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As we remember the fallen this weekend…

Prussia: Oh, f##k you France.

 

(click image for huge legible version)

 

 

(h/t Jim Quinn’s Burning Platform blog)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/_T4j2dH3wag/story01.htm Tyler Durden

As we remember the fallen this weekend…

Prussia: Oh, f##k you France.

 

(click image for huge legible version)

 

 

(h/t Jim Quinn’s Burning Platform blog)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/_T4j2dH3wag/story01.htm Tyler Durden

 

One of the primary themes for this letter over the last few months has been the potential of a major market top forming. We now have what I can only call “numerous bells” ringing.

 

First and foremost, I want to alert you to a disturbing trend in stock mania. That trend pertains to money inflows to stock mutual funds.

 

One of the best means of gauging investor sentiment for individual investors pertains to how they move their money in and out of mutual funds.

 

For example, from 2007 until the end of 2012, investors pulled over $405 billion out of stock based mutual funds. Over $90 billion of this was pulled in 2012 alone: the largest withdrawal since 2008.

 

In contrast, over the same time period, investors put over $1.14 trillion into bond funds. They brought in $317 billion in 2012: again, this was the most since 2008.

 

This marks quite a reversal of asset class fund flows: before 2008, stock funds usually took in $2 for every $1 investors allocated to bond funds.

 

However, this trend reversed back to normal in 2013. The Fed finally succeeded in inducing investors to move into stocks again. And they have done so in a big way. Thus far in 2013, investors have put $277 billion into stock mutual funds.

 

This is the single largest allocation of investor capital to stock based mutual funds since 2000: at the height of the Tech bubble. That year, investors put $324 billion into stocks. We might actually match that inflow this year as we still have two months left in 2013.

 

Indeed, investors are reaching a type of mania for stocks. They put $45.5 billion into stock based mutual funds in the first five weeks of October. If they maintain even half of that pace ($22.75 billion) for November and December, we’ll virtually tie the all-time record for stock fund inflows in a single year.

 

That record, again, occurred in 2000. At that time the NASDAQ had just staged a massive bubble rally.

 

 

What followed was one of the worst market collapses of all time:

 

 

 

Be forewarned.

 

For a FREE Special Report outlining how to protect your portfolio a market collapse, swing by: http://phoenixcapitalmarketing.com/special-reports.html

 

Best Regards,

 

Phoenix Capital Research

 

 

 

 

 

 

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/AcsHxETW5Og/story01.htm Phoenix Capital Research

For almost two years (most recently this week), we have been vociferously explaining the dismal fact that "quantity" of jobs in this recovery is no match for dreadful "quality" of jobs as the "born-again jobs scam" contonues to roll on. Bloomberg's Matthew Klein has decided that nine pictures are better than a thousand words as he explains (in short sentences and simple charts) what the jobs report really means…

 

Via Bloomberg's Matthew Klein (interactive graphic here),

 

 

And (as we noted previously)…

…So Bernanke promises to keep the money market and repo rates—-that is, the poker chips for the casino—-at zero until  “well after” the unemployment rate drops below 6.5 percent.  But it will never get there because the jobs market and Main Street economy are structurally broken.  Indeed, measured on a consistent basis, the unemployment rate is still over 11 percent based in the labor force participation rate of late 2008 and is over 13 percent based on the labor force participation rate at the turn of the century.

 

And no, that can’t be explained away by the baby boomers going on Social Security.  During January 2000 there were 75 million Americans over age 16 that did not hold a job. Today there are 102 million in that category—about 27 million more. Yet the number of participants in OASI (old age social security) is up by just 6 million during the same period.  Moreover, there is no doubt about what happened the other 21 million citizens:  they are on disability, food stamps, welfare or have moved in with friends and relatives or landed on the streets in destitution.

 

In short, the US economy is failing and the welfare state safety net is exploding. And that means that the true headwind in front of the allegedly “cheap” stock market is an insuperable fiscal crisis that will bring steadily higher taxes, lower spending and a gale-force of permanent anti-Keynesian austerity in the GDP accounts. And for that reason, the Fed’s strategy of printing money until the jobs market has returned to effective “full employment” is completely lunatic.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/7lGD59ulch4/story01.htm Tyler Durden

For almost two years (most recently this week), we have been vociferously explaining the dismal fact that "quantity" of jobs in this recovery is no match for dreadful "quality" of jobs as the "born-again jobs scam" contonues to roll on. Bloomberg's Matthew Klein has decided that nine pictures are better than a thousand words as he explains (in short sentences and simple charts) what the jobs report really means…

 

Via Bloomberg's Matthew Klein (interactive graphic here),

 

 

And (as we noted previously)…

…So Bernanke promises to keep the money market and repo rates—-that is, the poker chips for the casino—-at zero until  “well after” the unemployment rate drops below 6.5 percent.  But it will never get there because the jobs market and Main Street economy are structurally broken.  Indeed, measured on a consistent basis, the unemployment rate is still over 11 percent based in the labor force participation rate of late 2008 and is over 13 percent based on the labor force participation rate at the turn of the century.

 

And no, that can’t be explained away by the baby boomers going on Social Security.  During January 2000 there were 75 million Americans over age 16 that did not hold a job. Today there are 102 million in that category—about 27 million more. Yet the number of participants in OASI (old age social security) is up by just 6 million during the same period.  Moreover, there is no doubt about what happened the other 21 million citizens:  they are on disability, food stamps, welfare or have moved in with friends and relatives or landed on the streets in destitution.

 

In short, the US economy is failing and the welfare state safety net is exploding. And that means that the true headwind in front of the allegedly “cheap” stock market is an insuperable fiscal crisis that will bring steadily higher taxes, lower spending and a gale-force of permanent anti-Keynesian austerity in the GDP accounts. And for that reason, the Fed’s strategy of printing money until the jobs market has returned to effective “full employment” is completely lunatic.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/7lGD59ulch4/story01.htm Tyler Durden

1.  The monthly establishment survey of the US employment report was stronger than expected and sufficient to lift the 3-month private sector average (190k) above the 6-month average (175k).  Yet it is little different from the 12-month average (196k), which suggests that despite some volatility, the trend is little changed.  The household survey, apparently more prone to being skewed by the government closure continues to under-perform.  Over the past three months, it has recorded an average loss of 239k jobs.  

 

This coupled with other measures of the labor market, such as hours worked and average earnings do not show a marked improvement in the US labor market. Similarly, the preliminary estimate of Q3 GDP, which is subject to statistically significant revisions, was flattered by inventory accumulation, which will either be revised away or act as a drag on Q4 GDP.  The underlying trend in final demand has remains unchanged.  

 

2.  With the core PCE deflator not moving toward the Fed’s target and fiscal uncertainties looming, the increased speculation of tapering at the December meeting remains premature. On one hand, there are some in the blogsphere who do not think the Fed can ever taper (“QE-infinity”) and while many bank economists continue to err on the side of seeing a greater urgency to taper than appears to be the case.  We continue to see a more compelling case for tapering in March 2014.  

 

3.  Janet Yellen’s confirmation hearings begin on Thursday.  Appearing before the Senate Banking Committee, which has seen her a few other times in her illustrative career, Yellen is unlikely to be controversial.  She is neither dove nor hawk, but an independent thinker, responding to her remarkably prescient understanding of the economy, and this will likely be borne out in her testimony.   Yellen is a gradualist.   The risk is that she appears more centrist than dovish.  

 

The Senate Banking Committee is not where Yellen will meet her stiffest opposition.  That will be on the Senate floor itself, where 60 votes are needed for procedural issues, though a simple majority is needed for approval.  This creates some space for obstructionist tactics.  Nevertheless, Yellen’s confirmation hearings this week may provide the news wires with headlines, but not offer investors much real news or insight into Fed policy under her leadership.  

 

4.  The European Central Bank surprised last week with a 25 bp cut in the repo rate and extended the period of full allotment of its regular refi operation for another year.   It appears to have a controversial decision as news wires report that nearly a quarter of the Governing Council had preferred to wait at least another month.  The ECB persists with the easing bias, as in rates will this low or lower for an extended period.   Yet its measures are unlikely to prove effective in the triple threat of deflation, weak money supply growth and lending, and the decline in excess liquidity that may soon pressure money market rates.  The key EONIA trades closer to the deposit rate (zero) than the repo rate (now 25 bp).  In effect, lowering the ceiling is not really material in the current environment.  The ineffectiveness of the ECB’s measures means that additional steps will have to be forthcoming.  There are no good options (that are also politically realistic).  A new LTRO, while mentioned by Draghi, will unlikely be taken up by the strong banks, ahead of the Asset Quality Review and stress tests, which means there will be a stigma of its use and suggest a low take down.  

 

Draghi also mentioned the possibility of additional rate cuts.  Another cut in the repo rate (to zero) may improve financial conditions temporarily, but not address the underlying deflationary pressures or the causes of the year and a half contraction in lending to businesses and households.  Since the deposit rate was cut to zero, banks have reduced their use of that facility.  Pushing the deposit rate below zero could distort money markets and have other unintended and unforeseen consequences, as no other major central bank have offered negative deposit rates.    If that is the downside, the upside is even less clear. Lower rates by themselves are unlikely to arrest the deflation and contraction in lending.  

 

5.    European finance ministers have a two-day meeting starting Thursday.  Although the review of Greek, Portuguese and Irish programs are anticipated, the real interest will be in progress toward the banking union.  An agreement between Germany’s CDU and SPD over the weekend strengthens Schaeuble’s negotiating position.  Essentially, Germany will insist that the European finance ministers will decide when to close failing banks, not the European Commission, and that the European Stabilization Mechanism, (ESM) will not be used to wind down troubled institutions.  Until the Single Resolution Mechanism is sufficiently financed by financial institutions, national authorities.  If national authorities lack resources, Spain’s ESM program looks to be the model that Germany wants to follow.   While Germany has some allies, most countries seem to prefer greater access to ESM funds to wind down individual problem banks.

 

6.   The UK will report the latest inflation and employment data prior to the Bank of England’s Quarterly Inflation Report.  While disinflation or deflationary pressures are evident among most of the high income countries, the UK is  notable exception.  That said, base effects suggest modest easing here in Q4.  The core rate is also likely to ease at at 2%, which is the consensus forecast would be match its lowest reading in four years.  The claimant count is expected to fall again and this is consistent with a further decline in the unemployment rate to 7.6%.  This is the backdrop of the BOE’s inflation report.  

 

The pessimistic outlook BOE Governor Carney offered when he took office in July is likely to be substantially revised.  The central bank’s growth forecast is likely to be revised higher and a faster decline in unemployment is likely to be anticipated.  Even if the medium term inflation forecast is lowered, the market appears to be discounting the likelihood a rate hike late next year or arguably early 2015.  The implied yield of the December 2014 short-sterling futures contract is currently 80 bp compared with the current base rate of 50 bp.   Whereas former Governor King’s desire to provide more stimulus was repeatedly out-voted by the MPC, Carney’s assessment and forward guidance has been given little credibility by investors.   Carney, rather than the market, is likely to change its stance.  

 

7.   Standard and Poor’s cut France’s sovereign rating to AA from AA+ last week and changed the outlook to stable from negative.   The euro was under pressure from the ECB’s surprise rate cut and the US jobs data, but the reaction in both the bond and the credit default swap supports our general view that the rating agencies views of major industrialized economies, reliant as they are, completely on publicly accessible and available information, are of marginal significance.  There appears nothing in S&P decision that has not appeared in numerous economic analysis.  There is little confidence among economists (and apparently many officials in Brussels) that the French government has put the economy on a sustainable path.  We have argued that fall of the Berlin Wall eventually forced a restructuring of the German economy and the crisis is forcing the periphery to reform (especially the pubic sector). France has had the  privilege of neither spurs of reform.

 

S&P projects French government spending to be 56% in 2015, which is the second highest among developed countries after Denmark.   The EU’s Economics Commission Rehn warned earlier last week, prior to the  S&P action, that contrary to pledges by Hollande, French unemployment would rise until 2015.   At the same time, French officials see the low interest rates (benchmark 10-year yield below 2.25%) as investors’ vote of confidence in the government’s course.  The 5-year credit default swap actually slipped slightly before the weekend, and although the 10-year bond yield rose, it increased less than Germany, allowing the premium to narrow by a couple of basis points.   The New York Times headline that said that “S.&P. Downgrade Downgrade Deals a Blow to the French Government” must refer more to appearances than substance.  

 

8.  The Abe government is struggling to implement its so-called third arrow of structural reforms.  The first two arrows, which consisted of fiscal and monetary stimulus were relative easy to enact.  In many ways it is the traditional LDP salve, though on steroids, as the quantitative easing is nearly as large as the Federal Reserve’s for an economy less than half the size.   The foreign exchange market had discounted Abenomics by taking the dollar-yen exchange rate from about JPY75 to a little over JPY100 in roughly the six months through May.  The economy itself appears to have peaked in Q2.   The economy appears to have slowed significantly in Q3.   Indeed when the GDP figures are reported this week, they will likely show the expansion at less than half of the Q2, or around a 1.3%-1.6% at an annualized pace. 

 

With shrinking population and excess capacity in a number of key industries, it is little wonder that Japanese business are reluctant to increase investment at home.  At the same time, they are not sharing with the workers the windfall created by the weaker yen.   In September regular wages, which exclude overtime and bonuses, fell 0.3% on a year-over-year basis, the 16th consecutive month of declines.  While winter and summer bonuses did help spur consumption, the rise in inflation (a five-year high was reached in August at 0.8% before slipping to 0.7% in September) is eroding purchasing power and the real return on savings.  In anticipation of the hike in the retail sales tax on April 1 from 5% to 8% may  boost the demand for household durable goods, but unless incomes rise, the economy may falter again.  Abe’s honeymoon is over. Businesses are balking.  And just when new efforts are needed for his economic agenda, Abe may be spending his diminishing political capital on a controversial visit to the war shrine, which will do mend fences with its neighbors, not just China.  

 

9. China has reported a slew of data that generally confirm the stabilization of the economy, as officials have directed.  The purchasing manager surveys had already indicated the stabilization the October industrial production, investment and retail sales reports confirmed it.  Industrial output and retail sales ticked from September, though fixed asset investment eased slightly.  

 

The news that more likely will capture the market’s attention is that more than doubling of the October trade surplus to $31.1 bln form $15.2 bln in September.  Imports increased slightly to 7.6% (year-over-year) from 7.4%, but the larger surprise was in exports, which jumped to 5.6% from -0.3%.  Some feared that the 2.3% rise in the yuan this year would curb exports, but as we have argued, the limited valued-added work done in China (largely assembly) means that exports are unlikely to be very sensitive to small changes in foreign exchange prices.  The strength of foreign demand also appears to be more important than the controlled currency changes.  

 

Meanwhile, Chinese inflation did edge higher in October to a 3.2% year-over-year rate, an eight month high.  Consumer inflation stood at 3.1% in September.  The Reuters polls put the consensus estimate at 3.3%.  Food prices remain the main culprit.  They were up 6.5% in October from 6.1% in September.  Chinese measured inflation appears to be more a case of relative price changes rather than a general price increase.  It is the increase in house prices that seems to be of greater concern (~20% in the large urban centers) than consumer inflation.  At the same time, producer prices continue to fall.  October’s 1.5% decline is the 20th consecutive negative print.  It follows a 1.3% decline in September.  This divergence between falls in producer prices and increases in consumer prices suggests a source of profit-margins.   Taken as a whole and at face value, the latest data is unlikely to spur a change in PBOC policy.    

 

10.  The much-heralded Third Plenary Session of the Communist Party in China has begun.  Direct news has, as expected, been very light.  It is widely acknowledged by officials that reform of its growth model is needed.  There are three areas in which reform is likely to be concentrated:  the government, as in reducing bureaucracy, the market, to provide greater competition and flexibility, and state-owned enterprises, which still dominate key sectors of the economy.  The latest reports have tended to focus on the state-owned enterprises.    In the financial sector, the new Chinese government has announced a number of reforms that give market forces greater sway, including abolishing the floor for lending rates and developing a market-based prime rate.   Continued gradual movement in this direction is expected.  

 

Even after the plenary session ends, it may take observers some time to understand the results. There are two main obstacles to dramatic change in the Chinese model.  First, President Xi Jingping continues to consolidate his power, but has been frustrated by continued influence of past presidents Jiang Zemin and Hu Jintao.    Second, it is not clear that Xi or Prime Minister Li are as interested in political reform as they are economic reform.   Henry Ford once quipped that a customer can have any color Model T as long as it was black.  Despite the factions within the Communist Party, Chinese officials seem to agree the government stays Red.   That is to say, challenges to the rule of the Communist Party will not be tolerated.  In a country of contrasts, economic reform can go hand-in-hand with a crack down on human rights and civil society activists.   This includes the Zhi Xian Party (which means Constitution is the Supreme Authority) formed last week by the supporters of Bo Xilai.  The contradiction between the modernizing and flexible economy on one hand, and the archaic and rigid political system on the other, is unlikely to be resolved, but rather intensify in the period ahead.  

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/gYuZD57y93I/story01.htm Marc To Market

Submitted by Jim Quinn via The Burning Platform blog,

The MSM did their usual spin job on the consumer credit data released earlier this week. They reported a 5.4% increase in consumer debt outstanding to an ALL-TIME high of $3.051 trillion. In the Orwellian doublethink world we currently inhabit, the consumer taking on more debt is seen as a constructive sign. Consumer debt has grown by 5.8% over the first nine months of 2013, after growing by 6.1% in 2012 and 4.1% in 2011. The storyline being sold by the corporate MSM propaganda machine, serving the establishment, is that consumers’ taking on debt is a sure sign of economic recovery. They must be confident about the future and rolling in dough from their new part-time jobs as Pizza Hut delivery men. Plus, they are now eligible for free healthcare, compliments of Obama, once they can log-on.

Of course, buried at the bottom of the Federal Reserve press release and never mentioned on CNBC or the other dying legacy media outlets is the facts and details behind the all-time high in consumer credit. They count on the high probability the average math challenged American has no clue regarding the distinction between revolving and non-revolving credit or who controls the distribution of such credit. It is fascinating examining the historical data on the Federal Reserve website and realizing how far we’ve fallen as a society in the last 45 years.

http://www.federalreserve.gov/releases/g19/HIST/cc_hist_sa_levels.html

Revolving credit is a fancy term for credit card debt. Imagine our society today without credit cards. That sounds outrageous to the debt addicted populace inhabiting our suburban wasteland and urban badlands. What is truly outrageous is the fact we have allowed ourselves to be duped into $846 billion of revolving credit card debt charging an average interest rate of 13% by Wall Street bankers who have used the American Dream of a better life as the bait to lure a dumbed down easily manipulated populace into believing that material possessions purchased with high interest debt represented advancement rather than servitude. Debt accumulation is seen as a badge of honor. Keeping up with the Joneses is all that matters. Our shallow culture has no notion about the concept of deferred gratification or saving to pay for your wants.

A shocking fact (to historically challenged government educated drones) revealed by the Federal Reserve data is that credit card debt did not exist prior to 1968. How could people live their lives without credit cards? It must have been a nightmare. You mean to tell me when people wanted new clothes, jewelry, a TV, or to eat out at a restaurant, they actually had to save up the cash to do so? What kind of barbaric system would make you live within your means? The Depression era adults had somehow survived for over two decades after WWII without buying cheap foreign crap they didn’t need with money they didn’t have using a piece of plastic with a Wall Street bank logo emblazoned on the front.

1968 marked a turning point for America. LBJ’s welfare/warfare state had begun the downward spiral of a once rational country. We chose guns and butter, with the bill being charged to the national credit card. It was fitting that Wall Street introduced the credit card in 1968.

• There were 200 million Americans in 1968 and $2 billion of credit card debt outstanding, or $10 per person.
• By 1980 there were 227 million Americans and $54 billion of credit card debt outstanding, or $238 per person.
• By 1990 there were 249 million Americans and $230 billion of credit card debt outstanding, or $924 per person.
• By 2000 there were 281 million Americans and $650 billion of credit card debt outstanding, $2,313 per person.
• By July of 2008 credit card debt outstanding peaked at $1.022 trillion and the population was 304 million, with credit card debt per person topping out at $3,361 per person.

Over the course of 40 years, the population of this country grew by 52%. Credit card debt grew by 51,000%. Credit card debt per person grew by 33,600%. This was a case of credit induced mass hysteria and it continues today. Have the American people benefitted from this enslavement in chains of debt? I’d venture to answer no. Who benefitted? The corporate fascist oligarchy of Wall Street banks, mega-corporations sourcing their crap from Chinese slave labor factories, and politicians in the back pockets of the bankers and corporate CEOs benefitted.

The evil oligarch scum grew too greedy and blew up the worldwide financial system in 2008. Since July 2008 credit card debt has declined by $175 billion, with the majority of the decrease from banks writing off bad debt and passing it along to the American taxpayer through their TARP bailout and 0% money from their puppet Bernanke. It bottomed out at $834 billion in April 2011 and has only grown by a miniscule $13 billion in the last 29 months, and only $1.7 billion in the last twelve months. The muppets have refused to cooperate by running up those credit cards. Not having jobs, paying 40% more for health insurance due to Obamacare, and real inflation exceeding 5% on the things they need to live, have caused some hesitation among the delusional masses. Even a government educated, math challenged, iGadget addicted moron realizes their credit card is the only thing standing between them and living in a cardboard box on a street corner.

Your owners have been forced to implement Plan B. The monster they have created is like a shark. The debt must keep growing or the monster will die. In 2008, the oligarchs were staring into the abyss. Their wealth, power and control were in grave jeopardy. Rather than accept the consequences of their actions like men and allowing the economy to return to normalcy, these weasels have doubled down by accelerating the debt production and dropping it from helicopters to subprime borrowers across the land, like unemployed construction workers named Gus getting a degree in liberal arts from the University of Phoenix while sitting in their basement in boxer shorts. The Federal Reserve Black Hawks are hovering over the inner cities dropping Bennie Bucks on the very same people they put in McMansions with no doc negative amortization subprime mortgages in 2005, so they can occupy Cadillac Escalades for a couple years before defaulting again. The appearance of normalcy is crucial to the evil oligarchs as they attempt to pillage the remaining loot in this country.

Before the credit card was rolled out in 1968, there was non-revolving debt strictly related to auto loans made by banks and credit unions. The Federal government was nowhere to be found in the mix as banks and consumers made economic decisions based upon risk and reward. There were $110 billion of loans outstanding to a population of 200 million, or $550 per person. The Federal government stuck their nose into the free market with the creation of Sallie Mae in the 1970′s. But they were still a miniscule portion of total consumer debt at $115 billion in 2008, or only 11% of total consumer debt outstanding. The chart below from Zero Hedge reveals what has happened since the oligarchs crashed the financial system with their vampire squid blood sucking tentacles syphoning the lifeblood from the American middle class. Non-revolving debt has increased from $1.65 trillion in July 2008 to $2.2 trillion today, solely due to Obama and his minions doling out subprime auto and student loan debt to anyone that can scratch an X on a loan document.

If middle class consumers were unwilling to borrow and spend, the oligarchs were going to use their control over the government to dole out billions to subprime borrowers in a final, ultimately futile, attempt to keep this Ponzi scheme going for a while longer. The subprime game worked wonders in the final phase of the housing bubble. And now the losses will fall solely on the 50% of Americans who actually pay taxes. It wasn’t a mistake the Federal government took complete control of the student loan market in 2009. It isn’t a mistake the only TARP recipient the Feds have not attempted to disengage from happens to be the largest issuer of subprime auto loans in the world – Ally Financial (aka GMAC, Ditech, ResCap).

In 2008 there was $730 billion of student loan debt outstanding, of which the Federal government was responsible for $120 billion. Five short years later there is $1.2 billion of student loan debt outstanding and the Federal government (aka YOU the taxpayer) is responsible for $716 billion. Using my top notch math skills, I’ve determined that student loan debt has risen by $470 billion, while Federal government issuance of student loan debt has expanded by $600 billion. The rational risk adverse lenders have reduced their exposure to the most subprime borrowers on earth, undergrads at the University of Phoenix and thousands of other “for profit” educational black holes across the country. Only an organization who didn’t care about getting repaid would lend billions to borrowers without a job, hope of a job, or intellectual ability to hold a job. A critical thinking person might wonder why student loan debt would rise by almost $500 billion in 5 years when college enrollment has grown by only 2 million. That comes to $250,000 per additional student.

The Federal government couldn’t possibly have distributed $500 billion to anyone with a pulse as a way to manipulate the national unemployment rate lower, because anyone in school is not considered unemployed. Do you think the $500 billion was spent on tuition and books? Or do you think those “students” used it to buy iGadgets, HDTVs, weed and Twitter stock? With default rates already at all-time highs and accelerating skyward and $146 billion of loans already in default, you don’t need a PhD from the University of Phoenix (where default rates exceed 30%) like Shaq to realize the American taxpayer is going to get it good and hard once again.

My personal observations during my daily trek through the slums of West Philly would befuddle someone who didn’t understand the oligarch scheme to create an artificial auto recovery by distributing auto loans to deadbeats, the SNAP army, and hip hop nitwits. As I maneuver quickly through the West Philly badlands in my four year old paid off compact car praying I don’t get caught in gang crossfire, I see an inordinate number of brand new BMWs, Mercedes, Lexus, Cadillacs, and Jaguars parked in front of $20,000 dilapidated fleapits that tend to collapse during heavy rain storms. The real unemployment rate in these garbage strewn, disintegrating neighborhoods exceeds 50%. The median household income is less than $20,000. Over 40% of the adult population hasn’t graduated high school and 63% of the population lives below the poverty level. These people put the ”sub” in subprime. How can anyone in this American version of third world Baghdad afford to drive a $40,000 vehicle? The answer is they can’t. But you the taxpayer, out of the goodness of your heart and without your knowledge, have loaned them the money so they can cruise around West Philly in Jay Z or Kanye style.

Bernanke’s ZIRP creates the environment for mal-investment and reckless lending. With the Federal government owned Ally Financial leading the charge, the miraculous auto sales recovery is nothing but a bad loan driven illusion. With the Federal government pushing subprime loans like a West Philly drug dealer, the Too Big To Trust Wall Street cabal have followed suit providing financing to deadbeats with FICO scores of 500, no job, but a nice smile. When you can borrow from the Fed at 0% and loan money to SNAP nation at 18%, with a Bernanke unspoken promise to bail them out when the inevitable defaults come as a complete shock, this is why you see thousands of luxury automobiles parked in the urban kill zones across America.

Zero Hedge documented the new subprime bubble in a story earlier this week. As auto dealers allow losers with sub-500 FICO scores to drive off their lots with new cars, ZH summarized the next taxpayer bailout:

 “No Car, no FICO score, no problem. The NINJAs have once again taken over the subprime asylum.”

Someone with a 500 FICO score has defaulted on multiple debt obligations in the recent past. The issuance of hundreds of billions of subprime debt can give the appearance of economic growth for a short period of time, just like it did from 2004 through 2007. Then it all collapsed in a heap because the debt eventually must be repaid. Cash flow is required to service debt. Maybe the West Philly subprime Mercedes drivers can trade their SNAP cards for cash to make their car loan payments, since they don’t have jobs. Even the captured MSM is being forced to admit the truth.

While surging light-vehicle sales have been one of the bright spots in the U.S. economy, it’s increasingly being fueled by borrowers with imperfect credit. Such car buyers account for more than 27 percent of loans for new vehicles, the highest proportion since E
xperian Automotive started tracking the data in 2007. That compares with 25 percent last year and 18 percent in 2009, as lenders pulled back during the recession. Issuance of bonds linked to subprime auto loans soared to $17.2 billion this year, more than double the amount sold during the same period in 2010, according to Harris Trifon, a debt analyst at Deutsche Bank AG. The market for such debt, which peaked at about $20 billion in 2005, was dwarfed by the record $1.2 trillion in mortgage bonds sold that year.

When has packaging subprime loans, getting them rated AAA by a trustworthy ratings agency, and selling them to little old ladies and pension funds, ever caused a problem before? With subprime auto loan issuance accounting for 50% of all car loans and an average loan to value ratio of 114.5%, what could possibly go wrong? Think about that for one minute. The government and Wall Street banks are loaning deadbeats $33,000 of your money to buy a $30,000 car, despite the fact the high school dropout borrower doesn’t have a job and has a history of defaulting on their obligations.

Can you really blame the borrowers? For the second time in the last decade the rich folk have generously offered to let them experience the good life, with debt that is never expected to be repaid. The people in West Philly live in rat infested, rundown, leaky shacks waiting for the 1st of the month to get their EBT card recharged. They have nothing, so they have nothing to lose. When the MAN offered to loan them $300,000 in 2005 so they could buy their very own McMansion, what did they have to lose? They got to live in a fancy house for a few years until they were booted out by the bank and left in exactly the same spot they were before the MAN came along. These people don’t even know what a FICO score means.

Now the MAN has knocked on their hovel door again and offered to put them in a brand spanking new Cadillac Escalade with no money down, requiring no proof of employment, and no prospects of  repaying the loan. Hallelujah, there is a God!!!  They get to tool around West Philly for a year or two impressing their fellow SNAP recipients until the repo man shows up and absconds with their wheels. They will be left right where they were, hoofing it with their $200 Air Jordans. Anyone with an ounce of brains (eliminates Cramer & Bartiromo) can see this will end exactly as all easy money, Federal Reserve propagated, and government sanctioned scams end.

“Perhaps more than any other factor, easing credit has been the key to the U.S. auto recovery,” Adam Jonas, a New York-based analyst with Morgan Stanley, wrote in a note to investors last month. The rise of subprime lending back to record levels, the lengthening of loan terms and increasing credit losses are some of factors that lead Jonas to say there are “serious warning signs” for automaker’s ability to maintain pricing discipline.

In the last year 99% of all consumer debt issued was doled out by government drones, with no interest in getting repaid, to subprime deadbeats, with no interest in repaying. It’s a match made in subprime heaven with your tax dollars. As an Ivy League educated Wall Street banker CEO once said:

“When the music stops, in terms of liquidity, things will be complicated. But as  long as the music is playing, you’ve got to get up and dance. We’re still  dancing.”

Chuck “Doing the Boogie Woogie” Prince – FORMER CEO of Citicorp – July 2007

You see it is always about liquidity, also known as Bernanke Bucks or QEternity. Without Bernanke and his Federal Reserve sycophants printing $2.8 billion of new money every single day, shoveling it into the grubby hands of his Wall Street bank bosses and a corrupt fetid festering pustule of a government running trillion dollar deficits and showering your money on loafers and welfare queens, this subprime final solution would not be possible. This is an exact replay of the subprime mortgage debacle, except the oligarchs have cut out the middleman. Holding the American people hostage for the $700 billion TARP bailout proved to be messy, with 90% of Americans against the ”Save a Corrupt Criminal Banker” scheme. This time, there will not be a vote in Congress when the hundreds of billions in subprime student loans and subprime auto loans go bad and become the responsibility of the few remaining American taxpayers. What’s another few hundred billion among friends when our annual deficits soar past $1 trillion, our national debt approaches $20 trillion, and our unfunded entitlement liabilities exceed $200 trillion?

When the music stopped in 2008, Chuck Prince bopped away with a $40 million severance package and you were left to sweep the confetti off the floors, pick up the empty champagne bottles and caviar plates, scrub the vomitorium, and pay for all the damages that occurred during the sordid subprime orgy of greed, lust, gluttony, envy and sloth. Somehow the distracted, techno-narcissistic, easily duped zombies have been lured into the subprime web of deceit again. We have only ourselves to blame as the corporate fascist oligarchs implement their final solution for the American middle class and our once proud nation – a bullet to the back of the head.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/0ZQaLOWFuds/story01.htm Tyler Durden