The Great Lie of 2009
by Martin D. Weiss, Ph.D. 07-06-09 Just as the authorities were touting the “end of the financial crisis,” all heck has broken loose again …
We have a new surge in unemployment, and even without counting those who are excluded from the official numbers, 14.7 million are now jobless, the most since records dating back to 1948. Worse, for the first time since the Great Depression, every single job created after the prior recession has been wiped out.
We have industrial production falling at the same pace as it did in the early 1930s …. and global trade falling at twice the pace of the early 1930s.
We have California — the nation’s most populous state, with the largest GDP and the greatest impact on the entire U.S. economy — collapsing.
We have consumers slashing their spending, small businesses laying off their workers, cities and states forced to gut their budgets.
We see the most radical government countermeasures in a 100 years, the biggest federal deficits in 200 years, plus the swiftest swings — from greed to fear and fear to greed — ever.
Yet, for the past four months, virtually every policymaker in Washington and every pundit on Wall Street has been telling you …
The Great Lie of 2009:
“A Recovery Is Around The Corner”On March 15, Fed Chairman Ben Bernanke told CBS News’ “60 Minutes” that he detected “green shoots” in the economy. And every day since, economic soothsayers have been surveying the landscape, sifting through crops of weeds, trying to find those green shoots.
But from the very outset, editors Claus Vogt, Mike Larson and I have told you this is not a garden-variety recession. It’s merely the first phase of a far longer, deeper depression.
And now, just within the past few days, the myth of “green shoots” has been shattered, the reality of the still-sinking economy revealed.
By late April, famous Wall Street gurus were lining up to declare “the end of the bear market,” and every day since, brokers have been cajoling you to buy the very same stocks they want to sell.
But from the very beginning, we’ve told you this rally was merely the calm before the next big storm, a big selling opportunity.
And now, with the Dow already down 500 points from its June high, it looks like the smarter investors in the world are finally beginning to act on that advice.
In early June, Obama labor officials declared “a big turnaround in nation’s job market,” proudly announcing that “only” 345,000 jobs were eliminated in May.We immediately issued a report demonstrating these numbers were extremely deceptive. Even if you accepted them at face value, we said, “less bad news” and “slower disasters” are not exactly signs of a turnaround.And now, with the new government data released Thursday, their thesis is already being proven dead wrong.One week ago, California officials publicly declared that they would never default on their obligations, directly refuting the forecast of default I made in this column on June 22: According to the BusinessJournal, Tom Dresslar, a spokesman for state Treasurer Bill Lockyer told the press “Mr. Weiss’ analysis and recommendation, to put it kindly, is misinformed.”
Just two days later, California defaulted on its short-term debt obligations to countless vendors and taxpayers, unilaterally issuing millions of dollars in i.o.u.’s that no one wanted and few financial institutions accepted.
These examples barely scratch the surface of the misconceptions, distortions and outright deceptions that are being perpetrated by high authorities, flooded through the media and used to permeate the American psyche — all the while ignoring the elephant in the room …The Giant Accumulation of High-Risk
Debts and Bets Called “Derivatives”
The nation’s mountain of derivatives is not a mirage on the future horizon. Nor is it merely a phenomenon of our distant past.
It’s real. It’s here. And it’s huge.
Just ten months ago, it reared its ugly head and shoved the U.S. and Europe to the brink of a global meltdown.
And just last week, the U.S. Comptroller of the Currency (OCC) issued its latest report showing that, despite all the talk of reducing risk and reforming the financial system, U.S. commercial banks still hold record amounts. The latest tally: $202 TRILLION in notional value derivatives. And even that pales in comparison to the global tally by the Bank of International Settlements, now at $592 trillion.
Yes, there have been some liquidations. But the totals are still massive.
And yes, notional values may overstate the magnitude of the problem. But the OCC’s measure of credit risk does not: Despite some shedding of risk here and there, every single one of the five largest derivatives players is still grossly overexposed to defaults by trading partners:
Bank of America has total credit risk in this sector to the tune 169 percent of its capital; Citibank, 216 percent; JPMorgan Chase, 323 percent; HSBC Bank USA, 475 percent; Goldman Sachs, a whopping 1,048 percent, or over TEN times its capital.
If we were back in early 2007 … before the collapse of Bear Stearns, Lehman Brothers and Merrill Lynch … before the implosion of Fannie Mae and Freddie Mac … or before the near-collapse of AIG and Citigroup … then, maybe, folks could get away with ignoring this sword of Damocles hanging over the financial markets.
If we were back in a bygone pre-Bernanke, pre-Geithner era … before TARP (Troubled Asset Relief Program), before PPIP (Public-Private Investment Program), before TALF (Term Asset-Backed Securities Loan Facility), before TLGP (Temporary Liquidity Guarantee Program), before CAP (Capital Assistance Program), before TIP (Targeted Investment Program), before HASP (Homeowners Affordability and Stability Plan), before CPFF (Commercial Paper Funding Facility), before AMLF (Asset-Backed Commercial Paper Money Market Fund Liquidity Facility), before MMIFF (Money Market Investor Funding Facility), or before the alphabet soup of all the other hastily-conceived government efforts to contain the giant elephant in the room … then … maybe we could make believe it’s not there.
Or if all of our nation’s top officials were mute about this monster still in our midst, perhaps that, too, would justify the current aura of bliss that has temporarily shrouded Washington and Wall Street.
But even that is no longer the case. Some officials are finally finding the courage to speak out, issuing some of the same warnings today that we issued years ago.
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More at the link.
http://www.moneyandmarkets.com/the-great-lie-of-2009-5-34534
