Wall Street

What Do You Believe Is America’s Biggest Economic Problem?

Today there are literally dozens of major threats to the U.S. economy. Each one of these threats alone could cause a major economic implosion. The Gulf of Mexico oil spill, the derivatives bubble, the housing crisis, the exploding U.S. national debt and the burgeoning European debt crisis all threaten to push the struggling U.S. economy over the edge. But which one is America’s biggest economic problem? Below, 16 of America’s greatest economic threats are listed in no particular order. The goal of this article is to hear what all of you readers believe is the worst crisis the U.S. economy is facing. If you would like to vote, please choose one of the 16 economic problems listed below (or nominate one of your own) and leave a comment explaining your choice….

#1) The Gulf Of Mexico Oil Spill – The Gulf of Mexico oil spill is already the worst environmental disaster in U.S. history. Is it also about to become the worst economic disaster in U.S. history?

#2) The Derivatives Bubble – The total value of all derivatives worldwide is estimated to be well over a quadrillion dollars. In fact, the danger from derivatives is so great that Warren Buffet has called them “financial weapons of mass destruction”. Will the derivatives bubble end up being the major cause of the next depression?

#3) The Housing Crash – Last month, sales of new homes in the United States dropped to the lowest level ever recorded. Also, the number of U.S. home foreclosures set a record for the second consecutive month in May. Very few Americans are buying houses right now. The subprime mortgage crisis brought the U.S. financial system to the brink of ruin in 2007 and 2008. Is it about to happen again?

#4) The Federal Reserve – Instead of printing and issuing their own currency, the U.S. government actually has to go into more debt before any new currency is created. But the problem is that the money to pay the interest on that debt is not created at that time, so in order to pay that interest the U.S. government will need to create even more currency in the future. That means going into even more debt. Thus the U.S. government is caught in an endless debt spiral that has now become impossible to escape. By basing our economy on mountains of debt and paper money that is backed by nothing, have we essentially guaranteed that our economic system will totally fail someday?

#5) The European Sovereign Debt Crisis – Greece, Spain, Italy, Portugal and a number of other European nations are in real danger of actually defaulting on their debts. If a wave of national defaults starts sweeping the globe, will it end up wiping out the U.S. economy as well?

#6) The Growing Welfare State – For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011. More than 1 in 5 American children now live below the poverty line. Nearly 51 million Americans received $672 billion in Social Security benefits in 2009. How many people can the U.S. government possibly support financially before it finally collapses under the weight?

#7) Illegal Immigration– There are an estimated 30 million illegal immigrants now living in the United States. Not only is this a very serious economic burden, but it is a huge national security issue as well. Federal agents and local law enforcement officials along the border are now openly telling the media that they are outgunned, outmanned and are increasingly being shot at by the Mexican drug cartels that are openly conducting military operations inside the United States. There is now significant Latin American gang activity in almost every large and mid-size city in the United States. Meanwhile, Barack Obama continues to leave the border wide open.

#8) Corruption On Wall Street– The corrupton in the financial system that has been revealed in 2010 has been absolutely mind blowing. Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers and Wachovia are all being investigated by the government at this point. The rampant manipulation of the gold and silver markets was completely blown open by an industry insider, and the U.S. government has finally been convinced to take a look at it. It seems like the more the layers are peeled back, the more corruption we find in the financial community. So how long can the U.S. financial system survive when corruption is seemingly everywhere?

#9) War In The Middle East – The U.S. government has spent hundreds of billions of dollars fighting the war in Iraq. The U.S. government has spent over 247 billion dollars on the war in Afghanistan, and yet June 2010 has now become the deadliest month of the Afghan war for coalition troops. Now there is a very real possibility that war could erupt with Iran. How long can the U.S. government continue to afford to pour hundreds of billions of dollars into wars in the Middle East? Not only that, but if a war with Iran cuts off the flow of oil from the Persian Gulf, what would that do to our economic system that is so highly dependent on oil?

#10) Barack Obama’s Health Care “Reform” – Barack Obama’s pet project is actually the biggest tax increase in U.S. history, it is going to cause the premature retirement of thousands upon thousands of American doctors, and it is going to drive health insurance premiums through the roof. Health insurance companies are going to do very well (they actually helped write the bill), but the rest of us are going to be absolutely crushed by this brutal legislation. So what will happen when the U.S. healthcare system implodes?

#11) Barack Obama’s “Cap And Trade” Carbon Tax Scheme– Rather than focusing all of his attention on fixing the massive oil leak in the Gulf of Mexico, Barack Obama has been busy playing golf and figuring out how he can use this crisis as an opportunity to get his “cap and trade” carbon tax scheme pushed through the U.S. Congress. But will Barack Obama’s obsession with “global warming” end up totally wrecking the U.S. economy?

#12) Globalism – Most American workers had no idea that free trade would mean that they would suddenly be competing for jobs against workers in the Philippines and Malaysia. Today, corporations often find themselves having to choose whether to build a factory in the United States or in the third world. But in the third world workers often earn less than 10% of what American workers earn, corporations are often not required to provide any benefits to workers, and there are usually hardly any oppressive government regulations. How can American workers compete against that?

#13) The Moral Decline Of America – An economy stops working efficiently when people stop feeling safe and when they stop trusting one another. As greed, selfishness, lust, pride, theft and violence continue to explode, how much longer will the U.S. economy be able to function normally?

#14) Genetic Modification – Scientists around the globe have now produced “monster salmon” which grow three times as fast as normal salmon, corn that has been genetically modified to have a pesticide grow inside the corn kernel, cats that glow in the dark and goats that produce spider silk. Is it possible that all of this genetic modification could unleash an environmental hell that could destroy not only the economy but also our entire society?

#15) Unemployment – Tens of millions of Americans are out of work and nearly a million people have lost their unemployment benefits because the U.S. Senate has once again failed to pass a bill that would extend those benefits. In some areas of the United States unemployment has been pushing up towards depression-era levels. For example, a while back the mayor of Detroit said that the real unemployment rate in his city is somewhere around 50 percent. So is the biggest problem that the U.S. economy is facing the fact that so many millions of willing American workers simply cannot find work?

#16) The U.S. National Debt – As of June 1st, the U.S. National Debt was $13,050,826,460,886. According to a U.S. Treasury Department report to Congress, the U.S. national debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015. The total of all government, corporate and consumer debt in the United States is now about 360 percent of GDP. The United States has piled up the biggest mountain of debt in the history of the world. So how long will it be before this mountain of debt collapses?

So of the 16 economic problems listed above, which one do you believe is the biggest threat to the U.S. economy?

Please feel free to leave a comment with your vote….

The Unbelievably Rampant Corruption On Wall Street

In order for a financial system to be able to function properly, it is absolutely essential that the general population has faith in it. After all, who is going to want to invest in the stock market or entrust their money to big financial institutions if there is not at least the perception of honesty and fairness in the financial marketplace? For decades, the American people did have faith in Wall Street. But now that faith is being shattered by a string of recent revelations. It seems as though the rampant corruption on Wall Street is seeping up almost everywhere now. In fact, some of the things that have come out recently have been absolutely jaw-dropping. The truth is that the corruption on Wall Street is much deeper and much more systemic than most of us ever dared to imagine. As the general public digests these recent scandals, it is going to result in a tremendous loss of faith in the U.S. financial system. Once faith in a financial system is lost, it can take years or even decades to get back. So how is the U.S. financial system supposed to work properly when large numbers of people simply do not believe in it anymore?

Just consider some of the recent revelations of Wall Street corruption that have come out recently….

*Bloomberg is reporting that a massive network of big banks and financial institutions have been involved in blatant bid-rigging fraud that cost taxpayers across the U.S. billions of dollars. The U.S. Justice Department is charging that financial advisers to municipalities colluded with Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers, Wachovia and 11 other banks in a conspiracy to rig bids on municipal financial instruments. Apparently what was going on was that it was decided in advance who would win the auctions of guaranteed investment contracts, which public entities purchase with the proceeds from municipal bond sales, and then other intentionally losing bids were submitted in order to make the process look competitive. The U.S. Justice Department claims that this fraud has been industry-wide and has been going on for years. In fact, at least four financial professionals have already pleaded guilty in this case.

*An industry insider has come forward with “smoking gun” evidence that some of the biggest banks have been openly and blatantly manipulating the price of gold and silver. For a time it looked like the federal government was just going to ignore all of this fraud, but after substantial public uproar some action is indeed being taken. In fact, it has been reported that federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals markets.

*New York attorney general Andrew Cuomo is investigating whether eight major Wall Street banks purposely misledthe big credit ratings agencies so that they would give their mortgage-backed securities AAA ratings that they did not deserve.*There has been a ton of legal action surrounding mortgage-backed securities lately. For example, the Justice Department and the Securities and Exchange Commission are now investigating Morgan Stanley as part of a probe into whether Wall Street firms deliberately misled investors regarding the sale of mortgage-related securities.

*Goldman Sachs is getting most of the press about fraud in the mortgage-backed securities market these days. Of course Goldman is strenuously denying that it “bet against its clients” when it changed its position in the housing market in 2007. But we all know the truth at this point. The truth is that Goldman Sachs clearly bet against its clients and was involved in a whole lot of things that were even worse than that. Many did not think the U.S. government would dare go after Goldman, but that is what we are starting to see. U.S. federal prosecutors have opened a criminal investigation into whether Goldman Sachs or its employees committed securities fraud in connection with its trading of mortgage-backed securities, and it will be very interesting to see if anything comes of that investigation.

*But not everyone is being held accountable for their actions. The guy who helped bring down AIG is going to get off scott-free and is going to be able to keep the millions in profits that he made in the process.

*Entire U.S. cities have been victims of this rampant Wall Street fraud. In fact, it is now being alleged that the biggest banks on Wall Street are ripping off some of the largest American cities with the same kind of predatory deals that brought down the financial system in Greece.

*The really sad thing is that fraud is very, very lucrative. Executives at many of the big banks that received large amounts of money during the Wall Street bailouts are being lavished with record bonuses as millions of other average Americans continue to suffer economically. Even the CEOs of bailed-out regional banks are getting big raises. It must be really nice to be them.

So does all of this make you more likely or less likely to invest in the stock market?

Do you think that the American people can see all of this and still believe that the financial system is “fair” and “honest”?

The truth is that Wall Street is full of rip-off artists and fraudsters who don’t even try to hide their greed anymore.

It is as if a thousand junior Gordon Gekkos have been unleashed and they are all trying to be masters of the universe at any cost.

But what they are doing is ripping the heart out of the U.S. financial system.

If people lose faith in the system the system will ultimately fail.

A financial system that allows open fraud and manipulation is operating on borrowed time.

So will the rampant corruption on Wall Street now be cleaned up?

Only time will tell.

But one thing is for certain.

The American people will be watching.

Another Way That The Federal Reserve Makes Massive Gobs Of Money For The Big Banks

When most people discuss how the Federal Reserve benefits the big banks, they usually only focus on the ways that the Federal Reserve directly brings in income. But there is so much more to it than that. The truth is that the Federal Reserve is used in a whole variety of ways to indirectly assist the big banks in making huge gobs of money. One of the ways this is currently being accomplished is through the U.S. Treasury carry trade.

So how does this carry trade work?

Well, it basically has three steps and it works something like this….

#1) Mr. Big Bank goes over to the Federal Reserve and says, “Hey Mr. Federal Reserve – please loan me a big bag of cash for next to nothing.” Of course, the Federal Reserve is more than happy to loan it to him.

#2) Mr. Big Bank then invests the same big bag of cash into U.S. Tresuries which have a much higher interest rate than what Mr. Big Bank just borrowed at. To give you an idea, 10-year U.S. Treasuries are earning around 3 and a half percent right now.

#3) Mr. Big Bank sits back and enjoys the huge amount of risk-free cash which comes pouring in.

This little three step procedure helped enable four of the biggest U.S. banks (Goldman Sachs, JPMorgan Chase, Bank of America and Citigroup) to have a “perfect quarter” during the first quarter of 2010. What that means is that these four banks had zero days of trading losses in the first quarter.

Wouldn’t you like to have a perfect batting average?

Don’t you wish you could pitch a perfect game every time?

Well, it certainly helps when you are being subsidized by the Federal Reserve as Bloomberg recently explained….

The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.

Doesn’t it just seem like whenever we turn around the Federal Reserve is doing something new to “help out” the big banks?

This is just getting ridiculous.

Remember all of that talk about how the U.S. government had to help out Wall Street so that they could help out Main Street?

Well, a ton of money did get injected into the banking system.

In fact, the Federal Reserve pumped hundreds upon hundreds of billions of dollars into the banking system since the beginning of the financial crisis. This has caused the U.S. monetary base to explode….

So did the big banks use all of that money to help out Main Street?

No.

In fact, business lending by the big banks has been falling precipitously.

So what have the big banks been doing with all of that money?

Buying U.S. government debt of course….

So instead of making loans to American businesses who desperately needed it, most of this new money has gone to pump up yet another bubble. This time the bubble is in U.S. Treasuries. Asia Times recently described how this trillion-dollar carry trade in U.S. government securities is setting up a very dangerous situation….

Remarkably, the most aggressive buyers of US government debt during the past several months have been global banks domiciled in London and the Cayman Islands. They borrow at 20 basis points (a fifth of a percentage point) and buy Treasury securities paying 1% to 3%, depending on maturity.

This is the famous “carry trade”, by which banks or hedge funds borrow short-term at a very low rate and lend medium- or long-term at a higher rate. This works as long as short-term rates remain extremely low. The moment that borrowing costs begin to rise, the trillion-dollar carry trade in US government securities will collapse.

But as long as the gravy train of the U.S. Treasury carry trade continues, why should the big banks make risky loans to American businesses and consumers when increasing numbers of them are turning out to be deadbeats anyway?

That is a good question.

Meanwhile, we have this sick situation where the Federal Reserve subsidizes the big banks and enables them to buy up a big chunk of the debt the U.S. government is constantly churning out.

Our national banking resources are increasingly being turned away from building up our once great system of free enterprise, and instead are being devoted to servicing the never ending spiral of government debt and funny money that we have created.

But a bunch of folks down on Wall Street are getting exceedingly rich from this little game, so they certainly aren’t going to complain about it. And as long as the vast majority of Americans continue to stay in the dark about all of this, the bouncing ball will just continue to keep rolling.

The Economic Recovery Is Moving Along Quite Well – For The Boys Down On Wall Street

If you are part of the Wall Street establishment, the economic recovery is moving along quite well. Many of the biggest firms on Wall Street just handed out record-setting bonuses, the Stock Market has been moving up steadily and the DOW is back up to around 11,000. Profits at the top banks have been quite impressive lately. Bank of America, JPMorgan Chase, Citigroup and Wells Fargo combined for first quarter profits of $13.4 billion – the most in almost three years. Yes, life is quite good down on Wall Street these days. People are still buying fast cars, big yachts and homes in the Hamptons. It is almost as if “the greatest financial crisis since the Great Depression” didn’t even happen. Things are quickly getting back to “normal” for the banking elite and to many it seems like there are a lot more smiles down on Wall Street than there have been in a long, long time.

Bank of America’s chief executive officer, Brian T. Moynihan, is being quoted by Reuters as saying that “the worst of the credit cycle is clearly behind us” and that the economic growth we are experiencing is “real”.

JPMorgan CEO Jamie Dimon is quoted as saying that the U.S. economy may be poised for “a strong recovery”.

And why wouldn’t they say these things? Profits are up. Their stock portfolios are up. They are getting record bonuses. They know that if anything does go wrong again that their friends in Washington D.C. will bail them out because they are “too big to fail”.

But for tens of millions of other Americans, the economy seems like it is getting worse than ever. It is hard to explain the gut-wrenching agony that many highly-educated and highly-qualified American workers are going through as they send out hundreds of resumes only to get no response. Or the absolute frustration of only being able to get a very low paying retail job and realizing that it will not even be able to pay the mortgage – much less support an entire family. Or the soul-crushing despair of working two or three jobs and still not being able to pay the bills at the end of the month.

But these are the daily realities that millions of Americans must face now. The truth is that there are not nearly enough jobs for everyone. The number of unemployed Americans per job opening hit 5.5 in February. It is like we are all caught in some bizarre game of musical chairs, and the losers end up destitute and out in the street.

Even many of those who can get jobs find themselves in bad situations. Gallup’s underemployment measure hit 20.0% on March 15th. That was up from 19.7% two weeks earlier and 19.5% at the start of the year. A lot of very educated, very qualified people find themselves slaving away at jobs that high school students are qualified for.

But the ones being hurt the worst by this unemployment epidemic are the poor. Check out the following chart. At the end of 2009, the unemployment rate for those at the top end of the income scale in the United States was about 3%. For those at the bottom of the income scale, the unemployment rate was about 30%….

It isn’t the boys down on Wall Street that are losing their homes and their jobs.

No, they are “too big to fail”.

It is millions of ordinary Americans that are losing their homes and their jobs.

And things keep getting worse.

According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March. This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report in January 2005.

Not only that, but RealtyTrac projects that there will be a total of 4.5 million home foreclosures by the end 2010. If you figure that there are approximately 4 people per household, that is another 18 million people that will be facing the pain of a foreclosure filing.

For many Americans, losing their home to foreclosure is just too much. For example, one man in Ohio actually decided to bulldoze his own home rather than let the bank take it in foreclosure proceedings.

Because of the extreme economic conditions, millions of Americans are in severe pain and are becoming increasingly desperate. In some of the most depressed areas, crime is absolutely spiralling out of control. So far this year in Detroit, car thefts are up 83%, robberies are up 50%, burglaries are up 20% and property destruction is up 42%.

Adding to all of this economic despair is the fact that food and gas prices are starting to shoot up.

In some areas of the United States, people are already paying as much as $3.50 for a gallon of gasoline, and many experts are now predicting that gasoline could hit $4.00 a gallon by the end of 2010.

Not only that, but wholesale food prices rose 2.4% in March, matching the biggest gain in 26 years.

So while the economic recovery is buzzing along quite well down on Wall Street, the reality is that for millions of other Americans things are really hard. In fact, not even the smaller banks are experiencing much of a recovery. The FDIC’s list of problem banks just hit a 17-year high.

No, the main beneficiaries of this “economic recovery” are the boys over on Wall Street. They should enjoy it while it lasts, because even harder economic times are on the way, and the reality is that none of us will be able to completely escape the economic pain that is coming.