The Big Picture – Part 3 (Economic Indicators)
he Fed decided to cut back the $85 billion per month QE purchases of treasuries and toxic mortgages. It says it is down to $55 billion now. But, something smells, as Belgium (a relatively small country with few US treasuries previously) suddenly began purchasing huge amounts of US treasuries. Of note, the Fed was (in the first place) in the market buying the treasuries and toxic mortgages to keep the interest rates low, and to keep everything from collapsing. There were few other buyers (if any). The bond market could collapse if there are no buyers of bonds. I believe the bond market is about 3 times as big as the US stock market, and likely hold pension investments and such. Insufficient buyers for the bonds will lead to lower bond values. This will subsequently lead to buyers demanding higher yields to compensate for the lower bond principle. However, the higher bond interest rates leads to overall increase in rates in the economy. The economy cannot handle higher interest rates – will trigger higher housing foreclosures from owners with adjustable rates. Also, the increase rates will put even more pressure on the US government to pay interests on it`s $17 trillion cash debt – the US cash debt is owed to not only China and Japan, through treasuries, but also about 30% is owed to US citizens (through vehicles like treasuries) and 35% is owned to essential areas/programs such as social security. As you can see, the US cannot default on its debt obligations. As a side note (a sad joke), a good size portion of the US debt is owed to the US Fed. Believe it or not, the US Fed is a private Corporation that was started in 1913. The whole Fed setup seems slimy to me. Owners of the Fed is not public knowledge. Originally, in 1913, the ownership of shares in the Fed was given to the banks, but that was 100 years ago. Shares have transferred hands since then. The Fed print money out of thin air. They lend that money out. They collect interests on the debt. Get this, the Fed then pays out dividends to owners of the Fed shares. They print money out of thin air, lend the money out, collect interest on that money and then pay the interests out to themselves as dividends (and we don`t know who the people are that is getting these fat dividend payments). It seems like a scam to me. Anyway, at the end of the day, the US housing market has been propped by the Fed`s cheap money. As a result, 50% of the houses have been purchased with cash or is under the investment umbrella, using the money created by the Fed. This cheap money came into the housing market and bid up the house prices. These buyers intend on sucker in people taking out mortgages then selling the houses to them at a profit. They intend to make fast money and run. The problem is that if the market starts to drop (if interest rates go up, for example) then the fast money (cash) houses will be dumped back into the market in volumes as these buyers try to get out all at once. This could collapse this flimsy housing market. Also, they are not getting enough housing pickup so people are starting to dabble in sub prime (no money down or little money down) adjustable rate type housing sales again (one of the keys to collapsing the housing market in 2007/2008). In addition, mortgage applications are starting to trend down. Existing home sales are down something like .2% and new home sales are down a whopping 14%. They keep blaming everything completely on the winter weather. It has now become a sad joke. For example, new home sales was actually up in the northeast region of the US. It was the rest of the country that carried the 14% drop in home sales. The bad snowy winter weather was mainly in the northeast, and not as much in the rest of the country, especially the very warm regions. PPI (producer price index) is sluggish. Retail sales is sluggish. The Baltic Dry Index (tracks raw material shipment from a key region in the world) is down by 50% since late last year. In addition, there seems to be inflationary pressures with key items. Oil prices are high. The foodstuff Index (tracks key food items, such as beef) is still up 20% from start of the year. I believe the Fed pullback of $85 billion monthly purchases will pull the US economy back down, if it hasn`t started already. The economy doesn`t have the foundation to stand on its own. Obama hasn`t created enough jobs. And, the few jobs created are mainly part-time and lower paying jobs (i.e. In the hospitality area). People are barely making enough money to survive, never mind having any discretionary income left over to spend on anything else. About 50 million people in the US are on food stamps (dependant on the government for food). About 100 million people in the US are unemployed or on welfare or under employed (can`t find appropriate job, living below the poverty line). The US unemployment rate published is completely bogus. The true rate is likely in the 20`s. The government keep changing the calculation to hide the truth. For example, they don`t count the huge number of people that have completely given up looking for a job. They no longer count these people as unemployed. The GDP (growth) figure is garbage also. They use an inflation deflater that is completely wrong, which then overstates growth. They also recently (last year) changed the GDP calculation to include bogus costs. They also inflate GDP in advance of true sales, by counting high inventory levels as GDP. For example, they stocked up heavily in inventory late last year, which made their GDP number look high, but a lot of that inventory never got sold. Sometimes they go back and restate the GDP figure, but no one pays attention to past data. Thus, the trickery serves them well. The CPI (measures inflation) is worthless also. They highlight and focus on the core inflation figure, but yet they exclude food and energy from that number. Food and energy are essential items and should be at the top of the inflation list. One cannot survive without food, or energy to heat houses in the middle of winter (in northern locations). Of note, the auto sales market was inflated in the same way as the housing market. With regards to the US stock market – completely driven by created money from Fed. I believe that everything will eventually deteriorate to the point where the Fed will have to increase its QE amounts again, or risk a major economic collapse. As a heads up, I will show clear examples in Part 6 why governments and the main street media should never be trusted.