We're All Screwed

Okay. I'm screwed. My friends are screwed and everybody we know is screwed (financially). What can we do now? Joe Nocera says "The Worst Is Yet to Come" and he presents some impressive evidence.

Today, we are bailing out the banks because of their greedy and deceptive lending practices in the mortgage industry. But this is just the tip of the iceberg. More is coming, I’m sorry to say. Layoffs are being announced nationwide in the tens of thousands. As people begin to lose their jobs, they will not be able to pay their credit card bills either. And the banks will be back for more handouts.

Of course he's only worried about the initial effects on the economy that arise from the disenfranchisement of the worker bees. There is much more pain on the horizon than just that. As a matter of fact, one commenter writes in to say that (some editing was necessary and emphasis marks were added - Ed.):

A tsunami of debt (governmental, corporate and personal insolvency) will swamp the industrialized world as planned. The international banksters are worse than organized crime. They are like corporate locusts on steroids.The U.S. has been set up for a great fall; like Humpdy Dumpty, the U.S. economy is FUBR. As the author stated, the next bubbles to pop will be the credit card as well as the auto and student loan bubbles. People are up to their eyeballs in debt with no way out and no end in sight. Young and old are in hock far beyond their abilty to repay.The path AmeriKKKa is on is unsustainable, this is becoming more evident every day. The Fed (a privately-owned banking cartel answerable to no one) is pumping out trillions of fiat dollars to bail out the banking and Shadow Financial Systems. But the Fed is simultaneously devaluing pre-existing and future dollars (inflation) in the process. There is no pain-free solution to the impending crisis. We could not pay our way out of this even if we wanted to. In the U.S. personal savings are nonexistent, wages are stagnant, jobs are disappearing each month and folks are falling deeper and deeper in debt. (Compound interest is a bitch if you are on the owing side of the ledger.) The bottom could fall out any minute now. When the derivatives and the alphabet entities' Ponzi schemes collapse and finally unravel, all hell will break loose.

"Corporate locusts on steroids" as a description of international bankers wins today's award for Most Colorful Way to Describe the Predators of the Soul. And before you can catch your breath, Mike Whitney comes to the rescue with:

Without any public debate or authorization from Congress, the Federal Reserve has embarked on the most radical financial intervention in history. Fed chairman Ben Bernanke is trying to avert another Great Depression by flooding the financial system with liquidity in an attempt to mitigate the effects of tightening credit and a sharp decline in consumer spending. So far, the Fed has committed over $7 trillion, which is being used to backstop every part of the financial system including money markets, bank deposits, commercial paper (CP) investment banks, insurance companies, and hundreds of billions of structured debt-instruments (MBS, CDOs). America's free market system is now entirely dependent on state resources.

If knowledge in a so-called free society is supposed to bring some type of easing of worries, I fail to see it in his latest delineation of the miseries already inflicted and soon to be increased upon us.

With interest rates at or below 1 percent, Bernanke is "zero bound," which means that he will be unable to stimulate the economy through traditional monetary policy. That leaves the Fed with few choices to slow the debt-deflation which has already carved $7 trillion from U.S. stock indexes and another $6 trillion from home equity. Bernanke will have to use unconventional means to stabilize the system and maintain economic activity in the broader economy.

"Unconventional means?" Like, oh, sending people to live in the local garbage dump and allowing them out to work 80-hour weeks on the minimum-wage chain gangs? I don't want to dwell for too long on this analysis of exactly how bad off we now are, but a couple more paragraphs should do it (and you've just earned your Economics degree (if you read through all of it) - which is more than Tim Geithner, the new Treasury Secretary, has done - which reminds me to ask when did we become a country that didn't expect top Treasury officials to have a solid background in economics and finance? But, whoops, I almost forgot about the omniscient Alan Greenspan). Forgive me.

The Fed also initiated a program to purchase $200 billion of triple A-rated loans from non-bank financial institutions to try to revive the flagging securitization market. It's another risky move that ignores the fact that investors are shunning "pools of loans" because no one really knows what they are worth. The appropriate way to establish a price for complex securities in a frozen market is to create a central clearinghouse where they can be auctioned off to the highest bidder. That establishes a baseline price, which is crucial for stimulating future sales. But the Fed wants to conceal the true value of these securities because there are nearly $3 trillion of them held by banks and other financial institutions. If they were priced at their current market value ($.21 on the dollar) then many of the country's biggest banks would have to declare bankruptcy. So the Fed is trying to maintain the illusion of solvency by overpaying for these securities and providing the financing companies more capital to loan to businesses and consumers. Once again, the Fed is stretching its balance sheet by trying to resuscitate a structured finance system which has already proved to be dysfunctional.

The Federal Reserve Bank (neither Federal, a reserve or a bank) is concealing the true value of these securities for a good reason: they know there is not enough taxpayer money to cover them, no matter how long the printing presses are allowed to print, and they are hoping to resecuritize the market in hopes that another bubble will buy them a little wiggle room into the distant future (when the next "terror war" will buy even more time (to take that personal spaceship to Mars?)). I'm thinking that globalization didn't work as well as they had hoped. Maybe universal globalization?

Last Tuesday's announcement suggests that Bernanke may be dabbling in the stock market already. This forces anyone who is planning to short the market to reconsider his strategy because Bernanke could be secretly betting against him by dumping billions in the futures market to keep stocks artificially high. It just goes to show that all the bloviating about the virtues of "free market" is just empty rhetoric. When push comes to shove this is "their" system and they'll do whatever they can to preserve it. If that means direct intervention; so be it. Principles mean nothing. Bernanke's actions are likely to wreak havoc in the currency markets, too. If currency traders suspect that Bernanke is printing money ("unsterilized liquidity") to rev up the economy, there will be a sell-off of U.S. Treasurys and a run on the dollar. "Monetization" - the printing of money to cover one's debts - is the fast-track to hyperinflation and the destruction of the currency. It's not a decision that should be taken lightly. And it is not a decision that should be made by a banking oligarch who has not been given congressional approval. Bernanke's shenanigans show an appalling contempt for the democratic process. He needs to be reined in before he does more damage. Bernanke's attempts to revive the securitization market is understandable, but it probably won't amount to anything. The well has already been poisoned by the lack of regulation and the proliferation of subprime loans. The problem is that the broader economy needs the credit that securitization produced via the non-bank financials (investment banks, hedge funds, etc.) In fact, the non-bank financial institutions were providing the lion's share of the credit to the financial system before the meltdown. But, now that the 5 big investment banks are either bankrupt or transforming themselves into holding companies (and the hedge funds are still deleveraging), the only option for credit is the banks, and they are incapable of filling the void. The Wall Street Journal estimates that the loss of Bear Stearns and Lehman Bros. will mean "$450 billion in lending capacity missing from markets." Think about that. If we include the other investment banks in the mix, then more than $2 trillion in credit will vanish from the system next year alone. Bottom line, the breakdown in securitization is choking off credit and pushing the country towards catastrophe. If the slide continues, there could be a 40-percent reduction in credit in 2009 making another Great Depression unavoidable.

Screwed tight. Please read the rest of Mike's wisdom-laden essay for further insight. Oh yes, one of the most head-scratching forecasts I've heard today is that Obama was originally selected by the powers-that-be because they needed an entrée to Africa (for their future globalization schemes after its excess population is disappeared). And to think that, previously, I had laughed at the chat that his dressing in African garb was anything more than cultural feelgood. Sayonara (just a little Japanese-economy humor), Suzan