FOMC November Statement - G20 and Greek Debt - Bernanke at 2:15 - NFP Friday

"Everybody was expecting Tim Geithner and Bob Rubin, who's pulling the strings behind the scenes in the Obama Administration, to roll out some kind of IMF funded bailout for Greece in a global reflation. Your audience would love that.

It hasn't manifested itself yet. Supposedly at the G20 meeting next month, Obama was going to declare the jubilee and have the IMF just print money to bail out Greece, because they do not want to see restructuring here in the US, especially the top four banks.

Isn't it amazing that we have this supposed liberal Democrat as President, and he has never gone after the Big Banks? That's because they own him."

Chris Whalen, in an interview with King World News

The G20 meeting that Chris Whalen mentions begins on Thursday. There is little doubt in my mind that Mr. Papandreou announced his referendum to place the problem of Greek debt high on the G20 agenda.

Bernanke has a press conference at 2:15 EDT which may be interesting.

Non-Farm Payrolls for October will be reported on Friday morning. Expectations are in the 85,000 - 100,000 range.

The Fed is clearly laying the groundwork for some variation of QE3, but perhaps not just yet.  They seem to be playing the game of looking for a rationale for a decision that may be controversial.

But the Fed is facing some time constraints for QE3 with the Presidential elections next year.  The Fed is normally loathe to engage in unusual stimulus in conjunction with important elections for fear of being perceived as 'politically motivated.'   Which it is of course.  It just depends on what politics you care to use as a ruler. The Fed's preoccupation is the banking system first and foremost-- and size matters.

As for the greater public, let them eat food stamps, and whatever else may trickle down from the top 1%.

I suspect that the great exogenous variable remains European financial stability and its possible impacts on the upper crust of the US banking system. 

Federal Reserve Board
Press Release
November 2, 2011

Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.

European Credit Agency Downgrades US Credit Rating from AAA to AA

Here is my rough translation of the original Feri stuft die Bonität der USA herab.

"Man muss manchmal in den sauren Apfel beißen."

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

Feri Downgrades the Creditworthiness of the United States
By Harald Weygand
Wednesday, 06.08.2011, 08:56

Homburg, 8 June 2011 - The Bad Homburg €uro Feri Rating & Research AG downgraded the first credit rating agency's credit rating for the United States from AAA to AA. Feri analysts justify the downgrade by the continuing deterioration of the creditworthiness of the country due to high public debt, inadequate fiscal measures, and weaker growth prospects.

"The U.S. government has fought the effects of the financial market crisis primarily by an increase in government debt. We do not see thank that there is sufficient attention being paid to other measures, "said Dr. Tobias Schmidt, CEO of Feri Rating & Research AG €. "Our rating system shows a deterioration in economic health, so the downgrading of the credit ratings of U.S. is warranted."

For the third consecutive year the deficit of the United States is in double digit percentages relative to gross domestic product (GDP). "Deficits of such magnitude are not a sustainable fiscal policy.  We would reconsider the rating when the U.S. government creates a long-term sustainable budget," said Schmidt.

Feri Rating is listed on the Federal Financial Supervisory Authority (BaFin) as an EU credit rating agency approved and created with more than 20 years experience in sovereign ratings. Every month, the Feri analysts evaluate sovereign credit ratings from the perspective of a foreign investor based on the ability and willingness of countries to repay their debts. The credit ratings have eleven possible gradations between "AAA" (best credit) and "Default".

About Feri Rating & Research AG
Feri Rating & Research AG is a leading European rating agency for analysis and evaluation of investment markets and products and one of the largest economic forecasting and research institutes. Currently, the company with about 50 employees and has approximately 1,000 customers in addition to its headquarters in Bad Homburg with offices in London, Paris and New York.

The Problem of Unresolved Debt in the US Financial System

Michael David White has painted some dire pictures of the US housing market, but this one is shocking in its implications.



Chart fromA Blistering Ride Through Hell by Michael David White.

I enjoyed the synopsis of this chart that was done by Automatic Earth in Is It Time to Storm the Bastille Again:

"That is, what Americans' homes are worth, their equity, decreased by $7 trillion -from $20 trillion to $13 trillion, from spring 2006 to spring 2010. In the same period, mortgage debt, what Americans owe on their homes, went down by only $270 billion. Yes, that's right: US homeowners lost more, by a factor of 26, than they "gained" through clearing mortgage debt. Thus, if we estimate that there are 75 million homeowners in America, they all, each and every one of them, lost $93,333."

Nine out of ten Americans will notice that there is a significant gap that must be closed here. What makes it even more chilling is that the gap is continuing to widen as home prices continue to correct to the mean.

This debt must be resolved. There are two major ways to do it: repayment and default.

Repayment is probably a fantasy, if not beating a dead horse. The homeowners do not have the money with which to pay the loans given the current state of employment and wage stagnation, and the mortgages are for the most part on houses whose value is significantly under water compared to the debt, as in ' just mail in the keys.'

Straight up default, writing off the debt even through foreclosure, is also probably out of the question, because it would essentially vaporize the balance sheet of the US banking system which is also insolvent, to a greater degree than most understand, and if they understand it, would admit.

Automatic Earth references an essay which we also had linked here by Eric Sprott called Wither Green Shoots that points out the unfortunate fact that of the 986 bank holding companies in the US, 980 of them lost money last year. The lucky six were the TBTF banks on major government subsidy.

So, where is the government going to liquidate the debt? And what effect will it have on dollar assets when they do it?

The Japanese solution was to ignore their bad debt and insolvent kereitsu, because admitting it would cause significant loss of face, not to mention financial loss, to an elite that does not permit such things to happen. So instead they arranged for their single party LDP system to drag the debt like a ball and chain through what came to be known as 'the lost decade' while they tried to make it go away by export mercantilism and crony monetarism wherein funds were given to the same kereitsu in a remarkably ambitious (and expensively wasteful) series of public works boondoggles.

Do you think the US can follow this path? As if. Japan started from a base as a net exporter with a huge trade surplus and little debt. Scratch that idea.

Someone has to end up 'holding the bag.' And the consumer cannot rise to the occasion, the banks are all insolvent and a sinkhole until they change their business models. So what will be 'the last bubble?' Bernanke has managed to monetize about 1.5 trillion dollars so far. Only 5.5 trillion more to go, if housing prices can stabilize at current levels, and employment return to pre-crash levels quickly.

A few European readers have expressed their relief, and some noticeable pride, that their banking and political system resolved its own debt crisis so quickly and easily. To the extent that their banks are holding dollar denominated financial assets, they have merely stopped the table from shaking for the moment, as their sand castles await the next mega tsunami to come rolling across the Atlantic.

Consider this well, and you will understand what is happening in the economy, and why certain things occur over the next 24 months, despite the fog of wars, currency and otherwise. And bear in mind that the only real limit and effective constraint on the Fed's ability to monetize debt is the value and acceptability of the bond, and the dollar in payment of interest, by foreign debt holders, as domestic debt holders are under legal compulsion by the law of legal tender.

And it was all unnecessary, attributable to the dishonesty and greed of a remarkably small number of men in New York and Washington who managed to rig the markets and the political process, with the acquiescence and support of a public grown complacent and in far too many cases, soft headed and corrupt.

These are the same people, along with their enablers, who are now preaching the virtues of austerity for the many, and free and easy markets for themselves. All gain, no pain. While the game is going it must still be played. Obama has been disappointing, but what comes next may well be worse, much worse.

Bernie Madoff was lying and cheating and taking money until the day he closed his doors.

Perhaps they are in denial, but surely they must hear the footsteps of history approaching. And their bravado is yet another bluff, and hides the rising stink of fear.

Fitch Downgrades Illinois and Warns of Further Actions as Budget Gap Widens

Illinois is financially the fifth largest US state with a 2008 GDP of approximately $633 Billion.

To put this in perspective, the 2008 GDP for the nation of Greece was approximately $357 Billion.

The largest state is California with $1.8 Trillion in 2008 GDP, roughly on a par with Russia, Spain, or Brazil,

The US is also considering accounting rule changes that will require the states to more accurately reflect and more fully fund their pension obligations for government employees.

The problem of States' debt is made more problematic by decreasing state tax revenues and the enormous demands of the US Federal government for more tax revenues on their citizens' incomes, and the crowding effect in markets by the record amounts of sovereign debt issuance which is largely short term and must be rolled over regularly.

The Bond Buyer
Fitch Downgrades Illinois to A-minus
By Yvette Shields
March 29, 2010

CHICAGO — Fitch Ratings late Monday downgraded Illinois’ general obligation rating one notch to A-minus and warned of possible further action by leaving the state’s credit on negative watch ahead of $1.3 billion of short- and long-term GO issuance in three deals over the coming weeks.

Gov. Pat Quinn had hoped that the General Assembly’s passage last week of pension reforms would stave off any negative rating actions and buy the state some additional time to address a nearly $13 billion budget deficit and liquidity crisis in the current legislative session.

But Fitch analysts said the state’s challenges are too severe and persistent. They believe it is unlikely the fiscal 2011 budget will “sufficiently address either the annual operating deficit or accumulated liabilities.”

The results of the current session will drive analysts’ decision as to whether Illinois holds on to its current rating level. Fitch dropped the state’s $23.4 billion of GO debt two notches down to its current level last July.

Fitch’s action follows Standard & Poor’s decision on Friday to place the state’s A-plus rating on negative CreditWatch. Moody’s Investors Service on Monday affirmed its A2 rating and negative outlook.