Is this Obamageddon?

Markets are breaking down, all over the world. Apparently our beloved Democratic officials weren't able to save us by raising the debt ceiling. What a shock and disappointment.

This phenomenon, certainly reminiscent of 2008, has a lot to do with the interconnectedness of markets and the “global bubbles” John Authers has written about. Its proximity to the “debt ceiling” theatrics also brings to mind Barack Obama's irresolvable dilemma, which I discussed last fall. Obama wants a “recovery,” of some kind, in order to get reelected; the Treasury Department, on the other hand, requires an equities collapse. Why? Because, as we saw today, there's nothing like a massive crash to convince investors to buy all the new debt the Treasury just issued.

Barack Obama is caught in a financial Catch 22.

On the one hand, his party’s fall re-election prospects rest on the stock market consolidating its gains since March 2009 (Dow 10,000), if not rising. Since his first day in office, the president has announced that the country is experiencing a great economic “recovery,” and any serious downturn in the major indices would give middle- and upper-class Americans whiplash and be politically devastating .

On the other hand, in order to remain viable, the Treasury Department needs an equities collapse -- and probably not just a slow bleed but a dramatic crash -- in order to herd millions of investors into the U.S. dollar and government debt.

The will of the Treasury will prevail, and the president and his party will be left high and dry. Furthermore, the crash will greatly empower the Treasury and federal government … for a time.

{snip}

If investors, especially the big ones like China and Japan, got the inkling that Washington were going to print its debt away (and thus cause massive inflation), then demand for bills, notes, and bonds would collapse and interest rates, soar. The government, and the currency underlying it, would deconstruct.

This perilous situation is heightened by the fact that, as of this writing, around a quarter (20-30 percent) of U.S. debt is in short-term Treasury bills, which mature in less than one year. (Clinton’s Treasury Robert Rubin (formerly of Goldman Sachs) can lay claim to developing this financing arrangement, which came to bear his name.) If the market expects monetization, then in order for the Treasury to roll its debt over, interest rates would have to be increased every three months. A classic Vicious Cycle. And rates wouldn’t actually have to go to stratospheric levels for Washington to be doomed. If they simply returned to where they were in, say, 1980, the Treasury would pay close to a trillion each year just to service its debt.

The prospects for monetization would be much improved, however, if the Treasury could lock investors into long-term Treasury debt, bonds that don’t mature for decades and which investors would have a difficult time exiting from.

This is where the equities crash comes in.

The Crash of 2008 was notable not only for the steep decline in stocks and commodities, but the dramatic increase in the demand for “cash” -- that is, liquidity in the form of the U.S. dollar as well as Treasury debt of all sorts. ...[I]n the gloomy days of November, long-term interest dipped below 1 percent -- short-terms yields went, absurdly, negative! Investors were hurdling headlong into Treasuries.

The Housing Bubble as Racial Wealth Redistribution

A recent Pew Research Center study has highlighted the widening gap in wealth between American Whites and Blacks and Hispanics. It inspired quite a few op-eds on why America isn't "post-racial" enough and why more work must be done.     

The median wealth of white households is 20 times that of black households and 18 times that of Hispanic households, according to a Pew Research Center analysis of newly available government data from 2009.

These lopsided wealth ratios are the largest since the government began publishing such data a quarter century ago and roughly twice the size of the ratios that had prevailed between these three groups for the two decades prior to the Great Recession that ended in 2009.

What's most interesting, at least to me, is the Pew Center's conclusion: the gap wasn't increased by a decline in federal employment, nor even corporate layoffs, so much as the housing bust:  

The Pew Research analysis finds that, in percentage terms, the bursting of the housing market bubble in 2006 and the recession that followed from late 2007 to mid-2009 took a far greater toll on the wealth of minorities than whites. From 2005 to 2009, inflation-adjusted median wealth fell by 66% among Hispanic households and 53% among black households, compared with just 16% among white households.

As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149.

Moreover, about a third of black (35%) and Hispanic (31%) households had zero or negative net worth in 2009, compared with 15% of white households. In 2005, the comparable shares had been 29% for blacks, 23% for Hispanics and 11% for whites.

Hispanics and blacks are the nation’s two largest minority groups, making up 16% and 12% of the U.S. population respectively.

These findings are based on the Pew Research Center’s analysis of data from the Survey of Income and Program Participation (SIPP), an economic questionnaire distributed periodically to tens of thousands of households by the U.S. Census Bureau. It is considered the most comprehensive source of data about household wealth in the United States by race and ethnicity. The two most recent administrations of SIPP that focused on household wealth were in 2005 and 2009. Data from the 2009 survey were only recently made available to researchers.1

Plummeting house values were the principal cause of the recent erosion in household wealth among all groups, with Hispanics hit hardest by the meltdown in the housing market.

From 2005 to 2009, the median level of home equity held by Hispanic homeowners declined by half—from $99,983 to $49,145—while the homeownership rate among Hispanics was also falling, from 51% to 47%. A geographic analysis suggests the reason: A disproportionate share of Hispanics live in California, Florida, Nevada and Arizona, which were in the vanguard of the housing real estate market bubble of the 1990s and early 2000s but that have since been among the states experiencing the steepest declines in housing values.

Most who have cited the study have blamed evil subprime lenders for the plight of Blacks and Hispanics. Looked at another way, though, it was precisely this kind of affirmative-action lending (which Steve Sailer first talked about in his piece "The Diversity Recession") that was the primary means of racial wealth re-distribution throughout the first half of the 2000s. Taxing rich (mostly White) people, funnelling the money through Washington's massive bureaucratic apparatus, and then issuing it to minorities isn't as effective as, in essence, "financial socialism." America could be made more "post-racial" by giving minorities 30-year mortgages at 20:1 leverage, underwritten by a government agency and packaged as derivatives by Goldman Sachs.  

Since it's becoming clear to all that the housing bubble can't be blown up again, a new means of instituting equality will, no doubt, have to be found...    

America's Magic Mountain

No, America is not about to default on its debts. And, no, Grandma’s August Social Security check won’t bounce. Nor would a failure to raise the debt ceiling result in a financial breakdown and ensuing Mad Max-style societal collapse. (This latter fact will, no doubt, disappoint many AltRight readers.)     

Democracy seems to function through mass delusion, but few recent issues are obscured by so many misconceptions and misdirections as the current “debate” over raising the debt ceiling.  Below, I’ve listed a few, all of which revolve around the fallacy that the government is about to run out of money.

One might take solace in the fact that Washington’s latest political crisis is more smoke than fire. To the contrary, examining the errors of the current debate brings one closer to an understanding the truly catastrophic nature of the world monetary system.

First, the misconceptions.

1) “If we don’t raise the debt ceiling, America will default on its debts."

No. In terms of income and outflow, Washington isn’t anywhere close to default.

As Karl Denniger points out, “default is only the failure to pay interest or principal on a loan.  Nothing else is a default.”:

The United States takes in about $2 trillion in taxes a year.  The total interest paid last year was about $180 billion, a ridiculously low blended rate, but that's what ZIRP (zero interest rates by The Fed) get you.

Let's assume for a moment that the blended rate was to more than double, to 4%.  That would be about $560 billion in interest a year, including interest on the Social Security and Medicare "trust funds" (which aren't trust funds, but I've been over that before.)

$560 billion is about one quarter of the tax revenues that the government takes in.  So even were interest rates to more than double The United States would not default.

Whatever the case, I predict that when Boehner, Cantor, & Co. finally agree to raising the debt ceiling, they will take credit for “avoiding a default.”

2) “The markets are jittery that America might default.”

No, they’re not.

First off, a default is not the end of the world. There have been many episodes of defaults by individual states throughout American history; shortly after the crises passed, bankers showed up to lend them more money.

And the Federal government is in a far better position. Washington can reproduce—for all practical purposes, without limit—the currency in which its debts and entitlement obligations are denominated. This differentiates it from Greece, which can’t print Euros and thus must plead for bailouts from its paymasters in Brussels and Berlin. As further below discussed, Washington will never default on its explicit debt, nor will it renege on Social Security and Medicare payments, for the simple reason that it always has the capacity to create more money.

True, dollars are created through issuing debt, and since 1917, Congress has had the power to limit debt issuance. However, the “ceiling” has been raised more than 100 times since it was instituted and 10 times over the past decade. On all fronts, scant resistance has been levied against the finacialization of the U.S. government.

Moreover, gold’s recent rise over $1,600 indicates that markets are (quite rationally) not predicting a default; they instead expect Washington to continue to spin off debt-to-service-debt to finance its some $15 trillion outstanding and some $70-100 trillion in liabilities [PDF], many of which, like Social Security, are currently unfunded.

Paradoxically, if Washington were to default (which, again, it won’t), the immediate result would be a strengthening of the dollar. If Washington cancelled its debts and entitlement payments, there would be, quite literally, less money now and promised in future. People would scramble for the dollars left over, and prices of most everything would fall. If the Republicans were truly concerned about the value of the dollar (which they say they are), they would be demanding not only a hard debt ceiling but a massive reneging on the innumerable future obligations. Being that the latter would necessitate informing their constituents that they should prepare for a diminished lifestyle, they won’t do anything of the kind.   

3) “The Republicans are risking financial armageddon due to their libertarian, anti-government ideology.”

It’s hard to take this one seriously.

Without question, this standoff wouldn’t be happening were it not for the Republican leadership’s desire to throw the Tea Party a bone. (Otherwise, the ceiling would have been raised with little fanfare, as it was in the past.)  That said, most proposed spending cuts, which were said to “match” hikes in the debt ceiling, are entirely symbolic.

As Gary North notes, “ . . . over the next decade” is tacked on at the end of any promised reduction. Thus, John Boehner’s big number of $4 trillion in unspecified cuts (which has been floated, then retracted, then floated again) becomes a relatively small number of $400 billion each fiscal year—which would still result in Washington running deficits of a trillion per (!).     

4) “If the debt ceiling isn’t raised, Grandma won’t get her Social Security check.”

Once again, no.

It is quite ironic that during the Obamacare “town halls” two summers ago, Democrats ridiculed the idea that Obama would take away Grandma’s Medicare payments (or even “pull the plug”). Now, Obama is quite explicitly threatening seniors with their lives: “There may not be the money in the coffers” to send out August-3 Social Security checks, Obama informed 60 Minutes’s geriatric audience.

And some might think that Obama’s hands are tied in this situation, since, according to government accounts, Social Security went bankrupt last year (that is, its “fund” issued more than it took in.)      

But Obama’s threat rests on the widespread illusion that the federal government’s finances amount to “coffers” filled with money—that is, some kind of large, though limited, source of wealth: eg, a bank account or gold hoard or dark basement filled with stacks of hundreds.

But this is not how modern government finances work. The Social Security “trust fund,” for example, is not a fund at all but a mass of liabilities. When it was cash-flow positive for 75 years, its revenues were traded for Treasury Bond IOUs and used for other governmental expenses: war, contracts, salaries, etc. Social Security is now cash-flow negative and requires debt to operate. There is all but no chance that Boehner and Cantor, or any politician, would allow themselves to be the one to shut off the credit line necessary for Grandma’s Social Security check to go out.  Obama certainly knows this, which is why he’ll make such threats, knowing his opponents will cave.    

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But let’s stop here with the minutia. It’s easy to get lost in the political maneuvering and posturing and lose sight of the big picture. Overall, there are two elemental components of Washington debt-financed everything that are of paramount importance; both of which are so simple, and so nefarious, they boggle the mind:

1) There is practically no limit to the amount of debt Washington can issue.

2) Washington never plans to actually pay off its debt (ie, clear its balance); it will instead service its debt with more debt ad infinitum.   

The first of these is directly relevant to Washington’s innumerable and unfunded promises and liabilities, which again, it will have no problem fulfilling in nominal terms.

Forget about paying Grandma two grand a month. If it so desired, Washington could request that the Fed purchase 30 trillion in new bonds, have the treasury print this up in thousand-dollar bills, and mail each citizen 100 grand in cash. A “stimulus package” of this kind is entirely feasible in a fiat-money system.

Of course, something like this would likely result in a Weimar/Zimbabwe hyperinflation, and hilariously high prices for everyday goods. And Washington is well aware of this, which is why a scheme of this kind would only be tried as an act of desperation.

And it’s also unnecessary, for in avoiding brazen money printing—and instead maintaining the dollar as the premiere vehicle of worldwide indebtedness—Washington has gotten away with inflations that are equally, if not more, outrageous than what I just described. Currently, the total dollar-denominated debt (including sovereign debt, consumer and student loans, mortgages, etc.) amounts to some $50 trillion (350 percent of GDP). And as mentioned above, the entitlement promises actually dwarf this gargantuan number.

Actually clearing America’s balance sheet would require most all of the production and savings of the entire world for years to come. But again, Washington won’t ever truly pay it off. Its solution is more insidious.   

Dick Cheney’s infamous 2002 statement that “deficits don’t matter” wasn’t a mere confession of irresponsibility. He was accurately describing an arrangement in which America’s overseas empire, its citizens lifestyles and entitlement programs could be expanded—practically endlessly—through debt—debt serviced by the issuance of more debt.

Normal governments have to bring their expenditures in line with tax revenues. The exceptional nation doesn’t have to bother. That Washington collects revenues at all seems only to be a means of assuring its creditors that it has enough cash flow to make interest payments.  

Conservatives and Republicans might want to blame this all on “big government,” but the reality is that for decades, all components of the Establishment have benefited from the arrangement: it is the way—indeed, the only way—Washington can finance wars, entitlements, student loans, mutliculturalism, and mortgages all at once.

The arrangement’s fatal flaw is not so much that it’s unfair but that it’s based on a paradigm of infinite debt growth in an intrinsically limited world. (And it’s only a matter of time before a rival country has the guts enough to offer a replacement for the dollar or at least stop indefinitely footing Washington’s bill.)

America’s debt empire, too, shall pass. And when it does collapse, the consequences will be more spectacular and catastrophic than anything prophesied in the current debt-ceiling debate.      

Ben Bernanke: The Avuncular Master of the Universe

Ben Bernanke is an odd member of our Power Elite, in that he seems to innocently believe in all the lies of postmodern financialism. It's probably wrong to imagine any malign intention in the heart of this gray-bearded professor.  In the following clip, Ben demands a pat on the back for charging interest on money he created out of thin air and on a whim. (The Fed is the U.S. government's "profit center," he informs us, as if he's hoping to get a raise from his supervisor.) The fact that every state of every kind has held gold reserves for the past six millennia is, in Bernanke's mind, a quaint "tradition," not too different from the White House Christmas tree.

It is the True Believer in an ideology that will push his ideology towards its ultimate implication--and thus bring about its destruction.

We should be thankful for Ben Bernanke.

Will "The Diversity Depression" Go Mainstream?

The alternative Right was way out in front spotting "The Diversity Depression"--that is, the role that affirmative-action lending played in the housing bubble and resulting financial crisis. (The term was coined at Takimag in June, 2008, and developed mostly at VDARE). The idea has since been integrated into a number of post-crash books. Even Walter Russell Mead, the establishmentarian's establishmentarian, has caught on. And he suggests that the GOP run on "The Diversity Depression" in 2012 as a proxy for the need to end the evils of affirmative action and the Nanny State. (That is, Mead advises Republicans to dedicate themselves to matters that might improve the lives of the White people who vote for them. Fancy that?)  

Democrats, watch out.

The Republican Party and especially its Tea Party wing have just acquired a new weapon of mass destruction — and it has nothing to do with any of Congressman Wiener’s rogue body parts.  If they deploy this weapon effectively in the next election cycle — a big if — then they have the biggest opportunity to move the country rightward since Ronald Reagan took the oath of office back in 1981.

The Tea Party WMD stockpile is currently stored in book form:  Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. By Gretchen Morgenson, one of America’s best business journalists who is currently at The New York Times, and noted financial analyst Joshua Rosner, Reckless Endangerment gives the best available account of how the growing chaos in the mortgage and personal finance markets and the rampant bundling of dubious loans into exotically toxic securities plunged the world, and millions of American families, into the gravest financial crisis since World War Two. It is gripping reading as well, and its explanations are clear enough that readers without any background in finance will have no trouble following the plot.  The villains?  An unholy alliance between Wall Street, the Democratic establishment, community organizing groups like ACORN and La Raza, and politicians like Barney Frank, Nancy Pelosi and Henry Cisneros.  (Frank got a cushy job for a lover, Pelosi got a job and layoff protection for a son, Cisneros apparently got a license to mint money bilking Mexican-Americans of their life savings in cheesy housing developments.)

Massachusetts Congressman Barney Frank (Source: Wikimedia Commons)

If the GOP can make this narrative mainstream, and put this picture into the heads of voters nationwide, the Democrats are toast.  The party will have to reinvent itself (or as often happens in American politics, be rescued by equally stupid Republican missteps) before it can flourish.

If Morgenstern and Rosner are to be believed, the American dream didn’t die of old age; it was murdered and most of the fingerprints on the corpse come from Democratic insiders.  Democratic power brokers stoked the housing bubble and turned a blind eye to the increasingly rampant corruption and incompetence at Fannie Mae and the associated predatory lenders who sheltered under its umbrella; core Democratic ideas may well be at fault.

This is catnip to Republicans, arsenic to Dems.  If Morgenson and Rosner are right, there is someone the American people can blame for our current economic woes and it is exactly the cast of characters that a lot of Americans love to hate.  Big government, affirmative action and influence peddling among Democratic insiders came within inches of smashing the US economy.

Do you think they might do it?  

Nah, better to make noises about invading more Middle Eastern countries!

The End of the "Golden Days"

Ideas that were discussed a year ago at AltRight (and which have also been developed at places like Zero Hedge and by independent libertarians like Peter Schiff) are now being put forth by über-Establishmentarian Bill Gross. 

Tyler Durden: 

A few weeks ago we pointed out what may be the most troubling (and Marxist) observation in America's labor arena, namely that the labor's share of national income has dropped to the lowest in history as a record number of Americans now focus on wealth creation through assets (i.e. owners of capital) instead of labor. In his just released latest letter (below) Bill Gross piggybacks on this observation in what is one of the most scathing notes blasting the traditional of higher education, and in essence claiming that college, as means of perpetuating a broken employment status quo whcih redirect labor to a now-expiring Wall Street labor model, is now worthless: "The past several decades have witnessed an erosion of our manufacturing base in exchange for a reliance on wealth creation via financial assets. Now, as that road approaches a dead-end cul-de-sac via interest rates that can go no lower, we are left untrained, underinvested and overindebted relative to our global competitors. The precipitating cause of our structural employment break is both internal neglect and external competition. Blame us. Blame them. There’s plenty of blame to go around." And why college graduates have only a 6 digit loan to look forward to: "American citizens and its universities have experienced an ivy-laden ivory tower for the past half century. Students, however, can no longer assume that a four year degree will be the golden ticket to a good job in a global economy that cares little for their social networking skills and more about what their labor is worth on the global marketplace." And some very bad news for the communists in the White House and the chimpanzees in the San Francisco Fed who continue to believe that unemployment is anything but structural: "The “golden” days are over, and it’s time our school and jobs “daze” comes to an end to be replaced by programs that do more than mimic failed establishment policies favoring Wall as opposed to Main Street."

America's Hellholes

Forget Harold Camping, for many of America's cities, the apocalypse has already occurred.

From Economic Collapse:

All over the mid-Atlantic, all along the Gulf coast, all throughout the "rust belt" and all over the entire state of California cities that once had incredibly vibrant economies are being turned into rotting, post-industrial hellholes. In many U.S. cities, the "real" rate of unemployment is over 30 percent. There are some communities that will start depressing you almost the moment that you drive into them. It is almost as if all of the hope has been sucked right out of those communities.  If you live in one of those American hellholes you know what I am talking about.  Sadly, it is not just a few cities that are becoming hellholes.  This is happening in the east, in the west, in the north and in the south.  America is literally being transformed right in front of our eyes.

If you still live in an area of the United States that is prosperous, do not mock the cities that you are about to read about.  The cold, hard reality of the matter is that economic decline and economic despair are spreading rapidly and they will come to your area soon enough.  Right now we are still talking about "American hellholes", but if the long-term economic trends that are destroying this nation are not turned around eventually we will just be talking about one gigantic "American hellhole".  In the end, no area of the country will completely escape the economic hell that is coming.

Let's take a closer look at what is currently happening in some of the worst areas of the country....

Detroit, Michigan

In the city of Detroit today, there are over 33,000 abandoned houses, 70 schools are being permanently closed down, the mayor wants to bulldoze one-fourth of the city and you can literally buy a house for one dollar in the worst areas.

During the boom days of the 1950s, Detroit was a teeming metropolis of approximately 2 million people, but today the current population is less than half that.  The city of Detroit, once a shining example of middle class America, is now a rotting cesspool of economic decline and it actually saw its population decline by 25 percent during the decade that recently ended.  According to the U.S. Census Bureau, Detroit lost a resident every 22 minutes between the years of 2000 and 2010.

So why are people leaving Detroit so rapidly?

There simply are no jobs.

At the height of the economic downturn, the mayor of Detroit admitted that while the "official" unemployment rate in Detroit was about 27 percent, the "real" unemployment rate in his city was actually somewhere around 50 percent.

Since there are not enough jobs, that also means that not enough tax money is coming in.  Detroit is essentially insolvent at this point.

Detroit officials are trying to implement some austerity measures in a desperate attempt to get city finances under control.

For example, the state of Michigan recently granted approval to a plan that would shut down nearly half of the public schools in Detroit.  Under the plan, 70 schools will be closed and 72 will continue operating.

It has been estimated that the remaining public schools will have class sizes of up to 60 students.

Detroit Mayor Dave Bing also wants to cut off 20 percent of the entire city from police and trash services in order to save money.

Essentially that would mean abandoning 20 percent of the city of Detroit to the gangs and to the homeless.

The mayor of Detroit has also discussed a plan in which authorities would bulldoze one-fourth of the city in order to save money on services.

So with all of this going on, is Detroit a pleasant place to live at this point?

No way.

Today, Detroit is considered to be the third most violent city in the United States.

In fact, crime has gotten so bad and the citizens are so frustrated by the lack of police assistance that they have resorted to forming their own organizations to fight back.  One group, known as "Detroit 300", was formed after a 90-year-old woman on Detroit's northwest side was brutally raped in August.

If you want to see what the future of America looks like, just take a few hours and go driving through Detroit some time.  But please only do this during the day.  Do not do this at night.  Detroit is not a safe place anymore, and you cannot count on the police to help you in a timely manner.

Detroit was once one of the greatest cities in the world.

But today it is an absolute hellhole.

Camden, New Jersey

So is there any place in America that is worse than Detroit?

Well, many would nominate Camden, New Jersey.

Many years ago, Camden was actually thriving and prosperous.  But today the city of Camden is known as "the second most dangerous city in America".

In a recent article entitled "City of Ruins", Chris Hedges did an amazing job of documenting the horrific decline of Camden.  Hedges estimates that the real rate of unemployment in Camden is somewhere around 30 to 40 percent, and he makes it sound like nobody in their right mind would want to live there now....

Camden is where those discarded as human refuse are dumped, along with the physical refuse of postindustrial America. A sprawling sewage treatment plant on forty acres of riverfront land processes 58 million gallons of wastewater a day for Camden County. The stench of sewage lingers in the streets. There is a huge trash-burning plant that releases noxious clouds, a prison, a massive cement plant and mountains of scrap metal feeding into a giant shredder. The city is scarred with several thousand decaying abandoned row houses; the skeletal remains of windowless brick factories and gutted gas stations; overgrown vacant lots filled with garbage and old tires; neglected, weed-filled cemeteries; and boarded-up store fronts.

Gangs have stepped into the gaping void left by industry.  In Camden today, drugs and prostitution are two of the only viable businesses left - especially for those who cannot find employment anywhere else.  The following is how Hedges describes the current state of affairs....

There are perhaps a hundred open-air drug markets, most run by gangs like the Bloods, the Latin Kings, Los Nietos and MS-13. Knots of young men in black leather jackets and baggy sweatshirts sell weed and crack to clients, many of whom drive in from the suburbs. The drug trade is one of the city's few thriving businesses. A weapon, police say, is never more than a few feet away, usually stashed behind a trash can, in the grass or on a porch.

But before we all start judging Camden for being such a horrible place to live, it is important to realize that this is happening in communities from coast to coast.  All over the United States industries are leaving and deep social decay is setting in.

Even the criminals in Camden are struggling.  Things have gotten so bad in Camden, New Jersey that not even the drug dealers are spending their money anymore.

So where are the police?

Unfortunately, there is very little money for police.  Authorities in Camden recently decided to lay off half of the city police force.

So now the gangs and the drug dealers have more room to operate.

Sadly, this is not just happening in Camden.  It is happening all over New Jersey.

Of 315 municipalities the New Jersey State Police union recently surveyed, more than half indicated that they were planning to lay off police officers.

So why doesn't the state government step in and help out?

Well, the state of New Jersey is in such bad shape that they still are facing a $10 billion budget deficit for this year even after cutting a billion dollars from the education budget and laying off thousands of teachers.

New Jersey also has $46 billion in unfunded pension liabilities and $65 billion in unfunded health care liabilities.  Nobody is quite sure how New Jersey is even going to come close to meeting those obligations.

Meanwhile, cities like Camden are rotting a little bit more every single day.

New Orleans, Louisiana

New Orleans had a struggling economy even before Hurricane Katrina struck back in 2005.  But that event changed everything.  It is now almost 6 years later and virtually the entire region is still a disaster zone.

New Orleans permanently lost 29% of its population after Hurricane Katrina.  There are many areas of New Orleans that still look as if they have just been bombed.

21.5 percent of all houses in New Orleans, Louisiana are currently standing vacant.  Many of those homes will never be inhabited again.

What made things even worse for New Orleans (and for residents all along the Gulf coast) was the horrific BP oil spill last year.  The mainstream news does not talk about the oil spill much anymore, but those living in the area have to deal with the effects every single day.

Some of the industries in the Gulf region were really starting to recover from Hurricane Katrina but the BP oil spill put a stop to that.

Before the oil spill, Louisiana produced more fish and seafood than anywhere in the United States except for Alaska.  But now the seafood industry has been absolutely devastated.  It has been estimated that the cost of the BP oil spill to the fishing industry in Louisiana alone could top 3 billion dollars.

Some local shrimpers in the region are projecting that it will be about seven years before they can set to sea again.

New Orleans keeps trying to bounce back from all of these disasters, but times are tough down there.

Today, New Orleans is the 13th most violent city in America.  That is actually an improvement.  Before Katrina New Orleans had even more violent crime.

The truth is that other areas along the Gulf coast are doing a lot worse than New Orleans is doing.  A ton of big corporate money has flowed into New Orleans.  Officials are trying to clean up the city and make it a huge tourist destination once again.

But in the surrounding areas things are not looking so bright.  There are areas along the coasts of Louisiana, Mississippi, Alabama and the panhandle of Florida that are some of the most depressing places in the nation.

It is almost as if there are hundreds of thousands of people that time forgot.  In some rural areas along the Gulf coast the poverty is absolutely mind blowing.  There are very few jobs and there is very little hope.  Meanwhile, large numbers of people in the region continue to get sick from the toxic dispersants used to clean up the oil spill.

Let us hope that we don't see another major disaster in the Gulf of Mexico any time soon.  As it is, it is going to take decades for that region to fully recover.  There are a lot of really good people that live down there, and they deserve our prayers.

Vallejo, California (And Virtually The Rest Of The State Of California)

Almost the entire state of California is an economic disaster zone. Austerity measures are being implemented in city after city as tax revenues have nosedived.

The following is an excerpt from a recent New York Times article that describes the brutal austerity that has been implemented in Vallejo, California....

Vallejo is still in bankruptcy. The police force has shrunk from 153 officers to 92. Calls for any but the most serious crimes go unanswered. Residents who complain about prostitutes or vandals are told to fill out a form. Three of the city’s firehouses were closed. Last summer, a fire ravaged a house in one of the city’s better neighborhoods; one of the firetrucks came from another town, 15 miles away. Is this America’s future?

Sadly, that is what the future of America is going to look like.  Public services are being slashed all over the nation due to budget crunches.

Unless there is a major jobs recovery, the situation in California is going to continue to degenerate.  The truth is that the state of California needs millions and millions of new jobs just to get back to "normal".  For example, near the end of last year it was reported that 24.3 percent of the residents of El Centro, California were unemployed.  Not only that, as of the end of last year the number of people unemployed in the state of California was approximately equivalent to the entire populations of Nevada, New Hampshire and Vermont combined.

Businesses are closing in California at an astounding pace.  At one point last year it was reported that in the area around Sacramento, California there was one closed business for every six that were still open.

As a result of all of this, home prices in many areas of California have completely fallen off a cliff.  For example, the average home in Merced, California has declined in value by 63 percent over the past four years.

California also had more foreclosure filings that any other U.S. state in 2010.  The 546,669 total foreclosure filings during the year means that over 4 percent of all the housing units in the state of California received a foreclosure filing at some point during 2010.

Sadly, things don't look like they are going to turn around in California any time soon.  Forbes recently compiled a list entitled "Cities Where The Economy May Get Worse".

Six of the top seven spots were held by cities in California.

California is becoming a very frightening place.  When you combine high unemployment with unchecked illegal immigration what you get is rampant poverty.

20 percent of the residents of Los Angeles County are now receiving public aid of one form or another.

In particular, the number of children that are considered to be in need of public assistance is truly scary.

Incredibly, 60 percent of all the students attending California public schools now qualify for free or reduced-price school lunches.

Poverty and illegal immigration have also caused a tremendous health care crisis in the state.  The hordes of illegal aliens taking advantage of "free" medical care at hospital emergency rooms have caused dozens of hospitals across the state of California to completely shut down.  As a result, the state of California now ranks dead last out of all 50 states in the number of emergency rooms per million people.

The bozos in Sacramento keep passing hundreds of new laws in an attempt to "fix" the state, but the truth is that for the poorest residents of the state all of those new laws don't make a shred of difference.

The following is how Victor Davis Hansen describes what he saw during his recent tour of the "forgotten areas of central California"....

Many of the rural trailer-house compounds I saw appear to the naked eye no different from what I have seen in the Third World . There is a Caribbean look to the junked cars, electric wires crisscrossing between various outbuildings, plastic tarps substituting for replacement shingles, lean-tos cobbled together as auxiliary housing, pit bulls unleashed, and geese, goats, and chickens roaming around the yards. The public hears about all sorts of tough California regulations that stymie business - rigid zoning laws, strict building codes, constant inspections - but apparently none of that applies out here.

Hansen also says that he observed that people in these areas are doing whatever they can to get by....

At crossroads, peddlers in a counter-California economy sell almost anything. Here is what I noticed at an intersection on the west side last week: shovels, rakes, hoes, gas pumps, lawnmowers, edgers, blowers, jackets, gloves, and caps. The merchandise was all new. I doubt whether in high-tax California sales taxes or income taxes were paid on any of these stop-and-go transactions.

In two supermarkets 50 miles apart, I was the only one in line who did not pay with a social-service plastic card (gone are the days when "food stamps" were embarrassing bulky coupons).

Are you frightened yet?

You know what they say - "as goes California, so goes the nation".

What is happening in California now is eventually going to come to your area.

Right now California is also having a huge problem with gangs.  Gang violence in America is getting totally out of control.  According to authorities, there are now over 1 million members of criminal gangs operating inside the country, and those gangs are responsible for up to 80% of the violent crimes committed in the U.S. each year.

But instead of ramping up to fight crime and fight illegal immigration, police forces all over California are being cut back.

For example, because of extreme budget cuts and police layoffs, Oakland, California Police Chief Anthony Batts has announced that there are a number of crimes that his department simply will no longer respond to due to a lack of resources.  The following is a partial list of the crimes that police officers in Oakland will no longer be responding to....

• burglary
• theft
• embezzlement
• grand theft
• grand theft: dog
• identity theft
• false information to peace officer
• required to register as sex or arson offender
• dump waste or offensive matter
• loud music
• possess forged notes
• pass fictitious check
• obtain money by false voucher
• fraudulent use of access cards
• stolen license plate
• embezzlement by an employee
• extortion
• attempted extortion
• false personification of other
• injure telephone/power line
• interfere with power line
• unauthorized cable tv connection
• vandalism

Not that Oakland wasn't already a mess before all this, but now how long do you think it will be before total chaos and anarchy reigns on the streets of Oakland?

Today, Oakland is considered the 5th most violent city in the United States.

Will it soon become the most violent?

But Oakland is not the only major California city that is facing these kinds of issues.

Things have gotten so bad in Stockton, California that the police union put up a billboard with the following message: "Welcome to the 2nd most dangerous city in California. Stop laying off cops."

Already the police force in Stockton has been stripped down to almost nothing.

A while back, the Stockton Police Department dropped this bombshell....

"We absolutely do not have any narcotics officers, narcotics sergeants working any kind of investigative narcotics type cases at this point in time."

Do you think drug dealers will be flocking to Stockton after they hear that?

California was once the envy of the world.

Now it is becoming one gigantic hellhole.

A picture is worth a thousand words. The historical ones that that we have reveal that Detroit was a more civilized, cultured, and communal—as well technologically advanced—place in the first half of the century.

Without question, Detroit is suffering from the end of the great postwar credit expansion, and the sad de-industrialization of the United States.* But one simply can't avoid the racial realities of "America's hellholes." Not every place collapses in the same way. 

Detroit in the 1930s

* The conservative movement is fond of blaming "liberalism" for Detroit's woes, as if the government of the city were fundamentally different than that of the rest of the country, or as if Detroit had more "liberalism" than, say, Stockholm, Sweden. 

STIHIE: Cash 4 Gold

The following is an installment in AltRight's ongoing series “So This Is How It Ends” (STIHIE), which chronicles instances of decadence so advanced that one can only conclude and hope that we are living in a terminal stage of Western civilization.

Satire is often prophecy. Take, for instance, this ridiculous 2010 video from The Onion: "US Treasury Sells Fort Knox Gold to Cash4Gold.com."

Sell all the gold in Fort Knox--that'd be absurd!  Well, here's this week's Washington Post:

U.S. should sell assets like gold to get out of debt, conservative economists say

By Joel Achenbach, Published: May 15

With the United States poised to slam into its debt limit Monday, conservative economists are eyeballing all that gold in Fort Knox. There’s about 147 million ounces of gold parked in the legendary vault. Gold is selling at nearly $1,500 an ounce. That’s many billions of dollars in bullion.

“It’s just sort of sitting there,” said Ron Utt, a senior fellow at the Heritage Foundation. “Given the high price it is now, and the tremendous debt problem we now have, by all means, sell at the peak.”

But that’s cockamamie, declares the Obama administration. Mary J. Miller, Treasury’s assistant secretary for financial markets, said the U.S. should sell assets in an orderly, “well-telegraphed” manner, not in a “fire sale” atmosphere with a debt limit deadline accelerating the process.

“It would be bad for the taxpayers. It would be bad for the markets,” Miller said.

The great mind from The Heritage Foundation, the brain-trust of America's "conservative movement," even repeated a line from The Onion's satire, "It's just sort of sitting there." 

In other news, Zimbabwe is considering moving to the gold standard. 

No Immunity for the Champagne Socialist

And now for some good news!

From "Tyler Durden":

Strauss-Kahn Does Not Have Diplomatic Immunity

To all those who thought, himself probably included, that DSK would get away scott free from his most recent rape incident (as opposed to the metaphorical rape that the IMF has exercised over the decades over insolvent creditor nations), the Telegraph has one word: wrong. "Dominique Strauss-Kahn was told he does not have diplomatic immunity from prosecution against charges including alleged rape, said Paul Browne, an NYPD spokesman."

Here's why:

According to the IMF's Articles of Agreement, officials have immunity "with respect to acts performed by them in their official capacity except when the Fund waives this".

The organisation demands that member countries notify it when officials are arrested, so that it can assess whether this applies. It is unclear what Mr Strauss-Kahn was doing in New York.

Under normal circumstances it is the managing director – Mr Strauss-Kahn – who decides whether immunity applies, provided the IMF's executive board does not veto his decision.

In a short statement, the IMF did not mention immunity and referred enquiries to Mr Strauss-Kahn's "personal lawyer and to the local authorities" It also appears that Nicolas Sarkozy's government is not making any attempt to protect Mr Strauss-Kahn.

One unnamed aide has told Le Monde: "To me, there is no immunity. It is a matter for the IMF and the host country, the United States. His Frenchness is not at stake."

Goldman's Game

Matt Taibbi has emerged as one of the country's most compelling writers on financial malfeasance, an achievement that is not limited to his legendary depiction of Goldman Sach as the "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

In his latest piece, Taibbi returns to familiar themes:

By the end of 2006, Goldman was sitting atop a $6 billion bet on American home loans. The bet was a byproduct of Goldman having helped create a new trading index called the ABX, through which it accumulated huge holdings in mortgage-related securities. But in December 2006, a series of top Goldman executives — including [David] Viniar, mortgage chief Daniel Sparks and senior executive Thomas Montag — came to the conclusion that Goldman was overexposed to mortgages and should get out from under its huge bet as quickly as possible. Internal memos indicate that the executives soon became aware of the host of scams that would crater the global economy: home loans awarded with no documentation, loans with little or no equity in them. On December 14th, Viniar met with Sparks and other executives, and stressed the need to get "closer to home" — i.e., to reduce the bank's giant bet on mortgages.

Sparks followed up that meeting with a seven-point memo laying out how to unload the bank's mortgages. Entry No. 2 is particularly noteworthy. "Distribute as much as possible on bonds created from new loan securitizations," Sparks wrote, "and clean previous positions." In other words, the bank needed to find suckers to buy as much of its risky inventory as possible. Goldman was like a car dealership that realized it had a whole lot full of cars with faulty brakes. Instead of announcing a recall, it surged ahead with a two-fold plan to make a fortune: first, by dumping the dangerous products on other people, and second, by taking out life insurance against the fools who bought the deadly cars.

The day he received the Sparks memo, Viniar seconded the plan in a gleeful cheerleading e-mail. "Let's be aggressive distributing things," he wrote, "because there will be very good opportunities as the markets [go] into what is likely to be even greater distress, and we want to be in a position to take advantage of them." Translation: Let's find as many suckers as we can as fast as we can, because we'll only make more money as more and more shit hits the fan.

By February 2007, two months after the Sparks memo, Goldman had gone from betting $6 billion on mortgages to betting $10 billion against them — a shift of $16 billion. Even CEO Lloyd "I'm doing God's work" Blankfein wondered aloud about the bank's progress in "cleaning" its crap. "Could/should we have cleaned up these books before," Blankfein wrote in one e-mail, "and are we doing enough right now to sell off cats and dogs in other books throughout the division?"

How did Goldman sell off its "cats and dogs"? Easy: It assembled new batches of risky mortgage bonds and dumped them on their clients, who took Goldman's word that they were buying a product the bank believed in. The names of the deals Goldman used to "clean" its books — chief among them Hudson and Timberwolf — are now notorious on Wall Street. Each of the deals appears to represent a different and innovative brand of shamelessness and deceit.

In the marketing materials for the Hudson deal, Goldman claimed that its interests were "aligned" with its clients because it bought a tiny, $6 million slice of the riskiest portion of the offering. But what it left out is that it had shorted the entire deal, to the tune of a $2 billion bet against its own clients. The bank, in fact, had specifically designed Hudson to reduce its exposure to the very types of mortgages it was selling — one of its creators, trading chief Michael Swenson, later bragged about the "extraordinary profits" he made shorting the housing market. All told, Goldman dumped $1.2 billion of its own crappy "cats and dogs" into the deal — and then told clients that the assets in Hudson had come not from its own inventory, but had been "sourced from the Street."

Hilariously, when Senate investigators asked Goldman to explain how it could claim it had bought the Hudson assets from "the Street" when in fact it had taken them from its own inventory, the bank's head of CDO trading, David Lehman, claimed it was accurate to say the assets came from "the Street" because Goldman was part of the Street. "They were like, 'We are the Street,'" laughs one investigator.

Hudson lost massive amounts of money almost immediately after the sale was completed. Goldman's biggest client, Morgan Stanley, begged it to liquidate the investment and get out while they could still salvage some value. But Goldman refused, stalling for months as its clients roasted to death in a raging conflagration of losses. At one point, John Pearce, the Morgan Stanley rep dealing with Goldman, lost his temper at the bank's refusal to sell, breaking his phone in frustration. "One day I hope I get the real reason why you are doing this to me," he told a Goldman broker.

Goldman insists it was only required to liquidate the assets "in an orderly fashion." But the bank had an incentive to drag its feet: Goldman's huge bet against the deal meant that the worse Hudson performed, the more money Goldman made. After all, the entire point of the transaction was to screw its own clients so Goldman could "clean its books." The crime was far from victimless: Morgan Stanley alone lost nearly $960 million on the Hudson deal, which admittedly doesn't do much to tug the heartstrings. Except that quickly after Goldman dumped this near-billion-dollar loss on Morgan Stanley, Morgan Stanley turned around and dumped it on taxpayers, who within a year were spending $10 billion bailing out the sucker bank through the TARP program.

Still, the allegation that Goldman has been ripping off some of its clients is hardly the most damaging: the firm is, after all, in the business of market-making. And it has also, no doubt, made many of its clients fabulously wealthy. What instead deserves more scrutiny is the ways in which Goldman enriched itself during the chaotic bailout era of the fall and winter of '08-'09, when so many genuinely thought the world was about to end and weren't asking questions when the Fed and Treasury doled out billions upon billions. 

Take this, for example, from Karl Denninger, regarding Goldman's tactic of, essentially, taking out two insurance policies on the same burning house and collecting on both:  

Gold Confiscation 2.0

Financial bubbles change behavior. In the mid-2000s, people started quitting their jobs in order to "flip" houses: they'd buy dilapidated or out-of-fashion homes, install marble countertops in the kitchen and flatscreen televisions on the walls of the den, and—presto!—they could resell them on an ever rising market and make bundles. In the '90s, I can remember people dropping out of college to become "day traders," which amounted to playing the frenzied NASDAQ like a video game.  

When the bubbles burst, the heroes of the "new economy" had to go back to their old jobs.  

Whenever I check out mainstream coverage of the precious metals market, I am informed again and again that gold and silver are in bubbles, or even that we've now reached the final "blow off" phase of an irrational rally. Many of the people who denied that there was a housing bubble as late as 2008, and ridiculed people like Peter Schiff who forecasted an imminent recession, are now sure that gold and silver are obsessions and phantasms. 

But bubbles occur when Joe Bag of Donuts enters the market—and opens an eTrade account or starts watching those home-improvement reality shows that were all over cable circa 2005-2008. From estimates I've read from professional gold-watchers like Chris Waltzek, less than one percent of investors own precious metals; Marc Faber has related that when he asked 200 mainstream investment advisors whether they allocated at least five percent of their portfolios to gold, NONE raised a hand.  

With gold between $1400-1500, and silver between $40-50 (though sharply down today), Joe Bag of Donuts could hardly ignore the bull market. However, he is taking part in the rally in a very disconcerting way—he's selling his wife's jewelry and family's heirlooms.  

The gold and silver bubble will be in effect when Joe Bag of Donots is buying precious metals willy-nilly, and mainstream pundits are claiming that gold "can never go down" and making Gold 36,0000-like predictions. The sucker phase of the rally will occur when Joe Bag of Donuts is divesting himself and his family of precious metals. 

Gold was nationalized, and trading in it and owning it was made illegal, by FDR in 1933 (though truth be told, the government was not exactly hunting down gold bugs and seizing their property.) I seriously doubt anything like this will happen in the foreseeable future.

The American middle class will be impoverished by other means.    

"Schooled in the Austrian Perspective"

This is what happens when White nerds get their hands on authentic African-American musical forms. With this single video, a whole generation of Black Americans has been alienated from Austrian economics.

For more see EconStories.tv. 

QE4

As if there were any doubt.

John Carney:

With a subtle wave of his baton, the aspiring Maestro may have started the music for another round of Federal Reserve monetary easing.

Ben Bernanke, chairman of the US central bank and keeper of the keys to stock market money flows, oversaw a tweaking of wording in the Fed’s post-meeting statement that had trading floors buzzing.

The statement, which preceded the chairman’s first-ever news conference following a Fed Open Markets Committee meeting, simply stated that the group will “ regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability.”

The change in wording was subtle, but for the market it was shorthand (or perhaps longhand, considering the chairman’s traditionally opaque language) that another round of quantitative easing—QE3 in market parlance—was on the way.

There just isn't enough damn inflation! 

Marc Faber on Class

Marc Faber appeared on CNBC today to talk about gold. Along the way, he launched into a devastating analysis of class, democracy, and decadence... to the great befuddlement of his hosts. 

Is the Fed Freaking Out?

Something strange is happening at the Fed; just look at this chart. 

The last time the Fed went nuts with monetary expansion, it did it in the wake of the Lehman collapse, on behalf, and likely at the behest, of the failing financial sector. The mood at the time was, "Consequences be damned, we've got to save Wall Street!"  No doubt, many truly believed that their world was ending.  

Now, however, the Fed has been pumping like mad for three months, even though, by all indicators, the media and financial industry seems to believe that all is hunky-dory. 

Graham Summers (via Zero Hedge):

This is a chart of the US monetary base. In simple terms, it charts how much money the Fed has pumped into the system (at least that it admits). So it’s a kind of visual of the Fed hitting the PANIC button: when the monetary base explodes higher, the Fed is FREAKING out.

You'll note that during the Financial Crisis the Fed didn't do much until the autumn of 2008 when it pumped nearly $1 trillion into the system. Think about that, the Fed didn't go nuts pumping money until the stuff REALLY hit the fan.

You'll also note that there's only one other time when the monetary base went absolutely vertical: TODAY.

Indeed, the Fed has pumped nearly $500 billion into the system since the start of 2011. Don't even try to tell me  this is QE 2. If it was then the monetary base should have spiked in late 2010, NOT in 2011.

No, this is the Fed FREAKING OUT about the financial system again. And it's a freak out on par with 2008.

Bernie Madoff is Right

Who knows the mental condition of the man? And who can say what the criminal hopes to gain by speaking the truth?  But then who can contradict his analysis?  

Madoff to NY magazine: Government a Ponzi scheme

NEW YORK – Wall Street swindler Bernard Madoff said in a magazine interview published Sunday that new regulatory reform enacted after the recent national financial crisis is laughable and that the federal government is a Ponzi scheme.

"The whole new regulatory reform is a joke," Madoff said during a telephone interview with New York magazine in which he discussed his disdain for the financial industry and for its regulators.

The interview was published on the magazine's website Sunday night.

Madoff did an earlier New York Times interview in which he accused banks and hedge funds of being "complicit" in his Ponzi scheme to fleece people out of billions of dollars. He said they failed to scrutinize the discrepancies between his regulatory filings and other information.

He said in the New York magazine interview the Securities and Exchange Commission "looks terrible in this thing," and he said the "whole government is a Ponzi scheme."

Ben Bernanke: Spreading Democracy

George W. Bush spent hundreds of billions of dollars, over 4,000 American dead and nearly 32,000 wounded, all to make Iraq a democracy.

Then Ben Bernanke comes along and prints a few trillion, causes world food prices to spike, and all of a sudden we've got revolutions all over the Middle East, revolutions which have at least as much a chance, maybe better, at making these countries as democratic as Iraq (and Afghanistan) currently are. A dictatorship which looked to last nearly forever, Gaddafi's, is on the ropes and headed for a fall, after years of American and especially European sucking up to it, all because of Big Ben.

Maybe when Bush and the neocons got their grand idea to invade the Middle East and turn the Muslim countries into democracies, they should instead have just fired Greenspan and appointed Helicopter Ben Bernanke. Though he's clueless as to the unintended consequences of his money printing, he's inadvertently spreading democracy, and so far at no cost in American lives.