Archive for December, 2010

Today, I’d like to take a step away from the National economic news, to cover what is happening in my own back yard.  The Colorado Legislative session will begin January 12, 2011, and the most pressing issue at hand is balancing the budget.  Granted, this is a task that would be difficult for just about anyone- but it is necessary for the success of our state.  Let’s take a look at some of the real numbers and you decide where you stand.  Also I would like to address our quickly growing debt situation at the state and local level, which will lead to huge problems when interest rates rise, something I expect to happen sooner than you think. 

First let’s take a look at the overall numbers we are facing.  To put it simply looking at the main ticket items FY2011-12; Pensions will cost 3.2 billion, Health Care- 4.4 billion, Education- 4.8 billion, Welfare- 1.7 billion, Protection- 1.7 billion, Transportation- 1.2 billion, and Other Spending- 2.1 billion.  The proposed budget FY2011, beginning July 1, 2011 is $19.1 billion.  The state budget shortfall is a huge $1.1 billion.  How is our government planning to cover these expenses? 

The proposal includes using $7.6 billion from the general fund (coming from state income tax, cigarette and tobacco taxes, liquor taxes, corporate taxes, court receipts, fees, and sales & use tax mostly), $6.3 billion in cash funds (this includes fuel taxes, transportation related revenue, severance taxes, gaming taxes, hospital provider fees, federal mineral leasing, and unemployment insurance revenue), and $5.1 billion in federal funds/federal aid.  This totals around $19 billion, the cost of the budget.  Now let’s look closer at where this money is really coming from. 

Looking at the General Fund, we haven’t seen a major increase in revenue here in quite some time.  General Fund revenues estimated for the 2011 budget are falling in the area of $7.093 billion.  The General Fund has been decreasing over the past two years to the tune of -16.7%.  My initial question is, how do we allocate $7.6 billion from the General Fund for the 2011 budget, if our revenues will only be $7.093 billion?  I’ll address this question shortly.  The state of Colorado is expecting an estimated increase in General Fund revenue over the next two years, but I’m unsure how this will materialize.  With a lagging economy, revenue is bound to continue to lag. 

The Cash Fund is a whole different ball game.  According to the Legislative Economic Council, Cash Fund revenues that are subject to TABOR laws (fuel & transportation taxes, severance taxes, gaming and hospital provider fees), are estimated to total $2.57 billion for YR2011-12.  When we look at Cash Fund revenue that is not subject to TABOR laws (Federal mineral leasing revenue, and Unemployment Insurance revenue), Fed mineral leasing is projected to bring in $143.9 million, and the Unemployment Insurance trust fund is seeing a current negative balance of -$206.4 million due to such a large unemployed population.  This fund is estimated to be operating at a deficit until 2013.  All in all, total Cash Funds for the state of Colorado are estimated at $2.713 billion.  How will our government use the assigned $6.3 billion in Cash Funds to cover the 2011 budget, if there is only $2.713 billion in revenue? 

Finally, the $5.1 billion in federal aid that we are receiving, is partially given, and partially loaned.  We accepted federal loans to cover state budget problems in 2010, and will now be paying interest on those loans beginning January 1, 2011.  Federal aid is dwindling as stimulus funds have been running out, leading to one dreaded conclusion…debt. 

Realistically, our total state tax and fees revenue FY2011-12 including General and Cash Funds is $9.806 billion, and our budget is $19.1 billion.  The remainder is coming from the federal government through loans or aid, and you guessed it, debt through municipal bonds.  Our state government would have you believe we are running at a projected $1.1 billion dollar deficit for next year.  I would argue that the deficit is closer to $9.294 billion.  This is enormous, and irresponsible. 

Looking at the history of our debt here in Colorado, presently our official state debt is sitting at $17.9 billion.  When you include outstanding debt, pension and OPEB UUAL’s, unemployment trust funds and the 2010 budget gap, state debt is really sitting at $25.681 billion.  My major concern is that in 2001, our state debt was at $5.8 billion.  In 10 years time our “official” debt has grown by $12.1 billion.  It has been growing at a rate of over $1 billion/year.  What concerns me more is that local governments including all counties and cities in Colorado, are in debt $35.7 billion collectively.  Our state as a whole is between $50-60 billion in debt.  Why is this a problem?  Colorado ranked #12 in the USA for highest debt to GDP ratio, currently sitting at 21.39%.  I don’t know about you, but this is a bit high for my comfort level.  Now let’s look at Municipal Bonds.

For those that don’t know, a Municipal Bond is basically the purchasing of state or local debt, with the promise that you will receive interest and principle payments on that debt within an established time period.  A buyer of a municipal bond could be thought of as “giving a loan” to the government.  Interest rates have been held artificially low over the past few years.  According to the Nuveen Colorado Municipal Bond Fund, 10 year bonds are yielding 4.56% Interest, 5 year bonds are at 3.44%, and 1 year bonds are at 4.80%.  These interest rates are very low.  So what happens as interest rates rise?  Let’s say they go to 8%, 10%, even 12% (which happened in the 80’s).  The annual interest on $60 billion at 12% would be $7.2 billion.  This reaches the level of “insane” interest that state and local governments can’t afford.  We are overdue for a raise in interest rates, and our government isn’t prepared to deal with that situation to my knowledge.  We will finally get to the point of borrowing just to cover interest payments on our soaring debt, a viscous cycle with a disastrous ending.  From an investor perspective, I wouldn’t touch municipal bonds with a ten foot pole. 

Some argue that the Colorado economy is growing, and they are correct.  Our economy is growing, at the rate of 1.9%.  This is a small number.  Unemployment is still around 8.6% here in Colorado.  Based on history and economic principles, we would need to see a growth rate of over 6% consistently to get these people back to work, especially given the fact that we’ve added 700,000 new citizens to our state over the past 10 years. 

Due to transparency issues, it remains difficult to really plunge into the details of where all of this money is being allocated.  Hopefully that will be changing in 2011.  Regardless, our legislators face difficult challenges.  They first must figure out how to stimulate the economy locally.  My advice is to allow the markets to be as free and unregulated as possible, stimulating businesses to operate and hire without the headaches.  Then they face the arduous task of budget cuts.  That means cuts to many of our services as citizens.  It may be painful, but overall it is necessary for the health of our state and economy.  I’m willing to take the pain, if it means a better future for my children.  In order to get our state back on track, these cuts will have to be deep and effective.  Coloradans through TABOR have established their desire for less government.  Now is the time to start living with that decision by promoting and allowing these cuts. 

Lastly, I don’t believe that the State of Colorado is prepared for the inflation, and the currency problems that we will be facing due to our choice as a state to use the U.S. Dollar as our main form of currency.  Boulder has taken steps to create a new currency, but other than that I’ve heard of nothing being created in Colorado to compete with the dollar.  The dollar is facing challenges like we’ve never seen before, due to a doubling of our money supply courtesy of the Federal Reserve.  They continue to monetize debt, through quantitative easing.  The effects of these actions will be unexpected, and have the potential to deeply affect businesses and citizens of the state of Colorado.  I pray that our government has a plan to deal effectively with these difficult challenges ahead.  That’s all I have for today.

John F. Haettich- 12/31/2010

 

2010 Economy In Review

Here we are again, the end of another year. The news media is already at it bringing up big stories that all occurred in 2010. You’ll hear about the Haiti Earthquake in January, the Iceland Volcano that erupted and stopped travel in Europe for quite some time, the Health Care bill that was passed in March, of course the BP Oil spill that took most of our attention this year, and the conflict between North and South Korea. I’m guessing though- that you will hear little about our economic progress, as there really hasn’t been any. This is one area in which our government is failing miserably. Let’s take a look at where we were in economics in January 2010, compared to now.

Starting with unemployment, we have seen the “official” numbers kind of float in the same area. In December of 2009, it was 10%, in January 2010 it came down to 9.7%, and it has hovered between 9.6 and 9.8% most of the year. Today it stands at 9.8%. In the mean time, new unemployment claims have been between 410,000 and 450,000 per week, while job creation has been lacking. The job creation numbers for 2010 have been in the negative as low as -221,000 in June, and as high as 431,000 in May. I should mention though that the May job creation number included 411,000 workers that were hired temporarily to facilitate the census. So based on these numbers, about 1,500,000 jobs may have been created (I’m being generous), and we have lost somewhere over 20,000,000 jobs in 2010. Miraculously, our unemployment rate has stayed about the same, amazing isn’t it? Our Federal Government may need serious counseling- as the first step to recovery is of course-admitting you have a problem.

The Associated Press came out with an article yesterday highlighting one of the reasons that many large American corporations are showing profits, but they aren’t hiring. They find that it is not that these companies aren’t hiring, they just aren’t hiring in the U.S. These jobs are being created overseas. It makes sense because demand is on the rise overseas, and it is much easier/less expensive to do business overseas than in our homeland. Our businesses continue to be over-regulated and over-taxed.

On the GDP front, we came into 2010 with “official” GDP sitting right around 5.7%. As we know, GDP is manipulated, and in this case it was inflated. Today, our “official” manipulated GDP is at 2.6%. Even with the manipulation of hedonics, and the use of purchases on credit to inflate our GDP numbers, we are only sitting at 2.6% present day. This is not good news for the U.S. Our official GNP is sitting in the negative, and has been there for quite some time. Manufacturing has been taking hits every month with job losses, so it is clear that our country continues to fail in making things. We have little to nothing to export or trade that is tangible. This is all clear in the huge drop in GDP this year. Please remember, we must sustain a real GDP above 6% consistently to even initiate a recovery. It’s funny, in January of 2010, politicians and the mainstream media stressed, “it can’t get much worse than it already is”. Well here we are in December, and guess what, it’s worse. So what now?

Now let’s look at home prices. An article today in CNN “Home price plunge is widespread”, tells us that home prices have taken a steep plunge indicating a possible double dip slump. We are looking at plunging home prices probably worse than the all time low in April of 2009. But be relieved, it isn’t just your home. The article indicates that all 20 of the main metro areas in the U.S. are seeing plunging home prices. Isn’t that a relief. Real estate analyst Pat Newport of IHS Global Research is even quoted as saying “I wasn’t expecting it to lag so badly in all 20 cities.” They indicate that they are expecting “further price erosion” over the next few months of 5-7%, but weren’t expecting price drops to hit so fast and so hard. Another fun fact from the article- the inventory of available homes is up 50% compared to last year at this time. It’s no wonder home prices are plunging. My advice- don’t buy right now, wait until we see the bottom and pray interest rates are still low. We’ll see how this plays out.

The U.S. Dollar over the course of this year has been floating along on borrowed time. It has continuously been propped up as it remains the world reserve currency, and it is also propped up by volatility in the Euro. The dollar over the course of this year has weakened enormously, and based on the news of some of the world’s superpowers moving away from the dollar, it is on borrowed time. Quantitative easing by the Federal Reserve has served to further weaken the dollar by creating a doubling of the size of our money supply. This can be seen in the commodities markets.

Looking at just a few of our many commodities, we can see that a devalued dollar leads to higher prices for goods. Taking a closer look, Corn is up 44%, Coffee is up 46%, Rubber is up 53%, Wheat is up 33%, and Cotton is up 102% all over last year. If we look at some of our price indexes, the Commodity Agricultural Raw Materials Index (which includes Timber, Cotton, Wool and Lumber) was up 31% over last year. The Commodities Food Price Index (which includes Cereal, Oranges, Oils, Meat, Sugar, and Bananas) was up approximately 20% over last year. Finally, the Commodity Metal Price Index (which includes Copper, Aluminum, Iron Ore, Tin, Nickel, Zinc, Lead, and Uranium) was up 25% over last year. These are huge jumps in prices for goods that you and I need, courtesy of the Federal Reserve. To date, most retailers have been absorbing a good portion of this commodity inflation taking a hit on their bottom line, in order to stay competitive. Next year, this will change as companies will be forced to either pass the continuing inflation on to the consumer, or to go out of business.

Our government this year has made no major strides to cut budgets, and instead have passed a record military budget for 2011- I believe it was somewhere around $800 billion. We continue to show record deficits, while our government seems to have an end of year “sense of urgency” to pass bills like the Food Safety Bill, Don’t Ask Don’t Tell, and the End of Life Planning Bill (A morph of the death panel legislation that was knocked down earlier this year). All in all, it appears our Federal government remains delusional when it comes to the economy and a sense of urgency to cut spending, and we are facing more trying years ahead.

Some of the biggest news in 2010, is that China is raising interest rates. Just this week, for the second time in two months, China has decided to tighten up their monetary policy with a rate increase. To me, this is yet another indicator that China may be considering a move away from the dollar long term. Their reason for the increased rate, is to get inflation under control. This is inflation that they have imported from the U.S. through quantitative easing, and pegging the Yuan to the Dollar. Inflation is a problem that China really doesn’t need to have, so this move to raise interest rates tells me that they are considering all options to solve this problem. If China decides to discontinue printing along with the Federal Reserve’s QE, the dollar will fall, and I mean quickly- sending inflation back to where it belongs, the good ole USA. I believe that this last rate hike won’t curb inflation for the Chinese, but rather it will make it worse causing China to take more drastic measures.  Watch China closely over the next few months, as they will take further action to manage this imported inflation.

I expect commodity prices to continue upward next year due to QE, along with Gold, Silver and other precious metals. I expect the dollar to continue to devalue next year, if not collapse. I wouldn’t be surprised if the Euro collapses next year, as there are only a couple of countries in the EU that believe in sound monetary policy. It can only go on for so long. Should the Euro collapse, get out of the Dollar immediately. Also I believe, as predicted in earlier blogs, that gas prices will hit between $4-5/gallon. Over the past couple of days, several articles have surfaced indicating a rise in Oil & Gas as well. The stock market is inflated, and I believe it is ripe for another crash soon. The big dollar investors are selling off most of their stocks, and I believe this is an indicator of the things to come.

In 2011, please protect your assets and move them as far away from the U.S. Dollar as you can. Find safe commodities, or invest in emerging markets like Brazil and China. Above all things, pay close attention daily to what is happening in our economy. If government fails to cut spending and continues to print currency, we are looking at major changes to our world in the coming years. If government gets serious about cutting wasteful spending, and tightens their monetary policy allowing our economy to dip into a depression- than believe it or not, we all should be able to breathe a lot easier. I wish all of my readers a Happy New Year of awareness and prosperity. That’s all I have for today.

-John F. Haettich 12/29/2010

 

The Weakening State of the Union

Over the past few days, I’ve been reading various articles and updating myself on some of the numbers surrounding our economy. I’ve also noticed the legislation that is being pushed through prior to year end. If there is one thing that I can gather from all of the events in politics, economics, and legislation, it is that our union is weakening, along with our individual liberties and rights.

This week, CNN reported that 1 in every 7 Americans now depends on food stamps to survive. My first thought- why hasn’t there been an awakening yet? That means 14% of current U.S. citizens can’t even afford to eat at this point. That is 43,120,000 people. These are not small numbers, this is astronomical. We see this report, but continue to accept the falsified figures that are provided by the department of labor statistics, and continue on our merry way. The fact that a huge number of our own people can’t afford food- this is a tremendous weakness.

We also have realized due to the passing of recent legislation that there will be no major income tax increases for 2011, but the cost of government will continue to increase. Not only is the cost of government increasing, with the passing of health care reform along with a mass retirement of the baby boomers over the next 5 years, costs will be soaring. Our only out is to print money so we can pay these bills, leading to a weaker dollar, and a weaker economy. The fact that we continue to lose over 400,000 jobs a week while creating only 30,000-120,000 jobs per month reveals that our economic situation is not improving any time in the near future.

There was a report today that GDP is up to 2.6% for the third quarter of 2010. The fact that this is an inflated number, and a lot of these consumer purchases were made on credit is only the first of my concerns. Until our GDP maintains a level above 6% GDP, we will not see unemployment decrease, and we will not see our economy truly grow. We are stuck in a flailing economy, with no adults left to make the difficult decisions. This “positive” GDP report just shows how weak our economy really is in the eyes of the rest of the world.

On top of all of these economic issues, President Obama is looking to force the START Treaty through a lame duck session of Congress. When speaking to most people in Denver, some have heard of it, but most don’t know what the START Treaty really represents. My advice- START paying attention, as this treaty is a threat to our national security. There are some things you must know about this treaty- first that it would require the U.S. to reduce our nuclear warhead arsenal by 90%. That’s right, we currently have 31,255 strategic nuclear missiles, and under the treaty we would have to reduce to 1,550. On top of this, we would allow Russian officials to inspect our remaining nuclear facilities, giving them full knowledge of where they are kept and stored. My first reaction- Is this administration insane? While Russia isn’t our “enemy” at the moment, they certainly aren’t our friend.

Russia has proven to be dishonest time and time again. I don’t think you could find an American on the streets that whole heartedly “trusts” Russia. Strategically, this is like a 2 year old (the USA), playing chess with a 50 year old (Russia). Add the fact that Russia holds approximately 10,000 tactical nuclear warheads (which can be delivered by cruise missile or long range artillery) compared to only a couple hundred held by the U.S., and this treaty doesn’t even force a restriction on Russia for these TNW’s. This puts us at a major disadvantage strategically and militarily. There is also some shady terminology in the treaty that according to Russia would restrict our missile defense systems, while Obama is saying that it won’t effect the development of our missile defense systems. My point, if it is so shady that you are disagreeing on what the terminology means, than this is not a good idea. A restriction on the development of our missile defense systems would basically make us a sitting duck.

This is a very dangerous time that we live in. If there ever were a World War III, it makes sense that China and Russia would align, which combined they would outweigh us when it comes to these strategic weapons. When our government exhibits no discipline on spending we announce to the world that we are weak. When our people can’t even afford to eat, we show we are weak. When our government even considers signing a treaty that would put us at such a major disadvantage militarily, making it more difficult to defend our homeland, we scream weakness. It is like a bleeding seal that is slowly being surrounded by sharks. My advice- start showing strength in your local communities. Educate your neighbors and your friends, and question these actions of government. The next 10 years will require strong local communities- why not start now. That’s all I have for today.

John F. Haettich- 12/23/2010

The Chinese Gold Rush

Today I want to talk about China. When most “average” Americans are asked about China, they think of it as a horrible communist country that is vastly overcrowded. Why on earth would anyone want to go to China? Little do they know, that China is taking the place of the USA as the “land of opportunity”. That’s right, China is now the country to go to if you want to get ahead. While their government is communist, they operate as a free market with economic opportunities that only the US had to offer for many years. Present day, economic opportunities in the USA have diminished- as the US was even found to be the most expensive country in the world to operate a business recently. For this reason, most companies don’t want to operate here. Really what’s the point- disturbing isn’t it?

China, once thought to be inferior to the USA, is quickly passing us up as the most influential and relevant country in the world. As the emerging world leader, let’s take a look at what they are doing, as they have been many steps ahead of the USA over the last decade. Gold has been a resource receiving huge amounts of attention this past year. It is up 26% this year and expected to increase yet again in 2011 by a large margin. According to an article from “The American Dream”, China imported 209.7 metric tons of gold during the first ten months of 2010. This is five times greater than their gold purchases in the first ten months of 2009.

Why is China buying literally tons of gold at an accelerated pace? They are already one of the world’s leading producers of gold. On top of this, the emerging Chinese middle class has been buying up gold like never seen before. Fact- Chinese households have purchased half as much gold since 2007 as all Western investors combined. Are they protecting themselves from massive inflation? Are they preparing for the coming world economic collapse? Regardless of the reason, this alarming trend in China shouldn’t be ignored as China seems to be several steps ahead of the USA especially when it comes to economic strategy. In my opinion, I believe they are slowly losing faith in fiat (paper) currencies, and looking for safety in real money (precious metals) until the world economy is corrected. Unfortunate for everyone in the world, the coming correction will be pain felt by all.

So we now see the alarming trend that the USA is on the decline and China is ascending into more of a leadership role in the world. Let’s take a look at some other facts about the USA and China:

-China currently controls over 90% of the total world supply of rare earth metals. What most don’t realize is that rare earth metals are a vital part in the manufacturing of weapons, military aircraft, etc. China is now the #1 supplier of components that are critical to the operation of U.S. defense systems. Now that is an alarming fact.

-Since 2001, over 42,000 factories have permanently closed in the U.S.

-In 1985, the U.S. trade deficit with China was $6 million for the entire year. In August of 2010 alone (1 month), the U.S./China trade deficit was over $28 billion.

-Our #1 export to China in 2010 was, of all things, trash. Literally garbage and scraps.

-This past summer, China took over as the world’s leading consumer of energy. (The U.S. held that position for 100 years)

-China has surpassed the U.S. and has become the leader in high-tech exports, holding over 20% of the worlds exports compared to the less than 15% exported by the U.S.

-China now has the world’s fastest train, the world’s fastest supercomputer, and is the world’s #1 producer of wind and solar power.

Here you can see, China has soared to #1 in a lot of ways today. For this reason, I would encourage every American to pay close attention to China, and what they are doing. When China buys massive amounts of gold and other precious metals, pay attention. When China blocks shipments of the rare earth metals that our country must have for defense (which they did just two months ago), pay attention. When China cuts deals with other countries to trade outside of the U.S. Dollar- please pay attention. A transition is under weigh, and is totally being missed by most Americans. It doesn’t have to continue in the direction that it is going, but in order to change direction we must allow our economy to dip into a depression, and we must cut a huge portion of our government. Either way, we have some things to prepare for. I’d encourage you to follow the lead of the Chinese middle class, and protect your assets. That’s all I have for today.

John F. Haettich- 12/21/2010

 

GDP vs GNP

Posted: December 17, 2010 in John's Blogs, U.S. Economy
Tags: , ,

GDP verses GNP

It’s Friday, so I just wanted to do a very brief blog today. Let’s talk about Gross Domestic Product verses Gross National Product. Most Americans are familiar with these two terms, but don’t really understand the difference.

Most of you know from my earlier blogs, that GDP is an estimated value of the total worth of a country’s production and services, calculated over the course of one year. GDP in the USA as discussed previously, is manipulated through methods of hedonics by our government to create the appearance of news in their favor. You may ask- why don’t we ever hear anything about GNP (Gross National Product)?

To briefly explain, GNP is the total of all business production and service sector industry in a country, plus its gain on overseas investment. GNP in essence calculates the total income of all of the nationals of a country, and gives a far more realistic picture of a nation’s overall economy. Simply stated, GNP= GDP+NR (Net income from assets abroad). GNP is probably the best picture of the full scale of an economy, in any given country.

GDP vs GNP

 

 

 

 

 

 

 

 

 

 

 

 

 

What is our current GNP you ask? Our last recorded GNP is around -2.5% compared to a GDP ranging between 2-3% (both inflated through hedonics). A country that is said to be growing economically at a rate of 2-3%, is actually shrinking. How can this be? The truth is in the numbers. Many of you know, it is the belief of many economists that GDP is overstated, and is actually in the negative. Unless we can get real GDP over 6%, don’t expect to see job growth in the USA. It won’t happen.

To get real GDP back over 6% would require the manufacturing sector to come back in full force. We have to get back to making things in the USA. Here is a fun fact for you- the U.S. now employs approximately the same number of people in the manufacturing sector as it did back in 1940. In 1940 the population was 132 million, today it is 300 million. Sobering don’t you think? Do the research and you be the judge. That’s all I have for today, have a great weekend!

John F. Haettich- 12/17/2010

 

The Message Heard Round the World, & Other News

Yesterday, the United States of America sent a message to the world. The messenger was our own U.S. Senate. The message you ask? The United States will not be repaying our massive debts. We will default. Yesterday, the U.S. Senate passed the tax cut deal, in a time where deficits and debt is at an all time high, with no solid plans to cut spending or to end our wars. I have stated many times, that I am all for tax cuts, but at this point our situation has hit crisis levels. Our government has taken no serious measures to cut spending, but instead has monetized our own debt.

Not only have they voted to pass and extend the Bush tax cuts, but they have set them to expire days before the 2012 election almost guaranteeing they will be extended again. Our situation is dire. Forty-six of our fifty states are bankrupt, with total budget deficits soaring around $160 billion collectively. The state of Colorado alone went from a $600 million deficit last year, to a $1 billion deficit this year, and that was supposedly with an increase in tax revenue. Our government at the local, state, and federal level has failed us miserably. We have reached the point of no return with spending, and now our economy will be paying the price.

The stock market is still courting you and me to invest saying that the atmosphere is safe. At the same time, insider trading in November was at the level of 8,280 to 1. What does this mean. Insider traders are the rich, CEO’s that own company stocks, the wealthy, etc. The ratio 8,280 to 1 signifies that insiders are selling 8,280 shares of stock for every 1 share of stock sold by an outsider. CEO’s are selling the stock that they own in their own companies. Something is up. Why are the rich selling their stocks at record levels if the market is such a great place of opportunity? Don’t be a fool- read the writing on the wall. Read the actions of the rich and the insiders, and prepare.

I believe we are now set up for a dollar collapse within the next few years. I also believe that the Euro is set up to collapse for the same reasons of soaring debt with the inability or lack of intention to repay. Please understand, most economies are forced to have low deficits and debt, because if their debts and deficits get too high, the value of their currency diminishes along with their purchasing power, and interest rates soar. This forces them to have to save as it becomes too expensive to borrow. It is like a check and balance keeping the government and the people in check with their spending. The USA is a bit different in that we can print money literally as an export, or we can buy our own debt using newly printed money because the U.S. Dollar is the “world reserve currency”. It has been accepted worldwide over the years thought to be “as good as gold”. Because we can freely print, interest rates remain at all time lows giving the average American no incentive to save and every incentive to borrow. You even still see articles and advertisements in the USA saying “Now is the best time ever to buy homes”, or “This is the best time to get loans, take advantage of our low interest rates!”. This is crazy talk at this point.

The world is now awakening to the fact that the US Dollar is backed by nothing. I don’t know which will fall first- the U.S. Dollar or the Euro, but I believe both are set up to fall. Regardless of which one falls first, the remaining currency will fall within a few weeks at most from the falling of the first currency. Contrary to popular knowledge, the financial standing of the U.S. is far worse than that of Europe. The only thing continuing to prop up our economy is the worldwide acceptance of the dollar as the world reserve currency. This is changing as we speak.

In the New York Times yesterday, there was a report entitled “Sidestepping the U.S. Dollar, a Russian Exchange Will Swap Rubles and Renminbi”. Their ultimate goal is to cut the U.S. Dollar out of a large portion of trade between the two countries. The trading system will operate through the Moscow Interbank Currency Exchange, Russia’s largest stock exchange and will be the first trading in Chinese currency outside of mainland China.

Over the past year, China, one of the worlds biggest creditor nations (meaning they are extremely wealthy), started a bond market for the first time in their history. Why would a country with more reserves/wealth than most countries in the world, need loans through bonds? It’s simple, they want to create liquidity. This move by China tells me that they are looking at being the receiving hand of the economic superpower baton, and they are gearing up to move away from the dollar in the foreseeable future. The desire of our world for U.S. Treasuries over the past several decades, will soon transition to Chinese Treasuries. The moment China stops pegging their currency to the dollar (in other words, stops printing Yuan every time our Federal Reserve does QE), the value of the Yuan will soar over the dollar, and the dollar will drop like a stone. The sad thing is, I don’t think it will even take the action of the Chinese, to sink our dollar.

Unemployment remains unchanged and we lost another 420,000 jobs last week. States with the biggest increases in lost jobs: Florida lost 6,337 jobs, South Carolina lost 5,528, Virginia 4,762, Alabama 4,642, and New Jersey lost 4,613 jobs. All of these states lost jobs in manufacturing. We are still taking a hit in the manufacturing industry, the only industry that can save our economy. The numbers from the Department of Labor are completely fraudulent, yet are widely broadcast to our nation. Out of control unemployment, inflation, spending, deficits, debt, this is the reality of our nation. More and more economists are coming forward with this troubling news, yet we don’t hear them. They are muffled out by most of the mainstream.

Our American message to the world at one time was one of liberty, truth, opportunity and freedom. Our government has abandoned these principles, and for this reason have led us, the American people towards a future of debt and eventually poverty and collapse. I still believe that we have citizens that have principle, that are intelligent, innovative, and capable of returning to sound mind based on good will for all men. These next years will require leaders with wisdom and a mental toughness that is foreign to most present day Americans. Again, I reference as I have in other blogs, the clock is ticking- the outcome remains unchanged based on the facts and the numbers. Please take precautions spiritually, mentally, physically and financially to prepare for difficult times ahead. That’s all I have for today.

John F. Haettich- 12/16/2010

 

 

Recently I took a look at what is currently on the White House agenda. There is a wide variety of issues ranging from tax cuts/extensions, to raising the debt ceiling. I just want to address some of these issues briefly.

Firstly on the tax front, we are looking at tax cut extensions and tax breaks galore. We are looking at another extension of unemployment benefits for 13 months if Obama’s tax cut deal goes through, along with extended Bush tax breaks, lowering the estate tax, extending the wealth tax cuts, and extending other tax breaks including the R&D credit for businesses. So here we see a ton of talk about lower taxes, but much less talk about spending cuts. Don’t get me wrong, I’m all for tax cuts, but tax cuts will only help us if they are accompanied by massive spending cuts. Tax cuts with record budget deficits is not my idea of progress, and the current budget cuts dialogue in Washington is so insignificant, that it is pointless.

When it comes to the Fiscal Year 2011 budget, Congress wasn’t even able to come to an agreement in order to pass a budget, and had to pass a 15 day spending bill which expires December 18,2010, so that government would stay open for business. In other words, there is huge opposition to cutting programs and funding for anything and everything. I don’t believe you will see any significant cuts in the budget for 2011, but we will see later this week.

There was some effort on the agenda to get rid of earmarks. An earmark is something that is written into legislation (law) guaranteeing federal funding for whatever. It was found that an earmark ban would have no effect on government spending whatsoever, so expect earmarks to continue in full force. On top of that, the congress has ok’d a $1.9 trillion boost in the debt ceiling. Basically the treasury was scheduled to hit the cap on borrowing during the first half of 2011, so this required them to raise the debt ceiling….again. A debt ceiling exists to send the message that government cannot go into debt above the assigned ceiling number. Over the past 3 years, the debt ceiling has been raised 5 times. Every time the debt ceiling is raised, it requires a signature from the president signing it into law. Bush raised the debt ceiling by $4 trillion during his two term presidency, and Obama will do the same if not more in 1 term. I say- what’s the point of having a debt ceiling, if you keep raising it. It is like trying to hold a beach ball under water, it just keeps popping up. It is a joke.

On top of all of this, our federal government is full steam ahead with one of the costliest pieces of legislation in our nation’s history, the healthcare reform bill. As you take a step back and really consider what is happening in government, I think any logical person would think- are they insane? The lack of common sense is mind boggling. The very simple concept that you cannot spend more than you have, escapes these self proclaimed “smarter than the rest of us” lawmakers. At what point does everything just stop working? When will we see that our government simply can’t go on the way it has?

On the money front, the gig is up. Bernanke last week on 60 minutes proclaimed that one of his major reasons for buying bonds through QE2 was to lower interest rates. Last week alone, interest rates have soared, just as they did the first time he printed money. Be assured, history does repeat itself- but try explaining that to Ben Bernanke. It’s like talking to Garfield’s sidekick, Odie. Couple that with the fact that the US Dollar hit 52 week lows just about every day, and you can see that the world is wise to the illegal game our government has been playing. There are so many indicators that various countries are beginning to act in protecting themselves against the US Dollar, that it is overwhelming. At the same time Gold and Silver have resumed their path on the rise, just as I had said they would in earlier blogs. There is no way that these prices won’t rise, given the downward spiral that the US Dollar is getting ready to experience.

I look forward to the day that there is good news to report on the economic front. There just hasn’t been any in a long time. When you go to the doctor and tell him “it hurts when I do this”, he usually tells you, “well don’t do that”. When you go to government and say “you are killing our country when you do these things”, government says “ok, well I should do these things more- and at an accelerated pace, right?” Our country needs real doctors for our economy that can correctly diagnose our true problems, and apply treatment quickly and aggressively. We are that cancer patient on the verge of stage four melanoma right now. Fast action is needed, but will it happen, and will it be fast enough? Only time will tell, and unfortunatly, time is a commodity we are quickly running out of. That’s all I have for today.

John F. Haettich- 12/13/2010

 

 

Bernanke on 60 Minutes, Unemployment, and Food Safety Bill Commentary

I’ve been in a conference for the majority of this week, and this is my first opportunity to blog. I wanted to comment on a few things that caught my eye this week, beginning with the Bernanke interview on 60 minutes. What a piece of work that was. I must say, I am impressed with Bernanke’s ability to misinform the entire country with a straight face on national television. He at one point even contradicted himself where he said that the Fed “isn’t printing money”. In an interview on 60 Minutes last year, he said that the Fed is in fact printing money. So which is it Ben? Bernanke calls it a “myth” that the Fed is printing money. In the end, printed or not- money supply is being created. Benny is counting on the public to not fully understand what his actions mean, or even what constitutes the money supply.

The fact is that Quantitative Easing is simply an increase in the money supply. Every economist knows that the money supply includes several components, printed or not. Money supply by definition is the total amount of money available in an economy at a particular point of time. The three components of the US money supply are M1, M2, and M3. M1 is currency available for exchange in cash or coin. This would be cash you would use at the grocery store or a fast food restaurant. M2 includes M1 money, but also includes “close substitutes” for money. This would be checking accounts, debit cards, money that the bank holds, etc. M3 includes all of the reserves that are held by the central bank which in our case is the Federal Reserve. You might find it interesting that the Fed hasn’t tracked M3 since 2006. We are only able to get estimates of M3 from private institutions ever since the Fed stopped keeping track. In the end, Ben is introducing massive amounts of currency (money supply) into our economy, so come on Ben, let’s get real and stop playing with terminology.

Next Bernanke commented that inflation was very low, almost to the point where prices will begin to fall. I would encourage Mr. Bernanke to step out of his suit into some jeans, and go to the grocery store, or even to the gas station. Prices haven’t been stabilized, instead they have been rising consistently all year. Using “low inflation” as an excuse to create more money with QE today, is like someone morbidly overweight using the excuse that they haven’t gained enough weight this week, to eat insane amounts of food. It would be a good thing for a heavy person not to gain weight this week, just like low inflation would be a good thing for our economy right now. Prices are rising quickly, and this will be worse, not better for the American people. Scott Pelley, Ben’s interviewer on 60 minutes didn’t even bring up our soaring commodity prices, and how oil is at a 2 year high. Maybe they are in need of an independent educated interviewer?

In addition, Mr. Bernanke made several other statements that were false and/or extremely misleading with regards to interest rates. I could go on and on about his interview, but what is the point. Bernanke claims he is 100% certain he can control inflation, while he has been wrong every time he has opened his mouth over the last 5 years. Ben didn’t see the 2008 crisis coming. He was wrong about the housing bubble in the US, he was wrong about a recession happening in the US, he was wrong about the subprime crisis being contained, the US housing market bottoming, a recovery occurring in the US economy, and now inflation. It is a wonder that he has a job. If I was wrong that often, I know I’d be out of work. Ben Bernanke is like Barney Fife saying “don’t worry, I have everything under control” right before he shoots himself in the foot. Enough of Mr. Bernanke- it is a waste of breath to comment further. Expect massive inflation next year, and in the years to follow and prepare accordingly.

On the unemployment front, initial jobless claims fell to 421,000 for last week. We are still seeing no end in sight for lay-offs in the USA. We are still averaging close to 2 million job losses a month. It is funny that Bernanke mentioned in his interview that we have lost 8.5 million jobs so far and only have created enough jobs to absorb population growth. At over 400,000 new job losses per week, simple math shows that we have at least lost around 20 million jobs in the last year alone. I may have the advantage here over Bernanke, in that I had an excellent elementary school math teacher.

Lastly, I wanted to comment on the new Food Safety Bill (Senate Bill 510) that our legislators are trying to sneak through the Senate. I’ve been receiving many emails on this issue. It was originally knocked down as it had unconstitutional fundraising statutes tied to it. Now it is back, hidden in an appropriations bill amendment passed by the House last night. This is an extremely dangerous and “power grabbing” bill. It is basically a bill that would increase the FDA by 4,000 agents (more money from you and me, the taxpayers), and would give government unreasonable power over our food supply.

This bill at first glance may seem harmless, but when you really dig into its implications long term, it sets a foundation for government control over what you and I eat, with no oversight, and no checks and balances. Mike Adams of Natural News, comments about the fact that food growers will be subject to inspection by the government at will, and that the government could suspend the grower from producing food based on the belief that something may pose a risk to the public. They would not be required to produce scientific evidence of harm. He comments “This takes place with no due process, no attorney, no Constitutional protections and no rights whatsoever. This is, in every sense, a “King’s court”, where the King can simply decide that you’re guilty and put you out of business.”

I personally don’t believe that the government has a right to control our food, or what we put into our mouths. This would give them the power in the long term to attack our right to life, which we all know is unconstitutional. I urge you to get involved, call your state Senators and urge that they don’t pass this bill. If they vote yes to the bill, you should vote no to their re-election. These types of bills, allowing situations of no oversight or checks and balances, seem to be more and more common in Washington, and are unnecessary and ridiculous at best. Let’s start holding these guys accountable for neglecting their representative responsibilities. That’s all I have for today.

John F. Haettich- 12/9/2010

Today’s Jobs Report- Reality Check

I wanted to quickly comment on today’s disappointing jobs report. It comes as our national media have led the public on a roller coaster of optimistic news, followed by disappointing news. You should notice that optimistic job reports came out as we were approaching black Friday, only to be followed up with reality. You might even think that our news carriers are bi-polar by the way news is being reported recently. QE looks good, and then QE looks bad. Job reports look good, but oh, now job reports look bad. The dollar is up, and now it’s down. Is anyone interested to report what is really happening with our economy today? Reporters are jumping on small blurbs of positive activity pumping huge attention to these events, while dumbing down the larger trends that really tell us where we are heading. Let’s take a look at the jobs report for November.

Job creation for the month of November ended coming in at only 39,000 jobs, falling far short of the expected 150,000 that economists had predicted. At the same time, again as in prior months, we are losing over 400,000 jobs a week. According to today’s report, job losses were in the retail, factory, construction, financial, and government sectors. You may ask, how did they come to the number 39,000 jobs created? It is so simple that it is ridiculous. They are saying that 50,000 jobs were created in the private sector, while 11,000 jobs were lost in government. Subtract and you have 39,000 jobs created. They don’t even attempt to factor in all of the job losses on the private sector topping 2 million jobs lost per month. Below is a graph from the Department of Labor Statistics showing you the weekly initial unemployment claims to present date. You can see we are losing about 420,000 jobs/week.

We’ve been in hot water for some time. Fox news carried an article today on unemployment entitled “No End In Sight”. I think they have become more accurate with this report, rather than what they have been reporting over the past few weeks. In this report, they actually outline the sectors of unemployment, reporting that the government calculated unemployment rate had risen to 9.8%, up from 9.6%, and made mention that an additional 17% of the workforce are either discouraged workers no longer looking for work, or part time workers. Fox News basically indirectly admitted today that our real unemployment rate when calculated as they did in the Great Depression, is around 26.8% (Adding 9.8% to the 17% rate of underemployed workers). We are now hitting Great Depression level unemployment, and we haven’t turned the corner yet.

Another bit of bad news- the recovering manufacturing sector cut 13,000 jobs in November. This is the only sector that will ultimately enable our country to turn around our trade deficit, and our economy. This is definitely not a good sign for 2011. The only positive I’ve seen, is that our federal government agreed to extend the Bush tax cuts. This will help you and me in the short term, but our government really needs massive budget cuts along with this tax relief measure in order to turn things around for the USA. I still haven’t seen anyone in Washington willing to say no to spending. This can’t go on forever folks.

The only advice I have for today- stop looking at the headlines, and start looking at the numbers. Our media to date has refused to publish the truth of our economic situation either intentionally, or through lack of competence. They were supposed to be our eyes and ears- the watchdog of our government. They have turned out to be Washington’s PR department. If 1+2 doesn’t equal 3 anymore, it is time to start asking questions. That’s all I have for today, have a great weekend.

John F. Haettich- 12/3/2010

 

Our Christmas Gift to China….Inflation & Unemployment Reports Commentary

I wanted to blog on a very important report I read today from the NIA about China. According to the NIA, food prices have risen by 10% during the past month alone including a 20% rise in fruits and vegetables. Their liquor products are predicted to rise 24% this month alone. They are experiencing a food shortage, and fast rising prices….but why? Call it a gift from the old USA. What is happening is every time our Federal Reserve prints money, the Chinese government prints more of their own currency, the Yuan, to keep the price of the Yuan tied below the US Dollar. This is for trade advantage, so that they can charge lower prices for their goods on an international level, keeping them competitive in the market place.

The Chinese are keeping their export companies rich, but are causing imported inflation in their commodities markets. This can only go on for so long though, as Chinese citizens will eventually put a stop to it through riots, protest, and other forms of social upheaval. The Chinese government does have options though. Their first option, which will come into being soon, will be price controls. This is already on the table. As you read in my earlier blogs, price controls lead to empty grocery stores and long lines to acquire simple necessities. It will lead to one place…social upheaval again as people won’t be able to access food and goods that they need due to shortages. The real way out for the Chinese is to allow the Yuan to increase in value over the US Dollar by refusing to print more Yuan.

What they aren’t realizing, is that halting the printing press would be a great thing for China. Allowing the value of the Yuan to increase would mean more purchasing power for Chinese citizens. They would be able to sell their goods to their own citizens because they will gradually be able to afford them. Prices would decrease in their markets, and their prosperity would increase over time. At the end of the day, China has a rocky way out should push come to shove. But what about the USA?

Most economists are admitting that food prices will inevitably soar in the USA in 2011. Inflation is a definite at this point. So when that happens, what will our government do? We only have one option- price controls. You see, our government is spending so much, and in debt so much, that the Federal Reserve has to print money just to keep up with the bills. China doesn’t have that problem. So at this point our choices would be massive spending cuts in government (which won’t happen) leading to a halt of money printing, or price controls. So here is how it will go down. First you will see food prices really climb, even more so than we are seeing now. Then you will hear the public outcry that food is no longer affordable as it hits crisis levels. Government response will be price controls. The market’s response will be shortages and empty grocery stores. Then what? Black market for food and goods? We all move to a spud farm in Idaho and live off of grits and French fries?

Large US retailers are reporting an 80% decline in profit margins over last year, as they have absorbed most of the market’s inflation costs in order to stay competitive. This will be changing next year should these companies want to stay in business. These numbers aren’t make believe, these are very real numbers and very real statistics with very real outcomes. You will see China as just a hint of what is coming to America. What we will witness will be far worse than the inflation they are experiencing. China is blaming food price increases on “food hoarders” or people that have stocked up on food, rather than acknowledging that it is their money printing that is the cause. Don’t be surprised if the US government does the same when inflation comes around. I don’t know about you, but I think I’d rather be proactive, and be labeled a “food hoarder”, than wait in long lines for scraps and rations. But hey, to each his own.

In other news, there are reports everywhere of an improvement in unemployment. An article in CNN Money today was entitled “Are jobs coming back? Signs point to Yes”. I think we are getting to the point of propaganda when it comes to unemployment reports. These articles being published on a daily basis of job growth, are bogus. They are expecting a report tomorrow of 150,000 jobs created for the entire month of November. New jobless claims are averaging 400,000 to 420,000 per week. So I say to CNN, let’s be clear on something. A report of “Jobs coming back” doesn’t mean that we created 150,000 jobs while losing 2 million jobs. Jobs coming back means we create more jobs than we lose. We may need to send these reporters back to elementary school. It’s amazing that I have to express this to “seasoned” economic journalists. It’s like coming home and telling your wife, “hey honey- I made $100 today, but I lost $2,000.” The wife isn’t happy, and let’s be clear-when the wife ain’t happy…..ain’t nobody happy. Americans shouldn’t be happy with these numbers either. That’s all I have for today.

John F. Haettich- 12/2/2010