Earthside Comments: You can take a look at the first several entries here and see the direction we're headed. Like the "fall of Rome" says the comptroller of the United States about our economy? Pretty somber talk.
But then we see that even Wal-Mart is experiencing and expecting slower retail sales ... and we've got a link to an article that explains how average folks are becoming "upside down" because of they plunged into the irrational housing bubble.
Lastly, an analysis from Jim Kunstle, who tells it like it is in very stark language. What he's telling us is that all this debt and 'liquidity infusions' and credit crunch is all so much phony baloney perpetrated by greedy, sneaky insider elitists ... his term "pixelated cash" says it all ... the central banks' manuveuring and scheming is unreal. But, it is also a mirage with tragic consequences for the working Americans that got suckered into the real estate get-rich-quick sales pitch.
So, don't be fooled by the captions on cable television's CNBC: "Is the credit crunch over?" That is propaganda to convince people to have patience ... while the economic elitists cover their own behinds. The point is you must be prepared and do now what is in your own financial best interest -- put your fingers in your ears when Bush or Bernankie or a talking-head 'financial expert' starts spouting.
Link: Learn From the Fall of Rome, US Warned | Financial Times
The US government is on a “burning platform” of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon, the country’s top government inspector has warned.
David Walker, comptroller general of the US, issued the unusually downbeat assessment of his country’s future in a report that lays out what he called “chilling long-term simulations”.
These include “dramatic” tax rises, slashed government services and the large-scale dumping by foreign governments of holdings of US debt.
Drawing parallels with the end of the Roman empire, Mr Walker warned there were “striking similarities” between America’s current situation and the factors that brought down Rome, including “declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government”.
“Sound familiar?” Mr Walker said. “In my view, it’s time to learn from history and take steps to ensure the American Republic is the first to stand the test of time.”
Mr Walker’s views carry weight because he is a non-partisan figure in charge of the Government Accountability Office, often described as the investigative arm of the US Congress.
While most of its studies are commissioned by legislators, about 10 per cent – such as the one containing his latest warnings – are initiated by the comptroller general himself.
In an interview with the Financial Times, Mr Walker said he had mentioned some of the issues before but now wanted to “turn up the volume”. Some of them were too sensitive for others in government to “have their name associated with”.
“I’m trying to sound an alarm and issue a wake-up call,” he said. “As comptroller general I’ve got an ability to look longer-range and take on issues that others may be hesitant, and in many cases may not be in a position, to take on.
“One of the concerns is obviously we are a great country but we face major sustainability challenges that we are not taking seriously enough,” said Mr Walker, who was appointed during the Clinton administration to the post, which carries a 15-year term.
The fiscal imbalance meant the US was “on a path toward an explosion of debt”.
“With the looming retirement of baby boomers, spiralling healthcare costs, plummeting savings rates and increasing reliance on foreign lenders, we face unprecedented fiscal risks,” said Mr Walker, a former senior executive at PwC auditing firm.
Current US policy on education, energy, the environment, immigration and Iraq also was on an “unsustainable path”.
“Our very prosperity is placing greater demands on our physical infrastructure. Billions of dollars will be needed to modernise everything from highways and airports to water and sewage systems. The recent bridge collapse in Minneapolis was a sobering wake-up call.”
Mr Walker said he would offer to brief the would-be presidential candidates next spring.
“They need to make fiscal responsibility and inter-generational equity one of their top priorities. If they do, I think we have a chance to turn this around but if they don’t, I think the risk of a serious crisis rises considerably”.
Copyright The Financial Times Limited 2007
Link: Wal-Mart Slows; Cuts Full-Year Forecast | Reuters
Wal-Mart Stores Inc., the world's largest retailer, reported a lower-than-expected quarterly profit and cut its full-year earnings forecast on Tuesday, saying its customers remain under economic pressure. The company's Shares fell 2.5 percent to $45 early electronic composite trading. ... ... Chief Executive Lee Scott blamed the disappointing performance on economic pressure around the world. "It is no secret that many customers are running out of money toward the end of the month," Scott said on a recorded conference call, adding that higher fuel prices, interest rates, utility costs and "more financial pressure" are hurting sales in its international market, including Mexico and Canada. With more than 127 million customers visiting a Wal-Mart store or a Sam's Club location in America every week, Wal-Mart is considered a barometer of the health of the U.S. retail sector. ...
... For this back-to-school shopping season, which began in July, it has slashed prices on thousands of items by as much as 50 percent to boost sales at its U.S. stores. The retailer said last week that while the price cuts attracted shoppers, they also hurt margins.
On the recorded call, Eduardo Castro-Wright, CEO of Wal-Mart's U.S. operations, said the company continues to struggle with poor apparel sales and is cutting prices to move out merchandise.
Link: Mortgage Crisis Could Grow Wider | Rocky Mountain News
When Linda Martin refinanced the mortgages on three different houses nearly three years ago, she thought the lower monthly payments would help her save more money for retirement.
Instead, the Lakewood skin- care specialist is sinking in financial quicksand amid a widening mortgage morass that's pulling down home prices and threatening to drag the U.S. economy into a recession.
"I'm hanging on by a thread, not knowing whether I am going to be living in a car in six months," said Martin, who declined to reveal her age.
Martin is among the hundreds of thousands of borrowers saddled with "option" adjustable- rate mortgages, risky loans that dangled bargain-basement introductory payments and also let borrowers defer part of the interest payments until later years. ... MORE
Link: Margin Call | Jim Kunstler
The seas were a mite choppy off Hedge Fund Island last week after all when the Federal Reserve started tossing life preservers of ready cash to the Big Fund Boyz bobbing and thrashing in the swells. Now, about that "money" -- which is, in essence, a bunch of extended lines of credit at the Fed's artificially-low official interest rate -- what actually happens to it? The simple answer is: it disappears into the same ocean of financial woe that the Boyz are drowning in.
The mere $38 billion that the Fed tossed out Friday afternoon, as the Dow was tanking down a few hundred clicks, will be used by banks and investment houses to cover losses in the synthetic securities they themselves created, and have been trading, during this psychotic final blow off of cheap energy capitalism. In essence, the Fed is buying worthless paper. The trouble is, there is so much more worthless paper out there that all the computers at the Federal Reserve could never generate enough pixelated cash to cover them in the life of this universe or several like it.
An additional problem: there is a practically inexhaustible supply of "dead" mortgages and corporate loans washing up on the pebbled beaches of Hedge Fund Island. No matter how bad the mortgage-and-credit-derived racket looks now, it is certain to only get worse as the dead mortgages and loans fester in the sun and the tropical foliage on Hedge Fund Island starts to wilt from the toxic fumes of all that decaying matter. This summer is only the beginning of a cycle of adjustable mortgage interest rate re-sets. The numbers go way up in the fall and are scheduled to continue rising well into the winter of 2008. How long do you think the Big Fund Boys can tread water?
What you're seeing now is a simple matter of financial sector players trying desperately to evade the consequences of their own actions. The fake wealth generated by the synthetic securities they created is now being recognized for what it is: a swindle. The hallucination is over. The collective denial that supported that hallucination is dissolving. The losses are become manifest. Even worse, the losses are growing exponentially because the synthetic securities were used as collateral to leverage far greater multiples of "positions," bets, and plays in a casino-like global electronic trading arena.
This is what happens when investment gets de-coupled from real productive activity and becomes an end in itself. It has been terrifically enhanced by computer programming. But no amount of digital legerdemain --with the "sugar-on-top" of accounting trickery -- can now hide the fact that there is no "value" there. What's more, the losses are going to have to show up somewhere. If you try to suppress them in one area, they'll pop up in another. If the Federal Reserve tries to cover the losses racked up by the Big Fund Boyz by giving "cash" away, they'll only succeed in destroying the value of the cash itself, i.e. the US dollar.
Now, few reasonable people can really imagine that the Fed would blunder into hyper-inflation. But the situation is so desperate that the Fed's mission to do what's necessary to rescue drowning banks may over-ride the prudent deployment of cash life preservers. As that occurs, foreign holders of the US Dollar may detect the impending loss of value of the dollar, and there would be a stampede to the redemption windows to get rid of them. That would leave the Federal Reserve (and by extension the American Nation) in a position of stark and implacable insolvency.
In any case, the US now stands on the brink of an unprecedented liquidation of assets. The mortgaged title holders to over-priced McHouses will have to liquidate their positions as "home-owners." The over-leveraged holders of credit-card debt will have to sell their Ford Explorers, bass boats, sports memorabilia (good luck with that shit) and flat-screen TVs. The retired dentists will have to dump their stocks and bonds. The corporations will have to sell off subsidiary operations, buildings, and corporate jets. Some colleges will just shutter. The Big Fund Boys will have nothing of value left in their portfolios to sell. They will just drown. Their heirs and assigns will then have to dispose of the house in Sagaponak, the 10-room apartment on Central Park West, and the family fleet of SUVs. The Big Boyz will take quite a few institutions with them -- the club-like banks and investment "houses" that employed them and went along with their mendacious shenanigans.
The upshot is that we are going to find ourselves a poorer nation. There will be far fewer people with money. There will be far fewer buyers of repossessed McHouses, bass boats, etc. Even the houses in Sagaponak and the Manhattan apartments will go cheap. The effort to pretend our way out of a financial crisis will fail. Sooner or later the recognition will set in that all that "boo-yah" was dreamed up. The United States swindled itself. We became a nation of such greed-crazed clowns that we committed financial suicide in an orgy of self-deception.
Anyway, that's how I see it this morning. The equity markets open in a half hour or so. The mood out there must be dark. The hands that hold the Starbucks cups must be trembling at the trading desks. I hasten to add that I think the turmoil and destruction can go on for quite a while. This slow-motion train wreck is not going to play out in just a week or two. And in case anyone forgets, in the background looms another storm at least as potent as the one now blowing through the financial markets: the gathering permanent global energy crisis (a.k.a. "peak oil"). Just because some Big Fund Boyz liquidated their positions on the oil futures market last week to try to cover their losses elsewhere does not mean that price of oil is going to keep going down. It may rest on the ledge in the $60 -$70 range for a spell, but you can be sure it will take flight again. And if it does as the dollar is crashing for other reasons, this will become a pretty disorderly nation in a very dangerous and unforgiving world.
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