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QE2 Has Added To The Severity of the Crisis

Bob Chapman
International Forecaster
Dec 9, 2010

Policy makers within the Treasury and the Fed are only interested in delaying and extending the timeline trying to find and extricate themselves from one of the most dangerous fiscal and monetary failures of all time. They know they and their controllers have no solution. QE1 and QE2 have temporally saved them financially, but have not saved any economy, especially the American economy. In addition it has added to the severity of the crisis.

As a result gold, silver and commodities have traded higher over the past few years, albeit in a rollercoaster fashion, as a result of de-leveraging, a once in a century event. Foreign and domestic markets have remained relatively high due to the large liquidity injections of the period. That means without continued liquidity they could be in serious trouble. In addition in the US the real estate markets have not yet hit bottom, unemployment is high and will eventually go higher. As Keynes said you can’t have a recovery unless employment increases and we have some 20 major countries on the edge of insolvency. Those problems are worsening and that is borne out by the ECBs decision to restart its version of QE2. The main players know what they are doing is not going to work. Just look at the monetary policy of the last three years. It bailed out the financial sectors, allowed giant bonuses to be handed out to the people responsible for the debacle and we saw only a few crumbs thrown to the public. In the US the government extended the real estate failure by having Fannie Mae, Freddie Mac, Ginnie Mae and FHA engage in a new round of subprime and ALT-A mortgages. Trillions were thrown into a market that has become an even worse basket case than it was if that was possible.

Europe is worse than it has ever been in spite of so-called rescues. While on radio and TV and in the press in Greece, England, Ireland, France and Germany, we told listeners long ago that the only way for Greece, Ireland, Portugal and Spain to go was via default, leave the euro, bring back their old currencies at low levels and leave the euro zone as they cut domestic spending by 1/3 and raise taxes slowly. That way they would have a five-year depression. By taking a bailout they will be slaves of the banks for the next 30 to 50 years. These are the banks that should have never made the loans and bought the bonds in the first place, because they knew it was imprudent, and that the funds for these purchases in part were created out of thin air. All that is being done for Greece and Ireland is that governments are lending them money, so these countries can pay off the banks, so the banks won’t go under. As you can see there is no exit strategy in the US or Europe. They are all entrapped in Keynesianism, which we believe is no more or less than corporatist fascism.

It looks like Fed Chairman Ben Bernanke’s QE2 will be limited to about $1 trillion, but he indicates, as we predicted, that QE3 could be on the way. Again exit strategy for now is dead. Mr. Bernanke and Europe continue in denial and their efforts thus far have been political, pathetic and have hinged on only one thing, saving a corrupted financial sector elite.

As a result of demand, interest rates have begun to rise in the US. The US 10-year note has risen some 5/8% to more than 3%. It could be that ultra low mortgage rates are a thing of the past. Corporations have been taking advantage of low rates and issuing trillions of dollars of bonds to build a cash war chest to face a further depression. We wonder what they will do when the banks go under and their uninsured hoards of dollars disappear with the banks? At the same time the US stock market rallies on the liquidity crated by QE2, which allows the financial institutions to gamble even more. Over three years, trillions have been thrown at the markets and the economy and the results have been dismal. Not only are interest, mortgage rates and unemployment rising, but also the economy is not responding. The stock market is being manipulated upward by government to extend a feeling of well being, because once the stock market collapses the game is over. It is the only place not currently under great pressure save gold, silver and commodities. The Democrats continue their political game on tax cuts as income is starting to be taken in 2010, not knowing if tax cuts will remain in place. That could cause massive selling in the market, as Ben Bernanke tells us 5% to 6% unemployment is many years away.

As far as recovery is concerned we are barely to the plus side in spite of trillions being poured into the economy. Only the speculators in banking and on Wall Street are having a good time. This is the same monetary and fiscal management that was witnessed in the late 1920s. Credit growth and financial flows increased exponentially. Almost all economies are making the same mistakes, thus, no one is going to escape. The damage by country will vary, but the fallout will be unmistakable.

Inflation officially is 1.2%. Real inflation is 6% to 7%, but that is not the real current reason for gold, silver and commodities rising. It is the fall and fiat nature of all other currencies. Gold has been telling us that it is now the premier currency in the world. That is what is causing a flight to quality. The dollar rally is again weakening in spite of the plight of Greece, Ireland, Portugal and Spain. This shows an inherent weakness that cannot be overcome soon or easily. Even America’s municipal bond market is a shambles. Major states are in the same straight as the PIIGS in Europe. Only the US federal government can bail them out with more deficit spending. What a tragic state of affairs. Thank goodness we recommended selling municipals more than three years ago. Incidentally, as interest rates rise, which they must do eventually, munis will fall even lower. States are still madly selling debt and have to pay higher yields. They are desperate and they are happy to pay up.



Focus will now again stretch to the dollar, QE2 or QE3, and the state of the US economy. The elitists must be desperate to put academic Bernanke on 60-Minutes. What a bonehead play. He has no presence and is an introvert like so many of those from the ivory towers. A salesman he is not, and he has no real life business experience. It has been a long time coming but high inflation is on its way to compound all the trouble we have just mentioned. It is not going to be pretty as prices rise, wages stagnate and unemployment grows. The punchbowl of extended unemployment benefits looks to be extended and Democrats would like to leave tax cuts in place. The global finance and debt bubbles are growing worldwide as the problems are extended, which can only mean worse results in the end.

Now that Jean Claude Trichet has submitted to quantitative easing Europe is going to be a different place over the next year or two. The past three years have been difficult for the 27 European Union members and of those the 16-euro zone participants. Economies have held up due to a generally lower euro, but even that hasn’t been enough to bring European countries a sustainable recovery. Europe’s present crisis is a bond crisis and now with more money and credit creation on an unlimited basis there is going to be rising inflation. There is now no question that European debt is out of control. As we said long ago the connection between gold and the dollar is now only about 30%. That is why now when the US dollar rallies, so do gold and silver. Gold has broken away from the dollar, because over the past two years in a titanic struggle, which almost all professionals have missed completely, gold has proven again to be the international reserve currency. It is now only a matter of time before any currency calling itself a world reserve currency or trading unit will have to be backed 15% to 25% gold. This needless to say deeply affects Europe and the euro, which is probably now only 5% backed by gold, down from 15% just ten years ago. The fall in reserves is the result of the European Central Bank, participating in a deliberate policy of joining the US Treasury is systematically suppressing gold prices. As it turns out that has not been a very good idea.

The weak euro zone countries are slated for a $1 trillion bailout if necessary, and it probably will be necessary. The ECB and others now want to increase this commitment to an open-ended guarantee of funds. France, Germany and the Netherlands are not very happy about that idea, because they know, as we predicted months ago, that the bailout will cost more than $3 trillion and in that process they too could go bankrupt.

These financially healthy benefactor countries know the present rescues of Greece and Ireland are not working, just as we said they would not work. Even another more than $100 billion commitment by the European Union has not convinced bond buyers that they should continue to be buyers. Overall, Europe, taking in all its parts, is insolvent. The bond vigilantes believe that is the case. That means, as we explained a year ago that the only way to solve Europe’s problems, which are similar to those of many other countries, including the US and the UK, is to default in whole or in part, leave the euro and return to their original currencies, and in a moderate time frame cut government spending by 30% and increase taxes by 30%. This purging should last about five years and normality should then return. The problem with such a classical economic formula is that many banks will become insolvent and that is really what all the bailouts are all about. Under fractional banking these banks have imprudently made poor loans some 40 times their capital asset base, and they are currently insolvent. Now the bankers that caused these problems expect taxpayers of many countries to bail them out. It doesn’t work that way and shouldn‘t work that way. Banks and other financial entities should be allowed to go under. That is the way the system was constructed and it should be allowed to do its work. The elitists who run these financial entities and control governments do not want this to happen. They believe the public should pay for their mistakes. Today we live in a different world of the Internet and talk radio, which dispenses the truth worldwide, so these elitists have a serous problem and that is the public, is not going to let them get away with it this time.

The outcome will be a massive dumping of bonds that will include all bonds, because the system is broken. More money and credit provided by the ECB, the Fed and the Bank of England will only buy time. It won’t create a solution. That is being reflected in the euro, the pound and eventually the US dollar in their relationship with gold. The bond selling will be relentless and endless as buyers disappear. The same thing is in process in the US in regard to municipal bonds from a number of states whose economies are far larger then some European countries.

The reaction was another US dollar rally, which is most likely in its final stages and the same goes for the US stock market. Starting tomorrow, Thursday, there are only 9 days left to affect legislation before the lame duck session ends. That is merciful, because it means less dreadful legislation will be passed. In the meantime gold and silver are warning us that gold is now the world currency that the European, UK and US financial sector crises are not by any means over and the day of reckoning is at hand. The first six months of next year are going to be terrible. The euro zone’s problems are going to be recognized as insurmountable. The days of another international meeting are drawing close. It can be said that if nations do not have such a meeting similar to those at the Smithsonian in the early 1970s, the Plaza Accord of 1985, and the Louvre Accord of 1987 they are doomed. The longer they wait the worse it will be. Both the euro and the dollar are in a declining mode. The euro will in all likelihood not survive the dollar may. The great differences in Europe are the size of the countries and the historical lack of commonality, interest and culture. You may not think so, but the differences are tribal and cultural. An unnatural combination. What you are seeing today we forecasted in 1964, but few were listening.

What should be going on in Europe is bankruptcy for the losers and the deliberately strengthening of the countries that did the right thing and are strong. Why beat a dead horse? The bailouts are to allow the strong in Europe to bailout the bankers. The debt involved in the bailouts can never be paid, just as the US and UK debts can never be paid. What these bureaucrats don’t understand is that the banks have to be allowed to go under and until that happens the situation will worsen.

We know a reconstituted dollar will work albeit painfully, the life of the euro will soon be over. The failure of all three currencies will have a profound impact on the entire world. In the end the winners will be gold and silver. They are the only safe places to be. Not only will you be able to keep your assets, you may become wealthy in the process.

The US manufacturing and services sectors will grow in 2011, with manufacturing revenue expected to increase by 5.6%, the Institute for Supply Management said in a semi-annual forecast released on Tuesday.

Revenue in the non-manufacturing sector, which comprises mostly service sector businesses, is expected to increase by 3.4% next year, ISM said in a statement.

Manufacturing sector capital investment should jump by 14.5% in the year, while noon-manufacturing sector capital investment is expected to rise by 3.7%.

Last week the Dow gained 2.6%, S&P 3%, the Nasdaq 100 1.7% and the Russell 2000 3.2%. This was the result of quantitative easing by the ECB, the European Central Bank. Banks rose 7.7%; broker/dealers 5.2%; cyclicals 5% and transports 3.9%. Consumers rose 2.1%; utilities 1.3%; high tech 2.1%; semis 4.1%; internets 0.8% and biotechs 0.4%. Gold bullion gained $51.00, the HUI gold index rose 7.7%, up 35.3% and the USDX fell 1.5% to 79.14. It fell three days and again failed to surmount .84. It broke out over .80 but was unable to maintain momentum and slid back into decline. Technically this could be telling. Considering the troubles in Europe it is not a good performance.

The 2-year T-bill fell 4 bps to 0.46%, the 10-year T-note rose 14 bps to 3.01% and the 10-year German bund rose 12 bps to 2.85%.

Fed credit increased 0.4 billion to $2.318 trillion. It is up 4.8% annualized and 6% yoy. Fed foreign holdings of Treasury, Agency debt rose $0.5 billion to $3.341 trillion. Custody holdings have increased $386 billion ytd and 14.1% yoy.

M2 narrow money supply grew $10.3 billion to a record $8.809 trillion.

Total money market fund assets fell $3.3 billion to $2.810 trillion. Year-to-date assets have fallen $483 billion, with a one-year decline of $509 billion, or 15.3%.

Total commercial paper outstanding fell $44 billion to $1.021 trillion – it is off $149 billion ytd and $215 billion yoy.

Tentative deal that would extend for two years all the Bush-era income tax breaks set to expire on Dec. 31, continue unemployment benefits for an additional 13 months and a 2 percent employee payroll tax cut and extensions of several tax credits aimed at working families that were included in the stimulus bill.

Outgoing California Governor Arnold Schwarzenegger declared a fiscal emergency on Monday, unveiling a package of proposals of mostly spending cuts aimed at closing the state’s current-year shortfall of $6 billion.

The Republican governor also called lawmakers into a special session on the budget, but Democrats who control the Legislature have signaled they are likely to ignore his plan, as Democratic Governor elect Jerry Brown will assume office next month and present his own budget.

As Americans continue to lose their homes in record numbers, the Federal Reserve is considering making it much harder for homeowners to stop foreclosures and escape predatory home loans with onerous terms.

The Fed’s proposal to amend a 42-year-old provision of the federal Truth in Lending Act has angered labor, civil rights and consumer advocacy groups along with a slew of foreclosure defense attorneys.

They’re not only asking the Fed to withdraw the proposal, they also want any future changes to the law to be handled by the new Consumer Financial Protection Bureau, which begins its work next year.

In a letter to the Fed’s Board of Governors, dozens of groups that oppose the measure, including the National Consumer Law Center, the NAACP and the Service Employees International Union, say the proposal is bad medicine at the wrong time.

“At the depths of the worst foreclosure crisis since the Great Depression, we are surprised that the Fed has proposed rules that would eviscerate the primary protection homeowners currently have to escape abusive loans and avoid foreclosure: the extended right of rescission.”

The trustee seeking assets for victims of Bernard L. Madoff’s global Ponzi scheme filed a lawsuit yesterday seeking $9 billion from a roster of defendants headed by HSBC, the London-based financial giant with hedge fund clients that fed piles of cash into the enormous fraud.

According to the complaint, a hedge fund official once attributed Madoff’s stellar performance which later turned out to be purely fictional to a “magic formula’’ no one else could replicate.

The lawsuit is the third multibillion-dollar complaint the Madoff trustee, Irving H. Picard, has filed against major financial institutions in the past two weeks. It probably will not be the last. Under bankruptcy law, the trustee must file all recovery claims within two years of the initial bankruptcy filing. The court has defined the filing date as Dec. 11, 2008, the day of Madoff’s arrest. He is serving a 150-year sentence.

Picard has until midnight on Saturday either to sue to recover cash withdrawn from Madoff accounts before the Ponzi scheme collapsed or to seek punitive damages from anyone involved in those withdrawals.

The large banks he has sued UBS, JPMorgan Chase, and HSBC were not alone in providing services or marketing products related to the Madoff fraud. Other global banks sold investment vehicles, and some smaller banks provided services to “feeder funds’’ that channeled investments to Madoff.

The latest suit contends the fraud “could not have been accomplished or perpetuated unless the HSBC defendants agreed to look the other way.’’

Representatives of the defendants could not be reached for comment. But lawyers for HSBC units have previously denied they knew of the Madoff fraud.

Federal Reserve Chairman Ben S. Bernanke said the economy is barely expanding at a sustainable pace and that it’s possible the Fed may expand bond purchases beyond the $600 billion announced last month to spur growth.

“We’re not very far from the level where the economy is not self-sustaining,” Bernanke said in an interview broadcast yesterday by CBS Corp.’s “60 Minutes” program. “It’s very close to the border. It takes about 2.5 percent growth just to keep unemployment stable and that’s about what we’re getting.”

Bernanke, in a rare appearance on a nationally broadcast news program, defended the Fed’s efforts to prop up a recovery so weak that only 39,000 jobs were created in November. The unemployment rate last month rose to 9.8 percent, the highest level since April, the Labor Department said on Dec. 3, three days after the Bernanke interview was taped. Republican lawmakers have said the Fed’s policy of “quantitative easing” may do little to help unemployment and may fuel inflation.

“At the rate we’re going, it could be four, five years before we are back to a more normal unemployment rate” of about 5 percent to 6 percent, Bernanke said. The purchase of more bonds than planned is “certainly possible,” said Bernanke, 56. “It depends on the efficacy of the program” and the outlook for inflation and the economy.

Bernanke said a return to a recession “doesn’t seem likely” because sectors of the economy such as housing can’t become much more depressed. Still, a long period of high unemployment could damage confidence and is “the primary source of risk that we might have another slowdown in the economy.”

Lawmakers may embrace plans by President Barack Obama’s debt commission to curb the costs of Social Security and $1 trillion in tax breaks even as comprehensive deficit reduction hinges on whether both parties seek confrontation or accommodation.

While the commission lacked the votes to send its proposal to Congress, bipartisan agreement on the panel will open a debate over the retirement system and the tax breaks, which include the home-mortgage deduction, several lawmakers and analysts said.

Any significant effort confronts what commission co- chairman Erskine Bowles called “the threat pressed upon us by these ever-increasing deficits.” Senate Budget Committee Chairman Kent Conrad, a Democrat, wants Obama to convene a summit, and House Republicans Dave Camp, incoming Ways and Means Committee chairman, and Paul Ryan, who will head the Budget Committee in January, say they’ll use the plan as a basis for hearings on the deficit.

“I put the likelihood at 15 percent that we would have any kind of deficit-reduction package in the next two years,” said Diane Swonk, chief economist for Mesirow Financial Inc. in Chicago. “That’s not that high. But it’s higher than I would have put it two weeks ago.”

Obama thanked the panel for highlighting “the magnitude of the challenge facing us” without embracing specific proposals. White House Budget Director Jack Lew has invited commission members to meet.

New York City’s projected budget deficit for fiscal 2012 may widen by $2 billion, to $4.5 billion, because of cuts in state aid, Budget Director Mark Page said.

Page told the City Council’s Finance Committee today that although it may want to restore some services the mayor proposed to cut as part of a plan to save $1.6 billion, the city would have to make even deeper reductions.

The city’s projected budget for fiscal 2012, which begins July 1, is $65 billion. Mayor Michael Bloomberg last month proposed cutting the city’s 300,000-position payroll by 10,000, including firing more than 6,000.

The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

Illinois, which has the worst-funded pension system among U.S. states, may face further deterioration because contributions will be below the amount needed, even if it sells bonds next year to close the gap, Moody’s Investors Service said in a report today.

The U.S. labor market outlook is improving, with more employers planning to boost payrolls at the start of 2011 and fewer expecting to cut headcounts compared with the same time this year, a private survey showed today.

Milwaukee-based Manpower Inc., the world’s second-largest provider of temporary workers, said today its employment gauge for January through March 2011 rose to 9 after adjusting for seasonal variations, the highest level in more than two years. The net employment outlook was up from a reading of 5 this quarter.

“Companies are feeling the demand, and they’re getting a bit more confident,” Jeffrey Joerres, chief executive officer of Milwaukee-based Manpower, said in an interview. “On a relative basis we still have a ways to go, but to have this kind of hiring intention coming into the first quarter is positive.”

The report signals companies may be ready to increase hiring, giving incomes and spending a lift. Labor Department figures last week showed payrolls increased by 39,000 in November, while the unemployment rate rose to 9.8 percent, the highest since April.

Seven of every 10 employers surveyed said they anticipated staff levels will be unchanged in the first quarter, little changed from the same period in 2010.

Fourteen percent said they expect to expand payrolls, up two points from this year’s first quarter, while 10 percent projected a drop, down from 12 percent.

Job openings in the U.S. rose in October for the first time in three months, reaching the highest level in two years, a government report showed.

Openings increased by 351,000 to 3.36 million, the most since August 2008, the Labor Department said today in Washington. The number of people hired decreased from the prior month and separations also fell.

Today’s report underscores government figures that showed the economy gained 172,000 jobs in October, the biggest payroll increase in five months. A Labor Department report last week showed the world’s largest economy last month created fewer jobs than forecast and the jobless rate climbed.

U.S. Senator Bernard Sanders asked Federal Reserve Chairman Ben S. Bernanke for more information about emergency lending programs after the central bank last week released data on 21,000 transactions.

“Much of the information that you provided on your website raises bigger questions than it answers, and some of the information mandated by the law appears to be missing,” Sanders, the Vermont independent who wrote the provision in the Dodd-Frank Act requiring the Fed disclosures, said in a letter to Bernanke dated today.

Sanders asked for copies of correspondence between some board members of regional Fed Banks and Bernanke or any regional Fed bank president. The request covers Fed board members who also served on the boards of firms that received aid or were employed by those firms.

“It is an obvious conflict of interest when CEOs of banks and large corporations who serve on the Fed’s board of directors receive cheap loans from the Fed,” Sanders said in his letter.

Sanders also asked for data on the individual securities pledged as collateral for Fed loans, saying he was “disappointed that the Fed chose not to disclose all of the specific details.”

Fifteen-year-old students in the U.S. ranked 25th of 34 countries on an international math test and scored in the middle of the pack in science and reading, raising concerns the U.S. isn’t prepared to succeed in the global economy.

Teenagers from South Korea and Finland led in almost all academic categories on the 2009 Program for International Student Assessment, according to the Paris-based Organization of Economic Cooperation and Development, which represents 34 countries. U.S. students ranked 17th in science and 14th in reading. The U.S. government considers the OECD test one of the most comprehensive measures of international achievement.

The results show that U.S. students must improve to compete in a global economy, Education Secretary Arne Duncan said yesterday in a telephone interview. The Obama administration is promoting national curriculum standards and a revamping of teacher pay that stresses performance, rather than credentials and seniority.

“The brutal fact here is there are many countries that are far ahead of us and improving more rapidly than we are,” Duncan said. “This should be a massive wakeup call to the entire country.”

The OECD’s international test, first administered in 2000 and given every three years, aims to measure skills achieved near the end of compulsory schooling. In the U.S., 165 public and private schools and 5,233 students participated in the two- hour paper-and-pencil assessment, given in September and November 2009. It consisted of multiple-choice and open-response questions.

An extension of the U.S. Build America Bond program was left out of a compromise that President Barack Obama struck with congressional leaders to prolong tax cuts enacted in 2001 and 2003, White House officials said.

The president said last night that he agreed to extend all expiring income-tax cuts for two years, as Republicans wanted, in return for advancing jobless benefits and cutting payroll taxes. The Build America program, which subsidizes state and local borrowing costs, was omitted, according to two officials briefed on the plan who spoke on condition of anonymity because the details haven’t been released.

The omission sets back efforts aimed at keeping the program, which is set to expire at year-end, in place. More than $173.6 billion of the taxable securities have been sold since April 2009, making it the fastest-growing segment of the $2.8 trillion municipal market, according to data compiled by Bloomberg. The U.S. pays 35 percent of the interest on the debt.

Department of Homeland Security (DHS) Secretary Janet Napolitano today announced the expansion of the Department’s national “If You See Something, Say Something” campaign to hundreds of Walmart stores across the country launching a new partnership between DHS and Walmart to help the American public play an active role in ensuring the safety and security of our nation.

“Homeland security starts with hometown security, and each of us plays a critical role in keeping our country and communities safe,” said Secretary Napolitano. “I applaud Walmart for joining the ‘If You See Something, Say Something’ campaign. This partnership will help millions of shoppers across the nation identify and report indicators of terrorism, crime and other threats to law enforcement authorities.”

The “If You See Something, Say Something” campaign originally implemented by New York City’s Metropolitan Transportation Authority and funded, in part, by $13 million from DHS’ Transit Security Grant Program is a simple and effective program to engage the public and key frontline employees to identify and report indicators of terrorism, crime and other threats to the proper transportation and law enforcement authorities.

More than 230 Walmart stores nationwide launched the “If You See Something, Say Something” campaign today, with a total of 588 Walmart stores in 27 states joining in the coming weeks. A short video message, available here, will play at select checkout locations to remind shoppers to contact local law enforcement to report suspicious activity.

Over the past five months, DHS has worked with its federal, state, local and private sector partners, as well as the Department of Justice, to expand the “If You See Something, Say Something” campaign and Nationwide SAR Initiative to communities throughout the country including the recent state-wide expansions of the “If You See Something, Say Something” campaign across Minnesota and New Jersey. Partners include the Mall of America, the American Hotel & Lodging Association, Amtrak, the Washington Metropolitan Area Transit Authority, sports and general aviation industries, and state and local fusion centers across the country.

In the coming months, the Department will continue to expand the “If You See Something, Say Something” campaign nationally with public education materials and outreach tools designed to help America’s businesses, communities and citizens remain vigilant and play an active role in keeping the county safe.

The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent. [This is a warning, any of you who have HSAs and have considered terminating them had best do it before the end of the year, that only leaves you 3 weeks.]

Banana Ben did say more QE is possible if inflation remains low and the economy sucks – even though Ben’s QE is producing further concentration of wealth & income and creates more US unemployment because the QE fosters fixed investment in emerging markets, which reduces US jobs and income. Ben said inflation risk is low and he is “100%” sure that he can prevent runaway inflation.

The November Employment Report is an unmitigated disaster.

* Only 39k NFP; 50k private payrolls (168k expected)

* Unemployment rises to 9.8%

* Birth/Death jobs -8k, -23k in 2009

* The Household Survey shows a loss of 173,000 jobs

* -15,000 goods producing jobs

* -13,000 manufacturing jobs (+5k exp), 4th straight decline, survey bias invalidates PMI surveys

* +39,500 temporary jobs

* +65,000 service providing jobs

* -28,100 retail trade jobs

* +54000 services jobs (+53,000 professional and business services)

* -9,000 financial jobs

* +30,000 education and health services jobs

* +11,000 leisure and hospitality jobs

* -11,000 government jobs (state & municipal -13k, federal, +2k)

* (U-6) at 17.0%, peak was 17.4% in October 2009

* Unemployed for 27 weeks+ increased as a % of all jobless, to 41.9%, the highest since August

* About 2.5 million persons were marginally attached to the labor force (1.3m discouraged)

Revision of Seasonally Adjusted Household Survey Data In accordance with usual practice, The Employment Situation release for December 2010, scheduled for January 7, 2011, will incorporate annual revisions in seasonally adjusted unemployment and other labor for series from the household survey. Seasonally adjusted data for the most recent 5 years are subject to revision.

Upcoming Changes to Establishment Survey Data Effective with the release of January 2011 data on February 4, 2011, the establishment survey will begin estimating net business birth/death adjustment factors on a quarterly basis, replacing the current practice of estimating the factors annually. This will allow the establishment survey to incorporate information from the Quarterly Census of Employment and Wages into the birth/death adjustment factors as soon as it becomes available and thereby improve the factors.

Now that most everyone, except intransigent econobulls and Street shills, realize that the BLS’s Birth/Death Model is a farce, the BLS is taking steps to facilitate revisions.

Upcoming Changes to Household Survey Data Effective with the release of January 2011 data on February 4, 2011, two additional data series “Selfemployed workers, unincorporated” and “Self-employed workers, incorporated” will be added to table A-9. As a result, the format of table A-9 will change. Data on the incorporated self-employed have not previously been published on a regular basis. (attempt to remedy the inaccurate B/D Model?)

John Williams: Concurrent-Seasonal-Factor Adjustments Boosted September and October 2010 Payrolls at Expense of February to April 2010 Reporting. Abnormal concurrent seasonal adjustments boosted last month’s reporting of September and October payroll levels, and the resulting revised historical seasonal factors reduced the levels of previously-reported payroll levels in February, March and April as an offset. The problem is that the revisions to the earlier numbers have not been published, so that the September and October jobs gains appear falsely to be standalone results. With today’s reporting, those September and October excesses remained, but November’s muted gain appears to have been something of an offset or catch-up, bringing the seasonals more into balance. Again, these numbers are independent of the pending benchmark. John also articulates why economic data and reporting is worse than usual.

Extraordinary Downturn Has Damaged Reporting Quality Severely. When first introduced in 2004, the BLS’s use of concurrent seasonal factors may have made some sense. As with the Birth-Death Model that was torn apart by the severe loss of jobs, however, the extraordinary duration and depth of the economic contraction, and resulting disruptions to the normal cycles of commerce, have made recalculating seasonal factors every month a fruitless exercise with unstable results. Modern economic reporting never was designed to handle an ongoing economic catastrophe. Unfortunately, the collapse of reporting quality with a number of key series has coincided with a period where accurate and meaningful economic reporting could not be more important.

Durable Goods Orders tanked 3.4%. “Inventories of manufactured durable goods in October, up ten consecutive months, increased $1.5 billion or 0.5 percent to $316.9 billion, revised from the previously published 0.4 percent increase. This followed a 0.7 percent September increase.”

The Durables report, the 2nd decline in the past 3 months also confirms that PMI reports are inaccurate.

Ford, BMW, Toyota Took Secret Government [Fed] Money In the depths of the financial collapse, the U.S. Federal Reserve pumped $3.3 trillion into keeping credit moving through the economy. It eventually lent $57.9 billion to the auto industry including $26.8 billion to Ford, Toyota and BMW.

Gretchen Morgenson: Federal officials have always argued that plowing money into errant banks and trading shops was the best way to rescue the economy, but to Edward J. Kane, professor of economics at Boston College, details of the Fed’s largess are reminiscent of a famous Winston Churchill quotation.

“Never have so few owed so much to so many, and given them so small a return,” Mr. Kane said. We see, for example, how little these institutions have given back to troubled homeowners whose houses are threatened with foreclosure. I see this as somewhat of a measure of the panic in which the Fed was operating, Mr. Kane said. “The way I see it, they were mugged. And through them, the taxpayer was mugged.”

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