FedUpUSA

Archive for the ‘Deflation’ Category

Paris, France – There are two major schools of thought on what is coming next…and two renegade, home-schools too. There are those who believe we have a recovery…though weak…that will continue and eventually bring the economy back to health. This is the line of the Obama Administration and most mainstream economists.

Then, there are those who think the recovery will not come as planned…and that the feds’ efforts to spur a recovery – along with strong demand from Asia and the emerging markets – will lead to higher levels of inflation, destroying the dollar and bonds. This is what Marc Faber expects. He urges listeners to avoid going too heavily into cash, since it might be the number one victim of inflation. Instead, you’ll do better in stocks and real estate, he says.

A third line of thinking is what Faber calls “hard core deflationism” – typified by Robert Prechter and Gary Shilling. They think the de-leveraging trend will be catastrophic – leading to outright deflation, taking the Dow down below 1,000, for example.

Then, there’s The Daily Reckoning line. You can call it “soft-core deflationism”:

1) There is no recovery; there won’t ever be a recovery
2) The de-leveraging period will be longer and harder than people expect…leading to spells of deflation and double…triple…dipping
3) The feds will fight it with every weapon available
4) However, they will not push the ‘nuclear button’ – wanton, reckless money printing – until the bond market cracks
5) It will not crack soon, because the feds are incompetent; they will not succeed in getting higher rates of inflation; at least, not soon.
6) The dollar will remain strong. Bonds will go up…for now…
7) The Dow will fall…but not below 1,000…probably not below 5,000

What does that mean for gold? Well, it means gold won’t do spectacularly well. It might decline…say, down to $850 or so.

Eventually, the bull market in gold will resume, however. You can’t keep a good metal down. Just don’t expect it to go up dramatically while the private sector is reducing its debts in an orderly fashion.

Does that mean you should sell your gold? We wouldn’t if we were you. Because something could go very wrong. Another big bank failure. A blow-up in China. It wouldn’t take much to cause a panic. Investors could turn to gold for security.

Or, maybe the feds will panic…and dump dollars from helicopters as Ben Bernanke threatened.

Besides, we could be wrong. Predictions are always difficult to get right. Especially when they’re about the future.

Regards,

Bill Bonner
for The Daily Reckoning

Economist Dave Rosenberg warns investors to Get a Grip on Reality.

Double-dip risks in the U.S. have risen substantially in the past two months. While the “back end” of the economy is still performing well, as we saw in the May industrial production report, this lags the cycle. The “front end” leads the cycle and by that we mean the key guts of final sales — the consumer and housing.

We have already endured two soft retail sales reports in a row and now the weekly chain-store data for June are pointing to sub-par activity. The housing sector is going back into the tank – there is no question about it. Bank credit is back in freefall. The recovery in consumer sentiment leaves it at levels that in the past were consistent with outright recessions. Last year’s improvement in initial jobless claims not only stalled out completely, but at over 470k is consistent with stagnant to negative jobs growth. And exports, which had been a lynchpin in the past year, will feel the double-whammy from the strength in the U.S. dollar and the spreading problems overseas.

Spanish banks cannot get funding and another Chinese bank regulator has warned in the past 24 hours of the growing risks from the country’s credit excesses. A disorderly unwinding of China’s credit and property bubble may well be the principal global macro risk for the remainder of the year. Indeed, perhaps the equity market finally realized yesterday that allowing China more control to defuse an internal property and credit bubble may well be a classic case of “be careful of what you wish for.”

The Bond Cycle and Deflation

I was at an event recently where I was able to see two legends among others – Louise Yamada and Gary Shilling. Louise made the point that while secular phases in the stock market generally last between 12 and 16 years, interest rate cycles tend to be much longer – anywhere from 22 to 37 years; and she has a chart back to 1790 to prove the point! So while all we ever hear is that this secular bull market in bonds is getting long in the tooth, having started in late 1981, it may not yet be over. After all, the deleveraging part of this cycle has really only just begun and if history is any guide, it has a good 5-6 years to go – at a time when practically every measure of underlying inflation is running south of 1%.

Double Dip, Anyone?

The data suggests that we are now seeing the consumer sputter with what looks like a very weak handoff into the third quarter. The housing sector is collapsing again. The export-import data are pointing to a sudden deceleration in two-way trade flows. Commercial real estate is dead in the water. Bank credit is in freefall right now.
There is still something left in the tank as far as capex and inventory investment is concerned, but by the fourth quarter, we could well be looking at a flat or even negative GDP print.

Even if we don’t get a double-dip recession, economic growth will probably be insufficient to absorb the still-large amount of excess capacity in the system. What that means is that the U.S. unemployment rate will remain high for as far as the eye can see. It also means that inflation and interest rates will remain low for a sustained period of time, and that a stock market priced for peak earnings in 2011 could be in for some disappointment.

Yield Curve as of 2010-06-22

click on chart for sharper image

The above chart shows Weekly Closing Yields.

The chart does not reflect inflation, inflation expectations, reflation, or an improving economy. It does reflect what one would see after a reflation effort that has failed.

Yet, equities are priced not only for reflation, but for a strong reflation at that. Either stocks or the yield curve is wrong. I suggest you pay attention to the yield curve.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Heh, Someone Gets It (Buiter)

Posted by Karl Denninger

Hattip Zerohedge:  (The original article is here)

Note the structural deficit number.  This is what happens when you allow this to go on for a decade:

Which in turn leads to this:

That red line is actual private demand expressed as the delta (or change) in GDP.

I don’t have accurate debt and GDP numbers on a contemporary basis for the rest of the nations that Buiter cites, and besides, I focus on the United States anyway.

Buiter posits that The Fed could eventually be “forced” to monetize – that is, try to inflate it away.

This is where Buiter and I part company, because it is impossible to inflate out of a mess like this when you have social spending indexed to inflation – and our entitlement programs all are in one form or another, with the most-ridiculous, Medicare, rising at much higher rates than general inflation.

As such attempting to “inflate out” won’t work – it will instead result in Weimar-style hyperinflation which, as it did in Weimer, will inevitably result in political and economic collapse.

Note that Bernanke has said “we cannot grow out of this“; he has (belatedly, but surprisingly) finally “gotten it.”

It would have been nice if he “got it” three years ago, of course.  It might have altered his view on bailing out people and providing artificial support instead of demanding ab-initio not only the legal ability but the legislative mandate to close all of the so-called “too big to fails” and use the funds we have blown to pay off depositors instead.

Yes, that would have resulted in a Depression being “recognized.” 

But we’re in one now, as the above chart shows conclusively, and we have in fact been in one for two years.  There is no evidence we’re going to get out of it either – the only way that can happen is if private final demand replaces the government borrow-and-spend, and for that to happen deficit spending must decline while GDP continues to advance.

When you’re borrowing from $115 to $333 billion a month and pumping it into the economy – that is, from roughly 9% to 30% of GDP – there’s zero evidence that this can or will occur, and in fact despite all the market and media crooners claiming “it’s getting better” the mathematical facts say exactly the opposite – it is in fact getting worse, as government replacement of private final demand with borrowed money is going up, not down.

That recognition of the math is starting to seep into the consciousness of economic analysts at major international banks is an important signpost. 

The next one will be when recognition of the same math starts to poke through the mainstream media – despite strident claims otherwise from Geithner and others. 

Once that second signpost is reached there will no longer be time or opportunity for government to proactively respond.  The market will, at that point, take final and irrevocable control.

If Obama has any intelligence at all he will fire Summers and Geithner immediately and in doing so stick them with responsibility for refusal to deal with the truth, close or break up the too-big-to-fails (via executive order if he can’t get a bill passed immediately – yes, I know that will raise howls of protest but this truly is a national emergency!) and demand reimposition of Glass-Steagall and mark-to-market – right here, right now, forevermore.

The tough choices are never popular, but mathematics doesn’t care about popularity, and as recognition is now seeping into the “mainstream economists” employed by major multinational financial institutions it is simply a matter of time before they ENFORCE austerity and withdraw their support for the markets if it is not forthcoming.

All I can say is “see, I told you so!”

The Contrarian Trade of the Decade: the U.S. Dollar 

By Charles Hugh Smith

Just as a speculative thought experiment: perhaps the great contrarian trade of this decade is cash/the U.S. dollar.

The majority of economic observers seem convinced that the dollar is doomed, and not in some distant future. The basic reason for this unanimity is the reasonableness of the basic thinking, which goes like this:

The Federal Reserve and the U.S. Treasury are “printing money” and flooding the economy with easy money and credit, and the result of this debasement of the nation’s currency will be rampant inflation.

In other words, if a nation greatly expands its money supply without expanding its production of goods and services, then all that surplus money ends up chasing scarce goods and services, and you get inflation: the same sum of currency buys less and less goods and services.

This is the goal of State policy, according to the standard line of thinking: The only way the Federal Reserve and the Treasury can “save” the debt-burdened U.S. economy is by creating high inflation, which enables debtors to repay debt with “cheaper” dollars. Everyone who owns debt or low-yield bonds will lose huge chunks of their assets, but for no-asset debtors, inflation will be the cat’s meow.

But perhaps this thinking is wrong on virtually every important count.

I am indebted to my tireless and insightful blogging colleague Mish for an understanding of money supply: True Money Supply. Here is Mish’s chart of three ways to calculate money supply, and he argues persuasively for TMS1 as being the most accurate:

While the Federal Reserve successfully goosed money supply in their massive “quantitative easing” campaign, money supply is no longer expanding at a fast clip.

The critical distinction between printing press and credit is rarely discussed: is money literally being printed or is it credit-based? The distinction has profound consequences. If a government prints stacks of currency and then distributes the freshly conjured money via helicopter drops (in the visually compelling imagery of Fed Chairman Ben Bernanke’s famous “helicopter drop” quip), then the money supply has been expanded and distributed into the economy where it then leads to inflation if the production of goods and services lags money growth.

But if a government–for instance, the U.S. Treasury–prints bonds and sells those bonds to raise cash to distribute in the economy, that is not “printing money.” The Treasury bonds are traded for cash presented by purchasers; the money already exists and is simply being transferred to the State for distribution into the economy.

If money is being created via the magic of fractional reserves (that is, via bank credit), then it does not flow into the economy if those banks do not lend it and if consumers do not borrow it. As Mish has repeatedly observed, banks cannot be forced into lending nor consumers into borrowing.

It seems the money “created” by the Federal Reserve and lent to private banks at near-zero interest rates is simply sitting in the banks as reserves to offset their continuing horrendous losses. As a result, it is not flowing into the economy, and thus it cannot trigger inflation.

In contrast, a State such as Zimbabwe does run its printing presses to create money, and this explains why it suffers from hyper-inflation.

It can be argued that the billions of dollars the Fed orders into existence and then trades for Treasury bonds (i.e. to buy T-Bills) is in fact “freshly created money” that flows into the economy via Federal deficit spending. True, but then the question becomes, do these purchases of Treasuries add enough to the $13 trillion U.S. economy to offset the reduction in credit as people and businesses either pay down debt or write off uncollectable/bad debt?

According to the Wall Street Journal (Drought of Credit Hampers Recovery), consumer credit outstanding has shrunk some $119 billion, or 4.6%, from its peak in July 2008, to $2.46 trillion.

Add in the mortgages paid down, paid off or written down in excess of new mortgages issued, corporate debt retired or written off, etc. etc., and it seems the deleveraging that is underway in both consumer and corporate balance sheets is reducing credit and money supply by hundreds of billions of dollars.

The Fed purchasing $300 billion or even $500 billion in Treasury bonds simply doesn’t pump enough money into a deleveraging $13 trillion GDP-economy to create inflation. It merely offsets some of the destruction of credit going on at every level of the economy.

Thus you can have a central bank shoveling credit-created money into private banks where it sits, never entering the economy at all. How can that create inflation? Indeed, as has often been noted by Mish and others, this is what has happened in Japan for the past two decades: the central bank shovels money into private banks, who either engage in “carry trade” activities (borrowing at near-zero interest and then moving the money overseas to earn a decent yield elsewhere for easy profits) or they stash the funds to offset their ongoing losses in defaulted/impaired portfolios.

Those portfolios of impaired assets in Japanese, U.S. and European banks–just how much are they worth in a transparent “marked to market” setting? How many trillions of dollars in mortgage-backed securities, household debt, corporate debt and defaulted/impaired sovereign debt do these banks hold? If they had to sell those assets in an open market, how much would they fetch? How big would the losses be?

Nobody knows, but we can guess the losses are easily in the tens of trillions of dollars. The accounts of banks keeping defaulted mortgages on the books are legion; Japan has played the “waiting for better asset prices” game for decades, and now U.S. banks are playing the same game: accepting interest-only payments of a few hundred dollars from homeowners as an accounting gimmick to keep the loan on their books as “performing.”

This artifice does nothing to clear the actual bad debt.

And how about all those impaired off-balance sheet liabilities? Regulators are not only allowing financial institutions to continue marking assets to fantasy, they are also allowing them to continue holding assets off their legitimate balance sheets.

The ever-astute Karl Denninger of the Market Ticker blog has relentlessly exposed these frauds and accounting tricks.

Since we live in a credit-based monetary system and economy, then income and collateral are the foundations of credit/borrowing. Unfortunately for those wishing for vast expansions of borrowing to fuel inflation, real estate collateral is not just impaired, it has fallen to historic lows. We can only wonder what this chart would look like if all real estate was truly marked to market:

The point is that the collateral represented by the average U.S. household’s primary store of wealth–their home–is near-negligible. Why? As noted above, houses are still being valued far above their true market value, so any reduction in value comes straight off the equity.

For example, a house valued at $300,000 on the bank’s books justifies the $270,000 mortgage being held at full value. The homeowner supposedly has $30,000 in equity/ collateral. But if the house is actually marked to market at $250,000, the owner’s collateral vanishes and the bank’s “asset” (the mortgage) also declines in value.

Second, suddenly-prudent lenders won’t lend more than up to about 75% of loan-to-value (except for the Fantasyland 3%-down payment loans backed by FHA, which are fast-defaulting). So much of the homeowner’s equity is untouchable. The only collateral which is available to borrow against is that above 25%–perhaps 10% of the total vaulation of all homes in the U.S.

And since some 33% of all homes in the U.S. are owned free and clear (50 million mortgages, 25 million homes owned outright), then the “owners equity” is largely in the hands of those without mortgages. We might infer that anyone who resisted the temptations to use their house as an ATM machine via a home equity line of credit (HELOC) either does not want/need to borrow against their home or they are unable to for other reasons (such as low income, poor credit, etc.).

Put all this together and we can deduce that those homeowners who might desire to extract some equity from their homes via borrowing have no collateral left to borrow against.

What about other collateral, such as income? As we all know, functional unemployment/underemployment is around 17%. According to the BEA, personal income has declined by over $200 billion from 2008 to 2009. (Subtract government transfers and the number is more like $600 billion.)

The BEA table reveals that “Net increase in household liabilities” hit $1.8 trillion in 2006 and $1.4 trillion in 2007, and then fell to $146 billion in 2008. Households are no longer borrowing (adding liabilities). Meanwhile, savings jumped from $178 billion in 2007 to $470 billion in 2009.

Mortgage debt rose by $1.1 trillion in 2005, $1 trillion in 2006, $686 billion in 2007–and then fell by $106 billion in 2008. No data is available yet for 2009, but you can bet both mortgage debt and new liabilities continued plummeting.

So household incomes have fallen, meaning there is less collateral for new borrowing, and new liabilities and mortgages have both collapsed from nearly $3 trillion in 2006 to $46 billion in 2008. Yes, from $3 trillion in new borrowing in 2006 to a total of $46 billion in 2008.

That is deleveraging, and adding $300 billion in money supply via Federal Reserve buying of T-Bills is offsetting a meager 10% of that decline in household credit.

Now that we’ve seen that housing and income collateral have fallen off a cliff and are not recovering, and that households are deleveraging ($3 trillion they were borrowing in 2006 has fallen to a mere $46 billion–more or less statistical error or pocket change in a $13 trillion economy)–then we might ask if those who still have assets would wish to leverage them into more borrowing/debt.

The vast majority (83%) of other financial assets are held by the top 10% households. here is a chart I reprinted recently in The Stock Market As Propaganda (March 10, 2010).

Equities (stocks) currently represent about $11.4 trillion of the total $33.3 trillion in financial assets. Business assets and real estate make up the remaining $20 trillion in total assets. According to the BEA, total household assets fell from $63.9 trillion in 2007 to $52.9 trillion in 2008–a decline of $11 trillion.

The recent stock market rally and “recovery” in housing has caused a blip up in total assets, which now appears to be rolling over.

Since the bottom 80% of U.S. households only hold 7% of financial assets ($2.3 trillion spread amongst 105 million households), then their ability to leverage their declining income and modest assets into huge dollops of new debt is somewhere between low and zero.

Recall that households added $3 trillion in new borrowing in 2006 alone. So those heady bubble days of credit/money supply growth are gone for good.

Since the top 10% households own $27 trillion in financial assets, we might ask what need they would have for new debt.

We might also ask what might happen if nobody comes forward to buy $1.5 trillion in new Treasury debt every year (money needed to fund the Federal deficit of $1.5 trillion a year) at very low yields. I outlined the high probability of this happening in The Trouble With Bonds (March 18, 2010).

Interest rates will rise. Recall that the Fed does not set yields for Treasury bonds; that is set by the bond market (supply and demand). The only way for the Fed to influence the yield of T-Bills is to buy them outright, as it has been doing heavily of late. Since every other major nation is also selling bonds to fund deficits, then we can anticipate some lively competition for investor’s cash.

In the standard view that “governments just print money,” then why governments sell bonds is never explained. Why don’t all governments just print up money and spend that? Why go to all the trouble of selling bonds to raise cash to fund deficits? It comes down to the distinction between credit-based systems and currency-based systems.

Inflation is impossible in credit-based systems when credit is being paid down/destroyed/ written off and banks are wary of lending/risk and consumers refuse to (or cannot) borrow.

We might also ask what might happen to stocks, bonds and real estate valuations if interest rates rise: they tank as I explained in What If (Almost) All Assets Fall Together? (March 11, 2010).

As a side-effect, the meager assets of the bottom 90% of U.S. households would fall, and the “smart money” might well decide selling out before further declines occur is the wisest capital-preservation strategy.

Since so much debt is dollar-denominated, then there will be demand for dollars to pay down debt. That is the essence of deleveraging.

And since other assets will be falling as interest rates rise and risk aversion returns with a terrible vengeance, then “cash will be King.” Dollars will rise in value, and the best and safest return on capital will be money-market funds or short-term notes.

Rather than doom the dollar, these trends suggest the dollar could rise in purchasing power and demand for years to come. I know this is contrarian, but ponder the distinction between “printing money” and selling bonds/attempting to expand credit in a credit-averse, collateral-impaired system.

This might be one of the most important bits I write this decade. Or then again, maybe not. Only time will tell. Before chastizing me for rampant hyperbole–”most important story of the decade, bah”–please consider The Most Important Chart of the Century. Now the chart is extremely important, and I recommend reading this story, but the century is a bit young to declare “the chart of the century.” One wonders what the “chart of the century” would have been in 1910, and how prescient we would find it in hindsight.

Let’s say this is one of the most important charts of the past 50 years, which is entirely supportable.

The charts simply shows that adding debt no longer adds to GDP. So even if the Fed were able to force banks to lend to poor credit risks and deleveraging borrowers lost their sanity and added to their liabilities, then the economy still wouldn’t grow/”recover.” The “reflating the credit bubble” game is over.

It’s Called DEFLATION Folks

Posted by Karl Denninger

Never mind the man behind the curtain, who won’t utter the word:

The Labor Department reported Thursday that productivity jumped at an annual rate of 6.9 percent in the fourth quarter, even better than an initial estimate of a 6.2 percent growth rate. Unit labor costs fell at a rate of 5.9 percent, a bigger drop than the 4.4 percent decline initially estimated.

In the real world this means:

• Work harder and get more done.

• Get paid less.

• Suck it up, don’t complain, or you’re fired.

That’s all.

And by the way, reduced pay per unit of work spells DEFLATION.

Now here’s the problem: We have huge public-sector labor unions that are resisting this force.  Yet this force is exactly what has to happen in order to bring the economy back into balance.

We have “advanced” promises made to these people – $200,000+ pensions and other similar obscenities – even though doing so is a ponzi scheme that is impossible to maintain.  We have continually cow-towed and pandered to these unions, including educators, police and fire and all other manner of public sector employees with wage increases that exceed growth in aggregate output per-person when one counts both salary and benefits.

This, of course, cannot continue.  It is yet another example of the expanding gap that opens up between two exponential functions – for those who have forgotten my favorite pair chart, here it is again:

I understand that everyone wants to avoid taking the pain.  I understand that everyone claims that “its not fair!”

None of this changes the facts.  You cannot continually offshore your better-paying labor to China for the purpose of being able to have a $30 DVD player, destroying the $40/hour skilled job base and replacing it with $7/hour burger flippers and espresso-shot-pullers, and maintain the ability to commit compound annual growth rates of 5, 6, 7% or more to public-sector employees.  Doing so inevitably destroys the tax base necessary to meet those commitments, and once the destruction has occurred it cannot be un-done.

You cannot falsely-report “growth” that is in fact no such thing, but rather is simply the addition of more debt, thereby creating false demand that never existed on an organic basis, and continue this process forever.

The person who loses their job can continue to spend as if they have not – for a while.  They can run up the credit cards – for a while. 

They can do so until the credit card company discerns that the ex-employee has no money, and thus will never pay them.  Once that happens the credit card is cut off.

States, municipalities and nations are no different than people in this regard.  We have played this game for 30 years.  We have promised people they could have unlimited health care, unlimited prescription drugs and unlimited, compound increases in salaries and benefits.  At the same time we have permitted our corporations to send their labor base overseas, destroying the income base to purchase these products and the tax base required to pay those benefits.  All of this has been “facilitated” by a financial system that grew from about 7% of the marketplace to well north of 20% (in 2007) before it all fell apart.

Instead of allowing it to fall apart and return to a 5-7% of the market, which would be sustainable, politicians instead created false final demand of about 9% of GDP (~ $1.2 trillion annual increases in deficits on a $14t GDP) and then added $13 trillion of “guarantees” in the form of funny money to the financial system to prevent it from imploding (roughly equal to the entire financial debt in the system, which currently stands around $16 trillion.)  This “prevented” the immediate recognition that the derivatives written by these firms were nothing more or less than a gigantic fraud, as there was no ability to pay – not at origination, not at maturity, not ever.

But none of this game-playing changes the mathematical fact that:

• The money to pay these bets never existed, and never will.  It was a fraud, but our politicians refuse to direct law enforcement (which reports to them) to enforce the law against fraud, as that would “hurt” their campaign donors (they’d go to jail!)
• The offshoring of our production has destroyed both incomes and the tax base.  “Replacing” that with more borrowing is exactly identical to an unemployed person using their credit card to maintain their standard of living.  It will fail – we are simply arguing over when, not if.
• Public sector employees are inherently parasites.  It cannot be otherwise.  The policeman, fireman and teacher do not directly produce anything.  Their employment and the wages and benefits they can collect must therefore inexorably track the actual productive output of the nation.
• Finance in all it’s forms, whether banking or insurance – produces nothing either.  Every dollar of such “activity” comes about only as a parasitic drain on production.  It cannot be otherwise.  Further, speculative activity in all of its forms produces losers in exact proportion to winners – if Goldman makes $100 million speculating on oil prices, someone else loses the same $100 million.  The net benefit to our nation’s economy?  Zero – we merely moved money from one hand to another.

The actual private sector production worker is now being forced to recognize this.  He’s being told to work harder and longer for less money (per hour) or lose his job.  That’s what the statistics say.  This sort of movement in the private labor force is unprecedented – it in fact exceeds that which formerly was accomplished with computerization in the 1980s and 1990s – and this time it’s actual labor, not the introduction of new technology.

The first step to solving problems is admitting to what they truly are.

The recent pronouncements and announcements out of both the new governor of New Jersey but also California, where they have attempted to play “extend, pretend and charge-it-up” more and worse than anywhere else in the nation make clear that the credit line has run out and we either face the facts – like it or not – or we get the clue-by-four upside the face.

As usual, the politicians thought they could extend, pretend and lie until after the election.  As in 2008, they’re wrong, and if they don’t cut it out we’ll get a repeat of the 2008 disaster but this time around it will be much worse.

Welcome to 2010.

The next economic perfect storm – should start mid February.

By Daniel

it may crush the existing structure of Fannie and Freddy and drag the economy further down, no matter how many dollars the fed throws at it

here are the events:

each individual event will have no visible effect, but combined will crash the economy:

these are all pending events, many listed on MW as individual events, but no one looks at them all together – but that is how we will feel them in our wallets

financial:
- the next wave of ARMs will start to reset,
- mortgage rates will go up,
- the next wave of foreclosures will hit,
- the default on holiday expenditures will cause more chapter 7 and 13 filings,
- retailers will know how little they made, and many will go chapter 11, or just close

taxes:
- the fed will start seeing how little revenue they got from business because of COBRA extensions and funding, and push for new taxes
- states will start locking in on the lower incomes from wage taxes, and looking to raise taxes,

employment
- employer hiring will slow even more, as the employer tax mandates for health care kick in
- employers will see the new unemployment tax rates which will come due, and lay off or not hire to be able to meet those expenses
- seasonal job losses will be posted as the holiday labor surge ends
- this also be when the numbers are issued for the “new” unemployment extension enrollment and it will “true” the unemployed picture,

health reform effect:
- consumers will see the effect of the new FICA rates and cut spending even more
- the 40% luxury tax on those fine health plans will kick in, and families will see a 20 – 30 % drop in disposable income
- the insurance companies will pass on the taxes they have under the new health bill, and that will cut another 5 – 10% off of each person’s disposable income
- the manufacturers of medical products (tampons, bandages, medical wipes, chairs etc) will pass on the tax they were given, further affecting disposable income
- the Fed will have published the health bill details – and states will see how much they will have to pay, forcing tax increases
- insurance company rates will climb as a result of the new health plan taxes, effective immediately

banking:
- FDIC will collect next 3 years worth of fees to cover the depleted funds from the bank failures
- banks will tighten lending even more, as they scramble to meet the FDIC “tax”,
- 10% of banks will become financially unstable because of the depleted reserves and will be taken over by the newly funded FDIC

and so the next economic collapse happens -just in time for the elections

those that remember history will see that this perfect storm will make the impact of the “luxury” tax and it’s effect on RV’s, Boats and similar look like nothing

- P-T-Barnum-was-right