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With the pop
from the USFed’s latest attempt at financial shock and awe already
seeping from lackluster markets, and the teleprompter news networks losing
steam over their promotion of the same, it is time to take a look back at the
decisions made on 9/13/2012 and set the record straight on some things.
QEunlimited is not going to
save the US Economy.
Perhaps one of
the biggest misconceptions about all this easing is that it is somehow going
to help the economy. To stimulate it. To bring it out of recession (yes,
we’re still in recession). None of these things happened with the first
two, but there are some very good reasons it won’t happen with the
third. And the truth is there is a much more gruesome component to this
latest scam.
As I’ve
outlined many times before in these pages, what happens when the USGovt or
banks buy up toxic mortgage securities is that they’re buying the note
on your house – along with thousands of other notes since they’ve
all been bundled up. You signed on the dotted line with Bank of America for
example, but now maybe the Chinese own your house. Or the Japanese. Or
European bankers. Or the USGovt. So the fed creating another $40 billion (that
they’re willing to admit) each month to buy more mortgages ought to be
a pretty scary thing. Will they foreclose on you if you can’t make your
payments?
But it gets
better. So now we’ve got banks with an extra $40 billion a month to
play with. The notion sold to a comatose public is that this is good because
the banks will lend the money to Main Street and this will save the economy.
We’ve already shot that theory full of holes a dozen times and
I’m not doing it again. What is curious though is that the banks aren’t
going to lend the money out at all and this was never the intent. Instead,
the intention is to use the majority of it to buy – you guessed it
– USGovt debt. That’s the agreement that has been forged.
Don’t forget that the fed works for its member banks – and
regulates them too. If you’re still not doubled over in laughter, this group is going to monetize $40
billion a month (again at a minimum) of government debt while patting
themselves on the back and telling us how great they are because
they’re preserving our banking system, without which we could never
survive.
So we’re
right back with QEU where we were with the previous QEs. There is
no intention of the USGovt to ‘get right’ and straighten its
fiscal house, regardless of what the stuffed shirts tell you during their
debates and campaign ads. The USGovt is a junkie, and is going to be getting a minimum of a half trillion a year in direct monetization
above and beyond what its already getting.
Once again,
the devil is in the details though. Let’s the say the USFed simply gave
the $40B/month to the banks for their junk and let them take the money and
play in the financial markets, we’d see stocks, bonds, commodities, and
so forth rise. Common people who were invested in these markets – what
few of them are left – might have a small
chance of benefitting somewhat. However, by going through the government
stimulus route, the GoverBank is ensuring that the vice that is already on
many consumers is only going to get a little tighter.
Traditional QE
has been proven ineffective at creating jobs. The few jobs that have been
‘created’ by all the stimulus to this point have been make work,
part-time, or temporary in nature. Even the cooked government numbers bear
that out. What QE has been effective at doing is tightening the screws on the
majority of the country through price inflation. Nothing crazy yet, but
everyone is noticing. Your elected officials know this and simply don’t
care.
But
let’s get back to the idea of the USFed or some foreign bank holding
the title on your home. Many others and I have said for years now that the
whole housing boom was nothing more than a giant
property grab. The media has gone almost totally mum on foreclosures –
as if the problem no longer exists. After all, we have donkeys chasing
elephants around on stages all over the country; trying to convince you their
way to ruin is best. Given the unlimited nature of QE on a global scale, it
stands to reason that by the time this is over, the fed and the rest of the
central banks around the world will hold the title on every piece of
mortgaged real estate out there. Just as I wrote about the coup
d’état going on in Europe, the same thing is happening here.
 
The
progression is pretty simple. You take a mortgage with a small community bank
who then sells it to a packager who rolls it up with a couple thousand other
mortgages and in layman’s terms, it is sliced up and sold to various
economic agents. The slices throw off interest as you make your monthly
payments and so forth. Just like a traditional bond. Well, a bunch of these
slices are no good and are being purchased by the USFed. Foreclosures are
happening. Who owns the property now? You never owned it. You were renting it
first from your community bank, and now from the USFed or whichever other
entity owns your property. Some of these properties are sold to vulture funds
and you can pay them rent to live in the house you once thought you owned.
And our government pushes this as the American Dream? And don’t kid yourself for a second; the USGovt is quite the
landlord as well, through Fannie and Freddie.
Just keep all
this in mind while you bust your tail 40 or more hours a week if you can get
them to make your mortgage payments. Your house, along with most of the rest
of the property here in the US, is owned by people who did nothing to work
for it. They simply typed a few keystrokes on a computer, declared themselves
to be rich, and bought you out. I’ve said this many times before and
apologize to those who already understand this, however, most still
don’t – or refuse to – and so we’re going to keep hammering
it until everyone gets it.
Keep Your Eyes on China
The media
would love to have everyone think that China has been knocked out of the game
because of a host of economic sins they’ve committed (which pale in
comparison to our own sins). The IMF continues to downgrade growth forecasts
for the global economy, engaging in a global game of good cop bad cop with
the mainstream media and German newest Fantasyland resident Angela Merkel.
She had the audacity, not austerity, to show up in Greece and assure the
Greeks that the worst of the financial crisis was over. On Thursday, Greece
lost its biggest company. Obviously not everyone believes Mrs. Merkel and her
band of ECB/IMF cronies.
Let’s
get back to China though. Conventional logic says China is dead because
aggregate demand is slowing due to a global
recession. Not
to mention, the Chinese have allowed a real estate bubble, that makes
America’s look like child’s play in comparison, blow up over the
past several years. China’s ongoing business and economic model has
been based on the continued expansion of consumption by the West, especially
America and the Eurozone. However, unlike every other international
‘superpower’, the Chinese actually have a war chest – and
it is filled to the gills with actual capital – not just phony printed
currency like the war chest our government claims to have. Basically, China
is in a position similar to where America was during
Depression 1.0 with regards to the cookie jar of savings.
However, and
as other analysts have already pointed out, the progression through turmoil
always seems to be recession, depression, currency wars, trade wars, followed
by world wars. Currently, we’re at stage 4 and waiting on the world war
and nobody is rattling sabers as loudly as the Chinese. Consider the recent
comments of Chinese President Hu Jintao:
“The navy should “accelerate its
transformation and modernization in a sturdy way, and make extended
preparations for military combat in order to make greater contributions to
safeguard national security,” he said.
Addressing the powerful Central Military
Commission, Hu said: “Our work must closely encircle the main theme of
national defense and military building.”
China’s main dispute
with Japan over the Diaoyu Islands has already sent shockwaves and panic
buying as Chinese citizens load up on supplies,
particularly salt.
Despite this, the Chinese are still an active
global player, particularly in the Middle East, which is one of the major
outposts they’ve sought to exert influence. At risk are precious oil
supplies, and the stakes are growing by the day. Wars have flared up in a half-dozen nations already, stoked by the CIA-funded,
America-backed al-Qaeda terror group. The Orwellian switching of the
enemy cannot be ignored in this case. The destabilization of the Middle East
is on, and countries like China and Russia have serious vested interests and
investment in that region. They will not go quietly, that is assured. The
election of Hugo Chavez to another 6-year term ensures that even more oil
will be flowing eastward, making the Middle East even more critical.
China has already threatened to exercise
its nuclear options with regards to bonds – on Japan of all
nations, even ahead of the US. However, such an action would have an
immediate and devastating effect on our bond markets since the Japanese hold
so much USGovt debt. Think of a game of dominoes. Obviously a threat against
Japan is a threat against America and the Chinese can stop the bond game any
time they feel like it. As for America’s recourse? War? That’s
about it. Tariffs? Good luck. How do you think Wal-Mart, etc. would look with
all the ‘Made in China’ items gone? Sure, such a move would hurt
China, but it would hurt the rest of the world an awful lot more. China has
the wiggle room, the flexibility, and the leverage. We don’t. If you
think its bad that the USFed or perhaps a Chinese bank holds the title on
your house, think of the consequences of a geopolitical slip-up. We’ve
been promised these times would be interesting, and in that regard
we’re certainly getting our money’s worth.
Depression
2.0 – A Slow But Steady Progression
The soft depression continues in America under
the watchful eye of people like Ben Bernanke, Jamie Dimon, and Mario Draghi.
The social net, while still holding up reasonably well, is showing obvious
signs of strain as more and more Americans either give up and fall into the
clutches of dependency, or just decide sloth is the best policy and go on the
government dole. After all, why should anyone take one of these ‘new
and improved’ make work, temp, or part-time jobs when the government
will pay for food, housing, medical care, schooling, heat, and even provide a
free cell phone for doing absolutely nothing? America is rotting from the
inside morally, just from the entitlement perspective.
I get constant emails accusing me of being a
gloom and doomer and the common point made is ‘If this is a depression,
then where are the breadlines?’ Simple. Food stamps. They didn’t
have SNAP back in the 1930s, so people stood and waited in breadlines. Today,
they get a debit card so they can go to the store and shop like everyone
else. The only time anyone knows the difference is when the person checks out
and that is only if someone notices that it is an EBT card. There don’t
need to be breadlines on the street; we’ve got them in our stores. 100+
weeks of unemployment compensation? We certainly didn’t have that back
in the 1930s either. Back then you lost your job and two months later you
were homeless unless you had savings. We didn’t have credit cards to
fall back on either. I would be willing to bet that a significant portion of
the 5 million new iPhones that were sold the first weekend were bought by
people who are on some type (or multiple types) of government assistance. How
many others went into further debt to get one? Yet the USMedia will sit there
and make the ridiculous assertion that the iPhone
is going to save the USEconomy. This is level of ignorance that exists
regarding the state of our world today.
ZIRP has another consequence and this ties into
what was mentioned above with regards to the USFed holding the title on your
mortgage. With home equity loan interest rates so low, many people who had
previously ‘clear’ properties have raced back out and borrowed to
remodel or whatever, putting them back on the chopping block. I’ll say
this again for emphasis. By the time
this monetization action is finished, the USFed will hold the title on every
piece of mortgaged property in the United States. There is an excellent
chance it’ll hold most (if not all) of the USGovt debt that isn’t
already held by other entities like China, Japan, OPEC nations, either on its
own or through its member banks. Again, what this means is that you’ll
scrimp to pay your mortgage and your taxes, which will go directly to a group
of banks that created your debt from nothing. Avoid debt like the plague no
matter how attractive the ‘terms’ appear to be. For once we can
learn from the mistakes of others.
We view sanitized news from Europe, almost
completely unaware that we’re next. We’re one headline away. It
is as simple as that. So perhaps these things should be kept in mind before
turning on the latest edition of the political circuses, donning your donkey
or elephant hat and declaring that your guy kicked the other guy’s
tail. It really goes an awful lot deeper than that. We Americans have often
been accused by our neighbors around the world of being a
mile wide and an inch deep. I for one think it is about time we stopped
proving them right.
Andrew W. Sutton, MBA
Chief Market
Strategist
Sutton &
Associates, LLC
http://www.sutton-associates.net
andy@suttonfinance.net
Sutton & Associates, LLC is a
Registered Investment Adviser in the Commonwealth
of Pennsylvania. This
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Interested in what is going on in the
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