Mobius Says Fresh Financial Crisis Around Corner Amid Volatile Derivatives

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan in Tokyo today in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

"Destructive capability is no substitute for freedom" by Simon Black

During my own career, I realized that the military was little more than a blunt instrument for bureaucrats to achieve political gain. I remember the night before the invasion of Iraq in 2003 so clearly: as all the forces were huddled at the border in Kuwait waiting to advance, I couldn’t stop thinking about the people on both sides who were about to die because George W. Bush had something to prove.

In the subsequent years, little has come from that conflict other than shattered lives, lost limbs, and a mountain of debt.

You can peel back the onion further and question the benefits of nearly every conflict– Mogadishu under Clinton, Panama under Bush I, Grenada under Reagan, the entirety of the Vietnam War under five presidents, the invasion of Greece in 1947, the occupation of Haiti in the 1920s… Cuba, the Philippines, Mexico, etc.

There are scores of other instances going all the way back to the late 1700s. And for what? To install a ruthless, puppet dictator? To maintain the country’s addiction to oil? To expand America’s domain until it matches the size of its government’s ego?

Libya is simply the latest in an endless string of folly. This logic of “let’s indiscriminately bomb a country in order to protect the civilians” can only come from the mind of a politician who quantifies benefit in votes and awards taxpayer money to defense contractors that make warfare more lethal.

Consider that there are entire industries with some of the most brilliant minds on the planet dedicated to making the military more ‘powerful’, i.e. deadly.

Today, politicians can watch a predator drone or stealth bomber rain death and destruction on a foreign population from his plasma screen. They brag about their smart bombs (which are racking up the civilian death toll) or how powerful their nuclear arsenal is, as if the efficiency of one’s destructive power is honorable.

Donald Rumsfeld famously used the phrase “shock and awe” as a promotional tool during the invasion of Iraq. It was something for the press to latch onto and fill the country with a dreamy spin on the military’s ability to exterminate foreigners like cockroaches.

They show us videos of massive explosions and Americans shriek like chimpanzees in boastful approval. Not exactly a far cry from the Roman Colosseum, is it?

In reality, there’s nothing romantic about this; the ability to kill efficiently should not be a source of pride. And the fact that a small group of elites has the power to send thousands of people to fight, die, and kill, as well as cajole an entire society into tacit support, is a total aberration of humanity.

Our descendents will surely look back on this time and wonder how we could have been so foolish– to let these people rob our freedoms; destroy our economies; kill foreigners on their home soil; and shower themselves with Peace Prize medals… all while keeping society quietly subdued with games, tricks, and bombastic patriotism.

They tell us to wave the flag, to buy yellow ribbon bumper stickers, and to remember the fallen on days like today. Truthfully, though, the memories of the fallen would be much better honored if the government quit making more of them… and stopped destroying the freedom that they supposedly died to defend.

* If you have ever doubted that freedom is on the decline, just watch this video recently shot at the Jefferson Memorial of all places.

State and local governments may cut 450,000 jobs in FY2012

Around 450,000 people who work for U.S. states, counties, cities, towns and villages could get pink slips in fiscal 2012, sharply up from the 300,000 positions shed this year, a report said on Monday.

The number of job cuts will rise mainly because the federal stimulus program is ending while the cost of Medicaid is "spiraling," said the report by UBS Investment Research.

States got billions of extra dollars primarily for education and Medicaid from the stimulus plan. Medicaid is the state-federal health plan for the poor and disabled.

The Last Nail: May 25, 2011, Floor Speech by Rep. Ron Paul

What Inflation Means to You: Inside the Consumer Price Index

Click for a larger image

Core Inflation
Economists and policy makers (e.g., the Federal Reserve) pay close attention to Core Inflation, which is the overall inflation rate excluding Food and Energy. Now this is a somewhat peculiar metric in that one of the exclusions, Energy, is an aggregate that combines specific pieces of two consumption categories: 1) Transportation fuels and 2) Housing fuels, gas, and electricity. 

Inflation and Your Household
The universal response is to moan over price increases and take delight when prices are cheaper. But in reality, households vary dramatically in the impact that inflation has upon them. When gasoline prices skyrocket, a two-earner suburban family with long car commutes suffers far more than the metro family with short subway commutes. And remember, Uncle Sam excludes energy costs from Core Inflation.
Households with high medical costs are significantly more vulnerable than comparable households with low expenses in this category.
The BLS weights College Tuition and Fees at 1.493% of the total expenditures. But for households with college-bound children, the relentless growth of tuition and fees can cripple budgets. Often those costs get bundled into loans that saddle degree recipients with exorbitant debt burdens. Consider the following numbers from the CollegeBoard.com website:

• Public four-year colleges charge, on average, $7,605 per year in tuition and fees for in-state students. The average surcharge for full-time out-of-state students at these institutions is $11,990.
• Private nonprofit four-year colleges charge, on average, $27,293 per year in tuition and fees.

The one thing we can be certain about is this: An increase in inflation will have a painful effect on lower income households, those on fixed incomes, those with higher ratios of transportation costs, and any household whose discretionary spending is more dream than reality.

Osama Bin Laden to Cause U.S. Hyperinflation

The money quote from the article:

We hate to say it, but if the U.S. experiences hyperinflation within the next few years, it will be what Bin Laden wanted. If the incomes and savings of Americans no longer have enough purchasing power to put food on the table and heat homes, many more Americans will die from hyperinflation than were killed on 9/11. Yes, we finally got him, but we had to borrow and print trillions of dollars over nearly a decade and there are no signs of our military spending slowing down. The success of killing Bin Laden could potentially be used as an excuse to increase military spending to all new record highs. The purchasing power of the U.S. dollar is crashing to new all time lows on a daily basis. This is not an "orderly" collapse. The dollar is falling off of a cliff and a worldwide rush out of the dollar could be imminent. A weak U.S. dollar as a result of our massive budget deficits, largely from military spending, is the worst possible thing for the homeland security of our country.

Ministry of Propoganda

The Department of Truth, a.k.a. the Ministry of Propaganda, issues a stream of massaged/manipulated data to support the mind-bending "perception" that the economy is in "a real recovery." Does anyone outside the lapdog mainstream media take the bogus employment statistics seriously? It's so painfully obvious that the "headline unemployment number" is manipulated via removing millions of people from the workforce, and removing the unemployed from the statistical ledger once their benefits expire.

What with the bogus "recovery," a couple of hot wars and an utterly dysfunctional and corrupt political system, the Ministry of Propaganda has been quite busy of late. Housing has bottomed--once again, for the third time since 2008. And we really really really are exiting Afghanistan and Iraq--soon--please ignore those permanent bases and proxy armies.

It doesn't matter if the Fed or Federal government apparatchiks really believe that managed perceptions can replace reality: they have no choice but to hope perception can become reality. 

In other words, faith in the legitimacy of the institutions which report on the economy and in those institutions on which the economy depends.Unfortunately, all these institutions are in tatters: all are in various stages of delegitimization: the Federal oversight agencies, the Fed, Congress, the Executive Branch, the ratings agencies, the financial sector, and of course the lapdog mainstream media.

I once saw a yellowed newspaper from Thanksgiving, 1935. the headlines proclaimed "growth has returned and the worst is over." It was all lies, of course, mere propaganda issued in the abject fear that the populace might become restless if the nation's institutions confirmed what people could see with their own eyes.

When the current stock market bubble pops, the last shreds of the Fed's legitimacy will be blown away. Strip away all the distractions, and the Fed's entire campaign to "restore confidence" and "animal spirits" so that the "recovery" magically becomes "self-sustaining" is based on one thing, and only one thing: the current stock market rally.

I once saw a yellowed newspaper from Thanksgiving, 1935. the headlines proclaimed "growth has returned and the worst is over." It was all lies, of course, mere propaganda issued in the abject fear that the populace might become restless if the nation's institutions confirmed what people could see with their own eyes.

When the current stock market bubble pops, the last shreds of the Fed's legitimacy will be blown away. Strip away all the distractions, and the Fed's entire campaign to "restore confidence" and "animal spirits" so that the "recovery" magically becomes "self-sustaining" is based on one thing, and only one thing: the current stock market rally.

The Housing Bubble Broke the Middle Class

The bursting of the housing bubble wiped out half of the net worth of the Mortgaged Middle Class.
 
The family house was the traditional foundation of household wealth. As for all those trillions in financial wealth--as we all know, 83% is owned by the top 10%.

So here's the reality: over one-fourth of all households are at or below the poverty line: 28 million.  The top 21 million households own 93% of all financial wealth.

The Great Middle Class between those in poverty and the top 20%--56 million households-- owns about $2.7 trillion in financial wealth, and the millions with mortgages own an additional $1 trillion in home equity. That comes to $3.7 trillion, or about 6.5% of the total household net worth.


Before the housing bubble, households owed about $5 trillion in mortgages. The housing bubble came along, introducing the fantasy of home-as-ATM-cash-withdrawal-machine, and mortgages ballooned to over $10 trillion.

Back at the top of the bubble, the middle class had $6 trillion more assets on the books. Considering the Mortgaged Middle Class now owns about $6 trillion in net assets, then the bursting of the housing bubble caused their net worth to drop by 50%.

Japan versus USA Same Depression with a Lag

Speaking of Japan, do you realize that we are on a similar course when stock markets are priced in Gold? I am not saying deflation or inflation, I am saying "priced in Gold." Only Gold bulls are used to such pricing strategies, but it is time for reality to intrude on the paperbug world.

Whatever monetary chaos we are in store for, Gold will outperform stocks over the next several years. This is open for debate in my mind as much as the question of whether fiat money will retain its value over the next decade is open for debate. Believe what you will.

But notice the "phase shift" chart message between Japan and the USA shown below. The chart is a monthly log scale chart of the Nikkei stock index ($NIKK, the main Japanese stock index) divided by the price of Gold ($NIKK:$GOLD), shown in a black and red candlestick format, versus the Dow to Gold ratio ($INDU:$GOLD), shown in a black line format:

Click image to enlarge

Same chart with a phase shift, no? The corrections in this ratio lasted longer for Japan because they entered their secular depression when everyone else's economy was booming. We don't have that luxury, so our corrections in the Dow to Gold ratio have been shorter. We are about to begin the biggest leg down in this ratio since the "secular bear market" in this ratio began in 1999. This is not a drill and this is not a call for the end of the world. Be careful out there if you're not in the precious metals sector.

Unemployment Insurance: State Trust Fund Loans

States are hurting, and borrowing from the Federal Government that's hurting too.  This is socialism at it best.

The Federal Unemployment Account (FUA) provides for a loan fund for state unemployment programs to ensure a continued flow of benefits during times of economic downturn.  According to the U.S. Department of Labor, Employment and Training Administration, 32 states and the U.S. Virgin Islands are currently borrowing to cover unemployment benefits.  Five states, Maryland, New Hampshire, South Dakota, Tennessee and Texas, repaid their loans in full by the end of 2010; however, New Hampshire and Texas have again begun borrowing from the trust fund in 2011. 

As of April 18, 2011, the most recent total balance of outstanding state loans from the FUA is $48.4 billion.