Wednesday, February 9, 2011

Measures Needed To Avoid Greater Government Failure

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The administration and those who control it, the House and Senate, want us to believe that debt can be paid out of revenues now and forever. As inflation and perhaps hyperinflation set in we could easily see 10% interest rates. If that happened debt service would consume more than 40% of tax revenues. The projection that tax receipts over the next four years would grow by 1/3rd is ludicrous. That is more than 12% a year. Further increased taxation would send more companies and jobs offshore. The bottom line is that further will impede GDP growth and further stagnate the economy. Do not forget 70% of GDP is via consumption. There is no conceivable way with free trade, globalization, offshoring and outsourcing preceding a pace and with the manufacturing base in a shambles, that production and exports can pull the economy from its doldrums. How can revenues be increased under such circumstances? At the same time consumers are reducing debt and saving about 4% of income. This kind of environment is not inductive for consumption to rise from 70% of GDP to 74%, which is needed to bring about those revenues.

That brings us to QE2, and $862 billion in spending. QE1 and $868 billion did not cause a lasting recovery, so we do not believe Qe2 and pork spending will either. Last time we had five quarters of 3% to 3-1/4% subsidized growth. We call it the law of diminishing returns. We believe that by the end of September when the fiscal year ends that the Fed will again have spent $1.7 trillion, as they did in QE1, money and credit that they created out of thin air. Presently the expansion in spending from QE1 and stimulus 1 are starting to be monetized within the system in the form of inflation above and beyond that which is needed to neutralize the undertow of asset deflation. Presently Chairman of the Fed Bernanke tells us there is no inflation, and government tells us it is 1-1/2%, when in reality it is 6-3/4%. We believe by the end of the year we will be looking at 14%.

In QE1 the funding went to the financial sector, which was on the verge of bankruptcy. That was followed by record bonuses for the criminal syndicate known as Wall Street. QE2 is being used to bail out the US government by purchasing US Treasury and Agency securities again with funds created out of thin air. In the first process some $13.8 trillion was used to assist financial institutions in both the US and Europe. The Fed wouldn’t tell us what they were up to so the people had to get a court order to force them to reveal where all the funds had gone and how much had been spent.

We have spent ten years in which growth has been created by inflation. As far as we can see in the future this will continue to be the case, and as a result the US dollar will continue to deteriorate versus other major currencies and in particular versus gold and silver. Even though official Fed interest rates are close to zero real rates are advancing. That is in spite of Fed support of the long end of the market. The US 10-year note has recently traveled from 2.20% to 3.65%. It is probably headed to 4% to 4-1/4% by the end of the year. This is a reflection of investors demanding higher yields to protect against further dollar deterioration. These higher rates mean that US debt service will grow in the future causing debt service to become more onerous. As a result the Fed will have to create more money and credit and monetize it by buying ever more Treasuries and create ever more inflation. That is a vicious circle. In the meantime taxes will be raised, which will cut back on economic activity, which will cut revenues eventually and at the same time increase already high unemployment. The Fed is surely headed for a crackup of enormous proportions.

In the House and Senate and in the White House there is no talk of a balanced budget and budget cuts will be at a minimum. The cycle continues of never ending debt, as taxes move relentlessly higher. That includes 44 million on food stamps that could grow to 88 million - 15.7% below the poverty line that could easily double, unemployment at 22.6%, which could double. At the peak in 1933 unemployment, U6, was 37.5%. Yes, this time it will be worse. Workers are now receiving 42% of their income from non-government income. That could fall to 21%. The 18% receiving who get their income could rise to 36%. Calling U3 at 9% is an insult to any thinking American. There is a way to cut costs under the Medical Reform Act; all those with chronic diseases will be allowed to die. Society can no longer afford useless eaters.

Inflation officially is 1.5%. Real inflation is 6-3/4%. It will be 14% by the end of 2011 and higher in 2012, as QE1 and QE2 flow through the system. The creation of inflation does not create jobs. It makes the rich richer. Government is presently trying to redefine a balanced budget by eliminating interest payments, which shows you the arrogance of these criminals. The President and his advisors know that interest payments will eventually become the largest debt budget item.

The President tells us he will increase spending by $20 billion, which will accompany taxes. We certainly do not call this tax reform, but an open door to tax increases and major spending policies. The CBO, the Congressional Budget Office tells us the bipartisan tax cut legislation, or pork package of $862 billion in stimulus, will drive the government’s deficit to a record $1.5 trillion in 2011. Government is going to continue to borrow 40 cents of every dollar it spends. Soon the cash deficit will reach $14.3 trillion, which is the current limit by law. We expect the limit to be raised to about $17 billion and the best we can hope for in spending cuts will be $50 billion. If you subtract the President’s spending increases that is really a $30 billion cut. Who knows at this stage whether these cuts will really become reality. It just shows you the Republicans haven’t changed much. The cuts are really just cosmetic. In addition, the CBO believes GDP growth in 2 011 will be 3.1%. We believe it will be 2% to 2-1/4%. If the CBO is incorrect it will deeply affect economic statistics and outcome. If you add in a 2% payroll tax cut this year and extended unemployment benefits you will get much different results. The payroll cut alone will cost another $400 billion.

The CBO also says Social Security will pay out $45 billion more in benefits this year than revenues, because since June 1935 the fund has been looted by channeling revenues through the general fund, which were immediately spent. After the next election in 2012 you can expect a reduction in future benefits and an increase in retirement age further reducing future benefits. We expect a 15-cent a gallon increase in gas taxes and a further scaling back in tax breaks, including the child tax credit. They will also try to eliminate the mortgage interest reduction, which would further devastate the residential real estate industry. The House will attempt to end the deduction claimed by employers who provide health insurance in exchange for rate cuts for corporations. The 500 major corporations are presently sitting on $1.9 trillion in cash, domestically and $1.9 trillion in offshore accounts â€" a benefit derived from free trade and globalization. There is already in the wo rks, via secret White House talks on December 15th, a plan to bring those funds back into the US at 5-1/4% taxation rather than 35% costing taxpayers $650 billion in lost tax revenue. Those funds will be used to buy company shares boosting them, allowing officers to cash in their stock options and make billions of dollars, prop up the stock market and assist by buying Treasury and Agency bonds. This is what corporatist fascist governments are all about.

From 2010 onward two million addition citizens are expected to sign up for Social Security, Medicare and Medicaid annually. The COLA formula has been falsified for 30 years by bogus CPI figures. As bad as that has been and is, it will be much worse when that link is broken and only a flat benefit will be paid as inflation rages. If you couple this with the Medical reform death panels there will be very few Americans roaming around America. They’ll either have been eliminated as useless eaters or starved to death. Believe us this is no exaggeration.

In 2011 the US dollar will continue to deteriorate. It will test 71.18 on the USDX, which are 6 major currencies versus the dollar. The dollar will also fall versus gold and silver as will other currencies. Over the past ten years nine major currencies have fallen an average annually versus gold by 15-1/4% and versus silver 20-2/3%. Those are the real benchmarks of dollar deterioration. Versus the USDX 71.18 should be broken in 2011 and eventually reach 40 to 50 over the next few years as gold and silver rise. Do not forget based on 1980 methods of value, when gold was $850 an ounce officially gold should be selling for $2,400 an ounce. If you use unadjusted figures that price would be $7,700 today. It just shows you the extent of gold suppression by the US government, the Fed and other central banks over those years. If you were depending on Social Security for retirement or your pension, 401K or IRA, forget it. Your only guaranteed protection will come from your go ld and silver assets and do not forget that.

The situation in the euro zone is well known to most readers. Greece has borrowed $132 billion or is in the process of doing so, and the EU, the ECB and the IMF are committed to $1 trillion in bailout money for the six countries in trouble. Several of these countries have been downgraded by rating agencies. This situation is problematic, but the US situation is fundamentally worse. In a way the European situation although not good has been used as a cover for US systemic problems. That is because American professionals do not want to hear about it and the American public is still wondering around in the darkness. They still for the most part do not know what is being done to them, nor generally do they care. It is all Super Bowl and beer while it lasts. The US has been in a mode of printing money instead of producing goods and services for years. Dollars are the world’s reserve currency, which has given the dollar an unnatural extended life. In addition to that fo reign countries have continually printed their own currency, bought dollars and bought US Treasuries in order to manipulate and cheapen their currencies. In this process the US has been able to export inflation. In time this unusual situation will end and the inflation will be turned inward in the US becoming very disruptive. This means at the dollar’s present pace it soon won’t be the world’s reserve currency. As currencies such as the dollar fall against other currencies the cost of imported goods will rise and US inflation will get another boost.

America needs to recapture its manufacturing base, which has been the basis of its success for more than 250 years. The way to do that is impose a 25% plus tariff on all goods and services. This is a matter of survival, not politics. The US carried the world for 65 years and it is time for these complainers to pay a price for their success and standard of living. The US will also profit from a much higher savings rates, 10% or more would be helpful. It is currently 4%, down from 7% prior to November.

There is no question that the dollar’s reserve status has and is being abused. The prime reasons for that status was it was the only nation really left standing at the end of WWII, and the dollar was backed by gold. That has not been the case since August 15,1971. If the US is to maintain its dollar status it has to devalue and revalue versus other currencies and go into multilateral default. Then gold backing can again be put behind the dollar. If they do not have the gold they will have to buy or borrow it. If that is not done another currency or group of currencies will have to be used.

Since WWII all other nations have deliberately devalued their currencies. The US didn’t mind because it was by far the strongest nation in the world. Whenever the world had a recession the US bailed it out by creating more money and credit. That made everyone happy and the world rolled along. This is no longer the case. Since the 1980s, at the behest of WTO, NAFTA and CAFTA, the trade tariffs have almost all been removed. This free trade, globalization, offshoring and outsourcing by transnational conglomerates has destroyed America’s internal manufacturing infrastructure with the loss of 42,400 company and 8.5 million good paying jobs. As long as this is allowed to continue America cannot compete and will continue to slip toward a lower status among nations. The only way to stop this headlong rush into oblivion is to leave WTO, NAFTA and CAFTA and reinstitute tariffs including penalties on those countries that insist on continuing to depreciate their currencies. If this is not accomplished with the unpayable debt the country is carrying, it is doomed.

Yes, tariffs mean higher prices for imported goods and more inflation. Our trade deficit would fall and the dollar would stabilize. All those American corporations that moved to foreign countries to take advantage of cheap labor would no longer be able to capitalize on cheap labor and perhaps keeping their profits offshore in secret tax havens when they pay no US taxes. Things have to change and change quickly, or America’s competitive position will be permanently destroyed. Other nations will be able to buy more domestic goods with their stronger currency, raise their standard of living and develop their own domestic economies.

Those whose aim is to bring about world government know that if a country does not have a sound industrial base it can never be successful as a nation. What is being done to the US and Europe in the name of free trade is to force the people of those nations with a collapsing economic and financial structure to accept World Government. This is what this deliberate destruction is all about. In order to rebuild the manufacturing base the US has to erect tariff barriers on goods and services and savings have to be increased. The situation with savings is the same as it was in 1959, 43% of Americans have less than $10,000 saved for retirement. America needs a 10% savings rate if they ever hope to recover. Accumulation of savings has been difficult since 2000 due to declining interest rates. Stocks have risen only 9%, bonds 67%, but gold has risen five-fold and silver six-fold. We have recommended gold and silver coins and shares over that 11-year period so subscribers hav e been able to save and profit. The other 99% of professionals have been losers, not to mention the losses to inflation. The gold and silver bull market will be the greatest bull market of all-time. There is no safer place to be.


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Indications: Futures point to a pause for Wall Street

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By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) â€" U.S. stock futures pointed to a lower open Wednesday after a string of Wall Street gains, as investors await comments from Federal Reserve Chairman Ben Bernanke.

Futures for the Dow Jones Industrial Average /quotes/comstock/21b!f:dj\h11 (DJH11 12,185, -11.00, -0.09%)  dropped 15 points to 12,181, while those for the S&P 500 index /quotes/comstock/21m!f:sp\h11 (SPH11 1,318, -4.10, -0.31%)   fell 3.6 points to 1,318.10.

Nasdaq 100 futures /quotes/comstock/21m!f:nd\h11 (NDH11 2,357, -5.75, -0.24%)   slipped 5.75 points to 2,357.

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On Tuesday, the Dow /quotes/comstock/10w!i:dji/delayed (DJIA 12,233, +71.52, +0.59%)  marked its seventh winning session, closing up 71.52 points at 12,233, the highest close since June 16, 2008.

Multiyear closing highs were also seen for the S&P 500 /quotes/comstock/21z!i1:in\x (SPX 1,325, +5.52, +0.42%)   and the Nasdaq /quotes/comstock/10y!i:comp (COMP 2,797, +13.06, +0.47%) .

“Having reached highs not seen for 2 ½ years, a correction is always likely to occur, and with not much in the way of economic data to get their teeth into, investors may well see today as a selling opportunity,” said Ben Critchley, sales trader at IG Index.

“Despite this, the [fourth-quarter] reporting season continues apace, and solid quarterlies from the likes of Coca-Cola, MetLife /quotes/comstock/13*!met/quotes/nls/met (MET 48.47, -0.16, -0.33%)   and Prudential /quotes/comstock/13*!pru/quotes/nls/pru (PRU 64.01, -0.01, -0.02%)  could provide the juice needed to extend the rally through to the end of the week,” he said in emailed comments.

With no economic data on the calendar, comments from Bernanke are expected to get close attention. He is due to testify on the economic outlook and monetary and fiscal policy at the House Budget Committee at 10 a.m. Eastern.

As for earnings, plenty of companies were due to report before the opening bell, including Northrop Grumman Corp. /quotes/comstock/13*!noc/quotes/nls/noc (NOC 71.09, +0.74, +1.05%)  and Polo Ralph Lauren /quotes/comstock/13*!rl/quotes/nls/rl (RL 115.77, +1.93, +1.70%) .

Coca-Cola Co. /quotes/comstock/13*!ko/quotes/nls/ko (KO 62.87, +0.35, +0.56%)   reported that its fourth-quarter profit rose to $5.77 billion, or $2.46 a share, from $1.54 billion, or 66 cents a share, in the year-ago period. On an adjusted basis, the latest quarterly earnings came in at 72 cents a share, in line with the analyst consensus estimate provided by FactSet Research.

Shares of Take-Two Interactive Software Inc. /quotes/comstock/15*!ttwo/quotes/nls/ttwo (TTWO 14.54, +0.19, +1.29%)  jumped 8% in premarket trade after the videogame maker’s quarterly results soundly beat Wall Street expectations. Read about Take-Two’s results.

Euro hit by Weber talk

The euro was hit by talk that inflation hawk Axel Weber won't take the top job at the European Central Bank after all, trimming rate-hike expectations. But it's a confusing situation, and the significance is open to question.

Also in the premarket, shares of St. Joe Company /quotes/comstock/13*!joe/quotes/nls/joe (JOE 29.05, -0.30, -1.02%)  added 9% after the firm said late Tuesday that it is considering a sale of the company, among other options.

Shares of Walt Disney Co. /quotes/comstock/13*!dis/quotes/nls/dis (DIS 41.18, +0.24, +0.59%)  rose almost 5% in preopen trade after the company reported late Tuesday that stronger advertising revenue for television and buoyant home-video sales of “Toy Story 3” boosted its first-quarter profit. Read about Disney’s results.

Shares of American International Group Inc. /quotes/comstock/13*!aig/quotes/nls/aig (AIG 42.37, +0.19, +0.45%)  could be in focus after the insurer said it will take a $4 billion charge to boost reserves. To help fund this, it has gotten U.S. Treasury clearance to retain $2 billion of the net cash proceeds from its recent sale of AIG Star Life Insurance.

Ingersoll-Rand /quotes/comstock/13*!ir/quotes/nls/ir (IR 49.03, +0.45, +0.93%)  reported a fourth-quarter profit of 62 cents a share and said it sees a 2011 profit of $2.90 to $3.10 a share. Analysts were forecasting a quarterly profit of 64 cents a share.

Sanofi-Aventis SA /quotes/comstock/13*!sny/quotes/nls/sny (SNY 34.98, +0.38, +1.10%)  reported a sharp drop in fourth-quarter earnings. No mention was made of the company’s progress in acquiring Genzyme Corp. /quotes/comstock/15*!genz/quotes/nls/genz (GENZ 73.92, -0.10, -0.14%) . 

RealNetworks Inc. /quotes/comstock/15*!rnwk/quotes/nls/rnwk (RNWK 3.96, +0.06, +1.54%)  said late Tuesday that it is cutting 130 jobs, or about 10% of its work force, and is taking a $3 million charge in the first quarter as a result. The firm added it would save $11 million annually.

In Europe, major stock markets were weaker, led by miners, though utilities marched higher. Read more about Europe stocks.

Shares of the London Stock Exchange Group PLC /quotes/comstock/23s!e:lse (UK:LSE 979.00, +87.00, +9.75%)  jumped 9% after the firm announced a $6.9 billion all-stock merger with Canada’s TMX Group Inc. /quotes/comstock/11t!e:x (CA:X 40.28, 0.00, 0.00%)  that will create the world’s No. 2 operator in terms of listed companies. See LSE to merge with Canada’s TMX.

China and Hong Kong led Asian markets lower as investors there got their first chance to react to China’s rate hike, which was announced late Tuesday for those markets. Stocks fell on worries that Beijing could tighten policy further in coming months.

Gold futures for April delivery were steady at $1,363.90 an ounce, while crude-oil futures for March delivery rose 44 cents to $87.38 a barrel.

The dollar rose 0.4% against the Japanese yen to ¥82.58, and the euro was steady against the dollar.

Reuters reported Wednesday that Axel Weber, the former chief of the Bundesbank, will not be a candidate to take over as president of the European Central Bank when Jean-Claude Trichet’s term is up in October. He had been viewed as a front-runner for the post. Read more about Weber.

Barbara Kollmeyer is an editor for MarketWatch in Madrid.

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NYSE Arca Morning Update - 08:30:00 ET

NYSE Arca Morning Update for Wednesday, Feb 9, 2011 :


Stock Tuesday's Close Current Price Pct Change Current NYSE ARCA Vol
SMSI $13.06 $8.79 (32.7%) 43,390
SWIR $15.50 $11.27 (27.3%) 55,145
MOTR $22.01 $17.82 (19.0%) 102,943
PLAB $6.71 $7.94 18.3% 4,720
WWWW $9.87 $11.45 16.0% 1,000


Stock $ Volume Price PctChg | Stock Share Vol Price PctChg
SPY $81,470,946 $132.07 ( 0.4%) | C 624,905 $4.87 ( 0.4%)
IWM $16,537,920 $80.88 ( 0.4%) | SPY 616,526 $132.07 ( 0.4%)
WFC $15,619,103 $33.12 ( 2.9%) | WFC 470,581 $33.12 ( 2.9%)
DIS $13,497,766 $42.63 3.5% | DIS 315,200 $42.63 3.5%
QQQQ $13,118,710 $57.85 ( 0.4%) | UNG 243,256 $5.45 ( 0.9%)
AAPL $10,894,906 $354.86 ( 0.1%) | QQQQ 226,742 $57.85 ( 0.4%)
RL $5,310,332 $121.50 4.9% | IWM 204,450 $80.88 ( 0.4%)
RIO $5,222,967 $75.60 ( 1.3%) | TZA 170,130 $13.79 1.3%
TEVA $5,158,807 $52.09 0.1% | NOK 170,042 $11.38 0.9%
BP $4,749,296 $46.19 ( 1.2%) | VQ 169,467 $18.92 ( 1.0%)

Price changes may be affected by symbol splits and dividends.

Consolidated close price is the last print (excluding prints with trade
conditions) prior to 4PM ET.

This information is also updated on our web page every morning at 8:35ET:

This material is for informational purposes only.
NYSE Euronext and its affiliates ("NYSE Arca") are not soliciting any action based upon it.
This material is not to be construed as an offer to buy or sell any security in any jurisdiction where such an offer or solicitation would be illegal.
Any opinions expressed in this material are NYSE Arca opinions only.
NYSE Arca undertakes no obligation to update any of the information contained in this material in light of new information or future events.

Copyright [2011] by NYSE Euronext. All rights reserved. Reproduction and redistribution prohibited without prior express consent.

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