Posts Tagged ‘Money’

Faber: ‘Massive Wealth Destruction’ Coming, ‘Well-to-Do’ May Lose Half

By Forrest Jones
Bailouts and loose monetary policy won’t create lasting economic improvements but will push up inflation rates that will send the economy tanking and wealthy investors seeing half of their investments wiped out, says Marc Faber, publisher of the Gloom, Boom and Doom report.

The Federal Reserve has pumped trillions of dollars into the economy to stimulate it, while the White House has spent heavily to fuel growth as well.

The government, however, won’t be able to prop up the economy forever, and all that borrowing will come due.When that support fades, the economy and markets will retreat and retreat hard, creating massive losses for investors, especially when inflation rates rise due to the sheer volumes of liquidity in the system.

“I think somewhere down the line we will have a massive wealth destruction. That usually happens either through very high inflation or through social unrest or through war or credit-market collapse,” Faber tells CNBC.

“I would say that well-to-do people may lose up to 50 percent of their total wealth. They’ll still be well-to-do. Instead of $1 billion, they’ll have, say, $500 million.”

Gold will be the best investment now as will stocks for now, which will continue climbing thanks to loose monetary policies before the collapse.

“I think that people should own some gold, and I think that people should own some equities because before the collapse will happen with Mr. Bernanke at the Fed, they’re going to print money and print and print and print. And so what you can get is a bad economy with rising equity price,” Faber says.

Federal Reserve Chairman Ben Bernanke has faced a criticism for his handling of the economy in wake of the downturn.

Critics charge his loose monetary policies, including keeping benchmark lending rates to near zero and pumping trillions of dollars into the economy to reanimate it by purchasing assets like bonds from banks will fuel inflation down the road and aren’t helping that much anyway.

Bernanke and supporters say such extraordinary measures were necessary to steer the economy away from deflationary decline and deeper contraction.

Bernanke also says he’s comfortable with the pace of recovery.

“I think there’s a reasonable chance, looking at the long-run history, that the U.S. economy will return to healthy growth, somewhere in the 3 percent range,” Bernanke said at a recent lecture to George Washington University students, the Associated Press reports.

Some Federal Reserve officials, however, say inflation is threatening to rise above the Fed’s target for an annual rate of 2 percent.

“I’m expecting inflation to be 2 percent this year, and 2.3 percent next year,” Minneapolis Fed President Narayana Kocherlakota told the Midwest Economics Association’s annual meeting, according to Reuters.

The Federal Reserve has said officially that economic conditions warranting low interest rates will stick around through the end of 2014 although other Federal Reserve officials say rate hikes may be needed before then.

“My estimate is that economic conditions are likely to warrant low rates until sometime in the middle of next year,” Federal Reserve Bank of Richmond Jeffrey Lacker tells CNBC.

“If I had to pick a central tendency in the forecast, that’s when I’d pick for when rates are likely to rise. That’s not a promise, and neither is the committee’s statement. It’s a forecast of what we’re likely to find appropriate in the future.”

Bank of St. Louis Fed President James Bullard has said that keeping rates low for too long can do more harm than good.

“Overcommitting to the ultra-easy policy could well have detrimental consequences for the U.S. and, by extension, the global economy,” Bullard said at a Credit Suisse Asian Investment Conference in Hong Kong, according to Reuters.

Read more: Faber: ‘Massive Wealth Destruction’ Coming, ‘Well-to-Do’ May Lose Half


Posted on February 5, 2011 at 2:50pm by  Jonathon M. Seidl

Congressional Republicans say they want to cut federal spending by raiding $45 billion from President Barack Obama’s politically unpopular economic stimulus program. But they won’t be able to get their hands on most of that money.

At most, only about $7 billion of the $814 billion in economic recovery money awarded under the 2009 federal law hasn’t already been spoken for, according to the latest White House estimates. And Republican leaders now acknowledge they would be lucky to identify as much as $5 billion in stimulus-related spending cuts as part of a plan to save taxpayers $2.5 trillion over 10 years.

Where did the money go?

It’s not that all the stimulus money has been spent; it has been committed for specific projects and programs. In the confusing money flow from Washington to the rest of the country, there’s still about $168 billion in stimulus money that has not actually been paid out, according to the administration. But it says nearly all of that money already is tied up in contracts with companies, obligations with states and local governments, promised taxpayer relief and commitments to government programs.

For states, much of that money for Medicaid and education has been worked into budgets, so if Congress took it back it could leave shortfalls, said Raymond Scheppach, executive director of the National Governors Association. “That would be a serious problem, I think, because they’re depending on that money.”

The unspent money remains in the federal pipeline despite Obama‘s promise that recovery spending would occur swiftly to stimulate the nation’s economy after Congress approved the program nearly two years ago.

In Entitlement America, The Head Of A Household Of Four Making Minimum Wage Has More Disposable Income Than A Family Making $60,000 A Year

Tyler Durden
Zero Hedge
Nov 22, 2010

Tonight’s stunning financial piece de resistance comes from Wyatt Emerich of The Cleveland Current. In what is sure to inspire some serious ire among all those who once believed Ronald Reagan that it was the USSR that was the “Evil Empire”, Emmerich analyzes disposable income and economic benefits among several key income classes and comes to the stunning (and verifiable) conclusion that “a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year.” And that excludes benefits from Supplemental Security Income disability checks. America is now a country which punishes those middle-class people who not only try to work hard, but avoid scamming the system. Not surprisingly, it is not only the richest and most audacious thieves that prosper – it is also the penny scammers at the very bottom of the economic ladder that rip off the middle class each and every day, courtesy of the world’s most generous entitlement system. Perhaps if Reagan were alive today, he would wish to modify the object of his once legendary remark.

From Emmerich:

You can do as well working one week a month at minimum wage as you can working $60,000-a-year, full-time, high-stress job.

My chart tells the story. It is pretty much self-explanatory.

stunning? Just do it yourself.

Almost all welfare programs have Web sites where you can call up “benefits calculators.” Just plug in your income and family size and, presto, your benefits are automatically calculated.

The chart is quite revealing. A one-parent family of three making $14,500 a year (minimu wage) has more disposable income than a amily making $60,000 a year.

And if that wasn’t enough, here is one that will blow your mind:

If the family provider works only one week a month at minimum wage, he or she makes 92 percent as much as a provider grossing $60,000 a year.

Ever wonder why Obama was so focused on health reform? It is so those who have no interest or ability in working, make as much as representatives of America’s once exalted, and now merely endangered, middle class.

First of all, working one week a month, saves big-time on child care. But the real big-ticket item is Medicaid, which has minimal deductibles and copays. By working only one week a month at a minimum wage job, a provider is able to get total medical coverage for next to nothing.

Compare this to the family provider making $60,000 a year. A typical Mississippi family coverage would cost around $12,000, adding deductibles and copays adds an additional $4,500 or so to the bill. That’s a huge hit.



John Kerry: Deck my halls – I Need Money Theresa Took Me Off My Allowance

The Rich- Kerry urges strapped donors to give, you never have enough Money

Battle-weary Bay State Democrats are getting squeezed by U.S. Sen. John F. Kerry this Christmas, as the nation’s richest senator puts the arm on cash-strapped party donors to fill his campaign war chest — even though he’s not up for re-election for another four years.

“I think people feel very tapped-out,” said Phil Johnston, former Massachusetts Democratic Party chairman, who is helping to organize Kerry’s Dec. 13 gala. Johnston, who said he is seeing steady ticket sales, still expects a full house.

“It’s a mea- sure of John Kerry’s strength among Democrats that this event should be hugely successful,” he said.

The state’s senior senator — recently ranked the nation’s richest with $2.7 million in his campaign coffers and an estimated net worth of $239 million — is asking fellow Democrats to open their wallets yet again after they dug deep during a hard-fought election year. His extravaganza at the Boston Symphony — where tickets range from $75 to $4,800 — could be a tough sell as the party’s rank-and-file struggles through another Christmas in a tough economy.

“For Democrats, there’s a bit of fatigue — people have been giving aggressively,” said Democratic consultant Scott M. Ferson, president of the Liberty Square Group. “But we need John Kerry now more than ever. He’s one of the few (Massachusetts) Democrats left in a leadership position.”

Kerry put up $85,000 in campaign cash to rent the 2,000-seat Boston Symphony, where Boston Pops maestro Keith Lockhart, singer James Taylor and actor-director Ben Affleck are expected to appear.

Boston University pol-itical professor Thomas Whalen said the extravagant blowout — meant to celebrate Kerry’s 25 years in the Senate and 45 years of public service — could be a turnoff to struggling Bay Staters.

“The symbolism really works against him, which is typical of Kerry,” Whalen said. “It doesn’t exactly portray him as a man of the people. He could inadvertently tick off a lot of supporters given that a lot of people are going through a tough time.”

State Democrats are coming off a costly year — beginning with the primary for the late U.S. Sen. Edward M. Kennedy’s seat, which drew four challengers, including the eventual loser, Attorney General Martha Coakley.

The Massachusetts Democratic Party — which helped Gov. Deval Patrick’s expensive re-election campaign as well as bolstered candidates for open treasurer and auditor seats — raised $4.6 million this year, according to the state’s campaign finance Web site.

Meanwhile, Patrick and Lt. Gov. Tim Murray put the touch on party donors to the tune of $6.6 million, and congressional incumbents had to pump up their campaign coffers as many faced their first serious challengers in years.

Just last month, the CEO of Caritas Christi Health Care, Ralph de la Torre, hosted a $15,000-a-head fund-raiser at his West Newton home that reportedly reaped nearly $1 million for President Obama.

Despite all that giving, Johnston believes loyal Democrats will pony up for Kerry, if only to discourage GOP challengers. Said Johnston: “He needs to replenish his campaign.”

Quantitative Easing Explained – QE2




Economic growth remains extremely subdued and a double dip is still a strong possibility. In the first 4 quarters of the current recovery ended June 30th, GDP increased at a rate of 3% annualized, compared to an average of 5.9% in previous post-war expansions. Furthermore the rate of growth in the 4th quarter of the recovery (the 2nd calendar quarter) tapered off to a mere 1.7%, compared to 5.9% in the fourth quarter of prior upturns. This is even weaker than apparent at first glance since a full 60% of the growth was accounted for by a turnaround in inventories with only 40% coming from final sales.
The problem now is that the inventory thrust is on the verge of petering out with no other drivers working to sustain the economy. After the garden-variety recessions common in the post-war period, economic recoveries were sparked and sustained by inventories, housing, employment, consumer spending and widely available credit. This time around only the inventory turnaround has worked while the four other factors are too weak to make substantial contributions.
By summertime the Fed realized that the green shoots that it previously expected to flower into a normal expansion was failing to take root and that more help was needed. With the political climate making any further fiscal stimulus highly unlikely, in August Fed Chairman Bernanke began floating the idea of a second big round of quantitative easing (QE2), an initiative that is widely expected to be announced following the next FOMC meeting on November 3rd. The anticipation of the announcement has sparked rise in stock prices , a decline in bond yields, a drop in the dollar, a jump in commodity prices and a belief by investors that a double dip in the economy would be avoided.
In our view QE2 is unlikely to be of much help, and, in addition could have unintended negative consequences. Between the Administration, Congress and the Fed, we have already witnessed massive stimulus in the form of TARP, budget stimulus, $1.7 trillion of Fed purchases of Treasuries and mortgages, the auto industry bailout, cash for clunkers, the homebuyer tax credits, extended unemployment benefits and near-zero interest rates. All of that has so far resulted in an exceedingly weak economic recovery that is showing signs of unraveling as growth remains below stall speed.
The supposed purpose of QE2 is to lower long-term interest rates even further and increase the amount of bank reserves in the hope that some of it will find its way into the economy and spur sustainable growth. The problem is that long-term rates have already come down from a high of about 4% in April to a historical recent low of 2.4%. It is thereby unlikely that another decline of perhaps another 50 basis points will really make much of a difference. As for increasing bank reserves, we note that excess reserves are already close to $1 trillion and corporations are sitting on piles of cash.
The problem is that what’s holding down the economy is not related to high interest rates or lack of liquidity and monetary policy is therefore not the solution. As we pointed out many times the major problem is an excess of debt and the necessity to deleverage. Consumers are in the process of attempting to increase savings and pare down debt. Banks are protecting their balance sheets by preparing for further problems with residential and commercial real estate loans and potential additional writedowns. Corporations are hoarding cash because they can’t find enough attractive opportunities and are reluctant to place an overreliance on outside financing after their experience in the credit crisis. All of this is typical economic behavior following a credit crisis.
The Fed knows that that it is about to undertake a great experiment with unforeseeable results and potentially unknown consequences. Just the expectation of QE2 has weakened the dollar and helped force up commodity prices including food, energy and cotton. This could result in possibly higher prices for consumers without any significant increases in jobs, a result that would be opposite to its intended effects. On the other hand corporations will probably find it very difficult to pass their commodity price increases along, resulting in a squeeze on profit margins. Already, in recent days a number of companies have reported disappointing results for that very reason. For these reasons the Fed in recent days has attempted to dampen expectations of a “shock and awe” strategy by leaking to the media its intentions of instituting QE2 in small increments rather than all at once.
In our view additional stimulus in the form of QE2 will not be able to offset the effects of deleveraging. Monetary policy does not work well when banks are reluctant to lend, corporations do not have enough opportunities to invest and consumers are unwilling or unable to borrow. As somebody recently said (we don’t remember who), if you lead a horse to water and he won’t drink, then it doesn’t help to add more water. We believe economic growth will remain under the long-term average with return to recession a strong possibility. This outcome is not reflected in current stock prices.


As the market continues to price in QE2, with gold sky rocketing and the dollar weakening, all of Wall Street is awaiting for the big day when Big Ben makes a much anticipated, nail-biting announcement on potentially round 2 of buying U.S. treasury securities in early November. The future of the US economy will be determined in a matter of weeks. On Friday, October 15, Ben Bernake made a speech touching on monetary policy, stating that the Fed would consider additional actions to stimulate economic activity and promote a healthy level of inflation. The central bank would purchase treasuries, with the objective of promoting economic activity and steering away from Japanese deflation. In theory, this should work but there are many concerns to be addressed. Can’t we just cut interest rates? That approach won’t work, the federal funds rate is already practically zero. Buying US treasuries is really the only policy left for the central bank to bolster the economy.
First off, further government spending would add to the existing and controversial deficit. The debate is not just two-sided as to whether the Fed should expand its balance sheet, but there is also a strong divide as to by how much. We do know that if the Fed were to proceed with QE2, long term interest rates would be depressed even more. In my opinion, this may have a minimal effect considering that rates are so low already and we have yet to see positive economic activity. The Chicago Fed hypothesizes that people aren’t spending despite a low interest rate environment because we are currently in a liquidity trap. With low inflationary expectations, consumers are saving, thus hurting projected business output.
In broad terms, the idea behind QE2 is to keep yields extremely low, allowing spending to occur with cheap credit and cost of capital. The risk behind this methodology is that with yields at such depressed levels, inflation could creep up on us faster than we anticipate. As inflationary expections start to rise, interest rates will begin to climb up and growth will be hindered. However, that’s probably not the case in this scenario.
Quantitative Easing could potentially hurt the dollar even more. The dollar is also stepping down to new lows, while oil and commodities are expected to rise, hurting American businesses and output. Unfortunately, economists argue that we have already priced in QE2, thus any disappointment at the next FOMC will likely cause a drastic pullback.
In the first round of QE, Bernanke, citing dangers of Japanese-style deflation, bought $1.7 trillion in Treasury securities and mortgage-related securities. The objective was to drive short-term interest rates to almost zero, thus creating excess reserves for bank balance sheets.
QE2 certainly has its pluses and minuses. But when we evaluate the state of the economy, is there anything else the Fed can do? With the job market still in a slump, and 7-8% as the “new normal”, perhaps the Fed needs to spend money to make money. If the Fed does not go ahead with QE2, as expected, then we should expect the market to go into imediate decline. Perhaps we are better of going with QE2 because it’s already priced in, and the damage caused by such a move could be less than the damage caused by another pessimistic day on Wall Street.
As suggested by Narayana Kocherlakota, president of the Minneapolis Fed, an FOMC announcement of QE2 would have a minimal impact compared to the $1.7 trillion purchases announced March, 2009 because the current markets seem to be better functioning than they were in 2009. Therefore, even a $1 trillion purchase would be so small that it would be very unlikely to have any effect on the credit markets and bolster consumer spending. Therefore, there would be a very minimal effect on GDP or employment.
In addition, QE2 should give the banks opportunity to lend more money. However, the problem is the banks may not be willing to give loans on fears of credit worries or simply the lack of capital. Perhaps we are in a new normal state right now, an extremely low interest rate environment where we may never see the joys of 2007 again. QE2 may be just a temporary remedy, but what happens in a few quarters from now when we are back in the same state? Will we continue with QE3 and QE4, and let the Fed keep printing more and more money until we become the next Japan, and puzzle the world’s economists?
Perhaps we are to blame market participants for pricing in QE2 so deeply (or the Fed for being too direct in implying QE2). With such expectations, one can only imagine the effect if QE2 does not happen. Bernake must feel even more obligated and pressured to conform. In summary, I believe the Fed will be caught up in a situation where Ben will have to assess what’s worse:
1. Investors’ reaction to not implementing QE2 or
2. The bearish case in which QE2 is implemented but only adds to the deficit without actually stimulating economic activity because interest rates are already practically zero (also weakening the dollar even more).
The question is, is it worth printing a projected $1 trillion for a small bps increase in GDP? But then again, the last few months seemed pretty dead. The climate felt like we are all waiting for something to happen, especially with correlations at all-time highs as macro economic data moved the markets in lockstep. QE2 may be the event we have been waiting for. November 3, 2010 at 2:15 PM will be one of the most important minutes of our lifetime.