WHAT DOES "FED PUMPS $68 BILLION INTO BANKING SYSTEM" ACTUALLY MEAN?
NewsWithViews.com -- Last week saw a bucking bronco ride in the stock market. The American people read headlines such as: Fed vows, then pumps massive funds to calm markets and Fed's $38 billion helps markets. I have written many columns the past several years as have hundreds of others warning of the coming financial tsunami. Far too many people scoffed at all the warnings, continued to rack up massive debt and pursued the American dream of owning their own home when their financial portfolio and credit history simply could not float the big boat they were taking out into the ocean. The first of the dominos began to teeter earlier in the week: Aug. 6 (Bloomberg) -- "American Home Mortgage Investment Corp. became the second-biggest residential lender to file for bankruptcy protection this year, adding to signs that late payments have spread to homeowners with good credit records."
Dr. Edwin Vieira is arguably the foremost authority in this country on the central bank and the history of our monetary system. His monumental tomes, CrashMaker (fiction) and Pieces of Eight (non-fiction) are the quintessential teaching tools towards understanding this complex issue and making it understandable for average Americans like me. I bring this up because over the weekend I had a long telephone discussion with Edwin about the market last week. We both agree that the clock is ticking and all the bombastic gas let loose by financial guru's like FAUX's (FOX) Neil Cavuto, is just that because all the kings horses and all the kings men will not be able to fix this one. Not for a long time.
The government's plunge protection team (PPP) galloped in this past week and dumped almost $70 billion "dollars" into the banking system to save themselves. Creating "billions" out of thin air. Worldwide, central banks were scrambling and issuing more worthless paper to the tune of triple digit billions. The big neon billboard has been lit up with a message no one wanted: the stock market growing more fearful about tightening credit after years of free for all liquidity. High Times at Mortgage Express.
Investors who don't have in-depth knowledge or real understanding of our monetary system and the FED, trying to figure out what's going to happen to their investments. The subprime mortgage market free fall has been building for years. These are loans made to people who have less than ideal credit - all being done during a housing market that began it's slumpalmost two years ago.
On August 9, 2007, the privately owned Federal Reserve pumped "$24 billion in temporary reserves to the banking system amid an increase in demand for cash from banks roiled by U.S. subprime loan losses." The next day, the FED infused the dying patient on the operating table three different injections: $38 billion. Some say this won't be nearly enough to stop the hemorrhaging. This latest "rescue" by the central bank is going to be short lived and many experts not on the government's payroll predict the FED will have to reverse it's decision last week to leave interest rates alone and instead, announce an emergency drop in rates. The wise folks over at urbansurvival.com said it best last Friday: "When up to a third of a trillion dollars being dumped into financial market's in 36-hours doesn't stem the tide, even the financially ignorant can sense something has changed. That's pouring money into the financial system at a rate equivalent to all of Canada's Annual GDP every four days. And what did we get? A 31-point Dow loss anyway!"
The government announced on August 10, 2007, that Freddie Mac and Fannie Mae will not be allowed to acquire any more mortgage debt. Banks and lending institutions have for too long been making bad loans and despite the gigantic warnings signs, greed carried them through the years, but now foreclosures packages are spitting out more paper than the Pentagon. Let me give you an example. Go to: www.foreclosure.com
On the left side, just pick California (state) and Los Angeles (county). Look at just this one list of houses in foreclosure. There are other sites I've browsed with page after page after page of houses in foreclosure just in the LA area alone; they range from $250,000-$1.8 million. Foreclosures were already hitting record numbers by June 2007.
The inventory of available housing continues to stack up like Uncle Sam's IOUs to the world. The "dominant media" continues to dress up the naked mannequin in little better than see-through clothing; the numbers tell the real story. During the roaring re-fi years of low interest rates, Americans took the equity out of their homes and enjoyed the good life. Then came the unpleasant taste of fear when their homes were no longer worth what they paid for them, inventory in their areas can't be sold and the final shocker: subprime loans in numbers enough to gag a planet suddenly went bad as consumers could no longer make those payments. Where do these folks go when they are forced out because of foreclosure? Rental apartments, family or in their cars. They contribute nothing to the economy because any disposable income they might have goes just for the basics of survival.
As Edwin said in our recent conversation, the system has to keep propping itself up in an attempt to fend off hyper inflation like what hit Argentina where people once able to prosper were eating out of garbage cans. Unfortunately, and sadly, most Americans simply have little or no understanding of the subject matter, but to not understand what's happening will be deadly for millions. How will this affect the average American out there already dying under the weight of credit cards debt insufficient household income (despite two working people, sometimes with three paychecks) and taxes in all forms taking disposable income?
1. The middle class has been destroyed by unconstitutional trade agreements; our most productive and important job sectors decimated - agriculture, manufacturing, industrial. Wages have not kept up with the cost of goods and services; the illegals invasion sucking the lifeblood out of this country by stealing jobs (like meat packing at good wages) and sending BILLIONS "home." Pile on the continued sacking of the people's purse by thieves in one Congress after another and a five year undeclared war being funded through borrowing slapped on their backs, has left the American family broke. Seniors living on social security and investments will see those dwindle and will have to keep tapping whatever savings they might have accumulated over their lifetimes. One "rainy day" will drown them.
2. Growing numbers of Americans refuse to buy Made in Communist China; I am one who has been doing it since 1994 when NAFTA was unconstitutionally signed into law. I don't even own a toaster. I go without when I can't find what I need, but I can generally find what I want by taking the time; see Made in USA. If you can't find it there, do a www.scroogle.org
search and you will get results. This does not help our economy or retailers, but I'm sorry. I will not give my money to an enemy of my country just for "things." And, remember this: there's a good chance the fur in your sweater, parka and even doll clothes comes from dogs skinned alive in Communist China.
3. In the real world, parents across this country are scrambling to get their children new clothes, books and other trappings because summer break ends for most schools the end of this month. Cash strapped, they go for credit cards. Too many are already maxed out and as credit tightens by the banks, the situation becomes even more dire. Heap the bankruptcies on top of foreclosures (July 2007: Ariz. bankruptcies up 60%; credit-card debt, higher mortgage payments cited) and we're no longer talking chump change here, we're talking about a dreadful scenario for our nation.
4. In a couple of months you will start to see hints of Thanksgiving and Christmas decorations begin to hit the big box stores. Retailers depend on the grotesque spending spree every December called Christ-mas for their big earnings boost. But what's going to happen this year? It's difficult to buy Christmas presents - especially all that 'bling' when your house is in foreclosure, you're one of two SUV payments behind and child care is running you $150 a week. Johnny needs braces, Sally wants ballet lessons, both kids want to go to Disneyland and you would just love a week in the French countryside. However, when the financial squeeze starts to keep you awake at night, the first thing to go is non-essential services like entertainment, eating out in restaurants 2-3 nights a week, vacations and those $75 seats at the Cowboys game. Savings in this country is almost extinct and for the poor, the only place they have to go is ever expanding food banks which are hurting in many major cities throughout the country.
What's going to happen next year when the first wave of baby boomers begin to retire? At the sake of repeating myself, Comptroller General David Walker has been touring the U.S. trying to warn the American people what's going to happen and it isn't pretty: "What they don't talk about is a dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it." The only presidential candidate addressing the issue of the FED and our economy is Congressman Ron Paul, a man now hated by his own party (GOP) and marginalized by the MSM (mainstream media) and cable networks as if one of the great constitutionalists of our time is nothing more than a "maverick and semi-crank." (Look at this exquisite ad for Dr. Paul). The tax and spend Democrats (who replaced the tax and spend Republicans) have been in office eight months and what have they accomplished? Zippo, yet the one man who can do what has to be done (along with the right Secretary of Treasury, say Dr. Edwin Vieira) is being treated like a disease.
5. It isn't just the house that doesn't sell causing major financial problems, it's also the construction industry itself. Every house has a faucet, carpeting, light fixtures - but all industries suffer when houses aren't built or remodeling stops because of a recession or depression. That means major home improvement stores like Home Depot, lays off and the domino effect starts to rattle already jittery investor nerves. Investors don't like "lower than expected" earnings and anyone who has done enough research knows the feds have been cooking the books for decades thereby deceiving investors. Well, the chickens are coming home to roost. Local municipalities suffer because contractors are charged a percentage of the project for schools, parks and other revenue generating enterprises. Tax bases from a dozen sources dry up. Every related industry from mortgage loan brokers, realtors to escrow companies all begin to feel the noose. Tensions heat up as tribalism takes over as a matter of survival and crime increases in these massive, over crowded metropolitan cities. It's not a pretty picture when one sits down and lists all the ingredients for financial and societal melt down.
I wish everyone could subscribe to LeMetropolecafe.com. Their writers are exceptional. Their knowledge of this subject matter is easy to understand and not sanitized for votes, i.,e., this recent post by Neville Bennett on Credit contamination: "The sub-prime mortgages offered by U.S. institutions have been sliced, diced and repackaged to get them off U.S. bank balance sheets. They have contaminated global credit markets. Very strong metaphors are appropriate. To some extent, it is poison. It is also a virus, virulent and contagious. 49 European banks and financial institutions needed support last week.
"It could be more this week as uncertainty spreads. Banks can discount good news, they can discount bad news, but one report rightly says, "they cannot discount what they do not know." My take is that they do not know the present value of their assets. The packages of U.S. housing debt, sold under a variety of names, were syndicated and accepted because they had a credit rating and a good anticipated yield. However, there have been more sub prime defaults than anticipated and escalating defaults. It is increasingly difficult value these packages. Many large hedge funds are admitting a 25% fall in value. This is often wildly optimistic. The Street is predicting a 90% fall.
"Rather than discuss generalities, this article will explore the recent difficulties of BNP Paribas, France's largest bank. The Bank caused mayhem in Europe by suspending three investment funds worth 2 bn euros, saying it was impossible to value certain assets, because of the "complete evaporation "of liquidity in some markets. It said a valuation would be made "when liquidity returned to the market." The ECB responded to the crisis made $130 b of loans available. These were on the same scale as the intervention on 9/11. What impressed me was that 49 banks and financial institution grasped the ECB's lifeline. 49 banks needing support!
"Paribas's statement is very scary. It confirms that the two-way movement of bonds and derivatives associated with the U.S. housing market is seizing up. I have heard that $3 trillion of derivatives have been written in this market. There will be massive repercussions. The scariest aspect could be that the massive French bank declined to buy these investments from investors who want to sell. It suspended activity. It could have bought them at fair value, and have held the bonds until maturity. It did not. This suggests the bonds are toxic...Paribas apparently invested also in asset-backed securities (ABS) which are bundles of loans, (credit card loans, car loans etc) that were packaged together into bonds. These are now frozen. The mounting crisis is reflected in the soaring LIBOR (London interbank offered rate). The LIBOR is regarded a risk-free investment made on overnight loans. It is important to realize how fast the credit storm is developing."
How is the average Joe and Mary out in America trying to put food on the table and fill up their gas tank at $50 - $75 bux a pop going to understand all this, much less react to it? The media continues to gloss things over with carefully crafted word smithing while a gallon of milk climbs towards $4.00. Dr. Edwin Vieira began warning Americans a couple of years ago in his columns, i.e., Are Monetary and Banking Crises Inevitable in the Near Future?
As always, I highly recommend you get your assets protected by investing at least part of your portfolio into gold. I'm not a gold dealer, broker or retailer. However, it makes me sick to see my fellow Americans being led down the path of ruin. I have studied the history of our money, banking, the crash of '29 and I know what's coming. It's going to be a bumpy ride through the rest of this year. Next year is a presidential election and every effort will be made to see things don't blow up until after the inauguration in January 2009, and then as Edwin told me on the phone: all bets are off. 2009 is the same year the feds will try to push a National ID on everyone even though almost two dozen states have already said no; the North American Union is supposed to go on line with its first steps towards ending the United States of America; likely a massive push to shove an Amero form of currency down our throats and in between, we have to worry about the lunatic in the White House bombing Iran.
I also highly recommend you get Edwin Vieira's book, 'Constitutional Homeland Security: A Call for Americans to Revitalize the Militia of the Several States. Volume I, The Nation in Arms.' Reconstituting the state militias under the control of the state legislatures has got to become a top priority in this country. We all saw what happened after Katrina when law and order broke down. When the have nots go after the haves and the illegals go berserk, Americans had better be prepared because Marxist Hillary Clinton, slick, flim-flam man, Mitt Romney or the nitwit Speaker of the House, Nancy Pelosi, will not be there to save you or your family. You can money to the bank on that - if you have any left.