My High Dividend Stocks Blog

My High Dividend Stocks
This is my high dividend stocks site where I help site members find high dividend stocks with earning power and strong balance sheets.

Bernanke get hammered, tells truth about US economy

This is absolutely hilarious and sad at the same time.

http://www.zerohedge.com/news/bernanke-gets-hammered-tells-truth-about-us-economy

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

Why a Debt Default Would Be Wonderful

Why a Debt Default Would Be Wonderful

by Tom Mullen

Recently by Tom Mullen: Can Ron Paul Really Be Right About Everything?

 

   

While it is likely that the two parties in Congress will reach a deal before the August 2 deadline, I can’t help reflecting on how wonderful it would be if they didn’t. While Congressman Ron Paul has correctly pointed out that the government has already defaulted at least three different times in its history, and continues to default every time it prints new money, it is not quite the same as an “on-the-books” failure to make a timely payment. That is exactly what America needs.

Politicians, mainstream economists, and the media tell us that a U.S. government debt default would be catastrophic. Treasury bonds would be downgraded, interest rates would soar, and the massive government spending that has supposedly fueled the present (jobless) recovery would be severely curtailed, plunging the U.S. and possibly the world back into a deep recession.

Perhaps that is true. However, a debt default by the federal government would still be a blessing to American society for several reasons.

First, one must remember that all government spending represents a redistribution of wealth (what we regular folks call “stealing”). The government forcibly confiscates money from those who have earned it and spends it for the benefit of someone else. The most insidious way that the government does this is by borrowing. When it borrows, it is confiscating money from people in the future – some of whom are not even born yet – to hand out to their special interest supporters today. To the extent that it would prevent or decrease this, a default would result in a more just society.

However, even if one doesn’t care about justice or property rights, a default would help correct the very malinvestment that has caused the crisis in the first place. As I’ve said before, the entire U.S. economy is really one, huge bubble of misallocated resources, caused by at least a century of government intervention. Most people recognize that the government’s backing of mortgages, together with monetary inflation by the Federal Reserve, were the primary causes of the housing bubble. However, most people fail to recognize this same dynamic in almost every sector of the economy.

The government also backs student loans for people to go to college. Just like it did to the housing industry, this has inflated the price of higher education far beyond what could be supported by real demand. That in turn has led to the creation of millions of jobs in the education sector that only exist because the government redistributes wealth to back those loans. When the government funds are no longer there, the price of education will plummet, just as housing prices did. All of those people will be out of work.

Healthcare is another sector with all of the same intervention-related problems. Government subsidy creates artificial demand, inflating the price and driving the misallocation of resources to the healthcare sector. The industry is not forced to innovate in terms of delivering its services in more efficient ways because the customers are forced to buy its products (if you doubt this, just withhold the Medicare portion of your payroll taxes and see what happens). This also directs employees into the healthcare sector that would not be supported by natural market forces. When the government can no longer subsidize it, the bubble will pop, just like housing and education. Again, massive unemployment for misallocated human resources.

Banking, research, agriculture, energy, automobile manufacturing – there is not one sector that anyone can name where government is not overriding the voluntary transactions that market participants would otherwise engage in. Wherever the government is spending taxpayer money, it is overriding the choice that the taxpayer would have made if he had been allowed to keep his money and spend it as he pleased. As F.A. Hayek pointed out in The Road to Serfdom, the government has never and can never make better choices than millions of market participants acting in their own self-interest. They simply lack the information necessary to do so.

So, wherever the government is spending money to try to boost some aggregate statistic, it is making the problem bigger, not smaller. If government spending is creating jobs, they are not real jobs. A real job is a voluntary contract between a buyer of services (an employer) and a seller of services (an employee). If that job is created because of government spending, then a third party is introduced into the transaction who is not acting voluntarily. Government-created jobs force taxpayers to purchase services from employees because it is not profitable for the employers in that sector to purchase them. Forcing taxpayers to purchase them doesn’t make those jobs any more profitable. It just depletes the capital available to create profitable jobs elsewhere.

The prospect of perhaps tens of millions more people unemployed may seem frightening, but that day is coming regardless of what politicians do in Washington. Economic laws are like the laws of nature. They will assert themselves in the end. Any job that requires the government to borrow more money to subsidize it is also a job that depends upon the lenders continuing to lend. As we have seen in recent Treasury bond auctions, those days are coming to an end. Raising the statutory debt ceiling only allows more phony jobs to be created, setting up more employees for the painful correction.

However, the most important reason that a debt default will be beneficial is a philosophic one. It will force a complete paradigm shift in the way Americans think about the role of government. For at least a century, there has been no area of life that some special interest has not appealed to government to manage or subsidize. From the way we conduct commerce to the way we make personal decisions on food or healthcare to the way we coexist with our neighbors in other countries, nothing has been off limits. Complacency about our liberty has been one reason. The other has been the perception of infinite financial resources. The great wealth that the United States generated in its freest period provided a tax base and borrowing collateral that has always been perceived as unlimited. A debt default would shatter that foolish perception.

The default would be a bucket of cold water in the faces of a drowsy and compliant populace. It would wake people up to the reality that Thomas Paine was aware of over 200 years ago, when he wrote that government “is at best, a necessary evil.” People would realize that the government doesn’t “have our back,” other than to stick a gun in it to loot our liberty and wealth. We would no longer hear that horrid refrain from media pundits after some new government incursion or heist: “Well, the government had to do something.” Instead, we would hear the resigned chorus, “Well, the government couldn’t do anything.” And perhaps, in some glorious, enlightened future, “The government shouldn’t do anything.”

Reprinted with permission from Tom Mullen's blog.

July 30, 2011

Tom Mullen [send him mail] is a writer, musician, and business consultant. In January 2009, he published his first book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Visit his website.

Copyright © 2011 Tom Mullen

 
 
Subscribe today for free at www.myhighdividendstocks.com to discover high dividend stocks with earning power and strong balance sheets.
 
Be seeing you!

It Ain't Money If I Can't Print It!

It Ain't Money If I Can't Print It!
by Peter Schiff

Recently by Peter Schiff: Don't be Fooled by Political Posturing
   
I have been forecasting with near certainty that QE2 would not be the end of the Fed's money-printing program. My suspicions were confirmed in both the Fed minutes on Tuesday and Fed Chairman Ben Bernanke's semi-annual testimony to Congress yesterday. The former laid out the conditions upon which a new round of inflation would be launched, and the latter re-emphasized – in case anyone still doubted – that Mr. Bernanke has no regard for the principles of a sound currency.


Tuesday's release of the Fed minutes contained the first indication that a third round of quantitative easing (QE3) is being considered. The notes described unanimous agreement that QE2 should be completed, along with the following comment: "depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run." Since the unemployment situation is deteriorating, and by all accounts will continue to do so, the Fed is essentially pledging to keep the spigot turned on. The committee also decided to look only at current "overall inflation" in making their judgments, as opposed to "inflation trends." Since new dollars take awhile to circulate around the economy and raise prices, this means the Fed is sure to be too late in tightening once inflation starts to run away, causing more dislocations in the American economy.

If anyone had lingering faith that Mr. Bernanke actually has a plan to end the US government's addiction to cheap money, the Chairman's semi-annual testimony to Congress should have washed it away. In addition to claiming that his money-printing has helped the US economy, Bernanke told Congress that gold is not money, people buying gold are not concerned about inflation, and the external value of the dollar has no influence on its domestic purchasing power. He even took a moment to stump for President Obama's plan to raise the debt ceiling.

 
By claiming that gold is not money, the Chairman demonstrates his ignorance of much of monetary history. He told Congressman Ron Paul that he had no idea why central banks hold gold, before speculating that it might have something to do with tradition. Yes, traditionally gold is money, which is precisely why central banks hold it. And gold is money because central bankers like Mr. Bernanke cannot be trusted with a paper substitute.

Bernanke further disputes the facts by claiming that the only reason people are buying gold is to hedge against uncertainty, or "tail risks" as he calls them. My advice to the Chairman is to ask the people who are actually buying it. As someone who has been buying gold myself for a decade, I can assure him that my gold buying has nothing to do with "uncertainty." In fact, it's just the opposite. I am buying gold because of what is certain, not what is uncertain. I am certain that Mr. Bernanke's incompetence will destroy the value of the dollar and unleash runaway inflation.

If it were true that people bought gold to protect themselves from market uncertainty, as the Chairman claims, then the metal should have spiked in the midst of the '08 credit crunch. Instead, it fell along with most other assets. People instinctively fled into US dollars and Treasuries because of their long record of stability. What Bernanke doesn't understand is that his irresponsible monetary policy is undermining that faith in US assets, built up over generations. That is what's driving gold: easy money, negative interest rates, and quantitative easing.

 
Finally, by claiming that the dollar's exchange rate has no effect on domestic prices, Mr. Bernanke demonstrates that he probably lacks the competence to be a bank teller, let alone Chairman of the Federal Reserve. A weaker dollar means Americans have to pay more for imported goods. But it also means domestic producers have to pay more for raw materials and imported components, which raises domestic production costs as well. It also means that more domestically produced goods are exported, reducing the supply and raising the price of what is left for Americans to consume. This is Econ 101.

Given the Chairman's confusion on the basics of economics, perhaps it's no surprise that he's put quantitative easing right back on the table, where, despite prior rhetoric, it has been all along. The Fed has always known that QE3 is coming; it's just looking for an excuse to launch it.

 
The problem is that fighting a recession with QE is like fighting a fire with gasoline. As the flames of recession reignite, more QE, while dousing it momentarily, will only produce an even larger economic inferno.

At one point, Bernanke said, "The right analogy for not raising the debt ceiling is going out and having a spending spree on your credit card and then refusing to pay the bill." He's got the analogy right, but his conclusions are completely wrong. Yes, Congress has gone on a spending spree and it's time to pay up. But raising the debt ceiling is like taking out a Mastercard to pay the Visa... it just makes the problem worse. If you or I go out one night, get drunk, and run up a huge credit card bill, we know that the way to fix it is to buckle down and pay it back. We might postpone vacation plans or put off buying a new car, we might cancel our cable TV subscription or gym membership. The point is that we would have to reduce current consumption to make up for the overspending in the past.

Obama claims that raising the debt ceiling is about getting a hold of the federal debt. Have you ever heard of anyone getting out of debt by taking on more debt? Has anyone ever reduced their debt without reducing current consumption? How can the Fed Chairman endorse such a preposterous idea?

Bernanke actually went a step further and warned against reducing current federal spending too sharply, claiming that such a move might impede the "recovery." He apparently believes that it is the role of the Congress to go on spending sprees, and his role to pay the mounting bills with freshly printed dollars. The fact that this formula has produced larger and larger economic crises does not seem to bother him. I guess ignorance is bliss.


July 15, 2011

Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets and Crash Proof: How to Profit from the Coming Economic Collapse. His latest book is How an Economy Grows and Why It Crashes.

Is Free-Market Anarchism Unworkable? Not in America’s Roofing Industry

Is Free-Market Anarchism Unworkable? Not in America’s Roofing Industry

by Mark R. Crovelli

Recently by Mark R. Crovelli: Patriotism Is the Last Refuge of an Idiot

 

   

Maybe it is the fact that most Americans are educated in socialistic quasi-prisons today. Whatever the reason, it seems to be virtually impossible for Americans to conceive of an economy devoid of invasive government regulations and manipulations. The idea of completely freeing the economy of these burdensome government contrivances, which is precisely what free-market anarchism means, is thus completely incomprehensible to them. A totally free market for anything is assumed from the outset to be impossible, unworkable, and dangerous.

And yet, there is at least one sector of the American economy that is already about as anarchistic as could possibly be imagined. I am talking about the thousands of businesses that install roofs and rain gutters in this country. It is an industry that is exciting, dynamic and thrillingly free. The industry offers an important economic lesson for unimaginative Americans who blithely assume that free-market anarchism is impossible, unworkable, and dangerous.

That the roofing industry could be as anarchistic as I claim may seem absurd at first glance, since there are layers upon layers of laws "regulating" it. There are licensing laws in some jurisdictions governing who may or may not install roofs and gutters. There are myriad federal and state laws governing worker safety and workers’ compensation. There are laws governing the minimum wage and restricting the hiring "illegal" immigrants. And finally, there are laws and "codes" governing the installation of the roofing system itself.

How can an industry be considered virtually anarchistic when there exist thousands of federal, state and local laws "regulating" it?

The answer, quite frankly, is that the vast majority of roofing companies don’t give a rat’s ass about the governments’ laws. Most don’t care a whit whether the rich scumbags in congress don’t want them to hire Mexicans. They hire them in droves in order to drive down their prices. Most don’t care one iota whether fat OSHA office workers want them to wear unwieldy and dangerous harnesses. They simply don’t force their workers to wear them, as if the law were voluntary. Most don’t give a damn what the federal minimum wage laws say. They pay their workers as little as the workers will accept in this bad economy and the workers are fantastically happy to have the job. And most don’t give even a moment’s notice to the licensing laws for roofers in certain jurisdictions. They simply have licensed people pull permits for them as quickly as they please. Call me if you need one pulled!

They don’t care at all about these laws because they know the trump card is in their hands: bankruptcy. If the jackasses down at OSHA try to go after one of them for not wearing harnesses, the company will miraculously go under that day only to reemerge two days later with a new name and a new proprietor. If the immigration bureaucrats come after them for hiring so-called "illegals," the remaining "legals" will hang out drinking beer for a few weeks until their other guys are able to get back over the border to get back to work. No big deal. (I once worked with a Mexican in California who was deported early one morning and made it back to work before lunchtime!) What’s the worst the bureaucrats can do to you as a roofing business owner? Take your compressor or stick you with some fines? Ha! See you in two days!

This refreshingly rebellious attitude toward the governments’ asinine laws does not mean that roofers do not care about the quality of their work, however. The key to staying in business and making money in the roofing industry is installing quality roofs and having zero leaks. Either that, or you run from state to state putting up bad roofs for suckers and then get out of town as quickly as possible. (If you ever wondered what kind of person is falling for those ridiculous Nigerian email scams, it’s the same idiot who’s hiring a cheap, out-of-town roofing company. He no doubt wonders how he keeps getting scammed).

Roofers care about putting up good roofs because much of their business comes from word-of-mouth. If you put up a bad roof, you can be sure to have lost that entire neighborhood for once and for all. Also, since any decent roofer has liability insurance against leaks (it is in fact required to do work for insurance companies), he cares passionately about not having to make claims against his insurance. Nothing will put you out of business quicker than making claims against your insurance that will either astronomically elevate your premiums or even cause insurers to refuse you coverage. The free market is thus virtually the only reason why roofers put up good roofs that don’t leak.

Hey, wait a second! What about those building codes and roofing inspections that states and cities have instituted in order to make sure that roofers put up decent roofs? Aren’t these regulations a major reason why roofers do a good job?

I am terribly sorry to have to burst your bubble if these objections are running through your naïve little head, but city roofing inspections and building codes are a complete and utter joke. In the first place, as far as building codes and roofing codes are concerned, cities basically lift the codes from manufacturer instructions or from non-profit organizations, like the ICC. Most commonly the "codes" are simply awkward bureaucratic rehashes of what roofers can read for themselves on the felt rolls or shingle bundles. In other words, the cities basically tell roofers to follow the instructions on the package. If you think that telling roofers to follow instructions is the reason you are getting a good roof, then I have a bridge I’d like to sell to you!

The city roofing inspection racket is no less of a joke. Here’s an example. I was recently doing some carpentry work at a house when the roofing inspector showed up, so I offered to let him use my ladder in order to get up to inspect the roof. He declined, saying "I can tell that it’s ok from here." I have seen that occur more times than I can count. I have also seen roofing inspectors being bribed, as if that should surprise anyone.

More importantly, city roofing inspections are completely unnecessary when the roofer has liability insurance (and anyone stupid enough to hire a roofer, or anyone else for that matter, without liability insurance deserves whatever disaster befalls him). If the roof is installed incorrectly and leaks as a result, the homeowner can make a claim against the roofer’s insurance. The roofing inspector and the city, by contrast, will give the homeowner absolutely nothing if the roof leaks. Of what use, then, is the roofing inspector? This is all the more true since the homeowner’s insurance company will often inspect the roof itself in order to assure that it is installed correctly. Also, some roofing manufacturers, like Genflex for example, will inspect, certify, and guarantee the roof themselves. Given this, why on Earth are these nosy and lazy bureaucrats necessary? The cost of the roof is higher than it otherwise would be without them, and they do nothing that is not already being done better by the insurance companies.

The good news is that it has probably never been easier to get a fantastic and affordable roof in this country. This is due to the rebellious and sunburned anarchists in the roofing industry itself, not to the politicians and bureaucrats who have bankrupted this country.

July 1, 2011

Mark R. Crovelli [send him mail] writes from Denver, Colorado.

Copyright © 2011 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

Geithner's Victims of Last Resort by Gary North

Geithner's Victims of Last Resort

by Gary North

Recently by Gary North: The #2 Port in the Academic Storm Is About to Close

 

  

You may have heard that the Federal Reserve System is the lender of last resort. This is a misleading concept. The Federal Reserve loans the U.S. government newly created fiat money. The government issues the FED an IOU. It is backed by the full faith and credit of the United States government. But who stands behind the United States government, wallets in hand? You do. And so do I.

We are the victims of last resort.

On May 13, Timothy Geithner wrote a letter to Colorado's Senator Michael Bennet. In his letter, he presented the case against freezing the debt ceiling. The letter is here.

Geithner began with a statement that is muddled almost beyond belief. "As you know, the debt limit does not authorize new spending commitments." Quite true. The debt limit does not authorize anything. It prohibits the authorization of any further borrowing. Officially speaking, prohibiting borrowing is the idea behind the debt ceiling. That is why Congress keeps raising it. Congress does not want to cut spending. It also does not want to raise taxes in order to pay for the spending.

The sentence says the opposite of Geithner's point. We know this because of what came next. "It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past."

He therefore did not really mean that "the debt limit does not authorize new spending commitments." He meant to write this: "An increase in the debt limit does not authorize new spending commitments." Therefore, he reminded Bennet, to raise the debt limit does not authorize any new spending commitments. Geithner, in his befuddled way, was trying to offer Congress a fig leaf to cover its nakedness. By raising the debt ceiling, Congress will be perceived by the voters as spending recklessly, which is an accurate perception. Geithner was trying to say this: by raising the debt ceiling, Congress does not automatically pass new spending laws.

Millions of voters understand this shell game. If the ceiling gets raised, Congress can then vote for new spending bills. If it doesn't get raised, Congress cannot pass new spending bills without cutting existing spending. The debt ceiling inhibits Congress.

Geithner's sales pitch is simple: Congress must raise the debt ceiling in order to meet its existing commitments. He is giving Congress a way to justify this ceiling hike to constituents. "We're not wild spenders. We're merely making it possible to fulfill previous Congressional commitments made to the public. You don't want us to break our promises, do you?"

He then wrote: "Failure to raise the debt limit would force the United States to default on these obligations, such as payments to our servicemembers, citizens, investors, and businesses." This is correct. This is the famous bottom line.

Do you see what this implies? A rising debt ceiling is built into American politics. Using Geithner's logic, there is no escape from an ever-larger national debt. Every year, the ceiling will have to be raised. Medicare is in the red. Social Security is in the red. Combined, they are about $100 trillion in the hole, according to some estimates.

Who is going to buy this Treasury debt as it rolls over every 50 months (today's average maturity)? For how much longer? This money will have to come from somewhere. It will come from money that might otherwise be invested in the private sector.

Ever since November 2010, the money has come mainly from the Federal Reserve System: $600 billion in newly created money. This will stop after this week. Then what?

The constant absorption of capital by the U.S. government cannot go on forever. It will undermine the growth of the economy by transferring investment capital to the Treasury. When the economy stops growing, the deficit will get worse. At some point, investors will stop lending to the Treasury at anything except very high rates. This will turn a recession into a depression. The government will raise the debt ceiling, but it will not get the funds required to keep spending. This process of ever-rising debt will not go on. As economist Herb Stein observed decades ago, when something cannot go on, it has a tendency to stop.

This means that when the Federal Reserve finally stops buying U.S. debt, there will be a great default. I mean finally. I do not mean temporarily. I do not mean this year. The fear of another recession may keep the safe-haven money flowing into the Treasury this year. But, at some point, investors will demand higher interest rates. Geithner's letter raises this specter of higher interest rates if the debt ceiling is not raised. But this threat will also exist if the debt ceiling is raised and raised again, as it will be.

The Federal Reserve at some point will start buying Treasury debt again to keep rising rates from crippling the economy. This means price inflation will return, as it did in the late 1970s. Then it will move above that era's rate of rising prices. This is why the FED will eventually have to face the music: either hyperinflation or the Great Default. I believe that it will choose the Great Default. If it refuses, then the dollar will collapse.

In either case, the division of labor will contract. In either case, there will be bankruptcies. There will be massive unemployment of people and resources.

We are nowhere near this moment of truth. I know there are lots of people out there who say that hyperinflation is imminent. They are wrong.

DEFAULT NOW

Geithner is facing a default if the debt ceiling is not raised. He said that a default would call into question for the first time the full faith and credit of the United States government. He is correct. I can think of no more liberating event. The monster would go bust.

Investors around the world would lose money, he says. I surely hope so. That might keep them from financing the monster again. Anyway, for a couple of years.

He thinks there will still be buyers, but at higher rates. That would restrict the government's spending, since the government would have to pay investors rather than subsidize new boondoggles.

Default would increase borrowing costs for everyone, he wrote. He did not say why this would be the case. If the government defaults, people will invest elsewhere. It seems to me that this would be good for the private sector. Geithner needs to prove his case.

"Treasury securities are the benchmark interest rate," he wrote. They are? Why should a FED-subsidized interest rate be the benchmark? Why should an out-of-control international debtor set the standard?

THE MOB

"A default would also lead to a steep decline in household wealth, further harming economic growth." Think about this. A thief sticks a gun in your belly. He says, "hand over your money . . . forever." He then shares this money – after handling fees – with his fellow mobsters.

Geithner is saying that if the victims ever decide not to let the thief steal any more of their money, this will reduce household wealth. It will indeed – the household wealth of the thieves. It will increase the household wealth of the victims.

"Higher mortgage rates would depress an already fragile housing market, causing home values to fall." Fact: home values have fallen even as the U.S. Government's debt ceiling has soared. There is a reason for this. As the government has borrowed more money, thereby reducing the money available to the private sector, housing prices have fallen. He did not explain this economic fact. He did not mention it. I can understand why not.

"This significant reduction in household wealth would threaten the economic security of all Americans and, together with increased interest rates, would contribute to a contraction in household spending and investment." He meant the households of politicians, bureaucrats, and everyone who is on the take from the U.S. government.

But what about the victims? What about the taxpayers whose net worth is being used as collateral for Treasury debt? Why would a ceiling on the government's pledge of their future wealth produce a "significant reduction" in their future household wealth? He needed to explain this.

Keynesian economists need to explain this.

Keynesian financial columnists need to explain this.

They never do.

AMERICAN TAXPAYERS: VICTIMS OF LAST RESORT

"Default would also have the perverse effect of increasing our government's debt burden, worsening the fiscal challenges that we must address and damaging our capacity for future growth." So, if Congress votes to cap the government's debt, this will produce even greater debt. We must therefore seek national solvency through additional debt. Solvency through debt! I am reminded of another group of slogans: war is peace, freedom is slavery, and ignorance is strength.

What else would a default do? "It would increase rates on Treasury securities, which would significantly increase the cost of paying interest on the national debt." Yes, it would. But the question arises: If the government defaults on its debt, why would it bother to pay any interest at all? The whole idea of default is to stop paying.

It's just like people who owe more on their homes than the homes are worth. They stop paying. If they are evicted – most are not for months or years – they will rent. They will pay less in rent than they pay on their mortgages. In the meantime, they pay nothing except property taxes. (Governments will foreclose when lenders won't.)

The idea of the debt ceiling is to keep the government from running up its tab, based on the future net worth of taxpayers. The idea behind opposing any increase of government debt is this: "Let's stop any new spending projects." Higher interest rates, if they come as Geithner said they will come, will reduce the ability of the government to start new wealth-distribution boondoggles. The money that would have funded the new projects will have to go to creditors in the form of interest payments.

Why is this bad?

It is bad if you are a member of a group that gets payoffs from the Federal Godfather. It is not bad if you are not.

He said that a default will lead to weaker growth. It will lead to more unemployment. A sagging economy will lead to lower tax revenues and "increased demand on our safety net programs." Whose safety net programs? "Ours."

Why will unemployment rise if the government cannot spend borrowed money? Why won't taxpayers save more money, leading to greater economic output and therefore reduced unemployment? Why is it bad for the economy to allow taxpayers to spend more of their own money the way they want to? These questions apparently did not occur to Geithner, or if they did, he chose not to consider them.

A default will lead, he said, to a reduction in "productive investments in education, innovation, infrastructure, and other areas. . . ." He said "investments." That is a political code word for "government subsidies." A default would mean that the government will have to spend less in those areas of the economy in which (1) politicians buy votes, (2) salaried, Civil Service-protected bureaucrats spend money to innovate, and (3) the teacher unions prosper.

He warned that "Treasury securities are a key holding on the balance sheets of every insurance company, bank, money market fund, and pension fund in the world." This is true. This means that taxpayers' future wealth has been mortgaged to provide securities for these outfits. So, if we take this argument seriously, how will the government ever stop increasing the debt ceiling? It won't. The Federal debt system has addicted the world's financial institutions to the promise that American taxpayers are the victims of last resort.

The U.S. government borrows by promising that American taxpayers will fork over the money. The mob has bought itself fiscal credibility. It has guns and badges, and it can finance itself by assuring investors that these guns and badges will be used.

How can this ever be stopped? Geithner or his successors will be able to use this argument forever.

There are two ways that it can be stopped: (1) hyperinflation by the Federal Reserve, which will buy the Treasury's IOUs when other investors cease; (2) default whenever the Federal Reserve stops buying new Treasury debt. One or the other must happen, because (1) the Congress keeps running $1.5 trillion annual deficits, and (2) the Social Security and Medicare liabilities are unfunded.

In the meantime, Geithner implores Congress to kick the can one more time. He will be back for another increase in a year. He is a cheerleader. "Kick it again! Kick it again! Harder! Harder!"

GEITHNER'S PAULSON IMITATION

He said that a default would raise questions about the solvency of the institutions that hold Treasury debt. This could cause a run on money-market funds. It could be "similar to what occurred in the wake of the collapse of Lehman Brothers." He said that this could "spark a panic that threatens the health of the our entire global economy and the jobs of millions of Americans."

This sounds terrifying, but is it true? We have heard all this before: in September and October of 2008. Geithner's predecessor, Hank Paulson, and Ben Bernanke warned high-level Congressmen that this was about to happen. That was how they got Congress to fund TARP. But they never proved that a collapse was imminent. In a persuasive presentation, former budget director David Stockman has shown that no such collapse was imminent.

"Even a short-term default could cause irrevocable damage to the American economy." Irrevocable! Really? Is the American economy so dependent on Treasury interest payments that everything that Americans do or own is at risk? Why? Because "Treasury securities enjoy their unique role in the global financial system precisely because they are viewed as a risk-free asset." I see. Risk-free assets. But risk is inescapable in life. Geithner said that this does not apply to buyers of IOUs from the U. S. Treasury. Not yet, anyway.

When an IOU issued by an agency that is running a $1.6 trillion annual on-budget deficit is regarded as risk-free by investment fund managers, then my strong suggestion is that you not allow those fund managers to handle your retirement portfolio.

"Investors have absolute confidence that the United States will meet its debt obligations on time, every time, and in full." They do? Really? Then they are incapable of reading a balance sheet.

"That confidence increases demand for Treasury securities, lowering borrowing costs for the Federal government, consumers, and businesses." It does? Really? Let me understand this. The demand for Treasury securities increases, because investors with "absolute confidence" in the Treasury's IOUs hand over their money to the Treasury. Yet this transfer of funds somehow lowers borrowing costs for consumers and businesses. I am a bit confused. If the Treasury gets the capital, how can consumers and businesses also pay less for capital? If money goes to the Treasury, how is it simultaneously made available to consumers and businessmen?

You see my problem. I am not a Keynesian. I have this theory that money transferred to X cannot be simultaneously transferred to Y. If money is spent by X on what he wants to buy, it cannot be spent by Y on what he wants to buy. But this is not the case in the world of Keynes.

"A default would call into question the status of Treasury securities as a cornerstone of the financial system, potentially squandering this unique role and the economic benefits that come with it." I ask: Whose economic benefits? The fellow holding the badge and the gun or the fellow with the wallet?

"If the United States were forced to stop, limit, or delay payment on obligations to which the Nation has already committed," he said, "there would be a massive and abrupt reduction in federal outlays and aggregate demand." Again, I have this problem. I am not a Keynesian. I understand cause and effect as follows. If spending by Y (the government) decreases, this leaves more money in X's (the taxpayer's) wallet. When X spends his money without the middleman of the guy with the badge and the gun, aggregate demand does not change. I realize that this is not true in Geithner's parallel universe, but that's how aggregate demand works in my world.

I guess I need a formula. Without a formula, economists cannot perceive cause and effect. So, here goes: $X + $Y = $X + $Y.

To understand this, we need story problems. We all hate story problems, but they help us understand.

(1) "If X spends $1.6 trillion dollars, and Y spends no dollars, how much is aggregate demand?"

(2) "If Y sticks a gun in X's belly and says 'hand it over,' and then spends $1.6 trillion, how much is aggregate demand?"

(3) "If Y comes to X and says, 'hand it over, but this is a loan,' and X forks it over, when Y spends $1.6 trillion, how much is aggregate demand?"

Geithner does not operate in terms of this formula. So, he said that when the government (Y) stops spending, there will be a decrease in aggregate demand. Somehow, the excess money that is now in X's wallet will disappear. "This abrupt contraction would likely push us into a double dip recession." He did not define "us." He wanted Senator Bennet to believe that if Y spends less money, X will suffer a double dip recession. We're all in the same boat, he implied. Why? Because . . . a drum roll, please . . . we owe it to ourselves!

This is Keynesianism's parallel universe. It is a world of endless increases in the U.S. government's debt ceiling. It is a world of endless increases in the Federal Reserve System's monetary base, filled with IOUs from the U.S. government. It is a world in which guns and badges turn stones into bread.

CONCLUSIONS

Here is Geithner's conclusion: "It is critically important that Congress act as soon as possible to raise the debt limit so that the full faith and credit of the United States is not called into question." He went on to say: "I fully expect that Congress will once again take responsible action. . . ."

He and I define "responsible action" differently. He defines it as "authorize people with badges and guns to borrow more money in terms of their ability to get their hands on enough taypayer money to keep paying interest." It is a system in which the taxpayer is the victim of last resort.

I have a different conclusion. I think that Congress will authorize another increase in the debt ceiling. It will do this multiple times. As this limit is increased, there will be a reduction in the number of investors who have absolute confidence in the full faith and credit of the United States government.

Congress is not going to balance the budget, because there seem to be no negative consequences for not balancing the budget, either political or economic. So, the debt will get larger.

At some point, interest rates will rise. Then we will see the negative consequences that Geithner described in his letter.

Geithner is arguing for a delay. That is what most politicians argue for. Today, most politicians have adopted the faith of Dickens' Mr. Micawber: "Something will turn up." They are right: the debt ceiling, then interest rates, then the monetary base, then M1, then the money multiplier, then prices. So will unemployment. Up, up. up.

The key is the money multiplier. When it finally moves up, price inflation will move up with it. Until then, the Federal Reserve can join with Congress in the game of kick the can. The debt ceiling will rise.

Inside the can are lots of IOUs. They are IOU's signed by Congress on our behalf. We are the targeted victims of last resort.

We won't be. At any rate, future voters won't be. The creditors will be.

There will be a Great Default when voters finally say, "We're not going to pay." On that day, your net worth had better not rest on a pile of IOUs issued by the U.S. government. Otherwise, you will be like Thomas Mitchell, in "Gone With the Wind," sitting at his desk in 1865, mad as a hatter, insisting that he was rich. Why? He had lots of government bonds issued by the Confederacy.

So, the victims of last resort will not be the taxpayers after all. They will be the trusting people who retain absolute confidence in the full faith and credit of the United States government right to the bitter end. Either hyperinflation will ruin them or default will, or maybe both: as the Confederacy experienced.

June 29, 2011

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2011 Gary North

Don't buy Southern Copper (SCCO) now despite predictions of higher copper prices.

Southern Copper is a massive copper producer and it is a high dividend stock.  But you shouldn’t buy it now at such a high price and will a likely fall in the price of copper.  Motley Fool writer Ilan Moscovitz gave Southern Copper a clean bill of dividend health, but he did not explain how he came up with his dividend payout ratio numbers or mention the price of the shares.  Are they value priced or speculative?

I came up with a completely different and higher dividend payout ratio than Mr. Moscovitz’s 93%.  SCCO has 850 million shares outstanding.  The company is paying a quarterly dividend of $0.56 per share which equates to an annual dividend of $2.24 per share.  It earned $1.83 per share in 2010.  This equates to a 122% dividend payout ratio when using the current dividend divided by last year’s EPS.  I’m going to perform a second calculation using the five year average earnings per share (adjusted for changes in capitalization) of $1.92.  The dividend payout ratio would be 116% ($2.24 dividend/$1.92 avg EPS).  Where does he get 93%?  I checked the 1Q2011 financial statements and the company earned $0.56/share and it will pay a dividend of $0.56/share, so the dividend payout ratio is at least 100% if you consider the first quarter of 2011 indicative of its 2011 overall performance.  Sheeesh!  I’m beginning to think Mr. Moscovitz doesn’t know what he’s writing about.  The bottom line is that Southern Copper’s dividend is not safe at $0.56/quarter.

I think that SCCO is too expensive right now.  The stock is trading at roughly 18 times its five year average earnings of $1.92.  Wait until the global double dip takes it down below $24.00 before you risk your capital on this copper miner.

Southern Copper (SCCO) lives or dies on the price of copper in the global marketplace.  Copper has been priced in the $3.00 to $4.00 per pound for four of the past five years.  The 2009 price dropped to a low of around $1.50 per pound.  It finished the day at $4.11 per pound yesterday.  SCCO made a profit in 2009 of $929 million (down from $2.216 billion net income in 2007 at the height of the global infrastructure boom).  What direction will the price of copper go throughout the rest of 2011?  You must at least acknowledge this question before any serious investment in SCCO. 

I’m going to take you through an analysis of a Kitco.com article on copper price expectations.  My comments are in bold and bracketed.

Copper Expected To Languish Over Summer But Pick Up Into Year-End

15 June 2011, 2:16 p.m.
By Allen Sykora
Of Kitco News
http://www.kitco.com/

 

 

[Why should the price of copper languish over the summer?  Who are these faceless, unnamed analysts?]

(Kitco News) - Copper should languish over the summer after the early 2011 bullish enthusiasm, but analysts expect renewed demand later this year that could push prices again to near or above $10,000 a metric ton.

[The supply of copper in the London Metal Exchanges warehouses have been building since the end of late 2010.  LME stocks decrease when supply is constrained.  There is a report out by Bloomberg that domestic copper supplies in China are dwindling.  The Chinese government has created a real estate bubble that is going to pop.  That bubble consumes a lot of copper to build the equivalent all the real estate of Houston, Texas each month.  It will pop and the copper demand that these Keynesian economists are forecasting will evaporate.  The price of copper will fall.  The price of Southern Copper stock will fall.

]

Some already point to signs of some improvement, such as rising premiums for physical copper in key consuming regions. Any meaningful pick-up in demand should be supportive since supply remains constrained due to factors such as labor disruptions, declining grades and limited new major discoveries.

Three-months copper closed at $9,154 a metric Wednesday on the London Metal Exchange, down 10.2% from a record of $10,190 in mid-February.

[Why is the LME copper stock increasing if the supply side is restrained?  The demand side at $4.11/lb is definitely weakening due to the Chinese governments efforts to stop the price inflation and real estate bubble that they created with their Keynesian mercantilist policies]

“The supply side is pretty restrained on copper,” said Edward Meir, analyst with MF Global. “Not too many people are capable of cranking out extra output. But the demand side is weakening.”

Much of the U.S. economic data over the last month has been softer than expected, raising concerns about future consumption of industrial commodities such as copper.

[So why will there be a pickup in copper prices at the end of the year?  All this supporting evidence points to lower copper prices.]

Further, there are worries that Chinese authorities have been successful in slowing their economy to avoid an overheating. A massive spring earthquake in Japan also dented demand for some industrial metals. Meanwhile, inventories of copper in LME warehouses have risen to 475,750 from 377,550 at the end of 2010.

Several analysts said copper could fall some more in the next couple of months due to this uncertain backdrop, and also because of slower seasonal demand  during the vacation season and maintenance shutdowns in the Northern Hemisphere.

“There is so much that could go wrong,” said Leon Westgate, base-metals analyst with Standard Bank. “There is the potential for a Greek default. There is potential for China tightening even more aggressively and probably overdoing things.”

Chinese buyers have been largely sidelined. “The physical demand from China has picked up from the lows seen in March, but it’s still far from spectacular,” Westgate said.

Catherine Virga, director of research with CPM Group, suggested copper is “vulnerable in the near term” and could fall back to the $8,500 region. Meir figures copper could drop to $7,800 to $8,000 over the summer.

“We might not see a sharp turnaround until market conditions get a little bit tighter,” Virga said.

Weakness Seen By Many As Buying Opportunity

Some analysts, however, believe any copper weakness may well end up being a buying opportunity.

[There will be a double dip recession.  Keynesian deficit spending all over the world is destroying capital that will not be invested by entrepreneurs.]

“Fundamentally, I continue to like it,” said Bart Melek, head of commodity strategy, rates and foreign-exchange research with TD Securities. “But investors, traders and the community broadly will have to be convinced that the current soft patch in global economic growth…is temporary and will not morph into some sort of more insidious decline, with potential for a double-dip recession.”

[Mr. Melek expressed optimism that U.S. economic data will improve in the second half of the year.  What does he base his optimism on?  Keynesian economic theory that deficit spending by governments is beneficial to increase the standard of living for all.  The Austrian school refutes this.  Experience refutes this.  Read any of Gary North’s free articles for a good explanation of why Mr. Melek is clueless: http://www.lewrockwell.com/north/north-arch.html]

The market has not yet gotten sufficient data to confirm the recent economic slow patch is only temporary, which could mean more pressure on commodities generally. Copper could fall another 5%, Melek said. Nevertheless, he expressed optimism that U.S. economic data will improve in the second half of the year.

[The global economy is going to fall apart before it gets better.  The malinvestments of the boom haven’t been liquidated.  Banks are holding hundreds of billions in bad loans.  Central banks are printing money like never before.  All hope is placed on Chinese bureaucrats who are trying to quell possible rebellion due to high unemployment and high price increases.  The Eurozone is falling apart and the US federal, state, and local governments are broke.  Governments are trying to increase taxes.  This take money away from individuals.  It crowds out capital investment by individuals seeking profits and put their money in the hands of bureaucrats buying votes on money losing projects.]

“I would be buying these dips or corrections,” Melek said. “The fundamentals are strong. We here at TDS are quite convinced that the global economy isn’t going to fall apart. It’s going to grow at just under 4% or so.”

To be convinced of stronger fundamentals, the market may want to see more bullish monthly Chinese import figures and drawdowns in LME warehouse inventories of copper. Melek looks for LME warehouse stocks to decline later this year and points out that Shanghai Futures Exchange inventories are already down.

Already, there are some early signs of improvement in copper demand, Virga said. The premium in Shanghai rose to $112 a metric ton as last week wound down, well up from $20 in mid-May. European premiums rose to $92.50 from $57 in mid-May. 

Further, the premium between London and Shanghai exchange prices has narrowed from May, creating an incentive for China to start picking up more copper on the international market, Virga said.

Yet another potential supportive influence is pending exchange-traded funds that would be backed by copper holdings, should these be approved in the coming months by the U.S. Securities and Exchange Commission, Virga said. This would add to investment demand.

Demand Grows Less Quickly Than Expected, But 2011 Deficit Still Expected

[The expectations are all based on Chinese demand growth.  China is a bubble.  Watch the video in the top 10 search results for google search ‘China bubble Jim Chanos’ if you don’t believe me.  Chanos is not the only one calling a China bubble, but he is one of the most credible due to his shorting of Enron before it fell.]

Overall copper demand has not grown as robustly as some were forecasting last year, Virga said. “But it is still positive and is going to outpace supply, particularly because of so many disruptions.”

One such disruption getting attention lately is a strike at the world’s No. 5 copper mine, El Teniente in Chile.

Meir and Westgate both look for “modest” 2011 supply/demand deficits. Meir anticipates 150,000 to 200,000 tons. Westgate expects some 200,000 tons.

Others anticipate  larger deficits. CPM Group projects 390,000 tons,   Melek looks for 400,000, and Harbor Intelligence thinks there will be  a deficit between 500,000 and 600,000 tons.

Melek anticipates LME copper will get back near $10,000 in the second half of the year. CPM Group projects copper averaging $9,800 a metric ton in the third quarter and $10,250 in the fourth, Virga said.

Jesus Villegas, analyst with Harbor, looks for copper to hit all-time highs again either in the fourth quarter or else in early 2012, perhaps hitting $5 a pound and $11,000 a ton. By then, he said, copper will be past its seasonally slow period and fund and other speculative money should be flowing back into the market.

Meir, however, figures copper has already put in its high for the year. After a fall to $7,800-$8,000 in the next two to three few months, he anticipates a range of $8,000 to $9,500 for the remainder of the year.

Westgate looks for a 2011 average cash price of $9,525, with $9,750 in the fourth quarter. He anticipates the copper market will be tighter in 2012 than this year, with prices also rising next year.

By Allen Sykora of Kitco News; asykora@kitco.com

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

Southern Copper: Dividend Dynamo or Blowup?

http://www.fool.com/investing/general/2011/06/15/southern-copper-dividend-dyn...

Ilan Moscovitz
June 15, 2011

Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.

Let's examine how Southern Copper (NYSE: SCCO  ) stacks up in four critical areas to determine whether it's a dividend dynamo or a disaster in the making.

1. Yield
First and foremost, dividend investors like a large yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price and shrinking the yield.

Southern Copper yields 7.3% -- rather high and worthy of closer examination.

2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company pays out in dividends to the amount it generates. A ratio that's too high -- say, greater than 80% of earnings -- indicates that the company may be stretching to make payouts it can't afford.

Southern Copper's payout ratio is an aggressive 93%, though its free cash flow payout ratio is a more reasonable 61%.

3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments -- any ratio less than five is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.

Let's examine how Southern Copper stacks up next to its peers:

Company

Debt-to-Equity Ratio

Interest Coverage Ratio

Southern Copper

70%

       15

Freeport-McMoRan (NYSE: FCX  )

30%

       24

Newmont Mining (NYSE: NEM  )

27%

       16

Teck Resources (NYSE: TCK  )

29%

        7

Source: Capital IQ, a division of Standard & Poor's.

Southern Copper's debt burden appears higher than its peers, though the absolute level is moderate.

4. Growth
A large dividend is nice; a large growing dividend is even better. To support a growing dividend, we also want to see earnings growth.

Over the past five years, Southern Copper's earnings per share have grown 3% annually, while its dividend has grown at 7%.

The Foolish bottom line
Southern Copper exhibits a fairly clean dividend bill of health. Its payout ratio appears somewhat aggressive, however, so maintaining or growing those payouts will depend on the company's ability to expand production and the prices of its commodities can fetch.

Our Economic Future: From Worse Case to Best by Doug Casey

WORST CASE – WAR

War is the worst thing that can happen to an economy, but it’s also the most likely thing at this point. When the going gets tough, the people in charge like to blame somebody else for the problem. That’s compounded by the foolish – but widely accepted – notion that war is good for the economy and that, for instance, it pulled the U.S. out of the last depression.

Like all wars, this one results in a complete stifling of civil and economic freedoms. If my second scenario is unpleasant, this alternative is grim.

The big conflict has already been teed up – the continuation of the Forever War between Islam and the West. I’ll hazard the major situs will be Europe – which has pretty much always been the case for wars in general for the last 2,000 years. Europe will be the worst place to be over the next two decades. And North America will be locked down like a police compound.

China will have serious social turmoil as it is forced to reorient an export-driven economy catering to Europe and the U.S. As in the past, South America will be out of the conflict and in a position to benefit from it. India will also be a net beneficiary, largely uninvolved, and happy to watch their ex-colonial masters rope-a-dope themselves into poverty.

People will always argue who really started it. Was it the Muslims when they poured out of Arabia in the 630s? Or was it the West when it invaded the Near East with the Crusades starting in 1099? Or was it the Muslims when the Turks took Constantinople in 1453 (although only 40 year later the Muslims would lose Grenada, in Spain, as the reconquista was completed) and then moved on to almost conquer Europe before being turned back at Vienna in 1683? Or is it more relevant just to look at recent history, starting at the beginning of the 19th century, when the West conquered and colonized every single Muslim country? Or the very recent past, when Muslims were counter-attacking, using a new military approach popularly called “terrorism”?

My bottom line is that the next twenty years may be dominated by the Forever War that started in the 600s, being resumed in earnest. At least in Europe, it has the prospect of becoming a war of survival, much nastier than either WW1 or WW2.

That resumption is being accelerated by what is going on in the Middle East now. The chances that the upheaval in the Arab world will just peter out and everyone will return to thestatus quo ante are about zero. It’s a culture-wide affair, much as the revolutions in Eastern Europe were. Or, for that matter, the revolutions against Spain in South America at the beginning of the 19th century.

The Arab revolutions are a good thing, in that they’re getting rid of criminal regimes. Some will be replaced with equally repressive cliques, although manned with different criminals. I suspect a few might be more like the French Revolution of 1789; good riddance to the old regime, but then came Robespierre. And after him Napoleon.

Regardless of how the tumult plays out in any particular country, the erstwhile docile collaborators with Europe and the U.S. are being elbowed aside, and the regimes that replace them are going to accommodate the vast public constituency for hostility toward the West, if only for the sake of internal political advantage.

The war is not going to be fought with conventional armies. First of all because the Islamic world doesn’t have any that would last more than a day or two against a Western army. But also because a Western army is useless against an amorphous mass of millions of people.

So what will the conflict be like? Amorphous and disjointed, chaotic and without fixed fronts. Millions of Muslims are in Europe – Pakistanis in the UK, Turks in Germany, North Africans in France, Indonesians in Holland. Europe’s destructive conquest of the world has come back to bite. These people will approach majority status over the next 20 years, both because they reproduce at several times the rate of the Europeans and because they’re not being absorbed. And because, now, millions and millions more are going to arrive as boat people.

The natives aren’t going to like it, for lots of reasons. And the outcome will likely resemble what always happens when large numbers of unwelcome foreigners invade a territory: violence.

One consequence of the war, and especially of the collapse of the regime in Arabia (in 2031 it’s no longer called Saudi Arabia, because the ruling Saud family – at least the ones who couldn’t get to their jets in time – has been massacred) is a cut-off of oil until the U.S. invades.

I hate to overemphasize oil, but the world still runs on it. When something does happen in Arabia, you can count on a disruption in the shipment of oil. And absolutely count on active U.S. intervention.

A prolonged guerrilla war, similar to those in Iraq, Afghanistan, Libya and other Arab countries will follow. But there won’t be any cover story about ousting a bad guy or bringing democracy to the oppressed. It will be pretty obvious to everybody that, from the West’s point of view, it will start out simply to answer the question: What’s our oil doing under their sand? But from the Muslim’s point of view, it will be a different question: How can we rid ourselves of these aggressive infidels once and for all? Then the West will rephrase their question to: These people want to kill us! How can we stop them once and for all?

You may be thinking that the U.S. can’t lose a war because it has a large and extremely high-tech military. All those expensive toys can be useful from time to time; they can win lots of small battles. But they’re basically useless for winning the next generation of warfare, as useless as cavalry in WW1, battleships in WW2, tanks in Vietnam or nuclear missiles today.

What? Nuclear missiles obsolete? Of course. They’re expensive, clunky, and the enemy can tell exactly where they came from. A plane, or a boat, or a truck – or a FedEx package – is a much neater delivery system. And there will be plenty of nuclear devices to deliver. If they’re within the grasp of tiny countries like Israel and North Korea, they’re within the grasp of anyone.

In fact, the centerpieces of today’s military are well on their way to the scrapheap or to museum displays. There may well be a few aircraft carriers, nuclear missiles, B-2 bombers, F-22 fighters, and the like around in 20 years. But they’ll be oddities reserved for special purposes, like typewriters. Laser, electronic and robotic weapons will have replaced those using gunpowder, and they’ll be readily available to anyone (an accelerant in the collapse of the nation-state). The military’s reliance on centralization and on computer power will prove an Achilles heel; a gang of teenage hackers (not only the best kind, but the most common kind) can devastate a military for pure sport.

Conquest of wealth or territory will be pointless; that’s one thing even the Soviets suspected in the ‘80s, when they still had the power to invade Western Europe. It’s now nothing like in the old days, when a successful war yielded lots of gold, cattle and slaves. This lack of an economic return will obviate one reason for a military. The hollowing-out of nation-states will obviate another; governments will find they just don’t have either the financial means or the popular support for serious military establishments.

The military, as the cutting edge of the nation-state, is in serious decline. Conflict between groups will still exist, of course, but it will be more informal, more the kind of thing that a Mafia or an Al-Qaeda might conduct. The growth of private military contractors, like Blackwater (now Xe), which only need be paid when in use, is indicative.

A BASIC PLAN

Sorry I can’t do any better than a best-case scenario that just isn’t very rosy – at least over the near term. And there’s a high likelihood of the worst-case scenario. There will probably be some overlapping elements from all three, if I’m on the right track.

From an economic point of view, I see only two things as being predictable: One, that many people will always produce more than they consume and save the difference; this will create capital, which is critical for not only a higher standard of living, but for the advancement of technology.

Two, that since there are currently more scientists and engineers alive than have lived in all previous history combined, technology will keep advancing; technology is the major force to advance the general standard of living. So that’s essentially why I’m an optimist. Let’s just hope the savers aren’t wiped out, and the scientists don’t do too much government work.

The most sensible plan for the next 20 years is to plan to survive. The days of “He who dies with the most toys wins,” and of two whole generations living way above their means, are over.

20 years isn’t forever. Think of it like a bear market, when the best thing to do is take your chips off the table, grab some books and retire to the beach for a year – except that this is going to be a lot longer and more serious. Nonetheless, I expect my fundamental optimism to get through it undamaged, as should yours.

For one thing, the long-term trend is favorable. Mankind has risen from subsistence and living in caves as little as 12,000 years ago, to reaching for the stars today – and the rate of progress has been accelerating. Why should that stop now?

But, as I mentioned earlier, thinking too far in the future is perhaps pointless. So what should you do now? The essential advice remains the same:

* Own gold and silver. At Casey Research, we’ve made a lot of money on them – and they’re no longer cheap – but they’re going higher, simply for lack of alternatives. Look at them as you would cash.

* Produce more than you consume, and save the difference. This is no longer the time for promiscuous, conspicuous consumption.

* Be alert for speculations. Some markets will collapse (for instance, I wouldn’t want to own a McMansion in the suburbs or a “collectible” car). Other markets will likely turn into manias, benefiting from trillions of new currency units (I suspect mining stocks will be one of them).

* Diversify your assets (and yourself) politically and geographically. As big a risk as the markets will be, your government is an even bigger one.

And, incidentally, we’re going to be looking carefully at the stock markets in the Arab world. It’s too early to buy. But there’s a time and a price for everything.

Our Economic Future: From Best to Worst Case
 originally appeared in theDaily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

    


Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

The Next Financial Crisis.

The Next Financial Crisis

by Gary North

Recently by Gary North: The Safe Banking Fantasy

 
  

The mainstream financial media are running stories on the next financial crisis. This is unheard of two years into a so-called economic recovery. So weak is this recovery that the old pre-2008 confidence has not returned.

The first sign that "this time, it's different," was Treasury Secretary Geithner's statement, which received widespread coverage, that there will be another crisis.

On May 18, The Daily Beast ran a story on Geithner's unexpected appearance at the initial screening of an HBO movie, Too Big to Fail, which dramatizes the crisis of late 2008, during which time Geithner was president of the Federal Reserve Bank of New York. In an interview, Geithner said this. "It will come again. There will be another storm. But it's not going to come for a while."

That was surely forthright for a sitting Treasury Secretary. He was not specific, but to say that another crisis will come was unique. He added this: "It's not going to be possible for people to capture risk with perfect foresight and knowledge."

That was amazingly forthright. It points to the reality of the naive faith of regulators that they can devise formulas that will keep the system from being hit by some unexpected mini-crisis that will trigger a wider systemic breakdown. He acknowledged that risk analysis, based on statistics, cannot deal with uncertainty: events outside the law of large numbers that serves as the basis of statistics. Ludwig von Mises discussed this in 1949, and Frank H. Knight wrote a book on this in 1921: Risk, Uncertainty, and Profit. Nassim Taleb has called this a black swan event. Whatever we call it, such an event torpedoes the best-laid plans of government regulators as well as statisticians advising leveraged banks.

"Things were falling apart," Geithner said. "We had no playbook and no tools. . . . Life's about choices. We had no good choices. . . . We allowed this huge financial system to emerge without any meaningful constraints. . . . The size of the shock was larger than what precipitated the Great Depression."

That is the official government line, which Treasury Secretary Hank Paulson used to persuade Congress to fork over $700 billion in TARP loans. It justified the Federal Reserve's swaps at face value of liquid Treasury debt in its portfolio for unmarketable toxic assets held by large banks. It justified the 2009 stimulus package of another $830 billion.

The author of the article correctly noted: "In the end, the taxpayers saved the Wall Street investment banks, with Geithner & Co. injecting enough capital to cushion them from bad bets." That is exactly what happened.

GEITHNER RETREATS

On June 6, Geithner spoke at a meeting of the American Bankers Association in Atlanta. Here, his analysis was completely different from what he had revealed in his appearance at the HBO screening. It turns out that the system was saved by investors, not by the government and the Federal Reserve.

Of the 15 largest financial institutions in the United States before the crisis, only nine remain as independent entities.

Those that survived did so because they were able to raise capital from private investors, significantly diluting existing shareholders. We used stress tests to give the private market the ability – through unprecedented disclosure requirements and clear targets for how much capital these institutions needed – to distinguish between those institutions that needed to strengthen their capital base and those that did not.

He did not mention that the reason why investors came to the rescue was that the winners had been bailed out by the taxpayers and the Federal Reserve.

Regulation has saved us, he insisted, and it will continue to save us.

We now have the authority to subject all major financial institutions operating in the United States to comprehensive, consolidated limitations on risk taking. That represents a dramatic change from before the crisis, when more than half of the financial activity in the nation that was involved in "banking" from the investment banks to large finance companies, AIG, and Fannie Mae and Freddie Mac, operated outside those limits.

And the markets where firms came together – like the over-the-counter derivatives markets – will now be subject to oversight, once regulators finalize and implement new rules authorized by Dodd-Frank. We now have much stronger tools to limit the risk that one firm's failure could cascade through markets to weaken the rest of the system.

Overall, and this is the most important test of crisis response, the U.S. financial system is now in a position to finance a growing economy and is no longer a source of risk to the recovery.

He ended with this inspiring promise. "So we will do what we need to do to make the United States financial system stronger. We will do so carefully. And as we do it, we will bring the world with us."

This was cheerleading for government regulation. This is what we have come to expect. The problem is this: it is a full-scale retreat from his admission at the HBO screening.

GEITHNER'S GOOFS

Simon Johnson took him to task in the New York Times on June 9, in an article titled, "The Banking Emperor Has No Clothes." Johnson was the chief economist of the International Monetary Fund, and is a member F.D.I.C.'s newly established Systemic Resolution Advisory Committee. He said that Geithner is naive about the supposedly high degree of safety for the banking system. He complains that Geithner is way too optimistic.

First, he reminds us that the government bailed out the banks. He reminds us of Geithner's admission of this in his HBO interview. Second, he reminds us that the international banking system is interconnected.

But big banks in almost all other major countries have run into serious trouble, including those in Britain and Switzerland – where policy makers are now open about the potential scope of further disasters. French and German banks made large amounts of reckless loans to peripheral Europe and have strongly resisted higher capital requirements, helping to create the current potential for contagion throughout the euro zone (and explaining why the Europeans are so keen to keep control of the International Monetary Fund).

Geithner claimed in Atlanta that U.S. banks are less concentrated than other nation's' banks. But how will that save our banks from a crisis that is triggered outside the U.S.? "Mr. Geithner's most serious mistake is to believe that we can handle the failure of a global megabank within the Dodd-Frank framework."

Mr. Geithner's thinking on bank size is completely flawed. The lesson should be: big banks have gotten themselves into trouble almost everywhere; banks in the United States are very big and have an incentive to become even bigger; one or more of these banks will reach the brink of failure soon.

Johnson then gets to the famous bottom line. The bottom line is this:

There is no cross-border resolution mechanism or other framework that will handle the failure of a bank like Citigroup, JPMorgan Chase or Goldman Sachs in an orderly manner. The only techniques available are those used by Mr. Geithner and his colleagues in September 2008 – a mad scramble to find buyers for assets, backed by Federal Reserve and other government guarantees for creditors.

That this should appear in the New York Times is indicative of the extent to which the old confidence in the banking system is fading.

FELDSTEIN WEIGHS IN

On June 8, the Wall Street Journal ran a column by Martin Feldstein, who served as Reagan's chairman of the Council of Economic Advisers. He is a Harvard faculty member.

Feldstein is a Keynesian. He has a reputation as a conservative. He is on the board of contributors to theJournal. He is regarded as a conservative because he favors tax cuts. But he also favors Federal spending in times of crisis. Somehow, he also comes out for a lower deficit.

He said that Obama's $830 billion stimulus package did not go far enough. "As for the 'stimulus' package, both its size and structure were inadequate to offset the enormous decline in aggregate demand." The money should have gone to the Defense Department.

Experience shows that the most cost-effective form of temporary fiscal stimulus is direct government spending. The most obvious way to achieve that in 2009 was to repair and replace the military equipment used in Iraq and Afghanistan that would otherwise have to be done in the future. But the Obama stimulus had nothing for the Defense Department. Instead, President Obama allowed the Democratic leadership in Congress to design a hodgepodge package of transfers to state and local governments, increased transfers to individuals, temporary tax cuts for lower-income taxpayers, etc. So we got a bigger deficit without economic growth.

This is pure Keynesianism. It is a call for massive spending in a recession. So, should there be another fiscal crisis, Feldstein's recommendation is a bigger stimulus. The problem for his is this: with the economy slowing, it will be even more vulnerable to an unexpected black swan event.

Second, we are getting an economic slowdown, he says, because Obama will not make the Bush tax cuts permanent. This creates uncertainty in the minds of investors. So, he sounds like a supply-side economist. But he isn't. He is a traditional Keynesian.

Third, there is the deficit.

A third problem stems from the administration's lack of an explicit plan to deal with future budget deficits and with the exploding national debt. This creates uncertainty about future tax increases and interest rates that impedes spending by households and investment by businesses.

Fourth, there is the official strong dollar policy that has led to the decline of the dollar. But he never mentions Federal Reserve policy: QE2.

What are our prospects? He is not optimistic.

The economy will continue to suffer until there is a coherent and favorable economic policy. That means bringing long-term deficits under control without raising marginal tax rates – by cutting government outlays and by limiting the tax expenditures that substitute for direct government spending. It means lower tax rates on businesses and individuals to spur entrepreneurship and investment. And it means reforming Social Security and Medicare to protect the living standards of future retirees while limiting the cost to future taxpayers.

All of these things are doable. But the Obama administration has not done them and shows no inclination to do them in the future.

So, here is a Harvard economist saying that we needed a larger stimulus in 2009, but we need reduced spending now. We also need to reform Social Security and Medicare, while protecting the future retirees and limiting costs. All this is doable.

All this is utter nonsense. The politics of Medicare and Social Security have not changed in 40 years because there is no politically acceptable way to limit their costs. Voters will vote against anyone who suggests such a reform. The voters were promised the Keynesian moon, and they will not tolerate the popping of that pipe dream. In short, none of what Feldstein suggests is doable, short of a monumental crisis that enables Congress to start goring specific electoral oxen. And when that crisis comes, Feldstein will no doubt recommend a large deficit, with the money going to the Defense Department.

This is Establishment Wall Street opinion.

WIGGIN TELLS IT STRAIGHT

Then there was an article in Forbes, a conventional outlet, written by Agora's Addison Wiggin. He begins with this.

There is definitely going to be another financial crisis around the corner," says hedge fund legend Mark Mobius, "because we haven't solved any of the things that caused the previous crisis."

Mobius is a legendary hedge fund manager. If he thinks there is going to be another crisis, we would be wise to listen.

Wiggin thinks the Greek debt crisis is a good candidate for a trigger event.

The Greek crisis is first and foremost about the German and French banks that were foolish enough to lend money to Greece in the first place. What sort of derivative contracts tied to Greek debt are they sitting on? What worldwide mayhem would ensue if Greece didn't pay back 100 centimes on the euro?

That's a rhetorical question, since the balance sheets of European banks are even more opaque than American ones. Whatever the actual answer, it's scary enough that the European Central Bank has refused to entertain any talk about the holders of Greek sovereign debt taking a haircut, even in the form of Greece stretching out its payments.

The ECB is determined to protect the Too Big to Fail banks. It always says that it will not lend more money to the Greek government, but it always does. It calls for more bailouts by the German and French governments. The game must go on!

It will accomplish nothing. Going deeper into hock is never a good way to get out of debt. And at some point, this exercise in kicking the can has to stop. When it does, you get your next financial crisis.

CONCLUSION

We are being warned in advance by the financial media: expect another major crisis. The bailouts were not enough. The expansion of the monetary base was not enough. The new Dodd-Frank regulatory structure is not enough.

The international banking system is an interdependent, interconnected system. The system is not transparent. Even if it were, the level of debt – unsecured IOUs – is enormous. Wiggin comments.

Estimates on the amount of derivatives out there worldwide vary. An oft-heard estimate is $600 trillion. That squares with Mobius' guess of 10 times the world's annual GDP. "Are the derivatives regulated?" asks Mobius. "No. Are you still getting growth in derivatives? Yes."

In other words, something along the lines of securitized mortgages is lurking out there, ready to trigger another crisis as in 2007-08.

There is no formula to deal with this. There is no organized government response that is waiting in the wings. There will be another crisis. And when it comes, the response will be the same: to preserve the solvency of the biggest banks, at taxpayer expense and at central bank expense. When it comes to bailouts and central bank inflation, it's all "doable." It will therefore be done.

June 11, 2011

Gary North [send him mail] is the author of Mises on Money. Visithttp://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2011 Gary North

The Best of Gary North


Link to the original article: http://lewrockwell.com/north/north990.html

Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

Be seeing you!

America's Student Loan Racket: Soaring Default Rates

Don't go into debt to fund a college degree.  It is a trap.  You can earn a college degree for under $15,000.  Click here for details: http://www.garynorth.com/public/department89.cfm 

America's Student Loan Racket: Soaring Default Rates

by Stephen Lendman
The People's Voice

Recently by Stephen Lendman: America's Total Surveillance Society

 

   

An earlier article discussed 'Permanent Debt Bondage from America's Student Loan Racket."

It explained government/corporate complicity to rip off students for profit, a racket continuing under Obama. His July 2010 Student Aid and Fiscal Responsibility Act perpetuated the scam. It enriches providers, entrapping millions of students permanently in debt, because rising tuition and fee amounts plus interest, service charges, and late payment or collection agency penalties are too onerous to repay.

It's part of the grand scheme, of course, to transfer maximum public wealth to America's super-rich already with too much. Ongoing for over three decades, it accelerated under Obama, a corrupted Wall Street/war profiteer tool, destroying America for power and profit.

Millions of Students Permanently Entrapped in Debt

Many students, whether or not they graduate, have debt burdens approaching or exceeding $100,000. If repaid over 30 years, it's a $500,000 obligation, and if default, much more because debts aren't forgiven. As a result, once entrapped, escape is impossible. Bondage is permanent, and future lives and careers are impaired or ruined.

Congress ended bankruptcy protections, refinancing rights, statutes of limitations, truth in lending requirements, fair debt collection ones, and state usury laws when applied to federally guaranteed student loans. As a result, lenders may freely garnish wages, income tax refunds, earned income tax credits, as well as Social Security and disability income to assure defaulted loan payments. In addition, defaulting may cause loss of professional licenses, making repayment even harder or impossible.

Moreover, under a congressionally established default loan fee system, holders may keep 20% of all payments before any portion is applied to principle and interest due. A borrower's only recourse is to request an onerous and expensive "loan rehabilitation" procedure, requiring extended payments (not applied to principle or interest), then arrange a new loan for which additional fees are incurred.

As a result, for many, permanent debt bondage is assured. In addition, no appeals process allows determinations of default challenges under a process letting lenders rip off borrowers, many in perpetuity.

At issue is a conspiratorial alliance of lenders, guarantors, servicers, and collection companies enriching themselves hugely at borrowers' expense, thriving from extortionist fees and related schemes. It's a congressionally sanctioned racket, scamming millions of indebted victims.

Moreover, lenders thrive on bad debts, deriving income from inflated service charges and collection fees. They're more than ever today as default rates soar, lifetime rates now nearly one-third of undergraduate loans, higher than for subprime mortgages. In fact, they're higher than for any other lending instrument and rising.

Soaring Defaults During Hard Times

Since America's economic crisis began in late 2007, an April 21, 2009 Wall Street Journal (WSJ) Anne Marie Chaker article highlighted the burden on students headlined, "Student Loans: Default Rates are Soaring," saying:

The combination of economic weakness, rising tuitions and poor job prospects caused defaults on student loans to skyrocket. According to Department of Education numbers for those federally guaranteed, estimated FY 2007 default rates reached 6.9%, up from 4.6% two years earlier.

Conditions are now far worse according to a February 4, 2011 Mary Pilon and Melissa Korn WSJ article headlined, "Student-Loan Default Rates Worsen," saying:

They "rose to 13.8% from 11.8% for students beginning repayment in (FY) 2008 compared with those starting a year earlier," according to new Department of Education data.

They measure defaults within the first three years of repayment. Over their lifetime, however, they approach two and a half times that level, perhaps heading for 50% if economic conditions keep deteriorating while tuition and fee rates rise.

Students at for-profit schools fare worst at 25%, but sharp tuition increases at public and private nonprofit universities place greater burdens on their graduates, assuring rising defaults, especially over their lifetime.

Moreover, rising levels may cause many colleges to become ineligible for government-backed Pell Grants and other student loans. To qualify, they formerly had to show less than 25% of students defaulting within a two year window. If they breached that threshold for three consecutive years, or hit 40% in a single year, they could lose out altogether.

Now, under the 2008 Higher Education Opportunity Act increasing the default window to three years, the ineligibility threshold rose to 30%, penalties not beginning until 2014.

On March 15, New York Times writer Tamar Lewin headlined, "Loan Study on Students Goes Beyond Default Rates," saying:

For every student defaulting, "at least two more fall behind in payments," according to a new study. Conducted for the Institute for Higher Education Policy by Alisa Cunningham and Gregory Kienzl.

It explains that around 40% of borrowers were delinquent within a five year repayment window. Almost one-fourth of them postponed payments to avoid delinquency. However, doing so made their interest and overall debt burden more onerous because escape is impossible.

Data from five of the country's largest student loan agencies showed only 37% of borrowers who began repayments in 2005 did so on time, a number now decreasing during hard times.

On April 11, Lewin headlined, "Burden of College Loans on Graduates Grows," saying:

"Two-thirds of bachelor's degree recipients graduated with debt in 2008, compared with less than half in 1993." However, rising debt burdens contribute to soaring default rates, especially for private for-profit universities. Moreover, given Pell Grant cuts and rising tuitions, students will be more than ever indebted and strapped to repay during hard times because Congress rigged the system against them.

As a result, education policy experts expect serious implications for future graduates. According to Lauren Asher, Institute for College Access and Success president:

"If you have a lot of people finishing or leaving school (entrapped in) debt, their choices may be very different than the generation before them. Things like buying a home, starting a family, starting a business, saving for their own kids' education may not be an option if they're trying to repay student debt."

Moreover, "(t)here's much more awareness about student borrowing than there was 10 years ago. People either are in debt or know someone in debt."

Many of them have their own horror stories about how predatory lenders, servicers, guarantors, and collection companies rip them off under an escape-proof system.

The entire scheme amounts to legalized grand theft, the equivalent of what Wall Street banks do to investors with impunity.

According to Deanne Loonin, a National Consumer Law Center attorney:

"About two-thirds of the people I see attended for-profit (universities). Most did not complete their program, and no one I have worked with has ever gotten a job in the field they were supposedly trained for. For them, the negative (debt default) mark on their credit report is the No. 1 barrier to moving ahead in their lives. It doesn't just delay their ability to buy a house, it gets in the way of their employment prospects, finding an apartment, almost anything they try to do."

A Final Comment

America today is characterized by a combination of rising poverty, unemployment, home foreclosures, homelessness, hunger, student debt entrapment, and despair, mocking the notion of a fair and equitable society.

Not at all under a corrupted political duopoly, sucking public wealth to America's super-rich, spurning popular needs, waging permanent war, and heading the nation for tyranny and ruin.

If that's not just cause to resist, what is? If not now, when? If not us, who? If that future doesn't arouse public anger, what will?

Reprinted with permission from The People's Voice.

May 21, 2011

Stephen Lendman [send him mail] lives in Chicago. Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening. Visit his blog.

Copyright © 2011 The People's Voice

Don't Buy a House in 2011 Before You Read These 20 Wacky Statistics About the U.S. Real Estate Crisis

There will be more distressed home sales in the next few years that a smart investor can turn into a positive cash flow from rental real estate.  Houses with positive cash flow can be like high dividend stocks.  You get a steady stream of income from the rental of your property and you will own the home after the mortgage is paid off by the renters. 
 
This article below from the Economic Collapse blog reprinted at LewRockwell.com highlights 20 facts why there will be bargin houses to buy at low prices.
 
Subscribe today for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.  Go to www.johnschaub.com to learn how to buy houses at low prices from distressed sellers to make money to fund your retirement.
 
Be seeing you!
 

Don’t Buy a House in 2011 Before You Read These 20 Wacky Statistics About The U.S. Real Estate Crisis

Economic Collapse Blog

 

   

Unless you have been asleep or hiding under a rock for the past five years, you already know that we are experiencing the worst real estate crisis that the U.S. has ever seen. Home prices in the United States have fallen 33 percent from the peak of the housing bubble, which is more than they fell during the Great Depression. Those that decided to buy a house in 2005 or 2006 are really hurting right now. Just think about it. Could you imagine paying off a $400,000 mortgage on a home that is now only worth $250,000? Millions of Americans are now living through that kind of financial hell. Sadly, most analysts expect U.S. home prices to go down even further. Despite the "best efforts" of those running our economy, unemployment is still rampant. The number of middle class jobs continues to decline year after year, but it takes at least a middle class income to buy a decent home. In addition, financial institutions have really tightened up lending standards and have made it much more difficult to get home loans. Back during the wild days of the housing bubble, the family cat could get a zero-down mortgage, but today the pendulum has swung very far in the other direction and now it is really, really tough to get a home loan. Meanwhile, the number of foreclosures and distressed properties continues to soar. So with a ton of homes on the market and not a lot of buyers the power is firmly in the hands of those looking to buy a house.

So will home prices continue to go down? Possibly. But they won't go down forever. At some point the inflation that is already affecting many other segments of the economy will affect home prices as well. That doesn't mean that it will be middle class American families that will be buying up all the homes. An increasing percentage of homes are being purchased by investors or by foreigners. There are a lot of really beautiful homes in the United States, and wealthy people from all over the globe love to buy a house in America.

But because of the factors mentioned above, it is quite possible that U.S. home prices could go down another 10 or 20 percent, especially if the economy gets worse.

So what is the right time to buy a house?

Nobody really knows for sure.

Mortgage rates are near record lows right now and there are some great deals to be had in many areas of the country. But that does not mean that you won't be able to get the same home for even less 6 months or a year from now.

In any event, this truly has been a really trying time for the U.S. housing market. Hordes of builders, construction workers, contractors, real estate agents and mortgage professionals have been put out of work by this downturn. The housing industry is one of the core pillars of the economy, and so a recovery in home sales is desperately needed.

The following are 20 really wacky statistics about the U.S. real estate crisis....

#1 According to Zillow, 28.4 percent of all single-family homes with a mortgage in the United States are now underwater.

#2 Zillow has also announced that the average price of a home in the U.S. is about 8 percent lower than it was a year ago and that it continues to fall about 1 percent a month.

#3 U.S. home prices have now fallen a whopping 33% from where they were at during the peak of the housing bubble.

#4 During the first quarter of 2011, home values declined at the fastest rate since late 2008.

#5 According to Zillow, more than 55 percent of all single-family homes with a mortgage in Atlanta have negative equity and more than 68 percent of all single-family homes with a mortgage in Phoenix have negative equity.

#6 U.S. home values have fallen an astounding 6.3 trillion dollars since the housing crisis first began.

#7 In February, U.S. housing starts experienced their largest decline in 27 years.

#8 New home sales in the United States are now down 80% from the peak in July 2005.

#9 Historically, the percentage of residential mortgages in foreclosure in the United States has tended to hover between 1 and 1.5 percent. Today, it is up around 4.5 percent.

#10 According to RealtyTrac, foreclosure filings in the United States are projected to increase by another 20 percent in 2011.

#11 It is estimated that 25% of all mortgages in Miami-Dade County are "in serious distress and headed for either foreclosure or short sale".

#12 Two years ago, the average U.S. homeowner that was being foreclosed upon had not made a mortgage payment in 11 months. Today, the average U.S. homeowner that is being foreclosed upon has not made a mortgage payment in 17 months.

#13 Sales of foreclosed homes now represent an all-time record 23.7% of the market.

#14 4.5 million home loans are now either in some stage of foreclosure or are at least 90 days delinquent.

#15 According to the Mortgage Bankers Association, at least 8 million Americans are currently at least one month behind on their mortgage payments.

#16 In September 2008, 33 percent of Americans knew someone who had been foreclosed upon or who was facing the threat of foreclosure. Today that number has risen to 48 percent.

#17 During the first quarter of 2011, less new homes were sold in the U.S. than in any three month period ever recorded.

#18 According to a recent census report, 13% of all homes in the United States are currently sitting empty.

#19 In 1996, 89 percent of Americans believed that it was better to own a home than to rent one. Today that number has fallen to 63 percent.

#20 According to Zillow, the United States has been in a "housing recession" for 57 straight months without an end in sight.

So should we be confident that the folks in charge are doing everything that they can to turn all of this around?

Sadly, the truth is that our "authorities" really do not know what they are doing. The following is what Fed Chairman Ben Bernanke had to say about the housing market back in 2006....

"Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise."

Since that time U.S. housing prices have experienced their biggest decline ever.

At some point widespread inflation is going to reverse the trend we are experiencing right now, but that doesn't mean that most American families will be able to afford to buy homes when that happens.

As I have written about previously, the middle class in America is shrinking. The number of Americans on food stamps has increased by 18 million over the past four years and today 47 million Americans (a new all-time record) are living in poverty.

Millions of our jobs are being shipped overseas, the cost of living keeps going up and an increasing percentage of American families are losing faith in the economy.

More Americans than ever are talking about "the coming economic collapse" as if it is a foregone conclusion. Our federal government is swamped with debt, our state and local governments are swamped with debt and our economic infrastructure is being ripped to shreds by globalization.

So sadly, no, there are not a whole lot of reasons to be optimistic at this point about a major economic turnaround.

The U.S. economy is going down the toilet and the coming collapse is going to be incredibly painful for all of us.

Hopefully when that collapse comes you will have somewhere warm and safe to call home. If not, hopefully someone will have compassion on you. In any event, we all need to buckle up because it is going to be a wild ride.

Reprinted with permission from the Economic Collapse Blog.

May 14, 2011