1) Bernanke’s call = Housing steady to higher
Prior to the sell off in housing Bernanke assures everyone housing prices will be steady to higher, there is no bubble, home prices will be supported by the strength in the economy and “there has never been a national decline in home prices”.
Housing sells off hard
Click here for the Fed housing index chart
2) Bernanke’s call = He’s confident home loans are being qualified correctly
Mortgage delinquency rates hit a new historic high
Click here for the Fed mortgage delinquency chart
3) Bernanke’s call = He expects consumer spending higher
Consumer spending tanks
Click here for the Fed consumer spending chart
4) Bernanke’s call = Personal income will rise
Personal income moves lower
Click here for the Fed disposable income chart
5) Bernanke’s call = The economy will be supported in part by a decline in energy prices
Crude oil rallies setting a new all time high
Click here for the Fed crude oil chart
6) Bernanke’s call = He sees auto sales moving higher
Auto sales tank and set a new low, Chrysler files for bankruptcy within a year
Click here for the Fed vehicle sales chart
7) Bernanke’s call = Home construction (housing starts) improving
Housing starts sink harder and faster than any other period in modern history
Click here for the Fed housing start chart
8) Bernanke’s call = Moderate growth in the economy moving forward
Gross Domestic product contracts beyond the worst of analysts expectations
Click here for the Fed Gross Domestic Product chart
9) Bernanke’s call = The sub prime mortgage market is healthy and liquid
One year latter over 50 of the largest investment banks fail, declare bankruptcy or are acquired because of illiquid failed mortgages. The US has the highest mortgage delinquency rate on record.
Click here for the failure 50 and counting
Click here for the Fed mortgage delinquency chart
10) Across the board Bernanke is wrong on every front.
21 Nov 2002 the speech that earned Bernenke the nickname “Helicopter Ben”
Deflation: Making Sure “It” Doesn’t Happen Here
This is one of 900+ speeches Bernanke has given where the majority of his calls on the economy have been notoriously bad.
The US is now faced the worst financial crisis since the Great Depression.
With his record of failure Washington still allows him craft the largest and most costly “economic stimulus” program in US history enabling him to direct unaudited amounts of money that exceed the US GDP.
11) Bernanke’s “economic stimulus” engages
The Fed creates trillions to force and hold rates at artificial and historic lows.
Federal debt in red, interest paid in green, Fed purchases of US debt in bright blue
Click here for the Fed chart
12) Low rates strip savers of over ½ a trillion in interest income annually.
Savers are forced to endure the largest negative rates of return for the longest period in history. This 1/2 trillion is stripped from the free market economy to save the U.S. Treasury the same amount in debt service cost.
Click here for the chart
While savers are being striped of over 1/2 a trillion in interest income the Fed creates nearly 8 trillion with keypunch entries from 2007 to 2009 to bail out the same banks that created the crisis. Source CBS, Bloomberg and the freedom of information act, again the Fed created this money with keypunch entries.
13) Bailouts by the numbers video
14) Fed’s Inspector General clueless about 9 trillion?
Rep. Alan Grayson questions the Fed inspector General where $9 trillion dollars went… the fed inspector general elizabeth coleman didn’t have a clue.
15) In 2009 the Fed moves from bailouts to outright purchases of 1.7 trillion of bad loans to bail out the same banks that created them.
Click here for the chart
16) Banks gorge on record profits
U.S. Banks never lowered the prime, it has remained unchanged at 3.25% since 2009 locking in the largest gross bank profit margins on borrowing costs for the longest period of time in history.
The 1954-2015 average spread between Fed funds (bank borrowing rate) and prime is 2.00% during economic “stimulus” is has averaged 3.15% or over 150% of the historical average. Not that the Japanese are an act to follow but at least they had the conscience to lower their prime to 1.20%.
If the Fed funds rate rose by 1.00% and the prime remained constant at 3.25% the spread between Fed funds and prime would still be larger than the 1954-2015 historical average of 2.00%
Bank Prime in green, Fed funds in red
Click here for the chart
17) Fed Objective
Through the creation of money backed by no tangible asset or income flow the Fed believes the prices of goods and services will rise, with it tax revenue allowing the U.S to exchange its governmental and bank debt problems for inflation and economic recovery with tax revenue outpacing inflation. Click here for his speech.
One thing Bernanke did not anticipate which had already been proven was the ability of government to out spend monetization and currency devaluation.
18) Once again the US proved the monetization theory wrong
Click here for the Fed chart
19) Others follow
3 other countries with world currency status Japan, the European Union and the UK also entered the same monetization race to exchange their debt problems for inflation problems.
With all four world currencies working together they give the impression the 4 world reserve currencies are somewhat stable against each other but not against tangible assets like gold.
The the USD, JPY, EUR and GBP have been hammered against gold but because they have declined together it appears they are somewhat stable.
At the same time these countries have adopted inflation calculation methods which give give the appearance inflation is contained when in reality it’s 2 to 3 times the reported numbers to justify low rates and contain increases in governmental programs.
Gold tells the true story about coordinated currency devaluation but appears to be the aberration. Click here for more on inflation calculation magic.
Increase in the national debt since the U.S. went off the gold standard = 4,4562%
Increase in the price of gold since the U.S. went off the gold standard = 3,2855%
Click here for the current Fed gold chart
19) M1 expands
M1 has expanded, tax tax receipts and home prices have increased with it while the Bureau of Labor and Statics (BLS.gov) did their “adjustment magic” to keep official inflation low justifying low rates. The harsh reality is people in the US are working longer now to buy the same goods and services than at the height of the Great Depression in 1933.
Click here for the chart
20) Longer Term Results of Bernanke’s Failed Multi Trillion Dollar Experiment.
Debt to tax receipts have disabled the US from servicing it’s debt, each 1% increase in rates consumes 10% of all tax receipts.
The last time the U.S. raised rates (June 2006)
Federal debt = 8.4 trillion
Tax receipts = 1.40 trillion
US debt as a percentage of GDP = 61%
Current
Federal debt = 18.1 trillion
Tax receipts = 1.8 trillion
US debt as a percentage of GDP = 102%
Should interest rates normalize going back to the 1954-2015 average of 5.10% nearly 50% of all tax receipts will be consumed by debt service cost alone pushing annual budget deficits close to 2 trillion dollars annually.
Click here for the current Fed chart
21) U.S. debt to personal income
Click here for a current Fed chart
22) Debt to the employed population
Click here for current Fed chart
23) Debt to hourly earnings
Click here for current Fed chart
24) Foreign held debt to the dollar index
Click here for the chart
25) Who’s Picking Up the Tab
U.S. Taxpayers, Savers and their Children are getting a 9+ trillion dollar tab
Bernanke’s failed “economic stimulus experiment” has increased the employed population’s per capita share of the national debt increasing from 67K to over 130K. If rates return to the 1954-2015 historical average of 5.10% debt service cost per employed U.S. worker will be $6,732 annually.
26) On deck
The US has 6 Trillion of U.S. debt that is currently owned by non U.S. investors, trillions more in stocks, muni and corporate bonds, currency risk in one day for these non US investors is more than annual yields/dividends.
Click here for the chart
27) The dollar is coming off a 10 year high and looking heavy
The Fed U.S dollar index since March 2015 has sold off from 93.10 to 87.58 or -8.077% for a loss of 526 billion on the 6 trillion owned in just US Treasury debt, 10’s of billions more on share, muni and corporate debt positions.
Click here for the chart
28) China’s currency is on deck to become the 5th world reserve currency.
U.S. versus China’s growth, U.S. in blue, China in red
1) Click here for a current Fed chart
Click here for more Fed charts comparing China to the US.
29) Contagion exposure isn’t Greece
The move generated by the Greece June 29th and 30th does not represent “contagion” but should be a warning to all. The DAX -3.7%, FTSE -2.1%, CAC -3.8%, S&P -1.2% DOW -1.33%.
The European Union has a GDP of 18.5 trillion (USD) Greece is 242 billion representing less than 2% of the European Union’s total GDP.
To put this into perspective Greece’s GDP is just a little larger than the state of Louisiana (216 billion),
California’s GDP is 2.3 trillion and just think of how many times the State of California has nearly gone broke,
Orange county California’s GDP is 210 billion and was forced to file for bankruptcy in 1994.
If Greece on June 29th and 30th can create this DAX -3.7%, FTSE -2.1%, CAC -3.8%, S&P -1.2% DOW -1.33% just think of the damage and “global contagion” that will engage when sales of 6 trillion or foreign held U.S debt engages.
The harsh reality for the U.S. and other western economies is there monetary policy is unsustainable, and now irreversible because of prewar Germany/Bernanke style “economic stimulus” their only out now is currency devaluation and inflation, click here for the numbers and links to Fed charts
30) How this will unwind
1) As the dollar loses credibility foreign sales of U.S. debt, shares and dollar’s will engage
2) These sales will escalate as U.S. rates rise rise and Treasury instrument valuations fall
3) Higher rates will hurt U.S. companies resulting in U.S. stock sales
4) China’s currency comes on board as the 5th world reserve currency in October
The U.S. markets will hemorrhage, true contagion will spread to the European Union if is does not occur first in the EU giving the Fed the justification to fire up the “Quantitative Easing” printing press with a vengeance.
31) High true inflation will engage
Total debt service cost in 2014 = $430.81 billion. Average 2014 interest rate = 2.37%
Click here for a current table
32) The majority of all U.S. debt is now fixed in durations of 10+ years
Average yield on this debt is 2.37%, (1954-2015 Average 5.10%)
The U.S. has the worst economic fundamentals in it’s history
The U.S. has locked in fixed financing at 2.37% less than half the 1954-2015 average treasury yield of 5.10%
By keeping short term rates near zero those that needed any income were “sucked” into the longer dated U.S. Treasuries allowing the U.S. Treasury to lock in its debt service cost at the lowest rates in history for the longest average duration in history.
This will allow the U.S. to massively devalue the dollar with little or no impact on debt service cost as dollar devaluation and inflation engages.
The same investors who have endured the largest negative rates of return for the longest period in history now face the largest dollar and instrument devaluation in history.
Click here for current quotes
33) Further Monetization now remains the only solution (devalue the dollar)
Pre Monetization interest rate risk to U.S. budget deficits
Had the U.S not “fixed” it’s debt for the next 10+ years the coming interest rate hikes could be catastrophic.
The 2008-2014 average U.S. federal deficit was 1.4506 trillion or greater then the total national debt in 1984 of 1.4107 trillion.
Yellow = current treasury rate with debt service consuming -23.41% of total tax receipts
Red = 1954-2015 average Treasury rate with debt service consuming -50.28% of tax receipts
Orange what rates would be using BLS.GOV calculations from 1980, -92.88% of tax receipts
34) Through the creation of money backed by nothing “Quantitative Easing” increases money supply.
As more money chases after the same goods and services prices rise (inflation).
When prices rise so does tax revenue which I believe is the Fed’s ultimate goal, to have the same debt service cost from the fixed rate with potentially twice the revenue to service it.
The Fed chart below shows the direct correlation between M1 (money supply) in black and tax receipts in green.
Click here for a current Fed chart
35) Post Monetization (after the Fed devalues the dollar against tangible assets)
U.S. Treasury debt is fixed for greater than 10 years the impact on debt service cost will be minimal with the increase in inflated tax revenue offsetting the increase in rates.
Yellow = current treasury rate with debt service consuming -11.71% of tax receipts
Red = 1954-2015 average Treasury rate with debt service consuming -25.14% of tax receipts
Orange what rates would be using BLS.GOV calculations from 1980, -46.44% of tax receipts
One thing no one can question is the great recession has generated extreme economic fundamentals.
Extreme economic fundamentals generate trends and the kind of markets and profit potential traders like myself dream about.
