether. This affects directly employees of the government or contractors doing government business. Reduced income of those directly affected then ripples through the rest of the economy as that means they can't spend.

Central Banks ignore inflation they created

All the major central banks are so preoccupied with attempting to rescue their drowning economies by creating money that they are brushing aside the consequent inflation warned by many economists months ago.

As Inflation surges, Central Banks run amok – Andy Xie
Inflation is rising around the world, and none of the major central banks have shown serious interest in containing it...

The Bank of England has the thickest skin of all: It no longer gives excuses for ignoring inflation. The U.S. Federal Reserve is constantly inventing new theories while trying to explain away inflation, and while trying to justify its QE2 quantitative easing project despite inflationary signs aplenty.

The European Central Bank has the thinnest skin of all, and recently raised interest rates to defend its credibility in targeting price stability even though, unfortunately, the ECB won’t be able to maintain this stance. The Bank of Japan is still shy, but it will have to out-QE the Fed to help its government pay for post-earthquake reconstruction.

Price stability is supposed to be central banking’s main goal. But these days, central bankers think they’re super heroes who should rescue the world and make everyone happy.

Inflation, since its negative effects are spread thin and take time to materialize, is ignored. Today’s central banking is about so many things except inflation. This is why inflation will worsen for a long time to come. Indeed, inflation is the main theme for the current decade. A change will occur only when the current generation of central bankers is replaced.

Inflation’s Hold

When western governments decided to bail out their bankrupt financial institutions in 2008, I foresaw inflation ahead. I argued it would start with commodities and in emerging economies, and then spread to developed economies. But now it seems inflation has already taken hold in developed economies. Read rest of article on Andy Xie's blog

America's economic decline

24 Signs of Economic Decline in America - Michael Snyder

US debt rating downgraded

S&P cuts US rating outlook to negative

Moody's says latest budget plans a turning point

Text of S&P downgrade

Peter Schiff: S&P late to the party (YouTube)

Why Gold will skyrocket in 2011

 11 Reasons why Gold will shoot up in 2011 - Richard Young / InvestorPlace.com

1. Euro is dead : Sovereign defaults from Ireland to Slovakia - driving panicked investors into gold.
2. Asia can't feed itself : Food shortages lead to huge social unrest & panic gold hoarding.
3. China will shake Dollar : China remains unable to supplant Dollar's role as reserve currency, but will flex its muscle - sending investors skittering for gold.
4. So debased is Dollar, only gold left as viable currency : Central Banks alredy reversing dump-gold policy & becoming net buyers.
5. Us or Them : Fiscally healthy countries, fed up with supporting sick ones, & sick ones fed up with onerous repayment terms, split the world - sending gold sky high.
6. No one trusts the Swiss - not even the Swiss !
7. 10 million homes & $1.5 trillion potential loss facing Banks : massive new bankquake threatening to rock America.
8. 11 States technically bankrupt : & must acknowledge fact in next few weeks - or cease to function as independent entities.
9. No evidence of budgeting restraint in Washington
10. Forced to beg from foreign creditors to keep afloat - yields will skyrocket drastically in 2011.
11. Massive Inflation - becomes only course open to Fed. Expect 10%,20%,50%,or higher ...

Rising food prices drive millions into poverty

Food prices: World Bank warns millions face poverty - BBC 14 Apr 2011
The World Bank has warned that rising food prices, driven partly by rising fuel costs, are pushing millions of people into extreme poverty.

World food prices are 36% above levels of a year ago, driven by problems in the Middle East and North Africa, and remain volatile, the bank said.

That has pushed 44 million people into poverty since last June.

A further 10% rise would push 10m more below the extreme poverty line of $1.25 (76p) a day, the bank said.

And it warned that a 30% cost hike in the price of staples could lead to 34 million more poor.

Inflationary Depression is here

The Inflationary Depression - Bob Chapman: The International Forecaster
April 9 2011: Management squeezes the worker to the end, the reality of an inflationary depression, the gold and silver bull, we remain haunted by lost opportunities to purge the excess and failures in the stock market.

We see signs that American workers are getting worn out. Management may have squeezed the last drops of extra work that they can out of them. That has been reflected in the latest worker productivity. Since WWII the average increase has been 2-1/2% year after year, but last week’s numbers were terrible, up only 0.2% per year. Europe and the US have been able in part to offset advantages of foreign producers by consistently getting better productivity results. For those of you that are new to these statistics, they are a reflection of labor productivity, or advances in the way work is done. Such previous success have allowed companies to get the job done with fewer employees and in instances to offshore some work to take advantage of cheap foreign labor. If you use a combination of labor and investment funds, recent results are only up 0.1% for 2009. Those numbers are usually about half of regular productivity numbers. What low overall numbers mean is that throwing money at manufacturing problems is not working as well as it has in the past.

Brazil loses currency war

According to WSJ, Brazil appears to be waving the white flag in the currency war. After months of tough talk to speculators and other governments driving up the Brazilian real, Finance Minister Guido Mantega seems resigned to the fact that there is little he can do to contain the currency's meteoric rise.

The currency climbed through a key barrier of 1.60 per dollar Thursday, a day after Mr. Mantega unveiled the latest in a string of controls designed to slow the real's climb. It was trading at 1.59 to the dollar late in the day, up more than 40% since late 2008.

Brazil imposed a tax on capital inflow last year. But that seemed not working very well. Capital continues to flow in due to the very large interest rate differential and a robust economic growth partially driven by the commodity boom worldwide.

When one country raises interest rate to contain inflation, while capital control is absent, it simply invites more capital inflows, which could drive up inflation further. This is why Brazil is giving up.

IMF has long been an opponent of capital controls. But it reversed its position recently and is more willing to consider capital control as a policy option.

Financial System designed to self-destruct

The Financial System designed to self-destruct - Bob Chapman: The International Forecaster
April 6 2011: The US dollar continues to lose its status, a planned failure for the economy, USA a banana republic, financially, Fed member banks prepare for next move, a debt that must be serviced, the insolvency of the banking system, a chain of incompetent mistakes.

Middle Class to pay price for America’s Debt

Our Debt Binge is Ending – and the Middle Class will get clobbered – Henry Blodget, Daily Ticker

The world is coming to the end of a 50-year debt supercycle, John Mauldin says, and the austerity required to put us back on solid financial footing will hammer ordinary Americans.

Mauldin, a financial analyst and the author of ENDGAME: The End Of The Debt Supercycle And How It Changes Everything, thinks that the the US will soon be forced to confront the fact that it has borrowed way too much in the past few decades and must severely cut back.

The US's $1.6 trillion-a-year deficit, Mauldin believes, must quickly be cut to about $300 billion a year, or the US will face a debt crisis. And given that our current government can barely find ways to chop $30 billion of spending from the 2011 budget, these cuts are going to be painful.

What will the forced austerity mean for ordinary Americans?

Higher taxes and significantly reduced Medicare and Medicaid spending, for starters, Mauldin says. And then cuts to almost everything else in the budget, including military spending and education.

In other words, as has so often been the case in the past couple of decades, the middle class will bear the brunt of the impact.

See Also: Budget Battle Will Likely Lead to Crisis and Recession, Says John Mauldin

Monetary system created by Bretton Woods

Reaping what Bretton Woods has sown 
- Bob Chapman's The International Forecaster     (Excerpt - click link to read full article)
April 2, 2011: The Bretton Woods agreement in 1944, a license to steal under the Federal Reserve Act, a model for finance that no longer works well, tax breaks for the wealthy and budget cuts for the rest of us, the possible re-monetization of silver, Fed discloses its discount borrowers for the first time ever, bailed out banks dump US workers in favor of offshore labor, Cal teachers pension system exposed, notes on the TARP bailout.

The seeds of today’s monetary problems were laid at Bretton Woods, NH in 1944, as a combination of socialists, communists and fascists laid the groundwork for the IMF, the World Bank and the eventual elimination of gold from the monetary world. The Federal Reserve’s role was to bring that about from behind the scenes.

Aden on Gold & Silver

VOLATILE TIMES AHEAD - by Mary Anne & Pamela Aden

Gold nearing $1500, silver nearing $40, oil well above $100! What a week... what a month... what a year!

Escalating violence in Libya is adding fuel to the already strong bull markets, especially with concern growing that turmoil could spread into even more countries.

The threat of possible supply disruptions is providing the real fire under oil, while demand continues to grow. Gold and silver, in turn, are the safe havens as inflation concerns and uncertainty prevail.

But from another angle, gold and silver are also being driven higher by the same force that is driving the unrest - namely, a sea of liquidity introduced by the Federal Reserve. Since the Fed has shown no sign of changing course, we expect much more volatility to come.