Since our last post about failed banks an additional 13 banks failed during the month of December. Total bank failures for 2009: 139.
What will 2010 be like for banks?
As credit-card delinquencies continue to rise banks, like Bank of America, need cash as credit card losses continue to build. But not to worry because H.R. 4173, a House bill introduced by Barney Frank, will support the biggest banks with $4 Trillion gift, from the taxpayer.
Who saved the economy? Ben Bernanke or the taxpayer? More importantly, was the economy saved?
A few days ago Time Magazine put Bernanke on its cover and announced that he was the person of the year for 2009. But what about the taxpayer? Should not the taxpayer be the person of the year? Because, after all, it is the taxpayer who will pay for Bernanke's trillion 'bailout' dollars.
The sad part about this is that another larger, deeper economic contraction is coming. What will Bernanke do then?
Through an interactive map on their site, "Using the Labor Department's local area unemployment statistics, Slate.com presents the recession as told by unemployment numbers for each county in America."
It is a map you must see.
Visualizing Bank Failures ( 2008-2009 ) from Computational Legal Studies on Vimeo.
Courtesy of Computational Legal Studies: "The movie [above] shows the location of bank failures, beginning in 2008 and concluding with the three failed banks from Friday, December 11, 2009. Each green circle corresponds to a bank failure, and the size of each circle corresponds logarithmically to the FDIC’s estimated cost for the Depository Insurance Fund, as stated in the FDIC press releases. For failures with joint press releases, such as the 9 banks that failed on October 30th, the circles are sized in proportion to their relative total deposits."
Results from Google's Keyword Tool for how many times the words inflation and deflation are searched show that the majority of the global population is thinking inflation and not deflation:
The difference is staggering- 2,240,000 searches for inflation vs. only 165,000 for deflation.
Although deflation is not on people's minds at the moment it will not be long before it is. As the continued deflationary period marches on again (but this time at a faster rate) all hopes of a recovery will be washed away and the economy will continue to deteriorate.
Visit msnbc.com for breaking news, world news, and news about the economy
Senator Bunning works on stopping Bernanke's nomination for another 4-year term as Fed chief.
There is currently about $550 billion in outstanding commercial real estate loans and according to Kenneth Rosen, who heads the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley, these loans are "going badly at a rapid rate."
How rapid? We don't know but we think the next big thing to be picked up by the main stream media will be the commercial real estate collapse that has been invisibly crashing in the background while claims were made that the recession was over and economic recovery was up ahead.
Please also consider the following from Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations:
"The 54 percent overall decrease in commercial/multifamily lending activity during the third quarter was driven by year over year decreases in [mortgage] originations for all property types. When compared to the third quarter of 2008, the decrease included a 62 percent decrease in loans for retail properties, a 59 percent decrease in loans for health care properties, a 58 percent decrease in loans for industrial properties, a 56 percent decrease in loans for office properties, a 46 percent decrease in hotel property loans, and a 40 percent decrease in multifamily property loans."
This is an across the board collapse of commercial property loans which is a reflection of an across the board penetration of deflation.
(Headline source: Real Capital Analytics.)
The failed bank list on the Federal Deposit Insurance Corp.'s web site is long, very long. If 2008 was the year of the financial crash what is 2009 with 123 bank failures, and still counting?
No wonder the Federal Deposit Insurance Corp has to replenish its fund to cover the losses- from the banks that are still in business.
Bernanke's words are meaningless. This video is "a compilation of statements he's made from 2005-2007 that will have you 100% certain America is doomed if we continue to value what this moron says." PaulWilliamsWorld on YouTube
The gold rush is almost over. Amidst the noise of the markets we have articles like this one which try to straddle the fence with the oft repeated mantra that investors should 'diversify' their portfolios to reduce risk. However, they still advise investing at least something in gold. The possibility that we are about to enter a time of deflation where all investment classes could decrease in value has never been entertained by those advocating a 'diversified' portfolio. Sure you'll be diversified, you'll have a diversity of losses.
Then there is a common outright bullish stance that now is the time to enter the gold market because prices will go higher and could go as high as $6,300 to $9,000 an ounce. This extreme bullish stance is typical of a speculative market high. Many small time investors are entering the market fearful of being left out, we even have internet sales pages aimed at everyday folk with a few dollars to spare urging them to invest in gold NOW!
It is at just this point that traditionally a high is in place and they all get burnt.
If you use the Elliott Wave Principle to analyze markets you have an objective tool which will tell you exactly what any investment class is about to do. What goes up must come down again at some stage, and Elliott Wave helps you pick turning points.
Our stance at The Deflation Times is simple: Cash is King.
<p> From the Huffington Post this video about the next big crash to hit the United States: commercial property. Banks are still failing, everyday Joe's are still facing foreclosure, and now an increasing number of commercial properties cannot find leaseholders. We will be surrounded by empty zombie buildings.
We here at The Deflation Times have put together an invaluable e Book on Money Savinig Tips. This is NOT a compilation of common tips that you would already know.
Although everyone will know a few tips in this book, most of them you probably have never come across before. They are different and unique, and all together in the one easy to read ebook.
Many people are finding it hard to make ends meet as jobs are lost and homes are foreclosed. If you find yourself having to cope with less money then 125 Money Saving Tips is here to help you put more money back in your pocket.
Is your employer downsizing? Could they let you go in the near future? Saving money now would put you in a stronger position to weather any economic storm that may come your way during the continued economic contraction.
Perhaps you have your own business which is struggling with reduced sales? These 125 Money Saving Tips could help you hold on for longer and make it through the downturn.
Perhaps you are on the verge of having your house foreclosed upon? These tips could be the difference between making payments, keeping your home, and NOT losing your most important posession.
It is entirely possible for you to make small changes to how you do things everyday and make big savings overall.
We will show you how you can-
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Maybe you already think you know enough to save money by making simple lifestyle changes. Well, good for you. There is much to admire about someone who tries to keep their costs down and help the environment.
But no matter how much you may already know, there's a ton of more money saving tips you don't know. Without knowing them you are probably unwittingly wasting money - and resources - that could so easily save you more money.
We have money saving tips for-
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Back in the good old days everyone was green. Life was simple then. They didn't travel on huge jumbo jets, they didn't run around the country in gas-guzzling motor cars, they didn't cool themselves in summer with air conditioners, consuming vast amounts of energy in the process. Today we are all paying the price of progress.
For those brave souls this e Book has an extra 126th Money Saving Tip. This tip is so radical it's not for everyone. It will pay you $ at the start, it will improve the health of your family, it will enhance your children's education and it will give you more time to spend with your family. It is a simple idea, but we bet you've never seriously considered how it could really work for you! We have personally been using this tip for years now and we are much happier for it.
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"Be very careful," he says. "Don't lose the money you have saved in the markets that are likely to come down in 2010 a long way."
"He's predicting another crash in 2010 that will bring stocks below this year's low. His word to the wise, "be patient, don't rush it" keep your money in cash and cash equivalents for now and wait out this bear market."
Robert Prechter, president of Elliott Wave International talks to Maria Bartiromo on CNBC about the end of the rally, what's ahead for the economy for the rest of the year and into 2010, and how to protect yourself.
'I envision our project not as being a bunch of professional media people tramping around the island with cameras; instead I hope it will be an emotional and spiritual journey by a deeply connected group of artists, to honor the issues that Midway represents. Maybe it is not too ambitious to hope—if we can fully rise to the occasion—that we might be able to co-create a multi-media work of art that tenderly witnesses this middle point that humanity finds itself at right now. And in the eye of the storm —the apex of the Gyre—perhaps our collaborative efforts can create a container for healing that might have some small effect on the collective choice that is to come.” Chris Jordan
I have bolded the two phrases above because they go right to the heart of the matter: That, first, due to the super-consuming of consuming not only have we created an economic crisis but due to it have also created an environmental crisis. And, second, that we're at a 'middle point' where hard choices will have to be made or not only will there be a catastrophic economic collapse like we've never seen but also a catastrophic environmental nightmare from which we may never wake up.
The Midway Journey project "serves as a lens into one of the most profound and symbolic environmental tragedies of our time: the deaths by starvation of thousands of albatrosses who mistake floating plastic trash for food." And it may also serve as a lens into the current and future state of our economic affairs.
Sad but true.
We here at The Deflation Times are aware that in these tough economic times many people are struggling to make ends meet.
Not only is the U.S. government reeling under a mountain of debt but also people from all walks of life are too. The White House and economists may be calling the recession over (we think they're wrong, but that's another story) but regular folks around the country are still losing jobs, incomes, businesses and their homes. The recession is not over for them yet.
So in order to help those in financially tight positions, who may not need investment advice as much as ideas on how to make their money go further, we have put together an ebook called - '125 Money Saving Tips'.
This ebook covers many areas where you can save money, such as at home, the car, while on vacation, during Christmas, and while shopping. Indeed, you will find many realistic and practical changes you can make that result in significant money savings.
The money saving tips in the ebook are unique. Some of them you may have heard before but we guarantee there will be many you have not. These ideas are cheap, often free to implement, and are very easy to do. They will not deprive you of anything at all; they just carefully reduce waste and thereby reduce costs.
An added bonus to saving money by reducing waste is that you reduce your impact upon the environment significantly. Small changes can have a big effect on the environment and the 125 Money Saving Tips ebook focuses on environmentally friendly approaches to putting more money back in your pocket.
Although the ebook is called '125 Money Saving Tips' there is an extra, 126th Money Saving Tip. This tip is so radical that it will not appeal to many but when implemented can literally pay you cash at the start and thereafter save you hundreds of dollars per year! This simple idea will also improve the health of your family, give you more time together and improve your children's education. If this sounds too good to be true, it's not.
The ebook will help you, your family and friends make ends meet if the money is tight while at the same time live more environmentally friendly lives as well. If money is not tight but you're looking for ways to save more money then '125 Money Saving Tips' will help you save money too!
Six examples of a continued contraction in the economy; i.e., more deflation on the way:
1. Houston is bankrupt and so is California and Oregon.
2. Is there anymore taxpayer money for more bailouts? GMAC Financial Services Inc. is asking for a $2.8 billion lifeline.
3. Nation's largest commercial-real-estate lender filed for bankruptcy protection in Delaware. Who? Capmark Financial Group Inc., owned by Goldman Sachs Group Inc. and KKR & Co.
4. People are mad. First, at banks, as shown during the Showdown in Chigago where "Thousands of people gathered in Chicago today in front of the American Bankers Association annual convention to protest what they consider to be the group's long history of resistance to financial reform."
Second, at banks again, as shown by Ann Minch who in a YouTube video, that has had 41,804 views, asked Chase Bank "Are you stupid?" after it raised the interest rate on her credit card to 21.24 percent.
And third, at loan-modification agents, who were beaten and tortured by an angry couple in Los Angeles.
5. The Federal Reserve Bank of Atlanta makes a case for a jobless recovery, which we think is hopeful given that there may not be a recovery.
6. To conclude, consider Detroit's housing catastrophe. "After five hours of calling out a drumbeat of "no bid" for properties listed in an auction book as thick as a city phone directory, the energy of the county auctioneer began to flag. "OK," he said. "We only have 300 more pages to go."
As Bloomberg has recently reported, economists are now nearly unanimous that the ‘recession’ is over.
But what if it is not?
Here at The Deflation Times our purpose is to inform the public that being ready is the best antidote to a spiraling deflation, which is riding in on a continued contracting economy.
As such, download and read the How to Survive the Economic Depression report right now. With its 10 tips it will assist you in navigating the current, turbulent economy and surviving the coming economic depression.
Did you know that Andrew Jackson ended the Fed in 1836? 'On July 10, 1832, President Andrew Jackson sent a message to the United States Senate. He returned unsigned, with his objections, a bill that extended the charter of the Second Bank of the United States, due to expire in 1836, for another fifteen years. As Jackson drily noted, the bill was presented to him on the Fourth of July, a day freighted with portent.'
Are you aware of Ron Paul’s “audit the Fed” bill, H.R. 1207, the Federal Reserve Transparency Act of 2009? H.R. 1207 is 'A bill that would require the Fed to disclose what it did with more than $2 trillion in loans to banks and other financial institutions... originally co-sponsored by Ron Paul and Alan Grayson, one of the most conservative and one of the most progressive members of Congress. Due to public pressure, it now has more than 270 co-sponsors.'
Have you heard about the Showdown in Chicago on October 25-27, 2009, "when thousands of Americans - retirees, farmers, workers, homeowners, renters, students, clergy, and small business owners - come together on the streets of Chicago to demand a banking system that puts the American people first and a Congress that makes it happen"?
The H.R. 1207 bill and the Showdown in Chicago demonstrations are examples of the change in social mood, which is the transformation from spending to saving, that we've discussing in our posts. This social mood change is the primary driver that's taking our feelings of pessimism towards the bank bailouts, the bankers who brought on the economic contraction, the Federal Reserve, and the ever-increasing national debt to new levels, further and deeper into feelings of disgust and outrage.
Thanks to the bailout programs put in place last fall, most of the country's major banks, who are sharing their wealth but only with their top executives and high performers, are back to the same old tricks that got us in this mess. We look around at the effects of this economic contraction and it does not seem fair that when the taxpayer is paying for the bank bailouts and bankers' bonuses there are only 3,500 vouchers available for housing assistance when thousands more need them, as Detroit has come to recently find out.
Detroit's pains were exharberated by the inadequate response from Washington as shown by the high-demand for assistance by the people of Detroit. The Homelessness Prevention and Rapid Re-housing Program provides utility payments, rental, moving and legal assistance for low-income people who are at risk of losing housing. But it does not go far enough: within less than three minutes, 25,000 applications were filled out for only 3,500 available vouchers!
Additionally, a recent study by the Brennan Center concluded that homeowners are losing their homes because they can not navigate the landscape of lending laws and too few people are ever able to obtain qualified legal guidance.
And what about Karen King, who owes nearly $36,000, more than she's ever earned in a year, and the other thousands of people that are in the same situation.
It is clear that there are many people suffering due to the financial crisis and as failed solutions to fix the problem mount the social mood will continue to deteriorate, to the point where disgust and outrage will be manifested in ways we had not expected.
Two very important questions come to mind when thinking about the current economic contraction and how it affects you:
1. Who should we believe and turn to for more accurate information and analysis about the current state of our economy?
2. Who should we believe and turn to for solutions that will work in getting us out of the current economic deflationary spiral?
Important questions indeed because it is baffling that the same leaders (Greenspan, Bush, Obama, Bernanke, Geithner...) and institutions (The Federal Reserve, Goldman Sachs, JP Morgan, General Motors...) that told us that there was nothing to worry about are the same leaders and institutions who are saying the recession has ended. I don't know about you, but we think they have been lying to us and been wrong all along.
We only have to take a look at the effects of the current deflationary spiral to realize that as the economy continues to deteriorate the social mood of the country continues to change, from optimism to pessimism, which in turn reflects a continued economic contraction. It's simple, during times when social mood is positive or optimistic people will buy and during times when social mood is negative or pessimistic people will not buy.
However, it is not just spending habits that change.
A social mood change is also reflected in other areas of our lives:
- Individuals and social groups (including economic, political, religious, genders and classes) are polarizing and splintering, both internally and with respect to opposing groups, by becoming increasingly more militant and intentionally more destructive.
- And relationships at all degrees are becoming more strained and violent while suspicion and hatred, which is increasing, is the new attitude.
Here are a couple of real life examples:
1. The process of political pandering, which rewards the politicians and the institutions that should have failed, at taxpayer expense, is outrageous. Instead of leaders working together with the people that elected them to develop solutions that will get us out of this mess what we have are polarized, splintered approaches where radical solutions such as the U.S. Government paying mortgage servicers billions while homeowners suffer are just not right.
2. In Detroit, the social mood change was made manifest when tens of thousands of people sought assistance of up to $3,000, as part of a $15.2-million federal allocation program. 'After the applications ran out, some scam artists were selling photocopies of the originals for $20 each. They were doing a brisk business, even though the white original forms state clearly on the bottom: 'Do not duplicate -- Must Submit Original Application.' Volunteers from the city of Detroit Planning and Development Department eventually handed out yellow photocopies themselves.' As Detroit's mayoral spokes person Karen Dumas observed 'We saw a microcosm of the challenges that people are facing around the country.'
So who should we believe and turn to for more accurate information and analysis about the current state of our economy?
Well, do not believe or turn to the politicians nor the main stream media outlets.
Who should we believe and turn to for solutions that will work in getting us out of the current economic deflationary spiral?
Again, do not believe or turn to politicians for the right solutions.
For the first time this year, since the unfolding of the credit crisis, the Dow has reached 10,000. Many investors and economisits are hailing the recession as over, and this as latest proof.
But it's not over yet, and the worst is yet to come.
Unbelievably banks and financial institutions are creating new and complicated repackaged debt instruments, part of the process that got us into all this mess, again!
Toxic assets are still toxic. With unemployment and foreclosures still rising, the economy has had only a bear market rally, not a recovery.
Just because the Dow has reached 10,000 does NOT mean it's all over.
Obama has won the Nobel Peace Prize.
A man leading a country at war, who has increased the number of military personell sent to combat, has won the Nobel Peace Prize.
It seems he has been given the Nobel Peace Prize for his talk, and not his actions. From the NobelPrize.org: 'Obama has as President created a new climate in international politics. Multilateral diplomacy has regained a central position, with emphasis on the role that the United Nations and other international institutions can play. Dialogue and negotiations are preferred as instruments for resolving even the most difficult international conflicts. The vision of a world free from nuclear arms has powerfully stimulated disarmament and arms control negotiations. Thanks to Obama's initiative, the USA is now playing a more constructive role in meeting the great climatic challenges the world is confronting. Democracy and human rights are to be strengthened.'
So, he has 'dialogue' and 'vision', yet he is still at war, sending more troops into combat. As for Obama's human rights record, he has not closed Guantanmo Bay as promised which still holds 223 inmates, and still uses 'state secrets' excuses to prevent classified information being discussed in court trials where the treatment of detainees involves torture. Prisoner abuse at Bagram Prison in Afghanistan continues. But the Nobel Prize is awarded because he says democracy and human rights are to be strengthened.
The only explanation for awarding a person the Nobel Peace Prize based upon promises and talk, and contrary to deeds, must be sheer optimism. Optimism that a politician will actually do what he says, and optimism that talk can solve the worlds lack of peace while concurrently waging war with guns. This is optimism at its most extreme.
This extreme of optimism despite the physical reality fits with the personality of a sucker rally, such as the one seen in 1929 during the Great Depression. Things were so bad during the 2008 credit crunch, countries like Iceland and Pakistan were on the verge of declaring bankruptcy. Now we have an upturn in the economy and social mood, and people are so hopeful that all the bad news is over despite record unemployment and home foreclosures. This type of optimism precedes a great fall, for Obama from public favour and for the rest of us economically.
The very extreme degree of optimism must mean we are at the end of the economic upturn recently experienced.
Do you find it perplexing that the same people and institutions that told us that there was nothing to worry about, that the financial fundamentals were fine, and that there was no reason to be concerned about an economic crisis are the same people who are saying the worst is over, the recession has ended, and that their solutions to the crisis have worked?
We too feel completely baffled by this to and from. Who are we to believe?
When foreclosure rates rises another 17 percent, reflecting a continued negative (deflation) trend, and U.S. credit card defaults rising to record levels while at the same time the FDIC's Deposit Insurance Fund is now negative (did you know that in 2008 and 2009, 121 banks have failed?), how is it possible to say that the recession is over?
It is not. The second round of deflation is heading this way and it will continue its control of downward pressure over all aspects of our economy.
So instead of listening to the same people we've listened to before we should start paying attention to people like Nobel Prize winner and Columbia University professor Joseph Stiglitz, who warns that, "Deflation threatens the U.S. economy and that could be dangerous." Or Bill Fox, Senior Bonds Analyst at Elliott Wave International, who says in his article 'Inflation? Disinflation? In Your Dreams', "deflation will likely continue to exact its toll over the coming months as money supply and credit keep evaporating (along with hope)."
It may seem an odd time to be calling the current economic climate a developing depression, but we here at The Deflation Times do not believe mainstream economists are particularly good at predicting economic trends. The vast majority of mainstream economists and media did not see the credit crunch coming. We will let our track record speak for itself.
During the Great Depression of the 1930's America's stock markets saw several bear market rallies. We firmly believe we are at the end of a bear market rally at this moment, and that all markets have just begun to turn downwards again. Bear market rallies during depressions are traps for the unaware. People think the worst is over and it's time to get back in. This desire to re-enter the market is at its greatest right before the rally ends, leaving many peoples savings open to yet another round of major deflation as markets plunge again, to new lows.
A recession is defined by the National Bureau of Economic Research as a 'significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.'
A depression has no official definition, at least not from the NBER. Unofficial definitions of economic depressions include a decline of GDP by more than 10%, or a decrease in economic activity that lasts for longer than three years. So, a depression is different from a recession in how bad it gets, and how long it lasts .
One of the most commonly used lay definitions of an economic depression would be unemployment rates. The Great Depression saw unemployment peak at 24.9% in 1933, giving rise to images of jobless people lined up over many city blocks, looking for work. Today the picture is less clear, with official statistics widely understood to be less accurate than in the 1930's, unemployment in the United States may already be close to 20%, and climbing. So, by this basic and most common measure of how the economy affects people, we are in another Great Depression. Certainly, these figures are too large for this current financial crisis to be termed a recession.
Another distinguishing feature between a recession and a depression is the cause of the financial downturn. Depressions are characterised by 'a bursting asset and credit bubble, a contraction in credit, and a decline in the general price level' according to Saul Eslake, chief economist at ANZ bank. Currently, the 'credit crunch' has been undoubtedly caused by a credit bubble, which burst, leading to a contraction in the supply of credit which the Fed is trying to loosen. So, by this definition too, we are in a depression, not a recession.
The vast majority of economists were still predicting year upon year of economic growth, right up to the beginning of the 'credit crunch' in 2007. Even Ben Bernanke at the Federal Reserve was predicting in February 2006, that the US economy would expand for the following two years.
There is one economist who did foresee the 'credit crunch' and resulting global economic mess. Robert Prechter wrote 'Conquer the Crash' in 2002. This book predicts in detail the events now unfolding. Most unsettling of all, it predicts that worse is yet to come. However, it helpfully outlines practical steps you can take to prepare yourself and minimize the harm to you and your family.
Who would you rather listen to? Mainstream economists, like those at the Fed, who predicted the opposite of what has happened, or someone who's accurate record we will let speak for itself?
Janet Tavakoli thinks "Regarding the outlook, my analysis is grim. I am not a doomsayer, I follow the cash, and so far, I’ve been correct, and the government has been wrong. Here’s the situation. We are at greater risk of a total meltdown due to a deflationary collapse than we were in 2007. After the greatest Ponzi scheme in the history of the capital markets, we’ve seen history’s greatest fiscal and monetary expansion, but it hasn’t worked. Debt levels of consumers and business exceed the capacity to repay."
Janet Travakoli, author of 'Dear Mr. Buffett', makes the following points about deflation:
- Our fundamental financial and economic problems, i.e. overleveraging, lack of transparency, have not been solved.
- Since 2008, capacity utilization has plummeted; businesses have no pricing power; U.S. lost 6.7 million jobs but numbers are underreported; personal income tax receipts are down 21%; corporate tax receipts are down 58%; U.S. deficit will exceed $1.8 trillion; govt. spending is now 185% of tax receipts; 13% of mortgages are seriously delinquent and/or in foreclosure; huge decrease in personal net worth; 15 million mortgages exceed the home value.
- We’re on a massive debt spending spree. Income on all levels is not sufficient to make debt payments.
Comment 1: "I think it is very good that there is now a discussion about The Fed and the things that are done. Two or three years ago, it seemed like nobody (other than Peter Schiff) on the news talked about. Now people are beginning to take things seriously."
Answer 1: Before two or three years ago and before Schiff there was Robert Prechter and Ron Paul. For example, Robert Prechter published Conquer the Crash in 2002.
The primary reason people are just now 'beginning to take things seriously' is because it's not what they see on TV but it's actually happening to them: i.e. the value of their homes (stocks, funds, bonds...) collapsing... loosing jobs and not being able to find employment thereafter... realizing that their bank is not so friendly anymore...
Comment 2: "I don't follow Prechter but heard him with same guy last week. He was thoroughly questioned & I was surprised at some core diversions from Misesian monetary logic & a reliance on "knowing" with his "waves" & "socionomics" that deterministically American society would act like his grand cyclical sociological insights prescribe (express their desire for saving exclusively in the US currency unit) overwhelming everything irrespective of Bernanke/defecits/congress/Chi na etc. Prechter is flaky."
Answer 2: Look a Prechter's track record, from 1979 (when he left Merrill Lynch) to today, and you'll change your mind about him:
Using the Elliott Wave Principle ('his "waves") he forecasted a long-term reversal lower in gold (February 1980) and a long-term "super bull market underway" in stocks (October 1982). These forecasts proved correct—especially for the stock indexes.
He won the U.S. Trading Championship in 1984, with a then-record 444% return in a monitored options trading account. He was named "Guru of the Decade" by the Financial News Network (now CNBC) for the 1980s. AND, he forecasted a large-scale bear market, as explained in his book Conquer the Crash (published in 2002), which was his platform to forecast and explain every chapter of today's financial crisis, years before it happened!!
Does that sound flaky to you? So you should listen to what he has to say and follow his lead. Don't listen to or follow Bernanke and Congress. It is they who are flaky.
Comment 3: "I dont think that the deflationist know they are spinning B,S. If we were in a normal economy with low debt we would have deflation. However we dont have that. WE have a debt laden economy. So we will have inflation."
Answer 3: The tide has turned: the exceptional volume of credit, of debt, has reached its limit and the trend has reversed. Thus, the supply of credit, and therefore the supply of money, has shrunk, which are effects of deflation.
Add to this the deceleration in the U.S. economy which has stressed debtors’ abilities to pay and you'll see that it is precisely because 'WE have a debt laden economy' that we have deflation and are going into a deflationary spiral toward depression.
What's scary is that it is just getting started and deflation will continue for years to come. So it is not B.S and there is no spin.
Comment 4: "Dr. Marc Faber - Sept 12, 2009 - I think the deflationists are wrong for the simple reason...the Federal Reserve can print money...you can electronically print money & so the quantity of money goes up. You can transfer any asset from the private sector into the govt...so many mortgages have been transferred to the govt. They will have continuous huge losses. So, I think that deflation is pretty much out of the picture. Deflation would manifest itself in a strong dollar. The dollar is weak."
Answer 4: The Fed's primary function, for more than 90 years, has been to foster the expansion of credit and credit is another matter entirely. Credit is not money and Faber is confusing credit creation with money creation.
U.S. bonds are the reserves of the Fed and U.S. bonds are the source of its power. Therefore, the U.S. government does not want its bonds to attain (official) junk status, because its borrowing power is one of the only two powers over money that it has, the other being taxation.
By flooding the market with money, the Fed would cause a panic among U.S. bond-holders, and their selling would depress the value of the Fed's own reserves. So the ivory-tower theory of unlimited cash creation to combat credit implosion would meet cold, harsh reality resulting in the Fed committing suicide by doing just that.
As Ludwig von Mises said in Human Action (p.572), "There is NO MEANS of avoiding the final collapse of a boom brought about by credit expansion."
The most important thing to remember about the inflation vs. deflation debate is that this financial crisis is about the expansion and contraction of credit.
As we all know, "we've a debt laden economy," and when people are on the verge of defaulting on their loans, they will sell everything to stay afloat and maintain their standard of living. If they don't, then their creditors will.
But during deflation practically no one buys so debtors remain on the margin of survival or default.
To add insult to injury, due to the contraction of credit, these debtors can not get any more credit and the vicious cycle continues. So as of late, it is not just debtors that are on the edge. Creditors are on the edge because the debtors can not pay their debts; corporations are on the edge because their sales have collapsed and they can not pay their debts nor get lines of credit extended; and now governments are on the edge because this is a SYSTEM-WIDE collapse and there is nothing they can do about it.
So what we have had and are going through at the moment is a contraction of credit, which is an effect of deflation.
Headlines and economist are saying that we've hit bottom and the worst is over. Contrarians say 'don't believe it.'
Inflation or Deflation? Which will win?
From an Elliott Wave Principle perspective, deflation will win and the worst is not over yet. The U.S. economy is starting on its second dive into a deflationary spiral, towards what could be labeled as a new great (global) depression.
When we imagine the cycle of credit contraction just described continuing at an accelerated rate, on a wider scale, and penetrating deeper into our daily lives, at work and home, then it is easy to see Robert Prechter's forecasts, in his October 2003 Elliott Wave Theorist newsletter, coming true:
- The total amount of credit outstanding worldwide will decline substantially.
- Consumer confidence will fall to record low levels.
- The trend toward economic contraction that began in 2001 will continue to develop into a depression.
- Real estate values will fall more than they did in the 1930s and 1940s.
- More banks will fail than failed in the 1930s.
- The unemployment rate in the U.S. and in most countries around the world will rise and eventually exceed 25 percent.
- Affordable housing will become difficult to come by. Family members will move in with each other. Homelessness will increase.
- Stock markets around the world will continue to fall. Ultimately, the averages will drop more than 90 percent.
- Debt packages made of mortgage-backed bonds, auto loans and credit card debt will become viewed as unworthy investments.
- Many, if not most, pension plans will fall in value and be unable to provide the promised benefits. Anger over this development will result in demonstrations, violence and tardy and ineffective political reform.
- The Federal Reserve System will be discredited and then abolished.
Understanding is your first step. If you haven't yet given Prechter's deflation argument your full attention, you should know now that yesterday was the best time to do so. Steadfastly throughout the years, financial analyst Robert Prechter issued warning after warning about the coming deflation. The experts said he was wrong. The markets proved otherwise.
Download Your 60-Page Guide to Understanding Deflation – FREE!
According to the Federal Deposit Insurance Corp. Atlanta's Georgian Bank is the 95th bank to fail in 2009 and the eighth biggest failure this year.
To give you an idea of the scope of the current deflation hammering banks here is a list of bank failures since 2000:
2009 - 95 bank failures
2008 - 26
2007 - 3
2006 - 0
2005 - 0
2004 - 4
2003 - 2
2002 - 11
2001 - 04
2000 - 02
The total bank failures for 2008 + 2009 is 121!! From 2000 to 2007 there were only 26 banks that failed.
Wow!
The cost of Georgian Bank's failure to FDIC's deposit-insurance fund is $892 million, whose balance has hit a 17-year low of $10 billion as of this summer. Given that there is more deflation to come the FDIC will find it necessary to go to the U.S. Treasury and borrow from its $500 billion credit line. The question is will that be enough?
That's why we recommend you get Conquer the Crash, by Robert Prechter, because it comes with a "vital supplement to its still-prescient original content." Included with each book is a brand new CD-ROM addition that has lists for:
- The Two Highest-Rated Banks in each of the 50 U.S. states
- The Highest-Rated Large Banks in America
- The Largest Treasury-Only Money Market Funds
- The Highest-Rated U.S. Insurers
Back in 1802 Thomas Jefferson said 'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.' Certainly very topical for what's happening today.
So if you want to find out whether your bank is next on the 'failure' list order your copy today!
A deflationary economy is one in which values of goods and services fall. With falling prices, on everything from stocks and property to food and clothes, the value of money necessarily rises. But there is less of it to go around as the amount of credit available shrinks.
The effects of a deflationary economy will be different for people in different positions.
If you are on a fixed income the purchasing power of your income will rise. You will have more left over after purchasing necessities than before. That is, as long as your income continues. If the bank or financial institution which pays your fixed income can continue to do so, that's fine. But in a deflationary depression many banks and financial institutions will fail.
Savers will be rewarded with increased purchasing power of their cash. The most prudent thing would be to purchase large items, like property, at cheap prices they can easily afford.
Debtors will find that they have more money left to pay debts during deflation, as the cost of everything else they purchase falls. As interest rates are also falling due to deflation, the dollar amount payable also falls. However, this only continues to be an advantage as long as their income does not fall. As deflation usually goes hand in hand with rising unemployment, this is often not the case. Then debtors find that the dollar value of their debt is actually increasing, just as the value of a dollar increases in deflation.
Owners of assets can see huge falls, and already have, when the value of their assets, such as their homes, falls sharply. If they are asset rich and cash poor and need to raise cash they may find themselves in the unlucky position of having to sell in a deflationary market. The same is true of any investment such as stocks and bonds.
Deflation in an economy also affects psychology. When people see prices falling, they hold off purchasing because they figure they can get it cheaper if they wait. They expect the situation will continue. So the psychology of a population goes from one of easy credit and spending, to one of saving.
This psychological situation will be the reverse of the mania experienced in the early 2000's. Remember when everyone was encouraged to 'get on the property ladder'? The mantra was, prices are rising and always have, if you don't buy now it will surely be more expensive later. No one believed prices could move in the opposite direction. At the peak of the mania it was assumed that those who did not buy were fools, especially if they considered that prices might stop rising.
When prices are falling, everyone will expect them to continue to fall. People will be discouraged from buying assets such as property as everyone around them will be insisting they wait to get it cheaper later, and that only fools would buy now.
This group psychology is important as it affects major financial decisions. If you follow the herd you will buy at the peak, and sell at the trough. The good news is that there exists a rational analytical method that has a forecasting history, which you can use to avoid this common pitfall. The Elliott Wave Principle understands that psychology drives markets, not the other way around. The proof of the superior accuracy of this principle is Robert Prechter's Conquer the Crash. Written in 2002, it predicted the 'credit crunch' causes and effects with unnerving accuracy. However, according to this book the worst is yet to come. If you want to be prepared for the coming deflationary depression, you need to read this book.
To answer the question of whether we will have inflation or deflation in the upcoming years, we need to have an understanding of what these terms mean, and also what money is.
Money today is debt. Or, debt is money. The expansion of money in our economy is not by the increase of productivity, it is by the increase of debt. The expansion of money/debt has been increasing exponentially because of the application of the banks use of the fractional reserve 9:1 ratio. If you are not familiar with these ideas, we highly recommend you watch Paul Grignon's 47 minute animated presentation, 'Money as Debt', on YouTube.
One very simple way to explain the credit crunch would be to consider that the amount of interest payable on the debt owed became a figure higher than the population could earn. Hence defaults and the beginning of the sub-prime crisis and the toxic assets held by the banks. Why are they termed toxic? Because the original people who were debtors to the loans cannot pay them.
This explanation fits nicely with the Elliott Wave Principle. The last stages of the inflating debt bubble were driven by group psychology. Debt became easier to obtain- buy that house, stocks, TV now, no down payment, interest free for 18 months, being offered to practically everyone.
The expansion of money/debt is inflationary. As the amount of money circulating in a system increases, the perceived value of each note decreases. Just as if you were to add water to an alcoholic drink, it becomes less concentrated with alcohol, there is less value in money when it is diluted. So it takes more of it to buy the same stuff.
The opposite of this situation is what we have begun to see, and will see in a more extreme fashion in coming years. Fear has set in at the top of an inflationary cycle and more people will continue to default on their debts. Therefore, the willingness of banks to extend credit reduces. And because money is debt, with reducing credit we reduce the money supply. When there is less money being supplied we have deflation, which is the reducing value of stuff (very simply put).
Further examples of deflation: the stock market, from a high of 14,157 on October 2007, the DJIA fell to a low of 6,715 in March 2009; property markets around the world have plunged; oil has fallen from a high of $137.11 per barrel in July 2008, to a low of $34.57 in January 2009. Many consumer goods have become cheaper and the CPI of many countries is showing negative figures for the first time since the Great Depression.
Since these lows many markets have risen, but this is a bear market rally. Deflation will return because the underlying fear and pessimism is still there.
Because most of us have not experienced deflation in our lifetimes, we need to be prepared. If you are wondering how to protect your family and your wealth from deflation, you would be well advised to read Robert Prechter's Conquer the Crash, where he outlines very clearly what deflation is, how it affects you, and what you can do to not only avoid its negative consequences but also to prosper.
The 'ghost fleet' near Singapore. No crew, no cargo and no destination.
Here at The Deflation Times our purpose is to inform the public that being ready is the best antidote to a depressionary deflation which is riding in on a continued contracting economy.
The contracting economy is the most visible change in the current transformation of social mood (from spending to saving... from inflation to deflation) and fiscal conservatism is driving it.
Take for instance bottled water. Budget-conscious consumers are now asking why pay for bottled water when tap water is (practically) free?
Another example is the richest universities in the country, which are not immune to the contracting economy. Harvard's Endowment has dropped sharply, by nearly 30 percent, and we add so has Columbia's Investment Fund, by 16.1 percent, and Yale University's endowment fund, which shrank a more-than-expected 30 percent.
As Bloomberg has reported, economists are now nearly unanimous that the 'recession' is over. But exports and imports, a critically important part of the U.S. economy, continue to lag. Clearly, there is no sign of a rising demand for shipping services as reflected in the Baltic Dry index of freight rates, which is down 10% since August. As the picture at the head of this article shows, "the biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination - and is why your Christmas stocking may be on the light side this year."
The bad-news bears continue with new unemployment data that shows, even if the economic recovery is around the corner, that it will take many years for labor market to recover.
But fiscal conservatism will continue, to the point where Federal Reserve Chairman Ben Bernanke's claim that "the worst recession since the 1930s is probably over" will come back to bite him.
And continued policies such as financial institutions (backed by The Federal Reserve) snapping up securities backed by Ginnie Mae are like putting out the fire with gasoline. Will banks ever learn?
So what if the economy will not recover?
We do not think that an economic recovery is around the corner.
Our view comes from subscribing to the Elliott Wave's Theorist and Elliott Wave Financial Forecast, which predict that we're in for another wave of a deeper economic contraction, at a much larger scale than what we have recently experienced.
So what to do? Take the antidote and download the FREE The Deflation Survival Guide.
One of many images from Tom Stone's photographs of American Poverty, a display of people who are "...poor and destitute on the streets; homeless or in shelters or drifting or on government assistance or such..."
Are you looking for a way to get the book Conquer the Crash for free?
Well, you can. When you subscribe to the Elliott Wave Financial Forecast service, which delivers the most insightful market analysis you can buy, you will get your very own free copy of Conquer the Crash delivered right to your front door.
So what do you get with your subscription to the Financial Forecast service?
The Financial Forecast Service Includes the Short Term Update, published three times a week (Mon, Wed, Fri), plus the Elliott Wave Financial Forecast, published monthly, and the The Elliott Wave Theorist, also published monthly.
The Short Term Update provides forecasts for the markets' turns (after the markets close) and includes extensive Elliott wave charts and commentary on the Dow Jones Index, S&P Index, U.S. Bonds, the U.S. dollar, the Euro, Gold, and Silver. It also includes occasional special opportunities for stocks that look poised for major moves.
The Elliott Wave Financial Forecast tracks intermediate-term patterns in the U.S. markets and forecasts upcoming price movements. You will get monthly wave analysis of stocks, bonds, metals, the U.S. dollar and economic and social trends. This is an award-winning newsletter and it was named #1 Bond Timer and Featured Advisor by Timer Digest.
In the Elliott Wave Theorist you’ll get Bob Prechter’s cutting edge view into when, where, and why the waves are unfolding in the broader market. Each Theorist provides unparalleled insight into the sociological and psychological signals in the marketplace.
By starting your Financial Forecast Service subscription today you will be two steps ahead.
Bob Prechter, Steve Hochberg, and Pete Kendall don't take their lead from Federal Reserve policy, news headlines, political elections or People magazine covers. They forecast the trends that produce those outcomes so you can expect them to happen.
The analysis in these publications go beyond the financial markets. There are hundreds of places to get investment ideas. But which of them gives you the striking political, social and cultural commentary you find every month in The Elliott Wave Theorist? Or when crude oil hit all-time highs in August 2005, the Short Term Update was virtually alone in saying that prices should soon plummet. By themselves, such observations are worth the price of the subscription.
You will also receive special reports and interim reports. Your subscription includes more than a monthly newsletter. Bob and his research staff produce interim reports at critical junctures in the market, when you need them the most. They'll even send you these reports overnight, if the information is extremely time sensitive. Special reports are released for a strategic view of an important issue.
There is no question that you need to make objective investment decisions during tumultuous, emotional times. Bad news has become the world's fastest moving commodity. Don't be confused when it comes. When you subscribe to the Financial Forecast Service you will receive a) reliable information, b) a proven investment method, c) the best protective strategies, and d) the best investment opportunities.
Plus, your free copy of the best selling Conquer the Crash book.
The short answer is everybody. Investors, teachers, community leaders, business owners, corporate CEOs, your mom and dad... Anyone who reads it will find Robert Prechter's Elliott Wave Theorist (EWT) newsletter a life-changing experience.
What is it about? The Elliott Wave Theorist is about the Elliott Wave Principle and how it is applied to the economy, financial markets, nature, socionomics and our lives. The unparalleled insights gained from reading to the EWT newsletter are not available anywhere else because its content is unique.
The Elliott Wave Theorist presents though-provoking evidence of how Elliott Waves depict optimistic social mood, in which an expanding confidence in present conditions is expressed, and as the mood turns, social mood changes to pessimism, to the point where there is a contraction in confidence and its expression.
The primary focus of EWT is to track "intermediate-term patterns in the U.S. markets and forecasts upcoming price movements... in stocks, bonds, metals, the U.S. dollar..." But don't let the financial focus deter you because it also integrates the economic and social trends affecting our culture at large, at the macro level, and you and me, at the micro level. It also includes commentary on behavioral finance, physics, pattern recognition, and socionomics.
Ahead of the twists and turns that affect all of us, from what's unfolding in the U.S. financial markets to what's happening at your very own bank, this revealing newsletter is the best financial and social forecasting publication anywhere. Its content is astute and the relevance universal.
The forecasts in EWT may be of the reversal in a decade long trend of oil or about social change in politics, such as when a president is more likely to be elected for a second term. It also provides detailed technical analysis of specific Elliott Wave patterns found in charts from the Dow Jones to General Motors' stock.
To give you an idea of its forecasting success, while being hated by many bull investors because of its irritating pessimism throughout the late, lamented bull market, the newsletter, was one of the very few to make a forecast of the crash of 2008. Additionally, reading through EWT newsletters from 2003 to 2007 there are many instances that forecast what's has happened and what's exactly happening right now. In other words, Robert Prechter was not only fully aware of what was just around the corner but was also one of only a few forecasters to call the crash.
Think of reading EWT as reading tomorrow's news today. The newsletter is published at least 12 times a year and it is worth every penny. Published by Elliott Wave International, the first issue of the Theorist was published in April 1976 and has been continuously in print since May 1979. Robert Prechter is the publication's editor and main contributor.
The latest Elliott Wave Theorist issue (August 2008) challenges current recovery hype with hard facts and the main point is that the worst is NOT over. But more important, there is advice on what you can do to safeguard your financial future.
Contrary to Elliott Wave Theorist, most economists are predicting inflation ahead, rather than deflation. Every now and then an economist might admit deflation is possible, but will counter this with the argument that inflation will eventually reign. One of their arguments seems to be that the economic recovery has begun, and this will prevent the development of a deflationary spiral. But, are you willing to bet on the economists saying the recession is over?
Why can economists not entertain the concept of deflation? Partly, the answer is that they are so used to inflation being the norm, it has been the norm all of their lives, that they cannot comprehend such a massive shift. But just because we have not had a deflationary depression since the 1930's does not mean it cannot happen again.
Will we have deflation or inflation?
Despite a bear market rally we still have deflation. It's been happening in Japan for some time, now it's happening in Europe, in Britain, and in some states such as California. As the bear market returns in full force we will see deflation take a stronger hold. Credit expansion will slow further as banks become more wary of making loans, households will become more wary of spending as unemployment rises, retailers will be chasing fewer dollars and prices will fall. Stocks, commodities and property prices will all tumble again, to new lows. The funds to buy these will simply dry up as the full force of the collapsing credit bubble plays out globally.
Protecting your wealth in a deflationary scenario is very different to how it is done during times of inflation. Your approach should be very different, and this is why you need to be sure that you have the right prediction. Robert Prechter, using the Elliott Wave Principle, has been accurate in his predictions to date, and he is predicting deflation not inflation.
You will need specific information depending upon where your money is held. As the second wave of the credit crunch unfolds you will want to be able to pick winners before the race has run. You will want to know if gold really is a good place to put your money, or not. As times get tougher and deflation bites hardest you will need to know which are the safest banks, least likely to fail and most likely to return your money when you want it.
The Elliott Wave Theorist is for those who realise that Wall St has got it wrong. That very few mainstream economists predicted the credit crunch and resulting economic chaos. That of the few who did see what was coming, Prechter and Elliott Wave were among the most specific and accurate.
If you have wealth to protect you need regular updated information from people who clearly know what they're talking about. You need clear specific advice on how to avoid your assets value disappearing when deflation takes hold.
The waves of euphoria that engulf Wall Street and the $2 Billion 'clunker' program, where you can get $4,500 for the purchase of a new car when turning in an older vehicle to be scrapped, will not stop the second flood of deflation that is still yet to come.
Contrary to the latest "all is getting better" headlines, the bear market is not over and the boom is not back.
Newton should have known better back when the South Sea bubble burst, back in 1720, after he lost a lot of money. This time around, the credit bubble has more bursting to do. Even with Wall Street buoyed up by the GDP report we see consumers still aren't spending. And until they do, everyone has to be wary of any recovery talk.
The main theme of desperate times calling for desperate measures, like Arizona state possibly selling its Capitol buildings, may have had a bit of respite but it'll be back, greater and harsher than ever.
Ouch!
The bubble of optimism from the top (US economy saved from 'catastrophe') will soon pop.
Employment numbers may support such 'saved the day' claim but even if businesses are now hiring it is likely to be just about everywhere you don't want to work.
A bigger contraction is on its way which will make it difficult, if not impossible, for continued optimism and programs, such as an overhaul of health care, will not see the light of day.
Although the headlines appear rosier in America they are a bit different for Japan and England. Japan's eternal downturn is now entering a deflation period, according to the Bank of Japan.
Plus Mervyn King, the Bank of England Governor, also warns 'deflation remains a very clear and present risk'. Yes, indeed. But will the continued quantitative easing to fend off deflation work? We don't think it will.
The big global deflation turn is nigh and when it arrives there will be a loud pop.
In the October 2003 Elliott Wave Theorist ( page 8 ) there is the forecast that by the time this economic collapse is over "Social Security in its current form will fail."
Today, it is no secret that the population of the United States is aging and as more people over the age of 65 retire the strain on Social Security to pay benefits will continue to increase.
The question is, will it get to the point where it may not be able to pay any benefits at all?
Well, the Congressional Budget Office has updated its Social Security projections, for both outlays and revenue, and their chart (shown below) shows that Social Security is about to go negative real soon:
Because the ratio of workers to dependents is declining and the economic situation will continue to deteriorate, which equates to tax receipts declining as well, Social Security in its current form has to change or it will fail.
A quick look at the real estate crash numbers and it is hard to believe that home values can go lower.
If over the past year "83% of U.S. homes declined in value" then there is only 17 more points left to go to reach the mark of '100% of U.S. homes declined in value.' A chart from Zillow’s Q2 Real Estate Market Reports paints the current picture:
Can home values continue to fall?
The perception is that in the next six months home values will not continue to decline, as shown in Zillow's Home Value Misconception Index chart:
The reality is that home values will continue their decent down the deflation path as fiscal conservatism continues to penetrate all aspects of American society. And with more bad news coming down the pipeline, such as the next scandal, that of Fannie Mae's "$5.4 trillion in taxpayer liabilities" that remain off-balance-sheet, just like Enron and Citigroup had done before, the perception that the decline of home values will stop will be shattered.
