-- Posted Friday, 27 February 2009 | | Source: GoldSeek.com
DEEPCASTER LLC
www.deepcaster.com
DEEPCASTER FORTRESS ASSETS LETTER
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
To determine where we are likely to find Opportunities in the current Crises, it is essential to realistically estimate the likely effects of The Stimulus Bill in the Context of these ongoing Crises. Accordingly, we consider key provisions of the Stimulus Bill.
Given that the predominately Middle Class American Mortgage-holder/consumer is 70% of the U.S. Economy, unless and until the housing/mortgage market crisis is remedied so far as their financial circumstances are concerned, the crises in the markets and economy can not be remedied for the long-term either. On this issue, the Stimulus Bill does four main things:
1. It reduces monthly payments up to a maximum of $400 per month for conforming mortgages only, and only for at-risk homeowners, whose payments exceed 31% of their monthly income. There is absolutely nothing else for the majority of homeowners. Problem: In areas in which the mortgage crisis has hit the hardest such as California, Arizona and Florida, many mortgages are much larger than the conforming limit. Moreover, even for those who qualify for the $400 per month payment, the reduction is not substantial enough to make a difference. Moreover, limiting the program only to at-risk homeowners whose payments exceed 31% of their monthly income effectively provides benefits only to those who are least likely to continue to be solvent even after the Stimulus Bill help. Many of these people should not have had mortgages to begin with. Thus, this provision does not significantly help to heal the mortgage market/housing crisis.
2. It provides for lower interest rates on home mortgages only for at-risk homeowners but nothing for the some 92% of other homeowners who pay their mortgages on time. Many of those other homeowners (i.e. the bulk of the Middle Class) are struggling but have continued to be current on their mortgage payments only with substantial effort and sacrifice. But many of these are on the brink of going into delinquency and foreclosure, yet The Stimulus Bill does nothing for them. As we move into a deeper Depression, without further help they will be doomed.
3. It provides a maximum $5,000 incentive if a homeowner stays current on making his mortgage payments for five years, or $1,500 incentive if his loan is modified by financial institutions. Sounds nice. Problem: This certainly will provide no near-term stimulus and probably none longer term either. And finally,
4. An $8,000 income tax credit only for first-time home buyers. Problem: Nothing for anybody else who buys a new home and nothing other than what we’ve mentioned for existing mortgage holders. It is existing homeowner/mortgage holders who need help if the housing/mortgage crisis is to be healed. But first-time homebuyers are typically those who have the hardest time qualifying and the hardest time staying current on their mortgages
Conclusion: Collectively, the Stimulus Bills’ “treatments” to Heal the mortgage/housing market will be dramatically ineffective.
Or, as Larry Kudlow puts it:
“President Obama’s massive mortgage-bailout plan is nothing more than a thinly disguised entitlement program that redistributes income from the responsible 92 percent of home-owning mortgage holders who pay their bills on time to the irresponsible defaulters who bought more than they could ever afford. This is Obama’s spread-the-wealth program in action.
Team Obama is rewarding bad behavior. It is enlarging moral hazard. It is expanding its welfarist approach to economic policy. And with a huge expansion of government-owned zombie lenders Fannie Mae and Freddie Mac, Team Obama is taking a giant step toward nationalizing the mortgage market.” (Emphasis added)
Larry Kudlow, February 20, 2009
The Obama Plan: Subsidize Bad Behavior?
And will the other Provisions of the Stimulus Bill Catalyze Economic Recovery? Consider.
- - A weekly payroll adjustment that will add about $13 a week to many paychecks. This amount alone is too small to make a difference. What would really have a major effect is tax rebates, however, there are no tax rebates for anyone. But tax rebates are essential to help preserve the struggling (and disappearing) Middle Class, and to help them pay their mortgages. But no rebates!
- - There is some infrastructure spending, which is primarily aimed at adding construction worker positions. But the amount of infrastructure spending is modest and in any event, it will not have a significant stimulative effect for many months.
Moreover, the Congress refused to limit the construction worker positions to Americans. Instead, one recent study shows that approximately 300,000 (of the Stimulus Bill generated) construction jobs will go to illegal aliens, (Robert Rector, Heritage Foundation) hardly a help to Americans. Worse, so far as jobs-in-general are concerned; about a 138,000 work authorizations are issued monthly for foreigners. When one adds those up over a two-year period, it is clear that legal and illegal foreign workers are likely to take virtually all the new three and one half million jobs to be created by the Stimulus Bill (see www.carryingcapacity.org for details).
Conclusion: To the extent that new jobs are created by the Stimulus Package, they will mainly go to recent legal and illegal immigrants. Thus, no help in the Stimulus Bill for Americans and long-term resident immigrants seeking jobs.
And finally let’s consider some other provisions.
- - The extension of unemployment benefits will certainly help some unemployed but it will do little to stimulate the economy.
And how is the deductibility of a (typically 2% to 8%) sales tax on a new car purchase going to be effective in catalyzing a car purchase by those who would not otherwise be able to make the purchase. Not!
Unfortunately, the Bill contains some serious pork projects, e.g. a new college tuition tax credit for qualifying students of a maximum $2,500. While one may argue that this is a very worthy program, it is certainly not a stimulus.
Unfortunately also, the current Reality is reflected in the following:
“General Motors lost an average of 87 million dollars a day in 2008.”
CNBC Report, February 26, 2009
Indeed, there is not much in the Bill that would help a company like General Motors, or most other companies for that matter.
General Conclusion: The vaunted Stimulus Plan bolsters the Social Safety Net for the Poor and Unemployed, by creating new and thinly disguised entitlement programs but does very little to create jobs or help the Middle Class. Thus, it will do little or nothing to stimulate the economy or help the financial markets in the long term. Indeed, it will hurt them because it plans to “pay” for these programs with debt financing, which will only further enrich the owners of the private for-profit U.S. Federal Reserve (see below).
Thus we are left facing the Fundamental Reality for the next Several Years Hyperstagflation.
We are in an Apparent Deflationary Environment (e.g. energy prices have dropped dramatically and the Equities Markets and other “Assets” have lost Trillions in Value). But this Apparent Deflationary Environment masks an underlying Hyperinflationary Reality - - the Trillions in Fiat Currencies which are being printed in a futile (in the long term) Attempt to stimulate the Economy are greater than the Trillions lost in Equities Markets Takedowns and other Asset Devaluations. Thus, The Basic Long Term Trend is Hyperinflationary Economic Decline - - the worst of both Worlds. We expect $20 hamburgers in the three to four years.
Indeed, astute analysts Peter Brimelow and Ed Rubenstein agree that inflation will likely “win out in the end.”
They rightly base their conclusion regarding the declining purchasing power of the U.S. Dollar on:
“…this 20th-century experience, the value of the dollar has fallen precipitously, to a recent 6 cents. By an astonishing coincidence, the decisive move began about the same time as the Federal Reserve did.”
Peter Brimelow & Edwin S. Rubenstein, February 26, 2009
Will Inflation Emerge Victorious? Commentary: Deflation not impossible, but history says it won’t win.
For a fuller discussion of why Hyperinflation will likely win out in the end see Deepcaster’s “Profit Opportunities from Econo-Reality Therapy” in the “Articles by Deepcaster” Cache at www.deepcaster.com
And though Brimelow and Rubenstein do not explicitly make a causal connection when they show that inflation began “when the Federal Reserve did”, Deepcaster does.
The private for-profit U.S. Federal Reserve is the Main Culprit behind our current crises.
See our January 2008 letter “Market Intervention, Date Manipulations, Increasing Risks, the Cartel End Game & Latest Forecast” in “Latest Letters” Cache and our July 3, 2008 “Profit from Fed-Catalyzed Crisis” in the “Articles by Deepcaster” Cache at www.deepcaster.com.
Indeed, there is compelling evidence that a Fed-led Cartel* of key Central Banks and their agents, allies and favored financial institutions is regularly involved in Overt and Covert Manipulation of a Variety of Markets and Key Statistics.
*We encourage those who doubt the scope and power of Intervention by a Fed-led Cartel of Key Central Bankers and favored financial institutions to read Deepcaster’s December, 2008 Letter containing a summary overview of Overt and Covert Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” and Deepcaster’s July, 2008 Letter entitled “Market Intervention, Data Manipulation - - Increasing Risks, The Cartel End Game, and Latest Forecast” at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.”
There is, however, a Solution to several crises, which would genuinely be stimulative, coupled with other measures. That Solution, which also provides investor opportunities for profit, is a follows:
The Solution and Opportunities
Practicality dictates that we outline only the key necessary conditions for this Solution. Of course these need to be fleshed out to provide a complete and workable proposal. While in normal times we would not approve of certain components of the following plan, they are forced upon us by the destructive Policies of The private-for-profit Fed.
When one is in a deep hole into which one has been pushed, one must temporarily cast aside one’s ground-level ideology and exit as best one can. [The maxim, “when you’re in a hole, quit digging,” is regretfully and temporarily set aside.]
A Genuine Stimulus Plan: Unique Targeted Tax Rebate
The Initial and Ongoing Catalyst of the current Financial and Economic Crisis, credit freeze-up, and toxic waste creation, is the ongoing and increasing numbers of delinquencies and defaults on mortgages and other credit obligations by mortgage holders and other borrowers. We have not even seen the end of the beginning of this mortgage crisis.
It is clear that The private-for-profit Fed instigated this crisis by its easy credit and massive monetary inflation policies in recent years. See the “The Fox Wants More of Our Chickens” and the July, 2008 Letter referred to above in the “Articles by Deepcaster” Cache at www.deepcaster.com. But as investors, taxpayers and citizens we must cope with the consequences.
We reiterate that there is one fundamental problem, which must be solved, or no long-term Solution is possible. The financial system and economic crises will not and can not be solved until the 70% of the US economy which is represented by the typically Middle Class U.S. taxpayer/consumer is in a healthier financial condition and is thus able to service their debt and pay their taxes while simultaneously resuming some reasonable level of saving and spending.
Until the Main Street Middle Class Sector returns to a healthy state, there will continue to be foreclosures, bankruptcies, and delinquencies, which will in turn continue to create ever more toxic waste for lenders, with ensuing counterparty failures continuing to ripple through the system.
Moreover, the ongoing counterparty failures will magnify the continuing defaults on increasing numbers of those $683 trillion in dark OTC Derivatives The Bank for International Settlements (The Central Bankers’ Bank) reports as outstanding as of June, 2008. (per www.bis.org; Path: Statistics>Derivatives>Table 19ff.)
No number of bailouts, “at the top,” of major banks or other Fed-favored institutions will solve this problem. A lasting solution requires genuine and substantial assistance at the ground level for the typical Middle Class obligor (e.g. on a home mortgage). The recent Obama Stimulus Bill does NOT adequately provide such assistance, as demonstrated above.
Thus Deepcaster reiterates that the Stimulus Bill and Bailouts etc. likely will not work in the long-term (except perhaps insofar as they continue to enrich private financial institutions favored by The Fed, and owners of The private-for-profit Fed). We earlier said so, along with others, including Robert McHugh of McHugh’s Daily Briefing. McHugh states the primary cause of the Bailouts’ failure succinctly and, to his credit, articulates The Core Necessary Condition for a Solution:
“…The reason is that it fails to address the source of the problem, the consumer’s lack of income due to asset depreciation, job loss, declining investment yields, rising real estate taxes, and a rising cost of living. Buying today’s bad assets fails to prevent tomorrow’s bad assets from showing up as a new batch of consumers fail to make loan payments, giving birth to the next round of fresh toxic assets, sure as death and Obama raising taxes on the “rich.”
The solution is simple: Rebate the past 5 to 10 years of [household] income taxes, up to $10 trillion worth, requiring half the rebate to pay off the debt. If households don’t have debt, they get to keep all the rebate. This will metamorphose current and future bad assets (loans and loan securities) into good assets. This gets the household back on their feet, heals both household and corporate balance sheets, and jump starts the economy with a boom that could last decades. Sure, the Dollar would take a hit, maybe a 50 percent hit, but debts will be eliminated, a depression will be averted, and everyone gets a fresh start….”
McHugh’s core proposal is not only excellent; it is necessary. Since If the basis of 70% of US GDP (the taxpaying, consuming but increasingly stressed U.S. Middle Class) is increasingly financially unhealthy, no enduring economic or financial system recovery is possible.
Though this is an excellent core proposal it needs elaboration. For example, only individual and small business taxpayers should be eligible, and only those who are out-of-pocket on taxes. That is, this proposal is not intended as a transfer payment to those who receive negative income tax credits. Any checks received from the government over the period would be deducted from the amount of the tax rebate. As well, a temporary suspension of the payroll tax could be enacted as a complement to a less generous tax rebate.
The plan also needs refinements and conditions. For example, even a massive Tax Rebate would not be sufficient to bring some of the weakest borrowers and the most egregious loans current. These should be allowed to go into default and foreclosure because they will have been the most marginal loans in any event and the lenders deserve to be stuck with the losses on these loans, which they never should have made.
In sum, neither the continuing taxpayer-funded bailouts “at the top” nor the buttressing of the Social Safety Net for the poor will work to change the dismal Fundamentals, unfreeze credit, etc.
Indeed, to help at all they should be coupled with “required loan quotas” for lenders. The Obama Administration’s Rule should be if you don’t lend (i.e. pass through your U.S. Taxpayer provided aid) to businesses and consumers, you don’t get bailed out. But that has not happened. Thus, the foregoing Solution is proposed.
As well, other changes are needed to effect a lasting Economic Recovery. For example - - Enact a Fair Trade Policy for Industry and Job Protection Immediately as well as a Zero-Net-Immigration Moratorium.
The United States has foolishly been led (by Democratic & Republican Administrations alike, in concert with The Fed) down the Globalist (as opposed to Internationalist) path, which has resulted in the destruction of American industry and American jobs via so-called “free trade” agreements like NAFTA and CAFTA. Unfortunately, this Job and Manufacturing Sector Jobs destruction has only just begun.
Appeal to the nineteenth century Ricardo’s Theory of Trade is usually spurious because modern interpreters confuse “Relative” advantage with “Absolute” advantage. Absolute advantage envisions moving capital across national borders in order to benefit from lower wages in second country. Ricardo espoused free trade only to the extent that it maximized relative advantage. He never considered that British capital might be moved to, say, Burma, in order to manufacture goods more cheaply than these same goods could be manufactured in Great Britain.
Today’s “free trade” agreements entail moving capital across national borders and, thus, inevitably impoverishing the domestic manufacturing base. Some decades ago, it was estimated that a $150,000 investment was needed to create one well-paying job in the United States. The Middle Class suffers when jobs are created offshore rather than in the United States. Capital should be encouraged to stay mostly at home.
Not even Tax Rebates can save the U.S. economy or the World’s Reserve Currency (the U.S. Dollar) without a durable strengthening of the U.S. manufacturing and broader business base.
Neither can the United States, nor for that matter most of the rest of advanced economies of the world, compete with the wage rates paid in Vietnam, for example. In the long run this fact represents doom for the advanced industrial economies unless the U.S. and other advanced economies enact multiple bilateral agreements with tariffs that require an approximate balance of imports and exports with each trading partner. That “Fair Trade” approach would generate sufficient competition to keep domestic industries on their toes, but create sufficient protection so that domestic industries of all major advanced countries and their employees could prosper, and so at the same time emerging economies would benefit from a continuation of Fair Trade not “Free” Trade, which is often nothing more than welfare for giant globalist businesses.
Of course, a necessary condition for success of this particular policy would also be to dramatically reduce mass immigration into advanced industrial countries like the United States via a multiyear zero-net-immigration moratorium. Mass legal and illegal immigration results in importing poverty, depressing wages, losing jobs, and in a net increase in costs usually born by local and State taxpayers while a few employers get the benefits of paying low wages to (mainly) low-skilled workers.
Consequently the taxpayers at large (including other employers!) pay far more net in taxes to support health care, education, infrastructure and other needs of the (mainly) low-skilled immigrants and their families than these immigrants pay in taxes. (The U.S. population, for example, is increased by about 2 million legal, and 2 million illegal, immigrants and their offspring annually.) The result of a moratorium would be relief of other burdens as well, such as on the retirement system. The average age of immigrants entering the United States is four years greater than that of the average native born as a Center for Immigration Studies study demonstrated. As demonstrated above Stimulus jobs should be limited to Natural Born and long-term resident immigrants only.
Remove The Fundamental Cause of Our Systemic Crisis - - The Private For-Profit U.S. Federal Reserve - - The U.S. Treasury Should Serve as Our National Bank Instead
The Root of the Problem is both deeper and broader than just Taxpayer-funded (i.e. Debt Funded) Bailouts. The root of The Problem is the structure, functioning, and very existence of that very entity which in large measure created and catalyzed the Financial Systemic Crises to begin with - - the private, for-profit U.S. Federal Reserve.
Just as The Crisis began with The Federal Reserve’s easy-credit and Massive Monetary increase policies and the malinvestment these enabled, the key to its solution is relatively simple. Consider first Jim Rogers on the March, 2008 Bear Stearns Bailout:
“If the system is so fragile that the collapse of the fifth-largest investment bank in America could bring the whole thing down, what's going to happen in a few years when the No. 2 or No. 1 banks go bad...What's Bernanke going to do, get in his helicopter and fly around the country repossessing cars and houses? This is insane."
Jim Rogers, June 25, 2008, Moneynews.com
Thus, Jim Rogers helps make a compelling case that those “insane” Fed policies (easy credit and massive monetary inflation) of the past few years have brought the Financial System to the Brink of Meltdown. Were that NOT the case, the Fed would not have seen it necessary to intervene to resolve the Bear Stearns (and Fannie Mae, Freddie Mac, AIG, and….?) crises. Bear Stearns was only the fifth largest investment bank in the United States.
Deepcaster, former Presidential Candidate Representative Ron Paul (R – TX), and Jim Rogers all recommend the same Solution to The Crises catalyzed by the private, for-profit, U.S. Federal Reserve: Abolish it.
Indeed, a few months before he was killed, President Kennedy signed Executive Order 11110 which would have de facto abolished the Federal Reserve by gradually replacing Federal Reserve Notes (today’s Fiat U.S. Dollar) with U.S. Treasury Notes. Executive Order 11110 has never been revoked.
The currency-creation function of the private for-profit Fed should be replaced by the U.S. Treasury operating as a de facto U.S. National Bank as authorized by the U.S. Constitution. The Treasury could then Re-link the U.S. Dollar to Gold and Silver as constitutionally authorized. This could prospectively avoid the massive Fed-catalyzed monetary and credit excesses which are The Fundamental Cause of our current Financial Crises. It would certainly halt the U.S. Taxpayers having to pay “interest’ on money The Fed prints for free out of this account.
Interest rate manipulation, which The Fed has apparently been conducting (doubtless resulting in their shareholders Great Private Profit!) for decades, should not ever be a government function because it undermines the pillars of a free market.
Fed abolition is necessary because Fed policies perennially risk Systemic Collapse while facilitating massive profits for favored Globalist Financial Institutions. For more details on a workable Solution see “The Financial Crisis Solution” in the “Articles by Deepcaster” Cache at www.deepcaster.com.
Opportunities & Conclusion - - The Silver Lining
Even given the Foregoing, there is a Silver Lining to the Stimulus Plan of which investors and traders should be able to take advantage. The Stimulus Plan has already created an increasing need for taxpayer borrowings from the private for-profit U.S. Federal Reserve. Given that the U.S. Budget Deficit is around $10 Trillion already (and downstream unfunded liabilities are at least $60 Trillion), this tremendous injection of liquidity into the economy makes hundreds of billions of dollars available for purchase of equities when investor confidence starts to return and when The Cartel* allows the equity markets to rise. This should, very soon, create an excellent potential for a rally in Key Sectors of the Equities Markets. While in the long term this rally is probably not sustainable, it should nonetheless be a way to recoup losses especially in certain Sectors. Deepcaster has identified those high-potential Sectors in his recent Alerts.
Of course, Gold and Silver are the ultimate Safe Haven refuge in times such as these, and were it not for Cartel* intervention, the prices of Gold and Silver would be much much higher.
However, Deepcaster has designed a Strategy for profiting from Cartel intervention and building a core position of Gold and Silver at the same time. We invite you to consider The Strategy laid out in our “Defeating the Cartel…with Profit” article of March, 2008 in the “Articles by Deepcaster” Cache for further discussion of the Strategy.
While there is a Silver Lining to the Stimulus Plan, overall and for the long run, it will, unfortunately, be a failure with which we Realists expect to be coping for a long time.
Deepcaster, LLC
DEEPCASTER LLC
www.deepcaster.com
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
Gravitas, Pietas, Virtus
-- Posted Friday, 27 February 2009 | Digg This Article
| Source: GoldSeek.com
