Liberty News Online

U.S. and World Economy Month at Liberty News

Stay tuned for the economic news you rarely see on the major media. 

National debt to be higher than White House forecast, CBO says

President Obama's proposed budget would add more than $9.7 trillion to the national debt over the next decade, congressional budget analysts said Friday. Proposed tax cuts for the middle class account for nearly a third of that shortfall.

Panic on Wall Street?

Coming Global collapse

Difficult days are ahead for all of us. It is time to save, get out of debt, cut back, make do, do without, plant a garden, fill a large pantry with food and water, and buy some gold and silver.

One of the oldest French banks, Société Générale, tells clients how to prepare for potential global collapse within the next two years according to a headline in London’s Telegraph, Dec. 2, 2009! That was a “global” collapse! And some of my friends suggest that I am an extremist! Yes, I have said that panic (an out-of-control response to economic collapse) was coming to the U.S. and the world economy not because I am a prophet but because I can connect the dots. Moreover, I expect the panic to reach Main Street where chaos will reign.

For a few years, I have been warning that panic is coming to the market. When that happens, everyone will know because Main Street will feel it bad. When the stock market was over 10,000 and gold was under $300.00, I told a stockbroker friend that the market would fall to 5,000 and gold would go to $2000. Recently, I told him I was fearful that he might have jumped from his penthouse apartment because of market volatility and massive fluctuations. Not yet, but he’s sitting on the ledge! Most brokers say that now is a great buying opportunity, but if you keep dealing with a broker that’s what you will be—broke. Others say, “go with the flow,” but you will likely go down the drain!

I have been trying to get people to get out of the market (unless they have taken precautions) for almost ten years, but they heard talk of a 36,000 Dow (from people who benefited from such talk) and what do I know! Some friends and subscribers did cash out and have called or written to thank me. Others stayed in hoping to recoup their losses. I think every investor should take advantage of any temporary market surge to minimize their losses–cash out. After all, something is better than nothing. The panic hasn’t started yet! Wait until masses of people call their mutual fund and get a recording or a constant busy signal! If you can’t reach them, you can’t sell. When everyone runs for the exit at the same time, many people are trampled in the stampede. Don’t get caught.

We still have politicians and economists telling anyone who will listen that the economy is not the stock market (and it isn’t), and the economy is strong (and it isn’t). However, no one is foolish enough to say that the stock market has no effect on the overall economy. Of course it does. If the market plunges to below 5,000, it will take the economy with it—the jobs market, the housing market, commercial markets, manufacturing, retailing, etc.

When blue-chip companies such as Chrysler, General Motors, Ford, Cisco, IBM, Safeway, General Mills, U.S. Airways, Avon, Big Lots, Lucent, Sprint Nextel, Xerox, Campbell Soup, Revlon, K-Mart, Rite Aid, Harrah’s Entertainment, Blockbuster, Clear Channel Communications, and Enron have major problems (and may fold or have already folded!), then they will pull others down with them. It’s like the giant trees in California that fall from infestation or lightning and they always take a hundred smaller trees with them. No large company goes into the tank alone. Some of the largest banks have lost billions recently because of that fact.

MSMBC reported in January of this year, “A slew of American heavyweight companies, including Caterpillar, Pfizer, Sprint Nextel, Home Depot and General Motors, announced cuts Monday adding up to 45,000 jobs lost. What’s more, a group of business economists predicted many more job losses in the year ahead.”

When companies like Caterpillar, the major producer of large earth moving equipment, are cutting way back then other industries, especially in construction, are in similar or worse condition. Caterpillar announced it was slashing 5,000 jobs on top of about 15,000 they have already cut. Sprint Nextel Corp will eliminate about 8,000 positions; Home Depot will cut 7,000 jobs, and Pfizer announced slashing about 8,000 jobs. Yet, in light of those facts, some “experts” tell us “the worst is over.”  “Recover is on the way.” Let me remind you that the experts said the same thing 80 years ago!

Much of our trouble is self-inflicted by government and business leaders. Many government leaders are socialists or at least anti-business while others are only stupid. We have taxed and regulated businesses until they fled the country for greener pastures and can anyone blame them? We can lay guilt on them for such “un-American activities” but they have to look at the bottom line and it is showing massive losses. Therefore, Mexico, India, Bangladesh, here we come. And jobs, there they go.

Businesses have been driven out of the U.S. by a federal and state tax rate of 39.1%. And those experts,  wearing rose colored glasses, are wrong again when they suggest that in 2010 economic problems will peak followed by a slow recovery. Business owners and private individuals will not spend money, especially if they don’t have any, in an atmosphere where they have no assurance of future tax rates and regulatory policies. They might have a little more confidence if the authorities would get off their chests and stop choking them to death. However, when politicians stop choking citizens, they usually pick their pockets! You just can’t win.

I am suggesting that the party is over. Difficult days are ahead for all of us. It is time to save, get out of debt, cut back, make do, do without, plant a garden, fill a large pantry with food and water, and buy some gold and silver. Abraham did!

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The Coming Commercial Real Estate Crisis; 3000 Community Banks at Risk

Commercial Real Estate Crisis Coming!

The following story headline masquerades as a local (D.C.) problem but the real story buried in the article is a few select quotes from Elizabeth Warren.

Please consider In D.C., more evidence that commercial real estate headed for foreclosure crisis.

A mortgage crisis like the one that has devastated homeowners is enveloping the nation's office and retail buildings, and few places are likely to be hit as hard as Washington.

The foreclosure wave is likely to swamp many smaller community banks across the country, and many well-known properties, including Washington's Mayflower Hotel and the Boulevard at the Capital Centre in Largo, are at risk, industry analysts say.

"There's been an enormous bubble in commercial real estate, and it has to come down," said Elizabeth Warren, chairman of the Congressional Oversight Panel, the watchdog created by Congress to monitor the financial bailout. "There will be significant bankruptcies among developers and significant failures among community banks."

Nearly 3,000 community banks -- 40 percent of the banking system -- have a high proportion of commercial real estate loans relative to their capital, said Warren, whose committee issued a report on commercial real estate last week. "Every dollar they lose in commercial real estate is a dollar they can't use for small businesses," she said. Individuals -- who saw their home values drop in the residential mortgage crisis -- would not feel that kind of loss, but, Warren said, a large-scale failure would "throw sand into the gears of economic recovery."

In Washington, the office vacancy rate stopped ballooning in the fourth quarter of last year for the first time since the first quarter of 2006, according to CoStar, although largely for an unfortunate reason: The space was being filled mainly by office workers hired to handle the plethora of bankruptcy filings and "workouts" of borrowers who need to renegotiate bad debt.

Do the math'

Nationwide, at least $1.4 trillion in commercial real estate debt is expected to roll over during the next three years. Warren said that half of commercial real estate mortgages will be underwater by the beginning of 2011. A fifth of residential mortgages are underwater now, she said.

Unlike residential mortgages, which often can be paid over 30 years, commercial real estate mortgages typically must be paid off or refinanced within five years. Commercial properties mortgaged in 2005, 2006 and 2007, at the height of the boom, are reaching their maturity date. "Do the math on this," Warren said. "This is a significant problem."

Do The Math Indeed

There is a strong potential to see a thousand commercial real estate bank failures in the next couple of years unless Congress acts to bail them out. Bernanke is unlikely to lift a finger as his concern is for the big boys, who he will support at any and all costs.

Of course no banks should be bailed out, and two wrongs do not make a right. Thus, the correct decision is to let failed banks fail. The last thing we need is further bank zombification.

Source Mike "Mish" Shedlock

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Concerns grow over China’s sale of US bonds

China can put us into a hyper-inflationary depression almost overnight - Editor

Evidence is mounting that Chinese sales of US Treasury bonds over recent months are intended as a warning shot to Washington over escalating political disputes rather than being part of a routine portfolio shift as thought at first.

Ambrose Evans-Pitchard-Telegraph

A front-page story in the state’s China Information News said the record $34bn sale of US bonds in December was a “commendable” move. The article was republished by the National Bureau of Statistics, giving it a stronger imprimatur.

It follows a piece last week in China Daily, the Politburo’s voice, citing an official from the Chinese Academy of Sciences praising the move to “slash” holdings of US debt. This was published on the same day that US President Barack Obama received the Dalai Lama at the White House, defying protests from Beijing.

“There are ongoing spats between the US and China on so many fronts so you have to assume that this is some sort of implicit threat,” said Neil Mellor, a currency expert at the Bank of New York Mellon, who cautioned that it can be hard to read the complex signals from China.

“We still think China will have to continue buying US Treasuries by the bucket load. Where else can they invest in a liquid market. The euro has become a tarnished currency,” he said.

China’s power is growing so fast that it now feels confident enough to raise the stakes on a string of festering conflicts with the US. It has threatened to impose sanctions on any US firm that takes part in a $6.4bn arms deal for Taiwan agreed by the White House. This is a tougher response that on any previous occasion and raises the spectre of a trade war over Boeing, the key supplier.

“Chinese leaders are deploying their reserves to try and pressure the US to stop haranguing China about its currency and trade policies, and to back off from interference in its domestic issues,” said professor Eswar Prasad, ex-head of the IMF’s China division.

Stephen Jen from BlueGold Capital said Chine is probably moving out of bonds from many countries as it prepares for a likely 5pc revaluation of its currency in coming weeks. Other assets might prove better protection against an immediate loss on holdings

Use of China’s $2.4 trillion reserves to challenge US foreign policy is fraught with problems, not least because any damage to America will recoils immediately against China – which depends on the US market for its mercantilist growth strategy. Beijing cannot stop accumulating dollars unless it is willing to let the yuan ride, eroding the margins of its export industry. Some reserves can be parked in gold or even copper, but liquid commodity markets are not big enough to absorb the scale of Chinese surpluses.

China and America are locked together by fate. Any petulant action by either side involves a degree of `mutual assured destruction’. But in politics – as in life – emotion flies out of control.

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