Recon’s Black Ops

Note the tone now coming from the MSM.

The bailouts of the banksters failed.

The bailouts of Fannie and Freddie and AIG failed.

The bailout of GM has failed. (Even if they are propping it up with creative accounting.)

The stimulus failed.

HAMP failed.

Cash for Clunkers failed.

The first-time homebuyer credit failed.

At best, we pulled demand forward and replaced fallen GDP with federal spending. That works fine until (a) interest payments come due, (b) creditors stop buying our debt, (c) interest rates start spiking, (d) more high-debt entities start failing, or (e) some combination of all the above.

The stock market isn’t moving. If investors had confidence in the recovery, the Dow would be well over 12,000. As of now, it has been hovering at around 10,000 for months now.

There will be no “double dip”. There never was a recovery.

This is a multi-stage collapse.

If we are in such a great recovery, then why are Americans raiding their 401(k) accounts, which involve taking a 40% hit, at a record pace?

When someone takes a “hardship withdrawal” from a 401(k) or IRA, then he is clearly desperate. Such a move is otherwise unthinkable: (a) it depletes retirement savings that would otherwise be disbursed at a lower tax rate during the latter part of your life, and (b) it requires a 10% early withdrawal penalty ON TOP OF the money being lumped into your taxable income, thereby impacting your marginal tax rate!

Let’s say you make $60,000 per year–and let’s assume that after tax credits and all, your taxable income is about $35,000. Now let’s say you have $300,000 in your 401(k).

Now let’s say you lose your job. No big deal…you have 3 months worth of expenses saved. (Plus you can get unemployment.)

3 months later, your pucker factor starts rising. You still haven’t found a job, your severance money is running low, and you might have to start living on credit cards.

5 months later, you are on credit cards. Balances are getting higher, and you know the interest is going to bite you badly if you don’t change course. The job market still sucks. No relief in sight.

In this move of desperation, you see $300K in your 401(k). You figure after taxes and penalties, you still have $180K. You make the hardship withdrawal.

You may have bought yourself some time, but you now have to face some reality:

(a) your retirement assets are now gone. You’d better hope you can work at least 20 more years–saving diligently and investing wisely–to have any hope of even a meager retirement.

(b) you just put yourself in a nasty tax bracket, as that 401(k) money is added to your regular income, for which you will be taxed for the good of the full faith and credit of the United States of America. Thank you sir, may I have another…

My point: this is not what people do in an economic recovery.

Weekly unemployment claims are at a 9-month high. The 4-week moving average is just north of 480,000. But hey…we’re in recovery!

I don’t live in Illinois.

If record-low interest rates aren’t getting buyers to purchase homes, then one must wonder:

(1) Are the homes affordable at the given prices?

(2) Do buyers have any confidence that the prices reflect the values of the homes?

(3) Can we honestly say that we are in an economic recovery?

Fact is, assets are overpriced. That must change. In order for that to change, we need a severe re-adjustment in prices. Thus far, government policy has been to prop up those inflated prices rather than allow them to fall.

These price supports–from bailouts to Cash for Clunkers to HAMP to the home buyer tax credit–have only served to pull demand forward, not create new supply that is supportable by the level of demand at given prices.

Given the magnitude of the bailouts, the magnitude of the “stimulus” packages, the magnitude of the tax credits, the nationalization of entire industries, this Keynes on steroids policy–if the economics were valid–would have spurred an economic expansion unprecedented in scale.

That didn’t happen.

So tell me…when are the Keynesians going to admit defeat?

Denninger has offered his version of the Federal Reserve Open Markets Committee’s decision to keep rates near zero. Here’s my version:

nformation received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months.

We never really had a recovery, and we now are running the risk of stoking a meltdown that will make 2008 look like the Reagan prosperity.

Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

We’re having trouble creating more Ponzi schemes so banksters can bilk more money out of people.

Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls.

We’re having trouble suckering businesses into pissing more money away.

Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

We cannot pull economic value out of our asses, even though we have sold an agenda predicated on our ability to do so.

Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

Bernanke’s helicopter drops aren’t working, but maybe if he dropped a nuke it might work.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

We have no farking clue what to do, so we’ll just not change anything and hope it all gets better.

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

If we throw enough good money after bad, then maybe we can make it all good.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

We know better than the investors how to set prices. At least we want you to think that, so we can continue to get rich while you work for us.

The economy bled off 131,000 jobs in July. This was “worse than expected”.

But hey…we’re in recovery! W00T!!!!

The Commonwealth of Kentucky recently announced plans to furlough state employees for six days during this current fiscal year. As a non-merit state employee myself, I support the furloughs. Spending cuts are necessary. While furloughs are not pleasant, state employees need to be grownups and look at reality: it’s a lot worse in the private sector right now. (If I were the governor, I would have slashed spending drastically, and offered all state employees a buyout package much like Ford and GM offered to their workers in 2005, but I digress.)

Enter the pissants at AFSCME, who are working to stick it to the taxpayers at every turn.

If we really want economic recovery, we need to face hard truths. There is too much government spending. There is too much private and public debt. Families and government have created financial structures that are unsustainable. This is why the economy is in a tailspin.

Recovery is possible, only if we swallow some very bitter and unpleasant medicine and get the bad debts out of our system. Yes, it will be very painful. Many of us will lose our jobs, and perhaps our houses. We will be forced to live with family and friends, work odd jobs to make ends meet, and live at a standard lower than we thought we ever would live. Many retirees may find themselves having to re-enter the workforce.

I’m not saying I like that, but–as Margaret Thatcher once said of socialism–we are out of other people’s money. Taxpayers cannot support the government financial structure that exists today. Heck, taxpayers can’t even support the financial structures they have created for themselves. Except for those who are totally debt-free, we’re all in the soup on this one.

Trying to keep Kentucky state employees–who, with few exceptions, have been more insulated from the mess than other sectors–from paying a paltry price for the recession, is representative of all that is wrong with our union system.

6 days of furloughs is peanuts. AFSCME should STHU and let it go. It’s going to get worse before it gets better, and these furloughs are the tip of the iceberg.

This by Bill Gross, hat tip to Denninger:

PIMCO’s continuing New Normal thesis of deleveraging, reregulation and deglobalization produces structural headwinds that lead to lower economic growth as well as half-sized asset returns when compared to historical averages. The New Normal will not be aided nor abetted by a slower-growing population nor by cyclical policy errors that thrust Keynesian consumption remedies on a declining consumer base.

He might become an Austrian before this is over.

I wonder….is this new ban on profanities in corporate e-mail due to a desire for better professionalism, or is it an attempt by Goldman Sachs to keep employees from leaking the truth about their real work?